EDUCATIONAL DEVELOPMENT CORP - 10-Q Quarterly Report

10302 East 55^th Place, Tulsa Oklahoma 74146-6515
(Address of principal executive offices)

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.

As of November 30, 2003 there were 3,970,654 shares of Educational Development Corporation Common Stock, $0.20 par value outstanding.


				November 30, 2003
				(unaudited)			February 28, 2003

ASSETS
CURRENT ASSETS:
	Cash and cash equivalents			$	597,900		$	1,433,000
	Accounts receivable – (less allowances for doubtful accounts and returns: 11/30/03 - $203,600 2/28/03 - $190,000)				2,800,300			2,137,400
	Inventories – Net				13,543,800			11,413,700
	Prepaid expenses and other assets				74,300			162,700
	Deferred income taxes				49,500			72,100

			Total current assets		17,065,800			15,218,900
INVENTORIES — Net					419,400			341,900
PROPERTY AND EQUIPMENT
		at cost (less accumulated depreciation:
		11/30/03 - $1,660,400; 2/28/03 - $1,559,500)			1,896,500			1,941,200
DEFERRED INCOME TAXES					59,700			59,700

				$	19,441,400		$	17,561,700

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
	Accounts payable			$	4,286,200		$	4,997,300
	Accrued salaries and commissions				722,500			435,700
	Income taxes				249,500			160,300
	Other current liabilities				472,000			251,800

			Total current liabilities		5,730,200			5,845,100
COMMITMENTS
SHAREHOLDERS’ EQUITY:
	Common Stock, $.20 par value (Authorized 8,000,000 shares; Issued 5,525,340 and 5,441,640 shares; Outstanding 3,970,654 and 3,827,620 shares)				1,105,100			1,088,300
	Capital in excess of par value				5,049,600			4,619,400
	Retained earnings				13,053,100			11,455,700

					19,207,800			17,163,400
	Less treasury shares, at cost				(5,496,600	)		(5,446,800	)

					13,711,200			11,716,600

				$	19,441,400		$	17,561,700


			Three Months Ended November 30,						Nine Months Ended November 30,

			2003			2002			2003			2002

REVENUES:
	Gross sales		$	12,420,300		$	10,555,600		$	31,897,900		$	28,422,400
	Less discounts & allowances			(2,994,100	)		(2,728,200	)		(9,033,300	)		(8,860,600	)
	Transportation revenue			550,500			461,800			1,269,600			1,069,200

		Net revenues		9,976,700			8,289,200			24,134,200			20,631,000
COST OF SALES				3,274,200			2,802,200			8,416,500			7,545,200

		Gross margin		6,702,500			5,487,000			15,717,700			13,085,800

OPERATING EXPENSES:
	Operating & selling			2,016,000			1,624,000			5,012,100			4,142,800
	Sales commissions			2,792,300			2,253,900			6,152,300			4,965,900
	General & administrative			482,800			384,300			1,353,800			1,160,200
	Interest			5,000			—			7,800			900

				5,296,100			4,262,200			12,526,000			10,269,800

OTHER INCOME				9,200			8,100			23,700			29,900

EARNINGS BEFORE INCOME TAXES				1,415,600			1,232,900			3,215,400			2,845,900
INCOME TAXES				544,500			468,000			1,224,000			1,079,300

NET EARNINGS			$	871,100		$	764,900		$	1,991,400		$	1,766,600

BASIC AND DILUTED EARNINGS
	PER SHARE:
	Basic		$	0.22		$	0.20		$	0.51		$	0.46

	Diluted		$	0.20		$	0.18		$	0.46		$	0.43

WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING:
		Basic		3,974,715			3,836,345			3,933,728			3,836,331

		Diluted		4,322,308			4,136,271			4,292,120			4,146,051

DIVIDENDS DECLARED PER COMMON SHARE			$	—		$	—		$	0.10		$	0.06


	Common Stock
	(par value
	$.20 per share)									Treasury Stock

	Number of				Capital in					Number
	Shares				Excess of		Retained			of						Shareholders'
	Issued		Amount		Par Value		Earnings			Shares			Amount			Equity

BALANCE, MAR. 1, 2003		5,441,640	$	1,088,300	$	4,619,400	$	11,455,700			1,614,020		$	(5,446,800	)	$	11,716,600
Purchases of treasury stock		—		—		—		—			35,735			(376,300	)		(376,300	)
Sales of treasury stock		—		—		275,600		—			(95,069	)		326,500			602,100
Stock option transactions, including tax benefit		83,700		16,800		154,600		—			—			—			171,400
Dividends paid ($0.10/share)		—		—		—		(394,000	)		—			—			(394,000	)
Net earnings		—		—		—		1,991,400			—			—			1,991,400

BALANCE, NOV. 30, 2003		5,525,340	$	1,105,100	$	5,049,600	$	13,053,100			1,554,686		$	(5,496,600	)	$	13,711,200


			Nine Months Ended November 30

			2003			2002

CASH FLOWS FROM OPERATING ACTIVITIES			$	(782,200	)	$	1,652,700
CASH FLOWS FROM INVESTING ACTIVITIES –
	Purchases of property and equipment			(56,100	)		(137,000	)

		Net cash used in investing activities		(56,100	)		(137,000	)

CASH FLOWS FROM FINANCING ACTIVITIES:
	Borrowings under revolving credit agreement			6,790,000			1,317,000
	Payments under revolving credit agreement			(6,790,000	)		(1,317,000	)
	Cash received from exercise of stock option			171,400			56,600
	Cash received from sale of treasury stock			602,100			407,700
	Cash paid to acquire treasury stock			(376,300	)		(549,700	)
	Dividends paid			(394,000	)		(230,100	)

		Net cash provided by (used in) financing activities		3,200			(315,500	)

Net (Decrease) Increase in Cash and Cash Equivalents				(835,100	)		1,200,200
Cash and Cash Equivalents, Beginning of Period				1,433,000			906,900

Cash and Cash Equivalents, End of Period			$	597,900		$	2,107,100

Supplemental Disclosure of Cash Flow Information:
	Cash paid for interest		$	6,700		$	900

	Cash paid for income taxes		$	1,081,500		$	941,200

Note 1 — The information shown with respect to the three months and nine months ended November 30, 2003 and 2002, which is unaudited, includes all adjustments which in the opinion of Management are considered to be necessary for a fair presentation of earnings for such periods. The adjustments reflected in the financial statements represent normal recurring accruals. The results of operations for the three months and nine months ended November 30, 2003 and 2002, respectively, are not necessarily indicative of the results to be expected at year end due to seasonality of the product sales.

These financial statements and notes are prepared pursuant to the rules and regulations of the Securities and Exchange Commission for interim reporting and should be read in conjunction with the Financial Statements and accompanying notes contained in the Company’s Annual Report to Shareholders for the Fiscal Year ended February 28, 2003.

Note 2 – Effective June 30, 2003 the Company signed a Fourth Amendment to the Credit and Security Agreement with Arvest Bank which provides a $3,500,000 line of credit. This line of credit is evidenced by a promissory note in the amount of $3,500,000 payable June 30, 2004. This note bears interest, payable monthly, at the Wall Street Journal prime floating rate minus 0.25% (3.75% at November 30, 2003). The note is collateralized by substantially all the assets of the Company. Available credit under the loan was $3,500,000 at November 30, 2003.


		November 30, 2003			February 28, 2003

Current:
	Book Inventory	$	13,573,900		$	11,460,100
	Reserve for Obsolescence		(30,100	)		(46,400	)

Inventories net – current		$	13,543,800		$	11,413,700

Non-current:
	Book Inventory	$	666,200		$	511,500
	Reserve for Obsolescence		(246,800	)		(169,600	)

Inventories – non-current		$	419,400		$	341,900

The Company occasionally purchases book inventory in quantities in excess of what will be sold within the normal operating cycle due to minimum order requirements of the Company’s primary supplier. These amounts are included in non-current inventory.

Significant portions of inventory purchases by the Company are concentrated with an England based publishing company. Purchases from this England based publishing company were approximately $10.0 million and $7.2 million for the nine months ended November 30, 2003 and 2002, respectively. Total inventory purchases from all suppliers were approximately $12.3 million and $9.2 million for the nine months ended November 30, 2003 and 2002, respectively.

Note 4- Basic earnings per share (“EPS”) is computed by dividing net earnings by the weighted average number of common shares outstanding during the period. Diluted EPS is based on the combined weighted average number of common shares outstanding and dilutive potential common shares issuable which include, where appropriate, the assumed exercise of options. In computing diluted EPS the Company has utilized the treasury stock method.

The computation of weighted average common and common equivalent shares used in the calculation of basic and diluted earnings per share (“EPS”) is shown below.


	Three Months Ended November 30,				Nine Months Ended November 30,

	2003		2002		2003		2002

Net Earnings	$	871,100	$	764,900	$	1,991,400	$	1,766,600

Basic EPS:
Weighted Average Shares Outstanding		3,974,715		3,836,345		3,933,728		3,836,331

Basic EPS	$	0.22	$	0.20	$	0.51	$	0.46

Diluted EPS:
Weighted Average Shares Outstanding		3,974,715		3,836,345		3,933,728		3,836,331
Assumed Exercise of Options		347,593		299,926		358,392		309,720

Shares Applicable to Diluted Earnings		4,322,308		4,136,271		4,292,120		4,146,051


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

		For the quarterly period ended November 30, 2003.

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

		For the transition period from to


PART I. FINANCIAL INFORMATION
	ITEM 1 CONDENSED BALANCE SHEETS
	ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	Item 4. — CONTROLS AND PROCEDURES
PART II OTHER INFORMATION
	Item 6 — EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
EXHIBIT INDEX
EX-31.1 Certification of Randall W. White
EX-31.2 Certification of W. Curtis Fossett
EX-32.1 Certification of Randall W. White
EX-32.2 Certification of W. Curtis Fossett

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Delaware (State or other jurisdiction of incorporation or organization)		73-0750007 (I.R.S. Employer Identification No.)