Educational Development Corporation Aktie

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 fourth quarter and full year 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 fourth quarter and year-end results. The release will be available after 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.

Thank you, Alan, 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 will pass the call over to Dan to run through the financials. After which Heather will provide an update on sales and marketing and IT projects, and then I will provide an update on our plans for fiscal 2027.

Much of our fourth quarter was focused on our turnaround plan of selecting and ordering critical inventory. During the quarter, we began a conservative purchasing plan to replenish some of our best-selling out-of-stock items as well as purchased new titles. To remind everyone, it takes anywhere from 4 to 6 months from the time we issue a purchase order until the product is received and available for sale.

I am pleased to report that we have received some of these replenishment and new titles and I've seen the excitement this has created in both our sales divisions. We are still expecting most of these new titles over the next few weeks and plan to showcase them at our annual convention in June. Heather will talk more about this in her marketing update. As I've said before, our turnaround plan is not an overnight change, but a carefully developed plan for growth over the next few quarters and years.

With that, I'll now turn the call over to Dan O’Keefe to provide a brief overview of the financials.

Thank you, Craig. To start our fourth quarter summary compared to the prior year fourth quarter, net revenues for the quarter were $4.2 million compared to $6.6 million. Average active PaperPie brand partners totaled 4,500 compared to 9,400. Loss before income taxes were $2.1 million, a $600,000 decline over the prior fiscal fourth quarter.

Income tax for the quarter -- income tax expense for the quarter was $1 million due to a onetime valuation allowance of $1.5 million. Net loss for the quarter totaled $3.1 million, a decline of $1.8 million over the prior year fiscal fourth quarter. Loss per share totaled $0.37 compared to a loss per share of $0.16 on a fully diluted basis.

Next to the fiscal year summary compared to the prior year, net revenues of $22.9 million compared to $34.2 million. Average active PaperPie brand partners totaled 5,800 compared to 12,300. Earnings before income taxes totaled $5.3 million, excluding the gain on the building sale of $12.2 million, the loss before income taxes were $6.9 million. Income tax expense was $3 million with an effective tax rate of 56.5% due to a onetime valuation allowance of $1.5 million. Net earnings totaled $2.3 million. Earnings per share totaled $0.27 compared to a loss of $0.63 last year on a fully diluted basis.

Now for an update on our working capital. Inventory levels decreased from $44.7 million at the beginning of the fiscal year to $37.7 million at the end of the fiscal year, generating $7 million of cash flow from inventory reductions. At the end of the fiscal year, the company had approximately $1.3 million of cash on our balance sheet.

I would also like to mention some unusual accounting adjustments made during the fourth quarter. First, due to our accounting policy surrounding classification of long-term inventory, coupled with our decline in sales, we made a $3.6 million reclass of inventory during the fourth quarter from current inventory to long-term inventory. The reclass had no P&L impact as it only means that we have a longer-term supply of titles, we continue to sell each month based on current sales volumes. As sales increase, we expect more and more inventory to be reclassed from long-term inventory to current inventory.

Secondly, due to our historical losses prior to the fiscal 2026, our operational and our operational expectations during our turnaround period, we evaluated the need for a valuation allowance offsetting our net deferred tax assets. Based on this evaluation, we recognized a onetime valuation adjustment of $1.5 million to offset our net deferred tax assets. This adjustment had no cash flow impact but had a direct impact on our fourth quarter tax expense, net earnings and earnings per share. When the company returns to profitability, this valuation adjustment will be reversed. The reversal will have no cash flow impact, but will have a direct impact to our tax expense, net earnings and earnings per share.

This concludes the financial update. I'll now turn the call over to Heather Cobb for a sales, marketing and IT update. Heather?

Thanks, Dan. While our current results reflect the challenges of the past 2 years, we remain confident in both the direction of our strategy and the opportunity ahead of us. One of the clearest drivers of future growth for our business is growth on our PaperPie side through the brand partner community. As our active brand partner count increases, we count on that momentum to positively impact sales, customer engagement and overall business performance.

For that reason, much of our sales and marketing focus in fiscal 2027 is centered on attracting, onboarding and retaining new brand partners while also continuing to engage existing leaders and teams. We were encouraged by the response to our March joint special, which produced meaningful engagement, adding almost 1,400 new brand partners, showing that there is still strong interest in our opportunity when paired with the right timing, messaging and product excitement. We have additional strategically timed initiatives planned throughout the year that are designed to support both recruiting and sales activities.

At the same time, we are being intentional about protecting the long-term value of our products and our brand. We believe there is an important balance between offering thoughtful promotions or sales that meet consumer expectations while avoiding excessive discounting that can weaken our overall brand perception over time. Our strategy moving forward is focused on creating excitement and urgency in purposeful ways while continuing to reinforce the quality, educational value and uniqueness of our product offering. We also believe we are well positioned within a growing cultural shift towards more intentional and analog experiences.

Parents and families are increasingly looking for opportunities to disconnect from constant screen time and reconnect through hands-on learning, reading, creativity and meaningful interaction. That trend aligns directly with who we have always been as a company. Our mission is creating the story of tomorrow through people, purpose and products continues to resonate and we believe our educational books, games and learning resources meet an important need in today's marketplace.

As Craig mentioned earlier, the arrival of new titles and replenishment inventory has already generated renewed excitement across both of our sales channels. Combined with our continued investment in technology and enterprise-level initiatives, we believe we are building a stronger foundation for long-term growth. Our IT and marketing teams are actively developing tools and platform enhancements designed to simplify how brand partners share our products while also creating a more seamless and enjoyable customer experience.

Upcoming initiatives include a variety of platform enhancements, focused on improving product discovery, streamlining and personalizing the customer journey, expanding functionality for both brand partners and customers and supporting long-term engagement and retention.

While we continue to adapt to changes in consumer behavior and the direct selling landscape as a whole, our overall strategy remains consistent, increase our retail presence, strengthen the brand partner experience, provide exceptional products that support literacy and learning and create sustainable growth through community connection and product sharing. And one of the best ways that we do that, and Craig referenced it earlier is through our National Convention that happens each year.

Next month, we will have several hundred brand partners come into Tulsa to hear from speakers like Rory Vaden, 2 of our Kane Miller author and creators and we'll spend an entire weekend focusing on solving the problem of disconnection with a way to connect with both their customers, new hosts and next team member. We understand that turnarounds take time, and we are encouraged by the progress that we are making and confident in the path ahead. Our team remains deeply committed to the mission of this company, and we believe that, that commitment, combined with strategic execution and renewed sales force growth positions us to build momentum throughout fiscal 2027 and beyond.

Now I will turn the call back over to Craig.

Thank you, Heather and Dan. As Dan mentioned, we had some unusual adjustments during the quarter but expect these to improve our results in the future with the execution of our turnaround plan. During the last couple of years, we have been challenged to operate our business under restrictions from our bank. I am excited about the position we are in today and the plan for growth in fiscal 2027. While we need to execute on our plan that increases sales and therefore, cash, we're putting the most focus on increasing our brand partner counts and retaining existing brand partners.

Over the last 2 years, our sales force has been anxious and waiting to see what will happen. A major factor for the reduced activity has been the lack of new products for them to get excited about for the last 2 years. As I mentioned initially, we have already received a few of these new titles and are seeing the sales excitement from both of our sales channels. We have continued to work with our vendors and are very excited about what is recently been presented to us for release in the new year.

As always, and as you heard extensively from Heather, increasing our brand partner count is a big part of our overall strategy, and that means putting consistent effort toward attracting Gen Z. This new generation is challenging, not just for our company, but all companies in the direct selling industry to revise the recruiting and engagement methods. Many of our recent IT initiatives are focused on getting Gen Z to join as new brand partners by making it easier to do business with us. They work and shop differently, and we are well positioned to meet them where they are.

These are revisions to our existing model that's certainly not an overhaul. We are evaluating programs and systems that haven't brought enough of a return and trying new tactics in new markets. We are embracing AI not as a strategy to eliminate or replace employees but to become more effective so that as we grow, we do not have to hire as many new employees. We are already seeing returns in system development or coding and basic inquiries to support tickets.

I also want to make sure everyone understands that we expect to generate cash flow from inventory reductions to fund operations. Having said this, we executed a new agreement for a $2 million line of credit with our new bank to ensure we have the cash needed for growth. And although we are currently not using line and have a higher cash balance than we had at year-end, this line ensures we can capitalize on new opportunities.

Also, at the end of the fiscal year, as the next step in our turnaround plan, we executed a strategic restructuring of our office and warehouse staff, including executive pay reductions, a small reduction in force along with other expense reductions.

Lastly, I want to thank all of our shareholders for their patience, our employees, customers and brand partners for their commitment to our mission and our vendors for their willingness to stick with us. I am confident in our collective ability to emerge stronger and more resilient than ever before because I really believe we are tackling our growth from a plan -- our growth plan from a position of strength. While we were doing what we had to do to satisfy the bank, we are also thinking and planning for when we are out from under their control and continue to build.

Now that we have provided a summary of some recent activity, I will now turn the call back over to Alan for question and answer. Alan?

[Operator Instructions]. Your first question comes from Igor Novgorodtsev of Lares Capital.

Thank you for taking my question and pronouncing my last name correctly. I have 2 questions. Unfortunately, I cannot see for some reason, your balance sheet on your press release. Could you talk a little bit how much inventory was reduced in this quarter? And as related to this, how much was the cash flow from the inventory reduction from operations.

This is Dan O’Keefe. I'm sorry, I don't have that information for you right now. We will be filing the 10-K later today. And you can obviously glean that from the 10-K coming out.

Okay. Fair enough. But would it be fair to say that the cash flow still stayed positive in Q4?

Well, Q4 is typically our softest quarter that in the summer months, which is Q2, our 2 softest quarters of the year. So I would say that cash flow, when you look at inventory reductions and our losses for the -- our earnings before losses for the quarter would have been close to netting even.

Okay. Fair enough. I'll just wait for your 10-K. My next question is, I appreciate that you take a revolving loan just in case, and it's actually nice to know. So hopefully, that shows to -- points towards the improvement of your business. But are there any covenants on your revolving loan than if your business improves enough doesn't allow you to buy stock back or pay a dividend to the shareholders? Or there is no such covenants?

There are no covenants with the new $2 million line of credit.

Okay. Excellent. Again, it's a little bit too early. I understand you just removed your biggest problem is the overhang from the loan. But did you have already made any improvements to your inventory or your operations in this quarter or that you basically just didn't have a time or given that this is the weakest quarter traditionally, these will not see the results until the next quarter?

Okay. So we touched on it briefly. But once we sold the building and knew we were going to be able to resolve all of our debt with our previous bank, we executed a Phase 1 of our purchasing plan, which is a very conservative $0.5 million in purchases, which was executed in the fourth quarter. We are kind of just now seeing new titles come in. But as we see the results of selling new titles, we've already kind of started our Phase 2, which is another $0.5 million. Does that answer your question?

Yes. Somewhat -- okay. Sorry, somebody was adding something, I believe? Can I just continue? Is it okay?

Yes.

I just run a quick numbers on your revenue per partner, and I know that's an interesting trend in the last 2 quarters, your revenue per partner actually increased, like if you do the comparable revenue per partner, it's actually increasing and despite the account of the partner is falling, the revenue is increasing. Is that because there is something operationally changed about the partners or simply the partners that remained as the most active ones?

That's a great question. One of the trends that we're seeing that tends to mean slightly higher sales per brand partner is the growth in our in-person events that are happening whether that's book fairs, inside schools or in-person booths and things like that, which even goes back to what I mentioned in my report of moving from digital to analog. Some people are having even more in-person home parties, which we haven't done in several years. And so we believe that, that trend that you are referencing point back to the growth of these in-person events.

Okay. That's great to know. And my last question, and hopefully, it's not a long question. Given that you have such a large inventory, do you consider any of your inventory unsellable or you try to basically go for some inventory put through liquidation channels? Or you think that it's just slow moving and it will just take time, but everything is potentially sellable still?

Yes. We consider everything salable still. And that's why I want to reiterate the move to long-term inventory. It's not that we're going to have to write off anything at all. It's still all good sellable inventory is just going to take a little longer.

That being said, we make mistakes in purchasing every now and again. It happens very, very rarely. We're kind of exploring the remainder market, but the returns are just not worth it. So while we're looking into it, it's very unlikely that we'll participate in the remainder of market. Yes, we're looking at other creative marketing ways to move this inventory. And it's more of a kind of one-off here and there of the things that are more highly inventory.

Your next question comes from Paul Carter of Capstone Asset Management.

Craig, your comments about exploring the remainder market [indiscernible] say that. Is there -- can you provide some numbers around that, like what percentage of your long-term inventory are you thinking about in ways such as that?

Well, yes, no, the creative marketing ways were as opposed to the remainder market. We looked into it, it's just not worth our time. We're just going to find other ways. As an example, just some quotes that we got back, we get like 2% of the retail price. It's just not even remotely worth it. So we're not going to participate in that.

Paul, I'll jump into you and say that in our meetings, one of the points of conversation that was important to us that may be important to you is using our time and energy and resources on this as a potential short-term or one-off strategy didn't seem like our best use of resources. And so since this wasn't going to be an ongoing strategy for us, once we discovered that it wasn't going to be worth it, we just aren't really pursuing it.

Okay. Fair enough. And maybe more to that point, is -- of my question is sort of how much of your $37.7 million of inventory [indiscernible] characterize as inventory that you don't -- that you would want to maybe get rid [indiscernible] obviously not through the remainder of market. Obviously, you looked at the remainder market because you felt there was a sufficient amount of inventory that may be [indiscernible]. Can you just give us some numbers around what that is and what that is?

No. It's roughly in the neighborhood of $500,000. I mean, it's not even a big part of our inventory.

Okay. No, that's great. And then Craig, you mentioned in the press release throughout fiscal '26, you continue to run promotions with -- pricing, prioritizing cash flow, et cetera. And I know that was obviously driven [indiscernible] driven by the bank. Was that the case in Q4 or maybe -- I'm sorry, I missed a little bit of your earlier comments, maybe you already talked [indiscernible] what was your gross margin change year-over-year [indiscernible] the fourth quarter?

Yes. We haven't disclosed gross margin yet, Paul. And I don't have that information right in front of me, but I'm thinking back to the fourth quarter, Heather, did we run some promotional sales in December, January and February.

Yes. I mean there's always some sort of saving shelf-type promotions. It's not one of the quarters that we typically do large sales. I will say that oftentimes, our Black Friday sale trickles over into the fourth quarter just because of when the date falls on the calendar. So that can have them impact there.

But would you say that the whatever promotional activity you have been experiencing, obviously, as not -- you're not feeling the pressure of the bank anymore. So that [indiscernible] coming back -- kind of normal, would you say?

Yes. That's kind of what I was alluding to when I talked about trying to meet consumer expectations, which even on the other side of it as a consumer, I like to shop a good sale. But putting out there the fact that our books are so reasonably priced with an average price point hovering right around, if not below $10, not discounting ourselves and the value that we can offer even at regular price. And so we're trying to temper that by not throwing as many large-scale promotional sales out at them, but more falling in line with the traditional timing of the Black Friday sale or a Summer Blowout or something like that. It's kind of expected, but not negatively impacting our business side of things.

Okay. And then just lastly, regarding [indiscernible] admittedly, 4,500 is lower than if [indiscernible] a couple of years ago, and that's obviously [indiscernible]. It sounds like the March joint special that you mentioned -- positively. Is it kind of [indiscernible] the current quarter average active brand partner count might be higher than 4,500?

The fourth quarter that we just reported on or the current quarter that we're working on.

The quarter we're in right now, the March, April quarter.

Yes. I mean as always, and you're familiar with how this works, we constantly have ins and outs of people coming. We have been energized and hopeful about what we saw with what happened in March and are focusing even more than normal on not only bringing those people in, but also retaining them. And so I do think that we will see more of a balance shift to more coming and staying than we have losing.

Okay. Great. Thanks very much, everybody.

Thanks, Paul.

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

Yes. It looks like maybe Igor jumped in late. Do we want to -- I'm happy to take his question.

Sure, no problem. Go ahead and Igor Novgorodtsev of Lares Capital for the next question. Your line is already open.

Sorry, I jumped in a little bit late. Yes, I just have a couple of follow-up questions. So now that you're going to start getting finally new titles, what kind of gross margin you're thinking about if we just said the old titles also side, just purely for the new titles? What would you consider like for your new businesses, acceptable gross margin?

Well, hopefully getting back to more business as usual, if we're not discounting and when we've talked about discounting to satisfy the bank, we were talking about 40%, 50%, 60% discounting, and that's absolutely not normal. So if we do kind of some not normal discounting to meet customers' expectations, it's going to be in the 10% to 15% range. So our gross margins are going to be getting closer back to business as usual.

What was your traditional margin like over the years?

So Igor, we have kind of a pretty simple model. As Heather said, our average book is $10. The average cost -- landed cost of that book is $2.50. And when we sell it through the retail division like Barnes & Noble or Ingram's or one of our retail customers, we sell that $10 book to them for $5 and they sell it for $10 to their customers and they make $5 and we get $5 on that $2.50 book. When we sell it through PaperPie, we typically sell it for the retail price of $10. But we pay out commissions to the salespeople and overrides to the leadership team of about $5. So on both -- in both sales channels, we get $5 for a $10 book that cost $2.50 and then -- and we have $2.50 to run our business on.

Right. This is very, very helpful. My other question is about...

Do we lose Igor?

I think we lost him.

Well, all right. Somebody let Igor know he can e-mail me.

Are there no further questions at this time, I would hand over the call to Craig White for closing remarks. Please go ahead.

Yes. I have nothing else to add. I appreciate everyone's questions and the interest in the call. So thank you for joining us, and have a good day. We'll talk to you in July. Thanks.

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

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 third 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 third 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?

Thank you, Alan, 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 will pass the call over to Dan to run through the financials, after which Heather will provide an update on our sales and marketing, and then I will provide an update on our plans for fiscal 2027.

During the third quarter, we completed the sale of our Hilti Complex, which was a big achievement for the company and our shareholders. Selling the complex saves -- paves the way for us to move forward into fiscal year 2027 with no bank restrictions, which allows us to execute our strategy to return to growth and profitability. Our plan is not an overnight change with expected immediate results, but a carefully developed strategy for long-term growth.

With that, I'll now turn the call over to Dan O'Keefe to provide a brief overview of the financials.

Thank you, Craig. Third quarter financial summary compared to the prior year third quarter, net revenues were $7 million compared to $11.1 million. Average active brand partners for the quarter totaled 5,100 compared to 12,400. Earnings before income taxes were $10.6 million compared to a loss of $1.1 million in the third quarter last year.

Excluding the building gain from the sale of $12.2 million, our loss before income taxes would have been $1.6 million. Net earnings totaled $7.8 million for the quarter compared to an $800,000 loss in the third quarter last year. Earnings per share totaled $0.91 compared to a loss of $0.10 on a fully diluted basis.

Year-to-date summaries compared to the prior year, net revenues of $18.7 million compared to $27.6 million. Average active brand partners totaled 6,200 compared to 13,300. Our earnings before income taxes totaled $7.4 million compared to a loss of $5.3 million last year. Excluding the building sale gain of $12.2 million, our loss before income taxes were $4.8 million. Net earnings totaled $5.4 million compared to $3.9 million loss last year. Earnings per share totaled $0.63 compared to a loss last year of $0.47 on a fully diluted basis.

Now for an update on our working capital. Inventory levels decreased from $44.7 million at the beginning of fiscal year 2026 to $39.1 million at the end of November, generating $5.6 million of cash flows from inventory reductions. This cash flow has been used to pay down vendors, reduce our bank debts and fund our operational losses. In October, following the building sale, we paid off our line of credit, our term loans with our bank, Bank of Oklahoma. At the end of the quarter, we had $3.4 million of cash, $800,000 of receivables, $39.1 million of inventory and $2.0 million of accounts payable and $0 owed to our bank. That concludes the financial update.

Now I'll turn the call over to Heather Cobb for a sales and marketing update. Heather?

Thank you, Dan. One of the most significant milestones this quarter was the launch of Gathered Goods, our reimagined fundraising program. This program represents a meaningful shift in both strategy and execution. Unlike our previous Cards for a Cause fundraiser, Gathered Goods features custom products designed and created in-house, allowing us to better control quality, storytelling and brand alignment.

From a financial perspective, this also delivers stronger margins, which is increasingly important in today's cost-sensitive environment. Equally important to this project was the online opportunity embedded within the program. Gathered Goods allows individuals and organizations to fundraise digitally, expanding reach beyond a single event or community and making participation easier for the supporters. While still early, this program positions us well for scalable, modern fundraising and opens the door for broader participation in future quarters.

This quarter also included our Black Friday, which we call Book Friday promotion, a large site-wide sale that continues to be a cornerstone of our Q3 marketing strategy. Book Friday drove strong engagement across customers and brand partners, reinforcing the value of our catalog and our ability to generate excitement through well-timed broad-based promotions.

While discount-driven events are not our priority or preferred strategy, this sale remains an important visibility and volume driver in the midst of the holiday season.

Turning to the results themselves. While the decline in brand partner count is significant and clearly reflected in the top line, it's important to look at what the data tells us beneath the surface. First, the drop in revenue is not proportional to the decline in brand partner count. This tells us that the brand partners who remain active are, in fact, more productive and more engaged than in recent years. We are seeing fewer casual or inactive participants and a higher concentration of truly active sellers.

Second, when we look specifically at our leader levels, the decline is not occurring at anywhere near the same rate as the overall field. Historically, leaders are our most loyal group. They are the ones who persevere through challenging cycles, adapt their approach and continue building even when conditions are not ideal. Just as important, leaders are also the primary drivers of new brand partner recruitment. Their relative stability gives us confidence that while the field may be smaller today, the foundation for future growth remains intact.

In summary, this quarter reflects a business in transition, smaller in size, but more focused and more resilient. We are investing in programs like Gathered Goods that improve margin quality and scalability, maintaining strong seasonal promotional moments and seeing encouraging signs that our sales force is highly engaged and leader-driven. As we look to the future, the combination of a committed leader base, more productive brand partners and strategic program innovation gives us reason to be optimistic about the path ahead.

Craig, I'll turn it back over to you.

Thanks, Heather and Dan. As Dan mentioned, with the closing of the building sale, we paid off all of our bank debts, which will have a positive impact on our cash flows of approximately $1 million per year. While the last couple of years have been challenging to operate our business under the restrictions from our bank, I'm excited about the position we are in today and the plan for growth in fiscal 2027 and beyond.

Since fiscal 2024, we have had to prioritize cash. While we need to execute on a plan that increases sales and therefore, cash, we are putting more focus on increasing our brand partner counts. Our actions necessitated by the bank's restrictions have given red flags to our sales force, and they have been anxious and waiting to see what would happen.

A major factor for the reduced activity has been the lack of new products for them to get excited about and therefore, share with their customer base. As we got closer to closing on the sale, we put together a reorder and new title purchase plan in conservative phases.

We were ready to act on Phase 1 within a few days of closing and placed reprint orders on some key out-of-stock items as well as several new titles that we expect will energize our customers and sales force, giving our brand partners another item to help build momentum. We are excited about the arrival of those titles beginning in late spring and early summer.

Another key component to attracting new brand partners is a refreshed marketing strategy. We know we need to adapt to what the next generation entering the workforce, Gen Z, is seeking in a business opportunity. These would be tweaks to our existing model, including language used for marketing, onboarding once they have activated their account, et cetera, but would certainly not require an overhaul. We are still working on putting the pieces in place for this to be implemented and can move quickly once that is finalized.

We have continued to focus on being prepared to execute a growth plan once restrictions were lifted. You heard from Heather about one of the major enterprise initiatives being our online fundraising program, Gathered Goods. We are very excited about that program's successful launch and have a few other exciting upgrades and initiatives being implemented very soon.

Also, I have recently pulled together an AI task force. Some of our employees had already begun exploring, so I formalized an opportunity for collaboration, allowing a safe space to see how we can best utilize it as part of our overall strategy. So far, we have implemented in ways that automate rote tasks, which can save money. We are excited about this starting point and continue to work together on transformational ideas that will propel us forward and allow us to compete in both retail and direct-to-consumer spaces.

Lastly, I want to thank all of our shareholders for their patience, our employees for their hard work and commitment to our mission and our retail customers and brand partners for their loyalty during this challenging period. Having seen the resilience of all involved, I am confident in our collective ability to emerge stronger than ever before. I truly believe we are tackling our growth plan from a position of strength with our team of employees as well as the strategies being built and implemented with our sales and marketing and IT initiatives.

Now that we have provided a summary of some recent activity, I will turn the call back over to the operator for questions and answers.

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

Well, good afternoon, everybody, and Happy New Year. So I know you've described in the past how your sales force has kind of been sitting on the sidelines waiting for the company to, I guess, to get out of hock with your bank. And I know it's only been 2.5 months or so since you sold your building, but do you have any evidence yet that this transaction has reinvigorated your sales force for a more productive 2026?

Well, I think one of the main factors in that reinvigoration, as you mentioned, was bringing in new titles and reorders of out-of-stock bestsellers. But also what we see is the uptick or the increased activity in leader promotions. That's been very exciting. I started in the last month or two calling all brand partners that promoted to upper level leadership. And there's a lot of excitement out there. So that's my couple of points.

Heather, would you like to expand?

No. I mean I would echo what he said, Paul. Specifically, I think it's hard to say specifically that just the sale of the building was going to be enough for them to just immediately roll back into action. We announced just immediately after we made the purchases from that Phase 1 of new titles and reprints that they would be coming as we shared with you, late spring, early summer.

We concluded our incentive trip promotion in December with just on target the anticipated number of earners that we had predicted. We launched a new incentive in January. And so while it's hard to say in the midst of the holidays, especially with Christmas and New Year, that we see specific things that are happening, we can definitely say that the energy feels slightly different in a much more positive way than it has in a while.

Well, that's good to hear. And then just changing gears. So obviously, it's nice to hear about the $0 debt balance. But do you have a new credit line in place? I know you've been talking about putting something small in place once this transaction was completed.

Yes. We're talking to a few banks and also talking to some other options. We're right now in a cash position where we're, I think that we're looking for just a relationship for banking to go forward with. And so we're talking to some local banks that have some interest and hope to have something in place here in the next few months.

Okay. Great. Just talking about your balance sheet. So I know the value of your inventory is like I think it's more than 3x the market cap of your company. So obviously, that's pretty important to investors. And I just wanted to ask a couple of questions about that. I guess, first of all, is your inventory like fully insured against all risks like water damage or pests or anything? Because I know some of them have been sort of sitting in boxes for a while up on the shelf. But -- and is your inventory like insured at replacement cost or something else?

It is insured at replacement cost. So what we have on the books is what it's insured for. So if we've got $39.1 million on the books at the end of November, that's what it's insured for, full replacement cost. Now we don't want to talk about any worst-case scenarios with disaster...

Yes. No, fair enough. Yes, I was just sort of wondering about that because I know -- and actually sort of related to that, we're not really damaged, but I'm just thinking about kind of the nature of your inventory. So I know most of your titles are things like zoo animals or whatever that don't go out of date. But like do you have a sense for what percentage of your inventory could be out of date and therefore, worthless in like 3 or 5 years if there's not a lot of sell-through in certain titles?

So I would -- the only thing I would say in response to that is our track record has been we've carried inventory sometimes for in excess of 10 years on certain titles before we sell through them. And we've never historically written down inventory, and we've never basically offloaded the title or gone into the remainder market to sell the title. So that's kind of reflected in our reserve. Our reserve is very small on our short-term inventory and also on our long-term inventory because our history says we typically don't participate in the remainder market and don't have topics, as you mentioned earlier, that go stale or out of favor.

Yes. Paul, unless you know something we don't, and they're going to change the alphabet on us, I think we're fairly safe.

Okay. No, that's good to hear. And I figured that was the case, but I just know that's one of the hesitations, I guess, that some investors have is that if you're sitting on so much inventory relative to current sales that maybe that inventory isn't worth a hundred cents on the dollar. But obviously, that's -- you're a little bit of a different company than a grocery store or something like that.

Okay. And then just -- I know this will come out in your 10-Q, but how much of your $39.1 million of inventory is Usborne-related?

About 50%.

Okay. And then can you provide an update on the status of your relationship with Usborne Publishing? I don't know that you've talked about them in a little while.

Yes. There's really been no change. Dan actually has monthly or at a minimum quarterly calls with their -- the equivalent of their, Chief Financial Officer. They're anxious for us to get back and start ordering titles again. So because of the new distribution agreement, we're not required to purchase every title they offer, which is good for us. But yes, there's been no negative change in the relationship.

Okay. Okay. That's great. And then just the last one here, totally random question. But just regarding that 17-acre attractive excess land beside the Hilti Complex there. What is your plan for that? Are you just going to hold on to it for the time being? Or do you have sort of longer-term plans for it?

Well, it's kind of been an ace in the hole. I kind of kept that in my back pocket for now. It's -- there's been some flurry of activity on it recently, actually, which is interesting. Some people have kind of come across it and inquired about it. We've been given a proposal to develop it, which is intriguing. But in that particular proposal, the return for us just wasn't what I thought it could be or should be.

So for now, we're just kind of holding on to it. It could be something that we develop for ourselves. It could be something that we sell if need be or develop it and retain ownership of it. So there's lots of options. It hasn't been necessary to do anything with it at all, and it continues to appreciate. So I'm happy to continue to do that.

[Operator Instructions]

I guess we did better than ever. Answering everyone's questions before they asked it.

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

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 -- well, not the Hilti sale progress, but our banking relationship and just moving forward our growth plan. So again, thank you for joining us, and we'll talk again in May.

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

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.

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?

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?

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.

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

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?

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.

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

Well, it's $100,000. I think it's probably stayed in escrow until closing.

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?

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?

No, it's good.

Yes. We'll have a little bit left over to get us started.

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?

Net degree -- high degree, Paul.

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.

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?

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.

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?

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.

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?

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.

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.

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?

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.

Your next question comes from Alexander Smithley of Mitchell DeClerck.

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?

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

Okay. Okay. Sorry about that.

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.

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?

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

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.

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

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 first quarter results.

As a reminder, this conference is being recorded. On the call today are Craig White, President and Chief Executive 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 first quarter 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 Mr. Craig White, the company's President and Chief Executive Officer. Craig?

Thank you, operator, and welcome, everyone, to the call. We appreciate your continued interest.

I want to quickly mention that Heather is taking time to be with family as she -- as there was a recent death in her family. I will start today's call with some general comments regarding the quarter, and then I'll pass the call over to Dan to run through the financials, after which I will provide an update on sales and marketing and finish up the call with an update on our progress of the sale leaseback of our headquarters, the Hilti Complex.

During the first quarter, we experienced decreased sales compared to the prior year first quarter. This was driven primarily by our reduced brand partner levels within our PaperPie division, along with continued customer sales events offered to promote our PaperPie sales division and generate cash to meet our lenders' requirements. We view these sales events as short-term tactics used to generate cash and to reduce our borrowings with our bank. Over the past year, we have seen our brand partner levels decline due to several factors, including the challenging sales environment, with high inflation and reduced disposable income of families with small children.

Further, the direct sales industry, especially those within the product sector, has experienced a challenging period for new consultant recruiting. While we have been through downturns in the industry before, the current environment is having a short-term impact on our operating levels. While we generated less sales during the quarter, our loss before taxes declined from last year. This reflects our continued focus on reducing expenses during this difficult environment.

With that, I'll now turn the call over to Dan O'Keefe to provide a brief overview of the financials. Dan?

Thank you, Craig. To our first quarter results compared to the prior first quarter last year, net revenues were $7.1 million compared to $10 million, our average active brand partners for the quarter totaled 7,700 compared to 13,400 in the first quarter last year. Loss before income taxes totaled a negative $1.4 million compared to negative $1.7 million in the first quarter of fiscal 2025. Net loss totaled $1.1 million compared to $1.3 million loss last year. Loss per share totaled $0.13 compared to a loss per share of $0.15 on a fully diluted basis.

Now for an update on our working capital positions. Net inventories decreased $2.7 million from $44.7 million at February 28, 2025 to $42 million at May 31, 2025. Borrowings on our working capital line of credit totaled $4.2 million as of May 31, 2025, meeting the step-down required by our bank agreement to be under $4.5 million starting June 1, 2025.

That concludes the financial update, and I'll now turn the call back over to Craig White. Craig?

Thanks, Dan. As I mentioned earlier, we continue to make strategic changes to bring new initiatives -- to bring new initiatives for success to our brand partners. We concluded a successful incentive challenge. We launched our next incentive trip, which has been -- has gone very well so far. Our percent of sales decline has been lessened. I've started going to more industry type events to -- just kind of get a perspective around the industry, which has been great. We've made some great connections from not only vendors but other companies. And so that's -- I'm going to continue to do that.

From an IT perspective, we launched guest checkout, which the goal of any IT project is to make it easier to do business with us, whether it's our customers or our brand partners and the guest checkout process has been received very, very well. We've had a successful partnership with Ticket to Dream, allowing us to place thousands of books into the hands of foster kids and families. So we've also concluded our summit, which took the place of convention for this year. We had Dallas, Atlanta, Salt Lake City, Chicago and Philly, and we just had Philly in the last few weeks, and we left there very encouraged. There would seem to be a lot of excitement.

As each summit happened, we have more information as to our financial stability or our sales, our inventory levels. And so some of these more intimate size level meetings I am able to have one-on-one conversations, it's things that I can't say from the stage without any kind of context or explanation that people that have been with us for 10, 15, 20 years, I can have conversations with. We started promotions to encourage promotion to leadership, which in turn, encourages recruiting, but we've got to have new titles. So as we have a clearer picture of whether we're going to complete the sale transaction, we've already started coming up with our Phase 1, 2 and 3 plan for purchasing new titles and replenishing bestsellers. So all these things are necessary to make it look like we're thriving business to our sales force.

Okay. That concludes our sales and marketing update, now for a building sale update. In May, we executed an agreement to sell the Hilti Complex. This agreement outlined in 90-day due diligence period, Recently, we announced an amendment of this agreement extending the due diligence period as well as a shortened close period. The purpose of this amendment was to give the buyer more time to perform their due diligence and structure the building acquisition financing.

We continue to work with the buyer group and provide requested information timely so they can perform their necessary work as quickly as possible. We continue to expect the sale to be completed before the end of September. The proceeds from the sale are expected to fully pay back the bank leaving us with no debt, and we expect to have limited borrowing needs moving forward.

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 with their loyalty during this difficult period. I am confident in our collective ability to emerge stronger and more resilient than ever before.

So I think I'll turn it back over for -- to the operator for questions.

[Operator Instructions]

And your first question comes from the line of Paul Carter from Capstone Asset Management.

So I know the Hilti Complex sale has obviously taken a lot longer than expected. But at this point, it's clear that the viability of the business hinges on getting that done. So brand partner count is down another 18% this quarter, and there is no clear sign of stabilization and you explained kind of why that is. But if this latest transaction falls through and hopefully it doesn't, but if it does, what is the Board's contingency plan? And would you be prepared to hire an adviser and formally explore strategic alternatives for the business? Because I don't think you can afford to just try again and then push this resolution -- or push the resolution of this transaction down the road another 5 or 6 months.

Yes. Good question. And yes, certainly to the point, we have -- not only do we have other offers. And again, I understand your point if not going through another 90- to 100-day to 120-day process, and I agree with you. That's not necessarily where we want to go. So anything that we do obviously has to have bank input, if not final approval. But we have a Plan B, a viable plan B. Our Plan A is to sell the building, which brings us the most proceeds but our Plan B also gets us out of bank debt and we can move forward. So my intention is that one way or another, we will have executed Plan A or Plan B and have it finalized by the end of September.

Can you share anything about this plan B?

We've had -- well, it's other offers that are -- have a click close contingency. There's a couple of pieces to it that we've kind of curated, if you will, over the last 6 months. And again, they're not quite as good as plan A, but they're definitely better than not having any plan at all. So there's some smaller loans and things like that, that would get us out. So I don't anticipate that -- I actually feel pretty good about this, and I've said this multiple times, you can take that with a grain of salt. But this group is from Oklahoma. They understand the environment. They understand the area. They've known about this building for a long time. There are several -- multiple groups kind of coming together as kind of a total investor group. So I feel good about it. But again, I've learned over the last 15 months or so that that's just not good enough. So we've developed a plan B that we feel very good about. And if it comes to it, then that will be done pretty quickly as well.

Okay. And I think I mentioned -- or I asked last quarter if you were able to share anything more about this buyer group, it's TG OTC, I think it is. Are you able to share any more about them? Is this just sort of a group of individual investors? Or is it a real estate like REIT or something like that?

It is a real estate company. They've kind of reached out for advice from friends, if you will, that may become partial investors in the group. But I would feel a lot more comfortable after this initial due diligence period is closed. Once -- since we gave a 30-day extension, I think it closes July 30.

28th.

July 28th is the end of this initial due diligence period, in which case half their deposit goes hard. So we'll know a lot more by the end of July, whether we're moving forward plan A or pivoting to Plan B.

Okay. Great. And then just my second question, this is just a governance question. But -- so apart from you, Craig, nobody on the board holds a material stake or a material equity stake in the company. Has the Board considered implementing minimum ownership requirements just to better align like director incentives with long-term shareholder value. And I know that's generally considered good governance, especially in small-cap situations like this. So just wondering if that's something that's been discussed or is being considered.

Yes. We're kind of over this last couple of years, been focused on growing the business back. Board makeup and governance has been near the front of my mind as well, though. We've kind of been transitioning to make it more my board than the previous my predecessor's board. So board members don't make much money for being here on our Board. We have started giving them small amounts of stock. So we're trying to make it more like a big company board, if you will. Now we've got some strides to make, and we're not there yet, but there's still going to be some changes over the next 9 to 12 months, we know hopefully partially the compensation and then partially the board makeup.

Okay. Okay. That's good to hear. Okay. Well, that's great. Well, good luck, and we'll just, I guess, hope for plan A here coming through.

[Operator Instructions]

And your next question comes from the line of [ Daniel Bakken ].

My question is surrounding these 3 phases of buying new titles. What do you think -- why do you think the strategy would work when we've got such significant levels of inventory already?

Well, we have to have new titles. That's what energizes the sales force. All of our inventory is still selling and selling through at a rate, but we have to have new titles. And Phase 1, 2 and 3 are very conservative. They're not adding much to the inventory. Each phase is made up of half new titles, which may be 15 or 20 new titles and then replenishment of some good sellers, which may be another 10 to 15 titles.

So it's a very conservative approach. It's not going to increase inventory levels that much. But that's the first green flag, if you will, that shows our sales force that, hey, we're still a viable business, and we've got new product coming in, and we want you to reach out to your customers and kind of energize it.

I see. And what was the selling process be for the remaining inventory once those new titles have come through?

Well, we won't have to drastically change prices of older inventory. I mean, as we kind of said earlier in the call, we've had strategic sales, but that's just to try to bring in infusions of cash to pay down bank debt. But we know that strategy is short term. I mean if we continue drastically reducing the sale of our product.

We diminish the value of our products, and that's just not a long-term strategy at all. We're trying to break that cycle where we don't have to discount, so all of our product sales, of course, there's some that's getting a little bit longer, older in the length of time that we've had it, and so we made discount stuff a little bit, but that's always been the case. We've always done that as a strategy to reduce older inventory. But on a big scale, we're trying to get away from that going forward.

Okay. And with this normalization, what sort of -- what's the sort of target net revenue run rate? What's the sort of target average brand partners? Like what's this normalization really look like for you particular.

Sure. It's going to take some time. I mean we got to slow it down and then we got to start rebuilding. But we're starting to put the pieces in place. We're very strong from an IT perspective, we're making it easier to do business with us. We're coming out with new projects that excite the field all the time. So all these things lead to recruitment of new salespeople.

If our current sales people are happy, then they're going to bring more people into the business. So it starts with making it easy to do business with us, having new titles, then making more money. So it's going to be a slow, gradual build. And then hopefully, the -- I wouldn't say -- well, absolutely not saying hockey stick, but once things kind of get rolling again, they kind of start compounding, but what's the goal? We have to do forecast for different entities, be it bank or investors or potential buyers and things. And so we've targeted a low, medium and high expectation, and they're all conservative. It's going to take some time.

Has there been any discussion in terms of similar sort of businesses, which you might be interested in some sort of small acquisition of Educational Development?

We -- I get requests occasionally, and we vet them for how serious they really are. We use our IR firm or our previous IR rep, who's now on our board to kind of vet any of these offers, and most of them are not very serious. But we haven't seriously -- received any serious offers.

Right. Why do you think that would be?

Well, probably because we haven't ...

[indiscernible] not many of them?

To buy our company?

I've been here for 8 years, Daniel, we've never had an unsolicited offer to buy the company that I'm aware of.

And who knows why that is. Maybe we're not on many people's radar. I really don't know. That's -- I can't even speculate on that. But we would entertain it. I mean that's not our first thought right now at all. We want to get through this transaction and grow the business back to where we know it can be.

Just a final question. What's the sort of the banking relationship at the moment? I mean, obviously, they've continue to give some sort of flexibility. What does that -- what does your personal relationship sort of -- how does your personal relationship play into that? And is it likely to be that once you've retired those outstanding debt balances, there will still be a sort of that relationship with the working capital, like the facility, would that still continue?

That's probably not the goal. I'll never say never. That so far, our relationship has been good. I mean, obviously, each amendment gets a little more restrictive. And that's just trying to make sure we're completely focused on bringing in whatever cash is necessary to pay them back. But they've understood every step of this process. They've supported us through every step of the process. Now there is a sense of urgency to be paid back. But again, they agree with every step that we've taken. They're involved with every step. And so it's been good so far.

Okay. When is the next [ school ]? When is the next piece of earnings release?

It will be in October. We haven't announced the earnings call date, but the second quarter earnings call will be in October, probably around that time frame.

So it should be after completion of this sale process.

And there are no further questions at this time. I will now hand the call back to Mr. Craig White for any closing remarks.

Thank you. Thanks, everyone, for joining us on the call. I appreciate your continued support and expect to provide additional updates on the Hilti Complex sale progress prior to the next scheduled meeting in October. We'll file -- is that 8-K, 10-K? 8-K as necessary. So you probably know before the next board meeting -- or before the next earnings call. But anyway, good questions. I appreciate everyone's support. Thank you.

Thank you.

Thank you. And this concludes today's call. Thank you for participating. You may all disconnect.