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Item 1. Business

2023-05-17 compared with 2022-05-05 · 37 added, 32 removed, 18 unchanged (79% of the section changed)

( a) General Description of Business

We are the exclusive United States (“U.S.”) trade co-publisher of educational children’s books produced in the United Kingdom by Usborne Publishing Limited (“Usborne”) and we also exclusively publish books through our ownership of Kane Miller Book Publisher (“Kane Miller”);

both award-winning publishers of international children’s books.

We are the owner and exclusive publisher of Kane Miller children’s books;

Learning Wrap-Ups, maker of educational manipulatives;

and SmartLab Toys, maker of STEAM-based toys and games.

We are also the exclusive United States Multi-Level Marketing (“MLM”) distributor of Usborne Publishing Limited (“Usborne”) children’s books.

We are a corporation incorporated under the laws of the State of Delaware on August 23, 1965.

Our fiscal year ends on February 28 (29).

Our Company motto is “The future of our world depends on the education of our children.

Our Company mission statement reflects “The future of our world depends on the education of our children.

EDC delivers educational excellence one book at a time.

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(b) Financial Information about Our Segments

While selling children’s books and related products (collectively referred to as “books”) is our only line of business, we sell through two business segments, which we sometimes refer to as “divisions”:

Home Business Division (“Usborne Books & More” or “UBAM”) – This division sells our books through independent consultants directly to our customers.

Our consultants sell books by hosting home parties, through social media collaboration platforms on the internet, by hosting book fairs with school and public libraries and through other events.

Publishing Division (“EDC Publishing” or “Publishing”) – This division sells our books to bookstores (including major national chains), toy stores, specialty stores, museums and other retail outlets throughout the country.

Percent Net Revenues by Division

We sell children’s books, educational toys and games and other related products (collectively referred to as “products” or “books”) through two business segments, which we refer to as “divisions” or “sales channels”:

Direct Sales Division (“PaperPie”) – This division sells our books and products through independent brand partners direct to the customer.

Our Brand Partners sell our products in various ways, including hosting home parties, through social media collaboration platforms on the internet, hosting book fairs with school and public libraries and through other events.

This division had approximately 24,600 active Brand Partners as of February 28, 2023.

Publishing Division (“EDC Publishing” or “Publishing”) – This is our trade division which markets through commissioned trade representatives who call on retail book, toy and specialty stores along with other retail outlets.

This division also has in-house representatives marketing by telephone and email to these customers and potential customers.

This division markets to approximately 4,000 retail outlets.

In addition to exhibiting at national trade and regional bookselling shows, our products are featured in agency showrooms in AmericasMart Atlanta, Dallas Market Center, and Minneapolis Mart.

Under the contracted terms in our new distribution agreement, the Company no longer had the rights to distribute Usborne’s products to retail customers effective November 15, 2022, at which date Usborne planned to engage a different distributor to supply their products to retail accounts.

The November 15, 2022 transition date, at Usborne’s request, was extended until their new supplier can start distribution during 2023.

Percent of Net Revenues by Division

Total net revenues

As the exclusive United States trade co-publisher of Usborne books and sole publisher of Kane Miller books, we offer over 2,000 different children’s books.

Many of our books are interactive in nature, including our touchy-feely board books, activity books and flashcards, adventure and search books, art books, sticker books and foreign language books.

Most of our books were originally published in other countries, in their native languages, and we translate them to common American English and have exclusive rights to publish the titles in the United States.

EDC’s current catalog contains approximately 2,000 titles, with new additions added four times per year across all lines of our products.

Additionally, throughout the year, a similar number of titles that do not have sufficient sales are identified as “out of print” and these titles are no longer re-printed or included in future catalogs.

The Company sells through the remaining quantities of these out of print titles through their normal sales channels at normal pricing and has not historically participated in the publishing industry’s “remainder” market.

Many of our products are interactive in nature, including our touchy-feely board books, activity books and flashcards, adventure and search books, art books, sticker books, foreign language books, learning manipulatives and toys.

We also have a broad line of ‘internet-linked’ books which allow readers to expand their educational experience by referring them to relevant non-Company websites.

Our books include science and math titles, as well as chapter books and novels.

We continually introduce new titles across all lines of our products.

UBAM markets our books through commissioned consultants using a combination of direct sales, home parties, book fairs and internet based social media platforms (“online parties”).

This division had approximately 36,100 active consultants as of February 28, 2022.

Our Publishing division markets through commissioned trade representatives who call on retail book, toy and specialty stores along with other retail outlets.

Publishing also conducts in-house marketing by telephone to these customers and potential customers.

This division markets to approximately 4,000 book, toy and specialty stores.

Approximately 2% of our Publishing division's net revenues are to national book chain stores.

Our books also include science and math titles, as well as chapter books and novels.

Many of our Kane Miller books were originally published in other countries, in their native languages, and we translate them to common American English and have exclusive rights to publish the titles in the United States.

Certain Kane Miller agreements include North American rights and these titles are also sold into Canada.

Our SmartLab Toys and Learning Wrap-Ups imprints are owned product lines that are sold domestically and internationally, including the sale of foreign distribution rights to specific customers.

Sales for both divisions are greatest during the fall due to the holiday season.

While we have the exclusive U.S.

rights to sell Usborne and Kane Miller books, we face competition from the internet and other book publishers who are also selling directly to our customers.

Our UBAM division competes in recruiting and retaining sales consultants, which continuously receive opportunities to work for other direct selling companies, as well as new non-traditional employment opportunities in the gig-marketplace that provide part-time supplemental income.

We also compete with Scholastic Corporation in the school and library book fair market.

Our Publishing division faces competition from large U.S.

and international publishing companies that sell online and through the same retail publishing stores as well as for space in retail toy, gift and novelty stores that offer a variety of non-book products.

As of April 25, 2022, 166 full-time employees worked at our Tulsa, OK, San Diego, CA and Layton, UT facilities.

While we have the exclusive rights to sell Kane Miller books, Learning Wrap-Ups, SmartLab Toys and are the exclusive United States Multi-Level Marketing (“MLM”) distributor of Usborne books, we face competition from other publishers selling on the internet and directly to our customer base.

Our PaperPie division competes in recruiting and retaining brand partners, which continuously receive opportunities to work for other direct selling companies, as well as new non-traditional employment opportunities, especially in the gig marketplace that provide part-time supplemental income.

We also compete with other publishers in the school and library book fair market, of which Scholastic Corporation is the largest.

Our Publishing division faces competition from U.S.

and international publishing companies that sell online and through the same retail bookstores, toy stores, and gift and novelty stores that offer a variety of non-book products.

As of April 26, 2023, 138 full-time employees worked at our Tulsa, OK, San Diego, CA, Layton, UT and Seattle, WA facilities.

Of these employees, approximately 56% work in our distribution warehouse in Tulsa, OK.

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These reports will be provided electronically, free of charge, upon request.

COVID-19 Update

The Company has taken numerous steps, and will continue to take further actions, in its approach to minimize the impact of the COVID-19 pandemic.

Effective May 1, 2021, we lessened our safety and health practices in the office and warehouse based on the recommendations from the local Tulsa Health Department.

We are closely monitoring the impact of the COVID-19 pandemic and continually assessing its potential effects on our business.

While the Company did not experience a decrease in net revenues during fiscal year 2021, and while fiscal year 2022 results continued to show growth over pre-pandemic levels, the long-term severity and duration of the pandemic are uncertain and the extent to which our results are affected by COVID-19 cannot be accurately predicted.

See Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information on the impact COVID-19 had during the current fiscal year.

Employee Retention Credit

In response to the COVID-19 pandemic, the U.S.

government enacted the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which, among other things, included a provision related to the Employee Retention Credit.

The Company applied the provisions of the CARES Act as applicable.

In fiscal 2024, the Company applied for employee retention credits for Q1, Q2 and Q3 wages paid in calendar year 2021.

In connection with the CARES Act, the Company adopted a policy to recognize the employee retention credit when realized under Accounting Standards Codification (“ASC”) 450-30, Gain Contingencies .

Accordingly, the total requested credits of $3.6 million are not recorded in the Company’s financial statements until the credits are received, as the Company is not certain the credits will be issued.

We are a smaller reporting company and are not required to provide this information.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business