LeapFrog 2002 Annual Report Download - page 10

We have created a significant library of content for our six core platforms. In addition, we can leverage our
proprietary content across our various platforms because our content library is digitized. Therefore, we can
repurpose and reuse much of our content for many of our platforms and products. The suggested retail prices for
our content cartridges and interactive books generally range from $9.99 to $14.99. In 2002, we sold more than
18.5 million interactive books and content cartridges for use with our Imagination Desk, My First LeapPad,
LeapPad and Quantum Pad, Turbo Twist and iQuest platforms. We expect to expand our library of content
significantly over the next few years. We believe that the low price point of our content will help us secure and
maintain shelf space and increase sales outside of the holiday season, when consumers tend to be more price
conscious than during the holiday shopping season. We expect the margins relating to our products for both us
and our retailers and distributors to increase as our higher-margin content sales grow as a percentage our total
sales. We believe that our growing installed base justifies our increased investments in developing our content
offerings, which in turn will enhance the attractiveness of our platforms.
We Have Proprietary Hardware and Software Technologies and an Integrated Design and Development
Process
Our design 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 and software
and other proprietary technologies. This strategy allows us to (1) maintain design flexibility, (2) differentiate our
products by offering distinctive features, (3) employ our technologies in a variety of products in different markets
and (4) achieve a lower cost than if we had to purchase similar integrated circuits off the shelf because we
include in our integrated circuits only the functionality we actually need. A number of our technologies are
patented; as of December 31, 2002, we had more than 37 issued and more than 76 pending U.S. and foreign
patents. Our 61-person software and hardware engineering team works closely with our team of over 220 product
developers and content producers, which includes Internet developers, former teachers, writers, artists and
musicians who develop our interactive books, activity sheets, magazines and related content cartridges. We have
a developers’ toolkit software package that allows us to simplify the development process of interactive books
for our popular LeapPad platform, reduce the time-to-market for our internally created interactive books and
contract with third parties for additional content compatible with our LeapPad platform that will further build our
content library. We believe our combination of technology and content development personnel working together
in house creates an effective design and development process.
We Rely on the Educational Expertise of Our SchoolHouse Division for the Sound Pedagogy Incorporated
in Our Products
We believe it is critical that our educational content reflects sound educational practices and incorporates
supplemental curriculum that is consistent with state and national standards for each age and skill level. The
development of products that are educationally sound as well as engaging is critical to the acceptance of our
products by parents, teachers and other educators. Within our SchoolHouse division, we have built a core of
expertise regarding how children learn most effectively and the appropriate scope and sequence of learning at the
various stages of a child’s development. We apply this expertise when developing our products for both the
consumer and school markets. For the consumer market, we build our products to complement a child’s current
classroom curricula and skill development. For the school market, we build our products with guidance and input
from our Education Advisory Board to ensure that our products are consistent with classroom curricula and
appropriate for the respective grades. We believe that our track record of developing educationally sound and
engaging products will lead to increasingly greater acceptance of our products by consumers and educators.
We Enjoy Established Relationships with Major Retailers
We have established relationships with key retailers such as Toys “R” Us, Wal-Mart, Target, Kmart, Kohl’s,
Fred Meyer, K-B Toys and Meijer, although we do not have long-term agreements with any retailers. We plan to
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