UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2017May 31, 2021
OR
☐TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________.
Commission file number: 000-04957
EDUCATIONAL DEVELOPMENT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware | 73-0750007 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
5402 South 122nd East Ave, Tulsa, Oklahoma | 74146 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code (918) 622-4522
Securities registered pursuant to be filed by Section 13 or 15(d)12(b) 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 ☐Act:
Common Stock, $.20 par value | EDUC | NASDAQ |
(Title of class) | (Trading symbol) | (Name of each exchange on which registered) |
Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. | |
| Yes ☒ No ☐ | |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). | |
| Yes ☒ No ☐ | |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer | ||
Non-accelerated filer ☐ | Smaller reporting company ☒ | ||
Emerging Growth Company ☐ |
| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ |
| Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). | |
| Yes ☐ No ☒ | |
As of January 12, 2018,July 6, 2021, there were 4,088,9348,650,230 shares of Educational Development Corporation Common Stock, $0.20 par value outstanding.
TABLE OF CONTENTS
Page | ||
PARTI.FINANCIALINFORMATION | ||
Item 1. | 3 | |
Item 2. | 14 | |
Item 3. | 21 | |
Item 4. | 21 | |
PARTII.OTHERINFORMATION | ||
Item 1. | 22 | |
Item 1A. | 22 | |
Item 2. | 22 | |
Item 3. | 22 | |
Item 4. | 22 | |
Item 5. | 22 | |
Item 6. | 23 | |
24 | ||
CAUTIONARY REMARKS REGARDING FORWARD-LOOKING STATEMENTS
The information discussed in this Quarterly Report on Form 10-Q includes “forward-looking statements.” These forward-looking statements are identified by their use of terms and phrases such as “may,” “expect,” “estimate,” “project,” “plan,” “believe,” “intend,” “achievable,” “anticipate,” “continue,” “potential,” “should,” “could,” and similar terms and phrases. Although we believe that the expectations reflected in these forward-looking statements are reasonable, they do involve certain assumptions, risks and uncertainties, and we can give no assurance that such expectations or assumptions will be achieved. Important factors that could cause actual results to differ materially from those in the forward-looking statements are described under “Item 7 – Management’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended February 28, 20172021 and in this Quarterly Report.quarterly report. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements in this paragraph and elsewhere in this Quarterly Report on Form 10-Q and speak only as of the date of this Quarterly Report on Form 10-Q. Other than as required under the securities laws, we do not assume a duty to update these forward-looking statements, whether as a result of new information, subsequent events or circumstances, changes in expectations or otherwise.
PART I. FINANCIAL INFORMATION
Item 1.FINANCIAL STATEMENTS
EDUCATIONALDEVELOPMENTCORPORATION |
CONDENSEDBALANCESHEETS(UNAUDITED) |
| EDUCATIONAL DEVELOPMENT CORPORATION | ||||||||||||||||
| CONDENSED BALANCE SHEETS (UNAUDITED) | ||||||||||||||||
May 31, | February 28, | |||||||||||||||
| ASSETS | November 30, 2017 | February 28, 2017 | 2021 | 2021 | ||||||||||||
| CURRENT ASSETS: | ||||||||||||||||
CURRENT ASSETS | ||||||||||||||||
| Cash and cash equivalents | $ | 6,141,300 | $ | 699,200 | $ | 1,756,600 | $ | 1,812,200 | ||||||||
Accounts receivable, less allowance for doubtful accounts and sales returns of $637,000 (November 30) and $675,000 (February 28) | 3,834,700 | 2,917,000 | ||||||||||||||
| Inventories—Net | 24,455,900 | 34,253,100 | ||||||||||||||
Accounts receivable, less allowance for doubtful accounts of $360,400 (May 31) and $331,900 (February 28) | 3,974,200 | 3,346,700 | ||||||||||||||
Inventories - net | 56,555,100 | 51,762,400 | ||||||||||||||
| Prepaid expenses and other assets | 999,900 | 695,200 | 1,458,000 | 1,219,300 | ||||||||||||
| Total current assets | 35,431,800 | 38,564,500 | 63,743,900 | 58,140,600 | ||||||||||||
| NONCURRENT INVENTORIES —Net | 196,300 | 192,100 | ||||||||||||||
| PROPERTY, PLANT AND EQUIPMENT—Net | 27,453,100 | 27,034,300 | ||||||||||||||
INVENTORIES - net | 760,600 | 685,300 | ||||||||||||||
PROPERTY, PLANT AND EQUIPMENT - net | 30,074,900 | 29,951,000 | ||||||||||||||
| OTHER ASSETS | 61,400 | 61,400 | 70,300 | 73,600 | ||||||||||||
| DEFERRED INCOME TAXES | - | 128,000 | ||||||||||||||
| TOTAL ASSETS | $ | 63,142,600 | $ | 65,980,300 | $ | 94,649,700 | $ | 88,850,500 | ||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||
| CURRENT LIABILITIES: | ||||||||||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||||||
CURRENT LIABILITIES | ||||||||||||||||
| Accounts payable | $ | 10,263,600 | $ | 17,565,300 | $ | 18,035,700 | $ | 19,674,300 | ||||||||
| Line of credit | - | 4,882,900 | 8,732,500 | 5,245,300 | ||||||||||||
| Deferred revenue | 661,700 | 633,100 | ||||||||||||||
Deferred revenues | 1,627,000 | 1,914,100 | ||||||||||||||
| Current maturities of long-term debt | 1,239,500 | 898,500 | 1,185,700 | 533,500 | ||||||||||||
| Accrued salaries and commissions | 4,144,900 | 1,379,700 | 1,873,900 | 3,488,000 | ||||||||||||
Dividends payable | 834,800 | 835,100 | ||||||||||||||
| Income taxes payable | 1,989,000 | 1,519,400 | 1,097,900 | 130,200 | ||||||||||||
| Other current liabilities | 4,432,200 | 3,218,200 | 4,094,000 | 6,094,800 | ||||||||||||
| Total current liabilities | 22,730,900 | 30,097,100 | 37,481,500 | 37,915,300 | ||||||||||||
| LONG-TERM DEBT-Net of current maturities | 20,686,000 | 20,665,800 | ||||||||||||||
| DEFERRED INCOME TAXES | 51,400 | - | ||||||||||||||
LONG-TERM DEBT - net of current maturities | 13,552,800 | 10,451,200 | ||||||||||||||
DEFERRED INCOME TAXES - net | 327,400 | 89,900 | ||||||||||||||
| OTHER LONG-TERM LIABILITIES | 106,000 | - | 131,300 | 134,300 | ||||||||||||
| Total liabilities | 43,574,300 | 50,762,900 | 51,493,000 | 48,590,700 | ||||||||||||
| COMMITMENTS (Note 8) | ||||||||||||||||
| SHAREHOLDERS’ EQUITY: | ||||||||||||||||
Common stock, $0.20 par value; Authorized 8,000,000 shares; Issued 6,046,040 (November 30) and 6,041,040 (February 28) shares; | 1,209,200 | 1,208,200 | ||||||||||||||
SHAREHOLDERS' EQUITY | ||||||||||||||||
Common stock, $0.20 par value; Authorized 16,000,000 shares; Issued 12,410,080 shares; Outstanding 8,348,314 (May 31) and 8,346,600 (February 28) shares | 2,482,000 | 2,482,000 | ||||||||||||||
| Capital in excess of par value | 8,573,300 | 8,548,000 | 11,152,100 | 10,863,900 | ||||||||||||
| Retained earnings | 20,708,400 | 16,317,800 | 42,286,300 | 39,683,000 | ||||||||||||
| 30,490,900 | 26,074,000 | 55,920,400 | 53,028,900 | |||||||||||||
| Less treasury stock, at cost | (10,922,600 | ) | (10,856,600 | ) | (12,763,700 | ) | (12,769,100 | ) | ||||||||
| Total shareholders' equity | 19,568,300 | 15,217,400 | 43,156,700 | 40,259,800 | ||||||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 63,142,600 | $ | 65,980,300 | ||||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 94,649,700 | $ | 88,850,500 | ||||||||||||
See notes to condensed financial statements.statements (unaudited).
| EDUCATIONAL DEVELOPMENT CORPORATION | ||||||||||||||||
| CONDENSED STATEMENTS OF EARNINGS (UNAUDITED) | ||||||||||||||||
| Three Months Ended November 30, | Nine Months Ended November 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| GROSS SALES | $ | 41,894,600 | $ | 34,397,300 | $ | 100,989,500 | $ | 91,657,200 | ||||||||
| Less discounts and allowances | (6,762,300 | ) | (6,948,000 | ) | (19,929,300 | ) | (20,581,900 | ) | ||||||||
| Transportation revenue | 3,775,700 | 3,248,300 | 8,959,900 | 8,299,500 | ||||||||||||
| NET REVENUES | 38,908,000 | 30,697,600 | 90,020,100 | 79,374,800 | ||||||||||||
| COST OF GOODS SOLD | 10,494,800 | 8,328,100 | 24,579,200 | 22,500,300 | ||||||||||||
| Gross margin | 28,413,200 | 22,369,500 | 65,440,900 | 56,874,500 | ||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Operating and selling | 7,837,300 | 6,520,300 | 17,549,900 | 16,790,900 | ||||||||||||
| Sales commissions | 12,510,400 | 9,521,000 | 28,759,300 | 24,802,200 | ||||||||||||
| General and administrative | 4,735,200 | 4,525,900 | 12,359,600 | 12,237,600 | ||||||||||||
| Total operating expenses | 25,082,900 | 20,567,200 | 58,668,800 | 53,830,700 | ||||||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||
| Interest expense | (287,600 | ) | (265,000 | ) | (863,800 | ) | (730,000 | ) | ||||||||
| Other income | 390,100 | 502,800 | 1,189,400 | 1,251,600 | ||||||||||||
| Total other income | 102,500 | 237,800 | 325,600 | 521,600 | ||||||||||||
| EARNINGS BEFORE INCOME TAXES | 3,432,800 | 2,040,100 | 7,097,700 | 3,565,400 | ||||||||||||
| INCOME TAXES | 1,304,400 | 765,900 | 2,707,100 | 1,352,500 | ||||||||||||
| NET EARNINGS | $ | 2,128,400 | $ | 1,274,200 | $ | 4,390,600 | $ | 2,212,900 | ||||||||
| BASIC AND DILUTED EARNINGS PER SHARE: | ||||||||||||||||
| Basic | $ | 0.52 | $ | 0.31 | $ | 1.07 | $ | 0.54 | ||||||||
| Diluted | $ | 0.52 | $ | 0.31 | $ | 1.07 | $ | 0.54 | ||||||||
| DIVIDENDS PER SHARE | $ | 0.00 | $ | 0.09 | $ | 0.00 | $ | 0.27 | ||||||||
WEIGHTED AVERAGE NUMBER OF COMMON AND EQUIVALENT SHARES OUTSTANDING: | ||||||||||||||||
| Basic | 4,087,268 | 4,079,916 | 4,087,686 | 4,074,355 | ||||||||||||
| Diluted | 4,090,011 | 4,084,863 | 4,090,053 | 4,079,833 | ||||||||||||
EDUCATIONALDEVELOPMENTCORPORATION |
CONDENSEDSTATEMENTSOFEARNINGS(UNAUDITED) |
Three Months Ended May 31, | ||||||||
2021 | 2020 | |||||||
GROSS SALES | $ | 52,391,600 | $ | 46,896,900 | ||||
Less discounts and allowances | (15,954,100 | ) | (12,895,900 | ) | ||||
Transportation revenue | 4,370,400 | 4,290,700 | ||||||
NET REVENUES | 40,807,900 | 38,291,700 | ||||||
COST OF GOODS SOLD | 12,029,900 | 11,395,500 | ||||||
Gross margin | 28,778,000 | 26,896,200 | ||||||
OPERATING EXPENSES | ||||||||
Operating and selling | 6,442,600 | 6,340,200 | ||||||
Sales commissions | 12,966,700 | 13,600,500 | ||||||
General and administrative | 5,139,000 | 4,536,000 | ||||||
Total operating expenses | 24,548,300 | 24,476,700 | ||||||
INTEREST EXPENSE | 167,800 | 182,200 | ||||||
OTHER INCOME | (598,700 | ) | (406,600 | ) | ||||
EARNINGS BEFORE INCOME TAXES | 4,660,600 | 2,643,900 | ||||||
INCOME TAXES | 1,222,500 | 712,800 | ||||||
NET EARNINGS | $ | 3,438,100 | $ | 1,931,100 | ||||
BASIC AND DILUTED EARNINGS PER SHARE | ||||||||
Basic | $ | 0.43 | $ | 0.23 | ||||
Diluted | $ | 0.41 | $ | 0.23 | ||||
WEIGHTED AVERAGE NUMBER OF COMMON AND EQUIVALENT SHARES OUTSTANDING | ||||||||
Basic | 8,029,264 | �� | 8,352,424 | |||||
Diluted | 8,481,980 | 8,352,424 | ||||||
Dividends per share | $ | 0.10 | $ | 0.06 | ||||
See notes to condensed financial statements.
statements (unaudited).
| EDUCATIONAL DEVELOPMENT CORPORATION | ||||||||||||||||||||||||||||
| CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED) | ||||||||||||||||||||||||||||
| FOR THE NINE MONTHS ENDED NOVEMBER 30, 2017 | ||||||||||||||||||||||||||||
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, 2017 | 6,041,040 | $ | 1,208,200 | $ | 8,548,000 | $ | 16,317,800 | 1,950,966 | $ | (10,856,600 | ) | $ | 15,217,400 | |||||||||||||||
| Exercise of stock options | 5,000 | 1,000 | 25,300 | - | - | - | 26,300 | |||||||||||||||||||||
| Purchases of treasury stock | - | - | - | - | 10,041 | (98,000 | ) | (98,000 | ) | |||||||||||||||||||
| Sales of treasury stock | - | - | - | - | (3,901 | ) | 32,000 | 32,000 | ||||||||||||||||||||
| Net earnings | - | - | - | 4,390,600 | - | - | 4,390,600 | |||||||||||||||||||||
| BALANCE— November 30, 2017 | 6,046,040 | $ | 1,209,200 | $ | 8,573,300 | $ | 20,708,400 | 1,957,106 | $ | (10,922,600 | ) | $ | 19,568,300 | |||||||||||||||
EDUCATIONALDEVELOPMENTCORPORATION |
CONDENSEDSTATEMENTSOFCHANGESINSHAREHOLDERS’ EQUITY(UNAUDITED) |
FORTHETHREEMONTHSENDEDMAY 31, 2021 |
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 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 | - | - | 26,600 | - | (1,714 | ) | 5,400 | 32,000 | ||||||||||||||||||||
Dividends declared ($0.10/share) | - | - | - | (834,800 | ) | - | - | (834,800 | ) | |||||||||||||||||||
Share-based compensation expense (see Note 6) | - | - | 261,600 | - | - | - | 261,600 | |||||||||||||||||||||
Net earnings | - | - | - | 3,438,100 | - | - | 3,438,100 | |||||||||||||||||||||
BALANCE - May 31, 2021 | 12,410,080 | $ | 2,482,000 | $ | 11,152,100 | $ | 42,286,300 | 4,061,766 | $ | (12,763,700 | ) | $ | 43,156,700 | |||||||||||||||
FORTHETHREEMONTHSENDEDMAY 31, 2020 |
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 | - | - | - | - | 17,565 | (75,500 | ) | (75,500 | ) | |||||||||||||||||||
Sales of treasury stock | - | - | 5,000 | - | (21,167 | ) | 66,000 | 71,000 | ||||||||||||||||||||
Dividends declared ($0.06/share) | - | - | - | (502,200 | ) | - | - | (502,200 | ) | |||||||||||||||||||
Share-based compensation expense (see Note 6) | - | - | 169,000 | - | - | - | 169,000 | |||||||||||||||||||||
Net earnings | - | - | - | 1,931,100 | - | - | 1,931,100 | |||||||||||||||||||||
BALANCE - May 31, 2020 | 12,410,080 | $ | 2,482,000 | $ | 10,017,900 | $ | 31,161,100 | 4,057,827 | $ | (12,674,800 | ) | $ | 30,986,200 | |||||||||||||||
See notes to condensed financial statements (unaudited).
| EDUCATIONAL DEVELOPMENT CORPORATION | ||||||||
| CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) | ||||||||
| FOR THE NINE MONTHS ENDED NOVEMBER 30, | ||||||||
| 2017 | 2016 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net earnings | $ | 4,390,600 | $ | 2,212,900 | ||||
| Adjustments to reconcile net earnings to net cash provided by (used in) operating activities | ||||||||
| Depreciation | 911,700 | 780,400 | ||||||
| Deferred income taxes | 179,400 | (35,400 | ) | |||||
| Provision for doubtful accounts | 438,000 | 558,900 | ||||||
| Provision for inventory valuation allowance | 33,000 | (37,300 | ) | |||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | (1,355,700 | ) | (1,994,200 | ) | ||||
| Inventories, net | 9,760,000 | (16,775,100 | ) | |||||
| Prepaid expenses and other assets | (304,700 | ) | (1,661,300 | ) | ||||
| Accounts payable | (7,301,700 | ) | 6,889,100 | |||||
| Deferred revenue | 28,600 | 6,632,500 | ||||||
| Accrued salaries and commissions | 2,765,200 | 375,600 | ||||||
| Other liabilities | 1,320,000 | 2,307,700 | ||||||
| Income taxes payable | 469,600 | 576,800 | ||||||
| Total adjustments | 6,943,400 | (2,382,300 | ) | |||||
| Net cash provided by (used in) operating activities | 11,334,000 | (169,400 | ) | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of property, plant and equipment | (1,330,500 | ) | (2,123,600 | ) | ||||
| Net cash used in investing activities | (1,330,500 | ) | (2,123,600 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Payments on long-term debt | (657,800 | ) | (530,200 | ) | ||||
| Proceeds from long-term debt | 1,019,000 | 4,000,000 | ||||||
| Cash received from sales of treasury stock | 32,000 | 170,700 | ||||||
| Cash used to purchase treasury stock | (98,000 | ) | (200 | ) | ||||
| Proceeds from the issuance of stock options | 26,300 | - | ||||||
| Net payments under the line of credit | (4,882,900 | ) | (451,800 | ) | ||||
| Dividends paid | - | (1,099,500 | ) | |||||
| Net cash provided by (used in) financing activities | (4,561,400 | ) | 2,089,000 | |||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 5,442,100 | (204,000 | ) | |||||
| CASH AND CASH EQUIVALENTS—BEGINNING OF PERIOD | 699,200 | 1,183,700 | ||||||
| CASH AND CASH EQUIVALENTS—END OF PERIOD | $ | 6,141,300 | $ | 979,700 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for interest | $ | 868,900 | $ | 730,000 | ||||
| Cash paid for income taxes | $ | 2,058,100 | $ | 811,100 | ||||
EDUCATIONALDEVELOPMENTCORPORATION |
| CONDENSEDSTATEMENTSOFCASHFLOWS(UNAUDITED) |
| Three Months Ended May 31, | ||||||||
2021 | 2020 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net earnings | $ | 3,438,100 | $ | 1,931,100 | ||||
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: | ||||||||
Depreciation | 432,000 | 409,900 | ||||||
Deferred income taxes | 237,500 | 91,200 | ||||||
Provision for doubtful accounts | 37,600 | 67,800 | ||||||
Provision for inventory valuation allowance | 60,000 | 80,000 | ||||||
Share-based compensation expense | 261,600 | 169,000 | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (665,100 | ) | 348,900 | |||||
Inventories, net | (4,928,000 | ) | 3,080,800 | |||||
Prepaid expenses and other assets | (235,400 | ) | 29,100 | |||||
Accounts payable | (577,400 | ) | 1,385,200 | |||||
Accrued salaries and commissions and other liabilities | (3,617,900 | ) | 2,373,300 | |||||
Deferred revenues | (287,100 | ) | 2,026,800 | |||||
Income taxes payable | 967,700 | 602,100 | ||||||
Total adjustments | (8,314,500 | ) | 10,664,100 | |||||
Net cash provided by (used in) operating activities | (4,876,400 | ) | 12,595,200 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Purchases of property, plant and equipment | (1,617,200 | ) | (143,800 | ) | ||||
Net cash used in investing activities | (1,617,200 | ) | (143,800 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Payments on term debt | (142,300 | ) | (1,710,800 | ) | ||||
Proceeds from term debt | 3,896,200 | 1,447,400 | ||||||
Sales of treasury stock | 32,000 | 71,000 | ||||||
Purchases of treasury stock | 0 | (75,500 | ) | |||||
Net borrowings under line of credit | 3,487,200 | 0 | ||||||
Dividends paid | (835,100 | ) | (417,400 | ) | ||||
Net cash provided by (used in) financing activities | 6,438,000 | (685,300 | ) | |||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (55,600 | ) | 11,766,100 | |||||
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD | 1,812,200 | 2,999,400 | ||||||
CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | 1,756,600 | $ | 14,765,500 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION | ||||||||
Cash paid for interest | $ | 152,400 | $ | 184,600 | ||||
Cash paid for income taxes | $ | 17,200 | $ | 19,500 | ||||
See notes to condensed financial statements.statements (unaudited).
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Note 1
– BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of Presentation
The accompanying Unaudited Condensed Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim condensed financial information and in accordance with the rules and regulations of the Securities and Exchange Commission. The Unaudited Condensed Financial Statements include all adjustments considered necessary for a fair presentation of the financial position and results of operations for the interim periods presented. Such adjustments consist only of normal recurring items, unless otherwise disclosed herein. Accordingly, the Unaudited Condensed Financial Statements do not include all of the information and notes required by GAAP for complete financial statements. However, we believe that the disclosures made are adequate to make the information not misleading. These interim Unaudited Condensed Financial Statements should be read in conjunction with our audited financial statements as of and for the year ended February 28, 20172021 included in our Form 10-K. The results of operations for interim periods are not necessarily indicative of the results to be expected for a full year due to the seasonality of our product sales.
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 local Tulsa Health Department. We are closely monitoring the impact of the COVID-19 pandemic and continually assessing its potential effects on our business. While the Company did not experience a decrease in net revenues during fiscal year 2021, the 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 period.
Use of Estimates in the Preparation of Financial Statements
The preparation of the Unaudited Condensed Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates.
Significant Accounting Policies
Our significant accounting policies, other than the adoption of new accounting pronouncements separately documented herein, are consistent with those disclosed in Note 1 to our audited financial statements as of and for the year ended February 28, 2017,2021 included in our Form 10-K.
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 accounting standards updates (“ASU”) and concluded that the following recently issued accounting standards apply to us.us:
In 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 do not expect the adoption of this ASU will have a significant impact on the Company’s financial position, results of operations2022 and cash flows.
In March 2020, the FASB issued ASU 2020-04: Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This update provides optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning 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 event 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 an alternate rate will have a material impact to our financial position, resultsstatements and, to the extent we enter into modifications of operations and cash flows.agreements that are impacted by the LIBOR phase-out, we will apply such guidance to those contract modifications.
Note 2
– INVENTORIESInventories consist of the following:
| 2017 | ||||||||
| November 30, | February 28, | |||||||
| Current: | ||||||||
| Book inventory | $ | 24,480,900 | $ | 34,278,100 | ||||
| Inventory valuation allowance | (25,000 | ) | (25,000 | ) | ||||
| Inventories net–current | $ | 24,455,900 | $ | 34,253,100 | ||||
| Noncurrent: | ||||||||
| Book inventory | $ | 502,200 | $ | 467,100 | ||||
| Inventory valuation allowance | (305,900 | ) | (275,000 | ) | ||||
| Inventories net–noncurrent | $ | 196,300 | $ | 192,100 | ||||
May 31, 2021 | February 28, 2021 | |||||||
Current: | ||||||||
Book inventory | $ | 57,052,600 | $ | 52,276,200 | ||||
Inventory valuation allowance | (497,500 | ) | (513,800 | ) | ||||
Inventories net – current | $ | 56,555,100 | $ | 51,762,400 | ||||
Noncurrent: | ||||||||
Book inventory | $ | 1,005,600 | $ | 894,300 | ||||
Inventory valuation allowance | (245,000 | ) | (209,000 | ) | ||||
Inventories net – noncurrent | $ | 760,600 | $ | 685,300 | ||||
Book inventory includes inventory in transit which totaled $4,114,600 and $6,467,400 at May 31, 2021 and February 28, 2021, respectively.
Book inventory quantities in excess of what we expect will be sold within the normal operating cycle, based on 2.52½ years of anticipated sales, are included in noncurrent inventory.
Significant portions of our inventory purchases are concentrated with an England-based publishing company.company, Usborne Publishing, Ltd. (“Usborne”). Purchases received from this company were approximately $6.9 million$12,288,300 and $10.9 million$3,974,400 for the three months ended November 30, 2017May 31, 2021 and 2016,2020, respectively. Total inventory purchases received from all suppliers were $10.9 million$17,785,200 and $15.2 million$5,846,600 for the three months ended November 30, 2017May 31, 2021 and 2016,2020, respectively.
Note 3 – 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 ASC 842. One lessee arrangement includes a rental agreement where we have the exclusive use of dedicated office space in San Diego, California, and qualifies as an operating lease. Our other lessee arrangement is short term and offers flexible storage space on a month to month basis. Our lessee arrangements are not material to our condensed financial statements or notes to the condensed financial statements. Our lessor arrangements include 3 rental agreements for warehouse and office space in Tulsa, Oklahoma, and each qualifies as an operating lease under ASC 842.
Operating Leases – Lessor
We recognize fixed rental income on a straight-line basis over the life of the lease as other income on our condensed statements of earnings. Variable rental payments are recognized as other income in the period in which the changes in facts and $29.9 millioncircumstances on which the variable lease payments are based occur.
On April 4, 2020, we executed an amendment to one of our existing leases that abated rental payments for the nine months ended November 30, 2017of May, June and 2016,July 2020. The amendment also extended the term of the lease for three additional months. This amendment represents a lease modification and, as such, we have adjusted our fixed rental income on a straight-line basis over the remaining term starting May 1, 2020.
Future minimum payments receivable under operating leases with terms greater than one year are estimated as follows:
Years ending February 28 (29), | ||||
2022 | $ | 1,158,700 | ||
2023 | 1,573,200 | |||
2024 | 1,577,900 | |||
2025 | 1,547,100 | |||
2026 | 1,524,300 | |||
Thereafter | 8,091,000 | |||
Total | $ | 15,472,200 |
The cost of the leased space was approximately $10,826,400 as of May 31, 2021 and February 28, 2021, respectively. Total inventory purchases from all suppliers were $27.5 millionThe accumulated depreciation associated with the leased assets was $2,312,100 and $43.7 million for$2,216,700 as of May 31, 2021 and February 28, 2021, respectively. Both the nine months ended November 30, 2017leased assets and 2016, respectively.
| 2017 | ||||||||
| November 30, | February 28, | |||||||
| Land | $ | 4,107,200 | $ | 4,107,200 | ||||
| Building | 20,321,800 | 20,321,800 | ||||||
| Building improvements | 1,750,100 | 1,692,500 | ||||||
| Machinery and equipment | 6,493,200 | 5,230,700 | ||||||
| Furniture and fixtures | 109,000 | 101,600 | ||||||
| 32,781,300 | 31,453,800 | |||||||
| Less accumulated depreciation | (5,328,200 | ) | (4,419,500 | ) | ||||
| Net property, plant and equipment | $ | 27,453,100 | $ | 27,034,300 | ||||
Note 4
– DEBTDebt consists of the following:
May 31, 2021 | February 28, 2021 | |||||||
Line of credit | $ | 8,732,500 | $ | 5,245,300 | ||||
Advancing term loan | $ | 3,896,200 | $ | 0 | ||||
Long-term debt | 10,842,300 | 10,984,700 | ||||||
Less current maturities | (1,185,700 | ) | (533,500 | ) | ||||
Long-term debt, net of current maturities | $ | 13,552,800 | $ | 10,451,200 | ||||
| 2017 | ||||||||
| November 30, | February 28, | |||||||
| Line of credit | $ | - | $ | 4,882,900 | ||||
| Long-term debt (net of debt issue costs) | $ | 21,925,500 | $ | 21,564,300 | ||||
| Less current maturities | (1,239,500 | ) | (898,500 | ) | ||||
| LONG-TERM DEBT-net of current maturities | $ | 20,686,000 | $ | 20,665,800 | ||||
The Company executed an Amended and Restated Loan Agreement dated as of March 10, 2016on February 15, 2021 (as amended the “Loan Agreement”) with MidFirst Bank (“the Bank”), which replaced the prior loan agreement and includes multiple loans. Term Loan #1 is comprised of 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 Tranche B totaling $5.0 million, both with theinterest payable monthly and a stated maturity date of December 1, 2025. Tranche A has aOn 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 outstanding borrowings on Term Loan #1 were $10,842,300 and $10,984,700 as of 4.23%May 31, 2021 and February 28, 2021, respectively.
The Loan Agreement also provides a $15.0 million revolving loan (“line of credit”) through August 15, 2022 with interest is payable monthly. Tranche B interest is payable monthly at the bank adjustedBank-adjusted LIBOR Index plus a tiered pricing rate based on the Company’s Adjusted Funded Debt to EBITDA Ratio, (4.41%with a minimum rate of 2.75% (the effective rate was 2.75% at November 30, 2017)May 31, 2021). Term Loan #1 is secured by the primary office, warehouse and land. TheOur borrowings outstanding borrowings on Tranche A were $12,566,300 and $12,902,800our line of credit at November 30, 2017May 31, 2021 and February 28, 2017,2021, were $8,732,500 and $5,245,300, respectively. The outstanding borrowings on Tranche B were $4,717,900Available credit under the revolving line of credit was approximately $6,267,500 and $4,813,800$9,570,200 at November 30, 2017May 31, 2021 and February 28, 2017,2021, respectively.
In addition, the Loan Agreement provides a $6.0 million Advancing Term Loan #2 with the Bank in the amount of $4.0 million with the maturity date of June 28,to be used to finance planned equipment purchases. The Advancing Term Loan requires interest-only payments through July 15, 2021, andat which time it will convert to a 60-month amortizing term loan maturing July 15, 2026. The Advancing Term Loan accrues interest payable monthly at the bank adjustedBank-adjusted LIBOR Index plus a tiered pricing rate based on the Company’s Adjusted Funded Debt to EBITDA Ratio, (4.41%with a minimum rate of 2.75% (the effective rate was 2.75% at November 30, 2017)May 31, 2021). Term Loan #2 is secured by our secondary warehouse and land. The Loan Agreement also provided a $15.0 million revolving loan (“line of credit”) through June 15, 2018 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 (4.41% at November 30, 2017). The outstanding borrowings on Term Loan #2 were $3,639,000 and $3,847,700 at November 30, 2017 and February 28, 2017, respectively. We had $0 and $4,882,900 inOur borrowings outstanding on line of credit at November 30, 2017 and February 28, 2017, respectively. Available credit under the revolving credit agreement was $9,105,500 at November 30, 2017 and $2,117,100 at February 28, 2017.
Adjusted Funded Debt is defined as all long termlong-term and short-term bank debt less the outstanding balancesbalance of Tranche A and Trance B Term Loans.Loan #1. EBITDA is defined in the Loan Agreement as earnings beforenet 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 month EBITDA, reduced by specific rental income received from a non-related third party, see Note 3. The $15.0 million line of credit is limited to advance rates on eligible receivables and eligible inventory levels.
The Advancing Term Loan and the line of credit accrue interest at a tiered rate based on our Adjusted Funded Debt to EBITDA ratio. The variable interest pricing tier is as follows:
PricingTier | AdjustedFundedDebttoEBITDARatio | LIBORMargin(bps) | ||
I | >2.00 | 300.00 | ||
II | >1.50 but <2.00 | 275.00 | ||
III | >1.00 but <1.50 | 250.00 | ||
IV | <1.00 | 225.00 |
The Loan Agreement 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 JuneAugust 15, 2018,2022, 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. For the quarter ended November 30, 2017,As of May 31, 2021, we had no letters of credit outstanding.
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 limit the amount of compensation, salaries, investments, capital expenditures, leasing transactions we can make on a quarterly basis.with other lenders. Additionally, the Loan Agreement suspendsplaces limitations on the amount of dividends that may be distributed and the total value of stock buybacks.
The following table reflects aggregate future scheduled maturities of long-term debt during the next five fiscal years and thereafter as follows:
Years ending February 28 (29), | ||||
2022 | $ | 838,600 | ||
2023 | 1,387,500 | |||
2024 | 1,407,100 | |||
2025 | 1,426,400 | |||
2026 | 9,289,300 | |||
Thereafter | 389,600 | |||
Total | $ | 14,738,500 |
Note 5
– EARNINGS PER SHAREBasic earnings per share (“EPS”) is computed by dividing net earnings by the weighted average number of common shares outstanding during the period.period excluding nonvested restricted stock awards. Diluted EPS is based onincludes the combined weighted average numberdilutive effect of common shares outstandingissued unvested restricted stock awards and dilutiveadditional potential common shares issuable which include, where appropriate, the assumed exercise ofunder stock warrants, restricted stock and stock options. In computing diluted EPS we haveWe utilized the treasury stock method. method in computing the potential common shares issuable under stock warrants, restricted stock, stock options and preferred shares.
The computation of weighted average common and common equivalent shares used in the calculation of basic and diluted EPS is shown below.
| Three Months Ended November 30, | Nine Months Ended November 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Net earnings | $ | 2,128,400 | $ | 1,274,200 | $ | 4,390,600 | $ | 2,212,900 | ||||||||
| Shares: | ||||||||||||||||
| Weighted average shares outstanding – basic | 4,087,268 | 4,079,916 | 4,087,686 | 4,074,355 | ||||||||||||
| Assumed exercise of options | 2,743 | 4,947 | 2,367 | 5,478 | ||||||||||||
| Weighted average shares outstanding – diluted | 4,090,011 | 4,084,863 | 4,090,053 | 4,079,833 | ||||||||||||
| Basic Earnings Per Share | $ | 0.52 | $ | 0.31 | $ | 1.07 | $ | 0.54 | ||||||||
| Diluted Earnings Per Share | $ | 0.52 | $ | 0.31 | $ | 1.07 | $ | 0.54 | ||||||||
Three Months Ended May 31, | ||||||||
2021 | 2020 | |||||||
Earnings: | ||||||||
Net earnings applicable to common shareholders | $ | 3,438,100 | $ | 1,931,100 | ||||
Weighted average shares: | ||||||||
Weighted average shares outstanding-basic | 8,029,264 | 8,352,424 | ||||||
Issued unvested restricted stock and assumed shares issuable under granted unvested restricted stock awards | 452,716 | 0 | ||||||
Weighted average shares outstanding-diluted | 8,481,980 | 8,352,424 | ||||||
Earnings per share: | ||||||||
Basic | $ | 0.43 | $ | 0.23 | ||||
Diluted | $ | 0.41 | $ | 0.23 | ||||
Note 6 – STOCK-BASEDSHARE-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 and recognized asgrant. For awards subject to service conditions, compensation expense is recognized over the vesting period.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. The probability of restricted share awards granted with future performance conditions is evaluated at each reporting period and share awards are updated and compensation expense is adjusted based on updated information.
In July 2018, our shareholders approved the Company’s 2019 Long-Term Incentive Plan (“2019 LTI Plan”). The 2019 LTI Plan establishes up to 600,000 shares of restricted stock which can 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 number of restricted shares to be distributed depends on attaining the performance metrics defined by the 2019 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 2019 LTI Plan. Restricted shares granted under the 2019 LTI Plan “cliff vest” after five years.
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 ended November 30, 2017,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 awards, totaling approximately $1,143,600, will be recognized ratably over the remaining vesting period of approximately 21 months.
During fiscal year 2021, the Company initially granted 151,000 restricted shares under the 2019 LTI Plan with an average grant-date fair value of $6.30 per share. 8,000 of these shares were granted, forfeited and re-granted to remaining participants in fiscal year 2021. In the third quarter of fiscal year 2021, the Company increased the number of shares granted for fiscal year 2021 from 151,000 to 305,000 due to revised performance expectations for the year. The remaining compensation expense of these awards, totaling approximately $1,473,000, will be recognized ratably over the remaining vesting period of approximately 45 months. As of May 31, 2021, there are no restricted shares available for issuance as future awards under the 2019 LTI Plan.
A summary of compensation expense recognized in connection with restricted share awards follows:
Three Months Ended May 31, | ||||||||
2021 | 2020 | |||||||
Share-based compensation expense | $ | 261,600 | $ | 169,000 | ||||
The following table summarizes stock award activity during the first three months of 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 | 0 | 0 | ||||||
Forfeited | - | - | ||||||
Outstanding at May 31, 2021 | 600,000 | $ | 8.14 | |||||
As of May 31, 2021, total unrecognized share-based compensation expense related to unvested granted or issued restricted shares was $2,616,600, which we expect to recognize over a former employee exercised 5,000 vested stock options.weighted-average period of 34.5 months.
Note 7
– SHIPPING AND HANDLING COSTSWe classify shipping and handling costs incurred are included inas operating and selling expenses in the condensed statements of earnings. Shipping and handling costs include postage, freight, handling costs, as well as shipping materials and supplies. These costs were $5,328,900$6,356,400 and $4,569,900$6,315,300 for the three months ended November 30, 2017May 31, 2021 and 2016,2020, respectively. These costs were $12,200,100 and $12,134,700 for the nine months ended November 30, 2017 and 2016, respectively.
Note 9
We have 2 reportable segments: Usborne Books & More (“UBAM”) and Publishing. These reportable segments are business units that offer different methods of distribution to different types of customers. They are managed separately based on the fundamental differences in their operations. TheOur 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. Our Publishing segment markets its products to retail accounts, which include book, school supply, toy and gift stores and museums, trade and specialty wholesalers, through commissioned sales representatives trade and specialty wholesalers and anour internal tele-sales group. The UBAM segment markets its products through a network of independent sales consultants using a combination of home shows, internet shows and book fairs.
The accounting policies of the segments are the same as those described inof the summaryrest of significant accounting policies disclosed in the Company’s most recent 10-K annual report for the fiscal year ended February 28, 2017.Company. We evaluate segment performance based on earnings before income taxes of the segments, which is defined as segment net salesrevenues reduced by cost of sales and direct expenses. Corporate expenses, depreciation, interest expense and income taxes are not allocated to the segments but are listed in the “Other” row below. Corporate expenses include the executive department, accounting department, information services department, general office management, warehouse operations and building facilities management. Our assets and liabilities are not allocated on a segment basis
Information by reporting segment for the three and nine-monththree-month periods ended November 30, 2017May 31, 2021 and 2016,2020, are as follows:
| NET REVENUES | ||||||||||||||||
| Three Months Ended November 30, | Nine Months Ended November 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Publishing | $ | 2,439,600 | $ | 3,075,000 | $ | 6,538,700 | $ | 7,244,600 | ||||||||
| UBAM | 36,468,400 | 27,622,600 | 83,481,400 | 72,130,200 | ||||||||||||
| Total | $ | 38,908,000 | $ | 30,697,600 | $ | 90,020,100 | $ | 79,374,800 | ||||||||
| EARNINGS BEFORE INCOME TAXES | ||||||||||||||||
| Three Months Ended November 30, | Nine Months Ended November 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Publishing | $ | 556,800 | $ | 979,500 | $ | 1,514,200 | $ | 2,138,700 | ||||||||
| UBAM | 6,915,400 | 4,719,800 | 15,865,200 | 11,286,200 | ||||||||||||
| Other | (4,039,400 | ) | (3,659,200 | ) | (10,281,700 | ) | (9,859,500 | ) | ||||||||
| Total | $ | 3,432,800 | $ | 2,040,100 | $ | 7,097,700 | $ | 3,565,400 | ||||||||
NET REVENUES | ||||||||
Three Months Ended May 31, | ||||||||
2021 | 2020 | |||||||
UBAM | $ | 37,616,900 | $ | 36,926,200 | ||||
Publishing | 3,191,000 | 1,365,500 | ||||||
Total | $ | 40,807,900 | $ | 38,291,700 | ||||
EARNINGS (LOSS) BEFORE INCOME TAXES | ||||||||
Three Months Ended May 31, | ||||||||
2021 | 2020 | |||||||
UBAM | $ | 7,861,200 | $ | 5,827,100 | ||||
Publishing | 861,600 | 346,600 | ||||||
Other | (4,062,200 | ) | (3,529,800 | ) | ||||
Total | $ | 4,660,600 | $ | 2,643,900 | ||||
Note 10
The valuation hierarchy included in U.S. GAAP considers the transparency of inputs used to value assets and liabilities as of the measurement date. A financial instrument'sinstrument’s classification within the valuation hierarchy is based on the lowest level of input that is significant to its fair value measurement. The three levels of the valuation hierarchy and the classification of our financial assets and liabilities within the hierarchy are as follows:
Level 1 -– Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 -– Observable inputs other than quoted prices included within Level 1 for the asset or liability, either directly or indirectly. If an asset or liability has a specified term, a Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3 -– Unobservable inputs for the asset or liability.
We do not report any assets or liabilities at fair value in the financial statements. However, the estimated fair value of our line of credit is estimated by management to approximate the carrying value of $0 and $4,882,900 at November 30, 2017 and February 28, 2017, respectively. The estimated fair value of our term notes payable is estimated by management to approximate $20,812,600$14,329,100 and $20,130,100$11,078,800 at November 30, 2017May 31, 2021 and February 28, 2017,2021, respectively. Management'sManagement’s estimates are based on the obligations'obligations’ characteristics, including floating interest rate, maturity, and collateral. Such valuation inputs are considered a Level 2 measurement in the fair value valuation hierarchy.
Note 11
The Company’s UBAM division receives payments on orders in advance of shipment. Any payments received prior to the end of the third quarter, we hadperiod that were not shipped as of May 31, 2021 or February 28, 2021 are recorded as deferred revenues on the condensed balance sheets. We received approximately $661,700$1,627,000 and $1,914,100 as of May 31, 2021 and February 28, 2021, respectively, in payments for sales orders which were shipped out subsequent to the quarter end. Asend of November 30, 2017, these prepaid sales orders arethe period. Orders that were included in deferred revenue onrevenues predominantly shipped within the condensed balance sheet.first few days of the next fiscal period.
Note 12
On December 22, 2017,July 7, 2021, the U.S. President signed the Tax Cuts and Jobs ActBoard of 2017 (the “Act”). Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 740, Income Taxes (“ASC 740”) requiresDirectors approved a $0.10 dividend that the effectswill be paid to shareholders of changes in tax laws or tax rates be recognized in the financial statements in the period in which such changes were enacted. Among other things, changes in tax laws or tax rates can affect the amount of taxes payable for the current period, as well as the amount and timing of deferred tax liabilities and deferred tax assets. The Company is a fiscal year reporting company and as such would be required to account for the impact related to the Act in the financial statements included in the annual reportrecord on Form 10-K for February 28, 2018.Tuesday, August 24, 2021.
Item 2. MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Factors Affecting Forward-Looking Statements
The following discussion contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control, including among other things, the risk factors discussed in our Annual Report on Form 10-K for the year ended February 28, 2017.control. Our actual results could differ materially from those discussed in these 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 the volume of orders that are received without creating backlog,backlogs, 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 our Annual Report on Form 10-K for the year ended February 28, 20172021 and this Quarterly Report on Form 10-Q, all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may or may not occur. See “Cautionary“Cautionary Remarks Regarding Forward-Looking Statements”Statements” in the front of this Quarterly Report on Form 10-Q.
Overview
We are the exclusive United States trade co-publisher of Usborne children’s books and the owner of Kane Miller. We operate two separate segments:segments, UBAM and Publishing, to sell our Usborne and Kane Miller lines of children’s books. These two segments each have their own customer base. The Publishing segment markets its products on a wholesale basis to various retail accounts. The UBAM segment markets its products through a network of independent sales consultants using a combination of home shows, internet showsparty plan events and book fairs. The Publishing segment markets its products on a wholesale basis to various retail accounts. All other supporting administrative activities are recognized as other expenses outside of our two segments. Other expenses areconsist primarily of the compensation of our office, warehouse and sales support staff as well as the cost of operating and maintaining our corporate office and distribution facility.
The following table shows our condensed statements of earnings data:
Three Months Ended May 31, | ||||||||
2021 | 2020 | |||||||
Net revenues | $ | 40,807,900 | $ | 38,291,700 | ||||
Cost of goods sold | 12,029,900 | 11,395,500 | ||||||
Gross margin | 28,778,000 | 26,896,200 | ||||||
Operating expenses | ||||||||
Operating and selling | 6,442,600 | 6,340,200 | ||||||
Sales commissions | 12,966,700 | 13,600,500 | ||||||
General and administrative | 5,139,000 | 4,536,000 | ||||||
Total operating expenses | 24,548,300 | 24,476,700 | ||||||
Interest expense | 167,800 | 182,200 | ||||||
Other income | (598,700 | ) | (406,600 | ) | ||||
Earnings before income taxes | 4,660,600 | 2,643,900 | ||||||
Income taxes | 1,222,500 | 712,800 | ||||||
Net earnings | $ | 3,438,100 | $ | 1,931,100 | ||||
| Three Months Ended November 30, | Nine Months Ended November 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Net revenues | $ | 38,908,000 | $ | 30,697,600 | $ | 90,020,100 | $ | 79,374,800 | ||||||||
| Cost of goods sold | 10,494,800 | 8,328,100 | 24,579,200 | 22,500,300 | ||||||||||||
| Gross margin | 28,413,200 | 22,369,500 | 65,440,900 | 56,874,500 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Operating and selling | 7,837,300 | 6,520,300 | 17,549,900 | 16,790,900 | ||||||||||||
| Sales commissions | 12,510,400 | 9,521,000 | 28,759,300 | 24,802,200 | ||||||||||||
| General and administrative | 4,735,200 | 4,525,900 | 12,359,600 | 12,237,600 | ||||||||||||
| Total operating expenses | 25,082,900 | 20,567,200 | 58,668,800 | 53,830,700 | ||||||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense | (287,600 | ) | (265,000 | ) | (863,800 | ) | (730,000 | ) | ||||||||
| Other income | 390,100 | 502,800 | 1,189,400 | 1,251,600 | ||||||||||||
| Earnings before income taxes | 3,432,800 | 2,040,100 | 7,097,700 | 3,565,400 | ||||||||||||
| Income taxes | 1,304,400 | 765,900 | 2,707,100 | 1,352,500 | ||||||||||||
| Net earnings | $ | 2,128,400 | $ | 1,274,200 | $ | 4,390,600 | $ | 2,212,900 | ||||||||
See the detailed discussion of revenues, costs of services, gross margin and general and administrative expenses by reportable segment below. The following is a discussion of significant changes in the non-segment related general and administrative expenses, other income and expenses and income taxes during the respective periods.
Non-Segment Operating Results for the Three Months Ended November 30, 2017May 31, 2021
Total operating expenses
not associated with a reporting segmentInterest expense was $0.3 remained consistent at $0.2 million for the three months ended November 30, 2017, which was consistent with the interest expense reportedMay 31, 2021, when compared to $0.2 million for the same quarter last year.quarterly period a year ago.
Income taxes
increased $0.5 million, or 71.4%, toUBAM Operating Results for the Three and Nine Months Ended November 30, 2017May 31, 2021
The following table summarizes the operating results of the UBAM segment for the three and nine months ended November 30, 2017 and 2016:
For the Three Months Ended November 30, | For the Nine Months Ended November 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Gross sales | $ | 36,761,700 | $ | 27,907,200 | $ | 87,143,200 | $ | 76,263,200 | ||||||||
| Less discounts and allowances | (4,059,000 | ) | (3,528,100 | ) | (12,595,300 | ) | (12,414,500 | ) | ||||||||
| Transportation revenue | 3,765,700 | 3,243,500 | 8,933,500 | 8,281,500 | ||||||||||||
| Net revenues | 36,468,400 | 27,622,600 | 83,481,400 | 72,130,200 | ||||||||||||
| Cost of goods sold | 9,114,200 | 6,577,500 | 20,939,500 | 18,549,700 | ||||||||||||
| Gross margin | 27,354,200 | 21,045,100 | 62,541,900 | 53,580,500 | ||||||||||||
| Operating Expenses | ||||||||||||||||
| Operating and selling | 6,860,200 | 5,613,300 | 14,752,100 | 14,311,500 | ||||||||||||
| Sales commissions | 12,420,000 | 9,425,300 | 28,507,800 | 24,561,100 | ||||||||||||
| General and administrative | 1,158,600 | 1,286,700 | 3,416,800 | 3,421,700 | ||||||||||||
| Total operating expenses | 20,438,800 | 16,325,300 | 46,676,700 | 42,294,300 | ||||||||||||
| Operating income | $ | 6,915,400 | $ | 4,719,800 | $ | 15,865,200 | $ | 11,286,200 | ||||||||
| Average number of active consultants | 31,100 | 28,100 | 29,500 | 24,800 | ||||||||||||
Three Months Ended May 31, | ||||||||
2021 | 2020 | |||||||
Gross sales | $ | 45,535,700 | $ | 43,946,100 | ||||
Less discounts and allowances | (12,285,700 | ) | (11,306,700 | ) | ||||
Transportation revenue | 4,366,900 | 4,286,800 | ||||||
Net revenues | 37,616,900 | 36,926,200 | ||||||
Cost of goods sold | 10,249,900 | 10,688,600 | ||||||
Gross margin | 27,367,000 | 26,237,600 | ||||||
Operating expenses | ||||||||
Operating and selling | 5,344,700 | 5,426,300 | ||||||
Sales commissions | 12,858,300 | 13,560,400 | ||||||
General and administrative | 1,302,800 | 1,423,800 | ||||||
Total operating expenses | 19,505,800 | 20,410,500 | ||||||
Operating income | $ | 7,861,200 | $ | 5,827,100 | ||||
Average number of active consultants | 55,100 | 33,100 | ||||||
UBAM Operating Results for the Three Months Ended November 30, 2017
Gross margin increased $1.2 million, or 4.6%, to $27.4 million during the three months ended May 31, 2021, when compared to $26.2 million during the same period a year ago, primarily due toassociated with the increasegrowth in the number of our active consultants. The average number of active consultants increased 3,000, or 10.7% from 28,100 in the third quarter of fiscal year 2017 to 31,100 in the third quarter of fiscal 2018. Our consultant growth is driven primarily by existing active consultants recruiting and retaining new consultants.
UBAM operating expenses consists of operating and selling expenses, sales commissions and general and administrative expenses. Operating and selling expenses primarily consists of freight expenses and hostess awards associated with sales orders.materials and supplies. Sales commissions include amounts paid to consultants for new sales and promotions. These operating expenses are directly tied to the sales volumes of the UBAM segment. General and administrative expenses include payroll, travel and entertainment expenses, outside services, inventory reserves and other expenses directly associated with the UBAM segment. Total operating expenses increased $4.1decreased $0.9 million, or 25.1%4.4%, to $20.4$19.5 million during the three-month period ending November 30, 2017,ended May 31, 2021, when compared withto $20.4 million reported in the same quarter a year ago. Operating and selling expenses decreased $0.1 million, to $5.3 million during the three-month period ended May 31, 2021, when compared to $5.4 million reported in the same quarter a year ago, primarily due to a decrease in postage and freight expenses. Sales commissions decreased $0.7 million, to $12.9 million during the three-month period ended May 31, 2021, when compared to $13.6 million reported in the same quarter a year ago, due primarily to the change in order type mix. School and Library orders were stronger in the first quarter of fiscal 2022 as schools were primarily closed during the first quarter of last year. OperatingSchool and Library orders have larger discounts and pay less commissions than web sale orders. General and administrative expenses increased primarily from increased operating and selling costs and increased sales commissions, both tieddecreased $0.1 million, to the growth in revenues$1.3 million during the period.three months ended May 31, 2021, when compared to $1.4 million during the same period a year ago.
Operating income of the UBAM segment increased $2.2$2.1 million, or 46.8%36.2%, to $6.9$7.9 million during the three-month period ending November 30, 2017,three months ended May 31, 2021, when compared to $5.8 million reported in the same quarter a year ago, primarily due to primarily to increased sales and gross margins, partially offset by increased operating and selling expenses and sales commissions.
Publishing Operating Results for the Three and Nine Months Ended November 30, 2017May 31, 2021
The following table summarizes the operating results of the Publishing segment for the three and nine months ended November 30, 2017 and 2016:segment:
Three Months May 31, | ||||||||
2021 | 2020 | |||||||
Gross sales | $ | 6,855,900 | $ | 2,950,800 | ||||
Less discounts and allowances | (3,668,400 | ) | (1,589,200 | ) | ||||
Transportation revenue | 3,500 | 3,900 | ||||||
Net revenues | 3,191,000 | 1,365,500 | ||||||
Cost of goods sold | 1,780,000 | 706,900 | ||||||
Gross margin | 1,411,000 | 658,600 | ||||||
Total operating expenses | 549,400 | 312,000 | ||||||
Operating income | $ | 861,600 | $ | 346,600 | ||||
For the Three Months Ended November 30, | For the Nine Months Ended November 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Gross sales | $ | 5,132,900 | $ | 6,490,100 | $ | 13,846,300 | $ | 15,394,000 | ||||||||
| Less discounts and allowances | (2,703,300 | ) | (3,419,900 | ) | (7,334,000 | ) | (8,167,400 | ) | ||||||||
| Transportation revenue | 10,000 | 4,800 | 26,400 | 18,000 | ||||||||||||
| Net revenues | 2,439,600 | 3,075,000 | 6,538,700 | 7,244,600 | ||||||||||||
| Cost of goods sold | 1,380,600 | 1,750,600 | 3,639,700 | 3,950,600 | ||||||||||||
| Gross margin | 1,059,000 | 1,324,400 | 2,899,000 | 3,294,000 | ||||||||||||
| Total operating expenses | 502,200 | 344,900 | 1,384,800 | 1,155,300 | ||||||||||||
| Operating income | $ | 556,800 | $ | 979,500 | $ | 1,514,200 | $ | 2,138,700 | ||||||||
Our Publishing segment’sdivision’s net revenues decreased $0.6increased $1.8 million, or 19.4%128.6%, to $2.4$3.2 million forduring the three monthsthree-month period ended November 30, 2017May 31, 2021, from $3.1$1.4 million reported for the quarter ended November 30, 2016. Revenues declined from the same period last year due to smaller customer orders in the third period of fiscal 2018 when compared to last year, as well as fewer customers placing orders. During the third quarter of fiscal year 2017, we had significant delays in shipments which resulted in lost customers and customers reducing order sizes during the fall selling season of fiscal 2018, based on slower delivery expectations.
Gross margins decreasedmargin increased $0.7 million, or 100.0%, to $1.4 million during the three-month period ended May 31, 2021, from $0.7 million reported in the same quarter a year ago, primarily due to the decreaseincrease in sales.net revenues. Gross Marginsmargin as a percentage of revenue remained consistentnet revenues decreased 4.0%, to 44.2% during the three-month period ended May 31, 2021, from 48.2% reported in the same quarter a year ago. Gross margin as a percentage of net revenues fluctuates primarily from the different discount levels offered to customers as well as changes in the mix of products sold between Kane Miller and Usborne.
Total operating expenses of the periods.Publishing segment increased $0.2 million to $0.5 million, from $0.3 million, during the three-month periods ended May 31, 2021 and 2020, primarily as a result of increased freight expenses due to increased sales.
Operating income of the Publishing segment increased to $0.9 million from $0.3 million for the three-month periods ended May 31, 2021 and 2020, primarily driven by the increase in gross margin.
Liquidity and Capital Resources
EDC has a history of cash is typically operatingprofitability and positive cash flow. The majority ofWe typically fund our operations from the cash outflow over the past several years has been associated with increasing our inventorywe generate. We also use available cash to keep up with our increased demandpay down outstanding bank loan balances, for our products.capital expenditures, to pay dividends, and to acquire treasury stock. We have utilized a bank credit facility and other term loan borrowings to meet our short-term cash needs, as well as fund capital expenditures, when necessary.
During the nine-month period ended November 30, 2017,first three months of fiscal 2022, we experiencedgenerated negative cash inflowflows from our operations of $11.3 million. Net$4,876,400. These cash flows resulted from:
●net earnings of $4.4 million were increased by the following items:$3,438,100
Adjusted for:
●depreciation expense of $0.9 million,$432,000
●share-based compensation expense of $261,600
●deferred income taxes of $0.2 million,$237,500
●provision for inventory valuation allowance of $60,000
●provision for doubtful accounts of $0.4 million,$37,600
Positively impacted by:
●increase in income tax payable of $0.5 million.$967,700
Negatively impacted by:
●increase in inventories, net of $4,928,000
●decrease in accrued salaries and commissions, and other liabilities of $3,617,900
●increase in accounts receivable of $665,100
●decrease in accounts payable of $7.3 million,$577,400
●decrease in accounts receivabledeferred revenues of $1.3 million, and$287,100
●increase in prepaid expenses and other assets of $0.3 million.$235,400
Cash used in investing activities was $1.3 million$1,617,200 for capital expenditures, which was primarilywere comprised of improvements made$1,417,200 in equipment purchased to two ofincrease our pick lines which were upgraded with new automated routing functionalitydaily shipping capacity, $144,400 in software upgrades to bypass zonesour proprietary systems that had no picks of approximately $1.0 millionour UBAM consultants use to monitor their business and inventory management systems of $0.1 millionplace customer orders and various other improvements to the warehouse, facility$55,600 in building and equipment totaling $0.2 million.building improvements.
Cash used inprovided by financing activities was $4.6 million,$6,438,000, which was primarily comprised of repaymentproceeds from term debt of $3,896,200, net borrowings under ourthe line of credit of $4.9 million$3,487,200 and net cash received in treasury stock transactions of $32,000, offset by payments of $835,100 for dividends and payments on long-termterm debt of $0.7 million, offset by draws on the recently executed Advancing Term Loan of $1.0 million along with other minor equity changes.$142,300.
During fiscal year 2018,2022, we continue to expect ourthe cash generated from our operations and cash available through our expanded line of credit with our Bank will provide us the abilityliquidity we need to meet our liquidity requirements. We have a history of profitability and positive cash flow. Consequently, cashsupport ongoing operations. Cash generated from operations will be used to increase inventory in anticipation of continued sales growth andby expanding our product offerings, to liquidate existing debt.debt, and 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 Bank includingprior loan agreement and includes multiple loans. Term Loan #1 comprised of 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. Tranche A has aTerm 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 Loan Agreement which reduced the fixed interest rate to 3.12% and removed the prepayment premium from the Loan Agreement. The outstanding borrowings on Term Loan #1 were $10.8 million and $11.0 million as of 4.23%May 31, 2021 and interest is payable monthly.
In addition, the Amended and Restated Loan Agreement also includes Term Loan #2 in the amount of $4.0 million, which is secured byprovides a warehouse and land with the maturity date of June 28, 2021, a $15.0 million revolving loan (“line of credit”) through June 15, 2018 and an $3.0 million advancing term loan which matures November 30, 2020.
The Amended and Restated Loan Agreement also provides a $15.0 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 2.75%. Our borrowings outstanding on our line of credit at May 31, 2021 and February 28, 2021 were $8.7 million and $5.2 million. Available credit under the revolving line of credit was approximately $6.3 million and $9.6 million at May 31, 2021 and February 28, 2021, respectively.
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. Additionally, the Loan Agreement suspends dividends. For the quarter ended November 30, 2017,As of May 31, 2021, we had no letters of credit outstanding. The agreement contains provisions that require us to maintain specified financial ratios, restrict transactions with related parties, prohibit mergers or consolidation, disallowplace limitations on additional debt andwith other banks, limit the amountamounts of compensation, salaries, investments, capital expendituresdividends declared and leasing transactions.limits the number 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 and thereafter as follows:
| Year Ending February 28 (29) | ||||
| 2018 | 267,100 | |||
| 2019 | 1,278,600 | |||
| 2020 | 1,331,200 | |||
| 2021 | 1,324,300 | |||
| 2022 | 1,069,000 | |||
| Thereafter | 16,672,100 | |||
| Total Maturities | $ | 21,942,300 | ||
Years ending February 28 (29), | ||||
2022 | $ | 838,600 | ||
2023 | 1,387,500 | |||
2024 | 1,407,100 | |||
2025 | 1,426,400 | |||
2026 | 9,289,300 | |||
Thereafter | 389,600 | |||
Total | $ | 14,738,500 |
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.States(“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to our valuation of inventory, 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.
Revenue Recognition
Sales associated with product orders are generally recognized and recorded when products are shipped. Products are shipped FOB shipping point. The UBAM segment’sUBAM’s sales are generally paid at the time the product is ordered. These sales accounted for 93.7% of net revenues for the three-month period ended November 30, 2017, and 90.0% for the three-month period ended November 30, 2016. Sales thatwhich have been paid for but not shipped are classified as deferred revenue on the balance sheet. Sales associated with consignment inventory are recognized when reported and payment associated with the sale has been remitted. Transportation revenue represents the amount billed to the customer for shipping the product and is recorded when the product is shipped.
Estimated allowances for sales returns are recorded as sales are recognized 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. These returns primarily result from damage that occursstores 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 retail customers. Management has estimated and included a reserve for sales returns of $100,000$0.2 million as of November 30, 2017,May 31, 2021 and $190,000 as of February 28, 2017.2021.
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 (collectively “allowance for doubtful accounts”). An estimate of uncollectableuncollectible amounts is made by management based upon historical bad debts, current customer receivable balances, age of customer receivable balances, the customer'scustomers’ financial conditionconditions and current economic trends. Consignment inventory related to inactive consultants is reclassified to accounts receivable and the associated reserve is included within our allowance. If the actual uncollected amounts significantly exceed the estimated allowance, then our operating results would be significantly adversely affected. Management has estimated and included an allowance for doubtful accounts of $537,000$0.4 million at November 30, 2017,May 31, 2021, and $485,000$0.3 million at February 28, 2017.2021. Included within this allowance is $264,000 and $217,000$0.1 million of reserve for vendor discounts to sell remaining inventory as of November 30, 2017May 31, 2021 and February 28, 2017, respectively, of reserve related to consignment inventory held by inactive consultants.2021.
Inventory
Our inventory contains approximately 2,200over 2,000 titles, each with different sell through rates of sale, depending upon the nature and popularity of the title. Almost all of our product line is saleable as the booksWe maintain very few titles that are not topical in nature andnature. As such, the majority of the titles we sell remain current in content today as well as in the future.for several years. Most of our products are printed in China, Europe, China, Singapore, India, Malaysia and Dubai resulting in a fivefour- to eight-monthsix-month lead-time to have a title printed and delivered to us.
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 minimum order requirements of our suppliers. Noncurrent inventory was estimated by management using the current year turnover ratio by title. All inventoryInventory in excess of 2 ½2½ years of anticipated sales is classified as noncurrent inventory. These inventory quantities have exposure of becoming out of date, and therefore have higher obsolescence reserves. Noncurrent inventory balances prior to valuation allowances were $502,200$1.0 million and $467,100$0.9 million at November 30, 2017May 31, 2021 and February 28, 2017,2021, 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 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.
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 4.2% of our active consultants maintained consignment inventory at the end of the first quarter of fiscal 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 $1.1 million for both May 31, 2021 and February 28, 2021.
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 $0.7 million for both May 31, 2021 and February 28, 2021.
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 and recognized asgrant. For awards subject to service conditions, compensation expense is recognized over the vesting period neton a straight-line basis. Awards subject to performance conditions are attributed separately for each vesting tranche of estimated forfeitures.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 granted under the 2019 Long-Term Incentive Plan (“2019 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 the first three months of fiscal year 2022, the Company recognized $0.3 million of compensation expense associated with the shares granted.
Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
Item 4.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We performed an evaluation was performed of the effectiveness of the design and operation of our disclosure“disclosure controls and procedures pursuant to Exchange Actprocedures” (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of November 30, 2017.the end of the period covered by this report. This evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer (Principal Executive Officer) and our Chief Financial Officer and Corporate Secretary (Principal Financial and Accounting Officer).
Based on that evaluation, these officers concluded that our disclosure controls and procedures were designed and were effective pursuant to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act Rule 13a-15(e).is accumulated and communicated to them, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized, and reported in accordance with the time periods specified in SEC rules and forms. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events.
Changes in Internal Control over Financial Reporting
During the first quarter of the fiscal year covered by this report on Form 10-Q, there have been no changechanges in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the quarter ended November 30, 2017 that hashave materially affected or isare reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1.LEGAL PROCEEDINGS
Not applicable.
Item 1A.RISK FACTORS
Not required by smaller reporting company.
Item 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
| Period | Total # of Shares Purchased | Average Price Paid per Share | Total # of Shares Purchased as Part of Publicly Announced Plan (1) | Maximum # of Shares that May be Repurchased under the Plan (2)(3) | ||||||||||||
| September 1 - 30, 2017 | 736 | $ | 10.19 | 0 | 297,368 | |||||||||||
| October 1 - 31, 2017 | 0 | $ | N/A | 0 | 297,368 | |||||||||||
| November 1 - 30, 2017 | 0 | N/A | 0 | 297,368 | ||||||||||||
| Total | 736 | $ | 10.19 | 0 | ||||||||||||
Period | Total # of Shares Purchased | Average Price Paid per Share | Total # of Shares Purchased as Part of Publicly Announced Plan (1) | Maximum # of Shares that may be Repurchased under the | ||||||||||||
March 1 - 31, 2021 | - | $ | - | - | 514,594 | |||||||||||
April 1 - 30, 2021 | - | - | - | 514,594 | ||||||||||||
May 1 - 31, 2021 | - | - | - | 514,594 | ||||||||||||
Total | - | $ | - | - | ||||||||||||
(1) | On February 4, 2019 the Board of Directors |
Item 3.DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4.MINE SAFETY DISCLOSURES
None.
Item 5. 5.OTHER INFORMATION
None.
Item 6.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. 0-04957). | |
*3.2 | Certificate of Amendment of Restated Certificate of Incorporation dated August 27, 1977 is incorporated herein by reference to Exhibit 20.1 to Form 10-K for fiscal year ended February 28, 1981 (File No. 0-04957). | |
*3.3 | By-Laws, as amended, are incorporated herein by reference to Exhibit 20.2. to Form 10-K for fiscal year ended February 28, 1981 (File No. 0-04957). | |
*3.4 | Certificate of Amendment of Restated Certificate of Incorporation dated November 17, 1986 is incorporated herein by reference to Exhibit 3.3 to Form 10-K for fiscal year ended February 28, 1987 (File No. 0-04957). | |
3.5 | ||
3.6 | ||
3.7 | ||
10.1 | ||
**31.1 |
**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
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
EDUCATIONAL DEVELOPMENT CORPORATION (Registrant) | |||||
Date: | By | /s/ Randall W. White | |||
Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) | |||||