Rosetta Stone 2009 Annual Report Download - page 27

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Table of Contents
If we are unable to continually enhance our products and services and adapt them to technological changes and customer needs, including the emergence
of new computing devices and more sophisticated online services, we may lose market share and revenue and our business could suffer.
We need to anticipate, develop and introduce new products, services and applications on a timely and cost-effective basis that keeps pace with
technological developments and changing customer needs. For example, the number of individuals who access the internet through devices other than a
personal computer, such as personal digital assistants, mobile telephones, televisions and set-top box devices, has increased dramatically, and this trend is
likely to continue. Our products and services were designed for high resolution, graphical environments such as those available on desktop and laptop
computers. The lower resolution, functionality and memory associated with alternative devices currently available may make the use of our products and
services through such devices difficult. Because each manufacturer or distributor may establish unique technical standards for its devices, our products and
services may not work or be viewable on these devices. We have no experience to date in operating versions of our products and services developed or
optimized for users of alternative devices, and new devices and new platforms are continually being released. Accordingly, it is difficult to predict the
problems we may encounter in developing versions of our products and services for use on these alternative devices, and we may need to devote significant
resources to the creation, support and maintenance of such versions. If we fail to develop or sell products and services that respond to these or other
technological developments and changing customer needs cost effectively, we may lose market share and revenue and our business could suffer.
If we fail to manage our growth effectively, we may experience difficulty in filling purchase orders, declines in product and service quality and customer
satisfaction, increased costs or disruption in our operations.
We have experienced rapid growth in our business in recent periods, which has strained our managerial, operational, financial and other resources.
We anticipate that continued growth of our operations will be required to satisfy increasing consumer and institutional demand and to avail ourselves of
new market opportunities. The expanding scope of our business and growth in the number of our employees, customers and sales locations will continue to
place a significant strain on our management team, information technology systems and other resources. To properly manage our growth, we need to hire and
retain personnel, upgrade our existing operational, management and financial and reporting systems, including warehouse management and inventory control,
improve our business processes and controls and identify and develop relationships with additional retailers and distributors. We may also be required to
expand our distribution facilities and our operational facilities or add new facilities, which could require significant capital expenditures. Failure to effectively
manage our growth in a cost-effective manner could result in difficulty in filling purchase orders, declines in product and service quality and customer
satisfaction, increased costs or disruption of our operations.
Our rapid growth also makes it difficult for us to adequately predict the expenditures we will need to make in the future. If we do not make the necessary
overhead expenditures to accommodate our future growth, we may not be successful in executing our growth strategy.
Our revenue is subject to seasonal and quarterly variations, which could cause our financial results to fluctuate significantly.
We have experienced, and we believe we will continue to experience, substantial seasonal and quarterly variations in our revenue and net income. These
variations are primarily related to increased sales of our products and services to consumers in the fourth quarter during the holiday selling season as well as
higher sales to governmental and educational institutions in the second and third quarters. We sell to a significant number of our retailers, distributors and
institutional customers on a purchase
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