##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended August 31, 2007
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from _________ to _________.
 Commission file number: 0-4957
 EDUCATIONAL DEVELOPMENT CORPORATION
  Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    73-0750007
(I.R.S. Employer
Identification No.)
 10302 East 55th Place, Tulsa, Oklahoma
(Address of principal executive offices)
    
    74146-6515
(Zip Code)
 (918) 622-4522
 þ o
  o o þ
  o þ




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TABLE OF CONTENTS  PART I. FINANCIAL INFORMATIONITEM 1ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONSItem 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKItem 4 CONTROLS AND PROCEDURESPART II OTHER INFORMATIONItem 1A RISK FACTORSItem 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSItem 5 OTHER INFORMATIONItem 6 EXHIBITSSIGNATURESEXHIBIT INDEXCertification of CEO Pursuant to Section 302Certification of Principal Financial and Accounting Officer Pursuant to Section 302Certification Pursuant to 18 U.S.C Section 1350    Table of Contents  
  
  EDUCATIONAL DEVELOPMENT CORPORATION
 CONDENSED BALANCE SHEETS (UNAUDITED)
 August 31, 2007
    
    
    February 28, 2007ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    1,431,000
    
    
    $
    1,254,300Accounts receivable, less allowance for doubtful accounts and
sales returns $167,400 (August 31) and $158,900 (February 28)
    
    
    3,136,200
    
    
    
    2,849,300InventoriesNet
    
    
    12,064,000
    
    
    
    12,388,000Prepaid expenses and other assets
    
    
    84,400
    
    
    
    95,400Income taxes receivable
    
    
    
    
    
    
    3,400Deferred income taxes
    
    
    129,500
    
    
    
    117,500Total current assets
    
    
    16,845,100
    
    
    
    16,707,900INVENTORIESNet
    
    
    397,000
    
    
    
    459,100PROPERTY, PLANT AND EQUIPMENTNet
    
    
    2,416,700
    
    
    
    2,385,300DEFERRED INCOME TAXES
    
    
    131,100
    
    
    
    149,600TOTAL
    
    $
    19,789,900
    
    
    $
    19,701,900LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    2,874,800
    
    
    $
    3,308,300Accrued salaries and commissions
    
    
    469,100
    
    
    
    560,900Income taxes payable
    
    
    493,000
    
    
    
    Other current liabilities
    
    
    149,600
    
    
    
    171,400Total current liabilities
    
    
    3,986,500
    
    
    
    4,040,600COMMITMENTSSHAREHOLDERS EQUITY:Common stock, $0.20 par value; Authorized 8,000,000 shares;
Issued 5,791,840 shares; Outstanding 3,758,024 (Aug 31)
and 3,757,323 (February 28) shares
    
    
    1,158,400
    
    
    
    1,158,400Capital in excess of par value
    
    
    7,649,100
    
    
    
    7,649,100Retained earnings
    
    
    17,847,000
    
    
    
    17,707,70026,654,500
    
    
    
    26,515,200Less treasury stock, at cost
    
    
    (10,851,100
    )
    
    
    (10,853,900
    )15,803,400
    
    
    
    15,661,300TOTAL
    
    $
    19,789,900
    
    
    $
    19,701,900
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EDUCATIONAL DEVELOPMENT CORPORATION
CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)
  Three Months Ended August 31,
    
    
    Six Months Ended August 31,2007
    
    
    2006
    
    
    2007
    
    
    2006GROSS SALES
    
    $
    8,768,000
    
    
    $
    9,059,900
    
    
    $
    18,904,100
    
    
    $
    19,803,300Less discounts and allowances
    
    
    (2,913,500
    )
    
    
    (2,971,200
    )
    
    
    (5,819,100
    )
    
    
    (6,012,800
    )Transportation revenue
    
    
    364,000
    
    
    
    395,700
    
    
    
    740,000
    
    
    
    800,800NET REVENUES
    
    
    6,218,500
    
    
    
    6,484,400
    
    
    
    13,825,000
    
    
    
    14,591,300COST OF SALES
    
    
    2,302,000
    
    
    
    2,516,500
    
    
    
    5,008,500
    
    
    
    5,395,900Gross margin
    
    
    3,916,500
    
    
    
    3,967,900
    
    
    
    8,816,500
    
    
    
    9,195,400OPERATING EXPENSES:Operating and selling
    
    
    1,593,200
    
    
    
    1,639,700
    
    
    
    3,429,100
    
    
    
    3,481,500Sales commissions
    
    
    1,317,200
    
    
    
    1,403,800
    
    
    
    3,047,700
    
    
    
    3,276,900General and administrative
    
    
    408,500
    
    
    
    484,600
    
    
    
    817,300
    
    
    
    909,600Interest
    
    
    
    
    
    
    4,900
    
    
    
    
    
    
    
    7,6003,318,900
    
    
    
    3,533,000
    
    
    
    7,294,100
    
    
    
    7,675,600OTHER INCOME
    
    
    9,200
    
    
    
    266,000
    
    
    
    22,400
    
    
    
    271,600EARNINGS BEFORE INCOME TAXES
    
    
    606,800
    
    
    
    700,900
    
    
    
    1,544,800
    
    
    
    1,791,400INCOME TAXES
    
    
    227,000
    
    
    
    276,900
    
    
    
    579,500
    
    
    
    670,800NET EARNINGS
    
    $
    379,800
    
    
    $
    424,000
    
    
    $
    965,300
    
    
    $
    1,120,600BASIC AND DILUTED EARNINGS
PER SHARE:Basic
    
    $
    0.10
    
    
    $
    0.11
    
    
    $
    0.26
    
    
    $
    0.30Diluted
    
    $
    0.10
    
    
    $
    0.11
    
    
    $
    0.25
    
    
    $
    0.29WEIGHTED AVERAGE NUMBER OF
COMMON AND EQUIVALENT SHARES
OUTSTANDING:Basic
    
    
    3,766,413
    
    
    
    3,756,042
    
    
    
    3,763,257
    
    
    
    3,741,595Diluted
    
    
    3,877,557
    
    
    
    3,869,908
    
    
    
    3,878,266
    
    
    
    3,903,439
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EDUCATIONAL DEVELOPMENT CORPORATION
CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY (UNAUDITED)
FOR THE PERIOD ENDED AUGUST 31, 2007
  Common Stock(par value $0.20 per share)Number of
    
    
    
    
    
    
    Capital in
    
    
    
    
    
    
    Treasury StockShares
    
    
    
    
    
    
    Excess of
    
    
    Retained
    
    
    Number of
    
    
    
    
    
    
    ShareholdersIssued
    
    
    Amount
    
    
    Par Value
    
    
    Earnings
    
    
    Shares
    
    
    Amount
    
    
    EquityBALANCEMarch 1, 2007
    
    
    5,791,840
    
    
    $
    1,158,400
    
    
    $
    7,649,100
    
    
    $
    17,707,700
    
    
    
    2,034,517
    
    
    $
    (10,853,900
    )
    
    $
    15,661,300Purchases of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,111
    
    
    
    (65,800
    )
    
    
    (65,800
    )Sales of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,812
    )
    
    
    68,600
    
    
    
    68,600Dividends declared ($.22 per
share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (826,000
    )
    
    
    
    
    
    
    
    
    
    
    (826,000
    )Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    965,300
    
    
    
    
    
    
    
    
    
    
    
    965,300BALANCEAugust 31, 2007
    
    
    5,791,840
    
    
    $
    1,158,400
    
    
    $
    7,649,100
    
    
    $
    17,847,000
    
    
    
    2,033,816
    
    
    $
    (10,851,100
    )
    
    $
    15,803,400
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EDUCATIONAL DEVELOPMENT CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED AUGUST 31,
  2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:
    
    $
    1,105,300
    
    
    $
    1,391,800CASH FLOWS FROM INVESTING ACTIVITIESPurchases of property and equipment
    
    
    (105,400
    )
    
    
    (23,200
    )Net cash used in investing activities
    
    
    (105,400
    )
    
    
    (23,200
    )CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings on revolving credit agreement
    
    
    
    
    
    
    3,278,000Payments on revolving credit agreement
    
    
    
    
    
    
    (3,954,000
    )Cash received from exercise of stock options
    
    
    
    
    
    
    12,500Tax benefit of stock options exercised
    
    
    
    
    
    
    9,100Cash received from sale of treasury stock
    
    
    68,600
    
    
    
    65,200Cash paid to acquire treasury stock
    
    
    (65,800
    )
    
    
    (80,700
    )Dividends paid
    
    
    (826,000
    )
    
    
    (751,200
    )Net cash used in financing activities
    
    
    (823,200
    )
    
    
    (1,421,100
    )NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    176,700
    
    
    
    (52,500
    )CASH AND CASH EQUIVALENTSBEGINNING OF PERIOD
    
    
    1,254,300
    
    
    
    321,500CASH AND CASH EQUIVALENTSEND OF PERIOD
    
    $
    1,431,000
    
    
    $
    269,000SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:Cash paid for interest
    
    $
    
    
    
    $
    9,900Cash paid for income taxes
    
    $
    76,500
    
    
    $
    948,400
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Note 1
  Note 2 Wall Street Journal
  Note 3
 2007August 31.
    
    
    February 28,Current:Book inventory
    
    $
    12,100,400
    
    
    $
    12,421,400Inventory valuation allowance
    
    
    (36,400
    )
    
    
    (33,400
    )Inventories netcurrent
    
    $
    12,064,000
    
    
    $
    12,388,000Noncurrent:Book inventory
    
    $
    697,000
    
    
    $
    808,000Inventory valuation allowance
    
    
    (300,000
    )
    
    
    (348,900
    )Inventories netnoncurrent
    
    $
    397,000
    
    
    $
    459,100
    Note 4
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Earnings Per Share:
 Three Months
    
    
    Six MonthsEnded August 31,
    
    
    Ended August 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Net earnings applicable to common shareholders
    
    $
    379,800
    
    
    $
    424,000
    
    
    $
    965,300
    
    
    $
    1,120,700Shares:Weighted average shares outstanding  basic
    
    
    3,766,413
    
    
    
    3,756,042
    
    
    
    3,763,257
    
    
    
    3,756,251Assumed exercise of options
    
    
    111,144
    
    
    
    113,866
    
    
    
    115,009
    
    
    
    122,173Weighted average shares outstanding  diluted
    
    
    3,877,557
    
    
    
    3,869,908
    
    
    
    3,878,266
    
    
    
    3,878,424Basic Earnings Per Share
    
    $
    0.10
    
    
    $
    0.11
    
    
    $
    0.26
    
    
    $
    0.30Diluted Earnings Per Share
    
    $
    0.10
    
    
    $
    0.11
    
    
    $
    0.25
    
    
    $
    0.29
  Note 5
 Note 6
  Note 7
  7




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NET REVENUESThree Months
    
    
    Six MonthsEnded August 31,
    
    
    Ended August 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Publishing
    
    $
    2,131,800
    
    
    
    2,097,500
    
    
    $
    4,163,100
    
    
    
    4,168,600UBAH
    
    $
    4,086,700
    
    
    
    4,386,900
    
    
    $
    9,661,900
    
    
    
    10,422,700Other
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Total
    
    $
    6,218,500
    
    
    $
    6,484,400
    
    
    $
    13,825,000
    
    
    $
    14,591,300
 EARNINGS (LOSS) BEFORE INCOME TAXESThree Months
    
    
    Six MonthsEnded August 31,
    
    
    Ended August 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Publishing
    
    $
    669,500
    
    
    
    585,400
    
    
    $
    1,284,600
    
    
    
    1,243,800UBAH
    
    $
    868,900
    
    
    
    879,900
    
    
    $
    2,072,900
    
    
    
    2,205,000Other
    
    $
    (931,600
    )
    
    
    (764,400
    )
    
    $
    (1,812,700
    )
    
    
    (1,657,400
    )Total
    
    $
    606,800
    
    
    $
    700,900
    
    
    $
    1,544,800
    
    
    $
    1,791,400
 Note 8
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ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Factors Affecting Forward Looking Statements
 MD&A contains statements that are forward-looking and include numerous risks which you should
carefully consider. Additional risks and uncertainties may also materially and adversely affect
our business. You should read the following discussion in connection with our consolidated
financial statements, including the notes to those statements, included in this document. Our
fiscal years end on February 28.
 Overview
   Earnings as a Percent of Total RevenuesThree Months Ended August 31,
    
    Six Months Ended August 31,2007
    
    2006
    
    2007
    
    2006Net revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    37.0
    %
    
    
    38.8
    %
    
    
    36.2
    %
    
    
    37.0
    %Gross margin
    
    
    63.0
    %
    
    
    61.2
    %
    
    
    63.8
    %
    
    
    63.0
    %Operating expenses:Operating & selling
    
    
    25.5
    %
    
    
    25.3
    %
    
    
    24.8
    %
    
    
    23.9
    %Sales commissions
    
    
    21.2
    %
    
    
    21.6
    %
    
    
    22.1
    %
    
    
    22.4
    %General & administrative
    
    
    6.7
    %
    
    
    7.5
    %
    
    
    5.9
    %
    
    
    6.2
    %Interest
    
    
    0.0
    %
    
    
    0.1
    %
    
    
    0.0
    %
    
    
    0.1
    %Total operating expenses
    
    
    53.4
    %
    
    
    54.5
    %
    
    
    52.8
    %
    
    
    52.6
    %Income from operations
    
    
    9.6
    %
    
    
    6.7
    %
    
    
    11.0
    %
    
    
    10.4
    %Other income
    
    
    0.2
    %
    
    
    4.1
    %
    
    
    0.2
    %
    
    
    1.9
    %Earnings before income taxes
    
    
    9.8
    %
    
    
    10.8
    %
    
    
    11.2
    %
    
    
    12.3
    %Income taxes
    
    
    3.7
    %
    
    
    4.3
    %
    
    
    4.2
    %
    
    
    4.6
    %Net earnings
    
    
    6.1
    %
    
    
    6.5
    %
    
    
    7.0
    %
    
    
    7.7
    %
 Operating Results for the Three Months Ended August 31, 2007
  Revenues
 For the Three Months Ended August 31,
    
    
    $ Increase/
    
    
    % Increase/2007
    
    
    2006
    
    
    (decrease)
    
    
    (decrease)Gross sales
    
    $
    8,768,000
    
    
    $
    9,059,900
    
    
    $
    (291,900
    )
    
    
    -3.2
    %Less discounts & allowances
    
    
    (2,913,500
    )
    
    
    (2,971,200
    )
    
    
    57,700
    
    
    
    -1.9
    %Transportation revenue
    
    
    364,000
    
    
    
    395,700
    
    
    
    (31,700
    )
    
    
    -8.0
    %Net revenues
    
    $
    6,218,500
    
    
    $
    6,484,400
    
    
    $
    (265,900
    )
    
    
    -4.1
    %
  9




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Expenses
 For Three Months Ended August 31,
    
    
    $ Increase/
    
    
    % Increase/2007
    
    
    2006
    
    
    (decrease)
    
    
    (decrease)Cost of sales
    
    
    2,302,000
    
    
    $
    2,516,500
    
    
    $
    (214,500
    )
    
    
    -8.5
    %Operating & selling
    
    
    1,593,200
    
    
    
    1,639,700
    
    
    
    (46,500
    )
    
    
    -2.8
    %Sales commissions
    
    
    1,317,200
    
    
    
    1,403,800
    
    
    
    (86,600
    )
    
    
    -6.2
    %General & administrative
    
    
    408,500
    
    
    
    484,600
    
    
    
    (76,100
    )
    
    
    -15.7
    %Interest
    
    
    
    
    
    
    4,900
    
    
    
    (4,900
    )
    
    
    -100.0
    %Total
    
    $
    5,620,900
    
    
    $
    6,049,500
    
    
    $
    (428,600
    )
    
    
    -7.1
    %
   10




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Operating Results for the Six Months Ended August 31, 2007
  Revenues
 For the Six Months Ended August 31,
    
    
    $ Increase/
    
    
    % Increase/2007
    
    
    2006
    
    
    (decrease)
    
    
    (decrease)Gross sales
    
    $
    18,904,100
    
    
    $
    19,803,300
    
    
    $
    (899,200
    )
    
    
    -4.5
    %Less discounts & allowances
    
    
    (5,819,100
    )
    
    
    (6,012,800
    )
    
    
    193,700
    
    
    
    -3.2
    %Transportation revenue
    
    
    740,000
    
    
    
    800,800
    
    
    
    (60,800
    )
    
    
    -7.6
    %Net revenues
    
    $
    13,825,000
    
    
    $
    14,591,300
    
    
    $
    (766,300
    )
    
    
    -5.3
    %
    11




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Expenses
 For Six Months Ended August 31,
    
    
    $ Increase/
    
    
    % Increase/2007
    
    
    2006
    
    
    (decrease)
    
    
    (decrease)Cost of sales
    
    
    5,008,500
    
    
    $
    5,395,900
    
    
    $
    (387,400
    )
    
    
    -7.2
    %Operating & selling
    
    
    3,429,100
    
    
    
    3,481,500
    
    
    
    (52,400
    )
    
    
    -1.5
    %Sales commissions
    
    
    3,047,700
    
    
    
    3,276,900
    
    
    
    (229,200
    )
    
    
    -7.0
    %General & administrative
    
    
    817,300
    
    
    
    909,600
    
    
    
    (92,300
    )
    
    
    -10.1
    %Interest
    
    
    
    
    
    
    7,600
    
    
    
    (7,600
    )
    
    
    -100.0
    %Total
    
    $
    12,302,600
    
    
    $
    13,071,500
    
    
    $
    (768,900
    )
    
    
    -5.9
    %
     12




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##### Table of Contents



Liquidity and Capital Resources
         Bank Credit Agreement
 Wall Street Journal
  13




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##### Table of Contents



Critical Accounting Policies
 Our discussion and analysis of our financial condition and results of operations are based
upon our consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including
those related to our valuation of inventory, allowance for uncollectible accounts receivable,
allowance for sales returns, long-lived assets and deferred income taxes. We base our estimates on
historical experience and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
 Actual results may materially differ from these estimates under different assumptions or
conditions. Historically, however, actual results have not differed materially from those
determined using required estimates. Our significant accounting policies are described in the notes
accompanying the financial statements included elsewhere in this report. However, we consider the
following accounting policies to be more significantly dependent on the use of estimates and
assumptions.
 Revenue Recognition
   Allowance for Doubtful Accounts
  Inventory
 1 2
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Stock-Based Compensation
  
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 Item 4 CONTROLS AND PROCEDURES
    
 PART II OTHER INFORMATION
 
 Item 1A RISK FACTORS
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Item 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  ISSUER PURCHASES OF EQUITY SECURITIES
 (d) Maximum(c) Total Number
    
    Number (orof Shares (or
    
    ApproximateUnits) Purchased
    
    Dollar Value)as Part of
    
    of Shares (orPublicly
    
    Units) that may(a) Total Number
    
    (b) Average
    
    Announced
    
    Yet Be Purchasedof Shares (or
    
    Price Paid per
    
    Plans
    
    Under thePeriod
    
    Units) Purchased (1)
    
    Share (or Unit)
    
    or Programs (2)
    
    Plans or ProgramsJune 1, 2007 
June 30, 2007
    
    
    100
    
    
    
    8.19
    
    
    
    100
    
    
    
    146,839July 1, 2007 
July 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    146,839August 1, 2007 
August 31, 2007
    
    
    400
    
    
    
    6.94
    
    
    
    400
    
    
    
    146,439Total
    
    
    500
    
    
    
    7.19
    
    
    
    500
 
 (1)
    
    All of the shares of common stock set forth in this column (a) were purchased
pursuant to a publicly announced plan as described in footnote 2 below.(2)
    
    In April 2004 the Board of Directors authorized us to purchase up to an additional
500,000 shares of our common stock under a repurchase plan. Pursuant to the plan, we may
purchase a total of 146,439 additional shares of our common stock until 2,500,000 shares
have been repurchased.(3)
    
    There is no expiration date for the repurchase plan. 
 Item 5 OTHER INFORMATION
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Item 6 EXHIBITS
 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 Controller and Corporate Secretary (Principal Financial and Accounting
Officer) of Educational Development Corporation pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 furnished herewith.32.1
    
    Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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SIGNATURES
  
 Date: October 12, 2007
    
    By
    
    /s/ Randall W. WhiteRandall W. White
President
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Exhibit No.
    
    Description31.1
    
    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 Controller and Corporate Secretary (Principal Financial and Accounting
Officer) of Educational Development Corporation pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 furnished herewith.32.1
    
    Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 19