Rosetta Stone 2009 Annual Report Download - page 32

Table of Contents
center capacity on favorable terms, or at all. Additionally, the rates those call centers charge us may increase or those call centers may not continue to provide
service at the current levels.
We structure our marketing and advertising to drive potential customers to our call centers and websites to purchase our solutions. If our call center
operators do not convert inquiries into sales at expected rates, our ability to generate revenue could be impaired. Training and retaining qualified call center
operators is challenging due to the expansion of our product and service offerings and the seasonality of our business. If we do not adequately train our call
center operators, they will not convert inquiries into sales at an acceptable rate.
Our call center employs a large number of personnel and historically has been subject to a high turnover rate among employees. We may have to
terminate employees from time to time as our business changes and labor demands shift among our facilities. Any significant increase in labor costs,
deterioration of employee relations, slowdowns or work stoppages at any of our locations, employee turnover or otherwise, could harm our business and
profitability. In addition, high employee turnover could increase our exposure to employee-related litigation. Likewise, the third-party call centers we utilize
face similar issues.
If any of our products contain defects or errors or if new product releases or services are delayed, our reputation could be harmed, resulting in significant
costs to us and impairing our ability to sell our solutions.
If our products contain defects, errors or security vulnerabilities, our reputation could be harmed, which could result in significant costs to us and impair
our ability to sell our products in the future. In the past, we have encountered product development delays due to errors or defects. We would expect that,
despite our testing, errors will be found in new products and product enhancements in the future. Significant errors in our products or services could lead to,
among other things:
delays in or loss of market acceptance of our products and services;
diversion of our resources;
a lower rate of license renewals or upgrades for consumer and institutional customers;
injury to our reputation; or
increased service expenses or payment of damages.
In addition, we could face claims for product liability, tort or breach of warranty. Our contracts with customers contain provisions relating to warranty
disclaimers and liability limitations, which may not be upheld. Defending a lawsuit, regardless of its merit, is costly and may divert management's attention
and adversely affect the market's perception of us and our products and services. In addition, if our business liability insurance coverage proves inadequate or
future coverage is unavailable on acceptable terms, or at all, we could face significant financial losses.
Our sales to U.S. government agencies and armed forces subject us to special risks that could adversely affect our business.
Government sales entail a variety of risks including:
government contracts are subject to the approval of appropriations by the United States Congress to fund the expenditures by the agencies under
these contracts. Congress often appropriates funds for government agencies on a yearly basis, even though their contracts may call for
performance over a number of years;
our products and services are included on a General Services Administration, or GSA, schedule. The loss of the GSA schedule covering our
software products and related services could cause us to lose our ability to sell our products and services to U.S. government customers;
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