Rosetta Stone 2010 Annual Report Download - page 5

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Table of Contents
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws. These forward-looking
statements include, but are not limited to, statements regarding: our business strategies; information regarding our future financial performance; our
projected plans and objectives; our development of new products including an English remediation solution; international expansion and our development of
a business model to drive growth; the sufficiency of our cash flows from operations and available sources of funds; the impact of inflation on our financial
position and results of operations; the effect of state tax law examination on our results of operations and financial position; our technology and product
development initiatives; and our intellectual property strategy. These forward-looking statements are subject to risks and uncertainties that could cause
actual results and events to differ. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ
materially from such forward-looking statements is included throughout this filing and particularly in Item 1A: "Risk Factors" section set forth in this Annual
Report on Form 10-K. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume
no obligation to revise or publicly release any revision to any such forward-looking statement, except as may otherwise be required by law.
PART I
Item 1. Business
Overview
We are a leading provider of technology-based language learning solutions. We develop, market and sell language learning solutions consisting of
software, online services and audio practice tools primarily under our Rosetta Stone brand. Our teaching method, which we call Dynamic Immersion, is
designed to leverage the innate, natural language learning ability that children use to learn their native language. Our courses are based on our proprietary
interactive technologies and pedagogical content, and utilize a sophisticated sequencing of images, text and sounds to teach a new language without
translation or grammar explanation. We believe our award-winning solutions provide an effective, convenient and fun way to learn languages. We currently
offer our self-study language learning solutions in 34 languages. Our customers include individuals, educational institutions, armed forces, government
agencies and corporations.
People throughout the world seek to learn foreign languages for a variety of reasons, including to learn about other cultures, to communicate with friends
and family, to enhance their career prospects, to travel internationally and to obtain personal enjoyment and enrichment.
The strength and breadth of our solutions have allowed us to develop a business model that we believe distinguishes us from other language learning
companies. Our scalable technology platform and our proprietary content can be deployed across many languages, which have enabled us to cost-effectively
develop a broad product portfolio. We have a multi-channel marketing and distribution strategy that directly targets customers, utilizing print, online,
television and radio advertising, public relations initiatives and our branded kiosks. Approximately 82% of our revenue in 2010 was generated through our
direct sales channels, which include our call centers, websites, institutional sales force and kiosks. We also distribute our solutions through select retailers
such as Amazon.com, Apple, Barnes & Noble, Borders, Best Buy, Staples, Costco and Office Depot. According to an August 2008 survey we commissioned
from Global Market Insite Inc., or GMI, a market research services firm, which we refer to as the GMI survey, Rosetta Stone is the most recognized language
learning brand in the United States. Additionally, of those surveyed who had an opinion of our brand, over 80% associated it with high quality and effective
products and services for teaching foreign languages. January and February 2009 internal studies showed aided brand awareness for Rosetta Stone in the
United States was
3