##### Table of Contents



FORM 10-K (Mark One) [X]
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934For the fiscal year ended February 29, 2004
 [   ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]For the transition period from to .
 Commission file number: 0-4957 EDUCATIONAL DEVELOPMENT CORPORATION  Delaware
(State or other jurisdiction of
incorporation or organization)
    
    73-0750007
(I.R.S. Employer
Identification No.)
 10302 East 55th Place, Tulsa, Oklahoma 74146-6515
    
    
    
    Registrants telephone number:  (918) 622-4522
 (Address of principal executive offices) (Zip Code) 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 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 [x] No [  ] Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K 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. [  ] Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act) Yes [  ] No [x] As of April 30, 2004, 3,961,932 shares of common stock were outstanding.
The aggregate market value of the voting shares held by non-affiliates of the
registrant, based on 2,,736,862 shares (total outstanding less shares held by
all officers, directors and 401(k) Plan) extended at the closing market price
on April 30, 2004, of these shares traded on the Nasdaq National Market, was
approximately $28,052,836. DOCUMENTS INCORPORATED BY REFERENCE The information required by Part III of this Annual Report, to the extent
not set forth herein, is incorporated herein by reference from the registrants
definitive proxy statement relating to the annual meeting of stockholders to be
held on July 27, 2004. 1




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TABLE OF CONTENTS FACTORS AFFECTING FORWARD LOOKING STATEMENTS
    
    
    3PART IItem 1. Business
    
    
    3Item 2. Properties
    
    
    6Item 3. Legal Proceedings
    
    
    6Item 4. Submission of Matters to a Vote of Security Holders
    
    
    6PART IIItem 5. Market For Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    6Item 6. Selected Financial Data
    
    
    8Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    8Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 8. Financial Statements and Supplementary Data
    
    
    18Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    18Item 9A. Controls and Procedures
    
    
    18PART IIIItem 10. Directors and Executive Officers of the Registrant
    
    
    19Item 11. Executive Compensation
    
    
    19Item 12. Security Ownership of Certain Beneficial Owners and Management
    
    
    20Item 13. Certain Relationships and Related Transactions
    
    
    20Item 14. Principal Accountants Fees and Services
    
    
    20PART IVItem 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
    
    
    21
  2




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EDUCATIONAL DEVELOPMENT CORPORATION FORM 10-K ANNUAL REPORT FOR THE YEAR ENDED FEBRUARY 29, 2004 
 FACTORS AFFECTING FORWARD LOOKING STATEMENTS This annual Report on Form 10-K contains certain forward looking
statements within the meaning of Section 27A of the Securities Act of 1993, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Certain statements contained in Item 7  Management Discussion and Analysis
are not based on historical facts, but are forward-looking statements that are
based upon numerous assumptions about future conditions that may ultimately
prove to be inaccurate. Actual events and results may be materially different
from anticipated results described in such statements. The Companys ability
to achieve such results is subject to certain risks and uncertainties. Such
risks and uncertainties include but are not limited to, product prices,
continued availability of capital and financing, and other factors affecting
the Companys business that may be beyond its control. Although Educational
Development Corporation believes that the expectations reflected by such
forward looking statements are reasonable based on information currently
available to the Company, no assurances can be given that such exceptions will
prove to have been correct. 
 PART 1 
 Item 1. BUSINESS (a) General Development of Business Educational Development Corporation (EDC or the Company), a Delaware
corporation with its principal office in Tulsa, Oklahoma, is the exclusive
trade publisher of a line of childrens books produced in the United Kingdom by
Usborne Publishing Limited. The Company was incorporated on August 23, 1965. The Companys original
corporate name was Tutor Tapes International Corporation of Delaware. Its name
was changed to International Teaching Tapes, Inc. on November 24, 1965, and
changed again to the present name on June 24, 1968. During Fiscal Year (FY) 2004 the Company operated two divisions: Home
Business Division (Usborne Books at Home or UBAH) and Publishing Division.
The Home Business Division distributes books through independent consultants
who hold book showings in individual homes, and through book fairs, direct
sales and Internet sales. The Home Business Division also distributes these
titles to school and public libraries. The Publishing Division markets books
to bookstores, toy stores, specialty stores and other retail outlets. The Company makes available free of charge through the Investor Relations
portion of its Internet website at www.edcpub.com its annual reports on Form
10-K, its quarterly reports on Form 10-Q, its current reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934, as amended, as soon as
reasonably practicable after it electronically files such material with, or
furnishes it to, the Securities and Exchange Commission. Significant Events During Fiscal Year 2004 There were no significant events during fiscal year 2004. 3




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##### Table of Contents



(b) Financial Information about Industry Segments See part II, Item 8  Financial Statements and Supplementary Data (c) Narrative Description of Business (i) General The principal product of both the Home Business Division (Usborne Books
at Home or UBAH) and Publishing Division is a line of childrens books
produced in the United Kingdom by Usborne Publishing Limited. The Company is
the sole United States trade publisher of these books. The Company currently
offers approximately 1,300 different titles. The Company also distributes a
product called Usborne Kid Kits. These Kid Kits take an Usborne book and
combine it with specially selected items and/or toys that complement the
information contained in the book. The Kid Kits are packaged in a reusable
vinyl bag. Alternatively, 14 Kid Kits are also available in an attractive box
package. Currently 60 different Kid Kits are available. The Company considers the political risk of importing books from the
United Kingdom to be negligible as the two countries have maintained excellent
relations for many years. Likewise there is little direct economic risk to the
Company in importing books from the United Kingdom as the Company pays for the
books in U.S. dollars and is not directly subject to any currency fluctuations.
There is risk of physical loss of the books should an accident occur while the
books are in transit, which could cause the Company some economic loss due to
lost sales should the supply of some titles be depleted in the event of a lost
shipment. The Company considers this to be highly unlikely as this type of loss
has yet to occur. There is some risk involved in having only one source for its products -
Usborne Publishing Limited. The Company has an excellent working relationship
with its foreign supplier Usborne Publishing Limited and can foresee no reason
for this to change. Management believes that the Usborne line of books are the
best available books of their type. (ii) Industry Segments (a) Home Business Division The Home Business Division markets the Usborne line of approximately 1,300
titles and 60 Kid Kits through a combination of direct sales, home parties,
book fairs and the Internet, sold through a network marketing system. The
division also sells to schools and public libraries. (b) Publishing Division The Publishing Division distributes the Usborne line to bookstores, toy
stores, specialty stores and other retail outlets utilizing an inside telephone
sales force as well as independent field sales representatives. (iii) Research and Development The Company spent approximately $14,000 in fiscal year 2001 and $120,000
in fiscal year 2000 in development of a new product, Make Reading Fun, a
fully interactive reading and phonics program. The Company began sales of this
product during the last quarter of FY 2001. 4




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(iv) Marketing (a) Home Business Division The Home Business Division markets through commissioned consultants using
a combination of direct sales, home parties, book fairs and the Internet. The
division had approximately 8,800 consultants in 50 states at February 29, 2004. (b) Publishing Division The Publishing Division markets through commissioned trade representatives
who call on book, toy, specialty stores and other retail outlets; and through
marketing by telephone to the trade. This division markets to approximately
6,000 book, toy and specialty stores. Significant orders totaling 32% of the
Publishing Divisions sales have been received from major book chains. During
fiscal year 2004 the division continued to expand into mass merchandising
outlets such as drug, department and discount stores. (v) Competition (a) Home Business Division The Home Business Division faces significant competition from several
other direct selling companies that have more financial resources. In
addition, federal and state funding cuts will also impact the availability of
funds to the school libraries. The Company is unable to estimate the effect of
these funding cuts on the divisions future sales to school libraries, because
the magnitude of funding cuts has yet to be determined by Congress. Management
believes its superior product line and consultant network will enable this
division to be highly competitive in its market area. (b) Publishing Division The Publishing Division faces strong competition from large U.S. and
international companies that have more financial resources. Industry sales of
juvenile paperbacks approached $449 million annually, down 5.2% from the
previous year. The Publishing Divisions sales are approximately 1.7% of
industry sales. Competitive factors include product quality, price and
deliverability. Management believes its product line will enable this division
to compete well in its market area. (vi) Seasonality (a) Home Business Division The level of sales for Home Business Division is greatest during the Fall
as individuals prepare for the holiday season. (b) Publishing Division The level of sales for the Publishing Division is greatest in the Fall
while retailers are stocking up for the holiday season. (vii) Government Funding Local, state and federal funds are important to the Home Business Division
but not to the Publishing Division. In many cities and states in which the
Company does business, school funds have been severely cut, which impacts sales
to school libraries. 5




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(viii) Trademarks, Copyrights and Patents ( none ) (ix) Employees As of April 1, 2004, the Company had 71 full-time employees and 1
part-time employee. The Company believes its relations with its employees to
be good. 
 Item 2. PROPERTIES The Company is located at 10302 E. 55th Pl, Tulsa, Oklahoma. In January
2002, the Company purchased for $1.8 million the warehouse and office
facilities it formerly leased. These facilities contain approximately 80,400
square feet of office and warehouse space. In October 2003 the Company signed a contract to construct a 20,000 square
foot addition to its warehouse facility at an estimated cost of $582,400. This
addition is scheduled to be completed in June 2004. As of February 29, 2004,
the Company had incurred costs of $179,800 related to the addition to the
warehouse facility. The Companys operating facility is well maintained, in good condition and
is adequately insured. Equipment items are well maintained and in good
operating condition consistent with the requirement of the Companys business.
The Company believes that its operating facility meets both its present and
future capacity needs. 
 Item 3. LEGAL PROCEEDINGS The Company is not a party to any material pending legal proceedings. 
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted during the fourth quarter of the fiscal
year covered by this report to a vote of security holders of the Company. 
 PART II 
 Item 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The common stock of EDC is traded on the Nasdaq National Market
(symbolEDUC). The high and low closing quarterly common stock quotations for
fiscal years 2004 and 2003, as reported by the National Association of
Securities Dealers, Inc., were as follows: 2004
    
    2003Period
    
    High
    
    Low
    
    High
    
    Low1st Qtr
    
    
    10.63
    
    
    
    9.38
    
    
    
    7.40
    
    
    
    6.652nd Qtr
    
    
    13.58
    
    
    
    9.90
    
    
    
    7.19
    
    
    
    6.343rd Qtr
    
    
    13.05
    
    
    
    10.13
    
    
    
    7.98
    
    
    
    6.004th Qtr
    
    
    11.18
    
    
    
    10.35
    
    
    
    9.75
    
    
    
    7.60
 The number of shareholders of record of EDCs common stock at April 22, 2004
was 955. 6




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The Company paid a $0.10 per share annual dividend during fiscal year 2004 and
a $0.06 per share annual dividend during fiscal year 2003. In January 2003,
the Company announced that the Board of Directors had approved a policy to pay
20% of annual net earnings as a cash dividend. Accordingly, the Company
announced that it will pay a $0.12 per share dividend on June 10, 2004 to
shareholders of record as of May 26, 2004. The following table sets forth certain information concerning the repurchase of
the Companys Common Stock made by the Company during the fourth quarter of the
fiscal year ended February 29, 2004. ISSUER PURCHASES OF EQUITY SECURITIES (d) Maximum(c) Total Number
    
    Number (orof Shares (or
    
    ApproximateUnits) Purchased
    
    Dollar Value)as Part of
    
    of Shares (orPublicly
    
    Units) that May(a) Total Number
    
    (b) Average
    
    Announced
    
    Yet Be Purchasedof Shares (or
    
    Price Paid per
    
    Plans
    
    Under thePeriod
    
    Units Purchased (1)
    
    Share (or Unit)
    
    or Programs (2)
    
    Plans or ProgramsDecember 1, 2003 -
December 31, 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    162,392January 1, 2004 -
January 31, 2004
    
    
    2,634
    
    
    $
    10.87
    
    
    
    2,634
    
    
    
    159,758February 1, 2004 -
February 29, 2004
    
    
    1,334
    
    
    $
    10.68
    
    
    
    1,334
    
    
    
    158,424Total
    
    
    3,968
    
    
    $
    10.80
    
    
    
    3,968
  (1)
    
    All of the shares of common stock set forth in this column (a) were
purchased pursuant to a publicly announced plan as described in
footnote 2 below and all of such shares were purchased through
open-market transactions, except for 1,300 shares purchased during the
period of January 1, 2004  January 31, 2004, which were purchased
privately from a former employee.  (2)
    
    In July 1998, the Board of Directors authorized the Company to
purchase up to 1,000,000 shares of the Companys common stock pursuant
to a plan that was announced publicly on October 14, 1998. In May
1999, the Board of Directors authorized the Company to purchase up to
an additional 1,000,000 shares of its common stock under this plan,
which was announced publicly on May 19, 1999. Pursuant to
the plan, the Company may purchase such 2,000,000 shares of the
Companys common stock until 2,000,000 shares have been repurchased.
There is no expiration date for the repurchase plan. 7




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Item 6. SELECTED FINANCIAL DATA YEARS ENDED FEBRUARY 28 (29)2004
    
    2003
    
    2002
    
    2001
    
    2000Total Revenues
    
    $
    30,362,415
    
    
    $
    26,257,674
    
    
    $
    21,614,653
    
    
    $
    18,454,351
    
    
    $
    17,590,791Earnings From Continuing
Operations
    
    $
    2,373,450
    
    
    $
    2,038,085
    
    
    $
    1,531,274
    
    
    $
    1,090,262
    
    
    $
    1,079,028Earnings From Continuing
Operations
Per Common ShareBasic
    
    $
    .60
    
    
    $
    .53
    
    
    $
    .40
    
    
    $
    .28
    
    
    
    .25Diluted
    
    $
    .55
    
    
    $
    .49
    
    
    $
    .38
    
    
    $
    .27
    
    
    $
    .24Total Assets
    
    $
    19,086,994
    
    
    $
    17,561,733
    
    
    $
    14,156,798
    
    
    $
    12,471,650
    
    
    $
    12,340,022Cash Dividends Declared
Per Common Share
    
    $
    .10
    
    
    $
    .06
    
    
    $
    .04
    
    
    $
    .02
    
    
    $
    .02
 
 Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The Company operates two separate divisions, Publishing and Usborne Books at
Home (UBAH) to sell the Usborne line of childrens books. These two
divisions each have their own customer base. The Publishing Division markets
its products on a wholesale basis to various retail accounts. The UBAH
Division markets its products to individual consumers as well as school and
public libraries. Publishing Division The Publishing Division operates in a market that is highly competitive, with a
large number of companies engaged in the selling of books. The Publishing
Division is in direct competition with all of these other companies. Sales in
the book industry were $23.4 billion for calendar year 2003. Sales in the
trade industry, defined as wholesale sales to retailers, were slightly over $5
billion for calendar year 2003. Sales in the juvenile paperback market, the
Companys market segment, were $448 million for calendar year 2003. The
Companys market share in the juvenile paperback market has remained constant
during the last three years. 8




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The following table sets forth the annual sales in the book industry for the
last three calendar years and compares these sales to the Publishing Divisions
net sales. Table of Book Industry Sales (1)
(amounts in millions) 2003
    
    2002
    
    2001Sales  Total Industry
    
    $
    23,420.6
    
    
    $
    22,398.1
    
    
    $
    21,054.5Sales  Total Trade
    
    $
    5,063.8
    
    
    $
    5,002.3
    
    
    $
    4,537.4Sales  Juvenile Paperback
    
    $
    448.6
    
    
    $
    473.2
    
    
    $
    476.1Publishing Divisions Sales (2)
    
    $
    7.5
    
    
    $
    7.6
    
    
    $
    7.4Publishing Divisions Market Share
of Total Book Industry
    
    
    0.03
    %
    
    
    0.03
    %
    
    
    0.04
    %Publishing Divisions Market Share
of Total Trade Market
    
    
    0.15
    %
    
    
    0.15
    %
    
    
    0.16
    %Publishing Divisions Market Share
of Juvenile Paperback Market
    
    
    1.7
    %
    
    
    1.6
    %
    
    
    1.6
    %
 (1) Source: Association of American Publishers (2) Reported on fiscal year basis 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 telesales group located in the Companys headquarters. The Vice
President of the Publishing Division manages sales to the national chains. The following table sets forth the percentages of net revenues earned by sales
to the national chains and sales to other markets for the Publishing Division
for the past three fiscal years. FY 2004
    
    FY 2003
    
    FY 2002National chain stores
    
    
    32
    %
    
    
    35
    %
    
    
    32
    %All other
    
    
    68
    %
    
    
    65
    %
    
    
    68
    %Total net sales
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 Sales to national chain stores declined in fiscal year 2004 primarily due to
the loss of a customer from bankruptcy. The Publishing Division follows several avenues in order 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. These
shows allow the Company to make contact with potential buyers who may be
unfamiliar with the Companys books. The Company actively targets the national
chains through cooperative advertising, joint promotional efforts and
institutional advertising in trade publications. The Publishing Divisions in-house telesales group targets the smaller
independent book and gift store market. They maintain contact with
approximately 6,000 customers. During fiscal year 2004 the telesales group
opened 371 new accounts. The Companys full color, 130-page catalogs, which
are revised twice a year, are mailed to nearly 6,000 customers and potential
customers. The Company also offers two display racks to assist stores in
displaying the Companys products. One is a six-foot rack with five adjustable
shelves that can hold approximately 250 titles. The second rack is a
four-sided rack with three levels that will hold between 50 and 60 of the
Companys Kid Kits. There were 3,797 of these attractive racks in retail
stores throughout the country at the end of fiscal year 2004. 9




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Publishing Divisions revenues have remained constant the last three fiscal
years, with net revenues of $7.4 million  $7.6 million each fiscal year.
Management expects that in fiscal year 2005 the Publishing Division will
achieve revenues in the $7.5 million  $8.0 million range. Usborne Books at Home (UBAH) Division The UBAH Division is a multi-level selling organization that markets its
products through independent sales representatives (consultants) located
throughout the United States. The customer base of UBAH consists of individual
purchasers and 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 UBAH Division is the
addition of new sales consultants and the retention of existing sales
consultants. Current active consultants recruit new sales consultants. UBAH
makes it easy to recruit by providing low sign-up costs. Kits containing
sample products and supplies can be purchased for as little as $29. UBAH
provides an extensive handbook that is a valuable tool in explaining the
various programs to the new recruit. The following table sets forth the number of new consultants added during the
last three fiscal years and the number of active sales consultants at the end
of the last three fiscal years. FY 2004
    
    FY 2003
    
    FY 2002New Consultants
    
    
    6,964
    
    
    
    5,715
    
    
    
    3,890Active Consultants End of Fiscal Year
    
    
    8,800
    
    
    
    7,000
    
    
    
    5,600
 The UBAH Division presently has three levels of sales representatives:
consultants; supervisors; executive supervisors. Upon signing up, each
individual is considered a consultant. A consultant receives commissions from
each sale the consultant makes, the commission rate being determined by the
marketing program under which the sale is made. In addition, consultants
receive a monthly sales bonus once the consultants sales reach an established
monthly goal. Consultants who recruit other consultants and meet certain
established criteria are eligible to become supervisors. Upon reaching this
level, they receive monthly override payments based upon the sales of their
downline groups. The marketing program under which the sales are made
determines the rate for the override payments. Once a supervisor reaches
certain established criteria, they become executive supervisors. An executive
supervisor may receive an additional monthly override payment based upon the
sales of their downline groups. The table below sets forth the different types of marketing programs UBAH
offers and the percentage of total revenues that each marketing program has
generated for the last three fiscal years, including transportation revenue FY 2004
    
    FY 2003
    
    FY 2002Home Shows
    
    
    54
    %
    
    
    57
    %
    
    
    58
    %Direct Sales
    
    
    4
    %
    
    
    4
    %
    
    
    4
    %Book Fair
    
    
    21
    %
    
    
    16
    %
    
    
    14
    %School & Library
    
    
    8
    %
    
    
    11
    %
    
    
    13
    %Internet
    
    
    3
    %
    
    
    2
    %
    
    
    1
    %Transportation Revenue
    
    
    10
    %
    
    
    10
    %
    
    
    10
    %Totals
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 10




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The table below sets forth a comparison of the percentage increase (decrease)
between fiscal years in the net revenue generated by the different types of
marketing programs offered by UBAH, along with the percentage increase
(decrease) in transportation revenue. FY 2004
    
    FY 2003Compared With
    
    Compared WithFY 2003
    
    FY 2002Home Shows
    
    
    17
    %
    
    
    30
    %Direct Sales
    
    
    19
    %
    
    
    24
    %Book Fair
    
    
    64
    %
    
    
    50
    %School & Library
    
    
    0
    %
    
    
    10
    %Internet
    
    
    94
    %
    
    
    86
    %Transportation Revenue
    
    
    17
    %
    
    
    30
    %
 Home shows are the largest generator of revenue for the UBAH Division and will
continue this for the foreseeable future. The significant increase in home
show revenue is attributed to the increase in active consultants, which have
increased from 5,600 in fiscal year 2002 to 7,000 in fiscal year 2003 to 8,800
at the end of fiscal year 2004. The direct sales market continues to increase as a result of increases in the
number of active sales consultants. The book fair marketing program has experienced tremendous growth the last
several years. UBAH believes that its program is superior to that of their
major competitor in this market. Many schools have begun to hold joint book
fairs with UBAH and our competitor and the Company does well at these events.
In many cases, UBAH book fairs have been the only allowed participant. The
Company looks forward to continued growth in this market as it gains wider
acceptance. The school and library market is affected by the budget constraints of the
various state school budgets. Cuts in the schools budget affect the ability
of UBAH to be more effective in this market. As a result, sales in the last
two fiscal years remained constant. The Internet market is a relatively new market for UBAH. The revenues from
this market, when compared with the other markets, are quite small. However,
the Internet sales have increased significantly year to year. The UBAH Marketing Programs Homes shows were the original marketing program when UBAH began in 1989 and
continues today to generate the greatest percentage of revenue for UBAH.
Consultants contact individuals (hostesses) to hold book shows in their
homes. The consultant assists the hostess in setting up the details for the
show. The consultant 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. Home shows provide an excellent opportunity for recruiting as well.
Direct sales are sales without a hostess being involved. This program makes it
possible for the consultant to work directly out of her home selling to
friends, neighbors and other customers. It is especially convenient for those
individuals who wish to order books from a consultant but they are unable to
attend a home show. Customer specials are available for customers when they
order a selected amount. 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. UBAH also has a Reach
For The Starsfund raiser program. This is a pledge-based reading incentive
program that provides cash and books to the organization and books for the
children. 11




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School and library sales are restricted to consultants who have received
additional training in order to allow them to sell to schools and libraries.
The UBAH consultant is the only source that a library or school has for library
bound Usborne books. They are not available through any of the school supply
distribution companies. The UBAH Division offers individual web sites to the consultants. These sites
are hosted by the Company and are available for a nominal price. The
consultant can customize the web site to their own particular needs or they can
maintain the generic site. These web sites provide access to the Companys
1,300 plus titles. Orders can be processed on line through a shopping cart
arrangement. The orders are transmitted to the Company and the consultant
receives sales credit and commission on the sales. The table below sets forth the number of orders for each UBAH marketing
program. FY 2004
    
    FY 2003
    
    FY 2002Home Shows
    
    
    41,763
    
    
    
    35,489
    
    
    
    27,367Direct Sales
    
    
    10,928
    
    
    
    9,366
    
    
    
    6,989Book Fair
    
    
    6,503
    
    
    
    4,208
    
    
    
    2,724School & Library
    
    
    4,842
    
    
    
    6,435
    
    
    
    4,594Internet
    
    
    13,532
    
    
    
    7,017
    
    
    
    3,59877,568
    
    
    
    62,515
    
    
    
    45,272
 The Company monitors the trends displayed in the above table in order to judge
how the five marketing programs are performing. This table shows strong growth
in four of the five categories. As addressed above, the school and library
market is impacted by the budget cuts undertaken by many schools. UBAHs revenues and profits for fiscal year 2004 increased for the 5th
consecutive year. The Company believes that the UBAH Division has the greatest
growth potential for the Company. While there are many multi-level companies
in the United States, UBAH is the only one selling books exclusively. The
Company believes this is a fertile market with excellent opportunities for
continued growth. The keys to future growth in the UBAH Division are
recruiting of new consultants and retaining existing consultants. Results of Operations The following table sets forth consolidated statement of income data as a
percentage of total revenues FY 2004
    
    FY 2003
    
    FY 2002Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    34.8
    %
    
    
    36.5
    %
    
    
    37.6
    %Gross margin
    
    
    65.2
    %
    
    
    63.5
    %
    
    
    62.4
    %Operating expenses:Operating & selling
    
    
    21.6
    %
    
    
    21.3
    %
    
    
    22.1
    %Sales commissions
    
    
    25.4
    %
    
    
    24.1
    %
    
    
    22.5
    %General & administrative
    
    
    5.8
    %
    
    
    6.0
    %
    
    
    6.8
    %Interest
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.1
    %Total operating expenses
    
    
    52.9
    %
    
    
    51.3
    %
    
    
    51.5
    %Other income
    
    
    0.3
    %
    
    
    0.3
    %
    
    
    0.4
    %Earnings before income taxes
    
    
    12.6
    %
    
    
    12.4
    %
    
    
    11.3
    %Income taxes
    
    
    4.8
    %
    
    
    4.7
    %
    
    
    4.2
    %Net earnings
    
    
    7.8
    %
    
    
    7.8
    %
    
    
    7.1
    %
 12




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##### Table of Contents



Fiscal Year 2004 Compared with Fiscal Year 2003 Operating Results The Company had income before income taxes of $3,832,450 for fiscal year 2004
compared with $3,264,785 for fiscal year 2003. Revenues $ Increase/FY 2004
    
    FY 2003
    
    (decrease)Gross sales
    
    $
    40,070,070
    
    
    $
    36,036,786
    
    
    $
    4,033,284Less discounts & allowances
    
    
    ( 11,318,228
    )
    
    
    ( 11,156,675
    )
    
    
    ( 161,553
    )Transportation revenue
    
    
    1,610,573
    
    
    
    1,377,563
    
    
    
    233,010Total revenues
    
    $
    30,362,415
    
    
    $
    26,257,674
    
    
    $
    4,104,741
 The UBAH Divisions gross sales increased 20% during FY 2004 when compared with
FY 2003. Each quarter of FY 2004 recorded a sales increase when compared with
the same quarter of FY 2003. A quarterly comparison of FY 2004 versus FY 2003
shows the first quarter up 20%, the second quarter up 27%, the third quarter up
23% and the fourth quarter up 11%. The Company attributes these increases
primarily as a result of a 22% increase in the number of new consultants. In
addition, the Company continued to offer leadership skills seminars throughout
FY 2004. These seminars are designed to help supervisors build their business
and the seminars proved to be very popular with these supervisors. The
Publishing Divisions gross sales declined 1% during FY 2004 when compared with
FY 2003. The Company attributes this decline to the loss of a major customer
from bankruptcy. The UBAH Divisions discounts and allowances were $3.4 million and $3.2 million
in fiscal years 2004 and 2003, respectively. The Publishing Divisions
discounts and allowances were $7.9 million and $8.0 million in fiscal years
2004 and 2003, respectively. The UBAH Divisions discounts and allowances were
14% and 16% of UBAHs gross sales for the fiscal years 2004 and 2003
respectively. The Publishing Divisions discounts and allowances were 52% and
51% of Publishings gross sales for the fiscal years 2004 and 2003,
respectively.
The increase in transportation revenues is the result of increased sales in the
UBAH Division. Expenses $ Increase/FY 2004
    
    FY 2003
    
    (decrease)Cost of sales
    
    $
    10,574,800
    
    
    $
    9,591,425
    
    
    $
    983,375Operating & selling
    
    
    6,565,143
    
    
    
    5,580,903
    
    
    
    984,240Sales commissions
    
    
    7,712,408
    
    
    
    6,327,058
    
    
    
    1,385,350General & administrative
    
    
    1,760,631
    
    
    
    1,569,826
    
    
    
    190,805Interest
    
    
    9,762
    
    
    
    884
    
    
    
    8,878Other income
    
    
    (       92,779
    )
    
    
    (       77,207
    )
    
    
    (   15,572
    )Total
    
    $
    26,529,965
    
    
    $
    22,992,889
    
    
    $
    3,537,076
 Cost of sales increased approximately 10% in fiscal year 2004 when compared
with fiscal year 2003. The Companys cost of its products is 25% to 32% of the
gross sales price, depending upon the product. In comparing the percentage
increase in sales with the percentage increase in cost of goods, consideration
must be given to the mix of products sold. The 10% increase in cost of sales
is consistent with the percent increase in gross sales of approximately 11% for
the same two fiscal years. 13




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##### Table of Contents



Operating and selling expenses increased because of an increase in freight
expense for both divisions combined of $310,000 and an increase in damaged
returns for both divisions combined of $68,000. The UBAH Division incurred
increases of $452,000 in customer sales incentive costs and an increase in
credit card fees in the UBAH Division of $98,000. These increases are directly
attributable to the increase in sales. Also contributing to the increase in
operating and selling expenses were other items aggregating $56,200. Operating
and selling expenses as a percentage of gross sales were 16.4% for fiscal year
2004 and 15.5% for fiscal year 2003. Sales commissions in the Publishing Division remained flat for the fiscal years
ended 2004 and 2003. Publishing Division sales commissions are paid on net
sales and were 1.4% of net sales in fiscal years 2004 and 2003. Sales
commissions in the UBAH Division increased $1,385,000. UBAH Division sales
commissions are paid on retail sales and were 38.9% for fiscal year 2004 and
39.4% for fiscal year 2003. The fluctuation in the percentages of commission
expense to retail sales is the result of the type of sale. Home shows, book
fairs, school and library sales and direct sales have different commissions
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 increased
sales in the UBAH Division. General and administrative expenses increased because of additions to the
reserve for obsolete inventory of $77,300, additions to the reserve for bad
debts of $12,000, an increase in the accrual for audit and tax fees of $14,700
and increased payroll costs of $60,700. Also contributing to the increase in
general and administrative expenses were other items aggregating $26,100.
General and administrative expenses as a percentage of gross sales were 4.4%
for fiscal year 2004 and 4.4% for fiscal year 2003. Interest expense increased $8,900 due to increased borrowings throughout fiscal
year 2004. Interest expense as a percentage of gross sales was 0.02% in fiscal
year 2004 and was nominal in fiscal year 2003. Other income increased $15,600 due to other items. The tax provision for fiscal year 2004 was $1,459,000. The effective rate for
fiscal year 2004 was 38.0%, which is consistent with fiscal year 2003. The
Companys current tax liability was reduced by $87,900 as a result of the
benefit obtained from several Company officers exercising stock options. Fiscal Year 2003 Compared with Fiscal Year 2002 Operating Results The Company had income before income taxes of $3,264,785 for fiscal year 2003
compared with $2,440,074 for fiscal year 2002. Revenues $ Increase/FY 2003
    
    FY 2002
    
    (decrease)Gross sales
    
    $
    36,036,786
    
    
    $
    30,457,695
    
    
    $
    5,579,091Less discounts & allowances
    
    
    ( 11,156,675
    )
    
    
    (  9,903,244
    )
    
    
    ( 1,253,431
    )Transportation revenue
    
    
    1,377,563
    
    
    
    1,060,202
    
    
    
    317,361Total revenues
    
    $
    26,257,674
    
    
    $
    21,614,653
    
    
    $
    4,643,021
 14




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##### Table of Contents



The UBAH Divisions gross sales increased 33% during FY 2003 when compared with
FY 2002. Each quarter of FY 2003 recorded a sales increase when compared with
the same quarter of FY 2002. A quarterly comparison of FY 2003 versus FY 2002
shows the first quarter up 44%, the second quarter up 18%, the third quarter up
39% and the fourth quarter up 30%. The Company attributes these increases to
the fact that the number of active sales consultants increased 14% during FY
2003. In addition, the Company continued to offer leadership skills seminars
throughout FY 2003. These seminars are designed to help supervisors build
their business. The Publishing Divisions gross sales increased 3% during FY
2003 when compared with FY 2002. The Company attributes this to an increase in
sales to the national chains, the result of increased marketing efforts
directed at the national chains. The UBAH Divisions discounts and allowances were $3.2 million and $2.2 million
in fiscal years 2003 and 2002, respectively. The Publishing Divisions
discounts and allowances were $8.0 million and $7.7 million in fiscal years
2003 and 2002, respectively. The UBAH Divisions discounts and allowances were
16% and 14% of UBAHs gross sales for the fiscal years 2003 and 2002
respectively. The Publishing Divisions discounts and allowances were 51% and
51% of Publishings gross sales for the fiscal years 2003 and 2002,
respectively. The increase in transportation revenues is the result of increased sales in
both the UBAH Division and the Publishing Division. Expenses $ Increase/FY 2003
    
    FY 2002
    
    (decrease)Cost of Sales
    
    $
    9,591,425
    
    
    $
    8,121,522
    
    
    $
    1,469,903Operating & selling
    
    
    5,580,903
    
    
    
    4,777,667
    
    
    
    803,236Sales commissions
    
    
    6,327,058
    
    
    
    4,867,970
    
    
    
    1,459,088General & administrative
    
    
    1,569,826
    
    
    
    1,463,631
    
    
    
    106,195Interest
    
    
    884
    
    
    
    20,343
    
    
    
    (  19,459
    )Other income
    
    
    (       77,207
    )
    
    
    (       76,554
    )
    
    
    (  653
    )Total
    
    $
    22,992,889
    
    
    $
    19,174,579
    
    
    $
    3,818,310
 Cost of sales increased approximately 18% in fiscal year 2003 when compared
with fiscal year 2002. This is consistent with the percent increase in gross
sales of approximately 18% for the same two fiscal years. Operating and selling expenses increased because of an increase in freight
expense for both divisions combined of $393,000 and an increase in damaged
returns for both divisions combined of $92,900. The UBAH Division incurred an
increase of $206,400 in customer sales incentive costs and an increase in
credit card fees. These increases are directly attributable to the increase in
sales. Payroll costs increased $201,500, mostly in the warehouse operations,
where the Company increased base wages in order to be competitive in the local
job market and added personnel in order to complete order fulfillment or a
timely basis. Other items aggregating $90,600 decreased operating and selling
expenses during the fiscal year. Operating and selling expenses as a
percentage of gross sales were 15.5% for fiscal year 2003 and 15.7% for fiscal
year 2002. Sales commissions in the Publishing Division increased $3,100 in fiscal year
2003, the result of increased sales. Publishing Division sales commissions are
paid on net sales and were 1.4% of net sales in fiscal years 2003 and 2002.
Sales commissions in the UBAH Division increased $1,456,000. UBAH Division
sales commissions are paid on retail sales and were 39.4% for fiscal year 2003
and 39.6% for fiscal year 2002. The fluctuation in the percentages of
commission expense to retail sales is the result of the type of sale. Home
shows, book fairs, school and library sales and direct sales have different
commissions 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
increased sales in the UBAH Division. 15




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##### Table of Contents



General and administrative expenses increased because of increased payroll
costs of $106,500. General and administrative expenses as a percentage of
gross sales were 4.4% for fiscal year 2003 and 4.8% for fiscal year 2002. Interest expense decreased $19,500 due to decreased borrowings throughout
fiscal year 2003. Interest expense as a percentage of gross sales was nominal
in fiscal year 2003 and nominal in fiscal year 2002. The tax provision for fiscal year 2003 was $1,226,700. The effective rate for
fiscal year 2003 was 37.6%, which was consistent with fiscal year 2002. Liquidity and Capital Resources The Companys primary uses of cash are for purchases of treasury stock under
the stock buyback program, capital expenditures associated with the
construction of additional warehouse space and for working capital. The
Company utilizes its bank credit facility to meet its short-term cash needs. The Company expects its ongoing cash flow to exceed cash required to operate
the business. In March and April of fiscal year 2005 the Company repurchased
approximately 149,000 shares of its common stock under the stock repurchase
program at a cost of $1.5 million. The Company is completing construction of a
20,000 square foot addition to its warehouse and will have costs of
approximately $402,600 to pay in fiscal year 2005. Consequently, the Company
will have short-term bank borrowings during fiscal year 2005. The Companys primary source of liquidity is cash generated from operations.
During fiscal year 2004 the Company experienced a negative cash flow of
$1,370,500. Net income, adjusted for depreciation, was reduced by increased
inventory of $2,610,600 and a reduction in accounts payable and accrued
expenses of $1,209,700. The Company believes that the inventory levels are at
an adequate level to meet sales requirements and does not foresee increasing
inventory during fiscal year 2005. Fluctuations in accounts payable and
accrued expenses involve timing of shipments received from the Companys
principal supplier and the payments associated with these shipments. The Company believes that in fiscal year 2005 it will experience a positive
cash flow and that this positive cash flow along with the bank credit facility
will be adequate to meet its liquidity requirements for the foreseeable future. Cash used in investing activities was $235,900. The principal use of cash in
investing activities was for progress payments, totaling $179,800, on the
construction of the 20,000 square foot addition to the Companys warehouse
facility. Additional cash used in investing activities included $33,700 in
property improvements, $13,400 for warehouse equipment and $9,000 for data
processing equipment. The Company estimates that cash used in investing
activities for fiscal year 2005 will be less than $1,000,000. This would
consist of $402,600 remaining due on the construction of the warehouse
addition, with the balance to be used for software and hardware enhancements to the Companys
existing data processing equipment, property improvements and additional
warehouse equipment. Cash received in financing activities was $637,700 from the sale of treasury
stock, $372,000 from the exercise of stock options and a net $394,000 in
borrowings under the bank credit agreement. Cash used in financing activities
included $575,800 paid to acquire treasury stock and the annual dividend
totaling $393,900. As of February 29, 2004 the Company did not have any commitments in excess of
one year. 16




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##### Table of Contents



Bank Credit Agreement Effective June 30, 2003, the Company signed a Fourth Amendment to the Credit
and Security Agreement with Arvest Bank which provides a $3,500,000 line of
credit. The line of credit is evidenced by a promissory note in the amount of
$3,500,000 payable June 30, 2004. The note bears interest at the Wall Street
Journal prime floating rate minus 0.25% payable monthly (3.75% at February 29,
2004). The note is collateralized by substantially all of the assets of the
Company. At February 29, 2004 the Company had $394,000 outstanding. Available
credit under the revolving credit agreement was $3,106,000 at February 29,
2004. The Company intends to renew the credit line prior to the maturity date
and extend the maturity date to June 30, 2005. Critical Accounting Policies Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated 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. The Companys significant accounting policies are
described in the notes accompanying the financial statements included elsewhere
in this report. However, the Company considers the following accounting
policies to be more dependent on the use of estimates and assumptions Revenue Recognition Revenue from merchandise sales is net of returns and allowances. The
provisions of the SEC Staff Accounting Bulletin No.101, Revenue Recognition in
Financial Statements, have been applied, and as a result, a reserve is
provided for estimated future sales returns. The Companys sales return policy
allows the customer to return all purchases for an exchange or refund for up to
30 days after the customer receives the item. Management has estimated and
included a reserve for sales returns of $101,000 as of February 29, 2004 and
February 28, 2003. The reserve for sales returns is estimated by management
using historical sales returns data. Allowance for Doubtful Accounts The Company maintains an allowance for estimated losses resulting from the
inability of its customers to make required payments. An estimate of
uncollectable amounts is made by management based upon historical bad debts,
current customer receivable balances, age of customer receivable balances, the
customers financial condition and current economic trends. If the actual
uncollected amounts significantly exceed the estimated allowance, then the
Companys operating results would be significantly adversely affected.
Management has estimated allowance for doubtful accounts of $49,919 and $88,962
as of February 29, 2004 and February 28, 2003, respectively. Inventory Management continually estimates and calculates the amount of non-current
inventory. The inventory arises due to the Company occasionally purchasing
book inventory in quantities in excess of what will be sold within the normal
operating cycle due to minimum order requirements of the Companys primary
supplier. Noncurrent inventory was estimated by management using the current
year turnover ratio by title. All inventory in excess of 2 -1/2 years of
anticipated sales was classified as noncurrent inventory. Noncurrent inventory
balances were $823,751 and $511,500 at February 29, 2004 and February 28, 2003,
respectively. 17




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##### Table of Contents



Inventories are presented net of a reserve for obsolete inventory. Management
has estimated and included a reserve for obsolescence for both current and
noncurrent inventory. This reserve is based on managements identification of
obsolete inventory on hand at February 29, 2004 and February 28, 2003.
Management has estimated reserves for both current and noncurrent inventory of
$282,165 and $215,990 as of February 29, 2004 and February 28, 2003,
respectively. Deferred Tax Assets As discussed in Note 4 of the consolidated financial statements, the Company
does not currently have a valuation allowance recorded against its deferred tax
assets. If management determines it is more likely than not that its deferred
tax assets would not be realizable in the future, a valuation allowance would
be recorded to reduce the deferred tax asset to its net realizable value. Long-lived Assets In evaluating the fair value and future benefits of long-lived assets, we
perform an analysis of the anticipated undiscounted future net cash flows of
the related long-lived assets and reduce their carrying value by the excess, if
any, of the result of such calculation. We believe at this time that the
long-lived assets carrying values and useful lives continues to be
appropriate. 
 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company does not have any material market risk. 
 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item 8 begins at page F-1, following page 26 hereof. 
 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no disagreements on any matter of accounting principles or
practices or financial statement disclosure within the twenty-four months prior
to February 29, 2004. 
 Item 9.A CONTROLS AND PROCEDURES An evaluation was performed of the effectiveness of the design and
operation of the Companys disclosure controls and procedures pursuant to
Exchange Act Rule 13a-14(c) and 15d-14(c) within 90 days of the filing date of
this Annual Report on Form 10-K. This evaluation was conducted under the
supervision and with the participation of the Companys management, including
its Chief Executive Officer and its Chief Financial Officer. Based on that
evaluation, the Companys Chief Executive Officer and its Chief Financial
Officer concluded that he Companys disclosure controls 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 recorded, processed,
summarized and reported in accordance with the rules and forms of the SEC. 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, and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions, regardless of how remote. There have been no
significant changes in the Companys internal controls or in other factors that
could significantly affect these controls since the date controls were
evaluated. 18




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##### Table of Contents



PART III 
 Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) Identification of Directors The information required by this Item 10 is furnished by incorporation by
reference to all information under the caption Election of Directors in the
Companys definitive Proxy Statement to be filed in connection with the annual
Meeting of Shareholders to be held on July 27, 2004. (b) Identification of Executive Officers The following information is furnished with respect to each of the
executive officers of the Company, each of whom is elected by and serves at the
pleasure of the Board of Directors. OfficeName
    
    Office
    
    Held Since
    
    AgeRandall W. White
    
    Chairman of the Board,
President and Treasurer
    
    
    1986
    
    
    
    62W. Curtis Fossett
    
    Controller and
Corporate Secretary
    
    
    1989
    
    
    
    58Craig M. White*
    
    Vice President  Information Systems
    
    
    2001
    
    
    
    35Ronald T. McDaniel*
    
    Vice President  Publishing Division
    
    
    2002
    
    
    
    66
 *
The prior business experience for these executive officers who have been
employed by the Company for less than five years is as follows: In April 2001, Craig M. White, son of Randall W. White, Chairman of the
Board, President and Chief Executive Officer, was elected Vice President of
Information Systems. Craig White graduated from Oklahoma State University in
December 1994 with a BS degree in Electrical and Computer Engineering.
He joined EDC in December 1994 as an Inventory Analyst. In July 1995 he
was named Manager  Information Systems. In July 2002, Ronald T. McDaniel was elected Vice President of the
Publishing Division. Ronald McDaniel joined EDC on September 25, 2000 as
National Sales Manager of the Publishing Division. Prior to that he was
affiliated with Prudential Detrick Realty, serving as a Residential and Light
Commercial Sales Associate. In addition, he was President of The McDaniel
Company, a residential management and rehabilitation company. (c) Compliance With Section 16 (a) of the Exchange Act The information required by this Item 10 is furnished by incorporation by
reference to all information under the caption Compliance With Section 16 (a)
in the Companys definitive Proxy Statement to be filed in connection with the
Annual Meeting of Shareholders to be held on July 27, 2004. 
 Item 11. EXECUTIVE COMPENSATION The information required by this Item 11 is furnished by incorporation by
reference to all information under the caption Executive Compensation in the
Companys definitive Proxy Statement to be filed in connection with the Annual
Meeting of Shareholders to be held on July 27, 2004. 19




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##### Table of Contents



Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item 12 is furnished by incorporation by
reference to all information under the caption Security Ownership of Certain Beneficial Owners and Management in the Companys definitive Proxy Statement to be filed in
connection with the Annual Meeting of Shareholders to be held on July 27, 2004. 
 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company sells to the EDC Employee 401(k) Plan treasury shares at a
cost equal to or greater than the Companys cost of those shares. During
fiscal year 2004 the EDC Employee 401(k) Plan acquired 50,665 shares priced
from $3.50  $7.00 per share, for a total cost of approximately $199,900. 
 Item 14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES The information required by this Item 14 is furnished by incorporation by
reference to all information under the caption Independent Public Accountants
in the Companys definitive Proxy Statement to be filed in connection with the
Annual Meeting of Shareholders to be held on July 27, 2004. 20




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##### Table of Contents



PART IV 
 Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K  (a)
    
    The following documents are filed as part of this
report:  1.
    
    Financial Statements PageIndependent Auditors Report
    
    
    F-1Balance Sheets  February 29, 2004
and February 28, 2003
    
    
    F-2Statements of Earnings  Years ended
February 29, 2004, February 28, 2003
and February 28, 2002
    
    
    F-3Statements of Shareholders Equity -
Years ended February 29, 2004,
February 28, 2003 and February 28, 2002
    
    
    F-4Statements
of Cash Flows 
Years ended February 29, 2004,
February 28, 2003 and February 28, 2002
    
    
    F-5Notes to Financial Statements
    
    
    F-6-F-15
 Schedules have been omitted as such information is either not required or is
included in the financial statements.  2.
    
    Exhibits  3.1
    
    Restated Certificate of Incorporation of the Company dated
April 26, 1968, Certificate of Amendment there to dated
June 21, 1968 and By-Laws of the Company are incorporated
herein by reference to Exhibit 1 to Registration Statement
on Form 10 (File No. 0-4957).3.2
    
    Certificate of Amendment of Restated Certificate of
Incorporation of the Company dated August 27, 1977 and
By-Laws of the Company as amended are incorporated herein
by reference to Exhibits 20.1 and 20.2 to Form 10-K for fiscal
year ended February 28, 1981 (File No. 0-4957).3.3
    
    Certificate of Amendment of Restated Certificate of
Incorporation of the Company 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).3.4
    
    Certificate of Amendment of Restated Certificate of
Incorporation of the Company dated March 22, 1996. 21




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##### Table of Contents



4.1
    
    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).10.1
    
    Educational Development Corporation Incentive Stock
Option Plan of 1981, is incorporated herein by reference
to Exhibit 10.9 to Form 10-K for fiscal year ended
February 28, 1982 (File No. 0-4957).10.2
    
    Agreement by and among the Company, Usborne
Publishing Ltd., and Hayes Books, Inc., dated May 17, 1983,
is incorporated herein by reference to Exhibit 10.16 to
Form 10-K for fiscal year ended February 29, 1984
(File No. 0-4957).10.3
    
    Settlement Agreement dated August 7, 1986, by and
between the Company and Hayes Publishing Ltd., Cyril
Hayes Books, Inc. (formerly named Hayes Books, Inc.),
and Cyril Hayes is incorporated herein by reference to
Exhibit 10.1 to Form 8-K dated August 7, 1986
(File No. 0-4957).10.4
    
    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).10.5
    
    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).10.6
    
    Loan Agreement dated January 18, 1990, by and between the
Company and State Bank & Trust, N.A., Tulsa, OK (formerly
WestStar Bank, N.A., Bartlesville, OK), is incorporated herein
by reference to Exhibit 10.11 to Form 10-K dated
February 28, 1990 (File No. 0-4957).10.7
    
    Lease Agreement by and between the Company and James
D. Dunn dated March 1, 1991, is incorporated herein by
reference to Exhibit 10.12 to Form 10-K dated February
28, 1991 (File No. 0-4957).10.8
    
    Agreement for Exchange of Contract Rights and Securities by
and between the Company and Robert D. Berryhill dated
October 1, 1990, is incorporated herein by reference to Exhibit
10.1 to Form 10-K dated February 28, 1991 (File No. 0-4957).10.9
    
    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). 22




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##### Table of Contents



10.10
    
    First Amendment dated January 31, 1992 to Loan Agreement
between the Company and State Bank & Trust, N.A., Tulsa,
OK, (formally WestStar Bank, N.A., Bartlesville, OK,) is
incorporated herein by reference to Exhibit 10.14 to Form
10-K dated February 29, 1992 (File No. 0-4957).10.11
    
    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)10.12
    
    Second Amendment dated June 30, 1992 to Loan Agreement
between the Company and State Bank & Trust, N.A., Tulsa,
OK, (formally WestStar Bank, N.A., Bartlesville, OK,) is
incorporated herein by reference to Exhibit 10.12 to Form
10-KSB dated February 28, 1994 (File No. 0-4957).10.13
    
    Third Amendment dated June 30, 1993 to Loan Agreement
between the Company and State Bank & Trust, N.A., Tulsa,
OK, (formally WestStar Bank, N.A., Bartlesville, OK,) is
incorporated herein by reference to Exhibit 10.13 to Form
10-KSB dated February 28, 1995 (File No. 0-4957).10.14
    
    Fourth Amendment dated June 30, 1994 to Loan Agreement
between the Company and State Bank & Trust, N.A, Tulsa, OK,
is incorporated herein by reference to Exhibit 10.14 to Form
10-KSB dated February 28, 1995 (File No. 0-4957).10.15
    
    Fifth Amendment dated March 13, 1995 to Loan Agreement
between the Company and State Bank & Trust, N.A., Tulsa, OK,
is incorporated herein by reference to Exhibit 10.15 to Form
10-KSB dated February 28, 1995 (File No. 0-4957).10.16
    
    Sixth Amendment dated March 27, 1995 to Loan Agreement
between the Company and State Bank & Trust, N.A., Tulsa, OK,
is incorporated herein by reference to Exhibit 10.16 to Form
10-KSB dated February 28, 1995 (File No. 0-4957).10.17
    
    Seventh Amendment dated April 27, 1995 to Loan Agreement
between the Company and State Bank & Trust, N.A., Tulsa, OK,
is incorporated herein by reference to Exhibit 10.17 to Form
10-KSB dated February 28, 1995 (File No. 0-4957).10.18
    
    Amendment dated February 28, 1995 to the Lease Agreement by
and between the Company and James D. Dunn, is incorporated
herein by reference to Exhibit 10.18 to Form 10-KSB dated
February 28, 1995 (File No. 0-4957).10.19
    
    Eighth Amendment Dated July 27, 1995 to Loan Agreement between
the Company and State Bank & Trust, N.A., Tulsa, OK, is
incorporated herein by reference to Exhibit 10.19 to Form
10-KSB dated February 29, 1996 (File No. 0-4957). 23




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##### Table of Contents



10.20
    
    Restated Loan Agreement dated September 25, 1995 between the
Company and State Bank & Trust, N.A., Tulsa, OK, is
incorporated herein by reference to Exhibit 10.20 to Form
10-KSB dated February 29, 1996 (File No. 0-4957).10.21
    
    Restated Loan Agreement dated June 10, 1996 between the
Company and State Bank & Trust, N.A., Tulsa, OK, is
incorporated herein by reference to Exhibit 10.21 to Form
10-K dated February 28, 1997 (File No. 0-4957).10.22
    
    First Amendment dated June 30, 1997 to Restated Loan Agreement
between the Company and State Bank & Trust, N.A., Tulsa, OK, is
incorporated herein by reference to Exhibit 10.22 to Form
10-K dated February 28, 1998 (File No. 0-4957).10.23
    
    Second Amendment dated June 30, 1998 to Restated Loan Agreement
between the Company and State Bank & Trust, N.A., Tulsa, OK, is
incorporated herein by reference to Exhibit 10.23 to Form
10-K dated February 28, 1999 (File No. 0-4957).10.24
    
    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).10.25
    
    Lease agreement by and between the Company and James D. Dunn
dated July 1, 1999, is incorporated herein by reference to
Exhibit 10.25 to Form 10-K dated February 29, 2000
(File No. 0-4957).10.26
    
    First Amendment dated June 30, 2000 to Restated Loan Agreement
between the Company and State Bank & Trust, N.A., Tulsa, OK,
is incorporated herein by reference to Exhibit 10.25 to Form 10-K
dated February 28, 2001 (File No. 0-4957).10.27
    
    Second Amendment dated June 30, 2001 to Restated Loan Agreement
between the Company and State Bank & Trust, N.A., Tulsa, OK,
is incorporated herein by reference to Exhibit 10.25 to Form 10-K
dated February 28, 2002 (File No. 0-4957).10.28
    
    Educational Development Corporation 2002 Incentive Stock
Option Plan is incorporated herein by reference to Exhibit A
to DEF 14A dated May 23, 2002 (File No. 0-4957)10.29
    
    Third Amendment dated June 30, 2002 to Restated Loan Agreement
between the Company and State Bank & Trust, N.A., Tulsa, OK.10.30
    
    Certificate of Amendment of Restated Certificate of
Incorporation of the Company dated July 15, 2002.10.31
    
    Registration of 1,500,000 shares of Common Stock is incorporated herein by
reference to Form S-8 dated October 22, 2002 (File No. 333-100659) 24




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##### Table of Contents



10.32
    
    Amendment dated November 12, 2002 to Usborne Agreement -
Contractual agreement by and between the Company and
Usborne Publishing Limited*10.33
    
    Fourth Amendment dated June 30, 2003 to Restated Loan Agreement
between the Company and Arvest Bank., Tulsa, OK*23.
    
    Independent Auditors Consent*31.1
    
    Certification of the Chief Executive Officer of Educational Development
Corporation pursuant to Rules 13a-14 and 15d-14 promulgated under
the Securities Exchange Act of 1934, as amended*31.2
    
    Certification of the Chief Financial Officer of Educational Development
Corporation pursuant to Rules 13a-14 and 15d-14 promulgated under
the Securities Exchange Act of 1934, as amended*32.1
    
    Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002   *Filed Herewith  (b)
    
    No reports on Form 8-K were filed during
the last quarter of the period covered by this
report. 25




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##### Table of Contents



SIGNATURES 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. EDUCATIONAL DEVELOPMENT CORPORATION Date: May 25, 2004
    By /s/ W. Curtis FossettW. Curtis FossettPrincipal 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 25, 2004
    
    
    
    /s/ Randall W. WhiteRandall W. WhiteChairman of the BoardPresident, Treasurer and
DirectorMay 25, 2004
    
    
    
    /s/ Robert D. BerryhillRobert D. Berryhill, DirectorMay 25, 2004
    
    
    
    /s/ John A. ClericoJohn A. Clerico, DirectorMay 25, 2004
    
    
    
    /s/ Dean CosgroveG. Dean Cosgrove, DirectorMay 25, 2004
    
    
    
    /s/ James F. LewisJames F. Lewis, DirectorMay 25, 2004
    
    
    
    /s/ W. Curtis FossettW. Curtis FossettPrincipal Financialand Accounting Officer
 26




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##### Table of Contents



INDEPENDENT AUDITORS REPORT To the Board of Directors and Shareholders of
Educational Development Corporation We have audited the accompanying balance sheets of Educational Development
Corporation (the Company) as of February 29, 2004 and February 28, 2003, and
the related statements of earnings, shareholders equity, and cash flows for
each of the three years in the period ended February 29, 2004. 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 auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes 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, such financial statements present fairly, in all material
respects, the financial position of the Company at February 29, 2004 and
February 28, 2003, and the results of its operations and its cash flows for
each of the three years in the period ended February 29, 2004, in conformity
with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP Tulsa, Oklahoma
May 19, 2004 -F- 1 -




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##### Table of Contents



EDUCATIONAL DEVELOPMENT CORPORATION 
 BALANCE SHEETS
FEBRUARY 29, 2004 AND FEBRUARY 28, 2003 2004
    
    2003ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    260,505
    
    
    $
    1,432,982Accounts receivable, less allowance for
doubtful accounts and
sales returns $150,919 (2004) and
$189,962 (2003)
    
    
    2,135,237
    
    
    
    2,137,412Inventories  Net
    
    
    13,795,235
    
    
    
    11,413,715Prepaid expenses and other assets
    
    
    147,024
    
    
    
    162,674Income taxes receivable
    
    
    44,855
    
    
    
    Deferred income taxes
    
    
    30,200
    
    
    
    72,100Total current assets
    
    
    16,413,056
    
    
    
    15,218,883INVENTORIES  Net
    
    
    570,996
    
    
    
    341,880PROPERTY, PLANT AND EQUIPMENT  Net
    
    
    2,046,142
    
    
    
    1,941,270DEFERRED INCOME TAXES
    
    
    56,800
    
    
    
    59,700TOTAL
    
    $
    19,086,994
    
    
    $
    17,561,733LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Note payable to bank
    
    $
    394,000
    
    
    $
    Accounts payable
    
    
    3,719,428
    
    
    
    4,997,273Accrued salaries and commissions
    
    
    445,507
    
    
    
    435,728Other current liabilities
    
    
    310,202
    
    
    
    251,824Income taxes payable
    
    
    
    
    
    
    160,303Total current liabilities
    
    
    4,869,137
    
    
    
    5,845,128COMMITMENTS (Note 7)SHAREHOLDERS EQUITY:Common stock, $0.20 par value;
Authorized 8,000,000 shares;
Issued 5,596,340 (2004) and 5,441,640
(2003) shares;
Outstanding 4,025,773 (2004) and
3,827,620 (2003) shares
    
    
    1,119,268
    
    
    
    1,088,328Capital in excess of par value
    
    
    5,349,871
    
    
    
    4,619,406Retained earnings
    
    
    13,435,164
    
    
    
    11,455,66219,904,303
    
    
    
    17,163,396Less treasury stock, at cost
    
    
    (5,686,446
    )
    
    
    (5,446,791
    )14,217,857
    
    
    
    11,716,605TOTAL
    
    $
    19,086,994
    
    
    $
    17,561,733
 See notes to financial statements. -F- 2 -




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##### Table of Contents



EDUCATIONAL DEVELOPMENT
CORPORATION 
 STATEMENTS OF EARNINGS
YEARS ENDED FEBRUARY 29, 2004, FEBRUARY 28, 2003 AND 2002 2004
    
    2003
    
    2002GROSS SALES
    
    $
    40,070,070
    
    
    $
    36,036,786
    
    
    $
    30,457,695Less discounts and allowances
    
    
    (11,318,228
    )
    
    
    (11,156,675
    )
    
    
    (9,903,244
    )Transportation revenue
    
    
    1,610,573
    
    
    
    1,377,563
    
    
    
    1,060,202TOTAL REVENUES
    
    
    30,362,415
    
    
    
    26,257,674
    
    
    
    21,614,653COST OF SALES
    
    
    10,574,800
    
    
    
    9,591,425
    
    
    
    8,121,522Gross margin
    
    
    19,787,615
    
    
    
    16,666,249
    
    
    
    13,493,131OPERATING EXPENSES:Operating and selling
    
    
    6,565,143
    
    
    
    5,580,903
    
    
    
    4,777,667Sales commissions
    
    
    7,712,408
    
    
    
    6,327,058
    
    
    
    4,867,970General and administrative
    
    
    1,760,631
    
    
    
    1,569,826
    
    
    
    1,463,631Interest
    
    
    9,762
    
    
    
    884
    
    
    
    20,34316,047,944
    
    
    
    13,478,671
    
    
    
    11,129,611OTHER INCOME
    
    
    92,779
    
    
    
    77,207
    
    
    
    76,554EARNINGS BEFORE INCOME TAXES
    
    
    3,832,450
    
    
    
    3,264,785
    
    
    
    2,440,074INCOME TAXES
    
    
    1,459,000
    
    
    
    1,226,700
    
    
    
    908,800NET EARNINGS
    
    $
    2,373,450
    
    
    $
    2,038,085
    
    
    $
    1,531,274BASIC AND DILUTED EARNINGS
PER SHARE:Basic
    
    $
    0.60
    
    
    $
    0.53
    
    
    $
    0.40Diluted
    
    $
    0.55
    
    
    $
    0.49
    
    
    $
    0.38WEIGHTED AVERAGE NUMBER OF
COMMON AND EQUIVALENT SHARES
OUTSTANDING:Basic
    
    
    3,948,193
    
    
    
    3,835,411
    
    
    
    3,867,221Diluted
    
    
    4,293,802
    
    
    
    4,158,781
    
    
    
    4,061,956
 See notes to financial statements. -F- 3 -




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##### Table of Contents



EDUCATIONAL DEVELOPMENT CORPORATION 
 STATEMENTS OF SHAREHOLDERS EQUITY
YEARS ENDED FEBRUARY 29, 2004, FEBRUARY 28, 2003 AND 2002 Common Stock(par value $0.20 per share)Number of
    
    
    
    
    
    Capital in
    
    
    
    
    
    Treasury StockShares
    
    
    
    
    
    Excess of
    
    Retained
    
    Number of
    
    
    
    
    
    ShareholdersIssued
    
    Amount
    
    Par Value
    
    Earnings
    
    Shares
    
    Amount
    
    EquityBALANCE  March 1, 2001
    
    
    5,429,240
    
    
    $
    1,085,848
    
    
    $
    4,413,627
    
    
    $
    8,270,624
    
    
    
    1,517,840
    
    
    $
    (4,554,272
    )
    
    $
    9,215,827Issuance of treasury stock
    
    
    
    
    
    
    
    
    
    
    1,327
    
    
    
    
    
    
    
    (1,000
    )
    
    
    3,023
    
    
    
    4,350Purchases of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    139,603
    
    
    
    (634,752
    )
    
    
    (634,752
    )Sales of treasury stock
    
    
    
    
    
    
    
    
    
    
    18,480
    
    
    
    
    
    
    
    (31,520
    )
    
    
    95,812
    
    
    
    114,292Exercise of options ($1.50  $3.00/share)
    
    
    
    
    
    
    
    
    
    
    (15,927
    )
    
    
    
    
    
    
    (17,800
    )
    
    
    54,452
    
    
    
    38,525Dividends paid
($0.04/share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (154,175
    )
    
    
    
    
    
    
    
    
    
    
    (154,175
    )Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,531,274
    
    
    
    
    
    
    
    
    
    
    
    1,531,274BALANCE  February 28, 2002
    
    
    5,429,240
    
    
    
    1,085,848
    
    
    
    4,417,507
    
    
    
    9,647,723
    
    
    
    1,607,123
    
    
    
    (5,035,737
    )
    
    
    10,115,341Purchases of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    107,498
    
    
    
    (765,227
    )
    
    
    (765,227
    )Sales of treasury stock
    
    
    
    
    
    
    
    
    
    
    138,286
    
    
    
    
    
    
    
    (90,201
    )
    
    
    321,566
    
    
    
    459,852Exercise of options ($1.50  $5.50/share)
    
    
    12,400
    
    
    
    2,480
    
    
    
    63,613
    
    
    
    
    
    
    
    (10,400
    )
    
    
    32,607
    
    
    
    98,700Dividends paid
($0.06/share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (230,146
    )
    
    
    
    
    
    
    
    
    
    
    (230,146
    )Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,038,085
    
    
    
    
    
    
    
    
    
    
    
    2,038,085BALANCE  February 28, 2003
    
    
    5,441,640
    
    
    
    1,088,328
    
    
    
    4,619,406
    
    
    
    11,455,662
    
    
    
    1,614,020
    
    
    
    (5,446,791
    )
    
    
    11,716,605Purchases of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54,304
    
    
    
    (575,820
    )
    
    
    (575,820
    )Sales of treasury stock
    
    
    
    
    
    
    
    
    
    
    301,525
    
    
    
    
    
    
    
    (97,757
    )
    
    
    336,165
    
    
    
    637,690Exercise of options
($1.375   $4.00/share)
    
    
    154,700
    
    
    
    30,940
    
    
    
    341,040
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    371,980Tax benefit  Stock options
    
    
    
    
    
    
    
    
    
    
    87,900
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87,900Dividends paid
($0.10/share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (393,948
    )
    
    
    
    
    
    
    
    
    
    
    (393,948
    )Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,373,450
    
    
    
    
    
    
    
    
    
    
    
    2,373,450BALANCE  February 29, 2004
    
    
    5,596,340
    
    
    $
    1,119,268
    
    
    $
    5,349,871
    
    
    $
    13,435,164
    
    
    
    1,570,567
    
    
    $
    (5,686,446
    )
    
    $
    14,217,857
 See notes to financial statements. -F- 4 -




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##### Table of Contents



EDUCATIONAL DEVELOPMENT CORPORATION 
 STATEMENTS OF CASH FLOWS
YEARS ENDED FEBRUARY 29, 2004, FEBRUARY 28, 2003 AND 2002 2004
    
    2003
    
    2002CASH FLOWS FROM OPERATING ACTIVITIES:Net earnings
    
    $
    2,373,450
    
    
    $
    2,038,085
    
    
    $
    1,531,274Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    167,500
    
    
    
    165,910
    
    
    
    120,738Tax benefit of stock options exercised
    
    
    87,900
    
    
    
    
    
    
    
    Deferred income taxes
    
    
    44,800
    
    
    
    (24,100
    )
    
    
    (27,900
    )Provision for doubtful accounts and sales returns
    
    
    1,009,645
    
    
    
    1,057,803
    
    
    
    991,813Stock issued for awards
    
    
    
    
    
    
    
    
    
    
    4,350Changes in assets and liabilities:Accounts and income tax receivable
    
    
    (1,052,325
    )
    
    
    (1,154,792
    )
    
    
    (1,481,184
    )Inventories
    
    
    (2,610,636
    )
    
    
    (2,779,765
    )
    
    
    1,241,092Prepaid expenses and other assets
    
    
    (20,868
    )
    
    
    11,846
    
    
    
    (26,456
    )Accounts payable, accrued salaries and commissions,
and other current liabilities
    
    
    (1,209,688
    )
    
    
    1,707,121
    
    
    
    1,830,181Income tax payable
    
    
    (160,303
    )
    
    
    96,550
    
    
    
    63,753Total adjustments
    
    
    (3,743,975
    )
    
    
    (919,427
    )
    
    
    2,716,387Net cash (used in) provided by operating activities
    
    
    (1,370,525
    )
    
    
    1,118,658
    
    
    
    4,247,661CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment
    
    
    (235,854
    )
    
    
    (155,744
    )
    
    
    (1,888,933
    )Net cash used in investing activities
    
    
    (235,854
    )
    
    
    (155,744
    )
    
    
    (1,888,933
    )CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings on revolving credit agreement
    
    
    8,192,000
    
    
    
    1,317,000
    
    
    
    2,347,000Payments on revolving credit agreement
    
    
    (7,798,000
    )
    
    
    (1,317,000
    )
    
    
    (3,431,000
    )Cash received from exercise of stock options
    
    
    371,980
    
    
    
    98,700
    
    
    
    38,525Cash received from sale of treasury stock
    
    
    637,690
    
    
    
    459,852
    
    
    
    114,292Cash paid to acquire treasury stock
    
    
    (575,820
    )
    
    
    (765,227
    )
    
    
    (634,752
    )Dividends paid
    
    
    (393,948
    )
    
    
    (230,146
    )
    
    
    (154,175
    )Net cash provided by (used in) financing activities
    
    
    433,902
    
    
    
    (436,821
    )
    
    
    (1,720,110
    )NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS
    
    
    (1,172,477
    )
    
    
    526,093
    
    
    
    638,618CASH AND CASH EQUIVALENTS  BEGINNING OF YEAR
    
    
    1,432,982
    
    
    
    906,889
    
    
    
    268,271CASH AND CASH EQUIVALENTS  END OF YEAR
    
    $
    260,505
    
    
    $
    1,432,982
    
    
    $
    906,889SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:Cash paid for interest
    
    $
    8,102
    
    
    $
    884
    
    
    $
    26,392Cash paid for income taxes
    
    $
    1,531,458
    
    
    $
    1,154,250
    
    
    $
    800,250
 See notes to financial statements. -F- 5 -




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EDUCATIONAL DEVELOPMENT CORPORATION 
 NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2004, FEBRUARY 28, 2003 AND 2002  1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESNature of BusinessEducational Development Corporation (the Company)
distributes books and publications through its Publishing and Usborne Books
at Home Divisions to book, toy and gift stores, libraries and home educators
located throughout the United States (U.S.). The Company is the sole U.S.
distributor of books and related items, which are published by an England
based publishing company. The England based publishing company is the
Companys primary supplier.EstimatesThe Companys 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 inventory purchases by
the Company are concentrated with an England based publishing company.
Purchases from this England based publishing company were approximately
$12.7 million, $11.1 million and $6.1 million for the fiscal year ended
February 29, 2004, February 28, 2003 and 2002, respectively. Total inventory
purchases were approximately $15.3 million, $13.9 million and $8.1 million
for the fiscal year ended February 29, 2004, February 28, 2003 and 2002,
respectively.Cash and Cash EquivalentsCash and cash equivalents include cash on hand
and cash on deposit in banks.InventoriesInventories are stated at the lower of cost or market. Cost
is determined using the first-in, first-out (FIFO) method. The Company
presents a portion of its inventory as a noncurrent asset. Occasionally the
Company purchases book inventory in quantities in excess of what will be
sold within the normal operating cycle due to minimum order requirements of
the Companys primary supplier. These excess quantities were included in
noncurrent inventory. Noncurrent inventory was estimated by management using
the current year turnover ratio by title. All inventory in excess of
2-1⁄2
years of anticipated sales was classified as noncurrent inventory.Inventories are presented net of a reserve for obsolete inventory.
Management has estimated and included a reserve for obsolescence for both
current and noncurrent inventory. This reserve is based on managements
identification of obsolete inventory on hand at February 29, 2004 and
February 28, 2003.Prepaid Expenses and Other AssetsPrepaid expenses and other assets at
February 28, 2003 include notes receivable of approximately $14,000 due from
directors and related parties of the Company. There were no notes receivable
due from directors and related parties at February 29, 2004.Property, Plant and EquipmentProperty, plant and equipment are stated at
cost and depreciated on a straight-line basis over the estimated useful
lives, which range from 2 to 30 years. -F- 6 -




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##### Table of Contents



Income TaxesThe Company records deferred tax assets and liabilities for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases, using the regular tax rate expected to be in
effect when the taxes are actually paid or recovered. The Company records
net deferred tax assets related to the recognition of future tax benefits,
to the extent that realization of such benefits is considered more likely
than not to occur.Revenue RecognitionSales are recognized and recorded when products are
shipped. The estimated allowance for sales returns is recorded as sales are
recognized and recorded. Management uses prior experience to estimate the
allowance for sales returns.Advertising CostsThe Company expenses advertising costs as incurred.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 the Company has utilized the treasury
stock method.The following reconciles the diluted earnings per share: Year EndedYear EndedFebruary 29,
    
    February 28,2004
    
    2003
    
    2002Diluted Earnings Per Share:Net earnings applicable to
common shareholders
    
    $
    2,373,450
    
    
    $
    2,038,085
    
    
    $
    1,531,274Shares:Weighted average shares
outstanding  basic
    
    
    3,948,193
    
    
    
    3,835,411
    
    
    
    3,867,221Assumed exercise of options
    
    
    345,609
    
    
    
    323,370
    
    
    
    194,735Weighted average shares
outstanding  diluted
    
    
    4,293,802
    
    
    
    4,158,781
    
    
    
    4,061,956Diluted Earnings Per Share
    
    $
    0.55
    
    
    $
    0.49
    
    
    $
    0.38
  There were no stock options for the fiscal years ended February 29, 2004,
February 28, 2003 and 2002 excluded from the diluted earnings per share
calculation.Fair Value of Financial InstrumentsFor cash and cash equivalents,
accounts receivable, accounts payable and notes payable to the bank, the
carrying amount approximates fair value because of the short maturity of
those instruments.Long-Lived Asset ImpairmentThe Company reviews 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 29, 2004, February 28, 2003 and 2002.Stock-Based CompensationThe Company accounts for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees. Compensation cost for stock options, if any, is measured as the
excess of the -F- 7 -




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##### Table of Contents



quoted market price of the Companys stock at the date of
grant over the amount an employee must pay to acquire the stock. The
following table illustrates the effects on net income and earnings per
share. If the Company had applied the fair value recognition provisions of
Statement of Financial Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, as amended, to stock-based employee compensation. Year EndedFebruary 29,
    
    Year Ended February 28,2004
    
    2003
    
    2002Net earnings  as reported
    
    $
    2,373,450
    
    
    $
    2,038,085
    
    
    $
    1,531,274Deduct: Total stock-based compensation
expense determined under fair value based
method for all awards, net of related
tax effects
    
    
    
    
    
    
    (31,422
    )
    
    
    (5,110
    )Net earnings  pro forma
    
    $
    2,373,450
    
    
    $
    2,006,663
    
    
    $
    1,526,164Earnings per share  as reported:Basic
    
    $
    0.60
    
    
    $
    0.53
    
    
    $
    0.40Diluted
    
    $
    0.55
    
    
    $
    0.49
    
    
    $
    0.38Earnings per share  pro forma:Basic
    
    $
    0.60
    
    
    $
    0.52
    
    
    $
    0.39Diluted
    
    $
    0.55
    
    
    $
    0.48
    
    
    $
    0.38
  ReclassificationsCertain prior year amounts have been reclassified to
conform with the 2004 presentation.  2.
    
    INVENTORIESInventories consist of the following: February 29,
    
    February 28,2004
    
    2003Current:Book inventory
    
    $
    13,824,645
    
    
    $
    11,460,085Reserve for obsolescence
    
    
    (29,410
    )
    
    
    (46,370
    )Inventories net  current
    
    $
    13,795,235
    
    
    $
    11,413,715Noncurrent:Book inventory
    
    $
    823,751
    
    
    $
    511,500Reserve for obsolescence
    
    
    (252,755
    )
    
    
    (169,620
    )Inventories net  noncurrent
    
    $
    570,996
    
    
    $
    341,880
 -F- 8 -




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##### Table of Contents



3.
    
    PROPERTY, PLANT AND EQUIPMENTProperty, plant and equipment consist of the following: February 29,
    
    February 28,2004
    
    2003Land
    
    $
    250,000
    
    
    $
    250,000Building
    
    
    1,540,000
    
    
    
    1,540,000Machinery and equipment
    
    
    1,495,473
    
    
    
    1,473,054Furniture and fixtures
    
    
    271,412
    
    
    
    237,7533,556,885
    
    
    
    3,500,807Less accumulated depreciation and amortization
    
    
    (1,690,519
    )
    
    
    (1,559,537
    )Construction in progress
    
    
    179,776
    
    
    
    $
    2,046,142
    
    
    $
    1,941,270
  Construction in progress at February 29, 2004 represents the expansion of
the Companys central merchandising facility, for a total cost of
approximately $600,000. -F- 9 -




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##### Table of Contents



4.
    
    INCOME TAXESDeferred 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 the Companys net deferred tax
assets and liabilities as of February 29, 2004 and February 28, 2003 are as
follows: February 29,
    
    February 28,2004
    
    2003Current:Deferred tax assets:Allowance for doubtful accounts
    
    $
    19,000
    
    
    $
    33,800Allowance for obsolescence
    
    
    11,200
    
    
    
    17,600Expenses deducted on the cash basis for income
tax purposes
    
    
    
    
    
    
    30,800Other
    
    
    
    
    
    
    3,800Deferred tax assets
    
    
    30,200
    
    
    
    86,000Deferred tax liability  Software development
    
    
    
    
    
    
    (13,900
    )Deferred tax asset  Net
    
    $
    30,200
    
    
    $
    72,100Noncurrent:Deferred tax assets:Allowance for obsolescence
    
    $
    103,000
    
    
    $
    75,200Deferred tax asset  other
    
    
    
    
    
    
    1,900Deferred tax assets
    
    
    103,000
    
    
    
    77,100Deferred tax liabilities:Software development
    
    
    
    
    
    
    Property and equipment
    
    
    (46,200
    )
    
    
    (17,400
    )Deferred tax liabilities
    
    
    (46,200
    )
    
    
    (17,400
    )Deferred tax asset  Net
    
    $
    56,800
    
    
    $
    59,700
  Management has determined that no valuation allowance is necessary to reduce
the deferred tax assets as it is more likely than not that such assets are
realizable. -F- 10 -




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##### Table of Contents



The components of income tax expense are as follows: February 29,
    
    February
28,2004
    
    2003
    
    2002Current:Federal
    
    $
    1,202,200
    
    
    $
    1,063,200
    
    
    $
    796,200State
    
    
    212,000
    
    
    
    187,600
    
    
    
    140,5001,414,200
    
    
    
    1,250,800
    
    
    
    936,700Deferred:Federal
    
    
    37,800
    
    
    
    (20,500
    )
    
    
    (23,700
    )State
    
    
    7,000
    
    
    
    (3,600
    )
    
    
    (4,200
    )44,800
    
    
    
    (24,100
    )
    
    
    (27,900
    )Total income tax expense
    
    $
    1,459,000
    
    
    $
    1,226,700
    
    
    $
    908,800
  The following reconciles the Companys expected income tax expense utilizing
statutory tax rates to the actual tax expense: Year EndedFebruary 29,
    
    Year Ended February 28,2004
    
    2003
    
    2002Tax expense at federal statutory rate
    
    $
    1,303,000
    
    
    $
    1,110,000
    
    
    $
    830,000State income tax  net of federal tax benefit
    
    
    153,000
    
    
    
    130,000
    
    
    
    96,000Other
    
    
    3,000
    
    
    
    (13,300
    )
    
    
    (17,200
    )$
    1,459,000
    
    
    $
    1,226,700
    
    
    $
    908,800
  5.
    
    EMPLOYEE BENEFIT PLANThe Company has a profit sharing plan which 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 from the Company are discretionary and
amounted to $29,474, $60,412 and $52,258 in the fiscal years ended February
29, 2004, February 28, 2003 and 2002, respectively.6.
    
    NOTE PAYABLE TO BANKThe Company has a $3,500,000 revolving credit agreement, with interest
payable monthly at prime minus .25%, collateralized by substantially all
assets of the Company and maturing on June 30, 2004. Available credit under
the revolving credit agreement was $3,106,000 at February 29, 2004, and
$3,500,000 at February 28, 2003. The agreement contains provisions that
require the Company 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. The Company was
in compliance with all restrictive covenants at February 29, 2004. The
Company intends to renew the bank agreement or obtain other financing upon
maturity.The Company had $394,000 of borrowings outstanding on the above revolving
credit agreement at February 29, 2004 and no borrowings outstanding at
February 28, 2003. -F- 11 -




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##### Table of Contents



7.
    
    COMMITMENTSAt February 29, 2004, the Company had outstanding commitments to purchase
inventory from its primary vendor totaling approximately $1,962,300.The Company leased its office and warehouse facilities under a noncancelable
operating lease until January 2002. On January 7, 2002, the Company
purchased its leased office and warehouse facilities for $1,790,000 and
simultaneously terminated its lease. Total rent expense related to these
facilities was $204,000 in the fiscal year ended February 28, 2002.8.
    
    CAPITAL STOCK, STOCK OPTIONS AND WARRANTSThe Board of Directors adopted the 1992 Incentive Stock Option Plan (the
1992 Plan) in June of 1992, which authorized the Company to grant up to
1,000,000 stock options. The 1992 Plan expired in June of 2002 upon which
the Board of Directors adopted the 2002 Stock Option Plan (the 2002 Plan).
The 2002 Plan also authorized the Company to grant up to 1,000,000 stock
options.Options granted under the 1992 Plan and 2002 Plan (collectively the
Incentive Plans) 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 29,
2004 expire beginning in July 2004 through October 2012.A summary of the status of the Companys Incentive Plans as of February 29,
2004, February 28, 2003 and 2002, and changes during the years then ended is
presented below: 2004
    
    2003
    
    2002Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    Average
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    Exercise
    
    
    
    
    
    ExerciseShares
    
    Price
    
    Shares
    
    Price
    
    Shares
    
    PriceOutstanding at
Beginning of Year
    
    
    579,400
    
    
    $
    3.26
    
    
    
    590,600
    
    
    $
    3.24
    
    
    
    599,600
    
    
    $
    3.17Granted
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    6.00
    
    
    
    10,000
    
    
    
    5.50Exercised/canceled
    
    
    (154,700
    )
    
    
    (2.40
    )
    
    
    (26,200
    )
    
    
    (4.29
    )
    
    
    (19,000
    )
    
    
    (2.28
    )Outstanding at End of Year
    
    
    424,700
    
    
    $
    3.57
    
    
    
    579,400
    
    
    $
    3.26
    
    
    
    590,600
    
    
    $
    3.24
  The following table summarizes information about stock options outstanding
at February 29, 2004: Number
    
    Weighted AverageRange of
    
    Outstanding
    
    RemainingExercise
    
    at February 29,
    
    Contractual
    
    Weighted AveragePrices
    
    2004
    
    Life (Years)
    
    Exercise Price$2.19 - $2.50
    
    
    126,000
    
    
    
    6
    
    
    $
    2.25$2.51 - $3.13
    
    
    83,500
    
    
    
    1
    
    
    $
    3.12$3.81
    
    
    5,000
    
    
    
    4
    
    
    $
    3.81$4.00
    
    
    60,000
    
    
    
    4
    
    
    $
    4.00$4.63
    
    
    135,200
    
    
    
    4
    
    
    $
    4.63$6.00
    
    
    15,000
    
    
    
    9
    
    
    $
    6.00424,700
 -F- 12 -




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##### Table of Contents



All options outstanding are exercisable at February 29, 2004.The Company applies APB Opinion No. 25 and related interpretations in
accounting for its Incentive Plan. Accordingly, no stock-based employee
compensation cost is reflected in net earnings, as all options granted had
an exercise price equal to the market value of the underlying common stock
on the date of grant. The table in Note 1 illustrates the effect on net
earnings and earnings per share if the Company had applied the fair value
recognition provisions of SFAS No. 123, as amended, to stock-based employee
compensation.The fair value per option granted in the fiscal year ended February 28, 2003
and 2002, was $2.09 and $0.51, respectively. No options were granted in the
fiscal year ended February 29, 2004. The fair value of options granted under
the Incentive Plan was estimated on the date of grant using the
Black-Scholes option-pricing model. The following assumptions were used for
options granted in the fiscal year ended February 28, 2003: no dividend
yield, expected volatility of 27.64%, risk free interest rate of 3.68%, and
expected life of ten years; and the following assumptions were used for
options granted in the fiscal year ended February 28, 2002: no dividend
yield, expected volatility of 35.60%, risk free interest rate of 1.98%, and
expected life of one year.9.
    
    QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)The following is a summary of the quarterly results of operations for the
years ended February 29, 2004, February 28, 2003 and 2002: Basic
    
    DilutedTotal
    
    
    
    
    
    
    
    
    
    Earnings
    
    EarningsRevenues
    
    Gross Margin
    
    Net Earnings
    
    Per Share
    
    Per Share2004First quarter
    
    $
    7,263,000
    
    
    $
    4,680,700
    
    
    $
    585,900
    
    
    $
    0.15
    
    
    $
    0.14Second quarter
    
    
    6,894,500
    
    
    
    4,334,500
    
    
    
    534,400
    
    
    
    0.14
    
    
    
    0.12Third quarter
    
    
    9,976,700
    
    
    
    6,702,500
    
    
    
    871,100
    
    
    
    0.22
    
    
    
    0.20Fourth quarter
    
    
    6,228,215
    
    
    
    4,069,915
    
    
    
    382,050
    
    
    
    0.09
    
    
    
    0.09Total year
    
    $
    30,362,415
    
    
    $
    19,787,615
    
    
    $
    2,373,450
    
    
    $
    0.60
    
    
    $
    0.552003First quarter
    
    $
    6,441,100
    
    
    $
    3,996,000
    
    
    $
    547,700
    
    
    $
    0.14
    
    
    $
    0.13Second quarter
    
    
    5,900,700
    
    
    
    3,602,800
    
    
    
    454,000
    
    
    
    0.12
    
    
    
    0.11Third quarter
    
    
    8,289,200
    
    
    
    5,487,000
    
    
    
    764,900
    
    
    
    0.20
    
    
    
    0.19Fourth quarter
    
    
    5,626,674
    
    
    
    3,580,449
    
    
    
    271,485
    
    
    
    0.07
    
    
    
    0.06Total year
    
    $
    26,257,674
    
    
    $
    16,666,249
    
    
    $
    2,038,085
    
    
    $
    0.53
    
    
    $
    0.492002First quarter
    
    $
    5,021,500
    
    
    $
    3,048,700
    
    
    $
    369,500
    
    
    $
    0.09
    
    
    $
    0.09Second quarter
    
    
    5,361,900
    
    
    
    3,253,800
    
    
    
    423,800
    
    
    
    0.11
    
    
    
    0.11Third quarter
    
    
    6,340,300
    
    
    
    4,105,100
    
    
    
    485,000
    
    
    
    0.13
    
    
    
    0.12Fourth quarter
    
    
    4,890,953
    
    
    
    3,085,531
    
    
    
    252,974
    
    
    
    0.07
    
    
    
    0.06Total year
    
    $
    21,614,653
    
    
    $
    13,493,131
    
    
    $
    1,531,274
    
    
    $
    0.40
    
    
    $
    0.38
 -F- 13 -




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##### Table of Contents



The February 28, 2003 and 2002 fiscal year quarterly results reflect the
reclassification of freight revenue which aggregated $1,377,563 and
$1,060,202, respectively.10.
    
    BUSINESS SEGMENTSThe Company has two reportable segments: Publishing and Usborne Books at
Home (UBAH). These reportable segments are business units that offer
different methods of distribution to different types of customers. They are
managed separately based on the fundamental differences in their operations.
The Publishing Division markets its products to retail accounts, which
include book, toy and gift stores, school supply and museums, through
commissioned sales representatives, trade and specialty wholesalers and an
internal telesales group. The UBAH Division markets its product line through
a network of independent sales consultants through a combination of direct
sales, home shows and book fairs. The UBAH 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. The Company evaluates
segment performance based on operating profits of the segments, which is
defined as segment net sales reduced by direct cost of sales and direct
expenses. Corporate expenses, including interest and depreciation, and
income taxes are not allocated to the segments. The Companys assets are not
allocated on a segment basis.Information by industry segment for the years ended February 29, 2004,
February 28, 2003 and 2002 is set forth below: Publishing
    
    UBAH
    
    Other
    
    Total2004Total revenues
    
    $
    7,465,762
    
    
    $
    22,896,653
    
    
    $
    
    
    
    $
    30,362,415Earnings (loss) before income taxes
    
    
    2,511,400
    
    
    
    4,814,400
    
    
    
    (3,493,350
    )
    
    
    3,832,4502003Total revenues
    
    $
    7,583,203
    
    
    $
    18,674,471
    
    
    $
    
    
    
    $
    26,257,674Earnings (loss) before income taxes
    
    
    2,570,156
    
    
    
    3,887,858
    
    
    
    (3,193,229
    )
    
    
    3,264,7852002Total revenues
    
    $
    7,383,830
    
    
    $
    14,230,823
    
    
    $
    
    
    
    $
    21,614,653Earnings (loss) before income taxes
    
    
    2,579,082
    
    
    
    2,845,712
    
    
    
    (2,984,720
    )
    
    
    2,440,074
  11.
    
    STOCK REPURCHASE PLANIn July 1998, the Board of Directors authorized the Company to purchase up
to 1,000,000 shares of the Companys common stock. In May 1999, the Board of
Directors authorized the Company to purchase up to an additional 1,000,000 shares of its common stock. During fiscal year 2004 the Company continued
the stock buyback program by purchasing 54,304 shares of common stock at an
average price of $10.60 per share totaling approximately $575,800. The
cumulative shares purchased under the share repurchase program, as of
February 29, 2004, were 1,841,576 shares at a cost totaling approximately
$6,625,400. -F- 14 -




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12.
    
    SUBSEQUENT EVENTOn April 8, 2004, the Company announced that it will pay a $0.12 per share
dividend on June 10, 2004 to shareholders of record as of May 26, 2004.The Company repurchased 148,741 shares of its common stock subsequent to
year-end, including 39,000 shares of options exercised by former employees. ****** -F- 15 -