Rosetta Stone 2012 Annual Report Download - page 27
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Table of Contents
Our planned expansion of products and services will generate more varied sources of revenue than our existing business. In the fourth quarter of
2011, we made announcements regarding our business, including evolving from a CD-ROM based desktop software model to digital services,
combining self-study with live online conversational coaching in a multi-device platform. In 2012, we transitioned our distribution to more online in the
consumer business. The accounting policies that apply to these sources of revenue may be more complex than those that apply to our traditional
products and services. In addition, we may change the manner in which we sell our software licenses, and such change could cause delays in revenue
recognition in accordance with accounting standards. Under these accounting standards, even if we deliver products and services to, and collect cash
from, a customer in a given fiscal period, we may be required to defer recognizing revenue from the sale of such product or service until a future period
when all the conditions necessary for revenue recognition have been satisfied. If we move more of our consumer business online we will also collect
less cash from our initial transactions with consumers which could substantially decrease our revenues in the short term. Conditions that can cause
delays in revenue recognition include software arrangements that have undelivered elements for which we have not yet established vendor specific
objective evidence of fair value, requirements that we deliver services for significant enhancements or modifications to customize our software for a
particular customer or material customer acceptance criteria.
Our expense levels are based, in significant part, on our estimates of future revenue and many of these expenses are fixed in the short term. As a
result, we may be unable to adjust our spending in a timely manner if our revenue falls short of our expectations. Accordingly, any significant shortfall
of revenue in relation to our estimates could have an immediate negative effect on our profitability. In addition, as our business evolves, we anticipate
increasing our operating expenses to expand our product development, technical support, sales and marketing and administrative organizations. Any
such expansion could cause material losses to the extent we do not generate additional revenue sufficient to cover the additional expenses.
Our operating results are subject to fluctuations in foreign currency exchange rates. We currently do not attempt to mitigate a portion of these risks
through foreign currency hedging, based on our judgment of the appropriate trade-offs among risk, opportunity and expense. In the future, we might
choose to engage in foreign currency hedging transactions. If the foreign currency hedging markets are negatively affected by clearing and trade
execution regulations imposed by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the cost of hedging our foreign exchange
exposure could increase.
From time to time, we may seek additional equity or debt financing to provide for the capital expenditures required to finance working capital
requirements, continue our expansion, develop new products and services or make acquisitions or other investments. In addition, if our business plans
change, general economic, financial or political conditions in our markets change, or other circumstances arise that have a material effect on our cash
flow, the anticipated cash needs of our
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