##### 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 May 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
    
    73-0750007(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)10302 East 55th Place, Tulsa, Oklahoma
    
    74146-6515(Address of principal executive offices)
    
    (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 AND RESULTS 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 Chief Executive Officer Pursuant to Section 302Certification of Principal Financial and Accounting Officer Pursuant to Section 302Certification Pursuant to Section 906    Table of Contents  
  
  EDUCATIONAL DEVELOPMENT CORPORATION
CONDENSED BALANCE SHEETS (UNAUDITED)
 May 31, 2007
    
    
    February 28, 2007ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    831,700
    
    
    $
    1,254,300Accounts receivable, less allowance for doubtful accounts and
sales returns $156,500 (May 31) and $158,900 (February 28)
    
    
    2,951,400
    
    
    
    2,849,300InventoriesNet
    
    
    11,499,100
    
    
    
    12,388,000Prepaid expenses and other assets
    
    
    128,300
    
    
    
    95,400Income taxes receivable
    
    
    
    
    
    
    3,400Deferred income taxes
    
    
    135,500
    
    
    
    117,500Total current assets
    
    
    15,536,000
    
    
    
    16,707,900INVENTORIESNet
    
    
    483,000
    
    
    
    459,100PROPERTY, PLANT AND EQUIPMENTNet
    
    
    2,450,600
    
    
    
    2,385,300DEFERRED INCOME TAXES
    
    
    67,900
    
    
    
    149,600TOTAL
    
    $
    18,537,500
    
    
    $
    19,701,900LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    2,162,800
    
    
    $
    3,308,300Accrued salaries and commissions
    
    
    543,100
    
    
    
    560,900Income taxes payable
    
    
    198,900
    
    
    
    Other current liabilities
    
    
    143,500
    
    
    
    171,400Total current liabilities
    
    
    3,048,300
    
    
    
    4,040,600COMMITMENTSSHAREHOLDERS EQUITY:Common stock, $0.20 par value; Authorized 8,000,000 shares;
Issued 5,791,840 (May 31) and 5,791,840 (February 28) shares;
Outstanding 3,766,323 (May 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
    
    
    17,467,000
    
    
    
    17,707,70026,274,500
    
    
    
    26,515,200Less treasury stock, at cost
    
    
    (10,785,300
    )
    
    
    (10,853,900
    )15,489,200
    
    
    
    15,661,300TOTAL
    
    $
    18,537,500
    
    
    $
    19,701,900
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EDUCATIONAL DEVELOPMENT CORPORATION
CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 31,
 2007
    
    
    2006GROSS SALES
    
    $
    10,136,100
    
    
    $
    10,743,400Less discounts and allowances
    
    
    (2,905,600
    )
    
    
    (3,041,600
    )Transportation revenue
    
    
    375,900
    
    
    
    405,200NET REVENUES
    
    
    7,606,400
    
    
    
    8,107,000COST OF SALES
    
    
    2,706,500
    
    
    
    2,879,400Gross margin
    
    
    4,899,900
    
    
    
    5,227,600OPERATING EXPENSES:Operating and selling
    
    
    1,835,900
    
    
    
    1,841,700Sales commissions
    
    
    1,730,600
    
    
    
    1,873,200General and administrative
    
    
    408,800
    
    
    
    425,000Interest
    
    
    
    
    
    
    2,7003,975,300
    
    
    
    4,142,600OTHER INCOME
    
    
    13,200
    
    
    
    5,500EARNINGS BEFORE INCOME TAXES
    
    
    937,800
    
    
    
    1,090,500INCOME TAXES
    
    
    352,500
    
    
    
    393,900NET EARNINGS
    
    $
    585,300
    
    
    $
    696,600BASIC AND DILUTED EARNINGS
PER SHARE:Basic
    
    $
    0.16
    
    
    $
    0.19Diluted
    
    $
    0.15
    
    
    $
    0.18WEIGHTED AVERAGE NUMBER OF
COMMON AND EQUIVALENT SHARES
OUTSTANDING:Basic
    
    
    3,760,101
    
    
    
    3,756,461Diluted
    
    
    3,878,975
    
    
    
    3,886,939
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EDUCATIONAL DEVELOPMENT CORPORATION
CONDENSED STATEMENTS OF SHAREHOLDERS EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 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
    )
    
    $
    15,661,300Sales of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,812
    )
    
    
    68,600
    
    
    
    68,600Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (826,000
    )
    
    
    
    
    
    
    
    
    
    
    (826,000
    )Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    585,300
    
    
    
    
    
    
    
    
    
    
    
    585,300BALANCEMay 31, 2007
    
    
    5,791,840
    
    
    $
    1,158,400
    
    
    $
    7,649,100
    
    
    $
    17,467,000
    
    
    
    2,025,705
    
    
    $
    (10,785,300
    )
    
    $
    15,489,200
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EDUCATIONAL DEVELOPMENT CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 31,
 2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:
    
    $
    436,400
    
    
    $
    1,271,800CASH FLOWS FROM INVESTING ACTIVITIESPurchases of property and equipment
    
    
    (101,600
    )
    
    
    Net cash used in investing activities
    
    
    (101,600
    )
    
    
    CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings on revolving credit agreement
    
    
    
    
    
    
    1,200,000Payments on revolving credit agreement
    
    
    
    
    
    
    (1,876,000
    )Cash received from exercise of stock options
    
    
    
    
    
    
    2,500Cash received from sale of treasury stock
    
    
    68,600
    
    
    
    42,100Dividends paid
    
    
    (826,000
    )
    
    
    (751,200
    )Net cash used in financing activities
    
    
    (757,400
    )
    
    
    (1,382,600
    )NET DECREASE IN CASH AND
CASH EQUIVALENTS
    
    
    (422,600
    )
    
    
    (110,800
    )CASH AND CASH EQUIVALENTSBEGINNING OF PERIOD
    
    
    1,254,300
    
    
    
    321,500CASH AND CASH EQUIVALENTSEND OF PERIOD
    
    $
    831,700
    
    
    $
    210,700SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:Cash paid for interest
    
    $
    
    
    
    $
    6,100Cash paid for income taxes
    
    $
    76,500
    
    
    $
    201,400
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Note 1
  Note
2 Wall Street Journal
  Note 3
 2007May 31.
    
    
    February 28,Current:Book inventory
    
    $
    11,534,100
    
    
    $
    12,421,400Inventory valuation allowance
    
    
    (35,000
    )
    
    
    (33,400
    )Inventories netcurrent
    
    $
    11,499,100
    
    
    $
    12,388,000Noncurrent:Book inventory
    
    $
    808,000
    
    
    $
    808,000Inventory valuation allowance
    
    
    (325,000
    )
    
    
    (348,900
    )Inventories netnoncurrent
    
    $
    483,000
    
    
    $
    459,100
   Note 4
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Earnings Per Share:
 Three Months Ended May 31,2007
    
    
    2006Net earnings applicable to common
shareholders
    
    $
    585,300
    
    
    $
    696,600Shares:Weighted average shares outstanding  basic
    
    
    3,760,101
    
    
    
    3,756,461Assumed exercise of options
    
    
    118,874
    
    
    
    130,478Weighted average shares outstanding  diluted
    
    
    3,878,975
    
    
    
    3,886,939Basic Earnings Per Share
    
    $
    0.16
    
    
    $
    0.19Diluted Earnings Per Share
    
    $
    0.15
    
    
    $
    0.18
  Note
5
 Note 6
 Note
7
   Publishing
    
    UBAH
    
    Other
    
    Total2007Net revenues
    
    $
    2,031,400
    
    
    $
    5,575,000
    
    
    $
    
    
    
    $
    7,606,400Earnings (loss) before income taxes
    
    
    615,100
    
    
    
    1,204,000
    
    
    
    (881,300
    )
    
    $
    937,8002006Net revenues
    
    $
    2,071,200
    
    
    $
    6,035,800
    
    
    $
    
    
    
    $
    8,107,000Earnings (loss) before income taxes
    
    
    658,400
    
    
    
    1,325,100
    
    
    
    (893,000
    )
    
    $
    1,090,500
 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
   
 2007
    

2006Net revenues
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    35.6
    %
    
    
    35.5
    %Gross margin
    
    
    64.4
    %
    
    
    64.5
    %Operating expenses:Operating & selling
    
    
    24.1
    %
    
    
    22.7
    %Sales commissions
    
    
    22.8
    %
    
    
    23.1
    %General & administrative
    
    
    5.4
    %
    
    
    5.3
    %Interest
    
    
    0.0
    %
    
    
    0.0
    %Total operating expenses
    
    
    52.3
    %
    
    
    51.1
    %Income from Operations
    
    
    12.2
    %
    
    
    13.4
    %Other income
    
    
    0.2
    %
    
    
    0.0
    %Earnings before income taxes
    
    
    12.3
    %
    
    
    13.4
    %Income taxes
    
    
    4.6
    %
    
    
    4.8
    %Net earnings
    
    
    7.7
    %
    
    
    8.6
    %
 Operating Results for the Three Months Ended May 31, 2007
  Revenues
 For the Three Months Ended May 31,
    
    
    $ Increase/
    
    
    % Increase/2007
    
    
    2006
    
    
    (decrease)
    
    
    (decrease)Gross sales
    
    $
    10,136,100
    
    
    $
    10,743,400
    
    
    $
    (607,300
    )
    
    
    (5.7
    )%Less discounts &
allowances
    
    
    (2,905,600
    )
    
    
    (3,041,600
    )
    
    
    136,000
    
    
    
    (4.5
    )%Transportation revenue
    
    
    375,900
    
    
    
    405,200
    
    
    
    (29,300
    )
    
    
    (7.2
    )%Net revenues
    
    $
    7,606,400
    
    
    $
    8,107,000
    
    
    $
    (500,600
    )
    
    
    (6.2
    )%
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Expenses
 For Three Months Ended May 31,$ Increase/
    
    
    % Increase/2007
    
    
    2006
    
    
    (decrease)
    
    
    (decrease)Cost of sales
    
    
    2,706,500
    
    
    $
    2,879,400
    
    
    $
    (172,900
    )
    
    
    (6.0
    %)Operating & selling
    
    
    1,835,900
    
    
    
    1,841,700
    
    
    
    (5,800
    )
    
    
    (0.3
    %)Sales commissions
    
    
    1,730,600
    
    
    
    1,873,200
    
    
    
    (142,600
    )
    
    
    (7.6
    %)General &
administrative
    
    
    408,800
    
    
    
    425,000
    
    
    
    (16,200
    )
    
    
    (3.8
    %)Interest
    
    
    
    
    
    
    2,700
    
    
    
    (2,700
    )
    
    
    (100
    %)Total
    
    $
    6,681,800
    
    
    $
    7,022,000
    
    
    $
    (340,200
    )
    
    
    (4.8
    %)
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Liquidity and Capital Resources
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Bank Credit Agreement
 Wall Street Journal
  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
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Inventory
 1 2
  Stock- Based Compensation
  
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 Item 4 CONTROLS AND PROCEDURES
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PART II OTHER INFORMATION
 
 Item 1A RISK FACTORS
  
 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 ProgramsMarch 1, 2007 
March 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    146,939April 1, 2007 
April 30, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    146,939May 1, 2007 
May 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    146,939Total
    
    
    
    
    
    
    
    
    
    
    
 
 (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 2,500,000 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: July 23, 2007
    
    By
    
    /s/ Randall W. WhiteRandall W. WhitePresident
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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.
 16