Rosetta Stone 2012 Annual Report Download - page 19

Table of Contents
governmental funding support for products such as ours would also cause us to lose revenue and could hurt our overall gross margins.

We face a lengthy sales cycle between our initial contact with some potential institutional customers and the signing of license agreements with
these customers. As a result of this lengthy sales cycle, we have only a limited ability to forecast the timing of such institutional sales. A delay in or
failure to complete license transactions could cause us to lose revenue, and could cause our financial results to vary significantly from quarter to quarter.
Our sales cycle varies widely, reflecting differences in our potential institutional customers' decision-making processes, procurement requirements and
budget cycles, and is subject to significant risks over which we have little or no control, including:
•customers' budgetary constraints and priorities;
•the timing of our customers' budget cycles;
•the need by some customers for lengthy evaluations that often include both their administrators and faculties; and
•the length and timing of customers' approval processes.



We need to anticipate, develop and introduce new products, services and applications on a timely and cost-effective basis that keeps pace with
technological developments and changing customer needs. The process of developing new high technology products, services and applications and
enhancing existing products, services and applications is complex, costly and uncertain, and any failure by us to anticipate customers' changing needs
and emerging technological trends accurately could significantly harm our market share and results of operations. For example, the number of
individuals who access the internet through devices other than a personal computer, such as tablet computers, mobile devices, televisions and set-top
box devices, has increased dramatically and this trend is likely to continue. Our products and services may not work or be viewable on these devices
because each manufacturer or distributor may establish unique technical standards for such devices. With the exception of  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, such as the demand for products designed for children, 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.
17