NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
1 - General
Business
Description.
We are a provider of practical, high-quality, and value-based educational training on the topics of personal
finance, entrepreneurship, real estate and financial markets investing strategies and techniques. Our programs are offered through
a variety of formats and channels, including free-preview workshops, basic training classes, symposiums, telephone mentoring,
one-on-one mentoring, coaching and e-learning, primarily under the Rich Dad® Education brand (“Rich Dad”) which
was created in 2006 under license from entities affiliated with Robert Kiyosaki, whose teachings and philosophies are detailed
in the book titled,
Rich Dad Poor Dad.
In addition to Rich Dad, we market our products and services under a variety of
brands, including
Martin Roberts, The Independent Woman, Women in Wealth
and
Brick Buy Brick
. Our products and services
are offered in the United States, Canada, the United Kingdom and Other Foreign Markets.
Basis
of Presentation.
The terms “Legacy Education Alliance, Inc.,” the “Company,” “we,” “our,”
“us” or "Legacy" as used in this report refer collectively to Legacy Education Alliance, Inc., a Nevada
corporation (“Legacy”), the registrant, which was formerly known as Priced In Corp., and, unless the context otherwise
requires, together with its wholly-owned subsidiary, Legacy Education Alliance Holdings, Inc., a Colorado corporation, other operating
subsidiaries and any predecessor of Legacy Education Alliance Holdings, including TIGE.
The accompanying unaudited
condensed consolidated financial statements presented herein are for us and our consolidated subsidiaries, each of which is a
wholly-owned subsidiary. The accompanying condensed consolidated balance sheet as of December 31, 2016 was derived from our audited
consolidated financial statements and does not include all disclosures required under United States of America generally accepted
accounting principles (“U.S. GAAP”), for annual financial statements. All significant intercompany transactions have
been eliminated. These interim financial statements should be read in conjunction with the consolidated financial statements included
in our Annual Report on Form 10-K for the year ended December 31, 2016 and reflect all normal recurring adjustments that are,
in the opinion of management, necessary to present fairly our results of operations and financial position. Amounts reported in
our Condensed Consolidated Statements of Operations and Comprehensive Income are not necessarily indicative of amounts expected
for the respective annual periods or any other interim period.
Significant
Accounting Policies.
Our significant accounting policies have been disclosed in
Note 2 - Significant Accounting Policies
in our most recent Annual Report on Form 10-K. There have been no changes to the policies disclosed therein. The accompanying
unaudited condensed consolidated financial statements we present in this report have been prepared in accordance with those policies.
Use
of Estimates.
The preparation of condensed consolidated financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates.
Income
Tax in Interim Periods.
We conduct operations in separate legal entities in different jurisdictions. As a result, income tax
amounts are reflected in these condensed consolidated financial statements for each of those jurisdictions. Tax laws and tax rates
vary substantially in these jurisdictions and are subject to change based on the political and economic climate in those countries.
We file our tax returns in accordance with our interpretations of each jurisdiction’s tax laws. We record our tax provision
or benefit on an interim basis using the estimated annual effective tax rate. This rate is applied to the current period ordinary
income or loss to determine the income tax provision or benefit allocated to the interim period.
Losses
from jurisdictions for which no benefit can be realized and the income tax effects of unusual and infrequent items are excluded
from the estimated annual effective tax rate. Valuation allowances are provided against the future tax benefits that arise from
the losses in jurisdictions for which no benefit can be realized. The effects of unusual and infrequent items are recognized in
the impacted interim period as discrete items.
The
estimated annual effective tax rate may be affected by nondeductible expenses and by our projected earnings mix by tax jurisdiction.
Adjustments to the estimated annual effective income tax rate are recognized in the period during which such estimates are revised.
We
have established valuation allowances against our deferred tax assets, including net operating loss carryforwards and income tax
credits. Valuation allowances take into consideration our expected ability to realize these deferred tax assets and reduce the
value of such assets to the amount that is deemed more likely than not to be realizable. Our ability to realize these deferred
tax assets is dependent on achieving our forecast of future taxable operating income over an extended period of time. We review
our forecast in relation to actual results and expected trends on a quarterly basis. A change in our valuation allowance would
impact our income tax expense/benefit and our stockholders’ deficit and could have a significant impact on our results of
operations or financial condition in future periods.
Note
2 - New Accounting Pronouncements
Adoption
of Accounting Standards
We
have implemented all new accounting pronouncements that are in effect and that management believes would materially affect our
financial statements.
New
Accounting Standards
In July 2017, the Financial
Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2017-11, I “Accounting
for Certain Financial Instruments With Down Round Features” and II “Replacement of the Indefinite Deferral for Mandatorily
Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests With
a Scope Exception”. This standard is effective for fiscal years and interim periods beginning after December 15, 2018. Early
adoption is permitted. We are currently evaluating the effect that the adoption of this standard will have on our financial statements
and expect to adopt this standard when effective.
In January 2017, the
FASB issued ASU 2017-01, “
Business Combinations,
” which clarifies the definition of a Business and improves
the guidance for determining whether a transaction involves the purchase or disposal of a business or an asset. This standard is
effective for fiscal years and interim periods beginning after December 15, 2017 and should be applied prospectively on or after
the effective date. Early adoption is permitted only for the transactions that have not been reported in financial statements that
have been issued or made available for issuance. We are currently evaluating the effect that the adoption of this standard
will have on our financial statements and expect to adopt this standard when effective.
In
November 2016, the FASB issued ASU 2016-18, “
Statement of Cash Flows: Restricted Cash,
” which provides guidance
about the presentation of changes in restricted cash and restricted cash equivalents on the statement of cash flows. This standard
is effective for fiscal years and interim periods beginning after December 15, 2017 and will be applied using a retrospective
transition method to each period presented. Early adoption was permitted. We are currently evaluating the effect that
the adoption of this standard will have on our financial statements and expect to adopt this standard when effective.
In
October 2016, the FASB issued ASU 2016-16, “
Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory,
”
which removes the prohibition against the immediate recognition of the current and deferred income tax effects of intra-entity
transfers of assets other than inventory. This standard is effective for fiscal years and interim periods beginning after December
15, 2017 and will be applied using a modified retrospective basis. Early adoption was permitted. We are currently
evaluating the effect that the adoption of this standard will have on our financial statements and expect to adopt this standard
when effective.
In
August 2016, the FASB issued ASU 2016-15, “
Statement of Cash Flows: Classification of Certain Cash Receipts and Cash
Payments
.” This ASU provides guidance and clarification in regards to the classification of eight types of receipts
and payments in the statement of cash flows, including debt repayment or extinguishment costs, settlement of zero-coupon bonds,
proceeds from the settlement of insurance claims, distributions received from equity method investees and cash receipts from beneficial
interest in securitization transactions. This standard is effective for fiscal years and interim periods beginning after December
15, 2017 and will be applied using a retrospective transition method to each period presented. Early adoption is permitted. We
expect to adopt this standard when effective, and do not expect this guidance to have a significant impact on our financial statements.
In
March 2016, FASB issued ASU No 2016-09 “
Compensation – Stock compensation
.” The new guidance is intended
to simplify some provisions in stock compensation accounting, including the accounting for income taxes, forfeitures, and statutory
tax withholding requirements, as well as classification in the statement of cash flows. This standard is effective for fiscal
years and interim periods beginning after December 15, 2016. Early adoption was permitted. We adopted this standard in the first
quarter of 2017. The adoption of this guidance did not have a significant impact on our financial statements. As permitted by
the standard, we will account for forfeitures of share-based payments when they occur.
In
February 2016, the FASB issued ASU No 2016-02 “Leases”
(Topic 842)
. The standard requires companies that lease
valuable assets like aircraft, real estate, and heavy equipment to recognize on their balance sheets the assets and liabilities
generated by contracts longer than a year. The standard also requires companies to disclose in the footnotes to their financial
statements information about the amount, timing, and uncertainty for the payments they make for the lease agreements. This standard
is effective for fiscal years and interim periods beginning after December 15, 2018. Early adoption is permitted. We expect to
adopt this standard when effective, and the impact on our financial statements is not currently estimable.
In
January 2016, the FASB issued ASU No 2016-01, “
Recognition and Measurement of Financial Assets and Financial Liabilities,”
Financial Instruments – Overall (Subtopic 825-10)
. The new guidance is intended to improve the recognition and measurement
of financial instruments. This guidance requires that financial assets and financial liabilities must be separately presented
by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements.
This guidance is effective for fiscal years and interim periods beginning after December 15, 2017. The standard includes a requirement
that businesses must report changes in the fair value of their own liabilities in other comprehensive income instead of earnings,
and this is the only provision of the update for which the FASB is permitting early adoption. We expect to adopt this guidance
when effective, and do not expect this guidance to have a significant impact on our financial statements.
In May 2014, the FASB
issued ASU No. 2014-09, “
Revenue from Contracts with Customers (Topic 606).
” The standard is a comprehensive
new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to
a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. In August
2015, the FASB delayed the effective date of its revenue recognition standard to be effective for fiscal years and interim periods
beginning after December 15, 2017. The standard allows companies to choose either full retrospective or modified retrospective
adoption method. We expect to adopt this guidance when effective using modified retrospective adoption method. We have reviewed
the accounting for training and service sales, and for product sales, while we are still in the process of finalizing our review
results, we do not expect the adoption of this guidance to have a significant impact on our financial statements.
Note
3 - Share-Based Compensation
We
account for share-based awards under the provisions of ASC 718, “
Compensation—Stock Compensation
.” Accordingly,
share-based compensation cost is measured at the grant date based on the fair value of the award and we expense these costs using
the straight-line method over the requisite service period.
Share-based
compensation expenses related to our restricted stock grants were $56.0 thousand and $37.0 thousand for the three months ended
June 30, 2017 and 2016, and $107.0 thousand and $74.0 thousand for the six months ended June 30, 2017 and 2016, which are reported as a separate line item in the condensed consolidated statement of changes in stockholders’
deficit.
During
the three months ended June 30, 2017 pursuant to the 2015 Incentive Plan we awarded 280,002 shares of restricted stock to our
employees, which are subject to a three-year cliff vesting and 120,000 shares of restricted stock to members of the Board of Directors,
which are subject to a two-year cliff vesting. The grant date price per share was $0.33 for a total grant date fair value of $0.1
million.
See
Note 6 -
Share-Based Compensation
, in the Notes to Consolidated Financial Statements for the year ended December 31, 2016,
included in our 2016 Annual Report for further discussion.
Note
4 - Earnings Per Share (“EPS”) (Restated)
Basic
EPS is computed by dividing net income by the basic weighted-average number of shares outstanding during the period.
Diluted
EPS is computed by dividing net income by the diluted weighted-average number of shares outstanding during the period and, accordingly,
reflects the potential dilution that could occur if securities or other agreements to issue common stock, such as stock options,
were exercised, settled or converted into common stock and were dilutive. The diluted weighted-average number of shares used in
our diluted EPS calculation is determined using the treasury stock method.
Unvested
awards of share-based payments with rights to receive dividends or dividend equivalents, such as our restricted stock
awards, are considered to be participating securities, and therefore, the two-class method is used for purposes of
calculating EPS. Under the two-class method, a portion of net income is allocated to these participating securities and is
excluded from the calculation of EPS allocated to common stock. Our restricted stock awards are subject to forfeiture and
restrictions on transfer until vested and have identical voting, income and distribution rights to the unrestricted common
shares outstanding. Our weighted average unvested restricted stock awards outstanding were 1,478,615 and 885,486 for the
three months ended June 30, 2017 and 2016, and 1,413,045 and 885,486 for the six months ended June 30, 2017 and 2016.
The
calculations of basic and diluted EPS are as follows:
|
|
Three Months Ended June 30,
2017
|
|
|
Three Months Ended June 30,
2016
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Earnings
|
|
|
|
|
|
Average
|
|
|
Earnings
|
|
|
|
Net
|
|
|
Shares
|
|
|
Per
|
|
|
|
|
|
Shares
|
|
|
Per
|
|
|
|
Income
|
|
|
Outstanding
|
|
|
Share
|
|
|
Income
|
|
|
Outstanding
|
|
|
Share
|
|
|
|
(in thousands, except per share data)
|
|
|
(in thousands, except per share data)
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
1,947
|
|
|
|
22,763
|
|
|
|
|
|
|
$
|
1,025
|
|
|
|
21,846
|
|
|
|
|
|
Amounts allocated to unvested
restricted shares
|
|
|
(127
|
)
|
|
|
(1,479
|
)
|
|
|
|
|
|
|
(42
|
)
|
|
|
(885
|
)
|
|
|
|
|
Amounts available to common stockholders
|
|
$
|
1,820
|
|
|
|
21,284
|
|
|
$
|
0.09
|
|
|
$
|
983
|
|
|
|
20,961
|
|
|
$
|
0.05
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts allocated to unvested restricted shares
|
|
|
127
|
|
|
|
—
|
|
|
|
|
|
|
|
42
|
|
|
|
—
|
|
|
|
|
|
Non participating share units
|
|
|
|
|
|
|
1,479
|
|
|
|
|
|
|
|
|
|
|
|
885
|
|
|
|
|
|
Amounts reallocated to unvested
restricted shares
|
|
|
(135
|
)
|
|
|
—
|
|
|
|
|
|
|
|
(43
|
)
|
|
|
—
|
|
|
|
|
|
Amounts available to stockholders
and assumed conversions
|
|
$
|
1,812
|
|
|
|
22,763
|
|
|
$
|
0.08
|
|
|
$
|
982
|
|
|
|
21,846
|
|
|
$
|
0.04
|
|
|
|
Six Months Ended June 30,
2017
|
|
|
Six Months Ended June 30,
2016
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Earnings
|
|
|
|
|
|
Average
|
|
|
Earnings
|
|
|
|
Net
|
|
|
Shares
|
|
|
Per
|
|
|
Net
|
|
|
Shares
|
|
|
Per
|
|
|
|
Income
|
|
|
Outstanding
|
|
|
Share
|
|
|
Income
|
|
|
Outstanding
|
|
|
Share
|
|
|
|
(in thousands, except per share data)
|
|
|
(in thousands, except per share data)
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
1,637
|
|
|
|
22,697
|
|
|
|
|
|
|
$
|
1,618
|
|
|
|
21,846
|
|
|
|
|
|
Amounts allocated to unvested
restricted shares
|
|
|
(102
|
)
|
|
|
(1,413
|
)
|
|
|
|
|
|
|
(66
|
)
|
|
|
(885
|
)
|
|
|
|
|
Amounts available to common stockholders
|
|
$
|
1,535
|
|
|
|
21,284
|
|
|
$
|
0.07
|
|
|
$
|
1,552
|
|
|
|
20,961
|
|
|
$
|
0.08
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts allocated to unvested restricted shares
|
|
|
102
|
|
|
|
—
|
|
|
|
|
|
|
|
66
|
|
|
|
—
|
|
|
|
|
|
Non participating share units
|
|
|
|
|
|
|
1,413
|
|
|
|
|
|
|
|
|
|
|
|
885
|
|
|
|
|
|
Amounts reallocated to unvested
restricted shares
|
|
|
(109
|
)
|
|
|
—
|
|
|
|
|
|
|
|
(68
|
)
|
|
|
—
|
|
|
|
|
|
Amounts available to stockholders
and assumed conversions
|
|
$
|
1,528
|
|
|
|
22,697
|
|
|
$
|
0.07
|
|
|
$
|
1,550
|
|
|
|
21,846
|
|
|
$
|
0.07
|
|
Note
5 - Fair Value Measurements
ASC
820,
“Fair Value Measurements and Disclosures”
defines fair value, establishes a consistent framework for measuring
fair value and expands disclosure requirements about fair value measurements. ASC 820 requires entities to, among other things,
maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
ASC
820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants
on the measurement date.
ASC
820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or
unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market
assumptions.
In
accordance with ASC 820, these two types of inputs have created the following fair value hierarchy:
●
|
Level
1-Inputs that are quoted prices (unadjusted) for identical assets or liabilities in active markets;
|
|
|
●
|
Level
2-Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
or indirectly, for substantially the full term of the asset or liability, including:
|
|
●
|
Quoted
prices for similar assets or liabilities in active markets
|
|
|
|
|
●
|
Quoted
prices for identical or similar assets or liabilities in markets that are not active
|
|
|
|
|
●
|
Inputs
other than quoted prices that are observable for the asset or liability
|
|
|
|
|
●
|
Inputs
that are derived principally from or corroborated by observable market data by correlation or other means; and
|
●
|
Level
3-Inputs that are unobservable and reflect our assumptions used in pricing the asset or liability based on the best information
available under the circumstances (e.g., internally derived assumptions surrounding the timing and amount of expected cash
flows).
|
The
following table presents the derivative financial instruments, our only financial liabilities measured and recorded at fair value
on our condensed consolidated balance sheets on a recurring basis, and their level within the fair value hierarchy as of June
30, 2017 and December 31, 2016:
|
|
|
|
|
|
|
Fair Value Measurements at
Reporting Date Using
|
|
|
|
|
|
Amount
|
|
|
Quoted
Prices in
Active
Markets
for Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
As of June 30, 2017
|
|
Warrant derivative liabilities
|
|
$
|
21,384
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
21,384
|
|
As of December 31, 2016
|
|
Warrant derivative liabilities
|
|
$
|
108,809
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
108,809
|
|
Financial
Instruments.
Financial instruments consist primarily of cash and cash equivalents, accounts payable, deferred course expenses,
accrued expenses, deferred revenue, and debt. U.S. GAAP requires the disclosure of the fair value of financial instruments, including
assets and liabilities recognized in the balance sheets. Management believes the carrying value of the other financial instruments
recognized on the condensed consolidated balance sheet date, including receivables, payables and accrued liabilities approximate
their fair value.
See
Note – 6
Derivative Liability,
for further discussion.
Note
6 - Derivative Liability
In
June 2015, we granted warrants to purchase 959,924 shares of the Company’s common stock through a private offering of units
(“Units”). Each Unit included one share of Common Stock, par value $0.0001 per share, and a three-year Warrant to
purchase one share of Common Stock at an initial exercise price per share equal to $0.75, subject to adjustment for certain corporate
transactions such as a merger, stock-split or stock dividend and, if the Company does not continue to be a reporting company under
the Securities Exchange Act of 1934 during the two-year period after closing, the exercise price will be reduced to $0.01 per
share. Each Unit includes limited registration rights for the investors for the shares of Common Stock and the shares of Common
Stock that would be issued upon the exercise of a Warrant ("Underlying Shares") when and if we register our shares of
Common Stock in a different offering, subject to certain excluded registered offerings. The Company has also issued to the placement
agent warrants to purchase our shares of Common Stock equal to 10% of the total shares sold in the offering, or 95,992 shares.
Because
these warrants have full reset adjustments that would preclude the instrument from being considered as index to the Company’s
stock, it is subject to derivative liability treatment under
ASC 815-40-15
, which requires as of the date the warrants
are issued, the derivative liability to be measured at fair value and re-evaluated at the end of each reporting period.
Key
assumptions used to determine the fair value of the warrants follows:
|
|
At Issuance
|
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
Market value of stock on measurement date
|
|
$
|
0.55
|
|
|
$
|
0.32
|
|
|
$
|
0.42
|
|
Risk-free interest rate
|
|
|
1.12
|
%
|
|
|
1.24
|
%
|
|
|
1.20
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Volatility factor
|
|
|
55
|
%
|
|
|
72.1
|
%
|
|
|
68.8
|
%
|
Term
|
|
|
3 years
|
|
|
|
1.0 year
|
|
|
|
1.5 years
|
|
As of June 30, 2017
and December 31, 2016, the fair value of the total warrants' derivative liability is $21,384 and $108,809, and recorded in other
accrued expenses in the Condensed Consolidated Balance Sheets. We recognized a gain on the derivative liability of $15,624 for
the three months ended June 30, 2017 and a loss on the derivative liability of $2,363 for the three months ended June 30, 2016.
We recognized a gain on derivative liability of $87,425 and $2,823 for the six months ended June 30, 2017 and 2016. We record
gain and loss on the derivative liability in other income, net in the Condensed Consolidated Statements of Operations and Comprehensive
Income.
The
following table summarizes the derivative liability included in other accrued expenses in the Condensed Consolidated Balance Sheets:
Balance at December 31, 2016
|
|
$
|
108,809
|
|
Gain on change of fair value
|
|
|
(87,425
|
)
|
Balance at June 30, 2017
|
|
$
|
21,384
|
|
The
following table summarizes information about warrants outstanding as of June 30, 2017:
Total # of warrants issued and outstanding
|
|
|
1,055,916
|
|
Weighted-average exercise price
|
|
$
|
0.75
|
|
Remaining life (in years)
|
|
|
1.00
|
|
Note
7 - Income Taxes (Restated)
The Company recorded
an income tax expense of $107.0 thousand and income tax expense of $9.0 thousand for the three months ended June 30, 2017 and
2016. The Company recorded an income tax benefit of $226.0 thousand and income tax expense of $19.0 thousand for the six months
ended June 30, 2017 and 2016. Our effective tax rate was 5.2% and 0.9% for the three months ended June 30, 2017 and 2016, and
(16.0)% and 1.2% for the six months ended June 30, 2017 and 2016. Our effective tax rates differed from the U.S. statutory corporate
tax rate of 35.0% primarily because of the mix of pre-tax income or loss earned in certain jurisdictions and the change in our
valuation allowance.
During
the three months ended December 31, 2016, we determined that valuation allowances against U.S. and U.K. (Rich Dad Education Limited
only) deferred taxes were no longer required. Release of these valuation allowances resulted in a $2.4 million tax benefit, partially
offset by tax on current period book income and other permanent and timing differences resulting in an income tax benefit. Release
of the valuation allowances decreased our effective tax rate by 83.1%.
We record a valuation allowance when it is more likely than
not that some portion, or all, of the deferred tax assets will not be realized. As of June 30, 2017 and December 31, 2016, valuation
allowances of $4.0 million and $4.5 million, have been provided against net operating loss carryforwards and other deferred tax
assets. We decreased our valuation allowance by $0.5 million and $1.1 million for the six months ended June 30, 2017 and 2016.
As of June 30, 2017
and December 31, 2016, we had total unrecognized tax benefits of $1.7 million, related to foreign and domestic tax positions. Of
this amount, the Company estimates that $0.5 million, of the unrecognized tax benefits, if recognized, would impact the effective
tax rate. A substantial portion of our liability for uncertain tax benefits is recorded as a reduction of net operating losses
and tax credit carryforwards.
During
the six months ended June 30, 2017 and 2016, we had no material changes in uncertain tax positions. We record interest and penalties
related to unrecognized tax benefits within the provision for income taxes. We believe that no current tax positions that have
resulted in unrecognized tax benefits will significantly increase or decrease within one year. We file income tax returns in the
U.S. federal jurisdiction and in various state and foreign jurisdictions.
The Company was notified
by the Internal Revenue Service that its federal income tax returns for the years 2013-2015 were selected for examination. The
Company believes its provision for income taxes is adequate; however any assessment would affect the Company’s results of
operations and possibly its cash flows.
We
were also notified by the Canadian Revenue Agency that our 2014-2016 goods and services tax (GST) and harmonized sales tax (HST)
returns are being audited.
Note
8 - Concentration of Risk
Cash
and cash equivalents
. We maintain deposits in banks in amounts that might exceed the federal deposit insurance available.
Management believes the potential risk of loss on these cash and cash equivalents to be minimal. Cash balances as of June 30,
2017 and December 31, 2016, including foreign subsidiaries, without FDIC coverage were $3.3 million and $1.0 million.
Revenue.
A
significant portion of our revenue is derived from the Rich Dad brands. Revenue derived from the Rich Dad brands as a percentage
of total revenue was 70.1% and 75.5% for the three months ended June 30, 2017 and 2016, and 71.9% and 74.7% for the six months
ended June 30, 2017 and 2016. In addition, we have operations in the U.S., Canada, the United Kingdom and other foreign markets
(see Note 9 —
Segment Information
).
Note
9 - Segment Information (Restated)
We
manage our business in four operating segments based on geographic location for which operating managers are responsible to the
Chief Operations Officer. As such, operating results, as reported below, are reviewed regularly by our Chief Operating Officer,
or Chief Operating Decision Maker (“CODM”) and other members of the executive team.
The
proportion of our total revenue attributable to each segment is as follows:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
As a percentage of total revenue
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
U.S.
|
|
|
55.5
|
%
|
|
|
62.8
|
%
|
|
|
55.2
|
%
|
|
|
63.1
|
%
|
Canada
|
|
|
2.7
|
%
|
|
|
3.7
|
%
|
|
|
2.8
|
%
|
|
|
4.4
|
%
|
U.K.
|
|
|
22.1
|
%
|
|
|
19.1
|
%
|
|
|
23.1
|
%
|
|
|
20.6
|
%
|
Other foreign markets
|
|
|
19.7
|
%
|
|
|
14.4
|
%
|
|
|
18.9
|
%
|
|
|
11.9
|
%
|
Total consolidated revenue
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
Operating
results for the segments are as follows:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Segment revenue
|
|
(In thousands)
|
|
|
(In thousands)
|
|
United States
|
|
$
|
14,555
|
|
|
$
|
14,683
|
|
|
$
|
26,598
|
|
|
$
|
29,107
|
|
Canada
|
|
|
707
|
|
|
|
861
|
|
|
|
1,346
|
|
|
|
2,016
|
|
U.K.
|
|
|
5,786
|
|
|
|
4,464
|
|
|
|
11,141
|
|
|
|
9,513
|
|
Other foreign markets
|
|
|
5,160
|
|
|
|
3,367
|
|
|
|
9,088
|
|
|
|
5,477
|
|
Total consolidated revenue
|
|
$
|
26,208
|
|
|
$
|
23,375
|
|
|
$
|
48,173
|
|
|
$
|
46,113
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Segment gross profit contribution *
|
|
(In thousands)
|
|
|
(In thousands)
|
|
United States
|
|
$
|
2,808
|
|
|
$
|
3,419
|
|
|
$
|
4,400
|
|
|
$
|
7,125
|
|
Canada
|
|
|
153
|
|
|
|
(156
|
)
|
|
|
114
|
|
|
|
39
|
|
U.K.
|
|
|
2,023
|
|
|
|
534
|
|
|
|
3,793
|
|
|
|
2,013
|
|
Other foreign markets
|
|
|
1,234
|
|
|
|
602
|
|
|
|
1,529
|
|
|
|
66
|
|
Total consolidated gross profit
|
|
$
|
6,218
|
|
|
$
|
4,399
|
|
|
$
|
9,836
|
|
|
$
|
9,243
|
|
*
Segment gross profit is calculated as revenue less direct course expenses, advertising and sales expenses and royalty expense
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Depreciation and amortization expenses
|
|
(In thousands)
|
|
|
(In thousands)
|
|
United States
|
|
$
|
26
|
|
|
$
|
33
|
|
|
$
|
54
|
|
|
$
|
66
|
|
Canada
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
|
|
2
|
|
U.K.
|
|
|
5
|
|
|
|
5
|
|
|
|
9
|
|
|
|
10
|
|
Other foreign markets
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total consolidated depreciation and amortization expenses
|
|
$
|
32
|
|
|
$
|
39
|
|
|
$
|
65
|
|
|
$
|
78
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Segment identifiable assets
|
|
(In thousands)
|
|
United States
|
|
$
|
11,524
|
|
|
$
|
12,331
|
|
Canada
|
|
|
742
|
|
|
|
730
|
|
U.K.
|
|
|
6,942
|
|
|
|
3,508
|
|
Other foreign markets
|
|
|
5,831
|
|
|
|
3,795
|
|
Total consolidated identifiable assets
|
|
$
|
25,039
|
|
|
$
|
20,364
|
|
Note
10 - Commitments and Contingencies
Licensing agreements
.
We are committed to pay royalties for the usage of certain brands, as governed by various licensing agreements, including Rich
Dad, Robbie Fowler and Martin Roberts. Total royalty expenses included in our Condensed Consolidated Statements of Operations
and Comprehensive Income were $1.6 million and $1.1 million for the three months ended June 30, 2017 and 2016, and $2.5 million
and $2.1 million for the six months ended June 30, 2017 and 2016.
Custodial
and Counterparty Risk
. We are subject to custodial and other potential forms of counterparty risk in respect to a variety
of contractual and operational matters. In the course of ongoing Company-wide risk assessment, management monitors our arrangements
that involve potential counterparty risk, including the custodial risk associated with amounts prepaid to certain vendors and
deposits with credit card and other payment processors. Deposits held by our credit card processors at June 30, 2017 and December
31, 2016, were $3.4 million and $3.1 million. These balances are included on the Condensed Consolidated Balance
Sheets in restricted cash. While these balances reside in major financial institutions, they are only partially covered by federal
deposit insurance and are subject to the financial risk of the parties holding these funds. When appropriate, we utilize Certificate
of Deposit Account Registry Service (CDARS) to reduce banking risk for a portion of our cash in the United States. A CDAR consists
of numerous individual investments, all below the FDIC limits, thus fully insuring that portion of our cash. At June 30, 2017
and December 31, 2016, we did not have a CDAR balance.
Purchase
commitments
. From time to time, the Company enters into non-cancelable commitments to purchase professional services, information
technology licenses and support, and training courses in future periods. The amounts of these non-cancelable commitments made
by the Company at June 30, 2017 and December 31, 2016 were approximately $0.1 million and $0.7 million.
Litigation.
We and certain of our subsidiaries, from time to time, are parties to various legal proceedings, claims and disputes that
have arisen in the ordinary course of business. These claims may involve significant amounts, some of which would not be covered
by insurance.
A
substantial settlement payment or judgment in excess of our accruals could have a material adverse effect on our financial position,
results of operations or cash flows. While the outcome of these proceedings cannot be predicted with certainty, we do not expect
any of these existing matters, individually or in the aggregate, to have a material adverse effect upon our financial position,
results of operations or cash flows. There have been no material changes to the legal proceedings disclosed in the litigation
section of Note 15 -
Commitments and Contingencies
, in the Notes to Consolidated Financial Statements for the year ended
December 31, 2016, included in our 2016 Annual Report.
Watson
v. Whitney Education Group, Inc. Russ Whitney, United Mortgage Corporation, Gulfstream Realty and Development, Inc. Douglas Realty,
Inc. and Paradise Title Services, Inc.
, first filed September 21, 2007 in the 20
th
Judicial Circuit, Lee County,
FL, Case No. 07-CA-011207;
Huron River Area Credit Union v. Jeffrey Watson/ Watson v. Whitney Education Group, Inc. and Russell
Whitney
, Case No. 2008-CA-5870-NC; and
Huron River Area Credit Union v. Jeffrey Watson/ Watson v. Whitney Education Group,
Inc. and Russell Whitney,
Case No. 2008-CA-5877-NC, both filed June 6, 2008 in the 12
th
Judicial Circuit, Sarasota
County, FL Civil Division. In these related cases, Jeffrey Watson (“Watson”) alleged against a subsidiary of the Company
causes of action based upon losses Watson alleges he incurred as the result of his purchase of real property from Gulfstream Realty
and Development, an entity affiliated with Mr. Whitney, and with whom we had a student referral agreement. On February 6, 2017,
we entered into a Settlement Agreement and General Release whereby all claims against the Company and Mr. Whitney were fully and
finally settled and released, and all three cases dismissed with prejudice without any admission of wrongdoing in exchange for
the payment of $30,000 by the Company to the Plaintiff.
Note
11 - Restatements
The Company is restating
its Condensed Consolidated Balance Sheet as of June 30, 2017, and the Condensed Consolidated Statement of Operations and Comprehensive
Income (Loss), Condensed Consolidated Statement of Changes in Stockholders' Deficit, and Condensed Consolidated Statement of Cash
Flow for the period ended June 30, 2017. The restatement shows the previously filed financial statements, the restatement adjustments
and as restated columns for the Condensed Consolidated Balance Sheet as of June 30, 2017, and the Condensed Consolidated Statement
of Operations and Comprehensive Income (Loss), Condensed Consolidated Statement of Changes in Stockholders' Deficit, and Condensed
Consolidated Statement of Cash Flow for the period ended June 30, 2017. The restatement of our financial statements in this Form
10-Q/A reflects the correction of certain identified errors related to revenue, deferred revenue, and deferred expenses that affected
the timing of our recognition of revenue and deferred transactions that impacted the second quarter and year to date of 2017.
The errors relate to our assessment of revenue recognition, deferred revenue, and deferred expenses associated with our student
attendance (i.e. fulfillment) and expired contracts. The restatement also reflects the correction of errors related to the income
tax effects of such revenue errors as well as the correction of certain other tax items in the period ended June 30, 2017.
The
following table represents the Condensed Consolidated Balance Sheet as previously reported, restatement adjustments, and as restated
as of June 30, 2017:
LEGACY
EDUCATION ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In
thousands)
|
|
As Previously Reported June 30,
|
|
|
Restatement
|
|
|
As Restated June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
Adjustments
|
|
|
2017
|
|
|
2016
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
4,705
|
|
|
|
-
|
|
|
|
4,705
|
|
|
|
1,711
|
|
Restricted cash
|
|
|
3,403
|
|
|
|
-
|
|
|
|
3,403
|
|
|
|
3,148
|
|
Deferred course expenses
|
|
|
9,711
|
|
|
|
(247
|
)
|
|
|
9,464
|
|
|
|
9,067
|
|
Prepaid expenses and other current assets
|
|
|
4,083
|
|
|
|
-
|
|
|
|
4,083
|
|
|
|
3,458
|
|
Inventory
|
|
|
373
|
|
|
|
-
|
|
|
|
373
|
|
|
|
348
|
|
Total current assets
|
|
|
22,275
|
|
|
|
(247
|
)
|
|
|
22,028
|
|
|
|
17,732
|
|
Property and equipment, net
|
|
|
1,170
|
|
|
|
-
|
|
|
|
1,170
|
|
|
|
1,130
|
|
Deferred tax asset, net
|
|
|
1,563
|
|
|
|
(27
|
)
|
|
|
1,536
|
|
|
|
1,295
|
|
Other assets
|
|
|
305
|
|
|
|
-
|
|
|
|
305
|
|
|
|
207
|
|
Total assets
|
|
|
25,313
|
|
|
|
(274
|
)
|
|
|
25,039
|
|
|
|
20,364
|
|
LIABILITIES AND STOCKHOLDERS’
DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
3,049
|
|
|
|
-
|
|
|
|
3,049
|
|
|
|
3,344
|
|
Royalties payable
|
|
|
376
|
|
|
|
-
|
|
|
|
376
|
|
|
|
175
|
|
Accrued course expenses
|
|
|
1,840
|
|
|
|
-
|
|
|
|
1,840
|
|
|
|
1,082
|
|
Accrued salaries, wages and benefits
|
|
|
1,127
|
|
|
|
-
|
|
|
|
1,127
|
|
|
|
840
|
|
Other accrued expenses
|
|
|
2,583
|
|
|
|
-
|
|
|
|
2,583
|
|
|
|
2,052
|
|
Long-term debt, current portion
|
|
|
11
|
|
|
|
-
|
|
|
|
11
|
|
|
|
11
|
|
Deferred revenue, current portion
|
|
|
57,397
|
|
|
|
(578
|
)
|
|
|
56,819
|
|
|
|
54,389
|
|
Total current liabilities
|
|
|
66,383
|
|
|
|
(578
|
)
|
|
|
65,805
|
|
|
|
61,893
|
|
Long-term debt, net of current portion
|
|
|
26
|
|
|
|
-
|
|
|
|
26
|
|
|
|
31
|
|
Deferred revenue, net of current portion
|
|
|
555
|
|
|
|
-
|
|
|
|
555
|
|
|
|
235
|
|
Other liabilities
|
|
|
479
|
|
|
|
(118
|
)
|
|
|
361
|
|
|
|
379
|
|
Total liabilities
|
|
|
67,443
|
|
|
|
(696
|
)
|
|
|
66,747
|
|
|
|
62,538
|
|
Commitments and contingencies (Note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value, 20,000,000 shares
authorized, none issued
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.0001 par value, 200,000,000 shares
authorized, 23,030,929 and 22,630,927 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively
|
|
|
2
|
|
|
|
-
|
|
|
|
2
|
|
|
|
2
|
|
Additional paid-in capital
|
|
|
11,180
|
|
|
|
-
|
|
|
|
11,180
|
|
|
|
11,073
|
|
Cumulative foreign currency translation adjustment
|
|
|
1,390
|
|
|
|
-
|
|
|
|
1,390
|
|
|
|
2,668
|
|
Accumulated deficit
|
|
|
(54,702
|
)
|
|
|
422
|
|
|
|
(54,280
|
)
|
|
|
(55,917
|
)
|
Total stockholders’ deficit
|
|
|
(42,130
|
)
|
|
|
422
|
|
|
|
(41,708
|
)
|
|
|
(42,174
|
)
|
Total liabilities and stockholders’
deficit
|
|
|
25,313
|
|
|
|
(274
|
)
|
|
|
25,039
|
|
|
|
20,364
|
|
The
following table represents the Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) as previously reported,
restatement adjustments, and as restated as of June 30, 2017:
LEGACY
EDUCATION ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In
thousands, except share data)
|
|
As
Previously Reported Three months ended Jun 30, 2017
|
|
|
Restatement
Adjustments
|
|
|
As
Restated Three months ended Jun 30,
2017
|
|
|
Three
months ended Jun 30,
2016
|
|
|
As
Previously Reported Three months ended Jun 30, 2017
|
|
|
Restatement
Adjustments
|
|
|
As
Restated Three months ended Jun 30,
2017
|
|
|
Three
months ended Jun 30,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
24,780
|
|
|
$
|
1,428
|
|
|
$
|
26,208
|
|
|
$
|
23,375
|
|
|
$
|
47,595
|
|
|
$
|
578
|
|
|
$
|
48,173
|
|
|
$
|
46,113
|
|
Operating
costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
course expenses
|
|
|
13,007
|
|
|
|
213
|
|
|
|
13,220
|
|
|
|
12,584
|
|
|
|
25,836
|
|
|
|
247
|
|
|
|
26,083
|
|
|
|
24,238
|
|
Advertising
and sales expenses
|
|
|
5,131
|
|
|
|
0
|
|
|
|
5,131
|
|
|
|
5,322
|
|
|
|
9,722
|
|
|
|
0
|
|
|
|
9,722
|
|
|
|
10,589
|
|
Royalty
expenses
|
|
|
1,639
|
|
|
|
0
|
|
|
|
1,639
|
|
|
|
1,070
|
|
|
|
2,532
|
|
|
|
0
|
|
|
|
2,532
|
|
|
|
2,043
|
|
General
and administrative expenses
|
|
|
4,231
|
|
|
|
0
|
|
|
|
4,231
|
|
|
|
3,685
|
|
|
|
8,572
|
|
|
|
0
|
|
|
|
8,572
|
|
|
|
7,744
|
|
Total
operating costs and expenses
|
|
|
24,008
|
|
|
|
213
|
|
|
|
24,221
|
|
|
|
22,661
|
|
|
|
46,662
|
|
|
|
247
|
|
|
|
46,909
|
|
|
|
44,614
|
|
Income
from operations
|
|
|
772
|
|
|
|
1,215
|
|
|
|
1,987
|
|
|
|
714
|
|
|
|
933
|
|
|
|
331
|
|
|
|
1,264
|
|
|
|
1,499
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income (expense), net
|
|
|
(2
|
)
|
|
|
0
|
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
(5
|
)
|
|
|
0
|
|
|
|
(5
|
)
|
|
|
(2
|
)
|
Other
income, net
|
|
|
69
|
|
|
|
-
|
|
|
|
69
|
|
|
|
319
|
|
|
|
152
|
|
|
|
-
|
|
|
|
152
|
|
|
|
140
|
|
Total
other income (expense), net
|
|
|
67
|
|
|
|
0
|
|
|
|
67
|
|
|
|
320
|
|
|
|
147
|
|
|
|
0
|
|
|
|
147
|
|
|
|
138
|
|
Income
before income taxes
|
|
|
839
|
|
|
|
1,215
|
|
|
|
2,054
|
|
|
|
1,034
|
|
|
|
1,080
|
|
|
|
331
|
|
|
|
1,411
|
|
|
|
1,637
|
|
Income
tax benefit/(expense)
|
|
|
156
|
|
|
|
(263
|
)
|
|
|
(107
|
)
|
|
|
(9
|
)
|
|
|
135
|
|
|
|
91
|
|
|
|
226
|
|
|
|
(19
|
)
|
Net
income
|
|
$
|
995
|
|
|
$
|
952
|
|
|
$
|
1,947
|
|
|
$
|
1,025
|
|
|
$
|
1,215
|
|
|
$
|
422
|
|
|
$
|
1,637
|
|
|
$
|
1,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$
|
0.04
|
|
|
$
|
0.05
|
|
|
$
|
0.09
|
|
|
$
|
0.05
|
|
|
$
|
0.05
|
|
|
$
|
0.02
|
|
|
$
|
0.07
|
|
|
$
|
0.08
|
|
Diluted
earnings per common share
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
|
$
|
0.08
|
|
|
$
|
0.04
|
|
|
$
|
0.05
|
|
|
$
|
0.02
|
|
|
$
|
0.07
|
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares outstanding
|
|
|
21,284
|
|
|
|
0
|
|
|
|
21,284
|
|
|
|
20,961
|
|
|
|
21,284
|
|
|
|
0
|
|
|
|
21,284
|
|
|
|
20,961
|
|
Diluted
weighted average common shares outstanding
|
|
|
22,763
|
|
|
|
0
|
|
|
|
22,763
|
|
|
|
21,846
|
|
|
|
22,697
|
|
|
|
0
|
|
|
|
22,697
|
|
|
|
21,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income/(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
995
|
|
|
$
|
952
|
|
|
$
|
1,947
|
|
|
$
|
1,025
|
|
|
$
|
1,215
|
|
|
$
|
422
|
|
|
$
|
1,637
|
|
|
$
|
1,618
|
|
Foreign
currency translation adjustments, net of tax of $0
|
|
|
(980
|
)
|
|
|
-
|
|
|
|
(980
|
)
|
|
|
1,474
|
|
|
|
(1,278
|
)
|
|
|
-
|
|
|
|
(1,278
|
)
|
|
|
1,959
|
|
Total
comprehensive income (loss)
|
|
$
|
15
|
|
|
$
|
952
|
|
|
$
|
967
|
|
|
$
|
2,499
|
|
|
$
|
(63
|
)
|
|
$
|
422
|
|
|
$
|
359
|
|
|
$
|
3,577
|
|
The
following table represents the Condensed Consolidated Statement of Changes in Stockholders' Deficit as previously reported,
restatement adjustments, and as restated as of June 30, 2017:
LEGACY
EDUCATION ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
(Unaudited)
(In
thousands)
|
|
Common
stock
|
|
|
Additional paid-in
|
|
|
Cumulative foreign currency translation
|
|
|
Accumulated
|
|
|
Total stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
adjustment
|
|
|
deficit
|
|
|
deficit
|
|
Balance
at December 31, 2016
|
|
|
22,631
|
|
|
$
|
2
|
|
|
$
|
11,073
|
|
|
$
|
2,668
|
|
|
$
|
(55,917
|
)
|
|
$
|
(42,174
|
)
|
Share-based
compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
107
|
|
|
|
—
|
|
|
|
—
|
|
|
|
107
|
|
Issuance
of common stock
|
|
|
400
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Foreign
currency translation adjustment, net of tax of $0
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,278
|
)
|
|
|
—
|
|
|
|
(1,278
|
)
|
Net
Income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,637
|
|
|
|
1,637
|
|
Balance
at June 30, 2017 (Restated)
|
|
|
23,031
|
|
|
$
|
2
|
|
|
$
|
11,180
|
|
|
$
|
1,390
|
|
|
$
|
(54,280
|
)
|
|
$
|
(41,708
|
)
|
The
following table represents the Condensed Consolidated Statement of Cash Flow as previously reported, restatement
adjustments, and as restated as of June 30, 2017:
LEGACY
EDUCATION ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOW
(Unaudited)
(In
thousands)
|
|
As
Previously Reported Six Months Ended June 30,
2017
|
|
|
Restatement
Adjustments
|
|
|
As
Restated Six Months Ended June 30,
2017
|
|
|
Six Months Ended June 30,
2016
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
1,215
|
|
|
$
|
422
|
|
|
$
|
1,637
|
|
|
$
|
1,618
|
|
Adjustments
to reconcile net income to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
65
|
|
|
|
-
|
|
|
|
65
|
|
|
|
78
|
|
Gain on
change in fair value of derivatives
|
|
|
(87
|
)
|
|
|
-
|
|
|
|
(87
|
)
|
|
|
(3
|
)
|
Share-based
compensation
|
|
|
107
|
|
|
|
-
|
|
|
|
107
|
|
|
|
74
|
|
Deferred
income taxes
|
|
|
(264
|
)
|
|
|
(91
|
)
|
|
|
(355
|
)
|
|
|
(1
|
)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
cash
|
|
|
(186
|
)
|
|
|
-
|
|
|
|
(186
|
)
|
|
|
(721
|
)
|
Deferred
course expenses
|
|
|
(487
|
)
|
|
|
247
|
|
|
|
(240
|
)
|
|
|
(161
|
)
|
Prepaid
expenses and other receivable
|
|
|
(539
|
)
|
|
|
-
|
|
|
|
(539
|
)
|
|
|
(447
|
)
|
Inventory
|
|
|
(18
|
)
|
|
|
-
|
|
|
|
(18
|
)
|
|
|
180
|
|
Other assets
|
|
|
(27
|
)
|
|
|
—
|
|
|
|
(27
|
)
|
|
|
(3
|
)
|
Accounts
payable-trade
|
|
|
(388
|
)
|
|
|
-
|
|
|
|
(388
|
)
|
|
|
2,153
|
|
Royalties
payable
|
|
|
201
|
|
|
|
-
|
|
|
|
201
|
|
|
|
103
|
|
Accrued
course expenses
|
|
|
725
|
|
|
|
-
|
|
|
|
725
|
|
|
|
390
|
|
Accrued
salaries, wages and benefits
|
|
|
280
|
|
|
|
-
|
|
|
|
280
|
|
|
|
(618
|
)
|
Other accrued
expenses
|
|
|
656
|
|
|
|
-
|
|
|
|
656
|
|
|
|
(1,124
|
)
|
Deferred
revenue
|
|
|
1,832
|
|
|
|
(578
|
)
|
|
|
1,254
|
|
|
|
(2,089
|
)
|
Other
liabilities
|
|
|
100
|
|
|
|
-
|
|
|
|
100
|
|
|
|
—
|
|
Net
cash provided by (used in) operating activities
|
|
|
3,185
|
|
|
|
0
|
|
|
|
3,185
|
|
|
|
(571
|
)
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(103
|
)
|
|
|
-
|
|
|
|
(103
|
)
|
|
|
(37
|
)
|
Net
cash used in investing activities
|
|
|
(103
|
)
|
|
|
-
|
|
|
|
(103
|
)
|
|
|
(37
|
)
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
payments on debt
|
|
|
(5
|
)
|
|
|
-
|
|
|
|
(5
|
)
|
|
|
(5
|
)
|
Net
cash used in financing activities
|
|
|
(5
|
)
|
|
|
-
|
|
|
|
(5
|
)
|
|
|
(5
|
)
|
Effect
of exchange rate differences on cash
|
|
|
(83
|
)
|
|
|
-
|
|
|
|
(83
|
)
|
|
|
703
|
|
Net
increase in cash and cash equivalents
|
|
|
2,994
|
|
|
|
0
|
|
|
|
2,994
|
|
|
|
90
|
|
Cash
and cash equivalents, beginning of period
|
|
$
|
1,711
|
|
|
$
|
-
|
|
|
$
|
1,711
|
|
|
$
|
4,881
|
|
Cash
and cash equivalents, end of period
|
|
$
|
4,705
|
|
|
$
|
0
|
|
|
$
|
4,705
|
|
|
$
|
4,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid
during the period for interest
|
|
$
|
5
|
|
|
$
|
-
|
|
|
$
|
5
|
|
|
$
|
5
|
|
Cash paid
during the period for income taxes, net of refunds received
|
|
$
|
30
|
|
|
$
|
2
|
|
|
$
|
32
|
|
|
$
|
34
|
|