Rosetta Stone 2012 Annual Report Download - page 86

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Table of Contents



Rosetta Stone Inc. and its subsidiaries ("Rosetta Stone," or the "Company") develop, market and support a suite of language-learning solutions
consisting of software products, online services and audio practice tools under the  brand name. The Company's software products are
sold on a direct basis and through select retailers. The Company provides its software applications to customers through the sale of packaged software
and online subscriptions, domestically and in certain international markets.


The accompanying condensed consolidated financial statements include the accounts of Rosetta Stone Inc. and its wholly owned subsidiaries. All
intercompany accounts and transactions have been eliminated in consolidation.

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires that
management make certain estimates and assumptions. Significant estimates and assumptions have been made regarding the allowance for doubtful
accounts, estimated sales returns, stock-based compensation, fair value of intangibles and goodwill, inventory reserve, disclosure of contingent assets
and liabilities and disclosure of contingent litigation. Actual results may differ from these estimates.

The Company's primary products include Rosetta Stone  online and Rosetta Stone Version 4 . Rosetta Stone  online
combines an online software subscription with conversational coaching and is available in a selection of time-based offers (e.g. three, six and 12 months
durations). Version 4  includes a  online subscription bundled with perpetual software available as a CD-ROM or download. Rosetta
Stone  online was released in July 2009 and Rosetta Stone Version 4  was released in September 2010. Revenue is also derived from
the sale of audio practice products and professional services, which include training and implementation services.
Revenue is recognized when all of the following criteria are met: there is persuasive evidence of an arrangement; the product has been delivered or
services have been rendered; the fee is fixed or determinable; and collectability is reasonably assured. Revenues are recorded net of discounts. The
Company recognizes revenue for software products and related services in accordance with Accounting Standards Codification subtopic 985-605,
 ("ASC 985-605").
For multiple element arrangements that include  online software subscriptions bundled with auxiliary items, such as headsets and audio
practice products which provide stand-alone value to the customer, the Company allocates revenue to all deliverables based on their relative selling
prices in accordance with Accounting Standard Codification ("ASC") subtopic 605-25——
("ASC 605-25"). The Company has identified two deliverables generally contained in sales of Rosetta Stone  online software subscriptions.
The first deliverable is the auxiliary items, which are delivered at the time of sale, and the second deliverable is the online services.
F-9