Rosetta Stone 2014 Annual Report Download - page 77

Table of Contents
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The Company allocated the purchase price based on current estimates of the fair values of assets acquired and liabilities assumed in connection with the
Lexia Merger. The table below summarizes the estimates of fair value of the Lexia assets acquired, liabilities assumed and related deferred income taxes as of
the acquisition date.
The Company finalized its allocation of the purchase price for Lexia as of June 30, 2014. The purchase price was allocated as follows (in thousands):
Cash
$ 263
Accounts receivable
2,404
Other current assets
105
Fixed assets
255
Accounts payable and accrued expenses
(899)
Deferred revenue
(1,223)
Net deferred tax liability
(4,210)
Net tangible assets acquired
(3,305)
Goodwill
9,938
Amortizable intangible assets
14,500
Purchase price
$ 21,133
The acquired amortizable intangible assets and the related estimated useful lives consist of the following (in thousands):
Estimated Useful
Lives
Estimated Value
August 1, 2013
Enterprise relationships
10 years
$ 9,400
Technology platform
7 years
4,100
Tradename
5 years
1,000
Total assets
$ 14,500
In connection with the Lexia Merger, the Company recorded deferred tax liabilities related to definite-lived intangible assets that were acquired. As a
result of this deferred tax liability balance, the Company reduced its deferred tax asset valuation allowance by $4.2 million. Such reduction was recognized
as an income tax benefit in the consolidated statement of operations for the year ended December 31, 2013.
Vivity Labs Inc.
On January 2, 2014, the Company completed its acquisition of Vivity Labs Inc. (the "Vivity Labs Merger" and "Vivity"). Vivity’s principal business
activity is the development of brain fitness games aimed at improving the user’s cognitive function through activity, awareness and motivation through its
flagship product, Fit Brains. The applications are designed for use on mobile, web and social platforms. Vivity’s emphasis on mobile solutions is especially
compatible with Rosetta Stone’s focus on cloud-based technology to enable on-the-go learning. The aggregate amount of consideration paid by the
Company was $12.2 million in cash.
The acquisition of Vivity resulted in goodwill of approximately $9.3 million, none of which is deductible for tax purposes. This amount represents the
residual amount of the total purchase price after allocation to the assets acquired and liabilities assumed.
All expenditures incurred in connection with the Vivity Labs Merger were expensed and are included in general and administrative expenses.
Transaction costs incurred in connection with the Vivity Labs Merger were $57 thousand and $51 thousand during the years ended December 31, 2014 and
2013, respectively. The results of operations for Vivity have been included in the consolidated results of operations since January 2, 2014.
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