UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
(Mark One)
þ
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the fiscal year ended February 28, 2005 |
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the transition period from to . |
Commission file number: 0-4957
EDUCATIONAL DEVELOPMENT CORPORATION
73-0750007
(I.R.S. Employer
Identification No.)
74146-6515
(Zip Code)
(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.
Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrants 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.
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act)
Yes o No þ
The aggregate market value of the voting shares held by non-affiliates of the registrant at the price at which the common stock was last sold on August 31, 2004, on the Nasdaq National Market was $29,767,796.
As of June 6, 2005, 3,738,133 shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
1
TABLE OF CONTENTS
2
EDUCATIONAL DEVELOPMENT CORPORATION
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED FEBRUARY 28, 2005
FACTORS AFFECTING FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K, including the documents incorporated herein by reference, contains certain forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are not historical facts but are expectations or projections based on certain assumptions and analyses made by our senior management in light of their experience and perception of historical trends, current conditions, expected future developments and other factors. Actual events and results may be materially different from anticipated results described in such statements. The Companys 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 Companys business that may be beyond its control.
The words estimate, project, intend, expect, anticipate, believe and similar expressions are intended to identify forward-looking statements. These forward-looking statements are found at various places throughout this report and the documents incorporated in this report by reference as well as in other written materials, press releases and oral statements issued by us or on our behalf. We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date that they are made. We do not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this report.
PART 1
Item 1. BUSINESS
(a) General Development of Business
Educational Development Corporation (EDC or the Company), a Delaware corporation with its principal office in Tulsa, Oklahoma, is the exclusive trade publisher of a line of childrens books produced in the United Kingdom by Usborne Publishing Limited (Usborne).
The Company was incorporated on August 23, 1965. The Companys 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) 2005 the Company operated two divisions: Home Business Division (Usborne Books at Home or UBAH) and Publishing Division. The Home Business Division distributes books through independent consultants who hold book showings in individual homes, and through book fairs, direct sales and Internet sales. The Home Business Division also distributes these titles to school and public libraries. The Publishing Division markets books to bookstores, toy stores, specialty stores and other retail outlets.
(b) Financial Information about Industry Segments
See part II, Item 8 Financial Statements and Supplementary Data
3
(c) Narrative Description of Business
General
The principal product of both the Usborne Books at Home Division and Publishing Division is a line of childrens books produced in the United Kingdom by Usborne Publishing Limited. The Company is the sole United States trade publisher of these books. The Company currently offers approximately 1,400 different titles. The Company also distributes a product called Usborne Kid Kits. These Kid Kits take an Usborne book and combine it with specially selected items and/or toys that complement the information contained in the book. The Kid Kits are packaged in a reusable vinyl bag. Alternatively, 18 Kid Kits are also available in an attractive box package. Currently 59 different Kid Kits are available.
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. Likewise there 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 be depleted 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 only one source for its products Usborne Publishing Limited. 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.
Local, state and federal funds are important to the Usborne Books at Home Division but not to the Publishing Division. In many cities and states in which the Company does business, school funds have been severely cut, which impacts sales to school libraries.
Industry Segments
(a) Usborne Books at Home Division
The Usborne Books at Home Division markets the Usborne line of approximately 1,400 titles and 59 Kid Kits through a combination of direct sales, home parties, book fairs and the Internet, sold through a network marketing system. The division also sells to schools and public libraries.
(b) Publishing Division
The Publishing Division distributes the Usborne line to bookstores, toy stores, specialty stores and other retail outlets utilizing an inside telephone sales force as well as independent field sales representatives.
Marketing
(a) Usborne Books at Home Division
The Usborne Books at Home Division markets through commissioned consultants using a combination of direct sales, home parties, book fairs and the Internet. The division had approximately 8,300 consultants in 50 states at February 28, 2005.
4
(b) Publishing Division
The Publishing Division markets through commissioned trade representatives who call on book, toy, specialty stores and other retail outlets and through marketing by telephone to the trade. This division markets to approximately 5,100 book, toy and specialty stores. Significant orders totaling 36% of the Publishing Divisions sales have been received from major book chains. During fiscal year 2005 the division continued to expand into mass merchandising outlets such as drug, department and discount stores.
Competition
(a) Usborne Books at Home Division
The Usborne Books at Home Division faces significant competition from several other direct selling companies that have more financial resources. In addition, federal and state funding cuts will also impact the availability of funds to the school libraries. The Company is unable to estimate the effect of these funding cuts on the divisions future sales to school libraries because the magnitude of funding cuts has yet to be determined. Management believes its superior product line and consultant network 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 that have more financial resources. Industry sales of juvenile paperbacks approached $466 million annually for calendar year 2004, up 3.8% from the previous year. The Publishing Divisions sales are approximately 1.6% of industry sales. Competitive factors include product quality, price and deliverability. Management believes its product line will enable this division to compete well in its market area.
Seasonality
(a) Usborne Books at Home Division
The level of sales for Usborne Books at Home Division is greatest during the Fall as individuals prepare for the holiday season.
(b) Publishing Division
The level of sales for the Publishing Division is greatest in the Fall while retailers are stocking up for the holiday season.
5
Executive Officers
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,
President and Treasurer |
1986 | 63 | |||||||
|
||||||||||
W. Curtis Fossett
|
Controller and Corporate Secretary
(Principal Financial and Accounting Officer) |
1989 | 59 | |||||||
|
||||||||||
Craig M. White*
|
Vice President Information Systems | 2001 | 36 | |||||||
|
||||||||||
Ronald T. McDaniel*
|
Vice President Publishing Division | 2002 | 67 |
* The prior business experience for these executive officers who have been employed by the Company for less than five years is as follows: |
In April 2001, Craig M. White, son of Randall W. White, Chairman of the Board, President and Chief Executive Officer, was elected Vice President of Information Systems. Craig White graduated from Oklahoma State University in December 1994 with a BS degree in Electrical and Computer Engineering. He joined EDC in December 1994 as an Inventory Analyst. In July 1995 he was named Manager Information Systems.
In July 2002, Ronald T. McDaniel was elected Vice President of the Publishing Division. Ronald McDaniel joined EDC on September 25, 2000 as National Sales Manager of the Publishing Division. Prior to that he was affiliated with Prudential Detrick Realty, serving as a Residential and Light Commercial Sales Associate. In addition, he was President of The McDaniel Company, a residential management and rehabilitation company.
Employees
As of April 1, 2005, the Company had 76 full-time employees and 2 part-time employees. The Company believes its relations with its employees to be good.
Company Reports
The Company makes available free of charge through the Investor Relations portion of its Internet website at www.edcpub.com its annual reports on Form 10-K, its quarterly reports on Form 10-Q, its current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the Securities and Exchange Commission. The information on this website other than these reports is not considered to be part of these reports.
6
Item 2. PROPERTIES
The Company is located at 10302 E. 55th Pl., Tulsa, Oklahoma. These facilities are owned by the Company and contain approximately 105,000 square feet of office and warehouse space, including a 22,000 square foot addition to the warehouse, which was completed in August 2004 at a total cost of $584,700.
The Company believes that its operating facility meets both its present and future capacity needs.
Item 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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.
PART II
The common stock of EDC is traded on the Nasdaq National Market (symbolEDUC). The high and
low closing quarterly common stock quotations for fiscal years 2005 and 2004, as reported by the
National Association of Securities Dealers, Inc., were as follows:
The number of shareholders of record of EDCs common stock at April 25, 2005 was 929.
The Company paid a $0.12 per share annual dividend during fiscal year 2005 and a $0.10 per
share annual dividend during fiscal year 2004. The Company will pay a $0.15 per share dividend on
June 10, 2005 to shareholders of record as of June 3, 2005.
7
Item 5.
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
2005
2004
Period
High
Low
High
Low
10.98
10.00
10.63
9.38
11.56
10.80
13.58
9.90
13.49
10.00
13.05
10.13
10.83
10.06
11.18
10.35
The following table sets forth certain information concerning the repurchase of the Companys
Common Stock made by the Company during the fourth quarter of the fiscal year ended February 28,
2005.
ISSUER PURCHASES OF EQUITY SECURITIES
(d) Maximum
(c) Total Number
Number (or
of Shares (or
Approximate
Units) Purchased
Dollar Value)
as Part of
of Shares (or
Publicly
Units) that May
(a) Total Number
(b) Average
Announced
Yet Be Purchased
of Shares (or
Price Paid per
Plans
Under the
Period
Units Purchased (1)
Share (or Unit)
or Programs (2)
Plans or Programs
December 31, 2004
69,791
$10.33
69,791
179,064
January 31, 2005
179,064
February 28, 2005
179,064
69,791
$10.33
69,791
(1) | All of the shares of common stock set forth in this column (a) were purchased pursuant to a publicly announced plan as described in footnote 2 below and all of such shares were purchased through open-market transactions, except for 285 shares purchased during the period of December 1, 2004 December 31, 2004, which were purchased privately. | |
(2) | In July 1998, the Board of Directors authorized the Company to purchase up to 1,000,000 shares of the Companys common stock pursuant to a plan that was announced publicly on October 14, 1998. In May 1999, the Board of Directors authorized the Company to purchase up to an additional 1,000,000 shares of its common stock under this plan, which was announced publicly on May 19, 1999. In April 2004 the Board of Directors authorized the Company to purchase up to an additional 500,000 shares of its common stock under this plan. Pursuant to the plan, the Company may purchase such 2,500,000 shares of the Companys common stock until 2,500,000 shares have been repurchased. There is no expiration date for the repurchase plan. |
8
Item 6.
SELECTED FINANCIAL DATA
YEARS ENDED FEBRUARY 28 (29)
2005
2004
2003
2002
2001
$
31,650,779
$
31,127,268
$
26,869,681
$
22,065,957
$
18,823,682
$
2,406,074
$
2,373,450
$
1,996,615
$
1,531,274
$
1,090,262
$
.62
$
.60
$
.52
$
.40
.28
$
.59
$
.55
$
.48
$
.38
$
.27
$
17,980,506
$
19,112,694
$
17,587,725
$
14,156,798
$
12,471,650
$
.12
$
.10
$
.06
$
.04
$
.02
Overview
The Company operates two separate divisions, Publishing and Usborne Books at Home to sell
the Usborne line of childrens books. These two divisions each has its own customer base. The
Publishing Division markets its products on a wholesale basis to various retail accounts. The UBAH
Division markets its products to individual consumers as well as to school and public libraries.
Publishing Division
The Publishing Division operates in a market that is highly competitive, with a large number
of companies engaged in the selling of books. The Publishing Division is in direct competition
with all of these other companies. Sales in the book industry were approximately $23.7 billion for
calendar year 2004. Sales in the trade industry, defined as wholesale sales to retailers, were
approximately $5.2 billion for calendar year 2004. Sales in the juvenile paperback market, the
Companys market segment, were approximately $466 million for calendar year 2004. The Companys
market share in the juvenile paperback market has remained between 1.6% and 1.7% during the last
three years.
9
Item 7.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table sets forth the annual sales in the book industry for the last three
calendar years and compares these sales to the Publishing Divisions net sales.
Table of Book Industry Sales (1)
(amounts in millions)
2004
2003
2002
$
23,715.4
$
23,420.6
$
22,398.1
$
5,159.8
$
5,063.8
$
5,002.3
$
465.6
$
448.6
$
473.2
$
7.3
$
7.5
$
7.6
0.03
%
0.03
%
0.03
%
0.14
%
0.15
%
0.15
%
1.6
%
1.7
%
1.6
%
(1) |
Source: Association of American Publishers
|
|
(2) | Reported on fiscal year basis |
The Publishing Divisions customer base includes national book chains, regional and local bookstores, toy and gift stores, school supply stores and museums. To reach these markets, the Publishing Division utilizes a combination of commissioned sales representatives located throughout the country and a commissioned telesales group located in the Companys headquarters. The Vice President of the Publishing Division manages sales to the national chains.
The following table sets forth the percentages of net revenues earned by sales to the national
chains and sales to other markets for the Publishing Division for the past three fiscal years.
FY 2005
FY 2004
FY 2003
36
%
32
%
35
%
64
%
68
%
65
%
100
%
100
%
100
%
Sales to national chain stores increased in fiscal year 2005 primarily due to special promotions run by the major chains involving certain themes or subjects for which the Companys books were particularly suited.
The Publishing Division follows several avenues in order to attract potential new customers and maintain current customers. Company personnel attend many of the national trade shows held by the book selling industry each year. These shows allow the Company to make contact with potential buyers who may be unfamiliar with the Companys books. The Company actively targets the national chains through joint promotional efforts and institutional advertising in trade publications. The Publishing Division also participates with certain customers in a cooperative advertising allowance program, under which the Company pays back to the customer up to 2% of the net sales to that customer. The Companys products are then featured in promotions, such as catalogs, offered by the vendor. The Company may also acquire, for a fee, an end cap position in a bookstore (the Companys products are placed on the end of a shelf), which in the publishing industry is considered an advantageous location in the bookstore. The costs of these promotions have been classified as reductions in revenue in the statements of earnings. In January 2005 the Company launched the most comprehensive marketing and promotion program in its history. The program consists of additional promotional sales aids and strategies to increase market penetration.
10
The Publishing Divisions in-house telesales group targets the smaller independent book and gift store market. They maintain contact with approximately 5,100 customers. During fiscal year 2005 the telesales group opened 346 new accounts. The Companys full color, 130-page catalogs, which are revised twice a year, are mailed to nearly 5,100 customers and potential customers. The Company also offers two display racks to assist stores in displaying the Companys products. One is a six-foot rack with five adjustable shelves that can hold approximately 250 titles. The second rack is a four-sided rack with three levels that will hold between 50 and 60 of the Companys Kid Kits. There were 3,942 of these attractive racks in retail stores throughout the country at the end of fiscal year 2005.
Publishing Divisions revenues have remained constant during the last three fiscal years, with net revenues between $7.3 million $7.6 million each fiscal year. Management expects that in fiscal year 2006 the Publishing Division will achieve revenues in the $7.5 million $8.0 million range.
Usborne Books at Home (UBAH) Division
The UBAH Division is a multi-level selling organization that markets its products through independent sales representatives (consultants) located throughout the United States. The customer base of UBAH consists of individual purchasers and school and public libraries. Revenues are generated through home shows, direct sales, Internet sales, book fairs and contracts with school and public libraries.
An important factor in the continued growth of the UBAH Division is the addition of new sales consultants and the retention of existing sales consultants. Current active consultants recruit new sales consultants. UBAH makes it easy to recruit by providing low sign-up costs. Kits containing sample products and supplies can be purchased for as little as $29. UBAH provides an extensive handbook that is a valuable tool in explaining the various programs to the new recruit.
The following table sets forth the number of new consultants added during the last three
fiscal years and the number of active sales consultants at the end of the last three fiscal years.
FY 2005
FY 2004
FY 2003
5,646
6,964
5,715
8,273
8,800
7,000
The UBAH Division presently has six levels of sales representatives: consultants; supervisors; senior supervisors; executive supervisors; senior executive supervisors; directors. Upon signing up, each individual is considered a consultant. A consultant receives commissions from each sale the consultant makes, the commission rate being determined by the marketing program under which the sale is made. In addition, consultants receive a monthly sales bonus once the consultants sales reach an established monthly goal. Consultants who recruit other consultants and meet certain established criteria are eligible to become supervisors. Upon reaching this level, they receive monthly override payments based upon the sales of their downline groups. The marketing program under which the sales are made determines the rate for the override payments. Once supervisors reach certain established criteria, they become senior supervisors and are eligible to earn promotion bonuses on their consultants. Once senior supervisors reach certain established criteria, they become executive supervisors, senior executive supervisors or directors. Executive supervisors and higher may receive an additional monthly override payment based upon the sales of their downline groups.
11
The table below sets forth the different types of marketing programs UBAH offers and the
percentage of net UBAH revenues, including transportation revenue, that each marketing program has
generated for the last three fiscal years.
FY 2005
FY 2004
FY 2003
51
%
54
%
57
%
3
%
4
%
4
%
24
%
21
%
16
%
9
%
8
%
11
%
3
%
3
%
2
%
10
%
10
%
10
%
100
%
100
%
100
%
The table below sets forth a comparison of the percentage increase (decrease) between fiscal
years in the net revenue generated by the different types of marketing programs offered by UBAH,
along with the percentage increase (decrease) in transportation revenue.
FY 2005
FY 2004
Compared With
Compared With
FY 2004
FY 2003
(2
%)
17
%
(8
%)
19
%
16
%
64
%
7
%
0
%
32
%
94
%
0
%
17
%
Home shows are the largest generator of revenue for the UBAH Division and will continue as such for the foreseeable future. Home shows declined 2% or $180,000 during fiscal year 2005. This can be attributed to the decline in the number of new consultants signed up during the year.
The direct sales market declined 8% or $48,000 during fiscal year 2005. This can be attributed to the decline in the number of new consultants signed up during the year.
The book fair marketing program continues to grow. Scholastic dominates the book fair market. The Companys book fair program is comparable to Scholastics program and the Company is making inroads into their market share. Many schools will hold joint book fairs with UBAH and our competitors and the Company does well at these events. In many cases, UBAH book fairs have been the only allowed participant. The Company looks forward to continued growth in this market area as the Companys book fair program gains wider acceptance.
The school and library market is affected by the budget constraints of the various state school budgets. Cuts in schools budgets affect the ability of UBAH to be more effective in this market. However, increased numbers of consultants have entered this section of the market place and sales in fiscal year 2005 increased 7% over fiscal year 2004.
The Internet market is a relatively new market for UBAH. The revenues from this market, when compared with the other markets, are quite small. However, Internet sales have increased significantly year to year. This is the result of more consultants purchasing Company developed web sites.
12
The UBAH Marketing Programs
Homes shows were the original marketing program when UBAH began in 1989 and continues today to generate the greatest percentage of revenue for UBAH. Consultants contact individuals (hostesses) to hold book shows in their homes. The consultant assists the hostess in setting up the details for the show. The consultant makes a presentation at the show and takes orders for the books. The hostess earns free books based upon the total sales at the show. Customer specials are available for customers when they order a selected amount. Additionally, home shows provide an excellent opportunity for recruiting new consultants.
Direct sales are sales without a hostess being involved. This program makes it possible for the consultant to work directly out of her home selling to friends, neighbors and other customers. It is especially convenient for those individuals who wish to order books from a consultant but are unable to attend a home show. The UBAH Division offers many promotions (customer specials) throughout the year. These promotions offer the customer the opportunity to purchase selected items at a discount if the customer meets the defined criteria. The discounts under these promotions are recorded in discounts and allowances.
Book fairs can be held with almost any organization as the sponsor. The consultant provides promotional materials to acquaint parents with the books. Parents turn in their orders at a designated time. The book fair program generates free books for the sponsoring organization. UBAH also has a Reach For The Stars fundraiser program. This is a pledge-based reading incentive program that provides cash and books to the organization and books for the children.
School and library sales are restricted to consultants who have received additional training in order to allow them to sell to schools and libraries. The UBAH consultant is the only source that a library or school has for library bound Usborne books. They are not available through any of the school supply distribution companies.
The UBAH Division offers individual web sites to the consultants. These sites are hosted by the Company and are available for a nominal price. The consultants can customize the web sites to their own particular needs or they can maintain the generic site. These web sites provide access to the Companys 1,400 plus titles. Orders can be processed on line through a shopping cart arrangement. The orders are transmitted to the Company and the consultant receives sales credit and commission on the sales.
The cost of the free books provided under the various UBAH marketing programs is recorded as operating and selling expense in the statements of earnings.
The table below sets forth the number of orders for each UBAH marketing program.
FY 2005
FY 2004
FY 2003
41,237
41,763
35,489
10,140
10,928
9,366
7,243
6,503
4,208
4,251
4,842
6,435
17,609
13,532
7,017
80,480
77,568
62,515
The Company monitors the trends displayed in the above table in order to judge how the five marketing programs are performing. This table shows strong growth in two of the five categories. Home shows and direct sales suffered declines due to the lower number of new recruits signed up during FY2005. Despite a lower number of orders, the average size per order in the school and library division increased 22%, accounting for the increased sales in this market segment. As addressed above, the school and library market is impacted by the budget cuts undertaken by many schools. Internet orders increased as more consultants took advantage of the Company sponsored web sites.
13
UBAHs revenues and profits for fiscal year 2005 increased for the sixth consecutive year.
The Company believes that the UBAH Division has the greatest growth potential for the Company.
While there are many multi-level companies in the United States, UBAH is the only one exclusively
selling books. The Company believes this is a fertile market with excellent opportunities for
continued growth. The keys to future growth in the UBAH Division are recruiting new consultants and retaining existing consultants. In
January 2005 the Company launched the most comprehensive marketing and promotion program in its
history. The program consists of additional promotional sales aids and strategies designed to
increase sales and recruiting.
Results of Operations
The following table sets forth statements of earnings data as a percentage of total
revenues
Fiscal Year 2005 Compared with Fiscal Year 2004
Operating Results
The
Company had earnings before income taxes of $3,885,074 for fiscal year 2005 compared
with $3,832,450 for fiscal year 2004.
Revenues
The UBAH Divisions gross sales increased 2.6% or $676,800 during FY 2005 when compared with
FY 2004. The Company attributes this increase to the book fair market and school and library
market, which both recorded increased sales during FY 2005. The Publishing Divisions gross sales
declined 1.8% or $256,000 during FY 2005 when compared with FY 2004. The Company attributes this
decline to the loss last year of a major customer due to bankruptcy.
14
FY 2005
FY 2004
FY 2003
100.0
%
100.0
%
100.0
%
35.8
%
36.3
%
37.6
%
64.2
%
63.7
%
62.4
%
21.7
%
21.6
%
21.4
%
24.9
%
24.8
%
23.5
%
5.4
%
5.3
%
5.7
%
0.2
%
0.0
%
0.0
%
52.2
%
51.7
%
50.6
%
0.3
%
0.3
%
0.2
%
12.3
%
12.3
%
12.0
%
4.7
%
4.7
%
4.6
%
7.6
%
7.6
%
7.4
%
FY 2005
FY 2004
$ Increase
$
41,361,612
$
40,940,822
$
420,790
(11,324,165
)
(11,424,127
)
99,962
1,613,332
1,610,573
2,759
$
31,650,779
$
31,127,268
$
523,511
The Publishing Divisions discounts and allowances are a much larger percentage of gross sales than discounts and allowances in the UBAH Division due to the different customer markets that each division targets. The Publishing Divisions discounts and allowances were $7.8 million and $7.9 million in fiscal years 2005 and 2004, respectively. The Publishing Division sells to retail book chains, regional and local bookstores, toy and gift stores, school supply stores and museums. To be competitive with other wholesale book distributors, the Publishing Division sells at discounts between 48% and 55% of the retail price, based upon the quantity of books ordered and the dollar amount of the order. The Publishing Divisions discounts and allowances were 52% of Publishings gross sales for both fiscal years 2005 and 2004.
The UBAH Divisions discounts and allowances were $3.5 million in fiscal years 2005 and 2004. The UBAH Division is a multi-level selling organization that markets its products through independent sales representatives (consultants). Sales are made to individual purchasers and school and public libraries. Most sales in the UBAH Division are at retail. As a part of the UBAH Divisions marketing programs, discounts between 40% and 50% of retail are offered on selected items at various times throughout the year. The discounts and allowances in the UBAH Division will vary from year to year depending upon the marketing programs in place during any given year. The UBAH Divisions discounts and allowances were 14% of UBAHs gross sales for both fiscal years 2005 and 2004.
The increase in transportation revenues is the result of increased sales in the UBAH Division.
Expenses
FY 2005
FY 2004
$ Increase
$
11,338,039
$
11,295,738
$
42,301
6,860,540
6,730,548
129,992
7,875,891
7,712,408
163,483
1,719,240
1,639,141
80,099
67,620
9,762
57,858
$
27,861,330
$
27,387,597
$
473,733
Cost of sales increased approximately 0.4% in fiscal year 2005 when compared with fiscal year 2004. The Companys cost of its products is 25% to 32% of the gross sales price, depending upon the product. In comparing the percentage increase in gross sales with the percentage increase in cost of goods, consideration must be given to the mix of products sold. Approximately 97% of the Companys products come from one vendor, where the cost of the products is a fixed percentage of the retail price. The mix of products sold has not materially changed in recent years. We expect the percentage increases in year-to-year gross sales and the percentage increases in year-to-year cost of sales to be similar in movement in the foreseeable future. The 0.4% increase in cost of sales for fiscal year 2005 over fiscal year 2004 is consistent with the percent increase in gross sales of approximately 1.0% for the same periods. Cost of sales is the inventory cost of the product sold, which includes the cost of the product itself and inbound freight charges. Purchasing and receiving costs, inspection costs, warehousing costs, and other costs of our distribution network are included in operating and selling expenses. These costs totaled $1,196,915 in FY2005, $1,110,634 in FY2004 and $999,450 in FY2003. Readers are advised to be cautious when comparing our gross margins with the gross margins of other companies, since some companies include the costs of their distribution networks in cost of sales.
In addition to costs associated with our distribution network (noted above), operating and selling costs include expenses of the Publishing Division, the UBAH Division and the order entry and customer service functions. Operating and selling expenses increased because of higher payroll and benefits costs of $175,900 and increases in sales incentives offered by the UBAH Division totaling $64,900. Offsetting the increase in operating and selling expenses were decreases in damaged returns for both divisions of $109,300. Payroll and benefits costs increased because of additional personnel added to the order fulfillment areas and annual wage increases necessary to keep the Company competitive in the local job market. Operating and selling expenses as a percentage of gross sales were 16.6% and 16.4% for fiscal year 2005 and fiscal year 2004, respectively.
15
Sales commissions in the Publishing Division decreased $19,700 for the fiscal year ended 2005, due to the decrease in net sales. Publishing Division sales commissions are paid on net sales and were 1.2% of net sales in fiscal year 2005 and 1.4% of net sales in fiscal year 2004. Publishing Division sales commissions will fluctuate as a percentage of net sales, depending upon the type of customer. Sales to the major chains are handled by the Publishing Division Vice President and no sales commissions are paid on these sales. Sales commissions in the UBAH Division increased $183,200. UBAH Division sales commissions are paid on retail sales and were 38.2% for fiscal year 2005 and 38.9% for fiscal year 2004. The fluctuation in the percentages of commission expense to retail sales is the result of the type of sale. Home shows, book fairs, school and library sales and direct sales have different commissions rates. Also contributing to the fluctuations in the percentages is the payment of overrides and bonuses, both dependent on consultants monthly sales and downline sales. The increase in sales commissions is the result of increased sales in the UBAH Division.
General and administrative costs include the executive department, accounting department, information services department, general office management and building facilities management. General and administrative expenses increased because of higher payroll and benefits costs and increased maintenance costs. Payroll and benefits increased $76,600, due to annual salary adjustments necessary to keep the Company competitive in the local job market and the addition of new personnel. Routine maintenance and repair costs to the Companys facility increased $13,800. General and administrative expenses as a percentage of gross sales were 4.2% for fiscal year 2005 and 4.0% for fiscal year 2004.
Interest expense increased $57,858 due to increased borrowings throughout fiscal year 2005 and higher interest rates. The Federal Reserve increased interest rates six times during fiscal year 2005, which in turn caused the Companys rate to increase. Interest expense as a percentage of gross sales was 0.16% in fiscal year 2005 and .02% in fiscal year 2004.
The tax provision for fiscal year 2005 was $1,479,000. The effective rate for fiscal year 2005 was 38.0%, which is consistent with fiscal year 2004. The Companys current tax liability was reduced by $399,200 as a result of the benefit obtained from several Company officers and former officers exercising stock options.
Fiscal Year 2004 Compared with Fiscal Year 2003
Operating Results
The Company had earnings before income taxes of $3,832,450 for fiscal year 2004 compared
with $3,223,315 for fiscal year 2003.
Revenues
$ Increase/
FY 2004
FY 2003
(decrease)
$
40,940,822
$
36,715,349
$
4,225,473
(11,424,127
)
(11,223,231
)
(200,896
)
1,610,573
1,377,563
233,010
$
31,127,268
$
26,869,681
$
4,257,587
16
The UBAH Divisions gross sales increased 21% or $4.4 million during fiscal year 2004 when compared with fiscal year 2003. Each quarter of fiscal year 2004 recorded a sales increase when compared with the same quarter of fiscal year 2003. A quarterly comparison of fiscal year 2004 versus fiscal year 2003 shows the first quarter up 20%, the second quarter up 28%, the third quarter up 23% and the fourth quarter up 11%. The Company attributes these increases primarily as a result of a 22% increase in the number of new consultants. In addition, the Company continued to offer leadership skills seminars throughout fiscal year 2004. These seminars are designed to help supervisors build their business and the seminars proved to be very popular with these supervisors. The Publishing Divisions gross sales declined 1% or $157,000 during fiscal year 2004 when compared with fiscal year 2003. The Company attributes this decline to the loss of a major customer due to bankruptcy.
The Publishing Divisions discounts and allowances are a much larger percentage of gross sales than discounts and allowances in the UBAH Division due to the different customer markets that each division targets. The Publishing Divisions discounts and allowances were $7.9 million and $8.0 million in fiscal years 2004 and 2003, respectively. The Publishing Division sells to retail book chains, regional and local bookstores, toy and gift stores, school supply stores and museums. To be competitive with other wholesale book distributors, the Publishing Division sells at discounts between 48% and 55% of the retail price, based upon the quantity of books ordered and the dollar amount of the order. The Publishing Divisions discounts and allowances were 52% and 51% of Publishings gross sales for the fiscal years 2004 and 2003, respectively.
The UBAH Divisions discounts and allowances were $3.5 million and $3.2 million in fiscal years 2004 and 2003, respectively. The UBAH Division is a multi-level selling organization that markets its products through independent sales representatives (consultants). Sales are made to individual purchasers and school and public libraries. Most sales in the UBAH Division are at retail. As a part of the UBAH Divisions marketing programs, discounts between 40% and 50% of retail are offered on selected items at various times throughout the year. The discounts and allowances in the UBAH Division will vary from year to year depending upon the marketing programs in place during any given year. The UBAH Divisions discounts and allowances were 14% and 15% of UBAHs gross sales for the fiscal years 2004 and 2003 respectively.
The increase in transportation revenues is the result of increased sales in the UBAH Division.
Expenses
FY 2004
FY 2003
$ Increase
$
11,295,738
$
10,103,532
$
1,192,206
6,730,548
5,754,324
976,224
7,712,408
6,327,058
1,385,350
1,639,141
1,537,775
101,366
9,762
884
8,878
$
27,387,597
$
23,723,573
$
3,664,024
17
Cost of sales increased approximately 12% in fiscal year 2004 when compared with fiscal year 2003. The Companys cost of its products is 25% to 32% of the gross sales price, depending upon the product. In comparing the percentage increase in sales with the percentage increase in cost of goods, consideration must be given to the mix of products sold. Approximately 97% of the Companys products come from one vendor, where the cost of the products is a fixed percentage of the retail price. The mix of products sold has not materially changed in recent years. We expect the percentage increases in year-to-year gross sales and the percentage increases in year-to-year cost of sales to be similar in movement in the foreseeable future. The 12% increase in cost of sales is consistent with the percent increase in gross sales of approximately 12% for the same two fiscal years. Cost of sales is the inventory cost of the product sold, which includes the cost of the product itself and inbound freight charges. Purchasing and receiving costs, inspection costs, warehousing costs, and other costs of our distribution network are included in operating and selling expenses. These costs totaled $1,110,634 in fiscal year 2004, $999,450 in fiscal year 2003 and $813,694 in fiscal year 2002. Readers are advised to be cautious when comparing our gross margins with the gross margins of other companies, since some companies include the costs of their distribution network in cost of sales.
In addition to costs associated with our distribution network (noted above), operating and selling costs include expenses of the Publishing Division, the UBAH Division and the order entry and customer service functions. Operating and selling expenses increased because of an increase in freight expense for both divisions combined of $310,000 and an increase in damaged returns for both divisions combined of $68,000. The UBAH Division incurred increases of $452,000 in customer sales incentive costs and an increase in credit card fees in the UBAH Division of $98,000. These increases are directly attributable to the increase in sales. Operating and selling expenses as a percentage of gross sales were 16.4% for fiscal year 2004 and 15.7% for fiscal year 2003.
Sales commissions in the Publishing Division remained flat for the fiscal years ended 2004 and 2003. Publishing Division sales commissions are paid on net sales and were 1.4% of net sales in fiscal years 2004 and 2003. Sales commissions in the UBAH Division increased $1,385,000. UBAH Division sales commissions are paid on retail sales and were 38.9% for fiscal year 2004 and 39.4% for fiscal year 2003. The fluctuation in the percentages of commission expense to retail sales is the result of the type of sale. Home shows, book fairs, school and library sales and direct sales have different commissions rates. Also contributing to the fluctuations in the percentages is the payment of overrides and bonuses, both dependent on consultants monthly sales and downline sales. The increase in sales commissions is the result of increased sales in the UBAH Division.
General and administrative costs include the executive department, accounting department, information services department, general office management and building facilities management. General and administrative expenses increased primarily due to higher payroll costs. Payroll costs increased $60,700 due to annual salary adjustments necessary to keep the Company competitive in the local job market. Other items contributing to the increase in general and administrative costs were increases to the reserve for bad debts of $12,000, an increase in the accrual for audit and tax fees of $14,700 and other items aggregating $14,000. General and administrative expenses as a percentage of gross sales were 4.0% for fiscal year 2004 and 4.2% for fiscal year 2003.
Interest expense increased $8,900 due to increased borrowings throughout fiscal year 2004. Interest expense as a percentage of gross sales was 0.02% in fiscal year 2004 and was nominal in fiscal year 2003.
The tax provision for fiscal year 2004 was $1,459,000. The effective rate for fiscal year 2004 was 38.0%, which is consistent with fiscal year 2003. The Companys current tax liability was reduced by $87,900 as a result of the benefit obtained from several Company officers exercising stock options.
18
Liquidity and Capital Resources
The Companys primary uses of cash are for purchases of treasury stock under the stock buyback
program and for working capital. The Company utilizes its bank credit facility to meet its
short-term cash needs.
The Companys Board of Directors has adopted a stock repurchase plan in which the Company may
purchase up to 2,500,000 shares as market conditions warrant. Management believes the stock is
undervalued and when stock becomes available at an attractive price, the Company will utilize free
cash flow to repurchase shares. Management believes this enhances the value to the remaining
stockholders and that these repurchases will have no adverse effect on the Companys short-term and long-term liquidity. The Company
has a history of profitability and positive cash flow. The Company can sustain planned growth
levels with minimal capital requirements. Consequently, cash generated from operations is used to
liquidate any existing debt and then to repurchase shares outstanding or capital distributions
through dividends.
The Company expects its ongoing cash flow to exceed cash required to operate the business.
Consequently, the Company expects that it will be able to reduce short-term borrowings during the
year.
The Companys primary source of liquidity is cash generated from operations. During fiscal
year 2005 the Company experienced a positive cash flow from operations of $4,075,001. Cash flow
from operations was enhanced by the reduction of inventory in the amount of $1,893,700. The
Company believes that inventory is adequate to meet sales requirements and does not foresee
increasing inventory during fiscal year 2006.
The Company believes that in fiscal year 2006 it will experience a positive cash flow and that
this positive cash flow along with the bank credit facility will be adequate to meet its liquidity
requirements for the foreseeable future.
Cash used in investing activities was $483,400. The principal use of cash in investing
activities was for progress payments, totaling $404,900, on the construction of the 22,000 square
foot addition to the Companys warehouse facility. Additional cash used in investing activities
included $23,800 in property improvements, $29,300 for warehouse equipment and $25,400 for data
processing equipment. The Company estimates that cash used in investing activities for fiscal year
2006 will be less than $1,000,000. This would consist of software and hardware enhancements to the
Companys existing data processing equipment, property improvements and additional warehouse
equipment.
Cash received in financing activities was $122,500 from the sale of treasury stock, $543,500
from the exercise of stock options, a net $1,034,000 in borrowings under the bank credit agreement
and $399,200 reduced income taxes from exercise of stock options. Cash used in financing
activities included $5,103,300 paid to acquire treasury stock and the annual dividend totaling
$484,000.
19
Contractual Obligations
The table below summarizes the maturity dates of our contractual obligations by period.
Bank Credit Agreement
Effective June 30, 2004, the Company signed a Fifth Amendment to the Credit and Security
Agreement with Arvest Bank which provides a $3,500,000 line of credit. The line of credit is
evidenced by a promissory note in the amount of $3,500,000 payable June 30, 2005. The note bears
interest at the
Wall Street Journal
prime floating rate minus 0.25% payable monthly (5.25% at
February 28, 2005). The note is collateralized by substantially all of the assets of the Company.
At February 28, 2005 the Company had $1,428,000 outstanding. Available credit under the revolving
credit agreement was $2,072,000 at February 28, 2005. The Company intends to renew the credit line
prior to the maturity date and extend the maturity date to June 30, 2006.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based
upon our consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities.
On an on-going basis, we evaluate our estimates, including those related to our valuation of
inventory, allowance for uncollectable accounts receivable, allowance for sales returns, long-lived
assets and deferred income taxes. We base our estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may materially differ from these estimates
under different assumptions or conditions. Historically, however, actual results have not differed
materially from those determined using required estimates. The Companys significant accounting
policies are described in the notes accompanying the financial statements included elsewhere in
this report. However, the Company considers the following accounting policies to be more significantly dependent on the use of
estimates and assumptions.
20
Stock Based Compensation
The Company early adopted Statement of Financial Accounting Standards (SFAS) No. 123 (revised
2004) Share Based Payment, which requires fair-value measurement and recognition of stock-based
compensation. The Company adopted SFAS No. 123R on the modified retrospective application method to
all prior years for which SFAS No. 123 was effective. For the Company, this begins with its fiscal
year ended February 28, 1997. Historically, the Company has accounted for stock-based compensation
using the intrinsic value method under APB 25. No stock-based compensation cost was reflected in
net earnings, as all options granted had an exercise price equal to the market value of the
underlying common stock on the date of grant.
Revenue Recognition
Revenue from merchandise sales is net of returns and allowances. The provisions of the SEC
Staff Accounting Bulletin No.104, Revenue Recognition in Financial Statements, have been applied,
and as a result, a reserve is provided for estimated future sales returns. The Companys sales
return policy allows the customer to return all purchases for an exchange or refund for up to 30
days after the customer receives the item. Management has estimated and included a reserve for
sales returns of $63,000 as of February 28, 2005 and $101,100 as of February 29, 2004. The reserve
for sales returns is estimated by management using historical sales returns data.
Allowance for Doubtful Accounts
The Company maintains an allowance for estimated losses resulting from the inability of its
customers to make required payments. An estimate of uncollectable amounts is made by management
based upon historical bad debts, current customer receivable balances, age of customer receivable
balances, the customers financial condition and current economic trends. If the actual
uncollected amounts significantly exceed the estimated allowance, then the Companys operating
results would be significantly adversely affected. Management has estimated allowance for doubtful
accounts of $77,391 and $49,919 as of February 28, 2005 and February 29, 2004, respectively.
Inventory
Management continually estimates and calculates the amount of non-current inventory. The
inventory arises due to the Company occasionally purchasing book inventory in quantities in excess
of what will be sold within the normal operating cycle due to minimum order requirements of the
Companys primary supplier. Noncurrent inventory was estimated by management using the current
year turnover ratio by title. All inventory in excess of 2 1/2 years of anticipated sales was
classified as noncurrent inventory. Noncurrent inventory balances were $1,111,700 and $823,751 at
February 28, 2005 and February 29, 2004, respectively.
Inventories are presented net of a valuation allowance. Management has estimated and included
a valuation allowance for both current and noncurrent inventory. This allowance is based on
managements identification of slow moving inventory on hand at February 28, 2005 and February 29,
2004. Management has estimated a valuation allowance for both current and noncurrent inventory of
$424,870 and $282,165 as of February 28, 2005 and February 29, 2004, respectively.
21
The Companys product line contains approximately 1,400 titles, each with different rates of
sale, depending upon the popularity of the various titles. Almost all of the Companys product
line is saleable as the books are not topical in nature and remain current in content today as well
as in the future. A few of the titles, less than 50, have a limited time when they remain current
in content, i.e. computer books, and these few titles are fully reserved as warranted. The
Companys products are printed in Europe, China and the Middle East, resulting in a six-month
lead-time to have a title reprinted and delivered to the Company. The Companys principal
supplier, based in England, imposes minimum order requirements before reprinting a title. At the
current time the Company must reorder 7,500 or more of a title in order to get a solo print run.
If the Company orders less than 7,500 of a title, then it must share a print run with the suppliers
other customers. Sharing a print run has resulted in delays of up to twelve months in the Company
receiving the ordered title. Anticipating customer preferences and purchasing habits requires
historical analysis of similar titles in the same series. The Company then places the initial
order or re-order based upon this analysis. These factors and historical analysis have led
Management to determine that 2.5 years represents a reasonable estimate of the normal operating
cycle for the Companys products.
Deferred Tax Assets
As discussed in Note 4 of the consolidated financial statements, the Company does not
currently have a valuation allowance recorded against its deferred tax assets. If management
determines it is more likely than not that its deferred tax assets would not be realizable in the
future, a valuation allowance would be recorded to reduce the deferred tax asset to its net
realizable value.
Long-lived Assets
In evaluating the fair value and future benefits of long-lived assets, we perform an analysis
of the anticipated undiscounted future net cash flows of the related long-lived assets and reduce
their carrying value by the excess, if any, of the result of such calculation. We believe at this
time that the long-lived assets carrying values and useful lives continue to be appropriate.
The Company does not have any material market risk.
The
information required by this Item 8 begins at page 29.
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, 2005.
The Audit Committee dismissed the Companys independent registered public accounting firm,
Deloitte & Touche LLP, as of February 22, 2005. The Audit Committee selected Tullius Taylor
Sartain & Sartain LLP (Tullius Taylor) headquartered in Tulsa, Oklahoma, as the Companys new
independent registered public accounting firm for the fiscal year ended February 28, 2005.
22
An evaluation was performed of the effectiveness of the design and operation of the Companys
disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) and 15d-15(e) as of
February 28, 2005. This evaluation was conducted under the supervision and with the participation
of the Companys management, including its Chief Executive Officer and its Controller and Corporate
Secretary (Principal Financial and Accounting Officer). Based on that evaluation, the Companys
Chief Executive Officer and its Controller and Corporate Secretary (Principal Financial and
Accounting Officer) concluded that the Companys disclosure controls and procedures were effective
to ensure that information required to be disclosed in reports that we file or submit under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported in accordance
within the time periods specified in Securities and Exchange Commission rules and forms. It should
be noted that the design of any system of controls is based in part upon certain assumptions about
the likelihood of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions, regardless of how remote. During
the fourth fiscal quarter of the fiscal year covered by this report on Form 10-K, there have been
no changes in the Companys internal control over financial reporting that have materially affected
or are reasonably likely to materially affect, its internal control over financial reporting.
None
PART III
(a)
Identification of Directors
The information required by this Item 10 is furnished by incorporation by reference to the
information under the caption Election of Directors in the Companys definitive Proxy Statement
to be filed in connection with the Annual Meeting of Shareholders to be held on August 9, 2005.
(b)
Identification of Executive Officers
Information regarding our executive officers required by Item 401 of Regulation S-K is
presented in Item 1 hereof under the subcaption Executive Officers as permitted by General
Instruction G (3) to Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K.
(c)
Compliance With Section 16 (a) of the Exchange Act
The information required by this Item 10 is furnished by incorporation by reference to the
information under the caption Section 16 (a) Beneficial Ownership Reporting Compliance in the
Companys definitive Proxy Statement to be filed in connection with the Annual Meeting of
Shareholders to be held on August 9, 2005.
The information required by this Item 11 is furnished by incorporation by reference to the
information under the caption Executive Compensation in the Companys definitive Proxy Statement
to be filed in connection with the Annual Meeting of Shareholders to be held on August 9, 2005.
23
The information required by this Item 12 is furnished by incorporation by reference to the
information under the captions Security Ownership of Certain Beneficial Owners and Management and
Compensation Plans in the Companys definitive Proxy Statement to be filed in connection with the
Annual Meeting of Shareholders to be held on August 9, 2005.
None
The information required by this Item 14 is furnished by incorporation by reference to the
information under the caption Independent Registered Public Accountants in the Companys
definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be
held on August 9, 2005.
24
PART IV
(a) The following documents are filed as part of this report:
1. Financial Statements
25
26
27
SIGNATURES
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.
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.
28
Report of Independent
Registered Public Accounting Firm
To the Board of Directors and Shareholders
We have audited the balance sheet of Educational Development Corporation as of
February 28, 2005, and the related statements of earnings, shareholders equity,
and cash flows for the year then ended. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we express no such opinion. 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Educational Development
Corporation as of February 28, 2005, and the results of its operations and its
cash flows for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for stock based compensation with the election to early
adopt Statement of Financial Accounting Standards No. 123 (revised 2004) Share
Based Payment. We also audited the adjustments described in Note 1 that were
applied to restate the financial statements as of and for the year ended
February 29, 2004 and February 28, 2003. In our opinion, such adjustments are
appropriate and have been properly applied.
/s/ Tullius Taylor Sartain & Sartain LLP
Tulsa, Oklahoma
29
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
We have audited the balance sheet of Educational Development Corporation (the Company) as of
February 29, 2004, and the related statements of earnings, shareholders equity, and cash flows for
the years ended February 29, 2004 and February 28, 2003 (none of which are presented herein). These
financial statements are the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight
Board (United States). 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 29, 2004, and the results of its operations and its cash flows
for the years ended February 29, 2004 and February 28, 2003 in conformity with accounting
principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Tulsa, Oklahoma
30
EDUCATIONAL DEVELOPMENT CORPORATION
BALANCE SHEETS
See notes to financial statements.
31
EDUCATIONAL DEVELOPMENT CORPORATION
STATEMENTS OF EARNINGS
See notes to financial
statements.
32
EDUCATIONAL DEVELOPMENT CORPORATION
STATEMENTS OF SHAREHOLDERS EQUITY
33
EDUCATIONAL DEVELOPMENT CORPORATION
STATEMENTS OF CASH FLOWS
See notes to financial statements.
34
EDUCATIONAL DEVELOPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Educational Development Corporation (the Company) distributes books and
publications through its Publishing and Usborne Books at Home (UBAH) Divisions to book, toy and
gift stores, libraries and home educators located throughout the United States (U.S.). The
Company is the sole U.S. distributor of books and related items, which are published by an England
based publishing company. The England based publishing company is the Companys primary supplier.
Estimates
The Companys financial statements were prepared in conformity with accounting
principles generally accepted in the United States of America, which requires management to make
estimates and assumptions that affect the amounts and disclosures in the financial statements.
Actual results could differ from these estimates.
Business Concentration
A significant portion of inventory purchases by the Company are
concentrated with an England based publishing company. Purchases from this England based
publishing company were approximately $8.0 million, $12.7 million and $11.1 million for the fiscal
years ended February 28, 2005, February 29, 2004 and February 28, 2003, respectively. Total
inventory purchases were approximately $11.2 million, $15.3 million and $13.9 million for the
fiscal years ended February 28, 2005, February 29, 2004 and February 28, 2003, respectively.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and cash on deposit
in banks. The Company maintains bank accounts that are insured by the Federal Deposit Insurance
Corporation (FDIC) up to $100,000. At times, cash balances may be in excess of the FDIC insurance
limit. The Company believes no significant concentrations of risk exist with respect to its cash.
Accounts Receivable
Accounts receivable are uncollateralized customer obligations due under
normal trade terms generally requiring payment within thirty days from the invoice date. Trade
accounts are stated at the amount management expects to collect from outstanding balances.
Delinquency fees are not assessed. Payments of accounts receivable are allocated to the specific
invoices identified on the customers remittance advice. Accounts receivable are carried at
original invoice amount less an estimated reserve made for returns and discounts based on quarterly
review of historical rates of returns and expected discounts to be taken. The carrying amount of
accounts receivable is reduced, if needed, by a valuation allowance that reflects managements best
estimate of the amounts that will not be collected. Management individually reviews all accounts
receivable balances that exceed sixty days from invoice date and based on an assessment of current
creditworthiness, estimates the portion, if any, of the balance that will not be collected.
Management provides for probable uncollectible amounts through a charge to earnings and a credit to
a valuation account based on its assessment of the current status of the individual accounts.
Balances that remain outstanding after management has used reasonable collection efforts are
written off through a charge to the valuation allowance and a credit to trade accounts receivable.
Changes in the valuation allowance have not been material to the financial statements. Recoveries
of trade receivables previously written off are recorded when received.
35
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method. The Company presents a portion of its inventory as a
noncurrent asset. Occasionally the Company purchases book inventory in quantities in excess of
what will be sold within the normal operating cycle due to minimum order requirements of the
Companys primary supplier. These excess quantities were included in noncurrent inventory.
Noncurrent inventory was estimated by management using the current year turnover ratio by title.
All inventory in excess of 2 1/2 years of anticipated sales was classified as noncurrent inventory.
Inventories are presented net of a valuation allowance. Management has estimated and included
an allowance for slow moving inventory for both current and noncurrent inventory. This allowance
is based on managements analysis of inventory on hand at February 28, 2005 and February 29, 2004.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated
on a straight-line basis over the estimated useful lives, as follows:
Income Taxes
The Company records deferred tax assets and liabilities for the future tax
consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases, using the regular tax rate expected
to be in effect when the taxes are actually paid or recovered. The Company records net deferred
tax assets related to the recognition of future tax benefits, to the extent that realization of
such benefits is considered more likely than not to occur.
Revenue Recognition
Sales are recognized and recorded when products are shipped. Products are
shipped FOB shipping point. The UBAH Divisions sales are paid before the product is shipped.
These sales accounted for 77% of net revenues in FY2005, 76% in FY2004 and 72% in FY2003. Estimated
allowances for sales returns are recorded as sales are recognized and recorded. Management uses a
moving average calculation to estimate the allowance for sales returns. Management approves sales
returns on a case-by-case basis. The Company is not responsible for product damaged in transit.
Damaged returns are primarily from the retail stores. The damages occur in the stores, not in
shipping to the stores. It is industry practice to accept returns from wholesale customers.
Transportation revenue, the amount billed to the customer for shipping the product, is recorded
when products are shipped.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expenses,
included in selling and operating expenses in the statements of earnings, were $11,573 in FY2005,
$6,795 in FY2004 and $11,460 in FY2003.
Shipping and Handling Costs
The Company classifies shipping and handling costs as operating
and selling expenses in the statements of earnings. Shipping and handling costs were $2,108,565
for FY 2005, $1,995,038 for FY2004 and $1,685,072 for FY2003.
Earnings Per Share
Basic earnings per share (EPS) is computed by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted EPS is based on
the combined weighted average number of common shares outstanding and dilutive potential common
shares issuable which include, where appropriate, the assumed exercise of options. In computing
diluted EPS the Company has utilized the treasury stock method.
36
The following reconciles the diluted earnings per share:
There were no stock options for the fiscal years ended February 28, 2005, February 29, 2004
and February 28, 2003 excluded from the diluted earnings per share calculation.
Fair Value of Financial Instruments
For cash and cash equivalents, accounts receivable,
accounts payable and notes payable to the bank, the carrying amount approximates fair value because
of the short maturity of those instruments.
Long-Lived Asset Impairment
The Company reviews the value of long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not
be recoverable based on estimated future cash flows. No impairment was noted as a result of such
review during the years ended February 28, 2005, February 29, 2004 and February 28, 2003.
Stock-Based Compensation
In December 2004, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No. 123 (revised 2004) Share Based
Payment. This Statement replaces SFAS No. 123, Accounting for Stock Compensation, and
supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees. In the fourth quarter of fiscal year 2005, the Company early adopted SFAS No. 123R
which eliminates the alternative of applying the intrinsic value measurement provision of APB 25 to
stock compensation awards and requires that share-based payment transactions with employees, such
as stock options and restricted stock, be measured at fair value and recognized as compensation
expense over the vesting period. The Company adopted SFAS No. 123R on the modified retrospective
application method to all prior years for which SFAS No. 123R was effective. For the Company, this
begins with its fiscal year ended February 28, 1997. As a result of the adoption, retained
earnings as of March 1, 2003 was reduced by $1,101,628; deferred tax assets were increased by
$25,700; and capital in excess of par value was increased by $1,127,328. The accounting change
increased earnings by approximately $198,000 in fiscal year 2005 ($.05 per diluted share) and
decreased earnings by approximately $41,000 in fiscal year 2003 ($.01 per diluted share.)
Reclassifications
Certain prior year amounts have been reclassified to conform with the 2005
presentation.
37
2. INVENTORIES
Inventories consist of the following:
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
38
4. 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. The tax effects of significant items comprising the Companys net
deferred tax assets and liabilities as of February 28, 2005 and February 29, 2004 are as follows:
Management has determined that no valuation allowance is necessary to reduce the deferred tax
assets as it is more likely than not that such assets are realizable.
39
The components of income tax expense are as follows:
The following reconciles the Companys expected income tax expense utilizing statutory tax
rates to the actual tax expense:
5. EMPLOYEE BENEFIT PLAN
The Company has a profit sharing plan that 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 $70,280, $29,474 and $60,412 in the fiscal years ended February 28, 2005, February 29,
2004 and February 28, 2003.
6. NOTE PAYABLE TO BANK
The Company has a $3,500,000 revolving credit agreement, with interest payable monthly at
prime minus 0.25% (5.25% at February 28, 2005), collateralized by substantially all assets of the
Company and maturing on June 30, 2005. Available credit under the revolving credit agreement was
$2,072,000 at February 28, 2005, and $3,106,000 at February 29, 2004. The agreement contains
provisions that require the Company to maintain specified financial ratios, restrict transactions
with related parties, prohibit mergers or consolidation, disallow additional debt, and limit the
amount of compensation, salaries, investments, capital expenditures and leasing transactions. The
Company intends to renew the bank agreement or obtain other financing upon maturity.
The Company had $1,428,000 of borrowings outstanding on the above revolving credit agreement
at February 28, 2005 and $394,000 of borrowings outstanding at February 29, 2004.
7. COMMITMENTS
At February 28, 2005, the Company had outstanding commitments to purchase inventory from its
primary vendor totaling approximately $4,053,900.
40
8. CAPITAL STOCK, STOCK OPTIONS AND WARRANTS
The Board of Directors adopted the 1992 Incentive Stock Option Plan (the 1992 Plan) in June
of 1992, which authorized the Company to grant up to 1,000,000 stock options. The 1992 Plan
expired in June of 2002 upon which the Board of Directors adopted the 2002 Stock Option Plan (the
2002 Plan). The 2002 Plan also authorized the Company to grant up to 1,000,000 stock options.
Options granted under the 1992 Plan and 2002 Plan (collectively the Incentive Plans) vest at
date of grant and are exercisable up to ten years from the date of grant. The exercise price on
options granted is equal to the market price at the date of grant. Options outstanding at February
28, 2005 expire beginning in December 2007 through March 2014.
A summary of the status of the Companys Incentive Plans as of February 28, 2005, February 29,
2004 and February 28, 2003, and changes during the years then ended is presented below:
The following table summarizes information about stock options outstanding at February 28,
2005:
All options outstanding are exercisable at February 28, 2005.
Options totaling 1,000 shares were granted in the fiscal year ended February 28, 2005. The
fair value of options granted under the Incentive Plan was estimated on the date of grant using the
Black-Scholes option-pricing model. The following assumptions were used for options granted in the
fiscal year ended February 28, 2005: 1% dividend yield, expected volatility of 26.49%, risk free
interest rate of 4.06%, and expected life of ten years; and the following assumptions were used for
options granted in the fiscal year ended February 28, 2003: no dividend yield, expected volatility
of 27.64%, risk free interest rate of 3.68%, and expected life of ten years. Compensation
expense was increased by $4,639 and $41,471 for 2005 and 2003, respectively, and the income tax
provision was decreased by $1,500 for 2005.
41
9. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the years ended February
28, 2005, February 29, 2004 and February 28, 2003.
The February 28, 2003 quarterly results reflect the reclassification of freight revenue
which aggregated $1,377,563. The February 28, 2005, February 29, 2004 and February 28, 2003 fiscal
year quarterly results reflect the reclassification of supplies revenue which aggregated $721,237,
$870,752 and $678,563 respectively. These reclassifications had no effect on net earnings for any
period presented. The retroactive restatements to adopt SFAS No. 123R described in Note 1,
Stock-Based Compensation, were not material to net earnings of the fiscal years affected. Such
adjustments were recorded in the fourth fiscal quarter of the years ended February 28, 2005 and
2003.
10. BUSINESS SEGMENTS
The Company has two reportable segments: Publishing and Usborne Books at Home (UBAH). These
reportable segments are business units that offer different methods of distribution to different
types of customers. They are managed separately based on the fundamental differences in their
operations. The Publishing Division markets its products to retail accounts, which include book,
toy and gift stores, school supply stores and museums, through commissioned sales representatives,
trade and specialty wholesalers and an internal telesales group. The UBAH Division markets its
product line through a network of independent sales consultants through a combination of direct
sales, home shows and book fairs. The UBAH Division also distributes to school and public
libraries.
42
The accounting policies of the segments are the same as those described in the summary of
significant accounting policies. The Company evaluates segment performance based on earnings
(loss) before income taxes of the segments, which is defined as segment net sales reduced by direct
cost of sales and direct expenses. Corporate expenses, depreciation, interest expense and income
taxes are not allocated to the
segments, but are listed in the other column. Corporate expenses include the executive
department, accounting department, information services department, general office management and
building facilities management. The Companys assets and liabilities are not allocated on a
segment basis.
Information by industry segment for the years ended February 28, 2005, February 29, 2004 and
February 28, 2003 is set forth below:
Net revenues
11. STOCK REPURCHASE PLAN
In July 1998, the Board of Directors authorized the Company to purchase up to 1,000,000 shares
of the Companys common stock. In May 1999, the Board of Directors authorized the Company to
purchase up to an additional 1,000,000 shares of its common stock. In April 2004 the Board of
Directors authorized the Company to purchase up to an additional 500,000 shares of its common
stock. During fiscal year 2005 the Company continued the stock buyback program by purchasing
479,360 shares of common stock at an average price of $10.65 per share totaling approximately
$5,103,300. The cumulative shares purchased under the share repurchase program, as of February 28,
2005, were 2,320,936 shares at a cost totaling approximately $11,728,700.
12. SUBSEQUENT EVENT
On May 26, 2005 the Company announced that it would pay a $0.15 per share dividend on June 10,
2005 to shareholders of record as of June 3, 2005.
******
43
Table of Contents
Payments due by period
Less
More
than
then
Contractual
1
1-3
3-5
5
obligations
Total
year
years
years
years
$
4,053,900
$
4,053,900
$
4,053,900
$
4,053,900
Table of Contents
Table of Contents
Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Table of Contents
Item 9.A
CONTROLS AND PROCEDURES
Item 9.B
OTHER INFORMATION
Item 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Item 11.
EXECUTIVE COMPENSATION
Table of Contents
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 14.
PRINCIPAL ACCOUNTANTS FEES AND SERVICES
Table of Contents
Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Page
29
30
31
32
33
34
35-43
Schedules have been omitted as such information is either not required or is
included in the financial statements.
2.
Exhibits
Restated Certificate of Incorporation of the Company dated
April 26, 1968, and Certificate of Amendment thereto dated
June 21, 1968 are incorporated herein by reference to Exhibit 1
to Registration Statement on Form 10 (File No. 0-4957).
Certificate of Amendment of Restated Certificate of Incorporation
of the Company dated August 27, 1977 are incorporated herein by
reference to Exhibit 20.1 to Form 10-K for fiscal year ended
February 28, 1981 (File No. 0-4957).
By-Laws of the Company as amended are incorporated herein
by reference to Exhibit 20.2 to Form 10-K for fiscal year ended
February 28, 1981 (File No. 0-4957).
Table of Contents
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).
Certificate of Amendment of Restated Certificate of
Incorporation of the Company dated March 22, 1996.
is incorporated herein by reference to Exhibit 3.4 to Form
10-K for fiscal year ended February 28, 1997 (File No. 0-4957).
Certificate of Amendment of Restated Certificate of Incorporation
of the Company dated July 15, 2002 is incorporated herein by reference to
Exhibit 10.30 to Form 10-K dated February 28, 2003 (File No. 0-4957)
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) filed June 29, 1970.
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).
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).
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).
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)
Restated Loan Agreement dated June 30, 1999 between the Company
and State Bank & Trust, N.A., Tulsa, OK, is incorporated
herein by reference to Exhibit 10.24 to Form 10-K dated
February 29, 2000 (File No. 0-4957).
Educational Development Corporation 2002 Incentive Stock
Option Plan is incorporated herein by reference to Exhibit A
to definitive proxy statement of the Company on Schedule 14A
dated May 23, 2002 (File No. 0-4957)
Amendment dated November 12, 2002 to Usborne Agreement -
Contractual agreement by and between the Company and
Usborne Publishing Limited is incorporated herein by reference to
Exhibit 10.24 to Form 10-K dated February 28, 2003 (File No. 0-4957).
Table of Contents
Employment Agreement between Randall W. White and the Company
dated February 28, 2004.
Fifth Amendment dated June 30, 2004 to Restated Loan Agreement
between the Company and Arvest Bank, Tulsa, OK
Consent of current Independent Registered Public Accounting Firm
Consent of prior Independent Registered Public Accounting Firm
Certification of the Chief Executive Officer of Educational Development
Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Controller and Corporate Secretary (Principal Financial
and Accounting Officer) of Educational Development Corporation pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
*
Filed Herewith
Table of Contents
EDUCATIONAL DEVELOPMENT CORPORATION
By
/s/ W. Curtis Fossett
W. Curtis Fossett
Controller and Corporate Secretary
(Principal Financial and Accounting Officer)
June 10, 2005
/s/ Randall W. White
Randall W. White
Chairman of the Board
President, Treasurer and
Director
June 10, 2005
/s/ Robert D. Berryhill
Robert D. Berryhill, Director
June 10, 2005
/s/ John A. Clerico
John A. Clerico, Director
June 10, 2005
/s/ Dean Cosgrove
G. Dean Cosgrove, Director
June 10, 2005
/s/ James F. Lewis
James F. Lewis, Director
June 10, 2005
/s/ W. Curtis Fossett
W. Curtis Fossett
Controller and Corporate Secretary
(Principal Financial and Accounting Officer)
Table of Contents
Educational Development Corporation
June 9, 2005
Table of Contents
Educational Development Corporation
May 19, 2004
Table of Contents
FEBRUARY 28, 2005 AND FEBRUARY 29, 2004
Table of Contents
YEARS ENDED FEBRUARY 28, 2005, FEBRUARY 29, 2004 AND FEBRUARY 28, 2003
Table of Contents
YEARS ENDED FEBRUARY 28, 2005, FEBRUARY 29, 2004 AND FEBRUARY 28, 2003
Common Stock
(par value $0.20 per share)
Number of
Capital in
Treasury Stock
Shares
Excess of
Retained
Number of
Shareholders
Issued
Amount
Par Value
Earnings
Shares
Amount
Equity
5,429,240
$
1,085,848
$
4,417,507
$
9,647,723
1,607,123
$
(5,035,737
)
$
10,115,341
1,127,328
(1,101,628
)
25,700
41,470
41,470
107,498
(765,227
)
(765,227
)
138,286
(90,201
)
321,566
459,852
12,400
2,480
63,613
(10,400
)
32,607
98,700
(230,146
)
(230,146
)
1,996,615
1,996,615
5,441,640
1,088,328
5,788,204
10,312,564
1,614,020
(5,446,791
)
11,742,305
54,304
(575,820
)
(575,820
)
301,525
(97,757
)
336,165
637,690
154,700
30,940
341,040
371,980
87,900
87,900
(393,948
)
(393,948
)
2,373,450
2,373,450
5,596,340
1,119,268
6,518,669
12,292,066
1,570,567
(5,686,446
)
14,243,557
479,360
(5,103,255
)
(5,103,255
)
36,700
(23,100
)
85,800
122,500
166,000
33,200
510,300
543,500
399,178
399,178
4,639
4,639
(484,047
)
(484,047
)
2,406,074
2,406,074
5,762,340
$
1,152,468
$
7,469,486
$
14,214,093
2,026,827
$
(10,703,901
)
$
12,132,146
Table of Contents
YEARS ENDED FEBRUARY 28, 2005, FEBRUARY 29, 2004 AND FEBRUARY 28, 2003
Table of Contents
YEARS ENDED FEBRUARY 28, 2005, FEBRUARY 29, 2004 AND FEBRUARY 28, 2003
Table of Contents
30 years
3 - 10 years
3 years
Table of Contents
Year Ended
Year Ended
Year Ended
February 28,
February 29,
February 28,
2005
2004
2003
$
2,406,074
$
2,373,450
$
1,996,615
3,902,075
3,948,193
3,835,411
186,055
345,609
323,370
4,088,130
4,293,802
4,158,781
$
0.59
$
0.55
$
0.48
Table of Contents
February 28,
February 29,
2005
2004
$
11,785,698
$
13,824,645
(36,460
)
(29,410
)
$
11,749,238
$
13,795,235
$
1,111,700
$
823,751
(388,410
)
(252,755
)
$
723,290
$
570,996
February 28,
February 29,
2005
2004
$
250,000
$
250,000
2,124,712
1,540,000
1,765,552
1,710,070
65,807
56,815
4,206,071
3,556,885
(1,803,304
)
(1,690,519
)
179,776
$
2,402,767
$
2,046,142
Table of Contents
February 28,
February 29,
2005
2004
$
29,400
$
19,000
13,900
11,200
1,500
44,800
30,200
$
44,800
$
30,200
$
154,500
$
103,000
4,200
25,700
158,700
128,700
(61,900
)
(46,200
)
(61,900
)
(46,200
)
$
96,800
$
82,500
Table of Contents
February 28,
February 29,
February 28,
2005
2004
2003
$
1,321,000
$
1,303,000
$
1,096,000
156,000
153,000
130,000
2,000
3,000
700
$
1,479,000
$
1,459,000
$
1,226,700
Table of Contents
2005
2004
2003
Weighted
Weighted
Weighted
Average
Average
Average
Exercise
Exercise
Exercise
Shares
Price
Shares
Price
Shares
Price
424,700
$
3.57
579,400
$
3.26
590,600
$
3.24
1,000
10.00
15,000
6.00
(166,000
)
(3.27
)
(154,700
)
(2.40
)
(26,200
)
(4.29
)
259,700
$
3.79
424,700
$
3.57
579,400
$
3.26
Number
Weighted Average
Range of
Outstanding
Remaining
Exercise
at February 28,
Contractual
Weighted Average
Prices
2005
Life (Years)
Exercise Price
91,000
5
$
2.26
5,000
3
$
3.81
20,000
3
$
4.00
135,200
3
$
4.63
7,500
8
$
6.00
1,000
9
$
10.00
259,700
Table of Contents
Basic
Diluted
Net
Earnings
Earnings
Revenues
Gross Margin
Net Earnings
Per Share
Per Share
$
8,553,300
$
5,549,400
$
824,400
$
0.21
$
0.19
6,992,200
4,373,100
452,400
0.11
0.11
9,331,100
6,110,600
809,400
0.21
0.20
6,774,179
4,279,640
319,874
0.09
0.09
$
31,650,779
$
20,312,740
$
2,406,074
$
0.62
$
0.59
$
7,384,200
$
4,701,900
$
585,900
$
0.15
$
0.14
7,142,100
4,341,600
534,400
0.14
0.12
10,168,900
6,653,700
871,100
0.22
0.20
6,432,068
4,134,330
382,050
0.09
0.09
$
31,127,268
$
19,831,530
$
2,373,450
$
0.60
$
0.55
$
6,547,700
$
4,002,400
$
547,700
$
0.14
$
0.13
6,100,100
3,644,900
454,000
0.12
0.11
8,432,900
5,451,800
764,900
0.20
0.19
5,788,981
3,667,049
230,015
0.06
0.05
$
26,869,681
$
16,766,149
$
1,996,615
$
0.52
$
0.48
Table of Contents
Publishing
UBAH
Other
Total
$
7,362,717
$
24,288,062
$
$
31,650,779
2,447,035
5,172,271
(3,734,232
)
3,885,074
$
7,465,762
$
23,661,506
$
$
31,127,268
2,454,742
4,757,742
(3,380,034
)
3,832,450
$
7,583,204
$
19,286,477
$
$
26,869,681
2,552,156
3,828,388
(3,157,229
)
3,223,315
Exhibit 10.8
EMPLOYMENT CONTRACT
This Employment Agreement, made and entered into as of the 28 th day of February, 2004 by and between Educational Development Corporation (EDC) and Randall W. White (White);
WITNESSETH:
WHEREAS, EDC wishes to employ White as its President and Chief Executive Office to serve during EDCs fiscal year (FY) 2005 on the terms and conditions herinafter set forth; and
WHEREAS, White wishes to accept such employment and use his best skills, experience and effort as EDCs President and Chief Executive Office to enhance the profitability and performance of EDC.
NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements contained herein, EDC and White agree as follows:
1. Term. The term of this Agreement commences March 1, 2004 and terminates March 1, 2007.
2. Position and Duties. White shall serve EDC in an executive capacity as President and Chief Executive Officer of EDC and shall report to the EDC Board of Directors. Subject to the general direction and control of the Board of Directors of EDC (the Board) and its Executive Committee, if any, White shall have full authority and responsibility for formulating and implementing goals, budgets and policies and administering the personnel, financial and business affairs of EDC in all respects and shall have such other responsibilities and authority shall be superior to those of any officer or employee of EDC or any subsidiary thereof.
3. Extent of Services. White shall devote his best efforts and full business time (with allowances for vacations and sick leave) and attention to furthering the business of EDC. White is not prohibited from maintaining or making investments, or engaging, in
1
Exhibit 10.8
other business or enterprises, provided such investments, business or enterprises do not require services on the part of White which would materially impair the performance of his duties under this Agreement or which, by virtue of Whites investments or participation, would result in such business or enterprise engaging in material competition with the Company.
4. FY 2005 Compensation. EDC shall compensate White as follows during FY 2005:
a. Base Salary. EDC shall pay White a base salary of $150,000, payable in twelve equal monthly installments, commencing March 1, 2004; provided, however, that said base salary shall be reviewed by the Board of Directors of EDC annually and may be adjusted upward at the discretion of said Board at that time.
b. Additional Salary. EDC shall pay White additional salary equal to $22,000 if profit before taxes (PBT) exceeds $3,200,000 in each fiscal year. PBT as used in this Agreement means net operating income before taxes, excluding extraordinary gains or losses from the sale or conversion of capital assets. Such additional salary shall be payable within 90 days following end of each FY upon receipt of the annual Auditors Certificate.
c. Automobile Allowance. EDC shall provide an automobile used by White in connection with his duties and pay of business related operational expenses incurred by White in connection with operating such automobile.
5. Termination by EDC.
a. Termination for Cause. In the event EDC terminates White for cause, White shall have the same rights with respect to the salary provided for herein as if he had voluntarily terminated his employment under Paragraph 6 below. Provided, that cause includes, but is not limited to, one or more acts of dishonesty; provided further, that in the event White is terminated for dishonesty, his unexercised stock options shall become null and void upon such termination and shall thereupon be deemed to have been reconveyed to EDC by White. An act of dishonesty as used herein shall mean and include without
2
Exhibit 10.8
limitation (I) any illegal conduct in connections with EDC affairs and (ii) any action by White in connection with his employment duties at EDC involving deceit or fraud.
b. Termination Without Cause. If EDC terminated White without cause, EDC shall pay White the balance of the base salary provided herein in subparagraph 4, by not in any case to be less that twelve months base salary.
6. Termination By White. If White voluntarily terminates his employment with EDC during FY 2005, 2006 or 2007, EDC shall pay White all earned by unpaid base salary, plus all Additional Salary earned to the date of such termination. White shall have 90 days following such voluntary termination in which to exercise any options which are then exercisable. All stock options which are not yet exercisable as of the date of such voluntary termination shall be null and void and such options shall thereupon be deemed to have been reconveyed to EDC by White.
7. Termination by White in Event of Change of Control. Change of Control as used in this Agreement shall mean either (i) the acquisition of by third party of all or substantially all of EDCs assets of (ii) the acquisition or effective control by any third party of 30% or more of EDCs outstanding common stock. In the event the acquiring party terminated Whites employment with EDC, EDC shall cause the acquiring party to compensate White in accordance with subparagraphs 1 and 4.
8. Death of White. In the event of Whites death, this Agreement shall be deemed to have been terminated pursuant to Paragraph 6 hereof, and EDC shall pay any compensation to which White would have been entitled pursuant to Paragraph 6 to the executor or administrator of Whites estate, plus an amount equal to 25% of Whites annual base salary as then in effect for the three months subsequent to his death.
9. Post Employment Obligations of White.
a. Confidential Information. By his execution of this Agreement, White acknowledges that he will in the course of his employment by EDC obtain Confidential Information (as hereinafter defined and that his relationship with EDC will be one of trust and confidence with regard to such Confidential Information. White recognizes that
3
Exhibit 10.8
EDC is entitled to protect its investment in that knowledge and training. White agrees that he will not at any time, after the termination of his employment with EDC, in any manner, either directly or indirectly, whether for himself or another, disclose to any person, firm or corporation, other then EDC, any confidential information acquired, learned, obtained or developed by White alone or in conjunction with others in connection with his employment with EDC. Confidential Information as herein used means all trade secrets and other confidential information relating to the business of EDC, otherwise affecting Whites duties and obligations contained in subparagraph 9.
b. Non-Solicitation of EDC Customers. Without in any way limiting or otherwise affecting Whites duties and obligations contained in subparagraph 9 immediately about, White agrees that during the period of two (2) years immediately following the terminations of his employment with EDC, he will not in any manner, either directly or indirectly, for himself or on behalf of any other person, firm or corporation other then EDC solicit any customer of EDC or divert or take away or attempt to divert or take away from EDC any of the business or patronage of such customers, it being the general intent hereof that until the expiration of two years after such termination of his employment, White shall maintain a hands off policy with regard to EDCs customers in respect of sales or services of the types furnished to such customers during or at the time of termination of Whites employment with EDC; provided that in the event that EDC terminates Whites employment under subparagraph 5b of this Agreement, this subparagraph 9b shall be thereby rendered null and void and of no further effect; provided further, however, that if, in connection with new employment obtained by White, White does any of the acts prohibited by this Paragraph 9, any amount due White pursuant to subparagraph 5b hereof shall be reduced by the amount of any compensation, regardless of the form of such compensation, paid to White by any other person, natural or corporate, in respect such employment.
c. Injunctive Relief in the Event of Violation. EDC and White agree that a violation by White of any covenant or agreement in the preceding two subparagraphs of
4
Exhibit 10.8
this Paragraph 9 would adversely affect the successful conduct of EDCs business and its goodwill and would cause such damage to EDC as would be irreparable, the exact amount of which would be impossible to ascertain, and for that reason White further agrees that in the event of such violation or threatened violation EDC shall be entitled to a restraining order and/or injunction from any court of competent jurisdiction, restraining such violation or any further violation of such covenants and agreements by White, without prejudice to any other legal equitable remedies available to EDC.
10. Assignment. Subject to Whites rights under Paragraph 7 of this Agreement with respect to changes of control, EDC may assign its rights and delegate its duties hereunder to any person, natural or corporate, to whom it might sell all or substantially all of its assets. White may not assign his rights nor delegate his duties hereunder to any person.
11. Divisibility. This Agreement is divisible and in the event any clause, subparagraph or provision of this Agreement shall be held to be invalid, the same shall not affect the validity of enforceability of the remaining portions of this Agreement.
12. Binding Effect. This Agreement shall bind White, his heirs, executors, administrators and assigns and shall bind and inure to the benefit of EDC, its successors and assigns.
13. Entire Agreement; Modification, Waiver. This Agreement constitutes the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations and understandings of the parties, whether written or oral. No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by all the parties. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. Not waiver shall be binding unless executed in writing by the party making the waiver.
5
Exhibit 10.8
14. Multiple Counterparts. This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
15. Governing Law. This Agreement shall be construed in accordance with, and governed by the laws of the Sate of Oklahoma.
IN WITNESS WHEREOF, the parties to this Agreement have duly executed it on the day of year first above written.
EDUCATIONAL DEVELOPMENT CORPORATION | ||||
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By | |||
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ATTEST:
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Secretary
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(Corporate Seal)
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RANDALL W. WHITE |
6
Exhibit 10.9
FIFTH AMENDMENT TO RESTATED
CREDIT AND SECURITY AGREEMENT
THIS FIFTH AMENDMENT TO RESTATED CREDIT AND SECURITY AGREEMENT (the Fifth Amendment) by and between EDUCATIONAL DEVELOPMENT CORPORATION, a Delaware corporation, as borrower (the Company), and ARVEST BANK, as lender (the Bank), is entered into effective as of the 30th day of June, 2004.
WITNESSETH:
WHEREAS, pursuant to the Restated Credit and Security Agreement dated as of June 30, 1999, as amended by the First Amendment thereto dated as of June 30, 2000, as further amended by the Second Amendment thereto dated as of June 30, 2001, as further amended by the Third Amendment thereto dated as of June 30, 2002, and as further amended by the Fourth Amendment thereto dated as of June 30, 2003 (collectively the Restated Credit Agreement), the Bank extended a Three Million Five Hundred Thousand and No/100 Dollars ($3,500,000.00) revolving line of credit (the Revolving Credit Loan) to the Company upon the terms and conditions therein set forth, the Revolving Credit Loan being secured by the Collateral defined and described in Section 7.1 of the Restated Credit Agreement and in the Security Agreement more particularly described and defined therein; and
WHEREAS, the Company has requested the Bank to extend and renew the revolving credit facility for one (1) year until June 30, 2005, in the maximum principal amount of $3,500,000.00; and
WHEREAS, subject to the terms, provisions and conditions hereinafter set forth, the Bank is willing to so extend, amend and modify the Revolving Credit Loan facility established pursuant to the Restated Credit Agreement in the maximum principal amount of $3,500,000.00 until June 30, 2005;
NOW, THEREFORE, for good and valuable consideration and for the extension and amendment of the Restated Credit Agreement, the Company and the Bank hereby agree as follows:
1. The maturity date of the Revolving Credit Loan shall be extended from June 30, 2004, to June 30, 2005, and Revolving Credit Loan advances shall be evidenced by that certain replacement Revolving Credit Note of even date herewith in the original principal amount of Three Million Five Hundred Thousand and No/100 Dollars ($3,500,000.00) payable to the order of the Bank and bearing interest at a variable annual rate equal from day to day to Prime Rate (as therein defined) minus one-quarter of one percentage point (0.25%). A true and correct copy of the replacement Revolving Credit Note is annexed hereto as Exhibit A and made a part hereof (the Replacement Note).
2. The remaining terms, provisions and conditions set forth in the Restated Credit Agreement shall remain in full force and effect for all purposes. The Company restates, confirms and ratifies the warranties, covenants and representations set forth therein and further represents to the Bank that no defaults or Events of Default exist under the Restated Credit Agreement as of the date hereof. The Company further confirms, ratifies, continues, grants and re-grants to and in favor of the Bank, as secured party, a continuous and continuing first and prior security interest in all of the items and types of Collateral more particularly described in Section 7.1 of the Restated Credit Agreement and in Section 2 of the Security Agreement described therein without any interruption thereof, all of which such terms and provisions are incorporated herein by reference with the same force and effect as if set forth and restated herein verbatim.
3. The Company represents and warrants to the Bank that it is a corporation duly organized and validly existing and in good standing under the laws of the State of Delaware and that the Company is duly licensed, qualified and in good standing under the laws of the State of Oklahoma as a foreign corporation. The Company will not change the jurisdiction or state of its incorporation or otherwise re-incorporate without prior notification thereof to the Bank, including authorization to the Bank to file amended or supplemental financing statements and execution by the Company of such supplemental or amended security agreements and/or financing statements as deemed appropriate by the Bank.
4. The Company agrees to pay the Banks legal fees incurred in connection with the negotiation, preparation and closing of this Fifth Amendment.
IN WITNESS WHEREOF, this Fifth Amendment is executed and delivered to the Bank in Tulsa, Oklahoma, by the undersigned duly authorized corporate officer of the Company, which officer has full power and authority to do so on behalf and in the name of the Company by virtue of all necessary corporate action of the Board of Directors of the Company, effective as of the 30th day of June, 2004.
EDUCATIONAL DEVELOPMENT CORPORATION | ||||
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By | |||
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Randall White
President |
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Company | |||
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ARVEST BANK | ||||
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Dennis Colvard
Senior Vice President |
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Bank |
2
REVOLVING CREDIT NOTE
$3,500,000.00 |
Tulsa, Oklahoma
June 30, 2004 |
FOR VALUE RECEIVED, the undersigned (the Maker) promises to pay to the order of ARVEST BANK (the Payee), at the Payees main banking office in Tulsa, Oklahoma, the principal sum of THREE MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($3,500,000.00), or so much thereof as shall have been advanced by Payee to Maker and remains unpaid, on June 30, 2005, together with interest thereon from the date funds are 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 July 31, 2004, and at final maturity on June 30, 2005.
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, as hereinafter defined, minus one-quarter of one percentage point (0.25%). 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 collection 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 June 30, 1999, as amended by the First Amendment thereto dated as of June 30, 2000, as further amended by the Second Amendment thereto dated as of June 30, 2001, as further amended by the Third Amendment thereto dated as of June 30, 2002, as further amended by the Fourth Amendment thereto dated as of June 30, 2003, and as further amended by the Fifth Amendment thereto dated as of even date herewith (collectively 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 percentage points (4.0%). 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 extension and renewal of that certain $3,500,000.00 Revolving Credit Note dated as of June 30, 2003. Reference is made to the Credit Agreement and to the Security Agreement and Assignment dated as of June 10, 1996, 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, a Delaware corporation |
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By | |||
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Randall White
President |
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Maker"
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Due: June 30, 2005
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2
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation
by reference in Registration Statements No. 33-60188 and 333-1006
of Educational Development Corporation on Form S-8 of our report
dated June 9, 2005, appearing in this Annual Report on Form
10-K of Educational Development Corporation for the
year ended February 28, 2005.
/s/ Tullius Taylor Sartain & Sartain LLP
Tulsa, Oklahoma
June 10, 2005
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements No. 33-60188 and
333-1006 of Educational Development Corporation on Form S-8 of our report dated May 19, 2004,
appearing in this Annual Report on Form 10-K of Educational Development Corporation for the year
ended February 28, 2005.
/s/ Deloitte & Touche LLP
Tulsa, Oklahoma
June 10, 2005
Exhibit 31.1
CERTIFICATION
I, Randall W. White, certify that:
Date: June 10, 2005
1.
I have reviewed this Annual Report on Form 10-K of Educational Development Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d.
Disclosed in this report any change in the registrants internal
control over financial reporting that occurred during the registrants quarterly
period ended February 28, 2005 that has materially affected, or is reasonably
likely to materially affect, the registrants internal control over financial
reporting; and
5.
The registrants other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrants
auditors and the audit committee of the registrants board of directors (or persons
performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably likely
to adversely affect the registrants ability to record, process, summarize and
report financial information; and
b.
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal control over
financial reporting.
and Chief Executive Officer
Exhibit 31.2
CERTIFICATION
I, W. Curtis Fossett, certify that:
Date: June 10, 2005
1.
I have reviewed this Annual Report on Form 10-K of Educational Development Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d.
Disclosed in this report any change in the registrants internal
control over financial reporting that occurred during the registrants quarterly
period ended February 28, 2005 that has materially affected, or is reasonably
likely to materially affect, the registrants internal control over financial
reporting; and
5.
The registrants other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrants
auditors and the audit committee of the registrants board of directors (or persons
performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in
the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrants ability to
record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal control over financial reporting.
(Principal Financial and Accounting Officer)
Exhibit 32.1
Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
In connection with the Annual Report of Educational Development Corporation (the Company) on Form 10-K for the period ending February 28, 2005, as filed with the Securities and Exchange Commission on the date hereof (the Report), the undersigned certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: June 10, 2005
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By | /s/ Randall W. White | ||||
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Randall W. White | |||||
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President and Chief Executive Officer | |||||
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Date: June 10, 2005
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By | /s/ W. Curtis Fossett | ||||
Controller and Corporate Secretary | ||||||
(Principal Financial and Accounting Officer) |