Rosetta Stone 2012 Annual Report Download - page 59

Table of Contents
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Research and development expenses were $23.5 million for the year ended December 31, 2012, a decrease of $0.8 million, or 3%, from the year
ended December 31, 2011. As a percentage of revenue, research and development expenses remained flat at 9% for the year ended December 31, 2012
compared to the year ended December 31, 2011. The dollar decrease was primarily attributable to a $0.9 million decrease in consulting expenses and
$0.1 million decrease in stock photography primarily related to the decrease in development costs of our  product which launched in Korea in
the third quarter of 2011. This decrease in expense is partially offset by an increase in personnel-related expenses of $0.3 million. Although salary and
benefits compensation decreased $0.9 million over the prior year period, we incurred an $0.8 million increase in severance expenses as a result of our
restructuring efforts to better align our business as well as the separation of an executive employee in the second quarter of 2012 and an increase of
$0.3 million in sign-on bonuses and stock compensation as a result of our improved financial performance year over year. We will continue to develop
new products, including a children's product offering, and improve our offering to educational organizations. We intend to make our products more
modular, flexible and mobile. We also intend to restructure operations to optimize research and development initiatives. As a result of these initiatives,
we expect an increase in research and development expense in 2013.
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General and administrative expenses for the year ended December 31, 2012 were $55.3 million, a decrease of $6.8 million, or 11%, from the year
ended December 31, 2011. As a percentage of revenue, general and administrative expenses decreased to 20% for the year ended December 31, 2012
compared to 23% for year ended December 31, 2011. The dollar and percentage decreases were primarily attributable to a $4.2 million decrease in
consulting expenses, a $2.7 million decrease in personnel-related expenses, $0.9 million decrease in hardware and software upgrades, hosting, and
telephone expenses related to investment in our technology infrastructure and cost realignment initiatives during the prior year period and a $0.9 million
decrease in depreciation expense related to certain fixed assets being fully depreciated early in the second quarter of 2012. These decreases were partially
offset by a $1.3 million increase in outside legal expenses in connection with our Google lawsuit and a $0.7 million increase in VAT expenses. During
2012, we took additional steps to reduce certain general and administrative expenses as well as realign our cost structure to help fund investments in
areas of growth. We expect there to be increases in general and administrative expenses to support our expansion into international markets in 2013.
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As a result of the loss of the incentive and retentive value of the Long Term Incentive Plan ("LTIP"), on November 30, 2011 the board of directors
cancelled the LTIP resulting in the recognition of a non-cash charge of $4.9 million, which is included in each of the respective operating expense lines
for the year ended December 31, 2011 as follows, $0.8 million in sales and marketing, $1.1 million in research and development, and $4.0 million in
general and administrative. There were no shares issued from the LTIP to any executive prior to its cancellation. Total stock-based compensation by
expense line item is as follows:
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     
      
   
Cost of revenue $ 288 $ 55 $ 233 424%
Sales and marketing 1,185 1,932 (747) (39)%
Research and development 1,547 2,448 (901) (37)%
General and administrative 4,989 7,918 (2,929) (37)%
Total $ 8,009 $ 12,353 $ (4,344) (35)%