EDUCATIONAL DEVELOPMENT CORP
For the period ended Aug 31, 2025. Filed Oct 9, 2025.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Aug 31, 2025 · Filed Oct 9, 2025
EDUC$0.89-9.2%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2025-05-31; filed 2025-07-07.
0001185185-25-000732
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2025-08-31; filed 2025-10-09.
0001185185-25-001415
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 67 previous paragraphs and 75 current paragraphs.
32 unchanged; 23 reworded; 18 added; 12 removed; 0 previous and 2 current paragraphs rearranged.
Tables are not compared: 13 previous and 8 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (18)
Current report
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.
Current report
Interest expense stayed consistent at $1.1 million for the six months ended August 31, 2025 and August 31, 2024.
Current report
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.
Current report
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.
Current report
PaperPie Operating Results for the Six Months Ended August 31, 2025
Current report
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.
Current report
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.
Current report
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.
Current report
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.
Current report
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
Current report
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.
Current report
Publishing Operating Results for the Six Months Ended August 31, 2025
Current report
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.
Current report
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.
Current report
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.
Current report
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.
Current report
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.
Current report
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.
Removed paragraphs (12)
Previous report
Operating income of the Publishing division remained consistent during the three-month period ended May 31, 2025 and 2024, respectively.
Previous report
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”).
Previous report
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.
Previous report
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.
Previous report
On August 9, 2023, the Company executed the Third Amendment along with a Revised Credit Agreement (“Revised Loan Agreement”) with the Lender. This amendment extended the Revolving Loan maturity date to January 31, 2024 and introduced a stepdown to the Revolving Commitment from $13,500,000, through August 30, 2023; to $10,500,000 through October 30, 2023; to $9,000,000 through November 29, 2023; to $5,000,000 through December 30, 2023; to $4,500,000 through January 30, 2024; and to $4,000,000 on January 31, 2024. The amendment restricted the Company from entering into any new purchase orders and encouraged the Company to use its best efforts to cancel existing purchase orders. The Third Amendment also increased the borrowing rate on the Revolving Loan to 30-Day Term SOFR Rate + 4.50%. The Revised Loan Agreement was updated for the changes in the Third Amendment as well as removed the fixed charge ratio and the ability for borrowings to be accelerated before the January 31, 2024 Revolving Loan maturity date.
Previous report
On November 30, 2023, the Company executed the Fourth Amendment to the Credit Agreement (“Amendment”) with the Lender. The Amendment, effective December 1, 2023, increased the Revolving Loan commitment to $8,000,000 and extended the maturity date to May 31, 2024. 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.
Previous report
On June 13, 2024, the Company executed the Fifth Amendment to the Existing Credit Agreement with the Lender. The Amendment, effective May 31, 2024, adjusts the maximum availability of the Revolving Loan commitment to $7,000,000 through the maturity date of October 4, 2024. The Amendment also requires an additional decrease in the Revolving Loan to $4,500,000.
Previous report
On October 7, 2024, the Company executed the Sixth Amendment to the Existing Credit Agreement with the Lender. The Amendment, effective October 3, 2024, extended the maturity date to January 4, 2025 and includes required step downs on the Revolving Loan to $5,500,000 by November 30, 2024.
Previous report
On January 13, 2025, the Company executed the Seventh Amendment to the Existing Credit Agreement with the Lender. The Amendment, effective January 4, 2025, adjusted the maximum availability of the Revolving Loan commitment to $4,750,000 through the maturity date of April 4, 2025.
Previous report
On April 16, 2025, the Company executed the Eighth Amendment to the Existing Credit Agreement with the Lender. The Amendment, effective April 4, 2025, increases the Revolving Loan interest rate on the effective date to SOFR + 6.00%, extends the maturity date of the Revolving Loan to July 11, 2025, and includes a required step down on the Revolving Loan to $4,500,000 million on June 1, 2025. The Amendment also redefined the maturity dates of the two Term Loans to September 19, 2025.
Previous report
Available credit under the current $4,750,000 revolving line of credit with the Company’s Lender was approximately $551,900 at May 31, 2025.
Previous report
Features of the Revised Loan Agreement include:
Reworded paragraphs (23)
Previous wording
Total operating expenses not associated with a reporting segment decreased $0.5 million, or 18.5%, to $2.2 million for the three-month period ended May 31, 2025, when compared to $2.7 million for the same quarterly period a year ago. Operating expenses decreased primarily as a result of a $0.4 million decrease in labor expenses, primarily within our warehouse operations due primarily to lower number of outbound shipments, and a $0.1 million decrease in depreciation expenses as certain assets have moved to Assets Held for Sale and depreciation is no longer applied.
Current wording
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.
Previous wording
Interest expense decreased $0.1 million, or 16.7%, to $0.5 million for the three months ended May 31, 2025, when compared to $0.6 million for the same quarterly period a year ago, due to reduced borrowings of debt, period over period.
Current wording
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.
Previous wording
Income taxes decreased $0.1 million, or 20.0%, to a tax benefit of $0.4 million for the three months ended May 31, 2025, from a tax benefit of $0.5 million for the same quarterly period a year ago, resulting primarily from a decrease in gross sales. Our effective tax rate decreased to 25.8% for the quarter ended May 31, 2025, from 26.8% for the quarter ended May 31, 2024 due primarily to sales mix fluctuations between states. Our tax rates are higher than the federal statutory rate of 21% due to the inclusion of state income and franchise taxes.
Current wording
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.
Previous wording
PaperPie Operating Results for the Three Months Ended May 31, 2025
Current wording
PaperPie Operating Results for the Three and Six Months Ended August 31, 2025
Previous wording
The following table summarizes the operating results of the PaperPie segment for the three months ended May 31, 2025 and 2024:
Current wording
The following table summarizes the operating results of the PaperPie segment:
Previous wording
PaperPie net revenues decreased $2.8 million, or 31.5%, to $6.1 million during the three months ended May 31, 2025, when compared to $8.9 million during the same period a year ago. The average number of active brand partners in the first quarter of fiscal 2026 was 7,700, a decrease of 5,700, or 42.5%, from 13,400 average active brand partners selling in the first quarter of fiscal 2025. The Company reports the average number of active Brand Partners as a key indicator for this 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 new distribution agreement with Usborne Publishing Limited in fiscal 2023. This agreement required the rebranding of the direct sales division from Usborne Books & More (“UBAM”) to PaperPie along with providing a letter of credit and minimal level of annual purchases. This rebranding was completed in the fourth quarter of fiscal 2023. The letter of credit was not provided by the Company and the Company did not meet the minimum purchase requirements in fiscal 2024 or 2025 creating uncertainty with the relationship on a go forward basis. The reduced sales and uncertainty resulting from the new Usborne distribution agreement increased Brand Partner turnover and negatively impacted new Brand Partner recruits. We expect this impact on Brand Partner recruiting to continue as inflationary pressures persist and until the Company meets the agreed upon terms of the new distribution agreement.
Current wording
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.
Previous wording
PaperPie gross margin decreased $2.2 million, or 37.9%, to $3.6 million during the three months ended May 31, 2025, when compared to $5.8 million during the same period a year ago. Gross margin as a percentage of net revenues for the three months ended May 31, 2025 decreased to 59.3%, compared to 65.3% the same period a year ago, representing a decrease of $0.2 million. The decrease in gross margin as a percentage of net revenues was primarily attributed to increased discounts offered on products to spur sales along with additional shipping promotions.
Current wording
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.
Previous wording
Total PaperPie operating expenses decreased $1.9 million, or 38.0%, to $3.1 million during the three-month period ended May 31, 2025, when compared to $5.0 million reported in the same quarter a year ago. Operating and selling expenses decreased $0.8 million, or 53.3%, to $0.7 million during the three-month period ended May 31, 2025, when compared to $1.5 million reported in the same quarter a year ago. These decreased expenses were due to a $0.6 million decrease in shipping costs associated with the decrease in volume of orders shipped, and a decrease of $0.1 million in accruals for Brand Partner incentive trip expenses, as well as a $0.1 million decrease in various other expenses. Sales commissions decreased $1.0 million, or 33.3%, to $2.0 million during the three-month period ended May 31, 2025, when compared to $3.0 million reported in the same quarter a year ago, due primarily to the decrease in net revenues. General and administrative expenses decreased $0.1 million, or 20.0%, to $0.4 million during the three months ended May 31, 2025, when compared to $0.5 million during the same period a year ago. This decrease was due to a $0.1 million decrease in credit card transaction fees associated with decreased sales volumes.
Current wording
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.
Previous wording
Operating income for the PaperPie segment decreased $0.3 million, or 37.5% to $0.5 million during the three months ended May 31, 2025, when compared to $0.8 million reported in the same quarter a year ago. Operating income for the PaperPie division as a percentage of net revenues for the year ended May 31, 2025 was 7.6%, compared to 8.7% for the year ended May 31, 2024, a decrease of 1.1%. Operating income as a percentage of net revenues changed from the prior year primarily due to the decrease in net revenues due primarily from the reduced number of active brand partners and higher discounts offered to spur sales.
Current wording
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.
Previous wording
Publishing Operating Results for the Three Months Ended May 31, 2025
Current wording
Publishing Operating Results for the Three and Six Months Ended August 31, 2025
Previous wording
The following table summarizes the operating results of the Publishing segment for the three months ended May 31, 2025 and 2024:
Current wording
The following table summarizes the operating results of the Publishing segment:
Previous wording
Our Publishing division’s net revenues decreased $0.1 million, or 9.1%, to $1.0 million during the three-month period ended May 31, 2025, from $1.1 million reported in the same period a year ago. The change in net revenues was primarily from additional discounts offered to retail customers in the first quarter of fiscal 2026 to spur sales.
Current wording
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.
Previous wording
Gross margin decreased $0.1 million, or 16.7%, to $0.5 million during the three-month period ended May 31, 2025, from $0.6 million reported in the same quarter a year ago, primarily due to the decrease in net revenues. Gross margin as a percentage of net revenues decreased to 52.2% during the three-month period ended May 31, 2025, from 59.2% reported in the same quarter a year ago. Gross margin as a percentage of net revenues changed primarily from additional discounts offered to retail customers in the first quarter of fiscal 2026 to spur sales.
Current wording
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.
Previous wording
EDC has a history of profitability and positive cash flow. We typically fund our operations from the cash we generate. During periods of operating losses, EDC will reduce purchases and sell through excess inventory to generate cash flow. The Company expects to reduce current excess inventory levels and use the cash proceeds to offset any future operating losses, and to pay down the revolving line of credit and portions of the term debts with our bank. Available cash has historically been used to pay down the outstanding bank loan balances, for capital expenditures, to pay dividends, and to acquire treasury stock. We utilize a bank credit facility and other Term Loan borrowings to meet our short-term cash needs, as well as fund capital expenditures, when necessary. As of the end of the first fiscal quarter of 2026, our revolving bank credit facility loan balance was $4.2 million with $0.6 million in available capacity.
Current wording
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.
Previous wording
During the first three months of fiscal year 2026, we experienced positive cash inflows from operations of $1,396,500. These cash inflows resulted from:
Current wording
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:
Previous wording
Cash used in investing activities was $162,400 for capital expenditures, consisting of $102,800 in software upgrades to our proprietary systems that our PaperPie Brand Partners use to monitor their business and place customer orders and $104,600 in building improvements currently in Assets Held for Sale, offset by $45,000 from the sale of machinery and equipment.
Current wording
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.
Previous wording
Cash used in financing activities was $450,000 to pay down existing term debt.
Current wording
Cash used in financing activities was $900,000 to pay down existing term debt.
Previous wording
The Company continues to expect the cash generated from operations, specifically from the reduction of excess inventory, and cash available through our line of credit with our Lender, will provide us with the liquidity we need to support ongoing operations. Cash generated from operations will be used to pay down existing debts with our bank.
Current wording
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.
Previous wording
The short-term duration of the revolving and Term Loans and uncertainty of the bank’s ongoing support beyond July 11, 2025, along with recurring operating losses and other items, raise substantial doubt over the Company’s ability to continue as a going concern. To address these concerns, the Company has taken steps in its plans to reduce debt by selling owned real estate, including 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.
Current wording
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.
Previous wording
During the first three months of fiscal year 2026, there was no share-based compensation expense associated with the shares, as all shares previously granted have been vested and all have been previously expensed.
Current wording
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.
Previous wording
Certain inventory is maintained in a non-current classification. Management continually estimates and calculates the amount of non-current inventory. Noncurrent inventory arises due to occasional purchases of titles in quantities in excess of what will be sold within the normal operating cycle, due to the minimum order requirements of our suppliers, as well as reduced sales volumes. Noncurrent inventory is estimated by management using an anticipated turnover ratio by title, based primarily on historical trends. Inventory in excess of 2½ years of anticipated sales is classified as noncurrent inventory. These inventory quantities have additional exposure for storage damages, aging of topical related content, and associated issues, and therefore have higher obsolescence reserves. Noncurrent inventory balances prior to valuation allowances were $17.6 million and $16.3 million at May 31, 2025 and February 28, 2025, respectively. Noncurrent inventory valuation allowances were $0.8 million at May 31, 2025 and $0.7 million at February 28, 2025.
Current wording
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.
Previous wording
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 15.4% of our active Brand Partners maintained consignment inventory at the end of the first quarter of fiscal year 2026. Consignment inventory is stated at cost, less an estimated reserve for consignment inventory that is not expected to be sold or returned to the Company. The total cost of inventory on consignment with Brand Partners was $1.2 million and $1.3 million at May 31, 2025 and February 28, 2025, respectively.
Current wording
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.
Previous wording
Inventories are presented net of a valuation allowance, which includes reserves for inventory obsolescence and reserves for consigned inventory that is not expected to be sold or returned to the Company. Management estimates the inventory obsolescence allowance for both current and noncurrent inventory, which is based on management’s identification of slow-moving inventory. Management has estimated a valuation allowance for both current and noncurrent inventory, including the reserve for consigned inventory, of $1.2 million at May 31, 2025 and February 28, 2025.
Current wording
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.
Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
Non-Segment Operating Results for the Six Months Ended August 31, 2025
Current report — wording carried from elsewhere
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.