EDUCATIONAL DEVELOPMENT CORP — Annual Report 1998

May 27, 1998

Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended February 28, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from __ to ____. Commission file number: 0-4957 EDUCATIONAL DEVELOPMENT CORPORATION (Exact name of registrant as specified in its charter) Delaware 73-0750007 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 10302 East 55th Place, Tulsa, Oklahoma 74146-6515 (Address of principal executive offices) (Zip Code) Registrant's telephone number: (918) 622-4522 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.20 par value (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of May 14, 1998, 5,223,054 shares of common stock were outstanding. The aggregate market value of the voting shares held by non-affiliates of the registrant, based on 4,000,115 shares (total outstanding less shares held by all officers, directors and 401(k) Plan) extended at the closing market price on May 14, 1998, of these shares traded on the Nasdaq National Market, was approximately $18,000,518. DOCUMENTS INCORPORATED BY REFERENCE Incorporated Document Location in Form 10-K --------------------- --------------------- All information under the caption Part III - Item 10(a) and Item 10(c) "Election of Directors" and "Compliance With Section 16(a)" in the Company's definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held July 23, 1998. All information under the caption Part III - Item 11 "Executive Compensation" in the Company's definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held July 23, 1998. All information under the caption Part III - Item 12 "Voting Securities and Principal Holders Thereof" in the Company's definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held July 23, 1998. All information under the caption Part III - Item 13 "Certain Relationships and Related Transactions" in the Company's definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held July 23, 1998. NOTE: Part IV - Item 14 is located at pages 13 to 16 herein. 2 EDUCATIONAL DEVELOPMENT CORPORATION FORM 10-K ANNUAL REPORT FOR THE YEAR ENDED FEBRUARY 28, 1998 PART 1 ------ Item 1. (a) General Development of Business - ------- ------------------------------- Educational Development Corporation ("EDC" or the "Company"), a Delaware corporation with its principal office in Tulsa, Oklahoma, is the sole United States distributor of a line of children's books produced in the United Kingdom by Usborne Publishing Limited. The Company was incorporated on August 23, 1965. The Company's original corporate name was Tutor Tapes International Corporation of Delaware. Its name was changed to International Teaching Tapes, Inc. on November 24, 1965, and changed again to the present name on June 24, 1968. During Fiscal Year ("FY") 1998 the Company operated two divisions: Home Business Division and Publishing Division. The Home Business Division distributes books through independent consultants who hold book showings in individual homes, and through book fairs, fund raisers and direct sales. The Home Business Division also distributes these titles to school and public libraries. The Publishing Division markets books to book stores, toy stores, specialty stores and other retail outlets. Significant Events During Fiscal Year 1998 ------------------------------------------ There were no significant events during fiscal year 1998. (b) Financial Information about Industry Segments --------------------------------------------- Marketing and distribution of books to the retail trade, including book stores, toy stores, specialty stores and other retail outlets as well as school and public libraries, is the principal industry segment in which the Company is engaged. Reference is made to the financial information contained elsewhere in this report for financial results of the Company's operations. Net Sales for each of the three divisions were as follows:

As the table above indicates, the Home Business Division has experienced a decline in net sales and their percentage of net sales to the total net sales during the current year. The Company expects that the Home Business Division's sales will increase and that this Division will grow at a greater rate than the Publishing Division. The Publishing Division's sales increased during FY 1998. Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations further discusses these items. The Library Division was closed during FY 1997, as discussed in Form 10-K for fiscal year 1997. 3 OPERATING PROFIT BY DIVISION - -------------------------------------------------------------------------------- FY 1998 FY 1997 FY 1996 ---------- --------- --------- ( $ M ) ( $ M ) ( $ M ) ---------- --------- --------- Home Business $2,894.2 $3,150.7 $2,690.1 Publishing $3,073.3 $2,466.6 $3,151.0 Library -- $ 178.3 $ 336.4 IDENTIFIABLE ASSETS BY DIVISION - -------------------------------------------------------------------------------- ( none ) (c) Narrative Description of Business --------------------------------- (i) General The principal product of both the Home Business Division and Publishing Division is a line of children's books produced in the United Kingdom by Usborne Publishing Limited. The Company is the sole United States distributor of these books. The Company currently offers approximately 900 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 which complement the information contained in the book. The Kid Kits are packaged in a reusable vinyl bag. Presently 52 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 all sales tied to one source - 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 and currently has no plans to sell any other line. (ii) Industry Segments (a) Home Business Division The Home Business Division markets the Usborne line of approximately 900 titles and 52 Kid Kits through a combination of direct sales, home parties, fund raisers and book fairs sold through a network marketing system. The Division also sells to school and public libraries. (b) Publishing Division The Publishing Division distributes the Usborne line to book stores, toy stores, specialty stores and other retail outlets utilizing an inside telephone sales force as well as independent field sales representatives. 4 (iii) Research and Development The Company did not incur any research and development expenses during the last three fiscal years. (iv) Marketing (a) Home Business Division The Home Business Division markets through commissioned consultants using a combination of direct sales, home parties, fund raisers and book fairs. The division had approximately 4,000 consultants in 50 states at February 28, 1998. (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 12,000 book, toy and specialty stores. Significant orders have been received from major book chains. During fiscal year 1998 the division continued to make further inroads into mass merchandising outlets such as drug, department and discount stores. (v) Competition (a) Home Business Division The Home Business Division faces stiff competition from several other direct selling companies which have larger financial resources. Federal and state funding cuts to schools affect the availability of funds to the school libraries. The Company is unable to estimate the effect of these funding cuts on the division's future sales to school libraries, because the magnitude of funding cuts has yet to be determined by Congress. Management believes its superior product line will enable this Division to be highly competitive in its market area. (b) Publishing Division The Publishing Division faces strong competition from large U.S. and international companies which have larger financial resources. Industry sales of juvenile paperbacks are over $470 million annually. The Publishing Division's sales are less than 2% of industry sales. Competitive factors include product quality, price and deliverability. Possible funding cuts to schools would not impact the Publishing Division as it does not sell to this market. Management believes this Division can compete well in its market area. (vi) Seasonality (a) Home Business Division The level of sales for Home Business Division is greatest during the Fall as individuals prepare for the Holiday season. (b) Publishing Division The level of shipments of the Company's books is greatest in the Fall while retailers are stocking up for Holiday sales. 5 (vii) Government Funding Local, state and Federal funds are important to the Home Business Division but not to the Publishing Division. In many cities and states in which the Company does business, school funds have been severely cut, which impacts sales to school libraries. (viii) Trademarks, Copyrights and Patents ( none ) (ix) Employees As of May 1, 1998, the Company had 75 full-time employees and 4 part-time employees. The Company believes its relations with its employees to be good. Item 2. PROPERTIES - ------- ---------- The Company moved its operations and executive offices on March 1, 1986, to 10302 E. 55th PL, Tulsa, Oklahoma. The Company leases approximately 80,400 square feet of office and warehouse space under a five year renewable lease which expires February 28, 1999. The Company's operating facility is well maintained, in good condition and is adequately insured. Equipment items are well maintained and in good operating condition consistent with the requirement of the Company's business. The Company believes that its operating facility meets both its present need and its needs for future expansion. 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 ------- Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - ------- --------------------------------------------------------------------- The common stock of EDC is traded on the Nasdaq National Market (symbol-- EDUC). The high and low closing quarterly common stock quotations for fiscal years 1998 and 1997, as reported by the National Association of Securities Dealers, Inc., were as follows:

The number of shareholders of record of EDC's common stock at May 14, 1998 was 1170. 6 The Company paid a $0.01 per share annual dividend during fiscal year 1998. No dividends were paid during fiscal year 1997 or 1996. The Company will pay a $0.02 per share annual dividend during fiscal year 1999. Item 6. SELECTED FINANCIAL DATA - ------- -----------------------

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION - ------- ----------------------------------------------------------- AND RESULTS OF OPERATIONS ------------------------- (a) General ------- Certain statements contained in this Management Discussion and Analysis are not based on historical facts, but are forward-looking statements that are based upon numerous assumptions about future conditions that may ultimately prove to be inaccurate. Actual events and results may materially differ from anticipated results described in such statements. The Company's ability to achieve such results is subject to certain risks and uncertainties. Such risks and uncertainties include but are not limited to, product prices, continued availability of capital and financing, and other factors affecting the Company's business that may be beyond its control. 7 FY 1998 - ------- The Home Business Division's sales decreased 17.0% during FY 1998 when compared with FY 1997. The Company believes this decrease was primarily the result of a reduction in the compensation structure, which was effective October 1, 1996, and was not well received by the field sales force. The compensation structure was enhanced in June 1997 and the downturn in sales was slowed. In May 1998 the Company made additional enhancements to the compensation structure. The new program creates an additional level of compensation and is designed to encourage participation at all levels of the organization. The Company believes it now has in place an excellent compensation program for its field sales force. New and exciting incentive programs are being planned for FY 1999 as well as several travel contests and regional training seminars throughout the country. The Division's second National Seminar will be held in July 1998. Management believes that the decline in FY 1998 net sales has been reversed and FY 1999 will be an excellent year for the Division. The Publishing Division's sales increased 9.4% in FY 1998 over FY 1997. Sales nationwide in the juvenile paperback market have declined over 18%. The Company attributes the increase in sales to an increase in volume and in market penetration. Orders have increased in size with larger quantities per order as well as multiple titles per order. The Company has an aggressive in-house telephone sales force which maintains contact with over 10,000 customers. During FY 1998 the telesales force opened up 525 new accounts compared with 580 during FY 1997. The Company offers two display racks to assist stores in displaying the Company's products. One is a six-foot rack with five adjustable shelves which can hold approximately 220 titles. The second rack is a four- sided rack with three levels which will hold between 50 and 60 of the Kid Kits. There were 3,000 of these attractive racks in retail stores throughout the country at the end of FY 1998 compared with 2,750 in FY 1997. The Company attends several major national trade shows throughout the year to further enhance product visibility. For these reasons management is optimistic that the Publishing Division can maintain its market share. Cost of sales decreased 7.4% for FY 1998 compared with FY 1997. Cost of sales as a percentage of gross sales was 26.1% for FY 1998 versus 26.6% for FY 1997. Cost of sales as a percentage of gross sales fluctuates depending upon the mix of products sold during a given year. Management believes its cost of sales during FY 1999 will remain consistent with FY 1998 levels. Operating and selling expenses decreased 12.7% during FY 1998 when compared with FY 1997. As a percent of gross sales, these costs were 11.4% for FY 1998 and 12.3% for FY 1997. Contributing to the decrease in operating and selling expenses were lower credit card fees in the Home Business Division and reduced sales incentives in the Home Business Division, both the direct result of decreased sales in this Division. Management expects operating and selling expenses to be approximately 11% to 13% of gross sales for FY 1999. Sales commissions decreased 19.2% for FY 1998 compared with FY 1997. As a percentage of gross sales, these costs were 12.8% in FY 1998 compared to 14.9% for FY 1997. Sales commissions as a percentage of gross sales is determined by the product mix sold, as the commission rates vary with the product being sold and the Division which makes the sale. The Home Business Division has a higher commission percentage and the lower sales in this Division contributed to the decrease in FY 1998 sales commissions. The revised marketing plan which went into effect in June 1997 for the Home Business Division partially offset the decrease in sales commissions. Effective May 1, 1998 Management added a recruiting bonus program in the Home Business Division which will result in increased commission expense for FY 1999. Management expects sales commissions will be approximately 13% to 15% of gross sales for FY 1999. 8 General and administrative expenses increased 17.4% during FY 1998 when compared with FY 1997. As a percentage of gross sales, these expenses were 5.2% and 4.2% for FY 1998 and FY 1997 respectively. General and administrative expenses are not always directly affected by sales, so comparison of these expenses as a percentage of gross sales can be misleading. Contributing to the increase in general and administrative expenses were increased salaries and benefits, primarily to existing employees. Management expects general and administrative expenses for FY 1999 will be approximately 4.5% to 5.5% of gross sales. Interest expense declined 54.7% in FY 1998 compared with FY 1997. As a percentage of gross sales, interest expense was 0.5% in FY 1998 versus 1.1% for FY 1997. The decrease in interest expense during FY 1998 was the result of lower borrowing levels during the year. FY 1997 - ------- The Home Business Division's sales increased 36% in FY 1997 compared with FY 1996. This was due to the number of active consultants, (5,700) who were actively selling the books through home shows, book fairs, fund raisers and direct sales. The Division continued to offer new and exciting consultant incentive programs during FY 1997, including several travel contests. These programs combined with various specials offered during the year helped attract and retain consultants. Regional training seminars were held throughout the country to train supervisors and consultants and exchange new ideas with other supervisors and consultants. The Division held its first National Seminar in April, 1997 with approximately 300 consultants and top supervisors in attendance. This 4-day event offered training sessions for those in attendance. The Publishing Division's sales decreased 4% in FY 1997 over FY 1996. Sales nationwide in the publishing industry declined. The telemarketing staff opened 580 new accounts during FY 1997 versus 609 new accounts in FY 1996. The rack program continued to be popular with 369 new racks placed during FY 1997 versus 201 in FY 1996. There were approximately 2,750 racks in place in bookstores throughout the country at February 28, 1997. The Company offered special pricing with the purchase of a display rack. This rack is six-foot tall with a 21" x 21" base and 5 adjustable shelves. The rack holds approximately 220 books and offers the retail merchant an excellent method of displaying many of the Company's titles. These racks serve as a marketing tool for retail merchants. The Company attended several major national trade shows to further enhance product visibility. The Library Division was closed effective July 1, 1996 and the responsibility for these sales transferred to the Home Business Division. Cost of sales increased 2.9% for FY 1997 over FY 1996. Cost of sales as a percent of gross sales was 26.6% in FY 1997 compared with 27.2% in FY 1996. Cost of sales as a percentage of gross sales fluctuates depending upon the mix of products sold during a given year. Operating and selling expenses increased 23.7% for FY 1997 over FY 1996. As a percent of gross sales these costs were 12.3% in FY 1997 and 10.5% in FY 1996. Contributing to the increases in selling and operating expenses were increased sales incentives in the Home Business Division and increased credit card fees in the Home Business Division, both the direct result of increased sales in this Division. Building rental costs and utilities also increased as the Company added additional warehouse space during FY 1997. Sales commissions increased 22.9% during FY 1997 over FY 1996. As a percent of gross sales, these costs were 14.9% in FY 1997 compared with 12.7% in FY 1996. Sales commission as a percentage of gross sales is determined by the product mix sold, as the commission rates vary with the product being sold and the Division which makes the sale. The increase in sales by the Home Business Division, which has a higher commission percentage, resulted in the increase in commission expense during FY 1997. In October, the Home Business Division put into place a revised and improved commission structure, which will reduce commission expense as a percent of Home Business Division sales. 9 General and administrative costs increased during FY 1997 by 42.8% when compared with FY 1996. As a percentage of gross sales, these expenses were 4.2% in FY 1997 and 3.1% in FY 1996. General and administrative costs are not always directly affected by sales, so comparison of these expenses as a percentage of gross sales can be misleading. Contributing to the increased general and administrative costs was depreciation, due to the addition of new computer equipment, and the addition of staff due to increased volumes. Interest expense increased 15.8% during FY 1997 when compared with FY 1996. As a percentage of gross sales, interest expense was 1.1% for both FY 1997 and FY 1996. The increase in interest expense was due primarily to the increased borrowing levels during FY 1997 when compared with FY 1996. (b) Financial Position ------------------ Working capital increased 28.8% to $9.6 million at fiscal year end 1998 over fiscal year end 1997. Reductions in payables and short term bank debt and an increase in inventories were the main contributors to the increase in working capital. The Company pays interest on its bank promissory note monthly from current cash flows. Management expects its financial position to continue to improve during FY 1999 and to have increased working capital at fiscal year end 1999. (c) Liquidity and Capital Resources ------------------------------- Management believes the Company's liquidity at February 28, 1998, to be adequate. There are no known demands, commitments, events or uncertainties that would result in a material change in the Company's liquidity during FY 1999. Capital expenditures are expected to be less than $750,000 in FY 1999. These expenditures would consist primarily of software and hardware enhancements to the Company's existing data processing equipment, leasehold improvements and additions to the warehouse shipping system. Effective June 30, 1997 the Company signed a First Amendment to Restated Credit and Security Agreement with State 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, 1998. The note bears interest at the Wall Street Journal prime floating rate payable monthly (8.50% at February 28, 1998). The note is collateralized by substantially all of the assets of the Company. At February 28, 1998 the Company had available $2,624,000 under this credit agreement. Effective June 30, 1996 the Company signed a Restated Credit and Security Agreement with State Bank which provided a $9,000,000 line of credit. The line of credit was evidenced by a promissory note in the amount of $9,000,000 payable June 30, 1997. The note bore interest at the Wall Street Journal prime floating rate payable monthly (8.25% at February 28, 1997). The note was collateralized by substantially all of the assets of the Company. The Company utilized this line of credit primarily to fund routine operations. Payments were made from current cash flows. The Company obtained and uses the credit facility to fund routine operations. Payments are made from current cash flows. The Company is negotiating to renew this facility when it matures June 30, 1998. The Company believes its borrowing capacity under this line to be adequate for the next several years. The Company generated cash from operating activities during FY 1998. Accounts receivable increased slightly in FY 1998, the result of increased sales in the Publishing Division. The Company continued its emphasis on collection efforts and the tightening of credit controls. The Company plans to continue to maximize its collection efforts in order to maintain cash flows. 10 Inventories experienced a small increase during FY 1998. This is the result of adding approximately 30 new titles and also adding new components for several Kid Kits. The Company continues to monitor its inventory levels to ensure that adequate levels are on hand to support sales as well as to meet the six to eight month resupply requirements of its principal supplier. The Company expects inventory levels to increase moderately each year as new titles are added to the product line. The major component of accounts payable is the amount due the Company's principal supplier. Increases and decreases in inventory levels directly affect the level of accounts payable. Also the timing of the purchases and the payment terms offered by the suppliers affect the year end levels of accounts payable. As inventory levels increase moderately each year, the Company expects accounts payable will also increase moderately each year. Management anticipates cash flows from operating activities to increase in the foreseeable future. Other current liabilities decreased in FY 1998 as the direct result of product which was shipped during FY 1998 but for which payment was received in FY 1997. The revenue for these products was recognized in FY 1998 when the product was shipped. Cash used in investing activities during FY 1998 was primarily for additional computer equipment. The Company was able to pay down the bank promissory note during FY 1998 due to improved cash flows during the year. (d) New Accounting Standards ------------------------ Recent pronouncements of the Financial Accounting Standards Board, which are not required to be adopted at this date, include Statement of Financial Accounting Standards ("SFAS") No. 132, "Employers' Disclosure About Pensions and Other Postretirement Benefits," SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," and SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 132 standardizes the disclosure requirements for pension and other postretirement benefits. SFAS No. 131 requires that a public business enterprise report financial and descriptive information about its reporting segments on the same basis that it uses internally for evaluating segment performance and deciding how to allocate resources to segments. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. To the extent applicable, these statements were adopted by the Company effective March 1, 1998. The adoption of these statements will not have a material effect on the Company's financial statements. (e) Year 2000 Matters ----------------- The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the Year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. In FY 1996, the Company purchased new computer hardware and software which is Year 2000 compliant. Management has determined that the Year 2000 issue will not pose operational problems for its computer systems. In addition, the Company has communicated with others with whom it does significant business to determine their Year 2000 Compliance readiness and the extent to which the Company is vulnerable to any third party Year 2000 issue. However, there can be no guarantee that the systems of other companies on which the Company's systems rely will be timely converted, or that a failure to convert by another company, or a conversion that is incompatible with the Company's systems, would not have a material adverse effect on the Company. 11 The total cost, if any, to the Company of these Year 2000 Compliance activities has not been and is not anticipated to be material to its financial position or results of operations in any given year. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - -------- ---------------------------------------------------------- The Company does not have any material market risk. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------- ------------------------------------------- The information required by this item begins at page F-1, following page 17 hereof. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS - ------- --------------------------------------------- ON ACCOUNTING AND FINANCIAL DISCLOSURE -------------------------------------- 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, 1998. PART III -------- Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - -------- -------------------------------------------------- (a) Identification of Directors --------------------------- The information required by this item is furnished by incorporation by reference to all information under the caption "Election of Directors" in the Company's definitive Proxy Statement to be filed in connection with the annual Meeting of Shareholders to be held on July 23, 1998. (b) Identification of 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, 1986 56 President and Treasurer W. Curtis Fossett Controller and 1989 52 Corporate Secretary (c) Compliance With Section 16 (a) of the Exchange Act -------------------------------------------------- The information required by this item is furnished by incorporation by reference to all information under the caption "Compliance With Section 16 (a)" in the Company's definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 23, 1998. Item 11. EXECUTIVE COMPENSATION - -------- ---------------------- The information required by this item is furnished by incorporation by reference to all information under the caption "Executive Compensation" in the Company's definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 23, 1998. 12 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND - -------- --------------------------------------------------- MANAGEMENT ---------- The information required by this item is furnished by incorporation by reference to all information under the caption "Voting Securities and Principal Holders Thereof" in the Company's definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 23, 1998. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------- ---------------------------------------------- The information required by this item is furnished by incorporation by reference to all information under the caption "Transactions with Management and Others" in the Company's definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 23, 1998. PART IV ------- Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - -------- ---------------------------------------------------------------- (a) The following documents are filed as part of this report: 1. Financial Statements Page -------------------- ----- Independent Auditors' Report F-1 Balance Sheets - February 28, 1998 and 1997 F-2 Statements of Earnings - Years ended February 28, 1998 and 1997 and February 29, 1996 F-3 Statements of Changes in Shareholders' Equity - Years ended February 28, 1998 and 1997 and February 29, 1996 F-4 - F-5 Statements of Cash Flows - Years ended February 28, 1998 and 1997 and February 29, 1996 F-6 Notes to Financial Statements F-7 - F-16 Schedules have been omitted as such information is either not required or is included in the financial statements. 2. Exhibits 3.1 Restated Certificate of Incorporation of the Company dated April 26, 1968, Certificate of Amendment there to dated June 21, 1968 and By-Laws of the Company are incorporated herein by reference to Exhibit 1 to Registration Statement on Form 10 (File No. 0-4957). 13 3.2 Certificate of Amendment of Restated Certificate of Incorporation of the Company dated August 27, 1977 and By-Laws of the Company as amended are incorporated herein by reference to Exhibits 20.1 and 20.2 to Form 10-K for fiscal year ended February 28, 1981 (File No. 0-4957). 3.3 Certificate of Amendment of Restated Certificate of Incorporation of the Company dated November 17, 1986, is incorporated herein by reference to Exhibit 3.3 to Form 10-K for fiscal year ended February 28, 1987 (File No. 0-4957). 3.4 Certificate of Amendment of Restated Certificate of Incorporation of the Company dated March 22, 1996. 4.1 Specimens of Common Stock Certificates are incorporated herein by reference to Exhibits 3.1 and 3.2 to Registration Statement on Form 10-K (File No. 0-4957). 10.1 Educational Development Corporation Incentive Stock Option Plan of 1981, is incorporated herein by reference to Exhibit 10.9 to Form 10-K for fiscal year ended February 28, 1982 (File No. 0-4957). 10.2 Agreement by and among the Company, Usborne Publishing Ltd., and Hayes Books, Inc., dated May 17, 1983, is incorporated herein by reference to Exhibit 10.16 to Form 10-K for fiscal year ended February 29, 1984 (File No. 0-4957). 10.3 Settlement Agreement dated August 7, 1986, by and between the Company and Hayes Publishing Ltd., Cyril Hayes Books, Inc. (formerly named Hayes Books, Inc.), and Cyril Hayes is incorporated herein by reference to Exhibit 10.1 to Form 8-K dated August 7, 1986 (File No. 0-4957). 10.4 Usborne Agreement-Contractual agreement by and between the Company and Usborne Publishing Limited dated November 25, 1988, is incorporated herein by reference to Exhibit 10.12 to Form 10-K dated February 28, 1989 (File No. 0-4957). 10.5 Party Plan-Contractual agreement by and between the Company and Usborne Publishing Limited dated March 14, 1989, is incorporated herein by reference to Exhibit 10.13 to Form 10-K dated February 28, 1989 (File No. 0-4957). 10.6 Loan Agreement dated January 18, 1990, by and between the Company and State Bank & Trust, N.A., Tulsa, OK (formerly WestStar Bank, N.A., Bartlesville, OK), is incorporated herein by reference to Exhibit 10.11 to Form 10-K dated February 28, 1990 (File No. 0-4957). 14 10.7 Lease Agreement by and between the Company and James D. Dunn dated March 1, 1991, is incorporated herein by reference to Exhibit 10.12 to Form 10-K dated February 28, 1991 (File No. 0-4957). 10.8 Agreement for Exchange of Contract Rights and Securities by and between the Company and Robert D. Berryhill dated October 1, 1990, is incorporated herein by reference to Exhibit 10.1 to Form 10-K dated February 28, 1991 (File No. 0-4957). 10.9 Amendment dated January 1, 1992 to Usborne Agreement - Contractual agreement by and between the Company and Usborne Publishing Limited is incorporated herein by reference to Exhibit 10.13 to Form 10-K dated February 29, 1992 (File No. 0-4957). 10.10 First Amendment dated January 31, 1992 to Loan Agreement between the Company and State Bank & Trust, N.A., Tulsa, OK, (formally WestStar Bank, N.A., Bartlesville, OK,) is incorporated herein by reference to Exhibit 10.14 to Form 10-K dated February 29, 1992 (File No. 0-4957). 10.11 Educational Development Corporation 1992 Incentive Stock Option Plan is incorporated herein by reference to Exhibit 4(c) to Registration Statement on Form S-8 (File No. 33-60188) 10.12 Second Amendment dated June 30, 1992 to Loan Agreement between the Company and State Bank & Trust, N.A., Tulsa, OK, (formally WestStar Bank, N.A., Bartlesville, OK,) is incorporated herein by reference to Exhibit 10.12 to Form 10-KSB dated February 28, 1994 (File No. 0-4957). 10.13 Third Amendment dated June 30, 1993 to Loan Agreement between the Company and State Bank & Trust, N.A., Tulsa, OK, (formally WestStar Bank, N.A., Bartlesville, OK,) is incorporated herein by reference to Exhibit 10.13 to Form 10-KSB dated February 28, 1995 (File No. 0-4957). 10.14 Fourth Amendment dated June 30, 1994 to Loan Agreement between the Company and State Bank & Trust, N.A, Tulsa, OK, is incorporated herein by reference to Exhibit 10.13 to Form 10-KSB dated February 28, 1995 (File No. 0-4957). 10.15 Fifth Amendment dated March 13, 1995 to Loan Agreement between the Company and State Bank & Trust, N.A., Tulsa, OK, is incorporated herein by reference to Exhibit 10.13 to Form 10-KSB dated February 28, 1995 (File No. 0-4957). 10.16 Sixth Amendment dated March 27, 1995 to Loan Agreement between the Company and State Bank & Trust, N.A., Tulsa, OK, is incorporated herein by reference to Exhibit 10.13 to Form 10-KSB dated February 28, 1995 (File No. 0-4957). 15 10.17 Seventh Amendment dated April 27, 1995 to Loan Agreement between the Company and State Bank & Trust, N.A., Tulsa, OK, is incorporated herein by reference to Exhibit 10.13 to Form 10-KSB dated February 28, 1995 (File No. 0-4957). 10.18 Amendment dated February 28, 1995 to the Lease Agreement by and between the Company and James D. Dunn, is incorporated herein by reference to Exhibit 10.13 to Form 10-KSB dated February 28, 1995 (File No. 0-4957). 10.19 Eighth Amendment Dated July 27, 1995 to Loan Agreement between the Company and State Bank & Trust, N.A., Tulsa, OK, is incorporated herein by reference to Exhibit 10.19 to Form 10-KSB dated February 29, 1996 (File No. 0-4957). 10.20 Restated Loan Agreement dated September 25, 1995 between the Company and State Bank & Trust, N.A., Tulsa, OK, is incorporated herein by reference to Exhibit 10.20 to Form 10-KSB dated February 29, 1996 (File No. 0-4957). 10.21 Restated Loan Agreement dated June 10, 1996 between the Company and State Bank & Trust, N.A., Tulsa, OK, is incorporated herein by reference to Exhibit 10.21 to Form 10-K dated February 28, 1997 (File No. 0-4957). 10.22 First Amendment dated June 30, 1997 to Restated Loan Agreement between the Company and State Bank & Trust, N.A., Tulsa, OK. 23. Independent Auditors' Consent - ------------------- *Filed Herewith (b) No reports on Form 8-K were filed during the last quarter of the period covered by this report. 16 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. EDUCATIONAL DEVELOPMENT CORPORATION Date: May 27, 1998 By /s/ W. Curtis Fossett ------------------------------------ W. Curtis Fossett Principal Financial and Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Date: May 27, 1998 /s/ Randall W. White ----------------------------------- Randall W. White Chairman of the Board President, Treasurer and Director May 27, 1998 /s/ Robert D. Berryhill ------------------------------------- Robert D. Berryhill, Director May 27, 1998 /s/ G. Dean Cosgrove ----------------------------------- G. Dean Cosgrove, Director May 27, 1998 /s/ James F. Lewis ------------------------------------ James F. Lewis, Director May 27, 1998 /s/ John M. Lare ------------------------------------- John M. Lare, Director May 27, 1998 By /s/ W. Curtis Fossett ------------------------------------ W. Curtis Fossett Principal Financial and Accounting Officer 17 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Educational Development Corporation: We have audited the accompanying balance sheets of Educational Development Corporation as of February 28, 1998 and 1997, and the related statements of earnings, shareholders' equity and cash flows for each of the three years in the period ended February 28, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company at February 28, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended February 28, 1998 in conformity with generally accepted accounting principles. Deloitte & Touche LLP May 8, 1998 Tulsa, Oklahoma F-1 EDUCATIONAL DEVELOPMENT CORPORATION

See notes to financial statements. F-2 EDUCATIONAL DEVELOPMENT CORPORATION STATEMENTS OF EARNINGS YEARS ENDED FEBRUARY 28, 1998 AND 1997, AND FEBRUARY 29, 1996

See notes to financial statements. F-3 EDUCATIONAL DEVELOPMENT CORPORATION

(continued) F-4

See notes to financial statements. (concluded) F-5 EDUCATIONAL DEVELOPMENT CORPORATION

See notes to financial statements. F-6 EDUCATIONAL DEVELOPMENT CORPORATION NOTES TO FINANCIAL STATEMENTS YEARS ENDED FEBRUARY 28, 1998 AND 1997, AND FEBRUARY 29, 1996 1. SUMMARY OF SIGNFICANT ACCOUNTING POLICIES Nature of Business - Educational Development Corporation (the "Company") distributes books and publications through its Publishing and Home Business Divisions. In July 1996, the Company's Library Division ceased operations and responsibility for sales to this market segment was taken over by the Home Business Division. The Company is the United States ("U.S.") distributor of books and related matters, published primarily in England, to book, toy and gift stores, libraries and home educators. The Company is also involved in the production and publishing of new book titles. The English publishing company is the Company's primary supplier. The Company sells to its customers, located throughout the U.S., primarily on standard credit terms. Estimates - The preparation of the Company's financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents - Cash and cash equivalents include cash on hand and cash on deposit in banks. Inventories - Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out ("FIFO") method. Property and Equipment - Property and equipment are stated at cost and depreciated and amortized using the straight-line method over the estimated useful lives of the related assets. Estimated useful lives range from two to five years. Income Taxes - The Company records deferred income taxes for temporary differences between the financial reporting and tax bases of the Company's assets and liabilities and for operating loss and tax credit carryforwards. Income Recognition - Sales are recorded when products are shipped. At the time sales are recognized for certain products under specified conditions, allowances for returns are recorded based on prior experience. Advertising Costs - The Company expenses advertising costs as incurred. F-7 Earnings Per Share - Earnings per share are computed using the weighted average number of common shares outstanding during the year. The Company has applied the provisions of Statement of Financial Accounting Standards No. 128 "Earnings Per Share" to all periods presented. The following reconciles the diluted earnings per share:

Fair Value of Financial Instruments - For cash and cash equivalents, accounts receivable, and accounts payable, the carrying amount approximates fair value because of the short maturity of those instruments. The fair value of the Company's note payable to bank is estimated to approximate carrying value based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities. Long-Lived Asset Impairment - The Company reviews the value of long-lived assets and certain identifiable intangibles 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. Stock-Based Compensation - The Company has adopted the disclosure standards of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 establishes a fair value method and disclosure standards for stock-based employee compensation arrangements, such as stock purchase plans and stock options. It also applies to transactions in which an entity issues its equity instruments to acquire goods or services from non-employees, requiring that such transactions be accounted for based on fair value. As allowed by SFAS No. 123, the Company will continue to follow the provisions of Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock-based employee compensation arrangements. New Accounting Standards - The Company plans to adopt the provisions of SFAS No. 130, "Reporting Comprehensive Income," in its 1999 fiscal year. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. The Company currently does not have any items of other comprehensive income. F-8 SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," was issued in June, 1997. This statement establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. SFAS No. 131, effective for fiscal years beginning after December 15, 1997, requires comparative information for previous years to be restated to comply with SFAS No. 131's reporting requirements. The Company currently does not expect adoption of this statement to have a material effect on financial statement presentation or related footnote disclosures. Reclassifications - Reclassifications were made to certain 1996 and 1997 balances to conform with the 1998 presentation. 2. DISCONTINUED OPERATIONS Effective February 29, 1996, the Company discontinued its School Division. Accordingly, the operating results of the School Division, which were not material, are segregated and reported as discontinued operations in the accompanying statement of earnings for the year ended February 29, 1996. The estimated loss on disposal of $300,984, which is net of income tax benefits of $169,000, includes the write-off of inventory, supplies and other assets. 3. INVENTORIES Inventories consist of the following: FEBRUARY 28, --------------------------- 1998 1997 Book inventory $10,552,417 $10,349,557 Reserve for obsolescence (150,187) (301,100) ----------- ----------- $10,402,230 $10,048,457 =========== =========== 4. PROPERTY AND EQUIPMENT Property and equipment consist of the following: FEBRUARY 28, -------------------------- 1998 1997 Computer equipment $ 777,699 $ 757,982 Warehouse and office equipment 441,954 438,325 Furniture, fixtures and other 101,335 98,065 ---------- ---------- 1,320,988 1,294,372 Less accumulated depreciation and amortization (725,350) (445,894) ---------- ---------- $ 595,638 $ 848,478 ========== ========== F-9 During the year ended February 28, 1997, the Company acquired a vehicle with a cost of $9,590 through the issuance of 3,390 shares of treasury stock. Depreciation expense was $296,803, $252,113, and $126,697 for the fiscal years ended February 28, 1998, 1997, and February 29, 1996, respectively. 5. NOTE PAYABLE At February 28, 1998 and 1997, the note payable to bank was under a $3,500,000 and $9,000,000 revolving credit agreement, respectively, with interest payable monthly at prime (8.50% and 8.25% at February 28, 1998 and 1997, respectively), collateralized by substantially all assets of the Company. The revolving credit agreement matures on June 30, 1998. At February 28, 1998, the Company had available credit of $2,624,000 under the revolving credit agreement. The agreement contains provisions that require the maintenance of specified financial ratios, restrict transactions with related parties, prohibit mergers or consolidation, prohibit declaration of dividends, disallow additional debt, and limit the amount of compensation, salaries, investments, capital expenditures and leasing transactions. The Company is in compliance or has obtained waivers for all restrictive covenants. The Company intends to renew the bank agreement or obtain other financing upon maturity. For each of the three years in the period ended February 28, 1998, the highest amount of short-term borrowings, the average amount of borrowings under these short-term notes, and the weighted average interest rates are as follows: YEAR ENDED ---------------------------------------- FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, 1998 1997 1996 Note payable to bank: Largest amount borrowed $2,860,000 $5,850,000 $5,820,000 Average amount borrowed 1,766,813 4,061,250 3,183,333 Weighted average interest rate 8.5% 8.5% 9.4% 6. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and operating loss and tax credit carryforwards. The tax effects of significant items comprising the Company's net deferred tax assets and liabilities as of February 28, 1998 and 1997 are as follows: FEBRUARY 28, -------------------------- 1998 1997 Current: Deferred tax assets: Allowance for doubtful accounts $ 55,300 $ 35,200 Inventories 59,500 118,000 Expenses deducted on the cash basis for income tax purposes 23,400 13,600 Change in accounting method 15,100 - --------- -------- 153,300 166,800 Deferred tax liability - Property and equipment - (7,600) --------- -------- Net deferred tax asset $ 153,500 $159,200 ========= ======== F-10 Noncurrent: Deferred tax asset - Change in accounting method $ 15,100 $ - Deferred tax liability - Property and equipment (110,100) - --------- -------- Net deferred tax liability $ (95,000) $ - ========= ======== Management has determined that no valuation allowance is necessary to reduce the value of deferred tax assets as it is more likely than not that such assets are realizable. The components of income tax expense are as follows:

The following reconciles the Company's expected income tax expense on continuing operations utilizing statutory tax rates to the actual tax expense:

F-11 7. EMPLOYEE BENEFIT PLAN The Company has a profit sharing plan which incorporates the provisions of Section 401(k) of the Internal Revenue Code. The 401(k) plan covers substantially all employees meeting specific age and length of service requirements. Matching contributions from the Company are discretionary and amounted to $27,113, $31,457, and $30,118 in fiscal years 1998, 1997, and 1996, respectively. 8. COMMITMENTS The Company leases its office and warehouse facilities under a noncancelable operating lease which expires in February 1999. Future minimum rental commitments of $225,960 at February 28, 1998 are payable during the year ended February 28, 1999. Total rent expense was approximately $225,960, $219,000, and $185,000 for the fiscal years ended 1998, 1997, and 1996, respectively. At February 28, 1998, the Company had outstanding commitments to purchase inventory from its primary vendor totaling approximately $1,860,000. 9. CAPITAL STOCK, STOCK OPTIONS AND WARRANTS On December 20, 1995, the Company's Board of Directors declared a two-for-one split of the Company's common stock in the form of a stock dividend for shareholders of record as of April 1, 1996. On March 13, 1996, in a special meeting of the stockholders, an increase in the number of authorized shares from 3,000,000 to 6,000,000 was approved. A total of 2,699,120 shares of common stock were issued in connection with the split related to shares outstanding at February 29, 1996. The stated par value of each share was not changed from $0.20. A total of $539,824 was reclassified from the Company's capital in excess of par value account to the Company's common stock account. In October 1981, the Board of Directors adopted an Incentive Stock Option Plan which expired in 1991; accordingly, no additional options will be granted under the 1981 Plan. In June 1992, the Board of Directors adopted the 1992 Incentive Stock Option Plan. A total of 1,000,000 stock options are authorized to be granted under the 1992 Plan. Options granted under either of the two Incentive Stock Option Plans, collectively the "Incentive Plan," are exercisable up to ten years from the date of grant. Options outstanding at February 28, 1998 expire in 2003 through 2007. A summary of the status of the Company's Incentive Plan as of February 28, 1998, February 28, 1997, and February 29, 1996 and changes during the years ended on those dates is presented below:

F-12 The following table summarizes information about stock options outstanding at February 28, 1998:

All options outstanding are exercisable at February 28, 1998. The Company applies Accounting Principals Board Opinion No. 25 and related Interpretations in accounting for its Incentive Plan. Accordingly, no compensation cost has been recognized for its Incentive Plan. Had compensation cost for the Company's Incentive Plan been determined based on the fair value at the grant dates for awards under the Incentive Plan consistent with the method of SFAS No. 123, the Company's net earnings and earnings per share for the years ended February 28, 1998 and 1997 would have been reduced to the pro forma amounts indicated below: 1998 1997 Net earnings - as reported $1,704,568 $1,630,088 ========== ========== Net earnings - pro forma $1,636,618 $1,375,088 ========== ========== Earnings per share - as reported: Basic $ 0.33 $ 0.31 ========== ========== Diluted $ 0.32 $ 0.31 ========== ========== Earnings per share - pro forma: Basic $ 0.31 $ 0.26 ========== ========== Diluted $ 0.31 $ 0.26 ========== ========== The fair value of options granted under the Incentive Plan were estimated on the date of grant using the Black-Scholes option-pricing model. The following weighted average assumptions were used for options granted in fiscal 1998: no dividend yield, expected volatility of 54%, risk free interest rate of 6.2% and expected lives of four years. The following weighted average assumptions were F-13 used in fiscal 1997: no dividend yield, expected volatility of 76%, risk free interest rate of 6% and expected lives of four years. The use of the fair value method of SFAS No. 123 would not have had a significant impact on reported net earnings and earnings per share for the year ended February 29, 1996. Of the 710,000 option shares exercised in fiscal 1996, 660,000 shares with a total option price of $368,173 were exercised by the transfer to the Company of 28,596 outstanding shares held by the option holders. Additionally, at February 1992, options to purchase 80,000 shares of the Company's common stock were outstanding. These options were issued to directors and a stockholder who were not officers of the Company at exercise prices of $0.25-$0.625. During August 1992, 40,000 of these options were exercised at an option price of $0.625 per share, and the Company simultaneously reacquired the common stock issued at a net cost to the Company of $7,500. During February 1996, 20,000 of these options were exercised at an option price of $0.25. The remaining 20,000 of these options were exercised at an option price of $0.25 in March 1996. 10. SUPPLEMENTARY INFORMATION The activity in the allowances for doubtful accounts receivable, sales returns and inventory valuation for each of the three years in the period ended February 28, 1998 is as follows: Doubtful accounts receivable:

Sales returns:

Inventory valuation:

F-14 Charges to certain expense accounts in continuing operations for each of the three years in the period ended February 28, 1998 are shown below:

1. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the quarterly results of operations for the years ended February 28, 1998 and 1997:

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