UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended March 31, 2024
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission
File Number: 000-55790
LEGACY
EDUCATION ALLIANCE, INC.
(Exact
Name of Registrant as Specified in its Charter)
| Nevada |
|
39-2079974 |
(State
or other jurisdiction of
incorporation or organization) |
|
(I.R.S.
Employer
Identification No.) |
| |
|
|
| 120
N. Main St., New City, NY 10956 |
|
(239)
542-0643 |
(Address
of principal executive
offices, including zip code) |
|
(Registrant’s
telephone number,
including area code) |
Securities
registered pursuant to Section 12(b) of the Act:
| Title
of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange on which registered |
| N/A |
|
N/A |
|
N/A |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☐ No ☒
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer”,
“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
| Large
Accelerated filer: |
☐ |
Accelerated
filer: |
☐ |
| 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 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Number
of shares of Legacy Education Alliance, Inc. Common Stock, $0.0001 par value, outstanding as of July 15, 2024: 49,239,875.
EXPLANATORY
NOTE
This
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2024 (the “Report”) including, but not limited to, the
financial statements, related notes, and other related information included herein have not been reviewed by the Company’s auditors
prior to the filing of this Report as a result of our termination of our auditors in August 2023, as required by the rules and regulations
of the Securities and Exchange Commission. The Company plans to appoint a new auditor to remedy these deficiencies when funds permit
and upon the completion of its review will file the requisite amendment to this Report.
Index
to Quarterly Report
on
Form 10-Q for
Quarter
Ended March 31, 2024
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain
statements made in this report 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 report, 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; any lingering 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 report or in our Annual Report on Form 10-K for the Fiscal Year ended December 31, 2023, 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 report 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 or in our Annual Report on Form 10-K for the Fiscal Year ended
December 31, 2023 under the headings “Business,” “Risk Factors” and elsewhere in this report.
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.
Presentation
of Financial Statements
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, 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 (“TIGE”).
This
Form 10-Q includes financial statements and related notes that present the consolidated financial position, results of operations, comprehensive
income, and cash flows of Legacy and its subsidiaries.
PART
I. FINANCIAL INFORMATION
Item
1. Consolidated Financial Statements.
LEGACY
EDUCATION ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(In
thousands, except share data)
| | |
March 31, | | |
December 31, | |
| | |
2024 | | |
2023 | |
| ASSETS | |
| | | |
| | |
| Current assets: | |
| | | |
| | |
| Cash and cash equivalents | |
$ | 91 | | |
| 43 | |
| Restricted cash | |
| 111 | | |
| 111 | |
| Deferred course expenses | |
| 200 | | |
| 200 | |
| Prepaid expenses and other current assets | |
| 353 | | |
| 353 | |
| Inventory | |
| 1 | | |
| 1 | |
| Discontinued operations current assets | |
| - | | |
| - | |
| Total current assets | |
$ | 756 | | |
| 708 | |
| Property and equipment, net | |
| 1 | | |
| 1 | |
| Right-of-use assets | |
| 78 | | |
| 78 | |
| Other assets | |
| 6 | | |
| 6 | |
| Discontinued operations-other assets | |
| 32 | | |
| 32 | |
| Total assets | |
$ | 873 | | |
$ | 825 | |
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | |
| | | |
| | |
| Current liabilities: | |
| | | |
| | |
| Accounts payable | |
| 2,682 | | |
| 2,682 | |
| Royalties payable | |
| 110 | | |
| 110 | |
| Accrued course expenses | |
| 240 | | |
| 240 | |
| Accrued salaries, wages and benefits | |
| 853 | | |
| 853 | |
| Operating lease liability, current portion | |
| 59 | | |
| 59 | |
| Other accrued expenses | |
| 4,230 | | |
| 3,421 | |
| Deferred revenue | |
| 3,861 | | |
| 3,861 | |
| Short-term related party debt | |
| 4,631 | | |
| 4,606 | |
| Current portion of long term debt, net of unamortized debt discount of $0 | |
| 1,000 | | |
| 1,000 | |
| Discontinued operations-current liabilities | |
| 9,442 | | |
| 9,442 | |
| Total current liabilities | |
$ | 27,108 | | |
$ | 26,274 | |
| Long-term debt, net of current portion and net of unamortized debt discount | |
| 758 | | |
| 758 | |
| Deferred tax liability, net | |
| 796 | | |
| 796 | |
| Other long term liabilities | |
| - | | |
| - | |
| Operating lease liability, net of current portion | |
| 18 | | |
| 18 | |
| Total liabilities | |
$ | 28,681 | | |
$ | 27,847 | |
| Commitments and contingencies (Note 12) | |
| | | |
| | |
| Stockholders’ deficit: | |
| | | |
| | |
| Preferred stock, $0.0001 par value, 20,000,000 shares authorized, none issued | |
| — | | |
| — | |
| Common stock, $0.0001 par value; 200,000,000 authorized; 49,239,875 and 49,239,875 shares issued and outstanding as of March 31, 2024 and December 31, 2023 | |
| 3 | | |
| 3 | |
| Additional paid-in capital | |
| 13,253 | | |
| 13,253 | |
| Cumulative foreign currency translation adjustment | |
| 785 | | |
| 785 | |
| Accumulated deficit | |
| (41,431 | ) | |
| (40,645 | ) |
| Non Controlling Interest | |
| (419 | ) | |
| (419 | ) |
| Total stockholders’ deficit | |
| (27,808 | ) | |
| (27,022 | ) |
| Total liabilities and stockholders’ deficit | |
$ | 873 | | |
$ | 825 | |
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)
| | |
Three Months | |
| | |
Ended March 31, | |
| | |
2024 | | |
2023 | |
| Revenue | |
| 133 | | |
| 72 | |
| Operating costs and expenses: | |
| | | |
| | |
| Direct course expenses | |
| 438 | | |
| 73 | |
| Advertising and sales expenses | |
| 45 | | |
| 31 | |
| Royalty expenses | |
| - | | |
| 0 | |
| General and administrative expenses | |
| 436 | | |
| 886 | |
| Total operating costs and expenses | |
| 919 | | |
| 991 | |
| Income (loss) from operations | |
| (786 | ) | |
| (919 | ) |
| Other expense: | |
| | | |
| | |
| Interest expense, net | |
| (1 | ) | |
| (59 | ) |
| Other expense, net | |
| - | | |
| - | |
| Gain on forgiveness of PPP Loan | |
| - | | |
| - | |
| Total other expense, net | |
| (1 | ) | |
| (59 | ) |
| Income (loss) from continuing operations before income taxes | |
| (786 | ) | |
| (978 | ) |
| Income tax (expense) benefit | |
| - | | |
| - | |
| Net income (loss) from continuing operations | |
| (786 | ) | |
| (978 | ) |
| Income from discontinued operations | |
| 0 | | |
| 0 | |
| Net income from discontinued operations | |
| — | | |
| 0 | |
| Less: Net Income attributable to Non controlling interest | |
| — | | |
| 100 | |
| Net income (loss) | |
$ | (786 | ) | |
$ | (878 | ) |
| | |
| | | |
| | |
| Basic earnings (loss) per common share - continuing operations | |
$ | (0.01 | ) | |
$ | (0.02 | ) |
| Basic earnings (loss) per common share - discontinued operations | |
| — | | |
| — | |
| Basic earnings (loss) per common share | |
$ | (0.01 | ) | |
$ | (0.02 | ) |
| | |
| | | |
| | |
| Diluted earnings (loss) per common share - continuing operations | |
$ | (0.02 | ) | |
$ | (0.02 | ) |
| Diluted earnings (loss) per common share - discontinued operations | |
| — | | |
| — | |
| Diluted earnings (loss) per common share | |
$ | (0.02 | ) | |
$ | (0.02 | ) |
| | |
| | | |
| | |
| Basic weighted average common shares outstanding | |
| 40,823 | | |
| 36,411 | |
| Diluted weighted average common shares outstanding | |
| 40,823 | | |
| 36,411 | |
| | |
| | | |
| | |
| Comprehensive income: | |
| | | |
| | |
| Net income (loss) | |
| (786 | ) | |
| (878 | ) |
| Foreign currency translation adjustments, net of tax of $0 | |
| - | | |
| -976 | |
| Total comprehensive income (loss) | |
| (786 | ) | |
| (1,854 | ) |
See
Notes to Unaudited Consolidated Financial Statements
LEGACY
EDUCATION ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(Unaudited)
(In thousands)
| | |
| Common stock | | |
| Additional paid-in | | |
| Cumulative
foreign currency translation | | |
| Accumulated | | |
| Non controlling | | |
| Total
stockholders’ | |
| | |
| Shares | | |
| Amount | | |
| capital | | |
| adjustment | | |
| deficit | | |
| Interest | | |
| deficit | |
| Balance at December 31, 2022 | |
| 38,183 | | |
$ | 3 | | |
$ | 13,217 | | |
$ | 1,593 | | |
$ | (37,695 | ) | |
$ | (91 | ) | |
$ | (22,973 | ) |
| Share-based compensation expense | |
| — | | |
| — | | |
| 12 | | |
| — | | |
| | | |
| | | |
| 12 | |
| Issuance of common stock | |
| 11,057 | | |
| — | | |
| 24 | | |
| — | | |
| — | | |
| | | |
| 24 | |
| Issuance of common stock | |
| | | |
| — | | |
| — | | |
| — | | |
| — | | |
| | | |
| — | |
| Foreign currency translation adjustment, net of tax of $0 | |
| — | | |
| — | | |
| — | | |
| (808 | ) | |
| — | | |
| | | |
| (808 | ) |
| Net Income | |
| — | | |
| — | | |
| — | | |
| — | | |
| (2,950 | ) | |
| (328 | ) | |
| (3,278 | ) |
| Balance at December 31, 2023 | |
| 49,240 | | |
$ | 3 | | |
$ | 13,253 | | |
$ | 785 | | |
$ | (40,645 | ) | |
$ | (419 | ) | |
$ | (27,022 | ) |
| Share-based compensation expense | |
| | | |
| | | |
$ | - | | |
| | | |
| | | |
| | | |
| - | |
| Foreign currency translation adjustment, net of tax of $0 | |
| | | |
| | | |
| | | |
$ | - | | |
| | | |
| | | |
| - | |
| Net Income | |
| | | |
| | | |
| | | |
| | | |
$ | (786 | ) | |
| | | |
| (786 | ) |
| Balance at March 31, 2024 | |
| 49,240 | | |
| 3 | | |
| 13,253 | | |
| 785 | | |
| (41,431 | ) | |
| (419 | ) | |
| (27,808 | ) |
| | |
| Common stock | | |
| Additional
paid-in | | |
| Cumulative
foreign currency translation | | |
| Accumulated | | |
| Non controlling | | |
| Total stockholders’ | |
| | |
| Shares | | |
| Amount | | |
| capital | | |
| adjustment | | |
| deficit | | |
| Interest | | |
| deficit | |
| Balance at December 31, 2021 | |
| 33,918 | | |
| 3 | | |
| 13,161 | | |
| 837 | | |
| (36,184 | ) | |
| | | |
| (22,183 | ) |
| Share-based compensation expense | |
| | | |
| - | | |
| 10 | | |
| - | | |
| - | | |
| | | |
| 10 | |
| Issuance of common stock | |
| 250 | | |
| | | |
| 45 | | |
| | | |
| | | |
| | | |
| 45 | |
| Shares issued on forbearance agreement | |
| 4,015 | | |
| | | |
| 1 | | |
| | | |
| | | |
| | | |
| 1 | |
| Foreign currency translation adjustment, net of tax of $0 | |
| — | | |
| — | | |
| — | | |
| 756 | | |
| — | | |
| | | |
| 756 | |
| Net Income | |
| — | | |
| — | | |
| — | | |
| — | | |
| (1,511 | ) | |
| (91 | ) | |
| (1,602 | ) |
| Balance at December 31, 2022 | |
| 38,183 | | |
| 3 | | |
| 13,217 | | |
| 1,593 | | |
| (37,695 | ) | |
| (91 | ) | |
| (22,973 | ) |
| Share-based compensation expense | |
| | | |
| | | |
| 4 | | |
| | | |
| | | |
| | | |
| 4 | |
| Issuance of common stock | |
| 700 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| - | |
| Foreign currency translation adjustment, net of tax of $0 | |
| | | |
| | | |
| | | |
| (976 | ) | |
| | | |
| | | |
| (976 | ) |
| Net Income | |
| | | |
| | | |
| | | |
| | | |
| (878 | ) | |
| (100 | ) | |
| (978 | ) |
| Balance at March 31, 2023 | |
| 38,883 | | |
| 3 | | |
| 13,217 | | |
| 617 | | |
| (38,573 | ) | |
| (191 | ) | |
| (24,923 | ) |
See
Notes to Unaudited Consolidated Financial Statements
LEGACY
EDUCATION ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(In
thousands)
| | |
Three Months Ended March 31, | |
| | |
2024 | | |
2023 | |
| CASH FLOWS FROM OPERATING ACTIVITIES | |
| | | |
| | |
| Net Loss | |
$ | (786 | ) | |
$ | (978 | ) |
| Less net income from discontinued operations | |
| — | | |
| — | |
| Net income from continuing operations | |
$ | (786 | ) | |
$ | (978 | ) |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |
| | | |
| | |
| Depreciation and amortization | |
| - | | |
| - | |
| Change in fair value of lease liability | |
| - | | |
| | |
| Non cash lease expenses | |
| - | | |
| | |
| Share-based compensation | |
| - | | |
| 4 | |
| Non controlling interest | |
| - | | |
| | |
| Amortization of debt discount | |
| - | | |
| 96 | |
| Gain on debt extinguishment (PPP loan forgiveness) | |
| | | |
| | |
| Deferred revenue | |
| - | | |
| | |
| Deferred income taxes | |
| - | | |
| | |
| Changes in operating assets and liabilities: | |
| | | |
| | |
| Deferred course expenses | |
| - | | |
| (19 | ) |
| Prepaid expenses and other receivable | |
| - | | |
| (338 | ) |
| Inventory | |
| - | | |
| | |
| Other assets | |
| - | | |
| | |
| Accounts payable-trade | |
| - | | |
| 225 | |
| Royalties payable | |
| - | | |
| | |
| Accrued course expenses | |
| - | | |
| 24 | |
| Accrued salaries, wages and benefits | |
| - | | |
| 114 | |
| Operating lease liability | |
| - | | |
| | |
| Other accrued expenses | |
| 809 | | |
| 370 | |
| Deferred revenue | |
| - | | |
| 302 | |
| Net cash used in operating activities - continuing operations | |
| 23 | | |
| (200 | ) |
| Net cash (used in) provided by operating activities - discontinued operations | |
| — | | |
| | |
| Net cash used in operating activities | |
| 23 | | |
| (200 | ) |
| CASH FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | |
| Proceeds from the sale of investment property | |
| | | |
| — | |
| Proceeds from sale property and equipment | |
| — | | |
| — | |
| Net cash provided by investing activities - continuing operations | |
| — | | |
| - | |
| Net cash used in investing activities - discontinued operations | |
| — | | |
| — | |
| Net cash provided by investing activities | |
| — | | |
| - | |
| CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
| Proceeds from issuance of debt | |
| 25 | | |
| 552 | |
| Issuance of common stock/options | |
| — | | |
| | |
| Net cash provided by financing activities - continuing operations | |
| 25 | | |
| 552 | |
| Net cash provided by financing activities - discontinued operations | |
| — | | |
| — | |
| Net cash provided by financing activities | |
| 25 | | |
| 552 | |
| Effect of exchange rate differences on cash | |
| — | | |
| (353 | ) |
| Net decrease in cash and cash equivalents and restricted cash | |
| 48 | | |
| (1 | ) |
| Cash and cash equivalents and restricted cash, beginning of period, including cash in discontinued operations | |
$ | 154 | | |
$ | 223 | |
| Cash and cash equivalents and restricted cash, end of period | |
$ | 202 | | |
$ | 222 | |
See
Notes to Unaudited Consolidated Financial Statements
LEGACY
EDUCATION ALLIANCE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
1 - General
Business
Description.
Legacy
Education Alliance, Inc. is 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. Legacy’s 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, 2023, Legacy marketed its products and services under Building Wealth with LegacyTM.
During the year ended December 31, 2023, Legacy marketed its products and services under two brands: Building Wealth with Legacy and
its affiliate company, Legacy Live.
The
Company’s 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”), the Company recognizes revenue upon the earlier
of (i) when its 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. The Company recognizes revenue immediately when it sells (i) its proprietary
products delivered at time of sale and (ii) third party products. The Company’s symposiums and forums combine multiple advanced
training courses in one location, allowing the Company 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 its students’ experience, particularly, for
example, through the opportunity to network with other students.
The
Company also provides a richer experience for its students through one-on-one mentoring (two to four days in length, on site or remotely,
although it has 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.
The
Company was founded in 1996, and through a reverse merger, became a publicly held company in November 2014. Today, Legacy has cumulatively
served more than two million students from more than 150 countries and territories over the course of its operating history.
The
Company’s operations have traditionally relied heavily on the ability to travel and attend live events where large groups of people
gather in local markets within each of the segments in which it operates. As a result of the COVID-19 coronavirus pandemic, and the resulting
worldwide restrictions on travel and social distancing, the Company temporarily ceased conducting live sales and fulfillment and furloughed
substantially all of its employees. The Company resumed online operations in July 2020, and live operations in November 2020. The Company
has simplified its product offerings and restructured its 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 its financial performance. Due to the continuing COVID-19 pandemic, the Company suspended
live in-person events in December 2021 to assess the strategic plan and will continue the suspension into fiscal year 2022. The Company
is not able to fully quantify the impact that these factors will have on our future financial results.
The
Company’s operations are managed through three operating segments: (i) North America, (ii) United Kingdom, and (iii) Other Foreign
Markets. We no longer operate under our United Kingdom and Other Foreign Markets segments. Currently, there are no operations outside
of the United States.
Since
January 1, 2020, Legacy has operated under the brand Building Wealth with Legacy. Building Wealth with Legacy 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. During the fiscal year 2022, the Company marketed products and services exclusively under this brand.
During
2023, the Company focused on its relationship with Legacy Live and developing new brands and businesses focused on affiliate marketing
relationships and digital marketing and AI technology.
Merger.
On November 10, 2014, the Company 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 a wholly owned subsidiary of the Company and the Company acquiring 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.
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 unaudited consolidated financial statements included in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2023 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 three
months ended March 31, 2024, we had an accumulated deficit, a working capital deficit and a negative cash flow from operating activities.
These circumstances raise substantial doubt as to our ability to continue as a going concern. Our ability to continue as a going concern
is dependent upon our ability to generate profits by expanding current operations as well as reducing our costs and increasing our operating
margins, and to sustain adequate working capital to finance our operations. The failure to achieve the necessary levels of profitability
and cash flows would be detrimental to us. The consolidated financial statements do not include any adjustments that might be necessary
if we are unable to continue as a going concern.
Use
of Estimates.
Conformity
with GAAP requires the use of estimates and judgments that affect the reported amounts in our consolidated financial statements and accompanying
notes. These estimates form the basis for judgments we make about the carrying values of our assets and liabilities, which are not readily
apparent from other sources. We base our estimates and judgments on historical information and on various other assumptions that we believe
are reasonable under the circumstances. GAAP requires us to make estimates and judgments in several areas, including, but not limited
to, those related to deferred revenues, reserve for breakage, deferred costs, revenue recognition, commitments and contingencies, fair
value of financial instruments, useful lives of property and equipment, right-of-use assets, and income taxes. These estimates are based
on management’s knowledge about current events and expectations about actions we may undertake in the future. Actual results could
differ materially from those estimates.
Cash
and Cash Equivalents.
We
consider all highly liquid instruments with an original maturity of three months or less to be cash or cash equivalents. We continually
monitor and evaluate our investment positions and the creditworthiness of the financial institutions with which we invest and maintain
deposit accounts. When appropriate, we utilize Certificate of Deposit Account Registry Service (CDARS) to reduce banking risk for a portion
of our cash in the United States. A CDAR consists of numerous individual investments, all below the FDIC limits, thus fully insuring
that portion of our cash. At March 31, 2024 and December 31, 2023, 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:
| | |
March 31, | | |
December 31, | |
| | |
2024 | | |
2023 | |
| | |
(in thousands) | |
| Cash and cash equivalents | |
$ | 91 | | |
$ | 43 | |
| Restricted cash | |
| 111 | | |
| 111 | |
| Total cash, cash equivalents, and restricted cash shown in the cash flow statement | |
$ | 202 | | |
$ | 154 | |
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 included 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
We
have implemented all new accounting pronouncements that are in effect and that management believes would materially affect our financial
statements.
In
November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, Improvements to Reportable Segment
Disclosures, which requires disclosure of incremental segment information on an annual and interim basis. The amendments in this
update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December
15, 2024 on a retrospective basis. Early adoption is permitted. We are currently assessing the impact of this update on our consolidated
financial statements and related disclosures.
In
December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which is designed to provide greater income
tax disclosure transparency by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation
and (2) income taxes paid disaggregated by jurisdiction. The amendments in this update are effective for fiscal years beginning after
December 15, 2024 on a prospective basis. Early adoption is permitted. We are currently assessing the impact of this update on our consolidated
financial statements and related disclosures.
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 $0 thousand and $4.15 thousand for the three months ended March 31,
2024 and 2023, respectively, which are reported as a separate line item in the consolidated statements of changes in stockholders’
deficit.
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 11, 2022, the proof of debt was rejected by the
Liquidator of Legacy UK and extended twenty-one days from the receipt of the notice to provide additional documentation supporting the
claim to the Court of England. The additional information was submitted to the Liquidators on March 21, 2022.
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. We are awaiting the outcome from the meeting of the
Creditors on March 25, 2022. The Company is currently unaware of the status of this matter due to a lack of funds available for its UK
counsel.
The
major classes of assets and liabilities of the entities classified as discontinued operations were as follows:
| | |
March 31, | | |
December 31, | |
| | |
2024 | | |
2023 | |
| | |
(in thousands) | |
| Major classes of assets | |
| | |
| |
| Cash and cash equivalents | |
$ | — | | |
$ | — | |
| Deferred course expenses | |
| — | | |
| — | |
| Discontinued operations-current assets | |
| — | | |
| — | |
| Other assets | |
| 32 | | |
| 32 | |
| Total major classes of assets - discontinued operations | |
$ | 32 | | |
$ | 32 | |
| Major classes of liabilities | |
| | | |
| | |
| Accounts payable | |
$ | 3,432 | | |
$ | 3,432 | |
| Accrued course expenses | |
| 545 | | |
| 545 | |
| Other accrued expenses | |
| 403 | | |
| 403 | |
| Deferred revenue | |
| 5,062 | | |
| 5,062 | |
| Total major classes of liabilities - discontinued operations | |
$ | 9,442 | | |
$ | 9,442 | |
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.
The
calculations of basic and diluted EPS are as follows:
| | |
Three
Months Ended March 31, 2024 | | |
Three
Months Ended March 31, 2023 | |
| | |
| | |
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 | |
$ | (786 | ) | |
| 40,823 | | |
$ | (0.02 | ) | |
$ | (878 | ) | |
| 36,411 | | |
$ | (0.02 | ) |
| Amounts
allocated to unvested restricted shares and warrants | |
| — | | |
| — | | |
| | | |
| | | |
| | | |
| | |
| Amounts
available to common stockholders | |
$ | (786 | ) | |
| 40,823 | | |
$ | (0.02 | ) | |
$ | (878 | ) | |
| 36,411 | | |
$ | (0.02 | ) |
| Diluted: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Amounts
allocated to unvested restricted shares | |
| — | | |
| — | | |
| | | |
| — | | |
| — | | |
| | |
| Stock
warrants | |
| — | | |
| — | | |
| | | |
| — | | |
| — | | |
| | |
| Shares
of common stock to be issued for convertible note | |
| — | | |
| — | | |
| | | |
| — | | |
| — | | |
| | |
| Amounts
reallocated to unvested restricted shares | |
| — | | |
| — | | |
| | | |
| — | | |
| — | | |
| | |
| Amounts
available to stockholders and assumed conversions | |
$ | (786 | ) | |
| 40,823 | | |
$ | (0.02 | ) | |
$ | (878 | ) | |
| 36,411 | | |
$ | (0.02 | ) |
Note
6 - Fair Value Measurements
ASC
820, “Fair Value Measurements and Disclosures” defines fair value, establishes a consistent framework for measuring
fair value and expands disclosure requirements of fair value measurements. ASC 820 requires entities to, among other things, maximize
the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
ASC
820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement
date.
ASC
820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable.
Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions.
In
accordance with ASC 820, these two types of inputs have created the following fair value hierarchy:
| |
● |
Level
1-Inputs that are quoted prices (unadjusted) for identical assets or liabilities in active markets; |
| |
● |
Level
2-Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly,
for substantially the full term of the asset or liability, including: |
| |
● |
Quoted
prices for similar assets or liabilities in active markets |
| |
● |
Quoted
prices for identical or similar assets or liabilities in markets that are not active |
| |
● |
Inputs
other than quoted prices that are observable for the asset or liability |
| |
● |
Inputs
that are derived principally from or corroborated by observable market data by correlation or other means; and |
| |
● |
Level
3-Inputs that are unobservable and reflect our assumptions used in pricing the asset or liability based on the best information available
under the circumstances (e.g., internally derived assumptions surrounding the timing and amount of expected cash flows). |
For
the three-month ended March 31, 2024, the Company has the derivative liabilities measured at fair value on a recurring basis which are
valued at level 3 measurement.
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 either to the length of maturity or interest rates that approximate prevailing market rates.
Note
7 - Short-Term and Long-Term Debt
| | |
As of March 31, 2024 | | |
As of December 31, 2023 | |
| (in thousands) | |
| | |
| |
| Senior Secured Convertible Debenture | |
| - | | |
$ | — | |
| EDIL Loan | |
| 200 | | |
$ | 200 | |
| Notes Payable | |
| 200 | | |
$ | 200 | |
| Debt Discount | |
| (384 | ) | |
| (383 | ) |
| Senior Secured Convertible Debenture, net | |
| 16 | | |
| 17 | |
| Paycheck Protection Program loan | |
| 1,000 | | |
| 1,000 | |
| Paycheck Protection Program loan 2 | |
| 742 | | |
| 742 | |
| IPFS Insurance Premium Note Payable | |
| - | | |
| — | |
| Total debt | |
| 1,758 | | |
| 1,759 | |
| Less current portion of long-term debt | |
| (1,000 | ) | |
| (1,001 | ) |
| Total long-term debt, net of current portion | |
| 758 | | |
$ | 758 | |
Short-term
related party debt:
| | |
As of March 31, 2024 | | |
As of December 31, 2023 | |
| (in thousands) | |
| | |
| |
| Senior Secured Convertible Debenture - related party | |
$ | 4,652 | | |
$ | 4,606 | |
| Debt Discount-related party | |
| (21 | ) | |
| - | |
| Senior Secured Convertible Debenture - related party, net | |
$ | 4,631 | | |
$ | 4,606 | |
The
following is a summary of scheduled debt maturities by year (in thousands):
| 2024 | |
| 6,201 | |
| 2025 | |
| 12 | |
| 2026 | |
| 12 | |
| Thereafter | |
| 164 | |
| Total debt | |
$ | 6,389 | |
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 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 the First Draw PPP 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 the First Draw 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 $1.0
million was originally due on April 24, 2022. On March 29, 2022, the documents to extend the maturity date to April 24, 2025 was signed.
The extension agreement was executed on April 1, 2022. The loan is a term of sixty (60) months at 1.0% interest rate with monthly payments
in the amount of $29 thousand. Interest paid was $0 thousand for quarter ended March 31, 2024 and March 31, 2023.
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 “LTP Conversion Shares”) at a price equal to $0.05 per share. Together
with each LTP 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 “LTP 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 June 30, 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 year ended December 31, 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 aggregate number of shares issuable upon
conversion of the LTP Debenture and upon the exercise of the LTP 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 LTP Debenture and the exercise of
the LTP 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 year ended December 31, 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 year ended December 31, 2021, with a corresponding credit to additional paid-in capital. The related amortization
of the debt discount to interest expense for the quarter ended March 31, 2024 and 2023 were $0 thousand and $14 thousand, respectively.
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. The Company evaluated the convertible debenture under ASC 470-20 and recognized a
debt discount of $228 thousand related to the beneficial conversion feature during the year ended December 31, 2021, with a corresponding
credit to additional paid-in capital.
On
March 8, 2022, the Company defaulted on the LTP Debenture in the remaining amount left unconverted of $46 thousand and $9 thousand accrued
interest. There was no acceleration of interest rate and no triggering of guarantees under the note agreement to increase any debt obligations.
Second Draw Paycheck Protection Program Note Agreement.
On April 20, 2021, ELE 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 PPP, and extended to “Second Draw” PPP loans as described below (the “Second Draw PPP Loan”).
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. ELE got forgiveness for this loan as of December 31, 2022 for an
amount of $1.14 million.
Debenture,
Warrant and Guaranty Agreements, and Exercise of Conversion Rights.
On
May 4, 2021, 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 at the time. 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 “Botbol Conversion Shares”) at a price equal to $0.05 per share (“Conversion Price”). Together
with each Botbol 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 “Botbol 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 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 Subordinated 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 Subordinated 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 Subordinated Debenture and upon the exercise of the Botbol 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 Subordinated Debenture and the exercise of the Botbol 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).
Senior
Secured Convertible Debenture, Advisory Agreement, and Intercreditor Agreement.
On
August 27, 2021, the Company issued a $500 thousand Senior Secured Convertible Debenture (the “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 “GLD Conversion Shares”) at a price equal to $0.05 per share. Together
with each GLD 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 “GLD 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 year ended December 31, 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 year ended December 31, 2021, with a corresponding credit to additional paid-in capital. The related amortization
of the debt discount to interest expense for the year ended December 31, 2023 and the year ended December 31, 2022 was $0 and $25 thousand,
respectively. 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 year ended December 31, 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 GLD Warrants will not be listed for trading on any national securities exchange. The GLD
Warrants and the shares issuable upon conversion of the GLD Debenture are not being registered under the Securities Act. The aggregate
number of shares issuable upon conversion of the GLD Debenture and upon the exercise of the GLD 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 GLD
Debenture and the exercise of the GLD 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”). The Intercreditor Agreement
also appoints Barry Kostiner as Servicing Agent (as defined therein) to act on behalf of 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
(as defined below).
The
Company received a “Notice of Breach and Obligation to Cure to Avoid Event of Default” from GLD dated May 11, 2022 (the “Notice”).
Pursuant to the Notice, GLD informed the Company of certain alleged breaches of the terms of the GLD Debenture by the Company, and that
the Company has 30 days to cure or GLD would consider an event of default under the GLD Debenture to have occurred.
On
July 15, 2022, the Company entered into a Forbearance Agreement (the “Forbearance Agreement”) with GLD with respect to the
GLD Debenture, and LTP with respect to the LTP Debenture (with the GLD Debenture, the “Debentures” and each sometimes, a
“Debenture”).
Pursuant
to the Forbearance Agreement, GLD and LTP each agreed to forbear from exercising its rights against the Company under the applicable
Debenture until the earlier of (i) a default under the Forbearance Agreement or a new default under such Debenture or (ii) October 15,
2022 (the “Forbearance Period”).
Prior
to the expiration of the Forbearance Period, the Company agreed to cause a sale of the GLD Debenture to ABCImpact I, LLC, a Delaware
limited liability company (“ABCImpact”), or as directed by ABCImpact, at a purchase price equal to the outstanding balance
due and payable on the GLD Debenture by no later than October 15, 2022, which shall be in full and complete satisfaction of the Company’s
obligations to GLD under the GLD Debenture.
The
Company also paid $25,000 in satisfaction of GLD’s legal fees, pursuant to the terms of the Forbearance Agreement.
Until
the date that the GLD Debenture is sold to ABC Impact and the LTP Debenture has been repaid in full, the Company shall cause Mayer and
Associates LLC, a shareholder of the Company, to be restricted from exercising its existing option for 18,400,000 shares of Company common
stock at $.0001 per share.
As
partial consideration for GLD entering into the Forbearance Agreement, the Company agreed to issue to GLD 2,100,000 shares of the common
stock of the Company at a price per share of $.0001 (the “GLD Consideration Shares”), which GLD Consideration Shares (i)
at the time of their issuance thereafter shall be subject to all applicable restrictions under relevant securities laws and (ii) shall
be registered for resale on a Registration Statement on Form S-1 (the “Form S-1”). In addition, as partial consideration
for LTP entering into the Forbearance Agreement, the Company agreed to issue to LTP 1,600,000 shares of the common stock of the Company
at a price per share of $.0001 (the “LTP Consideration Shares”). The issuance of the GLD Consideration Shares and the LTP
Consideration Shares are subject to restrictions as described in the Forbearance Agreement and will not trigger any anti-dilution provisions
of any convertible securities of the Company that may be held by GLD or LTP or their affiliates in whatever form, including the Debentures.
The
Company also agreed to use its best efforts to effect a spin-off of an existing to-be-determined subsidiary of the Company, pursuant
to the terms described in the Forbearance Agreement.
Following
the occurrence of any of the Events of Default (as defined in the Forbearance Agreement), each of LTP and GLD may exercise any or all
remedies as provided under the Forbearance Agreement, the applicable Debenture or applicable law.
On
October 7, 2022, GLD provided the Company with formal, written notice that the Company is in default under the terms of the Forbearance
Agreement and the GLD intends to exercise all available rights and remedies at law and/or at equity. Pursuant to the Forbearance Agreement,
upon the occurrence of an Event of Default, GLD may release a Confession of Judgment from escrow and enter judgment against the Company
for the outstanding principal balance due under the GLD Note, and any accrued, but unpaid interest. GLD has the option to exercise any
or all remedies provided under the Forbearance Agreement, the GLD Note or applicable law.
In
addition, the Company continued to trigger Events of Default commencing as of October 15, 2022, when the next set of obligations came
due under the Forbearance Agreement. The Company can give no assurance that it will cure any Events of Default or that GLD will not exercise
any and all of its rights under the Forbearance Agreement.
On
July 27, 2023, the court granted the motion for summary judgment in favor of GLD in the amount of $624,121,50, together with pre-judgment
interest at the 18% contractual rate from March 31, 2023.
Economic
Injury Disaster Loan.
On
April 25, 2022, the Company executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the
SBA under is Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on
the business operations. Pursuant to that certain Loan Authorization and Agreement (the “SBA Loan Agreement”), the principal
amount of the EIDL Loan was $200,000, with proceeds to be used for working capital purposes disbursed on May 3, 2021. Interest accrues
at a rate of 3.75% per annum. Installment payments, including principal and interest, are due monthly beginning 24 months from the date
of the EIDL Loan in the amount of $1 thousand. The balance of principal and interest is payable 30 years from the date of the SBA note.
Convertible
Promissory Notes.
On
Nov 14, 2023, the Company entered into a Securities Purchase Agreement (the “Kolk Purchase Agreement”) and issued and sold
to Kolk Homes LLC (“Kolk”), a Convertible Promissory Note (the “Kolk Note”) in the principal amount of $100,000
(the “Kolk Loan”). Also pursuant to the Purchase Agreement, in connection with the issuance of the Kolk Note, the Company
issued a common stock purchase warrant (the “Kolk Warrant”) to Kolk, pursuant to which Kolk has the right to purchase Company
common stock at 100% coverage as provided in the Kolk Warrant.
On
Aug 22, 2023, the Company entered into a Securities Purchase Agreement (the “Eagle Purchase Agreement”) and issued and sold
to Eagle Pre IPO LLC (“Eagle”), a Convertible Promissory Note (the “Eagle Note”) in the principal amount of $50,000
(the “Eagle Loan”). Also pursuant to the Purchase Agreement, in connection with the issuance of the Eagle Note, the Company
issued a common stock purchase warrant (the “Eagle Warrant”) to Eagle, pursuant to which Eagle has the right to purchase
Company common stock at 100% coverage as provided in the Eagle Warrant.
The
maturity date of the Kolk Note and Eagle Note is 12 months from the issue date with an option to extend for up to 6 months in the sole
discretion of the Company and is the date upon which the principal sum as well as interest and other fees, shall be due and payable.
The Kolk Note and Eagle Note bear interest commencing, at a fixed rate of 8% per annum.
On
May 17, 2022, the Company entered into a Securities Purchase Agreement (the “TLC Purchase Agreement”) and issued and sold
to TLC Management & Consulting LLC (“TLC”), a Convertible Promissory Note (the “TLC Note” and together with
the Kolk Note and Eagle Note, the “Notes”) in the principal amount of $110,000 (the “TLC Loan”), less an original
issue discount of $10,000. Also pursuant to the TLC Purchase Agreement, in connection with the issuance of the TLC Note, the Company
issued a common stock purchase warrant (the “TLC Warrant”) to TLC, pursuant to which TLC has the right to purchase Company
common stock at 100% coverage as provided in the TLC Warrant.
The
maturity date of the TLC Note is 12 months from the issue date with an option to extend for up to 6 months in the sole discretion of
the Company and is the date upon which the principal sum as well as interest and other fees, shall be due and payable. The TLC Note bears
interest commencing on May 17, 2022, at a fixed rate of 6% per annum. The Company exercised its option and extended the maturity date
to November 17, 2023.
The
Company used the net proceeds from the sale of the Notes for business development, including for acquisitions, general corporate and
working capital.
The
then outstanding and unpaid principal and interest shall be converted into fully paid and non-assessable shares of Company common stock
on the 10th trading day after the effective date of a registration statement registering the shares (the “Mandatory
Conversion Date”). The per share conversion price into which principal and interest under the TLC Note shall be convertible into
shall be a 20% discount to the VWAP (as defined in the TLC Note) for the ten trading day period ending on the latest complete trading
day prior to the Mandatory Conversion Date (the “TLC Note Conversion Price”). The TLC Note Conversion Price is subject to
adjustment pursuant to customary terms described in the TLC Note.
The
Company may prepay the TLC Note, provided that it shall pay an amount in cash equal to the sum of 110% multiplied by the principal then
outstanding plus interest.
The
TLC Note contains customary events of default for a transaction such as the TLC Loan which entitle TLC, among other things, to accelerate
the due date of the unpaid principal amount of, and all accrued and unpaid interest on, the TLC Note. Any principal and interest on the
TLC Note which is not paid when due shall bear interest at the rate of the lesser of (i) 12% per annum; and (ii) the maximum amount permitted
by law from the due date thereof until the same is paid.
Pursuant
to the TLC Purchase Agreement, the Company granted to TLC registration rights whereby the Company shall register for resale all of the
common stock underlying the TLC Note and TLC Warrant, as set forth on Exhibit C to the TLC Purchase Agreement.
The
TLC Warrant has an exercise price of 125% of the offering price per share of Company common stock (or unit, if units are offered in the
Uplist Offering (as defined in Exhibit C of the TLC Purchase Agreement)) at which the Uplist Offering is made, subject to adjustment
as provided in the TLC Warrant. The exercise period of the TLC Warrant commences on the consummation of the Uplist Offering and ending
on the five year anniversary thereof.
The
exercise of the TLC Warrant is subject to a beneficial ownership limitation of 4.99% of the number of shares of common stock outstanding
immediately after giving effect to such exercise.
ABC
Impact Loans.
Between
June 9, 2022 and March 31, 2024, the Company borrowed an aggregate of $2,620,500 from ABC Impact, evidenced by a series of 10% Convertible
Debentures. Pursuant to the debentures, ABC Impact has the option to loan up to an additional $2,379,500 to the Company.
ABC
Impact is an entity in which an affiliate of Barry Kostiner, the Company’s Chief Executive Officer and sole director, has a non-controlling
passive interest.
The
maturity date of each debenture is the earlier of 12 months from the issue date and the date of a Liquidity Event (as defined in the
debentures), and is the date upon which the principal and interest shall be due and payable. The debentures each bear interest at a fixed
rate of 10% per annum. Any overdue accrued and unpaid interest shall entail a late fee at an interest rate equal to the lesser of 18%
per annum or the maximum rate permitted by applicable law, which shall accrue daily from the date such interest is due through and including
the date of actual payment in full.
The
Company uses the net proceeds from the loans from ABCImpact for general corporate purposes and working capital.
The
then outstanding and unpaid principal and interest shall be converted into shares of Company common stock and an equal number of common
stock purchase warrants at the option of ABC Impact, at a conversion price per share of $0.05, subject to adjustment (including pursuant
to certain dilutive issuances) pursuant to the terms of the each debenture. The debentures are subject to a beneficial ownership limitation
of 4.99% (or 9.99% in ABC Impact’s discretion).
The
Company may not prepay the debentures without the prior written consent of ABCImpact.
The
debentures each contain customary events of default for a transaction such as the transactions contemplated therein. If any event of
default occurs, the outstanding principal amount under a debenture, plus accrued but unpaid interest, liquidated damages and other amounts
owing through the date of acceleration, shall become, at ABCImpact’s election, immediately due and payable in cash at the Mandatory
Default Amount. “Mandatory Default Amount” means the sum of (a) the greater of (i) the outstanding principal amount of the
subject debenture, plus all accrued and unpaid interest, divided by the conversion price on the date the Mandatory Default Amount is
either (A) demanded or otherwise due or (B) paid in full, whichever has a lower conversion price, multiplied by the VWAP (as defined
in each debenture) on the date the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has
a higher VWAP, or (ii) 130% of the outstanding principal amount of the subject debenture, plus 100% of accrued and unpaid interest hereon,
and (b) all other amounts, costs, expenses and liquidated damages due in respect of the subject debenture.
The
warrants underlying each debenture has an exercise price per share of $0.05, subject to adjustment (including pursuant to certain dilutive
issuances) pursuant to the terms of the warrant. The exercise period of each warrant is for five years from the issue date.
The
exercise of the warrant is subject to a beneficial ownership limitation of 4.99% (or 9.99%) of the number of shares of common stock outstanding
immediately after giving effect to such exercise.
The
shares underlying the debentures and the warrants have “piggy-back” registration rights afforded to them.
Convertible
debt:
On
January 4, 2024, Legacy Education Alliance, Inc. (the “Company”) entered into a Securities Purchase Agreement (the “Purchase
Agreement”) with an accredited investor (the “Investor”), pursuant to which the Company issued to the Investor a Convertible
Promissory Note having a principal amount of $250,000 (the “Note”) and a Common Stock Purchase Warrant (the “SPA Warrant”)
to purchase up to a certain amount of shares of the Company’s common stock (subject to certain conditions set forth in the Purchase
Agreement). Pursuant to the Purchase Agreement, the Company granted the Investor the right to have the Company register the resale of
the Common Stock underlying the Note and SPA Warrant with the Securities and Exchange Commission.
The
Company used the net proceeds from the transaction for general corporate purposes and working capital.
The
maturity date of the Note is twelve (12) months from the issue date, with the option to extend for up to six (6) months in the sole discretion
of the Company upon prior written notice to the Investor and is the date upon which the principal and interest shall be due and payable.
The Note bears interest at a fixed rate of 8% per annum. Any overdue accrued and unpaid interest shall entail a late fee at an interest
rate equal to the lesser of 12% per annum or the maximum rate permitted by applicable law, which shall accrue daily from the date such
interest is due through and including the date of actual payment in full.
The
then outstanding and unpaid principal and interest under the Note shall be converted into shares of Company common stock on the Mandatory
Conversion Date (as defined in the Note). Pursuant to the terms of the Note, the conversion price is equal to the lesser of: (i) $0.20
per share; or (ii) a 20% discount to the VWAP for the ten (10) trading day period ending on the last complete trading day prior to the
Mandatory Conversion Date. The Note is subject to a beneficial ownership limitation of 4.99%.
Upon
the occurrence of an Event of Default (as defined in the Note), the Note will become immediately due and payable and the Company shall
pay the Investor in full satisfaction of the principal, Default Amount (as defined in the Note), and all related costs associated with
collection.
The
SPA Warrant entitles the Investor to purchase up to such number of shares of the Company’s common stock, and at an exercise price
determined at the time of the Uplist Offering (as defined in the Purchase Agreement), subject to the limitations and conditions set forth
in the Purchase Agreement and SPA Warrant, respectively.
The
total outstanding liability including promissory notes, convertible notes, or other convertible debt arrangements as of July 8, 2024
is $4,640,969. This includes an issuance of 7,083,500 shares and potential convertibility of an additional 67,093,435 shares. Additional
debt will be convertible upon the completion of a Nasdaq uplisting
Note
8 - Stock Warrants
On
May 4, 2021, the Company issued 500,000 warrants to M. Botbol, a related party, in connection with conversion of a 10% subordinated convertible
debenture in the amount of $25,000 (see Note 7 – “Short-Term and Long-Term Debt”). The warrants entitle the
holder to purchase one share of common stock at an exercise price of $0.05 per share at any time on or after the inception date, May
4, 2021, through May 4, 2026, the expiration date. The warrants will not be listed for trading on any national securities exchange.
On
June 11, 2021, the Company issued 6,583,500 warrants to Legacy Tech Partners, LLC (LTP), a related party, in connection with conversion
of a 10% subordinated convertible debenture in the amount of $330,000 of outstanding principal (see Note 7 – “Short-Term
and Long-Term Debt”). The warrants entitle the holder to purchase one share of common stock at an exercise price of $0.05 per
share at any time on or after the inception date, June 11, 2021, through March 8, 2026, the expiration date. The warrants are not listed
for trading on any national securities exchange.
A
summary of the warrant activities for the three months ended March 31, 2024, is as follows:
| | |
Warrants Outstanding | | |
| |
| | |
Number of Shares | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Contractual Term in Years | | |
Aggregate Intrinsic Value (in 000’s)1 | |
| Balance as of January 1, 2021 | |
| - | | |
| - | | |
| - | | |
| - | |
| Granted | |
| 7,083,500 | | |
$ | 0.05 | | |
| - | | |
| - | |
| Balance as of December 31, 2023 | |
| 7,083,500 | | |
$ | 0.20 | | |
| 3.6 | | |
| 177 | |
| Exercisable as of March 31, 2024 | |
| 7,083,500 | | |
$ | 0.20 | | |
| 3.6 | | |
| (404 | ) |
| 1 | The aggregate intrinsic
value is calculated as the difference between the exercise price of the underlying warrants and the closing stock price of $ 0.1430 for
our common stock on March 31, 2024. |
Note
9 - Income Taxes
We
recorded income tax benefit of $0 for the three months ended March 31, 2024 and 2023, Our effective tax rate was 0% for the three months
ended March 31, 2023 and 2022,. Our effective tax rates differed from the U.S. statutory corporate tax rate of 21% 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 March 31, 2024 and December 31, 2023, we retained a valuation
allowance of $ 3.5 million and $3.5 million, respectively, for a certain number of our international subsidiaries.
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 2019 are subject to examination by the Internal Revenue Service. Our state tax
returns for all years after 2019 or 2018, 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 2015 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 March 31, 2024 and December 31, 2023, including foreign
subsidiaries, without FDIC coverage were $0.04 million and $0.04 million, respectively.
Note
11 - 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 March 31, 2024, we have deferred revenue of $3.9
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.
The
following tables disaggregate our segment revenue by revenue source
| | |
Three Months Ended
March 31, 2024 | | |
Three Months Ended
March 31, 2023 | |
| Revenue Type: | |
Total Consolidated Revenue | | |
Total Consolidated Revenue | |
| | |
| (In thousands) | | |
| (In thousands) | |
| Seminars | |
$ | 133 | | |
$ | 72 | |
| Products | |
| | | |
| - | |
| Coaching and Mentoring | |
| — | | |
| - | |
| Online and Subscription | |
| - | | |
| - | |
| Other | |
| - | | |
| - | |
| Total revenue | |
$ | 133 | | |
$ | 72 | |
Note
12 - Commitments and Contingencies
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 several
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 $400,000 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 as of December
31, 2021, and within accounts payable and other long-term liability for the current and long-term portions as of December 31, 2021, within
the Consolidated Balance Sheets. The parties also exchanged mutual releases as part of the Settlement Agreement. The lawsuit was dismissed
by order of the Court on January 12, 2021. Through June 30, 2022, the Company has paid $340,000 of the total settlement. The final settlement
payment was due 450 days after February 18, 2021 in the amount of $60,000 and is in default. On May 25, 2022, a Motion for Judgement
after default of settlement agreement was filed which triggered and entitled immediate entry of judgement of $160,000. The Company currently
lacks funds to reach a final resolution.
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 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 £300,000 (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 $390,600 in cash and transferred our residential properties in the value of $363,000 as settlement of intercompany debts of two
of our subsidiaries, LEAI Property Development UK, Ltd. and LEAI Property Investment UK, Ltd., totaling $924,000 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. The Company is currently unaware of the status of this matter due to a lack of funds available
for its UK counsel.
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. 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. The Company is currently unaware of the status of this
matter due to a lack of funds available for its UK counsel.
In
the Matter of GLD Legacy Holders LLC Index No. 651638/2023. An Affidavit in Opposition to the Plaintiff’s Motion for Summary
Judgment in lieu of Complaint and in support of Defendant’s Cross-Motion to Dismiss the Action was filed by Barry Kostiner. Pursuant
to New York Civil Practice Law Rules (hereinafter “CPLR”) Section 3213, the presiding judge has discretion to either grant
or deny the motion. We have provided the court with documents and memorandum in support of a denial of the plaintiff’s motion.
On
July 27, 2023, the Cross-Motion to Dismiss was denied, and a motion for summary judgment in lieu of complaint was granted in the amount
of $624,121.50 together with pre-judgment interest at the 18% contractual rate from March 31, 2023 until entry of judgment and thereafter
at the statutory rate.
In
the Matter of DMG Productions LLC. CASE NO: 50-2022-CA007610. The court issued a judgment of $97,112.25 on October 5, 2022 related
to the default on an invoice for $53,500 dated April 29, 2022. It is the Company’s view that the default under the agreement with
DMG Productions and the subsequent judgment was not validly issued. The Company intends to dispute this judgment.
There
are approximately 60 students of ELE that have not received complete fulfilment of the Company’s contractual obligations. The total
revenue collected from these students is approximately $1.1M. It is the intention of the Company to use best efforts to fulfil these
students, although most of these contractual obligations have expired. Some of these students have litigation that has been filed, with
potential additional litigation expected. Cases filed include: William Thayer Case No.22-CC-005571, Brent Rawlings Case No. 2021 CA-004771
and Harris Case No. 21-SC-02083. It is expected that our total cost of fulfilling our student obligations, including expenses of fulfilments,
settlements and judgements will range between $100,000 and $500,000.
Mr.
Kostiner, our Chairman, Chief Executive Officer, and Interim Principal Financial and Accounting Officer is a named defendant in three
legal proceedings which are described below.
Other
Legal Proceedings.
In
Re Argon Credit, LLC, et al., Debtors, Case No. 16-39654 (U.S. Bankruptcy Court Northern District of Illinois Eastern Division).
On
December 16, 2016, Argon Credit, LLC and Argon X, LLC (collectively the “Debtors”) filed petitions for relief under chapter
11 of title 11 of the United States Code. On January 11, 2017, Debtors’ bankruptcy cases were converted to chapter 7 cases. On
December 14, 2018, the chapter 7 trustee filed an adversary proceeding as case number 18-ap-00948 (the “Bankruptcy Complaint”)
against multiple defendants, including Barry Kostiner, asserting claims for aiding and abetting breach of fiduciary duty. As to Mr. Kostiner,
the Bankruptcy Complaint alleged that, while an employee of the Debtor, he aided and abetted the former CEO of Argon Credit, Raviv Wolfe,
in breaching his fiduciary duties to Argon Credit, by, among other things, knowingly participating in a scheme to funnel assets away
from the Debtors and their creditors, double pledging Argon Credit’s assets, and knowingly submitting false or misleading financial
reports to the Debtors’ secured lender to conceal the transfer of Argon Credit’s assets. On July 11, 2019, Mr. Kostiner,
appearing through counsel, filed an answer denying all allegations against him set forth in the Bankruptcy Complaint.
On
August 12, 2021, the trustee filed a Motion for the Entry of an Order Pursuant to Bankruptcy Rule 9019 Approving Settlement with Mr.
Kostiner. Under the terms of the proposed settlement, Mr. Kostiner would pay the trustee $35,000 in exchange for dismissal with prejudice
from the suit and the exchange of mutual releases (the “Proposed Settlement”). Each of the trustee and Mr. Kostiner concluded
that the Proposed Settlement was in their respective best interests in light of the contested nature of the Complaint, the costs that
both parties would incur in connection with the litigation of same the uncertain outcome from protracted litigation. The trustee argued
that the Proposed Settlement was reasonable based upon: (a) the range of potential outcomes taking into account the defenses that Mr.
Kostiner could assert; (b) the likelihood of recovering more given Mr. Kostiner’s financial condition; (c) Argon Credit’s
director and officers’ liability insurance policy had been exhausted; and (d) the Debtors’ pre-petition lender had recently
filed a complaint against many of the parties originally named by the trustee in its adversary proceeding, including Mr. Kostiner, and
this action further reduces the likelihood of recovery against Mr. Kostiner, because at a minimum, he will be forced to pay to defend
that action. On September 3, 2021, the Bankruptcy Court issued an order approving the settlement, and on November 18, 2021, the Bankruptcy
Court issued an order granting the motion to voluntarily dismiss the proceeding against Mr. Kostiner.
Fund
Recovery Services, LLC v. RBC Capital Markets, LLC, et al., Case No. 1:20-cv-5730 (U.S. District Court for the Northern District of
Illinois Eastern Division.
On September
25, 2020, Fund Recovery Services, LLC (“Fund”), as assignee of Princeton Alterative Income Fund, L.P. (“PAIF”)
filed a complaint in the above-referenced action asserting a variety of claims against 37 defendants, including Mr. Kostiner. On May 15,
2021, Fund filed an amended complaint against 34 of the defendants, including Mr. Kostiner (the “Amended Complaint”). The
claims against Mr. Kostiner in the Amended Complaint include: (i) violation of 18 U.S.C. 1962(2) by the conduct and participation in a
RICO enterprise through a pattern of racketeering activity; (ii) violation of 18 U.S.C. 1962(d) by conspiracy to engage in a pattern of
racketeering activity; (iii) fraud/intentional misrepresentation; (iv) aiding and abetting fraud/intentional misrepresentation; (v) fraudulent
concealment; (vi) aiding and abetting fraudulent concealment; (vii) fraudulent/intentional inducement; (viii) conversion; (ix) aiding
and abetting conversion; (x) civil conspiracy; and (xi) tortious interference with contractual relations. The Amended Complaint seeks
damages of approximately $240 million jointly and severally against all defendants, together with treble and punitive damages, among other
relief.
The
Amended Complaint, as it pertains to Mr. Kostiner, covers much of the same conduct that is the subject of the Bankruptcy Complaint described
above and stems from a transaction that Argon Credit entered into with Spartan Specialty Finance, LLC (“Spartan”). Argon,
a consumer finance platform that made high-interest, unsecured loans to credit-impaired borrowers, financed its loans through a revolving
credit facility provided by PAIF. Mr. Kostiner was the sole member of Spartan and was also, for a period of time, the Vice President
of Capital Markets at Argon. Argon and Spartan entered into an agreement whereby Spartan agreed to purchase a portfolio of loans from
Argon. Spartan financed the acquisition by obtaining a loan from Hamilton Funding (“Hamilton”). The Amended Complaint alleges
that PAIF had a perfected security interest in the loans that Argon improperly sold to Spartan (which were financed by Hamilton Funding),
and that defendants, including Mr. Kostiner, engaged in a scheme to induce PAIF to initially lend funds, later to increase its credit
line, and ultimately convert and deprive PAIF of its property by numerous acts of fraud.
On
July 1, 2021, defendants, including Mr. Kostiner, filed a consolidated motion to dismiss the Amended Complaint in its entirety against
them, based on the following arguments: (a) the RICO claims (Counts (1)-(2)) are time-barred; (b) Fund lacks standing to bring Counts
1-11; (c) Fund is collaterally estopped from litigating the issues that are the subject of the Amended Complaint; (d) the allegations
in the Amended Complaint fail to satisfy the requirements of Rules 8 and 9(b) of the Federal Rules of Civil Procedure; (e) the Amended
Complaint failed to allege a duty sufficient to support its allegations in Counts 1-7; (f) Fund failed to adequately plead the elements
of a valid RICO claim; and (g) Fund failed to adequately plead the elements of any of its state law claims (Counts 3-13). This motion
is fully briefed and awaits resolution by the Court.
On
February 22, 2022, PAIF filed a Revised Second Amended Complaint (“RSA Complaint”) against 25 defendants, including Mr. Kostiner.
The RSA Complaint incorporates information from witness statements and journal entries from alleged Argon insiders. The claims against
Mr. Kostiner in the RSA Complaint include: (i) fraud/intentional misrepresentation; (ii) aiding and abetting fraud/intentional misrepresentation;
(iii) fraudulent concealment; (iv) aiding and abetting fraudulent concealment; (v) fraudulent/intentional inducement; (vi) conversion;
(vii) aiding and abetting conversion; (viii) civil conspiracy; and (ix) tortious interference with contractual relations. The Amended
Complaint seeks damages of approximately $240 million jointly and severally against all defendants, together with treble and punitive
damages, among other relief.
On
September 30, 2022, the Court denied PAIF’s motion for leave to file the RSA Complaint and ruled that since plaintiff cannot assert
a viable RICO claim, the Court directed the Clerk to enter judgment dismissing plaintiff’s civil RICO claims with prejudice and
dismissing plaintiff’s state-law claims for lack of supplemental jurisdiction. Although the Company is currently unaware of any
activity related to this matter, it is anticipated that future legal action may result from this matter.
In
re Spartan Specialty Finance I SPV, LLC, Case No. 16-22881-rdd (U.S. Bankruptcy Court for the Southern District of New York White
Plains Division)
On
June 29, 2016, Spartan filed a petition for relief under chapter 11 of title 11 of the United States Code. It did so in order to resolve
a loan dispute that it had with Hamilton, including Hamilton’s alleged right to access cash accounts that Spartan had pledged as
collateral. On May 26, 2017, the bankruptcy court approved a Stipulation and Agreement Resolving Debtor’s Motion for Use of Cash
Collateral and Fixing Amount of Secured Claim, between Hamilton, Spartan, and Mr. Kostiner, in his individual capacity. Spartan’s
bankruptcy petition was dismissed as part of the Court’s approval of the Settlement.
Except
for the actions set forth above, there is no material litigation, arbitration or governmental proceeding currently pending against us
or any members of our management team in their capacity as such, and we and our officers and directors have not been subject to any such
proceeding in the 12 months preceding the date of this report.
Note
13 – Leases
The
Company does not currently have in place any long-term leases.
Note
14 – Intentionally Deleted
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
INTRODUCTION
You
should read the following discussion of our financial condition and results of operations with our unaudited and unreviewed consolidated
financial statements and related notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
This discussion contains forward-looking statements and involves numerous risks, uncertainties, assumptions 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. See “Cautionary Statement
Regarding Forward-Looking Information.”
Business
Overview
We
are a provider of practical, high-quality, and value-based educational training on the topics of personal finance, entrepreneurship,
real estate, and financial markets, including investment 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, 2023, our education operations were limited.
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 (i) our proprietary products delivered at time of sale and
(ii) third party products. 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) 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. Legacy Education has touched more
than five million students from more than 150 countries and territories over the course of its operating history. Its curriculum is designed
to help people progress from beginner to educated investor.
Historically,
our operations have been managed through three operating segments: (i) North America, (ii) United Kingdom, and (iii) Other Foreign Markets.
We no longer operate under our United Kingdom and Other Foreign Markets segments.
We
are operating under five brands: Legacy Elite, Legacy Building Wealth Club, Legacy Degree (affordable, accredited degree completion),
Legacy Capital, and non-profit division, Legacy Open Library.
We
have recently commenced various strategic initiatives and are embarking on a number of transactions, which we expect will strengthen
the Company’s balance sheet and strategic positioning, including relationships with Brian Page and multiple education guidance
counselors, marketers and non-profits. Further, a foundation of our current business plan includes the potential spinoff of the existing
Legacy Education business, which was previously approved by shareholders, and the proposed acquisition of Coopersmith Career Consulting,
each of which are in process but we can give no assurance at this time of success.
The
core strategies of the Company are being implemented through the establishment of affiliate companies, such as Legacy Live Inc., which
are funded in part through the Company, with a goal of incubating these businesses for the purpose of ultimately being spun off as independent
public companies, in which the Company would have a significant economic interest.
Recent
Developments
Results
of Operations
Our
financial results continue to be significantly impacted by the COVID-19 pandemic. Due to the severity and scope of the pandemic, the
pace at which governmental and private travel restrictions and public concerns about public gathering will ease, the rate at which historically
large increases of unemployment rates will decrease, and the speed with which the economy recovers are all factors that impacted our
financial results. In addition, our financial results were impacted due to the winding down our Rich Dad brand and other matters as disclosed
in the litigation section of Note 16 “Commitments and Contingencies” in the Notes to Consolidated Financial Statements.
Our
Results of Operations for the three months ended March 31, 2024 and 2023 were as follows (dollars in thousands):
| | |
Three
Months Ended March 31, | |
| | |
2024 | | |
2023 | |
| Revenue | |
$ | 133 | | |
$ | 72 | |
| Operating
costs and expenses: | |
| | | |
| | |
| Direct
course expenses | |
| 438 | | |
| 73 | |
| Advertising
and sales expenses | |
| 45 | | |
| 31 | |
| Royalty
expenses | |
| - | | |
| 0 | |
| General
and administrative expenses | |
| 436 | | |
| 886 | |
| Total
operating costs and expenses | |
| 919 | | |
| 991 | |
| Income
(loss) from operations | |
| (786 | ) | |
| (919 | ) |
| Other
expense: | |
| | | |
| | |
| Interest
expense, net | |
| (1 | ) | |
| (59 | ) |
| Other
expense, net | |
| - | | |
| - | |
| Gain
on forgiveness of PPP Loan | |
| - | | |
| - | |
| Total
other expense, net | |
| (1 | ) | |
| (59 | ) |
| Income
(loss) from continuing operations before income taxes | |
| (786 | ) | |
| (978 | ) |
| Income
tax (expense) benefit | |
| - | | |
| - | |
| Net
income (loss) from continuing operations | |
| (786 | ) | |
| (978 | ) |
| Income
from discontinued operations | |
| 0 | | |
| 0 | |
| Net
income from discontinued operations | |
| — | | |
| 0 | |
| Less:
Net Income attributable to Non controlling interest | |
| — | | |
| 100 | |
| Net
income (loss) | |
$ | (786 | ) | |
$ | (878 | ) |
| | |
| | | |
| | |
| Basic
earnings (loss) per common share - continuing operations | |
$ | (0.01 | ) | |
$ | (0.02 | ) |
| Basic
earnings (loss) per common share - discontinued operations | |
| — | | |
| — | |
| Basic
earnings (loss) per common share | |
$ | (0.01 | ) | |
$ | (0.02 | ) |
| | |
| | | |
| | |
| Diluted
earnings (loss) per common share - continuing operations | |
$ | (0.02 | ) | |
$ | (0.02 | ) |
| Diluted
earnings (loss) per common share - discontinued operations | |
| — | | |
| — | |
| Diluted
earnings (loss) per common share | |
$ | (0.02 | ) | |
$ | (0.02 | ) |
| | |
| | | |
| | |
| Basic
weighted average common shares outstanding | |
| 40,823 | | |
| 36,411 | |
| Diluted
weighted average common shares outstanding | |
| 40,823 | | |
| 36,411 | |
| | |
| | | |
| | |
| Comprehensive
income: | |
| | | |
| | |
| Net
income (loss) | |
$ | (786 | ) | |
$ | (878 | ) |
| Foreign
currency translation adjustments, net of tax of $0 | |
| - | | |
| -976 | |
| Total
comprehensive income (loss) | |
$ | (786 | ) | |
$ | (1,854 | ) |
Our
operating results are expressed as a percentage of revenue in the table below:
| | |
Three Months Ended March 31, | |
| | |
2024 | | |
2023 | |
| Revenue | |
| 100 | | |
| 100 | |
| Operating costs and expenses: | |
| | % | |
| | % |
| Direct course expenses | |
| 329 | | |
| 101 | |
| Advertising and sales expenses | |
| 34 | | |
| 43 | |
| Royalty expenses | |
| - | | |
| - | |
| General and administrative expenses | |
| 327 | | |
| 1,236 | |
| Total operating costs and expenses | |
| 690 | | |
| 1,380 | |
| Income (loss) from operations | |
| (590 | ) | |
| (1,280 | ) |
| Other expense: | |
| - | | |
| - | |
| Interest expense, net | |
| 0 | | |
| (83 | ) |
| Other expense, net | |
| - | | |
| - | |
| Gain on forgiveness of PPP Loan | |
| - | | |
| - | |
| Total other expense, net | |
| 0 | | |
| (83 | ) |
| Income (loss) from continuing operations before income taxes | |
| (590 | ) | |
| (1,364 | ) |
| Income tax (expense) benefit | |
| - | | |
| - | |
| Net income (loss) from continuing operations | |
| (590 | ) | |
| (1,364 | ) |
| Income from discontinued operations | |
| - | | |
| - | |
| Net income from discontinued operations | |
| - | | |
| - | |
| Net income (loss) | |
| (590 | ) | |
| (1,364 | ) |
Outlook
Cash
sales were $0 million for each of the three months ended March 31, 2024 and 2023. There was no change in cash sales over the periods
due to the temporary suspension of live in-person events and ongoing student fulfillment in the North America 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.
Due
to the economic severity of the COVID-19 pandemic on the Company’s results of operations, financial condition, and liquidity, live
in-person events were suspended in December 2021 to assess the Company’s strategic plan for fiscal year 2023 and beyond. The impact
of the temporary suspension of live events has caused a material adverse effect on our operations. The Company has not materially restarted
live events since 2022, and is expecting to restart live event operations primarily through its affiliate Legacy Live Inc. in 2024.
The
majority of revenue pertained to real estate-related education, with the balance pertaining to financial markets training. We are continuing
to develop methods of connecting to our students, diversify products, and develop proprietary brands in order to increase the North America
segment. Our revenue from our proprietary Building Wealth with Legacy TM brand was $72 thousand compared to $133 thousand
or as a percentage 100% for the three months ended March 31, 2024 and 2023, respectively.
Three
Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023
Revenue
Revenue
was $0.13 million for the three months ended March 31, 2024 compared to $0.07 million for the three months ended March 31, 2023. Revenue
increased $0.06 million or 86% during the three months ended March 31, 2023 compared to the same period in 2023 as a result of decrease
in recognition of deferred revenue.
Cash
sales were $0.1 million and $0.1 million for each of the three months ended March 31, 2024 and 2023 respectively. There was no change
in cash sales due to the temporary suspension of live in-person events and ongoing student fulfillment.
Operating
Expenses
Total
operating costs and expenses were $0.92 million for the three months ended March 31, 2024 compared to $0.99 million for the three months
ended March 31, 2023, an decrease of $0.07 million or 7%. The decrease was primarily due to decrease in general and administrative 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 $0.44 million for the three months ended March 31, 2024 compared to $0.07 million for the three months ended
March 31, 2023, an increase of $0.37 million or 500%, which was related to increases in sales and training compensation.
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. Historically, 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. Today, we offer live online and on- demand trainings as the live in-person
trainings have temporarily been suspended.
Advertising
and sales expenses were $0.04 million for the three months ended March 31, 2024 and $0.03 for the three months ended March 31, 2023.
As a percentage of revenue, advertising and sales expenses were 34% and 43% of revenue for the three months ended March 31, 2024 and
2023, a decrease of 9%.
Royalty
expenses
As
a result of the termination of our agreement, we are not paying royalties to Rich Dad or Homemade Investor branded live seminars, training
courses, and related products. There were no royalty expenses for the fiscal quarters ended March 31, 2024 and 2023. The Company has
transitioned to its proprietary brands and partnership on affiliate sales, rather than royalties.
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 $0.4 million
for the three months ended March 31, 2024 compared to $0.9 million for the three months ended March 31, 2023, a decrease of $0.5 million,
or 51%.
Income
tax expense
We
recorded income tax benefit of $0 thousand and $0 thousand for the three months ended March 31, 2024 and 2023, respectively. Our effective
tax rate was 0% and 20.0% for the three months ended March 31, 2024 and 2023, 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.
Net
income (loss) from continuing operations
Net
income (loss) from continuing operations was $(0.8) million or $(0.02) per basic and diluted common share for the three months ended
March 31, 2024 compared to net income (loss) from continuing operations of $(0.9) million or $(0.02) per basic and diluted common share
for the three months ended March 31, 2023, an increase in net income from continuing operations of $0.1 million.
Critical
Accounting Policies
For
a discussion of our critical accounting policies and estimates that require the use of significant estimates and judgments, see “Management’s
Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies” in our Annual Report
on Form 10-K for the year ended December 31, 2023.
LIQUIDITY
AND CAPITAL RESOURCES
Known
Trends and Uncertainties
In
general, we believe we will experience an increase in demand for our products and services compared to recent prior periods as we develop
our Building Wealth with Legacy TM brand and other revenue streams. 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.
The
Company has not materially restarted live events since 2022, and is expecting to restart live event operations primarily through its
affiliate Legacy Live Inc. in 2024, subject to the availability of funds.
Historically,
we have funded our working capital and capital expenditures using cash and cash equivalents on hand. However, given our decreased operating
cash flows during the past two years, it has been necessary for us to manage our cash position to ensure our future viability as we rebuild
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 2024 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 2024. However, we are exploring alternative sources
of capital, but there can be no assurances any such capital will be obtained. For the three months ended March 31, 2024, 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 (in thousands):
| | |
Three
Months Ended March 31, | |
| | |
2024 | | |
2023 | |
| Net
cash used in operating activities | |
| 23 | | |
| (200 | ) |
| Net
cash provided by investing activities | |
| - | | |
| - | |
| Net
cash provided by financing activities | |
| 25 | | |
| 552 | |
| Effect
of exchange rate differences on cash | |
| - | | |
| (353 | ) |
| Net
decrease in cash and cash equivalents and restricted cash | |
| 48 | | |
| (1 | ) |
Operating
Cash Flows and Liquidity
Net
cash used in operating activities was approximately $0.02 million in the three months ended March 31, 2024 compared to net cash used
in operating activities of $0.2 million in the three months ended March 31, 2023, representing a period-over-period decrease of $0.9
million. This decrease was primarily the result of the continued decrease in sales events originally resulting from COVID-19 and the
temporary suspension of live in-person events in December 2023 and throughout the three months ending March 31, 2024.
Investing
Cash Flows
There
was no cash used in or provided by investing activity in the three months ended March 31, 2024 and 2023.
Financing
Cash Flows
Our
consolidated capital structure as of March 31, 2024 was 33% debt and 67% equity. As of December 31, 2023, our consolidated capital structure
was 32% debt and 68% equity.
Net
cash provided by financing activities totaled $25 thousand $552 thousand during the three months ended March 31, 2024 and March 31, 2023,
respectively.
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 March 31, 2024, and December 31, 2023, our consolidated current deferred revenue was $3.9 million and $3.9 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.
Item 3 Quantitative and Qualitative Disclosures About Market Risk
Not
required
Item
4. Controls and Procedures.
An
evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15 under
the Securities Exchange Act of 1934) was carried out under the supervision and with the participation of our management, including our
Chief Executive Officer. As of March 31, 2024, based upon that evaluation, the Chief Executive Officer concluded that the design and
operation of these disclosure controls and procedures were not effective, primarily as a result of the Company’s lack of capital
and other resources, lack of auditor, and the Company’s many vacancies in management positions that would otherwise address these
matters, which have resulted in, among other things, (a) the Company’s inability to timely file its Annual Report on Form 10-K
for the fiscal year ended December 31, 2023 and this Quarterly Report on Form 10-Q, (b) the inability to include audited or reviewed
financial statements in such filings and (c) the inability to file iXBRL for the fiscal year ended December 31, 2023.
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f)
and 15d-15(f) of the Securities Exchange Act of 1934, as amended. Internal control over financial reporting, no matter how well designed,
has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect
to financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness of internal control
over financial reporting may vary over time.
Under
the supervision and with the participation of our management, including our Chief Executive Officer, we conducted an evaluation to assess
the effectiveness of our internal control over financial reporting as of March 31, 2024 based upon criteria set forth in the Internal
Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our
assessment, As of March 31, 2024, we have 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:
| |
● |
Financial
Reporting Systems: he weakness in our internal control system identified by our management relate to the implementation of the replacement
of Netsuite system, which has not yet been fully implemented.. |
| |
● |
The
Company not having a dedicated Chief Financial Officer, or auditors to review and audit the Company’s financial statements. |
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.
This
Quarterly Report does not include an attestation report of a registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by a registered public accounting firm pursuant to rules of the SEC
that permit us to provide only management’s report in this Quarterly Report.
PART
II. OTHER INFORMATION
Item
1. Legal Proceedings.
We
are subject to a number of contingencies, including litigation, from time to time. For further information regarding legal proceedings,
see Note 12 Commitments and Contingencies, to our Consolidated financial statements included elsewhere in this Quarterly Report
on Form 10-Q.
Item
1A. Risk Factors.
We
do not have an auditor to review or audit our financial statements, which could prevent us from raising capital and could result in amendments
or restatements to our financial statements.
On
August 28, 2023, the Company received a letter from the Securities and Exchange Commission informing the Company that the Public Company
Accounting Oversight Board (the “PCAOB”) revoked the registration of RAM Associates & Company LLC (“RAM”),
the Company’s then independent registered public accounting firm. In connection with the PCAOB’s determination to revoke
RAM’s registration, the Company’s Board of Directors formally dismissed RAM as the Company’s independent registered
public accounting firm, effective immediately.
The
Company has not yet identified a replacement auditor. Consequently, the Company has not had any of its financial statements reviewed
or audited since the date of dismissal. The Company can give no assurance that the unaudited and unreviewed financial statements filed
by the Company since the termination date, including those included in this Quarterly Report on Form 10-Q, will not have material changes
or require restatements, as, if and when it retains a replacement independent registered public accounting firm. Any such changes or
restatements could have a material adverse effect on our stock price. Additionally, the Company’s failure to have audited financial
statements for its fiscal years and reviewed financial statements for its fiscal quarters, means the Company is not in compliance with
the disclosure requirements under the Securities Exchange Act of 1934, and prevents the Company from registering its securities for offers
and sales under the Securities Act of 1933, as amended, thus making it more difficult to raise capital. Such failure could also result
in the Company’s common stock being removed from trading on the OTC Market or demoted to a lower level of the OTC Markets, which
could adversely affect the Company’s stock price and liquidity.
In
the event the Company is not able to raise sufficient capital, the Company may not be in a position to ever retain a replacement independent
registered public accounting firm.
For
information regarding additional risk factors, please refer to Part I, Item 1A in the Company’s Annual Report on Form 10-K for
the year ended December 31, 2023, filed with the SEC on July 9, 2024.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.
There
were no sales or repurchases of the Company’s equity securities during the three months ended March 31, 2024.
Item
3. Defaults Upon Senior Securities
The
information required by this Item 3 has been previously disclosed in the Company’s Current Reports on Form 8-K and other filings
it makes with the Securities and Exchange Commission, including elsewhere in this Quarterly Report.
Item
4. Mine Safety Disclosures
Not
Applicable.
Item
5. Other Information
None.
Item
6. Exhibits
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
| |
LEGACY
EDUCATION ALLIANCE, INC. |
| |
|
| Dated:
July 15, 2024 |
By:
|
/s/
BARRY KOSTINER |
| |
|
Barry
Kostiner
Chairman
of the Board and Chief Executive Officer (principal executive officer and interim principal
financial and accounting officer) |
Exhibit 31.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
OF 2002
I, Barry Kostiner, certify that:
1. I have reviewed this Form 10-Q of Legacy Education
Alliance, Inc.;
2. Based on my knowledge, this report does not contain
any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements,
and other financial information included in this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer
and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant
and have:
(a) Designed such disclosure controls
and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Designed such internal control
over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c) Evaluated the effectiveness
of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any
change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer
and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors
and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies
and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not
material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
| Dated: July 15, 2024 |
/s/ BARRY KOSTINER |
| |
Barry Kostiner
Chairman of the Board and Chief Executive Officer (principal executive
officer and interim principal
financial and accounting officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly
Report on Form 10-Q of Legacy Education Alliance, Inc. (the “Company”) for the period ended March 31, 2024, as filed with
the Securities and Exchange Commission on the date hereof (the “Form 10-Q”), I, Barry Kostiner, Chairman of the Board and
Chief Executive Officer (principal executive officer and interim financial and accounting officer) of the Company, certify, pursuant to
18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Form 10-Q fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained
in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Dated: July 15, 2024 |
/s/ BARRY KOSTINER |
| |
Barry Kostiner
Chairman of the Board and Chief Executive Officer
(principal executive officer and interim principal
financial and accounting officer) |
A signed original of this written
statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in
typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will
be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Legacy Education Alliance (CE) (USOTC:LEAI)
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