EDUCATIONAL DEVELOPMENT CORP — Interim / Quarterly Report 1996

Jan 16, 1996

SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended November 30, 1995. [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __ to __. Commission file number: 0-4957 EDUCATIONAL DEVELOPMENT CORPORATION (Exact name of small business issuer as specified in its charter) Delaware 73-0750007 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 10302 East 55th Place #B, Tulsa Oklahoma 74146-6515 (Address of principal executive offices) Issuer's telephone number: (918) 622-4522 Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --------- --------- As of November 30, 1995 there were 2,283,247 shares of Educational Development Corporation Common Stock, $0.20 par value outstanding. 1 EDUCATIONAL DEVELOPMENT CORPORATION - ---------------------------------------------------------------------------- PART 1. FINANCIAL INFORMATION - ------------------------------ ITEM 1 BALANCE SHEETS (UNAUDITED)

2 EDUCATIONAL DEVELOPMENT CORPORATION - --------------------------------------------------------------------------- BALANCE SHEETS (UNAUDITED and continued)

3 EDUCATIONAL DEVELOPMENT CORPORATION - --------------------------------------------------------------------------- STATEMENT OF EARNINGS (UNAUDITED)

4 EDUCATIONAL DEVELOPMENT CORPORATION - ------------------------------------------------------------------------- STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)

5 EDUCATIONAL DEVELOPMENT CORPORATION - ----------------------------------------------------------------------------

6 EDUCATIONAL DEVELOPMENT CORPORATION - ------------------------------------------------------------------------ NOTES TO FINANCIAL STATEMENTS Note 1 - Deferred income taxes reflect the net tax effects of temporary - ------ differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and operating loss and tax credit carryforwards. The tax effects of significant items comprising the Company's net tax deferred assets as of November 30, 1995 and March 1, 1995 are as follows:

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:

7 EDUCATIONAL DEVELOPMENT CORPORATION - ------------------------------------------------------------------------ Note 2 - Effective June 30, 1994 the Company signed a Fourth Amendment to Credit - ------ and Security Agreement with State Bank which provided a $1,300,000 line of credit. The line of credit was evidenced by a promissory note in the amount of $1,300,000 payable June 30, 1995. The note was collateralized by substantially all of the assets of the Company. During the first quarter of fiscal year 1996 this revolving credit agreement was amended, increasing the line to $3,000,000. During the second quarter of fiscal year 1996 this revolving credit agreement was amended, increasing the line to $3,750,000. $1,750,000 of the amended revolving credit agreement expired October 25, 1995 and the remaining $2,000,000 expired June 30, 1996. The note bore interest at prime plus 1%, payable monthly. Effective September 25, 1995 the Company signed a Restated Credit and Security Agreement with State Bank which provides a $6,000,000 line of credit which replaced the agreements referred to above. The line of credit is evidenced by a promissory note in the amount of $6,000,000 payable June 30, 1996. The note bears interest at prime plus 1/2%, payable monthly and is collateralized by substantially all of the assets of the Company. The Company utilizes this line of credit primarily to fund routine operations. Payments are made from current cash flows. At November 30, 1995 the Company had available $2,060,000 under this credit agreement. Note 3 - Inventories consist of the following: - ------

Note 5 - The results of operations for the three and nine months ended - ------ November 30, 1995 and 1994 are not necessarily indicative of the results to be expected at year end due to seasonality of the product sales. Note 6 - The information shown with respect to the three and nine months ended - ------ November 30, 1995 and 1994, which is unaudited, includes all adjustments which in the opinion of Management are considered to be necessary for a fair presentation of earnings for such periods. There were no adjustments, other than normal recurring accruals, entering into the determination of the results shown except as noted in this report. Reclassifications were made to 1994 balances to conform with 1995 presentation. Note 7 - These statements should be read in conjunction with the Notes to - ------ Financial Statements contained in the Company's Annual Report to Shareholders for the Fiscal Year ended February 28, 1995 and with Management's Discussion and Analysis or Plan of Operations appearing on page 9 of this report. 8 EDUCATIONAL DEVELOPMENT CORPORATION - ------------------------------------------------------------------------ ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS FOR THE - --------------------------------------------------------------------------- NINE MONTHS ENDED NOVEMBER 30, 1995 - ----------------------------------- FINANCIAL CONDITION - ------------------- The financial condition of the Company remains strong. Working capital increased slightly at November 30, 1995 over amounts at year-end February 28, 1995. The Company's debt increased $2,940,000 over amounts at year end February 28, 1995 resulting in a $4,200,000 increase over year end in current liabilities. This debt matures within one year and is classified as a current liability. This increase was offset by increases in the level of receivables and inventory. Sales increased 55% for the nine months ended November 30, 1995 over the nine months ended November 30, 1994. Management continues to focus on increasing market share in its Library Service and Publishing Division and to increase revenue from the Home Business Division through increasing its sales consultants network. Management's analysis indicates that the increased exposure of its products through the Home Business Division contributes to increased sales in the Publishing Division. Because the Company has a relatively small share of the children's book market, Management believes there is potential to continue to increase market share in the Publishing and Library Service Division in the future. Additionally, based upon the feedback Management receives from Home Business Division sales consultants, the products being offered through this Division are well received by the public and becoming more widely known and accepted. Accordingly, Management expects this Division to continue to experience growth. RESULTS OF OPERATIONS - --------------------- Revenues - Net sales from the Publishing Division were $6,534,400 for the nine - -------- months ended November 30, 1995, an increase of 26% over net sales of $5,195,000 for the nine months ended November 30, 1994. This increase can be attributed to increased volume as the Division continued to increase it's market penetration. Net sales from the School Division decreased 69% to $ 34,200 for the nine months ended November 30, 1995 compared to $109,900 for the same nine month period last year. With reductions in funding available to schools, cutbacks in spending occur. Often supplementary materials, which are the Division's primary products, are the first to be cut. Management believes its product line to be competitive in the school market, but the uncertainty of funding to schools is of concern. Management is evaluating its long-term options in the School Division. Net sales from the Home Business Division were $6,937,600 for the nine months ended November 30, 1995, an increase of 120% over the net sales of $3,150,300 for the nine months ended November 30, 1994. This increase in net sales is the result of an increase in the number of active consultants, which can be attributed to new incentive programs which motivate and assist consultants in sales and recruiting. This Division offers the entire Usborne line of approximately 800 titles. Net sales from the Library Services Division were $1,101,700 for the nine months ended November 30, 1995, compared to $950,900 for the same nine month period a year ago, an increase of 16%. This increase resulted from an increase in sales volume as the Division continued to increase it's market share. 9 EDUCATIONAL DEVELOPMENT CORPORATION - ------------------------------------------------------------------------ Operating Expenses - The Company's cost of sales increased to $6,065,500 for the - ------------------ nine months ended November, 1995 compared with $4,249,800 for the same period last year, an increase of 43%. Cost of sales as a percentage of gross sales was 26.8% for the nine months ended November 30, 1995 compared with 27% for the same period a year ago. Operating and selling expenses were $2,314,000 for the nine months ended November 30, 1995 compared to $1,645,800 for the same period last year, an increase of 40.6%. Operating and selling expenses as a percentage of gross sales were 10.2% for the nine months ended November 30, 1995 compared to 10.5% for the same period a year ago. Sales commissions were $2,893,900 for the nine months ended November 30, 1995 compared to $1,364,500 for the same period last year, an increase of 112%. Sales commissions as a percentage of gross sales were 12.8% for the nine months ended November 30, 1995 compared to 8.7% for the same period last year. Sales commissions as a percentage of gross sales is determined by the product mix being sold, as the commission rates vary with the product being sold. General and administrative expenses increased to $643,500 for nine months ended November 30, 1995 compared to $553,000 for the same period last year, an increase of 16.4%. General and administrative expenses as a percentage of gross sales were 2.8% for the nine months ended November 30, 1995 and 3.5% for the same period last year. Interest expense was $204,400 for the nine months ended November 30, 1995 compared to $6,900 for the same period a year ago. This increase was attributable to increased borrowing levels throughout the current period when compared with the same period a year ago. The increased borrowing levels occurred as the Company increased its inventory levels to provide for anticipated increases in future sales. 10 EDUCATIONAL DEVELOPMENT CORPORATION - ------------------------------------------------------------------------ PART II OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K A. Exhibits 1. None B. Reports on Form 8-K 1. There were no reports filed on Form 8-K during the three months covered by this report. 11 EDUCATIONAL DEVELOPMENT CORPORATION - ------------------------------------------------------------------------ SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EDUCATIONAL DEVELOPMENT CORPORATION (Registrant) By /s/ Randall W. White ------------------------------- Randall W. White President Date: January 16, 1996 ----------------------- 12