EDUCATIONAL DEVELOPMENT CORP 10-K

Item 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures An evaluation was performed of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”) Rule 13a-15(a) as of February 28, 2025. This evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chairman of the Board (Principal Executive Officer) and our Chief Financial Officer and Corporate Secretary (Principal Financial and Accounting Officer). Based on that evaluation, these officers concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to them, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized, and reported in accordance with the time periods specified in the SEC rules and forms. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events. Changes in Internal Control over Financial Reporting During the fiscal year covered by this report on Form 10-K, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 18 Table of Contents Management ’ s Report on Internal Control Over Financial Reporting The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13(a) through 15(f) of the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of our internal control over financial reporting based on the framework set forth in the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). All internal control systems, no matter how well they are designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk, that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based on our evaluation under the 2013 COSO Framework and applicable SEC rules, our management concluded that our internal control over financial reporting was effective as of February 28, 2025. This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the rules of the SEC that permit us to provide only management’s report in this annual report. Item 9B. OTHER INFORMATION None. Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS None. 19 Table of Contents PART III Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE (a) Identification of Directors The information required by this Item 10 is furnished by incorporation by reference to the information under the caption “Election of Directors” in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 2, 2025. (b) Identification of Executive Officers The information required by this Item 10 is furnished by incorporation by reference to the information under the caption “Executive Officers of the Registrant” in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 2, 2025. (c) Compliance with Section 16 (a) of the Exchange Act The information required by this Item 10 is furnished by incorporation by reference to the information under the caption “Section 16 (a) Beneficial Ownership Reporting Compliance” in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 2, 2025. Item 11. EXECUTIVE COMPENSATION The information required by this Item 11 is furnished by incorporation by reference to the information under the caption “Executive Compensation” in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 2, 2025. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by this Item 12 is furnished by incorporation by reference to the information under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Compensation Plans” in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 2, 2025. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE None . Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by this Item 14 is furnished by incorporation by reference to the information under the caption “Independent Registered Public Accountants” in our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 2, 2025. 20 Table of Contents PART IV Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as part of this report: 1. Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID 483 ) 25 Balance Sheets as of February 28, 2025 and February 29, 2024 26 Statements of Operations for the Years ended February 28, 2025 and February 29, 2024 27 Statements of Comprehensive Income (Loss) for the Years ended February 28, 2025 and February 29, 2024 28 Statements of Shareholders’ Equity for the Years ended February 28, 2025 and February 29, 2024 29 Statements of Cash Flows for the Years ended February 28, 2025 and February 29, 2024 30 Notes to Financial Statements 31-50 Schedules have been omitted as such information is either not required or is included in the financial statements. 2. Exhibits *3.1 Restated Certificate of Incorporation dated April 26, 1968, and Certificate of Amendment thereto dated June 21, 1968 are incorporated herein by reference to Exhibit 1 to Registration Statement on Form 10-K (File No. 0-04957). *3.2 Certificate of Amendment of Restated Certificate of Incorporation dated August 27, 1977 is incorporated herein by reference to Exhibit 20.1 to Form 10-K for fiscal year ended February 28, 1981 (File No. 0-04957). *3.3 By-Laws, as amended, are incorporated herein by reference to Exhibit 20.2. to Form 10-K for fiscal year ended February 28, 1981 (File No. 0-04957). *3.4 Certificate of Amendment of Restated Certificate of Incorporation dated November 17, 1986 is incorporated herein by reference to Exhibit 3.3 to Form 10-K for fiscal year ended February 28, 1987 (File No. 0-04957). 3.5 Certificate of Amendment of Restated Certificate of Incorporation dated March 22, 1996 is incorporated herein by reference to Exhibit 3.4 to Form 10-K for fiscal year ended February 28, 1997 (File No. 0-04957). 3.6 Certificate of Amendment of Restated Certificate of Incorporation dated July 15, 2002 is incorporated herein by reference to Exhibit 10.30 to Form 10-K dated February 28, 2003 (File No. 0-04957). 3.7 Certificate of Amendment of Restated Certificate of Incorporation dated August 15, 2018 is incorporated herein by reference to Exhibit 3.1 to Form 8-K dated August 21, 2018 (File No. 0-04957). *4.1 Specimens of Common Stock Certificates are incorporated herein by reference to Exhibits 3.1 and 3.2 to Registration Statement on Form 10-K (File No. 0-04957) filed June 29, 1970. 21 Table of Contents *10.1 Usborne Agreement-Contractual agreement by and between the Company and Usborne Publishing Limited dated November 25, 1988 is incorporated herein by reference to Exhibit 10.12 to Form 10-K dated February 28, 1989 (File No. 0-04957). *10.2 Party Plan-Contractual agreement by and between the Company and Usborne Publishing Limited dated March 14, 1989 is incorporated herein by reference to Exhibit 10.13 to Form 10-K dated February 28, 1989 (File No. 0-04957). *10.3 Amendment dated January 1, 1992 to Usborne Agreement - Contractual agreement by and between the Company and Usborne Publishing Limited is incorporated herein by reference to Exhibit 10.13 to Form 10-K dated February 29, 1992 (File No. 0-04957). 10.4 Educational Development Corporation 2002 Incentive Stock Option Plan is incorporated herein by reference to Exhibit A to definitive proxy statement on Schedule 14A dated May 23, 2002 (File No. 0-04957). 10.5 Amendment dated November 12, 2002 to Usborne Agreement – Contractual agreement by and between us and Usborne Publishing Limited is incorporated herein by reference to Exhibit 10.32 to Form 10-K dated February 28, 2003 (File No. 0-04957). 10.6 Employment Agreement between Randall W. White and the Company dated February 28, 2004 incorporated herein by reference to Exhibit 10.8 to Form 10-K dated February 28, 2005 (File No. 0-04957). 10.7 Purchase and Sale Agreement dated December 1, 2015 by and between the Company and Hilti, Inc., Tulsa, OK incorporated herein by reference to Exhibit 10.8 to Form 10-K dated February 28, 2019 (File No. 0-04957). 10.8 Lease Agreement dated December 1, 2015 by and between the Company and Hilti, Inc., Tulsa, OK incorporated herein by reference to Exhibit 10.9 to Form 10-K dated February 28, 2019 (File No. 0-04957). 10.9 Usborne Distribution Agreement dated May 16, 2022 by and between the Company and Usborne Publishing Limited, London, England is incorporated herein by reference to Exhibit 10.2 to form 10-Q dated May 31, 2022 (File No. 0-04957). 10.10 Credit Agreement dated August 9, 2022 by and between the Company and BOKF, NA, Tulsa, OK is incorporated herein by reference to Exhibit 10.01 to form 8-K dated August 11, 2022 (File No. 0-04957). 10.11 First Amendment to Credit Agreement, dated December 22, 2022 by and between the Company and BOKF, NA, Tulsa, OK. Is incorporated herein by reference to Exhibit 10.4 to Form 10-Q dated November 30, 2022 (File No. 0-04957). 10.12 Second Amendment to Credit Agreement, dated May 10, 2023 by and between the Company and BOKF, NA, Tulsa, OK is incorporated herein by reference to Exhibit 10.18 to Form 10-K dated February 28, 2023 (File No. 0-04957). 10.13 Third Amendment to Credit Agreement, dated August 9, 2023 by and between the Company and BOKF, NA, Tulsa, OK is incorporated herein by reference to Exhibit 10.01 to Form 8-K dated August 17, 2023 (File No. 0-04957). 10.14 Fourth Amendment to Credit Agreement, dated December 1, 2023 by and between the Company and BOKF, NA, Tulsa, OK is incorporated herein by reference to Exhibit 10.01 to Form 8-K dated December 28, 2023 (File No. 0-04957).. 10.15 Fifth Amendment to Credit Agreement, effective May 31, 2024 by and between the Company and BOKF, NA, Tulsa, OK is incorporated herein by reference to Exhibit 10.01 to Form 8-K dated June 17, 2024 (File No. 0-04957). 22 Table of Contents 10.16 Sixth Amendment to Credit Agreement, effective October 3, 2024 by and between the Company and BOKF, NA, Tulsa, OK is incorporated herein by reference to Exhibit 10.01 to Form 8-K dated October 7, 2024 (File No. 0-04957). 10.17 Seventh Amendment to Credit Agreement, effective January 4, 2025 by and between the Company and BOKF, NA, Tulsa, OK is incorporated herein by reference to Exhibit 10.09 to Form 10-Q dated November 30, 2024 (File No. 0-04957). 10.18 Eighth Amendment to Credit Agreement, effective April 4, 2025 by and between the Company and BOKF, NA, Tulsa, OK is incorporated herein by reference to Exhibit 10.01 to Form 8-K dated April 17, 2025 (File No. 0-04957). **23.1 Consent of Independent Registered Public Accounting Firm. **31.1 Certification of the Chief Executive Officer of Educational Development Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. **31.2 Certification of the Chief Financial Officer and Corporate Secretary (Principal Financial and Accounting Officer) of Educational Development Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. **32.1 Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ***97.1 Educational Development Corporation’s Clawback Policy is incorporated herein by reference to Exhibit 97.1 to Form 10-K dated May 21, 2024 (File No. 0-04957). 101.INS Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase 101.LAB Inline XBRL Taxonomy Extension Label Linkbase 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) * Paper Filed ** Filed Herewith *** Management Contract or compensatory plan or arrangement Item 16. FORM 10-K SUMMARY Not applicable 23 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. EDUCATIONAL DEVELOPMENT CORPORATION Date: May 19, 2025 By /s/ Craig M. White Craig M. White President, Chief Executive Officer, and Chairman of the Board (Principal Executive Officer) Date: May 19, 2025 By /s/ Dan E. O’Keefe Dan E. O’Keefe Chief Financial Officer and Corporate Secretary (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Date: May 19, 2025 /s/ Craig M. White Craig M. White, Director President, Chief Executive Officer, and Chairman of the Board (Principal Executive Officer) May 19, 2025 /s/ Dr. Kara Gae Neal Dr. Kara Gae Neal, Director May 19, 2025 /s/ Bradley V. Stoots Bradley V. Stoots, Director May 19, 2025 /s/ Dr. Amy N. Emmerson Dr. Amy N. Emmerson, Director May 19, 2025 /s/ Dan E. O’Keefe Dan E. O’Keefe Chief Financial Officer and Corporate Secretary (Principal Financial and Accounting Officer) 24 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Educational Development Corporation Opinion on the Financial Statements We have audited the accompanying balance sheets of Educational Development Corporation (the Company) as of February 28, 2025 and February 29, 2024, the related statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for the years then ended, and the related notes to the financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of February 28, 2025 and February 29, 2024, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Liquidity and Management’s Plans Certain adverse conditions and events raised substantial doubt over the Company’s ability to meet its obligations over the next 12 months. Management has evaluated these conditions and concluded that its plans have alleviated the substantial doubt about the Company’s ability to continue for at least the next 12 months. To assess their ability to meet obligations as they come due, the Company has forecasted future financial results which require significant judgment and estimation. Additionally, there is significant judgment and increased levels of audit effort involved in determining that it is probable that management’s plans will be effectively implemented and alleviate substantial doubt about the Company’s ability to continue beyond the next 12 months. Our audit procedures performed to address this critical audit matter included, among others: ● Reviewing and evaluating management’s plans for dealing with the adverse effects of the conditions and events. ● Evaluating the reasonableness of management’s significant assumptions and judgments used in the preparation of the forecast. ● Comparing the forecast to historical results, recent trends used in other audit areas and actual results subsequent to year end. ● Evaluating the adequacy of the disclosure included in the notes to the financial statements. /s/ HOGANTAYLOR LLP We have served as the Company’s auditor since 2005. Tulsa, Oklahoma May 19, 2025 25 Table of Contents EDUCATIONAL DEVELOPMENT CORPORATION BALANCE SHEETS AS OF FEBRUARY 28 (29), 2025 2024 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 428,400 $ 844,500 Restricted cash 548,100 432,900 Accounts receivable, less allowance for credit losses of $ 112,300 (2025) and $ 129,000 (2024) 2,126,000 1,936,900 Inventories - net 29,099,600 43,913,200 Prepaid expenses and other assets 768,100 630,800 Assets held for sale 19,277,000 18,281,100 Total current assets 52,247,200 66,039,400 INVENTORIES - net 15,592,500 11,677,000 PROPERTY, PLANT AND EQUIPMENT - net 6,398,700 8,939,600 DEFERRED INCOME TAX ASSET 2,536,100 1,406,500 OPERATING LEASE RIGHT-OF-USE ASSETS 1,108,100 1,614,900 OTHER ASSETS 431,700 427,600 TOTAL ASSETS $ 78,314,300 $ 90,105,000 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $ 1,847,400 $ 3,910,200 Line of credit 4,198,100 5,498,100 Deferred revenues 491,800 583,500 Operating lease liabilities, current 697,000 726,900 Current maturities of long-term debt 26,685,500 1,800,000 Accrued salaries and commissions 313,700 384,400 Income taxes payable 460,900 773,400 Other current liabilities 2,528,300 3,338,100 Total current liabilities 37,222,700 17,014,600 LONG-TERM DEBT - net - 26,640,700 OPERATING LEASE LIABILITIES, noncurrent 411,100 888,000 OTHER LONG-TERM LIABILITIES 112,900 111,000 Total liabilities 37,746,700 44,654,300 SHAREHOLDERS’ EQUITY: Common stock, $ 0.20 par value; Authorized 16,000,000 shares; Issued 12,702,080 shares; Outstanding 8,583,201 (2025) and 8,575,088 (2024) shares 2,540,400 2,540,400 Capital in excess of par value 13,800,000 13,405,400 Retained earnings 37,303,000 42,566,600 Accumulated other comprehensive income (loss) ( 15,400 ) 24,400 53,628,000 58,536,800 Less treasury stock, at cost ( 13,060,400 ) ( 13,086,100 ) Total shareholders’ equity 40,567,600 45,450,700 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 78,314,300 $ 90,105,000 See notes to financial statements. 26 Table of Contents EDUCATIONAL DEVELOPMENT CORPORATION STATEMENTS OF OPERATIONS FOR THE YEARS ENDED FEBRUARY 28 (29), 2025 2024 PRODUCT REVENUES, net of discounts and allowances $ 32,547,700 $ 48,654,200 Transportation revenue 1,643,300 2,376,100 NET REVENUES 34,191,000 51,030,300 COST OF GOODS SOLD 13,163,300 18,045,400 Gross margin 21,027,700 32,984,900 OPERATING EXPENSES: Operating and selling 5,751,600 8,789,200 Sales commissions 10,096,600 16,105,600 General and administrative 11,955,100 13,991,000 Total operating expenses 27,803,300 38,885,800 INTEREST EXPENSE 2,188,400 2,758,900 OTHER INCOME ( 2,109,000 ) ( 9,394,300 ) EARNINGS (LOSS) BEFORE INCOME TAXES ( 6,855,000 ) 734,500 INCOME TAX EXPENSE (BENEFIT) ( 1,591,400 ) 188,100 NET EARNINGS (LOSS) $ ( 5,263,600 ) $ 546,400 BASIC AND DILUTED EARNINGS (LOSS) PER SHARE: Basic $ ( 0.63 ) $ 0.07 Diluted $ ( 0.63 ) $ 0.07 WEIGHTED AVERAGE NUMBER OF COMMON AND EQUIVALENT SHARES OUTSTANDING: Basic 8,348,971 8,269,971 Diluted 8,348,971 8,285,230 Dividends per share $ - $ - See notes to financial statements. 27 Table of Contents EDUCATIONAL DEVELOPMENT CORPORATION STATEMENTS OF COMPREHENSIVE INCOME (LOSS) FOR THE YEARS ENDED FEBRUARY 28 (29), February 28 (29), 2025 2024 Net earnings (loss) $ ( 5,263,600 ) $ 546,400 Other comprehensive income (loss): Unrealized gain (loss) on interest rate exchange agreement ( 39,800 ) 24,400 Comprehensive income (loss) $ ( 5,303,400 ) $ 570,800 See notes to financial statements. 28 Table of Contents EDUCATIONAL DEVELOPMENT CORPORATION STATEMENTS OF SHAREHOLDERS ’ EQUITY AS OF FEBRUARY 28 (29), Common Stock (par value $0.20 per share) Accumulated Treasury Stock Number of Shares Issued Amount Capital in Excess of Par Value Retained Earnings Other Comprehensive Income (Loss) Number of Shares Amount Shareholders’ Equity BALANCE - February 28, 2023 12,702,080 $ 2,540,400 $ 13,193,400 $ 42,020,200 $ - 3,988,791 $ ( 12,522,200 ) $ 45,231,800 Purchases of treasury stock - - - - - 138,201 ( 563,900 ) ( 563,900 ) Forfeiture of restricted shares - - - - - 35,285 - - Issuance of restricted share awards for vesting - - - - - ( 35,285 ) - - Change in fair value of interest rate exchange agreement - - - - 24,400 - - 24,400 Share-based compensation expense – net - - 212,000 - - - - 212,000 Net earnings - - - 546,400 - - - 546,400 BALANCE - February 29, 2024 12,702,080 $ 2,540,400 $ 13,405,400 $ 42,566,600 $ 24,400 4,126,992 $ ( 13,086,100 ) $ 45,450,700 Purchases of treasury stock - - 600 - - 400 ( 1,300 ) ( 700 ) Sales of treasury stock ( 9,300 ) ( 8,513 ) 27,000 17,700 Change in fair value of interest rate exchange agreement - - - - ( 39,800 ) - - ( 39,800 ) Share-based compensation expense – net - - 403,300 - - - - 403,300 Net loss - - - ( 5,263,600 ) - - - ( 5,263,600 ) BALANCE - February 28, 2025 12,702,080 $ 2,540,400 $ 13,800,000 $ 37,303,000 $ ( 15,400 ) 4,118,879 $ ( 13,060,400 ) $ 40,567,600 See notes to financial statements. 29 Table of Contents EDUCATIONAL DEVELOPMENT CORPORATION STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED FEBRUARY 28 (29), 2025 2024 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss) $ ( 5,263,600 ) $ 546,400 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 1,724,900 2,487,200 Deferred income taxes ( 1,129,600 ) ( 609,700 ) Provision for credit losses 48,000 33,300 Provision for inventory valuation allowance 144,000 85,900 Share-based compensation expense - net 403,300 212,000 Loss on abandonment of asset 318,100 - Net loss (gain) on sale of assets 3,300 ( 4,016,700 ) Changes in assets and liabilities: Accounts receivable ( 237,100 ) 936,500 Inventories 10,754,100 8,130,000 Prepaid expenses and other assets ( 168,300 ) 197,100 Accounts payable ( 2,062,800 ) 46,300 Accrued salaries and commissions, and other liabilities ( 918,400 ) ( 51,900 ) Deferred revenues ( 91,700 ) ( 19,200 ) Income taxes payable/receivable ( 312,500 ) 773,400 Total adjustments 8,475,300 8,204,200 Net cash provided by operating activities 3,211,700 8,750,600 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment ( 439,400 ) ( 821,800 ) Proceeds from sale of assets 9,800 4,858,900 Net cash provided by (used in) investing activities ( 429,600 ) 4,037,100 CASH FLOWS FROM FINANCING ACTIVITIES: Payments on term debt ( 1,800,000 ) ( 6,499,100 ) Cash paid to acquire treasury stock ( 700 ) ( 563,900 ) Sales of treasury stock 17,700 - Net payments under line of credit ( 1,300,000 ) ( 5,136,400 ) Net cash used in financing activities ( 3,083,000 ) ( 12,199,400 ) NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH ( 300,900 ) 588,300 CASH, CASH EQUIVALENTS AND RESTRICTED CASH - BEGINNING OF PERIOD 1,277,400 689,100 CASH, CASH EQUIVALENTS AND RESTRICTED CASH - END OF PERIOD $ 976,500 $ 1,277,400 SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION: Cash paid for interest $ 2,156,300 $ 2,805,800 Cash paid for income taxes - net of refunds $ ( 274,300 ) $ 24,400 SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES: Fair value of the interest rate exchange agreement $ ( 39,800 ) $ 24,400 See notes to financial statements. 30 Table of Contents EDUCATIONAL DEVELOPMENT CORPORATION NOTES TO FINANCIAL STATEMENTS YEARS ENDED FEBRUARY 28, 2025 AND FEBRUARY 29, 2024 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business —Educational Development Corporation (“we,” “our,” “us,” or “the Company”) distributes books and educational products and publications through our PaperPie and EDC Publishing (“Publishing”) divisions to individual consumers, book, toy and gift stores, libraries and home educators located throughout the United States (“U.S.”). We are the owner and exclusive publisher of Kane Miller children’s books; Learning Wrap-Ups, maker of educational manipulatives; and SmartLab Toys, maker of STEAM-based toys and games. We are also the exclusive United States Multi-Level Marketing (“MLM”) distributor of Usborne Publishing Limited (“Usborne”) children’s books. Estimates —Our financial statements were prepared in conformity with accounting principles generally accepted in the United States of America, which requires management to make estimates and assumptions that affect the amounts and disclosures in the financial statements. Actual results could differ from these estimates. Reclassifications — Certain reclassifications have been made to the fiscal 2024 statement of operations and notes to the financial statements 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. Liquidity — 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. Determining the extent to which conditions or events raises substantial doubt about our ability to continue as a going concern and the extent to which mitigating plans sufficiently alleviate any such substantial doubt requires significant judgment and estimation by us. Our significant estimates related to this analysis may include identifying business factors such as completing the planned sale of owned real estate, changes in our Brand Partners, sales growth and profitability used in the forecasted financial results and liquidity. Further, we make assumptions about the probability that management’s plans will be effectively implemented and alleviate substantial doubt and our ability to continue as a going concern. We believe that the estimated values used in our going concern analysis are based on reasonable assumptions. However, such assumptions are inherently uncertain, and actual results could differ materially from those estimates. The short-term duration of the revolving and term loans and uncertainty of the bank’s ongoing support beyond July 11, 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 pay off its bank debts by selling owned real estate. Upon closing, the proceeds from the real estate 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. The Company began listing the owned real estate in fiscal 2024 but due to the size of the real estate transaction, the sale process has continued beyond several of the short-term amendment expirations. The bank has continued to extend the maturity dates on the revolving and term loans providing evidence of their support of the sale process and management’s plans to use the proceeds to pay off all bank debts. In addition, management’s plans include reducing inventory which will generate free cashflows and building the number of active PaperPie Brand Partners back to historical 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. Sales Concentration —Significant portions of our sales are generated in our Direct Sales division, PaperPie. Of these sales, a substantial portion are facilitated through the use of social media collaboration platforms that allow our Brand Partners to interact in real-time, or near real-time, with customers. Brand Partners use these platforms to invite potential customers to “online parties,” provide product recommendations, answer questions, and provide links to other supporting online materials. When a customer is ready to purchase products from the online party, they are redirected from the social media platform to the Brand Partner’s company hosted e-commerce site where the order can be placed. Cash, Cash Equivalents and Restricted Cash —Cash, cash equivalents, and restricted cash are maintained at financial institutions and, at times, balances may exceed federally insured limits of $ 250,000 . We have never experienced any losses related to these balances. The majority of payments settled from banks for third party credit card transactions process within three to twenty business days, depending on the credit card processors reserve requirements. The payments in transit from our credit card processors and the short-term certificate of deposit with our bank supporting our monthly credit card usage are classified as restricted cash. Cash and cash equivalents include demand and time deposits, money market funds, and other short-term investments with maturities of three months or less when acquired. 31 Table of Contents Accounts Receivable —Accounts receivable are uncollateralized customer obligations due under normal trade terms, generally requiring payment within thirty days from the invoice date. Extended payment terms are offered at certain times of the year for orders that meet minimum quantities or amounts. Payments of accounts receivable are allocated to the specific invoices identified on the customers’ remittance advice. Accounts receivables are carried at original invoice amount less an estimated reserve made for returns and discounts based on quarterly review of historical rates of returns and expected discounts to be taken. The carrying amount of accounts receivable is reduced, if needed, by a valuation allowance that reflects management’s best estimate of the amounts that will not be collected. The carrying amount also includes rent receivables in connection with our lessor arrangements, which include three rental agreements for warehouse and office space in Tulsa, Oklahoma, and qualify as operating leases under ASC 842 (See Note 11 of the financial statements for additional information). Management periodically reviews accounts receivable balances and based on an assessment of historical bad debts, current customer receivable balances, age of customer receivable balances, customers’ financial conditions, and current economic trends, estimates the portion of the balance that will not be collected. Management provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation account based on its assessment of the current status of the individual accounts. Balances which remain outstanding after management has made reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. Recoveries of accounts receivable previously written off are recorded as income when received. Inventories —Inventories are stated at the lower of either cost or net realizable value. Cost is determined using the average costing method. We present a portion of our inventory as a non-current asset. Occasionally we purchase product inventory in quantities in excess of what will be sold within the normal operating cycle due to the minimum order requirements of our primary supplier or changes in sales levels. We estimate non-current inventory using an anticipated turnover ratio by title, based primarily on historical trends. These excess quantities of 2½ years of anticipated sales are classified as noncurrent inventory. The Company assumes title and responsibility for inventory purchased according to the contract language with our suppliers, and the individual shipment terms for the order. The Company maintains insurance for the value of the inventory once the title has been passed until it is received at our warehouse (“inventory in transit”). Brand Partners that meet certain eligibility requirements may request and receive inventory on consignment. Consignment inventory is stated at the lower of either cost or net realizable value, 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, excluding the estimated reserve, with Brand Partners was $ 1,335,700 and $ 1,388,700 at February 28, 2025 and February 29, 2024, respectively. The Company has a reserve for consignment inventory not expected to be sold or returned of $ 402,400 and $ 379,600 as of February 28, 2025, and February 29, 2024, respectively. Inventories are presented net of a valuation allowance, which includes reserves for inventory obsolescence and Brand Partner consignment inventory that is not expected to be sold or returned. Management estimates the allowance for both current and noncurrent inventory. The allowance is based on management’s identification of slow-moving inventory and estimated consignment inventory that will not be sold or returned. Property, Plant and Equipment — Property, plant and equipment are stated at cost and depreciated on a straight-line basis over their estimated useful life, as follows: Building 30 years Building improvements 5 – 15 years Machinery and equipment 3 – 15 years Furniture and fixtures 3 years Capitalized software 4 – 10 years Molds and tooling 3 – 5 years Capitalized projects that are not placed in service are recorded as in progress and are not depreciated until the related assets are placed in service, including capitalized software. The development of customer and Brand Partner software applications is critical to our ongoing business operations and included in capitalized software. External and internal costs associated with the development of new software applications incurred during the application development stage are capitalized. Training and maintenance costs are expensed as incurred, while upgrades and enhancements are capitalized if it is probable that such expenditures will result in additional functionality . 32 Table of Contents Assets Held for Sale — The Company classifies long-lived assets, or disposal groups to be sold, as held for sale in the period in which all of the following criteria are met per ASC 360: (1) management, having the authority to approve the action, commits to a plan to sell the asset or disposal group; (2) the asset or disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets or disposal groups; (3) an active program to locate a buyer and other actions required to complete the plan to sell the asset or disposal group have been initiated; (4) the sale of the asset or disposal group is probable, and transfer of the asset or disposal group is expected to qualify for recognition as a completed sale within one year, except if events or circumstances beyond our control extend the period of time required to sell the asset or disposal group beyond one year; (5) the asset or disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. We initially measure a long-lived asset or disposal group that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the period in which the held-for-sale criteria are met. Conversely, gains are not recognized on the sale of a long-lived asset or disposal group until the date of the sale. We assess the fair value of a long-lived asset or disposal group less any costs to sell each reporting period it remains classified as held for sale and report any subsequent changes as an adjustment to the carrying value of the asset or disposal group, as long as the new carrying value does not exceed the carrying value of the asset at the time it was initially classified as held for sale. Upon determining that a long-lived asset or disposal group meets the criteria to be classified as held for sale, the Company ceases depreciation of the asset and reports long-lived assets and/or the assets and liabilities of the disposal group, if material, in the line items assets held for sale and liabilities held for sale, respectively, in our balance sheet. Refer to Note 3. Impairment of Long-Lived Assets —We review the value of long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable based on estimated future cash flows. Such indicators include, among others, the nature of the asset, the projected future economic benefit of the asset, historical and future cash flows and profitability measurements. If the carrying value of an asset exceeds the future undiscounted cash flows expected from the asset, we recognize an impairment charge for the excess of the carrying value of the asset over its estimated fair value. Determination as to whether and how much an asset is impaired involves management estimates and can be impacted by other uncertainties. No impairment was noted during fiscal years 2025 or 2024. Leases —We have both lessee and lessor arrangements. Our leases are evaluated at inception or at any subsequent modification. Depending on the terms, leases are classified as either operating or finance leases if we are the lessee, or as operating, sales-type or direct financing leases if we are the lessor, as appropriate under ASC 842 – Leases . In accordance with ASC 842, we have made an accounting policy election to not apply the standard to lessee arrangements with a term of one year or less and no purchase option that is reasonably certain of exercise. We account for these short-term arrangements by recognizing payments and expenses as incurred, without recording a lease liability and right-of-use asset. We have also made an accounting policy election for both our lessee and lessor arrangements to combine lease and non-lease components. This election is applied to all of our lease arrangements as our non-lease components are not material and do not result in significant timing differences in the recognition of rental expenses or income. We recognize lease liabilities, reported on the balance sheets, for each lease based on the present value of the remaining minimum fixed rental payments (which include 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, on the balance sheet for each lease, which is valued at the lease liability and adjusted for prepaid or accrued rent balances existing at the time of the 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. Minimum fixed rental payments are recognized on a straight-line basis over the life of the lease as costs and expensed in our statements of operations. Variable and short-term rental payments are recognized as costs and expenses as they are incurred. Revenues associated with the lessor leases are recorded on a straight-line basis over the initial lease term and are reported in other income in the statements of operations. 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. Sublease rental income is recognized on a straight-line basis over the duration of each lease term. Income Taxes —We account for income taxes under ASC 740 - Income Taxes , which requires an asset and liability approach. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and the tax basis of assets and liabilities using the current tax laws and rates. A valuation allowance is established, when necessary, to reduce net deferred tax assets to the amounts that are “more likely than not” to be realized. 33 Table of Contents Revenue Recognition —Revenue is derived from the sales of children’s books and related products which are generally capable of being distinct and accounted for as a single performance obligation to deliver tangible goods. Substantially all of our products are sold to end consumers through our PaperPie division and to retail outlets through our Publishing division. Refer to Note 16 – Business Segments for revenue by segment. Revenues of both divisions are recognized when the product is shipped, FOB-Shipping Point, which is the point in time the customer obtains control of the products and risk of loss and rewards of ownership have been transferred. Sales taxes that are collected from customers and remitted to governmental authorities are accounted for as a pass-through liability and therefore are excluded from net sales. The majority of PaperPie’s sales contracts have a single performance obligation and are short-term in nature. PaperPie’s sales are generally collected at the time the product is ordered. Sales which have been paid for but not shipped are classified as deferred revenue on the balance sheet. Sales associated with consignment inventory are recognized when reported by the consignee and payment associated with the sale has been collected. Transportation revenue represents the amount billed to the customer for shipping the product and is recorded when the product is shipped. Certain PaperPie sales contracts associated with the hostess award programs include sales incentives, such as discounted products. These incentives provide a separate performance obligation in the contract and material rights to the customer. The transaction price is allocated to the material right based on its relative standalone selling price and is recognized in revenue as the performance obligations are satisfied, which occurs at shipping point or at the expiration of the material right. As the products included as sales incentives are shipped with the associated products ordered, there is no deferral required. Revenues allocated to the material right are recognized in product revenues, net of discounts and allowances, and cost of goods sold in our statements of operations. The majority of Publishing’s sales contracts have a single performance obligation and are short-term in nature. Publishing’s sales may be collected at the time the product is shipped, or the customers may be given payment terms based primarily on their credit worthiness and payment history. Estimated allowances for sales returns, which reduce net revenues and cost of goods sold, are recorded as sales are recognized. Management uses a moving average calculation to estimate the allowance for sales returns. We are not responsible for a product damaged in transit and most damaged returns are primarily from retail stores. These returns result from damage that occurs in the stores, not in shipping to the stores. It is an industry practice to accept non-damaged returns from retail customers. Management has estimated sales returns of approximately $ 201,500 for both February 28, 2025 and February 29, 2024, which is included in other current liabilities on the Company’s balance sheet. In addition, management has recorded an asset for the expected value of non-damaged inventories to be returned. The estimated value of returned products of $ 100,800 is included in other current assets on the Company’s balance sheet for both February 28, 2025 and February 29, 2024. The Company generally expenses sales commissions in the same period that the revenue is recognized. These costs are recorded within operating expenses. The Company does not disclose the value of unsatisfied performance obligations for contracts with an unexpected length of one year or less. Advertising Costs —Advertising costs are expensed as incurred. Advertising expenses, included in general and administrative expenses in the statements of operations, were $ 265,500 and $ 373,400 for the years ended February 28, 2025 and February 29, 2024, respectively. Shipping and Handling Costs —We classify shipping and handling costs as operating and selling expenses in the statements of operations. Shipping and handling costs include postage, freight, handling costs, as well as shipping materials and supplies. These costs were $ 4,574,200 and $ 6,744,400 for the years ended February 28, 2025 and February 29, 2024, respectively. Share-Based Compensation —We account for share-based compensation whereby share-based payment transactions with employees, such as stock options and restricted stock, are measured at estimated fair value at the date of grant. For awards subject to service conditions, compensation expense is recognized over the vesting period on a straight-line basis. Awards subject to performance conditions are attributed separately for each vesting tranche of the award and are recognized ratably from the service inception date to the vesting date for each tranche. Forfeitures are recognized when they occur. Interest Rate Exchange Agreement —The interest rate exchange agreement (“swap agreement”) is recognized on the balance sheet at its fair value. On the date the swap agreement is entered into, the Company designates the swap agreement as a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (cash-flow hedge) if the applicable criteria are met. Changes in the fair value of the swap agreement are recorded in other comprehensive income. 34 Table of Contents The Company formally documents all the relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedged transactions. This process includes linking all cash-flow hedges to specific assets and liabilities on the balance sheet or forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether they are highly effective in offsetting changes in cash flows of hedged items. When it is determined that the swap agreement is not highly effective or that it has ceased to be highly effective, the Company discontinues hedge accounting prospectively as discussed below. The Company discontinues hedge accounting prospectively when (a) it is determined that the swap agreement is no longer effective in offsetting changes in the cash flows of a hedged item (including forecasted transactions); (b) the swap agreement expires or is sold, terminated or exercised; (c) the swap agreement is de-designated as a hedge instrument because it is unlikely that a forecasted transaction will occur; or (d) management determines that designation as a hedge instrument is no longer appropriate. When hedge accounting is discontinued because it is probable that a forecasted transaction will not occur, the swap agreement will continue to be carried on the balance sheet at its fair value, and gains and losses that were accumulated in other comprehensive income or loss will be recognized immediately in earnings. In all other situations in which hedge accounting is discontinued, the swap agreement will be carried at its fair value on the balance sheet with subsequent changes in its fair value recognized in the current period’s earnings. Earnings 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. Diluted EPS is based on the combined weighted average number of common shares outstanding and dilutive potential common shares issuable which include, where appropriate, the assumed exercise of options and the assumed vesting of granted restricted share awards. In computing Diluted EPS, we have utilized the treasury stock method. The computation of weighted average common and common equivalent shares used in the calculation of basic and diluted EPS is shown below: Year Ended February 28 (29), 2025 2024 Earnings (loss) per share: Net earnings (loss) applicable to common shareholders $ ( 5,263,600 ) $ 546,400 Shares: Weighted average shares outstanding-basic 8,348,971 8,269,971 Issued unvested restricted stock and assumed shares issuable under granted unvested restricted stock awards - 15,259 Weighted average shares outstanding-diluted 8,348,971 8,285,230 Diluted earnings (loss) per share: Basic $ ( 0.63 ) $ 0.07 Diluted $ ( 0.63 ) $ 0.07 As shown in the table below, the following shares have not been included in the calculation of diluted earnings (loss) per share as they would be anti-dilutive to the calculation above: Year Ended February 28 (29), 2025 2024 Weighted average shares: Issued unvested restricted stock and assumed shares issuable under granted unvested restricted stock awards 139,249 - 35 Table of Contents New Accounting Pronouncements — The Financial Accounting Standards Board (“FASB”) periodically issues new accounting standards in a continuing effort to improve standards of financial accounting and reporting. We have reviewed the recently issued pronouncements and concluded the following new accounting standard updates (“ASU”) apply to us: New Accounting Standards or Updates Adopted In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures , which provides updates to qualitative and quantitative reportable segment disclosure requirements, including enhanced disclosures about significant segment expenses and increased interim disclosure requirements, among others. The ASU requires public entities to adopt this new guidance on a retrospective basis. The Company adopted ASU 2023-07 for the fiscal year ended February 28, 2025, and applied it retrospectively to all prior periods presented. See Note 16 “Business Segments” for further information. New Accounting Standards or Updates Not Yet Adopted In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures , which provides qualitative and quantitative updates to the rate reconciliation and income taxes paid disclosures, among others, in order to enhance the transparency of income tax disclosures, including consistent categories and greater disaggregation of information in the rate reconciliation and disaggregation by jurisdiction of income taxes paid. The amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments should be applied prospectively; however, retrospective application is also permitted. This ASU will be effective for our Form 10-K for fiscal 2026. 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 financial statements and disclosures. 2. CASH The table below reconciles cash, cash equivalents, and restricted cash as reported in the balance sheet to the total of the same amounts shown in the statements of cash flows: February 28 (29), Cash and cash equivalents $ 428,400 $ 844,500 Restricted cash 548,100 432,900 Total cash, cash equivalents, and restricted cash shown in the statements of cash flows $ 976,500 $ 1,277,400 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 are channeled through these processors. These processors hold cash payments received from customers in reserve for a specified number of days to offset any potential chargebacks. The Company also has a short-term certificate of deposit with the Company’s bank as collateral for business credit card use. The Company has classified the cash held in reserves by Nexio and PayPal and the restricted certificate of deposit as restricted cash. 36 Table of Contents 3. ASSETS HELD FOR SALE During the third quarter of fiscal 2024, the Company listed its real estate property located at 5402 S. 122nd E. 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 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. As presented in the marketing materials associated with the listed Hilti Complex, EDC expects to assign the existing tenant leases to the buyer along with executing a new lease for the Company’s occupied space; but retain ownership of the excess land, consisting of approximately 17 acres of undeveloped land adjacent to the Hilti Complex. The initial term of the lease is expected to be 10 years, and the initial lease rate is expected to be $8.00 per square foot, with 2.0% 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 three production lines from the warehouse before July 31, 2024. As a result, In the second quarter of fiscal 2025, the Company made available and committed to sell the equipment removed. The Company is actively trying to locate a buyer as of February 28, 2025. The Company is subject to the presentation and disclosure requirements since the equipment meets all the criteria and is classified as an “Asset Held for Sale.” Once Management determined that the equipment removed met the criteria to be classified as held for sale, the Company ceased depreciation of the asset and reported it separately on the balance sheet, beginning on August 31, 2024. The assets held for sale consist of property and equipment. 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 $ 19,277,000 and $ 18,281,100 as of February 28, 2025, and February 29, 2024, respectively, and is separately recorded on the balance sheet. 4. INVENTORIES Inventories consist of the following: February 28 (29), 2025 2024 Current: Product inventory $ 29,530,100 $ 44,303,000 Inventory valuation allowance ( 430,500 ) ( 389,800 ) Inventories net - current $ 29,099,600 $ 43,913,200 Noncurrent: Product inventory $ 16,326,500 $ 12,269,200 Inventory valuation allowance ( 734,000 ) ( 592,200 ) Inventories net - noncurrent $ 15,592,500 $ 11,677,000 Inventory in transit totaled $ 25,500 and $ 264,000 at February 28, 2025 and February 29, 2024, respectively. Product inventory quantities in excess of what we expect will be sold within the normal operating cycle, based on 2 ½ years of anticipated sales, are included in noncurrent inventory. 37 Table of Contents 5. BUSINESS CONCENTRATION Significant portions of our inventory purchases are concentrated with an England-based publishing company, Usborne Publishing Limited (“Usborne”). During fiscal 2023, we entered into a new distribution agreement (“Agreement”) with Usborne. The Agreement includes annual minimum purchase volumes along with specific payment terms and letter of credit requirements, which if not met offer Usborne the right to terminate the Agreement on less than 30 days’ written notice. Should termination of the Agreement occur, the Company will be allowed to sell its remaining Usborne inventory for an agreed upon period, but not less than twelve months following the termination date. As of February 28, 2025, the Company did not meet the minimum purchase requirements and did not supply the letter of credit required under the Agreement, which offers Usborne the right to exercise their option to terminate the Agreement. Usborne has not notified the Company of termination of the Agreement. In addition, Usborne has refused to pay the $ 1.0 million volume rebate owed to the Company from purchases made during fiscal 2022. The Company is disputing the cancellation of the rebate but has not recognized any rebate due to its uncertainty. Additionally, under the terms in the Agreement, the Company no longer has the rights to distribute Usborne’s products to retail customers through our Publishing division. As a result, the Company discontinued selling Usborne products to retail customers in the first quarter of fiscal 2024. The following table summarizes Usborne product revenues, net of discounts, by division and inventory purchases by product type: Year Ended February 28 (29), 2025 2024 Product revenues, net of discounts of Usborne products by division: PaperPie division $ 12,282,100 $ 20,981,400 % of total PaperPie Product revenues, net of discounts 43.5 % 48.5 % Publishing division - 1,304,000 % of total Publishing Product revenues, net of discounts 0.0 % 24.2 % Total Product revenues, net of discounts of Usborne products $ 12,282,100 $ 22,285,400 Purchases received by product type: Usborne $ 230,100 $ 2,052,300 % of total purchases received 9.3 % 22.2 % All other product types 2,243,200 7,188,800 % of total purchases received 90.7 % 77.8 % Total purchases received $ 2,473,300 $ 9,241,100 Total Usborne inventory owned by the Company and included in our balance sheets was $ 23,696,800 and $ 29,010,200 as of February 28, 2025 and February 29, 2024, respectively. 6. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following: February 28 (29), 2025 2024 Machinery and equipment 10,224,600 14,156,400 Furniture and fixtures 124,000 124,000 Capitalized software 3,350,100 2,964,200 Molds and tooling 733,200 733,200 Capitalized software - in progress - 313,500 Total property, plant and equipment 14,431,900 18,291,300 Less accumulated depreciation ( 8,033,200 ) ( 9,351,700 ) Property, plant and equipment-net $ 6,398,700 $ 8,939,600 During the fourth quarter of fiscal 2025 the Company decided to abandon a third-party host platform project that was customized for PaperPie brand partners. The cost associated with the development of this project was removed from capitalized software-in progress and the related loss on abandonment of $ 318,100 is included in other income on the statement of operations for the year ended February 28, 2025. 38 Table of Contents 7. OTHER CURRENT LIABILITIES Other current liabilities consist of the following: February 28 (29), 2025 2024 Accrued royalties $ 228,800 $ 324,700 Accrued PaperPie incentives 897,700 1,393,000 Accrued property tax 254,400 334,700 Sales tax payable 237,200 265,500 Short-term note payable 407,300 452,000 Allowance for expected inventory returns 201,500 201,500 Other 301,400 366,700 Total other current liabilities $ 2,528,300 $ 3,338,100 8. OTHER INCOME A summary of other income is shown below: Year Ended February 28 (29), 2025 2024 Federal tax credits realized $ - $ 3,808,700 Gain from sale of assets - 4,016,700 Rental income 2,274,900 1,544,000 Other income (loss) ( 165,900 ) 24,900 Total other income $ 2,109,000 $ 9,394,300 39 Table of Contents 9. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of significant items comprising our net deferred tax assets and liabilities are as follows: February 28 (29), 2025 2024 Deferred tax assets: Allowance for credit losses $ 30,300 $ 34,800 Inventory overhead capitalization 115,000 112,800 Inventory valuation allowance 116,200 102,500 Inventory valuation allowance – noncurrent 198,200 159,900 Allowance for sales returns 27,200 27,200 Research and development capitalization 457,600 418,900 Net operating loss carryforward (1) 1,141,200 572,600 Disallowed interest 1,655,500 1,236,600 Accruals 136,500 343,800 Total deferred tax assets 3,877,700 3,009,100 Deferred tax liabilities: Property, plant, and equipment ( 1,341,600 ) ( 1,602,600 ) Total deferred tax liabilities ( 1,341,600 ) ( 1,602,600 ) Net deferred income tax assets $ 2,536,100 $ 1,406,500 (1) The Company’s net operating loss (“NOL”) carryforward was generated from losses incurred in fiscal 2025. The Company’s NOL can be carried forward indefinitely but are limited to an 80% maximum offset of taxable income. Authoritative guidance requires a valuation allowance to be established when determining whether deferred tax assets are more likely-than-not to be realized. Based on the Company’s evaluation, we determined the net deferred tax assets meet the requirements to be realized, and as such, no valuation allowance has been established. 40 Table of Contents The components of income tax expense (benefit) are as follows: Year Ended February 28 (29), 2025 2024 Current: Federal (1) $ - $ - State (1) - - - - Deferred: Federal ( 1,439,500 ) 154,200 State ( 151,900 ) 33,900 ( 1,591,400 ) 188,100 Total income tax expense (benefit) $ ( 1,591,400 ) $ 188,100 (1) The Company incurred losses in fiscal 2025, resulting in a net operating loss carryforward and reclassification from current to deferred. The following reconciles our expected income tax rate to the U.S. federal statutory income tax rate: Year Ended February 28 (29), 2025 2024 U.S. federal statutory income tax rate 21.0 % 21.0 % U.S. state and local income taxes–net of federal benefit 6.6 % 3.7 % Other ( 4.4 )% 0.9 % Total income tax expense 23.2 % 25.6 % We file our tax returns in the U.S. and certain state jurisdictions in which we have nexus. We are no longer subject to income tax examinations by tax authorities for the fiscal years before 2020. Based upon a review of our income tax filing positions, we believe that our positions would be sustained upon an audit and do not anticipate any adjustments that would result in a material change to our financial position. Therefore, no reserves for uncertain income tax positions have been recorded. We classify interest and penalties associated with income taxes as a component of income tax expense on the statements of operations. The Company qualifies for certain research and development tax credits which lowers the overall expected income taxes to be paid. 10. EMPLOYEE BENEFIT PLAN The Company has created the Educational Development Corporation Employee 401(k) Plan (“EDC 401(k) Plan”) as a benefit plan for employees offering retirement investment options as well as profit sharing with its employees, in the form of matching contributions. The EDC 401(k) Plan includes, as an investment option, the ability to purchase shares of the Company’s stock which the Plan Administrator acquires directly from NASDAQ. This plan incorporates the provisions of Section 401(k) of the Internal Revenue Code that allow favorable tax treatments on investments. The EDC 401(k) Plan is available to all employees that meet specific age and length of service requirements. The Company’s matching contributions are discretionary and approved at the annual meeting of the EDC 401(k) Plan’s Trustees and Company’s management. Matching contributions made to the Plan by the Company totaled $ 104,000 and $ 151,700 during the years ended February 28, 2025 and February 29, 2024, respectively. 11. LEASES We have both lessee and lessor arrangements. Our lessee arrangements include six rental agreements where we have the exclusive use of dedicated office space in San Diego, California, Ogden, Utah, Seattle, Washington, a warehouse space in Joplin, Missouri and two leases for office and warehouse space locally in Tulsa, Oklahoma, all of which qualify as operating leases under ASC 842. Our lessor arrangements include three rental agreements for warehouse and office space in Tulsa, Oklahoma, and qualify as operating leases under ASC 842. 41 Table of Contents Operating Leases – Lessee The Company’s lease assets and liabilities recognized within its balance sheets were as follows: February 28 (29), 2025 2024 Operating lease assets: Right-of-use assets $ 1,108,100 $ 1,614,900 Operating lease liabilities: Current lease liabilities $ 697,000 $ 726,900 Long-term lease liabilities $ 411,100 $ 888,000 The weighted-average remaining lease term and weighted-average discount rate used to calculate the present value of lease liabilities are as follows: Year Ended February 28 (29), 2025 2024 Weighted-average remaining lease term (months) 18.4 25.8 Weighted-average discount rate 4.89 % 4.34 % The components of lease cost are as follows: Year Ended February 28 (29), 2025 2024 Fixed lease costs $ 790,400 $ 563,900 Future minimum rental payments under operating leases with initial terms greater than one year as of February 28, 2025, are as follows: Years ending February 28 2026 713,900 2027 448,600 Total future minimum rental payments 1,162,500 Less: imputed interest ( 54,400 ) Total operating lease liabilities $ 1,108,100 Supplemental cash flow information related to leases is as follows: Year Ended February 28 (29), 2025 2024 Operating cash flows – operating leases $ 790,400 $ 563,900 The Company assesses its leases to determine whether it is reasonably certain that these renewal options will be exercised. In general, most of the office space outside of Tulsa, Oklahoma is associated with remote employees. Their continued employment determines the need for this space. Much of the warehouse space outside of the Hilti Complex is used to store non-current inventory. As the Company sells down excess inventory, less outside space will be needed and any renewals will be for less space. Accordingly, the renewal options are not included in the calculation of its right-of-use assets and lease liabilities, as the Company does not believe that it is reasonably certain that these renewal options will be exercised. 42 Table of Contents Operating Leases – Lessor In connection with the 2015 purchase of the Hilti Complex, we entered into a 15 -year lease with the seller, a non-related third party, who leases 181,300 square feet, or 45.3 % of the facility. The lessee pays $ 126,400 per month, through the lease anniversary date of December 2025 with a 2.0 % annual increase adjustment on each anniversary date thereafter. The lease terms allow for one five-year extension , which is not a bargain renewal option, at the expiration of the 15 -year term. 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 was for five years , commenced July 1, 2024, and included 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, repairs, and maintenance, excluding roof and structure, which shall be the landlord’s responsibility. On December 20, 2024, the Company executed an amendment to its lease with the tenant. The amendment provides the tenant a $ 500,000 improvement allowance, providing $ 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. The Company also subleases some office and warehouse space in one of it’s leased facilities. Future minimum payments receivable under operating leases with terms greater than one year are estimated as follows: Years ending February 28 (29), 2026 $ 2,657,700 2027 2,666,300 2028 2,676,600 2029 2,741,400 2030 2,807,900 Thereafter 7,111,700 Total $ 20,661,600 The cost of the leased space was approximately $ 16,333,900 as of February 28, 2025, and $ 10,159,500 as of February 29, 2024, respectively. The accumulated depreciation associated with the leased assets was $ 3,906,700 and $ 2,776,400 as of February 28, 2025, 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. 12. DEBT Debt consists of the following: February 28 (29), 2025 2024 Line of credit $ 4,198,100 $ 5,498,100 Floating rate term loan $ 16,250,000 $ 17,300,000 Fixed rate term loan 10,550,900 11,300,900 Total term debt 26,800,900 28,600,900 Less current portion ( 26,685,500 ) ( 1,800,000 ) Less debt issue cost ( 115,400 ) ( 160,200 ) Long-term debt, net $ - $ 26,640,700 On August 9, 2022, the Company executed a Credit Agreement (“Loan Agreement”) with BOKF, NA (“Bank of Oklahoma” or the “Lender”). The Loan Agreement established a fixed rate term loan in the principal amount of $ 15,000,000 (the “Fixed Rate Term Loan”), a floating rate term loan in the principal amount of $ 21,000,000 (the “Floating Rate Term Loan”; together with the Fixed Rate Term Loan, collectively, the “Term Loans”), and a revolving promissory note in the principal amount up to $ 15,000,000 (the “Revolving Loan” or “Line of Credit”). On December 22, 2022, the Company executed the First Amendment to our Loan Agreement with the Lender. This amendment clarified the definition of the Fixed Charge Coverage Ratio to exclude dividends paid prior to November 30, 2022, and placed restrictions on acquisitions and cash dividends. 43 Table of Contents On May 10, 2023, the Company executed the Second Amendment to our Loan Agreement with the Lender. This amendment waived the fixed charge ratio default which occurred on February 28, 2023 and amended the financial covenant to not require the fixed charge ratio to be measured at May 31, 2023. The Second Amendment also added a cumulative maximum level of fiscal year to date inventory purchases through the expiration of the Revolving Loan Agreement, increased the borrowing rate on the Company’s Revolving Loan to Term SOFR Rate plus 3.5 %, required certain swap agreements be executed within 30 days of the amendment, reduced the revolving commitment from $15,000,000 to $ 14,000,000 , effective May 10, 2023, and further reduced the revolving commitment to $ 13,500,000 , effective July 15, 2023, among other items. On June 6, 2023, pursuant to its interest rate risk and risk management strategy, the Company entered into a swap transaction (the “Swap Transaction”) with the Lender, which converts a portion of the original $ 21,000,000 Floating Rate Term Loan from a floating interest rate to a fixed interest rate for the next two years. The Swap Transaction has a notional amount of $ 18,000,000 through fiscal quarter ending May 31, 2024, and then resets to $ 13,000,000 through May 30, 2025, while continuing to mirror the amortizing balance of the Floating Rate Term Loan. Under the terms of this agreement, the Company, in effect, has exchanged the floating interest rate of 30-Day Term SOFR Rate at the trade date of June 5, 2023, to a fixed rate of 4.73 %. The Swap Transaction commenced on June 7, 2023, with a termination date of May 30, 2025. On August 9, 2023, the Company executed the Third Amendment along with a Revised Credit Agreement (“Credit Agreement”) with the Lender. This amendment extended the Revolving Loan maturity date to January 31, 2024 and introduced a stepdown to the Revolving Commitment from $ 13,500,000 , through August 30, 2023; to $ 10,500,000 through October 30, 2023; to $ 9,000,000 through November 29, 2023; to $ 5,000,000 through December 30, 2023; to $ 4,500,000 through January 30, 2024; and to $ 4,000,000 on January 31, 2024. The amendment restricted the Company from entering into any new purchase orders and use its best efforts to cancel existing purchase orders. The Third Amendment also increased the borrowing rate on the Revolving Loan to 30-Day Term SOFR Rate + 4.50 %. The Credit 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. On November 30, 2023, the Company executed the Fourth Amendment to the Credit Agreement with the Lender. This amendment, effective December 1, 2023, increased the Revolving Loan commitment to $ 8,000,000 and extended the maturity date to May 31, 2024. The amendment also required the Company to list the Hilti Complex for sale, allowed the Company to execute additional purchase orders, subject to the lender’s approval and conditions, not to exceed $ 2,100,000 between December 1, 2023 and March 31, 2024, among other items. Proceeds from the sale of the property are to be used to pay down the borrowings with the Lender. On June 13, 2024, the Company executed the Fifth Amendment to the Credit Agreement with the Lender. The amendment, effective May 31, 2024, adjusts the maximum availability of the Revolving Loan commitment to $ 7,000,000 through the maturity date of October 4, 2024 . The Amendment decreased in the Revolving Loan to $ 4,500,000 from the effective date of the sale of the Hilti Complex among other restrictions and requirements. On October 7, 2024, the Company executed the Sixth Amendment to the Credit Agreement with the Lender. The amendment, effective October 3, 2024, extended the maturity date to January 4, 2025 , and decreased on the Revolving Loan to $ 5,500,000 by November 30, 2024. On January 13, 2025, the Company executed the Seventh Amendment to the Credit Agreement with the Lender. The amendment, effective January 4, 2025, decreased the maximum availability of the Revolving Loan commitment to $ 4,750,000 through the maturity date of April 4, 2025. On April 16, 2025, subsequent to year end, the Company executed the Eighth Amendment to the Credit Agreement with the Lender. The amendment, effective April 4, 2025, increased the Revolving Loan interest rate on the effective date to SOFR + 6.00 %, extended the maturity date of the Revolving Loan to July 11, 2025, and includes a required step down on the Revolving Loan to $ 4,500,000 million by May 31, 2025. The amendment also changed the maturity dates of the two term loans to September 19, 2025. 44 Table of Contents Available credit under the current $ 4,750,000 revolving line of credit with the Company’s Lender was approximately $ 551,900 at February 28, 2025. Features of the Revised Loan Agreement include: (i) Two Term Loans on 20-year amortization with 5-year maturity date of August 9, 2027 , revised to September 19, 2025 subsequent to year end. (ii) $ 15 Million Fixed Rate Term Loan bears interest at a fixed rate per annum equal to 4.26 % (iii) $ 21 Million Floating Rate Term Loan bears interest at a rate per annum equal to Term SOFR Rate + 1.75 % (iv) $ 4.8 Million Revolving Loan with maturity date of July 11, 2025 . The Revolving Loan bears interest at a rate per annum equal to Term SOFR Rate + 5.50 % (effective rate was 9.85 % at February 28, 2025), revised subsequent to year end to Term SOFR Rate + 6.00 % (v) Revolving Loan allows for Letters of Credit upon bank approval (none were outstanding at February 28, 2025) 13. SHARE-BASED COMPENSATION We account for share-based compensation whereby share-based payment transactions with employees, such as stock options and restricted stock, are measured at estimated fair value at the date of grant. For awards subject to service conditions, compensation expense is recognized over the vesting period on a straight-line basis. Awards subject to performance conditions are attributed separately for each vesting tranche of the award and are recognized ratably from the service inception date to the vesting date for each tranche. Forfeitures are recognized when they occur. The probability of restricted share awards granted with future performance conditions is evaluated at each reporting period and share awards are updated and compensation expense is adjusted based on updated information. In July 2018, our shareholders approved the Company’s 2019 Long-Term Incentive Plan (“2019 LTI Plan”). The 2019 LTI Plan established up to 600,000 shares of restricted stock available to be granted to certain members of management based on exceeding specified net revenues and pre-tax performance metrics during fiscal years 2019, 2020 or 2021. The Company exceeded all defined metrics during these fiscal years and 600,000 shares were granted to members of management according to the Plan. The granted shares under the 2019 LTI Plan “cliff vest” after five years from the fiscal year that the defined metrics were exceeded. In July 2021, our shareholders approved the Company’s 2022 Long-Term Incentive Plan (“2022 LTI Plan”). The 2022 LTI Plan establishes up to 300,000 shares of restricted stock available to be granted to certain members of management based on exceeding specified net revenues and pre-tax performance metrics during fiscal years 2022 and 2023. The number of restricted shares to be distributed depends on attaining the performance metrics defined by the 2022 LTI Plan and may result in the distribution of a number of shares that is less than, but not greater than, the number of restricted shares outlined in the terms of the 2022 LTI Plan. Restricted shares granted under the 2022 LTI Plan “cliff vest” after five years from the fiscal year that the defined metrics were exceeded. 45 Table of Contents During fiscal year 2021, the Company granted 297,000 restricted shares under the 2019 LTI Plan with an average grant-date fair value of $ 6.30 per share. During fiscal year 2023, 18,000 restricted shares were forfeited, along with 760 additional shares purchased with dividends received from the original issue date. The 18,000 forfeited shares were re-granted to participants during fiscal 2023 with an average grant-date fair value of $ 2.08 . The 760 shares purchased with dividends were not reissued. During fiscal year 2024, 35,285 restricted shares were forfeited and regranted to participants with an average grant-date fair value of $ 1.84 . These granted shares totaling 297,000 shares vested on February 28, 2025. A summary of compensation expense recognized in connection with restricted share awards as follows: Year Ended February 28 (29), 2025 2024 Share-based compensation expense - net of forfeitures $ 403,300 $ 212,000 The following table summarizes stock award activity during fiscal year 2025 under the 2019 LTI Plan: Shares Weighted Average Fair Value (per share) Outstanding at February 29, 2024 297,000 $ 5.53 Granted - - Vested ( 297,000 ) 5.53 Forfeited - - Outstanding at February 28, 2025 - $ - 14. STOCK REPURCHASE PLAN In April 2008, the Board of Directors authorized us to repurchase up to an additional 1,000,000 shares of our common stock under the plan initiated in 1998 (“amended 2008 plan”). On February 4, 2019, the Board of Directors replaced the amended 2008 plan with a new plan which authorized us to repurchase up to 800,000 shares of outstanding common stock in the open market or in privately negotiated transactions, and to utilize any derivative or similar instrument to effect share repurchase transactions (including without limitation, accelerated share repurchase contracts, equity forward transactions, equity swap transactions, floor transactions or other similar transactions or any combination of the foregoing transactions). This plan has no expiration date. During fiscal year 2024, there was a repurchase of treasury stock for 138,201 shares for an average purchase price of $ 4.08 per share, which amounted to $ 563,900 . During fiscal year 2025, 400 shares were repurchased under the amended 2008 plan. After the repurchase, the maximum number of shares that may be repurchased in the future is 375,993 as of February 28, 2025. 46 Table of Contents 15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the quarterly results of operations for the years ended February 28, 2025 and February 29, 2024: Net Revenues Gross Margin Net Earnings (Loss) Basic Earnings (Loss) Per Share Diluted Earnings (Loss) Per Share 2025 First quarter $ 9,993,400 $ 6,459,400 $ ( 1,279,000 ) $ ( 0.15 ) $ ( 0.15 ) Second quarter 6,509,200 3,646,700 ( 1,803,400 ) ( 0.22 ) ( 0.22 ) Third quarter 11,052,100 6,903,900 ( 835,700 ) ( 0.10 ) ( 0.10 ) Fourth quarter 6,636,300 4,017,700 ( 1,345,500 ) ( 0.16 ) ( 0.16 ) Total year $ 34,191,000 $ 21,027,700 $ ( 5,263,600 ) $ ( 0.63 ) $ ( 0.63 ) 2024 First quarter $ 14,524,000 $ 9,373,600 $ ( 872,800 ) $ ( 0.11 ) $ ( 0.11 ) Second quarter 10,593,100 6,908,800 1,061,700 0.13 0.13 Third quarter 16,944,800 11,142,400 1,972,100 0.24 0.24 Fourth quarter 8,968,400 5,560,100 ( 1,614,600 ) ( 0.19 ) ( 0.19 ) Total year $ 51,030,300 $ 32,984,900 $ 546,400 $ 0.07 $ 0.07 16. BUSINESS SEGMENTS We have two reportable segments: PaperPie and Publishing. These reportable segments are business units that offer different methods of distribution to different types of customers. They are managed separately based on the fundamental differences in their operations. Our PaperPie segment markets its products through a network of independent Brand Partners using a combination of internet sales, direct sales, home shows, and book fairs. Our Publishing segment markets its products to retail accounts, which include book, school supply, toy and gift stores, museums, trade and specialty wholesalers, through commissioned sales representatives, and our internal tele-sales group. See Note 5 for the impact of our updated Usborne distribution agreement on the Publishing segment. The accounting policies for the segments are the same as those for the rest of the Company. We evaluate segment performance based on earnings before income taxes of the segments, which is defined as segment net revenues reduced by cost of sales and direct expenses. Direct expenses are composed of payroll, commissions, general and administrative, and operating and selling expenses. Corporate expenses, depreciation, interest expense, other income, and income taxes are not allocated to the segments but are listed in the “Other” row below. Corporate expenses include the executive department, accounting department, information services department, general office management, warehouse operations and building facilities management. Our assets and liabilities are not allocated on a segment basis. Separate financial information is regularly evaluated by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources. For the Company, the Chief Executive Officer is the CODM. Information by industry segment for the years ended February 28, 2025 and February 29, 2024 is set forth below: NET REVENUES Year Ended February 28 (29), 2025 2024 Publishing $ 4,340,700 $ 5,405,100 PaperPie 29,850,300 45,625,200 Total $ 34,191,000 $ 51,030,300 47 Table of Contents EARNINGS (LOSS) BEFORE INCOME TAXES Year Ended February 28 (29), 2025 2024 Publishing $ 1,155,400 $ 1,223,300 PaperPie 1,950,800 4,129,200 Other ( 9,961,200 ) ( 4,618,000 ) Total $ ( 6,855,000 ) $ 734,500 Publishing Operating Results The following table summarizes the operating results of the Publishing segment for the twelve months ended February 28 (29): Year Ended February 28 (29), 2025 2024 Net revenues 4,340,700 5,405,100 Cost of goods sold 1,757,300 2,299,800 Gross margin 2,583,400 3,105,300 Operating expenses Operating and selling 424,300 539,600 Sales commissions 97,700 180,500 General and administrative 906,000 1,161,900 Total operating expenses 1,428,000 1,882,000 Operating income $ 1,155,400 $ 1,223,300 PaperPie Operating Results The following table summarizes the operating results of the PaperPie segment for the twelve months ended February 28 (29): Year Ended February 28 (29), 2025 2024 Net revenues 29,850,300 45,625,200 Cost of goods sold 11,406,000 15,745,500 Gross margin 18,444,300 29,879,700 Operating expenses Operating and selling 4,575,400 7,151,300 Sales commissions 9,998,800 15,925,100 General and administrative 1,919,300 2,674,100 Total operating expenses 16,493,500 25,750,500 Operating income $ 1,950,800 $ 4,129,200 Average number of active Brand Partners 12,300 18,300 48 Table of Contents Information for the Other segment above for the years ended February 28, 2025 and February 29, 2024 is set forth below: OTHER NON-SEGMENT EARNINGS (LOSS) BEFORE INCOME TAXES Year Ended February 28 (29), 2025 2024 Operating and selling: Freight $ 668,500 $ 991,900 Computer support 83,400 106,400 Operating and selling total 751,900 1,098,300 General and administrative: Payroll 4,672,600 5,448,400 Depreciation 1,358,600 2,067,100 Building and warehouse rents 830,900 464,300 Outside services 458,000 489,900 Property taxes 370,300 255,200 Dues and subscriptions 260,200 216,900 Property insurance 242,200 315,800 Professional service fees 238,000 272,800 Other 699,100 624,700 General and administrative total 9,129,900 10,155,100 Interest expense 2,188,400 2,758,900 Other income ( 2,109,000 ) ( 9,394,300 ) Total other non-segment loss before income taxes $ 9,961,200 $ 4,618,000 17. INTEREST RATE EXCHANGE AGREEMENT The Company maintains an interest-rate risk-management strategy that uses interest-rate swap instruments to minimize significant, unanticipated earnings fluctuations caused by interest-rate volatility. The Company’s specific goal is to lower the cost of its borrowed funds, when possible. On June 5, 2023, the Company entered into a receive-variable (based on 30-Day SOFR)/pay-fixed interest-rate swap agreement related to $ 18,000,000 of our $ 21,000,000 Floating Rate Term Loan. This swap is utilized to manage interest-rate exposure over the period of the interest-rate swap and is designated as a highly effective cash-flow hedge. The differential to be paid or received on the swap agreement is accrued as interest rates change and is recognized in interest expense over the life of the agreement. The swap agreement offsets a corresponding portion of the amortizing $21,000,000 Floating Rate Term Loan, which 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 $ 11,250,000 on February 28, 2025. The interest-rate swap contains no credit-risk-related contingent features and is cross-collateralized by all assets of the Company. The effective portion of the unrealized gain or loss on this interest-rate swap is reported as a component of other comprehensive income (“OCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the interest rate swap representing amounts excluded from the assessment of hedge effectiveness are recognized in the current earnings. The fair value of the interest rate swap is included in the following caption on the balance sheets as follows: February 28, 2025 February 29, 2024 Prepaid expenses and other assets $ - $ 24,400 Other current liabilities $ 15,400 $ - 49 Table of Contents 18. FINANCIAL INSTRUMENTS The following methods and assumptions are used in estimating the fair-value disclosures for financial instruments: - The carrying amounts reported on the balance sheets for cash and cash equivalents, restricted cash, 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 approximately $ 37,000,000 as of February 28, 2025 and $ 40,019,200 as of February 29, 2024, respectively. Management’s estimates are based on the recent listing 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 $ 26,507,100 and $ 28,152,800 as of February 28, 2025 and February 29, 2024, respectively. Management’s estimates are based on the obligations’ characteristics, including floating interest rate, maturity, and collateral. - The fair value of the Company’s interest rate swap of $( 15,400 ) is based on Level 2 inputs, including the present value of estimated future cash flows based on market expectations of the yield curve on variable interest rates. 19. DEFERRED REVENUES 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 February 28, 2025 or February 29, 2024 are recorded as deferred revenues on the balance sheets. We received approximately $ 491,800 and $ 583,500 as of February 28, 2025 and February 29, 2024, respectively, in payments for sales orders which were, or will be, shipped out subsequent to the end of the period. 20. SUBSEQUENT EVENTS On March 21, 2025, the Company executed a new brokerage agreement with Keen-Summit Capital Partners, LLC (“Keen-Summit”) to assist with the marketing and sale of the Hilti Complex. The Agreement offers Keen-Summit the opportunity to list and provide sale opportunities of the Hilti Complex for a term of nine months, along with providing other services customary with brokerage agreements. The Agreement includes the engagement of McGraw Davisson Stewart, LLC to provide local services as a licensed broker in the state of Oklahoma. On April 16, 2025, the Company executed the Eighth Amendment to the Credit Agreement with the Lender. The amendment, effective April 4, 2025, increased the Revolving Loan interest rate on the effective date to SOFR + 6.00 %, extends the maturity date of the Revolving Loan to July 11, 2025, and included a required step down on the Revolving Loan to $ 4.5 million by May 31, 2025. The amendment also changed the maturity dates of the two term loans to September 19, 2025. On May 14, 2025, the Company executed a Purchase and Sale Agreement (“Agreement”) with TG OTC, LLC (“Buyer”) for the Company’s headquarters and distribution warehouse located at 5400-5402 South 122 nd East Avenue, Tulsa, Oklahoma 74146 (the “Hilti Complex”). The agreed upon sale price of the Hilti Complex per the executed Agreement totaled $35,150,000 less seller 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 Lender. At closing, the Company will assign the existing tenant leases to the Buyer and enter into a new lease for its occupied space in the Hilti Complex. The Agreement 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 the Company. The Agreement provides the Buyer a 90-day due diligence period to secure financing, perform inspections, review leases and perform other assessments. The closing of the sale is expected to be completed within 30 days following the due diligence period. The initial term of the new lease with Buyer will be for 10 years, and the initial lease rate will be $8.62 per square foot, with 2.0% annual escalations beginning in year two of the lease and will include two five-year extension options. The Lease will also include typical triple-net terms, where the Seller will be responsible for utilities, insurance, property taxes, and regular maintenance. The Lease is expected to also encompass standard terms that are customary in the local market. 50