Quarterly Report for Quarter Ending August 31, 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 August 31,								Six Months Ended August 31,
		2025				2024				2025				2024
Product revenues, net of discounts and allowances		$	4,396,300			$	6,119,600			$	11,161,100			$	15,710,500
Transportation revenue			224,800				389,600				566,400				792,100
Net revenues			4,621,100				6,509,200				11,727,500				16,502,600
Cost of goods sold			1,933,000				2,862,500				4,902,300				6,396,500
Gross margin			2,688,100				3,646,700				6,825,200				10,106,100
Operating expenses
Operating and selling			739,500				1,385,800				1,734,100				3,265,800
Sales commissions			1,268,900				1,850,900				3,281,000				4,909,700
General and administrative			2,503,200				2,905,500				5,198,100				6,105,100
Total operating expenses			4,511,600				6,142,200				10,213,200				14,280,600
Interest expense			603,200				545,700				1,107,500				1,122,400
Other income			(676,500	)			(575,100	)			(1,296,000	)			(1,083,800	)
Loss before income taxes			(1,750,200	)			(2,466,100	)			(3,199,500	)			(4,213,100	)
Income tax benefit			(455,500	)			(662,700	)			(829,600	)			(1,130,700	)
Net loss		$	(1,294,700	)		$	(1,803,400	)		$	(2,369,900	)		$	(3,082,400	)

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 August 31, 2025

Total operating expenses not associated with a reporting segment decreased $0.3 million, or 13.0%, to $2.0 million for the three-month period ended August 31, 2025, when compared to $2.3 million for the same quarterly period a year ago. Operating expenses decreased primarily as a result of a $0.1 million decrease in labor expenses within our warehouse operations due primarily to lower number of orders and outbound shipments, a $0.1 million decrease in depreciation expenses as certain assets have moved to Assets Held for Sale and depreciation is no longer applied, and a $0.1 million decrease in property taxes and insurance.

Interest expense increased $0.1 million, or 20.0%, to $0.6 million for the three months ended August 31, 2025, when compared to $0.5 million for the same quarterly period a year ago, due to increased interest rates on all our debt, period over period.

Income taxes decreased $0.2 million, or 28.6%, to a tax benefit of $0.5 million for the three months ended August 31, 2025, from a tax benefit of $0.7 million for the same quarterly period a year ago, resulting primarily from a decrease in gross sales. Our effective tax rate decreased to 26.0% for the quarter ended August 31, 2025, from 26.9% for the quarter ended August 31, 2024, due primarily to sales mix fluctuations between states. Our tax rates are higher than the federal statutory rate of 21% due to the inclusion of state income and franchise taxes.

Non-Segment Operating Results for the Six Months Ended August 31, 2025

Total operating expenses not associated with a reporting segment decreased $0.8 million, or 16.0%, to $4.2 million for the six-month period ended August 31, 2025, when compared to $5.0 million for the same period a year ago. Labor expenses decreased $0.5 million from staff reductions across all departments and freight handling costs decreased $0.1 million for the six months ended August 31, 2025, both associated with reduced sales, and a $0.2 million decrease in depreciation expenses as certain assets have moved to Assets Held for Sale and depreciation is no longer applied.

Interest expense stayed consistent at $1.1 million for the six months ended August 31, 2025 and August 31, 2024.

Other income increased $0.2 million, or 18.2%, to $1.3 million for the six months ended August 31, 2025, when compared to $1.1 million for the same quarterly period a year ago, primarily from a $0.4 million increase in rental income from the new tenant in the Hilti Complex, offset by a $0.2 decrease in other income related to a Chik-fil-A promotion held last year and the loss associated with the sale of property and equipment.

Income taxes decreased $0.3 million, or 27.3%, to a tax benefit of $0.8 million for the six months ended August 31, 2025, from a tax benefit of $1.1 million for the same period a year ago primarily related to reduced operating losses between the periods. Our effective tax rate decreased to 25.9% for the six months ended August 31, 2025, from 26.8% for the six months ended August 31, 2024, due primarily to sales mix fluctuations between states. Our tax rates are higher than the federal statutory rate of 21% due to the inclusion of state income and franchise taxes.

PaperPie Operating Results for the Three and Six Months Ended August 31, 2025

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

		Three Months Ended August 31,								Six Months Ended August 31,
		2025				2024				2025				2024
Net revenues		$	3,731,200			$	5,440,300			$	9,791,500			$	14,340,600
Cost of goods sold			1,569,400				2,440,100				4,038,700				5,526,500
Gross margin			2,161,800				3,000,200				5,752,800				8,814,100
Operating expenses
Operating and selling			554,500				1,180,100				1,294,100				2,672,900
Sales commissions			1,245,300				1,827,100				3,226,800				4,860,900
General and administrative			376,700				463,700				784,900				979,900
Total operating expenses			2,176,500				3,470,900				5,305,800				8,513,700
Operating income (loss)		$	(14,700	)		$	(470,700	)		$	447,000			$	300,400
Average number of active brand partners			5,800				13,900				6,800				13,700

PaperPie Operating Results for the Three Months Ended August 31, 2025

PaperPie net revenues decreased $1.7 million, or 31.5%, to $3.7 million during the three months ended August 31, 2025, when compared to $5.4 million during the same period a year ago. The average number of active brand partners in the second quarter of fiscal 2026 was 5,800, a decrease of 8,100, or 58.3%, from 13,900 average active brand partners selling in the second quarter of fiscal 2025. The Company reports the average number of active Brand Partners as a key indicator for this division. The Company saw new Brand Partner recruiting negatively impacted due to several factors including economic challenges that include inflation, resulting in high fuel costs and food price increases that continue to impact the disposable income of our customers. Additionally, the Company executed a distribution agreement with Usborne Publishing Limited in fiscal 2023. This agreement required the rebranding of the direct sales division from Usborne Books & More ("UBAM") to PaperPie along with providing a letter of credit and minimal level of annual purchases. This rebranding was completed in the fourth quarter of fiscal 2023. The letter of credit was not provided by the Company and the Company did not meet the minimum purchase requirements in fiscal 2024 or 2025, creating uncertainty with the relationship on a go-forward basis. The reduced sales and uncertainty resulting from the revised Usborne distribution agreement increased Brand Partner turnover and negatively impacted new Brand Partner recruits.

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

PaperPie gross margin decreased $0.8 million, or 26.7%, to $2.2 million during the three months ended August 31, 2025, when compared to $3.0 million during the same period a year ago. Gross margin as a percentage of net revenues for the three months ended August 31, 2025 increased to 57.9%, compared to 55.1% the same period a year ago, representing an increase of $0.2 million. The increase in gross margin as a percentage of net revenues was primarily attributed to increased discounts offered in the prior year to spur sales along with additional shipping promotions.

Total PaperPie operating expenses decreased $1.3 million, or 37.1%, to $2.2 million during the three-month period ended August 31, 2025, when compared to $3.5 million reported in the same quarter a year ago. Operating and selling expenses decreased $0.6 million, or 50.0%, to $0.6 million during the three-month period ended August 31, 2025, when compared to $1.2 million reported in the same quarter a year ago. These decreased expenses were due to a $0.3 million decrease in shipping costs associated with the decrease in volume of orders shipped, and a decrease of $0.3 million in accruals for Brand Partner incentive trip expenses as the Division expects less trip earners this year. Sales commissions decreased $0.6 million, or 33.3%, to $1.2 million during the three-month period ended August 31, 2025, when compared to $1.8 million reported in the same quarter a year ago, due primarily to the decrease in net revenues. General and administrative expenses decreased $0.1 million, or 20.0%, to $0.4 million during the three months ended August 31, 2025, when compared to $0.5 million during the same period a year ago. This decrease was due to a $0.1 million decrease in credit card transaction fees associated with decreased sales volumes coupled with a decrease in Home Office challenge awards used to incentivize selling more products each quarter.

Operating loss for the PaperPie segment decreased $0.5 million, to $14,700 during the three months ended August 31, 2025, when compared to the loss of $0.5 million reported in the same quarter a year ago. Operating loss for the PaperPie division as a percentage of net revenues for the year ended August 31, 2025 was (0.4)%, compared to (8.7)% for the year ended August 31, 2024, a decrease of 8.3%. Operating loss as a percentage of net revenues changed from the prior year primarily due to the decrease in net revenues due primarily to the reduced number of active brand partners and higher discounts offered to spur sales, offset by a decrease in operating expenses as shown above.

PaperPie Operating Results for the Six Months Ended August 31, 2025

PaperPie net revenues decreased $4.5 million, or 31.5%, to $9.8 million during the six-month period ended August 31, 2025, compared to $14.3 million from the same period a year ago. The average number of active brand partners in the six-month period ended August 31, 2025, was 6,800, a decrease of 6,900, or 50.4%, from 13,700 selling in same period a year ago. Recruiting and maintaining brand partners has been negatively impacted by several factors including record inflation, our distribution agreement with Usborne and the rebranding of the division in the fourth quarter of fiscal year 2023. Inflation was most evident in increased food and fuel prices, which impacts the disposable income of our target customer base, which is families with small children. Sales during the first and second quarters of fiscal year 2025 continued to be negatively impacted by continuing inflationary pressures and we expect this to continue through the rest of fiscal year 2026, as these pressures persist. Historically, when we have experienced these difficult inflationary times, our active brand partner numbers have been positively impacted as more families look for non-traditional income streams to offset rising costs of living.

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

Gross margin decreased $3.0 million, or 34.1%, to $5.8 million during the six-month period ended August 31, 2025, when compared to $8.8 million during the same period a year ago, due primarily to a decrease in net revenues. Gross margin as a percentage of net revenues decreased to 58.8% for the six-month period ended August 31, 2025, when compared to 61.5% for the same period a year ago. The decrease in gross margin as a percentage of net revenues was primarily attributed to increased recruiting promotions offered to increase brand partner levels and additional discounts offered to customers between the periods to spur sales, as well as increased cost of goods from the tariffs implemented by the current administration on our SmartLab Toys product line.

Total operating expenses decreased $3.2 million, or 37.6%, to $5.3 million during the six-month period ended August 31, 2025, from $8.5 million for the same period a year ago. Operating and selling expenses decreased $1.4 million, or 51.9%, to $1.3 million during the six-month period ended August 31, 2025, when compared to $2.7 million reported in the same period a year ago. This decrease relates primarily to a decrease in shipping costs associated with the decrease in volume of orders shipped, totalling approximately $0.9 million; a $0.4 million decrease in brand partner incentive trip expenses as fewer brand partners are expected to earn the trip this year; and a $0.1 million decrease in various other operating and selling expenses. Sales commissions decreased $1.7 million, or 34.7%, to $3.2 million during the six-month period ended August 31, 2025, when compared to $4.9 million reported in the same period a year ago, primarily due to the decrease in net revenues. General and administrative expenses decreased $0.2 million, or 20.0%, to $0.8 million, from $1.0 million recognized during the same period last year, due primarily to decreased credit card transaction fees associated with decreased sales volumes totalling $0.1 million and a $0.1 million decrease in other various general and administrative expenses.

Operating income of the PaperPie segment increased $0.1 million, or 33.3%, to $0.4 million during the six months ended August 31, 2025, when compared to $0.3 million reported in the same period last year. Operating income of the PaperPie division as a percentage of net revenues for the six months ended August 31, 2025 was 4.6%, compared to 2.1% for the six months ended August 31, 2024. Operating income for the PaperPie division increased primarily from reduced operating expenses

Publishing Operating Results for the Three and Six Months Ended August 31, 2025

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

		Three Months Ended August 31,								Six Months Ended August 31,
		2025				2024				2025				2024
Net revenues		$	889,900			$	1,068,900			$	1,936,000			$	2,162,000
Cost of goods sold			363,600				422,400				863,600				870,000
Gross margin			526,300				646,500				1,072,400				1,292,000
Total operating expenses			320,600				391,300				658,900				805,200
Operating income		$	205,700			$	255,200			$	413,500			$	486,800

Publishing Operating Results for the Three Months Ended August 31, 2025

Our Publishing division's net revenues decreased $0.2 million, or 18.2%, to $0.9 million during the three-month period ended August 31, 2025, from $1.1 million reported in the same period a year ago. The change in net revenues was primarily from additional discounts offered to retail customers in the second quarter of fiscal 2026 to spur sales.

Gross margin decreased $0.1 million, or 16.7%, to $0.5 million during the three-month period ended August 31, 2025, from $0.6 million reported in the same quarter a year ago, primarily due to the decrease in net revenues. Gross margin as a percentage of net revenues decreased to 59.1% during the three-month period ended August 31, 2025, from 60.5% reported in the same quarter a year ago. Gross margin as a percentage of net revenues changed primarily from additional discounts offered to retail customers in the second quarter of fiscal 2026 to spur sales.

Total operating expenses of the Publishing segment decreased $0.1 million, or 25.0%, to $0.3 million, from $0.4 million, during the three-month periods ended August 31, 2025 and 2024, respectively. This change was primarily due to a $0.1 million decrease in shipping costs associated with the decrease in volume of orders shipped.

Operating income decreased $0.1 million, or 33.3%, to $0.2 million, from $0.3 million, during the three-month periods ended August 31, 2025 and 2024, respectively. Operating income for the Publishing division as a percentage of net revenues for the year ended August 31, 2025 was 23.1%, compared to 23.9% for the year ended August 31, 2024, a decrease of 0.8%. The decrease in operating income was primarily associated with the decline in revenues associated with the increased discounts to spur sales.

Publishing Operating Results for the Six Months Ended August 31, 2025

Our Publishing division's net revenues decreased by $0.3 million, or 13.6%, to $1.9 million during the six-month period ended August 31, 2025, from $2.2 million reported in the same period a year ago primarily due to the increased discounts offered to spur sales.

Gross margin decreased $0.2 million, or 15.4%, to $1.1 million during the six-month period ended August 31, 2025, from $1.3 million reported in the same period a year ago. Gross margin as a percentage of net revenues decreased to 55.4%, during the six-month period ended August 31, 2025, from 59.8% reported in the same period a year ago. Gross margin as a percentage of net revenues changed primarily from changes in the mix of products sold between EDC-owned brands and Usborne, with Kane Miller, SmartLab Toys and Learning Wrap-Ups products carrying a better margin on average and the increased discounts offered to customers during the current fiscal year.

Total operating expenses of the Publishing segment decreased $0.1 million, or 12.5%, to $0.7 million during the six-month period ended August 31, 2025, from $0.8 million reported in the same period a year ago. This change was due to a $0.1 million decrease in shipping costs associated with the decrease in volume of orders shipped.

Operating income of the Publishing segment decreased $0.1 million, or 20.0%, to $0.4 million during the six-month period ended August 31, 2025 when compared to $0.5 million reported in the same period a year ago, due primarily to the decrease in sales and operating expenses. The decrease in operating income was primarily associated with the decline in revenues associated with the discounts offered in the current fiscal year.

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 intends to sell its owned real estate to pay off the revolving line of credit and term debts with our bank. Available cash has historically been used to pay down the outstanding bank loan balances, for capital expenditures, to pay dividends, and to acquire treasury stock.

During the first six months of fiscal year 2026, we experienced positive cash inflows from operations of $1,459,700. These cash inflows resulted from:

●

net loss of $2,369,900

Adjusted for:

	●	depreciation and amortization expense of $729,700
	●	provision for inventory allowance of $72,000
	●	net loss on sale of assets of $57,000
	●	provision for credit losses of $24,000

Offset by:

●

deferred income taxes of $862,600

Positively impacted by:

	●	decrease in inventories, net of $3,958,500
	●	decrease in accounts receivable of $333,400
	●	increase in income taxes payable of $233,100
	●	increase in deferred revenues of $55,200
	●	decrease in prepaid expenses and other assets of $8,600

Negatively impacted by:

	●	decrease in accounts payable of $249,300
	●	decrease in accrued salaries and commissions, and other liabilities of $530,000

Cash used in investing activities was $263,900 for capital expenditures, consisting of $174,200 in software upgrades to our proprietary systems that our PaperPie Brand Partners use to monitor their business and place customer orders and $134,700 in building improvements currently in Assets Held for Sale, offset by $45,000 from the sale of machinery and equipment.

Cash used in financing activities was $900,000 to pay down existing term debt.

The Company continues to expect the cash generated from operations, specifically from the reduction of excess inventory, will provide us with the liquidity we need to support ongoing operations. Additionally, we expect to obtain short term financing from traditional or non-traditional lenders following the completion of the sale of the Hilti Complex and the payoff of its debts with our current lender. Cash generated from operations will be used to acquire new inventory and pay down any short-term borrowings.

The Company's Credit Agreement with its lender expired on September 19, 2025, with the balances of our Term Loans and the Revolving Loan remain unpaid.

On September 30, 2025, the Company received a Reservation of Rights notice from its lender outlining that events of default have occurred and are continuing due to our failure to pay in full in cash the unpaid balance of the Term Loans and Revolving Loan before the maturity date. The Lender has not waived the specified defaults and reserves all of its rights, powers, privileges and remedies under the credit agreement, the UCC, and applicable law. Under the credit agreement, the lender has the right, among other remedies listed, to demand payment or repossess and liquidate the Company's assets used as collateral for the loans. Under the terms of the credit agreement, an additional default interest rate of 2% is added to the existing interest rates defined in the credit agreement. The bank has taken no action other than to deliver the Reservation of Rights notice and the Company continues to work with its lender on ongoing operations. See Item 5. OTHER INFORMATION for further details.

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 default status of our credit agreement, along with recurring operating losses and other items, raise substantial doubt over the Company's ability to continue as a going concern. To address these concerns, the Company has taken steps in its plans to eliminate the bank borrowings by selling the Hilti Complex. The proceeds from the sale of the Hilti Complex are expected to pay off the Term Loans and Revolving Loan. Following the loan payoff, management plans to fund ongoing operations with limited borrowings through local banks or other financing sources. In addition, management's plans include reducing inventory, which will generate free cash flows, and building the active PaperPie Brand Partners to pre-pandemic levels. Although there is no guarantee these plans will be successful, management believes these plans, if achieved, will alleviate the substantial doubt about continuing as a going concern and generate sufficient liquidity to meet our obligations as they become due over the next twelve months.

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.

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. For awards subject to service conditions, compensation expense is recognized over the vesting period on a straight-line basis. Awards subject to performance conditions are attributed separately for each vesting tranche of the award and are recognized rateably from the service inception date to the vesting date for each tranche. Forfeitures are recognized when they occur. Any cash dividends declared after the restricted stock award is issued, but before the vesting period is completed, will be reinvested in Company shares at the opening trading price on the dividend payment date. Shares purchased with cash dividends will also retain the same restrictions until the completion of the original vesting period associated with the awarded shares.

The restricted share awards under the 2019 Long-Term Incentive Plan ("2019 LTI Plan") and 2022 Long-Term Incentive Plan ("2022 LTI Plan") contain both service and performance conditions. The Company recognizes share-based compensation expense only for the portion of the restricted share awards that are considered probable of vesting. 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. 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 the first six months of fiscal year 2026, there was no share-based compensation expense associated with the shares, as all shares previously granted have been vested and all have been previously expensed.

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 August 31, 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 August 31, 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 $17.8 million and $16.3 million at August 31, 2025 and February 28, 2025, respectively. Noncurrent inventory valuation allowances were $0.8 million at August 31, 2025 and $0.7 million at February 28, 2025.

Brand Partners that meet certain eligibility requirements may request and receive inventory on consignment. We believe allowing Brand Partners to have consignment inventory greatly increases their ability to be successful in making effective presentations at home shows, book fairs, and other events; in summary, having consignment inventory leads to additional sales opportunities. Approximately 18.5% of our active Brand Partners maintained consignment inventory at the end of the second quarter of fiscal year 2026. Consignment inventory is stated at cost, less an estimated reserve for consignment inventory that is not expected to be sold or returned to the Company. The total cost of inventory on consignment with Brand Partners was $1.2 million and $1.3 million at August 31, 2025 and February 28, 2025, respectively.

Inventories are presented net of a valuation allowance, which includes reserves for inventory obsolescence and reserves for consigned inventory that is not expected to be sold or returned to the Company. Management estimates the inventory obsolescence allowance for both current and noncurrent inventory, which is based on management's identification of slow-moving inventory. Management has estimated a valuation allowance for both current and noncurrent inventory, including the reserve for consigned inventory, of $1.3 million and $1.2 million at August 31, 2025 and February 28, 2025.