EDC(EDUC) - 2026 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents unaudited condensed financial statements, detailing financial performance and addressing going concern risks through planned real estate sales Condensed Balance Sheets (Unaudited) This section presents unaudited condensed balance sheets, detailing changes in assets, liabilities, and shareholders' equity | Metric | August 31, 2025 | February 28, 2025 | | :----------------------------------- | :-------------- | :---------------- | | Assets | | | | Total current assets | $46,724,300 | $52,247,200 | | Total assets | $74,235,800 | $78,314,300 | | Liabilities and Shareholders' Equity | | | | Total current liabilities | $35,816,500 | $37,222,700 | | Total liabilities | $36,022,700 | $37,746,700 | | Total shareholders' equity | $38,213,100 | $40,567,600 | - Total assets decreased by $4,078,500 from $78,314,300 at February 28, 2025, to $74,235,800 at August 31, 2025[11] - Total liabilities decreased by $1,724,000 from $37,746,700 at February 28, 2025, to $36,022,700 at August 31, 2025[11] - Total shareholders' equity decreased by $2,354,500 from $40,567,600 at February 28, 2025, to $38,213,100 at August 31, 2025[11] Condensed Statements of Operations (Unaudited) This section presents unaudited condensed statements of operations, detailing net revenues, gross margin, operating expenses, and net loss | Metric | Three Months Ended Aug 31, 2025 | Three Months Ended Aug 31, 2024 | Six Months Ended Aug 31, 2025 | Six Months Ended Aug 31, 2024 | | :----------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net Revenues | $4,621,100 | $6,509,200 | $11,727,500 | $16,502,600 | | Gross Margin | $2,688,100 | $3,646,700 | $6,825,200 | $10,106,100 | | Total Operating Expenses | $4,511,600 | $6,142,200 | $10,213,200 | $14,280,600 | | Net Loss | $(1,294,700) | $(1,803,400) | $(2,369,900) | $(3,082,400) | | Basic and Diluted Loss Per Share | $(0.15) | $(0.22) | $(0.28) | $(0.37) | - Net revenues decreased by 29.0% for the three months ended August 31, 2025, and by 28.9% for the six months ended August 31, 2025, compared to the prior year periods[12] - Net loss improved (decreased) by 28.2% for the three months ended August 31, 2025, and by 23.1% for the six months ended August 31, 2025, compared to the prior year periods[12] Condensed Statements of Comprehensive Loss (Unaudited) This section presents unaudited condensed statements of comprehensive loss, including net loss and other comprehensive income components | Metric | Three Months Ended Aug 31, 2025 | Three Months Ended Aug 31, 2024 | Six Months Ended Aug 31, 2025 | Six Months Ended Aug 31, 2024 | | :----------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net loss | $(1,294,700) | $(1,803,400) | $(2,369,900) | $(3,082,400) | | 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) | - Comprehensive loss decreased by 30.8% for the three months ended August 31, 2025, and by 24.3% for the six months ended August 31, 2025, compared to the prior year periods[13] Condensed Statements of Changes in Shareholders' Equity (Unaudited) This section presents unaudited condensed statements of changes in shareholders' equity, detailing movements in common stock and retained earnings | Metric | February 28, 2025 | August 31, 2025 | | :----------------------------------- | :---------------- | :-------------- | | Common Stock (Amount) | $2,540,400 | $2,540,400 | | Capital in Excess of Par Value | $13,800,000 | $13,800,000 | | Retained Earnings | $37,303,000 | $34,933,100 | | Accumulated Other Comprehensive Loss | $(15,400) | $0 | | Treasury Stock (Amount) | $(13,060,400) | $(13,060,400) | | Total Shareholders' Equity | $40,567,600 | $38,213,100 | - Retained earnings decreased by $2,369,900 from February 28, 2025, to August 31, 2025, primarily due to net losses[14] - Accumulated other comprehensive loss improved from $(15,400) to $0, reflecting a change in the fair value of the interest rate exchange agreement[14] Condensed Statements of Cash Flows (Unaudited) This section presents unaudited condensed statements of cash flows, categorizing cash movements from operating, investing, and financing activities | Metric | Six Months Ended Aug 31, 2025 | Six Months Ended Aug 31, 2024 | | :----------------------------------- | :---------------------------- | :---------------------------- | | Net cash provided by operating activities | $1,459,700 | $335,500 | | Net cash used in investing activities | $(263,900) | $(196,000) | | 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 - End of Period | $1,272,300 | $1,130,400 | - Net cash provided by operating activities significantly increased to $1,459,700 for the six months ended August 31, 2025, from $335,500 in the prior year, primarily driven by a decrease in inventories[17][141] - Cash used in investing activities increased to $263,900, mainly due to purchases of property, plant, and equipment, including software upgrades and building improvements[17][136] - Cash used in financing activities increased to $900,000, primarily for payments on term debt[17][137] Notes to Condensed Financial Statements (Unaudited) This section provides detailed notes to the unaudited condensed financial statements, offering additional context and disclosures Note 1 – Basis of Presentation and Summary of Significant Accounting Policies This note outlines the basis of presentation for the unaudited condensed financial statements, emphasizing GAAP compliance for interim reporting and the use of estimates - The Company's default status on its credit agreement and recurring operating losses raise substantial doubt about its ability to continue as a going concern[24][144] - Management plans to alleviate going concern doubt by selling the Hilti Complex for $32,200,000 to pay off bank debts, reducing inventory to generate cash flow, and rebuilding the number of active PaperPie Brand Partners[26][27][144] - New accounting standards (ASU 2025-05, ASU 2023-09, ASU 2024-03) related to credit losses, income tax disclosures, and expense disaggregation are being evaluated for their impact on future financial statements, with effective dates in fiscal 2026 and 2027[28][29][30] Note 2 – Cash This note provides a reconciliation of cash, cash equivalents, and restricted cash, detailing the nature of restricted cash held by third-party merchant service processors | Metric | 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 | $1,272,300 | $1,130,400 | - Restricted cash increased by $141,500 from August 31, 2024, to August 31, 2025, primarily due to funds held in reserve by merchant service processors and a certificate of deposit for credit card collateral[31] Note 3 – Assets Held for Sale The company has classified its Hilti Complex property and certain equipment as assets held for sale, with a purchase agreement for $32,200,000 - The Hilti Complex, appraised at $47,410,000 in November 2024, is under contract for sale at $32,200,000, with closing expected by November 25, 2025[32][36] - Upon sale, the Company will assign existing tenant leases to the buyer and enter a new 10-year lease for its occupied space at an initial rate of $8.00 per square foot with annual escalations[33][37][39] | Metric | August 31, 2025 | February 28, 2025 | | :----------------------------------- | :-------------- | :---------------- | | Total carrying value of assets held for sale | $19,309,600 | $19,277,000 | Note 4 – Inventories This note details the composition of inventories, distinguishing between current and noncurrent portions, and the overall inventory valuation allowance | Metric | August 31, 2025 | February 28, 2025 | | :----------------------------------- | :-------------- | :---------------- | | Current Product inventory | $24,086,100 | $29,530,100 | | Current Inventory valuation allowance | $(462,200) | $(430,500) | | Noncurrent Product inventory | $17,827,100 | $16,326,500 | | Noncurrent Inventory valuation allowance | $(789,400) | $(734,000) | | Total Inventories net | $40,661,600 | $44,692,100 | - Current product inventory decreased by $5,444,000, while noncurrent product inventory increased by $1,500,600[41] - The total inventory valuation allowance increased from $1,164,500 at February 28, 2025, to $1,251,600 at August 31, 2025[41] Note 5 – Leases The company engages in both lessee and lessor operating lease arrangements, detailing right-of-use assets, lease liabilities, and future minimum rental payments | Metric | August 31, 2025 | February 28, 2025 | | :----------------------------------- | :-------------- | :---------------- | | Right-of-use assets | $768,200 | $1,108,100 | | 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% | - Future minimum rental payments under operating leases (lessee) total $794,900, with $346,300 due in fiscal year 2026 and $448,600 in fiscal year 2027[48] - Future minimum payments receivable under operating leases (lessor) total $19,341,600, with significant amounts extending through 2030 and thereafter[52] Note 6 – Debt This note provides a comprehensive overview of the company's debt structure, including a line of credit and two term loans, and details the recent credit agreement default | Metric | 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 | | Current maturities of long-term debt | $25,807,900 | $26,685,500 | | Long-term debt, net | $0 | $0 | - The credit agreement with BOKF, NA expired on September 19, 2025, with unpaid balances on Term Loans and Revolving Loan, resulting in a Notice of Default on September 30, 2025[65][66] - The default triggers an additional 2% default interest rate on existing interest rates, and the lender reserves rights to demand payment or liquidate collateral[66] - The Revolving Loan interest rate increased to Term SOFR Rate + 8.00% (effective rate 12.36% at August 31, 2025) as per the Ninth Amendment[63][64] Note 7 – Business Concentration The company has a significant business concentration with Usborne Publishing Limited, facing risks due to non-compliance with the distribution agreement and a disputed rebate - The Company did not meet minimum purchase requirements and failed to supply a required letter of credit under its distribution agreement with Usborne, giving Usborne the right to terminate[67] - Usborne has refused to pay a $1.0 million volume rebate owed to the Company from fiscal 2022 purchases[67] | Metric | Three Months Ended Aug 31, 2025 | Three Months Ended Aug 31, 2024 | Six Months Ended Aug 31, 2025 | Six Months Ended Aug 31, 2024 | | :----------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | PaperPie division Usborne product revenues | $1,692,200 | $1,848,000 | $4,231,300 | $5,561,600 | | % of total PaperPie Product revenues | 48.2% | 36.6% | 45.8% | 40.4% | | Total Usborne inventory owned | $21,838,800 (Aug 31, 2025) | $23,696,800 (Feb 28, 2025) | | | Note 8 – Loss Per Share This note details the calculation of basic and diluted loss per share, which were identical due to the anti-dilutive effect of potential common shares | Metric | Three Months Ended Aug 31, 2025 | Three Months Ended Aug 31, 2024 | Six Months Ended Aug 31, 2025 | Six Months Ended Aug 31, 2024 | | :----------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net loss applicable to common shareholders | $(1,294,700) | $(1,803,400) | $(2,369,900) | $(3,082,400) | | Basic Weighted average shares outstanding | 8,583,201 | 8,272,217 | 8,583,201 | 8,269,494 | | Diluted Weighted average shares outstanding | 8,583,201 | 8,272,217 | 8,583,201 | 8,269,494 | | Basic Loss per share | $(0.15) | $(0.22) | $(0.28) | $(0.37) | | Diluted Loss per share | $(0.15) | $(0.22) | $(0.28) | $(0.37) | - Loss per share improved (less negative) from $(0.22) to $(0.15) for the three months and from $(0.37) to $(0.28) for the six months ended August 31, 2025, compared to the prior year[70] Note 9 – Share-Based Compensation This note outlines the company's accounting policy for share-based compensation, noting no expense was recognized for the current periods due to vested plans - All remaining shares under the 2019 LTI Plan vested on February 28, 2025, and no shares were issued under the 2022 LTI Plan due to unmet financial targets[73][74] | Metric | Three Months Ended Aug 31, 2025 | Three Months Ended Aug 31, 2024 | Six Months Ended Aug 31, 2025 | Six Months Ended Aug 31, 2024 | | :----------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Share-based compensation expense - net of forfeitures | $0 | $100,800 | $0 | $201,600 | - No share-based compensation expense was recognized for the three and six months ended August 31, 2025, compared to $100,800 and $201,600 in the prior year periods, respectively[75] Note 10 – Shipping and Handling Costs This note details shipping and handling costs, classified as operating and selling expenses, which decreased significantly due to reduced order volume | Metric | Three Months Ended Aug 31, 2025 | Three Months Ended Aug 31, 2024 | Six Months Ended Aug 31, 2025 | Six Months Ended Aug 31, 2024 | | :----------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Shipping and handling costs | $571,800 | $968,500 | $1,377,000 | $2,515,100 | - Shipping and handling costs decreased by 41.0% for the three months and 45.2% for the six months ended August 31, 2025, compared to the prior year, primarily due to lower order volume[76] Note 11 – Business Segments The company operates through two reportable segments, PaperPie and Publishing, both experiencing decreased net revenues, with PaperPie's operating loss improving | Segment | Three Months Ended Aug 31, 2025 (Net Revenues) | Three Months Ended Aug 31, 2024 (Net Revenues) | Six Months Ended Aug 31, 2025 (Net Revenues) | Six Months Ended Aug 31, 2024 (Net Revenues) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | 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 | | Segment | Three Months Ended Aug 31, 2025 (Earnings (Loss) Before Income Taxes) | Three Months Ended Aug 31, 2024 (Earnings (Loss) Before Income Taxes) | Six Months Ended Aug 31, 2025 (Earnings (Loss) Before Income Taxes) | Six Months Ended Aug 31, 2024 (Earnings (Loss) Before Income Taxes) | | :----------------------------------- | :-------------------------------------------------------------------- | :-------------------------------------------------------------------- | :------------------------------------------------------------------- | :------------------------------------------------------------------- | | 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 net revenues decreased by 31.5% for both the three and six months ended August 31, 2025, while its operating loss improved significantly for the three-month period and operating income increased for the six-month period[84] - Publishing net revenues decreased by 18.2% for the three months and 13.6% for the six months ended August 31, 2025, with corresponding decreases in operating income[86] Note 12 – Interest Rate Exchange Agreement The company's interest rate swap agreement, which fixed the interest rate on a portion of its Floating Rate Term Loan, terminated on May 30, 2025 - The interest rate swap agreement, which fixed the interest rate on a portion of the Floating Rate Term Loan at 6.48%, terminated on May 30, 2025[90] | Metric | August 31, 2025 | February 28, 2025 | | :----------------------------------- | :-------------- | :---------------- | | Fair value of interest rate swap (Other current liabilities) | $0 | $15,400 | Note 13 – Financial Instruments This note provides fair value estimates for certain financial instruments, including assets held for sale and term notes payable - The estimated fair value of assets held for sale was $35,550,000 as of August 31, 2025, based on the Hilti Complex sale agreement, estimated value of excess land, and equipment held for sale[99] - The estimated fair value of term notes payable was approximately $25,671,300 as of August 31, 2025, based on loan characteristics[99] Note 14 – Deferred Revenues Deferred revenues represent payments received from PaperPie division customers for orders not yet shipped, with the balance increasing as of August 31, 2025 | Metric | August 31, 2025 | February 28, 2025 | | :----------------------------------- | :-------------- | :---------------- | | Deferred revenues | $547,000 | $491,800 | - Deferred revenues increased by $55,200 from February 28, 2025, to August 31, 2025, indicating more payments received in advance of shipment[94] Note 15 – Subsequent Events This note discloses significant events after the balance sheet date, including a Notice of Default from the lender and an update on the Hilti Complex sale - The Company received a Notice of Default from its lender on September 30, 2025, due to the failure to pay off Term Loans and Revolving Loan upon their maturity on September 19, 2025[95][96] - The purchase price for the Hilti Complex was reduced to $32,200,000, and the buyer issued a Notice to Proceed on October 6, 2025, with closing anticipated by November 25, 2025[97][98] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, focusing on liquidity, debt default, and segment performance Overview The company operates two divisions, PaperPie and Publishing, facing risks from non-compliance with its Usborne distribution agreement, with overall net revenues and net loss decreasing - The Company is the exclusive US MLM distributor for Usborne Publishing Limited and also publishes Kane Miller, Learning Wrap-Ups, and SmartLab Toys[101] - Non-compliance with Usborne's minimum purchase volumes and payment terms creates a risk of agreement termination, though no notification has been received[101] | Metric | Three Months Ended Aug 31, 2025 | Three Months Ended Aug 31, 2024 | Six Months Ended Aug 31, 2025 | Six Months Ended Aug 31, 2024 | | :----------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net Revenues | $4,621,100 | $6,509,200 | $11,727,500 | $16,502,600 | | Net Loss | $(1,294,700) | $(1,803,400) | $(2,369,900) | $(3,082,400) | Non-Segment Operating Results for the Three Months Ended August 31, 2025 Non-segment operating expenses decreased due to lower labor, depreciation, property taxes, and insurance, while interest expense increased and income tax benefit decreased - Total non-segment operating expenses decreased by $0.3 million (13.0%) to $2.0 million, driven by lower labor expenses in warehouse operations, reduced depreciation, and decreased property taxes and insurance[104] - Interest expense increased by $0.1 million (20.0%) to $0.6 million, attributed to higher interest rates on all debt[105] - Income tax benefit decreased by $0.2 million (28.6%) to $0.5 million, primarily due to decreased gross sales and a lower effective tax rate of 26.0% (down from 26.9%)[106] Non-Segment Operating Results for the Six Months Ended August 31, 2025 For the six-month period, non-segment operating expenses decreased due to staff reductions and lower freight costs, while other income increased and income tax benefit decreased - Total non-segment operating expenses decreased by $0.8 million (16.0%) to $4.2 million, primarily due to $0.5 million in labor expense reductions and $0.2 million in depreciation decreases[107] - Other income increased by $0.2 million (18.2%) to $1.3 million, mainly from a $0.4 million increase in rental income from a new tenant in the Hilti Complex[109] - Income tax benefit decreased by $0.3 million (27.3%) to $0.8 million, primarily related to reduced operating losses, with an effective tax rate of 25.9% (down from 26.8%)[110] PaperPie Operating Results for the Three and Six Months Ended August 31, 2025 The PaperPie segment experienced significant declines in net revenues and active brand partners, but improved operating results due to substantial expense reductions | Metric | Three Months Ended Aug 31, 2025 | Three Months Ended Aug 31, 2024 | Six Months Ended Aug 31, 2025 | Six Months Ended Aug 31, 2024 | | :----------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net revenues | $3,731,200 | $5,440,300 | $9,791,500 | $14,340,600 | | Gross margin | $2,161,800 | $3,000,200 | $5,752,800 | $8,814,100 | | 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 net revenues decreased by 31.5% for both periods, with active brand partners decreasing by 58.3% (three months) and 50.4% (six months) due to economic challenges, Usborne agreement uncertainty, and lack of new titles[112][118] - Operating expenses for PaperPie decreased by 37.1% (three months) and 37.6% (six months), primarily due to reduced shipping costs and lower Brand Partner incentive trip expenses[116][121] - Operating loss for the three months improved from $(470,700) to $(14,700), and operating income for the six months increased from $300,400 to $447,000, despite revenue declines, due to significant expense reductions[117][122] Publishing Operating Results for the Three and Six Months Ended August 31, 2025 The Publishing segment experienced decreased net revenues, gross margin, and operating income for both periods, primarily due to increased discounts offered to spur sales | Metric | Three Months Ended Aug 31, 2025 | Three Months Ended Aug 31, 2024 | Six Months Ended Aug 31, 2025 | Six Months Ended Aug 31, 2024 | | :----------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net revenues | $889,900 | $1,068,900 | $1,936,000 | $2,162,000 | | 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 net revenues decreased by 18.2% (three months) and 13.6% (six months), primarily due to additional discounts offered to retail customers[125][129] - Gross margin as a percentage of net revenues decreased to 59.1% (three months) and 55.4% (six months) due to increased discounts and changes in product mix[126][130] - Operating income decreased by 33.3% (three months) and 20.0% (six months), mainly associated with the decline in revenues and increased discounts[128][132] Liquidity and Capital Resources The company's liquidity is challenged by operating losses and increased interest rates, with plans to sell real estate and reduce inventory to address debt default - Net cash provided by operating activities was $1,459,700 for the first six months of fiscal year 2026, primarily driven by a $3,958,500 decrease in inventories[134][141] - Cash used in investing activities was $263,900, mainly for software upgrades and building improvements, offset by asset sales[136] - Cash used in financing activities was $900,000 for term debt payments[137] - The Company's credit agreement expired on September 19, 2025, leading to a Notice of Default on September 30, 2025, with approximately $29,949,100 in outstanding principal balance[139][140][169] Risks and Uncertainties The company acknowledges substantial doubt about its ability to continue as a going concern due to credit agreement default and recurring operating losses - Substantial doubt exists about the Company's ability to continue as a going concern due to the credit agreement default and recurring operating losses[144] - Mitigating plans include selling the Hilti Complex to pay off debt, reducing inventory for cash flow, and increasing active PaperPie Brand Partners to pre-pandemic levels[144] Critical Accounting Policies This section highlights critical accounting policies involving significant estimates and judgments, including inventory valuation, credit losses, and revenue recognition - Key accounting policies requiring significant estimates include valuation of inventory, provision for credit losses, allowance for sales returns, long-lived assets, and deferred income taxes[145] - Share-based compensation expense is recognized for probable vesting awards, with no expense recorded in the current six-month period as all previously granted shares have vested[148][149] - Inventory valuation includes allowances for obsolescence and consigned inventory not expected to be sold or returned, with noncurrent inventory defined as quantities exceeding 2.5 years of anticipated sales[154][156] Item 3. Quantitative and Qualitative Disclosures About Market Risk This item states that quantitative and qualitative disclosures about market risk are not applicable to the company - The company is not required to provide quantitative and qualitative disclosures about market risk[158] Item 4. Controls and Procedures Management evaluated the effectiveness of disclosure controls and procedures, concluding they were effective, with no material changes in internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed effective as of August 31, 2025, ensuring timely and accurate information disclosure[159][160] - No material changes in internal control over financial reporting occurred during the second quarter of the fiscal year[161] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any material legal proceedings - The Company is not a party to any material legal proceedings[163] Item 1A. Risk Factors As a smaller reporting company, the registrant is not required to provide a detailed discussion of risk factors in this quarterly report - Risk Factors disclosure is not required for smaller reporting companies[164] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not engage in any unregistered sales of equity securities or share repurchases during the three months ended August 31, 2025 | Period | Total of Shares Purchased | Average Price Paid per Share | Total of Shares Purchased as Part of Publicly Announced Plan | Maximum of Shares that may be Repurchased under the Plan | | :---------------- | :-------------------------- | :--------------------------- | :----------------------------------------------------------- | :--------------------------------------------------------- | | June 1 - 30, 2025 | - | - | - | 375,993 | | July 1 - 31, 2025 | - | - | - | 375,993 | | August 1 - 31, 2025 | - | - | - | 375,993 | | Total | - | - | - | | - No shares were purchased under the stock repurchase plan during the three months ended August 31, 2025[165] - The 2019 stock repurchase plan allows for up to 800,000 shares, with 375,993 shares remaining available for repurchase[165] Item 3. Defaults Upon Senior Securities This item states that there are no defaults upon senior securities to report - This item is not applicable, indicating no defaults upon senior securities[166] Item 4. Mine Safety Disclosures The company has no mine safety disclosures to report - There are no mine safety disclosures[167] Item 5. Other Information On September 30, 2025, the company received a Notice of Default from its lender due to the failure to repay its Credit Agreement upon maturity - The Company received a Notice of Default and Reservation of Rights Letter from BOKF, NA on September 30, 2025, for failing to pay the Credit Agreement balances by the maturity date[168] - The default imposes an additional 2% interest rate on existing borrowing rates and grants the lender rights to demand payment or liquidate collateral[169] - The total outstanding principal balance under the Credit Agreement was approximately $29,949,100 as of September 30, 2025[169] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including various corporate documents, amendments to the Credit Agreement, and certifications - The exhibits include restated certificates of incorporation, by-laws, the Usborne Distribution Agreement, and multiple amendments to the Credit Agreement with BOKF, NA[171][172] - Certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are filed herewith[172] - A Notice of Default and Reservation of Rights, dated September 30, 2025, from BOKF, NA, is included as Exhibit 10.20[172] SIGNATURES This section contains the official signatures of the company's executive officers, certifying the report's accuracy - The report was signed on October 9, 2025, by Craig M. White, President, Chief Executive Officer, and Chairman of the Board, and Dan E. O'Keefe, Chief Financial Officer and Corporate Secretary[176]