What changed in this filing

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Item 1. Financial Statements

2025-07-07 compared with 2025-01-13 · 848 added, 556 removed, 241 unchanged (85% of the section changed)

5 unchanged sentences

Restricted cash

Accounts receivable, less allowance for credit losses of

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

Accounts receivable, less allowance for credit losses of $ 123,700 (May 31) and $ 112,300 (February 28)

Inventories - net

17 unchanged sentences

Total current liabilities

LONG-TERM DEBT - net

OPERATING LEASE LIABILITIES, non-current

5 unchanged sentences

Issued 12,702,080 shares;

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

Outstanding 8,583,201 (May 31 and February 28) shares

Capital in excess of par value

Retained earnings

Accumulated other comprehensive income (loss)

Accumulated other comprehensive loss

Less treasury stock, at cost

( 13,060,400 )

Total shareholders’ equity

4 unchanged sentences

Three Months Ended

Nine Months Ended

PRODUCT REVENUES, net of discounts and allowances

7 unchanged sentences

INTEREST EXPENSE

EARNINGS (LOSS) BEFORE INCOME TAXES

INCOME TAX EXPENSE (BENEFIT)

NET EARNINGS (LOSS)

BASIC AND DILUTED EARNINGS (LOSS) PER SHARE

LOSS BEFORE INCOME TAXES

INCOME TAX BENEFIT

BASIC AND DILUTED LOSS PER SHARE

WEIGHTED AVERAGE NUMBER OF COMMON AND EQUIVALENT SHARES OUTSTANDING:

4 unchanged sentences

Three Months Ended

Nine Months Ended

Net earnings (loss)

Other comprehensive income (loss):

Unrealized gain (loss) on interest rate exchange agreement

Comprehensive income (loss)

Other comprehensive income:

Unrealized gain on interest rate exchange agreement

Comprehensive loss

See notes to condensed financial statements (unaudited).

1 unchanged sentence

CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS ’ EQUITY (UNAUDITED)

FOR THE NINE MONTHS ENDED NOVEMBER 30, 2024

(par value $0.20 per share)

FOR THE THREE MONTHS ENDED MAY 31, 2025

(par value $0.20 per

Treasury Stock

Accumulated Other Comprehensive Income

Comprehensive

Shareholders’

BALANCE – February 28, 2025

Sale of treasury stock

Share-based compensation expense - net

Change in fair value of interest rate exchange agreement

BALANCE - May 31, 2025

Sale of treasury stock

Share-based compensation expense - net

Change in fair value of interest rate exchange agreement

BALANCE - August 31, 2024

Sale of treasury stock

Share-based compensation expense - net

Change in fair value of interest rate exchange agreement

BALANCE - November 30, 2024

FOR THE NINE MONTHS ENDED NOVEMBER 30, 2023

(par value $0.20 per share)

FOR THE THREE MONTHS ENDED MAY 31, 2024

(par value $0.20 per

Treasury Stock

Accumulated Other Comprehensive Income

Comprehensive

Shareholders’

BALANCE – February 29, 2024

Purchases of treasury stock

Sale of treasury stock

Share-based compensation expense - net

Change in fair value of interest rate exchange agreement

BALANCE - May 31, 2024

Forfeiture of restricted shares

Share-based compensation expense - net

Unrealized gain on interest rate exchange agreement

BALANCE - August 31, 2023

Share-based compensation expense - net

Unrealized loss on interest rate exchange agreement

BALANCE - November 30, 2023

See notes to condensed financial statements (unaudited).

1 unchanged sentence

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

Nine Months Ended November 30,

Three Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES

Net earnings (loss)

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

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

Depreciation and amortization

3 unchanged sentences

Share-based compensation expense - net

Net loss (gain) on sale of assets

Net loss on sale of assets

Changes in assets and liabilities:

11 unchanged sentences

Proceeds from sale of assets

Net cash provided by (used in) investing activities

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

Payments on term debt

Cash paid to acquire treasury stock

Sales of treasury stock

Net payments under line of credit

Net borrowings under line of credit

Net cash used in financing activities

4 unchanged sentences

Cash paid for interest

Cash paid for income taxes - net of refunds

Cash (received)/paid for income taxes - net of refunds

See notes to condensed financial statements (unaudited).

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Note 1 – BASIS OF PRESENTATION AND SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying Unaudited Condensed Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim condensed financial information and in accordance with the rules and regulations of the Securities and Exchange Commission.

The Unaudited Condensed Financial Statements include all adjustments considered necessary for a fair presentation of the financial position and results of operations for the interim periods presented.

Such adjustments consist only of normal recurring items, unless otherwise disclosed herein.

Accordingly, the Unaudited Condensed Financial Statements do not include all of the information and notes required by GAAP for complete financial statements.

The accompanying Unaudited Condensed

Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”)

for interim condensed financial information and in accordance with the rules and regulations of the Securities and Exchange Commission.

The Unaudited Condensed Financial Statements include all adjustments considered necessary for a fair presentation of the financial position

and results of operations for the interim periods presented.

Such adjustments consist only of normal recurring items, unless otherwise

disclosed herein.

Accordingly, the Unaudited Condensed Financial Statements do not include all of the information and notes required by

GAAP for complete financial statements.

However, we believe that the disclosures made are adequate to make the information not misleading.

These interim Unaudited Condensed Financial Statements should be read in conjunction with our audited financial statements as of and for the year ended February 29, 2024 included in our Form 10-K.

The results of operations for interim periods are not necessarily indicative of the results to be expected for a full year due to the seasonality of our product sales.

These interim Unaudited Condensed Financial Statements should be read in conjunction with our audited financial statements as of and for

the year ended February 28, 2025 included in our Form 10-K.

The results of operations for interim periods are not necessarily indicative

of the results to be expected for a full year due to the seasonality of our product sales.

Use of Estimates in the Preparation of Financial Statements

The preparation of the Unaudited Condensed Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes.

The preparation of the Unaudited

Condensed Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported

in these financial statements and accompanying notes.

Actual results could differ from those estimates.

Significant Accounting Policies

Our significant accounting policies, other than the adoption of new accounting pronouncements separately documented herein and unless otherwise disclosed, are consistent with those disclosed in Note 1 to our audited financial statements as of and for the year ended February 29, 2024 included in our Form 10-K.

Our significant accounting policies,

other than the adoption of new accounting pronouncements separately documented herein and unless otherwise disclosed, are consistent with

those disclosed in Note 1 to our audited financial statements as of and for the year ended February 28, 2025 included in our Form 10-K.

Reclassifications

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

These reclassifications had no effect on net earnings.

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

Determining the extent to which conditions or events raise 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.

Certain reclassifications have been made to the fiscal

2025 condensed statements of operations to combine Gross Sales and Discounts and allowances now presented as Product Revenues, net of

discount and allowances to conform with the current year financial statement presentation.

These reclassifications had no effect on net

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

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

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

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

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

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

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

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

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

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:

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 amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted, and the amendments should be applied retrospectively.

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

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

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

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 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”)

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

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.

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 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.

Note 2 – CASH

The below table reconciles cash, cash equivalents and restricted cash as reported in the balance sheets to the total of the same amounts shown in the statements of cash flows:

November 30, 2024

November 30, 2023

The table below reconciles cash,

cash equivalents and restricted cash as reported in the balance sheets to the total of the same amounts shown in the statements of cash

Cash and cash equivalents

Restricted cash

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

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

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

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

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

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

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 channelled 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.

Note 3 – ASSETS HELD FOR SALE

During the third quarter of fiscal 2024, the Company listed its real estate property located at 5402 S.

During the third quarter of fiscal

2024, the Company listed its real estate property located at 5402 S.

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 recently appraised in November 2024 with a market value of approximately $ 47,410,000 .

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

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

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

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

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

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

The Contract includes a right of first refusal on the excess land parcel, consisting of approximately 17 acres of undeveloped land adjacent to the Hilti Complex, which will remain under the ownership of EDC.

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

The Lease will also include triple-net terms, where the Seller will be responsible for utilities, insurance, property taxes, and regular maintenance, including roof and structural maintenance.

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

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 will also include triple-net terms,

where the Seller will be responsible for utilities, insurance, property taxes, and regular maintenance, including roof and structural

Additionally, the Seller will retain the rights to sublease, subject to buyer approval, any available unused space in the

building during the lease term.

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

During the second quarter of fiscal year 2025, the Company entered into a triple-net lease agreement for approximately 111,000 square feet of available office and warehouse space in the Hilti Complex to a new tenant.

To create space for this new tenant, the Company removed certain operating equipment and reclassified the assets from property plant and equipment to assets held for sale upon meeting the held for sale criteria.

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

The Company is actively trying to locate a buyer as of May 31, 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.

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 May 14, 2025, the Company executed a Purchase and Sale Agreement

(“Agreement”) with TG OTC, LLC (“Buyer”) for the Hilti Complex.

The agreed upon sale price of

the Hilti Complex per the executed Agreement totalled $ 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.

the Company has agreed to assign the existing tenant leases to the Buyer and enter into a new lease for its occupied space in the Hilti

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, and Amendment to

the Agreement executed on June 26, 2025, provides the Buyer a due diligence period through September 11, 2025 to secure financing, perform

inspections, review leases and perform other assessments.

The closing of the sale is expected to be completed within ten 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.

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 $ 19,250,000 and $ 18,281,100 as of November 30, 2024 and February 29, 2024 and is separately recorded on the balance sheets.

The total carrying value of assets held for sale was $ 19,279,600 and $ 19,277,000 as of May 31, 2025, and February 28, 2025, respectively,

and is separately recorded on the balance sheet.

Note 4 – INVENTORIES

Inventories consist of the following:

November 30, 2024

February 29, 2024

Product inventory

4 unchanged sentences

Inventories net – noncurrent

Inventory in transit totaled $ 0 and $ 264,000 at November 30, 2024 and February 29, 2024, respectively.

Product inventory quantities in excess of what we expect will be sold within the normal operating cycle, based on 2½ years of anticipated sales, are included in noncurrent inventory.

Inventory in transit totalled $ 0 and $ 25,500 at May 31, 2025 and February

28, 2025, respectively.

Product inventory quantities in

excess of what we expect will be sold within the normal operating cycle, based on 2½ years of anticipated sales, are included in

noncurrent inventory.

Note 5 – LEASES

We have both lessee and lessor arrangements.

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

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

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.

Operating Leases – Lessee

We recognize a lease liability, reported on the balance sheets, for each lease based on the present value of remaining minimum fixed rental payments (which includes payments under any renewal option that we are reasonably certain to exercise), using a discount rate that approximates the rate of interest we would have to pay to borrow on a collateralized basis over a similar term.

Expected payments in the next twelve months are classified as current lease liabilities.

We recognize a lease liability,

reported in other liabilities on the balance sheets, for each lease based on the present value of remaining minimum fixed rental payments

(which includes payments under any renewal option that we are reasonably certain to exercise), using a discount rate that approximates

the rate of interest we would have to pay to borrow on a collateralized basis over a similar term.

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 sheets, for each lease, valued at the lease liability and adjusted for prepaid or accrued rent balances existing at the time of initial recognition.

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

November 30, 2024

We also recognize a right-of-use asset, reported in other assets on the balance sheets, for each lease, valued at the lease liability

and adjusted for prepaid or accrued rent balances existing at the time of initial recognition.

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.

2025 February 28,

1 unchanged sentence

Right-of-use assets $ 926,400 $ 1,108,100

$ 1,256,500 $ 1,614,900

Operating lease liabilities:

Current lease liabilities $ 672,800 $ 697,000

$ 705,800 $ 726,900

Long-term lease liabilities $ 253,600 $ 411,100

$ 550,700 $ 888,000

Weighted-average remaining lease term (months) 16.8 18.4

Weighted-average discount rate 5.46 % 4.89 %

4.87 % 4.34 %

Minimum fixed rental payments are recognized on a straight-line basis over the life of the lease as costs and expenses in our statements of operations.

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

Three Months Ended

Nine Months Ended

Minimum fixed rental payments

are recognized on a straight-line basis over the life of the lease as costs and expenses in our statements of operations.

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

Fixed lease costs

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

Future minimum rental payments

under operating leases with initial terms greater than one year as of May 31, 2025, are as follows:

Years ending February 28,

2 unchanged sentences

Total operating lease liabilities

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

Three Months Ended

Nine Months Ended

The following table provides further

information about our operating leases reported in our condensed financial statements:

Operating cash outflows – operating leases

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.

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 $ 123,900 per month, through the lease anniversary date of December 2024 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.

Revenues associated with the lease are being 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.

On May 26, 2024, the Company entered into a triple-net lease agreement for approximately 111,000 square feet of available office and warehouse space in the Hilti Complex to a new tenant.

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

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 Landlords’ responsibility.

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

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

The Company also subleases some

office and warehouse space in one of its other leased facilities.

Future minimum payments receivable

under operating leases with terms greater than one year are estimated as follows:

Years ending February 28 (29),

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

The accumulated depreciation associated with the leased asset was $ 3,891,200 and $ 2,776,400 at November 30, 2024 and February 29, 2024, respectively.

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

The cost of the leased space was

approximately $ 16,333,900 as of May 31, 2025, and February 28, 2025, respectively.

The accumulated depreciation associated with the leased

assets was $ 3,906,700 as of May 31, 2025 and February 28, 2025, 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

and discontinued depreciating the property.

The leased space was included in this reclassification.

1 unchanged sentence

Debt consists of the following:

November 30, 2024

February 29, 2024

Line of credit

3 unchanged sentences

Less current maturities

( 26,246,700 )

( 26,685,500 )

Less debt issue cost

Long-term debt, net

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.

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 (“Revised Loan 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;

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.

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 two years.

The Swap Transaction

had 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,

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 and terminated on 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

to $ 10,500,000 through October 30, 2023;

1 unchanged sentence

to $ 5,000,000 through December 30, 2023;

to $ 4,500,000 through January 30, 2024;

$ 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.

It also required the Company to list its real estate property located at 10302 East 55th Place, Tulsa, Oklahoma, for sale with a licensed commercial real estate broker satisfactory to the Lender on or before August 18, 2023, among other items.

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

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

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

Prior to the Third Amendment, executed on August 9, 2023, the Loan Agreement contained provisions that required the Company to maintain a minimum fixed charge ratio.

The Company was in violation of the minimum fixed charge ratio covenant as of February 28, 2023, for which the Company obtained a written waiver of compliance from the Lender and was not required to measure the fixed charge ratio as of May 31, 2023.

Concurrent with the execution of the Third Amendment to the Loan Agreement, the Loan Agreement was modified to incorporate the changes outlined in the Third Amendment and the fixed charge ratio covenant was removed, as well as the Lender’s right to accelerate the maturities of the Fixed Rate Term Loan and Floating Rate Term Loan due to the fixed charge ratio covenant.

On November 30, 2023, the Company executed the Fourth Amendment to the Credit Agreement (“Amendment”) with the Lender.

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

On October 7, 2024, the Company executed the Sixth Amendment to the Existing Credit Agreement with the Lender.

The Amendment, effective October 3, 2024, extends the maturity date to January 4, 2025 and includes required step downs on the Revolving Loan to $ 5,500,000 by November 30, 2024.

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

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

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

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

$ 15 Million Fixed Rate Term Loan bears interest at a fixed rate per annum equal to 4.26 %

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

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

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

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

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

Years ending February 28 (29),

Note 7 – OTHER INCOME

A summary of other income is shown below:

Three Months Ended

Nine Months Ended

Federal tax credits realized

Gain from sale of assets

Rental income

Total other income

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

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

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

Additional relief provisions were passed by the U.S.

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

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

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

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

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

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

The 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

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, 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 on June 1, 2025.

The amendment also changed the maturity dates of the

two Term Loans to September 19, 2025.

Available credit under the current

$ 4,750,000 revolving line of credit with the Company’s Lender was approximately $ 551,900 at May 31, 2025.

Features of the Revised Loan Agreement

(i) Two Term Loans on 20-year amortization with maturity dates of September 19, 2025 .

(i)(a) $ 15 Million Fixed Rate Term Loan bears interest at a fixed rate per annum equal to 4.26 %

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

(ii) $ 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 + 6.00 % (effective rate was 10.31 % at May 31, 2025)

(iii) Revolving Loan allows for Letters of Credit upon bank approval (none were outstanding at May 31, 2025)

Note 7 – 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 29, 2024, 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.

Usborne has refused to pay the $ 1.0 million volume rebate owed to the Company from purchases made during fiscal 2022.

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 May 31, 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

In addition, Usborne has refused to pay the $ 1.0 million volume rebate owed to the Company from purchases made during fiscal

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.

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:

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

The following table summarizes

Usborne product revenues, net of discounts, by division and inventory purchases by product type:

Three Months Ended

Nine Months Ended

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

9 unchanged sentences

Total purchases received

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

Note 9 – EARNINGS (LOSS) PER SHARE

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

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.

Total Usborne inventory owned

by the Company and included in our balance sheets was $ 22,593,200 and $ 23,696,800 as of May 31, 2025 and February 28, 2025, respectively.

Note 8 – LOSS PER SHARE

Basic earnings (loss) per share

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

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:

The computation of weighted average

common and common equivalent shares used in the calculation of basic and diluted EPS is shown below:

Three Months Ended

Nine Months Ended

Earnings (loss):

Net earnings (loss) applicable to common shareholders

Weighted average shares:

Weighted average shares outstanding-basic

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

Weighted average shares outstanding-diluted

Earnings (loss) per share:

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

Net loss per share:

Net loss applicable to common shareholders

$ ( 1,075,200 )

$ ( 1,279,000 )

Weighted average shares outstanding:

Loss per share:

As shown in the table below, the

following shares have not been included in the calculation of diluted loss per share as they would be anti-dilutive to the calculation

Three Months Ended

Nine Months Ended

Weighted average shares:

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

Note 10 – COMMITMENT AND CONTINGENCIES

During the first quarter of fiscal 2025, the Company received a property tax assessment notice on our inventory balance at December 31, 2023 from Tulsa County totaling approximately $ 700,000 .

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

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

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

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

Note 9 – 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.

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.

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 rateably 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 established 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 or 2023.

The Company did not exceed the defined metrics during these fiscal years and no shares were granted to members of management according to the Plan.

During fiscal year 2019, the Company granted 308,000 restricted shares under the 2019 LTI Plan with an average grant-date fair value of $ 9.94 per share.

In fiscal year 2021, 5,000 restricted shares were forfeited and later regranted to other participants.

During fiscal year 2023, 10,000 restricted shares were forfeited, along with 969 additional shares purchased with dividends received from the original issue date.

The 10,000 forfeited shares were re-granted to participants during the fiscal 2023 third quarter with an average grant-date fair value of $ 2.08 .

The 969 shares purchased with dividends were not reissued.

The remaining first tranche of granted shares totaling 303,000 shares vested on February 28, 2023.

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 .

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

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

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 established 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.

There were no shares issued under the 2022 LTI Plan as the company did not exceed

the financial targets.

A summary of compensation expense recognized in connection

with restricted share awards follows:

Three Months Ended

Nine Months Ended

Share-based compensation expense

Less reduction of expense for forfeitures

Share-based compensation expense - net

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

Weighted Average Fair Value (per share)

Outstanding at February 29, 2024

Outstanding at November 30, 2024

Share-based compensation expense - net of forfeitures

Note 10 – SHIPPING AND HANDLING COSTS

We classify shipping and handling costs as operating and selling expenses in the condensed statements of operations.

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

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

These costs were $ 3,865,500 and $ 5,505,000 for the nine months ended November 30, 2024 and 2023, respectively.

We classify shipping and handling

costs as operating and selling expenses in the condensed statements of operations.

Shipping and handling costs include postage, freight,

handling costs, as well as shipping materials and supplies.

These costs were $ 805,200 and $ 1,546,600 for the three months ended May 31,

2025 and 2024, respectively.

Note 11 – BUSINESS SEGMENTS

1 unchanged sentence

PaperPie and Publishing.

These reportable segments are business units that offer different methods of distribution to different types of customers.

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 8 for the impact of our updated Usborne distribution agreement on the Publishing segment.

The accounting policies of the segments are the same as those of 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.

Corporate expenses, depreciation, interest expense 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 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 7 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.

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

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 reporting segment for the three-month

periods ended May 31, 2025 and 2024, are as follows:

Three Months Ended

Nine Months Ended

EARNINGS (LOSS) BEFORE INCOME TAXES

INCOME/(LOSS) BEFORE INCOME TAXES

Three Months Ended

Nine Months Ended

PUBLISHING OPERATING RESULTS

The following table summarizes

the operating results of the Publishing segment for the three months ended May 31, 2025 and 2024:

Three Months Ended

Cost of goods sold

Operating expenses:

Operating and selling

Sales commissions

General and administrative

Total operating expenses

Operating income

PAPERPIE OPERATING RESULTS

The following table summarizes

the operating results of the PaperPie segment for the three months ended May 31, 2025 and 2024:

Three Months Ended

Cost of goods sold

Operating expenses

Operating and selling

Sales commissions

General and administrative

Total operating expenses

Operating income

Information for the Other segment

above for the three months ended May 31, 2025 and 2024 is set forth below:

OTHER NON-SEGMENT LOSS BEFORE INCOME TAXES

Three Months Ended

Operating and selling:

Computer support

Total operating and selling expenses

General and administrative:

Building and warehouse rents

Outside services

Property taxes

Property insurance

Professional service fees

Dues and subscriptions

Total General and administrative expenses

Interest expense

Total other non-segment loss before income taxes

Note 12 – 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 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, 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 $ 11,512,500 on November 30, 2024.

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

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 current earnings.

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

November 30, 2024

February 29, 2024

Prepaid expenses and other assets

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 expired on May 30, 2025 .

During the period of the swap, the agreement 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 and $ 0 at May 31, 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:

Other current liabilities

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

Note 13 – 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, accounts receivable and accounts payable approximate fair value due to the short-term maturity of these instruments

The estimated fair value of our assets held for sale for the Hilti complex was $ 37,000,000 as of November 30, 2024 and February 29, 2024, respectively.

Management's estimates are based on the recent sale agreement for the price of the Hilti Complex less the estimated costs to sell plus an estimated value of the excess land of approximately 17 acres for $ 2,500,000 along with the estimated fair value of equipment held for sale of approximately $ 1,000,000 .

The estimated fair value of our term notes payable is estimated by management to approximate $ 26,936,300 and $ 28,152,800 as of November 30, 2024 and February 29, 2024, respectively.

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

The fair value of the Company’s interest rate swap of $( 21,600 ) 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.

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, accounts receivable and accounts payable approximate fair value due to the short-term

maturity of these instruments.

- The estimated fair value of

our assets held for sale was $ 37,000,000 as of May 31, 2025 and February 28, 2025, respectively.

Management’s estimates are based on

the recent sale agreement for the price of the Hilti Complex less the estimated costs to sell plus an estimated value of the excess land

of approximately 17 acres for $ 2,500,000 along with the estimated fair value of equipment held for sale of approximately $ 1,000,000 .

- The estimated fair value of

our term notes payable is estimated by management to approximate $ 26,056,400 and $ 26,507,100 as of May 31, 2025 and February 28, 2025,

respectively.

Management’s estimates are based on the obligations’ characteristics, including floating interest rate, maturity,

and collateral.

Note 14 – 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 November 30, 2024 or February 29, 2024 are recorded as deferred revenues on the condensed balance sheets.

We received approximately $ 1,378,100 and $ 583,500 as of November 30, 2024 and February 29, 2024, respectively, in payments for sales orders which were, or will be, shipped out subsequent to the end of the period.

The Company’s PaperPie division

receives payments on orders in advance of shipment.

Any payments received prior to the end of the period that were not shipped as of May

31, 2025 or February 28, 2025 are recorded as deferred revenues on the balance sheets.

We received approximately $ 465,500 and $ 491,800

as of May 31, 2025 and February 28, 2025, respectively, in payments for sales orders which were, or will be, shipped out subsequent to

the end of the period.

Note 15 – SUBSEQUENT EVENTS

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

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

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

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

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

On June 26, 2025, Educational Development Corporation executed the

First Amendment to the Existing Commercial Real Estate Contract with TG OTC, LLC dated May 14, 2025, for the sale of the Hilti Complex.

The Amendment extends the due diligence period from August 12, 2025, to September 11, 2025.

The expected closing of the sale was also

amended from thirty days following the due diligence period to ten days following the due diligence period.

MANAGEMENT ’ S

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Factors Affecting Forward-Looking Statements

See “ Cautionary Remarks Regarding Forward-Looking Statements ” in the front of this Quarterly Report on Form 10-Q.

We are the owner and exclusive publisher of Kane Miller children’s books;

See “ Cautionary

Remarks Regarding Forward-Looking Statements ” in the front of this Quarterly Report on Form 10-Q.

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.

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.

Significant portions of our product offering and inventory are concentrated with Usborne.

Our distribution agreement with Usborne includes annual minimum purchase volumes along with specific payment terms, which, if not met or if payments are not received in a timely manner, offer Usborne the right to terminate the agreement.

During fiscal 2024 and fiscal 2025, the Company did not meet the minimum purchase volumes and certain payments were not received timely.

No notification of non-compliance or termination has been received from Usborne.

Should termination of the agreement occur, the Company will be allowed, at a minimum, to sell through their remaining Usborne inventory over the twelve months following the termination date.

We sell our products through two separate divisions, PaperPie and Publishing.

Our distribution agreement with Usborne includes annual minimum purchase volumes along with specific payment terms, which, if not met

or if payments are not received in a timely manner, offer Usborne the right to terminate the agreement.

During fiscal 2024 and fiscal

2025, the Company did not meet the minimum purchase volumes and certain payments were not received timely.

No notification of non-compliance

or termination has been received from Usborne.

Should termination of the agreement occur, the Company will be allowed, at a minimum, to

sell through our remaining Usborne inventory over a period of twelve months following the termination date.

We sell our products through two

separate divisions, PaperPie and Publishing.

These two divisions each have their own customer base.

The PaperPie division markets our complete line of products through a network of independent Brand Partners using a combination of home shows, internet party events and book fairs.

The PaperPie division markets our

complete line of products through a network of independent Brand Partners using a combination of home shows, internet party events, and

The Publishing division markets Kane Miller, Learning Wrap-Ups, and SmartLab Toys on a wholesale basis to various retail accounts.

All other supporting administrative activities are recognized as other expenses outside of our two divisions.

Other expenses consist primarily of the compensation for our office, warehouse, and sales support staff as well as the cost of operating and maintaining our corporate offices and distribution facility.

The following table shows our condensed statements of operations data:

Other expenses consist primarily

of compensation for our office, warehouse, and sales support staff as well as the cost of operating and maintaining our corporate offices,

warehouses and distribution facility.

The following table shows our

condensed statements of operations data:

Three Months Ended

Nine Months Ended

Product revenues, net of discounts and allowances

Transportation revenue

Cost of goods sold

5 unchanged sentences

Interest expense

Earnings (loss) before income taxes

Income tax expense (benefit)

Net earnings (loss)

See the detailed discussion of revenues, gross margin, and general and administrative expenses by reportable segment below.

The following is a discussion of significant changes in the non-segment related general and administrative expenses, other income and expenses and income taxes during the respective periods.

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

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

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

Interest expense decreased $0.1 million, or 14.3%, to $0.6 million for the three months ended November 30, 2024, when compared to $0.7 million for the same quarterly period a year ago due to paydown on the Company’s borrowings, period over period.

Other income decreased $3.7 million, or 84.1%, to $0.7 million for the three months ended November 30, 2024, when compared to $4.4 million for the same quarterly period a year ago resulting from the sale of the old headquarters building of $4.0 million in the prior year, offset by a $0.3 million increase in rental income in the quarter ended November 30, 2024 from the new tenant in the Hilti Complex.

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

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

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

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

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

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

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

Other income decreased $7.3 million, or 81.1%, to $1.7 million for the nine months ended November 30, 2024, when compared to $9.0 million for the same quarterly period a year ago, primarily from the receipt of the Employee Retention Credit totaling $3.8 million and the sale of the old headquarters building for $4.0 million, both in fiscal 2024, offset by a $0.4 million increase in rental income from the new tenant in the Hilti Complex and a $0.1 increase in other income related to a Chik-fil-A marketing promotion.

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

Our effective tax rate decreased to 26.4% for the nine months ended November 30, 2024, from 26.7% for the nine months ended November 30, 2023 due primarily to sales mix fluctuations between states.

Loss before income taxes

Income tax benefit

See the detailed discussion of

revenues, gross margin and general and administrative expenses by reportable segment below.

The following is a discussion of significant

changes in the non-segment related general and administrative expenses, other income and expenses and income taxes during the respective

Non-Segment Operating Results for the Three Months Ended May 31, 2025

Total operating expenses

not associated with a reporting segment decreased $0.5 million, or 18.5%, to $2.2 million for the three-month period ended May 31, 2025,

when compared to $2.7 million for the same quarterly period a year ago.

Operating expenses decreased primarily as a result of a $0.4

million decrease in labor expenses, primarily within our warehouse operations due primarily to lower number of outbound shipments, and

a $0.1 million decrease in depreciation expenses as certain assets have moved to Assets Held for Sale and depreciation is no longer applied.

Interest expense decreased

$0.1 million, or 16.7%, to $0.5 million for the three months ended May 31, 2025, when compared to $0.6 million for the same quarterly

period a year ago, due to reduced borrowings of debt, period over period.

Income taxes decreased

$0.1 million, or 20.0%, to a tax benefit of $0.4 million for the three months ended May 31, 2025, from a tax benefit of $0.5 million for

the same quarterly period a year ago, resulting primarily from a decrease in gross sales.

Our effective tax rate decreased to 25.8% for

the quarter ended May 31, 2025, from 26.8% for the quarter ended May 31, 2024 due primarily to sales mix fluctuations between states.

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

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

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

PaperPie Operating Results for the Three Months

Ended May 31, 2025

The following table summarizes

the operating results of the PaperPie segment for the three months ended May 31, 2025 and 2024:

Three Months Ended

Nine Months Ended

Cost of goods sold

6 unchanged sentences

Average number of active Brand Partners

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

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

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

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

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

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

PaperPie Operating Results for the Three Months

Ended May 31, 2025

PaperPie net revenues decreased $2.8 million, or 31.5%, to $6.1 million

during the three months ended May 31, 2025, when compared to $8.9 million during the same period a year ago.

The average number of active

brand partners in the first quarter of fiscal 2026 was 7,700, a decrease of 5,700, or 42.5%, from 13,400 average active brand partners

selling in the first quarter of fiscal 2025.

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

The Company saw new Brand Partner recruiting negatively impacted due to several factors including economic challenges that include

inflation, resulting in high fuel costs and food price increases that continue to impact the disposable income of our customers.

Additionally,

the Company executed a new distribution agreement with Usborne Publishing Limited in fiscal 2023.

This agreement required the rebranding

of the direct sales division from Usborne Books & More (“UBAM”) to PaperPie along with providing a letter of credit and

minimal level of annual purchases.

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

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

The reduced sales resulted in increased Brand Partner turnover and lower levels of new Brand Partner recruits.

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

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

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

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

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

Gross margin as a percentage of net revenues for the three months ended November 30, 2024 decreased to 62.9%, compared to 66.3% the same period a year ago, representing a decrease of $0.3 million.

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

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

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

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

These operating expenses are directly tied to the sales volumes of the PaperPie segment.

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

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

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

Sales commissions decreased $2.3.

million, or 41.1%, to $3.3 million during the three-month period ended November 30, 2024, when compared to $5.6 million reported in the same quarter a year ago, due to the decrease in net revenues.

Sales commissions as a percentage of net revenues decreased from 35.4.% to 33.3% between periods, primarily due to the mix of order types.

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

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

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

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

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

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

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

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

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

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

Sales during the first three quarters of fiscal year 2025 continued to be negatively impacted by inflationary pressures and we expect this to continue through the rest of fiscal year 2025, as these pressures persist.

Historically, when we have experienced these difficult inflationary times, our active brand partner numbers have been positively impacted as more families look for non-traditional income streams to offset rising costs of living.

Gross margin decreased $9.9 million, or 39.8%, to $15.0 million during the nine-month period ended November 30, 2024, when compared to $24.9 million during the same period a year ago, due primarily to a decrease in net revenues.

Gross margin as a percentage of net revenues decreased to 62.1% for the nine-month period ended November 30, 2024, when compared to 66.2% for the same period a year ago.

The decrease in gross margin as a percentage of net revenues was primarily attributed to increased recruiting promotions offered to increase brand partner levels and additional discounts offered to customers between the periods to spur sales.

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

Operating and selling expenses decreased $1.9 million, or 32.2%, to $4.0 million during the nine-month period ended November 30, 2024, when compared to $5.9 million reported in the same period a year ago, primarily due to a decrease in shipping costs associated with the decrease in volume of orders shipped totaling approximately $1.3 million and a $0.6 million decrease in brand partner incentive trip expenses as fewer brand partners are expected to earn the trip this year.

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

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

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

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

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

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

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

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

The letter of credit was not provided

by the Company and the Company did not meet the minimum purchase requirements in fiscal 2024 or 2025 creating uncertainty with the relationship

on a go forward basis.

The reduced sales and uncertainty resulting from the new Usborne distribution agreement increased Brand Partner

turnover and negatively impacted new Brand Partner recruits.

We expect this impact on Brand Partner recruiting to continue as inflationary

pressures persist and until the Company meets the agreed upon terms of the new distribution agreement.

gross margin decreased $2.2 million, or 37.9%, to $3.6 million during the three months ended May 31, 2025, when compared to $5.8 million

during the same period a year ago.

Gross margin as a percentage of net revenues for the three months ended May 31, 2025 decreased to

59.3%, compared to 65.3% the same period a year ago, representing a decrease of $0.2 million.

The decrease in gross margin as a percentage

of net revenues was primarily attributed to increased discounts offered on products to spur sales along with additional shipping promotions.

PaperPie operating expenses decreased $1.9 million, or 38.0%, to $3.1 million during the three-month period ended May 31, 2025, when

compared to $5.0 million reported in the same quarter a year ago.

Operating and selling expenses decreased $0.8 million, or 53.3%, to

$0.7 million during the three-month period ended May 31, 2025, when compared to $1.5 million reported in the same quarter a year ago.

These decreased expenses were due to a $0.6 million decrease in shipping costs associated with the decrease in volume of orders shipped,

and a decrease of $0.1 million in accruals for Brand Partner incentive trip expenses, as well as a $0.1 million decrease in various other

Sales commissions decreased $1.0 million, or 33.3%, to $2.0 million during the three-month period ended May 31, 2025, when

compared to $3.0 million reported in the same quarter a year ago, due primarily to the decrease in net revenues.

General and administrative

expenses decreased $0.1 million, or 20.0%, to $0.4 million during the three months ended May 31, 2025, when compared to $0.5 million

during the same period a year ago.

This decrease was due to a $0.1 million decrease in credit card transaction fees associated with decreased

sales volumes.

Operating income for the

PaperPie segment decreased $0.3 million, or 37.5% to $0.5 million during the three months ended May 31, 2025, when compared to $0.8 million

reported in the same quarter a year ago.

Operating income for the PaperPie division as a percentage of net revenues for the year ended

May 31, 2025 was 7.6%, compared to 8.7% for the year ended May 31, 2024, a decrease of 1.1%.

Operating income as a percentage of net

revenues changed from the prior year primarily due to the decrease in net revenues due primarily from the reduced number of active brand

partners and higher discounts offered to spur sales.

Operating Results for the Three Months Ended May 31, 2025

following table summarizes the operating results of the Publishing segment for the three months ended May 31, 2025 and 2024:

Three Months Ended

Nine Months Ended

Cost of goods sold

1 unchanged sentence

Operating income

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

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

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

Gross margin as a percentage of net revenues increased to 58.9% during the three-month period ended November 30, 2024, from 58.3% reported in the same quarter a year ago.

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

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

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

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

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

Gross margin decreased $0.5 million, or 20.0%, to $2.0 million during the nine-month period ended November 30, 2024, from $2.5 million reported in the same period a year ago.

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

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

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

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

Operating income of the Publishing segment decreased $0.3 million, or 25.0%, to $0.9 million during the nine-month period ended November 30, 2024 when compared to $1.2 million reported in the same period a year ago, due primarily to the decrease in sales and operating expenses.

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

Liquidity and Capital Resources

EDC has a history of profitability and positive cash flow.

Operating Results for the Three Months Ended May 31, 2025

Our Publishing division’s net revenues decreased $0.1 million,

or 9.1%, to $1.0 million during the three-month period ended May 31, 2025, from $1.1 million reported in the same period a year ago.

change in net revenues was primarily from additional discounts offered to retail customers in the first quarter of fiscal 2026 to spur

margin decreased $0.1 million, or 16.7%, to $0.5 million during the three-month period ended May 31, 2025, from $0.6 million reported

in the same quarter a year ago, primarily due to the decrease in net revenues.

Gross margin as a percentage of net revenues decreased

to 52.2% during the three-month period ended May 31, 2025, from 59.2% reported in the same quarter a year ago.

Gross margin as a percentage

of net revenues changed primarily from additional discounts offered to retail customers in the first quarter of fiscal 2026 to spur sales.

operating expenses of the Publishing segment decreased $0.1 million, or 25.0%, to $0.3 million, from $0.4 million, during the three-month

periods ended May 31, 2025 and 2024, respectively.

This change was primarily due to a $0.1 million decrease in shipping costs associated

with the decrease in volume of orders shipped.

income of the Publishing division remained consistent during the three-month period ended May 31, 2025 and 2024, respectively.

and Capital Resources

has a history of profitability and positive cash flow.

We typically fund our operations from the cash we generate.

During periods of operating losses, EDC will reduce purchases and sell through inventory to generate cash flow.

The Company expects to reduce current excess inventory levels and use the cash proceeds to offset any future operating losses, and to pay down the line of credit and portions of the term debt.

Available cash has historically been used to pay down outstanding bank loan balances, for capital expenditures, to pay dividends and to acquire treasury stock.

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

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

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

These cash inflows resulted from:

●net loss of $3,918,100

Adjusted for:

●depreciation and amortization expense of $1,355,300

●share-based compensation expense, net of $302,400

●provision for inventory allowance of $220,400

●provision for credit losses of $53,600

●net loss on sale of assets of $3,300

●deferred income taxes of $1,257,100

Positively impacted by:

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

●increase in deferred revenues of $794,600

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

●increase in income taxes payable of $374,700

Negatively impacted by:

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

●increase in accounts receivable of $291,900

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

Cash used in investing activities was $298,500 for capital expenditures, consisting of $292,100 in new software development costs to add new features to our proprietary systems that PaperPie Brand Partners use to monitor their business and place customer orders and $16,200 in building improvements, offset by $9,800 from the sale of machinery and equipment.

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

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

Cash generated from operations will be used to purchase inventory in order to expand our product offerings and to pay down existing debt.

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.

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 (“Revised Loan 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;

During periods of

operating losses, EDC will reduce purchases and sell through excess inventory to generate cash flow.

The Company expects to reduce current

excess inventory levels and use the cash proceeds to offset any future operating losses, and to pay down the revolving line of credit

and portions of the term debts with our bank.

Available cash has historically been used to pay down the outstanding bank loan balances,

for capital expenditures, to pay dividends, and to acquire treasury stock.

We utilize a bank credit facility and other Term Loan borrowings

to meet our short-term cash needs, as well as fund capital expenditures, when necessary.

As of the end of the first fiscal quarter of

2026, our revolving bank credit facility loan balance was $4.2 million with $0.6 million in available capacity.

the first three months of fiscal year 2026, we experienced positive cash inflows from operations of $1,396,500.

These cash inflows resulted

loss of $1,075,200

● depreciation

and amortization expense of $366,100

loss on sale of assets of $57,000

for inventory allowance of $36,000

for credit losses of $12,000

income taxes of $390,600

in inventories, net of $2,611,900

in income taxes payable of $235,100

in accounts receivable of $113,700

in accounts payable of $329,000

in accrued salaries and commissions, and other liabilities of $166,400

in prepaid expenses and other assets of $47,800

in deferred revenues of $26,300

used in investing activities was $162,400 for capital expenditures, consisting of $102,800 in software upgrades to our proprietary systems

that our PaperPie Brand Partners use to monitor their business and place customer orders and $104,600 in building improvements currently

in Assets Held for Sale, offset by $45,000 from the sale of machinery and equipment.

used in financing activities was $450,000 to pay down existing term debt.

Company continues to expect the cash generated from operations, specifically from the reduction of excess inventory, and cash available

through our line of credit with our Lender, will provide us with the liquidity we need to support ongoing operations.

Cash generated

from operations will be used to pay down existing debts with our bank.

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”).

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.

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.

August 9, 2023, the Company executed the Third Amendment along with a Revised Credit Agreement (“Revised Loan 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;

3 unchanged sentences

and to $4,000,000 on January 31, 2024.

The amendment restricted the Company from entering into any new purchase orders and uses its best efforts to cancel existing purchase orders.

The amendment

restricted the Company from entering into any new purchase orders and encouraged the Company to 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%.

Prior to the Third Amendment, executed on August 9, 2023, the Loan Agreement contained provisions that required the Company to maintain a minimum fixed charge ratio.

On November 30, 2023, the Company executed the Fourth Amendment to the Credit Agreement (“Amendment”) with the Lender.

The 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.

A third-party appraisal was completed on the Hilti Complex, consisting of the 400,000 square feet building complex on approximately 50 acres, along with approximately 15 acres of adjacent unused land, in July of 2023 with a market value of $41,970,000.

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

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

On October 7, 2024, the Company executed the Sixth Amendment to the Existing Credit Agreement with the Lender.

The Amendment, effective October 3, 2024, extends the maturity date to January 4, 2025 and includes required step downs on the Revolving Loan to $5,500,000 by November 30, 2024.

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

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

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

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

Loan Agreement was updated for the changes in the Third Amendment as well as removed the fixed charge ratio and the ability for borrowings

to be accelerated before the January 31, 2024 Revolving Loan maturity date.

November 30, 2023, the Company executed the Fourth Amendment to the Credit Agreement (“Amendment”) with the Lender.

The Amendment,

effective December 1, 2023, increased the Revolving Loan commitment to $8,000,000 and extended the maturity date to May 31, 2024.

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.

June 13, 2024, the Company executed the Fifth Amendment to the Existing 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 also requires an additional decrease in the Revolving Loan to $4,500,000.

October 7, 2024, the Company executed the Sixth Amendment to the Existing Credit Agreement with the Lender.

The Amendment, effective

October 3, 2024, extended the maturity date to January 4, 2025 and includes required step downs on the Revolving Loan to $5,500,000 by

November 30, 2024.

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

The Amendment, effective

January 4, 2025, adjusted the maximum availability of the Revolving Loan commitment to $4,750,000 through the maturity date of April

April 16, 2025, the Company executed the Eighth Amendment to the Existing Credit Agreement with the Lender.

The Amendment, effective

April 4, 2025, increases 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 includes a required step down on the Revolving Loan to $4,500,000 million on June 1, 2025.

The Amendment also

redefined the maturity dates of the two Term Loans to September 19, 2025.

credit under the current $4,750,000 revolving line of credit with the Company’s Lender was approximately $551,900 at May 31, 2025.

of the Revised Loan Agreement include:

Term Loans on 20-year amortization with maturity dates of September 19, 2025.

Million Fixed Rate Term Loan bears interest at a fixed rate per annum equal to 4.26%

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

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

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

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

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

Years ending February 28 (29),

Risks and Uncertainties

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

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

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

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

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States( “ GAAP ” ).

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities.

On an on-going basis, we evaluate our estimates, including those related to our valuation of inventory, allowance for uncollectible accounts receivable, allowance for sales returns, long-lived assets, and deferred income taxes.

We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may materially differ from these estimates under different assumptions or conditions.

Historically, however, actual results have not differed materially from those determined using required estimates.

Our significant accounting policies are described in the notes accompanying the financial statements included elsewhere in this report and in our audited financial statements as of and for the year ended February 29, 2024 included in our Form 10-K.

However, we consider the following accounting policies to be more significantly dependent on the use of estimates and assumptions.

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.

(i)(b) $21 Million Floating Rate Term Loan bears interest at a rate

per annum equal to Term SOFR Rate + 1.75%

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 + 6.00% (effective rate was 10.31% at May 31, 2025)

(iii) Revolving

Loan allows for Letters of Credit upon bank approval (none were outstanding at May 31, 2025)

and Uncertainties

accordance with ASC 205-40, Going Concern , the Company has evaluated whether there are conditions and events considered in the

aggregate that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date

the financial statements are issued.

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 reduce debt by selling owned real estate, including the Hilti

The proceeds from the sale of the Hilti Complex 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.

management’s plans include reducing inventory, which will generate free cash flows, and building the active PaperPie Brand Partners

to pre-pandemic levels.

Although there is no guarantee these plans will be successful, management believes these plans, if achieved,

will alleviate the substantial doubt about continuing as a going concern and generate sufficient liquidity to meet our obligations as

they become due over the next twelve months.

Accounting Policies

discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been

prepared in accordance with accounting principles generally accepted in the United States( “ GAAP ” ).

The preparation

of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues

and expenses, and related disclosures of contingent assets and liabilities.

On an on-going basis, we evaluate our estimates, including

those related to our valuation of inventory, provision for credit losses, allowance for sales returns, long-lived assets and deferred

income taxes.

We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under

the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that

are not readily apparent from other sources.

results may materially differ from these estimates under different assumptions or conditions.

Historically, however, actual results have

not differed materially from those determined using required estimates.

Our significant accounting policies are described in the notes

accompanying the financial statements included elsewhere in this report and in our audited financial statements as of and for the year

ended February 28, 2025 included in our Form 10-K.

However, we consider the following accounting policies to be more significantly dependent

on the use of estimates and assumptions.

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.

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 rateably from the service

inception date to the vesting date for each tranche.

Forfeitures are recognized when they occur.

Any cash dividends declared after the restricted stock award is issued, but before the vesting period is completed, will be reinvested in Company shares at the opening trading price on the dividend payment date.

Shares purchased with cash dividends will also retain the same restrictions until the completion of the original vesting period associated with the awarded shares.

The restricted share awards under the 2019 Long-Term Incentive Plan (“2019 LTI Plan”) and 2022 Long-Term Incentive Plan (“2022 LTI Plan”) contain both service and performance conditions.

The Company recognizes share-based compensation expense only for the portion of the restricted share awards that are considered probable of vesting.

Shares are considered granted, and the service inception date begins, when a mutual understanding of the key terms and conditions between the Company and the employees has been established.

Any cash dividends declared after the

restricted stock award is issued, but before the vesting period is completed, will be reinvested in Company shares at the opening trading

price on the dividend payment date.

Shares purchased with cash dividends will also retain the same restrictions until the completion of

the original vesting period associated with the awarded shares.

restricted share awards under the 2019 Long-Term Incentive Plan (“2019 LTI Plan”) and 2022 Long-Term Incentive Plan (“2022

LTI Plan”) contain both service and performance conditions.

The Company recognizes share-based compensation expense only for the

portion of the restricted share awards that are considered probable of vesting.

Shares are considered granted, and the service inception

date begins, when a mutual understanding of the key terms and conditions between the Company and the employees has been established.

The fair value of these awards is determined based on the closing price of the shares on the grant date.

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

During the first nine months of fiscal year 2025, the Company recognized $0.3 million of compensation expense associated with the shares granted.

Revenue Recognition

Sales associated with product orders are recognized and recorded when products are shipped.

The probability of restricted

share awards granted with future performance conditions is evaluated at each reporting period and compensation expense is adjusted based

on the probability assessment.

the first three months of fiscal year 2026, there was no share-based compensation expense associated with the shares, as all shares previously

granted have been vested and all have been previously expensed.

associated with product orders are recognized and recorded when products are shipped.

Products are shipped FOB-Shipping Point.

PaperPie’s sales are generally paid 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 and payment associated with the sale has been remitted.

Transportation revenue represents the amount billed to the customer for shipping the product and is recorded when the product is shipped.

Estimated allowances for sales returns are recorded as sales are recognized.

Management uses a moving average calculation to estimate the allowance for sales returns.

sales are generally paid 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 and payment associated with the

sale has been remitted.

Transportation revenue represents the amount billed to the customer for shipping the product and is recorded

when the product is shipped.

allowances for sales returns 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.

Damaged returns are primarily received from the retail customers of our Publishing division.

This damage occurs in the stores, not in shipping to the stores, and we typically do not offer credit for damaged returns.

It is industry practice to accept non-damaged returns from retail customers.

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

Allowance for Credit Losses

We maintain an allowance for estimated losses resulting from the inability of our customers to make required payments and a reserve for vendor share markdowns, when applicable (collectively “credit losses”).

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

Management has estimated and included an allowance for credit losses of $0.1 million for both November 30, 2024 and February 29, 2024.

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

Almost all of our product line is saleable as the products are not topical in nature and remain current in content today as well as in the future.

Most of our products are printed in China, Europe, Singapore, India, Malaysia, and Dubai typically resulting in a four to eight-month lead-time to have a title printed and delivered to us.

Certain inventory is maintained in a noncurrent classification.

Management continually estimates and calculates the amount of noncurrent inventory.

Noncurrent inventory arises due to occasional purchases of titles in quantities in excess of what will be sold within the normal operating cycle, due to the minimum order requirements of our suppliers.

Noncurrent inventory is estimated by management using an anticipated turnover ratio by title, based primarily on historical trends.

Inventory in excess of 2½ years of anticipated sales is classified as noncurrent inventory.

These inventory quantities have additional exposure for storage damages, aging of topical related content and associated issues, and therefore have higher obsolescence reserves.

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

Noncurrent inventory valuation allowances were $0.8 million and $0.6 million as of November 30, 2024 and February 29, 2024, respectively.

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

We believe allowing our Brand Partners to have consignment inventory greatly increases their ability to be successful in making effective presentations at home shows, book fairs and other events;

Damaged returns are primarily received from the retail customers

of our Publishing division.

This damage occurs in the stores, not in shipping to the stores, and we typically do not offer credit for

damaged returns.

It is an industry practice to accept non-damaged returns from retail customers.

Management has estimated and included

a reserve for sales returns of $0.2 million for May 31, 2025 and February 28, 2025, respectively.

for Credit Losses

maintain an allowance for estimated losses resulting from the inability of our customers to make required payments and a reserve for

vendor share markdowns, when applicable (collectively “credit losses”).

An estimate of uncollectible amounts is made by management

based upon historical bad debts, current customer receivable balances, age of customer receivable balances, customers’ financial

conditions and current economic trends.

Management has estimated and included an allowance for credit losses of $0.1 million for May

31, 2025 and February 28, 2025, respectively.

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

Almost all of our product line is saleable as the products are not topical in nature and remain current in content today as well as in

Most of our products are printed in China, Europe, Singapore, India, Malaysia, and Dubai typically resulting in a four- to

eight-month lead-time to have a title printed and delivered to us.

inventory is maintained in a non-current classification.

Management continually estimates and calculates the amount of non-current inventory.

Noncurrent inventory arises due to occasional purchases of titles in quantities in excess of what will be sold within the normal operating

cycle, due to the minimum order requirements of our suppliers, as well as reduced sales volumes.

Noncurrent inventory is estimated by

management using an anticipated turnover ratio by title, based primarily on historical trends.

Inventory in excess of 2½ years

of anticipated sales is classified as noncurrent inventory.

These inventory quantities have additional exposure for storage damages,

aging of topical related content, and associated issues, and therefore have higher obsolescence reserves.

Noncurrent inventory balances

prior to valuation allowances were $17.6 million and $16.3 million at May 31, 2025 and February 28, 2025, respectively.

Noncurrent inventory

valuation allowances were $0.8 million at May 31, 2025 and $0.7 million at February 28, 2025.

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

We believe allowing Brand Partners

to have consignment inventory greatly increases their ability to be successful in making effective presentations at home shows, book

fairs, and other events;

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

Approximately 11.7% of our active Brand Partners have maintained consignment inventory at the end of the third quarter of fiscal year 2025.

Consignment inventory is stated at cost, less an estimated reserve for consignment inventory that is not expected to be sold or returned to the Company.

The total cost of inventory on consignment with Brand Partners was $1.5 million and $1.4 million at November 30, 2024 and February 29, 2024, respectively.

Inventories are presented net of a valuation allowance, which includes reserves for inventory obsolescence and reserves for consigned inventory that is not expected to be sold or returned to the Company.

Management estimates the inventory obsolescence allowance for both current and noncurrent inventory, which is based on management’s identification of slow-moving inventory.

Management has estimated a valuation allowance for both current and noncurrent inventory, including the reserve for consigned inventory, of $1.2 million and $1.0 million at November 30, 2024 and February 29, 2024, respectively.

Approximately 15.4% of our

active Brand Partners maintained consignment inventory at the end of the first quarter of fiscal year 2026.

Consignment inventory is

stated at cost, less an estimated reserve for consignment inventory that is not expected to be sold or returned to the Company.

cost of inventory on consignment with Brand Partners was $1.2 million and $1.3 million at May 31, 2025 and February 28, 2025, respectively.

are presented net of a valuation allowance, which includes reserves for inventory obsolescence and reserves for consigned inventory that

is not expected to be sold or returned to the Company.

Management estimates the inventory obsolescence allowance for both current and

noncurrent inventory, which is based on management’s identification of slow-moving inventory.

Management has estimated a valuation

allowance for both current and noncurrent inventory, including the reserve for consigned inventory, of $1.2 million at May 31, 2025 and

February 28, 2025.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

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

What changed 10-Q

Item 1. Financial Statements