-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B03ikpP/0BaEeuJ0gld87wULETtU4Pgi7svtglMsKEyykXMwZEbT+Lg27sQjA4+W jjz5J84NiD+GmSSxeTpJuA== 0000930661-99-001267.txt : 19990520 0000930661-99-001267.hdr.sgml : 19990520 ACCESSION NUMBER: 0000930661-99-001267 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990228 FILED AS OF DATE: 19990519 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EDUCATIONAL DEVELOPMENT CORP CENTRAL INDEX KEY: 0000031667 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MISCELLANEOUS NONDURABLE GOODS [5190] IRS NUMBER: 730750007 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-04957 FILM NUMBER: 99630763 BUSINESS ADDRESS: STREET 1: 10302 E 55TH PL #B CITY: TULSA STATE: OK ZIP: 74146 BUSINESS PHONE: 9186224522 MAIL ADDRESS: STREET 1: PO BOX 470663 CITY: TULSA STATE: OK ZIP: 741460663 FORMER COMPANY: FORMER CONFORMED NAME: TUTOR TAPES INTERNATIONAL CORP DATE OF NAME CHANGE: 19701030 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL TEACHING TAPES INC DATE OF NAME CHANGE: 19701030 10-K 1 FORM 10-K 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, 1999 [_] 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 April 14, 1999, 4,608,690 shares of common stock were outstanding. The aggregate market value of the voting shares held by non- affiliates of the registrant, based on 3,489,251 shares (total outstanding less shares held by all officers, directors and 401(k) Plan) extended at the closing market price on April 14, 1999, of these shares traded on the Nasdaq National Market, was approximately $8,723,128. DOCUMENTS INCORPORATED BY REFERENCE The information required by Part III of this Annual Report, to the extent not set forth herein, is incorporated herein by reference from the registrant's definitive proxy statement relating to the annual meeting of stockholders to be held on June 29, 1999. 1 TABLE OF CONTENTS
FACTORS AFFECTING FORWARD LOOKING STATEMENTS..................................................... 3 PART I Item 1. Business............................................................................. 3 Item 2. Properties........................................................................... 6 Item 3. Legal Proceedings.................................................................... 6 Item 4. Submission of Matters to a Vote of Security Holders.................................. 6 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................ 6 Item 6. Selected Financial Data.............................................................. 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................... 12 Item 8. Financial Statements and Supplementary Data.......................................... 12 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 12 PART III Item 10. Directors and Executive Officers of the Registrant................................... 12 Item 11. Executive Compensation............................................................... 13 Item 12. Security Ownership of Certain Beneficial Owners and Management....................... 13 Item 13. Certain Relationships and Related Transactions....................................... 13 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..................... 13
2 EDUCATIONAL DEVELOPMENT CORPORATION FORM 10-K ANNUAL REPORT FOR THE YEAR ENDED FEBRUARY 28, 1999 FACTORS AFFECTING FORWARD LOOKING STATEMENTS - -------------------------------------------- This annual Report on Form 10-K contains certain "forward looking statements" within the meaning of Section 27A of the Securities Act of 1993, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Certain statements contained in "Item 7 - 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. Although Educational Development Corporation believes that the expectations reflected by such forward looking statements are reasonable based on information currently available to the Company, no assurances can be given that such exceptions will prove to have been correct. 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 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") 1999 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 and direct 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. Significant Events During Fiscal Year 1999 ------------------------------------------ There were no significant events during fiscal year 1999. (b) Financial Information about Industry Segments --------------------------------------------- See part II, Item 8 - Financial Statements and Supplementary Data 3 (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 1,000 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 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 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 1,000 titles and 59 Kid Kits through a combination of direct sales, home parties 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 bookstores, toy stores, specialty stores and other retail outlets utilizing an inside telephone sales force as well as independent field sales representatives. (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 and book fairs. The division had approximately 3,400 consultants in 50 states at February 28, 1999. 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 12,000 book, toy and specialty stores. Significant orders have been received from major book chains. During fiscal year 1999 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. (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, 1999, the Company had 69 full-time employees and 2 part- time employees. The Company believes its relations with its employees to be good. 5 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 expired February 28, 1999. The Company is presently negotiating a renewal of this lease and continues to lease the facilities on a month-to-month basis. 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 1999 and 1998, as reported by the National Association of Securities Dealers, Inc., were as follows:
1999 1998 ------------ ------------ Period High Low High Low - ------ ---- --- ---- --- 1st Qtr... 5-5/8 4-3/8 6-3/8 4-3/4 2nd Qtr... 4-3/8 2-5/8 7 5-3/8 3rd Qtr... 2-7/8 2-3/16 8-1/4 5-9/16 4th Qtr... 3 2-3/16 6 4-1/32
The number of shareholders of record of EDC's common stock at April 14, 1999 was 1186. The Company paid a $0.02 per share annual dividend during fiscal year 1999 and paid a $0.01 per share annual dividend during fiscal year 1998. The Company will pay a $0.02 per share annual dividend during fiscal year 2000. 6 Item 6. SELECTED FINANCIAL DATA - ------- -----------------------
YEARS ENDED FEBRUARY 28 (29) --------------------------------------------------------------- 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- Net Sales $16,671,385 $19,343,362 $21,239,507 $19,253,467 $12,353,257 ----------- ----------- ----------- ----------- ----------- Earnings From Continuing Operations (1) $ 1,297,493 $ 1,704,568 $ 1,630,088 $ 1,805,335 $ 1,163,647 ----------- ----------- ----------- ----------- ----------- Net Earnings $ 1,297,493 $ 1,704,568 $ 1,630,088 $ 1,478,714 $ 1,171,786 ----------- ----------- ----------- ----------- ----------- Earnings From Continuing Operations Per Common Share Basic $ .26 $ .33 $ .31 $ .40 $ .26 ----------- ----------- ----------- ----------- ----------- Diluted $ .26 $ .32 $ .31 $ .34 $ .22 ----------- ----------- ----------- ----------- ----------- Net Earnings Per Common Share Basic $ .26 $ .33 $ .31 $ .33 $ .26 ----------- ----------- ----------- ----------- ----------- Diluted $ .26 $ .32 $ .31 $ .28 $ .22 ----------- ----------- ----------- ----------- ----------- Total Assets $12,339,594 $13,597,500 $13,365,369 $16,422,068 $ 9,665,378 ----------- ----------- ----------- ----------- ----------- Long Term Obligations -- -- -- -- $ 1,000,000 ----------- ----------- ----------- ----------- ----------- Cash Dividends Declared Per Common Share $ .02 $ .01 -- -- -- ----------- ----------- ----------- ----------- -----------
(1) Effective February 29, 1996 the Company discontinued its School Division. The Operating results of the School Division were reported as discontinued operations in 1996 and 1995. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL - ------- ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- (a) Results of Operations --------------------- FY 1999 - ------- The Home Business Division's sales decreased 17.3% during FY 1999 when compared with FY 1998. 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 for its field sales force an excellent compensation program which is competitive with industry leaders. New and exciting incentive programs are being planned for FY 2000 as well as several travel contests and regional training seminars throughout the country. The Home Business Division's third National Seminar will be held in June 1999. Management is hopeful that the 2 year decline in net sales has been halted. 7 The Publishing Division's net sales decreased 9.4% in FY 1999 when compared with FY 1998. This decline in net sales can be attributed to changing market conditions. National chains increasingly dominate the bookstore market, which in turn has resulted in fewer independent bookstores. The closings of these independent bookstores, an important market for the Company, have led to lower sales. The Company has restructured sales and marketing coverage on the national chains in order to increase market share. Independent toy retailers have also experienced increased competition from national discount chains, resulting in lower sales in this market segment. An increase in the number of front list titles will increase sales opportunities in FY 2000. The gift market has considerable potential for the Company and the Company has increased its gift trade show schedule by 50% to take advantage of this opportunity. The Company has an aggressive in-house telephone sales force which maintains contact with over 10,000 customers. During FY 1999 the telesales force opened up 637 new accounts compared with 525 during FY 1998. 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 3,098 of these attractive racks in retail stores throughout the country at the end of FY 1999 compared with 3,000 in FY 1998. 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 13.5% for FY 1999 compared with FY 1998. Cost of sales as a percentage of gross sales was 26.0% for FY 1999 versus 26.1% for FY 1998. Cost of sales as a percentage of gross sales fluctuates depending upon the mix of products sold during a given year. Management believes its percentage of cost of sales during FY 2000 will remain consistent with FY 1999. Operating and selling expenses decreased 8.0% during FY 1999 when compared with FY 1998. As a percent of gross sales, these costs were 12.0% for FY 1999 and 11.4% for FY 1998. Contributing to the decrease in operating and selling expenses were lower credit card fees and reduced sales incentives in the Home Business Division, both the direct result of decreased sales in the Home Business Division. In addition, payroll and benefit costs related to selling and operating expenses declined due to a decrease in headcount. Management expects operating and selling expenses to be approximately 11% to 13% of gross sales for FY 2000. Sales commissions decreased 12.9% for FY 1999 compared with FY 1998. As a percentage of gross sales, these costs were 12.8% in FY 1999 compared to 12.8% for FY 1998. 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 1999 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 resulted in increased commission expense for FY 1999, offset by a decline in total commission expense as a result of decreased sales. Management expects sales commissions will be approximately 13% to 15% of gross sales for FY 2000. General and administrative expenses increased 4.9% during FY 1999 when compared with FY 1998. As a percentage of gross sales, these expenses were 6.3% and 5.2% for FY 1999 and FY 1998 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 2000 will be approximately 4.5% to 5.5% of gross sales. Interest expense declined 38.3% in FY 1999 compared with FY 1998. As a percentage of gross sales, interest expense was 0.4% in FY 1999 versus 0.5% for FY 1998. The decrease in interest expense during FY 1999 was the result of lower borrowing levels due to improved cash flows during the year. 8 FY 1998 - ------- The Home Business Division's sales decreased 17.0% during FY 1998 when compared with FY 1997. The Company believed 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 created an additional level of compensation and was designed to encourage participation at all levels of the organization. Several travel contests were conducted and regional training seminars were held throughout the country. The Home Business Division's second National Seminar was held in July 1998. The Publishing Division's sales increased 9.4% in FY 1998 over FY 1997. Sales nationwide in the juvenile paperback market declined over 18%. The Company attributed the increase in sales to an increase in volume and in market penetration. Orders increased in size with larger quantities per order as well as multiple titles per order. The Company's aggressive in-house telephone sales force maintained 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 offered 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 attended several major national trade shows throughout the year to further enhance product visibility. 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. 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. 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. 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. 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. 9 (b) Financial Position ------------------ Working capital was $9.8 million for fiscal year end 1999 and $9.6 million for fiscal year end 1998. Reduced payables and short-term bank debt contributed to the working capital increase at fiscal year end 1999. The Company pays interest on its bank promissory note monthly from current cash flows. Management expects its financial position to remain strong and to increase working capital during the next fiscal year. (c) Liquidity and Capital Resources ------------------------------- Management believes the Company's liquidity at February 28, 1999, 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 fiscal year 2000. Capital expenditures are expected to be less than $750,000 in fiscal year 2000. 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, 1998 the Company signed a Second 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, 1999. The note bears interest at the Wall Street Journal prime floating rate payable monthly (7.75% at February 28, 1999). The note is collateralized by substantially all of the assets of the Company. At February 28, 1999 the Company had $756,000 in borrowings and a $50,000 letter of credit issued under the revolving credit agreement. Available credit under the revolving credit agreement was $2,694,000 at February 28, 1999. 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, 1999. 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 fiscal year 1999. Accounts receivable decreased during fiscal year 1999, the result of lower sales in the Publishing Division and the Company's emphasis on collections and the tightening of credit controls. The Company plans to continue to maximize its collection efforts in order to maintain cash flows. Inventory levels declined 8.4% from fiscal year end 1998 to fiscal year end 1999, the result of the Company's continued efforts of monitoring inventory levels to ensure that adequate inventory is 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. Cash used in investing activities during fiscal year 1999 was primarily for additional computer equipment and additions to the warehouse flow rack shipping system. The Company was able to pay down the bank promissory note during fiscal year 1999 due to improved cash flows during the year. During the year the Company continued the stock buyback program by purchasing 376,832 share of its common stock at a cost of $1,277,186. The Company paid a divided of $0.02 per share or $101,892. 10 (d) New Accounting Standards ------------------------ Recent pronouncements of the Financial Accounting Standards Board, which are not required to be adopted at this date, include SFAS No 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that all derivatives be recognized as either assets or liabilities in the statement of financial position and be measured at fair value. SFAS No. 133 is effective for the Company beginning March 1, 2000. The Company is currently evaluating SFAS No. 133, but does not expect its adoption will have a material impact on its consolidated 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. The Company has evaluated its software applications, systems software, information technology ("IT") system and its non-IT systems. Management has determined that the various computer programs the Company uses in its operations are Year 2000 compliant. These programs include the following: inventory; accounts receivable; accounts payable; general ledger; shipping; order entry. The Informix database engine which runs these programs is not Year 2000 compliant. The Company has acquired the necessary programs to bring the Informix database engine to Year 2000 compliance and has been installing and testing these programs in its test environment. The Company expects this procedure to be completed by June 1, 1999, at which time these programs will then be installed on the Company's main system. The Company expects to have this completed by October 1, 1999. Y2K costs are estimated to be less than $50,000. The Company has received assurances from its primary supplier, Usborne Publishing LTD, that Usborne Publishing LTD will be year 2000 compliant before the end of 1999. The Company relies on third-party suppliers for products and services, including telecommunications and shipping. The Company will be adversely impacted if these suppliers of products and services do not make necessary changes to their own systems in a timely and successful manner. There could be circumstances in which the Company would be unable to receive customer orders, ship product, invoice customers or collect payments. 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 these other third-party companies will be timely converted. The Company is unable to determine the financial impact, if any, to the Company should some or all of its third-party suppliers be unable to become Year 2000 compliant in a timely manner. The Company relies highly on the telecommunications industry and the transportation (shipping) industry. It is highly unlikely that all the major service providers in these two industries would fail to become Year 2000 compliant in a timely manner. However, should this worst case scenario occur, the Company would be unable to receive orders or ship product. The Company has not yet established a contingency plan, but intends to formulate one to address the adverse effects should its major third-party suppliers incur Year 2000 problems. The Company intends to have this contingency plan formulated by July 1999. 11 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 8 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, 1999. PART III -------- Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - -------- -------------------------------------------------- (a) Identification of Directors --------------------------- The information required by this Item 10 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 June 29, 1999. (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 57 President and Treasurer W. Curtis Fossett Controller and 1989 53 Corporate Secretary Michael L. Puhl* Vice President - Operations 1998 43
*The prior business experience for those executive officers who have been employed by the Company for less than five years is as follows: Michael L. Puhl joined EDC on September 3, 1996. Prior to that he was Controller of the Aftermarket Division of Mark IV Industries. During that time he was in charge of all accounting functions of the combined Purolater/Dayco Aftermarket sales division. Prior to being appointed as controller of the Aftermarket Division, he was Vice President/Finance of Purodenso, a joint venture between Purolater Products and Nippondenso LTD of Japan. 12 (c) Compliance With Section 16 (a) of the Exchange Act -------------------------------------------------- The information required by this Item 10 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 June 29, 1999. Item 11. EXECUTIVE COMPENSATION - -------- ---------------------- The information required by this Item 11 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 June 29, 1999. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND - -------- --------------------------------------------------- MANAGEMENT ---------- The information required by this Item 12 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 June 29, 1999. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------- ---------------------------------------------- The information required by this Item 13 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 June 29, 1999. 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, 1999 and 1998 F-2 Statements of Earnings - Years ended February 28, 1999, 1998 and 1997 F-3 Statements of Shareholders' Equity - Years ended February 28, 1999, 1998 and 1997 F-4 Statements of Cash Flows - Years ended February 28, 1999, 1998 and 1997 F-5 Notes to Financial Statements F-6-F-14 Schedules have been omitted as such information is either not required or is included in the financial statements.
13 2.. Exhibits 3.1 Restated Certificate of Incorporation of the Company dated April 26, 1968, Certificate of Amendment there to dated June 21, 1968 and By-Laws of the Company are incorporated herein by reference to Exhibit 1 to Registration Statement on Form 10 (File No. 0-4957). 3.2 Certificate of Amendment of Restated Certificate of Incorporation of the Company dated August 27, 1977 and By- Laws of the Company as amended are incorporated herein by reference to Exhibits 20.1 and 20.2 to Form 10-K for fiscal year ended February 28, 1981 (File No. 0-4957). 3.3 Certificate of Amendment of Restated Certificate of Incorporation of the Company dated November 17, 1986, is incorporated herein by reference to Exhibit 3.3 to Form 10-K for fiscal year ended February 28, 1987 (File No. 0- 4957). 3.4 Certificate of Amendment of Restated Certificate of Incorporation of the Company dated March 22, 1996. 4.1 Specimens of Common Stock Certificates are incorporated herein by reference to Exhibits 3.1 and 3.2 to Registration Statement on Form 10-K (File No. 0-4957). 10.1 Educational Development Corporation Incentive Stock Option Plan of 1981, is incorporated herein by reference to Exhibit 10.9 to Form 10-K for fiscal year ended February 28, 1982 (File No. 0-4957). 10.2 Agreement by and among the Company, Usborne Publishing Ltd., and Hayes Books, Inc., dated May 17, 1983, is incorporated herein by reference to Exhibit 10.16 to Form 10-K for fiscal year ended February 29, 1984 (File No. 0- 4957). 10.3 Settlement Agreement dated August 7, 1986, by and between the Company and Hayes Publishing Ltd., Cyril Hayes Books, Inc. (formerly named Hayes Books, Inc.), and Cyril Hayes is incorporated herein by reference to Exhibit 10.1 to Form 8-K dated August 7, 1986 (File No. 0-4957). 10.4 Usborne Agreement-Contractual agreement by and between the Company and Usborne Publishing Limited dated November 25, 1988, is incorporated herein by reference to Exhibit 10.12 to Form 10-K dated February 28, 1989 (File No. 0- 4957). 10.5 Party Plan-Contractual agreement by and between the Company and Usborne Publishing Limited dated March 14, 1989, is incorporated herein by reference to Exhibit 10.13 to Form 10-K dated February 28, 1989 (File No. 0-4957). 14 10.6 Loan Agreement dated January 18, 1990, by and between the Company and State Bank & Trust, N.A., Tulsa, OK (formerly WestStar Bank, N.A., Bartlesville, OK), is incorporated herein by reference to Exhibit 10.11 to Form 10-K dated February 28, 1990 (File No. 0-4957). 10.7 Lease Agreement by and between the Company and James D. Dunn dated March 1, 1991, is incorporated herein by reference to Exhibit 10.12 to Form 10-K dated February 28, 1991 (File No. 0-4957). 10.8 Agreement for Exchange of Contract Rights and Securities by and between the Company and Robert D. Berryhill dated October 1, 1990, is incorporated herein by reference to Exhibit 10.1 to Form 10-K dated February 28, 1991 (File No. 0-4957). 10.9 Amendment dated January 1, 1992 to Usborne Agreement - Contractual agreement by and between the Company and Usborne Publishing Limited is incorporated herein by reference to Exhibit 10.13 to Form 10-K dated February 29, 1992 (File No. 0-4957). 10.10 First Amendment dated January 31, 1992 to Loan Agreement between the Company and State Bank & Trust, N.A., Tulsa, OK, (formally WestStar Bank, N.A., Bartlesville, OK,) is incorporated herein by reference to Exhibit 10.14 to Form 10-K dated February 29, 1992 (File No. 0-4957). 10.11 Educational Development Corporation 1992 Incentive Stock Option Plan is incorporated herein by reference to Exhibit 4(c) to Registration Statement on Form S-8 (File No. 33-60188) 10.12 Second Amendment dated June 30, 1992 to Loan Agreement between the Company and State Bank & Trust, N.A., Tulsa, OK, (formally WestStar Bank, N.A., Bartlesville, OK,) is incorporated herein by reference to Exhibit 10.12 to Form 10-KSB dated February 28, 1994 (File No. 0-4957). 10.13 Third Amendment dated June 30, 1993 to Loan Agreement between the Company and State Bank & Trust, N.A., Tulsa, OK, (formally WestStar Bank, N.A., Bartlesville, OK,) is incorporated herein by reference to Exhibit 10.13 to Form 10-KSB dated February 28, 1995 (File No. 0-4957). 10.14 Fourth Amendment dated June 30, 1994 to Loan Agreement between the Company and State Bank & Trust, N.A, Tulsa, OK, is incorporated herein by reference to Exhibit 10.14 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 10.15 to Form 10-KSB dated February 28, 1995 (File No. 0-4957). 15 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 10.16 to Form 10-KSB dated February 28, 1995 (File No. 0-4957). 10.17 Seventh Amendment dated April 27, 1995 to Loan Agreement between the Company and State Bank & Trust, N.A., Tulsa, OK, is incorporated herein by reference to Exhibit 10.17 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 10.18 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. is incorporated herein by reference to Exhibit 10.22 to Form 10-K dated February 28, 1998 (File No. 0-4957). *10.23 Second Amendment dated June 30, 1998 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 19, 1999 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 19, 1999 /s/ Randall W. White ------------------------------------ Randall W. White Chairman of the Board President, Treasurer and Director May 19, 1999 /s/ Robert D. Berryhill ------------------------------------- Robert D. Berryhill, Director May 19, 1999 /s/ G. Dean Cosgrove ------------------------------------- G. Dean Cosgrove, Director May 19, 1999 /s/ James F. Lewis ------------------------------------- James F. Lewis, Director May 19, 1999 /s/ John M. Lare ------------------------------------- John M. Lare, Director May 19, 1999 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, 1999 and 1998, and the related statements of earnings, shareholders' equity and cash flows for each of the three years in the period ended February 28, 1999. 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, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended February 28, 1999 in conformity with generally accepted accounting principles. Deloitte & Touche LLP April 19, 1999 Tulsa, Oklahoma F-1 EDUCATIONAL DEVELOPMENT CORPORATION BALANCE SHEETS FEBRUARY 28, 1999 AND 1998 - --------------------------------------------------------------------------------
ASSETS 1999 1998 CURRENT ASSETS: Cash and cash equivalents $ 210,931 $ 171,549 Accounts receivable, less allowances for doubtful accounts and sales returns 1,842,616 2,128,012 Inventories - Net 9,546,674 10,402,230 Prepaid expenses and other assets 220,032 95,679 Income taxes receivable 55,077 51,092 Deferred income taxes 121,800 153,300 ----------- ----------- Total current assets 11,997,130 13,001,862 PROPERTY AND EQUIPMENT - Net 342,464 595,638 ----------- ----------- $12,339,594 $13,597,500 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Note payable to bank $ 756,000 $ 876,000 Accounts payable 1,095,771 2,230,651 Accrued salaries and commissions 242,582 259,760 Other current liabilities 149,563 69,884 ----------- ----------- Total current liabilities 2,243,916 3,436,295 DEFERRED INCOME TAXES 56,300 95,000 COMMITMENTS SHAREHOLDERS' EQUITY: Common stock, $0.20 par value; Authorized 6,000,000 shares; Issued 5,429,240 (1999) and 5,424,240 (1998) shares; Outstanding 4,873,254 (1999) and 5,232,138 (1998) shares 1,085,848 1,084,848 Capital in excess of par value 4,410,066 4,403,566 Retained earnings 6,266,424 5,070,823 ----------- ----------- 11,762,338 10,559,237 Less treasury stock, at cost (1,722,960) (493,032) ----------- ----------- 10,039,378 10,066,205 ----------- ----------- $12,339,594 $13,597,500 =========== ===========
See notes to financial statements. F-2 EDUCATIONAL DEVELOPMENT CORPORATION STATEMENTS OF EARNINGS YEARS ENDED FEBRUARY 28, 1999, 1998 AND 1997 - --------------------------------------------------------------------------------
1999 1998 1997 GROSS SALES $25,889,212 $ 29,764,345 $ 31,547,007 Less discounts and allowances (9,217,827) (10,420,983) (10,307,500) ----------- ------------ ------------ Net sales 16,671,385 19,343,362 21,239,507 COST OF SALES 6,724,539 7,771,311 8,396,060 ----------- ------------ ------------ Gross margin 9,946,846 11,572,051 12,843,447 ----------- ------------ ------------ OPERATING EXPENSES: Operating and selling 3,118,179 3,389,317 3,883,438 Sales commissions 3,308,551 3,797,145 4,699,279 General and administrative 1,619,635 1,543,348 1,315,012 Interest 96,427 156,149 344,966 ----------- ------------ ------------ 8,142,792 8,885,959 10,242,695 ----------- ------------ ------------ OTHER INCOME 117,339 127,376 33,436 ----------- ------------ ------------ EARNINGS BEFORE INCOME TAXES 1,921,393 2,813,468 2,634,188 INCOME TAXES 623,900 1,108,900 1,004,100 ----------- ------------ ------------ NET EARNINGS $ 1,297,493 $ 1,704,568 $ 1,630,088 =========== ============ ============ BASIC AND DILUTED EARNINGS PER SHARE: Basic $ 0.26 $ 0.33 $ 0.31 =========== ============ ============ Diluted $ 0.26 $ 0.32 $ 0.31 =========== ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON AND EQUIVALENT SHARES OUTSTANDING: Basic 5,036,574 5,216,076 5,214,264 =========== ============ ============ Diluted 5,098,167 5,338,188 5,353,938 =========== ============ ============
See notes to financial statements. F-3 EDUCATIONAL DEVELOPMENT CORPORATION STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED FEBRUARY 28, 1999, 1998 AND 1997 - --------------------------------------------------------------------------------
COMMON STOCK (PAR VALUE $.20 PER SHARE) ------------------------ NUMBER OF CAPITAL IN TREASURY STOCK ----------------------- SHARES EXCESS OF RETAINED NUMBER OF SHAREHOLDERS' ISSUED AMOUNT PAR VALUE EARNINGS SHARES AMOUNT EQUITY BALANCE, MARCH 1, 1996 5,398,240 $1,079,648 $4,391,339 $1,788,343 206,742 $ (527,442) $ 6,731,888 Exercise of options at $0.25/share 20,000 4,000 1,000 - - - 5,000 Exercise of options at $1.50/share 6,000 1,200 7,800 - - - 9,000 Issuance of treasury stock - - 3,103 - (3,840) 10,738 13,841 Purchase of treasury stock - - - - 32,975 (242,730) (242,730) Sales of treasury stock - - - - (12,334) 125,958 125,958 Net earnings - - - 1,630,088 - - 1,630,088 --------- ---------- ---------- ---------- -------- ----------- ----------- BALANCE, FEBRUARY 28, 1997 5,424,240 1,084,848 4,403,242 3,418,431 223,543 (633,476) 8,273,045 Issuance of treasury stock - - 324 - (700) 2,069 2,393 Purchase of treasury stock - - - - 15,900 (85,364) (85,364) Sales of treasury stock - - - - (46,641) 223,739 223,739 Dividends paid ($0.01/share) - - - (52,176) - - (52,176) Net earnings - - - 1,704,568 - - 1,704,568 --------- ---------- ---------- ---------- -------- ----------- ----------- BALANCE, FEBRUARY 28, 1998 5,424,240 1,084,848 4,403,566 5,070,823 192,102 (493,032) 10,066,205 Exercise of options at $1.50/share 5,000 1,000 6,500 - - - 7,500 Issuance of treasury stock - - - - (400) 1,240 1,240 Purchase of treasury stock - - - - 376,832 (1,277,186) (1,277,186) Sales of treasury stock - - - - (12,548) 46,018 46,018 Dividends paid ($0.02/share) - - - (101,892) - - (101,892) Net earnings - - - 1,297,493 - - 1,297,493 --------- ---------- ---------- ---------- -------- ----------- ----------- BALANCE, FEBRUARY 28, 1999 5,429,240 $1,085,848 $4,410,066 $6,266,424 555,986 $(1,722,960) $10,039,378 ========= ========== ========== ========== ======== =========== ===========
See notes to financial statements. F-4 EDUCATIONAL DEVELOPMENT CORPORATION STATEMENTS OF CASH FLOWS YEARS ENDED FEBRUARY 28, 1999, 1998 AND 1997 - --------------------------------------------------------------------------------
1999 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 1,297,493 $ 1,704,568 $ 1,630,088 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 308,805 296,803 252,113 Write off of asset 535 - - Deferred income taxes (7,200) 100,900 9,100 Provision for doubtful accounts and sales returns 1,277,201 862,900 1,225,000 Recovery of obsolete inventory reserve - (150,913) - Stock issued for awards 1,240 2,393 4,251 Changes in assets and liabilities: Accounts and income taxes receivable (995,790) (885,224) (273,973) Inventories 855,556 (202,860) 1,951,416 Prepaid expenses and other assets (124,353) (25,378) 44,462 Accounts payable and accrued expenses (1,072,379) (522,029) (787,856) ----------- ----------- ------------ Total adjustments 243,615 (523,408) 2,424,513 ----------- ----------- ------------ Net cash provided by operating activities 1,541,108 1,181,160 4,054,601 ----------- ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES - Purchases of property and equipment (56,166) (43,963) (275,639) ----------- ----------- ------------ Net cash used in investing activities (56,166) (43,963) (275,639) ----------- ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under revolving credit agreement 7,000,000 8,484,900 7,130,000 Payments under revolving credit agreement (7,120,000) (9,618,900) (10,940,000) Cash received from exercise of stock options 7,500 - 14,000 Cash received from sale of stock 46,018 223,739 125,958 Cash paid to acquire treasury stock (1,277,186) (85,364) (242,730) Dividends paid (101,892) (52,176) - ----------- ----------- ------------ Net cash used in financing activities (1,445,560) (1,047,801) (3,912,772) ----------- ----------- ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 39,382 89,396 (133,810) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 171,549 82,153 215,963 ----------- ----------- ------------ CASH AND CASH EQUIVALENTS, END OF YEAR $ 210,931 $ 171,549 $ 82,153 =========== =========== ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 98,482 $ 164,519 $ 368,051 =========== =========== ============ Cash paid for income taxes $ 779,000 $ 935,000 $ 766,769 =========== =========== ============
See notes to financial statements. F-5 EDUCATIONAL DEVELOPMENT CORPORATION NOTES TO FINANCIAL STATEMENTS YEARS ENDED FEBRUARY 28, 1999, 1998 AND 1997 - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS - Educational Development Corporation (the "Company") distributes books and publications through its Publishing and Home Business Divisions. In July 1996, the Company's Library Division ceased operations and responsibility for sales to this market segment 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. ACCOUNTS RECEIVABLE - Accounts receivable at February 28, 1999 and 1998, include approximately $148,000 and $65,000, respectively, due from directors of the Company. 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. 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 and common share equivalents outstanding which include, where appropriate, the assumed exercise of options. In computing diluted EPS the Company has utilized the treasury stock method. F-6 The following reconciles the diluted earnings per share:
Year Ended February 28, ------------------------------------------- 1999 1998 1997 DILUTED EARNINGS PER SHARE: Net earnings applicable to common shareholders $ 1,297,493 $ 1,704,568 $ 1,630,088 ============ ============ ============ SHARES: Weighted average shares outstanding - basic 5,036,574 5,216,076 5,214,264 Assumed exercise of options 61,593 122,112 139,674 ------------ ------------ ------------ 5,098,167 5,338,188 5,353,938 ============ ============ ============ DILUTED EARNINGS PER SHARE $ 0.26 $ 0.32 $ 0.31 ============ ============ ============
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 accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Compensation cost for stock options, if any, is measured as the excess of the quoted market price of the Company's stock at the date of grant over the amount an employee must pay to acquire the stock. The Company has adopted the disclosure requirements of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." NEW ACCOUNTING STANDARDS - SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that all derivatives be recognized as either assets or liabilities in the statement of financial position and be measured at fair value. SFAS No. 133 is effective for the Company beginning March 1, 2000. The Company is currently evaluating SFAS No. 133, but does not expect its adoption will have a material impact on its consolidated financial statements. RECLASSIFICATIONS - Reclassifications were made to certain 1998 balances to conform with the 1999 presentation. F-7 2. INVENTORIES Inventories consist of the following:
FEBRUARY 28, ----------------------------- 1999 1998 Book inventory $ 9,670,406 $ 10,552,417 Reserve for obsolescence (123,732) (150,187) ------------ ------------ $ 9,546,674 $ 10,402,230 ============ ============
3. PROPERTY AND EQUIPMENT Property and equipment consist of the following:
FEBRUARY 28, --------------------------- 1999 1998 Computer equipment $ 802,899 $ 777,699 Warehouse and office equipment 471,438 441,954 Furniture, fixtures and other 101,335 101,335 ----------- ---------- 1,375,672 1,320,988 Less accumulated depreciation and amortization (1,033,208) (725,350) ----------- ---------- $ 342,464 $ 595,638 =========== ==========
4. NOTE PAYABLE The note payable to bank is under a $3,500,000 revolving credit agreement, with interest payable monthly at prime (7.75% and 8.50% at February 28, 1999 and 1998, respectively), collateralized by substantially all assets of the Company, maturing on June 30, 1999. At February 28, 1999, the Company had $756,000 in borrowings and a $50,000 letter of credit issued under the revolving credit agreement. Available credit under the revolving credit agreement was $2,694,000 at February 28, 1999. The agreement contains provisions that require the maintenance of 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 is in compliance with 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, 1999, 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, --------------------------------------- 1999 1998 1997 Note payable to bank: Largest amount borrowed $ 2,306,000 $ 2,860,000 $ 5,850,000 Average amount borrowed 1,343,549 1,766,813 4,061,250 Weighted average interest rate 8.3% 8.5% 8.5%
F-8 5. 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, 1999 and 1998 are as follows:
FEBRUARY 28, ------------------------------- 1999 1998 Current: Deferred tax assets: Allowance for doubtful accounts $ 34,600 $ 55,300 Inventories 48,300 59,500 Expenses deducted on the cash basis for income tax purposes 23,400 23,400 Change in accounting method 15,500 15,100 ------------ ------------ Deferred tax asset $ 121,800 $ 153,300 ============ ============ Noncurrent: Deferred tax asset - Change in accounting method $ - $ 15,100 Deferred tax liability - Property and equipment (56,300) (110,100) ------------ ------------ Net deferred tax liability $ (56,300) $ (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:
YEAR ENDED FEBRUARY 28, ----------------------------------------- 1999 1998 1997 Current: Federal $ 536,500 $ 856,900 $ 845,800 State 94,600 151,100 149,200 ----------- ----------- ----------- 631,100 1,008,000 995,000 Deferred: Federal (6,100) 85,800 7,700 State (1,100) 15,100 1,400 ----------- ----------- ----------- (7,200) 100,900 9,100 ----------- ----------- ----------- Total income tax expense $ 623,900 $ 1,108,900 $ 1,004,100 =========== =========== ===========
F-9 The following reconciles the Company's expected income tax expense utilizing statutory tax rates to the actual tax expense:
YEAR ENDED FEBRUARY 28, ------------------------------------------------ 1999 1998 1997 Tax expense at federal statutory rate $653,000 $ 957,000 $ 896,000 State income tax, net of federal tax benefit 66,000 116,000 105,000 Other (95,100) 35,900 3,100 -------- ---------- ---------- $623,900 $1,108,900 $1,004,100 ======== ========== ==========
6. 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 $27,291, $27,113 and $31,457 in fiscal years 1999, 1998 and 1997, respectively. 7. COMMITMENTS The Company leases its office and warehouse facilities under a noncancelable operating lease which expired in February 1999. Total rent expense related to these leases was $225,960, in both fiscal 1999 and 1998 and $219,000 for fiscal 1997. At February 28, 1999, the Company had outstanding commitments to purchase inventory from its primary vendor totaling approximately $1,548,000. 8. 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, 1999 expire in 2003 through 2009. F-10 A summary of the status of the Company's Incentive Plan as of February 28, 1999, 1998 and 1997 and changes during the years ended on those dates is presented below:
1999 1998 1997 ------------------------ -------------------------- ------------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE Outstanding at Beginning of Year 328,500 $ 3.06 309,800 $ 3.79 206,000 $ 2.55 Granted 171,700 4.34 140,600 4.03 117,400 6.00 Exercised/canceled (10,200) (2.77) (121,900) (6.02) (13,600) (4.01) ------- ------ -------- ------ ------- ------ Outstanding at End of Year 490,000 $ 3.51 328,500 $ 3.06 309,800 $ 3.79 ======= ====== ======== ====== ======= ======
The following table summarizes information about stock options outstanding at February 28, 1999:
NUMBER RANGE OF OUTSTANDING WEIGHTED EXERCISE AT FEBRUARY, 28 AVERAGE REMAINING WEIGHTED AVERAGE PRICES 1999 CONTRACTUAL LIFE (YEARS) EXERCISE PRICE -------- --------------- ------------------------ ---------------- $1.375-$1.50 79,000 4 $ 1.41 $2.50 15,000 9 $ 2.50 $3.13 106,000 5 $ 3.13 $3.81 21,500 9 $ 3.81 $4.00 133,300 8 $ 4.00 $4.63 135,200 9 $ 4.63 ---------- --- ------ 490,000 8 $ 3.51 ========== === ======
All options outstanding are exercisable at February 28, 1999. The Company applies APB 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 prescribed by SFAS No. 123, the Company's net earnings and earnings per share for the years ended February 28, 1999, 1998 and 1997 would have been reduced to the pro forma amounts indicated below:
1999 1998 1997 Net earnings - as reported $1,297,493 $1,704,568 $1,630,088 ========== ========== ========== Net earnings - pro forma $1,104,347 $1,636,618 $1,375,088 ========== ========== ========== Earnings per share - as reported: Basic $ 0.26 $ 0.33 $ 0.31 ========== ========== ========== Diluted $ 0.26 $ 0.32 $ 0.31 ========== ========== ========== Earnings per share - pro forma: Basic $ 0.22 $ 0.31 $ 0.26 ========== ========== ========== Diluted $ 0.22 $ 0.31 $ 0.26 ========== ========== ==========
F-11 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 weighted average assumptions were used for options granted in 1999; no dividend yield, expected volatility of 50%, risk free interest rate of 5.06% and expected lives of four years; 1998, no dividend yield, expected volatility of 54%, risk free interest rate of 6.2% and expected lives of four years; and 1997, no dividend yield, expected volatility of 76%, risk free interest rate of 6% and expected lives of four years. 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. 9. 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, 1999 is as follows: Doubtful accounts receivable:
BALANCE AT AMOUNTS AMOUNTS BALANCE BEGINNING CHARGED TO CHARGED TO AT END YEAR OF YEAR EXPENSE RESERVE OF YEAR 1997 $127,000 $60,000 $ (95,100) $ 91,900 1998 91,900 60,000 (10,200) 141,700 1999 141,700 66,000 (119,144) 88,556 Sales returns: BALANCE AT AMOUNTS AMOUNTS BALANCE BEGINNING CHARGED TO CHARGED TO AT END YEAR OF YEAR EXPENSE RESERVE OF YEAR 1997 $101,000 $1,165,000 $(1,165,000) $101,000 1998 101,000 802,900 (802,900) 101,000 1999 101,000 1,211,201 (1,211,201) 101,000
F-12 Inventory valuation:
BALANCE AT AMOUNTS AMOUNTS BALANCE BEGINNING CHARGED TO CHARGED TO AT END YEAR OF YEAR EXPENSE RESERVE OF YEAR 1997 $301,100 $ - $ - $301,100 1998 301,100 - (150,913) 150,187 1999 150,187 33,545 (60,000) 123,732
Charges to certain expense accounts for each of the three years in the period ended February 28, 1999 are shown below:
YEAR ENDED FEBRUARY 28, ------------------------------- 1999 1998 1997 Maintenance and repairs $33,515 $ 30,919 $34,435 Taxes other than payroll and income taxes 31,079 30,093 20,805 Advertising costs 51,730 83,865 84,501
10. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the quarterly results of operations for the years ended February 28, 1999 and 1998:
BASIC DILUTED EARNINGS EARNINGS NET SALES GROSS PROFIT NET INCOME PER SHARE PER SHARE 1999 First quarter $ 4,160,700 $ 2,484,200 $ 350,000 $ 0.07 $ 0.07 Second quarter 3,950,400 2,253,900 307,000 0.06 0.06 Third quarter 5,453,700 3,391,000 537,600 0.11 0.11 Fourth quarter 3,106,585 1,817,746 102,893 0.02 0.02 ----------- ----------- ---------- --------- --------- Total year $16,671,385 $ 9,946,846 $1,297,493 $ 0.26 $ 0.26 =========== =========== ========== ========= ========= 1998 First quarter $ 4,660,400 $ 2,794,500 $ 463,900 $ 0.09 $ 0.09 Second quarter 5,266,600 3,021,600 480,800 0.09 0.09 Third quarter 5,559,100 3,395,700 561,000 0.11 0.10 Fourth quarter 3,857,262 2,360,251 198,868 0.04 0.04 ----------- ----------- ---------- --------- --------- Total year $19,343,362 $11,572,051 $1,704,568 $ 0.33 $ 0.32 =========== =========== ========== ========= =========
11. 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, school supply, toy and gift stores and museums, through commissioned sales representatives, trade and F-13 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 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 operating profits of the segments which is defined as segment net sales reduced by direct cost of sales and direct expenses. Corporate expenses, including interest and depreciation, and income taxes are not allocated to the segments. The Company's assets are not allocated on a segment basis. Information by industry segment for the years ended February 28, 1999, 1998 and 1997 is set forth below:
PUBLISHING UBAH OTHER TOTAL 1999 Net sales from external customers $7,794,702 $ 8,876,683 $ - $16,671,385 Earnings before income taxes 2,848,749 2,365,204 (3,292,560) 1,921,393 1998 Net sales from external customers $8,604,096 $10,739,266 $ - $19,343,362 Earnings before income taxes 3,309,603 2,894,612 (3,390,747) 2,813,468 1997 Net sales from external customers $7,864,910 $12,932,176 $ 442,421 $21,239,507 Earnings before income taxes 2,687,492 3,150,704 (3,204,008) 2,634,188
****** F-14 EX-10.23 2 SECOND AMENDMENT DATED 6/30/97 EXHIBIT 10.23 SECOND AMENDMENT TO RESTATED CREDIT AND SECURITY AGREEMENT ----------------------------- THIS SECOND AMENDMENT TO RESTATED CREDIT AND SECURITY AGREEMENT (the "Second Amendment") by and between EDUCATIONAL DEVELOPMENT CORPORATION, as borrower (the "Company"), and STATE BANK & TRUST, N.A., Tulsa, Oklahoma, as lender (the "Bank"), is entered into effective as of the 30th day of June, 1998. WITNESSETH: WHEREAS, pursuant to the Restated Credit and Security Agreement dated as of June 10, 1996, as amended and extended by the First Amendment thereto dated as of June 30, 1997 (collectively the "Restated Credit Agreement"), the Bank extended a Three Million Five Hundred Thousand Dollar ($3,500,000) 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; WHEREAS, the Company has requested the Bank to extend and renew the revolving credit facility for one (1) year to June 30, 1999 in the maximum principal amount of $3,500,000; 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. 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, 1998 to June 30, 1999 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 Dollars ($3,500,000) 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). 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. Section 5.6 of the Restated Credit Agreement (Dividends, Stock Redemptions and Stock Sales) is deleted in its entirety. 3. The remaining terms, provisions and conditions set forth in the Restated Credit Agreement shall remain in full force and effect. The Company restates, confirms and ratifies the warranties, covenants (except only for Section 5.6 hereof) and representations set forth therein and further represents to the Bank that no default or event of default exists under the Restated Credit Agreement as of the date hereof. The Company further confirms, continues, grants and regrants 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 Restated Security Agreement and Assignment described therein. 4. The Company agrees to pay the Bank's legal fees incurred in connection with the negotiation, preparation and closing of this Second Amendment. IN WITNESS WHEREOF, this Second Amendment is executed and delivered to the Bank 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, 1998. EDUCATIONAL DEVELOPMENT CORPORATION ATTEST: By /s/ W. Curtis Fossett By /s/ Randall White ------------------------------- ------------------------------ Secretary Randall White, President [SEAL] "Company" STATE BANK & TRUST, N.A. By /s/ Dennis Colvard ------------------------------ Dennis Colvard, Vice President "Bank" 2 EXHIBIT A --------- REVOLVING CREDIT NOTE --------------------- $3,500,000 Tulsa, Oklahoma June 30, 1998 FOR VALUE RECEIVED, the undersigned (the "Maker") promises to pay to the order of STATE BANK & TRUST, N.A. (the "Payee"), at the Payee's main banking office in Tulsa, Oklahoma, the principal sum of THREE MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($3,500,000), or so much thereof as shall have been advanced by Payee to Maker and remains unpaid, on June 30, 1999, together with interest thereon from the date funds are initially advanced hereon on the unpaid balances of principal from time to time outstanding, at the variable annual rate of interest hereinafter specified, which interest is payable in monthly installments due and payable on the last day of each calendar month, commencing July 31, 1998, and at final maturity on June 30, 1999. The rate of interest payable upon the indebtedness evidenced by this note shall be a variable annual rate of interest equal from day to day to Prime Rate of interest, as hereinafter defined. Prime Rate of interest shall be effective with respect to this note as of the date upon which any change in such rate of interest shall occur. Interest shall be computed on the basis of a year of 360 days but assessed only for the actual number of days elapsed. For the purposes of this note Prime Rate shall mean, as of the date upon which such rate of interest is to be determined, the prime rate of interest published in the Money Rates column of the Wall Street Journal (Southwest Edition) or a similar rate as determined by Payee if such rate ceases to be published. All parties (maker, endorsers, sureties, guarantors and all others now or hereafter liable for payment of the indebtedness evidenced by this note) waive presentment and diligence in 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 10, 1996, as amended by the First Amendment to Restated Credit and Security Agreement dated as of June 30, 1977, and as further amended and extended by the Second Amendment to Restated Credit and Security Agreement 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 and one-half percentage points (4.5%). Maker and all other parties liable hereon shall pay all reasonable attorney fees and all court costs and other costs and expenses of collection incurred by the holder hereof. This is the Revolving Credit Note defined in the Credit Agreement and constitutes an extension and renewal of that certain $3,500,000 Revolving Credit Note dated June 30, 1997. 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 By /s/ Randall White ------------------------- Randall White, President "Maker" Due: June 30, 1999 2 EX-23 3 INDEPENDENT AUDITORS' CONSENT EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 33-60188 of Educational Development Corporation on Form S-8 of our report dated April 19, 1999, appearing in this Annual Report on Form 10-K of Educational Development Corporation for the year ended February 28, 1999. Deloitte & Touche LLP May 19, 1999 Tulsa, Oklahoma EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM *_____________________ AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS FEB-28-1999 MAR-01-1999 FEB-28-1999 210,931 0 2,032,172 189,556 9,546,674 11,997,130 1,375,672 1,033,208 12,339,594 2,243,916 0 0 0 1,085,848 8,953,530 12,339,594 16,671,385 16,671,385 6,724,539 13,033,930 1,553,635 66,000 96,427 1,921,393 623,900 1,297,493 0 0 0 1,297,493 .26 .26
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