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Table of Contents
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Rosetta Stone Inc. (“Rosetta Stone,” “the Company,” “we” or “us”) is dedicated to changing the way the world learns. Our innovative, technology-driven
language-learning solutions have been purchased by millions of individuals and used by thousands of schools, businesses, and government organizations
around the world. Rosetta Stone Inc. is a corporation incorporated in Delaware in 2005. Founded in 1992, Rosetta Stone's predecessor pioneered the use of
interactive software to accelerate language learning. Today we offer courses in 30 languages across a broad range of formats, including online subscriptions,
digital downloads, mobile apps, and CD packages. Rosetta Stone has invested more in language learning and expanded into education-technology with its
acquisitions of Livemocha Inc. ("Livemocha") and Lexia Learning Systems Inc, ("Lexia") in 2013 and of Vivity Labs, Inc. ("Vivity"), and Tell Me More S.A.
("Tell Me More") in January 2014.
Livemocha has developed one of the world’s largest online language-based communities. The acquisition brought us a cloud-based platform, enabling us
to accelerate our transition to cloud-based learning solutions. By combining the Livemocha community with Rosetta Stone’s own innovative product
development and marketing capabilities, we are positioned to meet the changing needs of learners around the world.
The acquisition of Lexia, a leading reading-technology company, marked our first extension beyond language learning and expanded our footprint in the
education-technology industry. We are leveraging Lexia’s expertise in children’s reading to deepen our engagement with schools and deliver digital literacy
solutions to young learners in the United States ("U.S.") and international consumer markets.
The purchase of Tell Me More, headquartered in France, significantly strengthens Rosetta Stone’s Global Enterprise & Education business. Tell Me
More is a global language-learning software company with significant presence throughout Europe, as well as sales in the U.S., Latin America and China. Tell
Me More offers a robust suite of Software-as-a-Service ("SaaS") based language learning products and services that provide intermediate, advanced and
business language solutions in nine languages. We plan to introduce Tell Me More’s products into our Consumer business to increase the options provided to
customers, and we believe that with Tell Me More, we will be able to offer the most comprehensive suite of products and services--with the broadest number of
languages, greatest depth of content and largest geographic reach-- in the industry.
Vivity is the creator of the Fit Brains brain-training product portfolio, and this acquisition continues Rosetta Stone’s expansion beyond language learning
and into adjacent categories of education-technology. Underscoring the connection between brain fitness and language learning, Vivity’s mobile applications are
localized in multiple languages to serve customers around the world. Vivity’s emphasis on mobile solutions is especially compatible with our focus on cloud-
based technology to enable on-the-go learning.
Rosetta Stone’s management team has communicated a strategic business plan designed to guide the Company through 2015. The key areas of focus
are:
1. leveraging the brand;
2. innovating the platform; and
3. expanding distribution.
In pursuing these priorities, we plan to grow the business by continuing to invest in research and development of new products while focusing on
maintaining costs and margins at appropriate levels.
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During 2012, we instituted a change in our chief operating decision maker ("CODM"), which led to a fourth quarter change in what our CODM uses to
measure profitability and allocate resources. Accordingly, beginning with the fourth quarter of 2012, we have three operating segments, North America
Consumer, Rest of World ("ROW") Consumer and Global Enterprise & Education (previously referred to as Institutional). From the first quarter of 2011
through the third quarter of 2012, we had two operating segments, Consumer and Global Enterprise & Education. Prior to 2011 we operated as a single
segment.
The North America Consumer and ROW Consumer segments derive revenues from sales to individuals and retail partners. The North America
Consumer segment includes sales made within the U.S. and Canada; the ROW Consumer segment
4