Table of Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

# **Washington, D.C. 20549**

# ** **

# **FORM 10-K**

# ** **

**(MarkOne)**

 

** **

**x**                **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934**

 

**For the fiscal year ended February 28, 2010**

 

**OR**

 

**o**                   **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934**

 

**For the transition period from              to**             **.**

 

**Commission file number: 0-4957**

 

**EDUCATIONAL DEVELOPMENT CORPORATION**

(Exact name of registrant as specified in itscharter)

 

| **Delaware**                   | ** ** | **73-0750007**      |
|--------------------------------|------------|---------------------|
| State or other jurisdiction of |       | (I.R.S. Employer    |
| incorporation or organization  |       | Identification No.) |

 

| **10302 East 55th Place, Tulsa, Oklahoma** | ** ** | **74146-6515** |
|--------------------------------------------|------------|----------------|
| (Address of principal executive offices)   |       | (Zip Code)     |

 

Registrant’s telephone number, including area code **(918) 622-4522**

 

Securities registered pursuant to Section 12(b) of theAct:  **None**

 

Securities registered pursuant to Section 12(g) of the Act:

 

**Common Stock, $.20 par value**

(Title of class)

 

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act.  Yes  o No  x

 

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act.  Yes  o No  x

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.  Yes  x No  o

 

Indicate by check mark whether the registrant has submitted electronicallyand posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T(§ 229.405 of this chapter) during the preceding 12 months (or for such shorterperiod that the registrant was required to submit and post such files).  Yes  o No  o

 

Indicate by check mark if disclosure of delinquent filers pursuant toItem 405 of Regulation S-K (§229.405 of this chapter) is not contained herein,and will not be contained, to the best of registrant’s knowledge, in definitiveproxy or information statements incorporated by reference in Part III ofthis Form 10-K or any amendment to this Form 10-K.  o

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany.  See definitions of “largeaccelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2of the Exchange Act. 

 

| Large accelerated filer  o          |   | Accelerated filer  o         |
|-----------------------------------------------|--------|----------------------------------------|
|                                          |   |                                   |
| Non-accelerated filer  o            |   | Smaller reporting company  x |
| (Do not check if a smaller reporting company) |   |                                   |

 

Indicate by check markwhether the Registrant is a shell company (as defined in Rule 12b-2 of theExchange Act)  Yes  o No  x

 

The aggregate market value of the voting shares held by non-affiliatesof the registrant at the price at which the common stock was last sold on August 31,2009, on the NASDAQ Stock Market, LLC was $20,328,700.

 

As of May 25, 2010, 3,869,550 shares of common stock wereoutstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

 

Portions of the Proxy Statement for fiscal year 2010 relating to ourAnnual Meeting of Shareholders to be held on July 29, 2010 areincorporated by reference into Part III of this Report on Form 10-K.

 

 

 

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TABLE OF CONTENTS

 
| FACTORS AFFECTING FORWARD LOOKING  STATEMENTS | 3                                                                                                                   |
|-----------------------------------------------|---------------------------------------------------------------------------------------------------------------------|
|                                          |                                                                                                                |   |
| PART I                                   |                                                                                                                |   |
|                                          |                                                                                                                |   |
| Item 1.                                       | Business                                                                                                            | 3 |
|                                          |                                                                                                                |   |
| Item 1A.                                      | Risk Factors                                                                                                        | 5 |
|                                          |                                                                                                                |   |
| Item  1B.                                     | Unresolved  Staff Comments                                                                                          | 5 |
|                                          |                                                                                                                |   |
| Item 2.                                       | Properties                                                                                                          | 5 |
|                                          |                                                                                                                |   |
| Item 3.                                       | Legal  Proceedings                                                                                                  | 5 |
|                                          |                                                                                                                |   |
| Item 4.                                       | Removed  and Reserved                                                                                               | 5 |
|                                          |                                                                                                                |   |
| PART II                                  |                                                                                                                |   |
|                                          |                                                                                                                |   |
| Item  5.                                      | Market  For Registrant’s Common Equity, Related Stockholder Matters and Issuer  Purchases of Equity Securities | 5 |
|                                          |                                                                                                                |   |
| Item  6.                                      | Selected  Financial Data                                                                                            | 7 |
|                                          |                                                                                                                |   |
| Item  7.                                      | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                         | 7 |
|                                          |                                                                                                                |   |
| Item  7A.                                     | Quantitative  and Qualitative Disclosures About Market Risk                                                         | 15 |
|                                          |                                                                                                                |   |
| Item  8.                                      | Financial  Statements and Supplementary Data                                                                        | 15 |
|                                          |                                                                                                                |   |
| Item  9.                                      | Changes  in and Disagreements with Accountants on Accounting and Financial Disclosure                               | 16 |
|                                          |                                                                                                                |   |
| Item  9A(T)                                   | Controls and Procedures                                                                                             | 16 |
|                                          |                                                                                                                |
| Item 9B.                                      | Other  Information                                                                                                  | 16 |
|                                          |                                                                                                                |   |
| PART III                                 |                                                                                                                |   |
|                                          |                                                                                                                |   |
| Item  10.                                     | Directors  and Executive Officers of the Registrant                                                                 | 17 |
|                                          |                                                                                                                |   |
| Item  11.                                     | Executive  Compensation                                                                                             | 17 |
|                                          |                                                                                                                |   |
| Item  12.                                     | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                    | 17 |
|                                          |                                                                                                                |   |
| Item  13.                                     | Certain  Relationships and Related Transactions                                                                     | 17 |
|                                          |                                                                                                                |   |
| Item  14.                                     | Principal  Accountant’s Fees and Services                                                                      | 17 |
|                                          |                                                                                                                |   |
| PART IV                                  |                                                                                                                |   |
|                                          |                                                                                                                |   |
| Item  15.                                     | Exhibits  and Financial Statement Schedules                                                                         | 18 |

 

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Part I

 

**FORWARD LOOKING STATEMENTS**

 

*This report contains statements that are forward-looking.  You should read the following discussion inconnection with our  financialstatements, including the notes to those statements, included in this document.  These forward-looking statements are nothistorical facts but are expectations or projections based on certainassumptions and analyses made by our senior management in light of theirexperience and perception of historical trends, current conditions, expectedfuture developments and other factors.  Actualevents and results may be materially different from anticipated resultsdescribed in such statements.  As used inthis Annual Report on Form 10-K, the terms “EDC,” “we,” “our” or “us” meanEducational Development Corporation, a Delaware corporation, unless the contextindicates otherwise.*

 

*Our ability to achieve suchresults is subject to certain risks and uncertainties which are not currentlyknown to us.  We caution you not to placeundue reliance on these forward-looking statements, which speak only as of thedate that they are made.  We do notundertake any obligation to publicly release any revisions to theseforward-looking statements to reflect events or circumstances after the date ofthis report.*

 

Item 1.    BUSINESS

 

*(a)  General Development of Business*

 

Educational DevelopmentCorporation (“EDC”) is the exclusive United States trade publisher of the lineof educational children’s books produced in the United Kingdom by UsbornePublishing Limited (“Usborne”).  We wereincorporated on August 23, 1965. Our fiscal years end on February 28.

 

We also own Kane/Miller BookPublishers; award-winning publishers of International children’s books.

 

Our company motto is “Thefuture of our world depends on the education of our children.  EDC delivers educational excellence one bookat a time.  We provide economicopportunity while fostering strong family values.  We touch the lives of children for alifetime.”

 

*(b)  Financial Information about Industry Segments*

 

While sellingchildren’s books is our only line of business, we sell them through two divisions:

 

·                  Home Business Division (“Usborne Books and More” or “UBAM”) - Thisdivision distributes books nationwide through independent consultants who holdbook showings in individual homes, and through book fairs, direct sales andInternet sales.  The UBAM Consultantsalso distribute these titles to school and public libraries.

 

·                  Publishing Division (“Publishing”) – This division markets books tobookstores (including major national chains), toy stores, specialty stores,museums and other retail outlets throughout the country.

 

Percent Net Revenues byDivision

 

| ** **     | ** ** | **2010** | ** ** | **2009** | ** ** |
|----------------|------------|----------|------------|----------|------------|
| Publishing     |       | 33       | %          | 28       | %          |
| UBAM           |       | 67       | %          | 72       | %          |
| Total revenues |       | 100      | %          | 100      | %          |

 

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*(c)  Narrative Description of Business*

 

*Products*

 

As the sole United Statestrade publisher of the Usborne line of books, we offer over 1,500 differenttitles.  Many are interactive in nature,including our Touchy-Feely board books, jigsaw puzzle books, activity andflashcards, adventure and search books, art books, sticker books and foreignlanguage books. Many titles are also published in Spanish.  The majority of the titles published byKane/Miller Book Publishers originally were published in other countries intheir native languages.

 

We have a broad line of ‘internet-linked’books which allow readers to expand their educational experience by referringthem to relevant non-Usborne websites. Our books include science and math titles, as well as chapter books andnovels.

 

We also produce anddistribute “Usborne Kid Kits”, which combine an Usborne book with specialtyitems/toys that complement the information contained in the book.

 

We continually introduce newtitles across all lines of our products.

 

UBAM markets the books through commissionedconsultants using a combination of direct sales, home parties, book fairs andthe Internet.  The division hadapproximately 8,000 consultants in 50 states at February 28, 2010.

 

Publishing markets through commissioned traderepresentatives who call on book, toy, specialty stores and other retailoutlets, as well as through in-house marketing by telephone to the trade.  This division markets to approximately 5,000book, toy and specialty stores. Significant orders totaling 39% of the Publishing Division’s sales havebeen received from major book chains.

 

*Seasonality*

 

Sales for both divisions are greatest duringthe Fall due to the holiday season.

 

*Competition*

 

We face competition on twofronts for our UBAM Division from several other larger direct selling companies- for sales and consultants.  However, noother direct selling company exclusively sells children’s books.  Our school and library market facescompetition from Scholastic Books for the book fair market.

 

Publishing faces strong competition fromlarge U.S. and international companies. Historically, this division’s sales are approximately 1.0% of industrysales of juvenile paperbacks.

 

*Employees*

* *

As of April 1, 2010, 76 full-time and 2part-time employees worked at our Tulsa and San Diego facilities; about half ofthose are in the assembly/distribution warehouse.  We believe our relations with our employeesare good.

 

*Company Reports*

 

Our annual and quarterly reports (Forms 10-K and 10-Q), current Form 8-K reports and amendments to those reports filed with the SEC are available for download from the Investor Relations portion of our Internet website at *www.edcpub.com*.

 

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Item 1A.  RISKFACTORS

 

We are a smaller reporting company and arenot required to provide this information.

 

Item 1B.  UNRESOLVED STAFF COMMENTS

 

None

 

Item 2.  PROPERTIES

 

We are located at 10302 E. 55th Pl., Tulsa,Oklahoma.  These facilities are owned byus and contain approximately 105,000 square feet of office and warehousespace.  All product distributions aremade from this warehouse.  We believethat our operating facility meets both present and future capacity needs.

 

We lease 11,400 square feet of additionalwarehouse space two blocks from our main facilities.  This space is located at 5432 S. 103rd E. Ave., Tulsa, Oklahoma, and is used to storelonger-term inventory requirements.

 

We also lease a small office in San Diego,California which houses Kane/Miller Book Publishers.

 

Item 3.  LEGAL PROCEEDINGS

 

We are not a party to any material pendinglegal proceedings.

 

Item 4.  REMOVED AND RESERVED

 

### PART II

###  

Item 5.  MARKETFOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES

 

The common stock of EDC is traded on theNASDAQ Stock Market, LLC (symbol—EDUC). The high and low closing quarterly common stock quotations for fiscalyears 2010 and 2009, as reported by the National Association of SecuritiesDealers, Inc., were as follows:

 
| ** ** | ** ** | **2010** | ** ** | **2009** | ** ** |
|------------|------------|----------|------------|----------|------------|
| **Period** | ** ** | **High** | ** ** | **Low**  | ** ** | **High** | ** ** | **Low** | ** ** |
| 1st Qtr    |       | 6.05     |       | 3.10     |       | 6.80 |   | 5.26 |   |
| 2nd Qtr    |       | 5.87     |       | 4.40     |       | 6.36 |   | 4.85 |   |
| 3rd Qtr    |       | 5.66     |       | 4.76     |       | 5.68 |   | 3.13 |   |
| 4th Qtr    |       | 6.19     |       | 5.25     |       | 4.47 |   | 3.11 |   |

 

The number of shareholdersof record of EDC’s common stock at March 12, 2010 was 707.

 

During fiscal year 2010, wepaid a $0.40 per share dividend on May 15, 2009 and a $0.15 per sharedividend on December 18, 2009.   Anadditional $0.12 per share dividend was declared on February 26, 2010, butwas paid during fiscal year 2011 to shareholders of record on March 12,2010.  Two $0.40 per share dividends werepaid during fiscal year 2009.

 

The following table showsrepurchases of our common stock which we made during the fourth quarter offiscal year 2010.

 

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ISSUERPURCHASES OF EQUITY SECURITIES

 
| **Period**                 | ** ** | **Total # of Shares********Purchased** | ** ** | **Average Price********Paid per Share** | ** ** | **Total # of Shares  Purchased as********Part of Publicly  Announced Plan (1)** | ** ** | **Maximum # of  Shares that May  be Repurchased  under the Plan** | ** ** |
|----------------------------|------------|-------------------------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------|------------|
|                       |       |                                                  |       |                                                   |       |                                                                                                                    |       |                                                                                                 |       |
| December 1 - 31, 2009 |       | 0                                                     |       | —                                                 |       | 0                                                                                                                       |       | 433,194                                                                                              |       |
| January 1 - 31, 2010  |       | 6,946                                                 |       | $                                                      | 6.04       |                                                                                                                    | 6,946      |                                                                                                 | 426,248    |   |
| February 1 - 28, 2010 |       | 15                                                    |       | $                                                      | 6.15       |                                                                                                                    | 15         |                                                                                                 | 426,233    |   |
| Total                      |       | 6,961                                                 |       | $                                                      | 6.04       |                                                                                                                    | 6,961      |                                                                                                 |       |   |

 

----

(1) In April 2008 the Boardof Directors authorized us to purchase up to 500,000 additional shares of ourcommon stock under a plan initiated in 1998. This plan has no expiration date.

 

PERFORMANCEGRAPH COMPARISON OF THE FIVE-YEAR CUMULATIVE RETURN

Amongthe Company, NASDAQ Stock Market Total Return Index

andNASDAQ Non-Financial Stock Index

 

 
| ** **                             | ** ** | **CUMULATIVE TOTAL RETURN** | ** ** |
|----------------------------------------|------------|-----------------------------|------------|
| ** **                             | ** ** | **February  2005**          | ** ** | **February  2006** | ** ** | **February  2007** | ** ** | **February  2008** | ** ** | **February  2009** | ** ** | **February  2010** | ** ** |
|                                   |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| EDC Stock                              |       | 100.00                      |       | 77.40 |   | 73.65 |   | 54.81 |   | 34.42 |   | 58.65 |   |
|                                   |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| NASDAQ Stock Market Total Return Index |       | 100.00                      |       | 112.01 |   | 118.88 |   | 110.33 |   | 54.24 |   | 88.04 |   |
|                                   |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| NASDAQ Non-Financial Stock Index       |       | 100.00                      |       | 112.1 |   | 119.39 |   | 114.86 |   | 55.27 |   | 91.77 |   |

 

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Item 6.  SELECTED FINANCIAL DATA

 

We are a smaller reporting company and arenot required to provide this information.

 

Item7.    MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

####  

# ***MD&A contains statementsthat are forward-looking and include numerous risks which you should carefullyconsider.  Additional risks anduncertainties may also materially and adversely affect our business.   You should read the following discussion inconnection with our financial statements, including the notes to thosestatements, included in this document. Our fiscal years end on February 28.***

# ** **

# **ManagementSummary**

# ** **

Educational Development Corporation is thesole distributor in the United States of the Usborne line of children’sbooks.  We operate two separatedivisions, Publishing and Usborne Books and More (“UBAM”), to sell thesebooks.  Our Corporate headquarters,including the distribution facility for both divisions, is located in Tulsa,Oklahoma.

 

These two divisions each have their own customerbase.  The Publishing Division marketsits products on a wholesale basis to various retail accounts.  The UBAM Division markets its products toindividual consumers as well as to school and public libraries throughdirect-selling consultants.

 

**Publishing Division**

 

The Publishing Division operates in a marketthat is highly competitive, with a large number of companies engaged in theselling of books.  Sales in the bookindustry were approximately $23.9 billion for calendar year 2009.  Sales in the trade industry, defined aswholesale sales to retailers, were approximately $8.1 billion for calendar year2009.

 

The Publishing Division’s customer baseincludes national book chains, regional and local bookstores, toy and giftstores, school supply stores and museums. To reach these markets, the Publishing Division utilizes a combinationof commissioned sales representatives located throughout the country and acommissioned telesales group located in our headquarters.  The Vice President of the Publishing Divisionmanages sales to the national chains.

 

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Publishing Division Sales by Market Type

 
| ** **            | ** ** | **FY 2010** | ** ** | **FY 2009** | ** ** |
|-----------------------|------------|-------------|------------|-------------|------------|
| National chain stores |       | 39          | %          | 34          | %          |
| All other             |       | 61          | %          | 66          | %          |
| Total net sales       |       | 100         | %          | 100         | %          |

 

The Publishing Division uses a variety ofmethods to attract potential new customers and maintain current customers.  Company personnel attend many of the nationaltrade shows held by the book selling industry each year, allowing us to makecontact with potential buyers who may be unfamiliar with our books.  We actively target the national chainsthrough joint promotional efforts and institutional advertising in trade publications.  ThePublishing Division also participates with certain customers in a cooperativeadvertising allowance program, under which we pay back up to 2% of the netsales to that customer.  Our products arethen featured in promotions, such as catalogs, offered by the vendor.

 

We mayalso acquire, for a fee, an end cap position in a bookstore (our products areplaced on the end of a shelf), which in the publishing industry is consideredan advantageous location in the bookstore. The costs of these promotions have been classified as reductions inrevenue in the statements of earnings.

 

The Publishing Division’sin-house telesales group targets the smaller independent book and gift storemarket.  Our semi-annual, full-color,160-page catalogs, are mailed to over 5,000 customers and potentialcustomers.  We also offer two displayracks to assist stores in displaying our products.

 

NetRevenues for Publishing Division

 
| ** **   | ** ** | **FY 2010** | ** ** | **FY 2009** | ** ** |
|--------------|------------|-------------|------------|-------------|------------|
| Net Revenues |       | $           | 9,502,700  |        | $          | 8,126,000 |   |
|              |            |             |            |             |            |  |  |

 

Publishing Division’s net revenues increased$1,376,700 in fiscal year 2010 from fiscal year 2009, or 16.9%.  Net revenues were up 36% for national chainstores, 23% for smaller retail stores and 9% for inside sales.

 

**Usborne Books and More (“UBAM”) Division**

 

The UBAM Division is a multi-level directselling organization that markets its products through independent salesrepresentatives (“consultants”) located throughout the United States.  The customer base of UBAM consists ofindividual purchasers, as well as school and public libraries.  Revenues are generated through home shows,direct sales, Internet sales, book fairs and contracts with school and publiclibraries.

 

An important factor in the continued growthof the UBAM Division is the addition of new sales consultants and the retentionof existing consultants.  Current activeconsultants recruit new sales consultants. UBAM makes it easy to recruit by providing low-cost signing kits.  For one month, kits containing sampleproducts and supplies were free to new recruits when a minimum dollar home showwas submitted by the new recruit.  UBAMprovides an extensive handbook that is a valuable tool in explaining thevarious programs to the new recruit.

 

Consultants During Year

 
| ** **                                      | ** ** | **FY 2010** | ** ** | **FY 2009** | ** ** |
|-------------------------------------------------|------------|-------------|------------|-------------|------------|
| New Sales Representatives                       |       | 6,200       |       | 6,000       |       |
| Active Sales Representatives End of Fiscal Year |       | 8,000       |       | 8,400       |       |

 

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The UBAM Divisionpresently has six levels of sales representatives:

 

·                  Consultants

·                  Supervisors

·                  Senior Supervisors

·                  Executive Supervisors

·                  Senior Executive Supervisors

·                  Directors

 

Upon signing up, each individual isconsidered a consultant.  Consultantsreceive commissions from each sale they make; the commission rate beingdetermined by the marketing program under which the sale is made.  In addition, consultants receive a monthlysales bonus once their sales reach an established monthly goal.  Consultants who recruit other consultants andmeet certain established criteria are eligible to become supervisors.  Upon reaching this level, they receivemonthly override payments based upon the sales of their downline groups.

 

Once supervisors reach certain establishedcriteria, they become senior supervisors and are eligible to earn promotionbonuses on their consultants.  Oncesenior supervisors reach certain established criteria, they become executivesupervisors, senior executive supervisors or directors.  Executive supervisors and higher may receivean additional monthly override payment based upon the sales of their downlinegroups.

 
| Percent  of Net Revenues by UBAM Marketing Program |
|----------------------------------------------------|
|                                               |
| ** **                                         | ** ** | **FY 2010** | ** ** | **FY 2009** | ** ** |
| Home Shows                                         |   | 37 | % | 37 | % |
| Direct Sales                                       |   | 2 | % | 2 | % |
| School & Library, including Book Fairs    |   | 38 | % | 38 | % |
| Internet                                           |   | 13 | % | 13 | % |
| Transportation Revenue                             |   | 10 | % | 10 | % |
| Totals                                             |   | 100 | % | 100 | % |

 
| Number  of Orders by UBAM Marketing Program |
|---------------------------------------------|
|                                        |
| ** **                                  | ** ** | **FY 2010** | ** ** | **FY 2009** | ** ** |
| Home Shows                                  |   | 29,000 |   | 31,000 |   |
| Direct Sales                                |   | 5,100 |   | 5,600 |   |
| School & Library                   |   | 12,400 |   | 12,800 |   |
| Internet                                    |   | 46,000 |   | 51,500 |   |
|                                        |   | 92,500 |   | 100,900 |   |

 

Net revenues from home shows declined 8% or$456,700 during fiscal year 2010.  Thiswas a combination of 6% fewer orders placed during the period and per-orderaverages which were down 2%.  Consultantscontact individuals (“hostesses”) to hold book shows in their homes.  The consultant assists the hostess in settingup the details for the show and makes a presentation at the show and takesorders for the books.  The hostess earnsfree books based upon the total sales at the show.  Customer specials are available for customerswhen they order a selected amount. Additionally, home shows provide an excellent opportunity for recruitingnew consultants.

 

Net revenues from direct sales declined 7% or$24,000 during fiscal year 2010.  Thisresulted from a 10% decrease in the number of orders placed during the yearoffset by a 3% increase in the per-order

 

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average.  Direct sales are saleswithout a hostess being involved.  Thisprogram makes it possible for consultants to work directly out of their homesby selling to friends, neighbors and other customers.  It is especially convenient for thoseindividuals who wish to order books from a consultant but are unable to attenda home show.

 

The UBAMDivision offers many promotions (customer specials) throughout the year.  These promotions offer the customer theopportunity to purchase selected items at a discount if the customer meets thedefined criteria.  The discounts underthese promotions are recorded in discounts and allowances.

 

The school and library marketing program,including book fairs, decreased 9% or $529,500 during fiscal year 2010.  The number of orders placed during the yearwere down 4% while the per-order average decreased 6%.

 

School and library sales are restricted toconsultants who have received additional, specialized training which allowsthem to sell to schools and libraries. The UBAM consultant is the only source that a library or school has forlibrary-bound Usborne books and for most Kane/Miller titles.  They are not available through any of theschool supply distribution companies.

 

This program includes our book fairs.  Book fairs can be held with almost anyorganization as the sponsor.  Theconsultant provides promotional materials to acquaint parents with the books.  Parents turn in their orders at a designatedtime.  The book fair program generatesfree books for the sponsoring organization. UBAM also has a *Reach for the Stars*fundraiser program.  This is apledge-based reading incentive program that provides cash and books to theorganization and books for the children.

 

Internet sales slowed for UBAM, decreasing 9%or $181,700 during fiscal year 2010. Consultants utilize in-house-developed and hosted web sites in theirbusinesses for a nominal monthly fee. They can customize the web sites to their own particular needs or theycan maintain the generic site.  Ordersare transmitted to us through a shopping cart arrangement and the consultantreceives sales credit and commission on the sales.  Web-only specials are changed frequently andhave proved successful, contributing to the growth in this market.

 

The cost of free books provided under thevarious UBAM marketing programs is recorded as operating and selling expense inthe statements of earnings.

 

We believe that the UBAM Division has thegreatest growth potential for us.  Whilethere are many multi-level companies in the United States, UBAM is the only oneexclusively selling books.  We believethis is a fertile market with excellent opportunities for continuedgrowth.  The keys to future growth in theUBAM Division are recruiting and retaining consultants.

 

**(1-2) Liquidity and Capital Resources**

 

EDC has ahistory of profitability and positive cash flow.  We can continue to grow with minimaladditional capital requirements.  Our primarysource of cash is generated from operations. Our primary uses of cash are to pay dividends, acquire treasury stock,purchase property and equipment, and repay borrowings on our line ofcredit.  We utilize our bank creditfacility to meet our short-term cash requirements, when needed.

 

We expect our ongoing cash flow to continue toexceed cash required to operate the business. Consequently, we expect short-term borrowings to continue to remain at aminimum.

 

During fiscal year 2010 weexperienced a positive cash flow from operations of $412,300.  Cash flow from operations was decreased by anincrease in inventories of $1,073,700 and a decrease in current

 

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liabilitiesof $322,000, a decrease in net income tax payable/receivable and an increase inprepaid expenses and other assets.

 

Cash used in investingactivities was $5,600 for capital expenditures. We estimate that cash used in investing activities for fiscal year 2011will be less than $200,000.  This wouldconsist of software and hardware enhancements to our existing data processingequipment, property improvements and additional warehouse equipment.

 

Cashused in financing activities was $2,106,000 which was primarily due to dividendpayments of $2,118,300, $150,000 notes payable paid, and $46,400 paid toacquire treasury stock.  These wereoffset by cash received of $208,700 from the sale of treasury stock.  In September 2002, the Board ofDirectors authorized paying a minimum annual cash dividend of 20% of netearnings.  In fiscal years 2010 and 2009,we paid 111% and 160%, respectively, of net earnings as a cash dividend.

 

Our Boardof Directors adopted a stock repurchase plan in which we may purchase up to anadditional 500,000 shares as market conditions warrant.  Management believes the stock is undervaluedand when stock becomes available at an attractive price, we can utilize freecash flow to repurchase shares. Management believes this enhances the value to the remaining stockholdersand that these repurchases will have no adverse effect on our short-term andlong-term liquidity.

 

**(3) Results of Operations**

 

Earnings as a Percent of NetRevenues

 
| ** **                   | ** ** | **FY 2010** | ** ** | **FY 2009** | ** ** |
|------------------------------|------------|-------------|------------|-------------|------------|
| Net revenues                 |       | 100.0       | %          | 100.0       | %          |
| Cost of sales                |       | 36.8        | %          | 36.0        | %          |
| Gross margin                 |       | 63.2        | %          | 64.0        | %          |
| Operating expenses:          |       |        |       |        |       |
| Operating and selling        |       | 24.5        | %          | 25.0        | %          |
| Sales commissions            |       | 21.4        | %          | 22.6        | %          |
| General and administrative   |       | 7.1         | %          | 6.3         | %          |
| Total operating expenses     |       | 53.0        | %          | 53.9        | %          |
| Income from operations       |       | 10.2        | %          | 10.1        | %          |
| Other income                 |       | 0.5         | %          | 0.6         | %          |
| Earnings before income taxes |       | 10.7        | %          | 10.7        | %          |
| Income taxes                 |       | 4.0         | %          | 4.2         | %          |
| Net earnings                 |       | 6.7         | %          | 6.5         | %          |

 

## ***Fiscal Year 2010 Compared withFiscal Year 2009***

##  

The following presents anoverview of our results of operations for the years ended February 28,2010 and 2009.  We had earnings beforeincome taxes of $3,052,400 for fiscal year 2010 compared with $3,138,900 forfiscal year 2009.

 

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## Revenues

 
| ** **                           | ** ** | ** **  | ** ** | ** **  | ** ** | **$ Increase/** | ** ** |
|--------------------------------------|------------|-------------|------------|-------------|------------|----------------------|------------|
| ** **                           | ** ** | **FY 2010** | ** ** | **FY 2009** | ** ** | **(decrease)**       | ** ** |
| Gross sales                          |       | $           | 40,451,300 |        | $          | 40,283,500           |       | $ | 167,800 |   |
| Less discounts & allowances |       | (13,209,700 | )          | (12,462,200 | )          | (747,500             | )          |
| Transportation revenue               |       | 1,429,200   |       | 1,577,100   |       | (147,900             | )          |
| Net revenues                         |       | $           | 28,670,800 |        | $          | 29,398,400           |       | $ | (727,600 | ) |

 

The UBAMDivision’s gross sales decreased 11.2% or $2,638,300 during FY 2010 whencompared with FY 2009.  This decrease isattributable to lower sales in the home party, direct sales, school andlibrary/book fair, and the internet markets. Average sales per order for this division were down 0.4%, while theoverall number of orders was down 8.3% due to reductions in each of thosemarkets. The Publishing Division’s gross sales increased 16.7% or $2,806,100during FY 2010 when compared with FY 2009.

 

The Publishing Division’s discounts andallowances are a much larger percentage of gross sales than discounts andallowances in the UBAM Division due to the different customer markets that eachdivision targets.  The Publishing Division’s discounts andallowances were $10,111,300 in fiscal year 2010 and $8,679,200 in fiscal year2009.  To be competitive with other wholesale book distributors, thePublishing Division sells at discounts between 48% and 55% of the retail price,based upon the quantity of books ordered and the dollar amount of theorder.  ThePublishing Division’s discounts and allowances were 51.7% of Publishing’s grosssales in fiscal year 2010 and 51.8% in fiscal year 2009.

 

TheUBAM Division’s discounts and allowances were $3,098,400 in fiscal year 2010and $3,783,000 in fiscal year 2009.  Most sales in the UBAM Division are at retail.  As a part of the UBAM Division’s marketingprograms, discounts between 40% and 50% of retail are offered on selected itemsat various times throughout the year. The discounts and allowances in the UBAM Division will vary from year toyear depending upon the marketing programs in place during any given year.  The UBAM Division’s discounts and allowanceswere 14.8% of UBAM’s gross sales in fiscal year 2010 and 16.1% in fiscal year2009.

 

Transportationrevenues decreased $147,900 in fiscal year 2010, primarily due to the decreasein sales during the year.

 

## Expenses

 
| ** **                 | ** ** | **FY 2010** | ** ** | **FY 2009** | ** ** | **$ Increase/********(decrease)** | ** ** |
|----------------------------|------------|-------------|------------|-------------|------------|----------------------------------------|------------|
| Cost of sales              |       | $           | 10,538,300 |        | $          | 10,581,600                             |       | $ | (43,300 | ) |
| Operating and selling      |       | 7,032,400   |       | 7,358,300   |       | (325,900                               | )          |
| Sales commissions          |       | 6,130,500   |       | 6,645,100   |       | (514,600                               | )          |
| General and administrative |       | 2,042,400   |       | 1,849,300   |       | 193,100                                |       |
| Total                      |       | $           | 25,743,600 |        | $          | 26,434,300                             |       | $ | (690,700 | ) |

 

Cost of sales decreased less than 0.5% infiscal year 2010 when compared with fiscal year 2009.  Our cost of products is 25% to 34% of thegross sales price, depending upon the product. In comparing the percentage change in gross sales with the percentagechange in cost of goods, consideration must be given to the mix of productssold.  Approximately 75% of our products come from one vendor, where the cost of theproducts is a fixed percentage of the retail price.

 

12

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Cost ofsales is the inventory cost of product sold (including the cost of the productitself and inbound freight charges). Operating and selling expenses include purchasing and receiving,inspection, warehousing, and other costs of our distribution network.  These costs totaled $1,162,100 in FY2010 and$1,114,300 in FY2009.  When comparing ourgross margins with the gross margins of other companies, note that we do notinclude the costs of our distribution network in our cost of sales.

 

In addition to costs associated with our distribution network(noted above), operating and selling costs include expenses of the PublishingDivision, the UBAM Division and the order entry and customer servicefunctions.  Operatingand selling expenses as a percentage of gross sales were 17.4% for fiscal year2010 and 18.3% for fiscal year 2009.

 

Salescommissions in the Publishing Division increased $34,000 for the fiscal yearended 2010.  Sales commissions for thisdivision fluctuate depending upon the amount of sales made to our “houseaccounts,” which are our largest customers and do not have any commissionexpense associated with them, and sales made by the Company’s outside salesrepresentatives.  Publishing Divisionsales commissions are paid on net sales and were 1.8% in fiscal year 2010 and1.7% of net sales in fiscal year 2009.

 

Salescommissions in the UBAM Division decreased $548,600.  UBAM Division sales commissions are paid onretail sales and were 39.2% for fiscal year 2010 and 35.3% for fiscal year2009. The fluctuation in the percentages of commission expense to retail salesis the result of the type of sale.  Homeshows, book fairs, school and library sales and direct sales have differentcommission rates.  Also contributing tothe fluctuations in the percentages is the payment of overrides and bonuses,both dependent on consultants’ monthly sales and downline sales.  The decrease in sales commissions is theresult of lower sales in the UBAM Division.

 

General and administrative expensesinclude the executive department, accounting department, information servicesdepartment, general office management and building facilities management.  General and administrativeexpenses as a percentage of gross sales were 5.0% for fiscal year 2010 and 4.6%for fiscal year 2009.

 

The tax provision for fiscalyear 2010 was $1,138,800.  The effectiverate for fiscal year 2010 was 37.3% and for fiscal year 2009 was 39.1%.  Our effective tax rate is higher than theFederal statutory rate due to state income taxes.

 

**Contractual Obligations**

 

We are a smaller reportingcompany and are not required to provide this information.

 

13

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**CriticalAccounting Policies**

 

*Our discussion and analysis of our financial condition and results of operations are based upon our 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 uncollectable 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.*

 

**Stock-Based Compensation**

 

We account for stock-basedcompensation whereby share-based payment transactions with employees, such asstock options and restricted stock, are measured at estimated fair value atdate of grant and recognized as compensation expense.

 

**RevenueRecognition**

 

Sales are recognized andrecorded when products are shipped. Products are shipped FOB shipping point. The UBAM Division’s sales arepaid before the product is shipped. These sales accounted for 67% of net revenues in fiscal year 2010 and72% of net revenues in fiscal year 2009.

 

Estimated allowances forsales returns are recorded as sales are recognized and recorded.  Management uses a moving average calculationto estimate the allowance for sales returns.  We are not responsible for product damaged intransit.  Damaged returns are primarilyfrom the retail stores.  The damagesoccur in the stores, not in shipping to the stores.  It is industry practice to accept returnsfrom wholesale customers. Transportation revenue, the amount billed to the customer for shippingthe product, is recorded when products are shipped.  Management has estimated and included areserve for sales returns of $100,000 and $84,000 as of February 28, 2010and 2009, respectively.

 

**Allowance for Doubtful Accounts**

 

We maintain an allowance for estimated losses resulting from the inability of our customers to make required payments.  An estimate of uncollectable amounts is made by management based upon historical bad debts, current customer receivable balances, age of customer receivable balances, customers’ financial conditions and current economic trends.  Management has estimated allowance for doubtful accounts of $131,300 and $92,900 as of February 28, 2010 and 2009, respectively.

 

**Inventory**

 

Management continuallyestimates and calculates the amount of non-current inventory.  The inventory arises due to occasionalpurchases of book inventory in quantities in excess of what will be sold withinthe normal operating cycle due to minimum order requirements of our primarysupplier.  Noncurrent inventory wasestimated by management using the current year turnover ratio by title.  All inventory in excess of 2 1⁄2 years ofanticipated sales was classified as noncurrent inventory.  Noncurrent inventory balances were $989,000and $913,000 at February 28, 2010 and 2009, respectively.

 

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Inventories are presentednet of a valuation allowance.  Managementhas estimated and included a valuation allowance for both current andnoncurrent inventory.  This allowance isbased on management’s identification of slow moving inventory on hand.  Management has estimated a valuationallowance for both current and noncurrent inventory of $355,000 and $370,000 asof February 28, 2010 and 2009, respectively.

 

Ourproduct line contains approximately 1,500 titles, each with different rates ofsale, depending upon the nature and popularity of the title.  Almost all of our product line is saleable asthe books are not topical in nature and remain current in content today as wellas in the future.  Most of our productsare printed in Europe, China, Singapore, India, Malaysia and Dubai resulting ina three to four-month lead-time to have a title reprinted and delivered to us.

 

Ourprincipal supplier, based in England, imposes minimum order requirements beforereprinting a title.  At the current timewe must reorder 7,500 or more of a title in order to get a solo print run.  If we order less than 7,500 of a title, thenwe normally share a print run with the supplier’s other customers, which canresult in more lengthy delays to receive the ordered title.  Anticipating customer preferences andpurchasing habits requires historical analysis of similar titles in the sameseries. We then place the initial order or re-order based upon this analysis.

 

Thesefactors and historical analysis have led Management to determine that 2 1⁄2 yearsrepresents a reasonable estimate of the normal operating cycle for ourproducts.

 

**New Accounting Pronouncements**

 

TheFinancial Accounting Standards Board (“FASB”) periodically issues newaccounting standards in a continuing effort to improve standards of financialaccounting and reporting. We have reviewed the recently issued pronouncementsand concluded that the following new accounting standards are applicable to us.

 

In February 2010, the FASB amended its authoritative guidancerelated to subsequent events to alleviate potential conflicts with currentUnited States Securities and Exchange Commission (“SEC”) guidance. Effectiveimmediately, these amendments remove the requirement that an SEC filer disclosethe date through which it has evaluated subsequent events. The adoption of thisguidance did not have a material impact on our financial statements.

 

In January 2010, the FASB issued ASU No. 2010-06, whichprovides amendments to ASC Topic 820, “Fair Value Measurements and Disclosures.”ASU No. 2010-06 requires new fair value disclosures and clarifies certainexisting disclosure requirements. ASU No. 2010-06 is effective for fiscalperiods beginning after December 15, 2010 for the requirement to provideinformation on purchases, sales, issuances and settlements in the Level 3rollforward on a gross basis. All other disclosure requirements under ASU No. 2010-06are effective for interim and annual reporting periods beginning after December 15,2009. We are currently assessing the impact ASU No. 2010-06 will have onour financial statements.

 

Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK

 

We are a smaller reporting company and arenot required to provide this information.

 

Item 8.  FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA

 

The information required bythis Item 8 begins at page 23.

 

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Item 9.             CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTSON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None

 

Item9A(T).            CONTROLS ANDPROCEDURES

 

Anevaluation was performed of the effectiveness of the design and operation ofour disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) and15d-15(e) as of February 28, 2010. This evaluation was conductedunder the supervision and with the participation of our management, includingour Chief Executive Officer and our Controller/CorporateSecretary (Principal Financial and Accounting Officer).

 

Basedon that evaluation, these officers concluded that our disclosure controls andprocedures were effective to ensure that information required to be disclosedin reports that we file or submit under the Securities Exchange Act of 1934 isaccumulated and communicated to them, as appropriate, to allow timely decisionsregarding required disclosure and is recorded, processed, summarized andreported in accordance within the time periods specified in Securities andExchange Commission rules and forms. It should be noted that the design of any system of controls is based inpart upon certain assumptions about the likelihood of future events.

 

Duringthe fourth fiscal quarter of the fiscal year covered by this report on Form 10-K,there have been no changes in our internal control over financial reportingthat have materially affected or are reasonably likely to materially affect,our internal control over financial reporting.

 

**MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIALREPORTING**

 

Ourmanagement is responsible for establishing and maintaining adequate internalcontrol over financial reporting, as such term is defined in Rule 13a-15(f) ofthe Securities Exchange Act of 1934 (the “Exchange Act”). Under the supervisionand with the participation of our management, including our President and ourController, we evaluated the effectiveness of our internal control overfinancial reporting based on the framework in INTERNAL CONTROL-INTEGRATEDFRAMEWORK issued by the Committee of Sponsoring Organizations of the TreadwayCommission. All internal control systems, no matter how well designed, haveinherent limitations. Therefore, even those systems determined to be effectivecan provide only reasonable assurance with respect to financial statementpreparation and presentation. Projections of any evaluation of effectiveness tofuture periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate. Based on our evaluation under thatframework and applicable SEC rules, our management concluded that our internalcontrol over financial reporting was effective as of February 28, 2010.

 

Thisannual report does not include an attestation report of our registered publicaccounting firm regarding internal control over financial reporting. Management’sreport was not subject to attestation by our registered public accounting firmpursuant to temporary rules of the Securities and Exchange Commission thatpermit us to provide only management’s report in this annual report.

 

Item 9B.                  OTHER INFORMATION

 

None

 

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### PART III

###  

Item 10.        DIRECTORS AND EXECUTIVEOFFICERS OF THE REGISTRANT

 

(a)  Identification of Directors

 

The information required bythis Item 10 is furnished by incorporation by reference to the informationunder the caption “Election of Directors” in our definitive Proxy Statement tobe filed in connection with the Annual Meeting of Shareholders to be held on July 29,2010.

 

(b)  Identification of ExecutiveOfficers

 

Information regarding ourexecutive officers required by Item 401 of Regulation S-K is presented in Item1 hereof under the subcaption “Executive Officers” as permitted by GeneralInstruction G (3) to Form 10-K and Instruction 3 to Item 401(b) ofRegulation S-K.

 

(c)  Compliance with Section 16 (a) ofthe Exchange Act

 

The information required bythis Item 10 is furnished by incorporation by reference to the informationunder the caption “Section 16 (a) Beneficial Ownership ReportingCompliance” in our definitive Proxy Statement to be filed in connection withthe Annual Meeting of Shareholders to be held on July 29, 2010.

 

Item 11.        EXECUTIVE COMPENSATION

 

The information required bythis Item 11 is furnished by incorporation by reference to the informationunder the caption “Executive Compensation” in our definitive Proxy Statement tobe filed in connection with the Annual Meeting of Shareholders to be held on July 29,2010.

 

Item 12.                         SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS

#####  

The information required bythis Item 12 is furnished by incorporation by reference to the informationunder the captions “Security Ownership of Certain Beneficial Owners andManagement” and “Compensation Plans” in our definitive Proxy Statement to befiled in connection with the Annual Meeting of Shareholders to be held on July 29,2010.

 

Item 13.        CERTAIN RELATIONSHIPS ANDRELATED TRANSACTIONS

 

None

 

Item14.        PRINCIPALACCOUNTANT’S FEES AND SERVICES

 

The information required bythis Item 14 is furnished by incorporation by reference to the informationunder the caption “Independent Registered Public Accountants” in our definitiveProxy Statement to be filed in connection with the Annual Meeting ofShareholders to be held on July 29, 2010.

 

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PART IV

 

Item 15.        EXHIBITS AND FINANCIALSTATEMENT SCHEDULES

 

(a)  The following documents are filedas part of this report:

 

1.               Financial Statements

 
| ** **                                                                            | **Page** |
|---------------------------------------------------------------------------------------|----------|
|                                                                                  |     |
| Report of  Independent Registered Public Accounting Firm                              | 22       |
|                                                                                  |     |
| Balance Sheets - February 28, 2010 and 2009                                      | 23       |
|                                                                                  |     |
| Statements of Earnings - Years ended February 28,  2010 and 2009                 | 24       |
|                                                                                  |     |
| Statements of Shareholders’ Equity -Years ended  February 28, 2010 and 2009 | 25       |
|                                                                                  |     |
| Statements of Cash Flows - Years ended February 28,  2010 and 2009               | 26       |
|                                                                                  |     |
| Notes  to Financial Statements                                                        | 27-35    |

 

18

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Schedules have been omitted as suchinformation is either not required or is included in the financial statements.

 

2.               Exhibits

 
|   | 3.     | 1      | Restated Certificate of  Incorporation dated April 26, 1968 and Certificate of Amendment thereto  dated June 21, 1968 are incorporated herein by reference to  Exhibit 1 to Registration Statement on Form 10-K (File  No. 0-4957).                     |
|--------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                                                                                                                                             |
|   | 3.     | 1      | Restated Certificate of  Incorporation dated April 26, 1968 and Certificate of Amendment thereto  dated June 21, 1968 are incorporated herein by reference to  Exhibit 1 to Registration Statement on Form 10-K (File  No. 0-4957).                     |
|   |   |   |                                                                                                                                                                                                                                                                             |
|   | 3.     | 2      | Certificate of  Amendment of Restated Certificate of Incorporation dated August 27, 1977  is incorporated herein by reference to Exhibit 20.1 to Form 10-K  for fiscal year ended February 28, 1981 (File No. 0-4957).                                  |
|   |   |   |                                                                                                                                                                                                                                                                             |
|   | 3.     | 3      | By-Laws as amended are incorporated herein by  reference to Exhibit 20.2 to Form 10-K for fiscal year ended  February 28, 1981 (File No. 0-4957).                                                                                                            |
|   |   |   |                                                                                                                                                                                                                                                                             |
|   | 3.     | 4      | Certificate of  Amendment of Restated Certificate of Incorporation dated November 17,  1986 is incorporated herein by reference to exhibit 3.3 to Form 10-K for  fiscal year ended February 28, 1987 (File No. 0-4957).                                      |
|   |   |   |                                                                                                                                                                                                                                                                             |
|   | 3.     | 5      | Certificate of  Amendment of Restated Certificate of Incorporation dated March 22, 1996  is incorporated herein by reference to Exhibit 3.4 to Form 10-K for  fiscal year ended February 28, 1997 (File No. 0-4957).                                    |
|   |   |   |                                                                                                                                                                                                                                                                             |
|   | 3.     | 6      | Certificate of  Amendment of Restated Certificate of Incorporation dated July 15, 2002  is incorporated herein by reference to Exhibit 10.30 to Form 10-K  dated February 28, 2003 (File No. 0-4957).                                                   |
|   |   |   |                                                                                                                                                                                                                                                                             |
|   | 4.     | 1      | Specimens of Common  Stock Certificates are incorporated herein by reference to Exhibits 3.1 and  3.2 to Registration Statement on Form 10-K (File No. 0-4957) filed  June 29, 1970.                                                                              |
|   |   |   |                                                                                                                                                                                                                                                                             |
|   | 10.    | 1      | Usborne Agreement-Contractual  agreement by and between the Company and Usborne Publishing Limited dated  November 25, 1988 is incorporated herein by reference to  Exhibit 10.12 to Form 10-K dated February 28, 1989 (File  No. 0-4957).              |
|   |   |   |                                                                                                                                                                                                                                                                             |
|   | 10.    | 2      | Party Plan-Contractual  agreement by and between the Company and Usborne Publishing Limited dated  March 14, 1989 is incorporated herein by reference to Exhibit 10.13  to Form 10-K dated February 28, 1989 (File No. 0-4957).                         |
|   |   |   |                                                                                                                                                                                                                                                                             |
|   | 10.    | 3      | Amendment dated  January 1, 1992 to Usborne Agreement - Contractual agreement by and  between the Company and Usborne Publishing Limited is incorporated herein by  reference to Exhibit 10.13 to Form 10-K dated February 29,  1992 (File No. 0-4957). |
|   |   |   |                                                                                                                                                                                                                                                                             |
|   | 10.    | 4      | Educational Development  Corporation 1992 Incentive Stock Option Plan is incorporated herein by  reference to Exhibit 4(c) to Registration Statement on  Form S-8 (File No. 33-60188).                                                                       |
|   |   |   |                                                                                                                                                                                                                                                                             |
|   | 10.    | 5      | Restated Loan Agreement  dated June 30, 1999 between the Company and State Bank & Trust,  N.A., Tulsa, OK, is incorporated herein by reference to Exhibit 10.24 to  Form 10-K dated February 29, 2000 (File No. 0-4957).                       |

 

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|   | 10.    | 6      | Educational Development  Corporation 2002 Incentive Stock Option Plan is incorporated herein by  reference to Exhibit A to definitive proxy statement on Schedule 14A  dated May 23, 2002 (File No. 0-4957).                                                    |
|--------|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                                                                                                                                           |
|   | 10.    | 7      | Amendment dated  November 12, 2002 to Usborne Agreement — Contractual agreement by and  between we and Usborne Publishing Limited is incorporated herein by reference  to Exhibit 10.24 to Form 10-K dated February 28, 2003 (File  No. 0-4957). |
|   |   |   |                                                                                                                                                                                                                                                                           |
|   | 10.    | 8      | Employment Agreement  between Randall W. White and the Company dated February 28, 2004.                                                                                                                                                                                   |
|   |   |   |                                                                                                                                                                                                                                                                           |
|   | 10.    | 9      | Fifth Amendment dated  June 30, 2004 to Restated Loan Agreement between the Company and Arvest  Bank, Tulsa, OK.                                                                                                                                                          |
|   |   |   |                                                                                                                                                                                                                                                                           |
|   | 10.    | 10     | Sixth Amendment dated June 30, 2005 to Restated  Loan Agreement between the Company and Arvest Bank, Tulsa, OK.                                                                                                                                                           |
|   |   |   |                                                                                                                                                                                                                                                                           |
|   | 10.    | 11     | Seventh Amendment dated September 2, 2005 to  Restated Loan Agreement between the Company and Arvest Bank, Tulsa, OK.                                                                                                                                                     |
|   |   |   |                                                                                                                                                                                                                                                                           |
|   | 10.    | 12     | Eighth Amendment dated June 30, 2006 to  Restated Loan Agreement between the Company and Arvest Bank, Tulsa, OK.                                                                                                                                                          |
|   |   |   |                                                                                                                                                                                                                                                                           |
|   | 10.    | 13     | Ninth Amendment dated June 30, 2007 to Restated  Loan Agreement between the Company and Arvest Bank, Tulsa, OK.                                                                                                                                                           |
|   |   |   |                                                                                                                                                                                                                                                                           |
|   | 10.    | 14     | Tenth Amendment dated June 30, 2008 to Restated  Loan Agreement between the Company and Arvest Bank, Tulsa, OK.                                                                                                                                                           |
|   |   |   |                                                                                                                                                                                                                                                                           |
|   | 10.    | 15     | Eleventh Amendment dated June 30, 2009 to  Restated Loan Agreement between the Company and Arvest Bank, Tulsa, OK.                                                                                                                                                        |
|   |   |   |                                                                                                                                                                                                                                                                           |
|   | *23.   | 1      | Consent of Independent  Registered Public Accounting Firm.                                                                                                                                                                                                                     |
|   |   |   |                                                                                                                                                                                                                                                                           |
|   | *31.   | 1      | Certification of the Chief Executive Officer of  Educational Development Corporation pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                                                                                          |
|   |   |   |                                                                                                                                                                                                                                                                           |
|   | *31.   | 2      | Certification of the Controller and Corporate  Secretary (Principal Financial and Accounting Officer) of Educational  Development Corporation pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002.                                                                 |
|   |   |   |                                                                                                                                                                                                                                                                           |
|   | *32.   | 1      | Certification pursuant to 18 U.S.C  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                             |

 

----

|   |   | *Filed Herewith |
|--------|--------|-----------------|

 

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SIGNATURES

 

Pursuant to the requirementsof Section 13 or 15(b) of the Securities Exchange Act of 1934, theCompany has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 

EDUCATIONAL DEVELOPMENT CORPORATION

 
| Date:  May 28, 2010 |   | By     | /s/ Marilyn Pinney                           |
|------------------------------------|--------|--------|----------------------------------------------|
|                               |   |   | Marilyn Pinney                               |
|                               |   |   | Controller and Corporate Secretary           |
|                               |   |   | (Principal Financial and Accounting Officer) |

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, this report has been signed below bythe following persons on behalf of the registrant and in the capacities and onthe date indicated.

 

 
| Date:  May 28,  2010 | /s/ Randall W. White                                   |
|-------------------------------------|--------------------------------------------------------|
|                                | Randall W. White                                       |
|                                | Chairman  of the BoardPresident, Treasurer andDirector |
|                                |                                                   |
|                                |                                                   |
| May 28, 2010                   | /s/ John A. Clerico                                    |
|                                | John A. Clerico, Director                              |
|                                |                                                   |
|                                |                                                   |
| May 28, 2010                   | /s/ Dean Cosgrove                                      |
|                                | G. Dean Cosgrove, Director                             |
|                                |                                                   |
|                                |                                                   |
| May 28, 2010                   | /s/ James F. Lewis                                     |
|                                | James F. Lewis, Director                               |
|                                |                                                   |
|                                |                                                   |
| May 28, 2010                   | /s/ Marilyn Pinney                                     |
|                                | Marilyn Pinney                                         |
|                                | Controller and Corporate Secretary                     |
|                                | (Principal Financial and Accounting Officer)           |

 

21

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

 

To the Board of Directors and Stockholders of

Educational Development Corporation

 

We have audited the accompanying balance sheets ofEducational Development Corporation as of February 28, 2010 and 2009, andthe related statements of earnings, stockholders’ equity and cash flows foreach of the two years in the period ended February 28, 2010. Thesefinancial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based onour audits.

 

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. We were not engaged to perform an audit of the Company’s internalcontrol over financial reporting. Our audits included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting. Accordingly, we express no such opinion. An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, and evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basisfor our opinion.

 

In our opinion, the financial statements referred toabove present fairly, in all material respects, the financial position ofEducational Development Corporation as of February 28, 2010 and 2009, andthe results of its operations and its cash flows for each of the two years inthe period ended February 28, 2010, in conformity with U.S. generallyaccepted accounting principles.

 

/s/ HOGANTAYLOR LLP

Tulsa, Oklahoma

May 28, 2010

 

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**EDUCATIONAL DEVELOPMENT CORPORATION**

**BALANCESHEETSAS OF FEBRUARY 28,**

 
| ** **                                                                                                                                                      | ** ** | **2010**    | ** ** | **2009**    | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------|------------|-------------|------------|
| ** **                                                                                                                                                      |       |        |       |        |       |
| **ASSETS**                                                                                                                                                      |       |        |       |        |       |
| CURRENT  ASSETS:                                                                                                                                                |       |        |       |        |       |
| Cash  and cash equivalents                                                                                                                                      |       | $           | 1,196,900  |        | $          | 2,896,200 |   |
| Accounts receivable,  less allowance for doubtful accounts and sales returns $231,300 (2010) and  $176,900 (2009)                                               |       | 3,305,500   |       | 3,253,000   |       |
| Inventories—Net                                                                                                                                            |       | 11,285,300  |       | 10,302,600  |       |
| Prepaid  expenses and other assets                                                                                                                              |       | 268,400     |       | 306,800     |       |
| Income  tax receivable                                                                                                                                          |       | 8,000       |       | —      |       |
| Deferred  income taxes                                                                                                                                          |       | 256,900     |       | 225,500     |       |
| Total  current assets                                                                                                                                           |       | 16,321,000  |       | 16,984,100  |       |
|                                                                                                                                                            |       |        |       |        |       |
| INVENTORIES—Net                                                                                                                                            |       | 659,000     |       | 568,000     |       |
|                                                                                                                                                            |       |        |       |        |       |
| PROPERTY,  PLANT AND EQUIPMENT—Net                                                                                                                         |       | 2,147,500   |       | 2,278,400   |       |
|                                                                                                                                                            |       |        |       |        |       |
| OTHER  ASSETS                                                                                                                                                   |       | 172,500     |       | 60,400      |       |
|                                                                                                                                                            |       |        |       |        |       |
| DEFERRED  INCOME TAXES                                                                                                                                          |       | 60,400      |       | 50,500      |       |
|                                                                                                                                                            |       |        |       |        |       |
| TOTAL                                                                                                                                                           |       | $           | 19,360,400 |        | $          | 19,941,400 |   |
|                                                                                                                                                            |       |        |       |        |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                                                   |       |        |       |        |       |
|                                                                                                                                                            |       |        |       |        |       |
| CURRENT  LIABILITIES:                                                                                                                                           |       |        |       |        |       |
| Accounts  payable                                                                                                                                               |       | $           | 2,259,100  |        | $          | 2,653,200 |   |
| Accrued  salaries and commissions                                                                                                                               |       | 531,600     |       | 504,500     |       |
| Current  maturities of long-term debt                                                                                                                           |       | 75,000      |       | 150,000     |       |
| Income  taxes payable                                                                                                                                           |       | —      |       | 102,200     |       |
| Dividends  payable                                                                                                                                              |       | 466,400     |       | —      |       |
| Other  current liabilities                                                                                                                                      |       | 531,200     |       | 486,200     |       |
| Total  current liabilities                                                                                                                                      |       | 3,863,300   |       | 3,896,100   |       |
|                                                                                                                                                            |       |        |       |        |       |
| LONG-TERM  NOTES PAYABLE, net of current maturities                                                                                                             |       | 75,000      |       | 150,000     |       |
|                                                                                                                                                            |       |        |       |        |       |
| COMMITMENTS  (Note 7)                                                                                                                                           |       |        |       |        |       |
|                                                                                                                                                            |       |        |       |        |       |
| SHAREHOLDERS’  EQUITY:                                                                                                                                     |       |        |       |        |       |
| Common stock, $0.20 par  value; Authorized 8,000,000 shares; Issued 6,039,040 (2010 and 2009) shares; Outstanding  3,887,030 (2010) and 3,838,461 (2009) shares |       | 1,207,800   |       | 1,207,800   |       |
| Capital  in excess of par value                                                                                                                                 |       | 8,544,000   |       | 8,508,400   |       |
| Retained  earnings                                                                                                                                              |       | 17,391,700  |       | 18,062,800  |       |
|                                                                                                                                                            |       | 27,143,500  |       | 27,779,000  |       |
| Less  treasury stock, at cost                                                                                                                                   |       | (11,721,400 | )          | (11,883,700 | )          |
|                                                                                                                                                            |       | 15,422,100  |       | 15,895,300  |       |
| TOTAL                                                                                                                                                           |       | $           | 19,360,400 |        | $          | 19,941,400 |   |

 

See notes to financial statements.

 

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**EDUCATIONAL DEVELOPMENT CORPORATION**

**STATEMENTS OF EARNINGSFOR THE YEARS ENDED FEBRUARY 28,**

 
| ** **                                                            | ** ** | **2010**    | ** ** | **2009**    | ** ** |
|-----------------------------------------------------------------------|------------|-------------|------------|-------------|------------|
|                                                                  |       |        |       |        |       |
| GROSS SALES                                                           |       | $           | 40,451,300 |        | $          | 40,283,500 |   |
| Less discounts and allowances                                         |       | (13,209,700 | )          | (12,462,200 | )          |
| Transportation revenue                                                |       | 1,429,200   |       | 1,577,100   |       |
| NET REVENUES                                                          |       | 28,670,800  |       | 29,398,400  |       |
| COST OF SALES                                                         |       | 10,538,300  |       | 10,581,600  |       |
| Gross margin                                                          |       | 18,132,500  |       | 18,816,800  |       |
|                                                                  |       |        |       |        |       |
| OPERATING EXPENSES:                                                   |       |        |       |        |       |
| Operating and selling                                                 |       | 7,032,400   |       | 7,358,300   |       |
| Sales commissions                                                     |       | 6,130,500   |       | 6,645,100   |       |
| General and administrative                                            |       | 2,042,400   |       | 1,849,300   |       |
|                                                                  |       | 15,205,300  |       | 15,852,700  |       |
|                                                                  |       |        |       |        |       |
| OTHER INCOME                                                          |       | 125,200     |       | 174,800     |       |
|                                                                  |       |        |       |        |       |
| EARNINGS BEFORE INCOME TAXES                                          |       | 3,052,400   |       | 3,138,900   |       |
|                                                                  |       |        |       |        |       |
| INCOME TAXES                                                          |       | 1,138,800   |       | 1,226,300   |       |
|                                                                  |       |        |       |        |       |
| NET EARNINGS                                                          |       | $           | 1,913,600  |        | $          | 1,912,600 |   |
|                                                                  |       |        |       |        |       |
| BASIC  AND DILUTED EARNINGS PER SHARE:                                |       |        |       |        |       |
|                                                                  |       |        |       |        |       |
| Basic                                                                 |       | $           | 0.49       |        | $          | 0.50 |   |
|                                                                  |       |        |       |        |       |
| Diluted                                                               |       | $           | 0.49       |        | $          | 0.50 |   |
|                                                                  |       |        |       |        |       |
| WEIGHTED  AVERAGE NUMBER OF COMMON AND EQUIVALENT SHARES OUTSTANDING: |       |        |       |        |       |
|                                                                  |       |        |       |        |       |
| Basic                                                                 |       | 3,866,510   |       | 3,796,709   |       |
|                                                                  |       |        |       |        |       |
| Diluted                                                               |       | 3,868,082   |       | 3,797,785   |       |

 

See notes to financial statements.

 

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**EDUCATIONAL DEVELOPMENT CORPORATION**

**STATEMENTS OF SHAREHOLDERS’ EQUITYFOR THE YEARS ENDED FEBRUARY 28,**

 
| ** **                           | ** ** | **Common  Stock**                | ** ** | ** ** | ** ** | ** **      | ** ** | ** **   | ** ** | ** **          | ** ** | ** **  | ** ** |
|--------------------------------------|------------|----------------------------------|------------|------------|------------|-----------------|------------|--------------|------------|---------------------|------------|-------------|------------|
| ** **                           | ** ** | **(par  value $0.20 per share)** | ** ** | ** ** | ** ** | ** **      | ** ** | ** **   | ** ** | ** **          | ** ** | ** **  | ** ** |
| ** **                           | ** ** | **Number  of**                   | ** ** | ** ** | ** ** | **Capital  in** | ** ** | ** **   | ** ** | **Treasury  Stock** | ** ** | ** **  | ** ** |
| ** **                           | ** ** | **Shares**                       | ** ** | ** ** | ** ** | **Excess  of**  | ** ** | **Retained** | ** ** | **Number  of**      | ** ** | ** **  | ** ** | **Shareholders’** | ** ** |
| ** **                           | ** ** | **Issued**                       | ** ** | **Amount** | ** ** | **Par  Value**  | ** ** | **Earnings** | ** ** | **Shares**          | ** ** | **Amount**  | ** ** | **Equity** | ** ** |
|                                 |       |                             |       |       |       |            |       |         |       |                |       |        |       |   |   |
| BALANCE—March 1,  2008     |       | 5,806,840                        |       | $          | 1,161,400  |            | $          | 7,706,100    |       | $                   | 19,206,100 |        | 2,100,095  |   | $ | (11,276,500 | ) | $ | 16,797,100 |   |
|                                 |       |                             |       |       |       |            |       |         |       |                |       |        |       |   |   |
| Purchases  of treasury stock         |       |                             |       |       |       |            |       |         |       | 144,848             |       | (802,800    | )          | (802,800 | ) |
| Sales  of treasury stock             |       |                             |       |       |       |            |       |         |       | (44,364             | )          | 195,600     |       | 195,600 |   |
| Exercise  of options ($3.66/share)   |       | 232,200                          |       | 46,400     |       | 802,300         |       |         |       |                |       |        |       | 848,700 |   |
| Dividends  paid ($0.80/share)        |       |                             |       |       |       |            |       | (3,055,900   | )          |                |       |        |       | (3,055,900 | ) |
| Net  earnings                        |       |                             |       |       |       |            |       | 1,912,600    |       |                |       |        |       | 1,912,600 |   |
| BALANCE—February 28,  2009 |       | 6,039,040                        |       | 1,207,800  |       | 8,508,400       |       | 18,062,800   |       | 2,200,579           |       | (11,883,700 | )          | 15,895,300 |   |
|                                 |       |                             |       |       |       |            |       |         |       |                |       |        |       |   |   |
| Purchases  of treasury stock         |       |                             |       |       |       |            |       |         |       | 7,919               |       | (46,400     | )          | (46,400 | ) |
| Sales  of treasury stock             |       |                             |       |       |       |            |       |         |       | (56,488             | )          | 208,700     |       | 208,700 |   |
| Dividends  declared ($0.12/share)    |       |                             |       |       |       |            |       | (466,400     | )          |                |       |        |       | (466,400 | ) |
| Dividends  paid ($0.55/share)        |       |                             |       |       |       |            |       | (2,118,300   | )          |                |       |        |       | (2,118,300 | ) |
| Stock-based  compensation            |       |                             |       |       |       | 35,600          |       |         |       |                |       |        |       | 35,600 |   |
| Net  earnings                        |       |                             |       |       |       |            |       | 1,913,600    |       |                |       |        |       | 1,913,600 |   |
| BALANCE—February 28,  2010 |       | 6,039,040                        |       | $          | 1,207,800  |            | $          | 8,544,000    |       | $                   | 17,391,700 |        | 2,152,010  |   | $ | (11,721,400 | ) | $ | 15,422,100 |   |

 

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**EDUCATIONAL DEVELOPMENT CORPORATION**

**STATEMENTSOF CASH FLOWSFOR THE YEARS ENDED FEBRUARY 28,**

 
| ** **                                                                           | ** ** | **2010**   | ** ** | **2009**   | ** ** |
|--------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
|                                                                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| CASH  FLOWS FROM OPERATING ACTIVITIES:                                               |       |       |       |       |       |
| Net  earnings                                                                        |       | $          | 1,913,600  |       | $          | 1,912,600 |   |
| Adjustments to  reconcile net earnings to net cash provided by operating activities: |       |       |       |       |       |
| Depreciation                                                                         |       | 136,500    |       | 139,800    |       |
| Deferred  income taxes                                                               |       | (41,300    | )          | (35,600    | )          |
| Stock-based  compensation                                                            |       | 35,600     |       | —     |       |
| Provision  for doubtful accounts and sales returns                                   |       | 1,207,400  |       | 1,070,600  |       |
| Changes  in assets and liabilities:                                                  |       |       |       |       |       |
| Accounts  receivable                                                                 |       | (1,259,900 | )          | (1,174,700 | )          |
| Inventories,  net                                                                    |       | (1,073,700 | )          | 2,095,700  |       |
| Prepaid  expenses and other assets                                                   |       | (73,700    | )          | (148,800   | )          |
| Accounts payable,  accrued salaries and commissions, and other current liabilities   |       | (322,000   | )          | 105,000    |       |
| Income  tax payable/receivable, net                                                  |       | (110,200   | )          | 46,000     |       |
| Total  adjustments                                                                   |       | (1,501,300 | )          | 2,098,000  |       |
| Net  cash provided by operating activities                                           |       | 412,300    |       | 4,010,600  |       |
| CASH  FLOWS FROM INVESTING ACTIVITIES:                                               |       |       |       |       |       |
| Payment  to acquire Kane/Miller                                                      |       | —     |       | (50,000    | )          |
| Kane/Miller  Obligation at closing, net of cash received                             |       | —     |       | (659,800   | )          |
| Purchases  of property and equipment                                                 |       | (5,600     | )          | (30,500    | )          |
| Net  cash used in investing activities                                               |       | (5,600     | )          | (740,300   | )          |
| CASH  FLOWS FROM FINANCING ACTIVITIES:                                               |       |       |       |       |       |
| Payments  on notes payable                                                           |       | (150,000   | )          | —     |       |
| Cash  received from exercise of stock options                                        |       | —     |       | 848,700    |       |
| Cash  received from sale of treasury stock                                           |       | 208,700    |       | 195,600    |       |
| Cash  paid to acquire treasury stock                                                 |       | (46,400    | )          | (802,800   | )          |
| Borrowings  under revolving credit agreement                                         |       | 2,200,000  |       | —     |       |
| Payments  under revolving credit agreement                                           |       | (2,200,000 | )          | —     |       |
| Dividends  paid                                                                      |       | (2,118,300 | )          | (3,055,900 | )          |
| Net  cash used in financing activities                                               |       | (2,106,000 | )          | (2,814,400 | )          |
| NET  (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                |       | (1,699,300 | )          | 455,900    |       |
| CASH  AND CASH EQUIVALENTS—BEGINNING OF YEAR                                    |       | 2,896,200  |       | 2,440,300  |       |
| CASH  AND CASH EQUIVALENTS—END OF YEAR                                          |       | $          | 1,196,900  |       | $          | 2,896,200 |   |
| SUPPLEMENTAL DISCLOSURE  OF CASH FLOW INFORMATION:                                   |       |       |       |       |       |
| Cash  paid for income taxes                                                          |       | $          | 1,290,400  |       | $          | 1,215,100 |   |
|                                                                                 |       |       |       |       |       |
| SUPPLEMENTAL DISCLOSURE  OF NONCASH INVESTING & FINANCING ACTIVITIES:       |       |       |       |       |       |
| Promissory  note to former shareholders of Kane/Miller                               |       | $          | —     |       | $          | 300,000 |   |

 

See notes to financial statements.

 

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**EDUCATIONAL DEVELOPMENT CORPORATION**

** **

**NOTES TO FINANCIAL STATEMENTS**

**YEARS ENDED FEBRUARY 28, 2010 AND 2009**

 

**1.**                      SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES

** **

***Nature of Business*****—**We distributebooks and publications through our Publishing and Usborne Books and More (“UBAM”)Divisions to book, toy and gift stores, libraries and home educators locatedthroughout the United States (“U.S.”). We are the sole U.S. distributor of books and related items, which arepublished by an England-based publishing company, Usborne, our primarysupplier.  We are also in the directpublishing market through our ownership of Kane/Miller Publishers.

 

***Estimates*****—**Our financialstatements were prepared in conformity with accounting principles generallyaccepted in the United States of America, which requires management to makeestimates and assumptions that affect the amounts and disclosures in thefinancial statements.  Actual resultscould differ from these estimates.

 

***Business Concentration*****—**A significantportion of our inventory purchases are concentrated with an England-basedpublishing company.  Purchases from thiscompany were approximately $10.0 million for the year ended February 28,2010 and $7.3 million for the year ended February 28, 2009.  Total inventory purchases for those sameperiods were approximately $13.5 million and $10.6 million, respectively.

 

***Cash and Cash Equivalents*****—**Cash and cashequivalents include cash on hand and cash on deposit in banks.  We maintain bank accounts that are insured by theFederal Deposit Insurance Corporation (FDIC) up to $250,000.  At times, cash balances may be in excess ofthe FDIC insurance limit.  The majorityof payments due from banks for third party credit card transactions processwithin two business days.  Amounts dueare classified as cash and cash equivalents at February 28, 2010 and 2009.

 

***Accounts Receivable*****—** Accountsreceivable are uncollateralized customer obligations due under normal tradeterms generally requiring payment within thirty days from the invoicedate.  Trade accounts are stated at theamount management expects to collect from outstanding balances.  Delinquency fees are not assessed.  Payments of accounts receivable are allocatedto the specific invoices identified on the customers’ remittance advice.  Accounts receivable are carried at originalinvoice amount less an estimated reserve made for returns and discounts basedon quarterly review of historical rates of returns and expected discounts to betaken.  The carrying amount of accountsreceivable is reduced, if needed, by a valuation allowance that reflectsmanagement’s best estimate of the amounts that will not be collected.

 

Managementperiodically reviews accounts receivable balances and, based on an assessmentof historical bad debts, current customer receivable balances, age ofcustomer receivable balances, customers’ financial conditions and currenteconomic trends,estimates the portion, if any, of the balance that will not be collected.  Management provides for probableuncollectible amounts through a charge to earnings and a credit to a valuationaccount based on its assessment of the current status of the individualaccounts.  Balances which remainoutstanding after management has used reasonable collection efforts are writtenoff through a charge to the valuation allowance and a credit to trade accountsreceivable.  Recoveries of tradereceivables previously written off are recorded when received.

 

***Inventories*****—**Inventories arestated at the lower of cost or market. Cost is determined using the FIFO method.  We present a portion of our inventory as anoncurrent asset.  Occasionally wepurchase book inventory in quantities in excess of what will be sold within thenormal operating cycle due to minimum order requirements of our primarysupplier.  These excess quantities areincluded in noncurrent inventory.  

 

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We estimate noncurrentinventory using the current year turnover ratio by title.  All inventory in excess of 21⁄2 years ofanticipated sales is classified as noncurrent inventory.

 

Inventories are presentednet of a valuation allowance.  Managementhas estimated and included an allowance for slow moving inventory for bothcurrent and noncurrent inventory.  Thisallowance is based on management’s analysis of inventory on hand at February 28,2010 and February 28, 2009.

 

***Property, Plant and Equipment*****—**Property, plantand equipment are stated at cost and depreciated on a straight-line basis overthe estimated useful lives, as follows:

 
| Building                        | 30 years     |
|---------------------------------|--------------|
| Machinery &  equipment | 3 - 10 years |
| Furniture & fixtures   | 3 years      |

 

***Income Taxes*****—**The Companyaccounts for income taxes using the liability method. Under this method,deferred tax assets and liabilities are determined based on the differencebetween the financial statement and the tax bases of assets and liabilitiesusing the current tax laws and rates. A valuation allowance is established whennecessary to reduce deferred tax assets to the amounts more likely than notexpected to be realized.

 

***Revenue Recognition*****—**Sales arerecognized and recorded when products are shipped.  Products are shipped FOB shipping point.  The UBAM Division’s sales are paid before theproduct is shipped.  These salesaccounted for 67% of net revenues in FY 2010 and 72% of net revenues in FY2009.

 

Estimated allowances forsales returns are recorded as sales are recognized and recorded. Managementuses a moving average calculation to estimate the allowance for sales returns.  We are not responsiblefor product damaged in transit. Damaged returns are primarily from the retailstores related to damages which occur in the stores, not in shipping to thestores.  It is industry practice toaccept returns from wholesale customers.  Management has estimated andincluded a reserve for sales returns of $100,000 and $84,000  as of February 28, 2010 and 2009,respectively.

 

Transportation revenue, theamount billed to the customer for shipping the product, is recorded whenproducts are shipped.

 

***Advertising Costs*****—**Advertising costs are expensed as incurred.  Advertisingexpenses, included in selling and operating expenses in the statements ofearnings, were $149,200 and $106,200 for the years ending February 28,2010 and 2009, respectively.

 

***Shipping and Handling Costs*****—** We classify shipping and handling costs as operatingand selling expenses in the statements of earnings.  Shippingand handling costs were $2,268,600 and $2,438,800 for the years ending February 28,2010 and 2009, respectively.

 

***Earnings per Share*****—**Basic earningsper share (“EPS”) is computed by dividing net income by the weighted averagenumber of common shares outstanding during the period.  Diluted EPS is based on the combined weightedaverage number of common shares outstanding and dilutive potential commonshares issuable which include, where appropriate, the assumed exercise ofoptions.  In computing Diluted EPS wehave utilized the treasury stock method.

 

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Thefollowing reconciles the diluted earnings per share:

 

 
| ** **                                        | ** ** | **Year Ended February 28,** | ** ** |
|---------------------------------------------------|------------|-----------------------------|------------|
| ** **                                        | ** ** | **2010**                    | ** ** | **2009** | ** ** |
| **Diluted Earnings Per Share:**                   |       |                        |       |   |   |
| Net earnings  applicable to common shareholders   |       | $                           | 1,913,600  |   | $ | 1,912,600 |   |
| ** **                                        |       |                        |       |   |   |
| **Shares:**                                       |       |                        |       |   |   |
| Weighted  average shares outstanding–basic   |       | 3,866,510                   |       | 3,796,709 |   |
| Assumed  exercise of options                      |       | 1,572                       |       | 1,076 |   |
|                                              |       |                        |       |   |   |
| Weighted  average shares outstanding–diluted |       | 3,868,082                   |       | 3,797,785 |   |
|                                              |       |                        |       |   |   |
| **Diluted Earnings Per Share**                    |       | $                           | 0.49       |   | $ | 0.50 |   |

 

There were no stock optionsfor the fiscal years ended February 28, 2010 and February 28, 2009excluded from the diluted earnings per share calculation.

 

***Fair Value of Financial Instruments*****—**For cash and cash equivalents, accounts receivable, and accountspayable, the carrying amount approximates fair value because of the shortmaturity of those instruments.

 

***Long-Lived Asset Impairment*****—** We review the value of long-lived assets for impairmentwhenever events or changes in circumstances indicate that the carrying amountof an asset may not be recoverable based on estimated future cash flows.  No impairment was noted as a result of suchreview during the years ended February 28, 2010 and 2009.

 

***Stock-Based Compensation*****—S**hare-basedpayment transactions with employees, such as stock options and restrictedstock, are measured at estimated fair value at date of grant and recognized ascompensation expense.

 

***New accounting pronouncements*****—**The Financial Accounting Standards Board (“FASB”) periodically issues newaccounting standards in a continuing effort to improve standards of financialaccounting and reporting. We have reviewed the recently issued pronouncementsand concluded that the following new accounting standards are applicable to us.

 

In February 2010, the FASB amended its authoritative guidancerelated to subsequent events to alleviate potential conflicts with currentUnited States Securities and Exchange commission (“SEC”) guidance. Effectiveimmediately, these amendments remove the requirement that an SEC filer disclosethe date through which it has evaluated subsequent events. The adoption of thisguidance did not have a material impact on our financial statements.

 

In January 2010, the FASB issued ASU No. 2010-06, whichprovides amendments to ASC Topic 820, “Fair Value Measurements and Disclosures.”ASU No. 2010-06 requires new fair value disclosures and clarifies certainexisting disclosure requirements. ASU No. 2010-06 is effective for fiscalperiods beginning after December 15, 2010 for the requirement to provideinformation on purchases, sales, issuances and settlements in the Level 3rollforward on a gross basis. All other disclosure requirements under ASU No. 2010-06are effective for interim and annual reporting periods beginning after December 15,2009. We are currently assessing the impact ASU No. 2010-06 will have onour financial

 

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statements.

 

**2.**   **INVENTORIES**

 

Inventoriesconsist of the following:

 
| ** **                      | ** ** | **February 28,** | ** ** |
|---------------------------------|------------|-----------------------|------------|
| ** **                      | ** ** | **2010**              | ** ** | **2009** | ** ** |
| Current:                        |       |                  |       |   |   |
| Book inventory                  |       | $                     | 11,310,300 |   | $ | 10,327,600 |   |
| Inventory valuation allowance   |       | (25,000               | )          | (25,000 | ) |
| Inventories net—current    |       | $                     | 11,285,300 |   | $ | 10,302,600 |   |
|                            |       |                  |       |   |   |
| Noncurrent:                     |       |                  |       |   |   |
| Book inventory                  |       | $                     | 989,000    |   | $ | 913,000 |   |
| Inventory valuation allowance   |       | (330,000              | )          | (345,000 | ) |
| Inventories net—noncurrent |       | $                     | 659,000    |   | $ | 568,000 |   |

 

**3.**                      PROPERTY, PLANTAND EQUIPMENT

** **

Property,plant and equipment consist of the following:

 
| ** **                    | ** ** | **February 28,** | ** ** |
|-------------------------------|------------|-----------------------|------------|
| ** **                    | ** ** | **2010**              | ** ** | **2009** | ** ** |
| Land                          |       | $                     | 250,000    |   | $ | 250,000 |   |
| Building                      |       | 2,124,700             |       | 2,124,700 |   |
| Machinery and equipment       |       | 2,162,900             |       | 2,157,300 |   |
| Furniture and fixtures        |       | 74,100                |       | 74,100 |   |
|                          |       | 4,611,700             |       | 4,606,100 |   |
| Less accumulated depreciation |       | (2,464,200            | )          | (2,327,700 | ) |
|                          |       | $                     | 2,147,500  |   | $ | 2,278,400 |   |

 

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**4.**       INCOME TAXES

** **

Deferredincome taxes reflect the net tax effects of temporary differences between thecarrying amounts of assets and liabilities for financial reporting purposes andthe amounts used for income tax purposes. The tax effects of significant items comprising our net deferred taxassets and liabilities as of February 28 are as follows:

 
| ** **                          | ** ** | **2010**   | ** ** | **2009**   | ** ** |
|-------------------------------------|------------|------------|------------|------------|------------|
| Current:                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Deferred tax assets:                |       |       |       |       |       |
| Allowance for doubtful accounts     |       | $          | 50,500     |       | $          | 35,300 |   |
| Inventory overhead capitalization   |       | 87,100     |       | 79,200     |       |
| Allowance for slow moving inventory |       | 9,500      |       | 9,500      |       |
| Allowance for sales returns         |       | 38,000     |       | 31,900     |       |
| Accruals                            |       | 71,800     |       | 69,600     |       |
|                                |       |       |       |       |       |
| Deferred tax assets                 |       | 256,900    |       | 225,500    |       |
|                                |       |       |       |       |       |
| Deferred tax asset—Net         |       | $          | 256,900    |       | $          | 225,500 |   |
|                                |       |       |       |       |       |
| Noncurrent:                         |       |       |       |       |       |
| Deferred tax assets:                |       |       |       |       |       |
| Allowance for slow moving inventory |       | $          | 125,400    |       | $          | 131,800 |   |
|                                |       |       |       |       |       |
| Deferred tax assets                 |       | 125,400    |       | 131,800    |       |
|                                |       |       |       |       |       |
| Deferred tax liabilities:           |       |       |       |       |       |
| Property and equipment              |       | (65,000    | )          | (81,300    | )          |
|                                |       |       |       |       |       |
| Deferred tax liabilities            |       | (65,000    | )          | (81,300    | )          |
|                                |       |       |       |       |       |
| Deferred tax asset—Net         |       | $          | 60,400     |       | $          | 50,500 |   |

 

Management has determinedthat no valuation allowance is necessary to reduce the carrying value ofdeferred tax assets as it is more likely than not that such assets arerealizable.

 

The components of income taxexpense are as follows:

 
| ** **               | ** ** | **February 28,** | ** ** |
|--------------------------|------------|-----------------------|------------|
| ** **               | ** ** | **2010**              | ** ** | **2009** | ** ** |
| Current:                 |       |                  |       |   |   |
| Federal                  |       | $                     | 990,700    |   | $ | 1,066,500 |   |
| State                    |       | 189,400               |       | 195,400 |   |
|                     |       | 1,180,100             |       | 1,261,900 |   |
| Deferred:                |       |                  |       |   |   |
| Federal                  |       | (36,800               | )          | (30,000 | ) |
| State                    |       | (4,500                | )          | (5,600 | ) |
|                     |       | (41,300               | )          | (35,600 | ) |
| Total income tax expense |       | $                     | 1,138,800  |   | $ | 1,226,300 |   |

 

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Thefollowing reconciles our expected income tax expense utilizing statutory taxrates to the actual tax expense:

 
| ** **                                       | ** ** | **February 28,** | ** ** |
|--------------------------------------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **2010**              | ** ** | **2009** | ** ** |
| Tax expense at federal statutory rate            |       | $                     | 1,037,800  |   | $ | 1,067,600 |   |
| State income tax—net of federal tax benefit |       | 120,500               |       | 124,000 |   |
| Other                                            |       | (19,500               | )          | 34,700 |   |
| Total income tax expense                         |       | $                     | 1,138,800  |   | $ | 1,226,300 |   |

 

We file our tax returns inthe US and certain state jurisdictions. We are no longer subject to income taxexaminations by tax authorities for fiscal years before 2007. Our year ended February 28,2009 is currently pending review by the Internal Revenue Service.  We are not currently the subject of any otherincome tax examinations by any tax authorities.

 

Based upon a review of ourincome tax filing positions, we believe that our positions would be sustainedupon an audit and do not anticipate any adjustments that would result in amaterial change to our financial position. Therefore, no reserves for uncertainincome tax positions have been recorded. We classify interest and penaltiesassociated with income taxes as a component of income tax expense on thestatement of earnings.

 

**5.**                      EMPLOYEEBENEFIT PLAN

** **

Wehave a profit sharing plan that incorporates the provisions of Section 401(k) ofthe Internal Revenue Code.  The 401(k) plancovers substantially all employees meeting specific age and length of servicerequirements.  Matching contributions arediscretionary and amounted to $67,900 and $80,700 in the fiscal years ended February 28,2010 and 2009, respectively.

 

**6.**                      DEBT

** **

Wehave a $2,500,000 revolving credit agreement, reduced from $5,000,000 in2009, with interest payable monthly at the greater of (a) prime rate minus0.75% or (b) 5%.  At February 28,2010, the rate in effect was 5.00%, collateralized by substantially all of ourassets and maturing on June 30, 2010. Available credit under the revolving credit agreement was $2,500,000 at February 28,2010. This agreement also contains aprovision for our use of the Bank’s letters of credit.  The Bank agrees to issue, or obtain issuanceof commercial or stand-by letters of credit provided that no letters of creditwill have an expiry date later than June 30, 2010 and that the sum of theline of credit plus the letters of credit would not exceed the borrowing basein effect at the time. The agreement contains provisions that require usto maintain specified financial ratios, restrict transactions with relatedparties, prohibit mergers or consolidation, disallow additional debt, and limitthe amount of compensation, salaries, investments, capital expenditures andleasing transactions.  Weintend to renew the bank agreement or obtain otherfinancing upon maturity.

 

Wehad no borrowings outstanding on the above revolving credit agreement at February 28,2010 and 2009.

 

The following table providesa summary of our notes payable as of February 28:

 

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| ** **                                                                               | ** ** | **2010** | ** ** | **2009** | ** ** |
|------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Notes  payable to former Kane/Miller shareholders, payments due annually, maturing  2011 |       | $        | 150,000    |     | $          | 300,000 |   |
| Less current maturities                                                                  |       | (75,000  | )          | (150,000 | )          |
| Long-term notes payable, less current maturities                                         |       | $        | 75,000     |     | $          | 150,000 |   |

 

**7.**       COMMITMENTS

** **

At February 28, 2010,wehad outstanding purchasecommitments for inventory totaling approximately $1,122,400.

 

Rent expense for the yearended February 28, 2010 was $85,800. The following table provides a summary of our future lease obligationsas of February 28, 2010:

 
| ** **               | ** ** | **Total** | ** ** | **2011** | ** ** | **2012** | ** ** | **2013** | ** ** | **2014** | ** ** | **2015** | ** ** |
|--------------------------|------------|-----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| Total lease payments due |       | $         | 137,100    |     | $          | 61,100   |       | $        | 57,300     |     | $          | 8,500    |       | $ | 5,100 |   | $ | 5,100 |   |
|                          |            |           |            |          |            |          |            |          |            |          |            |          |            |  |  |  |  |  |  |

 

**8.**                      CAPITAL STOCK,STOCK OPTIONS AND WARRANTS

** **

The Board of Directorsadopted the 1992 Incentive Stock Option Plan (the “1992 Plan”) in June of1992, which authorized us to grant up to1,000,000 stock options.  The 1992 Planexpired in June of 2002 upon which the Board of Directors adopted the 2002Stock Option Plan (the “2002 Plan”).  The2002 Plan also authorized us to grant up to1,000,000 stock options.

 

Options granted under the1992 Plan and 2002 Plan (collectively the “Incentive Plans”) vest at date ofgrant and are exercisable up to ten years from the date of grant.  The exercise price on options granted isequal to the market price at the date of grant. Options outstanding at February 28, 2010 expire beginning in July 2010through March 2014.

 

Asummary of the status of our Incentive Plans as of February 28, 2010 and2009, and changes during the years then ended is presented below:

 
| ** **                        | ** ** | **February 28,  2010** | ** ** | **February 28,  2009** | ** ** |
|-----------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                        | ** ** | ** **                  | ** ** | **Weighted**                | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| ** **                        | ** ** | ** **                  | ** ** | **Average**                 | ** ** | ** ** | ** ** | **Average** | ** ** |
| ** **                        | ** ** | ** **                  | ** ** | **Exercise**                | ** ** | ** ** | ** ** | **Exercise** | ** ** |
| ** **                        | ** ** | **Shares**                  | ** ** | **Price**                   | ** ** | **Shares** | ** ** | **Price** | ** ** |
|                              | ** ** | ** **                  |       |                        | ** ** | ** ** |   |   |   |
| Outstanding at Beginning  of Year |       | 3,000                       |       | $                           | 4.79       |   | 235,200 |   | $ | 3.67 |   |
|                              |       |                        |       |                        |       |   |   |   |   |
| Granted                           |       | 15,000                      |       | 5.25                        |       | — |   | — |   |
|                              |       |                        |       |                        |       |   |   |   |   |
| Exercised/canceled                |       | —                      |       | —                      |       | (232,200 | ) | (3.66 | ) |
|                              |       |                        |       |                        |       |   |   |   |   |
| Outstanding  at End of Year       |       | 18,000                      |       | $                           | 5.17       |   | 3,000 |   | $ | 4.79 |   |

 

Thefollowing table summarizes information about stock options outstanding at February 28,2010:

 

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| ** **           | ** ** | **Number**               | ** ** | **Weighted Average** | ** ** |
|----------------------|------------|--------------------------|------------|----------------------|------------|
| ** **           | ** ** | **Outstanding**          | ** ** | **Remaining**        | ** ** |
| **Weighted Average** | ** ** | **at February 28,** | ** ** | **Contractual**      | ** ** |
| **Exercise Price**   | ** ** | **2010**                 | ** ** | **Life (Years)**     | ** ** |
|                 |       |                     |       |                 |       |
| $                    | 2.19       |                     | 2,000      |                 | 0.4        |   |
| $                    | 5.25       |                     | 15,000     |                 | 9.8        |   |
| $                    | 10.00      |                     | 1,000      |                 | 4.0        |   |
|                 |       | 18,000                   |       |                 |       |

 

All options outstanding areexercisable at February 28, 2010.

 

**9.**                      QUARTERLYRESULTS OF OPERATIONS (UNAUDITED)

** **

Thefollowing is a summary of the quarterly results of operations for the yearsended February 28, 2010 and 2009.

 
| ** **     | ** ** | ** **   | ** ** | ** **       | ** ** | ** **       | ** ** | **Basic**     | ** ** | **Diluted**   | ** ** |
|----------------|------------|--------------|------------|------------------|------------|------------------|------------|---------------|------------|---------------|------------|
| ** **     | ** ** | **Net**      | ** ** | ** **       | ** ** | ** **       | ** ** | **Earnings**  | ** ** | **Earnings**  | ** ** |
| ** **     | ** ** | **Revenues** | ** ** | **Gross Margin** | ** ** | **Net Earnings** | ** ** | **Per Share** | ** ** | **Per Share** | ** ** |
| **2010**       |       |         |       |             |       |             |       |          | ** ** | ** **    | ** ** |
| First quarter  |       | $            | 6,390,600  |             | $          | 4,090,400        |       | $             | 415,400    |          | $          | 0.11 |   | $ | 0.11 |   |
| Second quarter |       | 6,005,900    |       | 3,553,300        |       | 225,400          |       | 0.06          |       | 0.06          |       |
| Third quarter  |       | 10,016,400   |       | 6,481,600        |       | 925,100          |       | 0.24          |       | 0.24          |       |
| Fourth quarter |       | 6,257,900    |       | 4,007,200        |       | 347,700          |       | 0.08          |       | 0.08          |       |
| Total year     |       | $            | 28,670,800 |             | $          | 18,132,500       |       | $             | 1,913,600  |          | $          | 0.49 |   | $ | 0.49 |   |
| ** **     | ** ** | ** **   | ** ** | ** **       | ** ** | ** **       | ** ** | ** **    | ** ** | ** **    | ** ** |
| **2009**       |       |         |       |             |       |             |       |          | ** ** | ** **    | ** ** |
| First quarter  |       | $            | 7,374,800  |             | $          | 4,703,700        |       | $             | 479,700    |          | $          | 0.13 |   | $ | 0.13 |   |
| Second quarter |       | 6,367,500    |       | 3,881,000        |       | 323,000          |       | 0.08          |       | 0.08          |       |
| Third quarter  |       | 9,388,200    |       | 5,964,200        |       | 649,500          |       | 0.17          |       | 0.17          |       |
| Fourth quarter |       | 6,267,900    |       | 4,267,900        |       | 460,400          |       | 0.12          |       | 0.12          |       |
| Total year     |       | $            | 29,398,400 |             | $          | 18,816,800       |       | $             | 1,912,600  |          | $          | 0.50 |   | $ | 0.50 |   |

 

**10.**               BUSINESSSEGMENTS

 

We have tworeportable segments: Publishing and Usborne Books and More (“UBAM”) which arebusiness units that offer different methods of distribution to different typesof customers.  They are managedseparately based on the fundamental differences in their operations.

 

·                  The Publishing Division markets its products to retail accounts, whichinclude book, toy and gift stores, school supply stores and museums, throughcommissioned sales representatives, trade and specialty wholesalers and aninternal telesales group.

 

·                  UBAM markets its product line through a nationwide network ofindependent sales consultants using a combination of direct sales, home showsand book fairs.  The UBAM Division alsodistributes to school and public libraries.

 

The accounting policies ofthe segments are the same as those described in the summary of significantaccounting policies.  We evaluate segment performance based on earnings(loss) before income taxes of the segments, which is defined as segment netsales reduced by direct cost of sales and direct expenses. Corporate expenses,depreciation, interest expense and income taxes are not allocated to thesegments, but are listed in the “other” column. Corporate expenses include theexecutive department, accounting 

 

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department,information services department, general office management and buildingfacilities management.  Our assetsand liabilities are not allocated on a segment basis.

 

Informationby industry segment for the years ended February 28, 2010 and 2009 is setforth below:

 

**NET REVENUES**

 
| ** **     | ** ** | **2010** | ** ** | **2009** | ** ** |
|----------------|------------|----------|------------|----------|------------|
| **Publishing** |       | $        | 9,502,700  |     | $          | 8,126,000 |   |
| **UBAM**       |       | $        | 19,168,100 |     | $          | 21,272,400 |   |
| **Other**      |       | $        | —     |     | $          | — |   |
| **Total**      |       | $        | 28,670,800 |     | $          | 29,398,400 |   |

 

**EARNINGS (LOSS) BEFORE INCOME TAXES**

 
|           | ** ** | **2010** | ** ** | **2009** | ** ** |
|----------------|------------|----------|------------|----------|------------|
| **Publishing** |       | $        | 3,263,100  |     | $          | 2,609,700 |   |
| **UBAM**       |       | $        | 3,842,200  |     | $          | 4,277,100 |   |
| **Other**      |       | $        | (4,052,900 | )        | $          | (3,747,900 | ) |
| **Total**      |       | $        | 3,052,400  |     | $          | 3,138,900 |   |

 

**11.**               STOCKREPURCHASE PLAN

** **

In April 2008, theBoard of Directors authorized us to purchase up to an additional 500,000 sharesof our common stock under the plan initiated in 1998.  This plan has no expiration date.  During fiscal year 2010, we purchased 7,919shares of common stock at an average price of $5.86 per share totalingapproximately $46,400.  The maximumnumber of shares that may be repurchased in the future is 426,233.

 

**12.**               SUBSEQUENTEVENT

** **

On March 19, 2010, wepaid the previously declared $0.12 dividend per share to shareholders of recordas of March 12, 2010.

 

******

 

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