LeapFrog 2002 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    ... in 2002, sales of our learning products made us the third largest company in the United States toy industry.* LeapFrog is one of the fastest-growing education companies, and one of the largest publishers of children's books in the United States - and we are just getting started. 2002 was a banner...

  • Page 3
    ... Act). ' Yes È No There was no established public trading market for the registrant's common equity as of the last day of the registrant's most recently completed second fiscal quarter. The number of shares of Class A common stock and Class B common stock, outstanding as of March 11, 2003, was 21...

  • Page 4
    ... in the United States and was our largest customer in 2002 based on net sales. Despite the absence of information from Wal-Mart, we believe the TRSTS data is the best available source for toy industry product sales information. However, to the extent our products have sold relatively well at Wal...

  • Page 5
    ...Data ...Management's Discussion and Analysis of Financial Condition and Results of Operation ...Quantitative and Qualitative Disclosures About Market Risk ...Financial Statements and Supplementary Data... and Reports on Form 8-K ...Page 1 23 23 24 Page 25 26 27 56 57 57 Page 58 58 58 58 58 Page 60 ...

  • Page 6
    ... the content is as easy as changing the book and related audio cartridge. Many of our LeapPad interactive books feature our internally developed, branded LeapFrog characters, such as Leap, Lily and Tad, while others feature popular licensed characters such as Thomas the Tank Engine, Bob the Builder...

  • Page 7
    ...or over the Internet; and schools and teachers, who purchase either directly from sales representatives or through teacher supply stores or catalogs. Within the consumer market, we currently compete primarily in the infant and toddler category, the preschool category and the electronic learning aids...

  • Page 8
    ... major U.S. toy companies define their market as global and sell products in Canada, Europe, Central and South America, and the Pacific Rim countries. We expect our international net sales, which totaled approximately $54 million in 2002, to grow significantly in the future. The School Market The...

  • Page 9
    ... seek new ways to improve education levels both within and outside of schools, we believe our innovative technology-based learning products that evolve along the learning curve of a child's development process provide a clear solution to an increasingly important market need. Unlike traditional toys...

  • Page 10
    ...and product development efforts are led by an internal team of hardware and software engineers and a large group of content developers with significant interactive publishing and education experience. We design and develop our own application-specific integrated circuits, or ASICs, operating systems...

  • Page 11
    ... and school supplemental material markets and in international markets by: Establishing Our Learning Center Shelf Displays at Key Retail Outlets as an Education Destination In 2002, we installed versions of our Learning Center shelf displays in many Toys "R" Us, Wal-Mart, Target and Kmart stores and...

  • Page 12
    ... is a part of our Education and Training group, targets educational institutions and teacher supply stores and catalogs. Our Literacy Center, designed to help build reading skills using specifically developed products as well as a SchoolHouse version of our popular LeapPad platform, has been adopted...

  • Page 13
    ... members of our Education Advisory Board actively participate in the design and development of our products by meeting with our creative design team several times each year. Our Education Advisory Board also is an external source of feedback for our creative design team with respect to new products...

  • Page 14
    ... and Training Group from July 2001 to April 2002 and was a member of our board of directors from August 2001 to April 2002. He has served in a number of senior executive positions for major educational publishing companies, including as Senior Vice President of Planning and Business Development for...

  • Page 15
    ..., where applicable, related interactive books, magazines, activity sheets and coloring pages designed for use with specific platforms. Our stand-alone products combine our proprietary technology with a fixed set of content. Hardware Platforms and Related Content Imagination Desk learning system Our...

  • Page 16
    ... games, activities, music and positive feedback. Content Library (available in English, French, Italian, Japanese and Spanish) Ages 4 to 8 Initial U.S. launch: Summer 1999 • The retail LeapPad library of over 45 books was developed with guidance from our educational experts and is designed to help...

  • Page 17
    ... plastic pages. We believe this added feature makes the Quantum Pad system effective for use with more complex math and science concepts. Content Library 3rd through 5th grades Initial U.S. launch: Fall 2002 • The Quantum Pad series of books is developed in conjunction with our educational experts...

  • Page 18
    ...toddlers include LeapStart Learning Table - a learning table designed to refine motor skills, introduce letters and numbers and encourage development; Leap's Phonics Railroad - a train set designed to teach the alphabet and phonics; and Pretend and Learn Shopping Cart - an interactive shopping cart...

  • Page 19
    .... We have developed a series of more than 170 interactive LeapPad books and over 290 activity cards specifically designed for use with our SchoolHouse products available for U.S. schools. These interactive books generally focus on specific skills that are the building blocks of reading, such as...

  • Page 20
    ... team comprised 57 full-time employees. Sales and Distribution U.S. Consumer We market and sell our products primarily through national and regional mass-market retail stores as well as specialty toy stores. In 2002, sales of our products to Wal-Mart (including Sam's Club), Toys "R" Us and Target...

  • Page 21
    ... Education and Training group's dedicated sales, marketing, content development and operations team comprised 99 employees as of December 31, 2002. International In 2000, we established our U.K. office, located outside London, England, which sells our products directly to Woolworth's, Early Learning...

  • Page 22
    ...Corporation has developed original educational content in Japanese and English for interactive books to be used with the CoCoPad system. Our international sales team, including our U.K. office, comprised 33 employees as of December 31, 2002. Research and Development Hardware and Software Development...

  • Page 23
    ... technical support to internal and external content development teams, and works with our production team to turn our internally developed content into interactive books. Finally, this team is responsible for managing the business relationships with our growing community of third party developers...

  • Page 24
    ... 2002, we had 116 employees devoted to manufacturing, logistics and operations. Information Technology We use Oracle database software and our internal information technology infrastructure to manage our product development efforts and our financial, inventory, customer and sales data. These systems...

  • Page 25
    ... As of December 31, 2002, we had 690 full-time employees, including: 110 in sales and sales support, 61 in hardware and software engineering; 262 in product development, Internet and content production; 116 in manufacturing, logistics and operations; 57 in marketing; and 84 in finance, general...

  • Page 26
    ... New Media Group, the technology, Internet and video games business unit of Universal Studios, from May 1996 to May 1999. Prior to that, he worked at Sega of America from 1989 to 1996, most recently as an Executive Vice President. Mr. Rioux also served as Chief Operating Officer of Wonderline Toys...

  • Page 27
    ... President of our Education and Training Group since January 2002. From March 1995 to February 1999, Mr. Lally was responsible for finance, accounting, distribution, production, planning, purchasing, recruitment and operations as our Chief Financial Officer. Prior to joining LeapFrog, he was Chief...

  • Page 28
    ... we had willfully infringed, actively induced infringement of and contributorily infringed Franklin's United States Patent No. 5,203,705 patent by making, using, selling and offering for sale a number of our products. Publications International, Ltd. v. LeapFrog Enterprises, Inc. In February 2003...

  • Page 29
    ...to Technology Innovations' claims and we intend to pursue these defenses vigorously. LeapFrog Enterprises, Inc. v. Modern Teaching Aids Pty Ltd. In May 2002, we filed a lawsuit in federal court in Australia against Modern Teaching Aids Pty Ltd., or MTA, for importing and selling the VTech Smart Book...

  • Page 30
    ... in Item 8 of this Annual Report on Form 10-K. Use of Proceeds Our Registration Statement on Form S-1 (SEC File No. 333-86898) for our initial public offering was declared effective July 24, 2002, covering an aggregate of 10,350,000 shares of Class A common stock, including the underwriters' over...

  • Page 31
    ... data for the five years ended December 31, 2002, have been derived from our consolidated financial statements. The following information is qualified by reference to, and should be read in conjunction with, "Management's Discussion and Analysis of Financial Condition and Results of Operations...

  • Page 32
    ... We design, develop and market technology-based educational platforms, related interactive content and stand-alone products for sale to retailers, distributors and schools. Since the founding of our business in 1995, we have grown from a start-up business selling stand-alone educational toys into...

  • Page 33
    ... our International segment, which sales typically have lower gross profit margins. Selling, general and administrative expenses consist primarily of salaries and related employee benefits, legal, marketing expenses, systems costs, rent and office equipment and supplies. Our research and development...

  • Page 34
    ... the fair value of the business as compared to other similar publicly traded companies, known as the market approach. Based on this assessment we determined that no adjustments were necessary to the stated values. Website Development, Content Development and Tooling Capitalization Our management is...

  • Page 35
    ...of July 25, 2002 at our initial public offering price of $13.00 per share. Our deferred compensation expense in connection with the conversion of 1,310,594 unvested stock appreciation rights held by employees converted to options to purchase 1,310,594 shares of Class A common stock, was $4.0 million...

  • Page 36
    ...table sets forth selected information concerning our results of operations as a percentage of net sales for the periods indicated: Year Ended December 31, 2002 2001 2000 Net Sales ...Cost of Sales ...Gross Profit ...Operating expenses: Selling, general and administrative ...Research and development...

  • Page 37
    ... The increase in net sales from standalone products is primarily due to the introduction of the LeapStart learning table and the Pretend and Learn shopping cart. Our Education and Training segment comprised 4% of total company net sales for the twelve months ended December 31, 2002 and accounted for...

  • Page 38
    Our Education and Training segment experienced a decrease in gross profit margin in 2002 compared to 2001 primarily due to discounting certain sales to wholesale customers and incentive pricing of new product offerings to establish an installed base. We have experienced significant gross profit ...

  • Page 39
    ... primarily from increased leverage of our technology group based in Los Gatos, California, achieved against strong growth in net sales in all segments. This group performs all hardware and software engineering and all ASIC design for our products. Research and development expense in dollars for each...

  • Page 40
    ... in media time used in an effort to promote our expanded product line and strengthen our brand awareness. Cooperative advertising agreements with our major retailers were expanded in 2002 to increase our advertising exposure to their large customer bases. The increase in our International segment...

  • Page 41
    ...our decision to invest in operations, personnel and product development is based on what we believe to be a large opportunity in the U.S. school market. Our international segment increased by $6.4 million or 476% from 2001 to 2002, primarily due to increased sales and gross profit margins. Other Net...

  • Page 42
    ... our Education and Training segment was primarily due to increased sales of Literacy Centers into classrooms. Our International segment's net sales were $16.3 million in 2001, up $7.4 million, or 83%, from net sales of $8.9 million in 2000, with increased sales in the United Kingdom representing 57...

  • Page 43
    ... 2002 bankruptcy filing. Information technology and professional fees increased by $3.4 million, primarily as a result of the conversion of our main financial systems to Oracle software and other enhancements of our information technology infrastructure. Research and Development Expenses Research...

  • Page 44
    ... of net sales represented by these expenses resulted primarily from increased leverage of our technology group based in Los Gatos, California achieved against strong sales growth. This group performs all hardware and software engineering and all ASIC design for our products. Included in research and...

  • Page 45
    ...is in the early stage of growth and our decision to invest in human infrastructure and products is based on what we believe to be a large opportunity in the U.S. school market. Our International segment's operating profit was lower in 2001 due to building out the U.K. direct sales channel. Other Net...

  • Page 46
    ... activities for 2002, 2001 and 2000 were purchases of property and equipment used in the ordinary course of our business. We typically commit to inventory production, content development and advertising expenditures prior to the peak third and fourth quarter retail selling season. In addition...

  • Page 47
    ... of externally developed content for our platforms and manufacturing tools related to increased production levels and new product designs. We review our capital expenditure program periodically and modify it as required to meet current business needs. We conduct our corporate operations from leased...

  • Page 48
    ... owned by Knowledge Universe. Ubiquity obtained an exclusive license to use our NearTouch technology. In turn, Ubiquity granted a cross license to us to use certain of Ubiquity's inventions related to improvements and use the technology in areas outside of the educational toy business. We committed...

  • Page 49
    ...shares of our capital stock owned directly or indirectly by Knowledge Universe. Jeffrey Berg, a member of our board of directors, serves on the board of directors of Oracle Corporation. Knowledge Universe IT, an affiliate of Knowledge Universe, provided information management services to us. In 2002...

  • Page 50
    ... Executive Officer, and Explore Technologies, a holder of our Class A common stock. This agreement was amended and restated in July 2002. Under the agreement, CSC, Publishing and Broadcasting International, Windsor Digital Studio, Knowledge Kids, Knowledge Universe Learning Group, LLC, Knowledge...

  • Page 51
    ...are continuously changing and are difficult to predict. In addition, educational curricula change as states adopt new standards. The development of new interactive learning products requires high levels of innovation and this process can be lengthy and costly. To remain competitive, we must continue...

  • Page 52
    ...predict the overall effect of various seasonal factors and their effect on our future quarterly operating results. If we fail to meet our projected net sales or other projected operating results, or if we fail to meet analysts' or investors' expectations, the market price of our Class A common stock...

  • Page 53
    ... 1995 and we have a limited operating history for you or our management to use in evaluating our business and prospects, particularly with regard to our Education and Training segment, which includes our SchoolHouse division, our International segment and our direct sales of content to consumers. To...

  • Page 54
    ... intend to increase our international sales through additional overseas offices to develop further our direct sales efforts, distributor relationships and strategic relationships with companies with operations outside of the United States, such as Benesse Corporation and Sega Toys in Japan. However...

  • Page 55
    ... proprietary technologies which are used in our My First LeapPad, LeapPad and Quantum Pad platforms, as well as our Explorer interactive globe series. We rely, and plan to continue to rely, on a combination of patents, copyrights, trademarks, trade secrets, confidentiality provisions and licensing...

  • Page 56
    ... new or emerging technologies. They may also devote greater resources to the development, promotion and sale of their products than we do. We cannot assure you that we will be able to compete effectively in our markets. We rely on a limited number of manufacturers, virtually all of which are located...

  • Page 57
    ... from our Internet website using our Mind Station connector; acceptance of the Internet as a means of enhancing the usefulness of educational products; and development of compelling and effective content that can be downloaded for use with our platforms. If our direct sales channel develops more...

  • Page 58
    ..., 2002, we had 690 employees. In addition, we plan to hire a significant number of new employees over the next 12 months. This expansion has presented, and continues to present, significant challenges for our management systems and resources. If we fail to develop and maintain management systems and...

  • Page 59
    ... products, increase our costs or otherwise harm our margins and operating results. Earthquakes or other events outside of our control may damage our facilities or the facilities of third parties on which we depend. Our two primary U.S. distribution centers and our corporate headquarters are located...

  • Page 60
    ... to build, through a combination of internal development and acquisitions, leading companies in areas relating to education, technology and career management and the improvement of individual and corporate performance. Knowledge Universe has formed, invested in or acquired, and in the future may...

  • Page 61
    ... predict the effect that future sales made under Rule 144, Rule 701 or otherwise will have on the market price of our Class A common stock. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. We develop products in the United States and market our products primarily in North America...

  • Page 62
    ... could make our products less competitive in foreign markets. We are billed by and pay our third-party manufacturers in U.S. dollars. In 2002, we experienced a foreign currency exchange gain of $1.0 million. Prior to 2002, exchange rate fluctuations had little impact on our operating results. Cash...

  • Page 63
    ... reference. Item 14. Controls and Procedures Evaluation of LeapFrog's Disclosure Controls and Internal Controls Within the 90 days prior to the filing date of this Annual Report on Form 10-K, LeapFrog evaluated the effectiveness of the design and operation of its "disclosure controls and procedures...

  • Page 64
    ... are effective to ensure that material information relating to LeapFrog is made known to management, including the CEO and CFO, particularly during the period when our periodic reports are being prepared. Subsequent to the date of their evaluation, there were no significant changes in our internal...

  • Page 65
    ... in the accompanying index to exhibits are filed or incorporated by reference as part of this Annual Report. On November 27, 2002, we filed a Form 8-K to report the automatic conversion of all outstanding shares of our Series A preferred stock into our Class A common stock on a one-for-one basis on...

  • Page 66
    ... Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LEAPFROG ENTERPRISES, INC. By: /s/ JAMES P. CURLEY James P. Curley, Chief Financial Officer Date: March 28, 2003 POWER OF ATTORNEY Each individual whose...

  • Page 67
    ... of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 3. 4. b) c) 5. The registrant...

  • Page 68
    ... of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 3. 4. b) c) 5. The registrant...

  • Page 69
    ... returns from retailers, for 2002. Increase in obsolescence, slow-moving and excess inventory provision charged to operations in 2001 is due to discontinued and slow-moving products. Our primary discontinued products included the previous versions of our globe and Internet connectivity products...

  • Page 70
    LEAPFROG ENTERPRISES, INC. Index to Consolidated Financial Statements Report of Independent Auditors ...Consolidated Balance Sheets ...Consolidated Statements of Operations ...Consolidated Statements of Stockholders' Equity ...Consolidated Statements of Cash Flows ...Notes to Consolidated Financial ...

  • Page 71
    Report of Ernst & Young LLP, Independent Auditors The Board of Directors LeapFrog Enterprises, Inc. We have audited the accompanying consolidated balance sheets of LeapFrog Enterprises, Inc. (the "Company"), as of December 31, 2002 and 2001, and the related consolidated statements of operations, ...

  • Page 72
    ... Redeemable convertible series A preferred stock, $0.0001 par value; 2,000,000 shares authorized at December 31, 2002 and 6,000,000 shares authorized at December 31, 2001; -0- outstanding at December 31, 2002; 2,000,000 issued and outstanding, net of $861 of issuance costs. (Liquidation preference...

  • Page 73
    LEAPFROG ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data) Year Ended December 31, 2001 2000 2002 Net sales ...Cost of sales ...Gross profit ...Operating expenses: Selling, general and administrative ...Research and development ...Advertising ...

  • Page 74
    ...costs (9,960,000 shares) ...Issuance of stock options to nonemployees and notes receivable ...Warrants issued in exchange for services rendered ...Conversion of stock appreciation rights to nonqualified stock options ...Conversion of Series A preferred stock to Class A common stock (2,000,000 shares...

  • Page 75
    ... from issuance of redeemable convertible Series A preferred stock, net of issuance costs ...Net cash provided by financing activities ...Effect of exchange rate changes on cash ...Increase (decrease) in cash and cash equivalents ...Cash and cash equivalents at beginning of year ...Cash and cash...

  • Page 76
    ... and toddlers and upward in age to reach high school students. The Company's product line includes: (1) platforms, which are portable hardware devices, (2) content, such as books and cartridges, specifically designed for use with the Company's platforms and (3) stand-alone educational products...

  • Page 77
    ... based primarily on management's evaluation of the customer's financial condition, past collection history and aging of the accounts receivable balances. The Company also provides for allowances related to returns and defective products. These allowances are recorded on product sales by the Company...

  • Page 78
    ...Depreciation expense for manufacturing tools is included in costs of goods sold. The Company capitalizes website development costs in accordance with Emerging Issues Task Force ("EITF") No. 00-02, "Accounting for Website Development Costs." The Company capitalized third-party costs totaling $313 and...

  • Page 79
    ... the required disclosure in the Statement of Stockholders' Equity. Stock-Based Compensation The Company generally grants stock options to its employees for a fixed number of shares with an exercise price equal to the fair value of the shares on the date of grant. As allowed under the Statement...

  • Page 80
    ...per share amounts): Year Ended December 31, 2002 2001 2000 Net income (loss) as reported ...Add: Stock-based employee compensation expense included in reported net income (loss), net of related tax effects ...Deduct: Total stock-based employee compensation expense determined under fair value method...

  • Page 81
    ... clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value of the obligation it assumes under that guarantee and must disclose that information in its interim and annual financial statements. The initial recognition and measurement...

  • Page 82
    LEAPFROG ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (In thousands, except share, per share and percent data) 5. Property and Equipment Property and equipment consisted of the following: December 31, 2002 2001 Tooling, cards, dies, and plates ...Computers and software ...

  • Page 83
    ... its executive officers for the purpose of purchasing stock from the Company and paying associated expenses. See Note 17 (Notes Receivable From Stockholders). In August 1999, the Company purchased a 19.9% ownership interest in Knowledge Kids Media Group, Inc., an affiliate of Knowledge Universe, for...

  • Page 84
    ... Universe. In 2002 and 2001 the Company purchased software products and support services from Oracle Corporation totaling $280 and $137, respectively. Lawrence J. Ellison, the Chairman and Chief Executive Officer of Oracle Corporation, may be deemed to have or share the power to direct the voting...

  • Page 85
    ... Officer, and Explore Technologies. This agreement was amended and restated in July 2002. At the Company's request, the underwriters of its initial public offering allowed the Company to sell at our initial public offering approximately 500,000 shares of Class A common stock at the initial public...

  • Page 86
    ... in full in April 2001. 11. License Agreements The Company licenses certain of its content from third parties under exclusive and nonexclusive agreements, which permit the Company to utilize characters, stories, illustrations and/or trade names throughout specified geographic territories. The total...

  • Page 87
    .... The Company manufactures and sells its products primarily to national and regional mass-market retailers in the United States. Credit is extended based on an evaluation of the customers' financial condition, and generally collateral is not required. However, letters of credit are sometimes...

  • Page 88
    ...Company sold the remaining receivable from Kmart to a third party and recorded an additional write-off of $765. 13. Income Taxes For financial reporting purposes, income before taxes includes the following components: Year ended December 31, 2002 2001 2000 Pre-tax income: United States ...Foreign...

  • Page 89
    LEAPFROG ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (In thousands, except share, per share and percent data) The components of the Company's deferred taxes are as follows: December 31, 2002 2001 Deferred tax assets: Inventory and other reserves ...Equity in affiliates ...

  • Page 90
    ...Series A preferred stock were converted into 2,000,000 million shares of our Class A common stock. 15. Stockholders' Equity Common Stock The Company is authorized to issue 180,000,000 shares of common stock at a $0.0001 par value per share, of which 139,500,000 shares shall be designated as Class...

  • Page 91
    ... 25, 2002 at the Company's initial public offering price of $13 per share. The Company's deferred compensation expense in connection with the conversion of 1,310,594 unvested stock appreciation rights held by employees converted to options to purchase 1,310,594 shares of Class A common stock, was...

  • Page 92
    ...shares of Class A common stock upon their initial appointment or election to the Board (2) an option to purchase 10,000 shares of Class A common stock shall be granted annually on July 1, commencing in 2003, to all existing Non-Employee Directors. Shares will be prorated based on annual service time...

  • Page 93
    ... Company granted options to consultants to purchase 124,580, 165,250 and 40,000 shares of Class A common stock at average exercise prices of $9.89, $5.00 and $5.00 per share, respectively. These options were granted in exchange for consulting services performed. The Company determined the fair value...

  • Page 94
    ... July 2002, the Company's stockholders adopted the 2002 Employee Stock Purchase Plan, under which 2,000,000 shares of Class A common stock have been reserved. No shares have been issued under this plan . Shares Reserved For Future Issuance The following table summarizes the number of shares of Class...

  • Page 95
    ...In March 2002, in connection with recruiting services rendered, the Company issued a warrant to purchase 20,000 shares of Class A common stock at an exercise price of $10.00 per share. The Company accounted for the fair value of the warrants of approximately $142 as an increase to additional paid in...

  • Page 96
    LEAPFROG ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (In thousands, except share, per share and percent data) The Company has also approved nonrecourse loans to employees, upon termination of employment with the Company, for the exercise of vested stock options. The ...

  • Page 97
    ...per share and percent data) The following table sets forth the computation of basic and diluted net income (loss) per share. 2002 Year Ended December 31, 2001 2000 Numerator: Net income (loss) ...$ Denominator: Class A and B-weighted average shares ...Less: weighted average shares of unvested stock...

  • Page 98
    ... this time. General Creation LLC, et al. v. LeapFrog Enterprises, Inc. et al. In January 2002, General Creation LLC filed a lawsuit against the Company and against Knowledge Universe in federal district court in Virginia alleging that by making, using, importing and selling reading toys, the Company...

  • Page 99
    ...Corporations; Toys "R" Us, Inc.; and Wal-Mart Stores, Inc. The Company has examined the patent in question, its file history and the prior art, and the Company believes it has meritorious defenses to Technology Innovations' claims and intends to pursue these defenses vigorously. LeapFrog Enterprises...

  • Page 100
    LEAPFROG ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (In thousands, except share, per share and percent data) production and marketing of educational books and toys sold primarily to school systems. For the International segment, the Company designs, markets and sells ...

  • Page 101
    ... lawsuit. Publications International, Ltd. v. LeapFrog Enterprises, Inc. In February 2003, the Company entered into a settlement agreement and release of claims with PIL. As a result of the settlement, the Company acquired PIL's rights to the designation LEAP FROG and LEAP FROG design trademark, and...

  • Page 102
    ...333-86898) Incorporated by reference to the same numbered exhibit previously filed with the company's report on Form 10-Q filed on November 12, 2002 (SEC File No. 001-31396) Compensation plans or arrangements in which directors or executive officers are eligible to participate or participate. 10.02...

  • Page 103
    ... at the company's headquarters in Emeryville, California. Investor Relations LeapFrog Enterprises welcomes inquiries from its stockholders and other interested investors. To obtain a copy of the company's SEC filings, quarterly financial results and other corporate information, please direct your...

  • Page 104
    LeapFrog Enterprises, Inc. 6401 Hollis Street, Suite 150 First Day My First LeapPad Learning System ® Emeryville, CA 94608-1070 510-420-5000 www.leapfrog.com Part No.: 600-10005