EDUCATIONAL DEVELOPMENT CORPORATION

CONDENSED BALANCE SHEETS (UNAUDITED)

	August 31,			February 28,
ASSETS	2019			2019
CURRENT ASSETS
Cash and cash equivalents	$	966,800		$	3,199,300
Accounts receivable, less allowance for doubtful accounts of $311,700 (August 31) and $268,600 (February 28)		3,498,700			3,258,800
Inventories - Net		35,619,700			33,445,600
Prepaid expenses and other assets		1,008,400			1,603,500
Total current assets		41,093,600			41,507,200

INVENTORIES - Net		658,600			575,000

PROPERTY, PLANT AND EQUIPMENT - Net		26,714,500			27,164,600

OTHER ASSETS		70,000			19,500

TOTAL ASSETS	$	68,536,700		$	69,266,300


LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	13,180,700		$	14,228,600
Line of credit		1,056,100			-
Deferred revenues		751,900			965,600
Current maturities of long-term debt		927,200			945,900
Accrued salaries and commissions		1,751,500			2,039,000
Income taxes payable		1,070,400			756,400
Dividends payable		422,300			410,100
Other current liabilities		2,538,600			4,177,900
Total current liabilities		21,698,700			23,523,500

LONG-TERM DEBT - Net of current maturities		18,377,300			18,830,700
DEFERRED INCOME TAXES - Net		1,000,200			872,600
OTHER LONG-TERM LIABILITIES		146,100			109,000
Total liabilities		41,222,300			43,335,800

SHAREHOLDERS' EQUITY
Common stock, $0.20 par value; Authorized 16,000,000 shares; Issued 12,400,080 (August 31) and 12,092,080 (February 28) shares; Outstanding 8,447,898 (August 31) and 8,195,082 (February 28) shares		2,480,000			2,418,400
Capital in excess of par value		9,368,100			8,975,100
Retained earnings		27,294,900			25,754,900
		39,143,000			37,148,400
Less treasury stock, at cost		(11,828,600	)		(11,217,900	)
Total shareholders' equity		27,314,400			25,930,500
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	68,536,700		$	69,266,300

See notes to ~~condensed~~ financial statements.

Table of Contents

EDUCATIONAL DEVELOPMENT CORPORATION
CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)
Three Months Ended November 30, Nine Months Ended November 30,
2017 2016 2017 2016

GROSS SALES $ 41,894,600 $ 34,397,300 $ 100,989,500 $ 91,657,200
  Less discounts and allowances (6,762,300 ) (6,948,000 ) (19,929,300 ) (20,581,900 )
  Transportation revenue 3,775,700 3,248,300 8,959,900 8,299,500
NET REVENUES 38,908,000 30,697,600 90,020,100 79,374,800
COST OF GOODS SOLD 10,494,800 8,328,100 24,579,200 22,500,300
           Gross margin 28,413,200 22,369,500 65,440,900 56,874,500

OPERATING EXPENSES:
  Operating and selling 7,837,300 6,520,300 17,549,900 16,790,900
  Sales commissions 12,510,400 9,521,000 28,759,300 24,802,200
  General and administrative 4,735,200 4,525,900 12,359,600 12,237,600
           Total operating expenses 25,082,900 20,567,200 58,668,800 53,830,700

OTHER INCOME (EXPENSE):
   Interest expense (287,600 ) (265,000 ) (863,800 ) (730,000 )
   Other income 390,100 502,800 1,189,400 1,251,600
           Total other income 102,500 237,800 325,600 521,600

EARNINGS BEFORE INCOME TAXES 3,432,800 2,040,100 7,097,700 3,565,400

INCOME TAXES 1,304,400 765,900 2,707,100 1,352,500
NET EARNINGS $ 2,128,400 $ 1,274,200 $ 4,390,600 $ 2,212,900

BASIC AND DILUTED EARNINGS PER SHARE:
  Basic $ 0.52 $ 0.31 $ 1.07 $ 0.54
  Diluted $ 0.52 $ 0.31 $ 1.07 $ 0.54

DIVIDENDS PER SHARE $ 0.00 $ 0.09 $ 0.00 $ 0.27

WEIGHTED AVERAGE NUMBER OF COMMON
   AND EQUIVALENT SHARES OUTSTANDING:

  Basic 4,087,268 4,079,916 4,087,686 4,074,355
  Diluted 4,090,011 4,084,863 4,090,053 4,079,833

EDUCATIONAL DEVELOPMENT CORPORATION

CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)

	Three Months Ended August 31,						Six Months Ended August 31,
	2019			2018			2019			2018
GROSS SALES	$	32,541,700		$	33,013,600		$	69,015,400		$	72,088,400
Less discounts and allowances		(10,241,000	)		(10,444,700	)		(21,572,400	)		(22,346,100	)
Transportation revenue		2,137,300			2,112,100			4,582,400			4,961,000
NET REVENUES		24,438,000			24,681,000			52,025,400			54,703,300
COST OF GOODS SOLD		8,046,400			8,462,700			17,102,600			18,132,400
Gross margin		16,391,600			16,218,300			34,922,800			36,570,900

OPERATING EXPENSES
Operating and selling		4,192,500			3,261,600			8,576,400			8,013,800
Sales commissions		7,263,100			7,313,000			15,796,100			16,686,100
General and administrative		3,717,600			3,738,400			7,655,800			7,630,900
Total operating expenses		15,173,200			14,313,000			32,028,300			32,330,800


INTEREST EXPENSE		242,500			270,000			474,500			483,400
OTHER INCOME		(390,800	)		(400,300	)		(793,200	)		(774,700	)

EARNINGS BEFORE INCOME TAXES		1,366,700			2,035,600			3,213,200			4,531,400

INCOME TAXES		359,100			544,900			842,000			1,224,100
NET EARNINGS	$	1,007,600		$	1,490,700		$	2,371,200		$	3,307,300

BASIC AND DILUTED EARNINGS PER SHARE
Basic	$	0.12		$	0.18		$	0.29		$	0.40
Diluted	$	0.12		$	0.18		$	0.29		$	0.40

WEIGHTED AVERAGE NUMBER OF COMMON AND EQUIVALENT SHARES OUTSTANDING
Basic		8,312,648			8,185,419			8,248,460			8,181,305
Diluted		8,318,790			8,192,833			8,254,926			8,188,920
Dividends per share	$	0.05		$	-		$	0.10		$	0.05

See notes to ~~condensed~~ financial statements.

Table of Contents

EDUCATIONAL DEVELOPMENT CORPORATION
CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED NOVEMBER 30, 2017

Common Stock
(par value $0.20 per share)

Number of Capital in Treasury Stock
Shares Excess of Retained Number of Shareholders’
Issued Amount Par Value Earnings Shares Amount Equity

BALANCE—March 1, 2017 6,041,040 $ 1,208,200 $ 8,548,000 $ 16,317,800 1,950,966 $ (10,856,600 ) $ 15,217,400
  Exercise of stock options 5,000 1,000 25,300 - - - 26,300
  Purchases of treasury stock - - - - 10,041 (98,000 ) (98,000 )
  Sales of treasury stock - - - - (3,901 ) 32,000 32,000
  Net earnings - - - 4,390,600 - - 4,390,600
BALANCE— November 30, 2017 6,046,040 $ 1,209,200 $ 8,573,300 $ 20,708,400 1,957,106 $ (10,922,600 ) $ 19,568,300

EDUCATIONAL DEVELOPMENT CORPORATION

CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

FOR THE SIX MONTHS ENDED AUGUST 31, 2019

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

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

FOR THE SIX MONTHS ENDED AUGUST 31, 2018

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

BALANCE - February 28, 2018		12,092,080	$	2,418,400	$	8,573,300	$	20,714,500			3,912,468		$	(11,304,100	)	$	20,402,100
Purchases of treasury stock		-		-		-		-			2,846			(29,600	)		(29,600	)
Sales of treasury stock		-		-		-		-			(3,302	)		25,100			25,100
Dividends declared ($0.05/share)		-		-		-		(409,000	)		-			-			(409,000	)
Net earnings		-		-		-		1,816,600			-			-			1,816,600
BALANCE - May 31, 2018		12,092,080		2,418,400		8,573,300		22,122,100			3,912,012			(11,308,600	)		21,805,200
Exercise of options		-		-		-		-			(9,634	)		77,200			77,200
Share-based compensation expense (see Note 6)		-		-		70,000		-			-			-			70,000
Net earnings		-		-		-		1,490,700			-			-			1,490,700
BALANCE - August 31, 2018		12,092,080	$	2,418,400	$	8,643,300	$	23,612,800			3,902,378		$	(11,231,400	)	$	23,443,100

See notes to financial statements.

Table of Contents

EDUCATIONAL DEVELOPMENT CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED NOVEMBER 30,

2017 2016

CASH FLOWS FROM OPERATING ACTIVITIES:
  Net earnings $ 4,390,600 $ 2,212,900
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities
Depreciation 911,700 780,400
Deferred income taxes 179,400 (35,400 )
Provision for doubtful accounts 438,000 558,900
Provision for inventory valuation allowance 33,000 (37,300 )
Changes in assets and liabilities:
     Accounts receivable (1,355,700 ) (1,994,200 )
     Inventories, net 9,760,000 (16,775,100 )
     Prepaid expenses and other assets (304,700 ) (1,661,300 )
     Accounts payable (7,301,700 ) 6,889,100
     Deferred revenue 28,600 6,632,500
     Accrued salaries and commissions 2,765,200 375,600
     Other liabilities 1,320,000 2,307,700
     Income taxes payable 469,600 576,800
          Total adjustments 6,943,400 (2,382,300 )
          Net cash provided by (used in) operating activities 11,334,000 (169,400 )

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property, plant and equipment (1,330,500 ) (2,123,600 )
             Net cash used in investing activities (1,330,500 ) (2,123,600 )

CASH FLOWS FROM FINANCING ACTIVITIES:
  Payments on long-term debt (657,800 ) (530,200 )
  Proceeds from long-term debt 1,019,000 4,000,000
  Cash received from sales of treasury stock 32,000 170,700
  Cash used to purchase treasury stock (98,000 ) (200 )
Proceeds from the issuance of stock options 26,300 -
  Net payments under the line of credit (4,882,900 ) (451,800 )
  Dividends paid - (1,099,500 )
             Net cash provided by (used in) financing activities (4,561,400 ) 2,089,000

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,442,100 (204,000 )
CASH AND CASH EQUIVALENTS—BEGINNING OF PERIOD 699,200 1,183,700

CASH AND CASH EQUIVALENTS—END OF PERIOD $ 6,141,300 $ 979,700

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid for interest $ 868,900 $ 730,000
  Cash paid for income taxes $ 2,058,100 $ 811,100

EDUCATIONAL DEVELOPMENT CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE SIX MONTHS ENDED AUGUST 31,

	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings	$	2,371,200		$	3,307,300
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation		684,800			717,600
Deferred income taxes, net		127,600			251,100
Provision for doubtful accounts		63,200			17,200
Provision for inventory valuation allowance		129,900			176,300
Share-based compensation expense		332,500			70,000
Changes in assets and liabilities:
Accounts receivable		(303,100	)		(264,800	)
Inventories		(2,387,600	)		(7,216,400	)
Prepaid expenses and other assets		544,600			(35,800	)
Accounts payable		(1,047,900	)		2,767,400
Accrued salaries and commissions, and other liabilities		(1,889,700	)		(1,276,400	)
Deferred revenues		(213,700	)		(234,800	)
Income taxes payable		314,000			(632,400	)
Total adjustments		(3,645,400	)		(5,661,000	)
Net cash used in operating activities		(1,274,200	)		(2,353,700	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment		(234,700	)		(1,331,800	)
Net cash used in investing activities		(234,700	)		(1,331,800	)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt		(472,100	)		(467,200	)
Cash received from sale of treasury stock		231,000			102,300
Cash used to purchase treasury stock		(719,600	)		(29,600	)
Net borrowings under line of credit		1,056,100			2,598,700
Dividends paid		(819,000	)		(409,000	)
Net cash (used in) provided by financing activities		(723,600	)		1,795,200
NET DECREASE IN CASH AND CASH EQUIVALENTS		(2,232,500	)		(1,890,300	)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		3,199,300			2,723,300
CASH AND CASH EQUIVALENTS - END OF PERIOD	$	966,800		$	833,000

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Cash paid for interest	$	465,900		$	454,800
Cash paid for income taxes	$	448,600		$	1,596,100

NON-CASH TRANSACTIONS
Accrued capital expenditures	$	-		$	-

See notes to ~~condensed~~ financial statements.

Table of Contents

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

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

Basis of Presentation

The accompanying Unaudited Condensed Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim condensed financial information and in accordance with the rules and regulations of the Securities and Exchange Commission. The Unaudited Condensed Financial Statements include all adjustments considered necessary for a fair presentation of the financial position and results of operations for the interim periods presented. Such adjustments consist only of normal recurring items, unless otherwise disclosed herein. Accordingly, the Unaudited Condensed Financial Statements do not include all of the information and notes required by GAAP for complete financial statements. However, we believe that the disclosures made are adequate to make the information not misleading. These interim Unaudited Condensed Financial Statements should be read in conjunction with our audited financial statements as of and for the year ended February 28, ~~2017~~2019 included in our Form 10-K. The results of operations for interim periods are not necessarily indicative of the results to be expected for a full year due to the seasonality of our product sales.

~~Reclassifications~~

~~Certain reclassifications~~

On July 24, 2018, our Board of Directors authorized a two-for-one stock split in the form of a stock dividend. The stock dividend was distributed on August 22, 2018 to shareholders of record as of August 14, 2018. All share-based data, including the number of shares outstanding and per share amounts, have been ~~made~~retroactively adjusted to reflect the ~~fiscal 2017 condensed balance sheet and condensed statement of earnings to conform to the classifications used in fiscal 2018. These reclassifications had no effect on net earnings.~~

stock split for all periods presented.

Use of Estimates in the Preparation of Financial Statements

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

Significant Accounting Policies

Our significant accounting policies, other than the adoption of new accounting pronouncements separately documented below, are consistent with those disclosed in Note 1 to our audited financial statements as of and for the year ended February 28, ~~2017,~~2019 included in our Form 10-K.

New Accounting Pronouncements

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

us:

In ~~May 2014,~~February 2016, FASB issued ASU No. 2014-09, and amended with ASU No. 2015-14 “Revenue from Contracts with Customers,” which provides a single revenue recognition model which is intended to improve comparability over a range of industries, companies and geographical boundaries and will also result2016-02, Leases (Topic 842). In addition, in ~~enhanced disclosures. The changes are effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, which means~~July 2018, the ~~first quarter of our fiscal year 2019. We do not expect the adoption of this ASU will have a significant impact on the Company’s financial position, results of operations and cash flows.~~

~~In July 2015,~~ FASB issued ASU ~~No. 2015-11 "Inventory - Simplifying~~2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842), Targeted Improvements, which provide an additional (and optional) transition method whereby the ~~Measurement of Inventory", which~~new lease standard is ~~intended to allow measurement of inventory~~applied at the ~~lower of cost~~adoption date and ~~net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.~~recognized as an adjustment to retained earnings. This ASU ~~became effective~~requires lessees to recognize a right of use asset and lease liability on the balance sheet for all leases, with the ~~Company~~exception of short-term leases. The new accounting model for lessors remains largely unchanged, although some changes have been made to align it with the new lessee model and the new revenue recognition guidance. This update also requires companies to include additional disclosures regarding their lessee and lessor agreements. We adopted this standard on March 1, ~~2017. The adoption of this ASU~~2019, and it did not have a material impact on ~~the Company’s~~our condensed financial position, results of operations ~~and~~or cash flows.

~~Table~~ Adoption of ~~Contents~~

~~In November 2015, FASB issued~~this ASU No. 2015-17, “Income Taxes - Balance Sheet Classification of Deferred Taxes,” which is intended to improve how deferred taxes are classified on organizations’ balance sheets by eliminating the current requirement for organizations to present deferred tax liabilities and assets as current and noncurrentresulted in ~~a classified balance sheet. Instead, organizations will now be required to classify all deferred tax~~an increase in our assets and liabilities ~~as noncurrent. The changes are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods, which means~~by approximately $52,900 due to the ~~first quarter~~recognition of ~~our fiscal year 2018. We have retrospectively implemented this new presentation in our condensed financial statements. As such, for the period ending~~right of ~~February 28, 2017, we reclassified $466,000 of current deferred tax assets to noncurrent~~use assets and ~~netted $338,000 of deferred tax liabilities against the balance on the condensed balance sheet. The adoption of this ASU did not affect~~lease liabilities. See Note 3 – Leases for our ~~statements of earnings.~~

~~In February 2016, FASB issued ASU No. 2016-02, “Leases,” which is intended to establish a comprehensive new~~ lease accounting model. The new standard clarifies the definition of a lease, requires a dual approach to lease classification similar to current lease classifications, and causes lessees to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset. The new standard is effective for interim and annual periods beginning after December 15, 2018, which means the first quarter of our fiscal year 2020. The new standard requires a modified retrospective transition for capital or operating leases existing at or entered into after the beginning of the earliest comparative period presented in the financial statements. We are currently reviewing the ASU and evaluating the potential impact on our financial statements.

In March 2016, FASB issued ASU No. 2016-09, “Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting,” which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This ASU became effective for the Company on March 1, 2017. The adoption of this ASU did not have a material impact on the Company's financial position, results of operations and cash flows.

disclosures.

In June 2016, FASB issued ASU No. 2016-13 ~~"Financial~~“Financial Instruments—Credit ~~Losses"~~Losses”, which requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The new standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal ~~years, which means~~years. The Company adopted ASU No. 2016-13 in the first quarter of ~~our~~ fiscal ~~year 2021. We expect the implementation~~2020. The adoption of this ASU ~~will~~did not have a ~~significant~~material impact on ~~our~~the Company’s condensed financial ~~statements.~~position, results of operations or cash flows.

Table of Contents

In ~~May 2017,~~August 2018, the FASB issued ASU ~~2017-09, “Compensation - Stock Compensation~~No. 2018-13, Fair Value Measurement (Topic ~~718): Scope of Modification Accounting.” This update amends the scope of modification accounting surrounding share-based payment arrangements as issued~~820). The new guidance modifies disclosure requirements related to fair value measurement. The amendments in this ASU ~~2016-09 by providing guidance on the various types of changes which would trigger modification accounting for share-based payment awards. This ASU is~~are effective for ~~annual periods beginning after December 15, 2017,~~fiscal years, and interim periods within those ~~annual periods, which means~~fiscal years, beginning after December 15, 2019. Implementation on a prospective or retrospective basis varies by specific disclosure requirement. The Company adopted ASU No. 2018-13 in the first quarter of ~~our~~ fiscal year 2019. Early adoption is permitted, including adoption in any interim period, for public business entities for reporting periods for which financial statements have not yet been issued. We do not expect the2020. The adoption of this ASU ~~2017-09 to~~did not have a material ~~effect~~impact on ~~our~~the Company’s condensed financial position, results of operations ~~and~~or cash flows.

Note 2 – INVENTORIES

Inventories consist of the following:

2017
November 30, February 28,
Current:
  Book inventory $ 24,480,900 $ 34,278,100
  Inventory valuation allowance (25,000 ) (25,000 )

Inventories net–current $ 24,455,900 $ 34,253,100

Noncurrent:
  Book inventory $ 502,200 $ 467,100
  Inventory valuation allowance (305,900 ) (275,000 )

Inventories net–noncurrent $ 196,300 $ 192,100

~~Table of Contents~~

	2019
	August 31,			February 28,
Current:
Book inventory	$	35,819,300		$	33,494,200
Inventory valuation allowance		(199,600	)		(48,600	)
Inventories net - current	$	35,619,700		$	33,445,600

Noncurrent:
Book inventory	$	936,900		$	904,400
Inventory valuation allowance		(278,300	)		(329,400	)
Inventories net - noncurrent	$	658,600		$	575,000

Book inventory quantities in excess of what we expect will be sold within the normal operating cycle, based on 2.5 years of anticipated sales, are included in ~~noncurrent~~non-current inventory.

Significant portions of our inventory purchases are concentrated with an England-based publishing ~~company.~~company, Usborne Publishing, Ltd. (“Usborne”). Purchases from this company were approximately ~~$6.9~~$6.0 million and ~~$10.9~~$7.9 million for the three months ended ~~November 30, 2017~~August 31, 2019 and ~~2016,~~2018, respectively. Total inventory purchases from all suppliers were ~~$10.9~~$8.0 million and ~~$15.2~~$10.6 million for the three months ended ~~November 30, 2017~~August 31, 2019 and ~~2016,~~2018, respectively.

Purchases from ~~this company~~Usborne were approximately ~~$18.2~~$11.9 million and ~~$29.9~~$15.5 million for the ~~nine~~six months ended ~~November 30, 2017~~August 31, 2019 and ~~2016,~~2018, respectively. Total inventory purchases from all suppliers were ~~$27.5~~$17.2 million and ~~$43.7~~$21.6 million for the ~~nine~~six months ended ~~November 30, 2017~~August 31, 2019 and ~~2016,~~2018, respectively.

Note 3 – ~~PROPERTY, PLANT AND EQUIPMENT~~ LEASES

As of March 1, 2019, we adopted ASU 2016-02, Leases (Topic 842) using the modified retrospective method of adoption. We elected to use the transition option that allows us to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment (if any) to the opening balance of retained earnings in the year of adoption. Comparable periods continue to be presented under the guidance of the previous standard, ASC 840. ASC 842 requires lessees to recognize a lease liability and right-of-use asset on the balance sheet for operating leases. For lessors, the new accounting model remains largely the same, although some changes have been made to align it with the new lessee model and the new revenue recognition guidance, ASC 606, Revenue from Contracts with Customers. Our adoption of ASC 842 did not result in any adjustments to retained earnings.

We have both lessee and lessor arrangements. Our leases are evaluated at inception or at any subsequent modification. Depending on the terms, leases are classified as either operating or finance leases if we are the lessee, or as operating, sales-type or direct financing leases if we are the lessor, as appropriate under ASC 842. Our lessee arrangement includes a rental agreement where we have exclusive use of dedicated office space in San Diego, California, and qualifies as an operating lease. Our lessor arrangements include two rental agreements for warehouse and office space in Tulsa, Oklahoma, and both qualify as operating leases under ASC 842.

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In accordance with ASC 842, we have made an accounting policy election to not apply the new standard to lessee arrangements with a term of one year or less and no purchase option that is reasonably certain of exercise. We will continue to account for these short-term arrangements by recognizing payments and expenses as incurred, without recording a lease liability and right-of-use asset.

We have also made an accounting policy election for both our lessee and lessor arrangements to combine lease and non-lease components. This election is applied to all of our lease arrangements as our non-lease components are not material and do not result in significant timing differences in the recognition of rental expenses or income.

In addition, the Company elected the package of practical expedients upon adoption which permits the Company to not reassess under the new standard the Company’s prior conclusions about lease identification, lease classification and initial direct costs.

Operating Leases – Lessee

We recognize a lease liability, reported in other liabilities on the condensed balance sheets, for each lease based on the present value of remaining minimum fixed rental payments (which includes payments under any renewal option that we are reasonably certain to exercise), using a discount rate that approximates the rate of interest we would have to pay to borrow on a collateralized basis over a similar term. We also recognize a right-of-use asset, reported in other assets on the condensed balance sheets, for each lease, valued at the lease liability, adjusted for prepaid or accrued rent balances existing at the time of initial recognition. The lease liability and right-of-use asset are reduced over the term of the lease as payments are made and the assets are used.

Minimum fixed rental payments are recognized on a straight-line basis over the life of the lease as costs and expenses on our condensed statements of earnings. Variable and short-term rental payments are recognized as costs and expenses as they are incurred. Future minimum rental payments under operating leases with initial terms greater than one year as of August 31, 2019, are as follows:

Year ending February 28 (29),
2020	$	6,400
2021		13,200
2022		13,700
2023		14,200
2024		8,400
Total future minimum rental payments		55,900
Present value discount		(5,500	)
Total operating lease liability	$	50,400

The following table provides further information about our operating leases as of and for the six months ended August 31, 2019:

Current lease liability	$	13,400
Long-term lease liability	$	37,100
Right-of-use asset	$	50,400

Fixed lease cost	$	6,200
Operating cash flows – operating lease	$	6,200
Remaining lease term (months)		49
Discount rate		4.60	%

Operating lease expense was $9,100 for six months ended August 31, 2018 and was recognized in accordance with ASC 840.

Operating Leases – Lessor

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

~~Property,~~

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

Year ending February 28 (29),
2020	$	695,900
2021		1,414,300
2022		1,441,900
2023		1,470,000
2024		1,471,700
Thereafter		10,806,500
Total	$	17,300,300

The cost of the leased space was approximately $10,359,900 as of August 31, 2019 and February 28, 2019. The accumulated depreciation associated with the leased assets was $1,413,800 and $1,233,400 as of August 31, 2019 and February 28, 2019, respectively. Both the leased assets and accumulated depreciation are included in property, plant and ~~equipment consist of~~equipment-net on the ~~following:~~

2017
November 30, February 28,

  Land $ 4,107,200 $ 4,107,200
  Building 20,321,800 20,321,800
  Building improvements 1,750,100 1,692,500
  Machinery and equipment 6,493,200 5,230,700
  Furniture and fixtures 109,000 101,600
32,781,300 31,453,800
Less accumulated depreciation (5,328,200 ) (4,419,500 )
Net property, plant and equipment $ 27,453,100 $ 27,034,300

~~During fiscal year 2018, the Company purchased and installed new warehouse equipment and made software enhancements to increase its daily shipping capacity.~~

condensed balance sheets.

Note 4 – DEBT

Debt consists of the following:

2017
November 30, February 28,

Line of credit $ - $ 4,882,900

Long-term debt (net of debt issue costs) $ 21,925,500 $ 21,564,300
Less current maturities (1,239,500 ) (898,500 )
LONG-TERM DEBT-net of current maturities $ 20,686,000 $ 20,665,800

	2019
	August 31,			February 28,

Line of credit	$	1,056,100		$	-


Long-term debt	$	19,304,500		$	19,776,600
Less current maturities		(927,200	)		(945,900	)
Long-term debt, net of current maturities	$	18,377,300		$	18,830,700

We have a Loan Agreement dated as of March 10, 2016 (as amended the “Loan Agreement”) with MidFirst Bank (“the Bank”) which includes multiple loans. Term Loan #1 is comprised of Tranche A totaling ~~$13.4~~$11.7 million and Tranche B totaling ~~$5.0~~$4.4 million as of August 31, 2019, both with the maturity date of December 1, 2025. Tranche A has a fixed interest rate of 4.23% and interest is payable monthly. For Tranche B, interest is payable monthly at the bank adjusted LIBOR Index plus a tiered pricing rate based on the Company’s Adjusted Funded Debt to EBITDA Ratio ~~(4.41%~~(4.42% at ~~November 30, 2017)~~August 31, 2019). Term Loan #1 is secured by the primary office, warehouse and land. The outstanding borrowings on Tranche A were $12,566,300 and $12,902,800 at November 30, 2017 and February 28, 2017, respectively. The outstanding borrowings on Tranche B were $4,717,900 and $4,813,800 at November 30, 2017 and February 28, 2017, respectively.

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We also have Term Loan #2 with the Bank ~~in the amount~~totaling $3.2 million as of ~~$4.0 million~~August 31, 2019, with the maturity date of June 28, 2021, and interest payable monthly at the bank adjusted LIBOR Index plus a tiered pricing rate based on the Company’s Adjusted Funded Debt to EBITDA Ratio ~~(4.41%~~(4.42% at ~~November 30, 2017)~~August 31, 2019). Term Loan #2 is secured by our secondary warehouse and land. The Loan Agreement also provided a $15.0 million revolving loan (“line of credit”) through ~~June~~August 15, ~~2018~~2020 with interest payable monthly at the bank adjusted LIBOR Index plus a tiered pricing rate based on the Company’s Adjusted Funded Debt to EBITDA Ratio ~~(4.41%~~(4.42% at ~~November 30, 2017)~~August 31, 2019). ~~The outstanding borrowings on~~

Tranche B of Term Loan #2 were $3,639,000 and $3,847,700 at November 30, 2017 and February 28, 2017, respectively. We had $0 and $4,882,900 in borrowings outstanding on line of credit at November 30, 2017 and February 28, 2017, respectively. Available credit under the revolving credit agreement was $9,105,500 at November 30, 2017 and $2,117,100 at February 28, 2017.

The Loan Agreement was amended on June 15, 2017 to include an advancing term loan (the “Advancing Term Loan”) of $3.0 million which the Company will use to cover up to ninety percent of the cost of planned fiscal 2018 capital improvements to increase its daily shipping capacity. The Advancing Term Loan accrues interest monthly, at the bank adjusted LIBOR Index plus a tiered pricing rate based on the Company’s Adjusted Funded Debt to EBITDA Ratio (4.41% at November 30, 2017), between June 15 and December 15, 2017, at which time the amount advanced was converted to a term loan and will amortized over a thirty-six-month period. The outstanding borrowings on the Advancing Term Loan was $1,019,100 at November 30, 2017.

The Company has capitalized certain debt issue costs associated with amending the Loan Agreement and these costs are being amortized over the term of the respective borrowings. Unamortized debt issues costs were $16,800 at November 30, 2017.

~~The Tranche B, the line of credit, the~~#1, Term Loan #2 and the ~~Advancing Term Loan all~~line of credit accrue interest at a tiered rate based on our Adjusted Funded Debt to EBITDA ~~ratio~~Ratio, which is payable monthly. The ~~current~~variable interest pricing tier is as follows:

Pricing Tier		Adjusted Funded Debt to EBITDA Ratio		LIBOR Margin (bps)
I	~~>3.00~~	~~350.50~~ >2.00		300.00
II		>~~2.50~~1.50 but <~~3.00~~2.00	~~337.50~~	275.00
III		>~~2.00~~1.00 but <~~2.50~~1.50	~~325.00~~	250.00
IV		<~~2.00~~1.00	~~312.50~~	225.00

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Adjusted Funded Debt is defined as all ~~long term~~long-term and short-term bank debt less the outstanding balances of Tranche A and ~~Trance~~Tranche B Term Loans. EBITDA is defined in the Loan Agreement as earnings before interest expense, income tax expense (benefit) and depreciation and amortization ~~expenses.~~expenses, reduced by rental income. The $15.0 million line of credit is limited to advance rates on eligible receivables and eligible inventory levels.

We had $1,056,100 and no borrowings outstanding on our revolving credit agreement at August 31, 2019 and February 28, 2019, respectively. Available credit under the revolving credit agreement was $11,709,600 and $12,439,300 at August 31, 2019 and February 28, 2019, respectively.

On June 15, 2018, the Company executed the Eighth Amendment Loan Agreement with the Bank related to our Loan Agreement. The ~~President~~amendment modified the Loan Agreement, extending the termination date until August 15, 2019, reduced the interest rate pricing grid for all floating rate borrowings covered by the Loan Agreement, established a new $3,000,000 advancing term loan to be used for capital expansions to increase daily shipping capacity, released the personal Guaranty of Randall W. White and ~~Chief Executive Officer~~Carol White, along with other covenant restrictions being lessened. The amendment also included an adjustment to the Adjusted Funded Debt to EBITDA ratio for covenant compliance.

On February 7, 2019, the Company executed the Ninth Amendment Loan Agreement with the Bank related to our Loan Agreement. The amendment modified the Loan Agreement, removing the covenant prohibiting the Company from repurchasing its shares, subject to certain conditions.

On August 15, 2019, the Company executed the Tenth Amendment Loan Agreement with the Bank related to our Loan Agreement. The amendment modified the Loan Agreement, extending the termination date of the line of credit to August 15, 2020, amends the definition of LIBOR Margin, reduces the frequency of reports to the Lender, amends the Adjusted Funded Debt to EBITDA Ratio and ~~his wife have executed a Guaranty Agreement obligating them to repay $3,680,000 of any unpaid Term Loans, unpaid accrued interest~~amends the Compliance and ~~any recourse amounts as defined in the Continuing Guaranty Agreement.~~

Borrowing Base Certificates.

The Loan Agreement also contains a provision for our use of the Bank’s letters of credit. The Bank agrees to issue or obtain issuance of commercial or stand-by letters of credit provided that no letters of credit will have an expiry date later than ~~June~~August 15, ~~2018,~~2020, and that the sum of the line of credit plus the letters of credit would not exceed the borrowing base in effect at the time. ~~For the quarter ended November 30, 2017,~~As of August 31, 2019, we had no letters of credit outstanding.

The Loan Agreement also contains provisions that require us to maintain specified financial ~~ratios, restrict~~ratios; restricts transactions with related ~~parties, prohibit~~parties; prohibits mergers or ~~consolidation, disallow~~consolidation; disallows additional ~~debt,~~debt; and ~~limit~~limits the amount of ~~compensation, salaries,~~ investments, capital expenditures and leasing transactions we can make on a quarterly basis. Additionally, the Loan Agreement ~~suspends~~places limitations on the amount of dividends that may be distributed and the total value of stock ~~buybacks.~~

~~Table~~that can be repurchased.

The following table reflects aggregate future maturities of ~~Contents~~

long-term debt during the next five fiscal years and thereafter as follows:

Year ending February 28 (29),
2020	$	471,700
2021		988,500
2022		1,038,100
2023		1,087,500
2024		1,139,400
Thereafter		14,579,300
Total	$	19,304,500

Note 5 – EARNINGS PER SHARE

Basic earnings per share (“EPS”) is computed by dividing net earnings by the weighted average number of common shares outstanding during the period. Diluted EPS is based on the combined weighted average number of common shares outstanding and dilutive potential common shares issuable which include, where appropriate, the assumed exercise of options. In computing diluted EPS, we have utilized the treasury stock method. See Note 1 for additional information regarding the stock split that occurred in fiscal 2019.

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

Three Months Ended November 30, Nine Months Ended November 30,
2017 2016 2017 2016

Net earnings $ 2,128,400 $ 1,274,200 $ 4,390,600 $ 2,212,900
Shares:
Weighted average shares outstanding – basic 4,087,268 4,079,916 4,087,686 4,074,355

Assumed exercise of options 2,743 4,947 2,367 5,478
Weighted average shares outstanding – diluted 4,090,011 4,084,863 4,090,053 4,079,833

Basic Earnings Per Share $ 0.52 $ 0.31 $ 1.07 $ 0.54
Diluted Earnings Per Share $ 0.52 $ 0.31 $ 1.07 $ 0.54

In April 2008, the Board of Directors authorized management to purchase up to an additional 500,000 shares of our common stock under the Stock Purchase Plan (the “Plan”) initiated in 1998. This Plan has no expiration date. During the nine months ended November 30, 2017, the Company purchased 6,497 shares of common stock from terminated employees that elected to withdraw their contributions from the Company’s 401(k) plan. The shares were purchased at the closing price of the stock on the day the employee executed their withdrawal form. In addition, the Company’s 401(k) plan purchased 3,901 shares of common stock held in treasury during the nine months ended November 30, 2017. The remaining maximum number of shares that can be repurchased in the future is 296,632. ~~Additionally~~, ~~at an exercise price of $5.25 per share,~~ ~~the Company purchased into treasury shares 3,544 shares at $9.85 during the nine months ended November 30, 2017.~~

	Three Months Ended August 31,				Six Months Ended August 31,
	2019		2018		2019		2018
Earnings per share:
Net earnings applicable to common shareholders	$	1,007,600	$	1,490,700	$	2,371,200	$	3,307,300
Shares:
Weighted average shares outstanding-basic		8,312,648		8,185,419		8,248,460		8,181,305
Assumed exercise of options		6,142		7,414		6,466		7,615

Weighted average shares outstanding-diluted		8,318,790		8,192,833		8,254,926		8,188,920

Diluted earnings per share:
Basic	$	0.12	$	0.18	$	0.29	$	0.40
Diluted	$	0.12	$	0.18	$	0.29	$	0.40

Note 6 – STOCK-BASED COMPENSATION

period on a straight-line basis. Awards subject to performance conditions are attributed separately for each vesting tranche of the award and are recognized ratably from the service inception date to the vesting date for each tranche. Forfeitures are recognized when they occur.

The Company has outstanding stock options under the 2002 Employee Incentive Stock Option Plan totaling 10,000 shares. No options have been exercised in the three and six months ended August 31, 2019. All options outstanding at August 31, 2019 expire in December 2019.

In July 2018, our shareholders approved the Company’s 2019 Long-Term Incentive Plan (“2019 LTI Plan”). The 2019 LTI Plan establishes up to 600,000 shares of restricted stock which can be granted to certain members of management based on exceeding specified net revenues and pre-tax performance metrics during fiscal years 2019, 2020 and 2021. Restricted shares granted under the 2019 LTI Plan “cliff vest” after five years.

The restricted share awards granted under the 2019 LTI Plan contain both service and performance conditions. The Company recognizes share 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 employee have been established. The fair value of these awards is determined based on the closing price of the shares on the grant date. The probability of restricted share awards granted with future performance conditions is evaluated at each reporting period and compensation expense is adjusted based on the probability assessment.

For certain awards that provide discretion to adjust the allocation of the restricted shares, the service-inception date for such awards could precede the grant date as a mutual understanding of the key terms and conditions between the Company and the employee has not yet been established. For awards in which the service-inception date precedes the grant date, compensation cost is accrued beginning on the service-inception date. The Company estimates the award's fair value on each subsequent reporting date, until the grant date, based on the closing market price of the Company’s common stock. On the grant date, the award's fair value is fixed, subject to the remaining performance conditions, and the cumulative amount of previously recognized compensation expense is adjusted to the fair value at the grant date.

During fiscal year 2019, the Company granted approximately 308,000 restricted shares under the 2019 LTI Plan with an average grant-date fair value of $9.94 per share. During the second fiscal quarter ~~ended November 30, 2017, a former employee exercised 5,000 vested stock options.~~of 2020, the Company recognized $166,200 of compensation expense associated with the shares granted in fiscal year 2019. The Company recognized compensation expense totaling $332,500 in the first six months of fiscal 2020. The remaining compensation expense for these awards, totaling approximately $2,327,900, will be recognized ratably over the remaining vesting period of approximately 42 months.

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

	Three Months Ended August 31,				Six Months Ended August 31,
	2019		2018		2019		2018

Share-based compensation expense	$	166,200	$	70,000	$	332,500	$	70,000

Note 7 – SHIPPING AND HANDLING COSTS

~~Outbound freight~~

We classify shipping and handling costs ~~incurred are included in~~as operating and selling expenses in the statements of earnings. Shipping and handling costs include postage, freight, handling costs, as well as, shipping materials and supplies. These costs were ~~$5,328,900~~$3,837,600 and ~~$4,569,900~~$3,259,900 for the three months ended ~~November 30, 2017~~August 31, 2019 and ~~2016,~~2018, respectively. These costs were ~~$12,200,100~~$8,049,800 and ~~$12,134,700~~$7,658,900 for the ~~nine~~six months ended ~~November 30, 2017~~August 31, 2019 and ~~2016,~~2018, respectively.

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~~Note 8~~ – ~~COMMITMENTS~~

W~~e have a 15-year lease with a non-related tenant, who leases 181,300 square feet, or 45.3% of our main facility. The lease is being accounted for as an operating lease.~~

The lessee pays $107,900 per month, with a 2.0% annual increase adjustment on the anniversary of the lease. The lease terms allow for one five-year extension, which is not a bargain renewal option, at the expiration of the 15-year term. Revenue associated with the lease is being recorded on a straight-line basis over the 15-year lease and is reported in other income on the condensed statement of earnings.

The Company executed purchase orders with several vendors during the first two quarters of fiscal 2018 to buy and install equipment that will increase the daily shipping capabilities of its distribution center located in Tulsa, OK. The original purchase orders totaled approximately $1,500,000. The Company received and installed approximately half of the equipment in the second quarter of fiscal 2018 and has approximately $400,000 of remaining commitments on the original purchase orders. The remaining equipment is scheduled to be received and installed in the fourth quarter of the fiscal year.

Note 98 – BUSINESS SEGMENTS

~~The Company has~~

We have two reportable segments: Publishing and Usborne Books & More (“UBAM”) ~~and Publishing.~~. These reportable segments are business units that offer different methods of distribution to different types of customers. They are managed separately based on the fundamental differences in their operations. ~~The~~Our Publishing segment markets its products to retail accounts, which include book, school supply, toy and gift stores and museums, through commissioned sales representatives, trade and specialty wholesalers and anour internal tele-sales group. ~~The~~Our UBAM segment markets its products through a network of independent sales consultants using a combination of internet sales, direct sales, home ~~shows, internet~~ shows and book fairs.

The accounting policies of the segments are the same as those ~~described in~~of the ~~summary~~rest of ~~significant accounting policies disclosed in~~ the ~~Company’s most recent 10-K annual report for the fiscal year ended February 28, 2017.~~Company. We evaluate segment performance based on earnings before income taxes of the segments, which is defined as segment net ~~sales~~revenues reduced by cost of sales and direct expenses. Corporate expenses, depreciation, interest expense and income taxes are not allocated to the segments but are listed in the “Other” row below. Corporate expenses include the executive department, accounting department, information services department, general office management, warehouse operations and building facilities management. Our assets and liabilities are not allocated on a segment ~~basis~~.

basis.

Information by reporting segment for the three and ~~nine-month~~six-month periods ended ~~November 30, 2017~~August 31, 2019 and ~~2016,~~2018, are as follows:

NET REVENUES
Three Months Ended November 30, Nine Months Ended November 30,
2017 2016 2017 2016
Publishing $ 2,439,600 $ 3,075,000 $ 6,538,700 $ 7,244,600
UBAM 36,468,400 27,622,600 83,481,400 72,130,200
Total $ 38,908,000 $ 30,697,600 $ 90,020,100 $ 79,374,800

EARNINGS BEFORE INCOME TAXES
Three Months Ended November 30, Nine Months Ended November 30,
2017 2016 2017 2016
Publishing $ 556,800 $ 979,500 $ 1,514,200 $ 2,138,700
UBAM 6,915,400 4,719,800 15,865,200 11,286,200
Other (4,039,400 ) (3,659,200 ) (10,281,700 ) (9,859,500 )
Total $ 3,432,800 $ 2,040,100 $ 7,097,700 $ 3,565,400

NET REVENUES

	Three Months Ended August 31,				Six Months Ended August 31,
	2019		2018		2019		2018
Publishing	$	2,702,800	$	2,605,500	$	5,042,100	$	4,911,700
UBAM		21,735,200		22,075,500		46,983,300		49,791,600
Total	$	24,438,000	$	24,681,000	$	52,025,400	$	54,703,300

EARNINGS (LOSS) BEFORE INCOME TAXES

	Three Months Ended August 31,						Six Months Ended August 31,
	2019			2018			2019			2018
Publishing	$	784,700		$	636,700		$	1,420,400		$	1,143,000
UBAM		3,488,300			4,277,100			7,857,300			9,376,100
Other		(2,906,300	)		(2,878,200	)		(6,064,500	)		(5,987,700	)
Total	$	1,366,700		$	2,035,600		$	3,213,200		$	4,531,400

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Note 109 – FAIR VALUE MEASUREMENTS

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

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

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

Level 3 - Unobservable inputs for the asset or liability.

We do not report any assets or liabilities at fair value in the financial statements. However, the estimated fair value of our ~~line of credit is estimated by management to approximate the carrying value of $0~~ ~~and $4,882,900~~ ~~at November 30, 2017 and February 28, 2017, respectively. The estimated fair value of our~~ term notes payable is estimated by management to approximate ~~$20,812,600~~$19,490,200 and ~~$20,130,100~~$19,123,700 at ~~November 30, 2017~~August 31, 2019 and February 28, ~~2017,~~2019, respectively. ~~Management's~~Management’s estimates are based on the ~~obligations'~~obligations’ characteristics, including floating interest rate, maturity, and collateral. Such valuation inputs are considered a Level 2 measurement in the fair value valuation hierarchy.

Note 1110 – DEFERRED ~~REVENUE~~

AsREVENUES

The Company’s UBAM division receives payments on orders in advance of shipment. Any payments received prior to the end of our fiscal quarter that were not shipped as of August 31, 2019 are recorded as deferred revenues on the ~~third quarter, we had~~condensed balance sheet. We received approximately ~~$661,700~~$751,900 at August 31, 2019 in payments for sales orders which were, or will be, shipped out subsequent to the quarter end. ~~As of November 30, 2017, these prepaid sales orders are~~Orders that were included in deferred ~~revenue on~~revenues predominantly shipped within the ~~condensed balance sheet.~~

first few days of the next fiscal quarter.

Note 1211 – SUBSEQUENT ~~EVENT~~

EVENTS

On October 8, 2019, our Board of Directors declared a distribution of $0.05 per share of common stock. This cash distribution will be paid on or about December ~~22, 2017, the U.S. President signed the Tax Cuts and Jobs Act~~5, 2019 to shareholders of 2017 (the “Act”). Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 740, Income Taxes (“ASC 740”) requires that the effects of changes in tax laws or tax rates be recognized in the financial statements in the period in which such changes were enacted. Among other things, changes in tax laws or tax rates can affect the amount of taxes payable for the current period, as well as the amount and timing of deferred tax liabilities and deferred tax assets. The Company is a fiscal year reporting company and as such would be required to account for the impact related to the Act in the financial statements included in the annual reportrecord on ~~Form 10-K for February 28, 2018.~~

November 14, 2019.

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~~ITEM~~Item 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Factors Affecting Forward-Looking Statements

The following discussion contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside our ~~control, including among other things, the risk factors discussed in our Annual Report on Form 10-K for the year ended February 28, 2017.~~control. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, our success in recruiting and retaining new consultants, our ability to locate and procure desired books, our ability to ship the volume of orders that are received without creating ~~backlog,~~backlogs, our ability to obtain adequate financing for working capital and capital expenditures, economic and competitive conditions, regulatory changes and other uncertainties, as well as those factors discussed below and elsewhere in our Annual Report on Form 10-K for the year ended February 28, ~~2017~~2019 and this Quarterly Report on Form 10-Q, all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may or may not occur. See “Cautionary Remarks Regarding Forward-Looking Statements” in the front of this Quarterly Report on Form 10-Q.

Overview

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

The following table shows our condensed statements of earnings data:

Three Months Ended November 30, Nine Months Ended November 30,
2017 2016 2017 2016
Net revenues $ 38,908,000 $ 30,697,600 $ 90,020,100 $ 79,374,800
Cost of goods sold 10,494,800 8,328,100 24,579,200 22,500,300
  Gross margin 28,413,200 22,369,500 65,440,900 56,874,500
Operating expenses:
  Operating and selling 7,837,300 6,520,300 17,549,900 16,790,900
  Sales commissions 12,510,400 9,521,000 28,759,300 24,802,200
  General and administrative 4,735,200 4,525,900 12,359,600 12,237,600
  Total operating expenses 25,082,900 20,567,200 58,668,800 53,830,700
Other income (expense)
  Interest expense (287,600 ) (265,000 ) (863,800 ) (730,000 )
  Other income 390,100 502,800 1,189,400 1,251,600
Earnings before income taxes 3,432,800 2,040,100 7,097,700 3,565,400
Income taxes 1,304,400 765,900 2,707,100 1,352,500
Net earnings $ 2,128,400 $ 1,274,200 $ 4,390,600 $ 2,212,900

	Three Months Ended August 31,						Six Months Ended August 31,
	2019			2018			2019			2018
Net revenues	$	24,438,000		$	24,681,000		$	52,025,400		$	54,703,300
Cost of goods sold		8,046,400			8,462,700			17,102,600			18,132,400
Gross margin		16,391,600			16,218,300			34,922,800			36,570,900

Operating expenses
Operating and selling		4,192,500			3,261,600			8,576,400			8,013,800
Sales commissions		7,263,100			7,313,000			15,796,100			16,686,100
General and administrative		3,717,600			3,738,400			7,655,800			7,630,900
Total operating expenses		15,173,200			14,313,000			32,028,300			32,330,800

Interest expense		242,500			270,000			474,500			483,400
Other income		(390,800	)		(400,300	)		(793,200	)		(774,700	)
Earnings before income taxes		1,366,700			2,035,600			3,213,200			4,531,400

Income taxes		359,100			544,900			842,000			1,224,100
Net earnings	$	1,007,600		$	1,490,700		$	2,371,200		$	3,307,300

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

Table of Contents

Non-Segment Operating Results for the Three Months Ended ~~November 30, 2017~~

~~Operating~~August 31, 2019

Total operating expenses not associated with a reporting segment ~~totaled $4.1~~increased $0.1 million, or 3.3%, to $3.1 million for the ~~quarter ended November 30, 2017, an increase of $0.2~~three-month period ending August 31, 2019, compared to $3.0 million ~~over~~for the ~~$3.9 million of~~same quarterly period a year ago. Our operating expenses ~~reported for~~increased approximately $0.1 million due to the ~~period ending November 30, 2016. Operating expenses increased as a result of an increase in the bonus accrual~~compensation expense associated with the Company’s ~~increased operating profits of approximately $0.4~~2019 LTI Plan.

Interest expense decreased $0.1 million ~~partially offset by other cost reductions.~~

~~Interest expense~~ ~~was $0.3~~to $0.2 million for the three months ended ~~November 30, 2017, which was consistent with the interest expense reported~~August 31, 2019, when compared to $0.3 million for the same quarterly period a year ago. Interest expense decreased $0.1 million due to borrowings on the line of credit of $1.1 million in the second quarter ~~last year.~~

of fiscal 2020 as compared to $2.6 million in the second quarter of fiscal 2019.

Income taxes ~~increased $0.5~~ decreased $0.1 million to ~~$1.3~~$0.4 million for the three months ended ~~November 30, 2017,~~August 31, 2019, from ~~$0.8~~$0.5 million for the ~~quarter ended November 30, 2016. The income tax expense increase was directly attributed to the increase in earnings for the quarter.~~same quarterly period a year ago. Our effective tax rate was ~~38.0%~~26.3% for the quarter ended ~~November 30, 2017,~~August 31, 2019, and ~~37.5%~~26.8% for the quarter ended ~~November 30, 2016. These~~August 31, 2018. Our tax rates are higher than the federal statutory rate of 21% due to the inclusion of state income and franchise taxes.

Non-Segment Operating Results for the ~~Nine~~Six Months Ended ~~November 30, 2017~~

~~Operating~~August 31, 2019

Total operating expenses not associated with a reporting segment increased ~~totaling $10.6~~$0.1 million, or 1.6%, to $6.4 million for the ~~nine-month~~six-month period ending ~~November 30, 2017~~August 31, 2019, compared to ~~$10.4~~$6.3 million for the same period a year ago. ~~Operating expenses increased due to an~~The increase in ~~the bonus accrual~~operating expenses resulted primarily from $0.3 million of compensation expense associated with the Company’s ~~increased operating profits of approximately $0.4 million, partially~~2019 LTI Plan offset by $0.2 million of other reduced ~~other expenses totaling $0.2 million.~~

expenses.

Interest expense ~~totaled $0.9~~ remained consistent at $0.5 million for the ~~nine~~six months ended ~~November 30, 2017, an increase of $0.2 million over the $0.7 million of interest expense reported~~August 31, 2019 and for the same period a year ago. ~~Interest expense increased during the current fiscal year due to primarily to increased borrowings on the line of credit during the current year.~~

Income taxes ~~increased $1.3~~ decreased $0.4 million to ~~$2.7~~$0.8 million for the ~~nine~~six months ended ~~November 30, 2017,~~August 31, 2019, from ~~$1.4~~$1.2 million for the same period a year ago. Our effective tax rate was ~~38.1%~~26.2% for the ~~nine~~six months ended ~~November 30, 2017,~~August 31, 2019, and ~~37.9%~~27.0% for the ~~same period a year ago. These~~six months ended August 31, 2018. Our tax rates are higher than the federal statutory rate of 21% due to the inclusion of state income and franchise taxes.

UBAM Operating Results for the Three and ~~Nine~~Six Months Ended ~~November 30, 2017~~

August 31, 2019

The following table summarizes the operating results of the UBAM ~~segment for the three and nine months ended November 30, 2017 and 2016:~~

For the Three Months Ended
November 30,

For the Nine Months Ended
November 30,

2017 2016 2017 2016
Gross sales $ 36,761,700 $ 27,907,200 $ 87,143,200 $ 76,263,200
Less discounts and allowances (4,059,000 ) (3,528,100 ) (12,595,300 ) (12,414,500 )
Transportation revenue 3,765,700 3,243,500 8,933,500 8,281,500
Net revenues 36,468,400 27,622,600 83,481,400 72,130,200

Cost of goods sold 9,114,200 6,577,500 20,939,500 18,549,700
Gross margin 27,354,200 21,045,100 62,541,900 53,580,500

Operating Expenses
Operating and selling 6,860,200 5,613,300 14,752,100 14,311,500
Sales commissions 12,420,000 9,425,300 28,507,800 24,561,100
General and administrative 1,158,600 1,286,700 3,416,800 3,421,700
Total operating expenses 20,438,800 16,325,300 46,676,700 42,294,300

Operating income $ 6,915,400 $ 4,719,800 $ 15,865,200 $ 11,286,200

Average number of active consultants 31,100 28,100 29,500 24,800

segment:

	Three Months Ended August 31,						Six Months Ended August 31,
	2019			2018			2019			2018
Gross sales	$	26,815,500		$	27,484,400		$	58,244,300		$	61,643,000
Less discounts and allowances		(7,208,700	)		(7,511,300	)		(15,828,600	)		(16,795,100	)
Transportation revenue		2,128,400			2,102,400			4,567,600			4,943,700
Net revenues		21,735,200			22,075,500			46,983,300			49,791,600

Cost of goods sold		6,688,200			7,031,400			14,487,000			15,455,900
Gross margin		15,047,000			15,044,100			32,496,300			34,335,700

Operating expenses
Operating and selling		3,448,300			2,517,000			7,091,300			6,466,300
Sales commissions		7,159,200			7,220,600			15,599,500			16,507,400
General and administrative		951,200			1,029,400			1,948,200			1,985,900
Total operating expenses		11,558,700			10,767,000			24,639,000			24,959,600

Operating income	$	3,488,300		$	4,277,100		$	7,857,300		$	9,376,100

Average number of active consultants		33,600			32,800			32,600			34,000

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UBAM Operating Results for the Three Months Ended ~~November 30, 2017~~

~~The~~ August 31, 2019

UBAM ~~segment’s sales consist of home shows, internet shows and book fairs. Net~~net revenues ~~increased $8.9~~decreased $0.4 million, or ~~32.2%~~1.8%, to ~~$36.5~~$21.7 million during the three months ended August 31, 2019, as compared to $22.1 million during the same period a year ago. The average number of active consultants in the second quarter of fiscal 2020 was 33,600, an increase of 800, or 2.4%, from 32,800 average active consultants selling in the second quarter of fiscal 2019. During our annual convention in late June this year, we announced a UBAM 30^th Anniversary Recruiting Special which resulted in the signing of over 10,000 new active consultants during the five-week recruiting special. Although this recruiting special resulted in a large increase in the number of average active consultants selling during the second quarter of fiscal 2020, it can take several weeks for these new consultants to start experiencing success.

Gross margin remained consistent at $15.0 million during the three-month period ending ~~November 30, 2017,~~August 31, 2019, when compared ~~with net revenues of $27.6 million reported~~to the same quarter a year ago. ~~The increase in~~Gross margin, as a percentage of net revenues, ~~resulted primarily from an increase in the orders received during the period and an increase in our daily shipping volumes over the same period last year.~~

~~Our orders~~ increased ~~during the quarter from the same period a year ago primarily due~~1.1% to the increase in the number of our active consultants. The average number of active consultants increased 3,000, or 10.7% from 28,100 in the third quarter of fiscal year 2017 to 31,100 in the third quarter of fiscal 2018. Our consultant growth is driven primarily by existing active consultants recruiting and retaining new consultants.

Our daily shipping volumes increased over the same period last year due to recent facility changes. During the first and second quarters of this fiscal year, we modified our distribution center setup and added new automation that increased our daily shipping capacity. With this increased capacity, our shipments were able to keep pace with our incoming orders during the quarter ended November 30, 2017. During the third quarter last year, our shipments ~~did not keep pace with~~ ~~incoming orders and we ended the quarter with a large backlog of orders totaling approximately $9.6 million, which was recognized as deferred revenue at quarter end.~~

~~Gross margin increased $6.3 million to $27.4 million~~69.2% for the three-month period ending ~~November 30, 2017 from $21.0 million reported during~~August 31, 2019 when compared to 68.1% the same ~~quarter~~period a year ago. The increase in gross margin ~~primarily resulted from the increase in sales. Gross margins~~ as a percentage of net revenues ~~remained consistent between~~was due to the ~~periods.~~

change in mix of order types received during the quarter. This change in mix also resulted in higher sales commissions as a percent of net revenue during the quarter.

UBAM operating expenses consists of operating and selling expenses, sales commissions and general and administrative expenses. Operating and selling expenses primarily consists of freight expenses and ~~hostess awards associated with sales orders.~~materials and supplies. Sales commissions include amounts paid to consultants for new sales and promotions. These operating expenses are directly tied to the sales volumes of the UBAM segment. General and administrative expenses include payroll, ~~travel and entertainment expenses,~~ outside services, inventory reserves and other expenses directly associated with the UBAM segment. ~~Total operating~~Operating expenses increased ~~$4.1~~$0.8 million, or ~~25.1%~~7.4%, to ~~$20.4~~$11.6 million during the three-month period ending ~~November 30, 2017,~~August 31, 2019, when compared ~~with~~to $10.8 million reported in the same quarter ~~last year. Operating expenses increased primarily~~a year ago. During the second quarter of fiscal 2019, the Company received a resort refund from ~~increased~~less consultants choosing to attend the annual incentive trip than had earned it. Without this refund, operating and selling ~~costs and increased sales commissions, both tied~~expenses as a percentage of net revenues would have been more comparable to the ~~growth~~UBAM divisions historical operating and selling expenses as a percentage of net revenues. In addition, the Company incurred an increase in freight and postage primarily from a pricing increase in fiscal 2020 totaling approximately $0.2 million for packages delivered through the United States Postal Service, a $0.1 million increase in freight and postage associated with the UBAM 30^th Anniversary Recruiting Special and $0.1 million increase in other operating and selling costs. Sales commissions remained consistent at $7.2 million period over period and as a percentage of net revenues between the periods. General and administrative expenses remained consistent at $1.0 million during the ~~period.~~

three months ended August 31, 2019 and for the same period last year.

Operating income of the UBAM segment ~~increased $2.2~~decreased $0.8 million, or ~~46.8%~~18.6%, to ~~$6.9~~$3.5 million during the three-month period ending ~~November 30, 2017, when~~August 31, 2019 as compared to ~~the same quarter a year ago, due to primarily to increased sales and gross margins, partially offset by increased operating and selling expenses and sales commissions.~~

~~UBAM Operating Results for the Nine Months Ended November 30, 2017~~

~~Net revenues increased $11.4~~$4.3 million ~~or 15.8%, to $83.5 million during the nine-month period ending November 30, 2017, when compared with net revenues of $72.1 million reported during~~from the same period a year ago. The ~~increase~~decrease in operating income was primarily due to the change in operating and selling expenses as described above.

UBAM Operating Results for the Six Months Ended August 31, 2019

UBAM net revenues decreased $2.8 million, or 5.6%, to $47.0 million during the six-month period ending August 31, 2019, as compared to $49.8 million from the same period a year ago. The decrease in net revenues ~~primarily~~ resulted from ~~the increase~~a decrease in the ~~number of active sales consultants during the period along with increase in the year over year shipments made during the third quarter.~~

~~The~~ average number of active consultants ~~increased 4,700,~~of 1,400, or ~~19.0%, from 24,800 in~~4.1% to 32,600 during the first ~~nine~~six months of fiscal year ~~2017 to 29,500~~2020 from 34,000 in the first ~~nine~~six months of fiscal ~~2018. Our consultant growth is driven by existing~~year 2019. During February 2018, the UBAM division offered a recruiting special that added 8,800 new active consultants during the month. This increase in selling consultants resulted in an increase in UBAM sales during the first three months of fiscal 2019 over the first quarter of fiscal 2020. During the second quarter of fiscal 2020, UBAM offered a 30^th Anniversary Recruiting Special that added over 10,000 new recruits to the sales force over the five-week recruiting special and ~~retaining~~increased our consultant count to be more consistent with the prior year. Sales from these new ~~consultants.~~

recruits are expected to be more impactful during the last six months of the year.

Gross ~~margins~~margin decreased $1.8 million, or 5.2%, to $32.5 million during the six-month period ending August 31, 2019, when compared to $34.3 million during the same period a year ago, due primarily to a decrease in net revenues during the first quarter of fiscal 2020 when compared to fiscal 2019. Gross margin, as a percentage of net revenues, increased ~~$8.9 million~~ to ~~$62.5 million~~69.2% for the ~~nine-month~~six-month period ending ~~November 30, 2017 from $53.6 million reported during~~August 31, 2019 when compared to 69.0% for the same period a year ago. The increase in gross ~~margins primarily resulted from the increase in sales. Gross margins~~margin as a percentage of net revenues ~~remained consistent at 74.9%~~was due to a change in the mix of order types between the periods.

Operating expenses decreased $0.4 million, or 1.6%, to $24.6 million during the six month period ending August 31, 2019, when compared to $25.0 million, for the ~~nine-month~~six-month period ending ~~November 30, 2017~~August 31, 2018. The decrease in operating expenses was primarily due to a $0.9 million decrease in sales commissions associated with the decrease in net revenues and a $0.1 million decrease in various general and administrative expenses, offset by a $0.6 million increase in operating and selling expenses. Operating and selling expenses increased primarily from a refund received related to the annual UBAM incentive trip received in the second quarter of fiscal 2019 and approximately $0.2 million increase in freight and postage costs during the first six months ended August 31, 2019 due to pricing increases on packages delivered through the United States Postal Service.

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Operating income of the UBAM segment decreased $1.5 million, or 16.0%, to $7.9 million during the six-month period ending August 31, 2019, when compared ~~to 74.3% reported~~with $9.4 million from the same period a year ago.

~~Total UBAM~~ The decrease in operating ~~expenses increased $4.4 million, or 10.4%,~~income was primarily due to ~~$46.7 million during the nine-month period ending November 30, 2017, when compared with $42.3 million with the same period~~ a ~~year ago, due primarily to the~~decrease in net revenues and an increase in operating and selling expenses as described above.

Publishing Operating Results for the Three and Six Months Ended August 31, 2019

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

	Three Months Ended August 31,						Six Months Ended August 31,
	2019			2018			2019			2018
Gross sales	$	5,726,200		$	5,529,200		$	10,771,100		$	10,445,400
Less discounts and allowances		(3,032,300	)		(2,933,400	)		(5,743,800	)		(5,551,000	)
Transportation revenue		8,900			9,700			14,800			17,300
Net revenues		2,702,800			2,605,500			5,042,100			4,911,700

Cost of goods sold		1,358,200			1,431,300			2,615,600			2,676,500
Gross margin		1,344,600			1,174,200			2,426,500			2,235,200

Total operating expenses		559,900			537,500			1,006,100			1,092,200

Operating income	$	784,700		$	636,700		$	1,420,400		$	1,143,000

Publishing Operating Results for the Three Months Ended August 31, 2019

Our Publishing division’s net revenues increased $0.1 million, or 3.8%, to $2.7 million during the three-month period ending August 31, 2019, from $2.6 million reported in the same period a year ago. This increase is due to an increase in sales ~~commissions associated~~to existing retail customers, specifically in the Toy and Gift store classifications.

Gross margin increased $0.1 million, or 8.3%, to $1.3 million during the three-month period ending August 31, 2019, from $1.2 million reported in the same quarter a year ago. This increase is primarily related to the growth in net revenues. Gross margin as a percentage of net revenues, increased 4.6%, to 49.7% during the three-month period ending August 31, 2019, from 45.1% reported in the same quarter a year ago. The increase in gross margin resulted from a change in customer mix, as certain sales agreements with ~~UBAM’s revenue growth.~~

~~Table~~specific customers have higher gross margin due to lower discounts, and a change in product mix, as different products have higher gross margin due to lower product costs.

Total operating expenses of ~~Contents~~

the Publishing segment remained consistent at $0.6 million during the three-month period ending August 31, 2019, from $0.5 million reported in the same quarter a year ago.

Operating income of the ~~UBAM~~Publishing segment increased ~~$4.6~~$0.2 million, or ~~40.7~~%33.3%, to ~~$15.9~~$0.8 million during the ~~nine-month~~three-month period ending ~~November 30, 2017~~August 31, 2019 when compared to ~~$11.~~3$0.6 million reported ~~during~~in the same period a year ago. The increase in operating income was primarily due to increased ~~gross margins on increased sales.~~

sales with customers that have lower discounts.

Publishing Operating Results for the ~~Three and Nine~~Six Months Ended ~~November 30, 2017~~

~~The following table summarizes the operating results of the Publishing segment for the three and nine months ended November 30, 2017 and 2016:~~

For the Three Months Ended
November 30,

For the Nine Months Ended
November 30,

2017 2016 2017 2016
Gross sales $ 5,132,900 $ 6,490,100 $ 13,846,300 $ 15,394,000
Less discounts and allowances (2,703,300 ) (3,419,900 ) (7,334,000 ) (8,167,400 )
Transportation revenue 10,000 4,800 26,400 18,000
Net revenues 2,439,600 3,075,000 6,538,700 7,244,600

Cost of goods sold 1,380,600 1,750,600 3,639,700 3,950,600
Gross margin 1,059,000 1,324,400 2,899,000 3,294,000

Total operating expenses 502,200 344,900 1,384,800 1,155,300

Operating income $ 556,800 $ 979,500 $ 1,514,200 $ 2,138,700

~~Publishing Operating Results for the Three Months Ended November 30, 2017~~

August 31, 2019

Our Publishing ~~segment’s~~division’s net revenues ~~decreased $0.6~~increased $0.1 million, or ~~19.4%~~2.0%, to ~~$2.4~~$5.0 million ~~for~~during the ~~three months ended November 30, 2017~~six-month period ending August 31, 2019, from ~~$3.1~~$4.9 million reported ~~for the quarter ended November 30, 2016. Revenues declined from the same period last year due to smaller customer orders~~ in the third period of fiscal 2018 when compared to last year, as well as fewer customers placing orders. During the third quarter of fiscal year 2017, we had significant delays in shipments which resulted in lost customers and customers reducing order sizes during the fall selling season of fiscal 2018, based on slower delivery expectations.

Gross margins declined $0.2 million to $1.1 million for the quarter ended November 30, 2017, from $1.3 million reported during the same period a year ago, due primarily to the decline in sales. Gross margins as a percentage of sales remained consistent between the periods.

Operating income declined $0.4 million to $0.6 million for the quarter ended November 30, 2017 from $1.0 million reported during the quarter ended November 30, 2016. The decline in operating income resulted primarily from the decline in sales and gross margins.

~~Publishing Operating Results for the Nine Months Ended November 30, 2017~~

The Publishing segment’s net revenues for the nine months ended November 30, 2017 were $6.5 million, a decrease of $0.7 million 9.7%, from $7.2 million reported for the same period last year. The year to date revenue decline primarily occurred in the third quarter of this year when the Company experience reduced orders sizes from existing customers and fewer customer orders placed during the third quarter, primarily resulting from the shipping delays that occurred during fiscal 2017.

~~Gross margins for the nine months ended November 30, 2017 were $2.9 million, a decrease of $0.4 million, or 12.1%, from $3.3 million reported for~~ the same period a year ago. ~~Gross margins decreased primarily~~This increase is due to an increase in sales to existing retail customers, specifically in the Toy and Gift store classifications.

Gross margin increased $0.2 million, or 9.1%, to $2.4 million during the six-month period ending August 31, 2019, from $2.2 million reported in the same period a year ago. This increase is related to the growth in net revenues and a decrease in ~~sales.~~cost of goods sold. Gross ~~Margins~~margin as a percentage of ~~revenue remained consistent between~~net revenues, increased 2.6%, to 48.1% during the ~~periods.~~

six-month period ending August 31, 2019, from 45.5% reported in the same period a year ago. The increase in gross margin resulted from a change in customer mix, as certain sales agreements with specific customers have higher gross margin due to lower discounts, and a change in product mix, as different products have higher gross margin due to lower product costs.

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~~Operating income for~~

Total operating expenses decreased $0.1 million, or 9.1%, to $1.0 million during the ~~segment declined $0.6 million, to $1.5 million, for the nine months ended November 30, 2017~~six-month period ending August 31, 2019, from ~~$2.1~~$1.1 million reported in the same period a year ago. This decrease primarily resulted from less promotions and marketing expenses incurred during the first six months of fiscal 2020, when compared to the same period last year.

Total operating income increased $0.3 million, or 27.3%, to $1.4 million during the six-month period ending August 31, 2019, from $1.1 million reported in the same period a year ago. The ~~decline~~increase in operating income ~~resulted primarily~~was due to increased sales from ~~the decline in sales~~customers with lower discounts and ~~gross margins.~~

~~Sales in our Publishing segment are seasonal and our fiscal fourth and first quarters are traditionally lower than the second and third fiscal quarters sales.~~

decreased operating expenses.

Liquidity and Capital Resources

~~Our primary source~~

EDC has a history of ~~cash is typically operating~~profitability and positive cash flow. ~~The majority of~~We typically fund our operations from the cash ~~outflow over the past several years has been associated with increasing our inventory~~we generate. We also use available cash to ~~keep up with our increased demand~~pay down outstanding bank loan balances, for ~~our products.~~capital expenditures, to pay dividends, and to acquire treasury stock. We have utilized a bank credit facility and other term loan borrowings to meet our short-term cash needs, as well as fund capital expenditures, when necessary.

During the ~~nine-month period ended November 30, 2017,~~first six months of fiscal 2020, we experienced cash ~~inflow~~outflow from our operations of ~~$11.3 million. Net earnings of $4.4 million were increased by~~$1,274,200. Cash flows resulted from the following items:

~~a decrease in inventories of $9.8 million,~~

~~depreciation expense of $0.9 million,~~

~~a decrease in deferred income taxes of $0.2 million,~~

~~an increase in the provision for doubtful accounts of $0.4 million,~~

~~an increase in accrued salaries and commissions of $2.8 million,~~

~~an increase in other liabilities of $1.3 million, and~~

~~an increase in income tax payable of $0.5 million.~~

•	net earnings of $2,371,200
•	depreciation expense of $684,800,
•	a decrease in prepaid expenses and other assets of $544,600,
•	share-based compensation expense of $332,500,
•	an increase in income tax payable of $314,000,
•	an increase in provision for inventory valuation allowance of $129,900,
•	an increase in deferred income taxes, net of $127,600, and
•	an increase in the provision for doubtful accounts of $63,200,

Offset by:

~~a decrease in accounts payable of $7.3 million,~~

~~an increase in accounts receivable of $1.3 million, and~~

~~an increase in prepaid expenses and other assets of $0.3 million.~~

The significant decrease in inventory was primarily the result of management efforts to reduce inventory volumes that were purchased in recent quarters. These inventory purchases were made based on sales forecast assumptions that were greater than our actual sales results.

The significant decrease in accounts payable from the end of the fiscal year 2017 was primarily a result of payments owed to our suppliers for increased inventory purchases made over the last six months of fiscal year 2017.

•	an increase in inventories, net of $2,387,600,
•	a decrease in accrued salaries and commissions, and other liabilities of $1,889,700,
•	a decrease in accounts payable of $1,047,900
•	an increase in accounts receivable of $303,100, and
•	a decrease in deferred revenue of $213,700.

Cash used in investing activities was ~~$1.3 million~~$234,700 for capital expenditures, which was primarily comprised of improvements ~~made~~ to ~~two of~~upgrade our ~~pick lines which were upgraded with new automated routing functionality to bypass zones that had no picks of approximately $1.0 million~~e-commerce and ~~inventory management systems of $0.1 million and various other improvements to the warehouse, facility and equipment totaling $0.2 million.~~

consultant facing websites used in our UBAM division.

Cash used in financing activities was ~~$4.6 million,~~$723,600, which was primarily comprised of ~~repayment~~$819,000 of dividends paid, $488,600 net cash used in treasury stock transactions, and payments on long-term debt of $472,100, partially offset by cash received from net borrowings under our line of credit of ~~$4.9 million and payments on long-term debt of $0.7 million, offset by draws on the recently executed Advancing Term Loan of $1.0 million along with other minor equity changes.~~

$1,056,100.

During fiscal year ~~2018,~~2020, we continue to expect our cash from operations, ~~and~~along with our ~~expanded~~ line of credit with our Bank, will provide us the ability to meet our liquidity requirements. ~~We have a history of profitability and positive cash flow. Consequently, cash~~Cash generated from operations will be used to ~~increase~~replace inventory, ~~in anticipation of continued sales growth and~~ to liquidate existing ~~debt.~~

debt and any excess cash is expected to be distributed to our shareholders or used to purchase available shares on the market.

We have a Loan Agreement with the Bank including Term Loan #1 comprised of Tranche A ~~of $13.4~~totaling $11.7 million and Tranche B totaling $4.4 million as of ~~$5.0 million~~August 31, 2019, both with the maturity date of December 1, 2025. Tranche A has a fixed interest rate of 4.23% and interest is payable monthly.

~~Table of Contents~~

The Loan Agreement also includes Term Loan #2 ~~in the amount~~totaling $3.2 million as of ~~$4.0 million,~~August 31, 2019, which is secured by a warehouse and land with the maturity date of June 28, 2021, and a $15.0 million revolving loan (“line of credit”) through August 15, 2020.

On June 15, 2018, ~~and an $3.0 million advancing term loan which matures November 30, 2020.~~

~~Effective March 10, 2016, we signed a First~~the Company executed the Eighth Amendment Loan Agreement with the Bank which ~~provided an increase to $6.0 million from our original $4.0 million line of credit through June~~extended the termination date until August 15, ~~2017. Effective June 15, 2016, we signed a Second Amendment~~2019, reduced the interest rate pricing grid for all floating rate borrowings covered by the Loan Agreement, established a new $3.0 million advancing term loan to be used for capital expansions to increase daily shipping capacity, released the personal guaranty of Randall W. White and Carol White, along with other covenant restrictions being lessened. The amendment also included an adjustment to the ~~Bank which provided a further increase~~Adjusted Funded Debt to ~~$7.0 million from our previous $6.0 million line~~EBITDA ratio for covenant compliance.

Table of credit and extended it through June 15, 2017. Effective June 28, 2016, we signed a Third Amendment Loan Agreement with the Bank which included Term Loan #2 in the amount of $4.0 million. EffectiveContents

On February 7, 2017, we signed a Fourth Amendment Loan Agreement with the Bank which modified certain debt covenant calculations and waived an existing default that occurred in the fourth quarter of fiscal year 2017.

~~Effective, June 15, 2017,~~2019, the Company executed the ~~Fifth~~Ninth Amendment Loan Agreement ~~with~~which removed the ~~Bank which modified~~covenant prohibiting the Company from repurchasing its shares and identified certain limitations on the amount of funds that the Company could use to repurchase shares.

On August 15, 2019, the Company executed the Tenth Amendment Loan Agreement ~~to increase the maximum revolving principal amount from $7.0 million to $10.0 million and~~which extended the termination date of the ~~Loan Agreement~~line of credit to ~~June~~August 15, ~~2018. The Fifth Amendment also modified~~2020, amended the ~~Loan Agreement~~definition of LIBOR Margin, reduced the frequency of reports to ~~include an Advancing Term Loan of $3.0 million which~~ the ~~Company is using~~Lender, amended the Adjusted Funded Debt to ~~cover~~EBITDA Ratio and amended the cost of the fiscal 2017 capital improvements to increase its daily shipping capacity. The Company expects the amount of the planned capital improvements will be less than the Advancing Term Loan availability. The Advancing Term loan accrued interest between June 15Compliance and ~~December 1, 2017, at which time the balance was converted to a term loan and set to amortize over a thirty-six-month period~~

Effective September 1, 2017, we signed a Sixth Amendment Loan Agreement with the Bank which further increased the maximum revolving principal amount from $10.0 million to $15.0 million, subject to certain collateral restrictions.

Borrowing Base Certificates.

We had no$1.1 million in borrowings ~~outstanding~~ on our revolving credit agreement at ~~November 30, 2017~~August 31, 2019 and ~~$4.9 million in~~no borrowings at February 28, ~~2017.~~2019. Available credit under the revolving credit agreement was ~~$9,105,500~~$11.7 million at ~~November 30, 2017.~~

~~Trance~~August 31, 2019.

Tranche B of Term Loan #1, Term Loan #2 and the line of credit ~~and the Advancing Term Loan~~ accrue interest monthly, at the bank adjusted LIBOR Index plus a tiered pricing rate based on the Company’s Adjusted Funded Debt to EBITDA Ratio ~~(4.41%~~(4.42% at ~~November 30, 2017)~~August 31, 2019).

The Loan Agreement also contains a provision for our use of the Bank’s letters of credit. The Bank agrees to issue, or obtain issuance of commercial or stand-by letters of credit provided that the sum of the line of credit plus the letters of credit issued would not exceed the borrowing base in effect at the time. ~~Additionally, the Loan Agreement suspends dividends. For the quarter ended November 30, 2017,~~As of August 31, 2019, we had no letters of credit outstanding. The agreement contains provisions that require us to maintain specified financial ratios, restrict transactions with related parties, prohibit mergers or consolidation, disallow additional debt, and limit the ~~amount~~amounts of ~~compensation, salaries,~~dividends declared, investments, capital expenditures, leasing transactions, and ~~leasing transactions.~~

establish a dollar limit on the amount of shares that can be repurchased.

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

Year Ending February 28 (29)

2018 267,100
2019 1,278,600
2020 1,331,200
2021 1,324,300
2022 1,069,000
Thereafter 16,672,100
Total Maturities $ 21,942,300

~~Table of Contents~~

Year ending February 28 (29),
2020	$	471,700
2021		988,500
2022		1,038,100
2023		1,087,500
2024		1,139,400
Thereafter		14,579,300
Total	$	19,304,500

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to our valuation of inventory, allowance for uncollectible accounts receivable, allowance for sales returns, long-lived assets and deferred income taxes. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

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

Revenue Recognition

Sales associated with product orders are ~~generally~~ recognized and recorded when products are shipped. Products are shipped FOB shipping point. ~~The UBAM segment’s~~UBAM’s sales are generally paid at the time the product is ordered. ~~These sales accounted for 93.7% of net revenues for the three-month period ended November 30, 2017, and 90.0% for the three-month period ended November 30, 2016.~~ Sales ~~that~~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.

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Estimated allowances for sales returns are recorded as sales are ~~recognized and recorded.~~recognized. Management uses a moving average calculation to estimate the allowance for sales returns. We are not responsible for product damaged in transit. Damaged returns are primarily received from the retail ~~stores. These returns primarily result from damage that occurs~~stores of our Publishing Division. Those damages occur in the stores, not in shipping to the ~~stores.~~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 ~~$100,000~~$0.2 million as of ~~November 30, 2017,~~August 31, 2019 and ~~$190,000 as of~~ February 28, ~~2017.~~

2019.

Allowance for Doubtful Accounts

We maintain an allowance for estimated losses resulting from the inability of our customers to make required ~~payments.~~payments and a reserve for vendor share markdowns (collectively “allowance for doubtful accounts”). An estimate of ~~uncollectable~~uncollectible amounts is made by management based upon historical bad debts, current customer receivable balances, age of customer receivable balances, ~~the customer's~~customers’ financial ~~condition~~conditions and current economic trends. Consignment inventory related to inactive consultants is reclassified to accounts receivable and the associated reserve is included within our allowance. If the actual uncollected amounts significantly exceed the estimated allowance, then our operating results would be significantly adversely affected. Management has estimated and included an allowance for doubtful accounts of ~~$537,000~~$0.3 million at ~~November 30, 2017,~~August 31, 2019, and ~~$485,000 at~~ February 28, ~~2017.~~2019. Included within this allowance is ~~$264,000 and $217,000~~$0.1 million of reserve for vendor discounts to sell remaining inventory as of ~~November 30, 2017~~August 31, 2019 and February 28, ~~2017, respectively, of reserve related to consignment inventory held by inactive consultants.~~

2019.

Inventory

Our inventory contains ~~approximately 2,200~~over 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 books are not topical in nature and remain current in content today as well as in the future. Most of our products are printed in Europe, China, Singapore, India, Malaysia and Dubai resulting in a ~~five~~four to ~~eight-month~~six-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 minimum order requirements of our suppliers. Noncurrent inventory was estimated by management using the current year turnover ratio by title. All inventory in excess of 2 ½ years of anticipated sales is classified as noncurrent inventory. Noncurrent inventory balances prior to valuation allowances were ~~$502,200 and $467,100~~$0.9 million at ~~November 30, 2017~~August 31, 2019 and February 28, ~~2017,~~2019, respectively.

~~Table of Contents~~

Consultants that meet certain eligibility requirements ~~are allowed to~~may request and receive inventory on consignment. We believe allowing our consultants to have consignment inventory greatly increases their ability to be successful in making effective presentations at home shows, book fairs and other events; and having consignment inventory leads to additional sales opportunities. Approximately ~~12% and 11%~~9% of our active consultants maintained consignment inventory at ~~November 30, 2017 and February 28, 2017, respectively.~~the end of the second fiscal quarter 2020. 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 ~~value~~cost of inventory on consignment with ~~active~~ consultants was ~~$1,533,100~~$1.6 million at August 31, 2019 and ~~$1,140,700~~$1.5 million at ~~November 30, 2017 and~~ February 28, 2017, respectively. There is a seasonal increase in consignment inventory during the fall when UBAM consultants acquire inventory for sales events at annual state fair and other regional fall festival events. Inventory related to inactive consultants is reclassified to accounts receivables and amounted to $264,000 and $309,000 as of November 30, 2017 and February 28, 2017, respectively.

2019.

Inventories are presented net of a valuation allowance, which includes reserves for inventory obsolescence and ~~active consultant consignment~~reserves for consigned inventory that is not expected to be sold or ~~returned.~~returned to the Company. Management estimates the inventory obsolescence allowance for both current ~~inventory,~~and noncurrent inventory, ~~and active consultant consignment inventory balances. The allowance~~which is based on management’s identification of ~~slow moving inventory and estimated consignment inventory that will not be sold or returned.~~slow-moving inventory. Management has estimated a valuation allowance for ~~these combined inventories~~both current and noncurrent inventory, including the reserve for consigned inventory, of ~~$330,900~~$0.5 million and ~~$300,000~~$0.4 million as of ~~November 30, 2017~~August 31, 2019 and February 28, ~~2017,~~2019, respectively.

Our principal supplier, based in England, generally requires a minimum ~~reorder~~re-order of 6,500 or more of a title in order to get a solo print run. Smaller orders would require a shared print run with the supplier’s other customers, which can result in lengthy delays to receive the ordered title. Anticipating customer preferences and purchasing habits requires historical analysis of similar titles in the same series. We then place the initial order or re-order based upon this analysis.

These factors and historical analysis have led our management to determine that 2 ½ years represents a reasonable estimate of the normal operating cycle for our products.

~~Stock-Based~~

Stock-Based Compensation

We account for stock-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 and recognized as~~grant. For awards subject to service conditions, compensation expense is recognized over the vesting period ~~net~~on a straight-line basis. Awards subject to performance conditions are attributed separately for each vesting tranche of ~~estimated forfeitures.~~the award and are recognized ratably from the service inception date to the vesting date for each tranche. Forfeitures are recognized when they occur.

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The restricted share awards granted under the 2019 Long-Term Incentive Plan (“2019 LTI Plan”) contain both service and performance conditions. The Company recognizes share-based compensation expense only for the portion of the restricted share awards that are considered probable of vesting. Shares are considered granted, and the service inception date begins, when a mutual understanding of the key terms and conditions between the Company and the employees have been established. The fair value of these awards is determined based on the closing price of the shares on the grant date. The probability of restricted share awards granted with future performance conditions is evaluated at each reporting period and compensation expense is adjusted based on the probability assessment.

For certain awards that provide discretion to adjust the allocation of the restricted shares, the service-inception date for such awards could precede the grant date as a mutual understanding of the key terms and conditions between the Company and the employees has not yet been established. For awards in which the service-inception date precedes the grant date, compensation cost is accrued beginning on the service-inception date. The Company estimates the award's fair value on each subsequent reporting date, until the grant date, based on the closing market price of the Company’s common stock. On the grant date, the award's fair value is fixed, subject to the remaining performance conditions, and the cumulative amount of previously recognized compensation expense is adjusted to the fair value at the grant date. During the first six months of fiscal 2020, the Company recognized $0.3 million of compensation expense associated with the shares granted.

Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

Item 4.CONTROLS AND PROCEDURES

An evaluation was performed of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) and 15d-15(e) as of ~~November 30, 2017.~~August 31, 2019. 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 pursuant to Exchange Act Rule 13a-15(e).

In addition, no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the quarter ended ~~November 30, 2017~~August 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1.LEGAL PROCEEDINGS

Not ~~Applicable.~~

applicable.

Item 1A.RISK FACTORS

Not required by smaller reporting company.

Item 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Period
Total # of Shares
Purchased

Average Price
Paid per Share

Total # of Shares
Purchased as
Part of Publicly Announced Plan (1)

Maximum # of Shares that May
be Repurchased under the Plan (2)(3)

September 1 - 30, 2017 736 $ 10.19 0 297,368
October 1 - 31, 2017 0 $ N/A 0 297,368
November 1 - 30, 2017 0 N/A 0 297,368
Total 736 $ 10.19 0

Period	Total # of Shares Purchased		Average Price Paid per Share		Total # of Shares Purchased as Part of Publicly Announced Plan (1)		Maximum # of Shares that may be Repurchased under the Plan (1)

June 1 - 30, 2019		6,696	$	6.83		6,696		747,979
July 1 - 31, 2019		43,607		6.94		43,607		704,372
August 1 - 31, 2019		10,054		6.81		10,054		694,318
Total		60,357	$	6.91		60,357

(1)	~~All of the shares of common stock set forth in this column were part of a publicly announced plan as described in Footnote 2 below.~~

~~(2)~~

~~In April 2008,~~

On February 4, 2019 the Board of Directors ~~authorized us to purchase up to 500,000 shares of our common~~approved a new stock ~~under a~~repurchase plan, replacing the former 2008 stock repurchase plan. ~~Pursuant to~~The maximum number of shares which can be purchased under the new plan ~~we may purchase a total of 296,632 additional shares of our common stock until 500,000 shares have been repurchased.~~

~~(3)~~

~~There~~ is 800,000. This plan has no expiration ~~date for the repurchase plan.~~

date.

Item 3.DEFAULTS UPON SENIOR SECURITIES

Not ~~Applicable.~~

applicable.

Item 4.MINE SAFETY DISCLOSURES

None.

Item 5. 5. OTHER INFORMATION

None.

Item 6.EXHIBITS

~~31.1~~ 10.01		Tenth Amendment Loan Agreement dated August 15, 2019 by and between the Company and MidFirst Bank, Tulsa, OK.

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

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

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

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SIGNATURES

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

EDUCATIONAL DEVELOPMENT CORPORATION

(Registrant)

Date: October 15, 2019 By /s/ Randall W. White

Chairman of the Board, President

and Chief Executive Officer

(Principal Executive Officer)

	~~EDUCATIONAL DEVELOPMENT CORPORATION~~ ~~(Registrant)~~

~~Date:~~ ~~January 16, 2018~~	By	~~/s/ Randall W. White~~
		~~Chairman of the Board, President~~ ~~and Chief Executive Officer~~ ~~(Principal Executive Officer)~~


~~Date:~~ ~~January 16, 2018~~	By	~~/s/ Dan E. O’Keefe~~
		~~Chief Financial Officer~~ ~~(Principal Financial Officer)~~

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EXHIBIT INDEX

~~Exhibit No~~.~~Description~~

~~31.1~~ 10.01		Tenth Amendment Loan Agreement dated August 15, 2019 by and between the Company and MidFirst Bank, Tulsa, OK.

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

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

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

Delaware	73-0750007
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

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

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

Large accelerated filer ☐		Accelerated filer ☐

Non-accelerated filer ☐☒		Smaller reporting company ☒

	Emerging Growth Company ☐

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14 15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21 22
Item 4.	Controls and Procedures	21 22

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	22 23
Item 1A.	Risk Factors	22 23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22 23
Item 3.	Defaults Upon Senior Securities	22 23
Item 4.	Mine Safety Disclosures	22 23
Item 5.	Other Information	22 23
Item 6.	Exhibits	22 23
Signatures		23 24

EDUCATIONAL DEVELOPMENT CORPORATION
CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)
	Three Months Ended November 30,						Nine Months Ended November 30,
	2017			2016			2017			2016

GROSS SALES	$	41,894,600		$	34,397,300		$	100,989,500		$	91,657,200
Less discounts and allowances		(6,762,300	)		(6,948,000	)		(19,929,300	)		(20,581,900	)
Transportation revenue		3,775,700			3,248,300			8,959,900			8,299,500
NET REVENUES		38,908,000			30,697,600			90,020,100			79,374,800
COST OF GOODS SOLD		10,494,800			8,328,100			24,579,200			22,500,300
Gross margin		28,413,200			22,369,500			65,440,900			56,874,500

OPERATING EXPENSES:
Operating and selling		7,837,300			6,520,300			17,549,900			16,790,900
Sales commissions		12,510,400			9,521,000			28,759,300			24,802,200
General and administrative		4,735,200			4,525,900			12,359,600			12,237,600
Total operating expenses		25,082,900			20,567,200			58,668,800			53,830,700

OTHER INCOME (EXPENSE):
Interest expense		(287,600	)		(265,000	)		(863,800	)		(730,000	)
Other income		390,100			502,800			1,189,400			1,251,600
Total other income		102,500			237,800			325,600			521,600

EARNINGS BEFORE INCOME TAXES		3,432,800			2,040,100			7,097,700			3,565,400

INCOME TAXES		1,304,400			765,900			2,707,100			1,352,500
NET EARNINGS	$	2,128,400		$	1,274,200		$	4,390,600		$	2,212,900

BASIC AND DILUTED EARNINGS PER SHARE:
Basic	$	0.52		$	0.31		$	1.07		$	0.54
Diluted	$	0.52		$	0.31		$	1.07		$	0.54


DIVIDENDS PER SHARE	$	0.00		$	0.09		$	0.00		$	0.27

WEIGHTED AVERAGE NUMBER OF COMMON AND EQUIVALENT SHARES OUTSTANDING:
Basic		4,087,268			4,079,916			4,087,686			4,074,355
Diluted		4,090,011			4,084,863			4,090,053			4,079,833

EDUCATIONAL DEVELOPMENT CORPORATION
CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED NOVEMBER 30, 2017

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


BALANCE—March 1, 2017		6,041,040	$	1,208,200	$	8,548,000	$	16,317,800		1,950,966		$	(10,856,600	)	$	15,217,400
Exercise of stock options		5,000		1,000		25,300		-		-			-			26,300
Purchases of treasury stock		-		-		-		-		10,041			(98,000	)		(98,000	)
Sales of treasury stock		-		-		-		-		(3,901	)		32,000			32,000
Net earnings		-		-		-		4,390,600		-			-			4,390,600
BALANCE— November 30, 2017		6,046,040	$	1,209,200	$	8,573,300	$	20,708,400		1,957,106		$	(10,922,600	)	$	19,568,300

EDUCATIONAL DEVELOPMENT CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED NOVEMBER 30,

	2017			2016

CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	4,390,600		$	2,212,900
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities
Depreciation		911,700			780,400
Deferred income taxes		179,400			(35,400	)
Provision for doubtful accounts		438,000			558,900
Provision for inventory valuation allowance		33,000			(37,300	)
Changes in assets and liabilities:
Accounts receivable		(1,355,700	)		(1,994,200	)
Inventories, net		9,760,000			(16,775,100	)
Prepaid expenses and other assets		(304,700	)		(1,661,300	)
Accounts payable		(7,301,700	)		6,889,100
Deferred revenue		28,600			6,632,500
Accrued salaries and commissions		2,765,200			375,600
Other liabilities		1,320,000			2,307,700
Income taxes payable		469,600			576,800
Total adjustments		6,943,400			(2,382,300	)
Net cash provided by (used in) operating activities		11,334,000			(169,400	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(1,330,500	)		(2,123,600	)
Net cash used in investing activities		(1,330,500	)		(2,123,600	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt		(657,800	)		(530,200	)
Proceeds from long-term debt		1,019,000			4,000,000
Cash received from sales of treasury stock		32,000			170,700
Cash used to purchase treasury stock		(98,000	)		(200	)
Proceeds from the issuance of stock options		26,300			-
Net payments under the line of credit		(4,882,900	)		(451,800	)
Dividends paid		-			(1,099,500	)
Net cash provided by (used in) financing activities		(4,561,400	)		2,089,000

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		5,442,100			(204,000	)
CASH AND CASH EQUIVALENTS—BEGINNING OF PERIOD		699,200			1,183,700

CASH AND CASH EQUIVALENTS—END OF PERIOD	$	6,141,300		$	979,700

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	868,900		$	730,000
Cash paid for income taxes	$	2,058,100		$	811,100

	2017
	November 30,			February 28,
Current:
Book inventory	$	24,480,900		$	34,278,100
Inventory valuation allowance		(25,000	)		(25,000	)

Inventories net–current	$	24,455,900		$	34,253,100

Noncurrent:
Book inventory	$	502,200		$	467,100
Inventory valuation allowance		(305,900	)		(275,000	)

Inventories net–noncurrent	$	196,300		$	192,100

	For the Three Months Ended November 30,						For the Nine Months Ended November 30,
	2017			2016			2017			2016
Gross sales	$	36,761,700		$	27,907,200		$	87,143,200		$	76,263,200
Less discounts and allowances		(4,059,000	)		(3,528,100	)		(12,595,300	)		(12,414,500	)
Transportation revenue		3,765,700			3,243,500			8,933,500			8,281,500
Net revenues		36,468,400			27,622,600			83,481,400			72,130,200

Cost of goods sold		9,114,200			6,577,500			20,939,500			18,549,700
Gross margin		27,354,200			21,045,100			62,541,900			53,580,500

Operating Expenses
Operating and selling		6,860,200			5,613,300			14,752,100			14,311,500
Sales commissions		12,420,000			9,425,300			28,507,800			24,561,100
General and administrative		1,158,600			1,286,700			3,416,800			3,421,700
Total operating expenses		20,438,800			16,325,300			46,676,700			42,294,300

Operating income	$	6,915,400		$	4,719,800		$	15,865,200		$	11,286,200

Average number of active consultants		31,100			28,100			29,500			24,800

Year Ending February 28 (29)

2018		267,100
2019		1,278,600
2020		1,331,200
2021		1,324,300
2022		1,069,000
Thereafter		16,672,100
Total Maturities	$	21,942,300