What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2026-07-09 compared with 2026-01-13 · 538 added, 808 removed, 319 unchanged (81% of the section changed)

5 unchanged sentences

Restricted cash

Accounts receivable, less allowance for credit losses of $ 99,000 (November 30) and $ 112,300 (February 28)

Accounts receivable, less allowance for credit losses of $ 73,000 (May 31) and $ 109,600 (February 28)

Inventories - net

4 unchanged sentences

PROPERTY, PLANT AND EQUIPMENT - net

DEFERRED INCOME TAX ASSET

OPERATING LEASE RIGHT-OF-USE ASSETS

2 unchanged sentences

Accounts payable

Line of credit

Deferred revenues

Current maturities of long-term debt

Operating lease liabilities, current

Accrued salaries and commissions

Income taxes payable

Operating lease liabilities, current

Other current liabilities

Total current liabilities

OPERATING LEASE LIABILITIES, non-current

OPERATING LEASE LIABILITIES, noncurrent

OTHER LONG-TERM LIABILITIES

4 unchanged sentences

Issued 12,702,080 shares;

Outstanding 8,511,364 (November 30) and 8,583,201 (February 28) shares

Outstanding 8,511,364 (May 31 and February 28) shares

Capital in excess of par value

Retained earnings

Accumulated other comprehensive loss

Less treasury stock, at cost

3 unchanged sentences

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

notes to condensed financial statements (unaudited).

See notes to condensed financial statements (unaudited).

EDUCATIONAL DEVELOPMENT CORPORATION

1 unchanged sentence

Three Months Ended

Nine Months Ended

PRODUCT REVENUES, net of discounts and allowances

7 unchanged sentences

INTEREST EXPENSE

Gain from sale of assets

( 12,243,700 )

( 12,186,700 )

( 1,625,600 )

( 1,745,900 )

Total other income

( 12,516,300 )

( 13,812,300 )

( 1,745,900 )

EARNINGS (LOSS) BEFORE INCOME TAXES

OTHER (INCOME) LOSS

LOSS BEFORE INCOME TAXES

( 1,379,100 )

2 unchanged sentences

$ ( 1,395,600 )

NET EARNINGS (LOSS)

$ ( 1,075,200 )

$ ( 3,918,100 )

BASIC AND DILUTED EARNINGS (LOSS) PER SHARE

BASIC AND DILUTED LOSS PER SHARE

WEIGHTED AVERAGE NUMBER OF COMMON AND EQUIVALENT SHARES OUTSTANDING:

Dividends per share

notes to condensed financial statements (unaudited).

EDUCATIONAL DEVELOPMENT CORPORATION

STATEMENTS OF COMPREHENSIVEINCOME (LOSS) (UNAUDITED)

Three Months Ended

Nine Months Ended

Net earnings (loss)

$ ( 835,700 )

$ ( 3,918,100 )

Other comprehensive income:

Unrealized loss on interest rate exchange agreement

Comprehensive Income (loss)

$ ( 836,900 )

$ ( 3,964,100 )

notes to condensed financial statements (unaudited).

See notes to condensed financial statements (unaudited).

EDUCATIONAL DEVELOPMENT CORPORATION

CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS ’ EQUITY (UNAUDITED)

NINE MONTHS ENDED NOVEMBER 30, 2025

(par value $0.20 per

FOR THE THREE MONTHS ENDED MAY 31, 2026

Common Stock (par value $0.20 per share)

Treasury Stock

Comprehensive

Shareholders’

1 unchanged sentence

$ ( 13,147,500 )

Change in fair value of interest rate exchange agreement

( 1,395,600 )

2 unchanged sentences

$ ( 13,147,500 )

( 1,294,700 )

BALANCE - August 31, 2025

( 13,060,400 )

Purchases of treasury stock

Sale of treasury stock

BALANCE – November 30, 2025

$ ( 13,147,500 )

NINE MONTHS ENDED NOVEMBER 30, 2024

(par value $0.20 per

FOR THE THREE MONTHS ENDED MAY 31, 2025

Common Stock (par value $0.20 per share)

Treasury Stock

Other Comprehensive Income

Comprehensive

Shareholders’

1 unchanged sentence

$ ( 13,060,400 )

Sale of treasury stock

Share-based compensation expense - net

Change in fair value of interest rate exchange agreement

3 unchanged sentences

$ ( 13,060,400 )

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 )

Sale of treasury stock

Share-based compensation expense - net

Change in fair value of interest rate exchange agreement

BALANCE - November 30, 2024

$ ( 13,059,100 )

notes to condensed financial statements (unaudited).

See notes to condensed financial statements (unaudited).

EDUCATIONAL DEVELOPMENT CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

Nine Months Ended

Three Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES

Net earnings (loss)

$ ( 1,395,600 )

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

$ ( 1,075,200 )

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

Depreciation and amortization

Deferred income taxes

( 1,257,100 )

Provision for credit losses

Provision for inventory valuation allowance

Share-based compensation expense - net

Net loss (gain) on sale of assets

( 12,186,700 )

Impairment loss on assets

4 unchanged sentences

Accounts payable

( 1,577,500 )

Accrued salaries and commissions and other liabilities

2 unchanged sentences

Total adjustments

( 1,427,600 )

Net cash provided by operating activities

2 unchanged sentences

Proceeds from sale of assets

Net cash provided by (used in) investing activities

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

Payments on term debt

( 26,715,400 )

( 1,350,000 )

Sales of treasury stock

Cash paid to acquire treasury stock

Net payments under line of credit

( 4,198,100 )

( 1,200,000 )

Net cash used in financing activities

( 31,031,200 )

( 2,532,300 )

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

7 unchanged sentences

Leased assets obtained in exchange for operating lease liabilities

See notes to condensed financial statements (unaudited).

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

of Presentation

accompanying Unaudited Condensed Financial Statements have been prepared in accordance with accounting principles generally accepted

in the United States (“GAAP”) for interim condensed financial information and in accordance with the rules and regulations

of the Securities and Exchange Commission.

The Unaudited Condensed Financial Statements include all adjustments considered necessary

for a fair presentation of the financial position and results of operations for the interim periods presented.

Such adjustments consist

only of normal recurring items, unless otherwise disclosed herein.

Accordingly, the Unaudited Condensed Financial Statements do not include

all of the information and notes required by GAAP for complete financial statements.

However, we believe that the disclosures made are

adequate to make the information not misleading.

These interim Unaudited Condensed Financial Statements should be read in conjunction

with our audited financial statements as of and for the year ended February 28, 2025 included in our Form 10-K.

The results of operations

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

of Estimates in the Preparation of Financial Statements

preparation of the Unaudited Condensed Financial Statements in conformity with GAAP requires management to make estimates and assumptions

that affect the amounts reported in these financial statements and accompanying notes.

Note 1 – BASIS OF PRESENTATION AND

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying Unaudited

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

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

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

and results of operations for the interim periods presented.

Such adjustments consist only of normal recurring items, unless otherwise

disclosed herein.

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

GAAP for complete financial statements.

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

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

the year ended February 28, 2026 included in our Form 10-K.

The results of operations for interim periods are not necessarily indicative

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

Use of Estimates in the Preparation of Financial Statements

The preparation of the Unaudited

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

in these financial statements and accompanying notes.

Actual results could differ from those estimates.

Accounting Policies

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.

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

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

financial statements are issued.

Determining the extent to

which conditions or events raise substantial doubt about our ability to continue as a going concern and the extent to which mitigating

plans sufficiently alleviate any such substantial doubt requires significant judgment and estimation by us.

Our significant estimates

related to this analysis may include identifying business factors such as changes in our Brand Partners, planned reduction of inventory

levels, obtaining short term borrowings, if needed, 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.

However, such assumptions are inherently uncertain, and

actual results could differ materially from those estimates.

During the third quarter of

fiscal 2026, the Company completed the planned sale of the Hilti Complex and paid off the Line of Credit and Term Loans with the Company’s

bank, which was a key step in management’s plans for returning to profitability.

Paying off the bank debts and eliminating the bank-imposed

restrictions allow the Company to begin a conservative plan to re-order some key out of stock products along with introducing a limited

number of new titles which are expected to energize our Brand Partners and provide our retail customers with new offerings.

Company’s continued recurring operating losses raise substantial doubt over the Company’s ability to continue as a going concern.

To address these ongoing concerns management’s future plans include implementing a conservative purchase plan while continuing to

reduce overall inventory levels, which will generate free cash flows and building the active PaperPie Brand Partner 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 Pronouncements

Financial Accounting Standards Board (“FASB”) periodically issues new accounting standards in a continuing effort to improve

standards of financial accounting and reporting.

We have reviewed the recently issued pronouncements and concluded the following new

accounting standard updates (“ASU”) apply to us:

Accounting Standards or Updates Not Yet Adopted

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, 2026 included in our Form

Reclassifications

Certain reclassifications have been made to the May 31, 2025 condensed

financial statements to conform to the May 31, 2026 condensed financial statements presentation.

These reclassifications had no effect

on net earnings.

New Accounting Pronouncements

The Financial Accounting Standards

Board (“FASB”) periodically issues new accounting standards in a continuing effort to improve standards of financial accounting

and reporting.

We have reviewed the recently issued pronouncements and concluded the following new accounting standard updates (“ASU”)

New Accounting Standards or Updates Not Yet Adopted

In December 2025, the FASB

issued ASU 2025-12, Codification Improvements (“ASU 2025-12”).

ASU 2025-12 addresses suggestions received from

stakeholders regarding the Accounting Standards Codification and makes other incremental improvements to U.S.

The update represents

changes to the Codification that clarify, correct errors in or make other improvements to a variety of topics that are intended to make

it easier to understand and apply.

ASU 2025-12 is effective for fiscal years beginning after December 15, 2026 and interim periods

within those fiscal years.

ASU 2025-12 addresses suggestions received from stakeholders

regarding the Accounting Standards Codification and makes other incremental improvements to U.S.

The update represents changes to

the Codification that clarify, correct errors in or make other improvements to a variety of topics that are intended to make it easier

to understand and apply.

ASU 2025-12 is effective for fiscal years beginning after December 15, 2026 and interim periods within those

fiscal years.

Entities are required to apply the amendments to ASC 260 retrospectively.

All other amendments may be applied

prospectively or retrospectively.

Early adoption is permitted.

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

statement disclosures.

All other amendments may be applied prospectively

or retrospectively.

We have adopted ASU 2025-12 and implemented its changes.

In December 2025, the Financial

19 unchanged sentences

its impact on the Company’s financial statements and disclosures.

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.

The Company is currently evaluating this ASU to determine its impact on

the Company’s financial statements and 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.

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

The Company is currently evaluating this ASU to determine its impact on the Company’s

financial statements and disclosures.

In November 2024, the FASB

5 unchanged sentences

or retrospectively.

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

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:

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 flows:

Cash and cash equivalents

1 unchanged sentence

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

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.

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

The Company also has a short-term certificate of deposit with the Company’s bank as collateral for business credit card use.

Company has classified the cash held in reserves by Nexio and PayPal and the restricted certificate of deposit as restricted cash.

3 – ASSETS HELD FOR SALE

The assets held for sale on

the balance sheet at February 28, 2025, totalling $ 19,277,000 consisted of disassembled equipment, the Hilti Complex and approximately

17 acres of excess land.

The assets held for sale at November 30, 2025, consists of disassembled equipment.

The Company has contracted

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

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

These processors hold cash payments

received from customers in reserve for a specified number of days to offset any potential chargebacks.

The Company also has a short-term

certificate of deposit with the Company’s bank as collateral for business credit card use.

The Company has classified the cash held

in reserves by Nexio and PayPal and the restricted certificate of deposit as restricted cash.

Note 3 – ASSETS HELD FOR SALE

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 disassembled equipment.

The Company is actively marketing unused equipment using a national on-line auction

house as of May 31, 2026.

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 disassembled equipment 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.

In the third quarter of fiscal 2026, the Company evaluated the carrying amount of the assets and the estimated fair

values less costs to sell and recorded an impairment loss on the assets of $ 287,100 .

In the first quarter of fiscal 2027 the Company again

evaluated the carrying amount of the assets and the estimated fair values less costs to sell and recorded another impairment loss on the

assets of $ 113,600 , further reducing the assets held for sale account.

The Company records assets

held for sale at the lower of their carrying value or fair value less costs to sell.

Hilti Complex

During the third quarter of

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

Ave, Tulsa, Oklahoma 74146 for sale.

consisted 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.

The Company ceased recording depreciation on the assets upon meeting the held for sale criteria

at the end of the third quarter of fiscal 2024.

On October 27, 2025, the

Company completed the sale of the Hilti Complex to 10Mark 10K Industrial, LLC.

The agreed upon sale price of the Hilti Complex per the

executed Contract totalled $ 32,200,000 .

The net proceeds less the carrying value of the assets held for sale resulted in a gain on sale

of $ 12,243,700 during the three months ended November 30, 2025.

Following the sale of the Hilti Complex, the 17 acres of excess land,

with a cost basis of $ 850,000 , was reclassified from Assets held for Sale to land as it no longer listed for sale.

The proceeds from

the sale were utilized to pay off the Term Loans and Revolving Loan outstanding in the Credit Agreement with the Company’s Bank.

At closing, EDC assigned the existing third-party tenant leases to the Buyer and executed a separate Triple-Net Lease (the “Lease”)

for its occupied space in the Hilti Complex.

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 disassembled equipment.

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

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 disassembled equipment 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,

The Company evaluated the carrying amount of the assets and the estimated fair values less costs to sell and recorded an impairment

loss on the assets of $ 287,100 during the three months ended November 30, 2025.

4 – INVENTORIES

consist of the following:

The total carrying value of assets held for sale

was $ 450,000 and $ 563,600 as of May 31, 2026, and February 28, 2026, respectively, and is separately recorded on the balance sheet.

Note 4 – INVENTORIES

Inventories consist of the

Product inventory

4 unchanged sentences

Inventories net – noncurrent

in transit totalled $ 132,400 and $ 25,500 at November 30, 2025 and February 28, 2025, respectively.

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.

have both lessee and lessor arrangements.

Our lessee arrangements include seven rental agreements where we have the exclusive use of

dedicated office space in San Diego, California, Ogden, Utah, Seattle, Washington, a warehouse space in Joplin, Missouri and 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.

Inventory in transit totalled

$ 47,600 and $ 147,900 at May 31, 2026 and February 28, 2026, 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

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.

In connection with the sale

6 unchanged sentences

Company and other tenants will be responsible for utilities, insurance, property taxes, and regular maintenance.

Leases – Lessee

We recognize an operating

17 unchanged sentences

Weighted-average discount rate 6.35 % 6.36 %

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

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

minimum rental payments under operating leases with initial terms greater than one year as of November 30, 2025, are as follows:

Minimum fixed rental payments

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

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

Fixed lease costs

Future minimum rental payments

under operating leases with initial terms greater than one year as of May 31, 2026, are as follows:

Years ending February 28,

3 unchanged sentences

Total operating lease liabilities

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

Three Months Ended

Nine Months Ended

The following table provides

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

Operating cash outflows – operating leases

15 unchanged sentences

renewal options will be exercised.

Leases – Lessor

The Company subleases some

office and warehouse space in one of its leased facilities.

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

ending February 28 (29),

The cost of the leased space

was approximately $ 0 and $ 16,333,900 as of November 30, 2025, and February 28, 2025, respectively.

The accumulated depreciation associated

with the leased assets was $ 0 and $ 3,906,700 as of November 30, 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.

During the third quarter of fiscal 2026, the Company completed the sale and leaseback of the Hilti Complex.

consists of the following:

Line of credit

Floating rate Term Loan

Fixed rate Term Loan

Total term debt

Less current maturities

( 26,685,500 )

Less debt issue cost

Long-term debt, net

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”).

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

The amendment, effective April 4,

2025, increased the Revolving Loan interest rate on the effective date to SOFR + 6.00 %, extended the maturity date of the Revolving Loan

to July 11, 2025, and includes a required step down on the Revolving Loan to $ 4,500,000 million on June 1, 2025.

The amendment also changed

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

August 12, 2025, Educational Development Corporation executed the Ninth Amendment to the Existing Credit Agreement with the Lender.

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.

The Company’s credit

agreement with its lender expired on September 19, 2025, with the balances of our Term Loans and the Revolving Loan 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 did not waive the specified defaults and reserved all of its rights, powers, privileges and remedies under the credit

agreement, the UCC, and applicable law.

Under the credit agreement, the lender had 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.

On October 27, 2025, the

Company repaid in full all outstanding indebtedness and terminated all commitments and obligations under its Credit Agreement dated August

9, 2022, between the Company and its Lender.

The Company’s payment, including interest, was approximately $ 30.0 million, which

satisfied all of the Company’s debt obligations with the Lender.

The Company did not incur any early termination penalties because

of the repayment of indebtedness or termination of the Amended and Restated Credit Agreement.

Further, the Lender waived the additional

2 % default interest charge associated with the Ninth Amendment.

In connection with the repayment of outstanding indebtedness, the Company

was released from all security interests, mortgages, liens and encumbrances under the Amended and Restated Credit Agreement with the

7 – OTHER INCOME

summary of other income is shown below:

Three Months Ended

Nine Months Ended

Other income (expense)

Gain from sale of assets

Rental income

Impairment on assets held for sale

Total other income

8 – BUSINESS CONCENTRATION

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

As of November 30, 2025, the Company did not meet the minimum purchase requirements and did not supply the letter of credit required

under the Agreement, which offers Usborne the right to exercise their option to terminate the Agreement.

Usborne has not notified the

Company of termination of the Agreement.

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

purchases made during fiscal 2022.

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

Additionally, under the terms in the Agreement, the Company no longer has the rights to distribute Usborne’s products

to retail customers through our Publishing division.

As a result, the Company discontinued selling Usborne products to retail customers

in the first quarter of fiscal 2024.

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

Note 6 – DEBT

In March 2026, the Company

executed a new credit agreement with Regent Bank (the Lender).

The loan agreement establishes a revolving promissory note in the principal

amount up to $ 2,000,000 .

Interest shall be calculated each month on the outstanding borrowings.

The credit agreement was secured by the

assets of the Company including accounts receivable, inventory, equipment and excess land.

The Lender also required the personal guarantee

of Craig White, President, Chief Executive Officer, and Chairman of the Board of the Company.

Available credit under the

current revolving line of credit with the Company’s Lender was $ 2,000,000 as of May 31, 2026.

Features of the loan agreement

(i) $ 2.0 million revolving loan with maturity date of March 6, 2027.

(i)(a) The revolving loan bears variable interest at a rate per annum equal to the U.S.

Prime Rate + 2.00 %.

(i)(b) The U.S.

Prime Rate was 6.75 % as of May 31, 2026, making the total interest rate equal to 8.75 %.

Note 7 – BUSINESS CONCENTRATION

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.

As of May 31,

2026, 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.

Additionally,

under the terms in the Agreement, the Company no longer has the rights to distribute Usborne’s products to retail customers through

our Publishing division.

As a result, the Company discontinued selling Usborne products to retail customers in the first quarter of fiscal

The following table summarizes

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

Three Months Ended

Nine Months Ended

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

9 unchanged sentences

Total purchases received

Usborne inventory owned by the Company and included in our balance sheets was $ 20,866,600 and $ 23,696,800 as of November 30, 2025, and

February 28, 2025, respectively.

9 – EARNINGS (LOSS) PER SHARE

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

outstanding during the period.

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

potential common shares issuable which include, where appropriate, the assumed exercise of options and the assumed vesting of granted

restricted share awards.

In computing Diluted EPS, we have utilized the treasury stock method.

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

Three Months Ended

Nine Months Ended

Net earnings (loss) per share:

Net earnings (loss) applicable to common shareholders

Total Usborne inventory owned

by the Company and included in our balance sheets was $ 19,568,500 and $ 20,158,500 as of May 31, 2026 and February 28, 2026, respectively.

Note 8 – INCOME TAXES

Deferred income taxes reflect

the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and

the amounts used for income tax purposes.

The tax effects of significant items comprising our net deferred tax assets and liabilities

are as follows:

Deferred tax assets:

Allowance for credit losses

Inventory overhead capitalization

Inventory valuation allowance

Inventory valuation allowance – noncurrent

Allowance for sales returns

Net operating loss carry forward (1)

Disallowed interest (2)

Total deferred tax assets

Deferred tax liabilities:

Property, plant, and equipment

( 1,082,400 )

( 1,121,600 )

Weighted average shares outstanding:

Earnings (loss) per share:

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

to the calculation above.

Three Months Ended

Nine Months Ended

Weighted average shares:

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

10 – SHARE-BASED COMPENSATION

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.

July 2018, our shareholders approved the Company’s 2019 Long-Term Incentive Plan (“2019 LTI Plan”).

The 2019 LTI Plan

established up to 600,000 shares of restricted stock available to be granted to certain members of management based on exceeding specified

net revenues and pre-tax performance metrics during fiscal years 2019, 2020 or 2021.

The Company exceeded all defined metrics during

these fiscal years and 600,000 shares were granted to members of management according to the Plan.

The granted shares under the 2019

LTI Plan “cliff vest” after five years from the fiscal year that the defined metrics were exceeded.

All remaining shares

under the 2019 Long-Term Incentive Plan vested on February 28, 2025.

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

Three Months Ended

Nine Months Ended

Share-based compensation expense - net of forfeitures

11 – SHIPPING AND HANDLING COSTS

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

Shipping and handling

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

These costs were $ 919,000 and $ 1,350,400

for the three months ended November 30, 2025 and 2024, respectively.

These costs were $ 2,296,000 and $ 3,865,500 for the nine months ended

November 30, 2025 and 2024, respectively.

12 – BUSINESS SEGMENTS

Total deferred tax liabilities

( 1,082,400 )

( 1,121,600 )

Valuation allowance (3)

( 1,926,900 )

( 1,554,800 )

Net deferred tax assets

(1) The Company’s net operating loss (“NOL”) carry forward was generated from losses incurred in fiscal 2025 and first quarter of fiscal 2027.

The Company’s NOL can be carried forward indefinitely but are limited to an 80 % maximum offset of taxable income.

(2) The Company’s disallowed interest was generated from interest expense that was not deductible for tax purposes due to a maximum allowable deduction of 30 % of taxable income.

The disallowed interest is carried forward to be deducted against future income, subject to the 30 % limitation.

(3) In evaluating the need for a valuation allowance and the realizability

of deferred tax assets, the Company utilized the framework contained in ASC 740, “Income Taxes,” pursuant to which management

analysed all positive and negative evidence available at the balance sheet date to determine whether all or some portion of the deferred

tax assets will not be realized.

Under this guidance, a valuation allowance must be established for deferred tax assets when it is more

likely than not that they will not be realized.

In conclusion, management placed significant emphasis on guidance in ASC 740, which includes

that a cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome.

Based upon available

evidence, it was concluded on a more-likely-than-not basis that certain deferred tax assets were not realizable as of May 31, 2026 and

February 28, 2026.

Accordingly, a valuation allowance has been recorded to offset these deferred tax assets.

The reconciliation of taxes at the federal statutory

rate to our provision for income taxes for the three months ended May 31, 2026 was as follows:

federal statutory income tax rate

$ ( 289,600 )

state and local income taxes, net of federal benefit

Changes in valuation allowance

Effective tax rate

The components of income

tax expense (benefit) are as follows:

State and local

Total income tax expense (benefit)

$ ( 374,100 )

The following reconciles our

expected income tax rate to the U.S.

federal statutory income tax rate:

federal statutory income tax rate

state and local income taxes–net of federal benefit

Valuation allowance

Total income tax (expense) benefit

Note 9 – SHIPPING AND HANDLING COSTS

We classify shipping and handling

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

Shipping and handling costs include postage, freight,

handling costs, as well as shipping materials and supplies.

These costs were $ 571,000 and $ 805,200 for the three months ended May 31,

2026 and 2025, respectively.

Note 10 – BUSINESS SEGMENTS

We have two reportable segments:

3 unchanged sentences

They are managed separately based on the fundamental differences in their operations.

Our PaperPie segment markets its

products through a network of independent Brand Partners using a combination of internet sales, direct sales, home shows, and book fairs.

Our Publishing segment markets its products to retail accounts, which include book, school supply, toy and gift stores, museums, trade

and specialty wholesalers, through commissioned sales representatives, and our internal tele-sales group.

See Note 8 for the impact of

our updated Usborne distribution agreement on the Publishing segment.

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 PaperPie segment markets its products

through a network of independent Brand Partners using a combination of internet sales, direct sales, home shows, and book fairs.

Our Publishing

segment markets its products to retail accounts, which include book, school supply, toy and gift stores, museums, trade and specialty

wholesalers, through commissioned sales representatives, and our internal tele-sales group.

See Note 7 for the impact of our updated Usborne

distribution agreement on the Publishing segment.

The accounting policies for

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

We evaluate segment performance based on earnings before income taxes

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

Direct expenses are composed of

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

Corporate expenses, depreciation, interest expense,

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

Corporate expenses

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

and building facilities management.

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

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.

by reporting segment for the three and nine month periods ended November 30, 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 three-month

periods ended May 31, 2026 and 2025, are as follows:

Three Months Ended

Nine Months Ended

EARNINGS (LOSS) BEFORE INCOME TAXES

LOSS BEFORE INCOME TAXES

Three Months Ended

Nine Months Ended

( 1,848,700 )

2 unchanged sentences

$ ( 1,449,300 )

OPERATING RESULTS

following table summarizes the operating results of the PaperPie segment for the three and nine months ended November 30, 2025 and 2024:

PUBLISHING OPERATING RESULTS

The following table summarizes

the operating results of the Publishing segment for the three months ended May 31, 2026 and 2025:

Three Months Ended

Nine Months Ended

Cost of goods sold

5 unchanged sentences

Operating income

OPERATING RESULTS

following table summarizes the operating results of the Publishing segment for the three and nine months ended November 30, 2025 and

PAPERPIE OPERATING RESULTS

The following table summarizes

the operating results of the PaperPie segment for the three months ended May 31, 2026 and 2025:

Three Months Ended

Nine Months Ended

Cost of goods sold

5 unchanged sentences

Operating income

for the Other segment above for the three and nine months ended November 30, 2025 and 2024 is set forth below:

NON-SEGMENT LOSS (EARNINGS) BEFORE INCOME TAXES

Information for the Other

segment above for the three months ended May 31, 2026 and 2025 is set forth below:

OTHER NON-SEGMENT LOSS BEFORE INCOME TAXES

Three Months Ended

Nine Months Ended

Operating and selling:

4 unchanged sentences

Outside services

Property taxes

Property insurance

3 unchanged sentences

Interest expense

Other income:

Gain from sale of assets

( 12,243,700 )

( 12,186,700 )

( 1,745,900 )

Total other income

( 12,516,300 )

( 13,812,300 )

( 1,745,900 )

Total other non-segment loss (earnings) before income taxes

$ ( 9,987,900 )

$ ( 5,927,900 )

13 – FINANCIAL INSTRUMENTS

following methods and assumptions are used in estimating the fair-value disclosures for financial instruments:

Other (income) loss

Total other non-segment loss before income taxes

Note 11 – 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 $ 563,600 as of November 30, 2025, and $ 37,000,000 February 28, 2025, respectively.

- The estimated fair value of our term notes payable is estimated by management to approximate $ 0 and $ 26,507,100 as of November 30, 2025 and February 28, 2025, respectively.

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

14 – DEFERRED REVENUES

Company’s PaperPie division receives payments on orders in advance of shipment.

Any payments received prior to the end of the period

that were not shipped as of November 30, 2025 or February 28, 2025 are recorded as deferred revenues on the balance sheets.

approximately $ 696,000 and $ 491,800 as of November 30, 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.

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

Affecting Forward-Looking Statements

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

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

- The estimated fair value of our assets held for sale was $ 450,000 as of May 31, 2026 and $ 563,600 February 28, 2026, respectively.

Note 12 – 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, 2026 or February 28, 2026 are recorded as deferred revenues on the balance sheets.

We received approximately $ 417,000 and

$ 320,500 as of May 31, 2026 and February 28, 2026, respectively, in payments for sales orders which were, or will be, shipped out subsequent

to the end of the period.

MANAGEMENT ’ S

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Factors Affecting Forward-Looking Statements

See “ Cautionary

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

We are the owner and exclusive

publisher of Kane Miller children’s books;

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

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.

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 and certain payments were not received timely.

No notification of non-compliance

or termination has been received from Usborne.

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

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

We sell our products through

two separate divisions, PaperPie and Publishing.

These two divisions each have their own customer base.

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.

following table shows our condensed statements of operations data:

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:

Three Months Ended

Nine Months Ended

Product revenues, net of discounts and allowances

7 unchanged sentences

Interest expense

Gain from sale of assets

(12,243,700 )

(12,186,700 )

Total other income

(12,516,300 )

(13,812,300 )

Earnings (loss) before income taxes

Other (income) expense

Loss before income taxes

Income tax expense (benefit)

Net earnings (loss)

$ (1,395,600 )

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

The following

is a discussion of significant changes in the non-segment related general and administrative expenses, other income and expenses and

income taxes during the respective periods.

Operating Results for the Three Months Ended November 30, 2025

operating expenses not associated with a reporting segment decreased $0.4 million, or 15.4%, to $2.2 million for the three-month

period ended November 30, 2025, when compared to $2.6 million for the same quarterly period a year ago.

Operating expenses decreased

primarily because of a $0.2 million decrease in labor expense within our warehouse operations due to lower number of orders, as well

as a $0.2 million decrease in freight handling expenses due to less orders being shipped compared to prior year.

expense decreased $0.2 million, or 33.3%, to $0.4 million for the three months ended November 30, 2025, when compared to $0.6 million

for the same quarterly period a year ago, 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.

income increased $11.8 million to $12.5 million for the three months ended November 30, 2025, when compared to $0.7 million for the

same quarterly period a year ago resulting from the gain of $12.2 million from the sale of the Hilti Complex, offset by a $0.1 million

decrease in rental income from the sale of the Hilti Complex and a $0.3 million loss due to the impairment of the line equipment in assets

held for sale.

taxes increased $3.1 million to an income tax expense of $2.8 million for the three months ended November 30, 2025, from a tax benefit

of $0.3 million for the same quarterly period a year ago, resulting primarily from an increase in other income as result of the sale

of the Hilti Complex.

Our effective tax rate increased to 26.7% for the quarter ended November 30, 2025, from 24.8% for the quarter ended

November 30, 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.

Operating Results for the Nine Months Ended November 30, 2025

$ (1,075,200 )

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,

Total operating expenses

not associated with a reporting segment decreased $1.2 million, or 15.8%, to $6.4 million for the nine month period ended November 30,

2025, when compared to $7.6 million for the same period a year ago.

Labor expenses decreased $0.7 million from staff reductions across

all departments, a decrease in freight handling of $0.2 million due to less overall sales orders and shipments compared to the prior year,

and a $0.3 million decrease in depreciation expense related to the reclassification of the disassembled equipment to assets held for sale

and resulting in the discontinuation of depreciation.

expense decreased $0.2 million, or 11.8%, to $1.5 million for the nine months ended November 30, 2025, when compared to $1.7 million

for the same quarterly period a year ago, due to the sale of the Hilti Complex on October 27, 2025 and resulting debt payoff.

Other income increased

$12.1 million to $13.8 million for the nine months ended November 30, 2025, when compared to $1.7 million for the same quarterly period

a year ago, primarily from the sale of the Hilti Complex, which resulted in an increase of other income due to the gain of $12.2 million

and an increase in rental income of $0.3 million, offset by $0.3 million from the impairment of the line equipment in assets held for

sale and a $0.1 million decrease in other income related to a Chick-fil-A promotion held last year.

taxes increased $3.4 million to a tax expense of $2.0 million for the nine months ended November 30, 2025, from a tax benefit of

$1.4 million for the same period a year ago, primarily related to the increase in other income associated with the sale of the Hilti

Our effective tax rate increased to 27.0% for the nine months ended November 30, 2025, from 26.4% for the nine months ended

November 30, 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.

Operating Results for the Three and Nine Months Ended November 30, 2025

following table summarizes the operating results of the PaperPie segment:

not associated with a reporting segment decreased $0.5 million, or 22.7%, to $1.7 million for the three-month period ended May 31, 2026,

when compared to $2.2 million for the same quarterly period a year ago.

Operating expenses decreased primarily as a result of a $0.2 million

decrease in labor expenses and a $0.1 million decrease in freight expense, due primarily to a lower number of outbound shipments, and

a $0.1 million decrease in outside services expense as well as a $0.1 million decrease in various other general and administrative expenses.

Interest expense decreased

$0.5 million, or 100.0%, to $0.0 million for the three months ended May 31, 2026, when compared to $0.5 million for the same quarterly

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

Income taxes increased

$0.4 million, or 100.0%, to $0.0 million expense for the three months ended May 31, 2026, from a tax benefit of $0.4 million for the

same quarterly period a year ago, resulting primarily from a decrease in gross sales along with tax valuation allowance offsetting our

net operating loss benefit due to the uncertainty that our deferred tax asset will be realizable.

Our effective tax rate decreased to

(1.2)% for the quarter ended May 31, 2026, from 25.8% for the quarter ended May 31, 2025 due primarily to sales mix fluctuations between

states and the tax valuation allowance booked during the quarter.

Our tax rates are lower than the federal statutory rate of 21% due

to the inclusion of state income and franchise taxes offset by the tax valuation allowance.

PaperPie Operating Results for the Three Months

Ended May 31, 2026

The following table summarizes

the operating results of the PaperPie segment for the three months ended May 31, 2026 and 2025:

Three Months Ended

Nine Months Ended

Cost of goods sold

6 unchanged sentences

Average number of active Brand Partners

Operating Results for the Three Months Ended November 30, 2025

PaperPie Operating Results for the Three Months

Ended May 31, 2026

PaperPie net revenues decreased

$3.6 million, or 36.7%, to $6.2 million during the three months ended November 30, 2025, when compared to $9.8 million during the same

period a year ago.

The average number of active brand partners in the third quarter of fiscal 2026 was 5,100, a decrease of 7,300, or

58.9%, from 12,400 average active brand partners selling in the third 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

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 revised Usborne distribution agreement increased Brand Partner turnover and has negatively impacted new Brand Partner recruits over

the past two years.

$1.9 million, or 31.1%, to $4.2 million during the three months ended May 31, 2026, when compared to $6.1 million during the same period

The average number of active brand partners in the first quarter of fiscal 2027 was 5,300, a decrease of 2,400, or 31.2%,

from 7,700 average active brand partners selling in the first quarter of fiscal 2026.

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 and our distribution agreement with Usborne whereby Usborne actively sells their products through discounted

retailers in the U.S.

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

The Company has started to place reorders and purchase new titles following the sale of the Hilti Complex and the payoff of

the loans with our bank at the end of the third quarter fiscal 2026.

The Company plans to return 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 which should increase our number of new recruits in this division.

gross margin decreased $2.3 million, or 37.1%, to $3.9 million during the three months ended November 30, 2025, when compared to $6.2

million during the same period a year ago.

Gross margin as a percentage of net revenues for the three months ended November 30, 2025

decreased to 62.1%, compared to 62.9% for the same period a year ago.

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

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

our lender in the first three quarters of fiscal year 2026.

Following the sale of the Hilti Complex in fiscal 2026 and corresponding payoff

of the revolver and term loans with our bank which removed our purchasing restrictions, we have begun a conservative plan to place reorders

and purchase new titles.

The Company is 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

$1.1 million, or 30.6%, to $2.5 million during the three months ended May 31, 2026, when compared to $3.6 million during the same period

Gross margin as a percentage of net revenues for the three months ended May 31, 2026 increased to 59.7%, compared to 59.3%

the same period a year ago.

The increase in gross margin as a percentage of net revenues was primarily attributed to product mix.

Total PaperPie operating expenses

decreased $1.7 million, or 33.3%, to $3.4 million during the three-month period ended November 30, 2025, when compared to $5.1 million

reported in the same quarter a year ago.

decreased $1.0 million, or 32.3%, to $2.1 million during the three-month period ended May 31, 2026, when compared to $3.1 million reported

in the same quarter a year ago.

Operating and selling expenses decreased $0.2 million, or 28.6%, to $0.5 million during the three-month

period ended November 30, 2025, when compared to $1.3 million reported in the same quarter a year ago.

These decreased expenses were due

to a $0.2 million decrease in shipping costs associated with the decrease in sales and volume of orders shipped, and a decrease of $0.1

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

Sales commissions decreased

$1.3 million, or 39.4%, to $2.0 million during the three-month period ended November 30, 2025, when compared to $3.3 million reported

in the same quarter a year ago, due primarily to the decrease in net revenues, which resulted in a decrease of weekly commissions of $0.7

million, a $0.5 million decrease in commission overrides, as well as a $0.1 million decrease in commissions related to sales bonus.

and administrative expenses decreased $0.1 million, or 20.0%, to $0.4 million during the three months ended November 30, 2025, when compared

to $0.5 million during the same period a year ago due to a decrease in credit card transaction fees associated with decreased sales volumes.

income for the PaperPie segment decreased $0.5 million or 50%, to $0.5 million during the three months ended November 30, 2025, when

compared to the loss of $1.0 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 November 30, 2025 decreased to 8.4%, when compared to 10.4% for the year ended November 30, 2024,

a decrease of 2.0%.

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 are both offset

by a decrease in operating expenses as shown above.

Operating Results for the Nine Months Ended November 30, 2025

PaperPie net revenues decreased

$8.1 million, or 33.6%, to $16.0 million during the nine-month period ended November 30, 2025, compared to $24.1 million from the same

period a year ago.

The average number of active brand partners in the nine-month period ended November 30, 2025, was 6,200, a decrease

of 7,100, or 53.4%, from 13,300 selling in same period a year ago.

Recruiting and maintaining brand partners has been negatively impacted

by several factors including continued 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 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 the first nine months of fiscal 2026 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 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.

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.

We have begun a conservative plan to place reorders and purchase new titles since the sale of the Hilti

Complex and the payoff of the loans with our bank.

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.

margin decreased $5.4 million, or 36.0%, to $9.6 million during the nine-month period ended November 30, 2025, when compared to $15.0

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 60.1% for the nine-month period ended November 30, 2025, when compared to 62.1% for the same period a year ago.

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.

operating expenses decreased $4.9 million, or 36.0%, to $8.7 million during the nine-month period ended November 30, 2025, from $13.6

million for the same period a year ago.

Operating and selling expenses decreased $1.7 million, or 42.5%, to $2.3 million during the nine-month

period ended November 30, 2025, when compared to $4.0 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 $1.2 million, as well

as a $0.5 million decrease in brand partner incentive trip expenses as fewer brand partners are expected to earn the trip this year.

Sales commissions decreased $2.9 million, or 35.8%, to $5.2 million during the nine-month period ended November 30, 2025, when compared

to $8.1 million reported in the same period a year ago primarily due to the decrease in net revenues, which resulted in a decrease of

weekly commissions of $1.6, a $1.2 million decrease in monthly commission overrides, as well as a decrease in sales bonus’ of $0.1

General and administrative expenses decreased $0.3 million, or 20.0%, to $1.2 million, from $1.5 million recognized during the

same period last year, due primarily to $0.2 million of decreased credit card transaction fees associated with decreased sales volumes

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

income of the PaperPie segment decreased $0.3 million, or 23.1%, to $1.0 million during the nine months ended November 30, 2025, when

compared to $1.3 million reported in the same period last year.

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

for the nine months ended November 30, 2025 was 6.0%, compared to 5.5% for the nine months ended November 30, 2024.

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 are both offset by the decrease in operating expenses

as shown above.

Operating Results for the Three and Nine Months Ended November 30, 2025

following table summarizes the operating results of the Publishing segment:

period ended May 31, 2026, when compared to $0.7 million reported in the same quarter a year ago.

These decreased expenses were due to

a $0.1 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.

Sales commissions decreased $0.7 million, or 35.0%, to $1.3 million during the three-month

period ended May 31, 2026, when compared to $2.0 million reported in the same quarter a year ago, due primarily to the decrease in net

General and administrative expenses decreased $0.1 million, or 25.0%, to $0.3 million during the three months ended May 31,

2026, when compared to $0.4 million during the same period a year ago.

This decrease was due to a $0.1 million decrease in depreciation

expense associated with the discontinued operation of line equipment currently in assets held for sale.

Operating income for the PaperPie

segment decreased $0.1 million, or 20.0% to $0.4 million during the three months ended May 31, 2026, when compared to $0.5 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,

2026 was 9.1%, compared to 7.6% for the year ended May 31, 2025, an increase of 1.5%.

Operating income as a percentage of net revenues

changed from the prior year primarily due to both the decrease in operating and selling expenses and general and administrative expenses

compared to last fiscal year.

Publishing Operating Results for the Three

Months Ended May 31, 2026

The following table summarizes

the operating results of the Publishing segment for the three months ended May 31, 2026 and 2025:

Three Months Ended

Nine Months Ended

Cost of goods sold

1 unchanged sentence

Operating income

Operating Results for the Three Months Ended November 30, 2025

Our Publishing

division’s net revenues decreased $0.5 million, or 38.5%, to $0.8 million during the three-month period ended November 30,

2025, from $1.3 million reported in the same period a year ago.

The change in net revenues was directly associated with the decrease

in overall sales volume offset by a slight decrease in discounts.

margin decreased $0.4 million, or 50.0%, to $0.4 million during the three-month period ended November 30, 2025, from $0.8 million reported

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

Gross margin as a percentage of net revenues decreased

to 56.4% during the three-month period ended November 30, 2025, from 58.9% reported in the same quarter a year ago.

Gross margin as a

percentage of net revenues changed primarily from the increase in cost of goods due to the additional tariffs implemented by the current

administration on our SmartLab Toys product line.

operating expenses of the Publishing segment stayed consistent at $0.3 million, during the three-month periods ended November 30, 2025

and 2024, respectively.

income decreased $0.3 million, or 75.0%, to $0.1 million during the three-month period ended November 30, 2025, from $0.4 million reported

in the same quarter a year ago, respectively.

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

ended November 30, 2025 was 17.2%, compared to 33.1% for the year ended November 30, 2024, a decrease of 15.9%.

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.

Operating Results for the Nine Months Ended November 30, 2025

Publishing Operating Results for the Three

Months Ended May 31, 2026

Our Publishing division’s

net revenues decreased by $0.7 million, or 20.6%, to $2.7 million during the nine-month period ended November 30, 2025, from $3.4 million

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

volume compared to the prior year.

margin decreased $0.5 million, or 25.0%, to $1.5 million during the nine-month period ended November 30, 2025, from $2.0 million reported

net revenues decreased $0.4 million, or 40.0%, to $0.6 million during the three-month period ended May 31, 2026, from $1.0 million reported

in the same period a year ago.

Gross margin as a percentage of net revenues decreased to 55.7%, during the nine-month period ended November

30, 2025, from 59.4% reported in the same period a year ago.

Gross margin as a percentage of net revenues changed primarily from changes

in the mix of products sold between EDC-owned brands:

Kane Miller, SmartLab Toys and Learning Wrap-Ups products, as well as the increase

in cost of goods due to the additional tariffs implemented by the current administration on our SmartLab Toys product line.

operating expenses of the Publishing segment decreased $0.1 million, or 9.1%, to $1.0 million during the nine-month period ended November

30, 2025, from $1.1 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 from decreased sales.

income of the Publishing segment decreased $0.4 million, or 44.4%, to $0.5 million during the nine-month period ended November 30, 2025

when compared to $0.9 million reported in the same period a year ago, due primarily to the decrease in sales and increase in cost of

goods and operating and selling expenses compared to the prior year.

and Capital Resources

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.

The change in net revenues was primarily from an overall sales volume decrease that was driven by the decrease

in new titles available to present to our retail customers due to the purchasing restrictions in fiscal 2026 imposed by our lender.

Gross margin decreased $0.2

million, or 40.0%, to $0.3 million during the three-month period ended May 31, 2026, from $0.5 million reported in the same quarter a

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

Gross margin as a percentage of net revenues increased to 56.7% during the three-month

period ended May 31, 2026, from 52.2% 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 last year to spur sales.

Total operating expenses of

the Publishing segment decreased $0.1 million, or 33.4%, to $0.2 million, from $0.3 million, during the three-month periods ended May

31, 2026 and 2025, respectively.

This change was primarily due to a $0.1 million decrease in different general and administrative expenses

associated with the decrease in volume of orders shipped.

Operating income of the Publishing

division decreased $0.1 million, or 50.0%, to $0.1 from $0.2 million for the three-month periods ending May 31, 2026 and 2025, respectively.

Operating income for the Publishing division as a percentage of net revenues for the year ended May 31, 2026 was 15.7%, compared to 20.0%

for the year ended May 31, 2025, a decrease of 4.3%.

Operating income as a percentage of net revenues changed from the prior year primarily

due to the decrease in operating and selling expenses compared to last 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.

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 its owned real estate and paid off the revolving line of credit and term debts with our bank.

cash has historically been used to pay down the outstanding bank loan balances, for capital expenditures, to pay dividends, and to acquire

treasury stock.

the first nine months of fiscal year 2026, we experienced positive cash inflows from operations of $4,004,600.

These cash inflows resulted

earnings of $5,432,200

income taxes of $1,358,500

and amortization expense of $1,085,700

on assets held for sale of $287,100

for inventory allowance of $108,000

for credit losses of $30,000

gain on sale of assets of $12,186,700

in inventories, net of $5,444,700

in accounts receivable of $1,336,300

in income taxes payable of $852,600

in prepaid expenses and other assets of $235,400

in deferred revenues of $204,200

in accounts payable of $200,800

in accrued salaries and commissions, and other liabilities of $384,200

provided by investing activities totalled $29,480,500, consisting of $29,927,600 in proceeds from the sale of the Hilti Complex offset

by $282,500 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.

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

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.

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.

The Company’s continued

recurring operating losses raise substantial doubt over the Company’s ability to continue as a going concern.

To address these concerns

management’s plans include reducing inventory, to generate free cash flows and building the active PaperPie Brand Partners to pre-pandemic

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 have both lessee and lessor

arrangements.

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

Diego, California, Ogden, Utah, Seattle, Washington, a warehouse space in Joplin, Missouri and 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.

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 its owned real estate 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 the first three months

of fiscal year 2027, we experienced positive cash inflows from operations of $564,300.

These cash inflows resulted from:

net loss of $1,395,600

Adjusted for:

depreciation and amortization expense of $273,100

impairment on assets held for sale of $113,600

provision for inventory allowance of $36,000

provision for credit losses of $6,000

net gain on sale of assets of $800

Positively impacted by:

decrease in inventories, net of $1,418,800

i ncrease in income taxes payable of $6,800

decrease in accounts receivable of $284,800

increase in deferred revenues of $96,500

Negatively impacted by:

decrease in accounts payable of $68,200

decrease in accrued salaries and commissions, and other liabilities of $97,800

increase in prepaid expenses and other assets of $108,900

Cash used in investing activities

was $95,200 for capital expenditures, consisting of $96,000 in upgrades to our proprietary systems that our PaperPie Brand Partners use

to monitor their business and place customer orders offset by $800 from the sale of machinery and equipment.

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 have obtained a $2 million short-term loan 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.

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, 2026 included

in our Form 10-K.

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

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.

We recognize an operating

23 unchanged sentences

renewal options will be exercised.

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

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 November 30, 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 November

30, 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 May 31, 2026 and February 28, 2026, 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 $17.5 million and $16.3 million at November 30, 2025 and February 28, 2025, respectively.

inventory valuation allowances were $0.8 million at November 30, 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 20.0% of our

active Brand Partners maintained consignment inventory at the end of the third 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 $1.3 million at November 30, 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 $1.3 million and $1.2 million

at November 30, 2025 and February 28, 2025.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 $21.0 million and $21.1 million at May 31, 2026 and February 28, 2026, respectively.

Noncurrent inventory valuation allowances were

$0.9 million at May 31, 2026 and $0.8 million at February 28, 2026.

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 19.5% of our active Brand Partners maintained consignment

inventory at the end of the first quarter of fiscal year 2027.

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 $1.0 million and $1.1 million at May 31, 2026 and February 28, 2026, 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 May 31, 2026 and February 28, 2026.

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