NOTES
TO 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 workshops, basic trainings, forums, telephone mentoring, one-on-one mentoring, coaching and e-learning. During the six
months ended June 30, 2021, we marketed our products and services under our Building Wealth with LegacyTM brand. During
the year ended December 31, 2020, we marketed our products and services under two brands: Building Wealth with LegacyTM;
and Homemade Investor by Tarek El MoussaTM.
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 and forums 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 three days in length, on site or remotely, although
we temporarily suspended providing on-site mentorships as a result of the COVID-19 pandemic) and telephone mentoring (10 to 16 weekly
one-on-one or one-on-many telephone sessions). During the third quarter of 2021, we have resumed providing on-site mentorships on a limited
basis. 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.
We
were founded in 1996, and through a reverse merger, became a publicly-held company in November 2014.
Historically,
our operations have relied heavily on our and our students’ ability to travel and attend live events where large groups of people
gather in local markets within each of the segments in which we operate. In March 2020, as a result of the COVID-19 pandemic, and the
resulting worldwide restrictions on travel and social distancing, we temporarily ceased conducting live sales and fulfillment and furloughed
substantially all of our employees. We resumed online operations in July 2020, and live operations on a limited basis in November 2020.
The Company expects to conduct additional live events as lockdown restrictions continue to ease and hopes to return to a normal schedule
over the coming months. The Company will continue following strict safety protocols at the live events. We have simplified our product
offerings and restructured our compensation program with respect to both employees and independent contractors to reduce costs and improve
margins, but there can be no assurances that the Company will be effective in selling its products and services, or what the impact of
such activities will have on our financial performance. We are not able to fully quantify the impact that these factors will have on
our financial results, but expect developments related to COVID-19 to continue to affect the Company’s financial performance in
2021 and beyond.
Our
operations are managed through three operating segments: (i) North America, (ii) United Kingdom, and (iii) Other Foreign Markets.
Since
January 1, 2020, we have operated under two brands:
|
●
|
Building
Wealth with LegacyTM: provides practical, high-quality and value-based educational training on the topics of personal
finance, entrepreneurship, real estate, financial markets and investing strategies and techniques. This training program encompasses
hands-on experience and the true spirit of investing from beginner to educated investor. In the fourth quarter of 2020, the
Company began transitioning to its proprietary brand name Building Wealth with LegacyTM. During the six months
ended June 30, 2021, we marketed our products and services exclusively under this brand.
|
|
●
|
Homemade
Investor by Tarek El MoussaTM introduces people to the investor mindset, real estate investing strategies, and ways
to generate cash flow that are designed to help build a foundation of knowledge for their financial goals. Homemade Investor events
offered free workshops nationwide, 3-day trainings and large stage events with Tarek presenting as the keynote speaker, all selling
into our advanced training products. In November 2020, we suspended conducting Homemade Investor by Tarek El MoussaTM
sales events to focus on developing our proprietary Building Wealth with LegacyTM brand.
|
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 Tigrent Inc., a Colorado corporation. All intercompany balances and transactions have been eliminated
in consolidation. As discussed in Note 4 “Discontinued Operations”, the sale of the assets and deferred revenues of
Legacy Education Alliance International Ltd (Legacy UK), and liquidations of Legacy Education Alliance Hong Kong Limited (Legacy HK),
Legacy Education Alliance Australia Pty, Ltd. (Legacy Australia) and Tigrent Learning Canada, Inc. (Tigrent Canada) are reflected as
discontinued operations in the consolidated financial statements.
The
accompanying unaudited 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, 2020 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 Consolidated Statements of Operations and Comprehensive income
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 consolidated financial statements and notes have been prepared assuming we will continue as a going concern. For the six
months ended June 30, 2021 we had an accumulated deficit, a working capital deficit and a negative cash flow from operating activities.
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 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.
Conformity
with GAAP requires the use of estimates and judgments that affect the reported amounts in our consolidated financial statements and accompanying
notes. These estimates form the basis for judgments we make about the carrying values of our assets and liabilities, which are not readily
apparent from other sources. We base our estimates and judgments on historical information and on various other assumptions that we believe
are reasonable under the circumstances. GAAP requires us to make estimates and judgments in several areas, including, but not limited
to, those related to deferred revenues, reserve for breakage, deferred costs, revenue recognition, commitments and contingencies, fair
value of financial instruments, useful lives of property and equipment, right-of-use assets, and income taxes. These estimates are based
on management’s knowledge about current events and expectations about actions we may undertake in the future. Actual results could
differ materially from those estimates.
Cash
and Cash Equivalents.
We
consider all highly liquid instruments with an original maturity of three months or less to be cash or cash equivalents. We continually
monitor and evaluate our investment positions and the creditworthiness of the financial institutions with which we invest and maintain
deposit accounts. 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, 2021 and December 31, 2020, we did not have a CDAR balance.
Restricted
Cash.
Restricted
cash balances consist primarily of funds on deposit with credit card and other payment processors. These balances do not have the benefit
of federal deposit insurance and are subject to the financial risk of the parties holding these funds. Restricted cash balances held
by credit card processors are unavailable to us unless, and for a period of time after, we discontinue the use of their services. Because
a portion of these funds can be accessed and converted to unrestricted cash in less than one year in certain circumstances, that portion
is considered a current asset. Restricted cash is included with cash and cash equivalents in our consolidated statements of cash flows.
Deposits
with Credit Card Processors.
The
deposits with our credit card processors are held due to arrangements under which our credit card processors withhold credit card funds
to cover charge backs in the event we are unable to honor our commitments. These deposits are included in restricted cash on our consolidated
balance sheet.
The
following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets
that sum to the total of the same such amounts in the consolidated cash flow statements:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(in thousands)
|
|
Cash
and cash equivalents
|
|
$
|
1,373
|
|
|
$
|
1,500
|
|
Restricted
cash
|
|
|
631
|
|
|
|
1,180
|
|
Total
cash, cash equivalents, and restricted cash shown in the cash flow statement
|
|
$
|
2,004
|
|
|
$
|
2,680
|
|
Convertible
Instruments
The
Company evaluates and accounts for conversion options embedded in convertible instruments in accordance with ASC 815 “Derivatives
and Hedging Activities”.
Applicable
GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative
financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and
risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host
contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at
fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same
terms as the embedded derivative instrument would be considered a derivative instrument.
The
Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated
from their host instruments) as follows: The Company records when necessary, discounts to convertible notes for the intrinsic value of
conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the
commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements
are amortized over the term of the related debt.
Stock
Warrants.
The
Company accounts for stock warrants as equity in accordance with ASC 480 – Distinguishing Liabilities from Equity. Stock
warrants are accounted for a derivative in accordance with ASC 815 – Derivatives and Hedging, if the stock warrants contain
other terms that could potentially require “net cash settlement” and therefore, do not meet the scope exception for treatment
as a derivative.
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 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.
We
record our interim provision for income taxes by applying our estimated annual effective tax rate to our year-to-date pre-tax income
and adjusting for discrete tax items recorded in the period. Deferred income taxes result from temporary differences between the
reporting of amounts for financial statement purposes and income tax purposes. These differences relate primarily to different methods
used for income tax reporting purposes, including for depreciation and amortization, warranty and vacation accruals, and deductions related
to allowances for doubtful accounts receivable and inventory reserves. Our provision for income taxes includes current federal and state
income tax expense, as well as deferred federal and state income tax expense.
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.
Discontinued
Operations.
ASC
205-20-45, “Presentation of Financial Statements Discontinued Operations” requires discontinued operations to be reported
if the disposal of a business component represents a strategic shift that has a major effect on an entity’s operations and financial
reports. We have determined that the sale of the assets and deferred revenues of Legacy UK, and liquidations of Legacy HK, Legacy Australia
and Tigrent Canada meet this criterion. Accordingly, the assets, deferred revenues, and income statement of these entities were transferred
to discontinued operations to close out the business. See Note 4 – “Discontinued Operations”, for additional
disclosures regarding these entities.
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.
Recently
Issued Accounting Pronouncements.
In
August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06
– Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s
Own Equity (Subtopic 815-40) – Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.
The ASU simplifies the guidance on the issuer’s accounting for convertible debt instruments by removing the separation models for
(1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result,
entities will not separately present in equity an embedded conversion feature in such debt. Instead, they will account for a convertible
debt instrument wholly as debt, unless certain other conditions are met. The elimination of these models will reduce reported interest
expense and increase reported net income for entities that have issued a convertible instrument that was within the scope of those models
before the adoption of ASU 2020-06. Also, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings
per share, and the treasury stock method will be no longer available. The provisions of ASU 2020-06 are applicable for fiscal years beginning
after December 15, 2023, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company is
currently evaluating the impact of ASU 2020-06 on its consolidated 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 $31.0 thousand and $8.0 thousand for the three months ended June 30,
2021 and 2020, respectively, and $31.0 and $14.0 thousand for the six months ended June 30, 2021 and 2020, respectively, which are reported
as a separate line item in the consolidated statements of changes in stockholders’ deficit.
On
April 20, 2021, pursuant to the 2015 Incentive Plan, we awarded a total of 945,000 shares of restricted stock to senior management, which
are subject to a two-year or three-year cliff vesting, a total of 790,000 shares of restricted stock to key employees, which are subject
to a three-year cliff vesting, and a total of 550,000 shares of restricted stock to the independent members of the Board of Directors,
which are subject to a two-year cliff vesting. We also granted 300,000 shares of restricted stock to external consultants, which were
fully vested at the grant date. The grant date price per share was $0.0631 for a total grant date fair value of $163.1 thousand.
Note 4
- Discontinued Operations
On
January 27, 2021, Legacy Education Alliance Australia PTY Limited (“LEA Australia”), a wholly owned subsidiary of Legacy
Education Alliance, Inc. (“LEAI”), appointed Brent Leigh Morgan and Christopher Stephen Bergin, both of the firm of Rodgers
Reidy, 326 William Street, Melbourne VIC 3000 Australia, as Joint and Several Liquidators of LEA Australia, to supervise a Creditors
Voluntary Liquidation of LEA Australia. Subject to the approval of the creditors of LEA Australia at a meeting held on February 23, 2021
AEDT (February 22, 2021 EST), the Joint Liquidators will wind down the business of LEA Australia and make distributions, if any, to its
creditors in accordance with the applicable provisions of the Australian Corporations Act of 2001. The first meeting of creditors of
LEA Australia was held on February 24, 2021 (AEDT), at which no resolutions were proposed by the creditors, no nominations for a Committee
of Inspection were made, and no alternative liquidator was proposed.
On
March 2, 2021, Legacy Education Alliance Holdings, Inc. the sole shareholder of Legacy Education Alliance Hong Kong Limited (“LEA
Hong Kong”), a subsidiary of the Company, adopted a resolution to wind up voluntarily the affairs of LEA Hong Kong and to appoint
Cosimo Borrelli and Li Chung Ngai (also known as Anson Li), both of Borrelli Walsh Limited, Level 17, Tower 1, Admiralty Centre, 18 Harcourt
Road, Hong Kong as Joint and Several Liquidators of LEA Hong Kong. At a meeting of the creditors of LEA Hong Kong held on March 2, 2021,
the creditors similarly approved the voluntary winding up of LEA Hong Kong and the appointment of Cosimo Borrelli and Li Chung Ngai (also
known as Anson Li), as Joint and Several Liquidators. The Joint and Several Liquidators will wind up the business of LEA Hong Kong and
make distributions, if any, to its creditors in accordance with the applicable provisions of the Companies (Winding Up and Miscellaneous
Provisions) Ordinance of Hong Kong.
On
March 7, 2021, Tigrent Learning Canada Inc. (“Tigrent Canada”), a wholly owned subsidiary of Legacy Education Alliance, Inc.,
filed an assignment in bankruptcy under section 49 of the Canada Bankruptcy and Insolvency Act (the “Act”) in the Office
of the Superintendent of Bankruptcy Canada, District of Ontario, Division of Toronto, Court No. 31-2718213. Also on March 7, 2021, A.
Farber & Partners was appointed trustee of the estate of Tigrent Canada. The trustee will wind down the business of Tigrent Canada
and make distributions, if any, to its creditors in accordance with the applicable provisions of the Act. At the First Meeting of Creditors
held on March 23, 2021, the creditors of Tigrent Canada approved the appointment of A. Farber & Partners as trustee of the estate
of Tigrent Canada.
On
October 28, 2019, four creditors of Legacy Education Alliance International Ltd. (“Legacy UK”), one of our UK subsidiaries,
obtained an order from the High Court of Justice, Business and Property Courts of England and Wales (the “English Court”)
with respect to the business and affairs of Legacy UK. Pursuant to the Administration Order of November 15, 2019, from the English Court,
the two individuals appointed as administrators engaged a third-party to market Legacy UK’s business and assets for sale to one
or more third parties. On November 26, 2019, Legacy UK’s assets and deferred revenues sold for £300 thousand (British pounds)
to Mayflower Alliance LTD. We did not receive any proceeds from the sale of Legacy UK. Further details, including the resolution of claims
and liabilities, and other information regarding the administration may not be forthcoming for several months. The impact of this transaction
is reflected as a discontinued operation in the consolidated financial statements.
The
major classes of assets and liabilities of the entities classified as discontinued operations were as follows:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(in thousands)
|
|
Major classes of assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
—
|
|
|
$
|
14
|
|
Deferred
course expenses
|
|
|
—
|
|
|
|
806
|
|
Discontinued
operations-current assets
|
|
|
—
|
|
|
|
820
|
|
Other
assets
|
|
|
34
|
|
|
|
34
|
|
Total
major classes of assets - discontinued operations
|
|
$
|
34
|
|
|
$
|
854
|
|
Major
classes of liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
3,726
|
|
|
$
|
3,698
|
|
Accrued
course expenses
|
|
|
602
|
|
|
|
593
|
|
Other
accrued expenses
|
|
|
451
|
|
|
|
1,582
|
|
Deferred
revenue
|
|
|
5,285
|
|
|
|
5,413
|
|
Total
major classes of liabilities - discontinued operations
|
|
$
|
10,064
|
|
|
$
|
11,286
|
|
The
financial results of the discontinued operations are as follows:
|
|
Three
Months Ended
June 30,
|
|
|
Six
Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
(in thousands)
|
|
Revenue
|
|
$
|
—
|
|
|
$
|
2,020
|
|
|
$
|
40
|
|
|
$
|
3,780
|
|
Total
operating costs and expenses
|
|
|
—
|
|
|
|
463
|
|
|
|
907
|
|
|
|
1,672
|
|
(Loss)
income from discontinued operations
|
|
|
—
|
|
|
|
1,557
|
|
|
|
(867
|
)
|
|
|
2,108
|
|
Other
expense, net
|
|
|
—
|
|
|
|
6
|
|
|
|
(80
|
)
|
|
|
1
|
|
Income tax benefit
|
|
|
—
|
|
|
|
—
|
|
|
|
1,118
|
|
|
|
—
|
|
Net
income from discontinued operations
|
|
$
|
—
|
|
|
$
|
1,563
|
|
|
$
|
171
|
|
|
$
|
2,109
|
|
Note
5 - 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 stock options and warrants, and the if-converted method for convertible
notes. Under the if-converted method, the convertible notes are assumed to have been converted at the beginning of the period or at time
of issuance, if later, and the resulting common shares are included in the denominator. 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.
Unvested
awards of share-based payments with rights to receive dividends or dividend equivalents, such as our restricted stock awards, are considered
to be participating securities, and therefore, the two-class method is used for purposes of calculating EPS. Under the two-class method,
a portion of net income is allocated to these participating securities and is excluded from the calculation of EPS allocated to common
stock. Our restricted stock awards are subject to forfeiture and restrictions on transfer until vested and have identical voting, income
and distribution rights to the unrestricted common shares outstanding.
Our
weighted average unvested restricted stock awards outstanding were 1,871,396 and 146,244 for the three months ended June 30, 2021 and
2020, respectively, and 986,365 and 162,197 for the six months ended June 30, 2021 and 2020, respectively.
The
calculations of basic and diluted EPS are as follows:
|
|
Three
Months Ended June 30, 2021
|
|
|
Three
Months Ended June 30, 2020
|
|
|
|
Net
Income
|
|
|
Weighted
Average
Shares
Outstanding
|
|
|
Earnings
Per
Share
|
|
|
Net
Income
|
|
|
Weighted
Average
Shares
Outstanding
|
|
|
Earnings
Per
Share
|
|
|
|
(in thousands, except per share data)
|
|
|
(in thousands, except per share data)
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
362
|
|
|
|
26,984
|
|
|
|
|
|
|
$
|
3,803
|
|
|
|
23,163
|
|
|
|
|
|
Amounts
allocated to unvested restricted shares
|
|
|
(25
|
)
|
|
|
(1,871
|
)
|
|
|
|
|
|
|
(24
|
)
|
|
|
(146
|
)
|
|
|
|
|
Amounts
available to common stockholders
|
|
$
|
337
|
|
|
|
25,113
|
|
|
$
|
0.01
|
|
|
$
|
3,779
|
|
|
|
23,017
|
|
|
$
|
0.16
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
allocated to unvested restricted shares
|
|
|
25
|
|
|
|
1,871
|
|
|
|
|
|
|
|
24
|
|
|
|
146
|
|
|
|
|
|
Stock
warrants
|
|
|
—
|
|
|
|
3,959
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Incremental
shares to be issued for convertible note – related party
|
|
|
10
|
|
|
|
900
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Amounts
reallocated to unvested restricted shares
|
|
|
(27
|
)
|
|
|
—
|
|
|
|
|
|
|
|
(24
|
)
|
|
|
—
|
|
|
|
|
|
Amounts
available to stockholders and assumed conversions
|
|
$
|
345
|
|
|
|
31,843
|
|
|
$
|
0.01
|
|
|
$
|
3,779
|
|
|
|
23,163
|
|
|
$
|
0.16
|
|
|
|
Six
Months Ended June 30, 2021
|
|
|
Six
Months Ended June 30, 2020
|
|
|
|
Net
Income
|
|
|
Weighted
Average
Shares
Outstanding
|
|
|
Earnings
Per
Share
|
|
|
Net
Income
|
|
|
Weighted
Average
Shares
Outstanding
|
|
|
Earnings
Per
Share
|
|
|
|
(in thousands, except per share data)
|
|
|
(in thousands, except per share data)
|
|
Basic:
|
|
|
|
|
|
|
As
reported
|
|
$
|
615
|
|
|
|
25,142
|
|
|
|
|
|
|
$
|
6,836
|
|
|
|
23,163
|
|
|
|
|
|
Amounts
allocated to unvested restricted shares and warrants
|
|
|
(24
|
)
|
|
|
(986
|
)
|
|
|
|
|
|
|
(48
|
)
|
|
|
(162
|
)
|
|
|
|
|
Amounts
available to common stockholders
|
|
$
|
591
|
|
|
|
24,156
|
|
|
$
|
0.02
|
|
|
$
|
6,788
|
|
|
|
23,001
|
|
|
$
|
0.30
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
allocated to unvested restricted shares
|
|
|
25
|
|
|
|
986
|
|
|
|
|
|
|
|
48
|
|
|
|
162
|
|
|
|
|
|
Stock
warrants
|
|
|
—
|
|
|
|
4,006
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Incremental
shares to be issued for convertible note – related party
|
|
|
13
|
|
|
|
900
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Amounts
reallocated to unvested restricted shares
|
|
|
(25
|
)
|
|
|
—
|
|
|
|
|
|
|
|
(48
|
)
|
|
|
—
|
|
|
|
|
|
Amounts
available to stockholders and assumed conversions
|
|
$
|
604
|
|
|
|
30,048
|
|
|
$
|
0.02
|
|
|
$
|
6,788
|
|
|
|
23,163
|
|
|
$
|
0.29
|
|
Note
6 - 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 of 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).
|
For
the six-month ended June 30, 2021, and for the year ended December 31, 2020, the Company does not have any financial assets or liabilities
measured and recorded at fair value on its consolidated balance sheet on a recurring basis.
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 consolidated balance sheet date, including receivables, payables and accrued liabilities approximate their fair value.
Note
7 - Short-Term and Long-Term Debt
(in
thousands)
|
|
As
of
June 30,
2021
|
|
|
As
of
December 31,
2020
|
|
Senior
Secured Convertible Debenture – related party
|
|
$
|
46
|
|
|
$
|
—
|
|
Debt
Discount
|
|
|
(41
|
)
|
|
|
—
|
|
Senior
Secured Convertible Debenture, net
|
|
|
5
|
|
|
|
—
|
|
Paycheck
Protection Program loan
|
|
|
1,900
|
|
|
|
1,900
|
|
Paycheck
Protection Program loan 2
|
|
|
1,900
|
|
|
|
—
|
|
Total
debt
|
|
|
3,805
|
|
|
|
1,900
|
|
Less
current portion of long-term debt
|
|
|
(1,905
|
)
|
|
|
—
|
|
Total
long-term debt, net of current portion
|
|
$
|
1,900
|
|
|
$
|
1,900
|
|
The
following is a summary of scheduled debt maturities by year (in thousands):
2021
|
|
$
|
899
|
|
2022
|
|
|
1,006
|
|
2023
|
|
|
—
|
|
2024
|
|
|
—
|
|
2025
|
|
|
—
|
|
Thereafter
|
|
|
1,900
|
|
Total debt
|
|
$
|
3,805
|
|
First
Draw Paycheck Protection Program Note Agreement.
On
April 27, 2020, Elite Legacy Education, Inc. (“ELE”), a subsidiary of the Company, entered into a Promissory Note in favor
of Pacific Premier Bank (“PPBI”), the lender, through the Small Business Administration (“SBA”) Paycheck Protection
Program (“PPP”) established pursuant to the CARES Act. The unsecured loan (the “First Draw PPP Loan”) proceeds
were in the amount of $1,899,832. The First Draw PPP Loan matures on April 24, 2022, bears interest at a fixed rate of 1% per annum,
and is payable in 17 equal monthly payments of interest only and a final payment of the full principal plus interest for one month. Under
the terms of the CARES Act, PPP Loan recipients can apply for and be granted forgiveness for all or a portion of loans granted under
the PPP. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payroll costs and mortgage
interest, rent or utility costs and the maintenance of employee and compensation levels.
In
March, 2021, ELE was notified that PPBI sold substantially all of its PPP loans, including ELE’s loan, to The Loan Source, Inc.
(“TLS”), which, together with its servicing partner, ACAP SME, LLC, took over the forgiveness and ongoing servicing process
for ELE’s PPP loan. On August 4, 2021, ELE received notice from TLS that its First Draw PPP Loan had been partially forgiven in
the amount of $899 thousand in principal and $11 thousand in interest. The remaining outstanding principal balance of $1,001 thousand,
plus accrued interest of $11 thousand through July 26, 2021, are due on April 24, 2022.
Senior
Secured Convertible Debenture and Exercise of Conversion Rights.
On
March 8, 2021, the Company issued a $375 thousand Senior Secured Convertible Debenture (“Debenture”) to Legacy Tech Partners,
LLC (“LTP”), a related party. The Debenture accrues interest at a rate of 10% and is due on the earlier of the occurrence
of certain liquidity events with respect to the Company and March 8, 2022. The Debenture may be converted at any time after the issue
date into shares of the Company’s Common Stock (the “Conversion Shares”) at a price equal to $0.05 per share. Together
with each Conversion Share, a warrant will be issued with a strike price of $0.05 per share and an expiration date of March 8, 2026 (the
“Warrants”). LTP has an obligation to lend the Company an additional $625 thousand under the same terms prior to March 31,
2022, and an option to fund an additional $4 million under the same terms prior to March 8, 2024. LTP also has the option to extend the
maturity date of each loan it makes to the Company, including the initial loan of $375 thousand for a term not to exceed four years from
the original maturity date of that loan. Net proceeds were $314 thousand after legal fees of $61 thousand, which are included in our
consolidated statement of operations for the six months ended June 30, 2021. The Debenture is secured by a lien on all the Company’s
assets. The Company’s U.S. subsidiaries entered into Guaranties on March 9, 2021 in favor of LTP under which such subsidiaries
guaranteed the Company’s obligations under the Debenture and granted LTP a lien on all assets of such subsidiaries. The proceeds
from the Debenture were used to extinguish liabilities of the Company and to fund the development of the Education Technology (EdTech)
business. The Warrants will not be listed for trading on any national securities exchange. The Warrants and the shares issuable upon
conversion of the Debenture are not being registered under the Securities Act of 1933, as amended (the “Securities Act”).
The aggregate number of shares issuable upon conversion of the Debenture and upon the exercise of the Warrants may not exceed 19.9% of
the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares upon conversion of the
Debenture and the exercise of the Warrants. On May 4, 2021 LTP exercised its conversion rights with respect to $330 thousand of the outstanding
principal at the Conversion Price resulting in the issuance of 6.6 million shares of Common Stock to LTP. In addition, an equal number
of warrants were issued on June 11, 2021 (see Note 8 – “Stock Warrants”). The cash receipt date, March 10, 2021,
was used for the market value of stock on measurement date, at $0.155 per common share, resulting in the recognition of debt discount
and additional paid-in capital of $375 thousand, respectively, within the consolidated balance sheet for the six-months ended June 30,
2021, which represents the intrinsic value of the conversion option. The Company evaluated the convertible debenture under ASC 470-20
and recognized a debt discount of $375 thousand related to the beneficial conversion feature during the six months ended June 30, 2021,
with a corresponding credit to additional paid-in capital. The related amortization of the debt discount to interest expense for the
six-month ended June 30, 2021 amounted to $335 thousand.
Second
Draw Paycheck Protection Program Note Agreement.
On
April 20, 2021, Elite Legacy Education, Inc (ELE), a wholly-owned subsidiary of the Company, closed on an unsecured Paycheck Protection
Program Note agreement (the “Promissory Note”) to borrow $1,899,832 from Cross River Bank, the lender, pursuant to the Paycheck
Protection Program (“PPP”), originally created under the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act,
and extended to “Second Draw” PPP loans as described below. The PPP is intended to provide loans to qualified businesses
to cover payroll and certain other identified costs. Funds from the loan may only be used for certain purposes, including payroll, benefits,
rent, utilities, and certain covered operating expenses. All or a portion of the loan may be forgivable, as provided by the terms of
the PPP. The Second Draw PPP Loan has an interest rate of 1.0% per annum and a term of 60 months. Payments will be deferred in accordance
with the CARES Act, as modified by the Paycheck Protection Program Flexibility Act of 2020; however, interest will accrue during the
deferral period. If all or any portion of the loan is not forgiven in accordance with the terms of the program, ELE will be obligated
to make monthly payments of principal and interest in amounts to be calculated after the amount of loan forgiveness, if any, is determined
to repay the balance of the loan in full prior to maturity. The Promissory Note contains customary events of default relating to, among
other things, payment defaults and breaches of representations. ELE may prepay the loan at any time prior to maturity with no prepayment
penalties.
Debenture,
Warrant and Guaranty Agreements, and Exercise of Conversion Rights.
On
May 4, 2021 Legacy Education Alliance, Inc., a Nevada corporation (the “Company”), issued a 10% Subordinated Secured Convertible
Debenture (“Subordinated Debenture”) in the principal amount of $25 thousand to Michel Botbol, the Company’s Chairman
and Chief Executive Officer. The Subordinated Debenture accrues interest at a rate of 10% and is due on the earlier of the occurrence
of certain liquidity events with respect to the Company and May 4, 2022. The Subordinated Debenture may be converted at any time after
the issuance date into shares of the Company’s Common Stock (the “Conversion Shares”) at a price equal to $0.05 per
share (“Conversion Price”). Together with each Conversion Share, a warrant will be issued with a strike price of $0.05 per
share and an expiration date of May 4, 2026 (the “Warrants”). Mr. Botbol also has the option to extend the maturity date
of the loan for a term not to exceed four years from the original maturity date of that loan. The Subordinated Debenture is secured by
a lien on all the Company’s assets subordinated to the lien granted to Legacy Tech Partners, LLC (“LTP”). The Company’s
U.S. subsidiaries are required to enter into Guaranties in favor of Botbol under which such subsidiaries guaranteed the Company’s
obligations under the Debenture and granted Botbol a lien on all assets of such subsidiaries subject to the lien held by LTP. The use
of proceeds from the Debenture will be to extinguish liabilities of the Company and to fund working capital, general corporate purposes
and the development of administrative functions. The Warrants will not be listed for trading on any national securities exchange. The
Warrants and the shares issuable upon conversion of the Debenture are not being registered under the Securities Act of 1933, as amended
(the “Securities Act”). The aggregate number of shares issuable upon conversion of the Debenture and upon the exercise of
the Warrants may not exceed 19.9% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance
of shares upon conversion of the Debenture and the exercise of the Warrants. On May 4, 2021 Mr. Botbol exercised his conversion rights
with respect to the entire $25 thousand of outstanding principal at the Conversion Price resulting in the issuance of 500 thousand shares
of Common Stock to him. In addition, an equal number of warrants were issued on May 4, 2021 (see Note 8 – “Stock Warrants”).
The related amortization of the debt discount to interest expense for the six-month ended June 30, 2021 amounted to $21 thousand.
Note
8 – Stock Warrants
On
May 4, 2021, the Company issued 500,000 warrants to M. Botbol, a related party, in connection with conversion of a 10% subordinated convertible
debenture in the amount of $25,000 (see Note 7 – “Short-Term and Long-Term Debt”). The warrants entitle the
holder to purchase one share of common stock at an exercise price of $0.05 per share at any time on or after the inception date, May
4, 2021, through May 4, 2026, the expiration date. The warrants will not be listed for trading on any national securities exchange.
On
June 11, 2021, the Company issued 6,583,500 warrants to Legacy Tech Partners, LLC (LTP), a related party, in connection with conversion
of a 10% subordinated convertible debenture in the amount of $330,000 of outstanding principal (see Note 7 – “Short-Term
and Long-Term Debt”). The warrants entitle the holder to purchase one share of common stock at an exercise price of $0.05 per
share at any time on or after the inception date, June 11, 2021, through March 8, 2026, the expiration date. The warrants are not listed
for trading on any national securities exchange.
A
summary of the warrant activities for the six months ended June 30, 2021, is as follows:
|
|
Warrants
Outstanding
|
|
|
|
Number
of Shares
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average Remaining Contractual Term in Years
|
|
|
Aggregate
Intrinsic Value (in 000’s)1
|
|
Balance as of January 1,
2021
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Granted
|
|
|
7,083,500
|
|
|
$
|
0.05
|
|
|
|
4.8
|
|
|
|
—
|
|
Balance
as of June 30, 2021
|
|
|
7,083,500
|
|
|
$
|
0.05
|
|
|
|
4.8
|
|
|
|
390
|
|
Exercisable
as of June 30, 2021
|
|
|
7,083,500
|
|
|
$
|
0.05
|
|
|
|
4.8
|
|
|
$
|
390
|
|
|
1
|
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying warrants and the closing stock price of $0.105 for our common stock on June 30, 2021.
|
Note
9 - Income Taxes
In
response to liquidity issues that businesses are facing as a result of the recent novel coronavirus (“COVID-19”) global pandemic,
the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020 by the U.S.
government. The CARES Act allows for Net Operating Losses (NOLs) to offset 100% of taxable income retroactive to 2019. Under prior rules,
only 80% of taxable income could be offset by NOLs. As a result of the application of the CARES Act, our tax liability was positively
impacted by a net benefit of $88.0 thousand. In addition, the CARES Act temporarily increases the deductible interest expense limitation
for tax years beginning in 2020 and 2021.
We
recorded income tax benefit of $131 thousand and income tax expense of $1,122 thousand for the three months ended June 30, 2021 and 2020,
respectively. We recorded income tax expense of $915 and $995 thousand for the six months ended June 30, 2021 and 2020 respectively.
Our effective tax rate was (56.7%) and 22.8% for the three months ended June 30, 2021 and 2020 and 67% and 12.8% for the six months ended
June 30, 2021 and 2020, respectively. Our effective tax rates differed from the U.S. statutory corporate tax rate of 26% primarily because
of our reduced operations while also recognizing revenues from the expiration of student contracts.
The
Company assessed the weight of all available positive and negative evidence and determined it was more likely than not that future earnings
will be sufficient to realize the associated deferred tax assets. As of June 30, 2021 and December 31, 2020, we retained a valuation
allowance of $3.5 million and $3.6 million, respectively, for a certain number of our international subsidiaries.
During
the six months ended June 30, 2021 and 2020, there were no material changes in uncertain tax positions. We do not expect any significant
changes to unrecognized tax benefits in this and next year. We estimate $0.3 million and $0.3 million of the unrecognized tax benefits,
which if recognized, would impact the effective tax rate at June 30, 2021 and December 31, 2020, respectively.
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.
We
are not currently under examination in any jurisdiction. In the event of any future tax assessments, we have elected to record the income
taxes and any related interest and penalties as income tax expense on our consolidated statements of operations and comprehensive income.
Our
federal income tax returns for the years subsequent to 2018 are subject to examination by the Internal Revenue Service. Our state tax
returns for all years after 2018 or 2017, depending on each state’s jurisdiction, are subject to examination. In addition, our
Canadian tax returns and United Kingdom tax returns for all years after 2014 are subject to examination.
Note
10 - Concentration 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, 2021 and December 31, 2020, including foreign
subsidiaries, without FDIC coverage were $0.6 million and $0.8 million, respectively.
Revenue.
A
significant portion of our revenue was derived from the Rich Dad brands, as a result of contracts with students entered into prior to
the expiration, in 2019, of our License Agreement with Rich Dad Operating Company, LLC. For the three months ended June 30, 2021 and
2020, Rich Dad brands provided 67.5% and 85.5% of our revenue. For the six months ended June 30, 2021 and 2020, Rich Dad brands provided
59.6% and 76.9% of our revenue. In addition, we have operations in North America, United Kingdom and Other foreign markets (see Note
11 — Segment Information).
The
License Agreement with Rich Dad Operating Company, LLC pursuant to which we licensed the Rich Dad Education brand expired on September
30, 2019. Notwithstanding the expiration of the License Agreement, the Company may continue to use Licensed Intellectual Property, as
defined in the License Agreement, including, but not limited to, the Rich Dad trademark and stylized logo, for the purpose of honoring
and fulfilling orders by its customers in existence as of the date of the expiration of the Agreement.
Note
11 - 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 include: (i) North America, (ii) United Kingdom, and (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
June 30,
|
|
|
Six
Months Ended
June 30,
|
|
As
a percentage of total revenue
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
North
America
|
|
|
46.2
|
%
|
|
|
92.6
|
%
|
|
|
55.0
|
%
|
|
|
96.6
|
%
|
U.K.
|
|
|
53.8
|
%
|
|
|
2.4
|
%
|
|
|
45.0
|
%
|
|
|
1.4
|
%
|
Other
foreign markets
|
|
|
—
|
%
|
|
|
5.0
|
%
|
|
|
—
|
%
|
|
|
2.0
|
%
|
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,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Segment revenue
|
|
(In thousands)
|
|
|
(In thousands)
|
|
North
America
|
|
$
|
1,553
|
|
|
$
|
5,340
|
|
|
$
|
3,293
|
|
|
$
|
13,640
|
|
U.K.
|
|
|
1,809
|
|
|
|
138
|
|
|
|
2,689
|
|
|
|
198
|
|
Other
foreign markets
|
|
|
—
|
|
|
|
287
|
|
|
|
—
|
|
|
|
287
|
|
Total
consolidated revenue
|
|
$
|
3,362
|
|
|
$
|
5,765
|
|
|
$
|
5,982
|
|
|
$
|
14,125
|
|
|
|
Three
Months Ended
June 30,
|
|
|
Six
Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Segment gross profit contribution
*
|
|
(In thousands)
|
|
|
(In thousands)
|
|
North
America
|
|
$
|
522
|
|
|
$
|
3,876
|
|
|
$
|
1,935
|
|
|
$
|
7,674
|
|
U.K.
|
|
|
1,494
|
|
|
|
222
|
|
|
|
2,209
|
|
|
|
299
|
|
Other
foreign markets
|
|
|
—
|
|
|
|
338
|
|
|
|
—
|
|
|
|
337
|
|
Total
consolidated gross profit
|
|
$
|
2,016
|
|
|
$
|
4,436
|
|
|
$
|
4,144
|
|
|
$
|
8,310
|
|
*
|
Segment
gross profit is calculated as revenue less direct course expenses, advertising and sales expenses and royalty expenses.
|
|
|
Three
Months Ended
June 30,
|
|
|
Six
Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Depreciation and amortization
expenses
|
|
(In thousands)
|
|
|
(In thousands)
|
|
North America
|
|
$
|
—
|
|
|
$
|
14
|
|
|
$
|
2
|
|
|
$
|
28
|
|
U.K.
|
|
|
1
|
|
|
|
3
|
|
|
|
2
|
|
|
|
7
|
|
Other
foreign markets
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
1
|
|
Total
consolidated depreciation and amortization expenses
|
|
$
|
1
|
|
|
$
|
18
|
|
|
$
|
4
|
|
|
$
|
36
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Segment identifiable assets
|
|
(In thousands)
|
|
North
America
|
|
$
|
2,930
|
|
|
$
|
3,834
|
|
U.K.
|
|
|
127
|
|
|
|
1,266
|
|
Other
foreign markets
|
|
|
195
|
|
|
|
192
|
|
Total
consolidated identifiable assets
|
|
$
|
3,252
|
|
|
$
|
5,292
|
|
Note
12 - 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. Revenue
amounts presented in our 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. As of June 30, 2021, we have deferred revenue of $5.1
million related to contractual commitments with customers where the performance obligation will be satisfied over time, which ranges
from six to twenty-four months. The revenue associated with these performance obligations is recognized as the obligation is satisfied.
As of June 30, 2021, we maintain a reserve for breakage of $2.0 million for the fulfillment of our obligation to students whose contracts
expired during our COVID-19 60-day operational hiatus during Q2 2020 (see Note 1 – “General”).
The
following tables disaggregate our segment revenue by revenue source:
|
|
Three
Months Ended June 30, 2021
|
|
|
Three
Months Ended June 30, 2020
|
|
|
|
North
America
|
|
|
U.K.
|
|
|
Other
foreign markets
|
|
|
Total
Consolidated Revenue
|
|
|
North
America
|
|
|
U.K.
|
|
|
Other
foreign markets
|
|
|
Total
Consolidated Revenue
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
Revenue Type:
|
|
|
|
|
|
|
Seminars
|
|
$
|
1,300
|
|
|
$
|
183
|
|
|
$
|
—
|
|
|
$
|
1,483
|
|
|
$
|
4,889
|
|
|
$
|
138
|
|
|
$
|
284
|
|
|
$
|
5,311
|
|
Products
|
|
|
82
|
|
|
|
—
|
|
|
|
—
|
|
|
|
82
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Coaching
and Mentoring
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
83
|
|
|
|
—
|
|
|
|
—
|
|
|
|
83
|
|
Online
and Subscription
|
|
|
8
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8
|
|
|
|
368
|
|
|
|
—
|
|
|
|
3
|
|
|
|
371
|
|
Other
|
|
|
163
|
|
|
|
1,626
|
|
|
|
—
|
|
|
|
1,789
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
revenue
|
|
$
|
1,553
|
|
|
$
|
1,809
|
|
|
$
|
—
|
|
|
$
|
3,362
|
|
|
$
|
5,340
|
|
|
$
|
138
|
|
|
$
|
287
|
|
|
$
|
5,765
|
|
|
|
Six
Months Ended June 30, 2021
|
|
|
Six
Months Ended June 30, 2020
|
|
|
|
North
America
|
|
|
U.K.
|
|
|
Other
foreign markets
|
|
|
Total
Consolidated Revenue
|
|
|
North
America
|
|
|
U.K.
|
|
|
Other
foreign markets
|
|
|
Total
Consolidated Revenue
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
Revenue Type:
|
|
|
|
|
|
|
Seminars
|
|
$
|
3,028
|
|
|
$
|
1,063
|
|
|
$
|
—
|
|
|
$
|
4,091
|
|
|
$
|
11,157
|
|
|
$
|
198
|
|
|
$
|
284
|
|
|
$
|
11,639
|
|
Products
|
|
|
91
|
|
|
|
—
|
|
|
|
—
|
|
|
|
91
|
|
|
|
394
|
|
|
|
—
|
|
|
|
—
|
|
|
|
394
|
|
Coaching
and Mentoring
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,043
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,043
|
|
Online
and Subscription
|
|
|
11
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11
|
|
|
|
930
|
|
|
|
—
|
|
|
|
3
|
|
|
|
933
|
|
Other
|
|
|
163
|
|
|
|
1,626
|
|
|
|
—
|
|
|
|
1,789
|
|
|
|
116
|
|
|
|
—
|
|
|
|
—
|
|
|
|
116
|
|
Total
revenue
|
|
$
|
3,293
|
|
|
$
|
2,689
|
|
|
$
|
—
|
|
|
$
|
5,982
|
|
|
$
|
13,640
|
|
|
$
|
198
|
|
|
$
|
287
|
|
|
$
|
14,125
|
|
Note
13 - Commitments and Contingencies
Licensing
agreements.
We
are committed to pay royalties for the usage of certain brands, as governed by various licensing agreements, including T&B Seminars,
Inc., and Rich Dad. Total royalty expenses included in our Consolidated Statement of Operations and Comprehensive Income for the three
months ended June 30, 2021 and 2020 were $0.0 million and $0.0 million, respectively and $0.0 million and $0.1 million for the six months
ended June 30, 2021 and 2020, respectively. Our License Agreement with our Rich Dad brand licensor expired on September 30, 2019.
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, 2021 and December 31, 2020, were $0.6 million and $1.2 million, respectively.
These balances are included on the 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, 2021 and December 31, 2020, 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.
Tranquility
Bay of Pine Island, LLC v. Tigrent, Inc., et al. On March 16, 2017, suit was filed in the Twentieth Judicial Circuit In and For Lee
County, Florida (the “Court”) by Tranquility Bay of Pine Island, LLC (“TBPI”) against Tigrent Inc. and various
of its present and former shareholders, officers and directors. By amendment dated May 24, 2019, the Company and its General Counsel
and former Chief Executive Officer were named as defendants to a civil conspiracy count. The suit, as originally filed, primarily related
to the alleged obligation of Tigrent to indemnify the Plaintiff pursuant to an October 6, 2010 Forbearance Agreement. The suit, as originally
filed, included claims for Breach of Contract, Permanent and Temporary Injunction, Breach of Fiduciary Duty, Civil Conspiracy, Tortious
Interference and Fraudulent Transfer. On March 20, 2019, the Court dismissed the complaint in its entirety with leave to amend. On April
11, 2019, TBPI filed its Second Amended Complaint with the Court against Tigrent Inc. (“Tigrent”), Legacy Education Alliance
Holdings, Inc. (“Holdings”), and certain shareholders of the Company. The Second Amended Complaint included claims for Breach
of Contract, Breach of Fiduciary Duty against Tigrent, Civil Conspiracy against Tigrent and Holdings, and various Counts of Fraudulent
Transfer against various shareholders of the Company. On May 24, 2019, with leave from the court, TBPI filed its Third Amended Complaint,
which included claims for Breach of Contract against Tigrent, Breach of Fiduciary Duty against Tigrent, Damages for Violation of Unfair
and Deceptive Business Practices Act against Tigrent, Civil Conspiracy against Tigrent and Holdings, and various Counts of Fraudulent
Transfer against various shareholders of Tigrent, including the Company’s current General Counsel, James E. May. On June 23, 2020,
the Court entered summary judgment in favor of Tigrent with respect to TBPI’s claims against Tigrent alleging (i) breach of fiduciary
duty, (ii) violation of the Florida Deceptive and Unfair Trade Practices Act, and (iii) indemnification against certain attorney’s
fees claimed to have been incurred by TBPI. On September 17, 2020, the Court (i) granted summary judgment in favor of Tigrent and Holdings
on TBPI’s claim for conspiracy; (ii) denying TBPI’s motion for summary judgment against Tigrent in which TBPI sought a declaration
by the Court that claims against TBPI in a lawsuit to which neither Tigrent nor Holdings is a party (“Third Party Lawsuit”)
were within the scope of Tigrent’s indemnity obligations under the Forbearance Agreement; and (iii) denying TBPI’s motion
for summary judgment in which TBPI sought a declaration by the Court that TBPI’s attorney’s fees incurred the Third Party
Lawsuit were also within the scope of Tigrent’s indemnity obligations under the Forbearance Agreement. On August 18, 2020, TBPI
voluntarily dismissed all shareholder defendants, other than Mr. May and Steven Barre, Tigrent’s former Chief Executive Officer.
On January 4, 2021, a Settlement Agreement and Mutual Release was entered into by and between TBPI, M. Barry Strudwick, Carl Weiss and
Susan Weiss (the “Strudwick Parties”) and Tigrent Inc., Legacy Education Alliance, Inc., Legacy Education Alliance Holdings,
Inc., Mr. May, and Steven Barre (Defendants) pursuant to which the Strudwick Parties agreed to dismiss the lawsuit with prejudice against
all parties and the Company agreed to pay the aggregate sum of $400 thousand payable in one installment of $100 thousand on February
18, 2021 and five quarterly installments of $60 thousand commencing on May 19, 2021, which the Company has accrued for within accounts
payable as of June 30, 2021, and within accounts payable and other long-term liability for the current and long-term portions as of December
31, 2021, within the Consolidated Balance Sheets. The parties also exchanged mutual releases as part of the Settlement Agreement. The
lawsuit was dismissed by order of the Court on January 12, 2021. Through June 30, 2021, the Company has paid $160 thousand of the total
settlement.
In
the Matter of Legacy Education Alliance International, Ltd. On October 28, 2019, an Application for Administration was filed in the
High Court of Justice, Business and Property Courts of England and Wales (the “English Court”), whereby four creditors of
Legacy Education Alliance, International Ltd (“Legacy UK”), one of our UK subsidiaries, sought an administration order with
respect to the business affairs of the subsidiary, the appointment of an administrator, and such other ancillary orders as the applicants
may request or as the court deemed appropriate. On November 15, 2019, the creditors obtained an Administration Order from the English
Court. Under the terms of the Administration Order, two individuals have been appointed as administrators of Legacy UK and will manage
Legacy UK and operate its affairs, business and property under the jurisdiction of the English Court. The administrators engaged a third-party
to market Legacy UK’s business and assets for sale to one or more third parties. On November 26, 2019, Legacy UK’s assets
and deferred revenues sold for £300 thousand (British pounds) to Mayflower Alliance LTD. We will not receive any proceeds from
the sale of Legacy UK. On November 19, 2020, the administrators filed notice of their proposal to move from administration to a creditors’
voluntary liquidation and on December 9, 2020, notice was filed with Companies House that Paul Zalkin and Nicholas Simmonds were appointed
as liquidators of Legacy UK to commence its winding up. Further details regarding the resolution of claims and liabilities may not be
known for several months. Because there are a number of intercompany relationships between the Company and Legacy UK, the financial impact
of any future claims in relation to the administration and disposition of Legacy UK, outside of those included in the discontinued operations
of Legacy UK (see Note 4 “Discontinued Operations”), is unknown to us at this time, as is the timing and other conditions
and effects of the administrative process. On December 8, 2020 we paid $390.6 thousand in cash and transferred our residential properties
in the value of $363 thousand as settlement of intercompany debts of two of our subsidiaries, LEAI Property Development UK, Ltd. and
LEAI Property Investment UK, Ltd., totaling $924 thousand to Legacy UK.
In
the Matter of Elite Legacy Education UK Ltd. On March 18, 2020, a Winding-Up Petition, CR-2020-001958, was filed in the High Court
of Justice, Business and Property Courts of England and Wales (the “High Court”) against one of our UK subsidiaries, Elite
Legacy Education UK Ltd. (“ELE UK”), by one of its creditors (“Petitioner”) pursuant to which the Petitioner
was claiming a debt of £461,459.70 plus late payment interest and statutory compensation was due and owing. The Petitioner sought
an order from the High Court to wind up the affairs of ELE UK under the UK Insolvency Act of 1986. ELE UK has disputed the claim of the
Petitioner and on June 11, 2020, ELE UK obtained a court order vacating the hearing on the Petition originally set for June 24, 2020.
On July 24, 2020, the High Court entered an order finding that there was a genuine dispute on substantial grounds with respect to £392,761.70
of the Petitioner’s claim, and that only £68,698 plus late payment interest and statutory compensation was due and owing.
The High Court further restrained the Petitioner from advertising its Winding-Up Petition until August 14, 2020 and, provided ELE UK
pays the Petitioner the sums awarded under the High Court’s order, plus late payment interest and statutory compensation on or
before August 14, 2020, the Petitioner’s Winding-Up Petition would be dismissed. On August 10, 2020, ELE UK filed its Notice of
Appeal in which it sought permission to appeal the High Court’s ruling. On October 23, 2020, the Court denied ELE UK permission
to appeal whereupon ELE UK filed an application to renew its application for permission to appeal (“Renewal Application”),
which Renewal Application would be heard at a subsequent Oral Hearing on a date not yet determined. On October 27, 2020, ELE UK filed
an application with the High Court of Appeal, Royal Courts of Justice (“Court of Appeals”) for a hearing to renew its application
for permission to appeal the High Court’s order and a hearing was set for February 11, 2021. On October 30, 2020, the High Court
entered a Consent Order restraining Petitioner from advertising its Winding Up Petition until ELE UK’ s Renewal Application is
determined at the Oral Hearing or until further order of the Court, whichever is earlier. At a hearing held on December 16, 2020, the
High Court issued an order lifting the restraint on advertising the petition for a winding up order and that the matter be listed on
January 13, 2021 for winding up and awarding costs to the creditor. However, at a meeting held on January 11, 2021 (“Creditors’
Meeting”), the creditors of Elite Legacy Education UK Ltd (“ELE UK”), a wholly owned subsidiary of Legacy Education
Alliance, Inc. (“LEAI”), approved a Proposal for a Company Voluntary Arrangement (the “Arrangement”) under the
UK Insolvency Act 1986 (the “IA”) and the UK Insolvency Rules 2016 (the “IR”). As a result, the Petitioner’s
claims will be administered under the terms of the CVA and, at the request of ELE UK, the hearing on its application to renew its appeal
of the High Court’s order was lifted.
Other
Legal Proceeding.
In
the Matter of Elite Legacy Education UK Ltd., Proposal for a Company Voluntary Arrangement. At a meeting held on January 11,
2021 (“Creditors’ Meeting”), the creditors of Elite Legacy Education UK Ltd (“ELE UK”), a wholly owned
subsidiary of Legacy Education Alliance, Inc. (“LEAI”), approved a Proposal for a Company Voluntary Arrangement (the “CVA”)
under the UK Insolvency Act 1986 (the “IA”) and the UK Insolvency Rules 2016 (the “IR”). Under the terms of the
CVA, CVR Global LLP has been appointed as Supervisor of ELE UK for the purposes of administering the Arrangement. At the Creditors Meeting,
the creditors also approved a modification to the CVA whereby any tax refunds due to ELE UK would be paid to the Supervisor and made
available for distribution to creditors. The Supervisor will wind down the business of ELE UK and make distributions to ELE UK’s
non-student creditors in accordance with the applicable provisions of the IA and the IR, on and subject to the terms and conditions set
forth in the CVA in satisfaction of the non-student creditors’ respective claims against ELE UK. During the quarter ended June
30, 2021, and pursuant to the CVA, student creditors of ELE UK were provided the opportunity to receive trainings from an independent
training provider in satisfaction of their respective claims against ELE UK; as a result, all obligations of ELE UK to student creditors
have been satisfied. Pursuant to the CVA, and at its conclusion, the remaining assets of ELE UK, if any, would be distributed to LEAI.
As a result of the CVR, the Winding-Up Petition, CR-2020-001958, filed in the High Court of Justice, Business and Property Courts of
England and Wales has been dismissed. At this time, LEAI management is unable to anticipate any distributions that would be received
from ELE UK.
Note
14 - Leases
Right-of-Use
Assets and Leases Obligations
We
lease 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. We consider 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.
We
determine 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, we use the rate implicit in the lease to discount lease payments to present value; however,
most of our leases do not provide a readily determinable implicit rate. Therefore, we must discount lease payments based on an estimate
of its incremental borrowing rate.
We
do not separate lease and non-lease components of contracts. There are no material residual value guarantees associated with any of our
leases. There are no significant restrictions or covenants included in our lease agreements other than those that are customary in such
arrangements.
Lease
Position as of June 30, 2021 and December 31, 2020
The
table below presents the lease related assets and liabilities recorded on the Company’s Consolidated Balance Sheets as of June
30, 2021 and December 31, 2020:
Classification
on the Balance Sheet
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
|
(in thousands)
|
|
Operating
lease right of use assets
|
|
$
|
32
|
|
|
$
|
45
|
|
Total
lease assets
|
|
$
|
32
|
|
|
$
|
45
|
|
|
|
|
|
|
|
|
|
|
Current
operating lease liabilities
|
|
$
|
26
|
|
|
$
|
25
|
|
|
|
|
|
|
|
|
|
|
Long-term
operating lease liabilities
|
|
$
|
7
|
|
|
$
|
20
|
|
Total
lease liabilities
|
|
$
|
33
|
|
|
$
|
45
|
|
Lease
cost for the three and six months ended June 30, 2021 and 2020
The
table below presents the lease related costs recorded on the Company’s Consolidated Statements of Operations for the three and
six months ended June 30, 2021 and 2020:
|
|
Three
Months Ended
June 30,
|
|
|
Six
Months Ended
June 30,
|
|
Classification
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
(in
thousands)
|
|
|
(in thousands)
|
|
General
and administrative expenses
|
|
$
|
7
|
|
|
$
|
3
|
|
|
$
|
13
|
|
|
$
|
10
|
|
Total
lease cost
|
|
$
|
7
|
|
|
$
|
3
|
|
|
$
|
13
|
|
|
$
|
10
|
|
Other
Information
The
table below presents supplemental cash flow information related to leases for the six months ended June 30, 2021 and 2020:
|
|
Six
Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(in thousands)
|
|
Cash paid for amounts included in the measurement
of lease liabilities:
|
|
|
|
|
|
|
Operating
cash flows for operating leases
|
|
$
|
13
|
|
|
$
|
11
|
|
Supplemental
non-cash amounts of lease liabilities arising from obtaining right-of-use assets/(decrease) of lease liability due to cancellation
of leases
|
|
|
—
|
|
|
|
(2
|
)
|
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 June 30, 2021 and December 31, 2020:
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Weighted
average remaining lease term - operating leases
|
|
|
1.25 years
|
|
|
|
1.75 years
|
|
Weighted
average discount rate - operating leases
|
|
|
12.00
|
%
|
|
|
12.00
|
%
|
There
are no lease arrangements where the Company is the lessor.
Note
15 - Subsequent Events
The
Company evaluated subsequent events and transactions that occurred after the consolidated balance sheet date up to August 16, 2021, the
date that the financial statements were issued. Other than as described in Note 7 “Short-Term and Long-Term Debt”, the Company
did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.