EDUCATIONAL DEVELOPMENT CORP
For the period ended May 31, 2024. Filed Jul 15, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
May 31, 2024 · Filed Jul 15, 2024
EDUC$0.89-9.2%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2023-11-30; filed 2024-01-11.
0001185185-24-000066
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-05-31; filed 2024-07-15.
0001185185-24-000695
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 102 previous paragraphs and 83 current paragraphs.
28 unchanged; 41 reworded; 14 added; 29 removed; 4 previous and 0 current paragraphs rearranged.
Tables are not compared: 5 previous and 5 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (14)
Current report
PaperPie net revenues decreased $3.7 million, or 29.4%, to $8.9 million during the three months ended May 31, 2024, when compared to $12.6 million during the same period a year ago. The average number of active brand partners in the first quarter of fiscal 2025 was 13,400, a decrease of 9,800, or 42.2%, from 23,200 average active brand partners selling in the first quarter of fiscal 2024. The Company reports the average number of active Brand Partners as a key indicator for this division. We saw new Brand Partner recruiting negatively impacted by the recent change in our distribution agreement with Usborne Publishing Limited. This agreement required the rebranding of the direct sales division from Usborne Books & More (“UBAM”) to PaperPie. This rebranding was completed on in the fourth quarter of fiscal 2023. Subsequent to the rebranding, Brand Partner levels declined due to several reasons including economic factors that include recent record inflation, resulting in high fuel costs and food price increases that continue to impact the disposable income of our customers. The reduced sales resulted in increased Brand Partner turnover and lower levels of new Brand Partner recruits. We expect this impact on sales to continue as inflationary pressures persist through fiscal 2025.
Current report
Net revenues during the fiscal 2025 first quarter were also negatively impacted from increased discounts. Discounts as a percentage of gross sales increased from 29.8% in the first quarter of fiscal 2024 to 36.8% in the first quarter of this year, resulting in less net revenues of approximately $0.5 million. The increased discounts resulted from a change in order mix, impacting net revenues by $0.4 million, along with additional product discounts offered to spur sales during the quarter impacting net revenues by $0.1 million. The order mix change resulted from an increase in book fair orders over web sales, which offer higher discounts and lower sales commissions to Brand Partners.
Current report
Gross margin decreased $2.6 million, or 31.0%, to $5.8 million during the three months ended May 31, 2024, when compared to $8.4 million during the same period a year ago. Gross margin as a percentage of net revenues for the three months ended May 31, 2024 decreased to 65.3%, compared to 66.7% the same period a year ago, representing a decrease of $0.3 million. The decrease in gross margin as a percentage of net revenues was primarily attributed to increased discounts between the periods and additional shipping promotions.
Current report
Total operating expenses decreased $1.7 million, or 25.4%, to $5.0 million during the three-month period ended May 31, 2023, when compared to $6.7 million reported in the same quarter a year ago. Operating and selling expenses decreased $0.4 million, or 21.1%, to $1.5 million during the three-month period ended May 31, 2024, when compared to $1.9 million reported in the same quarter a year ago, primarily due to less freight expense on fewer sales and shipments totaling approximately $0.3 million along with a decrease in trip accrual expense of $0.1 million due to reduced sales. Sales commissions decreased $1.1 million, or 26.8%, to $3.0 million during the three-month period ended May 31, 2024, when compared to $4.1 million reported in the same quarter a year ago, due primarily to the decrease in net revenues. Sales commissions as a percentage of net revenues increased from 32.7% to 34.1% between periods, primarily due to the mix of order type. Web orders pay higher commissions than special programs such as book fairs. General and administrative expenses decreased $0.2 million, or 28.6%, to $0.5 million during the three months ended May 31, 2024, when compared to $0.7 million during the same period a year ago, due primarily to $0.1 million of reduced bank fees from fewer credit card transactions associated with reduced sales and $0.1 million of reduced payroll associated with division staffing.
Current report
●net loss of $1,279,000
Current report
●depreciation and amortization expense of $486,600
Current report
●provision for credit losses of $29,600
Current report
Offset by:
Current report
●deferred income taxes of $138,800
Current report
Negatively impacted by:
Current report
On June 13, 2024, the Company executed the Fifth Amendment to the Existing Credit Agreement with the Lender. The Amendment, effective May 31, 2024, adjusts the maximum availability of the Revolving Loan commitment to $7,000,000 through the maturity date of October 4, 2024. The Amendment also requires an additional decrease in the Revolving Loan to $4,500,000 from the effective date of the sale of the Hilti Complex among other restrictions and requirements.
Current report
Features of the Loan Agreement (as amended) at May 31, 2024 include:
Current report
The following table reflects aggregate current maturities of term debt, excluding the Revolving Loan, during the current fiscal year as follows:
Current report
Allowance for Credit Losses
Removed paragraphs (29)
Previous report
Other income increased $4.0 million, or 1,000.0%, to $4.4 million for the three months ended November 30, 2023, when compared to $0.4 million for the same quarterly period a year ago resulting from the sale of the old HQ building located at 10302 E 55 th totaling $4.0 million.
Previous report
Total operating expenses not associated with a reporting segment decreased $2.6 million, or 23.0%, to $8.7 million for the nine-month period ended November 30, 2023, when compared to $11.3 million for the same period a year ago. Labor expenses decreased $1.8 million, primarily within our warehouse operations, and freight handling costs decreased $0.5 million for the nine months ended November 30, 2023, both associated with reduced sales, and a $0.3 million decrease in other various expenses.
Previous report
Interest expense increased $0.7 million, or 46.7%, to $2.2 million for the nine months ended November 30, 2023, when compared to $1.5 million for the same period a year ago, due to increased interest rates on the Company’s variable rate borrowings, period over period.
Previous report
Other income increased $7.8 million, or 650.0%, to $9.0 million for the nine months ended November 30, 2023, when compared to $1.2 million for the same quarterly period a year ago, primarily resulting from the receipt of the Employee Retention Credit totaling $3.8 million and from the sale of the old HQ building located at 10302 E 55 th totaling $4.0 million.
Previous report
PaperPie gross revenues decreased $9.6 million, or 30.1%, to $22.3 million during the three months ended November 30, 2023, when compared to $31.9 million during the same period a year ago. The decline in gross sales was primarily attributed to our reduced levels of active brand partners. The average number of active brand partners in the third quarter of fiscal 2024 was 16,400, a decrease of 10,700, or 39.5%, from 27,100 average active brand partners selling in the third quarter of fiscal 2023. Recruiting and maintaining brand partners was negatively impacted throughout fiscal 2023, continuing through the first three quarters of fiscal year 2024, by several factors including record inflation, our new distribution agreement with Usborne and the rebranding of the division in the fourth quarter of fiscal year 2023. Inflation was most evident in increased food and fuel prices, which impacts the disposable income of our target customer base, which is families with small children. Sales during the third quarter of fiscal year 2024 continued to be negatively impacted by continuing inflationary pressures and we expect this to continue through the remainder of fiscal year 2024, as these pressures persist. Historically, when we have experienced these difficult inflationary times, our active brand partner numbers have been positively impacted as more families look for non-traditional income streams to offset rising costs of living.
Previous report
In the first fiscal quarter last year we executed a new distribution agreement with Usborne which required we rebrand our direct sales division. We completed the rebranding of the division to PaperPie in the fourth quarter of fiscal 2023, and the impact of this rebranding continued to impact us through fiscal 2024, most reflected in our reduced Brand Partner levels. During the summer, we saw our active brand partner levels stabilize. Brand partner levels increased during the fall, which typically occurs during this period as this is our busiest selling season of the year.
Previous report
Discounts as a percentage of gross sales increased from 27.1% in the third quarter of fiscal 2023 to 31.2% in the third quarter of this year, or approximately $0.9 million. During the quarter, we ran several e-commerce site-wide sales, marketing directly to past customers, and offered other discounts including discounted book bundles to increase sales.
Previous report
Transportation revenue was also negatively impacted during the fiscal 2024 third quarter from reduced transportation charges on e-commerce orders. During the quarter, the freight charge for outbound e-commerce orders was reduced to $5.00 on orders up to $30 in size and then free on orders above $30. This new freight charge, along with additional days offered with “free freight”, negatively impacted transportation revenues during the quarter by approximately $1.2 million.
Previous report
Gross margin decreased $6.7 million, or 39.2%, to $10.4 million during the three months ended November 30, 2023, when compared to $17.1 million during the same period a year ago. Gross margin as a percentage of net revenues for the three months ended November 30, 2023, decreased to 66.3%, compared to 67.1% the same period a year ago. The decrease in gross margin as a percentage of net revenues is primarily attributed to the additional promotional discounts along with reduced freight charges on e-commerce orders.
Previous report
Total operating expenses decreased $5.3 million, or 37.6%, to $8.8 million during the three-month period ended November 30, 2023, when compared to $14.1 million reported in the same quarter a year ago. Operating and selling expenses decreased $1.8 million, or 41.9%, to $2.5 million during the three-month period ended November 30, 2023, when compared to $4.3 million reported in the same quarter a year ago, resulting primarily from fewer sales and shipments leading to a decrease in outbound freight totaling approximately $1.8 million. Sales commissions decreased $3.2 million, or 36.4%, to $5.6 million during the three-month period ended November 30, 2023, when compared to $8.8 million reported in the same quarter a year ago, due primarily to the decrease in net revenues totaling approximately $9.8 million. General and administrative expenses decreased $0.2 million, or 20.0%, to $0.8 million during the three months ended November 30, 2023, when compared to $1.0 million during the same period a year ago, driven primarily by a reduction in credit card transaction fees resulting from the decrease in sales during the quarter ended November 30, 2023.
Previous report
PaperPie Operating Results for the Nine Months Ended November 30, 2023
Previous report
PaperPie gross revenues decreased $25.5 million, or 33.1%, to $51.6 million during the nine-month period ended November 30, 2023, compared to $77.1 million from the same period a year ago. The average number of active brand partners in the nine-month period ended November 30, 2023 was 19,200, a decrease of 9,500, or 33.1%, from 28,700 selling in same period a year ago. Recruiting and maintaining brand partners has been negatively impacted by several factors including record inflation, our new distribution agreement with Usborne and the rebranding of the division in the fourth quarter of fiscal year 2023. Inflation was most evident in increased food and fuel prices, which impacts the disposable income of our target customer base, which is families with small children. During the summer of fiscal 2024, we saw our brand partner levels stabilize. Brand partner levels increased during the fall, which typically occurs during this period as this is our busiest selling season of the year. Additionally, when we have experienced difficult inflationary times, our active brand partner numbers have been positively impacted as more families look for non-traditional income streams to offset rising costs of living.
Previous report
Discounts as a percentage of gross sales increased from 27.7% in during the first nine months of fiscal 2023 to 31.1% in the during the first nine months of fiscal 2024, impacting net revenues by approximately $1.8 million. During the first nine months of fiscal 2024, we ran several e-commerce site-wide sales, marketing directly to past customers, and offered other discounts including discounted book bundles to increase sales.
Previous report
Transportation revenue was also negatively impacted during the first nine months of fiscal 2024 from reduced transportation charges on e-commerce orders. During fiscal 2024, PaperPie has offered additional free shipping days to spur sales and during the third quarter implemented a change to the freight charged for outbound e-commerce orders; which was reduced to $5.00 on orders up to $30 in size and then free on orders above $30. These freight changes, along with additional days offered with “free freight”, negatively impacted transportation revenues during first three fiscal quarters by approximately $1.7 million.
Previous report
Gross margin decreased $16.9 million, or 40.4%, to $24.9 million during the nine-month period ended November 30, 2023, when compared to $41.8 million during the same period a year ago, due primarily to a decrease in net revenues. Gross margin as a percentage of net revenues decreased to 66.2% for the nine-month period ended November 30, 2023, when compared to 68.0% for the same period a year ago. The decrease in gross margin as a percentage of net revenues was primarily attributed to increased discounts and promotions and reduced freight charges offered during fiscal 2024 to spur sales.
Previous report
Total operating expenses decreased $12.4 million, or 36.8%, to $21.3 million during the nine-month period ended November 30, 2023, from $33.7 million for the same period a year ago. Operating and selling expenses decreased $4.4 million, or 42.7%, to $5.9 million during the nine-month period ended November 30, 2023, when compared to $10.3 million reported in the same period a year ago, primarily due to a decrease in shipping costs, associated with the decrease in volume of orders shipped, totaling approximately $4.3 million. Sales commissions decreased $7.8 million, or 37.1%, to $13.2 million during the nine-month period ended November 30, 2023, when compared to $21.0 million reported in the same period a year ago, primarily due to the decrease in net revenues, along with $0.3 million increase in additional sales bonuses paid in the second quarter of fiscal 2024 to spur sales. General and administrative expenses decreased $0.3 million, or 12.0%, to $2.2 million, from $2.5 million recognized during the same period last year, due primarily to decreased credit card transaction fees associated with decreased sales volumes totaling $0.5 million, which was offset by a $0.2 million increase in operating expenses primarily associated with the addition of SmartLab Toys.
Previous report
Operating income of the PaperPie segment decreased $4.4 million, or 55.0%, to $3.6 million during the nine months ended November 30, 2023, when compared to $8.0 million reported in the same period last year. Operating income of the PaperPie division as a percentage of net revenues for the nine months ended November 30, 2023 was 9.7%, compared to 13.1% for the nine months ended November 30, 2022. Operating income for the PaperPie division decreased primarily from reduced sales; along with additional promotional discounts and additional commission bonus payments offered to spur sales.
Previous report
Gross margin decreased $1.4 million, or 66.7%, to $0.7 million during the three-month period ended November 30, 2023, from $2.1 million reported in the same quarter a year ago, primarily due to the decrease in net revenues. Gross margin as a percentage of net revenues increased to 58.3% during the three-month period ended November 30, 2023, from 44.6% reported in the same quarter a year ago. Gross margin as a percentage of net revenues changed primarily from an increase in sales of Learning Wrap-Ups and SmartLab Toys, which carry a lower cost of goods sold percentage.
Previous report
Publishing Operating Results for the Nine Months Ended November 30, 2023
Previous report
Our Publishing division’s net revenues decreased by $7.0 million, or 61.4%, to $4.4 million during the nine-month period ended November 30, 2023, from $11.4 million reported in the same period a year ago primarily due to the stoppage of distribution of Usborne products between the periods, which impacted net sales by approximately $8.5 million, offset by increases in Kane Miller sales of $0.3 million, Learning Wrap-Ups sales of $0.3 million and new sales of SmartLab Toys totaling approximately $0.9 million.
Previous report
Total operating expenses of the Publishing segment decreased $1.1 million, or 45.8%, to $1.3 million during the nine-month period ended November 30, 2023, from $2.4 million reported in the same period a year ago. This change was due to a $0.8 million decrease in freight expenses and a $0.3 million decrease in sales commissions due to decreased overall sales and the restructuring of the Company’s internal sales department.
Previous report
Operating income of the Publishing segment decreased $1.6 million, or 57.1%, to $1.2 million during the nine-month period ended November 30, 2023 when compared to $2.8 million reported in the same period a year ago, due primarily to the decrease in sales and operating expenses. The decrease in operating income was primarily associated with the decline in revenues associated with the stoppage of Usborne product sales in this division.
Previous report
● net earnings of $2,161,000, including the receipt of the employee retention tax credit of $3,808,700 and the gain from the sale of the old HQ building of $3,970,600
Previous report
●depreciation expense of $1,995,500
Previous report
●deferred income taxes of ($199,500)
Previous report
●provision for doubtful accounts of $19,800
Previous report
The following table reflects aggregate future scheduled maturities of long-term debt during the next five fiscal years as follows:
Previous report
Allowance for Doubtful Accounts
Previous report
Our principal supplier, based in England, generally requires a minimum reorder 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 receiving 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 reorder based upon this analysis. These factors and historical analysis have led our management to determine that 2½ years represents a reasonable estimate of the normal operating cycle for our products.
Reworded paragraphs (41)
Previous wording
We are the owner and exclusive publisher of Kane Miller children’s books; Learning Wrap-Ups, maker of educational manipulatives; and SmartLab Toys, maker of STEAM-based toys and games. We are also the exclusive United States Multi-Level Marketing (“MLM”) distributor of Usborne Publishing Limited (“Usborne”) children’s books. Significant portions of our existing inventory volumes are concentrated with Usborne. Our distribution agreement with Usborne includes annual minimum purchase volumes along with specific payment terms, which, if not met or if payments are not received in a timely manner, may result in termination of the agreement. During fiscal 2023, the Company did not meet the minimum purchase volumes, did not supply the letter of credit required under the Agreement and certain payments were not received timely. No notification of termination has been received by the Company as of the date of issuance of this Form 10-Q. Should termination of the agreement occur, the Company will be allowed, at a minimum, to sell through their remaining Usborne inventory over the twelve months following the termination date.
Current wording
We are the owner and exclusive publisher of Kane Miller children’s books; Learning Wrap-Ups, maker of educational manipulatives; and SmartLab Toys, maker of STEAM-based toys and games. We are also the exclusive United States Multi-Level Marketing (“MLM”) distributor of Usborne Publishing Limited (“Usborne”) children’s books. Significant portions of our product offering, and inventory are concentrated with Usborne. Our distribution agreement with Usborne includes annual minimum purchase volumes along with specific payment terms, which, if not met or if payments are not received in a timely manner, offer Usborne the right to terminate the agreement. During fiscal 2023 and fiscal 2024, the Company did not meet the minimum purchase volumes and certain payments were not received timely. No notification of non-compliance or termination has been received from Usborne. Should termination of the agreement occur, the Company will be allowed, at a minimum, to sell through their remaining Usborne inventory over the twelve months following the termination date.
Previous wording
Total operating expenses not associated with a reporting segment decreased $1.1 million, or 27.5%, to $2.9 million for the three-month period ended November 30, 2023, when compared to $4.0 million for the same quarterly period a year ago. Operating expenses decreased primarily as a result of a $0.8 million decrease in labor, primarily within our warehouse operations, and a $0.2 million decrease in freight handling expenses, both resulting from a decrease in gross sales, and a $0.2 million decrease in other various expenses.
Current wording
Total operating expenses not associated with a reporting segment decreased $0.3 million, or 10.0%, to $2.7 million for the three-month period ended May 31, 2024, when compared to $3.0 million for the same quarterly period a year ago. Operating expenses decreased primarily as a result of a $0.2 million decrease in labor expenses, primarily within our warehouse operations, and a $0.1 million decrease in freight handling expenses.
Previous wording
Interest expense increased $0.1 million, or 16.7%, to $0.7 million for the three months ended November 30, 2023, when compared to $0.6 million for the same quarterly period a year ago due to increased interest rates on the Company’s variable rate borrowings, period over period.
Current wording
Interest expense decreased $0.1 million, or 14.3%, to $0.6 million for the three months ended May 31, 2024, when compared to $0.7 million for the same quarterly period a year ago, due to reduced borrowings of debt, period over period.
Previous wording
Income taxes increased $0.7 million, or 100.0%, to $0.7 million for the three months ended November 30, 2023, from $0.0 million for the same quarterly period a year ago, primarily resulting from taxes on the gain on the sale of the old building offset by operational losses incurred during the quarter. Our effective tax rate increased to 26.8% for the quarter ended November 30, 2023, from 25.0% for the quarter ended November 30, 2022, due to sales mix fluctuations between states. Our tax rates are higher than the federal statutory rate of 21% due to the inclusion of state income and franchise taxes.
Current wording
Income taxes increased $0.2 million, or 66.7%, to a tax benefit of $0.5 million for the three months ended May 31, 2024, from a tax benefit of $0.3 million for the same quarterly period a year ago, resulting primarily from a decrease in gross sales. Our effective tax rate decreased to 26.8% for the quarter ended May 31, 2024, from 27.3% for the quarter ended May 31, 2023 due primarily to sales mix fluctuations between states. Our tax rates are higher than the federal statutory rate of 21% due to the inclusion of state income and franchise taxes.
Previous wording
PaperPie Operating Results for the Three and Nine Months Ended November 30, 2023
Current wording
PaperPie Operating Results for the Three Months Ended May 31, 2024
Previous wording
PaperPie operating expenses consist of operating and selling expenses, sales commissions and general and administrative expenses. Operating and selling expenses primarily consist of freight expenses and materials and supplies. Sales commissions include amounts paid to brand partners for new sales and promotions. These operating expenses are directly tied to the sales volumes of the PaperPie segment. General and administrative expenses include payroll, outside services, inventory reserves and other expenses directly associated with the segment.
Current wording
PaperPie 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 materials and supplies. Sales commissions include amounts paid to Brand Partners for new sales and promotions. These operating expenses are directly tied to the sales volumes of the PaperPie segment. General and administrative expenses include payroll, outside services, inventory reserves and other expenses directly associated with the segment.
Previous wording
Operating income of the PaperPie segment decreased $1.4 million, or 46.7% to $1.6 million during the three months ended November 30, 2023, when compared to $3.0 million reported in the same quarter a year ago. Operating income of the PaperPie division as a percentage of net revenues for the three months ended November 30, 2023 was 10.3%, compared to 11.9% for the three months ended November 30, 2022. Operating income for the PaperPie division decreased primarily from reduced sales; along with additional promotional discounts and reduced freight charges offered to spur sales.
Current wording
Operating income for the PaperPie segment decreased $0.9 million, or 52.9% to $0.8 million during the three months ended May 31, 2024, when compared to $1.7 million reported in the same quarter a year ago. Operating income for the PaperPie division decreased primarily from reduced sales; along with additional product and transportation discounts partially offset by reduced operating expenses.
Previous wording
Publishing Operating Results for the Three and Nine Months Ended November 30, 2023
Current wording
Publishing Operating Results for the Three Months Ended May 31, 2024
Previous wording
Our Publishing division’s net revenues decreased $3.6 million, or 75.0%, to $1.2 million during the three-month period ended November 30, 2023, from $4.8 million reported in the same period a year ago primarily due to the stoppage of distribution of Usborne products between the periods, which impacted net sales by approximately $4.3 million, partially offset by an increase in Kane Miller and Learning Wrap-Ups sales of $0.1 million and new sales of SmartLab Toys totaling approximately $0.6 million. During fiscal 2023, we entered into a new distribution agreement with Usborne. Under the terms in our new distribution agreement, the Company no longer has the right to distribute Usborne’s products to retail customers after the first quarter of fiscal 2024. Net sales attributed to Usborne products sold within the Publishing division accounted for 89.6%, or $4.3 million during the quarter ended November 30, 2022.
Current wording
Our Publishing division’s net revenues decreased $0.8 million, or 42.1%, to $1.1 million during the three-month period ended May 31, 2024, from $1.9 million reported in the same period a year ago. During fiscal year 2023, we entered into a new distribution agreement with Usborne. Under the contracted terms in our new distribution agreement, the Company no longer has the rights to distribute Usborne’s products to retail customers. The Company discontinued sales to retail customers in the first quarter of fiscal 2024 when Usborne introduced their new distribution vendor. Net revenues from the sale of Usborne products in the first quarter of fiscal 2024 totaled $1.3 million. There were no Usborne sales through the Publishing division in the first quarter of fiscal 2025.
Previous wording
Gross margin decreased $2.7 million, or 51.9%, to $2.5 million during the nine-month period ended November 30, 2023, from $5.2 million reported in the same period a year ago. Gross margin as a percentage of net revenues increased to 56.4%, during the nine-month period ended November 30, 2023, from 45.7% reported in the same period a year ago. Gross margin as a percentage of net revenues changed primarily from increased sales of EDC-owned brands including Kane Miller, SmartLab Toys and Learning Wrap-Ups, which carry a lower cost of goods sold.
Current wording
Gross margin decreased $0.4 million, or 40.0%, to $0.6 million during the three-month period ended May 31, 2024, from $1.0 million reported in the same quarter a year ago, primarily due to the decrease in net revenues. Gross margin as a percentage of net revenues increased to 59.2% during the three-month period ended May 31, 2024, from 50.3% reported in the same quarter a year ago. Gross margin as a percentage of net revenues changed primarily from changes in the mix of products sold between EDC-owned brands and Usborne, with Kane Miller, SmartLab Toys and Learning Wrap-Ups products carrying a better margin on average.
Previous wording
Total operating expenses of the Publishing segment decreased $0.5 million, or 55.6%, to $0.4 million, from $0.9 million, during the three-month periods ended November 30, 2023 and 2022, respectively. This change was primarily due to $0.4 million of reduced freight expenses resulting from lower sales.
Current wording
Total operating expenses of the Publishing segment decreased $0.1 million, or 20.0%, to $0.4 million, from $0.5 million, during the three-month periods ended May 31, 2024 and 2023, respectively. This change was primarily due to a $0.1 million decrease in sales commissions due to decreased overall sales.
Previous wording
Operating income of the Publishing division decreased $0.9 million or 75.0% to $0.3 million during the three-month period ended November 30, 2023, from $1.2 million for the three-month period ended November 30, 2022, respectively. The decrease in operating income was primarily associated with the decline in sales of Usborne productions associated with the new distribution agreement, which required the stoppage of Usborne products sold through this division.
Current wording
Operating income of the Publishing division decreased $0.3 million or 60.0% to $0.2 million during the three-month period ended May 31, 2024 from $0.5 million for the three-month period ended May 31, 2023, respectively. The decrease in operating income was primarily associated with the decline in revenues associated with the new distribution agreement, which required the stoppage of Usborne products sold through this division.
Previous wording
EDC has a history of profitability and positive cash flow. We typically fund our operations from the cash we generate. During periods of loss, EDC will reduce purchases and sell through inventory to generate cash flows. The Company expects to continue to liquidate its buildings and reduce current excess inventory levels and use the cash proceeds to pay down borrowings with our bank. We utilize a bank credit facility and other term loan borrowings to meet our short-term cash needs, as well as fund capital expenditures when necessary. As of the end of the third fiscal quarter of 2024, our revolving bank credit facility loan balance was $5.0 million with no available capacity.
Current wording
EDC has a history of profitability and positive cash flow. We typically fund our operations from the cash we generate. During periods of operating losses, EDC will reduce purchases and sell through inventory to generate cash flow. The Company expects to reduce current excess inventory levels and use the cash proceeds to offset any future operating losses, and to pay down the line of credit and portions of the term debt. Available cash has historically been used to pay down outstanding bank loan balances, for capital expenditures, to pay dividends and to acquire treasury stock. We utilize a bank credit facility and other term loan borrowings to meet our short-term cash needs, as well as fund capital expenditures, when necessary. As of the end of the first fiscal quarter of 2025, our revolving bank credit facility loan balance was $5.6 million with $1.4 million in available capacity.
Previous wording
During the first nine months of fiscal year 2024, we experienced cash inflows from operations of $11,618,800. These cash inflows resulted from:
Current wording
During the first three months of fiscal year 2025, we experienced positive cash inflows from operations of $1,201,600. These cash inflows resulted from:
Previous wording
●share-based compensation expense, net of $270,700
Current wording
●share-based compensation expense, net of $100,800
Previous wording
●provision for inventory allowance of $9,300
Current wording
●provision for inventory allowance of $40,700
Previous wording
●gain on sale of assets of ($4,017,100)
Current wording
●net loss on sale of assets of $3,700
Previous wording
● decrease in inventories, net of $5,867,700
Current wording
●decrease in inventories, net of $2,820,700
Previous wording
● increase in income taxes payable of $961,700
Current wording
●increase in income taxes payable of $335,600
Previous wording
● increase in accrued salaries and commissions, and other liabilities of $637,700
Current wording
●decrease in accrued salaries and commissions, and other liabilities of $427,400
Previous wording
● decrease in accounts receivable of $1,041,900
Current wording
●increase in accounts receivable of $407,200
Previous wording
● increase in accounts payable of $1,271,200
Current wording
●decrease in accounts payable of $217,200
Previous wording
● decrease in prepaid expenses and other assets of $107,300
Current wording
●increase in prepaid expenses and other assets of $13,800
Previous wording
● increase in deferred revenues of $1,491,600
Current wording
●decrease in deferred revenues of $132,700
Previous wording
Cash provided by investing activities was $4,183,000 consisting of proceeds from the sale of assets of $4,858,200 offset by capital expenditures of $638,100 in software upgrades to our proprietary systems that our PaperPie brand partners use to monitor their business and place customer orders and $37,100 of other various purchases.
Current wording
Cash used in investing activities was $108,200 for capital expenditures, consisting of $112,200 in software upgrades to our proprietary systems that our PaperPie Brand Partners use to monitor their business and place customer orders and offset by $4,000 from the sale of machinery and equipment.
Previous wording
Cash used in financing activities was $12,249,400, which was comprised of net payments on the line of credit of $5,636,400, payments on term debt of $6,049,100 and cash paid in treasury stock transactions of $563,900.
Current wording
Cash used in financing activities was $341,400, which was comprised of net borrowings on the line of credit of $100,000 and $8,600 from the sale of treasury stock, offset by payments on term debt of $450,000.
Previous wording
We continue to expect the cash generated from the sale of our owned real estate along with cash generated from our operations, specifically from the reduction of excess inventory, and cash available through our line of credit with our Lender will provide us with the liquidity we need to support ongoing operations. Cash generated from the building sales and operations will be used to pay down existing debt and excess will be used to purchase inventory in order to expand our product offerings.
Current wording
We continue to expect the cash generated from our operations, specifically from the reduction of excess inventory, and cash available through our line of credit with our Lender will provide us with the liquidity we need to support ongoing operations. Cash generated from operations will be used to purchase inventory in order to expand our product offerings and to pay down existing debt.
Previous wording
On August 9, 2022, the Company repaid in full all outstanding indebtedness and terminated all commitments and obligations under its Amended and Restated Loan Agreement dated February 15, 2021 (as amended), between the Company and MidFirst Bank and executed a new Credit Agreement (“Loan Agreement”) with BOKF, NA (“Bank of Oklahoma” or the “Lender”). The Loan Agreement established a fixed rate term loan in the principal amount of $15,000,000 (the “Fixed Rate Term Loan”), a floating rate term loan in the principal amount of $21,000,000 (the “Floating Rate Term Loan”; together with the Fixed Rate Term Loan, collectively, the “Term Loans”), and a revolving promissory note in the principal amount up to $15,000,000 (the “Revolving Loan” or “Line of Credit”).
Current wording
On August 9, 2022, the Company executed a Credit Agreement (“Loan Agreement”) with BOKF, NA (“Bank of Oklahoma” or the “Lender”). The Loan Agreement established a fixed rate term loan in the principal amount of $15,000,000 (the “Fixed Rate Term Loan”), a floating rate term loan in the principal amount of $21,000,000 (the “Floating Rate Term Loan”; together with the Fixed Rate Term Loan, collectively, the “Term Loans”), and a revolving promissory note in the principal amount up to $15,000,000 (the “Revolving Loan” or “Line of Credit”).
Previous wording
On May 10, 2023, the Company executed the Second Amendment to our Loan Agreement with the Lender. This amendment waived the fixed charge ratio default which occurred on February 28, 2023 and amended the financial covenant to not require the fixed charge ratio to be measured at May 31, 2023. The Second Amendment also added a cumulative maximum level of fiscal year to date inventory purchases through the expiration of the Revolving Loan Agreement, increased the borrowing rate on the Company’s Revolving Loan to Term SOFR Rate plus 3.5%, required certain swap agreement be executed within 30 days of the amendment, reduced the revolving commitment from $15,000,000 to $14,000,000, effective May 10, 2023, and further reduced the revolving commitment to $13,500,000, effective July 15, 2023, among other items.
Current wording
On May 10, 2023, the Company executed the Second Amendment to our Loan Agreement with the Lender. This amendment waived the fixed charge ratio default which occurred on February 28, 2023 and amended the financial covenant to not require the fixed charge ratio to be measured at May 31, 2023. The Second Amendment also added a cumulative maximum level of fiscal year to date inventory purchases through the expiration of the Revolving Loan Agreement, increased the borrowing rate on the Company’s Revolving Loan to Term SOFR Rate plus 3.5%, required certain swap agreements be executed within 30 days of the amendment, reduced the revolving commitment from $15,000,000 to $14,000,000, effective May 10, 2023, and further reduced the revolving commitment to $13,500,000, effective July 15, 2023, among other items.
Previous wording
On August 9, 2023, the Company executed the Third Amendment along with a Revised Credit Agreement (“Revised Loan Agreement”) with the Lender. This amendment extended the Revolving Loan maturity date to January 31, 2024 and introduced a stepdown to the Revolving Commitment from $13,500,000, through August 30, 2023; to $10,500,000 through October 30, 2023; to $9,000,000 through November 29, 2023; to $5,000,000 through December 30, 2023; to $4,500,000 through January 30, 2024; and to $4,000,000 on January 31, 2024. The amendment restricts the Company from entering into any new purchase orders and uses its best efforts to cancel existing purchase orders. It also required the Company to list its real estate property located at 10302 East 55th Place, Tulsa, Oklahoma, for sale with a licensed commercial real estate broker satisfactory to the Lender on or before August 18, 2023, among other items. Contingent upon the occurrence of an Event of Default in the agreement, the Company shall within 15 days list its real estate property for sale located at 5402 South 122nd Ave., Tulsa, Oklahoma (“Hilti Complex), with a licensed commercial real estate broker satisfactory to the Lender. The Third Amendment also increased the borrowing rate on the Revolving Loan to 30-Day Term SOFR Rate + 4.50%, or 9.83% at November 30, 2023. The Revised Loan Agreement was updated for the changes in the Third Amendment as well as removed the fixed charge ratio and the ability for borrowings to be accelerated before the January 31, 2024 Revolving Loan maturity date.
Current wording
On August 9, 2023, the Company executed the Third Amendment along with a Revised Credit Agreement (“Revised Loan Agreement”) with the Lender. This amendment extended the Revolving Loan maturity date to January 31, 2024 and introduced a stepdown to the Revolving Commitment from $13,500,000, through August 30, 2023; to $10,500,000 through October 30, 2023; to $9,000,000 through November 29, 2023; to $5,000,000 through December 30, 2023; to $4,500,000 through January 30, 2024; and to $4,000,000 on January 31, 2024. The amendment restricted the Company from entering into any new purchase orders and uses its best efforts to cancel existing purchase orders. It also required the Company to list its real estate property located at 10302 East 55th Place, Tulsa, Oklahoma, for sale with a licensed commercial real estate broker satisfactory to the Lender on or before August 18, 2023, among other items. Contingent upon the occurrence of an Event of Default in the agreement, the Company shall within 15 days list the Hilti Complex with a licensed commercial real estate broker satisfactory to the Lender. The Third Amendment also increased the borrowing rate on the Revolving Loan to 30-Day Term SOFR Rate + 4.50%. The Revised Loan Agreement was updated for the changes in the Third Amendment as well as removed the fixed charge ratio and the ability for borrowings to be accelerated before the January 31, 2024 Revolving Loan maturity date.
Previous wording
Prior to the Third Amendment, executed on August 9, 2023, the Loan Agreement contained provisions that required the Company to maintain a minimum fixed charge ratio. The Company was in violation of the minimum fixed charge ratio covenant as of February 28, 2023, for which the Company obtained a written waiver of compliance from the Lender and was not required to measure the fixed charge ratio as of May 31, 2023. Concurrent with the execution of the Third Amendment to the Loan Agreement, the Loan Agreement was modified to incorporate the changes outlined in the Third Amendment and the fixed charge ratio covenant was removed, as well as the Lender’s right to accelerate the maturities of the Fixed Rate Term Loan and Floating Rate Term Loan due to the fixed charge ratio covenant. Should the Company fail to meet any of the remaining terms outlined in the Revised Credit Agreement or fail to meet the stepdown requirements of the Revolving Loan, the Company shall within 15 days list its real estate property for sale located at 5402 South 122nd Ave., Tulsa, Oklahoma (“Hilti Complex”), with a licensed commercial real estate broker satisfactory to the Lender. Proceeds from the sale of the property would be used to pay off all the borrowings with the Lender. A third-party appraisal was completed on the Hilti Complex, consisting of the 400,000 square feet building complex on approximately 40 acres, along with approximately 15 acres of adjacent unused land, in July of 2023 with a market value of $41,970,000.
Current wording
Prior to the Third Amendment, executed on August 9, 2023, the Loan Agreement contained provisions that required the Company to maintain a minimum fixed charge ratio. The Company was in violation of the minimum fixed charge ratio covenant as of February 28, 2023, for which the Company obtained a written waiver of compliance from the Lender and was not required to measure the fixed charge ratio as of May 31, 2023. Concurrent with the execution of the Third Amendment to the Loan Agreement, the Loan Agreement was modified to incorporate the changes outlined in the Third Amendment and the fixed charge ratio covenant was removed, as well as the Lender’s right to accelerate the maturities of the Fixed Rate Term Loan and Floating Rate Term Loan due to the fixed charge ratio covenant.
Previous wording
Subsequent to November 30, 2023, the Company executed the Fourth Amendment to the Credit Agreement (“Amendment”) with the Lender. The Amendment, effective December 1, 2023, increases the Revolving Loan commitment to $8,000,000 and extends the maturity date to May 31, 2024. The Amendment also requires the Company to list the Hilti Complex for sale, allows the Company to execute additional purchase orders, subject to the lender’s approval and conditions, not to exceed $2,100,000 between December 1, 2023 and March 31, 2024, among other items.
Current wording
On November 30, 2023, the Company executed the Fourth Amendment to the Credit Agreement (“Amendment”) with the Lender. The Amendment, effective December 1, 2023, increased the Revolving Loan commitment to $8,000,000 and extended the maturity date to May 31, 2024. The Amendment also required the Company to list the Hilti Complex for sale, allowed the Company to execute additional purchase orders, subject to the lender’s approval and conditions, not to exceed $2,100,000 between December 1, 2023 and March 31, 2024, among other items. Proceeds from the sale of the property are to be used to pay down the borrowings with the Lender. A third-party appraisal was completed on the Hilti Complex, consisting of the 400,000 square feet building complex on approximately 50 acres, along with approximately 15 acres of adjacent unused land, in July of 2023 with a market value of $41,970,000.
Previous wording
Available credit under the current $5,000,000 revolving line of credit with the Company’s Lender was approximately $1,900 at November 30, 2023.
Current wording
Available credit under the current $7,000,000 revolving line of credit with the Company’s Lender was approximately $1,401,900 at May 31, 2024.
Previous wording
In accordance with ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the condensed financial statements are issued.
Current wording
In accordance with ASC 205-40,Going Concern, the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued.
Previous wording
The short-term duration of the Revolving Loan and uncertainty of the bank’s ongoing support beyond May 31, 2024 raise substantial doubt over the Company's ability to continue as a going concern. Management has plans to sell the Hilti Complex and pay off the Term Loans and Revolving Loan. The proceeds from the sale are expected to generate sufficient cashflow to allow the Company to continue operations without borrowing funds from their bank. In addition, management’s plans include reducing inventory which will generate free cashflows and building the active PaperPie brand partners to pre-pandemic levels. Although there is no guarantee these plans will be successful, management believes these plans, if achieved, should alleviate the substantial doubt about continuing as a going concern and generate sufficient liquidity to meet our obligations as they become due over the next twelve months.
Current wording
The short-term duration of the Revolving Loan and uncertainty of the bank’s ongoing support beyond October 4, 2024, along with recurring operating losses and other items, raise substantial doubt over the Company's ability to continue as a going concern. To address these concerns, the Company has taken steps in its plans to reduce debt by selling owned real estate. On June 6, 2024 the Company executed an agreement sell the Hilti Complex for $35,500,000, the closing of which remains subject to the satisfaction of various closing conditions Upon closing, the proceeds from the sale are expected to pay off the Term Loans and Revolving Loan. Following the loan payoff, management plans to fund ongoing operations with limited borrowings through local banks or other financing sources. In addition, management’s plans include reducing inventory which will generate free cashflows and building the active PaperPie Brand Partners to pre-pandemic levels. Although there is no guarantee these plans will be successful, management believes these plans, if achieved, will alleviate the substantial doubt about continuing as a going concern and generate sufficient liquidity to meet our obligations as they become due over the next twelve months.
Previous wording
During the nine months of fiscal year 2024, the Company recognized $0.3 million of compensation expense associated with the shares granted.
Current wording
During the first three months of fiscal year 2025, the Company recognized $0.1 million of compensation expense associated with the shares granted.
Previous wording
Estimated allowances for sales returns are recorded as sales are recognized. Management uses a moving average calculation to estimate the allowance for sales returns. We are not responsible for a product damaged in transit. Damaged returns are primarily received from the retail customers of our Publishing division. This damage occurs in the stores, not in shipping to the stores, and we typically do not offer credit for damaged returns. It is industry practice to accept non-damaged returns from retail customers. Management has estimated and included a reserve for sales returns of $0.2 million as of November 30, 2023, and February 28, 2023.
Current wording
Estimated allowances for sales returns are recorded as sales are recognized. Management uses a moving average calculation to estimate the allowance for sales returns. We are not responsible for a product damaged in transit. Damaged returns are primarily received from the retail customers of our Publishing division. This damage occurs in the stores, not in shipping to the stores, and we typically do not offer credit for damaged returns. It is industry practice to accept non-damaged returns from retail customers. Management has estimated and included a reserve for sales returns of $0.2 million for May 31, 2024 and February 29, 2024, respectively.
Previous wording
We maintain an allowance for estimated losses resulting from the inability of our customers to make required payments and a reserve for vendor share markdowns, when applicable (collectively “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 $0.1 million and $0.2 million as of November 30, 2023, and February 28, 2023, respectively.
Current wording
We maintain an allowance for estimated losses resulting from the inability of our customers to make required payments and a reserve for vendor share markdowns, when applicable (collectively “credit losses”). An estimate of uncollectible amounts is made by management based upon historical bad debts, current customer receivable balances, age of customer receivable balances, customers’ financial conditions and current economic trends. Management has estimated and included an allowance for credit losses of $0.1 million for both May 31, 2024 and February 29, 2024, respectively.
Previous wording
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 is estimated by management using an anticipated turnover ratio by title, based primarily on historical trends and sales forecasts. These inventory quantities have additional exposure for storage damages and related issues, and therefore have higher obsolescence reserves. Noncurrent inventory balances prior to valuation allowances were $10.2 million and $5.1 million as of November 30, 2023, and February 28, 2023, respectively. Noncurrent inventory valuation allowances were $0.5 million and $0.4 million as of November 30, 2023, and February 28, 2023, respectively.
Current wording
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 is estimated by management using an anticipated turnover ratio by title, based primarily on historical trends. Inventory in excess of 2½ years of anticipated sales is classified as noncurrent inventory. These inventory quantities have additional exposure for storage damages, aging of topical related content and associated issues, and therefore have higher obsolescence reserves. Noncurrent inventory balances prior to valuation allowances were $14.3 million and $12.3 million as of May 31, 2024 and February 29, 2024, respectively. Noncurrent inventory valuation allowances were $0.6 million as of May 31, 2024 and February 29, 2024, respectively.
Previous wording
Brand partners that meet certain eligibility requirements may request and receive inventory on consignment. We believe allowing our brand partners to have consignment inventory greatly increases their ability to be successful in making effective presentations at home shows, book fairs and other events; in summary, having consignment inventory leads to additional sales opportunities. Approximately 11.6% of our active brand partners have maintained consignment inventory at the end of the third quarter of fiscal year 2024. Consignment inventory is stated at cost, less an estimated reserve for consignment inventory that is not expected to be sold or returned to the Company. The total cost of inventory on consignment with brand partners was $1.4 million and $1.5 million as of November 30, 2023, and February 28, 2023, respectively.
Current wording
Brand Partners that meet certain eligibility requirements may request and receive inventory on consignment. We believe allowing our Brand Partners to have consignment inventory greatly increases their ability to be successful in making effective presentations at home shows, book fairs and other events; in summary, having consignment inventory leads to additional sales opportunities. Approximately 12.2% of our active Brand Partners have maintained consignment inventory at the end of the first quarter of fiscal year 2025. Consignment inventory is stated at cost, less an estimated reserve for consignment inventory that is not expected to be sold or returned to the Company. The total cost of inventory on consignment with Brand Partners was $1.2 million and $1.4 million at May 31, 2024 and February 29, 2024, respectively.
Showing the first 40 of 41 pairs. Open the source sections for the rest.
Rearranged previous paragraphs (4)
Previous report — wording carried elsewhere
Non-Segment Operating Results for the Nine Months Ended November 30, 2023
Previous report — wording carried elsewhere
Income taxes increased $1.0 million, or 500.0%, to a tax expense of $0.8 million for the nine months ended November 30, 2023, from a tax benefit of $0.2 million for the same period a year ago, primarily resulting from income associated with the Employee Retention Credit and the sale of the old HQ building, offset by operating losses for the nine months ended November 30, 2023. Our effective tax rate decreased to 26.7% for the nine months ended November 30, 2023, from 28.6% for the nine months ended November 30, 2022, due primarily to sales mix fluctuations between states. Our tax rates are higher than the federal statutory rate of 21% due to the inclusion of state income and franchise taxes.
Previous report — wording carried elsewhere
Available cash has historically been used to pay down outstanding bank loan balances, for capital expenditures, to pay dividends and to acquire treasury stock. We have $1.1 million of restricted cash held by our third-party credit card payment processor as of the end of our third fiscal quarter of 2024.
Previous report — wording carried elsewhere
Features of the Revised Loan Agreement include: