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Item 7. Management’s Discussion and Analysis

2026-05-19 compared with 2025-05-19 · 449 added, 485 removed, 44 unchanged (96% of the section changed)

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

Management ’ s Discussion and Analysis of Financial Condition and Results of Operations contains a discussion of our business,

including a general overview of our segments, our results of operations, our liquidity and capital resources, and our quantitative and

qualitative disclosures about market risk.

following discussion contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance.

The forward-looking statements are dependent upon events, risks and uncertainties that may be outside of our control.

Our actual results

could differ materially from those discussed in these forward-looking statements.

See “ Cautionary Remarks Regarding Forward

Looking Statements ” in the front of this Annual Report on Form 10-K.

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

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management ’ s

Discussion and Analysis of Financial Condition and Results of Operations contain a discussion of our business, including a general overview

of our segments, our results of operations, our liquidity and capital resources, and our quantitative and qualitative disclosures about

The following discussion

contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance.

The forward-looking statements

are dependent upon events, risks and uncertainties that may be outside of our control.

Our actual results could differ materially from

those discussed in these forward-looking statements.

See “ Cautionary Remarks Regarding Forward Looking Statements ”

in the front of this Annual Report on Form 10-K.

Management Summary

We are the owner and exclusive

publisher of Kane Miller children’s books;

Learning Wrap-Ups, maker of educational manipulatives;

SmartLab Toys, maker of STEAM-based toys and games.

We are also the exclusive United States Multi-Level Marketing (“MLM”)

distributor of Usborne Publishing Limited (“Usborne”) children’s books.

Significant portions of our product offering

and inventory are concentrated with Usborne.

Our distribution agreement with Usborne includes annual minimum purchase volumes along with

specific payment terms, which, if not met or if payments are not received in a timely manner, offer Usborne the right to terminate the

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

and SmartLab Toys, maker of STEAM-based

toys and games.

We are also the exclusive United States Multi-Level Marketing (“MLM”) distributor of Usborne Publishing Limited

(“Usborne”) children’s books.

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

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

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

During fiscal 2025 and fiscal

2026, the Company did not meet the minimum purchase volumes.

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

Should termination of the agreement occur, the

Company will be allowed, at a minimum, to sell through our remaining Usborne inventory over a period of twelve months following the termination

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

Should termination of the agreement occur, the Company will be allowed, at a minimum, to sell through our remaining Usborne inventory

over a period of twelve months following the termination date.

We sell our products through

two separate divisions, PaperPie and Publishing.

These two divisions each have their own customer base.

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 accounts.

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

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.

PaperPie division uses a multi-level direct selling organizational structure to market our products using independent sales representatives

(“Brand Partners”) located throughout the United States.

The customer base of PaperPie consists of individual purchasers,

as well as schools and public libraries.

Revenues are primarily generated through book showings in individual homes, on social media

collaboration platforms, through book fairs with school and public libraries, and other in-person events.

important factor in the growth of the PaperPie division is the addition of new Brand Partners and the retention of existing Brand Partners.

Active Brand Partners (defined as those with sales during the past six months) are primarily responsible for recruiting new Brand Partners.

PaperPie entices new recruits by providing joining incentives to new Brand Partners, including discounted products and cash bonus awards

based on exceeding certain sales criteria.

In addition, our PaperPie division provides our Brand Partners with an extensive operational

handbook, valuable training, and an individual website they can customize and use to generate sales.

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.

PaperPie Division

Our PaperPie division uses

a multi-level direct selling organizational structure to market our products using independent sales representatives (“Brand Partners”)

located throughout the United States.

The customer base of PaperPie consists of individual purchasers, as well as schools and public libraries.

Revenues are primarily generated through book showings in individual homes, on social media collaboration platforms, through book fairs

with school and public libraries, and other in-person events.

An important factor in the

growth of the PaperPie division is the addition of new Brand Partners and the retention of existing Brand Partners.

Active Brand Partners

(defined as those with sales during the past six months) are primarily responsible for recruiting new Brand Partners.

PaperPie entices

new recruits by providing joining incentives to new Brand Partners, including discounted products and cash bonus awards based on exceeding

certain sales criteria.

In addition, our PaperPie division provides our Brand Partners with an extensive operational handbook, valuable

training, and an individual website they can customize and use to generate sales.

The Company also provides a “back-office”

operations platform that allows Brand Partners to track their individual and team business results.

Brand Partners

New Brand Partners Added During Fiscal Year

Active Brand Partners at End of Fiscal Year

PaperPie division’s multi-level marketing organizational structure currently has eight levels of sales representatives, collectively

known as Brand Partners:

Our PaperPie division’s

multi-level marketing organizational structure currently has eight levels of sales representatives, collectively known as Brand Partners:

Brand Partners

Advanced Leaders

Senior Leaders

Executive Leaders

signing up, sales representatives begin as “Brand Partners.” Brand Partners receive “weekly commissions” from

each sale they make;

the commission rate they receive on each sale is determined by the “order type” assigned to the sale.

In addition, Brand Partners receive a monthly sales bonus once their total sales reach an established monthly goal, as well as other

awards (called “Level Perks”) for meeting other individual sales and recruiting goals for the month.

Brand Partners who recruit

a specified number of other Brand Partners into their downline become “Team Leaders.” These downline recruits are known as

their “Central Group.” Upon reaching this Team Leader level, Brand Partners become eligible to receive “monthly override

payments” which are calculated on sales made by their Central Group and downlines up to two levels below their Central Group.

Leaders that recruit and promote other Team Leaders and meet other established criteria are eligible to become “Advanced Leaders.”

Advanced Leaders promote a second level Brand Partner, add additional recruits, and meet other established criteria, they become “Senior

Leaders,” “Executive Leaders,” “Senior Executive Leaders,” “Directors” or “Senior Directors.”

One-time cash bonus payments are awarded at each promotion level above Brand Partner with increasing award amounts at each promotion

Executive Leaders and higher receive an additional monthly override payment based upon the sales of their executive group.

and higher receive an additional bonus payment if they promote a Team Leader from their Central Group.

The maximum override payment a

leader can receive is calculated on the sales of their Central Group and three levels below.

fiscal year 2025, internet sales continued to be the largest sales channel within our PaperPie division.

The use of social media and

party plan platforms, such as those available on Facebook, continue to be popular sales tools.

These platforms allow Brand Partners to

“present” and customers to “attend” online purchasing events from any geographical location.

internet orders are primarily received via the Brand Partner’s customized website, which is hosted by the Company.

Senior Executive Leaders

Senior Directors

Upon signing up, sales representatives

begin as “Brand Partners.” Brand Partners receive “weekly commissions” from each sale they make;

the commission

rate they receive on each sale is determined by the “order type” assigned to the sale.

In addition, Brand Partners receive

a monthly sales bonus once their total sales reach an established monthly goal, as well as other awards (called “Level Perks”)

for meeting other individual sales and recruiting goals for the month.

Brand Partners who recruit a specified number of other Brand Partners

into their downline become “Team Leaders.” These downline recruits are known as their “Central Group.” Upon reaching

this Team Leader level, Brand Partners become eligible to receive “monthly override payments” which are calculated on sales

made by their Central Group and downlines up to two levels below their Central Group.

Team Leaders that recruit and promote other Team

Leaders and meet other established criteria are eligible to become “Advanced Leaders.”

Once Advanced Leaders promote

a second level Brand Partner, add additional recruits, and meet other established criteria, they become “Senior Leaders,”

“Executive Leaders,” “Senior Executive Leaders,” “Directors” or “Senior Directors.” One-time

cash bonus payments are awarded at each promotion level above Brand Partner with increasing award amounts at each promotion level.

Leaders and higher receive an additional monthly override payment based upon the sales of their executive group.

Directors and higher

receive an additional bonus payment if they promote a Team Leader from their Central Group.

The maximum override payment a leader can

receive is calculated on the sales of their Central Group and three levels below.

During fiscal year 2026, internet

sales continued to be the largest sales channel within our PaperPie division.

The use of social media and party plan platforms, such as

those available on Facebook, continue to be popular sales tools.

These platforms allow Brand Partners to “present” and customers

to “attend” online purchasing events from any geographical location.

Customers’ internet

orders are primarily received via the Brand Partner’s customized website, which is hosted by the Company.

Brand Partners contact

hosts or hostesses (collectively “hostess”) who then provide a list of contacts to invite to an online party.

During the online

party, the Brand Partner answers attendees’ questions and provides product recommendations.

These attendees then select desired

products and place orders via the Brand Partner’s customized website.

Internet orders are processed through a standard online “shopping

cart checkout” and the Brand Partner receives sales credit and commission on the transaction.

All internet orders are shipped directly

to the end customer.

The hostess earns discounted products based on the total sales from the attendees at the online party.

Brand Partners

contact hosts or hostesses (collectively “hostess”) who then provide a list of contacts to invite to an online party.

the online party, the Brand Partner answers attendees’ questions and provides product recommendations.

These attendees then select

desired products and place orders via the Brand Partner’s customized website.

Internet orders are processed through a standard

online “shopping cart checkout” and the Brand Partner receives sales credit and commission on the transaction.

orders are shipped directly to the end customer.

The hostess earns discounted products based on the total sales from the attendees at

the online party.

Brand Partners use the list of contacts provided by the hostess as additional contacts for future hostess and recruiting

opportunities.

parties also occur when Brand Partners contact hostesses to hold book shows in their homes.

The Brand Partner assists the hostess in

setting up the details for the show, makes a presentation at the show, and takes orders for the products.

The hostess earns discounted

products based on the total sales at the party, including internet orders for those customers who can only attend via online access.

These orders are typically shipped to the hostess, who then distributes the products to the end customer.

Customer specials are also

available when customers, or their party, order above a specified amount.

As with online parties, home shows often provide an excellent

opportunity to recruit new Brand Partners.

net revenues also include sales to schools and libraries through PaperPie Learning.

PaperPie Learning is a separate program for eligible

Brand Partners which requires certain qualifications and the completion of additional training requirements.

The PaperPie Learning program

includes book fairs which are held within an organization as the sponsor.

The Brand Partner provides promotional materials to introduce

our products to parents, who then turn in their orders at a designated time.

The book fair program generates discounted products for

the sponsoring organization.

also generates revenues through various fundraiser programs directed toward schools and community organizations.

Reach for the Stars

is a pledge-based reading incentive program that provides cash and products to the sponsoring organization, and products for the

participating children.

An additional fundraising program, Cards for a Cause , offers Brand Partners the opportunity to help members

of the community by sharing proceeds from the sale of specific items.

Organizations do this by selling a variety box of greeting-type

cards and donating a portion of the proceeds to help support their related causes.

Publishing division operates in a market that is highly fragmented, with many types of retail companies engaged in selling children’s

books and toys.

The Publishing division’s customer base includes national book chains, regional and local bookstores, toy and gift

stores, school supply stores, and museums.

To reach these markets, the Publishing division utilizes a combination of commissioned sales

representatives, as well as an in-house sales group located at our headquarters.

table below shows the percentage of net revenues from our Publishing division based on market type:

Division Net Revenues by Market Type

use the list of contacts provided by the hostess as additional contacts for future hostess and recruiting opportunities.

In-person parties also occur

when Brand Partners contact hostesses to hold book shows in their homes.

The Brand Partner assists the hostess in setting up the details

for the show, makes a presentation at the show, and takes orders for the products.

The hostess earns discounted products based on the

total sales at the party, including internet orders for those customers who can only attend via online access.

These orders are typically

shipped to the hostess, who then distributes the products to the end customer.

Customer specials are also available when customers, or

their party, order above a specified amount.

As with online parties, home shows often provide an excellent opportunity to recruit new

Brand Partners.

PaperPie net revenues also

include sales to schools and libraries through PaperPie Learning.

PaperPie Learning is a separate program for eligible Brand Partners

which requires certain qualifications and the completion of additional training requirements.

The PaperPie Learning program includes book

fairs which are held within an organization as the sponsor.

The Brand Partner provides promotional materials to introduce our products

to parents, who then turn in their orders at a designated time.

The book fair program generates discounted products for the sponsoring

organization.

PaperPie also generates revenues

through various fundraiser programs directed toward schools and community organizations.

Reach for the Stars is a pledge-based

reading incentive program that provides cash and products to the sponsoring organization, and products for the participating children.

An additional fundraising program, Gathered Goods (2026) , which replaced Cards for a Cause (2025) offers Brand Partners

the opportunity to help members of the community by sharing proceeds from the sale of specific items.

Organizations do this by selling

a variety package of educational items and donating a portion of the proceeds to help support their related causes.

Publishing Division

Our Publishing division operates

in a market that is highly fragmented, with many types of retail companies engaged in selling children’s books and toys.

The Publishing

division’s customer base includes national book chains, regional and local bookstores, toy and gift stores, school supply stores,

To reach these markets, the Publishing division utilizes a combination of commissioned sales representatives, as well as

an in-house sales group located at our headquarters.

The table below shows the percentage

of net revenues from our Publishing division based on market type:

Publishing Division Net Revenues by Market Type

National chain bookstores

Total net revenues

uses a variety of methods to attract potential new customers and maintain current customers.

Our employees attend many of the national

trade shows held by the book and toy selling industry each year, allowing us to contact potential buyers who may be unfamiliar with our

Our marketing strategy targets toy and specialty stores, in addition to bookstores and museum gift shops, through print media

advertising in trade publications.

In some instances, our products are featured in promotions and catalogs by participation in co-ops

with national chain retailers.

sales representatives actively target the smaller independent bookstore and gift shop customers.

This market has seen continued growth

due to a resurgence in the opening of local bookstores, toy stores, and specialty stores across the U.S., coupled with the efforts of

both our in-house and outside sales representatives to increase sales to local and independent businesses.

Our annual catalogs are mailed

out to approximately 4,000 customers and potential customers on a yearly basis.

See Publishing Operating Results for discussion of our

updated distribution agreement with Usborne.

of Operations

following table shows our statements of operations data:

Publishing uses a variety

of methods to attract potential new customers and maintain current customers.

Our employees attend many of the national trade shows held

by the book and toy selling industry each year, allowing us to contact potential buyers who may be unfamiliar with our products.

Our marketing

strategy targets toy and specialty stores, in addition to bookstores and museum gift shops, through print media advertising in trade publications.

In some instances, our products are featured in promotions and catalogs by participation in co-ops with national chain retailers.

Publishing’s sales representatives

actively target the smaller independent bookstore and gift shop customers.

This market has seen continued growth due to a resurgence in

the opening of local bookstores, toy stores, and specialty stores across the U.S., coupled with the efforts of both our in-house and outside

sales representatives to increase sales to local and independent businesses.

References to our online Publishing catalog are mailed out

to approximately 3,500 customers and potential customers on a yearly basis.

See Publishing Operating Results for discussion of our updated

distribution agreement with Usborne.

Result of Operations

The following table shows

our statements of operations data:

Twelve Months Ended

February 28 (29),

Product revenues, net of discounts and allowances

7 unchanged sentences

Interest expense

(14,011,100 )

Earnings (loss) before income taxes

2 unchanged sentences

$ (5,263,600 )

the detailed discussion of net revenues, gross margin and operating expenses by reportable segment below:

Operating Results

operating expenses not associated with a reporting segment were $9.9 million for the fiscal year ended February 28, 2025, compared

to $11.3 million for the same period a year ago.

Operating expenses decreased $1.4 million primarily as a result of a reduction in labor

expenses of $0.9 million, with our warehouse payroll having the largest reduction, plus a $0.7 million decrease in depreciation expense

due to the sale of the Company’s old headquarters and classification as assets held for sale of our current headquarters and excess

warehouse and machinery and equipment, and a $0.4 million decrease in freight-handling costs associated with a decrease in product revenues

prior to discounts and allowances, offset by a $0.4 million increase in building rent due to sale and leaseback of our excess warehouse

facility and additional warehouse space in Tulsa and Missouri used to house excess inventory, $0.1 million increase in personal property

taxes, and $0.1 million increase in reserve for bad debt due to an increase in long-term and consignment inventory reserves.

expense decreased $0.6 million, to $2.2 million for fiscal year ended February 28, 2025, compared to $2.8 million reported for fiscal

year ended February 29, 2024, with a $0.3 million decrease due primarily to the paydown of the line of credit required by the bank, and

a $0.3 million decrease from the reduction of principle on the two term loans.

income decreased $7.3 million, to $2.1 million for fiscal year ended February 28, 2025, compared to $9.4 million reported for fiscal

year ended February 29, 2024, due to a $3.8 million decrease of other income related to the Employee Retention Credit received in fiscal

2024, a $4.0 million decrease due to the gain from the sale of the excess warehouse facility recognized in fiscal 2024, and a $0.3 million

decrease from the loss associated with the abandonment of the Host Portal IT project, offset by $0.7 million increase in rental income

due to the new tenant lease in our headquarters facility that started in the second quarter of fiscal 2025, and a $0.1 million increase

related to royalties received from a promotion with Chick-fil-A which used a version of our books to distribute with their kids meals.

taxes decreased $1.8 million, to a tax benefit of $1.6 million for the fiscal year ended February 28, 2025, from a tax expense of

$0.2 million for the same period a year ago.

This decrease was primarily related to the decrease in taxable income for the current fiscal

year compared to the prior fiscal year.

The effective tax rate decreased by 2.4%, to 23.2% for fiscal year ending February 28, 2025,

as compared to 25.6% for fiscal year ended February 29, 2024, primarily due to sales mix fluctuations between states and credits eligible

for research and development expenses.

Our tax rates are higher than the federal statutory rate of 21% due to the inclusion of state

income and franchise taxes.

Operating Results

following table summarizes the operating results of the PaperPie segment for the twelve months ended February 28 (29):

See the detailed discussion

of net revenues, gross margin and operating expenses by reportable segment below:

Non-Segment Operating Results

Total operating expenses

not associated with a reporting segment were $8.9 million for the fiscal year ended February 28, 2026, compared to $9.9 million for the

same period a year ago.

Operating expenses decreased primarily because of a $0.6 million decrease in labor expense within our warehouse

operations due to lower number of orders, a decrease of $0.3 million in depreciation due to Lines 1, 2 & 3 moved to ‘Assets

Held for Sale” in Fiscal 25, as well as a $0.1 million in other various operating expenses.

Interest expense decreased

$0.7 million, to $1.5 million for fiscal year ended February 28, 2026, compared to $2.2 million reported for fiscal year ended February

28, 2025 due to the Company selling the Hilti Complex at the end of October 2025 and paying in full all outstanding indebtedness and terminating

all commitments and obligations under its Credit Agreement dated August 9, 2022 between the Company and its Lender.

Other income increased

$11.9 million, to $14.0 million for fiscal year ended February 28, 2026, compared to $2.1 million reported for fiscal year ended February

28, 2025, resulting from the gain of $12.4 million from the sale of the Hilti Complex, offset by a $0.5 million decrease in rental income

from existing tenant leases that were assigned to the buyer with the sale of the Hilti Complex.

Income taxes increased

$4.6 million, to a tax expense of $3.0 million for the fiscal year ended February 28, 2026, from a tax benefit of $1.6 million for the

same period a year ago, resulting primarily from an increase in other income as result of the sale of the Hilti Complex and a valuation

allowance adjustment of $1.5 million in the fourth quarter of fiscal 2026 offsetting the Company’s net deferred tax asset position.

This increase was primarily related to the increase in taxable income for the current fiscal year compared to the prior fiscal year.

effective tax rate increased by 33.3%, to 56.5% for fiscal year ending February 28, 2026, as compared to 23.2% for fiscal year ended February

28, 2025, primarily due to the valuation adjustment, the sales mix fluctuations between states, and the credits eligible for research

and development expenses.

Our tax rates are higher than the federal statutory rate of 21% due to the one-time valuation adjustment and

inclusion of state income and franchise taxes.

PaperPie Operating Results

The following table summarizes

the operating results of the PaperPie segment for the twelve months ended February 28:

Twelve Months Ended

February 28 (29),

Cost of goods sold

6 unchanged sentences

Average number of active Brand Partners

net revenues decreased $15.7 million, or 34.4%, to $29.9 million for the fiscal year ended February 28, 2025, when compared with net

revenues of $45.6 million reported for the fiscal year ended February 29, 2024.

The average number of active Brand Partners in fiscal

year 2025 was 12,300, a decrease of 6,000, or 32.8%, from 18,300 in fiscal year 2024.

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 factors 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”)

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

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 sales to continue as inflationary pressures persist.

gross margin decreased $11.5 million, or 38.5%, to $18.4 million for the fiscal year ended February 28, 2025, from $29.9 million reported

for fiscal year ended February 29, 2024.

Gross margin as a percentage of net revenues decreased 3.7% to 61.8% for fiscal year 2025 when

compared to 65.5% for fiscal year 2024.

The decrease in gross margin as a percentage of net revenues is primarily attributed to increased

discounts and promotions offered in fiscal 2025 to spur sales and turn excess inventory into cash, which was used to pay down payables

and bank debts.

PaperPie operating expenses decreased $9.3 million, or 36.0%, to $16.5 million during the fiscal year ended February 28, 2025, when compared

with $25.8 million reported for the fiscal year ended February 29, 2024.

Operating and selling expenses decreased $2.6 million, to $4.6

million for the fiscal year ended February 28, 2025, from $7.2 million reported in the same period a year ago.

These decreased expenses

were due to a $1.7 million decrease in shipping costs associated with the decrease in volume of orders shipped, and a decrease of $0.8

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

Sales commissions

decreased $5.9 million, to $10.0 million during the fiscal year ended February 28, 2025, when compared to $15.9 million reported in the

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

PaperPie net revenues decreased

$10.6 million, or 35.5%, to $19.3 million for the fiscal year ended February 28, 2026, when compared with net revenues of $29.9 million

reported for the fiscal year ended February 28, 2025.

The average number of active Brand Partners in fiscal year 2026 was 5,800, a decrease

of 6,500, or 52.8%, from 12,300 in fiscal year 2025.

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

for this division.

Recruiting and maintaining Brand Partners has been negatively impacted by several factors including inflation, our

distribution agreement with Usborne whereby Usborne actively sells their products through discounted retailers in the U.S.

the rebranding of the division in the fourth quarter of fiscal year 2023.

Inflation was most evident in the increase of food and fuel

prices, both impacting the disposable income of our target customer base, which is families with small children.

Sales during fiscal 2026

continued to be negatively impacted by continuing inflationary pressures and we expect this to continue into the next fiscal year, as

these pressures persist.

Historically, when we have experienced these difficult inflationary times, our active brand partner numbers have

been positively impacted as more families look for non-traditional income streams to offset rising costs of living.

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 in the first three quarters of this fiscal year.

We have begun a conservative plan to place reorders and purchase new titles

since the sale of the Hilti Complex, the payoff of the revolver and term loans with our bank and subsequent removal of purchasing restrictions.

The Company is now returning to our past practice of introducing new titles, along with additional enhancements to our PaperPie e-commerce

and “Backoffice” systems that are expected to create existing Brand Partner excitement and should increase our number of new

recruits in this division.

PaperPie gross

margin decreased $6.8 million, or 37.0%, to $11.6 million for the fiscal year ended February 28, 2026, from $18.4 million reported for

fiscal year ended February 28, 2025.

Gross margin as a percentage of net revenues decreased 1.9% to 59.9% for fiscal year 2026 when compared

to 61.8% for fiscal year 2025.

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 PaperPie operating expenses

decreased $5.9 million, or 35.8%, to $10.6 million during the fiscal year ended February 28, 2026, when compared with $16.5 million reported

for the fiscal year ended February 28, 2025.

Operating and selling expenses decreased $2.0 million, to $2.6 million for the fiscal year

ended February 28, 2026, from $4.6 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, totaling approximately $1.4 million, as well as a $0.6 million decrease

in brand partner incentive trip and meeting expenses as fewer brand partners participated in various meetings and earn the trip this year.

Sales commissions decreased $3.7 million to $6.3 million during the fiscal year ended February 28, 2026, when compared to $10.0 million

reported in the same period a year ago, primarily due to the decrease in net revenues, which resulted in a decrease of commissions of

$3.6 million, as well as a decrease in sales bonuses of $0.1 million.

General and administrative expenses decreased $0.2 million, to $1.7

million during the fiscal year ended February 28, 2026, when compared with $1.9 million reported for the fiscal year ended February 28,

This decrease was due to a $0.4 million decrease in credit card transaction fees and $0.2 million decrease in payroll expenses,

both associated with decreased sales volumes, as well as $0.2 million decrease in various other expenses.

income of our PaperPie division decreased $2.1 million, or 51.2%, to $2.0 million for the fiscal year ended February 28, 2025, as compared

to $4.1 million reported for fiscal year ended February 29, 2024.

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

for the year ended February 28, 2025 was 6.5%, compared to 9.1% for the year ended February 29, 2024, a decrease of 2.6%.

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

following table summarizes the operating results of the Publishing segment for the twelve months ended February 28 (29):

2025, due primarily to $0.3 million of decreased credit card transaction fees associated with decreased sales volumes offset by a $0.1

million increase in other various general and administrative expenses.

Operating income of our PaperPie

division decreased $1.1 million, or 55.0%, to $0.9 million for the fiscal year ended February 28, 2026, as compared to $2.0 million reported

for fiscal year ended February 28, 2025.

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

February 28, 2026 was 4.9%, compared to 6.5% for the year ended February 28, 2025, a decrease of 1.6%.

Operating income as a percentage

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

in addition to higher discounts offered to spur sales, which were both offset by the decrease in operating expenses.

Publishing Operating Results

The following table summarizes

the operating results of the Publishing segment for the twelve months ended February 28:

Twelve Months Ended

February 28 (29),

Cost of goods sold

1 unchanged sentence

Operating income

Publishing division’s net revenues decreased $1.1 million, or 20.4%, to $4.3 million for fiscal year ended February 28, 2025 from

$5.4 million reported for fiscal year ended February 29, 2024.

The Publishing divisions net revenues decreased as the new distribution

agreement with Usborne does not allow the retail division to sell these products.

Retail sales of Usborne products discontinued in the

first quarter of fiscal 2024.

margin decreased $0.5 million, or 16.1%, to $2.6 million for fiscal year ended February 28, 2025, from $3.1 million reported for fiscal

year ended February 29, 2024.

Gross margin as a percentage of net revenues increased 2.0%, to 59.5% for fiscal year 2025, compared to

57.5% reported in the same period a year ago mainly due to product mix change.

During fiscal 2025, sales of SmartLab Toys increased,

which has a lower cost of goods sold than the Usborne product line that was discontinued in fiscal 2024.

expenses decreased $0.5 million, or 26.3%, to $1.4 million for fiscal year ended February 28, 2025, from $1.9 million reported for fiscal

year ended February 29, 2024.

The decrease in operating expenses resulted from the decrease in sales commissions of $0.1 million for

EDC Publishing due to lower net revenues and the restructuring of our in-house sales department, a decrease in freight expense of $0.1

million associated with lower sales, and a decrease of $0.3 million in payroll expenses.

income for the segment remained consistent at $1.2 million for fiscal year ended February 28, 2025 and February 29, 2024.

and Capital Resources

has a history of profitability and positive cash flow.

We typically fund our operations from the cash we generate.

During periods of

operating losses, EDC will reduce purchases and sell through 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 fiscal year 2025, our revolving

bank credit facility loan balance was $4.2 million with $0.6 million of borrowing availability.

fiscal year 2025, we experienced positive cash flows from operations of $3,211,700.

Our Publishing division’s

net revenues decreased $0.7 million, or 16.3%, to $3.6 million for fiscal year ended February 28, 2026 from $4.3 million reported for

fiscal year ended February 28, 2025.

The change in net revenues was directly associated with the decrease in overall sales volume offset

by a slight decrease in discounts.

Gross margin decreased $0.6

million, or 23.1%, to $2.0 million for fiscal year ended February 28, 2026, from $2.6 million reported for fiscal year ended February

Gross margin as a percentage of net revenues decreased 2.8%, to 56.7% for fiscal year 2026, compared to 59.5% reported in the

same period a year ago mainly due to product mix change and from the increase in cost of goods due to the additional tariffs implemented

by the current administration on our SmartLab Toys product line.

Total operating expenses of

the Publishing segment decreased $0.1 million, or 7.1%, to $1.3 million for fiscal year ended February 28, 2026, from $1.4 million reported

for fiscal year ended February 28, 2025.

The decrease in operating expenses resulted from the decrease in freight expense of $0.1 million

associated with lower sales.

Operating income decreased

$0.5 million, or 41.7%, to $0.7 million for fiscal year ended February 28, 2026, from $1.2 million for fiscal year ended February 28,

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

sales in addition to the increase in cost of goods due to the additional tariffs implemented by the current administration on our SmartLab

Toys product line.

Liquidity and Capital Resources

During the past two years

we have offered higher product discounts to spur sales and experienced increased interest rates on borrowings due to restrictions imposed

by our lender.

Prior to this period EDC had 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 until it

returns to profitability.

In addition, the Company sold the real estate it owned, the Hilti Complex, and paid 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 fiscal year 2026, we

experienced positive cash flows from operations of $2,005,300.

These cash flows resulted from:

loss of $5,263,600

● depreciation

and amortization expense of $1,724,900

● share-based

compensation expense, net of $403,300

loss on sale of assets of $321,400

for inventory allowance of $144,000

for credit losses of $48,000

income taxes of $1,129,600

in inventories, net of $10,754,100

in deferred revenues of $91,700

in accounts payable of $2,062,800

in accrued salaries and commissions, and other liabilities of $918,400

in income taxes payable of $312,500

in accounts receivable of $237,100

in prepaid expenses and other assets of $168,300

used in investing activities was $429,600 for capital expenditures, consisting of $396,200 in new software development costs to add new

features to our proprietary systems that PaperPie Brand Partners use to monitor their business and place customer orders and $43,200

in building improvements, offset by $9,800 from the sale of machinery and equipment.

used in financing activities was $3,083,000, which was comprised of net payments on the line of credit of $1,300,000 and payments on

term debt of $1,800,000, offset by $17,000 from other financing activities.

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 and to purchase replacement inventory and new inventory in order

to improve our product offerings.

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.

June 6, 2023, pursuant to its interest rate risk and risk management strategy, the Company entered into a swap transaction (the “Swap

Transaction”) with the Lender, which converts a portion of the original $21,000,000 Floating Rate Term Loan from a floating interest

rate to a fixed interest rate for the next two years.

The Swap Transaction has a notional amount of $18,000,000 through fiscal quarter

ending May 31, 2024, and then resets to $13,000,000 through May 30, 2025, while continuing to mirror the amortizing balance of the Floating

Rate Term Loan.

Under the terms of this agreement, the Company, in effect, has exchanged the floating interest rate of 30-Day Term SOFR

Rate at the trade date of June 5, 2023, to a fixed rate of 4.73%.

The Swap Transaction commenced on June 7, 2023, with a termination

date of May 30, 2025.

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.

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

fixed charge ratio.

The Company was in violation of the minimum fixed charge ratio covenant as of February 28, 2023, for which the Company

obtained a written waiver of compliance from the Lender and was not required to measure the fixed charge ratio as of May 31, 2023.

with the execution of the Third Amendment to the Loan Agreement, the Loan Agreement was modified to incorporate the changes outlined

in the Third Amendment and the fixed charge ratio covenant was removed, as well as the Lender’s right to accelerate the maturities

of the Fixed Rate Term Loan and Floating Rate Term Loan due to the fixed charge ratio covenant.

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 by May 31, 2025.

The Amendment also

redefined the maturity dates of the two term loans to September 19, 2025 (see Note 20 of the notes to the financial statements).

credit under the current $4,750,000 revolving line of credit with the Company’s Lender was approximately $551,900 at February 28,

of the Revised Loan Agreement include:

Term Loans on 20-year amortization with original 5-year maturity date of August 9, 2027, revised to September 19, 2025.

Note 12 and Note 20 of the financial statements for additional information.

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

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 + 5.50% (effective rate was 9.85% at February 28, 2025), revised to SOFR + 6% effective April 4, 2025.

(v) Revolving

Loan allows for Letters of Credit upon bank approval (none were outstanding at February 28, 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.

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

The proceeds from the sale are

expected to pay off the Term Loans and Revolving Loan.

Following the loan payoff, management plans to fund ongoing operations with limited

borrowings through local banks or other financing sources.

In addition, management’s plans include reducing inventory, which will

generate free 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.

are a smaller reporting company and are not required to provide this information.

Sheet Arrangements

of February 28, 2025, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material

effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

Company experiences increased sales in the Fall season along with increased sales during the Easter holiday season.

Historically, we

have experienced an increase in inventory during the Summer in anticipation for the Fall increase in sales.

We do not expect inventory

to increase in fiscal year 2026 as we continue to sell-down excess inventory.

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.

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

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.

However, we consider the following accounting policies to be

significantly more dependent on the use of estimates and assumptions.

account for share-based compensation whereby share-based payment transactions with employees, such as stock options and restricted stock,

are measured at estimated fair value at the date of grant.

For awards subject to service conditions, compensation expense is recognized

over the vesting period on a straight-line basis.

Awards subject to performance conditions are attributed separately for each vesting

tranche of the award and are recognized ratably from the service inception date to the vesting date for each tranche.

Forfeitures are

recognized when they occur.

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 employee has been established.

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.

fiscal years 2025 and 2024, the Company recognized $0.4 million and $0.2 million, respectively, of compensation expense associated with

the shares granted.

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

net gain of $2,325,200

Adjusted for:

depreciation and amortization expense of $1,391,700

Deferred income taxes of $2,536,100

impairment on assets held for sale of $287,100

provision for inventory allowance of $144,000

provision for credit losses of $36,000

net gain on sale of assets of $12,190,900

Positively impacted by:

decrease in inventories, net of $6,884,200

decrease in accounts receivable of $1,228,700

Increase in income taxes payable of $685,900

decrease in prepaid expenses and other assets of $297,800

Negatively impacted by:

decrease in accrued salaries and commissions, and other liabilities of $1,288,200

decrease in deferred revenues of $171,300

decrease in accounts payable of $161,000

Cash provided by investing

activities totaled $29,389,800, consisting of $29,932,600 in proceeds from the sale of the Hilti Complex, along with a few other assets,

offset by $378,200 in software upgrades to our proprietary systems that our PaperPie Brand Partners use to monitor their business and

place customer orders and $164,600 in building improvements in Assets Held for Sale.

Cash used in financing activities

was $31,031,200, consisting of $26,715,400 to pay down existing term debt, $4,198,100 to pay down existing line of credit, $137,900 paid

to acquire treasury stock, offset by cash received of $20,200 from the sale of treasury stock.

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, subsequent to the fiscal year end, we obtained a $2,000,000 line of credit from a new lender

to fund any short-term cash flow needs.

Cash generated from operations will be used to acquire new inventory and pay down any short-term

borrowings we expect to obtain.

Contractual Obligations

We are a smaller reporting company and are not

required to provide this information.

Off-Balance Sheet Arrangements

As of February 28, 2026, we

had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial

condition, results of operations, liquidity, capital expenditures or capital resources.

The Company experiences increased

sales in the Fall season along with increased sales during the Annual PaperPie Day sale annually on 3/14 as well as the Easter holiday

Historically, we have experienced an increase in inventory during the Summer in anticipation for the Fall increase in sales.

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.

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.

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

on the use of estimates and assumptions.

We have both lessee and lessor

arrangements.

Our lessee arrangements include six rental agreements where we have the exclusive use of dedicated office space in San Diego,

California, Ogden, Utah, a warehouse space in Joplin, Missouri and three leases for office and warehouse space locally in Tulsa, Oklahoma,

all of which qualify as operating leases under ASC 842.

Our lessor arrangements include one rental agreement for warehouse and office

space in Tulsa, Oklahoma, and qualify as operating leases under ASC 842.

We recognize an operating

lease liability on the balance sheets for each lease based on the present value of remaining minimum fixed rental payments (which includes

payments under any renewal option that we are reasonably certain to exercise), using a discount rate that approximates the rate of interest

we would have to pay to borrow on a collateralized basis over a similar term.

Expected payments in the next twelve months are classified

as current operating lease liabilities.

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

also recognize an operating lease right-of-use asset on the balance sheets, valued at the lease liability and adjusted for prepaid or

accrued rent balances existing at the time of initial recognition.

The operating lease liability and right-of-use assets are reduced over

the term of the lease as payments are made and the assets are used.

The Company assesses its leases

to determine whether it is reasonably certain that these renewal options will be exercised.

In general, most of the office space outside

of Tulsa, Oklahoma is associated with remote employees.

Their continued employment determines the need for this space.

Much of the warehouse

space outside of the Hilti Complex is used to store non-current inventory.

As the Company sells down excess inventory, less outside space

will be needed, and any renewals will be for less space.

The Company also considered the renewal options for the operating lease at the

Hilti Complex and is not reasonably certain to exercise the renewal options.

Accordingly, the renewal options are not included in the

calculation of its right-of-use assets and lease liabilities, as the Company does not believe that it is reasonably certain that these

renewal options will be exercised.

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.

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.

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 product getting 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

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 the fiscal years ended February 28, 2025 and February 29, 2024.

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 the

fiscal years ended February 28, 2025 and February 29, 2024, respectively.

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

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

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

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

inventory is maintained in a non-current classification.

Management has estimated and included a reserve

for sales returns of $0.2 million for the fiscal years ended February 28, 2026 and February 28, 2025.

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 $16.3 million and $12.3 million at February 28, 2025 and February 29, 2024, respectively.

inventory valuation allowances were $0.7 million at February 28, 2025 and $0.6 million at February 29, 2024.

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

We believe allowing our Brand Partners

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

fairs, and other events;

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

Approximately 17.3% of our

active Brand Partners maintained consignment inventory at the end of fiscal year 2025.

Consignment inventory is stated at cost, less

an estimated reserve for consignment inventory that is not expected to be sold or returned to the Company.

The total cost of inventory

on consignment with Brand Partners was $1.3 million and $1.4 million at February 28, 2025 and February 29, 2024, 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 February 28, 2025,

and $1.0 million at February 29, 2024.

Accounting Pronouncements

the New Accounting Pronouncements section of Note 1 to our financial statements, included in Part IV, Item 15 of this report, for further

details of recent accounting pronouncements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

are a smaller reporting company and are not required to provide this information.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

information required by Item 8 begins at page 28.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 sales.

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 $21.1 million and $16.3 million at February 28, 2026 and February 28, 2025, respectively.

Noncurrent inventory valuation allowances

were $0.8 million at February 28, 2026 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 21.6% of our active Brand Partners maintained consignment

inventory at the end 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 $1.1 million

and $1.3 million at February 28, 2026 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 $1.2 million at both February 28, 2026 and February

New Accounting Pronouncements

See the New Accounting Pronouncements

section of Note 1 to our financial statements, included in Part IV, Item 15 of this report, for further details of recent accounting pronouncements.

QUANTITATIVE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting

company and are not required to provide this information.

FINANCIAL STATEMENTS AND

SUPPLEMENTARY DATA

The information required by

Item 8 begins at page 24.

CHANGES IN AND DISAGREEMENTS

WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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-K

Item 7. Management’s Discussion and Analysis