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Edmark Corporation

 


Address:
6727 185th Avenue N.E.
Redmond, Washington 98052
U.S.A

Telephone: (206) 556-8400
Fax: (206) 861-8998


Statistics:
Public Company
Incorporated: 1970
Employees: 156
Sales: $22.71 million
Stock Exchanges: NASDAQ
SICs: 2741 Miscellaneous Publishing; 7372 Prepackaged Software


Company History:

Edmark Corporation is a developer and publisher of educational software and educational print materials for the consumer and education markets. Engaged in the development of multimedia educational software since 1992, Edmark has garnered more than 65 important industry design awards heralding the company's innovative approach and its software's educational value. Edmark's software products, targeting end-users ranging in age from two to 14, are organized into "families" and sold to a customer base largely comprising software distributors and retailers and educational institutions. In addition to being sold throughout the United States, Edmark's software is produced in several languages and sold in more than a dozen other countries. Edmark additionally publishes print materials for special-needs students that are marketed to educational institutions.

Edmark was founded in 1970 as a developer and publisher of school print materials and established its headquarters in Redmond, Washington. During its first 15 years Edmark focused its operations on print materials for the special education market, becoming well regarded within its niche despite slow-growing sales, which did not break the $1 million mark until 1985.

During the latter half of the 1980s Edmark made several moves to diversify its product line and enhance its revenues. In 1985 the company began developing and publishing Apple II software programs for special education students, and soon afterwards the company entered the preschool market. With the company expanding its product range, in 1986 Edmark went public. As part of the company's expansion into computer-based educational materials, Edmark's chief executive, Tom Korten, orchestrated the acquisition of the TouchWindow product line in 1988. Often referred to as the "Touchscreen," the product sat atop a computer monitor and for all practical purposes replaced a computer's keyboard, making computer use for special-needs students much easier. Having acquired the TouchWindow from the Personal Touch Corp. for $126,500, Edmark expanded on its new product by developing TouchWindow software for Apple computers.

In 1988 Edmark hired Sally G. Narodick to serve as a consultant and help develop a new strategic plan for the company. Narodick, who had started her own consulting firm a year earlier after relinquishing a senior vice president's post at Seattle's largest bank, Seafirst, brought to Edmark a background that included masters degrees in both business and education. Narodick suggested Edmark become an educational technology business that made learning fun and embark on a gradual entrance into the consumer software market. She based her recommendation on three trends: a rising birth rate (due to baby boomers having babies), increasing numbers of home computers, and a slow-growing special education market in which sales to schools would not support substantial growth.

With multimedia software as its targeted product of the future, between 1989 and 1991 Edmark made several moves to finance its entrance into the preschool and early childhood consumer and education markets and to build a software development team that could produce quality products. At Narodick's suggestion, Edmark restructured its corporate board in order bring on Seattle investor W. Hunter Simpson, and in early 1989 both Simpson and Narodick became directors. After serving as a consultant for Edmark for less than two years and a director for six months, Narodick was named chairman and chief executive of Edmark in October 1989, signaling the beginning of the company's transformation from a special education print materials publisher to a multimedia educational software publisher.

Narodick took over the helm of Edmark at a time when its revenues were $2.5 million and the company was principally a publisher of special-education workbooks for schools. In 1990 Edmark began expanding its management and development teams in order to initiate a new strategic plan centered around multimedia software. To that end, in October 1991 Narodick hired Minnesota educator and award-winning software developer Donna Stanger as vice-president of product development. Stanger brought to Edmark 20 years of experience as a teacher and more than a dozen years as a developer of computer-based curriculum materials and educational software. Stanger placed Edmark in the fairly rare position as a software company with two females in lead executive roles. The Minnesota teacher insisted that she be accompanied by a team of three younger male programmers--whom she had worked with since those programmers were in high school. (Stanger referred to herself as the team's "den mother.") Although Edmark's balance sheet included $1.9 million in recently generated equity capital, just a year earlier the company had been forced to reduce staff and salaries because of a cash shortage. Nonetheless, Narodick took the financial risk and hired the four-person team despite the fact that the group had never developed a consumer product before and it increased Edmark's 25-person payroll by 20 percent.

For the 1992 fiscal year (ending June 30, 1992, and thus including the previous 1991 holiday season) Edmark earned $364,000 on sales of $6 million, compared to earnings of $265,000 a year earlier on sales of $4.3 million. As Edmark was closing its books on its 1992 fiscal year, the company debuted two consumer demonstration products: Millie's Math House, a preschooler numbers and math program targeting a market niche with little competition, and KidsDesk, a desktop utility program that safeguarded the files of parents (making them feel more secure about investing in children's software) and allowed children to open their own setup folder and files.

In 1992 Edmark secured distribution or sales arrangements for its new products with Egghead Software, Ingram Micro (the industry's largest distributor), and a handful of other computer software retailers and catalogs. In October 1992 Edmark released KidsDesk and Millie's Math House, which combined received 29 important industry design awards during the next three years and an initial highly favorable review from The Wall Street Journal prior to the 1992 holiday season.

For the 1993 fiscal year ending in June of that year, Edmark earned just $125,000 on sales of $8.7 million. To enhance sales and distribution efforts, in 1993 Narodick hired Daniel Vetras as vice-president of consumer sales and Paul Bialek as vice-president of finance and administration. Vetras was a native of the same Massachusetts town as Narodick and a sales veteran who had worked for both Digital Equipment and Lotus Development Corporation. Bialek's experience included work as a senior audit manager for the international accounting firm KPMG Peat Marwick, which served as Edmark's independent auditors.

For the 1993 holiday season Edmark doubled its software product line with the release of Bailey's Book House, a reading skills program, and Thinkin' Things Collection 1, which introduced a critical thinking product line. The company also released an updated version of KidsDesk. However, Edmark entered the 1993 holiday season with several factors working against it: a limited marketing budget, only four software products appearing in less than 2,000 outlets, and an insufficient sales tracking system that resulted in sold-out shelves in some retail outlets and products stuck in storerooms in other outlets.

Edmark entered 1994 seeking additional financing to expand distribution channels and gain a presence in superstores and mass-merchandising outlets, as well as to fund stepped-up product development. As a result, in February 1994 Edmark--for the third consecutive year--returned to investors for capital. Narodick courted Doug Mackenzie, a partner in the venture capital firm Kleiner Perkins Caufield & Byres, who agreed to lead an equity investment of $5.5 million, paying the going-market price of $10 a share. (Mackenzie later joined the company's board.) Despite the increased funding, the company braced for an annual loss stemming from increased development and marketing expenses, and it lost $1.9 million on sales of $11.6 million in the 1994 fiscal year.

For the 1994 holiday season Edmark doubled its product line for the second straight year. The company's four new releases included Sammy's Science House, a program designed to build fundamental science skills and the third program in the company's early-learning family, and Thinkin' Things Collection 2. Edmark also expanded its age market through the debut of a new family of interactive story-writing programs for six-to-12-year-olds, the Imagination Express Series. That year the company released that series' first two titles, Destination: Neighborhood and Destination: Castle. Destination: Neighborhood featured materials for children to create interactive stores, poems, and journals describing their real and make-believe experiences; Destination: Castle provided children with a medieval kingdom setting for the same.

In order to enhance name recognition of Edmark products, in mid-1994 Narodick hired Mark McNeely--a former chairman of a leading Seattle advertising agency that was known for building brand names&mdashø lead an expanded marketing program. Entering the 1994 holiday season, Edmark's distribution channel had more than doubled, having expanded to 5,000 outlets that included book stores, toy stores, office superstores, and mass-merchandisers, such as Wal-Mart and the Price Club. Edmark also added a much-coveted distributor, Comp USA, the computer superstore chain, which signed a purchase order for Edmark's entire line and agreed to jointly fund marketing programs and Edmark's presence at industry expositions.

In 1994 Edmark also took steps to improve its product visibility in stores and to address stock outages. A new tracking system was initiated, and Vetras hired part-time field merchandisers, mothers with young children, in 10 major metropolitan areas to help with in-store demonstrations. Edmark also initiated a holiday promotion in which KidsDesk was packaged as a free bonus with all other Edmark products. The package contained registration cards for a $10,000 savings bond contest that expanded the company's customer mailing list to more than 150,000 user names.

In December 1994 Edmark entered into a strategic alliance with Harcourt Brace School Publishers, a division of Harcourt Brace & Company. The publisher of educational materials agreed to collaborate on the development of educational software and to develop new lines of multimedia software, including products based in part on technology used in Edmark's Imagination Express software. Harcourt agreed to pay Edmark a one-time $1 million licensing fee as well annually co-fund research and development costs, beginning with a $347,500 contribution in 1994.

During the 1995 fiscal year Edmark doubled its work force and its number of software titles (after more than doubling its development funding to $4.6 million, up from $2.1 million in 1994 and $450,000 in 1993), in addition to nearly doubling its distribution outlets to 9,000. These efforts translated into sales that nearly doubled, rising 95 percent to $22.7 million and generating record earnings of $2 million. The largest jump in Edmark's revenues came from multimedia software, with sales to the consumer market growing from $3.3 million in 1994 (and $1.5 million in 1993) to $10.9 million in 1995. Slightly more than half of all consumer sales were of CD-ROM products, with the majority of those released just prior to the 1994 holiday season. Sales of multimedia software to the education market also rose dramatically, from $934,000 in 1994 (and $130,000 in 1993) to $3.4 million in 1995. Sales of special-education products for 1995 were $7.1 million, a slight decrease from the previous year and nearly the same as 1993 sales.

Edmark attributed much of its increasing success to a healthy market for its products and the fact that the company was well positioned to capitalize on a growing industry. In 1995 Edmark qualified for listing on the Nasdaq National Market, and between mid-1994 and mid-1995 the company's stock value mushroomed 800 percent from a first quarter 1994 low of $6.50 to more than $50 a year later. The value in Edmark's stock signaled Wall Street's increasing interest in companies producing CD-ROM software, particularly children's educational programs. Edmark's success did not go unnoticed in business publications; between May and August 1995 the small but growing company was the subject of feature articles in Business Week, Inc., and The Wall Street Journal. With its stock value rising, in August 1995 Edmark split its common stock 3-for-2 and completed a secondary public offering of 1.1 million shares (639,000 of which were sold by the company), generating $22.5 million in proceeds. Following the offering Edmark's management and board members owned approximately 36 percent of the company. The proceeds from the public offering, along with a $2 million line of available credit, were expected to be sufficient to meet the company's financial outlays through fiscal 1996.

For the 1995 holiday season, Edmark planned to release new versions of most of its multimedia titles for Microsoft Corporation's Windows 95 operating system. Edmark also expected to have products from its collaboration with Harcourt released before the close of 1995 and a total of 13 titles on retail shelves. New offerings anticipated to make their first holiday season appearance included Trudy's Time & Place House, a new early learning series program to build time-telling, mapping, and direction skills; Thinkin' Things Collection 3, the third in Edmark's critical thinking skills series of programs; and two new interactive story-making programs offering new landscapes, Destination: Rain Forest and Destination: Ocean.

As it moved through the 1996 fiscal year, Edmark expected to add 5,000 new outlets for its software (including more book stores, mass-merchandisers, and toy stores) and to expand its work force by about a third. With just three percent of the $600 million educational software market in 1995, the company recognized it had room to grow, and analysts were suggesting sales could reach $40 million for the 1996 fiscal year.

The market for educational software also held potential for significant growth, with home computer ownership expected to continue to increase for the foreseeable future. Edmark expected its partnership with Harcourt to generate an expanded share of the educational software market, which was growing increasingly competitive with such companies as Microsoft and Disney moving into the field. That field's landscape was also being modified in the mid-1990s with new exclusive distribution agreements that were placing distribution firms in a position to dictate what chains would pay for products and how products would be displayed, with larger players able to exert more leverage than smaller ones.

As it entered 1996, Edmark maintained its goal of publishing high-quality educational products and was banking on distinguishing itself from larger competitors through its award-winning products. Given that repeat business in the educational software market required upgrading software and expanding product lines, Edmark continued its strategy of introducing consumers to its families of software at a young age in hopes that customers would progress from one title and one product series to the next. With Edmark's distribution and marketing prowess beginning to equal its product quality by the mid-1990s, the company appeared well positioned for continued growth, particularly in consumer market sales. Although the mid-1990s appeared to be more a time of market growth than industry consolidation, a shakeout in the industry appeared inevitable, and Edmark recognized it was increasingly being viewed as an attractive acquisition target.





Further Reading:


Baker, M Sharon, "Edmark Has High Hopes for New Holiday-Season Offerings," Puget Sound Business Journal, November 4, 1994, p. 6.
Baker, Molly, "Edmark Charms the Kids and the Street," The Wall Street Journal, May 30, 1995, pp. C1, C7.
Erickson, Jim, "Edmark's Earnings Up but Stock Goes Down," Seattle Post-Intelligencer, October 20, 1995, pp. D1, D5.
Geballe, Bob, "Edmark: Software Killer with a Woman's Touch," Seattle Weekly, October 18, 1995, pp. 23--27.
Murphy, Anne, "The Link," Inc., June 1995, pp. 58--66.
Yang, Dori Jones, "The Pied Piper of Kids' Software," Business Week, August 7, 1995. pp. 70--71.

Source: International Directory of Company Histories, Vol. 14. St. James Press, 1996.




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