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

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

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

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

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 ~~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 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.

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 ☒

As of January ~~9, 2019,~~10, 2020, there were ~~8,197,826~~8,460,432 shares of Educational Development Corporation Common Stock, $0.20 par value outstanding.

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 Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended February 28, ~~2018~~2019 and in this quarterly report. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements in this paragraph and elsewhere in this Quarterly Report on Form 10-Q and speak only as of the date of this Quarterly Report on Form 10-Q. Other than as required under the securities laws, we do not assume a duty to update these forward-looking statements, whether as a result of new information, subsequent events or circumstances, changes in expectations or otherwise.

	November 30,			February 28,			November 30,			February 28,
ASSETS	2018			2018			2019			2019
CURRENT ASSETS:
CURRENT ASSETS
Cash and cash equivalents	$	7,840,500		$	2,723,300		$	8,988,900		$	3,199,300
Accounts receivable, less allowance for doubtful accounts of $303,500 (November 30) and $297,100 (February 28)		3,550,200			2,913,700
Accounts receivable, less allowance for doubtful accounts of $247,700 (November 30) and $268,600 (February 28)								4,064,300			3,258,800
Inventories - Net		30,646,000			26,618,600			29,673,800			33,445,600
Prepaid expenses and other assets		1,583,400			1,259,000			972,000			1,603,500
Total current assets		43,620,100			33,514,600			43,699,000			41,507,200

INVENTORIES - Net		604,000			435,900			915,900			575,000

PROPERTY, PLANT AND EQUIPMENT - Net		27,496,400			27,860,500			26,512,700			27,164,600

OTHER ASSETS		26,900			26,900			67,400			19,500

TOTAL ASSETS	$	71,747,400		$	61,837,900		$	71,195,000		$	69,266,300


LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	15,156,500		$	12,469,000		$	12,007,500		$	14,228,600
Deferred revenues		1,057,300			693,000			494,800			965,600
Current maturities of long-term debt		928,100			881,200			1,053,600			945,900
Accrued salaries and commissions		3,791,100			2,007,900			3,186,400			2,039,000
Income taxes payable		545,900			1,798,800			1,347,400			756,400
Dividends payable		409,700			-			423,500			410,100
Other current liabilities		4,116,100			3,517,900			4,164,700			4,177,900
Total current liabilities		26,004,700			21,367,800			22,677,900			23,523,500

LONG-TERM DEBT - Net of current maturities		19,076,000			19,825,100			18,003,600			18,830,700
DEFERRED INCOME TAXES - Net		810,000			136,900			953,700			872,600
OTHER LONG-TERM LIABILITIES		109,000			106,000			148,500			109,000
Total liabilities		45,999,700			41,435,800			41,783,700			43,335,800

SHAREHOLDERS' EQUITY
Common stock, $0.20 par value; Authorized 16,000,000 shares; Issued 12,092,080 (November 30 and February 28) shares; Outstanding 8,203,119 (November 30) and 8,179,612 (February 28) shares		2,418,400			2,418,400
Common stock, $0.20 par value; Authorized 16,000,000 shares; Issued 12,400,080 (November 30) and 12,092,080 (February 28) shares; Outstanding 8,388,016 (November 30) and 8,195,082 (February 28) shares								2,480,000			2,418,400
Capital in excess of par value		8,828,600			8,573,300			9,603,400			8,975,100
Retained earnings		25,609,600			20,714,500			29,607,200			25,754,900
		36,856,600			31,706,200			41,690,600			37,148,400
Less treasury stock, at cost		(11,108,900	)		(11,304,100	)		(12,279,300	)		(11,217,900	)
Total shareholders' equity		25,747,700			20,402,100			29,411,300			25,930,500
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	71,747,400		$	61,837,900		$	71,195,000		$	69,266,300

	Three Months Ended November 30,						Nine Months Ended November 30,						Three Months Ended November 30,						Nine Months Ended November 30,
	2018			2017			2018			2017			2019			2018			2019			2018
GROSS SALES:	$	53,486,000		$	44,383,700		$	125,574,400		$	109,395,400
GROSS SALES													$	53,619,900		$	53,486,000		$	122,635,300		$	125,574,400
Less discounts and allowances		(16,572,600	)		(9,249,500	)		(38,918,700	)		(28,317,300	)		(16,406,500	)		(16,572,600	)		(37,978,900	)		(38,918,700	)
Transportation revenue		3,569,200			3,775,700			8,530,200			8,959,900			3,611,200			3,569,200			8,193,600			8,530,200
NET REVENUES		40,482,600			38,909,900			95,185,900			90,038,000			40,824,600			40,482,600			92,850,000			95,185,900
COST OF GOODS SOLD		13,141,600			12,211,700			31,274,000			28,460,800			13,279,900			13,141,600			30,382,500			31,274,000
Gross margin		27,341,000			26,698,200			63,911,900			61,577,200			27,544,700			27,341,000			62,467,500			63,911,900

OPERATING EXPENSE:
OPERATING EXPENSES
Operating and selling		6,540,600			6,121,100			14,554,400			13,684,200			6,513,500			6,540,600			15,089,900			14,554,400
Sales commissions		12,689,200			12,510,400			29,375,300			28,759,300			13,008,600			12,689,200			28,804,700			29,375,300
General and administrative		4,476,000			4,735,200			12,106,900			12,359,600			4,373,500			4,476,000			12,029,300			12,106,900
Total operating expenses		23,705,800			23,366,700			56,036,600			54,803,100			23,895,600			23,705,800			55,923,900			56,036,600


INTEREST EXPENSE		228,600			287,600			712,000			863,800			216,500			228,600			691,000			712,000
OTHER INCOME		(397,600	)		(388,900	)		(1,172,300	)		(1,187,400	)		(403,100	)		(397,600	)		(1,196,300	)		(1,172,300	)

EARNINGS BEFORE INCOME TAXES		3,804,200			3,432,800			8,335,600			7,097,700			3,835,700			3,804,200			7,048,900			8,335,600

INCOME TAXES		988,600			1,304,400			2,212,700			2,707,100			1,099,900			988,600			1,941,900			2,212,700
NET EARNINGS	$	2,815,600		$	2,128,400		$	6,122,900		$	4,390,600		$	2,735,800		$	2,815,600		$	5,107,000		$	6,122,900

BASIC AND DILUTED EARNINGS PER SHARE
Basic	$	0.34		$	0.26		$	0.75		$	0.54		$	0.33		$	0.34		$	0.62		$	0.75
Diluted	$	0.34		$	0.26		$	0.75		$	0.54		$	0.33		$	0.34		$	0.61		$	0.75

WEIGHTED AVERAGE NUMBER OF COMMON AND EQUIVALENT SHARES OUTSTANDING
Basic		8,194,072			8,174,536			8,185,561			8,175,372			8,406,709			8,194,072			8,301,209			8,185,561
Diluted		8,201,776			8,180,022			8,193,206			8,180,106			8,412,638			8,201,776			8,307,496			8,193,206
Dividends per share	$	0.10		$	-		$	0.15		$	-		$	0.05		$	0.10		$	0.15		$	0.15

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

BALANCE - February 28, 2018		12,092,080	$	2,418,400	$	8,573,300	$	20,714,500			3,912,468		$	(11,304,100	)	$	20,402,100			12,092,080	$	2,418,400	$	8,573,300	$	20,714,500			3,912,468		$	(11,304,100	)	$	20,402,100

Purchases of treasury stock		-		-		-		-			3,079			(31,900	)		(31,900	)		-		-		-		-			2,846			(29,600	)		(29,600	)
Sales of treasury stock		-		-		-		-			(26,586	)		227,100			227,100			-		-		-		-			(3,302	)		25,100			25,100
Dividends paid ($0.10/share)		-		-		-		(818,100	)		-			-			(818,100	)
Dividends declared ($0.05/share)		-		-		-		(409,700	)		-			-			(409,700	)		-		-		-		(409,000	)		-			-			(409,000	)
Share-based compensation expense (see Note 5)		-		-		255,300		-			-			-			255,300
Net earnings		-		-		-		6,122,900			-			-			6,122,900			-		-		-		1,816,600			-			-			1,816,600

BALANCE - May 31, 2018																				12,092,080		2,418,400		8,573,300		22,122,100			3,912,012			(11,308,600	)		21,805,200
Exercise of options																				-		-		-		-			(9,634	)		77,200			77,200
Share-based compensation expense (see Note 6)																				-		-		70,000		-			-			-			70,000
Net earnings																				-		-		-		1,490,700			-			-			1,490,700
BALANCE - August 31, 2018																				12,092,080		2,418,400		8,643,300		23,612,800			3,902,378			(11,231,400	)		23,443,100
Purchases of treasury stock																				-		-		-		-			233			(2,300	)		(2,300	)
Sales of treasury stock																				-		-		-		-			(13,650	)		124,800			124,800
Dividends declared ($0.10/share)																				-		-		-		(818,800	)		-			-			(818,800	)
Share-based compensation expense (see Note 6)																				-		-		185,300		-			-			-			185,300
Net earnings																				-		-		-		2,815,600			-			-			2,815,600
BALANCE - November 30, 2018		12,092,080	$	2,418,400	$	8,828,600	$	25,609,600			3,888,961		$	(11,108,900	)	$	25,747,700			12,092,080	$	2,418,400	$	8,828,600	$	25,609,600			3,888,961		$	(11,108,900	)	$	25,747,700

	2018			2017			2019			2018

CASH FLOWS FROM OPERATING ACTIVITIES:
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings	$	6,122,900		$	4,390,600		$	5,107,000		$	6,122,900
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation		1,085,100			911,700			1,054,100			1,085,100
Deferred income taxes, net		673,100			179,400			81,100			673,100
Provision for doubtful accounts		68,500			(210,700	)		39,900			68,500
Provision for inventory valuation allowance		246,200			78,400			283,400			246,200
Share-based compensation expense		255,300			-			498,800			255,300
Changes in assets and liabilities:
Accounts receivable		(705,000	)		(709,500	)		(845,400	)		(705,000	)
Inventories, net		(4,441,700	)		9,807,100
Inventories								3,147,500			(4,441,700	)
Prepaid expenses and other assets		(324,400	)		(198,700	)		583,600			(324,400	)
Accounts payable		3,327,000			(7,301,700	)		(2,221,100	)		3,327,000
Accrued salaries and commissions, and other liabilities		2,384,300			3,889,200			1,173,700			2,384,300
Deferred revenues		364,300			28,600			(470,800	)		364,300
Income taxes payable		(1,252,900	)		469,600			591,000			(1,252,900	)
Total adjustments		1,679,800			6,943,400			3,915,800			1,679,800
Net cash provided by operating activities		7,802,700			11,334,000			9,022,800			7,802,700
CASH FLOWS FROM INVESTING ACTIVITIES:
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment		(1,360,500	)		(1,330,500	)		(402,200	)		(1,360,500	)
Net cash used in investing activities		(1,360,500	)		(1,330,500	)		(402,200	)		(1,360,500	)
CASH FLOWS FROM FINANCING ACTIVITIES:
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt		(702,100	)		(657,800	)		(719,400	)		(702,100	)
Proceeds from long-term debt		-			1,019,000
Cash received from sale of treasury stock		227,100			32,000			383,400			227,100
Cash received from issuance of shares		-			26,300
Cash used to purchase treasury stock		(31,900	)		(98,000	)		(1,253,700	)		(31,900	)
Net borrowings under line of credit		-			(4,882,900	)
Dividends paid		(818,100	)		-			(1,241,300	)		(818,100	)
Net cash used in financing activities		(1,325,000	)		(4,561,400	)		(2,831,000	)		(1,325,000	)
NET INCREASE IN CASH AND CASH EQUIVALENTS		5,117,200			5,442,100			5,789,600			5,117,200
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		2,723,300			699,200			3,199,300			2,723,300
CASH AND CASH EQUIVALENTS - END OF PERIOD	$	7,840,500		$	6,141,300		$	8,988,900		$	7,840,500

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Cash paid for interest	$	704,300		$	868,900		$	693,800		$	704,300
Cash paid for income taxes	$	2,859,100		$	2,058,100		$	1,318,000		$	2,859,100

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, ~~2018~~2019 included in our Form 10-K. The results of operations for interim periods are not necessarily indicative of the results to be expected for a full year due to the seasonality of our product sales.

On July 24, 2018, our Board of Directors authorized a two-for-one stock split in the form of a stock dividend. The stock dividend was distributed on August 22, 2018 to shareholders of record as of August 14, 2018. All share-based data, including the number of shares outstanding and per share amounts, have been retroactively adjusted to reflect the stock split for all periods presented.

Certain reclassifications have been made to the fiscal 2018 condensed balance sheet, condensed statement of earnings and condensed statement of cash flows to conform to the classifications used in fiscal 2019. These reclassifications had no effect on net earnings.

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.

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, ~~2018~~2019 included in our Form 10-K.

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, FASB issued ASU No. 2014-09, and amended with ASU No. 2015-14 “Revenue from Contracts with Customers,” (Topic 606) which provides a single revenue recognition model which is intended to improve comparability over a range of industries, companies and geographical boundaries and will also result in enhanced disclosures. The changes are effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The amendments in this series of updates shall be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company adopted Topic 606, Revenue from Contracts with Customers, with a date of initial application of March 1, 2018, using the full retrospective method applied to all contracts. Results for all reporting periods are presented under Topic 606. As a result of adopting this new accounting guidance, the Company has changed the method of accounting for its hostess awards program from reporting the net cost of these awards in operating and selling expenses to allocating a portion of the transaction price to the material right and reporting these in gross sales and discounts with the associated costs in cost of goods sold. The new reporting of these awards increases gross sales and increases discounts and allowances for a similar amount, having an immaterial effect on net revenues and no effect on net earnings or retained earnings, but lowering the Company’s gross margin percentage. The Company has also removed the allowance for sales returns from the net accounts receivable amount reported on the balance sheet. The allowance for sales returns has been adjusted to reflect a refund liability and a return asset. The cumulative impact of adoption of the new revenue recognition standard had no impact on net earnings and retained earnings (See Note 10).

In February 2016, FASB issued ASU ~~No.~~ 2016-02, ~~“Leases,”~~Leases (Topic 842). In addition, in July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842), Targeted Improvements, which ~~is intended to establish a comprehensive~~provide an additional (and optional) transition method whereby the new lease ~~accounting model. The new~~ standard ~~clarifies~~is applied at the ~~definition of a lease,~~adoption date and recognized as an adjustment to retained earnings. This ASU requires ~~a dual approach to lease classification similar to current lease classifications, and causes~~ lessees to recognize ~~leases~~a right of use asset and lease liability on the balance sheet ~~as a lease liability~~for all leases, with ~~a corresponding right-of-use asset.~~the exception of short-term leases. The new accounting model for lessors remains largely unchanged, although some changes have been made to align it with the new lessee model and the new revenue recognition guidance. This update also requires companies to include additional disclosures regarding their lessee and lessor agreements. We adopted this standard ~~is effective for interim~~on March 1, 2019, and ~~annual periods beginning after December 15, 2018, which means the first quarter of our fiscal year 2020. The new standard requires~~it did not have 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 potentialmaterial impact on our condensed financial ~~statements.~~position, results of operations or cash flows. Adoption of this ASU resulted in an increase in our assets and liabilities by approximately $52,900, due to the recognition of right of use assets and lease liabilities. See Note 3 – Leases for our lease disclosures.

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~~years. The Company adopted ASU No. 2016-13 in the first quarter of ~~our~~ fiscal ~~year~~ 2020. ~~We anticipate this ASU to have minimal impact on our financial statements.~~

~~In August 2016, FASB issued ASU No. 2016-15 “Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments.”~~ The guidance’s objective is to reduce diversity in practice of how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The new standards required date of adoption is effective for fiscal years beginning after December 15, 2017. This standard was adopted as of March 1, 2018. Adoption of this new standard did not have a material 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. The new standard is required to be applied prospectively. The guidance was effective March 1, 2018, and the adoption of this ASU did not have a material impact on ~~our~~the Company’s condensed financial ~~statements.~~position, results of operations or cash flows.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820). The new guidance modifies disclosure requirements related to fair value measurement. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Implementation on a prospective or retrospective basis varies by specific disclosure requirement. The Company adopted ASU No. 2018-13 in the first quarter of fiscal 2020. The adoption of this ASU did not have a material impact on the Company’s condensed financial position, results of operations or cash flows.

	2018						2019
	November 30,			February 28,			November 30,			February 28,
Current:
Book inventory	$	30,905,100		$	27,078,600		$	30,041,900		$	33,494,200
Inventory valuation allowance		(259,100	)		(460,000	)		(368,100	)		(48,600	)
Inventories net - current	$	30,646,000		$	26,618,600		$	29,673,800		$	33,445,600

Noncurrent:
Book inventory	$	1,021,400		$	707,700		$	1,188,600		$	904,400
Inventory valuation allowance		(417,400	)		(271,800	)		(272,700	)		(329,400	)
Inventories net - noncurrent	$	604,000		$	435,900		$	915,900		$	575,000

Book inventory quantities in excess of what we expect will be sold within the normal operating cycle, based on ~~2.5~~2 ½ years of anticipated sales, are included in non-current inventory.

Significant portions of our inventory purchases are concentrated with an England-based publishing company, Usborne Publishing, Ltd. (“Usborne”). Purchases from this company were approximately ~~$8.0~~$4.2 million and ~~$6.9~~$8.0 million for the three months ended November 30, ~~2018~~2019 and ~~2017,~~2018, respectively. Total inventory purchases from all suppliers were ~~$10.1~~$6.9 million and ~~$10.9~~$10.1 million for the three months ended November 30, ~~2018~~2019 and ~~2017,~~2018, respectively.

Purchases from Usborne were approximately ~~$23.5~~$16.1 million and ~~$18.2~~$23.5 million for the nine months ended November 30, ~~2018~~2019 and ~~2017,~~2018, respectively. Total inventory purchases from all suppliers were ~~$31.7~~$24.1 million and ~~$27.5~~$31.7 million for the nine months ended November 30, ~~2018~~2019 and ~~2017,~~2018, respectively.

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

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

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

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

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

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

Minimum fixed rental payments are recognized on a straight-line basis over the life of the lease as costs and expenses on our condensed statements of earnings. Variable and short-term rental payments are recognized as costs and expenses as they are incurred. Future minimum rental payments under operating leases with initial terms greater than one year as of November 30, 2019, are as follows:

The following table provides further information about our operating leases as of and for the nine months ended November 30, 2019:

Operating lease expense was $13,900 for nine months ended November 30, 2018 and was recognized in accordance with ASC 840.

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

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

The cost of the leased space was approximately $10,809,700 and $10,359,900 as of November 30, 2019 and February 28, 2019, respectively. The accumulated depreciation associated with the leased assets was $1,751,100 and $1,233,400 as of November 30, 2019 and February 28, 2019, respectively. Both the leased assets and accumulated depreciation are included in property, plant and equipment-net on the condensed balance sheets.

	2018						2019
	November 30,			February 28,			November 30,			February 28,

Line of credit	$	-		$	-		$	-		$	-


Long-term debt	$	20,004,100		$	20,706,300		$	19,057,200		$	19,776,600
Less current maturities		(928,100	)		(881,200	)		(1,053,600	)		(945,900	)
Long-term debt, net of current maturities	$	19,076,000		$	19,825,100		$	18,003,600		$	18,830,700

We have a Loan Agreement dated as of March 10, 2016 (as amended the “Loan Agreement”) with MidFirst Bank (“the Bank”) which includes multiple loans. Term Loan #1 is comprised of Tranche A totaling ~~$13.4~~$11.6 million and Tranche B totaling ~~$5.0~~$4.3 million as of November 30, 2019, both with the maturity date of December 1, 2025. Tranche A has a fixed interest rate of 4.23% and interest is payable monthly. For Tranche B, interest is payable monthly at the bank adjusted LIBOR Index plus a tiered pricing rate based on the Company’s Adjusted Funded Debt to EBITDA Ratio ~~(4.84%~~(3.99% at November 30, ~~2018)~~2019). Term Loan #1 is secured by the primary office, warehouse and land.

We also have Term Loan #2 with the Bank ~~in the amount~~totaling $3.1 million as of ~~$4.0 million~~November 30, 2019, with the maturity date of June 28, 2021, and interest payable monthly at the bank adjusted LIBOR Index plus a tiered pricing rate based on the Company’s Adjusted Funded Debt to EBITDA Ratio ~~(4.84%~~(3.99% at November 30, ~~2018)~~2019). Term Loan #2 is secured by our secondary warehouse and land. The Loan Agreement also provided a $15.0 million revolving loan (“line of credit”) through August 15, ~~2019~~2020 with interest payable monthly at the bank adjusted LIBOR Index plus a tiered pricing rate based on the Company’s Adjusted Funded Debt to EBITDA Ratio ~~(4.84%~~(3.99% at November 30, ~~2018)~~2019).

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

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

We had no borrowings outstanding on our revolving credit agreement at November 30, 2019 and February 28, ~~2018.~~2019. Available credit under the revolving credit agreement was ~~$10,600,400~~$11,210,700 and ~~$9,424,000~~$12,439,300 at November 30, ~~2018~~2019 and February 28, ~~2018,~~2019, respectively.

On June 15, 2018, the Company executed the Eighth Amendment Loan Agreement with the Bank related to our Loan Agreement. The amendment modified the Loan Agreement, ~~dated as of March 10, 2016. This Amendment~~extending the termination date until August 15, 2019, reduced the interest rate pricing grid for all floating rate borrowings covered by the Loan Agreement, established a new $3,000,000 advancing term loan to be used for capital expansions to increase daily shipping ~~capacity. We had no borrowings outstanding on~~capacity, released the ~~advancing term loan at November 30, 2018.~~personal Guaranty of Randall W. White and Carol White, along with other covenant restrictions being lessened. The amendment also included an adjustment to the Adjusted Funded Debt to EBITDA ratio for covenant compliance.

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

On August 15, 2019, the Company executed the Tenth Amendment Loan Agreement with the Bank related to our Loan Agreement. The amendment modified the Loan Agreement, extending the termination date of the line of credit to August 15, 2020, amends the definition of LIBOR Margin, reduces the frequency of reports to the Lender, amends the Adjusted Funded Debt to EBITDA Ratio and amends the Compliance and Borrowing Base Certificates reporting requirements.

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

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

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

Year ending February 28 (29),
2019	$	222,500
2020		943,700	$	256,200
2021		985,400		1,067,400
2022		1,033,900		1,114,600
2023		1,082,300		1,161,600
2024				1,210,600
Thereafter		15,736,300		14,246,800
Total	$	20,004,100	$	19,057,200

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

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,				Three Months Ended November 30,				Nine Months Ended November 30,
	2018		2017		2018		2017		2019		2018		2019		2018
Earnings per share:
Net earnings applicable to common shareholders	$	2,815,600	$	2,128,400	$	6,122,900	$	4,390,600	$	2,735,800	$	2,815,600	$	5,107,000	$	6,122,900
Shares:
Weighted average shares outstanding-basic		8,194,072		8,174,536		8,185,561		8,175,372		8,406,709		8,194,072		8,301,209		8,185,561
Assumed exercise of options		7,704		5,486		7,645		4,734		5,929		7,704		6,287		7,645

Weighted average shares outstanding-diluted		8,201,776		8,180,022		8,193,206		8,180,106		8,412,638		8,201,776		8,307,496		8,193,206

Diluted earnings per share:
Basic	$	0.34	$	0.26	$	0.75	$	0.54	$	0.33	$	0.34	$	0.62	$	0.75
Diluted	$	0.34	$	0.26	$	0.75	$	0.54	$	0.33	$	0.34	$	0.61	$	0.75

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

The Company has outstanding stock options under the 2002 Employee Incentive Stock Option Plan totaling 10,000 shares. No options have been exercised in the three and nine months ended November 30, ~~2018.~~2019. All options outstanding at November 30, ~~2018 expire~~2019 were exercised in December 2019.

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

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

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

~~On July 24, 2018,~~During fiscal year 2019, the Company granted approximately ~~240,000~~308,000 restricted shares under the 2019 LTI Plan with aan average grant-date fair value of ~~$9.57~~$9.94 per share. ~~In addition,~~During the third fiscal quarter of 2020, the Company ~~authorized approximately 80,000 restricted~~recognized $166,300 of compensation expense associated with the shares ~~under the 2019 LTI Plan~~granted in ~~which the service-inception date was established on July 24, 2018, resulting~~fiscal year 2019. The Company recognized compensation expense totaling $498,800 in the ~~Company beginning the expense recognition~~first nine months of the fair value of these awards. On October 25, 2018, the Company granted the 80,000 previously authorized restricted shares by communicating the key terms and conditions of the awards to the recipients with a grant-date fair value of $11.24 per share.fiscal year 2020. The remaining compensation expense ~~of the above~~for these awards, totaling approximately ~~$2,950,000,~~$2,161,600, will be recognized ratably ~~from~~over the ~~service inception date to the~~remaining vesting ~~date for this tranche which is~~period of approximately 5139 months. ~~The number~~

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

We classify shipping and handling costs as operating and selling expenses in the statements of earnings. Shipping and handling costs include postage, freight, handling costs, as well as, shipping materials and supplies. These costs were ~~$5,897,500~~$6,037,600 and ~~$5,328,900~~$5,897,500 for the three months ended November 30, ~~2018~~2019 and ~~2017,~~2018, respectively. These costs were ~~$13,556,400~~$14,087,400 and ~~$12,200,100~~$13,556,400 for the nine months ended November 30, ~~2018~~2019 and ~~2017,~~2018, respectively.

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

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

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

NET REVENUES	NET REVENUES									NET REVENUES

		Three Months Ended November 30,				Nine Months Ended November 30,					Three Months Ended November 30,				Nine Months Ended November 30,
		2018		2017		2018		2017			2019		2018		2019		2018
Publishing		$	3,161,300	$	2,439,600	$	8,073,000	$	6,538,700		$	2,724,200	$	3,161,300	$	7,766,300	$	8,073,000
UBAM			37,321,300		36,470,300		87,112,900		83,499,300			38,100,400		37,321,300		85,083,700		87,112,900
Total		$	40,482,600	$	38,909,900	$	95,185,900	$	90,038,000		$	40,824,600	$	40,482,600	$	92,850,000	$	95,185,900

EARNINGS (LOSS) BEFORE INCOME TAXES	EARNINGS (LOSS) BEFORE INCOME TAXES													EARNINGS (LOSS) BEFORE INCOME TAXES

		Three Months Ended November 30,						Nine Months Ended November 30,							Three Months Ended November 30,						Nine Months Ended November 30,
		2018			2017			2018			2017				2019			2018			2019			2018
Publishing		$	998,800		$	556,800		$	2,141,800		$	1,514,200			$	832,900		$	998,800		$	2,253,300		$	2,141,800
UBAM			6,459,800			6,916,600			15,835,800			15,866,400				6,501,200			6,459,800			14,358,500			15,835,800
Other			(3,654,400	)		(4,040,600	)		(9,642,000	)		(10,282,900	)			(3,498,400	)		(3,654,400	)		(9,562,900	)		(9,642,000	)
Total		$	3,804,200		$	3,432,800		$	8,335,600		$	7,097,700			$	3,835,700		$	3,804,200		$	7,048,900		$	8,335,600

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 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.

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 at November 30 and February 28, 2018. The estimated fair value of our~~ term notes payable is estimated by management to approximate ~~$19,164,000~~$19,086,000 and ~~$19,454,500~~$19,123,700 at November 30, 2019 and February 28, ~~2018,~~2019, respectively. Management’s estimates are based on the obligations’ characteristics, including floating interest rate, maturity, and collateral. Such valuation inputs are considered a Level 2 measurement in the fair value valuation hierarchy.

AsThe Company’s UBAM division receives payments on orders in advance of shipment. Any payments received prior to the end of our ~~third~~fiscal quarter ~~we had~~that were not shipped as of November 30, 2019 are recorded as deferred revenues on the condensed balance sheet. We received approximately ~~$1,057,300~~$494,800 at November 30, 2019 in payments for sales orders which were, or will be, shipped out subsequent to the quarter end. ~~As of November 30, 2018, these prepaid sales orders are~~Orders that were included in deferred revenues onpredominantly shipped within the ~~condensed balance sheet.~~

Revenue is derived from the sales of children’s books and related products which are generally capable of being distinct and accounted for as a single performance obligation to deliver tangible goods. Substantially all of our books are sold to end consumers and publishing retail outlets. Accordingly, revenues are recognized at shipping point, which is the point in time the customer obtains controlfirst few days of the products. Shipping and handling fees are recorded as operating and selling expenses when the product is shipped and revenue is recognized. The Company estimates product returns based on historical return rates. The majority of the Company's contracts have a single performance obligation and are short term in nature. Sales taxes, that are collected from customers and remitted to governmental authorities, are accounted for on a net basis and therefore are excluded from net sales.next fiscal quarter.

~~On March 1, 2018, the Company adopted Topic 606, as prescribed by the FASB, using the full retrospective method. Results for all reporting periods are presented under Topic 606.~~

There was no change to net earnings or retained earnings due to the adoption of Topic 606, with the impact primarily related to the recording of our hostess award program in gross sales and discounts and allowances, as opposed to recording the net costs in operating and selling expenses.

Certain contracts associated with the hostess awards program include sales incentives, such as discounted or free products. These incentives provide a separate performance obligation in the contract and material right to the customer. The transaction price is allocated to the material right based on its relative standalone selling price and is recognized in revenue as the performance obligations are satisfied, which occurs at shipping point or at the expiration of the material right. As our sales incentives are delivered with the associated products ordered, there is no deferral required. Revenue allocated to the material right are recognized in gross sales, discounts and allowances and cost of goods sold in our condensed statement of earnings.

The Company generally expenses sales commissions when incurred. These costs are recorded within operating expenses. The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

~~As a result of applying Topic 606, the impact to the Company’s condensed consolidated balance sheet as of February 28, 2018 was as follows:~~

~~As a result of applying Topic 606, the impact to the Company’s condensed statement of earnings for the three months ended November 30, 2017 was as follows:~~

~~As a result of applying Topic 606, the impact to the Company’s operating results by reporting segment for the three months ended November 30, 2017 was as follows:~~

~~As a result of applying Topic 606, the impact to the Company’s condensed statement of earnings for the nine months ended November 30, 2017 was as follows:~~

~~As a result of applying Topic 606, the impact to the Company’s operating results by reporting segment for the nine months ended November 30, 2017 was as follows:~~

On January ~~10, 2019,~~7, 2020, our ~~board~~Board of ~~directors~~Directors declared a distribution of $0.05 per share of common stock. This cash distribution will be paid on or about March 12, ~~2019~~2020 to shareholders of record on February ~~21, 2019.~~

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

The following discussion contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, our success in recruiting and retaining new consultants, our ability to locate and procure desired books, our ability to ship the volume of orders that are received without creating ~~shipment delays,~~backlogs, our ability to obtain adequate financing for working capital and capital expenditures, economic and competitive conditions, regulatory changes and other uncertainties, as well as those factors discussed below and elsewhere in our Annual Report on Form 10-K for the year ended February 28, ~~2018~~2019 and this Quarterly Report on Form 10-Q, all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may or may not occur. See “Cautionary Remarks Regarding Forward-Looking Statements” in the front of this Quarterly Report on Form 10-Q.

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 children’s books. These two segments each have their own customer base. The Publishing segment markets its products on a wholesale basis to various retail accounts. The UBAM segment markets its products through a network of independent sales consultants using a combination of home shows, internet party plan events and book fairs. 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.

	Three Months Ended November 30,						Nine Months Ended November 30,						Three Months Ended November 30,						Nine Months Ended November 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Net revenues	$	40,482,600		$	38,909,900		$	95,185,900		$	90,038,000		$	40,824,600		$	40,482,600		$	92,850,000		$	95,185,900
Cost of goods sold		13,141,600			12,211,700			31,274,000			28,460,800			13,279,900			13,141,600			30,382,500			31,274,000
Gross margin		27,341,000			26,698,200			63,911,900			61,577,200			27,544,700			27,341,000			62,467,500			63,911,900

Operating expenses
Operating and selling		6,540,600			6,121,100			14,554,400			13,684,200			6,513,500			6,540,600			15,089,900			14,554,400
Sales commissions		12,689,200			12,510,400			29,375,300			28,759,300			13,008,600			12,689,200			28,804,700			29,375,300
General and administrative		4,476,000			4,735,200			12,106,900			12,359,600			4,373,500			4,476,000			12,029,300			12,106,900
Total operating expenses		23,705,800			23,366,700			56,036,600			54,803,100			23,895,600			23,705,800			55,923,900			56,036,600

Other (income) expense
Interest expense		228,600			287,600			712,000			863,800			216,500			228,600			691,000			712,000
Other income		(397,600	)		(388,900	)		(1,172,300	)		(1,187,400	)		(403,100	)		(397,600	)		(1,196,300	)		(1,172,300	)
Earnings before income taxes		3,804,200			3,432,800			8,335,600			7,097,700			3,835,700			3,804,200			7,048,900			8,335,600

Income taxes		988,600			1,304,400			2,212,700			2,707,100			1,099,900			988,600			1,941,900			2,212,700
Net earnings	$	2,815,600		$	2,128,400		$	6,122,900		$	4,390,600		$	2,735,800		$	2,815,600		$	5,107,000		$	6,122,900

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

Non-Segment Operating Results for the Three Months Ended November 30 ~~2018~~, 2019

Total operating expenses not associated with a reporting segment decreased ~~$0.3~~$0.1 million, or ~~7.3%~~2.6%, to ~~$3.8~~$3.7 million for the three-month period ~~ending~~ended November 30, ~~2018,~~2019, compared to ~~$4.1~~$3.8 million for the same quarterly period a year ago. ~~Our operating~~Operating expenses decreased as a result of operational efficiencies gained primarily from reduced ~~payroll~~labor in our warehouse ~~of approximately $0.2 million due to efficiencies from automation introduced~~ during the last year. During the third quarter of fiscal year 2018, the Company hired a second shift consisting primarily of seasonal employees to keep pace with the increased order volume. During the third quarter of fiscal year 2019, due to the additional technology and operational improvements, the Company was able to keep pace with the seasonal increase in order volumes with only one shift. The reduced compensation from not employing a second shift was partially offset by additional overtime hours of our first shift personnel.quarter.

Interest expense ~~decreased $0.1 million, from $0.3 million to~~remained consistent at $0.2 million for the three months ended November 30, ~~2018~~2019, when compared to $0.2 million for the same quarterly period a year ago. ~~Interest expense decreased $0.1 million due to reduced borrowings on the line of credit during the period.~~

Income taxes ~~decreased $0.3~~increased $0.1 million, or 10%, to ~~$1.0~~$1.1 million for the three months ended November 30, ~~2018,~~2019, from ~~$1.3~~$1.0 million for the same quarterly period a year ago. Our effective tax rate ~~was~~increased 2.7%, to 28.7% for the quarter ended November 30, 2019, from 26.0% for the quarter ended November 30, ~~2018, and 38.0% for the quarter ended November 30, 2017. The decrease in the~~2018. Our effective tax rate ~~resulted from our reduced federal tax rate with the passage of the Tax Cuts and Jobs Act of 2017 (“Tax Act”).~~increased due to a fluctuation in sales mix between states. Our tax rates are higher than the federal statutory rate of 21% due to the inclusion of state income and franchise taxes.

Non-Segment Operating Results for the Nine Months Ended November 30 ~~2018~~, 2019

Total operating expenses not associated with a reporting segment ~~decreased $0.5 million, or 4.7%, to~~remained consistent at $10.1 million for the nine-month period ~~ending~~ended November 30, ~~2018,~~2019, compared to ~~$10.6~~$10.1 million for the same period a year ago. The expense savings were primarily due to the reduction of payroll in our warehouse of $0.4 million, as a result of increased automation and $0.3 million in reduced property taxes due to a state exemption received on our new facility. These savings were offset primarily by an increase in share-based compensation expense of $0.3 million associated with the Company’s 2019 LTI Plan.

Interest expense ~~decreased $0.2 million to~~remained consistent at $0.7 million for the nine months ended November 30, ~~2018, from $0.9 million~~2019 and for ~~the same period a year ago. Interest expense decreased primarily as a result of reduced borrowings against the line of credit in the first nine months of fiscal 2019 as compared to~~ the same period a year ago.

Income taxes decreased ~~$0.5~~$0.3 million, or 13.6%, to ~~$2.2~~$1.9 million for the nine months ended November 30, ~~2018,~~2019, from ~~$2.7~~$2.2 million for the same period a year ago. Our effective tax rate ~~was~~increased 1.0%, to 27.5% for the nine months ended November 30, 2019, from 26.5% for the nine months ended November 30, ~~2018, and 38.1% for the nine months ended November 30, 2017. The decrease in the~~2018. Our effective tax rate ~~resulted from our reduced federal tax rate with the passage of the Tax Act.~~increased due to a fluctuation in sales mix between states. Our tax rates are higher than the federal statutory rate of 21% due to the inclusion of state income and franchise taxes.

UBAM Operating Results for the Three and Nine Months Ended November 30 ~~2018~~, 2019

UBAM Operating Results for the Three Months Ended November 30 ~~2018~~, 2019

UBAM ~~third quarter~~ net revenues increased $0.8 million, or ~~2.2%~~2.1%, ~~from $36.5~~to $38.1 million ~~reported~~during the three months ended November 30, 2019, as compared to $37.3 million during the same period a year ago. The average number of active consultants in the third quarter of fiscal ~~2018, to $37.3 million reported~~2020 was 33,600, an increase of 3,400, or 11.3%, from 30,200 average active consultants selling in the third quarter of fiscal 2019. During our annual convention in late June this year, we announced a UBAM ~~net revenues increased as a direct result~~30^th Anniversary Recruiting Special which resulted in the signing of ~~increased sales from our~~over 10,000 new active consultants during the quarter. The total number of active consultants decreased 900, or 2.9%, from averaging 31,100 in the third quarter of fiscal 2018 to averaging 30,200 in the third quarter of this year. Our active consultant count declined slightly due to increasedfive-week recruiting ~~competition from other non-traditional employment options outside of the direct selling industry.~~special. These new ~~market entrants have been a leading contributor~~consultants contributed to our growth compared to the ~~decline in total sales of the direct selling industry for the last two reported years.~~prior period.

Gross margin increased ~~$0.2~~$0.5 million, or ~~0.8%~~1.9%, to $26.3 million during the ~~three-month period ending~~three months ended November 30, ~~2018, when~~2019, as compared to $25.8 million during the same ~~quarter~~period a year ~~ago, due primarily to an increase in net revenues.~~ago. Gross margin, as a percentage of net revenues ~~decreased~~remained consistent, decreasing 0.2% to ~~69.2%~~69.0% for the three-month period ~~ending~~ended November 30, ~~2018~~2019 when compared to ~~70.3%~~69.2% the same period a year ago. ~~The decrease in gross margin as a percentage of net revenues was due to the change in mix of order types received during the quarter.~~

UBAM operating expenses consists of operating and selling expenses, sales commissions and general and administrative expenses. Operating and selling expenses primarily consists of freight expenses and materials and supplies. Sales commissions include amounts paid to consultants for new sales and promotions. These operating expenses are directly tied to the sales volumes of the UBAM segment. General and administrative expenses include payroll, outside services, inventory reserves and other expenses directly associated with the UBAM segment. Total operating expenses increased ~~$0.7~~$0.4 million, or ~~3.7%~~2.1%, to ~~$19.4~~$19.8 million during the three-month period ~~ending~~ended November 30, ~~2018,~~2019, when compared to ~~$18.7~~$19.4 million reported in the same quarter a year ago. ~~The~~Operating and selling expenses remained consistent at $5.6 million for the three-month periods ended November 30, 2019 and 2018. Sales commissions increased $0.3 million to $12.9 million during the three-month period ended November 30, 2019, when compared to $12.6 million reported in the same quarter a year ago, due primarily to the increase in ~~operating~~sales. General and administrative expenses ~~was~~increased $0.1 million to $1.3 million, from $1.2 million, during the three months ended November 30, 2019 when compared to the same period last year.

Operating income of the UBAM segment remained consistent at $6.5 million during the three months ended November 30, 2019 and for the same period last year.

UBAM Operating Results for the Nine Months Ended November 30, 2019

UBAM net revenues decreased $2.0 million, or 2.3%, to $85.1 million during the nine-month period ended November 30, 2019, as compared to $87.1 million from the same period a year ago. The reduced net revenues were primarily attributed to the first quarter of fiscal 2020 when we had fewer active sales consultants than the comparable quarter of the prior year.

Gross margin decreased $1.4 million, or 2.3%, to $58.8 million during the nine-month period ended November 30, 2019, when compared to $60.2 million during the same period a year ago, due primarily to a decrease in net revenues. Gross margin, as a percentage of net revenues, stayed consistent at 69.1% for the nine-month periods ended November 30, 2019 and 2018.

Operating expenses increased $0.1 million to $44.4 million during the nine-month period ended November 30, 2019 from $44.3 million for the same period a year ago. Operating and selling expenses increased $0.7 million to $12.7 million during the nine-month period ended November 30, 2019, when compared to $12.0 million reported in the same period a year ago, due to ~~an increase in~~increased freight costs ~~and sales~~in the current year. Sales commissions ~~associated with~~decreased $0.6 million to $28.5 million during the ~~increase~~nine-month period ended November 30, 2019, when compared to $29.1 million reported in the same period a year ago, due to lower net revenues. General and administrative expenses remained consistent at ~~$1.2~~$3.2 million ~~reported during~~for the ~~three~~nine months ended November 30, ~~2018~~2019 and ~~2017.~~2018.

Operating income of the UBAM segment decreased ~~$0.4~~$1.4 million, or ~~5.8%~~8.9%, to ~~$6.5~~$14.4 million during the ~~three-month~~nine-month period ~~ending~~ended November 30, ~~2018 as~~2019, when compared ~~to $6.9~~with $15.8 million from the same period a year ago. The decrease in operating income was primarily due to a decrease in ~~gross margin percentage related to a change in mix of order types.~~

UBAM net revenues for the nine months ended November 30, 2018 increased $3.6 million, or 4.3% from $83.5 million to $87.1 million. UBAM net revenues increased as a result of the increase in the number of our active sales consultants and an increase in their sales activities. The total number of active consultants increased 3,200, or 10.8%, from an average of 29,500 in the first nine months of fiscal 2018 to an average of 32,700 reported for the first nine months of this year.

Gross margin increased $1.5 million, or 2.6% to $60.2 million during the nine-month period ending November 30, 2018, when compared to $58.7 million during the same period a year ago, due primarily to an increase in sales. Gross margin, as a percentage of net revenues, decreased to 69.1% for the nine-month period ending November 30, 2018 when compared to 70.3% the same period a year ago. The decrease in gross margin as a percentage of net revenues was due to a change in the mix of order types between the periods.

UBAM operating expenses consists of operating and selling expenses, sales commissions and general and administrative expenses. Total operating expenses increased $1.5 million, or 3.5%, to $44.3 million during the nine-month period ending November 30, 2018, when compared to $42.8 million reported the same period a year ago. The increase in operating expenses was due to an increase in operating and selling expenses of $1.1 million primarily related to an increase in postage and freight related to higher sales. Sales commissions increased $0.6, or 2.1%, to $29.1 million reported during the nine months ended November 30, 2018, from $28.5 million reported in the same period last year. Sales commissions increased primarily due to an increase to net revenues. Offsetting these increases was a decrease in general and administrative expenses of $0.2 million, or 5.9%, to $3.2 million reported during the nine months ended November 30, 2018, from $3.4 million reported in the same period last year. General and operating expenses decreased primarily as a result of a $0.1 million reduction in merchant services fees associated with our online payment processing.

Operating income of the UBAM segment remained consistent, totaling $15.8 million during the nine-month period ending November 30, 2018, when compared with $15.9 million from the same period a year ago.

Publishing Operating Results for the Three and Nine Months Ended November 30 ~~2018~~, 2019

	Three Months Ended November 30,						Nine Months Ended November 30,						Three Months Ended November 30,						Nine Months Ended November 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Gross sales	$	6,604,700		$	5,132,900		$	17,050,100		$	13,845,600		$	5,645,100		$	6,604,700		$	16,416,200		$	17,050,100
Less discounts and allowances		(3,452,400	)		(2,703,300	)		(9,003,400	)		(7,333,300	)		(2,936,900	)		(3,452,400	)		(8,680,700	)		(9,003,400	)
Transportation revenue		9,000			10,000			26,300			26,400			16,000			9,000			30,800			26,300
Net revenues		3,161,300			2,439,600			8,073,000			6,538,700			2,724,200			3,161,300			7,766,300			8,073,000

Cost of goods sold		1,651,900			1,380,600			4,328,400			3,639,700			1,449,800			1,651,900			4,065,400			4,328,400
Gross margin		1,509,400			1,059,000			3,744,600			2,899,000			1,274,400			1,509,400			3,700,900			3,744,600

Total operating expenses		510,600			502,200			1,602,800			1,384,800			441,500			510,600			1,447,600			1,602,800

Operating income	$	998,800		$	556,800		$	2,141,800		$	1,514,200		$	832,900		$	998,800		$	2,253,300		$	2,141,800

Publishing Operating Results for the Three Months Ended November 30 ~~2018~~, 2019

Our Publishing division’s net revenues ~~increased $0.8~~decreased $0.5 million, or ~~33.3%~~15.6%, to ~~$3.2~~$2.7 million during the three-month period ~~ending~~ended November 30, ~~2018,~~2019, from ~~$2.4~~$3.2 million reported in the same period a year ago. This ~~increase is primarily related to an increase in orders~~decrease resulted from a sales promotion with one of our largest customers ~~which had lower sales volumes~~that impacted the third quarter last fiscal year. This customer did not have a similar promotion in the ~~same period last year.~~third quarter of fiscal 2020. The timing of sales promotions with our large customers vary from year to year as does their overall sales volume impact.

Gross margin ~~increased $0.4~~decreased $0.2 million, or ~~36.4%~~13.3%, to ~~$1.5~~$1.3 million during the three-month period ~~ending~~ended November 30, ~~2018,~~2019, from ~~$1.1~~$1.5 million reported in the same quarter a year ~~ago. This increase in gross margin resulted~~ago primarily ~~from~~due to the ~~growth~~decrease in net revenues. Gross margin, as a percentage of net revenues, ~~increased~~remained consistent, decreasing 0.9%, to ~~47.7%~~46.8% during the three-month period ~~ending~~ended November 30, ~~2018,~~2019, from ~~43.4%~~47.7% reported in the same quarter a year ~~ago, due to a change in customer mix between the two periods. Certain sales agreements with specific customers have higher gross margins as they require additional operational support.~~ago.

Total operating expenses of the Publishing segment ~~remained consistent at $0.5~~decreased $0.1 million, or 20.0%, to $0.4 million during the three-month ~~periods ending~~period ended November 30, ~~2018 and 2017.~~2019, from $0.5 million reported in the same quarter a year ago.

Operating income of the Publishing segment ~~increased $0.4~~decreased $0.2 million, or ~~66.7%~~20.0%, to ~~$1.0~~$0.8 million during the three-month period ~~ending~~ended November 30, ~~2018~~2019 when compared to ~~$0.6~~$1.0 million reported in the same period a year ago, due primarily to the decrease in net revenues.

Publishing Operating Results for the Nine Months Ended November 30, 2019

Our Publishing division’s net revenues decreased $0.3 million, or 3.7%, to $7.8 million during the nine-month period ended November 30, 2019, from $8.1 million reported in the same period a year ago, primarily from the sales promotion of the large customer run during the third quarter of fiscal 2019.

Gross margin remained consistent at $3.7 million during the nine-month period ended November 30, 2019, and in the same period a year ago. Gross margin as a percentage of net revenues, increased 1.3%, to 47.7% during the nine-month period ended November 30, 2019, from 46.4% reported in the same period a year ago. The increase in gross margin resulted from a change in customer mix, as certain sales agreements with specific customers have higher gross margin due to lower discounts, and a change in product mix, as different products have higher gross margin due to lower product costs.

Total operating expenses decreased $0.2 million, or 12.5%, to $1.4 million during the nine-month period ended November 30, 2019, from $1.6 million reported in the same period a year ago. This decrease primarily resulted from a decrease in freight from lower sales and less promotions and marketing expenses incurred during the first nine months of fiscal 2020, when compared to the same period last year.

Total operating income increased $0.2 million, or 9.5%, to $2.3 million during the nine-month period ended November 30, 2019, from $2.1 million reported in the same period a year ago. The increase in operating income was ~~primarily~~ due to increased ~~net revenues.~~

~~Our Publishing division’s net revenues increased $1.6 million, or 24.6%, to $8.1 million during the nine-month period ending November 30, 2018,~~sales from ~~$6.5 million reported in the same period a year ago. This increase is primarily related to an increase in orders from our largest~~ customers ~~which had~~with lower ~~sales volumes last year.~~

Gross margin increased $0.8 million, or 27.6%, to $3.7 million during the nine-month period ending November 30, 2018, from $2.9 million reported in the same period a year ago. This increase is primarily related to the growth in net revenues. Gross margin, as a percentage of net revenues, increased to 46.4% during the nine-month period ending November 30, 2018, from 44.3% reported in the same period a year ago, due to a change in customer mix between the periods.

~~Total~~discounts and decreased operating expenses increased $0.2 million, or 14.3%, to $1.6 million during the nine-month period ending November 30, 2018, from $1.4 million reported in the same period a year ago. This increase is primarily related to an increase in freight costs and sales commissions associated with the growth in net revenues.expenses.

Total operating income increased $0.6 million, or 40.0%, to $2.1 million during the nine-month period ending November 30, 2018, from $1.5 million reported in the same period a year ago. The increase in operating income was primarily due to increased net revenues.

EDC has a history of profitability and positive cash flow. We typically fund our operations from the cash we generate. We also use available cash ~~primarily~~ to pay down outstanding bank loan balances, for capital expenditures, to pay dividends, and to acquire treasury stock. We have utilized a bank credit facility and other term loan borrowings to meet our short-term cash needs, as well as fund capital expenditures, when necessary. ~~Our revolving bank credit facility loan had no borrowing balance with $10,600,400 in available capacity at November 30, 2018.~~

During the first nine months of fiscal ~~2019,~~2020, we experienced cash inflow from our operations of ~~$7,802,700.~~$9,022,800. Cash flows resulted from the following items:

Cash used in investing activities was ~~$1,360,500~~$402,200 for capital expenditures, which was primarily comprised of improvements to upgrade our ~~warehouse picking~~e-commerce and ~~inventory management systems and various other improvements to the warehouse and facility.~~consultant facing websites used in our UBAM division.

Cash used in financing activities was ~~$1,325,000,~~$2,831,000, which was primarily comprised of $1,241,300 of dividends paid, $870,300 net cash used in treasury stock transactions, and payments on long-term debt of ~~$702,100 and dividends paid of $818,100, partially offset by $195,200 net cash received from treasury stock transactions.~~$719,400.

During fiscal year ~~2019,~~2020, we continue to expect our cash from operations, along with our line of credit with our Bank, will provide us the ability to meet our liquidity requirements. Cash generated from operations will be used to ~~increase~~replace inventory, ~~in anticipation of continued sales growth,~~ to liquidate existing debt and any excess cash is expected to be distributed to our ~~shareholders.~~shareholders or used to purchase available shares on the market.

We have a Loan Agreement with the Bank including Term Loan #1 comprised of Tranche A ~~of $13.4~~totaling $11.6 million and Tranche B totaling $4.3 million as of ~~$5.0 million~~November 30, 2019, both with the maturity date of December 1, 2025. Tranche A has a fixed interest rate of 4.23% and interest is payable monthly. The Loan Agreement also includes Term Loan #2 ~~in the amount~~totaling $3.1 million as of ~~$4.0 million,~~November 30, 2019, which is secured by a warehouse and land with the maturity date of June 28, 2021, and a $15.0 million ~~revolving loan (“line of credit”) through August 15, 2019.~~

~~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 August 15, 2020.

On June 15, 2016. 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,~~2018, 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 used to cover the cost of the fiscal 2018 capital improvements to increase our daily shipping capacity. The Advancing Term loan accrued interest between June 15, 2017 and December 1, 2017, at which time the balance was converted to a term loan and set to amortize over a thirty-six-month period. The Advancing Term Loan was repaid early, without penalty, in February 2018.

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.

Effective February 15, 2018, we signed a Seventh Amendment Loan Agreement with the Bank which modified the limitation on dividends as well as modified and removed other financial covenant calculations.

~~Effective June 15, 2018, we signed an~~ Eighth Amendment Loan Agreement with the Bank which extended the termination date until August 15, 2019, reduced the interest rate pricing grid for all floating rate borrowings covered by the Loan Agreement, established a new $3.0 million advancing term loan to be used for capital expansions to increase daily shipping capacity, released the personal ~~Guaranty~~guaranty of Randall W. White and Carol White, along with other covenant restrictions being lessened. The amendment also included an adjustment to the Adjusted Funded Debt to EBITDA ~~Ratio~~ratio for covenant compliance.

On February 7, 2019, the Company executed the Ninth Amendment Loan Agreement which removed the covenant prohibiting the Company from repurchasing its shares and identified certain restrictions on the amount of funds that the Company could use to repurchase shares.

On August 15, 2019, the Company executed the Tenth Amendment Loan Agreement which extended the termination date of the line of credit to August 15, 2020, amended the definition of LIBOR Margin, reduced the frequency of reports to the Lender, amended the Adjusted Funded Debt to EBITDA Ratio and amended the Compliance and Borrowing Base Certificates reporting requirements.

We had no borrowings on our revolving credit agreement at November 30, ~~2018~~2019 and February 28, ~~2018.~~2019. Available credit under the revolving credit agreement was ~~$10,600,400~~$11.2 million at November 30, ~~2018.~~2019.

Tranche B of Term Loan #1, Term Loan #2 and the line of credit accrue interest monthly, at the bank adjusted LIBOR Index plus a tiered pricing rate based on the Company’s Adjusted Funded Debt to EBITDA Ratio ~~(4.84%~~(3.99% at November 30, ~~2018)~~2019).

The Loan Agreement also contains a provision for our use of the Bank’s letters of credit. The Bank agrees to issue, or obtain issuance of, commercial or stand-by letters of credit provided that the sum of the line of credit plus the letters of credit issued would not exceed the borrowing base in effect at the time. As of November 30, ~~2018,~~2019, we had no ~~outstanding~~ letters of ~~credit.~~credit outstanding. The agreement contains provisions that require us to maintain specified financial ratios, restrict transactions with related parties, prohibit mergers or consolidation, disallow additional debt, and limit the amounts of dividends declared, ~~compensation, salaries,~~ investments, capital expenditures, leasing transactions, and ~~leasing transactions.~~establish a dollar limit on the amount of shares that can be repurchased.

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

Year ending February 28 (29),
2019	$	222,500
2020		943,700	$	256,200
2021		985,400		1,067,400
2022		1,033,900		1,114,600
2023		1,082,300		1,161,600
2024				1,210,600
Thereafter		15,736,300		14,246,800
Total	$	20,004,100	$	19,057,200

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

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

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 ~~typically~~generally paid at the time the product is ordered. ~~UBAM sales accounted for 91.5% of net revenues for the nine-month period ended November 30, 2018, and 92.7% for the nine-month period ended November 30, 2017.~~ 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 ~~recognized~~recorded when the product is shipped.

Estimated allowances for sales returns ~~which reduce net sales and costs of goods sold,~~ are recorded as sales are recognized. Management uses a moving average calculation to estimate the allowance for sales returns. We are not responsible for product damaged in transit. Damaged returns are primarily received from the retail ~~stores. 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 ~~approximately $217,000~~$0.2 million as of November 30, 2019 and February 28, 2018, which is included in other current liabilities on the Company’s balance sheet. In addition, Management has recorded an asset for the expected value of non-damaged inventories to be returned. The estimated value of returned products of $117,000 is included in other current assets on the Company’s balance sheet as of November 30 and February 28, 2018.2019.

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. Management has estimated and included an allowance for doubtful accounts of ~~$303,500~~$0.2 million at November 30, ~~2018,~~2019, and ~~$297,100~~$0.3 million at February 28, ~~2018.~~2019. Included within this allowance is $0.1 million of reserve for vendor discounts to sell remaining inventory as of November 30, 2019 and February 28, 2019.

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

Certain inventory is maintained in a noncurrent classification. Management continually estimates and calculates the amount of noncurrent inventory. Noncurrent inventory arises due to occasional purchases of titles in quantities in excess of what will be sold within the normal operating cycle, due to minimum order requirements of our suppliers. Noncurrent inventory was estimated by management using the current year turnover ratio by title. All inventory in excess of 2 ½ years of anticipated sales is classified as noncurrent inventory. Noncurrent inventory balances prior to valuation allowances were ~~$1,021,400~~$1.2 million and ~~$707,700~~$0.9 million at November 30, ~~2018~~2019 and February 28, ~~2018,~~2019, respectively.

Consultants that meet certain eligibility requirements ~~are allowed to~~may request and receive inventory on consignment. We believe allowing our consultants to have consignment inventory greatly increases their ability to be successful in making effective presentations at home shows, book fairs and other events; and having consignment inventory leads to additional sales opportunities. Approximately ~~11%~~10.5% of our active consultants maintained consignment inventory at ~~November 30 and February 28, 2018.~~the end of the third fiscal quarter 2020. Consignment inventory is stated at cost, less an estimated reserve for consignment inventory that is not expected to be sold or returned to the Company. The total cost of inventory on consignment with ~~active~~ consultants was ~~$1,828,100 and $1,270,700~~$1.8 million at November 30, ~~2018~~2019 and $1.5 million at February 28, ~~2018, respectively. Inventory related to inactive consultants amounted to $160,700 and $278,500 as of November 30, 2018 and February 28, 2018, respectively.~~2019.

Inventories are presented net of a valuation allowance, which includes reserves for inventory obsolescence and ~~active and inactive consultant consignment~~reserves for consigned inventory that is not expected to be sold or ~~returned.~~returned to the Company. Management estimates the inventory obsolescence allowance for both current 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, ~~as well as consignment~~including the reserve for consigned inventory, ~~held by active~~of $0.6 million and ~~inactive consultants of $676,500 and $731,800~~$0.4 million as of November 30, ~~2018~~2019 and February 28, ~~2018,~~2019, respectively.

Our principal supplier, ~~Usborne,~~based in England, generally requires a minimum ~~reorder~~re-order of 6,500 ~~books~~ 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 ~~our~~the initial order or ~~re-orders~~re-order based upon this analysis.

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

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

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

An evaluation was performed of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) and 15d-15(e) as of November 30, ~~2018.~~2019. This evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer (Principal Executive Officer) and our Chief Financial Officer and Corporate Secretary (Principal Financial and Accounting Officer).

Based on that evaluation, these officers concluded that our disclosure controls and procedures were effective pursuant to Exchange Act Rule 13a-15(e).

In addition, no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the quarter ended November 30, ~~2018~~2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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.

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

	Large accelerated filer ☐	Accelerated filer ☐

	Non-accelerated filer ☒	Smaller reporting company ☒

		Emerging Growth Company ☐

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1715
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2522
Item 4.	Controls and Procedures	2522

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	2623
Item 1A.	Risk Factors	2623
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2623
Item 3.	Defaults Upon Senior Securities	2623
Item 4.	Mine Safety Disclosures	2623
Item 5.	Other Information	2623
Item 6.	Exhibits	2623
Signatures		2724

Current lease liability	$	13,400
Long-term lease liability	$	34,500
Right-of-use asset	$	47,900

Fixed lease cost	$	9,400
Operating cash flows – operating lease	$	9,400
Remaining lease term (months)		46
Discount rate		4.60	%

Pricing Tier	Adjusted Funded Debt to EBITDA Ratio	LIBOR Margin (bps)
I	>2.00	~~325.00~~300.00
II	>1.50 but <2.00	~~300.00~~275.00
III	>1.00 but <1~~.50~~1.50	~~275.00~~250.00
IV	<1.00	~~250.00~~225.00

Year ending February 28 (29),
2020	$	3,200
2021		13,200
2022		13,700
2023		14,200
2024		8,400
Total future minimum rental payments		52,700
Present value discount		(4,800	)
Total operating lease liability	$	47,900

Year ending February 28 (29),
2020	$	373,600
2021		1,509,300
2022		1,539,800
2023		1,570,800
2024		1,575,500
Thereafter		10,859,200
Total	$	17,428,200

						Without
	As Reported		Adjustments			Adoption
ASSETS
Accounts receivable-Net	$	2,913,700	$	(99,900	)	$	2,813,800
Inventories-Net		26,618,600		(100	)		26,618,500
Prepaid expenses and other assets		1,259,000		(117,000	)		1,142,000
Total current assets		33,514,600		(217,000	)		33,297,600

TOTAL ASSETS		61,837,900		(217,000	)		61,620,900

LIABILITIES
Other current liabilities		3,517,900		(217,000	)		3,300,900
Total liabilities		41,435,800		(217,000	)		41,218,800

•	~~an increase in provision for inventory valuation allowance~~net earnings of ~~$246,200,~~$5,107,000
•	~~an increase~~a decrease in ~~the provision for doubtful accounts~~inventories, net, of ~~$68,500,~~

•	~~an increase in accounts payable of $3,327,000,~~$3,147,500,
•	an increase in accrued salaries and commissions, and other liabilities of ~~$2,384,300,~~$1,173,700,
•	depreciation expense of $1,054,100,
•	an increase in income tax payable of $591,000,
•	a decrease in prepaid expenses and other assets of $583,600,
•	share-based compensation expense of $498,800,
•	an increase in provision for inventory valuation allowance of $283,400,
•	an increase in deferred income taxes, net, of $81,100, and
•	an increase in the provision for doubtful accounts of $39,900,

•	a decrease in accounts payable of $2,221,100
•	an increase in accounts receivable of $845,400, and
•	a decrease in deferred revenue of $470,800.

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)

September 1 - 30, 2018		0		N/A		0		590,362
October 1 - 31, 2018		0		N/A		0		590,362
November 1 - 30, 2018		233		9.64		0		590,129
Total		233		9.64		0

(1)		~~In April 2008,~~On February 4, 2019 the Board of Directors ~~authorized us to purchase up to 1,000,000 additional~~approved a new stock repurchase plan, replacing the former 2008 stock repurchase plan. The maximum number of shares ~~of our common stock~~which can be purchased under athe new plan ~~initiated in 1998.~~is 800,000. This plan has no expiration date.
~~(2)~~		On August 22, 2018 the Company issued a two-for-one stock split in the form of a stock dividend. The maximum number of shares that may be repurchased under the plan have been updated to reflect the stock split.

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

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

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

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

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

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

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