<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   FORM 10-Q

(Mark One)

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

     For the quarterly period ended May 31, 1998.

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

          For the transition period from ___________ to ____________.

                        Commission file number: 0-4957

                      EDUCATIONAL DEVELOPMENT CORPORATION
            (Exact name of registrant as specified in its charter)

                Delaware                                        73-0750007
      (State or other jurisdiction of                       (I.R.S. Employer
       incorporation or organization)                       Identification No.)

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

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

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

                         Yes     X     No 
                              ------      ------           

     As of May 31, 1998 there were 5,088,105 shares of Educational Development
Corporation Common Stock, $0.20 par value outstanding.
<PAGE>
 
EDUCATIONAL DEVELOPMENT CORPORATION
--------------------------------------------

PART I.  FINANCIAL INFORMATION
---------------------------------------------------

ITEM 1
 
BALANCE SHEETS
<TABLE>
<CAPTION>
 
                                                 May 31, 1998    February 28, 1998
                                                  (unaudited)    -----------------
                                                 ------------  
<S>                                              <C>             <C>
ASSETS
 
CURRENT ASSETS:
 Cash and cash equivalents                        $     77,800       $   171,600
 Accounts receivable  (less
  allowances for doubtful accounts
  and returns: 5/31/98 - $181,600
  2/28/98 - $242,700)                                2,318,200         2,128,000
 Inventories  Net                                   10,295,400        10,402,200
 Prepaid expenses and other assets                      70,200            95,700
 Income taxes receivable                                    --            51,100
 Deferred income taxes                                 137,000           153,300
                                                  ------------       -----------
   Total current assets                             12,898,600        13,001,900
 
 PROPERTY AND EQUIPMENT
  at cost (less accumulated
  depreciation:  05/31/98 - $802,000
  2/28/98 - $725,300)                                  535,900           595,600
                                                  ------------       -----------
 
                                                  $ 13,434,500       $13,597,500
                                                  ============       ===========
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
CURRENT LIABILITIES:
 Note payable to bank                             $  1,368,000       $   876,000
 Accounts payable                                    1,633,600         2,096,800
 Accrued salaries and commissions                      253,200           259,700
 Income taxes                                          136,200                --
 Dividend payable                                      101,800                --
 Other current liabilities                             216,600           203,800
                                                  ------------       -----------
   Total current liabilities                         3,709,400         3,436,300
 
DEFERRED INCOME TAXES                                   95,000            95,000
 
SHAREHOLDERS' EQUITY:
 Common Stock, $.20 par value (Authorized
  6,000,000 shares; Issued 5,429,240
  and 5,424,240 shares; Outstanding
  5,088,105 and 5,232,138 shares)                    1,085,800         1,084,800
 Capital in excess of par value                      4,410,100         4,403,600
 Retained earnings                                   5,319,000         5,070,800
                                                  ------------       -----------
                                                    10,814,900        10,559,200
Less treasury shares, at cost                       (1,184,800)         (493,000)
                                                  ------------       -----------
                                                     9,630,100        10,066,200
                                                  ------------       -----------
 
                                                  $ 13,434,500       $13,597,500
                                                  ============       ===========
</TABLE>
See notes to financial statements.

                                       2
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
--------------------------------------------
 
STATEMENTS OF EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
 
                                  Three Months Ended May 31
                                 ----------------------------
                                     1998           1997
                                 -------------  -------------
<S>                              <C>            <C>
 
GROSS SALES                      $  6,501,400   $  7,107,600
 Less discounts & allowances       (2,340,700)    (2,447,200)
                                 ------------   ------------
  Net sales                         4,160,700      4,660,400
COST OF SALES                       1,676,500      1,865,900
                                 ------------   ------------
  Gross margin                      2,484,200      2,794,500
OPERATING EXPENSES:
 Operating & selling                  802,700        843,000
 Sales commissions                    734,100        825,200
 General & administrative             364,600        361,100
 Interest                              23,900         49,800
                                 ------------   ------------
                                      558,900        715,400
OTHER INCOME                           19,700         31,000
                                 ------------   ------------
 
EARNINGS BEFORE INCOME TAXES          578,600        746,400
 
INCOME TAXES                          228,600        282,500
                                 ------------   ------------
 
NET EARNINGS                     $    350,000   $    463,900
                                 ============   ============
 
BASIC AND DILUTED EARNINGS
 PER SHARE -                     $        .07   $        .09
                                 ============   ============
 
WEIGHTED AVERAGE NUMBER OF
 COMMON AND COMMON EQUIVALENT
 SHARES OUTSTANDING:
  Basic                             5,217,436      5,199,050
                                 ============   ============
  Diluted                           5,338,533      5,311,310
                                 ============   ============
 
DIVIDENDS DECLARED PER
 COMMON SHARE                    $        .02   $         --
                                 ============   ============
</TABLE>
See notes to financial statements.

                                       3
<PAGE>
 
EDUCATIONAL DEVELOPMENT CORPORATION
--------------------------------------------

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
 
                         Common Stock
                  (par value $.20 per share)                                     Treasury Stock
                  --------------------------                                ----------------------
                           Number of              Capital in                 Number
                            Shares                Excess of     Retained       of                   Shareholders'
                            Issued      Amount    Par Value     Earnings     Shares      Amount         Equity
                           ---------  ----------  ----------  ------------  --------  ------------  --------------
<S>                        <C>        <C>         <C>         <C>           <C>       <C>           <C>
BALANCE, MAR. 1, 1998      5,424,240  $1,084,800  $4,403,600   $5,070,800   192,102   $  (493,000)    $10,066,200
 
Purchases of treasury
 stock                           ---         ---         ---          ---   150,300      (698,100)       (698,100)
 
Sales of treasury stock          ---         ---         ---          ---    (1,267)        6,300           6,300
 
Exercise of options at
 $1.50/share                   5,000       1,000       6,500          ---       ---           ---           7,500
 
Dividend declared                ---         ---         ---     (101,800)      ---           ---        (101,800)
 
Net earnings                     ---         ---         ---      350,000       ---           ---         350,000
                           ---------  ----------  ----------  -----------   -------   -----------     -----------
 
BALANCE, MAY 31, 1998      5,429,240  $1,085,800  $4,410,100   $5,319,000   341,135   $(1,184,800)    $ 9,630,100
                           =========  ==========  ==========  ===========   =======   ===========     ===========
</TABLE>
See notes to financial statements.

                                       4
<PAGE>
 
EDUCATIONAL DEVELOPMENT CORPORATION
--------------------------------------------

STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>

                                                              Three Months Ended May 31
                                                            ------------------------------
                                                                 1998            1997
                                                            --------------  --------------
<S>                                                         <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net earnings                                                $    350,000    $    463,900
 Adjustments to reconcile net
  earnings to net cash provided
  by (used in) operating activities:
 Depreciation and amortization                                     76,700          73,300
 Deferred income taxes                                             16,300           4,200
 Provision for doubtful accounts
  and sales returns                                               316,600         222,600
 Recovery of obsolete inventory reserve                           (64,000)             --
 Stock issued for awards                                               --           2,400
 Changes in assets and liabilities:
  Accounts receivable                                            (455,700)       (321,300)
  Inventories                                                     170,800        (124,700)
  Prepaid expenses and other assets                                25,500           4,700
  Accounts payable, accrued expenses
   and dividend payable                                          (355,100)       (268,300)
  Income taxes payable                                            136,200         109,200
                                                             ------------    ------------
 
   Total adjustments                                             (132,700)       (297,900)
                                                             ------------    ------------
   Net cash provided by operating activities                      217,300         166,000
                                                             ------------    ------------
 
CASH FLOWS FROM INVESTING ACTIVITIES -
 Purchases of property and equipment                              (17,000)        (19,400)
                                                             ------------    ------------ 
  Net cash used in investing activities                           (17,000)        (19,400)
                                                             ------------    ------------ 

CASH FLOWS FROM FINANCING ACTIVITIES:
 Borrowings under revolving credit agreement                    2,478,000       1,165,000
 Payments under revolving credit agreement                     (1,986,000)     (1,425,000)
 Cash received from exercise of stock options                       7,500              --
 Cash received from sale of treasury stock                          6,300         118,200
 Cash paid to acquire treasury stock                             (698,100)        (55,400)
                                                             ------------    ------------ 
  Net cash used in financing activities                          (192,300)       (197,200)
                                                             ------------    ------------ 
Net Decrease in Cash and Cash
 Equivalents                                                      (93,800)        (50,600)
Cash and Cash Equivalents, Beginning of Period                    171,600          82,100
                                                             ------------    ------------
Cash and Cash Equivalents, End of Period                     $     77,800    $     31,500
                                                             ============    ============
 
Supplemental Disclosure of Cash Flow Information:
 Cash paid for interest                                      $     21,200    $     46,500
                                                             ============    ============
 Cash paid for income taxes                                  $     25,000    $     45,000
                                                             ============    ============
 
Supplemental Disclosure of Non Cash Operating Activities -
 Dividend declared                                           $    101,800    $         --
                                                             ============    ============
</TABLE>
See notes to financial statements.

                                       5
<PAGE>
 
EDUCATIONAL DEVELOPMENT CORPORATION
--------------------------------------------

NOTES TO FINANCIAL STATEMENTS

Note 1 - The information shown with respect to the three months ended May 31,
------                                                                       
1998 and 1997, which is unaudited, includes all adjustments which in the opinion
of Management are considered to be necessary for a fair presentation of earnings
for such periods.  There were no adjustments, other than normal recurring
accruals, entering into the determination of the results shown except as noted
in this report.  The results of operations for the three months ended May 31,
1998 and 1997, respectively, are not necessarily indicative of the results to be
expected at year end due to seasonality of the product sales.

These statements should be read in conjunction with the Notes to Financial
Statements contained in the Company's Annual Report to Shareholders for the
Fiscal Year ended February 28, 1998, which are incorporated herein by reference,
and with Management's Discussion and Analysis of Financial Condition and Results
of Operations appearing on page 8 of this report.

Reclassifications were made to 1997 balances to conform with 1998 presentation.

Note 2 - 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, and operating
loss and tax credit carryforwards.  The tax effects of significant items
comprising the Company's net deferred tax assets and liabilities as of May 31,
1998 and February 28, 1998 are as follows:
<TABLE>
<CAPTION>
 
                                          May 31, 1998   February 28, 1998
                                          -------------  ------------------
<S>                                       <C>            <C>
     Current:
      Deferred tax assets:
       Allowance for doubtful accounts       $  53,900           $  55,300
       Inventories                              50,700              59,500
       Expenses deducted on the cash
         basis for income tax purposes          17,300              23,400
       Change in accounting method              15,100              15,100
                                             ---------           ---------
 
      Net deferred tax asset                 $ 137,000           $ 153,300
                                             =========           =========
 
     Noncurrent:
      Deferred tax asset -
       Change in accounting method           $  15,100           $  15,100
 
      Deferred tax liability -
       Property and equipment                 (110,100)           (110,100)
                                             ---------           --------- 
      Net deferred tax liability             $( 95,000)          $( 95,000)
                                             =========           ========= 
</TABLE>

Management has determined that no valuation allowance is necessary to reduce the
value of deferred tax assets as it is more likely than not that such assets are
realizable.

The components of income tax expense are as follows:
<TABLE>
<CAPTION>
 
                                          THREE MONTHS ENDED
                                      May 31, 1998      May 31, 1997
                                      ------------      ------------
<S>                                  <C>               <C>
Income tax expense:
      Current:
       Federal                          $178,700           $234,300                         
       State                              33,600             44,000
                                        --------           --------
                                         212,300            278,300
                                                         
      Deferred:                                          
       Federal                            13,800              3,600
       State                               2,500                600
                                        --------           --------
                                          16,300              4,200
                                        --------           --------
                                        $228,600           $282,500
                                        ========           ========
</TABLE>

                                       6
<PAGE>
 
EDUCATIONAL DEVELOPMENT CORPORATION
------------------------------------------

          
Note 3 - Effective June 30, 1997, the Company signed a First Amendment to the
------                                        
Restated Credit and Security Agreement with State Bank, which provided a
$3,500,000 line of credit. The line of credit was evidenced by a promissory note
payable June 30, 1998. The note bore interest at the Wall Street Journal prime
floating rate and was collateralized by substantially all of the assets of the
Company. The Company utilized this line of credit primarily to fund routine
operations. At May 31, 1998 the Company had available $2,132,000 under this
credit agreement.

Effective June 30, 1998, the Company signed a Second Amendment to the Restated
Credit and Security Agreement with State Bank, which provides a $3,500,000 line
of credit.  The line of credit is evidenced by a promissory note payable June
30, 1999.  The note bears interest at the Wall Street Journal prime floating
rate and is collateralized by substantially all of the assets of the Company.
The Company will utilize this line of credit primarily to fund routine
operations.

Note 4 - Inventories consist of the following:
------                                        
<TABLE>
<CAPTION>
 
                                        May 31, 1998    February 28, 1998
                                      ----------------  ------------------
<S>                                   <C>               <C>
 
          Book Inventory                  $10,381,600         $10,552,400
          Reserve for Obsolescence            (86,200)           (150,200)
                                          -----------         -----------
                                          $10,295,400         $10,402,200
                                          ===========         ===========
</TABLE>

Note 5 - Basic earnings per share is computed by dividing net earnings by the
------                                                                    
weighted average number of common shares outstanding during the period.  Diluted
earnings per share is based on the combined weighted average number of common
shares and common share equivalents outstanding which include, where
appropriate, the assumed exercise of options.  In computing diluted earnings per
share, the Company has utilized the treasury stock method.

The computation of weighted average common and common equivalent shares used in
the calculation of basic and diluted earnings per share ("EPS") is shown below.
<TABLE>
<CAPTION>
 
                                              Three Months Ended May 31,
                                              --------------------------
                                                  1998          1997
                                              ------------  ------------
<S>                                           <C>           <C>
     Net Earnings                               $  350,000    $  463,900
                                                ==========    ==========
 
     Basic EPS:
     Weighted Average Shares Outstanding         5,217,436     5,199,050
                                                ==========    ==========
     Basic EPS                                  $      .07    $      .09
                                                ==========    ==========
 
     Diluted EPS:
       Weighted Average Shares Outstanding       5,217,436     5,199,050
       Assumed Exercise of Options                 121,097       112,260
                                                ----------    ----------
     Shares Applicable to Diluted Earnings       5,338,533     5,311,310
                                                ==========    ==========
     Diluted EPS                                $      .07    $      .09
                                                ==========    ==========
</TABLE>

Note 6 - Effective March 1, 1998, the Company adopted Statement of Financial
------                                                                      
Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive Income," and SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
The Company did not have other comprehensive income for the periods presented.
SFAS No. 131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected financial information about
operating segments in annual financial statements and interim financial reports
issued to shareholders.  It also establishes standards for related disclosures
about products and services, geographic areas and major customers.  SFAS No. 131
does not require disclosure in interim financial reports in the first year of
adoption.

                                       7
<PAGE>
 
EDUCATIONAL DEVELOPMENT CORPORATION
------------------------------------------


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

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

FINANCIAL CONDITION
-------------------

The financial condition of the Company remains strong.   Working capital at May
31, 1998 was $9,189,200, a decrease of 3.9% over year-end February 28, 1998
working capital of $9,565,600.  Accounts receivable increased 5.4% over year-
ended February 28, 1998.  Inventory at May 31, 1998 declined 1.6% over year-end
February 28, 1998.  The inventory level will fluctuate depending upon sales and
the timing of shipments from the Company's principal supplier.  The Company
continues to monitor inventory levels to assure adequate supplies to meet sales
requirements.  The note payable to the bank increased 56.2% over fiscal year-end
February 28, 1998 as the Company purchased 150,300 shares of treasury stock.
Accounts payable declined 22.1% over year-end February 28, 1998, the result of
smaller purchases during the current period and the payment for inventory
received in prior periods.

Pre-tax margins were 13.9% for the three months ended May 31, 1998 compared with
16.0% for the three months ended May 31, 1997. The Company attributes this 
decline to the unanticipated lingering aftereffects of the changes made to the 
Home Business Division's Marketing Plan in October 1996. New compensation 
programs have been created to encourage sales and recruiting at all levels of 
the organization.

RESULTS OF OPERATIONS
---------------------

Revenues - Net sales from the Home Business Division were $1,990,900 for the
--------                                                                    
three months ended May 31, 1998 a decrease of 21.0% when compared with net sales
of $2,520,900 for the three months ended May 31, 1997.  Management believes this
decline is primarily the result of a reduction in the compensation structure
which was made in October 1996 and was not well received by the field sales
force.  The compensation structure was enhanced in June 1997 and the downturn in
sales was slowed. In May 1998 the Company made additional enhancements to the
compensation structure.  The Company now believes it has in place an excellent
compensation program for its field sales force.  New and exciting incentive
programs, travel contests and regional training seminars will be offered during
FY 1999.  The Division's second National Seminar will be held in July 1998.
Management is optimistic that FY 1999 will be an excellent year for the
Division.

Net sales from the Publishing Division were $2,169,800 for the three months
ended May 31, 1998, an increase of 1.4% over the net sales of $2,139,500 for the
three months ended May 31, 1997.  Sales nationwide in the juvenile paperback
market declined over 18% last year.  The Company attributes the increase in net
sales to increased market penetration and additional volume.  The Company has an
aggressive in-house telephone sales force which maintains contact with over
10,000 customers.  The Division attends several national trade shows each year
in order to present the Company's products to a wide variety of consumers.
Management believes the Company has a superior product line and is optimistic
that the Publishing Division can maintain its market share in the highly
competitive publishing market.

Operating Expenses - The Company's cost of sales for the three months ended May
------------------                                                             
31, 1998 was $1,676,500 versus $1,865,900 for the three months ended May 31,
1997, a decline of 10.2%.  Cost of sales expressed as a percentage of gross
sales was 25.8% for the three months ended May 31, 1998 compared with 26.3% for
the three months ended May 31, 1997.  Cost of sales will fluctuate depending
upon the product mix sold.

                                       8
<PAGE>
 
EDUCATIONAL DEVELOPMENT CORPORATION
------------------------------------------


Operating and selling expenses decreased 4.8% to $802,700 for the three months
ended May 31, 1998 when compared with $843,000 for the three months ended May
31, 1997. Operating and selling expenses as a percentage of gross sales were
12.3% for the three months ended May 31, 1998 and 11.9% for the three months
ended May 31, 1997. A reduction in credit card fees, the direct result of lower
sales in the Home Business Division, contributed to the decrease in operating
and selling expenses. Also contributing to the decrease in operating and selling
expenses were reduced sales incentives in the Home Business Division.

Sales commissions for the three months ended May 31, 1998 were $743,100 compared
with $825,200 for the same three month period a year ago, a decrease of 10.0%.
Sales commissions as a percentage of gross sales were 11.3% for the three months
ended May 31, 1998 and 11.6% for the three months ended May 31, 1997.  Sales
commissions will vary with the product being sold and the Division making the
sale.  The Home Business Division and the Publishing Division have separate and
different commission programs.  Lower sales in the Home Business Division
contributed to the decrease in commission expense for the quarter.

General and administrative expenses increased 1.0% for the three months ended
May 31, 1998 to $364,600 when compared with $361,100 for the three months ended
May 31, 1997.  General and administrative expenses as a percentage of gross
sales were 5.6% and 5.1% for the three months ended May 31, 1998 and 1997
respectively.  General and administrative expenses are not always directly
affected by sales, so comparison of these expenses as a percentage of gross
sales can be misleading.  Contributing to the increase in general and
administrative expenses were increased salaries and benefits, primarily to
existing employees.

Interest expense declined 52% to $23,900 for the three months ended May 31, 1998
when compared with  $49,800 for the same three month period a year ago.  The
average borrowing under the bank loan declined to $1.1 million for the three
months ended May 31, 1998 from $2.3 million for the three months ended May 31,
1997.   This decrease in the average bank borrowings resulted in lower interest
costs.  This reduction in average bank borrowings can be attributed to the
continuing efforts of the Company to manage its inventory levels through
improved efficiencies in purchasing policies.

YEAR 2000 MATTERS
-----------------

The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year.  Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the Year 2000.  This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.

In FY 1996, the Company purchased new computer hardware and software which is
Year 2000 compliant.  Management has determined that the Year 2000 issue will
not pose operational problems for its computer systems.

In addition, the Company has communicated with others with whom it does
significant business to determine their Year 2000 Compliance readiness and the
extent to which the Company is vulnerable to any third party Year 2000 issue.
However, there can be no guarantee that the systems of other companies on which
the Company's systems rely will be timely converted, or that a failure to
convert by another company, or a conversion that is incompatible with the
Company's systems, would not have a material adverse effect on the Company.

The total cost, if any, to the Company of these Year 2000 Compliance activities
has not been and is not anticipated to be material to its financial position or
results of operations in any given year.

Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------  ----------------------------------------------------------

     The Company does not have any material market risk.

PART II  OTHER INFORMATION
--------------------------

     None

                                       9
<PAGE>
 
EDUCATIONAL DEVELOPMENT CORPORATION
------------------------------------------



                                   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)



                         By  /s/ Randall W. White
                           --------------------------------
                             Randall W. White
                             President



Date:   July 10, 1998
     --------------------

                                       10