Rosetta Stone 2012 Annual Report Download - page 89

Table of Contents
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
Accounts receivable consist of amounts due to the Company from its normal business activities. The Company provides an allowance for doubtful
accounts to reflect the expected non-collection of accounts receivable based on past collection history and specific risks identified.
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Inventories are stated at the lower of cost, determined on a first-in first-out basis, or market. The Company reviews inventory for excess quantities
and obsolescence based on its best estimates of future demand, product lifecycle status and product development plans. The Company uses historical
information along with these future estimates to establish a new cost basis for obsolete and potential obsolete inventory.
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Accounts receivable and cash and cash equivalents subject the Company to its highest potential concentrations of credit risk. The Company
reserves for credit losses and does not require collateral on its trade accounts receivable. In addition, the Company maintains cash and investment
balances in accounts at various banks and brokerage firms. The Company is insured by the Federal Deposit Insurance Corporation for up to $250,000
at each bank. The Company's cash and cash equivalents generally exceed the insured limits. The Company has not experienced any losses on cash and
cash equivalent accounts to date and the Company believes it is not exposed to any significant credit risk related to cash. The Company sells products to
retailers, resellers, government agencies, and individual consumers and extends credit based on an evaluation of the customer's financial condition,
without requiring collateral. Exposure to losses on receivables is principally dependent on each customer's financial condition. The Company monitors
its exposure for credit losses and maintains allowances for anticipated losses. No customer accounted for more than 10% of the Company's revenue
during the years ended December 31, 2012, 2011 or 2010. The Company had four customers that collectively accounted for 32% of accounts receivable
at December 31, 2012 and four customers that collectively accounted for 27% of accounts receivable at December 31, 2011. The Company maintains
trade credit insurance for certain customers to provide coverage, up to a certain limit, in the event of insolvency of some customers.
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The Company values its assets and liabilities using the methods of fair value as described in ASC 820, 
. ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The three levels of fair
value hierarchy are described below:
Level 1: Quoted prices for identical instruments in active markets.
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not
active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3: Significant inputs to the valuation model are unobservable.
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