UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
☒ QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended June 30, 2015
☐ TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission
File Number: 333-184897
LEGACY
EDUCATION ALLIANCE, INC.
(Exact
Name of Registrant as Specified in its Charter)
Nevada |
|
39-2079974 |
(State
or other jurisdiction of
incorporation
or organization) |
|
(I.R.S.
Employer
Identification
No.) |
|
|
|
1612
Cape Coral Parkway East, Cape Coral, FL 33904 |
|
(239)
542-0643 |
(Address
of principal executive offices, including zip code) |
|
(Registrant’s
telephone number, including area code) |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has electronically submitted and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definition of “larger accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.:
Large
Accelerated filer: |
☐ |
Accelerated
filer: |
☐ |
Non-accelerated
filer: |
☐ |
Smaller reporting
company: |
☒ |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Number of shares of Legacy
Education Alliance, Inc. Common Stock, $0.0001 par value, outstanding as of August 13, 2015: 21,705,711.
Index
to Quarterly Report
on
Form 10-Q for
Quarter
Ended June 30, 2015
|
|
Page |
|
|
|
PART
I. FINANCIAL INFORMATION |
|
|
|
|
Item
1 |
Condensed
Consolidated Financial Statements (Unaudited) |
3 |
|
Condensed
Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014 |
3 |
|
Condensed
Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2015 and 2014 |
4 |
|
Condensed Consolidated
Statements of Changes in Stockholders’ Deficit for the six months ended June 30, 2015 |
5 |
|
Condensed
Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 |
6 |
|
Notes
to the Condensed Consolidated Financial Statements |
7 |
Item
2 |
Management’s
Discussion and Analysis of Financial Condition and Results of Operations |
14 |
Item
4 |
Controls
and Procedures |
24 |
|
|
|
PART
II. OTHER INFORMATION |
|
|
|
|
Item
1 |
Legal
Proceedings |
24 |
Item
1A |
Risk
Factors |
24 |
Item
2 |
Unregistered
Sales of Equity Securities and Use of Proceeds |
24 |
Item
6 |
Exhibits |
25 |
|
Signatures |
26 |
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Some of
the statements in this Quarterly Report on Form 10-Q under the headings “Condensed Consolidated Financial Statements”
and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere contain
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We may also make written
or oral forward-looking statements in our periodic reports on Forms 10-K, 10-Q and 8-K, in press releases and other written materials
and in oral statements made by our officers, directors or employees to third parties. Statements that are not historical facts,
including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements are often
characterized by the use of words such as “believes,” “estimates,” “expects,” “projects,”
“may,” “intends,” “plans” or “anticipates,” or by discussions of strategy, plans
or intentions; including, but not limited to, our discussions regarding the introduction of additional brands into the U.S. market
(e.g., The Independent Woman, Women in Wealth, Brick Buy Brick) which are expected to grow and diversify U.S. revenue;
the development of online courses which are expected to add significant revenue growth; projections of strong international growth,
particularly in SE Asia; expected cost savings from symposium fulfillment experience that should lead to increased margins; shortening
of course package contracts that should accelerate revenue recognition; and the estimates and matters described under the caption
“Item 2. Management's Discussion and Analysis—Results of Operations—Outlook” and “Item
2. Management's Discussion and Analysis—Results of Operations—Recent Developments”. Our assumptions used
for the purposes of the forward-looking statements represent estimates of future events and are subject to uncertainty as to possible
changes in economic, legislative, industry, and other circumstances, including the development, acceptance and sales of our products
and our ability to raise additional funding sufficient to implement our strategy. Such forward-looking statements involve assumptions,
known and unknown risks, uncertainties, and other important factors that could cause the actual results, performance or our achievements,
or industry results, to differ materially from historical results, any future results, or performance or achievements expressed
or implied by such forward-looking statements. There are a number of risks and uncertainties that could cause our actual results
to differ materially from the forward-looking statements contained in this report. Further description of these risks and uncertainties
and other important factors are set forth in this report, in our latest Annual Report on Form 10-K, including but not limited
to “Part I, Item 1A. Risk Factors” and “Part II, Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations” therein, and in our other filings with the Securities and Exchange
Commission.
There
may be other factors of which we are currently unaware or that we deem immaterial that may cause our actual results to differ
materially from the expectations we express in our forward-looking statements. Although we believe the assumptions underlying
our forward-looking statements are reasonable, any of these assumptions, and, therefore, also the forward-looking statements based
on these assumptions could themselves prove to be inaccurate.
Forward-looking
statements are based on current plans, estimates, assumptions and projections, and therefore you should not place undue reliance
on them. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them publicly
in light of new information or future events.
Presentation
of Financial Statements
The terms “Legacy Education Alliance,
Inc.,” the “Company,” “we,” “our” or “us” 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
Tigrent Inc., a Colorado corporation.
This
Form 10-Q includes financial statements and related notes that present the condensed consolidated financial position, results
of operations, comprehensive income, and cash flows of Legacy and its subsidiaries.
PART
I. FINANCIAL INFORMATION
Item
1. Condensed Consolidated Financial Statements.
LEGACY
EDUCATION ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In
thousands, except share data)
| |
June 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
ASSETS | |
| | |
| |
Current assets: | |
| | |
| |
Cash and cash equivalents | |
$ | 5,096 | | |
$ | 2,932 | |
Restricted cash | |
| 1,978 | | |
| 1,843 | |
Deferred course expenses | |
| 8,767 | | |
| 8,722 | |
Prepaid expenses and other current assets | |
| 3,008 | | |
| 2,528 | |
Inventory | |
| 194 | | |
| 161 | |
Total current assets | |
| 19,043 | | |
| 16,186 | |
Property and equipment, net | |
| 1,285 | | |
| 1,324 | |
Other assets | |
| 208 | | |
| 217 | |
Total assets | |
$ | 20,536 | | |
$ | 17,727 | |
LIABILITIES AND STOCKHOLDERS’ DEFICIT | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 3,241 | | |
$ | 2,620 | |
Royalties payable | |
| 209 | | |
| 104 | |
Accrued course expenses | |
| 1,837 | | |
| 1,060 | |
Accrued salaries, wages and benefits | |
| 873 | | |
| 564 | |
Other accrued expenses | |
| 4,068 | | |
| 2,967 | |
Long-term debt, current portion | |
| 10 | | |
| 9 | |
Deferred revenue, current portion | |
| 57,671 | | |
| 56,140 | |
Total current liabilities | |
| 67,909 | | |
| 63,464 | |
Long-term debt, net of current portion | |
| 47 | | |
| 52 | |
Deferred revenue, net of current portion | |
| 80 | | |
| 238 | |
Other liabilities | |
| 64 | | |
| 126 | |
Total liabilities | |
| 68,100 | | |
| 63,880 | |
Commitments and contingencies (note 9) | |
| | | |
| | |
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; 20,960,442 shares issued and outstanding at June 30, 2015; 20,000,518 shares issued and outstanding at December 31, 2014 | |
| 2 | | |
| 2 | |
Additional paid-in capital | |
| 10,842 | | |
| 10,547 | |
Cumulative foreign currency translation adjustment | |
| 254 | | |
| 370 | |
Accumulated deficit | |
| (58,662 | ) | |
| (57,072 | ) |
Total stockholders’ deficit | |
| (47,564 | ) | |
| (46,153 | ) |
Total liabilities and stockholders’ deficit | |
$ | 20,536 | | |
$ | 17,727 | |
See
Notes to Unaudited Condensed Consolidated Financial Statements
LEGACY
EDUCATION ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In
thousands, except per share data)
| |
Three months ended June 30, | | |
Six months ended June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Revenue | |
$ | 22,636 | | |
$ | 25,775 | | |
$ | 44,379 | | |
$ | 52,414 | |
Operating costs and expenses: | |
| | | |
| | | |
| | | |
| | |
Direct course expenses | |
| 12,446 | | |
| 11,047 | | |
| 23,980 | | |
| 22,714 | |
Advertising and sales expenses | |
| 5,413 | | |
| 5,467 | | |
| 10,570 | | |
| 11,068 | |
Royalty expenses | |
| 1,634 | | |
| 1,793 | | |
| 2,835 | | |
| 3,984 | |
General and administrative expenses | |
| 4,269 | | |
| 4,493 | | |
| 8,831 | | |
| 8,319 | |
Total operating costs and expenses | |
| 23,762 | | |
| 22,800 | | |
| 46,216 | | |
| 46,085 | |
Income (loss) from operations | |
| (1,126 | ) | |
| 2,975 | | |
| (1,837 | ) | |
| 6,329 | |
Other income (expense): | |
| | | |
| | | |
| | | |
| | |
Litigation settlement | |
| - | | |
| - | | |
| - | | |
| 1,300 | |
Interest expense, net | |
| (1 | ) | |
| (1 | ) | |
| (3 | ) | |
| (28 | ) |
Other income, net | |
| 158 | | |
| 87 | | |
| 271 | | |
| 209 | |
Total other income | |
| 157 | | |
| 86 | | |
| 268 | | |
| 1,481 | |
Income (loss) before income taxes | |
| (969 | ) | |
| 3,061 | | |
| (1,569 | ) | |
| 7,810 | |
Income tax expense | |
| (10 | ) | |
| (25 | ) | |
| (21 | ) | |
| (38 | ) |
Net income (loss) | |
$ | (979 | ) | |
$ | 3,036 | | |
$ | (1,590 | ) | |
$ | 7,772 | |
| |
| | | |
| | | |
| | | |
| | |
Basic and diluted earnings (loss) per common share | |
$ | (0.05 | ) | |
$ | 0.19 | | |
$ | (0.08 | ) | |
$ | 0.49 | |
Basic and diluted weighted average common shares outstanding | |
| 20,193 | | |
| 15,978 | | |
| 20,096 | | |
| 15,999 | |
Comprehensive income (loss): | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Net income (loss) | |
$ | (979 | ) | |
$ | 3,036 | | |
$ | (1,590 | ) | |
$ | 7,772 | |
Foreign currency translation adjustment | |
| (1,144 | ) | |
| (464 | ) | |
| (116 | ) | |
| (422 | ) |
Total comprehensive income (loss) | |
$ | (2,123 | ) | |
$ | 2,572 | | |
$ | (1,706 | ) | |
$ | 7,350 | |
See
Notes to Unaudited Condensed Consolidated Financial Statements
LEGACY
EDUCATION ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS 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, 2014 | |
| 20,001 | | |
$ | 2 | | |
$ | 10,547 | | |
$ | 370 | | |
$ | (57,072 | ) | |
$ | (46,153 | ) |
Issuance of common stock | |
| 960 | | |
| - | | |
| 459 | | |
| - | | |
| - | | |
| 459 | |
Derivative liability | |
| - | | |
| - | | |
| (164 | ) | |
| - | | |
| - | | |
| (164 | ) |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,590 | ) | |
| (1,590 | ) |
Foreign currency translation adjustment | |
| - | | |
| - | | |
| - | | |
| (116 | ) | |
| - | | |
| (116 | ) |
Balance at June 30, 2015 | |
| 20,961 | | |
$ | 2 | | |
$ | 10,842 | | |
$ | 254 | | |
$ | (58,662 | ) | |
$ | (47,564 | ) |
See
Notes to Unaudited Condensed Consolidated Financial Statements
LEGACY
EDUCATION ALLIANCE, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In
thousands)
| |
Six months ended June 30, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | | |
| | |
Net Income (loss) | |
$ | (1,590 | ) | |
$ | 7,772 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 97 | | |
| 111 | |
Deferred income taxes | |
| 1 | | |
| 1 | |
Litigation settlement | |
| - | | |
| (1,300 | ) |
Share-based compensation | |
| - | | |
| 14 | |
Loss on disposal of property and equipment | |
| - | | |
| 1 | |
Change in operating assets and liabilities: | |
| | | |
| | |
Restricted cash | |
| (124 | ) | |
| 355 | |
Deferred course expenses | |
| (36 | ) | |
| 3,864 | |
Prepaid expenses and other receivables | |
| (317 | ) | |
| (132 | ) |
Inventory | |
| (34 | ) | |
| (89 | ) |
Other assets | |
| (13 | ) | |
| (13 | ) |
Accounts payable-trade | |
| 592 | | |
| 895 | |
Royalties payable | |
| 104 | | |
| (156 | ) |
Accrued course expenses | |
| 770 | | |
| 390 | |
Accrued salaries, wages and benefits | |
| 309 | | |
| 134 | |
Other accrued expenses | |
| 1,339 | | |
| 266 | |
Deferred revenue | |
| 1,101 | | |
| (10,996 | ) |
Net cash provided by operating activities | |
| 2,199 | | |
| 1,117 | |
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | |
Purchases of property and equipment | |
| (59 | ) | |
| (184 | ) |
Net cash used in investing activities | |
| (59 | ) | |
| (184 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
Principle payments of debt | |
| (5 | ) | |
| (335 | ) |
Proceeds from debt | |
| - | | |
| 65 | |
Proceeds from private offering of securities | |
| 459 | | |
| - | |
Net cash provided by (used in) financing activities | |
| 454 | | |
| (270 | ) |
Effect of exchange rate differences on cash | |
| (430 | ) | |
| (10 | ) |
Net increase in cash and cash equivalents | |
| 2,164 | | |
| 653 | |
Cash and cash equivalents, beginning of period | |
$ | 2,932 | | |
$ | 5,554 | |
Cash and cash equivalents, end of period | |
$ | 5,096 | | |
$ | 6,207 | |
Supplemental disclosures: | |
| | | |
| | |
Cash paid during the period for income taxes, net of refunds received | |
$ | 34 | | |
$ | 1 | |
Cash paid during the period for interest | |
$ | 4 | | |
$ | 33 | |
Derivative liability from issuance of warrants | |
$ | 164 | | |
$ | - | |
See
Notes to Unaudited Condensed Consolidated Financial Statements
LEGACY
EDUCATION ALLIANCE, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
1 - General
Description of our Business. We are a
provider of practical, high-quality and value-based training, conferences, publications, technology-based tools and mentoring
to help students become financially knowledgeable. We provide comprehensive instruction and mentoring on the topics of real estate,
financial instruments investing, and entrepreneurship in the United States, Canada, the United Kingdom, and other international
markets. Our training is offered in non-accredited free preview workshops, as well as basic training, advanced courses, mentoring
and coaching, 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.
Basis of Presentation. The terms “Legacy
Education Alliance, Inc.,” the “Company,” “we,” “our” or “us” 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 Tigrent Inc., a Colorado corporation.
The
accompanying unaudited condensed consolidated financial statements presented herein are for us and our consolidated subsidiaries,
each of which is a wholly-owned subsidiary. 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, 2014 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 (Loss) 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.
Reclassifications.
Certain amounts reported in the condensed consolidated financial statements for the prior periods have been reclassified to
conform to the current reporting presentation.
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.
Note
3 - Share-Based Compensation
The Company’s 2015 Equity Plan
(the “2015 Incentive Plan”) was approved by the stockholders at our annual meeting of stockholders on July 16, 2015.
The 2015 Incentive Plan reserves 5,000,000 shares of our Common Stock for options, restricted stock, and a variety of other types
of awards. The text of the 2015 Incentive Plan is included in the attachment marked as Appendix B to the Company’s Proxy
Statement on Schedule 14A filed with the Security and Exchange Commission on June 16, 2015. Our parent company, Tigrent Inc., has
two incentive stock plans; the “2009 Incentive Plan” and the “2012 Incentive Plan”, which cover some of
our current employees and directors. The financial activity pertaining to our employees and directors under the 2009 Incentive
Plan, the 2012 Incentive Plan or the 2015 Incentive Plan (collectively, the “Incentive Plans”) is reflected in our
condensed consolidated financial statements, presented herein.
We account for share-based awards under
the provisions of ASC 718, “Compensation-Stock Compensation.” Accordingly, share-based compensation cost for
all stock based payment awards made to employees and directors under the Incentive Plans 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 expense was $0.0 million and $0.0 million for the three and six months ended June 30, 2015 and 2014, respectively.
We record these costs in general and administrative expenses. See Note 7 - Stock-Based Compensation, in the Notes to Consolidated
Financial Statements for the year ended December 31, 2014, included in our 2014 Annual Report for further discussion.
Note
4 - Earnings Per Share (“EPS”)
Basic
EPS is computed by dividing net income by the 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 Company’s 2015 Equity Plan (the “2015
Incentive Plan”) was approved by the stockholders at our annual meeting of stockholders on July 16, 2015, which was subsequent
to the periods covered by this Form 10-Q and as a result our Condensed Consolidated Statements of Operations and Comprehensive
Income (Loss) do not reflect any dilutive effects that this plan would typically require. See Note 3 - Stock-Based Compensation,
for further discussion.
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, 2015:
| |
| | 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)
|
Warrant derivative liabilities | |
$ | 166,179 | | $ |
- | |
$ | - | | $ |
166,179 |
Financial
Instruments. Financial instruments consist primarily of cash and cash equivalents, notes receivable, accounts payable, deferred
course expenses, accrued expenses, deferred revenue, and debt. 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.
Note
6 - Income Taxes
Income
tax expense was $10.0 thousand and $25.0 thousand for the three months ended June 30, 2015 and 2014, respectively, and $21.0 thousand
and $38.0 thousand for the six months ended June 30, 2015 and 2014, respectively. Our effective tax rate was (1.0)% and 0.8% for
the three months ended June 30, 2015 and 2014, respectively, and (1.3)% and 0.5% for the six months ended June 30, 2015 and 2014,
respectively. 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.
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, 2015 and December 31, 2014, a valuation allowance of $7.9 million and $7.9 million, respectively, has
been provided for net operating loss carryforwards and other deferred tax assets. There was no material change in our valuation
allowance for the six months ended June 30, 2015 or the six months ended June 30, 2014.
As
of June 30, 2015 and December 31, 2014, we had total unrecognized tax benefits of $1.7 million and $1.7 million, respectively,
related to foreign and domestic tax positions. Of this amount, the Company estimates that $0.1 million and $0.1 million, respectively,
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, 2015 and 2014, 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.
Note
7 - 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. All cash balances as of June 30, 2015 and December 31, 2014, including
foreign subsidiaries, without FDIC coverage was $4.6 million and $2.3 million, respectively.
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 77.0% and 88.0% for the three months ended June 30, 2015 and 2014, respectively, and 80.6% and 88.3% for
the six months ended June 30, 2015 and 2014, respectively. We have operations in the United States, Canada, United Kingdom and
other foreign markets. See Note 8 Segment Information, for further discussion.
Note
8 - Segment Information
We manage our business in four segments based
on geographic location for which operating managers are responsible to the Chief Operations Officer. In accordance with the provisions
of ASC 280, “Segment Reporting ,” our chief operating decision-maker has been identified as our Chief Operating
Officer, who reviews our operating results along with other members of our executive team of these four segments in order to make
decisions about allocating resources and assessing performance for the entire company.
The
proportion of our total revenue attributable to each segment is as follows:
| |
Three months ended
June 30, | | |
Six months ended
June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
(In thousands) | | |
(In thousands) | |
As a percentage of total revenue | |
| | |
| | |
| | |
| |
United States | |
| 64.9 | % | |
| 75.8 | % | |
| 67.9 | % | |
| 75.5 | % |
Canada | |
| 8.3 | % | |
| 6.5 | % | |
| 7.6 | % | |
| 6.5 | % |
U.K. | |
| 19.4 | % | |
| 16.1 | % | |
| 19.0 | % | |
| 16.4 | % |
Other foreign markets | |
| 7.4 | % | |
| 1.6 | % | |
| 5.5 | % | |
| 1.6 | % |
Total consolidated revenue | |
| 100.0 | % | |
| 100.0 | % | |
| 100.0 | % | |
| 100.0 | % |
Operating
results for the segments are as follows:
| |
Three months ended
June 30, | | |
Six months ended
June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
(In thousands) | | |
(In thousands) | |
Segment revenue | |
| | |
| | |
| | |
| |
United States | |
$ | 14,687 | | |
$ | 19,525 | | |
$ | 30,121 | | |
$ | 39,571 | |
Canada | |
| 1,890 | | |
| 1,678 | | |
| 3,358 | | |
| 3,418 | |
U.K. | |
| 4,381 | | |
| 4,141 | | |
| 8,456 | | |
| 8,596 | |
Other foreign markets | |
| 1,678 | | |
| 431 | | |
| 2,444 | | |
| 829 | |
Total consolidated revenue | |
$ | 22,636 | | |
$ | 25,775 | | |
$ | 44,379 | | |
$ | 52,414 | |
| |
Three months ended
June 30, | | |
Six months ended
June
30, | |
| |
2015 | | |
2014 | | |
2015
| | |
2014 | |
| |
(In thousands) | | |
(In thousands) | |
Segment gross profit contribution * | |
| | |
| | |
| | |
| |
United States | |
$ | 2,975 | | |
$ | 6,199 | | |
$ | 7,557 | | |
$ | 12,844 | |
Canada | |
| 635 | | |
| 348 | | |
| 924 | | |
| 314 | |
U.K. | |
| 402 | | |
| 652 | | |
| 686 | | |
| 1,069 | |
Other foreign markets | |
| (869 | ) | |
| 39 | | |
| (2,173 | ) | |
| 191 | |
Total consolidated gross profit | |
$ | 3,143 | | |
$ | 7,238 | | |
$ | 6,994 | | |
$ | 14,418 | |
* |
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, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
(In thousands) | | |
(In thousands) | |
Depreciation and amortization expenses | |
| | |
| | |
| | |
| |
United States | |
$ | 39 | | |
$ | 50 | | |
$ | 82 | | |
$ | 99 | |
Canada | |
| 1 | | |
| 1 | | |
| 2 | | |
| 1 | |
U.K. | |
| 6 | | |
| 6 | | |
| 13 | | |
| 11 | |
Other foreign markets | |
| - | | |
| - | | |
| - | | |
| - | |
Total consolidated depreciation and amortization expenses | |
$ | 46 | | |
$ | 57 | | |
$ | 97 | | |
$ | 111 | |
| |
June
30,
2015 | | |
December
31,
2014 | |
| |
(In thousands) | |
Segment identifiable assets | |
| | |
| |
United States | |
$ | 10,926 | | |
$ | 10,999 | |
Canada | |
| 962 | | |
| 1,334 | |
U.K. | |
| 5,491 | | |
| 4,518 | |
Other foreign markets | |
| 3,157 | | |
| 876 | |
Total consolidated
identifiable assets | |
$ | 20,536 | | |
$ | 17,727 | |
Note
9 - 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 Statement of Operations and Comprehensive Income
(Loss) were $1.6 million and $1.8 million for the three months ended June 30, 2015 and 2014, respectively, and $2.8 million and
$4.0 million for the six months ended June 30, 2015 and 2014, respectively.
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, 2015 and December 31, 2014, were $1.9 million and
$1.3 million, respectively. 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, 2015, we did not have a CDAR
balance.
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 13 - Commitments and Contingencies,
in the Notes to Consolidated Financial Statements for the year ended December 31, 2014, included in our 2014 Annual Report for
further discussion.
Note 10 - Unregistered Sales of Equity Securities
We closed a private offering of 959,924 units
(“Units”) at a gross price per Unit of $0.55. Each Unit included one share of common stock, par value $0.0001 per
share (“Common Stock”), and a three-year warrant (a “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, for example the
exercise price of a Warrant is reduced to $0.55, if a registration statement is not filed within 270 days or if the company does
not continue to be a reporting company it will be reduced to $0.01, per one share of Common Stock. 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.
We paid a placement agent cash fees of 13%
or $68,785 of the aggregate proceeds that was received and will pay 5% of all amounts received upon the exercise of the
Warrants. We 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 amounting to $14,866. We had previously received $459,173 in net cash proceeds related to
this private offering, which was recorded in restricted cash and other accrued expenses on our Condensed Consolidated Balance
Sheets in the first quarter of 2015. The $459,173 in net cash proceeds is now recorded in Cash and cash equivalents and the placement
agent fees and the fair value of the warrants was offset against the proceeds in Additional paid-in capital on our Condensed Consolidated
Balance Sheets. In connection with this private offering, our placement agent agreement with the placement agent was terminated.
We
described this sale of Units in Part II. Other Information, Item 2 in our Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2015 that was filed with the Securities and Exchange Commission.
The
offering of the Units was made in a transaction that is exempt from the registration requirements of the Securities Act of 1933,
as amended (the “Securities Act”), pursuant to Section 4(a)(2) thereof and the provisions of Regulation D or Regulation
S that is promulgated under the Securities Act.
Note 11 – Derivative Liability
On June 12, 2015 we granted warrants
to purchase 959,924 units of the Company’s common stock through a private offering in conjunction with a equity raise. Each
Unit included one share of common stock, par value $0.0001 per share ("Common Stock"), and a three-year warrant (a "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. 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,
2015 | |
Market value of stock on measurement date | |
$ | 0.55 | | |
$ | 0.55 | |
Risk-free interest rate | |
| 1.12 | % | |
| 1.12 | % |
Dividend yield | |
| 0 | % | |
| 0 | % |
Volatility factor | |
| 55.0 | % | |
| 55.7 | % |
Term | |
| 3
years | | |
| 2.96 years | |
As of June
30, 2015, the fair value of the total warrant’s derivative liability is $166,179 and we recognized a loss on derivative
liability of $2,647 for the three months ended June 30, 2015.
The following
table summarizes the derivative liability included in the balance sheet:
Fair value at issuance date | |
$ | 163,532 | |
Loss on change of fair value | |
| 2,647 | |
Balance at June 30, 2015 | |
$ | 166,179 | |
The following
table summarizes information about warrants outstanding as of June 30, 2015:
Total # of warrants issued and outstanding | |
| 1,055,916 | |
Weighted-average exercise price | |
$ | 0.75 | |
Remaining life (in years) | |
| 3.00 | |
Note
12 - Subsequent Event
We
have evaluated significant events and transactions that occurred after the balance sheet date and determined that there were no
events or transactions that would require recognition or disclosure in our condensed consolidated financial statements for the
period ended June 30, 2015.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
INTRODUCTION
You
should read the following discussion of our financial condition and results of operations with our audited consolidated financial
statements and related notes thereto included in our Annual Report on Form 10-K as of and for the year ended December 31,
2014. This discussion contains forward-looking statements and involves numerous risks, assumptions and uncertainties, including,
but not limited to, the risk factors discussed in the “Risk Factors” section of our most recent Form 10-K, and elsewhere
in this Form 10-Q. Actual results may differ materially from those contained in any forward-looking statements.
OVERVIEW
We are a provider of practical, high-quality,
and value-based educational training on the topics of personal finance, entrepreneurship, real estate, and financial instruments
investing. Our programs are offered through a variety of formats and channels, including free-preview workshops, symposiums, seminars,
conferences, telephone mentoring, one-on-one mentoring, and e-learning.
Our students pay for courses up-front
or through payment agreements, and under GAAP, we recognize revenue when our students take their courses. Over the past 18 months
we have taken steps to shorten many of our course contracts from two-year contracts to one-year contracts, which is expected to
speed up revenue recognition as services are delivered faster and/or contract terms expire sooner. We have also implemented a new
symposium style course delivery model wherein we hold multiple advanced courses in one location. Using one location allows us to
achieve certain economies of scale that reduce costs and improve margins.
In addition to our advanced courses,
we offer one-on-one mentoring (two to four days in length, on site or remotely) and telephone mentoring (12 to 16 weekly one-on-one
or one-on-many telephone sessions) that provide a richer experience for our students. Mentoring involves a subject matter expert
visiting the student in person and guiding the student, for example, through their first real estate transaction, providing a real
hands-on experience.
We were founded
in 1996, and through a reverse merger, became a publicly-held company in November 2014. Today we are a global company with more
than 200 employees that has cumulatively served more than 900,000 students in 100 countries over the course of our operating history.
We manage our business in four segments
based on geographic location. These segments include our historical core markets of the United States, Canada, and the United Kingdom,
with the fourth segment including all other international markets. In 2014, we expanded our footprint to include Africa, Europe,
and Asia, holding events in 21 countries. As we’ve established traction in these markets, we have moved forward on opening
offices in South Africa and Hong Kong during the first six months of 2015.
In addition to our international expansion
efforts, we are diversifying our product offerings through the introduction of established brands into new markets and the development
of new brands. Overall, we currently offer 10 brands, which include:
| ● | Rich
Dad® Education: Our flagship brand based on the teachings of Robert Kiyosaki, an
entrepreneur, investor, educator, and author of the best-selling personal finance book
of all time, Rich Dad Poor Dad. Mr. Kiyosaki has written more than 15 books with combined
sales of more than 26 million copies. |
|
● |
Rich Dad Stock Education: In our Rich Dad Stock Education program, we teach students how to become smart investors that can create winning trades and potential profits in any market condition through the development of personal trading plans that are compatible with their current financial situation, the level of risk they are comfortable with, and their long-term financial goals. |
|
● |
Making Money from Property with Martin Roberts: A property-based curriculum focused on how and why to buy property at auction. Based on the teachings of Martin Roberts, renowned TV personality, property expert, journalist, and author of Making Money from Property, our Making Money from Property program is designed to show investors tested strategies to buy at auction, as well as the difference between income and capital growth strategies, negotiating transactions, and buying properties overseas. |
| ● | Brick
Buy Brick™: Initially launched the UK, Brick Buy Brick is now also available in
the U.S. and Canada. The program introduces our students to the tools and strategies
used by successful investors to make money work for them through real estate investing. |
|
● |
Building Wealth™ 5PC: A program that offers students training on how to build and preserve wealth, start or manage a business, and benefit through investing in property regardless of market conditions. |
|
|
|
|
● |
Robbie Fowler Property Academy™: Designed to teach investment strategies individuals can use to achieve a clear path towards long-term wealth, the goal of our Property Academy training program is to provide an unrivaled property investment education. We show our students the investment strategies currently implemented throughout the UK, such as Social Housing, Buy-To-Let, Lease Options, and Land Development. |
|
● |
Women In Wealth: Created to inspire ambitious women of all ages and backgrounds to release their innate talents and achieve financial security, Women In Wealth seeks to empower women with a strong financial education and help them discover the power of real estate investing to create cash flow and build financial independence. Through the program, students have the opportunity to find support from like-minded women dedicated to helping each other find success. |
| ● | The
Independent Woman™: Developed by women for women and with significant input from
Kim Kiyosaki, investor, entrepreneur, and bestselling author of Rich Woman and It's Rising
Time, The Independent Women program imparts the principles and strategies essential for
financial independence. |
|
● |
Trade Up Investor Education™: Built on the
belief that a successful investor is an educated investor and developed in partnership with Investor's Business Daily®, students
are offered educational training designed to help them increase their knowledge of stock and options trading. |
| ● | The
Greatest Potential Business and Life Summit: A powerful, entertaining, uplifting, and
informative one-day event designed to help business professionals and entrepreneurs achieve
their full potential in business and in life. The summit is anchored by a dynamic group
of accomplished speakers who are recognized leaders in their respective fields, providing
attendees with practical strategies about people skills and communication; leadership
and management; sales and marketing; time management and goal achievement; and team building. |
RESULTS
OF OPERATIONS
| |
Three months ended June 30, | | |
Six months ended June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Revenue | |
$ | 22,636 | | |
$ | 25,775 | | |
$ | 44,379 | | |
$ | 52,414 | |
Operating costs and expenses: | |
| | | |
| | | |
| | | |
| | |
Direct course expenses | |
| 12,446 | | |
| 11,047 | | |
| 23,980 | | |
| 22,714 | |
Advertising and sales expenses | |
| 5,413 | | |
| 5,467 | | |
| 10,570 | | |
| 11,068 | |
Royalty expenses | |
| 1,634 | | |
| 1,793 | | |
| 2,835 | | |
| 3,984 | |
General and administrative expenses | |
| 4,269 | | |
| 4,493 | | |
| 8,831 | | |
| 8,319 | |
Total operating costs and expenses | |
| 23,762 | | |
| 22,800 | | |
| 46,216 | | |
| 46,085 | |
Income (loss) from operations | |
| (1,126 | ) | |
| 2,975 | | |
| (1,837 | ) | |
| 6,329 | |
Other income (expense): | |
| | | |
| | | |
| | | |
| | |
Litigation settlement | |
| - | | |
| - | | |
| - | | |
| 1,300 | |
Interest expense, net | |
| (1 | ) | |
| (1 | ) | |
| (3 | ) | |
| (28 | ) |
Other income, net | |
| 158 | | |
| 87 | | |
| 271 | | |
| 209 | |
Total other income | |
| 157 | | |
| 86 | | |
| 268 | | |
| 1,481 | |
Income (loss) before income taxes | |
| (969 | ) | |
| 3,061 | | |
| (1,569 | ) | |
| 7,810 | |
Income tax expense | |
| (10 | ) | |
| (25 | ) | |
| (21 | ) | |
| (38 | ) |
Net income (loss) | |
$ | (979 | ) | |
$ | 3,036 | | |
$ | (1,590 | ) | |
$ | 7,772 | |
Our operating
results are expressed as a percentage of revenue in the table below:
| |
Three months ended June 30, | | |
Six months ended June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Revenue | |
| 100 | % | |
| 100 | % | |
| 100 | % | |
| 100 | % |
Operating costs and expenses: | |
| | | |
| | | |
| | | |
| | |
Direct course expenses | |
| 55.0 | | |
| 42.9 | | |
| 54.0 | | |
| 43.3 | |
Advertising and sales expenses | |
| 23.9 | | |
| 21.2 | | |
| 23.8 | | |
| 21.1 | |
Royalty expenses | |
| 7.2 | | |
| 7.0 | | |
| 6.4 | | |
| 7.6 | |
General and administrative expenses | |
| 18.9 | | |
| 17.4 | | |
| 19.9 | | |
| 15.9 | |
Total operating costs and expenses | |
| 105.0 | | |
| 88.5 | | |
| 104.1 | | |
| 87.9 | |
Income (loss) from operations | |
| (5.0 | ) | |
| 11.5 | | |
| (4.1 | ) | |
| 12.1 | |
Other income (expense): | |
| | | |
| | | |
| | | |
| | |
Litigation settlement | |
| 0.0 | | |
| 0.0 | | |
| 0.0 | | |
| 2.5 | |
Interest expense, net | |
| 0.0 | | |
| 0.0 | | |
| 0.0 | | |
| (0.1 | ) |
Other income, net | |
| 0.7 | | |
| 0.3 | | |
| 0.6 | | |
| 0.4 | |
Total other income | |
| 0.0 | | |
| 0.0 | | |
| 0.0 | | |
| 0.0 | |
Income (loss) before income taxes | |
| (4.3 | ) | |
| 11.9 | | |
| (3.5 | ) | |
| 14.9 | |
Income tax expense | |
| 0.0 | | |
| (0.1 | ) | |
| 0.0 | | |
| (0.1 | ) |
Net income (loss) | |
| (4.3 | ) | |
| 11.8 | | |
| (3.6 | ) | |
| 14.8 | |
Recent Developments
We
have introduced several new brands
into the
U.S. market,
including
The
Independent
Woman,
Women
in Wealth,
and Brick
Buy Brick,
which
we believe
will grow
U.S. revenue
while
diversifying
our revenue
sources.
Our development of online courses is expected to add significant revenue growth. Recently,
we announced the coming launch of
our new
affiliate marketing
program
for
the financial
education
space,
which
is the
first of
its kind
in the
industry.
This should
help accelerate
online
course
sales. The
development
of online
courses
should
also reduce
expired
contracts,
as students
will
have
more options
for
fulfillment,
which should
accelerate
revenue
recognition.
We plan
to expand
internationally
and laid the
foundation
for this
expansion
in 2014. We expanded
our footprint
from
four
countries
to 21
countries
in Africa,
Europe, and
Asia.
Countries in
SE Asia have
reported
the fastest
growth
in e-learning-based
education,
with this
growth
rate estimated
at 17.3% over
the next
five
years.
We recently
opened a
new office
in Hong
Kong to capitalize
on this
growth.
We are also
developing
courses
in entrepreneurship,
along with
country-specific
courses
as we expand
internationally.
These initiatives will likely lead to decreased income in the short term and require a material amount of investment and incurrence
of operating expenses.
Outlook
Cash sales were $46.4 million for the
six months ended June 30, 2015 compared to $41.9 million for the six months ended June 30, 2014, an increase of $4.5 million or
10.7%. We
believe that
cash
sales are
the best
metric
to determine
our operating
performance,
as revenue
from expired contracts and course
attendance
can show
some
quarter
to quarter
volatility.
We anticipate
cash
sales
to increase
throughout
2015 and
2016, particularly
as new
brands
gain greater
traction
in our
more
established
markets,
and
as we
expand
internationally
and
hone
our selling
and
marketing
strategy
in new markets.
An example
of this
can be
seen in
Hong Kong,
where
a three-day
basic training
program
held in
May 2015
increased
its sales
by 21% and
the closing
ratio
by 34%
as compared
to a three-day
basic training
program
held in
the same
city in December
2014. Additionally,
we generated
record-setting
dollar-sales
per customer
and
higher
than average
closing
rates at a
recent
training
symposium
in SE Asia.
This
indicates
rapid improvement
from
the
Company,
the results
of which
we anticipate
to begin showing
up in operating
results
in 2H15
and FY16.
OPERATING
SEGMENTS
We
operate in four segments based on geographic location. The proportion of our total revenue attributable to each segment is as
follows:
| |
Three months ended June 30, | | |
Six months ended June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
(In thousands) | | |
(In thousands) | |
As a percentage of total revenue | |
| | |
| | |
| | |
| |
United States | |
| 64.9 | % | |
| 75.8 | % | |
| 67.9 | % | |
| 75.5 | % |
Canada | |
| 8.3 | % | |
| 6.5 | % | |
| 7.6 | % | |
| 6.5 | % |
U.K. | |
| 19.4 | % | |
| 16.1 | % | |
| 19.0 | % | |
| 16.4 | % |
Other foreign markets | |
| 7.4 | % | |
| 1.6 | % | |
| 5.5 | % | |
| 1.6 | % |
Total consolidated revenue | |
| 100.0 | % | |
| 100.0 | % | |
| 100.0 | % | |
| 100.0 | % |
United
States
Over
the past several years, our U.S. segment shifted its focus to consist primarily of Rich Dad Education brand offerings. Revenue
derived from the Rich Dad brands as a percentage of our total revenue was 95.1% and 96.6% for the three months ended June 30,
2015 and 2014, respectively, and 95.6% and 97.0% for the six months ended June 30, 2015 and 2014, respectively. The majority of
which pertained to real estate-related education, with the balance pertaining to financial markets training. We are continuing
to develop non-Rich Dad brands, such as The Independent Women tm, Woman in Wealth tm ,
Brick Buy Brick tm and others to diversify our business, although our business to date in these brands has not
been material to our Company as a whole.
Canada
Similar
to the U.S., our Canadian segment's revenue primarily consists of Rich Dad branded offerings. Revenue derived from the Rich Dad
brands as a percentage of our total revenue was 88.0% and 94.4% for the three months ended June 30, 2015 and 2014, respectively,
and 90.1% and 96.4% for the six months ended June 30, 2015 and 2014, respectively. The majority of which pertained to real estate-related
education, with the balance pertaining to financial markets training.
U.K.
In
contrast to our U.S. and Canadian segments, our U.K. segment is more diversified among several different brands. Revenue derived
from the Rich Dad brands as a percentage of our total revenue was 40.9% and 49.9% for the three months ended June 30, 2015 and
2014, respectively, and 43.8% and 51.6% for the six months ended June 30, 2015 and 2014, respectively. The majority of which pertained
to real estate-related education, with the balance pertaining to financial markets training.
Other
Foreign Markets
We
currently operate in other foreign markets, including European, Asian and African countries (including Germany, Hong Kong, India,
Ireland, Malaysia, Singapore, South Africa, Sweden and Australia.) This segment of our business is gaining traction and has shown
significant growth in revenue in 2015 compared to 2014. Revenue as a percentage of our total revenue was 7.4% and 1.7% for the
three months ended June 30, 2015 and 2014, respectively, and 5.5% and 1.6% for the six months ended June 30, 2015 and 2014, respectively.
Three
Months Ended June 30, 2015 Compared to Three Months Ended June 30, 2014
Revenue
Revenue was $22.6 million for the three months ended June 30, 2015 compared to $25.8 million for the three
months ended June 30, 2014, a decrease of $3.2 million or 12.4%. The decrease was primarily due to the decline in recognition of
revenue from expired contracts of $4.0 million due to the change in our revenue recognition policy with regards to DVD fulfillment
and an aggregate decrease of $0.6 million in attendance (i.e. fulfillment) in our U.S., Canadian and U.K. segments that was partially
offset by a $0.2 million increase in recognition of revenue from expired contracts and increased attendance in our international
segment of $1.2 million. Cash sales was $23.7 million for the three months ended June 30, 2015 compared to $19.2 million for the
three months ended June 30, 2014, an increase of $4.5 million or 23.4%.
Operating
Expenses
Total
operating costs and expenses were $23.8 million for the three months ended June 30, 2015 compared to $22.8 million for the three
months ended June 30, 2014, an increase of $1.0 million or 4.4%. The increase was primarily driven by a $1.4 million increase
in direct course expenses partially offset by lower advertising and sales expenses of $0.3 million and a $0.2 million reduction
in royalty expenses.
Direct
course expenses
Direct
course expenses relate to our free preview workshops, basic training and elite training, and consist of instructor fees, facility
costs, salaries, commissions and fees associated with our field representatives and related travel expenses. Direct course expenses
were $12.4 million for the three months ended June 30, 2015 compared to $11.0 million for the three months ended June 30, 2014,
a increase of $1.4 million or 12.7%.
Advertising and sales expenses
We generally obtain most of our potential
customers through internet-based advertising. The trend of increasing online advertising and reducing television and radio advertising
continued during the three months ended June 30, 2015 compared to the three months ended June 30, 2014, as we believe it is a more
cost-efficient method of attracting potential customers. Advertising and sales expenses consist of purchased media to generate
registrations to our free preview workshops and costs associated with supporting customer recruitment. We obtain the majority of
our customers through free preview workshops. These preview workshops are offered in various metropolitan areas in the U.S., the
United Kingdom, Canada, and other international markets. Prior to the actual workshop, we spend a significant amount of money in
the form of advertising through various media channels.
Advertising and sales expenses were 23.9%
and 21.2% of revenue, an increase of 2.7% for the three months ended June 30, 2015 and 2014, respectively. Media spending decreased
by approximately $0.1 million during the second quarter of 2015 compared with the second quarter of 2014, and our media spending
decreased to $64 per registrant from $65 per registrant, reflecting improved spending efficiency.
Royalty
expenses
We
have licensing and related agreements with Rich Dad Operating Company, LLC ("RDOC"), whereby we have exclusive rights
to develop, market, and sell Rich Dad branded live seminars, training courses, and related products worldwide. In connection with
these agreements and our other licensing agreements, we incur a royalty. Royalty expenses were $1.6 million for the three months
ended June 30, 2015 compared to $1.8 million for the three months ended June 30, 2014, a decrease of $0.2 million, or 11.1%. The
decrease was driven mostly by lower licensing costs related to lower revenue period over period.
General
and administrative expenses
General and administrative expenses primarily
consist of compensation, benefits, insurance, professional fees, facilities expense and travel for the corporate staff, as well
as depreciation and amortization expenses. General and administrative expenses was $4.3 million for the three months ended June
30, 2015 compared to $4.5 million for the three months ended June 30, 2014.
Income
tax expense
Income
tax expense was $10.0 thousand and $25.0 thousand for the three months ended June 30, 2015 and 2014, respectively. Our effective
tax rate was (1.0)% and 0.8% for the three months ended June 30, 2015 and 2014, respectively. 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. See Note 6 Income Taxes, for further information.
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, 2015 and December 31, 2014, a valuation allowance of $7.9 million and $7.9 million, respectively, has
been provided for net operating loss carryforwards and other deferred tax assets. We increased our valuation allowance by $0.4
million for the three months ended June 30, 2015 and increased our valuation allowance by $0.2 million for the three months ended
June 30, 2014.
Net income
(loss)
Net income (loss) was $(1.0) million
or $(0.05) per basic and diluted common share for the three months ended June 30, 2015, an increase in net loss of $4.0 million
compared to net income of $3.0 million or $0.19 per basic and diluted common share for the three months ended June 30, 2014. Net
loss for the three months ended June 30, 2015 was negatively impacted by the decline in recognition of revenue from expired contracts
of $4.0 million due to the change in our revenue recognition policy with regards to DVD fulfillment. In addition, net income for
the three months ended June 30, 2014 was positively impacted by $4.0 million, or $0.25 per basic and diluted common share.
Six
Months Ended June 30, 2015 Compared to Six Months Ended June 30, 2014
Revenue
Revenue was $44.4 million for the six months ended June 30, 2015 compared to $52.4 million for the six months
ended June 30, 2014, a decline of $8.0 million or 15.3%. The decrease was due to the decline in recognition of revenue from expired
contracts of $8.0 million due to the change in our revenue recognition policy with regards to DVD fulfillment. Cash sales were
$46.4 million for the six months ended June 30, 2015 compared to $41.9 million for the six months ended June 30, 2014, an increase
of $4.5 million or 10.7%.
Operating
Expenses
Total operating costs and expenses were $46.2
million for the six months ended June 30, 2015 compared to $46.1 million for the six months ended June 30, 2014, an increase of
$0.1 million or 0.2%. The increase was primarily driven by a $1.3 million increase in direct course expense and a $0.5 million
increase in general and administrative expenses partially offset by a $0.5 million decrease in advertising and sales expenses
and a $1.2 million reduction in royalty expense.
Direct course expenses
Direct
course expenses relate to our free preview workshops, basic training and elite training, and consist of instructor fees, facility
costs, salaries, commissions and fees associated with our field representatives and related travel expenses. Direct course expenses
were $24.0 million for the six months ended June 30, 2015 compared to $22.7 million for the six months ended June 30, 2014, an
increase of $1.3 million or 5.7%.
Advertising
and sales expenses
We generally obtain most of our potential customers
through internet-based advertising. The trend of increasing online advertising and reducing television and radio advertising continued
during the six months ended June 30, 2015 compared to the six months ended June 30, 2014, as we believe it is a more cost-efficient
method of attracting potential customers. Advertising and sales expenses consist of purchased media to generate registrations
to our free preview workshops and costs associated with supporting customer recruitment. We obtain the majority of our customers
through free preview workshops. These preview workshops are offered in various metropolitan areas in the U.S., the United Kingdom,
Canada, and other international markets. Prior to the actual workshop, we spend a significant amount of money in the form of advertising
through various media channels. Advertising and sales expenses were $10.6 million for the six months ended June 30, 2015 compared
to $11.1 million for the six months ended June 30, 2014, a decrease of $0.5 million, or 4.5%. Media spending was down $652 thousand
in the first half of 2015 compared to the first half of 2014. Additionally, our media spending decreased to $57 per registrant
in the first half of 2015 compared to $67 per registrant in the first half of 2014, reflecting improved spending efficiency. Advertising
and sales expenses were 23.8% and 21.1% of revenue, an increase of 2.7% for the six months ended June 30, 2015 and 2014, respectively.
Royalty expenses
We
have licensing and related agreements with Rich Dad Operating Company, LLC("RDOC"), whereby we have exclusive rights
to develop, market, and sell Rich Dad-branded live seminars, training courses, and related products worldwide. In connection with
these agreements and our other licensing agreements, we incur a royalty. Royalty expenses were $2.8 million for the six months
ended June 30, 2015 compared to $4.0 million for the six months ended June 30, 2014, a decrease of $1.2 million, or 30.0%. The
decrease was driven mostly by lower licensing costs related to lower revenue period over period.
General
and administrative expenses
General and administrative expenses primarily
consist of compensation, benefits, insurance, professional fees, facilities expense and travel for the corporate staff, as well
as depreciation and amortization expenses. General and administrative expenses were $8.8 million for the six months ended June
30, 2015 compared to $8.3 million for the six months ended June 30, 2014, an increase of $0.5 million, or 6.0%. The increase was
primarily driven by professional fees for legal, accounting and outside services.
Litigation
settlement
In
April 2014, we entered into an agreement with RDOC to settle certain claims we had against RDOC, Robert Kiyosaki, and Darren Weeks.
As part of this legal settlement agreement, approximately $1.3 million of debt was cancelled, essentially eliminating all of our
remaining long-term debt.
Income
tax expense
Income
tax expense was $21.0 thousand and $38.0 thousand for the six months ended June 30, 2015 and 2014, respectively. Our effective
tax rate was (1.3)% and 0.5% for the six months ended June 30, 2015 and 2014, respectively. 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. See Note 6 Income Taxes, for further information.
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, 2015 and December 31, 2014, a valuation allowance of $7.9 million and $7.9 million, respectively, has
been provided for net operating loss carryforwards and other deferred tax assets. There was no material change in our valuation
allowance for the six months ended June 30, 2015 or the six months ended June 30, 2014.
Net income
(loss)
Net income (loss) was $(1.6) million or $(0.08) per basic and diluted common share for the six months ended
June 30, 2015, an increase in net loss of $9.4 million compared to net income of $7.8 million or $0.49 per basic and diluted common
share for the six months ended June 30, 2014. Net loss for the six months ended June 30, 2015 was negatively impacted by the decline
in recognition of revenue from expired contracts of $8.0 million due to the change in our revenue recognition policy with regards
to DVD fulfillment. In addition, net income for the six months ended June 30, 2014 was positively impacted by $8.0 million, or
$0.50 per basic and diluted common share.
Critical
Accounting Policies
For
a discussion of our critical accounting policies and estimates that require the use of significant estimates and judgments,
see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies”
in our Annual Report on Form 10-K for the year ended December 31, 2014.
LIQUIDITY AND CAPITAL RESOURCES
Known Trends and Uncertainties
In general, we believe we will experience increased
demand for our products and services as global economic conditions continue to slowly improve since the economic recession that
began in 2008, including the decline in unemployment and the increased availability of consumer credit, particularly in the U.S.
We believe that our products and services appeal to those who seek increased financial freedom. If we experience a prolonged decline
in demand for our products and services, it could have a material adverse effect on our future operating results.
As part of our April 22,
2014 agreements with RDOC, we reduced the royalty rate applied to our Rich Dad branded revenues for calendar year 2014, which
represented a significant savings to us in 2014. In 2015, the rate reverted to the normal royalty rate.
We anticipate incurring increased professional
fees and expenses associated with our reporting obligations as a public company of approximately $0.8 million annually, including
fees and expenses for our annual audit and quarterly reviews, and our initiatives described in “Item 2. Management's
Discussion and Analysis—Results of Operations—Recent Developments”.
Historically, we have funded our working capital
and capital expenditures using cash and cash equivalents on hand. However, given our relatively modest operating cash flows during
the past two years combined, we have needed to manage our cash position to ensure the future viability of our business. Over the
past several years, including 2014, we have successfully renegotiated our licensing and related agreements with the Rich Dad Parties.
As part of these new agreements, we have been able to, among other things, eliminate debt and reduce our royalty rate payable to
RDOC, resulting in a significant positive development for us. During 2014, in the U.S., we entered into agreements with third-party
financing companies that provide our customers with financing options not previously available to them for the purchase of our
products and services. This new source of funds for our customers had a positive impact on both our revenue and operating cash
flows and we expect it to continue to have a positive impact on our business going forward.
The following is a summary of our cash flow
activities for the periods stated (in thousands):
| |
Six Months Ended June 30, | |
| |
2015 | | |
2014 | |
Net cash provided by operating activities | |
$ | 2,199 | | |
$ | 1,117 | |
Net cash used in investing activities | |
| (59 | ) | |
| (184 | ) |
Net cash provided by (used in) financing activities | |
| 454 | | |
| (270 | ) |
Effect of foreign currency exchange rates | |
| (430 | ) | |
| (10 | ) |
Net increase in cash and cash equivalents | |
$ | 2,164 | | |
$ | 653 | |
Operating Cash Flows and Liquidity
Net cash provided by operating activities
was $2.2 million in the six months ended June 30, 2015 compared to net cash provided by operating activities of $1.1 million in
the six months ended June 30, 2014. The $1.1 million increase was primarily the result of an increase in our current liabilities
primarily due to the timing of payments. Efforts to improve our operating cash flow include a renewed focus on improving our speaker
effectiveness at our seminars and the introduction of third-party financing, thus improving customer sales, and driving down our
operating expenses through the increased use of lower cost method of delivering our content via webinars and on-demand classes
using our web-based portal and adherence to our internal budgets.
Investing Cash Flows
Net cash used in investing activities
totaled $59.0 thousand in the six months ended June 30, 2015 and $184.0 thousand in the six months ended June 30, 2014, representing
our purchases of property and equipment.
Financing Cash Flows
Our consolidated capital structure as of June 30, 2015 and December 31, 2014 was 100.0% equity.
Net cash provided by financing activities
totaled $0.4 million in the six months ended June 30, 2015 compared to net cash used in financing activities of $0.3 million in
the six months ended June 30, 2014, representing a period-over-period increase in cash from financing activities of $0.7 million.
We expect that our working capital deficit,
which is primarily a result of our significant deferred revenue balance, will continue for the foreseeable future. As of June
30, 2015, our consolidated deferred revenue was $57.8 million.
Our cash equivalents were, and continue to
be, invested in short-term, liquid, money market funds. Restricted cash balances consisted primarily of funds on deposit with credit
card processors and cash collateral with our credit card vendors. Restricted cash balances held by credit card processors are unavailable
to us unless we discontinue sale of our products or discontinue the usage of a vendor’s credit card. As sales of the products
and services related to our domestic business have decreased, our credit card vendors have not returned funds held as collateral,
resulting in slightly higher restricted cash balances.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements as
of June 30, 2015.
Item 4. Controls and Procedures.
An evaluation of the effectiveness of the design
and operation of our disclosure controls and procedures (as defined in Rule 13a-15 under the Securities Exchange Act of 1934) was
carried out under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”)
and Chief Financial Officer (“CFO”). As of June 30, 2015, based upon that evaluation, the CEO and CFO concluded that
the design and operation of these disclosure controls and procedures were not effective in providing reasonable assurance that
information we are required to disclose in reports that we file or furnish under the Securities Exchange Act of 1934 is accumulated
and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure
and that such information is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange
Commission rules and forms.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
We are subject to a number
of contingencies, including litigation, from time to time. For further information regarding legal proceedings, see Note 9
Commitments and Contingencies, to our condensed consolidated financial statements.
Item 1A. Risk Factors.
Readers of this Quarterly Report on Form 10-Q
should carefully consider the risks described in our other reports and filings filed with or furnished to the SEC, including our
prior and subsequent reports on Forms 10-K, 10-Q and 8-K, in connection with any evaluation of our financial position, results
of operations and cash flows.
The risks and uncertainties in our most recent
Annual Report on Form 10-K, are not the only risks that we face. Additional risks and uncertainties not presently known or those
that are currently deemed immaterial may also affect our operations. Any of the risks, uncertainties, events or circumstances described
therein could cause our future financial condition, results of operations or cash flows to be adversely affected.
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds.
We closed a private offering of 959,924
units (“Units”) at a gross price per Unit of $0.55. Each Unit included one share of common stock, par value $0.0001
per share (“Common Stock”), and a three-year warrant (a “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, for example the
exercise price of a Warrant is reduced to $0.55, if a registration statement is not filed within 270 days or if the company does
not continue to be a reporting company it will be reduced to $0.01, per one share of Common Stock. 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.
We paid a placement
agent cash fees of 13% of aggregate proceeds that was received and will pay 5% of all amounts received upon the exercise of the
Warrants. We 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. We had previously received $459,323 in net cash proceeds related to this private offering,
which was recorded in restricted cash and other accrued expenses on our Condensed Consolidated Balance Sheets. This cash amount
will now be unrestricted. In connection with this private offering, our placement agent agreement with the placement agent was
terminated.
We described
this sale of Units in Part II. Other Information, Item 2 in our Quarterly Report on Form 10-Q for the quarterly period ending
March 31, 2015 that was filed with the Securities and Exchange Commission.
The offering
of the Units was made in a transaction that is exempt from the registration requirements of the Securities Act of 1933, as amended
(the “Securities Act”), pursuant to Section 4(a)(2) thereof and the provisions of Regulation D or Regulation S that
is promulgated under the Securities Act.
This Quarterly Report on Form 10-Q does not
constitute an offer to sell, or a solicitation to purchase any of our securities.
Item 6. Exhibits
Exhibit
Number |
|
|
31.1* |
|
Certification of Chief Executive Officer under Section 302 of Sarbanes-Oxley Act of 2002 |
31.2* |
|
Certification of Chief Financial Officer under Section 302 of Sarbanes-Oxley Act of 2002 |
32.1* |
|
Certification Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 |
32.2* |
|
Certification Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 |
101* |
|
The following materials from Legacy Education Alliance, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014 (Unaudited), (ii) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2015 and 2014 (Unaudited), (iii) Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the six months ended June 30, 2015 (Unaudited), (iv) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 (Unaudited) and (v) Notes to Condensed Consolidated Financial Statements (Unaudited). |
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
LEGACY EDUCATION ALLIANCE, INC. |
|
|
Dated: August 14, 2015 |
By: |
/s/ ANTHONY C. HUMPAGE |
|
|
Anthony C. Humpage
Chief Executive Officer and Director |
|
|
|
Dated: August 14, 2015 |
By: |
/s/ CHRISTIAN A. J. BAEZA |
|
|
Christian A. J. Baeza |
|
|
Chief Financial Officer |
26
Exhibit 31.1
CERTIFICATIONS
I, Anthony C. Humpage, certify that:
1. I have reviewed this Form 10-Q of Legacy Education Alliance Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I
are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f))
for the registrant and have:
(a) Designed such disclosure controls
and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over
financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the
registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change
in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I
have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors
and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material
weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect
the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material,
that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
/s/ Anthony C. Humpage |
|
Anthony C. Humpage
Chief Executive Officer and Director |
|
|
|
Dated: August 14, 2015 |
|
Exhibit 31.2
CERTIFICATIONS
I, Christian A. J. Baeza, certify that:
1. I have reviewed this Form 10-Q of Legacy Education Alliance Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I
are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f))
for the registrant and have:
(a) Designed such disclosure controls
and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over
financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the
registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change
in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I
have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors
and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material
weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect
the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material,
that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
/s/ Christian A. J. Baeza |
|
Christian A. J. Baeza |
|
Chief Financial Officer |
|
|
|
Dated: August 14, 2015 |
|
Exhibit 32.1
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002
In connection with the Quarterly Report on
Form 10-Q of Legacy Education Alliance, Inc. (the “Company”) for the period ended June 30, 2015, as filed with
the Securities and Exchange Commission on the date hereof (the “Form 10-Q”), I, Anthony C. Humpage, Chief
Executive Officer and Director of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:
(1) The
Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended; and
(2) The
information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations
of the Company.
|
/s/ Anthony C. Humpage |
|
Anthony C. Humpage
Chief Executive Officer and Director |
|
Dated: August 14, 2015 |
A signed original of this
written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature
that appears in typed form within the electronic version of this written statement required by Section 906, has been provided
to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002
In connection with the Quarterly Report on
Form 10-Q of Legacy Education Alliance, Inc. (the “Company”) for the period ended June 30, 2015, as filed with
the Securities and Exchange Commission on the date hereof (the “Form 10-Q”), I, Christian A. J. Baeza, Chief
Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934, as amended; and
(2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results
of operations of the Company.
|
/s/ Christian A. J. Baeza |
|
Christian A. J. Baeza |
|
Chief Financial Officer |
|
|
|
Dated: August 14, 2015 |
A signed original of this written statement
required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears
in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company
and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
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