The following table sets forth consolidated statement of earningsincome data as a percentage of nettotal revenues.

The Publishing Division’s discounts and allowances are a much larger percentage of gross sales than discounts and allowances in the UBAH Division due to the different customer markets that each division targets. The Publishing Division’s discounts and allowances were $2,030,300$2,246,067 and $1,705,400$2,326,941 for the three monthsquarterly periods ended November 30,May 31, 2006 and 2005, and 2004, respectively. The Publishing Division sells to retail book chains, regional and local bookstores, toy and gift stores, school supply stores and museums. To be competitive with other wholesale book distributors, the Publishing Division sells at discounts between 48% and 55% of the retail price, based upon the quantity of books ordered and the dollar amount of the order. The Publishing Division’s discounts and allowances were 51.7%52.1% of Publishing’s gross sales for the three monthsquarterly period ended November 30, 2005May 31, 2006 and 50.8%51.9% for the three monthsquarterly period ended November 30, 2004.May 31, 2005.

The increase in transportation revenues for the three months ended November 30, 2005May 31, 2006 is the result of increased salesthe January 2006 increase in boththe shipping rates charged in the UBAH Division and the Publishing Division.

The Company’s effective tax rate was 36.7%36.1% and 37.6%38.0% for the three monthsquarterly periods ended November 30,May 31, 2006 and 2005, and 2004, respectively. These rates are higher than the federal statutory rate due to state income taxes.

The Company’s primary source of cash is operating cash flow. Its primary uses of cash are for purchasesto repay borrowings on the Company’s line of treasury stock under the stock buyback programcredit, purchase property and for working capital.equipment and pay dividends. The Company utilizes its bank credit facility to meet its short-term cash needs.

The Company’s Board of Directors has adopted a stock repurchase plan in which the Company may purchase up to 2,500,000 shares as market conditions warrant. Management believes the stock is undervalued and when stock becomes available at an attractive price, the Company will utilize free cash flow to repurchase shares. Management believes this enhances the value to the remaining stockholders and that these repurchases will have no adverse effect on the Company’s short-term and long-term liquidity. The Company did not repurchase any shares during the quarter ended May 31, 2006.

The Company has a history of profitability and positive cash flow. The Company can sustain planned growth levels with minimal capital requirements. Consequently, cash generated from operations is used to liquidate any existing debt and then to repurchase shares outstanding or capital distributions through dividends. The Company expects its ongoing cash flow to exceed cash required to operate the business. During the first nine months of fiscal year 2006 the Company repurchased 7,500 shares of its common stock under the stock repurchase program at a cost of $77,300.dividends

The Company’s primary source of liquidity is cash generated from operations. During the first ninethree months of fiscal year 20062007 the Company experienced a positive cash flow from operating activities of $1,354,300.$1,271,839. Cash flows from operating activities was positive due to increasesincreased by a decline in inventory of $1,144,243 and an increase in income taxes payable of $155,407. Offsetting this was a decrease in accounts payable and accrued expenses of $378,200, offset by increases$836,219. Fluctuations in net inventory involve the timing of $297,000 and a net increase in accounts receivable and income taxes receivable of $838,500. Inventory increased due toshipments received from the receipt of many new titles for the January 2006 selling season, offset by the moderate increase in sales for the first nine months ended November 30, 2005.Company’s principal supplier. The Company believes that the inventory levels are at an adequate level to meet sales requirements and does not foresee increasing inventory significantly during the balance of fiscal year 2006. The increase in accounts receivable is due primarily to increased sales in the Publishing Division and a special sales promotion in the Publishing Division which offered payment terms extended to mid-December.2007. Fluctuations in accounts payable and accrued expenses involve timing of shipments received from the Company’s principal supplier and the payments associated with these shipments. Cash generated from operations during the first nine months of fiscal year 2005 was $4,209,100. The reduction in cash generated from operations between the nine months of fiscal year 2006 versus fiscal year 2005 was primarily due to a decrease of $2,200,000 in inventories during the nine months of fiscal year 2005.

The Company believes that in fiscal year 20062007 it will experience a positive cash flow and that this positive cash flow along with the bank credit facility will be adequate to meet its liquidity requirements for the foreseeable future.

CashThere was no cash used in investing activities was $219,400. The principal uses of cash in investing activities were $169,500 in property improvements, a $41,300 automobile, $6,600 in warehouse equipment and $2,000 in computer equipment.during the quarter ended May 31, 2006. The Company estimates that cash used in investing activities for fiscal year 20062007 will be less than $250,000. This would consist of software and hardware enhancements to the Company’s existing data processing equipment, property improvements and additional warehouse equipment.

Cash used in financing activities was $1,336,000,$1,382,635, comprised of a net decrease$42,052 received from the sale of $895,000 in borrowings under the bank credit agreement, $49,400treasury stock, $2,500 received from the exercise of stock options, $12,300 tax benefit of stock options exercised, $135,300 received from the sale of treasury stock, $77,300 paid to acquire treasury stock$751,187 cash dividend payment and a $560,700 cash dividend payment.net reduction of $676,000 in borrowings under the bank credit agreement.

As of November 30, 2005May 31, 2006 the Company did not have any commitments in excess of one year.

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 uncollectable 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. The Company’s significant accounting policies are described in the notes accompanying the financial statements included in the Company’s Annual Report to Shareholders for the Fiscal Year ended February 28, 2005.2006. However, the Company considers the following accounting policies to be more dependent on the use of estimates and assumptions.assumptions

Revenue from merchandiseSales are recognized and recorded when products are shipped. Products are shipped FOB shipping point. The UBAH Division’s sales are paid before the product is shipped. These sales accounted for 74% of net of returnsrevenues for the quarters ended May 31, 2006 and allowances.May 31, 2005. The provisions of the SEC Staff Accounting Bulletin No.104, “Revenue Recognition in Financial Statements,” have been applied, and as a result, a reserve is provided for estimated future sales returns. The Company’s sales return policy allows the customer to return all purchases for an exchange or refund for up to 30 days after the customer receives the item. Estimated allowances for sales returns are recorded as sales are recognized and recorded. Management uses a moving average calculation to estimate the allowance for sales returns. The Company is not responsible for product damaged in transit. Damaged returns are primarily from the retail stores. The damages occur in the stores, not in shipping to the stores. It is industry practice to accept returns from wholesale customers. Transportation revenue, the amount billed to the customer for shipping the product, is recorded when products are shipped. Management has estimated and included a reserve for sales returns of $66,000$70,000 as of November 30, 2005May 31, 2006 and $63,000$73,000 as of February 28, 2005. The reserve for sales returns is estimated by management using historical sales returns data.2006.

The Company maintains an allowance for estimated losses resulting from the inability of its customers to make required payments. An estimate of uncollectable amounts is made by management based upon historical bad debts, current customer receivable balances, age of customer receivable balances, the customer’s financial condition and current economic trends. If the actual uncollected amounts significantly exceed the estimated allowance, then the Company’s operating results would be significantly adversely affected. Management has estimated and included an allowance for doubtful accounts of $85,900$121,840 and $77,400$112,209 as of November 30, 2005May 31, 2006 and February 28, 2005,2006, respectively.

Management continually estimates and calculates the amount of non-current inventory. TheNon-current inventory arises due to the Company occasionally purchasing book inventory in quantities in excess of what will be sold within the normal operating cycle due to minimum order requirements of the Company’s primary supplier. Non-current inventory was estimated by management using the current year turnover ratio by title. All inventory in excess of 2¹/₂ years of anticipated sales was classified as non-currentnoncurrent inventory. Non-currentNoncurrent inventory balances, before valuation allowance, were $674,000$588,000 at November 30, 2005May 31, 2006 and $1,111,700$657,000 at February 28, 2005. The decrease in non-current inventory is the result of the Company promoting many of these titles on its web site as well as special promotions of many of these titles through the UBAH Division.2006.

Whenever events or changes in circumstances indicate thatIn evaluating the carrying amountfair value and future benefits of our property and equipment may not be recoverable fromlong-lived assets, we perform an analysis of the anticipated undiscounted future operatingnet cash flows we will perform a test to determineof the related long-lived assets and reduce their carrying value by the excess, if any, of the asset values are impaired.result of such calculation. We believe at this time that the long-lived assets’ carrying values and useful lives continue to be appropriate.

The Company accounts for stock-based compensation whereby share-based payment transactions with employees, such an evaluation is not necessary.as stock options and restricted stock, are measured at estimated fair value at date of grant and recognized as compensation expense over the vesting period.

     The Company does not have any material market risk.

An evaluation was performed of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) and 15d-15(e) as of November 30, 2005.May 31, 2006. This evaluation was conducted under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and its Controller and Corporate Secretary (Principal Financial and Accounting Officer). Based on that evaluation, the Company’s Chief Executive Officer and its Controller and Corporate Secretary (Principal Financial and Accounting Officer) concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported in accordance within the time periods specified in Securities and Exchange Commission 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, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. There have been no changes in the Company’s internal control over financial reporting that have materially affected or are reasonably likely to materially affect, its internal control over financial reporting, since the date these controls were evaluated.

     The following table sets forth certain information concerning the repurchase of the Company’s Common Stock made by the Company during the thirdfirst quarter ended November 30, 2005.May 31, 2006.