Educational Development
Annual Report 2014

Plain-text annual report

Educational Development Corporation Annual Report 10302 E. 55th Place • Tulsa, Oklahoma 74146-6515 Financial Highlights Fiscal Years ended February 28 Financial Information Net revenues Earnings before income taxes Net earnings 2014 $ 26,097,000 873,500 $ 357,600 $ 2013 $ 25,487,500 $ 1,282,000 802,900 $ Earnings per share: Basic Diluted $ $ 0.09 0.09 $ $ 0.20 0.20 Capital expenditures Total assets Shareholders’ equity $ 77,500 $ 16,758,300 $ 12,582,400 $ 29,300 $ 17,900,800 $ 13,451,800 Common Stock Shares outstanding at year end Cash dividends paid Book value at year end Market price range High Low Market price at year end 3,977,943 0.32 $ 3.16 $ 3,960,812 0.44 $ 3.40 $ $ $ $ 3.89 2.49 3.75 $ $ $ 5.00 3.79 3.91 Business Segments Net Revenues EDC Publishing Usborne Books & More $ 10,968,400 $ 15,128,600 $ 10,811,600 $ 14,675,900 Craig M. White Vice President - Information Systems www.edcpub.com Controller and Corporate Secretary Tulsa, Oklahoma 74146-6515 Total $ 26,097,000 $ 25,487,500 DIRECTORS CORPORATE DATA John A. Clerico Co-founder and Chairman ChartMark Investments, Inc. Notice of Annual Meeting July 17, 2014, 10:00 a.m. Educational Development Corporation Executive Conference Room Ronald T. McDaniel Retired V.P. Sales Educational Development Corporation 10302 E. 55th Place Tulsa, Oklahoma Kara Gae Neal Director, School of Urban Education Form 10-K filed with the Securities and The University of Tulsa Exchange Commission is available upon Form 10-K Educational Development Corporation’s request. Write to: Randall W. White, President Educational Development Corporation 10302 E. 55th Place Tulsa, Oklahoma 74146-6515 Chief Executive Officer – EDC American Stock Transfer and Trust Company Betsy Richert Media Specialist Tulsa Public Schools Randall W. White Chairman, President and OFFICERS Randall W. White Chairman, President and Chief Executive Officer Marilyn Pinney Transfer Agent New York, New York Auditors HoganTaylor LLP Tulsa, Oklahoma Corporate Offices 10302 E. 55th Place Phone (918) 622-4522 Fax (918) 665-7919 Letter From The President Dear Shareholders, It has now been just over two years since making the bold decision to discontinue sales to Amazon, which had represented approximately 20% of the Publishing Division’s annual revenue. This decision was the culmination of realizing that Amazon sales were negatively impacting all other aspects of our Company-from retail stores, online sales and our direct selling division, Usborne Books & More. Last year I was very relieved that the support from our loyal retail customers allowed the Publishing Division to finish with only a 2% decline in annual sales, and I am ecstatic to report the trend continued in this past fiscal year with the Publishing Division reporting its largest revenue year in our history. I am very appreciative of our loyal customers, and new customers whose support has reinforced our decision. This increase in sales occurred during the period when industry-wide retail sales in our category was down 6.6%. As I have stated, I believed Amazon had a very negative impact on our Company and was a significant factor in the sales decline of our direct selling division. Too often, our direct sales representatives would present our products to the consumer only to have them order from Amazon and avoid sales tax, which our Company is obligated to collect. I believe in “Sales 101” which dictates that whoever makes the sale must be compensated and, when this did not happen, we lost numerous sales representatives resulting in a sales decline for the past nine years. However, I am delighted to report, this trend has been reversed and our direct selling division reported a sales increase in this past fiscal year, and actually has now recorded 11 consecutive months of sales gain when compared to the same month the previous year. This renewed confidence in our sales representatives has resulted in over 2,000 new sales associates joining our organization since January 2014 and a 50% increase in our registration for our Annual Convention in June 2014. There are many factors that are responsible for the turnaround in our Company sales, and of course the Amazon decision looms as the largest, however many other elements enter into these results and certainly not the least is the fact that we represent the very best products in the industry, with award-winning titles from Kane Miller and Usborne Publishing. We are very proud of our product line and delighted to report Usborne Publishing was named Children’s Publisher of the Year in 2012 and most recently named overall Independent Publisher of the Year in Great Britain. I have never wavered from the philosophy that our products are better served when presented to the consumer by someone knowledgeable, whether it is one of our loyal retail outlets or our direct sales division. During this year, we committed additional incentives and support to our direct selling division and publishing division in their efforts to be competitive in the marketplace and we will continue this practice in the future. During the past year we made significant improvements to our Company, including staff changes, write-offs of non producing assets and reserving for potential losses in our inventory consignment program. While these changes impacted our results for this fiscal year, we are confident they will result in significant increases in the new fiscal year. We have an excellent leadership team in place, a loyal customer base, award-winning products and we are excited about the prospects for the fiscal year 2015. EDC is a company you can be proud to work for and one you can be proud to own. Cordially yours, Randall W. White Chairman of the Board, President and Chief Executive Officer About Us Educational Development Corporation was founded in 1965 to develop supplemental curriculum material for schools. In 1978, EDC acquired the rights to publish children’s books from Usborne Publishing, Ltd. in England and began distributing Usborne books through the Publishing Division (EDC Publishing). What began as a supplement to the corporation’s product line has grown to become the largest product line for the company. During the 1980s, EDC eliminated the other product lines to concentrate exclusively on Usborne books. On March 1, 1989, EDC created the direct selling division, Usborne Books at Home (currently known as Usborne Books & More). In late 2008, EDC acquired Kane Miller Publishing, an internationally known publisher of children’s books with over 25 years in the industry. Concurrently with that acquisition, the name of the direct selling division was changed to Usborne Books & More. Educational Development Corporation presently has two divisions. EDC Publishing distributes books to bookstores, toy stores, museums, specialty stores and other retail outlets. Usborne Books & More distributes books through independent consultants who sell directly to consumers via home shows, direct sales, book fairs, and web sites. Consultants, when registered as educational consultants, also have the opportunity to sell to the school & library market. This is done through offering one-on-one sales opportunities, fundraisers, book fairs, matching grant programs and more, which reinforce the company’s support of literacy and education. The company’s strategic plan includes growing market share in both divisions. Everyone benefits from having Usborne and Kane Miler books available in their homes, classrooms, libraries and stores. Our books make learning fun! Usborne and Kane Miller books are the most exciting, engaging, and educational books on the market today. They are high quality, innovative, lavishly-illustrated and, best of all, they are the books kids love to read. There are almost 1600 bright, colorful and fun titles to choose from - covering a wide assortment of subjects. We offer an incredible variety of fiction and non-fiction titles in all age ranges. Usborne Books Over forty years ago, Peter Usborne pioneered a new generation of books that prove it is possible to create books that compete with the vast media that attracts children today. From activity books, to fascinating fiction series, to internet-linked science and history encyclopedias, Usborne does books better. With subjects ranging from history to art, horses to ballet, sticker books to activity cards, math dictionaries to first readers and touchy-feely board books, every child’s age, stage, subject and interest can be matched with an Usborne book. Highly illustrated, easy to pore over and dip into, written with humor, drama and intelligence, Usborne books enrich children’s interests, helping them discover a myriad of subjects with ease and success. All of the books in the Usborne line have an accessible, vibrant, distinctive design and mass commercial appeal. Usborne books are currently sold in over 85 countries in more than 75 different languages. Kane Miller Books For more than 25 years, Kane Miller, based in San Diego, California, has been publishing award-winning children’s books from around the world. The books chosen to publish are done so with extraordinary care and attention. Kane Miller searches the world for great picture books and fiction that enrich the lives and imaginations of the children who read them. With art and text that combine to bring the world closer to children, sharing stories and ideas while exploring differences, Kane Miller books offer a window to other countries, cultures and communities – including those in the U.S. Books teach attitudes, they reinforce or break stereotypes, they make the world seem a bigger place or a smaller one, they humanize events, and they make children feel empathy, sympathy and wonder. Books can personalize the world. Kane Miller strives to publish books that make kids say “Wow that’s just like me” and also “Wow, that’s different.” Books that make kids say, “I want to go there someday,” or even just sometimes “Wow, what a silly story.” And for them to know that maybe someone in another part of the world is saying “Wow” about the exact same book. Recognitions EDC is proud to announce that Usborne Publishing was named 2014 Children’s Publisher of the Year and 2014 Overall Independent Publisher of the Year by IPG in England. This honor is especially astounding as they were judged against multiple publishers of varying sizes and subjects. As was quoted by one of the IPG judges, “the way it not just keeps going but keeps growing is really impressive. Its presence around the world is phenomenal, and it is evangelical about getting people to read. All publishers could learn something from Usborne.” The Kane Miller title, Splash, Anna Hibiscus!, was selected as a 2014 Summer Reading selection from The Horn Book (on a shortlist of ten titles). Usborne Books & More (UBAM) Upon completion of our National Convention in June 2013, the Usborne Books & More division began to see positive change occur. After training and inspiring our sales consultants with our message of “Mission: Possible – Changing the World One Book at a Time”, they took that message to heart and, more importantly, back to their local communities to share. After nine years of sales decline, the home business division experienced a sales recovery and finished Fiscal 2014 up 3.1%, with a total of $15,128,600 in net revenues. Total number of new consultants continued to increase as well, with 4,420 new Consultants in Fiscal 2014, up 28% over Fiscal 2013. Attendance numbers for training events also rose – our Advanced Leadership Retreat held at Big Cedar Lodge saw a 50% increase in attendance in January 2014, with the largest number of attendees ever. National Convention, scheduled for June 2014, currently has 53% more registered than attended last year. These numbers indicate a definite positive trend, especially when compared to data from other direct sales companies, which shows a downturn in net sales and new recruits. The continued growth and success is generated from individual UBAM Consultants, including sales from websites, home parties, book fairs, matching grant programs, fundraisers and more. Sales numbers are promotion driven in a party-plan business and much of the success experienced in the last year is due to innovative incentive programs offered, including ones that reward with cash bonuses, gifts and prizes. The biggest incentive program each year is the travel incentive, which requires a minimum level of requirements to be met in order to earn dream vacations all over the world. Incorporating the theme, “Books are my Ticket to the World”, trip earners most recently enjoyed the beautiful Atlantis resort in Paradise Island, Bahamas. The next travel incentive trip will be announced at National Convention in June 2014 to a very excited audience. It is our expectation that we will have the largest number of trip earners yet. t Celebr a i ng 25 Yea r s 1989 - 2014 U S B O R NE BOO K S & M O E R Heather Cobb Vice President UBAM Todd R. White Manager Educational Services Pat Wright Manager Consultant Services EDC Publishing In Fiscal 2014, EDC Publishing posted the best performance in the division’s history with an increase of 1.5% in net revenues. Net revenues were recorded at $10,968,400. Sales to large national chains increased by 6%, due in large part to the continuing increased penetration of some of our bestselling series, such as Sticker Dolly Dressing and other activity books. The increased volume has resulted in the chains giving EDC a more prominent stake of real estate in their stores. The toy and gift markets continue their growth trend. In Fiscal 2014, these markets represented 63% of EDC Publishing’s total net revenues. In one specialty retail toy chain EDC has become the number one book vendor in their stores, up from number three a few years ago. EDC maintains a continued presence at prominent national trade shows such as Toy Fair, New York Gift Show, San Francisco Gift Show, Los Angeles Gift Show, Atlanta Gift Show, ASTRA and the Museum Store Association Show. Moving forward, the focus will be to sustain the success of the national chain and independent retail sectors, while continuing the growth of the toy and gift markets. The EDC Publishing Division will utilize the marketing efforts that have proven successful in the past, in all areas of our business. Jeanie Crone Vice President EDC Publishing Kira Lynn Publisher Kane Miller STOCK PRICES AND DIVIDENDS PAID Fiscal Year Stock Prices Cash Dividend Paid 2014 2013 2012 2011 2010 High Low $ $ $ $ $ 3.95 5.00 6.90 7.00 6.48 $ $ $ $ $ 2.49 3.79 3.80 5.15 3.10 $ $ $ $ $ 0.32 0.44 0.48 0.54 0.67 Operations Headquartered in Tulsa, Oklahoma, the EDC corporate office and adjacent 100,000 square foot warehouse provide for a streamlined operational and management workflow. The warehouse’s six hundred foot long flow-rack system expedites order fulfillment and delivery, with over 95% of orders receiving same-day turnaround. Craig M. White Vice President Information Technology Marilyn Pinney Controller & Corporate Secretary  __________________________________________________________________________________ __________________________________________________________________________________ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________________________________________________________________________________ __________________________________________________________________________________ FORM 10-K ⌧⌧⌧⌧ (cid:2)(cid:2)(cid:2)(cid:2) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) For the fiscal year ended February 28, 2014 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission file number: 0-4957 EDUCATIONAL DEVELOPMENT CORPORATION (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 10302 East 55th Place, Tulsa, Oklahoma (Address of principal executive offices) 73-0750007 (I.R.S. Employer Identification No.) 74146-6515 (Zip Code) Registrant’s telephone number, including area code (918) 622-4522 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.20 par value (Title of class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:2) No ⌧ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:2) No ⌧ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No (cid:2) Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ⌧ No (cid:2) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:2) 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): Large accelerated filer (cid:2) Non-accelerated filer (cid:2) (Do not check if a smaller reporting company) Accelerated filer (cid:2) Smaller reporting company ⌧ (cid:3) Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes (cid:2) No ⌧ 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, 2013, on the NASDAQ Stock Market, LLC was $12,188,600. As of May 23, 2014, 3,989,126 shares of common stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for fiscal year 2014 relating to our Annual Meeting of Shareholders to be held on July 17, 2014 are incorporated by reference into Part III of this Report on Form 10-K. FACTORS AFFECTING FORWARD LOOKING STATEMENTS TABLE OF CONTENTS PART I Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. PART II Item 5. Item 6. Item 7. Item 7A. Item 8. Item 9. Item 9A. Item 9B. PART III Item 10. Item 11. Item 12. Item 13. Item 14. PART IV Item 15. Business Risk Factors Unresolved Staff Comments Properties Legal Proceedings Mine Safety Disclosures Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management’s Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information Directors and Executive Officers of the Registrant Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions Principal Accountant’s Fees and Services Exhibits and Financial Statement Schedules 4 4 5 6 6 6 6 7 7 8 15 15 15 15 15 16 16 16 16 16 17 PART I 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. As used in this Annual Report on Form 10-K, the terms “EDC,” “we,” “our” or “us” mean Educational Development Corporation, a Delaware corporation, unless the context indicates otherwise. 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. Item 1. BUSINESS (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. We also own Kane Miller Book Publishers; award-winning publishers of International children’s books. 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 & More” or “UBAM”) - This division distributes books nationwide through independent consultants, who hold book showings in individual homes, and through social media, book fairs, direct sales and Internet sales. The UBAM consultants also distribute these titles to school and public libraries. Publishing Division (“EDC 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 UBAM Publishing Total revenues 2014 2013 58% 42% 100% 58% 42% 100% 4 (c) Narrative Description of Business Products As the sole United States trade publisher of the Usborne line of books, we offer over 1,500 different titles. Many are interactive in nature, including our Touchy-Feely board books, activity and flashcards, adventure and search books, art books, sticker books and foreign language books. The majority of the titles published by Kane Miller Book Publishers originally were published in other countries in their native languages. 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 continually introduce new titles across all lines of our products. UBAM markets the books through commissioned consultants using a combination of direct sales, home parties, book fairs and the Internet. The division had approximately 5,900 consultants in 50 states at February 28, 2014. EDC Publishing markets through commissioned trade representatives who call on book, toy, and specialty stores along with other retail outlets. We also do in-house marketing by telephone to these potential customers. This division markets to approximately 5,000 book, toy and specialty stores. Significant orders, totaling 26% of the Publishing division’s net sales, have been received from major book chains. Key Customers No customer represents more than 10% of our net sales. Seasonality Sales for both divisions are greatest during the fall due to the holiday season. Competition We face competition on two fronts for our UBAM division from several other larger direct selling companies - for sales and consultants. However, no other direct selling company exclusively sells children’s books. Our school and library market faces competition from Scholastic Books for the book fair market. Publishing faces strong competition from large U.S. and international companies. Historically, this division's sales represent less than 1.0% of industry sales of juvenile paperbacks. Employees As of April 1, 2014, 74 full-time employees worked at our Tulsa and San Diego facilities; about 40% of those are in the 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. Item 1A. RISK FACTORS We are a smaller reporting company and are not required to provide this information. 5 Item 1B. UNRESOLVED STAFF COMMENTS None Item 2. PROPERTIES 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 also lease a small office in San Diego, California which houses Kane Miller Book Publishers. Item 3. LEGAL PROCEEDINGS We are not a party to any material pending legal proceedings. Item 4. MINE SAFETY DISCLOSURES None 6 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 Stock Market, LLC (symbol--EDUC). The high and low quarterly common stock quotations for fiscal years 2014 and 2013, as reported by the National Association of Securities Dealers, Inc., were as follows: Period 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 2014 2013 High Low High Low 3.95 3.58 3.11 3.89 3.45 3.04 2.49 2.89 5.00 4.64 4.13 4.12 4.25 3.85 3.79 3.80 The number of shareholders of record of EDC's common stock at February 28, 2014 was 620. During fiscal year 2014, we paid quarterly dividends totaling $0.32 per share as follows: $0.08 per share dividend on March 22, 2013, $0.08 per share dividend on June 21, 2013, $0.08 per share dividend on September 20, 2013, and $0.08 per share dividend on December 20, 2013. An additional $0.08 per share dividend was declared on February 28, 2014 and was paid during fiscal year 2015 to shareholders of record on March 14, 2014. The following table shows repurchases of our common stock which we made during the fourth quarter of fiscal year 2014. ISSUER PURCHASES OF EQUITY SECURITIES 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 - $ - $ - $ - $ - - - - - - - - 304,654 304,654 304,654 Period December 1 - 31, 2013 January 1 - 31, 2014 February 1 - 28, 2014 Total (1) In April 2008 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 We are a smaller reporting company and are not required to provide this information. 7 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MD&A contains statements that are forward-looking and include numerous risks which you should carefully consider. Additional risks and uncertainties may also materially and adversely affect our business. You should read the following discussion in connection with our financial statements, including the notes to those statements, included in this document. Our fiscal years end on February 28. Management Summary Educational Development Corporation is the sole distributor in the United States of the Usborne line of children’s books and is the owner of Kane Miller Book Publishers. We operate two separate divisions, EDC Publishing and Usborne Books & More (“UBAM”), to sell these books. Our Corporate headquarters, including the distribution facility for both divisions, is located in Tulsa, Oklahoma. These two divisions each have their own customer base. EDC Publishing markets its products on a wholesale basis to various retail accounts. UBAM markets its products to individual consumers as well as to school and public libraries through direct-selling consultants. Publishing Division EDC Publishing operates in a market that is highly competitive, with a large number of companies engaged in the selling of books. The Publishing division’s customer base includes national book chains, regional and local bookstores, toy and gift stores, school supply stores and museums. To reach these markets, the Publishing division utilizes a combination of commissioned sales representatives located throughout the country and a commissioned inside sales group located in our headquarters. The Vice President of the Publishing division manages sales to the national chain customers. Publishing Division Sales by Market Type National chain stores All other Total net sales FY 2014 FY 2013 26% 74% 100% 28% 72% 100% EDC Publishing uses a variety of methods to attract potential new customers and maintain current customers. Company personnel attend many of the national trade shows held by the book selling industry each year, allowing us to make contact with potential buyers who may be unfamiliar with our books. We actively target the national chains through joint promotional efforts and institutional advertising in trade publications. The Publishing division also participates with certain customers in a cooperative advertising allowance program, under which we pay back up to 2% of the net sales to that customer. Our products are then featured in promotions, such as catalogs, offered by the vendor. We may also acquire, for a fee, an end cap position in a bookstore (our products are placed on the end of a shelf), which in the publishing industry is considered an advantageous location in the bookstore. EDC Publishing’s in-house telesales group targets the smaller independent book and gift store market. Our semi-annual, full-color, 160-page catalogs, are mailed to over 5,000 customers and potential customers. We also offer two display racks to assist stores in displaying our products. Net Revenues FY 2014 FY 2013 $ 10,968,400 $ 10,811,600 Publishing division’s net revenues increased $156,800 in fiscal year 2014 from fiscal year 2013, or 1.5%. Net revenues were up 10.2% for smaller retail stores and 3.0% for inside sales, offset by a decrease of 5.3% for national chain stores. 8 Usborne Books & More (“UBAM”) Division UBAM is a multi-level direct selling organization that markets its products through independent sales representatives (“consultants”) located throughout the United States. The customer base of UBAM consists of individual purchasers, as well as school and public libraries. Revenues are generated through home shows, direct sales, Internet sales, book fairs and contracts with school and public libraries. An important factor in the continued growth of the UBAM division is the addition of new sales consultants and the retention of existing consultants. Current active consultants recruit new sales consultants. UBAM makes it easy to recruit by providing low-cost signing kits. UBAM provides an extensive handbook that is a valuable tool in explaining the various programs to the new recruit. Consultants During Year New Sales Representatives Active Sales Representatives End of Fiscal Year 4,000 5,900 2,700 4,700 FY 2014 FY 2013 The UBAM division presently has six levels of sales representatives: · · · · · · Consultants Team Leaders Senior Team Leaders Executive Team Leaders Senior Executive Team Leaders Directors Upon signing up, each individual is considered a consultant. Consultants receive commissions from each sale they make; the commission rate being determined by the marketing program under which the sale is made. In addition, consultants receive a monthly sales bonus once their sales reach an established monthly goal. Consultants who recruit other consultants and meet certain established criteria are eligible to become team leaders. Upon reaching this level, they receive monthly override payments based upon the sales of their downline groups. Once team leaders reach certain established criteria, they become senior team leaders and are eligible to earn promotion bonuses on their consultants. Once senior team leaders reach certain established criteria, they become executive team leaders, senior executive team leaders or directors. Executive team leaders and higher may receive an additional monthly override payment based upon the sales of their downline groups. Percent of Net Revenues by UBAM Marketing Program FY 2014 FY 2013 Home Shows Direct Sales School & Library Internet Fund Raisers Transportation Revenues Totals 28% 2% 43% 15% 3% 9% 100% 27% 2% 46% 12% 5% 8% 100% Number of Orders by UBAM Marketing Program FY 2014 FY 2013 Home Shows Direct Sales School & Library Internet Fund Raisers 18,300 2,800 11,000 43,200 1,000 76,300 17,100 3,100 11,000 33,800 1,400 66,400 9 Net revenues, after commissions, from home shows increased 3% or $76,400 during fiscal year 2014. This was primarily due to 8% more orders placed during the period offset by a 4% decrease in average order size. Consultants contact individuals (“hostesses”) to hold book shows in their homes or via social media. The consultant assists the hostess in setting up the details for the show and makes a presentation at the show and takes orders for the books. The hostess earns free books based upon the total sales at the show. Customer specials are available for customers when they order a selected amount. Additionally, home shows provide an excellent opportunity for recruiting new consultants. Net revenues, after commissions, from direct sales decreased 22% or $47,700 during fiscal year 2014. This resulted from a 12% decrease in both the number of orders placed during the year and in the average order size. Direct sales are sales without a hostess being involved. The UBAM division offers many promotions (customer specials) throughout the year. These promotions offer the customer the opportunity to purchase selected items at a discount if the customer meets the defined criteria. The discounts under these promotions are recorded in discounts and allowances. The school and library marketing program, after commissions, including book fairs, decreased 1% or $57,800 during fiscal year 2014, primarily due to a per-order average decrease of 2%. School and library sales are restricted to consultants who have received additional, specialized training which allows them to sell to schools and libraries. The UBAM consultant is the only source that a library or school has for most of our titles. They are not available through school supply distribution companies. This program includes our book fairs. Book fairs can be held with almost any organization as the sponsor. The consultant provides promotional materials to acquaint parents with the books. Parents turn in their orders at a designated time. The book fair program generates free books for the sponsoring organization. UBAM also has a Reach for the Stars fundraiser program. This is a pledge-based reading incentive program that provides cash and books to the sponsoring organization and books for the children. Internet sales, after commissions, were up 34% or $406,200 during fiscal year 2014. This resulted from a 28% increase in the number of orders placed during the year and a 3% increase in average order size. Consultants utilize in-house-developed and hosted web sites in their businesses for a nominal annual fee. They can customize the web sites to their own particular needs or they can maintain the generic site. Orders are transmitted to us through a shopping cart arrangement and the consultant receives sales credit and commission on the sales. Our fund-raising program, after commissions, Cards for a Cause, decreased 34% or $167,500 in sales over the prior year. This resulted from a 29% decrease in the number of orders placed during the year and an 8% decrease in average order size. Organizations sell variety boxes of greeting-type cards and keep a portion of the proceeds to help support themselves and their related causes. Transportation revenues increased 12% or $95,400 during fiscal year 2014. Transportation revenues are based on order sales, with minimums per order depending on order type. The cost of free books provided under the various UBAM marketing programs is recorded as operating and selling expense in the statements of earnings. While there are many direct sales companies, UBAM continues to be the only such company in the United States exclusively selling books. We believe this is a fertile market with opportunities for growth. The keys to future growth in the UBAM division are recruiting and retaining consultants. (1-2) Liquidity and Capital Resources EDC has a history of profitability and positive cash flow. We can continue to grow with minimal additional capital requirements. Our primary source of cash is generated from our operations. Outside of cash used in operating activities, generally our primary uses of cash are to pay dividends and acquire treasury stock. During fiscal year 2014, we utilized our bank credit facility to meet some short-term cash requirements. At fiscal year end, our bank credit facility loan balance was $0. 10 We expect our ongoing cash flow to continue to exceed cash required to operate the business. As such, we expect our short-term borrowings to be limited during fiscal year 2015. During fiscal year 2014, we experienced a positive cash flow from our operations of $2,765,100. Cash flow from net earnings of $357,600 was increased due to the provision for doubtful accounts and sales returns of $978,000, an increase in current liabilities of $835,700, the impairment of our investment in nonmarketable equity securities of $430,300, a $370,200 increase in net income tax payable, a $165,900 decrease in prepaid expenses and other assets, a decrease in deferred income taxes of $127,600, and depreciation expense of $115,400, offset by an increase in accounts receivable of $559,700, and an increase in inventories of $55,900. Cash used in investing activities was $77,500 for capital expenditures. We estimate that cash used in investing activities for fiscal year 2015 will be less than $250,000. This would consist of property improvements, software and hardware enhancements to our existing data processing equipment, and additional warehouse equipment. Cash used in financing activities was $2,476,700 which was primarily due to $2,500,000 in payments under our revolving credit agreement, dividend payments of $1,271,500, and $129,200 paid to acquire treasury stock. These were offset by cash received of $1,250,000 from borrowings under our revolving credit agreement and $174,000 from the sale of treasury stock. In September 2002, the Board of Directors authorized a minimum annual cash dividend of 20% of net earnings. In fiscal years 2014 and 2013, we declared dividends equal to 356% and 216%, respectively, of net income after taxes. Our Board of Directors adopted a stock repurchase plan in which we may purchase up to an additional 500,000 shares as market conditions warrant. Management believes the stock is undervalued and when stock becomes available at an attractive price, we can utilize free cash flow to repurchase shares. Management believes this enhances the value to the remaining stockholders and that these repurchases will have no adverse effect on our short-term and long-term liquidity. (3) Results of Operations Earnings as a Percent of Net Revenues FY 2014 FY 2013 Net revenues Cost of sales Gross margin Operating expenses: Operating and selling Sales commissions General and administrative Total operating expenses Other income (expense) Earnings before income taxes Income taxes Net earnings 100.0% 40.3% 59.7% 27.8% 18.9% 8.1% 54.8% (1.5%) 3.4% 2.0% 1.4% 100.0% 41.2% 58.8% 26.3% 18.7% 9.0% 54.0% 0.2% 5.0% 1.9% 3.1% 11 Fiscal Year 2014 Compared with Fiscal Year 2013 The following presents an overview of our results of operations for years ended February 28, 2014 and 2013. We had earnings before income taxes of $873,500 for fiscal year 2014 compared with $1,282,000 for fiscal year 2013. Revenues FY 2014 FY 2013 $ Change Gross sales Less discounts & allowances Transportation revenue Net revenues $ $ $ 40,558,000 (15,414,200) 953,200 26,097,000 $ $ 39,215,300 (14,585,800) 858,000 25,487,500 $ 1,342,700 (828,400) 95,200 609,500 UBAM’s gross sales increased 5.2% or $865,200 during fiscal year 2014 when compared with fiscal year 2013. This increase is attributable to an increase in home party and internet markets, offset by lower sales in fund raisers, school and library/book fair and direct sales. The overall number of orders was up 15% due to increases in internet and home show orders, offset by decreases in the number of fund raisers and direct sales. Average sales per order for this division were down 10%. EDC Publishing’s gross sales increased 2.1% or $477,500 during fiscal year 2014 when compared with fiscal year 2013. Sales increased by 38% to smaller retail stores and 17% by inside sales, offset by a decrease in sales to national chain stores of 35%. UBAM’s discounts and allowances were $3,414,200 in fiscal year 2014 and $2,906,300 in fiscal year 2013. Most sales by UBAM are at retail. As a part of UBAM’s marketing programs, discounts between 40% and 50% of retail are offered on selected items at various times throughout the year. The discounts and allowances in the UBAM division will vary from year to year depending upon the marketing programs in place during any given year. UBAM’s discounts and allowances were 19.4% of UBAM’s gross sales in fiscal year 2014 and 17.3% in fiscal year 2013. EDC Publishing’s discounts and allowances are a much larger percentage of gross sales than discounts and allowances in the UBAM division due to the different customer markets that each division targets. The Publishing division’s discounts and allowances were $12,000,000 in fiscal year 2014 and $11,679,500 in fiscal year 2013. To be competitive with other wholesale book distributors, EDC Publishing sells at discounts between 48% and 55% of the retail price, based upon the quantity of books ordered and the dollar amount of the order. EDC Publishing’s discounts and allowances were 52.3% of their gross sales in fiscal year 2014 and 52.0% in fiscal year 2013. Transportation revenues increased $95,200 in fiscal year 2014, primarily due to the increase in UBAM gross sales during the year. Expenses Cost of sales Operating and selling Sales commissions General and administrative Total FY 2014 10,523,500 7,258,500 4,939,800 2,123,500 24,845,300 $ $ FY 2013 10,494,200 6,714,600 4,764,900 2,285,700 24,259,400 $ $ $ $ $ Change 29,300 543,900 174,900 (162,200) 585,900 Cost of sales increased 0.3% in fiscal year 2014 when compared with fiscal year 2013. Our cost of products is 25% to 28% of the gross sales price, depending upon the product. In comparing the percentage change in gross sales with the percentage change in cost of goods, consideration must be given to the mix of products sold. Approximately 79% of our products come from one vendor, where the cost of the products is a fixed percentage of the retail price. 12 Cost of sales is the inventory cost of product sold (including the cost of the product itself and inbound freight charges). Operating and selling expenses include purchasing and receiving, inspection, warehousing, and other costs of our distribution network. These costs totaled $1,133,100 in fiscal year 2014 and $1,019,200 in fiscal year 2013. When comparing our gross margins with the gross margins of other companies, note that we do not include the costs of our distribution network in our cost of sales. In addition to costs associated with our distribution network (noted above), operating and selling costs include expenses of the Publishing and UBAM divisions, along with the order entry and customer service functions. Operating and selling expenses as a percentage of gross sales were 17.9% for fiscal year 2014 and 17.1% for fiscal year 2013. Sales commissions for EDC Publishing increased $27,200 for the fiscal year ended 2014. Sales commissions for this division fluctuate depending upon the amount of sales made to our “house accounts,” which are our largest customers and do not have any commission expense associated with them, and sales made by our outside sales representatives. Publishing division sales commissions are paid on net sales and were 2.9% for fiscal year 2014 and 2.7% for fiscal year 2013. Sales commissions for UBAM increased $147,700. UBAM division sales commissions are paid based on the retail price of non-promotional products sold and were 26.2% of gross sales for fiscal year 2014 and 26.7% for fiscal year 2013. The fluctuation in the percentages of commission expense to gross sales is the result of the type of sale. Home shows, book fairs, school and library sales and direct sales have different commission rates. Also contributing to the fluctuations in the percentages is the payment of overrides and bonuses, both dependent on consultants’ monthly sales and downline sales. The increase in sales commissions is the result of higher gross sales in the UBAM division. General and administrative expenses include the executive department, accounting department, information services department, general office management and building facilities management. General and administrative expenses as a percentage of gross sales were 5.2% for fiscal year 2014 and 5.8% for fiscal year 2013. The tax provision for fiscal year 2014 was $515,900. The effective rate for fiscal year 2014 was 59.1% and for fiscal year 2013 was 37.4%. Our effective tax rate is higher than the Federal statutory rate due to state income and franchise taxes and a fully-reserved capital loss carry forward, which we do not reasonably expect to deduct for income tax purposes. Contractual Obligations We are a smaller reporting company and are not required to provide this information. Critical Accounting Policies Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to our valuation of inventory, allowance for uncollectable 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. Stock-Based Compensation We account for stock-based compensation whereby share-based payment transactions with employees, such as stock options and restricted stock, are measured at estimated fair value at date of grant and recognized as compensation expense. 13 Revenue Recognition Sales are recognized and recorded when products are shipped. Products are shipped FOB shipping point. UBAM’s sales are paid at the time the product is shipped. These sales accounted for 58% of net revenues in both fiscal years 2014 and 2013. Estimated allowances for sales returns are recorded as sales are recognized and recorded. Management uses a moving average calculation to estimate the allowance for sales returns. We are not responsible for product damaged in transit. Damaged returns are primarily from the retail stores. The damages occur in the stores, not in shipping to the stores. It is industry practice to accept returns from wholesale customers. Transportation revenue represents the amount billed to the customer for shipping the product and is recorded when the product is shipped. Management has estimated and included a reserve for sales returns of $100,000 for the years ended February 28, 2014 and 2013. Allowance for Doubtful Accounts We maintain an allowance for estimated losses resulting from the inability of our customers to make required payments. 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 an allowance for doubtful accounts of $233,900 and $471,900 as of February 28, 2014 and 2013, respectively. Inventory Management continually estimates and calculates the amount of noncurrent inventory. The inventory arises due to occasional purchases of book inventory in quantities in excess of what will be sold within the normal operating cycle due to minimum order requirements of our primary supplier. Noncurrent inventory was estimated by management using the current year turnover ratio by title. All inventory in excess of 2 Ѕ years of anticipated sales was classified as noncurrent inventory. Noncurrent inventory balances were $824,000 and $934,000 at February 28, 2014 and 2013, respectively. Inventories are presented net of a valuation allowance. Management has estimated and included a valuation allowance for both current and noncurrent inventory. This allowance is based on management’s identification of slow moving inventory on hand. Management has estimated a valuation allowance for both current and noncurrent inventory of $378,800 and $400,000 as of February 28, 2014 and 2013, respectively. Our product line contains approximately 1,500 titles, each with different rates of sale, depending upon the nature and popularity of the title. Almost all of our product line is saleable as the books are not topical in nature and remain current in content today as well as in the future. Most of our products are printed in Europe, China, Singapore, India, Malaysia and Dubai resulting in a three to four-month lead-time to have a title reprinted and delivered to us. 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 more lengthy delays to receive the ordered title. Anticipating customer preferences and purchasing habits requires historical analysis of similar titles in the same series. We then place the initial order or re-order based upon this analysis. These factors and historical analysis have led Management to determine that 2 Ѕ years represents a reasonable estimate of the normal operating cycle for our products. New Accounting Pronouncements The Financial Accounting Standards Board (“FASB”) periodically issues new accounting standards in a continuing effort to improve standards of financial accounting and reporting. We have reviewed the recently issued pronouncements and concluded that the recently issued accounting standards are not applicable to us. 14 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are a smaller reporting company and are not required to provide this information. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item 8 begins at page 22. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None Item 9A.CONTROLS AND PROCEDURES An evaluation was performed of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) and 15d-15(e) as of February 28, 2014. This evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and our Controller/Corporate Secretary (Principal Financial and Accounting Officer). Based on that evaluation, these officers concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to them, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported in accordance within the time periods specified in Securities and Exchange Commission 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. During the fourth fiscal quarter of the fiscal year covered by this report on Form 10-K, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting. MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Securities Exchange Act of 1934 (the "Exchange Act"). Under the supervision and with the participation of our management, including our President and our Controller, we evaluated the effectiveness of our internal control over financial reporting based on the framework in INTERNAL CONTROL-INTEGRATED FRAMEWORK issued by the Committee of Sponsoring Organizations of the Treadway Commission in 1992. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based on our evaluation under that framework and applicable SEC rules, our management concluded that our internal control over financial reporting was effective as of February 28, 2014. This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management's report in this annual report. Item 9B.OTHER INFORMATION None 15 Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) Identification of Directors PART III The information required by this Item 10 is furnished by incorporation by reference to the information under the caption "Election of Directors" in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 17, 2014. (b) Identification of Executive Officers Information regarding our executive officers required by Item 401 of Regulation S-K is presented in Item 1 hereof under the subcaption "Executive Officers" as permitted by General Instruction G (3) to Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K. (c) Compliance with Section 16 (a) of the Exchange Act The information required by this Item 10 is furnished by incorporation by reference to the information under the caption "Section 16 (a) Beneficial Ownership Reporting Compliance” in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 17, 2014. Item 11. EXECUTIVE COMPENSATION The information required by this Item 11 is furnished by incorporation by reference to the information under the caption "Executive Compensation" in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 17, 2014. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by this Item 12 is furnished by incorporation by reference to the information under the captions "Security Ownership of Certain Beneficial Owners and Management" and "Compensation Plans" in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 17, 2014. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None Item 14. PRINCIPAL ACCOUNTANT’S FEES AND SERVICES The information required by this Item 14 is furnished by incorporation by reference to the information under the caption "Independent Registered Public Accountants" in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 17, 2014. 16 PART IV Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as part of this report: 1. Financial Statements Report of Independent Registered Public Accounting Firm Balance Sheets - February 28, 2014 and 2013 Statements of Earnings - Years ended February 28, 2014 and 2013 Statements of Shareholders' Equity -Years ended February 28, 2014 and February 28, 2013 Statements of Cash Flows - Years ended February 28, 2014 and 2013 Notes to Financial Statements Page 20 21 22 23 24 25-32 Schedules have been omitted as such information is either not required or is included in the financial statements. 2. Exhibits 3.1 3.2 3.3 3.4 3.5 3.6 4.1 10.1 10.2 10.3 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. 0-4957). 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. 0-4957). 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. 0-4957). 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. 0-4957). Certificate of Amendment of Restated Certificate of Incorporation dated March 22, 1996 is incorporated herein by reference to Exhibit 3.4 to Form 10-K for fiscal year ended February 28, 1997 (File No. 0-4957). Certificate of Amendment of Restated Certificate of Incorporation dated July 15, 2002 is incorporated herein by reference to Exhibit 10.30 to Form 10-K dated February 28, 2003 (File No. 0-4957). Specimens of Common Stock Certificates are incorporated herein by reference to Exhibits 3.1 and 3.2 to Registration Statement on Form 10-K (File No. 0-4957) filed June 29, 1970. Usborne Agreement-Contractual agreement by and between the Company and Usborne Publishing Limited dated November 25, 1988 is incorporated herein by reference to Exhibit 10.12 to Form 10-K dated February 28, 1989 (File No. 0-4957). Party Plan-Contractual agreement by and between the Company and Usborne Publishing Limited dated March 14, 1989 is incorporated herein by reference to Exhibit 10.13 to Form 10-K dated February 28, 1989 (File No. 0-4957). Amendment dated January 1, 1992 to Usborne Agreement - Contractual agreement by and between the Company and Usborne Publishing Limited is incorporated herein by reference to Exhibit 10.13 to Form 10-K dated February 29, 1992 (File No. 0-4957). 17 10.4 10.5 10.6 10.7 Educational Development Corporation 1992 Incentive Stock Option Plan is incorporated herein by reference to Exhibit 4(c) to Registration Statement on Form S-8 (File No. 33-60188). Restated Loan Agreement dated June 30, 1999 between the Company and State Bank & Trust, N.A., Tulsa, OK, is incorporated herein by reference to Exhibit 10.24 to Form 10-K dated February 29, 2000 (File No. 0-4957). Educational Development Corporation 2002 Incentive Stock Option Plan is incorporated herein by reference to Exhibit A to definitive proxy statement on Schedule 14A dated May 23, 2002 (File No. 0-4957). Amendment dated November 12, 2002 to Usborne Agreement – Contractual agreement by and between we and Usborne Publishing Limited is incorporated herein by reference to Exhibit 10.24 to Form 10-K dated February 28, 2003 (File No. 0-4957). 10.8 Employment Agreement between Randall W. White and the Company dated February 28, 2004. 10.9 10.10 10.11 10.12 10.13 Eleventh Amendment dated June 30, 2009 to Restated Loan Agreement between the Company and Arvest Bank, Tulsa, OK. Twelfth Amendment dated June 30, 2010 to Restated Loan Agreement between the Company and Arvest Bank, Tulsa, OK. Thirteenth Amendment dated June 30, 2011 to Restated Loan Agreement between the Company and Arvest Bank, Tulsa, OK. Fourteenth Amendment dated June 30, 2012 to Restated Loan Agreement between the Company and Arvest Bank, Tulsa, OK. Fifteenth Amendment dated June 30, 2013 to Restated Loan Agreement between the Company and Arvest Bank, Tulsa, OK. *23.1 Consent of Independent Registered Public Accounting Firm. *31.1 *31.2 *32.1 Certification of the Chief Executive Officer of Educational Development Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of the Controller and Corporate Secretary (Principal Financial and Accounting Officer) of Educational Development Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document *Filed Herewith 18 Pursuant to the requirements of Section 13 or 15(b) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES EDUCATIONAL DEVELOPMENT CORPORATION Date: May 28, 2014 By /s/ Marilyn Pinney Marilyn Pinney Controller and Corporate Secretary (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Date: May 28, 2014 /s/ Randall W. White Randall W. White Chairman of the Board President, Treasurer and Director May 28, 2014 /s/ John A. Clerico John A. Clerico, Director May 28, 2014 /s/ Ronald McDaniel Ronald McDaniel, Director May 28, 2014 /s/ Kara Gae Neal Kara Gae Neal, Director May 28, 2014 /s/ Betsy Rickert Betsy Rickert, Director May 28, 2014 /s/ Marilyn Pinney Marilyn Pinney Controller and Corporate Secretary (Principal Financial and Accounting Officer) 19 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders Educational Development Corporation We have audited the accompanying balance sheets of Educational Development Corporation as of February 28, 2014 and 2013, and the related statements of earnings, shareholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Educational Development Corporation as of February 28, 2014 and 2013, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles. /s/ HOGANTAYLOR LLP Tulsa, Oklahoma May 28, 2014 20 EDUCATIONAL DEVELOPMENT CORPORATION BALANCE SHEETS AS OF FEBRUARY 28, ________________________________________________________________ ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable, less allowance for doubtful accounts and sales returns $333,900 (2014) and $571,900 (2013) Inventories—Net Prepaid expenses and other assets Income tax receivable Deferred income taxes Total current assets INVENTORIES—Net PROPERTY, PLANT AND EQUIPMENT—Net 2014 2013 $ 680,000 $ 469,100 3,000,800 9,869,400 262,200 - 259,300 14,071,700 3,419,100 9,724,700 438,800 229,300 381,400 14,662,400 470,200 559,000 1,877,600 1,915,500 INVESTMENT IN NONMARKETABLE EQUITY SECURITIES - 430,300 267,400 256,700 71,400 76,900 $ 16,758,300 $ 17,900,800 $ 2,543,700 $ - 514,900 140,900 318,200 658,200 4,175,900 1,862,100 1,250,000 439,300 - 317,900 579,700 4,449,000 1,208,200 8,548,000 14,280,500 24,036,700 (11,454,300) 12,582,400 16,758,300 $ 1,208,200 8,548,000 15,194,700 24,950,900 (11,499,100) 13,451,800 17,900,800 $ OTHER ASSETS DEFERRED INCOME TAXES TOTAL ASSETS LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable Line of credit Accrued salaries and commissions Income taxes payable Dividends payable Other current liabilities Total current liabilities COMMITMENTS (Note 7) SHAREHOLDERS’ EQUITY: Common stock, $0.20 par value; Authorized 8,000,000 shares; Issued 6,041,040 Outstanding 3,977,943 (2014) and 3,960,812 (2013) shares Capital in excess of par value Retained earnings Less treasury stock, at cost Total shareholders' equity TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY See notes to financial statements. 21 EDUCATIONAL DEVELOPMENT CORPORATION STATEMENTS OF EARNINGS FOR THE YEARS ENDED FEBRUARY 28, __________________________________________________________________________________ GROSS SALES Less discounts and allowances Transportation revenue NET REVENUES COST OF SALES Gross margin OPERATING EXPENSES: Operating and selling Sales commissions General and administrative Total operating expenses OTHER INCOME (EXPENSE) EARNINGS BEFORE INCOME TAXES INCOME TAXES NET EARNINGS BASIC AND DILUTED EARNINGS PER SHARE: Basic Diluted WEIGHTED AVERAGE NUMBER OF COMMON AND EQUIVALENT SHARES OUTSTANDING: Basic Diluted Dividends per share See notes to financial statements. 2014 2013 $ 40,558,000 $ (15,414,200) 953,200 26,097,000 10,523,500 15,573,500 39,215,300 (14,585,800) 858,000 25,487,500 10,494,200 14,993,300 7,258,500 4,939,800 2,123,500 14,321,800 6,714,600 4,764,900 2,285,700 13,765,200 (378,200) 53,900 873,500 1,282,000 515,900 357,600 $ 479,100 802,900 0.09 $ 0.09 $ 0.20 0.20 3,968,214 3,968,214 0.32 $ 3,934,352 3,934,352 0.44 $ $ $ $ 22 EDUCATIONAL DEVELOPMENT CORPORATION STATEMENTS OF SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED FEBRUARY 28, __________________________________________________________________________________ Common Stock (par value $0.20 per share) Number of Capital in Treasury Stock Shares Issued Amount Excess of Par Value Retained Earnings Number of Shares Amount Shareholders ’ Equity BALANCE—March 1, 2012 Purchases of treasury stock Sales of treasury stock Dividends declared ($0.08/share) Dividends paid ($0.36/share) Net earnings BALANCE—February 28, 2013 Purchases of treasury stock Sales of treasury stock Dividends declared ($0.08/share) Dividends paid ($0.24/share) Net earnings BALANCE—February 28, 2014 See notes to financial statements. 6,041,040 1,208,200 6,041,040 1,208,200 $ - - - - - $ - - - - - $ $ - - - - - $ - - - - - $ 8,548,000 - - - - - 8,548,000 - - - - - 8,548,000 $ 16,124,900 - - (317,900) (1,415,200) 802,900 $ 15,194,700 - - (318,200) (953,600) 357,600 2,127,857 12,106 (59,735) - - - 2,080,228 43,349 (60,480) - - - (56,700) 221,100 - - - $ (11,663,500) $ 14,217,600 (56,700) 221,100 (317,900) (1,415,200) 802,900 $ (11,499,100) $ 13,451,800 (129,200) 174,000 (318,200) (953,600) 357,600 $ (11,454,300) $ 12,582,400 (129,200) 174,000 - - - 2,063,097 6,041,040 1,208,200 $ 14,280,500 23 EDUCATIONAL DEVELOPMENT CORPORATION STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED FEBRUARY 28, __________________________________________________________________________________ CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings Adjustments to reconcile net earnings to net cash provided by operating activities: Impairment of investment in nonmarketable equity securities Depreciation Deferred income taxes Provision for doubtful accounts and sales returns Changes in assets and liabilities: Accounts receivable Inventories, net Prepaid expenses and other assets Accounts payable, accrued salaries and commissions, and other current liabilities Income tax payable/receivable Total adjustments Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Investment in nonmarketable equity securities Purchases of property, plant and equipment Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Cash received from sale of treasury stock Cash paid to acquire treasury stock Borrowings under revolving credit agreement Payments under revolving credit agreement Dividends paid Net cash used in financing activities NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS—BEGINNING OF YEAR CASH AND CASH EQUIVALENTS—END OF YEAR SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest Cash paid for income taxes See notes to financial statements. 2014 2013 $ 357,600 $ 802,900 430,300 115,400 127,600 978,000 - 114,200 (12,600) 1,508,700 (559,700) (55,900) 165,900 (1,352,800) 118,300 (117,300) 835,700 370,200 2,407,500 2,765,100 - (77,500) (77,500) (128,900) (293,500) (163,900) 639,000 (180,300) (29,300) (209,600) 174,000 (129,200) 1,250,000 (2,500,000) (1,271,500) (2,476,700) 210,900 469,100 680,000 $ 221,100 (56,700) 2,185,000 (1,185,000) (1,884,800) (720,400) (291,000) 760,100 469,100 34,500 $ 11,000 $ 24,300 785,100 $ $ $ 24 EDUCATIONAL DEVELOPMENT CORPORATION NOTES TO FINANCIAL STATEMENTS YEARS ENDED FEBRUARY 28, 2014 AND 2013 __________________________________________________________________________________ 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business—Educational Development Corporation (“we”, “our”, or “the Company”) distributes books and publications through our EDC Publishing and Usborne Books & More (“UBAM”) divisions to book, toy and gift stores, libraries and home educators located throughout the United States (“U.S.”). We are the sole U.S. distributor of books and related items, which are published by an England-based publishing company, Usborne, our primary supplier. We are also in the direct publishing market through our ownership of Kane Miller Book Publishers. Estimates—Our financial statements were prepared in conformity with accounting principles generally accepted in the United States of America, which requires management to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Actual results could differ from these estimates. Business Concentration—A significant portion of our inventory purchases are concentrated with Usborne. Purchases from them were approximately $9.0 million and $8.6 million for the years ended February 28, 2014 and 2013, respectively. Total inventory purchases for those same periods were approximately $11.4 million and $11.3 million, respectively. Cash and Cash Equivalents—Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. We have never experienced any losses related to these balances. Insurance coverage on our non-interest bearing cash balances was limited to $250,000 and our non-interest bearing cash balances exceed federally insured limits. The majority of payments due from banks for third party credit card transactions process within two business days. These amounts due are classified as cash and cash equivalents. Cash and cash equivalents includes demand and time deposits, money market funds and other marketable securities with maturities of three months or less when acquired. Accounts Receivable— Accounts receivable are uncollateralized customer obligations due under normal trade terms generally requiring payment within thirty days from the invoice date. Trade accounts are stated at the amount management expects to collect from outstanding balances. Delinquency fees are not assessed. Payments of accounts receivable are allocated to the specific invoices identified on the customers’ remittance advice. Accounts receivable are carried at original invoice amount less an estimated reserve made for returns and discounts based on quarterly review of historical rates of returns and expected discounts to be taken. The carrying amount of accounts receivable is reduced, if needed, by a valuation allowance that reflects management’s best estimate of the amounts that will not be collected. Management periodically reviews accounts receivable balances and, based on an assessment of historical bad debts, current customer receivable balances, age of customer receivable balances, customers’ financial conditions and current economic trends, estimates the portion of the balance that will not be collected. Management provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation account based on its assessment of the current status of the individual accounts. Balances which remain outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to trade accounts receivable. Recoveries of trade receivables previously written off are recorded as income when received. Inventories—Inventories are stated at the lower of cost or market. Cost is determined using the FIFO method. We present a portion of our inventory as a noncurrent asset. Occasionally we purchase book inventory in quantities in excess of what will be sold within the normal operating cycle due to minimum order requirements of our primary supplier. These excess quantities are included in noncurrent inventory. We estimate noncurrent inventory using the current year turnover ratio by title. All inventory in excess of 2½ years of anticipated sales is classified as noncurrent inventory. Inventories are presented net of a valuation allowance. Management has estimated and included an allowance for slow moving inventory for both current and noncurrent inventory. This allowance is based on management’s analysis of inventory on hand at February 28, 2014 and 2013. 25 Property, Plant and Equipment—Property, plant and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful lives, as follows: Building Machinery and equipment Furniture and fixtures 30 years 3 - 10 years 3 years Income Taxes—We account for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and the tax basis of assets and liabilities using the current tax laws and rates. A valuation allowance is established when necessary to reduce deferred tax assets to the amounts that are “more likely than not” to be realized. Revenue Recognition—Sales are recognized and recorded when products are shipped. Products are shipped FOB shipping point. The UBAM division’s sales are paid at the time the product is shipped. These sales accounted for 58% of net revenues in both fiscal years 2014 and 2013. Estimated allowances for sales returns are recorded as sales are recognized and recorded. Management uses a moving average calculation to estimate the allowance for sales returns. We are not responsible for product damaged in transit. Damaged returns are primarily from the retail stores related to damages which occur in the stores, not in shipping to the stores. It is industry practice to accept returns from wholesale customers. Management has estimated and included a reserve for sales returns of $100,000 as of February 28, 2014 and 2013. Transportation revenue represents the amount billed to the customer for shipping the product and is recorded when the product is shipped. Advertising Costs—Advertising costs are expensed as incurred. Advertising expenses, included in selling and operating expenses in the statements of earnings, were $348,600 and $222,600 for the years ending February 28, 2014 and 2013, respectively. Shipping and Handling Costs— We classify shipping and handling costs as operating and selling expenses in the statements of earnings. Shipping and handling costs were $2,595,800 and $2,348,900 for the years ending February 28, 2014 and 2013, respectively. Earnings per Share—Basic earnings per share (“EPS”) is computed by dividing net income 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, we have 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. Earnings Per Share: Net earnings applicable to common shareholders Shares: Weighted average shares outstanding–basic Assumed exercise of options Year Ended February 28, 2014 2013 $ 357,600 $ 802,900 3,968,214 3,934,352 - - Weighted average shares outstanding–diluted 3,968,214 3,934,352 Basic Earnings Per Share Diluted Earnings Per Share $ $ 0.09 $ 0.20 0.09 $ 0.20 Stock options not considered above because they were antidilutive 11,000 16,000 26 Long-Lived Asset Impairment— We review the value of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable based on estimated future cash flows. No impairment was noted as a result of such review during the years ended February 28, 2014 and 2013. Stock-Based Compensation—Share-based payment transactions with employees, such as stock options and restricted stock, are measured at estimated fair value at date of grant and recognized as compensation expense. New accounting pronouncements—The Financial Accounting Standards Board (“FASB”) periodically issues new accounting standards in a continuing effort to improve standards of financial accounting and reporting. We have reviewed the recently issued pronouncements and concluded that the recently issued accounting standards are not applicable to us. 2. INVENTORIES Inventories consist of the following: Current: Book inventory Inventory valuation allowance Inventories net–current Noncurrent: Book inventory Inventory valuation allowance Inventories net–noncurrent 3. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following: Land Building Machinery and equipment Furniture and fixtures Less accumulated depreciation February 28, 2014 2013 9,894,400 (25,000) 9,869,400 824,000 (353,800) 470,200 $ $ $ $ 9,749,700 (25,000) 9,724,700 934,000 (375,000) 559,000 February 28, 2014 250,000 2,124,700 2,363,800 75,700 4,814,200 (2,936,600) 1,877,600 2013 250,000 2,124,700 2,287,900 74,100 4,736,700 (2,821,200) 1,915,500 $ $ $ $ $ $ $ $ 27 4. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of significant items comprising our net deferred tax assets and liabilities as of February 28 are as follows: Current: Deferred tax assets: Allowance for doubtful accounts Inventory overhead capitalization Inventory valuation allowance Allowance for sales returns Accruals Deferred tax assets-current Noncurrent: Deferred tax assets: Inventory valuation allowance Capital loss carryforward Subtotal deferred tax assets Less valuation allowance Total net deferred tax assets Deferred tax liabilities: Property and equipment Deferred tax liabilities $ $ 2014 2013 $ $ 58,500 79,000 9,500 38,000 74,300 259,300 134,400 163,600 298,000 (163,600) 134,400 (63,000) (63,000) 175,900 77,800 9,500 38,000 80,200 381,400 140,600 - 140,600 140,600 (63,700) (63,700) Net deferred tax asset-noncurrent $ 71,400 $ 76,900 Management has assessed the evidence to estimate whether sufficient future capital gains will be generated to utilize the existing capital loss carryforward. As no current expectation of capital gains exists, Management has objectively determined that a valuation allowance is necessary to reduce the carrying value of deferred tax assets as it is “more likely than not” that such assets are unrealizable. The amount of the deferred tax asset considered realizable, however, could be adjusted if future capital gains are generated during the carryforward period. Management has determined that no valuation allowance is necessary to reduce the carrying value of other deferred tax assets as it is “more likely than not” that such assets are realizable. The components of income tax expense are as follows: Current: Federal State Deferred: Federal State Total income tax expense February 28, 2014 2013 $ $ 299,000 89,300 388,300 133,200 (5,600) 127,600 515,900 $ $ 411,000 80,700 491,700 (10,600) (2,000) (12,600) 479,100 28 The following reconciles our expected income tax expense utilizing statutory tax rates to the actual tax expense: Tax expense at federal statutory rate State income tax–net of federal tax benefit Change in capital loss valuation allowance Other Total income tax expense February 28, 2014 2013 $ $ 297,000 70,100 163,600 (14,800) 515,900 $ $ 435,900 50,400 - (7,200) 479,100 We file our tax returns in the U.S. and certain state jurisdictions. We are no longer subject to income tax examinations by tax authorities for fiscal years before 2011. We are currently the subject of an income tax examination for fiscal year 2012 by the IRS. Based upon a review of our income tax filing positions, we believe that our positions would be sustained upon an audit and do not anticipate any adjustments that would result in a material change to our financial position. Therefore, no reserves for uncertain income tax positions have been recorded. We classify interest and penalties associated with income taxes as a component of income tax expense on the statement of earnings. 5. EMPLOYEE BENEFIT PLAN We have a profit sharing plan that incorporates the provisions of Section 401(k) of the Internal Revenue Code. The 401(k) plan covers substantially all employees meeting specific age and length of service requirements. Matching contributions are discretionary and amounted to $57,100 and $67,500 in the fiscal years ended February 28, 2014 and 2013, respectively. The 401(k) plan includes an option for employees to invest in our stock, which is purchased from our Treasury stock shares. Shares purchased for the 401(k) plan from Treasury stock amounted to 60,480 net shares and 57,367 net shares in the fiscal years ended February 28, 2014 and 2013, respectively. 6. DEBT We have a $2,500,000 revolving credit agreement, with interest payable monthly at the greater of (a) prime rate minus 0.75% or (b) 4.00%. At February 28, 2014, the rate in effect was 4.00%. The revolving credit agreement is collateralized by substantially all of our assets and matures on June 30, 2014. We had no borrowings outstanding on the above revolving credit agreement at February 28, 2014 and $1,250,000 in borrowings outstanding at February 28, 2013. Available credit under the revolving credit agreement was $2,500,000 at February 28, 2014. This agreement also contains a provision for our use of the Bank’s letters of credit. The Bank agrees to issue, or obtain issuance of commercial or stand-by letters of credit provided that no letters of credit will have an expiry date later than June 30, 2014 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. The agreement contains provisions that require us to maintain specified financial ratios, restrict transactions with related parties, prohibit mergers or consolidation, disallow additional debt, and limit the amount of compensation, salaries, investments, capital expenditures and leasing transactions. We intend to renew the bank agreement or obtain other financing upon maturity. 7. COMMITMENTS At February 28, 2014, we had outstanding purchase commitments for inventory totaling approximately $5,270,800. Rent expense for the year ended February 28, 2014 was $57,200. As of February 28, 2014, we did not have any lease commitments in excess of one year. 29 8. CAPITAL STOCK, STOCK OPTIONS AND WARRANTS The Board of Directors adopted the 2002 Incentive Stock Option Plan (the “2002 Plan”) in June of 2002. The 2002 Plan also authorized us to grant up to 1,000,000 stock options. Options granted under 2002 Incentive Plan vest at date of grant and are exercisable up to ten years from the date of grant. The exercise price on options granted is equal to the market price at the date of grant. Options outstanding at February 28, 2014 expire beginning in March 2014 through December 2019. A summary of the status of our Incentive Plans as of February 28, 2014 and 2013, and changes during the years then ended is presented below: Outstanding at Beginning of Year Exercised/canceled February 28, 2014 Weighted Average Exercise Price Shares 2013 Weighted Average Exercise Price Shares 16,000 $ 5.55 16,000 $ 5.55 (5,000) (5.25) - - Outstanding at End of Year 11,000 $ 5.68 16,000 $ 5.55 All options outstanding are exercisable at February 28, 2014. 9. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the quarterly results of operations for the years ended February 28, 2014 and 2013. 2014 First quarter Second quarter Third quarter Fourth quarter Total year 2013 First quarter Second quarter Third quarter Fourth quarter Total year Net Revenues Earnings Gross Margin Net Earnings Per Share Basic Diluted Earnings Per Share $ $ $ $ 5,990,500 $ 5,715,100 8,502,000 5,889,400 26,097,000 $ 3,514,300 $ 3,054,100 5,207,500 3,797,600 15,573,500 $ 66,600 $ 56,400 547,800 (313,200) 357,600 $ 6,594,600 $ 5,464,400 7,864,400 5,564,100 25,487,500 $ 4,118,700 $ 3,024,200 4,813,200 3,037,200 14,993,300 $ 350,200 $ 138,200 525,700 (211,200) 802,900 $ 0.02 $ 0.01 0.14 (0.08) 0.09 $ 0.09 $ 0.04 0.13 (0.06) 0.20 $ 0.02 0.01 0.14 (0.08) 0.09 0.09 0.04 0.13 (0.06) 0.20 30 10. BUSINESS SEGMENTS We have two reportable segments: EDC Publishing and Usborne Books & More (“UBAM”) which 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. · · EDC Publishing markets its products to retail accounts, which include book, toy and gift stores, school supply stores and museums, through commissioned sales representatives, trade and specialty wholesalers and an internal telesales group. UBAM markets its product line through a nationwide network of independent sales consultants using a combination of direct sales, home shows and book fairs. The UBAM division also distributes to school and public libraries. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. We evaluate segment performance based on earnings (loss) before income taxes of the segments, which is defined as segment net sales reduced by direct 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” column. Corporate expenses include the executive department, accounting department, information services department, general office management and building facilities management. Our assets and liabilities are not allocated on a segment basis. Information by industry segment for the years ended February 28, 2014 and 2013 is set forth below: NET REVENUES 2014 10,968,400 15,128,600 - 26,097,000 $ $ $ $ EARNINGS (LOSS) BEFORE INCOME TAXES 2014 3,448,900 2,159,700 (4,735,100) 873,500 $ $ $ $ 2013 10,811,600 14,675,900 - 25,487,500 2013 3,457,900 2,105,800 (4,281,700) 1,282,000 $ $ $ $ $ $ $ $ Publishing UBAM Other Total Publishing UBAM Other Total 11. STOCK REPURCHASE PLAN In April 2008, the Board of Directors authorized us to purchase up to an additional 500,000 shares of our common stock under the plan initiated in 1998. This plan has no expiration date. During fiscal year 2014, we purchased 43,349 shares of common stock at an average price of $2.98 per share totaling approximately $129,200. The maximum number of shares that may be repurchased in the future is 304,654. 12. RECEIVABLE FROM CUSTOMER IN BANKRUPTCY At February 28, 2013, we had a receivable due from a customer who has filed for protection from its creditors under Chapter 11 of the Bankruptcy Reform Act of 1978 in the amount of $364,300, of which $340,000 was reserved in the allowance for doubtful accounts during a prior year. During fiscal year 2014, we received a final bankruptcy payment towards this receivable in the amount of $44,800 representing 12% of the allowed amount of our general unsecured claim. The remaining balance was written off against the reserve during the year ended February 28, 2014. 31 13. STOCK PURCHASE AGREEMENT As of February 28, 2013, we acquired a 15.6% position with Demibooks, Inc. for an investment of $430,300 under a Stock Purchase Agreement. We accounted for this investment using the cost method, as reflected on the balance sheet under ‘investment in nonmarketable equity securities’. Demibooks provides a publishing platform, Composer, which is a code-free way for publishers and self-published authors and illustrators to create interactive books for the iPad on the device itself. We utilize the Composer platform to create proprietary interactive products. During the year ended 2014, we identified an impairment indicator in the value of our investment in Demibooks, and determined the impairment to be other than temporary. The Company estimated the fair value of the investment to be $0 based on the estimated future cash flows, and recognized an impairment loss of $430,300, which is reflected on the statements of earnings under other expenses. 14. FAIR VALUE MEASUREMENTS The valuation hierarchy included in U.S. GAAP considers the transparency of inputs used to value assets and liabilities as of the measurement date. The less transparent or observable the inputs used to value assets and liabilities, the lower the classification of the assets and liabilities in the valuation hierarchy. A financial instrument'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 $1,250,000 at February 28, 2014 and 2013, respectively. Management's estimates are based on the obligations' characteristics, including floating interest rate, maturity, and collateral. Such valuation inputs are considered a Level 2 measurement in the fair value valuation hierarchy. 15. SUBSEQUENT EVENT On March 21, 2014, we paid the previously declared $0.08 dividend per share to shareholders of record as of March 14, 2014. ****** 32 Exhibit 23.1 Consent of Independent Registered Public Accounting Firm We consent to the incorporation by reference in Registration Statements No. 33-60188 and 333-100659 of Educational Development Corporation on Form S-8 of our report dated May 28, 2014, appearing in this Annual Report on Form 10-K of Educational Development Corporation for the year ended February 28, 2014. /s/ HoganTaylor LLP Tulsa, Oklahoma May 28, 2014 Exhibit 31.1 I, Randall W. White, certify that: CERTIFICATION 1. 2. 3. 4. a. b. c. d. 5. a. b. I have reviewed this Annual Report on Form 10-K of Educational Development Corporation; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 28, 2014 /s/ Randall W. White Chairman of the Board, President and Chief Executive Officer Exhibit 31.2 I, Marilyn Pinney, certify that: CERTIFICATION 1. 2. 3. 4. a. b. c. d. 5. a. b. I have reviewed this Annual Report on Form 10-K of Educational Development Corporation; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 28, 2014 /s/ Marilyn Pinney Controller and Corporate Secretary (Principal Financial and Accounting Officer) Exhibit 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. In connection with the Annual Report of Educational Development Corporation (the “Company”) on Form 10-K for the period ending February 28, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: May 28, 2014 By /s/ Randall W. White Randall W. White President and Chief Executive Officer Date: May 28, 2014 By /s/ Marilyn Pinney Marilyn Pinney Controller and Corporate Secretary (Principal Financial and Accounting Officer) Financial Highlights Fiscal Years ended February 28 Financial Information Net revenues Earnings before income taxes Net earnings 2014 $ 26,097,000 873,500 357,600 2013 $ 25,487,500 $ 1,282,000 $ 802,900 $ $ $ $ $ $ $ $ $ $ 0.09 0.09 0.20 0.20 77,500 $ 16,758,300 $ 12,582,400 29,300 $ 17,900,800 $ 13,451,800 0.32 3.16 3.89 2.49 3.75 0.44 3.40 5.00 3.79 3.91 $ $ $ $ $ $ $ $ Earnings per share: Basic Diluted Capital expenditures Total assets Shareholders’ equity Common Stock Cash dividends paid Book value at year end Market price range High Low Market price at year end Business Segments Net Revenues EDC Publishing Usborne Books & More $ 10,968,400 $ 15,128,600 $ 10,811,600 $ 14,675,900 Total $ 26,097,000 $ 25,487,500 Shares outstanding at year end 3,977,943 3,960,812 DIRECTORS CORPORATE DATA John A. Clerico Co-founder and Chairman ChartMark Investments, Inc. Ronald T. McDaniel Retired V.P. Sales Educational Development Corporation Kara Gae Neal Director, School of Urban Education The University of Tulsa Betsy Richert Media Specialist Tulsa Public Schools Randall W. White Chairman, President and Chief Executive Officer – EDC OFFICERS Randall W. White Chairman, President and Chief Executive Officer Marilyn Pinney Controller and Corporate Secretary Craig M. White Vice President - Information Systems Notice of Annual Meeting July 17, 2014, 10:00 a.m. Educational Development Corporation Executive Conference Room 10302 E. 55th Place Tulsa, Oklahoma Form 10-K Educational Development Corporation’s Form 10-K filed with the Securities and Exchange Commission is available upon request. Write to: Randall W. White, President Educational Development Corporation 10302 E. 55th Place Tulsa, Oklahoma 74146-6515 Transfer Agent American Stock Transfer and Trust Company New York, New York Auditors HoganTaylor LLP Tulsa, Oklahoma Corporate Offices 10302 E. 55th Place Tulsa, Oklahoma 74146-6515 Phone (918) 622-4522 Fax (918) 665-7919 www.edcpub.com Educational Development Corporation Annual Report 10302 E. 55th Place • Tulsa, Oklahoma 74146-6515 

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