UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~November 30, 2017~~August 31, 2021

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

For the transition period from ___________ to ____________.

Commission file number: 000-04957

EDUCATIONAL DEVELOPMENT CORPORATION

(Exact name of registrant as specified in its charter)

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

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

~~5402 South 122~~^nd ~~East Avenue, Tulsa, Oklahoma 74146~~

~~(Address of principal executive offices) (Zip Code)~~

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

~~Indicate by check mark whether the registrant (1) has filed all reports~~

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

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

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

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

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

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

Large accelerated filer ☐		Accelerated filer ☐ ☒

Non-accelerated filer ☐		Smaller reporting company ☒

	Emerging Growth Company ☐

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

☐

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

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

As of ~~January 12, 2018,~~October 1, 2021, there were ~~4,088,934~~8,656,136 shares of Educational Development Corporation Common Stock, $0.20 par value outstanding.

TABLE OF CONTENTS

		Page
PARTI.FINANCIALINFORMATION
Item 1.	Financial Statements	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21 23
Item 4.	Controls and Procedures	21 23

PARTII.OTHERINFORMATION
Item 1.	Legal Proceedings	22 24
Item 1A.	Risk Factors	22 24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22 24
Item 3.	Defaults Upon Senior Securities	22 24
Item 4.	Mine Safety Disclosures	22 24
Item 5.	Other Information	22 24
Item 6.	Exhibits	22 25
Signatures		23 26

CAUTIONARY REMARKS REGARDING FORWARD-LOOKING STATEMENTS

The information discussed in this Quarterly Report on Form 10-Q includes “forward-looking statements.” These forward-looking statements are identified by their use of terms and phrases such as “may,” “expect,” “estimate,” “project,” “plan,” “believe,” “intend,” “achievable,” “anticipate,” “continue,” “potential,” “should,” “could,” and similar terms and phrases. Although we believe that the expectations reflected in these forward-looking statements are reasonable, they do involve certain assumptions, risks and uncertainties, and we can give no assurance that such expectations or assumptions will be achieved. Important factors that could cause actual results to differ materially from those in the forward-looking statements are described under “Item 7 – ~~Management’s~~ Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended February 28, ~~2017~~2021 and in this ~~Quarterly Report.~~quarterly report. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements in this paragraph and elsewhere in this Quarterly Report on Form 10-Q and speak only as of the date of this Quarterly Report on Form 10-Q. Other than as required under the securities laws, we do not assume a duty to update these forward-looking statements, whether as a result of new information, subsequent events or circumstances, changes in expectations or otherwise.

~~Table of Contents~~

PART I. FINANCIAL INFORMATION

~~ITEM~~

Item 1.FINANCIAL STATEMENTS

EDUCATIONALDEVELOPMENTCORPORATION

CONDENSEDBALANCESHEETS(UNAUDITED)

EDUCATIONAL DEVELOPMENT CORPORATION
CONDENSED BALANCE SHEETS (UNAUDITED)
							August 31,			February 28,
ASSETS	November 30, 2017			February 28, 2017			2021			2021

CURRENT ASSETS:
CURRENT ASSETS
Cash and cash equivalents	$	6,141,300		$	699,200		$	921,200		$	1,812,200
Accounts receivable, less allowance for doubtful accounts and sales returns of $637,000 (November 30) and $675,000 (February 28)		3,834,700			2,917,000
Inventories—Net		24,455,900			34,253,100
Accounts receivable, less allowance for doubtful accounts of $388,100 (August 31) and $331,900 (February 28)								3,894,400			3,346,700
Inventories - net								64,707,400			51,762,400
Prepaid expenses and other assets		999,900			695,200			1,407,500			1,219,300
Total current assets		35,431,800			38,564,500			70,930,500			58,140,600

NONCURRENT INVENTORIES —Net		196,300			192,100

PROPERTY, PLANT AND EQUIPMENT—Net		27,453,100			27,034,300

INVENTORIES - net								843,400			685,300
PROPERTY, PLANT AND EQUIPMENT - net								31,186,400			29,951,000
OTHER ASSETS		61,400			61,400			43,600			73,600

DEFERRED INCOME TAXES		-			128,000

TOTAL ASSETS	$	63,142,600		$	65,980,300		$	103,003,900		$	88,850,500

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES:
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	10,263,600		$	17,565,300		$	18,519,000		$	19,674,300
Line of credit		-			4,882,900			16,653,800			5,245,300
Deferred revenue		661,700			633,100
Deferred revenues								751,400			1,914,100
Current maturities of long-term debt		1,239,500			898,500			1,645,200			533,500
Accrued salaries and commissions		4,144,900			1,379,700			1,896,400			3,488,000
Dividends payable								865,000			835,100
Income taxes payable		1,989,000			1,519,400			126,100			130,200
Other current liabilities		4,432,200			3,218,200			3,629,800			6,094,800
Total current liabilities		22,730,900			30,097,100			44,086,700			37,915,300

LONG-TERM DEBT-Net of current maturities		20,686,000			20,665,800
DEFERRED INCOME TAXES		51,400			-
LONG-TERM DEBT - net of current maturities								14,278,400			10,451,200
DEFERRED INCOME TAXES - net								41,400			89,900
OTHER LONG-TERM LIABILITIES		106,000			-			114,000			134,300
Total liabilities		43,574,300			50,762,900			58,520,500			48,590,700

COMMITMENTS (Note 8)

SHAREHOLDERS’ EQUITY:
Common stock, $0.20 par value; Authorized 8,000,000 shares; Issued 6,046,040 (November 30) and 6,041,040 (February 28) shares; Outstanding 4,088,934 (November 30) and 4,090,074 (February 28) shares		1,209,200			1,208,200
SHAREHOLDERS' EQUITY
Common stock, $0.20 par value; Authorized 16,000,000 shares; Issued 12,702,080 (August 31) and 12,410,080 (February 28) shares; Outstanding 8,650,229 (August 31) and 8,346,600 (February 28) shares								2,540,400			2,482,000
Capital in excess of par value		8,573,300			8,548,000			11,377,900			10,863,900
Retained earnings		20,708,400			16,317,800			43,290,900			39,683,000
		30,490,900			26,074,000			57,209,200			53,028,900
Less treasury stock, at cost		(10,922,600	)		(10,856,600	)		(12,725,800	)		(12,769,100	)
Total shareholders' equity		19,568,300			15,217,400			44,483,400			40,259,800
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	63,142,600		$	65,980,300
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY							$	103,003,900		$	88,850,500

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

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

EDUCATIONALDEVELOPMENTCORPORATION

CONDENSEDSTATEMENTSOFEARNINGS(UNAUDITED)

	Three Months Ended August 31,						Six Months Ended August 31,
	2021			2020			2021			2020
GROSS SALES	$	44,187,100		$	73,682,800		$	96,578,700		$	120,579,700
Less discounts and allowances		(14,513,500	)		(21,363,400	)		(30,467,600	)		(34,259,300	)
Transportation revenue		3,320,800			6,930,700			7,691,200			11,221,400
NET REVENUES		32,994,400			59,250,100			73,802,300			97,541,800
COST OF GOODS SOLD		10,498,900			17,309,500			22,528,800			28,705,000
Gross margin		22,495,500			41,940,600			51,273,500			68,836,800

OPERATING EXPENSES
Operating and selling		5,239,900			10,531,900			11,682,500			16,872,100
Sales commissions		10,105,200			20,304,400			23,072,000			33,904,900
General and administrative		4,793,900			5,664,000			9,932,800			10,200,000
Total operating expenses		20,139,000			36,500,300			44,687,300			60,977,000


INTEREST EXPENSE		213,700			140,000			381,500			322,200
OTHER INCOME		(515,300	)		(499,200	)		(1,114,000	)		(905,800	)

EARNINGS BEFORE INCOME TAXES		2,658,100			5,799,500			7,318,700			8,443,400

INCOME TAXES		759,900			1,544,500			1,982,400			2,257,300
NET EARNINGS	$	1,898,200		$	4,255,000		$	5,336,300		$	6,186,100

BASIC AND DILUTED EARNINGS PER SHARE
Basic	$	0.24		$	0.51		$	0.66		$	0.74
Diluted	$	0.23		$	0.51		$	0.63		$	0.74

WEIGHTED AVERAGE NUMBER OF COMMON AND EQUIVALENT SHARES OUTSTANDING
Basic		8,028,594			8,354,214			8,028,929			8,353,319
Diluted		8,435,348			8,354,214			8,458,664			8,353,319
Dividends per share	$	0.10		$	0.06		$	0.20		$	0.12

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

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

EDUCATIONALDEVELOPMENTCORPORATION

CONDENSEDSTATEMENTSOFCHANGESINSHAREHOLDERS’ EQUITY(UNAUDITED)

FORTHESIXMONTHSENDEDAUGUST 31, 2021

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

BALANCE – February 28, 2021		12,410,080	$	2,482,000	$	10,863,900		$	39,683,000			4,063,480		$	(12,769,100	)	$	40,259,800
Sales of treasury stock		-		-		26,600			-			(1,714	)		5,400			32,000
Dividends declared ($0.10/share)		-		-		-			(834,800	)		-			-			(834,800	)
Stock-based compensation (see note 6)		-		-		261,600			-			-			-			261,600
Net earnings		-		-		-			3,438,100			-			-			3,438,100
BALANCE - May 31, 2021		12,410,080	$	2,482,000	$	11,152,100		$	42,286,300			4,061,766		$	(12,763,700	)	$	43,156,700
Sales of treasury stock		-		-		46,100			-			(4,915	)		14,300			60,400
Issuance of restricted share awards for vesting		292,000		58,400		(82,000	)		-			(5,000	)		23,600			-
Dividends declared ($0.10/share)		-		-		-			(893,600	)		-			-			(893,600	)
Share-based compensation expense (see Note 6)		-		-		261,700			-			-			-			261,700
Net earnings		-		-		-			1,898,200			-			-			1,898,200
BALANCE - August 31, 2021		12,702,080	$	2,540,400	$	11,377,900		$	43,290,900			4,051,851		$	(12,725,800	)	$	44,483,400

FORTHESIXMONTHSENDED AUGUST 31, 2020

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

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

See notes to condensed financial statements (unaudited).

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

EDUCATIONALDEVELOPMENTCORPORATION

CONDENSEDSTATEMENTSOFCASHFLOWS(UNAUDITED)

	Six Months Ended August 31,
	2021			2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings	$	5,336,300		$	6,186,100
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation		924,200			821,100
Deferred income taxes		(48,500	)		(185,100	)
Provision for doubtful accounts		61,600			91,800
Provision for inventory valuation allowance		120,000			106,400
Share-based compensation expense		523,300			385,200
Changes in assets and liabilities:
Accounts receivable		(609,300	)		(392,400	)
Inventories, net		(13,223,100	)		(17,700	)
Prepaid expenses and other assets		(158,200	)		(383,800	)
Accounts payable		(104,700	)		14,797,500
Accrued salaries and commissions and other liabilities		(4,076,900	)		4,164,500
Deferred revenues		(1,162,700	)		843,100
Income taxes payable		(4,100	)		2,133,200
Total adjustments		(17,758,400	)		22,363,800
Net cash provided by (used in) operating activities		(12,422,100	)		28,549,900
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment		(3,210,200	)		(440,900	)
Net cash used in investing activities		(3,210,200	)		(440,900	)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on term debt		(305,800	)		(9,015,500	)
Proceeds from term debt		5,244,700			1,447,400
Sales of treasury stock		92,400			90,100
Purchases of treasury stock		0			(75,500	)
Net borrowings under line of credit		11,408,500			0
Dividends paid		(1,698,500	)		(918,600	)
Net cash provided by (used in) financing activities		14,741,300			(8,472,100	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(891,000	)		19,636,900
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		1,812,200			2,999,400
CASH AND CASH EQUIVALENTS - END OF PERIOD	$	921,200		$	22,636,300

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Cash paid for interest	$	378,000		$	343,900
Cash paid for income taxes	$	2,035,000		$	309,200

NON-CASH TRANSACTIONS
Accrued capital expenditures	$	10,600		$	252,000

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

Table of Contents

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

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

Basis of Presentation

The accompanying Unaudited Condensed Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim condensed financial information and in accordance with the rules and regulations of the Securities and Exchange Commission. The Unaudited Condensed Financial Statements include all adjustments considered necessary for a fair presentation of the financial position and results of operations for the interim periods presented. Such adjustments consist only of normal recurring items, unless otherwise disclosed herein. Accordingly, the Unaudited Condensed Financial Statements do not include all of the information and notes required by GAAP for complete financial statements. However, we believe that the disclosures made are adequate to make the information not misleading. These interim Unaudited Condensed Financial Statements should be read in conjunction with our audited financial statements as of and for the year ended February 28, ~~2017~~2021 included in our Form 10-K. The results of operations for interim periods are not necessarily indicative of the results to be expected for a full year due to the seasonality of our product sales.

COVID-19 Update

~~Reclassifications~~

The Company has taken numerous steps, and will continue to take further actions, in its approach to minimize the impact of the COVID-19 pandemic. Effective May 1, 2021, we lessened our safety and health practices in the office and warehouse based on the recommendations from the local Tulsa Health Department. We are closely monitoring the impact of the COVID-19 pandemic and continually assessing its potential effects on our business. While the Company did not experience a decrease in net revenues during fiscal year 2021, and the year-to-date result of fiscal 2022 are more normalized, the long-term severity and duration of the pandemic are uncertain and the extent to which our results are affected by COVID-19 cannot be accurately predicted. See Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information on the impact COVID-19 had during the current fiscal period.

Certain reclassifications have been made to 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.

Use of Estimates in the Preparation of Financial Statements

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

Significant Accounting Policies

Our significant accounting policies, other than the adoption of new accounting pronouncements separately documented herein, are consistent with those disclosed in Note 1 to our audited financial statements as of and for the year ended February 28, ~~2017,~~2021 included in our Form 10-K.

New Accounting Pronouncements

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

In ~~May 2014,~~December 2019, the FASB ~~issued~~published ASU ~~No. 2014-09,~~2019-12: Income Taxes (Topic 740), which simplifies the accounting for income taxes. Topic 740 addresses a number of topics including but not limited to the removal of certain exceptions currently included in the standard related to intra-period allocation when there are losses, in addition to calculation of income taxes when current year-to-date losses exceed anticipated loss for the year. The amendment also simplifies accounting for certain franchise taxes and ~~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~~disclosure of ~~industries, companies and geographical boundaries and will also result~~the effect of enacted change in ~~enhanced disclosures. The changes are effective for fiscal years, and interim periods within those years,~~tax laws or rates. Topic 740 was adopted by the Company at the beginning ~~after December 15, 2017, which means 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~~2022 and ~~cash flows.~~

In July 2015, FASB issued ASU No. 2015-11 "Inventory - Simplifying the Measurement of Inventory", which is intended to allow measurement of inventory at the lower of cost 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. This ASU ~~became effective for the Company on March 1, 2017. The adoption of this ASU~~ did not have a material impact on our financial statements and disclosures.

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

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In November 2015, FASB issued 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 noncurrent in a classified balance sheet. Instead, organizations will now be required to classify all deferred tax 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 the first quarter of our fiscal year 2018. We have retrospectively implemented this new presentation in our condensed financial statements. As such, for the period ending of February 28, 2017, we reclassified $466,000 of current deferred tax assets to noncurrent 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 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.

In June 2016, FASB issued ASU No. 2016-13 "Financial Instruments—Credit 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 the first quarter of our fiscal year 2021. We expect the implementation of this ASU will not have a significant impact on our financial statements.

In May 2017, FASB issued ASU 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting.” This update amends the scope of modification accounting surrounding share-based payment arrangements as issued in 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 effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods, which means 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 the adoption of ASU 2017-09 to have a material effect on our financial position, results of operations and 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

	August 31, 2021			February 28, 2021
Current:
Book inventory	$	65,274,800		$	52,276,200
Inventory valuation allowance		(567,400	)		(513,800	)
Inventories net – current	$	64,707,400		$	51,762,400

Noncurrent:
Book inventory	$	1,124,400		$	894,300
Inventory valuation allowance		(281,000	)		(209,000	)
Inventories net – noncurrent	$	843,400		$	685,300

Book inventory includes inventory in transit which totaled $2,796,900 and $6,467,400 at August 31, 2021 and February 28, 2021, respectively.

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Book inventory quantities in excess of what we expect will be sold within the normal operating cycle, based on ~~2.5~~2½ years of anticipated sales, are included in noncurrent inventory.

Significant portions of our inventory purchases are concentrated with an England-based publishing ~~company.~~company, Usborne Publishing, Ltd. (“Usborne”). Purchases received from this company were ~~approximately $6.9 million~~$12,127,000 and ~~$10.9 million~~$7,357,600 for the three months ended ~~November 30, 2017~~August 31, 2021 and ~~2016,~~2020, respectively. Total inventory purchases received from all suppliers were ~~$10.9 million~~$18,779,100 and ~~$15.2 million~~$12,370,600 for the three months ended ~~November 30, 2017~~August 31, 2021 and ~~2016,~~2020, respectively.

Purchases received from ~~this company~~Usborne were ~~approximately $18.2 million~~$24,415,300 and ~~$29.9 million~~$11,332,000 for the ~~nine~~six months ended ~~November 30, 2017~~August 31, 2021 and ~~2016,~~2020, respectively. Total inventory purchases received from all suppliers were ~~$27.5 million~~$36,564,300 and ~~$43.7 million~~$18,217,200 for the ~~nine~~six months ended ~~November 30, 2017~~August 31, 2021 and ~~2016,~~2020, respectively.

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

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

~~Property,~~

Operating Leases – Lessor

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

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

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

Years ending February 28 (29),
2022	$	775,200
2023		1,573,200
2024		1,577,900
2025		1,547,100
2026		1,524,300
Thereafter		8,091,000
Total	$	15,088,700

The cost of the leased space was $10,828,600 and $10,826,400 as of August 31, 2021 and February 28, 2021, respectively. The accumulated depreciation associated with the leased assets was $2,407,600 and $2,216,700 as of August 31, 2021 and February 28, 2021, respectively. Both the leased assets and accumulated depreciation are included in property, plant and ~~equipment consist of~~equipment-net on the ~~following:~~condensed balance sheets.

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.~~

Note 4 – DEBT

Debt consists of the following:

	August 31, 2021			February 28, 2021

Line of credit	$	16,653,800		$	5,245,300


Advancing term loan	$	5,244,700		$	0
Long-term debt		10,678,900			10,984,700
Less current maturities		(1,645,200	)		(533,500	)
Long-term debt, net of current maturities	$	14,278,400		$	10,451,200

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

~~We have a~~

The Company executed an Amended and Restated Loan Agreement ~~dated as of March 10, 2016~~on February 15, 2021 (as amended the “Loan Agreement”) with MidFirst Bank (“the Bank”), which replaced the prior loan agreement and includes multiple loans. Term Loan #1 ~~is comprised of~~ Tranche A (“Term Loan #1”), originally totaling $13.4 million, was part of the prior loan agreement. Term Loan #1 had a fixed interest rate of 4.23% with principal and ~~Tranche B totaling $5.0 million, both with the~~interest payable monthly and a stated maturity date of December 1, 2025. ~~Tranche A has a~~On April 1, 2021, the Company executed the First Amendment to the Loan Agreement which reduced the fixed interest rate on Term Loan #1 to 3.12% and removed the prepayment premium from the Loan Agreement. Term Loan #1 is secured by the primary office, warehouse and land. The outstanding borrowings on Term Loan #1 were $10,678,900 and $10,984,700 as of ~~4.23%~~August 31, 2021 and February 28, 2021, respectively.

The Loan Agreement also provides a $20.0 million revolving loan (“line of credit”) through August 15, 2022 with interest ~~is payable monthly. Tranche B interest is~~ payable monthly at the ~~bank adjusted~~Bank-adjusted LIBOR Index plus a tiered pricing rate based on the Company’s Adjusted Funded Debt to EBITDA Ratio, ~~(4.41%~~with a minimum rate of 2.75% (the effective rate was 2.75% at ~~November 30, 2017)~~August 31, 2021). ~~Term~~On July 16, 2021, the Company executed the Second Amendment to the Loan ~~#1 is secured by~~Agreement which increased the ~~primary office, warehouse and land. The~~Maximum Revolving Principal Amount from $15.0 million to $20.0 million. On August 31, 2021, the Company executed the Third Amendment to the Loan Agreement which modified the advance rates used in the borrowing base certificate. Our borrowings outstanding ~~borrowings~~ on ~~Tranche A were $12,566,300 and $12,902,800 at November 30, 2017~~our line of credit as of August 31, 2021 and February 28, ~~2017,~~2021, were $16,653,800 and $5,245,300, respectively. ~~The outstanding borrowings on Tranche B were $4,717,900~~Available credit under the revolving line of credit was approximately $3,346,200 and ~~$4,813,800~~$9,570,200 at ~~November 30, 2017~~August 31, 2021 and February 28, ~~2017,~~2021, respectively.

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~~We also have~~

In addition, the Loan Agreement provides a $6.0 million Advancing Term Loan ~~#2 with the Bank in the amount of $4.0 million with the maturity date of June 28,~~to be used to finance planned equipment purchases. The Advancing Term Loan required interest-only payments through July 15, 2021, ~~and~~at which time it was converted to a 60-month amortizing term loan maturing July 15, 2026. The Advancing Term Loan accrues interest ~~payable monthly~~ at the ~~bank adjusted~~Bank-adjusted LIBOR Index plus a tiered pricing rate based on the Company’s Adjusted Funded Debt to EBITDA Ratio, ~~(4.41%~~with a minimum rate of 2.75% (the effective rate was 2.75% at ~~November 30, 2017)~~August 31, 2021). 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 15, 2018 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% at November 30, 2017). The outstanding borrowings on 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 inOur 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.~~August 31, 2021 were $5,244,700 and we had no borrowings at February 28, 2021.

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 Term Loan #2 and the Advancing Term Loan all accrue interest at a tiered rate based on our Adjusted Funded Debt to EBITDA ratio which is payable monthly. The current pricing tier is as follows:

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

Adjusted Funded Debt is defined as all ~~long term~~long-term and short-term bank debt less the outstanding ~~balances~~balance of ~~Tranche A and Trance B~~ Term ~~Loans.~~Loan #1. EBITDA is defined in the Loan Agreement as ~~earnings before~~net income plus interest expense, income tax expense (benefit) and depreciation and amortization expenses. The ~~$15.0~~Adjusted Funded Debt to EBITDA ratio includes Adjusted Funded Debt to trailing twelve months EBITDA, reduced by specific rental income received from a non-related third party, see Note 3. The $20.0 million line of credit is limited to advance rates on eligible receivables and eligible inventory levels.

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The ~~President~~Advancing Term Loan and ~~Chief Executive Officer and his wife have executed~~the line of credit accrue interest at a ~~Guaranty Agreement obligating them~~tiered rate based on our Adjusted Funded Debt to ~~repay $3,680,000 of any unpaid Term Loans, unpaid accrued~~EBITDA ratio. The variable interest ~~and any recourse amounts~~pricing tier is as ~~defined in the Continuing Guaranty Agreement.~~follows:

PricingTier	AdjustedFundedDebttoEBITDARatio	LIBORMargin(bps)
I	>2.00	300.00
II	>1.50 but <2.00	275.00
III	>1.00 but <1.50	250.00
IV	<1.00	225.00

The Loan Agreement contains a provision for our use of the Bank’s letters of credit. The Bank agrees to issue or obtain issuance of commercial or stand-by letters of credit provided that no letters of credit will have an expiry date later than ~~June~~August 15, ~~2018,~~2022, and that the sum of the line of credit plus the letters of credit would not exceed the borrowing base in effect at the time. ~~For the quarter ended November 30, 2017,~~As of August 31, 2021, we had no letters of credit outstanding.

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

that can be repurchased using advances from the line of credit.

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

Years ending February 28 (29),
2022	$	816,900
2023		1,658,800
2024		1,678,300
2025		1,697,700
2026		9,546,400
Thereafter		525,500
Total	$	15,923,600

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Note 5 – EARNINGS PER SHARE

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

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

	Three Months Ended August 31,				Six Months Ended August 31,
	2021		2020		2021		2020
Earnings:
Net earnings applicable to common shareholders	$	1,898,200	$	4,255,000	$	5,336,300	$	6,186,100

Weighted average shares:
Weighted average shares outstanding-basic		8,028,594		8,354,214		8,028,929		8,353,319
Issued unvested restricted stock and assumed shares issuable under granted unvested restricted stock awards		406,754		0		429,735		0
Weighted average shares outstanding-diluted		8,435,348		8,354,214		8,458,664		8,353,319

Earnings per share:
Basic	$	0.24	$	0.51	$	0.66	$	0.74
Diluted	$	0.23	$	0.51	$	0.63	$	0.74

~~In April 2008, the Board~~10

Table 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.~~Contents

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

We account for ~~stock-based~~share-based compensation whereby share-based payment transactions with employees, such as stock options and restricted stock, are measured at estimated fair value at the date of ~~grant and recognized as~~grant. For awards subject to service conditions, compensation expense is recognized over the vesting ~~period.~~period on a straight-line basis. Awards subject to performance conditions are attributed separately for each vesting tranche of the award and are recognized ratably from the service inception date to the vesting date for each tranche. Forfeitures are recognized when they occur. The probability of restricted share awards granted with future performance conditions is evaluated at each reporting period and share awards are updated and compensation expense is adjusted based on updated information.

In July 2018, our shareholders approved the Company’s 2019 Long-Term Incentive Plan (“2019 LTI Plan”). The 2019 LTI Plan established up to 600,000 shares of restricted stock available to be granted to certain members of management based on exceeding specified net revenues and pre-tax performance metrics during fiscal years 2019, 2020 or 2021. The Company exceeded all defined metrics during these fiscal years and 600,000 shares were granted to members of management according to the Plan. The granted shares under the 2019 LTI Plan “cliff vest” after five years from the fiscal year that the defined metrics were exceeded.

In July 2021, our shareholders approved the Company’s 2022 Long-Term Incentive Plan (“2022 LTI Plan”). The 2022 LTI Plan establishes up to 300,000 shares of restricted stock available to be granted to certain members of management based on exceeding specified net revenues and pre-tax performance metrics during fiscal years 2022 and 2023. The number of restricted shares to be distributed depends on attaining the performance metrics defined by the 2022 LTI Plan and may result in the distribution of a number of shares that is less than, but not greater than, the number of restricted shares outlined in the terms of the 2022 LTI Plan. Restricted shares granted under the 2022 LTI Plan “cliff vest” after five years from the fiscal year that the defined metrics were exceeded.

During fiscal year 2019, the Company granted 308,000 restricted shares under the 2019 LTI Plan with an average grant-date fair value of $9.94 per share. In the third quarter ~~ended November 30, 2017,~~of fiscal year 2021, 5,000 of these restricted shares were forfeited. These shares were made available to be reissued to remaining participants upon forfeiture. The remaining compensation expense for the outstanding awards, totaling approximately $980,200, will be recognized ratably over the remaining vesting period of approximately 18 months.

During fiscal year 2021, the Company granted 297,000 restricted shares under the 2019 LTI Plan, including the 5,000 aforementioned shares that were previously forfeited and held in Treasury, with an average grant-date fair value of $6.30 per share. The remaining compensation expense of these awards, totaling approximately $1,374,800, will be recognized ratably over the remaining vesting period of approximately 42 months.

As of August 31, 2021, no shares have been granted under the 2022 LTI Plan.

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

	Three Months Ended August 31,				Six Months Ended August 31,
	2021		2020		2021		2020

Share-based compensation expense	$	261,700	$	216,200	$	523,300	$	385,200

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

	Shares		Weighted Average Fair Value (per share)

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

As of August 31, 2021, total unrecognized share-based compensation expense related to unvested granted or issued restricted shares was $2,355,000, which we expect to recognize over a ~~former employee exercised 5,000 vested stock options.~~weighted-average period of 32.0 months.

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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 condensed 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~~$5,036,000 and ~~$4,569,900~~$9,984,600 for the three months ended ~~November 30, 2017~~August 31, 2021 and ~~2016,~~2020, respectively. These costs were ~~$12,200,100~~$11,392,400 and ~~$12,134,700~~$16,299,900 for the ~~nine~~six months ended ~~November 30, 2017~~August 31, 2021 and ~~2016,~~2020, 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 two~~

We have 2 reportable segments: Usborne Books & More (“UBAM”) and Publishing. These reportable segments are business units that offer different methods of distribution to different types of customers. They are managed separately based on the fundamental differences in their operations. ~~The~~Our UBAM segment markets its products through a network of independent sales consultants using a combination of internet sales, direct sales, home shows and book fairs. Our Publishing segment markets its products to retail accounts, which include book, school supply, toy and gift stores and museums, trade and specialty wholesalers, through commissioned sales representatives ~~trade~~ and ~~specialty wholesalers and an~~our internal tele-sales group. ~~The UBAM segment markets its products through a network of independent sales consultants using a combination of 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, 2021 and ~~2016,~~2020, 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,
	2021		2020		2021		2020
UBAM	$	29,518,100	$	56,911,600	$	67,135,000	$	93,837,800
Publishing		3,476,300		2,338,500		6,667,300		3,704,000
Total	$	32,994,400	$	59,250,100	$	73,802,300	$	97,541,800

EARNINGS (LOSS) BEFORE INCOME TAXES

	Three Months Ended August 31,						Six Months Ended August 31,
	2021			2020			2021			2020
UBAM	$	5,579,100		$	9,662,600		$	13,440,400		$	15,489,700
Publishing		982,800			738,800			1,844,300			1,085,400
Other		(3,903,800	)		(4,601,900	)		(7,966,000	)		(8,131,700	)
Total	$	2,658,100		$	5,799,500		$	7,318,700		$	8,443,400

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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.

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We do not report any assets or liabilities at fair value in the financial statements. However, the estimated fair value of our ~~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~~$15,654,000 and ~~$20,130,100~~$11,078,800 at ~~November 30, 2017~~August 31, 2021 and February 28, ~~2017,~~2021, 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~~REVENUES

The Company’s UBAM division receives payments on orders in advance of shipment. Any payments received prior to the end of the ~~third quarter, we had~~period that were not shipped as of August 31, 2021 or February 28, 2021 are recorded as deferred revenues on the condensed balance sheets. We received approximately ~~$661,700~~$751,400 and $1,914,100, as of August 31, 2021 and February 28, 2021, respectively, in payments for sales orders which were shipped out subsequent to the ~~quarter end. As~~end of ~~November 30, 2017, these prepaid sales orders are~~the period. Orders that were included in deferred ~~revenue on~~revenues predominantly shipped within the ~~condensed balance sheet.~~first few days of the next fiscal period.

Note 1211 – SUBSEQUENT ~~EVENT~~EVENTS

On ~~December 22, 2017,~~October 6, 2021, the ~~U.S. President signed the Tax Cuts and Jobs Act~~Board of ~~2017 (the “Act”). Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 740, Income Taxes (“ASC 740”) requires~~Directors approved a $0.10 dividend that ~~the effects~~will be paid to shareholders 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.~~Thursday, November 18, 2021.

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~~ITEM~~

Item 2. ~~MANAGEMENT'S~~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, the COVID-19 pandemic, as well as those factors discussed below and elsewhere in our Annual Report on Form 10-K for the year ended February 28, ~~2017~~2021 and this Quarterly Report on Form 10-Q, all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may or may not occur. See ~~“Cautionary~~“Cautionary Remarks Regarding Forward-Looking ~~Statements”~~Statements” in the front of this Quarterly Report on Form 10-Q.

Overview

~~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. The Publishing segment markets its products on a wholesale basis to various retail accounts. All other supporting administrative activities are recognized as other expenses outside of our two segments. Other expenses ~~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 August 31,						Six Months Ended August 31,
	2021			2020			2021			2020
Net revenues	$	32,994,400		$	59,250,100		$	73,802,300		$	97,541,800
Cost of goods sold		10,498,900			17,309,500			22,528,800			28,705,000
Gross margin		22,495,500			41,940,600			51,273,500			68,836,800

Operating expenses
Operating and selling		5,239,900			10,531,900			11,682,500			16,872,100
Sales commissions		10,105,200			20,304,400			23,072,000			33,904,900
General and administrative		4,793,900			5,664,000			9,932,800			10,200,000
Total operating expenses		20,139,000			36,500,300			44,687,300			60,977,000

Interest expense		213,700			140,000			381,500			322,200
Other income		(515,300	)		(499,200	)		(1,114,000	)		(905,800	)
Earnings before income taxes		2,658,100			5,799,500			7,318,700			8,443,400

Income taxes		759,900			1,544,500			1,982,400			2,257,300
Net earnings	$	1,898,200		$	4,255,000		$	5,336,300		$	6,186,100

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

See the detailed discussion of revenues, ~~costs of services,~~ gross margin and 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.

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Non-Segment Operating Results for the Three Months Ended ~~November 30, 2017~~August 31, 2021

~~Operating~~

Total operating expenses not associated with a reporting segment ~~totaled $4.1~~decreased $0.8 million, or 16.0%, to $4.2 million for the ~~quarter~~three-month period ended ~~November 30, 2017, an increase of $0.2~~August 31, 2021, when compared to $5.0 million ~~over the $3.9 million of operating expenses reported~~ for the same quarterly period ~~ending November 30, 2016.~~a year ago. Operating expenses ~~increased~~decreased primarily as a result of ana $0.6 million decrease in warehouse labor and a $0.4 million decrease in freight handling expenses, both resulting from a decrease in gross sales, offset by a $0.2 million increase in ~~the bonus accrual associated with the Company’s~~other various expenses.

Interest expense increased ~~operating profits of approximately $0.4~~$0.1 million, ~~partially offset by other cost reductions.~~

~~Interest expense~~ ~~was $0.3~~or 100.0%, to $0.2 million for the three months ended ~~November 30, 2017, which was consistent with the interest expense reported~~August 31, 2021, when compared to $0.1 million for the same ~~quarter last~~quarterly period a year ago associated with the increase in our line of credit and the addition of the Advancing Term Loan in the current fiscal year.

Income taxes ~~increased $0.5~~ decreased $0.7 million, or 46.7%, to ~~$1.3~~$0.8 million for the three months ended ~~November 30, 2017,~~August 31, 2021, from ~~$0.8~~$1.5 million for the same quarterly period a year ago. Our effective tax rate increased to 28.6% for the quarter ended ~~November 30, 2016. The income tax expense increase was directly attributed to the increase in earnings for the quarter. Our effective tax rate was 38.0%~~August 31, 2021, from 26.6% for the quarter ended ~~November 30, 2017, and 37.5% for the quarter ended November 30, 2016. These~~August 31, 2020 due to sales mix fluctuations between states. Our tax rates are higher than the federal statutory rate of 21% due to the inclusion of state income and franchise taxes.

Non-Segment Operating Results for the ~~Nine~~Six Months Ended ~~November 30, 2017~~August 31, 2021

~~Operating~~

Total operating expenses ~~not associated with a reporting segment increased totaling $10.6~~ remained consistent at $8.7 million for the ~~nine-month period ending November 30, 2017~~six-month periods ended August 31, 2021 and August 31, 2020. Warehouse labor decreased $0.2 million and freight handling decreased $0.4 million for the six months ended August 31, 2021, both associated with reduced sales. These changes were offset by increased warehouse rental of $0.2 million and property insurance of $0.1 million associated with increased inventory levels along with a $0.3 million increase in other various expenses.

Interest expense increased $0.1 million, or 33.3%, to $0.4 million for the six months ended August 31, 2021, when compared to ~~$10.4~~$0.3 million for the same period a year ~~ago. Operating expenses increased due to an~~ago as a result of the increase in our line of credit and the ~~bonus accrual associated with~~addition of the ~~Company’s increased operating profits of approximately $0.4~~Advancing Term Loan in the current fiscal year.

Income taxes decreased $0.3 million, ~~partially offset by reduced other expenses totaling $0.2 million.~~

~~Interest expense~~ ~~totaled $0.9~~or 13.0%, to $2.0 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 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 million to $2.7 million for the nine months ended November 30, 2017,~~August 31, 2021, from ~~$1.4~~$2.3 million for the same period a year ago. Our effective tax rate ~~was 38.1%~~increased to 27.1% for the ~~nine~~six months ended ~~November 30, 2017, and 37.9%~~August 31, 2021, from 26.7% for the ~~same period a year ago. These~~six months ended August 31, 2020 due to sales mix fluctuations between states. Our tax rates are higher than the federal statutory rate of 21% due to the inclusion of state income and franchise taxes.

UBAM Operating Results for the Three and ~~Nine~~Six Months Ended ~~November 30, 2017~~August 31, 2021

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

	Three Months Ended August 31,						Six Months Ended August 31,
	2021			2020			2021			2020
Gross sales	$	36,789,400		$	68,868,300		$	82,325,100		$	112,814,400
Less discounts and allowances		(10,590,700	)		(18,828,400	)		(22,876,400	)		(30,135,100	)
Transportation revenue		3,319,400			6,871,700			7,686,300			11,158,500
Net revenues		29,518,100			56,911,600			67,135,000			93,837,800

Cost of goods sold		8,636,600			16,129,700			18,886,500			26,818,300
Gross margin		20,881,500			40,781,900			48,248,500			67,019,500

Operating expenses
Operating and selling		4,215,000			9,137,600			9,559,700			14,563,900
Sales commissions		9,937,600			20,249,400			22,795,900			33,809,800
General and administrative		1,149,800			1,732,300			2,452,500			3,156,100
Total operating expenses		15,302,400			31,119,300			34,808,100			51,529,800

Operating income	$	5,579,100		$	9,662,600		$	13,440,400		$	15,489,700

Average number of active consultants		46,100			45,400			50,200			39,300

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

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UBAM Operating Results for the Three Months Ended ~~November 30, 2017~~August 31, 2021

~~The~~

UBAM ~~segment’s sales consist of home shows, internet shows and book fairs. Net~~net revenues ~~increased $8.9~~decreased $27.4 million, or ~~32.2%~~48.2%, to ~~$36.5~~$29.5 million during the ~~three-month period ending November 30, 2017,~~three months ended August 31, 2021, when compared ~~with net revenues of $27.6~~to $56.9 million ~~reported~~during the same ~~quarter~~period a year ago. The average number of active consultants in the second quarter of fiscal 2022 was 46,100, an increase of 700, or 1.5%, from 45,400 selling in the second quarter of fiscal 2021. The Company reports the average number of active consultants each quarter as a key indicator for this division. During the quarter ended August 31, 2020 our sales per average number of active consultants increased significantly to due to the increase in ~~net revenues resulted primarily~~demand for our products resulting from ~~an increase~~the impacts of the COVID-19 pandemic. During last summer, school closings and public interaction restrictions increased the need for educational materials in the ~~orders received~~home and our consultants were positioned to fill this increased demand. During the quarter ended August 31, 2021, our sales per average number of active consultants remained consistent with years prior to the COVID-19 pandemic.

Gross margin decreased $19.9 million, or 48.8%, to $20.9 million during the ~~period and an increase in our daily shipping volumes over the same period last year.~~

~~Our orders increased~~three months ended August 31, 2021, when compared to $40.8 million during ~~the quarter from~~ the same period a year ago, primarily ~~due to~~associated with the ~~increase~~decrease 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.~~

net revenues. Gross margin increased $6.3 million to $27.4 million for the three-month period ending November 30, 2017 from $21.0 million reported during the same quarter 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~~decreased 1.0%, to 70.7% for the ~~periods.~~three-month period ended August 31, 2021, when compared to 71.7% the same period a year ago. The decrease in gross margin as a percentage of net revenues resulted from a change in order mix partially offset by reduced cost of goods sold. During the quarter ended August 31, 2021 sales through book fairs, booths and home parties increased over the second quarter last year when these sales types were challenged. These sales types have higher sales discounts and pay less sales commissions to our consultants, resulting in similar operating income. Reduced cost of goods sold resulted from larger volume discounts and vendor rebates associated with increased purchasing volumes over pre-COVID-19 levels.

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 expenses ~~increased $4.1~~decreased $15.8 million, or ~~25.1%~~50.8%, to ~~$20.4~~$15.3 million during the three-month period ~~ending November 30, 2017,~~ended August 31, 2021, when compared ~~with~~to $31.1 million reported in the same quarter ~~last year.~~a year ago. Operating ~~expenses increased primarily from increased operating~~ and selling ~~costs and increased sales commissions, both tied to the growth in revenues during the period.~~

~~Operating income of the UBAM segment increased $2.2~~expenses decreased $4.9 million, or ~~46.8%~~53.8%, to ~~$6.9~~$4.2 million during the three-month period ~~ending November 30, 2017,~~ended August 31, 2021, when compared to $9.1 million reported in the same quarter a year ago, primarily due to a decrease in net revenues and a decrease in postage and freight peak charges we experienced in the second quarter last year. Sales commissions decreased $10.3 million, or 51.0%, to $9.9 million during the three-month period ended August 31, 2021, when compared to $20.2 million reported in the same quarter a year ago, due to primarily to the decrease in net revenues. General and administrative expenses decreased $0.6 million, or 35.3%, to $1.1 million during the three months ended August 31, 2021, when compared to $1.7 million during the same period a year ago, due primarily to reduced bank fees from less credit card transactions during the quarter ended August 31, 2021.

Operating income of the UBAM segment decreased $4.1 million, or 42.3%, to $5.6 million during the three months ended August 31, 2021, when compared to $9.7 million reported in the same quarter a year ago, primarily due to the change in net revenues. Operating income of the UBAM division as a percentage of net revenues for the three months ended August 31, 2021 increased ~~sales~~to 18.9%, compared to 17.0% for the three months ended August 31, 2020, primarily from reduced cost of goods sold resulting from larger volume discounts and ~~gross margins, partially offset by~~vendor rebates associated with increased ~~operating~~purchasing volumes and ~~selling expenses and sales commissions.~~reduced outbound shipping peak charges experienced in the second quarter last year.

UBAM Operating Results for the ~~Nine~~Six Months Ended ~~November 30, 2017~~August 31, 2021

~~Net~~

UBAM net revenues ~~increased $11.4~~decreased $26.7 million, or ~~15.8%~~28.5%, to ~~$83.5~~$67.1 million during the ~~nine-month~~six-month period ~~ending November 30, 2017,~~ended August 31, 2021, compared to $93.8 million from the same period a year ago. The average number of active consultants in the six-month period ended August 31, 2021 was 50,200, an increase of 10,900, or 27.7%, from 39,300 selling in same period a year ago. During the six months ended August 31, 2020 our sales per average number of active consultants increased significantly due to the increase in demand for our products resulting from the impacts of the COVID-19 pandemic. School closings and quarantine restrictions increased the need for educational materials in the home and our consultants were positioned to fill this increased demand. During the six months ended August 31, 2021, our sales per average number of active consultants remained consistent with years prior to the COVID-19 pandemic.

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Gross margin decreased $18.8 million, or 28.1%, to $48.2 million during the six-month period ended August 31, 2021, when compared ~~with~~to $67.0 million during the same period a year ago, due primarily to a decrease in net revenues. Gross margin as a percentage of net revenues increased to 71.9% for the six-month period ended August 31, 2021, when compared to 71.4% for the same period a year ago. During the six months ended August 31, 2021 , sales through book fairs, booths and home increased over the first six months of ~~$72.1~~fiscal year 2021 when these sales types were challenged. These sales types have higher sales discounts and pay less sales commissions to our consultants, resulting in similar operating income. The decrease in gross margin percentage associated with the mix from these sales types was offset by reduced cost of goods sold resulting from larger volume discounts and vendor rebates associated with increased purchasing volumes over pre-COVID-19 levels.

Total operating expenses decreased $16.7 million, or 32.4%, to $34.8 million during the six-month period ended August 31, 2021, from $51.5 million for the same period a year ago. Operating and selling expenses decreased $5.0 million, or 34.2%, to $9.6 million during the six-month period ended August 31, 2021, when compared to $14.6 million reported in the same period a year ago, primarily due to a decrease in shipping costs associated with the decrease in volume of orders shipped. Sales commissions decreased $11.0 million, or 32.5%, to $22.8 million during the six-month period ended August 31, 2021, when compared to $33.8 million reported in the same period a year ago, primarily due to the decrease in net revenues along with a lower percentage of internet-based sales, which offer fewer discounts and higher sales commissions to consultants. General and administrative expenses decreased $0.7 million, or 21.9%, to $2.5 million, from $3.2 million recognized during the same period last year, due primarily to decreased credit card transaction fees associated with decreased sales volumes.

Operating income of the UBAM segment decreased $2.1 million, or 13.5%, to $13.4 million during the six months ended August 31, 2021, when compared to $15.5 million reported in the same period last year. Operating income of the UBAM division as a percentage of net revenues for the six months ended August 31, 2021 was 20.0%, compared to 16.5% for the six months ended August 31, 2020, a change of 3.5%. Operating income as a percentage of net revenues increased from the prior year primarily from reduced cost of goods sold resulting from larger volume discounts and vendor rebates associated with increased purchasing volumes and reduced outbound shipping peak charges experienced during the first six months of the prior fiscal year.

Publishing Operating Results for the Three and Six Months Ended August 31, 2021

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

	Three Months Ended August 31,						Six Months Ended August 31,
	2021			2020			2021			2020
Gross sales	$	7,397,700		$	4,814,500		$	14,253,600		$	7,765,300
Less discounts and allowances		(3,922,800	)		(2,535,000	)		(7,591,200	)		(4,124,200	)
Transportation revenue		1,400			59,000			4,900			62,900
Net revenues		3,476,300			2,338,500			6,667,300			3,704,000

Cost of goods sold		1,862,300			1,179,800			3,642,300			1,886,700
Gross margin		1,614,000			1,158,700			3,025,000			1,817,300

Total operating expenses		631,200			419,900			1,180,700			731,900

Operating income	$	982,800		$	738,800		$	1,844,300		$	1,085,400

Publishing Operating Results for the Three Months Ended August 31, 2021

Our Publishing division’s net revenues increased $1.2 million, or 52.2%, to $3.5 million during the three-month period ended August 31, 2021, from $2.3 million reported in the same period a year ago. Many Publishing customers began to reopen in the latter half of fiscal year 2021 after closing in the first quarter of fiscal year 2021 due to the COVID-19 pandemic.

Gross margin increased $0.4 million, or 33.3%, to $1.6 million during the three-month period ended August 31, 2021, from $1.2 million reported in the same quarter a year ago, primarily due to the increase in net revenues. Gross margin as a percentage of net revenues decreased to 46.4% during the three-month period ended August 31, 2021, from 49.5% reported in the same quarter a year ago. Gross margin as a percentage of net revenues fluctuates primarily from the different discount levels offered to customers as well as changes in the mix of products sold between Kane Miller and Usborne.

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Total operating expenses of the Publishing segment increased $0.2 million, or 50.0%, to $0.6 million, from $0.4 million, during the three-month periods ended August 31, 2021 and 2020, primarily as a result of increased freight expenses from an increase in sales.

Operating income of the Publishing segment increased $0.3 million, or 42.9%, to $1.0 million from $0.7 million for the three-month periods ended August 31, 2021 and 2020, primarily driven by the increase in net revenues.

Publishing Operating Results for the Six Months Ended August 31, 2021

Our Publishing division’s net revenues increased $3.0 million, or 81.1%, to $6.7 million during the six-month period ended August 31, 2021, from $3.7 million reported in the same period a year ago. The increase in ~~net revenues~~sales resulted from temporary store closures impacted by the COVID-19 pandemic in fiscal year 2021. Many Publishing customers temporarily closed during the first quarter of fiscal year 2021, following the guidance from their local authorities to slow the spread of the pandemic, and began reopening at varying times in the latter half of fiscal year 2021.

Gross margin increased $1.2 million, or 66.7%, to $3.0 million during the six-month period ended August 31, 2021, from $1.8 million reported in the same period a year ago, primarily ~~resulted from~~due to the increase in ~~the number~~net revenues. Gross margin as a percentage of ~~active sales consultants~~net revenues decreased to 45.4%, during the six-month period ~~along with increase~~ended August 31, 2021, from 49.1% reported in ~~the year over year shipments made during the third quarter.~~

The average number of active consultants increased 4,700, or 19.0%, from 24,800 in the first nine months of fiscal year 2017 to 29,500 in the first nine months of fiscal 2018. Our consultant growth is driven by existing active consultants recruiting and retaining new consultants.

~~Gross margins increased $8.9 million to $62.5 million for the nine-month period ending November 30, 2017 from $53.6 million reported during~~ the same period a year ago. The ~~increase~~decrease in gross ~~margins~~margin percentage results primarily ~~resulted~~ from a change in our customer mix. Customers receive varying discounts due to sales volumes and contract terms.

Total operating expenses of the ~~increase~~Publishing segment increased $0.5 million, or 71.4%, to $1.2 million during the six-month period ended August 31, 2021, from $0.7 million reported in ~~sales. Gross margins as a percentage of net revenues, remained consistent at 74.9% for the nine-month period ending November 30, 2017 compared to 74.3% reported~~ the same period a year ~~ago.~~ago, resulting from a $0.3 million increase in postage and freight from an increase in sales volumes and a $0.2 million increase in sales commissions from an increase in sales volumes.

~~Total UBAM operating expenses~~

Operating income of the Publishing segment increased ~~$4.4~~$0.7 million, or ~~10.4%~~63.6%, to ~~$46.7~~$1.8 million during the ~~nine-month~~six-month period ~~ending November 30, 2017,~~ended August 31, 2021 when compared ~~with $42.3~~to $1.1 million ~~with~~reported in the same period a year ago, due primarily to the increase in ~~operating and selling expenses and increased sales commissions associated with UBAM’s revenue growth.~~net revenues.

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

~~Publishing Operating Results for the Three and Nine 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~~

Our Publishing segment’s net revenues decreased $0.6 million, or 19.4%, to $2.4 million for the three months ended November 30, 2017 from $3.1 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 due to the decrease in sales. Gross Margins as a percentage of revenue remained consistent between the periods.

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Operating income for the segment declined $0.6 million, to $1.5 million, for the nine months ended November 30, 2017 from $2.1 million reported during the same period last year. The decline in operating income resulted primarily from the decline in sales 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.~~

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 year 2022, we experienced cash ~~inflow~~outflows from ~~our~~ operations of ~~$11.3 million. Net~~$12,422,100. These cash outflows resulted from:

●net earnings of ~~$4.4 million were increased by the following items:~~$5,336,300

Adjusted for:

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

●depreciation expense of ~~$0.9 million,~~$924,200

~~a decrease in deferred income taxes~~

●share-based compensation expense of ~~$0.2 million,~~$523,300

●provision for inventory valuation allowance of $120,000

~~an increase in the~~

●provision for doubtful accounts of ~~$0.4 million,~~$61,600

Offset by:

●deferred income taxes of $48,500

Negatively impacted by:

●increase in inventories, net of $13,223,100

●decrease in accrued salaries and commissions, ~~of $2.8 million,~~

~~an increase in~~and other liabilities of ~~$1.3 million, and~~$4,076,900

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

~~Offset by:~~

●decrease in ~~accounts payable~~deferred revenues of ~~$7.3 million,~~$1,162,700

●increase in accounts receivable of ~~$1.3 million, and~~$609,300

●increase in prepaid expenses and other assets of ~~$0.3 million.~~$158,200

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~~$104,700

●decrease in income taxes payable of ~~payments owed to our suppliers for increased inventory purchases made over the last six months of fiscal year 2017.~~$4,100

Cash used in investing activities was ~~$1.3 million~~$3,210,200 for capital expenditures, which ~~was primarily~~were comprised of ~~improvements made~~$2,849,700 in equipment purchased to ~~two of~~increase our ~~pick lines which were upgraded with new automated routing functionality~~daily shipping capacity, $280,500 in software upgrades to ~~bypass zones~~our proprietary systems that ~~had no picks of approximately $1.0 million~~our UBAM consultants use to monitor their business and ~~inventory management systems of $0.1 million~~place customer orders and ~~various other improvements to the warehouse, facility~~$80,000 in building and ~~equipment totaling $0.2 million.~~building improvements.

Cash ~~used in~~provided by financing activities was ~~$4.6 million,~~$14,741,300, which was ~~primarily~~ comprised of ~~repayment~~proceeds from term debt of $5,244,700, net borrowings under ~~our~~the line of credit of ~~$4.9 million~~$11,408,500 and net cash received in treasury stock transactions of $92,400, offset by payments of $1,698,500 for dividends and payments on ~~long-term~~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.~~$305,800.

During fiscal year ~~2018,~~2022, we continue to expect ~~our~~the cash generated from our operations and cash available through our ~~expanded~~ line of credit with our Bank will provide us the ~~ability~~liquidity we need to ~~meet our liquidity requirements. We have a history of profitability and positive cash flow. Consequently, cash~~support ongoing operations. Cash generated from operations will be used to increase inventory ~~in anticipation of continued sales growth and~~by expanding our product offerings, to liquidate existing ~~debt.~~debt, and any excess cash is expected to be distributed to our shareholders.

~~We have a~~

On February 15, 2021, the Company executed the Amended and Restated Loan Agreement with MidFirst Bank which replaced the ~~Bank including~~prior loan agreement and includes multiple loans. Term Loan #1 ~~comprised of~~ Tranche A of(“Term Loan #1”), originally totaling $13.4 million, was part of the prior loan agreement. Term Loan #1 had a fixed interest rate of 4.23%, with principal and ~~Tranche B of $5.0 million both with the~~interest payable monthly and a stated maturity date of December 1, 2025. ~~Tranche A has a~~Term Loan #1 is secured by the primary office, warehouse and land. Term Loan #1 was amended on April 1, 2021 by executing the First Amendment to the Loan Agreement which reduced the fixed interest rate to 3.12% and removed the prepayment premium from the Loan Agreement. The outstanding borrowings on Term Loan #1 were $10.7 million and $11.0 million as of ~~4.23%~~August 31, 2021 and ~~interest is payable monthly.~~

February 28, 2021, respectively.

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~~The~~

In addition, the Amended and Restated Loan Agreement ~~also includes Term Loan #2 in the amount of $4.0 million, which is secured by~~provides a warehouse and land with the maturity date of June 28, 2021, a $15.0 million revolving loan (“line of credit”) through June 15, 2018 and an $3.0 million advancing term loan which matures November 30, 2020.

~~Effective March 10, 2016, we signed a First 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 15, 2017. Effective June 15, 2016, we signed a Second Amendment Loan Agreement with the Bank which provided a further increase to $7.0 million from our previous $6.0 million line 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. Effective 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, the Company executed the Fifth Amendment Loan Agreement with the Bank which modified the Loan Agreement to increase the maximum revolving principal amount from $7.0 million to $10.0 million and extended the termination date of the Loan Agreement to June 15, 2018. The Fifth Amendment also modified the Loan Agreement to include an Advancing Term Loan ~~of $3.0 million which the Company is using~~ to ~~cover the cost of the fiscal 2017 capital improvements~~be used to ~~increase its daily shipping capacity.~~finance planned equipment purchases. 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~~required interest-only payments through July 15, ~~and December 1, 2017,~~2021, at which time ~~the balance~~it was converted to a 60-month amortizing 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.

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

~~Trance B of Term Loan #1, Term Loan #2, the line of credit and the~~maturing July 15, 2026. The Advancing Term Loan ~~accrue~~accrues interest ~~monthly,~~ at the ~~bank adjusted~~Bank-adjusted LIBOR Index plus a tiered pricing rate based on the Company’s Adjusted Funded Debt to EBITDA Ratio, ~~(4.41%~~with a minimum rate of 2.75%. Our borrowings outstanding under the Advancing Term Loan at ~~November 30, 2017).~~August 31, 2021 were $5.2 million.

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The Amended and Restated Loan Agreement also provides a $20.0 million revolving loan (“line of credit”) through August 15, 2022 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, with a minimum rate of 2.75%. On July 16, 2021, the Company executed the Second Amendment to the Loan Agreement which increased the Maximum Revolving Principal Amount from $15.0 million to $20.0 million. On August 31, 2021, the Company executed the Third Amendment to the Loan Agreement which modified the advance rates used in the borrowing base certificate. Our borrowings outstanding on our line of credit at August 31, 2021 and February 28, 2021 were $16.7 million and $5.2 million, respectively. Available credit under the revolving line of credit was approximately $3.3 million and $9.6 million at August 31, 2021 and February 28, 2021, respectively.

The Amended and Restated Loan Agreement also contains a provision for our use of the Bank’s letters of credit. The Bank agrees to issue or obtain issuance of commercial or stand-by letters of credit provided that the sum of the line of credit plus the letters of credit issued would not exceed the borrowing base in effect at the time. ~~Additionally, the Loan Agreement suspends dividends. For the quarter ended November 30, 2017,~~As of August 31, 2021, we had no letters of credit outstanding. The agreement contains provisions that require us to maintain specified financial ratios, ~~restrict transactions with related parties, prohibit mergers or consolidation, disallow~~place limitations on additional debt ~~and~~with other banks, limit the ~~amount~~amounts of ~~compensation, salaries, investments, capital expenditures~~dividends declared and ~~leasing transactions.~~limits the number of shares that can be repurchased using funding from the line of credit.

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

Years ending February 28 (29),
2022	$	816,900
2023		1,658,800
2024		1,678,300
2025		1,697,700
2026		9,546,400
Thereafter		525,500
Total	$	15,923,600

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Critical Accounting Policies

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

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

Revenue Recognition

Sales associated with product orders are ~~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.

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, 2021 and ~~$190,000 as of~~ February 28, ~~2017.~~2021.

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Allowance for Doubtful Accounts

We maintain an allowance for estimated losses resulting from the inability of our customers to make required ~~payments.~~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~~$0.4 million at ~~November 30, 2017,~~August 31, 2021, and ~~$485,000~~$0.3 million at February 28, ~~2017.~~2021. 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, 2021 and February 28, ~~2017, respectively, of reserve related to consignment inventory held by inactive consultants.~~2021.

Inventory

~~Inventory~~

Our inventory contains ~~approximately 2,200~~over 2,000 titles, each with different sell through rates ~~of sale,~~ depending upon the nature and popularity of the title. ~~Almost all of our product line is saleable as the books~~We maintain very few titles that are ~~not~~ topical in ~~nature and~~nature. As such, the majority of the titles we sell remain current in content ~~today as well as in the future.~~for several years. Most of our products are printed in China, 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~~Inventory in excess of ~~2 ½~~2½ years of anticipated sales is classified as noncurrent inventory. These inventory quantities have exposure of becoming out of date, and therefore have higher obsolescence reserves. Noncurrent inventory balances prior to valuation allowances were ~~$502,200~~$1.1 million and ~~$467,100~~$0.9 million at ~~November 30, 2017~~August 31, 2021 and February 28, ~~2017,~~2021, respectively.

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~~Consultants that meet certain eligibility requirements are allowed to receive~~ Noncurrent inventory ~~on consignment. We believe allowing our consultants to have consignment inventory greatly increases their ability to be successful in making effective presentations~~valuation allowances were $0.3 million and $0.2 million at home shows, book fairs and other events; and having consignment inventory leads to additional sales opportunities. Approximately 12% and 11% of our active consultants maintained consignment inventory at November 30, 2017August 31, 2021 and February 28, ~~2017,~~2021, respectively. 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 of inventory on consignment with active consultants was $1,533,100 and $1,140,700 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.

Inventories are presented net of a valuation allowance, which includes reserves for inventory obsolescence and active consultant consignment inventory that is not expected to be sold or returned. Management estimates the allowance for current inventory, noncurrent inventory and active consultant consignment inventory balances. The allowance is based on management’s identification of slow moving inventory and estimated consignment inventory that will not be sold or returned. Management has estimated a valuation allowance for these combined inventories of $330,900 and $300,000 as of November 30, 2017 and February 28, 2017, 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~~2½ years represents a reasonable estimate of the normal operating cycle for our products.

Consultants that meet certain eligibility requirements may request and receive inventory on consignment. We believe allowing our consultants to have consignment inventory greatly increases their ability to be successful in making effective presentations at home shows, book fairs and other events; in summary, having consignment inventory leads to additional sales opportunities. Approximately 4.8% of our active consultants maintained consignment inventory at the end of the second quarter of fiscal 2022. Consignment inventory is stated at cost, less an estimated reserve for consignment inventory that is not expected to be sold or returned to the Company. The total cost of inventory on consignment with consultants was $1.2 million and $1.1 million at August 31, 2021 and February 28, 2021, respectively.

~~Stock-Based~~

Inventories are presented net of a valuation allowance, which includes reserves for inventory obsolescence and reserves for consigned inventory that is not expected to be sold or returned to the Company. Management estimates the inventory obsolescence allowance for both current and noncurrent inventory, which is based on management’s identification of slow-moving inventory. Management has estimated a valuation allowance for both current and noncurrent inventory, including the reserve for consigned inventory, of $0.8 million and $0.7 million at August 31, 2021 and February 28, 2021, respectively.

Share-Based Compensation

We account for ~~stock-based~~share-based compensation whereby share-based payment transactions with employees, such as stock options and restricted stock, are measured at estimated fair value at the date of ~~grant 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. Any cash dividends declared after the restricted stock award is issued, but before the vesting period is completed, will be reinvested in Company shares at the opening trading price on the dividend payment date. Shares purchased with cash dividends will also retain the same restrictions until the completion of the original vesting period associated with the awarded shares.

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The restricted share awards under the 2019 Long-Term Incentive Plan (“2019 LTI Plan”) and 2022 Long-Term Incentive Plan (“2022 LTI Plan”) contain both service and performance conditions. The Company recognizes share-based compensation expense only for the portion of the restricted share awards that are considered probable of vesting. Shares are considered granted, and the service inception date begins, when a mutual understanding of the key terms and conditions between the Company and the employees have been established. The fair value of these awards is determined based on the closing price of the shares on the grant date. The probability of restricted share awards granted with future performance conditions is evaluated at each reporting period and compensation expense is adjusted based on the probability assessment.

During the first six months of fiscal year 2022, the Company recognized $0.5 million of compensation expense associated with the shares granted.

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Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

Item 4.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We performed an evaluation ~~was performed~~ of the effectiveness of the design and operation of our ~~disclosure~~“disclosure controls and ~~procedures pursuant to Exchange Act~~procedures” (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of ~~November 30, 2017.~~the end of the period covered by this report. This evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer (Principal Executive Officer) and our Chief Financial Officer and Corporate Secretary (Principal Financial and Accounting Officer).

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

Changes in Internal Control over Financial Reporting

~~In addition,~~

During the second quarter of the fiscal year covered by this report on Form 10-Q, there have been no ~~change~~changes in our internal control over financial reporting ~~(as defined in Rule 13a-15(f) under the Exchange Act) occurred during the quarter ended November 30, 2017~~ that ~~has~~have materially affected or isare 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.

~~Not 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

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

June 1 - 30, 2021			-	$	-		-		514,594
July 1 - 31, 2021			-		-		-		514,594
August 1 - 31, 2021			-		-		-		514,594
Total			-	$	-		-

~~(2)~~

(1)

~~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~~The maximum number of shares which can be purchased under the new plan is 800,000. Amounts in the table reflect the remaining number of shares available to ~~the~~be repurchased. This 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~~has no expiration ~~date for the repurchase plan.~~

date.

Item 3.DEFAULTS UPON SENIOR SECURITIES

Not applicable.

~~Not Applicable.~~

Item 4.MINE SAFETY DISCLOSURES

None.

~~None.~~

Item 5. 5.OTHER INFORMATION

None.

~~None.~~

Table of Contents

Item 6.EXHIBITS

~~31.1~~ *3.1		Restated Certificate of Incorporation dated April 26, 1968 and Certificate of Amendment thereto dated June 21, 1968 are incorporated herein by reference to Exhibit 1 to Registration Statement on Form 10-K (File No. 0-04957).

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

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

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

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

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

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

**10.1		Second Amendment to the Amended and Restated Loan Agreement, dated July 16, 2021 by and between the Company and MidFirst Bank, Tulsa, OK.

**10.2		Third Amendment to the Amended and Restated Loan Agreement, dated August 31, 2021 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.~~2002.

~~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.~~2002.

~~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.

101.INS		Inline XBRL Instance Document

101.SCH		Inline XBRL Taxonomy Extension Schema

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase

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

*Paper Filed

**Filed Herewith

Table of Contents

SIGNATURES

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

	~~EDUCATIONAL DEVELOPMENT CORPORATION~~ ~~(Registrant)~~
				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~~October 7, 2021	By	/s/ ~~Dan E. O’Keefe~~	Craig M. White ��
		~~Chief Financial Officer~~ ~~(Principal Financial Officer)~~

~~Table of Contents~~

~~EXHIBIT INDEX~~

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

~~31.1~~

~~Certification of the~~

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

(Principal Executive Officer)

~~31.2~~

Certification of Controller 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~~

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

iso4217:USD xbrli:shares

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

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