SEC Form 10-Q filed by Educational Development Corporation
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from to .
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As of July 1, 2025, there were
TABLE OF CONTENTS
| Page | ||
| PART I. FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | 4 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 30 |
| Item 4. | Controls and Procedures | 30 |
| PART II. OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 31 |
| Item 1A. | Risk Factors | 31 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 31 |
| Item 3. | Defaults Upon Senior Securities | 31 |
| Item 4. | Mine Safety Disclosures | 31 |
| Item 5. | Other Information | 31 |
| Item 6. | Exhibits | 32 |
| Signatures | 33 | |
CAUTIONARY REMARKS REGARDING FORWARD-LOOKING STATEMENTS
The information discussed in this Quarterly Report on Form 10-Q includes “forward-looking statements.” These forward-looking statements are identified by their use of terms and phrases such as “may,” “expect,” “estimate,” “project,” “plan,” “believe,” “intend,” “achievable,” “anticipate,” “continue,” “potential,” “should,” “could,” and similar terms and phrases. Although we believe that the expectations reflected in these forward-looking statements are reasonable, they do involve certain assumptions, risks and uncertainties and we can give no assurance that such expectations or assumptions will be achieved. Known and unknown risks, uncertainties and other factors may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to,
| ● | our success in recruiting and retaining new brand partners, | |
| ● | our ability to locate and procure desired books, | |
| ● | product and supplier concentrations, | |
| ● | our relationship with our primary supplier and the related distribution requirements and contractual limitations, | |
| ● | adverse publicity associated with our Company or the industry, | |
| ● | our ability to ship timely, | |
| ● | changes to our primary sales channels, including social media and party plan platforms, | |
| ● | changing consumer preferences and demands, | |
| ● | cybersecurity threats and incidents, | |
| ● | changes in macroeconomic conditions in international trade including recently announced and potential future tariffs, | |
| ● | legal matters, | |
| ● | reliance on information technology infrastructure, | |
| ● | restrictions imposed by covenants in the agreements governing our indebtedness, | |
| ● | our ability to obtain adequate financing for working capital and capital expenditures, | |
| ● | economic and competitive conditions, regulatory changes and other uncertainties, as well as | |
| ● | those factors discussed below and elsewhere in our Annual Report on Form 10-K for the year ended February 28, 2025 and in this Quarterly Report on Form 10Q, all of which are difficult to predict. |
In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements in this paragraph and elsewhere in this Quarterly Report on Form 10-Q and speak only as of the date of this Quarterly Report on Form 10-Q. Other than as required under the securities laws, we do not assume a duty to update these forward-looking statements, whether as a result of new information, subsequent events or circumstances, changes in expectations or otherwise. As used in this Quarterly Report on Form 10-Q, the terms “the Company,” “EDC,” “we,” “our” or “us” mean Educational Development Corporation, a Delaware corporation, unless the context indicates otherwise.
3
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
| EDUCATIONAL DEVELOPMENT CORPORATION |
| CONDENSED BALANCE SHEETS (UNAUDITED) |
| May 31, | February 28, | |||||||
| 2025 | 2025 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, less allowance for credit losses of $ | ||||||||
| Inventories - net | ||||||||
| Prepaid expenses and other assets | ||||||||
| Assets held for sale | ||||||||
| Total current assets | ||||||||
| INVENTORIES - net | ||||||||
| PROPERTY, PLANT AND EQUIPMENT - net | ||||||||
| DEFERRED INCOME TAX ASSET | ||||||||
| OPERATING LEASE RIGHT-OF-USE ASSETS | ||||||||
| OTHER ASSETS | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | $ | ||||||
| Line of credit | ||||||||
| Deferred revenues | ||||||||
| Operating lease liabilities, current | ||||||||
| Current maturities of long-term debt | ||||||||
| Accrued salaries and commissions | ||||||||
| Income taxes payable | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| OPERATING LEASE LIABILITIES, non-current | ||||||||
| OTHER LONG-TERM LIABILITIES | ||||||||
| Total liabilities | ||||||||
| SHAREHOLDERS’ EQUITY: | ||||||||
| Common stock, $ | ||||||||
| Capital in excess of par value | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ||||||
| Less treasury stock, at cost | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
See notes to condensed financial statements (unaudited).
4
| EDUCATIONAL DEVELOPMENT CORPORATION |
| CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) |
| Three Months Ended May 31, |
||||||||
| 2025 | 2024 | |||||||
| PRODUCT REVENUES, net of discounts and allowances | $ | $ | ||||||
| Transportation revenue | ||||||||
| NET REVENUES | ||||||||
| COST OF GOODS SOLD | ||||||||
| Gross margin | ||||||||
| OPERATING EXPENSES | ||||||||
| Operating and selling | ||||||||
| Sales commissions | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| INTEREST EXPENSE | ||||||||
| OTHER INCOME | ( |
) | ( |
) | ||||
| LOSS BEFORE INCOME TAXES | ( |
) | ( |
) | ||||
| INCOME TAX BENEFIT | ( |
) | ( |
) | ||||
| NET LOSS | $ | ( |
) | $ | ( |
) | ||
| BASIC AND DILUTED LOSS PER SHARE | ||||||||
| Basic | $ | ( |
) | $ | ( |
) | ||
| Diluted | $ | ( |
) | $ | ( |
) | ||
| WEIGHTED AVERAGE NUMBER OF COMMON AND EQUIVALENT SHARES OUTSTANDING: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
| Dividends per share | $ | $ | ||||||
See notes to condensed financial statements (unaudited).
5
| EDUCATIONAL DEVELOPMENT CORPORATION |
| CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) |
| Three Months Ended May 31, |
||||||||
| 2025 | 2024 | |||||||
| Net loss | $ | ( |
) | $ | ( |
) | ||
| Other comprehensive income: | ||||||||
| Unrealized gain on interest rate exchange agreement | ||||||||
| Comprehensive loss | $ | ( |
) | $ | ( |
) | ||
See notes to condensed financial statements (unaudited).
6
| EDUCATIONAL DEVELOPMENT CORPORATION |
| CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED) |
| FOR THE THREE MONTHS ENDED MAY 31, 2025 |
| Common Stock (par value $0.20 per share) |
Accumulated | Treasury Stock | ||||||||||||||||||||||||||||||
| Number of Shares Issued |
Amount | Capital in Excess of Par Value |
Retained Earnings |
Other Comprehensive Loss |
Number of Shares |
Amount | Shareholders’ Equity |
|||||||||||||||||||||||||
| BALANCE – February 28, 2025 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Change in fair value of interest rate exchange agreement | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | - | ( |
) | - | - | - | ( |
) | ||||||||||||||||||||||
| BALANCE - May 31, 2025 | $ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||||
| FOR THE THREE MONTHS ENDED MAY 31, 2024 |
| Common Stock (par value $0.20 per share) |
Accumulated | Treasury Stock | ||||||||||||||||||||||||||||||
| Number of Shares Issued |
Amount | Capital in Excess of Par Value |
Retained Earnings |
Other Comprehensive Income |
Number of Shares |
Amount | Shareholders’ Equity |
|||||||||||||||||||||||||
| BALANCE – February 29, 2024 | $ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||||
| Sale of treasury stock | - | - | ( |
) | - | - | ( |
) | ||||||||||||||||||||||||
| Share-based compensation expense - net | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Change in fair value of interest rate exchange agreement | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | - | ( |
) | - | - | - | ( |
) | ||||||||||||||||||||||
| BALANCE - May 31, 2024 | $ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||||
See notes to condensed financial statements (unaudited).
7
| EDUCATIONAL DEVELOPMENT CORPORATION |
| CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) |
| Three Months Ended May 31, |
||||||||
| 2025 | 2024 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Deferred income taxes | ( |
) | ( |
) | ||||
| Provision for credit losses | ||||||||
| Provision for inventory valuation allowance | ||||||||
| Share-based compensation expense - net | ||||||||
| Net loss on sale of assets | ||||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | ( |
) | ||||||
| Inventories - net | ||||||||
| Prepaid expenses and other assets | ( |
) | ( |
) | ||||
| Accounts payable | ( |
) | ( |
) | ||||
| Accrued salaries and commissions and other liabilities | ( |
) | ( |
) | ||||
| Deferred revenues | ( |
) | ( |
) | ||||
| Income taxes payable/receivable | ||||||||
| Total adjustments | ||||||||
| Net cash provided by operating activities | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchases of property, plant and equipment | ( |
) | ( |
) | ||||
| Proceeds from sale of assets | ||||||||
| Net cash used in investing activities | ( |
) | ( |
) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Payments on term debt | ( |
) | ( |
) | ||||
| Sales of treasury stock | ||||||||
| Net borrowings under line of credit | ||||||||
| Net cash used in financing activities | ( |
) | ( |
) | ||||
| NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | ||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH - BEGINNING OF PERIOD | ||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH - END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash (received)/paid for income taxes - net of refunds | $ | ( |
) | $ | ||||
See notes to condensed financial statements (unaudited).
8
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying Unaudited Condensed Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim condensed financial information and in accordance with the rules and regulations of the Securities and Exchange Commission. The Unaudited Condensed Financial Statements include all adjustments considered necessary for a fair presentation of the financial position and results of operations for the interim periods presented. Such adjustments consist only of normal recurring items, unless otherwise disclosed herein. Accordingly, the Unaudited Condensed Financial Statements do not include all of the information and notes required by GAAP for complete financial statements. However, we believe that the disclosures made are adequate to make the information not misleading. These interim Unaudited Condensed Financial Statements should be read in conjunction with our audited financial statements as of and for the year ended February 28, 2025 included in our Form 10-K. The results of operations for interim periods are not necessarily indicative of the results to be expected for a full year due to the seasonality of our product sales.
Use of Estimates in the Preparation of Financial Statements
The preparation of the Unaudited Condensed Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates.
Significant Accounting Policies
Our significant accounting policies, other than the adoption of new accounting pronouncements separately documented herein and unless otherwise disclosed, are consistent with those disclosed in Note 1 to our audited financial statements as of and for the year ended February 28, 2025 included in our Form 10-K.
Reclassifications
Certain reclassifications have been made to the fiscal 2025 condensed statements of operations to combine Gross Sales and Discounts and allowances now presented as Product Revenues, net of discount and allowances to conform with the current year financial statement presentation. These reclassifications had no effect on net earnings.
Liquidity
In accordance with ASC 205-40, Going Concern, the Company has evaluated whether there are conditions and events considered in the aggregate that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.
Determining the extent to which conditions or events raise substantial doubt about our ability to continue as a going concern and the extent to which mitigating plans sufficiently alleviate any such substantial doubt requires significant judgment and estimation by us. Our significant estimates related to this analysis may include identifying business factors such as completing the planned sale of owned real estate, changes in our Brand Partners, and sales growth and profitability used in the forecasted financial results and liquidity. Further, we make assumptions about the probability that management’s plans will be effectively implemented and alleviate substantial doubt and our ability to continue as a going concern. We believe that the estimated values used in our going concern analysis are based on reasonable assumptions. However, such assumptions are inherently uncertain, and actual results could differ materially from those estimates.
9
The short-term duration of the revolving and Term Loans and uncertainty of the bank’s ongoing support beyond July 11, 2025, along with recurring operating losses and other items, raise substantial doubt over the Company’s ability to continue as a going concern. To address these concerns, the Company has taken steps in its plans to pay off its bank debts by selling owned real estate. Upon closing, the proceeds from the real estate sale are expected to pay off the Term Loans and Revolving Loan. Following the loan payoff, management plans to fund ongoing operations with limited borrowings through local banks or other financing sources. The Company began listing the owned real estate in fiscal 2024 but due to the size of the real estate transaction, the sale process has continued beyond several of the short-term amendment expirations. The bank has continued to extend the maturity dates on the revolving and Term Loans providing evidence of their support of the sale process and management’s plans to use the proceeds to pay off all bank debts. In addition, management’s plans include reducing inventory, which will generate free cashflows, and building the number of active PaperPie Brand Partners back to historical levels. Although there is no guarantee these plans will be successful, management believes these plans, if achieved, will alleviate the substantial doubt about continuing as a going concern and generate sufficient liquidity to meet our obligations as they become due over the next twelve months
New Accounting Pronouncements
The Financial Accounting Standards Board (“FASB”) periodically issues new accounting standards in a continuing effort to improve standards of financial accounting and reporting. We have reviewed the recently issued pronouncements and concluded the following new accounting standard updates (“ASU”) apply to us:
New Accounting Standards or Updates Not Yet Adopted
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which provides qualitative and quantitative updates to the rate reconciliation and income taxes paid disclosures, among others, in order to enhance the transparency of income tax disclosures, including consistent categories and greater disaggregation of information in the rate reconciliation and disaggregation by jurisdiction of income taxes paid. The amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments should be applied prospectively; however, retrospective application is also permitted. This ASU will be effective for our Form 10-K for fiscal 2026. We are currently evaluating the impact this ASU may have on our financial statement disclosures.
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires disclosure about the types of costs and expenses included in certain expense captions presented on the income statement. The new disclosure requirements are effective for the Company’s annual periods beginning March 1, 2027, and interim periods beginning March 1, 2028, with early adoption permitted, and may be applied either prospectively or retrospectively. The Company is currently evaluating the ASU to determine its impact on the Company’s financial statements and disclosures.
10
Note 2 – CASH
The table below reconciles cash, cash equivalents and restricted cash as reported in the balance sheets to the total of the same amounts shown in the statements of cash flows:
| May 31, 2025 | May 31, 2024 | |||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash, cash equivalents and restricted cash shown in the statements of cash flows | $ | $ | ||||||
The Company has contracted with Nexio and PayPal, Inc., third-party merchant service processors, to capture Visa, Discover, Mastercard and PayPal payments from customers. Approximately 90% of all payments received by the Company are channelled through these processors. These processors hold cash payments received from customers in reserve for a specified number of days to offset any potential chargebacks. The Company also has a short-term certificate of deposit with the Company’s bank as collateral for business credit card use. The Company has classified the cash held in reserves by Nexio and PayPal and the restricted certificate of deposit as restricted cash.
Note 3 – ASSETS HELD FOR SALE
During the third quarter of fiscal
2024, the Company listed its real estate property located at 5402 S. 122nd E. Ave, Tulsa, Oklahoma 74146 for sale. This property, consisting
of approximately
As presented in the marketing
materials associated with the listed Hilti Complex, EDC expects to assign the existing tenant leases to the buyer along with executing
a new lease for the Company’s occupied space; but retain ownership of the excess land, consisting of approximately
During the second quarter of fiscal
year 2025, the Company entered into a triple-net lease agreement for approximately
On March 21, 2025, the Company executed a new brokerage agreement with Keen-Summit Capital Partners, LLC (“Keen-Summit”) to assist with the marketing and sale of the Hilti Complex. The Agreement offers Keen-Summit the opportunity to list and provide sale opportunities of the Hilti Complex for a term of nine months, along with providing other services customary with brokerage agreements. The Agreement includes the engagement of McGraw Davisson Stewart, LLC to provide local services as a licensed broker in the state of Oklahoma.
On May 14, 2025, the Company executed a Purchase and Sale Agreement (“Agreement”) with TG OTC, LLC (“Buyer”) for the Hilti Complex.
11
The agreed upon sale price of
the Hilti Complex per the executed Agreement totalled $
The Agreement, and Amendment to the Agreement executed on June 26, 2025, provides the Buyer a due diligence period through September 11, 2025 to secure financing, perform inspections, review leases and perform other assessments. The closing of the sale is expected to be completed within ten days following the due diligence period.
The assets held for sale consist
of property and equipment. The Company records assets held for sale at the lower of their carrying value or fair value less costs to sell.
The total carrying value of assets held for sale was $
Note 4 – INVENTORIES
Inventories consist of the following:
| May 31, 2025 | February 28, 2025 | |||||||
| Current: | ||||||||
| Product inventory | $ | $ | ||||||
| Inventory valuation allowance | ( | ) | ( | ) | ||||
| Inventories net – current | $ | $ | ||||||
| Noncurrent: | ||||||||
| Product inventory | $ | $ | ||||||
| Inventory valuation allowance | ( | ) | ( | ) | ||||
| Inventories net – noncurrent | $ | $ | ||||||
Inventory in transit totalled $
Product inventory quantities in excess of what we expect will be sold within the normal operating cycle, based on 2½ years of anticipated sales, are included in noncurrent inventory.
Note 5 – LEASES
We have both lessee and lessor arrangements. Our lessee arrangements include six rental agreements where we have the exclusive use of dedicated office space in San Diego, California, Ogden, Utah, Seattle, Washington, a warehouse space in Joplin, Missouri and two leases for office and warehouse space locally in Tulsa, Oklahoma, all of which qualify as operating leases under ASC 842. Our lessor arrangements include three rental agreements for warehouse and office space in Tulsa, Oklahoma, and qualify as operating leases under ASC 842.
Operating Leases – Lessee
We recognize a lease liability, reported in other liabilities on the balance sheets, for each lease based on the present value of remaining minimum fixed rental payments (which includes payments under any renewal option that we are reasonably certain to exercise), using a discount rate that approximates the rate of interest we would have to pay to borrow on a collateralized basis over a similar term. Expected payments in the next twelve months are classified as current lease liabilities. Payments in excess of twelve months are classified as long-term lease liabilities. We also recognize a right-of-use asset, reported in other assets on the balance sheets, for each lease, valued at the lease liability and adjusted for prepaid or accrued rent balances existing at the time of initial recognition. The lease liability and right-of-use assets are reduced over the term of the lease as payments are made and the assets are used.
12
| May 31, 2025 | February 28, 2025 | |||||||
| Operating lease assets: | ||||||||
| Right-of-use assets | $ | $ | ||||||
| Operating lease liabilities: | ||||||||
| Current lease liabilities | $ | $ | ||||||
| Long-term lease liabilities | $ | $ | ||||||
| Weighted-average remaining lease term (months) | ||||||||
| Weighted-average discount rate | % | % | ||||||
Minimum fixed rental payments are recognized on a straight-line basis over the life of the lease as costs and expenses in our statements of operations. Variable and short-term rental payments are recognized as costs and expenses as they are incurred.
| May 31, 2025 | May 31, 2024 | |||||||
| Fixed lease costs | $ | $ | ||||||
Future minimum rental payments under operating leases with initial terms greater than one year as of May 31, 2025, are as follows:
| Years ending February 28, | ||||
| 2026 | $ | |||
| 2027 | ||||
| Total future minimum rental payments | ||||
| Less: imputed interest | ( | ) | ||
| Total operating lease liabilities | $ | |||
The following table provides further information about our operating leases reported in our condensed financial statements:
| May 31, 2025 | May 31, 2024 | |||||||
| Operating cash outflows – operating leases | $ | $ | ||||||
The Company assesses its leases to determine whether it is reasonably certain that these renewal options will be exercised. In general, most of the office space outside of Tulsa, Oklahoma is associated with remote employees. Their continued employment determines the need for this space. Much of the warehouse space outside of the Hilti Complex is used to store non-current inventory. As the Company sells down excess inventory, less outside space will be needed, and any renewals will be for less space. Accordingly, the renewal options are not included in the calculation of its right-of-use assets and lease liabilities, as the Company does not believe that it is reasonably certain that these renewal options will be exercised.
Operating Leases – Lessor
In connection with the 2015 purchase
of the Hilti Complex, we entered into a
On May 26, 2024, the Company entered
into a triple-net lease agreement for approximately
13
The Company also subleases some office and warehouse space in one of its other leased facilities.
Future minimum payments receivable under operating leases with terms greater than one year are estimated as follows:
| Years ending February 28 (29), | ||||
| 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Thereafter | ||||
| Total | $ | |||
The cost of the leased space was
approximately $
Note 6 – DEBT
Debt consists of the following:
| May 31, 2025 | February 28, 2025 | |||||||
| Line of credit | $ | $ | ||||||
| Floating rate Term Loan | $ | $ | ||||||
| Fixed rate Term Loan | ||||||||
| Total term debt | ||||||||
| Less current maturities | ( | ) | ( | ) | ||||
| Less debt issue cost | ( | ) | ( | ) | ||||
| Long-term debt, net | $ | $ | ||||||
On August 9, 2022, the Company
executed a Credit Agreement (“Loan Agreement”) with BOKF, NA (“Bank of Oklahoma” or the “Lender”).
The Loan Agreement established a fixed rate Term Loan in the principal amount of $
On December 22, 2022, the Company executed the First Amendment to our Loan Agreement with the Lender. This amendment clarified the definition of the Fixed Charge Coverage Ratio to exclude dividends paid prior to November 30, 2022, and placed restrictions on acquisitions and cash dividends.
On May 10, 2023, the Company executed
the Second Amendment to our Loan Agreement with the Lender. This amendment waived the fixed charge ratio default which occurred on February
28, 2023 and amended the financial covenant to not require the fixed charge ratio to be measured at May 31, 2023. The Second Amendment
also added a cumulative maximum level of fiscal year to date inventory purchases through the expiration of the Revolving Loan Agreement,
increased the borrowing rate on the Company’s Revolving Loan to Term SOFR Rate plus
14
On June 6, 2023, pursuant to its interest rate risk and risk management
strategy, the Company entered into a swap transaction (the “Swap Transaction”) with the Lender, which converts a portion of
the original $
On August 9, 2023, the Company
executed the Third Amendment along with a Revised Credit Agreement (“Credit Agreement”) with the Lender. This amendment extended
the Revolving Loan maturity date to January 31, 2024 and introduced a stepdown to the Revolving Commitment from $
On November 30, 2023, the Company
executed the Fourth Amendment to the Credit Agreement with the Lender. This amendment, effective December 1, 2023, increased the Revolving
Loan commitment to $
On June 13, 2024, the Company
executed the Fifth Amendment to the Credit Agreement with the Lender. The amendment, effective May 31, 2024, adjusts the maximum availability
of the Revolving Loan commitment to $
On October 7, 2024, the Company
executed the Sixth Amendment to the Credit Agreement with the Lender. The amendment, effective October 3, 2024, extended the maturity
date to
On January 13, 2025, the Company
executed the Seventh Amendment to the Credit Agreement with the Lender. The amendment, effective January 4, 2025, decreased the maximum
availability of the Revolving Loan commitment to $
On April 16, 2025, the Company
executed the Eighth Amendment to the Credit Agreement with the Lender. The amendment, effective April 4, 2025, increased the Revolving
Loan interest rate on the effective date to SOFR +
Available credit under the current
$
Features of the Revised Loan Agreement include:
| (i) | Two Term Loans on 20-year amortization with maturity dates of | ||
| (i)(a) | $ | ||
| (i)(b) | $ | ||
| (ii) | $ | ||
| (iii) | Revolving Loan allows for Letters of Credit upon bank approval (none were outstanding at May 31, 2025) |
15
Note 7 – BUSINESS CONCENTRATION
Significant portions of our inventory
purchases are concentrated with an England-based publishing company, Usborne Publishing Limited (“Usborne”). During fiscal
2023, we entered into a new distribution agreement (“Agreement”) with Usborne. The Agreement includes annual minimum purchase
volumes along with specific payment terms and letter of credit requirements, which if not met offer Usborne the right to terminate the
Agreement on less than 30 days’ written notice. Should termination of the Agreement occur, the Company will be allowed to sell its
remaining Usborne inventory for an agreed upon period, but not less than twelve months following the termination date. As of May 31, 2025,
the Company did not meet the minimum purchase requirements and did not supply the letter of credit required under the Agreement, which
offers Usborne the right to exercise their option to terminate the Agreement. Usborne has not notified the Company of termination of the
Agreement. In addition, Usborne has refused to pay the $
The following table summarizes Usborne product revenues, net of discounts, by division and inventory purchases by product type:
| Three Months Ended May 31, |
||||||||
| 2025 | 2024 | |||||||
| Product revenues, net of discounts of Usborne products by division: | ||||||||
| PaperPie division | $ | $ | ||||||
| % of total PaperPie Product revenues, net of discounts | % | % | ||||||
| Publishing division | ||||||||
| % of total Publishing Product revenues, net of discounts | % | % | ||||||
| Total Product revenues, net of discounts of Usborne products | $ | $ | ||||||
| Purchases received by product type: | ||||||||
| Usborne | $ | $ | ||||||
| % of total purchases received | % | % | ||||||
| All other product types | ||||||||
| % of total purchases received | % | % | ||||||
| Total purchases received | $ | $ | ||||||
Total Usborne inventory owned
by the Company and included in our balance sheets was $
Note 8 – LOSS PER SHARE
Basic earnings (loss) per share (“EPS”) is computed by dividing net earnings (loss) by the weighted average number of common shares outstanding during the period. Diluted EPS is based on the combined weighted average number of common shares outstanding and dilutive potential common shares issuable which include, where appropriate, the assumed exercise of options and the assumed vesting of granted restricted share awards. In computing Diluted EPS, we have utilized the treasury stock method.
16
The computation of weighted average common and common equivalent shares used in the calculation of basic and diluted EPS is shown below:
| Three Months Ended May 31, | ||||||||
| 2025 | 2024 | |||||||
| Net loss per share: | ||||||||
| Net loss applicable to common shareholders | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares outstanding: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
| Loss per share: | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
As shown in the table below, the following shares have not been included in the calculation of diluted loss per share as they would be anti-dilutive to the calculation above.
| Three Months Ended May 31, |
||||||||
| 2025 | 2024 | |||||||
| Weighted average shares: | ||||||||
| Issued unvested restricted stock and assumed shares issuable under granted unvested restricted stock awards | ||||||||
Note 9 – SHARE-BASED COMPENSATION
We account for share-based compensation whereby share-based payment transactions with employees, such as stock options and restricted stock, are measured at estimated fair value at the date of grant. For awards subject to service conditions, compensation expense is recognized over the vesting period on a straight-line basis. Awards subject to performance conditions are attributed separately for each vesting tranche of the award and are recognized rateably from the service inception date to the vesting date for each tranche. Forfeitures are recognized when they occur. The probability of restricted share awards granted with future performance conditions is evaluated at each reporting period and share awards are updated and compensation expense is adjusted based on updated information.
In July 2018, our shareholders
approved the Company’s 2019 Long-Term Incentive Plan (“2019 LTI Plan”).
17
In July 2021, our shareholders
approved the Company’s 2022 Long-Term Incentive Plan (“2022 LTI Plan”).
A summary of compensation expense recognized in connection with restricted share awards follows:
| Three Months Ended May 31, | ||||||||
| 2025 | 2024 | |||||||
| Share-based compensation expense - net of forfeitures | $ | $ | ||||||
Note 10 – SHIPPING AND HANDLING COSTS
We classify shipping and handling
costs as operating and selling expenses in the condensed statements of operations. Shipping and handling costs include postage, freight,
handling costs, as well as shipping materials and supplies. These costs were $
Note 11 – BUSINESS SEGMENTS
We have
The accounting policies for the segments are the same as those for the rest of the Company. We evaluate segment performance based on earnings before income taxes of the segments, which is defined as segment net revenues reduced by cost of sales and direct expenses. Direct expenses are composed of payroll, commissions, general and administrative, and operating and selling expenses. Corporate expenses, depreciation, interest expense, other income, and income taxes are not allocated to the segments but are listed in the “Other” row below. Corporate expenses include the executive department, accounting department, information services department, general office management, warehouse operations and building facilities management. Our assets and liabilities are not allocated on a segment basis. Separate financial information is regularly evaluated by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources. For the Company, the Chief Executive Officer is the CODM.
18
Information by reporting segment for the three-month periods ended May 31, 2025 and 2024, are as follows:
| NET REVENUES | ||||||||
| Three Months Ended May 31, |
||||||||
| 2025 | 2024 | |||||||
| PaperPie | $ | $ | ||||||
| Publishing | ||||||||
| Total | $ | $ | ||||||
| INCOME/(LOSS) BEFORE INCOME TAXES | ||||||||
| Three Months Ended May 31, |
||||||||
| 2025 | 2024 | |||||||
| PaperPie | $ | $ | ||||||
| Publishing | ||||||||
| Other | ( |
) | ( |
) | ||||
| Total | $ | ( |
) | $ | ( |
) | ||
PUBLISHING OPERATING RESULTS
The following table summarizes the operating results of the Publishing segment for the three months ended May 31, 2025 and 2024:
| Three Months Ended May 31, |
||||||||
| 2025 | 2024 | |||||||
| Net revenues | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross margin | ||||||||
| Operating expenses: | ||||||||
| Operating and selling | ||||||||
| Sales commissions | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| Operating income | $ | $ | ||||||
19
PAPERPIE OPERATING RESULTS
The following table summarizes the operating results of the PaperPie segment for the three months ended May 31, 2025 and 2024:
| Three Months Ended May 31, | ||||||||
| 2025 | 2024 | |||||||
| Net revenues | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross margin | ||||||||
| Operating expenses | ||||||||
| Operating and selling | ||||||||
| Sales commissions | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| Operating income | $ | $ | ||||||
Information for the Other segment above for the three months ended May 31, 2025 and 2024 is set forth below:
OTHER NON-SEGMENT LOSS BEFORE INCOME TAXES
| Three Months Ended May 31, |
||||||||
| 2025 | 2024 | |||||||
| Operating and selling: | ||||||||
| Freight | $ | $ | ||||||
| Computer support | ||||||||
| Total operating and selling expenses | ||||||||
| General and administrative: | ||||||||
| Payroll | ||||||||
| Depreciation | ||||||||
| Building and warehouse rents | ||||||||
| Outside services | ||||||||
| Property taxes | ||||||||
| Property insurance | ||||||||
| Professional service fees | ||||||||
| Dues and subscriptions | ||||||||
| Other | ||||||||
| Total General and administrative expenses | ||||||||
| Interest expense | ||||||||
| Other income | ( |
) | ( |
) | ||||
| Total other non-segment loss before income taxes | $ | $ | ||||||
20
Note 12 – INTEREST RATE EXCHANGE AGREEMENT
The Company maintains an interest-rate risk-management strategy that uses interest-rate swap instruments to minimize significant, unanticipated earnings fluctuations caused by interest-rate volatility. The Company’s specific goal is to lower the cost of its borrowed funds, when possible.
On June 5, 2023, the Company entered
into a receive-variable (based on 30-Day SOFR)/pay-fixed interest-rate swap agreement related to $
The effective portion of the unrealized gain or loss on this interest-rate swap is reported as a component of other comprehensive income (“OCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the interest rate swap representing amounts excluded from the assessment of hedge effectiveness are recognized in the current earnings.
The fair value of the interest rate swap is included in the following caption on the balance sheets as follows:
| May 31, 2025 | February 28, 2025 | |||||||
| Other current liabilities | $ | $ | ||||||
Note 13 – FINANCIAL INSTRUMENTS
The following methods and assumptions are used in estimating the fair-value disclosures for financial instruments:
| - | The carrying amounts reported on the balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term maturity of these instruments. | |
| - | The estimated fair value of
our assets held for sale was $ |
|
| - | The estimated fair value of
our term notes payable is estimated by management to approximate $ |
Note 14 – DEFERRED REVENUES
The Company’s PaperPie division
receives payments on orders in advance of shipment. Any payments received prior to the end of the period that were not shipped as of May
31, 2025 or February 28, 2025 are recorded as deferred revenues on the balance sheets. We received approximately $
Note 15 – SUBSEQUENT EVENTS
On June 26, 2025, Educational Development Corporation executed the First Amendment to the Existing Commercial Real Estate Contract with TG OTC, LLC dated May 14, 2025, for the sale of the Hilti Complex. The Amendment extends the due diligence period from August 12, 2025, to September 11, 2025. The expected closing of the sale was also amended from thirty days following the due diligence period to ten days following the due diligence period.
21
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Factors Affecting Forward-Looking Statements
See “Cautionary Remarks Regarding Forward-Looking Statements” in the front of this Quarterly Report on Form 10-Q.
Overview
We are the owner and exclusive publisher of Kane Miller children’s books; Learning Wrap-Ups, maker of educational manipulatives; and SmartLab Toys, maker of STEAM-based toys and games. We are also the exclusive United States Multi-Level Marketing (“MLM”) distributor of Usborne Publishing Limited (“Usborne”) children’s books. Significant portions of our product offering and inventory are concentrated with Usborne. Our distribution agreement with Usborne includes annual minimum purchase volumes along with specific payment terms, which, if not met or if payments are not received in a timely manner, offer Usborne the right to terminate the agreement. During fiscal 2024 and fiscal 2025, the Company did not meet the minimum purchase volumes and certain payments were not received timely. No notification of non-compliance or termination has been received from Usborne. Should termination of the agreement occur, the Company will be allowed, at a minimum, to sell through our remaining Usborne inventory over a period of twelve months following the termination date.
We sell our products through two separate divisions, PaperPie and Publishing. These two divisions each have their own customer base. The PaperPie division markets our complete line of products through a network of independent Brand Partners using a combination of home shows, internet party events, and book fairs. The Publishing division markets Kane Miller, Learning Wrap-Ups, and SmartLab Toys on a wholesale basis to various retail accounts. All other supporting administrative activities are recognized as other expenses outside of our two divisions. Other expenses consist primarily of compensation for our office, warehouse, and sales support staff as well as the cost of operating and maintaining our corporate offices, warehouses and distribution facility.
The following table shows our condensed statements of operations data:
| Three Months Ended May 31, |
||||||||
| 2025 | 2024 | |||||||
| Product revenues, net of discounts and allowances | $ | 6,764,800 | $ | 9,590,900 | ||||
| Transportation revenue | 341,600 | 402,500 | ||||||
| Net revenues | 7,106,400 | 9,993,400 | ||||||
| Cost of goods sold | 2,969,300 | 3,533,900 | ||||||
| Gross margin | 4,137,100 | 6,459,500 | ||||||
| Operating expenses | ||||||||
| Operating and selling | 994,600 | 1,880,100 | ||||||
| Sales commissions | 2,012,100 | 3,058,900 | ||||||
| General and administrative | 2,694,900 | 3,199,500 | ||||||
| Total operating expenses | 5,701,600 | 8,138,500 | ||||||
| Interest expense | 504,300 | 576,700 | ||||||
| Other income | (619,500 | ) | (508,700 | ) | ||||
| Loss before income taxes | (1,449,300 | ) | (1,747,000 | ) | ||||
| Income tax benefit | (374,100 | ) | (468,000 | ) | ||||
| Net loss | $ | (1,075,200 | ) | $ | (1,279,000 | ) | ||
See the detailed discussion of revenues, gross margin and general and administrative expenses by reportable segment below. The following is a discussion of significant changes in the non-segment related general and administrative expenses, other income and expenses and income taxes during the respective periods.
22
Non-Segment Operating Results for the Three Months Ended May 31, 2025
Total operating expenses not associated with a reporting segment decreased $0.5 million, or 18.5%, to $2.2 million for the three-month period ended May 31, 2025, when compared to $2.7 million for the same quarterly period a year ago. Operating expenses decreased primarily as a result of a $0.4 million decrease in labor expenses, primarily within our warehouse operations due primarily to lower number of outbound shipments, and a $0.1 million decrease in depreciation expenses as certain assets have moved to Assets Held for Sale and depreciation is no longer applied.
Interest expense decreased $0.1 million, or 16.7%, to $0.5 million for the three months ended May 31, 2025, when compared to $0.6 million for the same quarterly period a year ago, due to reduced borrowings of debt, period over period.
Income taxes decreased $0.1 million, or 20.0%, to a tax benefit of $0.4 million for the three months ended May 31, 2025, from a tax benefit of $0.5 million for the same quarterly period a year ago, resulting primarily from a decrease in gross sales. Our effective tax rate decreased to 25.8% for the quarter ended May 31, 2025, from 26.8% for the quarter ended May 31, 2024 due primarily to sales mix fluctuations between states. Our tax rates are higher than the federal statutory rate of 21% due to the inclusion of state income and franchise taxes.
PaperPie Operating Results for the Three Months Ended May 31, 2025
The following table summarizes the operating results of the PaperPie segment for the three months ended May 31, 2025 and 2024:
| Three Months Ended May 31, |
||||||||
| 2025 | 2024 | |||||||
| Net revenues | $ | 6,060,300 | $ | 8,900,300 | ||||
| Cost of goods sold | 2,469,300 | 3,086,400 | ||||||
| Gross margin | 3,591,000 | 5,813,900 | ||||||
| Operating expenses | ||||||||
| Operating and selling | 739,600 | 1,492,800 | ||||||
| Sales commissions | 1,981,500 | 3,033,800 | ||||||
| General and administrative | 408,200 | 516,200 | ||||||
| Total operating expenses | 3,129,300 | 5,042,800 | ||||||
| Operating income | $ | 461,700 | $ | 771,100 | ||||
| Average number of active Brand Partners | 7,700 | 13,400 | ||||||
PaperPie Operating Results for the Three Months Ended May 31, 2025
PaperPie net revenues decreased $2.8 million, or 31.5%, to $6.1 million during the three months ended May 31, 2025, when compared to $8.9 million during the same period a year ago. The average number of active brand partners in the first quarter of fiscal 2026 was 7,700, a decrease of 5,700, or 42.5%, from 13,400 average active brand partners selling in the first quarter of fiscal 2025. The Company reports the average number of active Brand Partners as a key indicator for this division. The Company saw new Brand Partner recruiting negatively impacted due to several factors including economic challenges that include inflation, resulting in high fuel costs and food price increases that continue to impact the disposable income of our customers. Additionally, the Company executed a new distribution agreement with Usborne Publishing Limited in fiscal 2023. This agreement required the rebranding of the direct sales division from Usborne Books & More (“UBAM”) to PaperPie along with providing a letter of credit and minimal level of annual purchases. This rebranding was completed in the fourth quarter of fiscal 2023. The letter of credit was not provided by the Company and the Company did not meet the minimum purchase requirements in fiscal 2024 or 2025 creating uncertainty with the relationship on a go forward basis. The reduced sales and uncertainty resulting from the new Usborne distribution agreement increased Brand Partner turnover and negatively impacted new Brand Partner recruits. We expect this impact on Brand Partner recruiting to continue as inflationary pressures persist and until the Company meets the agreed upon terms of the new distribution agreement.
23
PaperPie gross margin decreased $2.2 million, or 37.9%, to $3.6 million during the three months ended May 31, 2025, when compared to $5.8 million during the same period a year ago. Gross margin as a percentage of net revenues for the three months ended May 31, 2025 decreased to 59.3%, compared to 65.3% the same period a year ago, representing a decrease of $0.2 million. The decrease in gross margin as a percentage of net revenues was primarily attributed to increased discounts offered on products to spur sales along with additional shipping promotions.
Total PaperPie operating expenses decreased $1.9 million, or 38.0%, to $3.1 million during the three-month period ended May 31, 2025, when compared to $5.0 million reported in the same quarter a year ago. Operating and selling expenses decreased $0.8 million, or 53.3%, to $0.7 million during the three-month period ended May 31, 2025, when compared to $1.5 million reported in the same quarter a year ago. These decreased expenses were due to a $0.6 million decrease in shipping costs associated with the decrease in volume of orders shipped, and a decrease of $0.1 million in accruals for Brand Partner incentive trip expenses, as well as a $0.1 million decrease in various other expenses. Sales commissions decreased $1.0 million, or 33.3%, to $2.0 million during the three-month period ended May 31, 2025, when compared to $3.0 million reported in the same quarter a year ago, due primarily to the decrease in net revenues. General and administrative expenses decreased $0.1 million, or 20.0%, to $0.4 million during the three months ended May 31, 2025, when compared to $0.5 million during the same period a year ago. This decrease was due to a $0.1 million decrease in credit card transaction fees associated with decreased sales volumes.
Operating income for the PaperPie segment decreased $0.3 million, or 37.5% to $0.5 million during the three months ended May 31, 2025, when compared to $0.8 million reported in the same quarter a year ago. Operating income for the PaperPie division as a percentage of net revenues for the year ended May 31, 2025 was 7.6%, compared to 8.7% for the year ended May 31, 2024, a decrease of 1.1%. Operating income as a percentage of net revenues changed from the prior year primarily due to the decrease in net revenues due primarily from the reduced number of active brand partners and higher discounts offered to spur sales.
Publishing Operating Results for the Three Months Ended May 31, 2025
The following table summarizes the operating results of the Publishing segment for the three months ended May 31, 2025 and 2024:
| Three Months Ended May 31, | ||||||||
| 2025 | 2024 | |||||||
| Net revenues | 1,046,100 | 1,093,100 | ||||||
| Cost of goods sold | 500,000 | 447,600 | ||||||
| Gross margin | 546,100 | 645,500 | ||||||
| Total operating expenses | 338,300 | 413,900 | ||||||
| Operating income | $ | 207,800 | $ | 231,600 | ||||
24
Publishing Operating Results for the Three Months Ended May 31, 2025
Our Publishing division’s net revenues decreased $0.1 million, or 9.1%, to $1.0 million during the three-month period ended May 31, 2025, from $1.1 million reported in the same period a year ago. The change in net revenues was primarily from additional discounts offered to retail customers in the first quarter of fiscal 2026 to spur sales.
Gross margin decreased $0.1 million, or 16.7%, to $0.5 million during the three-month period ended May 31, 2025, from $0.6 million reported in the same quarter a year ago, primarily due to the decrease in net revenues. Gross margin as a percentage of net revenues decreased to 52.2% during the three-month period ended May 31, 2025, from 59.2% reported in the same quarter a year ago. Gross margin as a percentage of net revenues changed primarily from additional discounts offered to retail customers in the first quarter of fiscal 2026 to spur sales.
Total operating expenses of the Publishing segment decreased $0.1 million, or 25.0%, to $0.3 million, from $0.4 million, during the three-month periods ended May 31, 2025 and 2024, respectively. This change was primarily due to a $0.1 million decrease in shipping costs associated with the decrease in volume of orders shipped.
Operating income of the Publishing division remained consistent during the three-month period ended May 31, 2025 and 2024, respectively.
Liquidity and Capital Resources
EDC has a history of profitability and positive cash flow. We typically fund our operations from the cash we generate. During periods of operating losses, EDC will reduce purchases and sell through excess inventory to generate cash flow. The Company expects to reduce current excess inventory levels and use the cash proceeds to offset any future operating losses, and to pay down the revolving line of credit and portions of the term debts with our bank. Available cash has historically been used to pay down the outstanding bank loan balances, for capital expenditures, to pay dividends, and to acquire treasury stock. We utilize a bank credit facility and other Term Loan borrowings to meet our short-term cash needs, as well as fund capital expenditures, when necessary. As of the end of the first fiscal quarter of 2026, our revolving bank credit facility loan balance was $4.2 million with $0.6 million in available capacity.
During the first three months of fiscal year 2026, we experienced positive cash inflows from operations of $1,396,500. These cash inflows resulted from:
| ● | net loss of $1,075,200 |
Adjusted for:
| ● | depreciation and amortization expense of $366,100 | |
| ● | net loss on sale of assets of $57,000 | |
| ● | provision for inventory allowance of $36,000 | |
| ● | provision for credit losses of $12,000 |
Offset by:
| ● | deferred income taxes of $390,600 |
Positively impacted by:
| ● | decrease in inventories, net of $2,611,900 | |
| ● | increase in income taxes payable of $235,100 | |
| ● | decrease in accounts receivable of $113,700 |
25
Negatively impacted by:
| ● | decrease in accounts payable of $329,000 | |
| ● | decrease in accrued salaries and commissions, and other liabilities of $166,400 | |
| ● | increase in prepaid expenses and other assets of $47,800 | |
| ● | decrease in deferred revenues of $26,300 |
Cash used in investing activities was $162,400 for capital expenditures, consisting of $102,800 in software upgrades to our proprietary systems that our PaperPie Brand Partners use to monitor their business and place customer orders and $104,600 in building improvements currently in Assets Held for Sale, offset by $45,000 from the sale of machinery and equipment.
Cash used in financing activities was $450,000 to pay down existing term debt.
The Company continues to expect the cash generated from operations, specifically from the reduction of excess inventory, and cash available through our line of credit with our Lender, will provide us with the liquidity we need to support ongoing operations. Cash generated from operations will be used to pay down existing debts with our bank.
On August 9, 2022, the Company executed a Credit Agreement (“Loan Agreement”) with BOKF, NA (“Bank of Oklahoma” or the “Lender”). The Loan Agreement established a fixed rate Term Loan in the principal amount of $15,000,000 (the “Fixed Rate Term Loan”), a floating rate Term Loan in the principal amount of $21,000,000 (the “Floating Rate Term Loan”; together with the Fixed Rate Term Loan, collectively, the “Term Loans”), and a revolving promissory note in the principal amount up to $15,000,000 (the “Revolving Loan” or “Line of Credit”).
On December 22, 2022, the Company executed the First Amendment to our Loan Agreement with the Lender. This amendment clarified the definition of the Fixed Charge Coverage Ratio to exclude dividends paid prior to November 30, 2022, and placed restrictions on acquisitions and cash dividends.
On May 10, 2023, the Company executed the Second Amendment to our Loan Agreement with the Lender. This amendment waived the fixed charge ratio default which occurred on February 28, 2023 and amended the financial covenant to not require the fixed charge ratio to be measured at May 31, 2023. The Second Amendment also added a cumulative maximum level of fiscal year to date inventory purchases through the expiration of the Revolving Loan Agreement, increased the borrowing rate on the Company’s Revolving Loan to Term SOFR Rate plus 3.5%, required certain swap agreements be executed within 30 days of the amendment, reduced the revolving commitment from $15,000,000 to $14,000,000, effective May 10, 2023, and further reduced the revolving commitment to $13,500,000, effective July 15, 2023, among other items.
On August 9, 2023, the Company executed the Third Amendment along with a Revised Credit Agreement (“Revised Loan Agreement”) with the Lender. This amendment extended the Revolving Loan maturity date to January 31, 2024 and introduced a stepdown to the Revolving Commitment from $13,500,000, through August 30, 2023; to $10,500,000 through October 30, 2023; to $9,000,000 through November 29, 2023; to $5,000,000 through December 30, 2023; to $4,500,000 through January 30, 2024; and to $4,000,000 on January 31, 2024. The amendment restricted the Company from entering into any new purchase orders and encouraged the Company to use its best efforts to cancel existing purchase orders. The Third Amendment also increased the borrowing rate on the Revolving Loan to 30-Day Term SOFR Rate + 4.50%. The Revised Loan Agreement was updated for the changes in the Third Amendment as well as removed the fixed charge ratio and the ability for borrowings to be accelerated before the January 31, 2024 Revolving Loan maturity date.
26
On November 30, 2023, the Company executed the Fourth Amendment to the Credit Agreement (“Amendment”) with the Lender. The Amendment, effective December 1, 2023, increased the Revolving Loan commitment to $8,000,000 and extended the maturity date to May 31, 2024. The Amendment also required the Company to list the Hilti Complex for sale, allowed the Company to execute additional purchase orders, subject to the lender’s approval and conditions, not to exceed $2,100,000 between December 1, 2023 and March 31, 2024, among other items.
On June 13, 2024, the Company executed the Fifth Amendment to the Existing Credit Agreement with the Lender. The Amendment, effective May 31, 2024, adjusts the maximum availability of the Revolving Loan commitment to $7,000,000 through the maturity date of October 4, 2024. The Amendment also requires an additional decrease in the Revolving Loan to $4,500,000.
On October 7, 2024, the Company executed the Sixth Amendment to the Existing Credit Agreement with the Lender. The Amendment, effective October 3, 2024, extended the maturity date to January 4, 2025 and includes required step downs on the Revolving Loan to $5,500,000 by November 30, 2024.
On January 13, 2025, the Company executed the Seventh Amendment to the Existing Credit Agreement with the Lender. The Amendment, effective January 4, 2025, adjusted the maximum availability of the Revolving Loan commitment to $4,750,000 through the maturity date of April 4, 2025.
On April 16, 2025, the Company executed the Eighth Amendment to the Existing Credit Agreement with the Lender. The Amendment, effective April 4, 2025, increases the Revolving Loan interest rate on the effective date to SOFR + 6.00%, extends the maturity date of the Revolving Loan to July 11, 2025, and includes a required step down on the Revolving Loan to $4,500,000 million on June 1, 2025. The Amendment also redefined the maturity dates of the two Term Loans to September 19, 2025.
Available credit under the current $4,750,000 revolving line of credit with the Company’s Lender was approximately $551,900 at May 31, 2025.
Features of the Revised Loan Agreement include:
| (i) | Two Term Loans on 20-year amortization with maturity dates of September 19, 2025. |
| (i)(a) | $15 Million Fixed Rate Term Loan bears interest at a fixed rate per annum equal to 4.26% |
| (i)(b) | $21 Million Floating Rate Term Loan bears interest at a rate per annum equal to Term SOFR Rate + 1.75% |
| (ii) | $4.8 Million Revolving Loan with maturity date of July 11, 2025. The Revolving Loan bears interest at a rate per annum equal to Term SOFR Rate + 6.00% (effective rate was 10.31% at May 31, 2025) |
| (iii) | Revolving Loan allows for Letters of Credit upon bank approval (none were outstanding at May 31, 2025) |
27
Risks and Uncertainties
In accordance with ASC 205-40, Going Concern, the Company has evaluated whether there are conditions and events considered in the aggregate that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued.
The short-term duration of the revolving and Term Loans and uncertainty of the bank’s ongoing support beyond July 11, 2025, along with recurring operating losses and other items, raise substantial doubt over the Company’s ability to continue as a going concern. To address these concerns, the Company has taken steps in its plans to reduce debt by selling owned real estate, including the Hilti Complex. The proceeds from the sale of the Hilti Complex are expected to pay off the Term Loans and Revolving Loan. Following the loan payoff, management plans to fund ongoing operations with limited borrowings through local banks or other financing sources. In addition, management’s plans include reducing inventory, which will generate free cash flows, and building the active PaperPie Brand Partners to pre-pandemic levels. Although there is no guarantee these plans will be successful, management believes these plans, if achieved, will alleviate the substantial doubt about continuing as a going concern and generate sufficient liquidity to meet our obligations as they become due over the next twelve months.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States(“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to our valuation of inventory, provision for credit losses, allowance for sales returns, long-lived assets and deferred income taxes. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may materially differ from these estimates under different assumptions or conditions. Historically, however, actual results have not differed materially from those determined using required estimates. Our significant accounting policies are described in the notes accompanying the financial statements included elsewhere in this report and in our audited financial statements as of and for the year ended February 28, 2025 included in our Form 10-K. However, we consider the following accounting policies to be more significantly dependent on the use of estimates and assumptions.
Share-Based Compensation
We account for share-based compensation whereby share-based payment transactions with employees, such as stock options and restricted stock, are measured at estimated fair value at the date of grant. For awards subject to service conditions, compensation expense is recognized over the vesting period on a straight-line basis. Awards subject to performance conditions are attributed separately for each vesting tranche of the award and are recognized rateably from the service inception date to the vesting date for each tranche. Forfeitures are recognized when they occur. Any cash dividends declared after the restricted stock award is issued, but before the vesting period is completed, will be reinvested in Company shares at the opening trading price on the dividend payment date. Shares purchased with cash dividends will also retain the same restrictions until the completion of the original vesting period associated with the awarded shares.
The restricted share awards under the 2019 Long-Term Incentive Plan (“2019 LTI Plan”) and 2022 Long-Term Incentive Plan (“2022 LTI Plan”) contain both service and performance conditions. The Company recognizes share-based compensation expense only for the portion of the restricted share awards that are considered probable of vesting. Shares are considered granted, and the service inception date begins, when a mutual understanding of the key terms and conditions between the Company and the employees has been established. The fair value of these awards is determined based on the closing price of the shares on the grant date. The probability of restricted share awards granted with future performance conditions is evaluated at each reporting period and compensation expense is adjusted based on the probability assessment.
During the first three months of fiscal year 2026, there was no share-based compensation expense associated with the shares, as all shares previously granted have been vested and all have been previously expensed.
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Revenue Recognition
Sales associated with product orders are recognized and recorded when products are shipped. Products are shipped FOB-Shipping Point. PaperPie’s sales are generally paid at the time the product is ordered. Sales which have been paid for but not shipped are classified as deferred revenue on the balance sheet. Sales associated with consignment inventory are recognized when reported and payment associated with the sale has been remitted. Transportation revenue represents the amount billed to the customer for shipping the product and is recorded when the product is shipped.
Estimated allowances for sales returns are recorded as sales are recognized. Management uses a moving average calculation to estimate the allowance for sales returns. We are not responsible for a product damaged in transit. Damaged returns are primarily received from the retail customers of our Publishing division. This damage occurs in the stores, not in shipping to the stores, and we typically do not offer credit for damaged returns. It is an industry practice to accept non-damaged returns from retail customers. Management has estimated and included a reserve for sales returns of $0.2 million for May 31, 2025 and February 28, 2025, respectively.
Allowance for Credit Losses
We maintain an allowance for estimated losses resulting from the inability of our customers to make required payments and a reserve for vendor share markdowns, when applicable (collectively “credit losses”). An estimate of uncollectible amounts is made by management based upon historical bad debts, current customer receivable balances, age of customer receivable balances, customers’ financial conditions and current economic trends. Management has estimated and included an allowance for credit losses of $0.1 million for May 31, 2025 and February 28, 2025, respectively.
Inventory
Our inventory contains approximately 2,000 titles, each with different rates of sale depending upon the nature and popularity of the title. Almost all of our product line is saleable as the products are not topical in nature and remain current in content today as well as in the future. Most of our products are printed in China, Europe, Singapore, India, Malaysia, and Dubai typically resulting in a four- to eight-month lead-time to have a title printed and delivered to us.
Certain inventory is maintained in a non-current classification. Management continually estimates and calculates the amount of non-current inventory. Noncurrent inventory arises due to occasional purchases of titles in quantities in excess of what will be sold within the normal operating cycle, due to the minimum order requirements of our suppliers, as well as reduced sales volumes. Noncurrent inventory is estimated by management using an anticipated turnover ratio by title, based primarily on historical trends. Inventory in excess of 2½ years of anticipated sales is classified as noncurrent inventory. These inventory quantities have additional exposure for storage damages, aging of topical related content, and associated issues, and therefore have higher obsolescence reserves. Noncurrent inventory balances prior to valuation allowances were $17.6 million and $16.3 million at May 31, 2025 and February 28, 2025, respectively. Noncurrent inventory valuation allowances were $0.8 million at May 31, 2025 and $0.7 million at February 28, 2025.
Brand Partners that meet certain eligibility requirements may request and receive inventory on consignment. We believe allowing Brand Partners to have consignment inventory greatly increases their ability to be successful in making effective presentations at home shows, book fairs, and other events; in summary, having consignment inventory leads to additional sales opportunities. Approximately 15.4% of our active Brand Partners maintained consignment inventory at the end of the first quarter of fiscal year 2026. Consignment inventory is stated at cost, less an estimated reserve for consignment inventory that is not expected to be sold or returned to the Company. The total cost of inventory on consignment with Brand Partners was $1.2 million and $1.3 million at May 31, 2025 and February 28, 2025, respectively.
Inventories are presented net of a valuation allowance, which includes reserves for inventory obsolescence and reserves for consigned inventory that is not expected to be sold or returned to the Company. Management estimates the inventory obsolescence allowance for both current and noncurrent inventory, which is based on management’s identification of slow-moving inventory. Management has estimated a valuation allowance for both current and noncurrent inventory, including the reserve for consigned inventory, of $1.2 million at May 31, 2025 and February 28, 2025.
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We performed an evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. This evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chairman of the Board (Principal Executive Officer) and our Chief Financial Officer and Corporate Secretary (Principal Financial and Accounting Officer).
Based on that evaluation, these officers concluded that our disclosure controls and procedures were designed and were effective to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to them, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized, and reported in accordance with the time periods specified in SEC rules and forms. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events.
Changes in Internal Control over Financial Reporting
During the first quarter of the fiscal year covered by this report on Form 10-Q, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
Item 1A. RISK FACTORS
Not required by smaller reporting company.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
| Period | Total # of Shares Purchased | Average Price Paid per Share | Total # of Shares Purchased as Part of Publicly Announced Plan (1) | Maximum # of Shares that may be Repurchased under the Plan (1) | ||||||||||||
| March 1 - 31, 2025 | - | $ | - | - | 375,993 | |||||||||||
| April 1 - 30, 2025 | - | - | - | 375,993 | ||||||||||||
| May 1 - 31, 2025 | - | - | - | 375,993 | ||||||||||||
| Total | - | $ | - | - | ||||||||||||
| (1) | On February 4, 2019 the Board of Directors approved a new stock repurchase plan, replacing the former 2008 stock repurchase plan. The maximum number of shares which can be purchased under the new plan is 800,000. This plan has no expiration date. |
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. MINE SAFETY DISCLOSURES
None.
Item 5. OTHER INFORMATION
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Item 6. EXHIBITS
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| * | Paper Filed |
| ** | Filed Herewith |
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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) | ||
| Date: July 7, 2025 | By | /s/ Craig M. White |
| President, Chief Executive Officer, and Chairman of the Board (Principal Executive Officer) | ||
| Date: July 7, 2025 | By | /s/ Dan E. O’Keefe |
| Dan
E. O’Keefe Chief Financial Officer and Corporate Secretary (Principal Financial and Accounting Officer) | ||
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