##### Table of Contents



UNITED STATES 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 November 30, 2005
 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 74146-6515(Address of principal executive offices)
   þ o
  o þ
  o þ




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EDUCATIONAL DEVELOPMENT CORPORATION
 TABLE OF CONTENTS  PART I FINANCIAL INFORMATIONITEM 1ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSItem 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKItem 4 CONTROLS AND PROCEDURESPART II OTHER INFORMATIONItem 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSItem 6 EXHIBITS AND REPORTS ON FORM 8-KSIGNATURESEXHIBIT INDEXCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification Pusuant to Section 906    Table of Contents  
 PART I. FINANCIAL INFORMATION
 
   November 30, 2005
    
    
    February 28, 2005(unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    162,900
    
    
    $
    364,000Accounts
receivable  (less
allowances for doubtful accounts
and returns: 11/30/05  $151,900;
2/28/05  $140,400)
    
    
    3,271,900
    
    
    
    2,442,400Inventories
 Net
    
    
    12,296,900
    
    
    
    11,749,200Prepaid expenses and other assets
    
    
    60,800
    
    
    
    103,400Income taxes receivable
    
    
    62,800
    
    
    
    53,800Deferred income taxes
    
    
    53,600
    
    
    
    44,800Total current assets
    
    
    15,908,900
    
    
    
    14,757,600INVENTORIES  Net
    
    
    472,600
    
    
    
    723,300PROPERTY AND EQUIPMENTat cost
(less accumulated depreciation: 11/30/05 
$1,867,300; 2/28/05  $1,803,300)
    
    
    2,521,800
    
    
    
    2,402,800DEFERRED INCOME TAXES
    
    
    
    
    
    
    96,800$
    18,903,300
    
    
    $
    17,980,500LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Note payable to bank
    
    $
    533,000
    
    
    $
    1,428,000Accounts payable
    
    
    3,439,700
    
    
    
    3,612,900Accrued salaries and commissions
    
    
    847,100
    
    
    
    544,400Other current liabilities
    
    
    511,800
    
    
    
    263,100Total current liabilities
    
    
    5,331,600
    
    
    
    5,848,400DEFERRED INCOME TAXES
    
    
    1,500
    
    
    
    COMMITMENTSSHAREHOLDERS EQUITY:Common Stock, $.20 par value (Authorized
8,000,000 shares; Issued 5,771,840 (11/30/05)
and 5,762,340 shares (02/28/05); Outstanding
3,753,923 (11/30/05) and 3,735,513 (2/28/05) shares)
    
    
    1,154,400
    
    
    
    1,152,500Capital in excess of par value
    
    
    7,577,500
    
    
    
    7,469,400Retained earnings
    
    
    15,532,500
    
    
    
    14,214,10024,264,400
    
    
    
    22,836,000Less treasury shares, at cost
    
    
    (10,694,200
    )
    
    
    (10,703,900
    )13,570,200
    
    
    
    12,132,100$
    18,903,300
    
    
    $
    17,980,500
  2




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EDUCATIONAL DEVELOPMENT CORPORATION
  Three Months Ended November 30,
    
    
    Nine Months Ended November 30,2005
    
    
    2004
    
    
    2005
    
    
    2004REVENUES:Gross sales
    
    $
    12,397,500
    
    
    $
    11,670,100
    
    
    $
    32,940,400
    
    
    $
    32,308,200Less discounts & allowances
    
    
    (3,233,100
    )
    
    
    (2,832,900
    )
    
    
    (9,444,000
    )
    
    
    (8,698,000
    )Transportation revenue
    
    
    518,600
    
    
    
    493,900
    
    
    
    1,207,400
    
    
    
    1,266,400Net revenues
    
    
    9,683,000
    
    
    
    9,331,100
    
    
    
    24,703,800
    
    
    
    24,876,600COST OF SALES
    
    
    3,390,200
    
    
    
    3,220,600
    
    
    
    9,134,200
    
    
    
    8,843,500Gross margin
    
    
    6,292,800
    
    
    
    6,110,500
    
    
    
    15,569,600
    
    
    
    16,033,100OPERATING EXPENSES:Operating & selling
    
    
    2,109,500
    
    
    
    1,856,300
    
    
    
    5,295,500
    
    
    
    5,102,700Sales commissions
    
    
    2,573,300
    
    
    
    2,526,700
    
    
    
    5,967,100
    
    
    
    6,277,900General & administrative
    
    
    427,900
    
    
    
    415,700
    
    
    
    1,257,100
    
    
    
    1,265,500Interest
    
    
    32,600
    
    
    
    21,500
    
    
    
    75,600
    
    
    
    51,1005,143,300
    
    
    
    4,820,200
    
    
    
    12,595,300
    
    
    
    12,697,200OTHER INCOME
    
    
    17,600
    
    
    
    7,800
    
    
    
    33,700
    
    
    
    23,300EARNINGS BEFORE INCOME TAXES
    
    
    1,167,100
    
    
    
    1,298,100
    
    
    
    3,008,000
    
    
    
    3,359,200INCOME TAXES
    
    
    428,000
    
    
    
    488,700
    
    
    
    1,128,900
    
    
    
    1,273,000NET EARNINGS
    
    $
    739,100
    
    
    $
    809,400
    
    
    $
    1,879,100
    
    
    $
    2,086,200BASIC AND DILUTED EARNINGS
PER SHARE:Basic
    
    $
    0.20
    
    
    $
    0.21
    
    
    $
    0.50
    
    
    $
    0.53Diluted
    
    $
    0.19
    
    
    $
    0.20
    
    
    $
    0.48
    
    
    $
    0.50WEIGHTED AVERAGE NUMBER OF
COMMON AND EQUIVALENT
SHARES OUTSTANDING:Basic
    
    
    3,753,923
    
    
    
    3,878,975
    
    
    
    3,745,704
    
    
    
    3,954,306Diluted
    
    
    3,898,439
    
    
    
    4,055,713
    
    
    
    3,901,772
    
    
    
    4,147,691DIVIDENDS DECLARED PER
COMMON SHARE
    
    $
    
    
    
    $
    
    
    
    $
    0.15
    
    
    $
    0.12
  3




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EDUCATIONAL DEVELOPMENT CORPORATION
  Common Stock(par value $.20 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Treasury StockNumber of
    
    
    
    
    
    
    Capital in
    
    
    
    
    
    
    NumberShares
    
    
    
    
    
    
    Excess of
    
    
    Retained
    
    
    of
    
    
    
    
    
    
    ShareholdersIssued
    
    
    Amount
    
    
    Par Value
    
    
    Earnings
    
    
    Shares
    
    
    Amount
    
    
    EquityBALANCE, MAR. 1, 2005
    
    
    5,762,340
    
    
    $
    1,152,500
    
    
    $
    7,469,400
    
    
    $
    14,214,100
    
    
    
    2,026,827
    
    
    $
    (10,703,900
    )
    
    $
    12,132,100Purchases of treasury
stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,500
    
    
    
    (77,300
    )
    
    
    (77,300
    )Sales of treasury stock
    
    
    
    
    
    
    
    
    
    
    48,300
    
    
    
    
    
    
    
    (16,410
    )
    
    
    87,000
    
    
    
    135,300Exercise of options at
$2.1875  $6.00/share
    
    
    9,500
    
    
    
    1,900
    
    
    
    47,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,400Tax benefit of stock options
    
    
    
    
    
    
    
    
    
    
    12,300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,300Dividends paid ($0.15/share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (560,700
    )
    
    
    
    
    
    
    
    
    
    
    (560,700
    )Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,879,100
    
    
    
    
    
    
    
    
    
    
    
    1,879,100BALANCE, NOV. 30, 2005
    
    
    5,771,840
    
    
    $
    1,154,400
    
    
    $
    7,577,500
    
    
    $
    15,532,500
    
    
    
    2,017,917
    
    
    $
    (10,694,200
    )
    
    $
    13,570,200
  4




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EDUCATIONAL DEVELOPMENT CORPORATION
  Nine Months Ended November 30,2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES
    
    $
    1,354,300
    
    
    $
    4,209,100CASH FLOWS
FROM INVESTING ACTIVITIES Purchases of property and equipment
    
    
    (219,400
    )
    
    
    (481,500
    )Net cash used in investing activities
    
    
    (219,400
    )
    
    
    ( 481,500
    )CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings under revolving credit agreement
    
    
    11,332,000
    
    
    
    10,059,000Payments under revolving credit agreement
    
    
    (12,227,000
    )
    
    
    (9,758,000
    )Cash received from exercise of stock options
    
    
    49,400
    
    
    
    543,500Tax benefit of stock options exercised
    
    
    12,300
    
    
    
    318,500Cash received from sale of treasury stock
    
    
    135,300
    
    
    
    120,400Cash paid to acquire treasury stock
    
    
    (  77,300
    )
    
    
    (4,382,400
    )Dividends paid
    
    
    (560,700
    )
    
    
    (484,000
    )Net cash used in financing activities
    
    
    (  1,336,000
    )
    
    
    (3,583,000
    )Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    (   201,100
    )
    
    
    144,600Cash and Cash Equivalents, Beginning of Period
    
    
    364,000
    
    
    
    260,500Cash and Cash Equivalents, End of Period
    
    $
    162,900
    
    
    $
    405,100Supplemental Disclosure of Cash Flow Information:Cash paid for interest
    
    $
    75,400
    
    
    $
    47,700Cash paid for income taxes
    
    $
    1,036,100
    
    
    $
    959,700
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EDUCATIONAL DEVELOPMENT CORPORATION
  Note 1
   Note 2 Wall Street Journal
 Note 3
 November 30, 2005
    
    
    February 28, 2005Current:Book inventory
    
    $
    12,322,900
    
    
    $
    11,785,700Inventory valuation allowance
    
    
    (26,000
    )
    
    
    (36,500
    )Inventories net  current
    
    $
    12,296,900
    
    
    $
    11,749,200Non-current:Book inventory
    
    $
    674,000
    
    
    $
    1,111,700Inventory valuation allowance
    
    
    (201,400
    )
    
    
    (388,400
    )Inventories  non-current
    
    $
    472,600
    
    
    $
    723,300
    Note 4
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EDUCATIONAL DEVELOPMENT CORPORATION
  Three Months Ended November 30,
    
    
    Nine Months Ended November 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net Earnings
    
    $
    739,100
    
    
    $
    809,400
    
    
    $
    1,879,100
    
    
    $
    2,086,200Basic EPS:Weighted Average Shares Outstanding
    
    
    3,753,923
    
    
    
    3,878,975
    
    
    
    3,745,704
    
    
    
    3,954,306Basic EPS
    
    $
    0.20
    
    
    $
    0.21
    
    
    $
    0.50
    
    
    $
    0.53Diluted EPS:Weighted Average Shares Outstanding
    
    
    3,753,923
    
    
    
    3,878,975
    
    
    
    3,745,704
    
    
    
    3,954,306Assumed Exercise of Options
    
    
    144,516
    
    
    
    176,738
    
    
    
    156,068
    
    
    
    193,385Shares Applicable to Diluted Earnings
    
    
    3,898,439
    
    
    
    4,055,713
    
    
    
    3,901,772
    
    
    
    4,147,691Diluted EPS
    
    $
    0.19
    
    
    $
    0.20
    
    
    $
    0.48
    
    
    $
    0.50
  Note 5
 Note 6
 Note 7
  7




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EDUCATIONAL DEVELOPMENT CORPORATION
  Publishing
    
    
    UBAH
    
    
    Other
    
    
    TotalThree Months Ended November 30, 2005Net revenues from external customers
    
    $
    1,900,900
    
    
    $
    7,782,100
    
    
    $
    
    
    
    $
    9,683,000Earnings before income taxes
    
    $
    638,400
    
    
    $
    1,523,100
    
    
    $
    (994,400
    )
    
    $
    1,167,100Three Months Ended November 30, 2004Net revenues from external customers
    
    $
    1,651,900
    
    
    $
    7,679,200
    
    
    $
    
    
    
    $
    9,331,100Earnings before income taxes
    
    $
    562,300
    
    
    $
    1,691,300
    
    
    $
    (955,500
    )
    
    $
    1,298,100Nine Months Ended November 30, 2005Net revenues from external customers
    
    $
    6,326,000
    
    
    $
    18,377,800
    
    
    $
    
    
    
    $
    24,703,800Earnings before income taxes
    
    $
    2,115,000
    
    
    $
    3,719,300
    
    
    $
    (2,826,300
    )
    
    $
    3,008,000Nine Months Ended November 30, 2004Net revenues from external customers
    
    $
    5,603,600
    
    
    $
    19,273,000
    
    
    $
    
    
    
    $
    24,876,600Earnings before income taxes
    
    $
    1,885,100
    
    
    $
    4,265,500
    
    
    $
    (2,791,400
    )
    
    $
    3,359,200
 
 ITEM
2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Factors Affecting Forward Looking Statements
   Overview
  8




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EDUCATIONAL DEVELOPMENT CORPORATION
  Three Months Ended November 30,
    
    
    Nine Months Ended November 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    35.0
    %
    
    
    34.5
    %
    
    
    37.0
    %
    
    
    35.6
    %Gross margin
    
    
    65.0
    %
    
    
    65.5
    %
    
    
    63.0
    %
    
    
    64.4
    %Operating expenses:Operating & selling
    
    
    21.8
    %
    
    
    19.9
    %
    
    
    21.4
    %
    
    
    20.5
    %Sales commissions
    
    
    26.6
    %
    
    
    27.1
    %
    
    
    24.2
    %
    
    
    25.2
    %General & administrative
    
    
    4.4
    %
    
    
    4.5
    %
    
    
    5.1
    %
    
    
    5.1
    %Interest
    
    
    0.3
    %
    
    
    0.2
    %
    
    
    0.3
    %
    
    
    0.2
    %Total operating expenses
    
    
    53.1
    %
    
    
    51.7
    %
    
    
    51.0
    %
    
    
    51.0
    %Other income
    
    
    0.2
    %
    
    
    0.1
    %
    
    
    0.2
    %
    
    
    0.1
    %Earnings before income taxes
    
    
    12.1
    %
    
    
    13.9
    %
    
    
    12.2
    %
    
    
    13.5
    %Income taxes
    
    
    4.5
    %
    
    
    5.2
    %
    
    
    4.6
    %
    
    
    5.1
    %Net earnings
    
    
    7.6
    %
    
    
    8.7
    %
    
    
    7.6
    %
    
    
    8.4
    %
 Operating Results for the Three Months Ended November 30, 2005
  Revenues
 Three Months Ended November 30,
    
    
    $ Increase/
    
    
    % Increase/2005
    
    
    2004
    
    
    (decrease)
    
    
    (decrease)Gross sales
    
    $
    12,397,500
    
    
    $
    11,670,100
    
    
    $
    727,400
    
    
    
    6.2
    %Less discounts & allowances
    
    
    (3,233,100
    )
    
    
    (2,832,900
    )
    
    
    (400,200
    )
    
    
    14.1
    %Transportation revenue
    
    
    518,600
    
    
    
    493,900
    
    
    
    24,700
    
    
    
    5.0
    %Net revenues
    
    $
    9,683,000
    
    
    $
    9,331,100
    
    
    $
    351,900
    
    
    
    3.8
    %
   9




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EDUCATIONAL DEVELOPMENT CORPORATION
   Expenses
 Three Months Ended November 30,
    
    
    $ Increase/
    
    
    % Increase/2005
    
    
    2004
    
    
    (decrease)
    
    
    (decrease)Cost of sales
    
    $
    3,390,200
    
    
    $
    3,220,600
    
    
    $
    169,600
    
    
    
    5.3
    %Operating & selling
    
    
    2,109,500
    
    
    
    1,856,300
    
    
    
    253,200
    
    
    
    13.6
    %Sales commissions
    
    
    2,573,300
    
    
    
    2,526,700
    
    
    
    46,600
    
    
    
    1.8
    %General & administrative
    
    
    427,900
    
    
    
    415,700
    
    
    
    12,200
    
    
    
    2.9
    %Interest
    
    
    32,600
    
    
    
    21,500
    
    
    
    11,100
    
    
    
    51.6
    %Total
    
    $
    8,533,500
    
    
    $
    8,040,800
    
    
    $
    492,700
    
    
    
    6.1
    %
    10




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EDUCATIONAL DEVELOPMENT CORPORATION
    Operating Results for the Nine Months Ended November 30, 2005
  Revenues
 Nine Months Ended November 30,
    
    
    $ Increase/
    
    
    % Increase/2005
    
    
    2004
    
    
    (decrease)
    
    
    (decrease)Gross sales
    
    $
    32,940,400
    
    
    $
    32,308,200
    
    
    $
    632,200
    
    
    
    2.0
    %Less discounts & allowances
    
    
    (9,444,000
    )
    
    
    (8,698,000
    )
    
    
    (746,000
    )
    
    
    8.6
    %Transportation revenue
    
    
    1,207,400
    
    
    
    1,266,400
    
    
    
    (59,000
    )
    
    
    (4.7
    %)Net revenues
    
    $
    24,703,800
    
    
    $
    24,876,600
    
    
    $
    (172,800
    )
    
    
    (0.7
    %)
    11




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EDUCATIONAL DEVELOPMENT CORPORATION
  Expenses
 Nine months Ended November 30,
    
    
    $ Increase/
    
    
    % Increase/2005
    
    
    2004
    
    
    (decrease)
    
    
    (decrease)Cost of sales
    
    $
    9,134,200
    
    
    $
    8,843,500
    
    
    $
    290,700
    
    
    
    3.3
    %Operating & selling
    
    
    5,295,500
    
    
    
    5,102,700
    
    
    
    192,800
    
    
    
    3.8
    %Sales commissions
    
    
    5,967,100
    
    
    
    6,277,900
    
    
    
    (310,800
    )
    
    
    (5.0
    %)General & administrative
    
    
    1,257,100
    
    
    
    1,265,500
    
    
    
    (8,400
    )
    
    
    (0.7
    %)Interest
    
    
    75,600
    
    
    
    51,100
    
    
    
    24,500
    
    
    
    47.9
    %Total
    
    $
    21,729,500
    
    
    $
    21,540,700
    
    
    $
    188,800
    
    
    
    0.9
    %
     12




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EDUCATIONAL DEVELOPMENT CORPORATION
   Liquidity and Capital Resources
         Bank Credit Agreement
 Wall Street Journal
 13




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EDUCATIONAL DEVELOPMENT CORPORATION
 
 Critical Accounting Policies
  Revenue Recognition
  Allowance for Doubtful Accounts
  Inventory
 1 2
  Deferred Tax Assets
  14




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EDUCATIONAL DEVELOPMENT CORPORATION
 Long-lived Assets
  
 Item 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 Item 4
    
    CONTROLS AND PROCEDURES
  
 PART II OTHER INFORMATION
 
 Item 2
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  ISSUER PURCHASES OF EQUITY SECURITIES
 (c) Total Number
    
    
    (d) MaximumNumber (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
    
    
    Share (or Unit)
    
    
    or Programs (1)
    
    
    Plans or ProgramsSeptember 1,
2005  September 30, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    171,564October 1,
2005  October 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    171,564November 1,
2005  November 30, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    171,564Total
    
    
    
    
    
    
    
    
    
    
    
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##### Table of Contents



EDUCATIONAL DEVELOPMENT CORPORATION
 
 (1)
    
    In July 1998, the Board of Directors authorized the Company to purchase up to
1,000,000 shares of the Companys common stock pursuant to a plan that was announced
publicly on October 14, 1998. In May 1999, the Board of Directors authorized the Company
to purchase up to an additional 1,000,000 shares of its common stock under this plan,
which was announced publicly on May 19, 1999. In April 2004 the Board of Directors
authorized the Company to purchase up to an additional 500,000 shares of its common stock
under this plan. Pursuant to the plan, the Company may purchase shares of the Companys
common stock until 2,500,000 shares have been repurchased. There is no expiration date
for the repurchase plan. 
 Item 6 EXHIBITS AND REPORTS ON FORM 8-K
  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.
  nd nd nd
 
 SIGNATURES
  
 Date January 13, 2006
    By
    /s/ Randall W. WhiteRandall W. WhitePresident 16




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##### Table of Contents



EDUCATIONAL DEVELOPMENT CORPORATION
 
  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.
 17