Female Founder Series: An Interview with Abigail Edgecliff-Johnson of RaceYa
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Sep 30, 2016
Early this summer, we featured Republic, a newly launched equity crowdfunding platform that focuses on supporting women founders.
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May 31
2017
ICYMI - here's that GMA clip + a snack
We had such a phenomenal time on Good Morning America this week and the response has been overwhelmingly positive. Not to mention just straight-up overwhelming - our inbox basically exploded. I never thought I'd be so excited to be somewhere at 5.30am!
And if that wasn't enough Abigail was just featured on Geek of Week by the folks at Geek Girl Rising where she discusses her love of Dorothy Sayers and lifting as you climb.
Just in case you're not sick of us yet - Abigail will be on Cheddar TV which is apparently not a delicious protein-rich cooking channel, but instead is basically the "CNBC for millennials."
So with all this craziness, how are things progressing on building the product?
As with all hardware - it's taking longer than we would have liked (and as everyone warned us it would) but we're moving along consistently and have made great strides on the design for the car, the site and the curriculum, which we'll be sharing as soon as we can.
In the meantime, thank you for being such incredible supporters of our mission and of STEM education for girls (and boys).
All the best,
Abigail
Founder & CEO of RaceYa
May 27
2017
Good Morning America!
We just found out that bright and early Monday morning RaceYa will be featured on Good Morning America!
How did this happen? Well a while back we were interviewed, about our Republic Campaign, for a book called Geek Girl Rising.
The book has just come out and as part of their publicity tour, they are featuring a few of the companies from the book.
We are honored, delighted, excited, and more than a little nervous! Send us good vibes and don't forget to watch.
and ICYMI - Here's this week's newsletter. Happy Sally Ride Day!
Founder & CEO of RaceYa
May 14
2017
We're part of Futureworks!
We are thrilled to announce that we've been accepted into this year's Futureworks Incubator cohort for later stage companies!
Futureworks is an initiative of the NYC Economic Development Corporation that connects businesses like RaceYa to advanced manufacturing facilities all over NYC. They supply great mentors from NYC's incredibly vibrant hardware scene and we get access to facilities all over NYC for local prototyping, fabrication and manufacturing and direct connections to the folks who run those factories to help us grow!
It's an amazing program and we're very proud to join the ranks of companies like Dog Parker and Thimble who have benefitted enormously from the Futureworks incubator in the past.
We've also just posted our latest highly addictive newsletter RaceYa's Speed Read!
Seen any great STEM content lately?
If you have podcasts, articles, videos, Twitters, or any other cool STEMy stuff you think we should know about let us know in the comments or shoot us an email at social@raceya.com
More Soon!
Abigail + Team RaceYa
Founder & CEO of RaceYa
Apr 24
2017
Ya Think or Speed Read?
Hiya Racers!
Our STEM newsletter is going full STEAM ahead (sorry - couldn't help it). But we need your help. Half the office thinks it should be called "Ya Think" and the other half wants it called "RaceYa's Speed Read".
What do you think?
Haven't been getting the newsletters? Be sure to sign up at RaceYa.com!
More soon
Abigail + Team RaceYa
Founder & CEO of RaceYa
Jul 18
2016
Launched on Republic 🎉
Driving Girls To Succeed in STEM
We use customizable radio-controlled cars to teach kids about Science, Technology, Engineering and Math (STEM). Everybody knows boys love playing with cars but somehow we forgot that girls do too.
The White House has made STEM a national priority yet girls who are excited about science when they are younger start giving up on it as early as middle school.
Loving STEM but Leaving It
- Women make up just 12% of working engineers
- Outdated stereotypes are keeping girls out of the sciences
- Boys are 5x more likely than girls to want a STEM career
- 1 in 4 high schools don't even offer physics education
Replacing Stereotypes with Skills
- Hands-on science activities boost girls' confidence
- Increasing girls' STEM confidence actually improves their academic achievement
- Extracurricular science makes it 3x as likely girls will stay engaged in STEM fields
- Experts recommend building girls' interest through play, creativity and experimentation
RaceYa is a platform for exploration - with toys that go really fast.
We're starting small with our raceable science kits - and your help
We have battle-tested our car in playgrounds around New York City. So we know kids love it. Then we tested our combination of cars and curriculum in schools and camps. So we know kids learn from it too.
RaceYa was written up in Forbes, The Wall Street Journal and AlleyWatch . We were featured on the nationally syndicated PBS show SciTech Now. And we’ve demoed RaceYa for the tech savvy audiences at New York Tech Meetup and the Bloomberg Women's Demo Night.
Team RaceYa
Abigail has a PhD in Anthropology and a lifetime of experience as a maker and tinkerer. After more than 10 years in public policy research she left academia to understand how and why kids play and learn the way they do. Her passion for toys grew out of her observation that toys have the power to shape how kids view their place in the world. Since starting RaceYa she has been sought after as a speaker on education, robotics, and engaging girls in STEM. Her two kids are her chief product testers and toughest critics.
Geoffrey Quelle studied art and photography at Pratt Institute before spending 15 years working with the Blue Man Group developing their mind-blowing musical instruments, sets and props. In 2007 he co-founded Square Root Studios, which specialized in scenic technology and art fabrication. In 2012 he co-founded Windercase to develop a cell phone case with retractable headphones. Now he's our Head of Product and we're delighted to have his crazy, creative brain on our team.
Our curriculum has been developed by professional science educators with years of experience working with kids. And our prototypes are being developed by an incredible team of product designers in downtown New York City.
We have advisors from the worlds of toys, hardware manufacturing, software development and eCommerce.
Learning Though Hands-On Play
Not homework pretending to be a toy
Too many educational toys expect kids to do a complicated building process but aren't much fun to play with after that.
Typical STEM apps and app-controlled toys don't help parents cut down on screen time (or reclaim our phones!)
And sure, there are other STEM toys “for girls” but by the time they're 10, our girls want real power, not just flower power.
RaceYa works straight out of the box. But that's just the start.
RaceYa is more than a toy
It's a combination of the car, the curriculum and the community.
The ultimate vehicles for STEM.
Cars are the perfect blend of artistry and science. We designed the RaceYa car to be fun, fast, accessible, educational and endlessly customizable.
When you change your car’s performance to navigate new terrain or fly over a daredevil jump, you are working with physics concepts like friction, torque and aerodynamics.
When you change how your car looks you’re playing with art and personality and joy.
According to the Girl Scouts' influential report on STEM, teen and tween girls want:
- To understand how things work
- To solve puzzles and problems
- To do hands-on science
Girls today are Girls Who Code
Our Arduino -powered programmable circuit board will let you turn your car into a hackable, raceable robot. We chose Arduino because it is an open-source product and connects RaceYa kids to the creativity of the growing open-source hardware community.
The RaceYa curriculum mimics the way kids play
It’s not a "lesson plan".
Like a choose-your-own adventure book for science.
User Testing the Draft Curriculum
Focusing on 6 key areas, our engineering challenges are designed to unlock RaceYa kids’ natural creativity and problem-solving skills. We'll start by including a booklet of challenges with the kits but we are exploring more digital possibilities for the future.
We’ve worked with highly experienced science educators to develop our curriculum, which follows the New Generation Science Standards.
Curated STEM Content to Keep Kids Learning
When we say that we’re more than just a toy, it’s because our goal is to build a community of curious kids who help one another learn and create.
There are loads of great science videos on the web, but how do you find what’s good and age appropriate?
We’re curating the best content from around the web so kids can take their learning deeper and parents can be confident they are in a safe, moderated environment.
Kids can customize their cars right away from the materials in the kit but we are working on building a 3D printing platform that will allow them to design, produce and share with the community.
A $4 Billion Dollar Market
Of the $25 billion US toy market, building sets, youth electronics and vehicles make up approximately $4 billion. RaceYa, cutting across these categories, is poised to capture a sizable portion of this market.
Our initial target market is girls, but fun, fast cars appeal to all kids, particularly in our core market between the ages of 8-12.
The RaceYa kid likes to create, deconstruct and ask questions.
RaceYa parents are tech-savvy and design-conscious. They want their kids to have meaningful play experiences.
STEM Toys are a Key Trend according to the Toy Industry Association
‘Educational toys are “STEAMing” ahead, and toys that teach or reinforce Science, Technology, Engineering, Arts and Math (STEAM) continue to be top contenders in the toy market. Parents and educators appreciate these toys because they help prep kids for school by building important spatial, reasoning, critical thinking and problem-solving skills.’
Abigail's anthropologist roots mean we've done lots of testing 'in the field' - so we've brought the cars to playgrounds around NYC just to see what kids would do with them, and to ask what they thought kids should be able to do with them.
We've tested the combination of the cars and our full teacher-lead curriculum with kids at two summer science-camps. And we've tested the do-it-yourself design challenges at the Brooklyn Free School.
Everywhere we've gone parents have asked "Can I buy one now?! My son/daughter/niece/nephew/grandkid/godkid/friend's kid would LOVE this!"
Now we need to get it to market – and that’s where you come in.
Our Next Steps
We need to raise $70,000
Your investment in RaceYa will allow us to:
- Complete our third-generation round of prototypes
- Build out RaceYa.com as a customer acquisition channel
- Refine the RaceYa curriculum
If we exceed our goal, our plan is to:
- Accelerate our product development
- Expand the RaceYa curriculum
- Test marketing channels
Thank You! We are very excited to have you join us!
Deal terms
Funding goal
$70K
–
$500K
Investment size
min $25, max $100K
Perks
Get additional perks from RaceYa for your investment
Invest
$25
Receive
A massive thank you from us and your name on our website's wall of gratitude.
Invest
$100
Receive
Show your pride in being part of Team RaceYa with our logo keychain. And your name on our website's wall of gratitude.
Invest
$250
Receive
You Get A Car! - - - We want to get these third-gen prototypes into the hands of your curious kids. We want their feedback as we continue our development.
Invest
$1,000
Receive
You Get 2 Cars! - - -And two limited edition 3D-printed bodies for your RaceYa cars.
Invest
$5,000
Receive
Dinner with Team RaceYa (in NYC only). Join us for an evening of strategizing, brainstorming and making of plans for world domination. And yeah - we'll bring you four cars with limited edition bodies.
Invest
$10,000
Receive
A hands-on workshop with our founder, 10 cars and 10 of your favorite kids.
Documents
Official filing on SEC.gov
Form C
About RaceYa
Full Name
RaceYa
Founded
Apr 2014
Form
Delaware
Corporation
Headquarters
175 Varick St.
, New York City, NY
RaceYa team
Everyone helping build RaceYa, not limited to employees
Geoffrey Quelle
Head of Product
Geoffrey spent 15 years working with the Blue Man Group developing their mind-blowing musical instruments, sets and props. He then ran his own design shop for 9 years before moving into commercial product development.
Press
WSJ
FAQ
Hardware is hard. Why not do an app?
Hardware is hard. Why not do an app?
Apps can be useful for learning some things, but it's very hard to learn physics without physical play. It's also harder for kids to relate the in-app experience to real world conditions. We have seen that when kids understand a concept like friction through experimenting with the car, they are better able to apple that knowledge in other contexts - and see how multiple forces can interact.
I chose the car as a perk will I get it before the holidays?
I chose the car as a perk will I get it before the holidays?
No.
Probably not. No one wants to disappoint the kids in their life, so while we are doing our best to get the prototypes ready as soon as possible, we can't guarantee they'll be finished by the end of the year.
Haven't cars been done to death?
Haven't cars been done to death?
Not like this.
The radio controlled car market is broadly split into two categories: Cheap and disposable toys that break in the first few days, and super complex racing machines accessible only to the hobbyist with deep pockets and infinite patience.
RaceYa is taking the best of hobby car engineering and combining it with the usabilty of a toy. We are confident that this new category of RC cars will excite and delight children everywhere.
Why crowd investing?
Why crowd investing?
Because we are building a community.
A real community isn't just a collection of email addresses, it's an engaged and invested group of people who share our vision and will share their vision with us. When we are further along in product development, we may launch our pre-sales on a crowd-funding platform, but at this stage, we're not just building a product for you, we're building a company with you.
Will girls really play with a car?
Will girls really play with a car?
Funny you should ask.
Toy companies have been actively discouraging girls from playing with cars through aggressively masculine marketing (unless you want the pink one). But there must be something girls like about cars because the majority of real cars sold in the US are sold to women.
We also know that girls like to create, decorate, and customize which is why the RaceYa car doesn't have a traditional "car" body, but a flexible shell kids can make their own.
But what about boys?
But what about boys?
The great thing about RaceYa is that it's great for boys and girls.
That's why, although we are committed to empowering girls, we have deliberately made our branding gender neutral. In fact, we want to encourage boys and girls to play together. It's a fun, fast, radio controlled car. We think you'd have a harder time trying to get your boys not to play with it.
Still have questions? Check the
discussion section.
Risks
The development and commercialization of our products is highly competitive
We face competition with respect to any products that we may seek to develop or commercialize in the future. Our
competitors include major companies worldwide. Many of our competitors have significantly greater financial,
technical and human resources than we have and superior expertise in research and development and marketing
customizable cars and other STEM educational toys and thus may be better equipped than us to develop and
commercialize these products. These competitors also compete with us in recruiting and retaining qualified
personnel and acquiring technologies. Smaller or early stage companies may also prove to be significant
competitors, particularly through collaborative arrangements with large and established companies. Accordingly,
our competitors may commercialize products more rapidly or effectively than we are able to, which would adversely
affect our competitive position, the likelihood that our products will achieve initial market acceptance and our ability
to generate meaningful additional revenues from our products.
We rely on other companies to provide major components for our products
We depend on suppliers and subcontractors to meet our contractual obligations to our customers and conduct our
operations. Our ability to meet our obligations to our customers may be adversely affected if suppliers or
subcontractors do not provide the agreed-upon supplies or perform the agreed-upon services in compliance with
customer requirements and in a timely and cost-effective manner. Likewise, the quality of our products may be
adversely impacted if companies to whom we delegate manufacture of major components for our products, or from
whom we acquire such items, do not provide major components which meet required specifications and perform to
our and our customers’ expectations. Our suppliers may be less likely than us to be able to quickly recover from
natural disasters and other events beyond their control and may be subject to additional risks such as financial
problems that limit their ability to conduct their operations. The risk of these adverse effects may be greater in
circumstances where we rely on only one or two subcontractors or suppliers for a particular component.
As a distributor of educational toys, our business depends on developing and maintaining close and productive
relationships with our vendors.
We depend on our vendors to sell us quality products at favorable prices. Many factors outside our control,
including, without limitation, raw material shortages, inadequate manufacturing capacity, labor disputes,
transportation disruptions or weather conditions, could adversely affect our vendors’ ability to deliver to us quality
merchandise at favorable prices in a timely manner. Furthermore, financial or operational difficulties with a
particular vendor could cause that vendor to increase the cost of the products or decrease the quality of the products
we purchase from it. Vendor consolidation could also limit the number of suppliers from which we may purchase
products and could materially affect the prices we pay for these products. We would suffer an adverse impact if our
vendors limit or cancel the return privileges that currently protect us from inventory obsolescence.
Quality management plays an essential role in determining and meeting customer requirements, preventing
defects, improving the Company’s products and services and maintaining the integrity of the data that supports
the safety and efficacy of our prod
Our future success depends on our ability to maintain and continuously improve our product quality controls
policies and procedures. An inability to address a quality or safety issue in an effective and timely manner may also
cause negative publicity, a loss of customer confidence in us or our current or future products, which may result in
the loss of sales and difficulty in successfully launching new products. In addition, a successful claim brought
against us in excess of any available insurance or not covered by indemnification agreements, or any claim that
results in significant adverse publicity against us, could have an adverse effect on our business and our reputation.
One of the potential risks we face in the distribution of our products is liability resulting from counterfeit or
faulty components infiltrating the supply chain.
Because we source components from various sources, we rely on various suppliers and their quality control
measures. While we have policies and procedures to maintain the highest quality levels in our products, we may be
subject to faulty components in our products, which would negatively affect our products and our customers’
experience with them and could decrease customer demand for our products. In addition, if there are serious injuries
due to counterfeit or faulty products, which may be there can be no assurance that any insurance coverage we
maintain is sufficient or will be available in adequate amounts or at a reasonable cost, or that indemnification
agreements will provide us with adequate protection.
Manufacturing or design defects, unanticipated use of our products, or inadequate disclosure of risks relating to
the use of the products can lead to injury or other adverse events.
Manufacturing or design defects and resulting injuries or other adverse events could lead to recalls or safety alerts
relating to our products (either voluntary or required by governmental authorities) and could result, in certain cases,
in the removal of a product from the market. Any recall could result in significant costs as well as negative publicity
that could reduce demand for our products. The risk of injury from using our products and negative publicity that
could ensue from injuries resulting from such use, is amplified by the fact that the ultimate users of ur products are
children. Personal injuries relating to the use of our products can also result in product liability claims being brought
against us by parents, educational facilities, and other aggrieved parties. In some circumstances, such adverse events
could also cause delays in new product approvals. Similarly, negligence in performing our services can lead to
injury or other adverse events.
In addition, regulatory actions, activities by nongovernmental organizations and public debate and concerns about
perceived negative safety and quality consequences of certain components in our products may erode consumers’
confidence in the safety and quality issues, whether or not justified, and could result in additional governmental
regulations concerning the marketing and labeling of the Company’s products, negative publicity, or actual or
threatened legal actions, all of which could damage the reputation of the Company’s products and may reduce
demand for the Company’s products.
Product liability claims, future product recalls and safety concerns could adversely impact our results of
operations
Our business exposes us to potential product liability risk, as well as warranty and recall claims that are inherent in
the design, manufacture, sale and use of our products. We sell products in the toy industry where the impact of
product liability risk is high. We may be required to recall certain of our products should they be mislabeled,
defective, tampered with or damaged. We also may become involved in lawsuits and legal proceedings if it is
alleged that the consumption or use of any of our products causes illness or death. A product recall or an adverse
result in any such litigation could have an adverse effect on our business, depending on the costs of the recall, the
destruction of product inventory, competitive reaction and consumer attitudes. Even if a product liability or
consumer fraud claim is unsuccessful or without merit, the negative publicity surrounding such assertions regarding
our products could adversely affect our reputation and brand image. We also could be adversely affected if
consumers in our principal markets lose confidence in the safety and quality of our products. In the event our
products actually or allegedly fail to perform as expected and we are subject to such claims above the amount of
insurance coverage, outside the scope of our coverage, or for which we do not have coverage, our results of
operations, as well as our reputation, could be adversely affected.
We may implement new lines of business or offer new products and services within existing lines of business.
There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets
are not fully developed. In developing and marketing new lines of business and/or new products and services, we
may invest significant time and resources. Initial timetables for the introduction and development of new lines of
business and/or new products or services may not be achieved and price and profitability targets may not prove
feasible. We may not be successful in introducing new products and services in response to industry trends or
developments in technology, or those new products may not achieve market acceptance. As a result, we could lose
business, be forced to price products and services on less advantageous terms to retain or attract clients, or be subject
to cost increases. As a result, our business, financial condition or results of operations may be adversely affected.
In general, demand for our products and services is highly correlated with general economic conditions.
A substantial portion of our revenue is derived from discretionary spending by individuals, which typically falls
during times of economic instability. Declines in economic conditions in the United States or in other countries in
which we operate may adversely impact our consolidated financial results. Because such declines in demand are
difficult to predict, we or the industry may have increased excess capacity as a result. An increase in excess capacity
may result in declines in prices for our products and services.
Security breaches and other disruptions could compromise our information and expose us to liability, which
would cause our business and reputation to suffer.
We collect and store sensitive data, including intellectual property, our proprietary business information and
personally identifiable information of our customers. The secure processing, maintenance and transmission of this
information is critical to our operations. Despite our security measures, our information technology and
infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other
disruptions. Any such breach could compromise our networks and the information stored there could be accessed,
publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal
claims or proceedings, liability under laws that protect the privacy of personal information, damage our reputation,
and cause a loss of confidence in our products, which could adversely affect our business.
The Company’s success depends on the experience and skill of the board of its director, executive officer and key
employee.
The Company is entirely dependent on Abigail Edgecliffe-Johnson, the founder, director and chief executive officer
of the Company, and currently its sole employee. The loss of Ms. Edgecliffe-Johnson for any reason, including
death or disability, would significantly and irrevocably harm the Company’s business, financial condition, cash flow
and results of operations.
Although dependent on certain key personnel, the Company does not have any key man life insurance policies on
any such people.
The Company is dependent on Abigail Edgecliffe-Johnson in order to conduct its operations and execute its business
plan. However, the Company has not purchased any insurance policies with respect to Ms. Edgecliffe-Johnson in the
event of her death or disability. Therefore, in the event Ms. Edgecliffe-Johnson dies or becomes disabled, the
Company will not receive any compensation to assist with her absence.
We rely on various intellectual property rights, including trademarks in order to operate our business
The Company has filed a trademark registration for its brand with the U.S. Patent and Trademark Office, and may
seek to secure protection of its intellectual property rights relating to its electronic toy products in the future. The
Company’s intellectual property rights, however, may not be sufficiently broad or otherwise may not provide a
significant competitive advantage. In addition, the steps that the Company has taken to maintain and protect its
intellectual property may not prevent it from being challenged, invalidated or circumvented. In some circumstances,
enforcement may not be available to us because an infringer has a dominant intellectual property position or for
other business reasons. The Company’s failure to obtain or maintain intellectual property rights that convey
competitive advantage, adequately protect its intellectual property or detect or prevent circumvention or
unauthorized use of such property, could adversely impact the Company’s competitive position and results of
operations. The Company may, in the future, also rely on nondisclosure and noncompetition agreements with
employees, consultants and other parties to protect, in part, trade secrets and other proprietary rights. There can be
no assurance that these agreements will adequately protect the Company’s trade secrets and other proprietary rights
and will not be breached, that the Company will have adequate remedies for any breach, that others will not
independently develop substantially equivalent proprietary information or that third parties will not otherwise gain
access to our trade secrets or other proprietary rights.
From time to time, third parties may claim that one or more of our products or services infringe their intellectual
property rights.
Any dispute or litigation regarding future Company patents or other intellectual property could be costly and timeconsuming
due to the uncertainty of intellectual property litigation and could divert our management and key
personnel from our business operations. A claim of intellectual property infringement could force us to enter into a
costly or restrictive license agreement, which might not be available under acceptable terms or at all, could require
us to redesign our products, which would be costly and time-consuming, and/or could subject us to an injunction
against development and sale of certain of our products or services. We may have to pay substantial damages,
including damages for past infringement if it is ultimately determined that our product candidates infringe a third
party’s proprietary rights. Even if these claims are without merit, defending a lawsuit takes significant time, may be
expensive and may divert management’s attention from other business concerns. Any public announcements related
to litigation or interference proceedings initiated or threatened against as could cause our business to be harmed. Our
intellectual property portfolio may not be useful in asserting a counterclaim, or negotiating a license, in response to a
claim of intellectual property infringement. In certain of our businesses we rely on third party intellectual property
licenses and we cannot ensure that these licenses will be available to us in the future on favorable terms or at all.
We are subject to income taxes as well as non-income based taxes, such as payroll, sales, use, value-added, net
worth, property and goods and services taxes, in the United States.
Significant judgment is required in determining our provision for income taxes and other tax liabilities. In the
ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is
uncertain. Although we believe that our tax estimates are reasonable: (i) there is no assurance that the final
determination of tax audits or tax disputes will not be different from what is reflected in our income tax provisions,
expense amounts for non-income based taxes and accruals and (ii) any material differences could have an adverse
effect on our financial position and results of operations in the period or periods for which determination is made.
We are not subject to Sarbanes-Oxley regulations and lack the financial controls and safeguards required of
public companies.
We do not have the internal infrastructure necessary, and are not required, to complete an attestation about our
financial controls that would be required under Section 404 of the Sarbanes-Oxley Act of 2002. There can be no
assurance that there are no significant deficiencies or material weaknesses in the quality of our financial controls.
We expect to incur additional expenses and diversion of management’s time if and when it becomes necessary to
perform the system and process evaluation, testing and remediation required in order to comply with the
management certification and auditor attestation requirements.
The Company’s products are subject to rigorous and stringent government regulations.
The Company’s products and target market are subject to federal, state and local legislation and regulation. U.S. toy
safety requirements are among the most stringent in the world. The Company’s electronic toy products must be
tested to ensure compliance with toy safety requirements, including more than 100 safety tests and standards
established by the Consumer Products Safety Commission. These standards are shaped by a number of
considerations, including research on child development, dynamic safety testing and risk analysis. Our our products
will be subject to the Children’s Online Privacy Protection Act, among other regulations, to protect the safety and
privacy of children entering our digital community. If our products fail to meet these standards and comply with
these regulations, we may be subject to fines and our products may not be eligible to enter the market, harming the
Company’s business, financial condition, cash flow and results of operations.
The Company has indicated that it has engaged in certain transactions with related persons
Please see the section of this Memorandum entitled “Transactions with Related Persons and Conflicts of Interest”
for further details.
Changes in employment laws or regulation could harm our performance
Various federal and state labor laws govern our relationship with our employees and affect operating costs. These
laws include minimum wage requirements, overtime pay, healthcare reform and the implementation of the Patient
Protection and Affordable Care Act, unemployment tax rates, workers’ compensation rates, citizenship
requirements, union membership and sales taxes. In the event the Company hires additional employees, a number of
factors could adversely affect our operating results, including additional government-imposed increases in minimum
wages, overtime pay, paid leaves of absence and mandated health benefits, mandated training for employees,
increased tax reporting and tax payment changing regulations from the National Labor Relations Board and
increased employee litigation including claims relating to the Fair Labor Standards Act.
Maintaining, extending and expanding our reputation and brand image are essential to our business success.
We seek to maintain, extend, and expand our brand image through marketing investments, including advertising and
consumer promotions, and product innovation. Increasing attention on marketing could adversely affect our brand
image. It could also lead to stricter regulations and greater scrutiny of marketing practices. Existing or increased
legal or regulatory restrictions on our advertising, consumer promotions and marketing, or our response to those
restrictions, could limit our efforts to maintain, extend and expand our brands. Moreover, adverse publicity about
regulatory or legal action against us could damage our reputation and brand image, undermine our customers’ confidence and reduce long-term demand for our products, even if the regulatory or legal action is unfounded or not
material to our operations.
In addition, our success in maintaining, extending, and expanding our brand image depends on our ability to adapt to
a rapidly changing media environment. We increasingly rely on social media and online dissemination of
advertising campaigns. The growing use of social and digital media increases the speed and extent that information
or misinformation and opinions can be shared. Negative posts or comments about us, our brands or our products on
social or digital media, whether or not valid, could seriously damage our brands and reputation. If we do not
establish, maintain, extend and expand our brand image, then our product sales, financial condition and results of
operations could be adversely affected.
The Company is an impact-driven company, and our products are narrowly targeted for a specific market. This
may may reduce our ability to respond to changes in consumer preference and demand
Consumer preferences our products change continually. Our success depends on our ability to predict, identify, and
interpret the tastes and habits of consumers and to offer products that appeal to consumer preferences. The
Company’s customers are primarily in the consumer and the education markets, particularly after-school and camp
programs. If the market for our educational toy products is smaller than expected, we may lack the resources and
expertise to expand our product offerings successfully across product categories to satisfy the broad stream of
consumer preferences. Even if we have the resources to offer more varied products, if we do not accurately predict
which shifts in consumer preferences will be long-term, or if we fail to introduce new and improved products to
satisfy those preferences, our sales could decline.
In addition, achieving growth depends on our successful development of our current product and introduction, and
marketing of innovative new products and line extensions. Successful innovation depends on our ability to correctly
anticipate customer and consumer acceptance, to obtain, protect and maintain necessary intellectual property rights,
and to avoid infringing the intellectual property rights of others and failure to do so could compromise our
competitive position and adversely impact our business.
Failure to develop new products and production technologies or to implement productivity and cost reduction
initiatives successfully may harm our competitive position.
We depend significantly on the development of commercially viable new products, product grades and applications,
as well as process technologies, free of any legal restrictions. If we are unsuccessful in developing new products,
applications and production processes in the future, our competitive position and results of operations may be
negatively affected. However, as we invest in new technology, we face the risk of unanticipated operational or
commercialization difficulties, including an inability to obtain necessary permits or governmental approvals, the
development of competing technologies, failure of facilities or processes to operate in accordance with
specifications or expectations, construction delays, cost over-runs, the unavailability of financing, required materials
or equipment and various other factors. Likewise, we have undertaken and are continuing to undertake initiatives to
improve productivity and performance and to generate cost savings. These initiatives may not be completed or
beneficial or the estimated cost savings from such activities may not be realized.
We are vulnerable to fluctuations in the price and supply of ingredients, packaging materials, and freight
The prices of the components, packaging materials and freight for our educational toy products are subject to
fluctuations in price attributable to, among other things, changes in supply and demand of raw materials, other
commodities, or fuel prices. The sales prices to our customers are a delivered price. Therefore, changes in our input
costs could impact our gross margins. Our ability to pass along higher costs through price increases to our customers
is dependent upon competitive conditions and pricing methodologies employed in the various markets in which we
compete. To the extent competitors do not also increase their prices, customers and consumers may choose to
purchase competing products or may shift purchases to lower-priced private label or other value offerings which
may adversely affect our results of operations.
Substantial disruption to production at our third-party manufacturing and distribution facilities could occur
The Company does not operate its own manufacturing facility to create its products and is dependent on third-party
manufacturing facilities. A disruption in production at our third-party manufacturing facilities could have an adverse
effect on our business. In addition, a disruption could occur at the facilities of our suppliers or distributors. The
disruption could occur for many reasons, including fire, natural disasters, weather, water scarcity, manufacturing
problems, disease, strikes, transportation or supply interruption, government regulation, cybersecurity attacks or
terrorism. Alternative facilities with sufficient capacity or capabilities may not be available, may cost substantially
more or may take a significant time to start production, each of which could negatively affect our business and
results of operations.
We may incur additional expenses and delays due to technical problems or other interruptions at our third-party
manufacturing facilities.
Disruptions in operations due to technical problems or other interruptions such as floods or fire would adversely
affect the manufacturing capacity of our facilities. Such interruptions could cause delays in production and cause us
to incur additional expenses such as charges for expedited deliveries for products that are delayed. Additionally, our
customers have the ability to cancel purchase orders in the event of any delays in production and may decrease
future orders if delays are persistent. Additionally, to the extent that such disruptions do not result from damage to
our physical property, these may not be covered by our business interruption insurance. Any such disruptions may
adversely affect our business and results of operations.
Any disruption in our information systems could disrupt our operations and would be averse to our business and
results of operations
We depend on various information systems to support our customers’ requirements and to successfully manage our
business, including managing orders, supplies, accounting controls and payroll. Any inability to successfully
manage the procurement, development, implementation or execution of our information systems and back-up
systems, including matters related to system security, reliability, performance and access, as well as any inability of
these systems to fulfill their intended purpose within our business, could have an adverse effect on our business and
results of operations. Such disruptions may not be covered by our business interruption insurance.
The potential impact of failing to deliver products on time could increase the cost of our products
In most instances, we guarantee that we will deliver a product by a scheduled date. If we subsequently fail to deliver
the product as scheduled, we may be held responsible for cost impacts and/or other damages resulting from any
delay. To the extent that these failures to deliver occur, the total damages for which we could be liable could
significantly increase the cost of the products; as such, we could experience reduced profits or, in some cases, a loss
for that contract. Additionally, failure to deliver products on time could result in damage to customer relationships,
the potential loss of customers, and reputational damage which could impair our ability to attract new customers.
Because our business is seasonal, with the highest volume of net sales during the fourth quarter, adverse events
during the fourth quarter could materially affect our financial statements as a whole.
We generally recognize our highest volume of net sales during the holiday selling season, which occurs in the fourth
quarter of our fiscal year. In anticipation of this holiday, we purchase substantial amounts of seasonal inventory.
Adverse events, such as deteriorating economic conditions, higher unemployment, higher gas prices, public
transportation disruptions, or unanticipated adverse weather could result in lower-than-planned sales during the
holiday season. An excess of seasonal merchandise inventory could result if our net sales during the holiday selling
season fall below seasonal norms or expectations. If our fourth quarter sales results were substantially below
expectations, our financial performance and operating results could be adversely affected by unanticipated
markdowns, especially in seasonal merchandise.
The seasonality of our business places increased strain on our operations
A disproportionate amount of our sales normally occur during our fourth quarter. If we do not stock or are otherwise
unable to source products sufficient to meet customer demand, our business would be adversely affected. If we
liquidate products, as we have in the past, we may be required to take significant inventory markdowns or write-offs,
which could reduce profits. We may experience an increase in our shipping cost due to complimentary upgrades,
split-shipments, and additional long-zone shipments necessary to ensure timely delivery for the holiday season. If
too many customers access our Website within a short period of time due to increased holiday demand, we may
experience system interruptions that make our Website unavailable or prevent us from efficiently fulfilling orders,
which may reduce the volume of goods we sell and the attractiveness of our products and services. In addition, we
may be unable to adequately staff our fulfillment and customer service centers during peak periods, and delivery
services and other fulfillment companies and customer service providers may be unable to meet the seasonal
demand.
Our profitability may be negatively affected by inventory shrinkage.
We are subject to the risk of inventory loss and theft. We experience significant inventory shrinkage and cannot be
sure that incidences of inventory loss and theft will decrease in the future or that the measures we are taking will
effectively reduce the problem of inventory shrinkage. Although some level of inventory shrinkage is an
unavoidable cost of doing business, if we were to experience higher rates of inventory shrinkage or incur increased
security costs to combat inventory theft, our business and results of operations could be affected adversely.
Failure to execute our inventory management process could adversely affect our business.
We must also properly execute our inventory management strategies by appropriately allocating merchandise among
our stores, timely and efficiently distributing inventory to stores, maintaining an appropriate mix and level of
inventory in stores, appropriately changing the allocation of floor space of stores among product categories to
respond to customer demand and effectively managing pricing and markdowns, and there is no assurance we will be
able to do so. Failure to effectively execute our inventory management strategies could adversely affect our
performance and our relationship with our customers.
Our business may be adversely affected by catastrophic events and extreme or unseasonable weather conditions.
Unforeseen events, including war, terrorism and other international conflicts, public health issues and natural
disasters such as earthquakes, hurricanes or tornadoes, whether occurring in the United States or abroad, could
disrupt our supply chain operations, or result in political or economic instability. Any of the foregoing events could
result in property losses, reduce demand for our products or make it difficult or impossible to obtain merchandise
from our suppliers.
Extreme weather conditions in the areas in which our products are manufactured or sold, particularly in areas where
our products are sold in multiple locations, could adversely affect our business. For example, heavy snowfall,
rainfall or other extreme weather conditions over a prolonged period might make it difficult for our customers to
travel to our stores and thereby reduce our sales and profitability. Our business is also susceptible to unseasonable
weather conditions. For example, extended periods of unseasonably warm temperatures during the winter season or
cool weather during the summer season could render a portion of our inventory incompatible with those
unseasonable conditions. Reduced sales from extreme or prolonged unseasonable weather conditions could
adversely affect our business.
We may not timely identify or effectively respond to consumer trends or preferences, whether involving physical
retail, e-commerce retail or a combination of both retail offerings, which could negatively affect our relationship
with our customers and
It is difficult to predict consistently and successfully the products and services our customers will demand. The
success of our business depends in part on how accurately we predict consumer demand, availability of
merchandise, the related impact on the demand for existing products and the competitive environment, whether for
customers purchasing products at our stores and clubs, through our e-commerce businesses or through the
combination of both retail offerings. A critical piece of identifying consumer preferences involves price
transparency, assortment of products, customer experience and convenience. These factors are of primary
importance to customers and they continue to increase in importance, particularly as a result of digital tools and
social media available to consumers and the choices available to consumers for purchasing products online, at
physical locations or through a combination of both retail offerings. Failure to timely identify or effectively respond
to changing consumer tastes, preferences (including the key factors described above) and spending patterns, whether
for our physical retail offerings, e-commerce offerings or through a combination of these retail offerings, could
negatively affect our relationship with our customers and the demand for our products and services.
Decreases in discretionary consumer spending may have an adverse effect on us
A substantial portion of the products and services we offer are products or services that consumers may view as
discretionary items rather than necessities. As a result, our results of operations are sensitive to changes in
macroeconomic conditions that impact consumer spending, including discretionary spending. Difficult
macroeconomic conditions, particularly high levels of unemployment, also impact our customers’ ability to obtain
consumer credit. Other factors, including consumer confidence, employment levels, interest rates, tax rates,
consumer debt levels, and fuel and energy costs could reduce consumer spending or change consumer purchasing
habits. Slowdowns in the U.S. or global economy, or an uncertain economic outlook, could adversely affect
consumer spending habits and our results of operations.
If we do not continue to source new products, our ability to compete will be undermined, and we may be unable
to implement our business plan.
Our ability to compete in the direct marketing industry and to expand into the traditional retail environment depends
to a great extent on our ability to develop or acquire new innovative products under particular brands and to
complement these products with related families of products under those brands. If we do not source new products
as our existing products mature through their product life cycles, or if we do not develop related families of products
under our brands, we will not be able to implement our business plan, and the value of your investment may
decrease.
Our business and results of operations may be adversely affected if we are unable to maintain our customer
experience or provide high quality customer service.
The success of our business largely depends on our ability to provide superior customer experience and high quality
customer service, which in turn depends on a variety of factors, such as our ability to continue to provide a reliable
and user-friendly website interface for our customers to browse and purchase our products, reliable and timely
delivery of our products, and superior after sales services. Our sales may decrease if our website services are
severely interrupted or otherwise fail to meet our customer requests. Should we or our third-party delivery
companies fail to provide our product delivery and return services in a convenient or reliable manner, or if our
customers are not satisfied with our product quality, our reputation and customer loyalty could be negatively
affected. In addition, we also depend on our call center and online customer service representatives to provide live
assistance to our customers. If our call center or online customer service representatives fail to satisfy the individual
needs of customers, our reputation and customer loyalty could be negatively affected and we may lose potential or
existing customers and experience a decrease in sales. As a result, if we are unable to continue to maintain our
customer experience and provide high quality customer service, we may not be able to retain existing customers or
attract new customers, which could have an adverse effect on our business and results of operations.
Our advertising and marketing efforts may be costly and may not achieve desired results.
We incur substantial expense in connection with our advertising and marketing efforts. Although we target our
advertising and marketing efforts on current and potential customers who we believe are likely to be in the market
for the products we sell, we cannot assure you that our advertising and marketing efforts will achieve our desired
results. In addition, we periodically adjust our advertising expenditures in an effort to optimize the return on such
expenditures. Any decrease in the level of our advertising expenditures, which may be made to optimize such return
could adversely affect our sales.
We may be required to collect sales tax on our direct marketing operations
With respect to the direct sales, sales or other similar taxes are collected primarily in states where we have retail
stores, another physical presence or personal property. However, various states or foreign countries may seek to
impose sales tax collection obligations on out-of-state direct mail companies. A successful assertion by one or more
states that we or one or more of our subsidiaries should have collected or should be collecting sales taxes on the
direct sale of our merchandise could have an adverse effect on our business.
Government regulation is evolving and unfavorable changes could harm our business.
We are subject to general business regulations and laws, as well as regulations and laws specifically governing the
Internet, e-commerce, electronic devices, and other services. Existing and future laws and regulations may impede
our growth. These regulations and laws may cover taxation, privacy, data protection, pricing, content, copyrights,
distribution, mobile communications, electronic device certification, electronic waste, energy consumption,
environmental regulation, electronic contracts and other communications, competition, consumer protection, web
services, the provision of online payment services, information reporting requirements, unencumbered Internet
access to our services, the design and operation of websites, the characteristics and quality of products and services,
and the commercial operation of unmanned aircraft systems. It is not clear how existing laws governing issues such
as property ownership, libel, and personal privacy apply to the Internet, e-commerce, digital content, and web
services. Jurisdictions may regulate consumer-to-consumer online businesses, including certain aspects of our seller
programs. Unfavorable regulations and laws could diminish the demand for our products and services and increase
our cost of doing business.
Changes in federal, state or local laws and regulations could increase our expenses and adversely affect our
results of operations
Our business is subject to a wide array of laws and regulations. The current political environment, financial reform
legislation, the current high level of government intervention and activism and regulatory reform may result in
substantial new regulations and disclosure obligations and/or changes in the interpretation of existing laws and
regulations, which may lead to additional compliance costs as well as the diversion of our management’s time and
attention from strategic initiatives. If we fail to comply with applicable laws and regulations we could be subject to
legal risk, including government enforcement action and class action civil litigation that could disrupt our operations
and increase our costs of doing business. Changes in the regulatory environment regarding topics such as privacy
and information security, product safety or environmental protection, including regulations in response to concerns
regarding climate change, collective bargaining activities, minimum wage laws and health care mandates, among
others, could also cause our compliance costs to increase and adversely affect our business and results of operations.
Our profitability is vulnerable to cost increases, inflation and energy prices
Future increases in our costs, such as the cost of merchandise, shipping rates, freight and fuel costs, and store
occupancy costs, may reduce our profitability. The minimum wage has increased or is scheduled to increase in
multiple states and local jurisdictions, and there is a possibility Congress will increase the federal minimum wage.
These cost changes may be the result of inflationary pressures, which could further reduce our sales or profitability.
Increases in other operating costs, including changes in energy prices, wage rates and lease and utility costs, may
increase our costs of sales or operating expenses and reduce our profitability.
Discussion
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