Replies to post #37 on Educational Development Corporation (EDUC)

[Uglytuco]

That's actually long term debt that was converted temporarily to short term. They violated a covenant with the bank, because they had to increase inventory so much to deliver orders. That will switch back to longterm, and they will likely increase their revolving credit line.

[wadirum1]

Ugly just said it better than I.

Here's a link to a PDF of the 3rd quarter filing: http://www.otcmarkets.com/edgar/GetFilingPdf?FilingID=11794774

The long-term loan got classified as current because of a loan covenant that was violated when they had to book so much deferred revenue (which also had to be placed on the list of current liabilities). This is described in the 10-Q:

At November 30, 2016, we were in violation of the debt to worth ratio covenant for which we have not yet received a waiver from the Bank. Accordingly, the
related long-term debt has been classified as current. The debt to worth ratio requires the following: (1) For quarters ending August 31, 2016 and November
30, 2016: 3.50:1.00. (2) For quarters ending February 28, 2017, May 31, 2017, August 31, 2017, and November 30, 2017: 3.25:1:00. (3) Quarters thereafter:
3.00:1.00.

Now that this surge in holiday buying has been shipped, the revenue is no longer deferred, so that will be removed from liabilities. And this will bring them back to being in compliance on debt to equity, so that the loan will go back to being long-term on their balance sheet.

Here are some other relevant parts from my reading of the conference call transcript:

But I will tell you that we have improved that significantly. What this caused was an item on the balance sheet called deferred revenue. What deferred revenue is, our orders from the UBAM division come in prepaid. They are paid when they submit the order. They submit the money with them. Well, when you can't ship them at the end of November 30th, even though the order is in hand and paid for you cannot count it as revenue, it is called deferred revenue. And we had $8 million in deferred revenue.

So, today, I will tell you that every order that we have in this building has been shipped as of yesterday with the exception of any possible problem orders through customer service or some other unique situation. But other than that we are totally caught up, which means deferred revenue is gone. So that issue on the balance sheet of deferred revenue, which causes other compliance issues, is gone.

And I would also like to address an issue we had in the financial statements in November as of November 30. We had two issues which caused a delay. One we were out of compliance with the bank covenants in debt to equity. And that is because debt to equity we have a ratio in there and we were out of compliance. However, I would mention that if you look at our statement, in the debt to equity ratio, which we were about 3.75%, and I think we had to be at 3.5, something like that.

There is $8 million in our debt which is deferred revenue, if you take that out you reduce your, if you don't have deferred revenue, which we don't have anymore because all the orders were shipped, our ratio comes down to about 3.25%, which --. Now there are other issues involved with that, but that is one reality that by not having deferred revenue in there helps our debt to equity ratio.

Another item I might point out is our, the equity that is shown on the balance sheet is 14.5 million. There is also nearly 11 million of treasury stock. Now, the net or actually equity is 25 million less the 11 million treasury stock, which could be considered an asset because that stock could be sold to provide equity capital, which we talked to you about doing that in certain instances to increase our equity base. So we think that debt to equity out of compliance will be taken care of now. We think it will be in compliance but I don't have any assurance of that. But that is what we think.

http://seekingalpha.com/article/4040766-educational-development-corps-educ-ceo-randall-white-q3-2016-results-earnings-call-transcript?part=single