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,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Non-accelerated filer x |
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Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
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Yes o |
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No x |
The aggregate market value of the voting shares held by non-affiliates of the registrant at the price at which the common stock was last sold on August 31, 2007, on the Nasdaq National Market was $24,427,200.
As of May 19, 2008, 3,816,235 shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for fiscal year 2008 relating to our Annual Meeting of Shareholders to be held on July 29, 2008 are incorporated by reference into Part III of this Report on Form 10-K.
TABLE OF CONTENTS
FORWARD LOOKING STATEMENTS
This report contains statements that are forward-looking. You should read the following discussion in connection with our financial statements, including the notes to those statements, included in this document. These forward-looking statements are not historical facts but are expectations or projections based on certain assumptions and analyses made by our senior management in light of their experience and perception of historical trends, current conditions, expected future developments and other factors. Actual events and results may be materially different from anticipated results described in such statements.
Our ability to achieve such results is subject to certain risks and uncertainties which are not currently known to us. We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date that they are made. We do not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this report.
(a) General Development of Business
Educational Development Corporation (“EDC”) is the exclusive United States trade publisher of the line of educational children’s books produced in the United Kingdom by Usborne Publishing Limited (“Usborne”). We were incorporated on August 23, 1965. Our fiscal years end on February 28(29).
Our company motto is “The future of our world depends on the education of our children. EDC delivers educational excellence one book at a time. We provide economic opportunity while fostering strong family values. We touch the lives of children for a lifetime.”
(b) Financial Information about Industry Segments
While selling children’s books is our only line of business, we sell them through two divisions:
· Home Business Division (“Usborne Books at Home” or “UBAH”) - This division distributes books nationwide through independent consultants who hold book showings in individual homes, and through book fairs, direct sales and Internet sales. The UBAH Consultants also distribute these titles to school and public libraries.
· Publishing Division (“Publishing”) – This division markets books to bookstores (including major national chains), toy stores, specialty stores, museums and other retail outlets throughout the country.
Percent Net Revenues by Division
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Publishing |
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% |
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UBAH |
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% |
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% |
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% |
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Total revenues |
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% |
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% |
(c) Narrative Description of Business
Products
As the sole United States trade publisher of the Usborne line of books, we offer over 1,400 different titles. Many are interactive in nature, including our Touchy-Feely board books, jigsaw puzzle books, activity and flashcards, adventure and search books, art books, sticker books and foreign language books. Many titles are also published in Spanish.
We have a broad line of ‘internet-linked’ books which allow readers to expand their educational experience by referring them to relevant non-Usborne websites. Our books include science and math titles, as well as chapter books and novels.
We also produce and distribute “Usborne Kid Kits”, which combine an Usborne book with specialty items/toys that complement the information contained in the book. The Kid Kits are packaged in reusable vinyl bags or box packages. Currently, 60 different Kid Kits are available.
We continually introduce new titles across all lines of our products.
UBAH markets the books through commissioned consultants using a combination of direct sales, home parties, book fairs and the Internet. The division had approximately 7,900 consultants in 50 states at February 29, 2008.
Publishing markets through commissioned trade representatives who call on book, toy, specialty stores and other retail outlets, as well as through in-house marketing by telephone to the trade. This division markets to approximately 5,100 book, toy and specialty stores. Significant orders totaling 32% of the Publishing Division’s sales have been received from major book chains. During fiscal year 2008, the division continued to expand into mass merchandising outlets such as drug, department and discount stores.
Seasonality
Sales for both divisions are greatest during the Fall due to the holiday season.
Competition
We face competition on two fronts for our UBAH Division from several other larger direct selling companies - for sales and consultants. Our school and library market faces strong competition from Scholastic Books for the book fair market.
Publishing faces strong competition from large U.S. and international companies. Industry sales of juvenile paperbacks approached $1.4 billion annually for calendar year 2007. Historically, this division’s sales are approximately 1.0% of industry sales. Competitive factors include product quality, price and deliverability. Management believes its product line will enable this division to compete well in its market area.
Employees
As of April 1, 2008, 76 full-time and 3 part-time employees worked at our Tulsa facility, about half of those are in the assembly facility or distribution warehouse. We believe our relations with our employees are good.
Company Reports
Our annual and quarterly reports (Forms 10-K and 10-Q), current Form 8-K reports and amendments to those reports filed with the SEC are available for download from the Investor Relations portion of our Internet website at www.edcpub.com.
Investors should carefully consider the following risks in addition to the other information contained in this report. Each of these factors could adversely affect our business, operating results and financial condition. In addition, these factors could adversely affect the value of an investment in our common stock.
Our operations may be adversely affected by general economic conditions
General economic factors that are beyond our control impact our forecasts and actual performance. These factors include interest rates, recession, inflation, consumer credit availability, consumer debt levels, energy costs, tax policy changes, unemployment trends, the threat of war, terrorism or other political unrest, and other matters that influence consumer confidence and spending. Volatility in financial markets may cause these factors to change with a greater degree of frequency and magnitude. Changes in the economic climate could adversely affect our performance.
Our growth is dependent upon attracting and retaining independent sales consultants
Our continued growth and success in UBAH is dependent on our ability to attract and retain sales consultants, their ability to operate their businesses successfully and to recruit other sales consultants. To attract and retain new sales consultants, we provide operational manuals and sales materials, participate in regional and national training seminars, offer low-cost start-up opportunities, provide a variety of sales incentives and pay competitive sales commissions and bonuses. These sales consultants are independent business owners and we have no control over the time and effort each individual consultant chooses to spend on their business.
Our business faces a great deal of competitive pressure
The retail business is highly competitive. We compete for sales consultants with many other direct selling companies, most of whom offer products different from our products. Most of these competitors have a greater market presence and larger financial resources. Unanticipated changes in the pricing and marketing practices of these competitors may adversely affect the performance of UBAH.
The Publishing Division operates in a highly competitive market. The Publishing Division is in direct competition with other booksellers, the majority of which have larger financial resources than we have. The book industry is a $25 billion market. Sales in the juvenile paperback market, our primary market, were approximately $1.4 billion for calendar year 2007. Our market share in the juvenile paperback market was less than 1.0% in fiscal year 2008. Unanticipated changes in the pricing and marketing practices of these competitors may adversely affect the performance of our Publishing Division.
Seasonality of sales
Our business is subject to seasonal influences, with a higher portion of sales and income historically realized during the third quarter of the fiscal year, which includes the back-to-school and holiday seasons. This seasonality causes our operating results to vary somewhat from quarter to quarter and could materially and adversely affect the market price of our securities.
Our operations are dependent on a single distribution facility
Our distribution activities for all books are handled from a single facility in Tulsa, Oklahoma. Any significant interruption in the operation of the distribution facility due to natural disasters, accidents, system failures or other unforeseen causes could impair our ability to distribute merchandise to our customers.
We have a sole source supplier for our products
We are the exclusive United States distributor for the line of children’s books published by Usborne Publishing, Limited, London, UK and our distribution of other publishers’ products is extremely limited. There is some risk in having a sole source for our products. The contract between Usborne Publishing, Limited and us has a two-year notice of termination requirement. However, we have an excellent working relationship with our foreign supplier Usborne Publishing, Limited and can foresee no reason for this to change.
All our products are imported from overseas locations
Our products are printed at locations throughout Europe, China, Singapore, India, Malaysia and Dubai. The products are then shipped by ocean cargo to the United States. Political unrest in a particular location could cause delays in securing products. However, since our supplier has numerous sources for printing the products, should political unrest occur in one area, the supplier could utilize printers in other locations to provide our product. Should an accident occur while the books are in transit and the supply of a title be depleted as a result, we would experience lost sales.
Our common stock is thinly traded
Our common stock is traded on the NASDAQ market under the symbol EDUC. There were 3,706,745 shares outstanding at February 29, 2008. The average shares traded daily for the fiscal years ended February 29, 2008, February 28, 2007, and February 28, 2006 were 3,790 shares, 3,021 shares, and 3,371 shares, respectively.
Personnel changes
Our development has largely been achieved through the vision and efforts of our President and CEO. If his services were not available for any reason, our business could be adversely affected.
Other factors may negatively affect our business
The foregoing list of risk factors is not exclusive. Other factors and unanticipated events could adversely affect us. We do not undertake to revise any forward-looking statement to reflect events or circumstances that occur after the date the statement is made.
Item 1B. UNRESOLVED STAFF COMMENTS
None
We are located at 10302 E. 55th Pl., Tulsa, Oklahoma. These facilities are owned by us and contain approximately 105,000 square feet of office and warehouse space. All product distributions are made from this warehouse. We believe that our operating facility meets both present and future capacity needs.
We are not a party to any material pending legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of fiscal year 2008 covered by this report to a vote of our security holders.
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The common stock of EDC is traded on the NASDAQ National Market (symbol—EDUC). The high and low closing quarterly common stock quotations for fiscal years 2008 and 2007, as reported by the National Association of Securities Dealers, Inc., were as follows:
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Low |
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1st Qtr |
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8.58 |
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7.18 |
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8.85 |
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6.86 |
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2nd Qtr |
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8.44 |
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5.85 |
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7.90 |
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6.10 |
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3rd Qtr |
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7.28 |
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5.30 |
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7.88 |
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6.24 |
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4th Qtr |
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6.59 |
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5.19 |
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7.88 |
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6.50 |
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The number of shareholders of record of EDC’s common stock at May 9, 2008 was 743.
We paid a $0.22 per share annual dividend during fiscal year 2008 and a $0.20 per share annual dividend during fiscal year 2007. We paid a $0.30 per share annual dividend and a $0.10 per share special dividend (total $0.40 per share) on May 19, 2008 to shareholders of record as of May 9, 2008.
The following table shows repurchases of our Common Stock which we made during the fourth quarter of fiscal year 2008.
ISSUER PURCHASES OF EQUITY SECURITIES
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Total # of Shares |
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Average Price |
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Total # of Shares |
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Maximum # of |
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December 1 - 31, 2007 |
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51,648 |
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$ |
5.71 |
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51,648 |
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82,370 |
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January 1 - 31, 2008 |
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$ |
0.00 |
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82,370 |
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February 1 - 29, 2008 |
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5,859 |
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$ |
5.42 |
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5,859 |
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79,000 |
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Total |
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57,507 |
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$ |
5.68 |
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57,507 |
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76,511 |
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(1) In April 2004 the Board of Directors authorized us to purchase up to 500,000 additional shares of our common stock under a plan initiated in 1998. This plan has no expiration date.
Item 6. SELECTED FINANCIAL DATA
The following selected financial data for the five years ended February 29, 2008 should be read in conjunction with our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in Item 7 of this Report.
YEARS ENDED FEBRUARY 28 (29)
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