Quarterly Report for Quarter Ending November 30, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Factors Affecting Forward-Looking Statements

See "Cautionary Remarks Regarding Forward-Looking Statements" in the front of this Quarterly Report on Form 10-Q.

Overview

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

We sell our products through two separate divisions, PaperPie and Publishing. These two divisions each have their own customer base. The PaperPie division markets our complete line of products through a network of independent Brand Partners using a combination of home shows, internet party events, and book fairs. The Publishing division markets Kane Miller, Learning Wrap-Ups, and SmartLab Toys on a wholesale basis to various retail accounts. All other supporting administrative activities are recognized as other expenses outside of our two divisions. Other expenses consist primarily of compensation for our office, warehouse, and sales support staff as well as the cost of operating and maintaining our corporate offices, warehouses and distribution facility.

The following table shows our condensed statements of operations data:

		Three Months Ended November 30,								Nine Months Ended November 30,
		2025				2024				2025				2024
Product revenues, net of discounts and allowances		$	6,668,300			$	10,556,100			$	17,829,400			$	26,266,600
Transportation revenue			339,500				496,000				905,900				1,288,100
Net revenues			7,007,800				11,052,100				18,735,300				27,554,700
Cost of goods sold			2,698,100				4,148,300				7,600,400				10,544,700
Gross margin			4,309,700				6,903,800				11,134,900				17,010,000
Operating expenses
Operating and selling			1,184,700				1,744,100				2,918,800				5,010,000
Sales commissions			2,030,500				3,283,600				5,311,500				8,193,400
General and administrative			2,598,300				3,074,700				7,796,400				9,179,700
Total operating expenses			5,813,500				8,102,400				16,026,700				22,383,100
Interest expense			369,800				575,400				1,477,300				1,697,800
Other income
Gain from sale of assets			(12,243,700	)			-				(12,186,700	)			-
Other, net			(272,600	)			(662,100	)			-				(1,745,900	)
Total other income			(12,516,300	)			(662,100	)			(13,812,300	)			(1,745,900	)
Earnings (loss) before income taxes			10,642,700				(1,111,900	)			7,443,200				(5,325,000	)
Income tax expense (benefit)			2,840,600				(276,200	)			2,011,000				(1,406,900	)
Net earnings (loss)		$	7,802,100			$	(835,700	)		$	5,432,200			$	(3,918,100	)

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

Non-Segment Operating Results for the Three Months Ended November 30, 2025

Total operating expenses not associated with a reporting segment decreased $0.4 million, or 15.4%, to $2.2 million for the three-month period ended November 30, 2025, when compared to $2.6 million for the same quarterly period a year ago. Operating expenses decreased primarily because of a $0.2 million decrease in labor expense within our warehouse operations due to lower number of orders, as well as a $0.2 million decrease in freight handling expenses due to less orders being shipped compared to prior year.

Interest expense decreased $0.2 million, or 33.3%, to $0.4 million for the three months ended November 30, 2025, when compared to $0.6 million for the same quarterly period a year ago, due to the Company selling the Hilti Complex at the end of October 2025 and paying in full all outstanding indebtedness and terminating all commitments and obligations under its Credit Agreement dated August 9, 2022 between the Company and its Lender.

Other income increased $11.8 million to $12.5 million for the three months ended November 30, 2025, when compared to $0.7 million for the same quarterly period a year ago resulting from the gain of $12.2 million from the sale of the Hilti Complex, offset by a $0.1 million decrease in rental income from the sale of the Hilti Complex and a $0.3 million loss due to the impairment of the line equipment in assets held for sale.

Income taxes increased $3.1 million to an income tax expense of $2.8 million for the three months ended November 30, 2025, from a tax benefit of $0.3 million for the same quarterly period a year ago, resulting primarily from an increase in other income as result of the sale of the Hilti Complex. Our effective tax rate increased to 26.7% for the quarter ended November 30, 2025, from 24.8% for the quarter ended November 30, 2024, due primarily to sales mix fluctuations between states. Our tax rates are higher than the federal statutory rate of 21% due to the inclusion of state income and franchise taxes.

Non-Segment Operating Results for the Nine Months Ended November 30, 2025

Total operating expenses not associated with a reporting segment decreased $1.2 million, or 15.8%, to $6.4 million for the nine month period ended November 30, 2025, when compared to $7.6 million for the same period a year ago. Labor expenses decreased $0.7 million from staff reductions across all departments, a decrease in freight handling of $0.2 million due to less overall sales orders and shipments compared to the prior year, and a $0.3 million decrease in depreciation expense related to the reclassification of the disassembled equipment to assets held for sale and resulting in the discontinuation of depreciation.

Interest expense decreased $0.2 million, or 11.8%, to $1.5 million for the nine months ended November 30, 2025, when compared to $1.7 million for the same quarterly period a year ago, due to the sale of the Hilti Complex on October 27, 2025 and resulting debt payoff.

Other income increased $12.1 million to $13.8 million for the nine months ended November 30, 2025, when compared to $1.7 million for the same quarterly period a year ago, primarily from the sale of the Hilti Complex, which resulted in an increase of other income due to the gain of $12.2 million and an increase in rental income of $0.3 million, offset by $0.3 million from the impairment of the line equipment in assets held for sale and a $0.1 million decrease in other income related to a Chick-fil-A promotion held last year.

Income taxes increased $3.4 million to a tax expense of $2.0 million for the nine months ended November 30, 2025, from a tax benefit of $1.4 million for the same period a year ago, primarily related to the increase in other income associated with the sale of the Hilti Complex. Our effective tax rate increased to 27.0% for the nine months ended November 30, 2025, from 26.4% for the nine months ended November 30, 2024, due primarily to sales mix fluctuations between states. Our tax rates are higher than the federal statutory rate of 21% due to the inclusion of state income and franchise taxes.

PaperPie Operating Results for the Three and Nine Months Ended November 30, 2025

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

		Three Months Ended November 30,								Nine Months Ended November 30,
		2025				2024				2025				2024
Net revenues		$	6,236,100			$	9,776,700			$	16,027,600			$	24,117,300
Cost of goods sold			2,361,900				3,623,800				6,400,600				9,150,300
Gross margin			3,874,200				6,152,900				9,627,000				14,967,000
Operating expenses
Operating and selling			963,500				1,334,800				2,257,600				4,007,700
Sales commissions			2,008,700				3,260,300				5,235,500				8,121,200
General and administrative			380,200				540,800				1,165,100				1,520,700
Total operating expenses			3,352,400				5,135,900				8,658,200				13,649,600
Operating income		$	521,800			$	1,017,000			$	968,800			$	1,317,400
Average number of active brand partners			5,100				12,400				6,200				13,300

PaperPie Operating Results for the Three Months Ended November 30, 2025

PaperPie net revenues decreased $3.6 million, or 36.7%, to $6.2 million during the three months ended November 30, 2025, when compared to $9.8 million during the same period a year ago. The average number of active brand partners in the third quarter of fiscal 2026 was 5,100, a decrease of 7,300, or 58.9%, from 12,400 average active brand partners selling in the third quarter of fiscal 2025. The Company reports the average number of active Brand Partners as a key indicator for this division. The Company saw new Brand Partner recruiting negatively impacted due to several factors including economic challenges that include inflation, resulting in high fuel costs and food price increases that continue to impact the disposable income of our customers. Additionally, the Company executed a distribution agreement with Usborne Publishing Limited in fiscal 2023. This agreement required the rebranding of the direct sales division from Usborne Books & More ("UBAM") to PaperPie along with providing a letter of credit and minimal level of annual purchases. This rebranding was completed in the fourth quarter of fiscal 2023. The letter of credit was not provided by the Company and the Company did not meet the minimum purchase requirements in fiscal 2024 or 2025, creating uncertainty with the relationship on a go-forward basis. The reduced sales and uncertainty resulting from the revised Usborne distribution agreement increased Brand Partner turnover and has negatively impacted new Brand Partner recruits over the past two years.

Recent sales levels have also been impacted by the lack of new titles being introduced and certain out of stock items, due to purchasing restrictions placed on us from our lender. The Company has started to place reorders and purchase new titles following the sale of the Hilti Complex and the payoff of the loans with our bank at the end of the third quarter fiscal 2026. The Company plans to return to our past practice of introducing new titles, along with additional enhancements to our PaperPie e-commerce and "Backoffice" systems that are expected to create existing Brand Partner excitement which should increase our number of new recruits in this division.

PaperPie gross margin decreased $2.3 million, or 37.1%, to $3.9 million during the three months ended November 30, 2025, when compared to $6.2 million during the same period a year ago. Gross margin as a percentage of net revenues for the three months ended November 30, 2025 decreased to 62.1%, compared to 62.9% for the same period a year ago. The decrease in gross margin as a percentage of net revenues was primarily attributed to increased discounts offered in the current quarter to spur sales along with additional shipping promotions.

Total PaperPie operating expenses decreased $1.7 million, or 33.3%, to $3.4 million during the three-month period ended November 30, 2025, when compared to $5.1 million reported in the same quarter a year ago. Operating and selling expenses decreased $0.3 million, or 23.1% to $1.0 million during the three-month period ended November 30, 2025, when compared to $1.3 million reported in the same quarter a year ago. These decreased expenses were due to a $0.2 million decrease in shipping costs associated with the decrease in sales and volume of orders shipped, and a decrease of $0.1 million in accruals for Brand Partner incentive trip expenses as the division expects less trip earners this year. Sales commissions decreased $1.3 million, or 39.4%, to $2.0 million during the three-month period ended November 30, 2025, when compared to $3.3 million reported in the same quarter a year ago, due primarily to the decrease in net revenues, which resulted in a decrease of weekly commissions of $0.7 million, a $0.5 million decrease in commission overrides, as well as a $0.1 million decrease in commissions related to sales bonus. General and administrative expenses decreased $0.1 million, or 20.0%, to $0.4 million during the three months ended November 30, 2025, when compared to $0.5 million during the same period a year ago due to a decrease in credit card transaction fees associated with decreased sales volumes.

Operating income for the PaperPie segment decreased $0.5 million or 50%, to $0.5 million during the three months ended November 30, 2025, when compared to the loss of $1.0 million reported in the same quarter a year ago. Operating income for the PaperPie division as a percentage of net revenues for the year ended November 30, 2025 decreased to 8.4%, when compared to 10.4% for the year ended November 30, 2024, a decrease of 2.0%. Operating income as a percentage of net revenues changed from the prior year primarily due to the decrease in net revenues from the reduced number of active brand partners in addition to higher discounts offered to spur sales, which are both offset by a decrease in operating expenses as shown above.

PaperPie Operating Results for the Nine Months Ended November 30, 2025

PaperPie net revenues decreased $8.1 million, or 33.6%, to $16.0 million during the nine-month period ended November 30, 2025, compared to $24.1 million from the same period a year ago. The average number of active brand partners in the nine-month period ended November 30, 2025, was 6,200, a decrease of 7,100, or 53.4%, from 13,300 selling in same period a year ago. Recruiting and maintaining brand partners has been negatively impacted by several factors including continued inflation, our distribution agreement with Usborne, and the rebranding of the division in the fourth quarter of fiscal year 2023. Inflation was most evident in the increase of food and fuel prices, both impacting the disposable income of our target customer base, which is families with small children. Sales during the first nine months of fiscal 2026 continued to be negatively impacted by continuing inflationary pressures and we expect this to continue through the rest of fiscal year 2026, as these pressures persist. Historically, when we have experienced these difficult inflationary times, our active brand partner numbers have been positively impacted as more families look for non-traditional income streams to offset rising costs of living.

Recent sales levels have also been impacted by the lack of new titles being introduced and certain out of stock items due to purchasing restrictions placed on us from our lender. We have begun a conservative plan to place reorders and purchase new titles since the sale of the Hilti Complex and the payoff of the loans with our bank. The Company is now returning to our past practice of introducing new titles, along with additional enhancements to our PaperPie e-commerce and "Backoffice" systems that are expected to create existing Brand Partner excitement and should increase our number of new recruits in this division.

Gross margin decreased $5.4 million, or 36.0%, to $9.6 million during the nine-month period ended November 30, 2025, when compared to $15.0 million during the same period a year ago, due primarily to a decrease in net revenues. Gross margin as a percentage of net revenues decreased to 60.1% for the nine-month period ended November 30, 2025, when compared to 62.1% for the same period a year ago. The decrease in gross margin as a percentage of net revenues was primarily attributed to increased recruiting promotions offered to increase brand partner levels and additional discounts offered to customers between the periods to spur sales, as well as increased cost of goods from the tariffs implemented by the current administration on our SmartLab Toys product line.

Total operating expenses decreased $4.9 million, or 36.0%, to $8.7 million during the nine-month period ended November 30, 2025, from $13.6 million for the same period a year ago. Operating and selling expenses decreased $1.7 million, or 42.5%, to $2.3 million during the nine-month period ended November 30, 2025, when compared to $4.0 million reported in the same period a year ago. This decrease relates primarily to a decrease in shipping costs associated with the decrease in volume of orders shipped, totalling approximately $1.2 million, as well as a $0.5 million decrease in brand partner incentive trip expenses as fewer brand partners are expected to earn the trip this year. Sales commissions decreased $2.9 million, or 35.8%, to $5.2 million during the nine-month period ended November 30, 2025, when compared to $8.1 million reported in the same period a year ago primarily due to the decrease in net revenues, which resulted in a decrease of weekly commissions of $1.6, a $1.2 million decrease in monthly commission overrides, as well as a decrease in sales bonus' of $0.1 million. General and administrative expenses decreased $0.3 million, or 20.0%, to $1.2 million, from $1.5 million recognized during the same period last year, due primarily to $0.2 million of decreased credit card transaction fees associated with decreased sales volumes and a $0.1 million decrease in other various general and administrative expenses.

Operating income of the PaperPie segment decreased $0.3 million, or 23.1%, to $1.0 million during the nine months ended November 30, 2025, when compared to $1.3 million reported in the same period last year. Operating income of the PaperPie division as a percentage of net revenues for the nine months ended November 30, 2025 was 6.0%, compared to 5.5% for the nine months ended November 30, 2024. Operating income as a percentage of net revenues changed from the prior year primarily due to the decrease in net revenues from the reduced number of active brand partners in addition to higher discounts offered to spur sales, which are both offset by the decrease in operating expenses as shown above.

Publishing Operating Results for the Three and Nine Months Ended November 30, 2025

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

		Three Months Ended November 30,								Nine Months Ended November 30,
		2025				2024				2025				2024
Net revenues		$	771,700			$	1,275,400			$	2,707,700			$	3,437,400
Cost of goods sold			336,200				524,400				1,199,800				1,394,400
Gross margin			435,500				751,000				1,507,900				2,043,000
Total operating expenses			302,500				328,500				961,400				1,133,700
Operating income		$	133,000			$	422,500			$	546,500			$	909,300

Publishing Operating Results for the Three Months Ended November 30, 2025

Our Publishing division's net revenues decreased $0.5 million, or 38.5%, to $0.8 million during the three-month period ended November 30, 2025, from $1.3 million reported in the same period a year ago. The change in net revenues was directly associated with the decrease in overall sales volume offset by a slight decrease in discounts.

Gross margin decreased $0.4 million, or 50.0%, to $0.4 million during the three-month period ended November 30, 2025, from $0.8 million reported in the same quarter a year ago, primarily due to the decrease in net revenues. Gross margin as a percentage of net revenues decreased to 56.4% during the three-month period ended November 30, 2025, from 58.9% reported in the same quarter a year ago. Gross margin as a percentage of net revenues changed primarily from the increase in cost of goods due to the additional tariffs implemented by the current administration on our SmartLab Toys product line.

Total operating expenses of the Publishing segment stayed consistent at $0.3 million, during the three-month periods ended November 30, 2025 and 2024, respectively.

Operating income decreased $0.3 million, or 75.0%, to $0.1 million during the three-month period ended November 30, 2025, from $0.4 million reported in the same quarter a year ago, respectively. Operating income for the Publishing division as a percentage of net revenues for the year ended November 30, 2025 was 17.2%, compared to 33.1% for the year ended November 30, 2024, a decrease of 15.9%. The decrease in operating income was primarily associated with the decline in net revenues associated with the decrease in gross sales in addition to the increase in cost of goods due to the additional tariffs implemented by the current administration on our SmartLab Toys product line.

Publishing Operating Results for the Nine Months Ended November 30, 2025

Our Publishing division's net revenues decreased by $0.7 million, or 20.6%, to $2.7 million during the nine-month period ended November 30, 2025, from $3.4 million reported in the same period a year ago primarily due to the increased discounts offered to spur sales and the decrease in gross sales volume compared to the prior year.

Gross margin decreased $0.5 million, or 25.0%, to $1.5 million during the nine-month period ended November 30, 2025, from $2.0 million reported in the same period a year ago. Gross margin as a percentage of net revenues decreased to 55.7%, during the nine-month period ended November 30, 2025, from 59.4% reported in the same period a year ago. Gross margin as a percentage of net revenues changed primarily from changes in the mix of products sold between EDC-owned brands: Kane Miller, SmartLab Toys and Learning Wrap-Ups products, as well as the increase in cost of goods due to the additional tariffs implemented by the current administration on our SmartLab Toys product line.

Total operating expenses of the Publishing segment decreased $0.1 million, or 9.1%, to $1.0 million during the nine-month period ended November 30, 2025, from $1.1 million reported in the same period a year ago. This change was due to a $0.1 million decrease in shipping costs associated with the decrease in volume of orders shipped from decreased sales.

Operating income of the Publishing segment decreased $0.4 million, or 44.4%, to $0.5 million during the nine-month period ended November 30, 2025 when compared to $0.9 million reported in the same period a year ago, due primarily to the decrease in sales and increase in cost of goods and operating and selling expenses compared to the prior year.

Liquidity and Capital Resources

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

During the first nine months of fiscal year 2026, we experienced positive cash inflows from operations of $4,004,600. These cash inflows resulted from:

●

Net earnings of $5,432,200

Adjusted for:

	●	deferred income taxes of $1,358,500
	●	depreciation and amortization expense of $1,085,700
	●	impairment on assets held for sale of $287,100
	●	provision for inventory allowance of $108,000
	●	provision for credit losses of $30,000

Offset by:

●

net gain on sale of assets of $12,186,700

Positively impacted by:

	●	decrease in inventories, net of $5,444,700
	●	decrease in accounts receivable of $1,336,300
	●	increase in income taxes payable of $852,600
	●	decrease in prepaid expenses and other assets of $235,400
	●	increase in deferred revenues of $204,200
	●	increase in accounts payable of $200,800

Negatively impacted by:

●

decrease in accrued salaries and commissions, and other liabilities of $384,200

Cash provided by investing activities totalled $29,480,500, consisting of $29,927,600 in proceeds from the sale of the Hilti Complex offset by $282,500 in software upgrades to our proprietary systems that our PaperPie Brand Partners use to monitor their business and place customer orders and $164,600 in building improvements in Assets Held for Sale.

Cash used in financing activities was $31,031,200, consisting of $26,715,400 to pay down existing term debt, $4,198,100 to pay down existing line of credit, $137,900 paid to acquire treasury stock, offset by cash received of $20,200 from the sale of treasury stock.

The Company continues to expect the cash generated from operations, specifically from the reduction of excess inventory, will provide us with the liquidity we need to support ongoing operations. Additionally, we expect to obtain short-term financing from traditional or non-traditional lenders to fund any short-term cash flow needs. Cash generated from operations will be used to acquire new inventory and pay down any short-term borrowings we expect to obtain.

Risks and Uncertainties

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

The Company's continued recurring operating losses raise substantial doubt over the Company's ability to continue as a going concern. To address these concerns management's plans include reducing inventory, to generate free cash flows and building the active PaperPie Brand Partners to pre-pandemic levels. Although there is no guarantee these plans will be successful, management believes these plans, if achieved, will alleviate the substantial doubt about continuing as a going concern and generate sufficient liquidity to meet our obligations as they become due over the next twelve months.

Critical Accounting Policies

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

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

Leases

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

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

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

Revenue Recognition

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

Estimated allowances for sales returns are recorded as sales are recognized. Management uses a moving average calculation to estimate the allowance for sales returns. We are not responsible for a product damaged in transit. Damaged returns are primarily received from the retail customers of our Publishing division. This damage occurs in the stores, not in shipping to the stores, and we typically do not offer credit for damaged returns. It is an industry practice to accept non-damaged returns from retail customers. Management has estimated and included a reserve for sales returns of $0.2 million for November 30, 2025 and February 28, 2025, respectively.

Allowance for Credit Losses

We maintain an allowance for estimated losses resulting from the inability of our customers to make required payments and a reserve for vendor share markdowns, when applicable (collectively "credit losses"). An estimate of uncollectible amounts is made by management based upon historical bad debts, current customer receivable balances, age of customer receivable balances, customers' financial conditions and current economic trends. Management has estimated and included an allowance for credit losses of $0.1 million for November 30, 2025 and February 28, 2025, respectively.

Inventory

Our inventory contains approximately 2,000 titles, each with different rates of sale depending upon the nature and popularity of the title. Almost all of our product line is saleable as the products are not topical in nature and remain current in content today as well as in the future. Most of our products are printed in China, Europe, Singapore, India, Malaysia, and Dubai typically resulting in a four- to eight-month lead-time to have a title printed and delivered to us.

Certain inventory is maintained in a non-current classification. Management continually estimates and calculates the amount of non-current inventory. Noncurrent inventory arises due to occasional purchases of titles in quantities in excess of what will be sold within the normal operating cycle, due to the minimum order requirements of our suppliers, as well as reduced sales volumes. Noncurrent inventory is estimated by management using an anticipated turnover ratio by title, based primarily on historical trends. Inventory in excess of 2½ years of anticipated sales is classified as noncurrent inventory. These inventory quantities have additional exposure for storage damages, aging of topical related content, and associated issues, and therefore have higher obsolescence reserves. Noncurrent inventory balances prior to valuation allowances were $17.5 million and $16.3 million at November 30, 2025 and February 28, 2025, respectively. Noncurrent inventory valuation allowances were $0.8 million at November 30, 2025 and $0.7 million at February 28, 2025.

Brand Partners that meet certain eligibility requirements may request and receive inventory on consignment. We believe allowing Brand Partners to have consignment inventory greatly increases their ability to be successful in making effective presentations at home shows, book fairs, and other events; in summary, having consignment inventory leads to additional sales opportunities. Approximately 20.0% of our active Brand Partners maintained consignment inventory at the end of the third quarter of fiscal year 2026. Consignment inventory is stated at cost, less an estimated reserve for consignment inventory that is not expected to be sold or returned to the Company. The total cost of inventory on consignment with Brand Partners was $1.3 million at November 30, 2025 and February 28, 2025, respectively.

Inventories are presented net of a valuation allowance, which includes reserves for inventory obsolescence and reserves for consigned inventory that is not expected to be sold or returned to the Company. Management estimates the inventory obsolescence allowance for both current and noncurrent inventory, which is based on management's identification of slow-moving inventory. Management has estimated a valuation allowance for both current and noncurrent inventory, including the reserve for consigned inventory, of $1.3 million and $1.2 million at November 30, 2025 and February 28, 2025.