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As
filed with the Securities and Exchange Commission on January 6, 2022
Registration
No. 333-261414
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
AMENDMENT
NO. 2
TO
FORM
S-1
REGISTRATION
STATEMENT UNDER
THE
SECURITIES ACT OF 1933
LEGACY
EDUCATION ALLIANCE, INC.
(Exact
name of registrant as specified in its charter)
Nevada
|
|
8200
|
|
39-2079974
|
State
or other jurisdiction
|
|
Primary
Standard Industrial
|
|
(I.R.S.
Employer
|
incorporation
or organization
|
|
Classification
Code Number)
|
|
Identification
Number)
|
1490
NE Pine Island Rd. Suite 5D
Cape
Coral, FL 33909
(239)
542-0643
(Address,
including zip code, and telephone number, including area code of registrant’s principal executive offices)
Barry
Kostiner, Interim CEO
1490
NE Pine Island Rd. Suite 5D
Cape
Coral, FL 33909
(239)
542-0643
(Name,
address, including zip code, and telephone number, including area code, of agent for service)
with
a copy to:
Stephen
Fox, Esq.
Dominick
P. Ragno, Esq.
Ruskin
Moscou Faltischek, PC
1425
RXR Plaza
15th
Floor, East Tower
Uniondale,
New York 11556
(516)
663-6600
(516)
663-6780 (fax)
Approximate
date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement.
If
any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. ☒
If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the earlier effective registration statement for the same
offering. ☐
If
this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier registration statement for the same offering. ☐
If
this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration number of the earlier effective registration statement for the same offering. ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company
or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated file,” “smaller
reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer
|
☐
|
Accelerated
filed
|
☐
|
|
Non-accelerated filer
|
☒
|
Smaller
reporting company
|
☒
|
|
|
|
Emerging
growth company
|
☐
|
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
CALCULATION
OF REGISTRATION FEE
Title of Each Class of Securities to be Registered
|
|
Amount
to be
Registered (1)
|
|
|
Proposed Maximum Offering
Price Per
Share (2)
|
|
|
Proposed Maximum Aggregate Offering
Price
|
|
|
Amount of Registration
Fee
|
|
Common Stock, $0.001 per share (3)
|
|
|
43,723,736
|
|
|
$
|
0.063
|
|
|
$
|
2,754,596
|
|
|
$
|
255.35
|
(4)
|
(1)
|
Pursuant
to Rule 416 under the Securities Act of 1933, as amended, the shares of common stock offered hereby also include an indeterminate
number of additional shares of common stock as may from time to time become issuable by reason of stock splits, stock dividends,
recapitalizations or other similar transactions.
|
(2)
|
Estimated
solely for purposes of determining the registration fee pursuant to Rule 457(c) under the Securities Act, computed based upon the
high ($0.063) and low ($0.063) selling prices per share of the registrant’s common stock on December 21,
2021 on the OTCQB marketplace.
|
(3)
|
Represents
(i) 11,907,236 issued and outstanding shares of common stock that may be sold from time to time by certain of the selling shareholders
named herein, (ii) 13,416,500 shares of common stock that may be sold by certain of the selling shareholders named herein upon the
conversion of outstanding convertible debentures and (iii) 18,400,000 shares of common stock that may be sold by a selling shareholder
named herein upon the exercise of outstanding options.
|
(4)
|
Previously
paid.
|
The
information contained in this prospectus is not complete and may be changed. A registration statement relating to these securities has
been filed with the Securities and Exchange Commission and these securities may not be sold until that registration statement becomes
effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
PRELIMINARY
PROSPECTUS
|
Subject
to Completion, Dated: January 6, 2022
|
LEGACY
EDUCATION ALLIANCE, INC.
43,723,736
Shares of Common Stock
This
prospectus relates to the offer and sale by the persons named in this prospectus, whom we call Selling Shareholders, of up to:
|
●
|
11,907,236
issued and outstanding shares of our common stock, $0.0001 par value per share, held by certain of the Selling Shareholders;
|
|
|
|
|
●
|
13,416,500
shares of common stock that may be sold by certain of the Selling Shareholders upon the conversion of outstanding convertible debentures;
and
|
|
|
|
|
●
|
18,400,000
shares of common stock that may be sold by a Selling Shareholder upon the exercise of outstanding options.
|
The
Selling Shareholders may sell their shares at prevailing market or privately negotiated prices, including in one or more transactions
that may take place by ordinary broker’s transactions, privately negotiated transactions or through sales to one or more dealers
for resale.
We
will not realize any proceeds from sales by the Selling Shareholders; however, we will receive approximately $1,840 upon the exercise
of outstanding options to purchase 18,400,000 shares of common stock held by a Selling Shareholder.
All
costs incurred in the registration of the shares are being borne by the Company.
Our
common stock trades on the OTCQB market under the symbol LEAI. On January 4, 2022, the closing price for our common stock was
$0.0612.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED
UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
These
securities involve a high degree of risk. See “RISK FACTORS” contained in this prospectus beginning on page 5.
Prospectus
dated , 2022.
TABLE
OF CONTENTS
ABOUT
THIS PROSPECTUS
Unless
the context otherwise requires, all references in this prospectus to “we”, “us” “the Company” or
“Legacy” or similar terms refer to Legacy Education Alliance, Inc., a Nevada corporation, and, unless the context otherwise
requires, together with its consolidated subsidiaries.
We
and the Selling Shareholders have not authorized anyone to provide you with information or to make any representations other than those
contained in this prospectus. We and the Selling Shareholders take no responsibility for, and provide no assurance as to the reliability
of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, and only under
circumstances and in jurisdictions where it is lawful to do so. You should assume that the information appearing in this prospectus is
accurate as of the date on the front cover of this prospectus only. Our business, financial condition, results of operations and prospects
may have changed since that date.
For
investors outside the United States: We, and to our knowledge the Selling Shareholders have not done anything that would permit this
offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in
the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe
any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside the United States.
TRADEMARKS
This
prospectus contains references to our trademarks, trade names and service marks. Solely for convenience, trademarks, trade names and
service marks referred to in this prospectus may appear without the ® or ™ symbols, but such references
are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights
of the applicable licensor to these trademarks, trade names and service marks. Other trademarks, trade names and service marks appearing
in this prospectus (or documents we have incorporated by reference) are the property of their respective holders. We do not intend our
use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship
of us by, any other companies.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain
statements made in this prospectus involve known and unknown risks, uncertainties and other factors that may cause our actual results,
performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such
forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,”
“should,” “expect,” “plan,” “anticipate,” “could,” “intend,”
“target,” “project,” “contemplate,” “believe,” “estimate,” “predict,”
“potential,” “would” or “continue” or the negative of these terms or other similar expressions. All
statements other than statements of historical facts contained in this prospectus, including statements regarding our future results
of operations and financial position, business strategy, prospective products, research and development costs, future revenue, timing
and likelihood of success, plans and objectives of management for future operations, future results of anticipated products and prospects,
plans and objectives of management are forward-looking statements. The forward-looking statements included herein are based on current
expectations that involve numerous risks and uncertainties. Our plans and objectives are based, in part, on assumptions involving judgments
with respect to, among other things, the results projected from the introduction of new brands, products and services, expansion into
new geographic markets, combinations with third parties, including, but not limited to our licensors; the development of ecommerce capabilities;
projections of international growth; projected increase in profitability from our symposium-style course delivery model that should lead
to increased margins; our ability to address or manage corruption concerns in certain locations in which we operate; our ability to address
and manage cyber-security risks; our ability to protect our intellectual property, on which our business is substantially dependent;
our expectations regarding future divided payments; our ability to manage our relationships with credit card processors, and our expectations
regarding the impact of general economic conditions on our business; the effects of the COVID-19 pandemic on the global and national
economies and on our business operations and financial results; and the estimates and matters described under the caption “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.” Our assumptions used for the purposes of the forward-looking
statements represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry,
and other circumstances, including the development, acceptance and sales of our products and our ability to raise additional funding
sufficient to implement our strategy. Such forward-looking statements involve assumptions, known and unknown risks, uncertainties, and
other important factors that could cause the actual results, performance or our achievements, or industry results, to differ materially
from historical results, any future results, or performance or achievements expressed or implied by such forward-looking statements.
There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements
contained in this report. Important factors that could cause our actual results to differ materially from those expressed as forward-looking
statements are set forth in this prospectus, including but not limited to under “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”, and in our other filings with the Securities and Exchange
Commission. There may be other factors of which we are currently unaware or deem immaterial that may cause our actual results to differ
materially from the forward-looking statements.
Forward-looking
statements are based on current plans, estimates, assumptions and projections, and therefore you should not place undue reliance on them,
all of which are difficult or impossible to predict accurately and many of which are beyond our control.
Although
we believe that our assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate
and, therefore, there can be no assurance that the forward-looking statements included in this prospectus will prove to be accurate.
In light of the significant uncertainties inherent in the forward-looking statements included herein particularly in view of the current
state of our operations, the inclusion of such information should not be regarded as a statement by us or any other person that our objectives
and plans will be achieved. Factors that could cause actual results to differ materially from those expressed or implied by such forward-looking
statements include, but are not limited to, the factors set forth herein under the headings “Business,” “Risk Factors”
and elsewhere in this prospectus.
The
events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially
from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties
may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required
by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of
any new information, future events, changed circumstances or otherwise.
CAUTIONARY
NOTE REGARDING INDUSTRY DATA
Unless
otherwise indicated, information contained in this prospectus concerning our company, our business, the services we provide and intend
to provide, our industry and our general expectations concerning our industry are based on management estimates. Such estimates are derived
from publicly available information released by third party sources, as well as data from our internal research, and reflect assumptions
made by us based on such data and our knowledge of the industry, which we believe to be reasonable.
PROSPECTUS
SUMMARY
This
summary highlights some information from this prospectus, and it may not contain all the information important to making an investment
decision. A potential investor should read the following summary together with the more detailed information regarding the Company and
the common stock being sold in this offering, including “Risk Factors” and the financial statements and related notes, included
elsewhere in this prospectus.
The
Company
We
are a provider of practical, high-quality, and value-based educational training on the topics of personal finance, entrepreneurship,
real estate 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.
We
currently market our products and services under our Building Wealth with Legacy brand. During the year ended December 31, 2020, we marketed
our products and services under two brands: Building Wealth with Legacy and Homemade Investor by Tarek El Moussa.
Our
students pay for their courses in full up-front or through payment agreements with independent third parties. 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.
We expect to conduct additional live events as lockdown restrictions continue to ease and hopes to return to a normal schedule over the
coming months; however, due to financial constraints, we may primarily rely on online events unless and until we receive additional material
funding. We intend to 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 we will be effective in selling our 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 our financial performance in 2021 and beyond.
Recent
Developments
Entry
Into Stock Purchase and Option Agreement
On
November 18, 2021, we entered into a Stock Purchase and Option Agreement (the “Purchase Agreement”) with Mayer and Associates
LLC (“Mayer”), pursuant to which (i) Mayer purchased (i) 1,600,000 shares of common stock of the Company for a total aggregate
price of $160.00 and (ii) in exchange for an aggregate purchase price of $13,840, an option to purchase, from time to time, up to an
additional 138,400,000 shares of common stock of the Company (“Option Shares”) for a per share price of $0.0001 for the first
18,400,000 Option Shares and $0.05833 for the remaining Option Shares, as may be adjusted from time to time pursuant to the Purchase
Agreement (the “Option Price”). Mayer’s option to purchase additional shares under the Purchase Agreement shall expire
on November 18, 2023.
Payment
Under Convertible Debenture
On
October 15, 2021 we received $100,000 and on October 27, 2021, we received the remaining $200,000 payable from Legacy Tech Partners,
LLC (“LTP”) under our 10% Senior Secured Convertible Debenture dated March 8, 2021, as amended.
Impact
from COVID-19 Pandemic
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. On March 11, 2020, the World Health Organization, or WHO, declared
the COVID-19 outbreak as a pandemic. As a result of worldwide restrictions on travel and social distancing, in March 2020 we temporarily
ceased conducting live sales and fulfillment and furloughed substantially all of our employees. We resumed sales operations in June 2020
with online sales events selling into our suite of online, on-demand, and over-the-phone products. We also resumed online, on-demand,
and over-the-phone fulfillment activities in June 2020. We resumed live operations on a limited basis, in November 2020, with events
in Florida. The Company expects to conduct additional live events in other areas 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 such activities will have on our financial performance.
The
ultimate impact from COVID-19 on the Company’s operations and financial results will depend on, among other things, the ultimate
severity and scope of the pandemic, the efficacy and public acceptance of the various vaccinations against COVID-19, the pace at which
governmental and private travel restrictions and public concerns about public gatherings will ease, the rate at which historically large
increases in unemployment rates will decrease, if at all, and the speed with which the economy recovers. 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.
Second
Draw Paycheck Protection Program Note Agreement
On
April 20, 2021, Elite Legacy Education, Inc., or ELE, a wholly-owned subsidiary of the Company, closed on an unsecured Paycheck Protection
Program Note agreement to borrow $1,899,832 from Cross River Bank, the lender, pursuant to the Paycheck Protection Program, or 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 Paycheck Protection Program Note agreement 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.
Changes
in Management and Board of Directors
On
March 8, 2021, the Company’s Board of Directors, or Board elected Michel Botbol as a Director, Chairman of the Board, and Chief
Executive Officer of the Company. On the same date, the Board appointed James E. May as General Counsel of the Company, a position he
held prior to his appointment as Interim CEO of the Company in January 2019. Upon the assumption of his position as General Counsel,
Mr. May resigned as Director and Chief Executive Officer.
On
May 3, 2021, the Board of Directors set the number of director seats on the Company’s Board of Directors at four and appointed
Barry M. Kostiner to the Board. Mr. Kostiner is President of, and holds a 25% membership interest in, Legacy Tech Partners, LLC.
On
November 4, 2021, Cary Sucoff, a member of the Board and of its Nominating & Corporate Governance Committee (Chair) and its Audit
Committee, resigned as a Board member, effective immediately.
On
November 4, 2021, Peter W. Harper, a member of the Board and of its Audit Committee (Chair) and its Compensation Committee, resigned
as a Board member, effective immediately.
On
November 4, 2021, James E. May, the General Counsel and Secretary of the Company and its subsidiaries, resigned from all such roles effective
immediately.
On
November 8, 2021, Vanessa Guzmán-Clark, the Vice President and Chief Financial Officer of the Company, resigned from all such
roles effective immediately. As a result of the resignation of Ms. Guzmán-Clark, Mr. Barry Kostiner, a member of the Board and
Manager of Capital Markets, assumed the role of principal financial and accounting officer of the Company until a permanent replacement
can be found, and was appointed Secretary of the Company.
On
December 1, 2021, Mr. Botbol resigned as Chairman of the Board, director and officer of the Company, as Chief Executive Officer of the
Company and its subsidiaries, and from any other positions with any of the companies related in any way to the Company.
As
a result of the resignation of Mr. Botbol, Mr. Kostiner was appointed as Interim Chief Executive Officer and will further assume the
role of principal executive officer of the Company, until a permanent replacement can be found.
Change
in Registrant’s Certifying Accountant
On
December 23, 2021, we engaged Ram Associates, Certified Public Accountants to serve as our independent registered accounting firm. As
a result of the engagement of Ram Associates, we dismissed MaloneBailey, LLP as our independent registered accountant.
Corporate
Information
Our
corporate address is 1490 NE Pine Island Rd – Suite 5D, Cape Coral, Florida 33909 and our telephone number is (239) 542-0643. We
maintain a web site at www.legacyeducationalliance.com, along with many additional web properties. Any information that may appear on
our web sites does not constitute a part of this prospectus.
The
Offering
The
following is a brief summary of some of the terms of the offering and is qualified in its entirety by reference to the more detailed
information appearing elsewhere in this prospectus. For a more complete description of the terms of our common stock, see “Description
of Securities to be Registered – Common Stock” on page 19.
Common
Stock offered by the Selling Shareholders
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43,723,736
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Selling
Shareholders
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All
of the shares of common stock are being offered by the Selling Shareholders. See “Selling Shareholders” on page 15 of
this prospectus for more information on the Selling Shareholders.
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Common
stock to be outstanding after the offering
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66,668,224
shares of common stock, based on our issued and outstanding shares of common stock as of
January 4, 2022, and assuming the issuance of (a) all 13,416,500 shares of common
stock underlying convertible debentures and (b) all 18,400,000 shares of common stock underlying
outstanding options held by a Selling Shareholder, in each case being registered pursuant
to the registration statement of which this prospectus forms a part. Does not include the
conversion of any other debentures or other indebtedness, or the exercise of any other options
or warrants that may be outstanding or issuable.
As
we do not currently have enough authorized shares of common stock to satisfy all potential issuances pursuant to existing and potential
commitments, we intend to seek shareholder approval to amend our Second Amended and Restated Articles of Incorporation to increase
our authorized shares to enable the issuance of our common stock upon all such commitments.
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Use
of Proceeds
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We
will not receive any proceeds from the sale of common stock by the Selling Shareholders participating
in this offering; however, we will receive approximately $1,840 upon the exercise of outstanding
options to purchase 18,400,000 shares of common stock held by a Selling Shareholder. The
Selling Shareholders will receive all of the net proceeds from the sale of their respective
shares of common stock in this offering.
See
“Use of Proceeds” on page 15 of this prospectus for more information.
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Risk
Factors
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See
“Risk Factors” on page 5 of this prospectus for a discussion of factors you should carefully consider before deciding
to invest in our common stock.
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Plan
of Distribution
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The
Selling Shareholders, or their pledgees, donees, transferees, distributees, beneficiaries
or other successors-in-interest, may offer or sell the shares of common stock from time to
time through public or private transactions at prevailing market prices, at prices related
to prevailing market prices or at privately negotiated prices. The Selling Shareholders may
also resell the shares of common stock to or through underwriters, broker-dealers or agents,
who may receive compensation in the form of discounts, concessions or commissions.
See
“Plan of Distribution” beginning on page 17 of this prospectus for additional information on the methods of sale that
may be used by the Selling Shareholders.
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Trading
Symbol
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OTCQB:
LEAI
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RISK
FACTORS
A
purchase of any of our securities involves a high degree of risk. Investors should consider carefully the following information about
these risks, together with the other information contained in this prospectus before the purchase of any of our Shares. If any of the
following risks actually occur, the business, financial condition or results of operations of the Company would likely suffer, the market
price of the common stock would likely decline, and investors could lose all or a portion of their investment. The Company has listed
the following risk factors which it believes to be those material to an investment decision in this offering.
Risks
Related to Our Business and Financial Condition
There
is substantial doubt on our ability to continue as a going concern.
Our
independent registered public accounting firm has issued a going concern qualification as part of its audit report that accompanies our
2020 audited financial statements included herein. As stated in the notes to our audited financial statements for the fiscal year ended
December 31, 2020, we have a working capital deficit and have accumulated a significant deficit. Our continued existence is dependent
upon our ability to continue to execute our operating plan and to obtain additional debt or equity financing. We do not have an established
source of funds sufficient to cover operating costs and accordingly, there can be no assurance that the necessary debt or equity financing
will be available, or will be available on terms acceptable to us, in which case we may be unable to meet our obligations or fully implement
our business plan, if at all. Additionally, should we be unable to realize our assets and discharge our liabilities in the normal course
of business, the net realizable value of our assets may be materially less than the amounts recorded in our financial statements.
The
termination of our license agreement to Rich Dad Education brand has materially adversely impacted our business, financial condition
and results of operations, given the high concentration of sales from course offerings under Rich Dad Education brand.
Our
Rich Dad® Education real estate and financial market course offerings accounted for approximately 77.4% of our total revenue
in 2020. Our 2013 License Agreement with Rich Dad ®, as amended, 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.
The
termination of any of our merchant processor agreements and/or material changes to the terms and conditions of these agreements would
materially adversely impact our business, financial condition and results of operations, given the high concentration of sales from course
offerings procured by our customers using credit cards.
A
significant percentage of our sales are processed through credit card transactions and we are dependent on our merchant processor relationships
to facilitate these transactions under favorable terms. Although we generally have been able to renew or extend the terms of contractual
arrangements with third parties merchant processors on acceptable terms, there can be no assurance that we will continue to be able to
do so in the future. Interruptions in service, or the imposition of reserve accounts in amounts not acceptable to us, could have a material
adverse impact on our liquidity. In addition, if any of these services providers were to stop providing services to us on acceptable
terms, we may be unable to procure alternatives from other third parties in a timely and efficient manner and on acceptable terms, or
at all. This could materially adversely impact our business, financial condition and results of operations.
The
inability of our customers to finance the purchase of our products through credit cards or third-party financing would materially adversely
impact our business, financial condition and results of operations.
Our
customers rely on financing, whether through credit cards or third-party financing, to purchase our products. Any limitation on the ability
of our customers to obtain access to credit may impact our customers’ ability to purchase our products. This could materially adversely
impact our business, financial condition and results of operations.
The
ability of any of our merchant processors to continue to operate and refund our merchant reserves pursuant to the terms of the agreements
would materially adversely impact our business, financial condition and results of operations.
Our
merchant processors withhold a percentage of our sales as part of our restricted cash reserves. Release of the restricted cash is at
the sole discretion of the merchant processor. Although we generally have been able to obtain releases from time to time, and pursuant
to the terms of the merchant processor agreement, there can be no assurances that we will be able to do so in the future if the merchant
processor’s ability to continue to operate becomes doubtful, including, but not limited to, illiquidity or fraud. This could materially
adversely impact our business, financial condition and results of operations.
Our
management has identified internal control deficiencies, which our management believe constitute material weaknesses.
Our
management has determined that we presently do not have an internal control system or procedures that are effective and may be relied
upon in connection with our financial reporting. The weaknesses in our internal control system that were identified by our management
generally include weakness that present a reasonable possibility that a material misstatement of our annual or interim financial statements
will not be identified, prevented or detected on a timely basis, and specifically include:
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Financial
Reporting Systems: The weakness in our internal control system identified by our management relate to the implementation of our new
ERP system, which went into production on January 1, 2018. Our ERP software is not able to produce complete and accurate information
in regard to revenues and deferred revenues for consistent financial reporting purposes.
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If
we fail to effectively remediate any of these material weaknesses or other material weaknesses or deficiencies in our control environment
that may be identified in the future, we may be unable to accurately report our financial results or report them within the time frames
required by law or exchange regulations, to the extent applicable, which would have a negative impact on us and our share price.
Our
cash flows from operations decreased in 2020 and 2021 versus our cash flows from operations in 2019. If this trend continues, it could
impair our ability to fund our working capital needs and adversely affect our financial condition.
Management
currently projects that our available cash balances will not be sufficient to maintain our operations during 2021. In addition, when
considering all of the applicable operational and external risks and uncertainties, including, but not limited to cash generated from
new and ongoing business initiatives, our ability to effectively execute our strategies, relationships with our credit card processors,
potential claims against the Company related to the insolvency of certain its foreign subsidiaries, and potential current and future
litigation matters, we believe that we may not be adequately capitalized. We may seek to obtain additional capital through the issuance
of equity or debt, which may dilute the equity holdings of our current investors. In addition, we may seek to borrow additional capital
from institutional and commercial banks or other sources to fund future operations on terms that may include restrictive covenants, liens
on assets, high effective interest rates, and repayment provisions that reduce our cash resources and limit future access to capital
markets. We do not currently have any commitments for future external funding. Our ability to raise additional capital may be adversely
impacted by the economic environment. If we cannot generate the required cash to sustain operations or obtain additional capital on acceptable
terms, we will need to make further revisions to our business plan, sell or liquidate assets, or limit or discontinue some or all of
our operations.
Failure
to comply with laws, regulations and policies, including the U.S. Foreign Corrupt Practices Act or other applicable anti-corruption legislation,
could result in fines, criminal penalties and an adverse effect on our business.
We
are subject to regulation under a wide variety of U.S. federal and state and non-U.S. laws, regulations and policies, including anti-corruption
laws and export-import compliance and trade laws, and data protection due to our global operations. In particular, the U.S. Foreign Corrupt
Practices Act, or FCPA, the U.K. Bribery Act of 2010 and similar anti-bribery laws in other jurisdictions generally prohibit companies,
their agents, consultants and other business partners from making improper payments to government officials or other persons (i.e.
commercial bribery) for the purpose of obtaining or retaining business or other improper advantage. They also impose recordkeeping
and internal control provisions on companies such as ours. We operate and/or conduct business in some parts of the world, such as Hong
Kong, that are recognized as having governmental and commercial corruption and in such countries, strict compliance with anti-bribery
laws may conflict with local customs and practices. Under some circumstances, a parent company may be civilly and criminally liable for
bribes paid by a subsidiary. We cannot assure you that our internal control policies and procedures have protected us, or will protect
us, from unlawful conduct of our employees, agents, consultants and other business partners. In the event that we believe or have reason
to believe that violations may have occurred, including without limitation violations of anti-corruption laws, we may be required to
investigate and/or have outside counsel investigate the relevant facts and circumstances, which can be expensive and require significant
time and attention from senior management. Violation may result in substantial civil and/or criminal fines, disgorgement of profits,
sanctions and penalties, debarment from future work with governments, curtailment of operations in certain jurisdictions, and imprisonment
of the individuals involved. As a result, any such violations may materially and adversely affect our business, results of operations
or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business. Any of these
impacts could have a material, adverse effect on our business, results of operations or financial condition.
Uncertain
economic conditions and other changes experienced by our customers, including the willingness to trade or invest in securities or real
estate, could influence their willingness to spend their discretionary income on our course offerings and products, and could materially
adversely impact our business, financial condition and results of operations.
Uncertain
economic conditions may affect our customers’ discretionary income, access to credit and ability and willingness to purchase our
courses offerings and products. Economic conditions and consumer spending are influenced by a wide range of factors that are beyond our
control. These conditions include but are not limited to:
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Demand
for our course offerings and related products;
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Conditions
in the securities and investment markets;
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Conditions
in the real estate market;
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Availability
of mortgage financing and other forms of credit and consumer credit;
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General
economic and business conditions;
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Adverse
changes in consumer confidence levels;
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General
political developments;
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Adverse
weather or natural or man-made disasters; and
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Regional,
national and/or worldwide pandemics, or other public health risks.
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Any
decreased interest in real estate and/or financial markets investing strategies and techniques in the future could impact our brands.
Additionally, a prolonged economic downturn or uncertainty over future economic conditions, could increase these effects on our business.
In addition, our ongoing business expansion efforts and related operational changes add to the difficulty and risk of forecasting the
timing, magnitude and direction of operational and financial outcomes with respect to our business.
We
have only a limited ability to protect our intellectual property rights, which are important to our success.
Our
financial success depends, in part, upon our ability to protect our brand names, curriculums, and other proprietary and licensed intellectual
property. The existing laws of some countries in which we conduct business might offer only limited protection of our intellectual property
rights. To protect our intellectual property, we rely upon a combination of confidentiality policies, nondisclosure, and other contractual
arrangements, as well as copyright and trademark laws. The steps we take in this regard may not be adequate to prevent or deter infringement
or other misappropriation of our intellectual property, and we might not be able to detect unauthorized use of, or take appropriate and
timely steps to enforce, our intellectual property rights, especially in foreign jurisdictions. The loss of proprietary content or the
unauthorized use of our intellectual property, including our brand names, may create significant market confusion and result in greater
competition, loss of revenue, and adverse publicity.
We
face significant competition in our markets.
Our
success depends upon our ability to attract customers by providing high-quality courses and training materials, as well as to attract
and retain quality trainers to provide those courses. The market for training courses for specific business issues, such as real estate
or stock market investing, is intensely competitive. If we are unable to successfully compete, our business, financial condition and
results of operations will be materially harmed. Certain competitors may have access to certain marketing channels or be able to secure
alliances with customers and affiliates on more favorable terms, devote greater resources to marketing and promotional campaigns and
devote substantially more resources to course development than we can. In addition, it is possible that certain competitors, or potential
competitors, could reduce their pricing to levels that would make it difficult for us to compete. Increased competition may result in
reduced operating margins, as well as loss of market share and brand recognition. Our success is dependent on our ability to successfully
attract customers to programs that they feel will enhance their knowledge and enhance their earning power. Their level of satisfaction
with our course offerings affects our reputation as they tell others about their experience. Our business could suffer if we fail to
deliver quality programs at acceptable price points.
In
addition, in order to compete effectively in our markets, we may need to change our business in significant ways. For example, to respond
to market competition we may change our pricing, product, or service offerings, make key decisions about technology changes or marketing
strategies, or acquire additional businesses or technologies. Any of these actions could hurt our business, financial condition and results
of operations. Competitors continually introduce new programs that may compete directly with our offerings that may make our offerings
uncompetitive or obsolete. Larger competitors may have superior abilities to compete for customers and skilled professionals, reducing
our ability to deliver our quality offerings to our customers.
Laws
and regulations can affect the operation of our business and may limit our ability to operate in certain jurisdictions.
Federal,
state, and international laws and regulations impact our operations and may limit our ability to obtain authorization to operate in some
states or countries. Many federal, state, and international governmental agencies assert authority to regulate providers of investment
training programs. Failure to comply with these regulations could result in legal action instituted by the jurisdictions, including cease
and desist and injunctive actions. In the event we are subject to such legal action, our reputation could be harmed and the demand for
our course offerings and products could be significantly reduced. We are involved from time to time in routine legal matters incidental
to our business, including disputes with students and information requests from state regulatory agencies. Based upon available information,
we believe that the resolution of such matters will not have a material adverse effect on our consolidated financial position or results
of operations. Future regulatory changes with respect to the various topics of our courses or the investment techniques we teach, could
also impact the content of our course offerings, which in turn, could negatively impact future sales.
Cyber-attacks
as well as improper disclosure or control of personal information could result in liability and harm our reputation, which could adversely
affect our business and results of operations.
We
are dependent on information technology networks and systems to process, transmit and store electronic information and to communicate
among our locations around the world and with our customers. Security breaches of this infrastructure could lead to shutdowns or disruptions
of our systems and potential unauthorized disclosure of confidential information. We are also required at times to manage, utilize and
store sensitive or confidential customer or employee data. While we take measures to protect the security of, and unauthorized access
to, our systems, as well as the privacy of personal and proprietary information, it is possible that our security controls over our systems,
as well as other security practices we follow, may not prevent the improper access to or disclosure of personally identifiable or proprietary
information. In addition, much of our financial, customer, and employee data resides on third party equipment not within our custody
or control such that we cannot prevent the improper access to or disclosure of such data or might be prevented from accessing such data
for our own purposes. Any such disclosures or inability to access our proprietary information could harm our reputation and subject us
to liability under our contracts and laws that protect personal data, or negatively impact our ability to manage operations resulting
in increased costs or loss of revenue. Further, data privacy is subject to frequently changing rules and regulations, which sometimes
conflict among the various jurisdictions and countries in which we provide services.
The
European Union’s General Data Protection Regulation, or GDPR took effect in May 2018 and requires EU member states to meet new
and more stringent requirements regarding the handling of personal data. Failure to meet the GDPR requirements could result in substantial
penalties of up to the greater of €20 million or 4% of global annual revenue of the preceding financial year. Additionally, compliance
with the GDPR has resulted in increased operational costs to implement new procedures corresponding to new legal rights granted under
the law. Although the GDPR applies across the EU without a need for local implementing legislation, local data protection authorities
still have the ability to interpret the GDPR through so-called opening clauses, which permit region-specific data protection legislation
and have the potential to create inconsistencies on a country-by-country basis.
Our
efforts to comply with GDPR and other privacy and data protection laws may impose significant costs and challenges that are likely to
increase over time. Our failure to adhere to or successfully implement processes in response to changing regulatory requirements in this
area could result in impairment to our reputation in the marketplace and we could incur substantial penalties or litigation related to
violation of existing or future data privacy laws and regulations, which could have a material adverse effect on our business, financial
condition and results of operations.
We
are highly dependent on Barry Kostiner, our sole director and executive officer, as well as high performing sales speakers and course
trainers, and if we are not able to retain them or to recruit and retain additional qualified personnel, our business could suffer.
We
are highly dependent upon Barry Kostiner, who is as of recently our sole executive officer and director. We recently lost the services
of all of our board members and executives other than Mr. Kostiner, and we do not yet know how such losses will affect our business,
financial condition or results of operations in the near or long term.
In
addition, our business model is predicated on our ability to provide our customers with qualified and experienced trainers, coaches,
and mentors. The loss of services of Mr. Kostiner, any future other the members of our senior management, or high performing sales speakers
or course trainers could have a material adverse effect on our business, financial condition and results of operations.
We
may increase our management personnel, including to obtain certain additional functional capability, including regulatory, sales, business
development, e-commerce, and quality assurance and control, either by hiring additional personnel or by outsourcing these functions to
qualified third-parties. We may not be able to engage these third-parties on terms favorable to us. Also, we may not be able to attract
and retain qualified personnel on acceptable terms given the competition for such personnel among companies that operate in our markets.
If we fail to identify, attract, retain and motivate highly skilled personnel, or if we lose current employees or contractors, it could
have a material adverse effect on our business, financial condition and results of operations. We currently do not maintain key man insurance
on any member of our senior executive management team.
Our
ability to sell and fulfill courses may be affected by public health risks, adverse weather, natural disaster, strikes or other unpredictable
or uncontrollable events.
Adverse
weather, natural disasters, external labor disruptions, pandemics, and other adverse events may affect our ability to conduct our business
and could have a material adverse effect on our business, financial condition and results of operations. Public health risks, such as
epidemics or pandemics, and severe weather or natural disasters, such as hurricanes, blizzards, floods and earthquakes, and other events
beyond our control may reduce the ability or willingness of our students to travel to or otherwise attend our events. These events may
also disrupt the printing and transportation of the materials used in our direct mail campaigns. Furthermore, postal strikes could occur
in the countries where we operate which could delay and reduce delivery of our direct mail marketing materials. Transportation strikes
could also occur in the countries where we operate, adversely affecting our ability to conduct business.
A
relocation or closure of any of our office locations could materially adversely impact our business, financial condition and results
of operations.
If
any of the leases for our leased offices are not renewed, or if any of our offices, whether owned or leased, are inadequate for our business
operations, we may be compelled to relocate operations to new locations or cease operations in that local market, which could result
in disruption of the business, additional costs and expenses, and loss of key personnel, any of which could adversely affect our financial
condition and results of operations.
Remote
working conditions could materially adversely impact our business, financial condition and results of operations.
Due
to the COVID-19 pandemic, the Company may experience different and additional risks, such as decreased worker productivity as a result
of remote working arrangements, increased medical, emergency or other leave could materially adversely impact our business, financial
conditions and results of operations. Since the pandemic, the Company has been operating with all of its workforce working remotely.
In addition, an extended period of remote working by the Company’s employees could strain its technology resources and introduce
operational risks, including heightened cybersecurity risk. Remote working environments may be less secure and more susceptible to hacking
attacks, including phishing and social engineering attempts that seek to exploit the remote working conditions.
Risks
Related to Ownership of Our Common Stock
We
have been and expect to continue to issue additional shares of common or preferred stock that subordinate your rights and dilute your
equity interests.
We
need to raise investment capital for us to successfully execute our business strategy and it may be preferable or necessary to issue
preferred stock to investors. Preferred stock may grant the holders certain preferential rights in voting, dividends, liquidation or
other rights in preference over a company’s common stock.
The
issuance by us of common or preferred stock could dilute both the equity interests and the earnings per share of existing holders of
our Common Stock. Such dilution may be substantial, depending upon the number of shares issued. The newly authorized shares of preferred
stock could also have voting rights superior to our Common Stock, and in such event, would have a dilutive effect on the voting power
of our existing stockholders.
Any
issuance of common or preferred stock with voting rights could, under certain circumstances, have the effect of delaying or preventing
a change in control of us by increasing the number of outstanding shares entitled to vote and by increasing the number of votes required
to approve a change in control of us. Shares of voting or convertible common or preferred stock could be issued, or rights to purchase
such shares could be issued, to render more difficult or discourage an attempt to obtain control of us by means of a tender offer, proxy
contest, merger or otherwise. Such issuances could therefore deprive our stockholders of benefits that could result from such an attempt,
such as the realization of a premium over the market price that such an attempt could cause. Moreover, the issuance of such shares of
common or preferred stock to persons friendly to our Board of Directors could make it more difficult to remove incumbent managers and
directors from office even if such change were to be favorable to stockholders generally.
We
do not currently have enough authorized shares of common stock under our charter to meet all of our potential obligations to third parties.
Our
Second Amended and Restated Articles of Incorporation provide for 200,000,000 authorized shares of our common stock. We currently have
commitments to third parties, including pursuant to convertible debentures, warrants and options, to issue a number of shares in the
aggregate that with the 33,917,697 shares currently outstanding, would result in us issuing more shares than what we have authorized.
Accordingly, in order to meet all of such obligations, we will need to amend our charter to increase the authorized shares of our common
stock. We can give no assurance that we will obtain the requisite affirmative vote of our shareholders to so amend our charter, in which
case we may default under any such obligations to the extent we do not have the authorized shares to issue, which could adversely affect
our financial condition and the market for our shares.
Our
Common Stock has a limited trading market, which could affect your ability to sell shares of our Common Stock and the price you may receive
for our Common Stock.
Our
Common Stock is currently traded in the over-the-counter market and “bid” and “asked” quotations regularly appear
on the OTCQB maintained by OTC Markets, Inc. under the symbol “LEAI”. There is limited trading volume in our securities.
We cannot predict the extent to which investors’ interest in our Common Stock will provide an active and liquid trading market,
which could depress the trading price of our Common Stock and could have a long-term adverse impact on our ability to raise capital in
the future. We may be vulnerable to investors taking a “short position” in our Common Stock, which would likely have a depressing
effect on the price of our Common Stock and add increased volatility to our trading market. The volatility of the market for our Common
Stock could have a material adverse effect on our business, financial condition and results of operations. There cannot be any guarantee
that an active trading market for our securities will develop or, if such a market does develop, will be sustained. Accordingly, investors
must be able to bear the financial risk of losing their entire investment in our Common Stock.
Being
an SEC reporting company imposes costs and compliance risks.
Compliance
with the periodic reporting requirements required by the SEC consumes a considerable amount of both internal, as well external, resources
and represents a significant cost for us. Our management will be required to administer appropriate programs and policies in responding
to increased legal, regulatory compliance, and reporting requirements, and any failure to do so could lead to the imposition of fines
and penalties and harm our business.
In
addition, if we are unable to continue to devote adequate funding and the resources needed to maintain such compliance, while continuing
our operations, we may be in non-compliance with applicable SEC rules or the securities laws, and be delisted from the OTCQB or other
market we may be listed on, which would result in a decrease in or absence of liquidity in our Common Stock, and potentially subject
us and our officers and directors to civil, criminal and/or administrative proceedings and cause us to voluntarily file for deregistration
of our Common Stock with the Commission.
Future
sales of our Common Stock in the public market could lower the price of our Common Stock, dilute your equity interests, and impair our
ability to raise funds in future securities offerings.
We
may decide to raise additional capital through the sale of our securities or through other instruments both of which could result in
the issuance of additional shares of our Common Stock. The issuance by us of Common Stock could dilute both the equity interests and
the earnings per share of existing holders of our Common Stock. Such dilution may be substantial, depending upon the number of shares
issued. In addition, future issuances of a substantial number of shares of our Common Stock in the public market, or the perception that
such sales may occur, could adversely affect the then prevailing market price of our Common Stock and could make it more difficult for
us to raise funds in the future through the sale of our securities.
In
the event we raise capital through a private placement of our Common Stock and/or other securities convertible into shares of our Common
Stock, such offering could dilute both the equity interests and the earnings per share of our stockholders. Such dilution may be substantial,
depending upon the number of shares issued in any potential private placement.
The
market price of our Common Stock may be volatile and may be affected by market conditions beyond our control.
The
market for our Common Stock is characterized by significant price volatility when compared to seasoned issuers, and we expect that our
share price will continue to be more volatile than a seasoned issuer for the indefinite future. The volatility in our share price is
attributable to a number of factors. First, our shares of Common Stock are sporadically and thinly traded. As a consequence of this lack
of liquidity, the trading of relatively small quantities of shares by our stockholders may disproportionately influence the price of
those shares in either direction. The price for our shares could, for example, decline precipitously in the event that a large number
of shares of our Common Stock are sold on the market without commensurate demand, as compared to a seasoned issuer which could better
absorb those sales without adverse impact on its share price. Second, we are a speculative or “risky” investment due to our
limited operating history, and uncertainty of future market acceptance for our potential products. As a consequence of this enhanced
risk, more risk-averse investors may, under the fear of losing all or most of their investment in the event of negative news or lack
of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the
stock of a seasoned issuer. Many of these factors are beyond our control and may decrease the market price of our Common Stock, regardless
of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our Common Stock
will be at any time, including as to whether our Common Stock will sustain its current market price, or as to what effect the sale of
shares or the availability of Common Stock for sale at any time will have on the prevailing market price.
The
market price of our Common Stock is subject to significant fluctuations in response to, among other factors:
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changes
in our financial performance or a change in financial estimates or recommendations by securities analysts;
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announcements
of innovations or new products or services by us or our competitors;
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the
emergence of new competitors or success of our existing competitors;
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operating
and market price performance of other companies that investors deem comparable;
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changes
in our Board of Directors or management;
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sales
or purchases of our Common Stock by insiders;
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commencement
of, or involvement in, litigation;
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changes
in governmental regulations;
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general
economic conditions and slow or negative growth of related markets and;
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other
risks related to our business as set forth above.
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In
addition, if the market for stock in our industry, or the stock market in general, experience a loss of investor confidence, the market
price of our Common Stock could decline for reasons unrelated to our business, financial condition or results of operations. If any of
the foregoing occurs, it could cause the price of our Common Stock to fall and may expose us to lawsuits that, even if unsuccessful,
could be costly to defend and distract our Board of Directors and management.
We
do not intend to pay dividends for the foreseeable future, and you must rely on increases in the market prices of our Common Stock for
returns on your investment.
For
the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate
paying any cash dividends on our Common Stock. Accordingly, investors must be prepared to rely on sales of their Common Stock after price
appreciation to earn an investment return, which may never occur. Investors seeking cash dividends should not purchase our Common Stock.
Any determination to pay dividends in the future will be made at the discretion of our Board of Directors and will depend on our results
of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our Board of Directors
deems relevant.
We
are subject to penny stock regulations and restrictions and you may have difficulty selling shares of our Common Stock.
The
Commission has adopted regulations which generally define so-called “penny stocks” as an equity security that has a market
price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. Our Common Stock
is a “penny stock”, and we are subject to Rule 15g-9 under the Exchange Act, or the Penny Stock Rule. This rule imposes additional
sales practice requirements on broker-dealers that sell such securities to persons other than established customers and “accredited
investors” (generally, individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together
with their spouses). For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser
and receive the purchaser’s written consent to the transaction prior to sale. As a result, this rule affects the ability of broker-dealers
to sell our securities and affects the ability of purchasers to sell any of our securities in the secondary market.
For
any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in a penny stock, of a disclosure
schedule prepared by the Commission relating to the penny stock market. Disclosure is also required to be made about sales commissions
payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements
are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market
in penny stock.
There
can be no assurance that our shares of Common Stock will qualify for exemption from the Penny Stock Rule. In any event, even if our Common
Stock were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the Commission
the authority to restrict any person from participating in a distribution of penny stock if the Commission finds that such a restriction
would be in the public interest.
In
addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority, or FINRA has adopted similar
rules that may also limit a stockholder’s ability to buy and sell our Common Stock. FINRA rules require that in recommending an
investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for such customer.
Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts
to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations
of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least
some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our Common Stock,
which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
Anti-takeover
provisions could limit the ability of a third party to acquire us.
On
February 15, 2017, we adopted a limited duration Shareholder Rights Plan, or Rights Agreement by and between the Company and VStock Transfer
LLC, or VStock as rights agent. Under the Rights Agreement, one preferred stock purchase right will be distributed for each share of
common stock held by stockholders of record on March 2, 2017. The rights will trade with the common stock and will not be separable or
exercisable until such time as the Plan is triggered. The Rights Agreement was scheduled to expire on February 15, 2019, subject to the
Company’s right to extend such date, unless earlier redeemed or exchanged by the Company or terminated.
On
November 12, 2018, the Board of Directors of the Company approved an amendment to the Rights Agreement (i) extending the Final Expiration
Date, as defined in the Rights Agreement, to the close of business on February 15, 2021, and (ii) providing for the construction of the
Rights Agreement and all other related documents in a manner consistent with the extension of the Final Expiration Date.
On
November 25, 2019, we entered into an assumption agreement with Broadridge Corporate Issuer Solutions, Inc., or Broadridge, whereby Broadridge
assumes the role of rights agent under the Rights Agreement, effectively replacing VStock as rights agent.
On
February 12, 2021, the Board of Directors of the Company approved an additional amendment to the Rights Agreement (i) extending the Final
Expiration Date, as defined in the Rights Agreement, to the close of business on February 15, 2023, and (ii) providing for the construction
of the Rights Agreement and all other related documents in a manner consistent with the extension of the Final Expiration Date.
The
extension of the Final Expiration Date under the Rights Agreement was entered into to ensure that the Board of Directors would continue
to have sufficient time to consider any proposal from a third party that might result in a change in control of the Company, to ensure
that all stockholders receive fair and equal treatment in the event of any such a proposal, and to encourage any potential acquirer to
negotiate with the Board of Directors. In addition, extending the Rights Agreement will guard against partial tender offers, open market
accumulations and other coercive tactics aimed at gaining control of the Company without paying all stockholders a full control premium
for their shares. The Rights Agreement was not amended in response to any specific takeover offer. The Rights Agreement may discourage
delay of prevent a merger, acquisition or other change of control that shareholders may consider favorable, including transactions in
which shareholders might otherwise receive a premium for their shares. These provisions could limit the price that investors might be
willing to pay in the future for shares of our common stock.
The
Nevada Revised Statutes, which is the general corporate law applicable to us, contain provisions governing an acquisition of a controlling
interest of the Company. These provisions provide generally that any person or entity that acquires a certain percentage of our outstanding
voting shares may be denied voting rights with respect to the acquired shares, unless the acquisition is approved by both (i) the holders
of a majority of the voting shares of our stock, and (ii) if the acquisition would adversely alter or change any preference or other
right given to any other class or series of outstanding shares, the holders of a majority of each class or series effected, excluding
the shares held by any interested person (including, such acquiring person or entity, an officer or a director of the corporation, and
an employee of the corporation). This provision of the Nevada Revised Statutes could impede an acquisition of us even if a premium would
be paid to our stockholders for their shares.
IN
ADDITION TO THE ABOVE RISKS, BUSINESSES ARE OFTEN SUBJECT TO RISKS NOT FORESEEN OR FULLY APPRECIATED BY MANAGEMENT. IN REVIEWING THIS
PROSPECTUS, POTENTIAL INVESTORS SHOULD KEEP IN MIND THAT THERE MAY BE OTHER POSSIBLE RISKS THAT COULD BE IMPORTANT.
USE
OF PROCEEDS
All
of the shares of Common Stock being offered under this prospectus are being sold by or for the account of the Selling Shareholders. We
will not receive any proceeds from the sale of the Shares; however, we will receive approximately $1,840 upon the exercise of outstanding
options to purchase 18,400,000 shares of common stock held by a Selling Shareholder.
SELLING
SHAREHOLDERS
This
prospectus relates to the registration of 43,723,736 shares of our Common Stock, consisting of:
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11,907,236
issued and outstanding shares of our common stock, $0.0001 par value per share, held by certain of the Selling Shareholders;
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13,416,500
shares of common stock that may be sold by certain of the Selling Shareholders upon the conversion of outstanding convertible debentures;
and
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18,400,000
shares of common stock that may be sold by a Selling Shareholder upon the exercise of outstanding options.
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The
Selling Shareholders identified in this prospectus may offer the shares of our common stock at prevailing market prices at the time of
sale, at prices related to the prevailing market price, at varying prices determined at the time of sale or at negotiated prices. See
“Plan of Distribution” for additional information.
Unless
otherwise indicated, we believe, based on information supplied by the following persons that the persons named in the table below have
sole voting and investment power with respect to all shares of common stock that they beneficially own. The information presented in
the columns under the heading “Number of Shares Beneficially Owned After Offering” assumes the sale of all of our shares
offered by this prospectus. The registration of the offered shares does not mean that any or all of the Selling Shareholders will offer
or sell any of these shares.
We
have determined beneficial ownership in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial
ownership for any other purpose.
Selling
Shareholder information for each additional Selling Shareholder, if any, will be set forth by prospectus supplement to the extent required
prior to the time of any offer or sale of such Selling Shareholder’s shares pursuant to this prospectus. Any prospectus supplement
may add, update, substitute, or change the information contained in this prospectus, including the identity of each Selling Shareholder
and the number of shares registered on its behalf. The inclusion of any shares in this table does not constitute an admission of beneficial
ownership by the persons named below.
Certain
Selling Shareholders set forth in a table below may be broker-dealers, or affiliates of broker-dealers. Each broker-dealer identified
below acquired the securities identified in the table as beneficially owned by it as compensation for placement agent and financial advisory
services provided to the Company, and is offering the covered securities in its proprietary capacity. No broker-dealer identified in
the Selling Shareholders table below is acting as a broker-dealer in connection with this offering. Additionally, each Selling Shareholder
identified in the table below as an affiliate of a broker-dealer acquired the securities identified in the table as beneficially owned
by it in the ordinary course of its business and not as underwriting compensation in this offering, and at the time such securities were
acquired, had no agreement or understanding, directly or indirectly, with any person to distribute such securities. Unless otherwise
indicated, none of the Selling Shareholders have within the past three years had any position, office or other material relationship
with the Company or any of its predecessors or affiliates.
Name
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Number of
Shares Beneficially Owned Prior to Offering
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Number of
Shares
Offered by the Selling Shareholder
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Number of
Shares
Beneficially
Owned
After
Offering
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Percentage of
Common
Stock
Beneficially
Owned
After
Offering
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GLD Legacy Holdings, LLC (1)
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20,000,000
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10,000,000
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(2)
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10,000,000
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18.55
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%
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Mayer & Associates, LLC (3)
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1,600,000
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20,000,000
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(3)
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–
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–
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Legacy Tech Partners LLC (4)
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6,586,500
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(4)
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10,000,000
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(4)
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_
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(4)
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-
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Michel Botbol (5)
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500,000
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500,000
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–
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–
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James E. May (6)
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566,769
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566,769
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–
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–
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Cary Sucoff (7)
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830,250
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830,250
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–
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–
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Peter W. Harper (8)
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501,717
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501,717
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–
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–
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Vanessa Guzman-Clark (9)
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20,000
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20,000
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–
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–
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Eliahu Sarfaty
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315,000
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315,000
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–
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–
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GLD Advisory Services, LLC
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315,000
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315,000
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Barry Joseph Kostiner (10)
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315,000
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315,000
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–
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–
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Jason van der Meide
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160,000
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160,000
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–
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–
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Peter R. Serra
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100,000
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100,000
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–
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–
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Aracle Management LLC
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100,000
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100,000
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–
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–
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(1)
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Daniel
Gordon has voting and dispositive control over these shares, as the 100% owner of GLD Management, Inc., the General Partner of GLD
Partners, LP, sole member of the selling stockholder.
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(2)
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Represents
10,000,000 shares of our common stock underlying an outstanding debenture held by the Selling Shareholder (the “GLD Debenture”).
Does not include an additional 10,000,000 shares of our common stock underlying the GLD Debenture or up to 20,000,000 shares of our
common stock underlying warrants that would be issued to the Selling Shareholder upon the conversion of the GLD Debenture.
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(3)
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Benjamin
Mayer has voting and dispositive control over these shares. Includes 1,600,000 issued and outstanding shares of our common stock
and 18,400,000 shares of our common stock which Mayer may acquire from time to time pursuant to an option at a per share price of
$0.0001. Does not include an additional 120,000,000 options at a per share price of $0.05833. The exercise of the options are subject
to ownership limitations so that the selling stockholder cannot beneficially own in excess of 4.9% (or in certain circumstances,
9.9%) of the issued and outstanding common stock of the Company at any time.
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(4)
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Legacy
Tech Partners LLC beneficially owns 6,586,500 shares of our common stock. LTP further owns an outstanding 10% senior secured
convertible debenture due March 8, 2022 (the “LTP Debenture”), which is convertible into (a) up to an additional
96,913,500 shares of our common stock (assuming we borrow all amounts under the LTP Debenture) and (b) up to an additional
100,000,000 shares of our common stock underlying warrants issued or to be issued to the Selling Shareholder upon conversion of the
LTP Debenture, all of which are subject to a beneficial ownership blocker. Barry Kostiner, a member of our Board of Directors, interim
CEO and Manager of Capital Markets, is the president of the Selling Shareholder and has voting and dispositive power over these shares.
Does not include 315,000 shares of our common stock directly held by Mr. Kostiner (see footnote (10) below). We are registering
all 6,586,500 issued and outstanding shares of our common stock plus an additional 3,413,500 shares of our common stock underlying
the LTP Debenture.
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(5)
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Mr.
Botbol is our former Chairman of our Board of Directors and Chief Executive Officer.
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(6)
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Mr.
May is our former General Counsel.
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(7)
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Mr.
Sucoff is a former member of our Board of Directors.
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(8)
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Mr.
Harper is a former member of our Board of Directors.
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(9)
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Ms.
Guzman-Clark is our former Vice President and Chief Financial Officer.
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(10)
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Mr.
Kostiner is a member of our Board of Directors, interim CEO and Manager of Capital Markets, as well as the principal financial and
accounting officer of the Company. Mr. Kostiner is also the president of Legacy Tech Partners LLC.
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PLAN
OF DISTRIBUTION
We
are registering 43,723,736 shares of common stock, to permit the resale of these shares of Common Stock by the holders from time to time
after the date of this prospectus. We will not receive any of the proceeds from the sale by the Selling Shareholder of the shares of
Common Stock. We will bear all fees and expenses incident to our obligation to register the shares of Common Stock.
Each
Selling Shareholder may sell all or a portion of the shares of Common Stock held by it and offered hereby from time to time directly
or through one or more underwriters, broker-dealers or agents. If the shares of Common Stock are sold through underwriters or broker-dealers,
the Selling Shareholder will be responsible for underwriting discounts or commissions or agent’s commissions. The shares of Common
Stock may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices
determined at the time of sale or at negotiated prices. These sales may be effected in transactions, which may involve crosses or block
transactions, pursuant to one or more of the following methods:
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on
any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale;
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in
the over-the-counter market;
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in
transactions otherwise than on these exchanges or systems or in the over-the-counter market;
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through
the writing or settlement of options, whether such options are listed on an options exchange or otherwise;
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ordinary
brokerage transactions and transactions in which the broker-dealer solicits purchasers;
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block
trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
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purchases
by a broker-dealer as principal and resale by the broker-dealer for its account;
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an
exchange distribution in accordance with the rules of the applicable exchange;
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privately
negotiated transactions;
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broker-dealers
may agree with a selling security holder to sell a specified number of such shares at a stipulated price per share;
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a
combination of any such methods of sale; and
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any
other method permitted pursuant to applicable law.
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Each
Selling Shareholder may also sell shares of Common Stock under Rule 144 promulgated under the Securities Act of 1933, as amended, if
available, rather than under this prospectus. In addition, each Selling Shareholder may transfer the shares of Common Stock by other
means not described in this prospectus. If a Selling Shareholder effects such transactions by selling shares of Common Stock to or through
underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts,
concessions or commissions from the Selling Shareholder or commissions from purchasers of the shares of common stock for whom they may
act as agent or to whom they may sell as principal (which discounts, concessions or commissions as to particular underwriters, broker-dealers
or agents may be in excess of those customary in the types of transactions involved). In connection with sales of the shares of Common
Stock or otherwise, a Selling Shareholder may enter into hedging transactions with broker-dealers, which may in turn engage in short
sales of the shares of Common Stock in the course of hedging in positions they assume. Each Selling Shareholder may also sell shares
of Common Stock short and deliver shares of Common Stock covered by this prospectus to close out short positions and to return borrowed
shares in connection with such short sales. Each Selling Shareholder may also loan or pledge shares of Common Stock to broker-dealers
that in turn may sell such shares.
Each
Selling Shareholder may pledge or grant a security interest in some or all of the shares of Common Stock owned by it and, if it defaults
in the performance of its secured obligations, the pledgees or secured parties may offer and sell the shares of Common Stock from time
to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities
Act amending, if necessary, the list of Selling Shareholders to include the pledgee, transferee or other successors in interest as Selling
Shareholders under this prospectus. Each Selling Shareholder also may transfer and donate the shares of Common Stock in other circumstances
in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of
this prospectus.
To
the extent required by the Securities Act and the rules and regulations thereunder, each Selling Shareholder and any broker-dealer participating
in the distribution of the shares of common stock may be deemed to be “underwriters” within the meaning of the Securities
Act, and any commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed to be underwriting commissions
or discounts under the Securities Act. At the time a particular offering of the shares of common stock is made, a prospectus supplement,
if required, will be distributed, which will set forth the aggregate amount of shares of Common Stock being offered and the terms of
the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting compensation
from the Selling Shareholders and any discounts, commissions or concessions allowed or re-allowed or paid to broker-dealers.
Under
the securities laws of some states, the shares of Common Stock may be sold in such states only through registered or licensed brokers
or dealers. In addition, in some states the shares of Common Stock may not be sold unless such shares have been registered or qualified
for sale in such state or an exemption from registration or qualification is available and is complied with.
There
can be no assurance that the Selling Shareholders will sell any or all of the shares of Common Stock registered pursuant to the registration
statement, of which this prospectus forms a part.
The
Selling Shareholders and any other person participating in such distribution will be subject to applicable provisions of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder, including, without limitation, to the extent applicable,
Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of the shares of Common Stock by the Selling
Shareholders and any other participating person. To the extent applicable, Regulation M may also restrict the ability of any person engaged
in the distribution of the shares of common stock to engage in market-making activities with respect to the shares of Common Stock. All
of the foregoing may affect the marketability of the shares of Common Stock and the ability of any person or entity to engage in market-making
activities with respect to the shares of Common Stock.
We
will pay all expenses of the registration of the shares of common stock, estimated to be approximately $25,000 in total, including, without
limitation, Securities and Exchange Commission filing fees and expenses of compliance with state securities or “blue sky”
laws; provided, however, the Selling Shareholders will pay all underwriting discounts and selling commissions, if any.
Once
sold under the registration statement, of which this prospectus forms a part, the shares of Common Stock will be freely tradable in the
hands of persons other than our affiliates.
DESCRIPTION
OF SECURITIES TO BE REGISTERED
The
following description of our capital stock is a summary only and is qualified by reference to our Second Amended and Restated Articles
of Incorporation included as Exhibit 3.1, our Certificate of Designation included as Exhibit 3.2, and our Bylaws, as amended, included
as Exhibits 3.3, 3.4 and 3.5, in each case to the Registration Statement on Form S-1 to which this prospectus forms a part.
General
Our
authorized capital stock consists of 200,000,000 shares of Common Stock, with a par value of $0.0001 per share, and 20,000,000 shares
of Preferred Stock, with a par value of $0.0001 per share. As of January 4, 2022, there were 33,917,697 shares of Common Stock
issued and outstanding and zero shares of Preferred Stock issued and outstanding.
Common
Stock
The
Company’s Certificate of Incorporation, as amended, authorizes us to issue an aggregate of 200,000,000 shares of Common Stock.
As of the date of this prospectus, 33,917,697 shares of our Common Stock were issued and outstanding. All outstanding shares of Common
Stock are of the same class and have equal rights and attributes. The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of stockholders of the Company. Holders of Common Stock do not have cumulative voting rights. In the event
of a liquidation, dissolution or winding up, each outstanding share entitles its holder to participate pro rata in all assets that remain
after payment of liabilities and after providing for each class of stock, if any, having preference over the Common Stock. The Common
Stock has no pre-emptive, subscription or conversion rights and there are no applicable redemption provisions. Additionally, our authorized
but unissued Common Shares could be used by our Board of Directors for defensive purposes against a hostile takeover attempt, including
(by way of example) the private placement of Shares or the granting of options to purchase Shares to persons or entities sympathetic
to, or contractually bound to support, management. We have no such present arrangement or understanding with any person. However, our
Common Stock has been reserved for issuance upon the exercise of stock purchase rights designed to deter hostile takeovers, commonly
known as a “poison pill”.
Transfer
Agent
The
transfer agent for our Common Stock is Broadridge Corporate Issue Solutions, P.O. Box 1342, Brentwood, NY 11717.
Preferred
Stock
Our
Board of Directors is expressly authorized, at its discretion, to adopt resolutions to issue shares of Preferred Stock of any class or
series, to fix the number of shares of any class or series of Preferred Stock and to change the number of shares constituting any series
and to provide for or change the voting powers, designations, preferences and relative, participating, optional or other special rights,
qualifications, limitations or restrictions thereof, including dividend rights (including whether the dividends are cumulative), dividend
rates, terms of redemption (including sinking fund provisions), redemption prices, conversion rights and liquidation preferences of the
shares constituting any series of the Preferred Stock, in each case without any further action or vote by our stockholders.
Series
A Preferred Stock
On
February 17, 2017, we filed a Certificated of Designation for a series of preferred stock designated Series A Junior Participating Preferred
Stock, or Series A Preferred. There are 40,000 shares of Series A Preferred designated. Each share of such stock shall vote with the
Common Stock and have 1,000 votes. Shares of the Series A Preferred have no conversion rights, but shall be entitled to receive, when,
as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the
first day of March, June, September and December in each year or liquidation rights. Upon any liquidation, dissolution or winding up
of the Company, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred unless, prior thereto, the holders of Series A Preferred shall have received an
amount per share equal to $5.00 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or
not declared, to the date of such payment, provided that the holders of shares of Series A Preferred shall be entitled to receive an
aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount
to be distributed per share to holders of Common Stock. As of the date of filing of this prospectus, we have not issued any shares of
Series A Preferred.
MARKET
PRICE OF AND DIVIDENDS ON COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our
common stock is quoted on the OTCQB Market under the symbol LEAI.
The
following table shows the high and low bid prices of our common stock for the periods indicated. These quotations reflect inter-dealer
prices, without retail mark-up, markdown or commissions, and may not represent actual transactions.
The
last reported closing price was $0.0612 on January 4, 2022.
Quarter Ended
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
March 31, 2022 (through January 4, 2022)
|
|
|
0.0612
|
|
|
|
0.0612
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021
|
|
$
|
0.116
|
|
|
$
|
0.0612
|
|
September 30, 2021
|
|
|
0.155
|
|
|
|
0.10
|
|
June 30, 2021
|
|
|
0.155
|
|
|
|
0.063
|
|
March 31, 2021
|
|
|
0.1585
|
|
|
|
0.0805
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
$
|
0.15
|
|
|
$
|
0.04
|
|
September 30, 2020
|
|
|
0.114
|
|
|
|
0.068
|
|
June 30, 2020
|
|
|
0.14
|
|
|
|
0.0661
|
|
March 31, 2020
|
|
|
0.1915
|
|
|
|
0.081
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
$
|
0.12
|
|
|
$
|
0.05
|
|
September 30, 2019
|
|
|
0.178
|
|
|
|
0.095
|
|
June 30, 2019
|
|
|
0.22
|
|
|
|
0.15
|
|
March 31, 2019
|
|
|
0.2
|
|
|
|
0.11
|
|
Holders
As
of January 4, 2022, there were approximately 373 stockholders of record for our Common Stock. The number of stockholders does
not include beneficial owners holding shares through nominee names.
Shares
Eligible for Future Sale
As
of the date of this prospectus, there are 33,917,697 shares of common stock outstanding, of which an aggregate of 6,915,000 shares are
owned by our sole director and executive officer or his affiliates.
Approximately
18,223,988 outstanding shares of common stock held by current shareholders are considered “restricted securities” subject
to the limitations of Rule 144 under the Securities Act. In general, securities may be sold pursuant to Rule 144 after being fully paid
and held for more than 6 months. While affiliates of the Company are subject to certain limits in the amount of restricted securities,
they can sell under Rule 144, there are no such limitations on sales by persons who are not affiliates of the Company. In the event non-affiliated
holders elect to sell such shares in the public market, there is likely to be a negative effect on the market price of the Company’s
securities.
Dividend
Policy
We
have not paid out any cash dividends for the past two years and do not anticipate paying any cash dividends on our Common Stock for the
foreseeable future. Accordingly, investors must be prepared to rely on sales of their Common Stock after price appreciation to earn an
investment return, which may never occur. Investors seeking cash dividends should not purchase our Common Stock. Any determination to
pay dividends in the future will be made at the discretion of our Board of Directors and will depend on our results of operations, financial
condition, contractual restrictions, restrictions imposed by applicable law and other factors our Board of Directors deems relevant.
Penny
Stock Regulation
Shares
of our Common Stock have been and will likely continue to be subject to rules adopted the SEC that regulate broker-dealer practices in
connection with transactions in “penny stocks.” Penny stocks are generally equity securities with a price of less than $5.00
(other than securities registered on certain national securities exchanges or quoted on the NASDAQ or NYSE system, provided that current
price and volume information with respect to transactions in those securities is provided by the exchange or system). The penny stock
rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, deliver a standardized
risk disclosure document prepared by the SEC, which contains the following:
|
●
|
a
description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading;
|
|
|
|
|
●
|
a
description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer
with respect to violation to such duties or other requirements of securities’ laws;
|
|
|
|
|
●
|
a
brief, clear, narrative description of a dealer market, including “bid” and “ask” prices for penny stocks
and the significance of the spread between the “bid” and “ask” price;
|
|
|
|
|
●
|
a
toll-free telephone number for inquiries on disciplinary actions;
|
|
|
|
|
●
|
definitions
of significant terms in the disclosure document or in the conduct of trading in penny stocks; and
|
|
|
|
|
●
|
such
other information and is in such form (including language, type, size and format), as the SEC shall require by rule or regulation.
|
Prior
to effecting any transaction in penny stock, the broker-dealer also must provide the customer the following:
|
●
|
the
bid and offer quotations for the penny stock;
|
|
|
|
|
●
|
the
compensation of the broker-dealer and its salesperson in the transaction;
|
|
|
|
|
●
|
the
number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the
market for such stock; and
|
|
|
|
|
●
|
monthly
account statements showing the market value of each penny stock held in the customer’s account.
|
In
addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer
must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s
written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and
a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading
activity in the secondary market for a stock that becomes subject to the penny stock rules. Holders of shares of our Common Stock may
have difficulty selling those shares because our Common Stock will probably be subject to the penny stock rules.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The
following discussion and analysis of financial condition and results of operations is based upon, and should be read in conjunction with
our audited and unaudited financial statements and related notes thereto included elsewhere in this prospectus commencing on page F-1.
Overview
We
caution you that reliance on any forward-looking statement involves risks and uncertainties, and that although we believe the assumptions
on which our forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result,
the forward-looking statements based on those assumptions could be incorrect. In light of these and other uncertainties, you should not
conclude that we will necessarily achieve any plans and objectives or projected financial results referred to in any of the forward-looking
statements. We do not undertake to release the results of any revisions of these forward-looking statements to reflect future events
or circumstances. Some of the factors that may cause actual results, developments and business decisions to differ materially from those
contemplated by such forward-looking statements include the following:
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 nine
months ended September 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 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. Today we are a global company that
has cumulatively served more than two million students from more than 150 countries and territories over the course of our operating
history.
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 have historically been managed through three operating segments: (i) North America, (ii) United Kingdom, and (iii) Other Foreign
Markets. We currently only do business in North America and the foreign business operations have been discontinued.
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 nine months ended September
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.
|
Critical
Accounting Estimates and Policies
The
preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported
amounts and related disclosures. In addition to the estimates presented below, there are other items within our consolidated financial
statements that require estimation but are not deemed critical as defined below. We believe these estimates are reasonable and appropriate.
However, if actual experience differs from the assumptions and other considerations used, the resulting changes could have a material
effect on the financial statements taken as a whole.
Management
believes that the following policies and estimates are critical because they involve significant judgments, assumptions and estimates.
Management has discussed the development and selection of the critical accounting estimates with the Audit Committee of our Board of
Directors and the Audit Committee has reviewed the disclosures presented below relating to those policies and estimates.
Long-Lived
Assets
We
evaluate the carrying amount of our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. We record an impairment loss when indications of impairment are present and undiscounted cash
flows estimated to be generated by those assets are less than assets’ carrying value. We evaluate the remaining life and recoverability
of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable.
At such time, we estimate the future cash flows expected from the use of the assets and their eventual dispositions and, if lower than
the carrying amounts, adjust the carrying amount of the assets to their estimated fair value. Because of our changing business conditions
including current and projected level of income, business trends, prospects and market conditions, our estimates of cash flows to be
generated from our operations could change materially, resulting in the need to record additional impairment charges.
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 Topic 606.
We
adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018.
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. We had deferred revenue of $15.8 million and $46.5 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 December 31, 2020 and 2019, respectively. The revenue associated with these performance obligations is recognized
as the obligation is satisfied.
Income
Taxes
We
account for income taxes in conformity with the requirements of ASC 740, Income Taxes. Per ASC 740, the provision for income taxes
is calculated using the asset and liability approach of accounting for income taxes. We recognize deferred tax assets and liabilities,
at enacted income tax rates, based on the temporary differences between the financial reporting basis and the tax basis of our assets
and liabilities. We include any effects of changes in income tax rates or tax laws in the provision for income taxes in the period of
enactment. When it is more likely than not that a portion or all of a deferred tax asset will not be realized in the future, we provide
a corresponding valuation allowance against the deferred tax asset.
ASC
740 also clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements and prescribes
a recognition threshold of more likely than not and a measurement process for financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. In making this assessment, a company must determine whether it is more likely
than not that a tax position will be sustained upon examination, based solely on the technical merits of the position and must assume
that the tax position will be examined by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest
and penalties, accounting in interim periods, disclosures and transition.
Accounting
for Litigation and Settlements
We
are involved in various legal proceedings. Due to their nature, such legal proceedings involve inherent uncertainties including, but
not limited to, court rulings, negotiations between affected parties, and the possibility of governmental intervention. Management assesses
the probability of loss for such contingencies and accrues a liability and/or discloses the relevant circumstances as appropriate. While
certain of these matters involve substantial amounts, management believes, based on available information, that the ultimate resolution
of such legal proceedings will not have a material adverse effect on our financial condition or results of operations.
The
critical accounting policies discussed above are not intended to be a comprehensive list of all of our accounting policies. In many cases,
the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the U.S.,
with no need for management’s judgment in their application. There are also areas in which management’s judgment in selecting
any available alternative would not produce a materially different result.
Results
of Operations
Our
financial results in the third quarter of 2021 were negatively impacted by the COVID-19 pandemic, slower than we anticipated establishment
of our new Homemade Investor brand, as well as the effect of winding down our Rich Dad brand and other matters.
Our
Results of Operations in 2021 and 2020 were as follows:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
(in thousands, except per share data)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Revenue
|
|
$
|
1,379
|
|
|
$
|
7,439
|
|
|
$
|
7,361
|
|
|
$
|
21,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct course expenses
|
|
|
675
|
|
|
|
1,234
|
|
|
|
1,899
|
|
|
|
5,077
|
|
Advertising and sales expenses
|
|
|
729
|
|
|
|
64
|
|
|
|
1,343
|
|
|
|
1,977
|
|
Royalty expenses
|
|
|
—
|
|
|
|
9
|
|
|
|
—
|
|
|
|
68
|
|
General and administrative expenses
|
|
|
1,172
|
|
|
|
1,129
|
|
|
|
3,568
|
|
|
|
3,607
|
|
Total operating costs and expenses
|
|
|
2,576
|
|
|
|
2,436
|
|
|
|
6,810
|
|
|
|
10,729
|
|
Income (loss) from operations
|
|
|
(1,197
|
)
|
|
|
5,003
|
|
|
|
551
|
|
|
|
10,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(35
|
)
|
|
|
(105
|
)
|
|
|
(421
|
)
|
|
|
(208
|
)
|
Other income (expense), net
|
|
|
9
|
|
|
|
(16
|
)
|
|
|
6
|
|
|
|
(23
|
)
|
Gain on forgiveness of PPP Loan
|
|
|
910
|
|
|
|
—
|
|
|
|
910
|
|
|
|
—
|
|
Total other income (expense), net
|
|
|
884
|
|
|
|
(121
|
)
|
|
|
495
|
|
|
|
(231
|
)
|
Income (loss) from continuing operations before income taxes
|
|
|
(313
|
)
|
|
|
4,882
|
|
|
|
1,046
|
|
|
|
10,604
|
|
Income tax (expense) benefit
|
|
|
118
|
|
|
|
(926
|
)
|
|
|
(797
|
)
|
|
|
(1,921
|
)
|
Net income (loss) from continuing operations
|
|
|
(195
|
)
|
|
|
3,956
|
|
|
|
249
|
|
|
|
8,683
|
|
Income from discontinued operations
|
|
|
—
|
|
|
|
733
|
|
|
|
171
|
|
|
|
2,842
|
|
Net income from discontinued operations
|
|
|
—
|
|
|
|
733
|
|
|
|
171
|
|
|
|
2,842
|
|
Net income (loss)
|
|
$
|
(195
|
)
|
|
$
|
4,689
|
|
|
$
|
420
|
|
|
$
|
11,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share - continuing operations
|
|
$
|
(0.01
|
)
|
|
$
|
0.17
|
|
|
$
|
0.02
|
|
|
$
|
0.38
|
|
Basic earnings (loss) per common share - discontinued operations
|
|
|
—
|
|
|
|
0.03
|
|
|
|
0.00
|
|
|
|
0.12
|
|
Basic earnings (loss) per common share
|
|
$
|
(0.01
|
)
|
|
$
|
0.20
|
|
|
$
|
0.02
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share - continuing operations
|
|
$
|
(0.01
|
)
|
|
$
|
0.17
|
|
|
$
|
0.01
|
|
|
$
|
0.37
|
|
Diluted earnings (loss) per common share - discontinued operations
|
|
|
—
|
|
|
|
0.03
|
|
|
|
0.00
|
|
|
|
0.12
|
|
Diluted earnings (loss) per common share
|
|
$
|
(0.01
|
)
|
|
$
|
0.20
|
|
|
$
|
0.01
|
|
|
$
|
0.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding
|
|
|
33,064
|
|
|
|
23,138
|
|
|
|
26,373
|
|
|
|
23,046
|
|
Diluted weighted average common shares outstanding
|
|
|
33,064
|
|
|
|
23,252
|
|
|
|
41,776
|
|
|
|
23,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(195
|
)
|
|
$
|
4,689
|
|
|
$
|
420
|
|
|
$
|
11,525
|
|
Foreign currency translation adjustments, net of tax of $0
|
|
|
336
|
|
|
|
(704
|
)
|
|
|
387
|
|
|
|
524
|
|
Total comprehensive income
|
|
$
|
141
|
|
|
$
|
3,985
|
|
|
$
|
807
|
|
|
$
|
12,049
|
|
Our
operating results are expressed as a percentage of revenue in the table below:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Revenue
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct course expenses
|
|
|
49.0
|
|
|
|
16.6
|
|
|
|
25.8
|
|
|
|
23.5
|
|
Advertising and sales expenses
|
|
|
52.9
|
|
|
|
0.9
|
|
|
|
18.2
|
|
|
|
9.2
|
|
Royalty expenses
|
|
|
—
|
|
|
|
0.1
|
|
|
|
0.0
|
|
|
|
0.3
|
|
General and administrative expenses
|
|
|
85.0
|
|
|
|
15.1
|
|
|
|
48.5
|
|
|
|
16.7
|
|
Total operating costs and expenses
|
|
|
186.9
|
|
|
|
32.7
|
|
|
|
92.5
|
|
|
|
49.7
|
|
Income (loss) from operations
|
|
|
(86.9
|
)
|
|
|
67.3
|
|
|
|
7.5
|
|
|
|
50.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(2.5
|
)
|
|
|
(1.4
|
)
|
|
|
(5.7
|
)
|
|
|
(1.0
|
)
|
Other income (expense), net
|
|
|
0.7
|
|
|
|
(0.2
|
)
|
|
|
0.0
|
|
|
|
(0.1
|
)
|
Gain on forgiveness of PPP Loan
|
|
|
66.0
|
|
|
|
—
|
|
|
|
12.4
|
|
|
|
—
|
|
Total other income (expense), net
|
|
|
64.2
|
|
|
|
(1.6
|
)
|
|
|
6.7
|
|
|
|
(1.1
|
)
|
Income (loss) from continuing operations before income taxes
|
|
|
(22.7
|
)
|
|
|
65.7
|
|
|
|
14.2
|
|
|
|
49.2
|
|
Income tax (expense) benefit
|
|
|
8.6
|
|
|
|
(12.5
|
)
|
|
|
(10.8
|
)
|
|
|
(8.9
|
)
|
Net income (loss) from continuing operations
|
|
|
(14.1
|
)
|
|
|
53.2
|
|
|
|
3.4
|
|
|
|
40.3
|
|
Income from discontinued operations
|
|
|
—
|
|
|
|
9.9
|
|
|
|
2.3
|
|
|
|
13.2
|
|
Net income from discontinued operations
|
|
|
—
|
|
|
|
9.9
|
|
|
|
2.3
|
|
|
|
13.2
|
|
Net income (loss)
|
|
|
(14.1
|
)%
|
|
|
63.1
|
%
|
|
|
5.7
|
%
|
|
|
53.5
|
%
|
Outlook
Cash
sales were $1.4 million for the nine months ended September 30, 2021 compared to $3.6 million for the nine months ended September 30,
2020, a decrease of $2.2 million or 61.1%. The decrease was driven by a $2.2 million decrease in our North American segment.
We
believe that cash sales remain an important metric when evaluating our operating performance. Pursuant to 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. Our students pay for their courses in full up-front or through payment agreements
with independent third parties.
Operating
Segments
Our
operations have historically been managed through three operating segments: (i) North America, (ii) the United Kingdom, and (iii) Other
Foreign Markets. The proportion of our total revenue attributable to each segment is as follows:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
As a percentage of total revenue
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
North America
|
|
|
100.0
|
%
|
|
|
97.0
|
%
|
|
|
63.5
|
%
|
|
|
96.7
|
%
|
U.K.
|
|
|
—
|
%
|
|
|
0.6
|
%
|
|
|
36.5
|
%
|
|
|
1.1
|
%
|
Other foreign markets
|
|
|
—
|
%
|
|
|
2.4
|
%
|
|
|
—
|
%
|
|
|
2.2
|
%
|
Total consolidated revenue
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
North
America
Revenue
derived from the Rich Dad brands in our North America segment was $0.7 million and $5.7 million or as a percentage of total segment revenue
was 53.8% and 79.2% for the three months ended September 30, 2021 and 2020 and $2.5 million and $16.2 million or as a percentage of total
segment revenue was 54.3% and 77.5% for the nine months ended September 30, 2021 and 2020, respectively. The majority pertained to real
estate-related education, with the balance pertaining to financial markets training. Revenue derived from our Homemade Investor brand
was $101.0 thousand and $112.0 thousand or as a percentage of total segment revenue was 7.3% and 1.6% for the three months ended September
30, 2021 and 2020 and $447.0 thousand and $492.0 thousand or as a percentage of total segment revenue was 9.6% and 2.4% for the nine
months ended September 30, 2021 and 2020, respectively.
The
North America segment revenue was $1.4 million and $7.2 million or as a percentage of total revenue was 100.0% and 97.0% for the three
months ended September 30, 2021 and 2020, and $4.7 million and $20.9 million or as a percentage of total revenue was 63.5% and 96.7%
for the nine months ended September 30, 2021 and 2020, respectively. The decrease in revenue of $5.8 million or 80.6% during the three
months ended September 30, 2021 compared to the same period in 2020, was due to a decrease in recognition of revenue from attendance
(i.e. fulfillment) of $0.6 million or 52.5% and decrease in revenue from expired contracts of $5.2 million or 86.2%. The decrease in
revenue of $16.2 million or 77.5% during the nine months ended September 30, 2021 compared to the same period in 2020, was due to a decrease
in recognition of revenue from attendance (i.e. fulfillment) of $5.8 million or 77.8% and decrease in revenue from expired contracts
of $10.4 million or 77.5%.
U.K.
Revenue
derived from the Rich Dad brands in our U.K. segment was $0.0 and $47.0 thousand or as a percentage of total segment revenue was 0.0%
and 100.0% for the three months ended September 30, 2021 and 2020 and $1.8 million and $0.2 million or as a percentage of total revenue
was 66.7% and 66.7% for the nine months ended September 30, 2021 and 2020, respectively. The majority pertained to real estate-related
education, with the balance pertaining to financial markets education.
The
U.K. segment revenue was $0.0 and $47.0 thousand or as a percentage of total revenue was 0.0% and 0.6% for the three months ended September
30, 2021 and 2020 and $2.7 million and $0.2 million or as a percentage of total revenue was 36.5% and 1.1% for the nine months ended
September 30, 2021 and 2020, respectively. The decrease in revenue of $47.0 thousand or 100% for the three months ended September 30,
2021 compared to the same period in 2020, was due to a decrease in revenue from expired contracts of $11.0 thousand and $36.0 thousand
decrease in attendance revenue (i.e. fulfillment). The increase in revenue of $2.5 million for the nine months ended September 30, 2021
compared to the same period in 2020, was due to an increase in revenue from expired contracts of $2.4 million and $0.1 million increase
in attendance revenue (i.e. fulfillment). During the quarter ended June 30, 2021, we satisfied all outstanding obligations to students
of our subsidiary Elite Legacy Education UK LTD (ELE UK) within the U.K. segment. There was no change during the current quarter ended
September 30, 2021.
Other
Foreign Markets
Historically,
we have operated in other foreign markets, including Australia, New Zealand, South Africa, Hong Kong and other European, Asian and African
countries. During the three and nine months ended September 30, 2021, as a result of the COVID-19 pandemic, we placed in liquidation
certain entities that operated in this segment, resulting in zero revenues and expenses from continuing operations in the other foreign
markets segment for the three and nine months ended September 30, 2021. Our other foreign markets segment revenue for the three and nine
months ended September 30, 2020 was $0.2 million and $0.5 million or as a percentage of total revenue was 2.4% and 2.2%, respectively.
Three
months ended September 30, 2021 Compared to Three months ended September 30, 2020
Revenue
Revenue
was $1.4 million for the three months ended September 30, 2021, compared to $7.4 million for the three months ended September 30, 2020.
Revenue decreased $6.0 million or 81.1% during the three months ended September 30, 2021 compared to the same period in 2020. The decrease
in revenue was mainly due to the decrease in recognition of revenue from expired contracts of $5.2 million or 86.2% and decreased attendance
(i.e. fulfillment) of $0.8 million or 60.1%. The decrease in attendance was mainly due to governmental and private travel restrictions
and students’ concerns around public gatherings and social distancing as a result of the coronavirus pandemic.
Cash
sales were $0.7 million for the three months ended September 30, 2021, compared to $0.3 million for the three months ended September
30, 2020, an increase of $0.4 million or 133.3%. The increase was driven by a $0.4 million increase due to the Company resuming live
events in its North American segment.
Operating
expenses
Total
operating costs and expenses were $2.6 million for the three months ended September 30, 2021 compared to $2.4 million for the three months
ended September 30, 2020, an increase of $0.2 million. The increase was due to a $0.6 million increase in advertising and sales expenses
and $0.1 million increase in general and administrative expenses, partially offset by a $0.5 million decrease in direct course expenses.
Direct
course expenses
Direct
course expenses relate to our free preview workshops, basic and elite training, and individualized mentoring programs, consisting of
instructor fees, facility costs, salaries, commissions, and fees associated with our field representatives and related travel expenses.
Direct course expenses were $0.7 million for the three months ended September 30, 2021, compared to $1.2 million for the three months
ended September 30, 2020, a decrease of $0.5 million or 41.7%, which was related to decreases in sales and training compensation, due
to the economic impact of the COVID-19 pandemic on consumers.
Advertising
and sales expenses
We
generally obtain most of our potential customers through internet-based advertising. Advertising and sales expenses consist of purchased
media to generate registrations to our free preview workshops and costs associated with supporting customer recruitment. We obtain the
majority of our customers through free preview workshops. These preview workshops are offered in various metropolitan areas in North
America, United Kingdom, and other international markets. Prior to the actual workshop, we spend a significant amount of money in the
form of advertising through various media channels.
Advertising
and sales expenses were $0.7 million and $0.1 million for the three months ended September 30, 2021 and 2020, respectively, an increase
of $0.6 million. As a percentage of revenue, advertising and sales expenses were 52.9% and 0.9% of revenue for the three months ended
September 30, 2021 and 2020, an increase of 52.0%. The increase in advertising and sales expenses was due to resuming live events in
our North American segment.
Royalty
expenses
We
are required to pay royalties under the licensing and related agreements pursuant to which we develop, market, and sell Rich Dad and
Homemade Investor branded live seminars, training courses, and related products worldwide. Royalty expenses were $0.0 thousand for the
three months ended September 30, 2021, compared to $9.0 thousand for the three months ended September 30, 2020, a decrease of $9.0 thousand
as a result of the Company selling courses under its proprietary brand Building Wealth with Legacy TM exclusively.
General
and administrative expenses
General
and administrative expenses primarily consist of compensation, benefits, insurance, professional fees, facilities expenses and travel
expenses for the corporate staff, as well as depreciation and amortization expenses. General and administrative expenses were $1.2 million
for the three months ended September 30, 2021 compared to $1.1 million for the three months ended September 30, 2020, an increase of
$0.1 million, or 9.1%. The increase in general and administrative expenses was a direct result of supporting live events.
Gain
on forgiveness of PPP Loan
In
March, 2021, we were 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, we 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. Thus, during the three months ended September 30, 2021, we recognized
the gain on forgiveness of PPP Loan in the total amount of $910 thousand.
Income
tax expense
We
recorded income tax benefit of $0.1 million and income tax expense of $1.0 million for the three months ended September 30, 2021 and
2020, respectively. Our effective tax rate was 37.7% and 19.5% for the three months ended September 30, 2021 and 2020, respectively.
Our effective tax rates differed from the U.S. statutory corporate tax rate of 26%, primarily because of the mix of pre-tax income or
loss earned in certain jurisdictions.
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 September 30, 2021 and December 31, 2020, valuation allowances of $3.4 million and $3.7 million, respectively have been provided
against net operating loss carryforwards and other deferred tax assets.
Net
income (loss) from continuing operations
Net
loss from continuing operations was ($0.2) million or ($0.01) per basic and diluted common share for the three months ended September
30, 2021 compared to net income from continuing operations of $4.0 million or $0.17 per basic and diluted common share for the three
months ended September 30, 2020, a decrease in net income from continuing operations of $4.2 million or $0.18 per basic and diluted common
share.
Net
income from discontinued operations
There
was no net income (loss) from discontinued operations for the three months ended September 30, 2021. Net income from discontinued operations
was $0.7 million or $0.03 per basic and diluted common share for the three months ended September 30, 2020.
Net
income (loss)
Net
loss was ($0.2) million or ($0.1) per basic and diluted common share for the three months ended September 30, 2021, compared to a net
income of $4.7 million or $0.20 per basic and diluted common share for the three months ended September 30, 2020, a decrease in net income
of $4.9 million or $0.21 per basic and diluted common share.
Nine
months ended September 30, 2021 Compared to Nine months ended September 30, 2020
Revenue
Revenue
was $7.4 million for the nine months ended September 30, 2021 compared to $21.6 million for the nine months ended September 30, 2020.
Revenue decreased $14.2 million or 65.7% during the nine months ended September 30, 2021 compared to the same period in 2020. The decrease
in revenue was mainly due to a decrease in recognition of revenue from expired contracts of $8.2 million or 59.9% and decreased attendance
(i.e. fulfillment) of $6.0 million or 76.4%. The decrease in attendance was mainly due to governmental and private travel restrictions
and students’ concerns around public gatherings and social distancing as a result of the coronavirus pandemic.
Cash
sales were $1.4 million for the nine months ended September 30, 2021 compared to $3.6 million for the nine months ended September 30,
2020, a decrease of $2.2 million or 61.1%. The decrease was driven by a $2.2 million decrease in our North American segment.
Operating
expenses
Total
operating costs and expenses were $6.8 million for the nine months ended September 30, 2021 compared to $10.9 million for the nine months
ended September 30, 2020, a decrease of $4.1 million or 37.6%. The decrease was primarily due to a $3.2 million decrease in direct course
expenses, a $0.7 million decrease in advertising and sales expenses, a $0.1 million decrease in general and administrative expenses and
a $0.1 million decrease in royalty expenses. These decreases were related to disruptions in operations and sales activities due to the
impact of the COVID-19 pandemic.
Direct
course expenses
Direct
course expenses relate to our free preview workshops, basic and elite training, and individualized mentoring programs, consisting of
instructor fees, facility costs, salaries, commissions, and fees associated with our field representatives and related travel expenses.
Direct course expenses were $1.9 million for the nine months ended September 30, 2021, compared to $5.1 million for the nine months ended
September 30, 2020, a decrease of $3.2 million or 62.7%, which was related to decreases in sales and training compensation, due to the
economic impact of the COVID-19 pandemic on consumers.
Advertising
and sales expenses
We
generally obtain most of our potential customers through internet-based advertising. Advertising and sales expenses consist of purchased
media to generate registrations to our free preview workshops and costs associated with supporting customer recruitment. We obtain the
majority of our customers through free preview workshops. These preview workshops were offered in various metropolitan areas in North
America, United Kingdom, and other international markets. Prior to the actual workshop, we spend a significant amount of money in the
form of advertising through various media channels.
Advertising
and sales expenses were $1.3 million and $2.0 million for the nine months ended September 30, 2021 and 2020, respectively, a decrease
of $0.7 million, or 35.0%. As a percentage of revenue, advertising and sales expenses were 18.2% and 9.2% of revenue for the nine months
ended September 30, 2021 and 2020, a decrease of 9.0%.
Royalty
expenses
We
are required to pay royalties under the licensing and related agreements pursuant to which we develop, market, and sell Homemade Investor
branded live seminars, training courses, and related products worldwide. Royalty expenses were $0.0 million for the nine months ended
September 30, 2021 compared to $0.1 million for the nine months ended September 30, 2020, a decrease of $0.1 million as a result of the
Company selling courses under its proprietary brand Building Wealth with Legacy TM exclusively.
General
and administrative expenses
General
and administrative expenses primarily consist of compensation, benefits, insurance, professional fees, facilities expenses and travel
expenses for the corporate staff, as well as depreciation and amortization expenses. General and administrative expenses were $3.6 million
and $3.7 million for the nine months ended September 30, 2021 and 2020, respectively, a decrease of $0.1 million or 2.7%.
Gain
on forgiveness of PPP Loan
In
March, 2021, we were 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, we received notice from TLS that its First Draw PPP Loan had been partially forgiven in
the amount of $899.0 thousand in principal and $11.0 thousand in interest. Thus, during the nine months ended September 30, 2021, we
recognized the gain on forgiveness of PPP Loan in the total amount of $910.0 thousand.
Income
tax expense
We
recorded income tax expense of $0.8 million and $1.9 million for the nine months ended September 30, 2021, and 2020, respectively. Our
effective tax rate was 76.2% and 18.1% for the nine months ended September 30, 2021, and 2020, respectively. Our effective tax rates
differed from the U.S. statutory corporate tax rate of 21.0%, primarily because of the mix of pre-tax income or loss earned in certain
jurisdictions.
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 September 30, 2021, and December 31, 2020, valuation allowances of $3.4 million and $3.7 million, respectively have been provided
against net operating loss carryforwards and other deferred tax assets.
Net
income from continuing operations
Net
income from continuing operations was $0.2 million or $0.2 per basic and $0.1 per diluted common share for the nine months ended September
30, 2021, compared to net income from continuing operations of $8.7 million or $0.38 per basic and $0.37 per diluted common share for
the nine months ended September 30, 2020, a decrease in net income from continuing operations of $8.5 million or $0.36 per basic and
diluted common share.
Net
income from discontinued operations
Net
income from discontinued operations was $0.2 million or $0.00 per basic and diluted common share for the nine months ended September
30, 2021, compared to net income from discontinued operations for the nine months ended September 30, 2020, of $2.8 million or $0.12
per basic and diluted common share, a decrease in net income from discontinued operations of $2.6 million or $0.12 per basic and diluted
common share.
Net
income
Net
income was $0.4 million or $0.2 per basic and $0.1 per diluted common share for the nine months ended September 30, 2021, compared to
a net income of $11.5 million or $0.50 per basic and $0.49 diluted common share for the nine months ended September 30, 2020, a decrease
in net income of $11.1 million or $0.48 per basic and diluted common share.
Year
Ended December 31, 2020 Compared to Year Ended December 31, 2019
Our
financial results in 2020 were negatively affected by the COVID-19 pandemic impact, slower than we anticipated establishment of our new
Homemade Investor brand, as well as the effect of winding down our Rich Dad brand and other matters.
Our
Results of Operations in 2020 and 2019 were as follows:
|
|
Years Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Revenue
|
|
$
|
34,161
|
|
|
$
|
75,496
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
Direct course expenses
|
|
|
7,913
|
|
|
|
39,854
|
|
Advertising and sales expenses
|
|
|
2,210
|
|
|
|
16,762
|
|
Royalty expenses
|
|
|
44
|
|
|
|
3,458
|
|
General and administrative expenses
|
|
|
5,460
|
|
|
|
13,778
|
|
Total operating costs and expenses
|
|
|
15,627
|
|
|
|
73,852
|
|
Income from operations
|
|
|
18,534
|
|
|
|
1,644
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(210
|
)
|
|
|
(93
|
)
|
Other income, net
|
|
|
1,643
|
|
|
|
533
|
|
Total other income, net
|
|
|
1,433
|
|
|
|
440
|
|
Income from continuing operations before income taxes
|
|
|
19,967
|
|
|
|
2,084
|
|
Income tax (expense) benefit
|
|
|
(3,958
|
)
|
|
|
1,257
|
|
Net income from continuing operations
|
|
|
16,009
|
|
|
|
3,341
|
|
Gain on disposal of discontinued operations net assets
|
|
|
—
|
|
|
|
8,300
|
|
Loss from discontinued operations
|
|
|
—
|
|
|
|
(1,691
|
)
|
Net income from discontinued operations
|
|
|
—
|
|
|
|
6,609
|
|
Net income
|
|
$
|
16,009
|
|
|
$
|
9,950
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share - continuing operations
|
|
$
|
0.69
|
|
|
$
|
0.14
|
|
Basic earnings per common share - discontinued operations
|
|
|
—
|
|
|
|
0.29
|
|
Basic earnings per common share
|
|
$
|
0.69
|
|
|
$
|
0.43
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share - continuing operations
|
|
$
|
0.68
|
|
|
$
|
0.14
|
|
Diluted earnings per common share - discontinued operations
|
|
|
—
|
|
|
|
0.28
|
|
Diluted earnings per common share
|
|
$
|
0.68
|
|
|
$
|
0.42
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding
|
|
|
23,076
|
|
|
|
22,716
|
|
Diluted weighted average common shares outstanding
|
|
|
23,230
|
|
|
|
23,141
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
16,009
|
|
|
$
|
9,950
|
|
Foreign currency translation adjustments, net of tax of $0
|
|
|
(294
|
)
|
|
|
(734
|
)
|
Total comprehensive income
|
|
$
|
15,715
|
|
|
$
|
9,216
|
|
Our
operating results expressed as a percentage of revenue are set forth in the table below:
|
|
Years Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Revenue
|
|
|
100
|
%
|
|
|
100
|
%
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
Direct course expenses
|
|
|
23.2
|
|
|
|
52.8
|
|
Advertising and sales expenses
|
|
|
6.5
|
|
|
|
22.2
|
|
Royalty expenses
|
|
|
0.1
|
|
|
|
4.6
|
|
General and administrative expenses
|
|
|
16.0
|
|
|
|
18.2
|
|
Total operating costs and expenses
|
|
|
45.8
|
|
|
|
97.8
|
|
Income from operations
|
|
|
54.2
|
|
|
|
2.2
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(0.6
|
)
|
|
|
(0.1
|
)
|
Other income, net
|
|
|
4.8
|
|
|
|
0.7
|
|
Total other income, net
|
|
|
4.2
|
|
|
|
0.6
|
|
Income from continuing operations before income taxes
|
|
|
58.4
|
|
|
|
2.8
|
|
Income tax (expense) benefit
|
|
|
(11.6
|
)
|
|
|
1.7
|
|
Net income from continuing operations
|
|
|
46.8
|
|
|
|
4.5
|
|
Net income from discontinued operations
|
|
|
—
|
|
|
|
8.8
|
|
Net income
|
|
|
46.8
|
%
|
|
|
13.3
|
%
|
Outlook
Cash
sales were $3.7 million for the year ended December 31, 2020 compared to $79.5 million for the year ended December 31, 2019, a decrease
of $75.8 million or 95.3%. The decrease was driven primarily by a $52.3 million decrease in our North American segment, an $18.2 million
decrease in our Other Foreign Markets segment and a $5.3 million decrease in our U.K. segment.
We
believe that cash sales remain an important metric when evaluating our operating performance. Pursuant to 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. Our students pay for their courses in full up-front or through payment agreements
with independent third parties.
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. On March 11, 2020, the WHO declared the COVID-19 coronavirus
outbreak as a pandemic. As a result of worldwide restrictions on travel and social distancing, in March 2020 we have ceased conducting
live sales and fulfillment events for an undetermined period of time, which we expect will have a materially adverse impact on results
of our operations.
Operating
Segments
Our
operations had as of the dates indicated been managed through three operating segments: (i) North America, (ii) United Kingdom, and (iii)
Other Foreign Markets.
|
|
Years Ended
December 31,
|
|
As a percentage of total revenue
|
|
2020
|
|
|
2019
|
|
North America
|
|
|
70.3
|
%
|
|
|
72.1
|
%
|
U.K.
|
|
|
3.1
|
%
|
|
|
5.5
|
%
|
Other foreign markets
|
|
|
26.6
|
%
|
|
|
22.4
|
%
|
Total consolidated revenue
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Operating
results for the segments are as follows:
|
|
Years Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Segment revenue
|
|
(In thousands)
|
|
North America
|
|
$
|
24,001
|
|
|
$
|
54,427
|
|
U.K.
|
|
|
1,058
|
|
|
|
4,128
|
|
Other foreign markets
|
|
|
9,102
|
|
|
|
16,941
|
|
Total consolidated revenue
|
|
$
|
34,161
|
|
|
$
|
75,496
|
|
North
America
Revenue
derived from the Rich Dad brands in our North America segment was $16.6 million and $43.5 million or as a percentage of total segment
revenue, 69.1% and 79.9%, for the years ended December 31, 2020 and 2019, respectively. The majority pertained to real estate-related
education, with the balance pertaining to financial markets training. We are continuing to develop non-Rich Dad brands Homemade InvestorTM
and Legacy EducationTM to diversify our business, although our business to date in these brands has not been
material to our Company as a whole. Revenue derived from our Homemade Investor brand was $1.0 million or as a percentage of total segment
revenue was 4.1% for the year ended December 31, 2020.
The
North America segment revenue was $24.0 million and $54.4 million or as a percentage of total revenue was 70.3% and 72.1% for the years
ended December 31, 2020 and 2019, respectively.
The
decrease in revenue of $30.4 million or 55.9% during the year ended December 31, 2020 compared to the same period in 2019, was due to
the decrease in fulfillment of $29.8 million and decrease in recognition of revenue from expired contracts of $0.6 million.
U.K.
Revenue
derived from the Rich Dad brands in our U.K. segment was $1.0 million and $3.5 million or as a percentage of total segment revenue was
97.7% and 84.6% for the years ended December 31, 2020 and 2019, respectively. The majority pertained to real estate-related education,
with the balance pertaining to financial markets training. With the discontinued operations of UK Legacy, our U.K. segment is no longer
as diverse.
The
U.K. segment revenue was $1.1 million and $4.1 million or as a percentage of total revenue was 3.1% and 5.5% for the years ended December
31, 2020 and 2019, respectively. The discontinued operations of Legacy UK reduced this segment’s revenue by $14.3 million for the
year ended December 31, 2019. There were no discontinued operations of Legacy UK for the year ended December 31, 2020.
The
decrease in revenue of $3.0 million or 74.4% for the year ended December 31, 2020 compared to the same period in 2019, was due to decreased
fulfillment of $2.8 million and a decrease in recognition of revenue from expired contracts of $0.2 million.
Other
Foreign Markets
Our
other foreign markets segment includes other European, Asian and African countries. Revenue derived from the Rich Dad brands was $8.8
million and $16.9 million or as a percentage of total segment revenue was 96.7% and 100.0% for the years ended December 31, 2020 and
2019, respectively.
The
Other Foreign Markets segment revenue was $9.1 million and $17.0 million or as a percentage of total revenue was 26.6% and 22.4% for
the years ended December 31, 2020 and 2019, respectively.
The
decrease in revenue of $7.9 million or 46.3% during the year ended December 31, 2020 compared to the same period in 2019, was due to
decreased fulfillment of $1.3 million and a decrease in recognition of revenue from expired contracts of $6.6 million.
Revenue
Revenue
was $34.2 million for the year ended December 31, 2020 compared to $75.5 million for the year ended December 31, 2019, a decrease of
$41.3 million or 54.8%. The decrease was due to decreased fulfillment of $33.9 million or 76.8% and a decrease in recognition of revenue
from expired contracts of $7.4 million or 23.8%.
Cash
sales were $3.7 million for the year ended December 31, 2020 compared to $79.5 million for the year ended December 31, 2019, a decrease
of $75.8 million or 95.3%. The decrease was driven primarily by a $52.3 million decrease in our North American segment, an $18.2 million
decrease in our Other Foreign Markets segment and a $5.3 million decrease in our U.K. segment.
Operating
Expenses
Total
operating costs and expenses were $15.6 million for the year ended December 31, 2020 compared to $73.9 million for the year ended December
31, 2019, a decrease of $58.3 million or 78.9%. The decrease was due to a $32.0 million decrease in direct course expenses, a $14.6 million
decrease in advertising and sales expenses, an $8.3 million decrease in general and administrative expenses, and a $3.4 million decrease
in royalty expenses.
Direct
course expenses
Direct
course expenses relate to our free preview workshops, basic and elite training, and individualized mentoring programs, consisting of
instructor fees, facility costs, salaries, commissions and fees associated with our field representatives and related travel expenses.
Direct course expenses were $7.9 million for the year ended December 31, 2020 compared to $39.9 million for the year ended December 31,
2019, a decrease of $32.0 million or 79.7%, which was related to decreases in sales and training compensation, due to the economic impact
of the COVID-19 pandemic on consumers.
Advertising
and sales expenses
We
generally obtain most of our potential customers through internet-based advertising. Advertising and sales expenses consist of purchased
media to generate registrations to our free preview workshops and costs associated with supporting customer recruitment. We obtain the
majority of our customers through free preview workshops. These preview workshops are offered in various metropolitan areas in North
America, United Kingdom, and other international markets. Prior to the actual workshop, we spend a significant amount of money in the
form of advertising through various media channels.
Advertising
and sales expenses were $2.2 million for the year ended December 31, 2020 compared to $16.8 million for the year ended December 31, 2019,
a decrease of $14.6 million or 86.9%. As a percentage of revenue, advertising and sales expenses were 6.5% and 22.2% for the years ended
December 31, 2020 and 2019, respectively. The decrease is primarily related to the COVID-19 restrictions on our ability to operate.
Royalty
expenses
We
are required to pay royalties under the licensing and related agreements pursuant to which we develop, market, and sell Rich Dad and
Homemade Investor branded live seminars, training courses, and related products worldwide. Royalty expenses were $0.0 million for the
year ended December 31, 2020 compared to $3.4 million for the year ended December 31, 2019.
General
and administrative expenses
General
and administrative expenses primarily consist of compensation, benefits, insurance, professional fees, facilities expenses and travel
expenses for the corporate staff, as well as depreciation and amortization expenses. General and administrative expenses were $5.5 million
for the year ended December 31, 2020 compared to $13.8 million for the year ended December 31, 2019, a decrease of $8.3 million, or 60.1%.
The decrease in general and administrative expenses was partially a result of a decrease in our personnel expenses due to the fact that
we furloughed substantially all of our employees during Q2 2020.
Other
income, net
Other
income was $1.6 million for the year ended December 31, 2020 compared to other income of $0.5 million for the year ended December 31,
2019, an increase in other income of $1.1 million, mainly representing gain on sale of our property and equipment, and investment property
during the year ended December 31, 2020, and a cash payment from Process America, Inc. in the amount of $0.4 million, received as a distribution
on the legal case during the year ended December 31, 2019.
Income
tax expense
We
recorded income tax expense of $4.0 million and income tax benefit of $1.3 million for the year ended December 31, 2020 and 2019, respectively,
a $5.3 million increase in income tax expense.
Our
effective tax rate was 19.8% and (60.3)% for the year ended December 31, 2020 and 2019, respectively. Our effective tax rates differed
from the U.S. statutory corporate tax rate of 21.0%, primarily because of the mix of pre-tax income or loss earned in certain jurisdictions.
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.
We have retained a full valuation allowances of $3.6 million against the deferred tax assets of our Australian, Canadian, U.K., Hong
Kong, and South Africa subsidiaries as of December 31, 2020. We have retained full valuation allowances of $4.7 million against the deferred
tax assets of our United States, Australian, Canadian, U.K. (excluding Elite Legacy Education UK), Hong Kong, and South Africa subsidiaries
as of December 31, 2019. The most significant negative factor that was considered in determining whether a valuation allowance was required
is a cumulative recent history of losses in all jurisdictions for the entities mentioned above.
Net
income from continuing operations
Net
income from continuing operations was $16.0 million or $0.69 per basic and $0.68 per diluted common share for the year ended December
31, 2020, compared to net income of $3.3 million or $0.14 per basic and diluted common share for the year ended December 31, 2019, an
increase in net income from continuing operations of $12.7 million or $0.55 per basic and $0.54 per diluted common share.
Net
income for the year ended December 31, 2020 was positively impacted by the decrease in operating cost of $58.3 million.
Net
income from discontinued operations
Net
income from discontinued operations was $6.6 million or $0.29 per basic common share and $0.28 per diluted common share for the year
ended December 31, 2019. There was no net income (loss) from discontinued operations for the year ended December 31, 2020.
Net
income for the year ended December 31, 2019 mainly represents the gain on disposal of discontinued operations net assets.
Liquidity
and Capital Resources
Known
Trends and Uncertainties
In
general, we believe that our products and services appeal to those who seek increased financial freedom. If we experience a prolonged
decline in demand for our products and services, it could have a material adverse effect on our future operating results.
Historically,
we have funded our working capital and capital expenditures using cash and cash equivalents. However, given our decreased operating cash
flows during the past two years combined, it has become necessary for us to incur in long-term debt and in equity transactions to ensure
the future viability of our business. Our cash flows are subject to a number of risks and uncertainties, including, but not limited to,
earnings, favorable terms from our merchant processors, seasonality, and fluctuations in foreign currency exchange rates.
We
continue to take steps to ensure our expenses are in line with our projected cash sales and liquidity requirements for 2021 and based
upon current and anticipated levels of operations, we believe cash and cash equivalents on hand will not be sufficient to fund our expected
financial obligations and anticipated liquidity requirements for the fiscal year 2021. However, we are exploring alternative sources
of capital, but there can be no assurances any such capital will be obtained. For the nine months ended September 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
following is a summary of our cash flow activities for the periods stated (table in thousands):
|
|
Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Net cash used in operating activities
|
|
|
(4,270
|
)
|
|
|
(5,077
|
)
|
Net cash provided by investing activities
|
|
|
—
|
|
|
|
370
|
|
Net cash provided by financing activities
|
|
|
2,792
|
|
|
|
2,400
|
|
Effect of exchange rate differences on cash
|
|
|
98
|
|
|
|
(771
|
)
|
Net decrease in cash and cash equivalents and restricted cash
|
|
|
(1,380
|
)
|
|
|
(3,078
|
)
|
Operating
Cash Flows and Liquidity
Net
cash used in operating activities was $4.3 million in the nine months ended September 30, 2021 compared to net cash used in operating
activities of $5.1 million in the nine months ended September 30, 2020, representing a period-over-period increase of $0.8 million. This
increase was primarily the result of the Company resuming live events in its North American segment.
Investing
Cash Flows
There
was no cash used in or provided by investing activity in the nine months ended September 30, 2021. Net cash provided by investing activities
totaled $370 thousand in the nine months ended September 30, 2020, representing our sale of property and equipment and investment property
in the nine months ended September 30, 2020.
Financing
Cash Flows
Our
consolidated capital structure as of September 30, 2021, was 18% debt and 82% equity. As of December 31, 2020, our consolidated capital
structure was 14% debt and 86% equity.
Net
cash provided by financing activities totaled $2.8 million during the nine months ended September 30, 2021, representing our proceeds
from issuance of the Senior Secured Convertible Debenture to related party and proceeds from borrowings of the second Paycheck Protection
Program loan. Net cash provided by financing activities totaled $2.4 million during the nine months ended September 30, 2020, representing
our proceeds from issuance of the Paycheck Protection Program loan and the net proceeds of the new Promissory Note.
We
expect that our working capital deficit, which is primarily a result of our deferred revenue balance, will continue for the foreseeable
future. As of September 30, 2021, and December 31, 2020, our consolidated current deferred revenue was $4.3 million and $10.4 million,
respectively.
Our
cash and cash equivalents were, and continue to be, invested in short-term, liquid, money market funds. Restricted cash balances consisted
primarily of funds on deposit with credit card processors and cash collateral with our credit card vendors. Restricted cash balances
held by credit card processors are unavailable to us unless we discontinue sale of our products or discontinue the usage of a vendor’s
credit card. As sales of the products and services related to our domestic business have decreased, our credit card vendors have not
returned funds held as collateral, resulting in higher restricted cash balances.
Off-Balance
Sheet Arrangements
We
had no off-balance sheet arrangements as of September 30, 2021.
BUSINESS
Overview
We
are a provider of practical, high-quality, and value-based educational training on the topics of personal finance, entrepreneurship,
real estate 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.
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 nine
months ended September 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, or 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. Today we are a global company that
has cumulatively served more than two million students from more than 150 countries and territories over the course of our operating
history.
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.
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 nine months ended September
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.
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Recent
Developments
Impact
from COVID-19 Pandemic.
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. On March 11, 2020, WHO declared the COVID-19 outbreak as a pandemic.
As a result of worldwide restrictions on travel and social distancing, in March 2020 we temporarily ceased conducting live sales and
fulfillment and furloughed substantially all of our employees. We resumed sales operations in June 2020 with online sales events selling
into our suite of online, on-demand, and over-the-phone products. We also resumed online, on-demand, and over-the-phone fulfillment activities
in June 2020. We resumed live operations on a limited basis, in November 2020, with events in Florida. The Company expects to conduct
additional live events in other areas as lockdown restrictions continue to ease and hopes to return to a normal schedule over the coming
months; however, due to financial constraints, we may primarily rely om online events unless and until we receive additional material
funding. 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 such activities
will have on our financial performance.
The
ultimate impact from COVID-19 on the Company’s operations and financial results will depend on, among other things, the ultimate
severity and scope of the pandemic, the efficacy and public acceptance of the various vaccinations against COVID-19, the pace at which
governmental and private travel restrictions and public concerns about public gatherings will ease, the rate at which historically large
increases in unemployment rates will decrease, if at all, and the speed with which the economy recovers. 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.
Second
Draw Paycheck Protection Program Note Agreement
On
April 20, 2021, Elite Legacy Education, Inc., or ELE, a wholly-owned subsidiary of the Company, closed on an unsecured Paycheck Protection
Program Note agreement to borrow $1,899,832 from Cross River Bank, the lender, pursuant to the Paycheck Protection Program, or 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 Paycheck Protection Program Note agreement 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.
Changes
in Management and Board of Directors
On
March 8, 2021, the Company’s Board of Directors elected Michel Botbol, 61, as a Director, Chairman of the Board, and Chief Executive
Officer of the Company. On the same date, the Board appointed James E. May, 66, as General Counsel of the Company, a position he held
prior to his appointment as Interim CEO of the Company in January 2019. Upon the assumption of his position as General Counsel, Mr. May
resigned as Director and Chief Executive Officer.
On
May 3, 2021, the Board of Directors set the number of director seats on the Company’s Board of Directors at four and appointed
Barry M. Kostiner, 49, to the Board of Directors. Mr. Kostiner is President of, and holds a 25% membership interest in, Legacy Tech Partners,
LLC, or LTP.
On
November 4, 2021, Cary Sucoff, a member of the Board and of its Nominating & Corporate Governance Committee (Chair) and its Audit
Committee, resigned as a Board member, effective immediately.
On
November 4, 2021, Peter W. Harper, a member of the Board and of its Audit Committee (Chair) and its Compensation Committee, resigned
as a Board member, effective immediately.
On
November 4, 2021, James E. May, the General Counsel and Secretary of the Company and its subsidiaries, resigned from all such roles effective
immediately.
On
November 8, 2021, Vanessa Guzmán-Clark, the Vice President and Chief Financial Officer of the Company, resigned from all such
roles effective immediately. As a result of the resignation of Ms. Guzmán-Clark, Mr. Barry Kostiner, a member of the Board and
Manager of Capital Markets, assumed the role of principal financial and accounting officer of the Company until a permanent replacement
can be found, and was appointed Secretary of the Company.
On
December 1, 2021, Mr. Botbol resigned as Chairman of the Board, director and officer of the Company, as Chief Executive Officer of the
Company and its subsidiaries, and from any other positions with any of the companies related in any way to the Company.
As
a result of the resignation of Mr. Botbol, Mr. Kostiner was appointed as Interim Chief Executive Officer and will further assume the
role of principal executive officer of the Company, until a permanent replacement can be found.
Senior
Secured Convertible Debt Agreement
On
February 11, 2021 the Company entered into a non-binding term sheet with LTP. The term sheet includes a Debenture Agreement of $375 thousand,
with 10% per annum interest rate. The Debenture may be converted at any time after the issue date into shares of the Company’s
Common Stock, or 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 five years after issuance. The term sheet anticipates entering into
a share purchase agreement whereby LTP will acquire for nominal consideration the existing business, assets and liabilities of the Company,
while the Company will enter into a license agreement with LTP to retain rights with respect to certain of its intellectual property
for the benefit of building an Education Technology, or EdTech business. This transaction will be subject to stockholder and regulatory
approval and other conditions.
On
March 8, 2021, the Company issued a $375,000 Senior Secured Convertible Debenture, or Debenture to LTP. 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, or 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. LTP had 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 $375,000 for a term not to exceed four
years from the original maturity date of that loan. Net proceeds were $314,000 after legal fees related to the transaction. The Debenture
funding obligation was reduced from $625,000 to $300,000 on October 15, 2021, of which $100,000 was funded on October 15, 2021
and $200,000 was funded on October 27, 2021, leaving an option to fund $4,325,000 under the same terms prior to March 8, 2024. 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 use of proceeds from the Debenture will be to extinguish liabilities of the Company and to fund
the development of the 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 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.
Bankruptcy
or Receivership
At
a Creditors’ Meeting held on January 11, 2021, the creditors of Elite Legacy Education UK Ltd, or ELE UK, our wholly owned subsidiary,
approved a proposal for a Company Voluntary Arrangement under the UK Insolvency Act 1986 and the UK Insolvency Rules 2016. Under the
terms of the arrangement, 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 arrangement 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 UK Insolvency Act 1986 and
the UK Insolvency Rules 2016, on and subject to the terms and conditions set forth in the Arrangement in satisfaction of the non-student
creditors’ respective claims against ELE UK. Student creditors of ELE UK will be provided the opportunity to receive trainings
from an independent training provider on and subject to the terms and conditions set forth in the Arrangement in satisfaction of their
respective claims against ELE UK. Pursuant to the arrangement, and at its conclusion, the remaining assets of ELE UK, if any, would be
distributed to the Company. As a result of the arrangement, 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, Management is unable to anticipate any distributions
that would be received from ELE UK.
On
January 27, 2021, Legacy Education Alliance Australia PTY Ltd, or LEA Australia, our wholly owned subsidiary 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 to be 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.
On
March 2, 2021, Legacy Education Alliance Holdings, Inc. the sole shareholder of Legacy Education Alliance Hong Kong Ltd, or 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., or Tigrent Canada, our wholly owned subsidiary, filed an assignment in bankruptcy under
section 49 of the Canada Bankruptcy and Insolvency 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.
On
November 18, 2021, we entered into a Stock Purchase and Option Agreement (the “Purchase Agreement”) with Mayer and Associates
LLC (“Mayer”), pursuant to which (i) Mayer purchased (i) 1,600,000 shares of common stock of the Company for a total aggregate
price of $160.00 and (ii) in exchange for an aggregate purchase price of $13,840, an option to purchase, from time to time, up to an
additional 138,400,000 shares of common stock of the Company (“Option Shares”) for a per share price of $0.0001 for the first
18,400,000 Option Shares and $0.05833 for the remaining Option Shares, as may be adjusted from time to time pursuant to the Purchase
Agreement (the “Option Price”). Mayer’s option to purchase additional shares under the Purchase Agreement shall expire
on November 18, 2023.
Change
in Registrant’s Certifying Accountant
On
December 23, 2021, we engaged Ram Associates, Certified Public Accountants to serve as our independent registered accounting firm. As
a result of the engagement of Ram Associates, we dismissed MaloneBailey, LLP as our independent registered accountant.
Corporate
Information
Our
corporate address is 1490 NE Pine Island Rd – Suite 5D, Cape Coral, Florida 33909 and our telephone number is (239) 542-0643. We
maintain a web site at www.legacyeducationalliance.com, along with many additional web properties. Any information that may appear on
our web sites does not constitute a part of this prospectus.
Industry
Overview
Our
objective is to be the leading provider of services and products that enable individuals from all walks of life, regardless of their
current economic situation and educational background, to take control of their financial futures and enable them to achieve financial
freedom.
Our
strategy is focused primarily on the following areas:
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Continued
development of our businesses. We will continue our focus on our service offerings in an attempt to improve our revenue and expand
our offerings as appropriate, including e-learning and other electronic format offerings and the development of new proprietary brands.
In November 2020, the Company shifted its focus to its Legacy EducationTM products, with Building Wealth with
LegacyTM as the new flagship brand, which encompasses hands-on experience and the true spirit of investing from beginner
to educated investor, within a community of like-minded individuals.
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Development
of higher-margin proprietary brands. Since November 2020, shifted its focus to developing proprietary brands, which have no royalty
and other associated costs, but will require us the Company to market in new and innovative ways. This will allow us the flexibility
to provide our services through different demographics, price points and sales channels, and to develop additional complementary
products and services.
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Fulfilling
our customer obligations. We intend to improve the cost efficiency with which we fulfill our customer commitments. We have:
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Expanded
the options for course fulfillment in order to reduce the number of expired contracts by increasing the number of courses offered
through electronic media and via the internet;
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Implemented
an improved outreach program that involves contacting our customers to help them manage their course schedules;
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During
Q4 2019, we transitioned from Symposiums to Legacy Investor Forums (Forums). The Forums are
live events that provide a learning and building experience for the novice to expert investor.
Forums deliver business advancement to attendees through education and offer an arena for
attendees to discover new relationships with companies, as well as their fellow investors.
In
December 2019, we held our first virtual symposium where we presented various advanced classes, student networking opportunities,
and third-party sales opportunities via livestream to create the look and feel of a live symposium through the use of digital delivery
methods.
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Enhanced
eLearning. We continue developing and promoting interactive and online distributed course content and enhanced technology platforms
capable of streaming video, interactive e-learning, and distributed e-learning.
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Consistent
quality assurance. We believe that to be an effective provider of training we need to ensure that our course offerings meet our
strict quality assurance guidelines. We will continue to monitor and enforce standards for marketing, sales presentations, and training
delivery throughout our organization.
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Continued
professional development. We will continue to identify, recruit and retain a team of trainers, mentors and coaches who possess
practical, hands-on experience in their areas of expertise.
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Our
Products and Services
Our
students pay for their courses in full up-front or through payment agreements with independent third parties. Under 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 four days in length, on site or remotely, although
we have 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). 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.
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 Moussa. During the year ended December 31, 2019, we marketed our products and services under
two brands: Rich Dad EducationTM and Legacy EducationTM.
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 response to the limitations on travel and the social distancing protocols arising out of the Coronavirus
pandemic, the Company began marketing its Legacy EducationTM products transitioning to brand name Building Wealth
with LegacyTM.
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 nationwide free workshops, 3-day trainings and large stage events
with Tarek presenting as the keynote speaker, all selling into our advanced training products.
Our
operations have historically been managed through three Operating Segments: (i) North America, (ii) United Kingdom, and (iii) Other Foreign
Markets. We currently only do business in North America, and the foreign business operations have been discontinued.
The
proportion of our total revenue attributable to each segment is as follows:
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Years Ended
December 31,
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As a percentage of total revenue
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2020
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2019
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North America
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70.3
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%
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72.1
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%
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U.K.
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3.1
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%
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5.5
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%
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Other foreign markets
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26.6
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%
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22.4
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%
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Total consolidated revenue
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100.0
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%
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100.0
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%
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Operating
results for the segments are as follows:
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Years Ended
December 31,
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2020
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2019
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Segment revenue
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(In thousands)
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North America
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$
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24,001
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$
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54,427
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U.K.
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1,058
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4,128
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Other foreign markets
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9,102
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16,941
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Total consolidated revenue
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$
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34,161
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$
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75,496
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Marketing
Our
various brands are the foundation for our marketing efforts. These brands provide credibility and sustainability within our media mix
to promote live events and online trainings. Live onsite two-hour free preview workshops are offered weekly in multiple markets in North
America. Marketing these events is primarily done online through social media posts, internet banner ads, text ads, and emails. Direct
mail, radio, television, public relations, and print advertising may also be used to obtain event registrations. We enter into marketing
and other agreements with third parties to advertise our products and services.
We
offer people the opportunity to attend a free preview workshop or advance directly to one of our three-day basic training classes. People
who enroll and attend the basic training class receive reference materials relevant to the subject matter to be taught at the class.
The basic training course is usually held over a weekend within two to four weeks of the initial free preview workshop. Our experience
is that offering the free preview workshop as a first step is an effective way to introduce to our students the methodology of investing,
as well as to market and sell our three-day basic training courses.
Marketing
efforts continue to those customers who choose to continue their education with a three-day basic training class. Welcome letters, product
kits that include manuals, books and audio files, an online reference library, and reminder communication letters and emails are all
branded for consistency and credibility. Customers at the three-day basic training may choose to continue on with their education through
our elite training classes and mentorships offered during the basic training classes.
We
utilize different preview brands to market into our advance training division, which we re-branded to Elite Legacy Education to expand
our market reach. Elite training classes are fulfilled through various delivery methods to meet the needs of our customers.
We
also market for new customers who prefer to learn online and provide people the opportunity to attend free ninety-minute live online
webinars that are held weekly on six different topics. Webinars are marketed via online banner ads, affiliate marketing, email campaigns,
social media and other media methods.
Training
Programs
We
have three significant categories for our programs:
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Basic
training live and online courses,
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Elite
level live and online training courses, and
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Individualized
mentoring programs.
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Basic
Training Courses
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Homemade
Investor by Tarek El MoussaTM
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Legacy
EducationTM
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Elite
Training Courses
Customers
who attend our basic training courses may choose to continue with Elite training courses in real estate, financial markets investing
and/or entrepreneurship skills. The Elite training courses of study include:
Elite
Real Estate Courses
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Elite
Financial Markets Courses
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Momentum
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Master
TraderTM
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Tax
and Asset Protection
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Options
1
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Wholesale
Buying
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FOREX
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Discount
Notes & Mortgages
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Options
2
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Banking
Relationships & Short Sale Systems
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Elite
Options
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Mobile
Homes
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Asset
Protection
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Foreclosure
Strategies
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Elite
FOREX
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Fund,
Fix and Flip
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FACT
(Futures & Commodity Trading)
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Marketing
Today
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Income
Properties
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Tax
Liens
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Lease
Options
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Commercial
Real Estate
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Business
Financing & Factoring
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Domestic
Land Development
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Creative
Real Estate Financing
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Buy,
Rent and Hold (North America)
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Buy,
Fix and Sell (North America)
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Creative
Financing (North America)
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Elite
Business Entrepreneurship Courses
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Business
Tax and Asset Protection
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Top
Branding and Marketing Strategies
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Strategies
for Raising Capital
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Mind
Over Money
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Legacy
Business Training
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The
goal of our fulfillment strategy is to provide maximum flexibility to the students to allow them take any of their classes in whatever
format, and in any combination of formats, that works best for them. Students may access training content through multiple delivery channels,
including:
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Live
Classroom: In-person “one-on-many” intensive 3-day class with a live instructor and any number of students in the
same room, at a symposium, a forum or as a stand-alone class.
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Live
Stream: Interactive real-time streaming of a Live Classroom training that may be viewed by a student remotely via the internet.
Live stream classes can be reviewed for 30-days post-class.
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Live
On-Line: Live presentations of a class in modules presented over a period of weeks with a live instructor and any number of students
in any number of locations who attend remotely via the internet. Student has access to recordings of the modules for 30 days after
the last live session.
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On-Demand:
Class that is presented in self-paced pre-recorded modules via internet link with 24/7 access for the life of the contract. Unlike
the three “live” fulfillment options, which require the student to attend classes when the Company schedules them, the
On-Demand Options provides the student the flexibility to take the class whenever they want, and as many times as they want, during
the life of the student’s contract.
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Through
strategic partners, customers can purchase a license to use supporting software for real estate or financial markets investing. With
either software program, a subscription-based data service is available for purchase which allows customers to interactively determine
investment options and make better informed decisions about potential investments.
Individualized
Mentoring and Coaching Programs
We
offer live, real time, one-on-one mentoring for Real Estate that is tailored to meet students’ individual goals and needs. Real
Estate mentoring is offered on site at the student’s chosen location or remotely. Mentoring is intended to give the student a professional
assessment of his or her individual goals and experience and to help the student build an investment plan that can be put into action.
Mentoring sessions are generally 2 to 4 days in length.
Coaching
and telephone mentoring programs are typically sold in a number of different subject areas and generally delivered in 10 to 16 weekly
one-on-one telephone sessions. Some of the topics include Real Estate Coaching. A set curriculum approach is generally used. Each module
comes with assignments, exercises and reading materials to be completed between sessions.
Business
and Financial Markets Coaching businesses have been discontinued.
Geographic
Diversification
We
have historically managed 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. We currently
only do business in North America, and the foreign business operations have been discontinued.
Competition
During
our more than 20-year history, we have competed with several organizations within the U.S. and internationally. Our primary competitors
are Fortune Builders, Armando Montelongo, and Mayflower Alliance Ltd. Some of these competitors have established brands through a media-based
relationship, such as HGTV, and use television programs to promote their brands.
The
main competitors to our financial markets strategies and techniques course offerings are large institutional brokerage houses, who have
been offering education as a way to expand their client portfolio.
Generally,
competitive factors within the proprietary training market include:
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The
range and depth of course offerings;
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The
quality of trainers;
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The
quality of reference materials provided in connection with course studies; and
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Cost.
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We
believe that the range and depth of our course offerings, the quality of our trainers and reference materials are comparable or superior
to those of our competitors. Typically, our trainers for our Elite courses have been active investors in their chosen field, have been
trained by us and, to a large degree, are previous customers of our programs. Trainers for our Elite courses are chosen based on their
knowledge and experience with the coursework covered and are further qualified by meeting knowledge standards developed internally.
Brand
Development Agreement with the T&B Seminars, Inc.
Effective
December 23, 2019, Legacy Education Alliance Holdings, Inc., or Holdings, our wholly owned subsidiary entered into a Real Estate Education
Training Program Development Agreement, or Development Agreement with T&B Seminars, Inc., or T&B, an affiliate of Tarek El Moussa,
pursuant to which Holdings and Tarek El Moussa agreed to develop and operate a seminar style education business that will use, among
other things, the names, images, and likenesses of Tarek El Moussa to market and sell customers real estate investing oriented education
products. Pursuant to the Development Agreement, T&B granted to the Company a sole and exclusive worldwide license to certain intellectual
property, including, certain trademarks and copyrights and the name, image and likeness of Tarek El Moussa, in each case to the extent
necessary for Holdings to develop and create educational materials and promote and conduct a branded real estate seminar style education
business that uses the intellectual property.
As
consideration for the licensed rights under the Development Agreement, Holdings agreed to pay T&B base royalty percentages on cash
sales of products to persons responding to a branded marketing campaign that uses the licensed intellectual property. Also, as consideration
for Tarek El Moussa providing certain marketing support, Holdings agreed to pay T&B marketing royalty percentages on cash sales of
products at live events and at online webinars to persons responding to a branded marketing campaign that uses the licensed intellectual
property. Furthermore, as consideration for the exclusivity of the rights under the Development Agreement, commencing on the seventh
month of the term of the Development Agreement, Holdings agreed that the monthly royalties paid to T&B will not be less than an agreed
to amount.
The
Development Agreement has an initial term of five years and will automatically renew thereafter for successive five-year terms unless
either party provides prior written notice of termination no less than 90 days prior to the end of such five-year term.
The
Company commenced sales activities under the Development Agreement under the Homemade Investor brand in January 2020 but as a result
of the expanding COVID-19 pandemic, we suspended conducting live in-persons sales events in March 2020. Subsequently, we suspended online
sales events during the third quarter of 2020 to focus on our new flagship brand Building Wealth with LegacyTM.
Licensing
Agreements with the Rich Dad and Other Parties
Through
September 2019, our primary business relied on our license of the Rich Dad brand and related marks and intellectual property. The following
transactions summarize our license to use the Rich Dad trademarks, trade names and other business information worldwide (the “Rich
Dad Intellectual Property Rights”).
Effective
September 1, 2013, we entered into a 2013 License Agreement with Rich Dad Operating Company, LLC, or RDOC that replaced the 2010 License
Agreement. Compared to the 2010 License Agreement, the 2013 License Agreement broadened the field of permitted use to include real estate
investing, business strategies, stock market investment techniques, stock/paper assets, cash management, asset protection, entrepreneurship
and other financially-oriented subjects. The 2013 License Agreement also (i) reduced the royalty rate payable to RDOC compared to the
2010 Rich Dad License Agreement; (ii) broadened the Company’s exclusivity rights to include education seminars delivered in any
medium; (iii) eliminated the cash collateral requirements and related financial covenants contained in the 2010 License Agreement; (iv)
continues our right to pay royalties via a promissory note that is convertible to preferred shares upon the occurrence of a Change in
Control (as defined in the 2013 License Agreement); (v) eliminated approximately $1.6 million in debt from our consolidated balance sheet
as a result of debt forgiveness provided for in the agreement terminating the 2010 License Agreement; and (vi) converted another approximately
$4.6 million in debt to 1,549,882 shares of our Common Stock. Either party may terminate the 2013 License Agreement upon certain circumstances,
including and uncured breach by the non-terminating party.
On
April 22, 2014, we entered into a 2014 Amendment with RDOC to, among other things, amend the 2013 License Agreement to halve the royalty
payable by us to RDOC to 2.5% for the whole of 2014, (ii) cancel approximately $1.3 million in debt owed by us to RDOC, (iii) reimburse
us for certain legal expenses, and (iv) cancel RDOC’s right to appoint one member of our Board of Directors.
On
September 10, 2014, the 2013 License Agreement and the 2014 Amendment were assigned to Holdings.
On
January 25, 2018, we entered into a Second Amendment with RDOC that amends certain terms of the 2013 License Agreement and extends the
term of the 2013 License Agreement to September 1, 2019.
On
August 16, 2019, we entered into an amendment to the License Agreement that extended the term of the License Agreement through September
30, 2019. On September 16, 2019, we received notice from RDOC, indicating that RDOC did not intend to extend the term of the 2013 License
Agreement, as amended. Therefore, the term of the License Agreement 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 2013 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 2013 License Agreement.
Effective
November 26, 2019, our licenses to operate under the Perform in Properties, Making Money with Martin RobertsTM and Robbie
Fowler’s Property AcademyTM were transferred to Mayflower Alliance Ltd in conjunction with the sale of the business
of Legacy UK.
Employees
and Independent Contractors
As
of January 4, 2022, we had approximately 20 full-time employees, all of which were in our North America segment. In addition,
we employ part-time employees in various capacities and independent contractors who are trainers, coaches or mentors. Our employees are
not represented by a labor union, and we believe our relations with our employees are satisfactory. Our independent contractors are either
paid commissions based upon the dollar value of the courses purchased by customers at our free preview workshops and basic training courses
or are paid fixed fees for teaching and mentoring Elite courses. Independent contractors are required to execute agreements with us that
set forth their commission structures and typically contain confidentiality and non-competition provisions.
PROPERTIES
On
October 1, 2020, the Company relocated its headquarter to 1490 N.E. Pine Island Road, Suite 5D, Cape Coral, FL 33909 and entered into
a two year operating lease for the new 1,600 square feet office and warehouse space. The lease provides the Company an option to extend
the term of the lease for a third year. The lease obligation is approximately $32,000 plus other costs for shared services, maintenance
and sales tax over the course of its life.
We
believe that our facilities are adequate for our current purposes.
LEGAL
PROCEEDINGS
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 by Tranquility Bay of Pine Island, LLC, or 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 primarily relates to the alleged obligation of Tigrent, Inc. to indemnify the
Plaintiff pursuant to an October 6, 2010 Forbearance Agreement. The suit includes 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 in Twentieth Judicial Circuit
In and For Lee County, Florida against Tigrent Inc., Legacy Education Alliance Holding, Inc., or Holdings, and certain shareholders of
the Company. The suit includes claims for Breach of Contract, Breach of Fiduciary Duty against Tigrent, Inc., Civil Conspiracy against
Tigrent, Inc. 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 in Twentieth Judicial Circuit In and For Lee County, Florida against Tigrent,
Inc., Holdings, and certain shareholders of the Company. The suit includes claims for Breach of Contract against Tigrent, Inc., Breach
of Fiduciary Duty against Tigrent, Inc., Damages for Violation of Unfair and Deceptive Business Practices Act against Tigrent, Inc.,
Civil Conspiracy against Tigrent Inc., and Holdings, and various Counts of Fraudulent Transfer against various shareholders of Tigrent
Inc., including the Company’s General Counsel and former CEO, James E. May. On June 23, 2020, the Court entered summary judgment
in favor of Tigrent, Inc., with respect to TBPI’s claims against Tigrent Inc., 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, Inc., and Holdings on TBPI’s
claim for conspiracy; (ii) denying TBPI’s motion for summary judgment against Tigrent, Inc. in which TBPI sought a declaration
by the Court that claims against TBPI in in a lawsuit to which neither Tigrent, Inc. 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 from said 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 and Tigrent Inc., Legacy Education Alliance, Inc., Legacy Education Alliance Holdings, Inc., James E. 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 $400,000 payable in one installment of $100,000 on February 18, 2021 and five quarterly installments
of $60,000 commencing on May 19, 2021, which the Company has accrued for within accounts payable and other long-term liability for the
current and long-term portions, respectively, in the Consolidated Balance Sheet as of December 31, 2020. 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 September
30, 2021, the Company has paid $220 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, whereby four creditors of Legacy Education Alliance, International
Ltd, or 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, 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 against one of our UK subsidiaries, Elite Legacy Education UK Ltd., or
ELE UK, by one of its creditors 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, 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 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, the creditors of ELE UK, our
wholly owned subsidiary, approved a Proposal for a Company Voluntary Arrangement under the UK Insolvency Act 1986 and the UK Insolvency
Rules 2016. As a result, the Petitioner’s claims will be administered under the terms of the arrangement and, at the request of
ELE UK, the hearing on its application to renew its appeal of the High Court’s order was lifted.
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 September 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.
MANAGEMENT
Directors
and Executive Officers
Set
forth in the table below is the name, age and position with the Company of our sole executive officer and director. Additional information
is provided below the table and in “Security Ownership of Certain Beneficial Owners and Management.”
Name
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Age
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Position
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Barry
Kostiner
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50
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Interim
Chief Executive Officer, Director and Manager of Capital Markets
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Barry
Kostiner was appointed to the Board on May 3, 2021 and has also been a Manager of Capital Markets at the Company since March 2021,
interim principal financial and accounting officer since November 8, 2021 and interim Chief Executive Officer since December 1, 2021.
Mr. Kostiner is serving as the Chief Executive and Chairman of Sagaliam Acquisition Corp. Additionally, Mr. Kostiner has served as the
President of Legacy Tech Partners, LLC (LTP), a microcap -focused EdTech investment vehicle, since February 2021. Mr. Kostiner was the
CFO of Ameri Holdings Inc. (Nasdaq: AMRH) from October 2018 through December 2020. The operations of AMRH, including its global IT services
business focused on SAP with operations in both the US and India, was acquired by management, with the residual Nasdaq vehicle acquired
by Enveric Biosciences (Nasdaq: ENVB), an evidence-based cannabinoid pharma company focused on palliative therapies for cancer patients.
Mr. Kostiner has been a consultant to ENVB since January 2021. From May 2016 through October 2018, Mr. Kostiner was a consultant to Cypress
Skilled Nursing, a healthcare facility operator and from May 2017 through October 2018 he was a consultant to LinKay Technologies Inc.,
an artificial intelligence incubator with a portfolio of intellectual property focused on AI and LiDAR/geospatial technology, with a
research staff in India and New York. Mr. Kostiner’s 20-year career in energy includes eight years at Goldman Sachs and Merrill
Lynch and their affiliates, with a focus on energy trading and portfolio management, as well as serving as the CEO of an oil & gas
SPAC (Nasdaq: PGRI) from 2005 through 2009. Mr. Kostiner earned a Bachelor’s of Science degree in Electrical Engineering and a
Master’s of Science in Operations Research from MIT. His thesis on the mathematics of electric industry deregulation was sponsored
by Harvard’s Kennedy School of Government. Mr. Kostiner is President of, and holds a 25% membership interest in, Legacy Tech Partners,
LLC, a Delaware limited liability company (“LTP”). On March 8, 2021, the Company issued a Senior Secured Convertible Debenture
(“Debenture”) in the principal amount of $375 thousand to LTP.
The
Board of Directors believes Mr. Kostiner’s qualification to serve as a director includes his experience in working with publicly
traded companies as well as his experience and expertise in emerging growth sectors.
Family
Relationships
There
are no family relationships among our directors and executive officers.
Involvement
in Certain Legal Proceedings
To
the best of our knowledge, none of our current or recently resigned directors or executive officers has been convicted in a criminal
proceeding, excluding traffic violations or similar misdemeanors, or has been a party to any judicial or administrative proceeding during
the past ten years that resulted in a judgment, decree, or final order enjoining the person from future violations of, or prohibiting
activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws, except for
matters that were dismissed without sanction or settlement. Each of our current and recently resigned executive officers and directors
has informed us that he or she has not been involved in any of the events specified in clauses (1) through (8) of Regulation S-K, Item
401(f). Except as set forth in our discussion below in “Certain Relationships and Related Transactions, and Director Independence
– Transactions with Related Persons,” none of our current or recently resigned directors or executive officers has been involved
in any transactions with us or any of our directors, executive officers, affiliates, or associates that are required to be disclosed
pursuant to the rules and regulations of the Securities and Exchange Commission.
Code
of Business Conduct and Ethics
We
adopted a Code of Business Conduct and Ethics on November 10, 2014 that applies to our directors, officers and employees, including the
Company’s principal executive officer, principal financial officer and principal accounting officer. This Code of Business Conduct
and Ethics may be found on our website in the “Corporate Governance” section under the “Investors” link at www.legacyeducationalliance.com.
Additional
Directors
The
Certificate of Designation for the Series A Preferred provides that commencing upon the equivalent of six quarterly dividends payable
on any share or shares of Series A Preferred being in default, the number of director seats of the Board of Directors shall be increased
by two. Additionally, the holders of the Series A Preferred will be entitled to vote as a class for the purpose of electing two person
to the Board of Directors. As of the date of this prospectus, there are no holders of Series A Preferred.
Corporate
Governance
Director
Nomination Process
The
Nominating and Corporate Governance Committee (or the full Board if no members have been appointed to such committee) will consider director
candidates who have relevant business experience, are accomplished in their respective fields, and who possess the skills and expertise
to make a significant contribution to the Board of Directors, the Company and its stockholders. Subject to the requirements of our Bylaws,
the Nominating and Corporate Governance Committee (or the full Board if no members have been appointed to such committee) will consider
nominees for election to the Board of Directors who are recommended by stockholders, provided that a complete description of the nominees’
qualifications, experience and background, together with a statement signed by each nominee in which he or she consents to act as such,
accompany the recommendations.
The
Board of Directors considers several diversity factors in evaluating director candidates including, without limitation, professional
experience, education, race, gender and national origin, but does not assign any particular weight or priority to any particular factor.
In
identifying prospective director candidates, the Nominating and Corporate Governance Committee (or the full Board if no members have
been appointed to such committee) may seek referrals from other members of the Board of Directors, management, stockholders and other
sources. The Nominating and Corporate Governance Committee (or the full Board if no members have been appointed to such committee) also
may, but need not, retain a search firm in order to assist it in identifying candidates to serve as directors of the Company. The Nominating
and Corporate Governance Committee (or the full Board if no members have been appointed to such committee) utilizes the same criteria
for evaluating candidates regardless of the source of the referral. When considering director candidates, the Nominating and Corporate
Governance Committee (or the full Board if no members have been appointed to such committee) seeks individuals with backgrounds and qualities
that, when combined with those of our incumbent directors, provide a blend of skills and experience to further enhance the Board of Director’s
effectiveness.
In
connection with its annual recommendation of a slate of nominees, the Nominating and Corporate Governance Committee (or the full Board
if no members have been appointed to such committee) may also assess the contributions of those directors recommended for re-election
in the context of the Board of Directors evaluation process and other perceived needs of the Board of Directors.
Committees
We
are not required under the Exchange Act to maintain any committees of our Board of Directors. We have formed certain committees of our
board as a matter of preferred corporate practice; however, as of the date of this prospectus, there are no members appointed to any
of such committees. We have an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee.
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Audit
Committee. The purpose of the Audit Committee is to assist the Board of Directors in fulfilling its responsibility to oversee
the quality and integrity of the accounting, auditing, and reporting practices of the Company. The Committee shall also oversee the
Company’s systems of internal controls regarding finance, accounting, information technology, legal and regulatory compliance
and ethical behavior, the audits of the Company’s financial statements, the qualifications of the accounting firm engaged as
the Company’s independent auditor, and the performance of the Company’s independent auditors.
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We
currently do not have any members on our Audit Committee, as Mr. Harper and Mr. Sucoff recently resigned. Our Audit Committee has a written
charter available on our website in the “Corporate Governance” section under the “Investors” link at www.legacyeducationalliance.com.
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Compensation
Committee. The purpose of the Compensation Committee is to oversee the Company’s compensation and benefits programs; establish,
review, revise and interpret the Company’s compensation philosophy, policies and objectives; and evaluate the performance of
the Company’s executive officers and set compensation levels for all executive officers, including any performance-based compensation.
|
We
currently do not have any members on our Compensation Committee, as Mr. Harper and Mr. Sucoff recently resigned. Our Compensation Committee
has a written charter available on our website in the “Corporate Governance” section under the “Investors” link
at www.legacyeducationalliance.com.
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Nominating
and Corporate Governance Committee. The purpose of the Nominating and Corporate Governance Committee is to provide support for
the governance role of the Board of Directors in reviewing and making recommendations on the composition of the Board of Directors,
oversee the evaluation of the Board of Directors and management of the Company, periodically assess the functioning of the Board
of Directors and its committees and make recommendations to the Board of Directors regarding corporate governance matters and practices.
On at least an annual basis, the Nominating and Corporate Governance Committee reviews overall compensation of the Board of Director.
Any changes made to the compensation of the Board of Directors resulting from these reviews requires full ratification from the Board
of Directors.
|
We
currently do not have any members on our Compensation Committee, as Mr. Harper and Mr. Sucoff recently resigned. Our Nominating and Corporate
Governance Committee has a written charter available on our website at www.legacyeducationalliance.com.
Risk
Oversight
The
Board of Directors takes an active role in risk oversight. The Board of Directors exercises its risk oversight function through the full
Board of Directors and each of its committees. The Audit Committee of the Board of Directors (or the full Board if no members have been
appointed to such committee) takes an active risk oversight role by meeting with the Company’s senior management team on a regular
basis and reviewing and approving key risk policies and risk tolerances. The Audit Committee (or the full Board if no members have been
appointed to such committee) is responsible for ensuring that the Company has in place a process for identifying, prioritizing, managing,
and monitoring its critical risks. Furthermore, the Board of Directors, with input from the Audit Committee, regularly evaluates our
management infrastructure, including personnel competencies and technologies and communications, to ensure that key risks are being properly
evaluated and managed. Finally, the Compensation Committee of the Board of Directors (or the full Board if no members have been appointed
to such committee) reviews any risks associated with the Company’s compensation practices. In the Compensation Committee’s
view, our compensation policies encourage a balanced approach to risk-taking, by structuring compensation packages that includes both
long-term vesting equity awards in addition to cash bonuses.
Director
Independence
The
Board of Directors has determined that none of our directors qualify as an “independent director”. Because our Common Stock
is not currently listed on a national securities exchange, we have used the definition of independence of The NASDAQ Stock Market to
make this determination. NASDAQ Listing Rule 5605(a)(2) provides that an independent director is a person other than an officer or employee
of the Company or any other individual having a relationship with the Company that, in the opinion of the Company’s Board, would
interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The NASDAQ listing rules provide
that a director cannot be independent if:
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The
director is, or at any time during the past three years was, an employee of the Company;
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The
director or a family member of the director accepted any compensation from the Company in excess of $120,000 during any period of
12 consecutive months within the three years preceding the independence determination (subject to certain exclusions, including,
among other things, compensation for board or board committee service);
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●
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A
family member of the director is, or at any time during the past three years was, an executive officer of the Company;
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●
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The
director or a family member of the director is a partner in, controlling stockholder of, or an executive officer of an entity to
which the Company made, or from which the Company received, payments in the current or any of the past three fiscal years that exceed
5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exclusions);
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The
director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three
years, any of the executive officers of the Company served on the compensation committee of such other entity; or
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●
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The
director or a family member of the director is a current partner of the Company’s outside auditor, or at any time during the
past three years was a partner or employee of the Company’s outside auditor, and who worked on the Company’s audit.
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EXECUTIVE
COMPENSATION
Executive
Compensation Program
Our
executive compensation program has historically been determined and proposed by our Compensation Committee and approved by our Board
of Directors. None of the Named Executive Officers listed in the table “Summary Executive Compensation Table” below is a
member of the Compensation Committee or otherwise had any role in determining the compensation of other Named Executive Officers, although
the Compensation Committee has historically considered the recommendations of our Chief Executive Officer in setting compensation levels
for our other executive officers.
Executive
Employment Agreements
Set
forth below is a description of the employment agreements of Michel Botbol, who recently resigned as Chairman and CEO, James May, who
recently resigned as General Counsel, and Vanessa Guzmán-Clark, who recently resigned as Chief Financial Officer.
Michel
Botbol Employment Agreement
On
March 9, 2021, the Company entered into an employment agreement, or Botbol Employment Agreement with Michel Botbol, its Chief Executive
Officer, for no specific term. The Botbol Employment Agreement provided Mr. Botbol with the following compensation and benefits:
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Annual
base salary of no less than $200,000, which will increase to $260,000 upon the earlier to occur of the Spin Off (as defined below)
or September 1, 2021, subject to periodic review and adjustment by the Board of Directors or the Compensation Committee;
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|
●
|
Participation
in any annual or long-term bonus or incentive plans maintained by the Company for its senior executives;
|
|
|
|
|
●
|
Participation
in any stock option, stock ownership, stock incentive or other equity-based compensation plans maintained by the Company for its
senior executives; and
|
|
|
|
|
●
|
Participation
in all compensation or employee benefit plans or programs, and all benefits or perquisites, for which any member of the Company’s
senior management is eligible under any existing or future Company plan or program.
|
The
Botbol Employment Agreement further provided that if the Board determines that Mr. Botbol has engaged in gross negligence or willful
misconduct in a manner that caused or contributed to the need for a material restatement of the Company’s financial results, and
if the performance-based compensation paid under the Botbol Employment Agreement would have been lower if based on such restated results,
then the Board of Directors and the Company may seek recoupment from Mr. Botbol of any portion of such performance-based compensation
deemed appropriate.
Mr.
Botbol’s employment may be terminated by either party at any time. If Mr. Botbol’s employment is terminated (i) other than
for cause or (ii) upon Mr. Botbol’s death, permanent disability, or voluntary resignation, Mr. Botbol will be entitled to receive
(i) any unearned and unpaid base salary and annual incentive compensation that has accrued but is paid as of the date of termination,
(ii) a pro rata portion of any annual incentive compensation that Mr. Botbol would have been entitled to receive and, (iii) a separation
benefit in an amount equal to twenty-six (26) weeks of base salary payable in biweekly installments. If Mr. Botbol’s employment
is terminated other than for cause or due to his voluntary resignation within 18 months of a “change in control” event, he
will be entitled to receive (i) any unearned and unpaid base salary and annual incentive compensation that has accrued but is paid as
of the date of termination, (ii) a separation benefit in an amount equal to one year of base salary payable in lump sum. Mr. Botbol’s
entitlement to receive any separation benefit described in this paragraph is conditioned on Mr. Botbol executing a general release satisfactory
to the Company.
Under
the terms of the Botbol Employment Agreement, Mr. Botbol is subject to certain confidentiality, non-solicitation, and other restrictive
covenants described in the Botbol Employment Agreement.
Mr.
Botbol resigned from his positions with the Company on December 1, 2021.
James
E. May Employment Agreement
On
September 1, 2017, the Company entered into an employment agreement, or May Employment Agreement with James E. May, then, Senior Vice
President and General Counsel, and most recently, General Counsel, for no specific term. The Employment Agreement provided
Mr. May with the following compensation and benefits:
|
●
|
Annual
base salary of no less than $260,000, subject to periodic review and adjustment by the Board of Directors or the Compensation Committee;
|
|
|
|
|
●
|
Participation
in any annual or long-term bonus or incentive plans maintained by the Company for its senior executives;
|
|
|
|
|
●
|
Participation
in any stock option, stock ownership, stock incentive or other equity-based compensation plans maintained by the Company for its
senior executives; and
|
|
|
|
|
●
|
Participation
in all compensation or employee benefit plans or programs, and all benefits or perquisites, for which any member of the Company’s
senior management is eligible under any existing or future Company plan or program.
|
The
May Employment Agreement further provided that if the Board of Directors determines that Mr. May has engaged in gross negligence
or willful misconduct in a manner that caused or contributed to the need for a material restatement of the Company’s financial
results, and if the performance-based compensation paid under the Employment Agreement would have been lower if based on such restated
results, then the Board of Directors and the Company may seek recoupment from Mr. May of any portion of such performance-based compensation
deemed appropriate.
Mr.
May’s employment may be terminated by either party at any time. If Mr. May’s employment is terminated (i) other than for
cause or (ii) upon Mr. May’s death, permanent disability, or voluntary resignation, Mr. May will be entitled to receive (i) any
unearned and unpaid base salary and annual incentive compensation that has accrued but is paid as of the date of termination, (ii) a
pro rata portion of any annual incentive compensation that Mr. May would have been entitled to receive and, (iii) a separation
benefit in an amount equal to twenty-six (26) weeks of base salary payable in biweekly installments. If Mr. May’s employment is
terminated other than for cause or his voluntary resignation within 18 months of a “change in control” event, he will be
entitled to receive (i) any unearned and unpaid base salary and annual incentive compensation that has accrued but is paid as of the
date of termination and (ii) a separation benefit in an amount equal to one year of base salary payable in lump sum. Mr. May’s
entitlement to receive any separation benefit described in this paragraph is conditioned on Mr. May executing a general release satisfactory
to the Company.
Under
the terms of the May Employment Agreement, Mr. May is subject to certain confidentiality, non-solicitation, and other restrictive
covenants described in the Agreement.
On
March 8, 2021, in connection with his re-appointment as General Counsel, Mr. May’s annual base salary was adjusted by the Board
to $180,000.
Mr.
May resigned from his positions with the Company on November 4, 2021.
Vanessa
Guzmán-Clark Employment Agreement
On
March 18, 2020, the Company entered into an employment agreement, or Guzmán-Clark Employment Agreement with Vanessa Guzmán-Clark,
its Chief Financial Officer, for no specific term. The Guzmán-Clark Employment Agreement provided Ms. Guzmán-Clark with
the following compensation and benefits:
|
●
|
Annual
base salary of no less than $126,000, subject to periodic review and adjustment by the Board of Directors or the Compensation Committee;
|
|
|
|
|
●
|
Participation
in any annual or long-term bonus or incentive plans maintained by the Company for its senior executives;
|
|
|
|
|
●
|
Participation
in any stock option, stock ownership, stock incentive or other equity-based compensation plans maintained by the Company for its
senior executives; and
|
|
|
|
|
●
|
Participation
in all compensation or employee benefit plans or programs, and all benefits or perquisites, for which any member of the Company’s
senior management is eligible under any existing or future Company plan or program.
|
The
Guzmán-Clark Employment Agreement further provided that if the Board determines that Ms. Guzmán-Clark has engaged in
gross negligence or willful misconduct in a manner that caused or contributed to the need for a material restatement of the Company’s
financial results, and if the performance-based compensation paid under the Guzmán-Clark Employment Agreement would have been lower
if based on such restated results, then the Board of Directors and the Company may seek recoupment from Ms. Guzmán-Clark of any
portion of such performance-based compensation deemed appropriate.
Ms.
Guzmán-Clark’s employment may be terminated by either party at any time. If Ms. Guzmán-Clark’s employment is
terminated (i) other than for cause or (ii) upon Ms. Guzmán-Clark’s death, permanent disability, or voluntary resignation,
Ms. Guzmán-Clark will be entitled to receive (i) any unearned and unpaid base salary and annual incentive compensation that has
accrued but is paid as of the date of termination, (ii) a pro rata portion of any annual incentive compensation that Ms. Guzmán-Clark
would have been entitled to receive and, (iii) a separation benefit in an amount equal to twenty-six (26) weeks of base salary payable
in biweekly installments. If Ms. Guzmán-Clark’s employment is terminated other than for cause or her voluntary resignation
within 18 months of a “change in control” event, he will be entitled to receive (i) any unearned and unpaid base salary and
annual incentive compensation that has accrued but is paid as of the date of termination and (ii) a separation benefit in an amount equal
to one year of base salary payable in lump sum. Ms. Guzmán-Clark’s entitlement to receive any separation benefit described
in this paragraph is conditioned on Ms. Guzmán-Clark executing a general release satisfactory to the Company.
Under
the terms of the Guzmán-Clark Employment Agreement, Ms. Guzmán-Clark is subject to certain confidentiality, non-solicitation,
and other restrictive covenants described in the Guzmán-Clark Employment Agreement.
On
March 8, 2021, Ms. Guzmán-Clark annual base salary was adjusted by the Board to $180,000.
Ms.
Guzmán-Clark resigned from her positions with the Company on November 8, 2021.
Role
of Compensation Committee and Executive Officers in Compensation Decisions
The
role of our Compensation Committee (or the full Board if no members have been appointed to such committee) is to oversee our compensation
programs and retirement plans and policies and review and approve all compensation decisions relating to the Company’s Named Executive
Officers, including our Chief Executive Officer. Our Compensation Committee has historically reviewed, and in consultation with the entire
Board of Directors and our Chief Executive Officer (other than with respect to his own compensation), made all compensation decisions
for the Named Executive Officers. The Compensation Committee has historically reviewed and recommended the annual compensation package
of our Chief Executive Officer, the adoption of which requires the approval of the independent members of the Board of Directors.
Our
Compensation Committee historically met with our Chief Executive Officer at least annually to review the performance of the other executive
officers, received the recommendations of the Chief Executive Officer on the executive officers’ compensation and approved their
annual compensation packages. This meeting is intended to include a review by the Chief Executive Officer of the performance of each
Named Executive Officer who reports directly to our Chief Executive Officer.
Setting
Executive Compensation
In
furtherance of the philosophy and objectives described above, in setting compensation for our executive officers, our Compensation Committee
historically considered data obtained from the consulting firm of Pearl Meyer & Partners, in addition to other factors, to assess
competitive pay levels and establish compensation targets for base salary, annual incentives and long-term incentives. The data from
the Pearl Meyer & Partners surveys reflects compensation practices of companies in the education industry with annual revenue and
free cash flow that are comparable to our own, and includes data for executives with responsibilities cutting across the entire enterprise,
or Survey Group. Such data is no longer being applied in light of the recent resignations of our CEO, CFO and General Counsel, but
we may consider such data and other information as, if and when we build out a new management team.
Base
Salary
We
have historically provided our executive officers and other employees with a base salary designed to compensate them for the day-to-day
services rendered to us during the fiscal year. Our Compensation Committee has historically reviewed each executive officer’s salary
and performance annually. Market data from the Survey Group has been used to determine base salary ranges for our executive officers
based on the position and responsibility. An executive officer’s actual salary relative to this competitive salary range varies
based on the level of his or her responsibility, experience, individual performance and internal pay-equity considerations. Specific
salary increases take into account these factors and the current market for management talent. Salary increases have historically been
considered by the Compensation Committee each year.
Annual
Incentive Compensation
We
have an Executive Incentive Plan, or Bonus Plan for our executive officers and other participating employees. The Bonus Plan, administered
by the Compensation Committee (or the full Board if no members have been appointed to such committee), provides that the Compensation
Committee (or the full Board, if applicable) will determine the total amount of performance incentive bonuses to be paid to participants
under the Bonus Plan. Bonuses are based upon specific measures of our financial performance and achievement of each participant’s
agreed upon annual goals.
Specifically,
the Bonus Plan provides for target bonuses as a percent of each participant’s yearly salary. The target bonuses for our executive
officers are as follows:
Chief
Executive Officer — 50%
Senior
Executive Officers — 50%
Vice
Presidents and key employees — 20% to 50%, as specified.
Junior
employees may participate in the plan as designated.
Payouts
under the Bonus Plan are subject to the approval of the Compensation Committee (or the full Board if no members have been appointed to
such committee) following the finalization of our annual financial results and are based upon the following metrics: (i) Total Annual
Cash Sales, (ii) Overall Adjusted EBITDA, (iii) increase in Adjusted EBITDA and (iv) achievement of the participant’s individual
goals.
Equity
Incentive Compensation
The
Company’s 2015 Incentive Plan was approved by the stockholders at our annual meeting of stockholders on July 16, 2015. The 2015
Incentive Plan reserves 5,000,000 shares of our Common Stock for stock options, restricted stock, and a variety of other types of equity
awards. We believe that long-term incentive compensation programs align the interests of management, employees and the stockholders to
create long-term stockholder value. We believe that equity based incentive compensation plans, such as the Incentive Plan, increase our
ability to achieve this objective, and, by allowing for several different forms of long-term equity based incentive awards, help us to
recruit, reward, motivate and retain talented employees and other service providers.
Discretionary
Performance Bonuses
In
addition to compensation available under the Bonus Plan, which are intended to compensate executives based upon specific measures of
our financial performance and achievement of each participant’s agreed upon annual goals, we may also provide, on a case by case
basis, discretionary transaction bonuses to executives who have accomplished goals or results of significant benefit to the Company or
its stockholders not included in the Bonus Plan. Payment of such Discretionary Performance Bonuses are subject the approval of the Compensation
Committee and ratification by the full Board.
Deferred
Compensation Plans
We
do not have a deferred compensation plan.
Retirement
Benefits
We
have a 401(k)-employee savings plan for eligible employees that provides for a matching contribution from us, determined each year at
our discretion. The Company made matching contributions in 2020 and 2021.
Medical,
Dental, Life Insurance and Disability Coverage
We
have historically provided other benefits such as medical, dental and life insurance, and disability coverage to each Named Executive
Officer in benefits plans that are also provided to all eligible U.S. based salaried employees. Eligible employees can purchase additional
life, dependent life and accidental death and dismemberment coverage as part of their employee benefits package.
Deductibility
of Executive Compensation
The
exemption from Section 162(m)’s deduction limit for performance-based compensation has been repealed, effective for tax years beginning
after December 31, 2017, such that compensation paid to our covered executive officers in excess of $1.0 million will not be deductible
unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017. Due to the ambiguities
and uncertainties as to the application and interpretation of Section 162(m) and the regulations issued thereunder, including the uncertain
scope of the transition relief under the legislation, no assurance can be given that compensation intended to satisfy the requirements
for exemption from Section 162(m) in fact will.
For
2021, the annual salary paid to any of our Named Executive Officers did not exceed $1.0 million. Restricted stock granted under
the terms of long-term incentives are exempt as performance-based compensation for purposes of calculating the $1.0 million limit. To
maintain flexibility in compensating the Named Executive Officers in a manner designed to promote varying corporate goals, the Compensation
Committee reserves the right to recommend and award compensation that is not deductible under Section 162(m).
Executive
Compensation Tables
The
following table sets forth information regarding compensation earned by, awarded to or paid to our Named Executive Officers during the
two fiscal years ended December 31, 2021 and 2020:
Summary
Executive Compensation Table
For the Years Ended December 31, 2021 and 2020
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
|
|
|
|
Name and Principal Position
|
|
Year
|
|
|
Salary(1)
($)
|
|
|
Bonus
($)
|
|
|
Awards
($)
|
|
|
Other(1)
($)
|
|
|
Total
($)
|
|
Barry Kostiner
|
|
|
2021
|
|
|
|
87,231
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26,126
|
|
|
|
113,357
|
|
Interim
Chief Executive Officer (since 12/01/2021)
Manager
of Capital Markets (since 03/2021)
|
|
|
2020
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Michel Botbol
|
|
|
2021
|
|
|
|
130,769
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26,691
|
|
|
|
157,460
|
|
Chairman
and Chief Executive Officer
(03/08/2021
- 12/01/2021)
|
|
|
2020
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
James E. May
|
|
|
2021
|
|
|
|
184,554
|
|
|
|
50,000
|
|
|
|
—
|
|
|
|
26,843
|
|
|
|
261,397
|
|
General
Counsel (03/08/2021 – 11/04/2021)
Chief
Executive Officer
(06/07/2019 - 03/08/2021)
Interim Chief Executive Officer
(01/15/2019
- 06/07/2019)
|
|
|
2020
|
|
|
|
188,792
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,904
|
|
|
|
206,696
|
|
Vanessa Guzmán-Clark
|
|
|
2021
|
|
|
|
153,473
|
|
|
|
50,000
|
|
|
|
—
|
|
|
|
29,273
|
|
|
|
232,746
|
|
Vice
President and Chief Financial Officer
(10/01/2019
– 11/08/2021)
Senior Corporate Controller
(01/28/2019 - 10/01/2019)
|
|
|
2020
|
|
|
|
145,384
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,277
|
|
|
|
160,661
|
|
(1)
|
Includes
401(k) match, employer portion of employee’s health, vision, dental and life insurance benefits paid by the Company as part
of the Company’s Employee Benefits Programs.
|
As
of December 31, 2021, there were no outstanding option awards or restricted stock awards for any of our Named Executive
Officers.
Potential
Payments Upon Termination or Change in Control
There
are no currently existing potential payments upon termination or change of control with any of our Named Executive Officers. We
did not pay any such amounts to any of our former executive officers upon their resignations in November and December 2021.
DIRECTOR
COMPENSATION
On
at least an annual basis, the Nominating and Corporate Governance Committee has historically reviewed overall Board of Director’s
compensation. Any changes made to Board compensation as a result of these reviews requires full ratification by the Board of Directors.
We use a combination of cash and stock-based incentive compensation to attract and retain qualified candidates to serve on the Board
of Directors. In setting director compensation, we historically considered the significant amount of time that directors expend
in fulfilling their duties to the Company as well as the skill-level required of members of the Board of Directors.
Our
employee directors have historically not received any additional compensation for serving on the Board.
In
addition to receiving quarterly retainers, directors historically have been generally eligible to receive sign-on and annual equity
awards through stock or options. We have adopted an equity incentive plan that was approved by the stockholders at our annual meeting
of stockholders on July 16, 2015 for equity-based incentives under the Company’s 2015 Incentive Plan.
Total
compensation attributable to each non-employee director during 2021, which excludes reimbursable expenses, was as follows:
Name
|
|
Fees
earned or
paid in cash
($)
|
|
|
Stock
awards(1)(2)
($)
|
|
|
Total
($)
|
|
Peter Harper(3)
|
|
|
48,750
|
|
|
|
17,353
|
|
|
|
66,103
|
|
Cary W. Sucoff(3)
|
|
|
48,750
|
|
|
|
17,353
|
|
|
|
66,103
|
|
(1)
|
Each
non-employee director has been granted restricted shares of common stock at varying times, half of which vest each year over a period
of two years from the grant date.
|
|
|
(2)
|
Stock
awards are valued based on the closing price per share on the grant date.
|
|
|
(3)
|
Each
director resigned from the Board on November 4, 2021.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth the beneficial common stock ownership as of January 4, 2022 (i) of each person or entity known by us
to be the beneficial owner of five percent or more of our common stock, (ii) by each of our directors, Named Executive Officers and nominee
for director and (iii) by all directors and executive officers as a group.
As
used herein, the term beneficial ownership with respect to a security is defined by Rule 13d-3 under the Securities Exchange Act of 1934
as consisting of sole or shared voting power (including the power to vote or direct the vote) and/or sole or shared investment power
(including the power to dispose or direct the disposition of) with respect to the security through any contract, arrangement, understanding,
relationship or otherwise, including a right to acquire such power(s) during the next 60 days.
Unless
otherwise noted, beneficial ownership consists of sole ownership, voting and investment rights. This table is based upon information
supplied to us by our Named Executive Officers, directors and principal stockholders and/or contained in reports filed by these persons
with the SEC.
Name
|
|
Amount
of
Beneficial
Ownership of
Common Stock
|
|
|
Percent
of
Common
Stock(1)
|
|
James
E. May(2)
|
|
|
566,769
|
|
|
|
*
|
|
Vanessa
Guzmán-Clark(3)
|
|
|
20,000
|
|
|
|
*
|
|
Barry
Kostiner(4)
|
|
|
6,901,500
|
|
|
|
20.35
|
%
|
All
directors and executive officers as a group (1 person)
|
|
|
6,901,500
|
|
|
|
20.35
|
%
|
Other
owners of more than 5% of outstanding Common Stock
|
|
|
|
|
|
|
|
|
GLD
Legacy Holdings, LLC(5)
|
|
|
20,000,000
|
|
|
|
58.97
|
%
|
Legacy
Tech Partners LLC(6)
|
|
|
6,586,500
|
|
|
|
19.42
|
%
|
Anthony
C. Humpage(7)
|
|
|
3,969,312
|
|
|
|
11.70
|
%
|
Pemberton
Holdings, LLC(7)
|
|
|
2,842,819
|
|
|
|
8.38
|
%
|
Day
One, LLC(8)
|
|
|
2,411,368
|
|
|
|
7.11
|
%
|
Ingrid
Whitney(9)
|
|
|
2,279,799
|
|
|
|
6.72
|
%
|
David
S. Nagelberg(10)
|
|
|
2,269,254
|
|
|
|
6.69
|
%
|
Ibex
Microcap Fund, LLLP(11)
|
|
|
1,344,427
|
|
|
|
3.96
|
%
|
Ibex
Investors, LLC(11)
|
|
|
1,344,427
|
|
|
|
3.96
|
%
|
Ibex
Investment Holdings, LLC(11)
|
|
|
1,344,427
|
|
|
|
3.96
|
%
|
Justin
B. Borus(11)
|
|
|
1,351,234
|
|
|
|
3.98
|
%
|
International
Securities 3, LLC(9)
|
|
|
397,310
|
|
|
|
1.17
|
%
|
McDowell
Sonoran, LLC(7)
|
|
|
196,000
|
|
|
|
*
|
|
(1)
|
Based
on 33,917,697 shares of Common Stock issued and outstanding as of January 4, 2022.
|
|
|
(2)
|
Mr.
May resigned on November 4, 2021.
|
|
|
(3)
|
Ms.
Guzmán-Clark resigned on November 8, 2021.
|
|
|
(4)
|
Represents
(i) 315,000 restricted shares held directly by Mr. Kostiner, and (ii) 6,586,500 issued and outstanding shares of our common
stock held by LTP. Mr. Kostiner, a member of our Board of Directors, interim CEO and Manager of Capital Markets, is the president
of LTP and has voting and dispositive power over these shares. Does not include (a) up to an additional 96,913,500 shares
of our common stock that may be issued upon conversion of an outstanding 10% senior secured convertible debenture due March 8,
2022 held by LTP (the “LTP Debenture”) (assuming we borrow all remaining amounts under the LTP Debenture)
and (b) up to an additional 100,000,000 shares of our common stock underlying warrants issued or to be issued to the Selling Shareholder
upon conversion of the LTP Debenture, all of which are subject to a beneficial ownership blocker.
|
|
|
(5)
|
Daniel
Gordon has voting and dispositive control over these shares, as the 100% owner of GLD Management, Inc., the General Partner of GLD
Partners, LP, sole member of GLD Legacy Holdings, LLC. Represents 20,000,000 shares of our common stock underlying an outstanding
debenture held by the Selling Shareholder (the “GLD Debenture”). Does not include up to 20,000,000 shares of our common
stock underlying warrants that would be issued to the Selling Shareholder upon the conversion of the GLD Debenture.
|
|
|
(6)
|
Mr.
Kostiner, a member of our Board of Directors, interim CEO and Manager of Capital Markets,
is the president of LTP and has voting and dispositive power over these shares. Does not
include (a) up to an additional 96,913,500 shares of our common stock that may be
issued upon conversion of the LTP Debenture (assuming we borrow all remaining amounts
under the LTP Debenture) and (b) up to an additional 100,000,000 shares of our common stock
underlying warrants issued or to be issued to the Selling Shareholder upon conversion of
the LTP Debenture, all of which are subject to a beneficial ownership blocker.
|
|
|
(7)
|
The
shares of Pemberton Holdings, LLC and McDowell Sonoran LLC are beneficially owned by Anthony C. Humpage. The address of Pemberton
Holdings LLC and McDowell Sonoran LLC is 3225 McLeod Drive, Suite 100, Las Vegas, NV 89121.
|
|
|
(8)
|
Based
on information available from the Company’s Record Shareholder list as of January 4, 2022. Upon information and belief,
the shares of Day One, LLC and International Securities 3, LLC are beneficially owned by Russell A. Whitney. The address of Day One
LLC and International Securities 3 LLC is 4818 Coronado Parkway, Cape Coral, FL 33904.
|
|
|
(9)
|
Upon
information and belief based on information available from the Company’s Record Shareholder list as of January 4, 2022.
The address of Ingrid Whitney is 232 Bayshore Dr., Cape Coral, FL 33904.
|
|
|
(10)
|
The
address of David Nagelberg is c/o Thompson Hine LLP, 335 Madison Avenue, 12th Floor, New York, New York, 10017.
|
|
|
(11)
|
Based
on the Schedule 13G jointly filed by Justin B. Boris, Ibex Investors LLC, Ibex Microcap Fund LLLP and Ibex Investment Holdings LLC
on January 15, 2021. The address of each reporting person is c/o Ibex Investors LLC, 260 N. Josephine, Suite 300, Denver,
Colorado 80206.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Our
Board has adopted a written policy for the review and the approval or ratification of any related person transaction. Under the policy,
a “related person” is any (1) director, nominee for director or executive officer of the Company and any Immediate Family
Member of such person, and (2) any holder of 5% or more of any class of outstanding equity securities of the Company and any Immediate
Family Member such person. The policy defines an “Interested Transaction” is any transaction, arrangement or relationship
or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1)
the aggregate amount involved will or may reasonably be expected to exceed $120,000 in any calendar year, (2) the Company or its subsidiaries
or affiliates is a participant, and (3) any Related Person has or will have a direct or indirect interest (other than solely as a result
of being a director or a less than 10% beneficial owner of another entity).
The
policy requires the Audit Committee to review the material facts of all Interested Transactions that require the Committee’s approval
and either approve or disapprove of the entry into the Interested Transaction, subject to certain exceptions described in the Policy.
Other
than as set forth below, since January 1, 2020, there have been no transactions between the Company and its executive officers, directors,
nominees, principal stockholders and other related parties involving amounts in excess of $120,000. There are currently no proposed transactions
of the type mentioned in the preceding sentence.
On
October 15, 2021 we received $100,000 and on October 27, 2021, we received the remaining $200,000 payable from Legacy Tech Partners,
LLC under our 10% Senior Secured Convertible Debenture dated March 8, 2021, as amended. Barry M. Kostiner, our interim CEO and a director,
is President of, and holds a 25% membership interest in, Legacy Tech Partners, LLC.
LEGAL
MATTERS
The
validity of the shares of common stock covered by this prospectus will be passed upon by Ruskin Moscou Faltischek, PC, Uniondale, NY.
EXPERTS
The
consolidated financial statements of the Company for the fiscal years ended December 31, 2020 and 2019 have been audited by MaloneBailey,
LLP, our independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included
in reliance upon such report given on the authority of such firm as an expert in accounting and auditing.
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Under
Nevada Law and our Bylaws, we may indemnify an officer or director who is made a party to any proceeding, including a lawsuit, because
of his position, if he acted in good faith and in a manner he reasonably believed to be in our best interest. We may advance expenses
incurred in defending a proceeding. To the extent that the officer or director is successful on the merits in a proceeding as to which
he is to be indemnified, we must indemnify him against all expenses incurred, including attorney’s fees. With respect to a derivative
action, indemnity may be made only for expenses actually and reasonably incurred in defending the proceeding, and if the officer or director
is judged liable, only by a court order. The indemnification is intended to be to the fullest extent permitted by the laws of the State
of Nevada.
The
Securities and Exchange Commission’s position on indemnification of officers, directors and control persons under the Securities
Act by the Company is as follows:
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons
of the Company pursuant to the rules of the Securities and Exchange Commission, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable.
WHERE
YOU CAN FIND MORE INFORMATION
We
are subject to the informational requirements of the Exchange Act, and file annual and current reports, proxy statements and other information
with the Commission. These reports, proxy statements and other information filed by Legacy Education Alliance, Inc. can be read and copied
at the Commission’s Public Reference Room at 100 F Street, N.W., Washington, D.C. 20549. You may obtain information on the operation
of the Public Reference Room by calling the Commission at 1-800-SEC-0330. We will provide to the record holders of our securities a copy
of our annual reports containing audited financial statements and such periodic and quarterly reports free of charge upon request. The
Commission also maintains a website that contains reports, proxy statements, information statements and other information located at
http://www.sec.gov. This prospectus does not contain all the information required to be in the registration statement (including the
exhibits), which we have filed with the Commission under the Securities Act and to which reference is made in this prospectus.
Legacy
Education Alliance, Inc.
Index
to Consolidated Financial Statements
LEGACY
EDUCATION ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(Unaudited)
(In
thousands, except share data)
See
Notes to Unaudited Consolidated Financial Statements
LEGACY
EDUCATION ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
(In
thousands, except per share data)
See
Notes to Unaudited Consolidated Financial Statements
LEGACY
EDUCATION ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(Unaudited)
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
Cumulative foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
currency
|
|
|
|
|
|
Total
|
|
|
|
Common stock
|
|
|
paid-in
|
|
|
translation
|
|
|
Accumulated
|
|
|
stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
adjustment
|
|
|
deficit
|
|
|
deficit
|
|
Balance at December 31, 2020
|
|
|
23,279
|
|
|
$
|
2
|
|
|
$
|
11,564
|
|
|
$
|
416
|
|
|
$
|
(35,618
|
)
|
|
$
|
(23,636
|
)
|
Beneficial conversion feature for senior secured convertible debenture – related party
|
|
|
—
|
|
|
|
—
|
|
|
|
375
|
|
|
|
—
|
|
|
|
—
|
|
|
|
375
|
|
Foreign currency translation adjustment, net of tax of $0
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
103
|
|
|
|
—
|
|
|
|
103
|
|
Net Income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
253
|
|
|
|
253
|
|
Balance at March 31, 2021
|
|
|
23,279
|
|
|
$
|
2
|
|
|
$
|
11,939
|
|
|
$
|
519
|
|
|
$
|
(35,365
|
)
|
|
$
|
(22,905
|
)
|
Common stock and warrants issued for notes payable to related party from conversion of senior secured convertible debt – related party debt discount
|
|
|
7,084
|
|
|
|
1
|
|
|
|
354
|
|
|
|
—
|
|
|
|
—
|
|
|
|
355
|
|
Beneficial conversion feature for senior secured convertible debenture – related party
|
|
|
—
|
|
|
|
—
|
|
|
|
21
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21
|
|
Share-based compensation expense
|
|
|
2,585
|
|
|
|
—
|
|
|
|
31
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31
|
|
Foreign currency translation adjustment, net of tax of $0
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(52
|
)
|
|
|
—
|
|
|
|
(52
|
)
|
Net Income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
362
|
|
|
|
362
|
|
Balance at June 30, 2021
|
|
|
32,948
|
|
|
$
|
3
|
|
|
$
|
12,345
|
|
|
$
|
467
|
|
|
$
|
(35,003
|
)
|
|
$
|
(22,188
|
)
|
Beginning balance
|
|
|
32,948
|
|
|
$
|
3
|
|
|
$
|
12,345
|
|
|
$
|
467
|
|
|
$
|
(35,003
|
)
|
|
$
|
(22,188
|
)
|
Share-based compensation expense
|
|
|
315
|
|
|
|
—
|
|
|
|
51
|
|
|
|
—
|
|
|
|
—
|
|
|
|
51
|
|
Beneficial conversion feature for senior secured convertible debenture
|
|
|
—
|
|
|
|
—
|
|
|
|
500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
500
|
|
Foreign currency translation adjustment, net of tax of $0
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
336
|
|
|
|
—
|
|
|
|
336
|
|
Net Loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(195
|
)
|
|
|
(195
|
)
|
Balance at September 30, 2021
|
|
|
33,263
|
|
|
$
|
3
|
|
|
$
|
12,896
|
|
|
$
|
803
|
|
|
$
|
(35,198
|
)
|
|
$
|
(21,496
|
)
|
Ending balance
|
|
|
33,263
|
|
|
$
|
3
|
|
|
$
|
12,896
|
|
|
$
|
803
|
|
|
$
|
(35,198
|
)
|
|
$
|
(21,496
|
)
|
See
Notes to Unaudited Consolidated Financial Statements
LEGACY
EDUCATION ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(In
thousands)
|
|
2021
|
|
|
2020
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
420
|
|
|
$
|
11,525
|
|
Less net income from discontinued operations
|
|
|
171
|
|
|
|
2,842
|
|
Net income from continuing operations
|
|
$
|
249
|
|
|
$
|
8,683
|
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
4
|
|
|
|
47
|
|
Non-cash lease expense
|
|
|
20
|
|
|
|
22
|
|
Gain on the sale of fixed assets and investment property
|
|
|
—
|
|
|
|
(33
|
)
|
Share-based compensation
|
|
|
82
|
|
|
|
23
|
|
Amortization of debt discount
|
|
|
376
|
|
|
|
—
|
|
Gain on debt extinguishment (PPP loan forgiveness)
|
|
|
(910
|
)
|
|
|
—
|
|
Cancellation of common stock
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
1,469
|
|
|
|
(476
|
)
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Deferred course expenses
|
|
|
875
|
|
|
|
3,086
|
|
Prepaid expenses and other receivable
|
|
|
481
|
|
|
|
8,603
|
|
Inventory
|
|
|
9
|
|
|
|
33
|
|
Other assets
|
|
|
—
|
|
|
|
24
|
|
Accounts payable-trade
|
|
|
(412
|
)
|
|
|
166
|
|
Royalties payable
|
|
|
(11
|
)
|
|
|
(15
|
)
|
Accrued course expenses
|
|
|
(10
|
)
|
|
|
(187
|
)
|
Accrued salaries, wages and benefits
|
|
|
8
|
|
|
|
(379
|
)
|
Operating lease liability
|
|
|
(20
|
)
|
|
|
(15
|
)
|
Other accrued expenses
|
|
|
(449
|
)
|
|
|
(6,449
|
)
|
Deferred revenue
|
|
|
(5,990
|
)
|
|
|
(18,253
|
)
|
Net cash used in operating activities - continuing operations
|
|
|
(4,229
|
)
|
|
|
(5,120
|
)
|
Net cash (used in) provided by operating activities - discontinued operations
|
|
|
(41
|
)
|
|
|
43
|
|
Net cash used in operating activities
|
|
|
(4,270
|
)
|
|
|
(5,077
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
|
|
|
|
|
|
Proceeds from sale of investment property
|
|
|
—
|
|
|
|
370
|
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities - continuing operations
|
|
|
—
|
|
|
|
370
|
|
Net cash used in investing activities - discontinued operations
|
|
|
—
|
|
|
|
—
|
|
Net cash provided by investing activities
|
|
|
—
|
|
|
|
370
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Principal payments on debt
|
|
|
(8
|
)
|
|
|
(500
|
)
|
Proceeds from issuance of debt
|
|
|
—
|
|
|
|
2,900
|
|
Proceeds from borrowing Paycheck Protection Program loan
|
|
|
1,900
|
|
|
|
—
|
|
Proceeds from debentures including related parties
|
|
|
900
|
|
|
|
—
|
|
Net cash provided by financing activities - continuing operations
|
|
|
2,792
|
|
|
|
2,400
|
|
Net cash provided by financing activities - discontinued operations
|
|
|
—
|
|
|
|
—
|
|
Net cash provided by financing activities
|
|
|
2,792
|
|
|
|
2,400
|
|
Effect of exchange rate differences on cash
|
|
|
98
|
|
|
|
(771
|
)
|
Net decrease in cash and cash equivalents and restricted cash
|
|
|
(1,380
|
)
|
|
|
(3,078
|
)
|
Cash and cash equivalents and restricted cash, beginning of period, including cash in discontinued operations
|
|
$
|
2,694
|
|
|
$
|
6,228
|
|
Cash and cash equivalents and restricted cash, end of period
|
|
$
|
1,314
|
|
|
$
|
3,150
|
|
Cash and cash equivalents and restricted cash, beginning of period
|
|
$
|
2,680
|
|
|
$
|
6,228
|
|
Cash and cash equivalents and restricted cash, end of period
|
|
$
|
1,314
|
|
|
$
|
6,228
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures:
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest
|
|
$
|
—
|
|
|
$
|
107
|
|
Cash received the period for income taxes, net of payments
|
|
$
|
(85
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash activity:
|
|
|
|
|
|
|
|
|
Supplemental non-cash amounts of lease liabilities arising from obtaining right-of-use assets/(decrease) of lease liability due to cancellation of leases
|
|
$
|
—
|
|
|
$
|
(34
|
)
|
Common stock and warrants issued from conversion of senior convertible debenture – related party
|
|
$
|
355
|
|
|
$
|
—
|
|
Initial recognition of beneficial conversion feature for senior secured convertible debt
|
|
$
|
896
|
|
|
$
|
—
|
|
Note payable issued for insurance policy financing
|
|
$
|
26
|
|
|
$
|
—
|
|
Non-cash disposal of property
|
|
$
|
-
|
|
$
|
|
|
See
Notes to Unaudited Consolidated Financial Statements
LEGACY
EDUCATION ALLIANCE, INC. AND SUBSIDIARIES
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 nine
months ended September 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 courses expire, both of which could be several quarters after the student purchases
a program and pays the fee. We recognize revenue immediately when we sell (i) our proprietary products delivered at time of sale and
(ii) products fulfilled by third parties. 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). Mentoring involves a subject matter expert interacting with the student, for example,
through his or her first real estate transaction. During the third quarter of 2021, we resumed providing on-site mentorships on a limited
basis.
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 nine months ended September
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, Inc. 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 nine
months ended September 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. On September 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:
Schedule
of Reconciliation of Cash, Cash Equivalents, and Restricted Cash
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(in thousands)
|
|
Cash and cash equivalents
|
|
$
|
690
|
|
|
$
|
1,500
|
|
Restricted cash
|
|
|
624
|
|
|
|
1,180
|
|
Total cash, cash equivalents, and restricted cash shown in the cash flow statement
|
|
$
|
1,314
|
|
|
$
|
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.
In
March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial
Reporting.” The amendments provide optional guidance for a limited time to ease the potential burden in accounting for reference
rate reform. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships
and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging
relationships that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued
due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made
and hedging relationships entered into or evaluated on or before December 31, 2022. The application of this guidance will not have a
material impact on our financial statements.
In
2019, the FASB issued ASU No. 2019-12, “Income Taxes: Simplifying the Accounting for Income Taxes.” This standard simplifies
the accounting and disclosure requirements for income taxes by clarifying existing guidance to improve consistency in application of
ASC 740. This standard also removed the requirement to calculate income tax expense for the stand-alone financial statements of wholly
owned subsidiaries. The guidance will be effective for fiscal years and interim periods beginning after December 15, 2020. Different
components of the guidance require retrospective, modified retrospective or prospective adoption, and early adoption is permitted. We
adopted this guidance in the first quarter of 2021, and the impact on our financial statements was not material.
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 $51.0 thousand and $9.0 thousand for the three months ended September
30, 2021 and 2020, respectively, and $82.0 and $23.0 thousand for the nine months ended September 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.
On
August 27, 2021, we granted 315,000 shares of restricted stock to external consultants, which were fully vested at the grant date. The
grant date price per share was $0.10 for a total grant date fair value of $31.5 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:
Schedule of Assets and Liabilities
|
|
September 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
|
|
|
33
|
|
|
|
34
|
|
Total major classes of assets - discontinued operations
|
|
$
|
33
|
|
|
$
|
854
|
|
Major classes of liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
3,627
|
|
|
$
|
3,698
|
|
Accrued course expenses
|
|
|
585
|
|
|
|
593
|
|
Other accrued expenses
|
|
|
437
|
|
|
|
1,582
|
|
Deferred revenue
|
|
|
5,160
|
|
|
|
5,413
|
|
Total major classes of liabilities - discontinued operations
|
|
$
|
9,809
|
|
|
$
|
11,286
|
|
The
financial results of the discontinued operations are as follows:
Schedule of Discontinued Operations Income Statement
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
(in thousands)
|
|
Revenue
|
|
$
|
—
|
|
|
$
|
1,742
|
|
|
$
|
40
|
|
|
$
|
5,522
|
|
Total operating costs and expenses
|
|
|
—
|
|
|
|
764
|
|
|
|
907
|
|
|
|
2,436
|
|
(Loss) income from discontinued operations
|
|
|
—
|
|
|
|
978
|
|
|
|
(867
|
)
|
|
|
3,086
|
|
Interest income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense, net
|
|
|
—
|
|
|
|
3
|
|
|
|
(80
|
)
|
|
|
4
|
|
Income tax benefit (expense)
|
|
|
—
|
|
|
|
(248
|
)
|
|
|
1,118
|
|
|
|
(248
|
)
|
Net income from discontinued operations
|
|
$
|
—
|
|
|
$
|
733
|
|
|
$
|
171
|
|
|
$
|
2,842
|
|
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 2,328,043 and 114,282 for the three months ended September 30, 2021,
and 2020, respectively, and 1,438,505 and 146,109 for the nine months ended September 30, 2021, and 2020, respectively.
Weighted
average unvested restricted stock awards outstanding for the three months ended September 30, 2021 were not included in the computation
of our diluted EPS, as inclusion would have been anti-dilutive, however for the three months ended September 30, 2020 and nine months
ended September 30, 2021 and 2020, they were included as they would have been dilutive.
The
calculations of basic and diluted EPS are as follows:
Schedule of Calculations of Basic and Diluted EPS
|
|
Three Months Ended
September 30, 2021
|
|
|
Three Months Ended
September 30, 2020
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Loss
|
|
|
|
|
|
Average
|
|
|
Earnings
|
|
|
|
Net
|
|
|
Shares
|
|
|
Per
|
|
|
Net
|
|
|
Shares
|
|
|
Per
|
|
|
|
Loss
|
|
|
Outstanding
|
|
|
Share
|
|
|
Income
|
|
|
Outstanding
|
|
|
Share
|
|
|
|
(in thousands, except per share data)
|
|
|
(in thousands, except per share data)
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
(195
|
)
|
|
|
33,064
|
|
|
|
|
|
|
$
|
4,689
|
|
|
|
23,252
|
|
|
|
|
|
Amounts allocated to unvested restricted shares
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
(23
|
)
|
|
|
(114
|
)
|
|
|
|
|
Amounts available to common stockholders
|
|
$
|
(195
|
)
|
|
|
33,064
|
|
|
$
|
(0.01
|
)
|
|
$
|
4,666
|
|
|
|
23,138
|
|
|
$
|
0.20
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts allocated to unvested restricted shares
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
23
|
|
|
|
114
|
|
|
|
|
|
Amounts reallocated to unvested restricted shares
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
(23
|
)
|
|
|
—
|
|
|
|
|
|
Amounts available to stockholders and assumed conversions
|
|
$
|
(195
|
)
|
|
|
33,064
|
|
|
$
|
(0.01
|
)
|
|
$
|
4,666
|
|
|
|
23,252
|
|
|
$
|
0.20
|
|
|
|
Nine Months Ended
September 30, 2021
|
|
|
Nine Months Ended
September 30, 2020
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Earnings
|
|
|
|
|
|
Average
|
|
|
Earnings
|
|
|
|
Net
|
|
|
Shares
|
|
|
Per
|
|
|
Net
|
|
|
Shares
|
|
|
Per
|
|
|
|
Income
|
|
|
Outstanding
|
|
|
Share
|
|
|
Income
|
|
|
Outstanding
|
|
|
Share
|
|
|
|
(in thousands, except per share data)
|
|
|
(in thousands, except per share data)
|
|
Basic:
|
|
|
|
|
|
|
As reported
|
|
$
|
420
|
|
|
|
27,812
|
|
|
|
|
|
|
$
|
11,525
|
|
|
|
23,192
|
|
|
|
|
|
Amounts allocated to unvested restricted shares and warrants
|
|
|
(22
|
)
|
|
|
(1,439
|
)
|
|
|
|
|
|
|
(73
|
)
|
|
|
(146
|
)
|
|
|
|
|
Amounts available to common stockholders
|
|
$
|
398
|
|
|
|
26,373
|
|
|
$
|
0.02
|
|
|
$
|
11,452
|
|
|
|
23,046
|
|
|
$
|
0.50
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts allocated to unvested restricted shares
|
|
|
23
|
|
|
|
1,439
|
|
|
|
|
|
|
|
73
|
|
|
|
146
|
|
|
|
|
|
Stock warrants
|
|
|
—
|
|
|
|
3,964
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Incremental shares to be issued for convertible note
|
|
|
31
|
|
|
|
10,000
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Amounts reallocated to unvested restricted shares
|
|
|
(23
|
)
|
|
|
—
|
|
|
|
|
|
|
|
(73
|
)
|
|
|
—
|
|
|
|
|
|
Amounts available to stockholders and assumed conversions
|
|
$
|
429
|
|
|
|
41,776
|
|
|
$
|
0.01
|
|
|
$
|
11,452
|
|
|
|
23,192
|
|
|
$
|
0.49
|
|
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).
|
As
of September 30, 2021 and 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 its financial instruments approximates their
fair value due either to the length of maturity interest rates that approximate prevailing market rates.
Note
7 - Short-Term and Long-Term Debt
Schedule
of Short-term and Long-term Debt
(in thousands)
|
|
As of
September 30,
2021
|
|
|
As of
December 31,
2020
|
|
Senior Secured Convertible Debenture
|
|
$
|
500
|
|
|
$
|
—
|
|
Debt Discount
|
|
|
(492
|
)
|
|
|
—
|
|
Senior Secured Convertible Debenture, net
|
|
|
8
|
|
|
|
—
|
|
Paycheck Protection Program loan
|
|
|
1,000
|
|
|
|
1,900
|
|
Paycheck Protection Program loan 2
|
|
|
1,900
|
|
|
|
—
|
|
IPFS Insurance Premium Note Payable
|
|
|
18
|
|
|
|
—
|
|
Promissory notes
|
|
$
|
—
|
|
|
$
|
—
|
|
Total debt, net of debt discount
|
|
|
2,926
|
|
|
|
1,900
|
|
Less current portion of long-term debt
|
|
|
(1,018
|
)
|
|
|
—
|
|
Total long-term debt, net of current portion
|
|
$
|
1,908
|
|
|
$
|
1,900
|
|
Short-term
related party debt:
Schedule
Short-term Related Party Debt
(in thousands)
|
|
As of
September 30,
2021
|
|
|
As of
December 31,
2020
|
|
|
|
|
|
|
|
|
Senior Secured Convertible Debenture - related party
|
|
$
|
47
|
|
|
$
|
—
|
|
Debt Discount-related party
|
|
|
(27
|
)
|
|
|
|
|
Senior Secured Convertible Debenture - related party, net
|
|
$
|
20
|
|
|
$
|
—
|
|
The
following is a summary of scheduled debt maturities by year (in thousands):
Schedule
of Debt Maturities
|
|
$
|
9
|
|
2020
|
|
|
|
|
2021
|
|
$
|
9
|
|
2022
|
|
|
1,029
|
|
2023
|
|
|
—
|
|
2024
|
|
|
—
|
|
2025
|
|
|
—
|
|
Thereafter
|
|
|
1,908
|
|
Total debt, net of debt discount
|
|
$
|
2,946
|
|
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 $900 thousand in principal and $11 thousand in interest. The remaining outstanding principal balance of $1,000 thousand
is due on April 24, 2022. The accrued interest of $1.7 thousand through September 30, 2021, is due monthly beginning October 2021.
Senior
Secured Convertible Debenture and Exercise of Conversion Rights.
On
March 8, 2021, the Company issued a $375 thousand Senior Secured Convertible Debenture (“LTP Debenture”) to Legacy Tech Partners,
LLC (“LTP”), a related party. The LTP 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 LTP 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”). Under the term of the original LTP Debenture, LTP had 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 nine months ended September 30, 2021. The LTP 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 LTP Debenture and granted LTP a lien
on all assets of such subsidiaries. The proceeds from the LTP 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 LTP 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 LTP 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. At the Annual Meeting of Stockholders
of the Company held on July 2, 2021, the stockholders approved the future issuance of shares to LTP upon conversion under the LTP Debenture
in excess of the 19.9% limitation, but no such shares have been issued. 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 nine-months ended September 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 nine months ended September 30, 2021, with a corresponding credit to additional paid-in capital. The related amortization of the
debt discount to interest expense for the nine-month ended September 30, 2021, amounted to $347.5 thousand.
On
August 27, 2021, the Company amended the terms of the LTP Debenture to reduce LTP’s maximum funding obligation from $1 million
to $675 thousand and to require LTP to fund the remaining principal balance of $300 thousand no later than October 15, 2021. On October
15, 2021, the Company received $100 thousand of the remaining $300 thousand funding obligation of LTP. On October 27, 2021, LTP funded
the remaining funding obligation of $200 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. The principal balance amounted to $1.9 million, as of September 30, 2021.
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 called for interest at a rate of 10% and would have been due on the earlier of
the occurrence of certain liquidity events with respect to the Company and May 4, 2022. The Subordinated Debenture was convertible 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 would be issued with a strike price
of $0.05 per share and an expiration date of May 4, 2026 (the “Warrants”). Mr. Botbol also had 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 was to extinguish liabilities of the Company and to fund working capital, general corporate purposes and
the development of administrative functions. 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 nine-month ended September 30, 2021, amounted to $21 thousand.
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”).
Senior
Secured Convertible Debenture, Advisory Agreement, and Intercreditor Agreement
On
August 27, 2021, the Company issued a $500 thousand Senior Secured Convertible Debenture (GLD “Debenture”) to GLD Legacy
Holdings, LLC, (GLD). The GLD 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 or August 27, 2026. The GLD 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 August 27, 2026 (the “Warrants”).
The cash receipt date, August 27, 2021, was used for the market value of stock on measurement date, at $0.10 per common share, resulting
in the recognition of debt discount and additional paid-in capital of $500 thousand, respectively, within the consolidated balance sheet
for the nine-months ended September 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 $500 thousand related to the beneficial conversion feature during
the nine months ended September 30, 2021, with a corresponding credit to additional paid-in capital. The related amortization of the
debt discount to interest expense for the nine-month ended September 30, 2021, amounted to $8.3 thousand. Net proceeds were $485.2 thousand
after legal fees and transaction expenses of $14.8 thousand, which are included in our consolidated statement of operations for the nine
months ended September 30, 2021. GLD has an option to lend the Company an additional $500 thousand under the same terms prior to December
31, 2023. The GLD Debenture is secured by a lien on all the Company’s assets. The Company’s U.S. subsidiaries entered into
Guaranties on August 27, 2021, in favor of GLD under which such subsidiaries guaranteed the Company’s obligations under the GLD
Debenture and granted GLD a lien on all assets of such subsidiaries. The proceeds from the GLD Debenture were used for working capital
for the development of the Company’s Legacy EdTech business and for working capital for the operation of the Company’s seminar
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. Under the terms of the GLD Debenture, and until all of the obligations of the Company under
the GLD Debenture have been paid in full, GLD may appoint one member to the Board of Directors of the Company, subject to the review
and approval of the GLD appointed candidate by the Nominating and Governance Committee of the Company. In lieu of cash compensation,
the GLD appointed director will receive a grant of 150,000 restricted shares of Common Stock of the Company upon appointment to the Board.
Pursuant
to the terms of the GLD Debenture, on August 27, 2021, the Company entered into an Advisory Services Agreement with GLD Advisory Services,
LLC, (GLDAS) an affiliate of GLD. GLDAS will provide the Company and its subsidiaries with business, finance and organizational strategy,
advisory, consulting and other services related to the business of the Company. In lieu of cash compensation, on the effective date of
the agreement, August 27, 2021, GLDAS received fully vested 315,000 shares of Common Stock of the Company and will receive 315,000 shares
of Common Stock thereafter on each anniversary until the GLD debenture has been repaid in full.
On
August 27, 2021, in connection with the GLD Debenture, the Company entered into an Intercreditor Agreement with GLD, LTP, and Barry Kostiner,
a related party. LTP and GLD agreed that LTP’s and GLD’s respective rights under the LTP Debenture and GLD Debenture would
rank equally and ratably in all respects to one another including, without limitation, rights in collateral, right and priority of payment
and repayment of principal, interest, and all fees and other amounts. The Intercreditor Agreement also appoints Barry Kostiner as Servicing
Agent to act on behalf of all GLD and LTP, subject to the terms of the agreement, with respect to (a) enforcing GLD’s and LTP’s
rights and remedies, and the Company’s obligations, under the Debentures.
IPFS
Premium Finance Agreement
On
July 30, 2021, the Company entered into a premium finance agreement for insurance coverage in the amount of $26 thousand at an interest
rate of 5.55% for 10 months. The balance remaining as of September 30, 2021, is $18 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 6,586,500 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 nine months ended September 30, 2021, is as follows:
Schedule of Summary of the Warrant Activity
|
|
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
|
|
|
|
-
|
|
|
|
-
|
|
Balance as of September 30, 2021
|
|
|
7,083,500
|
|
|
$
|
0.05
|
|
|
|
4.5
|
|
|
|
270
|
|
Exercisable as of September 30, 2021
|
|
|
7,083,500
|
|
|
$
|
0.05
|
|
|
|
4.5
|
|
|
|
270
|
|
1
|
The
aggregate intrinsic value is calculated as the difference between the exercise price of the underlying warrants and the closing stock
price of $0.0881 for our common stock on September 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 $0.1 million and income tax expense of $1.00 million for the three months ended September 30, 2021 and
2020, respectively. We recorded income tax expense of $0.8 million and $1.9 million for the nine months ended September 30, 2021 and
2020 respectively. Our effective tax rate was 37.7% and 19.5% for the three months ended September 30, 2021 and 2020 and 76.2% and 18.1%
for the nine months ended September 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 September 30, 2021 and December 31, 2020, we retained a valuation
allowance of $3.4 million and $3.6 million, respectively, for a certain number of our international subsidiaries.
During
the nine months ended September 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 $0.0 million and $0.3 million of the unrecognized tax benefits,
which if recognized, would impact the effective tax rate at September 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 September 30, 2021 and December 31, 2020, including
foreign subsidiaries, without FDIC coverage were $0.0 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 September 30, 2021
and 2020, Rich Dad brands provided 53.8% and 78.4% of our revenue. For the nine months ended September 30, 2021 and 2020, Rich Dad brands
provided 58.9% and 77.4% 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:
Schedule of Total Revenue Attributable to Each Segment
As a percentage of total revenue
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
As a percentage of total revenue
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
North America
|
|
|
100.0
|
%
|
|
|
97.0
|
%
|
|
|
63.5
|
%
|
|
|
96.7
|
%
|
U.K.
|
|
|
—
|
%
|
|
|
0.6
|
%
|
|
|
36.5
|
%
|
|
|
1.1
|
%
|
Other foreign markets
|
|
|
—
|
%
|
|
|
2.4
|
%
|
|
|
—
|
%
|
|
|
2.2
|
%
|
Total consolidated revenue
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Operating
results for the segments are as follows:
Schedule of Operating Results for Segments
As a percentage of total revenue
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Segment revenue
|
|
(In thousands)
|
|
|
(In thousands)
|
|
North America
|
|
$
|
1,379
|
|
|
$
|
7,211
|
|
|
$
|
4,672
|
|
|
$
|
20,851
|
|
U.K.
|
|
|
—
|
|
|
|
47
|
|
|
|
2,689
|
|
|
|
245
|
|
Other foreign markets
|
|
|
—
|
|
|
|
181
|
|
|
|
—
|
|
|
|
468
|
|
Total consolidated revenue
|
|
$
|
1,379
|
|
|
$
|
7,439
|
|
|
$
|
7,361
|
|
|
$
|
21,564
|
|
As a percentage of total revenue
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Segment gross profit contribution *
|
|
(In thousands)
|
|
|
(In thousands)
|
|
North America
|
|
$
|
(16
|
)
|
|
$
|
5,951
|
|
|
$
|
1,919
|
|
|
$
|
13,625
|
|
U.K.
|
|
|
(10
|
)
|
|
|
13
|
|
|
|
2,199
|
|
|
|
312
|
|
Other foreign markets
|
|
|
1
|
|
|
|
168
|
|
|
|
1
|
|
|
|
505
|
|
Total consolidated gross profit
|
|
$
|
(25
|
)
|
|
$
|
6,132
|
|
|
$
|
4,119
|
|
|
$
|
14,442
|
|
*
|
Segment
gross profit is calculated as revenue less direct course expenses, advertising and sales expenses and royalty expenses.
|
Schedule of Depreciation and Amortization Expenses
As a percentage of total revenue
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Depreciation and amortization expenses
|
|
(In thousands)
|
|
|
(In thousands)
|
|
North America
|
|
$
|
—
|
|
|
$
|
8
|
|
|
$
|
2
|
|
|
$
|
36
|
|
U.K.
|
|
|
—
|
|
|
|
4
|
|
|
|
2
|
|
|
|
11
|
|
Other foreign markets
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
—
|
|
Total consolidated depreciation and amortization expenses
|
|
$
|
—
|
|
|
$
|
11
|
|
|
$
|
4
|
|
|
$
|
47
|
|
Schedule of Segment Identifiable Assets
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Segment identifiable assets
|
|
(In thousands)
|
|
North America
|
|
$
|
1,774
|
|
|
$
|
3,834
|
|
U.K.
|
|
|
125
|
|
|
|
1,266
|
|
Other foreign markets
|
|
|
183
|
|
|
|
192
|
|
Total consolidated identifiable assets
|
|
$
|
2,082
|
|
|
$
|
5,292
|
|
Our
long-lived assets in the U.S. were approximately $4.0 thousand and $1,000.0 thousand for the years ended December 31, 2020 and 2019,
respectively. Our international long-lived assets were approximately $0.1 thousand and $400.0 thousand, respectively, for the same periods.
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 September 30, 2021, we have deferred revenue of
$4.3 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 September 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:
Schedule of Segment Revenue
|
|
Three Months Ended
September 30, 2021
|
|
|
Three Months Ended
September 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
|
|
$
|
1,272
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,272
|
|
|
$
|
6,783
|
|
|
$
|
47
|
|
|
$
|
141
|
|
|
$
|
6,971
|
|
Products
|
|
|
107
|
|
|
|
—
|
|
|
|
—
|
|
|
|
107
|
|
|
|
70
|
|
|
|
—
|
|
|
|
—
|
|
|
|
70
|
|
Coaching and Mentoring
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7
|
|
|
|
—
|
|
|
|
3
|
|
|
|
10
|
|
Online and Subscription
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
351
|
|
|
|
—
|
|
|
|
37
|
|
|
|
388
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total revenue
|
|
$
|
1,379
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,379
|
|
|
$
|
7,211
|
|
|
$
|
47
|
|
|
$
|
181
|
|
|
$
|
7,439
|
|
|
|
Nine Months Ended
September 30, 2021
|
|
|
Nine Months Ended
September 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
|
|
$
|
4,300
|
|
|
$
|
880
|
|
|
$
|
—
|
|
|
$
|
5,180
|
|
|
$
|
17,940
|
|
|
$
|
245
|
|
|
$
|
425
|
|
|
$
|
18,610
|
|
Products
|
|
|
198
|
|
|
|
—
|
|
|
|
—
|
|
|
|
198
|
|
|
|
464
|
|
|
|
—
|
|
|
|
—
|
|
|
|
464
|
|
Coaching and Mentoring
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,050
|
|
|
|
—
|
|
|
|
3
|
|
|
|
1,053
|
|
Online and Subscription
|
|
|
11
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11
|
|
|
|
1,281
|
|
|
|
—
|
|
|
|
40
|
|
|
|
1,321
|
|
Other
|
|
|
163
|
|
|
|
1,809
|
|
|
|
—
|
|
|
|
1,972
|
|
|
|
116
|
|
|
|
—
|
|
|
|
—
|
|
|
|
116
|
|
Total revenue
|
|
$
|
4,672
|
|
|
$
|
2,689
|
|
|
$
|
—
|
|
|
$
|
7,361
|
|
|
$
|
20,851
|
|
|
$
|
245
|
|
|
$
|
468
|
|
|
$
|
21,564
|
|
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 Statements of Operations and Comprehensive Income for the three
and nine months ended September 30, 2020 were $9.0 thousand and $68.0 thousand, respectively. There were no royalty expenses recorded
for the three and nine months ended September 30, 2021.
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 September 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 September 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 September 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 September 30, 2021, the Company has paid $220 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 Proceedings.
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 September
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 September 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 September
30, 2021 and December 31, 2020:
Schedule of Lease Related Assets and Liabilities
Classification on the Balance Sheet
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
|
|
(in thousands)
|
|
Operating lease right of use assets
|
|
$
|
26
|
|
|
$
|
45
|
|
Total lease assets
|
|
$
|
26
|
|
|
$
|
45
|
|
|
|
|
|
|
|
|
|
|
Current operating lease liabilities
|
|
$
|
26
|
|
|
$
|
25
|
|
|
|
|
|
|
|
|
|
|
Long-term operating lease liabilities
|
|
$
|
—
|
|
|
$
|
20
|
|
Total lease liabilities
|
|
$
|
26
|
|
|
$
|
45
|
|
Lease
cost for the three and nine months ended September 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
nine months ended September 30, 2021 and 2020:
Schedule of Operating Lease Cost
Classification
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
Classification
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
General and administrative expenses
|
|
$
|
7
|
|
|
$
|
12
|
|
|
$
|
20
|
|
|
$
|
22
|
|
Total lease cost
|
|
$
|
7
|
|
|
$
|
12
|
|
|
$
|
20
|
|
|
$
|
22
|
|
Other
Information
The
table below presents supplemental cash flow information related to leases for the nine months ended September 30, 2021 and 2020:
Schedule of Cash Flow Information Related to Leases
|
|
Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(in thousands)
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
Operating cash flows for operating leases
|
|
$
|
20
|
|
|
$
|
15
|
|
Supplemental non-cash amounts of lease liabilities arising from obtaining right-of-use assets/(decrease) of lease liability due to cancellation of leases
|
|
|
—
|
|
|
|
(34
|
)
|
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 September 30, 2021 and December 31, 2020:
Schedule of Weighted Average Remaining Lease Terms and Weighted Average Discount Rates
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Weighted average remaining lease term - operating leases
|
|
|
1.00 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
On
October 15, 2021, the Company entered into a Stock Purchase and Option Agreement (“the Purchase Agreement”) with NCW, LLC,
a Wyoming limited liability company, pursuant to which, subject to certain conditions, (i) NCW purchased 20 million shares of common
stock of the Company (“Purchase Shares”) for a total aggregate price of $2,000 and (ii) in exchange for an aggregate purchase
price of $12 thousand, an option to purchase, from time to time, up to an additional 120 million shares of common stock of the Company
(“Option Shares”) for a price per share of $0.05833, as may be adjusted from time to time pursuant to the Purchase Agreement.
NCW’s option to purchase additional shares under the Purchase Agreement shall expire on October 15, 2023. The Option Price is subject
to adjustment upon the occurrence of certain events as described in the Purchase Agreement. Because the Purchase Agreement was approved
by the Company’s Board of Directors prior to NCW acquiring any of the Purchase Shares or Option Shares, NCW is not an Acquiring
Person under the Rights Agreement between the Company and Broadridge Corporate Issuer Solutions, Inc. The obligations of the Company
to consummate the transaction shall be conditioned upon the receipt by the Company from LTP under the amended terms of the 10% Senior
Secured Convertible note dated March 8, 2021 as follows: (i) $100 thousand not later than October 15, 2021 and (ii) $100 thousand not
later than November 15, 2021 and (iii) $100 thousand not later than December 15, 2021. LTP timely funded the first $100 thousand installment
on October 15, 2021. On October 27, 2021, LTP funded the remaining $200 thousand. The proposed issuances of the Purchase Shares and Option
Shares have not been listed for trading on any national securities exchange and have not been registered under the Securities and Exchange
Act of 1933.
On
November 18, 2021, the Company entered into a Stock Purchase and Option Agreement (the “Purchase Agreement”) with Mayer and
Associates LLC (“Mayer”), pursuant to which Mayer purchased (i) 1,600,000 shares of common stock of the Company for a total
aggregate price of $160.00, or $0.0001 per share (the “Purchase Shares”) and (ii) in exchange for an aggregate purchase price
of $13,840, an option (the “Option”) to purchase, from time to time, up to an additional 138,400,000 shares of common stock
of the Company (“Option Shares”). The Option is exercisable at a per share exercise price of, for the first 18,400,000 Option
Shares, $0.0001, and $0.05833 for the remaining Option Shares (the “Option Price”). Mayer’s option to purchase the
Option Shares under the Purchase Agreement shall expire on November 18, 2023, and its right to acquire any of the Option Shares is subject
to limitation so that at no time may Mayer beneficially own more than 4.99% (or 9.99% under certain circumstances) of the total issued
and outstanding shares of Company common stock. The Option Price is subject to adjustments upon the occurrence of certain events as more
fully described in the Purchase Agreement.
The
Purchase Shares and Option Shares are subject to piggyback registration rights under the Purchase Agreement.
On
November 19, 2021, the Company and NCW entered into a Termination Agreement dated as of November 17, 2021, pursuant to which that certain
Stock Purchase and Option Agreement dated October 15, 2021 as between the Company and NCW (the “NCW Agreement”) was terminated
and no longer of any force or effect. The transactions originally contemplated by the NCW Agreement were never consummated and (a) no
shares of Company common stock or options were ever issued to NCW under the Agreement and (b) NCW never paid to the Company any of the
purchase price or other amounts contemplated by the NCW Agreement.
On
November 4, 2021, Cary Sucoff, a member of the Board of Directors (the “Board”) of the Company and of its Nominating &
Corporate Governance Committee (Chair) and its Audit Committee, resigned as a Board member, effective immediately. Mr. Sucoff’s
resignation is not related to any disagreement with the Company’s operations, policies, or practices. Effective November 4, 2021,
the Company amended the terms of the 315,000 restricted common shares granted to Mr. Sucoff, so that all of such shares are fully vested.
On
November 4, 2021, Peter W. Harper, a member of the board and of its Audit Committee (Chair) and its Compensation Committee, resigned
as a Board member, effective immediately. Mr. Harper’s resignation is not related to any disagreement with the Company’s
operations, policies, or practices. Effective November 4, 2021, the Company amended the terms of the 315,000 restricted common shares
granted to Mr. Harper, so that all of such shares are fully vested.
On
November 4, 2021, James E. May, the General Counsel and Secretary of the company and its subsidiaries, resigned from all such roles effective
immediately.
On
November 8, 2021, Vanessa Guzmán-Clark, the Vice President and Chief Financial Officer of the Company, resigned from all such
roles effective immediately. Mr. Barry Kostiner, a member of the Board and Manager of Capital Markets, will assume the interim role of
principal financial and accounting officer of the Company. Mr. Kostiner shall be appointed Secretary of the Company.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Shareholders and Board of Directors of
Legacy
Education Alliance, Inc.
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of Legacy Education Alliance, Inc. and its subsidiaries (collectively, the
“Company”) as of December 31, 2020 and 2019 and the related consolidated statements of operations and comprehensive income,
changes in stockholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the
“financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2020 and 2019, and the results of their operations and their cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United States of America.
Going
Concern Matter
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note
2 to the financial statements, the Company has a net capital deficiency and an accumulated deficit that raise substantial doubt about
its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits
we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
Critical
Audit Matters
The
critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated
or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial
statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter
does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit
matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue
recognition
Description
of the Matter
As
disclosed in Note 2 to the financial statements, the Company recognizes revenue based on the customers’ attendance of the course,
mentoring training, coaching session or delivery of the software, data or course materials online. The Company also recognizes breakage
revenue when a customer contract expires less a reserve for cases where customers are allowed to attend after expiration.
We
identified the Company’s revenue recognition as a critical audit matter. Specifically, the significant judgments made by management
in developing its estimate of the reserve for breakage and the timing of when revenue is recognized for each distinct performance obligation
required a high degree of effort and auditor judgment.
How
We Addressed the Matter in Our Audit
The
audit procedures we performed to address this critical audit matter included the following, among others:
|
●
|
Testing
customer contract terms and delivery method of each performance obligation by reviewing a sample of contracts between the Company
and its customers.
|
|
●
|
Testing
the allocation of the contract price to the performance obligations included in selected contracts.
|
|
●
|
Obtaining
evidence indicating completion of performance obligations for revenue recognition and verifying the timing of revenue recognized
over time.
|
|
●
|
Evaluating
the reasonableness of assumptions and methodology used by management in determining its estimate of the reserve for breakage.
|
/s/
MaloneBailey, LLP
|
|
www.malonebailey.com
|
|
We
have served as the Company’s auditor since 2014.
|
Houston,
Texas
|
|
April
9, 2021
|
|
LEGACY
EDUCATION ALLIANCE, INC. AND SUBSIDIARIES
Consolidated
Balance Sheets
(In
thousands, except share data)
See
Notes to Consolidated Financial Statements
LEGACY
EDUCATION ALLIANCE, INC. AND SUBSIDIARIES
Consolidated
Statements of Operations and Comprehensive Income
(In
thousands, except per share data)
See
Notes to Consolidated Financial Statements
LEGACY
EDUCATION ALLIANCE, INC. AND SUBSIDIARIES
Consolidated
Statements of Changes in Stockholders’ Deficit
(In
thousands)
|
|
Common stock
|
|
|
Additional paid-in
|
|
|
Cumulative foreign currency translation
|
|
|
Accumulated
|
|
|
Total stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
adjustment
|
|
|
deficit
|
|
|
deficit
|
|
Balance at December 31, 2019
|
|
|
23,163
|
|
|
$
|
2
|
|
|
$
|
11,552
|
|
|
$
|
710
|
|
|
$
|
(51,627
|
)
|
|
$
|
(39,363
|
)
|
Share-based compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
23
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23
|
|
Cancellation of common stock
|
|
|
(64
|
)
|
|
|
—
|
|
|
|
(11
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(11
|
)
|
Issuance of common stock
|
|
|
180
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Foreign currency translation adjustment, net of tax of $0
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(294
|
)
|
|
|
—
|
|
|
|
(294
|
)
|
Net Income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,009
|
|
|
|
16,009
|
|
Balance at December 31, 2020
|
|
|
23,279
|
|
|
$
|
2
|
|
|
$
|
11,564
|
|
|
$
|
416
|
|
|
$
|
(35,618
|
)
|
|
$
|
(23,636
|
)
|
See
Notes to Consolidated Financial Statements
LEGACY
EDUCATION ALLIANCE, INC. AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
(In
thousands)
|
|
2020
|
|
|
2019
|
|
|
|
Years Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
16,009
|
|
|
$
|
9,950
|
|
Less net loss from discontinued operations
|
|
|
—
|
|
|
|
6,609
|
|
Net income from continuing operations
|
|
$
|
16,009
|
|
|
$
|
3,341
|
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
69
|
|
|
|
162
|
|
Non-cash lease expense
|
|
|
45
|
|
|
|
60
|
|
Gain on the sale of fixed assets and investment property
|
|
|
(1,735
|
)
|
|
|
(41
|
)
|
Share-based compensation
|
|
|
23
|
|
|
|
82
|
|
Amortization of debt discount
|
|
|
|
|
|
|
|
|
Gain on debt extinguishment (PPP loan forgiveness)
|
|
|
|
|
|
|
|
|
Cancellation of common stock
|
|
|
(11
|
)
|
|
|
—
|
|
Deferred income taxes
|
|
|
418
|
|
|
|
(1,512
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Deferred course expenses
|
|
|
4,941
|
|
|
|
(29
|
)
|
Prepaid expenses and other receivable
|
|
|
710
|
|
|
|
921
|
|
Inventory
|
|
|
37
|
|
|
|
8
|
|
Other assets
|
|
|
49
|
|
|
|
(725
|
)
|
Accounts payable-trade
|
|
|
589
|
|
|
|
(377
|
)
|
Royalties payable
|
|
|
(29
|
)
|
|
|
(61
|
)
|
Accrued course expenses
|
|
|
(290
|
)
|
|
|
(530
|
)
|
Accrued salaries, wages and benefits
|
|
|
(386
|
)
|
|
|
(121
|
)
|
Operating lease liability
|
|
|
(41
|
)
|
|
|
(61
|
)
|
Other accrued expenses
|
|
|
4,157
|
|
|
|
(2,395
|
)
|
Deferred revenue
|
|
|
(31,520
|
)
|
|
|
1,646
|
|
Net cash (used in) provided by operating activities - continuing operations
|
|
|
(6,965
|
)
|
|
|
368
|
|
Net cash used in operating activities - discontinued operations
|
|
|
—
|
|
|
|
(350
|
)
|
Net cash (used in) provided by operating activities
|
|
|
(6,965
|
)
|
|
|
18
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
—
|
|
|
|
(192
|
)
|
Proceeds from sale of investment property
|
|
|
391
|
|
|
|
—
|
|
Proceeds from sale of property and equipment
|
|
|
2,500
|
|
|
|
165
|
|
Net cash provided by investing activities - continuing operations
|
|
|
2,891
|
|
|
|
(27
|
)
|
Net cash used in investing activities - discontinued operations
|
|
|
—
|
|
|
|
(8
|
)
|
Net cash provided by (used in) investing activities
|
|
|
2,891
|
|
|
|
(35
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Principal payments on debt
|
|
|
(1,500
|
)
|
|
|
(402
|
)
|
Proceeds from issuance of debt
|
|
|
2,900
|
|
|
|
395
|
|
Proceeds from borrowing Paycheck Protection Program loan
|
|
|
|
|
|
|
|
|
Proceeds from debentures including related parties
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities - continuing operations
|
|
|
1,400
|
|
|
|
(7
|
)
|
Net cash provided by financing activities - discontinued operations
|
|
|
—
|
|
|
|
—
|
|
Net cash provided by (used in) financing activities
|
|
|
1,400
|
|
|
|
(7
|
)
|
Effect of exchange rate differences on cash
|
|
|
(860
|
)
|
|
|
725
|
|
Net (decrease) increase in cash and cash equivalents and restricted cash
|
|
|
(3,534
|
)
|
|
|
701
|
|
Cash and cash equivalents and restricted cash, beginning of period
|
|
$
|
1,314
|
|
|
$
|
3,150
|
|
Cash and cash equivalents and restricted cash, end of period
|
|
$
|
2,694
|
|
|
$
|
6,228
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures:
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest
|
|
$
|
214
|
|
|
$
|
96
|
|
Cash paid during the period for income taxes, net of refunds received
|
|
$
|
—
|
|
|
$
|
15
|
|
|
|
|
|
|
|
|
|
|
Supplemental non-cash disclosures:
|
|
|
|
|
|
|
|
|
Supplemental non-cash amounts of lease liabilities arising from (decrease of lease liability due to cancellation of leases)/obtaining right-of-use assets
|
|
$
|
(31
|
)
|
|
$
|
176
|
|
Non-cash disposal of property
|
|
$
|
(363
|
)
|
|
$
|
—
|
|
See
Notes to Consolidated Financial Statements
LEGACY
EDUCATION ALLIANCE, INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
1—Business Description and Basis of Presentation
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 year
ended December 31, 2020, we marketed our products and services under two brands: Building Wealth with LegacyTM; and
Homemade Investor by Tarek El Moussa. During the year ended December 31, 2019, we marketed our products and services under two
brands: Rich Dad EducationTM and Legacy EducationTM.
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 four days in length, on site or remotely, although
we have 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). 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. Today we are a global company that
has cumulatively served more than two million students from more than 150 countries and territories over the course of our operating
history.
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. As a result of the COVID-19 coronavirus 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 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 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
December 31, 2019, we have operated under two brands:
|
●
|
Building
Wealth with Legacy TM: 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 response to the limitations on travel and
the social distancing protocols arising out of the Coronavirus pandemic, the Company began marketing its Legacy EducationTM
products transitioning to brand name Building Wealth with LegacyTM.
|
|
|
|
|
●
|
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 nationwide free workshops, 3-day trainings and large stage events with Tarek presenting as the keynote speaker, all selling
into our advanced training products.
|
Merger.
On November 10, 2014, we entered into an Agreement and Plan of Merger dated as of such date (the “Merger Agreement”) by and
among (i) PRCD, a Nevada corporation, (ii) Priced In Corp. Subsidiary, a Colorado corporation and a wholly-owned subsidiary of PRCD (“PRCD
Sub”), (iii) Tigrent Inc., a Colorado corporation (“TIGE”), and (iv) Legacy Education Alliance Holdings, Inc., a Colorado
corporation and a wholly-owned subsidiary of TIGE (“Legacy Holdings”). On November 10, 2014, pursuant to the Merger Agreement,
PRCD Sub merged with and into Legacy Holdings (the “Merger”), with Legacy Holdings surviving the Merger and becoming our
wholly owned subsidiary and we acquired the business of Legacy Holdings.
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
Legacy Education Alliance International Ltd (Legacy UK) assets and deferred revenue is reflected as a discontinued operation in the consolidated
financial statements.
Reclassification.
We have reclassified certain amounts in our prior-period financial statements to conform to the current period’s presentation.
Note
2—Significant Accounting Policies
Going
Concern. The accompanying consolidated financial statements and notes have been prepared assuming we will continue as a going concern.
For the years ended December 31, 2020 and December 31, 2019, respectively, we had an accumulated deficit and a working capital deficit.
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 December 31, 2020 and 2019, 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:
Schedule
of Reconciliation of Cash, Cash Equivalents, and Restricted Cash
|
|
December 31,
|
|
|
December 31,
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
Cash and cash equivalents
|
|
$
|
1,514
|
|
|
$
|
3,839
|
|
Restricted cash
|
|
|
1,180
|
|
|
|
2,389
|
|
Total cash, cash equivalents, and restricted cash shown in the cash flow statement
|
|
$
|
2,694
|
|
|
$
|
6,228
|
|
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 sheets (including receivables, payables and accrued liabilities) approximate their fair value due to length
of maturity of these instruments, the majority of which is short-term. The carrying value of long-term debt approximates fair value since
the related rates of interest approximate current market rates.
Inventory.
Inventory consists primarily of books, videos and training materials held for sale to students enrolled in our training programs.
Inventory is stated at the lower of cost or market using the first-in, first-out method.
Property,
equipment and Impairment of long-lived assets. Property and equipment is stated at cost less accumulated depreciation. Depreciation
is calculated using the straight-line method over the estimated useful lives of the assets as presented in the following table:
Schedule of Property, Equipment and Impairment of Long-lived Assets
Building
|
|
|
40
years
|
|
Residential
rental properties
|
|
|
27.5
years
|
|
Furniture,
fixtures and equipment
|
|
|
3-7
years
|
|
Purchased
software
|
|
|
3
years
|
|
Residential
rental properties generate monthly income from individual tenants. Income from these properties is recognized and included in other income.
Leasehold
improvements are amortized over the shorter of the estimated useful asset life or the remaining term of the applicable lease.
In
accordance with U.S. GAAP, we evaluate the carrying amount of our long-lived assets such as property and equipment, and finite-lived
intangible assets subject to amortization for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of assets held and used is measured by the comparison of its carrying amount with
the future net cash flows the asset is expected to generate. We look primarily to the undiscounted future cash flows in the assessment
of whether or not long-lived assets have been impaired. If the carrying amount of an asset exceeds its estimated undiscounted future
cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the estimated fair value
of the asset.
Other
assets included our residential investment property. On January 17, 2020, we sold this property for $390.6 thousand and recognized a
gain of $33.1 thousand, within Other income in the Consolidated Statements of Operations and Comprehensive Income. The proceeds were
held in escrow until December 8, 2020, when they used to pay the joint liquidators of LEA UK as payment of intercompany debts (see “Litigation”
on Note 15 “Commitments and Contingencies”).
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 Topic 606.
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. We had deferred revenue of $15.8 million and $46.5 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 December 31, 2020 and 2019, respectively. The revenue associated with these performance obligations is recognized
as the obligation is satisfied.
The
following tables disaggregate our segment revenue by revenue source:
Schedule
of Segment Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, 2020
|
|
|
Years Ended December 31, 2019
|
|
Revenue Type:
|
|
North
America
|
|
|
U.K.
|
|
|
Other
foreign
markets
|
|
|
Total
Consolidated
Revenue
|
|
|
North
America
|
|
|
U.K.
|
|
|
Other
foreign markets
|
|
|
Total
Consolidated
Revenue
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
Seminars
|
|
|
18,117
|
|
|
|
1,058
|
|
|
|
8,598
|
|
|
|
27,773
|
|
|
|
32,714
|
|
|
|
2,562
|
|
|
|
8,346
|
|
|
|
43,622
|
|
Products
|
|
|
427
|
|
|
|
—
|
|
|
|
—
|
|
|
|
427
|
|
|
|
9,404
|
|
|
|
1,141
|
|
|
|
3,777
|
|
|
|
14,322
|
|
Coaching and Mentoring
|
|
|
1,059
|
|
|
|
—
|
|
|
|
393
|
|
|
|
1,452
|
|
|
|
5,564
|
|
|
|
138
|
|
|
|
4,465
|
|
|
|
10,167
|
|
Online and Subscription
|
|
|
3,945
|
|
|
|
—
|
|
|
|
111
|
|
|
|
4,056
|
|
|
|
2,070
|
|
|
|
6
|
|
|
|
351
|
|
|
|
2,427
|
|
Other
|
|
|
453
|
|
|
|
—
|
|
|
|
—
|
|
|
|
453
|
|
|
|
4,675
|
|
|
|
281
|
|
|
|
2
|
|
|
|
4,958
|
|
Total revenue
|
|
|
24,001
|
|
|
|
1,058
|
|
|
|
9,102
|
|
|
|
34,161
|
|
|
|
54,427
|
|
|
|
4,128
|
|
|
|
16,941
|
|
|
|
75,496
|
|
Deferred
course expenses. We defer licensing fees and commissions and fees paid to our speakers and telemarketers until such time as the revenue
is earned. Our speakers, who are all independent contractors, earn commissions on the cash receipts received at our training events and
are paid approximately 45 days after the training event. The deferred course expenses are expensed as the corresponding deferred revenue
is recognized. We also capitalize the commissions and fees paid to our speakers and expense them as the corresponding deferred revenue
is recognized.
Advertising
expenses. We expense advertising as incurred. Advertising paid in advance is recorded as a prepaid expense until such time as the
advertisement is published.
Income
taxes. We account for income taxes in conformity with the requirements of ASC 740, Income Taxes (“ASC 740”). Per
ASC 740, the provision for income taxes is calculated using the asset and liability approach of accounting for income taxes. We recognize
deferred tax assets and liabilities, at enacted income tax rates, based on the temporary differences between the financial reporting
basis and the tax basis of our assets and liabilities. We include any effects of changes in income tax rates or tax laws in the provision
for income taxes in the period of enactment. When it is more likely than not that a portion or all of a deferred tax asset will not be
realized in the future, we provide a corresponding valuation allowance against the deferred tax asset.
ASC
740 also clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements and prescribes
a recognition threshold of more likely than not and a measurement process for financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. In making this assessment, a company must determine whether it is more likely
than not that a tax position will be sustained upon examination, based solely on the technical merits of the position and must assume
that the tax position will be examined by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest
and penalties, disclosures and transition.
Foreign
currency translation. We account for foreign currency translation in accordance with ASC 830, Foreign Currency Translation.
The functional currencies of our foreign operations are the reported local currencies. Translation adjustments result from translating
our foreign subsidiaries’ financial statements into United States dollars. The balance sheet accounts of our foreign subsidiaries
are translated into United States dollars using the exchange rate in effect at the balance sheet date. Revenue and expenses are translated
using average exchange rates for each month during the fiscal year. The resulting translation gains or losses are recorded as a component
of accumulated other comprehensive income in stockholders’ deficit. Business is generally transacted in a single currency not requiring
meaningful currency transaction costs. We do not practice hedging as the risks do not warrant the costs.
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. See Note 7 “Share-Based Compensation”, for additional
disclosures regarding our share-based compensation.
Comprehensive
income. Comprehensive income includes changes to equity accounts that were not the result of transactions with stockholders. Comprehensive
income is comprised of net income and other comprehensive income items. Our comprehensive income generally consists of changes in the
cumulative foreign currency translation adjustment.
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 Legacy UK meets this criterion. Accordingly, the assets, deferred
revenues, and income statement of Legacy UK were transferred to discontinued operations to close out the business. See Note 4 “Discontinued
Operations”, for additional disclosures regarding Legacy UK.
New
Accounting Pronouncements
We
have implemented all new accounting pronouncements that are in effect and that management believes would materially affect our financial
statements.
In
March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial
Reporting.” The amendments provide optional guidance for a limited time to ease the potential burden in accounting for reference
rate reform. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships
and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging
relationships that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued
due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made
and hedging relationships entered into or evaluated on or before December 31, 2022. The application of this guidance will not have a
material impact on our financial statements.
In
2019, the FASB issued ASU No. 2019-12, “Income Taxes: Simplifying the Accounting for Income Taxes.” This standard simplifies
the accounting and disclosure requirements for income taxes by clarifying existing guidance to improve consistency in application of
ASC 740. This standard also removed the requirement to calculate income tax expense for the stand-alone financial statements of wholly
owned subsidiaries. The guidance will be effective for fiscal years and interim periods beginning after December 15, 2020. Different
components of the guidance require retrospective, modified retrospective or prospective adoption, and early adoption is permitted. We
will adopt this guidance when it becomes effective, in the first quarter of 2021, and the impact on our financial statements is not expected
to be material.
Note
3—Concentration Risk
Cash
and Cash Equivalents
We
maintain deposits in banks which may 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 December 31, 2020 and 2019, including foreign subsidiaries, without
FDIC coverage was $0.8 million and $2.5 million, respectively.
Revenue
A
significant portion of our revenue was derived from the Rich Dad brands. For the years ended December 31, 2020 and 2019, Rich Dad brands
provided 77.4% and 84.6%, respectively, of our revenue. In addition, we have operations in North America, United Kingdom and Other foreign
markets (See Note 14 “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
4—Discontinued Operations
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 will 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 condensed consolidated financial statements.
The
major classes of assets and liabilities of Legacy UK were as follows:
Schedule
of Assets and Liabilities
|
|
December 31,
|
|
|
December 31,
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
Major classes of liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
2,608
|
|
|
$
|
3,408
|
|
Accrued course expenses
|
|
|
593
|
|
|
|
472
|
|
Other accrued expenses
|
|
|
539
|
|
|
|
619
|
|
Total major classes of liabilities - discontinued operations
|
|
$
|
3,740
|
|
|
$
|
4,499
|
|
The
financial results of the discontinued operations are as follows:
Schedule
of Discontinued Operations Income Statement
(in thousands)
|
|
2020
|
|
|
2019
|
|
|
|
Years Ended December 31,
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
Revenue
|
|
$
|
—
|
|
|
$
|
14,315
|
|
Total operating costs and expenses
|
|
|
—
|
|
|
|
15,647
|
|
Loss from discontinued operations
|
|
|
—
|
|
|
|
(1,332
|
)
|
Interest income (expense)
|
|
|
—
|
|
|
|
(359
|
)
|
Other expense, net
|
|
|
—
|
|
|
|
8,300
|
|
Net loss from discontinued operations
|
|
$
|
—
|
|
|
$
|
6,609
|
|
Note
5—Property and Equipment
Property
and equipment consists of the following (in thousands):
Schedule
of Property and Equipment
|
|
2020
|
|
|
2019
|
|
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Land
|
|
$
|
—
|
|
|
$
|
782
|
|
Building and residential properties
|
|
|
—
|
|
|
|
1,168
|
|
Software
|
|
|
—
|
|
|
|
2,607
|
|
Equipment
|
|
|
234
|
|
|
|
1,697
|
|
Furniture and fixtures
|
|
|
—
|
|
|
|
305
|
|
Building and leasehold improvements
|
|
|
—
|
|
|
|
1,241
|
|
Property and equipment
|
|
|
234
|
|
|
|
7,800
|
|
Less: accumulated depreciation
|
|
|
(230
|
)
|
|
|
(6,418
|
)
|
Property and equipment, net
|
|
$
|
4
|
|
|
$
|
1,382
|
|
On
October 1, 2020, we sold the real property and improvements located at 1612 E. Cape Coral Parkway, Cape Coral, Florida for $2.5 million
to Daniel Thom, as Trustee of Torstonbo Trust, a Florida revocable trust. The $1.54 million gain from the sale of the building is included
in other income in the Consolidated Statement of Operations and Comprehensive Income for the year ended December 31, 2020. The Property
served as our headquarters until its sale date.
On
December 8, 2020, we transferred our residential properties to the joint administrators of LEA UK (see “Litigation”
on Note 15 “Commitments and Contingencies”) as payment of intercompany debts. The transferred value of the properties
was £291 thousand ($363 thousand). We recorded a gain of £96 thousand ($126
thousand) in other income in the Consolidated Statement of Operations and Comprehensive Income for the year ended December 31,
2020.
In
addition to the sale of our headquarters and the disposal of our residential properties, during the year ended December 31, 2020, we
disposed of all of our fully depreciated other property and equipment, and fully amortized software and other intangibles.
Depreciation
expense on property and equipment in each of the years ended December 31, 2020 and 2019 was approximately $0.1 million.
Note
6—Short-Term and Long-Term Debt
Short-term
and long-term debt consists of the following (in thousands):
Schedule of Short-term and Long-term Debt
(in thousands)
|
|
As of
December 31, 2020
|
|
|
As of
December 31, 2019
|
|
Promissory notes
|
|
$
|
—
|
|
|
$
|
500
|
|
Paycheck Protection Program loan
|
|
|
1,900
|
|
|
|
—
|
|
Total debt
|
|
|
1,900
|
|
|
|
500
|
|
Less current portion of long-term debt
|
|
|
—
|
|
|
|
(500
|
)
|
Total long-term debt, net of current portion
|
|
$
|
1,900
|
|
|
$
|
—
|
|
The
following is a summary of scheduled debt maturities by year (in thousands):
Schedule of Debt Maturities
|
|
|
|
|
2020
|
|
$
|
—
|
|
2021
|
|
|
—
|
|
2022
|
|
|
1,900
|
|
Thereafter
|
|
|
|
|
Total debt
|
|
$
|
1,900
|
|
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 bore 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 (“Corporate HQ”). On March 8, 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 bore interest at a fixed rate of 12% per annum and a fixed rate
of 30% per annum thereafter until all amounts due thereunder are paid. On September 13, 2019, we executed a second extension of the maturity
date to March 13, 2020. During the initial 120 days of the second 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. The extension matured on March 13, 2020,
though the lender agreed to extend the maturity date until a new Promissory Note with a different lender was obtained on August 6, 2020,
on which date the outstanding principal balance and interests were paid in full. The new Promissory Note was issued in the amount of
$1.0 million, net proceeds were $396.7 thousand after closing costs and after paying off the outstanding principal in the amount of $500
thousand, plus accrued interest, under a Promissory Note held by USA Regrowth Fund LLC, and bore interest at a fixed rate of 12% per
annum and was initially due on August 6, 2021. The new Promissory Note was fully paid off on October 1, 2020, with the proceeds on sale
of the real property and improvements located at 1612 E. Cape Coral Parkway, Cape Coral, Florida for $2.5 million. The Seller’s
obligations under the Loan Documents were secured by a first mortgage on the Property. The net proceeds realized by the Seller from the
sale of the Property were $1.24 million after deductions for repayment of the Note, broker commissions, and other fees, and costs.
On
April 27, 2020, Elite Legacy Education, Inc., a subsidiary of the Company, entered into a Promissory Note in favor of Pacific Premier
Bank, the lender, through the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) established
pursuant to the CARES Act. The unsecured loan (the “PPP Loan”) proceeds were in the amount of $1,899,832, 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. The Company used a significant portion of the PPP Loan proceeds for qualifying expenses, but no assurance is provided that the
Company will obtain forgiveness of the PPP Loan in whole or in part.
Note
7— Share-Based Compensation
The
2015 Incentive Plan, our equity plan, was approved by the stockholders at our annual meeting of stockholders on July 16, 2015. The 2015
Incentive Plan reserves 5,000,000 shares of our Common Stock for stock options, restricted stock, and a variety of other types of equity
awards. We believe that long-term incentive compensation programs align the interests of management, employees and the stockholders to
create long-term stockholder value. We believe that equity-based incentive compensation plans, such as the Incentive Plan, increase our
ability to achieve this objective, and, by allowing for several different forms of long-term equity based incentive awards, help us to
recruit, reward, motivate and retain talented employees and other service providers. The text of the 2015 Incentive Plan is included
in the attachment marked as Appendix B to our Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on June
16, 2015.
During
the year ended December 31, 2020, pursuant to the 2015 Incentive Plan, we awarded 80,000 shares of restricted stock to the independent
members of the Board of Directors, which are subject to a two-year cliff vesting. The grant date price per share was $0.10 for a total
grant date fair value of $8.0 thousand. We also granted 100,000 shares of restricted stock to an external consultant, which were fully
vested at a grant date. The grant date price per share was $0.07 for a total grant date fair value of $7.0 thousand.
During
the year ended December 31, 2019, pursuant to the 2015 Incentive Plan, we awarded 34,650 shares of restricted stock to the independent
members of the Board of Directors, which are subject to a two-year cliff vesting. The grant date price per share was $0.20 for a total
grant date fair value of $7.0 thousand. We also granted 20,000 shares of restricted stock to Senior Management, which were fully vested
at a grant date. The grant date price per share was $0.18 for a total grant date fair value of $3.6 thousand.
The
following table reflects the activity of the restricted shares:
Schedule of Summary of Restricted Stock Activity
Restricted Stock Activity (in thousands)
|
|
Number of
shares
|
|
|
Weighted
average
grant
date value
|
|
Unvested at December 31, 2018
|
|
|
869
|
|
|
$
|
0.04
|
|
Granted
|
|
|
55
|
|
|
|
0.19
|
|
Forfeited
|
|
|
(13
|
)
|
|
|
0.54
|
|
Vested
|
|
|
(455
|
)
|
|
|
0.36
|
|
Unvested at December 31, 2019
|
|
|
456
|
|
|
$
|
0.25
|
|
Granted
|
|
|
180
|
|
|
|
0.08
|
|
Forfeited
|
|
|
(64
|
)
|
|
|
0.28
|
|
Vested
|
|
|
(480
|
)
|
|
|
0.20
|
|
Unvested at December 31, 2020
|
|
|
92
|
|
|
$
|
0.11
|
|
Compensation
Expense and Related Valuation Techniques
We
account for share-based awards under the provisions of ASC 718, “Share-Based Payment,” which established the accounting
for share-based awards exchanged for employee and non-employee services. 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. Unrecognized compensation expense associated with unvested share-based awards, consisting entirely of unvested restricted stock,
was $10 thousand and $21 thousand at December 31, 2020 and 2019, respectively. This cost is expected to be recognized over a weighted-average
period of 1.8 years.
Our
stock-based compensation expense was $23 thousand and $82 thousand in the years ended December 31, 2020 and 2019, respectively, and is
included in general and administrative expenses in the accompanying Consolidated Statements of Operations and Comprehensive Income. There
were no related income tax effects in either year.
Note
8—Employee Benefit Plan
We
have a 401(k) employee savings plan for eligible employees that provides for a matching contribution from us, determined each year at
our discretion. We provided for a matching contribution of $0.1 million and $0.2 million during the years ended December 31, 2020 and
2019, respectively.
Note
9—Income Taxes
We
recognize deferred tax assets and liabilities, at enacted income tax rates, based on the temporary differences between the financial
reporting basis and the tax basis of our assets and liabilities. We include any effects of changes in income tax rates or tax laws in
the provision for income taxes in the period of enactment. When it is more likely than not that a portion or all of the deferred tax
asset will not be realized in the future, we provide a corresponding valuation allowance against the deferred tax asset.
Our
sources of income (loss) and income tax provision (benefit) are as follows (in thousands):
Schedule of Income Tax Provision (benefit)
|
|
2020
|
|
|
2019
|
|
|
|
Years ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Income/(loss) from continuing operations before income taxes:
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
12,367
|
|
|
$
|
4,271
|
|
Non-U.S.
|
|
|
7,600
|
|
|
|
(2,187
|
)
|
Total income/(loss) from continuing operations before income taxes:
|
|
$
|
19,967
|
|
|
$
|
2,084
|
|
Provision (benefit) for taxes:
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
2,037
|
|
|
$
|
143
|
|
State
|
|
|
347
|
|
|
|
38
|
|
Non-U.S.
|
|
|
1,156
|
|
|
|
83
|
|
Total current
|
|
|
3,540
|
|
|
|
264
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
126
|
|
|
|
—
|
|
State
|
|
|
5
|
|
|
|
—
|
|
Non-U.S.
|
|
|
287
|
|
|
|
(190
|
)
|
Total deferred
|
|
|
418
|
|
|
|
(190
|
)
|
Noncurrent
|
|
|
|
|
|
|
|
|
Federal
|
|
|
—
|
|
|
|
(1,331
|
)
|
State
|
|
|
—
|
|
|
|
—
|
|
Non-U.S.
|
|
|
—
|
|
|
|
—
|
|
Total noncurrent
|
|
|
—
|
|
|
|
(1,331
|
)
|
Total income tax expense (benefit)
|
|
$
|
3,958
|
|
|
$
|
(1,257
|
)
|
Effective income tax rate
|
|
|
19.8
|
%
|
|
|
(60.3
|
)%
|
The
difference between the tax provision at the statutory federal income tax rate and the tax provision attributable to income (loss) from
continuing operations before income taxes is as follows (in thousands):
Schedule of Difference between Statutory Federal Income Tax rate and Tax Provision Attributable to Income (loss) from Continuing Operations
|
|
2020
|
|
|
2019
|
|
|
|
Years ended
|
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Computed expected federal tax expense
|
|
$
|
4,235
|
|
|
$
|
438
|
|
Decrease in valuation allowance
|
|
|
(1,098
|
)
|
|
|
(546
|
)
|
State income net of federal expense
|
|
|
278
|
|
|
|
242
|
|
Non-U.S. income taxed at different rates
|
|
|
234
|
|
|
|
(62
|
)
|
Unrecognized tax expense (benefit)
|
|
|
309
|
|
|
|
(1,331
|
)
|
Other
|
|
|
—
|
|
|
|
2
|
|
Income tax expense (benefit)
|
|
$
|
3,958
|
|
|
$
|
(1,257
|
)
|
We
recorded income tax expense of $3.9 million and income tax benefit of $1.3 million for the years ended December 31, 2020 and 2019, respectively,
a $2.7 million increase in income tax expense.
We
do not expect to repatriate earnings from its foreign subsidiaries because the cumulative earnings and profits of the foreign subsidiaries
as of December 31, 2020 and 2019 are negative. Accordingly, no U.S. federal or state income taxes have been provided thereon.
Deferred
income tax assets and liabilities reflect the net tax effects of (i) temporary differences between the carrying amount of assets and
liabilities for financial reporting purposes and the amounts for income tax purposes and (ii) operating loss carryforwards. The tax effects
of significant components of our deferred tax assets and liabilities are as follows (in thousands):
Schedule of Deferred Tax Assets and Liabilities
|
|
2020
|
|
|
2019
|
|
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating losses
|
|
$
|
3,648
|
|
|
$
|
5,688
|
|
Accrued compensation, bonuses, severance
|
|
|
—
|
|
|
|
121
|
|
Depreciation
|
|
|
(1
|
)
|
|
|
269
|
|
Valuation allowance
|
|
|
(3,622
|
)
|
|
|
(4,736
|
)
|
Total deferred tax assets
|
|
$
|
25
|
|
|
$
|
1,342
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Deferred course expenses
|
|
$
|
(159
|
)
|
|
$
|
(1,055
|
)
|
Depreciation
|
|
|
|
|
|
|
—
|
|
Total deferred tax liabilities
|
|
|
(159
|
)
|
|
|
(1,055
|
)
|
Net deferred tax (liability) asset
|
|
$
|
(134
|
)
|
|
$
|
287
|
|
We
have retained a full valuation allowances of $3.6 million against the deferred tax assets of our Australian, Canadian, U.K., Hong Kong,
and South Africa subsidiaries as of December 31, 2020. We have retained full valuation allowances of $4.7 million against the deferred
tax assets of our United States, Australian, Canadian, U.K. (excluding Elite Legacy Education UK), Hong Kong, and South Africa subsidiaries
as of December 31, 2019. The most significant negative factor that was considered in determining whether a valuation allowance was required
is a cumulative recent history of losses in all jurisdictions for the entities mentioned above.
We
had zero balance of federal net operating loss carryforwards as of December 31, 2020. As of December 31, 2019, we had approximately $4.8
million of federal net operating loss carryforwards. As of December 31, 2020, and 2019, we had approximately $16.5 million and $19.7
million of foreign net operating loss carryforwards, respectively, and approximately $0.3 million and $8.9 million of state net operating
loss carryforwards, respectively. The foreign loss carryforwards begin to expire in 2027 and the state net operating loss carryforwards
begin to expire in 2038.
Our
federal income tax returns for the years after 2017 are subject to examination by the Internal Revenue Service. Our state tax returns
for all years after 2017 or 2016, 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 2013 are subject to examination.
The
liability pertaining to uncertain tax positions was $0.3 million at December 31, 2020 and 2019. In accordance with GAAP, we recorded
expense that increased the total liability pertaining to uncertain tax positions which was more than offset by a decrease in the total
liability attributable to foreign currency fluctuations and tax rate adjustments. A significant portion of the liability pertaining to
uncertain tax positions is recorded as a reduction of the value of net operating loss carryovers.
We
include interest and penalties in the liability for uncertain tax positions. Accrued interest and penalties on uncertain tax positions
were approximately $0.04 million at December 31, 2020 and 2019, for each year, and is included in other liabilities in the accompanying
Consolidated Balance Sheets. If applicable, we recognize interest and penalties related to uncertain tax positions as tax expense.
The
following is a tabular reconciliation of the total amounts of unrecognized tax benefits:
Schedule
of Unrecognized Tax Benefits
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Unrecognized tax benefits - January 1
|
|
$
|
309
|
|
|
$
|
1,640
|
|
Gross increases - tax positions in prior period
|
|
|
—
|
|
|
|
—
|
|
Gross decreases - tax positions in prior period
|
|
|
—
|
|
|
|
(1,331
|
)
|
Unrecognized tax benefits - December 31
|
|
$
|
309
|
|
|
$
|
309
|
|
The
total liability for unrecognized tax benefits at December 31, 2019, is netted against deferred tax assets related to net operating loss
carryforwards in the Consolidated Balance Sheets. The total liability for unrecognized tax benefits at December 31, 2020 and 2019, are
as follows:
Schedule of Liability for Unrecognized Tax Benefits
|
|
2020
|
|
|
2019
|
|
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Reduction of net operating loss carryforwards
|
|
$
|
—
|
|
|
|
309
|
|
Noncurrent tax liability (reflected in Other long-term liabilities)
|
|
|
309
|
|
|
|
—
|
|
Total liability for unrecognized tax benefits
|
|
$
|
309
|
|
|
$
|
309
|
|
We
do not expect any significant changes to unrecognized tax benefits in the next year. We estimate $0.3 million of the unrecognized tax
benefits, if recognized, would impact the effective tax rate at December 31, 2020 and 2019.
Note
10—Certain Relationships and Related Transactions
Licensing
Agreements with the T&B Seminars, Inc
On
December 23, 2019, we entered into an agreement with T&B Seminars Inc. to develop and operate a seminar style education business
(subsequently branded Homemade Investor by Tarek El Moussa) (“Development Agreement”) that will use, among other things,
the names, images, and likenesses of Tarek El Moussa to market and sell customers real estate investing oriented education products.
T&B granted us a sole and exclusive worldwide license to certain intellectual property, including, certain trademarks and copyrights
and the name, image and likeness of Tarek El Moussa, in each case to the extent necessary for us to develop and create educational materials
and promote and conduct a branded real estate seminar style education business.
As
consideration for the licensed rights under the Development Agreement, Holdings agreed to pay T&B base royalty percentages on cash
sales of products to persons responding to a branded marketing campaign that uses the licensed intellectual property. Also, as consideration
for Tarek El Moussa providing certain marketing support, Holdings agreed to pay T&B marketing royalty percentages on cash sales of
products at live events and at online webinars to persons responding to a branded marketing campaign that uses the licensed intellectual
property. Furthermore, as consideration for the exclusivity of the rights under the Development Agreement, commencing on the seventh
month of the term of the Development Agreement, Holdings agreed that the monthly royalties paid to T&B will not be less than an agreed
to amount.
The
Development Agreement has an initial term of five years and will automatically renew thereafter for successive five-year terms unless
either party provides prior written notice of termination no less than 90 days prior to the end of such five-year term.
Licensing
Agreements with the Rich Dad Parties
Through
September 30, 2019, our business relied primarily on our license of the Rich Dad brand and related marks and intellectual property. The
following transactions summarize our license to use the Rich Dad trademarks, trade names and other business information worldwide (the
“Rich Dad Intellectual Property Rights”):
Effective
September 1, 2013, we entered into licensing and related agreements with Rich Dad Operating Company, LLC (“RDOC”) (collectively,
the “2013 License Agreement”) that replaced the 2010 License Agreement. Compared to the 2010 License Agreement, the 2013
License Agreement broadened the field of permitted use to include real estate investing, business strategies, stock market investment
techniques, stock/paper assets, cash management, asset protection, entrepreneurship and other financially-oriented subjects. The 2013
License Agreement also (i) reduced the royalty rate payable to RDOC compared to the 2010 Rich Dad License Agreement; (ii) broadened the
Company’s exclusivity rights to include education seminars delivered in any medium; (iii) eliminated the cash collateral requirements
and related financial covenants contained in the 2010 License Agreement; (iv) continued our right to pay royalties via a promissory note
that is convertible to preferred shares upon the occurrence of a Change in Control (as defined in the 2013 License Agreement); (v) eliminated
approximately $1.6 million in debt from our consolidated balance sheet as a result of debt forgiveness provided for in the agreement
terminating the 2010 License Agreement; and (vi) converted another approximately $4.6 million in debt to 1,549,882 shares of our Common
Stock.
On
April 22, 2014, we entered into an agreement with RDOC (the “2014 Amendment”) to, among other things, amend the 2013 License
Agreement to halve the royalty payable by us to RDOC to 2.5% for the whole of 2014, (ii) cancel approximately $1.3 million in debt owed
by us to RDOC, (iii) reimburse us for certain legal expenses, and (iv) cancel RDOC’s right to appoint one member of our Board of
Directors.
The
2013 License Agreement and the 2014 Amendment were assigned to our wholly-owned subsidiary, Legacy Education Alliance Holdings, Inc.
on September 10, 2014.
On
January 25, 2018, we entered into a Second Amendment with RDOC (the “Second Amendment”) that amends certain terms of the
2013 License Agreement and extends the term of the 2013 License Agreement to September 1, 2019. (See the Form 8-K filed on January 29,
2018 for further discussion.)
On
August 16, 2019, we entered into an amendment to the License Agreement that extended the term of the License Agreement through September
30, 2019. On September 16, 2019, we received notice from Rich Dad Operating Company, LLC (“RDOC”), indicating that RDOC did
not intend to extend the term of the September 1, 2013, Rich Dad Operating License Agreement (as amended, the “License Agreement”)
by and between the Company and RDOC. Therefore, the term of the License Agreement 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.
License
Agreements with Robbie Fowler and with Martin Roberts
We
entered into a Talent Endorsement Agreement with an effective date of January 1, 2015 with Robbie Fowler that supplements an earlier
November 2, 2012 Agreement and a Talent Endorsement Agreement with an effective date of January 1, 2013, both with Mr. Fowler (collectively,
the “Fowler License Agreement”). The Fowler License Agreement grants us the exclusive right to use Robbie Fowler’s
name, image, and likeness in connection with the advertisement, promotion, and sale in the United Kingdom of a property training course
developed by us. The Fowler License Agreement was scheduled to expire by its terms on January 1, 2020. Under the Fowler License Agreement,
we pay Mr. Fowler a royalty on revenues realized from the sale of Robbie Fowler-branded property courses and affiliated products, after
deductions for value added taxes, returns and refunds.
In
2009, we entered into a Talent Endorsement Agreement with Martin Roberts that grants us the exclusive right to use Martin Roberts’,
name, image, and likeness, as well as the rights to use the name of Mr. Roberts’s published book entitled “Making Money From
Property,” in connection with the advertisement, promotion, and sale in the United Kingdom of a property training course developed
by us. We entered into a subsequent Talent Endorsement Agreement with an effective date of April 20th, (the “Supplemental Agreement”)
that grants us the non-exclusive right to use Martin Roberts’ name, image and likeness, as well as the rights to use the name of
Mr. Roberts’ published book entitled “Making Money From Property”, in connection with the advertisement, promotion,
and sale of educational training, products and materials related to real estate, securities and options trading and investment, as well
as, general wealth building and investing strategies, principles and motivation. The term of the license granted under the Supplemental
Agreement is for an initial six months period expiring on October 20, 2017 and will continue thereafter unless (i) terminated by one
party upon the event of certain specified defaults of the party, or (ii) by either party without cause upon thirty (30) days prior written
notice to the other party. Under the Supplemental Agreement with Mr. Roberts, we pay Mr. Roberts a royalty on revenues realized from
the sale of Robbie Fowler-branded property courses and affiliated products that are collected within thirty (30) days after a Company-sponsored
Martin Roberts-branded event, after deductions for value added taxes, banking charges, returns, refunds, and third party commissions.
For sales to clients introduced to us directly by Mr. Roberts and his associated websites as well as other marketing and promotional
activities Mr. Roberts or his associated companies may wish to undertake from time to time that are not part of a Company sponsored event
and which result in the sale of ours basic training her marketing and promotional activities, Mr. Roberts is entitled to 50% of gross
revenue from such sales of directly introduced clients.
Our
licensing agreements for use of the Robbie Fowler and Martin Roberts brands were conveyed to Mayflower Alliance Ltd on November 26, 2019
as part of the sale of the business of our Legacy Education Alliance International Ltd subsidiary, which is currently in liquidation.
Note
11—Capital Stock
Share
Capital
Our
authorized share capital consists of 200,000,000 shares of Common Stock, par value $0.0001 per share, and 20,000,000 shares of preferred
stock, par value $0.0001 per share.
Common
Stock
As
of December 31, 2020, 23,279,197 shares of our Common Stock were outstanding. The outstanding shares of our Common Stock are validly
issued, fully paid and non-assessable.
Holders
of Common Stock are entitled to one vote for each share on all matters submitted to a stockholder vote. Holders of Common Stock do not
have cumulative voting rights. Directors are elected by a plurality of the votes cast by the shares entitled to vote in the election
at a meeting at which a quorum is present. The vote of the stockholders of a majority of the stock having voting power present in person
or represented by proxy shall be sufficient to decide any questions brought before such meeting, other than the election of directors,
unless the question is one upon which by express provision of the statutes or of the Articles of Incorporation, a different vote is required
in which case such express provisions shall govern and control the decision of such question. Holders of Common Stock representing ten
percent (10%) of our capital stock issued, outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute
a quorum at any meeting of stockholders.
Holders
of our Common Stock are entitled to share in all dividends that our Board of Directors, in its discretion, declares from legally available
funds. In the event of a liquidation, dissolution or winding up, each outstanding share entitles its holder to participate pro rata in
all assets that remain after payment of liabilities and after providing for each class of stock, if any, having preference over the Common
Stock. The Common Stock has no pre-emptive, subscription or conversion rights and there are no redemption provisions applicable to the
Common Stock.
In
addition, our authorized but unissued common shares could be used by our Board of Directors for defensive purposes against a hostile
takeover attempt, including (by way of example) the private placement of shares or the granting of options to purchase shares to persons
or entities sympathetic to, or contractually bound to support, management. We have no such present arrangement or understanding with
any person. However, our Common Stock have been reserved for issuance upon exercise of stock purchase rights designed to deter hostile
takeovers, commonly known as a “poison pill.”
On
February 15, 2017, we adopted a limited duration Shareholder Rights Plan (the “Plan”). Under the Plan, one preferred stock
purchase right will be distributed for each share of common stock held by stockholders of record on March 2, 2017. The rights will trade
with the common stock and will not be separable or exercisable until such time as the Plan is triggered. The Plan was scheduled to expire
on February 15, 2019, subject to our right to extend such date, unless we redeemed or exchanged earlier or terminated.
On
November 12, 2018, the Board of Directors of Legacy Education Alliance, Inc. (the “Company”) approved an amendment (the “Amendment”)
to the Rights Agreement dated as of February 16, 2017 by and between us and VStock Transfer LLC (VStock), as Rights Agent (the “Rights
Agreement”), to (i) extend the Final Expiration Date, as defined in the Rights Agreement, to the close of business on February
15, 2021, and (ii) to provide for the construction of the Rights Agreement and all other related documents in a manner consistent with
the extension of the Final Expiration Date.
On
November 25, 2019, we entered into an assumption agreement with Broadridge Corporate Issuer Solutions, Inc. (Broadridge), whereby Broadridge
assumes the role of Rights Agent under the Rights Agreement, effectively replacing VStock as Rights Agent.
On
February 12, 2021, the Board of Directors of Legacy Education Alliance, Inc. (the “Company”) approved an amendment (the “Amendment”)
to the Rights Agreement dated as of February 16, 2017 by and between the Company and Broadridge Corporate Issuer Solutions, Inc., successor
to VStock Transfer LLC (VStock), as Rights Agent (the “Rights Agreement”), to (i) extend the Final Expiration Date, as defined
in the Rights Agreement, to the close of business on February 15, 2023, and (ii) to provide for the construction of the Rights Agreement
and all other related documents in a manner consistent with the extension of the Final Expiration Date.
The
extension of the Final Expiration Date under the Rights Agreement was entered into to ensure that the Board of Directors would continue
to have sufficient time to consider any proposal from a third party that might result in a change in control of the Company, to ensure
that all stockholders receive fair and equal treatment in the event of any such a proposal, and to encourage any potential acquirer to
negotiate with the Board of Directors. In addition, extending the Rights Agreement will guard against partial tender offers, open market
accumulations and other coercive tactics aimed at gaining control of the Company without paying all stockholders a full control premium
for their shares. The Rights Agreement was not amended in response to any specific takeover offer.
Preferred
Stock
As
of December 31, 2020 and 2019, no shares of our preferred stock were outstanding.
Our
authorized preferred stock is “blank check” preferred. Accordingly, subject to limitations prescribed by law, our Board is
expressly authorized, at its discretion, to adopt resolutions to issue shares of preferred stock of any class or series, to fix the number
of shares of any class or series of preferred stock and to change the number of shares constituting any series and to provide for or
change the voting powers, designations, preferences and relative, participating, optional or other special rights, qualifications, limitations
or restrictions thereof, including dividend rights (including whether the dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), redemption prices, conversion rights and liquidation preferences of the shares constituting any
series of the preferred stock, in each case without any further action or vote by our stockholders.
Note
12—Earnings Per Share (“EPS”)
Basic
EPS is computed by dividing net income by the basic weighted-average number of shares outstanding during the period.
Diluted
EPS is computed by dividing net income by the diluted weighted-average number of shares outstanding during the period and, accordingly,
reflects the potential dilution that could occur if securities or other agreements to issue common stock, such as stock options, were
exercised, settled or converted into common stock and were dilutive. The diluted weighted-average number of shares used in our diluted
EPS calculation is determined using the treasury stock method.
Unvested
awards of share-based payments with rights to receive dividends or dividend equivalents, such as our restricted stock awards, are considered
to be participating securities, and therefore, the two-class method is used for purposes of calculating EPS. Under the two-class method,
a portion of net income is allocated to these participating securities and is excluded from the calculation of EPS allocated to common
stock. Our restricted stock awards are subject to forfeiture and restrictions on transfer until vested and have identical voting, income
and distribution rights to the unrestricted common shares outstanding.
Our
weighted average unvested restricted stock awards outstanding were 153,612 and 424,531 for the years ended December 31, 2020 and 2019,
respectively.
The
calculations of basic and diluted EPS are as follows:
Schedule
of Calculations of Basic and Diluted EPS
|
|
Years Ended December 31, 2020
|
|
|
Years Ended December 31, 2019
|
|
|
|
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
|
|
$
|
16,009
|
|
|
|
23,230
|
|
|
|
|
|
|
$
|
9,950
|
|
|
|
23,141
|
|
|
|
|
|
Amounts allocated to unvested restricted shares
|
|
|
(106
|
)
|
|
|
(154
|
)
|
|
|
|
|
|
|
(183
|
)
|
|
|
(425
|
)
|
|
|
|
|
Amounts available to common stockholders
|
|
$
|
15,903
|
|
|
|
23,076
|
|
|
$
|
0.69
|
|
|
$
|
9,767
|
|
|
|
22,716
|
|
|
$
|
0.43
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts allocated to unvested restricted shares
|
|
|
106
|
|
|
|
154
|
|
|
|
|
|
|
|
183
|
|
|
|
425
|
|
|
|
|
|
Non participating share units
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
Amounts reallocated to unvested restricted shares
|
|
|
(107
|
)
|
|
|
—
|
|
|
|
|
|
|
|
(186
|
)
|
|
|
—
|
|
|
|
|
|
Amounts available to stockholders and assumed conversions
|
|
$
|
15,902
|
|
|
|
23,230
|
|
|
$
|
0.68
|
|
|
$
|
9,764
|
|
|
|
23,141
|
|
|
$
|
0.42
|
|
Note
13—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 assets or liabilities measured and recorded at fair value on our consolidated balance sheets on a recurring
basis as of December 31, 2020 and 2019.
Note
14—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:
Schedule of Total Revenue Attributable to Each Segment
As a percentage of total revenue
|
|
2020
|
|
|
2019
|
|
|
|
Years Ended
December 31,
|
|
As a percentage of total revenue
|
|
2020
|
|
|
2019
|
|
North America
|
|
|
70.3
|
%
|
|
|
72.1
|
%
|
U.K.
|
|
|
3.1
|
%
|
|
|
5.5
|
%
|
Other foreign markets
|
|
|
26.6
|
%
|
|
|
22.4
|
%
|
Total consolidated revenue
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Operating
results for the segments are as follows:
Schedule of Operating Results for Segments
Segment revenue
|
|
2020
|
|
|
2019
|
|
|
|
Years Ended
December 31,
|
|
Segment revenue
|
|
2020
|
|
|
2019
|
|
|
|
(In thousands)
|
|
North America
|
|
$
|
24,001
|
|
|
$
|
54,427
|
|
U.K.
|
|
|
1,058
|
|
|
|
4,128
|
|
Other foreign markets
|
|
|
9,102
|
|
|
|
16,941
|
|
Total consolidated revenue
|
|
$
|
34,161
|
|
|
$
|
75,496
|
|
|
|
2020
|
|
|
2019
|
|
|
|
Years Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Segment gross profit contribution *
|
|
(In thousands)
|
|
North America
|
|
$
|
15,852
|
|
|
$
|
12,195
|
|
U.K.
|
|
|
949
|
|
|
|
983
|
|
Other foreign markets
|
|
|
7,193
|
|
|
|
2,244
|
|
Total consolidated gross profit
|
|
$
|
23,994
|
|
|
$
|
15,422
|
|
*
|
Segment
gross profit is calculated as revenue less direct course expenses, advertising and sales expenses and royalty expense.
|
Schedule of Depreciation and Amortization Expenses
|
|
2020
|
|
|
2019
|
|
|
|
Years Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Depreciation and amortization expenses
|
|
(In thousands)
|
|
North America
|
|
$
|
45
|
|
|
$
|
137
|
|
U.K.
|
|
|
14
|
|
|
|
20
|
|
Other foreign markets
|
|
|
10
|
|
|
|
5
|
|
Total consolidated depreciation and amortization expenses
|
|
$
|
69
|
|
|
$
|
162
|
|
Schedule of Segment Identifiable Assets
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Segment identifiable assets
|
|
(In thousands)
|
|
North America
|
|
$
|
3,864
|
|
|
$
|
9,937
|
|
U.K.
|
|
|
1,266
|
|
|
|
2,324
|
|
Other foreign markets
|
|
|
1,026
|
|
|
|
3,286
|
|
Total consolidated identifiable assets
|
|
$
|
6,156
|
|
|
$
|
15,547
|
|
Our
long-lived assets in the U.S. were approximately $4.0 thousand and $1,000.0 thousand for the years ended December 31, 2020 and 2019,
respectively. Our international long-lived assets were approximately $0.1 thousand and $400.0 thousand, respectively, for the same periods.
Note
15—Commitments and Contingencies
Licensing
agreements.
On
January 25, 2018, we entered into a Material Definitive Agreement that resulted in a Second Amendment with RDOC (the “Second Amendment”)
that amends certain terms of the 2013 License Agreement and extends the term of the 2013 License Agreement to September 1, 2019. On August
16, 2019, we entered into an amendment to the License Agreement that extended the term of the License Agreement through September 30,
2019. On the Second Agreement expired on September 30, 2019.
Under
the terms of the License Agreement, as amended, the Company was granted a worldwide license to use certain intellectual property of RDOC
to develop, market, sell, and conduct Rich Dad Education branded educational products and services in real estate investing, business
strategies, stock market investment techniques, stock/paper assets, cash management, asset protection, and other financially oriented
subjects in any form of communication or media, in exchange for which the Company agreed to pay a monthly royalty to RDOC.
We
are committed to pay royalties for the usage of certain brands, as governed by various licensing agreements, including T&B Seminars,
Inc., Rich Dad, Robbie Fowler and Martin Roberts. Total royalty expenses included in our Consolidated Statement of Operations and Comprehensive
Income for the years ended December 31, 2020 and 2019 were $0.0 million and $3.4 million, respectively. Our License Agreement with our
Rich Dad brand licensor expired on September 30, 2019. Our licensing agreements for use of the Robbie Fowler and Martin Roberts brands
were conveyed on November 26, 2019 to Mayflower Alliance Ltd as part of the sale of the business of our Legacy Education Alliance International
Ltd subsidiary, which is currently in liquidation.
Purchase
commitments. From time to time, the Company enters into non-cancellable commitments to purchase professional services, Information
Technology licenses and support, and training courses in future periods. There were no purchase commitments made by the Company at December
31, 2020 and 2019, respectively.
Custodial
and Counterparty Risk. The Company is subject to custodial and other potential forms of counterparty risk in respect of a variety
of contractual and operational matters. In the course of ongoing company-wide risk assessment, management monitors the Company 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 December 31, 2020 and 2019 were $1.1 million
and $5.0 million, respectively. These balances are included on the Consolidated Balance Sheets in restricted cash in 2020 and 2019.
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 December 31, 2020 and 2019, 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.
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’s new ERP/CRM system. In May 2019, we entered into a settlement
agreement under which Oracle/NetSuite gave us $0.1 million in the form of accounts payable credit, concluding the litigation in its entirety.
We recognized the settlement in May 2019.
Tigrent
Group Inc. v. Process America, Inc. (“PA”), Case No 1:12-cv-01314-RLM, filed March 16, 2012 in the U.S. District Court
for the Eastern District of New York. In this case we sought the return of the $8.3 million credit card merchant reserve account deposit
held by Process America Inc., a so-called “Independent Sales Organization” that places merchants with credit card processors.
On November 12, 2012, PA filed for bankruptcy protection in the U.S. Bankruptcy Court for the Central District of California (“Bankruptcy
Court.”) On December 3, 2012, the Bankruptcy Court obtained jurisdiction of our dispute with PA. On June 21, 2013, the Tigrent
Group filed its proof of claim with Bankruptcy Court in the amount of $8.3 million. In July 2019, we received a cash payment from PA
in the amount of $0.4 million, as a distribution. This amount was recognized and reported as other income in the consolidated statement
of operations and comprehensive income for the year ended December 31, 2019.
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 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 primarily relates to the alleged obligation of Tigrent to indemnify
the Plaintiff pursuant to an October 6, 2010 Forbearance Agreement. The suit includes 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 in Twentieth Judicial Circuit
In and For Lee County, Florida against Tigrent Inc. (“Tigrent”), Legacy Education Alliance Holding, Inc. (“Holdings”),
and certain shareholders of the Company. The suit includes 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 in Twentieth Judicial Circuit In and For Lee County, Florida
against Tigrent, Holdings, and certain shareholders of the Company. The suit includes 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 General Counsel and former CEO, 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 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., James E. 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 $400,000 payable in one installment of $100,000 on February 18, 2021 and five quarterly installments of $60,000
commencing on May 19, 2021, which the Company has accrued for within accounts payable and other long-term liability for the current and
long-term portions, respectively, in the Consolidated Balance Sheet as of December 31, 2020. 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.
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 (see “Property, equipment and impairment of long-lived
assets” in Note 2 “Significant Accounting Policies” and Note 5 “Property and Equipment”).
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.
Note
16 - 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 nonlease 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 December 31, 2020
The
table below presents the lease related assets and liabilities recorded on the Consolidated Balance Sheets as of December 31, 2020 and
2019:
Schedule of Lease Related Assets and Liabilities
(in thousands)
|
|
Classification on the Balance Sheet
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Operating lease assets
|
|
Operating lease right of use assets
|
|
$
|
45
|
|
|
$
|
122
|
|
|
|
Total lease assets
|
|
$
|
45
|
|
|
$
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities
|
|
Current operating lease liabilities
|
|
$
|
25
|
|
|
$
|
86
|
|
Noncurrent liabilities:
|
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities
|
|
Long-term operating lease liabilities
|
|
$
|
20
|
|
|
$
|
27
|
|
|
|
Total lease liabilities
|
|
$
|
45
|
|
|
$
|
113
|
|
Lease
cost for the year ended December 31, 2020
The
table below presents the lease related costs recorded on the Consolidated Statement of Operation and Comprehensive Income for the years
ended December 31, 2020 and 2019:
Schedule of Operating Lease Cost
(in thousands)
|
|
|
|
Years Ended December 31,
|
|
Lease cost
|
|
Classification
|
|
2020
|
|
|
2019
|
|
Operating lease cost
|
|
General and administrative expenses
|
|
$
|
45
|
|
|
$
|
60
|
|
|
|
Total lease cost
|
|
$
|
45
|
|
|
$
|
60
|
|
Other
Information
The
table below presents supplemental cash flow information related to leases for the years ended December 31, 2020 and 2019:
Schedule of Cash Flow Information Related to Leases
|
|
Years Ended December 31,
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
|
|
Operating cash flows for operating leases
|
|
$
|
41
|
|
|
$
|
61
|
|
Supplemental non-cash amounts of lease liabilities arising from obtaining right-of-use assets/(decrease) of lease liability due to cancellation of leases
|
|
$
|
(31
|
)
|
|
$
|
176
|
|
As
a result of the sale of Legacy UK, the leases classified as right-of-use assets and as lease liabilities in the amount of $2.2 million,
were written off to discontinued operations. See Note 4 “Discontinued Operations”.
During
the quarter ended September 30, 2020, we cancelled all of our outstanding lease arrangements for office space and equipment. On October
1, 2020, the Company relocated its headquarter to 1490 N.E. Pine Island Road, Suite 5D, Cape Coral, FL 33909 and entered into a two year
operating lease for the new 1,600 square feet office and warehouse space. The new lease provides the Company an option to extend the
term of the lease for a third year. The lease obligation is approximately $32 thousand plus other costs for shared services, maintenance
and sales tax over the course of its life.
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
our operating leases as of December 31, 2020:
Schedule of Weighted Average Remaining Lease Terms and Weighted Average Discount Rates
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Weighted average remaining lease term - operating leases
|
|
|
1.75 years
|
|
|
|
1.67 years
|
|
Weighted average discount rate - operating leases
|
|
|
12.00
|
%
|
|
|
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 Consolidated Balance Sheet as of December 31, 2020:
Schedule of Reconciles the Fixed Component of the Undiscounted Cash Flows
Amounts due in
|
|
Operating
Leases
|
|
|
|
(in thousands)
|
|
2021
|
|
$
|
25
|
|
2022
|
|
|
20
|
|
2023
|
|
|
—
|
|
Total minimum lease payments
|
|
|
45
|
|
Less: effect of discounting
|
|
|
—
|
|
Present value of future minimum lease payments
|
|
|
45
|
|
Less: current obligations under leases
|
|
|
(25
|
)
|
Long-term lease obligations
|
|
$
|
20
|
|
There
are no lease arrangements where we are the lessor.
Note
17—Subsequent Events
Senior
Secured Convertible Debt Agreement
On
March 8, 2021, the Company issued a $375 thousand Senior Secured Convertible Debenture (“Debenture”) to Legacy Tech Partners,
LLC (“LTP”) a Delaware limited liability company. 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 related to the transaction.
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 use of proceeds from the Debenture will be to extinguish liabilities of the Company
and to fund the development of the EdTech (as defined above) 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.
Bankruptcy
or Receivership
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”). Under the terms of the Arrangement, 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 Arrangement 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 Arrangement in satisfaction of the non-student creditors’
respective claims against ELE UK. Student creditors of ELE UK will be provided the opportunity to receive trainings from an independent
training provider on and subject to the terms and conditions set forth in the Arrangement in satisfaction of their respective claims
against ELE UK. Pursuant to the Arrangement, 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.
On
January 27, 2021, Legacy Education Alliance Australia PTY Ltd (“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 to be 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 Ltd (“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.
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution
The
following table sets forth the Company’s expenses in connection with this registration statement. All of the listed expenses are
estimates, other than the filing fees payable to the Securities and Exchange Commission.
Securities and Exchange Commission registration fee
|
|
$
|
255.35
|
|
Transfer Agent Fees
|
|
$
|
2,000.00
|
|
Accounting fees and expenses
|
|
$
|
5,000.00
|
|
Legal fees and expense
|
|
$
|
10,000.00
|
|
Miscellaneous
|
|
$
|
7,744.65
|
|
Total
|
|
$
|
25,000.00
|
|
None
of such expenses will be borne by the selling shareholders referenced in the prospectus forming a part of this Registration Statement
on Form S-1.
Item
14. Indemnification of Directors and Officers
The
Bylaws of our Company provide that the Company will indemnify, to the fullest extent permitted by the Nevada Revised Statutes, each person
who is or was a director, officer, employee or agent of the Company, or who serves or served any other enterprise or organization at
the request of the Company. Pursuant to Nevada law, this includes elimination of liability for monetary damages for breach of the directors’
fiduciary duty of care to the Company and its stockholders. These provisions do not eliminate the directors’ duty of care and,
in appropriate circumstances, equitable remedies such as injunctive or other forms of non-monetary relief will remain available under
Nevada law. In addition, each director will continue to be subject to liability for breach of the director’s duty of loyalty to
the Company, for acts or omissions not in good faith or involving intentional misconduct, for knowing violations of law, for any transaction
from which the director derived an improper personal benefit, and for payment of dividends or approval of stock repurchases or redemptions
that are unlawful under Nevada law. The provision also does not affect a director’s responsibilities under any other laws, such
as the federal securities laws or state or federal environmental laws.
The
Company enters into agreements with its directors and executive officers that require the Company to indemnify these persons against
expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, whether
actual or threatened, to which any such person may be made a party by reason of the fact that the person is or was a director or officer
of the Company or any of its affiliated enterprises.
The
Company maintains directors’ and officers’ liability insurance that insures its directors and officers against the cost of
defense, settlement or payment of a judgment under any circumstances.
Item
15. Recent Sales of Unregistered Securities
On
March 8, 2021 the Company issued a Senior Secured Convertible Debenture to Legacy Tech Partners, LLC, or LTP, a Delaware limited liability
company and a related party, under which LTP loaned the Company the principal sum of $375,000. This initial loan 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 initial loan may be converted at any time after the issue date into shares of the Company’s Common Stock, 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. On May 4, 2021, LTP exercised its conversion rights with respect to $330,000 of the outstanding principal of the
initial loan at the conversion price resulting in the issuance of 6,586,500 shares of Common Stock to LTP. In addition, an
equal number of warrants were issued on June 11, 2021. The Senior Secured Convertible Debenture, warrants and the shares issuable upon
conversion of the Debenture were not registered under the Securities Act of 1933, as amended (the “Securities Act”), as a
transaction not involving any public offering pursuant to Section 4(a)(2) of the Securities Act.
On
May 4, 2021 the Company issued a 10% Subordinated Debenture in the principal amount of $25,000 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, 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 May 4, 2026. 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 $25,000 of outstanding principal
resulting in the issuance of 500,000 shares of Common Stock to him. In addition, an equal number of warrants were issued on May 4, 2021.
The Subordinated Debenture, warrants and the shares issuable upon conversion of the Subordinated Debenture were not registered under
the Securities Act as a transaction not involving any public offering pursuant to Section 4(a)(2) of the Securities Act.
On
August 27, 2021, the Company issued a Senior Secured Convertible Debenture, to GLD Legacy Holdings, LLC in the principal amount of $500,000.
The GLD Debenture accrues interest at a rate of 10% per annum and is due on the earlier of the occurrence of certain liquidity events
with respect to the Company and August 27, 2026. The GLD Debenture may be converted at any time after the issue date into shares of the
Company’s Common Stock 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 August 27, 2026. 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. The GLD Debenture, warrants
and the shares issuable upon conversion of the Subordinated Debenture were not registered under the Securities Act as a transaction not
involving any public offering pursuant to Section 4(a)(2) of the Securities Act.
On
August 27, 2021, the Company entered into an Advisory Services Agreement with GLD Advisory Services, LLC. As compensation hereunder,
the Company issued to the advisor 315,000 restricted shares of Common Stock of the Company and will issue on each year anniversary thereafter
the same number of shares until the GLD Debenture has been repaid in full. Such shares were not registered under the Securities Act as
a transaction not involving any public offering pursuant to Section 4(a)(2) of the Securities Act.
On
November 18, 2021, the Company entered into a Stock Purchase and Option Agreement with Mayer and Associates LLC (“Mayer”),
pursuant to which Mayer purchased 1.6 million shares of common stock of the Company for a total aggregate price of $160.00. Such shares
were not registered under the Securities Act as a transaction not involving any public offering pursuant to Section 4(a)(2) of the Securities
Act.
Item
16. Exhibits and Financial Statement Schedules.
(a)
The following exhibits are filed as a part of, or incorporated by reference into, this Registration Statement.
The
following exhibits, which are numbered in accordance with Item 601 of Regulation S-K, are filed herewith or, as noted, incorporated by
reference herein.
Exhibit
No.
|
|
Title
|
|
Method
of filing
|
2.1
|
|
Agreement and Plan of Merger, dated as of November 10, 2014, by and among Priced In Corp., Priced in Corp. Subsidiary, Tigrent Inc. and Legacy Education Alliance Holdings, Inc.
|
|
Incorporated
by reference to Exhibit 2.1 in the Company’s Form 8-K filed with the SEC on November 10, 2014.
|
2.2
|
|
Elite Legacy Education UK LTD, Proposal for Company Voluntary Arrangement
|
|
Incorporated
by reference to Exhibit 99.1 in the Company’s Form 8-K filed with the SEC on January 15, 2021.
|
2.3
|
|
Bankruptcy or Receivership of Legacy Education Alliance Australia PTY Ltd
|
|
Incorporated
by reference to the Company’s Form 8-K filed with the SEC on February 2, 2021.
|
2.4
|
|
Bankruptcy or Receivership of Legacy Education Alliance Hong Kong, Ltd.
|
|
Incorporated
by reference to the Company’s Form 8-K filed with the SEC on March 5, 2021.
|
2.5
|
|
Bankruptcy or Receivership of Tigrent Learning Canada, Inc.
|
|
Incorporated
by reference to the Company’s Form 8-K filed with the SEC on March 11, 2021.
|
3.1
|
|
Second Amended and Restated Articles of Incorporation of the Registrant
|
|
Incorporated
by reference to Exhibit 3.1 in the Company’s Form 8-K filed with the SEC on November 10, 2014.
|
3.2
|
|
Certificate of Designation of Registrant
|
|
Incorporated
by reference to Exhibit 3.1 in the Company’s Form 8-K filed with the SEC on February 17, 2017.
|
3.3
|
|
Bylaws of the Registrant
|
|
Incorporated
by reference to Exhibit 3.2 in the Company’s Form 8-K filed with the SEC on November 10, 2014.
|
3.4
|
|
Amendment to Bylaws of Registrant
|
|
Incorporated
by reference to Exhibit 3.2 in the Company’s Form 8-K filed with the SEC on February 17, 2017.
|
3.5
|
|
Amendment to Bylaws of the Registrant
|
|
Incorporated
by reference to Exhibit 3.1 in the Company’s Form 8-K filed with the SEC on January 12, 2018.
|
4.1
|
|
Rights Agreement dated as of February 16, 2017, between Legacy Education Alliance, Inc. and VStock Transfer, LLC, which includes the Form of Certificate of Designation of Series A Junior Participating Preferred Stock as Exhibit A, the Form of Right Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Stock as Exhibit C.
|
|
Incorporated
by reference to Exhibit 4.1 in the Company’s Form 8-K filed with the SEC on February 17, 2017.
|
4.2
|
|
Amendment to Rights Agreement dated as of November 12, 2018, between Legacy Education Alliance, Inc. and VStock Transfer, LLC
|
|
Incorporated
by reference to Exhibit 4.1 in the Company’s Form 8-K filed with the SEC on November 16, 2018.
|
4.3
|
|
Amendment to Rights Agreement dated as of February 11, 2021, between Legacy Education Alliance, Inc. and Broadridge Corporate Issuer Solutions, Inc.
|
|
Incorporated
by reference to Exhibit 4.1 in the Company’s Form 8-K filed with the SEC on February 12, 2021.
|
4.4
|
|
Assumption Agreement dated November 25, 2019, between Legacy Education Alliance, Inc. and Broadridge Corporate Issuer Solutions, Inc.
|
|
Incorporated
by reference to Exhibit 4.3 in the Company’s Form 10-K filed with the SEC on March 30, 2020.
|
4.5
|
|
Description of Registered Securities
|
|
Incorporated
by reference to the Company’s Form S-1/A filed with the SEC on March 25, 2013.
|
5.1
|
|
Opinion of Ruskin Moscou Faltischek, P.C.
|
|
Previously
Filed.
|
Exhibit
No.
|
|
Title
|
|
Method
of filing
|
10.1
|
|
Bill of Sale, Assignment and Assumption Agreement dated as of September 10, 2014, by and between Tigrent Inc. and Legacy Education Alliance Holdings, Inc.
|
|
Incorporated
by reference to Exhibit 10.1 in the Company’s Form 8-K filed with the SEC on November 10, 2014.
|
10.2
|
|
Form of Indemnification Agreement
|
|
Incorporated
by reference to Exhibit 10.2 in the Company’s Form 8-K filed with the SEC on November 10, 2014.
|
10.3
|
|
Employment Agreement, dated September 1, 2017, by and between Legacy Education Alliance, Inc., and James E. May.
|
|
Incorporated
by reference to Exhibit 10.3 in the Company’s Form 8-K filed with the SEC on September 6, 2017.
|
10.4
|
|
Employment Agreement, dated March 18, 2020, by and between Legacy Education Alliance, Inc., and Vanessa Guzmán-Clark.
|
|
Incorporated
by reference to Exhibit 10.1 in the Company’s Form 8-K filed with the SEC on March 20, 2020.
|
10.5
|
|
Royalty Payment Agreement dated March 15, 2013 (1)
|
|
Incorporated
by reference to Exhibit 10.5 in the Company’s Form 8-K/A filed with the SEC on February 11, 2015.
|
10.6
|
|
License Agreement with Rich Dad Operating Company, LLC, dated September 1, 2013 (1)
|
|
Incorporated
by reference to Exhibit 10.6 in the Company’s Form 8-K/A filed with the SEC on February 11, 2015.
|
10.7
|
|
Settlement and Amendment to the 2013 License Agreement, dated April 22, 2014 (1)
|
|
Incorporated
by reference to Exhibit 10.7 in the Company’s Form 8-K/A filed with the SEC on February 11, 2015.
|
10.8
|
|
Second Amendment to Rich Dad Operating Company, LLC License Agreement, dated January 25, 2018. (1)
|
|
Incorporated
by reference to Exhibit 10.1 in the Company’s Form 8-K filed with the SEC on January 29, 2018.
|
10.9
|
|
Mutual Waiver and Release of Claims, dated January 25, 2018.
|
|
Incorporated
by reference to Exhibit 10.2 in the Company’s Form 8-K filed with the SEC on January 29, 2018.
|
10.10
|
|
Talent Endorsement Agreement with Robbie Fowler, dated January 1, 2015
|
|
Incorporated
by reference to Exhibit 10.9 in the Company’s Form 10 filed with the SEC on May 12, 2017.
|
10.11
|
|
Talent Endorsement Agreement with Martin Roberts, dated April 20, 2017.
|
|
Incorporated
by reference to Exhibit 10.10 in the Company’s Form 10 filed with the SEC on May 12, 2017.
|
10.12
|
|
2015 Incentive Plan
|
|
Incorporated
by reference to Appendix B to the Company’s Definitive Proxy Statement on Schedule 14A for the 2015 Annual Meeting of Stockholders
filed with the SEC on June 16, 2015.
|
10.13
|
|
Form of Registration Rights Agreement
|
|
Incorporated
by reference to Exhibit 10.1 in the Company’s Form 8-K filed with the SEC on June 17, 2015.
|
10.14
|
|
Form of Warrant
|
|
Incorporated
by reference to Exhibit 10.3 in the Company’s Form 8-K filed with the SEC on June 17, 2015.
|
10.15
+
|
|
Form of Restricted Stock Award Grant Notice and Restricted Stock Award Agreement (2015 Incentive Plan)
|
|
Incorporated
by reference to Exhibit 10.1 in the Company’s Form 8-K filed with the SEC on July 22, 2015.
|
|
|
Settlement Agreement and Release dated October 31, 2017 among Elite Legacy Education, Inc.; Rich Dad Education, LLC; and Tigrent Enterprises, Inc. and the other parties thereto.
|
|
Incorporated
by reference to Exhibit 10.1 in the Company’s Form 8-K filed with the SEC on November 1, 2017.
|
10.16
|
|
December 23, 2019 Real Estate Education Training Program Development Agreement by and between Legacy Education Alliance Holdings, Inc., and T&B Seminars, Inc.
|
|
Incorporated
by reference to the Company’s Form 10-K filed with the SEC on March 30, 2020.
|
10.17
|
|
Bankruptcy or Receivership of Legacy UK
|
|
Incorporated
by reference to the Company’s Form 10-K filed with the SEC on March 30, 2020.
|
10.18
|
|
Commercial Contract dated July 24, 2020, between 1612 E. Cape Coral Parkway Holding Co., LLC, a subsidiary of the Company and Daniel Thom, as Trustee of Torstonbo Trust.
|
|
Incorporated
by reference to Exhibit 10.1 in the Company’s Form 10-Q filed with the SEC on August 14, 2020.
|
Exhibit
No.
|
|
Title
|
|
Method
of filing
|
10.19
|
|
First Amendment to Commercial Contract dated August 20, 2020, between 1612 E. Cape Coral Parkway Holding Co., LLC, a subsidiary of the Company and Daniel Thom, as Trustee of Torstonbo Trust.
|
|
Incorporated
by reference to Exhibit 10.1 in the Company’s Form 8-k filed with the SEC on August 20, 2020.
|
10.20
|
|
Second Amendment to Commercial Contract dated September 24, 2020, between 1612 E. Cape Coral Parkway Holding Co., LLC, a subsidiary of the Company and Daniel Thom, as Trustee of Torstonbo Trust.
|
|
Incorporated
by reference to Exhibit 10.1 in the Company’s Form 8-K filed with the SEC on September 29, 2020.
|
10.21
|
|
Promissory Note and Mortgage, Assignment of Rents and Security Agreement, dated August 6, 2020, by and between 1612 E. Cape Coral Parkway Holding Co., LLC and Northern Equity Group, Inc., JKH Ventures, Inc., and Donald Ross, LLC.
|
|
Incorporated
by reference to Exhibit 10.2 in the Company’s Form 10-Q filed with the SEC on August 14, 2020.
|
10.22
|
|
Senior Secured Convertible Debenture Agreement dated March 8, 2021
|
|
Incorporated
by reference to Exhibit 10.1 in the Company’s Form 8-K filed with the SEC on March 12, 2021.
|
10.23
|
|
Form of Guaranty
|
|
Incorporated
by reference to Exhibit 10.2 in the Company’s Form 8-K filed with the SEC on March 12, 2021.
|
10.24
|
|
Form of Warrant
|
|
Incorporated
by reference to Exhibit 10.3 in the Company’s Form 8-K filed with the SEC on March 12, 2021.
|
10.25
|
|
Employment Agreement dated March 9, 2021, between Legacy Education Alliance, Inc., and Michel Botbol
|
|
Incorporated
by reference to Exhibit 10.4 in the Company’s Form 8-K filed with the SEC on March 12, 2021.
|
10.26
|
|
Non-Binding Term Sheet, dated February 11, 2021
|
|
Incorporated
by reference to Exhibit 10.5 in the Company’s Form 8-K filed with the SEC on March 12, 2021.
|
10.27
|
|
Paycheck Protection Program Note, dated April 19, 2021, by and between Cross River Bank and Elite Legacy Education, Inc.
|
|
Incorporated
by reference to Exhibit 10.1 in the Company’s Form 8-K filed with the SEC on April 27, 2021.
|
10.28
|
|
Subordinated Secured Convertible Debenture Agreement dated May 4, 2021
|
|
Incorporated
by reference to Exhibit 10.1 in the Company’s Form 8-K filed with the SEC on May 7, 2021.
|
10.29
|
|
Form of Guaranty
|
|
Incorporated
by reference to Exhibit 10.2 in the Company’s Form 8-K filed with the SEC on May 7, 2021.
|
10.30
|
|
Form of Warrant
|
|
Incorporated
by reference to Exhibit 10.3 in the Company’s Form 8-K filed with the SEC on May 7, 2021.
|
10.31
|
|
Amendment dated August 27, 2021 to Senior Secured Convertible Debenture Agreement with Legacy Tech Partner, LLC
|
|
Incorporated
by reference to Exhibit 10.1 in the Company’s Form 8-K filed with the SEC on September 2, 2021.
|
10.32
|
|
Senior Secured Convertible Debenture Agreement with GDL Legacy Holdings, LLC dated August 27 2021
|
|
Incorporated
by reference to Exhibit 10.2 in the Company’s Form 8-K filed with the SEC on September 2, 2021.
|
10.33
|
|
Form of Guaranty
|
|
Incorporated
by reference to Exhibit 10.3 in the Company’s Form 8-K filed with the SEC on September 2, 2021.
|
10.34
|
|
Form of Warrant
|
|
Incorporated
by reference to Exhibit 10.4 in the Company’s Form 8-K filed with the SEC on September 2, 2021.
|
+
|
Executive
management contract or compensatory plan or arrangement.
|
(1)
|
Portions
of this exhibit have been omitted pursuant to a request for confidential treatment.
|
(2)
|
Certain
identified information has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful
if publicly disclosed.
|
Item
17. Undertakings
Pursuant
to Rule 415 under the Securities Act of 1933 (as amended and updated from time to time)
The
undersigned registrant hereby undertakes:
(1)
To file, during any period in which it offers or sales securities, a post-effective amendment to this registration statement;
(I)
To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii)
To reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered) any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation
of Registration Fee” table in the effective registration statement; and
(iii)
To include any additional material information with respect to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration statement.
(2)
That, for the purpose of determining any liability under the Securities Act of 1933, each such post effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein, and the offering of the securities at that time to be
the initial bona fide offering thereof.
(3)
To remove from registration by means of a post-effective amendment any of the securities that remain unsold at the termination of the
offering.
(4)
That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser in the initial distribution of securities:
If
the undersigned Registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of this Registration Statement,
other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to
be part of and included in the Registration Statement as of the date it is first used after effectiveness; provided , however , that
no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated
or deemed incorporated by reference into the registration statement or prospectus that is part of the Registration Statement will, as
to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the Registration Statement or made in any such document immediately prior to such date of first
use.
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of
such issue.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized in the City of Cape Coral, Florida on January 6, 2022.
|
LEGACY
EDUCATION ALLIANCE, INC.
|
|
|
|
/s/
Barry Kostiner
|
|
Barry
Kostiner
|
|
Interim
Chief Executive Officer
|
Pursuant
to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Barry Kostiner
|
|
Director,
Interim CEO and Manager of Capital Markets
|
|
January
6, 2022
|
Barry
Kostiner
|
|
(principal
executive, financial and accounting officer)
|
|
|
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