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| Title | Page 11 |
| Full Text | 1985/86 COMPARED TO 1984/85 The Company's sales increased less than 1% and net income increased 4.3'.% during fiscal year 1986 over sales and net income duriitg fiscal year 1985, '['he relatively flat year in both sales and profits was attributed to the time and the energy required to consummate the initial public offering. Cost of sales decreased considerably as a percentage of sales from 32.5% in fiscal year 198.5 to 30.7% in fiscal year 1986. This can be attributed to an increase in sales of more profitable proprietary products in relation to distributed products. Proprietary product sales increased to 67% in fiscal year 1986 compared to 63% in fiscal year 1985. The Company's expense structure changed in the following areas: selling expenses increased in advertising and promotion due to increased costs associated with the spring catalog production and mailing; these increases were offset by decreases in commission expense resulting from the discontinuance of commissions on distributed product sales; the increases in general and administrative expenses wen: attributable to increases i:i salaries as stall has bee:; added and from the use of temporary workers during the spring marketing push, and increases in rent ami research and development; other income (expense; decreased as au expense due to decreased interest expense and the addition of interest income from investment of remaining offering proceeds. During the year the Company consolidated us banking relationships into one bank as outlined in the Capital Resources section of this annual report. As part of this change, the Company paid off its accounts receivable line of credit and an S.B.A. loan, and received a more favorable interest rate when other long-term debt was consolidated into one loan. These changes contributed to the decrease in other income (expense). 1984/85 COMPARED TO 1983/84 The Company's sales increased 14.2% and net income increased 264.8% during fiscal year 1985 oversales and net income during fiscal year 1984. This was principally attributable to increased sales of the Edmark Reading Program, Level 2 and Level 1 Software which were available for sale for the first full year. Cost of sales showed negligible change as a percent of sales from fiscal year 1984 to fiscal year 1985. Any minor change can be attributed to an increase in proprietary product sales in relation to distributed product sales. The Company's expense structure remained fairly constant as a percent of sales between the two periods. The increase in sales expense was primarily attributed to increased sales commissions and royalties as the result of increases in proprietary product sales. The increase in catalog production and distribution also affected sales expense. Increases in general and administrative expense were limited to au increase u: building rent and salaries (due to salary increases foregone in fiscal 1984). CAPITAL RESOURCES The Company consummated an initial public offering in April of 1986 which resulted m a net addition of capital oi S.956, 587. As part of the planned utilization of these offering proceeds (per Use of'Proceeds section in the Prospectus), the Company consolidated its banking relationships into one hank, paid off one S.B.A. loan (a second S.B.A. loan tor Si 8, 590 will be paid off in fiscal year cit ding June 50, 1987), paid off the accounts receivable line of credit and consolidated certain long-term debt into a single term loan which is being paid bv operating proceeds. 1 he (.ompanv funds operations Irom payment ot receivables, ; ml manage ■ ment believes the Company will have no problems meeting its obligations as they come clue in the foreseeable future. In May 1986, the Company signed a five year lease on its existing premises. This new lease included an additional 1, 800 square feet of warehouse space and au additional 500 square feet of office space remodeled from existing warehouse space. The costs of the remodeling were funded by the landlord and offset by an increase in rent on the new remodeled office space. |
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