Pandora 2012 Annual Report Download - page 34

Table of Contents
financial reporting as defined by the standards established by the Public Company Accounting Oversight Board. A material weakness is a deficiency, or
combination of deficiencies, that creates a reasonable possibility that a material misstatement of the annual or interim financial statements will not be
prevented or detected in a timely manner. The material weakness related to inadequate financial statement preparation, review procedures and controls to
ensure that accurate financial statements could be prepared on a timely basis, including insufficient review of account reconciliations that did not identify
exceptions or that required journal entries. After implementing new procedures based on the recommendations of our independent registered public
accounting firm, we concluded that we have remediated the previously identified material weakness as of January 31, 2012. Although we believe we have
addressed the previously identified material weakness, the measures we have taken may not be effective, and we may not be able to implement and maintain
effective internal control over financial reporting in the future.
We have recently initiated steps to implement, evaluate and test our internal controls over financial reporting. We have not completed these procedures
and until these controls are fully implemented and tested there is a possibility that a material misstatement would not be prevented or detected on a timely
basis. We are not currently required to comply with Section 404 of the Sarbanes-Oxley Act of 2002, and are therefore not currently required to make an
assessment of the effectiveness of our internal controls. Our first assessment of the effectiveness of our internal controls will be included within our form 10-
K for the year ending January 31, 2013. During the evaluation and testing processes, if we identify one or more material weaknesses in our internal control
over financial reporting, we will be unable to assert that our internal control over financial reporting is effective.
In addition, our independent registered public accounting firm's audit for the years ended January 31, 2011 and 2012 included consideration of internal
control over financial reporting as a basis for designing their audit procedures, but not for the purpose of expressing an opinion on the effectiveness of our
internal controls over financial reporting. If such an evaluation had been performed, they may have identified additional material weaknesses, significant
deficiencies and other control deficiencies. Moreover, when such tests are performed in future reporting periods, material weaknesses, significant deficiencies
and other control deficiencies may be identified.
If we are unable to implement and maintain effective internal control over financial reporting, or if our auditors are unable to express an opinion on the
effectiveness of our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports,
which could have a material adverse effect on the price of our common stock.
Our business and prospects depend on the strength of our brand and failure to maintain and enhance our brand would harm our ability to expand our
base of listeners, advertisers and other partners.
Maintaining and enhancing the "Pandora" brand is critical to expanding our base of listeners, advertisers and other partners. Maintaining and enhancing
our brand will depend largely on our ability to continue to develop and provide an innovative and high quality experience for our listeners and attract
advertisers, content owners and automobile, mobile device, and other consumer electronic product manufacturers to work with us, which we may not do
successfully.
Our brand may be impaired by a number of other factors, including service outages, data privacy and security issues, listener perception of ad load and
exploitation of our trademarks by others without permission. Further, if our partners fail to maintain high standards for products that integrate our service, fail
to display our trademarks on their products in breach of our agreements with them, or use our trademarks incorrectly or in an unauthorized manner or if we
partner with manufacturers of products that our listeners reject, the strength of our brand could be adversely affected. In addition, there is a risk that the word
"Pandora" could become so commonly used that we lose protection for this trademark, which could result in other people using the word "Pandora" to refer to
their own products, thus diminishing the strength of our brand.
We have not historically been required to spend considerable resources to establish and maintain our brand. However, if we are unable to maintain the
growth rate in the number of our listeners, we may be required to expend greater resources on advertising, marketing, and other brand-building efforts to
preserve and enhance consumer awareness of our brand which would adversely affect our operating results and may not be effective.
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