What changed in this filing

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Item 1. Financial Statements

2025-10-09 compared with 2025-07-07 · 783 added, 600 removed, 489 unchanged (74% of the section changed)

5 unchanged sentences

Restricted cash

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

Accounts receivable, less allowance for credit losses of $ 107,100 (August 31) and $ 112,300 (February 28)

Inventories - net

24 unchanged sentences

Issued 12,702,080 shares;

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

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

Capital in excess of par value

10 unchanged sentences

Three Months Ended

Six Months Ended

PRODUCT REVENUES, net of discounts and allowances

14 unchanged sentences

EDUCATIONAL DEVELOPMENT CORPORATION

STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

CONDENSED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)

Three Months Ended

Six Months Ended

Other comprehensive income:

Unrealized gain on interest rate exchange agreement

Unrealized loss on interest rate exchange agreement

Comprehensive loss

2 unchanged sentences

CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS ’ EQUITY (UNAUDITED)

FOR THE THREE MONTHS ENDED MAY 31, 2025

FOR THE SIX MONTHS ENDED AUGUST 31, 2025

(par value $0.20 per

3 unchanged sentences

BALANCE – February 28, 2025

$ ( 13,060,400 )

Change in fair value of interest rate exchange agreement

( 1,075,200 )

BALANCE - May 31, 2025

FOR THE THREE MONTHS ENDED MAY 31, 2024

$ ( 13,060,400 )

( 1,294,700 )

BALANCE - August 31, 2025

$ ( 13,060,400 )

FOR THE SIX MONTHS ENDED AUGUST 31, 2024

(par value $0.20 per

Treasury Stock

Comprehensive

Other Comprehensive Income

Shareholders'

BALANCE – February 29, 2024

$ ( 13,086,100 )

Sale of treasury stock

1 unchanged sentence

Change in fair value of interest rate exchange agreement

( 1,279,000 )

BALANCE - May 31, 2024

$ ( 13,073,400 )

Sale of treasury stock

Share-based compensation expense - net

Change in fair value of interest rate exchange agreement

( 1,803,400 )

BALANCE - August 31, 2024

$ ( 13,065,500 )

See notes to condensed financial statements (unaudited).

1 unchanged sentence

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

Three Months Ended

Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES

25 unchanged sentences

Net cash used in financing activities

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

CASH, CASH EQUIVALENTS AND RESTRICTED CASH - BEGINNING OF PERIOD

5 unchanged sentences

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”)

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.

16 unchanged sentences

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 28, 2025 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

Reclassifications

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

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 earnings.

In accordance with ASC 205-40,

1 unchanged sentence

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.

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 and profitability trends 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.

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

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

The default status of our

credit agreement, along with recurring operating losses and other items, raise substantial doubt over the Company’s ability to continue

as a going concern.

The Company’s credit

agreement with its lender expired on September 19, 2025, with the balances of our term loans and the revolving loan remain unpaid.

September 30, 2025, the Company received a Reservation of Rights notice from its lender outlining that events of default have occurred

and are continuing due to our failure to pay in full in cash the unpaid balance of the term loans and revolving loan before the maturity

The Lender has not waived the specified defaults and reserves all of its rights, powers, privileges and remedies under the credit

agreement, the UCC, and applicable law.

Under the credit agreement, the lender has the right, among other remedies listed, to demand payment

or repossess and liquidate the Company’s assets used as collateral for the loans.

Under the terms of the credit agreement, an additional

default interest rate of 2 % is added to the existing interest rates defined in the credit agreement.

To address these concerns,

the Company has taken steps in its plans to pay off its bank debts by selling owned real estate.

On August 18, 2025, the Company executed

a Purchase and Sale Agreement (“Contract”) with 10Mark 10K Industrial, LLC, a Delaware limited liability company (“Buyer”)

for the Hilti Complex for $32,500,000.

On October 1, 2025, the Company and Buyer executed the 1 st Amendment to the Contract

extending the term of the initial 45-day due diligence period from October 2, 2025, to October 6, 2025, and reduced the purchase price

of the Hilti Complex to $32,200,000.

On October 6, 2025, the Company received the Buyer’s Notice to Proceed pursuant to the Contract.

This Notice to Proceed, subject to certain conditions, waives the Buyer’s right to the deposited escrow in the Agreement.

of the Hilti Complex is expected to be completed on, or before, November 25, 2025.

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.

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

3 unchanged sentences

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

New Accounting

Standards or Updates Not Yet Adopted

In July 2025, the FASB issued

Accounting Standards Update 2025-05 – Financial Instruments – Credit Losses (Topic ASC 326) Measurement of Credit Losses for

Accounts Receivable and Contract Assets.

The amendments in this ASU provide entities with a practical expedient they may elect to use

when developing an estimate of expected credit losses on current accounts receivable and current contract asset balances arising from

transactions accounted for under Topic ASC 606 – Revenue from Contracts with Customers.

Under this practical expedient, entities

may elect to assume that current conditions as of the balance sheet date do not change for the remaining life of the asset.

The amendments

in ASU 2025-05 become effective for fiscal years and for interim periods beginning after December 15, 2025, and early adoption is permitted.

This ASU will be effective for our Form 10-K for fiscal 2026.

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

statement disclosures.

In December 2023, the FASB

issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures , which provides qualitative and quantitative

updates to the rate reconciliation and income taxes paid disclosures, among others, in order to enhance the transparency of income tax

disclosures, including consistent categories and greater disaggregation of information in the rate reconciliation and disaggregation by

jurisdiction of income taxes paid.

The amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2024, with

early adoption permitted.

The amendments should be applied prospectively;

however, retrospective application is also permitted.

This ASU will be effective

for our Form 10-K for fiscal 2026.

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

In November 2024, the FASB issued

ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation

of Income Statement Expenses , which requires disclosure about the types of costs and expenses included in certain expense captions

presented on the income statement.

The new disclosure requirements are effective for the Company’s annual periods beginning March

1, 2027, and interim periods beginning March 1, 2028, with early adoption permitted, and may be applied either prospectively or retrospectively.

The Company is currently evaluating the ASU to determine its impact on the Company’s financial statements and disclosures.

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

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

Note 2 – CASH

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

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 flows:

Cash and cash equivalents

1 unchanged sentence

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.

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.

6 unchanged sentences

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 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

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.

outlined in the Contract for the 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 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.

The initial term of the lease is expected to be 10 years, and will also include typical triple-net

terms, where the Seller will be responsible for utilities, insurance, property taxes, and regular 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.

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

During the second quarter

of fiscal year 2025, the Company entered into a triple-net lease agreement for approximately 111,000 square feet of available office and

warehouse space in the Hilti Complex to a new tenant.

To create space for this new tenant, the Company removed three production lines

from the warehouse before July 31, 2024.

As a result, in the second quarter of fiscal 2025, the Company made available and committed to

sell the equipment removed.

The Company is actively marketing the unused equipment using a national on-line auction house as of August

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

5 unchanged sentences

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.

On August 18, 2025, the Company

executed a Purchase and Sale Agreement (“Contract”) with 10Mark 10K Industrial, LLC, a Delaware limited liability company

(“Buyer”) for the Hilti Complex.

The agreed upon sale price of the Hilti Complex per the executed Contract totalled $32,500,000

less seller fees and closing costs.

On October 1, 2025, the Company and Buyer executed the 1 st Amendment to the Contract extending

the term of the initial 45-day due diligence period from October 2, 2025, to October 6, 2025, and reduced the purchase price of the Hilti

Complex to $32,200,000.

On October 6, 2025, the Company received the Buyer’s Notice to Proceed pursuant to the Contract.

to proceed, subject to certain conditions, waives the Buyer’s right to the escrow deposit outlined in the Contract.

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.

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

Hilti Complex.

The Agreement does not include the excess land parcel, consisting of approximately 17 acres of undeveloped land adjacent

to the Hilti Complex, which will remain under the ownership of the Company.

Agreement and Amendment to the Agreement provide the Buyer a due diligence period through

November 25, 2025, to secure financing, perform inspections, review leases, perform other assessments and close the

The initial term of the new

lease with Buyer will be for 10 years, and the initial lease rate will be $8.00 per square foot, with 2.5% 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

1 unchanged sentence

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 $ 19,279,600 and $ 19,277,000 as of May 31, 2025, and February 28, 2025, respectively,

The total carrying value of assets held for sale was $ 19,309,600 and $ 19,277,000 as of August 31, 2025, and February 28, 2025, respectively,

and is separately recorded on the balance sheet.

Note 4 – INVENTORIES

Inventories consist of the following:

Inventories consist of the

Product inventory

4 unchanged sentences

Inventories net – noncurrent

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.

Inventory in transit totalled

$ 0 and $ 25,500 at August 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

29 unchanged sentences

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

Three Months Ended

Six Months Ended

Fixed lease costs

Future minimum rental payments

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

under operating leases with initial terms greater than one year as of August 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:

The following table provides

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

Three Months Ended

Six Months Ended

Operating cash outflows – operating leases

11 unchanged sentences

Operating Leases – Lessor

In connection with the 2015 purchase

of the Hilti Complex, we entered into a 15 -year lease with the seller, a non-related third party, who leases 181,300 square feet, or 45.3 %

of the facility.

The lessee pays $ 126,400 per month, through the lease anniversary date of December 2025 with a 2.0 % annual increase adjustment

on each anniversary date thereafter.

The lease terms allow for one five-year extension , which is not a bargain renewal option, at the

expiration of the 15 -year term.

On May 26, 2024, the Company entered

into a triple-net lease agreement for approximately 111,000 square feet of available office and warehouse space in the Hilti Complex to

a new tenant.

The initial lease term was for five years , commenced July 1, 2024, and included an option to extend the lease term for an

additional five years .

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 111,400 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 $ 86,500 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,

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.

3 unchanged sentences

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.

The Company also subleases

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

Future minimum payments receivable

1 unchanged sentence

Years ending February 28 (29),

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 cost of the leased space

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

The accumulated depreciation associated with

the leased assets was $ 3,906,700 as of August 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.

6 unchanged sentences

Less current maturities

( 26,246,700 )

( 26,685,500 )

Less debt issue cost

7 unchanged sentences

“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 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.

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.

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

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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 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

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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

On August 12, 2025, Educational

Development Corporation executed the Ninth Amendment to the Existing Credit Agreement with the Lender.

The Amendment, effective July 11,

2025, extends the maturity date of the Revolving Loan to September 19, 2025, increased the Revolving Loan interest rate on the effective

date to SOFR + 8.00 % and added a 2 % deferred interest rate to the Term loans and Revolving Loan.

Features of the Revised Loan

Agreement include:

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

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(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)

(ii) $ 4.8 Million Revolving Loan with maturity date of September 19, 2025 .

The Revolving Loan bears interest at a rate per annum equal to Term SOFR Rate + 8.00 % (effective rate was 12.36 % at August 31, 2025)

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

(iv) The Two Term Loans and the Revolving Loan included an additional 2 % deferred interest per the 9 th Amendment from July 11 th, 2025 to September 19 th , 2025.

Further, the Credit Agreement outlines an additional default rate of interest of 2 % which would apply from September 20, 2025 until the loans under the credit agreement are repaid.

The Company’s credit

agreement with its lender expired on September 19, 2025, with the balances of our Term Loans and the Revolving Loan remain unpaid.

On September 30, 2025, the

Company received a Reservation of Rights notice from its lender outlining that events of default have occurred and are continuing due

to our failure to pay in full in cash the unpaid balance of the Term Loans and Revolving Loan before the maturity date.

The Lender has

not waived the specified defaults and reserves all of its rights, powers, privileges and remedies under the credit agreement, the UCC,

and applicable law.

Under the credit agreement, the lender has the right, among other remedies listed, to demand payment or repossess

and liquidate the Company’s assets used as collateral for the loans.

Under the terms of the credit agreement, an additional default

interest rate of 2 % is added to the existing interest rates defined in the credit agreement.

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 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

Significant portions of our

inventory purchases are concentrated with an England-based publishing company, Usborne Publishing Limited (“Usborne”).

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.

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 Agreement.

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

The Company is disputing the cancellation of the rebate but has not recognized any rebate due to its uncertainty.

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Three Months Ended

Six Months Ended

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

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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.

by the Company and included in our balance sheets was $ 21,838,800 and $ 23,696,800 as of August 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

Basic earnings (loss) per

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

Diluted EPS is based on the combined weighted average number of common shares outstanding and dilutive potential common shares

1 unchanged sentence

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

Six Months Ended

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

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

Six Months Ended

Weighted average shares:

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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.

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.

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 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.

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

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after five years from the fiscal year that the defined metrics were exceeded.

All remaining shares under the 2019 Long-Term Incentive

Plan vested on February 28, 2025.

In July 2021, our shareholders

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the financial targets.

A summary of compensation expense recognized in connection

with restricted share awards follows:

A summary of compensation expense recognized in

connection with restricted share awards follows:

Three Months Ended

Six Months Ended

Share-based compensation expense - net of forfeitures

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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,

These costs were $ 571,800 and $ 968,500 for the three months ended August 31,

2025 and 2024, respectively.

These costs were $ 1,377,000 and $ 2,515,100 for the six months ended August 31, 2025 and 2024, respectively.

Note 11 – BUSINESS SEGMENTS

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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.

The accounting policies for

the segments are the same as those for the rest of the Company.

We evaluate segment performance based on earnings before income taxes

of the segments, which is defined as segment net revenues reduced by cost of sales and direct expenses.

Direct expenses are composed of

payroll, commissions, general and administrative, and operating and selling expenses.

Corporate expenses, depreciation, interest expense,

other income, and income taxes are not allocated to the segments but are listed in the “Other” row below.

Corporate expenses

include the executive department, accounting department, information services department, general office management, warehouse operations

and building facilities management.

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

Separate financial information is regularly

evaluated by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources.

For the Company, the Chief

Executive Officer is the CODM.

Information by reporting segment for the three-month

periods ended May 31, 2025 and 2024, 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 six-month

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

Three Months Ended

INCOME/(LOSS) BEFORE INCOME TAXES

Six Months Ended

EARNINGS (LOSS) BEFORE INCOME TAXES

Three Months Ended

PUBLISHING OPERATING RESULTS

Six Months Ended

$ ( 470,700 )

( 1,941,200 )

( 2,250,600 )

( 4,060,000 )

( 5,000,300 )

$ ( 1,750,200 )

$ ( 2,466,100 )

$ ( 3,199,500 )

$ ( 4,213,100 )

PAPERPIE OPERATING RESULTS

The following table summarizes

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

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

Three Months Ended

Six Months Ended

Cost of goods sold

4 unchanged sentences

Total operating expenses

Operating income

PAPERPIE OPERATING RESULTS

Operating income (loss)

PUBLISHING OPERATING RESULTS

The following table summarizes

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

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

Three Months Ended

Six Months Ended

Cost of goods sold

5 unchanged sentences

Operating income

Information for the Other segment

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

Information for the Other

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

OTHER NON-SEGMENT LOSS BEFORE INCOME TAXES

Three Months Ended

Six Months Ended

Operating and selling:

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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.

risk-management strategy that uses interest-rate swap instruments at times 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.

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 was utilized to manage interest-rate exposure over the period of the interest-rate swap and was 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

The swap agreement offset a corresponding portion of the amortizing

$21,000,000 Floating Rate Term Loan, which expired on May 30, 2025 .

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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

swap ended on May 21, 2025.

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.

swap representing amounts excluded from the assessment of hedge effectiveness were recognized in the current earnings.

The fair value of the interest rate swap is included

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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 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.

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 $ 35,550,000 as of August 31, 2025 and $ 37,000,000 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 $ 850,000 .

- The estimated fair value of our term notes payable is estimated by management to approximate $ 25,671,300 and $ 26,507,100 as of August 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 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.

The Company’s PaperPie

division receives payments on orders in advance of shipment.

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

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

We received approximately $ 547,000

and $ 491,800 as of August 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 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.

The Company’s Credit

Agreement with its lender expired on September 19, 2025, with the balances of our Term Loans and the Revolving Loan remain unpaid.

On September 30, 2025, the

Company received a Reservation of Rights notice from its lender outlining that events of default have occurred and are continuing due

to our failure to pay in full in cash the unpaid balance of the Term Loans and Revolving Loan before the maturity date.

The Lender has

not waived the specified defaults and reserves all of its rights, powers, privileges and remedies under the credit agreement, the UCC,

and applicable law.

Under the credit agreement, the lender has the right, among other remedies listed, to demand payment or repossess

and liquidate the Company’s assets used as collateral for the loans.

Under the terms of the credit agreement, an additional default

interest rate of 2 % is added to the existing interest rates defined in the credit agreement.

OTHER INFORMATION for further

On October 1, 2025, the Company

and 10Mark 10K Industrial, LLC, a Delaware limited liability company (“Buyer”) executed the 1 st Amendment to the

Purchase and Sale Agreement for the Hilti Complex (“Contract”) extending the term of the initial 45-day due diligence period

from October 2, 2025 to October 6, 2025 and reduced the purchase price of the Hilti Complex to $32,200,000.

October 6, 2025, the Company received the Buyer’s Notice to Proceed pursuant to the Contract.

This notice to proceed, subject to

certain conditions, waives the Buyer’s right to the escrow deposit in the Contract.

The sale of the Hilti Complex is expected to

be completed on or before November 25, 2025.

MANAGEMENT ’ S

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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.

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

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

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

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

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:

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

Six Months Ended

Product revenues, net of discounts and allowances

9 unchanged sentences

Income tax benefit

See the detailed discussion of

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

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

Non-Segment Operating Results for the Three Months Ended August

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,

not associated with a reporting segment decreased $0.3 million, or 13.0%, to $2.0 million for the three-month period ended August 31,

2025, when compared to $2.3 million for the same quarterly period a year ago.

Operating expenses decreased primarily as a result of a

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

$0.1 million decrease in labor expenses within our warehouse operations due primarily to lower number of orders and outbound shipments,

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.

and a $0.1 million decrease in property taxes and insurance.

Interest expense increased

$0.1 million, or 20.0%, to $0.6 million for the three months ended August 31, 2025, when compared to $0.5 million for the same quarterly

period a year ago, due to increased interest rates on all our 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.

$0.2 million, or 28.6%, to a tax benefit of $0.5 million for the three months ended August 31, 2025, from a tax benefit of $0.7 million

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

Our effective tax rate decreased to 26.0%

for the quarter ended August 31, 2025, from 26.9% for the quarter ended August 31, 2024, due primarily to sales mix fluctuations between

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

PaperPie Operating Results for the Three Months

Ended May 31, 2025

Non-Segment Operating Results for the Six Months

Ended August 31, 2025

Total operating expenses

not associated with a reporting segment decreased $0.8 million, or 16.0%, to $4.2 million for the six-month period ended August 31, 2025,

when compared to $5.0 million for the same period a year ago.

Labor expenses decreased $0.5 million from staff reductions across all departments

and freight handling costs decreased $0.1 million for the six months ended August 31, 2025, both associated with reduced sales, and a

$0.2 million decrease in depreciation expenses as certain assets have moved to Assets Held for Sale and depreciation is no longer applied.

Interest expense stayed

consistent at $1.1 million for the six months ended August 31, 2025 and August 31, 2024.

Other income increased

$0.2 million, or 18.2%, to $1.3 million for the six months ended August 31, 2025, when compared to $1.1 million for the same quarterly

period a year ago, primarily from a $0.4 million increase in rental income from the new tenant in the Hilti Complex, offset by a $0.2

decrease in other income related to a Chik-fil-A promotion held last year and the loss associated with the sale of property and equipment.

Income taxes decreased

$0.3 million, or 27.3%, to a tax benefit of $0.8 million for the six months ended August 31, 2025, from a tax benefit of $1.1 million

for the same period a year ago primarily related to reduced operating losses between the periods.

Our effective tax rate decreased to

25.9% for the six months ended August 31, 2025, from 26.8% for the six months ended August 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

Six Months Ended August 31, 2025

The following table summarizes

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

the operating results of the PaperPie segment:

Three Months Ended

Six Months Ended

Cost of goods sold

4 unchanged sentences

Total operating expenses

Operating income

Operating income (loss)

Average number of active brand partners

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.

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:

Ended August 31, 2025

PaperPie net revenues decreased

$1.7 million, or 31.5%, to $3.7 million during the three months ended August 31, 2025, when compared to $5.4 million during the same period

The average number of active brand partners in the second quarter of fiscal 2026 was 5,800, a decrease of 8,100, or 58.3%,

from 13,900 average active brand partners selling in the second quarter of fiscal 2025.

The Company reports the average number of active

Brand Partners as a key indicator for this division.

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 distribution agreement with Usborne Publishing Limited in fiscal

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

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 revised

Usborne distribution agreement increased Brand Partner turnover and negatively impacted new Brand Partner recruits.

Recent sales levels have also been impacted by

the lack of new titles being introduced and certain out of stock items, due to purchasing restrictions placed on us from our lender.

expect to place reorders and purchase new titles following the sale of Hilti Complex and the payoff of the loans with our bank.

to our past practice of introducing new titles, along with additional enhancements to our PaperPie e-commerce and “backoffice”

systems, are expected to create existing Brand Partner excitement and increase our number of new recruits in this division.

PaperPie gross margin decreased

$0.8 million, or 26.7%, to $2.2 million during the three months ended August 31, 2025, when compared to $3.0 million during the same period

Gross margin as a percentage of net revenues for the three months ended August 31, 2025 increased to 57.9%, compared to 55.1%

the same period a year ago, representing an increase of $0.2 million.

The increase in gross margin as a percentage of net revenues was

primarily attributed to increased discounts offered in the prior year to spur sales along with additional shipping promotions.

Total PaperPie operating expenses

decreased $1.3 million, or 37.1%, to $2.2 million during the three-month period ended August 31, 2025, when compared to $3.5 million reported

in the same quarter a year ago.

Operating and selling expenses decreased $0.6 million, or 50.0%, to $0.6 million during the three-month

period ended August 31, 2025, when compared to $1.2 million reported in the same quarter a year ago.

These decreased expenses were due

to a $0.3 million decrease in shipping costs associated with the decrease in volume of orders shipped, and a decrease of $0.3 million

in accruals for Brand Partner incentive trip expenses as the Division expects less trip earners this year.

Sales commissions decreased

$0.6 million, or 33.3%, to $1.2 million during the three-month period ended August 31, 2025, when compared to $1.8 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 August 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 coupled with

a decrease in Home Office challenge awards used to incentivize selling more products each quarter.

Operating loss for the PaperPie

segment decreased $0.5 million, to $14,700 during the three months ended August 31, 2025, when compared to the loss of $0.5 million reported

in the same quarter a year ago.

Operating loss for the PaperPie division as a percentage of net revenues for the year ended August 31,

2025 was (0.4)%, compared to (8.7)% for the year ended August 31, 2024, a decrease of 8.3%.

Operating loss as a percentage of net revenues

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

and higher discounts offered to spur sales, offset by a decrease in operating expenses as shown above.

PaperPie Operating Results for the Six Months

Ended August 31, 2025

PaperPie net revenues decreased

$4.5 million, or 31.5%, to $9.8 million during the six-month period ended August 31, 2025, compared to $14.3 million from the same period

The average number of active brand partners in the six-month period ended August 31, 2025, was 6,800, a decrease of 6,900,

or 50.4%, from 13,700 selling in same period a year ago.

Recruiting and maintaining brand partners has been negatively impacted by several

factors including record inflation, our distribution agreement with Usborne and the rebranding of the division in the fourth quarter of

fiscal year 2023.

Inflation was most evident in increased food and fuel prices, which impacts the disposable income of our target customer

base, which is families with small children.

Sales during the first and second quarters of fiscal year 2025 continued to be negatively

impacted by continuing inflationary pressures and we expect this to continue through the rest of fiscal year 2026, as these pressures

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.

Recent sales levels have also

been impacted by the lack of new titles being introduced and certain out of stock items, due to purchasing restrictions placed on us from

We expect to place reorders and purchase new titles following the sale of Hilti Complex and the payoff of the loans with our

Returning to our past practice of introducing new titles, along with additional enhancements to our PaperPie e-commerce and “backoffice”

systems, are expected to create existing Brand Partner excitement and increase our number of new recruits in this division.

Gross margin decreased $3.0

million, or 34.1%, to $5.8 million during the six-month period ended August 31, 2025, when compared to $8.8 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 58.8% for the six-month

period ended August 31, 2025, when compared to 61.5% 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, as well as increased cost of goods from the tariffs implemented by the current

administration on our SmartLab Toys product line.

Total operating expenses

decreased $3.2 million, or 37.6%, to $5.3 million during the six-month period ended August 31, 2025, from $8.5 million for the same period

Operating and selling expenses decreased $1.4 million, or 51.9%, to $1.3 million during the six-month period ended August

31, 2025, when compared to $2.7 million reported in the same period a year ago.

This decrease relates primarily to a decrease in shipping

costs associated with the decrease in volume of orders shipped, totalling approximately $0.9 million;

a $0.4 million decrease in brand

partner incentive trip expenses as fewer brand partners are expected to earn the trip this year;

and a $0.1 million decrease in various

other operating and selling expenses.

Sales commissions decreased $1.7 million, or 34.7%, to $3.2 million during the six-month period

ended August 31, 2025, when compared to $4.9 million reported in the same period a year ago, primarily due to the decrease in net revenues.

General and administrative expenses decreased $0.2 million, or 20.0%, to $0.8 million, from $1.0 million recognized during the same period

last year, due primarily to decreased credit card transaction fees associated with decreased sales volumes totalling $0.1 million and

a $0.1 million decrease in other various general and administrative expenses.

Operating income of the PaperPie

segment increased $0.1 million, or 33.3%, to $0.4 million during the six months ended August 31, 2025, when compared to $0.3 million reported

in the same period last year.

Operating income of the PaperPie division as a percentage of net revenues for the six months ended August

31, 2025 was 4.6%, compared to 2.1% for the six months ended August 31, 2024.

Operating income for the PaperPie division increased primarily

from reduced operating expenses

Publishing Operating Results for the Three

and Six Months Ended August 31, 2025

The following table summarizes

the operating results of the Publishing segment:

Three Months Ended

Six Months Ended

Cost of goods sold

1 unchanged sentence

Operating income

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.

Publishing Operating Results for the Three

Months Ended August 31, 2025

Our Publishing division’s

net revenues decreased $0.2 million, or 18.2%, to $0.9 million during the three-month period ended August 31, 2025, from $1.1 million

reported in the same period a year ago.

The change in net revenues was primarily from additional discounts offered to retail customers

in the second quarter of fiscal 2026 to spur sales.

Gross margin decreased $0.1

million, or 16.7%, to $0.5 million during the three-month period ended August 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 59.1% during the

three-month period ended August 31, 2025, from 60.5% 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 second quarter of fiscal 2026 to spur sales.

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 August

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.

Operating income decreased $0.1 million, or 33.3%,

to $0.2 million, from $0.3 million, during the three-month periods ended August 31, 2025 and 2024, respectively.

Operating income for

the Publishing division as a percentage of net revenues for the year ended August 31, 2025 was 23.1%, compared to 23.9% for the year ended

August 31, 2024, a decrease of 0.8%.

The decrease in operating income was primarily associated with the decline in revenues associated

with the increased discounts to spur sales.

Publishing Operating Results for the Six Months

Ended August 31, 2025

Our Publishing division’s

net revenues decreased by $0.3 million, or 13.6%, to $1.9 million during the six-month period ended August 31, 2025, from $2.2 million

reported in the same period a year ago primarily due to the increased discounts offered to spur sales.

Gross margin decreased $0.2

million, or 15.4%, to $1.1 million during the six-month period ended August 31, 2025, from $1.3 million reported in the same period a

Gross margin as a percentage of net revenues decreased to 55.4%, during the six-month period ended August 31, 2025, from 59.8%

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 and the increased discounts offered to customers during the current fiscal year.

Total operating expenses of

the Publishing segment decreased $0.1 million, or 12.5%, to $0.7 million during the six-month period ended August 31, 2025, from $0.8

million reported in the same period a year ago.

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

in volume of orders shipped.

Operating income of the Publishing

segment decreased $0.1 million, or 20.0%, to $0.4 million during the six-month period ended August 31, 2025 when compared to $0.5 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 discounts offered in the current fiscal year.

Liquidity and Capital Resources

Prior to the last two fiscal

years, which have been challenged with higher product discounting to spur sales and increased interest rates on borrowings, EDC 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 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;

to $9,000,000 through November 29, 2023;

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

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

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

The amendment

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

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%

(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

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 until it returns to profitability.

In addition, the Company

intends to sell its owned real estate to pay off the revolving line of credit and 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.

During the first six months

of fiscal year 2026, we experienced positive cash inflows from operations of $1,459,700.

These cash inflows resulted from:

net loss of $2,369,900

Adjusted for:

depreciation and amortization expense of $729,700

provision for inventory allowance of $72,000

net loss on sale of assets of $57,000

provision for credit losses of $24,000

deferred income taxes of $862,600

Positively impacted by:

decrease in inventories, net of $3,958,500

decrease in accounts receivable of $333,400

increase in income taxes payable of $233,100

increase in deferred revenues of $55,200

decrease in prepaid expenses and other assets of $8,600

Negatively impacted by:

decrease in accounts payable of $249,300

decrease in accrued salaries and commissions, and other liabilities of $530,000

Cash used in investing activities

was $263,900 for capital expenditures, consisting of $174,200 in software upgrades to our proprietary systems that our PaperPie Brand

Partners use to monitor their business and place customer orders and $134,700 in building improvements currently in Assets Held for Sale,

offset by $45,000 from the sale of machinery and equipment.

Cash used in financing activities

was $900,000 to pay down existing term debt.

The Company continues to expect

the cash generated from operations, specifically from the reduction of excess inventory, will provide us with the liquidity we need to

support ongoing operations.

Additionally, we expect to obtain short term financing from traditional or non-traditional lenders following

the completion of the sale of the Hilti Complex and the payoff of its debts with our current lender.

Cash generated from operations will

be used to acquire new inventory and pay down any short-term borrowings.

The Company’s Credit

Agreement with its lender expired on September 19, 2025, with the balances of our Term Loans and the Revolving Loan remain unpaid.

On September 30, 2025, the Company received a Reservation of Rights

notice from its lender outlining that events of default have occurred and are continuing due to our failure to pay in full in cash the

unpaid balance of the Term Loans and Revolving Loan before the maturity date.

The Lender has not waived the specified defaults and reserves

all of its rights, powers, privileges and remedies under the credit agreement, the UCC, and applicable law.

Under the credit agreement,

the lender has the right, among other remedies listed, to demand payment or repossess and liquidate the Company’s assets used as

collateral for the loans.

Under the terms of the credit agreement, an additional default interest rate of 2% is added to the existing

interest rates defined in the credit agreement.

The bank has taken no action other than to deliver the Reservation of Rights notice and

the Company continues to work with its lender on ongoing operations.

OTHER INFORMATION for further details.

Risks and Uncertainties

In accordance with ASC 205-40,

Going Concern , the Company has evaluated whether there are conditions and events considered in the aggregate that raise substantial

doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued.

The default status of our

credit agreement, 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 eliminate the bank borrowings by selling the

Hilti Complex.

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.

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.

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.

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, 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.

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 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

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 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.

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.

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.

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.

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 six 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.

Revenue Recognition

Sales associated with product

orders are recognized and recorded when products are shipped.

Products are shipped FOB-Shipping Point.

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.

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

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.

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 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.

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

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

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 August 31, 2025 and February 28, 2025, 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 August 31, 2025 and February

28, 2025, respectively.

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 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 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

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 $17.8 million and $16.3 million at August 31, 2025 and February 28, 2025, respectively.

Noncurrent inventory valuation allowances

were $0.8 million at August 31, 2025 and $0.7 million at February 28, 2025.

Brand 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;

having consignment inventory leads to additional sales opportunities.

Approximately 18.5% of our active Brand Partners maintained consignment

inventory at the end of the second 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.

The total cost of inventory on consignment with Brand

Partners was $1.2 million and $1.3 million at August 31, 2025 and February 28, 2025, 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 $1.3 million and $1.2 million at August 31, 2025 and

February 28, 2025.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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