Rosetta Stone 2012 Annual Report Download - page 22

Table of Contents
intense, and we may fail to retain our key employees or attract or retain other highly qualified personnel in the future. Many of our employees are
located in Harrisonburg, Virginia, a city that does not have a large pool of qualified replacement personnel. The lack of qualified local replacement
personnel may make it more difficult to quickly find replacement personnel and may increase the costs of identifying and relocating replacement
personnel to Harrisonburg, Virginia or increase costs due to hiring replacements in other higher cost of living cities such as Arlington, Virginia or
Boulder, Colorado.
In addition, wage inflation and the cost of retaining our key personnel in the face of competition for such personnel may increase our costs faster
than we can offset these costs with increased prices or increased sales volume.
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The number of worldwide kiosks decreased 50% from 174 as of December 31, 2011 to 87 as of December 31, 2012. In 2012, based on our
evaluation of historical and forecasted kiosk sales performance and profitability, we significantly reduced the size of our worldwide kiosk program, in
addition to continually reviewing the performance of remaining kiosk locations.
In order to successfully generate revenues from our kiosk program we must be able to hire, train, motivate and retain sales personnel to staff these
kiosks. Our kiosks are small and widely dispersed, and, as such, are operated without substantial hands-on management or oversight by us. As a result,
we depend on our kiosk sales personnel to effectively manage sales, customer issues and reporting of financial transactions from these kiosks. The
success of our kiosks will depend upon various additional factors, including our ability to negotiate site licenses on acceptable terms and on negotiating
acceptable labor costs. We must identify and negotiate cost-effective site licenses for kiosk locations that will generate sufficient consumer demand.
Many of these site licenses contain terms and conditions that are highly favorable to licensors including allowing licensors to cancel them on short
notice, sometimes as little as thirty days, and broad indemnification terms in favor of licensors. If competition for kiosk space increases, license fees
may increase and other terms may become even less favorable to us, resulting in lower profitability. Our failure to properly manage the repositioning of
this sales channel could cause us to lose revenue and increase our expenses.
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We rely on internal systems and external systems, networks and databases maintained by us and third-party providers to process customer orders,
handle customer service requests, and host and deliver our internet-based language- learning solutions, including our online language courses and
, and our  online peer-to-peer collaborative and interactive community. Any damage, interruption or failure of our
systems, networks and databases could prevent us from processing customer orders and result in degradation or interruptions in delivery of our
products and services. Notwithstanding our efforts to protect against interruptions in the availability of our e-commerce websites and internet-based
products and services, we do occasionally experience unplanned outages or technical difficulties. In addition, we do not have complete redundancy for
all of our systems. We do not maintain real-time back-up of all of our data, and in the event of system disruptions, we could experience loss of data
which could cause us to lose customers and could harm our reputation and cause us to face unexpected liabilities and expenses. If we continue to
expand our business, we will put additional strains on these systems. If we move additional product features to online systems or more of our business
online, all of these considerations will become more significant.
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