Rosetta Stone 2011 Annual Report Download - page 29

Table of Contents
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 order basis and we receive orders when these customers need products and services. As a result, their orders are
typically not evenly distributed throughout the year. Our quarterly results of operations also may fluctuate significantly as a result of a variety of other factors,
including the timing of holidays and advertising initiatives, changes in our products, services and advertising initiatives and changes in those of our
competitors. Budgetary constraints of our institutional customers may also cause our quarterly results to fluctuate.
As a result of these seasonal and quarterly fluctuations, we believe that comparisons of our results of operations between different quarters are not
necessarily meaningful and that these comparisons are not reliable as indicators of our future performance. In addition, these fluctuations could result in
volatility and adversely affect our cash flows. As our business grows, these seasonal fluctuations may become more pronounced. Any seasonal or quarterly
fluctuations that we report in the future may differ from the expectations of market analysts and investors. This could cause the price of our common stock to
fluctuate significantly.
Substantially all of our inventory is located in one warehouse facility. Any damage or disruption at this facility could cause significant financial loss,
including loss of revenue and harm to our reputation.
Substantially all of our inventory is located in one warehouse facility. We could experience significant interruption in the operation of this facility or
damage or destruction of our inventory due to natural disasters, accidents, failures of the inventory locator or automated packing and shipping systems or
other events. If a material portion of our inventory were to be damaged or destroyed, we might be unable to meet our contractual obligations which could
cause us significant financial loss, including loss of revenue and harm to our reputation.
The loss of key personnel or the failure to attract and retain highly qualified personnel could compromise our ability to effectively manage our business
and pursue our growth strategy.
Our future performance depends on the continued service of our key technical, development, sales, services and management personnel. We rely on our
executive officers and senior management to execute our existing business plans and to identify and pursue new opportunities. We rely on our technical and
development personnel for product innovation. We generally do not have employment agreements with our non-executive personnel and, therefore, they
could terminate their employment with us at any time. The loss of key employees could result in significant disruptions to our business, and the integration of
replacement personnel could be costly and time consuming, could cause additional disruptions to our business, and could be unsuccessful. We do not carry
key person life insurance covering any of our employees.
Our future success also depends on our continued ability to attract and retain highly qualified technical, development, sales, services and management
personnel. Competition for such personnel is intense, and we may fail to retain our key employees or attract or retain other highly qualified personnel in the
future. Many of our employees are located in Harrisonburg, Virginia, a city that does not have a large pool of qualified replacement personnel. The lack of
qualified local replacement personnel may make it more difficult to quickly find replacement personnel and may increase the costs of identifying and
relocating replacement personnel to Harrisonburg, Virginia or increase costs due to
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