Q2 2024 Educational Development Corporation Earnings Call

Good afternoon, ladies and gentlemen, welcome to the vacation now development Corporation second quarter fiscal year 'twenty 'twenty four earnings conference call at.

Speaker 1: Good afternoon, ladies and gentlemen. Welcome to the A.K. Chanal Development Corporation's second quarter fiscal year 2024 earnings conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session.

At this time all lines are in a listen only mode.

During the presentation, we will conduct a question and answer session.

Speaker 1: If at any time during this call you require immediate assistance, please press star zero for the operator.

But any time during this call you require immediate assistance.

This package star zero for operator.

Speaker 1: This call is being recorded on Thursday, October 12, 2023.

This call is being recorded on Thursday October 12 2023.

Speaker 1: Before beginning the call, we would like to remind you that some of the statements made today will be forward-looking and are protected under the Private Securities Lettigation Reform Act of 1995.

Before beginning the call we would like to remind you that some of the statements made today, but before it looking and are protected under the private Securities Litigation Reform Act of 1995.

Speaker 1: actual results may differ materially from those expressed or implied to a variety of factors.

Actual results may differ materially from those expressed or implied a variety of factors.

Speaker 1: We refer you to Educational Development Corporation's recent filings with the SEC for a more detailed discussion of the company's financial condition.

We refer you dedication of the belts and corporations recent filings with SEC for a more detailed discussion of the company's financial condition.

Speaker 1: I would now like to turn the conference over to Steven Hoser. Investor relations, please go ahead.

I'd now like to turn the conference over to Stephen Hill, Sir.

Investor Relations. Please go ahead.

Speaker 2: Thank you, operator, and good afternoon, everyone. Thank you for joining us today for Educational Development Corporation's second quarter earnings call. On the call with me today are Craig White, President and Chief Executive Officer, Heather Cobb, Chief Sales and Marketing Officer, and Dan O'Keefe, Chief Financial Officer.

Thank you operator, and good afternoon, everyone. Thank you for joining us today for educational Development Corporation second quarter earnings call on the call with me today are Craig White, President and Chief Executive Officer, Heather Cobb Chief.

And marketing officer, and Dan O'keefe, Chief Financial Officer.

Speaker 2: After the market closed this afternoon, the company issued a press release announcing its results for the fiscal second quarter. The release is available on the company's website at www.edcpub.com. As the operator mentioned, today we will make forward-looking statements and offer that you should look at the company's FCC filings for more details on those forward-looking statements.

After the market closed this afternoon the company issued a press release announcing its results for the fiscal second quarter. The release is available on the company's website at Www Dot EDC pub dot com as the operator mentioned today, we will make forward looking statements and.

Offer that you should look at the company's SEC filings for more details on those forward looking statements with that I'd now like to turn the call over to Craig White, the company's President and Chief Executive Officer, Greg.

Speaker 2: With that, I'd now like to turn the call over to Craig White, the company's president and chief executive officer. Craig.

Thank you Steven and welcome everyone to the call I will start today's call with some general comments regarding the quarter, then I will pass the call over to Dan and Heather to run through the financials and provide an update on sales and marketing.

Speaker 3: Thank you, Stephen and welcome everyone to the call. I will start today's call with some general comments regarding the quarter then I will pass the call over to Dan and Heather to run through the financials and provide an update on sales and marketing.

Speaker 3: Finally, I will wrap up the call with some comments on strategy and fiscal 2024 outlook.

Finally, I will wrap up the call with some comments on strategy in fiscal 2024 outlet.

During the second quarter, our sales continued to be impacted by high inflation, which directly impacts our active brand partners as I have said before this is a key indicator that reflects current sales levels and where we expect them to trend in the future.

Speaker 3: During the second quarter, our sales continued to be impacted by high inflation, which directly impacts our active brand partners. As I have said before, this is our key indicator that reflects current sales levels and where we expect them to trend in the future. I am delighted to see that as expected, our brand partner levels stabilized during the second quarter. The ripple effect of the brand, re-brand process that we rolled out in January of this year has...

I am delighted to see that as expected our brand partner level stabilized during the second quarter. The ripple effect of the brand rebrand process that we rolled out in January of this year has.

Speaker 3: Diminished in every active brand partner through the end of August has either joined us a paper pie brand partner or made a sale discounted a year as a paper pie brand partner.

Diminished in every active brand partners through the end of August have either joined as a paper by brand partner or made a sale. This calendar year as a paper pay brand partner.

Speaker 3: We expect this summer to be an inflection point for our brand partner headcount as we have already seen an increase in brand partner count starting in August .

We expect December to be an inflection point for our brand partners head count as we have already seen an increase in brand partner channel starting in August .

Speaker 3: The sales in our publishing division were also lower this quarter due to the stoppage of selling Usborne products. Under our previously announced updated distribution agreement with this vendor, sales to retail customers are being supplied by another distributor.

The sales in our publishing division were also lower this quarter due to the stoppage of selling as one products.

Under our previously announced updated distribution agreement with just vendor sales to retail customers are being supplied by another distributor.

Speaker 3: The decrease in S-More sales was partially offset by strong orders of our Kane Miller books and from our learning wrap-ups and SmartLab toys product line.

The decrease in <unk> sales was partially offset by strong orders of our Kane Miller books and from our learning wrap ups and smart lab toys product lines.

Speaker 3: We are excited about the continued growth opportunities of these product lines with our existing and new retail customers.

We are excited about the continued growth opportunities of these product lines with our existing and new retail customers.

Speaker 3: We have also made several changes recently in the paper pie division that Heather will talk further about later in the call to not only make our brand partners more successful but also entice new brand partners to join paper pie.

We've also made several changes recently in the paper by Division that Heather will talk further about later in the call to not only make our brand partners more successful, but also entice new brand partners to join paper pie.

Speaker 3: Brand partner success generates additional brand partners, and that continues to be our number one focus.

Brian partner success generates additional brand partners and that continues to be our number one focus.

Speaker 3: With that, I'll now turn the call over to Dan O'Keefe to provide a brief overview of the financials. Thank you, Craig.

With that I'll now turn the call over to Dan O'keefe to provide a brief overview of the financials. Thank you Craig.

Speaker 4: Our fiscal second quarter results compared to the second quarter of last year.

Our fiscal second quarter results compared to the second quarter of last year.

Speaker 4: Net revenues of 10.6 million, a decrease of 8.8 million or 45% compared to 19.4 million.

Net revenues of $10 6 million, a decrease of $8 8 million or 45% compared to $19 4 million.

Average active paper Pie brand partners for the quarter totaled 18100 compared to 26800 in the second quarter last year, a decrease of 8700 or 33%.

Speaker 4: average active paper pie brand partners for the quarter totaled 18,100 compared to 26,800 in the second quarter last year, a decrease of 8,733.

Speaker 4: Earnings before income taxes totaled 1.5 million, an increase of 2.6 million, compared to a pre-tax loss of 600,000 in the second quarter last year.

Earnings before income taxes totaled $1 5 million, an increase of $2 6 million compared to a pretax loss of 600000 in the second quarter last year.

After tax income totaled $1 1 million compared to an after tax loss of 800000 in the second quarter last year.

Speaker 4: After tax income total 1.1 million compared to an after tax loss of 800,000 in the second quarter of life.

Speaker 4: Income per share for the quarter was 13 cents compared to a loss per share of 10 cents on a fully diluted basis.

Income per share for the quarter was 13.

Compared to a loss per share of <unk> 10.

On a fully diluted basis.

Speaker 4: To update everyone on our inventory and working capital levels, net inventories decrease 5.7 million from 67.6 million at August 31st, 2022, compared to 61.9 million on August 31st, 2023. Now,

To update everyone on our inventory and working capital levels net inventories decreased $5 7 million from $67 6 million at August 31 2022.

Compared to $61 9 million on August 31, 2023.

Now for a working capital update.

Speaker 4: Our borrowings on our working capital line of credit pulled 9.7 million at the end of August .

Our borrowings on our working capital line of credit totaled $9 7 million at the end of August .

Speaker 4: During the quarter, the company extended the working capital line of credit agreement and amended the company's credit agreement with our bank.

During the quarter the company extended the working capital line of credit agreement and amended the company's credit agreement with our bank.

Speaker 4: Under the terms of the new agreement, the fixed charge covenant ratio was removed, along with the debt acceleration with default resulting in the company reclassing our existing mortgage secured term loans back to long term debt.

Under the terms of the new agreement the fixed charge covenant ratio was removed along with the debt acceleration.

With default, resulting in the company re classing, our existing mortgage secured term loans back to long term debt.

Speaker 4: Under the terms of the new agreement, the line of credit includes monthly step downs from 10.5 million at August 31, 2023 to 4 million at maturity on January 31, 2024.

Under the terms of the new agreement. The line of credit includes monthly step Downs from $10 5 million at August 31, 2000, $23 million to $4 million at maturity on January 31 2024.

Speaker 4: Also during August , our credit card processor that processes or payments from our customers began to hold a cash reserve.

Also during August our credit card processor that processes or payments from our customers began to hold a cash reserve.

Speaker 4: The reserve held at the end of August was 1 million and is listed as restricted cash on her balance sheet.

The reserve held at the end of August was $1 million and is listed as restricted cash on our balance sheet.

Speaker 4: The cash reserve was increased to 1.5 million in September and is scheduled to increase again to approximately 2 million in October .

The cash reserve was increased to $1 5 million in September and are scheduled to increase again to approximately $2 million in October .

That concludes the financial update and I'll now turn the call over to Heather Cobb to talk about sales and marketing opportunities in further detail Heather.

Speaker 4: that concludes the financial update and I'll now turn the call over to Heather Cobb to talk about sales and marketing opportunities in further detail. Heather?

Speaker 5: Thank you, Dan. As Craig mentioned earlier, we continue to make changes to bring new success to our brand partners. As an example, during June and July , we offered bonus sales commission opportunities to our brand partners to help them spur sales. In August , we implemented a 30-day site-wide sale on our ecommerce site, with products being offered at 10% up to 30% off for their customers.

Thank you Dan.

Greg mentioned earlier, we continue to make changes to bring new success to our brand partners. As an example during June and July we offered bonus sales commission opportunities to our brand partners to help them spur sales in August we implemented a 30 day site wide sales on our e-commerce site with products being offered at 10%.

With 30% offer their customers.

Speaker 5: The promotions that we have offered are receiving positive feedback and we're greatly appreciated during the summer months, which are typically our softest selling months of the year. We continue to make strategic changes to adapt to this challenging period when families have limited disposable income by offering differing types of promotions.

The promotions that we have offered are receiving positive feedback and we're greatly appreciated during the summer months, which are typically our softest selling months of the year.

We continue to make strategic changes to adapt to this challenging period when families have limited disposable income by offering different types of promotions.

Speaker 5: Starting in September , we began offering $5 flat rate shipping on our e-commerce orders, with free shipping taking effect at $30 orders. This change in shipping charges has been well received from our customers and brand partners alike. An unexpected positive impact from this change was that our average order size of approximately $70 has remained unchanged.

Starting in September we began offering $5 flat rate shipping on our e-commerce orders with free shipping taking effect at $30 orders. This change in shipping charges has been well received from our customers and brand partners alike and unexpected positive impact from this change was that our average order size.

Of approximately $70 has remained unchanged.

We have additional promotions and incentives to rollout in the coming months to assist brand partners as they build their business, especially during this fall selling season, which is typically our largest selling period of the year.

Speaker 5: We have additional promotions and incentives to roll out in the coming months to assist brand partners as they build their business, especially during this fall selling season, which is typically our largest selling period of the year.

Speaker 5: Our retail sales team continues to focus on opening new accounts and selling to our established customers. As Craig stated earlier, the addition of the SmartLab Toys line has provided some sales momentum for us alongside our cane miller and learning wrap-up slides of products.

Our retail sales team continues to focus on opening new accounts and selling through our established customers.

As Craig stated earlier. The addition of the Smart laboratories line has provided some sales momentum for US alongside our Kane Miller and learning wrap ups lines of products. While we have not previously had the opportunity to sell into foreign countries. We are doing so with both the learning wrap ups and smart lab toys product lines opening new doors.

Speaker 5: While we have not previously had the opportunity to sell into foreign countries, we are doing so with both the learning wrap-ups and Smart Lab toys product lines, opening new doors to Newcastle.

10, new customers. This concludes our sales and marketing update I will turn the call back over to Craig for closing remarks, Greg.

Speaker 5: This concludes our sales and marketing update. I will turn the call back over to Craig for closing remarks. Craig?

Speaker 3: Thank you both Heather and Dan. Now I would like to talk about some recent changes before opening the call up for questions.

Thank you Beth Heather and Dan <unk>.

Now I would like to talk about some recent changes before opening the call up for questions.

Speaker 3: During the quarter, we received $3.8 million in funds from the employee retention credit. These funds were part of the government-sponsored CARES Act offered to employers who maintained employees during COVID.

During the quarter, we received $3 $8 million in funds from the employee retention credit.

These funds were part of the government sponsored cares act offered to employers who maintained employees during COVID-19.

Speaker 3: While this cash infusion was very timely and positively impact or a quarter, the funds have been primarily absorbed with paydowns in our line of credit with our bank, and cash reserves held by our credit card process.

While this cash infusion was very timely and positively impacted our quarter. The funds have been primarily absorbed with paydowns in our line of credit with our bank and cash reserves held by our credit card processor or.

Speaker 3: Our primary focus continues to be paying down our debts and reducing our interest expense, which will improve our overall financial performance.

Our primary focus continues to be paying down our debt and reducing our interest expense, which will improve our overall financial performance.

Speaker 3: To this end, we have recently listed and contracted for sale our old building for $5.1 million, which is primarily used for excess inventory storage.

To this end we have recently listed and contracted for sale our old building for $5 $1 million, which is primarily used for excess inventory storage.

Speaker 3: The proceeds from this sale will be used to pay down our term loans with our bank. We have agreed to lease back the building for three years, after which we plan to consolidate our reduced inventory levels into our headquarters, further improving profitability.

Proceeds from this sale will be used to pay down our term loans with our bank. We have agreed to lease back the building for three years after which we plan to consolidate our reduced inventory levels into our headquarters further improving profitability.

We are also continuing to turn inventory into cash which will be most evidenced in this third quarter, our strongest selling quarter of the year.

Speaker 3: We are also continuing to turn inventory into cash, which will be most evidenced in this third quarter, our strongest selling quarter of the year.

Speaker 3: Cash generated from the reduction in inventory will be used to meet the required step downs in our line of credit.

Cash generated from the reduction in inventory will be used to meet the required step downs in our line of credit.

Speaker 3: I have had questions recently and some of you on the call may have this question as to why don't we sell the Hilti building, our current headquarters. That is absolutely an option. We're evaluating what that would look like, but we're evaluating other short-term solutions in the meantime.

<unk> had questions recently and some of you on the on the call May have this question as to why.

Why don't we sell to healthy building our current.

Headquarters.

That is absolutely an option, we're evaluating what that would look like but we are evaluating other short term solutions in the meantime.

Speaker 3: During the quarter, we reduced costs from lower employee levels and other operating cost reductions, and we continued to look for every opportunity to improve bottom line performance. We will continue on this path until we re-

During the quarter, we reduce costs from lower employee levels and other operating cost reductions and we continue to look for every opportunity to improve bottom line performance. We will continue on this path until we reach profitability.

Speaker 3: Once we return to profitability, we plan to reinstate our past practice of paying quarterly dividends to our shareholders. This has been and continues to be a top priority for myself and our shareholders.

Once we return to profitability, we plan to reinstate our past practice of paying quarterly dividends to our shareholders. This has been and continues to be a top priority for myself and our shareholders.

Speaker 3: Now that we have provided some recent activity, I will now turn the call back over to the operator for questions and answers.

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

Speaker 1: Thank you, Craig. Ladies and gentlemen, our Q&A session is now open. To ask a question, please press a star, followed by the number 1 on your telephone keypad. You will hear a three-tone prompt acknowledging your request. If you would like to withdraw your question, you may press star, followed by the number 2. If you're using a speakerphone, please lift the handset before pressing any keys. One moment, please.

Thank you Craig ladies and gentlemen, our Q&A session is now open to ask a question. Please press star followed by the number one on your telephone keypad.

Here at Cowen from acknowledging aircrafts, if he would like to withdraw. Your question you May Press Star followed they did alert you if youre.

Using a speaker phone please lift the handset before pressing any keys one moment. Please for our first question.

Yes.

Speaker 1: Your first question comes from the line of Edward, Northeany for girl I need to open.

Your first question comes from the line of Edward <unk>.

Line is open.

Edward Your line is open.

Speaker 2: Okay, this question is for Dan. How are you?

Okay.

And then for Dan.

How are you.

Speaker 2: Last time we spoke, the company had a conflict with us born about the discount of $1 million because you didn't send them, I believe, a letter of credit. Has that discount conflict been resolved or can you update me on that?

The last time, we spoke.

The company had.

Conflict with us, but what about the discount of $1 billion, because you didnt sell them might leave a letter of credit.

The discount conflict resolved or can you update me on that.

Sure.

Speaker 4: Sure, it's unresolved. Us born in

It's unresolved.

US born in.

Speaker 4: At the end of last year, at the end of December , beginning of January , Usborne disputed the rebate because we didn't give them the letter of credit. So at that point, we reversed all of the accrual on the financial of that rebate. And so we took it off our financial statements. But we're-

At the end of last year at the end of December beginning of January I support disputed the rebate because we didn't give them the letter of credit so at that point, we reversed all of the.

Accrual on the financial of that rebate.

So we took it off our financial statements.

But we're still.

We're still in a position where we're hoping for the best.

Speaker 4: we're still in a position where we're hoping for the best.

Speaker 2: Okay. Uh, secondly, Craig, um, today, uh, your stock, uh, close to the dollar three dot $1 and 3 cents. I read somewhere that NASDAQ, if the dollar, if your stock falls below a dollar for 28 days, uh, the stock, your company's stock will be delisted. Can you give me any insurance?

Okay.

Secondly that Craig.

Today your stock closed at $1 three $1 <unk>.

I read somewhere that NASDAQ if the Dol after stock falls below a dollar for 28 days.

Your company stock will be delisted.

Can you give me any assurance that that wont happen.

Speaker 2: Ok. Can I? Never again. Here you are or you want us to teach you? ?

Can I.

Alright.

Our key initiatives.

Yeah.

Speaker 3: All I can assure you is that we're exhausting all options to increase sales, reduce debt, and try to return back to profitability. What happens with the stock price is...

All I can assure you is that we're exhausting all options to increase sales and reduce debt and tried to return back to profitability what happens with the stock prices.

Speaker 4: you know more or less up to you all. And I'll also say that when that does happen to companies and their stock does go below the minimum.

More or less up to you all.

I'll also say that when that does happen to companies and their stock does go below the minimum.

Little bit more there.

Speaker 4: they typically will do a reverse stock split to bring it back above. So if that were to happen for an expended period of time, we wouldn't go off of NASDAQ.

They typically will do a <unk>.

The reverse stock split to bring it back above.

So.

If that were to happen.

For an extended period of time, we wouldn't.

Go off of NASDAQ.

Speaker 4: most probably do a shareholder action to, you know.

Most probably do a shareholder action too.

Speaker 2: to reverse the stock split and do reverse stock split and reduce the number of shares and increase the value and continue trading longer. That's something in your plan.

To reverse stock split and.

The reverse stock split in <unk>.

The reduced number of shares and increase the value.

And continue trading.

Is that something in your plan and your planning book.

So I think in the company.

It's company.

Speaker 4: Yes the reverse stock. It's what companies do to maintain their listings on NASDAQ or New York stock is shame, but their share price goes below the minimum.

Yes, a reverse stock.

What companies do to maintain their listings on NASDAQ or New York stock exchange, but their share price goes below the minimums.

Right.

Speaker 2: Well, that's a fear of any investor. If you be delicious from the NASDAQ, then you're not allowed. We won't be allowed to trade or buy your fire cell.

All right.

Okay, well, that's a that's a that's a fear of.

Any investor that is going to be.

Ley de listed on the NASDAQ.

Not allowed with won't be allowed to trade trade or by your buyers selling accomplish okay.

Speaker 2: Okay, that's it for me. Good luck, Glau. What you're in is that? And also that at...

Okay. That's it for me good luck glad what does that and also that.

Speaker 2: That money you got from the government is, uh, I read somewhere that they're auditing, uh, employment retention credits. Is that money free and clear? Or was that up in the air?

That money you got from the government.

I read somewhere that there all of the <unk>.

Employment with taking credits is that money free and clear was that up in the air.

We are.

Speaker 2: Well, we're we're stuck beyond it, but we received the money and deposited in that. Fortunately, the government's checks cleared the bank. So I think I think we've got it now. Alright, that's great. OK, that's it for me. Thanks.

We are to be audited, but we received the money and deposited in the Fortunately the government's checks cleared the bank. So I think I think we've got it now alright, that's great. Okay. That's it for me. Thanks.

Thank you Edward.

Speaker 1: Thank you. Your next question comes from the line of Richard Denise, private investor. Your line is open.

Thank you. Your next question comes from the line of Richard <unk> Private Investor Your line is open.

Speaker 6: Yeah, good afternoon, everybody. A couple quick questions for you. The sale leaseback of the warehouse facility, is that still scheduled to close in October ?

Yes, good afternoon everybody.

Couple of quick questions for you the sale leaseback of a warehouse facility is that still scheduled to close in October .

Speaker 3: Yes, that's the plan. We have a few minor issues that we need to resolve, but I don't anticipate that would cause us to delay closing. Okay, Grah.

Yes, that's the plan.

We have a few minor issues that we need to resolve that theirs.

Don't anticipate that would cause us to delay closings.

Okay great.

And the.

Speaker 6: brand partner levels that started to climb in August , have those trends continued in September and October ?

Brand partner levels started to climb in August and those trends continued in September and October .

Well.

Speaker 4: Not something we report. So August is a period that we're reporting. So we saw them stabilize over the summers, Craig mentioned and we saw a little uptake in August . So that's what we communicate through our earnings.

Not something we report.

So August is a period that we're reporting so we saw them stabilize over the summer as Craig mentioned and we saw a little uptick in August so that's what we communicate.

Through our earnings calls.

Right, but you can't.

Speaker 6: Right, but you can't discuss anything that's happened since.

Anything thats happened.

Speaker 4: We typically don't get into monthly reporting of our active brand partner count. No.

Okay.

We typically don't get into monthly reporting of our <unk>.

Active brand partner Count now.

Speaker 7: We're satisfied with the way it's trending.

We are.

We're satisfied with the way it's trending.

Okay very good that's all I've got thank you.

Speaker 1: And your next question comes from the line of Brandy Freed from RL Capital LLC. Your line is open.

And your next question comes from the line of Randy <unk> from our L Capital LLC. Your line is open.

Hello can you hear me.

Yes, yes right.

Speaker 8: Yes, yes, right. Hi, I got two questions. The first one's for Dan.

Hi, I've got two questions. The first one is for Dan.

Speaker 8: And I am somewhat familiar with the employee retention credit because I'm a CPA also. So I want to expand a little bit on that other gentleman's question. My question to you is, you know, that was part of the CARES Act. We know, you know, a lot of people have been applying for that.

And I am somewhat familiar with the employee retention credit because on the CPA also.

So I wanted to scan is a little bit on that other gentlemen question. My question to you is.

That was part of the cares Act we now.

And a lot of people have been applying for that Mike.

Speaker 8: My question for you is how confident, I'm not sure who you consulted with and thereby got that $3.8 million credit, but how confident are you that you met all the criteria and that if you do in fact get audited that they're not gonna be able to claw that back, are you super confident that you actually qualified for it? Or are you like hoping you don't get audited?

My question for you is.

How confident I am not sure how you you.

Consulted with and everybody.

Everybody got that $3 $8 million of credit, but how confident are you that you met all the criteria and that if you do in fact get audited that theyre not going to be able to claw that back are you Super confident you actually qualified for it or are you.

Hoping you don't get audited.

That's my first question. Thank you.

Speaker 4: Well, nobody, and I'll concur with you. I don't think we want to be audited either. Nobody wants to be audited. But we did use a nationally tier one consulting firm to help us with our application process and documentation process. They've processed, I believe one of their advertisements is they are the largest processor of not only

Well nobody.

I'll I'll concur with you I don't think we want to be audited.

Nobody wants to be audited, but.

We did use a.

Nationally tier one.

Consulting firm to help us with our application process and documentation process.

They've processed.

I believe they are one of their advertisements as they are the largest.

Processor of.

Not only <unk>.

Speaker 4: employment retention credits, but also other credits. We use the same firm to do our research and development tax credit that we file for annually as well.

Payment retention credits, but also other credits we use the same firm to do our research and development tax credits that we fall for annually as well.

Speaker 4: but they're a very large nationally recognized firm that does this.

But they are.

Very large nationally recognized firm.

Firm that does this.

Okay.

Speaker 8: Thank you for that. My next question is for all three of you, but any of you can answer.

Thank you for that my next question is for all.

All three of you that any of you can answer.

Speaker 8: There's a little website I checked that shows about open market purchases or sales of company shares by the officers.

There was a little website I check that shows about <unk>.

Open market purchases or sales.

Company shares by the officers.

Speaker 8: And I haven't seen anything really on there for any of you three. Have any of you three bought any shares in the open market recently? I'm not talking about the shares you get through that plan, which is a little confusing. I'm not sure if they're sort of free. Maybe they are free. But just in the open market, have any of you three bought any shares and do you have any plans to do so?

And I haven't seen anything really on there for any of you three and any of you three bought any shares in the open market recently.

Sure as you get through that plan.

It's a little confusing I'm not sure if there's sort of three maybe they are free but.

In the open market if any of these three by any shares and do you have any plans to do so.

Yes, so the we filed form fours I believe last week.

Speaker 4: Yeah, so the we filed form force, I believe last week, identifying the shares that we've acquired in the last quarter, we buy these shares with payroll withholdings. So they're bought in the open market with our personal borrowers Armageddon is talking about beard and or?Options a party apparently Having to use a

Identifying the shares that we've acquired in the last quarter, we buy the shares with payroll withholdings. So they are bought in the open market.

With our.

Personal.

Okay.

Speaker 8: Okay, so you're all three or doing that, but buying a few shares through payroll is only, and I haven't looked at that site for a couple of weeks, but is that where those few shares come from that are sort of showing up every once in a while on that site?

Okay. So youre all through Youre doing that buying a few shares through payroll affiliate I haven't looked at that site for a couple of weeks, but is that where those few shares come from that are sort of showing up every once in a while on that site.

Speaker 8: Yeah, we were following all three through payroll withhold.

Yes.

Following all three through payroll withholding.

Speaker 4: Yes, and it's through our 401k plan, we have our stock as an investment option in our 401k plan. And so when you know, when we have payroll, we have our payroll withholdings that go into our 401k plan and our company stock is an investment option. And then our 401k firm goes out to the market, you know, every payroll period and buys those.

Yes.

It's through our 401K plan, we have our stock as an investment option in our 401K plan.

And so when you know when we have payroll we have our payroll withholdings that go into our 401K plan and our company stock as an investment option and then are our 401K firm goes out to the market.

Every payroll period and buys those shares for us.

Speaker 9: Okay, so it's in your 401k plans. It's not in your personal account. You're not using some of your own money that's not going into the 401k plans for open market purchases right now.

Okay.

401, K plans its not in your personal account youre not using some of your own money, that's not going into the 401K plan for open market purchases right now.

Speaker 4: Yeah, let me let me be real clear, Randy. We are taking our payroll dollars that were, you know, payroll that we get paid with instead of, you know, taking that cash and putting it in our bank account. We're taking that cash and investing it in company stock. So we're buying shares. Yes, we are buying shares with our personal cash.

Yes.

Let me be real clear Randy.

We are taking our payroll dollars that.

Payroll that we get paid with instead of.

Taking that cash and putting it in our bank account, we're taking that cash and investing it in company stock.

So we're buying shares yes, we're buying shares with our personal cash.

Got you okay. Thank you very much.

Thank you.

Speaker 1: And there are no further questions at this time. I would like to turn it back to Craig Warren for closing remarks.

And there are no further questions at this time I would like to turn it back to Craig Wang for closing remarks.

Speaker 3: Thanks everyone for joining us on our call today We appreciate your continued support and look forward to providing an additional update in January of 2024. Have a great day!

Thanks to everyone for joining us on our call today. We appreciate your continued support and look forward to providing an additional update in January of 2024 have.

Have a great day.

Speaker 1: Thank you ladies and gentlemen, this concludes today's conference call. Thank you for participating in me now, this connect.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

Operator: Good Action and Ladies and Gentlemen. Welcome to the occasion of the Development Corporation's second quarter fiscal year 2024 earnings conference call. At this time, all lines are in unison only mode.

Operator: Following the presentation, we welcome back a question and answer session. If at any time during this call you require immediate assistance, be spread to star zero for the operator.

Operator: This call is being recorded on Thursday, October 12, 2023. Before beginning the call, we would like to remind you that some of the statements made today will be forward looking and are protected under the private security's litigation reform act of 1995. Actual results meet deeper material from those expressed or implied to a variety of factors. We refer you to educational development corporations, recent filings with the SEC for a more detailed discussion of the company's financial condition.

Steven Hooser: I would now like to turn the conference over to Steven Hooser, Investor Relations, please go ahead. Thank you operator and good afternoon everyone. Thank you for joining us today for educational development corporation's second quarter earnings call. On the call with me 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 closes afternoon, the company issued a press release announcing its results for the fiscal second quarter.

Steven Hooser: The release is available on the company's website at www.edcpub.com. As the operator mentioned, today we will make forward looking statements and offer that you should look at the company's SEC filings for more details on those forward looking statements.

Craig White: With that, I'd now like to turn the call over to Craig White, the company's president and Chief Executive Officer, right? Thank you, Steven and welcome everyone to the call. I will start today's call with some general comments regarding the quarter then I will pass the call over to Dan and Heather to run through the financials and provide an update on sales and marketing.

Craig White: Finally, I will wrap up the call with some comments on strategy and fiscal 2024 output. During the second quarter, our sales continued to be impacted by high inflation, which directly impacts our active brand partners. As I have said before, this is our key indicator that reflects current sales levels and where we expect them to trend in the future. I am delighted to see that as expected, our brand partner levels stabilized during the second quarter.

Craig White: The ripple effect of the brand, rebrand process that we rolled out in January of this year has diminished in every active brand partner through the end of August has either joined as a paper pie brand partner or made a sale discounted a year as a paper pie brand partner. We expect this summer to be an inflection point for our brand partner headcount as we have already seen an increase in brand partner count starting in August.

Craig White: The sales in our publishing division were also lower this quarter due to the stoppage of selling as one products. Under our previously announced updated distribution agreement with this vendor, sales to retail customers are being supplied by another distributor. The decrease in S1 sales was partially offset by strong orders of our keen miller books and from our learning wrap ups and smart lab toys product lines. We are excited about the continued growth opportunities of these product lines with our existing and new retail customers.

Craig White: We have also made several changes recently in the paper pie division that Heather will talk further about later in the call to not only make our brand partners more successful but also entice new brand partners to join paper pie.

Dan O'keefe: In the quarter of last year, net revenues of 10.6 million a decrease of 8.8 million or 45% compared to 19.4 million average active paper pie brand partners for the quarter total 18,100 compared to 26,800 in the second quarter last year, a decrease of 8,700 or 33%. Earnings before income taxes totaled 1.5 million an increase of 2.6 million compared to a pre tax loss of 600,000 in the second quarter last year. After tax income totaled 1.1 million compared to an after tax loss of 800,000 in the second quarter last year.

Dan O'keefe: Income per share for the quarter was 13 cents compared to a lost per share of 10 cents on a fully diluted basis. To update everyone on our inventory and working capital levels, net inventories decrease 5.7 million from 67.6 million at August 31st, 2022 compared to 61.9 million on August 31st, 2023. Now for a working capital update, our borrowings on our working capital line of credit pulled 9.7 million at the end of August.

Dan O'keefe: During the quarter, the company extended the working capital line of credit agreement and amended the company's credit agreement with our bank. Under the terms of the new agreement, the fixed charge covenant ratio was removed along with the debt acceleration with default resulting in the company reclassing our existing mortgage secured term loans back to long term debt. Under the terms of the new agreement, the line of credit includes monthly step downs from 10.5 million at August 31st, 2023 to 4 million at maturity on January 31st, 2024.

Dan O'keefe: Also during August, our credit card processor that processes our payments from our customers began to hold a cash reserve. The reserve held at the end of August was 1 million and is listed as restricted cash on our balance sheet. The cash reserve was increased to 1.5 million in September and is scheduled to increase again to approximately 2 million in October.

Heather Cobb: That concludes the financial update and I'll now turn the call over to Heather Cobb to talk about sales and marketing opportunities in further detail. Thank you, Dan. As Craig mentioned earlier, we continue to make changes to bring new success to our brand partners. As an example, during June and July, we offered bonus sales commission opportunities to our brand partners to help them spur sales. In August, we implemented a 30-day site-wide sale on our e-commerce site with products being offered at 10% up to 30% off for their customers.

Heather Cobb: The promotions that we have offered are receiving positive feedback and we're greatly appreciated during the summer months which are typically our softest selling months of the year. We continue to make strategic changes to adapt to this challenging period when families have limited disposable income by offering different types of promotions. Starting in September, we began offering $5 flat rate shipping on our e-commerce orders with free shipping taking effect at $30 orders. This change in shipping charges has been well received from our customers and brand partners alike. An unexpected positive impact from this change was that our average order size of approximately $70 has remained unchanged.

Heather Cobb: We have additional promotions and incentives to roll out in the coming months to assist brand partners as they build their business, especially during this fall selling season, which is typically our largest selling period of the year. Our retail sales team continues to focus on opening new accounts and selling to our established customers. As Craig stated earlier, the addition of the smart lab toys line has provided some sales momentum for us alongside our cane miller and learning wrap-ups lines of products. While we have not previously had the opportunity to sell into foreign countries, we are doing so with both the learning wrap-ups and smart lab toys product lines opening new doors to new customers.

Heather Cobb: This concludes our sales and marketing update.

Craig White: I will turn the call back over to Craig for closing remarks. Craig? Thank you both, Heather and Dan.

Craig White: Now, I would like to talk about some recent changes before opening the call up for questions. During the quarter, we received $3.8 million in funds from the employee retention credit. These funds were part of the government-sponsored CARES Act offered to employers who maintained employees during COVID. While this cash infusion was very timely and positively impact or a quarter, the funds have been primarily absorbed with paydowns in our line of credit with our bank and cash reserves held by our credit card processor. Our primary focus continues to be paying down our debts and reducing our interest expense, which will improve our overall financial performance.

Craig White: To this end, we have recently listed and contracted for sale our old building for $5.1 million, which is primarily used for excess inventory storage. The proceeds from this sale will be used to pay down our term loans with our bank. We have agreed to lease back the building for three years after which we plan to consolidate our reduced inventory levels into our headquarters further improving profitability. We are also continuing to turn inventory into cash, which will be most evidenced in this third quarter, our strongest selling quarter of the year. Cash generated from the reduction in inventory will be used to meet the required step-downs in our line of credit.

Craig White: I have had questions recently and some of you on the call may have this question as to why why don't we sell the healthy building our current headquarters. That is absolutely an option. We're evaluating what that would look like, but we're evaluating other short term solutions in the meantime. During the quarter, we reduced costs from lower employee levels and other operating cost reductions, and we continue to look for every opportunity to improve bottom line performance. Conference. We will continue on this path until we reach profitability.

Craig White: Once we return to profitability, we plan to reinstate our past practice of paying quarterly dividends to our shareholders. This has been and continues to be a top priority for myself and our shareholders.

Craig White: Now that we have provided some recent activity, I will now turn the call back over to the operator for questions and answers. Thank you, Craig.

Operator: Ladies and gentlemen, our Q&A session is now open. To ask a question, please press a star, followed by the number one on your telephone keypad. You will hear a three-tone prompt acknowledging your request. If you would like to review your question, you may press star, followed by the number two. If you're using a speaker phone, please slip the handset before pressing any keys. One moment please for our first question.

Edward Norcini: Your first question comes from the line of Edward Norcini for your line is open. Edward Norcini for your line is open.

Dan O'keefe: Okay, this question is for Dan. This is how are you? The last time we spoke, the company had a conflict with us for one about the discount of $1 million because you didn't sell them, I believe, a letter of credit. Is that discount conflict been resolved? Or can you update me on that? Sure. It's unresolved. Usborn in the end of last year, at the end of December beginning of January, usborn disputed the rebate because we didn't give them the letter of credit. So at that point, we reversed all of the accrual on the financial of that rebate, and so we took it off our financial statements. But we're still in a position where we're hoping for the best.

Craig White: Okay, secondly, Craig, today you're stuck close to the $1.3, $1.3. I read somewhere that NASDAQ, if the stock falls below $1 for 28 days, the stock, your company stock will be delisted. Can you give me any assurance that won't happen? Can I? All I can assure you is that we're exhausting all our stocks to increase sales, reduce debt, and try to return back to profitability. What happens with the stock prices, more or less up to you all?

Craig White: And I'll also say that when that does happen to companies, and their stock does go below the minimum limit for their... They typically will do a reverse stock split to bring it back above. So if that were to happen for an expended period of time, we wouldn't go off of NASDAQ, we would most probably do a shareholder action to.., to reverse the stock split and do a reverse stock split and reduce the number of shares and increase the value.

Craig White: And continue trading. That's something in your plan in your planning book. It's company company. It's a reverse stock. It's what companies do to maintain their listings on NASDAQ or New York Stock Exchange. Their share price goes below the minimum. I see. OK, well, that's a that's a fear of any investor that's going to be if you be delicious from the NASDAQ, then you're not allowed. We won't be allowed to trade trade or buy or sell your company.

Edward Norcini: OK, that's it for me. Good luck. What your is that?

Edward Norcini: And also that that money you got from the government is I read somewhere that they're auditing employment retention credits. Is that money free and clear? Was that up in the air? Well, we are, you know, we're supposed to be audited, but we received the money and deposited in it. Fortunately, the government's checks cleared the bank. So I think I think we got it now. All right, that's great.

Edward Norcini: OK, that's it for me. Thanks. Thank you, Edward. Thank you.

Richard Denise: Your next question comes from the line up. Richard Denise, private investor. Your line is open. Yeah, good afternoon, everybody. A couple quick questions for you. The sale leaseback of the warehouse facility. Is that still scheduled to close in October? Yes, that's the plan. We have a few minor issues that we need to resolve, but there's, I don't anticipate that would cause us to delay closing. OK, great. And the brand partner levels that started to climb in August.

Richard Denise: Have those trends continued in September and October? Well, it's not something we report. So August is a period that we're reporting. So we saw them stabilize over the summer as Craig mentioned and we saw a little uptake in August. So that's what we communicate through our earnings calls. Right, but you can't discuss anything that's happened since. We typically don't get into monthly reporting of our active brand partner count. No, we're, we're, we're satisfied with the way it's trading. OK, very good.

Richard Denise: That's all that I've got.

Richard Denise: Thank you.

Randy Freed: And your next question comes from the line of Brandy Feed from RL Capital, LLC, your line is open. Hello, can you hear me? Yes, yes, Ray. Hi, I got two questions. The first one's for Dan. Dan, I am somewhat familiar with employee retention credit because I'm a CPA also. So I want to expand a little bit on that other gentleman's question. My question to you is, you know, that was part of the CARES Act and we know a lot of people have been applying for that.

Randy Freed: My question for you is how confident, I'm not sure who you consulted with and thereby got that $3.8 million credit, but how confident are you that you met all the criteria and that if you do in fact get audited, that they're not going to be able to claw that back, are you super confident that you actually qualified for it, or are you like hoping[inaudible] You know, not only employment retention credits but also other credits, we use the same firm to do our research and development tax credit that we file for annually as well. But they're a very large nationally recognized firm that does this. Okay.

Randy Freed: Thank you for that.

Randy Freed: My next question is for all three of you that any of you can answer. There's a little website I check that shows about open market purchases or sales of company shares by the officers. And I haven't seen anything really on there for any of you three. And any of you three bought any shares in the open market recently. I'm not talking about the shares you get through that plan, which is a little confusing.

Randy Freed: I'm not sure if they're sort of free. Maybe they are free. But just in the open market of any of you three bought any shares and you have any plans to do so. Yeah, so that we filed form for us. I believe last week identifying the shares that we've acquired in the last quarter we buy these shares with payroll with holdings. So they're bought in the open market with our personal dollars.

Randy Freed: Okay, so you're all three are doing that by a few shares through payroll with phone. I haven't looked at that site for a couple weeks. But is that where those few shares come from that are sort of showing up every once in a while on that site. Yeah, we were following all three through payroll with holdings. Yes. And it's through a 401k plan. We have our stock is an investment option in our 401k plan.

Randy Freed: And so when, you know, when we have payroll, we have our payroll with holdings that go into our 401k plan and our company stock is an investment option. And then our 401k firm goes out to the market, you know, every payroll period and buys those shares for us. Wait until you're 401k plans. It's not in your personal account. You're not using some of your own money that's not going into the 401k plans for open market purchases right now.

Randy Freed: Yeah, let me let me be real clear, Randy. We are taking our payroll dollars that were, you know, payroll that we get paid with instead of, you know, taking that cash and putting it in our bank account. We're taking that cash and investing it in company stock. So we're buying shares. Yes, we are buying shares with our personal cash.

Randy Freed: OK, thank you very much. Thank you.

Craig White: And there are no further questions at this time. I would like to turn it back to Craig Warren for closing remarks. Thanks everyone for joining us on our call today. We appreciate your continued support and look forward to providing an additional update in January of 2034. Have a great day. Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating. You may now disconnect. Thank you very much.