What changed in this filing

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Item 1. Financial Statements

2026-10-14 compared with 2026-07-09 · 417 added, 358 removed, 499 unchanged (61% of the section changed)

5 unchanged sentences

Restricted cash

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

Accounts receivable, less allowance for credit losses of $ 93,800 (August 31) and $ 109,600 (February 28)

Inventories - net

14 unchanged sentences

Total current liabilities

OPERATING LEASE LIABILITIES, noncurrent

OPERATING LEASE LIABILITIES, non-current

OTHER LONG-TERM LIABILITIES

4 unchanged sentences

Issued 12,702,080 shares;

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

Outstanding 8,524,964 (August 31) and 8,511,364 (February 28) shares

Capital in excess of par value

5 unchanged sentences

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

See notes to condensed financial statements (unaudited).

notes to condensed financial statements (unaudited).

EDUCATIONAL DEVELOPMENT CORPORATION

1 unchanged sentence

Three Months Ended

Six Months Ended

PRODUCT REVENUES, net of discounts and allowances

8 unchanged sentences

OTHER (INCOME) LOSS

( 1,296,000 )

LOSS BEFORE INCOME TAXES

1 unchanged sentence

( 1,750,200 )

( 2,940,700 )

( 3,199,500 )

INCOME TAX EXPENSE (BENEFIT)

1 unchanged sentence

$ ( 1,294,700 )

$ ( 2,973,700 )

$ ( 2,369,900 )

BASIC AND DILUTED LOSS PER SHARE

1 unchanged sentence

Dividends per share

See notes to condensed financial statements (unaudited).

notes to condensed financial statements (unaudited).

EDUCATIONAL DEVELOPMENT CORPORATION

CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS ’ EQUITY (UNAUDITED)

FOR THE THREE MONTHS ENDED MAY 31, 2026

Common Stock (par value $0.20 per share)

SIX MONTHS ENDED AUGUST 31, 2026

Common Stock (par value

$0.20 per share)

Treasury Stock

6 unchanged sentences

$ ( 13,147,500 )

FOR THE THREE MONTHS ENDED MAY 31, 2025

Common Stock (par value $0.20 per share)

Issuance of treasury shares to independent directors

( 1,578,100 )

BALANCE – August 31, 2026

$ ( 13,104,800 )

SIX MONTHS ENDED AUGUST 31, 2025

Common Stock (par value

$0.20 per share)

Treasury Stock

Comprehensive

Other Comprehensive Income

Shareholders’

6 unchanged sentences

$ ( 13,060,400 )

See notes to condensed financial statements (unaudited).

( 1,294,700 )

BALANCE - August 31, 2025

$ ( 13,060,400 )

notes to condensed financial statements (unaudited).

EDUCATIONAL DEVELOPMENT CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

Three Months Ended

Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES

6 unchanged sentences

Provision for inventory valuation allowance

Issuance of treasury shares to independent directors

Net loss (gain) on sale of assets

Impairment loss on assets

Impairment loss

Changes in assets and liabilities:

14 unchanged sentences

Payments on term debt

Net cash used in financing activities

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

Net cash provided by (used in) financing activities

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

CASH, CASH EQUIVALENTS AND RESTRICTED CASH - BEGINNING OF PERIOD

4 unchanged sentences

$ ( 200,100 )

NONCASH TRANSACTIONS

Leased assets obtained in exchange for operating lease liabilities

See notes to condensed financial statements (unaudited).

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES

Issuance of treasury shares to independent directors

notes to condensed financial statements (unaudited).

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.

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, 2026 included in our Form 10-K.

The results of operations

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

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.

Actual results could differ from those estimates.

Significant Accounting Policies

Our significant accounting

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

with those disclosed in Note 1 to our audited financial statements as of and for the year ended February 28, 2026 included in our Form

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,

2026 included in our Form 10-K.

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.

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

All other amendments may be applied prospectively

or retrospectively.

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

In December 2025, the Financial

Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2025-11, Interim Reporting (Topic

270) Improvements to Interim Disclosure Requirements.

The standard clarifies disclosure requirements for interim financial statements

and is effective for interim periods beginning after December 15, 2027.

reclassifications have been made to the August 31, 2025 notes to condensed financial statements to conform to the August 31, 2026 notes

to condensed financial statements presentation.

These reclassifications had no effect on net earnings.

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

December 2025, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2025-11,

Interim Reporting (Topic 270) Improvements to Interim Disclosure Requirements.

The standard clarifies disclosure requirements for interim

financial statements and is effective for interim periods beginning after December 15, 2027.

Early adoption is permitted.

We are currently evaluating the impact

this ASU may have on our financial statement disclosures.

In September 2025, the FASB

issued ASU 2025-06, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40):

Targeted Improvements to the Accounting

for Internal-Use Software (“ASU 2025-06”), which requires software capitalization to begin when both of the following occur:

We are currently

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

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.

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.

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

September 2025, the FASB issued ASU 2025-06, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40):

Targeted Improvements

to the Accounting for Internal-Use Software (“ASU 2025-06”), which requires software capitalization to begin when both of

the following occur:

(1) management has authorized and committed to funding the software project;

and (2) it is probable that the project will be completed

and the software will be used to perform the function intended.

For public entities, the provisions within ASU 2025-06 are effective for

the first annual and interim reporting periods beginning after December 15, 2027, with early adoption permitted.

The provisions within

ASU 2025-06 allow for a prospective, modified, or retrospective transition approach.

The Company is currently evaluating this ASU to determine

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

In November 2024, the FASB

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

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

expense captions presented on the income statement.

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

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

or retrospectively.

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

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:

and (2) it is probable that the project

will be completed and the software will be used to perform the function intended.

For public entities, the provisions within ASU 2025-06

are effective for the first annual and interim reporting periods beginning after December 15, 2027, with early adoption permitted.

provisions within ASU 2025-06 allow for a prospective, modified, or retrospective transition approach.

The Company is currently evaluating

this ASU to determine its impact on the Company’s financial statements and disclosures.

November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures

(Subtopic 220-40):

Disaggregation of Income Statement Expenses , which requires disclosure about the types of costs and expenses

included in certain expense captions presented on the income statement.

The new disclosure requirements are effective for annual reporting

periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted, and

may be applied either prospectively or retrospectively.

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

financial statements and disclosures.

table below reconciles cash, cash equivalents and restricted cash as reported in the balance sheets to the total of the same amounts

shown in the statements of cash flows:

Cash and cash equivalents

1 unchanged sentence

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

The Company has contracted

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

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

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 a local lender in the amounts of $ 25,000 and $ 100,000 as of August 31,

2026 and August 31, 2025, 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.

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

5 unchanged sentences

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.

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

house as of August 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.

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

The total carrying value

of assets held for sale was $ 450,000 and $ 563,600 as of August 31, 2026, and February 28, 2026, respectively, and is separately recorded

on the balance sheet.

4 – INVENTORIES

consist of the following:

Product inventory

4 unchanged sentences

Inventories net – noncurrent

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

of the Hilti Complex, the Company leased back a portion of the Complex for office and warehouse space.

The term of the lease is 10 years,

and the initial lease rate is $ 8.00 per square foot, with 2.5 % annual escalations.

The Company also has two five-year renewal and extension

options with 2.5% increases annually in the base rental rate of the preceding year.

The Lease also includes triple-net terms, where the

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

We recognize an operating

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

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

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

Expected payments in the next twelve months are classified

as current operating lease liabilities.

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

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

accrued rent balances existing at the time of initial recognition.

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

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

in transit totaled $ 84,000 and $ 147,900 at August 31, 2026 and February 28, 2026, 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.

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.

following summarizes right-of-use assets and lease liabilities reported in our condensed balance sheets:

2026 February 28,

6 unchanged sentences

Weighted-average discount rate 5.93 % 6.36 %

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.

following summarizes the lease expense activity for periods reported in our condensed statements of operations:

Three Months Ended

Six Months Ended

Fixed lease costs

Future minimum rental payments

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

minimum rental payments under operating leases with initial terms greater than one year as of August 31, 2026, are as follows:

Years ending February 28,

3 unchanged sentences

Total operating lease liabilities

The following table provides

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

following table provides further cash flow information about our operating leases reported in our condensed statements of cash flows:

Three Months Ended

Six Months Ended

Operating cash outflows – operating leases

NONCASH TRANSACTIONS

Lease assets obtained in exchange for new lease liabilities

The Company assesses its leases

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

In general, most of the office space outside

of Tulsa, Oklahoma is associated with remote employees.

Their continued employment determines the need for this space.

Much of the warehouse

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

As the Company sells down excess inventory, less outside space

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

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

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

Accordingly, the renewal options are not included in the

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

renewal options will be exercised.

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 .

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.

The credit agreement

was secured by the assets of the Company including accounts receivable, inventory, equipment and 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 August 31, 2026.

of the loan agreement include:

(i) Maturity date of March 6, 2027.

(ii) 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

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

PaperPie division

% of total PaperPie Product revenues, net of discounts

Publishing division

% of total Publishing Product revenues, net of discounts

Total Product revenues, net of discounts of Usborne products

Purchases received by product type:

% of total purchases received

All other product types

% of total purchases received

Total purchases received

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.

(ii)(a) The U.S.

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

7 – 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 August 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 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.

Usborne inventory owned by the Company and included in our balance sheets was $ 18,976,400 and $ 20,158,500 as of August 31, 2026, and

February 28, 2026, respectively.

Note 8 – INCOME TAXES

24 unchanged sentences

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.

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

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

1 unchanged sentence

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.

(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 analyzed 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 August 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:

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

August 31, 2026

federal statutory income tax rate

3 unchanged sentences

Effective tax rate

The components of income

tax expense (benefit) are as follows:

The components of income tax

expense (benefit) are as follows:

State and local

8 unchanged sentences

Valuation allowance

Total income tax (expense) benefit

Effective tax rate

Note 9 – SHIPPING AND HANDLING COSTS

3 unchanged sentences

handling costs, as well as shipping materials and supplies.

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

These costs were $ 499,500 and $ 571,800 for the three months ended August 31,

2026 and 2025, respectively.

These costs were $ 1,070,500 and $ 1,377,000 for the six months ended August 31, 2026 and 2025, respectively.

Note 10 – BUSINESS SEGMENTS

9 unchanged sentences

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

14 unchanged sentences

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:

Information by reporting segment for the three

and six-month periods ended August 31, 2026 and 2025, is as follows:

Three Months Ended

Six Months Ended

LOSS BEFORE INCOME TAXES

Three Months Ended

Six Months Ended

( 1,904,500 )

2 unchanged sentences

( 4,060,000 )

PUBLISHING OPERATING RESULTS

$ ( 1,561,600 )

$ ( 1,750,200 )

$ ( 2,940,700 )

$ ( 3,199,500 )

PAPERPIE OPERATING RESULTS

The following table summarizes

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

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

Three Months Ended

Six Months Ended

Cost of goods sold

4 unchanged sentences

Total operating expenses

Operating income

PAPERPIE OPERATING RESULTS

Operating income (loss)

PUBLISHING OPERATING RESULTS

The following table summarizes

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

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

Three Months Ended

Six Months Ended

Cost of goods sold

6 unchanged sentences

Information for the Other

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

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

OTHER NON-SEGMENT LOSS BEFORE INCOME TAXES

Three Months Ended

Six Months Ended

Operating and selling:

10 unchanged sentences

Other (income) loss

( 1,296,000 )

Total other non-segment loss before income taxes

3 unchanged sentences

- 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 $ 450,000 as of May 31, 2026 and $ 563,600 February 28, 2026, respectively.

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

Note 12 – DEFERRED REVENUES

2 unchanged sentences

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.

as of August 31, 2026 or February 28, 2026 are recorded as deferred revenues on the balance sheets.

We received approximately $ 300,100

and $ 320,500 as of August 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.

Note 13 – SUBSEQUENT EVENTS

On September 1, 2026, the

Company entered into a two-year commercial lease agreement in Tulsa, Oklahoma.

The first year is for approximately 50,000 square feet

of available warehouse space with initial lease rate of $ 5.00 per rentable square foot and then the second year is for 25,000 square feet

of available warehouse space with a lease rate of $ 5.15 per rentable square foot.

The lease includes standard commercial lease terms such

that the tenant shall be responsible for utilities, insurance on product stored, and minor maintenance associated with using the space,

excluding facility maintenance, property taxes, roof and structure, which shall be the Landlords’ responsibility.

The lease also

includes other terms considered to be normal and customary in the local market.

MANAGEMENT ’ S

13 unchanged sentences

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

During fiscal 2025 and fiscal

During the previous fiscal years,

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

17 unchanged sentences

Three Months Ended

Six Months Ended

Product revenues, net of discounts and allowances

7 unchanged sentences

Interest expense

Other (income) expense

Other (income) loss

Loss before income taxes

2 unchanged sentences

$ (1,294,700 )

$ (2,973,700 )

$ (2,369,900 )

See the detailed discussion

2 unchanged sentences

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,

Non-Segment Operating Results for the Three Months Ended August

Total operating expenses

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,

not associated with a reporting segment decreased $0.1 million, or 5.0%, to $1.9 million for the three-month period ended August 31, 2026,

when compared to $2.0 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.

decrease in labor expenses from staff reductions across all departments, offset by a $0.1 million increase in building rent due to the

sale and leaseback of the Hilti Complex in the third quarter of fiscal year 2026.

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.

$0.6 million, or 100.0%, to $0.0 million for the three months ended August 31, 2026, when compared to $0.6 million for the same quarterly

period a year ago, due to paying off all our debt in third quarter of fiscal year 2026.

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

$0.5 million, or 100.0%, to a tax expense of $0.0 million for the three months ended August 31, 2026, from a tax benefit of $0.5 million

for the same quarterly period a year ago, resulting primarily from a decrease in gross sales along with a 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 (1.1) % for the quarter ended August 31, 2026, from 26.0% for the quarter ended August 31, 2025 due primarily to sales 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.

Non-Segment Operating Results for the Six Months

Ended August 31, 2026

Total operating expenses

not associated with a reporting segment decreased $0.5 million, or 11.9%, to $3.7 million for the six-month period ended August 31, 2026,

when compared to $4.2 million for the same period a year ago.

Labor expenses decreased $0.4 million from staff reductions across all departments

and freight handling costs decreased $0.1 million for the six months ended August 31, 2026, both associated with reduced sales.

Interest expense decreased

$1.1 million or 100.0%, to $0.0 million for the six months ended August 31, 2026, when compared to $1.1 million for the same period a

year ago, due to paying off all our debt in third quarter of fiscal year 2026.

Other income decreased

$1.4 million, or 107.7%, to an expense of $0.1 million for the six months ended August 31, 2026, when compared to income of $1.3 million

for the same period a year ago, primarily from a $1.3 million decrease in rental income due to the sale of the Hilti Complex in the third

quarter of fiscal year 2026 coupled with a $0.1 million decrease in other income related to the loss associated with the impairment on

the line equipment in assets held for sale.

Income taxes decreased

$0.8 million, or 100.0%, to a tax expense of $0.0 million for the six months ended August 31, 2026, from a tax benefit of $0.8 million

for the same period a year ago primarily related to reduced operating losses between the periods coupled with a 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 (1.1) % for the six months ended August 31, 2026, from 25.9% for the six months ended August 31, 2025, due primarily to the

sales mix fluctuations between states and the tax valuation allowance booked during the first six months of the fiscal year.

Our tax rates

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

PaperPie Operating Results for the Three and

Six Months Ended August 31, 2026

The following table summarizes

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

the operating results of the PaperPie segment:

Three Months Ended

Six Months Ended

Cost of goods sold

4 unchanged sentences

Total operating expenses

Operating income

Operating income (loss)

Average number of active brand partners

PaperPie Operating Results for the Three Months

Ended May 31, 2026

Ended August 31, 2026

PaperPie net revenues decreased

$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.

$0.5 million, or 13.5%, to $3.2 million during the three months ended August 31, 2026, when compared to $3.7 million during the same quarterly

period a year ago.

The average number of active brand partners in the second quarter of fiscal 2027 was 5,100, a decrease of 700, or 12.1%,

from 5,800 average active brand partners selling in the second quarter of fiscal 2026.

The Company reports the average number of active

1 unchanged sentence

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

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

Inflation was most evident with 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.

Sales during the quarter continued to be negatively impacted by continuing

inflationary pressures and we expect this to continue through the rest of the 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

1 unchanged sentence

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.

Following the sale of the Hilti Complex in the third quarter of fiscal 2026

and the corresponding payoff of the revolver and term loans with our bank, that removed our purchasing restrictions, we began a conservative

plan to place reorders and purchase new titles.

This change includes managements plans of returning to our past practice of introducing

these new titles, along with additional enhancements to our PaperPie e-commerce and “Backoffice” systems.

These changes are

expected to create existing Brand Partner excitement and should increase the number of active 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.

$0.3 million, or 13.6%, to $1.9 million during the three months ended August 31, 2026, when compared to $2.2 million during the same quarterly

period a year ago.

Gross margin as a percentage of net revenues for the three-months ended August 31, 2026 increased to 61.4% when compared

to 57.9% for the same quarterly period a year ago.

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

to product mix and more discounts offered to spur sales in the previous fiscal year.

Total PaperPie operating expenses

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

decreased $0.4 million, or 18.2%, to $1.8 million during the three-month period ended August 31, 2026, when compared to $2.2 million reported

in the same quarter a year ago.

Operating and selling expenses decreased $0.2 million, or 33.3%, to $0.4 million during the three-month

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.

period ended August 31, 2026, when compared to $0.6 million reported in the same quarterly period a year ago.

The decrease in operating

and selling expenses was due to a $0.1 million decrease in shipping costs associated with the decrease in volume of orders shipped and

a $0.1 million decrease in accruals for Brand Partner incentive trip expenses, as the division expects less trip earners this year.

commissions decreased $0.1 million, or 8.3%, to $1.1 million during the three-month period ended August 31, 2026, when compared to $1.2

million reported in the same quarterly period a year ago, due primarily to the decrease in net revenues.

General and administrative expenses

decreased $0.1 million, or 25.0%, to $0.3 million during the three months ended August 31, 2026, when compared to $0.4 million during

the same quarterly period a year ago.

This decrease was due to a $0.1 million decrease in depreciation associated with the Smart Lab Toys

Molds and Tooling being completely depreciated in fiscal 2027.

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.

segment increased to $0.1 million during the three months ended August 31, 2026, when compared to an operating loss of $0.0 million reported

in the same quarterly period a year ago.

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

August 31, 2026 was 3.6%, compared to (0.4) % for the year ended August 31, 2025.

Operating income as a percentage of net revenues changed

from the prior year primarily due to the decrease in product discounts offered along with the decrease in operating and selling expenses

and general and administrative expenses, primarily from reduced sales volumes, compared to the previous fiscal year.

PaperPie Operating Results for the Six Months

Ended August 31, 2026

PaperPie net revenues decreased

$2.5 million, or 25.5%, to $7.3 million during the six-month period ended August 31, 2026, compared to $9.8 million from the same period

The average number of active brand partners in the six-month period ended August 31, 2026, was 5,200, a decrease of 1,600,

or 23.5%, from 6,800 selling in same period a year ago.

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.

was most evident with 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 two quarters of fiscal 2027 continue to be negatively impacted by continuing inflationary

pressures and we expect this to continue the rest of the fiscal year, as these pressures persist.

Historically, when we have experienced

these difficult inflationary times, our active brand partner numbers have been positively impacted as more families look for non-traditional

income streams to offset rising costs of living.

Recent sales levels have also

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

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

Following the sale of the Hilti Complex in fiscal 2026 and the 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.

This change includes managements plans of returning to our past practice of introducing these new titles,

along with additional enhancements to our PaperPie e-commerce and “Backoffice” systems.

These changes are expected to create

existing Brand Partner excitement and should increase the number of active new recruits in this division.

PaperPie gross margin decreased

$1.4 million, or 24.1%, to $4.4 million during the six months ended August 31, 2026, when compared to $5.8 million during the same period

Gross margin as a percentage of net revenues for the six months ended August 31, 2026 increased to 60.4%, compared to 58.8%

the same period a year ago.

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

discounts offered in the previous fiscal year to spur sales.

Total PaperPie operating expenses

decreased $1.3 million, or 24.5%, to $4.0 million during the six-month period ended August 31, 2026, from $5.3 million for the same period

Operating and selling expenses decreased $0.4 million, or 30.8%, to $0.9 million during the six-month period ended August

31, 2026, when compared to $1.3 million reported in the same period a year ago.

This decrease relates primarily to a decrease in shipping

costs associated with the decrease in volume of orders shipped, totaling approximately $0.2 million coupled with a $0.1 million decrease

in brand partner incentive trip expenses, as fewer brand partners are expected to earn the trip this year and a $0.1 million decrease

in various other operating and selling expenses.

Sales commissions decreased $0.8 million, or 25.0%, to $2.4 million during the six-month

period ended August 31, 2026, when compared to $3.2 million reported in the same period a year ago, primarily due to the decrease in net

General and administrative expenses decreased $0.2 million, or 25.0%, to $0.6 million during the six-month period ended August

31, 2026, from $0.8 million recognized during the same period last year, due to a $0.1 million decrease in depreciation expense associated

with the Smart Lab Toys Molds and Tooling, being fully depreciated in fiscal 2027 and a $0.1 million decrease in other various general

and administrative expenses.

Operating income for the PaperPie

segment increased $0.1 million, or 20.0% to $0.5 million during the six months ended August 31, 2026, when compared to $0.4 million reported

in the same period a year ago.

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

August 31, 2026 was 6.7%, compared to 4.6% for the six months ended August 31, 2025, an increase of 2.1%.

Operating income as a percentage

of net revenues changed from the prior year primarily due to the less product discounts offered in fiscal 2027 and the decrease in total

operating and selling expenses.

Publishing Operating Results for the Three

Months Ended May 31, 2026

and Six Months Ended August 31, 2026

The following table summarizes

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

the operating results of the Publishing segment:

Three Months Ended

Six Months Ended

Cost of goods sold

2 unchanged sentences

Publishing Operating Results for the Three

Months Ended May 31, 2026

Months Ended August 31, 2026

Our Publishing operating results,

including the division's net revenues, gross margin, and operating expenses, were consistent for the three-month period ended August 31,

2026 compared to the same period a year ago.

Publishing Operating Results for the Six Months

Ended August 31, 2026

Our Publishing division’s

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.

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.

net revenues decreased by $0.4 million, or 21.1%, to $1.5 million during the six-month period ended August 31, 2026, from $1.9 million

reported in the same period a year ago.

The decrease in net revenues was primarily from the decrease in sales to our largest customers

in the first quarter of fiscal year 2027.

Gross margin decreased $0.3

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.

million, or 27.3%, to $0.8 million during the six-month period ended August 31, 2026, from $1.1 million reported in the same period a

Gross margin as a percentage of net revenues decreased to 54.9%, during the six-month period ended August 31, 2026, from 55.4%

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

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.

the Publishing segment decreased $0.2 million, or 28.6%, to $0.5 million during the six-month period ended August 31, 2026, from $0.7

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

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.

segment decreased $0.1 million, or 25.0%, to $0.3 million during the six-month period ended August 31, 2026 when compared to $0.4 million

reported in the same period a year ago, due primarily to the decrease in sales.

Liquidity and Capital Resources

7 unchanged sentences

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

Available cash has

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

During the first six months

of fiscal year 2027, we experienced positive cash inflows from operations of $33,900.

5 unchanged sentences

provision for inventory allowance of $72,000

issuance of treasury shares to independent directors of $20,000

provision for credit losses of $12,000

net gain on sale of assets of $800

Net gain on sale of assets $800

Positively impacted by:

decrease in inventories, net of $2,667,500

i ncrease in income taxes payable of $6,800

decrease in accounts receivable of $118,100

increase in deferred revenues of $96,500

Negatively impacted by:

decrease in income taxes payable of $325,800

decrease in accounts payable of $74,200

1 unchanged sentence

increase in prepaid expenses and other assets of $33,200

decrease in deferred revenues of $20,400

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.

was $188,000 for capital expenditures, consisting of $188,800 in upgrades to our proprietary systems that our PaperPie Brand Partners

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

The Company continues to expect

2 unchanged sentences

Additionally, we have obtained a $2.0 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.

generated from operations will be used to acquire new inventory and pay down any short-term borrowings we expect to obtain.

Critical Accounting Policies

64 unchanged sentences

Management has estimated and included a reserve for sales

returns of $0.2 million for May 31, 2026 and February 28, 2026, respectively.

returns of $0.2 million for August 31, 2026 and February 28, 2026.

Our inventory contains approximately

18 unchanged sentences

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.

were $20.5 million at August 31, 2026 and $21.1 million at February 28, 2026, respectively.

Noncurrent inventory valuation allowances

were $0.8 million at August 31, 2026 and February 28, 2026.

Brand Partners that meet certain

4 unchanged sentences

Approximately 14.7% of our active Brand Partners maintained consignment

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

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

Consignment inventory is stated at cost, less an estimated reserve for

1 unchanged sentence

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.

Partners was $1.0 million at August 31, 2026 and $1.1 million at February 28, 2026, respectively.

Inventories are presented

4 unchanged sentences

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.

current and noncurrent inventory, including the reserve for consigned inventory, of $1.3 million at August 31, 2026 and $1.2 million at

February 28, 2026, respectively.

QUANTITATIVE AND QUALITATIVE

2 unchanged sentences

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