What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2022-05-05 compared with 2021-05-13 · 121 added, 150 removed, 507 unchanged (35% of the section changed)

20 unchanged sentences

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 28, 2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the balance sheets of the Company as of February 28, 2021 and February 29, 2020, the related statements of earnings, shareholders' equity and cash flows for the years then ended, and the related notes to the financial statements and our report dated May 13, 2021 expressed an unqualified opinion.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the balance sheets of the Company as of February 28, 2022 and 2021, the related statements of earnings, shareholders' equity and cash flows for the years then ended, and the related notes to the financial statements and our report dated May 5, 2022 expressed an unqualified opinion.

Basis for Opinion

18 unchanged sentences

OTHER INFORMATION

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

15 unchanged sentences

Financial Statements

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID 483 )

Balance Sheets as of February 28, 2022 and February 28, 2021

23 unchanged sentences

Lease Agreement dated December 1, 2015 by and between the Company and Hilti, Inc., Tulsa, OK incorporated herein by reference to Exhibit 10.9 to Form 10-K dated February 28, 2019 (File No.

Amended and Restated Loan Agreement dated February 15, 2021 by and between the Company and MidFirst Bank, Tulsa, OK.

First Amendment Amended and Restated Loan Agreement dated April 1, 2021 by and between the Company and MidFirst Bank, Tulsa, OK.

Amended and Restated Loan Agreement dated February 15, 2021 by and between the Company and MidFirst Bank, Tulsa, OK is incorporated herein by reference to Exhibit 10.10 to form 10-K dated February 28, 2021 (File No.

First Amendment to the Amended and Restated Loan Agreement, dated April 1, 2021 by and between the Company and MidFirst Bank, Tulsa, OK is incorporated herein by reference to Exhibit 10.11 to Form 10-K dated February 28, 2021 (File No.

Second Amendment to the Amended and Restated Loan Agreement, dated July 16, 2021 by and between the Company and MidFirst Bank, Tulsa, OK is incorporated herein by reference to Exhibit 10.1 to Form 10-Q dated August 31, 2021 (File No.

Third Amendment to the Amended and Restated Loan Agreement, dated August 31, 2021 by and between the Company and MidFirst Bank, Tulsa, OK is incorporated herein by reference to Exhibit 10.2 to Form 10-Q dated August 31, 2021 (File No.

Fourth Amendment to the Amended and Restated Loan Agreement, dated November 19, 2021 by and between the Company and MidFirst Bank, Tulsa, OK is incorporated herein by reference to Exhibit 10.01 to Form 8-K dated November 24, 2021 (File No.

Fifth Amendment to the Amended and Restated Loan Agreement, dated April 11, 2022 by and between the Company and MidFirst Bank, Tulsa, OK.

Consent of Independent Registered Public Accounting Firm.

2 unchanged sentences

Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

XBRL Instance Document

XBRL Taxonomy Extension Schema

XBRL Taxonomy Extension Calculation Linkbase

XBRL Taxonomy Extension Definition Linkbase

XBRL Taxonomy Extension Label Linkbase

XBRL Taxonomy Extension Presentation Linkbase

Inline XBRL Instance Document

Inline XBRL Taxonomy Extension Schema

Inline XBRL Taxonomy Extension Calculation Linkbase

Inline XBRL Taxonomy Extension Definition Linkbase

Inline XBRL Taxonomy Extension Label Linkbase

Inline XBRL Taxonomy Extension Presentation Linkbase

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

4 unchanged sentences

EDUCATIONAL DEVELOPMENT CORPORATION

/s/ Randall W.

Chairman of the Board, Director, President and Chief Executive Officer

President and Chief Executive Officer

(Principal Executive Officer)

2 unchanged sentences

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

/s/ Randall W.

Chairman of the Board, Director, President and Chief Executive Officer

White, Director

President and Chief Executive Officer

(Principal Executive Officer)

/s/ Randall W.

White, Director

Chairman of the Board

Clerico, Director

/s/ Ronald McDaniel

Ronald McDaniel, Director

Kara Gae Neal

7 unchanged sentences

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Educational Development Corporation (the Company) as of February 28, 2021 and February 29, 2020, the related statements of earnings, shareholders' equity and cash flows for the years then ended, and the related notes to the financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of February 28, 2021 and February 29, 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying balance sheets of Educational Development Corporation (the Company) as of February 28, 2022 and 2021, the related statements of earnings, shareholders' equity and cash flows for the years then ended, and the related notes to the financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of February 28, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of February 28, 2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated May 5, 2022, expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

22 unchanged sentences

Cash and cash equivalents

Accounts receivable, less allowance for doubtful accounts of $ 331,900 (2021) and $ 237,400 (2020)

Accounts receivable, less allowance for doubtful accounts of

$ 336,700 (2022) and $ 331,900 (2021)

Inventories - net

Income taxes receivable

Prepaid expenses and other assets

2 unchanged sentences

PROPERTY, PLANT AND EQUIPMENT - net

DEFERRED INCOME TAX ASSET

LIABILITIES AND SHAREHOLDERS' EQUITY

5 unchanged sentences

Accrued salaries and commissions

Income taxes payable

Dividends payable

Income taxes payable

Other current liabilities

Total current liabilities

LONG-TERM DEBT - net of current maturities

DEFERRED INCOME TAXES - net

LONG-TERM DEBT - net of current maturities and debt issuance costs

DEFERRED INCOME TAX LIABILITY

OTHER LONG-TERM LIABILITIES

35 unchanged sentences

Treasury Stock

Number of Shares Issued

Capital in Excess of

Shares Issued

Capital in Excess

Shareholders'

2 unchanged sentences

Sales of treasury stock

Exercise of stock options

Dividends declared ($ 0.32 /share)

Forfeiture of restricted share awards

Share-based compensation expense (see Note 10)

Issuance of restricted share awards for vesting

BALANCE - February 28, 2021

Purchases of treasury stock

Sales of treasury stock

Issuance of restricted share awards for vesting

Dividends declared ($ 0.40 /share)

Forfeiture of restricted share awards

Share-based compensation expense (see Note 10)

5 unchanged sentences

CASH FLOWS FROM OPERATING ACTIVITIES:

Adjustments to reconcile net earnings to net cash provided by operating activities:

Adjustments to reconcile net earnings to net cash provided by/(used in) operating activities:

Depreciation and amortization

Deferred income taxes

9 unchanged sentences

Deferred revenues

Income taxes receivable/payable

Income taxes payable

Total adjustments

Net cash provided by operating activities

Net cash provided by/(used in) operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property, plant and equipment

Purchases of other assets

Net cash used in investing activities

4 unchanged sentences

Purchases of treasury stock

Cash proceeds from issuance of common stock upon exercise of stock options

Net borrowings under line of credit

Dividends paid

Net cash used in financing activities

Net cash provided by/(used in) financing activities

NET DECREASE IN CASH AND CASH EQUIVALENTS

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Actual results could differ from these estimates.

Reclassifications —Certain reclassifications have been made to the fiscal year 2021 balance sheet, statement of cash flows and footnotes to conform to the classifications used in fiscal year 2022.

These reclassifications had no effect on net earnings.

Business Concentration —A significant portion of our inventory purchases are concentrated with Usborne.

Purchases from them were approximately $ 50.8 million and $ 21.4 million for the years ended February 28, 2021 and February 29, 2020, respectively.

Total inventory purchases for those same periods were approximately $ 72.4 million and $ 33.1 million, respectively.

As of February 28, 2021 and February 29, 2020, our outstanding accounts payable due to Usborne was $ 14.6 million and $ 5.5 million, respectively.

Purchases from them were approximately $ 42,596,300 and $ 50,772,900 for the years ended February 28, 2022 and February 28, 2021, respectively.

Total inventory purchases for those same periods were approximately $ 64,670,700 and $ 72,359,900 , respectively.

As of February 28, 2022 and February 28, 2021, our outstanding accounts payable due to Usborne was $ 8,783,900 and $ 14,561,000 , respectively.

A significant portion of our UBAM division sales are facilitated through the use of social media collaboration platforms that allow our consultants to interact in real-time, or near real-time, with customers.

8 unchanged sentences

Extended payment terms are offered at certain times of the year for orders that meet minimum quantities or amounts.

During fiscal 2021, extended payment terms were granted to customers that were negatively impacted by the COVID-19 pandemic.

During fiscal year 2021, extended payment terms were granted to customers that were negatively impacted by the COVID-19 pandemic.

Delinquency fees are not assessed.

7 unchanged sentences

Management has estimated an allowance for doubtful accounts of $ 336,700 and $ 331,900 as of February 28, 2022 and February 28, 2021, respectively.

Included within this allowance is $ 93,900 of reserve for vendor discounts to sell remaining inventory as of February 28, 2021 and February 29, 2020.

Inventories —Inventories are stated at the lower of cost or net realizable value.

3 unchanged sentences

These excess quantities are included in noncurrent inventory.

We estimate noncurrent inventory using the current year turnover ratio by title.

We estimate noncurrent inventory using the current year turnover ratio by title and anticipated sales of specific titles.

For inventory that has at least twelve months of sales history, inventory in excess of 2½ years of anticipated sales is classified as noncurrent inventory.

The Company assumes title and responsibility for inventory purchased according to the contract language with our suppliers and the individual shipment terms for the order.

The majority of Usborne orders pass title at FOB-Destination Port and most Kane Miller orders pass title at FOB-Shipping Point.

The majority of Usborne and Kane Miller orders pass title at FOB-Port of Shipment.

The Company maintains insurance for the value of the inventory once the title has been passed until it is received at our warehouse (“inventory in transit”).

14 unchanged sentences

Such indicators include, among others, the nature of the asset, the projected future economic benefit of the asset, historical and future cash flows and profitability measurements.

If the carrying value of an asset exceeds the future undiscounted cash flows expected from the asset, we recognize an impairment charge for the excess of carrying value of the asset over its estimated fair value.

If the carrying value of an asset exceeds the future undiscounted cash flows expected from the asset, we recognize an impairment charge for the excess of the carrying value of the asset over its estimated fair value.

Determination as to whether and how much an asset is impaired involves management estimates and can be impacted by other uncertainties.

9 unchanged sentences

Sales taxes that are collected from customers and remitted to governmental authorities are accounted for as a pass-through liability, and therefore are excluded from net sales.

The majority of the UBAM's sales contracts have a single performance obligation and are short-term in nature.

The majority of UBAM’s sales contracts have a single performance obligation and are short-term in nature.

UBAM’s sales are generally collected at the time the product is ordered.

6 unchanged sentences

As the products included as sales incentives are shipped with the associated products ordered, there is no deferral required.

Revenues allocated to the material right are recognized in gross sales, discounts and allowances and cost of goods sold in our statement of earnings.

Revenues allocated to the material right are recognized in gross sales, discounts and allowances and cost of goods sold in our statements of earnings.

The majority of Publishing’s sales contracts have a single performance obligation and are short-term in nature.

Publishing’s sales may be collected at the time the product is shipped or the customers may be given payment terms based primarily on their credit worthiness and payment history.

Estimated allowances for sales returns, which reduce net revenues and costs of goods sold, are recorded as sales are recognized.

Estimated allowances for sales returns, which reduce net revenues and cost of goods sold, are recorded as sales are recognized.

Management uses a moving average calculation to estimate the allowance for sales returns.

14 unchanged sentences

These costs were $ 22,005,600 and $ 34,167,000 for the years ended February 28, 2022 and February 28, 2021, respectively.

Interest Expense —Interest related to our outstanding debt is recognized as incurred.

Interest expense, classified separately in the statements of earnings, was $ 561,000 and $ 888,100 for the years ended February 28, 2021 and February 29, 2020, respectively.

Earnings per Share —Basic earnings per share (“EPS”) is computed by dividing net earnings by the weighted average number of common shares outstanding during the period.

6 unchanged sentences

Weighted average shares outstanding-basic

Assumed exercise of options and issuance of nonvested restricted shares

Issuance of nonvested restricted shares

Weighted average shares outstanding-diluted

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The amendment also simplifies accounting for certain franchise taxes and disclosure of the effect of enacted change in tax laws or rates.

Topic 740 is effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

The impact of the adoption is not expected to have a material impact to our financial statements and disclosures.

Topic 740 was adopted by the Company at the beginning of fiscal year 2022 and did not have a material impact on our financial statements and disclosures.

In March 2020, the FASB issued ASU 2020-04:

5 unchanged sentences

The Company’s debt agreements include the use of alternate rates when LIBOR is not available.

We do not expect the change from LIBOR to an alternate rate will have a material impact to our financial statements and, to the extent we enter into modifications of agreements that are impacted by the LIBOR phase-out, we will apply such guidance to those contract modifications.

We do not expect the change from LIBOR to an alternate rate will have a material impact to our financial statements and, to the extent we enter into modifications of agreements that are impacted by the LIBOR phase-out, we apply such guidance to those contract modifications.

Inventories consist of the following:

February 28 (29),

Book inventory

5 unchanged sentences

Inventory in transit totaled $ 2,732,400 and $ 6,467,400 at February 28, 2022 and February 28, 2021, respectively.

Book inventory quantities in excess of what we expect will be sold within the normal operating cycle, based on 2 ½ years of anticipated sales, are included in non-current inventory.

Book inventory quantities in excess of what we expect will be sold within the normal operating cycle, based on 2 ½ years of anticipated sales, are included in noncurrent inventory.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

February 28 (29),

Building improvements

6 unchanged sentences

Property, plant and equipment-net

During fiscal year 2020, the Company began the process to upgrade the software platform that the UBAM division consultants use to monitor their business.

During fiscal year 2021, the Company placed into service these UBAM platform upgrades and continued its development of a new platform for customers to place orders.

In addition, during fiscal year 2021 the Company began construction on two new pick-pack-ship lines to increase the Company’s daily shipping capacity.

During fiscal year 2021, the Company placed into service UBAM platform upgrades that the consultants use to monitor their business and continued its development of a new platform for customers to place orders.

In fiscal year 2022, the Company put into production two new pick-pack-ship lines to increase the Company’s daily shipping capacity.

OTHER CURRENT LIABILITIES

Other current liabilities consist of the following:

February 28 (29),

Accrued royalties

6 unchanged sentences

The tax effects of significant items comprising our net deferred tax assets and liabilities are as follows:

February 28 (29),

Deferred tax assets:

8 unchanged sentences

Total deferred tax liabilities

Net deferred income tax liabilities

Net deferred income tax assets (liabilities)

The components of income tax expense are as follows:

February 28 (29),

Total income tax expense

1 unchanged sentence

federal statutory income tax rate:

February 28 (29),

federal statutory income tax rate

9 unchanged sentences

The Company has created the Educational Development Corporation Employee 401(k) Plan (“EDC 401(k) Plan”) as a benefit plan for employees offering retirement investment options as well as profit sharing with its employees, in the form of matching contributions.

The EDC 401(k) Plan includes, as an investment option, the ability to purchase shares of the Company’s stock which the Plan Administrator acquires directly from the NASDAQ.

This plan incorporates the provisions of Section 401(k) of the Internal Revenue Code that allow favorable tax treatments on investments.

1 unchanged sentence

The Company’s matching contributions are discretionary and approved annually at a meeting of the EDC 401(k) Plan’s Trustees and Company’s management.

Matching contributions made to the Plan by the Company totaled $ 126,800 and $ 146,600 during the fiscal years ended February 28, 2021 and February 29, 2020, respectively.

The EDC 401(k) Plan includes, as an investment option, the ability to purchase shares of the Company’s stock.

Employees that made contributions in this investment option historically purchased their shares directly from the Company.

Sales of our treasury stock to the EDC 401(k) Plan totaled 40,559 shares in fiscal 2020.

In fiscal year 2021, the EDC 401(k) Plan administrator began acquiring shares of the Company stock directly from the NASDAQ.

Matching contributions made to the Plan by the Company totaled $ 161,300 and $ 126,800 during the years ended February 28, 2022 and February 28, 2021, respectively.

We have both lessee and lessor arrangements.

1 unchanged sentence

Depending on the terms, leases are classified as either operating or finance leases if we are the lessee, or as operating, sales-type or direct financing leases if we are the lessor, as appropriate under Accounting Standards Codification (“ASC”) 842 - Leases.

Our lessee arrangement includes a rental agreement where we have the exclusive use of dedicated office space in San Diego, California, and qualifies as an operating lease.

Our lessor arrangements include three rental agreements for warehouse and office space in Tulsa, Oklahoma, and each qualifies as an operating lease under ASC 842.

In accordance with ASC 842, we have made an accounting policy election to not apply the new standard to lessee arrangements with a term of one year or less and no purchase option that is reasonably certain of exercise.

Our lessee arrangement includes two rental agreements where we have the exclusive use of dedicated office space in San Diego, California, as well as warehouse and office space in Layton, Utah, and both qualify as an operating lease.

Our lessor arrangements include three rental agreements for warehouse and office space in Tulsa, Oklahoma, and each qualify as an operating lease under ASC 842.

In accordance with ASC 842, we have made an accounting policy election to not apply the standard to lessee arrangements with a term of one year or less and no purchase option that is reasonably certain of exercise.

We will continue to account for these short-term arrangements by recognizing payments and expenses as incurred, without recording a lease liability and right-of-use asset.

5 unchanged sentences

The lease liability and right-of-use asset are reduced over the term of the lease as payments are made and the assets are used.

February 28 (29),

Operating lease assets:

Right-of-use asset

Right-of-use assets

Operating lease liabilities:

Current lease liability

Long-term lease liability

Current lease liabilities

Long-term lease liabilities

Remaining lease term (months)

2 unchanged sentences

Variable and short-term rental payments are recognized as costs and expenses as they are incurred.

February 28 (29),

Fixed lease cost

Fixed lease costs

Future minimum rental payments under operating leases with initial terms greater than one year as of February 28, 2022, are as follows:

4 unchanged sentences

The following table provides further information about our operating leases reported in our financial statements:

February 28 (29),

Operating cash flows – operating lease

Operating cash flows – operating leases

Operating Leases – Lessor

4 unchanged sentences

We recognize variable rental payments as revenue in the period in which the changes in facts and circumstances, on which the variable lease payments are based, occur.

On April 4, 2020, we executed an amendment to one of our existing leases that abated rental payments for the months of May, June and July 2020.

The amendment also extended the term of the lease for three additional months .

This amendment represents a lease modification and, as such, we have adjusted our fixed rental income on a straight-line basis over the remaining term starting May 1, 2020.

Future minimum payments receivable under operating leases with terms greater than one year are estimated as follows:

4 unchanged sentences

Debt consists of the following:

February 28 (29),

Line of credit

Long-term debt

Advancing term loan #1

Advancing term loan #2

Total long-term debt

Less current maturities

Long-term debt, net of current maturities

Less debt issue cost

Long-term debt, net

The Company executed an Amended and Restated Loan Agreement on February 15, 2021 (as amended the “Loan Agreement”) with MidFirst Bank (“the Bank”), which replaced the prior loan agreement and includes multiple loans.

Term Loan #1 Tranche A, originally totaling $ 13.4 million, was part of the prior loan agreement.

Term Loan #1 Tranche A has a fixed interest rate of 4.23 % with principal and interest payable monthly and a stated maturity date of December 1, 2025 .

Term Loan #1 Tranche A (“Term Loan #1”), originally totaling $ 13.4 million, was part of the prior loan agreement.

Term Loan #1 had a fixed interest rate of 4.23 % with principal and interest payable monthly and a stated maturity date of December 1, 2025 .

On April 1, 2021, the Company executed the First Amendment to the Loan Agreement which reduced the fixed interest rate on Term Loan #1 to 3.12 % and removed the prepayment premium from the Loan Agreement.

Term Loan #1 is secured by the primary office, warehouse and land.

The outstanding borrowings on Term Loan #1 were $ 10,984,700 and $ 11,497,100 as of February 28, 2021 and February 29, 2020, respectively.

The Loan Agreement also provides a $ 20.0 million revolving loan (“line of credit”) through August 15, 2022 with interest payable monthly at the Bank-adjusted LIBOR Index plus a tiered pricing rate based on the Company’s Adjusted Funded Debt to EBITDA Ratio, with a minimum rate of 3.00% (the effective rate was 3.40 % at February 28, 2022).

The Company had $ 5,245,300 of borrowings outstanding on the line of credit as of February 28, 2021.

Available credit under the revolving credit agreement was $ 9,570,200 as of February 28, 2021.

On July 16, 2021, the Company executed the Second Amendment to the Loan Agreement which increased the Maximum Revolving Principal Amount from $15.0 million to $ 20.0 million.

On August 31, 2021, the Company executed the Third Amendment to the Loan Agreement which modified the advance rates used in the borrowing base certificate.

Available credit under the revolving line of credit was approximately $ 2,276,500 and $ 9,570,200 at February 28, 2022 and February 28, 2021, respectively.

In addition, the Loan Agreement provides a $ 6.0 million Advancing Term Loan #1 to be used to finance planned equipment purchases.

The Advancing Term Loan requires interest-only payments through July 15, 2021, at which time it will convert to a 60-month amortizing term loan maturing July 15, 2026.

The Advancing Term Loan #1 required interest-only payments through July 15, 2021, at which time it was converted to a 60-month amortizing term loan maturing July 15, 2026.

The Advancing Term Loan #1 accrues interest at the Bank-adjusted LIBOR Index plus a tiered pricing rate based on the Company’s Adjusted Funded Debt to EBITDA Ratio, with a minimum rate of 3.00% (the effective rate was 3.40 % at February 28, 2022).

The Company had no borrowings under the Advancing Term Loan at February 28, 2021.

The Company had three separate loans under the prior loan agreement with the Bank:

Term Loan #1 Tranche B, Term Loan #2 and a revolving loan that were fully paid prior to executing the current Loan Agreement.

The Tranche B Loan had interest payable monthly at the Bank-adjusted LIBOR Index plus a tiered pricing rate based on the Company’s Adjusted Funded Debt to EBITDA Ratio, with a minimum rate of 2.75% .

The outstanding borrowings on the Tranche B Loan was $ 4,293,500 as of February 29, 2020.

Term Loan #2 had interest payable monthly at the Bank-adjusted LIBOR Index plus a tiered pricing rate based on the Company’s Adjusted Funded Debt to EBITDA Ratio, with a minimum rate of 2.75%.

Term Loan #2 was secured by our secondary warehouse and land.

The outstanding borrowings on Term Loan #2 was $ 3,021,100 as of February 29, 2020.

The prior loan agreement also provided a $ 10.0 million revolving loan with interest payable monthly at the Bank-adjusted LIBOR Index plus a tiered pricing rate based on the Company’s Adjusted Funded Debt to EBITDA Ratio, with a minimum rate of 2.75 %.

We had no borrowings outstanding on the line of credit at February 29, 2020.

The Advancing Term Loan and the line of credit accrue interest at a tiered rate based on our Adjusted Funded Debt to EBITDA ratio.

The current pricing tier is as follows:

On November 19, 2021, the Company executed the Fourth Amendment to the Loan Agreement which established Advancing Term Loan #2 in the principal amount of $ 10.0 million, amended the definition of LIBO Rate and LIBOR Margin and added Benchmark Replacement Provisions.

The Advancing Term Loan #2 is a 120-month amortizing loan maturing November 19, 2031 and accrues interest at the Bank-adjusted LIBOR Index plus a tiered pricing rate based on the Company’s Adjusted Funded Debt to EBITDA Ratio, with a minimum rate of 3.00% (the effective rate was 3.40 % at February 28, 2022).

Adjusted Funded Debt is defined as all long-term and short-term bank debt less the outstanding balance of Term Loan #1.

EBITDA is defined in the Loan Agreement as net income plus interest expense, income tax expense (benefit) and depreciation and amortization expenses.

The Adjusted Funded Debt to EBITDA ratio includes Adjusted Funded Debt to trailing twelve months EBITDA, reduced by specific rental income received from a third party, see Note 7.

The $20.0 million line of credit is limited to advance rates on eligible receivables and eligible inventory levels.

The advancing term loans and the line of credit accrue interest at a tiered rate based on our Adjusted Funded Debt to EBITDA ratio.

The variable interest pricing tiers are as follows:

Adjusted Funded Debt to EBITDA Ratio

2 unchanged sentences

> 1.50 but < 2.00

Adjusted Funded Debt is defined as all long-term and short-term bank debt less the outstanding balance of Term Loan #1.

EBITDA is defined in the Loan Agreement as net income plus interest expense, income tax expense (benefit) and depreciation and amortization expenses.

The Adjusted Funded Debt to EBITDA ratio includes Adjusted Funded Debt to trailing twelve month EBITDA, reduced by specific rental income received from a non-related third party, see Note 7.

The $15.0 million line of credit is limited to advance rates on eligible receivables and eligible inventory levels.

The Loan Agreement contains a provision for our use of the Bank’s letters of credit.

3 unchanged sentences

Additionally, the Loan Agreement places limitations on the amount of dividends that may be distributed and the total value of stock that can be repurchased using advances from the line of credit.

On April 16, 2020, the Company entered into a loan with the Bank of approximately $ 1.4 million pursuant to the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.

The PPP Loan had a fixed interest rate of 1.00 %, with principal and interest payments starting December 1, 2020 and a scheduled maturity date of May 1, 2022.

The Company determined the PPP loan was no longer needed and repaid the loan in full, including interest accrued to date, on May 12, 2020.

The following table reflects aggregate future maturities of long-term debt during the next five fiscal years as follows:

3 unchanged sentences

Of these inventory commitments, $ 6,635,300 were with Usborne, $ 4,687,700 with various Kane Miller publishers and the remaining $ 84,500 with other suppliers.

The Company also had outstanding purchase commitments for equipment associated with the addition of two new pick-pack-ship lines totaling $ 1,693,600 at February 28, 2021, of which $ 1,061,200 was included in accounts payable.

SHARE-BASED COMPENSATION

The Board of Directors adopted the 2002 Incentive Stock Option Plan (the “2002 Plan”) in June of 2002.

The 2002 Plan also authorized us to grant up to 2,000,000 stock options.

Options granted under the 2002 Plan vest at date of grant and are exercisable up to ten years from the date of grant.

The exercise price on options granted is equal to the market price at the date of grant .

There were no options outstanding during fiscal year 2021.

The options outstanding at the beginning of fiscal year 2020 were exercised in December 2019.

A summary of the status of our 2002 Plan as of February 28, 2021 and February 29, 2020, and changes during the years then ended is presented below:

February 28 (29),

Outstanding at beginning of year

Outstanding at end of year

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

For awards subject to service conditions, compensation expense is recognized over the vesting period on a straight-line basis.

Awards subject to performance conditions are attributed separately for each vesting tranche of the award and are recognized ratably from the service inception date to the vesting date for each tranche.

Forfeitures are recognized when they occur.

The probability of restricted share awards granted with future performance conditions is evaluated at each reporting period and share awards are updated and compensation expense is adjusted based on updated information.

In July 2018, our shareholders approved the Company’s 2019 Long-Term Incentive Plan (“2019 LTI Plan”).

The 2019 LTI Plan established up to 600,000 shares of restricted stock to be granted to certain members of management based on exceeding specified net revenues and pre-tax performance metrics during fiscal years 2019, 2020 and 2021.

Restricted shares granted under the 2019 LTI Plan “cliff vest” after five years .

The restricted share awards granted under the 2019 LTI Plan contain both service and performance conditions.

The Company recognizes share compensation expense only for the portion of the restricted share awards that are considered probable of vesting.

Shares are considered granted, and the service inception date begins, when a mutual understanding of the key terms and conditions between the Company and the employee have been established.

The fair value of these awards is determined based on the closing price of the shares on the grant date.

The probability of restricted share awards granted with future performance conditions is evaluated at each reporting period and compensation expense is adjusted based on the probability assessment.

During fiscal year 2019, the Company granted approximately 308,000 restricted shares under the 2019 LTI Plan with an average grant-date fair value of $ 9.94 per share.

5,000 restricted shares from fiscal year 2019 were forfeited during fiscal year 2021.

The remaining compensation expense for fiscal year 2019 awards, totaling approximately $ 1,307,000 , will be recognized ratably over the remaining vesting period of approximately 24 months.

No shares were granted during fiscal year 2020.

During fiscal year 2021, the Company initially granted 151,000 restricted shares under the 2019 LTI Plan with an average grant-date fair value of $ 6.30 per share.

8,000 of these shares were granted, forfeited and re-granted to remaining participants in fiscal year 2021.

In the third quarter of fiscal year 2021, the Company increased the number of shares granted for fiscal year 2021 from 151,000 to 305,000 due to revised performance expectations for the year.

The remaining compensation expense for these awards, totaling approximately $ 1,571,200 , will be recognized ratably over the remaining vesting period of approximately 48 months.

As of February 28, 2021, there are no restricted shares available for issuance as future awards under the 2019 LTI Plan.

The 2019 LTI Plan established up to 600,000 shares of restricted stock available to be granted to certain members of management based on exceeding specified net revenues and pre-tax performance metrics during fiscal years 2019, 2020 or 2021.

The Company exceeded all defined metrics during these fiscal years and 600,000 shares were granted to members of management according to the Plan.

The granted shares under the 2019 LTI Plan “cliff vest” after five years from the fiscal year that the defined metrics were exceeded.

In July 2021, our shareholders approved the Company’s 2022 Long-Term Incentive Plan (“2022 LTI Plan”).

The 2022 LTI Plan establishes up to 300,000 shares of restricted stock available to be granted to certain members of management based on exceeding specified net revenues and pre-tax performance metrics during fiscal years 2022 and 2023.

The number of restricted shares to be distributed depends on attaining the performance metrics defined by the 2022 LTI Plan and may result in the distribution of a number of shares that is less than, but not greater than, the number of restricted shares outlined in the terms of the 2022 LTI Plan.

Restricted shares granted under the 2022 LTI Plan “cliff vest” after five years from the fiscal year that the defined metrics were exceeded.

During fiscal year 2019, the Company granted 308,000 restricted shares under the 2019 LTI Plan with an average grant-date fair value of $ 9.94 per share.

In the third quarter of fiscal year 2021, 5,000 of these restricted shares were forfeited.

These shares were made available to be reissued to remaining participants upon forfeiture.

The remaining compensation expense for the outstanding awards, totaling approximately $653,500, will be recognized ratably over the remaining vesting period of approximately 12 months as of February 28, 2022.

During fiscal year 2021, the Company granted 297,000 restricted shares under the 2019 LTI Plan, including the 5,000 aforementioned shares that were previously forfeited and held in Treasury, with an average grant-date fair value of $ 6.30 per share.

The remaining compensation expense of these awards, totaling approximately $ 1,178,400 , will be recognized ratably over the remaining vesting period of approximately 36 months as of February 28, 2022.

As of February 28, 2022, no shares have been granted under the 2022 LTI Plan.

A summary of compensation expense recognized in connection with restricted share awards as follows:

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This plan has no expiration date.

During fiscal year 2021, we purchased 22,565 shares at an average price of $ 7.27 per share totaling approximately $ 163,800 under the 2019 stock repurchase plan.

During fiscal year 2022, there were no repurchases under the 2019 stock repurchase plan.

During fiscal year 2021, we purchased 22,565 shares at an average price of $ 7.27 per share totaling approximately $ 163,800 under the 2019 stock repurchase plan.

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EARNINGS (LOSS) BEFORE INCOME TAXES

FAIR VALUE MEASUREMENTS

The valuation hierarchy included in U.S.

GAAP considers the transparency of inputs used to value assets and liabilities as of the measurement date.

A financial instrument's classification within the valuation hierarchy is based on the lowest level of input that is significant to its fair value measurement.

The three levels of the valuation hierarchy and the classification of our financial assets and liabilities within the hierarchy are as follows:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 - Observable inputs other than quoted prices included within Level 1 for the asset or liability, either directly or indirectly.

If an asset or liability has a specified term, a Level 2 input must be observable for substantially the full term of the asset or liability.

Level 3 - Unobservable inputs for the asset or liability.

We do not report any assets or liabilities at fair value in the financial statements.

However, the estimated fair value of our term notes payable is estimated by management to approximate $ 11,078,800 and $ 19,155,500 as of February 28, 2021 and February 29, 2020, respectively.

FINANCIAL INSTRUMENTS

The following methods and assumptions are used in estimating the fair-value disclosures for financial instruments:

The carrying amounts reported in the balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term maturity of these instruments.

The estimated fair value of our term notes payable is estimated by management to approximate $ 24,521,600 and $ 11,078,800 as of February 28, 2022 and February 28, 2021, respectively.

Management's estimates are based on the obligations' characteristics, including floating interest rate, maturity, and collateral.

Such valuation inputs are considered a Level 2 measurement in the fair value valuation hierarchy.

DEFERRED REVENUES

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We received approximately $ 681,600 and $ 2,475,900 as of February 28, 2022 and February 28, 2021, respectively, in payments for sales orders which were, or will be, shipped out subsequent to the fiscal year end.

Orders that were included in deferred revenues predominantly shipped within the first few days of the next fiscal year.

SUBSEQUENT EVENTS

On May 11, 2021 , the Board of Directors of EDC approved a $ 0.10 dividend that will be paid to shareholders of record on Wednesday, June 2, 2021 .

On April 11, 2022, the Company executed the Fifth Amendment to the Loan Agreement which temporarily increased the maximum revolving principal amount from $ 20.0 million to $ 25.0 million.

The temporary increase period began on April 11, 2022 and ends on September 15, 2022, at which time the maximum revolving principal will automatically revert back to $20.0 million.

It also extended the termination date on the revolving loan from August 15, 2022 to April 11, 2023.

Furthermore, this amendment defines the Benchmark Replacement, as the use of LIBO Rates have been discontinued, and now uses SOFR (“Secured Overnight Financing Rate”) which is published by the Chicago Mercantile Exchange.

SOFR Margin, based upon the Adjusted Funded Debt to EBITDA Ratio increased across all four pricing tiers by 5 basis points.

Lastly, the Adjusted Funded Debt Test Default changed to 3.50:1.00 for calendar months ending before May 31, 2022, and 2.75:1.00 thereafter.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures