LeapFrog 2005 Annual Report Download - page 8

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. Our
products are based on sound educational pedagogy under the guidance of our in-house educational experts and
our Education Advisory Board. We use our proprietary technologies and content to make these products
interactive and engaging. Our product line includes: (1) learning platforms, which are 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 2005. In the U.S. consumer market, our products are sold primarily through national and
regional mass-market and specialty retailers. In 2000, we expanded our consumer market to locations outside of
the United States. In the last four years, our international consumer sales, as represented by our International
segment, have increased from $53.6 million in 2002 to $131.2 million in 2005. To pursue our international
strategy, we have established sales offices in the United Kingdom, Canada, Mexico and France to sell to retailers
in those regions. We also have relationships with distributors in Spain, Germany, Australia and several other
countries. We currently sell our products in more than 25 countries and 6 languages.
Our platform products provide us with a large installed base of platforms on which to build continued
software content sales. For our 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 Leapster and Leapster L-MAX handhelds, our FLY Pentop Computer
and our Turbo Twist and iQuest platforms, 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, Batman, Spider-Man and characters from the movies such as Madagascar,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 interactive plush toys, our LeapStart
learning table, our Fridge Phonics magnetic set products for infants and toddlers, our The Letter Factory video
and our Explorer interactive globes for older children.
In 1999, we established our Education and Training Group segment. Within this segment, our SchoolHouse
division develops supplemental curriculum and assessment programs for pre-kindergarten through 8th grade
classrooms and sells new products incorporating our core technologies as well as specially modified versions of
our products to schools, teacher supply stores and educational product catalogs in the United States and
internationally. 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, tied to state standards, and have been adopted or listed in various cities,
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