Rosetta Stone 2012 Annual Report Download - page 21

Table of Contents
and cloud operations, and may give rise to a number of risks, including a lag in sales, dissatisfaction from perpetual license customers, difficulty setting
optimal pricing that could negatively affect sales and/or earnings, revenues that decline over the short or long term, confusion among our customers,
resellers and investors and higher than forecasted costs.

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. 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.


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
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