UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 29, 201628, 2022
OR
☐TRANSITION REPORT PURSUANT TO 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 | 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:None
Common Stock, $.20 par value | EDUC | NASDAQ |
(Title of class) | (Trading symbol) | (Name of each exchange on which registered) |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐
No ☒Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐
No ☒Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒
No ☐Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☒
No ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”,filer,” “accelerated filer”,filer,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
☒
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐
No ☒The aggregate market value of the outstanding shares of common stock held by non-affiliates of the registrant at the price at which the common stock was last sold on August 31, 2015,2021 on the NASDAQ Stock Market, LLC was $24,498,500.$60,743,600.
As of May 26, 2016, 4,069,669April 28, 2022, 8,715,018 shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for fiscal year 20162022 relating to our Annual Meeting of Shareholders to be held on July 19, 20166, 2022 are incorporated by reference into Part III of this Report on Form 10-K.
TABLE OF CONTENTS
4 | ||
PART I | ||
Item 1. | 4 | |
Item 1A. | 6 | |
Item 1B. | 6 | |
Item 2. | 6 | |
Item 3. | 6 | |
Item 4. | 6 | |
PART II | ||
Item 5. | 7 | |
Item 6. | 7 | |
Item 7. | 7 | |
Item 7A. | 16 | |
Item 8. | 16 | |
Item 9. | 17 | |
Item 9A. | 17 | |
Item 9B. | 19 | |
| Item | ||
PART III | ||
Item 10. | 20 | |
Item 11. | 20 | |
Item 12. | 20 | |
Item 13. | 20 | |
Item 14. | 20 | |
PART IV | ||
Item 15. | 21 | |
Item 16. | 23 | |
PART I
FORWARD-LOOKING STATEMENTS
CAUTIONARY REMARKS REGARDING FORWARD LOOKING STATEMENTS
The information discussed in this document.Annual Report on Form 10-K includes “forward-looking statements.” These forward-looking statements are not historical factsidentified 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 consultants, our ability to locate and procure desired books, our ability to ship timely, changes to our primary sales channels, our ability to obtain adequate financing for working capital and capital expenditures, economic and competitive conditions, regulatory changes and other uncertainties, the COVID-19 pandemic, as well as those factors discussed below and elsewhere in this Annual Report on Form 10-K, 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 Annual Report on Form 10-K and speak only as of the date of this Annual Report on Form 10-K. 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 projections based on certain assumptions and analyses made by our senior management in light of their experience and perception of historical trends, current conditions, expected future developments and other factors.otherwise. As used in this Annual Report on Form 10-K, the terms “the Company,” “EDC,” “we,” “our” or “us” mean Educational Development Corporation, a Delaware corporation, unless the context indicates otherwise.
Item 1.
BUSINESS(a) General DevelopmentDescription of Business
We are the exclusive United States (“U.S.”) trade publisher of the lineco-publisher of educational children’s books produced in the United Kingdom by Usborne Publishing Limited (“Usborne”). We were incorporated on August 23, 1965, in the State and we also exclusively publish books through our ownership of Delaware. Our fiscal years end on February 29(28).
Our Company motto is “The future of our world depends on the education of our children. EDC delivers educational excellence one book at a time. We provide economic opportunity while fostering strong family values. We touch the lives of children for a lifetime.”
(b) Financial Information about IndustryOur Segments
While selling children’s books and related products (collectively referred to as “books”) is our only line of business, we sell them through two divisions:business segments, which we sometimes refer to as “divisions”:
● | Home Business Division (“Usborne Books & More” or “UBAM”) |
● | Publishing Division (“EDC Publishing” or “Publishing”) – This division |
Percent Net Revenues by Division
FY 2022 | FY 2021 | |||||||
UBAM | 91 | % | 96 | % | ||||
Publishing | 9 | % | 4 | % | ||||
Total net revenues | 100 | % | 100 | % | ||||
| 2016 | 2015 | |||||||
| UBAM | 83 | % | 65 | % | ||||
| Publishing | 17 | % | 35 | % | ||||
| Total net revenues | 100 | % | 100 | % | ||||
(c) Narrative Description of Business
Products
As the soleexclusive United States trade co-publisher of Usborne books and sole publisher of the Usborne line ofKane Miller books, we offer over 2,000 different titles.children’s books. Many of our books are interactive in nature, including our Touchy-Feelytouchy-feely board books, activity books and flashcards, adventure and search books, art books, sticker books and foreign language books. The majorityMost of the titles published by Kane Miller Book Publishersour books were originally were published in other countries, in their native languages.
We also have a broad line of ‘internet-linked’ books which allow readers to expand their educational experience by referring them to relevant non-Usbornenon-Company websites. Our books include science and math titles, as well as chapter books and novels. We continually introduce new titles across all lines of our products.
UBAM markets theour books through commissioned consultants using a combination of direct sales, home parties, book fairs and the internet. Theinternet based social media platforms (“online parties”). This division had approximately 19,60036,100 active consultants in 50 states atas of February 29, 2016.28, 2022.
Our Publishing division markets through commissioned trade representatives who call on retail book, toy and specialty stores along with other retail outlets. WePublishing also doconducts in-house marketing by telephone to these customers and potential customers. This division markets to approximately 5,0004,000 book, toy and specialty stores. Significant orders, totaling 22% of the Publishing division’s net sales, have been received from major book chains.
Seasonality
Sales for both divisions are greatest during the fall due to the holiday season.
Competition
While we have the exclusive U.S. rights to sell Usborne Books,and Kane Miller books, we face competition from the internet and other book publishers who are also selling directly to our customers. Our UBAM division competes in recruiting and retaining sales consultants, which continuously receive opportunities to work for UBAM from several other larger direct selling companies, - for sales and consultants. Ouras well as new non-traditional employment opportunities in the gig-marketplace that provide part-time supplemental income. We also compete with Scholastic Corporation in the school and library market faces competition from Scholastic Books for the book fair market.
Our Publishing division faces competition from large U.S. and international publishing companies.companies that sell online and through the same retail publishing stores as well as for space in retail toy, gift and novelty stores that offer a variety of non-book products.
Employees
As of April 1, 2016, 15025, 2022, 166 full-time employees worked at our Tulsa, andOK, San Diego, facilities; almost 60%CA and Layton, UT facilities. Of these employees, approximately 61% work in our distribution warehouse in Tulsa, OK.
Company Reports
Pursuant to Section 13 or 15 of those are in the distribution warehouse. We believeExchange Act, as soon as reasonably practicable after filing electronically or otherwise furnishing it to the Securities and Exchange Commission (“SEC”), we make available, free of charge, on our relations withwebsite (www.edcpub.com) copies of our employees are good.
COVID-19 Update
The Company has taken numerous steps, and will continue to take further actions, in its approach to minimize the impact of the COVID-19 pandemic. Effective May 1, 2021, we lessened our safety and health practices in the office and warehouse based on the recommendations from the Investor Relations portionlocal Tulsa Health Department. We are closely monitoring the impact of the COVID-19 pandemic and continually assessing its potential effects on our website at www.edcpub.com.business. While the Company did not experience a decrease in net revenues during fiscal year 2021, and while fiscal year 2022 results continued to show growth over pre-pandemic levels, the long-term severity and duration of the pandemic are uncertain and the extent to which our results are affected by COVID-19 cannot be accurately predicted. See Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information on the impact COVID-19 had during the current fiscal year.
Item 1A.
RISK FACTORSWe are a smaller reporting company and are not required to provide this information.
Item 1B.
UNRESOLVED STAFF COMMENTSNone
Item 2.
PROPERTIESOur headquarters office and distribution warehouse are located on a 40-acre complex at 5402 S 122nd ESouth 122nd East Ave, Tulsa, Oklahoma. This facility is owned by us and containsWe own the complex which includes multiple buildings that combine to approximately 400,000 square feet of office and warehouse space, of which 219,000218,700 is utilized by us and 181,000181,300 is occupied by a third-party tenant. All product distributionsSubstantially all customer orders are madefulfilled from thisour 170,000 square foot warehouse, in Tulsa, Oklahoma, using multiple flow-rack systems, knownreferred to as “the lines,“lines,” to expedite order fulfillment,completion, packaging, and shipment. A
We also own a facility located at 10302 E.East 55th Pl.,Place, Tulsa, Oklahoma is also owned by us andthat contains approximately 95,000105,000 square feet of usable space including 8,000 square feet of office and 97,000 square feet of warehouse space. We use approximately 76,000 square feet of warehouse space which is used to store ourfor overflow inventory, along with approximately 10,000inventory. The remaining 8,000 square feet of office space that is currently vacant. Weand 21,000 square feet of warehouse are leased to third-party tenants with multi-year lease agreements.
In addition to these owned properties, we also lease additional warehouse space in Tulsa, Oklahoma as needed for overflow inventory, a small office in San Diego, California which housesthat is used by our Kane Miller Book Publishers.employees, and a warehouse and office space in Layton, Utah resulting from the acquisition of Learning Wrap-Ups. We believe that our operating facilities meet both present and future capacity needs.
Item 3.
LEGAL PROCEEDINGSWe are not a party to any material pending legal proceedings.
PART II
Item 5.MARKET FOR REGISTRANT’SREGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The common stock of EDC is traded on NASDAQ (symbol--EDUC)(symbol “EDUC”). The high and low quarterly common stock quotations for fiscal years 2016 and 2015, as reported by the NASDAQ, were as follows:
| 2016 | 2015 | |||||||||||||||
| Period | High | Low | High | Low | ||||||||||||
| 1st Qtr | 5.00 | 3.97 | 3.92 | 3.57 | ||||||||||||
| 2nd Qtr | 6.05 | 4.58 | 4.95 | 3.71 | ||||||||||||
| 3rd Qtr | 14.27 | 6.30 | 4.88 | 4.04 | ||||||||||||
| 4th Qtr | 16.97 | 8.98 | 5.80 | 4.12 | ||||||||||||
For information regarding our compensation plans see Note 10 of the notes to the financial statements and our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 6, 2022, as follows: $0.08 per share dividend on March 20, 2015, $0.09 per share dividend on June 19, 2015, $0.09 per share dividend on September 18, 2015, and $0.09 per share dividend on December 18, 2015. An additional $0.09 per share dividend was declared on February 26, 2016 and was paid during fiscal year 2017 on March 18, 2016.outlined in Part III, Item 12 in this Annual Report.
Issuer Purchases of our common stock during the fourth quarter of fiscal year 2016 and a maximum number of shares that may be repurchased totaling 303,152.Equity Securities
Period | Total # of Shares Purchased | Average Price Paid | Total # of Shares Purchased as Part of Publicly Announced Plan (1) | Maximum # of Shares that may be Repurchased (1) | ||||||||||||
December 1-31, 2021 | - | $ | - | - | 514,594 | |||||||||||
January 1-31, 2022 | - | - | - | 514,594 | ||||||||||||
February 1-28, 2022 | - | - | - | 514,594 | ||||||||||||
Total | - | $ | - | - | ||||||||||||
(1) | On February 4, 2019, the Board of Directors |
Item 6.
SELECTED FINANCIAL DATAWe are a smaller reporting company and are not required to provide this information.
Item 7.MANAGEMENT’S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains a discussion of our business, including a general overview of our segments, our results of operations, our liquidity and analysiscapital resources, and our quantitative and qualitative disclosures about market risk.
The following discussion contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward-looking statements are forward-looking and include numerous risks which you should carefully consider. Additionaldependent upon events, risks and uncertainties that may alsobe outside of our control. Our actual results could differ materially and adversely affect our business. You should read the following discussionfrom those discussed in connection with our financial statements, including the notes to those statements, included in this document. Our fiscal years end on February 29(28).
Management Summary
We are the exclusive United States trade co-publisher of the Usborne line of children’s books and is the owner of Kane Miller Book Publishers.Miller. We operate two separate divisions, EDCsegments; UBAM and Publishing, and Usborne Books & More (“UBAM”), to sell theseour Usborne and Kane Miller children’s books. Our corporate headquarters, including the distribution facility for both divisions, is located in Tulsa, Oklahoma.
UBAM Division
Our UBAM division uses a multi-level direct selling platform to market books through independent sales representatives (“consultants”) located throughout the United States. The customer base of UBAM consists of individual purchasers, as well as schools and public libraries. Revenues are primarily generated through book showings in individual homes, on social media collaboration platforms, through book fairs with school and public libraries and other events.
An important factor in the continued growth of the UBAM division is the addition of new sales consultants and the retention of existing consultants. Current active consultants (defined as those with sales during the past six months) often recruit new sales consultants. UBAM makes it easy to recruit by providing sign-up kits for which new consultants can earn rewards including discounted books and cash based on exceeding certain sales criteria. In addition, our UBAM division provides our consultants with an extensive operational handbook, valuable training and an individual website they can customize and use to operate their business.
Consultants
|
| FY 2022 |
|
| FY 2021 |
| ||
New Consultants Added During Fiscal Year |
|
| 26,100 |
|
|
| 56,100 |
|
Active Consultants at End of Fiscal Year |
|
| 36,100 |
|
|
| 57,600 |
|
Our UBAM division’s multi-level marketing platform presently has eight levels of sales representatives:
● | Consultants |
● | Team Leaders |
● | Advanced Leaders |
● | Senior Leaders |
● | Executive Leaders |
● | Senior Executive Leaders |
● | Directors |
● | Senior Directors |
Upon signing up, sales representatives begin as “Consultants”. Consultants receive “weekly commissions” from each sale they make; the commission rate they receive on each sale is determined by the marketing program under which the sale is made. In addition, Consultants receive a monthly sales bonus once their sales reach an established monthly goal and other awards (called “Home Office Challenges”) for meeting other individual sales and recruiting goals for the month. Consultants who recruit a specified number of other consultants into their downline “central group” become “Team Leaders”. Upon reaching this Team Leader level, consultants become eligible to receive “monthly override payments” which are calculated on sales made from their downline central group of recruits. Team Leaders that recruit and promote other Team Leaders, and meet other established criteria, are eligible to become “Advanced Leaders”.
Once Advanced Leaders promote a second level consultant, add additional recruits and meet other established criteria, they become “Senior Leaders”, “Executive Leaders”, “Senior Executive Leaders”, “Directors” or “Senior Directors”. One-time bonus payments are made to consultants at each promotion level. Executive Leaders and higher receive an additional monthly override payment based upon the sales of their downline groups. Directors and higher receive an additional bonus payment if they promote an Advanced Leader to a Senior Leader from their central group. The maximum override payment a leader can receive is calculated on three levels below their downline central group.
During fiscal year 2022, internet sales continued to be the largest sales channel within our UBAM division. The use of social media and party plan platforms, such as those available on Facebook, continue to be popular sales tools. These platforms allow consultants to “present” and customers to “attend” online purchasing events from any geographical location.
Customer’s internet orders are primarily received via the consultant’s customized website, which is hosted by the Company. Consultants contact hosts or hostesses (collectively “hostess”) who then provide a list of contacts to invite to an online party. During the online party, the consultant answers attendee’s questions and provides product recommendations. These attendees then select desired products and place orders via the consultant’s customized website. Internet orders are processed through direct-sellinga standard online “shopping cart checkout” and the consultant receives sales credit and commission on the transaction. All internet orders are shipped directly to the end customer. The hostess earns discounted books based on the total sales from the attendees at the online party.
Home parties occur when consultants contact hostesses to hold book shows in their homes. The consultant assists the hostess in setting up the details for the show, makes a presentation at the show and takes orders for the books. The hostess earns discounted books based on the total sales at the party, including internet orders for those customers who can only attend via online access. Home party orders are typically shipped to the hostess who then distributes the books to the end customer. Customer specials are also available when customers, or their party, order above a specified amount. Additionally, home shows often provide an excellent opportunity for recruiting new consultants.
UBAM net revenues also includes sales to schools and libraries through educational consultants. The school and library program includes book fairs which are held with an organization as the sponsor. The consultant provides promotional materials to introduce our books to parents. Parents turn in their orders at a designated time. The book fair program generates discounted books for the sponsoring organization. UBAM also has various fundraiser programs. Reach for the Stars is a pledge-based reading incentive program that provides cash and books to the sponsoring organization and books for the participating children. An additional fundraising program, Cards for a Cause, offers our consultants the opportunity to help members of the community by sharing proceeds from the sale of specific items. Organizations sell variety boxes of greeting-type cards and donate a portion of the proceeds to help support their related causes.
Publishing Division
Our Publishing division operates in a market that is highly competitive, with a large number of retail companies engaged in the selling of books. The Publishing division’s customer base includes national book chains, regional and local bookstores, toy and gift stores, school supply stores and museums. To reach these markets, the Publishing division utilizes a combination of commissioned sales representatives located throughout the country and a commissioned insidein-house sales group located inat our headquarters.
The Vice Presidenttable below shows the percentage of thenet revenues from our Publishing division manages sales to the national chain customers.based on market type.
Publishing Division Net Revenues by Market Type
Publishing Division Net Revenues by Market Type | ||||||||
| FY 2016 | FY 2015 | |||||||
| National chain stores | 22 | % | 26 | % | ||||
| All other | 78 | % | 74 | % | ||||
| Total net revenues | 100 | % | 100 | % | ||||
FY 2022 | FY 2021 | |||||||
National chain bookstores | 2 | % | 5 | % | ||||
All other | 98 | % | 95 | % | ||||
Total net revenues | 100 | % | 100 | % | ||||
Publishing uses a variety of methods to attract potential new customers and maintain current customers. Company personnelOur employees attend many of the national trade shows held by the book selling industry each year, allowing us to make contact with potential buyers who may be unfamiliar with our books. We actively target the national book chains through joint promotional efforts and institutional advertising in trade publications. The Publishing division also participates with certain customers in a cooperative advertising allowance program, under which we pay back up to 2% of the net sales to that customer. Our products are then featured in promotions, such as catalogs, offered by the vendor. We may also seek to acquire, for a fee, an end cap position in a bookstore (our products are placed on the end of a shelf), in a bookstore, which inwe and the publishing industry is consideredconsider an advantageous location in the bookstore.
Publishing’s in-house telesalessales group targets the smaller independent book and gift store market.customers. This market has seen continued growth over the past several years as our sales to large bookstore chains have fluctuated based primarily on the number of promotions that we are able to run in the national chain stores. Our semi-annual, full-color, 160-page200-page catalogs, are mailed to over 5,0004,000 customers and potential customers. We also offer two display racks to assist stores in displaying our products.
| Net Revenues for Publishing Division | ||||||||
| FY 2016 | FY 2015 | |||||||
| Net Revenues | $ | 10,831,400 | $ | 11,532,500 | ||||
Our Publishing division’s net revenues decreased $701,100 indivision activities and sales were significantly impacted during fiscal year 2016 from2021 due to the COVID-19 pandemic. Many of the national trade shows were canceled and a significant number of our retail customers temporarily closed to comply with their local health department recommendations. However, Publishing sales significantly increased this fiscal year 2015, or 6.1%. Net revenues weredue to the addition of new customers and stores opening back up 5.0% for smaller retail stores and down 14.4% for national chain stores.to pre-pandemic levels.
Result of Operations
The following table shows our statements of earnings data:
Twelve Months Ended February 28, | ||||||||
2022 | 2021 | |||||||
Net revenues | $ | 142,228,800 | $ | 204,635,100 | ||||
Cost of goods sold | 44,297,500 | 60,037,000 | ||||||
Gross margin | 97,931,300 | 144,598,100 | ||||||
Operating expenses | ||||||||
Operating and selling | 23,010,400 | 36,123,700 | ||||||
Sales commissions | 44,377,500 | 69,977,200 | ||||||
General and administrative | 20,302,200 | 22,541,500 | ||||||
Total operating expenses | 87,690,100 | 128,642,400 | ||||||
Other (income) expense | ||||||||
Interest expense | 916,400 | 561,000 | ||||||
Other income | (1,911,100 | ) | (1,836,100 | ) | ||||
Earnings before income taxes | 11,235,900 | 17,230,800 | ||||||
Income taxes | 2,929,100 | 4,606,800 | ||||||
Net earnings | $ | 8,306,800 | $ | 12,624,000 | ||||
See the detailed discussion of net revenues, gross margin and operating expenses by reportable segment below.
The following is a discussion of significant changes in the continued growthnon-segment related operating expenses, other income and expenses and income taxes during the respective periods.
Non-Segment Operating Results
Total operating expenses not associated with a reporting segment were $17.8 million for fiscal year ended February 28, 2022, compared to $19.4 million for the same period a year ago. Operating expenses decreased $1.6 million primarily related to a decrease in warehouse labor of the UBAM division is$1.6 million driven by efficiencies gained from the addition of two new pick-pack-ship lines in fiscal year 2022 and lower sales, consultantsplus a $1.0 million decrease in freight-handling costs from the decrease in number of outbound shipments, offset by a $0.5 million increase in depreciation expense related to the addition of the new pick-pack-ship lines and a $0.5 million increase in warehouse rent for the increase in inventory.
Interest expense increased $0.3 million, to $0.9 million for fiscal year ended February 28, 2022, compared to $0.6 million reported for fiscal year ended February 28, 2021 due primarily to the increase in our line of credit and the retentionaddition of existing consultants. Current active consultants (defined as those with sales during the past six months) recruit new sales consultants. UBAM makes it easyadvancing term loans in the current fiscal year.
Income taxes decreased $1.7 million, to recruit by providing signing kits$2.9 million for which new consultants can earn partial or full reimbursement based on established sales criteria. UBAM provides an extensive handbook that is a valuable tool in explaining the various programs to the new recruit.
Consultants During Year | ||||||||
| FY 2016 | FY 2015 | |||||||
| New Sales Representatives | 18,000 | 6,500 | ||||||
| Active Sales Representatives End of Fiscal Year | 19,600 | 7,800 | ||||||
Net Revenues, after Commissions, for UBAM Division | ||||||||
| FY 2016 | FY 2015 | |||||||
| Net Revenues | $ | 52,786,900 | $ | 21,015,800 | ||||
| Less commissions | (17,710,800 | ) | (6,491,500 | ) | ||||
| Net Revenues, after commissions | $ | 35,076,100 | $ | 14,524,300 | ||||
Percent of Net Revenues, after Commissions, by UBAM Marketing Program | ||||||||
| FY 2016 | FY 2015 | |||||||
| Internet | 54 | % | 23 | % | ||||
| School & Library | 20 | % | 41 | % | ||||
| Home Shows | 12 | % | 25 | % | ||||
| Fund Raisers | 2 | % | 2 | % | ||||
| Transportation Revenues | 12 | % | 9 | % | ||||
| Totals | 100 | % | 100 | % | ||||
Number of Orders by UBAM Marketing Program | ||||||||
| FY 2016 | FY 2015 | |||||||
| Internet | 561,000 | 91,700 | ||||||
| School & Library | 21,400 | 14,000 | ||||||
| Home Shows | 98,800 | 30,200 | ||||||
| Fund Raisers | 1,300 | 1,000 | ||||||
| 682,500 | 136,900 | |||||||
UBAM Operating Results
The following table summarizes the operating results of the UBAM segment for the twelve months ended February 28:
Twelve Months Ended February 28, | ||||||||
2022 | 2021 | |||||||
Gross sales | $ | 159,303,800 | $ | 237,317,700 | ||||
Less discounts and allowances | (44,187,200 | ) | (65,099,100 | ) | ||||
Transportation revenue | 13,861,900 | 23,790,700 | ||||||
Net revenues | 128,978,500 | 196,009,300 | ||||||
Cost of goods sold | 37,150,600 | 55,603,000 | ||||||
Gross margin | 91,827,900 | 140,406,300 | ||||||
Operating expenses | ||||||||
Operating and selling | 18,800,300 | 31,182,700 | ||||||
Sales commissions | 43,801,300 | 69,707,200 | ||||||
General and administrative | 4,788,800 | 6,695,800 | ||||||
Total operating expenses | 67,390,400 | 107,585,700 | ||||||
Operating income | $ | 24,437,500 | $ | 32,820,600 | ||||
Average number of active consultants | 44,900 | 48,700 | ||||||
UBAM net revenues after commissions, resulted from increases in the following:
UBAM gross margin decreased $48.6 million, or 34.6%, to $91.8 million for fiscal year ended February 28, 2022, from $140.4 million reported for fiscal year ended February 28, 2021. Gross margin as a percentage of net revenues decreased 0.4% to 71.2% for fiscal year 2022 when compared to 71.6% for fiscal year 2021. The decrease in gross margin as a percentage of net revenues was due to the change in mix of order types received. In the current fiscal year, our web sales, consultants.
Total UBAM operating expenses decreased $40.2 million, or 37.4%, to $67.4 million during the fiscal year ended February 28, 2022, when compared with $107.6 million reported for fiscal year ended February 28, 2021. Operating and selling expenses decreased $12.4 million, to $18.8 million for fiscal year ended February 28, 2022, from $31.2 million reported in the numbersame period a year ago due to a $11.4 million decrease in shipping costs associated with the decrease in volume of smaller orders shipped and a $1.0 million decrease in accruals for which a standard minimum is applied, alongthe Company’s annual incentive trip and other consultant rewards associated with a full year benefit of a 20% increasethe decrease in that minimum which occurred halfway throughUBAM sales. Sales commissions decreased $25.9 million, to $43.8 million during the fiscal year 2015.ended February 28, 2022, when compared to $69.7 million reported in the same period a year ago primarily due to the decrease in net revenues. General and administrative expenses decreased $1.9 million, to $4.8 million during the fiscal year ended February 28, 2022, when compared with $6.7 million reported for fiscal year ended February 28, 2021. This decrease was due to $1.5 million of decreased credit card transaction fees associated with decreased sales volumes and a $0.4 million decrease in promotions and marketing expenses associated with decreased consultant counts.
Operating income of our UBAM division decreased $8.4 million, or 25.6%, to $24.4 million for fiscal year ended February 28, 2022, as compared to $32.8 million reported for fiscal year ended February 28, 2021. Operating income of the UBAM division as a percentage of net revenues for the year ended February 28, 2022 was 18.9%, compared to 16.7% for the year ended February 28, 2021, a change of 2.2%. Operating income as a percentage of net revenues changed from the prior year primarily due to $1.3 million of reduced freight handling costs primarily from reduced peak surcharges in the current fiscal year due to lower shipping volumes, a $0.4 million decrease in accrual expenses for the Company’s annual incentive trip and other consultant rewards resulting from less award earners, offset by a $0.6 million increase in cost of free books provided undergoods sold resulting from fewer rebates and discounts associated with purchase volumes as well as increased ocean freight costs on inbound inventory and $0.3 million in other various cost changes.
Publishing Operating Results
The following table summarizes the various UBAM marketing programs is recordedoperating results of the Publishing segment for the twelve months ended February 28:
Twelve Months Ended February 28, | ||||||||
2022 | 2021 | |||||||
Gross sales | $ | 28,163,000 | $ | 18,271,900 | ||||
Less discounts and allowances | (14,922,100 | ) | (9,715,600 | ) | ||||
Transportation revenue | 9,400 | 69,500 | ||||||
Net revenues | 13,250,300 | 8,625,800 | ||||||
Cost of goods sold | 7,146,900 | 4,434,000 | ||||||
Gross margin | 6,103,400 | 4,191,800 | ||||||
Total operating expenses | 2,463,600 | 1,620,200 | ||||||
Operating income | $ | 3,639,800 | $ | 2,571,600 | ||||
Our Publishing division’s net revenues increased $4.7 million, or 54.7%, to $13.3 million for fiscal year ended February 28, 2022, when compared with net revenues of $8.6 million reported for fiscal year ended February 28, 2021. Many Publishing customers closed their stores during the first and second quarters of fiscal year 2021 due to the COVID-19 pandemic and did not reopen until the third or fourth quarter of fiscal year 2021. As such, much of the sales increase resulted from the return of customer activity to pre-pandemic levels in fiscal year 2022.
Gross margin increased $1.9 million, to $6.1 million for fiscal year ended February 28, 2022, from $4.2 million reported for fiscal year ended February 28, 2021. The increase in gross margin primarily resulted from the increase in net revenues. Gross margin as a percentage of net revenues decreased 2.5%, to 46.1% for fiscal year 2022, compared to 48.6% reported the same period a year ago. The decrease in gross margin percentage resulted primarily from the increase in cost of goods sold resulting from fewer rebates and discounts associated with purchase volumes as well as increased ocean freight costs on inbound inventory and a change in our customer mix. Customers receive varying discounts due to higher sales volumes and contract terms.
Operating income for the segment increased $1.0 million, or 38.5%, to $3.6 million for fiscal year ended February 28, 2022, from $2.6 million reported during the same period last year. The increase in operating and selling expense inincome resulted primarily from increased gross margin from increased sales partially offset by increased inside sales commissions due to the statementsaddition of earnings.new retail customers.
Liquidity and Capital Resources
EDC has a history of profitability and positive cash flow.
During fiscal year 2016,2022, we experienced positivenegative cash flowflows from our operations of $6,650,600. Cash flow$21,143,300. These cash flows resulted from the following:from:
● net earnings of $8,306,800
Adjusted for:
● depreciation expense of $2,126,700
● share-based compensation expense of $1,046,500
● provision for inventory valuation allowance of $235,700
● provision for doubtful accounts of $115,800
Offset by:
● deferred income taxes of $208,600
Positively impacted by:
● increase in income taxes payable of $111,700
Negatively impacted by:
● increase in inventories, net of $21,396,900
● decrease in accounts payable of $6,201,300
● decrease in accrued salaries, commissions, and other liabilities of $2,868,300
● decrease in deferred revenue of $1,794,300
● increase in accounts payable, accrued salaries and commissions,receivable of $407,900
● increase in prepaid expenses and other current liabilities is primarily a resultassets of $209,200
During the current payments owed toyear our suppliers for ourinventories increased inventory stock required to sustain our sales increase.
Cash used in investing activities was $24,911,600$3,940,900 for capital expenditures. On December 1, 2015, we closed on a new facilityexpenditures, which has allowed uswere comprised of $2,722,900 in equipment purchased to expandincrease our daily shipping capacity, $618,300 in software upgrades to accommodate our growth overproprietary systems that our UBAM consultants use to monitor their business and place customer orders, $376,000 in other building and equipment improvements, and $223,700 in patents and trademarks from the past year.purchase of Learning Wrap-Ups.
Cash provided by financing activities was $19,060,800,$23,633,200 which was primarily duecomprised of proceeds from term debt of $15,244,700, increase in borrowings on the line of credit of $12,478,200 and net cash received in treasury stock transactions of $617,100, offset by payments of $3,429,100 for dividends and payments on term debt of $1,277,700.
We continue to $18,400,000 in long-termexpect the cash generated from our operations and cash available through our line of credit with our Bank will provide us the liquidity we need to support ongoing operations. Cash generated from operations will be used to pay down our line of credit, expand our product offerings, to liquidate existing debt, relatedand any excess cash is expected to be distributed to our shareholders.
On February 15, 2021, the Company executed the Amended and Restated Loan Agreement with MidFirst Bank which replaced the prior loan agreement and includes multiple loans. Term Loan #1 Tranche A (“Term Loan #1”), originally totaling $13.4 million, was part of the prior loan agreement. Term Loan #1 had a fixed interest rate of 4.23%, with principal and interest payable monthly and a stated maturity date of December 1, 2025. Term Loan #1 is secured by the primary office, warehouse and land. Term Loan #1 was amended on April 1, 2021 by executing the First Amendment to the purchase of our new facility, offset by long-term debt payments of $97,200. Also, $4,881,800 in borrowings were provided under our revolving credit agreement, offset by $2,950,000 in payments against this agreement. Additionally, $202,500 was providedLoan Agreement which reduced the fixed interest rate to 3.12% and removed the prepayment premium from the saleLoan Agreement. The outstanding borrowings on Term Loan #1 were $10.3 million and $11.0 million as of treasury stock, offset by $1,600 paidFebruary 28, 2022 and February 28, 2021, respectively.
In addition, the Amended and Restated Loan Agreement provides a $6.0 million Advancing Term Loan #1 to acquire treasury stock. Cashbe used to finance planned equipment purchases. The Advancing Term Loan #1 required interest-only payments through July 15, 2021, at which time it was also used for dividend payments of $1,374,700.
The Amended and Restated Loan Agreement also provides a $20.0 million revolving loan (“line of credit”) through August 15, 2022 with interest payable monthly at the Bank-adjusted LIBOR Index plus a tiered pricing rate based on the Company’s Adjusted Funded Debt to EBITDA Ratio, with a minimum rate of 3.00%. On July 16, 2021, the Company executed the Second Amendment to the Loan Agreement which increased the Maximum Revolving Principal Amount from $15.0 million to $20.0 million. On August 31, 2021, the Company executed the Third Amendment to the Loan Agreement which modified the advance rates used in the borrowing base certificate. Our borrowings outstanding on our line of credit at February 28, 2022 and February 28, 2021 were $17.7 million and $5.2 million, respectively. Available credit under the revolving line of credit was approximately $2.3 million and $9.6 million at February 28, 2022 and February 28, 2021, respectively.
On November 19, 2021, the Company executed the Fourth Amendment to the Loan Agreement which established Advancing Term Loan #2 in the principal amount of $10.0 million, amended the definition of LIBO Rate and LIBOR Margin and added Benchmark Replacement Provisions. The Advancing Term Loan #2 is a 120-month amortizing loan maturing November 19, 2031 and accrues interest at the Bank-adjusted LIBOR Index plus a tiered pricing rate based on the Company’s Adjusted Funded Debt to EBITDA Ratio, with a minimum rate of 3.00%. Our borrowings outstanding under the Advancing Term Loan #2 at February 28, 2022 were $9.9 million.
The Amended and Restated Loan Agreement also contains a provision for our use of the Bank’s letters of credit. The Bank agrees to issue or obtain issuance of commercial or stand-by letters of credit provided that the sum of the line of credit plus the letters of credit issued would not exceed the borrowing base in effect at the time. For the year ended February 28, 2022, we had no letters of credit outstanding. The agreement contains provisions that require us to maintain specified financial ratios, place limitations on additional debt with other banks, limit the amounts of dividends declared and limits the amount of shares that can be repurchased using funding from the line of credit.
The following table reflects aggregate future maturities of long-term debt during the next five fiscal years as follows:
Years ending February 28 (29), | ||||
2023 | $ | 2,542,200 | ||
2024 | 2,591,800 | |||
2025 | 2,638,500 | |||
2026 | 10,489,800 | |||
2027 | 1,518,700 | |||
Thereafter | 5,219,100 | |||
Total | $ | 25,000,100 |
During fiscal year 2022 we continued our quarterly dividend payments of $0.10.
In April 2008, our Board of Directors adopted aamended our 1998 stock repurchase plan, in whichestablishing that we may purchase up to an additional 500,0001,000,000 shares as market conditions warrant. When management believesIn February 2019, our Board of Directors approved a new stock repurchase plan to replace the amended 2008 plan. Under the new 2019 plan, the Company is authorized to purchase up to 800,000 shares of common stock, is undervalued and when stock becomeswhich represented approximately 9% of the outstanding shares as of February 28, 2022, of which 514,594 remains available at an attractive price, we can utilize free cash flow to repurchase shares.purchase as of February 28, 2022. Management believes thisusing excess liquidity to purchase outstanding shares enhances the value to the remaining shareholders and that these repurchases will have no adverse effect on our short-term and long-term liquidity.
| Earnings as a Percent of Net Revenues | ||||||||
| FY 2016 | FY 2015 | |||||||
| Net revenues | 100.0 | % | 100.0 | % | ||||
| Cost of sales | 32.2 | % | 39.2 | % | ||||
| Gross margin | 67.8 | % | 60.8 | % | ||||
| Operating expenses: | ||||||||
| Operating and selling | 30.5 | % | 29.2 | % | ||||
| Sales commissions | 28.4 | % | 21.0 | % | ||||
| General and administrative | 3.7 | % | 6.3 | % | ||||
| Total operating expenses | 62.6 | % | 56.5 | % | ||||
| Other income, net | 0.4 | % | 0.0 | % | ||||
| Earnings before income taxes | 5.6 | % | 4.3 | % | ||||
| Income taxes | 2.3 | % | 1.7 | % | ||||
| Net earnings | 3.3 | % | 2.6 | % | ||||
| FY 2016 | FY 2015 | $ Change | ||||||||||
| Gross sales | $ | 80,319,400 | $ | 48,345,400 | $ | 31,974,000 | ||||||
| Less discounts & allowances | (22,061,500 | ) | (17,273,100 | ) | (4,788,400 | ) | ||||||
| Transportation revenue | 5,360,400 | 1,476,000 | 3,884,400 | |||||||||
| Net revenues | $ | 63,618,300 | $ | 32,548,300 | $ | 31,070,000 | ||||||
| FY 2016 | FY 2015 | $ Change | ||||||||||
| Cost of sales | $ | 20,494,200 | $ | 12,763,900 | $ | 7,730,300 | ||||||
| Operating and selling | 19,419,400 | 9,515,400 | 9,904,000 | |||||||||
| Sales commissions | 18,062,800 | 6,842,700 | 11,220,100 | |||||||||
| General and administrative | 2,328,500 | 2,039,900 | 288,600 | |||||||||
| Total | $ | 60,304,900 | $ | 31,161,900 | $ | 29,143,000 | ||||||
Contractual Obligations
We are a smaller reporting company and are not required to provide this information.
Off Balance Sheet Arrangements
As of February 28, 2022, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
Seasonality
The Company experiences increased sales in the Fall season. Historically, we have experienced an increase in inventory during the Summer in anticipation for the Fall increase in sales. In addition, new titles are typically released twice a year, in the Spring and Fall, which increases our inventory the months preceding these scheduled releases. The Company uses available cash or working capital borrowings to fund these increases in inventory.
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. 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, allowance for uncollectible accounts receivable, 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. 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 stock-basedshare-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 ratably 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 have 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 fiscal years 2022 and 2021, the Company recognized as$1.0 million and $0.9 million, respectively, of compensation expense.expense associated with the shares granted.
Revenue Recognition
Sales associated with product orders are recognized and recorded when products are shipped. Products are shipped FOB shipping point.FOB- Shipping Point. UBAM’s sales are generally paid at the time the product is ordered. These sales accountedSales which have been paid for 83%but not shipped are classified as deferred revenue on the balance sheet. Sales associated with consignment inventory are recognized when reported and 65% of net revenues in fiscal years 2016payment associated with the sale has been remitted. Transportation revenue represents the amount billed to the customer for shipping the product and 2015, respectively.is recorded when the product is shipped.
Estimated allowances for sales returns are recorded as sales are recognized and recorded.recognized. Management uses a moving average calculation to estimate the allowance for sales returns. We are not responsible for product damaged in transit. Damaged returns are primarily received from the retail stores. Thecustomers of our Publishing division. Those damages occur in the stores, not in shipping to the stores.stores, and we typically do not offer credit for damaged returns. It is industry practice to accept non-damaged returns from wholesaleretail customers. Transportation revenue represents the amount billed to the customer for shipping the product and is recorded when the product is shipped. Management has estimated and included a reserve for sales returns of $100,000$0.2 million for the fiscal years ended February 29, 201628, 2022 and February 28, 2015.2021.
Allowance for Doubtful Accounts
We maintain an allowance for estimated losses resulting from the inability of our customers to make required payments.payments and a reserve for vendor share markdowns, when applicable (collectively “allowance for doubtful accounts”). 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 doubtful accounts of $401,900 and $234,500 as of$0.3 million for the fiscal years ended February 29, 201628, 2022 and February 28, 2015, respectively.2021.
Inventory
Our inventory arises due to occasional purchases of book inventory in quantities in excess of what will be sold within the normal operating cycle due to minimum order requirements of our primary supplier. Noncurrent inventory was estimated by management using the current year turnover ratio by title. All inventory in excess of 2 ½ years of anticipated sales was classified as noncurrent inventory. Noncurrent inventory balances prior to valuation allowances were $469,000 and $718,900 at February 29, 2016 and February 28, 2015, respectively.
Certain inventory is maintained in a noncurrent classification. Management continually estimates and calculates the amount of noncurrent 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. Noncurrent inventory was estimated by management using the current year turnover ratio by title and anticipated sales of specific titles. Inventory in excess of 2½ years of anticipated sales is classified as noncurrent inventory. Noncurrent inventory balances prior to valuation allowances were $2.4 million and $0.9 million at February 28, 2022 and February 28, 2021, respectively. Noncurrent inventory valuation allowances were $0.4 million and $0.2 million at February 28, 2022 and February 28, 2021, respectively.
Consultants that meet certain eligibility requirements may request and receive inventory on consignment. We believe allowing our consultants 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 6.4% of our active consultants have maintained consignment inventory at the end of fiscal year 2022. 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 consultants was $1.4 million and $1.1 million at February 28, 2022 and February 28, 2021, 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 $0.9 million and $0.7 million at February 28, 2022 and February 28, 2021, respectively.
Our principal supplier, based in England, generally requires a minimum reorderre-order of 6,500 or more of a title in order to get a solo print run. Smaller orders would require a shared print run with the supplier’s other customers, which can result in more lengthy delays to receive the ordered title. Anticipating customer preferences and purchasing habits requires historical analysis of similar titles in the same series. We then place the initial order or re-order based upon this analysis.
New Accounting Pronouncements
See the New Accounting Standards Board (“FASB”) periodically issues new accounting standards in a continuing effortPronouncements section of Note 1 to improve standards of financial accounting and reporting. We have reviewed the recently issued pronouncements and concluded that the following recently issued accounting standards apply to us.
Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKWe are a smaller reporting company and are not required to provide this information.
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAThe information required by this Item 8 begins at page 23.25.
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone
Item 9A.
CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and Procedures
An evaluation was performed of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”) Rule 13a-15(e) and 15d-15(e)13a-15(a) as of February 29, 2016.28, 2022. This evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer (Principal Executive Officer) and our Controller/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 effective to ensure that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to them, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized, and reported in accordance withinwith the time periods specified in Securities and Exchange CommissionSEC 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 fourth fiscal quarter of the fiscal year covered by this report on Form 10-K, 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.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f)Rules 13(a) thru 15(f) of the Securities Exchange Act of 1934 (the “Exchange Act”).Act. Under the supervision and with the participation of our management, including our PresidentChief Executive Officer and our Controller,Chief Financial Officer, we evaluated the effectiveness of our internal control over financial reporting based on the framework set forth in INTERNAL CONTROL-INTEGRATED FRAMEWORKthe 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 1992.(“COSO”). All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based on our evaluation under that frameworkthe 2013 COSO Framework and applicable SEC rules, our management concluded that our internal control over financial reporting was effective as of February 29, 2016. The original framework was updated with28, 2022. Our internal control over financial reporting as of February 28, 2022 has been audited by HoganTaylor LLP, an independent registered public accounting firm, as stated in their report, which is included in this Form 10-K.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the issuanceShareholders and the Board of Directors of Educational Development Corporation
Opinion on the 2013 Internal Control –Over Financial Reporting
We have audited Educational Development Corporation's (the Company) internal control over financial reporting as of February 28, 2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our management has not yet implementedCommission in 2013. In our opinion, the 2013 Framework, but does not deem it impacting ourCompany maintained, in all material respects, effective assessment conclusion.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the balance sheets of the Company as of February 28, 2022 and 2021, the related statements of earnings, shareholders' equity and cash flows for the years then ended, and the related notes to the financial statements and our report was not subjectdated May 5, 2022 expressed an unqualified opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to attestation byexpress an opinion on the Company’s internal control over financial reporting based on our registeredaudit. We are a public accounting firm pursuantregistered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that permit uswe plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only management’s report in this annual report.accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ HOGANTAYLOR LLP
Tulsa, Oklahoma
May 5, 2022
Item 9B.
OTHER INFORMATIONNone
Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None
PART III
Item 10.DIRECTORS, AND EXECUTIVE OFFICERS OF THE REGISTRANTAND CORPORATE GOVERNANCE
(a)
Identification of DirectorsThe information required by this Item 10 is furnished by incorporation by reference to the information under the caption “Election"Election of Directors”Directors" in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 19, 2016.6, 2022.
(b)
Identification of Executive OfficersThe information required by this Item 10 is furnished by incorporation by reference to the information under the caption “Section"Executive Officers of the Registrant" in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 6, 2022.
(c) Compliance with Section 16 (a) of the Exchange Act
The information required by this Item 10 is furnished by incorporation by reference to the information under the caption "Section 16 (a) Beneficial Ownership Reporting Compliance” in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 19, 2016.6, 2022.
Item 11.
EXECUTIVE COMPENSATIONThe information required by this Item 11 is furnished by incorporation by reference to the information under the caption “Executive Compensation”"Executive Compensation" in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 19, 2016.6, 2022.
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSThe information required by this Item 12 is furnished by incorporation by reference to the information under the captions “Security"Security Ownership of Certain Beneficial Owners and Management”Management" and “Compensation Plans”"Compensation Plans" in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 19, 2016.6, 2022.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
None
Item 14.
PRINCIPALThe information required by this Item 14 is furnished by incorporation by reference to the information under the caption “Independent"Independent Registered Public Accountants”Accountants" in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 19, 2016.6, 2022.
PART IV
Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES(a)
The following documents are filed as part of this report:1. Financial Statements
Page | |
Report of Independent Registered Public Accounting Firm (PCAOB ID 483) | 25 |
Balance Sheets as of February | 26 |
Statements of Earnings for the Years ended February | 27 |
Statements of | 28 |
Statements of Cash Flows for the Years ended February | 29 |
Notes to Financial Statements | 30-42 |
Schedules have been omitted as such information is either not required or is included in the financial statements.
2. Exhibits
*3.1 | Restated Certificate of Incorporation 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. | |
*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. | |
*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. | |
*3.4 | Certificate of Amendment of Restated Certificate of Incorporation dated November 17, 1986 is incorporated herein by reference to | |
3.5 | ||
3.6 | ||
3.7 | ||
*4.1 | Specimens of Common Stock Certificates are incorporated herein by reference to Exhibits 3.1 and 3.2 to Registration Statement on Form 10-K (File No. | |
*10.1 | Usborne Agreement-Contractual agreement by and between the Company and Usborne Publishing Limited dated November 25, 1988 is incorporated herein by reference to Exhibit 10.12 to Form 10-K dated February 28, 1989 (File No. | |
*10.2 | Party Plan-Contractual agreement by and between the Company and Usborne Publishing Limited dated March 14, 1989 is incorporated herein by reference to Exhibit 10.13 to Form 10-K dated February 28, 1989 (File No. | |
*10.3 | Amendment dated January 1, 1992 to Usborne Agreement - Contractual agreement by and between the Company and Usborne Publishing Limited is incorporated herein by reference to Exhibit 10.13 to Form 10-K dated February 29, 1992 (File No. |
10.4 | ||
10.5 | ||
10.6 | ||
10.7 | ||
10.8 | ||
10.9 | ||
10.10 | ||
10.11 | ||
10.12 | ||
10.13 | ||
**10.14 | ||
**23.1 | ||
**31.1 | ||
**31.2 | ||
**32.1 |
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) |
*Paper Filed
**Filed Herewith
Item 16. FORM 10-K SUMMARY
Not applicable
SIGNATURES
Pursuant to the requirements of Section 13 or 15(b)15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
EDUCATIONAL DEVELOPMENT CORPORATION
Date: | May 5, 2022 | By | /s/ Craig M. White | |
Craig M. White | ||||
President and Chief Executive Officer | ||||
(Principal Executive Officer) |
Date: | May 5, 2022 | By | /s/ Dan E. O’Keefe | |
Dan E. O’Keefe | ||||
Chief Financial Officer and Corporate Secretary | ||||
(Principal Financial and Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Date: | May | /s/ | ||
Craig M. White, Director | ||||
President and Chief Executive Officer | ||||
(Principal Executive Officer) | ||||
May | /s/ Randall W. White | |||
Randall W. White, Director | ||||
Chairman of the Board | ||||
May | /s/ John A. Clerico | |||
John A. Clerico, Director | ||||
May | /s/ Dr. Kara Gae Neal | |||
Dr. Kara Gae Neal, Director | ||||
May | /s/ Joshua J. Peters | |||
Joshua J. Peters, Director | ||||
May | /s/ Dan E. O’Keefe | |||
Dan E. O’Keefe | ||||
Chief Financial Officer and Corporate Secretary | ||||
(Principal Financial and Accounting Officer) |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors and Shareholders
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Educational Development Corporation (the Company) as of February 29, 201628, 2022 and February 28, 2015, and2021, the related statements of earnings, shareholders’shareholders' equity and cash flows for the years then ended. ended, and the related notes to the financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of February 28, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of February 28, 2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated May 5, 2022, expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesethe Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not requiredmisstatement, whether due to have, nor were we engaged to perform, an audit of its internal control over financial reporting.error or fraud. Our audits included considerationperforming procedures to assess the risks of internal control overmaterial misstatement of the financial reporting as a basis for designing auditstatements, whether due to error or fraud, and performing procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includesrespond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements referredthat were communicated or required to above present fairly, in allbe communicated to the audit committee and that: (1) relate to accounts or disclosures that are material respects,to the financial position of Educational Development Corporation as of February 29, 2016statements and February 28, 2015, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.(2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ HOGANTAYLOR LLP
We have served as the Company's auditor since 2005.
Tulsa, Oklahoma
| EDUCATIONAL DEVELOPMENT CORPORATION | ||||||||
| AS OF FEBRUARY 29(28), | ||||||||
| ASSETS | 2016 | 2015 | ||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | 1,183,700 | $ | 383,900 | ||||
Accounts receivable, less allowance for doubtful accounts and sales returns $501,900 (2016) and $334,500 (2015) | 2,513,300 | 3,076,700 | ||||||
| Inventories—Net | 17,479,500 | 11,181,000 | ||||||
| Prepaid expenses and other assets | 1,028,100 | 374,200 | ||||||
| Deferred income taxes | 298,200 | 249,800 | ||||||
| Total current assets | 22,502,800 | 15,265,600 | ||||||
| INVENTORIES—Net | 169,000 | 350,800 | ||||||
| PROPERTY, PLANT AND EQUIPMENT—Net | 26,710,300 | 2,073,200 | ||||||
| OTHER ASSETS | 262,000 | 243,400 | ||||||
| DEFERRED INCOME TAXES | 50,900 | 80,200 | ||||||
| TOTAL ASSETS | $ | 49,695,000 | $ | 18,013,200 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | 7,801,300 | $ | 2,237,700 | ||||
| Line of credit | 3,331,800 | 1,400,000 | ||||||
| Deferred revenues | 2,925,200 | - | ||||||
| Current maturities of long-term debt | 615,400 | - | ||||||
| Accrued salaries and commissions | 1,202,500 | 618,100 | ||||||
| Income taxes payable | 803,100 | 63,600 | ||||||
| Dividends payable | 366,300 | 322,000 | ||||||
| Other current liabilities | 1,732,500 | 1,043,500 | ||||||
| Total current liabilities | 18,778,100 | 5,684,900 | ||||||
| LONG-TERM DEBT—Net of current maturities | 17,687,400 | - | ||||||
| Total liabilities | 36,465,500 | 5,684,900 | ||||||
| COMMITMENTS (Note 7) | ||||||||
| SHAREHOLDERS’ EQUITY: | ||||||||
Common stock, $0.20 par value; Authorized 8,000,000 shares; Issued 6,041,040 shares; Outstanding 4,064,610 (2016) and 4,024,539 (2015) shares | 1,208,200 | 1,208,200 | ||||||
| Capital in excess of par value | 8,548,000 | 8,548,000 | ||||||
| Retained earnings | 14,557,500 | 13,857,200 | ||||||
| 24,313,700 | 23,613,400 | |||||||
| Less treasury stock, at cost | (11,084,200 | ) | (11,285,100 | ) | ||||
| Total shareholders’ equity | 13,229,500 | 12,328,300 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 49,695,000 | $ | 18,013,200 | ||||
EDUCATIONAL DEVELOPMENT CORPORATION
BALANCE SHEETS
AS OF FEBRUARY 28,
2022 | 2021 | |||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | 361,200 | $ | 1,812,200 | ||||
Accounts receivable, less allowance for doubtful accounts of $336,700 (2022) and $331,900 (2021) | 3,638,800 | 3,346,700 | ||||||
Inventories - net | 71,553,600 | 51,762,400 | ||||||
Prepaid expenses and other assets | 960,500 | 1,219,300 | ||||||
Total current assets | 76,514,100 | 58,140,600 | ||||||
INVENTORIES - net | 2,055,300 | 685,300 | ||||||
PROPERTY, PLANT AND EQUIPMENT - net | 30,484,000 | 29,951,000 | ||||||
DEFERRED INCOME TAX ASSET | 118,700 | - | ||||||
OTHER ASSETS | 761,600 | 73,600 | ||||||
TOTAL ASSETS | $ | 109,933,700 | $ | 88,850,500 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable | $ | 12,411,800 | $ | 19,674,300 | ||||
Line of credit | 17,723,500 | 5,245,300 | ||||||
Deferred revenues | 681,600 | 2,475,900 | ||||||
Current maturities of long-term debt | 2,542,200 | 533,500 | ||||||
Accrued salaries and commissions | 1,890,200 | 3,488,000 | ||||||
Dividends payable | 870,700 | 835,100 | ||||||
Income taxes payable | 241,900 | 130,200 | ||||||
Other current liabilities | 3,897,900 | 5,533,000 | ||||||
Total current liabilities | 40,259,800 | 37,915,300 | ||||||
LONG-TERM DEBT - net of current maturities and debt issuance costs | 22,409,500 | 10,451,200 | ||||||
DEFERRED INCOME TAX LIABILITY | - | 89,900 | ||||||
OTHER LONG-TERM LIABILITIES | 498,900 | 134,300 | ||||||
Total liabilities | 63,168,200 | 48,590,700 | ||||||
COMMITMENTS AND CONTINGENCIES – See Note 9 | ||||||||
SHAREHOLDERS' EQUITY: | ||||||||
Common stock, $0.20 par value; Authorized 16,000,000 shares; Issued 12,702,080 shares; Outstanding 8,707,247 (2022) and 8,346,600 (2021) shares | 2,540,400 | 2,482,000 | ||||||
Capital in excess of par value | 12,246,600 | 10,863,900 | ||||||
Retained earnings | 44,525,100 | 39,683,000 | ||||||
| 59,312,100 | 53,028,900 | |||||||
Less treasury stock, at cost | (12,546,600 | ) | (12,769,100 | ) | ||||
Total shareholders' equity | 46,765,500 | 40,259,800 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 109,933,700 | $ | 88,850,500 | ||||
See notes to financial statements.
| EDUCATIONAL DEVELOPMENT CORPORATION | ||||||||
| FOR THE YEARS ENDED FEBRUARY 29(28), | ||||||||
| 2016 | 2015 | |||||||
| GROSS SALES | $ | 80,319,400 | $ | 48,345,400 | ||||
| Less discounts and allowances | (22,061,500 | ) | (17,273,100 | ) | ||||
| Transportation revenue | 5,360,400 | 1,476,000 | ||||||
| NET REVENUES | 63,618,300 | 32,548,300 | ||||||
| COST OF SALES | 20,494,200 | 12,763,900 | ||||||
| Gross margin | 43,124,100 | 19,784,400 | ||||||
| OPERATING EXPENSES: | ||||||||
| Operating and selling | 19,419,400 | 9,515,400 | ||||||
| Sales commissions | 18,062,800 | 6,842,700 | ||||||
| General and administrative | 2,328,500 | 2,039,900 | ||||||
| Total operating expenses | 39,810,700 | 18,398,000 | ||||||
| INTEREST EXPENSE | 244,900 | 54,000 | ||||||
| OTHER INCOME | (477,400 | ) | (70,100 | ) | ||||
| EARNINGS BEFORE INCOME TAXES | 3,545,900 | 1,402,500 | ||||||
| INCOME TAXES | 1,426,600 | 543,300 | ||||||
| NET EARNINGS | $ | 2,119,300 | $ | 859,200 | ||||
| BASIC AND DILUTED EARNINGS | ||||||||
| PER SHARE: | ||||||||
| Basic | $ | 0.52 | $ | 0.21 | ||||
| Diluted | $ | 0.52 | $ | 0.21 | ||||
| WEIGHTED AVERAGE NUMBER OF COMMON AND EQUIVALENT SHARES OUTSTANDING: | ||||||||
| Basic | 4,049,154 | 4,003,702 | ||||||
| Diluted | 4,051,678 | 4,003,702 | ||||||
| Dividends per share | $ | 0.35 | $ | 0.32 | ||||
EDUCATIONAL DEVELOPMENT CORPORATION
STATEMENTS OF EARNINGS
FOR THE YEARS ENDED FEBRUARY 28,
2022 | 2021 | |||||||
GROSS SALES | $ | 187,466,800 | $ | 255,589,600 | ||||
Less discounts and allowances | (59,109,300 | ) | (74,814,700 | ) | ||||
Transportation revenue | 13,871,300 | 23,860,200 | ||||||
NET REVENUES | 142,228,800 | 204,635,100 | ||||||
COST OF GOODS SOLD | 44,297,500 | 60,037,000 | ||||||
Gross margin | 97,931,300 | 144,598,100 | ||||||
OPERATING EXPENSES: | ||||||||
Operating and selling | 23,010,400 | 36,123,700 | ||||||
Sales commissions | 44,377,500 | 69,977,200 | ||||||
General and administrative | 20,302,200 | 22,541,500 | ||||||
Total operating expenses | 87,690,100 | 128,642,400 | ||||||
INTEREST EXPENSE | 916,400 | 561,000 | ||||||
OTHER INCOME | (1,911,100 | ) | (1,836,100 | ) | ||||
EARNINGS BEFORE INCOME TAXES | 11,235,900 | 17,230,800 | ||||||
INCOME TAXES | 2,929,100 | 4,606,800 | ||||||
NET EARNINGS | $ | 8,306,800 | $ | 12,624,000 | ||||
BASIC AND DILUTED EARNINGS PER SHARE: | ||||||||
Basic | $ | 1.03 | $ | 1.51 | ||||
Diluted | $ | 0.98 | $ | 1.50 | ||||
WEIGHTED AVERAGE NUMBER OF COMMON AND EQUIVALENT SHARES OUTSTANDING: | ||||||||
Basic | 8,039,843 | 8,352,474 | ||||||
Diluted | 8,452,340 | 8,426,724 | ||||||
Dividends per share | $ | 0.40 | $ | 0.32 | ||||
See notes to financial statements.
| EDUCATIONAL DEVELOPMENT CORPORATION | ||||||||||||||||||||||||||||
| FOR THE YEARS ENDED FEBRUARY 29(28), | ||||||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||
| (par value $0.20 per share) | ||||||||||||||||||||||||||||
| Number of | Capital in | Treasury Stock | ||||||||||||||||||||||||||
| Shares | Excess of | Retained | Number of | Shareholders’ | ||||||||||||||||||||||||
| Issued | Amount | Par Value | Earnings | Shares | Amount | Equity | ||||||||||||||||||||||
| BALANCE—March 1, 2014 | 6,041,040 | $ | 1,208,200 | $ | 8,548,000 | $ | 14,280,500 | 2,063,097 | $ | (11,454,300 | ) | $ | 12,582,400 | |||||||||||||||
| Purchases of treasury stock | - | - | - | - | 1,339 | (5,200 | ) | (5,200 | ) | |||||||||||||||||||
| Sales of treasury stock | - | - | - | - | (47,935 | ) | 174,400 | 174,400 | ||||||||||||||||||||
| Dividends declared ($0.08/share) | - | - | - | (322,000 | ) | - | - | (322,000 | ) | |||||||||||||||||||
| Dividends paid ($0.24/share) | - | - | - | (960,500 | ) | - | - | (960,500 | ) | |||||||||||||||||||
| Net earnings | - | - | - | 859,200 | - | - | 859,200 | |||||||||||||||||||||
| BALANCE—February 28, 2015 | 6,041,040 | $ | 1,208,200 | $ | 8,548,000 | $ | 13,857,200 | 2,016,501 | $ | (11,285,100 | ) | $ | 12,328,300 | |||||||||||||||
| Purchases of treasury stock | - | - | - | - | 163 | (1,600 | ) | (1,600 | ) | |||||||||||||||||||
| Sales of treasury stock | - | - | - | - | (40,234 | ) | 202,500 | 202,500 | ||||||||||||||||||||
| Dividends declared ($0.09/share) | - | - | - | (366,300 | ) | - | - | (366,300 | ) | |||||||||||||||||||
| Dividends paid ($0.26/share) | - | - | - | (1,052,700 | ) | - | - | (1,052,700 | ) | |||||||||||||||||||
| Net earnings | - | - | - | 2,119,300 | - | - | 2,119,300 | |||||||||||||||||||||
| BALANCE—February 29, 2016 | 6,041,040 | $ | 1,208,200 | $ | 8,548,000 | $ | 14,557,500 | 1,976,430 | $ | (11,084,200 | ) | $ | 13,229,500 | |||||||||||||||
EDUCATIONAL DEVELOPMENT CORPORATION
STATEMENTS OF SHAREHOLDERS’ EQUITY
AS OF FEBRUARY 28 (29),
Common Stock (par value $0.20 per share) | Treasury Stock | |||||||||||||||||||||||||||
Number of Shares Issued | Amount | Capital in Excess of Par Value | Retained Earnings | Number of Shares | Amount | Shareholders' Equity | ||||||||||||||||||||||
BALANCE - February 29, 2020 | 12,410,080 | $ | 2,482,000 | $ | 9,843,900 | $ | 29,732,200 | 4,061,429 | $ | (12,665,300 | ) | $ | 29,392,800 | |||||||||||||||
Purchases of treasury stock | - | - | - | - | 22,565 | (163,800 | ) | (163,800 | ) | |||||||||||||||||||
Sales of treasury stock | - | - | 57,800 | - | (26,828 | ) | 83,600 | 141,400 | ||||||||||||||||||||
Dividends declared ($0.32/share) | - | - | - | (2,673,200 | ) | - | - | (2,673,200 | ) | |||||||||||||||||||
Forfeiture of restricted share awards | - | - | 23,600 | - | 6,314 | (23,600 | ) | - | ||||||||||||||||||||
Share-based compensation expense (see Note 10) | - | - | 938,600 | - | - | - | 938,600 | |||||||||||||||||||||
Net earnings | - | - | - | 12,624,000 | - | - | 12,624,000 | |||||||||||||||||||||
BALANCE - February 28, 2021 | 12,410,080 | $ | 2,482,000 | $ | 10,863,900 | $ | 39,683,000 | 4,063,480 | $ | (12,769,100 | ) | $ | 40,259,800 | |||||||||||||||
Sales of treasury stock | - | - | 418,200 | - | (63,647 | ) | 198,900 | 617,100 | ||||||||||||||||||||
Issuance of restricted share awards for vesting | 292,000 | 58,400 | (82,000 | ) | - | (5,000 | ) | 23,600 | - | |||||||||||||||||||
Dividends declared ($0.40/share) | - | - | - | (3,464,700 | ) | - | - | (3,464,700 | ) | |||||||||||||||||||
Share-based compensation expense (see Note 10) | - | - | 1,046,500 | - | - | - | 1,046,500 | |||||||||||||||||||||
Net earnings | - | - | - | 8,306,800 | - | - | 8,306,800 | |||||||||||||||||||||
BALANCE - February 28, 2022 | 12,702,080 | 2,540,400 | 12,246,600 | 44,525,100 | 3,994,833 | (12,546,600 | ) | 46,765,500 | ||||||||||||||||||||
See notes to financial statements.
| EDUCATIONAL DEVELOPMENT CORPORATION | ||||||||
| FOR THE YEARS ENDED FEBRUARY 29(28), | ||||||||
| 2016 | 2015 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net earnings | $ | 2,119,300 | $ | 859,200 | ||||
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: | ||||||||
| Depreciation | 274,500 | 129,400 | ||||||
| Deferred income taxes | (19,100 | ) | 700 | |||||
| Provision for doubtful accounts and sales returns | 1,239,600 | 1,281,000 | ||||||
| Provision for inventory valuation allowance | (68,100 | ) | - | |||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | (676,200 | ) | (1,356,900 | ) | ||||
| Inventories, net | (6,048,600 | ) | (1,192,200 | ) | ||||
| Prepaid expenses and other assets | (672,500 | ) | (88,000 | ) | ||||
Accounts payable, accrued salaries and commissions, and other current liabilities | 6,837,000 | 182,500 | ||||||
| Deferred revenue | 2,925,200 | - | ||||||
| Income tax payable | 739,500 | (77,300 | ) | |||||
| Total adjustments | 4,531,300 | (1,120,800 | ) | |||||
| Net cash provided by (used in) operating activities | 6,650,600 | (261,600 | ) | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of property, plant and equipment | (24,911,600 | ) | (325,000 | ) | ||||
| Net cash used in investing activities | (24,911,600 | ) | (325,000 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Payments—long-term debt | (97,200 | ) | - | |||||
| Proceeds from long-term debt | 18,400,000 | - | ||||||
| Cash received from sale of treasury stock | 202,500 | 174,400 | ||||||
| Cash paid to acquire treasury stock | (1,600 | ) | (5,200 | ) | ||||
| Borrowings under line of credit | 4,881,800 | 4,550,000 | ||||||
| Payments under line of credit | (2,950,000 | ) | (3,150,000 | ) | ||||
| Dividends paid | (1,374,700 | ) | (1,278,700 | ) | ||||
| Net cash provided by financing activities | 19,060,800 | 290,500 | ||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 799,800 | (296,100 | ) | |||||
| CASH AND CASH EQUIVALENTS—BEGINNING OF YEAR | 383,900 | 680,000 | ||||||
| CASH AND CASH EQUIVALENTS—END OF YEAR | $ | 1,183,700 | $ | 383,900 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for interest | $ | 179,800 | $ | 54,000 | ||||
| Cash paid for income taxes | $ | 706,400 | $ | 619,900 | ||||
EDUCATIONAL DEVELOPMENT CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 28,
2022 | 2021 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net earnings | $ | 8,306,800 | $ | 12,624,000 | ||||
Adjustments to reconcile net earnings to net cash provided by/(used in) operating activities: | ||||||||
Depreciation and amortization | 2,126,700 | 1,633,200 | ||||||
Deferred income taxes | (208,600 | ) | (903,400 | ) | ||||
Provision for doubtful accounts | 115,800 | 139,800 | ||||||
Provision for inventory valuation allowance | 235,700 | 198,600 | ||||||
Share-based compensation expense | 1,046,500 | 938,600 | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (407,900 | ) | (519,400 | ) | ||||
Inventories, net | (21,396,900 | ) | (21,542,300 | ) | ||||
Prepaid expenses and other assets | (209,200 | ) | (260,100 | ) | ||||
Accounts payable | (6,201,300 | ) | 8,952,000 | |||||
Accrued salaries and commissions, and other liabilities | (2,868,300 | ) | 4,502,000 | |||||
Deferred revenues | (1,794,300 | ) | 1,702,800 | |||||
Income taxes payable | 111,700 | 351,900 | ||||||
Total adjustments | (29,450,100 | ) | (4,806,300 | ) | ||||
Net cash provided by/(used in) operating activities | (21,143,300 | ) | �� | 7,817,700 | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchases of property, plant and equipment | (3,717,200 | ) | (4,145,300 | ) | ||||
| Purchases of other assets | (223,700 | ) | - | |||||
Net cash used in investing activities | (3,940,900 | ) | (4,145,300 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Payments on term debt | (1,277,700 | ) | (9,274,400 | ) | ||||
Proceeds from term debt | 15,244,700 | 1,447,400 | ||||||
Sales of treasury stock | 617,100 | 141,400 | ||||||
Purchases of treasury stock | - | (163,800 | ) | |||||
Net borrowings under line of credit | 12,478,200 | 5,245,300 | ||||||
Dividends paid | (3,429,100 | ) | (2,255,500 | ) | ||||
Net cash provided by/(used in) financing activities | 23,633,200 | (4,859,600 | ) | |||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | (1,451,000 | ) | (1,187,200 | ) | ||||
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR | 1,812,200 | 2,999,400 | ||||||
CASH AND CASH EQUIVALENTS - END OF YEAR | $ | 361,200 | $ | 1,812,200 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION: | ||||||||
Cash paid for interest | $ | 890,000 | $ | 582,000 | ||||
Cash paid for income taxes | $ | 2,970,000 | $ | 4,806,900 | ||||
NON-CASH TRANSACTIONS: | ||||||||
Accrued capital expenditures | $ | - | $ | 1,061,200 | ||||
See notes to financial statements.
EDUCATIONAL DEVELOPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 201628, 2022 AND FEBRUARY 28, 20152021
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
—Educational Development Corporation (“Estimates
—Our financial statements were prepared in conformity with accounting principles generally accepted in the United States of America, which requires management to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Actual results could differ from these estimates.Reclassifications—Certain reclassifications have been made to the fiscal year 2021 balance sheet, statement of cash flows and footnotes to conform to the classifications used in fiscal year 2022. These reclassifications had no effect on net earnings.
Business Concentration—A significant portion of our inventory purchases are concentrated with Usborne. Purchases from them were approximately $20.0 million$42,596,300 and $12.2 million$50,772,900 for the years ended February 29, 201628, 2022 and February 28, 2015,2021, respectively. Total inventory purchases for those same periods were approximately $29.8 million$64,670,700 and $15.3 million,$72,359,900, respectively. As of February 28, 2022 and February 28, 2021, our outstanding accounts payable due to Usborne was $8,783,900 and $14,561,000, respectively.
A significant portion of our UBAM division sales are facilitated through the use of social media collaboration platforms that allow our consultants to interact in real-time, or near real-time, with customers. Consultants use these platforms to invite potential customers to “online parties,” provide book recommendations, answer questions and provide links to other supporting online materials. When a customer is ready to purchase books from the online party, they are redirected from the social media platform to the consultant’s e-commerce site where the order can be placed.
Cash and Cash Equivalents—Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits.limits of $250,000. We have never experienced any losses related to these balances. Insurance coverage on our cash balances was limited to $250,000 and our cash balances exceed federally insured limits. The majority of payments due from banks for third party credit card transactions process within two business days. These amounts due are classified as cash and cash equivalents. Cash and cash equivalents also include demand and time deposits, money market funds and other marketable securities with maturities of three months or less when acquired.
Accounts Receivable
—Accounts receivable are uncollateralized customer obligations due under normal trade terms, generally requiring payment within thirty days from the invoice date. ExtendedManagement periodically reviews accounts receivable balances and, based on an assessment of historical bad debts, current customer receivable balances, age of customer receivable balances, customers’ financial conditions and current economic trends, estimates the portion of the balance that will not be collected. Management provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation account based on its assessment of the current status of the individual accounts. Balances which remain outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to trade accounts receivable. Recoveries of trade receivablesaccounts receivable previously written off are recorded as income when received.
Management has estimated an allowance for doubtful accounts of $336,700 and $331,900 as of February 28, 2022 and February 28, 2021, respectively.
Inventories—Inventories are stated at the lower of cost or market. net realizable value. Cost is determined using the first-in-first-outaverage costing method. We present a portion of our inventory as a noncurrent asset. Occasionally we purchase book inventory in quantities in excess of what will be sold within the normal operating cycle due to the minimum order requirements of our primary supplier. These excess quantities are included in noncurrent inventory. We estimate noncurrent inventory using the current year turnover ratio by title. Alltitle and anticipated sales of specific titles. For inventory that has at least twelve months of sales history, inventory in excess of 2½ years of anticipated sales is classified as noncurrent inventory.
The Company assumes title and responsibility for inventory purchased according to the contract language with our suppliers and the individual shipment terms for the order. The majority of Usborne and Kane Miller orders pass title at FOB-Port of Shipment. The Company maintains insurance for the value of the inventory once the title has been passed until it is received at our warehouse (“inventory in transit”).
Consultants that meet certain eligibility requirements may request and receive inventory on consignment. Consignment inventory is stated at the lower of cost or net realizable value, 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, excluding the estimated reserve, with consultants was $1,399,200 and $1,114,100 at February 28, 2022 and February 28, 2021, respectively. The Company has reserved for consignment inventory not expected to be sold or returned of $505,100 and $478,600 as of February 28, 2022 and February 28, 2021, respectively.
Inventories are presented net of a valuation allowance. allowance, which includes reserves for inventory obsolescence and consultant consignment inventory that is not expected to be sold or returned. Management has estimated and included anestimates the allowance for slow moving inventory for both current and noncurrent inventory. ThisThe allowance is based on management’s analysisidentification of slow-moving inventory on hand at February 29, 2016 and February 28, 2015.
Property, Plant and Equipment
—Property, plant and equipment are stated at cost and depreciated on a straight-line basis overBuilding | 30 years |
Building improvements | 5 – 15 years |
Machinery and equipment | 3 – 15 years |
Capitalized software | 4 years |
Furniture and fixtures | 3 years |
Capitalized projects that are not placed in service are recorded as in progress and are not depreciated until the related assets are placed in service.
Impairment of Long-Lived Assets—We review the value of long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable based on estimated future cash flows. Such indicators include, among others, the nature of the asset, the projected future economic benefit of the asset, historical and future cash flows and profitability measurements. If the carrying value of an asset exceeds the future undiscounted cash flows expected from the asset, we recognize an impairment charge for the excess of the carrying value of the asset over its estimated fair value. Determination as to whether and how much an asset is impaired involves management estimates and can be impacted by other uncertainties. No impairment was noted during fiscal years 2022 or 2021.
Income Taxes—We account for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and the tax basis of assets and liabilities using the current tax laws and rates. A valuation allowance is established when necessary to reduce net deferred tax assets to the amounts that are “more likely than not” to be realized.
Revenue Recognition
—The UBAM division’smajority of UBAM’s sales contracts have a single performance obligation and are short-term in nature. UBAM’s sales are paidgenerally collected at the time the product is ordered. These sales accounted for 83% of net revenues in fiscal year 2016 and 65% in fiscal year 2015. Sales which have been paid for but not shipped are classified as deferred revenue on the balance sheet.
Certain UBAM sales contracts associated with the hostess award programs include sales incentives, such as discounted products. These incentives provide a separate performance obligation in the contract and material right to the customer. The transaction price is allocated to the material right based on its relative standalone selling price and is recognized in revenue as the performance obligations are satisfied, which occurs at shipping point or at the expiration of the material right. As the products included as sales incentives are shipped with the associated products ordered, there is no deferral required. Revenues allocated to the material right are recognized in gross sales, discounts and allowances and cost of goods sold in our statements of earnings.
The majority of Publishing’s sales contracts have a single performance obligation and are short-term in nature. Publishing’s sales may be collected at the time the product is shipped or the customers may be given payment terms based primarily on their credit worthiness and payment history.
Estimated allowances for estimated sales returns, which reduce net revenues and cost of goods sold, are recorded as sales are recognized and recorded.recognized. Management uses a moving average calculation to estimate the allowance for sales returns. We are not responsible for product damaged in transit. Damaged returns are primarily from the retail stores related to damages which occurstores. These returns result from damage that occurs in the stores, not in shipping to the stores. It is industry practice to accept non-damaged returns from wholesaleretail customers. Management has estimated and included a reserve for sales returns of $100,000approximately $201,500 as of both February 29, 201628, 2022 and February 28, 2015.2021, which is included in other current liabilities on the Company’s balance sheets. In addition, Management has recorded an asset for the expected value of non-damaged inventories to be returned. The estimated value of returned products of $100,800 is included in other current assets on the Company’s balance sheets as of both February 28, 2022 and February 28, 2021.
The Company generally expenses sales commissions in the same period that the revenue is recognized. These costs are recorded within operating expenses. The Company does not disclose the value of unsatisfied performance obligations for contracts with an unexpected length of one year or less.
Advertising Costs
—Advertising costs are expensed as incurred. Advertising expenses, included inShipping and Handling Costs
—We classify shipping and handling costs as operating and selling expenses in the statements of earnings. Shipping and handling costs include postage, freight, handling costs, as well as shipping materials and supplies. These costs wereEarnings per Share
—Basic earnings per share (“EPS”) is computed by dividing net earnings 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 ofThe computation of weighted average common and common equivalent shares used in the calculation of basic and diluted earnings per share (“EPS”)EPS is shown below.below:
Year Ended February 28, | ||||||||
2022 | 2021 | |||||||
Earnings per share: | ||||||||
Net earnings applicable to common shareholders | $ | 8,306,800 | $ | 12,624,000 | ||||
Shares: | ||||||||
Weighted average shares outstanding-basic | 8,039,843 | 8,352,474 | ||||||
Issuance of nonvested restricted shares | 412,497 | 74,250 | ||||||
Weighted average shares outstanding-diluted | 8,452,340 | 8,426,724 | ||||||
Diluted earnings per share: | ||||||||
Basic | $ | 1.03 | $ | 1.51 | ||||
Diluted | $ | 0.98 | $ | 1.50 | ||||
| Year Ended February 29(28), | ||||||||
| 2016 | 2015 | |||||||
| Earnings Per Share: | ||||||||
| Net earnings applicable to common shareholders | $ | 2,119,300 | $ | 859,200 | ||||
| Shares: | ||||||||
| Weighted average shares outstanding–basic | 4,049,154 | 4,003,702 | ||||||
| Assumed exercise of options | 2,524 | - | ||||||
| Weighted average shares outstanding–diluted | 4,051,678 | 4,003,702 | ||||||
| Diluted Earnings Per Share | ||||||||
| Basic | $ | 0.52 | $ | 0.21 | ||||
| Diluted | $ | 0.52 | $ | 0.21 | ||||
| Stock options not considered above because they were antidilutive | - | 10,000 | ||||||
Share-Based Compensation—We review the value of long‑lived assetsaccount for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable based on estimated future cash flows. No impairment was noted as a result of such review during the years ended February 29, 2016 and February 28, 2015.
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 that the following recently issued accountingIn May 2014,December 2019, the FASB issuedpublished ASU No. 2014-09,2019-12: Income Taxes (Topic 740), which simplifies the accounting for income taxes. Topic 740 addresses a number of topics including but not limited to the removal of certain exceptions currently included in the standard related to intra-period allocation when there are losses, in addition to calculation of income taxes when current year-to-date losses exceed anticipated loss for the year. The amendment also simplifies accounting for certain franchise taxes and amended with ASU No. 2015-14 “Revenue from Contracts with Customers,” which provides a single revenue recognition model which is intended to improve comparability over a rangedisclosure of industries, companies and geographical boundaries and will also resultthe effect of enacted change in enhanced disclosures. The changes are effective for fiscal years, and interim periods within those years,tax laws or rates. Topic 740 was adopted by the Company at the beginning after December 15, 2017, which means the first quarter of our fiscal year 2019. We are currently reviewing the ASU2022 and assessing the potentialdid not have a material impact on our financial statements.statements and disclosures.
In August 2015,March 2020, the FASB issued ASU No. 2015-15 “Interest—Imputation2020-04: Reference Rate Reform (Topic 848) Facilitation of Interest,” which modifies the presentation and subsequent measurementEffects of debt issuance costsReference Rate Reform on Financial Reporting. This update provides optional guidance for a limited period of time to ease potential accounting impacts associated with line-of-credit arrangements. These changes allowtransitioning away from reference rates that are expected to be discontinued, such as London Interbank Offered Rate (LIBOR). This ASU includes practical expedients for contract modifications due to reference rate reform. Generally, contract modifications related to reference rate reform may be considered an entityevent that does not require remeasurement or reassessment of a previous accounting determination at the modification date. This ASU is effective March 12, 2020 through December 31, 2022. The Company’s debt agreements include the use of alternate rates when LIBOR is not available. We do not expect the change from LIBOR to deferan alternate rate will have a material impact to our financial statements and, present debt issuance costs as an asset and subsequently amortizeto the deferred debt issuance costs ratably overextent we enter into modifications of agreements that are impacted by the termLIBOR phase-out, we apply such guidance to those contract modifications.
2. INVENTORIES
Inventories consist of the line-of-credit arrangement, regardlessfollowing:
February 28, | ||||||||
2022 | 2021 | |||||||
Current: | ||||||||
Book inventory | $ | 72,064,400 | $ | 52,276,200 | ||||
Inventory valuation allowance | (510,800 | ) | (513,800 | ) | ||||
Inventories net - current | $ | 71,553,600 | $ | 51,762,400 | ||||
Noncurrent: | ||||||||
Book inventory | $ | 2,437,600 | $ | 894,300 | ||||
Inventory valuation allowance | (382,300 | ) | (209,000 | ) | ||||
Inventories net - noncurrent | $ | 2,055,300 | $ | 685,300 | ||||
Inventory in transit totaled $2,732,400 and $6,467,400 at February 28, 2022 and February 28, 2021, respectively.
Book inventory quantities in excess of whether therewhat we expect will be sold within the normal operating cycle, based on 2 ½ years of anticipated sales, are any outstanding borrowings on the line-of-credit arrangement. The changes are effective for financial statements issued for annual periods beginning after December 15, 2015, and interim periods within those annual periods, which means the first quarter of our fiscal year 2017. We are currently reviewing the ASU and assessing the potential impact on our financial statements.
3. PROPERTY, PLANT AND EQUIPMENT
| February 29(28), | ||||||||
| 2016 | 2015 | |||||||
| Current: | ||||||||
| Book inventory | $ | 17,504,500 | $ | 11,206,000 | ||||
| Inventory valuation allowance | (25,000 | ) | (25,000 | ) | ||||
| Inventories net–current | $ | 17,479,500 | $ | 11,181,000 | ||||
| Noncurrent: | ||||||||
| Book inventory | $ | 469,000 | $ | 718,900 | ||||
| Inventory valuation allowance | (300,000 | ) | (368,100 | ) | ||||
| Inventories net–noncurrent | $ | 169,000 | $ | 350,800 |
Property, plant and equipment consist of the following:
February 28, | ||||||||
2022 | 2021 | |||||||
Land | $ | 4,107,200 | $ | 4,107,200 | ||||
Building | 20,424,900 | 20,373,900 | ||||||
Building improvements | 2,274,100 | 1,949,200 | ||||||
Machinery and equipment | 14,223,500 | 8,289,400 | ||||||
Furniture and fixtures | 110,800 | 110,800 | ||||||
Capitalized software | 1,151,900 | 866,500 | ||||||
Property, plant and equipment - in progress | 496,900 | 4,436,300 | ||||||
Total property, plant and equipment | 42,789,300 | 40,133,300 | ||||||
Less accumulated depreciation | (12,305,300 | ) | (10,182,300 | ) | ||||
Property, plant and equipment-net | $ | 30,484,000 | $ | 29,951,000 | ||||
| February 29(28), | ||||||||
| 2016 | 2015 | |||||||
| Land | $ | 4,107,200 | $ | 250,000 | ||||
| Building | 20,321,800 | 2,124,700 | ||||||
| Building improvements | 2,735,800 | 781,600 | ||||||
| Machinery and equipment | 2,190,300 | 1,706,400 | ||||||
| Furniture and fixtures | 85,700 | 75,700 | ||||||
| System installations in progress | 610,000 | 200,800 | ||||||
| 30,050,800 | 5,139,200 | |||||||
| Less accumulated depreciation | (3,340,500 | ) | (3,066,000 | ) | ||||
| $ | 26,710,300 | $ | 2,073,200 | |||||
During fiscal year 2021, the purchaseCompany placed into service UBAM platform upgrades that the consultants use to monitor their business and continued its development of a new facility
4.
OTHER CURRENT LIABILITIESOther current liabilities consist of the following:
February 28, | ||||||||
2022 | 2021 | |||||||
Accrued royalties | $ | 873,800 | $ | 1,423,400 | ||||
Accrued UBAM incentives | 1,610,800 | 1,695,000 | ||||||
Accrued freight | 191,400 | 265,700 | ||||||
Sales tax payable | 499,900 | 986,400 | ||||||
Allowance for expected inventory returns | 201,500 | 201,500 | ||||||
Other | 520,500 | 961,000 | ||||||
Total other current liabilities | $ | 3,897,900 | $ | 5,533,000 | ||||
| February 29(28), | ||||||||
| 2016 | 2015 | |||||||
| Accrued royalties | $ | 578,200 | $ | 368,200 | ||||
| Accrued UBAM trip incentives | 705,200 | 323,700 | ||||||
| Interest payable | 65,000 | - | ||||||
| Sales tax payable | 145,700 | 181,000 | ||||||
| Other | 238,400 | 170,600 | ||||||
| $ | 1,732,500 | $ | 1,043,500 | |||||
5.
INCOME TAXESDeferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of significant items comprising our net deferred tax assets and liabilities as of February 29(28) are as follows:
February 28, | ||||||||
2022 | 2021 | |||||||
Deferred tax assets: | ||||||||
Allowance for doubtful accounts | $ | 90,900 | $ | 89,600 | ||||
Inventory overhead capitalization | 203,500 | 127,700 | ||||||
Inventory valuation allowance | 137,900 | 138,700 | ||||||
Inventory valuation allowance – noncurrent | 103,200 | 56,400 | ||||||
Allowance for sales returns | 27,200 | 27,200 | ||||||
Accruals | 953,600 | 754,200 | ||||||
Total deferred tax assets | 1,516,300 | 1,193,800 | ||||||
Deferred tax liabilities: | ||||||||
Property, plant and equipment | (1,397,600 | ) | (1,283,700 | ) | ||||
Total deferred tax liabilities | (1,397,600 | ) | (1,283,700 | ) | ||||
Net deferred income tax assets (liabilities) | $ | 118,700 | $ | (89,900 | ) | |||
| 2016 | 2015 | |||||||
| Current: | ||||||||
| Deferred tax assets: | ||||||||
| Allowance for doubtful accounts | $ | 40,000 | $ | 41,100 | ||||
| Inventory overhead capitalization | 131,000 | 86,900 | ||||||
| Inventory valuation allowance | 9,500 | 9,500 | ||||||
| Allowance for sales returns | 38,000 | 38,000 | ||||||
| Accruals | 79,700 | 74,300 | ||||||
| Deferred tax assets-current | 298,200 | 249,800 | ||||||
| Noncurrent: | ||||||||
| Deferred tax assets: | ||||||||
| Inventory valuation allowance | $ | 114,000 | $ | 143,300 | ||||
| Capital loss carryforward | 163,600 | 163,600 | ||||||
| Subtotal deferred tax assets | 277,600 | 306,900 | ||||||
| Less valuation allowance | (163,600 | ) | (163,600 | ) | ||||
| Total net deferred tax assets | 114,000 | 143,300 | ||||||
| Deferred tax liabilities: | ||||||||
| Property, plant and equipment | (63,100 | ) | (63,100 | ) | ||||
| Deferred tax liabilities | (63,100 | ) | (63,100 | ) | ||||
| Net deferred tax asset-noncurrent | $ | 50,900 | $ | 80,200 | ||||
The components of income tax expense are as follows:
February 28, | ||||||||
2022 | 2021 | |||||||
Current: | ||||||||
Federal | $ | 2,663,900 | $ | 3,236,400 | ||||
State | 623,700 | 901,600 | ||||||
| 3,287,600 | 4,138,000 | |||||||
Deferred: | ||||||||
Federal | (304,400 | ) | 382,100 | |||||
State | (54,100 | ) | 86,700 | |||||
| (358,500 | ) | 468,800 | ||||||
Total income tax expense | $ | 2,929,100 | $ | 4,606,800 | ||||
| February 29(28), | ||||||||
| 2016 | 2015 | |||||||
| Current: | ||||||||
| Federal | $ | 1,210,900 | $ | 439,200 | ||||
| State | 234,800 | 103,400 | ||||||
| 1,445,700 | 542,600 | |||||||
| Deferred: | ||||||||
| Federal | (16,100 | ) | 600 | |||||
| State | (3,000 | ) | 100 | |||||
| (19,100 | ) | 700 | ||||||
| Total income tax expense | $ | 1,426,600 | $ | 543,300 | ||||
The following reconciles our expected income tax expense utilizing statutory tax ratesrate to the actualU.S. federal statutory income tax expense:rate:
February 28, | ||||||||
2022 | 2021 | |||||||
U.S. federal statutory income tax rate | 21.0 | % | 21.0 | % | ||||
U.S. state and local income taxes–net of federal benefit | 5.5 | % | 5.5 | % | ||||
Other | (0.4 | )% | 0.2 | % | ||||
Total income tax expense | 26.1 | % | 26.7 | % | ||||
| February 29(28), | ||||||||
| 2016 | 2015 | |||||||
| Tax expense at federal statutory rate | $ | 1,205,600 | $ | 476,800 | ||||
| Federal income tax audit expense for 2012 | 67,900 | - | ||||||
| State income tax–net of federal tax benefit | 158,200 | 73,300 | ||||||
| Other | (5,100 | ) | (6,800 | ) | ||||
| Total income tax expense | $ | 1,426,600 | $ | 543,300 | ||||
We file our tax returns in the U.S. and certain state jurisdictions.jurisdictions in which we have nexus. We are no longer subject to income tax examinations by tax authorities for fiscal years before 2013.2017.
Based upon a review of our income tax filing positions, we believe that our positions would be sustained upon an audit and do not anticipate any adjustments that would result in a material change to our financial position. Therefore, no reserves for uncertain income tax positions have been recorded. We classify interest and penalties associated with income taxes as a component of income tax expense on the statementstatements of earnings.
6. EMPLOYEE BENEFIT PLAN
The Company has created the Educational Development Corporation Employee 401(k) Plan (“EDC 401(k) Plan”) as a benefit plan for employees offering retirement investment options as well as profit sharing with its employees, in the form of matching contributions. The EDC 401(k) Plan includes, as an investment option, the ability to purchase shares of the Company’s stock which the Plan Administrator acquires directly from the NASDAQ. This plan that incorporates the provisions of Section 401(k) of the Internal Revenue Code.Code that allow favorable tax treatments on investments. The EDC 401(k) plan covers substantiallyPlan is available to all employees meetingthat meet specific age and length of service requirements. MatchingThe Company’s matching contributions are discretionary and amountedapproved annually at a meeting of the EDC 401(k) Plan’s Trustees and Company’s management. Matching contributions made to $51,400the Plan by the Company totaled $161,300 and $44,900 in$126,800 during the fiscal years ended February 29, 201628, 2022 and February 28, 2015,2021, respectively.
7. LEASES
We have both lessee and lessor arrangements. Our leases are evaluated at inception or at any subsequent modification. Depending on the terms, leases are classified as either operating or finance leases if we are the lessee, or as operating, sales-type or direct financing leases if we are the lessor, as appropriate under Accounting Standards Codification (“ASC”) 842 - Leases. Our lessee arrangement includes 2 rental agreements where we have the exclusive use of dedicated office space in San Diego, California, as well as warehouse and office space in Layton, Utah, and both qualify as an operating lease. Our lessor arrangements include 3 rental agreements for warehouse and office space in Tulsa, Oklahoma, and each qualify as an operating lease under ASC 842.
In accordance with ASC 842, we have made an accounting policy election to not apply the standard to lessee arrangements with a term of one year or less and no purchase option that is reasonably certain of exercise. We will continue to account for these short-term arrangements by recognizing payments and expenses as incurred, without recording a lease liability and right-of-use asset.
We have also made an accounting policy election for both our lessee and lessor arrangements to combine lease and non-lease components. This election is applied to all of our lease arrangements as our non-lease components are not material and do not result in significant timing differences in the recognition of rental expenses or income.
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. We also recognize a right-of-use asset, reported in other assets on the balance sheets, for each lease, valued at the lease liability, adjusted for prepaid or accrued rent balances existing at the time of initial recognition. The 401(k) plan includes an option for employees to investlease liability and right-of-use asset are reduced over the term of the lease as payments are made and the assets are used.
February 28, | ||||||||
2022 | 2021 | |||||||
Operating lease assets: | ||||||||
Right-of-use assets | $ | 495,800 | $ | 34,100 | ||||
Operating lease liabilities: | ||||||||
Current lease liabilities | $ | 111,000 | $ | 13,700 | ||||
Long-term lease liabilities | $ | 384,800 | $ | 20,400 | ||||
Remaining lease term (months) | 57.0 | 31.0 | ||||||
Discount Rate | 3.06 | % | 4.60 | % | ||||
Minimum fixed rental payments are recognized on a straight-line basis over the life of the lease as costs and expenses in our stock, which is purchased from our treasury stock shares. Shares purchased for the 401(k) plan from Treasury stock amounted to 40,121 net sharesstatements of earnings. Variable and 47,935 net shares in the fiscal years ended February 29, 2016short-term rental payments are recognized as costs and expenses as they are incurred.
February 28, | ||||||||
2022 | 2021 | |||||||
Fixed lease costs | $ | 35,300 | $ | 13,200 | ||||
Future minimum rental payments under operating leases with initial terms greater than one year as of February 28, 2015, respectively.2022, are as follows:
Years ending February 28 (29), | ||||
2023 | $ | 110,400 | ||
2024 | 111,600 | |||
2025 | 112,900 | |||
2026 | 114,300 | |||
2027 | 86,600 | |||
Total future minimum rental payments | 535,800 | |||
Present value discount | (40,000 | ) | ||
Total operating lease liability | $ | 495,800 |
The following table provides further information about our operating leases reported in our financial statements:
February 28, | ||||||||
2022 | 2021 | |||||||
Operating cash flows – operating leases | $ | 35,300 | $ | 13,200 | ||||
Operating Leases – Lessor
In connection with the 2015 purchase of theour 400,000 square-foot facility disclosed in Note 3,on 40-acres, we entered into a 15-year lease with the seller, a non-related third party, who will leaseleases 181,300 square feet, or 45.3% of the facility. The lease is being accounted for as an operating lease.
On April 4, 2020, we executed an amendment to one of earnings.
Future minimum payments receivable under operating leases with terms greater than one year are estimated as follows:
Years ending February 28 (29), | ||||
2023 | $ | 1,573,200 | ||
2024 | 1,577,900 | |||
2025 | 1,547,100 | |||
2026 | 1,524,300 | |||
2027 | 1,554,800 | |||
Thereafter | 6,536,200 | |||
Total | $ | 14,313,500 |
The cost of the non-cancellable portion of this leaseleased space was approximately $10,834,300 and $10,826,400 as of February 29, 2016:
| Year ending February 28(29), | ||||
| 2017 | $ | 1,275,400 | ||
| 2018 | 1,301,000 | |||
| 2019 | 1,327,000 | |||
| 2020 | 1,353,500 | |||
| 2021 | 1,380,600 | |||
| Thereafter | 14,992,400 | |||
| Total | $ | 21,629,900 | ||
8. DEBT
Debt consists of the following:
February 28, | ||||||||
2022 | 2021 | |||||||
Line of credit | $ | 17,723,500 | $ | 5,245,300 | ||||
Advancing term loan #1 | $ | 4,782,600 | $ | - | ||||
Advancing term loan #2 | 9,868,400 | - | ||||||
Term loan #1 | 10,349,100 | 10,984,700 | ||||||
Total long-term debt | 25,000,100 | 10,984,700 | ||||||
Less current maturities | (2,542,200 | ) | (533,500 | ) | ||||
Less debt issue cost | (48,400 | ) | - | |||||
Long-term debt, net | $ | 22,409,500 | $ | 10,451,200 | ||||
| February 29(28), | ||||||||
| 2016 | 2015 | |||||||
| Line of credit | $ | 3,331,800 | $ | 1,400,000 | ||||
| Long-term debt | $ | 18,302,800 | $ | - | ||||
| Less current maturities | (615,400 | ) | - | |||||
| Total | $ | 17,687,400 | $ | - | ||||
The Company executed an Amended and effective December 1, 2015, we signed aRestated Loan Agreement on February 15, 2021 (as amended the “Loan Agreement”) with MidFirst Bank (the Bank) including a(“the Bank”), which replaced the prior loan agreement and includes multiple loans. Term Loan comprised of#1 Tranche A of(“Term Loan #1”), originally totaling $13.4 million, was part of the prior loan agreement. Term Loan #1 had a fixed interest rate of 4.23% with principal and Tranche B of $5.0 million both with theinterest payable monthly and a stated maturity date of December 1, 2025. On April 1, 2021, the Company executed the First Amendment to the Loan Agreement which reduced the fixed interest rate on Term Loan #1 to 3.12% and removed the prepayment premium from the Loan Agreement. Term Loan #1 is secured by the primary office, warehouse and land.
The Loan Agreement also provides a $4.0$20.0 million revolving loan (“line of credit”) through December 1, 2016.August 15, 2022 with interest payable monthly at the Bank-adjusted LIBOR Index plus a tiered pricing rate based on the Company’s Adjusted Funded Debt to EBITDA Ratio, with a minimum rate of 3.00% (the effective rate was 3.40% at February 28, 2022). On July 16, 2021, the Company executed the Second Amendment to the Loan Agreement which increased the Maximum Revolving Principal Amount from $15.0 million to $20.0 million. On August 31, 2021, the Company executed the Third Amendment to the Loan Agreement which modified the advance rates used in the borrowing base certificate. Available credit under the revolving line of credit agreement was $668,200 as ofapproximately $2,276,500 and $9,570,200 at February 29, 2016. Tranche A has28, 2022 and February 28, 2021, respectively.
In addition, the Loan Agreement provides a fixed$6.0 million Advancing Term Loan #1 to be used to finance planned equipment purchases. The Advancing Term Loan #1 required interest-only payments through July 15, 2021, at which time it was converted to a 60-month amortizing term loan maturing July 15, 2026. The Advancing Term Loan #1 accrues interest at the Bank-adjusted LIBOR Index plus a tiered pricing rate based on the Company’s Adjusted Funded Debt to EBITDA Ratio, with a minimum rate of 4.23%3.00% (the effective rate was 3.40% at February 28, 2022).
On November 19, 2021, the Company executed the Fourth Amendment to the Loan Agreement which established Advancing Term Loan #2 in the principal amount of $10.0 million, amended the definition of LIBO Rate and LIBOR Margin and added Benchmark Replacement Provisions. The Advancing Term Loan #2 is a 120-month amortizing loan maturing November 19, 2031 and accrues interest at the Bank-adjusted LIBOR Index plus a tiered pricing rate based on the Company’s Adjusted Funded Debt to EBITDA Ratio, with a minimum rate of 3.00% (the effective rate was 3.40% at February 28, 2022).
Adjusted Funded Debt is payable monthly. For Tranche Bdefined as all long-term and short-term bank debt less the outstanding balance of Term Loan #1. EBITDA is defined in the Loan Agreement as net income plus interest expense, income tax expense (benefit) and depreciation and amortization expenses. The Adjusted Funded Debt to EBITDA ratio includes Adjusted Funded Debt to trailing twelve months EBITDA, reduced by specific rental income received from a third party, see Note 7. The $20.0 million line of credit is limited to advance rates on eligible receivables and eligible inventory levels.
The advancing term loans and the line of credit accrue interest is payable monthly at the lesser of the maximuma tiered rate based on our Adjusted Funded Debt to EBITDA ratio. The variable interest rate permitted under the Governing law, or the bank adjusted LIBOR Index plus 2.75% (3.18% at February 29, 2016). Subsequent to year end, we executed the First amendment to the loan agreement in March 2016, which increased the line of credit to $6.0 million.
Pricing Tier | Adjusted Funded Debt to EBITDA Ratio | LIBOR Margin (bps) |
I | > 2.50 | 325.00 |
II | > 2.00 but < 2.50 | 300.00 |
III | > 1.50 but < 2.00 | 275.00 |
IV | < 1.50 | 250.00 |
The Loan Agreement also contains a provision for our use of the Bank’s letters of credit. The Bank agrees to issue or obtain issuance of commercial or stand-by letters of credit provided that no letters of credit will have an expiry date later than December 1, 2016,August 15, 2022, and that the sum of the line of credit plus the letters of credit would not exceed the borrowing base in effect at the time. We had no letters of credit outstanding as of February 28, 2022.
The Loan Agreement also contains provisions that require usthe Company to maintain specified financial ratios restrict transactions with related parties, prohibit mergers or consolidation, disallowand limits any additional debt and limitwith other lenders. Additionally, the Loan Agreement places limitations on the amount of compensation, salaries, investments, capital expendituresdividends that may be distributed and leasing transactions. For the year ended February 29, 2016, we had no letterstotal value of credit outstanding.
The following table reflects aggregate future maturities of long-term debt during the next five fiscal years and thereafter as follows:
Years ending February 28 (29), | ||||
2023 | $ | 2,542,200 | ||
2024 | 2,591,800 | |||
2025 | 2,638,500 | |||
2026 | 10,489,800 | |||
2027 | 1,518,700 | |||
Thereafter | 5,219,100 | |||
Total | $ | 25,000,100 | ||
| Year ending February 28(29), | ||||
| 2017 | $ | 615,400 | ||
| 2018 | 641,800 | |||
| 2019 | 667,300 | |||
| 2020 | 693,800 | |||
| 2021 | 719,700 | |||
| Thereafter | 14,964,800 | |||
| $ | 18,302,800 | |||
9. COMMITMENTS AND CONTINGENCIES
As of February 28, 2022, the Company had outstanding purchase commitments for inventory totaling $11,407,500, which will be received and payments due during fiscal year 2023. Of these inventory commitments, $6,635,300 were with Usborne, $4,687,700 with various Kane Miller publishers and the remaining $84,500 with other suppliers.
10. SHARE-BASED COMPENSATION
We account for share-based compensation whereby share-based payment transactions with employees, such as stock options.
In July 2018, our shareholders approved the Company’s 2019 Long-Term Incentive Plan (“2019 LTI Plan”). The 2019 LTI Plan established up to 600,000 shares of restricted stock available to be granted to certain members of management based on exceeding specified net revenues and pre-tax performance metrics during fiscal years 2019, 2020 or 2021. The Company exceeded all defined metrics during these fiscal years and 600,000 shares were granted to members of management according to the Plan. The granted shares under the 2019 LTI Plan “cliff vest” after five years from the fiscal year that the defined metrics were exceeded.
In July 2021, our shareholders approved the Company’s 2022 Long-Term Incentive Plan (“2022 LTI Plan”). The 2022 LTI Plan establishes up to 300,000 shares of restricted stock available to be granted to certain members of management based on exceeding specified net revenues and pre-tax performance metrics during fiscal years 2022 and 2023. The number of restricted shares to be distributed depends on attaining the performance metrics defined by the 2022 LTI Plan and may result in the distribution of a number of shares that is less than, but not greater than, the number of restricted shares outlined in the terms of the 2022 LTI Plan. Restricted shares granted under the 2022 LTI Plan “cliff vest” after five years from the fiscal year that the defined metrics were exceeded.
During fiscal year 2019, the Company granted 308,000 restricted shares under the 2019 LTI Plan with an average grant-date fair value of $9.94 per share. In the third quarter of fiscal year 2021, 5,000 of these restricted shares were forfeited. These shares were made available to be reissued to remaining participants upon forfeiture. The remaining compensation expense for the outstanding atawards, totaling approximately $653,500, will be recognized ratably over the remaining vesting period of approximately 12 months as of February 29, 2016 expire28, 2022.
During fiscal year 2021, the Company granted 297,000 restricted shares under the 2019 LTI Plan, including the 5,000 aforementioned shares that were previously forfeited and held in December 2019.Treasury, with an average grant-date fair value of $6.30 per share. The remaining compensation expense of these awards, totaling approximately $1,178,400, will be recognized ratably over the remaining vesting period of approximately 36 months as of February 28, 2022.
As of February 28, 2022, no shares have been granted under the 2022 LTI Plan.
A summary of the status of our 2002 Plancompensation expense recognized in connection with restricted share awards as of February 29, 2016 and February 28, 2015, and changes during the years then ended is presented below:follows:
Year Ended February 28, | ||||||||
2022 | 2021 | |||||||
Share-based compensation expense | $ | 1,046,500 | $ | 938,600 | ||||
| February 29(28), | ||||||||||||||||
| 2016 | 2015 | |||||||||||||||
| Weighted | Weighted | |||||||||||||||
| Average | Average | |||||||||||||||
| Exercise | Exercise | |||||||||||||||
| Shares | Price | Shares | Price | |||||||||||||
Outstanding at Beginning of Year | 10,000 | $ | 5.25 | 11,000 | $ | 5.68 | ||||||||||
| Exercised | - | - | - | - | ||||||||||||
| Expired | - | - | (1,000 | ) | (10.00 | ) | ||||||||||
| Outstanding at End of Year | 10,000 | 5.25 | 10,000 | 5.25 | ||||||||||||
The following table summarizes stock award activity during fiscal year 2022 under the 2019 LTI Plan:
Shares | Weighted Average Fair Value (per share) | |||||||
Outstanding at February 28, 2021 | 600,000 | $ | 8.14 | |||||
Granted | - | - | ||||||
Vested | - | - | ||||||
Forfeited | - | - | ||||||
Outstanding at February 28, 2022 | 600,000 | $ | 8.14 | |||||
As of February 29, 2016, all options28, 2022, total unrecognized share-based compensation expense related to unvested restricted shares was $1,831,900, which we expect to recognize over a weighted-average period of 27.4 months.
11. STOCK REPURCHASE PLAN
In April 2008, the Board of Directors authorized us to repurchase up to an additional 1,000,000 shares of our common stock under the plan initiated in 1998 (“amended 2008 plan”). On February 4, 2019, the Board of Directors replaced the amended 2008 plan with a new plan which authorized us to repurchase up to 800,000 shares of outstanding are exercisable withcommon stock in the open market or in privately negotiated transactions, and to utilize any derivative or similar instrument to effect share repurchase transactions (including without limitation, accelerated share repurchase contracts, equity forward transactions, equity swap transactions, floor transactions or other similar transactions or any combination of the foregoing transactions). This plan has no expiration date.
During fiscal year 2022, there were no repurchases under the 2019 stock repurchase plan. During fiscal year 2021, we purchased 22,565 shares at an aggregate intrinsic valueaverage price of $60,900 and weighted-average remaining contractual terms$7.27 per share totaling approximately $163,800 under the 2019 stock repurchase plan. The maximum number of options outstanding of 3.8 years.shares that may be repurchased in the future is 514,594.
12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the years ended February 29, 201628, 2022 and February 28, 2015.2021:
Net Revenues | Gross Margin | Net Earnings | Basic Earnings Per Share | Diluted Earnings Per Share | ||||||||||||||||
2022 | ||||||||||||||||||||
First quarter | $ | 40,807,900 | $ | 28,778,000 | $ | 3,438,100 | $ | 0.43 | $ | 0.41 | ||||||||||
Second quarter | 32,994,400 | 22,495,500 | 1,898,200 | 0.23 | 0.22 | |||||||||||||||
Third quarter | 45,112,300 | 31,215,000 | 2,646,600 | 0.33 | 0.31 | |||||||||||||||
Fourth quarter | 23,314,200 | 15,442,800 | 323,900 | 0.04 | 0.04 | |||||||||||||||
Total year | $ | 142,228,800 | $ | 97,931,300 | $ | 8,306,800 | $ | 1.03 | $ | 0.98 | ||||||||||
2021 | ||||||||||||||||||||
First quarter | $ | 38,291,700 | $ | 26,896,200 | $ | 1,931,100 | $ | 0.23 | $ | 0.23 | ||||||||||
Second quarter | 59,250,100 | 41,940,600 | 4,255,000 | 0.51 | 0.51 | |||||||||||||||
Third quarter | 66,750,300 | 47,152,500 | 4,269,600 | 0.51 | 0.51 | |||||||||||||||
Fourth quarter | 40,343,000 | 28,608,800 | 2,168,300 | 0.26 | 0.25 | |||||||||||||||
Total year | $ | 204,635,100 | $ | 144,598,100 | $ | 12,624,000 | $ | 1.51 | $ | 1.50 | ||||||||||
| Basic | Diluted | |||||||||||||||||||
| Net | Earnings | Earnings | ||||||||||||||||||
| Revenues | Gross Margin | Net Earnings | Per Share | Per Share | ||||||||||||||||
| 2016 | ||||||||||||||||||||
| First quarter | $ | 9,637,800 | $ | 6,064,000 | $ | 324,600 | $ | 0.08 | $ | 0.08 | ||||||||||
| Second quarter | 12,606,800 | 8,029,400 | 644,400 | 0.16 | 0.16 | |||||||||||||||
| Third quarter | 24,424,200 | 17,038,000 | 1,258,500 | 0.31 | 0.31 | |||||||||||||||
| Fourth quarter | 16,949,500 | 11,992,700 | (108,200 | ) | (0.03 | ) | (0.03 | ) | ||||||||||||
| Total year | $ | 63,618,300 | $ | 43,124,100 | $ | 2,119,300 | $ | 0.52 | $ | 0.52 | ||||||||||
| 2015 | ||||||||||||||||||||
| First quarter | $ | 7,178,300 | $ | 4,334,800 | $ | 239,700 | $ | 0.06 | $ | 0.06 | ||||||||||
| Second quarter | 6,808,200 | 3,795,100 | (3,900 | ) | (0.00 | ) | (0.00 | ) | ||||||||||||
| Third quarter | 10,936,500 | 6,821,700 | 526,400 | 0.13 | 0.13 | |||||||||||||||
| Fourth quarter | 7,625,300 | 4,832,800 | 97,000 | 0.02 | 0.02 | |||||||||||||||
| Total year | $ | 32,548,300 | $ | 19,784,400 | $ | 859,200 | $ | 0.21 | $ | 0.21 | ||||||||||
13. BUSINESS SEGMENTS
We have two2 reportable segments: EDC Publishing and Usborne Books & More (“UBAM”) which are business units thatUBAM. These reportable segments offer different methods of distribution to different types of customers. They are managed separately based on the fundamental differences in their operations. Our Publishing segment markets its products to retail accounts, which include book, school supply, toy and gift stores and museums, through commissioned sales representatives, trade and specialty wholesalers and our internal tele-sales group. Our UBAM segment markets its products through a network of independent sales consultants using a combination of internet sales, direct sales, home shows and book fairs.
The accounting policies of the segments are the same as those described inof the summaryrest of significant accounting policies.the Company. We evaluate segment performance based on earnings (loss) before income taxes of the segments, which is defined as segment net salesrevenues reduced by direct cost of sales and direct expenses. Corporate expenses, depreciation, interest expense other income and income taxes are not allocated to the segments but are listed in the “other” column.“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.
Information by industry segment for the years ended February 29, 201628, 2022 and February 28, 20152021 is set forth below:
NET REVENUES
| NET REVENUES | ||||||||||||||||
| 2016 | 2015 | 2022 | 2021 | |||||||||||||
| Publishing | $ | 10,831,400 | $ | 11,532,500 | $ | 13,250,300 | $ | 8,625,800 | ||||||||
| UBAM | 52,786,900 | 21,015,800 | 128,978,500 | 196,009,300 | ||||||||||||
| Other | - | - | ||||||||||||||
| Total | $ | 63,618,300 | $ | 32,548,300 | $ | 142,228,800 | $ | 204,635,100 | ||||||||
EARNINGS (LOSS) BEFORE INCOME TAXES
| EARNINGS (LOSS) BEFORE INCOME TAXES | ||||||||||||||||
| 2016 | 2015 | 2022 | 2021 | |||||||||||||
| Publishing | $ | 3,305,300 | $ | 3,452,800 | $ | 3,639,800 | $ | 2,571,600 | ||||||||
| UBAM | 7,336,200 | 2,456,300 | 24,437,500 | 32,820,600 | ||||||||||||
| Other | (7,095,600 | ) | (4,506,600 | ) | (16,841,400 | ) | (18,161,400 | ) | ||||||||
| Total | $ | 3,545,900 | $ | 1,402,500 | $ | 11,235,900 | $ | 17,230,800 | ||||||||
14. FINANCIAL INSTRUMENTS
The following methods and assumptions are used in estimating the fair-value disclosures for financial instruments:
- | The carrying amounts reported in 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 term notes payable is estimated by management to approximate $24,521,600 and $11,078,800 as of February 28, 2022 and February 28, 2021, respectively. Management's estimates are based on the obligations' characteristics, including floating interest rate, maturity, and collateral. |
15. DEFERRED REVENUES
The Company’s UBAM division receives payments on orders in advance of shipment. Any payments received prior to purchase up to an additional 500,000 shares of our common stock under the plan initiated in 1998. This plan has no expiration date. During fiscal year 2016, we purchased 163 shares of common stock at an average price of $9.82 per share totaling approximately $1,600. The maximum number of sharesend that may be repurchased in the future is 303,152.
16. SUBSEQUENT EVENTS
On April 11, 2022, the Company executed the Fifth Amendment to the Loan Agreement which temporarily increased the maximum revolving principal amount from $20.0 million to $25.0 million. The temporary increase period began on April 11, 2022 and ends on September 15, 2022, at which time the maximum revolving principal will automatically revert back to $20.0 million. It also extended the termination date on the obligations’ characteristics, including floating interest rate, maturity,revolving loan from August 15, 2022 to April 11, 2023. Furthermore, this amendment defines the Benchmark Replacement, as the use of LIBO Rates have been discontinued, and collateral. Such valuation inputs are considered a Level 2 measurement innow uses SOFR (“Secured Overnight Financing Rate”) which is published by the fair value valuation hierarchy.Chicago Mercantile Exchange. SOFR Margin, based upon the Adjusted Funded Debt to EBITDA Ratio increased across all four pricing tiers by 5 basis points. Lastly, the Adjusted Funded Debt Test Default changed to 3.50:1.00 for calendar months ending before May 31, 2022, and 2.75:1.00 thereafter.