relationships with by empowering them with personalized feedback about their children’s progress and by suggesting specific LeapFrog products that will further develop their children’s skills. The Learning Path is a key component of our strategy to build direct relationships with parents, keeping them engaged with us as their children grow. The core of the Learning Path is an online tool that helps parents track what their children are learning with our web-connected products. Parents are able to “see the learning” and gain personalized insight into their ’s learning progress. The Learning Path gives our consumers access to a variety of downloadable content and to online rewards programs that encourage learning. We believe that the Learning Path adds value to all of our connected products and expands our relationships with existing customers by allowing us to provide personalized product recommendations and other relevant information. Many of our products, including the Tag and Tag Junior reading systems, the Leapster2 and Leapster Explorer mobile learning systems, My Pal Scout, My Pal Violet and My Own Leaptop are designed to connect to the Learning Path. • LeapWorld: LeapWorld is an online learning environment for children that enriches the LeapFrog product experience and increases engagement with our products by allowing children to online games, customize their mobile learning and gaming experiences, access new content, watch trailers for new games and view demonstrations. LeapWorld was introduced on a limited basis in 2009 and more broadly in 2010 and is currently accessible to all registered users of the Leapster2, Leapster Explorer, Tag and Tag Junior platforms.

For information on sales of products that constituted 10% or more of total net sales by segment, see Note 20— “Segment Reporting” in our Consolidated Financial Statements included in this Annual Report on Form 10-K.

For more information about the risks associated with our new products, see Part I, Item 1A.—Risk Factors— “Our business depends on highly changeable consumer preferences and trends” and “Our growing strategic focus on web-based products and customer relationship management may not yield the returns we expect, and may limit the of our products in some international markets” in this Annual Report on Form 10-K. All references to risk factors throughout this Annual Report on Form 10-K are to risk factors contained herein.

Competition Our products compete most directly in the toy industry in the toy and electronic learning aids categories, both in the United States and in select international markets. The educational toy category continues to attract new entrants as well as new innovative products, and competition is significant. We believe the principal methods of competition in our industry are performance, features, quality, brand recognition, price and learning content. We believe our learning toys, interactive reading systems, mobile learning platforms, and the related games and books, online capabilities, and other software compete favorably on these bases. However, we are aware that our products are sometimes viewed by consumers as premium goods that are more expensive than our competitors’ products. We believe the LeapFrog brand is recognized for quality educational products, enabling us to compare favorably with many of our current competitors. In addition, we believe our learning toy product category is an important competitive differentiator because it introduces parents to the LeapFrog brand and provides an entry point to the Learning Path, and our associated strategy to build direct relationships with customers.

We face the challenge of competitors introducing similar products or functionality soon after we introduce our new products or product lines, and these competitors may be able to offer their products at lower prices using cheaper manufacturing processes or materials, more limited functions, or larger volume. In addition, many of our direct, indirect and potential competitors have significantly longer operating histories, greater brand recognition and substantially greater financial, technical and marketing resources than us. As our competitors seek

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