EDUCATIONAL DEVELOPMENT CORP 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended May 31, 2026 OR ☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission file number: 000-04957 EDUCATIONAL DEVELOPMENT CORPORATION (Exact name of registrant as specified in its charter) Delaware 73-0750007 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 5402 South 122nd East Ave , Tulsa , Oklahoma 74146 (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 the Act: Common Stock, $.20 par value EDUC NASDAQ (Title of class) (Trading symbol) (Name of each exchange on which registered) 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. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging Growth Company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ As of July 5, 2026, there were 8,524,964 shares of Educational Development Corporation Common Stock, $0.20 par value outstanding. TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements 1 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 15 Item 3. Quantitative and Qualitative Disclosures About Market Risk 21 Item 4. Controls and Procedures 21 PART II. OTHER INFORMATION Item 1. Legal Proceedings 22 Item 1A. Risk Factors 22 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 22 Item 3. Defaults Upon Senior Securities 22 Item 4. Mine Safety Disclosures 22 Item 5. Other Information 22 Item 6. Exhibits 23 Signatures 24 i Table of Contents CAUTIONARY REMARKS REGARDING FORWARD-LOOKING STATEMENTS The information discussed in this Quarterly Report on Form 10-Q includes “ forward-looking statements. ” These forward-looking statements are identified by their use of terms and phrases such as “ may, ” “ expect, ” “ estimate, ” “ project, ” “ plan, ” “ believe, ” “ intend, ” “ achievable, ” “ anticipate, ” “ continue, ” “ potential, ” “ should, ” “ could, ” and similar terms and phrases. Although we believe that the expectations reflected in these forward-looking statements are reasonable, they do involve certain assumptions, risks and uncertainties and we can give no assurance that such expectations or assumptions will be achieved. Known and unknown risks, uncertainties and other factors may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, ● our success in recruiting and retaining new brand partners, ● our ability to locate and procure desired books, ● product and supplier concentrations, ● our relationship with our primary supplier and the related distribution requirements and contractual limitations, ● adverse publicity associated with our Company or the industry, ● our ability to ship timely, ● changes to our primary sales channels, including social media and party plan platforms, ● changing consumer preferences and demands, ● cybersecurity threats and incidents, ● changes in macroeconomic conditions in international trade including changes in existing and future tariffs, ● legal matters, ● reliance on information technology infrastructure, ● potential restrictions imposed in the agreements governing our indebtedness, ● our ability to obtain adequate financing for working capital and capital expenditures, ● economic and competitive conditions, regulatory changes and other uncertainties, as well as ● those factors discussed below and elsewhere in our Annual Report on Form 10-K for the year ended February 28, 2026 and in this Quarterly Report on Form 10Q, all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements in this paragraph and elsewhere in this Quarterly Report on Form 10-Q and speak only as of the date of this Quarterly Report on Form 10-Q. Other than as required under the securities laws, we do not assume a duty to update these forward-looking statements, whether as a result of new information, subsequent events or circumstances, changes in expectations or otherwise. As used in this Quarterly Report on Form 10-Q, the terms “ the Company, ” “ EDC, ” “ we, ” “ our ” or “ us ” mean Educational Development Corporation, a Delaware corporation, unless the context indicates otherwise. ii Table of Contents PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS EDUCATIONAL DEVELOPMENT CORPORATION CONDENSED BALANCE SHEETS (UNAUDITED) May 31, February 28, 2026 2026 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1,662,500 $ 1,118,400 Restricted cash 147,000 222,000 Accounts receivable, less allowance for credit losses of $ 73,000 (May 31) and $ 109,600 (February 28) 570,500 861,300 Inventories - net 16,059,900 17,412,200 Prepaid expenses and other assets 496,400 374,600 Assets held for sale 450,000 563,600 Total current assets 19,386,300 20,552,100 INVENTORIES - net 20,149,200 20,251,700 PROPERTY, PLANT AND EQUIPMENT - net 6,120,800 6,291,200 OPERATING LEASE RIGHT-OF-USE ASSETS 6,742,000 6,716,100 OTHER ASSETS 480,900 , 500,500 TOTAL ASSETS $ 52,879,200 $ 54,311,600 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $ 1,618,200 $ 1,686,400 Deferred revenues 417,000 320,500 Operating lease liabilities, current 1,315,900 1,371,700 Accrued salaries and commissions 311,700 218,600 Income taxes payable 1,153,600 1,146,800 Other current liabilities 1,241,600 1,427,500 Total current liabilities 6,058,000 6,171,500 OPERATING LEASE LIABILITIES, noncurrent 5,426,100 5,344,400 OTHER LONG-TERM LIABILITIES 200 5,200 Total liabilities 11,484,300 11,521,100 SHAREHOLDERS’ EQUITY: Common stock, $ 0.20 par value; Authorized 16,000,000 shares; Issued 12,702,080 shares; Outstanding 8,511,364 (May 31 and February 28) shares 2,540,400 2,540,400 Capital in excess of par value 13,769,400 13,769,400 Retained earnings 38,232,600 39,628,200 54,542,400 55,938,000 Less treasury stock, at cost ( 13,147,500 ) ( 13,147,500 ) Total shareholders’ equity 41,394,900 42,790,500 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 52,879,200 $ 54,311,600 See notes to condensed financial statements (unaudited). 1 Table of Contents EDUCATIONAL DEVELOPMENT CORPORATION CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended May 31, 2026 2025 PRODUCT REVENUES, net of discounts and allowances $ 4,537,400 $ 6,764,800 Transportation revenue 218,400 341,600 NET REVENUES 4,755,800 7,106,400 COST OF GOODS SOLD 1,934,500 2,969,300 Gross margin 2,821,300 4,137,100 OPERATING EXPENSES Operating and selling 677,000 994,600 Sales commissions 1,348,700 2,012,100 General and administrative 2,070,400 2,694,900 Total operating expenses 4,096,100 5,701,600 INTEREST EXPENSE 600 504,300 OTHER (INCOME) LOSS 103,700 ( 619,500 ) LOSS BEFORE INCOME TAXES ( 1,379,100 ) ( 1,449,300 ) INCOME TAX EXPENSE (BENEFIT) 16,500 ( 374,100 ) NET LOSS $ ( 1,395,600 ) $ ( 1,075,200 ) BASIC AND DILUTED LOSS PER SHARE Basic $ ( 0.16 ) $ ( 0.13 ) Diluted $ ( 0.16 ) $ ( 0.13 ) WEIGHTED AVERAGE NUMBER OF COMMON AND EQUIVALENT SHARES OUTSTANDING: Basic 8,511,364 8,583,201 Diluted 8,511,364 8,583,201 Dividends per share $ - $ - See notes to condensed financial statements (unaudited). 2 Table of Contents EDUCATIONAL DEVELOPMENT CORPORATION CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS ’ EQUITY (UNAUDITED) FOR THE THREE MONTHS ENDED MAY 31, 2026 Common Stock (par value $0.20 per share) Treasury Stock Number of Shares Issued Amount Capital in Excess of Par Value Retained Earnings Number of Shares Amount Shareholders’ Equity BALANCE - February 28, 2026 12,702,080 $ 2,540,400 $ 13,769,400 $ 39,628,200 4,190,716 $ ( 13,147,500 ) $ 42,790,500 Net loss - - - ( 1,395,600 ) - - ( 1,395,600 ) BALANCE - May 31, 2026 12,702,080 $ 2,540,400 $ 13,769,400 $ 38,232,600 4,190,716 $ ( 13,147,500 ) $ 41,394,900 FOR THE THREE MONTHS ENDED MAY 31, 2025 Common Stock (par value $0.20 per share) Accumulated Treasury Stock Number of Shares Issued Amount Capital in Excess of Par Value Retained Earnings Other Comprehensive Loss Number of Shares Amount Shareholders’ Equity BALANCE – February 28, 2025 12,702,080 $ 2,540,400 $ 13,800,000 $ 37,303,000 $ ( 15,400 ) 4,118,879 $ ( 13,060,400 ) $ 40,567,600 Change in fair value of interest rate exchange agreement - - - - 15,400 - - 15,400 Net loss - - - ( 1,075,200 ) - - - ( 1,075,200 ) BALANCE - May 31, 2025 12,702,080 $ 2,540,400 $ 13,800,000 $ 36,227,800 $ - 4,118,879 $ ( 13,060,400 ) $ 39,507,800 See notes to condensed financial statements (unaudited). 3 Table of Contents EDUCATIONAL DEVELOPMENT CORPORATION CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) Three Months Ended May 31, 2026 2025 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ ( 1,395,600 ) $ ( 1,075,200 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 273,100 366,100 Deferred income taxes - ( 390,600 ) Provision for credit losses 6,000 12,000 Provision for inventory valuation allowance 36,000 36,000 Net loss (gain) on sale of assets ( 800 ) 57,000 Impairment loss on assets 113,600 - Changes in assets and liabilities: Accounts receivable 284,800 113,700 Inventories - net 1,418,800 2,611,900 Prepaid expenses and other assets ( 108,900 ) ( 47,800 ) Accounts payable ( 68,200 ) ( 329,000 ) Accrued salaries and commissions and other liabilities ( 97,800 ) ( 166,400 ) Deferred revenues 96,500 ( 26,300 ) Income taxes payable/receivable 6,800 235,100 Total adjustments 1,959,900 2,471,700 Net cash provided by operating activities 564,300 1,396,500 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property, plant and equipment ( 96,000 ) ( 207,400 ) Proceeds from sale of assets 800 45,000 Net cash used in investing activities ( 95,200 ) ( 162,400 ) CASH FLOWS FROM FINANCING ACTIVITIES Payments on term debt - ( 450,000 ) Net cash used in financing activities - ( 450,000 ) NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 469,100 784,100 CASH, CASH EQUIVALENTS AND RESTRICTED CASH - BEGINNING OF PERIOD 1,340,400 976,500 CASH, CASH EQUIVALENTS AND RESTRICTED CASH - END OF PERIOD $ 1,809,500 $ 1,760,600 SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION Cash paid for interest $ 600 $ 468,300 Cash (received)/paid for income taxes - net of refunds $ 9,700 $ ( 218,600 ) NONCASH TRANSACTIONS Leased assets obtained in exchange for operating lease liabilities $ 305,100 $ 26,200 See notes to condensed financial statements (unaudited). 4 Table of Contents NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) Note 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying Unaudited Condensed Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim condensed financial information and in accordance with the rules and regulations of the Securities and Exchange Commission. The Unaudited Condensed Financial Statements include all adjustments considered necessary for a fair presentation of the financial position and results of operations for the interim periods presented. Such adjustments consist only of normal recurring items, unless otherwise disclosed herein. Accordingly, the Unaudited Condensed Financial Statements do not include all of the information and notes required by GAAP for complete financial statements. However, we believe that the disclosures made are adequate to make the information not misleading. These interim Unaudited Condensed Financial Statements should be read in conjunction with our audited financial statements as of and for the year ended February 28, 2026 included in our Form 10-K. The results of operations for interim periods are not necessarily indicative of the results to be expected for a full year due to the seasonality of our product sales. Use of Estimates in the Preparation of Financial Statements The preparation of the Unaudited Condensed Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates. Significant Accounting Policies Our significant accounting policies, other than the adoption of new accounting pronouncements separately documented herein and unless otherwise disclosed, are consistent with those disclosed in Note 1 to our audited financial statements as of and for the year ended February 28, 2026 included in our Form 10-K. Reclassifications Certain reclassifications have been made to the May 31, 2025 condensed financial statements to conform to the May 31, 2026 condensed financial statements presentation. These reclassifications had no effect on net earnings. 5 Table of Contents New Accounting Pronouncements The Financial Accounting Standards Board (“FASB”) periodically issues new accounting standards in a continuing effort to improve standards of financial accounting and reporting. We have reviewed the recently issued pronouncements and concluded the following new accounting standard updates (“ASU”) apply to us: New Accounting Standards or Updates Not Yet Adopted In December 2025, the FASB issued ASU 2025-12, Codification Improvements (“ASU 2025-12”). ASU 2025-12 addresses suggestions received from stakeholders regarding the Accounting Standards Codification and makes other incremental improvements to U.S. GAAP. The update represents changes to the Codification that clarify, correct errors in or make other improvements to a variety of topics that are intended to make it easier to understand and apply. ASU 2025-12 is effective for fiscal years beginning after December 15, 2026 and interim periods within those fiscal years. Entities are required to apply the amendments to ASC 260 retrospectively. All other amendments may be applied prospectively or retrospectively. We have adopted ASU 2025-12 and implemented its changes. In December 2025, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2025-11, Interim Reporting (Topic 270) Improvements to Interim Disclosure Requirements. The standard clarifies disclosure requirements for interim financial statements and is effective for interim periods beginning after December 15, 2027. Early adoption is permitted. We are currently evaluating the impact this ASU may have on our financial statement disclosures. In September 2025, the FASB issued ASU 2025-06, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software (“ASU 2025-06”), which requires software capitalization to begin when both of the following occur: (1) management has authorized and committed to funding the software project; and (2) it is probable that the project will be completed and the software will be used to perform the function intended. For public entities, the provisions within ASU 2025-06 are effective for the first annual and interim reporting periods beginning after December 15, 2027, with early adoption permitted. The provisions within ASU 2025-06 allow for a prospective, modified, or retrospective transition approach. The Company is currently evaluating this ASU to determine its impact on the Company’s financial statements and disclosures. 6 Table of Contents In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses , which requires disclosure about the types of costs and expenses included in certain expense captions presented on the income statement. The new disclosure requirements are effective for the Company’s annual periods beginning March 1, 2027, and interim periods beginning March 1, 2028, with early adoption permitted, and may be applied either prospectively or retrospectively. The Company is currently evaluating the ASU to determine its impact on the Company’s financial statements and disclosures. Note 2 – CASH The table below reconciles cash, cash equivalents and restricted cash as reported in the balance sheets to the total of the same amounts shown in the statements of cash flows: May 31, 2026 May 31, 2025 Cash and cash equivalents $ 1,662,500 $ 1,040,200 Restricted cash 147,000 720,400 Total cash, cash equivalents and restricted cash shown in the statements of cash flows $ 1,809,500 $ 1,760,600 The Company has contracted with Nexio and PayPal, Inc., third-party merchant service processors, to capture Visa, Discover, Mastercard and PayPal payments from customers. Approximately 90% of all payments received by the Company are channeled through these processors. These processors hold cash payments received from customers in reserve for a specified number of days to offset any potential chargebacks. The Company also has a short-term certificate of deposit with the Company’s bank as collateral for business credit card use. The Company has classified the cash held in reserves by Nexio and PayPal and the restricted certificate of deposit as restricted cash. Note 3 – ASSETS HELD FOR SALE Equipment During the second quarter of fiscal year 2025, the Company entered into a triple-net lease agreement for approximately 111,000 square feet of available office and warehouse space in the Hilti Complex to a new tenant. To create space for this new tenant, the Company removed three production lines from the warehouse before July 31, 2024. As a result, in the second quarter of fiscal 2025, the Company made available and committed to sell the disassembled equipment. The Company is actively marketing unused equipment using a national on-line auction house as of May 31, 2026. The Company is subject to the presentation and disclosure requirements since the equipment meets all the criteria and is classified as an “Asset Held for Sale.” Once management determined that the disassembled equipment met the criteria to be classified as held for sale, the Company ceased depreciation of the asset and reported it separately on the balance sheet, beginning on August 31, 2024. In the third quarter of fiscal 2026, the Company evaluated the carrying amount of the assets and the estimated fair values less costs to sell and recorded an impairment loss on the assets of $ 287,100 . In the first quarter of fiscal 2027 the Company again evaluated the carrying amount of the assets and the estimated fair values less costs to sell and recorded another impairment loss on the assets of $ 113,600 , further reducing the assets held for sale account. The Company records assets held for sale at the lower of their carrying value or fair value less costs to sell. The total carrying value of assets held for sale was $ 450,000 and $ 563,600 as of May 31, 2026, and February 28, 2026, respectively, and is separately recorded on the balance sheet. 7 Table of Contents Note 4 – INVENTORIES Inventories consist of the following: May 31, 2026 February 28, 2026 Current: Product inventory $ 16,431,000 $ 17,771,000 Inventory valuation allowance ( 371,100 ) ( 358,800 ) Inventories net – current $ 16,059,900 $ 17,412,200 Noncurrent: Product inventory $ 21,010,200 $ 21,056,700 Inventory valuation allowance ( 861,000 ) ( 805,000 ) Inventories net – noncurrent $ 20,149,200 $ 20,251,700 Inventory in transit totalled $ 47,600 and $ 147,900 at May 31, 2026 and February 28, 2026, respectively. Product inventory quantities in excess of what we expect will be sold within the normal operating cycle, based on 2½ years of anticipated sales, are included in noncurrent inventory. Note 5 – LEASES Our lessee arrangements include six rental agreements where we have the exclusive use of dedicated office space in San Diego, California, Ogden, Utah, a warehouse space in Joplin, Missouri and three leases for office and warehouse space locally in Tulsa, Oklahoma, all of which qualify as operating leases under ASC 842. In connection with the sale of the Hilti Complex, the Company leased back a portion of the Complex for office and warehouse space. The term of the lease is 10 years, and the initial lease rate is $ 8.00 per square foot, with 2.5 % annual escalations. The Company also has two five-year renewal and extension options with 2.5% increases annually in the base rental rate of the preceding year. The Lease also includes triple-net terms, where the Company and other tenants will be responsible for utilities, insurance, property taxes, and regular maintenance. We recognize an operating lease liability on the balance sheets for each lease based on the present value of remaining minimum fixed rental payments (which includes payments under any renewal option that we are reasonably certain to exercise), using a discount rate that approximates the rate of interest we would have to pay to borrow on a collateralized basis over a similar term. Expected payments in the next twelve months are classified as current operating lease liabilities. Payments in excess of twelve months are classified as long-term operating lease liabilities. We also recognize an operating lease right-of-use asset on the balance sheets, valued at the lease liability and adjusted for prepaid or accrued rent balances existing at the time of initial recognition. The operating lease liability and right-of-use assets are reduced over the term of the lease as payments are made and the assets are used. 8 Table of Contents May 31, 2026 February 28, 2026 Operating lease assets: Right-of-use assets $ 6,742,000 $ 6,716,100 Operating lease liabilities: Current lease liabilities $ 1,315,900 $ 1,371,700 Long-term lease liabilities $ 5,426,100 $ 5,344,400 Weighted-average remaining lease term (months) 105.4 108.9 Weighted-average discount rate 6.35 % 6.36 % Minimum fixed rental payments are recognized on a straight-line basis over the life of the lease as costs and expenses in our statements of operations. Variable and short-term rental payments are recognized as costs and expenses as they are incurred. May 31, 2026 May 31, 2025 Fixed lease costs $ 388,300 $ 170,700 Future minimum rental payments under operating leases with initial terms greater than one year as of May 31, 2026, are as follows: Years ending February 28, 2027 $ 998,300 2028 1,037,700 2029 958,200 2030 929,200 2031 952,500 Thereafter 4,766,500 Total future minimum rental payments 9,642,400 Less: imputed interest ( 2,900,400 ) Total operating lease liabilities $ 6,742,000 The following table provides further information about our operating leases reported in our condensed financial statements: May 31, 2026 May 31, 2025 Operating cash outflows – operating leases $ 388,300 $ 170,700 2026 2025 NONCASH TRANSACTIONS Lease assets obtained in exchange for new lease liabilities $ 305,100 $ 26,200 The Company assesses its leases to determine whether it is reasonably certain that these renewal options will be exercised. In general, most of the office space outside of Tulsa, Oklahoma is associated with remote employees. Their continued employment determines the need for this space. Much of the warehouse space outside of the Hilti Complex is used to store non-current inventory. As the Company sells down excess inventory, less outside space will be needed, and any renewals will be for less space. The Company also considered the renewal options for the operating lease at the Hilti Complex and is not reasonably certain to exercise the renewal options. Accordingly, the renewal options are not included in the calculation of its right-of-use assets and lease liabilities, as the Company does not believe that it is reasonably certain that these renewal options will be exercised. 9 Table of Contents Note 6 – DEBT In March 2026, the Company executed a new credit agreement with Regent Bank (the Lender). The loan agreement establishes a revolving promissory note in the principal amount up to $ 2,000,000 . Interest shall be calculated each month on the outstanding borrowings. The credit agreement was secured by the assets of the Company including accounts receivable, inventory, equipment and excess land. The Lender also required the personal guarantee of Craig White, President, Chief Executive Officer, and Chairman of the Board of the Company. Available credit under the current revolving line of credit with the Company’s Lender was $ 2,000,000 as of May 31, 2026. Features of the loan agreement include: (i) $ 2.0 million revolving loan with maturity date of March 6, 2027. (i)(a) The revolving loan bears variable interest at a rate per annum equal to the U.S. Prime Rate + 2.00 %. (i)(b) The U.S. Prime Rate was 6.75 % as of May 31, 2026, making the total interest rate equal to 8.75 %. Note 7 – BUSINESS CONCENTRATION Significant portions of our inventory purchases are concentrated with an England-based publishing company, Usborne Publishing Limited (“Usborne”). During fiscal 2023, we entered into a new distribution agreement (“Agreement”) with Usborne. The Agreement includes annual minimum purchase volumes along with specific payment terms and letter of credit requirements, which if not met offer Usborne the right to terminate the Agreement on less than 30 days’ written notice. Should termination of the Agreement occur, the Company will be allowed to sell its remaining Usborne inventory for an agreed upon period, but not less than twelve months following the termination date. As of May 31, 2026, the Company did not meet the minimum purchase requirements and did not supply the letter of credit required under the Agreement, which offers Usborne the right to exercise their option to terminate the Agreement. Usborne has not notified the Company of termination of the Agreement. In addition, Usborne has refused to pay the $ 1.0 million volume rebate owed to the Company from purchases made during fiscal 2022. The Company is disputing the cancellation of the rebate but has not recognized any rebate due to its uncertainty. Additionally, under the terms in the Agreement, the Company no longer has the rights to distribute Usborne’s products to retail customers through our Publishing division. As a result, the Company discontinued selling Usborne products to retail customers in the first quarter of fiscal 2024. The following table summarizes Usborne product revenues, net of discounts, by division and inventory purchases by product type: Three Months Ended May 31, 2026 2025 Product revenues, net of discounts of Usborne products by division: PaperPie division $ 1,309,200 $ 2,539,100 % of total PaperPie Product revenues, net of discounts 33.1 % 44.4 % Publishing division - - % of total Publishing Product revenues, net of discounts 0.0 % 0.0 % Total Product revenues, net of discounts of Usborne products $ 1,309,200 $ 2,539,100 Purchases received by product type: Usborne $ - $ 43,100 % of total purchases received 0.00 % 26.1 % All other product types 435,300 122,100 % of total purchases received 100.0 % 73.9 % Total purchases received $ 435,300 $ 165,200 Total Usborne inventory owned by the Company and included in our balance sheets was $ 19,568,500 and $ 20,158,500 as of May 31, 2026 and February 28, 2026, respectively. 10 Table of Contents Note 8 – INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of significant items comprising our net deferred tax assets and liabilities are as follows: May 31, February 28 2026 2026 Deferred tax assets: Allowance for credit losses $ 19,700 $ 29,600 Inventory overhead capitalization 208,700 182,700 Inventory valuation allowance 100,200 96,900 Inventory valuation allowance – noncurrent 232,500 217,300 Allowance for sales returns 27,200 27,200 Net operating loss carry forward (1) 399,600 109,300 Disallowed interest (2) 2,001,300 2,001,300 Accruals 20,100 12,100 Total deferred tax assets 3,009,300 2,676,400 Deferred tax liabilities: Property, plant, and equipment ( 1,082,400 ) ( 1,121,600 ) Total deferred tax liabilities ( 1,082,400 ) ( 1,121,600 ) Valuation allowance (3) ( 1,926,900 ) ( 1,554,800 ) Net deferred tax assets $ - $ - (1) The Company’s net operating loss (“NOL”) carry forward was generated from losses incurred in fiscal 2025 and first quarter of fiscal 2027. The Company’s NOL can be carried forward indefinitely but are limited to an 80 % maximum offset of taxable income. (2) The Company’s disallowed interest was generated from interest expense that was not deductible for tax purposes due to a maximum allowable deduction of 30 % of taxable income. The disallowed interest is carried forward to be deducted against future income, subject to the 30 % limitation. (3) In evaluating the need for a valuation allowance and the realizability of deferred tax assets, the Company utilized the framework contained in ASC 740, “Income Taxes,” pursuant to which management analysed all positive and negative evidence available at the balance sheet date to determine whether all or some portion of the deferred tax assets will not be realized. Under this guidance, a valuation allowance must be established for deferred tax assets when it is more likely than not that they will not be realized. In conclusion, management placed significant emphasis on guidance in ASC 740, which includes that a cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome. Based upon available evidence, it was concluded on a more-likely-than-not basis that certain deferred tax assets were not realizable as of May 31, 2026 and February 28, 2026. Accordingly, a valuation allowance has been recorded to offset these deferred tax assets. The reconciliation of taxes at the federal statutory rate to our provision for income taxes for the three months ended May 31, 2026 was as follows: May 31, 2026 Amount Percentage U.S. federal statutory income tax rate $ ( 289,600 ) 21.0 % Tax credits U.S. state and local income taxes, net of federal benefit ( 85,000 ) 6.2 % Changes in valuation allowance 372,100 ( 27.0 )% Other 19,000 ( 1.4 )% Effective tax rate $ 16,500 ( 1.2 )% 11 Table of Contents The components of income tax expense (benefit) are as follows: May 31, May 31, 2026 2025 Current: Federal $ 19,600 $ 18,300 State and local 16,500 16,500 36,100 34,800 Deferred: Federal 76,900 ( 307,600 ) State and local ( 96,500 ) ( 101,300 ) ( 19,600 ) ( 408,900 ) Total income tax expense (benefit) $ 16,500 $ ( 374,100 ) The following reconciles our expected income tax rate to the U.S. federal statutory income tax rate: May 31, May 31, 2026 2025 U.S. federal statutory income tax rate 21.0 % 21.0 % U.S. state and local income taxes–net of federal benefit 6.2 % 6.1 % Valuation allowance ( 27.0 )% - % Other ( 1.4 )% ( 1.3 )% Total income tax (expense) benefit ( 1.2 )% 25.8 % Note 9 – SHIPPING AND HANDLING COSTS We classify shipping and handling costs as operating and selling expenses in the condensed statements of operations. Shipping and handling costs include postage, freight, handling costs, as well as shipping materials and supplies. These costs were $ 571,000 and $ 805,200 for the three months ended May 31, 2026 and 2025, respectively. Note 10 – BUSINESS SEGMENTS We have two reportable segments: PaperPie and Publishing. 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. Our PaperPie segment markets its products through a network of independent Brand Partners using a combination of internet sales, direct sales, home shows, and book fairs. Our Publishing segment markets its products to retail accounts, which include book, school supply, toy and gift stores, museums, trade and specialty wholesalers, through commissioned sales representatives, and our internal tele-sales group. See Note 7 for the impact of our updated Usborne distribution agreement on the Publishing segment. The accounting policies for the segments are the same as those for the rest of the Company. We evaluate segment performance based on earnings before income taxes of the segments, which is defined as segment net revenues reduced by cost of sales and direct expenses. Direct expenses are composed of payroll, commissions, general and administrative, and operating and selling expenses. Corporate expenses, depreciation, interest expense, other income, and income taxes are not allocated to the segments but are listed in the “Other” row below. Corporate expenses include the executive department, accounting department, information services department, general office management, warehouse operations and building facilities management. Our assets and liabilities are not allocated on a segment basis. Separate financial information is regularly evaluated by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources. For the Company, the Chief Executive Officer is the CODM. Information by reporting segment for the three-month periods ended May 31, 2026 and 2025, are as follows: NET REVENUES Three Months Ended May 31, 2026 2025 PaperPie $ 4,174,900 $ 6,060,300 Publishing 580,900 1,046,100 Total $ 4,755,800 $ 7,106,400 12 Table of Contents LOSS BEFORE INCOME TAXES Three Months Ended May 31, 2026 2025 PaperPie $ 378,600 $ 461,700 Publishing 91,000 207,800 Other ( 1,848,700 ) ( 2,118,800 ) Total $ ( 1,379,100 ) $ ( 1,449,300 ) PUBLISHING OPERATING RESULTS The following table summarizes the operating results of the Publishing segment for the three months ended May 31, 2026 and 2025: Three Months Ended May 31, 2026 2025 Net revenues $ 580,900 $ 1,046,100 Cost of goods sold 251,800 500,000 Gross margin 329,100 546,100 Operating expenses: Operating and selling 58,800 82,300 Sales commissions 11,900 30,500 General and administrative 167,400 225,500 Total operating expenses 238,100 338,300 Operating income $ 91,000 $ 207,800 PAPERPIE OPERATING RESULTS The following table summarizes the operating results of the PaperPie segment for the three months ended May 31, 2026 and 2025: Three Months Ended May 31, 2026 2025 Net revenues $ 4,174,900 $ 6,060,300 Cost of goods sold 1,682,700 2,469,300 Gross margin 2,492,200 3,591,000 Operating expenses Operating and selling 502,900 739,600 Sales commissions 1,336,800 1,981,500 General and administrative 273,900 408,200 Total operating expenses 2,113,600 3,129,300 Operating income $ 378,600 $ 461,700 13 Table of Contents Information for the Other segment above for the three months ended May 31, 2026 and 2025 is set forth below: OTHER NON-SEGMENT LOSS BEFORE INCOME TAXES Three Months Ended May 31, 2026 2025 Operating and selling: Freight $ 85,900 $ 149,700 Computer support 29,400 23,000 Total operating and selling expenses 115,300 172,700 General and administrative: Payroll 750,200 963,200 Depreciation 256,200 276,700 Building and warehouse rents 390,600 237,700 Outside services 49,300 151,600 Property insurance 57,900 74,800 Professional service fees 56,400 59,700 Dues and subscriptions 73,600 53,500 Other ( 5,100 ) 244,100 Total general and administrative expenses 1,629,100 2,061,300 Interest expense 600 504,300 Other (income) loss 103,700 ( 619,500 ) Total other non-segment loss before income taxes $ 1,848,700 $ 2,118,800 Note 11 – FINANCIAL INSTRUMENTS The following methods and assumptions are used in estimating the fair-value disclosures for financial instruments: - The carrying amounts reported on 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 assets held for sale was $ 450,000 as of May 31, 2026 and $ 563,600 February 28, 2026, respectively. Note 12 – DEFERRED REVENUES The Company’s PaperPie division receives payments on orders in advance of shipment. Any payments received prior to the end of the period that were not shipped as of May 31, 2026 or February 28, 2026 are recorded as deferred revenues on the balance sheets. We received approximately $ 417,000 and $ 320,500 as of May 31, 2026 and February 28, 2026, respectively, in payments for sales orders which were, or will be, shipped out subsequent to the end of the period. 14 Table of Contents Item 2. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Factors Affecting Forward-Looking Statements See “ Cautionary Remarks Regarding Forward-Looking Statements ” in the front of this Quarterly Report on Form 10-Q. Overview We are the owner and exclusive publisher of Kane Miller children’s books; Learning Wrap-Ups, maker of educational manipulatives; and SmartLab Toys, maker of STEAM-based toys and games. We are also the exclusive United States Multi-Level Marketing (“MLM”) distributor of Usborne Publishing Limited (“Usborne”) children’s books. Significant portions of our product offering and inventory are concentrated with Usborne. Our distribution agreement with Usborne includes annual minimum purchase volumes along with specific payment terms, which, if not met or if payments are not received in a timely manner, offer Usborne the right to terminate the agreement. During fiscal 2025 and fiscal 2026, the Company did not meet the minimum purchase volumes and certain payments were not received timely. No notification of non-compliance or termination has been received from Usborne. Should termination of the agreement occur, the Company will be allowed, at a minimum, to sell through our remaining Usborne inventory over a period of twelve months following the termination date. We sell our products through two separate divisions, PaperPie and Publishing. These two divisions each have their own customer base. The PaperPie division markets our complete line of products through a network of independent Brand Partners using a combination of home shows, internet party events, and book fairs. The Publishing division markets Kane Miller, Learning Wrap-Ups, and SmartLab Toys on a wholesale basis to various retail accounts. All other supporting administrative activities are recognized as other expenses outside of our two divisions. Other expenses consist primarily of compensation for our office, warehouse, and sales support staff as well as the cost of operating and maintaining our corporate offices, warehouses and distribution facility. The following table shows our condensed statements of operations data: Three Months Ended May 31, 2026 2025 Product revenues, net of discounts and allowances $ 4,537,400 $ 6,764,800 Transportation revenue 218,400 341,600 Net revenues 4,755,800 7,106,400 Cost of goods sold 1,934,500 2,969,300 Gross margin 2,821,300 4,137,100 Operating expenses Operating and selling 677,000 994,600 Sales commissions 1,348,700 2,012,100 General and administrative 2,070,400 2,694,900 Total operating expenses 4,096,100 5,701,600 Interest expense 600 504,300 Other (income) expense 103,700 (619,500 ) Loss before income taxes (1,379,100 ) (1,449,300 ) Income tax expense (benefit) 16,500 (374,100 ) Net loss $ (1,395,600 ) $ (1,075,200 ) See the detailed discussion of revenues, gross margin and general and administrative expenses by reportable segment below. The following is a discussion of significant changes in the non-segment related general and administrative expenses, other income and expenses and income taxes during the respective periods. 15 Table of Contents Non-Segment Operating Results for the Three Months Ended May 31, 2026 Total operating expenses not associated with a reporting segment decreased $0.5 million, or 22.7%, to $1.7 million for the three-month period ended May 31, 2026, when compared to $2.2 million for the same quarterly period a year ago. Operating expenses decreased primarily as a result of a $0.2 million decrease in labor expenses and a $0.1 million decrease in freight expense, due primarily to a lower number of outbound shipments, and a $0.1 million decrease in outside services expense as well as a $0.1 million decrease in various other general and administrative expenses. Interest expense decreased $0.5 million, or 100.0%, to $0.0 million for the three months ended May 31, 2026, when compared to $0.5 million for the same quarterly period a year ago, due to reduced borrowings of debt, period over period. Income taxes increased $0.4 million, or 100.0%, to $0.0 million expense for the three months ended May 31, 2026, from a tax benefit of $0.4 million for the same quarterly period a year ago, resulting primarily from a decrease in gross sales along with tax valuation allowance offsetting our net operating loss benefit due to the uncertainty that our deferred tax asset will be realizable. Our effective tax rate decreased to (1.2)% for the quarter ended May 31, 2026, from 25.8% for the quarter ended May 31, 2025 due primarily to sales mix fluctuations between states and the tax valuation allowance booked during the quarter. Our tax rates are lower than the federal statutory rate of 21% due to the inclusion of state income and franchise taxes offset by the tax valuation allowance. PaperPie Operating Results for the Three Months Ended May 31, 2026 The following table summarizes the operating results of the PaperPie segment for the three months ended May 31, 2026 and 2025: Three Months Ended May 31, 2026 2025 Net revenues $ 4,174,900 $ 6,060,300 Cost of goods sold 1,682,700 2,469,300 Gross margin 2,492,200 3,591,000 Operating expenses Operating and selling 502,900 739,600 Sales commissions 1,336,800 1,981,500 General and administrative 273,900 408,200 Total operating expenses 2,113,600 3,129,300 Operating income $ 378,600 $ 461,700 Average number of active Brand Partners 5,300 7,700 PaperPie Operating Results for the Three Months Ended May 31, 2026 PaperPie net revenues decreased $1.9 million, or 31.1%, to $4.2 million during the three months ended May 31, 2026, when compared to $6.1 million during the same period a year ago. The average number of active brand partners in the first quarter of fiscal 2027 was 5,300, a decrease of 2,400, or 31.2%, from 7,700 average active brand partners selling in the first quarter of fiscal 2026. The Company reports the average number of active Brand Partners as a key indicator for this division. Recruiting and maintaining Brand Partners has been negatively impacted by several factors including inflation and our distribution agreement with Usborne whereby Usborne actively sells their products through discounted retailers in the U.S. market. Inflation was most evident in the increase of food and fuel prices, both impacting the disposable income of our target customer base, which is families with small children. Sales during fiscal 2026 continued to be negatively impacted by continuing inflationary pressures and we expect this to continue into the next fiscal year, as these pressures persist. Historically, when we have experienced these difficult inflationary times, our active brand partner numbers have been positively impacted as more families look for non-traditional income streams to offset rising costs of living. 16 Table of Contents Recent sales levels have also been impacted by the lack of new titles being introduced and certain out-of-stock items due to purchasing restrictions placed on us from our lender in the first three quarters of fiscal year 2026. Following the sale of the Hilti Complex in fiscal 2026 and corresponding payoff of the revolver and term loans with our bank which removed our purchasing restrictions, we have begun a conservative plan to place reorders and purchase new titles. The Company is returning to our past practice of introducing new titles, along with additional enhancements to our PaperPie e-commerce and “Backoffice” systems that are expected to create existing Brand Partner excitement and should increase our number of new recruits in this division. PaperPie gross margin decreased $1.1 million, or 30.6%, to $2.5 million during the three months ended May 31, 2026, when compared to $3.6 million during the same period a year ago. Gross margin as a percentage of net revenues for the three months ended May 31, 2026 increased to 59.7%, compared to 59.3% the same period a year ago. The increase in gross margin as a percentage of net revenues was primarily attributed to product mix. Total PaperPie operating expenses decreased $1.0 million, or 32.3%, to $2.1 million during the three-month period ended May 31, 2026, when compared to $3.1 million reported in the same quarter a year ago. Operating and selling expenses decreased $0.2 million, or 28.6%, to $0.5 million during the three-month period ended May 31, 2026, when compared to $0.7 million reported in the same quarter a year ago. These decreased expenses were due to a $0.1 million decrease in shipping costs associated with the decrease in volume of orders shipped and a decrease of $0.1 million in accruals for Brand Partner incentive trip expenses. Sales commissions decreased $0.7 million, or 35.0%, to $1.3 million during the three-month period ended May 31, 2026, when compared to $2.0 million reported in the same quarter a year ago, due primarily to the decrease in net revenues. General and administrative expenses decreased $0.1 million, or 25.0%, to $0.3 million during the three months ended May 31, 2026, when compared to $0.4 million during the same period a year ago. This decrease was due to a $0.1 million decrease in depreciation expense associated with the discontinued operation of line equipment currently in assets held for sale. Operating income for the PaperPie segment decreased $0.1 million, or 20.0% to $0.4 million during the three months ended May 31, 2026, when compared to $0.5 million reported in the same quarter a year ago. Operating income for the PaperPie division as a percentage of net revenues for the year ended May 31, 2026 was 9.1%, compared to 7.6% for the year ended May 31, 2025, an increase of 1.5%. Operating income as a percentage of net revenues changed from the prior year primarily due to both the decrease in operating and selling expenses and general and administrative expenses compared to last fiscal year. Publishing Operating Results for the Three Months Ended May 31, 2026 The following table summarizes the operating results of the Publishing segment for the three months ended May 31, 2026 and 2025: Three Months Ended May 31, 2026 2025 Net revenues 580,900 1,046,100 Cost of goods sold 251,800 500,000 Gross margin 329,100 546,100 Total operating expenses 238,100 338,300 Operating income $ 91,000 $ 207,800 17 Table of Contents Publishing Operating Results for the Three Months Ended May 31, 2026 Our Publishing division’s net revenues decreased $0.4 million, or 40.0%, to $0.6 million during the three-month period ended May 31, 2026, from $1.0 million reported in the same period a year ago. The change in net revenues was primarily from an overall sales volume decrease that was driven by the decrease in new titles available to present to our retail customers due to the purchasing restrictions in fiscal 2026 imposed by our lender. Gross margin decreased $0.2 million, or 40.0%, to $0.3 million during the three-month period ended May 31, 2026, from $0.5 million reported in the same quarter a year ago, primarily due to the decrease in net revenues. Gross margin as a percentage of net revenues increased to 56.7% during the three-month period ended May 31, 2026, from 52.2% reported in the same quarter a year ago. Gross margin as a percentage of net revenues changed primarily from additional discounts offered to retail customers in the first quarter of last year to spur sales. Total operating expenses of the Publishing segment decreased $0.1 million, or 33.4%, to $0.2 million, from $0.3 million, during the three-month periods ended May 31, 2026 and 2025, respectively. This change was primarily due to a $0.1 million decrease in different general and administrative expenses associated with the decrease in volume of orders shipped. Operating income of the Publishing division decreased $0.1 million, or 50.0%, to $0.1 from $0.2 million for the three-month periods ending May 31, 2026 and 2025, respectively. Operating income for the Publishing division as a percentage of net revenues for the year ended May 31, 2026 was 15.7%, compared to 20.0% for the year ended May 31, 2025, a decrease of 4.3%. Operating income as a percentage of net revenues changed from the prior year primarily due to the decrease in operating and selling expenses compared to last fiscal year. Liquidity and Capital Resources Prior to the last two fiscal years, which have been challenged with higher product discounting to spur sales and increased interest rates on borrowings, EDC has a history of profitability and positive cash flow. We typically fund our operations from the cash we generate. During periods of operating losses, EDC will reduce purchases and sell through excess inventory to generate cash flow. The Company expects to reduce current excess inventory levels and use the cash proceeds to offset any future operating losses until it returns to profitability. In addition, the Company sold its owned real estate and paid off the revolving line of credit and term debts with our bank. Available cash has historically been used to pay down the outstanding bank loan balances, for capital expenditures, to pay dividends, and to acquire treasury stock. During the first three months of fiscal year 2027, we experienced positive cash inflows from operations of $564,300. These cash inflows resulted from: ● net loss of $1,395,600 Adjusted for: ● depreciation and amortization expense of $273,100 ● impairment on assets held for sale of $113,600 ● provision for inventory allowance of $36,000 ● provision for credit losses of $6,000 Offset by: ● net gain on sale of assets of $800 18 Table of Contents Positively impacted by: ● decrease in inventories, net of $1,418,800 ● i ncrease in income taxes payable of $6,800 ● decrease in accounts receivable of $284,800 ● increase in deferred revenues of $96,500 Negatively impacted by: ● decrease in accounts payable of $68,200 ● decrease in accrued salaries and commissions, and other liabilities of $97,800 ● increase in prepaid expenses and other assets of $108,900 Cash used in investing activities was $95,200 for capital expenditures, consisting of $96,000 in upgrades to our proprietary systems that our PaperPie Brand Partners use to monitor their business and place customer orders offset by $800 from the sale of machinery and equipment. The Company continues to expect the cash generated from operations, specifically from the reduction of excess inventory, will provide us with the liquidity we need to support ongoing operations. Additionally, we have obtained a $2 million short-term loan to fund any short-term cash flow needs. Cash generated from operations will be used to acquire new inventory and pay down any short-term borrowings we expect to obtain. Critical Accounting 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( “ GAAP ” ). 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, provision for credit losses, 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 and in our audited financial statements as of and for the year ended February 28, 2026 included in our Form 10-K. However, we consider the following accounting policies to be more significantly dependent on the use of estimates and assumptions. 19 Table of Contents Leases Our lessee arrangements include six rental agreements where we have the exclusive use of dedicated office space in San Diego, California, Ogden, Utah, a warehouse space in Joplin, Missouri and three leases for office and warehouse space locally in Tulsa, Oklahoma, all of which qualify as operating leases under ASC 842. We recognize an operating lease liability on the balance sheets for each lease based on the present value of remaining minimum fixed rental payments (which includes payments under any renewal option that we are reasonably certain to exercise), using a discount rate that approximates the rate of interest we would have to pay to borrow on a collateralized basis over a similar term. Expected payments in the next twelve months are classified as current operating lease liabilities. Payments in excess of twelve months are classified as long-term operating lease liabilities. We also recognize an operating lease right-of-use asset on the balance sheets, valued at the lease liability and adjusted for prepaid or accrued rent balances existing at the time of initial recognition. The operating lease liability and right-of-use assets are reduced over the term of the lease as payments are made and the assets are used. The Company assesses its leases to determine whether it is reasonably certain that these renewal options will be exercised. In general, most of the office space outside of Tulsa, Oklahoma is associated with remote employees. Their continued employment determines the need for this space. Much of the warehouse space outside of the Hilti Complex is used to store non-current inventory. As the Company sells down excess inventory, less outside space will be needed, and any renewals will be for less space. The Company also considered the renewal options for the operating lease at the Hilti Complex and is not reasonably certain to exercise the renewal options. Accordingly, the renewal options are not included in the calculation of its right-of-use assets and lease liabilities, as the Company does not believe that it is reasonably certain that these renewal options will be exercised. Revenue Recognition Sales associated with product orders are recognized and recorded when products are shipped. Products are shipped FOB-Shipping Point. PaperPie’s sales are generally paid at the time the product is ordered. Sales which have been paid for but not shipped are classified as deferred revenue on the balance sheet. Sales associated with consignment inventory are recognized when reported and payment associated with the sale has been remitted. Transportation revenue represents the amount billed to the customer for shipping the product and is recorded when the product is shipped. Estimated allowances for sales returns are recorded as sales are recognized. Management uses a moving average calculation to estimate the allowance for sales returns. We are not responsible for a product damaged in transit. Damaged returns are primarily received from the retail customers of our Publishing division. This damage occurs in the stores, not in shipping to the stores, and we typically do not offer credit for damaged returns. It is an industry practice to accept non-damaged returns from retail customers. Management has estimated and included a reserve for sales returns of $0.2 million for May 31, 2026 and February 28, 2026, respectively. Inventory Our inventory contains approximately 2,000 titles, each with different rates of sale depending upon the nature and popularity of the title. Almost all of our product line is saleable as the products are not topical in nature and remain current in content today as well as in the future. Most of our products are printed in China, Europe, Singapore, India, Malaysia, and Dubai typically resulting in a four- to eight-month lead-time to have a title printed and delivered to us. 20 Table of Contents Certain inventory is maintained in a non-current classification. Management continually estimates and calculates the amount of non-current inventory. Noncurrent inventory arises due to occasional purchases of titles in quantities in excess of what will be sold within the normal operating cycle, due to the minimum order requirements of our suppliers, as well as reduced sales volumes. Noncurrent inventory is estimated by management using an anticipated turnover ratio by title, based primarily on historical trends. Inventory in excess of 2½ years of anticipated sales is classified as noncurrent inventory. These inventory quantities have additional exposure for storage damages, aging of topical related content, and associated issues, and therefore have higher obsolescence reserves. Noncurrent inventory balances prior to valuation allowances were $21.0 million and $21.1 million at May 31, 2026 and February 28, 2026, respectively. Noncurrent inventory valuation allowances were $0.9 million at May 31, 2026 and $0.8 million at February 28, 2026. Brand Partners that meet certain eligibility requirements may request and receive inventory on consignment. We believe allowing Brand Partners to have consignment inventory greatly increases their ability to be successful in making effective presentations at home shows, book fairs, and other events; in summary, having consignment inventory leads to additional sales opportunities. Approximately 19.5% of our active Brand Partners maintained consignment inventory at the end of the first quarter of fiscal year 2027. Consignment inventory is stated at cost, less an estimated reserve for consignment inventory that is not expected to be sold or returned to the Company. The total cost of inventory on consignment with Brand Partners was $1.0 million and $1.1 million at May 31, 2026 and February 28, 2026, respectively. Inventories are presented net of a valuation allowance, which includes reserves for inventory obsolescence and reserves for consigned inventory that is not expected to be sold or returned to the Company. Management estimates the inventory obsolescence allowance for both current and noncurrent inventory, which is based on management’s identification of slow-moving inventory. Management has estimated a valuation allowance for both current and noncurrent inventory, including the reserve for consigned inventory, of $1.2 million at May 31, 2026 and February 28, 2026. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. Item 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures We performed an evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. This evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chairman of the Board (Principal Executive Officer) and our Chief Financial Officer and Corporate Secretary (Principal Financial and Accounting Officer). Based on that evaluation, these officers concluded that our disclosure controls and procedures were designed and were effective to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to them, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized, and reported in accordance with the time periods specified in SEC rules and forms. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events. Changes in Internal Control over Financial Reporting During the first quarter of the fiscal year covered by this report on Form 10-Q, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting. 21 Table of Contents PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS We are not a party to any material legal proceedings. Item 1A. RISK FACTORS Not required by smaller reporting company. Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 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 (1) March 1 - 31, 2026 - $ - - 288,156 April 1 - 30, 2026 - - - 288,156 May 1 - 31, 2026 - - - 288,156 Total - $ - - (1) On February 4, 2019 the Board of Directors approved a new stock repurchase plan, replacing the former 2008 stock repurchase plan. The maximum number of shares which can be purchased under the new plan is 800,000. This plan has no expiration date. Item 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. Item 4. MINE SAFETY DISCLOSURES None. Item 5. OTHER INFORMATION None . 22 Table of Contents Item 6. 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. 0-04957). 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. 0-04957). 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. 0-04957). 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. 0-04957). 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. 0-04957). 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. 0-04957). 3.7 Certificate of Amendment of Restated Certificate of Incorporation dated August 15, 2018 is incorporated herein by reference to Exhibit 3.1 to Form 8-K dated August 21, 2018 (File No. 0-04957). 10.1 Usborne Distribution Agreement dated May 16, 2022 by and between the Company and Usborne Publishing Limited, London, England is incorporated herein by reference to Exhibit 10.2 to form 10-Q dated May 31, 2022 (File No. 0-04957). 10.2 Credit Agreement dated March 6, 2026 by and between the Company and Regent Bank Broken Arrow, OK is incorporated herein by reference to Exhibit 10.01 to form 8-K dated March 11, 2026 (File No. 0-04957). 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 Chief Financial Officer and Corporate Secretary 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. 101.INS Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase 101.LAB Inline XBRL Taxonomy Extension Label Linkbase 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) * Paper Filed ** Filed Herewith 23 Table of Contents SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EDUCATIONAL DEVELOPMENT CORPORATION (Registrant) Date: July 9, 2026 By /s/ Craig M. White President, Chief Executive Officer, and Chairman of the Board (Principal Executive Officer) Date: July 9, 2026 By /s/ Dan E. O’Keefe Dan E. O’Keefe Chief Financial Officer and Corporate Secretary (Principal Financial and Accounting Officer) 24