Rosetta Stone 2012 Annual Report Download - page 29

Table of Contents

We follow an established investment policy and set of guidelines to monitor and help mitigate our exposure to interest rate and credit risk. The
policy sets forth credit quality standards and limits our exposure to any one issuer, as well as our maximum exposure to various asset classes. As of
December 31, 2012, our cash consisted of highly liquid, investments with a original maturities of three months or less and demand deposits with
financial institutions. If financial market conditions worsen in the future, investments in some financial instruments may suffer from market liquidity and
credit problems. We cannot predict future market conditions or market liquidity, or credit availability, and can provide no assurance that our investment
portfolio will remain materially unimpaired.

We rely on our network infrastructure and enterprise applications, internal technology systems and our website for our development, marketing,
operational, support, hosted services and sales activities. A disruption, infiltration or failure of these systems or third-party hosted services that we rely
on for some of our business systems could, in the event of a major earthquake, fire, flood, power loss, telecommunications failure, software or
hardware malfunctions, cyber-attack, war, terrorist attack or other catastrophic event, cause system interruptions, reputational harm, loss of intellectual
property, delays in our product development, lengthy interruptions in our services, breaches of data security and loss of critical data and could prevent
us from fulfilling our customers' orders. We have developed certain disaster recovery plans and backup systems to reduce the potentially adverse effect
of such events, but a catastrophic event that results in the destruction or disruption of any of our data centers or our critical business or information
technology systems could severely affect our ability to conduct normal business operations and, as a result, our future operating results could be
adversely affected.


The adoption or modification of laws or regulations relating to the Internet or other areas of our business could limit or otherwise adversely affect
the manner in which we currently conduct our business. In addition, the growth and development of the market for online commerce may lead to more
stringent consumer protection laws, which may impose additional burdens on us. If we are required to comply with new regulations or legislation or
new interpretations of existing regulations or legislation, this compliance could cause us to incur additional expenses or alter our business model.

We rely upon the ability of consumers to access certain of our language learning solutions through the Internet. To the extent that network
operators implement usage based pricing, including meaningful bandwidth caps, or otherwise try to monetize access to their networks by data providers,
we could incur greater operating expenses and our subscriber acquisition and retention could be negatively impacted. Furthermore, to the extent network
operators were to create tiers of Internet access service and either charge us for or prohibit us from being available through these tiers, our business
could be negatively impacted.
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