UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~November 30, 2020~~May 31, 2021

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ____________.

Commission file number: 000-04957

EDUCATIONAL DEVELOPMENT CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

73-0750007

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

5402 South ~~122~~nd122nd East Ave, Tulsa, Oklahoma	74146
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (918) 622-4522

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $.20 par value	EDUC	NASDAQ
(Title of class)	(Trading symbol)	(Name of each exchange on which registered)

Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ~~Yes ☒ No ☐~~
	Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ~~Yes ☒ No ☐~~
	Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

	Large accelerated filer ☐	Accelerated filer ☐☒

	Non-accelerated filer ☒☐	Smaller reporting company ☒

		Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

☐

~~Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒~~

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
	Yes ☐ No ☒

As of ~~January~~July 6, 2021, there were ~~8,350,972~~8,650,230 shares of Educational Development Corporation Common Stock, $0.20 par value outstanding.

TA~~BLE~~

TABLE OF CONTENTS

		Page
PARTI.FINANCIALINFORMATION
Item 1.	Financial Statements	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1514
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2321
Item 4.	Controls and Procedures	2321

PARTII.OTHERINFORMATION
Item 1.	Legal Proceedings	2422
Item 1A.	Risk Factors	2422
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2422
Item 3.	Defaults Upon Senior Securities	2422
Item 4.	Mine Safety Disclosures	2422
Item 5.	Other Information	2422
Item 6.	Exhibits	2423
Signatures		2524

CAUTIONARY REMARKS REGARDING FORWARD-LOOKING STATEMENTS

The information discussed in this Quarterly Report on Form 10-Q includes “forward-looking statements.” These forward-looking statements are identified by their use of terms and phrases such as “may,” “expect,” “estimate,” “project,” “plan,” “believe,” “intend,” “achievable,” “anticipate,” “continue,” “potential,” “should,” “could,” and similar terms and phrases. Although we believe that the expectations reflected in these forward-looking statements are reasonable, they do involve certain assumptions, risks and uncertainties, and we can give no assurance that such expectations or assumptions will be achieved. Important factors that could cause actual results to differ materially from those in the forward-looking statements are described under “Item 7 – ~~Management’s~~ Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended February ~~29, 2020~~28, 2021 and in this quarterly report. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements in this paragraph and elsewhere in this Quarterly Report on Form 10-Q and speak only as of the date of this Quarterly Report on Form 10-Q. Other than as required under the securities laws, we do not assume a duty to update these forward-looking statements, whether as a result of new information, subsequent events or circumstances, changes in expectations or otherwise.

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.FINANCIAL STATEMENTS

~~Item 1.~~~~FINANCIAL STATEMENTS~~

EDUCATIONALDEVELOPMENTCORPORATION

CONDENSEDBALANCESHEETS(UNAUDITED)

November 30,

February 29,

ASSETS

2020

2020

CURRENT ASSETS

Cash and cash equivalents
$ 31,494,300 $ 2,999,400
Accounts receivable, less allowance for doubtful accounts of
$345,000 (November 30) and $237,400 (February 29)
4,115,600 2,967,200
Inventories - net
47,313,800 30,087,300
Income taxes receivable
8,400 221,700
Prepaid expenses and other assets
1,163,700 950,600
Total current assets
84,095,800 37,226,200

INVENTORIES - net
754,200 1,016,700
PROPERTY, PLANT AND EQUIPMENT - net
27,209,800 26,377,700
OTHER ASSETS
108,300 82,200
TOTAL ASSETS
$ 112,168,100 $ 64,702,800

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES

Accounts payable
$ 45,159,800 $ 9,661,100
Deferred revenues
2,330,900 385,300
Current maturities of long-term debt
527,700 1,027,400
Accrued salaries and commissions
6,252,900 1,657,200
Dividends payable
835,500 417,400
Other current liabilities
7,432,100 3,238,200
Total current liabilities
62,538,900 16,386,600

LONG-TERM DEBT - net of current maturities
10,587,100 17,784,300
DEFERRED INCOME TAXES - net
183,500 993,300
OTHER LONG-TERM LIABILITIES
137,300 145,800
Total liabilities
73,446,800 35,310,000

SHAREHOLDERS' EQUITY

Common stock, $0.20 par value; Authorized 16,000,000 shares;
Issued 12,410,080 (November 30) and 12,410,080 (February 29) shares;
Outstanding 8,355,972 (November 30) and 8,348,651 (February 29) shares
2,482,000 2,482,000
Capital in excess of par value
10,552,600 9,843,900
Retained earnings
38,349,900 29,732,200
51,384,500 42,058,100
Less treasury stock, at cost
(12,663,200
)
(12,665,300
)
Total shareholders' equity
38,721,300 29,392,800
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$ 112,168,100 $ 64,702,800

	May 31,			February 28,
ASSETS	2021			2021
CURRENT ASSETS
Cash and cash equivalents	$	1,756,600		$	1,812,200
Accounts receivable, less allowance for doubtful accounts of $360,400 (May 31) and $331,900 (February 28)		3,974,200			3,346,700
Inventories - net		56,555,100			51,762,400
Prepaid expenses and other assets		1,458,000			1,219,300
Total current assets		63,743,900			58,140,600

INVENTORIES - net		760,600			685,300
PROPERTY, PLANT AND EQUIPMENT - net		30,074,900			29,951,000
OTHER ASSETS		70,300			73,600
TOTAL ASSETS	$	94,649,700		$	88,850,500


LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	18,035,700		$	19,674,300
Line of credit		8,732,500			5,245,300
Deferred revenues		1,627,000			1,914,100
Current maturities of long-term debt		1,185,700			533,500
Accrued salaries and commissions		1,873,900			3,488,000
Dividends payable		834,800			835,100
Income taxes payable		1,097,900			130,200
Other current liabilities		4,094,000			6,094,800
Total current liabilities		37,481,500			37,915,300

LONG-TERM DEBT - net of current maturities		13,552,800			10,451,200
DEFERRED INCOME TAXES - net		327,400			89,900
OTHER LONG-TERM LIABILITIES		131,300			134,300
Total liabilities		51,493,000			48,590,700

SHAREHOLDERS' EQUITY
Common stock, $0.20 par value; Authorized 16,000,000 shares; Issued 12,410,080 shares; Outstanding 8,348,314 (May 31) and 8,346,600 (February 28) shares		2,482,000			2,482,000
Capital in excess of par value		11,152,100			10,863,900
Retained earnings		42,286,300			39,683,000
		55,920,400			53,028,900
Less treasury stock, at cost		(12,763,700	)		(12,769,100	)
Total shareholders' equity		43,156,700			40,259,800
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	94,649,700		$	88,850,500

See notes to condensed financial ~~statements.~~statements (unaudited).

Table of Contents

EDUCATIONALDEVELOPMENTCORPORATION

CONDENSEDSTATEMENTSOFEARNINGS(UNAUDITED)

Three Months Ended November 30,

Nine Months Ended November 30,

2020

2019

2020

2019

GROSS SALES
$ 83,137,500 $ 53,619,900 $ 203,717,200 $ 122,635,300
Less discounts and allowances
(24,131,100
)
(16,406,500
)
(58,390,400
)
(37,978,900
)
Transportation revenue
7,743,900 3,611,200 18,965,300 8,193,600
NET REVENUES
66,750,300 40,824,600 164,292,100 92,850,000
COST OF GOODS SOLD
19,597,800 13,279,900 48,302,800 30,382,500
Gross margin
47,152,500 27,544,700 115,989,300 62,467,500

OPERATING EXPENSES

Operating and selling
11,616,200 6,513,500 28,488,300 15,089,900
Sales commissions
22,960,300 13,008,600 56,865,200 28,804,700
General and administrative
7,082,200 4,373,500 17,282,200 12,029,300
Total operating expenses
41,658,700 23,895,600 102,635,700 55,923,900

INTEREST EXPENSE
119,300 216,500 441,500 691,000
OTHER INCOME
(399,800
)
(403,100
)
(1,305,600
)
(1,196,300
)

EARNINGS BEFORE INCOME TAXES
5,774,300 3,835,700 14,217,700 7,048,900

INCOME TAXES
1,504,700 1,099,900 3,762,000 1,941,900
NET EARNINGS
$ 4,269,600 $ 2,735,800 $ 10,455,700 $ 5,107,000

BASIC AND DILUTED EARNINGS PER SHARE

Basic
$ 0.51 $ 0.33 $ 1.25 $ 0.62
Diluted
$ 0.51 $ 0.33 $ 1.25 $ 0.61

WEIGHTED AVERAGE NUMBER OF COMMON AND EQUIVALENT SHARES OUTSTANDING

Basic
8,355,831 8,406,709 8,354,156 8,301,209
Diluted
8,355,831 8,412,638 8,354,156 8,307,496
Dividends per share
$ 0.10 $ 0.05 $ 0.22 $ 0.15

	Three Months Ended May 31,
	2021			2020
GROSS SALES	$	52,391,600		$	46,896,900
Less discounts and allowances		(15,954,100	)		(12,895,900	)
Transportation revenue		4,370,400			4,290,700
NET REVENUES		40,807,900			38,291,700
COST OF GOODS SOLD		12,029,900			11,395,500
Gross margin		28,778,000			26,896,200

OPERATING EXPENSES
Operating and selling		6,442,600			6,340,200
Sales commissions		12,966,700			13,600,500
General and administrative		5,139,000			4,536,000
Total operating expenses		24,548,300			24,476,700


INTEREST EXPENSE		167,800			182,200
OTHER INCOME		(598,700	)		(406,600	)

EARNINGS BEFORE INCOME TAXES		4,660,600			2,643,900

INCOME TAXES		1,222,500			712,800
NET EARNINGS	$	3,438,100		$	1,931,100

BASIC AND DILUTED EARNINGS PER SHARE
Basic	$	0.43		$	0.23
Diluted	$	0.41		$	0.23

WEIGHTED AVERAGE NUMBER OF COMMON AND EQUIVALENT SHARES OUTSTANDING
Basic		8,029,264	��		8,352,424
Diluted		8,481,980			8,352,424
Dividends per share	$	0.10		$	0.06

See notes to condensed financial ~~statements.~~statements (unaudited).

Table of Contents

EDUCATIONALDEVELOPMENTCORPORATION

CONDENSEDSTATEMENTSOFCHANGESIN ~~SHAREHOLDERS’~~ SHAREHOLDERS’ EQUITY(UNAUDITED)

FORTHE~~NINE~~THREEMONTHSENDED~~NOVEMBER 30~~MAY 31, 2021

	Common Stock (par value $0.20 per share)									Treasury Stock
	Number of Shares Issued		Amount		Capital in Excess of Par Value		Retained Earnings			Number of Shares			Amount			Shareholders' Equity

BALANCE - February 28, 2021		12,410,080	$	2,482,000	$	10,863,900	$	39,683,000			4,063,480		$	(12,769,100	)	$	40,259,800
Sales of treasury stock		-		-		26,600		-			(1,714	)		5,400			32,000
Dividends declared ($0.10/share)		-		-		-		(834,800	)		-			-			(834,800	)
Share-based compensation expense (see Note 6)		-		-		261,600		-			-			-			261,600
Net earnings		-		-		-		3,438,100			-			-			3,438,100
BALANCE - May 31, 2021		12,410,080	$	2,482,000	$	11,152,100	$	42,286,300			4,061,766		$	(12,763,700	)	$	43,156,700

,FORTHETHREEMONTHSENDEDMAY 31, 2020

Common Stock
(par value $0.20 per share)

Treasury Stock

Number of
Shares
Issued

Amount

Capital in
Excess of
Par Value

Retained
Earnings

Number of
Shares

Amount

Shareholders'
Equity

BALANCE - February 29, 2020
12,410,080 $ 2,482,000 $ 9,843,900 $ 29,732,200 4,061,429 $ (12,665,300
)
$ 29,392,800
Purchases of treasury stock
- - - - 17,565 (75,500
)
(75,500
)
Sales of treasury stock
- - 5,000 - (21,167
)
66,000 71,000
Dividends declared ($0.06/share)
- - - (502,200
)
- - (502,200
)
Share-based compensation expense (see Note 6)
- - 169,000 - - - 169,000
Net earnings
- - - 1,931,100 - - 1,931,100
BALANCE - May 31, 2020
12,410,080 2,482,000 10,017,900 31,161,100 4,057,827 (12,674,800
)
30,986,200
Sales of treasury stock
- - 11,500 - (2,438
)
7,600 19,100
Dividends declared ($0.06/share)
- - - (500,300
)
- - (500,300
)
Share-based compensation expense (see Note 6)
- - 216,200 - - - 216,200
Net earnings
- - - 4,255,000 - - 4,255,000
BALANCE – August 31, 2020
12,410,080 2,482,000 10,245,600 34,915,800 4,055,389 (12,667,200
)
34,976,200
Sales of treasury stock
- - 15,200 - (1,281
)
4,000 19,200
Dividends declared ($0.10/share)
- - - (835,500
)
- - (835,500
)
Share-based compensation expense (see Note 6)
- - 291,800 - - - 291,800
Net earnings
- - - 4,269,600 - - 4,269,600
BALANCE - November 30, 2020
12,410,080 $ 2,482,000 $ 10,552,600 $ 38,349,900 4,054,108 $ (12,663,200
)
$ 38,721,300

	Common Stock (par value $0.20 per share)									Treasury Stock
	Number of Shares Issued		Amount		Capital in Excess of Par Value		Retained Earnings			Number of Shares			Amount			Shareholders' Equity

BALANCE - February 29, 2020		12,410,080	$	2,482,000	$	9,843,900	$	29,732,200			4,061,429		$	(12,665,300	)	$	29,392,800
Purchases of treasury stock		-		-		-		-			17,565			(75,500	)		(75,500	)
Sales of treasury stock		-		-		5,000		-			(21,167	)		66,000			71,000
Dividends declared ($0.06/share)		-		-		-		(502,200	)		-			-			(502,200	)
Share-based compensation expense (see Note 6)		-		-		169,000		-			-			-			169,000
Net earnings		-		-		-		1,931,100			-			-			1,931,100
BALANCE - May 31, 2020		12,410,080	$	2,482,000	$	10,017,900	$	31,161,100			4,057,827		$	(12,674,800	)	$	30,986,200

~~FOR THE~~ ~~NINE~~ ~~MONTHS ENDED~~ ~~NOVEMBER 30~~~~, 2019~~

Common Stock
(par value $0.20 per share)

Treasury Stock

Number of
Shares
Issued

Amount

Capital in
Excess of
Par Value

Retained
Earnings

Number of
Shares

Amount

Shareholders'
Equity

BALANCE - February 28, 2019
12,092,080 $ 2,418,400 $ 8,975,100 $ 25,754,900 3,896,998 $ (11,217,900
)
$ 25,930,500
Purchases of treasury stock
- - - - 36,959 (302,500
)
(302,500
)
Sales of treasury stock
- - 68,100 - (19,171
)
54,300 122,400
Dividends declared ($0.05/share)
- - - (408,900
)
- - (408,900
)
Share-based compensation expense (see Note 6)
- - 166,300 - - - 166,300
Net earnings
- - - 1,363,600 - - 1,363,600
BALANCE - May 31, 2019
12,092,080 2,418,400 9,209,500 26,709,600 3,914,786 (11,466,100
)
26,871,400
Purchases of treasury stock
- - - - 60,357 (417,100
)
(417,100
)
Sales of treasury stock
- - 54,000 - (22,961
)
54,600 108,600
Dividends declared ($0.05/share)
- - - (422,300
)
- - (422,300
)
Share-based compensation expense (see Note 6)
- - 166,200 - - - 166,200
Issuance of restricted share awards for vesting
308,000 61,600 (61,600
)
- - - -
Net earnings
- - - 1,007,600 - - 1,007,600
BALANCE - August 31, 2019
12,400,080 2,480,000 9,368,100 27,294,900 3,952,182 (11,828,600
)
27,314,400
Purchases of treasury stock
- - - - 84,841 (534,100
)
(534,100
)
Sales of treasury stock
- - 69,000 - (24,959
)
83,400 152,400
Dividends declared ($0.05/share)
- - - (423,500
)
- - (423,500
)
Share-based compensation expense (see Note 6)
- - 166,300 - - - 166,300
Net earnings
- - - 2,735,800 - - 2,735,800
BALANCE - November 30, 2019
12,400,080 $ 2,480,000 $ 9,603,400 $ 29,607,200 4,012,064 $ (12,279,300
)
$ 29,411,300

See notes to condensed financial ~~statements.~~statements (unaudited).

Table of Contents

EDUCATIONALDEVELOPMENTCORPORATION

CONDENSEDSTATEMENTSOFCASHFLOWS(UNAUDITED)

~~FOR THE~~ ~~NINE~~ ~~MONTHS ENDED~~ ~~NOVEMBER 30~~,

2020

2019

CASH FLOWS FROM OPERATING ACTIVITIES

Net earnings
$ 10,455,700 $ 5,107,000
Adjustments to reconcile net earnings to net cash provided by operating activities:

Depreciation
1,207,900 1,054,100
Deferred income taxes
(809,800
)
81,100
Provision for doubtful accounts
115,800 39,900
Provision for inventory valuation allowance
166,200 283,400
Share-based compensation expense
677,000 498,800
Changes in assets and liabilities:

Accounts receivable
(1,264,200
)
(845,400
)
Inventories, net
(17,130,200
)
3,147,500
Prepaid expenses and other assets
(239,200
)
583,600
Accounts payable
35,498,700 (2,221,100
)
Accrued salaries and commissions, and other liabilities
8,781,000 1,173,700
Deferred revenues
1,945,600 (470,800
)
Income taxes
213,300 591,000
Total adjustments
29,162,100 3,915,800
Net cash provided by operating activities
39,617,800 9,022,800
CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of property, plant and equipment
(2,040,000
)
(402,200
)
Net cash used in investing activities
(2,040,000
)
(402,200
)
CASH FLOWS FROM FINANCING ACTIVITIES

Payments on term debt
(9,144,300
)
(719,400
)
Proceeds from term debt
1,447,400 -
Sales of treasury stock
109,300 383,400
Purchases of treasury stock
(75,500
)
(1,253,700
)
Dividends paid
(1,419,800
)
(1,241,300
)
Net cash used in financing activities
(9,082,900
)
(2,831,000
)
NET INCREASE IN CASH AND CASH EQUIVALENTS
28,494,900 5,789,600
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
2,999,400 3,199,300
CASH AND CASH EQUIVALENTS - END OF PERIOD
$ 31,494,300 $ 8,988,900

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION

Cash paid for interest
$ 463,600 $ 693,800
Cash paid for income taxes
$ 3,789,500 $ 1,318,000

	Three Months Ended May 31,
	2021			2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings	$	3,438,100		$	1,931,100
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation		432,000			409,900
Deferred income taxes		237,500			91,200
Provision for doubtful accounts		37,600			67,800
Provision for inventory valuation allowance		60,000			80,000
Share-based compensation expense		261,600			169,000
Changes in assets and liabilities:
Accounts receivable		(665,100	)		348,900
Inventories, net		(4,928,000	)		3,080,800
Prepaid expenses and other assets		(235,400	)		29,100
Accounts payable		(577,400	)		1,385,200
Accrued salaries and commissions and other liabilities		(3,617,900	)		2,373,300
Deferred revenues		(287,100	)		2,026,800
Income taxes payable		967,700			602,100
Total adjustments		(8,314,500	)		10,664,100
Net cash provided by (used in) operating activities		(4,876,400	)		12,595,200
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment		(1,617,200	)		(143,800	)
Net cash used in investing activities		(1,617,200	)		(143,800	)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on term debt		(142,300	)		(1,710,800	)
Proceeds from term debt		3,896,200			1,447,400
Sales of treasury stock		32,000			71,000
Purchases of treasury stock		0			(75,500	)
Net borrowings under line of credit		3,487,200			0
Dividends paid		(835,100	)		(417,400	)
Net cash provided by (used in) financing activities		6,438,000			(685,300	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(55,600	)		11,766,100
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		1,812,200			2,999,400
CASH AND CASH EQUIVALENTS - END OF PERIOD	$	1,756,600		$	14,765,500

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Cash paid for interest	$	152,400		$	184,600
Cash paid for income taxes	$	17,200		$	19,500

See notes to condensed financial ~~statements.~~statements (unaudited).

Table of Contents

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying Unaudited Condensed Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim condensed financial information and in accordance with the rules and regulations of the Securities and Exchange Commission. The Unaudited Condensed Financial Statements include all adjustments considered necessary for a fair presentation of the financial position and results of operations for the interim periods presented. Such adjustments consist only of normal recurring items, unless otherwise disclosed herein. Accordingly, the Unaudited Condensed Financial Statements do not include all of the information and notes required by GAAP for complete financial statements. However, we believe that the disclosures made are adequate to make the information not misleading. These interim Unaudited Condensed Financial Statements should be read in conjunction with our audited financial statements as of and for the year ended February ~~29, 2020~~28, 2021 included in our Form 10-K. The results of operations for interim periods are not necessarily indicative of the results to be expected for a full year due to the seasonality of our product sales.

COVID-19 Update

In December 2019, a novel strain of coronavirus, known as COVID-19, was reported in Wuhan, China and has since extensively impacted the global health and economic environment. In March 2020, the World Health Organization characterized COVID-19 as a pandemic, and President Trump declared the COVID-19 outbreak in the United States as a national emergency. The Company has taken numerous steps, and will continue to take further actions, in its approach to minimize the impact of the COVID-19 pandemic. ~~To ensure the well-being of~~Effective May 1, 2021, we lessened our employees, the Company offered employees in our office the ability to work from home on a temporary basis; we instructed employees in our warehouse and office to take their temperature at the start of every shift; we requested employees forgo any in-person meetings and instead opt to utilize virtual meeting spaces; and we published and continually updated our employees on the most recent developments related to COVID-19 and best practices for safety and health practices in the office and warehouse ~~and at home.~~based on the recommendations from the local Tulsa Health Department. We are closely monitoring the impact of the COVID-19 pandemic and continually assessing its potential effects on our business. On April 16, 2020, the Company entered into a loan with MidFirst Bank as the lender in an aggregate principal amount of $1.4 million pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This loan program provided paycheck protection for our employees from the economic impact to our business due to COVID-19, which was seen most by the decline in our Publishing division’s sales due to the temporary closure of many retail outlets across the country, and in our UBAM division’s School and Library and Book Fair sales due to the temporary closure of many schools nation-wide. The Company determined the PPP loan was no longer needed and therefore repaid the loan in full on May 12, 2020. While the Company did not experience a decrease in net revenues ~~in the first nine months of~~during fiscal year 2021, ~~compared with the same period in fiscal year 2020,~~ the severity and duration of the pandemic are uncertain and the extent to which our results are affected by COVID-19 cannot be accurately predicted. See Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information on the impact COVID-19 had during the current fiscal period.

Use of Estimates in the Preparation of Financial Statements

The preparation of the Unaudited Condensed Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates.

Significant Accounting Policies

Our significant accounting policies, other than the adoption of new accounting pronouncements separately documented herein, are consistent with those disclosed in Note 1 to our audited financial statements as of and for the year ended February ~~29, 2020~~28, 2021 included in our Form 10-K.

New Accounting Pronouncements

The Financial Accounting Standards Board (“FASB”) periodically issues new accounting standards in a continuing effort to improve standards of financial accounting and reporting. We have reviewed the recently issued accounting standards updates (“ASU”) and concluded that the following recently issued accounting standards apply to us:

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In December 2019, the FASB published ASU 2019-12: Income Taxes (Topic 740), which simplifies the accounting for income taxes. Topic 740 addresses a number of topics including but not limited to the removal of certain exceptions currently included in the standard related to intra-period allocation when there are losses, in addition to calculation of income taxes when current year-to-date losses exceed anticipated loss for the year. The amendment also simplifies accounting for certain franchise taxes and disclosure of the effect of enacted change in tax laws or rates. Topic 740 ~~is effective for public entities for~~was adopted by the Company at the beginning of fiscal ~~years,~~year 2022 and ~~interim periods within those fiscal years, beginning after December 15, 2020. The~~did not have a material impact ~~of the adoption of the standard has not yet been determined~~on our financial statements and ~~is being evaluated.~~disclosures.

In March 2020, the FASB issued ASU 2020-04: Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This update provides optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as London Interbank Offered Rate (LIBOR). This ASU includes practical expedients for contract modifications due to reference rate reform. Generally, contract modifications related to reference rate reform may be considered an event that does not require remeasurement or reassessment of a previous accounting determination at the modification date. This ASU is effective March 12, 2020 through December 31, 2022. The Company’s debt agreements include the use of alternate rates when LIBOR is not available. We do not expect the change from LIBOR to an alternate rate will have a material impact to our financial statements and, to the extent we enter into modifications of agreements that are impacted by the LIBOR phase-out, we will apply such guidance to those contract modifications.

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Note 2 – INVENTORIES

Inventories consist of the following:

2020

November 30,

February 29,

Current:

Book inventory
$ 47,785,300 $ 30,346,900
Inventory valuation allowance
(471,500
)
(259,600
)
Inventories net – current
$ 47,313,800 $ 30,087,300

Noncurrent:

Book inventory
$ 993,600 $ 1,226,500
Inventory valuation allowance
(239,400
)
(209,800
)
Inventories net – noncurrent
$ 754,200 $ 1,016,700

May 31, 2021

February 28, 2021

Current:

Book inventory
$ 57,052,600 $ 52,276,200
Inventory valuation allowance
(497,500
)
(513,800
)
Inventories net – current
$ 56,555,100 $ 51,762,400

Noncurrent:

Book inventory
$ 1,005,600 $ 894,300
Inventory valuation allowance
(245,000
)
(209,000
)
Inventories net – noncurrent
$ 760,600 $ 685,300

Book inventory includes inventory in transit which totaled $4,114,600 and $6,467,400 at May 31, 2021 and February 28, 2021, respectively.
Book inventory quantities in excess of what we expect will be sold within the normal operating cycle, based on ~~2 ½~~2½ years of anticipated sales, are included in noncurrent inventory.

Significant portions of our inventory purchases are concentrated with an England-based publishing company, Usborne Publishing, Ltd. (“Usborne”). Purchases received from this company were ~~approximately $26.2 million~~$12,288,300 and ~~$4.2 million~~$3,974,400 for the three months ended ~~November 30,~~May 31, 2021 and 2020, ~~and 2019,~~ respectively. Total inventory purchases received from all suppliers were ~~$35.0 million~~$17,785,200 and ~~$6.9 million~~$5,846,600 for the three months ended ~~November 30,~~May 31, 2021 and 2020, ~~and 2019,~~ respectively.

Purchases received from Usborne were approximately $37.5 million and $16.1 million for the nine months ended November 30, 2020 and 2019, respectively. Total inventory purchases received from all suppliers were $53.2 million and $24.1 million for the nine months ended November 30, 2020 and 2019, respectively.
Note 3 – LEASES

We have both lessee and lessor arrangements. Our leases are evaluated at inception or at any subsequent modification. Depending on the terms, leases are classified as either operating or finance leases if we are the lessee, or as operating, sales-type or direct financing leases if we are the lessor, as appropriate under ASC 842. ~~Our~~One lessee arrangement includes a rental agreement where we have the exclusive use of dedicated office space in San Diego, California, and qualifies as an operating lease. Our other lessee arrangement is short term and offers flexible storage space on a month to month basis. Our lessee arrangements are not material to our condensed financial statements or notes to the condensed financial statements. Our lessor arrangements include ~~three~~3 rental agreements for warehouse and office space in Tulsa, Oklahoma, and each qualifies as an operating lease under ASC 842.

In accordance with ASC 842, we have made an accounting policy election to not apply the new standard to lessee arrangements with a term of one year or less and no purchase option that is reasonably certain of exercise. We will continue to account for these short-term arrangements by recognizing payments and expenses as incurred, without recording a lease liability and right-of-use asset.
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We have also made an accounting policy election for both our lessee and lessor arrangements to combine lease and non-lease components. This election is applied to all of our lease arrangements as our non-lease components are not material and do not result in significant timing differences in the recognition of rental expenses or income.
Operating Leases – ~~Lessee~~
We recognize a lease liability, reported in other liabilities on the condensed balance sheets, for each lease based on the present value of remaining minimum fixed rental payments (which includes payments under any renewal option that we are reasonably certain to exercise), using a discount rate that approximates the rate of interest we would have to pay to borrow on a collateralized basis over a similar term. We also recognize a right-of-use asset, reported in other assets on the condensed balance sheets, for each lease, valued at the lease liability, adjusted for prepaid or accrued rent balances existing at the time of initial recognition. The lease liability and right-of-use asset are reduced over the term of the lease as payments are made and the assets are used.

2020

November 30,

February 29,

Operating lease assets:

Right-of-use asset
$ 37,000 $ 45,200

Operating lease liabilities:

Current lease liability
$ 13,700 $ 13,500
Long-term lease liability
$ 23,300 $ 31,700

Remaining lease term (months)
34 43
Discount rate
4.60
%
4.60
%
Minimum fixed rental payments are recognized on a straight-line basis over the life of the lease as costs and expenses on our condensed statements of earnings. Variable and short-term rental payments are recognized as costs and expenses as they are incurred.

Three Months Ended November 30,

Nine Months Ended November 30,

2020

2019

2020

2019

Fixed lease cost
$ 3,300 $ 3,200 $ 9,800 $ 9,400
~~Future minimum rental payments under operating leases with initial terms greater than one year as of November 30, 2020, are as follows:~~
Year ending February 28 (29),

2021
$ 3,400
2022
13,700
2023
14,200
2024
8,400
Total future minimum rental payments
39,700
Present value discount
(2,700
)
Total operating lease liability
$ 37,000
~~The following table provides further information about our operating leases reported in our condensed financial statements:~~

Three Months Ended November 30,

Nine Months Ended November 30,

2020

2019

2020

2019

Operating cash flows – operating lease
$ 3,300 $ 3,200 $ 9,800 $ 9,400
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~~Operating Leases –~~ Lessor

We recognize fixed rental income on a straight-line basis over the life of the lease as ~~revenue~~other income on our condensed statements of earnings. Variable rental payments are recognized as ~~revenue~~other income in the period in which the changes in facts and circumstances on which the variable lease payments are based occur.

On April 4, 2020, we executed an amendment to one of our existing leases that abated rental payments for the months of May, June and July 2020. The amendment also extended the term of the lease for three additional months. This amendment represents a lease modification and, as such, we have adjusted our fixed rental income on a straight-line basis over the remaining term starting May 1, 2020.

Future minimum payments receivable under operating leases with terms greater than one year are estimated as follows:

Year ending February 28 (29),

2021
$ 383,400
2022
1,542,100
2023
1,573,200
2024
1,577,900
2025
1,547,100
Thereafter
9,615,300
Total
$ 16,239,000
Years ending February 28 (29),

2022
$ 1,158,700
2023
1,573,200
2024
1,577,900
2025
1,547,100
2026
1,524,300
Thereafter
8,091,000
Total
$ 15,472,200

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The cost of the leased space was approximately ~~$10,846,200 and $10,789,500~~$10,826,400 as of ~~November 30, 2020~~May 31, 2021 and February ~~29, 2020,~~28, 2021, respectively. The accumulated depreciation associated with the leased assets was ~~$2,120,000~~$2,312,100 and ~~$1,828,900~~$2,216,700 as of ~~November 30, 2020~~May 31, 2021 and February ~~29, 2020,~~28, 2021, respectively. Both the leased assets and accumulated depreciation are included in property, plant and equipment-net on the condensed balance sheets.

Note 4 – DEBT

Debt consists of the following:

2020

November 30,

February 29,

Line of credit
$ - $ -

Long-term debt
$ 11,114,800 $ 18,811,700
Less current maturities
(527,700
)
(1,027,400
)
Long-term debt, net of current maturities
$ 10,587,100 $ 17,784,300

May 31, 2021

February 28, 2021

Line of credit
$ 8,732,500 $ 5,245,300

Advancing term loan
$ 3,896,200 $ 0
Long-term debt
10,842,300 10,984,700
Less current maturities
(1,185,700
)
(533,500
)
Long-term debt, net of current maturities
$ 13,552,800 $ 10,451,200

~~We have a~~The Company executed an Amended and Restated Loan Agreement ~~dated as of March 10, 2016~~on February 15, 2021 (as amended the “Loan Agreement”) with MidFirst Bank (“the Bank”), which replaced the prior loan agreement and includes multiple loans. Term Loan #1 Tranche A (“Term Loan #1”), originally totaling ~~$11.1~~$13.4 million, aswas part of ~~November 30, 2020,~~the prior loan agreement. Term Loan #1 had a fixed interest rate of 4.23% with ~~the~~principal and interest payable monthly and a stated maturity date of December 1, 2025. ~~Tranche A has a~~On April 1, 2021, the Company executed the First Amendment to the Loan Agreement which reduced the fixed interest rate ~~of 4.23%~~on Term Loan #1 to 3.12% and ~~interest is payable monthly.~~removed the prepayment premium from the Loan Agreement. Term Loan #1 is secured by the primary office, warehouse and land. The outstanding borrowings on Term Loan #1 were $10,842,300 and $10,984,700 as of May 31, 2021 and February 28, 2021, respectively.

The Loan Agreement also provides a ~~$10.0~~$15.0 million revolving loan (“line of credit”) through August 15, ~~2021, which is limited to advance rates on eligible receivables and eligible inventory levels. Interest is~~2022 with interest payable monthly at the ~~greater of 2.75% or the bank adjusted~~Bank-adjusted LIBOR Index plus a tiered pricing rate based on the Company’s Adjusted Funded Debt to EBITDA Ratio, ~~(2.75%~~with a minimum rate of 2.75% (the effective rate was 2.75% at ~~November 30, 2020)~~May 31, 2021). Our borrowings outstanding on our line of credit at May 31, 2021 and February 28, 2021, were $8,732,500 and $5,245,300, respectively. Available credit under the revolving line of credit was approximately $6,267,500 and $9,570,200 at May 31, 2021 and February 28, 2021, respectively.

~~On August 15, 2020, the Company executed the Eleventh Amendment Loan Agreement with the Bank related to our Loan Agreement. The amendment modified~~In addition, the Loan Agreement ~~extended the termination date of the line of credit~~provides a $6.0 million Advancing Term Loan to ~~August~~be used to finance planned equipment purchases. The Advancing Term Loan requires interest-only payments through July 15, 2021, ~~reduced~~at which time it will convert to a 60-month amortizing term loan maturing July 15, 2026. The Advancing Term Loan accrues interest at the ~~maximum revolving principal amount from $15.0 million~~Bank-adjusted LIBOR Index plus a tiered pricing rate based on the Company’s Adjusted Funded Debt to ~~$10.0 million,~~EBITDA Ratio, with a minimum rate of 2.75% (the effective rate was 2.75% at May 31, 2021). Our borrowings outstanding under the Advancing Term Loan at May 31, 2021 were $3,896,200 and ~~amended the definition of the LIBOR and Prime rate, establishing that the rate charged, including the LIBOR Margin or Prime Margin, shall never be less than 2.75%.~~we had no borrowings at February 28, 2021.

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Adjusted Funded Debt is defined as all long-term and short-term bank debt less the outstanding ~~balances~~balance of ~~Tranche A.~~Term Loan #1. EBITDA is defined in the Loan Agreement as ~~earnings before~~net income plus interest expense, income tax expense (benefit) and depreciation and amortization ~~expenses,~~expenses. The Adjusted Funded Debt to EBITDA ratio includes Adjusted Funded Debt to trailing twelve month EBITDA, reduced by specific rental ~~income.~~income received from a non-related third party, see Note 3. The $15.0 million line of credit is limited to advance rates on eligible receivables and eligible inventory levels.
The Advancing Term Loan and the line of credit accrue interest at a tiered rate based on our Adjusted Funded Debt to EBITDA ratio. The variable interest pricing tier is as follows:

PricingTier
AdjustedFundedDebttoEBITDARatio
~~Adjusted Funded Debt to EBITDA Ratio~~
LIBORMargin(bps)
I
>2.00
300.00
II
>1.50 but <2.00
275.00
III
>1.00 but <1.50
250.00
IV
<1.00
225.00

~~We had no borrowings outstanding on our line~~
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Table of credit at November 30, 2020 and February 29, 2020. Available credit under the revolving line of credit was approximately $10.0 million and $11.0 million at November 30, 2020 and February 29, 2020, respectively.
Contents

The Loan Agreement contains a provision for our use of the Bank’s letters of credit. The Bank agrees to issue or obtain issuance of commercial or stand-by letters of credit provided that no letters of credit will have an expiry date later than August 15, ~~2021,~~2022, and that the sum of the line of credit plus the letters of credit would not exceed the borrowing base in effect at the time. As of ~~November 30, 2020,~~May 31, 2021, we had no letters of credit outstanding.

~~On April 16, 2020,~~The Loan Agreement also contains provisions that require the Company ~~entered into a loan~~to maintain specified financial ratios and limits any additional debt with other lenders. Additionally, the ~~Bank~~Loan Agreement places limitations on the amount of ~~approximately $1.4 million pursuant to~~dividends that may be distributed and the ~~PPP under~~total value of stock that can be repurchased using advances from the ~~CARES Act. The PPP Loan had a fixed interest rate~~line of 1.00%, with principal and interest payments starting December 1, 2020 and a scheduled maturity date of May 1, 2022. Subsequent to receiving the loan, the Company determined the PPP loan was not needed and repaid the loan in full, including interest accrued to date, on May 12, 2020.credit.

On June 3, 2020, the Company paid off the remaining balance of the $4.0 million Term Loan #2 which originated on June 28, 2016. The final payment, including accrued interest, totaled $2.9 million. There were no additional fees or penalties resulting from the payoff of Term Loan #2.
On August 4, 2020, the Company paid off the remaining balance of the $5.0 million Term Loan #1 Tranche B which originated on March 10, 2016. The final payment, including accrued interest, totaled $4.2 million. There were no additional fees or penalties resulting from the payoff of Term Loan #1 Tranche B.
The following table reflects aggregate future scheduled maturities of long-term debt during the next five fiscal years and thereafter as follows:

Year ending February 28 (29),

2021
$ 128,800
2022
533,400
2023
556,800
2024
581,100
2025
605,400
Thereafter
8,709,300
    Total
$ 11,114,800
Years ending February 28 (29),

2022
$ 838,600
2023
1,387,500
2024
1,407,100
2025
1,426,400
2026
9,289,300
Thereafter
389,600
Total
$ 14,738,500
Note 5 – EARNINGS PER SHARE

Basic earnings per share (“EPS”) is computed by dividing net earnings by the weighted average number of common shares outstanding during the ~~period.~~period excluding nonvested restricted stock awards. Diluted EPS ~~is based on~~includes the ~~combined weighted average number~~dilutive effect of ~~common shares outstanding~~issued unvested restricted stock awards and ~~dilutive~~additional potential common shares issuable ~~which include, where appropriate, the assumed exercise of~~under stock warrants, restricted stock and stock options. ~~In computing diluted EPS, we have~~We utilized the treasury stock ~~method.~~ method in computing the potential common shares issuable under stock warrants, restricted stock, stock options and preferred shares.

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The computation of weighted average common and common equivalent shares used in the calculation of basic and diluted EPS is shown below.

Three Months Ended November 30,

Nine Months Ended November 30,

2020

2019

2020

2019

Earnings:

Net earnings applicable to common shareholders
$ 4,269,600 $ 2,735,800 $ 10,455,700 $ 5,107,000

Weighted average shares:

Weighted average shares outstanding-basic
8,355,831 8,406,709 8,354,156 8,301,209
Assumed exercise of options
- 5,929 - 6,287
Weighted average shares outstanding-diluted
8,355,831 8,412,638 8,354,156 8,307,496

Earnings per share:

Basic
$ 0.51 $ 0.33 $ 1.25 $ 0.62
Diluted
$ 0.51 $ 0.33 $ 1.25 $ 0.61

Three Months Ended May 31,

2021

2020

Earnings:

Net earnings applicable to common shareholders
$ 3,438,100 $ 1,931,100

Weighted average shares:

Weighted average shares outstanding-basic
8,029,264 8,352,424
Issued unvested restricted stock and assumed shares issuable
under granted unvested restricted stock awards
452,716 0
Weighted average shares outstanding-diluted
8,481,980 8,352,424

Earnings per share:

Basic
$ 0.43 $ 0.23
Diluted
$ 0.41 $ 0.23

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Note 6 – ~~STOCK-BASED~~SHARE-BASED COMPENSATION

We account for ~~stock-based~~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. 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. The probability of restricted share awards granted with future performance conditions is evaluated at each reporting period and share awards are updated and compensation expense is adjusted based on updated information.

In July 2018, our shareholders approved the Company’s 2019 Long-Term Incentive Plan (“2019 LTI Plan”). The 2019 LTI Plan establishes up to 600,000 shares of restricted stock which can be granted to certain members of management based on exceeding specified net revenues and pre-tax performance metrics during fiscal years 2019, 2020 or 2021. The number of restricted shares to be distributed depends on attaining the performance metrics defined by the 2019 LTI Plan and may result in the distribution of a number of shares that is less than, but not greater than, the number of restricted shares outlined in the terms of the 2019 LTI Plan. Restricted shares granted under the 2019 LTI Plan “cliff vest” after five years.

During fiscal year 2019, the Company granted 308,000 restricted shares under the 2019 LTI Plan with an average grant-date fair value of $9.94 per share. In the third quarter of fiscal year 2021, 5,000 of these restricted shares were forfeited. These shares were made available to be reissued to remaining participants upon forfeiture. The remaining compensation expense for the outstanding awards, totaling approximately ~~$1,470,400,~~$1,143,600, will be recognized ratably over the remaining vesting period of approximately 2721 months.

During fiscal year 2021, the Company initially granted 151,000 restricted shares under the 2019 LTI Plan with an average grant-date fair value of $6.30 per share. 8,000 of these shares were granted, forfeited and re-granted to remaining participants in fiscal year 2021. In the third quarter of fiscal year 2021, the Company increased the number of shares granted for fiscal year 2021 from 151,000 to 305,000 due to revised performance expectations for the year. The remaining compensation expense of these awards, totaling approximately ~~$1,669,400,~~$1,473,000, will be recognized ratably over the remaining vesting period of approximately 5145 months. As of ~~November 30, 2020,~~May 31, 2021, there are no restricted shares available for issuance as future awards under the 2019 LTI Plan.

A summary of compensation expense recognized in connection with restricted share awards follows:

Three Months Ended November 30,

Nine Months Ended November 30,

2020

2019

2020

2019

Share-based compensation expense
$ 291,800 $ 166,300 $ 677,000 $ 498,800

Three Months Ended May 31,

2021

2020

Share-based compensation expense
$ 261,600 $ 169,000

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The following table summarizes stock award activity during the first three months of fiscal year ~~2021~~2022 under the 2019 LTI Plan:

Shares

Weighted Average Fair Value (per share)

Outstanding at February 29, 2020
308,000 $ 9.94
   Granted
305,000 6.30
   Vested
- -
   Forfeited
(13,000 ) (7.70 )
Outstanding at November 30, 2020
600,000 $ 8.14

Shares

Weighted Average Fair Value (per share)

Outstanding at February 28, 2021
600,000 $ 8.14
Granted
- -
Vested
0 0
Forfeited
- -
Outstanding at May 31, 2021
600,000 $ 8.14

As of ~~November 30, 2020,~~May 31, 2021, total unrecognized ~~stock-based~~share-based compensation expense related to unvested granted or issued restricted shares was ~~$3,139,800,~~$2,616,600, which we expect to recognize over a weighted-average period of ~~39.8~~34.5 months.
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Note 7 – SHIPPING AND HANDLING COSTS

We classify shipping and handling costs as operating and selling expenses in the condensed statements of earnings. Shipping and handling costs include postage, freight, handling costs, as well as shipping materials and supplies. These costs were ~~$10,610,900~~$6,356,400 and ~~$6,037,600~~$6,315,300 for the three months ended ~~November 30,~~May 31, 2021 and 2020, ~~and 2019, respectively. These costs were $26,910,800 and $14,087,400 for the nine months ended November 30, 2020 and 2019,~~ respectively.
Note 8 – BUSINESS SEGMENTS

We have ~~two~~2 reportable segments: Usborne Books & More (“UBAM”) and Publishing. 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. Our UBAM segment markets its products through a network of independent sales consultants using a combination of internet sales, direct sales, home shows and book fairs. Our Publishing segment markets its products to retail accounts, which include book, school supply, toy and gift stores and museums, trade and specialty wholesalers, through commissioned sales representatives ~~trade and specialty wholesalers~~ and our internal tele-sales group.

The accounting policies of the segments are the same as those of the rest of the Company. We evaluate segment performance based on earnings before income taxes of the segments, which is defined as segment net revenues reduced by cost of sales and direct expenses. Corporate expenses, depreciation, interest expense and income taxes are not allocated to the segments but are listed in the “Other” row below. Corporate expenses include the executive department, accounting department, information services department, general office management, warehouse operations and building facilities management. Our assets and liabilities are not allocated on a segment basis.

Information by reporting segment for the ~~three- and nine-month~~three-month periods ended ~~November 30,~~May 31, 2021 and 2020, ~~and 2019,~~ are as follows:

NET REVENUES

Three Months Ended
November 30,

Nine Months Ended
November 30,

2020

2019

2020

2019

Publishing
$ 2,580,600 $ 2,724,200 $ 6,284,600 $ 7,766,300
UBAM
64,169,700 38,100,400 158,007,500 85,083,700
Total
$ 66,750,300 $ 40,824,600 $ 164,292,100 $ 92,850,000
EARNINGS (LOSS) BEFORE INCOME TAXES

Three Months Ended
November 30,

Nine Months Ended
November 30,

2020

2019

2020

2019

Publishing
$ 773,000 $ 832,900 $ 1,858,400 $ 2,253,300
UBAM
10,821,600 6,501,200 26,311,300 14,358,500
Other
(5,820,300
)
(3,498,400
)
(13,952,000
)
(9,562,900
)
Total
$ 5,774,300 $ 3,835,700 $ 14,217,700 $ 7,048,900
NET REVENUES

Three Months Ended
May 31,

2021

2020

UBAM
$ 37,616,900 $ 36,926,200
Publishing
3,191,000 1,365,500
Total
$ 40,807,900 $ 38,291,700

EARNINGS (LOSS) BEFORE INCOME TAXES

Three Months Ended
May 31,

2021

2020

UBAM
$ 7,861,200 $ 5,827,100
Publishing
861,600 346,600
Other
(4,062,200
)
(3,529,800
)
Total
$ 4,660,600 $ 2,643,900
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Note 9 – FAIR VALUE MEASUREMENTS

The valuation hierarchy included in GAAP considers the transparency of inputs used to value assets and liabilities as of the measurement date. A financial instrument’s classification within the valuation hierarchy is based on the lowest level of input that is significant to its fair value measurement. The three levels of the valuation hierarchy and the classification of our financial assets and liabilities within the hierarchy are as follows:

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 – Observable inputs other than quoted prices included within Level 1 for the asset or liability, either directly or indirectly. If an asset or liability has a specified term, a Level 2 input must be observable for substantially the full term of the asset or liability.

Level 3 – Unobservable inputs for the asset or liability.

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We do not report any assets or liabilities at fair value in the financial statements. However, the estimated fair value of our term notes payable is estimated by management to approximate ~~$11,508,200~~$14,329,100 and ~~$19,155,500~~$11,078,800 at ~~November 30, 2020~~May 31, 2021 and February ~~29, 2020,~~28, 2021, respectively. Management’s estimates are based on the obligations’ characteristics, including floating interest rate, maturity, and collateral. Such valuation inputs are considered a Level 2 measurement in the fair value valuation hierarchy.
Note 10 – DEFERRED REVENUES

The Company’s UBAM division receives payments on orders in advance of shipment. Any payments received prior to the end of the period that were not shipped as of ~~November 30, 2020~~May 31, 2021 or February ~~29, 2020~~28, 2021 are recorded as deferred revenues on the condensed balance sheets. We received approximately ~~$2,330,900~~$1,627,000 and ~~$385,300~~$1,914,100 as of ~~November 30, 2020~~May 31, 2021 and February ~~29, 2020~~28, 2021, respectively, in payments for sales orders which were shipped out subsequent to the end of the period. Orders that were included in deferred revenues predominantly shipped within the first few days of the next fiscal period.
Note 11 – SUBSEQUENT EVENTS

On ~~January~~July 7, 2021, ~~our~~the Board of Directors ~~declared~~approved a ~~distribution of~~ $0.10 ~~per share of common stock. This cash distribution~~dividend that will be paid ~~on or about March 11, 2021~~ to shareholders of record on ~~February 23,~~Tuesday, August 24, 2021.

14
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Item 2.MANAGEMENT’~~MANAGEMENT’S~~S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Factors Affecting Forward-Looking Statements

The following discussion contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, our success in recruiting and retaining new consultants, our ability to locate and procure desired books, our ability to ship the volume of orders that are received without creating backlogs, our ability to obtain adequate financing for working capital and capital expenditures, economic and competitive conditions, regulatory changes and other uncertainties, the COVID-19 pandemic, as well as those factors discussed below and elsewhere in our Annual Report on Form 10-K for the year ended February ~~29, 2020~~28, 2021 and this Quarterly Report on Form 10-Q, all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may or may not occur. See ~~“Cautionary~~“Cautionary Remarks Regarding Forward-Looking ~~Statements”~~Statements” in the front of this Quarterly Report on Form 10-Q.

Overview

We are the exclusive United States trade co-publisher of Usborne children’s books and the owner of Kane Miller. We operate two separate segments, UBAM and Publishing, to sell our Usborne and Kane Miller children’s books. These two segments each have their own customer base. The ~~Publishing segment markets its products on a wholesale basis to various retail accounts. The~~ UBAM segment markets its products through a network of independent sales consultants using a combination of home shows, internet party plan events and book fairs. The Publishing segment markets its products on a wholesale basis to various retail accounts. All other supporting administrative activities are recognized as other expenses outside of our two segments. Other expenses consist primarily of the compensation of our office, warehouse and sales support staff as well as the cost of operating and maintaining our corporate office and distribution facility.

The following table shows our condensed statements of earnings data:

Three Months Ended November 30,

Nine Months Ended November 30,

2020

2019

2020

2019

Net revenues
$ 66,750,300 $ 40,824,600 $ 164,292,100 $ 92,850,000
Cost of goods sold
19,597,800 13,279,900 48,302,800 30,382,500
Gross margin
47,152,500 27,544,700 115,989,300 62,467,500

Operating expenses

Operating and selling
11,616,200 6,513,500 28,488,300 15,089,900
Sales commissions
22,960,300 13,008,600 56,865,200 28,804,700
General and administrative
7,082,200 4,373,500 17,282,200 12,029,300
      Total operating expenses
41,658,700 23,895,600 102,635,700 55,923,900

Interest expense
119,300 216,500 441,500 691,000
Other income
(399,800
)
(403,100
)
(1,305,600
)
(1,196,300
)
Earnings before income taxes
5,774,300 3,835,700 14,217,700 7,048,900

Income taxes
1,504,700 1,099,900 3,762,000 1,941,900
Net earnings
$ 4,269,600 $ 2,735,800 $ 10,455,700 $ 5,107,000

Three Months Ended May 31,

2021

2020

Net revenues
$ 40,807,900 $ 38,291,700
Cost of goods sold
12,029,900 11,395,500
Gross margin
28,778,000 26,896,200

Operating expenses

Operating and selling
6,442,600 6,340,200
Sales commissions
12,966,700 13,600,500
General and administrative
5,139,000 4,536,000
Total operating expenses
24,548,300 24,476,700

Interest expense
167,800 182,200
Other income
(598,700
)
(406,600
)
Earnings before income taxes
4,660,600 2,643,900

Income taxes
1,222,500 712,800
Net earnings
$ 3,438,100 $ 1,931,100

See the detailed discussion of revenues, ~~costs of goods sold,~~ gross margin and ~~operating~~general and administrative expenses by reportable segment below. The following is a discussion of significant changes in the non-segment related ~~operating~~general and administrative expenses, ~~interest expense~~other income and expenses and income taxes during the respective periods.

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Non-Segment Operating Results for the Three Months Ended ~~November 30~~~~, 2020~~May 31, 2021

Total operating expenses not associated with a reporting segment increased ~~$2.4~~$0.7 million, or ~~64.9%~~18.4%, to ~~$6.1~~$4.5 million for the three-month period ended ~~November 30, 2020,~~May 31, 2021, when compared to ~~$3.7~~$3.8 million for the same quarterly period a year ago. Operating expenses increased primarily as a result of a ~~$1.0~~$0.5 million increase in labor in our warehouse associated with increased gross sales, a ~~$0.6~~$0.1 million increase in ~~freight handling costs~~rent for additional warehouse space associated with our increased ~~order volumes~~inventory and a ~~$0.2~~$0.1 million increase in ~~incentive payroll expenses associated with the Company’s improved financial performance.~~other expenses.

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Interest expense ~~decreased $0.1 million, or 50.0%, to $0.1~~remained consistent at $0.2 million for the three months ended ~~November 30, 2020,~~May 31, 2021, when compared to $0.2 million for the same quarterly period a year ~~ago as a result of the payoff of two long-term notes during the second quarter of fiscal year 2021.~~ago.

Income taxes increased ~~$0.4~~$0.5 million, or ~~36.4%~~71.4%, to ~~$1.5~~$1.2 million for the three months ended ~~November 30, 2020,~~May 31, 2021, from ~~$1.1~~$0.7 million for the same quarterly period a year ago. Our effective tax rate decreased ~~2.6%~~0.8%, to ~~26.1%~~26.2% for the quarter ended ~~November 30, 2020,~~May 31, 2021, from ~~28.7%~~27.0% for the quarter ended ~~November 30, 2019~~May 31, 2020 due to sales mix fluctuations between states. Our tax rates are higher than the federal statutory rate of 21% due to the inclusion of state income and franchise taxes.

~~Non-Segment Operating Results for the~~ ~~Nine~~ ~~Months Ended~~ ~~November 30~~~~, 2020~~
~~Total operating expenses~~ not associated with a reporting segment increased $4.7 million, or 46.5%, to $14.8 million for the nine-month period ended November 30, 2020, compared to $10.1 million for the same period a year ago. Operating expenses increased primarily as a result of a $2.4 million increase in labor in our warehouse, a $1.6 million increase in freight handling costs, both associated with the increase in order volumes, and a $0.3 million increase in incentive payroll expenses associated with the Company’s improved financial performance.
~~Interest expense~~ decreased $0.3 million, or 42.9%, to $0.4 million for the nine months ended November 30, 2020, when compared to $0.7 million for the same period a year ago as a result of the payoff of two long-term debt agreements during the second quarter of fiscal year 2021.
~~Income taxes~~ increased $1.9 million, or 100.0%, to $3.8 million for the nine months ended November 30, 2020, from $1.9 million for the same period a year ago. Our effective tax rate decreased by 1.0%, to 26.5% for the nine months ended November 30, 2020, from 27.5% for the nine months ended November 30, 2019 due to sales mix fluctuations between states. Our tax rates are higher than the federal statutory rate of 21% due to the inclusion of state income and franchise taxes.
UBAM Operating Results for the Three ~~and~~ ~~Nine~~Months Ended ~~November 30~~~~, 2020 and 2019~~May 31, 2021

The following table summarizes the operating results of the UBAM segment:

Three Months Ended November 30,

Nine Months Ended November 30,

2020

2019

2020

2019

Gross sales
$ 77,674,100 $ 47,974,800 $ 190,488,500 $ 106,219,100
Less discounts and allowances
(21,244,700
)
(13,469,600
)
(51,379,800
)
(29,298,200
)
Transportation revenue
7,740,300 3,595,200 18,898,800 8,162,800
Net revenues
64,169,700 38,100,400 158,007,500 85,083,700

Cost of goods sold
18,230,200 11,830,100 45,048,500 26,317,100
Gross margin
45,939,500 26,270,300 112,959,000 58,766,600

Operating expenses

Operating and selling
10,055,900 5,599,200 24,619,800 12,690,500
Sales commissions
22,865,000 12,912,200 56,674,800 28,511,700
General and administrative
2,197,000 1,257,700 5,353,100 3,205,900
      Total operating expenses
35,117,900 19,769,100 86,647,700 44,408,100

Operating income
$ 10,821,600 $ 6,501,200 $ 26,311,300 $ 14,358,500

Average number of active consultants
57,200 33,600 45,200 32,900

Three Months Ended May 31,

2021

2020

Gross sales
$ 45,535,700 $ 43,946,100
Less discounts and allowances
(12,285,700
)
(11,306,700
)
Transportation revenue
4,366,900 4,286,800
Net revenues
37,616,900 36,926,200

Cost of goods sold
10,249,900 10,688,600
Gross margin
27,367,000 26,237,600

Operating expenses

Operating and selling
5,344,700 5,426,300
Sales commissions
12,858,300 13,560,400
General and administrative
1,302,800 1,423,800
Total operating expenses
19,505,800 20,410,500

Operating income
$ 7,861,200 $ 5,827,100

Average number of active consultants
55,100 33,100
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~~UBAM Operating Results for the Three Months Ended~~ ~~November 30~~~~, 2020~~
UBAM net revenues increased ~~$26.1~~$0.7 million, or ~~68.5%~~1.9%, to ~~$64.2~~$37.6 million during the three months ended ~~November 30, 2020,~~May 31, 2021, when compared to ~~$38.1~~$36.9 million during the same period a year ago. The average number of active consultants in the ~~third~~first quarter of fiscal ~~2021~~2022 was ~~57,200,~~55,100, an increase of ~~23,600,~~22,000 or ~~70.2%~~66.5%, from ~~33,600~~33,100 average active consultants selling in the ~~third~~first quarter of fiscal ~~2020.~~2021. The Company reports the average number of active consultants each quarter as a key indicator for this division. UBAM's increase in active consultants resulted from several factors, including: an increase in families looking for non-traditional income streams to supplement or replace income lost from the COVID-19 pandemic; a change in new consultant kits which offered lower introductory prices; the restructure of our UBAM consultant success program, which was introduced during the first quarter of fiscal 2021; and technology improvements that have enhanced the customer experience and streamlined the proprietary systems that our consultants use to run their business. Our increase in active consultants and our ability to receive orders online and deliver directly to our customers’ homes resulted in our increased revenues during the quarter.

Gross margin increased ~~$19.6~~$1.2 million, or ~~74.5%~~4.6%, to ~~$45.9~~$27.4 million during the three months ended ~~November 30, 2020,~~May 31, 2021, when compared to ~~$26.3~~$26.2 million during the same period a year ~~ago.~~ago, primarily associated with the growth in net revenues. Gross margin as a percentage of net revenues increased ~~2.6%~~1.7%, to ~~71.6%~~72.8% for the three-month period ended ~~November 30, 2020~~May 31, 2021, when compared to ~~69.0%~~71.1% the same period a year ago. The increase in gross margin as a percentage of net revenues ~~was~~resulted from increased volume rebates from our largest supplier and increased freight revenues due to ~~the~~rate change made in ~~mix~~our fiscal 2021 fourth quarter that applies to a majority of ~~order types received during the quarter. During the quarter~~shipments to our web sales, which have the lowest discounts and pay the highest commissions, increased significantly while book fairs, school and library sales and other in-person sales types declined year over year, due to the quarantining effects of the COVID-19 pandemic. The increase in web sales and decrease in in-person sales also resulted in overall higher sales commissions as a percentage of net revenues during the quarter. The overall net profit impact of the order type mix change after selling expenses, commissions and direct operating expenses was minimal.customers.

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UBAM operating expenses consists of operating and selling expenses, sales commissions and general and administrative expenses. Operating and selling expenses primarily consists of freight expenses and materials and supplies. Sales commissions include amounts paid to consultants for new sales and promotions. These operating expenses are directly tied to the sales volumes of the UBAM segment. General and administrative expenses include payroll, outside services, inventory reserves and other expenses directly associated with the UBAM segment. Total operating expenses ~~increased $15.3~~decreased $0.9 million, or ~~77.3%~~4.4%, to ~~$35.1~~$19.5 million during the three-month period ended ~~November 30, 2020,~~May 31, 2021, when compared to ~~$19.8~~$20.4 million reported in the same quarter a year ago. Operating and selling expenses ~~increased $4.5~~decreased $0.1 million, to ~~$10.1~~$5.3 million during the three-month period ended ~~November 30, 2020,~~May 31, 2021, when compared to ~~$5.6~~$5.4 million reported in the same quarter a year ago, primarily due to ~~an increase~~a decrease in postage and freight ~~costs of $3.9 million and an increase in accruals for trips and other consultant rewards of $0.5 million, both associated with increased UBAM sales.~~expenses. Sales commissions ~~increased $10.0~~decreased $0.7 million, to ~~$22.9~~$12.9 million during the three-month period ended ~~November 30, 2020,~~May 31, 2021, when compared to ~~$12.9~~$13.6 million reported in the same quarter a year ago, due primarily to the ~~increase~~change in ~~sales volume~~order type mix. School and Library orders were stronger in the ~~increase in internet-based sales, which offer fewer~~first quarter of fiscal 2022 as schools were primarily closed during the first quarter of last year. School and Library orders have larger discounts and ~~higher sales~~pay less commissions ~~to consultants.~~than web sale orders. General and administrative expenses ~~increased $0.9~~decreased $0.1 million, to ~~$2.2~~$1.3 million during the three months ended ~~November 30, 2020,~~May 31, 2021, when compared to ~~$1.3~~$1.4 million during the same period ~~last year. This increase was primarily due to $0.6 million of increased credit card transaction fees associated with increased sales volumes and~~ a ~~$0.2 million increase in promotions and marketing expenses associated with increased consultant counts.~~ year ago.

Operating income of the UBAM segment increased ~~$4.3~~$2.1 million, or ~~66.2%~~36.2%, to ~~$10.8~~$7.9 million during the three months ended ~~November 30, 2020,~~May 31, 2021, when compared to ~~$6.5~~$5.8 million reported in the same quarter a year ago, primarily due to the ~~growth~~change in ~~net revenues.~~gross margin and order type mix. Operating income of the UBAM division as a percentage of net revenues for the three months ended ~~November 30, 2020 remained consistent at 16.9%~~May 31, 2021 increased to 20.9%, compared to ~~17.1%~~15.8% for the three months ended ~~November 30, 2019.~~May 31, 2020.
~~UBAM Operating Results for the~~ ~~Nine~~ ~~Months Ended~~ ~~November 30~~~~, 2020~~
UBAM net revenues increased $72.9 million, or 85.7%, to $158.0 million during the nine-month period ended November 30, 2020, compared to $85.1 million from the same period a year ago. The increase in net revenues resulted from the increase in the average number of active consultants of 12,300, or 37.4%, to 45,200 during the first nine months of fiscal year 2021, and the overall increase in consultants to 60,500 by the end of November 2020, from an average number of active consultants of 32,900 in the first nine months of fiscal year 2020. UBAM's increase in active consultants resulted from several factors including: an increase in families looking for non-traditional income streams to supplement or replace income lost from the COVID-19 pandemic; a change in new consultant kits which offered lower introductory prices; the restructure of our UBAM consultant success program, which was introduced during the first quarter of fiscal 2021; and technology improvements that have enhanced the customer experience and streamlined the proprietary systems that our consultants use to run their business. Along with the significant increases in active consultants during the first nine months of fiscal year 2021, we experienced a significant increase in demand for educational materials in homes. Our increase in active consultants and our ability to receive orders online and deliver directly to our customers’ homes resulted in our increased revenues.

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~~Table of Contents~~
Gross margin increased $54.2 million, or 92.2%, to $113.0 million during the nine-month period ended November 30, 2020, when compared to $58.8 million during the same period a year ago, due primarily to an increase in net revenues. Gross margin as a percentage of net revenues increased to 71.5% for the nine-month period ended November 30, 2020, when compared to 69.1% for the same period a year ago. During the first nine months of fiscal year 2021 our web sales, which have the lowest discounts and pay the highest commissions, increased significantly while book fairs, school and library sales and other in-person sales types declined year over year, due to the quarantining effects of the COVID-19 pandemic. While the increase in web sales and decrease in in-person sales resulted in overall higher gross margin percentages during the first nine months of fiscal year 2021, these higher gross margins were offset by higher sales commissions and increased direct operating expenses of the division. The overall net profit impact of the order type mix change after selling expenses, commissions and direct operating expenses was minimal.
Total operating expenses increased $42.2 million, or 95.0%, to $86.6 million during the nine-month period ended November 30, 2020, from $44.4 million for the same period a year ago. Operating and selling expenses increased $11.9 million, to $24.6 million during the nine-month period ended November 30, 2020, when compared to $12.7 million reported in the same period a year ago, primarily due to increased postage and freight costs of $11.4 million associated with the increase in volume of orders shipped. Sales commissions increased $28.2 million to $56.7 million during the nine-month period ended November 30, 2020, when compared to $28.5 million reported in the same period a year ago, due primarily to the increase in internet-based sales, which offer fewer discounts and higher sales commissions to consultants. General and administrative expenses increased $2.2 million to $5.4 million, from $3.2 million recognized during the same period last year, due primarily to $1.6 million of increased credit card transaction fees associated with increased sales volumes and a $0.6 million increase in promotions and marketing expenses associated with increased consultant counts.
Operating income of the UBAM segment increased $11.9 million, or 82.6%, to $26.3 million during the nine months ended November 30, 2020, when compared to $14.4 million reported in the same period last year. Operating income of the UBAM division as a percentage of net revenues for the nine months ended November 30, 2020 was 16.7%, compared to 16.9% for the nine months ended November 30, 2019, a change of 0.2%, or $0.4 million. Operating income as a percentage of net revenues changed from the prior year primarily due to increased postage and freight expenses as a percentage of net revenues totaling approximately $0.9 million, partially offset by the positive impact of the change to a “virtual” convention totaling approximately $0.5 million.
Publishing Operating Results for the Three ~~and~~ ~~Nine~~Months Ended ~~November 30~~~~, 2020 and 2019~~May 31, 2021

The following table summarizes the operating results of the Publishing segment:

Three Months Ended November 30,

Nine Months Ended November 30,

2020

2019

2020

2019

Gross sales
$ 5,463,400 $ 5,645,100 $ 13,228,700 $ 16,416,200
Less discounts and allowances
(2,886,400
)
(2,936,900
)
(7,010,600
)
(8,680,700
)
Transportation revenue
3,600 16,000 66,500 30,800
Net revenues
2,580,600 2,724,200 6,284,600 7,766,300

Cost of goods sold
1,367,600 1,449,800 3,254,300 4,065,400
Gross margin
1,213,000 1,274,400 3,030,300 3,700,900

Total operating expenses
440,000 441,500 1,171,900 1,447,600

Operating income
$ 773,000 $ 832,900 $ 1,858,400 $ 2,253,300

Three Months May 31,

2021

2020

Gross sales
$ 6,855,900 $ 2,950,800
Less discounts and allowances
(3,668,400
)
(1,589,200
)
Transportation revenue
3,500 3,900
Net revenues
3,191,000 1,365,500

Cost of goods sold
1,780,000 706,900
Gross margin
1,411,000 658,600

Total operating expenses
549,400 312,000

Operating income
$ 861,600 $ 346,600

~~Publishing Operating Results for the Three Months Ended~~ ~~November 30~~~~, 2020~~
Our Publishing division’s net revenues ~~decreased $0.1~~increased $1.8 million, or ~~3.7%~~128.6%, to ~~$2.6~~$3.2 million during the three-month period ended ~~November 30, 2020,~~May 31, 2021, from ~~$2.7~~$1.4 million reported in the same period a year ago. Many Publishing customers began to re-open ~~prior to~~in the ~~start~~latter half of fiscal year 2021 after closing in the ~~third~~first quarter of fiscal year ~~2021. The slight decrease in sales was primarily due to stores that were unable to remain open for the full third quarter of fiscal~~ 2021 due to the COVID-19 pandemic.

Gross margin ~~decreased $0.1~~increased $0.7 million, or ~~7.7%~~100.0%, to ~~$1.2~~$1.4 million during the three-month period ended ~~November 30, 2020,~~May 31, 2021, from ~~$1.3~~$0.7 million reported in the same quarter a year ago, primarily due to the ~~decrease~~increase in net revenues. Gross margin as a percentage of net revenues ~~remained consistent, increasing 0.2%~~decreased 4.0%, to ~~47.0%~~44.2% during the three-month period ended ~~November 30, 2020,~~May 31, 2021, from ~~46.8%~~48.2% reported in the same quarter a year ago. Gross margin as a percentage of net revenues fluctuates primarily from the different discount levels offered to ~~customers.~~customers as well as changes in the mix of products sold between Kane Miller and Usborne.

Total operating expenses of the Publishing segment increased $0.2 million to $0.5 million, from $0.3 million, during the three-month periods ended May 31, 2021 and 2020, primarily as a result of increased freight expenses due to increased sales.
Operating income of the Publishing segment increased to $0.9 million from $0.3 million for the three-month periods ended May 31, 2021 and 2020, primarily driven by the increase in gross margin.
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Table of Contents

~~Total operating expenses of the Publishing segment remained consistent at $0.4 million during the three-month periods ended November 30, 2020 and 2019.~~
~~Operating income of the Publishing segment remained consistent at $0.8 million for the three-month periods ended November 30, 2020 and 2019.~~
~~Publishing Operating Results~~ ~~for the~~ ~~Nine~~ ~~Months Ended~~ ~~November 30~~~~, 2020~~
Our Publishing division’s net revenues decreased $1.5 million, or 19.2%, to $6.3 million during the nine-month period ended November 30, 2020, from $7.8 million reported in the same period a year ago. The decrease in sales resulted from temporary store closures impacted by the COVID-19 pandemic. Many Publishing customers temporarily closed during our fiscal year 2021 first quarter, following the guidance from their local authorities to prevent the spread of the pandemic, and have begun reopening at varying times over the past six months.
Gross margin decreased $0.7 million, or 18.9%, to $3.0 million during the nine-month period ended November 30, 2020, from $3.7 million reported in the same period a year ago, primarily due to the decrease in net revenues. Gross margin as a percentage of net revenues increased 0.5%, to 48.2%, during the nine-month period ended November 30, 2020, from 47.7% reported in the same period a year ago.  The increase in gross margin percentage results primarily from a change in our customer mix. Customers receive varying discounts due to sales volumes and contract terms.
Total operating expenses of the Publishing segment decreased $0.2 million to $1.2 million during the nine-month period ended November 30, 2020, from $1.4 million reported in the same period a year ago, resulting from a $0.1 million decrease in postage and freight from the decrease in sales volumes and a $0.1 million decrease in sales commissions due to decreased net revenues.
Operating income of the Publishing segment decreased $0.4 million, or 17.4%, to $1.9 million during the nine-month period ended November 30, 2020 when compared to $2.3 million reported in the same period a year ago, due primarily to the decrease in net revenues.
Liquidity and Capital Resources

EDC has a history of profitability and positive cash flow. We typically fund our operations from the cash we generate. We also use available cash to pay down outstanding bank loan balances, for capital expenditures, to pay dividends, and to acquire treasury stock. We have utilized a bank credit facility and other term loan borrowings to meet our short-term cash needs, as well as fund capital expenditures, when necessary.

During the first ~~nine~~three months of fiscal ~~2021,~~2022, we generated ~~positive~~negative cash flows from our operations of ~~$39,617,800.~~$4,876,400. These cash flows resulted from:

●net earnings of ~~$10,455,700~~$3,438,100

Adjusted for:

●depreciation expense of ~~$1,207,900~~$432,000
●share-based compensation expense of ~~$677,000~~$261,600
●deferred income taxes of $237,500
●provision for inventory valuation allowance of ~~$166,200~~$60,000
●provision for doubtful accounts of ~~$115,800~~$37,600
~~Offset by:~~
~~●  deferred income taxes of $809,800~~

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Positively impacted by:

●increase in ~~accounts~~income tax payable of ~~$35,498,700~~$967,700
Negatively impacted by:
●increase in inventories, net of $4,928,000
●decrease in accrued salaries and commissions, and other liabilities of ~~$8,781,000~~$3,617,900
●  ~~increase in deferred revenues of $1,945,600~~
~~●  increase in income tax payable of $213,300~~
~~Negatively impacted by:~~
~~●  increase in inventories, net of $17,130,200~~
●  increase in accounts receivable of ~~$1,264,200~~$665,100
●decrease in accounts payable of $577,400
●decrease in deferred revenues of $287,100
●increase in prepaid expenses and other assets of ~~$239,200~~$235,400

Cash used in investing activities was ~~$2,040,000~~$1,617,200 for capital expenditures, which were comprised of ~~$1,488,300~~$1,417,200 in equipment purchased to increase our daily shipping capacity, ~~$359,500~~$144,400 in software upgrades to our proprietary systems that our UBAM consultants use to monitor their business and place customer orders and ~~$192,200~~$55,600 in building and building improvements.

Cash ~~used in~~provided by financing activities was ~~$9,082,900,~~$6,438,000, which was comprised of ~~net cash used to pay down~~proceeds from term debt of ~~$7,696,900, payments~~$3,896,200, net borrowings under the line of ~~$1,419,800 for dividends, offset by $33,800~~credit of $3,487,200 and net cash received in treasury stock ~~transactions.~~transactions of $32,000, offset by payments of $835,100 for dividends and payments on term debt of $142,300.

During fiscal year ~~2021,~~2022, we continue to expect the cash generated from our operations and cash ~~from operations, along with~~available through our line of credit ~~and any additional equipment financing needed from~~with our Bank will provide us the ~~ability~~liquidity we need to ~~meet our liquidity requirements.~~support ongoing operations. Cash generated from operations will be used to ~~replace~~increase inventory by expanding our product offerings, to liquidate existing debt, and any excess cash is expected to be distributed to our ~~shareholders or used to purchase available shares on~~shareholders.
On February 15, 2021, the ~~market.~~
~~We have a~~Company executed the Amended and Restated Loan Agreement with MidFirst Bank which replaced the ~~Bank,~~prior loan agreement and includes multiple loans. Term Loan #1 Tranche A (“Term Loan #1”), originally totaling ~~$11.1~~$13.4 million, aswas part of ~~November 30, 2020,~~the prior loan agreement. Term Loan #1 had a fixed interest rate of 4.23%, with principal and interest payable monthly and a stated maturity date of December 1, 2025. ~~Tranche A has a~~Term Loan #1 is secured by the primary office, warehouse and land. Term Loan #1 was amended on April 1, 2021 by executing the First Amendment to the Loan Agreement which reduced the fixed interest rate to 3.12% and removed the prepayment premium from the Loan Agreement. The outstanding borrowings on Term Loan #1 were $10.8 million and $11.0 million as of ~~4.23%~~May 31, 2021 and ~~interest is payable monthly. The~~February 28, 2021, respectively.
In addition, the Amended and Restated Loan Agreement ~~also includes~~provides a ~~$10.0~~$6.0 million ~~line of credit~~Advancing Term Loan to be used to finance planned equipment purchases. The Advancing Term Loan requires interest-only payments through ~~August~~July 15, ~~2021.~~2021, at which time it will convert to a 60-month amortizing term loan maturing July 15, 2026. The ~~line of credit~~Advancing Term Loan accrues interest ~~monthly,~~ at the ~~bank adjusted~~Bank-adjusted LIBOR Index plus a tiered pricing rate based on the Company’s Adjusted Funded Debt to EBITDA ~~Ratio. The Loan Agreement maintains~~Ratio, with a minimum rate ~~on borrowings~~ of 2.75%~~, should~~ and matures on July 15, 2026. Our borrowings outstanding under the ~~calculated rate~~Advancing Term Loan at May 31, 2021 were $3.9 million.
17
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The Amended and Restated Loan Agreement also provides a $15.0 million revolving loan (“line of credit”) through August 15, 2022 with interest payable monthly at the Bank-adjusted LIBOR Index plus ~~the~~a tiered pricing rate ~~fall below this level.~~
~~We had no~~based on the Company’s Adjusted Funded Debt to EBITDA Ratio, with a minimum rate of 2.75%. Our borrowings outstanding on our line of credit at ~~November 30, 2020~~May 31, 2021 and February ~~29, 2020.~~28, 2021 were $8.7 million and $5.2 million. Available credit under the revolving ~~loan was $10.0 million at November 30, 2020.~~
During the second quarter of fiscal year 2021, we paid off Loan Agreement Term Loan #1 Tranche B totaling $4.2 million, which previously had a maturity date of December 1, 2025. In addition, we also paid off Term Loan #2 totaling $2.9 million, which previously had a maturity date of June 28, 2021. The purpose of paying off these loans early was to utilize our existing cash flows from operations to increase future profits by reducing interest expense, as well as, free up future cash flows to be used to either pay dividends or purchase additional shares.
~~On August 15, 2019, the Company executed the Tenth Amendment Loan Agreement which extended the termination date of the~~ line of credit to August 15, 2020, amended the definition of LIBOR Margin, reduced the frequency of reports to the Lender, amended the Adjusted Funded Debt to EBITDA Ratio and amended the Compliance and Borrowing Base Certificates reporting requirements.
On August 15, 2020, the Company executed the Eleventh Amendment Loan Agreement which extended the termination date of the line of credit to August 15, 2021, reduced the maximum revolving principal amount from $15.0 million to $10.0was approximately $6.3 million and ~~amended the definition of the LIBOR Margin~~$9.6 million at May 31, 2021 and ~~Prime Margin, establishing a floor on the borrowing rates of 2.75%.~~February 28, 2021, respectively.

The Amended and Restated Loan Agreement also contains a provision for our use of the Bank’s letters of credit. The Bank agrees to issue or obtain issuance of commercial or stand-by letters of credit provided that the sum of the line of credit plus the letters of credit issued would not exceed the borrowing base in effect at the time. As of ~~November 30, 2020,~~May 31, 2021, we had no letters of credit outstanding. The agreement contains provisions that require us to maintain specified financial ratios, ~~restrict transactions with related parties, prohibit mergers or consolidation, disallow~~place limitations on additional debt ~~and~~with other banks, limit the amounts of dividends declared ~~investments, capital expenditures, leasing transactions,~~ and ~~establish a dollar limit on~~limits the ~~amount~~number of shares that can be ~~repurchased.~~repurchased using funding from the line of credit.

20
~~Table of Contents~~
The following table reflects aggregate future maturities of long-term debt during the next five fiscal years and thereafter as follows:

Year ending February 28 (29),

2021
$ 128,800
2022
533,400
2023
556,800
2024
581,100
2025
605,400
Thereafter
8,709,300
    Total
$ 11,114,800
Years ending February 28 (29),

2022
$ 838,600
2023
1,387,500
2024
1,407,100
2025
1,426,400
2026
9,289,300
Thereafter
389,600
Total
$ 14,738,500

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.~~States(“GAAP”). 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 uncollectible accounts receivable, allowance for sales returns, long-lived assets and deferred income taxes. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may materially differ from these estimates under different assumptions or conditions. Historically, however, actual results have not differed materially from those determined using required estimates. Our significant accounting policies are described in the notes accompanying the financial statements included elsewhere in this report. However, we consider the following accounting policies to be more significantly dependent on the use of estimates and assumptions.

Revenue Recognition

Sales associated with product orders are recognized and recorded when products are shipped. Products are shipped FOB shipping point. UBAM’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. 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. Management uses a moving average calculation to estimate the allowance for sales returns. We are not responsible for product damaged in transit. Damaged returns are primarily received from the retail stores of our Publishing ~~Division.~~division. Those damages occur 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 as of ~~November 30, 2020~~May 31, 2021 and February ~~29, 2020.~~28, 2021.

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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 (collectively “allowance for doubtful accounts”). 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 $0.4 million at May 31, 2021, and $0.3 million at ~~November 30, 2020, and $0.2 million at~~ February ~~29, 2020.~~28, 2021. Included within this allowance is $0.1 million of reserve for vendor discounts to sell remaining inventory as of ~~November 30, 2020~~May 31, 2021 and February ~~29, 2020.~~28, 2021.

Inventory

Our inventory contains over 2,000 titles, each with different sell through rates depending upon the nature and popularity of the title. We maintain very few titles that are topical in nature. As such, the majority of the titles we sell remain current in content for several years. Most of our products are printed in China, Europe, Singapore, India, Malaysia and Dubai resulting in a four- to six-month lead-time to have a title printed and delivered to us.

21
~~Table of Contents~~
Certain inventory is maintained in a noncurrent classification. Management continually estimates and calculates the amount of noncurrent inventory. Noncurrent inventory arises due to occasional purchases of titles in quantities in excess of what will be sold within the normal operating cycle, due to minimum order requirements of our suppliers. Noncurrent inventory was estimated by management using the current year turnover ratio by title. Inventory in excess of ~~2 ½~~2½ years of anticipated sales is classified as noncurrent inventory. These inventory quantities have exposure of becoming out of date, and therefore have higher obsolescence reserves. Noncurrent inventory balances prior to valuation allowances were $1.0 million and ~~$1.2~~$0.9 million at ~~November 30, 2020~~May 31, 2021 and February ~~29, 2020,~~28, 2021, respectively. Noncurrent inventory valuation allowances were $0.2 million at ~~November 30, 2020~~May 31, 2021 and February ~~29, 2020.~~28, 2021.

Consultants that meet certain eligibility requirements may request and receive inventory on consignment. We believe allowing our consultants 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 4.2% of our active consultants maintained consignment inventory at the end of the third quarter of fiscal 2021. 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 consultants was $1.3 million at November 30, 2020 and $1.5 million at February 29, 2020. During the current fiscal year, the Company increased its reserve for consignment inventory by approximately $0.2 million based on the estimated impact of the COVID-19 pandemic. Because our consultants are currently limited in their ability to sell consignment inventory at schools, book fairs or fall festivals, we expect an increase in write-offs associated with consultants that become inactive.
Inventories are presented net of a valuation allowance, which includes reserves for inventory obsolescence and reserves for consigned inventory that is not expected to be sold or returned to the Company. Management estimates the inventory obsolescence allowance for both current and noncurrent inventory, which is based on management’s identification of slow-moving inventory. Management has estimated a valuation allowance for both current and noncurrent inventory, including the reserve for consigned inventory, of $0.7 million and $0.5 million as of November 30, 2020 and February 29, 2020, respectively.
Our principal supplier, based in England, generally requires a minimum re-order of 6,500 or more of a title in order to get a solo print run. Smaller orders would require a shared print run with the supplier’s other customers, which can result in lengthy delays to receive the ordered title. Anticipating customer preferences and purchasing habits requires historical analysis of similar titles in the same series. We then place the initial order or re-order based upon this analysis. These factors and historical analysis have led our management to determine that ~~2 ½~~2½ years represents a reasonable estimate of the normal operating cycle for our products.

~~Stock-Based~~Consultants that meet certain eligibility requirements may request and receive inventory on consignment. We believe allowing our consultants 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 4.2% of our active consultants maintained consignment inventory at the end of the first quarter of fiscal 2022. 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 consultants was $1.1 million for both May 31, 2021 and February 28, 2021.
Inventories are presented net of a valuation allowance, which includes reserves for inventory obsolescence and reserves for consigned inventory that is not expected to be sold or returned to the Company. Management estimates the inventory obsolescence allowance for both current and noncurrent inventory, which is based on management’s identification of slow-moving inventory. Management has estimated a valuation allowance for both current and noncurrent inventory, including the reserve for consigned inventory, of $0.7 million for both May 31, 2021 and February 28, 2021.
Share-Based Compensation

We account for ~~stock-based~~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. 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. Any cash dividends declared after the restricted stock award is ~~made,~~issued, but before the vesting period is completed, will be reinvested in Company shares at the opening trading price on the dividend payment date. Shares purchased with cash dividends will also retain the same restrictions until the completion of the original vesting period associated with the awarded shares.

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Table of Contents
The restricted share awards granted under the 2019 Long-Term Incentive Plan (“2019 LTI Plan”) contain both service and performance conditions. The Company recognizes share-based compensation expense only for the portion of the restricted share awards that are considered probable of vesting. Shares are considered granted, and the service inception date begins, when a mutual understanding of the key terms and conditions between the Company and the employees have been established. The fair value of these awards is determined based on the closing price of the shares on the grant date. 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 the first ~~nine~~three months of fiscal ~~2021,~~year 2022, the Company recognized ~~$0.7~~$0.3 million of compensation expense associated with the shares ~~granted under the 2019 LTI Plan.~~ granted.

22
20
Table of Contents
Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.
Item 4.CONTROLS AND PROCEDURES

AnEvaluation of Disclosure Controls and Procedures
We performed an evaluation ~~was performed~~ of the effectiveness of the design and operation of our ~~disclosure~~“disclosure controls and ~~procedures pursuant to Exchange Act~~procedures” (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of ~~November 30, 2020.~~the end of the period covered by this report. This evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer (Principal Executive Officer) and our Chief Financial Officer and Corporate Secretary (Principal Financial and Accounting Officer).

Based on that evaluation, these officers concluded that our disclosure controls and procedures were designed and were effective ~~pursuant~~ to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act ~~Rule 13a-15(e).~~is accumulated and communicated to them, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized, and reported in accordance with the time periods specified in SEC rules and forms. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events.

~~In addition,~~Changes in Internal Control over Financial Reporting
During the first quarter of the fiscal year covered by this report on Form 10-Q, there have been no ~~change~~changes in our internal control over financial reporting ~~(as defined in Rule 13a-15(f) under the Exchange Act) occurred during the quarter ended November 30, 2020~~ that ~~has~~have materially affected or isare reasonably likely to materially affect, our internal control over financial reporting.

23
21
Table of Contents

PART II. OTHER INFORMATION
Item 1.LEGAL PROCEEDINGS

~~Item 1.~~~~LEGAL PROCEEDINGS~~
Not applicable.
Item 1A.RISK FACTORS

~~Item 1A.~~~~RISK FACTORS~~
Not required by smaller reporting company.
Item 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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)

~~September~~March 1 - ~~30, 2020~~31, 2021
- $ - - ~~519,594~~514,594
~~October~~April 1 - ~~31, 2020~~30, 2021
- - - ~~519,594~~514,594
~~November~~May 1 - ~~30, 2020~~31, 2021
- - - ~~519,594~~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. The maximum number of shares which can be purchased under the new plan is 800,000. Amounts in the table reflect the remaining number of shares available to be repurchased. This plan has no expiration date.
Item 3.DEFAULTS UPON SENIOR SECURITIES

Not applicable.
Item 4.MINE SAFETY DISCLOSURES

None.
Item 5.OTHER INFORMATION

~~Item 5~~.          ~~OTHER INFORMATION~~None.

22
Table of Contents
~~None.~~
Item 6.EXHIBITS

~~Item 6.~~~~EXHIBITS~~
*3.1
Restated Certificate of Incorporation dated April 26, 1968 and Certificate of Amendment thereto dated June 21, 1968 are incorporated herein by reference to Exhibit 1 to Registration Statement on Form 10-K (File No. 0-04957).
*3.2
Certificate of Amendment of Restated Certificate of Incorporation dated August 27, 1977 is incorporated herein by reference to Exhibit 20.1 to Form 10-K for fiscal year ended February 28, 1981 (File No. 0-04957).
*3.3
By-Laws, as amended, are incorporated herein by reference to Exhibit 20.2. to Form 10-K for fiscal year ended February 28, 1981 (File No. 0-04957).
*3.4
Certificate of Amendment of Restated Certificate of Incorporation dated November 17, 1986 is incorporated herein by reference to Exhibit 3.3 to Form 10-K for fiscal year ended February 28, 1987 (File No. 0-04957).
3.5
Certificate of Amendment of Restated Certificate of Incorporation dated March 22, 1996 is incorporated herein by reference to Exhibit 3.4 to Form 10-K for fiscal year ended February 28, 1997 (File No. 0-04957).
3.6
Certificate of Amendment of Restated Certificate of Incorporation dated July 15, 2002 is incorporated herein by reference to Exhibit 10.30 to Form 10-K dated February 28, 2003 (File No. 0-04957).
3.7
Certificate of Amendment of Restated Certificate of Incorporation dated August 15, 2018 is incorporated herein by reference to Exhibit 3.1 to Form 8-K dated August 21, 2018 (File No. 0-04957).
10.1
First Amendment to the Amended and Restated Loan Agreement, dated April 1, 2021 by and between the Company and MidFirst Bank, Tulsa, OK, incorporated herein by reference to Exhibit 10.11 to Form 10-K dated February 28, 2021 (File No. 0-04957).
**31.1
Certification of the Chief Executive Officer of Educational Development Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002 furnished herewith.~~2002.
**31.2
Certification of Chief Financial Officer and Corporate Secretary (Principal Financial and Accounting Officer) of Educational Development Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002 furnished herewith.~~2002.
**32.1
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
Inline XBRL Instance Document
101.SCH
Inline XBRL Taxonomy Extension Schema
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*Paper Filed
**Filed Herewith
24
23
Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

EDUCATIONAL DEVELOPMENT CORPORATION
(Registrant)

Date: ~~January 13,~~July 8, 2021
By
/s/ Randall W. White

Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)

25
24
iso4217:USD xbrli:shares

	November 30,			February 29,
ASSETS	2020			2020
CURRENT ASSETS
Cash and cash equivalents	$	31,494,300		$	2,999,400
Accounts receivable, less allowance for doubtful accounts of $345,000 (November 30) and $237,400 (February 29)		4,115,600			2,967,200
Inventories - net		47,313,800			30,087,300
Income taxes receivable		8,400			221,700
Prepaid expenses and other assets		1,163,700			950,600
Total current assets		84,095,800			37,226,200

INVENTORIES - net		754,200			1,016,700
PROPERTY, PLANT AND EQUIPMENT - net		27,209,800			26,377,700
OTHER ASSETS		108,300			82,200
TOTAL ASSETS	$	112,168,100		$	64,702,800


LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	45,159,800		$	9,661,100
Deferred revenues		2,330,900			385,300
Current maturities of long-term debt		527,700			1,027,400
Accrued salaries and commissions		6,252,900			1,657,200
Dividends payable		835,500			417,400
Other current liabilities		7,432,100			3,238,200
Total current liabilities		62,538,900			16,386,600

LONG-TERM DEBT - net of current maturities		10,587,100			17,784,300
DEFERRED INCOME TAXES - net		183,500			993,300
OTHER LONG-TERM LIABILITIES		137,300			145,800
Total liabilities		73,446,800			35,310,000

SHAREHOLDERS' EQUITY
Common stock, $0.20 par value; Authorized 16,000,000 shares; Issued 12,410,080 (November 30) and 12,410,080 (February 29) shares; Outstanding 8,355,972 (November 30) and 8,348,651 (February 29) shares		2,482,000			2,482,000
Capital in excess of par value		10,552,600			9,843,900
Retained earnings		38,349,900			29,732,200
		51,384,500			42,058,100
Less treasury stock, at cost		(12,663,200	)		(12,665,300	)
Total shareholders' equity		38,721,300			29,392,800
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	112,168,100		$	64,702,800

	Three Months Ended November 30,						Nine Months Ended November 30,
	2020			2019			2020			2019
GROSS SALES	$	83,137,500		$	53,619,900		$	203,717,200		$	122,635,300
Less discounts and allowances		(24,131,100	)		(16,406,500	)		(58,390,400	)		(37,978,900	)
Transportation revenue		7,743,900			3,611,200			18,965,300			8,193,600
NET REVENUES		66,750,300			40,824,600			164,292,100			92,850,000
COST OF GOODS SOLD		19,597,800			13,279,900			48,302,800			30,382,500
Gross margin		47,152,500			27,544,700			115,989,300			62,467,500

OPERATING EXPENSES
Operating and selling		11,616,200			6,513,500			28,488,300			15,089,900
Sales commissions		22,960,300			13,008,600			56,865,200			28,804,700
General and administrative		7,082,200			4,373,500			17,282,200			12,029,300
Total operating expenses		41,658,700			23,895,600			102,635,700			55,923,900


INTEREST EXPENSE		119,300			216,500			441,500			691,000
OTHER INCOME		(399,800	)		(403,100	)		(1,305,600	)		(1,196,300	)

EARNINGS BEFORE INCOME TAXES		5,774,300			3,835,700			14,217,700			7,048,900

INCOME TAXES		1,504,700			1,099,900			3,762,000			1,941,900
NET EARNINGS	$	4,269,600		$	2,735,800		$	10,455,700		$	5,107,000

BASIC AND DILUTED EARNINGS PER SHARE
Basic	$	0.51		$	0.33		$	1.25		$	0.62
Diluted	$	0.51		$	0.33		$	1.25		$	0.61

WEIGHTED AVERAGE NUMBER OF COMMON AND EQUIVALENT SHARES OUTSTANDING
Basic		8,355,831			8,406,709			8,354,156			8,301,209
Diluted		8,355,831			8,412,638			8,354,156			8,307,496
Dividends per share	$	0.10		$	0.05		$	0.22		$	0.15

	Common Stock (par value $0.20 per share)									Treasury Stock
	Number of Shares Issued		Amount		Capital in Excess of Par Value		Retained Earnings			Number of Shares			Amount			Shareholders' Equity

BALANCE - February 29, 2020		12,410,080	$	2,482,000	$	9,843,900	$	29,732,200			4,061,429		$	(12,665,300	)	$	29,392,800
Purchases of treasury stock		-		-		-		-			17,565			(75,500	)		(75,500	)
Sales of treasury stock		-		-		5,000		-			(21,167	)		66,000			71,000
Dividends declared ($0.06/share)		-		-		-		(502,200	)		-			-			(502,200	)
Share-based compensation expense (see Note 6)		-		-		169,000		-			-			-			169,000
Net earnings		-		-		-		1,931,100			-			-			1,931,100
BALANCE - May 31, 2020		12,410,080		2,482,000		10,017,900		31,161,100			4,057,827			(12,674,800	)		30,986,200
Sales of treasury stock		-		-		11,500		-			(2,438	)		7,600			19,100
Dividends declared ($0.06/share)		-		-		-		(500,300	)		-			-			(500,300	)
Share-based compensation expense (see Note 6)		-		-		216,200		-			-			-			216,200
Net earnings		-		-		-		4,255,000			-			-			4,255,000
BALANCE – August 31, 2020		12,410,080		2,482,000		10,245,600		34,915,800			4,055,389			(12,667,200	)		34,976,200
Sales of treasury stock		-		-		15,200		-			(1,281	)		4,000			19,200
Dividends declared ($0.10/share)		-		-		-		(835,500	)		-			-			(835,500	)
Share-based compensation expense (see Note 6)		-		-		291,800		-			-			-			291,800
Net earnings		-		-		-		4,269,600			-			-			4,269,600
BALANCE - November 30, 2020		12,410,080	$	2,482,000	$	10,552,600	$	38,349,900			4,054,108		$	(12,663,200	)	$	38,721,300

	2020
	November 30,			February 29,
Current:
Book inventory	$	47,785,300		$	30,346,900
Inventory valuation allowance		(471,500	)		(259,600	)
Inventories net – current	$	47,313,800		$	30,087,300

Noncurrent:
Book inventory	$	993,600		$	1,226,500
Inventory valuation allowance		(239,400	)		(209,800	)
Inventories net – noncurrent	$	754,200		$	1,016,700

	May 31, 2021			February 28, 2021
Current:
Book inventory	$	57,052,600		$	52,276,200
Inventory valuation allowance		(497,500	)		(513,800	)
Inventories net – current	$	56,555,100		$	51,762,400

Noncurrent:
Book inventory	$	1,005,600		$	894,300
Inventory valuation allowance		(245,000	)		(209,000	)
Inventories net – noncurrent	$	760,600		$	685,300

	Three Months Ended November 30,				Nine Months Ended November 30,
	2020		2019		2020		2019
Fixed lease cost	$	3,300	$	3,200	$	9,800	$	9,400

Year ending February 28 (29),
2021	$	3,400
2022		13,700
2023		14,200
2024		8,400
Total future minimum rental payments		39,700
Present value discount		(2,700	)
Total operating lease liability	$	37,000

Year ending February 28 (29),
2021	$	383,400
2022		1,542,100
2023		1,573,200
2024		1,577,900
2025		1,547,100
Thereafter		9,615,300
Total	$	16,239,000

Years ending February 28 (29),
2022	$	1,158,700
2023		1,573,200
2024		1,577,900
2025		1,547,100
2026		1,524,300
Thereafter		8,091,000
Total	$	15,472,200

PricingTier	AdjustedFundedDebttoEBITDARatio	~~Adjusted Funded Debt to EBITDA Ratio~~		LIBORMargin(bps)
I	>2.00		300.00
II	>1.50 but <2.00		275.00
III	>1.00 but <1.50		250.00
IV	<1.00		225.00

Year ending February 28 (29),
2021	$	128,800
2022		533,400
2023		556,800
2024		581,100
2025		605,400
Thereafter		8,709,300
Total	$	11,114,800

Years ending February 28 (29),
2022	$	838,600
2023		1,387,500
2024		1,407,100
2025		1,426,400
2026		9,289,300
Thereafter		389,600
Total	$	14,738,500

	Shares			Weighted Average Fair Value (per share)

Outstanding at February 29, 2020		308,000		$	9.94
Granted		305,000			6.30
Vested		-			-
Forfeited		(13,000	)		(7.70	)
Outstanding at November 30, 2020		600,000		$	8.14

	Shares		Weighted Average Fair Value (per share)

Outstanding at February 28, 2021		600,000	$	8.14
Granted		-		-
Vested		0		0
Forfeited		-		-
Outstanding at May 31, 2021		600,000	$	8.14

NET REVENUES

	Three Months Ended November 30,				Nine Months Ended November 30,
	2020		2019		2020		2019
Publishing	$	2,580,600	$	2,724,200	$	6,284,600	$	7,766,300
UBAM		64,169,700		38,100,400		158,007,500		85,083,700
Total	$	66,750,300	$	40,824,600	$	164,292,100	$	92,850,000

EARNINGS (LOSS) BEFORE INCOME TAXES

	Three Months Ended November 30,						Nine Months Ended November 30,
	2020			2019			2020			2019
Publishing	$	773,000		$	832,900		$	1,858,400		$	2,253,300
UBAM		10,821,600			6,501,200			26,311,300			14,358,500
Other		(5,820,300	)		(3,498,400	)		(13,952,000	)		(9,562,900	)
Total	$	5,774,300		$	3,835,700		$	14,217,700		$	7,048,900

NET REVENUES

	Three Months Ended May 31,
	2021		2020
UBAM	$	37,616,900	$	36,926,200
Publishing		3,191,000		1,365,500
Total	$	40,807,900	$	38,291,700

	Three Months May 31,
	2021			2020
Gross sales	$	6,855,900		$	2,950,800
Less discounts and allowances		(3,668,400	)		(1,589,200	)
Transportation revenue		3,500			3,900
Net revenues		3,191,000			1,365,500

Cost of goods sold		1,780,000			706,900
Gross margin		1,411,000			658,600

Total operating expenses		549,400			312,000

Operating income	$	861,600		$	346,600

*3.1		Restated Certificate of Incorporation dated April 26, 1968 and Certificate of Amendment thereto dated June 21, 1968 are incorporated herein by reference to Exhibit 1 to Registration Statement on Form 10-K (File No. 0-04957).

*3.2		Certificate of Amendment of Restated Certificate of Incorporation dated August 27, 1977 is incorporated herein by reference to Exhibit 20.1 to Form 10-K for fiscal year ended February 28, 1981 (File No. 0-04957).

*3.3		By-Laws, as amended, are incorporated herein by reference to Exhibit 20.2. to Form 10-K for fiscal year ended February 28, 1981 (File No. 0-04957).

*3.4		Certificate of Amendment of Restated Certificate of Incorporation dated November 17, 1986 is incorporated herein by reference to Exhibit 3.3 to Form 10-K for fiscal year ended February 28, 1987 (File No. 0-04957).

3.5		Certificate of Amendment of Restated Certificate of Incorporation dated March 22, 1996 is incorporated herein by reference to Exhibit 3.4 to Form 10-K for fiscal year ended February 28, 1997 (File No. 0-04957).

3.6		Certificate of Amendment of Restated Certificate of Incorporation dated July 15, 2002 is incorporated herein by reference to Exhibit 10.30 to Form 10-K dated February 28, 2003 (File No. 0-04957).

3.7		Certificate of Amendment of Restated Certificate of Incorporation dated August 15, 2018 is incorporated herein by reference to Exhibit 3.1 to Form 8-K dated August 21, 2018 (File No. 0-04957).

10.1		First Amendment to the Amended and Restated Loan Agreement, dated April 1, 2021 by and between the Company and MidFirst Bank, Tulsa, OK, incorporated herein by reference to Exhibit 10.11 to Form 10-K dated February 28, 2021 (File No. 0-04957).

**31.1		Certification of the Chief Executive Officer of Educational Development Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002 furnished herewith.~~2002.

**31.2		Certification of Chief Financial Officer and Corporate Secretary (Principal Financial and Accounting Officer) of Educational Development Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002 furnished herewith.~~2002.

**32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		Inline XBRL Instance Document

101.SCH		Inline XBRL Taxonomy Extension Schema

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

EDUCATIONAL DEVELOPMENT CORPORATION (Registrant)

Date: ~~January 13,~~July 8, 2021	By	/s/ Randall W. White
		Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)