What changed in this filing

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Item 1. Financial Statements

2024-10-10 compared with 2024-07-15 · 242 added, 129 removed, 546 unchanged (40% of the section changed)

6 unchanged sentences

Accounts receivable, less allowance for credit losses of

$ 135,900 (May 31) and $ 129,000 (February 29)

$ 117,500 (August 31) and $ 129,000 (February 29)

Inventories - net

25 unchanged sentences

Issued 12,702,080 shares;

Outstanding 8,579,088 (May 31) and 8,575,088 (February 29) shares

Outstanding 8,581,601 (August 31) and 8,575,088 (February 29) shares

Capital in excess of par value

Retained earnings

Accumulated other comprehensive income

Accumulated other comprehensive income (loss)

Less treasury stock, at cost

5 unchanged sentences

Three Months Ended

Less discounts and allowances

Six Months Ended

PRODUCT REVENUES, net of discounts and allowances

Transportation revenue

6 unchanged sentences

INTEREST EXPENSE

LOSS BEFORE INCOME TAXES

INCOME TAX BENEFIT

BASIC AND DILUTED LOSS PER SHARE

WEIGHTED AVERAGE NUMBER OF COMMON

AND EQUIVALENT SHARES OUTSTANDING:

EARNINGS (LOSS) BEFORE INCOME TAXES

INCOME TAX EXPENSE (BENEFIT)

NET EARNINGS (LOSS)

BASIC AND DILUTED EARNINGS (LOSS) PER SHARE

WEIGHTED AVERAGE NUMBER OF COMMON AND EQUIVALENT SHARES OUTSTANDING

Dividends per share

1 unchanged sentence

EDUCATIONAL DEVELOPMENT CORPORATION

STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

Three Months Ended

Other comprehensive income:

Unrealized gain on interest rate exchange agreement

Comprehensive loss

Six Months Ended

Net earnings (loss)

Other comprehensive income (loss):

Unrealized gain (loss) on interest rate exchange agreement

Comprehensive income (loss)

See notes to condensed financial statements (unaudited).

1 unchanged sentence

CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS ’ EQUITY (UNAUDITED)

FOR THE THREE MONTHS ENDED MAY 31, 2024

FOR THE SIX MONTHS ENDED AUGUST 31, 2024

(par value $0.20 per share)

7 unchanged sentences

BALANCE - May 31, 2024

FOR THE THREE MONTHS ENDED MAY 31, 2023

Sale of treasury stock

Share-based compensation expense - net

Change in fair value of interest rate exchange agreement

BALANCE - August 31, 2024

FOR THE SIX MONTHS ENDED AUGUST 31, 2023

(par value $0.20 per share)

Treasury Stock

Accumulated Other Comprehensive Income

Shareholders'

3 unchanged sentences

BALANCE - May 31, 2023

Forfeiture of restricted shares

Share-based compensation expense - net

Unrealized gain on interest rate exchange agreement

BALANCE - August 31, 2023

See notes to condensed financial statements (unaudited).

1 unchanged sentence

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

Three Months Ended

Six Months Ended August 31,

CASH FLOWS FROM OPERATING ACTIVITIES

Adjustments to reconcile net loss to net cash provided by operating activities:

Net earnings (loss)

Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:

Depreciation and amortization

3 unchanged sentences

Share-based compensation expense - net

Net loss on sale of assets

Net loss (gain) on sale of assets

Changes in assets and liabilities:

16 unchanged sentences

Sales of treasury stock

Net borrowings under line of credit

Net borrowings (payments) under line of credit

Net cash used in financing activities

21 unchanged sentences

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 29, 2024 included in our Form 10-K.

Reclassifications

Certain reclassifications have been made to the fiscal 2024 condensed statements of operations to combine Gross Sales and Discounts and allowances now presented as Product Revenues, net of discount and allowances to conform with the current year financial statement presentation.

These reclassifications had no effect on net earnings.

In accordance with ASC 205-40, Going Concern , the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.

4 unchanged sentences

However, such assumptions are inherently uncertain and actual results could differ materially from those estimates.

The short-term duration of the Revolving Loan and uncertainty of the bank’s ongoing support beyond October 4, 2024, along with recurring operating losses and other items, raise substantial doubt over the Company's ability to continue as a going concern.

The short-term duration of the Revolving Loan and uncertainty of the bank’s ongoing support beyond January 4, 2025 (See Note 17), along with recurring operating losses and other items, raise substantial doubt over the Company's ability to continue as a going concern.

To address these concerns, the Company has taken steps in its plans to reduce debt by selling owned real estate.

On June 6, 2024 the Company executed an agreement to sell the Hilti Complex for $ 35,500,000 , the closing of which remains subject to the satisfaction of various closing conditions.

On September 19, 2024 the Company executed an agreement to sell the Hilti Complex for $ 38,250,000 , the closing of which remains subject to the satisfaction of various closing conditions.

Upon closing, the proceeds from the sale are expected to pay off the Term Loans and Revolving Loan.

20 unchanged sentences

The below table 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:

August 31, 2024

August 31, 2023

Cash and cash equivalents

Restricted cash

Total cash, cash equivalents and restricted cash shown in the statements of cash flows

Total cash, cash equivalents and restricted cash shown in the condensed statements of cash flows

The Company has historically contracted with Braintree Payment Services and PayPal, Inc.

9 unchanged sentences

The Company ceased recording depreciation on the assets upon meeting the held for sale criteria at the end of the third quarter of fiscal 2024.

See Note 15 for the real estate contract for the Hilti Complex that occurred subsequent to May 31, 2024.

See Note 17 for the real estate contract for the Hilti Complex that occurred subsequent to August 31, 2024.

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 certain operating equipment and reclassified the assets from property plant and equipment to assets held for sale upon meeting the held for sale criteria at the end of the second quarter.

The Company records assets held for sale at the lower of their carrying value or fair value less costs to sell.

As of May 31, 2024 and February 29, 2024, the total carrying value of assets held for sale, consisting of the Hilti Complex with excess land of 17-acres, was $ 18,281,100 and is separately recorded on the balance sheets.

The total carrying value of assets held for sale was $ 19,233,900 and $ 18,281,100 as of August 31, 2024 and February 29, 2024 and is separately recorded on the balance sheets.

Note 4 – INVENTORIES

Inventories consist of the following:

August 31, 2024

February 29, 2024

5 unchanged sentences

Inventories net – noncurrent

Inventory in transit totaled $ 98,100 and $ 264,000 at May 31, 2024 and February 29, 2024, respectively.

Inventory in transit totaled $ 0 and $ 264,000 at August 31, 2024 and February 29, 2024, 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.

1 unchanged sentence

We have both lessee and lessor arrangements.

Our lessee arrangements include four rental agreements where we have the exclusive use of dedicated office space in San Diego, California, warehouse and office space in Layton, Utah, and two leases for warehouse space locally in Tulsa, Oklahoma, all of which qualify as an operating lease.

Our lessor arrangements include one rental agreement for warehouse and office space in Tulsa, Oklahoma, and qualifies as an operating lease under ASC 842.

Our lessee arrangements include six rental agreements where we have the exclusive use of dedicated office space in San Diego, California, warehouse and office space in Seattle, Washington, warehouse and office space in Layton, Utah, two leases for warehouse space locally in Tulsa, Oklahoma, and warehouse space in Joplin, Missouri, all of which qualify as an operating lease.

Our lessor arrangements include three rental agreements for warehouse and office space in Tulsa, Oklahoma, and qualify as operating leases under ASC 842.

Operating Leases – Lessee

We recognize a lease liability, reported in other liabilities 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.

We recognize a lease liability, reported 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 lease liabilities.

Payments in excess of twelve months are classified as long-term lease liabilities.

We also recognize a right-of-use asset, reported in other assets on the balance sheets, for each lease, valued at the lease liability and adjusted for prepaid or accrued rent balances existing at the time of initial recognition.

We also recognize a right-of-use asset, on the balance sheets, for each lease, valued at the lease liability and adjusted for prepaid or accrued rent balances existing at the time of initial recognition.

The lease liability and right-of-use assets are reduced over the term of the lease as payments are made and the assets are used.

August 31, 2024

February 29, 2024

12 unchanged sentences

Variable and short-term rental payments are recognized as costs and expenses as they are incurred.

Three Months Ended

Six Months Ended

Fixed lease costs

Future minimum rental payments under operating leases with initial terms greater than one year as of May 31, 2024, are as follows:

Future minimum rental payments under operating leases with initial terms greater than one year as of August 31, 2024, are as follows:

Years ending February 28 (29),

3 unchanged sentences

The following table provides further information about our operating leases reported in our condensed financial statements:

Three Months Ended

Six Months Ended

Operating cash outflows – operating leases

5 unchanged sentences

We recognize variable rental payments as revenue in the period in which the changes in facts and circumstances, on which the variable lease payments are based, occur.

See Note 15 for the additional lease that commenced subsequent to May 31, 2024.

On May 26, 2024, 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.

The initial lease term is five years , commenced July 1, 2024, and includes an option to extend the lease term for an additional five years .

The lessee pays $ 84,000 per month, with 3 % escalations at the beginning of each year of the lease.

The lease includes standard triple-net terms such that the Tenant shall be responsible for utilities, insurance, property taxes and repairs and maintenance, excluding roof and structure, which shall be the Landlords’ responsibility.

Future minimum payments receivable under operating leases with terms greater than one year are estimated as follows:

Years ending February 28 (29),

The cost of the leased space was $ 10,159,500 at May 31, 2024 and February 29, 2024.

The accumulated depreciation associated with the leased assets was $ 2,776,400 at May 31, 2024 and February 29, 2024, respectively.

The cost of the leased space was $ 16,313,300 and $ 10,159,500 at August 31, 2024 and February 29, 2024.

The accumulated depreciation associated with the leased asset was $ 3,891,200 and $ 2,776,400 at August 31, 2024 and February 29, 2024, respectively.

During the third quarter of fiscal 2024, the Company announced its plans to sell the Hilti Complex and reclassified the land and buildings from property, plant and equipment to assets held for sale.

The leased space was included in this reclassification.

See Note 15 for the real estate contract for the Hilti Complex that occurred subsequent to May 31, 2024.

Note 6 – DEBT

Debt consists of the following:

August 31, 2024

February 29, 2024

28 unchanged sentences

Contingent upon the occurrence of an Event of Default in the agreement, the Company shall within 15 days list the Hilti Complex with a licensed commercial real estate broker satisfactory to the Lender.

The Third Amendment also increased the borrowing rate on the Revolving Loan to 30-Day Term SOFR Rate + 4.50 %, or 9.82 % at May 31, 2024.

The Third Amendment also increased the borrowing rate on the Revolving Loan to 30-Day Term SOFR Rate + 4.50 %, or 9.85 % at August 31, 2024.

The Revised Loan Agreement was updated for the changes in the Third Amendment as well as removed the fixed charge ratio and the ability for borrowings to be accelerated before the January 31, 2024 Revolving Loan maturity date.

10 unchanged sentences

The Amendment also requires an additional decrease in the Revolving Loan to $ 4,500,000 from the effective date of the sale of the Hilti Complex among other restrictions and requirements.

Available credit under the current $ 7,000,000 revolving line of credit with the Company’s Lender was approximately $ 1,401,900 at May 31, 2024.

Available credit under the current $ 7,000,000 revolving line of credit with the Company’s Lender was approximately $ 901,900 at August 31, 2024.

Subsequent to quarter end, the Company executed the Sixth Amendment to the Existing Credit Agreement with the Lender, see Note 17.

Features of the Revised Loan Agreement include:

3 unchanged sentences

$ 7 Million Revolving Loan with maturity date of October 4, 2024 .

The Revolving Loan bears interest at a rate per annum equal to Term SOFR Rate + 4.50 % (effective rate was 9.82 % at May 31, 2024)

Revolving Loan allows for Letters of Credit upon bank approval (none were outstanding at May 31, 2024)

The Revolving Loan bears interest at a rate per annum equal to Term SOFR Rate + 4.50 % (effective rate was 9.85 % at August 31, 2024)

Revolving Loan allows for Letters of Credit upon bank approval (none were outstanding at August 31, 2024)

The following table reflects aggregate current maturities of term debt, excluding the Revolving Loan, during the current fiscal year as follows:

Years ending February 28 (29),

Note 7 – OTHER INCOME

A summary of other income is shown below:

Three Months Ended

Six Months Ended

Federal tax credits realized

Rental income

Total other income

As a response to the COVID-19 outbreak, the U.S.

government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) which contained a number of programs to assist workers, families and businesses.

Part of the CARES Act provides an Employee Retention Credit (“ERC”) which is a refundable tax credit against certain employment taxes equal to 50% of qualified wages paid, up to $10,000 per employee annually, from March 12, 2020 through January 1, 2021.

Additional relief provisions were passed by the U.S.

government, which extended and expanded the qualified wage caps on these credits to 70% of qualified wages paid, up to $10,000 per employee per quarter, through September 30, 2021.

Due to the subjectivity of the credit, the Company elected to account for the ERC as a gain analogizing to ASC 450-30, Gain Contingencies.

During the quarter ended August 31, 2023, the Department of Treasury notified the Company of ERC credits awarded under the CARES Act for the first three quarters of calendar 2021.

During August 2023, the Company received three refund payments resulting from amended 2021 Q1, Q2 and Q3 941-X returns that were filed.

As a result of receiving these refund payments, the Company is required to file amended fiscal 2021 and 2022 corporate income tax returns reducing the wages expense deduction associated with the credit received.

The Company has recognized estimated federal and state tax liabilities associated with these amended returns of approximately $ 1,041,600 as of August 31, 2023, which are included in income taxes payable on the condensed balance sheets.

Note 8 – BUSINESS CONCENTRATION

9 unchanged sentences

The Company discontinued selling Usborne products to retail customers in the first quarter of fiscal 2024.

Gross sales attributed to Usborne’s products sold within the Publishing division accounted for $ 0 , during the quarter ended May 31, 2024, and 67.3 %, or $ 2,740,000 , during the quarter ended May 31, 2023.

Gross sales of Usborne products sold within the PaperPie division accounted for approximately 45.1 %, or $ 5,875,700 during the quarter ended May 31, 2024, and 50.6 %, or $ 8,362,300 , during the quarter ended May 31, 2023.

Purchases received from Usborne were approximately $ 51,800 and $ 935,600 for the period ended May 31, 2024 and 2023, respectively.

Total inventory purchases for those same periods were approximately $ 767,000 and $ 3,190,200 , respectively.

Total Usborne inventory owned by the Company and included in our condensed balance sheets were $ 27,574,300 and $ 29,010,200 as of May 31, 2024 and February 29, 2024 respectively.

Note 8 – LOSS PER SHARE

The following table summarizes Usborne product revenues net of discounts by division and inventory purchases by product type:

Three Months Ended

Six Months Ended

Product revenues, net of discounts of Usborne products by division:

PaperPie division

% of total PaperPie Product revenues, net of discounts

Publishing division

% of total Publishing Product revenues, net of discounts

Total Product revenues, net of discounts of Usborne products

Purchases received by product type:

% of total purchases received

All other product types

% of total purchases received

Total purchases received

Total Usborne inventory owned by the Company and included in our condensed balance sheets was $ 26,565,100 and $ 29,010,200 as of August 31, 2024 and February 29, 2024, respectively.

Note 9 – EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share (“EPS”) is computed by dividing net earnings (loss) by the weighted average number of common shares outstanding during the period.

3 unchanged sentences

Three Months Ended

Net loss per share:

Net loss applicable to common shareholders

Six Months Ended

Earnings (loss):

Net earnings (loss) applicable to common shareholders

Weighted average shares:

2 unchanged sentences

Weighted average shares outstanding-diluted

Loss per share:

Earnings (loss) per share:

As shown in the table below, the following shares have not been included in the calculation of diluted loss per share as they would be anti-dilutive to the calculation above.

Three Months Ended

Six Months Ended

Weighted average shares:

Issued unvested restricted stock and assumed shares issuable under granted unvested restricted stock awards

Note 10 – COMMITMENT AND CONTINGENCIES

During the first quarter of fiscal 2025, the Company received a property tax assessment notice on our inventory balance at December 31, 2022 from Tulsa County totaling approximately $ 700,000 .

The Company appealed the assessment, requesting a reduction of the property tax assessment on inventory to approximately $ 290,000 .

On June 25, 2024, the Company met with the Tulsa County Board of Equalization (“Board”) and presented the appeal, which was granted by the Board.

Subsequent to the Board’s decision, the Tulsa County Assessor appealed the Board’s decision by filing a case in the District Court in and for Tulsa County.

The Company has accrued the property taxes associated with the Board’s decision of approximately $ 290,000 but awaits the final decision from the District Court.

Note 11 – SHARE-BASED COMPENSATION

22 unchanged sentences

During fiscal year 2024, 35,285 restricted shares were forfeited and regranted to participants with an average grant-date fair value of $ 1.84 .

The remaining unrecognized compensation expense of these awards, totaling approximately $ 302,700 as of May 31, 2024, will be recognized ratably over the remaining vesting period of 9 months.

The remaining unrecognized compensation expense of these awards, totaling approximately $ 201,800 as of August 31, 2024, will be recognized ratably over the remaining vesting period of 6 months.

A summary of compensation expense recognized in connection with restricted share awards follows:

Three Months Ended May 31,

Three Months Ended

Six Months Ended

Share-based compensation expense

Less reduction of expense for forfeitures

Share-based compensation expense - net

The following table summarizes stock award activity during the first three months of fiscal year 2025 under the 2019 LTI Plan:

1 unchanged sentence

Outstanding at February 29, 2024

Outstanding at May 31, 2024

Outstanding at August 31, 2024

Note 12 – SHIPPING AND HANDLING COSTS

1 unchanged sentence

Shipping and handling costs include postage, freight, handling costs, as well as shipping materials and supplies.

These costs were $ 1,546,600 and $ 1,938,100 for the three months ended May 31, 2024 and 2023, respectively.

These costs were $ 968,500 and $ 1,414,200 for the three months ended August 31, 2024 and 2023, respectively.

These costs were $ 2,515,100 and $ 3,352,300 for the six months ended August 31, 2024 and 2023, respectively.

Note 13 – BUSINESS SEGMENTS

11 unchanged sentences

Our assets and liabilities are not allocated on a segment basis.

Information by reporting segment for the three-month periods ended May 31, 2024 and 2023, are as follows:

Information by reporting segment for the three- and six-month periods ended August 31, 2024 and 2023, are as follows:

Three Months Ended

LOSS BEFORE INCOME TAXES

Six Months Ended

EARNINGS (LOSS) BEFORE INCOME TAXES

Three Months Ended

Six Months Ended

Note 14 – INTEREST RATE EXCHANGE AGREEMENT

5 unchanged sentences

The swap agreement offsets a corresponding portion of the amortizing $21,000,000 Floating Rate Term Loan, expires on May 30, 2025 , and has effectively fixed the interest rate on the offsetting, outstanding balance of the $21,000,000 Floating Rate Term Loan at 6.48 %.

The notional amount of the swap and the offsetting, outstanding portion of the term loan were $ 17,037,500 on May 31, 2024.

The notional amount of the swap and the offsetting, outstanding portion of the term loan was $ 11,775,000 on August 31, 2024.

The interest-rate swap contains no credit-risk–related contingent features and is cross-collateralized by all assets of the Company.

2 unchanged sentences

The fair value of the interest rate swap is included in the following caption on the condensed balance sheets as follows:

August 31, 2024

February 29, 2024

Prepaid expenses and other assets

Other current liabilities

There was no portion of unrealized gain that was excluded from the assessment of hedge effectiveness.

2 unchanged sentences

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 $ 37,000,000 as of May 31, 2024 and February 29, 2024, respectively.

Management's estimates are based on the recent sale agreement for the price of the Hilti Complex less the estimated costs to sell plus an estimated value of the excess land of approximately 17 acres for $ 2,500,000 .

The estimated fair value of our term notes payable is estimated by management to approximate $ 27,665,500 and $ 28,152,800 as of May 31, 2024 and February 29, 2024, respectively.

The estimated fair value of our assets held for sale for the Hilti complex was $ 37,000,000 as of August 31, 2024 and February 29, 2024, respectively.

The estimated fair value of our term notes payable is estimated by management to approximate $ 27,425,500 and $ 28,152,800 as of August 31, 2024 and February 29, 2024, respectively.

Management's estimates are based on the obligations' characteristics, including floating interest rate, maturity, and collateral.

2 unchanged sentences

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, 2024 or February 29, 2024 are recorded as deferred revenues on the condensed balance sheets.

We received approximately $ 450,800 and $ 583,500 as of May 31, 2024 and February 29, 2024, respectively, in payments for sales orders which were, or will be, shipped out subsequent to the end of the period.

Any payments received prior to the end of the period that were not shipped as of August 31, 2024 or February 29, 2024 are recorded as deferred revenues on the condensed balance sheets.

We received approximately $ 500,400 and $ 583,500 as of August 31, 2024 and February 29, 2024, respectively, in payments for sales orders which were, or will be, shipped out subsequent to the end of the period.

Note 17 – SUBSEQUENT EVENTS

On May 26, 2024, 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.

The initial lease term is five years , commencing July 1, 2024, and includes an option to extend the lease term for an additional five years .

The initial lease rate shall be $9.05 per rentable square foot, with 3% escalations at the beginning of each year of the lease.

The lease also includes other terms considered to be normal and customary in the local market.

On June 6, 2024, the Company executed a Commercial Real Estate Sale Contract (“Contract”) with Rockford Holdings, LLC (“Buyer”) for the Hilti Complex.

The agreed upon sale price of the Hilti Complex per the executed Contract totaled $ 35,500,000 , the closing of which remains subject to the satisfaction of various closing conditions.

On September 18, 2024, the Company executed a Lease Termination Agreement associated with the warehouse and office space located in Layton, Utah.

The term of the lease was set to expire on November 30, 2026, however the Landlord agreed to an early termination of the lease which shall be effective October 1, 2024.

The Landlord also agreed that there will be no lease termination fee required.

On September 19, 2024, the Company executed a Commercial Real Estate Sale Contract (“Contract”) with Partner Holdings, LLC (“Buyer”) for the Hilti Complex.

The agreed upon sale price of the Hilti Complex per the executed Contract totaled $ 38,250,000 less buyer fees and closing costs.

The proceeds from the sale will be utilized to pay off the Term Loans and Revolving Loan outstanding in the Credit Agreement with the Company's Bank.

At closing, EDC will assign the existing Hilti tenant lease to the Buyer.

EDC will retain sublease rights to the Crusoe Energy System leased space and will execute a separate Triple-Net Lease (the "Lease") for the remaining approximate 218,000 square feet.

The Contract does not include the excess land parcel, consisting of approximately 17 acres of undeveloped land adjacent to the Hilti Complex, which will remain under the ownership of EDC.

The initial term of the new lease with the Buyer will be for 15 years, and the initial lease rate will be $8.52 per square foot, with 2.5% annual escalations beginning in year two of the lease.

The Lease will also include triple-net terms, where the Seller will be responsible for utilities, insurance, property taxes, and regular maintenance, excluding roof and structural maintenance, which will be the Buyer's responsibility.

Additionally, the Seller will retain the rights to sublease, subject to buyer approval, any available unused space in the building during the lease term.

The Lease will also encompass other standard terms that are customary in the local market.

Subsequent to quarter end, the Company executed the Sixth Amendment to the Existing Credit Agreement with the Lender.

The Amendment, effective October 3, 2024, extends the maturity date to January 4, 2025 and includes required step downs on the Revolving Loan to $ 5.5 million by November 30, 2024.

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

7 unchanged sentences

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 2023 and fiscal 2024, the Company did not meet the minimum purchase volumes and certain payments were not received timely.

During fiscal 2024, 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.

8 unchanged sentences

Three Months Ended

Six Months Ended

Cost of goods sold

5 unchanged sentences

Interest expense

Loss before income taxes

Income tax benefit

Earnings (loss) before income taxes

Income tax expense (benefit)

Net earnings (loss)

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.

Non-Segment Operating Results for the Three Months Ended May 31, 2024

Total operating expenses not associated with a reporting segment decreased $0.3 million, or 10.0%, to $2.7 million for the three-month period ended May 31, 2024, when compared to $3.0 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, primarily within our warehouse operations, and a $0.1 million decrease in freight handling expenses.

Interest expense decreased $0.1 million, or 14.3%, to $0.6 million for the three months ended May 31, 2024, when compared to $0.7 million for the same quarterly period a year ago, due to reduced borrowings of debt, period over period.

Income taxes increased $0.2 million, or 66.7%, to a tax benefit of $0.5 million for the three months ended May 31, 2024, from a tax benefit of $0.3 million for the same quarterly period a year ago, resulting primarily from a decrease in gross sales.

Our effective tax rate decreased to 26.8% for the quarter ended May 31, 2024, from 27.3% for the quarter ended May 31, 2023 due primarily to sales mix fluctuations between states.

Non-Segment Operating Results for the Three Months Ended August 31, 2024

Total operating expenses not associated with a reporting segment decreased $0.6 million, or 20.7%, to $2.3 million for the three-month period ended August 31, 2024, when compared to $2.9 million for the same quarterly period a year ago.

Operating expenses decreased primarily as a result of a $0.4 million decrease in labor from staff reductions across all departments associated with the reduction in revenues, and a $0.2 million decrease in depreciation expense.

Interest expense decreased $0.2 million, or 28.6%, to $0.5 million for the three months ended August 31, 2024, when compared to $0.7 million for the same quarterly period a year ago due to paydown on the Company’s borrowings, period over period.

Other income decreased $3.7 million, or 86.0%, to $0.6 million for the three months ended August 31, 2024, when compared to $4.3 million for the same quarterly period a year ago resulting from the receipt of the Employee Retention Credit totaling $3.8 million and $0.1 million from the gain on the sale of assets, both in the quarter ended August 31, 2023, offset by a $0.2 million increase in rental income in the quarter ended August 31, 2024 from the new tenant in the Hilti Complex.

Income taxes decreased $1.1 million, or 275.0%, to a tax benefit of $0.7 million for the three months ended August 31, 2024, from a tax expense of $0.4 million for the same quarterly period a year ago, primarily resulting from operating losses in the second quarter ended August 31, 2024.

Our effective tax rate stayed the same 26.9% for the quarter ended August 31, 2024 and August 31, 2023.

Our tax rates are higher than the federal statutory rate of 21% due to the inclusion of state income and franchise taxes.

PaperPie Operating Results for the Three Months Ended May 31, 2024

Non-Segment Operating Results for the Six Months Ended August 31, 2024

Total operating expenses not associated with a reporting segment decreased $0.8 million, or 13.8%, to $5.0 million for the six-month period ended August 31, 2024, when compared to $5.8 million for the same period a year ago.

Labor expenses decreased $0.6 million from staff reductions across all departments and freight handling costs decreased $0.2 million for the six months ended August 31, 2024, both associated with reduced sales.

Interest expense decreased $0.4 million, or 26.7%, to $1.1 million for the six months ended August 31, 2024, when compared to $1.5 million for the same period a year ago, due to decreased borrowings period over period.

Other income decreased $3.5 million, or 76.1%, to $1.1 million for the six months ended August 31, 2024, when compared to $4.6 million for the same quarterly period a year ago, primarily from the receipt of the Employee Retention Credit totaling $3.8 million and $0.1 million from the gain on the sale of assets, both in the quarter ended August 31, 2023, offset by a $0.2 million increase in rental income from the new tenant in the Hilti Complex and a $0.1 increase in other income related to a Chik-fil-A promotion.

Income taxes decreased $1.2 million, or 1200.0%, to a tax benefit of $1.1 million for the six months ended August 31, 2024, from a tax expense of $0.1 million for the same period a year ago, primarily resulting from operating losses for the six months ended August 31, 2024.

Our effective tax rate increased to 26.8% for the six months ended August 31, 2024, from 25.1% for the six months ended August 31, 2023 due primarily to sales mix fluctuations between states.

Our tax rates are higher than the federal statutory rate of 21% due to the inclusion of state income and franchise taxes.

PaperPie Operating Results for the Three and Six Months Ended August 31, 2024

The following table summarizes the operating results of the PaperPie segment:

Three Months Ended

Less discounts and allowances

Transportation revenue

Six Months Ended

Cost of goods sold

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Average number of active brand partners

PaperPie Operating Results for the Three Months Ended May 31, 2024

PaperPie net revenues decreased $3.7 million, or 29.4%, to $8.9 million during the three months ended May 31, 2024, when compared to $12.6 million during the same period a year ago.

The average number of active brand partners in the first quarter of fiscal 2025 was 13,400, a decrease of 9,800, or 42.2%, from 23,200 average active brand partners selling in the first quarter of fiscal 2024.

PaperPie Operating Results for the Three Months Ended August 31, 2024

PaperPie net revenues decreased $3.9 million, or 41.9%, to $5.4 million during the three months ended August 31, 2024, when compared to $9.3 million during the same period a year ago.

The average number of active brand partners in the second quarter of fiscal 2025 was 13,900, a decrease of 4,200, or 23.2%, from 18,100 average active brand partners selling in the second quarter of fiscal 2024.

The Company reports the average number of active Brand Partners as a key indicator for this division.

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This agreement required the rebranding of the direct sales division from Usborne Books & More (“UBAM”) to PaperPie.

This rebranding was completed on in the fourth quarter of fiscal 2023.

This rebranding was completed in the fourth quarter of fiscal 2023.

Subsequent to the rebranding, Brand Partner levels declined due to several reasons including economic factors that include recent record inflation, resulting in high fuel costs and food price increases that continue to impact the disposable income of our customers.

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We expect this impact on sales to continue as inflationary pressures persist through fiscal 2025.

Net revenues during the fiscal 2025 first quarter were also negatively impacted from increased discounts.

Discounts as a percentage of gross sales increased from 29.8% in the first quarter of fiscal 2024 to 36.8% in the first quarter of this year, resulting in less net revenues of approximately $0.5 million.

The increased discounts resulted from a change in order mix, impacting net revenues by $0.4 million, along with additional product discounts offered to spur sales during the quarter impacting net revenues by $0.1 million.

The order mix change resulted from an increase in book fair orders over web sales, which offer higher discounts and lower sales commissions to Brand Partners.

Gross margin decreased $2.6 million, or 31.0%, to $5.8 million during the three months ended May 31, 2024, when compared to $8.4 million during the same period a year ago.

Gross margin as a percentage of net revenues for the three months ended May 31, 2024 decreased to 65.3%, compared to 66.7% the same period a year ago, representing a decrease of $0.3 million.

The decrease in gross margin as a percentage of net revenues was primarily attributed to increased discounts between the periods and additional shipping promotions.

Net revenues during the fiscal 2025 second quarter were also negatively impacted from increased discounts.

Discounts as a percentage of sales before discounts and allowances increased from 32.6% in the second quarter of fiscal 2024 to 55.3% in the second quarter of this fiscal year, resulting in less net revenues of approximately $2.2 million.

The increased discounts resulted from recruiting promotions to increase band partner levels and additional customer discounts offered to spur sales during the quarter.

Gross margin decreased $3.1 million, or 50.8.%, to $3.0 million during the three months ended August 31, 2024, when compared to $6.1 million during the same period a year ago.

Gross margin as a percentage of net revenues for the three months ended August 31, 2024 decreased to 55.1%, compared to 65.4% the same period a year ago, representing a decrease of $0.6 million.

The decrease in gross margin as a percentage of net revenues was primarily attributed to increased discounts between the periods related to recruiting promotions and increased customer discounts.

PaperPie operating expenses consists of operating and selling expenses, sales commissions and general and administrative expenses.

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General and administrative expenses include payroll, outside services, inventory reserves and other expenses directly associated with the segment.

Total operating expenses decreased $1.7 million, or 25.4%, to $5.0 million during the three-month period ended May 31, 2023, when compared to $6.7 million reported in the same quarter a year ago.

Operating and selling expenses decreased $0.4 million, or 21.1%, to $1.5 million during the three-month period ended May 31, 2024, when compared to $1.9 million reported in the same quarter a year ago, primarily due to less freight expense on fewer sales and shipments totaling approximately $0.3 million along with a decrease in trip accrual expense of $0.1 million due to reduced sales.

Sales commissions decreased $1.1 million, or 26.8%, to $3.0 million during the three-month period ended May 31, 2024, when compared to $4.1 million reported in the same quarter a year ago, due primarily to the decrease in net revenues.

Sales commissions as a percentage of net revenues increased from 32.7% to 34.1% between periods, primarily due to the mix of order type.

Total operating expenses decreased $2.2 million, or 38.6%, to $3.5 million during the three-month period ended August 31, 2024, when compared to $5.7 million reported in the same quarter a year ago.

Operating and selling expenses decreased $0.4 million, or 25.0%, to $1.2 million during the three-month period ended August 31, 2024, when compared to $1.6 million reported in the same quarter a year ago, primarily due to less freight expense on fewer sales.

Sales commissions decreased $1.7 million, or 48.6%, to $1.8 million during the three-month period ended August 31, 2024, when compared to $3.5 million reported in the same quarter a year ago, due to the decrease in net revenues.

Sales commissions as a percentage of net revenues decreased from 37.4% to 33.6% between periods, primarily due to the mix of order type.

Web orders pay higher commissions than special programs such as book fairs.

General and administrative expenses decreased $0.2 million, or 28.6%, to $0.5 million during the three months ended May 31, 2024, when compared to $0.7 million during the same period a year ago, due primarily to $0.1 million of reduced bank fees from fewer credit card transactions associated with reduced sales and $0.1 million of reduced payroll associated with division staffing.

Operating income for the PaperPie segment decreased $0.9 million, or 52.9% to $0.8 million during the three months ended May 31, 2024, when compared to $1.7 million reported in the same quarter a year ago.

General and administrative expenses decreased $0.1 million, or 16.7%, to $0.5 million during the three months ended August 31, 2024, when compared to $0.6 million during the same period a year ago, due primarily to $0.1 million of reduced bank fees from fewer credit card transactions associated with reduced sales.

Operating income (loss) for the PaperPie segment decreased $0.9 million, or 225.0% to an operating loss of $(0.5) million during the three months ended August 31, 2024, when compared to $0.4 million reported in the same quarter a year ago.

Operating income (loss) for the PaperPie division decreased primarily from reduced sales;

along with additional recruiting and product discounts partially offset by reduced operating expenses.

PaperPie Operating Results for the Six Months Ended August 31, 2024

PaperPie net revenues decreased $7.6 million, or 34.7%, to $14.3 million during the six-month period ended August 31, 2024, compared to $21.9 million from the same period a year ago.

The average number of active brand partners in the six-month period ended August 31, 2024 was 13,700, a decrease of 6,900, or 33.5%, from 20,600 selling in same period a year ago.

Recruiting and maintaining brand partners has been negatively impacted by several factors including record inflation, our new distribution agreement with Usborne and the rebranding of the division in the fourth quarter of fiscal year 2023.

Inflation was most evident in increased food and fuel prices, which impacts the disposable income of our target customer base, which is families with small children.

Sales during the first and second quarters of fiscal year 2024 continued to be negatively impacted by continuing inflationary pressures and we expect this to continue through the rest of fiscal year 2025, 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.

Gross margin decreased $5.7 million, or 39.3%, to $8.8 million during the six-month period ended August 31, 2024, when compared to $14.5 million during the same period a year ago, due primarily to a decrease in net revenues.

Gross margin as a percentage of net revenues decreased to 61.5% for the six-month period ended August 31, 2024, when compared to 66.2% for the same period a year ago.

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.

Total operating expenses decreased $4.0 million, or 32.0%, to $8.5 million during the six-month period ended August 31, 2024, from $12.5 million for the same period a year ago.

Operating and selling expenses decreased $0.8 million, or 22.9%, to $2.7 million during the six-month period ended August 31, 2024, when compared to $3.5 million reported in the same period a year ago, primarily due to a decrease in shipping costs associated with the decrease in volume of orders shipped totaling approximately $0.6 million and a $0.2 million decrease in brand partner incentive trip expenses as fewer brand partners are expected to earn the trip this year.

Sales commissions decreased $2.7 million, or 35.5%, to $4.9 million during the six-month period ended August 31, 2024, when compared to $7.6 million reported in the same period a year ago, primarily due to the decrease in net revenues.

General and administrative expenses decreased $0.4 million, or 28.6%, to $1.0 million, from $1.4 million recognized during the same period last year, due primarily to decreased credit card transaction fees associated with decreased sales volumes totaling $0.2 million and a $0.2 million decrease in payroll expenses.

Operating income of the PaperPie segment decreased $1.7 million, or 85.0%, to $0.3 million during the six months ended August 31, 2024, when compared to $2.0 million reported in the same period last year.

Operating income of the PaperPie division as a percentage of net revenues for the six months ended August 31, 2024 was 2.1%, compared to 9.2% for the six months ended August 31, 2023.

Operating income for the PaperPie division decreased primarily from reduced sales;

along with additional product and transportation discounts partially offset by reduced operating expenses.

Publishing Operating Results for the Three Months Ended May 31, 2024

along with additional recruiting promotions and customer discounts offered to increase brand partner levels and spur sales in the current year.

Publishing Operating Results for the Three and Six Months Ended August 31, 2024

The following table summarizes the operating results of the Publishing segment:

Three Months Ended

Less discounts and allowances

Transportation revenue

Six Months Ended

Cost of goods sold

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Operating income

Publishing Operating Results for the Three Months Ended May 31, 2024

Our Publishing division’s net revenues decreased $0.8 million, or 42.1%, to $1.1 million during the three-month period ended May 31, 2024, from $1.9 million reported in the same period a year ago.

During fiscal year 2023, we entered into a new distribution agreement with Usborne.

Under the contracted terms in our new distribution agreement, the Company no longer has the rights to distribute Usborne’s products to retail customers.

The Company discontinued sales to retail customers in the first quarter of fiscal 2024 when Usborne introduced their new distribution vendor.

Net revenues from the sale of Usborne products in the first quarter of fiscal 2024 totaled $1.3 million.

There were no Usborne sales through the Publishing division in the first quarter of fiscal 2025.

Gross margin decreased $0.4 million, or 40.0%, to $0.6 million during the three-month period ended May 31, 2024, from $1.0 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 59.2% during the three-month period ended May 31, 2024, from 50.3% reported in the same quarter a year ago.

Publishing Operating Results for the Three Months Ended August 31, 2024

Our Publishing division’s net revenues decreased $0.2 million, or 15.4%, to $1.1 million during the three-month period ended August 31, 2024, from $1.3 million reported in the same period a year ago.

During the quarter ended August 31, 2023, the company received a large order from not-for-profit customer order totaling $0.4 million that did not repeat in the quarter ended August 31, 2024, partially offset by $0.2 million of increased customer orders between the periods.

Gross margin decreased $0.2 million, or 25.0%, to $0.6 million during the three-month period ended August 31, 2024, from $0.8 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 decreased to 60.5% during the three-month period ended August 31, 2024, from 64.0% reported in the same quarter a year ago.

Gross margin as a percentage of net revenues changed primarily due to large customer order received in the quarter ended August 31, 2023 with higher margin products that did repeat this year.

Total operating expenses of the Publishing segment remained consistent at $0.4 million during the three-month periods ended August 31, 2024 and 2023.

Operating income of the Publishing division decreased $0.1 million or 25.0% to $0.3 million during the three-month period ended August 31, 2024 from $0.4 million for the three-month period ended August 31, 2023, respectively.

The decrease in operating income was primarily associated with the decline in net revenues compared to the previous period.

Publishing Operating Results for the Six Months Ended August 31, 2024

Our Publishing division’s net revenues decreased by $1.0 million, or 31.3%, to $2.2 million during the six-month period ended August 31, 2024, from $3.2 million reported in the same period a year ago primarily due to the stoppage of distribution of Usborne products between the periods.

Usborne sales in the first quarter of fiscal 2024 totaled $1.3 million.

Gross margin decreased $0.5 million, or 27.8%, to $1.3 million during the six-month period ended August 31, 2024, from $1.8 million reported in the same period a year ago.

Gross margin as a percentage of net revenues increased to 59.8%, during the six-month period ended August 31, 2024, from 55.7% reported in the same period a year ago.

Gross margin as a percentage of net revenues changed primarily from changes in the mix of products sold between EDC-owned brands and Usborne, with Kane Miller, SmartLab Toys and Learning Wrap-Ups products carrying a better margin on average.

Total operating expenses of the Publishing segment decreased $0.1 million, or 20.0%, to $0.4 million, from $0.5 million, during the three-month periods ended May 31, 2024 and 2023, respectively.

This change was primarily due to a $0.1 million decrease in sales commissions due to decreased overall sales.

Operating income of the Publishing division decreased $0.3 million or 60.0% to $0.2 million during the three-month period ended May 31, 2024 from $0.5 million for the three-month period ended May 31, 2023, respectively.

The decrease in operating income was primarily associated with the decline in revenues associated with the new distribution agreement, which required the stoppage of Usborne products sold through this division.

Total operating expenses of the Publishing segment decreased $0.1 million, or 11.1%, to $0.8 million during the six-month period ended August 31, 2024, from $0.9 million reported in the same period a year ago.

This change was due to a $0.1 million decrease in sales commissions due to decreased overall sales and the restructuring of the Company’s internal sales department.

Operating income of the Publishing segment decreased $0.4 million, or 44.4%, to $0.5 million during the six-month period ended August 31, 2024 when compared to $0.9 million reported in the same period a year ago, due primarily to the decrease in sales and operating expenses.

The decrease in operating income was primarily associated with the decline in revenues associated with the stoppage of Usborne product sales in this division.

Liquidity and Capital Resources

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We utilize a bank credit facility and other term loan borrowings to meet our short-term cash needs, as well as fund capital expenditures, when necessary.

As of the end of the first fiscal quarter of 2025, our revolving bank credit facility loan balance was $5.6 million with $1.4 million in available capacity.

During the first three months of fiscal year 2025, we experienced positive cash inflows from operations of $1,201,600.

As of the end of the second fiscal quarter of 2025, our revolving bank credit facility loan balance was $6.1 million with $0.9 million in available capacity.

During the first six months of fiscal year 2025, we experienced positive cash inflows from operations of $335,500.

These cash inflows resulted from:

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●decrease in deferred revenues of $83,100

Cash used in investing activities was $108,200 for capital expenditures, consisting of $112,200 in software upgrades to our proprietary systems that our PaperPie Brand Partners use to monitor their business and place customer orders and offset by $4,000 from the sale of machinery and equipment.

Cash used in investing activities was $196,000 for capital expenditures, consisting of $200,000 in new software development costs to add new features to our proprietary systems that PaperPie Brand Partners use to monitor their business and place customer orders and offset by $4,000 from the sale of machinery and equipment.

Cash used in financing activities was $286,500, which was comprised of net borrowings on the line of credit of $600,000 and $13,500 from the sale of treasury stock, offset by payments on term debt of $900,000.

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The Amendment also requires an additional decrease in the Revolving Loan to $4,500,000 from the effective date of the sale of the Hilti Complex among other restrictions and requirements.

Available credit under the current $7,000,000 revolving line of credit with the Company’s Lender was approximately $1,401,900 at May 31, 2024.

Features of the Loan Agreement (as amended) at May 31, 2024 include:

Available credit under the current $7,000,000 revolving line of credit with the Company’s Lender was approximately $901,900 at August 31, 2024.

Subsequent to quarter end, the Company executed the Sixth Amendment to the Existing Credit Agreement with the Lender.

The Amendment, effective October 3, 2024, extends the maturity date to January 4, 2025 and includes required step downs on the Revolving Loan to $5.5 million by November 30, 2024.

Features of the Loan Agreement (as amended) at August 31, 2024 include:

Two Term Loans on 20-year amortization with 5-year maturity date of August 9, 2027

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$7 Million Revolving Loan with maturity date of October 4, 2024.

The Revolving Loan bears interest at a rate per annum equal to Term SOFR Rate + 4.50% (effective rate was 9.82% at May 31, 2024)

Revolving Loan allows for Letters of Credit upon bank approval (none were outstanding at May 31, 2024)

The Revolving Loan bears interest at a rate per annum equal to Term SOFR Rate + 4.50% (effective rate was 9.85% at August 31, 2024)

Revolving Loan allows for Letters of Credit upon bank approval (none were outstanding at August 31, 2024)

The following table reflects aggregate current maturities of term debt, excluding the Revolving Loan, during the current fiscal year as follows:

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The short-term duration of the Revolving Loan and uncertainty of the bank’s ongoing support beyond January 4, 2025, along with recurring operating losses and other items, raise substantial doubt over the Company's ability to continue as a going concern.

To address these concerns, the Company has taken steps in its plans to reduce debt by selling owned real estate.

On June 6, 2024 the Company executed an agreement sell the Hilti Complex for $35,500,000, the closing of which remains subject to the satisfaction of various closing conditions Upon closing, the proceeds from the sale are expected to pay off the Term Loans and Revolving Loan.

The proceeds from the sale are expected to pay off the Term Loans and Revolving Loan.

Following the loan payoff, management plans to fund ongoing operations with limited borrowings through local banks or other financing sources.

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The probability of restricted share awards granted with future performance conditions is evaluated at each reporting period and compensation expense is adjusted based on the probability assessment.

During the first three months of fiscal year 2025, the Company recognized $0.1 million of compensation expense associated with the shares granted.

During the first six months of fiscal year 2025, the Company recognized $0.2 million of compensation expense associated with the shares granted.

Revenue Recognition

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It is 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, 2024 and February 29, 2024, respectively.

Management has estimated and included a reserve for sales returns of $0.2 million for August 31, 2024 and February 29, 2024, respectively.

Allowance for Credit Losses

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An estimate of uncollectible amounts is made by management based upon historical bad debts, current customer receivable balances, age of customer receivable balances, customers’ financial conditions and current economic trends.

Management has estimated and included an allowance for credit losses of $0.1 million for both May 31, 2024 and February 29, 2024, respectively.

Management has estimated and included an allowance for credit losses of $0.1 million for both August 31, 2024 and February 29, 2024.

Our inventory contains approximately 2,000 titles, each with different rates of sale depending upon the nature and popularity of the title.

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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 $14.3 million and $12.3 million as of May 31, 2024 and February 29, 2024, respectively.

Noncurrent inventory valuation allowances were $0.6 million as of May 31, 2024 and February 29, 2024, respectively.

Noncurrent inventory balances prior to valuation allowances were $15.5 million and $12.3 million as of August 31, 2024 and February 29, 2024, respectively.

Noncurrent inventory valuation allowances were $0.7 million and $0.6 million as of August 31, 2024 and February 29, 2024, respectively.

Brand Partners that meet certain eligibility requirements may request and receive inventory on consignment.

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in summary, having consignment inventory leads to additional sales opportunities.

Approximately 12.2% of our active Brand Partners have maintained consignment inventory at the end of the first quarter of fiscal year 2025.

Approximately 11.3% of our active Brand Partners have maintained consignment inventory at the end of the second quarter of fiscal year 2025.

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 $1.2 million and $1.4 million at May 31, 2024 and February 29, 2024, respectively.

The total cost of inventory on consignment with Brand Partners was $1.2 million and $1.4 million at August 31, 2024 and February 29, 2024, 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 $1.0 million at May 31, 2024 and February 29, 2024, respectively.

Management has estimated a valuation allowance for both current and noncurrent inventory, including the reserve for consigned inventory, of $1.2 million and $1.0 million at August 31, 2024 and February 29, 2024, respectively.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements