UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended February 28, 20222023

OR

☐TRANSITION REPORT PURSUANT TO 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)

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

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

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ 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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

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

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).

☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

The aggregate market value of the outstanding shares of common stock held by non-affiliates of the registrant at the price at which the common stock was last sold on August 31, 20212022 on the NASDAQ Stock Market, LLC was $60,743,600.$19,881,000.

As of April 28, 2022, 8,715,018May 2, 2023, 8,575,088 shares of common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for fiscal year 20222023 relating to our Annual Meeting of Shareholders to be held on July 6, 2022June 29, 2023 are incorporated by reference into Part III of this Report on Form 10-K.

TABLE OF CONTENTS

PART I

FORWARD-LOOKING STATEMENTS

CAUTIONARY REMARKS REGARDING FORWARD LOOKING STATEMENTS

The information discussed in this Annual Report on Form 10-K includes “forward-looking“forward-looking statements.” These forward-looking statements are identified by their use of terms and phrases such as “may,“may,” “expect,“expect,” “estimate,“estimate,” “project,“project,” “plan,“plan,” “believe,“believe,” “intend,“intend,” “achievable,“achievable,” “anticipate,“anticipate,” “continue,“continue,” “potential,“potential,” “should,“should,” “could,“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. Known and unknown risks, uncertainties and other factors may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by 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 timely, changes to our primary sales channels, 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 this Annual Report on Form 10-K, all of which are difficult to predict.

In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. 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 Annual Report on Form 10-K and speak only as of the date of this Annual Report on Form 10-K. 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. As used in this Annual Report on Form 10-K, the terms “the“the Company,” “EDC,“EDC,” “we,“we,” “our”“our” or “us”“us” mean Educational Development Corporation, a Delaware corporation, unless the context indicates otherwise.

Item 1. BUSINESS

(a) General Description of Business

We are the owner and exclusive publisher of Kane Miller children’s books; Learning Wrap-Ups, maker of educational manipulatives; and SmartLab Toys, maker of STEAM-based toys and games. We are also the exclusive United States Multi-Level Marketing (“U.S.”MLM”) trade co-publisherdistributor of educational children’s books produced in the United Kingdom by Usborne Publishing Limited (“Usborne”) and we also exclusively publish books through our ownership of Kane Miller Book Publisher (“Kane Miller”); both award-winning publishers of international children’s books. We are a corporation incorporated under the laws of the State of Delaware on August 23, 1965. Our fiscal year ends on February 28 (29).

Our Company motto ismission statement reflects “The future of our world depends on the education of our children. EDC delivers educational excellence one book at a time. We provide economic opportunity while fostering strong family values. We touch the lives of children for a lifetime.”

(b) Financial Information about Our Segments

While sellingWe sell children’s books, educational toys and games and other related products (collectively referred to as “products” or “books”) is our only line of business, we sell through two business segments, which we sometimes refer to as “divisions” or “sales channels”:

Percent of Net Revenues by Division

(c) Narrative Description of Business

Products

AsEDC’s current catalog contains approximately 2,000 titles, with new additions added four times per year across all lines of our products. Additionally, throughout the exclusive United States trade co-publisheryear, a similar number of Usborne bookstitles that do not have sufficient sales are identified as “out of print” and sole publisherthese titles are no longer re-printed or included in future catalogs. The Company sells through the remaining quantities of Kane Miller books, we offer over 2,000 different children’s books.these out of print titles through their normal sales channels at normal pricing and has not historically participated in the publishing industry’s “remainder” market. Many of our booksproducts are interactive in nature, including our touchy-feely board books, activity books and flashcards, adventure and search books, art books, sticker books, and foreign language books. Mostbooks, learning manipulatives and toys. We also have a broad line of ‘internet-linked’ books which allow readers to expand their educational experience by referring them to relevant non-Company websites. Our books also include science and math titles, as well as chapter books and novels. Many of our Kane Miller books were originally published in other countries, in their native languages, and we translate them to common American English and have exclusive rights to publish the titles in the United States.

We Certain Kane Miller agreements include North American rights and these titles are also have a broad linesold into Canada. Our SmartLab Toys and Learning Wrap-Ups imprints are owned product lines that are sold domestically and internationally, including the sale of ‘internet-linked’ books which allow readersforeign distribution rights to expand their educational experience by referring them to relevant non-Company websites. Our books include science and math titles, as well as chapter books and novels. We continually introduce new titles across all lines of our products.

UBAM markets our books through commissioned consultants using a combination of direct sales, home parties, book fairs and internet based social media platforms (“online parties”). This division had approximately 36,100 active consultants as of February 28, 2022.

Our Publishing division markets through commissioned trade representatives who call on retail book, toy and specialty stores along with other retail outlets. Publishing also conducts in-house marketing by telephone to these customers and potentialspecific customers. This division markets to approximately 4,000 book, toy and specialty stores. Approximately 2% of our Publishing division's net revenues are to national book chain stores.

Seasonality

Sales for both divisions are greatest during the fall due to the holiday season.

Competition

While we have the exclusive U.S. rights to sell UsborneKane Miller books, Learning Wrap-Ups, SmartLab Toys and Kane Millerare the exclusive United States Multi-Level Marketing (“MLM”) distributor of Usborne books, we face competition from other publishers selling on the internet and other book publishers who are also selling directly to our customers.customer base. Our UBAMPaperPie division competes in recruiting and retaining sales consultants,brand partners, which continuously receive opportunities to work for other direct selling companies, as well as new non-traditional employment opportunities, especially in the gig-marketplacegig marketplace that provide part-time supplemental income. We also compete with Scholastic Corporationother publishers in the school and library book fair market.market, of which Scholastic Corporation is the largest.

Our Publishing division faces competition from large U.S. and international publishing companies that sell online and through the same retail publishingbookstores, toy stores, as well as for space in retail toy,and gift and novelty stores that offer a variety of non-book products.

Employees

As of April 25, 2022, 16626, 2023, 138 full-time employees worked at our Tulsa, OK, San Diego, CA, and Layton, UT and Seattle, WA facilities. Of these employees, approximately 61%56% work in our distribution warehouse in Tulsa, OK.

Company Reports

Pursuant to Section 13 or 15 of the Exchange Act, as soon as reasonably practicable after filing electronically or otherwise furnishing it to the Securities and Exchange Commission (“SEC”), we make available, free of charge, on our website (www.edcpub.com) copies of our Annual Reports and Quarterly Reports. Our website also includes an internet link to the federal SEC website that contains additional public reports, including Current Reports on Form 8-K, amendments to those reports filed or furnished to the SEC and reports of holdings of our securities filed by our officers and directors under Section 16 of the Exchange Act. These reports will be provided electronically, free of charge, upon request.

COVID-19 UpdateEmployee Retention Credit

The Company has taken numerous steps, and will continueIn response to take further actions, in its approach to minimize the impact of the COVID-19 pandemic. Effective May 1, 2021, we lessened our safety and health practices in the office and warehouse based on the recommendations from the local Tulsa Health Department. We are closely monitoring the impact of the COVID-19 pandemic, the U.S. government enacted the Coronavirus Aid, Relief and continually assessing its potential effects on our business. WhileEconomic Security Act (the “CARES Act”), which, among other things, included a provision related to the Employee Retention Credit. The Company applied the provisions of the CARES Act as applicable. In fiscal 2024, the Company didapplied for employee retention credits for Q1, Q2 and Q3 wages paid in calendar year 2021. In connection with the CARES Act, the Company adopted a policy to recognize the employee retention credit when realized under Accounting Standards Codification (“ASC”) 450-30, Gain Contingencies. Accordingly, the total requested credits of $3.6 million are not experience a decreaserecorded in net revenues during fiscal year 2021, and while fiscal year 2022 results continued to show growth over pre-pandemic levels, the long-term severity and duration ofCompany’s financial statements until the pandemiccredits are uncertain andreceived, as the extent to which our results are affected by COVID-19 cannotCompany is not certain the credits will 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 year.issued.

Item 1A. RISK FACTORS

We are a smaller reporting company and are not required to provide this information.

Item 1B. UNRESOLVED STAFF COMMENTS

None

Item 2. PROPERTIES

Our headquarters office and distribution warehouse are located on a 40-acre complex at 5402 South 122nd East Ave, Tulsa, Oklahoma. We own the complex which includes multiple buildings that combine to approximately 400,000 square feet of office and warehouse space, of which 218,700 is utilized by us and 181,300 is occupied by a third-party tenant. Substantially all customer orders are fulfilled from our 170,000 square foot warehouse, in Tulsa, Oklahoma, using multiple flow-rack systems, referred to as “lines,” to expedite order completion, packaging, and shipment.

We also own a facility located at 10302 East 55th Place, Tulsa, Oklahoma that contains approximately 105,000 square feet of usable space including 8,000 square feet of office and 97,000 square feet of warehouse space. We use approximately 76,00084,000 square feet of warehouse space for overflow inventory. The remaining 8,000 square feet of office space and 21,000 square feet of warehouse are leased to a third-party tenantstenant with a multi-year lease agreements.agreement.

In addition to these owned properties, we also lease additional warehouse space in Tulsa, Oklahoma as needed for overflow inventory, a small office in San Diego, California that is used by our Kane Miller employees, and a warehouse and office space in Layton, Utah resulting from the acquisition of Learning Wrap-Ups.Wrap-Ups, and office space located in Seattle, Washington resulting from the acquisition of SmartLab Toys. We believe that our operating facilities meet both present and future capacity needs.

Item 3. LEGAL PROCEEDINGS

We are not a party to any material pending legal proceedings.

Item 4. MINE SAFETY DISCLOSURES

None

PART II

Item 5. MARKET FOR REGISTRANT’SREGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The common stock of EDC is traded on NASDAQ (symbol “EDUC”). The number of shareholders of record of EDC's common stock as of April 28, 2022May 2, 2023, was 457.

For information regarding our compensation plans see Note 1011 of the notes to the financial statements and our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 6, 2022,June 29, 2023, as outlined in Part III, Item 12 in this Annual Report.

Issuer Purchases of Equity Securities

Item 6. SELECTED FINANCIAL DATA[RESERVED]

We are a smaller reporting company and are not required to provide this information.

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains a discussion of our business, including a general overview of our segments, our results of operations, our liquidity and capital resources, and our quantitative and qualitative disclosures about market risk.

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 of our control. Our actual results could differ materially from those discussed in these forward-looking statements. See “Cautionary Remarks Regarding Forward Looking Statements” in the front of this Annual Report on Form 10-K.

Management Summary

We are the owner and exclusive publisher of Kane Miller children’s books; Learning Wrap-Ups, maker of educational manipulatives; and SmartLab Toys, maker of STEAM-based toys and games. We are also the exclusive United States trade co-publisherMulti-Level Marketing (“MLM”) distributor of Usborne Publishing Limited (“Usborne”) children’s booksbooks. Significant portions of our inventory purchases are concentrated with Usborne. Our distribution agreement with Usborne includes annual minimum purchase volumes along with specific payment terms, which, if not met or if payments are not received timely, may result in termination of the agreement. During fiscal 2023, the Company did not meet the minimum purchase volumes and certain payments were not received timely. No notification of termination has been received and Usborne continues to accept and fulfill purchase orders from the ownerCompany. Should termination of Kane Miller. the agreement occur, the Company will be allowed, at a minimum, to sell through their remaining Usborne inventory over the twelve months following the termination date.

We operatesell our products through two separate segments; UBAMdivisions, PaperPie and Publishing, to sell our Usborne and Kane Miller children’s books.Publishing. These two segmentsdivisions each have their own customer base. The PaperPie division markets our complete line of products through a network of independent brand partners using a combination of home shows, internet party events and book fairs. The Publishing segmentdivision markets its productsKane Miller, Learning Wrap-Ups and SmartLab Toys 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, social media platform events (called “online parties”) and book fairs. All other supporting administrative activities are recognized as other expenses outside of our two segments.divisions. Other expenses areconsist primarily of the compensation offor our office, warehouse and sales support staff as well as the cost of operating and maintaining our corporate offices and distribution facilities.facility.

UBAMPaperPie Division

Our UBAMPaperPie division uses a multi-level direct selling platformorganizational structure to market books throughour products using independent sales representatives (“consultants”Brand Partners”) located throughout the United States. The customer base of UBAMPaperPie consists of individual purchasers, as well as schools and public libraries. Revenues are primarily generated through book showings in individual homes, on social media collaboration platforms, through book fairs with school and public libraries and other in-person events.

An important factor in the continued growth of the UBAMPaperPie division is the addition of new sales consultantsbrand partners and the retention of existing consultants.Brand Partners. Current active consultantsBrand Partners (defined as those with sales during the past six months) often recruitare primarily responsible for recruiting new sales consultants. UBAMbrand partners. PaperPie makes it easy to recruit by providing sign-up kits for whichjoining incentives to new consultants can earn rewardsbrand partners including discounted booksproducts and cash bonus awards based on exceeding certain sales criteria. In addition, our UBAMPaperPie division provides our consultantsBrand Partners with an extensive operational handbook, valuable training, and an individual website they can customize and use to operategenerate sales. The Company also provides a “back-office” operations platform that allows Brand Partners to track their business.individual and team business results.

ConsultantsBrand Partners

Our UBAMPaperPie division’s multi-level marketing platformorganizational structure presently has eight levels of sales representatives:representatives, collectively known as Brand Partners:

Upon signing up, sales representatives begin as “Consultants”“Brand Partners”. ConsultantsBrand Partners receive “weekly commissions” from each sale they make; the commission rate they receive on each sale is determined by the marketing programorder type under which the sale is made. In addition, ConsultantsBrand Partners receive a monthly sales bonus once their total sales reach an established monthly goal and other awards (called “Home Office Challenges”“Level Perks”) for meeting other individual sales and recruiting goals for the month. ConsultantsBrand Partners who recruit a specified number of other consultantsBrand Partners into their downline “central group” become “Team Leaders”. These downline recruits are known as their "Central Group". Upon reaching this Team Leader level, consultantsBrand Partners become eligible to receive “monthly override payments” which are calculated on sales made fromby their downline central group of recruits.Central Group and downlines up to two levels below. Team Leaders that recruit and promote other Team Leaders, and meet other established criteria, are eligible to become “Advanced Leaders”.

Once Advanced Leaders promote a second level consultant,Brand Partner, add additional recruits and meet other established criteria, they become “Senior Leaders”, “Executive Leaders”, “Senior Executive Leaders”, “Directors” or “Senior Directors”. One-time cash bonus payments are made to consultantsAdvance Leaders and higher at each promotion level. Executive Leaders and higher receive an additional monthly override payment based upon the sales of their downline groups.executive group. Directors and higher receive an additional bonus payment if they promote an Advanced Leader to a SeniorTeam Leader from their central group.Central Group. The maximum override payment a leader can receive is calculated on their Central Group and three levels below their downline central group.below. 

During fiscal year 2022,2023, internet sales continued to be the largest sales channel within our UBAMPaperPie division. The use of social media and party plan platforms, such as those available on Facebook, continue to be popular sales tools. These platforms allow consultantsBrand Partners to “present” and customers to “attend” online purchasing events from any geographical location.

Customer’sCustomers’ internet orders are primarily received via the consultant’sBrand Partner’s customized website, which is hosted by the Company. ConsultantsBrand Partners contact hosts or hostesses (collectively “hostess”) who then provide a list of contacts to invite to an online party. During the online party, the consultantBrand Partner answers attendee’sattendees’ questions and provides product recommendations. These attendees then select desired products and place orders via the consultant’sBrand Partner’s customized website. Internet orders are processed through a standard online “shopping cart checkout” and the consultantBrand Partner receives sales credit and commission on the transaction. All internet orders are shipped directly to the end customer. The hostess earns discounted booksproducts based on the total sales from the attendees at the online party. Brand Partners use the list of contacts provided by the hostess as additional contacts for future hostess and recruiting opportunities.

HomeIn-person parties also occur when consultantsBrand Partners contact hostesses to hold book shows in their homes. The consultantBrand Partner assists the hostess in setting up the details for the show, makes a presentation at the show and takes orders for the books.products. The hostess earns discounted booksproducts based on the total sales at the party, including internet orders for those customers who can only attend via online access. Home partyThese orders are typically shipped to the hostess who then distributes the booksproducts to the end customer. Customer specials are also available when customers, or their party, order above a specified amount. Additionally,As with online parties, home shows often provide an excellent opportunity for recruiting new consultants.brand partners.

UBAMPaperPie net revenues also includes sales to schools and libraries through educational consultants.PaperPie Learning, a separate program for Brand Partners which requires them to pass certain qualifications and complete training requirements. The school and libraryPaperPie Learning program includes book fairs which are held with an organization as the sponsor. The consultantBrand Partner provides promotional materials to introduce our booksproducts to parents. Parentsparents, who then turn in their orders at a designated time. The book fair program generates discounted booksproducts for the sponsoring organization. UBAM

PaperPie also hasgenerates revenues through various fundraiser programs.programs directed toward schools and community organizations. Reach for the Stars is a pledge-based reading incentive program that provides cash and booksproducts to the sponsoring organization and booksproducts for the participating children. An additional fundraising program, Cards for a Cause, offers our consultantsBrand Partners the opportunity to help members of the community by sharing proceeds from the sale of specific items. Organizations sell variety boxes of greeting-type cards and donate a portion of the proceeds to help support their related causes.

Publishing Division

Our Publishing division operates in a market that is highly competitive,fragmented, with a large numbermany types of retail companies engaged in the selling of books.children’s books and toys. The Publishing division’s customer base includes national book chains, regional and local bookstores, toy and gift stores, school supply stores and museums. To reach these markets, the Publishing division utilizes a combination of commissioned sales representatives located throughout the country and a commissionedan in-house sales group located at our headquarters.

The table below shows the percentage of net revenues from our Publishing division based on market type.

Publishing Division Net Revenues by Market Type

Publishing uses a variety of methods to attract potential new customers and maintain current customers. Our employees attend many of the national trade shows held by the book and toy selling industry each year, allowing us to contact potential buyers who may be unfamiliar with our books. We actively target the national book chainsproducts. Our marketing strategy targets toy and specialty stores, in addition to bookstores and museum gift shops, through joint promotional efforts and institutionalprint media advertising in trade publications. OurIn some instances, our products are then featured in promotions such asand catalogs offered by the vendor. We may also seek to acquire, for a fee, an end cap position (our products are placed on the end of a shelf)participation in a bookstore, which we and the publishing industry consider an advantageous location in the bookstore.co-ops with national chain retailers.

Publishing’s in-house sales group targetsrepresentatives actively target the smaller independent book and gift store customers. This market has seen continued growth overdue to a resurgence in the past several years asopening of local bookstores, toy stores, and specialty stores across the U.S., coupled with the efforts of both our in-house and outside sales representatives to increase sales to large bookstore chains have fluctuated based primarily on the number of promotions that we are able to run in thelocal and independent businesses. The Company shifted its focus toward independent stores as national chain stores.stores saw a change in buying programs and purchasing slowed with COVID-19. Our semi-annual, full-color, 200-page128-page catalogs are mailed to overapproximately 4,000 customers and potential customers. We also offer two display racks to assist stores in displaying our products.

OurSee Publishing division activities and sales were significantly impacted during fiscal year 2021 due to the COVID-19 pandemic. Many of the national trade shows were canceled and a significant numberOperating Results for discussion of our retail customers temporarily closed to complyupdated distribution agreement with their local health department recommendations. However, Publishing sales significantly increased this fiscal year due to the addition of new customers and stores opening back up to pre-pandemic levels.Usborne.

Result of Operations

The following table shows our statements of earningsoperations data:

See the detailed discussion of net revenues, gross margin and operating expenses by reportable segment below.

The following is a discussion of significant changes in the non-segment related operating expenses, other income and expenses and income taxes during the respective periods.

Non-Segment Operating Results

Total operating expenses not associated with a reporting segment were $17.8$14.9 million for fiscal year ended February 28, 2022,2023, compared to $19.4$17.8 million for the same period a year ago. Operating expenses decreased $1.6$2.9 million primarily related toas a decreaseresult of a reduction in labor expenses of $2.5 million, with our warehouse labor of $1.6 million driven by efficiencies gained frompayroll having the addition of two new pick-pack-ship lines in fiscal year 2022largest reduction, and lower sales, plus a $1.0$0.9 million decrease in freight-handling costs, from theboth associated with a decrease in number of outbound shipments,gross sales, plus a $0.2 million decrease in warehouse rent for reduced inventory levels. These expense reductions were offset by a $0.5$0.3 million increase in depreciation expense primarily related to the addition of the new pick-pack-ship lines andplaced into service in fiscal year 2022, a $0.5$0.3 million increase in warehouse rent for theproperty taxes and insurance costs, and a $0.1 million increase in inventory.expenses related to the purchase of SmartLab Toys and the addition of the Seattle, WA office location.

Interest expense increased $1.3 million, to $2.2 million for fiscal year ended February 28, 2023, compared to $0.9 million reported for fiscal year ended February 28, 2022, due to increased borrowings with our lenders primarily associated with inventory and increases in floating interest rates.

Other income decreased $0.6 million, to $1.3 million for fiscal year ended February 28, 2023, compared to $1.9 million reported for fiscal year ended February 28, 2022, due to $0.3 million of recovered losses in fiscal 2022 associated with a shipping vessel incident in fiscal 2021 that did not repeat in the current fiscal year, $0.2 million of startup costs recognized from the acquisition of SmartLab Toys and $0.1 million in other various changes.

Income taxes decreased $3.8 million, to a tax benefit of $0.9 million for fiscal year ended February 28, 2022, compared to $0.6 million reported for fiscal year ended February 28, 2021 due primarily to the increase in our line2023, from a tax expense of credit and the addition of the advancing term loans in the current fiscal year.

Income taxes decreased $1.7 million, to $2.9 million for fiscal year ended February 28, 2022, from $4.6 million for the same period a year ago. This decrease was primarily related to a decrease in taxable income for the current fiscal year compared to the prior fiscal year. The effective tax rate decreasedincreased by 0.6%0.8%, to 26.9% for fiscal year ended February 28, 2023, as compared to 26.1% for fiscal year ended February 28, 2022, as compared to 26.7% for fiscal year ended February 28, 2021 primarily 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.

UBAMPaperPie Operating Results

The following table summarizes the operating results of the UBAMPaperPie segment for the twelve months ended February 28:

UBAMPaperPie net revenues decreased $67.0$54.5 million, or 34.2%42.2%, to $129.0$74.5 million for fiscal year ended February 28, 2022,2023, when compared with net revenues of $196.0$129.0 million reported for fiscal year ended February 28, 2021.2022. The average number of active consultantsBrand Partners in fiscal year 20222023 was 44,900,28,000, a decrease of 3,800,16,900, or 7.8%37.6%, from 48,70044,900 in fiscal year 2021.2022. The Company reports the average number of active consultantsBrand Partners as a key indicator for this division. During fiscal year 2021, our active consultants grew from 29,600 at the beginning of the year to 57,600 at the end of the fiscal year. This active consultant growth resulted from pandemic-related events such as seeking replacement income from loss of full-time employment, an increase in the need for work-from-home opportunities and an increased demand for educational products in the home. During fiscal year 2022 our active consultant count hasOur Brand Partner numbers have declined due to consultantsBrand Partners returning to full-time work,employment, as well as families experiencing children returning to the classroom, therefore requiring less learning-from-homelearning from home materials than they had in the prior year. WhileWe also saw new Brand Partner recruiting negatively impacted by the recent change in our distribution agreement with Usborne Publishing Limited. The new agreement created a decreaselevel of uncertainty with our Brand Partners until we were able to effectively communicate the continuation of our relationship within the Direct Sales division. Further, sales were impacted in our fiscal fourth quarter as we rebranded our direct sales division from Usborne Books & More (“UBAM”) to PaperPie. Our Brand Partners were challenged with updating their individual marketing materials, training videos and consultants has occurredpersonal business websites to the new brand. The time spent updating these business items reduced our Brand Partners’ available time to generate sales, most clearly identified in the first two weeks of January 2023. In addition, sales during fiscal year 2022, our UBAM division’s active consultants2023 continued to be negatively impacted by economic factors that include recent record inflation, resulting in high fuel cost and salesfood price increases that continue to exceed pre-pandemic levels.impact the disposable income of our customers. We expect this impact on sales to continue as inflationary pressures persist.

UBAMPaperPie gross margin decreased $48.6$41.9 million, or 34.6%45.6%, to $91.8$49.9 million for fiscal year ended February 28, 2022,2023, from $140.4$91.8 million reported for fiscal year ended February 28, 2021.2022. Gross margin as a percentage of net revenues decreased 0.4%4.3% to 66.9% for fiscal year 2023 when compared to 71.2% for fiscal year 2022 when compared to 71.6% for fiscal year 2021.2022. The decrease in gross margin as a percentage of net revenues was dueis attributed to thehigher discounts being offered to induce sales and a change in the mix of order types received. In the current fiscal year, our web sales,received impacting margins by approximately $1.0 million, rising ocean freight costs on inbound inventory totaling approximately $1.2 million, which have the lowest discountsincreased cost of goods sold, and pay the highest commissions decreased, while book fairs, school and library sales and other in-person sale types increased year over year, due to the lessening of COVID-19 restrictions and the reopening of schools and other in-person activities. reduced purchasing volume discounts/rebates totaling approximately $1.0 million.

Total UBAMPaperPie operating expenses decreased $40.2$26.7 million, or 37.4%39.6%, to $67.4$40.7 million during the fiscal year ended February 28, 2022,2023, when compared with $107.6$67.4 million reported for fiscal year ended February 28, 2021.2022. Operating and selling expenses decreased $12.4$6.3 million, to $18.8$12.5 million for fiscal year ended February 28, 2022,2023, from $31.2$18.8 million reported in the same period a year agoago. These decreases were due to a $11.4$7.5 million decrease in shipping costs associated with the decrease in volume of orders shipped andfrom lower sales, offset by a $1.0$1.2 million decreaseincrease in accruals for the Company’s annualBrand Partner incentive trip expenses and other consultant rewards associated with the decrease in UBAM sales.convention expenses. Sales commissions decreased $25.9$18.7 million, to $43.8$25.1 million during the fiscal year ended February 28, 2022,2023, when compared to $69.7$43.8 million reported in the same period a year ago primarily due to the decrease in net revenues. General and administrative expenses decreased $1.9$1.7 million, to $4.8$3.1 million during the fiscal year ended February 28, 2022,2023, when compared with $6.7$4.8 million reported for fiscal year ended February 28, 2021.2022. This decrease was due to $1.5$1.0 million of decreased credit card transaction fees associated with decreased sales volumes, and a $0.4 million decrease in promotions and marketing expenses associated with decreased consultant counts.Brand Partner counts, and a $0.3 million decrease in payroll and various other expenses.

Operating income of our UBAMPaperPie division decreased $8.4$15.2 million, or 25.6%62.3%, to $24.4$9.2 million for fiscal year ended February 28, 2022,2023, as compared to $32.8$24.4 million reported for fiscal year ended February 28, 2021.2022. Operating income offor the UBAMPaperPie division as a percentage of net revenues for the year ended February 28, 20222023, was 18.9%12.3%, compared to 16.7%18.9% for the year ended February 28, 2021,2022, a change of 2.2%6.6%. Operating income as a percentage of net revenues changed from the prior year primarily due to $1.3 million of reduced freight handling costs primarily from reduced peak surcharges in the current fiscal year due to lower shipping volumes, a $0.4 million decrease in accrual expenses fornet revenues caused by higher discounts and lower transportation revenue, the Company’s annual incentive trip and other consultant rewards resulting from less award earners, offset by a $0.6 million increase in cost of goods sold resulting from higher inbound freight costs along with fewer rebates and discounts associated with purchase volumes as well as increased ocean freight costs on inbound inventory and $0.3 millionthe increase in other various cost changes.accrued expenses for the Company’s Brand Partners related to the annual incentive trip and convention.

Publishing Operating Results

The following table summarizes the operating results of the Publishing segment for the twelve months ended February 28:

Our Publishing division’s net revenues increased $4.7remained consistent at $13.3 million for fiscal years ended February 28, 2023 and 2022. During fiscal 2023, we entered into a new distribution agreement with Usborne. Under the contracted terms in our new distribution agreement, the Company no longer had the rights to distribute Usborne’s products to retail customers after November 15, 2022, at which time Usborne was planning to use a different distributor to supply retail accounts with their products. The November 15, 2022 transition date, at Usborne’s request, was extended until their new supplier can start distribution in 2023. Usborne’s products sold within the Publishing division accounted for 83.1%, or 54.7%,$23.2 million, of gross sales during the fiscal year ended February 28, 2023.

Gross margin remained consistent, increasing $0.1 million, to $13.3$6.2 million for fiscal year ended February 28, 2022, when compared with net revenues of $8.62023, from $6.1 million reported for fiscal year ended February 28, 2021. Many Publishing customers closed their stores during the first and second quarters of fiscal year 2021 due to the COVID-19 pandemic and did not reopen until the third or fourth quarter of fiscal year 2021. As such, much of the sales increase resulted from the return of customer activity to pre-pandemic levels in fiscal year 2022.

Gross margin increased $1.9 million, to $6.1 million for fiscal year ended February 28, 2022, from $4.2 million reported for fiscal year ended February 28, 2021. The increase in gross margin primarily resulted from the increase in net revenues. Gross margin as a percentage of net revenues decreased 2.5%increased 0.3%, to 46.1%46.4% for fiscal year 2022,2023, compared to 48.6%46.1% reported the same period a year ago. The decrease in gross margin percentage resulted primarily from the increase in cost of goods sold resulting from fewer rebates and discounts associated with purchase volumes as well as increased ocean freight costs on inbound inventory andago due to a change in our customer mix. Customers receive varying discounts due to higher sales volumes and contract terms.

Operating income for the segmentexpenses increased $1.0$0.5 million, or 38.5%, to $3.6$3.0 million for fiscal year ended February 28, 2022,2023, from $2.6$2.5 million reported for fiscal year ended February 28, 2022. The increase in operating expenses resulted from the full year inclusion of Learning Wrap-Ups office staff and related expenses in fiscal year 2023. Learning Wrap-Ups was acquired in the fourth quarter of fiscal year 2022.

Operating income for the segment decreased $0.4 million, or 11.1%, to $3.2 million for fiscal year ended February 28, 2023, from $3.6 million reported during the same period last year. The increasedecrease in operating income resulted primarily from increased gross margin from increased sales partially offset by increased inside sales commissions duethe increase in operating expenses attributable to the additiona full year impact of new retail customers.Learning Wrap-Ups office staff and related expenses.

Liquidity and Capital Resources

EDC has a history of profitability and positive cash flow. We typically fund our operations from the cash we generate. We alsoDuring periods of loss, like fiscal year 2023, EDC will reduce purchases and sell through inventory to generate cash flows. The Company expects to reduce current excess inventory levels and use availablethe cash proceeds to pay down the line of credit and portions of the term debt. Available cash has historically been used to pay down outstanding bank loan balances, for capital expenditures, to pay dividends and to acquire treasury stock. We utilizedutilize a bank credit facility and other term loan borrowings to meet our short-term cash needs, as well as fund capital expenditures, when necessary. As of the end of fiscal year 2022,2023, our revolving bank credit facility loan balance was $17.7$10.6 million with $2.3$4.4 million in available capacity.

During fiscal year 2022,2023, we experienced negativepositive cash flows from operations of $21,143,300.$58,500. These cash flows resulted from:

● net earningsloss of $8,306,800$2,504,900

Adjusted for:

● depreciation and amortization expense of $2,126,700$2,478,700

● share-based compensation expense, net of $1,046,500$907,800

● provision for inventory valuation allowance of $235,700

● provision for doubtful accounts of $115,800$715,900

Offset by:

● deferred income taxes of $208,600$678,100

Positively impacted by:

● increasedecrease in income taxes payableinventories, net of $111,700$9,086,900

● decrease in accounts receivable of $732,100

Negatively impacted by:

● increase in inventories, net of $21,396,900

● decrease in accounts payable of $6,201,300$8,547,900

● decrease in accrued salaries, commissions, and other liabilities of $2,868,300$1,578,000

● decrease in deferred revenueincome taxes payable of $1,794,300

● increase in accounts receivable of $407,900$241,900

● increase in prepaid expenses and other assets of $209,200$233,200

During the year our inventories increased significantly as we replenished quantities at volumes based on fiscal year 2021 sales. As sales during fiscal year 2022 have decreased, we have reduced purchase order quantities back to more historical sales levels. We expect our inventory levels to decline● decrease in fiscal year 2023 to more normalized levels.deferred revenues of $78,900

Cash used in investing activities was $3,940,900$1,755,800 for capital expenditures, which were comprisedconsisting of $2,722,900 in equipment purchased to increase our daily shipping capacity, $618,300 in$852,500 of software upgrades to our proprietary systems that our UBAM consultantsBrand Partners use to monitor their business and place customer orders, $376,000 in other building and equipment improvements, and $223,700 in patents and trademarks from$766,400 associated with the purchase of Learning Wrap-Ups.SmartLab Toys, $132,000 of other assets associated with the Company’s rebrand of the PaperPie sales division and $4,900 of other various changes.

Cash provided by financing activities was $23,633,200$2,025,200, which was comprised of net proceeds from term debt of $15,244,700, increase in borrowings on the line of credit of $12,478,200$36,000,000 and net cash received in treasury stock transactions of $617,100,$63,400, offset by payments of $3,429,100 for dividends and payments on term debt of $1,277,700.$25,900,100, net payments on the line of credit of $7,089,000, payments of $870,700 for dividends declared in fiscal 2022 and paid in fiscal 2023 and payments of debt issuance costs of $178,400.

We continue to expect the cash generated from our operations, specifically from the reduction of excess inventory, and cash available through our line of credit with our BankLender will provide us the liquidity we need to support ongoing operations. Cash generated from operations will be used to pay down our line of credit,purchase inventory in order to expand our product offerings and to liquidatepay down existing debt, and any excess cash is expected to be distributed to our shareholders.debt.

On August 9, 2022, the Company repaid in full all outstanding indebtedness and terminated all commitments and obligations under its Amended and Restated Loan Agreement dated February 15, 2021 (as amended), between the Company executedand MidFirst Bank. The Company’s payment to MidFirst Bank, including interest, was approximately $45.0 million, which satisfied all the Company’s debt obligations with MidFirst Bank. The Company did not incur any early termination penalties as a result of the repayment of indebtedness or termination of the Amended and Restated Loan Agreement, with MidFirst Bank which replaced the prior loan agreement and includes multiple loans.provided Term Loan #1, Tranche A (“Term Loan #1”), originally totaling $13.4 million, was part of the prior loan agreement.Advancing 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.Advancing Term Loan #1 is secured by#2 and 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 $10.3 million and $11.0 million as of February 28, 2022 and February 28, 2021, respectively.Revolving Loan.

In addition,On August 9, 2022, the Amended and RestatedCompany executed a new Credit Agreement (“Loan Agreement”) with BOKF, NA (“Bank of Oklahoma” or the “Lender”). The Loan Agreement providesestablished a $6.0 million Advancingfixed rate term loan in the principal amount of $15,000,000 (the “Fixed Rate Term Loan”), a floating rate term loan in the principal amount of $21,000,000 (the “Floating Rate Term Loan”; together with the Fixed Rate Term Loan, #1collectively, the “Term Loans”), and a revolving promissory note in the principal amount up to be used to finance planned equipment purchases. The Advancing Term Loan #1 required interest-only payments through July 15, 2021, at which time it was converted to a 60-month amortizing term loan maturing July 15, 2026. The Advancing Term Loan #1 accrues interest at the Bank-adjusted LIBOR Index plus a tiered pricing rate based on the Company’s Adjusted Funded Debt to EBITDA Ratio, with a minimum rate of 3.00%$15,000,000 (the “Revolving Loan”). Our borrowings outstanding under the Advancing Term Loan #1 at February 28, 2022 were $4.8 million.

Features of the Loan Agreement include:

The Amended and Restated Loan Agreement also providescontains provisions that require the Company to maintain a $20.0 millionminimum fixed charge ratio and limit any additional debt with other lenders. The Company was in violation of the minimum fixed charge ratio covenant as of February 28, 2023, for which the Company obtained a written waiver of compliance from the Lender. Available credit under the current $15,000,000 revolving loan (“line of credit”) through August 15,credit with the Lender was $4,365,500 at February 28, 2023.

On December 22, 2022, the Company executed the First Amendment to our Credit Agreement with interest payable monthly at the Bank-adjusted LIBOR Index plus a tiered pricing rate basedLender. This amendment clarified the definition of the Fixed Charge Coverage Ratio to exclude dividends paid prior to November 30, 2022, and placed restrictions on the Company’s Adjusted Funded Debt to EBITDA Ratio, with a minimum rate of 3.00%. acquisitions and cash dividends.

On July 16, 2021,May 10, 2023, the Company executed the Second Amendment to our Credit Agreement with the Lender. This amendment waived the fixed charge ratio default which occurred on February 28, 2023. The Second Amendment also added a cumulative maximum level of fiscal year to date inventory purchases through the expiration of the Revolving Loan Agreement, which increased the Maximum Revolving Principal Amount from $15.0 million to $20.0 million. On August 31, 2021, the Company executed the Third Amendment to the Loan Agreement which modified the advance rates used in the borrowing base certificate. Our borrowings outstanding on our line of credit at February 28, 2022 and February 28, 2021 were $17.7 million and $5.2 million, respectively. Available credit under the revolving line of credit was approximately $2.3 million and $9.6 million at February 28, 2022 and February 28, 2021, respectively.

On November 19, 2021, the Company executed the Fourth Amendment to the Loan Agreement which established Advancing Term Loan #2 in the principal amount of $10.0 million, amended the definition of LIBO Rate and LIBOR Margin and added Benchmark Replacement Provisions. The Advancing Term Loan #2 is a 120-month amortizing loan maturing November 19, 2031 and accrues interest at the Bank-adjusted LIBOR Index plus a tiered pricing rate based on the Company’s Adjusted Funded DebtRevolving Loan to EBITDA Ratio, with a minimum rate of 3.00%. Our borrowings outstanding underTerm SOFR Rate + 3.5%, reduced the Advancing Term Loan #2 at February 28, 2022 were $9.9 million.revolving commitment from $15,000,000 to $14,000,000, effective May 10, 2023, and further reduced the revolving commitment to $13,500,000, effective July 15, 2023, among lesser items.

The Amended and Restated LoanCompany does not expect to meet the fixed charge ratio, outlined in the Credit Agreement, also contains a provision for our useduring fiscal year 2024. Under the terms of the Bank’s lettersCredit Agreement, not meeting this ratio could represent an Event of credit. The Bank agrees to issue or obtain issuance of commercial or stand-by letters of credit provided thatDefault. Under the sumterms of the lineCredit Agreement, should an Event of credit plusDefault occur, the lettersLender will have the right to accelerate the maturities of credit issued would not exceed the borrowing base in effect atFixed Rate Term Loan and Floating Rate Term Loan. As an Event of Default is expected, and no waiver of the time. ForEvent of Default is guaranteed to be received by the year ended February 28, 2022, we had no lettersLender, the long-term portions of credit outstanding. The agreement contains provisions that require us to maintain specified financial ratios, place limitations on additional debt with other banks, limit the amounts of dividends declaredFixed Rate Term Loan and limits the amount of shares that can be repurchased using funding from the line of credit.Float Rate Term Loan have been reclassified as current liabilities.

The following table reflects aggregate futurecurrent maturities of long-termterm debt, excluding the Revolving Loan, during the next five fiscal yearsyear as follows:

During fiscal year 2022 we continued our quarterly dividend payments of $0.10.

In April 2008, our Board of Directors amended our 1998 stock repurchase plan, establishing that we may purchase up to an additional 1,000,000 shares of Company common stock as market conditions warrant. In February 2019, our Board of Directors approved a new stock repurchase plan to replace the amended 2008 plan. Under the new 2019 plan, the Company is authorized to purchase up to 800,000 shares of Company common stock, which represented approximately 9% of the outstanding shares as of February 28, 2022,2023, of which 514,594 remains available to purchase as of February 28, 2022.2023. Management believes using excess liquidityhas no plans to purchaserepurchase any outstanding shares enhancesuntil the valueCompany returns to profitability.

Risks and Uncertainties

In accordance with ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), the remaining shareholdersCompany has evaluated whether there are conditions and events, considered in the aggregate, that these repurchasesraise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.

As an Event of Default is expected associated with the Loan Agreement, and there is no guaranty that the Event of Default will have no adverse effect on our short-termbe waived by BOKF, NA, there is sufficient uncertainty that, should the bank choose to accelerate the maturities of the Fixed Rate Term Loan and Floating Rate Term Loan, the Company could continue as a going concern. Management has plans to enter into a new financing agreement by August 9, 2023, with BOKF, NA or another lender, that will allow it to operate without default and reclassify the non-current portions of the Fixed Rate Term Loan and Floating Rate Term Loan as long-term liquidity.liabilities. 

Contractual Obligations

We are a smaller reporting company and are not required to provide this information.

Off BalanceOff-Balance Sheet Arrangements

As of February 28, 2022,2023, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

Seasonality

The Company experiences increased sales in the Fall season. Historically, we have experienced an increase in inventory during the Summer in anticipation for the Fall increase in sales. In addition, new titles are typically released twice a year, in the Spring and Fall, which increases our inventory in the months preceding these scheduled releases. The Company uses available cash or working capital borrowingsWe do not expect inventory to fund these increasesincrease in fiscal year 2024 as we continue to sell down excess inventory.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. 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.

Share-Based Compensation

We account for share-based compensation whereby share-based payment transactions with employees, such as stock options and restricted stock, are measured at estimated fair value at the date of grant. For awards subject to service conditions, compensation expense is recognized over the vesting period on a straight-line basis. 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 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.

The restricted share awards under the 2019 Long-Term Incentive Plan (“2019 LTI Plan”) and 2022 Long-Term Incentive Plan (“2022 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 havehas 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 fiscal years 20222023 and 2021,2022, the Company recognized $1.0$0.9 million and $0.9$1.0 million, respectively, of compensation expense associated with the shares granted.

Revenue Recognition

Sales associated with product orders are recognized and recorded when products are shipped. Products are shipped FOB- ShippingFOB-Shipping Point. UBAM’sPaperPie’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 a product damaged in transit. Damaged returns are primarily received from the retail customers of our Publishing division. Those damages occurThis damage occurs in the stores, not in shipping to the stores, and we typically do not offer credit for damaged returns. It is industry practice to accept non-damaged returns from retail customers. Management has estimated and included a reserve for sales returns of $0.2 million for the fiscal years ended February 28, 20222023 and February 28, 2021.2022.

Allowance for Doubtful Accounts

We maintain an allowance for estimated losses resulting from the inability of our customers to make required payments and a reserve for vendor share markdowns, when applicable (collectively “allowance for doubtful accounts”). An estimate of uncollectible amounts is made by management based upon historical bad debts, current customer receivable balances, age of customer receivable balances, customers’ financial conditions and current economic trends. Management has estimated and included an allowance for doubtful accounts of $0.2 million and $0.3 million for the fiscal years ended February 28, 20222023 and February 28, 2021.2022, respectively.

Inventory

Our inventory contains overapproximately 2,000 titles, each with different rates of sale depending upon the nature and popularity of the title. Almost all of our product line is saleable as the booksproducts are not topical in nature and remain current in content today as well as in the future. Most of our products are printed in China, Europe, Singapore, India, Malaysia and Dubai typically resulting in a four to six-montheight-month lead-time to have a title printed and delivered to us.

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 the minimum order requirements of our suppliers. Noncurrent inventory wasis estimated by management using the current yearan anticipated turnover ratio by title, and anticipated sales of specific titles.based primarily on historical trends. Inventory in excess of 2½ years of anticipated sales is classified as noncurrent inventory. These inventory quantities have additional exposure for storage damages and related issues, and therefore have higher obsolescence reserves. Noncurrent inventory balances prior to valuation allowances were $2.4$5.1 million and $0.9$2.4 million at February 28, 20222023 and February 28, 2021,2022, respectively. Noncurrent inventory valuation allowances were $0.4 million and $0.2 million at February 28, 20222023 and February 28, 2021, respectively.2022.

ConsultantsBrand Partners that meet certain eligibility requirements may request and receive inventory on consignment. We believe allowing our consultantsBrand Partners to have consignment inventory greatly increases their ability to be successful in making effective presentations at home shows, book fairs and other events; in summary, having consignment inventory leads to additional sales opportunities. Approximately 6.4%8.5% of our active consultantsBrand Partners have maintained consignment inventory at the end of fiscal year 2022.2023. 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 consultantsBrand Partners was $1.4$1.5 million and $1.1$1.4 million at February 28, 20222023 and February 28, 2021,2022, respectively.

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 $0.9 million and $0.7 million at February 28, 20222023 and February 28, 2021, 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 2½ years represents a reasonable estimate of the normal operating cycle for our products.2022.

New Accounting Pronouncements

See the New Accounting Pronouncements section of Note 1 to our financial statements, included in Part IV, Item 15 of this report, for further details of recent accounting pronouncements.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company and are not required to provide this information.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by Item 8 begins at page 25.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

Item 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

An evaluation was performed of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”) Rule 13a-15(a) as of February 28, 2022.2023. 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 effective to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act 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.

Changes in Internal Control over Financial Reporting

During the fourth quarter of the fiscal year covered by this report on Form 10-K, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13(a) thruthrough 15(f) of the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of our internal control over financial reporting based on the framework set forth in the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based on our evaluation under the 2013 COSO Framework and applicable SEC rules, our management concluded that our internal control over financial reporting was effective as of February 28, 2022. Our2023.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting as of February 28, 2022 has been auditedreporting. Management's report was not subject to attestation by HoganTaylor LLP, an independentour registered public accounting firm as stated in theirpursuant to rules of the SEC that permit us to provide only management's report which is included in this Form 10-K.annual report.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Educational Development Corporation

Opinion on the Internal Control Over Financial Reporting

We have audited Educational Development Corporation's (the Company) internal control over financial reporting as of February 28, 2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 28, 2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the balance sheets of the Company as of February 28, 2022 and 2021, the related statements of earnings, shareholders' equity and cash flows for the years then ended, and the related notes to the financial statements and our report dated May 5, 2022 expressed an unqualified opinion.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ HOGANTAYLOR LLP

Tulsa, Oklahoma

May 5, 2022

Item 9B. OTHER INFORMATION

None

Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

None

PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

(a) Identification of Directors

The information required by this Item 10 is furnished by incorporation by reference to the information under the caption "Election of Directors" in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 6, 2022.June 29, 2023.

(b) Identification of Executive Officers

The information required by this Item 10 is furnished by incorporation by reference to the information under the caption "Executive Officers of the Registrant" in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 6, 2022.June 29, 2023.

(c) Compliance with Section 16 (a) of the Exchange Act

The information required by this Item 10 is furnished by incorporation by reference to the information under the caption "Section 16 (a) Beneficial Ownership Reporting Compliance” in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 6, 2022.June 29, 2023.

Item 11. EXECUTIVE COMPENSATION

The information required by this Item 11 is furnished by incorporation by reference to the information under the caption "Executive Compensation" in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 6, 2022.June 29, 2023.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this Item 12 is furnished by incorporation by reference to the information under the captions "Security Ownership of Certain Beneficial Owners and Management" and "Compensation Plans" in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 6, 2022.June 29, 2023.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

None

Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this Item 14 is furnished by incorporation by reference to the information under the caption "Independent Registered Public Accountants" in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 6, 2022.June 29, 2023.

PART IV

Item 15. EXHIBITS, AND FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as part of this report:

1. Financial Statements

Schedules have been omitted as such information is either not required or is included in the financial statements.

2. Exhibits

*Paper Filed

**Filed Herewith

Item 16. FORM 10-K SUMMARY

Not applicable

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

EDUCATIONAL DEVELOPMENT CORPORATION

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Educational Development Corporation

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Educational Development Corporation (the Company) as of February 28, 20222023 and 2021,2022, the related statements of earnings,operations, shareholders' equity and cash flows for the years then ended, and the related notes to the financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of February 28, 20222023 and 2021,2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of February 28, 2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated May 5, 2022, expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOBPublic Company Accounting Oversight Board (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the auditing standards of the PCAOB.PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit MattersMatter

CriticalThe critical audit matters are mattersmatter communicated below is a matter arising from the current period audit of the financial statements that werewas communicated or required to be communicated to the audit committee and that: (1) relaterelates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are noThe communication of the critical audit matters.matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Liquidity and Management's Plans

While the Company received a waiver for the fixed charge ratio default that occurred on February 28, 2023, the borrowing and purchasing capacity was restricted and management's forecast indicated that the Company will not be in compliance in future periods as described in Note 9. These conditions, among others in the aggregate, raise substantial doubt over the Company's ability to meet its obligations over the next twelve months. Management has evaluated these conditions and concluded that its plans have alleviated the substantial doubt about the Company's ability to continue for at least the next twelve months.

To assess their ability to meet obligations as they come due and assess future compliance with debt covenants for at least twelve months from the issuance date of the financial statements, the Company has forecasted future financial results which requires significant judgment and estimation. Additionally, there is significant judgment and increased level of audit effort involved in determining that it is probable that management's plans will be effectively implemented and alleviate substantial doubt about the Company's ability to continue beyond the next twelve months.

Our audit procedures we performed to address this critical audit matter included, among others:

/s/ HOGANTAYLOR LLP

We have served as the Company's auditor since 2005.

Tulsa, Oklahoma

May 5, 2022

17, 2023

EDUCATIONAL DEVELOPMENT CORPORATION

BALANCE SHEETS

AS OF FEBRUARY 28,

See notes to financial statements.

EDUCATIONAL DEVELOPMENT CORPORATION

STATEMENTS OF EARNINGSOPERATIONS

FOR THE YEARS ENDED FEBRUARY 28,

See notes to financial statements.

EDUCATIONAL DEVELOPMENT CORPORATION

STATEMENTS OF SHAREHOLDERS’ EQUITY

AS OF FEBRUARY 28, (29),