Rosetta Stone 2010 Annual Report Download - page 19

Table of Contents
Projections are based upon a number of assumptions and estimates that, while presented with numerical specificity, are inherently subject to significant
business, economic and competitive uncertainties and contingencies, many of which are beyond our control and are based upon specific assumptions with
respect to future business decisions, some of which will change. We generally state possible outcomes as high and low ranges, which are intended to provide a
sensitivity analysis as variables are changed but are not intended to represent that actual results could not fall outside of the suggested ranges. The principal
reason that we release guidance is to provide a basis for our management to discuss our business outlook with analysts and investors. We do not accept any
responsibility for any projections or reports published by any such persons.
Guidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions of the guidance furnished by us will not
materialize or will vary significantly from actual results. Accordingly, our guidance is only an estimate of what management believes is realizable as of the
date of release. Actual results will vary from our guidance and the variations may be material. In light of the foregoing, investors are urged not to rely upon, or
otherwise consider, our guidance in making an investment decision in respect of our common stock.
Any failure to successfully implement our operating strategy or the occurrence of any of the events or circumstances set forth in our "Risk Factors" and
in this annual report on Form 10-K could result in the actual operating results being different from our guidance, and such differences may be adverse and
material.
Risks Related to Our Business
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 released 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 have a much higher cost as a percentage of revenue than our software solutions. We
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. The services associated with Rosetta Stone Version 4 TOTALe will decrease our margins.
Rosetta Stone Version 4 TOTALe sells at a higher price per unit than our Version 3 software solutions and customers may not choose to engage with
conversation coaches or pay higher prices to do so. 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. Initial consumer demand for Rosetta Stone Version 4 TOTALe has not been as
high as we projected and overall, our unit sales contracted in 2010 compared to 2009. We cannot assure you that Rosetta Stone Version 4 TOTALe will be
successful or profitable, or if it is profitable, that it will provide an adequate return on capital expended. If Rosetta Stone Version 4 TOTALe is not successful,
our business, financial results and reputation may be harmed.
Our introduction of an English remediation solution targeting advanced learners in Asia may not succeed and may harm our business, financial results
and reputation.
We have publicly announced plans to introduce an English remediation solution targeting advanced learners in Asia. This solution will provide learners
with foundational phonetic skills needed to properly hear and produce distinctions that are present in English, but absent in Asian languages. This online
solution will carry lower price points than our full Rosetta Stone Version 4 TOTALe language learning solution and may cannibalize sales of our Version 4
solution in Asia. We will devote significant capital,
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