Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On April 1, 2013, Rosetta Stone Ltd., a wholly-owned subsidiary of Rosetta Stone Inc. (Rosetta Stone), entered into an Agreement and Plan of Merger (the “Agreement”) with Liberty Merger Sub Inc., a Delaware corporation and wholly-owned subsidiary of Rosetta Stone (the “Subsidiary”), Livemocha, Inc., a Delaware corporation (“Livemocha”), and Shareholder Representative Services LLC, a Colorado limited liability company, solely in its capacity as agent for the stockholders of Livemocha. Pursuant to the Agreement, Rosetta Stone Ltd. agreed to acquire all of the outstanding shares of Livemocha for approximately $8.5 million (the “Purchase Price”) through the merger of Livemocha with and into the Subsidiary, upon which time, the separate corporate existence of the Subsidiary would cease and Livemocha would continue as the surviving corporation and become a wholly-owned subsidiary of Rosetta Stone (the “Merger”).
The following unaudited pro forma condensed consolidated financial statements have been prepared to give effect to the completed Merger. The unaudited pro forma condensed consolidated balance sheet as of March 31, 2013 gives effect to the Merger as if it had occurred on March 31, 2013. The unaudited pro forma condensed consolidated balance sheet is derived from the unaudited historical financial statements of Rosetta Stone and Livemocha as of March 31, 2013. The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2012 and the unaudited pro forma condensed consolidated statement of operations for the three months ended March 31, 2013 gives effect to the Merger as if it had occurred on January 1, 2012. The unaudited pro forma condensed consolidated statement of operations is derived from the audited historical financial statements of Rosetta Stone and Livemocha as of and for the year ended December 31, 2012 and the unaudited, historical financial statements of Rosetta Stone and Livemocha as of and for the three months ended March 31, 2013.
The Merger was accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the total estimated purchase price, calculated as described in Note 2 to the unaudited pro forma condensed consolidated financial statements, is allocated to the tangible and intangible assets acquired and liabilities assumed in connection with the Merger, based on their estimated fair values as of the effective date of the Merger. The preliminary allocation of the purchase price was based upon management’s preliminary valuation of the fair value of tangible assets acquired and liabilities assumed and such estimates and assumptions are subject to change. The areas of the purchase price allocation that are not yet finalized relate primarily to definite lived intangible assets, deferred income taxes and deferred revenue.
The unaudited pro forma condensed consolidated financial statements do not include any adjustments regarding liabilities incurred or cost savings achieved resulting from the integration of the companies, as management is in the process of assessing what, if any, future actions are necessary. The unaudited pro forma condensed consolidated financial statements are not intended to represent or be indicative of the consolidated results of operations or financial condition of Rosetta Stone that would have been reported had the acquisition been completed as of the dates presented, and should not be construed as representative of the future consolidated results of operations or financial condition of the combined entity.
The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the historical audited and unaudited consolidated financial statements and related notes of Rosetta Stone, the section entitled Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Rosetta Stone’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, filed on March 7, 2013, and Rosetta Stone’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, filed on May 8, 2013, the audited historical financial statements and related notes of Livemocha as of December 31, 2012 and for the year then ended and the unaudited historical financial statements and related notes of Livemocha as of March 31, 2013 and the three months ended March 31, 2013 and 2012, which are attached as Exhibit 99.1 and Exhibit 99.2, respectively, to this Form 8-K/A.
ROSETTA STONE INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2013
(in thousands, except per share amounts)
|
| Rosetta |
| Livemocha |
| Pro forma |
| Note |
| Proforma |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
| ||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 139,311 |
| $ | 208 |
| $ | (8,371 | ) | a |
| $ | 131,148 |
|
Restricted cash |
| 41 |
| — |
| — |
|
|
| 41 |
| ||||
Accounts receivable, net |
| 38,783 |
| 558 |
| — |
|
|
| 39,341 |
| ||||
Inventory |
| 7,267 |
| — |
| — |
|
|
| 7,267 |
| ||||
Prepaid expenses and other current assets |
| 7,722 |
| 90 |
| — |
|
|
| 7,812 |
| ||||
Income tax receivable |
| 670 |
| — |
| — |
|
|
| 670 |
| ||||
Deferred income taxes |
| 75 |
| — |
| — |
|
|
| 75 |
| ||||
Total current assets |
| 193,869 |
| 856 |
| (8,371 | ) |
|
| 186,354 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Property and equipment, net |
| 17,099 |
| 35 |
| — |
|
|
| 17,134 |
| ||||
Goodwill |
| 34,868 |
| — |
| 4,618 |
| d |
| 39,486 |
| ||||
Intangible assets, net |
| 10,815 |
| — |
| 5,500 |
| c |
| 16,315 |
| ||||
Deferred income taxes |
| 250 |
| — |
| — |
|
|
| 250 |
| ||||
Other assets |
| 1,389 |
| 30 |
| — |
|
|
| 1,419 |
| ||||
Total assets |
| $ | 258,290 |
| $ | 921 |
| $ | 1,747 |
|
|
| $ | 260,958 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities and stockholders’ equity |
|
|
|
|
|
|
|
|
|
|
| ||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
| ||||
Accounts payable |
| $ | 5,770 |
| $ | 557 |
| $ | — |
|
|
| $ | 6,327 |
|
Accrued compensation |
| 10,325 |
| 807 |
| (535 | ) | a |
| 10,597 |
| ||||
Other current liabilities |
| 31,284 |
| 1,334 |
| (1,334 | ) | a |
| 31,284 |
| ||||
Current portion of notes payable |
|
|
| 1,345 |
| (1,345 | ) | a |
| — |
| ||||
Deferred income taxes |
| — |
| — |
| 211 |
| e |
| 211 |
| ||||
Deferred revenue |
| 55,929 |
| 1,609 |
| (1,009 | ) | b |
| 56,529 |
| ||||
Total current liabilities |
| 103,308 |
| 5,652 |
| (4,012 | ) |
|
| 104,948 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Deferred revenue |
| 3,934 |
| — |
| — |
|
|
| 3,934 |
| ||||
Deferred income taxes |
| 8,697 |
| — |
| 1,028 |
| e |
| 9,725 |
| ||||
Other long-term liabilities |
| 911 |
| — |
| — |
|
|
| 911 |
| ||||
Notes payable, net of current portion |
| — |
| 1,604 |
| (1,604 | ) | a |
| — |
| ||||
Total liabilities |
| 116,850 |
| 7,256 |
| (4,588 | ) |
|
| 119,518 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
|
| ||||
Preferred stock |
| — |
| 18,837 |
| (18,837 | ) | f |
| — |
| ||||
Non-designated common stock |
| 2 |
| 1 |
| (1 | ) | f |
| 2 |
| ||||
Preferred stock warrants |
| — |
| 9 |
| (9 | ) | f |
| — |
| ||||
Additional paid-in capital |
| 162,711 |
| 430 |
| (430 | ) | f |
| 162,711 |
| ||||
Accumulated loss |
| (21,449 | ) | (25,612 | ) | 25,612 |
| f |
| (21,449 | ) | ||||
Accumulated other comprehensive income |
| 176 |
| — |
| — |
|
|
| 176 |
| ||||
Total stockholders’ equity |
| 141,440 |
| (6,335 | ) | 6,335 |
|
|
| 141,440 |
| ||||
Total liabilities and stockholders’ equity |
| $ | 258,290 |
| $ | 921 |
| $ | 1,747 |
|
|
| $ | 260,958 |
|
See notes to unaudited pro forma condensed consolidated financial statements
ROSETTA STONE INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2013
(in thousands, except per share amounts)
|
| Rosetta |
| LiveMocha |
| Pro forma |
| Note |
| Pro Forma |
| ||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
| ||||
Product |
| $ | 37,592 |
| $ | — |
| $ | — |
|
|
| $ | 37,592 |
|
Subscription and service |
| 26,332 |
| 845 |
| — |
| g |
| 27,177 |
| ||||
Total revenue |
| 63,924 |
| 845 |
| — |
|
|
| 64,769 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of product revenue |
| 6,940 |
| — |
| — |
|
|
| 6,940 |
| ||||
Cost of subscription and service revenue |
| 3,324 |
| 406 |
| 170 |
| h |
| 3,900 |
| ||||
Total cost of revenue |
| 10,264 |
| 406 |
| 170 |
|
|
| 10,840 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gross profit |
| 53,660 |
| 439 |
| (170 | ) |
|
| 53,929 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
| ||||
Sales and marketing |
| 37,060 |
| 415 |
| 181 |
| h |
| 37,656 |
| ||||
Research and development |
| 7,357 |
| 1,113 |
| — |
|
|
| 8,470 |
| ||||
General and administrative |
| 12,588 |
| 884 |
| — |
|
|
| 13,472 |
| ||||
Lease Abandonment |
| 793 |
| — |
| — |
|
|
| 793 |
| ||||
Transaction expense |
|
|
| 1,000 |
| — |
|
|
| 1,000 |
| ||||
Total operating expenses |
| 57,798 |
| 3,412 |
| 181 |
|
|
| 61,391 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Loss from operations |
| (4,138 | ) | (2,973 | ) | (351 | ) |
|
| (7,462 | ) | ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Other income and (expense): |
|
|
|
|
|
|
|
|
|
|
| ||||
Interest income |
| 41 |
| — |
| — |
|
|
| 41 |
| ||||
Interest expense |
| (45 | ) | (406 | ) | — |
|
|
| (451 | ) | ||||
Other income (expense) |
| 419 |
| 31 |
| — |
|
|
| 450 |
| ||||
Total other income (expense) |
| 415 |
| (375 | ) | — |
|
|
| 40 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss before income taxes |
| (3,723 | ) | (3,348 | ) | (351 | ) |
|
| (7,422 | ) | ||||
Income tax provision (benefit) |
| 977 |
| 16 |
| — |
|
|
| 993 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss |
| $ | (4,700 | ) | $ | (3,364 | ) | $ | (351 | ) |
|
| $ | (8,415 | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss per share: |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | (0.22 | ) |
|
|
|
|
|
| $ | (0.39 | ) | ||
Diluted |
| $ | (0.22 | ) |
|
|
|
|
|
| $ | (0.39 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Common shares and equivalents outstanding: |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic weighted average shares |
| 21,360 |
|
|
|
|
|
|
| 21,360 |
| ||||
Diluted weighted average shares |
| 21,360 |
|
|
|
|
|
|
| 21,360 |
|
See notes to unaudited pro forma condensed consolidated financial statements
ROSETTA STONE INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2012
(in thousands, except per share amounts)
|
| Rosetta |
| LiveMocha |
| Pro forma |
| Note |
| Pro Forma |
| ||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
| ||||
Product |
| $ | 180,919 |
| $ | — |
| $ | — |
|
|
| $ | 180,919 |
|
Subscription and service |
| 92,322 |
| 3,898 |
| (1,011 | ) | g |
| 95,209 |
| ||||
Total revenue |
| 273,241 |
| 3,898 |
| (1,011 | ) |
|
| 276,128 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of product revenue |
| 33,684 |
| — |
| — |
|
|
| 33,684 |
| ||||
Cost of subscription and service revenue |
| 15,226 |
| 1,513 |
| 680 |
| h |
| 17,419 |
| ||||
Total cost of revenue |
| 48,910 |
| 1,513 |
| 680 |
|
|
| 51,103 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gross profit |
| 224,331 |
| 2,385 |
| (1,691 | ) |
|
| 225,025 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
| ||||
Sales and marketing |
| 151,646 |
| 1,632 |
| 735 |
| h |
| 154,013 |
| ||||
Research and development |
| 23,453 |
| 3,480 |
| — |
|
|
| 26,933 |
| ||||
General and administrative |
| 55,262 |
| 2,119 |
| — |
|
|
| 57,381 |
| ||||
Lease Abandonment |
| — |
| — |
| — |
|
|
| — |
| ||||
Total operating expenses |
| 230,361 |
| 7,231 |
| 735 |
|
|
| 238,327 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Loss from operations |
| (6,030 | ) | (4,846 | ) | (2,426 | ) |
|
| (13,302 | ) | ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Other income and (expense): |
|
|
|
|
|
|
|
|
|
|
| ||||
Interest income |
| 187 |
| — |
| — |
|
|
| 187 |
| ||||
Interest expense |
| — |
| (134 | ) | — |
|
|
| (134 | ) | ||||
Other income (expense) |
| 3 |
| 1 |
| — |
|
|
| 4 |
| ||||
Total other income (expense) |
| 190 |
| (133 | ) | — |
|
|
| 57 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss before income taxes |
| (5,840 | ) | (4,979 | ) | (2,426 | ) |
|
| (13,245 | ) | ||||
Income tax provision (benefit) |
| 29,991 |
| (4 | ) | (1,239 | ) | i |
| 28,748 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss |
| $ | (35,831 | ) | $ | (4,975 | ) | $ | (1,187 | ) |
|
| $ | (41,993 | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss per share: |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | (1.70 | ) |
|
|
|
|
|
| $ | (2.00 | ) | ||
Diluted |
| $ | (1.70 | ) |
|
|
|
|
|
| $ | (2.00 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Common shares and equivalents outstanding: |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic weighted average shares |
| 21,045 |
|
|
|
|
|
|
| 21,045 |
| ||||
Diluted weighted average shares |
| 21,045 |
|
|
|
|
|
|
| 21,045 |
|
See notes to unaudited pro forma condensed consolidated financial statements
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Pro Forma Presentation
The unaudited pro forma condensed consolidated financial statements have been prepared by Rosetta Stone Inc. (“Rosetta Stone” or the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission for the purposes of inclusion in Rosetta Stone’s amended Form 8-K prepared and filed in connection with the Merger.
Certain information and certain disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures provided herein are adequate to make the information presented not misleading.
The following unaudited pro forma condensed consolidated financial statements have been prepared to give effect to the completed Merger. The unaudited pro forma condensed consolidated balance sheet as of March 31, 2013 gives effect to the Merger as if it had occurred on March 31, 2013. The unaudited pro forma condensed consolidated balance sheet is derived from the unaudited historical financial statements of Rosetta Stone and Livemocha as of March 31, 2013. The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2012 and the unaudited consolidated statement of operations for the three months ended March 31, 2013 gives effect to the Merger as if it had occurred on January 1, 2012. The unaudited pro forma condensed consolidated statement of operations is derived from the audited historical financial statements of Rosetta Stone and Livemocha as of and for the year ended December 31, 2012 and the unaudited historical financial statements of Rosetta Stone and Livemocha as of and for the three months ended March 31, 2013.
The unaudited pro forma condensed consolidated financial statements are provided for informational purposes only and do not purport to be indicative of the Company’s consolidated financial position or consolidated results of operations which would actually have been obtained had such transactions been completed as of the date or for the periods presented, or of the consolidated financial position or consolidated results of operations that may be obtained in the future.
Note 2. Purchase Price Allocation
On April 1, 2013, Rosetta Stone completed the Merger. The unaudited pro forma consolidated financial statements have been prepared to give effect to the completed Merger, which was accounted for under the acquisition method of accounting. Livemocha provides language-learning solutions by fusing traditional learning methods with online practice with native speakers from around the world. Livemocha has developed a tool set that includes flexible online skills-based learning; has content creation tools designed to leverage the cumulative knowledge of more than 1 million teachers, linguists, and polyglots. The aggregate amount of the consideration paid by Rosetta Stone upon the Merger was $8.4 million in cash, calculated as the Purchase Price of $8.5 million reduced by a working capital adjustment of $0.1 million.
Under the acquisition method of accounting, the total estimated purchase price is allocated to Livemocha’s net tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of April 1, 2013, the effective date of the Merger.
Based on management’s preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on estimates and assumptions that are subject to change, and other factors as described in the introduction to these unaudited pro forma consolidated financial statements, the preliminary estimated purchase price is allocated as follows (in thousands):
Cash and cash equivalents |
| $ | 208 |
|
Accounts receivable |
| 558 |
| |
Prepaid expenses |
| 90 |
| |
Property and equipment |
| 35 |
| |
Other assets |
| 30 |
| |
Accounts payable and accrued liabilities |
| (557 | ) | |
Accrued compensation |
| (272 | ) | |
Deferred revenue |
| (600 | ) | |
Deferred tax liabilities, net |
| (1,239 | ) | |
Net tangible liabilities assumed acquired |
| (1,747 | ) | |
Definite-lived intangible assets acquired |
| 5,500 |
| |
Goodwill |
| 4,618 |
| |
Total estimated purchase price |
| $ | 8,371 |
|
Prior to the end of the measurement period for finalizing the purchase price allocation, if information becomes available which would indicate material adjustments are required to the purchase price allocation, such adjustments will be included in the purchase price allocation retrospectively.
Of the total estimated purchase price, $(1.5) million has been allocated to net tangible liabilities assumed acquired, and $5.5 million has been allocated to definite-lived intangible assets acquired. Definite-lived intangible assets consist of the value assigned to Livemocha’s developed technology of $3.4 million, enterprise customer relationships of $0.1 million, online community of $1.8 million and the trade name of $0.2 million. The definite-lived intangible assets will be amortized over their respective useful lives. Developed technology, community and tradename definite-lived intangible assets will be amortized on a straight-line basis over the assigned useful lives of five years, three years, and two years, respectively. The enterprise customer relationships will be amortized using an accelerated amortization methodology based on historical customer attrition. The amortization expense associated with these definite-lived intangible assets is not deductible for tax purposes.
The definite-lived intangible assets acquired will result in approximately the following annual amortization expense (in thousands):
2013 |
| $ | 1,061 |
|
2014 |
| 1,406 |
| |
2015 |
| 1,322 |
| |
2016 |
| 841 |
| |
2017 |
| 700 |
| |
Thereafter |
| 170 |
| |
|
| $ | 5,500 |
|
Of the total estimated purchase price, approximately $4.6 million has been allocated to goodwill and is not deductible for tax purposes. Goodwill represents factors including expected synergies from combining operations and is the excess of the purchase price of an acquired business over the fair value of the net tangible liabilities assumed and intangible assets acquired. Goodwill will not be amortized but instead will be tested for impairment at least annually (more frequently if indicators of impairment arise). In the event that management determines that the goodwill has become impaired, the Company will incur an accounting charge for the amount of the impairment during the fiscal quarter in which the determination is made.
Note 3. Pro Forma Adjustments
Pro forma adjustments are made to reflect the estimated purchase price, to adjust amounts related to Livemocha’s net tangible liabilities and intangible assets to a preliminary estimate of the fair values of those assets
and liabilities, to reflect the amortization expense related to the intangible assets and to reflect the reduction to revenue resulting from the recognition of acquired deferred revenue at fair value.
The specific pro forma adjustments included in the unaudited pro forma consolidated financial statements are as follows:
| a) | To reflect cash payments made to Livemocha shareholders ($3.6 million), lenders ($3.3 million), creditors for transaction expenses ($1.0 million) and Livemocha personnel ($0.5 million) in connection with the Merger. |
|
|
|
| b) | Adjustments to reflect the assets acquired and liabilities assumed in connection with the Merger at fair value. |
|
|
|
| c) | To reflect the fair value of the developed technology, which is $3.4 million; the fair value of enterprise customer relationships, which is $0.1 million; the fair value of online community, which is $1.8 million; and the fair value of the trade name, which is $0.2 million acquired in the Merger. |
|
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| d) | To reflect the fair value of the goodwill based upon the purchase price less the fair value of net tangible and intangible assets acquired as a result of the Merger. |
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| e) | To reflect net deferred tax liabilities associated with the book/tax differences on acquired intangible assets and deferred revenue, offset by deferred tax assets associated with acquired net operating loss carryforwards, as a result of the Merger. |
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| f) | To eliminate Livemocha’s preferred stock, common stock, additional paid in capital, warrants and accumulated deficit in connection with the Merger. |
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| g) | To reflect reduction to revenue as a result of recognizing acquired deferred revenue at fair value. |
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| h) | To reflect the amortization of intangible assets arising from the Merger. |
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| i) | To reflect the effect of the Merger on the provision (benefit) for income taxes. Rosetta Stone will release a portion of its deferred tax asset valuation allowance equal to the amount of the net deferred tax liability recognized at the time of the Merger. |
The unaudited pro forma consolidated financial statements do not include adjustments for liabilities related to business integration activities for the Merger as management is in the process of assessing what, if any, future actions are necessary. However, liabilities ultimately may be recorded for costs associated with business integration activities for the Merger and such liabilities will be expensed as incurred in the Company’s consolidated financial statements.
Rosetta Stone has not identified any material pre-Merger contingencies where the related asset, liability or impairment is probable and the amount of the asset, liability or impairment can be reasonably estimated.
Note 4. Pro Forma Net Loss Per Common Share
The pro forma basic and diluted net loss per common share is based on the weighted average number of common shares of Rosetta Stone’s common stock outstanding during the period. No shares of common stock were issued as consideration in the Merger. The diluted weighted average number of common shares does not include outstanding stock options as their inclusion would be anti-dilutive.