Rosetta Stone 2009 Annual Report Download - page 25

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Table of Contents
the burden and difficulties of complying with a wide variety of U.S. and foreign laws, regulations, trade standards, treaties and technical
standards, including the Foreign Corrupt Practices Act;
difficulty in protecting our intellectual property and the high incidence of software piracy in some regions;
costs and delays in downsizing foreign work forces as a result of differing employment and other laws;
protectionist laws and business practices that favor local competitors; and
uncertainty regarding liability for information retrieved and replicated in foreign countries.
The effects of any of the risks described above could reduce our future revenue from our international operations and could harm our overall business,
revenue and financial results.
Our introduction of Rosetta Stone Version 4 TOTALe will increase our costs as a percentage of revenue, may not succeed and may harm our business,
financial results and reputation.
We have publicly announced plans to introduce Rosetta Stone Version 4 TOTALe in the third quarter of 2010. Rosetta Stone Version 4 TOTALe
integrates our existing language learning software solutions with web-based services, which will provide opportunities for practice with dedicated language
conversation coaches and other language learners to increase language socialization. These web-based services will have a much higher cost as a percentage
of revenue than our software solutions. We expect to offer Rosetta Stone Version 4 TOTALe primarily by bundling the web-based services of TOTALe with
our software and audio offerings. At the same time, we expect to provide augmented, free peer-to-peer language practice. We will devote significant capital,
personnel and management attention to develop and launch Rosetta Stone Version 4 TOTALe, including replacing our existing product packaging with
Version 4 TOTALe packaging, expanding our staff of conversational coaches and customer support employees, incurring related research and development
expenses, and incurring significant marketing expenses relating to the launch of the new offering. The services associated with Rosetta Stone Version 4
TOTALe will decrease our margins. Rosetta Stone Version 4 TOTALe will also present new management and marketing challenges that differ from the
challenges we face in our existing business. In addition, we will be required to defer recognition of a portion of each sale of Version 4 TOTALe in connection
with the subscription terms of our on-line socialization services. We cannot assure you that Rosetta Stone Version 4 TOTALe will be introduced on the
timetable publicly announced or that it will be successful or profitable, or if it is profitable, that it will provide an adequate return on capital expended. If we
are not successful in our launch of Rosetta Stone Version 4 TOTALe, our business, financial results and reputation may be harmed.
Our introduction of the "Rosetta Stone Mini" and/or an introductory language learning software offering may not succeed and may harm our business,
financial results and reputation.
We have publicly announced plans to introduce an iPhone/iPod Touch/Mobile application, with the project name of Rosetta Stone Mini" to be released in
the second half of 2010 that will provide a sub-2 hour learning experience in a new language. In addition, we have publicly announced plans to release an
introductory offering at a sub-$200 price point, which we refer to as the introductory offering, with our launch of the full Rosetta Stone Version 4 TOTALe
language learning solution. Both the Rosetta Stone Mini and the introductory offering will carry lower price points than our full Rosetta Stone Version 4
TOTALe language learning solution and may cannibalize sales of our more expensive solutions. We will devote significant capital, personnel and
management attention to develop and launch the Rosetta Stone Mini and the introductory offering, including related research and development expenses, and
incurring significant marketing expenses relating to the launch. These new products will present new management and marketing challenges that differ from
the challenges we
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