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, Making Money from Property
with Martin Roberts
TM
; Brick Buy Brick
TM
; Building Wealth; Robbie Fowler Property Academy
TM
;
Women in Wealth
TM
; Perform in Property
TM
, Teach Me to Trade
TM
, and Trade Up Investor Education
TM
.
Our products and services are offered in North America, the United Kingdom and Other Foreign Markets.
Our students pay for their
courses in full up-front or through payment agreements with independent third parties. Under United States of America generally
accepted accounting principles (“U.S. GAAP”), we recognize revenue upon the earlier of (i) when our students take
their courses or (ii) the term for taking their course expires, both of which could be several quarters after the student purchases
a program and pays the fee. We recognize revenue immediately when we sell our (i) proprietary products delivered at time of sale
and (ii) third party products sales. Our symposiums combine multiple advanced training courses in one location, allowing us to
achieve certain economies of scale that reduce costs and improve margins while also accelerating U.S. GAAP revenue recognition,
while at the same time, enhancing our students’ experience, particularly, for example, through the opportunity to network
with other students.
We
also provide a richer experience for our students through one-on-one mentoring (two to four days in length, on site or remotely)
and telephone mentoring (10 to 16 weekly one-on-one or one-on-many telephone sessions). Mentoring involves a subject matter expert
interacting with the student remotely or in person and guiding the student, for example, through his or her first real estate
transaction, providing a real hands-on experience.
Our operations are
managed through three operating segments: (i) North America, (ii) United Kingdom, and (iii) 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 in this report 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 fiscal year ended December 31, 2018 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 Loss are not necessarily indicative of amounts expected for the respective annual periods or any
other interim period.
Reclassification.
We have reclassified
certain amounts in our prior-period financial statements to conform to the current period’s presentation.
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 our accounting policies disclosed therein, except for those discussed in
Note
2 - New Accounting Pronouncements, - “Accounting Standards Adopted in the Current Period.”
Going Concern
.
The
accompanying unaudited condensed consolidated financial statements and notes have been prepared assuming we will continue as
a going concern. For the quarter ended March 31, 2019, we incurred a net loss, had an accumulated deficit, a working capital
deficit and generated positive cash flow from operations. These circumstances raise substantial doubt as to our ability to
continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to generate profits by
expanding current operations globally as well as reducing our costs and increasing our operating margins, and to sustain
adequate working capital to finance our operations. The failure to achieve the necessary levels of profitability and cash
flows would be detrimental to us. The consolidated financial statements do not include any adjustments that might be
necessary if we are unable to continue as a going concern.
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.
Tax
Cuts and Jobs Act
The Tax Cuts and Jobs
Act (the “Act”) was enacted on December 22, 2017 making significant changes to the Internal Revenue Code. Changes include,
but are not limited to, a reduction in the US federal corporate tax rate from 35% to 21%, requiring companies to pay a one-time
transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creating new taxes on certain
foreign sourced earnings. As of March 31, 2019, we recognized income tax expense of $0.16 million related to the remeasurement
of our deferred tax balance.
Note
2 - New Accounting Pronouncements
Accounting
Standards Adopted in the Current Period
We
have implemented all new accounting pronouncements that are in effect and that management believes would materially affect our
financial statements.
In June 2018, an accounting
update was issued to simplify the accounting for nonemployee share-based payment transactions resulting from expanding the scope
of
ASC Topic 718, Compensation-Stock Compensation
, to include share-based payment transactions for acquiring goods
and services from nonemployees. An entity should apply the requirements of
ASC Topic 718
to nonemployee awards
except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over
which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that
ASC
Topic 718
applies to all share-based payment transactions in which a grantor acquires goods or services to be used or
consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that
ASC
Topic 718
does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards
granted in conjunction with selling goods or services to customers as part of a contract accounted for under
ASC Topic
606, Revenue from Contracts with Customers
. The amendments in this accounting update are effective for public business entities
for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted,
but no earlier than an entity’s adoption date of
ASC Topic 606
. We adopted this accounting update effective
January 1, 2019. Adoption of this accounting standard had no impact on our financial statements.
In February 2016, the FASB
issued ASU No 2016-02 “Leases” to increase the transparency and comparability about leases among entities. Additional
ASUs have been issued subsequent to ASU 2016-02 to provide supplementary clarification and implementation guidance for leases related
to, among other things, the application of certain practical expedients, the rate implicit in the lease, lessee reassessment of
lease classification, lessor reassessment of lease term and purchase options, variable payments that depend on an index or rate
and certain transition adjustments. ASU 2016-02 and these additional ASUs are now codified as Accounting Standards Codification
Standard 842 - “Leases” (“ASC 842”). ASC 842 supersedes the lease accounting guidance in Accounting Standards
Codification 840 “Leases” (“ASC 840”) and requires lessees to recognize a lease liability and a corresponding
lease asset for virtually all lease contracts. It also requires additional disclosures about leasing arrangements. We elected to
utilize the “package” of three expedients, as defined in ASC 842, which retain the lease classification and initial
direct costs for any leases that existed prior to adoption of the standard. Our Condensed Consolidated Financial Statements for
the periods prior to the adoption of ASC 842 are not adjusted and are reported in accordance with our historical accounting policy.
As of the date of implementation on January 1, 2019, the impact of the adoption of ASC 842 resulted in the recognition of a right
of use asset and lease payable obligation on our Condensed Consolidated Balance Sheets of approximately $1.4 million. As the right
of use asset and the lease payable obligation were the same upon adoption of ASC 842, there was no cumulative effect impact on
our retained earnings. See Note 12 –
Leases,
to our condensed consolidated financial statements for further discussion.
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 adopted this standard effective January 1, 2019. Adoption of this accounting standard had
no material 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 $28.0 thousand and $57.0 thousand for the three months ended March 31, 2019
and March 31, 2018, respectively, which are reported as a separate line item in the condensed consolidated statements of changes
in stockholders’ deficit.
Note
4 - Earnings Per Share (“EPS”)
Basic EPS is computed
by dividing net income (loss) 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. For periods in which we recognize losses, the calculation
of diluted loss per share is the same as the calculation of basic loss per share.
We
excluded unvested restricted stock awards from the diluted weighted-average number of shares used in our diluted EPS calculation
of 547,335 for the three months ended March 31, 2019 and 1,146,342 for the three months ended and March 31, 2018 because we had
a net loss in those periods.
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 547,335 and 1,146,342 for the three months ended March 31, 2019 and March 31,
2018, respectively.
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).
|
We
did not have any financial liabilities measured and recorded at fair value on our condensed consolidated balance sheets on a recurring
basis as of March 31, 2019 and December 31, 2018.
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.
Note
6 - Short-Term and Long-Term Debt
(in thousands)
|
|
As of
March 31,
2019
|
|
|
As of
December 31,
2018
|
|
Promissory notes
|
|
$
|
891
|
|
|
$
|
500
|
|
Current portion of long-term debt
|
|
|
—
|
|
|
|
12
|
|
Total short-term borrowings and current portion of long-term
debt
|
|
$
|
891
|
|
|
$
|
512
|
|
Long-term
debt consists of the following:
(in thousands)
|
|
As of
March 31,
2019
|
|
|
As of
December 31,
2018
|
|
Installment notes payable for equipment financing
|
|
$
|
—
|
|
|
$
|
20
|
|
Less: current portion
|
|
|
—
|
|
|
|
(12
|
)
|
Total long-term debt, net of current portion
|
|
|
—
|
|
|
$
|
8
|
|
The
following is a summary of scheduled debt maturities by year (in thousands):
2019
|
|
$
|
891
|
|
Total debt
|
|
$
|
891
|
|
On September 13, 2018,
we entered into a Promissory Note and Mortgage and Security Agreement pursuant to which we borrowed the principal amount of $500
thousand from USA ReGrowth Fund LLC. At closing, we received $459,269 in net proceeds after closing costs and other fees and costs.
The Promissory Note, repayment of which was initially due on March 13, 2019, was issued in an aggregate principal amount of $500
thousand and bears interest at a fixed rate of 12% per annum during the initial 120 days of the term of the Promissory Note, and
a fixed rate of 30% per annum until all amounts due under the Promissory Note are paid in full. Pursuant to the Mortgage and Security
Agreement, repayment of the Promissory Note is secured by a first mortgage on the property located at 1612 East Cape Coral Parkway,
Cape Coral, FL. 33904. On March 8
th
, 2019, we executed an extension of the maturity date to September 13, 2019. During
the initial 120 days of the extension period, the Promissory Note bears a fixed rate of 12% per annum and a fixed rate of 30% per
annum thereafter until all amounts due thereunder are paid.
On January 21, 2019,
we entered into a six month Bridging Loan Agreement pursuant to which we borrowed the principal amount of £300 thousand from
D.J. Fatica Asset Management Ltd. The loan bears interest at a fixed rate of 12% per annum. The loan is secured by property owned
by LEAI Properties UK Ltd.
Note 7 - Income Taxes
We
recorded an income tax benefit of $60.0 thousand and income tax expense of ($397.0) thousand for the three months ended March
31, 2019 and 2018, respectively. Our effective tax rate was 36.1% and 86.1% for the three months ended March 31, 2019 and 2018,
respectively. Our effective tax rates differed from the U.S. statutory corporate tax rate of 21% 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 March
31, 2019, and December 31, 2018, valuation allowances of $7.2 million and $6.9 million, respectively have been provided against
net operating loss carryforwards and other deferred tax assets. Our valuation allowance increased by $.3 million and $.2 million
for the three months ended March 31, 2019 and 2018, respectively.
As of March 31, 2019,
and December 31, 2018, we had total unrecognized tax benefits of $1.6 million, related to foreign and domestic tax positions.
Of this amount, the Company estimates that $0.09 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 three months ended March 31, 2019 and 2018, 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
Internal Revenue Service completed its examination of the corporation’s federal income tax returns for the years 2013-2015
resulting in no changes.
The
Canadian Revenue Agency completed its examination of the corporation’s 2014-2016 goods and services tax (GST) and harmonized
sales tax (HST) returns. All issues have been settled.
The
Tax Cuts and Jobs Act (The Act,) was enacted on December 22, 2017 making significant changes to the Internal Revenue Code. Changes
include, but are not limited to, a reduction in the US federal corporate tax rate from 35% to 21%, requiring companies to pay
a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creating new taxes
on certain foreign sourced earnings. As of March 31, 2019, we recognized income tax expense of $0.163 million related to the remeasurement
of our deferred tax balance.
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. All cash balances as of March 31, 2019 and December 31, 2018, including foreign
subsidiaries, without FDIC coverage were $3.3 million and $1.1 million, respectively.
Revenue
A significant portion
of our revenue is derived from the Rich Dad brands. For the three months ended March 31, 2019 and 2018, Rich Dad brands provided
72.2% and 73.4% of our revenue. In addition, we have operations in North America, United Kingdom and Other foreign markets (see
Note 9 —
Segment Information
).
Note
9 - Segment Information
We manage our business
in three segments based on geographic location for which operating managers are responsible to the Chief Executive Officer. These
segments included: (i) North America, (ii) United Kingdom, (iii) Other Foreign Markets. Operating results, as reported below, are
reviewed regularly by our Chief Executive 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 March 31,
|
|
|
|
2019
|
|
|
2018
|
|
As a percentage of total revenue
|
|
|
|
|
|
|
North America
|
|
|
61.0
|
%
|
|
|
62.0
|
%
|
U.K.
|
|
|
23.6
|
%
|
|
|
20.4
|
%
|
Other foreign markets
|
|
|
15.4
|
%
|
|
|
17.6
|
%
|
Total consolidated revenue
|
|
|
100
|
%
|
|
|
100
|
%
|
Operating
results for the segments are as follows:
|
|
Three Months Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Segment revenue
|
|
(In thousands)
|
|
North America
|
|
$
|
14,987
|
|
|
$
|
15,949
|
|
U.K.
|
|
|
5,804
|
|
|
|
5,265
|
|
Other foreign markets
|
|
|
3,785
|
|
|
|
4,541
|
|
Total consolidated revenue
|
|
$
|
24,576
|
|
|
$
|
25,755
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Segment gross profit contribution *
|
|
(In thousands)
|
|
North America
|
|
$
|
4,295
|
|
|
$
|
3,856
|
|
U.K.
|
|
|
890
|
|
|
|
1,127
|
|
Other foreign markets
|
|
|
(488
|
)
|
|
|
(570
|
)
|
Total consolidated gross profit
|
|
$
|
4,697
|
|
|
$
|
4,413
|
|
*
|
Segment
gross profit is calculated as revenue less direct course expenses, advertising and sales expenses and royalty expense.
|
|
|
Three Months Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Depreciation and amortization expenses
|
|
(In thousands)
|
|
North America
|
|
$
|
31
|
|
|
$
|
25
|
|
U.K.
|
|
|
10
|
|
|
|
4
|
|
Other foreign markets
|
|
|
1
|
|
|
|
—
|
|
Total consolidated depreciation and amortization expenses
|
|
$
|
42
|
|
|
$
|
29
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Segment identifiable assets
|
|
(In thousands)
|
|
North America
|
|
$
|
13,258
|
|
|
$
|
11,566
|
|
U.K.
|
|
|
8,941
|
|
|
|
4,956
|
|
Other foreign markets
|
|
|
4,677
|
|
|
|
4,038
|
|
Total consolidated identifiable assets
|
|
$
|
26,876
|
|
|
$
|
20,560
|
|
Note
10 - Revenue Recognition
We
recognize revenue when our customers obtain control of promised goods or services, in an amount that reflects the consideration
which we expect to receive in exchange for those goods or services, in accordance with implemented Topic 606 - an update to Topic
605.
We
adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1,
2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606. Revenue amounts presented in
our condensed consolidated financial statements are recognized net of sales tax, value-added taxes, and other taxes.
In the normal course
of business, we recognize revenue based on the customers’ attendance of the course, mentoring training, coaching session
or delivery of the software, data or course materials on-line. After a customer contract expires we record breakage revenue less
a reserve for cases where we allow a customer to attend after expiration. We have deferred revenue of $60.0 million related to
contractual commitments with customers where the performance obligation will be satisfied over time, which ranges from one to
two years as of March 31, 2019. The revenue associated with these performance obligations is recognized as the obligation is satisfied.
We did not have a material change in financial position, results of operations, or cash flows and therefore there is no cumulative
impact recorded to opening equity.
The
following tables disaggregate our segment revenue by revenue source:
|
|
Three Months Ended March 31, 2019
|
|
|
Three Months Ended March 31, 2018
|
|
Revenue Type:
|
|
North America
|
|
|
U.K.
|
|
|
Other foreign markets
|
|
|
Total Consolidated Revenue
|
|
|
North America
|
|
|
U.K.
|
|
|
Other foreign markets
|
|
|
Total Consolidated Revenue
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seminars
|
|
$
|
8,353
|
|
|
$
|
4,223
|
|
|
$
|
2,170
|
|
|
$
|
14,746
|
|
|
$
|
10,182
|
|
|
$
|
3,430
|
|
|
$
|
2,626
|
|
|
$
|
16,238
|
|
Products
|
|
|
2,782
|
|
|
|
1,251
|
|
|
|
380
|
|
|
|
4,413
|
|
|
|
3,274
|
|
|
|
1,353
|
|
|
|
926
|
|
|
|
5,553
|
|
Coaching and Mentoring
|
|
|
1,399
|
|
|
|
328
|
|
|
|
1,165
|
|
|
|
2,892
|
|
|
|
1,457
|
|
|
|
438
|
|
|
|
985
|
|
|
|
2,880
|
|
Online and Subscription
|
|
|
498
|
|
|
|
2
|
|
|
|
70
|
|
|
|
570
|
|
|
|
567
|
|
|
|
11
|
|
|
|
4
|
|
|
|
582
|
|
Other
|
|
|
1,955
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,955
|
|
|
|
469
|
|
|
|
33
|
|
|
|
0
|
|
|
|
502
|
|
Total revenue
|
|
$
|
14,987
|
|
|
$
|
5,804
|
|
|
$
|
3,785
|
|
|
$
|
24,576
|
|
|
$
|
15,949
|
|
|
$
|
5,265
|
|
|
$
|
4,541
|
|
|
$
|
25,755
|
|
Note
11 - 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,
Martin Roberts and Kathy Ireland. Total royalty expenses included in our Condensed Consolidated Statements of Operations and Comprehensive
Loss were $1.4 million and $1.6 million for the three months ended March 31, 2019 and March 31, 2018, 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 March 31, 2019 and December 31, 2018, were $6.7 million and $5.0 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 March 31, 2019 and December 31, 2018, 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.
Note
12 - Leases
Right-of-Use
Assets and Leases Obligations
The Company leases
office space and office equipment under non-cancelable operating leases, with terms typically ranging from one to three years,
subject to certain renewal options as applicable. The Company considers those renewal or termination options that are reasonably
certain to be exercised in the determination of the lease term and initial measurement of lease liabilities and right-of-use assets.
Lease expense for lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of 12
months or less are not recorded on the balance sheet.
The Company determines
whether a contract is or contains a lease at inception of the contract and whether that lease meets the classification criteria
of a finance or operating lease. When available, the Company uses the rate implicit in the lease to discount lease payments to
present value; however, most of the Company’s leases do not provide a readily determinable implicit rate. Therefore, the
Company must discount lease payments based on an estimate of its incremental borrowing rate.
The Company does not
separate lease and nonlease components of contracts. There are no material residual value guarantees associated with any of the
Company’s leases. There are no significant restrictions or covenants included in the Company’s lease agreements other
than those that are customary in such arrangements.
Lease Position as of March 31,
2019
The table below presents
the lease related assets and liabilities recorded on the Company’s Condensed Consolidated Balance Sheets as of March 31,
2019:
|
|
|
|
March 31,
|
|
(in thousands)
|
|
Classification on the Balance Sheet
|
|
2019
|
|
Assets
|
|
|
|
|
|
Operating lease assets
|
|
Operating lease right of use assets
|
|
$
|
1,399
|
|
|
|
Total lease assets
|
|
$
|
1,399
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
Operating lease liabilities
|
|
Current operating lease liabilities
|
|
$
|
802
|
|
Noncurrent liabilities:
|
|
|
|
|
|
|
Operating lease liabilities
|
|
Long-term operating lease liabilities
|
|
$
|
597
|
|
|
|
Total lease liabilities
|
|
$
|
1,399
|
|
Other Information
The table below presents
supplemental cash flow information related to leases for the three months ended March 31, 2019:
|
|
Three Months Ended
March 31,
|
|
(in thousands)
|
|
2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows for operating leases
|
|
$
|
231
|
|
Supplemental non-cash amounts of lease liabilities arising from obtaining right-of-use assets
|
|
|
1,399
|
|
Lease Terms and Discount Rates
The table below presents certain information
related to the weighted average remaining lease terms and weighted average discount rates for the Company’s operating leases
as of March 31, 2019:
|
|
Three Months Ended
March 31,
2019
|
|
Weighted average remaining lease term - operating leases
|
|
|
1.46
years
|
|
Weighted average discount rate - operating leases
|
|
|
12.00
|
%
|
Undiscounted Cash Flows
The table below reconciles
the fixed component of the undiscounted cash flows for each of the first five years and the total remaining years to the operating
lease liabilities recorded on the Condensed Consolidated Balance Sheet as of March 31, 2019:
Amounts due within twelve months of March 31,
|
|
Operating Leases
|
|
|
|
(in thousands)
|
|
2019
|
|
$
|
946
|
|
2020
|
|
|
754
|
|
2021
|
|
|
114
|
|
Total minimum lease payments
|
|
|
1,814
|
|
Less: effect of discounting
|
|
|
(415
|
)
|
Present value of future minimum lease payments
|
|
|
1,399
|
|
Less: current obligations under leases
|
|
|
(802
|
)
|
Long-term lease obligations
|
|
$
|
597
|
|
There are no lease arrangements where
the Company is the lessor.
Note 13 – Subsequent Event
Litigation
.
Elite Legacy Education, Inc. v. Netsuite, Inc., Oracle Corporation and Oracle America, Inc.
On August 17, 2018, we submitted
a demand for arbitration against Respondents NetSuite, Inc., Oracle Corporation, and Oracle America, Inc. (collectively, “Oracle/NetSuite”)
to JAMS in San Francisco, California for declaratory relief, breach of contract, breach of the covenant of good faith and fair
dealing, conversion, and unjust enrichment to address the deficient performance and subsequent unwarranted and malicious threats
to suspend performance altogether from Respondents Oracle/NetSuite arising out of the Company new ERP/CRM system. Respondents have
submitted counter claims for breach of contract and declaratory relief. The hearing on the merits scheduled to have occurred May
8-10, 2019 was cancelled at the request of the parties. No new hearing date has been set.