10-Q: Legacy Education Alliance Reports Q1 2024 Results Amidst Going Concern Doubts

Legacy Education Alliance reports a net loss of $786,000 for Q1 2024, with ongoing concerns about its ability to continue as a going concern.

Summary

• Legacy Education Alliance, Inc. reported its financial results for the quarter ended March 31, 2024.
• The company's auditors were terminated in August 2023, and the financial statements have not been reviewed by auditors.
• The company plans to appoint a new auditor when funds permit and will file an amendment to the report after the review.
• Revenue for the quarter was $133,000, compared to $72,000 for the same period in 2023.
• The company experienced a net loss of $786,000, which is $0.02 per basic and diluted common share, compared to a net loss of $878,000, or $0.02 per basic and diluted common share, for the same period in 2023.
• The company's operations are now managed solely within the United States, having discontinued operations in the United Kingdom and other foreign markets.
• The company has an accumulated deficit, a working capital deficit, and negative cash flow from operating activities, raising substantial doubt about its ability to continue as a going concern.
• The company's ability to continue as a going concern depends on generating profits, reducing costs, increasing operating margins, and sustaining adequate working capital.
• The company is exploring alternative sources of capital.
• As of July 15, 2024, there were 49,239,875 shares of common stock outstanding.

Sentiment

Score: 3

Explanation: The document presents a concerning financial situation with a net loss, going concern doubts, and ineffective controls. While revenue increased, the overall outlook is negative.

Positives

• Revenue increased to $133,000 from $72,000 in the same period last year, an 86% increase.
• The company is actively exploring alternative sources of capital.
• General and administrative expenses decreased by $0.5 million, or 51%, compared to the same period last year.

Negatives

• The company reported a net loss of $786,000 for Q1 2024.
• The company's financial statements have not been reviewed by auditors.
• There are significant concerns about the company's ability to continue as a going concern.
• The company has a working capital deficit.
• The company has negative cash flow from operating activities.
• Disclosure controls and procedures were deemed ineffective due to a lack of capital, resources, and an auditor.

Risks

• The company's ability to continue as a going concern is uncertain.
• The company's financial statements have not been reviewed by auditors, which could lead to material changes or restatements.
• The company's failure to have audited financial statements prevents it from registering securities for offers and sales, making it difficult to raise capital.
• The company's common stock could be removed from trading on the OTC Market or demoted to a lower level.
• The company's disclosure controls and procedures are not effective.
• The company is involved in several legal proceedings, which could result in significant liabilities.
• The company is dependent on raising additional capital to fund its operations.

Future Outlook

The company expects to restart live event operations primarily through its affiliate Legacy Live Inc. in 2024, subject to the availability of funds. The company believes cash and cash equivalents on hand will not be sufficient to fund its expected financial obligations and anticipated liquidity requirements for the fiscal year 2024 and is exploring alternative sources of capital.

Management Comments

• The Chief Executive Officer concluded that the design and operation of disclosure controls and procedures were not effective.
• Management is responsible for establishing and maintaining adequate internal control over financial reporting.

Industry Context

The company operates in the personal finance and entrepreneurship education market, which has been impacted by the COVID-19 pandemic. The company is transitioning to online and on-demand training due to the suspension of live in-person events.

Comparison to Industry Standards

• It's difficult to directly compare Legacy Education Alliance to industry standards due to its unique business model and current financial difficulties.
• Companies like Skillshare and Coursera operate primarily online and have different cost structures.
• Traditional seminar-based education companies like The Learning Annex have faced similar challenges in adapting to the digital age.
• Given the lack of audited financials, it's challenging to benchmark Legacy's performance against competitors.

Legal Proceedings

• The company and its subsidiaries are parties to various legal proceedings, claims, and disputes.
• The company is in default on a settlement agreement with Tranquility Bay of Pine Island, LLC.
• The company is involved in matters related to Legacy Education Alliance International, Ltd. and Elite Legacy Education UK Ltd.
• The court granted a motion for summary judgment in favor of GLD in the amount of $624,121.50, together with pre-judgment interest.
• The court issued a judgment of $97,112.25 related to the default on an invoice for $53,500 dated April 29, 2022.
• Mr. Kostiner, our Chairman, Chief Executive Officer, and Interim Principal Financial and Accounting Officer is a named defendant in three legal proceedings.

Related Party Transactions

• 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.
• 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 Companys Chairman and Chief Executive Officer at the time.
• On August 27, 2021, the Company issued a $500 thousand Senior Secured Convertible Debenture (the GLD Debenture) to GLD Legacy Holdings, LLC (GLD).
• 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. ABC Impact is an entity in which an affiliate of Barry Kostiner, the Companys Chief Executive Officer and sole director, has a non-controlling passive interest.

Stakeholder Impact

• Shareholders face uncertainty due to the company's going concern doubts and potential stock delisting.
• Employees may be affected by cost-cutting measures and the company's financial instability.
• Customers may be impacted by the company's ability to fulfill its contractual obligations.
• Creditors face the risk of non-payment due to the company's financial difficulties.

Next Steps

• The company plans to appoint a new auditor when funds permit and will file an amendment to the report after the review.
• The company is exploring alternative sources of capital.
• The company expects to restart live event operations primarily through its affiliate Legacy Live Inc. in 2024, subject to the availability of funds.

Key Dates

Keywords

financial education, legacy education alliance, financial results, going concern, q1 2024, auditor, revenue, net loss, debt, capital raise