SEC Form 10-Q filed by Educational Development Corporation

7/15/24 4:03:55 PM ET

$EDUC

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Consumer Discretionary

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edc20240531_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, 2024

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission file number: 000-04957

EDUCATIONAL DEVELOPMENT CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

73-0750007

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

5402 South 122nd East Ave, Tulsa, Oklahoma	74146
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (918) 622-4522

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $.20 par value	EDUC	NASDAQ
(Title of class)	(Trading symbol)	(Name of each exchange on which registered)

Indicate by check mark whether the registrant (1) has filed all reports 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
	Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

	Large accelerated filer ☐	Accelerated filer ☐

	Non-accelerated filer ☒	Smaller reporting company ☒

		Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
	Yes ☐ No ☒

As of July 7, 2024, there were 8,581,601 shares of Educational Development Corporation Common Stock, $0.20 par value outstanding.

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	29
Item 6.	Exhibits	30
Signatures		31

	●	our success in recruiting and retaining new brand partners (formerly consultants),
	●	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;
	●	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,
	●	outstanding impacts from the COVID-19 pandemic, as well as
	●	those factors discussed below and elsewhere in our Annual Report on Form 10-K for the year ended February 29, 2024 and in this Quarterly Report on Form 10Q, all of which are difficult to predict.

	May 31,			February 29,
ASSETS	2024			2024
CURRENT ASSETS:
Cash and cash equivalents	$	1,141,200		$	844,500
Restricted cash		888,200			432,900
Accounts receivable, less allowance for credit losses of $135,900 (May 31) and $129,000 (February 29)		2,314,500			1,936,900
Inventories - net		38,977,200			43,913,200
Prepaid expenses and other assets		651,500			630,800
Assets held for sale		18,281,100			18,281,100
Total current assets		62,253,700			66,039,400

INVENTORIES - net		13,751,600			11,677,000
PROPERTY, PLANT AND EQUIPMENT - net		8,575,500			8,939,600
DEFERRED INCOME TAX ASSET		1,545,300			1,406,500
OPERATING LEASE RIGHT-OF-USE ASSETS		1,447,900			1,614,900
OTHER ASSETS		436,800			427,600
TOTAL ASSETS	$	88,010,800		$	90,105,000

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	3,693,000		$	3,910,200
Line of credit		5,598,100			5,498,100
Deferred revenues		450,800			583,500
Operating lease liabilities, current		688,100			726,900
Current maturities of long-term debt		1,800,000			1,800,000
Accrued salaries and commissions		804,400			384,400
Income taxes payable		1,109,000			773,400
Other current liabilities		2,490,700			3,338,100
Total current liabilities		16,634,100			17,014,600

LONG-TERM DEBT - net		26,201,900			26,640,700
OPERATING LEASE LIABILITIES, non-current		759,800			888,000
OTHER LONG-TERM LIABILITIES		111,000			111,000
Total liabilities		43,706,800			44,654,300


SHAREHOLDERS' EQUITY:
Common stock, $0.20 par value; Authorized 16,000,000 shares; Issued 12,702,080 shares; Outstanding 8,579,088 (May 31) and 8,575,088 (February 29) shares		2,540,400			2,540,400
Capital in excess of par value		13,502,100			13,405,400
Retained earnings		41,287,600			42,566,600
Accumulated other comprehensive income		47,300			24,400
		57,377,400			58,536,800
Less treasury stock, at cost		(13,073,400	)		(13,086,100	)
Total shareholders' equity		44,304,000			45,450,700
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	88,010,800		$	90,105,000

	Three Months Ended May 31,
	2024			2023
GROSS SALES	$	15,792,800		$	20,586,600
Less discounts and allowances		(6,201,900	)		(7,071,300	)
Transportation revenue		402,500			1,008,700
NET REVENUES		9,993,400			14,524,000
COST OF GOODS SOLD		3,533,900			5,150,400
Gross margin		6,459,500			9,373,600

OPERATING EXPENSES
Operating and selling		1,880,100			2,397,900
Sales commissions		3,058,900			4,199,800
General and administrative		3,199,500			3,634,500
Total operating expenses		8,138,500			10,232,200


INTEREST EXPENSE		576,700			733,400
OTHER INCOME		(508,700	)		(391,400	)

LOSS BEFORE INCOME TAXES		(1,747,000	)		(1,200,600	)

INCOME TAX BENEFIT		(468,000	)		(327,800	)
NET LOSS	$	(1,279,000	)	$	(872,800	)

BASIC AND DILUTED LOSS PER SHARE
Basic	$	(0.15	)	$	(0.11	)
Diluted	$	(0.15	)	$	(0.11	)

WEIGHTED AVERAGE NUMBER OF COMMON AND EQUIVALENT SHARES OUTSTANDING:
Basic		8,266,771			8,278,049
Diluted		8,266,771			8,278,049
Dividends per share	$	-		$	-

	Common Stock (par value $0.20 per share)												Treasury Stock
	Number of Shares Issued		Amount		Capital in Excess of Par Value			Retained Earnings			Accumulated Other Comprehensive Income		Number of Shares			Amount			Shareholders' Equity

BALANCE – February 29, 2024		12,702,080	$	2,540,400	$	13,405,400		$	42,566,600		$	24,400		4,126,992		$	(13,086,100	)	$	45,450,700
Sale of treasury stock		-		-		(4,100	)		-			-		(4,000	)		12,700			8,600
Share-based compensation expense - net		-		-		100,800			-			-		-			-			100,800
Change in fair value of interest rate exchange agreement		-		-		-			-			22,900		-			-			22,900
Net loss		-		-		-			(1,279,000	)		-		-			-			(1,279,000	)
BALANCE - May 31, 2024		12,702,080	$	2,540,400	$	13,502,100		$	41,287,600		$	47,300		4,122,992		$	(13,073,400	)	$	44,304,000

	May 31, 2024		May 31, 2023
Cash and cash equivalents	$	1,141,200	$	876,100
Restricted cash		888,200		-
Total cash, cash equivalents and restricted cash shown in the statements of cash flows	$	2,029,400	$	876,100

	May 31, 2024			February 29, 2024
Current:
Product inventory	$	39,390,200		$	44,303,000
Inventory valuation allowance		(413,000	)		(389,800	)
Inventories net – current	$	38,977,200		$	43,913,200

Noncurrent:
Product inventory	$	14,309,200		$	12,269,200
Inventory valuation allowance		(557,600	)		(592,200	)
Inventories net – noncurrent	$	13,751,600		$	11,677,000

	May 31, 2024			February 29, 2024
Operating lease assets:
Right-of-use assets	$	1,447,900		$	1,614,900

Operating lease liabilities:
Current lease liabilities	$	688,100		$	726,900
Long-term lease liabilities	$	759,800		$	888,000

Weighted-average remaining lease term (months)		22.8			25.8
Weighted-average discount rate		4.34	%		4.34	%

	May 31, 2024		May 31, 2023

Fixed lease costs	$	189,800	$	105,800

Years ending February 28 (29),
2025	$	546,100
2026		600,200
2027		397,300
Total future minimum rental payments		1,543,600
Less: imputed interest		(95,700	)
Total operating lease liabilities	$	1,447,900

	May 31, 2024		May 31, 2023

Operating cash outflows – operating leases	$	189,800	$	105,800

	Three Months Ended May 31,
	2024			2023
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(1,279,000	)	$	(872,800	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		486,600			683,600
Deferred income taxes		(138,800	)		(329,700	)
Provision for credit losses		29,600			-
Provision for inventory valuation allowance		40,700			51,200
Share-based compensation expense - net		100,800			96,200
Net loss on sale of assets		3,700			-
Changes in assets and liabilities:
Accounts receivable		(407,200	)		217,800
Inventories - net		2,820,700			1,430,400
Prepaid expenses and other assets		(13,800	)		128,000
Accounts payable		(217,200	)		767,100
Accrued salaries and commissions and other liabilities		(427,400	)		(1,362,500	)
Deferred revenues		(132,700	)		367,800
Income taxes payable/receivable		335,600			-
Total adjustments		2,480,600			2,049,900
Net cash provided by operating activities		1,201,600			1,177,100
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment		(112,200	)		(300,900	)
Proceeds from sale of assets		4,000			-
Net cash used in investing activities		(108,200	)		(300,900	)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on term debt		(450,000	)		(450,000	)
Cash paid to acquire treasury stock		-			(563,900	)
Sales of treasury stock		8,600			-
Net borrowings under line of credit		100,000			324,700
Net cash used in financing activities		(341,400	)		(689,200	)
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		752,000			187,000
CASH, CASH EQUIVALENTS AND RESTRICTED CASH - BEGINNING OF PERIOD		1,277,400			689,100
CASH, CASH EQUIVALENTS AND RESTRICTED CASH - END OF PERIOD	$	2,029,400		$	876,100

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Cash paid for interest	$	582,500		$	722,200
Cash paid for income taxes (net of refunds)	$	18,400		$	8,400

Years ending February 28 (29),
2025	$	1,149,000
2026		1,524,300
2027		1,554,800
2028		1,585,900
2029		1,617,600
Thereafter		3,332,900
Total	$	10,764,500

	(i)	Two Term Loans on 20-year amortization with 5-year maturity date of August 9, 2027
	(ii)	$15 Million Fixed Rate Term Loan bears interest at a fixed rate per annum equal to 4.26%
	(iii)	$21 Million Floating Rate Term Loan bears interest at a rate per annum equal to Term SOFR Rate + 1.75%
	(iv)	$7 Million Revolving Loan with maturity date of October 4, 2024. The Revolving Loan bears interest at a rate per annum equal to Term SOFR Rate + 4.50% (effective rate was 9.82% at May 31, 2024)
	(v)	Revolving Loan allows for Letters of Credit upon bank approval (none were outstanding at May 31, 2024)

	Shares		Weighted Average Fair Value (per share)

Outstanding at February 29, 2024		297,000	$	5.53
Granted		-		-
Vested		-		-
Forfeited		-		-
Outstanding at May 31, 2024		297,000	$	5.53

Years ending February 28 (29),
2025	$	1,350,000
2026		1,800,000
2027		1,800,000
2028		23,200,900
Total	$	28,150,900

	Three Months Ended May 31,
	2024		2023

Share-based compensation expense	$	100,800	$	96,200

NET REVENUES
	Three Months Ended May 31,
	2024		2023
PaperPie	$	8,900,300	$	12,583,200
Publishing		1,093,100		1,940,800
Total	$	9,993,400	$	14,524,000

LOSS BEFORE INCOME TAXES
	Three Months Ended May 31,
	2024			2023
PaperPie	$	771,100		$	1,658,700
Publishing		231,600			460,000
Other		(2,749,700	)		(3,319,300	)
Total	$	(1,747,000	)	$	(1,200,600	)

	-	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 $37,000,000 as of May 31, 2024 and February 29, 2024, respectively. Management's estimates are based on the recent sale agreement for the price of the Hilti Complex less the estimated costs to sell plus an estimated value of the excess land of approximately 17 acres for $2,500,000.
	-	The estimated fair value of our term notes payable is estimated by management to approximate $27,665,500 and $28,152,800 as of May 31, 2024 and February 29, 2024, respectively. Management's estimates are based on the obligations' characteristics, including floating interest rate, maturity, and collateral.
	-	The fair value of the Company’s interest rate swap of $47,300 is based on Level 2 inputs, including the present value of estimated future cash flows based on market expectations of the yield curve on variable interest rates.

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, 2024		-	$	-		-		376,393
April 1 - 30, 2024		-		-		-		376,393
May 1 - 31, 2024		-		-		-		376,393
Total		-	$	-		-

3.1*		Restated Certificate of Incorporation dated April 26, 1968 and Certificate of Amendment thereto dated June 21, 1968 are incorporated herein by reference to Exhibit 1 to Registration Statement on Form 10-K (File No. 0-04957).

3.2*		Certificate of Amendment of Restated Certificate of Incorporation dated August 27, 1977 is incorporated herein by reference to Exhibit 20.1 to Form 10-K for fiscal year ended February 28, 1981 (File No. 0-04957).

3.3*		By-Laws, as amended, are incorporated herein by reference to Exhibit 20.2. to Form 10-K for fiscal year ended February 28, 1981 (File No. 0-04957).

3.4*		Certificate of Amendment of Restated Certificate of Incorporation 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. 0-04957).

3.5		Certificate of Amendment of Restated Certificate of Incorporation dated March 22, 1996 is incorporated herein by reference to Exhibit 3.4 to Form 10-K for fiscal year ended February 28, 1997 (File No. 0-04957).

3.6		Certificate of Amendment of Restated Certificate of Incorporation dated July 15, 2002 is incorporated herein by reference to Exhibit 10.30 to Form 10-K dated February 28, 2003 (File No. 0-04957).

3.7		Certificate of Amendment of Restated Certificate of Incorporation dated August 15, 2018 is incorporated herein by reference to Exhibit 3.1 to Form 8-K dated August 21, 2018 (File No. 0-04957).

10.1		Usborne Distribution Agreement dated May 16, 2022 by and between the Company and Usborne Publishing Limited, London, England is incorporated herein by reference to Exhibit 10.2 to form 10-Q dated May 31, 2022 (File No. 0-04957).

10.2		Credit Agreement dated August 9, 2002 by and between the Company and BOKF, NA, Tulsa, OK is incorporated herein by reference to Exhibit 10.01 to form 8-K dated August 11, 2022 (File No. 0-04957).

10.3		First Amendment to Credit Agreement, dated December 22, 2022 by and between the Company and BOKF, NA, Tulsa, OK. Is incorporated herein by reference to Exhibit 10.4 to Form 10-Q dated November 30, 2022 (File No. 0-04957).

10.4		Second Amendment to Credit Agreement, dated May 10, 2023 by and between the Company and BOKF, NA, Tulsa, OK. Is incorporated herein by reference to Exhibit 10.18 to Form 10-K dated February 28, 2023 (File No. 0-04957).

10.5		Third Amendment to Credit Agreement, dated August 9, 2023 by and between the Company and BOKF, NA, Tulsa, OK is incorporated herein by reference to Exhibit 10.01 to Form 8-K dated August 17, 2023 (File No. 0-04957).

10.6		Fourth Amendment to Credit Agreement, effective December 1, 2023 by and between the Company and BOKF, NA, Tulsa, OK is incorporated herein by reference to Exhibit 10.01 to Form 8-K dated December 28, 2023 (File No. 0-04957)..

10.7		Fifth Amendment to Credit Agreement, effective May 31, 2024 by and between the Company and BOKF, NA, Tulsa, OK is incorporated herein by reference to Exhibit 10.01 to Form 8-K dated June 17, 2024 (File No. 0-04957).

31.1**		Certification of the Chief Executive Officer of Educational Development Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2**		Certification of Chief Financial Officer and Corporate Secretary of Educational Development Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		Inline XBRL Instance Document
101.SCH		Inline XBRL Taxonomy Extension Schema
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


	EDUCATIONAL DEVELOPMENT CORPORATION (Registrant)


Date: July 15, 2024	By	/s/ Craig M. White
		Craig M. White President and Chief Executive Officer (Principal Executive Officer)


Date: July 15, 2024	By	/s/ Dan E. O’Keefe
		Dan E. O’Keefe Chief Financial Officer and Corporate Secretary (Principal Financial and Accounting Officer)

SEC Form 10-Q filed by Educational Development Corporation

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