LeapFrog 2005 Annual Report Download - page 26

We depend on key personnel, and we may not be able to hire, retain and integrate sufficient qualified
personnel to maintain and expand our business.
Our future success depends partly on the continued contribution of our key executives, technical, sales,
marketing, manufacturing and administrative personnel. The loss of services of any of our key personnel could
harm our business. Recruiting and retaining skilled personnel is highly competitive. If we fail to retain, hire, train
and integrate qualified employees and contractors, we will not be able to maintain and expand our business.
There can be no assurance that the members of our existing management team will be able to manage our
company or our growth.
Part of our compensation package includes stock and/or stock options. If our stock performs poorly, it may
adversely affect our ability to retain or attract key employees. In addition, because we will be required to treat all
stock-based compensation as an expense beginning in fiscal 2006, we may experience increased compensation
costs. Changes in compensation packages or costs could impact our profitability and/or our ability to attract and
retain sufficient qualified personnel.
Our international consumer business may not succeed and subjects us to risk associated with international
operations.
We derived approximately 20% of our net sales from markets outside the United States in 2005. In 2006, we
are planning to expand our international product offerings and markets. However, these and other efforts may not
help increase sales of our products outside the United States, or achieve expected margins.
Our business is, and will increasingly be, subject to risks associated with conducting business
internationally, including:
• developing successful products that appeal to the international markets;
• political and economic instability, military conflicts and civil unrest;
• greater difficulty in staffing and managing foreign operations;
• transportation delays and interruptions;
• greater difficulty enforcing intellectual property rights and weaker laws protecting such rights;
• complications in complying with laws in varying jurisdictions and changes in governmental policies;
• trade protection measures and import or export licensing requirements;
• currency conversion risks and currency fluctuations; and
• limitations, including taxes, on the repatriation of earnings.
Any difficulty with our international operations could harm our future sales and operating results.
Our future growth will depend in part on our Education and Training group, which may not be successful.
We launched our Education and Training group in June 1999 to deliver classroom instructional programs to
the pre-kindergarten through 8th grade school market and explore adult learning opportunities. To date, the
SchoolHouse division, which accounts for substantially all of the results of our Education and Training segment,
has incurred cumulative operating losses. Sales from our SchoolHouse division’s curriculum-based products will
depend principally on broadening market acceptance of those products, which in turn depends on a number of
factors, including:
• our ability to demonstrate to decision-makers the usefulness of our products to supplement traditional
teaching practices;
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