##### 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 November 30, 2006
 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.)
 th
  þ o
  o o þ
 o þ




---



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 EXHIBITSSIGNATURESEXHIBIT INDEXCerrtification of CEO Pursuant to Section 302Certification of Controller and Corporate Secretary Pursuant to Section 302Certification Pursuant to 18 U.S.C. Section 1350    Table of Contents  EDUCATIONAL DEVELOPMENT CORPORATION
 
 PART I. FINANCIAL INFORMATION
 
   November 30, 2006(unaudited)
    
    
    February 28, 2006ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    3,009,392
    
    
    $
    321,537Accounts
receivable  (less
allowances for doubtful accounts
and returns: 11/30/06 - $158,992;
2/28/06 - $185,209)
    
    
    3,412,547
    
    
    
    2,946,462Inventories  Net
    
    
    11,416,187
    
    
    
    12,159,360Prepaid expenses and other assets
    
    
    56,811
    
    
    
    119,508Deferred income taxes
    
    
    118,500
    
    
    
    141,700Total current assets
    
    
    18,013,437
    
    
    
    15,688,567INVENTORIES  Net
    
    
    453,085
    
    
    
    379,570PROPERTY AND EQUIPMENTat cost (less accumulated depreciation:11/30/06 - $2,012,676 2/28/06 - $1,904,934)
    
    
    2,421,129
    
    
    
    2,493,929DEFERRED INCOME TAXES
    
    
    98,700
    
    
    
    81,900$
    20,986,351
    
    
    $
    18,643,966LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Note payable to bank
    
    $
    
    
    
    $
    676,000Accounts payable
    
    
    4,496,472
    
    
    
    3,042,937Accrued salaries and commissions
    
    
    882,454
    
    
    
    566,379Income taxes
    
    
    57,319
    
    
    
    71,749Dividends payable
    
    
    
    
    
    
    750,785Other current liabilities
    
    
    318,644
    
    
    
    197,486Total current liabilities
    
    
    5,754,889
    
    
    
    5,305,336COMMITMENTSSHAREHOLDERS EQUITY:Common Stock, $.20 par value (Authorized
8,000,000 shares; Issued 5,776,840 (11/30/06)
and 5,771,840 shares (02/28/06); Outstanding
3,754,818 (11/30/06) and 3,753,923 (2/28/06) shares)
    
    
    1,155,368
    
    
    
    1,154,368Capital in excess of par value
    
    
    7,603,328
    
    
    
    7,577,495Retained earnings
    
    
    17,219,392
    
    
    
    15,300,99925,978,088
    
    
    
    24,032,862Less treasury shares, at cost
    
    
    ( 10,746,626
    )
    
    
    ( 10,694,232
    )15,231,462
    
    
    
    13,338,630$
    20,986,351
    
    
    $
    18,643,966
  2




---



##### Table of Contents



EDUCATIONAL DEVELOPMENT CORPORATION
  Three Months Ended November 30,
    
    
    Nine Months Ended November 30,2006
    
    
    2005
    
    
    2006
    
    
    2005REVENUES:Gross sales
    
    $
    12,729,245
    
    
    $
    12,397,509
    
    
    $
    32,532,560
    
    
    $
    32,940,404Less discounts & allowances
    
    
    (3,527,495
    )
    
    
    (3,233,126
    )
    
    
    (9,540,281
    )
    
    
    (9,444,019
    )Transportation revenue
    
    
    618,763
    
    
    
    518,598
    
    
    
    1,419,581
    
    
    
    1,207,427Net revenues
    
    
    9,820,513
    
    
    
    9,682,981
    
    
    
    24,411,860
    
    
    
    24,703,812COST OF SALES
    
    
    3,421,601
    
    
    
    3,390,245
    
    
    
    8,817,471
    
    
    
    9,134,241Gross margin
    
    
    6,398,912
    
    
    
    6,292,736
    
    
    
    15,594,389
    
    
    
    15,569,571OPERATING EXPENSES:Operating & selling
    
    
    2,152,898
    
    
    
    2,109,538
    
    
    
    5,634,372
    
    
    
    5,295,484Sales commissions
    
    
    2,534,110
    
    
    
    2,573,278
    
    
    
    5,811,029
    
    
    
    5,967,110General & administrative
    
    
    420,632
    
    
    
    427,897
    
    
    
    1,330,271
    
    
    
    1,257,136Interest
    
    
    4
    
    
    
    32,597
    
    
    
    7,581
    
    
    
    75,5455,107,644
    
    
    
    5,143,310
    
    
    
    12,783,253
    
    
    
    12,595,275OTHER INCOME
    
    
    12,690
    
    
    
    17,580
    
    
    
    284,259
    
    
    
    33,657EARNINGS BEFORE INCOME TAXES
    
    
    1,303,958
    
    
    
    1,167,006
    
    
    
    3,095,395
    
    
    
    3,007,953INCOME TAXES
    
    
    505,800
    
    
    
    428,000
    
    
    
    1,176,600
    
    
    
    1,128,900NET EARNINGS
    
    $
    798,158
    
    
    $
    739,006
    
    
    $
    1,918,795
    
    
    $
    1,879,053BASIC AND DILUTED EARNINGS
PER SHARE:Basic
    
    $
    0.21
    
    
    $
    0.20
    
    
    $
    0.51
    
    
    $
    0.50Diluted
    
    $
    0.21
    
    
    $
    0.19
    
    
    $
    0.49
    
    
    $
    0.48WEIGHTED AVERAGE NUMBER OF
COMMON AND EQUIVALENT
SHARES OUTSTANDING:Basic
    
    
    3,758,422
    
    
    
    3,753,923
    
    
    
    3,756,975
    
    
    
    3,745,704Diluted
    
    
    3,872,277
    
    
    
    3,898,439
    
    
    
    3,876,375
    
    
    
    3,901,772DIVIDENDS DECLARED PER
COMMON SHARE
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    0.15
  3




---



##### Table of Contents



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, 2006
    
    
    5,771,840
    
    
    $
    1,154,368
    
    
    $
    7,577,495
    
    
    $
    15,300,999
    
    
    
    2,017,917
    
    
    $
    (10,694,232
    )
    
    $
    13,338,630Purchases of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,412
    
    
    
    (112,360
    )
    
    
    (112,360
    )Sales of treasury stock
    
    
    
    
    
    
    
    
    
    
    5,196
    
    
    
    
    
    
    
    (11,307
    )
    
    
    59,966
    
    
    
    65,162Exercise of options at
$2.50/share
    
    
    5,000
    
    
    
    1,000
    
    
    
    11,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,500Tax benefit-stock options
    
    
    
    
    
    
    
    
    
    
    9,137
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,137Cash dividends  net of accrual
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (402
    )
    
    
    
    
    
    
    
    
    
    
    (402
    )Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,918,795
    
    
    
    
    
    
    
    
    
    
    
    1,918,795BALANCE NOV. 30, 2006
    
    
    5,776,840
    
    
    $
    1,155,368
    
    
    $
    7,603,328
    
    
    $
    17,219,392
    
    
    
    2,022,022
    
    
    $
    (10,746,626
    )
    
    $
    15,231,462
  4




---



##### Table of Contents



EDUCATIONAL DEVELOPMENT CORPORATION
  Nine Months Ended November 30,2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES
    
    $
    4,175,545
    
    
    $
    1,354,442CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment
    
    
    (34,942
    )
    
    
    (219,453
    )Net cash used in investing activities
    
    
    (34,942
    )
    
    
    (219,453
    )CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings under revolving credit agreement
    
    
    3,295,000
    
    
    
    11,332,000Payments under revolving credit agreement
    
    
    (3,971,000
    )
    
    
    (12,227,000
    )Cash received from exercise of stock options
    
    
    12,500
    
    
    
    49,375Tax benefit of stock options exercised
    
    
    9,137
    
    
    
    12,240Cash received from sale of treasury stock
    
    
    65,162
    
    
    
    135,213Cash paid to acquire treasury stock
    
    
    (112,360
    )
    
    
    (77,250
    )Dividends paid
    
    
    (751,187
    )
    
    
    (560,719
    )Net cash used in financing activities
    
    
    (1,452,748
    )
    
    
    (1,336,141
    )Net Increase (decrease ) in Cash and Cash Equivalents
    
    
    2,687,855
    
    
    
    (201,152
    )Cash and Cash Equivalents, Beginning of Period
    
    
    321,537
    
    
    
    364,024Cash and Cash Equivalents, End of Period
    
    $
    3,009,392
    
    
    $
    162,872Supplemental Disclosure of Cash Flow Information:Cash paid for interest
    
    $
    11,449
    
    
    $
    75,400Cash paid for income taxes
    
    $
    1,177,400
    
    
    $
    1,036,100
  5




---



##### Table of Contents



EDUCATIONAL DEVELOPMENT CORPORATION
  Note 1
  Note
2 Wall Street Journal
 Note 3
 November 30, 2006
    
    
    February 28, 2006Current:Book inventory
    
    $
    11,448,147
    
    
    $
    12,186,820Inventory valuation allowance
    
    
    (31,960
    )
    
    
    (27,460
    )Inventories
net  current
    
    $
    11,416,187
    
    
    $
    12,159,360Non-current:Book inventory
    
    $
    818,000
    
    
    $
    657,000Inventory valuation allowance
    
    
    (364,915
    )
    
    
    (277,430
    )Inventories
 non-current
    
    $
    453,085
    
    
    $
    379,570
    Note 4
  6




---



##### Table of Contents



EDUCATIONAL DEVELOPMENT CORPORATION
 Three Months Ended November 30,
    
    
    Nine Months Ended November 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net Earnings
    
    $
    798,158
    
    
    $
    739,006
    
    
    $
    1,918,795
    
    
    $
    1,879,053Basic EPS:Weighted Average Shares Outstanding
    
    
    3,758,422
    
    
    
    3,753,923
    
    
    
    3,756,975
    
    
    
    3,745,704Basic EPS
    
    $
    0.21
    
    
    $
    0.20
    
    
    $
    0.51
    
    
    $
    0.50Diluted EPS:Weighted Average Shares Outstanding
    
    
    3,758,422
    
    
    
    3,753,923
    
    
    
    3,756,975
    
    
    
    3,745,704Assumed Exercise of Options
    
    
    113,855
    
    
    
    144,516
    
    
    
    119,400
    
    
    
    156,068Shares Applicable to Diluted Earnings
    
    
    3,872,277
    
    
    
    3,898,439
    
    
    
    3,876,375
    
    
    
    3,901,772Diluted EPS
    
    $
    0.21
    
    
    $
    0.19
    
    
    $
    0.49
    
    
    $
    0.48
  Note
5
  Note 6
 Note 7
   7




---



##### Table of Contents



EDUCATIONAL DEVELOPMENT CORPORATION
 Publishing
    
    UBAH
    
    Other
    
    TotalThree Months Ended November 30, 2006Net revenues from external customers
    
    $
    1,998,605
    
    
    $
    7,821,908
    
    
    $
    
    
    
    $
    9,820,513Earnings before income taxes
    
    $
    698,829
    
    
    $
    1,583,452
    
    
    $
    (978,323
    )
    
    $
    1,303,958Three Months Ended November 30, 2005Net revenues from external customers
    
    $
    1,900,920
    
    
    $
    7,782,061
    
    
    $
    
    
    
    $
    9,682,981Earnings before income taxes
    
    $
    638,332
    
    
    $
    1,523,159
    
    
    $
    (994,485
    )
    
    $
    1,167,006Nine Months Ended November 30, 2006Net revenues from external customers
    
    $
    6,167,274
    
    
    $
    18,244,586
    
    
    $
    
    
    
    $
    24,411,860Earnings before income taxes
    
    $
    1,942,629
    
    
    $
    3,788,447
    
    
    $
    (2,635,681
    )
    
    $
    3,095,395Nine Months Ended November 30, 2005Net revenues from external customers
    
    $
    6,325,992
    
    
    $
    18,377,820
    
    
    $
    
    
    
    $
    24,703,812Earnings before income taxes
    
    $
    2,115,013
    
    
    $
    3,719,349
    
    
    $
    (2,826,409
    )
    
    $
    3,007,953
 
 ITEM
2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 Factors Affecting Forward Looking Statements
   Overview
   8




---



##### Table of Contents



EDUCATIONAL DEVELOPMENT CORPORATION
 Three Months Ended November 30,
    
    
    Nine Months Ended November 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    34.8
    %
    
    
    35.0
    %
    
    
    36.1
    %
    
    
    37.0
    %Gross margin
    
    
    65.2
    %
    
    
    65.0
    %
    
    
    63.9
    %
    
    
    63.0
    %Operating expenses:Operating & selling
    
    
    21.9
    %
    
    
    21.8
    %
    
    
    23.1
    %
    
    
    21.4
    %Sales commissions
    
    
    25.8
    %
    
    
    26.6
    %
    
    
    23.8
    %
    
    
    24.2
    %General & administrative
    
    
    4.3
    %
    
    
    4.4
    %
    
    
    5.4
    %
    
    
    5.1
    %Interest
    
    
    0.0
    %
    
    
    0.3
    %
    
    
    0.1
    %
    
    
    0.3
    %Total operating expenses
    
    
    52.0
    %
    
    
    53.1
    %
    
    
    52.4
    %
    
    
    51.0
    %Other income
    
    
    0.1
    %
    
    
    0.2
    %
    
    
    1.2
    %
    
    
    0.2
    %Earnings before income taxes
    
    
    13.3
    %
    
    
    12.1
    %
    
    
    12.7
    %
    
    
    12.2
    %Income taxes
    
    
    5.2
    %
    
    
    4.5
    %
    
    
    4.8
    %
    
    
    4.6
    %Net earnings
    
    
    8.1
    %
    
    
    7.6
    %
    
    
    7.9
    %
    
    
    7.6
    %
 Operating Results for the Three Months Ended November 30, 2006
  Revenues
 Three Months Ended November 30,
    
    
    $ Increase/
    
    
    % Increase/2006
    
    
    2005
    
    
    (decrease)
    
    
    (decrease)Gross sales
    
    $
    12,729,245
    
    
    $
    12,397,509
    
    
    $
    331,736
    
    
    
    2.7
    %Less discounts & allowances
    
    
    (3,527,495
    )
    
    
    (3,233,126
    )
    
    
    (294,369
    )
    
    
    9.1
    %Transportation revenue
    
    
    618,763
    
    
    
    518,598
    
    
    
    100,165
    
    
    
    19.3
    %Net revenues
    
    $
    9,820,513
    
    
    $
    9,682,981
    
    
    $
    137,532
    
    
    
    1.4
    %
 rd rd rd
   9




---



##### Table of Contents



EDUCATIONAL DEVELOPMENT CORPORATION
   Expenses
 Three Months Ended November 30,
    
    
    $ Increase/
    
    
    % Increase/2006
    
    
    2005
    
    
    (decrease)
    
    
    (decrease)Cost of sales
    
    $
    3,421,601
    
    
    $
    3,390,245
    
    
    $
    31,356
    
    
    
    0.9
    %Operating & selling
    
    
    2,152,898
    
    
    
    2,109,538
    
    
    
    43,360
    
    
    
    2.1
    %Sales commissions
    
    
    2,534,110
    
    
    
    2,573,278
    
    
    
    (39,168
    )
    
    
    (1.5
    %)General & administrative
    
    
    420,632
    
    
    
    427,897
    
    
    
    (7,265
    )
    
    
    (1.7
    %)Interest
    
    
    4
    
    
    
    32,597
    
    
    
    (32,593
    )
    
    
    (100.0
    %)Total
    
    $
    8,529,245
    
    
    $
    8,533,555
    
    
    $
    (4,310
    )
    
    
    (0.0
    %)
     10




---



##### Table of Contents



EDUCATIONAL DEVELOPMENT CORPORATION
 Operating Results for the Nine Months Ended November 30, 2006
  Revenues
 Nine months Ended November 30,
    
    
    $ Increase/
    
    
    % Increase/2006
    
    
    2005
    
    
    (decrease)
    
    
    (decrease)Gross sales
    
    $
    32,532,560
    
    
    $
    32,940,404
    
    
    $
    (407,844
    )
    
    
    (1.2
    %)Less discounts & allowances
    
    
    (9,540,281
    )
    
    
    (9,444,019
    )
    
    
    (96,262
    )
    
    
    1.0
    %Transportation revenue
    
    
    1,419,581
    
    
    
    1,207,427
    
    
    
    212,154
    
    
    
    17.6
    %Net revenues
    
    $
    24,411,860
    
    
    $
    24,703,812
    
    
    $
    (291,952
    )
    
    
    (1.2
    %)
     11




---



##### Table of Contents



EDUCATIONAL DEVELOPMENT CORPORATION
 Expenses
 Nine months Ended November 30,
    
    
    $ Increase/
    
    
    % Increase/2006
    
    
    2005
    
    
    (decrease)
    
    
    (decrease)Cost of sales
    
    $
    8,817,471
    
    
    $
    9,134,241
    
    
    $
    (316,770
    )
    
    
    (3.5
    %)Operating & selling
    
    
    5,634,372
    
    
    
    5,295,484
    
    
    
    338,888
    
    
    
    6.4
    %Sales commissions
    
    
    5,811,029
    
    
    
    5,967,110
    
    
    
    (156,081
    )
    
    
    (2.6
    %)General & administrative
    
    
    1,330,271
    
    
    
    1,257,136
    
    
    
    73,135
    
    
    
    5.8
    %Interest
    
    
    7,581
    
    
    
    75,545
    
    
    
    (67,964
    )
    
    
    (90.0
    %)Total
    
    $
    21,600,724
    
    
    $
    21,729,516
    
    
    $
    (128,792
    )
    
    
    (0.1
    %)
    nd
  Liquidity and Capital Resources
   12




---



##### Table of Contents



EDUCATIONAL DEVELOPMENT CORPORATION
       Bank Credit Agreement
 Wall Street Journal
 Critical Accounting Policies
  Revenue Recognition
  13




---



##### Table of Contents



EDUCATIONAL DEVELOPMENT CORPORATION
  Allowance for Doubtful Accounts
  Inventory
 1 2
  Deferred Tax Assets
  Long-lived Assets
  Stock-Based Compensation
  
 Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 Item 4 CONTROLS AND PROCEDURES
 14




---



##### Table of Contents



EDUCATIONAL DEVELOPMENT CORPORATION
  
 PART II OTHER INFORMATION
 
 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
    
    
    Share (or Unit)
    
    
    or Programs (1)
    
    
    Plans or ProgramsSeptember 1, 2006 
September 30, 2006
    
    
    250
    
    
    $
    6.77
    
    
    
    250
    
    
    
    160,323October 1, 2006 
October 31, 2006
    
    
    50
    
    
    $
    7.45
    
    
    
    50
    
    
    
    160,273November 1, 2006 
November 30, 2006
    
    
    4,121
    
    
    $
    7.17
    
    
    
    4,121
    
    
    
    156,152Total
    
    
    4,421
    
    
    $
    7.15
    
    
    
    4,421
 
 (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 such 2,500,000 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
  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.
 15




---



##### Table of Contents



EDUCATIONAL DEVELOPMENT CORPORATION
 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.
 
 SIGNATURES
  
 Date January 12, 2007
    
    By
    
    /s/ Randall W. WhiteRandall W. WhitePresident
 16




---



##### 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