Item 1A.RISK FACTORS
We are a smaller reporting company and are not
required to provide this information.
Item 1B.UNRESOLVED STAFF COMMENTS
None
Item 1C.CYBERSECURITY
The Company has developed
and implemented a cybersecurity risk management program intended to protect the confidentiality, integrity, and availability of our critical
systems and information. We designed and assessed our cybersecurity risk based on the Payment Card Industry Data Security Standard (PCI
DSS). This does not imply that we meet any particular technical standards, specifications, or requirements, only that we use these frameworks
as a guide to help us identify, assess, and manage cybersecurity risks relevant to our business.
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Our cybersecurity risk management
program is integrated into our overall enterprise risk management program and shares common methodologies, reporting channels, and governance
processes that apply across the enterprise risk management program to other legal, compliance, strategic, operational, and financial risk
areas. Our cybersecurity risk management program includes:
We have not identified risks
from known cybersecurity threats, including as a result of any prior cybersecurity incidents, that have materially affected the Company,
including our operations, business strategy, results of operations, or financial condition. We face risks from cybersecurity threats that,
if realized, are reasonably likely to materially affect us, including our operations, business strategy, results of operations, or financial
condition.
Cybersecurity Governance
Our Board considers cybersecurity
risk as part of its risk oversight function and has delegated oversight of cybersecurity and other information technology risks to the
Company’s Chief Executive Officer and Chief Financial Officer, who oversee management’s implementation of our cybersecurity
risk management program and incident response plans.
Our management team and incident
response team have overall responsibility for assessing and managing our material risks from cybersecurity threats. The team has primary
responsibility for our overall cybersecurity risk management program and supervises both our internal cybersecurity personnel and our
retained external cybersecurity consultants that conduct vulnerability scans on a quarterly basis per PCI DSS standards. While cyber-attacks
are common threats to all businesses, the Company did not experience a material cyber security incident in either fiscal year 2026 or
2025.
Our management team is informed
about and monitors the prevention, detection, mitigation, and remediation of key cybersecurity risks and incidents through various means.
This may include briefings from internal security personnel, threat intelligence and other information obtained from governmental, public,
or private sources, including external consultants engaged by us, and alerts and reports produced by security tools deployed in the information
technology environment.
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Item 2.PROPERTIES
Our headquarters office and
distribution warehouse are located at 5402 South 122nd East Ave, Tulsa, Oklahoma. The Company leases approximately 109,700 square feet
of office and warehouse space in a 402,000 square foot complex (“Hilti Complex”), which the Company owned until October 27,
2025. Substantially all customer orders are fulfilled from our 85,000 square foot warehouse, in Tulsa, Oklahoma, using multiple flow-rack
systems, referred to as “lines,” to expedite order completion, packaging, and shipment.
During the third quarter of
fiscal 2024, the Company listed for sale/leaseback our headquarters office and warehouse property. The listing of the property for sale
resulted in a reclassification of the owned property as “Assets Held for Sale” in the Company’s financial statements.
On October 27, 2025, the Company
completed the sale of the Hilti Complex to 10Mark 10K Industrial, LLC. The agreed upon sale price of the Hilti Complex per the executed
Contract totaled $32,200,000. The net proceeds, less the carrying value of the assets held for sale, resulted in a gain on sale of $12,243,700.
Following the sale of the Hilti Complex, 17 acres of excess land with a cost basis of $850,000, was reclassified from Assets held for
Sale to land as it no longer listed for sale. The proceeds from the sale were utilized to pay off the Term Loans and Revolving Loan outstanding
in the Credit Agreement with the Company’s Bank. At closing, EDC assigned the existing third-party tenant leases to the Buyer and
executed a separate Triple-Net Lease (the “Lease”) for its occupied space in the Hilti Complex.
In addition, we also lease
additional warehouse space in Tulsa, Oklahoma and Joplin, Missouri as needed for overflow inventory, an office space in San Diego, California
that is used by our Kane Miller employees and office space in Ogden, Utah for our Learning Wrap-Ups employees. We believe that our operating
facilities meet both present and future capacity needs.
Item 3.LEGAL PROCEEDINGS
We are not a party to any material pending legal
proceedings.
Item 4.MINE SAFETY DISCLOSURES
None
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PART II
Item 5.MARKET FOR REGISTRANT’S
COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The common stock of EDC is
traded on NASDAQ (symbol “EDUC”). The number of shareholders of record of EDC’s common stock as of May 14, 2026, was
435.
For information regarding
our compensation plans see Note 13 of the notes to the financial statements and our definitive Proxy Statement to be filed in connection
with the Annual Meeting of Shareholders to be held on July 8, 2026, as outlined in Part III, Item 12 in this Annual Report.
Issuer Purchases of Equity Securities
Total - $ - -
Item 6.[RESERVED]
Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s
Discussion and Analysis of Financial Condition and Results of Operations contain a discussion of our business, including a general overview
of our segments, our results of operations, our liquidity and capital resources, and our quantitative and qualitative disclosures about
market risk.
The following discussion
contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward-looking statements
are dependent upon events, risks and uncertainties that may be outside of our control. Our actual results could differ materially from
those discussed in these forward-looking statements. See “Cautionary Remarks Regarding Forward Looking Statements”
in the front of this Annual Report on Form 10-K.
Management Summary
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. 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.
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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.
PaperPie Division
Our PaperPie division uses
a multi-level direct selling organizational structure to market our products using independent sales representatives (“Brand Partners”)
located throughout the United States. The customer base of PaperPie consists of individual purchasers, as well as schools and public libraries.
Revenues are primarily generated through book showings in individual homes, on social media collaboration platforms, through book fairs
with school and public libraries, and other in-person events.
An important factor in the
growth of the PaperPie division is the addition of new Brand Partners and the retention of existing Brand Partners. Active Brand Partners
(defined as those with sales during the past six months) are primarily responsible for recruiting new Brand Partners. PaperPie entices
new recruits by providing joining incentives to new Brand Partners, including discounted products and cash bonus awards based on exceeding
certain sales criteria. In addition, our PaperPie division provides our Brand Partners with an extensive operational handbook, valuable
training, and an individual website they can customize and use to generate sales. The Company also provides a “back-office”
operations platform that allows Brand Partners to track their individual and team business results.
Brand Partners
New Brand Partners Added During Fiscal Year 2,700 7,800
Active Brand Partners at End of Fiscal Year 4,300 7,800
Our PaperPie division’s
multi-level marketing organizational structure currently has eight levels of sales representatives, collectively known as Brand Partners:
● Brand Partners
● Team Leaders
● Advanced Leaders
● Senior Leaders
● Executive Leaders
● Senior Executive Leaders
● Directors
● Senior Directors
Upon signing up, sales representatives
begin as “Brand Partners.” Brand Partners receive “weekly commissions” from each sale they make; the commission
rate they receive on each sale is determined by the “order type” assigned to the sale. In addition, Brand Partners receive
a monthly sales bonus once their total sales reach an established monthly goal, as well as other awards (called “Level Perks”)
for meeting other individual sales and recruiting goals for the month. Brand Partners who recruit a specified number of other Brand Partners
into their downline become “Team Leaders.” These downline recruits are known as their “Central Group.” Upon reaching
this Team Leader level, Brand Partners become eligible to receive “monthly override payments” which are calculated on sales
made by their Central Group and downlines up to two levels below their Central Group. Team Leaders that recruit and promote other Team
Leaders and meet other established criteria are eligible to become “Advanced Leaders.”
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Once Advanced Leaders promote
a second level Brand Partner, add additional recruits, and meet other established criteria, they become “Senior Leaders,”
“Executive Leaders,” “Senior Executive Leaders,” “Directors” or “Senior Directors.” One-time
cash bonus payments are awarded at each promotion level above Brand Partner with increasing award amounts at each promotion level. Executive
Leaders and higher receive an additional monthly override payment based upon the sales of their executive group. Directors and higher
receive an additional bonus payment if they promote a Team Leader from their Central Group. The maximum override payment a leader can
receive is calculated on the sales of their Central Group and three levels below.
During fiscal year 2026, internet
sales continued to be the largest sales channel within our PaperPie division. The use of social media and party plan platforms, such as
those available on Facebook, continue to be popular sales tools. These platforms allow Brand Partners to “present” and customers
to “attend” online purchasing events from any geographical location.
Customers’ internet
orders are primarily received via the Brand Partner’s customized website, which is hosted by the Company. Brand Partners contact
hosts or hostesses (collectively “hostess”) who then provide a list of contacts to invite to an online party. During the online
party, the Brand Partner answers attendees’ questions and provides product recommendations. These attendees then select desired
products and place orders via the Brand Partner’s customized website. Internet orders are processed through a standard online “shopping
cart checkout” and the Brand Partner receives sales credit and commission on the transaction. All internet orders are shipped directly
to the end customer. The hostess earns discounted products based on the total sales from the attendees at the online party. Brand Partners
use the list of contacts provided by the hostess as additional contacts for future hostess and recruiting opportunities.
In-person parties also occur
when Brand Partners contact hostesses to hold book shows in their homes. The Brand Partner assists the hostess in setting up the details
for the show, makes a presentation at the show, and takes orders for the products. The hostess earns discounted products based on the
total sales at the party, including internet orders for those customers who can only attend via online access. These orders are typically
shipped to the hostess, who then distributes the products to the end customer. Customer specials are also available when customers, or
their party, order above a specified amount. As with online parties, home shows often provide an excellent opportunity to recruit new
Brand Partners.
PaperPie net revenues also
include sales to schools and libraries through PaperPie Learning. PaperPie Learning is a separate program for eligible Brand Partners
which requires certain qualifications and the completion of additional training requirements. The PaperPie Learning program includes book
fairs which are held within an organization as the sponsor. The Brand Partner provides promotional materials to introduce our products
to parents, who then turn in their orders at a designated time. The book fair program generates discounted products for the sponsoring
organization.
PaperPie also generates revenues
through various fundraiser programs directed toward schools and community organizations. Reach for the Stars is a pledge-based
reading incentive program that provides cash and products to the sponsoring organization, and products for the participating children.
An additional fundraising program, Gathered Goods (2026), which replaced Cards for a Cause (2025) offers Brand Partners
the opportunity to help members of the community by sharing proceeds from the sale of specific items. Organizations do this by selling
a variety package of educational items and donating a portion of the proceeds to help support their related causes.
Publishing Division
Our Publishing division operates
in a market that is highly fragmented, with many types of retail companies engaged in selling children’s books and toys. The Publishing
division’s customer base includes national book chains, regional and local bookstores, toy and gift stores, school supply stores,
and museums. To reach these markets, the Publishing division utilizes a combination of commissioned sales representatives, as well as
an in-house sales group located at our headquarters.
The table below shows the percentage
of net revenues from our Publishing division based on market type:
Publishing Division Net Revenues by Market Type
National chain bookstores 11 % 11 %
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Publishing uses a variety
of methods to attract potential new customers and maintain current customers. Our employees attend many of the national trade shows held
by the book and toy selling industry each year, allowing us to contact potential buyers who may be unfamiliar with our products. Our marketing
strategy targets toy and specialty stores, in addition to bookstores and museum gift shops, through print media advertising in trade publications.
In some instances, our products are featured in promotions and catalogs by participation in co-ops with national chain retailers.
Publishing’s sales representatives
actively target the smaller independent bookstore and gift shop customers. This market has seen continued growth due to a resurgence in
the opening of local bookstores, toy stores, and specialty stores across the U.S., coupled with the efforts of both our in-house and outside
sales representatives to increase sales to local and independent businesses. References to our online Publishing catalog are mailed out
to approximately 3,500 customers and potential customers on a yearly basis. See Publishing Operating Results for discussion of our updated
distribution agreement with Usborne.
Result of Operations
The following table shows
our statements of operations data:
Twelve Months Ended February 28,
Operating expenses
See the detailed discussion
of net revenues, gross margin and operating expenses by reportable segment below:
Non-Segment Operating Results
Total operating expenses
not associated with a reporting segment were $8.9 million for the fiscal year ended February 28, 2026, compared to $9.9 million for the
same period a year ago. Operating expenses decreased primarily because of a $0.6 million decrease in labor expense within our warehouse
operations due to lower number of orders, a decrease of $0.3 million in depreciation due to Lines 1, 2 & 3 moved to ‘Assets
Held for Sale” in Fiscal 25, as well as a $0.1 million in other various operating expenses.
Interest expense decreased
$0.7 million, to $1.5 million for fiscal year ended February 28, 2026, compared to $2.2 million reported for fiscal year ended February
28, 2025 due to the Company selling the Hilti Complex at the end of October 2025 and paying in full all outstanding indebtedness and terminating
all commitments and obligations under its Credit Agreement dated August 9, 2022 between the Company and its Lender.
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Other income increased
$11.9 million, to $14.0 million for fiscal year ended February 28, 2026, compared to $2.1 million reported for fiscal year ended February
28, 2025, resulting from the gain of $12.4 million from the sale of the Hilti Complex, offset by a $0.5 million decrease in rental income
from existing tenant leases that were assigned to the buyer with the sale of the Hilti Complex.
Income taxes increased
$4.6 million, to a tax expense of $3.0 million for the fiscal year ended February 28, 2026, from a tax benefit of $1.6 million for the
same period a year ago, resulting primarily from an increase in other income as result of the sale of the Hilti Complex and a valuation
allowance adjustment of $1.5 million in the fourth quarter of fiscal 2026 offsetting the Company’s net deferred tax asset position.
This increase was primarily related to the increase in taxable income for the current fiscal year compared to the prior fiscal year. The
effective tax rate increased by 33.3%, to 56.5% for fiscal year ending February 28, 2026, as compared to 23.2% for fiscal year ended February
28, 2025, primarily due to the valuation adjustment, the sales mix fluctuations between states, and the credits eligible for research
and development expenses. Our tax rates are higher than the federal statutory rate of 21% due to the one-time valuation adjustment and
inclusion of state income and franchise taxes.
PaperPie Operating Results
The following table summarizes
the operating results of the PaperPie segment for the twelve months ended February 28:
Twelve Months Ended February 28,
Operating expenses
Average number of active Brand Partners 5,800 12,300
PaperPie net revenues decreased
$10.6 million, or 35.5%, to $19.3 million for the fiscal year ended February 28, 2026, when compared with net revenues of $29.9 million
reported for the fiscal year ended February 28, 2025. The average number of active Brand Partners in fiscal year 2026 was 5,800, a decrease
of 6,500, or 52.8%, from 12,300 in fiscal year 2025. 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, our
distribution agreement with Usborne whereby Usborne actively sells their products through discounted retailers in the U.S. market, and
the rebranding of the division in the fourth quarter of fiscal year 2023. 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.
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 this fiscal year. We have begun a conservative plan to place reorders and purchase new titles
since the sale of the Hilti Complex, the payoff of the revolver and term loans with our bank and subsequent removal of purchasing restrictions.
The Company is now 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.
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PaperPie gross
margin decreased $6.8 million, or 37.0%, to $11.6 million for the fiscal year ended February 28, 2026, from $18.4 million reported for
fiscal year ended February 28, 2025. Gross margin as a percentage of net revenues decreased 1.9% to 59.9% for fiscal year 2026 when compared
to 61.8% for fiscal year 2025. The decrease in gross margin as a percentage of net revenues was primarily attributed to increased recruiting
promotions offered to increase Brand Partner levels and additional discounts offered to customers between the periods to spur sales,
as well as increased cost of goods from the tariffs implemented by the current administration on our SmartLab Toys product line.
Total PaperPie operating expenses
decreased $5.9 million, or 35.8%, to $10.6 million during the fiscal year ended February 28, 2026, when compared with $16.5 million reported
for the fiscal year ended February 28, 2025. Operating and selling expenses decreased $2.0 million, to $2.6 million for the fiscal year
ended February 28, 2026, from $4.6 million reported in the same period a year ago. This decrease relates primarily to a decrease in shipping
costs associated with the decrease in volume of orders shipped, totaling approximately $1.4 million, as well as a $0.6 million decrease
in brand partner incentive trip and meeting expenses as fewer brand partners participated in various meetings and earn the trip this year.
Sales commissions decreased $3.7 million to $6.3 million during the fiscal year ended February 28, 2026, when compared to $10.0 million
reported in the same period a year ago, primarily due to the decrease in net revenues, which resulted in a decrease of commissions of
$3.6 million, as well as a decrease in sales bonuses of $0.1 million. General and administrative expenses decreased $0.2 million, to $1.7
million during the fiscal year ended February 28, 2026, when compared with $1.9 million reported for the fiscal year ended February 28,
2025, due primarily to $0.3 million of decreased credit card transaction fees associated with decreased sales volumes offset by a $0.1
million increase in other various general and administrative expenses.
Operating income of our PaperPie
division decreased $1.1 million, or 55.0%, to $0.9 million for the fiscal year ended February 28, 2026, as compared to $2.0 million reported
for fiscal year ended February 28, 2025. Operating income for the PaperPie division as a percentage of net revenues for the year ended
February 28, 2026 was 4.9%, compared to 6.5% for the year ended February 28, 2025, a decrease of 1.6%. Operating income as a percentage
of net revenues changed from the prior year primarily due to the decrease in net revenues from the reduced number of active brand partners
in addition to higher discounts offered to spur sales, which were both offset by the decrease in operating expenses.
Publishing Operating Results
The following table summarizes
the operating results of the Publishing segment for the twelve months ended February 28:
Twelve Months Ended February 28,
Our Publishing division’s
net revenues decreased $0.7 million, or 16.3%, to $3.6 million for fiscal year ended February 28, 2026 from $4.3 million reported for
fiscal year ended February 28, 2025. The change in net revenues was directly associated with the decrease in overall sales volume offset
by a slight decrease in discounts.
Gross margin decreased $0.6
million, or 23.1%, to $2.0 million for fiscal year ended February 28, 2026, from $2.6 million reported for fiscal year ended February
28, 2025. Gross margin as a percentage of net revenues decreased 2.8%, to 56.7% for fiscal year 2026, compared to 59.5% reported in the
same period a year ago mainly due to product mix change and from the increase in cost of goods due to the additional tariffs implemented
by the current administration on our SmartLab Toys product line.
Total operating expenses of
the Publishing segment decreased $0.1 million, or 7.1%, to $1.3 million for fiscal year ended February 28, 2026, from $1.4 million reported
for fiscal year ended February 28, 2025. The decrease in operating expenses resulted from the decrease in freight expense of $0.1 million
associated with lower sales.
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Operating income decreased
$0.5 million, or 41.7%, to $0.7 million for fiscal year ended February 28, 2026, from $1.2 million for fiscal year ended February 28,
2025. The decrease in operating income was primarily associated with the decline in net revenues associated with the decrease in gross
sales in addition to the increase in cost of goods due to the additional tariffs implemented by the current administration on our SmartLab
Toys product line.
Liquidity and Capital Resources
During the past two years
we have offered higher product discounts to spur sales and experienced increased interest rates on borrowings due to restrictions imposed
by our lender. Prior to this period EDC had 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 the real estate it owned, the Hilti Complex, 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 fiscal year 2026, we
experienced positive cash flows from operations of $2,005,300. These cash flows resulted from:
Adjusted for:
● depreciation and amortization expense of $1,391,700
● Deferred income taxes of $2,536,100
● impairment on assets held for sale of $287,100
● provision for inventory allowance of $144,000
● provision for credit losses of $36,000
Offset by:
● net gain on sale of assets of $12,190,900
Positively impacted by:
● decrease in inventories, net of $6,884,200
● decrease in accounts receivable of $1,228,700
● Increase in income taxes payable of $685,900
● decrease in prepaid expenses and other assets of $297,800
Negatively impacted by:
● decrease in deferred revenues of $171,300
● decrease in accounts payable of $161,000
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Cash provided by investing
activities totaled $29,389,800, consisting of $29,932,600 in proceeds from the sale of the Hilti Complex, along with a few other assets,
offset by $378,200 in software upgrades to our proprietary systems that our PaperPie Brand Partners use to monitor their business and
place customer orders and $164,600 in building improvements in Assets Held for Sale.
Cash used in financing activities
was $31,031,200, consisting of $26,715,400 to pay down existing term debt, $4,198,100 to pay down existing line of credit, $137,900 paid
to acquire treasury stock, offset by cash received of $20,200 from the sale of treasury stock.
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, subsequent to the fiscal year end, we obtained a $2,000,000 line of credit from a new lender
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.
Contractual Obligations
We are a smaller reporting company and are not
required to provide this information.
Off-Balance Sheet Arrangements
As of February 28, 2026, we
had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial
condition, results of operations, liquidity, capital expenditures or capital resources.
Seasonality
The Company experiences increased
sales in the Fall season along with increased sales during the Annual PaperPie Day sale annually on 3/14 as well as the Easter holiday
season. Historically, we have experienced an increase in inventory during the Summer in anticipation for the Fall increase in sales.
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. 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. However, we consider the following accounting policies to be significantly more dependent
on the use of estimates and assumptions.
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Leases
We have both lessee and lessor
arrangements. 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. Our lessor arrangements include one rental agreement for warehouse and office
space in Tulsa, Oklahoma, and 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 product getting 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 the fiscal years ended February 28, 2026 and February 28, 2025.
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.
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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 sales. Inventory in excess of 21⁄2 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 $21.1 million and $16.3 million at February 28, 2026 and February 28, 2025, respectively. Noncurrent inventory valuation allowances
were $0.8 million at February 28, 2026 and $0.7 million at February 28, 2025.
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 21.6% of our active Brand Partners maintained consignment
inventory at the end of fiscal year 2026. 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 $1.1 million
and $1.3 million at February 28, 2026 and February 28, 2025, 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 both February 28, 2026 and February
28, 2025.
New Accounting Pronouncements
See the New Accounting Pronouncements
section of Note 1 to our financial statements, included in Part IV, Item 15 of this report, for further details of recent accounting pronouncements.
Item 7A.QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting
company and are not required to provide this information.
Item 8.FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
The information required by
Item 8 begins at page 24.
Item 9.CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
An evaluation was performed
of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to the Securities Exchange Act of
1934 (the “Exchange Act”) Rule 13a-15(a) as of February 28, 2026. 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).
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Based on that evaluation,
these officers concluded that our disclosure controls and procedures 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 the
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 fiscal year covered by this report on
Form 10-K, 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.
Management’s Report on Internal
Control Over Financial Reporting
The Company’s management
is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13(a)
through 15(f) of the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer
and our Chief Financial Officer, we evaluated the effectiveness of our internal control over financial reporting based on the framework
set forth in the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (“COSO”). All internal control systems, no matter how well they are designed, have inherent limitations.
Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation
and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based on our evaluation
under the 2013 COSO Framework and applicable SEC rules, our management concluded that our internal control over financial reporting was
effective as of February 28, 2026.
This annual report does not
include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s
report was not subject to attestation by our registered public accounting firm pursuant to the rules of the SEC that permit us to provide
only management’s report in this annual report.
Item 9B.OTHER INFORMATION
None.
Item 9C.DISCLOSURE REGARDING
FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
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PART III
Item 10.DIRECTORS, EXECUTIVE
OFFICERS AND CORPORATE GOVERNANCE
(a) Identification of Directors
The information required by
this Item 10 is furnished by incorporation by reference to the information under the caption “Election of Directors” in our
definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 8, 2026.
(b) Identification of Executive
Officers
The information required by
this Item 10 is furnished by incorporation by reference to the information under the caption “Executive Officers of the Registrant”
in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 8, 2026.
(c) Compliance with Section 16 (a) of the Exchange
Act
The information required by
this Item 10 is furnished by incorporation by reference to the information under the caption “Section 16 (a) Beneficial Ownership
Reporting Compliance” in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be
held on July 8, 2026.
Item 11.EXECUTIVE COMPENSATION
The information required by
this Item 11 is furnished by incorporation by reference to the information under the caption “Executive Compensation” in our
definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 8, 2026.
Item 12.SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by
this Item 12 is furnished by incorporation by reference to the information under the captions “Security Ownership of Certain Beneficial
Owners and Management” and “Compensation Plans” in our definitive Proxy Statement to be filed in connection with the
Annual Meeting of Shareholders to be held on July 8, 2026.
Item 13.CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
None.
Item 14.PRINCIPAL ACCOUNTING
FEES AND SERVICES
The information required by
this Item 14 is furnished by incorporation by reference to the information under the caption “Independent Registered Public Accountants”
in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 8, 2026.
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PART IV
Item 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of
this report:
1. Financial Statements
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID 483) 24
Notes to Financial Statements 30-47
Schedules have been omitted as such information
is either not required or is included in the financial statements.
2. Exhibits
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21
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**23.1 Consent of Independent Registered Public Accounting Firm.
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
* Paper Filed
** Filed Herewith
*** Management Contract or compensatory plan or arrangement
Item 16.FORM 10-K SUMMARY
Not applicable
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SIGNATURES
Pursuant to the requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
EDUCATIONAL DEVELOPMENT CORPORATION
Date: May 19, 2026 By /s/ Craig M. White
Craig M. White
President, Chief Executive Officer, and Chairman of the Board
(Principal Executive Officer)
Date: May 19, 2026 By /s/ Dan E. O’Keefe
Dan E. O’Keefe
Chief Financial Officer and Corporate Secretary
(Principal Financial and Accounting Officer)
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.
Date: May 19, 2026 /s/ Craig M. White
Craig M. White, Director
President, Chief Executive Officer, and Chairman of the Board
(Principal Executive Officer)
May 19, 2026 /s/ Dr. Kara Gae Neal
Dr. Kara Gae Neal,
Director
May 19, 2026 /s/ Bradley V. Stoots
Bradley V. Stoots,
Director
May 19, 2026 /s/ Dr. Amy N. Emmerson
Dr. Amy N. Emmerson,
Director
Steven Hooser
Director