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Operator: Good afternoon, everyone, and thank you for participating in today’s conference call to discuss Educational Development Corporation’s financial and operating results for its fiscal 2026 second quarter and year-to-date results. As a reminder, this conference is being recorded. On the call today are Craig White, President and Chief Executive Officer; Heather Cobb, Chief Sales and Marketing Officer; and Dan O’Keefe, Chief Financial Officer. After the market closed this afternoon, the company issued a press release announcing its results for the fiscal 2026 second quarter and year-to-date results. The release will be available later today on the company’s website at www.edcpub.com. Before turning to the prepared remarks, I would like to remind you that some of the statements made today will be forward-looking and are protected under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those expressed or implied due to a variety of factors. We refer you to Educational Development Corporation’s recent filings with the SEC for a more detailed discussion of the company’s financial condition. With that, I would like to turn the call over to Craig White, the company’s President and Chief Executive Officer. Craig, please go ahead.

Craig White: Thank you, operator, and welcome, everyone, to the call. We appreciate your continued interest. I will start today’s call with some general comments regarding the quarter, then I’ll pass the call over to Dan to run through the financials. After which, I will provide an update on our sales and marketing and end up the call with an update on our progress of the sale leaseback of our headquarters, the Hilti Complex. During the second quarter, we experienced decreased sales compared to the prior year second quarter. This was driven primarily by our reduced brand partner levels within our PaperPie division. Also, recent sale events which offer our products at higher than normal discounts have been short-term tactics used to generate cash and to reduce our borrowings.

Over the past year, we have seen our brand partner levels decline due primarily to the challenging sales environment with the fact that we have not introduced new titles that typically energize our sales force for roughly 18 months. We have developed a conservative phased approach to introducing new products for post building sale close arriving later in the spring. Further, the direct sales industry, especially those within the product sector, have experienced a challenging period of sales. We are focusing our IT and marketing efforts toward increasing brand partner counts as opposed to only focusing on the incoming cash. With this focused effort, we are targeting a new generation to the industry, young millennials and older Gen Z. Recent studies have shown this age group is very receptive to this business model, but a few have taken steps to join this industry.

There’s a great opportunity right now. We know they have very little patience for technology that is clunky or unnecessary. As a result, we are improving our technology to have a mobile-first impact and make it easier to do business with us, including our onboarding process. Next, I am encouraged with our continued focus on reducing our costs and improving our results by seeing lower losses even on lower sales. The next big step towards profitability will be returning to revenue growth, which will be driven by adding brand partners, as mentioned before. With that, I will now turn the call over to Dan O’Keefe to provide a brief overview of the financials. Dan?

Dan O’Keefe: Thank you, Craig. Second quarter summary compared to the prior year second quarter: Net revenues were $4.6 million compared to $6.5 million. Average active PaperPie brand partners totaled 5,800 for the quarter compared to 13,900 in the second quarter last year. Losses before income taxes were $1.8 million compared to a loss of $2.5 million in the second quarter. Net loss totaled $1.3 million compared to a loss of $1.8 million, and loss per share totaled $0.15 compared to a loss of $0.22 on a fully diluted basis. Year-to-date number compared to the prior year: Net revenues were $11.7 million compared to $16.5 million. Our average active PaperPie brand partners totaled 6,800 compared to 13,700. Losses before income taxes totaled $3.2 million compared to $4.2 million, and net losses totaled $2.4 million compared to $3.1 million.

Our loss per share totaled $0.28 year-to-date compared to $0.37 on a fully diluted basis. Now for an update on our working capital and banking relationship. Inventory levels have decreased from $44.7 million at the beginning of fiscal year 2026 to $40.7 million at the end of August, generating $4 million cash flow from inventory reductions. This cash flow has been used to pay down vendors, reduce bank debts and to fund our operational losses. Our bank loan agreement expired on September 19, and the bank has indicated that they are not going to renew them at this time. Following the credit agreement expiration, we received a notice of default and reservation of rights from the bank detailing their ability to demand payments, liquidate collateralized assets and charge an additional default rate on our loans of 2%.

To date, the bank has not taken any of the rights outlined in the notice of default. Craig will discuss this further on in the call. That concludes the financial update, and I’ll turn it over to Heather Cobb for a sales and marketing update. Heather?

Heather Cobb: Thanks, Dan. During the second quarter, our sales and marketing efforts focused on engagement, recognition and positioning the business for future growth. In June, we wrapped up our 2025 StoryMaker Summit events, a 5-city training series that brought together brand partners and leaders from across the country. These regional summits happened in Dallas, Atlanta, Salt Lake City, Chicago and Philadelphia, and offered hands-on training, leadership development and inspiring keynote sessions from field experts. The feedback from attendees was incredibly positive and the energy generated at those events will resonate throughout the field. These gatherings are a key investment in our people, helping brand partners feel equipped, supported and connected not only to our mission of gathering for good around literacy and learning, but also to other brand partners, leaders and home office team members.

In July, we celebrated our StoryScape incentive trips to Scotland, recognizing top-performing brand partners who achieved outstanding sales and leadership milestones. These incentive trips are an important part of our culture. They both reward hard work and dedication, and they also strengthen relationships and loyalty within our PaperPie community, which directly contributes to retention and sustained engagement across the field. As we moved into late summer and early fall, our focus shifted to the upcoming seasonal selling period, historically one of our strongest times of the year. The team has been executing targeted promotions and end-of-year campaigns to drive customer engagement and increase order activity, while also spending time and strategic planning for 2026.

Those planning efforts include improving the brand partner experience, refining our sales programs and aligning our product and promotional calendars to support growth in the coming year. On the retail side of our business, we continue to see steady performance, particularly in the specialty, toy and gift markets. Our products remained well received and our relationships with key retail partners continue to strengthen. This channel provides an important layer of consistency and diversification in our overall revenue base. While the broader selling environment remains challenging, we are encouraged by the enthusiasm and resilience of our brand partners, the strength of our retail partnerships and the groundwork that we are laying for 2026. Craig, back to you.

Craig White: Thank you, Heather and Dan. As Dan mentioned, we no longer have an active credit agreement with our bank and our loans are currently in default status. The notice of default and reservation of rights is merely a formality and used to put pressure on us to complete the building sale. We have continued to make our monthly interest and principal payments, and our working capital is sufficient to meet our ongoing needs until the sale is completed. The bank understands that the sale of the building will pay off their loan balances and they support this direction. We expect the sale to be completed prior to the allotted close period deadline of November 25, 2025, and our brokers are targeting an earlier close date. We continue to develop options for financing post building sale close.

So this will be resolved shortly, and we can get back to focusing on growing our business. Lastly, I want to thank all of our shareholders for their patience, our employees for their commitment to our mission, and our customers and brand partners for their loyalty during this difficult period. I’m confident in our collective ability to emerge stronger and more resilient than ever before. Now that we’ve provided a summary of some recent activity, I’ll now turn the call back over to the operator for questions and answers. Operator?

Operator: [Operator Instructions] Your first question comes from Paul Carter of Capstone Asset Management.

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Paul Carter: So just quick — first of all, on the real estate. So can you confirm, is the buyer group, are they related to 10Mark Holdings in Encino, California, who have quite a bit of real estate holdings in Oklahoma City and Tulsa?

Craig White: Yes, they are. The — yes, as you — it sounds like you researched, they have a great deal of real estate in the Oklahoma market. So they understand the area. They understand the environment. So yes, we’re very pleased.

Paul Carter: And then how much was the earnest money that you now are entitled to?

Craig White: Well, it’s $100,000. I think it’s probably stayed in escrow until closing.

Paul Carter: Okay. And then do you know yet sort of how much you’re going to net from the property sale in November after commissions and any other costs?

Craig White: We do. There are several things that need to probably shake out, but we’re going to come out with enough to kind of get us started on our plans. Do you want to add anything to that, Dan?

Dan O’Keefe: No, it’s good.

Craig White: Yes. We’ll have a little bit left over to get us started.

Paul Carter: Okay. So — and I know you’re probably tired of thinking about the real estate sale. But on this one, it seems a little bit more encouraging than maybe some of the other tentative transactions that you entered into. How confident would you say that this one will actually close at the $32.2 million level?

Dan O’Keefe: Net degree — high degree, Paul.

Craig White: Very high degree. Very, very confident. There’s third parties that know this buyer. And since they know the area so well, we are very confident it’s going to close.

Paul Carter: Okay. Great. And then I know once you pay off the debt, you mentioned that you’re looking at having some sort of credit line with a different party. I guess, number one, how close are you to establishing that? And number two, do you have an idea of like how much flexibility you want there? Is it going to be a fairly small like $2 million or $3 million? Or is it going to be closer to $10 million? What’s your thoughts there?

Craig White: Yes. We’re developing several options. We’re just — honestly, most of the banks are kind of waiting to see that this sale does close. We’re looking at some alternate forms of financing, which are not necessarily tied to the building close. But — so we’re just kind of developing several options, but it’s going to be very conservative. We’re going to start with the smaller $3 million to $5 million number.

Paul Carter: Okay. Okay. And then — so I know, obviously, your brand partner count has been coming down most quarters and you’re sort of trying to keep up by cutting costs. I guess maybe just in the last couple of quarters, what is it that you — what costs have you cut out of the business? And what is left to cut? Like at 5,800 — at a brand partner count of 5,800, understanding you want that to grow from here. But at that level, like is it possible to get to accounting profitability? Or like are there still cuts that could be made to get there? Or do you need that number to come back up somewhat?

Dan O’Keefe: That’s a good question, Paul. And it’s been several years since we’ve been at this kind of level with brand partner numbers. But some of the biggest impacts to our P&L, interest expense is a big one. And so that’s going to be negligible. That’s the #1 and biggest item. After that, discounts are actually the next biggest impact to our P&L. We’ve done some aggressive discounting with some of the sales as Craig mentioned earlier, that are not in our normal business model. And so those 2 items will have the biggest impact. Now there are some smaller items that we’re always looking to improve on. We do have excess inventory. We do have additional outside warehouse rental space that is about $1 million a year by itself.

So working down the excess inventory, exiting these short-term storage facilities will be another big impact on a — we’re talking about big numbers, right, big changes. But then we’re always — I mean, we’ve got 2 or 3 cost savings initiatives ongoing right now that are in the $50,000 to $100,000 ranges.

Paul Carter: Okay. Okay. And then — so I know — and this is hard to kind of figure out exactly, but your brand partner count has obviously been decimated in the last few years. There’s a lot of different reasons for that. Some are related — unrelated to you, the economy and inflation and all that. But do you — how much of that decline do you figure is because of your inability to sort of energize the sales force through new titles? And a different way of asking, I guess, would be once you get from — out from under the bank and you’re able to start buying some new titles, like can we expect and do you expect like an immediate turnaround in that number from 5,800 back up to closer to the 10,000 level? Or — and I know there’s other factors still at play, but can you give a little bit of sense for what your expectations are there?

Heather Cobb: Sure, Paul, that’s a great question. I think that the thing to remember is that as you stated at the end, there’s a number of factors and being able to introduce new titles is definitely a big one. But there’s other things that, as we alluded to, we are working on for end of calendar year as well as into 2026 initiatives and programs, updates and different things like that. We think that the — all total of all of those is what will eventually result in those numbers turning around. So I don’t think it’s a matter of your words of like new titles are introduced and all of a sudden, that number doubles. But I think all of the “red flags” that we’ve been throwing up of not introducing new titles, not reordering some of our best sellers and different things like that as each of those become green flag, we’ll definitely see those numbers continue to rise.

Craig White: Yes. And let me just add on to that a bit, Paul. I think with the new titles, it would definitely stem the loss of brand partners and then with some of our marketing and IT efforts will attract again more brand partners or maybe reactivate ones that left when they were frustrated with our lack of new titles. So there’s a lot around new titles. But then we’re doing everything we can. It’s our major focus to increase that.

Paul Carter: Okay. Okay. Great. And then just last question for me, and this might sound like a dumb question considering you just received a notice of default on your credit agreement. But assuming everything goes according to plan with real estate sale and then you kind of reinvigorate the business a little bit from new titles and whatnot, I know the original plan was to — once you got out from underneath the bank that you would be generating cash — positive cash flow just from working down the excess inventory and then reinstate the quarterly dividend that you haven’t had in place for a few years now. Is that still the plan? And if so, have you decided what that dividend might possibly look like 3 or 6 months down the road?

Craig White: Easy there, killer. Let us get out from under this and get this thing turned around to where it makes sense. But yes, definitely, I mean, we’d like to say some of these things will happen immediately, but that’s just probably not realistic. I mean, it’s going to take us some time to increase headcount, increase sales, all those things. So it’s definitely the goal. I wouldn’t see it for a quarter or 2 at least.

Operator: Your next question comes from Alexander Smithley of Mitchell DeClerck.

Alexander Smithley: This is Alex here. I just had two questions, so not quite the gauntlet Paul just had for you, and they’re fairly simple. The first one that I have is I know that the notice of default is merely formality likely, but you mentioned there are a couple like rights they had towards collateralized items. What items are collateralized, if any?

Dan O’Keefe: Yes. So our bank agreement cross-collateralizes all of our assets. So that includes the building, AR, inventory and equipment and land.

Alexander Smithley: Okay. Okay. Sorry about that.

Dan O’Keefe: No problem. All of those will be released when we sell the building and pay them off. We’ll be left with AR, inventory, excess land and our equipment.

Alexander Smithley: Okay. Yes. That makes sense. My last question is I was also following along with the brand partner numbers. And you mentioned that you were going to do some like sort of marketing. What sort of plans do you have for actually increasing the brand partner account? Is it going to be like some sort of technological ad campaign or something like that?

Heather Cobb: Yes. Good question, Alex. It’s a multipronged approach because the way that our business is structured that brand partners recruit new brand partners, we basically take a top-down approach that we provide them with various different tools and assets and different things like that, that enable them to go out and find the next brand partner and the next person who is going to want to sell our products. So having said that, as I mentioned in response to Paul’s question about new titles, that will definitely generate interest and garner a lot of attention on its own. We do have some enterprise IT and marketing initiatives that we also believe will definitely attract quite a bit of attention and that specific audience that Craig referred to of the younger millennials and older Gen Zs, which are the new parents having babies, raising toddlers and different things like that right now that are just the perfect audience for what we have to offer.

Operator: [Operator Instructions] There are no further questions at this time. I would hand over the call to Craig White for closing remarks. Please go ahead.

Craig White: Thank you. Thanks, everyone, for joining us on our call today. We appreciate your continued support and expect to provide an additional update on the Hilti Complex sale progress prior to our next scheduled earnings call. As always, you can reach out if you have further questions to me, and I’d be happy to answer them. So with that, have a great day, and we’ll talk to you again sometime in the next few months. Thanks.

Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation, and you may now disconnect.

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