LeapFrog 2004 Annual Report Download - page 8

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PART I
Item 1. Business
Overview
LeapFrog is a leading designer, developer and marketer of innovative, technology-based educational
products and related proprietary content, dedicated to making learning effective and engaging. We currently
design our products to help infants and toddlers through high school students learn age- and skill-appropriate
subject matter, including phonics, reading, writing, math, spelling, science, geography, history and music. We
base our products on sound educational pedagogy under the guidance of our in-house educational experts and our
Education Advisory Board. We then use our proprietary technologies and content to make these products
interactive and engaging. Our product line includes: (1) learning platforms, which are portable, affordable
hardware devices, (2) educational software-based content, such as interactive books and cartridges, specifically
designed for use with our learning platforms and (3) stand-alone educational products.
We serve two markets, the consumer market and the education and training market. When we started our
business in 1995, we focused primarily on the U.S. consumer market. This market continues to represent the
majority of our sales in 2004, and our products are sold in the U.S. consumer market primarily through national
and regional mass-market and specialty retailers. In 2000, we expanded our consumer market to markets outside
of the United States. In the last three years, our international consumer sales, as represented by our International
segment, have increased from $53.6 million in 2002 to $153.2 million in 2004. To pursue our international
strategy, we have established sales offices in the United Kingdom, Canada, Mexico and France to sell to national
and international retailers in those regions. We also have relationships with distributors in Spain, Germany,
Australia and several other countries.
Our platform products provide us with a large installed base of platforms on which to build continued
software content sales. For our flagship LeapPad family of platforms, which includes our LittleTouch LeapPad,
My First LeapPad, Classic LeapPad, LeapPad Plus Writing and Quantum LeapPad platforms, we sell a library of
interactive content related to those platforms that consists of an audio software cartridge and a corresponding
interactive book or activity card. For our Turbo Twist, iQuest and Leapster handhelds, our content comes in
software cartridges that slot easily into the platforms.
Users of our interactive content can hear information regarding various academic subjects, read engaging
stories or play interactive, educational games. These titles feature our internally developed, branded LeapFrog
characters, such as Leap, Lily, Tad and Professor Quigley, while others feature popular licensed characters such
as Thomas the Tank Engine, Dora the Explorer, SpongeBob SquarePants, Bob the Builder, Winnie-the-Pooh,
Disney Princesses, Scooby-Doo, Dr. Seuss’ The Cat in the Hat and characters from the movies such as Monsters,
Inc.,The Lion King,Toy Story 2, Finding Nemo and The Incredibles.
Our product line also includes a variety of stand-alone educational products. These stand-alone products
combine our proprietary technologies with a fixed set of content and include our interactive plush toys, our
LeapStart learning table and our Fridge Phonics magnetic set products for infants and toddlers and our Explorer
interactive globes for older children.
In 1999, we established our Education and Training group. Within this group, our SchoolHouse division
focuses on developing supplemental curriculum and assessment programs for pre-kindergarten to 8th grade
classrooms and on the sale of new products incorporating our core technologies and specially modified versions
of our products to schools, teacher supply stores and educational product catalogs in the United States. LeapFrog
SchoolHouse product areas currently include assessment, early literacy, early childhood, reading, language arts,
math, English language development and special education. Our SchoolHouse products are research-based
products that are tied to state standards, and have been adopted or listed in 17 cities, states and regions, including
California, Illinois, Georgia, New York City and Texas. Through our SchoolHouse division, we currently offer
1