##### 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, 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
(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
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
  Yes o


    No þ




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TABLE OF CONTENTS  PART I. FINANCIAL INFORMATIONITEM 1Item 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 Controller and Corporate Secretary Pursuant to Section 302Certification Pursuant to Section 906    Table of Contents  EDUCATIONAL DEVELOPMENT CORPORATION
 
 PART I. FINANCIAL INFORMATION
 
   May 31, 2006
    
    
    February 28, 2006(unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    210,741
    
    
    $
    321,537Accounts receivable  (less
allowances for doubtful accounts
and returns: 05/31/06 - $191,840;
2/28/06 - $185,209)
    
    
    2,934,466
    
    
    
    2,946,462Inventories  Net
    
    
    11,042,925
    
    
    
    12,159,360Prepaid expenses and other assets
    
    
    95,194
    
    
    
    119,508Deferred income taxes
    
    
    130,400
    
    
    
    141,700Total current assets
    
    
    14,413,726
    
    
    
    15,688,567INVENTORIES  Net
    
    
    351,762
    
    
    
    379,570PROPERTY AND
EQUIPMENTat cost (less accumulated
depreciation: 05/31/06 - $1,941,385;
2/28/06 - $1,904,934)
    
    
    2,457,479
    
    
    
    2,493,929DEFERRED INCOME TAXES
    
    
    54,200
    
    
    
    81,900$
    17,277,167
    
    
    $
    18,643,966LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Note payable to bank
    
    $
    
    
    
    $
    676,000Accounts payable
    
    
    2,214,478
    
    
    
    3,042,937Accrued salaries and commissions
    
    
    562,369
    
    
    
    566,379Income taxes
    
    
    227,156
    
    
    
    71,749Dividends payable
    
    
    
    
    
    
    750,785Other current liabilities
    
    
    193,736
    
    
    
    197,486Total current liabilities
    
    
    3,197,739
    
    
    
    5,305,336COMMITMENTSSHAREHOLDERS EQUITY:Common Stock, $.20 par value (Authorized
8,000,000 shares; Issued 5,772,840 (5/31/06)
and 5,771,840 shares (02/28/06); Outstanding
3,762,379 (5/31/06) and 3,753,923 (2/28/06) shares)
    
    
    1,154,568
    
    
    
    1,154,368Capital in excess of par value
    
    
    7,582,334
    
    
    
    7,577,495Retained earnings
    
    
    15,997,245
    
    
    
    15,300,99924,734,147
    
    
    
    24,032,862Less treasury shares, at cost
    
    
    ( 10,654,719
    )
    
    
    ( 10,694,232
    )14,079,428
    
    
    
    13,338,630$
    17,277,167
    
    
    $
    18,643,966
  2




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##### Table of Contents



EDUCATIONAL DEVELOPMENT CORPORATION
  Three Months Ended May 31,2006
    
    
    2005REVENUES:Gross sales
    
    $
    10,743,378
    
    
    $
    10,994,404Less discounts & allowances
    
    
    (  3,041,585
    )
    
    
    (3,111,541
    )Transportation revenue
    
    
    405,184
    
    
    
    343,816Net revenues
    
    
    8,106,977
    
    
    
    8,226,679COST OF SALES
    
    
    2,879,370
    
    
    
    3,004,776Gross margin
    
    
    5,227,607
    
    
    
    5,221,903OPERATING EXPENSES:Operating & selling
    
    
    1,841,743
    
    
    
    1,678,171Sales commissions
    
    
    1,873,160
    
    
    
    1,917,134General & administrative
    
    
    425,021
    
    
    
    417,309Interest
    
    
    2,658
    
    
    
    14,6924,142,582
    
    
    
    4,027,306OTHER INCOME
    
    
    5,523
    
    
    
    7,903EARNINGS BEFORE INCOME TAXES
    
    
    1,090,548
    
    
    
    1,202,500INCOME TAXES
    
    
    393,900
    
    
    
    457,300NET EARNINGS
    
    $
    696,648
    
    
    $
    745,200BASIC AND DILUTED EARNINGS
PER SHARE:Basic
    
    $
    0.19
    
    
    $
    0.20Diluted
    
    $
    0.18
    
    
    $
    0.19WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING:Basic
    
    
    3,756,461
    
    
    
    3,738,133Diluted
    
    
    3,886,939
    
    
    
    3,901,588DIVIDENDS DECLARED PER
COMMON SHARE
    
    $
    
    
    
    $
    0.15
  3




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##### 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
    )
    
    $
    13,338,630Sales of treasury stock
    
    
    
    
    
    
    
    
    
    
    2,539
    
    
    
    
    
    
    
    (7,456
    )
    
    
    39,513
    
    
    
    42,052Exercise of options at
$2.50/share
    
    
    1,000
    
    
    
    200
    
    
    
    2,300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,500Cash dividends  net of accrual
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (       402
    )
    
    
    
    
    
    
    
    
    
    
    (        402
    )Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    696,648
    
    
    
    
    
    
    
    
    
    
    
    696,648BALANCE, MAY 31, 2006
    
    
    5,772,840
    
    
    $
    1,154,568
    
    
    $
    7,582,334
    
    
    $
    15,997,245
    
    
    
    2,010,461
    
    
    $
    (10,654,719
    )
    
    $
    14,079,428
 
 4




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EDUCATIONAL DEVELOPMENT CORPORATION
  Three Months Ended May 31,2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES
    
    $
    1,271,839
    
    
    $
    851,857CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment
    
    
    (
    )
    
    
    (30,944
    )Net cash used in investing activities
    
    
    (
    )
    
    
    (30,944
    )CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings under revolving credit agreement
    
    
    1,200,000
    
    
    
    3,159,000Payments under revolving credit agreement
    
    
    (1,876,000
    )
    
    
    (4,077,000
    )Dividends paid
    
    
    (751,187
    )
    
    
    Cash received from exercise of stock options
    
    
    2,500
    
    
    
    45,000Tax benefit of stock options exercised
    
    
    
    
    
    
    12,240Cash received from sale of treasury stock
    
    
    42,052
    
    
    
    21,117Cash paid to acquire treasury stock
    
    
    (
    )
    
    
    (77,250
    )Net cash used in financing activities
    
    
    (1,382,635
    )
    
    
    (916,893
    )Net Decrease in Cash and Cash Equivalents
    
    
    (110,796
    )
    
    
    (95,980
    )Cash and Cash Equivalents, Beginning of Period
    
    
    321,537
    
    
    
    364,024Cash and Cash Equivalents, End of Period
    
    $
    210,741
    
    
    $
    268,044Supplemental Disclosure of Cash Flow Information:Cash paid for interest
    
    $
    6,064
    
    
    $
    17,699Cash paid for income taxes
    
    $
    201,400
    
    
    $
    61,200Supplemental Disclosure of Non-Cash Financing Activities Dividends declared
    
    $
    
    
    
    $
    560,720
  5




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EDUCATIONAL DEVELOPMENT CORPORATION
  Note 1
  Note
2 Wall Street Journal
 Note 3
 May 31, 2006
    
    
    February 28, 2006Current:Book inventory
    
    $
    11,071,885
    
    
    $
    12,186,820Inventory valuation allowance
    
    
    (28,960
    )
    
    
    (27,460
    )Inventories net  current
    
    $
    11,042,925
    
    
    $
    12,159,360Non-current:Book inventory
    
    $
    588,000
    
    
    $
    657,000Inventory valuation allowance
    
    
    (236,238
    )
    
    
    (277,430
    )Inventories  non-current
    
    $
    351,762
    
    
    $
    379,570
   Note 4
 6




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EDUCATIONAL DEVELOPMENT CORPORATION
  Three Months Ended May 31,2006
    
    
    2005Net Earnings
    
    $
    696,648
    
    
    $
    745,200Basic EPS:Weighted Average Shares Outstanding
    
    
    3,756,461
    
    
    
    3,738,133Basic EPS
    
    $
    0.19
    
    
    $
    0.20Diluted EPS:Weighted Average Shares Outstanding
    
    
    3,756,461
    
    
    
    3,738,133Assumed Exercise of Options
    
    
    130,478
    
    
    
    163,455Shares Applicable to Diluted Earnings
    
    
    3,886,939
    
    
    
    3,901,588Diluted EPS
    
    $
    0.18
    
    
    $
    0.19
  Note
5
  Note 6
 Note 7
  7




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##### Table of Contents



EDUCATIONAL DEVELOPMENT CORPORATION
  Publishing
    
    
    UBAH
    
    
    Other
    
    
    TotalThree Months Ended May 31, 2006Net revenues from external customers
    
    $
    2,071,212
    
    
    $
    6,035,765
    
    
    $
    
    
    
    $
    8,106,977Earnings before income taxes
    
    $
    658,422
    
    
    $
    1,325,100
    
    
    $
    (892,974
    )
    
    $
    1,090,548Three Months Ended May 31, 2005Net revenues from external customers
    
    $
    2,160,108
    
    
    $
    6,066,571
    
    
    $
    
    
    
    $
    8,226,679Earnings before income taxes
    
    $
    769,503
    
    
    $
    1,342,985
    
    
    $
    (909,988
    )
    
    $
    1,202,500
 ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 Factors Affecting Forward Looking Statements
   8




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EDUCATIONAL DEVELOPMENT CORPORATION
 Overview
   Three Months Ended May 31,2006
    
    
    2005Net revenues
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    35.5
    %
    
    
    36.5
    %Gross margin
    
    
    64.5
    %
    
    
    63.5
    %Operating expenses:Operating & selling
    
    
    22.7
    %
    
    
    20.4
    %Sales commissions
    
    
    23.1
    %
    
    
    23.3
    %General & administrative
    
    
    5.3
    %
    
    
    5.1
    %Interest
    
    
    0.0
    %
    
    
    0.2
    %Total operating expenses
    
    
    51.1
    %
    
    
    49.0
    %Other income
    
    
    0.0
    %
    
    
    0.1
    %Earnings before income taxes
    
    
    13.4
    %
    
    
    14.6
    %Income taxes
    
    
    4.8
    %
    
    
    5.5
    %Net earnings
    
    
    8.6
    %
    
    
    9.1
    %
 Operating Results for the Three Months Ended May 31, 2006
  Revenues
 Three Months Ended May 31,
    
    
    $ Increase/
    
    
    % Increase/2006
    
    
    2005
    
    
    (decrease)
    
    
    (decrease)Gross sales
    
    $
    10,743,378
    
    
    $
    10,994,404
    
    
    $
    (251,026
    )
    
    
    (   2.3
    %)Less discounts & allowances
    
    
    (3,041,585
    )
    
    
    (3,111,541
    )
    
    
    69,956
    
    
    
    (   2.2
    %)Transportation revenue
    
    
    405,184
    
    
    
    343,816
    
    
    
    61,368
    
    
    
    17.8
    %Net revenues
    
    $
    8,106,977
    
    
    $
    8,226,679
    
    
    $
    (119,702
    )
    
    
    (   1.5
    %)
  9




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EDUCATIONAL DEVELOPMENT CORPORATION
    Expenses
 Three Months Ended May 31,
    
    
    $ Increase/
    
    
    % Increase/2006
    
    
    2005
    
    
    (decrease)
    
    
    (decrease)Cost of sales
    
    $
    2,879,370
    
    
    $
    3,004,776
    
    
    $
    (125,406
    )
    
    
    (4.2
    %)Operating & selling
    
    
    1,841,743
    
    
    
    1,678,171
    
    
    
    163,572
    
    
    
    9.7
    %Sales commissions
    
    
    1,873,160
    
    
    
    1,917,134
    
    
    
    (43,974
    )
    
    
    (2.3
    %)General & administrative
    
    
    425,021
    
    
    
    417,309
    
    
    
    7,712
    
    
    
    1.8
    %Interest
    
    
    2,658
    
    
    
    14,692
    
    
    
    (12,034
    )
    
    
    (81.9
    %)Total
    
    $
    7,021,952
    
    
    $
    7,032,082
    
    
    $
    (10,130
    )
    
    
    0.1
    %
   10




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EDUCATIONAL DEVELOPMENT CORPORATION
   Liquidity and Capital Resources
         11




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EDUCATIONAL DEVELOPMENT CORPORATION
 Bank Credit Agreement
 Wall Street Journal
 Critical Accounting Policies
  Revenue Recognition
  Allowance for Doubtful Accounts
  Inventory
 1 2
 12




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EDUCATIONAL DEVELOPMENT CORPORATION
  Deferred Tax Assets
  Long-lived Assets
  Stock- Based Compensation
  
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 Item 4 CONTROLS AND PROCEDURES
  
 PART II OTHER INFORMATION
 
   13




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EDUCATIONAL DEVELOPMENT CORPORATION
 
 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, 2006 
March 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    171,564April 1, 2006 
April 30, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    171,564May 1, 2006 
May 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    171,564Total
    
    
    
    
    
    
    
    
    
    
    
 (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 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.(3)
    
    There is no expiration date for the repurchase plan.
 
 Item 5
OTHER INFORMATION
  
 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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EDUCATIONAL DEVELOPMENT CORPORATION
 
 SIGNATURES
  EDUCATIONAL DEVELOPMENT CORPORATION(Registrant)Date
July 13, 2006
    
    By
    
    /s/ Randall W. White

Randall W. White
     President
 15




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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.
 16