Rosetta Stone 2012 Annual Report Download - page 10

Table of Contents
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.

At December 31, 2012, we had net deferred tax assets of $30.1 million which was offset by a valuation allowance of $29.8 million for certain
jurisdictions. We recorded the valuation allowance to reflect uncertainties about whether we will be able to realize some of our deferred tax assets before
they expire. The valuation allowance is based on our estimates of taxable income for the jurisdictions in which we operate and the period over which our
deferred tax assets will be realizable. We could in the future be required to increase the valuation allowance to take into account additional deferred tax
assets that we may be unable to realize. An increase in the valuation allowance would have an adverse impact, which could be material, on our income
tax provision and net income in the period in which we record the increase.



We released Rosetta Stone Version 4  and  in various markets over the past few years. Rosetta Stone Version 4 
integrates our existing language-learning software solutions with web-based services, which provide opportunities for practice with dedicated language
conversation coaches and other language learners to increase language socialization.  integrates online language-learning software solutions to
improve the listening and speaking skills of English learners with web-based services, which provide opportunities for practice with dedicated language
conversation coaches and other language learners. These language coach services have a much higher cost as a percentage of revenue than our software
solutions and remain a risk factor due to the growth of these offerings as a percentage of our sales. We offer Rosetta Stone Version 4 
primarily by bundling the web-based services of  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  and  have decreased our margins. Rosetta
Stone Version 4  sells at a higher price per unit than our Version 3 software solutions and customers may not choose to engage with
conversation coaches or be willing to pay higher prices to do so. Rosetta Stone Version 4  and  have also presented new management
and marketing challenges that differ from the challenges we faced in our previous business. In addition, we are now required to defer recognition of a
portion of each sale of Version 4  and  in connection with the subscription terms of our online socialization services. We cannot assure
you that Rosetta Stone Version 4  and
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