UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 31, 2025

OR

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission file number: 000-04957

EDUCATIONAL DEVELOPMENT CORPORATION

(Exact name of registrant as specified in its charter)

Delaware |  | 73-0750007
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

5402 South 122nd East Ave, Tulsa, Oklahoma |  | 74146
(Address of principal executive offices) |  | (Zip Code)

Registrant’s telephone number, including area code (918) 622-4522

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $.20 par value |  | EDUC |  | NASDAQ
(Title of class) |  | (Trading symbol) |  | (Name of each exchange on which registered)

Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ | Accelerated filer ☐
Non-accelerated filer ☒ | Smaller reporting company ☒
| Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of October 5, 2025, there were 8,583,201 shares of Educational Development Corporation Common Stock, $0.20 par value outstanding.

TABLE OF CONTENTS

|  | Page
PART I. FINANCIAL INFORMATION |
Item 1. | Financial Statements | 4
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 23
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 30
Item 4. | Controls and Procedures | 30
PART II. OTHER INFORMATION |
Item 1. | Legal Proceedings | 31
Item 1A. | Risk Factors | 31
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 31
Item 3. | Defaults Upon Senior Securities | 31
Item 4. | Mine Safety Disclosures | 31
Item 5. | Other Information | 31
Item 6. | Exhibits | 32
Signatures | 34

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CAUTIONARY REMARKS REGARDING FORWARD-LOOKING STATEMENTS

The information discussed in this Quarterly Report on Form 10-Q includes “forward-looking statements.” These forward-looking statements are identified by their use of terms and phrases such as “may,” “expect,” “estimate,” “project,” “plan,” “believe,” “intend,” “achievable,” “anticipate,” “continue,” “potential,” “should,” “could,” and similar terms and phrases. Although we believe that the expectations reflected in these forward-looking statements are reasonable, they do involve certain assumptions, risks and uncertainties and we can give no assurance that such expectations or assumptions will be achieved. Known and unknown risks, uncertainties and other factors may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to,

| ● | our success in recruiting and retaining new brand partners,
| ● | our ability to locate and procure desired books,
| ● | product and supplier concentrations,
| ● | our relationship with our primary supplier and the related distribution requirements and contractual limitations,
| ● | adverse publicity associated with our Company or the industry,
| ● | our ability to ship timely,
| ● | changes to our primary sales channels, including social media and party plan platforms,
| ● | changing consumer preferences and demands,
| ● | cybersecurity threats and incidents,
| ● | changes in macroeconomic conditions in international trade including recently announced and potential future tariffs,
| ● | legal matters,
| ● | reliance on information technology infrastructure,
| ● | restrictions imposed by covenants in the agreements governing our indebtedness,
| ● | our ability to obtain adequate financing for working capital and capital expenditures,
| ● | economic and competitive conditions, regulatory changes and other uncertainties, as well as
| ● | those factors discussed below and elsewhere in our Annual Report on Form 10-K for the year ended February 28, 2025 and in this Quarterly Report on Form 10-Q, all of which are difficult to predict.

In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements in this paragraph and elsewhere in this Quarterly Report on Form 10-Q and speak only as of the date of this Quarterly Report on Form 10-Q. Other than as required under the securities laws, we do not assume a duty to update these forward-looking statements, whether as a result of new information, subsequent events or circumstances, changes in expectations or otherwise. As used in this Quarterly Report on Form 10-Q, the terms “the Company,” “EDC,” “we,” “our” or “us” mean Educational Development Corporation, a Delaware corporation, unless the context indicates otherwise.

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PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

EDUCATIONAL DEVELOPMENT CORPORATION
CONDENSED BALANCE SHEETS (UNAUDITED)

|  | August 31, |  |  | February 28, |
|  | 2025 |  |  | 2025 |
ASSETS |  |  |  |  |  |
CURRENT ASSETS: |  |  |  |  |  |
Cash and cash equivalents |  | $ | 754,200 |  |  | $ | 428,400 |
Restricted cash |  |  | 518,100 |  |  |  | 548,100 |
Accounts receivable, less allowance for credit losses of $107,100 (August 31) and $112,300 (February 28) |  |  | 1,768,600 |  |  |  | 2,126,000 |
Inventories - net |  |  | 23,623,900 |  |  |  | 29,099,600 |
Prepaid expenses and other assets |  |  | 749,900 |  |  |  | 768,100 |
Assets held for sale |  |  | 19,309,600 |  |  |  | 19,277,000 |
Total current assets |  |  | 46,724,300 |  |  |  | 52,247,200 |
INVENTORIES - net |  |  | 17,037,700 |  |  |  | 15,592,500 |
PROPERTY, PLANT AND EQUIPMENT - net |  |  | 5,879,100 |  |  |  | 6,398,700 |
DEFERRED INCOME TAX ASSET |  |  | 3,398,700 |  |  |  | 2,536,100 |
OPERATING LEASE RIGHT-OF-USE ASSETS |  |  | 768,200 |  |  |  | 1,108,100 |
OTHER ASSETS |  |  | 427,800 |  |  |  | 431,700 |
TOTAL ASSETS |  | $ | 74,235,800 |  |  | $ | 78,314,300 |
LIABILITIES AND SHAREHOLDERS’ EQUITY |  |  |  |  |  |  |  |
CURRENT LIABILITIES: |  |  |  |  |  |  |  |
Accounts payable |  | $ | 1,598,100 |  |  | $ | 1,847,400 |
Line of credit |  |  | 4,198,100 |  |  |  | 4,198,100 |
Deferred revenues |  |  | 547,000 |  |  |  | 491,800 |
Operating lease liabilities, current |  |  | 675,000 |  |  |  | 697,000 |
Current maturities of long-term debt |  |  | 25,807,900 |  |  |  | 26,685,500 |
Accrued salaries and commissions |  |  | 312,400 |  |  |  | 313,700 |
Income taxes payable |  |  | 694,000 |  |  |  | 460,900 |
Other current liabilities |  |  | 1,984,000 |  |  |  | 2,528,300 |
Total current liabilities |  |  | 35,816,500 |  |  |  | 37,222,700 |
OPERATING LEASE LIABILITIES, non-current |  |  | 93,200 |  |  |  | 411,100 |
OTHER LONG-TERM LIABILITIES |  |  | 113,000 |  |  |  | 112,900 |
Total liabilities |  |  | 36,022,700 |  |  |  | 37,746,700 |
SHAREHOLDERS’ EQUITY: |  |  |  |  |  |  |  |
Common stock, $0.20 par value; Authorized 16,000,000 shares; Issued 12,702,080 shares; Outstanding 8,583,201 (August 31 and February 28) shares |  |  | 2,540,400 |  |  |  | 2,540,400 |
Capital in excess of par value |  |  | 13,800,000 |  |  |  | 13,800,000 |
Retained earnings |  |  | 34,933,100 |  |  |  | 37,303,000 |
Accumulated other comprehensive loss |  |  | - |  |  |  | (15,400 | )
|  |  | 51,273,500 |  |  |  | 53,628,000 |
Less treasury stock, at cost |  |  | (13,060,400 | ) |  |  | (13,060,400 | )
Total shareholders’ equity |  |  | 38,213,100 |  |  |  | 40,567,600 |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |  | $ | 74,235,800 |  |  | $ | 78,314,300 |

See notes to condensed financial statements (unaudited).

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EDUCATIONAL DEVELOPMENT CORPORATION
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

|  | Three Months Ended August 31, |  |  | Six Months Ended August 31, |
|  | 2025 |  |  | 2024 |  |  | 2025 |  |  | 2024 |
PRODUCT REVENUES, net of discounts and allowances |  | $ | 4,396,300 |  |  | $ | 6,119,600 |  |  | $ | 11,161,100 |  |  | $ | 15,710,500 |
Transportation revenue |  |  | 224,800 |  |  |  | 389,600 |  |  |  | 566,400 |  |  |  | 792,100 |
NET REVENUES |  |  | 4,621,100 |  |  |  | 6,509,200 |  |  |  | 11,727,500 |  |  |  | 16,502,600 |
COST OF GOODS SOLD |  |  | 1,933,000 |  |  |  | 2,862,500 |  |  |  | 4,902,300 |  |  |  | 6,396,500 |
Gross margin |  |  | 2,688,100 |  |  |  | 3,646,700 |  |  |  | 6,825,200 |  |  |  | 10,106,100 |
OPERATING EXPENSES |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operating and selling |  |  | 739,500 |  |  |  | 1,385,800 |  |  |  | 1,734,100 |  |  |  | 3,265,800 |
Sales commissions |  |  | 1,268,900 |  |  |  | 1,850,900 |  |  |  | 3,281,000 |  |  |  | 4,909,700 |
General and administrative |  |  | 2,503,200 |  |  |  | 2,905,500 |  |  |  | 5,198,100 |  |  |  | 6,105,100 |
Total operating expenses |  |  | 4,511,600 |  |  |  | 6,142,200 |  |  |  | 10,213,200 |  |  |  | 14,280,600 |
INTEREST EXPENSE |  |  | 603,200 |  |  |  | 545,700 |  |  |  | 1,107,500 |  |  |  | 1,122,400 |
OTHER INCOME |  |  | (676,500 | ) |  |  | (575,100 | ) |  |  | (1,296,000 | ) |  |  | (1,083,800 | )
LOSS BEFORE INCOME TAXES |  |  | (1,750,200 | ) |  |  | (2,466,100 | ) |  |  | (3,199,500 | ) |  |  | (4,213,100 | )
INCOME TAX BENEFIT |  |  | (455,500 | ) |  |  | (662,700 | ) |  |  | (829,600 | ) |  |  | (1,130,700 | )
NET LOSS |  | $ | (1,294,700 | ) |  | $ | (1,803,400 | ) |  | $ | (2,369,900 | ) |  | $ | (3,082,400 | )
BASIC AND DILUTED LOSS PER SHARE |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | (0.15 | ) |  | $ | (0.22 | ) |  | $ | (0.28 | ) |  | $ | (0.37 | )
Diluted |  | $ | (0.15 | ) |  | $ | (0.22 | ) |  | $ | (0.28 | ) |  | $ | (0.37 | )
WEIGHTED AVERAGE NUMBER OF COMMON AND EQUIVALENT SHARES OUTSTANDING |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 8,583,201 |  |  |  | 8,272,217 |  |  |  | 8,583,201 |  |  |  | 8,269,494 |
Diluted |  |  | 8,583,201 |  |  |  | 8,272,217 |  |  |  | 8,583,201 |  |  |  | 8,269,494 |
Dividends per share |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |

See notes to condensed financial statements (unaudited).

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EDUCATIONAL DEVELOPMENT CORPORATION
CONDENSED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)

|  | Three Months Ended August 31, |  |  | Six Months Ended August 31, |
|  | 2025 |  |  | 2024 |  |  | 2025 |  |  | 2024 |
Net loss |  | $ | (1,294,700 | ) |  | $ | (1,803,400 | ) |  | $ | (2,369,900 | ) |  | $ | (3,082,400 | )
Other comprehensive income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unrealized loss on interest rate exchange agreement |  |  | - |  |  |  | (67,700 | ) |  |  | - |  |  |  | (44,800 | )
Comprehensive loss |  | $ | (1,294,700 | ) |  | $ | (1,871,100 | ) |  | $ | (2,369,900 | ) |  | $ | (3,127,200 | )

See notes to condensed financial statements (unaudited).

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EDUCATIONAL DEVELOPMENT CORPORATION
CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED AUGUST 31, 2025

|  | Common Stock (par value $0.20 per share) |  |  |  |  |  |  |  |  | Accumulated |  |  | Treasury Stock |  |  |  |
|  | Number of Shares Issued |  |  | Amount |  |  | Capital in Excess of Par Value |  |  | Retained Earnings |  |  | Other Comprehensive Loss |  |  | Number of Shares |  |  | Amount |  |  | Shareholders’ Equity |
BALANCE – February 28, 2025 |  |  | 12,702,080 |  |  | $ | 2,540,400 |  |  | $ | 13,800,000 |  |  | $ | 37,303,000 |  |  | $ | (15,400 | ) |  |  | 4,118,879 |  |  | $ | (13,060,400 | ) |  | $ | 40,567,600 |
Change in fair value of interest rate exchange agreement |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 15,400 |  |  |  | - |  |  |  | - |  |  |  | 15,400 |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,075,200 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,075,200 | )
BALANCE - May 31, 2025 |  |  | 12,702,080 |  |  | $ | 2,540,400 |  |  | $ | 13,800,000 |  |  | $ | 36,227,800 |  |  | $ | - |  |  |  | 4,118,879 |  |  | $ | (13,060,400 | ) |  | $ | 39,507,800 |
Net Loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,294,700 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,294,700 | )
BALANCE - August 31, 2025 |  |  | 12,702,080 |  |  | $ | 2,540,400 |  |  | $ | 13,800,000 |  |  | $ | 34,933,100 |  |  | $ | - |  |  |  | 4,118,879 |  |  | $ | (13,060,400 | ) |  | $ | 38,213,100 |

FOR THE SIX MONTHS ENDED AUGUST 31, 2024

|  | Common Stock (par value $0.20 per share) |  |  |  |  |  |  |  |  | Accumulated |  |  | Treasury Stock |  |  |  |
|  | Number of Shares Issued |  |  | Amount |  |  | Capital in Excess of Par Value |  |  | Retained Earnings |  |  | Other Comprehensive Income |  |  | Number of Shares |  |  | Amount |  |  | Shareholders' Equity |
BALANCE – February 29, 2024 |  |  | 12,702,080 |  |  | $ | 2,540,400 |  |  | $ | 13,405,400 |  |  | $ | 42,566,600 |  |  | $ | 24,400 |  |  |  | 4,126,992 |  |  | $ | (13,086,100 | ) |  | $ | 45,450,700 |
Sale of treasury stock |  |  | - |  |  |  | - |  |  |  | (4,100 | ) |  |  | - |  |  |  | - |  |  |  | (4,000 | ) |  |  | 12,700 |  |  |  | 8,600 |
Share-based compensation expense - net |  |  | - |  |  |  | - |  |  |  | 100,800 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 100,800 |
Change in fair value of interest rate exchange agreement |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 22,900 |  |  |  | - |  |  |  | - |  |  |  | 22,900 |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,279,000 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,279,000 | )
BALANCE - May 31, 2024 |  |  | 12,702,080 |  |  | $ | 2,540,400 |  |  | $ | 13,502,100 |  |  | $ | 41,287,600 |  |  | $ | 47,300 |  |  |  | 4,122,992 |  |  | $ | (13,073,400 | ) |  | $ | 44,304,000 |
Sale of treasury stock |  |  | - |  |  |  | - |  |  |  | (3,000 | ) |  |  | - |  |  |  | - |  |  |  | (2,513 | ) |  |  | 7,900 |  |  |  | 4,900 |
Share-based compensation expense - net |  |  | - |  |  |  | - |  |  |  | 100,800 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 100,800 |
Change in fair value of interest rate exchange agreement |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (67,700 | ) |  |  | - |  |  |  | - |  |  |  | (67,700 | )
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,803,400 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,803,400 | )
BALANCE - August 31, 2024 |  |  | 12,702,080 |  |  | $ | 2,540,400 |  |  | $ | 13,599,900 |  |  | $ | 39,484,200 |  |  | $ | (20,400 | ) |  |  | 4,120,479 |  |  | $ | (13,065,500 | ) |  | $ | 42,538,600 |

See notes to condensed financial statements (unaudited).

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EDUCATIONAL DEVELOPMENT CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

|  | Six Months Ended August 31, |
|  | 2025 |  |  | 2024 |
CASH FLOWS FROM OPERATING ACTIVITIES |  |  |  |  |  |
Net loss |  | $ | (2,369,900 | ) |  | $ | (3,082,400 | )
Adjustments to reconcile net loss to net cash provided by operating activities: |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 729,700 |  |  |  | 972,200 |
Deferred income taxes |  |  | (862,600 | ) |  |  | (959,700 | )
Provision for credit losses |  |  | 24,000 |  |  |  | 41,600 |
Provision for inventory valuation allowance |  |  | 72,000 |  |  |  | 191,300 |
Share-based compensation expense - net |  |  | - |  |  |  | 201,600 |
Net loss on sale of assets |  |  | 57,000 |  |  |  | 3,700 |
Changes in assets and liabilities: |  |  |  |  |  |  |  |
Accounts receivable |  |  | 333,400 |  |  |  | (183,800 | )
Inventories - net |  |  | 3,958,500 |  |  |  | 5,120,400 |
Prepaid expenses and other assets |  |  | 8,600 |  |  |  | (259,000 | )
Accounts payable |  |  | (249,300 | ) |  |  | (1,287,200 | )
Accrued salaries and commissions and other liabilities |  |  | (530,000 | ) |  |  | (693,600 | )
Deferred revenues |  |  | 55,200 |  |  |  | (83,100 | )
Income taxes payable/receivable |  |  | 233,100 |  |  |  | 353,500 |
Total adjustments |  |  | 3,829,600 |  |  |  | 3,417,900 |
Net cash provided by operating activities |  |  | 1,459,700 |  |  |  | 335,500 |
CASH FLOWS FROM INVESTING ACTIVITIES |  |  |  |  |  |  |  |
Purchases of property, plant and equipment |  |  | (308,900 | ) |  |  | (200,000 | )
Proceeds from sale of assets |  |  | 45,000 |  |  |  | 4,000 |
Net cash used in investing activities |  |  | (263,900 | ) |  |  | (196,000 | )
CASH FLOWS FROM FINANCING ACTIVITIES |  |  |  |  |  |  |  |
Payments on term debt |  |  | (900,000 | ) |  |  | (900,000 | )
Sales of treasury stock |  |  | - |  |  |  | 13,500 |
Net borrowings under line of credit |  |  | - |  |  |  | 600,000 |
Net cash used in financing activities |  |  | (900,000 | ) |  |  | (286,500 | )
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH |  |  | 295,800 |  |  |  | (147,000 | )
CASH, CASH EQUIVALENTS AND RESTRICTED CASH - BEGINNING OF PERIOD |  |  | 976,500 |  |  |  | 1,277,400 |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH - END OF PERIOD |  | $ | 1,272,300 |  |  | $ | 1,130,400 |
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION |  |  |  |  |  |  |  |
Cash paid for interest |  | $ | 922,600 |  |  | $ | 1,128,800 |
Cash (received)/paid for income taxes - net of refunds |  | $ | (200,100 | ) |  | $ | 33,800 |

See notes to condensed financial statements (unaudited).

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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, 2025 included in our Form 10-K. The results of operations for interim periods are not necessarily indicative of the results to be expected for a full year due to the seasonality of our product sales.

Use of Estimates in the Preparation of Financial Statements

The preparation of the Unaudited Condensed Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. 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, 2025 included in our Form 10-K.

Reclassifications

Certain reclassifications have been made to the fiscal 2025 condensed statements of operations to combine Gross Sales and Discounts and allowances now presented as Product Revenues, net of discount and allowances to conform with the current year financial statement presentation. These reclassifications had no effect on net earnings.

Liquidity

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

Determining the extent to which conditions or events raise substantial doubt about our ability to continue as a going concern and the extent to which mitigating plans sufficiently alleviate any such substantial doubt requires significant judgment and estimation by us. Our significant estimates related to this analysis may include identifying business factors such as completing the planned sale of owned real estate, changes in our Brand Partners, and sales 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.

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The default status of our credit agreement, along with recurring operating losses and other items, raise substantial doubt over the Company’s ability to continue as a going concern.

The Company’s credit agreement with its lender expired on September 19, 2025, with the balances of our term loans and the revolving loan remain unpaid. On September 30, 2025, the Company received a Reservation of Rights notice from its lender outlining that events of default have occurred and are continuing due to our failure to pay in full in cash the unpaid balance of the term loans and revolving loan before the maturity date. The Lender has not waived the specified defaults and reserves all of its rights, powers, privileges and remedies under the credit agreement, the UCC, and applicable law. Under the credit agreement, the lender has the right, among other remedies listed, to demand payment or repossess and liquidate the Company’s assets used as collateral for the loans. Under the terms of the credit agreement, an additional default interest rate of 2% is added to the existing interest rates defined in the credit agreement.

To address these concerns, the Company has taken steps in its plans to pay off its bank debts by selling owned real estate. On August 18, 2025, the Company executed a Purchase and Sale Agreement (“Contract”) with 10Mark 10K Industrial, LLC, a Delaware limited liability company (“Buyer”) for the Hilti Complex for $32,500,000. On October 1, 2025, the Company and Buyer executed the 1st Amendment to the Contract extending the term of the initial 45-day due diligence period from October 2, 2025, to October 6, 2025, and reduced the purchase price of the Hilti Complex to $32,200,000. On October 6, 2025, the Company received the Buyer’s Notice to Proceed pursuant to the Contract. This Notice to Proceed, subject to certain conditions, waives the Buyer’s right to the deposited escrow in the Agreement. The sale of the Hilti Complex is expected to be completed on, or before, November 25, 2025. Upon closing, the proceeds from the real estate sale are expected to pay off the Term Loans and Revolving Loan.

Following the loan payoff, management plans to fund ongoing operations with limited borrowings through local banks or other financing sources. In addition, management’s plans include reducing inventory, which will generate free cashflows, and building the number of active PaperPie Brand Partners back to historical levels. Although there is no guarantee these plans will be successful, management believes these plans, if achieved, will alleviate the substantial doubt about continuing as a going concern and generate sufficient liquidity to meet our obligations as they become due over the next twelve months.

New Accounting Pronouncements

The Financial Accounting Standards Board (“FASB”) periodically issues new accounting standards in a continuing effort to improve standards of financial accounting and reporting. We have reviewed the recently issued pronouncements and concluded the following new accounting standard updates (“ASU”) apply to us:

New Accounting Standards or Updates Not Yet Adopted

In July 2025, the FASB issued Accounting Standards Update 2025-05 – Financial Instruments – Credit Losses (Topic ASC 326) Measurement of Credit Losses for Accounts Receivable and Contract Assets. The amendments in this ASU provide entities with a practical expedient they may elect to use when developing an estimate of expected credit losses on current accounts receivable and current contract asset balances arising from transactions accounted for under Topic ASC 606 – Revenue from Contracts with Customers. Under this practical expedient, entities may elect to assume that current conditions as of the balance sheet date do not change for the remaining life of the asset. The amendments in ASU 2025-05 become effective for fiscal years and for interim periods beginning after December 15, 2025, and early adoption is permitted. This ASU will be effective for our Form 10-K for fiscal 2026. We are currently evaluating the impact this ASU may have on our financial statement disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which provides qualitative and quantitative updates to the rate reconciliation and income taxes paid disclosures, among others, in order to enhance the transparency of income tax disclosures, including consistent categories and greater disaggregation of information in the rate reconciliation and disaggregation by jurisdiction of income taxes paid. The amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments should be applied prospectively; however, retrospective application is also permitted. This ASU will be effective for our Form 10-K for fiscal 2026. We are currently evaluating the impact this ASU may have on our financial statement disclosures.

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires disclosure about the types of costs and expenses included in certain expense captions presented on the income statement. The new disclosure requirements are effective for the Company’s annual periods beginning March 1, 2027, and interim periods beginning March 1, 2028, with early adoption permitted, and may be applied either prospectively or retrospectively. The Company is currently evaluating the ASU to determine its impact on the Company’s financial statements and disclosures.

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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:

|  | August 31, 2025 |  |  | August 31, 2024 |
Cash and cash equivalents |  | $ | 754,200 |  |  | $ | 753,800 |
Restricted cash |  |  | 518,100 |  |  |  | 376,600 |
Total cash, cash equivalents and restricted cash shown in the statements of cash flows |  | $ | 1,272,300 |  |  | $ | 1,130,400 |

The Company has contracted with Nexio and PayPal, Inc., third-party merchant service processors, to capture Visa, Discover, Mastercard and PayPal payments from customers. Approximately 90% of all payments received by the Company are channelled through these processors. These processors hold cash payments received from customers in reserve for a specified number of days to offset any potential chargebacks. The Company also has a short-term certificate of deposit with the Company’s bank as collateral for business credit card use. The Company has classified the cash held in reserves by Nexio and PayPal and the restricted certificate of deposit as restricted cash.

Note 3 – ASSETS HELD FOR SALE

During the third quarter of fiscal 2024, the Company listed its real estate property located at 5402 S. 122nd E. Ave, Tulsa, Oklahoma 74146 for sale. This property, consisting of approximately 402,000 square feet of office and warehouse space on 35-acres (the “Hilti Complex”), along with 17-acres of adjacent undeveloped land, was appraised in November 2024 with a market value of approximately $47,410,000. The Company ceased recording depreciation on the assets upon meeting the held for sale criteria at the end of the third quarter of fiscal 2024.

As outlined in the Contract for the Hilti Complex, , EDC expects to assign the existing tenant leases to the buyer along with executing a new lease for the Company’s occupied space, but retain ownership of the excess land, consisting of approximately 17 acres of undeveloped land adjacent to the Hilti Complex. The initial term of the lease is expected to be 10 years, and will also include typical triple-net terms, where the Seller will be responsible for utilities, insurance, property taxes, and regular maintenance. Additionally, the Seller will retain the rights to sublease, subject to buyer approval, any available unused space in the building during the lease term. The Lease will also encompass other standard terms that are customary in the local market.

During the second quarter of fiscal year 2025, the Company entered into a triple-net lease agreement for approximately 111,000 square feet of available office and warehouse space in the Hilti Complex to a new tenant. To create space for this new tenant, the Company removed three production lines from the warehouse before July 31, 2024. As a result, in the second quarter of fiscal 2025, the Company made available and committed to sell the equipment removed. The Company is actively marketing the unused equipment using a national on-line auction house as of August 31, 2025. The Company is subject to the presentation and disclosure requirements since the equipment meets all the criteria and is classified as an “Asset Held for Sale.” Once management determined that the equipment removed met the criteria to be classified as held for sale, the Company ceased depreciation of the asset and reported it separately on the balance sheet, beginning on August 31, 2024.

On March 21, 2025, the Company executed a new brokerage agreement with Keen-Summit Capital Partners, LLC (“Keen-Summit”) to assist with the marketing and sale of the Hilti Complex. The Agreement offers Keen-Summit the opportunity to list and provide sale opportunities of the Hilti Complex for a term of nine months, along with providing other services customary with brokerage agreements. The Agreement includes the engagement of McGraw Davisson Stewart, LLC to provide local services as a licensed broker in the state of Oklahoma.

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On August 18, 2025, the Company executed a Purchase and Sale Agreement (“Contract”) with 10Mark 10K Industrial, LLC, a Delaware limited liability company (“Buyer”) for the Hilti Complex. The agreed upon sale price of the Hilti Complex per the executed Contract totalled $32,500,000 less seller fees and closing costs. On October 1, 2025, the Company and Buyer executed the 1st Amendment to the Contract extending the term of the initial 45-day due diligence period from October 2, 2025, to October 6, 2025, and reduced the purchase price of the Hilti Complex to $32,200,000. On October 6, 2025, the Company received the Buyer’s Notice to Proceed pursuant to the Contract. This notice to proceed, subject to certain conditions, waives the Buyer’s right to the escrow deposit outlined in the Contract.

The proceeds from the sale will be utilized to pay off the Term Loans and Revolving Loan outstanding in the Credit Agreement with the Company’s Lender. At closing, the Company has agreed to assign the existing tenant leases to the Buyer and enter a new lease for its occupied space in the Hilti Complex. The Agreement does not include the excess land parcel, consisting of approximately 17 acres of undeveloped land adjacent to the Hilti Complex, which will remain under the ownership of the Company.

The Agreement and Amendment to the Agreement provide the Buyer a due diligence period through November 25, 2025, to secure financing, perform inspections, review leases, perform other assessments and close the transaction.

The initial term of the new lease with Buyer will be for 10 years, and the initial lease rate will be $8.00 per square foot, with 2.5% annual escalations beginning in year two of the lease and will include two five-year extension options. The Lease will also include typical triple-net terms, where the Seller will be responsible for utilities, insurance, property taxes, and regular maintenance. The Lease is expected to also encompass standard terms that are customary in the local market.

The assets held for sale consist of property and equipment. The Company records assets held for sale at the lower of their carrying value or fair value less costs to sell. The total carrying value of assets held for sale was $19,309,600 and $19,277,000 as of August 31, 2025, and February 28, 2025, respectively, and is separately recorded on the balance sheet.

Note 4 – INVENTORIES

Inventories consist of the following:

|  | August 31, 2025 |  |  | February 28, 2025 |
Current: |  |  |  |  |  |
Product inventory |  | $ | 24,086,100 |  |  | $ | 29,530,100 |
Inventory valuation allowance |  |  | (462,200 | ) |  |  | (430,500 | )
Inventories net – current |  | $ | 23,623,900 |  |  | $ | 29,099,600 |
Noncurrent: |  |  |  |  |  |  |  |
Product inventory |  | $ | 17,827,100 |  |  | $ | 16,326,500 |
Inventory valuation allowance |  |  | (789,400 | ) |  |  | (734,000 | )
Inventories net – noncurrent |  | $ | 17,037,700 |  |  | $ | 15,592,500 |

Inventory in transit totalled $0 and $25,500 at August 31, 2025 and February 28, 2025, respectively.

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

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Note 5 – LEASES

We have both lessee and lessor arrangements. Our lessee arrangements include six rental agreements where we have the exclusive use of dedicated office space in San Diego, California, Ogden, Utah, Seattle, Washington, a warehouse space in Joplin, Missouri and two leases for office and warehouse space locally in Tulsa, Oklahoma, all of which qualify as operating leases under ASC 842. Our lessor arrangements include three rental agreements for warehouse and office space in Tulsa, Oklahoma, and qualify as operating leases under ASC 842.

Operating Leases – Lessee

We recognize a lease liability, reported in other liabilities on the balance sheets, for each lease based on the present value of remaining minimum fixed rental payments (which includes payments under any renewal option that we are reasonably certain to exercise), using a discount rate that approximates the rate of interest we would have to pay to borrow on a collateralized basis over a similar term. Expected payments in the next twelve months are classified as current lease liabilities. Payments in excess of twelve months are classified as long-term lease liabilities. We also recognize a right-of-use asset, reported in other assets on the balance sheets, for each lease, valued at the lease liability and adjusted for prepaid or accrued rent balances existing at the time of initial recognition. The lease liability and right-of-use assets are reduced over the term of the lease as payments are made and the assets are used.

|  | August 31, 2025 |  |  | February 28, 2025 |
Operating lease assets: |  |  |  |  |  |
Right-of-use assets |  | $ | 768,200 |  |  | $ | 1,108,100 |
Operating lease liabilities: |  |  |  |  |  |  |  |
Current lease liabilities |  | $ | 675,000 |  |  | $ | 697,000 |
Long-term lease liabilities |  | $ | 93,200 |  |  | $ | 411,100 |
Weighted-average remaining lease term (months) |  |  | 13.8 |  |  |  | 18.4 |
Weighted-average discount rate |  |  | 5.46 | % |  |  | 4.89 | %

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

|  | Three Months Ended August 31, |  |  | Six Months Ended August 31, |
|  | 2025 |  |  | 2024 |  |  | 2025 |  |  | 2024 |
Fixed lease costs |  | $ | 170,700 |  |  | $ | 189,800 |  |  | $ | 341,300 |  |  | $ | 379,500 |

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Future minimum rental payments under operating leases with initial terms greater than one year as of August 31, 2025, are as follows:

Years ending February 28, |  |  |
2026 |  | $ | 346,300 |
2027 |  |  | 448,600 |
Total future minimum rental payments |  |  | 794,900 |
Less: imputed interest |  |  | (26,700 | )
Total operating lease liabilities |  | $ | 768,200 |

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

|  | Three Months Ended August 31, |  |  | Six Months Ended August 31, |
|  | 2025 |  |  | 2024 |  |  | 2025 |  |  | 2024 |
Operating cash outflows – operating leases |  | $ | 170,700 |  |  | $ | 189,800 |  |  | $ | 341,300 |  |  | $ | 379,500 |

The Company assesses its leases to determine whether it is reasonably certain that these renewal options will be exercised. In general, most of the office space outside of Tulsa, Oklahoma is associated with remote employees. Their continued employment determines the need for this space. Much of the warehouse space outside of the Hilti Complex is used to store non-current inventory. As the Company sells down excess inventory, less outside space will be needed, and any renewals will be for less space. Accordingly, the renewal options are not included in the calculation of its right-of-use assets and lease liabilities, as the Company does not believe that it is reasonably certain that these renewal options will be exercised.

Operating Leases – Lessor

In connection with the 2015 purchase of the Hilti Complex, we entered into a 15-year lease with the seller, a non-related third party, who leases 181,300 square feet, or 45.3% of the facility. The lessee pays $126,400 per month, through the lease anniversary date of December 2025 with a 2.0% annual increase adjustment on each anniversary date thereafter. The lease terms allow for one five-year extension, which is not a bargain renewal option, at the expiration of the 15-year term.

On May 26, 2024, the Company entered into a triple-net lease agreement for approximately 111,400 square feet of available office and warehouse space in the Hilti Complex to a new tenant. The initial lease term was for five years, commenced July 1, 2024, and included an option to extend the lease term for an additional five years. The lessee pays $86,500 per month, with 3% escalations at the beginning of each year of the lease. The lease includes standard triple-net terms such that the tenant shall be responsible for utilities, insurance, property taxes, repairs, and maintenance, excluding roof and structure, which shall be the landlord’s responsibility. On December 20, 2024, the Company executed an amendment to its lease with the tenant. The amendment provides the tenant a $500,000 improvement allowance, providing $10,000 credit per month on their scheduled rental payments for 50 months, in exchange for extending the term of the lease for an additional five years through June 30, 2034.

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The Company also subleases some office and warehouse space in one of its other leased facilities.

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

Years ending February 28 (29), |  |  |
2026 |  | $ | 1,337,700 |
2027 |  |  | 2,666,300 |
2028 |  |  | 2,676,600 |
2029 |  |  | 2,741,400 |
2030 |  |  | 2,807,900 |
Thereafter |  |  | 7,111,700 |
Total |  | $ | 19,341,600 |

The cost of the leased space was approximately $16,333,900 as of August 31, 2025, and February 28, 2025, respectively. The accumulated depreciation associated with the leased assets was $3,906,700 as of August 31, 2025, and February 28, 2025, respectively. During the third quarter of fiscal 2024, the Company announced its plans to sell the Hilti Complex and reclassified the land and buildings from property, plant and equipment to assets held for sale and discontinued depreciating the property. The leased space was included in this reclassification.

Note 6 – DEBT

Debt consists of the following:

|  | August 31, 2025 |  |  | February 28, 2025 |
Line of credit |  | $ | 4,198,100 |  |  | $ | 4,198,100 |
Floating rate Term Loan |  | $ | 15,725,000 |  |  | $ | 16,250,000 |
Fixed rate Term Loan |  |  | 10,175,900 |  |  |  | 10,550,900 |
Total term debt |  |  | 25,900,900 |  |  |  | 26,800,900 |
Less current maturities |  |  | (25,807,900 | ) |  |  | (26,685,500 | )
Less debt issue cost |  |  | (93,000 | ) |  |  | (115,400 | )
Long-term debt, net |  | $ | - |  |  | $ | - |

On August 9, 2022, the Company executed a Credit Agreement (“Loan Agreement”) with BOKF, NA (“Bank of Oklahoma” or the “Lender”). The Loan Agreement established a fixed rate Term Loan in the principal amount of $15,000,000 (the “Fixed Rate Term Loan”), a floating rate Term Loan in the principal amount of $21,000,000 (the “Floating Rate Term Loan”; together with the Fixed Rate Term Loan, collectively, the “Term Loans”), and a revolving promissory note in the principal amount up to $15,000,000 (the “Revolving Loan” or “Line of Credit”).

On December 22, 2022, the Company executed the First Amendment to our Loan Agreement with the Lender. This amendment clarified the definition of the Fixed Charge Coverage Ratio to exclude dividends paid prior to November 30, 2022, and placed restrictions on acquisitions and cash dividends.

On May 10, 2023, the Company executed the Second Amendment to our Loan Agreement with the Lender. This amendment waived the fixed charge ratio default which occurred on February 28, 2023 and amended the financial covenant to not require the fixed charge ratio to be measured at May 31, 2023. The Second Amendment also added a cumulative maximum level of fiscal year to date inventory purchases through the expiration of the Revolving Loan Agreement, increased the borrowing rate on the Company’s Revolving Loan to Term SOFR Rate plus 3.5%, required certain swap agreements be executed within 30 days of the amendment, reduced the revolving commitment from $15,000,000 to $14,000,000, effective May 10, 2023, and further reduced the revolving commitment to $13,500,000, effective July 15, 2023, among other items.

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On June 6, 2023, pursuant to its interest rate risk and risk management strategy, the Company entered into a swap transaction (the “Swap Transaction”) with the Lender, which converts a portion of the original $21,000,000 Floating Rate Term Loan from a floating interest rate to a fixed interest rate for two years. The Swap Transaction had a notional amount of $18,000,000 through fiscal quarter ending May 31, 2024, and then resets to $13,000,000 through May 30, 2025, while continuing to mirror the amortizing balance of the Floating Rate Term Loan. Under the terms of this agreement, the Company, in effect, exchanged the floating interest rate of 30-Day Term SOFR Rate at the trade date of June 5, 2023, to a fixed rate of 4.73%. The Swap Transaction commenced on June 7, 2023 and terminated on May 30, 2025.

On August 9, 2023, the Company executed the Third Amendment along with a Revised Credit Agreement (“Credit Agreement”) with the Lender. This amendment extended the Revolving Loan maturity date to January 31, 2024 and introduced a stepdown to the Revolving Commitment from $13,500,000, through August 30, 2023; to $10,500,000 through October 30, 2023; to $9,000,000 through November 29, 2023; to $5,000,000 through December 30, 2023; to $4,500,000 through January 30, 2024; and to $4,000,000 on January 31, 2024. The amendment restricted the Company from entering into any new purchase orders and use its best efforts to cancel existing purchase orders. The Third Amendment also increased the borrowing rate on the Revolving Loan to 30-Day Term SOFR Rate + 4.50%. The Credit Agreement was updated for the changes in the Third Amendment as well as removed the fixed charge ratio and the ability for borrowings to be accelerated before the January 31, 2024 Revolving Loan maturity date.

On November 30, 2023, the Company executed the Fourth Amendment to the Credit Agreement with the Lender. This amendment, effective December 1, 2023, increased the Revolving Loan commitment to $8,000,000 and extended the maturity date to May 31, 2024. The amendment also required the Company to list the Hilti Complex for sale, allowed the Company to execute additional purchase orders, subject to the lender’s approval and conditions, not to exceed $2,100,000 between December 1, 2023 and March 31, 2024, among other items. Proceeds from the sale of the property are to be used to pay down the borrowings with the Lender.

On June 13, 2024, the Company executed the Fifth Amendment to the Credit Agreement with the Lender. The amendment, effective May 31, 2024, adjusts the maximum availability of the Revolving Loan commitment to $7,000,000 through the maturity date of October 4, 2024. The Amendment decreased in the Revolving Loan to $4,500,000 from the effective date of the sale of the Hilti Complex among other restrictions and requirements.

On October 7, 2024, the Company executed the Sixth Amendment to the Credit Agreement with the Lender. The amendment, effective October 3, 2024, extended the maturity date to January 4, 2025, and decreased on the Revolving Loan to $5,500,000 by November 30, 2024.

On January 13, 2025, the Company executed the Seventh Amendment to the Credit Agreement with the Lender. The amendment, effective January 4, 2025, decreased the maximum availability of the Revolving Loan commitment to $4,750,000 through the maturity date of April 4, 2025.

On April 16, 2025, the Company executed the Eighth Amendment to the Credit Agreement with the Lender. The amendment, effective April 4, 2025, increased the Revolving Loan interest rate on the effective date to SOFR + 6.00%, extended the maturity date of the Revolving Loan to July 11, 2025, and includes a required step down on the Revolving Loan to $4,500,000 million on June 1, 2025. The amendment also changed the maturity dates of the two Term Loans to September 19, 2025.

On August 12, 2025, Educational Development Corporation executed the Ninth Amendment to the Existing Credit Agreement with the Lender. The Amendment, effective July 11, 2025, extends the maturity date of the Revolving Loan to September 19, 2025, increased the Revolving Loan interest rate on the effective date to SOFR + 8.00% and added a 2% deferred interest rate to the Term loans and Revolving Loan.

Features of the Revised Loan Agreement include:

| (i) |  | Two Term Loans on 20-year amortization with maturity dates of September 19, 2025.
|  | (i)(a) | $15 Million Fixed Rate Term Loan bears interest at a fixed rate per annum equal to 4.26%
|  | (i)(b) | $21 Million Floating Rate Term Loan bears interest at a rate per annum equal to Term SOFR Rate + 1.75%
| (ii) |  | $4.8 Million Revolving Loan with maturity date of September 19, 2025. The Revolving Loan bears interest at a rate per annum equal to Term SOFR Rate + 8.00% (effective rate was 12.36% at August 31, 2025)
| (iii) |  | Revolving Loan allows for Letters of Credit upon bank approval (none were outstanding at August 31, 2025)
| (iv) |  | The Two Term Loans and the Revolving Loan included an additional 2% deferred interest per the 9th Amendment from July 11th, 2025 to September 19th, 2025. Further, the Credit Agreement outlines an additional default rate of interest of 2% which would apply from September 20, 2025 until the loans under the credit agreement are repaid.

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

On September 30, 2025, the Company received a Reservation of Rights notice from its lender outlining that events of default have occurred and are continuing due to our failure to pay in full in cash the unpaid balance of the Term Loans and Revolving Loan before the maturity date. The Lender has not waived the specified defaults and reserves all of its rights, powers, privileges and remedies under the credit agreement, the UCC, and applicable law. Under the credit agreement, the lender has the right, among other remedies listed, to demand payment or repossess and liquidate the Company’s assets used as collateral for the loans. Under the terms of the credit agreement, an additional default interest rate of 2% is added to the existing interest rates defined in the credit agreement.

Note 7 – BUSINESS CONCENTRATION

Significant portions of our inventory purchases are concentrated with an England-based publishing company, Usborne Publishing Limited (“Usborne”). During fiscal 2023, we entered into a new distribution agreement (“Agreement”) with Usborne. The Agreement includes annual minimum purchase volumes along with specific payment terms and letter of credit requirements, which if not met offer Usborne the right to terminate the Agreement on less than 30 days’ written notice. Should termination of the Agreement occur, the Company will be allowed to sell its remaining Usborne inventory for an agreed upon period, but not less than twelve months following the termination date. As of August 31, 2025, the Company did not meet the minimum purchase requirements and did not supply the letter of credit required under the Agreement, which offers Usborne the right to exercise their option to terminate the Agreement. Usborne has not notified the Company of termination of the Agreement. In addition, Usborne has refused to pay the $1.0 million volume rebate owed to the Company from purchases made during fiscal 2022. 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 2024.

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

|  | Three Months Ended August 31, |  |  | Six Months Ended August 31, |
|  | 2025 |  |  | 2024 |  |  | 2025 |  |  | 2024 |
Product revenues, net of discounts of Usborne products by division: |  |  |  |  |  |  |  |  |  |  |  |
PaperPie division |  | $ | 1,692,200 |  |  | $ | 1,848,000 |  |  | $ | 4,231,300 |  |  | $ | 5,561,600 |
% of total PaperPie Product revenues, net of discounts |  |  | 48.2 | % |  |  | 36.6 | % |  |  | 45.8 | % |  |  | 40.4 | %
Publishing division |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
% of total Publishing Product revenues, net of discounts |  |  | 0.0 | % |  |  | 0.0 | % |  |  | 0.0 | % |  |  | 0.0 | %
Total Product revenues, net of discounts of Usborne products |  | $ | 1,692,200 |  |  | $ | 1,848,000 |  |  | $ | 4,231,300 |  |  | $ | 5,561,600 |
Purchases received by product type: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Usborne |  | $ | 27,000 |  |  | $ | 48,800 |  |  | $ | 70,100 |  |  | $ | 100,600 |
% of total purchases received |  |  | 5.8 | % |  |  | 6.8 | % |  |  | 11.2 | % |  |  | 6.8 | %
All other product types |  |  | 436,000 |  |  |  | 665,000 |  |  |  | 558,100 |  |  |  | 1,380,200 |
% of total purchases received |  |  | 94.2 | % |  |  | 93.2 | % |  |  | 88.8 | % |  |  | 93.2 | %
Total purchases received |  | $ | 463,000 |  |  | $ | 713,800 |  |  | $ | 628,200 |  |  | $ | 1,480,800 |

Total Usborne inventory owned by the Company and included in our balance sheets was $21,838,800 and $23,696,800 as of August 31, 2025, and February 28, 2025, respectively.

Note 8 – LOSS PER SHARE

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

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

|  | Three Months Ended August 31, |  |  | Six Months Ended August 31, |
|  | 2025 |  |  | 2024 |  |  | 2025 |  |  | 2024 |
Net loss per share: |  |  |  |  |  |  |  |  |  |  |  |
Net loss applicable to common shareholders |  | $ | (1,294,700 | ) |  | $ | (1,803,400 | ) |  | $ | (2,369,900 | ) |  | $ | (3,082,400 | )
Weighted average shares outstanding: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 8,583,201 |  |  |  | 8,272,217 |  |  |  | 8,583,201 |  |  |  | 8,269,494 |
Diluted |  |  | 8,583,201 |  |  |  | 8,272,217 |  |  |  | 8,583,201 |  |  |  | 8,269,494 |
Loss per share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | (0.15 | ) |  | $ | (0.22 | ) |  | $ | (0.28 | ) |  | $ | (0.37 | )
Diluted |  | $ | (0.15 | ) |  | $ | (0.22 | ) |  | $ | (0.28 | ) |  | $ | (0.37 | )

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

|  | Three Months Ended August 31, |  |  | Six Months Ended August 31, |
|  | 2025 |  |  | 2024 |  |  | 2025 |  |  | 2024 |
Weighted average shares: |  |  |  |  |  |  |  |  |  |  |  |
Issued unvested restricted stock and assumed shares issuable under granted unvested restricted stock awards |  |  | - |  |  |  | 181,030 |  |  |  | - |  |  |  | 160,890 |

Note 9 – SHARE-BASED COMPENSATION

We account for share-based compensation whereby share-based payment transactions with employees, such as stock options and restricted stock, are measured at estimated fair value at the date of grant. For awards subject to service conditions, compensation expense is recognized over the vesting period on a straight-line basis. Awards subject to performance conditions are attributed separately for each vesting tranche of the award and are recognized rateably from the service inception date to the vesting date for each tranche. Forfeitures are recognized when they occur. The probability of restricted share awards granted with future performance conditions is evaluated at each reporting period and share awards are updated and compensation expense is adjusted based on updated information.

In July 2018, our shareholders approved the Company’s 2019 Long-Term Incentive Plan (“2019 LTI Plan”). The 2019 LTI Plan established up to 600,000 shares of restricted stock available to be granted to certain members of management based on exceeding specified net revenues and pre-tax performance metrics during fiscal years 2019, 2020 or 2021. The Company exceeded all defined metrics during these fiscal years and 600,000 shares were granted to members of management according to the Plan. The granted shares under the 2019 LTI Plan “cliff vest” after five years from the fiscal year that the defined metrics were exceeded. All remaining shares under the 2019 Long-Term Incentive Plan vested on February 28, 2025.

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In July 2021, our shareholders approved the Company’s 2022 Long-Term Incentive Plan (“2022 LTI Plan”). The 2022 LTI Plan established up to 300,000 shares of restricted stock available to be granted to certain members of management based on exceeding specified net revenues and pre-tax performance metrics during fiscal years 2022 and 2023. There were no shares issued under the 2022 LTI Plan as the company did not exceed the financial targets.

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

|  | Three Months Ended August 31, |  |  | Six Months Ended August 31, |
|  | 2025 |  |  | 2024 |  |  | 2025 |  |  | 2024 |
Share-based compensation expense - net of forfeitures |  | $ | - |  |  | $ | 100,800 |  |  | $ | - |  |  | $ | 201,600 |

Note 10 – SHIPPING AND HANDLING COSTS

We classify shipping and handling costs as operating and selling expenses in the condensed statements of operations. Shipping and handling costs include postage, freight, handling costs, as well as shipping materials and supplies. These costs were $571,800 and $968,500 for the three months ended August 31, 2025 and 2024, respectively. These costs were $1,377,000 and $2,515,100 for the six months ended August 31, 2025 and 2024, respectively.

Note 11 – BUSINESS SEGMENTS

We have two reportable segments: PaperPie and Publishing. These reportable segments are business units that offer different methods of distribution to different types of customers. They are managed separately based on the fundamental differences in their operations. Our PaperPie segment markets its products through a network of independent Brand Partners using a combination of internet sales, direct sales, home shows, and book fairs. Our Publishing segment markets its products to retail accounts, which include book, school supply, toy and gift stores, museums, trade and specialty wholesalers, through commissioned sales representatives, and our internal tele-sales group. See Note 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.

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Information by reporting segment for the six-month periods ended August 31, 2025 and 2024, are as follows:

NET REVENUES
|  | Three Months Ended August 31, |  |  | Six Months Ended August 31, |
|  | 2025 |  |  | 2024 |  |  | 2025 |  |  | 2024 |
PaperPie |  | $ | 3,731,200 |  |  | $ | 5,440,300 |  |  | $ | 9,791,500 |  |  | $ | 14,340,600 |
Publishing |  |  | 889,900 |  |  |  | 1,068,900 |  |  |  | 1,936,000 |  |  |  | 2,162,000 |
Total |  | $ | 4,621,100 |  |  | $ | 6,509,200 |  |  | $ | 11,727,500 |  |  | $ | 16,502,600 |

EARNINGS (LOSS) BEFORE INCOME TAXES
|  | Three Months Ended August 31, |  |  | Six Months Ended August 31, |
|  | 2025 |  |  | 2024 |  |  | 2025 |  |  | 2024 |
PaperPie |  | $ | (14,700 | ) |  | $ | (470,700 | ) |  | $ | 447,000 |  |  | $ | 300,400 |
Publishing |  |  | 205,700 |  |  |  | 255,200 |  |  |  | 413,500 |  |  |  | 486,800 |
Other |  |  | (1,941,200 | ) |  |  | (2,250,600 | ) |  |  | (4,060,000 | ) |  |  | (5,000,300 | )
Total |  | $ | (1,750,200 | ) |  | $ | (2,466,100 | ) |  | $ | (3,199,500 | ) |  | $ | (4,213,100 | )

PAPERPIE OPERATING RESULTS

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

|  | Three Months Ended August 31, |  |  | Six Months Ended August 31, |
|  | 2025 |  |  | 2024 |  |  | 2025 |  |  | 2024 |
Net revenues |  | $ | 3,731,200 |  |  | $ | 5,440,300 |  |  | $ | 9,791,500 |  |  | $ | 14,340,600 |
Cost of goods sold |  |  | 1,569,400 |  |  |  | 2,440,100 |  |  |  | 4,038,700 |  |  |  | 5,526,500 |
Gross margin |  |  | 2,161,800 |  |  |  | 3,000,200 |  |  |  | 5,752,800 |  |  |  | 8,814,100 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operating and selling |  |  | 554,500 |  |  |  | 1,180,100 |  |  |  | 1,294,100 |  |  |  | 2,672,900 |
Sales commissions |  |  | 1,245,300 |  |  |  | 1,827,100 |  |  |  | 3,226,800 |  |  |  | 4,860,900 |
General and administrative |  |  | 376,700 |  |  |  | 463,700 |  |  |  | 784,900 |  |  |  | 979,900 |
Total operating expenses |  |  | 2,176,500 |  |  |  | 3,470,900 |  |  |  | 5,305,800 |  |  |  | 8,513,700 |
Operating income (loss) |  | $ | (14,700 | ) |  | $ | (470,700 | ) |  | $ | 447,000 |  |  | $ | 300,400 |

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PUBLISHING OPERATING RESULTS

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

|  | Three Months Ended August 31, |  |  | Six Months Ended August 31, |
|  | 2025 |  |  | 2024 |  |  | 2025 |  |  | 2024 |
Net revenues |  | $ | 889,900 |  |  | $ | 1,068,900 |  |  | $ | 1,936,000 |  |  | $ | 2,162,000 |
Cost of goods sold |  |  | 363,600 |  |  |  | 422,400 |  |  |  | 863,600 |  |  |  | 870,000 |
Gross margin |  |  | 526,300 |  |  |  | 646,500 |  |  |  | 1,072,400 |  |  |  | 1,292,000 |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operating and selling |  |  | 69,900 |  |  |  | 123,700 |  |  |  | 152,200 |  |  |  | 269,900 |
Sales commissions |  |  | 23,700 |  |  |  | 23,700 |  |  |  | 54,200 |  |  |  | 48,900 |
General and administrative |  |  | 227,000 |  |  |  | 243,900 |  |  |  | 452,500 |  |  |  | 486,400 |
Total operating expenses |  |  | 320,600 |  |  |  | 391,300 |  |  |  | 658,900 |  |  |  | 805,200 |
Operating income |  | $ | 205,700 |  |  | $ | 255,200 |  |  | $ | 413,500 |  |  | $ | 486,800 |

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

OTHER NON-SEGMENT LOSS BEFORE INCOME TAXES

|  | Three Months Ended August 31, |  |  | Six Months Ended August 31, |
|  | 2025 |  |  | 2024 |  |  | 2025 |  |  | 2024 |
Operating and selling: |  | $ |  |  |  | $ |  |  |  | $ |  |  |  | $ |  |
Freight |  |  | 74,200 |  |  |  | 82,700 |  |  |  | 223,900 |  |  |  | 286,100 |
Computer support |  |  | 40,900 |  |  |  | (700 | ) |  |  | 63,900 |  |  |  | 36,900 |
Total operating and selling expenses |  |  | 115,100 |  |  |  | 82,000 |  |  |  | 287,800 |  |  |  | 323,000 |
General and administrative: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Payroll |  |  | 949,900 |  |  |  | 1,066,100 |  |  |  | 1,913,100 |  |  |  | 2,381,600 |
Depreciation |  |  | 274,600 |  |  |  | 393,500 |  |  |  | 551,400 |  |  |  | 786,000 |
Building and warehouse rents |  |  | 216,300 |  |  |  | 170,900 |  |  |  | 454,000 |  |  |  | 342,600 |
Outside services |  |  | 100,200 |  |  |  | 107,400 |  |  |  | 251,800 |  |  |  | 221,500 |
Property taxes |  |  | 41,300 |  |  |  | 92,700 |  |  |  | 155,300 |  |  |  | 185,400 |
Property insurance |  |  | 34,600 |  |  |  | 50,800 |  |  |  | 109,400 |  |  |  | 120,500 |
Professional service fees |  |  | 56,700 |  |  |  | 59,700 |  |  |  | 116,400 |  |  |  | 118,600 |
Dues and subscriptions |  |  | 54,600 |  |  |  | 59,000 |  |  |  | 108,100 |  |  |  | 129,400 |
Other |  |  | 171,200 |  |  |  | 197,900 |  |  |  | 301,200 |  |  |  | 353,100 |
Total general and administrative expenses |  |  | 1,899,400 |  |  |  | 2,198,000 |  |  |  | 3,960,700 |  |  |  | 4,638,700 |
Interest expense |  |  | 603,200 |  |  |  | 545,700 |  |  |  | 1,107,500 |  |  |  | 1,122,400 |
Other income |  |  | (676,500 | ) |  |  | (575,100 | ) |  |  | (1,296,000 | ) |  |  | (1,083,800 | )
Total other non-segment loss before income taxes |  | $ | 1,941,200 |  |  | $ | 2,250,600 |  |  | $ | 4,060,000 |  |  | $ | 5,000,300 |

Note 12 – INTEREST RATE EXCHANGE AGREEMENT

The Company maintains an interest-rate risk-management strategy that uses interest-rate swap instruments at times to minimize significant, unanticipated earnings fluctuations caused by interest-rate volatility. The Company’s specific goal is to lower the cost of its borrowed funds, when possible.

On June 5, 2023, the Company entered into a receive-variable (based on 30-Day SOFR)/pay-fixed interest-rate swap agreement related to $18,000,000 of our $21,000,000 Floating Rate Term Loan. This swap was utilized to manage interest-rate exposure over the period of the interest-rate swap and was designated as a highly effective cash-flow hedge. The differential to be paid or received on the swap agreement is accrued as interest rates change and is recognized in interest expense over the life of the agreement. The swap agreement offset a corresponding portion of the amortizing $21,000,000 Floating Rate Term Loan, which expired on May 30, 2025. During the period of the swap, the agreement effectively fixed the interest rate on the offsetting, outstanding balance of the $21,000,000 Floating Rate Term Loan at 6.48%. The notional amount of the swap and the offsetting, outstanding portion of the Term Loan was $11,250,000 on February 28, 2025 and $0 at May 31, 2025. The interest-rate swap ended on May 21, 2025.

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The effective portion of the unrealized gain or loss on this interest-rate swap is reported as a component of other comprehensive income (“OCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the interest rate swap representing amounts excluded from the assessment of hedge effectiveness were recognized in the current earnings.

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

|  | August 31, 2025 |  |  | February 28, 2025 |
Other current liabilities |  | $ | - |  |  | $ | 15,400 |

Note 13 – FINANCIAL INSTRUMENTS

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

| - | The carrying amounts reported on the balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term maturity of these instruments.
| - | The estimated fair value of our assets held for sale was $35,550,000 as of August 31, 2025 and $37,000,000 February 28, 2025, respectively. Management’s estimates are based on the recent sale agreement for the price of the Hilti Complex less the estimated costs to sell plus an estimated value of the excess land of approximately 17 acres for $2,500,000 along with the estimated fair value of equipment held for sale of approximately $850,000.
| - | The estimated fair value of our term notes payable is estimated by management to approximate $25,671,300 and $26,507,100 as of August 31, 2025 and February 28, 2025, respectively. Management’s estimates are based on the obligations’ characteristics, including floating interest rate, maturity, and collateral.

Note 14 – DEFERRED REVENUES

The Company’s PaperPie division receives payments on orders in advance of shipment. Any payments received prior to the end of the period that were not shipped as of August 31, 2025 or February 28, 2025 are recorded as deferred revenues on the balance sheets. We received approximately $547,000 and $491,800 as of August 31, 2025 and February 28, 2025, respectively, in payments for sales orders which were, or will be, shipped out subsequent to the end of the period.

Note 15 – SUBSEQUENT EVENTS

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

On September 30, 2025, the Company received a Reservation of Rights notice from its lender outlining that events of default have occurred and are continuing due to our failure to pay in full in cash the unpaid balance of the Term Loans and Revolving Loan before the maturity date. The Lender has not waived the specified defaults and reserves all of its rights, powers, privileges and remedies under the credit agreement, the UCC, and applicable law. Under the credit agreement, the lender has the right, among other remedies listed, to demand payment or repossess and liquidate the Company’s assets used as collateral for the loans. Under the terms of the credit agreement, an additional default interest rate of 2% is added to the existing interest rates defined in the credit agreement. See Item 5. OTHER INFORMATION for further details.

On October 1, 2025, the Company and 10Mark 10K Industrial, LLC, a Delaware limited liability company (“Buyer”) executed the 1st Amendment to the Purchase and Sale Agreement for the Hilti Complex (“Contract”) extending the term of the initial 45-day due diligence period from October 2, 2025 to October 6, 2025 and reduced the purchase price of the Hilti Complex to $32,200,000.

On October 6, 2025, the Company received the Buyer’s Notice to Proceed pursuant to the Contract. This notice to proceed, subject to certain conditions, waives the Buyer’s right to the escrow deposit in the Contract. The sale of the Hilti Complex is expected to be completed on or before November 25, 2025.

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Item 2. 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.

Overview

We are the owner and exclusive publisher of Kane Miller children’s books; Learning Wrap-Ups, maker of educational manipulatives; and SmartLab Toys, maker of STEAM-based toys and games. We are also the exclusive United States Multi-Level Marketing (“MLM”) distributor of Usborne Publishing Limited (“Usborne”) children’s books. Significant portions of our product offering and inventory are concentrated with Usborne. Our distribution agreement with Usborne includes annual minimum purchase volumes along with specific payment terms, which, if not met or if payments are not received in a timely manner, offer Usborne the right to terminate the agreement. During fiscal 2024 and fiscal 2025, the Company did not meet the minimum purchase volumes and certain payments were not received timely. No notification of non-compliance or termination has been received from Usborne. Should termination of the agreement occur, the Company will be allowed, at a minimum, to sell through our remaining Usborne inventory over a period of twelve months following the termination date.

We sell our products through two separate divisions, PaperPie and Publishing. These two divisions each have their own customer base. The PaperPie division markets our complete line of products through a network of independent Brand Partners using a combination of home shows, internet party events, and book fairs. The Publishing division markets Kane Miller, Learning Wrap-Ups, and SmartLab Toys on a wholesale basis to various retail accounts. All other supporting administrative activities are recognized as other expenses outside of our two divisions. Other expenses consist primarily of 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 August 31, |  |  | Six Months Ended August 31, |
|  | 2025 |  |  | 2024 |  |  | 2025 |  |  | 2024 |
Product revenues, net of discounts and allowances |  | $ | 4,396,300 |  |  | $ | 6,119,600 |  |  | $ | 11,161,100 |  |  | $ | 15,710,500 |
Transportation revenue |  |  | 224,800 |  |  |  | 389,600 |  |  |  | 566,400 |  |  |  | 792,100 |
Net revenues |  |  | 4,621,100 |  |  |  | 6,509,200 |  |  |  | 11,727,500 |  |  |  | 16,502,600 |
Cost of goods sold |  |  | 1,933,000 |  |  |  | 2,862,500 |  |  |  | 4,902,300 |  |  |  | 6,396,500 |
Gross margin |  |  | 2,688,100 |  |  |  | 3,646,700 |  |  |  | 6,825,200 |  |  |  | 10,106,100 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operating and selling |  |  | 739,500 |  |  |  | 1,385,800 |  |  |  | 1,734,100 |  |  |  | 3,265,800 |
Sales commissions |  |  | 1,268,900 |  |  |  | 1,850,900 |  |  |  | 3,281,000 |  |  |  | 4,909,700 |
General and administrative |  |  | 2,503,200 |  |  |  | 2,905,500 |  |  |  | 5,198,100 |  |  |  | 6,105,100 |
Total operating expenses |  |  | 4,511,600 |  |  |  | 6,142,200 |  |  |  | 10,213,200 |  |  |  | 14,280,600 |
Interest expense |  |  | 603,200 |  |  |  | 545,700 |  |  |  | 1,107,500 |  |  |  | 1,122,400 |
Other income |  |  | (676,500 | ) |  |  | (575,100 | ) |  |  | (1,296,000 | ) |  |  | (1,083,800 | )
Loss before income taxes |  |  | (1,750,200 | ) |  |  | (2,466,100 | ) |  |  | (3,199,500 | ) |  |  | (4,213,100 | )
Income tax benefit |  |  | (455,500 | ) |  |  | (662,700 | ) |  |  | (829,600 | ) |  |  | (1,130,700 | )
Net loss |  | $ | (1,294,700 | ) |  | $ | (1,803,400 | ) |  | $ | (2,369,900 | ) |  | $ | (3,082,400 | )

See the detailed discussion of revenues, gross margin and general and administrative expenses by reportable segment below. The following is a discussion of significant changes in the non-segment related general and administrative expenses, other income and expenses and income taxes during the respective periods.

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

Total operating expenses not associated with a reporting segment decreased $0.3 million, or 13.0%, to $2.0 million for the three-month period ended August 31, 2025, when compared to $2.3 million for the same quarterly period a year ago. Operating expenses decreased primarily as a result of a $0.1 million decrease in labor expenses within our warehouse operations due primarily to lower number of orders and outbound shipments, a $0.1 million decrease in depreciation expenses as certain assets have moved to Assets Held for Sale and depreciation is no longer applied, and a $0.1 million decrease in property taxes and insurance.

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Interest expense increased $0.1 million, or 20.0%, to $0.6 million for the three months ended August 31, 2025, when compared to $0.5 million for the same quarterly period a year ago, due to increased interest rates on all our debt, period over period.

Income taxes decreased $0.2 million, or 28.6%, to a tax benefit of $0.5 million for the three months ended August 31, 2025, from a tax benefit of $0.7 million for the same quarterly period a year ago, resulting primarily from a decrease in gross sales. Our effective tax rate decreased to 26.0% for the quarter ended August 31, 2025, from 26.9% for the quarter ended August 31, 2024, due primarily to sales mix fluctuations between states. Our tax rates are higher than the federal statutory rate of 21% due to the inclusion of state income and franchise taxes.

Non-Segment Operating Results for the Six Months Ended August 31, 2025

Total operating expenses not associated with a reporting segment decreased $0.8 million, or 16.0%, to $4.2 million for the six-month period ended August 31, 2025, when compared to $5.0 million for the same period a year ago. Labor expenses decreased $0.5 million from staff reductions across all departments and freight handling costs decreased $0.1 million for the six months ended August 31, 2025, both associated with reduced sales, and a $0.2 million decrease in depreciation expenses as certain assets have moved to Assets Held for Sale and depreciation is no longer applied.

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

Other income increased $0.2 million, or 18.2%, to $1.3 million for the six months ended August 31, 2025, when compared to $1.1 million for the same quarterly period a year ago, primarily from a $0.4 million increase in rental income from the new tenant in the Hilti Complex, offset by a $0.2 decrease in other income related to a Chik-fil-A promotion held last year and the loss associated with the sale of property and equipment.

Income taxes decreased $0.3 million, or 27.3%, to a tax benefit of $0.8 million for the six months ended August 31, 2025, from a tax benefit of $1.1 million for the same period a year ago primarily related to reduced operating losses between the periods. Our effective tax rate decreased to 25.9% for the six months ended August 31, 2025, from 26.8% for the six months ended August 31, 2024, due primarily to sales mix fluctuations between states. Our tax rates are higher than the federal statutory rate of 21% due to the inclusion of state income and franchise taxes.

PaperPie Operating Results for the Three and Six Months Ended August 31, 2025

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

|  | Three Months Ended August 31, |  |  | Six Months Ended August 31, |
|  | 2025 |  |  | 2024 |  |  | 2025 |  |  | 2024 |
Net revenues |  | $ | 3,731,200 |  |  | $ | 5,440,300 |  |  | $ | 9,791,500 |  |  | $ | 14,340,600 |
Cost of goods sold |  |  | 1,569,400 |  |  |  | 2,440,100 |  |  |  | 4,038,700 |  |  |  | 5,526,500 |
Gross margin |  |  | 2,161,800 |  |  |  | 3,000,200 |  |  |  | 5,752,800 |  |  |  | 8,814,100 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operating and selling |  |  | 554,500 |  |  |  | 1,180,100 |  |  |  | 1,294,100 |  |  |  | 2,672,900 |
Sales commissions |  |  | 1,245,300 |  |  |  | 1,827,100 |  |  |  | 3,226,800 |  |  |  | 4,860,900 |
General and administrative |  |  | 376,700 |  |  |  | 463,700 |  |  |  | 784,900 |  |  |  | 979,900 |
Total operating expenses |  |  | 2,176,500 |  |  |  | 3,470,900 |  |  |  | 5,305,800 |  |  |  | 8,513,700 |
Operating income (loss) |  | $ | (14,700 | ) |  | $ | (470,700 | ) |  | $ | 447,000 |  |  | $ | 300,400 |
Average number of active brand partners |  |  | 5,800 |  |  |  | 13,900 |  |  |  | 6,800 |  |  |  | 13,700 |

PaperPie Operating Results for the Three Months Ended August 31, 2025

PaperPie net revenues decreased $1.7 million, or 31.5%, to $3.7 million during the three months ended August 31, 2025, when compared to $5.4 million during the same period a year ago. The average number of active brand partners in the second quarter of fiscal 2026 was 5,800, a decrease of 8,100, or 58.3%, from 13,900 average active brand partners selling in the second quarter of fiscal 2025. The Company reports the average number of active Brand Partners as a key indicator for this division. The Company saw new Brand Partner recruiting negatively impacted due to several factors including economic challenges that include inflation, resulting in high fuel costs and food price increases that continue to impact the disposable income of our customers. Additionally, the Company executed a distribution agreement with Usborne Publishing Limited in fiscal 2023. This agreement required the rebranding of the direct sales division from Usborne Books & More (“UBAM”) to PaperPie along with providing a letter of credit and minimal level of annual purchases. This rebranding was completed in the fourth quarter of fiscal 2023. The letter of credit was not provided by the Company and the Company did not meet the minimum purchase requirements in fiscal 2024 or 2025, creating uncertainty with the relationship on a go-forward basis. The reduced sales and uncertainty resulting from the revised Usborne distribution agreement increased Brand Partner turnover and negatively impacted new Brand Partner recruits.

Recent sales levels have also been impacted by the lack of new titles being introduced and certain out of stock items, due to purchasing restrictions placed on us from our lender. We expect to place reorders and purchase new titles following the sale of Hilti Complex and the payoff of the loans with our bank. Returning to our past practice of introducing new titles, along with additional enhancements to our PaperPie e-commerce and “backoffice” systems, are expected to create existing Brand Partner excitement and increase our number of new recruits in this division.

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PaperPie gross margin decreased $0.8 million, or 26.7%, to $2.2 million during the three months ended August 31, 2025, when compared to $3.0 million during the same period a year ago. Gross margin as a percentage of net revenues for the three months ended August 31, 2025 increased to 57.9%, compared to 55.1% the same period a year ago, representing an increase of $0.2 million. The increase in gross margin as a percentage of net revenues was primarily attributed to increased discounts offered in the prior year to spur sales along with additional shipping promotions.

Total PaperPie operating expenses decreased $1.3 million, or 37.1%, to $2.2 million during the three-month period ended August 31, 2025, when compared to $3.5 million reported in the same quarter a year ago. Operating and selling expenses decreased $0.6 million, or 50.0%, to $0.6 million during the three-month period ended August 31, 2025, when compared to $1.2 million reported in the same quarter a year ago. These decreased expenses were due to a $0.3 million decrease in shipping costs associated with the decrease in volume of orders shipped, and a decrease of $0.3 million in accruals for Brand Partner incentive trip expenses as the Division expects less trip earners this year. Sales commissions decreased $0.6 million, or 33.3%, to $1.2 million during the three-month period ended August 31, 2025, when compared to $1.8 million reported in the same quarter a year ago, due primarily to the decrease in net revenues. General and administrative expenses decreased $0.1 million, or 20.0%, to $0.4 million during the three months ended August 31, 2025, when compared to $0.5 million during the same period a year ago. This decrease was due to a $0.1 million decrease in credit card transaction fees associated with decreased sales volumes coupled with a decrease in Home Office challenge awards used to incentivize selling more products each quarter.

Operating loss for the PaperPie segment decreased $0.5 million, to $14,700 during the three months ended August 31, 2025, when compared to the loss of $0.5 million reported in the same quarter a year ago. Operating loss for the PaperPie division as a percentage of net revenues for the year ended August 31, 2025 was (0.4)%, compared to (8.7)% for the year ended August 31, 2024, a decrease of 8.3%. Operating loss as a percentage of net revenues changed from the prior year primarily due to the decrease in net revenues due primarily to the reduced number of active brand partners and higher discounts offered to spur sales, offset by a decrease in operating expenses as shown above.

PaperPie Operating Results for the Six Months Ended August 31, 2025

PaperPie net revenues decreased $4.5 million, or 31.5%, to $9.8 million during the six-month period ended August 31, 2025, compared to $14.3 million from the same period a year ago. The average number of active brand partners in the six-month period ended August 31, 2025, was 6,800, a decrease of 6,900, or 50.4%, from 13,700 selling in same period a year ago. Recruiting and maintaining brand partners has been negatively impacted by several factors including record inflation, our distribution agreement with Usborne and the rebranding of the division in the fourth quarter of fiscal year 2023. Inflation was most evident in increased food and fuel prices, which impacts the disposable income of our target customer base, which is families with small children. Sales during the first and second quarters of fiscal year 2025 continued to be negatively impacted by continuing inflationary pressures and we expect this to continue through the rest of fiscal year 2026, as these pressures 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. We expect to place reorders and purchase new titles following the sale of Hilti Complex and the payoff of the loans with our bank. Returning to our past practice of introducing new titles, along with additional enhancements to our PaperPie e-commerce and “backoffice” systems, are expected to create existing Brand Partner excitement and increase our number of new recruits in this division.

Gross margin decreased $3.0 million, or 34.1%, to $5.8 million during the six-month period ended August 31, 2025, when compared to $8.8 million during the same period a year ago, due primarily to a decrease in net revenues. Gross margin as a percentage of net revenues decreased to 58.8% for the six-month period ended August 31, 2025, when compared to 61.5% for the same period a year ago. The decrease in gross margin as a percentage of net revenues was primarily attributed to increased recruiting promotions offered to increase brand partner levels and additional discounts offered to customers between the periods to spur sales, as well as increased cost of goods from the tariffs implemented by the current administration on our SmartLab Toys product line.

Total operating expenses decreased $3.2 million, or 37.6%, to $5.3 million during the six-month period ended August 31, 2025, from $8.5 million for the same period a year ago. Operating and selling expenses decreased $1.4 million, or 51.9%, to $1.3 million during the six-month period ended August 31, 2025, when compared to $2.7 million reported in the same period a year ago. This decrease relates primarily to a decrease in shipping costs associated with the decrease in volume of orders shipped, totalling approximately $0.9 million; a $0.4 million decrease in brand partner incentive trip expenses as fewer brand partners are expected to earn the trip this year; and a $0.1 million decrease in various other operating and selling expenses. Sales commissions decreased $1.7 million, or 34.7%, to $3.2 million during the six-month period ended August 31, 2025, when compared to $4.9 million reported in the same period a year ago, primarily due to the decrease in net revenues. General and administrative expenses decreased $0.2 million, or 20.0%, to $0.8 million, from $1.0 million recognized during the same period last year, due primarily to decreased credit card transaction fees associated with decreased sales volumes totalling $0.1 million and a $0.1 million decrease in other various general and administrative expenses.

Operating income of the PaperPie segment increased $0.1 million, or 33.3%, to $0.4 million during the six months ended August 31, 2025, when compared to $0.3 million reported in the same period last year. Operating income of the PaperPie division as a percentage of net revenues for the six months ended August 31, 2025 was 4.6%, compared to 2.1% for the six months ended August 31, 2024. Operating income for the PaperPie division increased primarily from reduced operating expenses

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Publishing Operating Results for the Three and Six Months Ended August 31, 2025

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

|  | Three Months Ended August 31, |  |  | Six Months Ended August 31, |
|  | 2025 |  |  | 2024 |  |  | 2025 |  |  | 2024 |
Net revenues |  | $ | 889,900 |  |  | $ | 1,068,900 |  |  | $ | 1,936,000 |  |  | $ | 2,162,000 |
Cost of goods sold |  |  | 363,600 |  |  |  | 422,400 |  |  |  | 863,600 |  |  |  | 870,000 |
Gross margin |  |  | 526,300 |  |  |  | 646,500 |  |  |  | 1,072,400 |  |  |  | 1,292,000 |
Total operating expenses |  |  | 320,600 |  |  |  | 391,300 |  |  |  | 658,900 |  |  |  | 805,200 |
Operating income |  | $ | 205,700 |  |  | $ | 255,200 |  |  | $ | 413,500 |  |  | $ | 486,800 |

Publishing Operating Results for the Three Months Ended August 31, 2025

Our Publishing division’s net revenues decreased $0.2 million, or 18.2%, to $0.9 million during the three-month period ended August 31, 2025, from $1.1 million reported in the same period a year ago. The change in net revenues was primarily from additional discounts offered to retail customers in the second quarter of fiscal 2026 to spur sales.

Gross margin decreased $0.1 million, or 16.7%, to $0.5 million during the three-month period ended August 31, 2025, from $0.6 million reported in the same quarter a year ago, primarily due to the decrease in net revenues. Gross margin as a percentage of net revenues decreased to 59.1% during the three-month period ended August 31, 2025, from 60.5% reported in the same quarter a year ago. Gross margin as a percentage of net revenues changed primarily from additional discounts offered to retail customers in the second quarter of fiscal 2026 to spur sales.

Total operating expenses of the Publishing segment decreased $0.1 million, or 25.0%, to $0.3 million, from $0.4 million, during the three-month periods ended August 31, 2025 and 2024, respectively. This change was primarily due to a $0.1 million decrease in shipping costs associated with the decrease in volume of orders shipped.

Operating income decreased $0.1 million, or 33.3%, to $0.2 million, from $0.3 million, during the three-month periods ended August 31, 2025 and 2024, respectively. Operating income for the Publishing division as a percentage of net revenues for the year ended August 31, 2025 was 23.1%, compared to 23.9% for the year ended August 31, 2024, a decrease of 0.8%. The decrease in operating income was primarily associated with the decline in revenues associated with the increased discounts to spur sales.

Publishing Operating Results for the Six Months Ended August 31, 2025

Our Publishing division’s net revenues decreased by $0.3 million, or 13.6%, to $1.9 million during the six-month period ended August 31, 2025, from $2.2 million reported in the same period a year ago primarily due to the increased discounts offered to spur sales.

Gross margin decreased $0.2 million, or 15.4%, to $1.1 million during the six-month period ended August 31, 2025, from $1.3 million reported in the same period a year ago. Gross margin as a percentage of net revenues decreased to 55.4%, during the six-month period ended August 31, 2025, from 59.8% reported in the same period a year ago. Gross margin as a percentage of net revenues changed primarily from changes in the mix of products sold between EDC-owned brands and Usborne, with Kane Miller, SmartLab Toys and Learning Wrap-Ups products carrying a better margin on average and the increased discounts offered to customers during the current fiscal year.

Total operating expenses of the Publishing segment decreased $0.1 million, or 12.5%, to $0.7 million during the six-month period ended August 31, 2025, from $0.8 million reported in the same period a year ago. This change was due to a $0.1 million decrease in shipping costs associated with the decrease in volume of orders shipped.

Operating income of the Publishing segment decreased $0.1 million, or 20.0%, to $0.4 million during the six-month period ended August 31, 2025 when compared to $0.5 million reported in the same period a year ago, due primarily to the decrease in sales and operating expenses. The decrease in operating income was primarily associated with the decline in revenues associated with the discounts offered in the current fiscal year.

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Liquidity and Capital Resources

Prior to the last two fiscal years, which have been challenged with higher product discounting to spur sales and increased interest rates on borrowings, EDC has a history of profitability and positive cash flow. We typically fund our operations from the cash we generate. During periods of operating losses, EDC will reduce purchases and sell through excess inventory to generate cash flow. The Company expects to reduce current excess inventory levels and use the cash proceeds to offset any future operating losses until it returns to profitability. In addition, the Company intends to sell its owned real estate to pay off the revolving line of credit and term debts with our bank. Available cash has historically been used to pay down the outstanding bank loan balances, for capital expenditures, to pay dividends, and to acquire treasury stock.

During the first six months of fiscal year 2026, we experienced positive cash inflows from operations of $1,459,700. These cash inflows resulted from:

| ● | net loss of $2,369,900

Adjusted for:

| ● | depreciation and amortization expense of $729,700
| ● | provision for inventory allowance of $72,000
| ● | net loss on sale of assets of $57,000
| ● | provision for credit losses of $24,000

Offset by:

| ● | deferred income taxes of $862,600

Positively impacted by:

| ● | decrease in inventories, net of $3,958,500
| ● | decrease in accounts receivable of $333,400
| ● | increase in income taxes payable of $233,100
| ● | increase in deferred revenues of $55,200
| ● | decrease in prepaid expenses and other assets of $8,600

Negatively impacted by:

| ● | decrease in accounts payable of $249,300
| ● | decrease in accrued salaries and commissions, and other liabilities of $530,000

Cash used in investing activities was $263,900 for capital expenditures, consisting of $174,200 in software upgrades to our proprietary systems that our PaperPie Brand Partners use to monitor their business and place customer orders and $134,700 in building improvements currently in Assets Held for Sale, offset by $45,000 from the sale of machinery and equipment.

Cash used in financing activities was $900,000 to pay down existing term debt.

The Company continues to expect the cash generated from operations, specifically from the reduction of excess inventory, will provide us with the liquidity we need to support ongoing operations. Additionally, we expect to obtain short term financing from traditional or non-traditional lenders following the completion of the sale of the Hilti Complex and the payoff of its debts with our current lender. Cash generated from operations will be used to acquire new inventory and pay down any short-term borrowings.

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

On September 30, 2025, the Company received a Reservation of Rights notice from its lender outlining that events of default have occurred and are continuing due to our failure to pay in full in cash the unpaid balance of the Term Loans and Revolving Loan before the maturity date. The Lender has not waived the specified defaults and reserves all of its rights, powers, privileges and remedies under the credit agreement, the UCC, and applicable law. Under the credit agreement, the lender has the right, among other remedies listed, to demand payment or repossess and liquidate the Company’s assets used as collateral for the loans. Under the terms of the credit agreement, an additional default interest rate of 2% is added to the existing interest rates defined in the credit agreement. The bank has taken no action other than to deliver the Reservation of Rights notice and the Company continues to work with its lender on ongoing operations. See Item 5. OTHER INFORMATION for further details.

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Risks and Uncertainties

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

The default status of our credit agreement, along with recurring operating losses and other items, raise substantial doubt over the Company’s ability to continue as a going concern. To address these concerns, the Company has taken steps in its plans to eliminate the bank borrowings by selling the Hilti Complex. The proceeds from the sale of the Hilti Complex are expected to pay off the Term Loans and Revolving Loan. Following the loan payoff, management plans to fund ongoing operations with limited borrowings through local banks or other financing sources. In addition, management’s plans include reducing inventory, which will generate free cash flows, and building the active PaperPie Brand Partners to pre-pandemic levels. Although there is no guarantee these plans will be successful, management believes these plans, if achieved, will alleviate the substantial doubt about continuing as a going concern and generate sufficient liquidity to meet our obligations as they become due over the next twelve months.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to our valuation of inventory, provision for credit losses, allowance for sales returns, long-lived assets and deferred income taxes. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may materially differ from these estimates under different assumptions or conditions. Historically, however, actual results have not differed materially from those determined using required estimates. Our significant accounting policies are described in the notes accompanying the financial statements included elsewhere in this report and in our audited financial statements as of and for the year ended February 28, 2025 included in our Form 10-K. However, we consider the following accounting policies to be more significantly dependent on the use of estimates and assumptions.

Share-Based Compensation

We account for share-based compensation whereby share-based payment transactions with employees, such as stock options and restricted stock, are measured at estimated fair value at the date of grant. For awards subject to service conditions, compensation expense is recognized over the vesting period on a straight-line basis. Awards subject to performance conditions are attributed separately for each vesting tranche of the award and are recognized rateably from the service inception date to the vesting date for each tranche. Forfeitures are recognized when they occur. Any cash dividends declared after the restricted stock award is issued, but before the vesting period is completed, will be reinvested in Company shares at the opening trading price on the dividend payment date. Shares purchased with cash dividends will also retain the same restrictions until the completion of the original vesting period associated with the awarded shares.

The restricted share awards under the 2019 Long-Term Incentive Plan (“2019 LTI Plan”) and 2022 Long-Term Incentive Plan (“2022 LTI Plan”) contain both service and performance conditions. The Company recognizes share-based compensation expense only for the portion of the restricted share awards that are considered probable of vesting. Shares are considered granted, and the service inception date begins, when a mutual understanding of the key terms and conditions between the Company and the employees has been established. The fair value of these awards is determined based on the closing price of the shares on the grant date. The probability of restricted share awards granted with future performance conditions is evaluated at each reporting period and compensation expense is adjusted based on the probability assessment.

During the first six months of fiscal year 2026, there was no share-based compensation expense associated with the shares, as all shares previously granted have been vested and all have been previously expensed.

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Revenue Recognition

Sales associated with product orders are recognized and recorded when products are shipped. Products are shipped FOB-Shipping Point. PaperPie’s sales are generally paid at the time the product is ordered. Sales which have been paid for but not shipped are classified as deferred revenue on the balance sheet. Sales associated with consignment inventory are recognized when reported and payment associated with the sale has been remitted. Transportation revenue represents the amount billed to the customer for shipping the product and is recorded when the product is shipped.

Estimated allowances for sales returns are recorded as sales are recognized. Management uses a moving average calculation to estimate the allowance for sales returns. 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 August 31, 2025 and February 28, 2025, respectively.

Allowance for Credit Losses

We maintain an allowance for estimated losses resulting from the inability of our customers to make required payments and a reserve for vendor share markdowns, when applicable (collectively “credit losses”). An estimate of uncollectible amounts is made by management based upon historical bad debts, current customer receivable balances, age of customer receivable balances, customers’ financial conditions and current economic trends. Management has estimated and included an allowance for credit losses of $0.1 million for August 31, 2025 and February 28, 2025, respectively.

Inventory

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 $17.8 million and $16.3 million at August 31, 2025 and February 28, 2025, respectively. Noncurrent inventory valuation allowances were $0.8 million at August 31, 2025 and $0.7 million at February 28, 2025.

Brand Partners that meet certain eligibility requirements may request and receive inventory on consignment. We believe allowing Brand Partners to have consignment inventory greatly increases their ability to be successful in making effective presentations at home shows, book fairs, and other events; in summary, having consignment inventory leads to additional sales opportunities. Approximately 18.5% of our active Brand Partners maintained consignment inventory at the end of the second quarter of fiscal year 2026. Consignment inventory is stated at cost, less an estimated reserve for consignment inventory that is not expected to be sold or returned to the Company. The total cost of inventory on consignment with Brand Partners was $1.2 million and $1.3 million at August 31, 2025 and February 28, 2025, respectively.

Inventories are presented net of a valuation allowance, which includes reserves for inventory obsolescence and reserves for consigned inventory that is not expected to be sold or returned to the Company. Management estimates the inventory obsolescence allowance for both current and noncurrent inventory, which is based on management’s identification of slow-moving inventory. Management has estimated a valuation allowance for both current and noncurrent inventory, including the reserve for consigned inventory, of $1.3 million and $1.2 million at August 31, 2025 and February 28, 2025.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We performed an evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. This evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chairman of the Board (Principal Executive Officer) and our Chief Financial Officer and Corporate Secretary (Principal Financial and Accounting Officer).

Based on that evaluation, these officers concluded that our disclosure controls and procedures were designed and were effective to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to them, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized, and reported in accordance with the time periods specified in SEC rules and forms. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events.

Changes in Internal Control over Financial Reporting

During the second quarter of the fiscal year covered by this report on Form 10-Q, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

We are not a party to any material legal proceedings.

Item 1A. RISK FACTORS

Not required by smaller reporting company.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Period |  | Total # of Shares Purchased |  |  | Average Price Paid per Share |  |  | Total # of Shares Purchased as Part of Publicly Announced Plan (1) |  |  | Maximum # of Shares that may be Repurchased under the Plan (1) |
June 1 - 30, 2025 |  |  | - |  |  | $ | - |  |  |  | - |  |  |  | 375,993 |
July 1 - 31, 2025 |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 375,993 |
August 1 - 31, 2025 |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 375,993 |
Total |  |  | - |  |  | $ | - |  |  |  | - |  |  |  |  |

| (1) | On February 4, 2019 the Board of Directors approved a new stock repurchase plan, replacing the former 2008 stock repurchase plan. The maximum number of shares which can be purchased under the new plan is 800,000. This plan has no expiration date.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4. MINE SAFETY DISCLOSURES

None.

Item 5. OTHER INFORMATION

On September 30, 2025, Educational Development Corporation (the “Company”) received a Notice of Default and Reservation of Rights Letter (the “Notice”) from BOKF, NA (the “Lender”) under the Company’s existing Credit Agreement (the “Credit Agreement”), dated as of August 9, 2022. The Notice indicated that an event of default had occurred and is continuing under the Credit Agreement (the “Existing Default”). See Exhibit 10.20 under Item 6 filed herewith.

Under the terms of the Notice, the lender has the right, among other remedies listed, to demand payment or repossess and liquidate the Company’s assets used as collateral for the loans. Additionally, under the terms of the credit agreement, there is an additional 2% default interest rate added to the existing borrowing rates defined in the Credit Agreement and Amendments. The bank has taken no action other than to deliver the Reservation of Rights notice, and the Company continues to work with its lender on ongoing operations. The total outstanding principal balance under the Credit Agreement is approximately $29,949,100 as of September 30, 2025.

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Item 6. EXHIBITS

3.1* |  | Restated Certificate of Incorporation dated April 26, 1968 and Certificate of Amendment thereto dated June 21, 1968 are incorporated herein by reference to Exhibit 1 to Registration Statement on Form 10-K (File No. 0-04957).
3.2* |  | Certificate of Amendment of Restated Certificate of Incorporation dated August 27, 1977 is incorporated herein by reference to Exhibit 20.1 to Form 10-K for fiscal year ended February 28, 1981 (File No. 0-04957).
3.3* |  | By-Laws, as amended, are incorporated herein by reference to Exhibit 20.2. to Form 10-K for fiscal year ended February 28, 1981 (File No. 0-04957).
3.4* |  | Certificate of Amendment of Restated Certificate of Incorporation dated November 17, 1986 is incorporated herein by reference to Exhibit 3.3 to Form 10-K for fiscal year ended February 28, 1987 (File No. 0-04957).
3.5 |  | Certificate of Amendment of Restated Certificate of Incorporation dated March 22, 1996 is incorporated herein by reference to Exhibit 3.4 to Form 10-K for fiscal year ended February 28, 1997 (File No. 0-04957).
3.6 |  | Certificate of Amendment of Restated Certificate of Incorporation dated July 15, 2002 is incorporated herein by reference to Exhibit 10.30 to Form 10-K dated February 28, 2003 (File No. 0-04957).
3.7 |  | Certificate of Amendment of Restated Certificate of Incorporation dated August 15, 2018 is incorporated herein by reference to Exhibit 3.1 to Form 8-K dated August 21, 2018 (File No. 0-04957).
10.1 |  | Usborne Distribution Agreement dated May 16, 2022 by and between the Company and Usborne Publishing Limited, London, England is incorporated herein by reference to Exhibit 10.2 to form 10-Q dated May 31, 2022 (File No. 0-04957).
10.2 |  | Credit Agreement dated August 9, 2002 by and between the Company and BOKF, NA, Tulsa, OK is incorporated herein by reference to Exhibit 10.01 to form 8-K dated August 11, 2022 (File No. 0-04957).
10.3 |  | First Amendment to Credit Agreement, dated December 22, 2022 by and between the Company and BOKF, NA, Tulsa, OK. is incorporated herein by reference to Exhibit 10.4 to Form 10-Q dated November 30, 2022 (File No. 0-04957).
10.4 |  | Second Amendment to Credit Agreement, dated May 10, 2023 by and between the Company and BOKF, NA, Tulsa, OK. is incorporated herein by reference to Exhibit 10.18 to Form 10-K dated February 28, 2023 (File No. 0-04957).
10.5 |  | Third Amendment to Credit Agreement, dated August 9, 2023 by and between the Company and BOKF, NA, Tulsa, OK is incorporated herein by reference to Exhibit 10.01 to Form 8-K dated August 17, 2023 (File No. 0-04957).
10.6 |  | Fourth Amendment to Credit Agreement, effective December 1, 2023 by and between the Company and BOKF, NA, Tulsa, OK is incorporated herein by reference to Exhibit 10.01 to Form 8-K dated December 28, 2023 (File No. 0-04957).
10.7 |  | Fifth Amendment to Credit Agreement, effective May 31, 2024 by and between the Company and BOKF, NA, Tulsa, OK is incorporated herein by reference to Exhibit 10.01 to Form 8-K dated June 17, 2024 (File No. 0-04957).
10.8 |  | Sixth Amendment to Credit Agreement, effective October 3, 2024 by and between the Company and BOKF, NA, Tulsa, OK is incorporated herein by reference to Exhibit 10.01 to Form 8-K dated October 7, 2024 (File No. 0-04957).

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10.9 |  | Seventh Amendment to Credit Agreement, effective January 4, 2025 by and between the Company and BOKF, NA, Tulsa, OK is incorporated herein by reference to Exhibit 10.09 to Form 10-Q dated November 30, 2024 (File No. 0-04957).
10.18 |  | Eighth Amendment to Credit Agreement, effective April 4, 2025 by and between the Company and BOKF, NA, Tulsa, OK is incorporated herein by reference to Exhibit 10.01 to Form 8-K dated April 17, 2025 (File No. 0-04957).
10.19 |  | Ninth Amendment to Credit Agreement, effective July 11, 2025 by and between the Company and BOKF, NA, Tulsa, OK is incorporated herein by reference to Exhibit 10.01 to Form 8-K dated August 12, 2025 (File No. 0-04957).
10.20** |  | Notice of Default and Reservation of Rights, dated September 30, 2025, from BOKF, NA, Tulsa, OK.
31.1** |  | Certification of the Chief Executive Officer of Educational Development Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2** |  | Certification of Chief Financial Officer and Corporate Secretary of Educational Development Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1** |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS |  | Inline XBRL Instance Document
101.SCH |  | Inline XBRL Taxonomy Extension Schema
101.CAL |  | Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF |  | Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB |  | Inline XBRL Taxonomy Extension Label Linkbase
101.PRE |  | Inline XBRL Taxonomy Extension Presentation Linkbase
104 |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* | Paper Filed
** | Filed Herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

| EDUCATIONAL DEVELOPMENT CORPORATION (Registrant)
Date: October 9, 2025 | By | /s/ Craig M. White
|  | President, Chief Executive Officer, and Chairman of the Board (Principal Executive Officer)
Date: October 9, 2025 | By | /s/ Dan E. O’Keefe
|  | Dan E. O’Keefe Chief Financial Officer and Corporate Secretary (Principal Financial and Accounting Officer)

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