-$0.69
$0.70
bear -$0.69
base $0.07
bull $0.70
margin of safety $0.04
market price* $1.04
Educational Development Corporation (Tulsa, Oklahoma) sells children's books through PaperPie, a network of independent home-party consultants, and through a Publishing division (Kane Miller, Learning Wrap-Ups, SmartLab Toys). It is the exclusive U.S. direct-sales distributor of Usborne children's books. WHY WE VALUE THE ASSETS, NOT THE EARNINGS. Sales fell from a pandemic peak of $204.6 million in fiscal 2021 to $87.8 million, $51.0 million, $34.2 million and $22.9 million in fiscal 2023 through 2026 (year ended February 28, 2026). The first quarter of fiscal 2027 was $4.8 million, down 33% from a year earlier, with a $1.4 million net loss. The fiscal 2026 profit of $2.3 million came entirely from a $12.2 million gain on selling and leasing back the Tulsa headquarters complex in October 2025 (sold for $32.2 million; the proceeds repaid all bank debt). Our measure of owner earnings (operating cash flow, less swings in working capital, stock pay and maintenance capital spending) was negative $6.0 million in fiscal 2026 (negative $0.70 per share), after negative $4.6 million in fiscal 2025. Operating cash flow was positive ($2.0 million) only because $6.9 million of inventory was sold down, which converts an asset into cash and is not profit. On the same basis, cash generated before interest was +$0.5 million, -$2.4 million and -$4.7 million in fiscal 2024, 2025 and 2026. The middle figure is negative, so the operating business is given no value and no growth is credited. Owner earnings worsened about 31% in fiscal 2026, and sales fell 33%; our base case assumes sales fall a further 31% this year, in line with the trend and not a recovery. The cost structure explains why. The company spends roughly $7 million a year on warehouse, lease, office and management costs that do not shrink with sales, while each extra dollar of sales leaves only about 12 cents after product cost, commissions and shipping. At $16 million of sales the business cannot cover its fixed costs. WHAT THE SHARES OWN. At May 31, 2026 the company had $1.7 million of cash and about $36 million of inventory at cost (we estimate the split; about $37.7 million at February 28, 2026, of which $20.3 million management itself classes as long-term), against only about $8 million a year of product cost actually sold and a write-down allowance of just $0.8 million. It also holds roughly $1.4 million of land and property held for sale. No bank debt remained at February 28, 2026, and a $2.0 million bank line was arranged afterward. The $6.3 million of equipment and capitalized software has no meaningful resale value, so it is given none. Counted against the shareholders are the Tulsa lease ($6.7 million, running into the mid-2030s) and about $4.9 million of other bills, including $1.1 million of income taxes due on the property gain. Management's earlier doubt about the company's ability to continue was lifted in the fiscal 2026 report after the sale and debt repayment; at the current burn, cash plus the new line is still only enough for roughly two to three years. KEY RISK: USBORNE. Usborne products are about half of PaperPie sales ($9.1 million in fiscal 2026) and a large share of inventory. The company missed its minimum purchase commitments in fiscal 2025 and 2026 and did not post the required letter of credit, so Usborne may end the agreement on under 30 days' notice (with at least 12 months to sell remaining Usborne stock afterward). It has not done so, but it has refused to pay a $1.0 million rebate the company says it is owed. THE THREE CASES (values are at a 6% discount rate; no growth is credited in any case because none is secured). Bear (-$0.69 per share): Usborne ends the agreement and consultants leave, sales are $10.0 million for the rest of fiscal 2027 and $7.0 million in fiscal 2028, and the company winds down in February 2028. Inventory the channel cannot sell (about $30 million) goes in bulk at 10% of cost, land at 70% of cost, and three-quarters of the remaining lease is owed. The business is worth about $2.7 million after operating losses; the company owes about $8.6 million (other bills $4.6 million plus lease $3.9 million); the difference is about -$5.8 million. In this case the company appears to owe more than it is worth by roughly that amount. Base ($0.07 per share): sales fall about 30% a year, costs stay near current levels, and cash runs short around February 2028, when the company winds down. Sales through the channel recover about $8 million of inventory at cost; the remaining $27.7 million sells in bulk at 20% of cost; half of the remaining lease is owed (the landlord already runs the complex as a multi-tenant property and took over its existing tenant leases, which supports re-letting). The business is worth about $7.8 million; the company owes about $7.2 million; the difference is about $0.6 million. Bull ($0.70 per share): Usborne stays, management's plan to re-order key titles and add new ones slows the sales decline to 15% a year, warehouse space and costs shrink about 12% a year as inventory is sold, the $1.0 million rebate is collected, and the company winds down in February 2029 with the remaining inventory selling at 35% of cost and a quarter of the remaining lease owed. The business is worth about $11.6 million; the company owes about $5.7 million; the difference is about $6.0 million. JUDGEMENTS. The bulk-sale percentages (10%, 20%, 35% of cost) are our judgement, since the filings give no bulk price. They matter greatly: each 10 points of recovery on the base case moves value by about $0.29 per share. The 12% margin and $7 million fixed-cost figures are derived from fiscal 2026 and the first quarter of fiscal 2027 actuals. Deferred tax assets were fully written off in fiscal 2026, so no tax shield is counted. Not credited: any return to growth, new products, or any value for the consultant network as a going business, because none has earnings behind it. WHAT CHANGED. Our August 2026 analysis valued the shares at $0.25, $1.15 and $3.00. It gave equipment and software 70% of book value, took inventory at 45% to 70% of cost, and left out the lease and other bills. We now give the equipment nothing, count those obligations, and measure the cash burn directly, and we use lower inventory recovery percentages. The underlying facts are essentially unchanged; the method is stricter, and the result is much lower. WHAT WOULD MAKE THIS WRONG. On the upside, a sale of the inventory or the whole business at well over 20% of cost, quick cost cuts, or sales stabilizing. On the downside, Usborne ending the agreement, or the inventory proving harder to sell than assumed. We could not reconcile the exact May 31, 2026 split of inventory and lease liabilities, so those were estimated from the February 2026 balance sheet. The margin-of-safety price of $0.04 is about 40% under the base case: the bear case is negative, and the base value rests on the bulk-recovery judgement.