☒ 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

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

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

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

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 10,~~October 7, 2020, there were ~~8,460,432~~8,355,972 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, 2019~~29, 2020 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,			August 31,			February 29,
ASSETS	2019			2019			2020			2020
CURRENT ASSETS
Cash and cash equivalents	$	8,988,900		$	3,199,300		$	22,636,300		$	2,999,400
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		29,673,800			33,445,600
Accounts receivable, less allowance for doubtful accounts of $319,900 (August 31) and $237,400 (February 29)								3,267,800			2,967,200
Inventories - net								30,563,400			30,087,300
Income taxes receivable								-			221,700
Prepaid expenses and other assets		972,000			1,603,500			1,305,400			950,600
Total current assets		43,699,000			41,507,200			57,772,900			37,226,200

INVENTORIES - Net		915,900			575,000

PROPERTY, PLANT AND EQUIPMENT - Net		26,512,700			27,164,600

INVENTORIES - net								452,000			1,016,700
PROPERTY, PLANT AND EQUIPMENT - net								26,249,600			26,377,700
OTHER ASSETS		67,400			19,500			111,100			82,200

TOTAL ASSETS	$	71,195,000		$	69,266,300		$	84,585,600		$	64,702,800


LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	12,007,500		$	14,228,600		$	24,710,700		$	9,661,100
Deferred revenues		494,800			965,600			1,228,400			385,300
Current maturities of long-term debt		1,053,600			945,900			522,000			1,027,400
Accrued salaries and commissions		3,186,400			2,039,000			4,417,000			1,657,200
Income taxes payable		1,347,400			756,400			1,911,500			-
Dividends payable		423,500			410,100			501,300			417,400
Other current liabilities		4,164,700			4,177,900			4,648,500			3,238,200
Total current liabilities		22,677,900			23,523,500			37,939,400			16,386,600

LONG-TERM DEBT - Net of current maturities		18,003,600			18,830,700
DEFERRED INCOME TAXES - Net		953,700			872,600
LONG-TERM DEBT - net of current maturities								10,721,600			17,784,300
DEFERRED INCOME TAXES - net								808,200			993,300
OTHER LONG-TERM LIABILITIES		148,500			109,000			140,200			145,800
Total liabilities		41,783,700			43,335,800			49,609,400			35,310,000

SHAREHOLDERS' EQUITY
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
Common stock, $0.20 par value; Authorized 16,000,000 shares; Issued 12,410,080 (August 31) and 12,410,080 (February 29) shares; Outstanding 8,354,691 (August 31) and 8,348,651 (February 29) shares								2,482,000			2,482,000
Capital in excess of par value		9,603,400			8,975,100			10,245,600			9,843,900
Retained earnings		29,607,200			25,754,900			34,915,800			29,732,200
		41,690,600			37,148,400			47,643,400			42,058,100
Less treasury stock, at cost		(12,279,300	)		(11,217,900	)		(12,667,200	)		(12,665,300	)
Total shareholders' equity		29,411,300			25,930,500			34,976,200			29,392,800
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	71,195,000		$	69,266,300		$	84,585,600		$	64,702,800

	Three Months Ended November 30,						Nine Months Ended November 30,						Three Months Ended August 31,						Six Months Ended August 31,
	2019			2018			2019			2018			2020			2019			2020			2019
GROSS SALES	$	53,619,900		$	53,486,000		$	122,635,300		$	125,574,400		$	73,682,800		$	32,541,700		$	120,579,700		$	69,015,400
Less discounts and allowances		(16,406,500	)		(16,572,600	)		(37,978,900	)		(38,918,700	)		(21,363,400	)		(10,241,000	)		(34,259,300	)		(21,572,400	)
Transportation revenue		3,611,200			3,569,200			8,193,600			8,530,200			6,930,700			2,137,300			11,221,400			4,582,400
NET REVENUES		40,824,600			40,482,600			92,850,000			95,185,900			59,250,100			24,438,000			97,541,800			52,025,400
COST OF GOODS SOLD		13,279,900			13,141,600			30,382,500			31,274,000			17,309,500			8,046,400			28,705,000			17,102,600
Gross margin		27,544,700			27,341,000			62,467,500			63,911,900			41,940,600			16,391,600			68,836,800			34,922,800

OPERATING EXPENSES
Operating and selling		6,513,500			6,540,600			15,089,900			14,554,400			10,531,900			4,192,500			16,872,100			8,576,400
Sales commissions		13,008,600			12,689,200			28,804,700			29,375,300			20,304,400			7,263,100			33,904,900			15,796,100
General and administrative		4,373,500			4,476,000			12,029,300			12,106,900			5,664,000			3,717,600			10,200,000			7,655,800
Total operating expenses		23,895,600			23,705,800			55,923,900			56,036,600			36,500,300			15,173,200			60,977,000			32,028,300


INTEREST EXPENSE		216,500			228,600			691,000			712,000			140,000			242,500			322,200			474,500
OTHER INCOME		(403,100	)		(397,600	)		(1,196,300	)		(1,172,300	)		(499,200	)		(390,800	)		(905,800	)		(793,200	)

EARNINGS BEFORE INCOME TAXES		3,835,700			3,804,200			7,048,900			8,335,600			5,799,500			1,366,700			8,443,400			3,213,200

INCOME TAXES		1,099,900			988,600			1,941,900			2,212,700			1,544,500			359,100			2,257,300			842,000
NET EARNINGS	$	2,735,800		$	2,815,600		$	5,107,000		$	6,122,900		$	4,255,000		$	1,007,600		$	6,186,100		$	2,371,200

BASIC AND DILUTED EARNINGS PER SHARE
Basic	$	0.33		$	0.34		$	0.62		$	0.75		$	0.51		$	0.12		$	0.74		$	0.29
Diluted	$	0.33		$	0.34		$	0.61		$	0.75		$	0.51		$	0.12		$	0.74		$	0.29

WEIGHTED AVERAGE NUMBER OF COMMON AND EQUIVALENT SHARES OUTSTANDING
Basic		8,406,709			8,194,072			8,301,209			8,185,561			8,354,214			8,312,648			8,353,319			8,248,460
Diluted		8,412,638			8,201,776			8,307,496			8,193,206			8,354,214			8,318,790			8,353,319			8,254,926
Dividends per share	$	0.05		$	0.10		$	0.15		$	0.15		$	0.06		$	0.05		$	0.12		$	0.10

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

BALANCE - February 28, 2019		12,092,080	$	2,418,400	$	8,975,100		$	25,754,900			3,896,998		$	(11,217,900	)	$	25,930,500
BALANCE - February 29, 2020																					12,410,080	$	2,482,000	$	9,843,900	$	29,732,200			4,061,429		$	(12,665,300	)	$	29,392,800
Purchases of treasury stock		-		-		-			-			36,959			(302,500	)		(302,500	)		-		-		-		-			17,565			(75,500	)		(75,500	)
Sales of treasury stock		-		-		68,100			-			(19,171	)		54,300			122,400			-		-		5,000		-			(21,167	)		66,000			71,000
Dividends declared ($0.05/share)		-		-		-			(408,900	)		-			-			(408,900	)
Dividends declared ($0.06/share)																					-		-		-		(502,200	)		-			-			(502,200	)
Share-based compensation expense (see Note 6)		-		-		166,300			-			-			-			166,300			-		-		169,000		-			-			-			169,000
Net earnings		-		-		-			1,363,600			-			-			1,363,600			-		-		-		1,931,100			-			-			1,931,100
BALANCE - May 31, 2019		12,092,080		2,418,400		9,209,500			26,709,600			3,914,786			(11,466,100	)		26,871,400
Purchases of treasury stock		-		-		-			-			60,357			(417,100	)		(417,100	)
BALANCE - May 31, 2020																					12,410,080		2,482,000		10,017,900		31,161,100			4,057,827			(12,674,800	)		30,986,200
Sales of treasury stock		-		-		54,000			-			(22,961	)		54,600			108,600			-		-		11,500		-			(2,438	)		7,600			19,100
Dividends declared ($0.05/share)		-		-		-			(422,300	)		-			-			(422,300	)
Share-based compensation expense (see Note 6)		-		-		166,200			-			-			-			166,200
Issuance of restricted share awards for vesting		308,000		61,600		(61,600	)		-			-			-			-
Net earnings		-		-		-			1,007,600			-			-			1,007,600
BALANCE - August 31, 2019		12,400,080		2,480,000		9,368,100			27,294,900			3,952,182			(11,828,600	)		27,314,400
Purchases of treasury stock		-		-		-			-			84,841			(534,100	)		(534,100	)
Sales of treasury stock		-		-		69,000			-			(24,959	)		83,400			152,400
Dividends declared ($0.05/share)		-		-		-			(423,500	)		-			-			(423,500	)
Dividends declared ($0.06/share)																					-		-		-		(500,300	)		-			-			(500,300	)
Share-based compensation expense (see Note 6)		-		-		166,300			-			-			-			166,300			-		-		216,200		-			-			-			216,200
Net earnings		-		-		-			2,735,800			-			-			2,735,800			-		-		-		4,255,000			-			-			4,255,000
BALANCE - November 30, 2019		12,400,080	$	2,480,000	$	9,603,400		$	29,607,200			4,012,064		$	(12,279,300	)	$	29,411,300
BALANCE - August 31, 2020																					12,410,080	$	2,482,000	$	10,245,600	$	34,915,800			4,055,389		$	(12,667,200	)	$	34,976,200

	Common Stock (par value $0.20 per share)									Treasury Stock									Common Stock (par value $0.20 per share)										Treasury Stock
	Number of Shares Issued		Amount		Capital in Excess of Par Value		Retained Earnings			Number of Shares			Amount			Shareholders' Equity			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
BALANCE - February 28, 2019																				12,092,080	$	2,418,400	$	8,975,100		$	25,754,900			3,896,998		$	(11,217,900	)	$	25,930,500
Purchases of treasury stock		-		-		-		-			2,846			(29,600	)		(29,600	)		-		-		-			-			36,959			(302,500	)		(302,500	)
Sales of treasury stock		-		-		-		-			(3,302	)		25,100			25,100			-		-		68,100			-			(19,171	)		54,300			122,400
Dividends declared ($0.05/share)		-		-		-		(409,000	)		-			-			(409,000	)		-		-		-			(408,900	)		-			-			(408,900	)
Net earnings		-		-		-		1,816,600			-			-			1,816,600
BALANCE - May 31, 2018		12,092,080		2,418,400		8,573,300		22,122,100			3,912,012			(11,308,600	)		21,805,200
Exercise of options		-		-		-		-			(9,634	)		77,200			77,200
Share-based compensation expense (see Note 6)		-		-		70,000		-			-			-			70,000			-		-		166,300			-			-			-			166,300
Net earnings		-		-		-		1,490,700			-			-			1,490,700			-		-		-			1,363,600			-			-			1,363,600
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
BALANCE - May 31, 2019																				12,092,080		2,418,400		9,209,500			26,709,600			3,914,786			(11,466,100	)		26,871,400
Purchases of treasury stock		-		-		-		-			233			(2,300	)		(2,300	)		-		-		-			-			60,357			(417,100	)		(417,100	)
Sales of treasury stock		-		-		-		-			(13,650	)		124,800			124,800			-		-		54,000			-			(22,961	)		54,600			108,600
Dividends declared ($0.10/share)		-		-		-		(818,800	)		-			-			(818,800	)
Dividends declared ($0.05/share)																				-		-		-			(422,300	)		-			-			(422,300	)
Share-based compensation expense (see Note 6)		-		-		185,300		-			-			-			185,300			-		-		166,200			-			-			-			166,200
Issuance of restricted share awards for vesting																				308,000		61,600		(61,600	)		-			-			-			-
Net earnings		-		-		-		2,815,600			-			-			2,815,600			-		-		-			1,007,600			-			-			1,007,600
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
BALANCE - August 31, 2019																				12,400,080	$	2,480,000	$	9,368,100		$	27,294,900			3,952,182		$	(11,828,600	)	$	27,314,400

	2019			2018			2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings	$	5,107,000		$	6,122,900		$	6,186,100		$	2,371,200
Adjustments to reconcile net earnings to net cash provided by operating activities:
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation		1,054,100			1,085,100			821,100			684,800
Deferred income taxes, net		81,100			673,100
Deferred income taxes								(185,100	)		127,600
Provision for doubtful accounts		39,900			68,500			91,800			63,200
Provision for inventory valuation allowance		283,400			246,200			106,400			129,900
Share-based compensation expense		498,800			255,300			385,200			332,500
Changes in assets and liabilities:
Accounts receivable		(845,400	)		(705,000	)		(392,400	)		(303,100	)
Inventories		3,147,500			(4,441,700	)
Inventories, net								(17,700	)		(2,387,600	)
Prepaid expenses and other assets		583,600			(324,400	)		(383,800	)		544,600
Accounts payable		(2,221,100	)		3,327,000			14,797,500			(1,047,900	)
Accrued salaries and commissions, and other liabilities		1,173,700			2,384,300			4,164,500			(1,889,700	)
Deferred revenues		(470,800	)		364,300			843,100			(213,700	)
Income taxes payable		591,000			(1,252,900	)
Income taxes								2,133,200			314,000
Total adjustments		3,915,800			1,679,800			22,363,800			(3,645,400	)
Net cash provided by operating activities		9,022,800			7,802,700
Net cash provided by (used in) operating activities								28,549,900			(1,274,200	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment		(402,200	)		(1,360,500	)		(440,900	)		(234,700	)
Net cash used in investing activities		(402,200	)		(1,360,500	)		(440,900	)		(234,700	)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt		(719,400	)		(702,100	)
Payments of term debt								(9,015,500	)		(472,100	)
Proceeds from term debt								1,447,400			-
Net borrowings under line of credit								-			1,056,100
Cash received from sale of treasury stock		383,400			227,100			90,100			231,000
Cash used to purchase treasury stock		(1,253,700	)		(31,900	)		(75,500	)		(719,600	)
Dividends paid		(1,241,300	)		(818,100	)		(918,600	)		(819,000	)
Net cash used in financing activities		(2,831,000	)		(1,325,000	)		(8,472,100	)		(723,600	)
NET INCREASE IN CASH AND CASH EQUIVALENTS		5,789,600			5,117,200
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS								19,636,900			(2,232,500	)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		3,199,300			2,723,300			2,999,400			3,199,300
CASH AND CASH EQUIVALENTS - END OF PERIOD	$	8,988,900		$	7,840,500		$	22,636,300		$	966,800

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Cash paid for interest	$	693,800		$	704,300		$	343,900		$	465,900
Cash paid for income taxes	$	1,318,000		$	2,859,100		$	309,200		$	448,600

NONCASH INVESTING TRANSACTIONS
Accrued capital expenditures							$	252,000		$	-

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, 2019~~29, 2020 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.

In December 2019, a novel strain of ~~Directors authorized~~coronavirus, known as COVID-19, was reported in Wuhan, China and has since extensively impacted the global health and economic environment. In March 2020, the World Health Organization characterized COVID-19 as a ~~two-for-one stock split~~pandemic, and President Trump declared the COVID-19 outbreak in the ~~form~~United States as a national emergency. The Company has taken numerous steps, and will continue to take further actions, in its approach to minimize the impact of the COVID-19 pandemic. To ensure the well-being of our employees, the Company offered employees in our office the ability to work from home on a ~~stock dividend.~~temporary basis; we instructed employees in our warehouse and office to take their temperature at the start of every shift; we requested employees forgo any in-person meetings and instead opt to utilize virtual meeting spaces; and we published and continually updated our employees on the most recent developments related to COVID-19 and best practices for safety and health in the office, warehouse and at home. We are closely monitoring the impact of the COVID-19 pandemic and continually assessing its potential effects on our business. On April 16, 2020, the Company entered into a loan with MidFirst Bank as the lender in an aggregate principal amount of $1.4 million pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This loan program provided paycheck protection for our employees from the economic impact to our business due to COVID-19, which was seen most by the decline in our Publishing division’s sales due to the closure of many retail outlets across the country, and in our UBAM division’s School and Library and Book Fair sales due to the closure of many schools nation-wide. The ~~stock dividend~~Company determined the PPP loan was ~~distributed~~no longer needed and therefore repaid the loan in full on ~~August 22, 2018~~May 12, 2020. While the Company did not experience a decrease in net revenues in the first six months of fiscal year 2021 compared with the same period in fiscal year 2020, the severity and duration of the pandemic are uncertain and the extent 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.which our results are affected by COVID-19 cannot be accurately predicted.

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, 2019~~29, 2020 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:

In February 2016, FASB issued ASU 2016-02, 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 provide an additional (and optional) transition method whereby the new lease standard is applied at the adoption date and recognized as an adjustment to retained earnings. This ASU requires lessees to recognize a right of use asset and lease liability on the balance sheet for all leases, with 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 on March 1, 2019, and it did not have a material impact on our condensed financial 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. The Company adopted ASU No. 2016-13 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.

In ~~August 2018,~~December 2019, the FASB ~~issued~~published ASU ~~No. 2018-13, Fair Value Measurement~~2019-12: Income Taxes (Topic ~~820). The new guidance modifies disclosure requirements~~740), which simplifies the accounting for income taxes. Topic 740 addresses a number of topics including but not limited to the removal of certain exceptions currently included in the standard related to ~~fair value measurement.~~intra-period allocation when there are losses, in addition to calculation of income taxes when current year-to-date losses exceed anticipated loss for the year. The ~~amendments~~amendment also simplifies accounting for certain franchise taxes and disclosure of the effect of enacted change in ~~this ASU are~~tax laws or rates. Topic 740 is effective for public entities 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 impact of the adoption of ~~this~~the standard has not yet been determined and is being evaluated.

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

	2019						2020
	November 30,			February 28,			August 31,			February 29,
Current:
Book inventory	$	30,041,900		$	33,494,200		$	31,067,700		$	30,346,900
Inventory valuation allowance		(368,100	)		(48,600	)		(504,300	)		(259,600	)
Inventories net - current	$	29,673,800		$	33,445,600
Inventories net – current							$	30,563,400		$	30,087,300

Noncurrent:
Book inventory	$	1,188,600		$	904,400		$	578,600		$	1,226,500
Inventory valuation allowance		(272,700	)		(329,400	)		(126,600	)		(209,800	)
Inventories net - noncurrent	$	915,900		$	575,000
Inventories net – noncurrent							$	452,000		$	1,016,700

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

Significant portions of our inventory purchases are concentrated with an England-based publishing company, Usborne Publishing, Ltd. (“Usborne”). Purchases received from this company were approximately ~~$4.2~~$7.3 million and $6.0 million for the three months ended August 31, 2020 and 2019, respectively. Total inventory purchases received from all suppliers were $12.4 million and $8.0 million for the three months ended ~~November 30,~~August 31, 2020 and 2019, respectively.

Purchases received from Usborne were approximately $11.3 million and ~~2018,~~$11.9 million for the six months ended August 31, 2020 and 2019, respectively. Total inventory purchases received from all suppliers were ~~$6.9~~$18.2 million and ~~$10.1~~$17.2 million for the ~~three~~six months ended ~~November 30,~~August 31, 2020 and 2019, ~~and 2018, respectively.~~

Purchases from Usborne were approximately $16.1 million and $23.5 million for the nine months ended November 30, 2019 and 2018, respectively. Total inventory purchases from all suppliers were $24.1 million and $31.7 million for the nine months ended November 30, 2019 and 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,~~August 31, 2020, are as follows:

Year ending February 28 (29),
2020	$	3,200
Year ending February 28 (29),
2021		13,200		$	6,700
2022		13,700			13,700
2023		14,200			14,200
2024		8,400			8,400
Total future minimum rental payments		52,700			43,000
Present value discount		(4,800	)		(3,200	)
Total operating lease liability	$	47,900		$	39,800

The following table provides further information about our operating leases ~~as of and for the nine months ended November 30, 2019:~~reported in our condensed financial statements:

~~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:

Year ending February 28 (29),
2020	$	373,600
2021		1,509,300	$	766,800
2022		1,539,800		1,556,100
2023		1,570,800		1,587,400
2024		1,575,500		1,592,500
2025				1,562,000
Thereafter		10,859,200		9,694,300
Total	$	17,428,200	$	16,759,100

The cost of the leased space was approximately ~~$10,809,700~~$10,806,300 and ~~$10,359,900~~$10,789,500 as of ~~November 30, 2019~~August 31, 2020 and February ~~28, 2019,~~29, 2020, respectively. The accumulated depreciation associated with the leased assets was ~~$1,751,100~~$2,020,000 and ~~$1,233,400~~$1,828,900 as of ~~November 30, 2019~~August 31, 2020 and February ~~28, 2019,~~29, 2020, respectively. Both the leased assets and accumulated depreciation are included in property, plant and equipment-net on the condensed balance sheets.

	2019						2020
	November 30,			February 28,			August 31,			February 29,

Line of credit	$	-		$	-		$	-		$	-


Long-term debt	$	19,057,200		$	19,776,600		$	11,243,600		$	18,811,700
Less current maturities		(1,053,600	)		(945,900	)		(522,000	)		(1,027,400	)
Long-term debt, net of current maturities	$	18,003,600		$	18,830,700		$	10,721,600		$	17,784,300

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 ~~$11.6 million and Tranche B totaling $4.3~~$11.2 million as of ~~November 30, 2019, both~~August 31, 2020, 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~~Term Loan #1 is secured by the primary office, warehouse and land.

The Loan Agreement also provides a $10.0 million revolving loan (“line of credit”) through August 15, 2021, which is limited to advance rates on eligible receivables and eligible inventory levels. Interest is payable monthly at the greater of 2.75% or the bank adjusted LIBOR Index plus a tiered pricing rate based on the Company’s Adjusted Funded Debt to EBITDA Ratio ~~(3.99%~~(2.75% at ~~November 30, 2019)~~August 31, 2020). ~~Term Loan #1 is secured by the primary office, warehouse and land.~~

~~We also have Term~~On August 15, 2020, the Company executed the Eleventh Amendment Loan #2Agreement with the Bank ~~totaling $3.1 million as of November 30, 2019, with~~related to our Loan Agreement. The amendment modifies the ~~maturity~~Loan Agreement, extending the termination 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 (3.99% at November 30, 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, 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 (3.99% at November 30, 2019).

~~Tranche B of Term Loan #1, Term Loan #2 and~~ the line of credit ~~accrue interest at a tiered~~to August 15, 2021, reducing the maximum revolving principal amount from $15.0 million to $10.0 million, and amending the definition of the LIBOR and Prime rate, ~~based on our~~ establishing that the rate charged, including the LIBOR Margin or Prime Margin, shall never be less than 2.75%.

Adjusted Funded Debt tois defined as all long-term and short-term bank debt less the outstanding balances of Tranche A. EBITDA ~~Ratio, which~~ is ~~payable monthly.~~defined in the Loan Agreement as earnings before interest expense, income tax expense (benefit) and depreciation and amortization expenses, reduced by rental income. 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, 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~~line of credit ~~agreement~~ at ~~November 30, 2019~~August 31, 2020 and February ~~28, 2019.~~29, 2020. Available credit under the revolving ~~credit agreement was $11,210,700 and $12,439,300 at November 30, 2019 and February 28, 2019, respectively.~~

On June 15, 2018, the Company executed the Eighth Amendment Loan Agreement with the Bank related to our Loan Agreement. The amendment modified the Loan Agreement, extending the termination date until August 15, 2019, reduced the interest rate pricing grid for all floating rate borrowings covered by the Loan Agreement, established a new $3,000,000 advancing term loan to be used for capital expansions to increase daily shipping capacity, released the personal Guaranty of Randall W. White and 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 towas approximately $8.4 million and $11.0 million at August ~~15,~~31, 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.~~February 29, 2020, respectively.

The Loan Agreement contains a provision for our use of the Bank’s letters of credit. The Bank agrees to issue or obtain issuance of commercial or stand-by letters of credit provided that no letters of credit will have an expiry date later than August 15, ~~2020,~~2021, 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. As of ~~November 30, 2019,~~August 31, 2020, we had no letters of credit outstanding.

On April 16, 2020, the Company entered into a loan with the Bank of approximately $1.4 million pursuant to the PPP under the CARES Act. The PPP Loan ~~Agreement contains provisions that require us~~had a fixed interest rate of 1.00%, with principal and interest payments starting December 1, 2020 and a scheduled maturity date of May 1, 2022. The Company determined the PPP loan was no longer needed and repaid the loan in full, including interest accrued to ~~maintain specified financial ratios; restricts transactions with related parties; prohibits mergers~~date, on May 12, 2020.

On June 3, 2020, the Company paid off the remaining balance of the $4.0 million Term Loan #2 which originated on June 28, 2016. The final payment, including accrued interest, totaled $2.9 million. There were no additional fees or ~~consolidation; disallows~~penalties resulting from the payoff of Term Loan #2.

On August 4, 2020, the Company paid off the remaining balance of the $5.0 million Term Loan #1 Tranche B which originated on March 10, 2016. The final payment, including accrued interest, totaled $4.2 million. There were no additional ~~debt; and limits~~fees or penalties resulting from the ~~amount~~payoff of ~~investments, capital expenditures and leasing transactions we can make on a quarterly basis. Additionally, the~~Term Loan ~~Agreement places limitations on the amount of dividends that may be distributed and the total value of stock that can be repurchased.~~ #1 Tranche B.

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

Year ending February 28 (29),
2020	$	256,200
2021		1,067,400	$	256,200
2022		1,114,600		533,400
2023		1,161,600		556,700
2024		1,210,600		581,000
2025				605,300
Thereafter		14,246,800		8,711,000
Total	$	19,057,200	$	11,243,600

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 August 31,				Six Months Ended August 31,
	2019		2018		2019		2018		2020		2019		2020		2019
Earnings per share:
Earnings:
Net earnings applicable to common shareholders	$	2,735,800	$	2,815,600	$	5,107,000	$	6,122,900	$	4,255,000	$	1,007,600	$	6,186,100	$	2,371,200
Shares:

Weighted average shares:
Weighted average shares outstanding-basic		8,406,709		8,194,072		8,301,209		8,185,561		8,354,214		8,312,648		8,353,319		8,248,460
Assumed exercise of options		5,929		7,704		6,287		7,645		-		6,142		-		6,466

Weighted average shares outstanding-diluted		8,412,638		8,201,776		8,307,496		8,193,206		8,354,214		8,318,790		8,353,319		8,254,926

Diluted earnings per share:
Earnings per share:
Basic	$	0.33	$	0.34	$	0.62	$	0.75	$	0.51	$	0.12	$	0.74	$	0.29
Diluted	$	0.33	$	0.34	$	0.61	$	0.75	$	0.51	$	0.12	$	0.74	$	0.29

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, 2019. All options outstanding at November 30, 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 or 2021. The number of restricted shares to be distributed depends on attaining the performance metrics defined by the 2019 LTI Plan and ~~2021.~~may result in the distribution of a number of shares that is less than, but not greater than, the number of restricted shares outlined in the terms of the 2019 LTI Plan. Restricted shares granted under the 2019 LTI Plan “cliff vest” after five years.

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

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

During fiscal year 2019, the Company granted ~~approximately~~ 308,000 restricted shares under the 2019 LTI Plan with an average grant-date fair value of $9.94 per share. During the third fiscal quarter of 2020, the Company recognized $166,300 of compensation expense associated with the shares granted in fiscal year 2019. The Company recognized compensation expense totaling $498,800 in the first nine months of fiscal year 2020. The remaining compensation expense for these awards, totaling approximately ~~$2,161,600,~~$1,662,800, will be recognized ratably over the remaining vesting period of approximately 3930 months.

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

The following tables summarizes stock award activity during fiscal year 2021 under the 2019 LTI Plan:

As of August 31, 2020, total unrecognized stock-based compensation expense related to unvested restricted shares was $2,561,400, which we expect to recognize over a weighted-average period of approximately 38.4 months.

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 ~~$6,037,600~~$9,984,600 and ~~$5,897,500~~$3,837,600 for the three months ended ~~November 30,~~August 31, 2020 and 2019, ~~and 2018,~~ respectively. These costs were ~~$14,087,400~~$16,299,900 and ~~$13,556,400~~$8,049,800 for the ~~nine~~six months ended ~~November 30,~~August 31, 2020 and 2019, ~~and 2018,~~ respectively.

We have two reportable segments: Publishing and Usborne Books & More (“UBAM”). 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~~six-month periods ended ~~November 30,~~August 31, 2020 and 2019, ~~and 2018,~~ are as follows:

NET REVENUES	NET REVENUES									NET REVENUES

		Three Months Ended November 30,				Nine Months Ended November 30,					Three Months Ended August 31,				Six Months Ended August 31,
		2019		2018		2019		2018			2020		2019		2020		2019
Publishing		$	2,724,200	$	3,161,300	$	7,766,300	$	8,073,000		$	2,338,500	$	2,702,800	$	3,704,000	$	5,042,100
UBAM			38,100,400		37,321,300		85,083,700		87,112,900			56,911,600		21,735,200		93,837,800		46,983,300
Total		$	40,824,600	$	40,482,600	$	92,850,000	$	95,185,900		$	59,250,100	$	24,438,000	$	97,541,800	$	52,025,400

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 August 31,						Six Months Ended August 31,
		2019			2018			2019			2018				2020			2019			2020			2019
Publishing		$	832,900		$	998,800		$	2,253,300		$	2,141,800			$	738,800		$	784,700		$	1,085,400		$	1,420,400
UBAM			6,501,200			6,459,800			14,358,500			15,835,800				9,662,600			3,488,300			15,489,700			7,857,300
Other			(3,498,400	)		(3,654,400	)		(9,562,900	)		(9,642,000	)			(4,601,900	)		(2,906,300	)		(8,131,700	)		(6,064,500	)
Total		$	3,835,700		$	3,804,200		$	7,048,900		$	8,335,600			$	5,799,500		$	1,366,700		$	8,443,400		$	3,213,200

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 term notes payable is estimated by management to approximate ~~$19,086,000~~$11,710,500 and ~~$19,123,700~~$19,155,500 at ~~November 30, 2019~~August 31, 2020 and February ~~28, 2019,~~29, 2020, 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.

The Company’s UBAM division receives payments on orders in advance of shipment. Any payments received prior to the end of ~~our fiscal quarter~~the period that were not shipped as of ~~November 30, 2019~~August 31, 2020 or February 29, 2020 are recorded as deferred revenues on the condensed balance ~~sheet.~~sheets. We received approximately ~~$494,800~~$1,228,400 and $385,300 at ~~November 30, 2019~~August 31, 2020 and February 29, 2020 in payments for sales orders which were, or will be, shipped out subsequent to the ~~quarter end.~~end of the period. Orders that were included in deferred revenues predominantly shipped within the first few days of the next fiscal ~~quarter.~~period.

On ~~January 7,~~October 6, 2020, our Board of Directors declared a distribution of ~~$0.05~~$0.10 per share of common stock. This cash distribution will be paid on or about ~~March 12,~~December 8, 2020 to shareholders of record on ~~February 25,~~November 19, 2020.

Item 2. ~~MANAGEMENT~~’SMANAGEMENT’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 backlogs, our ability to obtain adequate financing for working capital and capital expenditures, economic and competitive conditions, regulatory changes and other uncertainties, the COVID-19 pandemic, as well as those factors discussed below and elsewhere in our Annual Report on Form 10-K for the year ended February ~~28, 2019~~29, 2020 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; 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 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 August 31,						Six Months Ended August 31,
	2019			2018			2019			2018			2020			2019			2020			2019
Net revenues	$	40,824,600		$	40,482,600		$	92,850,000		$	95,185,900		$	59,250,100		$	24,438,000		$	97,541,800		$	52,025,400
Cost of goods sold		13,279,900			13,141,600			30,382,500			31,274,000			17,309,500			8,046,400			28,705,000			17,102,600
Gross margin		27,544,700			27,341,000			62,467,500			63,911,900			41,940,600			16,391,600			68,836,800			34,922,800

Operating expenses
Operating and selling		6,513,500			6,540,600			15,089,900			14,554,400			10,531,900			4,192,500			16,872,100			8,576,400
Sales commissions		13,008,600			12,689,200			28,804,700			29,375,300			20,304,400			7,263,100			33,904,900			15,796,100
General and administrative		4,373,500			4,476,000			12,029,300			12,106,900			5,664,000			3,717,600			10,200,000			7,655,800
Total operating expenses		23,895,600			23,705,800			55,923,900			56,036,600			36,500,300			15,173,200			60,977,000			32,028,300

Interest expense		216,500			228,600			691,000			712,000			140,000			242,500			322,200			474,500
Other income		(403,100	)		(397,600	)		(1,196,300	)		(1,172,300	)		(499,200	)		(390,800	)		(905,800	)		(793,200	)
Earnings before income taxes		3,835,700			3,804,200			7,048,900			8,335,600			5,799,500			1,366,700			8,443,400			3,213,200

Income taxes		1,099,900			988,600			1,941,900			2,212,700			1,544,500			359,100			2,257,300			842,000
Net earnings	$	2,735,800		$	2,815,600		$	5,107,000		$	6,122,900		$	4,255,000		$	1,007,600		$	6,186,100		$	2,371,200

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~~~~, 2019~~August 31, 2020

Total operating expenses not associated with a reporting segment ~~decreased $0.1~~increased $1.9 million, or ~~2.6%~~61.3%, to ~~$3.7~~$5.0 million for the three-month period ended ~~November 30, 2019,~~August 31, 2020, compared to ~~$3.8~~$3.1 million for the same quarterly period a year ago. Operating expenses ~~decreased~~increased primarily as a result of ~~operational efficiencies gained primarily from reduced~~$0.9 million increase in labor in our warehouse ~~during~~for the ~~quarter.~~addition of a second full shift and a $0.7 million increase in freight handling costs due to the increase in order volumes.

Interest expense ~~remained consistent at $0.2~~decreased $0.1 million, or 50.0%, to $0.1 million for the three months ended ~~November 30, 2019,~~August 31, 2020, when compared to $0.2 million for the same quarterly period a year ~~ago.~~ago as a result of the payoff of two long-term notes during the second quarter of fiscal year 2021.

Income taxes increased ~~$0.1~~$1.1 million, or ~~10%~~275.0%, to ~~$1.1~~$1.5 million for the three months ended ~~November 30, 2019,~~August 31, 2020, from ~~$1.0~~$0.4 million for the same quarterly period a year ago. Our effective tax rate ~~increased 2.7%~~remained consistent, increasing 0.3%, to ~~28.7%~~26.6% for the quarter ended ~~November 30, 2019,~~August 31, 2020, from ~~26.0%~~26.3% for the quarter ended ~~November 30, 2018. Our effective tax rate increased due to a fluctuation in sales mix between states.~~August 31, 2019. Our tax rates are higher than the federal statutory rate of 21% due to the inclusion of state income and franchise taxes.

Non-Segment Operating Results for the ~~Nine~~Six Months Ended ~~November 30~~~~, 2019~~August 31, 2020

Total operating expenses not associated with a reporting segment ~~remained consistent at $10.1~~increased $2.3 million, or 35.9%, to $8.7 million for the ~~nine-month~~six-month period ended ~~November 30, 2019,~~August 31, 2020, compared to ~~$10.1~~$6.4 million for the same period a year ago. Operating expenses increased primarily as a result of $1.1 million increase in labor in our warehouse for the addition of a full second shift and a $0.9 million increase in freight handling costs due to the increase in order volumes.

Interest expense ~~remained consistent at $0.7~~decreased $0.2 million, or 40%, to $0.3 million for the ~~nine~~six months ended ~~November 30, 2019 and~~August 31, 2020, when compared to $0.5 million for the same period a year ~~ago.~~ago as a result of the payoff of two long-term debt agreements during the second quarter of fiscal year 2021.

Income taxes ~~decreased $0.3~~increased $1.5 million, or ~~13.6%~~187.5%, to ~~$1.9~~$2.3 million for the ~~nine~~six months ended ~~November 30, 2019,~~August 31, 2020, from ~~$2.2~~$0.8 million for the same period a year ago. Our effective tax rate ~~increased 1.0%~~remained consistent, increasing by 0.5%, to ~~27.5%~~26.7% for the ~~nine~~six months ended ~~November 30, 2019,~~August 31, 2020, from ~~26.5%~~26.2% for the ~~nine~~six months ended ~~November 30, 2018. Our effective tax rate increased due to a fluctuation in sales mix between states.~~August 31, 2019. Our tax rates are higher than the federal statutory rate of 21% due to the inclusion of state income and franchise taxes.

UBAM Operating Results for the Three and ~~Nine~~Six Months Ended ~~November 30~~,August 31, 2020 and 2019

	Three Months Ended November 30,						Nine Months Ended November 30,						Three Months Ended August 31,						Six Months Ended August 31,
	2019			2018			2019			2018			2020			2019			2020			2019
Gross sales	$	47,974,800		$	46,881,300		$	106,219,100		$	108,524,300		$	68,868,300		$	26,815,500		$	112,814,400		$	58,244,300
Less discounts and allowances		(13,469,600	)		(13,120,200	)		(29,298,200	)		(29,915,300	)		(18,828,400	)		(7,208,700	)		(30,135,100	)		(15,828,600	)
Transportation revenue		3,595,200			3,560,200			8,162,800			8,503,900			6,871,700			2,128,400			11,158,500			4,567,600
Net revenues		38,100,400			37,321,300			85,083,700			87,112,900			56,911,600			21,735,200			93,837,800			46,983,300

Cost of goods sold		11,830,100			11,489,700			26,317,100			26,945,600			16,129,700			6,688,200			26,818,300			14,487,000
Gross margin		26,270,300			25,831,600			58,766,600			60,167,300			40,781,900			15,047,000			67,019,500			32,496,300

Operating expenses
Operating and selling		5,599,200			5,551,000			12,690,500			12,017,300			9,137,600			3,448,300			14,563,900			7,091,300
Sales commissions		12,912,200			12,588,200			28,511,700			29,095,600			20,249,400			7,159,200			33,809,800			15,599,500
General and administrative		1,257,700			1,232,600			3,205,900			3,218,600			1,732,300			951,200			3,156,100			1,948,200
Total operating expenses		19,769,100			19,371,800			44,408,100			44,331,500			31,119,300			11,558,700			51,529,800			24,639,000

Operating income	$	6,501,200		$	6,459,800		$	14,358,500		$	15,835,800		$	9,662,600		$	3,488,300		$	15,489,700		$	7,857,300

Average number of active consultants		33,600			30,200			32,900			32,700			45,400			33,600			39,300			32,600

UBAM Operating Results for the Three Months Ended ~~November 30~~~~, 2019~~August 31, 2020

UBAM net revenues increased ~~$0.8~~$35.2 million, or ~~2.1%~~162.2%, to ~~$38.1~~$56.9 million during the three months ended ~~November 30, 2019, as~~August 31, 2020, compared to ~~$37.3~~$21.7 million during the same period a year ago. The average number of active consultants in the ~~third~~second quarter of fiscal ~~2020~~2021 was ~~33,600,~~45,400, an increase of ~~3,400,~~11,800, or ~~11.3%~~35.1%, from ~~30,200~~33,600 average active consultants selling in the ~~third~~second quarter of fiscal ~~2019. During~~2020. The Company reports the average number of active consultants each quarter as a key indicator for this division. Furthermore, during the second quarter of fiscal 2021 this division experienced significant growth in active consultants, beginning in June with 36,900 active consultants and ending in August with over 50,300 active consultants. UBAM's increase in active consultants resulted from several factors including: an increase in families looking for non-traditional income streams to supplement or replace income lost from the COVID-19 pandemic, a change in new consultant kits which offered lower introductory prices, the restructure of our ~~annual convention~~UBAM consultant success program, which was introduced during the first quarter of fiscal 2021, and technology improvements that have enhanced the customer experience and streamlined the proprietary systems that our consultants use to run their business. The Company announced monthly sales and active consultant numbers during the quarter, and shortly after quarter end to keep investors informed of the significant changes in ~~late June this year, we announced a UBAM 30~~^th ~~Anniversary Recruiting Special which~~volumes. Our increase in active consultants and our ability to receive orders online and deliver directly to our customers’ homes resulted in ~~the signing of over 10,000 new active consultants~~our increased revenues during the ~~five-week recruiting special. These new consultants contributed to our growth compared to the prior period.~~quarter.

Gross margin increased ~~$0.5~~$25.8 million, or ~~1.9%~~172.0%, to ~~$26.3~~$40.8 million during the three months ended ~~November 30, 2019, as~~August 31, 2020, compared to ~~$25.8~~$15.0 million during the same period a year ago. Gross margin as a percentage of net revenues ~~remained consistent, decreasing 0.2%~~increased 2.5% to ~~69.0%~~71.7% for the three-month period ended ~~November 30, 2019~~August 31, 2020 when compared to 69.2% the same period a year ago. The increase in gross margin as a percentage of net revenues was due to the change in mix of order types received during the quarter. During the quarter web sales, which have the lowest discounts and pay the highest commissions, increased significantly while book fairs, school and library sales and other in-person sales types declined year over year, due to the quarantining effects of the COVID-19 pandemic. The increase in web sales and decrease in in-person sales also resulted in overall higher sales commissions as a percentage of net revenue during the quarter. The overall net profit impact of the order type mix change after selling expenses, commissions and direct operating expenses was considered by management to be minimal.

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 ~~$0.4~~$19.5 million, or ~~2.1%~~168.1%, to ~~$19.8~~$31.1 million during the three-month period ended ~~November 30, 2019,~~August 31, 2020, when compared to ~~$19.4~~$11.6 million reported in the same quarter a year ago. 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~~$5.7 million, to ~~$12.9~~$9.1 million, during the three-month period ended ~~November 30, 2019,~~August 31, 2020, when compared to ~~$12.6~~$3.4 million reported in the same quarter a year ago, primarily due to an increase in postage and freight costs of $5.5 million and an increase in accruals for trips and other consultant rewards of $0.2 million, both associated with increased UBAM sales. Sales commissions increased $13.0 million, to $20.2 million, during the three-month period ended August 31, 2020, when compared to $7.2 million reported in the same quarter a year ago, due primarily to the increase in ~~sales.~~sales volume and the increase in internet-based sales, which offer fewer discounts and higher sales commissions to consultants. General and administrative expenses increased ~~$0.1~~$0.7 million to ~~$1.3 million, from $1.2~~$1.7 million during the three months ended ~~November 30, 2019 when~~August 31, 2020, compared to $1.0 million during the same period last year. This increase was primarily due to $0.6 million of increased credit card transaction fees associated with increased sales volumes.

Operating income of the UBAM segment ~~remained consistent at $6.5~~increased $6.2 million, or 177.1%, to $9.7 million during the three months ended ~~November 30, 2019 and~~August 31, 2020, when compared to $3.5 million reported in the same quarter a year ago, primarily due to the growth in net revenues. Operating income of the UBAM division as a percentage of net revenues for the ~~same period last year.~~three months ended August 31, 2020 was 17.0%, compared to 16.0% for the three months ended August 31, 2019, a change of 1.0%, or approximately $0.6 million. Operating income as a percentage of net revenues changed from the prior year primarily due to the positive impact of the change of our annual UBAM convention to “virtual” from an in-person event totaling approximately $0.5 million.

UBAM Operating Results for the ~~Nine~~Six Months Ended ~~November 30~~~~, 2019~~August 31, 2020

UBAM net revenues ~~decreased $2.0~~increased $46.8 million, or ~~2.3%~~99.6%, to ~~$85.1~~$93.8 million during the ~~nine-month~~six-month period ended ~~November 30, 2019, as~~August 31, 2020, compared to ~~$87.1~~$47.0 million from the same period a year ago. The ~~reduced~~increase in net revenues ~~were primarily attributed~~resulted from the increase in the average number of active consultants of 6,700, or 20.6%, to 39,300 during the first six months of fiscal year 2021, and the overall increase in consultants to 50,300 by the end of August 2020, from an average number of active consultants of 32,600 in the first six months of fiscal year 2020. UBAM's increase in active consultants resulted from several factors including: an increase in families looking for non-traditional income streams to supplement or replace income lost from the COVID-19 pandemic, a change in new consultant kits which offered lower introductory prices, the restructure of our UBAM consultant success program, which was introduced during the first quarter of fiscal ~~2020 when we had fewer~~2021, and technology improvements that have enhanced the customer experience and streamlined the proprietary systems that our consultants use to run their business. The Company began announcing monthly sales and active ~~sales consultants than the comparable quarter~~consultant numbers starting in May of fiscal year 2021 to keep investors informed of the ~~prior year.~~significant changes in net revenues and active consultant volumes. Along with the significant increases in active consultants during the first six months of fiscal year 2021, we experienced a significant increase in demand for educational materials in homes. Our increase in active consultants and our ability to receive orders online and deliver directly to our customers’ homes resulted in our increased revenues.

Gross margin ~~decreased $1.4~~increased $34.5 million, or ~~2.3%~~106.2%, to ~~$58.8~~$67.0 million during the ~~nine-month~~six-month period ended ~~November 30, 2019,~~August 31, 2020, when compared to ~~$60.2~~$32.5 million during the same period a year ago, due primarily to ~~a decrease~~an increase in net revenues. Gross margin as a percentage of net revenues ~~stayed consistent at 69.1%~~increased to 71.4% for the ~~nine-month periods~~six-month period ended ~~November 30, 2019~~August 31, 2020, when compared to 69.2% for the same period a year ago. During the first six months, web sales, which have the lowest discounts and ~~2018.~~pay the highest commissions, increased significantly while book fairs, school and library sales and other in-person sales types declined year over year, due to the quarantining effects of the COVID-19 pandemic. While the increase in web sales and decrease in in-person sales resulted in overall higher gross margin percentages during the first six months of fiscal year 2021, these higher gross margins were offset by higher sales commissions and increased direct operating expenses of the division. The overall net profit impact of the order type mix change after selling expenses, commissions and direct operating expenses was minimal.

~~Operating~~Total operating expenses increased ~~$0.1~~$26.9 million, or 109.3%, to ~~$44.4~~$51.5 million during the ~~nine-month~~six-month period ended ~~November 30, 2019~~August 31, 2020, from ~~$44.3~~$24.6 million for the same period a year ago. Operating and selling expenses increased ~~$0.7~~$7.5 million, to ~~$12.7~~$14.6 million during the ~~nine-month~~six-month period ended ~~November 30, 2019,~~August 31, 2020, when compared to ~~$12.0~~$7.1 million reported in the same period a year ago, primarily due to increased postage and freight costs of $7.4 million associated with the increase in volume of orders shipped. Sales commissions increased $18.2 million to $33.8 million during the six-month period ended August 31, 2020, when compared to $15.6 million reported in the same period a year ago, due primarily to ~~increased freight costs~~the increase in ~~the current year. Sales~~internet-based sales, which offer fewer discounts and higher sales commissions ~~decreased $0.6 million~~ to ~~$28.5 million during the 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.~~consultants. General and administrative expenses ~~remained consistent at~~increased $1.3 million to $3.2 million, ~~for~~from $1.9 million recognized during the ~~nine months ended November 30, 2019 and 2018.~~same period last year, due primarily to $1.1 million of increased credit card transaction fees associated with increased sales volumes.

Operating income of the UBAM segment ~~decreased $1.4~~increased $7.6 million, or ~~8.9%~~96.2%, to ~~$14.4~~$15.5 million during the ~~nine-month period~~six months ended ~~November 30, 2019,~~August 31, 2020, when compared ~~with $15.8~~to $7.9 million ~~from~~reported in the same period last year. Operating income of the UBAM division as a ~~year ago. The decrease in operating~~percentage of net revenues for the six months ended August 31, 2020 was 16.5%, compared to 16.7% for the six months ended August 31, 2019, a change of 0.2%, or $0.2 million. Operating income ~~was~~as a percentage of net revenues changed from the prior year primarily due to increased postage and freight expenses as a ~~decrease in~~percentage of net ~~revenues.~~revenues totaling approximately $0.8 million, partially offset by the positive impact of the change to a “virtual” convention totaling approximately $0.5 million.

Publishing Operating Results for the Three and ~~Nine~~Six Months Ended ~~November 30~~,August 31, 2020 and 2019

	Three Months Ended November 30,						Nine Months Ended November 30,						Three Months Ended August 31,						Six Months Ended August 31,
	2019			2018			2019			2018			2020			2019			2020			2019
Gross sales	$	5,645,100		$	6,604,700		$	16,416,200		$	17,050,100		$	4,814,500		$	5,726,200		$	7,765,300		$	10,771,100
Less discounts and allowances		(2,936,900	)		(3,452,400	)		(8,680,700	)		(9,003,400	)		(2,535,000	)		(3,032,300	)		(4,124,200	)		(5,743,800	)
Transportation revenue		16,000			9,000			30,800			26,300			59,000			8,900			62,900			14,800
Net revenues		2,724,200			3,161,300			7,766,300			8,073,000			2,338,500			2,702,800			3,704,000			5,042,100

Cost of goods sold		1,449,800			1,651,900			4,065,400			4,328,400			1,179,800			1,358,200			1,886,700			2,615,600
Gross margin		1,274,400			1,509,400			3,700,900			3,744,600			1,158,700			1,344,600			1,817,300			2,426,500

Total operating expenses		441,500			510,600			1,447,600			1,602,800			419,900			559,900			731,900			1,006,100

Operating income	$	832,900		$	998,800		$	2,253,300		$	2,141,800		$	738,800		$	784,700		$	1,085,400		$	1,420,400

Publishing Operating Results for the Three Months Ended ~~November 30~~~~, 2019~~August 31, 2020

Our Publishing division’s net revenues decreased ~~$0.5~~$0.4 million, or ~~15.6%~~14.8%, to ~~$2.7~~$2.3 million during the three-month period ended ~~November 30, 2019,~~August 31, 2020, from ~~$3.2~~$2.7 million reported in the same period a year ago. ~~This~~The decrease in sales resulted from ~~a sales promotion with one~~temporary store closures impacted by the COVID-19 pandemic. Many Publishing customers temporarily closed during our fiscal year 2021 first quarter, following the guidance from their local authorities to prevent the spread of ~~our largest customers that impacted~~ the ~~third quarter last fiscal year. This customer did not~~pandemic, and have ~~a similar promotion in~~begun reopening at varying times over the ~~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.~~past few months.

Gross margin decreased ~~$0.2~~$0.1 million, or ~~13.3%~~7.7%, to ~~$1.3~~$1.2 million during the three-month period ended ~~November 30, 2019,~~August 31, 2020, from ~~$1.5~~$1.3 million reported in the same quarter a year ago, primarily due to the decrease in net revenues. Gross margin as a percentage of net revenues remained consistent, decreasing ~~0.9%~~0.2%, to ~~46.8%~~49.5% during the three-month period ended ~~November 30, 2019,~~August 31, 2020, from ~~47.7%~~49.7% reported in the same quarter a year ago. Gross margin as a percentage of net revenues fluctuates primarily from the different discount levels offered to customers.

Total operating expenses of the Publishing segment decreased ~~$0.1~~$0.2 million, or ~~20.0%~~33.3%, to $0.4 million during the three-month period ended ~~November 30, 2019,~~August 31, 2020, from ~~$0.5~~$0.6 million reported in the same quarter a year ~~ago.~~ago, primarily from $0.1 million in reduced exhibits and trade show expenses. Many trade shows and exhibits were cancelled during the second quarter of fiscal 2021 in response to the spread of the COVID-19 pandemic.

Operating income of the Publishing segment decreased ~~$0.2~~$0.1 million, or ~~20.0%~~12.5%, to ~~$0.8~~$0.7 million during the three-month period ended ~~November 30, 2019~~August 31, 2020 when compared to ~~$1.0~~$0.8 million reported in the same period a year ago, due primarily to the decrease in net revenues.

Publishing Operating Results for the ~~Nine~~Six Months Ended ~~November 30~~~~, 2019~~August 31, 2020

Our Publishing division’s net revenues decreased ~~$0.3~~$1.3 million, or ~~3.7%~~26.0%, to ~~$7.8~~$3.7 million during the ~~nine-month~~six-month period ended ~~November 30, 2019,~~August 31, 2020, from ~~$8.1~~$5.0 million reported in the same period a year ago. The decrease in sales resulted from temporary store closures impacted by the COVID-19 pandemic. Many Publishing customers temporarily closed during our fiscal year 2021 first quarter, following the guidance from their local authorities to prevent the spread of the pandemic, and have begun reopening at varying times over the past few months.

Gross margin decreased $0.6 million, or 25.0%, to $1.8 million during the six-month period ended August 31, 2020, from $2.4 million reported in the same period a year ago, primarily ~~from~~due to 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~~decrease in ~~the same period a year ago.~~net revenues. Gross margin as a percentage of net revenues increased ~~1.3%~~1.0%, to ~~47.7%~~49.1%, during the ~~nine-month~~six-month period ended ~~November 30, 2019,~~August 31, 2020, from ~~46.4%~~48.1% reported in the same period a year ago. The increase in gross margin ~~resulted~~percentage results primarily from a change in our customer ~~mix, as certain sales agreements with specific customers have higher gross margin~~mix. Customers receive varying discounts due to ~~lower discounts,~~sales volumes and ~~a change in product mix, as different products have higher gross margin due to lower product costs.~~contract terms.

Total operating expenses of the Publishing segment decreased ~~$0.2~~$0.3 million ~~or 12.5%,~~ to ~~$1.4~~$0.7 million during the ~~nine-month~~six-month period ended ~~November 30, 2019,~~August 31, 2020, from ~~$1.6~~$1.0 million reported in the same period a year ~~ago. This~~ago, resulting from a $0.1 million decrease ~~primarily resulted~~in postage and freight from a decrease in ~~freight~~sales volumes, a $0.1 million decrease in sales commissions from ~~lower~~a decrease in sales volumes, and ~~less promotions~~a $0.1 million decrease in exhibits and ~~marketing expenses incurred~~trade show expenses.

Operating income of the Publishing segment decreased $0.3 million, or 21.4%, to $1.1 million during the ~~first nine months of fiscal~~six-month period ended August 31, 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~~$1.4 million reported in the same period a year ~~ago. The increase~~ago, due primarily to the decrease in ~~operating income was due to increased sales from customers with lower discounts and decreased operating expenses.~~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 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.

During the first ~~nine~~six months of fiscal ~~2020,~~2021, we ~~experienced~~generated positive cash ~~inflow~~flows from our operations of ~~$9,022,800. Cash~~$28,549,900. These cash flows resulted ~~from the following items:~~from:

Cash used in investing activities was ~~$402,200~~$440,900 for capital expenditures, which ~~was~~were primarily comprised of ~~improvements to upgrade our e-commerce and consultant facing websites used in~~software upgrades that our UBAM ~~division.~~consultants use to monitor their business and place customer orders and equipment purchased to increase our daily shipping capacity.

Cash used in financing activities was ~~$2,831,000,~~$8,472,100, which was ~~primarily~~ comprised of ~~$1,241,300 of dividends paid, $870,300~~ net cash used to pay down term debt of $7,568,100, payments of $918,600 for dividends, offset by $14,600 net cash received in treasury stock ~~transactions, and payments on long-term debt of $719,400.~~transactions.

During fiscal year ~~2020,~~2021, we continue to expect our cash from operations, along with our line of credit ~~with~~and any additional equipment financing needed from our Bank, will provide us the ability to meet our liquidity requirements. Cash generated from operations will be used to replace inventory, to liquidate existing debt and any excess cash is expected to be distributed to our shareholders or used to purchase available shares on the market.

We have a Loan Agreement with the Bank, ~~including~~ Term Loan #1 ~~comprised of~~ Tranche A totaling ~~$11.6 million and Tranche B totaling $4.3~~$11.2 million as of ~~November 30, 2019, both~~August 31, 2020, with ~~the~~a 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 totaling $3.1 million as of November 30, 2019, which is secured by~~ a ~~warehouse and land with the maturity date of June 28, 2021, and a $15.0~~$10.0 million line of credit through August 15, ~~2020.~~

~~On June 15, 2018,~~2021. The line of credit accrues interest monthly, at the ~~Company executed~~bank adjusted LIBOR Index plus a tiered pricing rate based on the 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 of Randall W. White and Carol White, along with other covenant restrictions being lessened. The amendment also included an adjustment to theCompany’s Adjusted Funded Debt to EBITDA ~~ratio for covenant compliance.~~Ratio. The Loan Agreement maintains a minimum rate on borrowings of 2.75%, should the calculated rate of the LIBOR Index plus the tiered pricing rate fall below this level.

OnWe had no borrowings on our line of credit at August 31, 2020 and February ~~7, 2019,~~29, 2020. Available credit under the ~~Company executed~~revolving loan was $8.4 million at August 31, 2020.

During the ~~Ninth Amendment~~second quarter of fiscal year 2021, we paid off Loan Agreement Term Loan #1 Tranche B totaling $4.2 million, which ~~removed the covenant prohibiting the Company~~previously had a maturity date of December 1, 2025. In addition, we also paid off Term Loan #2 totaling $2.9 million, which previously had a maturity date of June 28, 2021. The purpose of paying off these loans early was to utilize our existing cash flows from ~~repurchasing its shares and identified certain restrictions on the amount of funds that the Company could use~~operations to ~~repurchase~~increase future profits by reducing interest expense, as well as, free up future cash flows to be used to either pay dividends or purchase additional 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, 2019 and February 28, 2019. Available credit under~~ On August 15, 2020, the ~~revolving credit agreement was $11.2 million at November 30, 2019.~~

~~Tranche B~~Company executed the Eleventh Amendment Loan Agreement which extended the termination date of ~~Term Loan #1, Term Loan #2 and~~ the line of credit ~~accrue interest monthly, at~~to August 15, 2021, reduced the ~~bank adjusted~~maximum revolving principal amount from $15.0 million to $10.0 million, and amended the definition of the LIBOR ~~Index plus~~Margin and Prime Margin, establishing a ~~tiered pricing rate based~~floor on the ~~Company’s Adjusted Funded Debt to EBITDA Ratio (3.99% at November 30, 2019)~~borrowing rates of 2.75%.

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, 2019,~~August 31, 2020, we had no letters of credit outstanding. The agreement contains provisions that require us to maintain specified financial ratios, restrict transactions with related parties, prohibit mergers or consolidation, disallow additional debt, and limit the amounts of dividends declared, investments, capital expenditures, leasing transactions, and 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),
2020	$	256,200	$	256,200
2021		1,067,400		533,400
2022		1,114,600		556,700
2023		1,161,600		581,000
2024		1,210,600		605,300
Thereafter		14,246,800		8,711,000
Total	$	19,057,200	$	11,243,600

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 recognized and recorded when products are shipped. Products are shipped FOB shipping point. UBAM’s sales are generally paid at the time the product is ordered. Sales which have been paid for but not shipped are classified as deferred revenue on the balance sheet. Sales associated with consignment inventory are recognized when reported and payment associated with the sale has been remitted. Transportation revenue represents the amount billed to the customer for shipping the product and is recorded when the product is shipped.

Estimated allowances for sales returns are recorded as sales are recognized. Management uses a moving average calculation to estimate the allowance for sales returns. We are not responsible for product damaged in transit. Damaged returns are primarily received from the retail stores of our Publishing Division. Those damages occur in the stores, not in shipping to the stores, and we typically do not offer credit for damaged returns. It is industry practice to accept non-damaged returns from retail customers. Management has estimated and included a reserve for sales returns of $0.2 million as of ~~November 30, 2019~~August 31, 2020 and February ~~28, 2019.~~29, 2020.

We maintain an allowance for estimated losses resulting from the inability of our customers to make required payments and a reserve for vendor share markdowns (collectively “allowance for doubtful accounts”). An estimate of uncollectible amounts is made by management based upon historical bad debts, current customer receivable balances, age of customer receivable balances, customers’ financial conditions and current economic trends. Management has estimated and included an allowance for doubtful accounts of $0.3 million at August 31, 2020, and $0.2 million at ~~November 30, 2019, and $0.3 million at~~ February ~~28, 2019.~~29, 2020. Included within this allowance is $0.1 million of reserve for vendor discounts to sell remaining inventory as of ~~November 30, 2019~~August 31, 2020 and February ~~28, 2019.~~29, 2020.

Our inventory contains over 2,000 titles, each with different sell through rates ~~of sale~~ depending upon the nature and popularity of the title. ~~Almost all of our product line is saleable as the books~~We maintain very few titles that are ~~not~~ topical in ~~nature and~~nature. As such, the majority of the titles we sell remain current in content ~~today as well as in the future.~~for several years. Most of our products are printed in China, Europe, ~~China,~~ Singapore, India, Malaysia and Dubai resulting in a 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~~Inventory in excess of 2 ½ years of anticipated sales is classified as noncurrent inventory. These inventory quantities have exposure of becoming out of date, and therefore have higher obsolescence reserves. During the first six months of fiscal 2021, our sales have increased significantly, which significantly reduced the amount of inventory items with sale-through rates in excess of 2 ½ years. As such, we have reduced the reserve needed for noncurrent inventory obsolescence. Noncurrent inventory balances prior to valuation allowances were $0.6 million and $1.2 million at August 31, 2020 and ~~$0.9~~February 29, 2020, respectively. Noncurrent inventory valuation allowances were $0.1 million and $0.2 million at ~~November 30, 2019~~August 31, 2020 and February ~~28, 2019,~~29, 2020, respectively.

Consultants that meet certain eligibility requirements may request and receive inventory on consignment. We believe allowing our consultants to have consignment inventory greatly increases their ability to be successful in making effective presentations at home shows, book fairs and other events; ~~and~~in summary, having consignment inventory leads to additional sales opportunities. Approximately ~~10.5%~~5.0% of our active consultants maintained consignment inventory at the end of the ~~third~~second quarter of fiscal ~~quarter 2020.~~2021. Consignment inventory is stated at cost, less an estimated reserve for consignment inventory that is not expected to be sold or returned to the Company. The total cost of inventory on consignment with consultants was ~~$1.8~~$1.3 million at ~~November 30, 2019~~August 31, 2020 and $1.5 million at February ~~28, 2019.~~29, 2020. During the quarter, the Company increased its reserve for consignment inventory by approximately $0.2 million based on the estimated impact of the COVID-19 pandemic. Because our consultants are currently limited in their ability to sell consignment inventory at schools, book fairs or fall festivals, we expect more consultants to become inactive in the future, and an increase in the consignment reserve was needed.

Inventories are presented net of a valuation allowance, which includes reserves for inventory obsolescence and reserves for consigned inventory that is not expected to be sold or returned to the Company. Management estimates the inventory obsolescence allowance for both current and noncurrent inventory, which is based on management’s identification of slow-moving inventory. Management has estimated a valuation allowance for both current and noncurrent inventory, including the reserve for consigned inventory, of $0.6 million and ~~$0.4~~$0.5 million as of ~~November 30, 2019~~August 31, 2020 and February ~~28, 2019,~~29, 2020, respectively.

Our principal supplier, based in England, generally requires a minimum re-order of 6,500 or more of a title in order to get a solo print run. Smaller orders would require a shared print run with the supplier’s other customers, which can result in lengthy delays to receive the ordered title. Anticipating customer preferences and purchasing habits requires historical analysis of similar titles in the same series. We then place the initial order or re-order based upon this analysis. These factors and historical analysis have led our management to determine that 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”) contain both service and performance conditions. The Company recognizes share-based compensation expense only for the portion of the restricted share awards that are considered probable of vesting. Shares are considered granted, and the service inception date begins, when a mutual understanding of the key terms and conditions between the Company and the employees have been established. The fair value of these awards is determined based on the closing price of the shares on the grant date. The probability of restricted share awards granted with future performance conditions is evaluated at each reporting period and compensation expense is adjusted based on the probability assessment.

For certain awards that provide discretion to adjust the allocation of the restricted shares, the service-inception date for such awards could precede the grant date as a mutual understanding of the key terms and conditions between the Company and the employees has not yet been established. For awards in which the service-inception date precedes the grant date, compensation cost is accrued beginning on the service-inception date. The Company estimates the award's fair value on each subsequent reporting date, until the grant date, based on the closing market price of the Company’s common stock. On the grant date, the award's fair value is fixed, subject to the remaining performance conditions, and the cumulative amount of previously recognized compensation expense is adjusted to the fair value at the grant date. During the first ~~nine~~six months of fiscal ~~2020,~~2021, the Company recognized ~~$0.5~~$0.4 million of compensation expense associated with the shares granted.

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, 2019.~~August 31, 2020. 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, 2019~~August 31, 2020 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.~~

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.

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

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

	Large accelerated filer ☐	Accelerated filer ☐

	Non-accelerated filer ☒	Smaller reporting company ☒

		Emerging Growth Company ☐

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2223
Item 4.	Controls and Procedures	2223

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	2324
Item 1A.	Risk Factors	2324
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2324
Item 3.	Defaults Upon Senior Securities	2324
Item 4.	Mine Safety Disclosures	2324
Item 5.	Other Information	2324
Item 6.	Exhibits	2324
Signatures		2425

	2020
	August 31,			February 29,
Operating lease assets:
Right-of-use asset	$	39,800		$	45,200

Operating lease liabilities:
Current lease liability	$	13,600		$	13,500
Long-term lease liability	$	26,200		$	31,700

Remaining lease term (months)		37			43
Discount rate		4.60	%		4.60	%

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	300.00
II	>1.50 but <2.00	275.00
III	>1.00 but <1.50	250.00
IV	<1.00	225.00

	Shares		Weighted Average Fair Value (per share)

Outstanding at February 29, 2020		308,000	$	9.94
Granted		151,000		6.30
Vested		-		-
Forfeited		-		-
Outstanding at August 31, 2020		459,000	$	8.74

• ● net earnings of $6,186,100 Adjusted for: ● depreciation expense of $821,100 ● share-based compensation expense of $385,200 ● provision for inventory valuation allowance of $106,400 ● provision for doubtful accounts of $91,800	~~net earnings of $5,107,000~~
•	~~a decrease in inventories, net, of $3,147,500,~~
•	~~an increase in accrued salaries and commissions, and other liabilities of $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,~~

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

September 1 - 30, 2019		57,739	$	6.07		57,739		636,579
October 1 - 31, 2019		22,986		6.75		22,986		613,593
November 1 - 30, 2019		4,116		6.91		4,116		609,477
Total		84,841	$	6.30		84,841

~~31.1~~10.01		~~Certification of~~Eleventh Amendment Loan Agreement Date August 15, 2020 by and between the ~~Chief Executive Officer of Educational Development Corporation pursuant~~Company and MidFirst Bank, Tulsa, OK incorporated herein by reference to ~~Section 302 of the Sarbanes-Oxley Act of 2002 furnished herewith.~~Exhibit 10.01 to Form 8-K dated August 28, 2020 (File No. 0-04957).

~~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.~~

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.