SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

          For the quarterly period ended August 31, 2004.

[  ]

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

          For the transition period from                     to                    .

Commission file number: 0-4957

EDUCATIONAL DEVELOPMENT CORPORATION

10302 East 55^th Place, Tulsa Oklahoma 74146-6515
(Address of principal executive offices)

Registrant’s telephone number: (918) 622-4522

          Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

          Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act)

          As of August 31, 2004 there were 3,909,990 shares of Educational Development Corporation Common Stock, $0.20 par value outstanding.

Table of Contents

EDUCATIONAL DEVELOPMENT CORPORATION

PART I. FINANCIAL INFORMATION

ITEM 1

CONDENSED BALANCE SHEETS (UNAUDITED)

See notes to condensed financial statements.

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EDUCATIONAL DEVELOPMENT CORPORATION

CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)

See notes to condensed financial statements.

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EDUCATIONAL DEVELOPMENT CORPORATION

CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

See notes to condensed financial statements.

4

EDUCATIONAL DEVELOPMENT CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

See notes to condensed financial statements.

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EDUCATIONAL DEVELOPMENT CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

Note 1 - The information shown with respect to the three months and six months ended August 31, 2004 and 2003, which is unaudited, includes all adjustments which in the opinion of Management are considered to be necessary for a fair presentation of earnings for such periods. The adjustments reflected in the financial statements represent normal recurring accruals. The results of operations for the three months and six months ended August 31, 2004 and 2003, respectively, are not necessarily indicative of the results to be expected at year end due to seasonality of the product sales.

These financial statements and notes are prepared pursuant to the rules and regulations of the Securities and Exchange Commission for interim reporting and should be read in conjunction with the Financial Statements and accompanying notes contained in the Company’s Annual Report to Shareholders for the Fiscal Year ended February 29, 2004.

Certain reclassifications have been made to the fiscal 2004 financial statements to conform with the fiscal 2005 presentation.

Note 2 – Effective June 30, 2004 the Company signed a Fifth Amendment to the Credit and Security Agreement with Arvest Bank which provided a $3,500,000 line of credit through June 30, 2005. Interest is payable monthly at the Wall Street Journal prime floating rate minus 0.25% (4.25% at August 31, 2004) and borrowings are collateralized by substantially all the assets of the Company. At August 31, 2004 the Company had $2,617,000 outstanding. Available credit under the revolving credit agreement was $883,000 at August 31, 2004.

Note 3 - Inventories consist of the following:

The Company occasionally purchases book inventory in quantities in excess of what will be sold within the normal operating cycle due to minimum order requirements of the Company’s primary supplier. These amounts are included in non-current inventory.

Significant portions of inventory purchases by the Company are concentrated with an England based publishing company. Purchases from this England based publishing company were approximately $2.1 million and $3.8 million for the three months ended August 31, 2004 and 2003, respectively. Total inventory purchases from all suppliers were approximately $2.9 million and $4.5 million for the three months ended August 31, 2004 and 2003, respectively.

Purchases from this England based publishing company were approximately $3.4 million and $6.5 million for the six months ended August 31, 2004 and 2003, respectively. Total inventory purchases from all suppliers were approximately $4.8 million and $7.8 million for the six months ended August 31, 2004 and 2003, respectively.

Note 4- Basic earnings per share (“EPS”) is computed by dividing net earnings by the weighted average number of common shares outstanding during the period. Diluted EPS is based on the combined weighted average number of common shares outstanding and dilutive potential common shares issuable which include, where appropriate, the assumed exercise of options. In computing diluted EPS the Company has utilized the treasury stock method.

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EDUCATIONAL DEVELOPMENT CORPORATION

The computation of weighted average common and common equivalent shares used in the calculation of basic and diluted earnings per share (“EPS”) is shown below.

Since March 1, 1998, when the Company began its stock repurchase program, 2,146,259 shares of the Company’s common stock at a total cost of $9,889,756 have been acquired. The Board of Directors has authorized purchasing up to 2,500,000 shares as market conditions warrant.

Note 5 – The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees. Compensation cost for stock options, if any, is measured as the excess of the quoted market price of the Company’s stock at the date of grant over the amount an employee must pay to acquire the stock. The following table illustrates the effects on net income and earnings per share if the Company had applied the fair value recognition provisions of Statement of Financial Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation, as amended, to stock-based employee compensation. There were no options granted in the three month period ended August 31, 2004. There were 1,000 options granted in the six-month period ended August 31, 2004.

Note 6 — Freight costs and handling costs incurred are included in operating & selling expenses and were $480,500 and $469,000 for the three months ended August 31, 2004 and 2003, respectively. Freight costs and handling costs were $985,500 and $914,200 for the six months ended August 31, 2004 and 2003, respectively.

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EDUCATIONAL DEVELOPMENT CORPORATION

Note 7 - The Company has two reportable segments: Publishing and Usborne Books at Home (“UBAH”). These reportable segments are business units that offer different methods of distribution to different types of customers. They are managed separately based on the fundamental differences in their operations. The Publishing Division markets its products to retail accounts, which include book, school supply, toy and gift stores and museums, through commissioned sales representatives, trade and specialty wholesalers and an internal telesales group. The UBAH Division markets its product line through a network of independent sales consultants through a combination of direct sales, home shows, book fairs and the Internet.

The accounting policies of the segments are the same as those of the Company. The Company evaluates segment performance based on operating profits of the segments which is defined as segment net revenues reduced by direct cost of sales and direct expenses. Corporate expenses, including interest and depreciation, and income taxes are not allocated to the segments. The Company’s assets are not allocated on a segment basis.

Information by industry segment for the three months and six months ended August 31, 2004 and 2003 is set forth below:

ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain statements contained in this Management Discussion and Analysis are not based on historical facts, but are forward-looking statements that are based upon numerous assumptions about future conditions that may ultimately prove to be inaccurate. Actual events and results may materially differ from anticipated results described in such statements. The Company’s ability to achieve such results is subject to certain risks and uncertainties. Such risks and uncertainties include but are not limited to, product prices, continued availability of capital and financing, and other factors affecting the Company’s business that may be beyond its control.

Overview

The Company operates two separate divisions, Publishing and Usborne Books at Home (“UBAH”) to sell the Usborne line of children’s books. These two divisions each have their own customer base. The Publishing Division markets its products on a wholesale basis to various retail accounts. The UBAH Division markets its products to individual consumers as well as school and public libraries.

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EDUCATIONAL DEVELOPMENT CORPORATION

The following table sets forth consolidated statement of income data as a percentage of net revenues.

Operating Results for the Three Months Ended August 31, 2004

The Company had income before income taxes of $725,400 for the three months ended August 31, 2004 compared with $861,400 for the three months ended August 31, 2003.

Revenues