What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2025-01-13 compared with 2024-10-10 · 177 added, 168 removed, 620 unchanged (36% of the section changed)

6 unchanged sentences

Accounts receivable, less allowance for credit losses of

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

$ 124,700 (November 30) and $ 129,000 (February 29)

Inventories - net

25 unchanged sentences

Issued 12,702,080 shares;

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

Outstanding 8,583,601 (November 30) and 8,575,088 (February 29) shares

Capital in excess of par value

8 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

PRODUCT REVENUES, net of discounts and allowances

17 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Net earnings (loss)

5 unchanged sentences

CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS ’ EQUITY (UNAUDITED)

FOR THE SIX MONTHS ENDED AUGUST 31, 2024

FOR THE NINE MONTHS ENDED NOVEMBER 30, 2024

(par value $0.20 per share)

11 unchanged sentences

BALANCE - August 31, 2024

FOR THE SIX MONTHS ENDED AUGUST 31, 2023

Sale of treasury stock

Share-based compensation expense - net

Change in fair value of interest rate exchange agreement

BALANCE - November 30, 2024

FOR THE NINE MONTHS ENDED NOVEMBER 30, 2023

(par value $0.20 per share)

10 unchanged sentences

BALANCE - August 31, 2023

Share-based compensation expense - net

Unrealized loss on interest rate exchange agreement

BALANCE - November 30, 2023

See notes to condensed financial statements (unaudited).

1 unchanged sentence

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

Six Months Ended August 31,

Nine Months Ended November 30,

CASH FLOWS FROM OPERATING ACTIVITIES

20 unchanged sentences

Proceeds from sale of assets

Net cash used in investing activities

Net cash provided by (used in) investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

2 unchanged sentences

Sales of treasury stock

Net borrowings (payments) under line of credit

Net payments under line of credit

Net cash used in financing activities

30 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 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.

The short-term duration of the Revolving Loan and uncertainty of the bank’s ongoing support beyond April 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 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.

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

On October 28, 2024, the Company executed the Asset Purchase Sale Agreement with the buyer that started the due diligence period.

Upon closing, 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.

In addition, management’s plans include reducing inventory which will generate free cashflows and building the active PaperPie Brand Partners to pre-pandemic levels.

In addition, management’s plans include reducing inventory which will generate free cashflows and building the number of active PaperPie Brand Partners to pre-pandemic levels.

Although there is no guarantee these plans will be successful, management believes these plans, if achieved, will alleviate the substantial doubt about continuing as a going concern and generate sufficient liquidity to meet our obligations as they become due over the next twelve months.

7 unchanged sentences

This ASU will be effective for our Form 10-K for fiscal 2025 and our Form 10-Q for the first quarter of fiscal 2026.

We are currently evaluating the impact this ASU may have on our financial statement disclosures.

We expect to implement the changes related to this ASU in our 10-K for fiscal 2025 and subsequent 10-Q and 10-K filings.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

5 unchanged sentences

We are currently evaluating the impact this ASU may have on our financial statement disclosures.

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses, which requires disclosure about the types of costs and expenses included in certain expense captions presented on the income statement.

The new disclosure requirements are effective for the Company's annual periods beginning March 1, 2027, and interim periods beginning March 1, 2028, with early adoption permitted, and may be applied either prospectively or retrospectively.

The Company is currently evaluating the ASU to determine its impact on the Company's disclosures.

Note 2 – CASH

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

November 30, 2024

November 30, 2023

Cash and cash equivalents

1 unchanged sentence

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.

(together “PayPal”) and most recently Nexio, third-party merchant service processors, to capture PayPal, Visa, Discover and Mastercard payments from customers.

The Company has contracted with Nexio and PayPal, Inc., third-party merchant service processors, to capture Visa, Discover, Mastercard and PayPal payments from customers.

Approximately 90% of all payments received by the Company have been channeled through these processors.

During the second quarter of fiscal 2024, PayPal, under the terms of our agreements, began to hold cash payments received from customers in reserve to offset any potential chargebacks.

During the third quarter of fiscal 2024, the Company switched most merchant services for Visa, Discover and Mastercard from Braintree to Nexio, which required a shorter hold period.

The Company has classified the cash held in reserves by PayPal and Nexio as restricted cash.

These processors hold cash payments received from customers in reserve for a specified number of days to offset any potential chargebacks.

The Company has classified the cash held in reserves by Nexio and PayPal as restricted cash.

Note 3 – ASSETS HELD FOR SALE

1 unchanged sentence

Ave, Tulsa, Oklahoma 74146 for sale.

This property, consisting of approximately 402,000 square feet of office and warehouse space on 35 -acres (the “Hilti Complex”), along with 17 -acres of adjacent undeveloped land, was appraised in July 2023 with a market value of $ 41,970,000 .

This property, consisting of approximately 402,000 square feet of office and warehouse space on 35 -acres (the “Hilti Complex”), along with 17 -acres of adjacent undeveloped land, was recently appraised in November 2024 with a market value of approximately $ 47,410,000 .

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

On September 19, 2024, the Company executed a Letter of Intent with Partner Holdings, LLC (“Buyer”) for the Hilti Complex.

On October 28, 2024, the Company further executed a Commercial Real Estate Sale Contract (“Contract”) under similar terms as the Letter of Intent.

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

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 square feet in the Hilti Complex of approximately 218,000 square feet.

The Contract includes a right of first refusal on 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, including roof and structural maintenance.

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.

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.

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.

The total carrying value of assets held for sale was $ 19,250,000 and $ 18,281,100 as of November 30, 2024 and February 29, 2024 and is separately recorded on the balance sheets.

Note 4 – INVENTORIES

Inventories consist of the following:

August 31, 2024

November 30, 2024

February 29, 2024

5 unchanged sentences

Inventories net – noncurrent

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

Inventory in transit totaled $ 0 and $ 264,000 at November 30, 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 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 lessee arrangements include five rental agreements where we have the exclusive use of dedicated office space in San Diego, California, warehouse and office space in Seattle, Washington, 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.

5 unchanged sentences

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

November 30, 2024

February 29, 2024

13 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Fixed lease costs

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

Future minimum rental payments under operating leases with initial terms greater than one year as of November 30, 2024, are as follows:

Years ending February 28 (29),

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Operating cash outflows – operating leases

8 unchanged sentences

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.

The lease includes standard triple-net terms such that the Tenant shall be responsible for utilities, insurance, property taxes, 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 $ 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.

The cost of the leased space was $ 16,313,300 and $ 10,159,500 at November 30, 2024 and February 29, 2024.

The accumulated depreciation associated with the leased asset was $ 3,891,200 and $ 2,776,400 at November 30, 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.

2 unchanged sentences

Debt consists of the following:

August 31, 2024

November 30, 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 9.85 % at August 31, 2024.

The Third Amendment also increased the borrowing rate on the Revolving Loan to 30-Day Term SOFR Rate + 4.50 .

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.

6 unchanged sentences

Proceeds from the sale of the property are to be used to pay down the borrowings with the Lender.

A third-party appraisal was completed on the Hilti Complex, consisting of the 402,000 square feet building complex on approximately 50 acres, along with approximately 17 acres of adjacent unused land, in July of 2023 with a market value of $ 41,970,000 .

On June 13, 2024, the Company executed the Fifth Amendment to the Existing Credit Agreement with the Lender.

1 unchanged sentence

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 $ 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:

On October 7, 2024, 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 $ 5,500,000 by November 30, 2024.

(See Note 17 for additional information on the Seventh Amendment executed subsequent to quarter end.)

Available credit under the current $ 5,500,000 revolving line of credit with the Company’s Lender was approximately $ 1,201,900 at November 30, 2024.

Features of the Loan Agreement (as amended) at November 30, 2024 include:

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

1 unchanged sentence

$ 21 Million Floating Rate Term Loan bears interest at a rate per annum equal to Term SOFR Rate + 1.75 %

$ 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 9.85 % at August 31, 2024)

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

$ 5.5 Million Revolving Loan with maturity date of January 4, 2025 .

The Revolving Loan bears interest at a rate per annum equal to Term SOFR Rate + 5.50 % (effective rate was 10.17 % at November 30, 2024)

Revolving Loan allows for Letters of Credit upon bank approval (none were outstanding at November 30, 2024)

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

3 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Federal tax credits realized

Gain from sale of assets

Rental income

9 unchanged sentences

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.

The Company 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

11 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

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

9 unchanged sentences

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.

Total Usborne inventory owned by the Company and included in our condensed balance sheets was $ 24,756,500 and $ 29,010,200 as of November 30, 2024 and February 29, 2024, respectively.

Note 9 – EARNINGS (LOSS) PER SHARE

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Earnings (loss):

7 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Weighted average shares:

30 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 $ 201,800 as of August 31, 2024, will be recognized ratably over the remaining vesting period of 6 months.

The remaining unrecognized compensation expense of these awards, totaling approximately $ 100,900 as of November 30, 2024, will be recognized ratably over the remaining vesting period of 3 months.

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

Three Months Ended

Six Months Ended

Nine Months Ended

Share-based compensation expense

1 unchanged sentence

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:

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

Weighted Average Fair Value (per share)

Outstanding at February 29, 2024

Outstanding at August 31, 2024

Outstanding at November 30, 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 $ 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.

These costs were $ 1,350,400 and $ 2,152,700 for the three months ended November 30, 2024 and 2023, respectively.

These costs were $ 3,865,500 and $ 5,505,000 for the nine months ended November 30, 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- and six-month periods ended August 31, 2024 and 2023, are as follows:

Information by reporting segment for the three- and nine-month periods ended November 30, 2024 and 2023, are as follows:

Three Months Ended

Six Months Ended

Nine Months Ended

EARNINGS (LOSS) BEFORE INCOME TAXES

Three Months Ended

Six Months Ended

Nine 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 was $ 11,775,000 on August 31, 2024.

The notional amount of the swap and the offsetting, outstanding portion of the term loan was $ 11,512,500 on November 30, 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

November 30, 2024

February 29, 2024

5 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 for the Hilti complex was $ 37,000,000 as of August 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 November 30, 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 along with the estimated fair value of equipment held for sale of approximately $ 1,000,000 .

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.

The estimated fair value of our term notes payable is estimated by management to approximate $ 26,936,300 and $ 28,152,800 as of November 30, 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 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.

Any payments received prior to the end of the period that were not shipped as of November 30, 2024 or February 29, 2024 are recorded as deferred revenues on the condensed balance sheets.

We received approximately $ 1,378,100 and $ 583,500 as of November 30, 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 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.

On December 20, 2024, the Company executed an amendment to its lease with an existing tenant in the Hilti Complex.

The amendment provides the tenant a $ 500,000 tenant improvement allowance, providing a $ 10,000 credit per month on their scheduled rental payments for 50 months in exchange for extending the term of the lease for an additional five years through June 30, 2034.

On January 13, 2025, the Company executed the Seventh Amendment to the Existing Credit Agreement with the Lender.

The Amendment, effective January 4, 2025, adjusts the maximum availability of the Revolving Loan commitment to $ 4,750,000 through the maturity date of April 4, 2025.

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

During fiscal 2024 and fiscal 2025, 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

Nine Months Ended

Cost of goods sold

10 unchanged sentences

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 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.

Non-Segment Operating Results for the Three Months Ended November 30, 2024

Total operating expenses not associated with a reporting segment decreased $0.3 million, or 10.3%, to $2.6 million for the three-month period ended November 30, 2024, when compared to $2.9 million for the same quarterly period a year ago.

Operating expenses decreased primarily as a result of a $0.2 million decrease in labor from staff reductions across all departments associated with the reduction in revenues, and a $0.1 million decrease in freight expenses due to less shipments compared to the same quarterly period a year ago.

Interest expense decreased $0.1 million, or 14.3%, to $0.6 million for the three months ended November 30, 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 84.1%, to $0.7 million for the three months ended November 30, 2024, when compared to $4.4 million for the same quarterly period a year ago resulting from the sale of the old headquarters building of $4.0 million in the prior year, offset by a $0.3 million increase in rental income in the quarter ended November 30, 2024 from the new tenant in the Hilti Complex.

Income taxes decreased $1.0 million, or 142.9%, to a tax benefit of $0.3 million for the three months ended November 30, 2024, from a tax expense of $0.7 million for the same quarterly period a year ago, primarily resulting from operating losses in the third quarter ended November 30, 2024.

Our effective tax rate decreased to 24.8% for the quarter ended November 30, 2024, from 26.8% for the quarter ended November 30, 2023.

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

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.

Non-Segment Operating Results for the Nine Months Ended November 30, 2024

Total operating expenses not associated with a reporting segment decreased $1.1 million, or 12.6%, to $7.6 million for the nine-month period ended November 30, 2024, when compared to $8.7 million for the same period a year ago.

Labor expenses decreased $0.8 million from staff reductions across all departments and freight handling costs decreased $0.3 million for the nine months ended November 30, 2024, both associated with reduced sales.

Interest expense decreased $0.5 million, or 22.7%, to $1.7 million for the nine months ended November 30, 2024, when compared to $2.2 million for the same period a year ago, due to decreased borrowings period over period.

Other income decreased $7.3 million, or 81.1%, to $1.7 million for the nine months ended November 30, 2024, when compared to $9.0 million for the same quarterly period a year ago, primarily from the receipt of the Employee Retention Credit totaling $3.8 million and the sale of the old headquarters building for $4.0 million, both in fiscal 2024, offset by a $0.4 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 marketing promotion.

Income taxes decreased $2.2 million, or 275.0%, to a tax benefit of $1.4 million for the nine months ended November 30, 2024, from a tax expense of $0.8 million for the same period a year ago, primarily resulting from operating losses for the nine months ended November 30, 2024.

Our effective tax rate decreased to 26.4% for the nine months ended November 30, 2024, from 26.7% for the nine months ended November 30, 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

PaperPie Operating Results for the Three and Nine Months Ended November 30, 2024

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

Three Months Ended

Six Months Ended

Nine Months Ended

Cost of goods sold

6 unchanged sentences

Average number of active brand partners

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.

PaperPie Operating Results for the Three Months Ended November 30, 2024

PaperPie net revenues decreased $5.9 million, or 37.6%, to $9.8 million during the three months ended November 30, 2024, when compared to $15.7 million during the same period a year ago.

The average number of active brand partners in the third quarter of fiscal 2025 was 12,400, a decrease of 4,000, or 24.4%, from 16,400 average active brand partners selling in the third quarter of fiscal 2024.

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

We saw new Brand Partner recruiting negatively impacted by the recent change in our distribution agreement with Usborne Publishing Limited.

We saw new Brand Partner recruiting negatively impacted by the change in our distribution agreement with Usborne Publishing Limited.

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

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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 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.

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

Discounts as a percentage of sales before discounts and allowances increased from 31.2% in the third quarter of fiscal 2024 to 39.9% in the third quarter of this fiscal year, resulting in less net revenues of approximately $0.9 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.

Gross margin decreased $4.2 million, or 40.4%, to $6.2 million during the three months ended November 30, 2024, when compared to $10.4 million during the same period a year ago.

Gross margin as a percentage of net revenues for the three months ended November 30, 2024 decreased to 62.9%, compared to 66.3% 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 related to recruiting promotions and increased customer discounts.

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

Operating and selling expenses primarily consists of freight expenses and materials and supplies.

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

Operating and selling expenses primarily consists of freight expenses, materials, and supplies.

Sales commissions include amounts paid to Brand Partners for new sales and promotions.

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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 $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.

Total operating expenses decreased $3.7 million, or 42.0%, to $5.1 million during the three-month period ended November 30, 2024, when compared to $8.8 million reported in the same quarter a year ago.

Operating and selling expenses decreased $1.2 million, or 48.0%, to $1.3 million during the three-month period ended November 30, 2024, when compared to $2.5 million reported in the same quarter a year ago, primarily due to less freight expense on fewer sales and a decrease in brand partner incentive trip expenses as fewer brand partners are expected to earn the trip this year.

Sales commissions decreased $2.3.

million, or 41.1%, to $3.3 million during the three-month period ended November 30, 2024, when compared to $5.6 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 35.4.% to 33.3% between periods, primarily due to the mix of order types.

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

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;

General and administrative expenses decreased $0.3 million, or 37.5%, to $0.5 million during the three months ended November 30, 2024, when compared to $0.8 million during the same period a year ago, due primarily to $0.2 million of reduced bank fees from fewer credit card transactions associated with reduced sales and $0.1 million in other various general and administrative expenses.

Operating income for the PaperPie segment decreased $0.6 million, or 37.5% to $1.0 million during the three months ended November 30, 2024, when compared to $1.6 million reported in the same quarter a year ago.

Operating income 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.

PaperPie Operating Results for the Nine Months Ended November 30, 2024

PaperPie net revenues decreased $13.5 million, or 35.9%, to $24.1 million during the nine-month period ended November 30, 2024, compared to $37.6 million from the same period a year ago.

The average number of active brand partners in the nine-month period ended November 30, 2024 was 13,300, a decrease of 5,900, or 30.7%, from 19,200 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.

Sales during the first three quarters of fiscal year 2025 continued to be negatively impacted by 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.

Gross margin decreased $9.9 million, or 39.8%, to $15.0 million during the nine-month period ended November 30, 2024, when compared to $24.9 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 62.1% for the nine-month period ended November 30, 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.

Total operating expenses decreased $7.7 million, or 36.2%, to $13.6 million during the nine-month period ended November 30, 2024, from $21.3 million for the same period a year ago.

Operating and selling expenses decreased $1.9 million, or 32.2%, to $4.0 million during the nine-month period ended November 30, 2024, when compared to $5.9 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 $1.3 million and a $0.6 million decrease in brand partner incentive trip expenses as fewer brand partners are expected to earn the trip this year.

Sales commissions decreased $5.1 million, or 38.6%, to $8.1 million during the nine-month period ended November 30, 2024, when compared to $13.2 million reported in the same period a year ago, primarily due to the decrease in net revenues.

General and administrative expenses decreased $0.7 million, or 31.8%, to $1.5 million, from $2.2 million recognized during the same period last year, due primarily to both decreased credit card transaction fees associated with decreased sales volumes totaling $0.3 million and a $0.2 million decrease in payroll expenses, as well as $0.2 million in other various general and administrative expenses.

Operating income of the PaperPie segment decreased $2.3 million, or 63.9%, to $1.3 million during the nine months ended November 30, 2024, when compared to $3.6 million reported in the same period last year.

Operating income of the PaperPie division as a percentage of net revenues for the nine months ended November 30, 2024 was 5.5%, compared to 9.7% for the nine months ended November 30, 2023.

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

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

Publishing Operating Results for the Three and Nine Months Ended November 30, 2024

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

Three Months Ended

Six Months Ended

Nine Months Ended

Cost of goods sold

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Operating income

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.

Publishing Operating Results for the Three Months Ended November 30, 2024

Our Publishing division’s net revenues increased $0.1 million, or 8.3%, to $1.3 million during the three-month period ended November 30, 2024, from $1.2 million reported in the same period a year ago.

Gross margin increased $0.1 million, or 14.3%, to $0.8 million during the three-month period ended November 30, 2024, from $0.7 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 58.9% during the three-month period ended November 30, 2024, from 58.3% reported in the same quarter a year ago.

Total operating expenses of the Publishing segment decreased $0.1 million, or 25.0%, to $0.3 million, from $0.4 million, during the three-month periods ended November 30, 2024 and 2023, respectively.

Operating income of the Publishing division increased $0.1 million or 33.3% to $0.4 million during the three-month period ended November 30, 2024 from $0.3 million for the three-month period ended November 30, 2023.

Publishing Operating Results for the Nine Months Ended November 30, 2024

Our Publishing division’s net revenues decreased by $1.0 million, or 22.7%, to $3.4 million during the nine-month period ended November 30, 2024, from $4.4 million reported in the same period a year ago primarily due to the stoppage of distribution of Usborne products in this division 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 decreased $0.5 million, or 20.0%, to $2.0 million during the nine-month period ended November 30, 2024, from $2.5 million reported in the same period a year ago.

Gross margin as a percentage of net revenues increased to 59.4%, during the nine-month period ended November 30, 2024, from 56.4% 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 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.

Total operating expenses of the Publishing segment decreased $0.2 million, or 15.4%, to $1.1 million during the nine-month period ended November 30, 2024, from $1.3 million reported in the same period a year ago.

This change was primarily 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 and a $0.1 million decrease in other various operating expenses.

Operating income of the Publishing segment decreased $0.3 million, or 25.0%, to $0.9 million during the nine-month period ended November 30, 2024 when compared to $1.2 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.

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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 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.

As of the end of the third fiscal quarter of 2025, our revolving bank credit facility loan balance was $4.3 million with $1.2 million in available capacity.

During the first nine months of fiscal year 2025, we experienced positive cash inflows from operations of $4,778,300.

These cash inflows resulted from:

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●provision for credit losses of $53,600

●deferred income taxes of $959,700

●net loss on sale of assets of $3,300

●deferred income taxes of $1,257,100

Positively impacted by:

●decrease in inventories, net of $8,582,700

●increase in deferred revenues of $794,600

●increase in accrued salaries and commissions, and other liabilities of $377,800

●increase in income taxes payable of $374,700

Negatively impacted by:

●decrease in accrued salaries and commissions, and other liabilities of $693,600

●increase in accounts receivable of $183,800

●decrease in accounts payable of $1,577,500

●increase in accounts receivable of $291,900

●increase in prepaid expenses and other assets of $241,900

●decrease in deferred revenues of $83,100

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.

Cash used in investing activities was $298,500 for capital expenditures, consisting of $292,100 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 $16,200 in building improvements, offset by $9,800 from the sale of machinery and equipment.

Cash used in financing activities was $2,532,300, which was comprised of net payments on the line of credit of $1,200,000 and payments on term debt of $1,350,000, offset by $17,700 from the sale of treasury stock.

We continue to expect the cash generated from our operations, specifically from the reduction of excess inventory, and cash available through our line of credit with our Lender will provide us with the liquidity we need to support ongoing operations.

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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 $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:

On October 7, 2024, 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 $5,500,000 by November 30, 2024.

(See Note 17 for additional information on the Seventh Amendment executed subsequent to quarter end.)

Available credit under the current $5,500,000 revolving line of credit with the Company’s Lender was approximately $1,201,900 at November 30, 2024.

Features of the Loan Agreement (as amended) at November 30, 2024 include:

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

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$21 Million Floating Rate Term Loan bears interest at a rate per annum equal to Term SOFR Rate + 1.75%

$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 9.85% at August 31, 2024)

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

$5.5 Million Revolving Loan with maturity date of January 4, 2025.

The Revolving Loan bears interest at a rate per annum equal to Term SOFR Rate + 5.50% (effective rate was 10.17% at November 30, 2024)

Revolving Loan allows for Letters of Credit upon bank approval (none were outstanding at November 30, 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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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 the financial statements are issued.

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.

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

During the first nine months of fiscal year 2025, the Company recognized $0.3 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 August 31, 2024 and February 29, 2024, respectively.

Management has estimated and included a reserve for sales returns of $0.2 million for November 30, 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 August 31, 2024 and February 29, 2024.

Management has estimated and included an allowance for credit losses of $0.1 million for both November 30, 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 $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.

Noncurrent inventory balances prior to valuation allowances were $15.5 million and $12.3 million as of November 30, 2024 and February 29, 2024, respectively.

Noncurrent inventory valuation allowances were $0.8 million and $0.6 million as of November 30, 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 11.3% of our active Brand Partners have maintained consignment inventory at the end of the second quarter of fiscal year 2025.

Approximately 11.7% of our active Brand Partners have maintained consignment inventory at the end of the third 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 August 31, 2024 and February 29, 2024, respectively.

The total cost of inventory on consignment with Brand Partners was $1.5 million and $1.4 million at November 30, 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 $1.2 million and $1.0 million at August 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 November 30, 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