Rosetta Stone 2011 Annual Report Download - page 28

Table of Contents
because each manufacturer or distributor may establish unique technical standards for such devices. With the exception of TOTALe Companion, 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, 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.
We offer our software products and services primarily on Windows and Macintosh platforms. To the extent that there is a slowdown of customer
purchases of personal computers on either the Windows or Macintosh platform or in general, to the extent that we have difficulty transitioning product or
version releases to new Windows and Macintosh operating systems, or to the extent that significant demand arises for our products or competitive products on
other platforms before we choose and are able to offer our products on these platforms, our business could be harmed. To the extent new releases of operating
systems, including for mobile and non-PC devices, or other third-party products, platforms or devices make it more difficult for our products to perform, and
our customers are persuaded to use alternative technologies, our business could be harmed.
If we fail to manage our expansion 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 are currently involved in efforts to expand our operations internationally, grow our institutional business, and move our business more online, which
has strained our managerial, operational, financial and other resources.
We anticipate that continued expansion of our operations will be required to satisfy consumer and institutional demand and to avail ourselves of new
market opportunities. The expanding scope of our business 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 expansion and move our business more online 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 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.
If we move our consumer business substantially online and sell our solutions pursuant to a monthly subscription fee rather than an upfront fee, our
revenue, results of operations and cash flow will be negatively impacted in the short term.
Historically, we have predominantly sold our packaged software programs for a single upfront fee and recorded 75-90% of the revenue at the time of
sale. We are exploring delivering more of our solutions online pursuant to monthly subscription fees. Selling in this manner will result in substantially less
cash and revenue from the initial sale to the customer and could have a substantially negative impact on our revenue, results of operations and cash flow in the
short term.
26