LeapFrog 2007 Annual Report Download - page 57
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We are currently involved in a dispute with Mounte LLC arising out of a 2002 tax sharing agreement
between LeapFrog and Knowledge Universe, Inc., the predecessor in interest of Mounte LLC. We are claiming a
$0.6 million refund of amounts we previously paid under the agreement, while Mounte LLC is claiming we owe
it an additional payment of approximately $1.2 million. Mounte LLC is indirectly controlled by Michael R.
Milken, Lowell J. Milken and Lawrence J. Ellison, who beneficially own a majority of our voting shares. The
parties are awaiting the results of a California state tax audit of Mounte LLC before proceeding with discussions.
Seasonality and Quarterly Results of Operations
Our business is highly seasonal, with our retail customers making a large percentage of all purchases in
preparation for the traditional holiday season. Our business, being subject to these significant seasonal
fluctuations, generally realizes the majority of our net sales and all of our net income, if any, during the third and
fourth calendar quarters. These seasonal purchasing patterns and production lead times cause risk to our business
associated with the under-production of popular items and over-production of items that do not match consumer
demand. In addition, we have seen our customers managing their inventories more stringently, requiring us to
ship products closer to the time they expect to sell to consumers, increasing our risk to meet the demand for
specific products at peak demand times, or adversely impacting our own inventory levels as a result of the need
to pre-build products to meet the demand.
For more information, see “Item 1A.—Risk Factors—Our business is seasonal, and therefore our annual
operating results depend, in large part, on sales relating to the brief holiday season” and “—If we do not maintain
sufficient inventory levels or if we are unable to deliver our product to our customers in sufficient quantities, or
on a timely basis, or if our retailer’s inventory levels are too high, our operating results will be adversely
affected.” in this report.
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