Rosetta Stone 2010 Annual Report Download - page 20

Table of Contents
personnel and management attention to develop and launch the English remediation offering, including related research and development expenses, and
incurring marketing expenses relating to the launch. This new product will present new management and marketing challenges that differ from the challenges
we face in our existing business. We cannot assure you that the English remediation solution 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 the English remediation solution, our business, financial results and
reputation may be harmed.
Because we generate all of our revenue from language learning solutions, a decline in demand for our language learning solutions or for language
learning solutions in general could cause our revenue to decline.
We generate substantially all of our revenue from our language learning solutions, and we expect that we will continue to depend upon language learning
solutions for substantially all of our revenue in the foreseeable future. Because we are dependent on our language learning solutions, factors such as changes
in consumer preferences for these products may have a disproportionately greater impact on us than if we offered multiple product categories. If consumer
interest in our language learning software products declines, or if consumer interest in learning foreign languages in general declines, we would likely
experience a significant loss of sales. Our December 2010 study, found that the consumer spending on language learning in the U.S. contracted from
approximately $5.2 billion in 2007 to approximately $4 billion in 2010. Our study also indicates that U.S. consumer spending on language learning has
declined by 24% since 2007, even as the total number of buyers has expanded by 28%. Some of the potential developments that could negatively affect
interest in and demand for language learning software products include:
a decline in international travel;
changes in U.S. laws or policies making it more difficult for foreign persons to visit or take up residence in the United States; and
a reduction in the roles of the U.S. armed forces or other governmental agencies in foreign countries.
Because a substantial portion of our revenue is generated from our consumer business, if we fail to accurately forecast consumer demand and trends in
consumer preferences, our Rosetta Stone brand, sales and customer relationships may be harmed.
In 2010, unit sales of our products decreased compared to 2009 and initial sales of Version 4 TOTALe have been less than expected. Demand for our
language learning software products and related services, and for consumer products and services in general, is subject to rapidly changing consumer demand
and trends in consumer preferences. Therefore, our success depends upon our ability to:
identify, anticipate, understand and respond to these trends in a timely manner;
introduce appealing new products and performance features on a timely basis;
anticipate and meet consumer demand for additional languages, learning levels and new platforms for delivery;
effectively position and market our products and services;
identify and secure cost-effective means of marketing our products to reach the appropriate consumers;
identify cost-effective sales distribution channels, kiosk locations and other sales outlets where interested consumers will buy our products;
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