10q10k10q10k.net

What changed in EDUCATIONAL DEVELOPMENT CORP's 10-K — 2024 vs 2025

vs

Paragraph-level year-over-year comparison of EDUCATIONAL DEVELOPMENT CORP's 2024 and 2025 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2025 report.

+118 added−121 removedSource: 10-K (2025-05-19) vs 10-K (2024-05-21)

Top changes in EDUCATIONAL DEVELOPMENT CORP's 2025 10-K

118 paragraphs added · 121 removed · 99 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

11 edited+2 added−1 removed7 unchanged
Biggest changeOur Publishing division faces competition from U.S. and international publishing companies that sell online and through the same retail bookstores, toy stores, and gift and novelty stores that also offer a variety of non-book products. 5 Table of Contents Employees As of February 23, 2024, 101 full-time employees worked at our Tulsa, OK, San Diego, CA, and Layton, UT facilities.
Biggest changeWe also compete with other publishers in the school and library book fair market, of which Scholastic Corporation is the largest. Our Publishing division faces competition from U.S. and international publishing companies that sell online and through the same retail bookstores, toy stores, and gift and novelty stores that also offer a variety of non-book products.
Our Brand Partners sell our products in various ways, including hosting home parties, through social media collaboration platforms on the internet, hosting book fairs with school and public libraries and through other events.
Our Brand Partners sell our products in various ways, including hosting home parties, through social media collaboration platforms on the internet, hosting book fairs with schools and public libraries and through other events.
Company Reports Pursuant to Section 13 or 15 of the Exchange Act, as soon as reasonably practicable after filing electronically or otherwise furnishing it to the Securities and Exchange Commission (“SEC”), we make available, free of charge, on our website (www.edcpub.com) copies of our Annual Reports and Quarterly Reports.
Company Reports Pursuant to Section 13 or 15 of the Exchange Act, as soon as reasonably practicable after filing electronically or otherwise furnishing it to the Securities and Exchange Commission (“SEC”), we make available, free of charge, on our website (www.edcpub.com) copies of our Annual Reports, Quarterly Reports and Definitive Proxy Statements.
Our vision is to empower the world by sparking a child’s natural curiosity and lifelong love of learning through products and experiences that meet at the intersection of education and play.” Our Company mission statement reflects “We are creating the story of tomorrow through people, products, and purpose.” 4 Table of Contents (b) Financial Information about Our Segments We sell children’s books, educational toys and games and other related products (collectively referred to as “products” or “books”) through two business segments, which we refer to as “divisions” or “sales channels”: ● Direct Sales Division (“PaperPie”) – This division sells our books and products through independent sales representatives (“Brand Partners”) direct to the customer.
Our vision is to empower the world by sparking a child’s natural curiosity and lifelong love of learning through products and experiences that meet at the intersection of education and play.” Our Company mission statement reflects “We are creating the story of tomorrow through people, products, and purpose.” 3 Table of Contents (b) Financial Information about Our Segments We sell children’s books, educational toys and games and other related products (collectively referred to as “products” or “books”) through two business segments described below, which we refer to as “divisions” or “sales channels:” ● Direct Sales Division (“PaperPie”) – This division sells our books and products through independent sales representatives (“Brand Partners”) direct to the customer.
In accordance with our new distribution agreement, the Company no longer has the rights to distribute Usborne’s products to retail customers. The distribution of Usborne’s products to retail customers was discontinued in early fiscal 2024, when Usborne moved to a new retail distribution vendor. .
In accordance with our distribution agreement with Usborne Publishing, the Company does not have the rights to distribute Usborne’s products to retail customers. The distribution of Usborne’s products to retail customers was discontinued in early fiscal 2024, when Usborne moved to a new retail distribution vendor.
These reports will be provided electronically, free of charge, upon request.
These reports can also be provided electronically, free of charge, upon request.
Competition While we have the exclusive rights to sell Kane Miller books, Learning Wrap-Ups, SmartLab Toys and are the exclusive United States Multi-Level Marketing (“MLM”) distributor of Usborne books, we face competition from other publishers selling on the internet and directly to our customer base.
Additionally, there is a seasonal increase in spring associated with Easter holiday season. 4 Table of Contents Competition While we have the exclusive rights to sell Kane Miller books, Learning Wrap-Ups, and SmartLab Toys and are the exclusive United States Multi-Level Marketing (“MLM”) distributor of Usborne books, we face competition from other publishers selling on the internet and directly to our customer base.
This division had approximately 15,000 active Brand Partners as of February 29, 2024. ● Publishing Division (“EDC Publishing” or “Publishing”) – This is our trade division which markets through commissioned trade representatives who call on retail book, toy and specialty stores along with other retail outlets.
This division had approximately 7,800 active Brand Partners as of February 28, 2025. ● Publishing Division (“EDC Publishing” or “Publishing”) – This is our trade division which markets our Kane Miller, SmartLab Toys, and Learning Wrap-Ups products through commissioned trade representatives who call on retail book, toy and specialty stores along with other retail outlets.
Our PaperPie division competes in recruiting and retaining Brand Partners, which continuously receive opportunities to work for other direct selling companies, as well as new non-traditional employment opportunities, especially in the gig marketplace that provide part-time supplemental income. We also compete with other publishers in the school and library book fair market, of which Scholastic Corporation is the largest.
Our PaperPie division competes in recruiting and retaining Brand Partners, whom continuously receive opportunities to work for other direct selling companies, as well as other non-traditional employment opportunities, especially in the gig marketplace that provides multiple opportunities for part-time supplemental income.
Additionally, a similar number of titles that do not have sufficient sales are identified as “out of print” and these titles are no longer re-printed or included in future catalogs. The Company sells the remaining quantities of these out-of-print titles through their normal sales channels at normal pricing and has not historically participated in the publishing industry’s “remainder” market.
The Company sells the remaining quantities of these out-of-print titles through their normal sales channels at normal pricing and has not historically participated in the publishing industry’s “remainder” market.
Of these employees, approximately 50% work in our distribution warehouse in Tulsa, OK.
Employees As of February 28, 2025, 83 full-time employees worked at our Tulsa, OK, San Diego, CA, and Ogden, UT facilities. Of these employees, approximately 49% work in our distribution warehouse in Tulsa, OK.
Removed
Percent of Net Revenues by Division FY 2024 FY 2023 PaperPie 89 % 85 % Publishing 11 % 15 % Total net revenues 100 % 100 % (c) Narrative Description of Business Products EDC’s current catalog contains approximately 2,000 titles, with new additions added throughout the year across all lines of our products.
Added
Percent of Net Revenues by Division FY 2025 FY 2024 PaperPie 87 % 89 % Publishing 13 % 11 % Total net revenues 100 % 100 % Additional financial information relating to the Company’s reportable segments is included in Note 16, “Business Segments”, of the Notes to Financial Statements in Item 15, “Exhibits and Financial Statement Schedules,” which is included herein.
Added
(c) Narrative Description of Business Products EDC’s current catalog contains approximately 2,000 titles, with new additions added periodically across all lines of our products. Additionally, a similar number of titles that do not have sufficient sales are identified as “out of print” and these titles are no longer re-printed or included in future catalogs.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

4 edited+1 added−1 removed4 unchanged
Biggest changeWhile cyber-attacks are common threats to all businesses, the Company did not experience a material cyber security incident in either fiscal year 2024 or 2023. 6 Table of Contents Our management team is informed about and monitors the prevention, detection, mitigation, and remediation of key cybersecurity risks and incidents through various means, which may include briefings from internal security personnel, threat intelligence and other information obtained from governmental, public, or private sources, including external consultants engaged by us, and alerts and reports produced by security tools deployed in the information technology environment.
Biggest changeWhile cyber-attacks are common threats to all businesses, the Company did not experience a material cyber security incident in either fiscal year 2025 or 2024. Our management team is informed about and monitors the prevention, detection, mitigation, and remediation of key cybersecurity risks and incidents through various means.
Our management team and incident response team have overall responsibility for assessing and managing our material risks from cybersecurity threats. The team has primary responsibility for our overall cybersecurity risk management program and supervise both our internal cybersecurity personnel and our retained external cybersecurity consultants that conduct vulnerability scans on a quarterly basis per PCI DSS standards.
Our management team and incident response team have overall responsibility for assessing and managing our material risks from cybersecurity threats. The team has primary responsibility for our overall cybersecurity risk management program and supervises both our internal cybersecurity personnel and our retained external cybersecurity consultants that conduct vulnerability scans on a quarterly basis per PCI DSS standards.
Cybersecurity Governance Our Board considers cybersecurity risk as part of its risk oversight function and has delegated oversight of cybersecurity and other information technology risks to the Company’s Chief Executive Officer and Chief Financial Officer, whom oversee management’s implementation of our cybersecurity risk management program and incident response plans.
Cybersecurity Governance Our Board considers cybersecurity risk as part of its risk oversight function and has delegated oversight of cybersecurity and other information technology risks to the Company’s Chief Executive Officer and Chief Financial Officer, who oversee management’s implementation of our cybersecurity risk management program and incident response plans.
Our cybersecurity risk management program includes: ● Risk assessments are designed to help identify material cybersecurity risks to our critical systems and information. ● A security team principally responsible for managing (1) our cybersecurity risk assessment processes, (2) our security controls, and (3) our response to cybersecurity incidents. ● The use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our security controls. ● Cybersecurity awareness training of our employees, including our incident response personnel. ● A cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents.
Our cybersecurity risk management program includes: ● Risk assessments that are designed to help identify material cybersecurity risks to our critical systems and information. ● A security team principally responsible for managing (1) our cybersecurity risk assessment processes, (2) our security controls, and (3) our response to cybersecurity incidents. ● The use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our security controls. ● Cybersecurity awareness training of our employees, including our incident response personnel. ● A cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents. 5 Table of Contents We have not identified risks from known cybersecurity threats, including as a result of any prior cybersecurity incidents, that have materially affected the Company, including our operations, business strategy, results of operations, or financial condition.
Removed
We have not identified risks from known cybersecurity threats, including as a result of any prior cybersecurity incidents, that have materially affected the Company, including our operations, business strategy, results of operations, or financial condition.
Added
This may include briefings from internal security personnel, threat intelligence and other information obtained from governmental, public, or private sources, including external consultants engaged by us, and alerts and reports produced by security tools deployed in the information technology environment.

Item 2. Properties

Properties — owned and leased real estate

3 edited+1 added−0 removed1 unchanged
Biggest changeIn addition to this owned property, we also lease additional warehouse space in Tulsa, Oklahoma as needed for overflow inventory, a small office in San Diego, California that is used by our Kane Miller employees, and a warehouse and office space in Layton, Utah. We believe that our operating facilities meet both present and future capacity needs.
Biggest changeIn addition to this owned property, we also lease additional warehouse space in Tulsa, Oklahoma and Joplin, Missouri as needed for overflow inventory, an office space in San Diego, California that is used by our Kane Miller employees, office space in Ogden, Utah, and office space in Seattle, Washington.
Substantially all customer orders are fulfilled from our 170,000 square foot warehouse, in Tulsa, Oklahoma, using multiple flow-rack systems, referred to as “lines,” to expedite order completion, packaging, and shipment. During the third quarter of fiscal 2024, the Company listed for sale/leaseback our headquarters office and warehouse property.
Substantially all customer orders are fulfilled from our 85,000 square foot warehouse, in Tulsa, Oklahoma, using multiple flow-rack systems, referred to as “lines,” to expedite order completion, packaging, and shipment. During the third quarter of fiscal 2024, the Company listed for sale/leaseback our headquarters office and warehouse property.
Item 2. PROPERTIES Our headquarters office and distribution warehouse are located on a 50-acre complex at 5402 South 122nd East Ave, Tulsa, Oklahoma. The Company headquarters includes multiple buildings that combine to approximately 400,000 square feet of office and warehouse space, of which 218,700 is utilized by us and 181,300 is occupied by a third-party tenant.
Item 2. PROPERTIES Our headquarters office and distribution warehouse is located on a 50-acre complex at 5402 South 122nd East Ave, Tulsa, Oklahoma. The Company headquarters includes multiple buildings that combine to total approximately 402,000 square feet of office and warehouse space; of which 109,700 is utilized by us and 292,300 is occupied by two third-party tenants.
Added
We believe that our operating facilities meet both present and future capacity needs.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

4 edited+0 added−0 removed0 unchanged
Biggest changeIssuer Purchases of Equity Securities 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) December 1 - 31, 2023 - $ - - 376,393 January 1 - 31, 2024 - - - 376,393 February 1 - 29, 2024 - - - 376,393 Total - $ - - (1) On February 4, 2019, the Board of Directors approved a new stock repurchase plan, replacing the former 2008 stock repurchase plan.
Biggest changeIssuer Purchases of Equity Securities 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) December 1 - 31, 2024 - $ - - 376,393 January 1 - 31, 2025 - - - 376,393 February 1 - 28, 2025 400 1.65 - 375,993 Total 400 $ 1.65 - (1) On February 4, 2019, the Board of Directors approved a new stock repurchase plan, replacing the former 2008 stock repurchase plan.
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The common stock of EDC is traded on NASDAQ (symbol “EDUC”). The number of shareholders of record of EDC's common stock as of May 13, 2024, was 446.
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The common stock of EDC is traded on NASDAQ (symbol “EDUC”). The number of shareholders of record of EDC’s common stock as of May 12, 2025, was 446.
The maximum number of shares which may be purchased under the new plan is 800,000. This plan has no expiration date. Item 6. [RESERVED]
The maximum number of shares which may be purchased under the new plan is 800,000. This plan has no expiration date.
For information regarding our compensation plans see Note 14 of the notes to the financial statements and our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 10, 2024, as outlined in Part III, Item 12 in this Annual Report.
For information regarding our compensation plans see Note 13 of the notes to the financial statements and our definitive Proxy Statement to be filed in connection with the Annual Meeting of Shareholders to be held on July 2, 2025, as outlined in Part III, Item 12 in this Annual Report.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

77 edited+15 added−20 removed33 unchanged
Biggest changeThese cash flows resulted from: ● net earnings of $546,400 Adjusted for: ● depreciation and amortization expense of $2,487,200 ● share-based compensation expense, net of $212,000 ● provision for credit losses of $33,300 ● provision for inventory valuation allowance of $85,900 Offset by: ● net gain on sale of assets of $4,016,700 ● deferred income taxes of $609,700 Positively impacted by: ● decrease in inventories, net of $8,130,000 ● decrease in accounts receivable of $936,500 ● increase in income taxes payable of $773,400 ● decrease in prepaid expenses and other assets of $197,100 ● increase in accounts payable of $46,300 Negatively impacted by: ● decrease in accrued salaries, commissions, and other liabilities of $51,900 ● decrease in deferred revenues of $19,200 Cash provided by investing activities was $4,037,100 consisting of proceeds from the sale of assets of $4,858,900 offset by capital expenditures of $821,800 in software upgrades to our proprietary systems that our PaperPie Brand Partners use to monitor their business and place customer orders.
Biggest changeThese cash flows resulted from: ● net loss of $5,263,600 Adjusted for: ● depreciation and amortization expense of $1,724,900 ● share-based compensation expense, net of $403,300 ● net loss on sale of assets of $321,400 ● provision for inventory allowance of $144,000 ● provision for credit losses of $48,000 Offset by: ● deferred income taxes of $1,129,600 Positively impacted by: ● decrease in inventories, net of $10,754,100 ● increase in deferred revenues of $91,700 Negatively impacted by: ● decrease in accounts payable of $2,062,800 ● decrease in accrued salaries and commissions, and other liabilities of $918,400 ● decrease in income taxes payable of $312,500 ● increase in accounts receivable of $237,100 ● increase in prepaid expenses and other assets of $168,300 Cash used in investing activities was $429,600 for capital expenditures, consisting of $396,200 in new software development costs to add new features to our proprietary systems that PaperPie Brand Partners use to monitor their business and place customer orders and $43,200 in building improvements, offset by $9,800 from the sale of machinery and equipment.
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 agreement 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.
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.
However, we consider the following accounting policies to be significantly more dependent on the use of estimates and assumptions. 17 Table of Contents 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.
However, we consider the following accounting policies to be significantly more dependent on the use of estimates and assumptions. 16 Table of Contents 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.
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 2023 and fiscal 2024, the Company did not meet the minimum purchase volumes and certain payments were not received timely.
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.
The Publishing division’s customer base includes national book chains, regional and local bookstores, toy and gift stores, school supply stores and museums. To reach these markets, the Publishing division utilizes a combination of commissioned sales representatives and an in-house sales group located at our headquarters.
The Publishing division’s customer base includes national book chains, regional and local bookstores, toy and gift stores, school supply stores, and museums. To reach these markets, the Publishing division utilizes a combination of commissioned sales representatives, as well as an in-house sales group located at our headquarters.
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.
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 employee has been established. The fair value of these awards is determined based on the closing price of the shares on the grant date.
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 and $0.2 million for the fiscal years ended February 29, 2024 and February 28, 2023, respectively.
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 the fiscal years ended February 28, 2025 and February 29, 2024, respectively.
These orders are typically shipped to the hostess who then distributes the products to the end customer. Customer specials are also available when customers, or their party, order above a specified amount. As with online parties, home shows often provide an excellent opportunity for recruiting new Brand Partners.
These orders are typically shipped to the hostess, who then distributes the products to the end customer. Customer specials are also available when customers, or their party, order above a specified amount. As with online parties, home shows often provide an excellent opportunity to recruit new Brand Partners.
PaperPie net revenues also include sales to schools and libraries through PaperPie Learning, a separate program for eligible Brand Partners which requires certain qualifications and the completion of additional training requirements. The PaperPie Learning program includes book fairs which are held with an organization as the sponsor.
PaperPie net revenues also include sales to schools and libraries through PaperPie Learning. PaperPie Learning is a separate program for eligible Brand Partners which requires certain qualifications and the completion of additional training requirements. The PaperPie Learning program includes book fairs which are held within an organization as the sponsor.
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 noncurrent classification. Management continually estimates and calculates the amount of noncurrent inventory.
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.
It is 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 the fiscal years ended February 29, 2024 and February 28, 2023.
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 the fiscal years ended February 28, 2025 and February 29, 2024.
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 $1.4 million and $1.5 million at February 29, 2024 and February 28, 2023, respectively.
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 $1.3 million and $1.4 million at February 28, 2025 and February 29, 2024, respectively.
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 $12.3 million and $5.1 million at February 29, 2024 and February 28, 2023, respectively.
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 $16.3 million and $12.3 million at February 28, 2025 and February 29, 2024, respectively.
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 fiscal years 2024 and 2023, the Company recognized $0.2 million and $0.9 million, respectively, of compensation expense associated with the shares granted.
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 fiscal years 2025 and 2024, the Company recognized $0.4 million and $0.2 million, respectively, of compensation expense associated with the shares granted.
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. Noncurrent inventory is estimated by management using an anticipated turnover ratio by title, based primarily on historical trends.
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.
On November 30, 2023, the Company executed the Fourth Amendment to the Credit Agreement (“Amendment”) with the Lender. The Amendment, effective December 1, 2023, increases the Revolving Loan commitment to $8,000,000 and extends the maturity date to May 31, 2024.
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.
In some instances, our products are featured in promotions and catalogs by participation in co-ops with national chain retailers. Publishing’s sales representatives actively target the smaller independent book and gift store customers.
In some instances, our products are featured in promotions and catalogs by participation in co-ops with national chain retailers. Publishing’s sales representatives actively target the smaller independent bookstore and gift shop customers.
We believe allowing our 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 11.6% of our active Brand Partners maintained consignment inventory at the end of fiscal year 2024.
We believe allowing our 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 17.3% of our active Brand Partners maintained consignment inventory at the end of fiscal year 2025.
Organizations sell a variety box of greeting-type cards and donate a portion of the proceeds to help support their related causes. Publishing Division Our Publishing division operates in a market that is highly fragmented, with many types of retail companies engaged in selling children’s books and toys.
Organizations do this by selling a variety box of greeting-type cards and donating a portion of the proceeds to help support their related causes. Publishing Division Our Publishing division operates in a market that is highly fragmented, with many types of retail companies engaged in selling children’s books and toys.
Management has estimated a valuation allowance for both current and noncurrent inventory, including the reserve for consigned inventory, of $1.0 million at February 29, 2024, and $0.9 February 28, 2023.
Management has estimated a valuation allowance for both current and noncurrent inventory, including the reserve for consigned inventory, of $1.2 million at February 28, 2025, and $1.0 million at February 29, 2024.
Noncurrent inventory valuation allowances were $0.6 million at February 29, 2024 and $0.4 million at February 28, 2023. 18 Table of Contents Brand Partners that meet certain eligibility requirements may request and receive inventory on consignment.
Noncurrent inventory valuation allowances were $0.7 million at February 28, 2025 and $0.6 million at February 29, 2024. 17 Table of Contents Brand Partners that meet certain eligibility requirements may request and receive inventory on consignment.
Off-Balance Sheet Arrangements As of February 29, 2024, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources. Seasonality The Company experiences increased sales in the Fall season.
Off-Balance Sheet Arrangements As of February 28, 2025, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources. Seasonality The Company experiences increased sales in the Fall season along with increased sales during the Easter holiday season.
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.
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.
On an on-going basis, we evaluate our estimates, including those related to our valuation of inventory, allowance for uncollectible accounts receivable, allowance for sales returns, long-lived assets, and deferred income taxes.
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.
General and administrative expenses decreased $0.4 million, to $2.7 million during the fiscal year ended February 29, 2024, when compared with $3.1 million reported for fiscal year ended February 28, 2023.
General and administrative expenses decreased $0.8 million, to $1.9 million during the fiscal year ended February 28, 2025, when compared with $2.7 million reported for the fiscal year ended February 29, 2024.
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 their remaining Usborne inventory over the 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.
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. 7 Table of Contents We sell our products through two separate divisions, PaperPie and Publishing.
Gross margin decreased $3.1 million, to $3.1 million for fiscal year ended February 29, 2024, from $6.2 million reported for fiscal year ended February 28, 2023.
Gross margin decreased $0.5 million, or 16.1%, to $2.6 million for fiscal year ended February 28, 2025, from $3.1 million reported for fiscal year ended February 29, 2024.
Operating expenses decreased $1.1 million, to $1.9 million for fiscal year ended February 29, 2024, from $3.0 million reported for fiscal year ended February 28, 2023.
Operating expenses decreased $0.5 million, or 26.3%, to $1.4 million for fiscal year ended February 28, 2025, from $1.9 million reported for fiscal year ended February 29, 2024.
The average number of active Brand Partners in fiscal year 2024 was 18,300, a decrease of 9,700, or 34.6%, from 28,000 in fiscal year 2023. The Company reports the average number of active Brand Partners as a key indicator for this division.
The average number of active Brand Partners in fiscal year 2025 was 12,300, a decrease of 6,000, or 32.8%, from 18,300 in fiscal year 2024. The Company reports the average number of active Brand Partners as a key indicator for this division.
These downline recruits are known as their "Central Group". Upon reaching this Team Leader level, Brand Partners become eligible to receive “monthly override payments” which are calculated on sales made by their Central Group and downlines up to two levels below their Central Group.
Brand Partners who recruit a specified number of other Brand Partners into their downline become “Team Leaders.” These downline recruits are known as their “Central Group.” Upon reaching this Team Leader level, Brand Partners become eligible to receive “monthly override payments” which are calculated on sales made by their Central Group and downlines up to two levels below their Central Group.
Operating income for the PaperPie division as a percentage of net revenues for the year ended February 29, 2024, was 9.1%, compared to 12.3% for the year ended February 28, 2023, a change of 3.2%.
Operating income for the PaperPie division as a percentage of net revenues for the year ended February 28, 2025 was 6.5%, compared to 9.1% for the year ended February 29, 2024, a decrease of 2.6%.
Total PaperPie operating expenses decreased $14.9 million, or 36.6%, to $25.8 million during the fiscal year ended February 29, 2024, when compared with $40.7 million reported for fiscal year ended February 28, 2023.
Total PaperPie operating expenses decreased $9.3 million, or 36.0%, to $16.5 million during the fiscal year ended February 28, 2025, when compared with $25.8 million reported for the fiscal year ended February 29, 2024.
Sales commissions decreased $9.2 million, to $15.9 million during the fiscal year ended February 29, 2024, when compared to $25.1 million reported in the same period a year ago primarily due to the decrease in net revenues.
Sales commissions decreased $5.9 million, to $10.0 million during the fiscal year ended February 28, 2025, when compared to $15.9 million reported in the same period a year ago primarily due to the decrease in net revenues.
Brand Partners use the list of contacts provided by the hostess as additional contacts for future hostess and recruiting opportunities. In-person parties also occur when Brand Partners contact hostesses to hold book shows in their homes.
The hostess earns discounted products based on the total sales from the attendees at the online party. Brand Partners use the list of contacts provided by the hostess as additional contacts for future hostess and recruiting opportunities. In-person parties also occur when Brand Partners contact hostesses to hold book shows in their homes.
Income taxes increased $1.1 million, to a tax expense of $0.2 million for fiscal year ended February 29, 2024, from a tax benefit of $0.9 million for the same period a year ago. This increase was primarily related to an increase in taxable income for the current fiscal year compared to the prior fiscal year.
Income taxes decreased $1.8 million, to a tax benefit of $1.6 million for the fiscal year ended February 28, 2025, from a tax expense of $0.2 million for the same period a year ago. This decrease was primarily related to the decrease in taxable income for the current fiscal year compared to the prior fiscal year.
Operating and selling expenses decreased $5.3 million, to $7.2 million for fiscal year ended February 29, 2024, from $12.5 million reported in the same period a year ago.
Operating and selling expenses decreased $2.6 million, to $4.6 million for the fiscal year ended February 28, 2025, from $7.2 million reported in the same period a year ago.
In addition, Brand Partners receive a monthly sales bonus once their total sales reach an established monthly goal and other awards (called “Level Perks”) for meeting other individual sales and recruiting goals for the month. Brand Partners who recruit a specified number of other Brand Partners into their downline become “Team Leaders”.
In addition, Brand Partners receive a monthly sales bonus once their total sales reach an established monthly goal, as well as other awards (called “Level Perks”) for meeting other individual sales and recruiting goals for the month.
Publishing Division Net Revenues by Market Type FY 2024 FY 2023 National chain bookstores 2 % 2 % All other 98 % 98 % Total net revenues 100 % 100 % Publishing uses a variety of methods to attract potential new customers and maintain current customers.
The table below shows the percentage of net revenues from our Publishing division based on market type: Publishing Division Net Revenues by Market Type FY 2025 FY 2024 National chain bookstores 11 % 2 % All other 89 % 98 % Total net revenues 100 % 100 % Publishing uses a variety of methods to attract potential new customers and maintain current customers.
This decrease was due to $0.6 million of decreased credit card transaction fees associated with decreased sales volumes, a $0.2 million decrease in payroll and various other expenses, offset by $0.4 million increase in amortization and depreciation expenses related to the SmartLab Toys acquisition. 12 Table of Contents Operating income of our PaperPie division decreased $5.1 million, or 55.4%, to $4.1 million for fiscal year ended February 29, 2024, as compared to $9.2 million reported for fiscal year ended February 28, 2023.
This decrease was due to a $0.4 million decrease in credit card transaction fees and $0.2 million decrease in payroll expenses, both associated with decreased sales volumes, as well as $0.2 million decrease in various other expenses. 11 Table of Contents Operating income of our PaperPie division decreased $2.1 million, or 51.2%, to $2.0 million for the fiscal year ended February 28, 2025, as compared to $4.1 million reported for fiscal year ended February 29, 2024.
We expect this impact on sales to continue as inflationary pressures persist. PaperPie gross margin decreased $20.0 million, or 40.1%, to $29.9 million for fiscal year ended February 29, 2024, from $49.9 million reported for fiscal year ended February 28, 2023.
We expect this impact on sales to continue as inflationary pressures persist. PaperPie gross margin decreased $11.5 million, or 38.5%, to $18.4 million for the fiscal year ended February 28, 2025, from $29.9 million reported for fiscal year ended February 29, 2024.
Brand Partners contact hosts or hostesses (collectively “hostess”) who then provide a list of contacts to invite to an online party. During the online party, the Brand Partner answers attendees’ questions and provides product recommendations. These attendees then select desired products and place orders via the Brand Partner’s customized website.
Customers’ internet orders are primarily received via the Brand Partner’s customized website, which is hosted by the Company. Brand Partners contact hosts or hostesses (collectively “hostess”) who then provide a list of contacts to invite to an online party. During the online party, the Brand Partner answers attendees’ questions and provides product recommendations.
The short-term duration of the Revolving Loan and uncertainty of the bank’s ongoing support beyond May 31, 2024, along with recurring operating losses and other items, raise substantial doubt over the Company's ability to continue as a going concern. Management has plans to sell the Hilti Complex and pay off the Term Loans and Revolving Loan.
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.
We do not expect inventory to increase in fiscal year 2025 as we continue to sell down excess inventory. 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.
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.
The Amendment also requires the Company to list the Hilti Complex for sale, allows 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.
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. 14 Table of Contents On June 13, 2024, the Company executed the Fifth Amendment to the Existing Credit Agreement with the Lender.
The effective tax rate decreased by 1.3%, to 25.6% for fiscal year ending February 29, 2024, as compared to 26.9% for fiscal year ended February 28, 2023, primarily due to sales mix fluctuations between states.
The effective tax rate decreased by 2.4%, to 23.2% for fiscal year ending February 28, 2025, as compared to 25.6% for fiscal year ended February 29, 2024, primarily due to sales mix fluctuations between states and credits eligible for research and development expenses.
Gross margin as a percentage of net revenues decreased 1.4% to 65.5% for fiscal year 2024 when compared to 66.9% for fiscal year 2023.
Gross margin as a percentage of net revenues decreased 3.7% to 61.8% for fiscal year 2025 when compared to 65.5% for fiscal year 2024.
Internet orders are processed through a standard online “shopping cart checkout” and the Brand Partner receives sales credit and commission on the transaction. All internet orders are shipped directly to the end customer. The hostess earns discounted products based on the total sales from the attendees at the online party.
These attendees then select desired products and place orders via the Brand Partner’s customized website. Internet orders are processed through a standard online “shopping cart checkout” and the Brand Partner receives sales credit and commission on the transaction. All internet orders are shipped directly to the end customer.
These decreases were due to a $5.2 million decrease in shipping costs associated with the decrease in volume of orders shipped from lower sales, and a decrease of $0.2 million in accruals for Brand Partner incentive trip expenses, offset by a $0.1 million increase in accruals for Brand Partner meetings and convention expenses.
These decreased expenses were due to a $1.7 million decrease in shipping costs associated with the decrease in volume of orders shipped, and a decrease of $0.8 million in accruals for Brand Partner incentive trip expenses, as well as a $0.1 million decrease in various other expenses.
Brand Partners FY 2024 FY 2023 New Brand Partners Added During Fiscal Year 10,800 16,500 Active Brand Partners at End of Fiscal Year 15,000 24,600 Our PaperPie division’s multi-level marketing organizational structure presently has eight levels of sales representatives, collectively known as Brand Partners: ● Brand Partners ● Team Leaders ● Advanced Leaders ● Senior Leaders ● Executive Leaders ● Senior Executive Leaders ● Directors ● Senior Directors Upon signing up, sales representatives begin as “Brand Partners”.
Brand Partners FY 2025 FY 2024 New Brand Partners Added During Fiscal Year 7,800 10,800 Active Brand Partners at End of Fiscal Year 7,800 15,000 Our PaperPie division’s multi-level marketing organizational structure currently has eight levels of sales representatives, collectively known as Brand Partners: ● Brand Partners ● Team Leaders ● Advanced Leaders ● Senior Leaders ● Executive Leaders ● Senior Executive Leaders ● Directors ● Senior Directors Upon signing up, sales representatives begin as “Brand Partners.” Brand Partners receive “weekly commissions” from each sale they make; the commission rate they receive on each sale is determined by the “order type” assigned to the sale.
The customer base of PaperPie consists of individual purchasers, as well as schools and public libraries. Revenues are primarily generated through book showings in individual homes, on social media collaboration platforms, through book fairs with school and public libraries and other in-person events.
Revenues are primarily generated through book showings in individual homes, on social media collaboration platforms, through book fairs with school and public libraries, and other in-person events. An important factor in the growth of the PaperPie division is the addition of new Brand Partners and the retention of existing Brand Partners.
Team Leaders that recruit and promote other Team Leaders, and meet other established criteria, are eligible to become “Advanced Leaders”. Once Advanced Leaders promote a second level Brand Partner, add additional recruits, and meet other established criteria, they become “Senior Leaders”, “Executive Leaders”, “Senior Executive Leaders”, “Directors” or “Senior Directors”.
Team Leaders that recruit and promote other Team Leaders and meet other established criteria are eligible to become “Advanced Leaders.” 8 Table of Contents Once Advanced Leaders promote a second level Brand Partner, add additional recruits, and meet other established criteria, they become “Senior Leaders,” “Executive Leaders,” “Senior Executive Leaders,” “Directors” or “Senior Directors.” One-time cash bonus payments are awarded at each promotion level above Brand Partner with increasing award amounts at each promotion level.
The Revolving Loan bears interest at a rate per annum equal to Term SOFR Rate + 4.50% (effective rate was 9.82% at February 29, 2024) (v) Revolving Loan allows for Letters of Credit up to $7,500,000 upon bank approval (none were outstanding at February 29, 2024) The following table reflects aggregate current maturities of term debt, excluding the Revolving Loan, during the next fiscal year as follows: Years ending February 28 (29), 2025 $ 1,800,000 2026 1,800,000 2027 1,800,000 2028 23,200,900 Total $ 28,600,900 16 Table of Contents 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.
(v) Revolving Loan allows for Letters of Credit upon bank approval (none were outstanding at February 28, 2025) 15 Table of Contents 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.
See Publishing Operating Results for discussion of our updated distribution agreement with Usborne. 10 Table of Contents Result of Operations The following table shows our statements of operations data: Twelve Months Ended February 29 (28), 2024 2023 Net revenues $ 51,030,300 $ 87,829,000 Cost of goods sold 18,045,400 31,759,200 Gross margin 32,984,900 56,069,800 Operating expenses Operating and selling 8,789,200 15,780,600 Sales commissions 16,105,600 25,676,100 General and administrative 13,991,000 17,195,100 Total operating expenses 38,885,800 58,651,800 Other (income) expense Interest expense 2,758,900 2,172,300 Other income (9,394,300 ) (1,327,400 ) Earnings (loss) before income taxes 734,500 (3,426,900 ) Income taxes 188,100 (922,000 ) Net earnings (loss) $ 546,400 $ (2,504,900 ) See the detailed discussion of net revenues, gross margin and operating expenses by reportable segment below.
See Publishing Operating Results for discussion of our updated distribution agreement with Usborne. 9 Table of Contents Result of Operations The following table shows our statements of operations data: Twelve Months Ended February 28 (29), 2025 2024 Product revenues, net of discounts and allowances $ 32,547,700 $ 48,654,200 Transportation revenue 1,643,300 2,376,100 Net revenues $ 34,191,000 51,030,300 Cost of goods sold 13,163,300 18,045,400 Gross margin 21,027,700 32,984,900 Operating expenses Operating and selling 5,751,600 8,789,200 Sales commissions 10,096,600 16,105,600 General and administrative 11,955,100 13,991,000 Total operating expenses 27,803,300 38,885,800 Interest expense 2,188,400 2,758,900 Other income (2,109,000 ) (9,394,300 ) Earnings (loss) before income taxes (6,855,000 ) 734,500 Income tax expense (benefit) (1,591,400 ) 188,100 Net earnings (loss) $ (5,263,600 ) $ 546,400 See the detailed discussion of net revenues, gross margin and operating expenses by reportable segment below: Non-Segment Operating Results Total operating expenses not associated with a reporting segment were $9.9 million for the fiscal year ended February 28, 2025, compared to $11.3 million for the same period a year ago.
Publishing Operating Results The following table summarizes the operating results of the Publishing segment for the twelve months ended February 29 (28): Twelve Months Ended February 29 (28), 2024 2023 Gross sales $ 11,331,600 $ 27,896,200 Less discounts and allowances (5,947,900 ) (14,624,400 ) Transportation revenue 21,400 10,500 Net revenues 5,405,100 13,282,300 Cost of goods sold 2,299,800 7,120,200 Gross margin 3,105,300 6,162,100 Total operating expenses 1,882,000 2,975,300 Operating income $ 1,223,300 $ 3,186,800 Our Publishing division’s net revenues decreased $7.9 million, or to $5.4 million for fiscal year ended February 29, 2024 from $13.3 million reported for fiscal year ended February 28, 2023.
Publishing Operating Results The following table summarizes the operating results of the Publishing segment for the twelve months ended February 28 (29): Twelve Months Ended February 28 (29), 2025 2024 Net revenues 4,340,700 5,405,100 Cost of goods sold 1,757,300 2,299,800 Gross margin 2,583,400 3,105,300 Total operating expenses 1,428,000 1,882,000 Operating income $ 1,155,400 $ 1,223,300 Our Publishing division’s net revenues decreased $1.1 million, or 20.4%, to $4.3 million for fiscal year ended February 28, 2025 from $5.4 million reported for fiscal year ended February 29, 2024.
One-time cash bonus payments are made to Advanced Leaders and higher at each promotion level. Executive Leaders and higher receive an additional monthly override payment based upon the sales of their executive group. Directors and higher receive an additional bonus payment if they promote a Team Leader from their Central Group.
Executive Leaders and higher receive an additional monthly override payment based upon the sales of their executive group. Directors and higher receive an additional bonus payment if they promote a Team Leader from their Central Group. The maximum override payment a leader can receive is calculated on the sales of their Central Group and three levels below.
The amendment restricted the Company from entering into any new purchase orders and use its best efforts to cancel existing purchase orders.
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%.
Features of the Revised Loan Agreement include: (i) Two Term Loans on 20-year amortization with 5-year maturity date of August 9, 2027 (ii) $15 Million Fixed Rate Term Loan bears interest at a fixed rate per annum equal to 4.26% (iii) $21 Million Floating Rate Term Loan bears interest at a rate per annum equal to Term SOFR Rate + 1.75% (iv) Stepdown Revolving Loan with maturity date of May 31, 2024.
(ii) $15 Million Fixed Rate Term Loan bears interest at a fixed rate per annum equal to 4.26% (iii) $21 Million Floating Rate Term Loan bears interest at a rate per annum equal to Term SOFR Rate + 1.75% (iv) $4.8 Million Revolving Loan with maturity date of July 11, 2025.
Cash used in financing activities was $12,199,400 which was comprised of net payments on the line of credit of $5,136,400, payments on term debt of $6,499,100 and cash paid in treasury stock transactions of $563,900. 14 Table of Contents We continue to expect that cash generated from the sale of our owned real estate, along with cash generated from our 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 used in financing activities was $3,083,000, which was comprised of net payments on the line of credit of $1,300,000 and payments on term debt of $1,800,000, offset by $17,000 from other financing activities. 13 Table of Contents 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.
Our tax rates are higher than the federal statutory rate of 21% due to the inclusion of state income and franchise taxes. 11 Table of Contents PaperPie Operating Results The following table summarizes the operating results of the PaperPie segment for the twelve months ended February 29 (28): Twelve Months Ended February 29 (28), 2024 2023 Gross sales $ 64,252,000 $ 94,795,700 Less discounts and allowances (20,981,500 ) (27,271,100 ) Transportation revenue 2,354,700 7,022,100 Net revenues 45,625,200 74,546,700 Cost of goods sold 15,745,500 24,639,000 Gross margin 29,879,700 49,907,700 Operating expenses Operating and selling 7,151,300 12,501,100 Sales commissions 15,925,100 25,095,100 General and administrative 2,674,100 3,140,900 Total operating expenses 25,750,500 40,737,100 Operating income $ 4,129,200 $ 9,170,600 Average number of active Brand Partners 18,300 28,000 PaperPie net revenues decreased $28.9 million, or 38.8%, to $45.6 million for fiscal year ended February 29, 2024, when compared with net revenues of $74.5 million reported for fiscal year ended February 28, 2023.
PaperPie Operating Results The following table summarizes the operating results of the PaperPie segment for the twelve months ended February 28 (29): Twelve Months Ended February 28 (29), 2025 2024 Net revenues 29,850,300 45,625,200 Cost of goods sold 11,406,000 15,745,500 Gross margin 18,444,300 29,879,700 Operating expenses Operating and selling 4,575,400 7,151,300 Sales commissions 9,998,800 15,925,100 General and administrative 1,919,300 2,674,100 Total operating expenses 16,493,500 25,750,500 Operating income $ 1,950,800 $ 4,129,200 Average number of active Brand Partners 12,300 18,300 PaperPie net revenues decreased $15.7 million, or 34.4%, to $29.9 million for the fiscal year ended February 28, 2025, when compared with net revenues of $45.6 million reported for the fiscal year ended February 29, 2024.
The Company also provides a “back-office” operations platform that allows Brand Partners to track their individual and team business results.
In addition, our PaperPie division provides our Brand Partners with an extensive operational handbook, valuable training, and an individual website they can customize and use to generate sales. The Company also provides a “back-office” operations platform that allows Brand Partners to track their individual and team business results.
Other expenses consist primarily of the compensation for our office, warehouse, and sales support staff as well as the cost of operating and maintaining our corporate offices and distribution facility. 8 Table of Contents PaperPie Division Our PaperPie division uses a multi-level direct selling organizational structure to market our products using independent sales representatives (“Brand Partners”) located throughout the United States.
PaperPie Division Our PaperPie division uses a multi-level direct selling organizational structure to market our products using independent sales representatives (“Brand Partners”) located throughout the United States. The customer base of PaperPie consists of individual purchasers, as well as schools and public libraries.
The maximum override payment a leader can receive is calculated on the sales of their Central Group and three levels below. During fiscal year 2024, internet sales continued to be the largest sales channel within our PaperPie division. The use of social media and party plan platforms, such as those available on Facebook, continue to be popular sales tools.
During fiscal year 2025, internet sales continued to be the largest sales channel within our PaperPie division. The use of social media and party plan platforms, such as those available on Facebook, continue to be popular sales tools. These platforms allow Brand Partners to “present” and customers to “attend” online purchasing events from any geographical location.
Operating expenses decreased $3.6 million primarily as a result of a reduction in labor expenses of $2.6 million, with our warehouse payroll having the largest reduction, and a $0.7 million decrease in freight-handling costs, both associated with a decrease in gross sales, plus a $0.3 million decrease in depreciation expense due to the sale of the Company’s old headquarters and classification as assets held for sale of our current headquarters and warehouse , $0.2 million decrease in legal costs primarily related to the negotiation of our new Usborne distribution agreement which was executed in fiscal 2023, offset by a $0.2 million increase in personal property taxes due to the Company no longer qualifying for an exemption on long term inventory.
Operating expenses decreased $1.4 million primarily as a result of a reduction in labor expenses of $0.9 million, with our warehouse payroll having the largest reduction, plus a $0.7 million decrease in depreciation expense due to the sale of the Company’s old headquarters and classification as assets held for sale of our current headquarters and excess warehouse and machinery and equipment, and a $0.4 million decrease in freight-handling costs associated with a decrease in product revenues prior to discounts and allowances, offset by a $0.4 million increase in building rent due to sale and leaseback of our excess warehouse facility and additional warehouse space in Tulsa and Missouri used to house excess inventory, $0.1 million increase in personal property taxes, and $0.1 million increase in reserve for bad debt due to an increase in long-term and consignment inventory reserves.
Gross margin as a percentage of net revenues increased 11.1%, to 57.5% for fiscal year 2024, compared to 46.4% reported the same period a year ago due to a change in customer order mix and the addition of SmartLab Toys.
Gross margin as a percentage of net revenues increased 2.0%, to 59.5% for fiscal year 2025, compared to 57.5% reported in the same period a year ago mainly due to product mix change. During fiscal 2025, sales of SmartLab Toys increased, which has a lower cost of goods sold than the Usborne product line that was discontinued in fiscal 2024.
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 fiscal year 2024, our revolving bank credit facility loan balance was $5.5 million with $2.5 million in available capacity.
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.
Contingent upon the occurrence of an Event of Default in the agreement, the Company shall within 15 days list the Hilti Complex with a licensed commercial real estate broker satisfactory to the Lender. 15 Table of Contents Prior to the Third Amendment, executed on August 9, 2023, the Loan Agreement contained provisions that required the Company to maintain a minimum fixed charge ratio.
Prior to the Third Amendment, executed on August 9, 2023, the Loan Agreement contained provisions that required the Company to maintain a minimum fixed charge ratio.
In addition, sales during fiscal 2024 continued to be negatively impacted by economic factors that include recent record inflation, resulting in high fuel costs and food price increases that continue to impact the disposable income of our customers. The reduced sales resulted in increased Brand Partner turnover and lower levels of new Brand Partner recruits.
The Company saw new Brand Partner recruiting negatively impacted due to several factors including economic factors 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.
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 line of credit and portions of the term debt. Available cash has historically been used to pay down outstanding bank loan balances, for capital expenditures, to pay dividends and to acquire treasury stock.
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.
Operating income as a percentage of net revenues changed from the prior year primarily due to the decrease in net revenues caused by higher discounts and lower transportation revenue, plus the increase in cost of goods sold resulting from higher inbound freight costs, and the increase in accrued expenses for the Company’s Brand Partners related to the annual incentive trip and convention.
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.
The proceeds from the sale are expected to generate sufficient cashflow to allow the Company to continue operations with limited borrowings. The Company expects these borrowings to be available through local banks or other financing sources. In addition, management’s plans include reducing inventory which will generate free cashflows and building the active PaperPie Brand Partners to pre-pandemic levels.
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.
PaperPie entices new recruits by providing joining incentives to new Brand Partners including discounted products and cash bonus awards based on exceeding certain sales criteria. In addition, our PaperPie division provides our Brand Partners with an extensive operational handbook, valuable training, and an individual website they can customize and use to generate sales.
Active Brand Partners (defined as those with sales during the past six months) are primarily responsible for recruiting new Brand Partners. PaperPie entices new recruits by providing joining incentives to new Brand Partners, including discounted products and cash bonus awards based on exceeding certain sales criteria.
The decrease in operating income resulted primarily from lower sales volumes compared to the previous fiscal year partially offset by the decrease in sales commissions and freight expenses. Liquidity and Capital Resources EDC has a history of profitability and positive cash flow. We typically fund our operations from the cash we generate.
Operating income for the segment remained consistent at $1.2 million for fiscal year ended February 28, 2025 and February 29, 2024. 12 Table of Contents Liquidity and Capital Resources EDC has a history of profitability and positive cash flow. We typically fund our operations from the cash we generate.
Further, sales were impacted beginning in the fourth quarter of fiscal 2023 and continuing through the first two quarters of fiscal 2024, associated with the rebranding of the direct sales division from Usborne Books & More (“UBAM”) to PaperPie.
This agreement required the rebranding of the direct sales division from Usborne Books & More (“UBAM”) to PaperPie. This rebranding was completed in the fourth quarter of fiscal 2023. The reduced sales and uncertainty resulting from the new Usborne distribution agreement increased Brand Partner turnover and negatively impacted new Brand Partner recruits.
All other supporting administrative activities are recognized as other expenses outside of our two divisions.
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.
Available credit under the current $8,000,000 revolving line of credit with the Company’s Lender was approximately $2,501,900 at February 29, 2024.
The Amendment also redefined the maturity dates of the two term loans to September 19, 2025 (see Note 20 of the notes to the financial statements). Available credit under the current $4,750,000 revolving line of credit with the Company’s Lender was approximately $551,900 at February 28, 2025.
On August 9, 2022, the Company repaid in full all outstanding indebtedness and terminated all commitments and obligations under its Amended and Restated Loan Agreement dated February 15, 2021 (as amended), between the Company and MidFirst Bank and executed a new Credit Agreement (“Loan Agreement”) with BOKF, NA (“Bank of Oklahoma” or the “Lender”).
Cash generated from operations will be used to pay down existing debts with our bank and to purchase replacement inventory and new inventory in order to improve our product offerings. On August 9, 2022, the Company executed a Credit Agreement (“Loan Agreement”) with BOKF, NA (“Bank of Oklahoma” or the “Lender”).
Historically, we have experienced an increase in inventory during the Summer in anticipation for the Fall increase in sales. In addition, new titles are typically released twice a year, in the Spring and Fall, which increases our inventory in the months preceding these scheduled releases.
Historically, we have experienced an increase in inventory during the Summer in anticipation for the Fall increase in sales. We do not expect inventory to increase in fiscal year 2026 as we continue to sell-down excess inventory.
Removed
An important factor in the growth of the PaperPie division is the addition of new Brand Partners and the retention of existing Brand Partners. Active Brand Partners (defined as those with sales during the past six months) are primarily responsible for recruiting new Brand Partners.
Added
Our annual catalogs are mailed out to approximately 4,000 customers and potential customers on a yearly basis.
Removed
Brand Partners receive “weekly commissions” from each sale they make; the commission rate they receive on each sale is determined by the “order type” assigned to the sale.

… 32 more changes not shown on this page.

Other EDUC 10-K year-over-year comparisons