EDC(EDUC) - 2025 Q3 - Quarterly Report

Financial Performance - Net revenues for the three months ended November 30, 2024, decreased by $5.9 million, or 37.6$9.8 million compared to $15.7 million in the same period last year [97]. - Gross margin for the three months ended November 30, 2024, decreased by$4.2 million, or 40.4%, to $6.2 million, with gross margin as a percentage of net revenues dropping to 62.9$835,700 compared to a profit of $1,972,100 in the same period last year [87]. - Operating income for the PaperPie segment decreased by$0.6 million, or 37.5%, to $1.0 million during the three months ended November 30, 2024 [102]. - Operating income of the PaperPie segment decreased by$2.3 million, or 63.9%, to $1.3 million during the nine months ended November 30, 2024, with operating income as a percentage of net revenues dropping to 5.5$1.0 million, or 22.7%, to $3.4 million during the nine-month period ended November 30, 2024, primarily due to the stoppage of Usborne product distribution [111]. Operating Expenses - Total operating expenses for the three months ended November 30, 2024, decreased by$3.7 million, or 42.0%, to $5.1 million compared to$8.8 million in the same quarter last year [101]. - Total operating expenses decreased by $7.7 million, or 36.2$13.6 million for the nine-month period ended November 30, 2024, compared to $21.3 million for the same period last year [105]. - Total operating expenses not associated with a reporting segment decreased by$0.3 million, or 10.3%, to $2.6 million for the three months ended November 30, 2024 [88]. - Total operating expenses of the Publishing segment decreased by$0.2 million, or 15.4%, to $1.1 million during the nine-month period ended November 30, 2024 [113]. Income and Tax - Other income decreased by$3.7 million, or 84.1%, to $0.7 million for the three months ended November 30, 2024, primarily due to the absence of the previous year's sale of the old headquarters building [90]. - Income tax benefit for the three months ended November 30, 2024, was$276,200, compared to a tax expense of $723,900 in the same period last year [91]. Cash Flow and Financing - Cash inflows from operations during the first nine months of fiscal year 2025 were$4,778,300, despite a net loss of $3,918,100 [116]. - Cash used in financing activities was$2,532,300, including net payments on the line of credit of $1,200,000 and payments on term debt of$1,350,000 [117]. - Available credit under the current $5,500,000 revolving line of credit was approximately$1,201,900 at November 30, 2024 [128]. - The Company executed multiple amendments to its Loan Agreement, including a reduction in the revolving commitment from $15,000,000 to$4,000,000 by January 31, 2024 [123]. - Total current maturities of term debt for the fiscal year ending February 28, 2025, amount to $450,000, with a total of$27,250,900 due by 2028 [129]. Inventory and Reserves - The company has estimated a reserve for sales returns of $0.2 million as of November 30, 2024, and February 29, 2024 [138]. - Noncurrent inventory balances were$15.5 million and $12.3 million as of November 30, 2024, and February 29, 2024, respectively, with valuation allowances of$0.8 million and $0.6 million [141]. - Management has estimated a valuation allowance for inventory, including reserves for consigned inventory, of$1.2 million as of November 30, 2024 [143]. - Approximately 11.7% of active Brand Partners maintained consignment inventory at the end of the third quarter of fiscal year 2025, with total consignment inventory costs of $1.5 million [142]. - An allowance for credit losses of$0.1 million was estimated for both November 30, 2024, and February 29, 2024 [139]. Management Plans and Strategies - The Company expects to reduce excess inventory levels and use cash proceeds to offset future operating losses and pay down debt [118]. - Management plans to reduce debt by selling owned real estate, with proceeds expected to pay off Term Loans and the Revolving Loan [131]. - The company aims to build the active PaperPie Brand Partners to pre-pandemic levels to alleviate concerns about continuing as a going concern [131]. - The effective interest rate for the Revolving Loan was 10.17% as of November 30, 2024 [131].