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What changed in EDUCATIONAL DEVELOPMENT CORP's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of EDUCATIONAL DEVELOPMENT CORP's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+119 added−116 removedSource: 10-K (2024-05-21) vs 10-K (2023-05-17)

Top changes in EDUCATIONAL DEVELOPMENT CORP's 2024 10-K

119 paragraphs added · 116 removed · 95 edited across 4 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeWe also compete with other publishers in the school and library book fair market, of which Scholastic Corporation is the largest. 5 Table of Contents Our Publishing division faces competition from U.S. and international publishing companies that sell online and through the same retail bookstores, toy stores, and gift and novelty stores that offer a variety of non-book products.
Biggest changeOur Publishing division faces competition from U.S. and international publishing companies that sell online and through the same retail bookstores, toy stores, and gift and novelty stores that also offer a variety of non-book products. 5 Table of Contents Employees As of February 23, 2024, 101 full-time employees worked at our Tulsa, OK, San Diego, CA, and Layton, UT facilities.
This division also has in-house representatives marketing by telephone and email to these customers and potential customers. This division markets to approximately 4,000 retail outlets. In addition to exhibiting at national trade and regional bookselling shows, our products are featured in agency showrooms in AmericasMart Atlanta, Dallas Market Center, and Minneapolis Mart.
This division also has in-house representatives marketing by telephone and email to other customers and potential customers. This division markets to approximately 4,000 retail outlets. In addition to exhibiting at national trade and regional bookselling shows, our products are featured in agency showrooms in AmericasMart Atlanta, Dallas Market Center, and Minneapolis Mart.
This division had approximately 24,600 active Brand Partners as of February 28, 2023. ● Publishing Division (“EDC Publishing” or “Publishing”) – This is our trade division which markets through commissioned trade representatives who call on retail book, toy and specialty stores along with other retail outlets.
This division had approximately 15,000 active Brand Partners as of February 29, 2024. ● Publishing Division (“EDC Publishing” or “Publishing”) – This is our trade division which markets through commissioned trade representatives who call on retail book, toy and specialty stores along with other retail outlets.
Percent of Net Revenues by Division FY 2023 FY 2022 PaperPie 85 % 91 % Publishing 15 % 9 % Total net revenues 100 % 100 % (c) Narrative Description of Business Products EDC’s current catalog contains approximately 2,000 titles, with new additions added four times per year across all lines of our products.
Percent of Net Revenues by Division FY 2024 FY 2023 PaperPie 89 % 85 % Publishing 11 % 15 % Total net revenues 100 % 100 % (c) Narrative Description of Business Products EDC’s current catalog contains approximately 2,000 titles, with new additions added throughout the year across all lines of our products.
Our PaperPie division competes in recruiting and retaining brand partners, which continuously receive opportunities to work for other direct selling companies, as well as new non-traditional employment opportunities, especially in the gig marketplace that provide part-time supplemental income.
Our PaperPie division competes in recruiting and retaining Brand Partners, which continuously receive opportunities to work for other direct selling companies, as well as new non-traditional employment opportunities, especially in the gig marketplace that provide part-time supplemental income. We also compete with other publishers in the school and library book fair market, of which Scholastic Corporation is the largest.
Additionally, throughout the year, a similar number of titles that do not have sufficient sales are identified as “out of print” and these titles are no longer re-printed or included in future catalogs.
Additionally, a similar number of titles that do not have sufficient sales are identified as “out of print” and these titles are no longer re-printed or included in future catalogs. The Company sells the remaining quantities of these out-of-print titles through their normal sales channels at normal pricing and has not historically participated in the publishing industry’s “remainder” market.
We touch the lives of children for a lifetime.” 4 Table of Contents (b) Financial Information about Our Segments We sell children’s books, educational toys and games and other related products (collectively referred to as “products” or “books”) through two business segments, which we refer to as “divisions” or “sales channels”: ● Direct Sales Division (“PaperPie”) – This division sells our books and products through independent brand partners direct to the customer.
Our vision is to empower the world by sparking a child’s natural curiosity and lifelong love of learning through products and experiences that meet at the intersection of education and play.” Our Company mission statement reflects “We are creating the story of tomorrow through people, products, and purpose.” 4 Table of Contents (b) Financial Information about Our Segments We sell children’s books, educational toys and games and other related products (collectively referred to as “products” or “books”) through two business segments, which we refer to as “divisions” or “sales channels”: ● Direct Sales Division (“PaperPie”) – This division sells our books and products through independent sales representatives (“Brand Partners”) direct to the customer.
We are a corporation incorporated under the laws of the State of Delaware on August 23, 1965. Our fiscal year ends on February 28 (29). Our Company mission statement reflects “The future of our world depends on the education of our children. EDC delivers educational excellence one book at a time. We provide economic opportunity while fostering strong family values.
We are a corporation incorporated under the laws of the State of Delaware on August 23, 1965. Our fiscal year ends on February 28 (29). Our Company vision statement reflects “We believe that education is the catalyst for wonderment, kindness, and connection.
Under the contracted terms in our new distribution agreement, the Company no longer had the rights to distribute Usborne’s products to retail customers effective November 15, 2022, at which date Usborne planned to engage a different distributor to supply their products to retail accounts.
In accordance with our new distribution agreement, the Company no longer has the rights to distribute Usborne’s products to retail customers. The distribution of Usborne’s products to retail customers was discontinued in early fiscal 2024, when Usborne moved to a new retail distribution vendor. .
Employees As of April 26, 2023, 138 full-time employees worked at our Tulsa, OK, San Diego, CA, Layton, UT and Seattle, WA facilities. Of these employees, approximately 56% work in our distribution warehouse in Tulsa, OK.
Of these employees, approximately 50% work in our distribution warehouse in Tulsa, OK.
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The November 15, 2022 transition date, at Usborne’s request, was extended until their new supplier can start distribution during 2023.
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These reports will be provided electronically, free of charge, upon request.
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The Company sells through the remaining quantities of these out of print titles through their normal sales channels at normal pricing and has not historically participated in the publishing industry’s “remainder” market.
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These reports will be provided electronically, free of charge, upon request. Employee Retention Credit In response to the COVID-19 pandemic, the U.S. government enacted the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which, among other things, included a provision related to the Employee Retention Credit. The Company applied the provisions of the CARES Act as applicable.
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In fiscal 2024, the Company applied for employee retention credits for Q1, Q2 and Q3 wages paid in calendar year 2021. In connection with the CARES Act, the Company adopted a policy to recognize the employee retention credit when realized under Accounting Standards Codification (“ASC”) 450-30, Gain Contingencies .
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Accordingly, the total requested credits of $3.6 million are not recorded in the Company’s financial statements until the credits are received, as the Company is not certain the credits will be issued.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeIn addition to these owned properties, we also lease additional warehouse space in Tulsa, Oklahoma as needed for overflow inventory, a small office in San Diego, California that is used by our Kane Miller employees, a warehouse and office space in Layton, Utah resulting from the acquisition of Learning Wrap-Ups, and office space located in Seattle, Washington resulting from the acquisition of SmartLab Toys.
Biggest changeIn addition to this owned property, we also lease additional warehouse space in Tulsa, Oklahoma as needed for overflow inventory, a small office in San Diego, California that is used by our Kane Miller employees, and a warehouse and office space in Layton, Utah. We believe that our operating facilities meet both present and future capacity needs.
Item 2. PROPERTIES Our headquarters office and distribution warehouse are located on a 40-acre complex at 5402 South 122nd East Ave, Tulsa, Oklahoma. We own the complex which includes multiple buildings that combine to approximately 400,000 square feet of office and warehouse space, of which 218,700 is utilized by us and 181,300 is occupied by a third-party tenant.
Item 2. PROPERTIES Our headquarters office and distribution warehouse are located on a 50-acre complex at 5402 South 122nd East Ave, Tulsa, Oklahoma. The Company headquarters includes multiple buildings that combine to approximately 400,000 square feet of office and warehouse space, of which 218,700 is utilized by us and 181,300 is occupied by a third-party tenant.
Substantially all customer orders are fulfilled from our 170,000 square foot warehouse, in Tulsa, Oklahoma, using multiple flow-rack systems, referred to as “lines,” to expedite order completion, packaging, and shipment.
Substantially all customer orders are fulfilled from our 170,000 square foot warehouse, in Tulsa, Oklahoma, using multiple flow-rack systems, referred to as “lines,” to expedite order completion, packaging, and shipment. During the third quarter of fiscal 2024, the Company listed for sale/leaseback our headquarters office and warehouse property.
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We also own a facility located at 10302 East 55th Place, Tulsa, Oklahoma that contains approximately 105,000 square feet of usable space including 8,000 square feet of office and 97,000 square feet of warehouse space. We use approximately 84,000 square feet of warehouse space for overflow inventory.
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The listing of the property for sale resulted in a reclassification of the owned property as “Assets held for sale” in the Company’s financial statements.
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The remaining 21,000 square feet are leased to a third-party tenant with a multi-year lease agreement.
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We believe that our operating facilities meet both present and future capacity needs.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIssuer Purchases of Equity Securities Period Total # of Shares Purchased Average Price Paid Per Share Total # of Shares Purchased as Part of Publicly Announced Plan (1) Maximum # of Shares that may be Repurchased Under the Plan (1) December 1-31, 2022 - $ - - 514,594 January 1-31, 2023 - - - 514,594 February 1-28, 2023 - - - 514,594 Total - $ - - (1) On February 4, 2019, the Board of Directors approved a new stock repurchase plan, replacing the former 2008 stock repurchase plan.
Biggest changeIssuer Purchases of Equity Securities Period Total # of Shares Purchased Average Price Paid per Share Total # of Shares Purchased as Part of Publicly Announced Plan (1) Maximum # of Shares that may be Repurchased under the Plan (1) December 1 - 31, 2023 - $ - - 376,393 January 1 - 31, 2024 - - - 376,393 February 1 - 29, 2024 - - - 376,393 Total - $ - - (1) On February 4, 2019, the Board of Directors approved a new stock repurchase plan, replacing the former 2008 stock repurchase plan.
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 NASDAQ (symbol “EDUC”). The number of shareholders of record of EDC's common stock as of May 2, 2023, was 457.
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 NASDAQ (symbol “EDUC”). The number of shareholders of record of EDC's common stock as of May 13, 2024, was 446.
For information regarding our compensation plans see Note 11 of the notes to the financial statements and our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on June 29, 2023, as outlined in Part III, Item 12 in this Annual Report.
For information regarding our compensation plans see Note 14 of the notes to the financial statements and our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 10, 2024, as outlined in Part III, Item 12 in this Annual Report.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe Loan Agreement established a fixed rate term loan in the principal amount of $15,000,000 (the “Fixed Rate Term Loan”), a floating rate term loan in the principal amount of $21,000,000 (the “Floating Rate Term Loan”; together with the Fixed Rate Term Loan, collectively, the “Term Loans”), and a revolving promissory note in the principal amount up to $15,000,000 (the “Revolving Loan”). 13 Table of Contents Features of the Loan Agreement include: (i) Term Loans on 20-year amortization with 5-year maturity date of August 9, 2027 (ii) Revolving Loan maturity date of August 9, 2023 (iii) Fixed Rate Term Loan bears interest at a fixed rate per annum equal to 4.26% (iv) Floating Rate Term Loan bears interest at a rate per annum equal to Term SOFR Rate + 1.75% (effective rate was 6.28% at February 28, 2023) (v) Revolving Loan bears interest at a rate per annum equal to Term SOFR Rate + 2.50% (effective rate was 7.03% at February 28, 2023) (vi) Revolving Loan allows for Letters of Credit up to $7,500,000 upon bank approval (none were outstanding at February 28, 2023) The Loan Agreement also contains provisions that require the Company to maintain a minimum fixed charge ratio and limit any additional debt with other lenders.
Biggest changeFeatures of the Revised Loan Agreement include: (i) Two Term Loans on 20-year amortization with 5-year maturity date of August 9, 2027 (ii) $15 Million Fixed Rate Term Loan bears interest at a fixed rate per annum equal to 4.26% (iii) $21 Million Floating Rate Term Loan bears interest at a rate per annum equal to Term SOFR Rate + 1.75% (iv) Stepdown Revolving Loan with maturity date of May 31, 2024.
These downline recruits are known as their "Central Group". Upon reaching this Team Leader level, Brand Partners become eligible to receive “monthly override payments” which are calculated on sales made by their Central Group and downlines up to two levels below.
These downline recruits are known as their "Central Group". Upon reaching this Team Leader level, Brand Partners become eligible to receive “monthly override payments” which are calculated on sales made by their Central Group and downlines up to two levels below their Central Group.
Reach for the Stars is a pledge-based reading incentive program that provides cash and products to the sponsoring organization and products for the participating children. An additional fundraising program, Cards for a Cause , offers our Brand Partners the opportunity to help members of the community by sharing proceeds from the sale of specific items.
Reach for the Stars is a pledge-based reading incentive program that provides cash and products to the sponsoring organization and products for the participating children. An additional fundraising program, Cards for a Cause , offers Brand Partners the opportunity to help members of the community by sharing proceeds from the sale of specific items.
Other expenses consist primarily of the compensation for our office, warehouse and sales support staff as well as the cost of operating and maintaining our corporate offices and distribution facility. 7 Table of Contents PaperPie Division Our PaperPie division uses a multi-level direct selling organizational structure to market our products using independent sales representatives (“Brand Partners”) located throughout the United States.
Other expenses consist primarily of the compensation for our office, warehouse, and sales support staff as well as the cost of operating and maintaining our corporate offices and distribution facility. 8 Table of Contents PaperPie Division Our PaperPie division uses a multi-level direct selling organizational structure to market our products using independent sales representatives (“Brand Partners”) located throughout the United States.
The maximum override payment a leader can receive is calculated on their Central Group and three levels below. During fiscal year 2023, internet sales continued to be the largest sales channel within our PaperPie division. The use of social media and party plan platforms, such as those available on Facebook, continue to be popular sales tools.
The maximum override payment a leader can receive is calculated on the sales of their Central Group and three levels below. During fiscal year 2024, internet sales continued to be the largest sales channel within our PaperPie division. The use of social media and party plan platforms, such as those available on Facebook, continue to be popular sales tools.
We do not expect inventory to increase in fiscal year 2024 as we continue to sell down excess inventory. Critical Accounting Policies Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.
We do not expect inventory to increase in fiscal year 2025 as we continue to sell down excess inventory. Critical Accounting Policies Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.
Organizations sell variety boxes of greeting-type cards and donate a portion of the proceeds to help support their related causes. Publishing Division Our Publishing division operates in a market that is highly fragmented, with many types of retail companies engaged in selling children’s books and toys.
Organizations sell a variety box of greeting-type cards and donate a portion of the proceeds to help support their related causes. Publishing Division Our Publishing division operates in a market that is highly fragmented, with many types of retail companies engaged in selling children’s books and toys.
One-time cash bonus payments are made to Advance Leaders and higher at each promotion level. Executive Leaders and higher receive an additional monthly override payment based upon the sales of their executive group. Directors and higher receive an additional bonus payment if they promote a Team Leader from their Central Group.
One-time cash bonus payments are made to Advanced Leaders and higher at each promotion level. Executive Leaders and higher receive an additional monthly override payment based upon the sales of their executive group. Directors and higher receive an additional bonus payment if they promote a Team Leader from their Central Group.
These platforms allow Brand Partners to “present” and customers to “attend” online purchasing events from any geographical location. 8 Table of Contents Customers’ internet orders are primarily received via the Brand Partner’s customized website, which is hosted by the Company.
These platforms allow Brand Partners to “present” and customers to “attend” online purchasing events from any geographical location. 9 Table of Contents Customers’ internet orders are primarily received via the Brand Partner’s customized website, which is hosted by the Company.
On December 22, 2022, the Company executed the First Amendment to our Credit Agreement with the Lender. This amendment clarified the definition of the Fixed Charge Coverage Ratio to exclude dividends paid prior to November 30, 2022, and placed restrictions on acquisitions and cash dividends.
On December 22, 2022, the Company executed the First Amendment to our Loan Agreement with the Lender. This amendment clarified the definition of the Fixed Charge Coverage Ratio to exclude dividends paid prior to November 30, 2022, and placed restrictions on acquisitions and cash dividends.
An important factor in the continued growth of the PaperPie division is the addition of new brand partners and the retention of existing Brand Partners. Current active Brand Partners (defined as those with sales during the past six months) are primarily responsible for recruiting new brand partners.
An important factor in the growth of the PaperPie division is the addition of new Brand Partners and the retention of existing Brand Partners. Active Brand Partners (defined as those with sales during the past six months) are primarily responsible for recruiting new Brand Partners.
Publishing Division Net Revenues by Market Type FY 2023 FY 2022 National chain bookstores 2 % 2 % All other 98 % 98 % Total net revenues 100 % 100 % Publishing uses a variety of methods to attract potential new customers and maintain current customers.
Publishing Division Net Revenues by Market Type FY 2024 FY 2023 National chain bookstores 2 % 2 % All other 98 % 98 % Total net revenues 100 % 100 % Publishing uses a variety of methods to attract potential new customers and maintain current customers.
Consignment inventory is stated at cost, less an estimated reserve for consignment inventory that is not expected to be sold or returned to the Company. The total cost of inventory on consignment with Brand Partners was $1.5 million and $1.4 million at February 28, 2023 and February 28, 2022, respectively.
Consignment inventory is stated at cost, less an estimated reserve for consignment inventory that is not expected to be sold or returned to the Company. The total cost of inventory on consignment with Brand Partners was $1.4 million and $1.5 million at February 29, 2024 and February 28, 2023, respectively.
These decreases were due to a $7.5 million decrease in shipping costs associated with the decrease in volume of orders shipped from lower sales, offset by a $1.2 million increase in accruals for Brand Partner incentive trip expenses and convention expenses.
These decreases were due to a $5.2 million decrease in shipping costs associated with the decrease in volume of orders shipped from lower sales, and a decrease of $0.2 million in accruals for Brand Partner incentive trip expenses, offset by a $0.1 million increase in accruals for Brand Partner meetings and convention expenses.
New Accounting Pronouncements See the New Accounting Pronouncements section of Note 1 to our financial statements, included in Part IV, Item 15 of this report, for further details of recent accounting pronouncements. 16 Table of Contents
New Accounting Pronouncements See the New Accounting Pronouncements section of Note 1 to our financial statements, included in Part IV, Item 15 of this report, for further details of recent accounting pronouncements.
We believe allowing our Brand Partners to have consignment inventory greatly increases their ability to be successful in making effective presentations at home shows, book fairs and other events; in summary, having consignment inventory leads to additional sales opportunities. Approximately 8.5% of our active Brand Partners have maintained consignment inventory at the end of fiscal year 2023.
We believe allowing our Brand Partners to have consignment inventory greatly increases their ability to be successful in making effective presentations at home shows, book fairs and other events; in summary, having consignment inventory leads to additional sales opportunities. Approximately 11.6% of our active Brand Partners maintained consignment inventory at the end of fiscal year 2024.
PaperPie makes it easy to recruit by providing joining incentives to new brand partners including discounted products and cash bonus awards based on exceeding certain sales criteria. In addition, our PaperPie division provides our Brand Partners with an extensive operational handbook, valuable training, and an individual website they can customize and use to generate sales.
PaperPie entices new recruits by providing joining incentives to new Brand Partners including discounted products and cash bonus awards based on exceeding certain sales criteria. In addition, our PaperPie division provides our Brand Partners with an extensive operational handbook, valuable training, and an individual website they can customize and use to generate sales.
The Company shifted its focus toward independent stores as national chain stores saw a change in buying programs and purchasing slowed with COVID-19. Our semi-annual, full-color, 128-page catalogs are mailed to approximately 4,000 customers and potential customers.
The Company shifted its focus toward independent stores as national chain stores saw a change in buying programs and purchasing slowed with COVID-19. Our annual catalogs are mailed to approximately 4,000 customers and potential customers.
Seasonality The Company experiences increased sales in the Fall season. Historically, we have experienced an increase in inventory during the Summer in anticipation for the Fall increase in sales. In addition, new titles are typically released twice a year, in the Spring and Fall, which increases our inventory in the months preceding these scheduled releases.
Historically, we have experienced an increase in inventory during the Summer in anticipation for the Fall increase in sales. In addition, new titles are typically released twice a year, in the Spring and Fall, which increases our inventory in the months preceding these scheduled releases.
We are also the exclusive United States Multi-Level Marketing (“MLM”) distributor of Usborne Publishing Limited (“Usborne”) children’s books. Significant portions of our inventory purchases are concentrated with Usborne.
We are also the exclusive United States Multi-Level Marketing (“MLM”) distributor of Usborne Publishing Limited (“Usborne”) children’s books. Significant portions of our product offering, and inventory are concentrated with Usborne.
Management has estimated a valuation allowance for both current and noncurrent inventory, including the reserve for consigned inventory, of $0.9 million at February 28, 2023 and February 28, 2022.
Management has estimated a valuation allowance for both current and noncurrent inventory, including the reserve for consigned inventory, of $1.0 million at February 29, 2024, and $0.9 February 28, 2023.
Operating income as a percentage of net revenues changed from the prior year primarily due to the decrease in net revenues caused by higher discounts and lower transportation revenue, the increase in cost of goods sold resulting from higher inbound freight costs along with fewer rebates and discounts associated with purchase volumes and the increase in accrued expenses for the Company’s Brand Partners related to the annual incentive trip and convention.
Operating income as a percentage of net revenues changed from the prior year primarily due to the decrease in net revenues caused by higher discounts and lower transportation revenue, plus the increase in cost of goods sold resulting from higher inbound freight costs, and the increase in accrued expenses for the Company’s Brand Partners related to the annual incentive trip and convention.
Brand Partners FY 2023 FY 2022 New Brand Partners Added During Fiscal Year 16,500 26,100 Active Brand Partners at End of Fiscal Year 24,600 36,100 Our PaperPie division’s multi-level marketing organizational structure presently has eight levels of sales representatives, collectively known as Brand Partners: ● Brand Partners ● Team Leaders ● Advanced Leaders ● Senior Leaders ● Executive Leaders ● Senior Executive Leaders ● Directors ● Senior Directors Upon signing up, sales representatives begin as “Brand Partners”.
Brand Partners FY 2024 FY 2023 New Brand Partners Added During Fiscal Year 10,800 16,500 Active Brand Partners at End of Fiscal Year 15,000 24,600 Our PaperPie division’s multi-level marketing organizational structure presently has eight levels of sales representatives, collectively known as Brand Partners: ● Brand Partners ● Team Leaders ● Advanced Leaders ● Senior Leaders ● Executive Leaders ● Senior Executive Leaders ● Directors ● Senior Directors Upon signing up, sales representatives begin as “Brand Partners”.
An estimate of uncollectible amounts is made by management based upon historical bad debts, current customer receivable balances, age of customer receivable balances, customers’ financial conditions and current economic trends. Management has estimated and included an allowance for doubtful accounts of $0.2 million and $0.3 million for the fiscal years ended February 28, 2023 and February 28, 2022, respectively.
An estimate of uncollectible amounts is made by management based upon historical bad debts, current customer receivable balances, age of customer receivable balances, customers’ financial conditions and current economic trends. Management has estimated and included an allowance for credit losses of $0.1 million and $0.2 million for the fiscal years ended February 29, 2024 and February 28, 2023, respectively.
These two divisions each have their own customer base. The PaperPie division markets our complete line of products through a network of independent brand partners using a combination of home shows, internet party events and book fairs. The Publishing division markets Kane Miller, Learning Wrap-Ups and SmartLab Toys on a wholesale basis to various retail accounts.
The PaperPie division markets our complete line of products through a network of independent Brand Partners using a combination of home shows, internet party events and book fairs. The Publishing division markets Kane Miller, Learning Wrap-Ups and SmartLab Toys on a wholesale basis to various retail accounts.
The Second Amendment also added a cumulative maximum level of fiscal year to date inventory purchases through the expiration of the Revolving Loan Agreement, increased the borrowing rate on the Company’s Revolving Loan to Term SOFR Rate + 3.5%, reduced the revolving commitment from $15,000,000 to $14,000,000, effective May 10, 2023, and further reduced the revolving commitment to $13,500,000, effective July 15, 2023, among lesser items.
The Second Amendment also added a cumulative maximum level of fiscal year to date inventory purchases through the expiration of the Revolving Loan Agreement, increased the borrowing rate on the Company’s Revolving Loan to Term SOFR Rate plus 3.5%, required certain swap agreement be executed within 30 days of the amendment, reduced the revolving commitment from $15,000,000 to $14,000,000, effective May 10, 2023, and further reduced the revolving commitment to $13,500,000, effective July 15, 2023, among other items.
PaperPie net revenues also includes sales to schools and libraries through PaperPie Learning, a separate program for Brand Partners which requires them to pass certain qualifications and complete training requirements. The PaperPie Learning program includes book fairs which are held with an organization as the sponsor.
PaperPie net revenues also include sales to schools and libraries through PaperPie Learning, a separate program for eligible Brand Partners which requires certain qualifications and the completion of additional training requirements. The PaperPie Learning program includes book fairs which are held with an organization as the sponsor.
Inventory in excess of 2½ years of anticipated sales is classified as noncurrent inventory. These inventory quantities have additional exposure for storage damages and related issues, and therefore have higher obsolescence reserves. Noncurrent inventory balances prior to valuation allowances were $5.1 million and $2.4 million at February 28, 2023 and February 28, 2022, respectively.
Inventory in excess of 2½ years of anticipated sales is classified as noncurrent inventory. These inventory quantities have additional exposure for storage damages, aging of topical related content and associated issues, and therefore have higher obsolescence reserves. Noncurrent inventory balances prior to valuation allowances were $12.3 million and $5.1 million at February 29, 2024 and February 28, 2023, respectively.
General and administrative expenses decreased $1.7 million, to $3.1 million during the fiscal year ended February 28, 2023, when compared with $4.8 million reported for fiscal year ended February 28, 2022.
General and administrative expenses decreased $0.4 million, to $2.7 million during the fiscal year ended February 29, 2024, when compared with $3.1 million reported for fiscal year ended February 28, 2023.
Allowance for Doubtful Accounts We maintain an allowance for estimated losses resulting from the inability of our customers to make required payments and a reserve for vendor share markdowns, when applicable (collectively “allowance for doubtful accounts”).
Allowance for Credit Losses We maintain an allowance for estimated losses resulting from the inability of our customers to make required payments and a reserve for vendor share markdowns, when applicable (collectively “credit losses”).
Operating income for the PaperPie division as a percentage of net revenues for the year ended February 28, 2023, was 12.3%, compared to 18.9% for the year ended February 28, 2022, a change of 6.6%.
Operating income for the PaperPie division as a percentage of net revenues for the year ended February 29, 2024, was 9.1%, compared to 12.3% for the year ended February 28, 2023, a change of 3.2%.
Non-Segment Operating Results Total operating expenses not associated with a reporting segment were $14.9 million for fiscal year ended February 28, 2023, compared to $17.8 million for the same period a year ago.
Non-Segment Operating Results Total operating expenses not associated with a reporting segment were 11.3 million for the fiscal year ended February 29, 2024, compared to $14.9 million for the same period a year ago.
Noncurrent inventory valuation allowances were $0.4 million at February 28, 2023 and February 28, 2022. Brand Partners that meet certain eligibility requirements may request and receive inventory on consignment.
Noncurrent inventory valuation allowances were $0.6 million at February 29, 2024 and $0.4 million at February 28, 2023. 18 Table of Contents Brand Partners that meet certain eligibility requirements may request and receive inventory on consignment.
Our distribution agreement with Usborne includes annual minimum purchase volumes along with specific payment terms, which, if not met or if payments are not received timely, may result in termination of the agreement. During fiscal 2023, the Company did not meet the minimum purchase volumes and certain payments were not received timely.
Our distribution agreement with Usborne includes annual minimum purchase volumes along with specific payment terms, which, if not met or if payments are not received in a timely manner, offer Usborne the right to terminate the agreement. During fiscal 2023 and fiscal 2024, the Company did not meet the minimum purchase volumes and certain payments were not received timely.
No notification of termination has been received and Usborne continues to accept and fulfill purchase orders from the Company. Should termination of the agreement occur, the Company will be allowed, at a minimum, to sell through their remaining Usborne inventory over the twelve months following the termination date. We sell our products through two separate divisions, PaperPie and Publishing.
No notification of non-compliance or termination has been received from Usborne. Should termination of the agreement occur, the Company will be allowed, at a minimum, to sell through their remaining Usborne inventory over the twelve months following the termination date. We sell our products through two separate divisions, PaperPie and Publishing. These two divisions each have their own customer base.
Awards subject to performance conditions are attributed separately for each vesting tranche of the award and are recognized ratably from the service inception date to the vesting date for each tranche. Forfeitures are recognized when they occur.
For awards subject to service conditions, compensation expense is recognized over the vesting period on a straight-line basis. Awards subject to performance conditions are attributed separately for each vesting tranche of the award and are recognized ratably from the service inception date to the vesting date for each tranche. Forfeitures are recognized when they occur.
Income taxes decreased $3.8 million, to a tax benefit of $0.9 million for fiscal year ended February 28, 2023, from a tax expense of $2.9 million for the same period a year ago. This decrease was primarily related to a decrease in taxable income for the current fiscal year compared to the prior fiscal year.
Income taxes increased $1.1 million, to a tax expense of $0.2 million for fiscal year ended February 29, 2024, from a tax benefit of $0.9 million for the same period a year ago. This increase was primarily related to an increase in taxable income for the current fiscal year compared to the prior fiscal year.
Operating and selling expenses decreased $6.3 million, to $12.5 million for fiscal year ended February 28, 2023, from $18.8 million reported in the same period a year ago.
Operating and selling expenses decreased $5.3 million, to $7.2 million for fiscal year ended February 29, 2024, from $12.5 million reported in the same period a year ago.
The average number of active Brand Partners in fiscal year 2023 was 28,000, a decrease of 16,900, or 37.6%, from 44,900 in fiscal year 2022. The Company reports the average number of active Brand Partners as a key indicator for this division.
The average number of active Brand Partners in fiscal year 2024 was 18,300, a decrease of 9,700, or 34.6%, from 28,000 in fiscal year 2023. The Company reports the average number of active Brand Partners as a key indicator for this division.
Sales commissions decreased $18.7 million, to $25.1 million during the fiscal year ended February 28, 2023, when compared to $43.8 million reported in the same period a year ago primarily due to the decrease in net revenues.
Sales commissions decreased $9.2 million, to $15.9 million during the fiscal year ended February 29, 2024, when compared to $25.1 million reported in the same period a year ago primarily due to the decrease in net revenues.
Historically, however, actual results have not differed materially from those determined using required estimates. Our significant accounting policies are described in the notes accompanying the financial statements included elsewhere in this report. However, we consider the following accounting policies to be more significantly dependent on the use of estimates and assumptions.
Historically, however, actual results have not differed materially from those determined using required estimates. Our significant accounting policies are described in the notes accompanying the financial statements included elsewhere in this report.
Sales which have been paid for but not shipped are classified as deferred revenue on the balance sheet. Sales associated with consignment inventory are recognized when reported and payment associated with the sale has been remitted. Transportation revenue represents the amount billed to the customer for shipping the product and is recorded when the product is shipped.
Sales associated with consignment inventory are recognized when reported and payment associated with the sale has been remitted. Transportation revenue represents the amount billed to the customer for shipping the product and is recorded when the product is shipped. Estimated allowances for sales returns are recorded as sales are recognized.
Our tax rates are higher than the federal statutory rate of 21% due to the inclusion of state income and franchise taxes. 10 Table of Contents PaperPie Operating Results The following table summarizes the operating results of the PaperPie segment for the twelve months ended February 28: Twelve Months Ended February 28, 2023 2022 Gross sales $ 94,795,700 $ 159,303,800 Less discounts and allowances (27,271,100 ) (44,187,200 ) Transportation revenue 7,022,100 13,861,900 Net revenues 74,546,700 128,978,500 Cost of goods sold 24,639,000 37,150,600 Gross margin 49,907,700 91,827,900 Operating expenses Operating and selling 12,501,100 18,800,300 Sales commissions 25,095,100 43,801,300 General and administrative 3,140,900 4,788,800 Total operating expenses 40,737,100 67,390,400 Operating income $ 9,170,600 $ 24,437,500 Average number of active Brand Partners 28,000 44,900 PaperPie net revenues decreased $54.5 million, or 42.2%, to $74.5 million for fiscal year ended February 28, 2023, when compared with net revenues of $129.0 million reported for fiscal year ended February 28, 2022.
Our tax rates are higher than the federal statutory rate of 21% due to the inclusion of state income and franchise taxes. 11 Table of Contents PaperPie Operating Results The following table summarizes the operating results of the PaperPie segment for the twelve months ended February 29 (28): Twelve Months Ended February 29 (28), 2024 2023 Gross sales $ 64,252,000 $ 94,795,700 Less discounts and allowances (20,981,500 ) (27,271,100 ) Transportation revenue 2,354,700 7,022,100 Net revenues 45,625,200 74,546,700 Cost of goods sold 15,745,500 24,639,000 Gross margin 29,879,700 49,907,700 Operating expenses Operating and selling 7,151,300 12,501,100 Sales commissions 15,925,100 25,095,100 General and administrative 2,674,100 3,140,900 Total operating expenses 25,750,500 40,737,100 Operating income $ 4,129,200 $ 9,170,600 Average number of active Brand Partners 18,300 28,000 PaperPie net revenues decreased $28.9 million, or 38.8%, to $45.6 million for fiscal year ended February 29, 2024, when compared with net revenues of $74.5 million reported for fiscal year ended February 28, 2023.
The effective tax rate increased by 0.8%, to 26.9% for fiscal year ended February 28, 2023, as compared to 26.1% for fiscal year ended February 28, 2022, primarily due to sales mix fluctuations between states.
The effective tax rate decreased by 1.3%, to 25.6% for fiscal year ending February 29, 2024, as compared to 26.9% for fiscal year ended February 28, 2023, primarily due to sales mix fluctuations between states.
See Publishing Operating Results for discussion of our updated distribution agreement with Usborne. 9 Table of Contents Result of Operations The following table shows our statements of operations data: Twelve Months Ended February 28, 2023 2022 Net revenues $ 87,829,000 $ 142,228,800 Cost of goods sold 31,759,200 44,297,500 Gross margin 56,069,800 97,931,300 Operating expenses Operating and selling 15,780,600 23,010,400 Sales commissions 25,676,100 44,377,500 General and administrative 17,195,100 20,302,200 Total operating expenses 58,651,800 87,690,100 Other (income) expense Interest expense 2,172,300 916,400 Other income (1,327,400 ) (1,911,100 ) Earnings (loss) before income taxes (3,426,900 ) 11,235,900 Income taxes (922,000 ) 2,929,100 Net earnings (loss) $ (2,504,900 ) $ 8,306,800 See the detailed discussion of net revenues, gross margin and operating expenses by reportable segment below.
See Publishing Operating Results for discussion of our updated distribution agreement with Usborne. 10 Table of Contents Result of Operations The following table shows our statements of operations data: Twelve Months Ended February 29 (28), 2024 2023 Net revenues $ 51,030,300 $ 87,829,000 Cost of goods sold 18,045,400 31,759,200 Gross margin 32,984,900 56,069,800 Operating expenses Operating and selling 8,789,200 15,780,600 Sales commissions 16,105,600 25,676,100 General and administrative 13,991,000 17,195,100 Total operating expenses 38,885,800 58,651,800 Other (income) expense Interest expense 2,758,900 2,172,300 Other income (9,394,300 ) (1,327,400 ) Earnings (loss) before income taxes 734,500 (3,426,900 ) Income taxes 188,100 (922,000 ) Net earnings (loss) $ 546,400 $ (2,504,900 ) See the detailed discussion of net revenues, gross margin and operating expenses by reportable segment below.
This damage occurs in the stores, not in shipping to the stores, and we typically do not offer credit for damaged returns. It is industry practice to accept non-damaged returns from retail customers. Management has estimated and included a reserve for sales returns of $0.2 million for the fiscal years ended February 28, 2023 and February 28, 2022.
It is industry practice to accept non-damaged returns from retail customers. Management has estimated and included a reserve for sales returns of $0.2 million for the fiscal years ended February 29, 2024 and February 28, 2023.
Total PaperPie operating expenses decreased $26.7 million, or 39.6%, to $40.7 million during the fiscal year ended February 28, 2023, when compared with $67.4 million reported for fiscal year ended February 28, 2022.
Total PaperPie operating expenses decreased $14.9 million, or 36.6%, to $25.8 million during the fiscal year ended February 29, 2024, when compared with $40.7 million reported for fiscal year ended February 28, 2023.
On May 10, 2023, the Company executed the Second Amendment to our Credit Agreement with the Lender. This amendment waived the fixed charge ratio default which occurred on February 28, 2023.
On May 10, 2023, the Company executed the Second Amendment to our Loan Agreement with the Lender. This amendment waived the fixed charge ratio default which occurred on February 28, 2023 and amended the financial covenant to not require the fixed charge ratio to be measured at May 31, 2023.
Estimated allowances for sales returns are recorded as sales are recognized. Management uses a moving average calculation to estimate the allowance for sales returns. We are not responsible for a product damaged in transit. Damaged returns are primarily received from the retail customers of our Publishing division.
Management uses a moving average calculation to estimate the allowance for sales returns. We are not responsible for a product damaged in transit. Damaged returns are primarily received from the retail customers of our Publishing division. This damage occurs in the stores, not in shipping to the stores, and we typically do not offer credit for damaged returns.
Publishing Operating Results The following table summarizes the operating results of the Publishing segment for the twelve months ended February 28: Twelve Months Ended February 28, 2023 2022 Gross sales $ 27,896,200 $ 28,163,000 Less discounts and allowances (14,624,400 ) (14,922,100 ) Transportation revenue 10,500 9,400 Net revenues 13,282,300 13,250,300 Cost of goods sold 7,120,200 7,146,900 Gross margin 6,162,100 6,103,400 Total operating expenses 2,975,300 2,463,600 Operating income $ 3,186,800 $ 3,639,800 Our Publishing division’s net revenues remained consistent at $13.3 million for fiscal years ended February 28, 2023 and 2022.
Publishing Operating Results The following table summarizes the operating results of the Publishing segment for the twelve months ended February 29 (28): Twelve Months Ended February 29 (28), 2024 2023 Gross sales $ 11,331,600 $ 27,896,200 Less discounts and allowances (5,947,900 ) (14,624,400 ) Transportation revenue 21,400 10,500 Net revenues 5,405,100 13,282,300 Cost of goods sold 2,299,800 7,120,200 Gross margin 3,105,300 6,162,100 Total operating expenses 1,882,000 2,975,300 Operating income $ 1,223,300 $ 3,186,800 Our Publishing division’s net revenues decreased $7.9 million, or to $5.4 million for fiscal year ended February 29, 2024 from $13.3 million reported for fiscal year ended February 28, 2023.
Brand Partners receive “weekly commissions” from each sale they make; the commission rate they receive on each sale is determined by the order type under which the sale is made.
Brand Partners receive “weekly commissions” from each sale they make; the commission rate they receive on each sale is determined by the “order type” assigned to the sale.
Gross margin remained consistent, increasing $0.1 million, to $6.2 million for fiscal year ended February 28, 2023, from $6.1 million reported for fiscal year ended February 28, 2022.
Gross margin decreased $3.1 million, to $3.1 million for fiscal year ended February 29, 2024, from $6.2 million reported for fiscal year ended February 28, 2023.
The probability of restricted share awards granted with future performance conditions is evaluated at each reporting period and compensation expense is adjusted based on the probability assessment.
The probability of restricted share awards granted with future performance conditions is evaluated at each reporting period and compensation expense is adjusted based on the probability assessment. During fiscal years 2024 and 2023, the Company recognized $0.2 million and $0.9 million, respectively, of compensation expense associated with the shares granted.
This decrease was due to $1.0 million of decreased credit card transaction fees associated with decreased sales volumes, a $0.4 million decrease in promotions and marketing expenses associated with decreased Brand Partner counts, and a $0.3 million decrease in payroll and various other expenses. 11 Table of Contents Operating income of our PaperPie division decreased $15.2 million, or 62.3%, to $9.2 million for fiscal year ended February 28, 2023, as compared to $24.4 million reported for fiscal year ended February 28, 2022.
This decrease was due to $0.6 million of decreased credit card transaction fees associated with decreased sales volumes, a $0.2 million decrease in payroll and various other expenses, offset by $0.4 million increase in amortization and depreciation expenses related to the SmartLab Toys acquisition. 12 Table of Contents Operating income of our PaperPie division decreased $5.1 million, or 55.4%, to $4.1 million for fiscal year ended February 29, 2024, as compared to $9.2 million reported for fiscal year ended February 28, 2023.
In addition, sales during fiscal 2023 continued to be negatively impacted by economic factors that include recent record inflation, resulting in high fuel cost and food price increases that continue to impact the disposable income of our customers. We expect this impact on sales to continue as inflationary pressures persist.
In addition, sales during fiscal 2024 continued to be negatively impacted by economic factors that include recent record inflation, resulting in high fuel costs and food price increases that continue to impact the disposable income of our customers. The reduced sales resulted in increased Brand Partner turnover and lower levels of new Brand Partner recruits.
Contractual Obligations We are a smaller reporting company and are not required to provide this information. Off-Balance Sheet Arrangements As of February 28, 2023, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
Off-Balance Sheet Arrangements As of February 29, 2024, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources. Seasonality The Company experiences increased sales in the Fall season.
The decrease in operating income resulted primarily from the increase in operating expenses attributable to a full year impact of Learning Wrap-Ups office staff and related expenses. Liquidity and Capital Resources EDC has a history of profitability and positive cash flow. We typically fund our operations from the cash we generate.
The decrease in operating income resulted primarily from lower sales volumes compared to the previous fiscal year partially offset by the decrease in sales commissions and freight expenses. Liquidity and Capital Resources EDC has a history of profitability and positive cash flow. We typically fund our operations from the cash we generate.
Gross margin as a percentage of net revenues increased 0.3%, to 46.4% for fiscal year 2023, compared to 46.1% reported the same period a year ago due to a change in customer mix. Customers receive varying discounts due to higher sales volumes and contract terms.
Gross margin as a percentage of net revenues increased 11.1%, to 57.5% for fiscal year 2024, compared to 46.4% reported the same period a year ago due to a change in customer order mix and the addition of SmartLab Toys.
These cash flows resulted from: ● net loss of $2,504,900 Adjusted for: ● depreciation and amortization expense of $2,478,700 ● share-based compensation expense, net of $907,800 ● provision for inventory allowance of $715,900 Offset by: ● deferred income taxes of $678,100 Positively impacted by: ● decrease in inventories, net of $9,086,900 ● decrease in accounts receivable of $732,100 Negatively impacted by: ● decrease in accounts payable of $8,547,900 ● decrease in accrued salaries, commissions, and other liabilities of $1,578,000 ● decrease in income taxes payable of $241,900 ● increase in prepaid expenses and other assets of $233,200 ● decrease in deferred revenues of $78,900 Cash used in investing activities was $1,755,800 for capital expenditures, consisting of $852,500 of software upgrades to our proprietary systems that our Brand Partners use to monitor their business and place customer orders, $766,400 associated with the purchase of SmartLab Toys, $132,000 of other assets associated with the Company’s rebrand of the PaperPie sales division and $4,900 of other various changes.
These cash flows resulted from: ● net earnings of $546,400 Adjusted for: ● depreciation and amortization expense of $2,487,200 ● share-based compensation expense, net of $212,000 ● provision for credit losses of $33,300 ● provision for inventory valuation allowance of $85,900 Offset by: ● net gain on sale of assets of $4,016,700 ● deferred income taxes of $609,700 Positively impacted by: ● decrease in inventories, net of $8,130,000 ● decrease in accounts receivable of $936,500 ● increase in income taxes payable of $773,400 ● decrease in prepaid expenses and other assets of $197,100 ● increase in accounts payable of $46,300 Negatively impacted by: ● decrease in accrued salaries, commissions, and other liabilities of $51,900 ● decrease in deferred revenues of $19,200 Cash provided by investing activities was $4,037,100 consisting of proceeds from the sale of assets of $4,858,900 offset by capital expenditures of $821,800 in software upgrades to our proprietary systems that our PaperPie Brand Partners use to monitor their business and place customer orders.
The new agreement created a level of uncertainty with our Brand Partners until we were able to effectively communicate the continuation of our relationship within the Direct Sales division. Further, sales were impacted in our fiscal fourth quarter as we rebranded our direct sales division from Usborne Books & More (“UBAM”) to PaperPie.
We also saw new Brand Partner recruiting negatively impacted by the recent change in our distribution agreement with Usborne Publishing Limited. The new agreement created a level of uncertainty with our Brand Partners until we were able to effectively communicate the continuation of our relationship within the Direct Sales division.
The Company was in violation of the minimum fixed charge ratio covenant as of February 28, 2023, for which the Company obtained a written waiver of compliance from the Lender. Available credit under the current $15,000,000 revolving line of credit with the Lender was $4,365,500 at February 28, 2023.
The Company was in violation of the minimum fixed charge ratio covenant as of February 28, 2023, for which the Company obtained a written waiver of compliance from the Lender and was not required to measure the fixed charge ratio as of May 31, 2023.
During fiscal 2023, we entered into a new distribution agreement with Usborne. Under the contracted terms in our new distribution agreement, the Company no longer had the rights to distribute Usborne’s products to retail customers after November 15, 2022, at which time Usborne was planning to use a different distributor to supply retail accounts with their products.
During fiscal year 2023, we entered into a new distribution agreement with Usborne. Under the contracted terms in our new distribution agreement, the Company no longer has the rights to distribute Usborne’s products to retail customers. The Company discontinued sales to retail customers in the first quarter of fiscal 2024 when Usborne introduced their new distribution vendor.
Share-Based Compensation We account for share-based compensation whereby share-based payment transactions with employees, such as stock options and restricted stock, are measured at estimated fair value at the date of grant. For awards subject to service conditions, compensation expense is recognized over the vesting period on a straight-line basis.
However, we consider the following accounting policies to be significantly more dependent on the use of estimates and assumptions. 17 Table of Contents Share-Based Compensation We account for share-based compensation whereby share-based payment transactions with employees, such as stock options and restricted stock, are measured at estimated fair value at the date of grant.
Our Brand Partners were challenged with updating their individual marketing materials, training videos and personal business websites to the new brand. The time spent updating these business items reduced our Brand Partners’ available time to generate sales, most clearly identified in the first two weeks of January 2023.
During this period, our Brand Partners were challenged with updating their individual marketing materials, training videos and personal business websites to the new brand. These efforts resulted in less sales and less new recruiting success.
Interest expense increased $1.3 million, to $2.2 million for fiscal year ended February 28, 2023, compared to $0.9 million reported for fiscal year ended February 28, 2022, due to increased borrowings with our lenders primarily associated with inventory and increases in floating interest rates.
Interest expense increased $0.6 million, to $2.8 million for fiscal year ended February 29, 2024, compared to $2.2 million reported for fiscal year ended February 28, 2023, due primarily to increases in Secured Overnight Financing Rates (“SOFR”) interest rates, partially offset by reduced borrowings in fiscal 2024.
On August 9, 2022, the Company executed a new Credit Agreement (“Loan Agreement”) with BOKF, NA (“Bank of Oklahoma” or the “Lender”).
On August 9, 2022, the Company repaid in full all outstanding indebtedness and terminated all commitments and obligations under its Amended and Restated Loan Agreement dated February 15, 2021 (as amended), between the Company and MidFirst Bank and executed a new Credit Agreement (“Loan Agreement”) with BOKF, NA (“Bank of Oklahoma” or the “Lender”).
Other income decreased $0.6 million, to $1.3 million for fiscal year ended February 28, 2023, compared to $1.9 million reported for fiscal year ended February 28, 2022, due to $0.3 million of recovered losses in fiscal 2022 associated with a shipping vessel incident in fiscal 2021 that did not repeat in the current fiscal year, $0.2 million of startup costs recognized from the acquisition of SmartLab Toys and $0.1 million in other various changes.
Other income increased $8.1 million, to $9.4 million for fiscal year ended February 29, 2024, compared to $1.3 million reported for fiscal year ended February 28, 2023, due to $3.8 million of other income related to the Employee Retention Credit, $4.0 million gain from the sale of the old headquarters building, $0.1 million gain from the sale of equipment, $0.1 million decrease in startup costs recognized from the acquisition of SmartLab Toys in 2023, and $0.1 million in other various changes.
Available cash has historically been used to pay down outstanding bank loan balances, for capital expenditures, to pay dividends and to acquire treasury stock. We utilize a bank credit facility and other term loan borrowings to meet our short-term cash needs, as well as fund capital expenditures, when necessary.
We utilize a bank credit facility and other term loan borrowings to meet our short-term cash needs, as well as fund capital expenditures, when necessary. As of the end of fiscal year 2024, our revolving bank credit facility loan balance was $5.5 million with $2.5 million in available capacity.
PaperPie gross margin decreased $41.9 million, or 45.6%, to $49.9 million for fiscal year ended February 28, 2023, from $91.8 million reported for fiscal year ended February 28, 2022. Gross margin as a percentage of net revenues decreased 4.3% to 66.9% for fiscal year 2023 when compared to 71.2% for fiscal year 2022.
Gross margin as a percentage of net revenues decreased 1.4% to 65.5% for fiscal year 2024 when compared to 66.9% for fiscal year 2023.
We continue to expect the cash generated from our operations, specifically from the reduction of excess inventory, and cash available through our line of credit with our Lender will provide us the liquidity we need to support ongoing operations.
Cash used in financing activities was $12,199,400 which was comprised of net payments on the line of credit of $5,136,400, payments on term debt of $6,499,100 and cash paid in treasury stock transactions of $563,900. 14 Table of Contents We continue to expect that cash generated from the sale of our owned real estate, along with cash generated from our operations, specifically from the reduction of excess inventory, and cash available through our line of credit with our Lender will provide us with the liquidity we need to support ongoing operations.
During fiscal years 2023 and 2022, the Company recognized $0.9 million and $1.0 million, respectively, of compensation expense associated with the shares granted. 15 Table of Contents Revenue Recognition Sales associated with product orders are recognized and recorded when products are shipped. Products are shipped FOB-Shipping Point. PaperPie’s sales are generally paid at the time the product is ordered.
Revenue Recognition Sales associated with product orders are recognized and recorded when products are shipped. Products are shipped FOB-Shipping Point. PaperPie’s sales are generally paid at the time the product is ordered. Sales which have been paid for but not shipped are classified as deferred revenue on the balance sheet.
Operating expenses decreased $2.9 million primarily as a result of a reduction in labor expenses of $2.5 million, with our warehouse payroll having the largest reduction, and a $0.9 million decrease in freight-handling costs, both associated with a decrease in gross sales, plus a $0.2 million decrease in warehouse rent for reduced inventory levels.
Operating expenses decreased $3.6 million primarily as a result of a reduction in labor expenses of $2.6 million, with our warehouse payroll having the largest reduction, and a $0.7 million decrease in freight-handling costs, both associated with a decrease in gross sales, plus a $0.3 million decrease in depreciation expense due to the sale of the Company’s old headquarters and classification as assets held for sale of our current headquarters and warehouse , $0.2 million decrease in legal costs primarily related to the negotiation of our new Usborne distribution agreement which was executed in fiscal 2023, offset by a $0.2 million increase in personal property taxes due to the Company no longer qualifying for an exemption on long term inventory.
The November 15, 2022 transition date, at Usborne’s request, was extended until their new supplier can start distribution in 2023. Usborne’s products sold within the Publishing division accounted for 83.1%, or $23.2 million, of gross sales during the fiscal year ended February 28, 2023.
Usborne’s products sold within the Publishing division decreased to 24.2%, or $2.7 million of net sales during the fiscal year ended February 29, 2024 from 83.4%, or $11.1 million, of net sales during the fiscal year ended February 28, 2023.
Operating expenses increased $0.5 million, to $3.0 million for fiscal year ended February 28, 2023, from $2.5 million reported for fiscal year ended February 28, 2022. The increase in operating expenses resulted from the full year inclusion of Learning Wrap-Ups office staff and related expenses in fiscal year 2023.
Operating expenses decreased $1.1 million, to $1.9 million for fiscal year ended February 29, 2024, from $3.0 million reported for fiscal year ended February 28, 2023.
Learning Wrap-Ups was acquired in the fourth quarter of fiscal year 2022. Operating income for the segment decreased $0.4 million, or 11.1%, to $3.2 million for fiscal year ended February 28, 2023, from $3.6 million reported during the same period last year.
The decrease in operating expenses resulted from the decrease in sales commissions of $0.4 million, a decrease in freight expense of $0.9 million, both due to decreased sales, offset by a $0.2 million increase in Learning Wrap Ups compensation expense resulting from earnout payments to sellers that reached their initial sales hurdle outlined in the purchase agreements of Learning Wrap-Ups in December 2021. 13 Table of Contents Operating income for the segment decreased $2.0 million, or 62.5%, to $1.2 million for fiscal year ended February 29, 2024, from $3.2 million reported during the same period last year.
During periods of loss, like fiscal year 2023, EDC will reduce purchases and sell through inventory to generate cash flows. The Company expects to reduce current excess inventory levels and use the cash proceeds to pay down the line of credit and portions of the term debt.
The Company expects to reduce current excess inventory levels and use the cash proceeds to offset any future operating losses, and to pay down the line of credit and portions of the term debt. Available cash has historically been used to pay down outstanding bank loan balances, for capital expenditures, to pay dividends and to acquire treasury stock.
The decrease in gross margin as a percentage of net revenues is attributed to higher discounts being offered to induce sales and a change in the mix of order types received impacting margins by approximately $1.0 million, rising ocean freight costs on inbound inventory totaling approximately $1.2 million, which increased cost of goods sold, and reduced purchasing volume discounts/rebates totaling approximately $1.0 million.
The decrease in gross margin as a percentage of net revenues is primarily attributed to reduced freight revenues resulting from a discounted freight promotion that began in the third quarter of fiscal 2024 that continued through the fiscal fourth quarter impacting gross margins by $1.0 million, offset by increased margins on product mix of $0.4 million.
Cash generated from operations will be used to purchase inventory in order to expand our product offerings and to pay down existing debt. On August 9, 2022, the Company repaid in full all outstanding indebtedness and terminated all commitments and obligations under its Amended and Restated Loan Agreement dated February 15, 2021 (as amended), between the Company and MidFirst Bank.
Cash generated from the building sales and operations will be used to pay down existing debt and any excess may be used to purchase inventory to continue to expand our product offerings.
Risks and Uncertainties In accordance with ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. 14 Table of Contents As an Event of Default is expected associated with the Loan Agreement, and there is no guaranty that the Event of Default will be waived by BOKF, NA, there is sufficient uncertainty that, should the bank choose to accelerate the maturities of the Fixed Rate Term Loan and Floating Rate Term Loan, the Company could continue as a going concern.
The Revolving Loan bears interest at a rate per annum equal to Term SOFR Rate + 4.50% (effective rate was 9.82% at February 29, 2024) (v) Revolving Loan allows for Letters of Credit up to $7,500,000 upon bank approval (none were outstanding at February 29, 2024) The following table reflects aggregate current maturities of term debt, excluding the Revolving Loan, during the next fiscal year as follows: Years ending February 28 (29), 2025 $ 1,800,000 2026 1,800,000 2027 1,800,000 2028 23,200,900 Total $ 28,600,900 16 Table of Contents Risks and Uncertainties In accordance with ASC 205-40, Going Concern , the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued.
Removed
These expense reductions were offset by a $0.3 million increase in depreciation expense primarily related to the addition of the new pick-pack-ship lines placed into service in fiscal year 2022, a $0.3 million increase in property taxes and insurance costs, and a $0.1 million increase in expenses related to the purchase of SmartLab Toys and the addition of the Seattle, WA office location.

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