BULKY
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`DOCUMENT
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`(FILED ON PAPER — ENTIRE DOCUMENT EXCEEDS 100 PAGES)
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`{Proceeding No.
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`F91208316
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`[Fimg Date
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`T 09/23/2014
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`j
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`lPart11 ofl 3
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`91208316
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`ill
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`Q — Click hereto rapidly navigate through this document
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`As filed with the Securities and Exchange Commission on November 5, 2008
`
`Registration No. 333-153632
`
`UNITED STATES
`
`-
`
`SECURITIES AND EXCHANGE COMMISSION
`Washington, D.C. 2.0549
`
`
`Amendment No. 1
`
`H
`
`to
`
`Form S-1
`
`REGISTRATION STATEMENT
`Under
`
`THE SECURITIES ACT or 1933
`
`
`Rosetta Stone Inc.
`(Exact Name of Registrant as Specified in is Charter)
`
`Delaware
`(State or Other Jurisdiction of
`Ineorporafion or Organization)
`
`043837082
`(IRS. Employer
`'
`Identification Number)
`
`7372
`-(‘Primary Standard Industrial
`Classification Code Number)
`1101 Wilson Blvd.
`Suite 1130
`Arlington, Virginia 22209
`Telephone: 800-788-0822
`(Address, Including Zip Code. and Telephone Number.
`Including Arm Code, of Regisu-ant‘s Principal Executive Offices)
`Michael C. Wu
`General Counsel
`1101 Wilson Blvd, Suite 1130
`Arlington, Virginia 22209
`Telephone: 800-788-0822
`(Name, Address, Including Zip Code and Telephone Number, Including Area Code. ofAgent for Service)
`
`Copies to:
`
`Brent B. Siler
`Brian P. Fenske
`Cooley Godward Kronish LLP
`Fulbright & Jaworsld, L.L.l’.
`One Freedom Square
`Fulbright Tower
`11951 Freedom Drive
`1301 McKinney, Suite 5100
`Reston, Virginia 20190-5656
`_ Houston, Texas 77010
`Telephone: (703) 456-8000
`Telephone: (713)651-5557
`Fax: (703) 456-8100
`Fax: (713) 651-5246
`—::——
`
`Approximate date of oomrnencanent ofproposed sale to the public: As soon as pmcfit-able after the effective date ofthis Registration Statement.
` ——:.
`
`Ifany ofthe securities being registered on this Form are to be offeredon a delayed or continuous basis pursuant to Rule 415 underthe Securities Act of 1933, check the following
`box. D
`
`Ifthis Form is filed to register additional securities for an offering pursuant to Rule462('b) under the Securities Act. please check the following box and list the Securities Act
`El
`registration statement number ofthe earlier effective registration statement for the same offering.
`’
`Ifthis Form is a post-effective amendment filed pursuant to Rule 4-62(c) under the Securities Act, check the following box and list the Securities Actregisuntiou statement number of
`
`
`
`

`
`N1
`
`the earlier effective registration statunem for the same offerlun. El
`Ifthis form is apost-effective amendmentfiled puxsuant toRule462(6) underthe Securities Act. checkthefollowingbox and list the Securities Actregistntion statement number of
`the earlier effective registration statement for the same offefing. D .
`
`an accelerated filer, a non-accelerated filer. or a smaller reporting company. See the definitions of "large
`Indicate by check mark whether regisuant is a huge accelerated filer.
`b-2 of the Exclmnge Act (check one):
`accelerated filer," ‘accelerated filer,‘ and “smaller reporting company" in Rule 12
`Large accelerated filer D, Aetxleratetl filer El. Non-accelerated filer (do not check if a smaller reporting company) 4| or Smaller reporting company El
`___._..______._.j_.___..
`
`be necessary to delay its elfeefive date until the Registrant shall tile :1 further
`The Registrant hereby amends
`amendment which specifimlly states that this Registration Statement shall thereafter become efixtivein accordance with Section 8(a) ofthe Securities Act of 1933 or until the
`Registration Statement shall become eflective on such date as the Cnmmission, acting pursuant tn said Section 813), may determine
`’
`_____________________________
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`ll
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`4
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`PROSPECTUS (Subject to Completion.)
`
`Issued November 5, 2008
`The information in this prospectus is not complete and may be changed. Wa may not sell these securities until the registration statement filed with the
`Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these
`secufities in any state where the offer or sale is not permitted.
`
`
`
`Rosetta Stone Inc.
`
`COMMON STOCK
`
`
`shares ofcommon stock. We
`shares ofits common stockandthe sellingstockholders are offering
`Rosetta Stone Inc. is ojffering
`-wiflnotreceive anyproceedsfrom the sale ofshares by the sellingstockholders. Thisis ourinitialpublic ojferingandnopublic marketcurrently
`existsfor our shares. We anticipate that thepublic o_fi'eringprice willbe between $
`and $
`per share.
`.
`
`We willapply to have our common stock listed on the New York Stock Exchange under the symbol "RST. "
`.__.__<——_.____¢____
`
`Investing in our common stock involves risks; See "Risk Factors" beginning onpage 11.
`__._:____.__.__..___.
`
`A some
`PRICE $
`.____.___.___.___._.
`
`Price to
`
`Public
`
`Underwriting
`Discounts and
`Commissions
`
`Proceeds to
`Comgagz
`
`Proceeis to
`Selling
`Stockholder:
`
`Per Share
`Total
`$
`$
`S
`The selling stockholders have granted the underwriters the righttopurchase up to anadditional
`allotments.
`
`$
`
`3
`
`$
`
`$
`
`$
`shares ofcommon stockto coverover-
`
`The Securities andExchange Commission andstate securities regulators-have notapprovedor disapproved these securities, or determined ifthis
`prospectus is truthfid or complete. Any representation to the contrary is a criminal offense.
`Morgan Stanley & Co. Incorporated expects to deliver the‘shares ofcommon stock topurchasers on
`.?
`
`, 2008.
`
`MORGAN STANLEY
`
`WILLIAM BLAIR & COMPANY
`
`JEFFERIES & COMPANY
`
`PIPER JAFFRAY
`
`A ROBERT W. BAIRD '& C0.
`
`, Z008
`
`

`
`H1
`
`

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`Ill
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`Prospectus Summary
`
`Risk Factors
`
`TABLE OF CONTENTS
`
`Special Note Regarding Forward-Looking Statements
`
`Use of Proceeds
`
`‘
`
`Dividend Policy
`
`Capitalization
`
`.
`
`Dilution
`Selected Consolidated Financial Data
`
`:
`
`Management's Discussion and Analysis of Financial Condition and Results of Operations
`
`Business
`
`Management
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`Executive Compensation
`
`_
`
`.
`
`Related Party Transactions
`Principal and Selling Stockholders
`
`Description of Capital Stock
`
`.
`
`‘
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`Material U.S. Federal Income and Estate Tax Considerations to Non-U.S. Holders
`
`Shares Eligible for Future Sale
`
`Underwriters
`
`Legal Matters
`
`EXPWS
`
`D
`
`Where You Can Find Additional Information
`
`‘
`
`,
`-
`Index to Consolidated Financial Statements
`._____._____Z_.____.___
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`E185
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`1
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`1 1
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`3 1
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`32
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`32
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`33
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`35
`37 '
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`40
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`73
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`89
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`95’
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`1“
`113
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`115
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`1 1 9
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`-
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`122
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`124
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`128
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`128
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`128
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`F_1
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`Youshouldrely only on theinformationcontainedin-this prospectus orin any flee-writingprospectus wemay specifically authorizetobe
`deliveredormade availableto you. Wehavenot,theselling stockholdershavenotandtheunderwritershavenotauthorized anyonetoprovideyouwith
`additional ordifferentinformation.Weandthe selling stockholders areoffering to sell, and seekingofferstobuy, shares ofourcommon stockonlyin
`jurisdictionswhereoffers andsales arepermitted.Theinformationinthis prospectus ora free-writingprospectusis accurateonly as ofitsdate,
`regardless ofitstimeofdelivery orofany saleofshares ofourcommon stock. Ourbusiness, financialcondition, results of operations andprospects
`
`may have changed since that date.
`Until
`, 2008 (25 days after the commencement ofthis offering), all dealers thatbuy, sell or trade shares ofour common
`
`

`
`1H
`
`ery requirement is in addition to the
`in this offering, may be required to deliver a prospectus. This deliv old allotments or subscriptions.
`stock, whether or not participating
`derwriters and with respect to their uns
`obligation of dealers to deliver a prospectus when acting as un
`
`ckholders have not and the underwriters have not done anything that would
`For investors outside the United States: We have not, the selling sto
`uiisdiction where action for that purpose is required, other than in the United
`permit this ofiering or possession or distribution ofthis prospectus in any j
`must inform themselves about and observe any restrictions
`0 come into possession of this prospectus
`States. Persons outside the United States wh
`relating to, the offering ofthe shares ofcommon stock and the distdbution ofthis pmspecms outside ofthe United States.
`i
`____________________._____________
`
`

`
`ill
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`PROSPECTUS SUNIMARY
`
`Thissummaryhighlightsinformationcontainedelsewhere inthisprospectusanddoesnotcontainall ofthe informationthatyoushouldconsider
`inmakingyourinvestmentdecision. Before investing in ourcommon stock. youshouldcarefully readthisentireprospectus, including ourconsolidated
`financial statements andthe relatednotesandthe information setforth underthe headings "RiskFactors" and "Management'sDiscussion and
`Analysis ofFinancial Condition andResults ofOperations, "in each case included elsewhere in thisprospectus.
`ROSETTA STONE INC.
`
`Overview
`
`We arealeading provideroftechnology-basedlanguagelearning solutions. We develop, market and selllanguagelearning solutions consisting of
`software, onlineservices andaudiopracticetoolsprimarilyunderour Rosetta Stonebrand. Ourteachingmethod, whichwecall DynamicImmersion, is
`designed to leveragethe innate, natural languagelearning ability thatchildrenuse to learn theirnativelanguage. Our courses arebased on our
`proprietaryinteractivetechnologies andpedagogical content, andutilizea sophisticatedsequencing ofimag , textand soundstoteach anewlanguage
`withouttranslation orgrammar explanation. Webelieve our award-winningsolutions provide aneffective, convenient andfun way to learnlanguages.
`We currently offerour self-studylanguagelearning solutionsin31 languages. Ourcustomersinclude individuals, educationalinstitutions, armedforces,
`government agencies and corporations.
`The strength andbreadthofour solutionshave allowedus to develop abusiness model fliatwe believe distinguishesus fromother language
`learningcompanies. Our scalabletechnology platform and ourproprietary contentcanbedeployed acrossmanylanguages. Thishas enabledusto cost-
`effectivelydevelopabroadproductportfolio.Wehave amulti-channelmarketinganddistribution strategythatdirectlytargetscustomers,utilizingprint,
`online,television andradioadvertising,publicrelationsinitiatives andourbrandedkiosks. Approximately 85% ofourrevenue in 2007 was generated
`throughourdirectsales channels, whichincludeourcallcenters, websites,institutional salesforceandkiosks. Wealso distributeour solutionsthrough
`selectretailers such as Amazon.com, Apple,Barnes &Noble andBorders. Accordingto anAugust2008 survey wecommissionedfromGlobalMarket
`InsiteInc, orGMI, amarketresearch servicesfirm, Rosetta StoneisthemostrecognizedlanguagelearningbrandintheUnited States. Theunaided
`awareness ofourbrandwas over40%, whichwas morethan seventimes that ofany other languagelearning company intheUnited States.
`We crew ourrevenuefrom ourpredecessor's $15.5 millionin 2003 to $137.3 millionin 2007, representing a73% compoundannual growth rate.
`This growthhasbeenentirely organic. Fortheninemonths endedSeptember30, 2008, ourrevenuewas $143.1 million, an increase of52% overthe
`
`Approaches to Language Learning
`Thehumanbrainhas anatural capacitytolearnlanguages. Childrenlearntheirnativelanguagewithoutusingrotememorizationor adultanalytical
`abilities for grammaticalunderstanding. Theylearnattheir ownpacethroughtheirimmersioninthelanguage spokenaroundthem andusingtrial and
`
`error. They do not rely on translation
`
`_ Traditionallanguageinstructionhasignoredthisnaturalhumanexperienceandability, andhasfocusedonrotememorization,grammarexplanation
`andwordtranslation, oftenin a classroom setting. Studentsinthis environmentmaylearn anewlanguagesufficientlytopass examinationsbutoften do
`not achieve conversational fluency. Many students Viewthis method as ineffective andboring. While self-study alternatives are generally more
`affordable and convenient than classroom instruction, many of
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`l
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`1H
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`them rely on this grammamranslation method, 0
`feedback
`
`ften using passive media such as audio andbooks, which are notinteractive and do notprovide
`
`ability to learn languages. Immersion
`guage is spoken, leverages the natural human
`In contrast, immersion instruction, in which only the target lan
`grants. These options, however, are
`private lessons and in-country immersion pro
`learning has historically been provided through classroom courses,
`to obtain the immersion experience.
`often expensive and require students to commute to classrooms or travel to other countries
`
`Our Industry
`
`a market research firm, the worldwide language
`According to aDecember 2007 industry analysis we commissionedfrom The Nielsen Company,
`on was for self-study. According to the
`6 in 2007, of which more than $32 billi
`learning industry represented more than $83 billion in consumer spending
`% of our revenue in 2007, represented more than $5 billion
`Nielsen survey, thelanguage learning indusny in the United States, where we generated 95
`in consumer spending in 2007, of which more than $2 billion was for self-study.
`
`The demand for language learning is driven in part by:
`
`'
`
`'
`
`'
`
`'
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`'
`
`'
`
`'
`
`°
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`individuals seeking the enjoyment and enrichment brought by learning alanguage;
`
`professionals conducting business in a global economy;
`
`schools seeking to educate their students in local and foreign languages;
`
`companies training their employees;
`
`leisure travelers seeking language proficiency for independentintemational n-avel;
`
`armed forces training soldiers to communicate in foreign languages;
`
`immigrants and expatriates seeking to successfully function in their new environments;
`
`individuals connecting with their ethnic and family roots; and V
`
`'
`
`parents supplementing their children's education.
`fragmented and consists ofthefollowingprimary models: classroom instruction utilizingthetraditional
`immersionvbased classroom instruction; self—study books, audio tapes and software that rely on
`The language learning market is highly
`approach of memorization, grammar and translation;
`and free online offerings thatprovidebasic content and opportunities to practice writing and speaking.
`grammar and translation;
`nient and affordable than classroom alternatives, and more
`trusted name brand solution that is more conve f these elements is not offered by traditional providers of
`We believe that language learners seek a
`study options. We believe the combinafion 0
`effective, interactive and engaging than other self-
`language instruction.
`
`The Rosetta Stone Solution
`
`Ourmissionistochangethewaypeoplelearnlanguages.Webelieveoursolutionsprovideaneffectivewaytolearnlanguagesinaconvenientand
`livelanguagelearning solufions enableourcustomerstolearnalanguageontheirownscheduleandforapricethatis
`alternatives. Our approach, called Dynamic Immersion, eliminates translation and
`engaging manner. Our interac
`significantly lower than most classroom-based or one-on-one tutoring
`that children use to learn their native language. Our
`everage the innate, natural language learning ability
`grammar explanation and is designed to l
`sionals with extensive
`proprietary solutions havebeen developed over thepast 16 years by profes
`
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`2
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`

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`ill
`
`tructionaltechnology expertise. Weesfimatethatourcontentlibrary consists ofmorethan25,000 individualphotographic
`linguistic, educational and ins
`professionally recorded sound files. We designthe sequencingofourcontentto optimizelearning. The resultis 21
`images and more than 400,000
`ed to be flexible, fun and convenient.
`rigorous and complete language learning curriculum that is also design
`Our language learning solutions arebuiltupon a flexible software platform that supports multiplelan
`computers, on local networks and online. The platformincorporates a number ofproprietary technologies
`including:
`'
`
`guages and is deployable on personal
`that are key to enabling language learning,
`
`'
`
`'
`'
`
`speech recognition that is focused on the unique challenges oflanguage learners;
`
`Adaptive Recall algorithms thatrepeat content at scheduled intervals to promotelong-term retention;
`reporting features and curriculum options designedto enhancethe effectiveness and administration ofclassroom, enterp
`
`rise and home
`
`school learning; and
`
`'
`
`an intuitiveuserinterface that assists the learner's transition fi'omlistening comprehension to spealdng.
`ding approximately 40 hours of instruction and
`three levels of proficiency per language, with each level provi classroom and home school. Each edition utilizes
`Our courses are available in up to
`containing multiple units, lessons and activities. Wehave four different editions: personal, enterprise,
`the same core software.
`8 CODE awards for best corporate learning solution
`Ourinnovative solutions have received numerous awards and recognitions, including the 200Industry Association, the 2008 education product of
`curriculum areas sponsored by the Software & Information
`els 1, 2, and 3 awarded by CampurED Gazette in
`and best instructional solution in other
`SE multilevel foreign language award forSpanish Lev
`the year awarded by MacWorld, the 2008 BES
`ard for Chinese levels 1 and 2 and a 2007 multilevel English-as-a—second—language, or ESL,
`awards are chosen based upon a peer-review of the nominated
`2008, the 2007 EDDIE multilevel foreign language aw
`award for English levels 1, 2, and 3 awarded byComputED Gazette. The CODiE
`Industry Association and independent judges selected by the
`software solutions and voted on by member entities ofthe Software & Information
`association. The other awards were determinedby the editorial staffs ofthe various publications.
`lie at wwmsharedtalk.com, where registered language learners meet
`SharedTa
`We also provide an online peer-to-peer practice environment called
`more than 100,000 active
`January 1, 2008 and August 31, 2008, we had
`for language exchange to practice their foreign language slcills. Between
`dTalk registrations.
`SharedTalkusers. In the month ofAugust 2008, there were approximately 13,000 new Share
`
`Competitive Strengths
`
`A
`We believe our competitive strenms include:
`mbine efiective immersion learning with the benefits of
`Advanced Technology-Enabledlanguage Learning System Our proprietary solutions co
`engaging language learning experience.We intend to remain atthe forefiont oftechnological
`flexibility and interactivity to provide for an eficient and
`and pedagogical advances in language learning.
`
`Scalable andAdaptable Platform and Come
`geographic markets. For example, we deploy many
`to
`
`

`
`addnew languages. Because our solutions do notrely upon translationfromthe targetlanguage into thelearner's nativelanguage, they require only
`modestlocalizationtobeused bylearners from othernativelanguagebackgrounds This facilitates our ability to sell our existinglanguage courses in '
`newinternationalmarkets. In addition, our softwareplatformis en ' eeredto workin the same way bothonline and locally installed, allowingfor
`multiple delivery methods. We also use the same platform for all four editions ofour solutions. ‘
`EfiectiveMulti-ChannelMarketing andDistributionModeL Ourmarketing, sales and distribution efforts arehighly integrated and focused on
`direct interaction with consumers. As a result, we are ableto present a tightly controlled and unified message to the marketplace. Our advertising '
`includes a call to action that drives customers directly to our websites and call centers. Ourmarketing tools and techniques allow us to directly attribute
`sales results to specific marketing initiatives. Weutilizethis data to continuously improvethe efficiency ofour websites, call centers, advertising and
`media planning and buying. We also operatemorethan 150 lciosks, which extend our directinteraction withcustomers and allow them to experience our
`solutions with the guidance ofone ofourproduct specialists. In ourinstitutional markets, our sales efforts are ledby ourdirect sales force. We augment
`our direct distribution networkwith select retailers, including Amazoncom, Apple, Barnes & Noble and Borders.
`Leading and TrustedBrand, with a Dzfi‘eren1ia.ted, High-QualityPositioning. According to the GM! survey,Rosetta Stoneis themost
`recognizedbrandoflanguage learning solutions in the United States. Additionally, ofthose surveyedwhohad anopinion ofthebrand, over 80%
`associatedthe brand withhigh-quality and effectiveproducts and services forteaching foreign languages. Webelievewehavepositioned Rosetta Stone
`as a premium brand and as a trusted choice for language learning.
`Enthusiastic andLoyal CustomerBase. Our customers exhibitloyalty andenthusiasm for our solutions andmany promote sales ofour
`products through word-of-ruouthreferrals. Ourlatestsurvey ofourindividualcustomers in theUnitedStates, completedinFebruary 2008, revealed
`that 86% ofrespondents expressed satisfaction with our solutions and 69%have recommended our solutions to one ormoreindividuals.
`’
`
`Our Strategy
`Our goal is to strengthen our position as a leading provider oflanguage learning solutions through the following strategies:
`Extend Our Technological andProductLeadership. We intend to apply new technologies tomaintain ourproductleadership. We currently are
`working on avariety ofproductdevelopmentinitiatives. Forexample, we aredeveloping anew web-based service thatextends our existing language
`learning solutions by offering opportunities forpractice with dedicatedlanguage conversation coaches and otherlanguagelearners to increase language
`socialization. Weexpectto providethis web-based serviceprimarily as abundlewith our software and audio offerings. In addition, we are evaluating
`opportunities to extendourlearning solutionstohand-helddevices and wealsointendto continuetoadvanceourproprietary software platform andour
`
`speech recognition technology.
`Expand OurCareProductPortfolio. Weplan to expand ourproductportfolio by addingmore advanced courselevels for our existing
`languages, new languages andnew skilldevelopmentandremediationcoursesfor advanced languagelearners.Inaddition, webelievethat theremaybe
`oppommities forus to introduce additional lan
`ge learning solutions containing industry-specific content
`Increase U.S. Market Share. To increase our penetration oftheU.S. market and expand ourbrand awareness, we intend to increase our
`marketing campaigns flirongh the purchase ofadditional television,print, radio and online advertising, andto explorenew media channels. We also
`
`intend to
`
`_
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`

`
`II
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`‘t
`
`continue to add select retailrelationships andlciosks. For example, a selection ofour solutionshas recentlybecome available inApple stores and at
`Apple.com. For ourinstitutionalbusiness, we expectto expand our direct sales force along with ourinstitutionalmarketing activities.
`Increase OurFocus on SizeableNan-U.S. Markets. We generated approximately 5% ofourrevenue in 2007 from sales outside theUnited
`$83 billion spent in 2007 on consumer language learning products and services worldwide
`States. According to the Nielsen survey, over 90% of the
`d our business internationally utilizing
`was spent outside the United States. We therefore believe thatthere is a significant opportunity forus to expan
`many ofthe successful marketing and distribution strategies we have used in the United States.
`
`Risks Associated with Our Business
`
`as discussed more fully in the section entitled "Risk Factors" immediately following this prospectus
`summary. Adeclinein demandforourlanguagelearning solutions orlanguagelearning in general couldimpair our abilitytogeneraterevenueand
`as could the growth offreelanguage learning software and online services and intense competition in our industry.
`generated from consumer sales in 2007, adversetrends in general economic conditions, including retail
`compromise our profitability,
`ales. Ifwe do not keep pace with technological developments and consumerpreferences, demand for
`Because approximately 78% of our revenue was
`shopping patterns, may also adversely affect our s
`our products and services could decline.
`
`Corporate Information
`
`We were incorporatedin DelawareinDecember2005 and acquiredourpredecessor, Fairfield & Sons, Ltd, in January 2006. Our principal
`1130, Arlington, Virginia 22209 and ourtelephone number is 800-788-0822. Our corporate
`executive oflices are located at 1101 Wflson Blvd, Suite
`website addressis www.RorezzaStone.com.Wedonotincorporatetheinformation containedon, oraccessiblethrough, ourcorporatewebsiteintothis
`prospectus, and you should not consider it part of this prospecms.
`For convenience in this prospectus, "Rosetta Stone," "we," "us," "our" and "Successor" refertoRosetta StoneInc. andits subsidiaries, taken as a
`whole, unless otherwise noted Predecessor refers to Fairfield & Sons, Ltd
`Wehave anumber ofregisteredmarks, including Rosetta Szone®, Rosetta World®, RosettaStone LanguageLearning Success® and design,
`DynamicImmersz'an®, TheFastestWay toLearnaLanguage GuaranIeed.®,theRosettaStonebluestonelogo and designand Rosettastone.com®.
`Wehave appliedtoregisterourAdaptiveRecall,Audio Companion,theRosettaStoneblue stonelogo anddesign/LanguageLearning Success and
`SharedTall:trademarks. Thisprospectus alsocontainstrademarks andtradenames of othercompanies. Alltrademarks andtradenames appearingin
`this prospectus are the property of their respective holders.
`
`5
`_________________,______________
`
`

`
`II
`
`‘1
`
`THE OFFERING V
`
`Common stock ofiered by
`Rosetta Stone
`
`Common stock offered by the
`selling stockholders
`
`_
`
`Total common stock offered
`
`Total common stock to be
`outstanding after this offering
`
`Useofproceeds
`
`shares
`
`Shares
`
`shares
`
`_
`shares
`
`Weintendtouseaportionofthenetproceedsfromthisofferingtorepaytheoutstandingbalanceunderourcredit
`facilities, which was approximately $10.8 million as of September 30, 2008, and we intend to use the remaining net
`proceeds for working capital and other generalcorporatepurposes, whichmay include the acquisition ofother
`businesses, products or technologies. We do not, however, have agreements orcommitments for any specific
`acquisitions atthis time. Wewillnotreceive any proceeds fromthe sale ofshares bythe selling stockholders. See
`"Use of Proceeds."
`
`Riskfactors
`
`See "RiskFactors" foradiscussionoffactorsthatyou shouldconsidercarefullybeforedecidingwhethertopurchase
`shares of our common stock.
`‘
`
`Proposed New York Stock
`Exchange symbol
`
`"RST"
`
`tstanding after this offering is based on the number ofshares outstanding as of September 30,
`The number of shares of our common stock to be on
`2008. Such number of shares excludes:
`
`'
`
`'
`
`1,211,932 shares of common stock issuable upon the exercise of options outs
`exercise price of $7.52 per share;
`
`tanding as of September 30, 2008 with a weighted average
`
`170,015 shares ofcommonstock reserved for future issuance under our 2006 StockOption Plan; and
`
`'
`
`shares of common stock reserved for future issuance under our 2008 Omnibus Incentive Plan.
`eflects and assumes:
`Unless otherwise indicated. the information in this prospectus r
`'
`the conversion ofall outstanding shares ofour preferred stockinto 11,159,780 shares ofour common stock, whichwill occur
`automatically immediately prior to the closing of the offering; -
`
`'
`
`'
`
`the filing ofour second amended and restated certificate of incorporation an
`immediately prior to the closing of the offering",
`no exerciseby thetmderwriters oftheiroption topurchaseup to an additional
`
`stockholders to cover over—a1lotrnents.
`
`6
`
`d adoption of our second amended and restated bylaws
`
`shares ofour common stockfromthe selling _
`
`

`
`ll
`
`‘1
`
`SUNIMARY CONSOLIDATED FINANCIAL DATA
`The followingtable sets forth a summary ofourconsolidated statement ofoperations,balance sheet and other datafortheperiods indicated. The
`summaryconsolidatedstatementofoperations datafortheperiodfromJanuary 4, 2006throughDecember31, 2006 andtheyearendedDecember31,
`2007 havebeenderivedfromRosettaStoneInc, orthe Successor, audited consolidatedfinancial statements includedelsewhereinthisprospectus. The
`summary consolidatedfinancial datafortheyearended December31,2005 andtheperiodfromJanuary 1, 2006throughJanuary4, 2006representthe
`operations ofFairfield& Sons,Ltd.,orthePredecessor, all ofthe outstanding stock ofwhichwas acquiredhyRosettaStoneInc. onJanuary 4, 2006,
`and havebeenderivedfi-omPredecessor audited consolidatedfinancial statements included elsewhere in this prospectus. Our summary consolidated
`financial dataforthenine months endedSeptember 30, 2007 and as ofandfor theninemonths ended September 30, 2008 havebeen derived fiom our
`unaudited Successorconsolidated financial statements includedelsewhere inthis prospectus. You should read this informationtogether with
`"Management‘sDiscussion andAnalysis ofFinancial ConditionandResults ofOperations" and ourconsolidatedfinancialstatements contained
`
`elsewhere in this prospectus.
`
`The Predecessorincurredtransaction-related expenses during theperiodfrom January 1, 2006 to January 4, 2006 relating tothe acquisition by
`Rosetta StoneInc. onJanuary 4, 2006. Includedin these expenses were $5.9 million relatedtorestricted common stock, $3.1 million in cashbonuses
`and $1.2 million in acquisition-related bank fees.
`We have presented the summary balance sheet data as of September 30, 2008:
`
`'
`
`on an actual basis;
`
`'
`
`'
`
`on aproformabasis to giveeffecttotheconversion ofalloutstanding sharesofourconvertible preferred stockinto an aggregateof
`11,159,780 shares ofour common stock, which will occur automatically imme ' telypriortothe closing ofthis offering, and the
`million on
`, 2008 to federal and state taxing authorities to satisfy the tax withholding obligations ofthe
`payment by us of S
`, 2008 stock grants who elected to satisfy theirtax withholding obligations related to these stock grants by
`recipients of our
`have received ratherthan paying us an equivalent amount of cash; and
`having us withhold a portion oftheshares they would otherwise
`shares ofcommon stockin this offering at an assumedinitial
`on aproforma as adjustedbasisto givefurthereffectto our saleof
`publicofferingprice of$
`per share,whichisthemidpointoftherangesetforthonthecoverpageofthisprospectus, after
`deducting estimatedunderwritingdiscounts andcommissions andestimatedofferingexpensespayableby us, andouruseofaportion of
`the proceeds from that sale to repay debt.
`pershare,whichisthemidpointoftherange setforthonthe
`public oiiferingprice of$
`Each $1.00increaseordecreaseintheassumed
`coverpageofthisprospectus,would increase ordecreaseeachofcashandcashequivalents, totalassets andtotal stockholders‘ equity on aprofonrna as
`adjustedbasis by approximately $
`million, assumingthatthenumberofsharesofferedbyus, as setforthonthe coverpage ofthisprospectus,
`remainsthe same.Theproformaas adjustedinformationpresentedinthe summarybalancesheetdata isillusuariveonly andwill changebasedonthe
`actual
`public ofiering price and other terms ofthis ofiering determined at pricing.
`
`,
`7
`
`

`
`Ill
`
`Predecessor
`.—_
`Period from
`January 1,
`through
`January 4,
`2006
`
`Year Ended
`December 31,
`2005
`
`Successor
`
`Period from
`January 4,
`through
`December 31,
`2006
`(in thousands, except per share data)
`
`Yur Ended
`December 31,
`2007
`
`2007
`
`Nine Months Ended
`
`September 30,
`2008
`
`124.988
`$
`18.143
`.55:
`
`143.131
`
`17,869
`
`"'5-'so,6o4i7
`
`10,694
`
`0 S 0119,0897
`17,424
`
`'
`
`is 010.834
`12.479
`__._._
`
`91.298
`
`137,321
`
`94.313
`
`' "1’i,$49'
`992
`____.__
`
`12,541
`~
`_Z__.._
`78,757
`
`19,055
`
`13,499
`
`
`
`1,632.55..
`
`.?__..
`1,136
`
`1.789
`—-:—??.—_.__.
`
`‘ 120,687
`\
`1 16,634
`l
`
`14,63525
`79,673
`
`19,658
`.._———?j___
`123,473
`—-——————:_?_.__
`
`44,273
`— r;
`4,124
`
`S’
`
`48,402
`
`7,772"
`470
`
`178
`94
`
`272
`
`199.
`
`\.
`203 »
`69
`
`‘I
`\8
`
`,242
`‘
`40,160
`.._..__—___
`
`65.510
`
`13,308
`
`26.272
`
`..__..:—?._.____._
`
`105.090
`—:___?__j..
`18,383
`
`423
`
`_22,432
`2,819
`
`695
`41
`
`—
`"142
`10,315
`
`
`‘45.854
`.s,117
`
`_12.597
`16.590 .-
`_
`
`65.437
`
`12.1293
`
`45394
`
`19.524
`
`I 09.786
`
`21,033 '
`
`
`.
`
`,ll.l93
`(11,124
`
`83,158
`(4,401)
`
`
`103.115\
`8.518
`
`.:__._
`. 76.951
`2,727
`
`_
`
`9
`
`573‘
`.-(17,331)
`154
`
`520
`(1.025)
`186
`
`3.157
`
`L3
`
`3.408
`6,752
`
`38
`
`Statement of Operations Data:
`Revenue:
`Product
`
`Subscription and service
`
`Total revenue
`Cost of revenue:
`
`Cost of product revenue
`Cost of subscription and service
`revenue
`
`Total cost of revenue
`Gross margin
`
`Operafing, expenses:
`Sales and marltedng
`,
`Research and development’
`Acquired improcess research and
`development
`General and administrative
`Transaction-related expenses
`
`Total operating expenses
`Income (loss) from operations
`Other income and expense:
`Interest income
`
`613
`‘mam.’
`so
`
`(887)
`(sass)
`(1.240)
`(4,048)
`(159)
`
`
`
`
`_—
`‘X—
`3
`
`3
`(11,121;
`. —
`(11,121)
`—
`
`134
`
`172
`6.924
`143
`6.781
`
`,
`
`..
`
`(504)
`8.014
`5.435
`1.579
`
`(714)
`31
`._.:_:____¢:__
`
`
`(319
`2.408
`_?___._
`~ 2.106
`302
`g_____.
`-050)
`.--
`
`(210)
`18.173
`9,222
`.._:___.:___
`8.951
`_.—._..__??._._.
`
`8.951
`5
`———.———;———.—
`
`6.781
`5
`__._._.
`
`(4,207)
`$
`5 (11,121)
`____ __._._
`
`24,658
`3
`___:_.
`
`
`
`
`
`
`
`(3.42)ss (37,194;___.__ ___._
`
`__._._.
`_
`,5
`24,658
`
`(3.42)
`. _..$
`~‘$ (37,194)
`.._.__. _.._.__
`
`$
`
`7.615
`
`15.332
`.s
`.5 (5.131)
`...___ __.__
`
`’ 3.
`
`_
`
`s
`
`s
`
`—
`—
`—
`
`V
`
`—
`3 5,930
`
`V‘ 3
`
`s ‘
`
`.
`
`_
`
`2
`—
`129
`350
`776
`. _
`
`1
`A59
`-128
`
`_373
`‘ _
`
`._
`3
`-—T-—':-
`
`551
`s
`5.930
`3
`_____ _____
`
`1,327
`s
`\
`
`$
`
`_ —
`
`1.213 ,
`is
`+—
`_
`s
`4.113
`g
`._
`.
`..
`.__