Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended February 28, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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, Tulsa, Oklahoma 74146-6515
(Address of principal executive offices) (Zip Code)
|
Registrant's telephone number: (918) 622-4522
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.20 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
As of May 14, 1997, 5,217,129 shares of common stock were outstanding. The aggregate market value of the voting shares held by non-affiliates of the registrant, based on 3,882,293 shares (total outstanding less shares held by all officers, directors and 401(k) Plan) extended at the closing market price on May 14, 1997, of these shares traded on the Nasdaq National Market, was approximately $22,808,471.
DOCUMENTS INCORPORATED BY REFERENCE
Incorporated Document Location in Form 10-K
--------------------- ---------------------
All information under the caption Part III - Item 10(a) and Item 10(c)
"Election of Directors" and "Compliance
With Section 16(a)" in the Company's
definitive Proxy Statement to be filed
in connection with the Annual Meeting
of Shareholders to be held July 24, 1997.
All information under the caption Part III - Item 11
"Executive Compensation" in the
Company's definitive Proxy Statement
to be filed in connection with the
Annual Meeting of Shareholders to be
held July 24, 1997.
All information under the caption Part III - Item 12
"Voting Securities and Principal
Holders Thereof" in the Company's
definitive Proxy Statement to be
filed in connection with the Annual
Meeting of Shareholders to be held
July 24, 1997.
|
NOTE: Part III - Item 14 is located at pages 14 to 17 herein.
EDUCATIONAL DEVELOPMENT CORPORATION
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED FEBRUARY 28, 1997
Educational Development Corporation ("EDC" or the "Company"), a Delaware corporation with its principal office in Tulsa, Oklahoma, is the sole United States distributer of a line of children's books produced in the United Kingdom by Usborne Publishing Limited. The Company's Home Business Division distributes these books through independent sales consultants who hold book showings in individual homes and through book fairs, fund raisers and directs sales. The Home Business Division also distributes these titles to public and school libraries. The Company's Publishing Division distributes these books to book stores, toy stores, specialty stores and other retail outlets throughout the United States.
The Company was incorporated on August 23, 1965. The Company's original corporate name was Tutor Tapes International Corporation of Delaware. Its name was changed to International Teaching Tapes, Inc. on November 24, 1965, and changed again to the present name on June 24, 1968.
During Fiscal Year (FY) 1997 the Company operated primarily two divisions:
Home Business Division and Publishing Division. The Home Business Division
distributes books through independent consultants who hold book showings in
individual homes, and through book fairs, fund raisers and direct sales. The
Home Business Division also distributes these titles to school and public
libraries. The Publishing Division markets books to book stores, toy stores,
specialty stores and other retail stores. The Library Division ceased
operations July 1, 1996.
Effective July 1, 1996 the Company transferred the responsibility of sales to school and public libraries from the Library Division to the Home Business Division. Management believes that the strong consultant base, presently 5,700 active consultants, in the Home Business Division will greatly enhance the sales to this market segment of the Company's business. The initial response to this change from the Home Business consultants has been excellent. The Company has developed a training program for those consultants who wish to sell in this market. Approximately 850 consultants have gone through this program and earned the designation of Educational Consultant. As a result of this change, the Company will no longer represent other publishers of library books but is confident that the larger base of potential sales representatives should provide increased sales in the library market.
Net Sales for each of the three divisions were as follows:
NET SALES BY DIVISION
- ----------------------------------------------------------------------------------
FY 1997 FY 1996 FY 1995
- -------------------------------------- -------------------- --------------------
Percent Percent Percent
($ M) of Total ($ M) of Total ($ M) of Total
- ----------------------------------------------------------------------------------
Home Business $12,932.2 60.9 $ 9,516.0 49.4 $ 4,425.2 35.8
Publishing 7,864.9 37.0 8,191.1 42.5 6,502.1 52.6
Library 442.4 2.1 1,546.4 8.1 1,426.0 11.6
--------- ----- --------- ----- --------- -----
$21,239.5 100.0 $19,253.5 100.0 $12,353.3 100.0
========= ===== ========= ===== ========= =====
|
As the table above indicates, the Home Business Division has experienced an increase in sales in each of the last three years, and their percentage of sales to the total sales has also increased in each of the last three years. The Company sees this trend continuing as the Home Business Division continues to grow at a greater rate than the Publishing Division. The Publishing Division's sales declined somewhat during FY 1997, as discussed in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operation. The decline in the Library Division sales was due to the closure of the division, as previously discussed.
OPERATING PROFIT BY DIVISION
- ---------------------------------------------------
FY 1997 FY 1996 FY 1995
- ----------------------------- --------- ---------
($ M) ($ M) ($ M)
- ---------------------------------------------------
Home Business $3,150.7 $2,690.1 $1,275.1
Publishing $2,466.6 $3,151.0 $2,414.3
Library $ 178.3 $ 336.4 $ 319.9
|
(none)
Marketing and distribution of books to the retail trade, including book stores, toy stores, specialty stores and other retail outlets as well as school and public libraries, is the principal industry segment in which the Company is engaged. Reference is made to the financial information contained elsewhere in this report for financial results of the Company's operations.
(i) General
The principal product of both the Home Business Division and Publishing Division is a line of children's books produced in the United Kingdom by Usborne Publishing Limited. The Company is the United States distributor of these books. The Company currently offers approximately 900 different titles. The Company considers the political risk of importing books from the United Kingdom to be negligible as the two countries have maintained excellent relations for many years. There likewise is little direct economic risk to the Company in importing books from the United Kingdom as the Company pays for the books in U.S. dollars and is not directly subject to any currency fluctuations. There is risk of physical loss of the books should an accident occur while the books are in transit, which could cause the Company some economic loss due to lost sales should the supply of some titles run out in the event of a lost shipment. The Company considers this to be highly unlikely as this type of loss has yet to occur.
There is some risk involved in having approximately 98% of net sales from the Usborne line. The Company has an excellent working relationship with its foreign supplier Usborne Publishing Limited and can foresee no reason for this to change. Management believes that the Usborne line of books are the best available books of their type and has no plans to sell any other line.
(ii) Home Business Division
The Home Business Division markets the Usborne line of approximately 900 titles through a combination of direct sales, home parties, fund raisers and book fairs sold through a network marketing system. The Division also sells to school and public libraries.
(iii) Publishing Division
The Publishing Division distributes the Usborne line to book stores, toy stores, specialty stores and other retail outlets utilizing an inside telephone sales force as well as independent sales representatives in the field.
(iv) Research and Development
The Company did not incur any research and development expenses during the last three fiscal years.
(v) Marketing
(a) Home Business Division
The Home Business Division markets through commissioned consultants using a combination of direct sales, home parties, fund raisers and book fairs. The division had 5,340 consultants in 50 states at February 28, 1997.
(b) Publishing Division
The Publishing Division markets through commissioned trade representatives who call on book, toy and specialty stores; and through marketing by telephone to the trade as well as to school and public libraries. This Division markets to approximately 12,000 book, toy and specialty stores. Significant orders have been received from major book chains. During fiscal year 1997 the division continued to make inroads into mass merchandising outlets such as drug, department and discount stores.
(vi) Competition
(a) Home Business Division
The Home Business Division faces stiff competition from several other direct selling companies which have larger financial resources. Federal and state funding cuts to schools affect the availability of funds to the school libraries. The Company is unable to estimate the effect of these funding cuts on the division's future sales to school libraries, because the magnitude of funding cuts has yet to be determined by Congress. Management believes its superior product line will enable this Division to be highly competitive in its market area.
(b) Publishing Division
The Publishing Division faces strong competition from large U.S. and international companies which have much larger financial resources. Industry sales are over $2.3 billion annually. Publishing Division's sales are less than 1/2 of 1% of industry sales. Competitive factors include product quality, price and deliverability. Possible funding cuts to schools would not impact the Publishing Division as it does not sell to this market. Management believes it can compete well in its market area.
(vii) Seasonality
(a) Home Business Division
The level of sales for Home Business Division is greatest during the Fall as individuals prepare for the Holiday season.
(b) Publishing Division
The level of shipments of the Company's books is greatest in the Fall while retailers are stocking up for Holiday sales.
(viii) Government Funding
Local, state and Federal funds are important to the Home Business Division but not to the Publishing Division. In many cities and states in which the Company does business, school funds have been severely cut.
(ix) Trademarks, Copyrights and Patents
(none)
(x) Employees
As of May 1, 1997, the Company had 53 full-time employees and 34 part-time employees. The Company believes its relations with its employees to be good.
The Company moved its operations and executive offices on March 1, 1986, to 10302 E. 55th PL, Tulsa, Oklahoma. The Company leases approximately 94,000 square feet of office and warehouse space under a 5 year renewable lease which expires February 28, 1999.
The Company's operating facility is maintained in good condition and is adequately insured. Equipment items are well maintained and in good operating condition consistent with the requirement of the Company's business. The Company believes that its operating facility meets both its present need and its needs for future expansion.
The Company is not a party to any material pending legal proceedings.
There were no matters submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders of the Company.
The common stock of EDC is traded on the Nasdaq National Market (symbol-- EDUC). The high and low closing quarterly common stock quotations for fiscal years 1997 and 1996, as reported by the National Association of Securities Dealers, Inc., as adjusted for the two-for-one stock split, were as follows:
1997 1996
------------- ---------------
Period High Low High Low
- ------ ------ ----- ------ -------
1st Qtr.. 12-3/4 8-3/4 7-9/16 5-5/8
2nd Qtr.. 9-7/8 6 9 5-1/2
3rd Qtr.. 8-1/8 4-7/8 11-7/8 7-1/2
4th Qtr.. 8-1/4 5-3/4 13-1/8 8-15/16
|
The number of shareholders of record of EDC's common stock at May 13, 1997 was 1029.
No dividends were paid in fiscal years 1997 and 1996. In lieu of paying dividends in the future, the Company intends to invest earnings in Company growth.
YEARS ENDED FEBRUARY 28 (29)
-------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ---------- ----------
Net Sales $21,239,507 $19,253,467 $12,353,257 $7,916,527 $6,225,751
----------- ----------- ----------- ---------- ----------
Income From Continuing
Operations $ 1,630,088 $ 1,805,335 $ 1,163,647 $ 631,350 $ 422,099
----------- ----------- ----------- ---------- ----------
Net Earnings $ 1,630,088 $ 1,478,714 $ 1,171,786 $ 893,651 $ 564,499
----------- ----------- ----------- ---------- ----------
Income From Continuing
Operations Per Common
Share (Primary and
Fully Diluted) $ .31 $ .34 $ .22 $ .13 $ .09
----------- ----------- ----------- ---------- ----------
Net Earnings Per Common
Share (Primary and
Fully Diluted) $ .31 $ .28 $ .22 $ .18 $ .12
----------- ----------- ----------- ---------- ----------
Total Assets $13,365,369 $16,422,068 $ 9,665,378 $5,438,709 $4,577,639
----------- ----------- ----------- ---------- ----------
Long Term Obligations -- -- $ 1,000,000 $ 7,673 $ 48,598
----------- ----------- ----------- ---------- ----------
|
There were no cash dividends declared during fiscal years 1993 through 1997.
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.
The Home Business Division's sales increased 36% in FY 1997 compared with FY 1996. This was due to the number of active consultants, presently 5,700, who are actively selling the books through home shows, book fairs, fund raisers and direct sales. The Division continued to offer new and exciting consultant incentive programs during FY 1997, including several travel contests. These programs combined with various specials offered during the year helped attract and retain consultants. Regional training seminars are held throughout the country to train supervisors and consultants and exchange new ideas with other supervisors and consultants. The Division held its first National Seminar in April, 1997 with approximately 300 consultants and top supervisors in attendance. This 4-day event offered training and motivational sessions for those in attendance and was an excellent beginning to FY 1998. Management expects sales for FY 1998 to exceed those of FY 1997.
The Publishing Division's sales decreased 4% in FY 1997 over FY 1996. Sales nationwide in the publishing industry have declined. Management believes the Company has a superior product and can maintain its market share in this competitive market. The Company has an aggressive in-house telephone sales force which maintains contact with over 10,000 customers. The telemarketing staff opened 580 new accounts during FY 1997 versus 609 new accounts in FY 1996. The rack program continues to be popular with 369 new racks placed during FY 1997 versus 201 in FY 1996. There are now approximately 2,750 racks in place in bookstores throughout the country. The Company offers special pricing with the purchase of a display rack. This rack is 6 feet tall with a 21" x 21" base and 5 adjustable shelves. The rack holds approximately 220 books and offers the retail merchant an excellent method of displaying many of the Company's titles. These racks serve as a marketing tool for retail merchants. The Company attends several major national trade shows to further enhance product visibility. For these reasons, Management is optimistic that the Publishing Division can maintain its market share.
As discussed under General Development of Business, the Library Division was closed effective July 1, 1996 and the responsibility for these sales transferred to the Home Business Division.
Cost of sales increased 2.9% for FY 1997 over FY 1996. Cost of sales as a percent of gross sales was 26.6% in FY 1997 compared with 27.2% in FY 1996. Cost of sales as a percentage of gross sales fluctuates depending upon the mix of products sold during a given year. Management believes that its cost of sales sold in FY 1998 will remain consistent with 1997 levels.
Operating and selling expenses increased 23.7% for FY 1997 over FY 1996. As a percent of gross sales these costs were 12.3% in FY 1997 and 10.5% in FY 1996. Contributing to the increases in selling and operating expenses were increased sales incentives in the Home Business Division and increased credit card fees in the Home Business Division, both the direct result of increased sales in this Division. Building rental costs and utilities also increased as the Company added additional warehouse space during FY 1997. Management expects operating and selling expense to be approximately 10% - 12% of gross sales for FY 1998.
Sales commissions increased 22.9% during FY 1997 over FY 1996. As a percent of gross sales, these costs were 14.9% in FY 1997 compared with 12.7% in FY 1996. Sales commission as a percentage of gross sales is determined by the product mix sold, as the commission rates vary with the product being sold and the Division which makes the sale. The increase in sales by the Home Business Division, which has a higher commission percentage, resulted in the increase in commission expense during FY 1997. In October, the Home Business Division put into place a revised and improved commission structure, which will reduce commission expense as a percent of Home Business Division sales. Management expects the full impact of this change to be reflected in FY 1998. Management anticipates that sales commissions will be approximately 14% - 15% of gross sales for FY 1998.
General and administrative costs increased during FY 1997 by 42.8% when compared with FY 1996. As a percentage of gross sales, these expenses were 4.2% in FY 1997 and 3.1% in FY 1996. General and administrative costs are not always directly affected by sales, so comparison of these expenses as a percentage of gross sales can be misleading. Contributing to the increased general and administrative costs was depreciation, due to the addition of new computer equipment, and the addition of staff due to increased volumes. Management expects general and administrative expenses for FY 1998 will be approximately 3.5% to 4.5% of gross sales.
Interest expense increased 15.8% during FY 1997 when compared with FY 1996. As a percentage of gross sales, interest expense was 1.1% for both FY 1997 and FY 1996. The increase in interest expense was due primarily to the increased borrowing levels during FY 1997 when compared with FY 1996.
The Home Business Division's sales increased 117% in FY 1996 compared with FY 1995. This was due to a 147% increase in the number of independent consultants distributing the books. The Division continued to offer new and exciting consultant incentive programs during FY 1996, including several travel contests. These programs combined with various specials offered during the year helped attract and retain consultants. The Division continued to hold several training seminars during the year to train supervisors and to exchange ideas with other supervisors.
The Publishing Division's sales increased 25% in FY 1996 over FY 1995. This increase was attributable to an increase in volume and an increase in market penetration. Orders continued to increase in size with larger quantities per order as well as multiple titles being ordered. The rack program continued to increase with 201 new racks placed during FY 1996 in bookstores throughout the country. The Division had 2383 racks in place in bookstores. The Company offered special pricing with the purchase of a display rack. The telemarketing staff opened 609 new accounts during FY 1996 vs 811 new accounts in FY 1995.
The Library Services Division's sales increased 8% in FY 1996 compared with FY 1995. Management believed this increase was due primarily to increased market penetration by the commissioned sales force. The Division represented 20 other publishers in addition to the Usborne line of titles. Sales in the Library Division continue to increase yearly over the previous year, but the percentage of total net sales produced by the Library Division declined in fiscal year 1996 when compared with fiscal year 1995. As discussed earlier, competition in this market is very competitive and subject to the availability of government funding.
Cost of sales increased 46% for FY 1996 over FY 1995. Cost of sales as a percent of gross sales was 27.2% in FY 1996 compared with 27.1% in FY 1995. Cost of sales as a percentage of gross sales fluctuates depending upon the mix of products sold.
Operating and selling expenses increased 37% for FY 1996 over FY 1995. As a percent of gross sales these costs were 10.5% in FY 1996 compared to 11.1% in FY 1995. Sales incentives increased 167% in the Home Business Division as a result of the increase in sales.
Sales commissions increased 101% during FY 1996 over FY 1995. As a percent of gross sales, these costs were 12.7% in FY 1996 compared with 9.2% in FY 1995. Sales commission as a percentage of gross sales is determined by the product mix being sold, as the commission rates vary with the product being sold and the Division which makes the sale. The increase in sales by the Home Business Division, which has a higher commission percentage, resulted in higher commission cost.
General and administrative costs increased 20.5% in FY 1996 compared with FY 1995. As a percentage of gross sales, these costs were 3.1% in FY 1996 versus 3.7% in FY 1995. General and administrative costs are not always directly affected by sales, so comparison of these costs as a percentage of sales can be misleading. Salaries increased 23% as additional staff was added in the financial and administrative areas.
Interest expense increased $287,897 during FY 1996 compared with FY 1995. As a percentage of gross sales, interest expense was 1.1% in FY 1996 and negligible in FY 1995. This increase was due primarily to the increased borrowing levels during FY 1996 and a higher average interest rate.
The Home Business Division's sales increased 169% in FY 1995 compared with FY 1994. This was due to a 110% increase in the number of independent consultants distributing the books. The Division continued to offer new and exciting consultant incentive programs during FY 1995, including several travel contests. These programs combined with various specials offered during the year helped attract and retain consultants. The Division held several training seminars during the year to train supervisors and to exchange ideas with other supervisors.
The Publishing Division's sales increased 24% in FY 1995 over FY 1994. This increase was attributable to an increase in volume and an increase in market penetration. Orders increased in size with larger quantities per order as well as multiple titles being ordered. The rack program continued to increase with 266 new racks placed during FY 1995 in bookstores throughout the country. The telemarketing staff opened 811 new accounts during FY 1995 vs 1,004 new accounts in FY 1994.
The Library Services Division's sales increased 42% in FY 1995 compared with FY 1994. Management believed this increase was due primarily to increased market penetration by the commissioned sales force. The Division represented 20 other publishers in addition to the Usborne line of titles.
Cost of sales increased 49% for FY 1995 over FY 1994. Cost of sales as a percent of gross sales was 27.1% in FY 1995 compared with 27.6% in FY 1994. Cost of sales as a percentage of gross sales fluctuates depending upon the mix of products sold.
Operating and selling expenses increased 34.4% for FY 1995 over FY 1994. As a percent of gross sales these costs were 11.1% in FY 1995 compared to 12.6% in FY 1994. Travel costs increased 96% as the Home Business Division sponsored several consultant travel contests throughout the year.
Sales commissions increased 117% during FY 1995 over FY 1994. As a percent of gross sales, these costs were 9.2% in FY 1995 compared with 6.5% in FY 1994. Sales commission as a percentage of gross sales is determined by the product mix being sold, as the commission rates vary with the product being sold and the Division which makes the sale. The increase in sales by the Home Business Division, which has a higher commission percentage, resulted in higher commission cost.
General and administrative costs increased 24.7% in FY 1995 compared with FY 1994. As a percentage of gross sales, these costs were 3.7% in FY 1995 versus 4.5% in FY 1994. General and administrative costs are not always directly affected by sales, so comparison of these costs as a percentage of sales can be misleading.
Interest expense decreased 66% during FY 1995 compared with FY 1994. As a percentage of gross sales, interest expense was negligible in FY 1995 and in FY 1994. This decline was due primarily to the decreased borrowing levels during FY 1995.
Working capital increased 25% to $7.4 million at fiscal year end 1997 over fiscal year end 1996. A reduction in payables and short term bank debt, partially offset by reduced inventory and receivables were the principal contributors to the increase in working capital. The Company pays interest on its bank promissory note monthly from current cash flows. Management expects its financial position to continue to improve during FY 1998 and to have increased working capital at fiscal year end 1998.
Management believes the Company's liquidity at February 28, 1997, to be adequate. There are no known demands, commitments, events or uncertainties that would result in a material change in the Company's liquidity during FY 1998. Capital expenditures are expected to be less than $750,000 in FY 1998. These expenditures would consist primarily of software and hardware enhancements to the Company's existing data processing equipment, leasehold improvements and additions to the warehouse shipping system.
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 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.
Effective June 30, 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 payable monthly (8.25% at February 28, 1997). 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. At February 28, 1997 the Company had available $6,990,000 under this credit agreement.
The Company obtained and uses the credit facility to fund routine operations. Payments are made from current cash flows. The Company is negotiating to renew this facility when it matures June 30, 1997. The Company believes its borrowing capacity under this line to be adequate for the next several years.
The Company generated cash from operating activities during FY 1997. Accounts receivable declined in FY 1997 as the Company placed emphasis on collection efforts and the tightening of credit controls. The Company plans to continue to maximize its collection efforts in order to maintain cash flows.
Inventories decreased during FY 1997 from the levels of FY 1996 as the Company streamlined its purchasing procedures. The Company continues to evaluate its purchasing system in order to ensure that adequate levels are on hand to support increased sales as well as to meet the six to eight month resupply requirements of its principal supplier. The Company expects inventory levels to increase moderately each year as new titles are added to the product line.
The major component of accounts payable is the amount due the Company's principal supplier. The reduction in inventory purchases also reduces the accounts payable to the suppler. As inventory levels increase moderately each year, accounts payable will also increase moderately each year. Management anticipates cash flows from operating activities to increase in the foreseeable future.
Other current liabilities increased in FY 1997 as the direct result of payments received for product which was not shipped until FY 1998. The revenue for these products was recognized in FY 1998 when the product was shipped.
Cash used in investing activities increased in FY 1997 as the Company made enhancements to its computer system and added additional equipment to the warehouse shipping system.
Net cash provided by financing activities declined in FY 1997 as the Company was able to pay down the bank promissory note due to improved cash flows during the year.
The information required by this item begins at page F-1, following page 18 hereof.
There have been no disagreements on any matter of accounting principles or practices or financial statement disclosure within the twenty-four months prior to February 28, 1997.
The information required by this item is furnished by incorporation by reference to all information under the caption "Election of Directors" in the Company's definitive Proxy Statement to be filed in connection with the annual Meeting of Shareholders to be held on July 24, 1997.
The following information is furnished with respect to each of the executive officers of the Company, each of whom is elected by and serves at the pleasure of the Board of Directors.
Office
Name Office Held Since Age
---- ------ ---------- ---
Randall W. White Chairman of the Board, 1986 55
President and Treasurer
W. Curtis Fossett Controller and 1989 51
Corporate Secretary
|
The information required by this item is furnished by incorporation by reference to all information under the caption "Compliance With Section 16 (a)" in the Company's definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 24, 1997.
The information required by this item is furnished by incorporation by reference to all information under the caption "Executive Compensation" in the Company's definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 24, 1997.
The information required by this item is furnished by incorporation by reference to all information under the caption "Voting Securities and Principal Holders Thereof" in the Company's definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 24, 1997.
There are no relationships or related transactions required to be disclosed.
(a) The following documents are filed as part of this a report:
1. Financial Statements Page
-------------------- ----
Independent Auditors' Report F-1
Balance Sheets - February 28, 1997 and
February 29, 1996 F-2
Statements of Earnings - Years ended
February 28, 1997, February 29, 1996
and February 28, 1995 F-3
Statements of Changes in Shareholders' Equity -
Years ended February 28, 1997,
February 29, 1996 and February 28, 1995 F-4
Statements of Cash Flows -
Years ended February 28, 1997,
February 29, 1996 and February 28, 1995 F-5
Notes to Financial Statements F-6-F-14
|
Schedules have been omitted as such information is either not required or is included in the financial statements.
2. Exhibits
3.1 Restated Certificate of Incorporation of the Company dated April 26, 1968, Certificate of Amendment there to dated June 21, 1968 and By-Laws of the Company are incorporated herein by reference to Exhibit 1 to Registration Statement on Form 10 (File No. 0-4957).
3.2 Certificate of Amendment of Restated Certificate of Incorporation of the Company dated August 27, 1977 and By-Laws of the Company as amended are incorporated herein by reference to Exhibits 20.1 and 20.2 to Form 10-K for fiscal year ended February 28, 1981 (File No. 0-4957).
3.3 Certificate of Amendment of Restated Certificate of Incorporation of the Company dated November 17, 1986, is incorporated herein by reference to Exhibit 3.3 to Form 10-K for fiscal year ended February 28, 1987 (File No. 0-4957).
3.4 Certificate of Amendment of Restated Certificate of Incorporation of the Company dated March 22, 1996.
4.1 Specimens of Common Stock Certificates are incorporated herein by reference to Exhibits 3.1 and 3.2 to Registration Statement on Form 10-K (File No. 0-4957).
10.1 Educational Development Corporation Incentive Stock Option Plan of 1981, is incorporated herein by reference to Exhibit 10.9 to Form 10-K for fiscal year ended February 28, 1982 (File No. 0-4957).
10.2 Agreement by and among the Company, Usborne Publishing Ltd., and Hayes Books, Inc., dated May 17, 1983, is incorporated herein by reference to Exhibit 10.16 to Form 10-K for fiscal year ended February 29, 1984 (File No. 0-4957).
10.3 Settlement Agreement dated August 7, 1986, by and between the Company and Hayes Publishing Ltd., Cyril Hayes Books, Inc. (formerly named Hayes Books, Inc.), and Cyril Hayes is incorporated herein by reference to Exhibit 10.1 to Form 8-K dated August 7, 1986 (File No. 0-4957).
10.4 Usborne Agreement-Contractual agreement by and between the Company and Usborne Publishing Limited dated November 25, 1988, is incorporated herein by reference to Exhibit 10.12 to Form 10-K dated February 28, 1989 (File No. 0-4957).
10.5 Party Plan-Contractual agreement by and between the Company and Usborne Publishing Limited dated March 14, 1989, is incorporated herein by reference to Exhibit 10.13 to Form 10-K dated February 28, 1989 (File No. 0-4957).
10.6 Loan Agreement dated January 18, 1990, by and between the Company and State Bank & Trust, N.A., Tulsa, OK (formerly WestStar Bank, N.A., Bartlesville, OK), is incorporated herein by reference to Exhibit 10.11 to Form 10-K dated February 28, 1990 (File No. 0- 4957).
10.7 Lease Agreement by and between the Company and James D. Dunn dated March 1, 1991, is incorporated herein by reference to Exhibit 10.12 to Form 10-K dated February 28, 1991 (File No. 0-4957).
10.8 Agreement for Exchange of Contract Rights and Securities by and between the Company and Robert D. Berryhill dated October 1, 1990, is incorporated herein by reference to Exhibit 10.1 to Form 10-K dated February 28, 1991 (File No. 0-4957).
10.9 Amendment dated January 1, 1992 to Usborne Agreement -Contractual agreement by and between the Company and Usborne Publishing Limited is incorporated herein by reference to Exhibit 10.13 to Form 10-K dated February 29, 1992 (File No. 0-4957).
10.10 First Amendment dated January 31, 1992 to Loan Agreement between the Company and State Bank & Trust, N.A., Tulsa, OK, (formally WestStar Bank, N.A., Bartlesville, OK,) is incorporated herein by reference to Exhibit 10.14 to Form 10-K dated February 29, 1992 (File No. 0-4957).
10.11 Educational Development Corporation 1992 Incentive Stock Option Plan is incorporated herein by reference to Exhibit 4(c) to Registration Statement on Form S-8 (File No. 33-60188).
10.12 Second Amendment dated June 30, 1992 to Loan Agreement between the Company and State Bank & Trust, N.A., Tulsa, OK, (formally WestStar Bank, N.A., Bartlesville, OK,) is incorporated herein by reference to Exhibit 10.12 to Form 10-KSB dated February 28, 1994 (File No. 0-4957).
10.13 Third Amendment dated June 30, 1993 to Loan Agreement between the Company and State Bank & Trust, N.A., Tulsa, OK, (formally WestStar Bank, N.A., Bartlesville, OK,) is incorporated herein by reference to Exhibit 10.13 to Form 10-KSB dated February 28, 1995 (File No. 0-4957).
10.14 Fourth Amendment dated June 30, 1994 to Loan Agreement between the Company and State Bank & Trust, N.A, Tulsa, OK, is incorporated herein by reference to Exhibit 10.13 to Form 10-KSB dated February 28, 1995 (File No. 0-4957).
10.15 Fifth Amendment dated March 13, 1995 to Loan Agreement between the Company and State Bank & Trust, N.A., Tulsa, OK, is incorporated herein by reference to Exhibit 10.13 to Form 10-KSB dated February 28, 1995 (File No. 0-4957).
10.16 Sixth Amendment dated March 27, 1995 to Loan Agreement between the Company and State Bank & Trust, N.A., Tulsa, OK, is incorporated herein by reference to Exhibit 10.13 to Form 10-KSB dated February 28, 1995 (File No. 0-4957).
10.17 Seventh Amendment dated April 27, 1995 to Loan Agreement between the Company and State Bank & Trust, N.A., Tulsa, OK, is incorporated herein by reference to Exhibit 10.13 to Form 10-KSB dated February 28, 1995 (File No. 0-4957).
10.18 Amendment dated February 28, 1995 to the Lease Agreement by and between the Company and James D. Dunn, is incorporated herein by reference to Exhibit 10.13 to Form 10-KSB dated February 28, 1995 (File No. 0-4957).
10.19 Eighth Amendment Dated July 27, 1995 to Loan Agreement between the Company and State Bank & Trust, N.A., Tulsa, OK is incorporated herein by reference to Exhibit 10.19 to Form 10-KSB dated February 29, 1996 (File No. 0-4957).
10.20 Restated Loan Agreement dated September 25, 1995 between the Company and State Bank & Trust, N.A., Tulsa, OK is incorporated herein by reference to Exhibit 10.20 to Form 10-KSB dated February 29, 1996 (File No. 0-4957).
*10.21 Restated Loan Agreement dated June 10, 1996 between the Company and State Bank & Trust, N.A., Tulsa, OK.
*11. Earnings per share computation.
(b) No reports on Form 8-K were filed during the last quarter of the period covered by this report.
Pursuant to the requirements of Section 13 or 15(b) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
EDUCATIONAL DEVELOPMENT CORPORATION
Date: May 28, 1997 By /s/ W. Curtis Fossett
------------------------------------
W. Curtis Fossett
Principal Financial
and Accounting Officer
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Date: May 28, 1997 /s/ Randall W. White
------------------------------------
Randall W. White
Chairman of the Board
President, Treasurer and
Director
May 28, 1997 /s/ Robert D. Berryhill
------------------------------------
Robert D. Berryhill, Director
May 28, 1997 /s/ G. Dean Cosgrove
------------------------------------
G. Dean Cosgrove, Director
May 28, 1997 /s/ James F. Lewis
------------------------------------
James F. Lewis, Director
May 28, 1997 /s/ John M. Lare
------------------------------------
John M. Lare, Director
May 28, 1997 By /s/ W. Curtis Fossett
------------------------------------
W. Curtis Fossett
Principal Financial
and Accounting Officer
|
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Educational Development Corporation:
We have audited the accompanying balance sheets of Educational Development Corporation as of February 28, 1997 and February 29, 1996, and the related statements of earnings, shareholders' equity and cash flows for each of the three years in the period ended February 28, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company at February 28, 1997 and February 29, 1996, and the results of its operations and its cash flows for each of the three years in the period ended February 28, 1997 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
May 2, 1997
Tulsa, Oklahoma
EDUCATIONAL DEVELOPMENT CORPORATION
BALANCE SHEETS
FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
- -------------------------------------------------------------------------------------------------------------------------
1997 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 82,153 $ 215,963
Accounts receivable, less allowances
for doubtful accounts and sales returns 2,032,688 2,755,484
Inventories - Net 10,048,457 11,999,873
Prepaid expenses 55,697 109,661
Income taxes receivable 124,092 352,323
Deferred income taxes 159,200 168,300
-------------- --------------
Total current assets 12,502,287 15,601,604
PROPERTY AND EQUIPMENT - Net 848,478 815,362
OTHER ASSETS - Net 14,604 5,102
-------------- --------------
$ 13,365,369 $ 16,422,068
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank $ 2,010,000 $ 5,820,000
Accounts payable 2,305,067 3,215,691
Accrued salaries and commissions 214,198 270,864
Other current liabilities 563,059 383,625
-------------- --------------
Total current liabilities 5,092,324 9,690,180
SHAREHOLDERS' EQUITY:
Common stock, $.20 par value; Authorized 6,000,000 shares;
Issued 5,424,240 and 5,398,240 shares; Outstanding 5,200,697
and 5,191,498 shares 1,084,848 1,079,648
Capital in excess of par value 4,403,242 4,391,339
Retained earnings 3,418,431 1,788,343
-------------- --------------
8,906,521 7,259,330
Less treasury stock, at cost (633,476) (527,442)
-------------- --------------
8,273,045 6,731,888
-------------- --------------
$ 13,365,369 $ 16,422,068
============== ==============
|
See notes to financial statements.
EDUCATIONAL DEVELOPMENT CORPORATION
STATEMENTS OF EARNINGS
YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996, AND FEBRUARY 28, 1995
- ----------------------------------------------------------------------------------------------
1997 1996 1995
GROSS SALES $ 31,547,007 $ 30,039,963 $ 20,616,152
Less discounts and allowances (10,307,500) (10,786,496) (8,262,895)
------------ ------------ ------------
Net sales 21,239,507 19,253,467 12,353,257
COST OF SALES 8,396,060 8,155,725 5,587,402
------------ ------------ ------------
Gross margin 12,843,447 11,097,742 6,765,855
------------ ------------ ------------
OPERATING EXPENSES:
Operating and selling 3,883,438 3,138,851 2,289,725
Sales commissions 4,699,279 3,824,500 1,899,317
General and administrative 1,315,012 920,786 764,351
Interest 344,966 297,849 9,952
------------ ------------ ------------
10,242,695 8,181,986 4,963,345
------------ ------------ ------------
OTHER INCOME 33,436 2,279 59,137
------------ ------------ ------------
EARNINGS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES 2,634,188 2,918,035 1,861,647
INCOME TAXES 1,004,100 1,112,700 698,000
------------ ------------ ------------
EARNINGS FROM CONTINUING OPERATIONS 1,630,088 1,805,335 1,163,647
DISCONTINUED OPERATIONS, NET OF TAX:
Earnings (loss) from operations - (25,637) 8,139
Loss on disposal - (300,984) -
------------ ------------ ------------
- (326,621) 8,139
------------ ------------ ------------
NET EARNINGS $ 1,630,088 $ 1,478,714 $ 1,171,786
============ ============ ============
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE:
Primary and fully diluted:
Earnings from continuing operations $ 0.31 $ 0.34 $ 0.22
Discontinued operations - (0.06) -
------------ ------------ ------------
Net earnings $ 0.31 $ 0.28 $ 0.22
============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING -
Primary and fully diluted 5,353,938 5,338,834 5,223,490
============ ============ ============
|
See notes to financial statements.
EDUCATIONAL DEVELOPMENT CORPORATION
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock
(par value $.20 per share)
------------------------- Retained Treasury Stock
Number of Capital in Earnings --------------------------- Share-
Shares Excess of (Accumulated Number of holders'
Issued Amount Par Value Deficit) Shares Amount Equity
BALANCE, MARCH 1, 1994 2,329,120 $ 465,824 $ 4,449,767 $ (862,157) 96,299 $ (84,076) $ 3,969,358
Exercise of options at $1.875/share 10,000 2,000 16,750 - - - 18,750
Exercise of options at $0.625/share 5,000 1,000 2,125 - - - 3,125
Sales of treasury stock - - 100,483 - (10,426) 9,102 109,585
Net earnings - - - 1,171,786 - - 1,171,786
--------- ----------- ----------- ----------- -------- ----------- -----------
BALANCE, FEBRUARY 28, 1995 2,344,120 468,824 4,569,125 309,629 85,873 (74,974) 5,272,604
Exercise of options at $6.25/share 25,000 5,000 151,250 - - - 156,250
Exercise of options at $3.00/share 5,000 1,000 14,000 - - - 15,000
Exercise of options at $2.75/share 30,000 6,000 76,500 - - - 82,500
Exercise of options at $1.875/share 15,000 3,000 25,125 - - - 28,125
Exercise of options at $1.25/share 15,000 3,000 15,750 - - - 18,750
Exercise of options at $0.50/share 265,000 53,000 79,500 - - - 132,500
Issuance of treasury stock - - (87) - (100) 87 -
Purchase of treasury stock - - - - 22,575 (523,048) (523,048)
Sales of treasury stock - - - - (4,977) 70,493 70,493
Net earnings - - - 1,478,714 - - 1,478,714
Effect of two-for-one stock split
(Note 9) 2,699,120 539,824 (539,824) - 103,371 - -
--------- ----------- ----------- ----------- -------- ----------- -----------
BALANCE, FEBRUARY 29, 1996 5,398,240 1,079,648 4,391,339 1,788,343 206,742 (527,442) 6,731,888
Exercise of options at $0.25/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 - - 3,103 - (3,840) 10,738 13,841
Purchase of treasury stock - - - - 32,975 (242,730) (242,730)
Sales of treasury stock - - - - (12,334) 125,958 125,958
Net earnings - - - 1,630,088 - - 1,630,088
--------- ----------- ----------- ----------- -------- ----------- -----------
BALANCE, FEBRUARY 28, 1997 5,424,240 $ 1,084,848 $ 4,403,242 $ 3,418,431 223,543 $ (633,476) $ 8,273,045
========= =========== =========== =========== ======== =========== ===========
|
See notes to financial statements.
EDUCATIONAL DEVELOPMENT CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996, AND FEBRUARY 28, 1995
- ----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,630,088 $ 1,478,714 $ 1,171,786
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Depreciation and amortization 252,113 126,697 147,431
Deferred income taxes 9,100 88,700 (113,000)
Provision for doubtful accounts and sales returns 1,225,000 1,250,900 1,143,500
Provision for obsolete inventories -- -- 118,100
Stock issued for awards 4,251 -- --
Changes in assets and liabilities:
Accounts and income taxes receivable (273,973) (2,450,713) (1,567,653)
Inventories 1,951,416 (5,106,474) (3,320,267)
Prepaid expenses and other assets 44,462 (36,815) (111,285)
Accounts payable and accrued expenses (787,856) 320,979 1,964,348
------------ ------------ ------------
Total adjustments 2,424,513 (5,806,726) (1,738,826)
------------ ------------ ------------
Net cash provided by (used in) operating activities 4,054,601 (4,328,012) (567,040)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchases of property and equipment (275,639) (577,847) (273,129)
------------ ------------ ------------
Net cash used in investing activities (275,639) (577,847) (273,129)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit agreement 7,130,000 11,820,000 2,040,000
Payments under revolving credit agreement (10,940,000) (7,000,000) (1,040,000)
Principal payments on capital lease obligations -- (7,673) (40,925)
Cash received from exercise of stock options 14,000 64,952 21,875
Cash received from sale of stock 125,958 70,493 109,585
Cash paid to acquire treasury stock (242,730) (154,875) --
------------ ------------ ------------
Net cash provided by (used in) financing activities (3,912,772) 4,792,897 1,090,535
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (133,810) (112,962) 250,366
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 215,963 328,925 78,559
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 82,153 $ 215,963 $ 328,925
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 368,051 $ 264,462 $ 7,691
============ ============ ============
Cash paid for income taxes $ 766,769 $ 1,259,022 $ 836,500
============ ============ ============
|
See notes to financial statements.
EDUCATIONAL DEVELOPMENT CORPORATION
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - Educational Development Corporation (the "Company") distributes books and publications through its Publishing and Home Business Divisions. In July 1996, the Company's Library Division ceased operations and responsibility for sales to this market segment were taken over by the Home Business Division. The Company is the United States ("U.S.") distributor of books and related matters, published primarily in England, to book, toy and gift stores, libraries and home educators. The Company is also involved in the production and publishing of new book titles. The English publishing company is the Company's primary supplier. The Company sells to its customers, located throughout the U.S., primarily on standard credit terms.
ESTIMATES - The preparation of the Company's financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include cash on hand and cash on deposit in banks.
INVENTORIES - Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out ("FIFO") method.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost and depreciated and amortized using the straight-line method over the estimated useful lives of the related assets.
INCOME TAXES - The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," ("SFAS No. 109"). SFAS No. 109 requires that deferred income taxes are recorded for temporary differences between the financial reporting and tax basis of the Company's assets and liabilities and for operating loss and tax credit carryforwards.
INCOME RECOGNITION - Sales are recorded when products are shipped. At the time sales are recognized for certain products under specified conditions, allowances for returns are recorded based on prior experience.
ADVERTISING COSTS - The Company expenses advertising costs as incurred.
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE - The computation of earnings per common and common equivalent share is based on the weighted average shares of common stock outstanding and, when the effect is dilutive, common stock equivalents attributable to stock options and stock warrants.
FAIR VALUE OF FINANCIAL INSTRUMENTS - For cash and cash equivalents, accounts receivable, and accounts payable, the carrying amount approximates fair value because of the short maturity of those instruments. The fair value of the Company's note payable to bank is estimated to approximate carrying value based
on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities.
LONG-LIVED ASSET IMPAIRMENT - Effective March 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of," ("SFAS No. 121"). SFAS No. 121 requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. SFAS No. 121 also requires that assets to be disposed of be reported at the lower of carrying amount or fair value less cost to sell. The adoption of SFAS No. 121 did not have an effect on the Company's financial statements.
STOCK-BASED COMPENSATION - In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation." SFAS No. 123 establishes a fair value method and disclosure standards for stock-based employee compensation arrangements, such as stock purchase plans and stock options. It also applies to transactions in which an entity issues its equity instruments to acquire goods or services from non-employees, requiring that such transactions be accounted for based on fair value. As allowed by SFAS No. 123, the Company will continue to follow the provisions of Accounting Principles Board Opinion No. 25 and related interpretations for its stock-based employee compensation arrangements.
NEW ACCOUNTING STANDARD - In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings per Share". SFAS No. 128 establishes standards for computing and presenting earnings per share ("EPS") and requires restatement of all prior-period EPS data presented. This statement is effective for financial statements for periods ending after December 15, 1997. The Company does not anticipate that adoption of this standard will have a significant effect on its financial statements.
RECLASSIFICATIONS - Reclassifications were made to certain 1995 and 1996 balances to conform with the 1997 presentation.
2. DISCONTINUED OPERATIONS
Effective February 29, 1996, the Company discontinued its School Division. The remaining assets of this 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 years ended February 29, 1996 and February 28, 1995.
The condensed statements of operations relating to the discontinued School Division operations for each of the years ended February 29, 1996 and February 28, 1995 are presented below:
YEAR ENDED
----------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1995
Gross sales $ 43,085 $ 136,521
Less discounts and allowances (5,030) (9,871)
-------- ---------
Net sales 38,055 126,650
Cost of sales 8,271 (41,852)
-------- ---------
Gross margin 46,326 84,798
Operating expenses (87,963) (114,659)
-------- ---------
Loss before income taxes (41,637) (29,861)
Income tax benefit 16,000 38,000
-------- ---------
Earnings (loss) from operations $(25,637) $ 8,139
======== =========
|
The estimated loss on disposal of $300,984, which is net of income tax benefits of $169,000, includes the write-off of inventory, supplies and other assets.
3. INVENTORIES
Inventories consist of the following:
FEBRUARY 28, FEBRUARY 29,
1997 1996
Book inventory $ 10,349,557 $ 12,300,973
Reserve for obsolescence (301,100) (301,100)
------------ ------------
$ 10,048,457 $ 11,999,873
============ ============
|
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
FEBRUARY 28, FEBRUARY 29,
1997 1996
Computer equipment $ 757,982 $ 733,036
Warehouse and office equipment 438,325 337,111
Furniture, fixtures and other 98,065 86,267
---------- ----------
1,294,372 1,156,414
Less accumulated depreciation
and amortization (445,894) (341,052)
---------- ----------
$ 848,478 $ 815,362
========== ==========
|
During the year ended February 28, 1997, the Company acquired a vehicle with a cost of $9,590 through the issuance of 3,390 shares of treasury stock.
Depreciation expense was $252,113, $126,697, and $109,086 for the fiscal years ended 1997, 1996, and 1995, respectively.
5. NOTE PAYABLE
At February 28, 1997 and February 29, 1996, the note payable to bank was under a $9,000,000 and $6,000,000 revolving credit agreement, respectively, with interest payable monthly at prime and prime plus 0.5% (8.25 and 8.75%, respectively), collateralized by substantially all assets of the Company. The revolving credit agreement matures on June 30, 1997. At February 28, 1997, the Company had available credit of $6,990,000 under the revolving credit agreement. The agreement contains provisions that require the maintenance of specified financial ratios, restrict transactions with related parties, prohibit mergers or consolidation, prohibit declaration of dividends, disallow additional debt, and limit the amount of compensation, salaries, investments, capital expenditures and leasing transactions. The Company is in compliance with all restrictive financial covenants. The Company intends to renew the bank agreement or obtain other financing upon maturity.
For each of the three years in the period ended February 28, 1997, the highest amount of short-term borrowings, the average amount of borrowings under these short-term notes, and the weighted average interest rates are as follows:
YEAR ENDED
------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1997 1996 1995
Notes payable to bank:
Largest amount borrowed $ 5,850,000 $ 5,820,000 $ 1,000,000
Average amount borrowed 4,061,250 3,183,333 199,714
Weighted average interest rate 8.5 % 9.4 % 8.4 %
|
6. INCOME TAXES
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 deferred tax asset as of February 28, 1997 and February 29, 1996 are as follows:
FEBRUARY 28, FEBRUARY 29,
1997 1996
Deferred tax assets:
Allowance for doubtful accounts $ 35,200 $ 50,300
Inventories 118,000 118,000
Expenses deducted on the cash basis for income tax purposes 13,600 --
--------- ---------
166,800 168,300
Deferred tax liability -
Property and equipment (7,600) --
--------- ---------
Net deferred tax asset $ 159,200 $ 168,300
========= =========
|
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:
YEAR ENDED
-------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1997 1996 1995
Income tax expense on continuing operations:
Current:
Federal $ 845,800 $ 916,300 $ 655,400
State 149,200 161,700 115,600
----------- ----------- -----------
995,000 1,078,000 771,000
Deferred:
Federal 7,700 29,500 (62,100)
State 1,400 5,200 (10,900)
----------- ----------- -----------
9,100 34,700 (73,000)
----------- ----------- -----------
1,004,100 1,112,700 698,000
Income tax benefit on discontinued operations:
From operations -- (16,000) (38,000)
Loss on disposal -- (169,000) --
----------- ----------- -----------
Total income tax expense $ 1,004,100 $ 927,700 $ 660,000
=========== =========== ===========
|
The following reconciles the Company's expected income tax expense on continuing operations utilizing statutory tax rates to the actual tax expense:
YEAR ENDED
----------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1997 1996 1995
Tax expense at Federal statutory rate $ 896,000 $ 992,000 $ 633,000
State income tax, net of Federal tax benefit 105,000 114,700 74,000
Other 3,100 6,000 (9,000)
---------- ---------- ----------
$1,004,100 $1,112,700 $ 698,000
========== ========== ==========
|
7. EMPLOYEE BENEFIT PLAN
The Company has a profit sharing plan which incorporates the provisions of
Section 401(k) of the Internal Revenue Code. The 401(k) plan covers
substantially all employees meeting specific age and length of service
requirements. Matching contributions from the Company are discretionary and
amounted to $31,457, $30,118, and $24,558 in fiscal years 1997, 1996, and
1995, respectively.
8. COMMITMENTS
The Company leases its office and warehouse facilities under a noncancelable operating lease which expires in February 1999. Future minimum rental commitments at February 28, 1997 are payable as follows:
YEAR
1998 $225,960
1999 225,960
--------
Total minimum lease payments $451,920
========
|
Total rent expense was approximately $219,000, $185,000, and $119,000 for the fiscal years ended 1997, 1996, and 1995, respectively.
At February 28, 1997, the Company had outstanding commitments to purchase inventory from its primary vendor totaling approximately $1,072,000.
9. CAPITAL STOCK, STOCK OPTIONS AND WARRANTS
On December 20, 1995, the Company's Board of Directors declared a two-for-one split of the Company's common stock in the form of a stock dividend for shareholders of record as of April 1, 1996. On March 13, 1996, in a special meeting of the stockholders, an increase in the number of authorized shares from 3,000,000 to 6,000,000 was approved. A total of 2,699,120 shares of common stock were issued in connection with the split related to shares outstanding at February 29, 1996. The stated par value of each share was not changed from $.20. A total of $539,824 was reclassified from the Company's capital in excess of par value account to the Company's common stock account. Earnings per share, weighted average shares of common stock outstanding and the stock option information for all periods presented reflect the stock split.
In October 1981, the Board of Directors adopted an Incentive Stock Option Plan which expired in 1991; accordingly, no additional options will be granted under the 1981 Plan.
In June 1992, the Board of Directors adopted the 1992 Incentive Stock Option Plan. A total of 1,000,000 stock options are authorized to be granted under the 1992 Plan.
Options granted under either of the two Incentive Stock Option Plans, collectively the "Incentive Plan," are exercisable up to ten years from the date of grant. Options outstanding at February 28, 1997 expire in 2001 through 2006.
A summary of the status of the Company's Incentive Plan as of February 28, 1997, February 29, 1996 and February 28, 1995 and changes during the years ended on those dates is presented below:
1997 1996 1995
-------------------------- -------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
Outstanding at
Beginning of Year 206,000 $ 2.55 906,000 $ 1.00 780,000 $ 0.56
Granted 117,400 6.00 10,000 6.25 156,000 3.13
Exercised/Canceled (13,600) (4.01) (710,000) (0.62) (30,000) (0.73)
------- ------ -------- ------ ------- ------
Outstanding at End
of Year 309,800 $ 3.79 206,000 $ 2.55 906,000 $ 1.00
======= ====== ======== ====== ======= ======
|
The following table summarizes information about stock options outstanding at February 28, 1997:
NUMBER
RANGE OF OUTSTANDING WEIGHTED
EXERCISE AT FEBRUARY 28, AVERAGE REMAINING WEIGHTED AVERAGE
PRICES 1997 CONTRACTUAL LIFE (YEARS) EXERCISE PRICE
-------- -------------- ------------------------ ----------------
$1.375-$1.50 84,000 6 $ 1.41
3.13 106,000 7 3.13
$6.00-$6.25 119,800 9 6.02
------- ------- -------
309,800 8 $ 3.79
======= ======== =======
|
All options outstanding are exercisable at February 28, 1997.
The Company applies Accounting Principals Board Opinion No. 25 and related Interpretations in accounting for its Incentive Plan. Accordingly, no compensation cost has been recognized for its Incentive Plan. Had compensation cost for the Company's Incentive Plan been determined based on the fair value at the grant dates for awards under the Incentive Plan consistent with the method of SFAS No. 123, the Company's net income and earnings per share for the year ended February 28, 1997 would have been reduced to the pro forma amounts indicated below:
1997
Net earnings - as reported $ 1,630,088
=============
Net earnings - pro forma $ 1,375,088
=============
Earnings per share - as reported $ 0.31
=============
Earnings per share - pro forma $ 0.26
=============
|
The fair value of options granted under the Incentive Plan during the year ended February 28, 1997 was estimated on the date of grant using the Black- Scholes option-pricing model with the following weighted
average assumptions used: no dividend yield, expected volatility of 76%, risk free interest rate of 6% and expected lives of 4 years. The use of the fair value method of SFAS No. 123 would not have had a significant impact on reported net earnings and earnings per share for the year ended February 29, 1996.
Of the 710,000 option shares exercised in fiscal 1996, 660,000 shares with a total option price of $368,173 were exercised by the transfer to the Company of 28,596 outstanding shares held by the option holders.
Additionally, at February 1992, options to purchase 80,000 shares of the Company's common stock were outstanding. These options were issued to directors and a stockholder who were not officers of the Company at exercise prices of $0.25-$.625. During August 1992, 40,000 of these options were exercised at an option price of $.625 per share, and the Company simultaneously reacquired the common stock issued at a net cost to the Company of $7,500. During February 1996, 20,000 of these options were exercised at an option price of $0.25. The remaining 20,000 of these options were exercised at an option price of $0.25 in March 1996.
10. SUPPLEMENTARY INFORMATION
The activity in the allowances for doubtful accounts receivable, sales returns and inventory valuation for each of the three years in the period ended February 28, 1997 is as follows:
Doubtful accounts receivable:
BALANCE AT AMOUNTS AMOUNTS BALANCE
BEGINNING CHARGED TO CHARGED TO AT END
YEAR OF YEAR EXPENSE RESERVE OF YEAR
1995 $ 75,000 $58,000 $(28,000) $105,000
1996 105,000 60,000 (38,000) 127,000
1997 127,000 60,000 (95,100) 91,900
|
Sales returns:
BALANCE AT AMOUNTS AMOUNTS BALANCE
BEGINNING CHARGED TO CHARGED TO AT END
YEAR OF YEAR EXPENSE RESERVE OF YEAR
1995 $ 66,000 $1,085,500 $(1,050,500) $101,000
1996 101,000 1,190,900 (1,190,900) 101,000
1997 101,000 1,165,000 (1,165,000) 101,000
|
Inventory valuation:
BALANCE AT AMOUNTS AMOUNTS BALANCE
BEGINNING CHARGED TO CHARGED TO AT END
YEAR OF YEAR EXPENSE RESERVE OF YEAR
1995 $183,000 $118,100 $ -- $301,100
1996 301,100 -- -- 301,100
1997 301,100 -- -- 301,100
|
Charges to certain expense accounts in continuing operations for each of the three years in the period ended February 28, 1997 are shown below:
YEAR ENDED
-------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1997 1996 1995
Maintenance and repairs $ 34,435 $ 48,199 $ 24,545
Taxes other than payroll and income taxes 20,805 12,143 10,553
Advertising costs 84,501 170,573 107,565
|
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the years ended February 28, 1997 and February 29, 1996:
FIRST SECOND THIRD FOURTH
YEAR ENDED FEBRUARY 28, 1997 QUARTER QUARTER QUARTER QUARTER
Net Sales $ 5,685,100 $ 5,029,700 $ 6,279,200 $ 4,245,507
----------- ----------- ----------- -----------
Gross Profit $ 3,396,200 $ 3,001,700 $ 3,923,400 $ 2,522,147
----------- ----------- ----------- -----------
Net Earnings $ 303,100 $ 357,700 $ 655,100 $ 314,188
=========== =========== =========== ===========
Earnings Per Share -
Net Earnings $ 0.06 $ 0.07 $ 0.12 $ 0.06
=========== =========== =========== ===========
|
FIRST SECOND THIRD FOURTH
YEAR ENDED FEBRUARY 29, 1996 QUARTER QUARTER QUARTER QUARTER
Net Sales $ 3,985,100 $ 4,711,200 $ 5,905,300 $ 4,651,867
----------- ----------- ----------- -----------
Gross Profit $ 2,299,300 $ 2,691,100 $ 3,546,400 $ 2,560,942
----------- ----------- ----------- -----------
Earnings from Continuing
Operations $ 434,900 $ 549,700 $ 553,400 $ 267,335
Discontinued Operations, Net (4,200) (9,900) (10,500) (302,021)
----------- ----------- ----------- -----------
Net Earnings (Loss) $ 430,700 $ 539,800 $ 542,900 $ (34,686)
=========== =========== =========== ===========
Earnings Per Share:
Earnings from Continuing
Operations $ 0.08 $ 0.10 $ 0.10 $ 0.06
Discontinued Operations -- -- -- (0.06)
----------- ----------- ----------- -----------
Net Earnings $ 0.08 $ 0.10 $ 0.10 $ --
=========== =========== =========== ===========
|
* * * * * *
EXHIBIT 10.21
THIS RESTATED REVOLVING CREDIT AND SECURITY AGREEMENT dated effective as of the tenth (10th) day of June, 1996, is entered into by EDUCATIONAL DEVELOP MENT CORPORATION, a Delaware corporation whose address is 10302 East 55th Place, Tulsa, Oklahoma 74146, (the "Company"), and STATE BANK & TRUST, N.A., whose address is 4500 South Garnett Avenue, Tulsa, Oklahoma 74146 (the "Bank").
WITNESSETH:
WHEREAS, the Company has applied to the Bank to increase and modify its existing revolving line of credit established pursuant to that certain Restated Credit and Security Agreement dated as of September 25, 1995 as well as the Existing Credit Agreement therein described and defined (collectively the "Current Credit Agreement") to the maximum principal amount outstanding at any one time not in excess of NINE MILLION DOLLARS ($9,000,000), including extension of the maturity date to June 30, 1997, the proceeds of which are to be used for the Company's general corporate and working capital purposes; and the Bank is willing to extend such revolving line of credit to the Company subject to the terms, limitations and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Bank agree as follows:
The terms defined in this Article I (except as otherwise expressly provided in this Agreement) for all purposes shall have the following meanings:
modification, substitution, replacement and change in form thereof which may be from time to time and for any term or terms effected.
Each such Loan Request shall constitute the Company's continuing
representation to the Bank that the Company is in compliance with all of the
Borrowing Base provisions of Sections 2.4 hereof. Each such Loan Request shall
be presented at the offices of the Bank, and, subject to strict compliance with
the provisions of Sections 2.3, 2.4, 2.8 and 4.5 hereof, each such loan
requested by the Company from the Bank shall be advanced by the Bank not later
than the second (2nd) Business Day immediately following the Bank's actual
receipt of such request. All advances made by the Bank shall be deposited to
account #502-71-56 of the Company with the Bank. The Company may from time to
time make prepayments of principal without premium or penalty, provided that
interest on the amount prepaid, accrued to the prepayment date, shall be paid on
such prepayment date. The Company may reborrow subject to the limitations and
conditions for Revolving Credit Loans contained herein. On or before the fifth
(5th) day of each month Bank shall mail, telecopy or hand deliver invoices
evidencing Company's interest obligation for the immediately preceding calendar
month at the address set forth above by first class mail (or by telecopy #918-
663-4509). Such invoice shall be deemed received by Company (unless sent by
telecopy) upon the earlier of actual receipt thereof or two (2) Business Days
after deposit in the United States mail by Bank.
All Revolving Credit Loans made by the Bank and all payments or prepayments of principal and interest thereon made by the Company shall be recorded by the Bank in its records, and such records shall be presumptive evidence as to the respective amount owing on the Note. Any payments or prepayments on the Revolving Credit Note received by the Bank after 2:00 o'clock P.M. (applicable current time in Tulsa, Oklahoma) shall be deemed to have been made on the next succeeding Business Day. All outstanding principal of and accrued interest on the Note not previously paid hereunder shall be due and payable at final maturity on June 30, 1997.
(a) The Account is owned by and payable to Company and represents a sum of money (exclusive of interest, late charges or carrying charges) unconditionally due and owing to Company from an account debtor ("Account Debtor") thereof for services rendered or goods sold or leased by Company to such Account Debtor in the ordinary course of business and which services or goods have been accepted by the Account Debtor and do not remain unpaid for a period in excess of ninety (90) days beyond the earlier of the invoice date or the first due date of such Account and if the aggregate accounts of any one Account Debtor constitute more than twenty percent (20%) of the total accounts of the Company at any one time, the amount of all such accounts thereof in excess of twenty percent (20%) shall be deemed automatically ineligible for Borrowing Base purposes;
(b) The Account is not a contra account and is not otherwise subject to any dispute, set-off, recoupment, counterclaim or other claim which would reduce the amount to be paid by the Account Debtor to Company and the Account Debtor has not received or requested permission to pay the same in deferred installments;
(c) None of such Accounts shall result from the sale or lease of any goods held by Company on consignment including, without limitation, goods held on consignment for Usborne Publishing Limited ("Usborne");
(d) The Account Debtor is a Person (including a partnership of which all partners are residents of the continental United States of America) domiciled in, a resident of or duly organized under and in good standing pursuant to the laws of one of the states of the United States of America or the District of Columbia;
(e) The Account Debtor has not ceased business, made an assignment for the benefit of creditors or attempted to make a composition with its creditors and no trustee, receiver, liquidator, conservator, custodian or like officer has been appointed to take custody, possession or control of the Account Debtor or any substantial portion of the assets in general of such Account Debtor. The Account Debtor has not become or been adjudged to be insolvent, requested or consented to the appointment of any receiver, trustee, custodian, liquidator or like officer or become subject to the control or supervision of any court or other governmental body or officer for the purpose of liquidating its assets, winding up its affairs or for the purpose of any financial reorganization, rehabilitation or other relief under any law or statute now or hereafter in force affording relief to debtors from their obligations;
(f) Company has in its possession and under its control shipping tickets, bills of lading, invoices, delivery receipts and other written business records and memoranda sufficient to document and verify Company's accounts and the amount thereof and to enforce collection thereof;
(g) The Account Debtor has neither attempted to return the goods, the sale of which created or gave rise to the Account, nor refused to accept the goods, nor attempted to revoke any acceptance thereof or requested any allowance in adjustment with respect to such goods, nor made partial payment on a specific invoice which is being disputed;
(h) The Bank shall not have notified Company in writing that the Account or the Account Debtor is unsatisfactory for reasons deemed by the Bank in good faith to be valid reasons for rejecting such Account or Account Debtor;
(i) The Account is not evidenced by any promissory note, trade acceptance, negotiable instrument or judgment and does not constitute Chattel Paper (as defined in Article 9 of the Oklahoma Uniform Commercial Code);
(j) All claims required to be filed in any public office or with any public officer in connection with the Account have been duly filed with and accepted by the appropriate public office or officer;
(k) The Account Debtor is neither a parent, Subsidiary nor a corporate affiliate of the Company nor a corporation, partnership or other entity controlled directly or indirectly by the Company or the Guarantors, nor a foreign country or alien corporation with whom the Company does export business;
(l) The Account Debtor is neither a director, officer nor an employee of the Company or a member of the family of any director or officer of any of the Company or any proprietorship or partnership owned in whole or in part by any such director or officer of any of the Company or by any member of the family of any such person; and
(m) The Account is not subject to the federal statutes prohibiting assignment of claims against the United States of America.
The above specifications with respect to the term "Eligible Account" are special specifications adopted for the purpose of determining the Borrowing Base and the designation of such specifications shall not be interpreted or implied to limit the security interest granted to the Bank to such Eligible Accounts.
shall be false or untrue in any material respect on the date of such loan, as if made on such date; or (iii) unless the Borrower shall have provided to the Bank a Revolving Loan Request duly executed by authorized officers and in proper form, establishing that the Borrowing Base will support the additional Revolving Credit Loan being requested and such other information as shall be requested by the Bank in support thereof, all in conformity with Section 2.3 hereof. Each request by the Borrower for a Revolving Credit Loan (whether initial or thereafter) shall constitute a continuing representation by the Borrower to the Bank that there is not at the time of such request an Event of Default or a Default, and that all representations, warranties and covenants in this Agreement are true and correct on and as of the date of each such Loan Request. From and after the Bank's receipt of notice of any claimed or asserted purchase money security interest in any of the Collateral (as hereinafter defined) pursuant to the applicable provisions of the Oklahoma Uniform Commercial Code by any vendor or supplier of the Company, the Bank shall have no further obligation hereunder to advance any Revolving Credit Loans to the Company and its lending commitment hereunder shall be automatically extinguished without any notice whatsoever to the Company.
From the date hereof, and so long as this Agreement is in effect (by extension, amendment or otherwise) the Company covenants and agrees with the Bank and until payment in full of all Indebtedness and the performance of all other obligations of the Company, under this Agreement, unless the Bank shall otherwise consent in writing:
furnish to the Bank, as soon as practicable after each calendar month, and in any event within forty-five (45) days thereafter, copies of:
(i) Balance sheets of the Company at the end of such month, and
(ii) Statements of income and surplus of the Company for such month,
all in such reasonable detail as may be requested by the Bank and certified to be true and correct by the President or controller of the Company (such certification to be a part of the monthly borrowing base certification submitted by the Company).
The Company shall also furnish to the Bank as soon as practicable after the end of each fiscal year of the Company, and in any event within one hundred twenty (120) days thereafter, financial statements for the Company and the annual audit thereof. Such financial statements shall be prepared by a reputable and independent firm of certified public accountants of recognized standing selected by the Company and acceptable to the Bank. Such firm shall issue a report and an unqualified opinion prepared in conformity with GAAP and otherwise satisfactory in form and content to the Bank.
Bank shall be entitled to conduct field audits of the Company during each fiscal year, the cost of which shall be borne solely by the Bank.
One day to and including thirty days, Thirty-one days to and including sixty days, Sixty-one days to and including ninety days, and Over ninety days,
(iv) any modification of the customary due date of any Account, (v) the amount of all obligations of the Company and to whom such obligations are owed (excluding obligations to the Bank), (vi) "aging" of each such obligation as set forth in (iii) above, and (vii) or modification of the due date of such obligations.
Within forty-five (45) days of each calendar month end, the Company shall deliver to the Bank schedules of inventory (itemized pursuant to the Company's monthly statements) indicating the value at which such inventory is carried on the books and records of the Company as of the close of business on the last Business Day of the immediately preceding calendar month, which value shall be determined according to the perpetual method of inventory accounting and, additionally, the Company will promptly notify the Bank of any material reduction in the market value of any of such inventory. Such Monthly Account Reports and Monthly Inventory Reports described in this Section 4.5 are collectively referred to herein as the "Monthly Reports".
The Company will not open or establish any office, storage yard, warehouse or other shipping or holding facility other than at Company's business address of 10302 East 55th Place in Tulsa, Oklahoma (except only for certain book binding operations in the State of Illinois)
without obtaining the Bank's prior written consent and executing such additional or supplemental security agreements and/or financing statements as the Bank and its legal counsel deem necessary to perfect or more fully perfect its security interest therein. The Company represents to the Bank that all of its inventories are and will continue to be located at its current business location in Tulsa, Oklahoma as described above.
arrangements and, in any event, Company shall maintain its accounts with Usborne in such manner as to avoid the filing of any purchase money security interest by Usborne in any inventory sold thereby to Company unless fully and expressly subordinated to the Bank's security interest therein in form and content acceptable to the Bank and its legal counsel.
The Company covenants and agrees with the Bank that from the date hereof and so long as this Agreement is in effect (by extension, amendment or otherwise) and until payment in full of all Indebtedness and the performance of all other obligations of the Company under this Agreement, unless the Bank shall otherwise consent in writing:
(a) trade or customer accounts receivable for inventory sold or services rendered in the ordinary course of business;
(b) obligations issued or guaranteed as to principal and interest by the United States of America and having a maturity of not more than one year from the date of acquisition;
(c) certificates of deposit issued by the Bank or any other bank organized under the laws of the United States of America or any state thereof, the payment of which is insured by the Federal Deposit Insurance Corporation;
(d) repurchase agreements secured by any one or more of the foregoing; and
hereunder; or (ii) which contains any provision which would be violated or breached by the performance of Company's obligations hereunder or under any of the other Loan Documents.
To induce the Bank to enter into this Agreement and to make the Loans to the Company under the provisions hereof, and in consideration thereof, the Company represents, warrants and covenants that:
materially affect or impair the operation of such properties and assets. All such leases are valid and subsisting and are in full force and effect.
(a) All accounts (including contract rights) (as defined in Article 9 of the Oklahoma Uniform Commercial Code) now owned by the Company and which may be owned, held, created or acquired by the Company at any time hereafter until this Agreement shall be terminated (as provided herein) and thereafter until all Indebtedness shall be fully paid and discharged;
(c) All books, records, ledgers, journals, delivery receipts, sales memoranda, shipping tickets, correspondence and other written records, data and memoranda of the Company relating to any and all of their respective present or future accounts, contract rights, and/or inventory;
(d) All general intangibles, instruments, documents and chattel paper now owned or hereafter owned, acquired or created by Company;
(e) All demand deposits, time deposits or certificates of deposit with the Bank including (without limitation) the Collection Account; and
(f) All proceeds and products of all of the items and types of Collateral described above;
which security interests shall be more fully evidenced by that certain Restated Security Agreement and Assignment dated as of even date herewith (the "Security Agreement").
account(s) or contract right(s) and the Company will not in any manner take or suffer any action to be taken to hinder, delay or interfere with the Bank's attempts to effect collection.
(a) The Company shall fail to pay any principal or interest upon the Note or any other note issued or purportedly issued hereunder or any other Indebtedness incurred or created or purportedly incurred or created hereunder or pursuant hereto within five (5) days after the same shall become due and payable (whether by extension, renewal, acceleration or otherwise); or
(b) The Company shall fail to duly observe, perform or comply with any covenant or agreement contained in this Agreement and such default or breach shall not have been cured or remedied the earlier of thirty (30) days after the Company shall know (or should have known) of its occurrence (except that such grace or curative periods shall
neither be deemed applicable to the payment provisions hereof nor the default provisions of subparagraph (a) hereof); or
(c) Any representation or warranty of the Company made herein or in any writing furnished in connection with or pursuant to this Agreement shall have been false or misleading in any material respect on the date when made; or
(d) The Company shall default in the payment of principal or of interest on any other obligation for money borrowed or received as an advance (or any obligation under any conditional sale or other title retention agreement or any obligation issued or assumed as full or partial payment for property whether or not secured by purchase money Lien or any obligation under notes payable or drafts accepted representing extensions of credit) beyond any grace period provided with respect thereto, or shall default in the performance of any other agreement, term or condition contained in any agreement under which such obligation is created (or if any other default under any such agreement shall occur and be continuing beyond any period of grace provided with respect thereto) if the effect of such default is to cause, or to permit, the holder or holders of such obligation (or a trustee on behalf of such holder or holders) to cause such obligation to become due prior to its date of maturity; or
(e) Any of the following: (i) Company or any of its Subsidiaries, shall make an assignment for the benefit of creditors, become insolvent or admit in writing their inability to pay their debts generally as they become due; or (ii) an order for relief under the United States Bankruptcy Code, as amended, shall be entered against a Company and shall remain in effect and unstayed for thirty (30) days; or (iii) Company or any Subsidiary shall petition or apply to any Tribunal for the appointment of a trustee, custodian, receiver or liquidator of Company or any Subsidiary or of any substantial part of the assets of Company or any Subsidiary or shall commence any proceedings relating to a Company or any Subsidiary under any bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debts, dissolution, or liquidation Law of any jurisdiction, whether now or hereafter in effect; or (iv) any petition or application shall be filed, or any such proceedings shall be commenced, against Company or any Subsidiary and Company or any Subsidiary by any act shall indicate its approval thereof, consent thereto or acquiescence therein, or an order, judgment or decree shall be entered appointing any such trustee, receiver or liquidator, or approving the petition in any such proceedings, and such order, judgment or decree shall remain unstayed and in effect for more than thirty (30) days; or (v) any order, judgment or decree shall be entered in any proceedings against Company or any Subsidiary decreeing the dissolution of Company or Subsidiary and such order, judgment or decree shall remain unstayed and in effect for more than thirty (30) days; or (vi) any order, judgment or decree shall be entered in any proceedings against Company or any Subsidiary decreeing a split-up of Company or Subsidiary which requires the divestiture of a substantial part of the assets of Company or Subsidiary and such order, judgment or decree shall remain unstayed and in effect for more than thirty (30) days; or (vii) any final judgment on the merits for the payment of money in excess of $10,000 shall be outstanding against Company or any Subsidiary, and such judgment shall remain unstayed and in effect and unpaid for more than thirty (30) days; or (viii) any default by Company under any real property lease agreement to which Company is a party or by which it is bound that constitutes a Material Adverse Effect; or (ix) Company shall fail to make timely payment or deposit of any material amount of tax required to be withheld by Company and paid to or deposited to or to the credit of the United States of America pursuant to the provisions of the Internal Revenue Code of 1986, as amended, in respect of any and all wages and salaries paid to employees of Company; or
(f) Any material vacancies shall occur in the executive management of Company and the same shall not be filled with a replacement reasonably satisfactory to the Bank (in its good faith judgment) within thirty (30) days of the occurrence of such vacancy(ies); or
(g) Any Reportable Event described in Section 6.14 hereof which the Bank determines in good faith might constitute grounds for the termination of a Plan therein described or for the appointment by the appropriate United States District Court of a trustee to administer any such Plan shall have occurred and be continuing thirty (30) days after written notice to such effect shall have been given to the Company by the Bank, or any such Plan shall be terminated, or a trustee shall be appointed by a United States District Court to administer any such Plan or the Pension Benefit Guaranty Corporation shall institute proceedings to terminate any such Plan or to appoint a trustee to administer any such Plan;
then, and in every such event, the Bank may declare the principal of and interest on all Indebtedness of the Company hereunder to be immediately due and payable, without presentment, demand, protest, notice of protest, or other notice of any kind, all of which are hereby expressly waived by the Company.
renewal, amendment or refinancing thereof. The Company agrees that all such fees and expenses shall be paid regardless of whether or not the transactions provided for in this Agreement are eventually closed and regardless of whether any sums are advanced to the Company by the Bank.
IN WITNESS WHEREOF, the parties hereto have caused this Restated Revolving Credit and Security Agreement to be duly executed and delivered in Tulsa, Oklahoma, as of the day and year first above written.
EDUCATIONAL DEVELOPMENT
CORPORATION, a Delaware corporation
By__________________________________________
Randall White, President
"Company"
STATE BANK & TRUST, N.A.
By__________________________________________
Dennis Colvard, Vice President
"Bank"
$9,000,000 Tulsa, Oklahoma June 10, 1996
FOR VALUE RECEIVED, the undersigned (the "Maker") promises to pay to the order of STATE BANK & TRUST, N.A. (the "Payee"), at the Payee's main banking office in Tulsa, Oklahoma, the principal sum of NINE MILLION AND NO/100 DOLLARS ($9,000,000), or so much thereof as shall have been advanced by Payee to Maker and remains unpaid, on June 30, 1997, together with interest thereon from the date funds are initially advanced hereon on the unpaid balances of principal from time to time outstanding, at the variable annual rate of interest hereinafter specified, which interest is payable in monthly installments due and payable on the last day of each calendar month commencing June 30, 1996, and at final maturity on June 30, 1997.
The rate of interest payable upon the indebtedness evidenced by this note shall be a variable annual rate of interest equal from day to day to Prime Rate of interest, as hereinafter defined. Prime Rate of interest shall be effective with respect to this note as of the date upon which any change in such rate of interest shall occur. Interest shall be computed on the basis of a year of 360 days but assessed only for the actual number of days elapsed.
For the purposes of this note Prime Rate shall mean, as of the date upon which such rate of interest is to be determined, the prime rate of interest published in the Money Rates column of the Wall Street Journal (Southwest Edition) or a similar rate as determined by Payee if such rate ceases to be published.
All parties (maker, endorsers, sureties, guarantors and all others now or hereafter liable for payment of the indebtedness evidenced by this note) waive presentment and diligence in col lection and agree that without notice to, and without discharging the liability of any party, this note may be extended or renewed from time to time and for any term or terms by agreement between the holder of this note and any of such parties and all parties shall remain liable on each such extension or renewal.
If the principal or any installment of interest due upon this note is not paid as and when the same becomes due and payable (whether by extension, acceleration or otherwise), or any party now or hereafter liable (directly or indirectly) for payment of this note makes an assignment for benefit of creditors, becomes insolvent, has an order for relief under the United States Bankruptcy Code, as amended, entered against it, or any receiver, trustee, custodian or like officer is appointed to take custody, possession or control of any property of any such party, the holder hereof may, without notice, declare all of the unpaid balance hereof to be immediately due and payable. Such right of acceleration is cumulative and in addition to any other right or rights of acceleration under the Restated Credit and Security Agreement between the Maker and the Payee dated as of even date herewith (the "Credit Agreement") and any other writing now or hereafter evidencing or securing payment of any of the indebtedness evidenced hereby. After maturity, whether by acceleration, extension or otherwise, this note shall bear interest at a variable annual rate equal to Prime Rate plus four and one-half percentage points (4.5%). Maker and all other parties liable hereon shall pay all reasonable attorney fees and all court costs and other costs and expenses of collection incurred by the holder hereof.
This is the Revolving Credit Note defined in the Credit Agreement and constitutes an increase and renewal of that certain $6,000,000 Revolving Credit Note dated September 18, 1995. Reference is made to the Credit Agreement and to the Security Agreement and Assignment dated
Revolving Credit Note
Page Two
January 18, 1990, as amended and restated from time to time, including that certain Restated Security Agreement and Assignment dated as of even date herewith, for the provisions with respect to acceleration, description of collateral securing payment of the indebtedness evidenced hereby, rights and remedies in respect thereof and other matters. This note is executed and delivered to the order of the Payee in Tulsa, Oklahoma, by the undersigned duly authorized corporate officer of the Maker pursuant to all necessary corporate action and shall be governed by and construed in accordance with the laws of the State of Oklahoma.
EDUCATIONAL DEVELOPMENT
CORPORATION
"Maker"
Due: June 30, 1997
________________, 19___
STATE BANK & TRUST, N.A.
4500 South Garnett
Tulsa, Oklahoma 74146
Gentlemen:
Pursuant to the provisions of the Restated Credit and Security Agreement dated as of June 10, 1996 (the "Credit Agreement"), the undersigned "Company" hereby (i) confirms and ratifies your continuing first and prior security interest in and to all of its present and future accounts, contract rights, general intangibles, inventory, instruments, documents and chattel paper (including proceeds and products thereof) described or referred to in the Credit Agreement; (ii) applies to you for a loan in the amount shown hereinbelow; (iii) certifies that no Event of Default or Default under the Credit Agreement has occurred and is continuing as of the date hereof or exists or would continue to exist but for the lapse of time or notice, or both; (iv) represents and warrants to you that the representations, covenants and warranties set forth or referred to in the Credit Agreement are true and correct on and as of this date and that Company has been in strict and continuing compliance with the borrowing base provisions of the Credit Agreement since the date of the last Loan Request submitted to you; (v) certifies to you the accuracy of the following information concerning the Borrowing Base of the Company; (vi) and further certifies to you the accuracy and completeness of the financial reports and Monthly Reports annexed hereto as required by Sections 4.4 and 4.5 of the Credit Agreement:
or $9,000,000 per (S) 2.4 of the Credit
Agreement)
EDUCATIONAL DEVELOPMENT
CORPORATION
|
Existing Liens
1. Roselius Computer Corp. (assigned to The First National Bank of Midwest City) - Lease Agreement No. 12356 re computer, processing and printing equipment listed therein. Filing #603337 in Tulsa County, Oklahoma and #N04573 in Oklahoma County, Oklahoma.
2. Usborne Publishing Ltd. re consignment of present and future listed books - filing #598083 in Tulsa County, Oklahoma and filing #010740 and 021326 in Oklahoma County, Oklahoma.
EDUCATIONAL DEVELOPMENT CORPORATION
Notes Receivable
Officers, Directors and Shareholders
June 10, 1996
NONE
Investments
NONE
Existing Leases
1. Commerical Lease and Deposit Receipt dated January 22, 1986 between James D. Dunn, as lessor, and the Company, as lessee, covering the premises located at 10302 East 55th Place, which lease expires on ________________.
2. Equipment Lease Agreement dated November 6, 1989 between Roselius Computer Corporation, as lessor, and the Company, as lessee, covering computer equipment, which lease has an initial term of 36 months.
Subsidiaries
NONE
EXHIBIT 11
EDUCATIONAL DEVELOPMENT CORPORATION
EARNINGS PER SHARE COMPUTATION (b)
YEARS ENDED FEBRUARY 28, 1997,
FEBRUARY 29, 1996, AND FEBRUARY 28, 1995
1997 1996 1995
Earnings from continuing operations (a) $ 1,630,088 $ 1,805,335 $ 1,163,647
Discontinued operations, net of tax (a):
Earnings (loss) from operations -- (25,637) 8,139
Loss on disposal -- (300,984) --
----------- ----------- -----------
-- (326,621) 8,139
----------- ----------- -----------
Net earnings (a) $ 1,630,088 $ 1,478,714 $ 1,171,786
=========== =========== ===========
Weighted average number of common shares outstanding 5,199,251 4,553,658 4,474,520
Add common share equivalents 154,687 785,176 748,970
----------- ----------- -----------
Weighted average number of common and common
equivalent shares outstanding 5,353,938 5,338,834 5,223,490
Add common share equivalents to compute fully diluted
earnings per share 8,907 10,590 18,812
----------- ----------- -----------
5,362,845 5,349,424 5,242,302
=========== =========== ===========
Earnings (loss) per share (a):
Earnings from continuing operations $ 0.31 $ 0.34 $ 0.22
Discontinued operations -- (0.06) --
----------- ----------- -----------
Net earnings per share $ 0.31 $ 0.28 $ 0.22
=========== =========== ===========
|
(a) Agrees to the related amounts shown on the statements of earnings.
(b) This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although not required by footnote 2 to paragraph 14 of APB No. 15 because it results in dilution of less than 3% or is antidilutive.
EXHIBIT 23
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Registration Statement No. 33-60188 of Educational Development Corporation on Form S-8 of our report dated May 2, 1997, appearing in this Annual Report on Form 10-K of Educational Development Corporation for the year ended February 28, 1997.
DELOITTE & TOUCHE LLP
May 23, 1997
Tulsa, Oklahoma
| ARTICLE 5 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM * AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| MULTIPLIER: 1 |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | FEB 28 1997 |
| PERIOD START | MAR 01 1996 |
| PERIOD END | FEB 28 1997 |
| CASH | 82,153 |
| SECURITIES | 0 |
| RECEIVABLES | 2,225,588 |
| ALLOWANCES | 192,900 |
| INVENTORY | 10,048,457 |
| CURRENT ASSETS | 12,502,287 |
| PP&E | 1,294,372 |
| DEPRECIATION | 445,894 |
| TOTAL ASSETS | 13,365,369 |
| CURRENT LIABILITIES | 5,092,324 |
| BONDS | 0 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 1,084,848 |
| OTHER SE | 7,188,197 |
| TOTAL LIABILITY AND EQUITY | 13,365,369 |
| SALES | 21,239,507 |
| TOTAL REVENUES | 21,239,507 |
| CGS | 8,396,060 |
| TOTAL COSTS | 16,945,341 |
| OTHER EXPENSES | 1,255,012 |
| LOSS PROVISION | 60,000 |
| INTEREST EXPENSE | 344,966 |
| INCOME PRETAX | 2,634,188 |
| INCOME TAX | 1,004,100 |
| INCOME CONTINUING | 1,630,088 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 1,630,088 |
| EPS PRIMARY | .31 |
| EPS DILUTED | .31 |