Tigrent Inc. Reports Q3 2011 Results

CAPE CORAL, Fla., Nov. 22, 2011 /PRNewswire/ -- Tigrent Inc. (OTC: TIGE) today announced its unaudited third quarter 2011 financial results.

Highlights of the reported results include third quarter revenue in 2011 of $17.8 million (under generally accepted accounting principles or "GAAP") compared with revenue of $26.5 million in 2010. The main factors contributing to the decrease were a significant reduction in revenue recorded through breakage ($8.6 million was recorded in 2010 vs. negative 0.9 million in 2011 a swing of $ 9.5 million), difficult market conditions in the third quarter of 2011 and the reduction in scheduled sales activity that was initiated during the third quarter of 2010. For the nine month period ended September 30, 2011, revenue was $64.7 million, or a decrease of $27.6 million, from $92.3 million for the nine months ended September 30, 2010.  Cash sales for the third quarter of 2011 (a non-GAAP financial measure) were $17.4 million vs. $20.4 million in 2010, and were $60.4 million for the nine month period ended September 30, 2011 vs. $69.5 million in 2010, reflecting difficult market conditions in the third quarter of 2011 and the reduction in scheduled sales activity. 

Adjusted EBITDA (a non-GAAP financial measure) for the third quarter of 2011 improved by $1.8 million to a loss of $0.3 million, as compared to a loss of $2.1 million in the third quarter of 2010.  Adjusted EBITDA for the nine month period ended September 30, 2011 was a positive $2.7 million compared to loss of $6.8 million for the first nine months of 2010. This improved performance reflects the continued favorable impact of the staff reductions and cost-efficiency measures initiated in the second half of 2010, offset by difficult market conditions in the third quarter of 2011.

Net income for the third quarter of 2011 was $0.4 million as compared to a net loss of $1.2 million for the third quarter of 2010. For the nine month period ended September 30, 2011 net income was $3.8 million, or $.29 per basic and diluted share. For the comparable nine month period in 2010, our net income was $4.8 million or $.39 per share.

"The unsettling financial headlines and volatility of August and September created difficult market conditions for us," said Steven C. Barre, Tigrent's Chief Executive Officer.  "The right-sizing program we undertook in 2010 has continued to support year-on-year improvement in Adjusted EBITDA, but the cost savings were not enough to overcome the negative impacts on consumer confidence and the resulting demand for our services in the third quarter. Demand seems to have improved in October, but we are guarded about the effects of ongoing financial market volatility and at this point expect that our Adjusted EBITDA will fall short from the 2011 operating plan."

Non-GAAP Financial Measures

Cash Sales

The following table provides a reconciliation of our cash sales to our reported revenue. Cash sales performance is a metric used by management in assessing the performance of our business.  Deferred revenue represents the difference between our cash sales and the impact of applying our revenue recognition policies to those cash sales. Cash sales are not a financial performance measurement in accordance with GAAP; therefore we are presenting a table to reconcile the cash sales to revenue reported in accordance with GAAP (table presented in millions):

 

 

Nine Months ended

 

September 30,

 

2011

2010

Cash received from course and product sales

60.4

69.5

 

 

 

Total consolidated change in deferred revenue

4.3

22.8

 

 

 

Total consolidated revenue for financial reporting purposes

64.7

92.3

 

Adjusted EBITDA

As used in our operating data, EBITDA is defined as net income (loss) excluding the impact of: interest expense; interest income; income tax provision; and depreciation and amortization.  We define "Adjusted EBITDA" as EBITDA adjusted for: asset impairments; litigation settlement and legal expenses related to non-core business activities; other income, net; stock-based compensation expense; equity loss from investments in real estate; the net change in deferred revenue; and the net change in deferred course expenses.  Adjusted EBITDA is not a financial performance measurement according to GAAP.

We use Adjusted EBITDA as a key measure in evaluating our operations and decision making. We feel it is a useful measure in determining our performance since it takes into account the change in deferred revenue and deferred course expenses in combination with our operating expenses. We reference Adjusted EBITDA frequently, since it provides supplemental information that facilitates internal comparisons to historical operating performance of prior periods and external comparisons to competitors' historical operating performance in our industry. We plan and forecast our business using Adjusted EBITDA, with comparisons of actual to planned and forecasted Adjusted EBITDA and we provide incentives to management based on Adjusted EBITDA goals. In addition, we provide Adjusted EBITDA because we believe investors and security analysts find it to be a useful measure for evaluating our performance.

Many costs to acquire customers have been expended before a customer attends any basic or advanced training. Those costs include media, travel, facilities and instructor fees for the preview workshops and are expensed when incurred. Rich Dad licensing fees and telemarketing and speaker commissions are deferred and recognized when the related revenue is recognized. Revenue recognition of course fees paid by customers to enroll in any basic or advanced training courses at registration is deferred until (i) the course is attended by the customer, (ii) the customer has received the course content in an electronic format, (iii) the contract expires, or (iv) revenue is recognized through course breakage. It is only after one of these occur that revenue is considered earned. Thus, reporting in accordance with GAAP creates significant timing differences between the receipt and disbursement of cash with the recognition of the related revenue and expenses, both in our Condensed Consolidated Statements of Cash Flows and Condensed Income Statement. As a result of these factors, our operating cash flows can vary significantly from our results of operations for the same period. For this reason, we believe Adjusted EBITDA is an important non-GAAP financial measure.

Adjusted EBITDA has material limitations and should not be considered as an alternative to net income (loss), cash flows provided by operations, investing or financing activities or other financial statement data presented in the Condensed Consolidated Financial Statements as indicators of financial performance or liquidity. Items excluded from Adjusted EBITDA are significant components in understanding our financial performance. Because Adjusted EBITDA is not a financial measurement calculated in accordance with GAAP and is subject to varying calculations, Adjusted EBITDA as presented may not be comparable to other similarly titled measures of performance used by other companies.

The table below is a reconciliation of our net income to EBITDA and Adjusted EBITDA for the periods set forth below (in millions):

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$       0.4

 

$     (1.2)

 

$        3.8

 

$        5.0

Other income (loss), net

 

0.1

 

(0.1)

 

-

 

(0.3)

Provision for income taxes

 

(0.7)

 

(0.5)

 

1.1

 

1.4

Depreciation and amortization

 

0.1

 

0.2

 

0.4

 

0.6

EBITDA

 

(0.1)

 

(1.6)

 

5.3

 

6.7

 

 

 

 

 

 

 

 

 

Impairment of investments in real estate

 

-

 

4.4

 

-

 

4.6

Litigation settlement and related legal expenses

-

 

-

 

0.8

 

-

Other 

 

0.1

 

0.1

 

0.2

 

0.1

Net change in deferred revenue

 

(0.3)

 

(6.2)

 

(4.3)

 

(22.8)

Net change in deferred course costs

 

0.1

 

1.2

 

0.7

 

4.3

Adjusted EBITDA

 

$      (0.2)

 

$     (2.1)

 

$        2.7

 

$      (7.1)

 

 

 

 

 

 

 

 

 

Adjusted EBITDA as a percentage of adjusted net cash sales

 

(1.1%)

 

(10.3%)

 

4.5%

 

(10.2%)

 

 

 

 

 

 

 

 

 

  

Reporting of Limited Financial Information.

On March 18, 2011, the Company terminated  the registration of its common stock under Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and suspended its reporting obligations under Section 15(d) of the Exchange Act, by filing a Form 15 with the Securities and Exchange Commission.  Although the Company has provided limited financial information to allow for public trading of Company securities on the OTC Pink Sheets, there can be no assurances that the Company will continue to provide such limited information, or that any trading market for Company securities will exist, and investors are cautioned that the Company may elect to discontinue providing such limited information at any time.

Special Note Regarding Forward Looking Statements

This press release includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 relating to, among other things, the future performance of Tigrent and its consolidated subsidiaries that are based on the company's current expectations, forecasts and assumptions and involve risks and uncertainties. These statements include, but are not limited to, statements regarding expected financial results for the fourth quarter and full year 2011. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results or performance to be materially different from any future results or performance expressed or implied by these forward-looking statements. The Company's actual results could differ materially from those predicted or implied and reported results should not be considered as an indication of future performance. Factors that could cause or contribute to such differences or present potential risks to an investor, include, but are not limited to, the following: any resumption of the significant negative cash flows from operations experienced in fiscal 2010 and 2009 could impair our ability to fund our working capital needs and adversely affect our financial condition; failure to remain in compliance with the 2010 License Agreement with Rich Dad could result in the termination of our license to the Rich Dad brand; quotation of our common stock on the Pink Sheets® may adversely affect the liquidity, trading market and price of our common stock and our ability to raise capital; deregistration of our common stock under the Securities and Exchange Act of 1934 could negatively affect the liquidity and trading prices of our common stock and result in less disclosure about the Company; our uses of cash are restricted under the Rich Dad 2010 License Agreement; our failure to maintain a satisfactory relationship with Rich Dad's licensed third party provider of coaching services could have a material adverse impact on our business and financial results; pending litigation and governmental investigations and inquiries could adversely affect our business, financial condition, results of operations and growth prospects; our potential inability to obtain additional capital on favorable terms; ineligibility of our common stock to be publicly sold under Rule 144; uncertain economic conditions, volatility in the financial markets, and other changes experienced by our customers, including their willingness to trade or invest in securities or real estate, could influence their willingness to spend their discretionary income on our course offerings; significant competition in our markets; laws and regulations can affect the operation of our business and may limit our ability to operate in certain jurisdictions; liability or reputational damage could result if we do not protect customer data or if our information systems are breached; natural disasters, strikes or other unpredictable events may affect our ability to offer courses; our operations outside the United States subject us to additional risks inherent in international operations; our Board of Directors, without stockholder approval, may issue preferred stock that could dilute the voting power or other rights of our other stockholders and make it more difficult for a third party to acquire a majority of our outstanding voting stock; our loss of any of our key executive personnel, or high performing trainers, could disrupt our operations and reduce our profitability; any decrease in the popularity of the Rich Dad® Education Brand would have an adverse impact on our financial condition; a material change in our relationships with our customers, or in the demand by potential customers for our services, could have a significant impact on our business; our counterparty risk, including the custodial risk associated with amounts prepaid to certain vendors and deposits with credit card and other payment processors; our negative per share book value; and our material weaknesses in our internal control over financial reporting could adversely affect our ability to report our financial condition and results of operations accurately and on a timely basis.

About Tigrent Inc.

Tigrent Inc. (OTC: TIGE, http://www.tigrent.com) provides practical, high-quality training, technology-based tools and mentoring to help its customers become financially knowledgeable. The Company offers comprehensive instruction on real estate and financial instruments investing and entrepreneurship in the United States, the United Kingdom, and Canada.

See the Attached Unaudited Financial Statements

TIGRENT INC.
Condensed Consolidated Financial Statements
(Unaudited)
For the Nine months ended September 30, 2011

 


 

TIGRENT INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollar amounts in thousands)

 

 

 

September 30,

 

December 31,

 

 

2011

 

2010

Assets

 

(Unaudited)

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$            2,485

 

$           3,992

Restricted cash

 

1,452

 

1,465

Deferred course expenses, current portion

 

11,087

 

11,770

Prepaid expenses and other current assets

 

1,296

 

1,407

Inventory

 

130

 

262

 

 

 

 

 

Total current assets

 

16,450

 

18,896

 

 

 

 

 

Deposits with credit card processors

 

11,738

 

11,108

Property and equipment, net

 

1,725

 

2,066

Investments in real estate 

 

1,208

 

1,208

Other assets

 

199

 

254

 

 

 

 

 

Total assets

 

$          31,320

 

$         33,532

 

 

 

 

 

Liabilities and Stockholders' Deficit

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

$            2,506

 

$           3,345

Income taxes payable

 

1,268

 

1,188

Royalties payable

 

382

 

3,625

Accrued course expenses

 

1,218

 

752

Other accrued expenses

 

1,906

 

2,935

Accrued salaries, wages and benefits

 

587

 

623

Long-term debt, current portion

 

783

 

899

Related party note payable, current portion

 

2,100

 

-

Deferred revenue, current portion

 

58,555

 

62,661

 

 

 

 

 

Total current liabilities

 

69,305

 

76,028

 

 

 

 

 

Long-term debt, net of current portion

 

500

 

1,080

Related party note payable

 

1,400

 

-

Other long term liabilities

 

414

 

664

 

 

 

 

 

Total liabilities

 

71,619

 

77,772

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

Stockholders' deficit:

 

 

 

 

Preferred stock, no par value, 10,000,000 shares authorized, none issued 

 

-

 

-

Common stock, no par value, 25,000,000 shares authorized, 13,173,587 and 13,088,587 shares issued and outstanding, as of September 30, 2011 and December 31, 2010, respectively

 

3,175

 

3,175

Paid-in capital

 

2,586

 

2,583

Cumulative foreign currency translation adjustment

 

(458)

 

(566)

Accumulated deficit

 

(45,602)

 

(49,432)

 

 

 

 

 

Total stockholders' deficit

 

(40,299)

 

(44,240)

Total liabilities and stockholders' deficit

 

$          31,320

 

$         33,532

 

 

 

 

 




The accompanying notes are an integral part of these condensed consolidated financial statements.


TIGRENT INC.
CONDENSED CONSOLIDATED INCOME STATEMENT
(Unaudited)
(dollar amounts in thousands, except per share data)

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

Revenue

$      17,753

 

$         26,525

 

$      64,685

 

$        92,296

 

 

 

 

 

 

 

 

   Advertising and sales expenses

6,326

 

6,601

 

20,279

 

25,564

   Direct course expenses

8,823

 

11,879

 

28,947

 

38,407

   General and administrative expenses

2,785

 

5,174

 

9,513

 

16,268

   Litigation settlement and related legal expenses

-

 

-

 

770

 

-

   Impairment of investments in real estate

44

 

4,396

 

44

 

4,617

   Severance expense

(7)

 

245

 

4

 

992

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

(218)

 

(1,770)

 

5,128

 

6,448

 

 

 

 

 

 

 

 

   Other income (expense), net

(101)

 

73

 

(228)

 

23

 

 

 

 

 

 

 

 

Income (loss) before income taxes

(319)

 

(1,697)

 

4,900

 

6,471

 

 

 

 

 

 

 

 

   Provision for income taxes

707

 

516

 

(1,070)

 

(1,445)

 

 

 

 

 

 

 

 

Net income (loss)

388

 

(1,181)

 

3,830

 

5,026

 

 

 

 

 

 

 

 

   Net income attributable to the noncontrolling interest

-

 

-

 

-

 

183

 

 

 

 

 

 

 

 

Net income (loss) attributable to Tigrent Inc.

$        388

 

$          (1,181)

 

$        3,830

 

$          4,843

 

 

 

 

 

 

 

 

Basic and diluted net income (loss) per share attributable to Tigrent Inc. common stockholders

$       0.03

 

$            (0.09)

 

$          0.29

 

$            0.39

 

 

 

 

 

 

 

 

Basic and diluted weighted average shares outstanding

13,174

 

13,029

 

13,117

 

12,306

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

   Net income (loss)

$        388

 

$          (1,181)

 

$        3,830

 

$           5,026

   Foreign currency translation adjustments

421

 

(440)

 

108

 

55

Comprehensive income (loss)

809

 

(1,621)

 

3,938

 

5,081

   Comprehensive income attributable to 

 

 

 

 

 

 

 

      noncontrolling interest

-

 

-

 

-

 

380

Comprehensive income (loss) attributable to Tigrent Inc.

$         809

 

$          (1,621)

 

$         3,938

 

$          4,701

 

 

 

 

 

 

 

 



The accompanying notes are an integral part of these condensed consolidated financial statements.

 


TIGRENT INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollar amounts in thousands)

 

 

 

 

Nine months ended September 30,

 

 

 

2011

 

2010

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

Net income

$ 3,830

 

$ 5,026

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

Depreciation and amortization

384

 

641

 

Forgiveness of accrued expenses, net of tax

-

 

1,061

 

Impairment of investments in real estate

44

 

4,617

 

Share-based compensation expense

3

 

(55)

 

Loss on disposition of assets

5

 

-

 

Equity loss from investments in real estate

202

 

229

 

Deferred income taxes

(48)

 

-

 

Changes in operating assets and liabilities:

 

 

 

 

 

Restricted cash

(617)

 

94

 

 

Deferred course expenses

717

 

4,327

 

 

Inventory

132

 

281

 

 

Other assets

21

 

(8)

 

 

Prepaid expenses and other current assets

39

 

1,223

 

 

Accounts payable

(839)

 

(635)

 

 

Income taxes payable

80

 

153

 

 

Deferred revenue

(4,303)

 

(22,833)

 

 

Royalties payable

382

 

693

 

 

Accrued course expenses

466

 

(322)

 

 

Accrued salaries, wages and benefits

(36)

 

106

 

 

Other accrued expenses

(1,154)

 

(508)

 

 

Other liabilities

(15)

 

(124)

 

Net cash used for operating activities

(707)

 

(6,034)

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

Purchases of property and equipment

(48)

 

(195)

 

Proceeds from repayment of notes receivable

72

 

147

 

Investments in and advances to investments in real estate

(246)

 

(246)

 

Proceeds from sales of assets

-

 

14

 

Net cash used for investing activities

(222)

 

(280)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Payments on secured and unsecured debt

(686)

 

(461)

 

Net cash used for financing activities

(686)

 

(461)

 

 

 

 

 

 

 

Effect of foreign currency exchange rates on cash and cash equivalents

108

 

55

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

(1,507)

 

(6,720)

 

Cash and cash equivalents at beginning of period

3,992

 

10,764

 

Cash and cash equivalents at end of period

$ 2,485

 

$ 4,044

 

 

 

 

 

 

 



The accompanying notes are an integral part of these condensed consolidated financial statements.



TIGRENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Nine months ended September 30, 2011


Note 1—Business Description and Basis of Presentation

The consolidated financial statements have been prepared without audit.  In the opinion of the Company's management, all adjustments (including normal recurring adjustments) necessary to present fairly the Company's financial position, results of operations and changes in cash flows have been made.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted.  The Company's annual report to stockholders for the year ended December 31, 2010 contains consolidated financial statements and related footnote disclosures which should be read in conjunction with the accompanying consolidated financial statements.  The results of operations for the period ended September 30, 2011 are not necessarily indicative of the operating results for the full year.

The consolidated financial statements include the accounts of Tigrent Inc. and its wholly owned and majority owned subsidiaries and affiliates (collectively referred to herein as the "Company," "Tigrent," "we," "us" or "our"). All intercompany balances and transactions have been eliminated in consolidation.  Certain reclassifications have been made in the 2010 consolidated financial statements to conform to the 2011 presentation.

We are a provider of practical, high-quality and value-based training, conferences, publications, technology-based tools and mentoring to help customers become financially knowledgeable. We provide customers with comprehensive instruction and mentoring on the topics of real estate and financial instruments investing and entrepreneurship in the United States, the United Kingdom, and Canada. Our training is offered in non-accredited free preview workshops, as well as basic training, advanced courses, mentoring and coaching, primarily under the Rich Dad™ Education brand which was created in 2006 under license from entities affiliated with Robert Kiyosaki ("Rich Dad") whose teachings and philosophies are detailed in the book titled, Rich Dad Poor Dad.  In excess of 90% of our sales are derived from this brand.   As part of a restructuring of the Rich Dad relationship in 2010, 1,290,000 shares common stock in the Company were issued to Rich Dad.  Our amounts owed to Rich Dad are reflected as a Related party note payable on the balance sheet.

Note 2—Significant Accounting Policies

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. The amounts included in the consolidated financial statements are stated at cost which approximates fair value at the balance sheet date. We maintain deposits in banks which may exceed the federal deposit insurance available. Management believes the potential risk of loss on these cash and cash equivalents to be minimal.

Restricted cash

Restricted cash balances consist primarily of funds on deposit with credit card and other payment processors and cash collateral with our purchasing card provider.  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.  The cash collateral held by our charge card provider is unavailable unless we discontinue the usage of the purchasing card.  Because these funds can, in certain circumstances, be accessed and converted to unrestricted cash in less than one year the amounts are considered a current asset.

Inventory

Inventory consists primarily of books, videos and training materials held for sale to customers enrolled in our training programs. Inventory is stated at the lower of cost or market using the first-in, first-out method.

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.  Of the deposits held by our credit card processors, $3.4 million is held by an international financial service company with a long-term debt rating by Moody's of A2 and S&P of BBB+ .   Another $8.3 million is held by a private Independent Sales Organization ("ISO") which is not publicly rated by national statistical rating agencies and is an agent of the bank that processes our customers' credit cards.  These balances do not have the benefit of federal deposit insurance and are subject to the financial risk of the parties holding these funds.  Deposits with credit card processors are unavailable to us unless, and for a period of time after, we discontinue the use of their services.    Because these funds cannot be accessed and converted to unrestricted cash in less than one year the amounts are considered a non-current long term deposit.   

Property and equipment

Property and equipment is stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets as presented in the following table:


Buildings ...............................................................40 years


Furniture fixtures and equipment .............................3-7 years


Purchased software .............................................. 3 years


Leasehold improvements are amortized over the shorter of the estimated useful asset life or the remaining term of the applicable lease.


In accordance with GAAP, we evaluate the carrying amount of our long-lived assets such as property and equipment, and definite lived intangible assets subject to amortization for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is measured by the comparison of its carrying amount with the future net cash flows the asset is expected to generate. We look primarily to the undiscounted future cash flows in the assessment of whether or not long-lived assets have been impaired. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset.

Revenue recognition

We recognize revenue in accordance with Staff Accounting Bulletin, No. 104, Revenue Recognition ("SAB No. 104"), and ASC 605-25, Revenue Recognition – Multiple-Element Arrangements. We recognize revenue when: (i) persuasive evidence of an arrangement exists, (ii) delivery of product has occurred or services have been rendered, (iii) the price to the buyer is fixed or determinable, and (iv) collectability is reasonably assured. For product sales, these conditions are generally met upon shipment of the product to the customer or completion of the sale transaction. For training and service sales, these conditions are generally met upon presentation of the training seminar or delivery of the service.

Deferred revenue occurs from seminars, online courses, coaching sessions and website subscriptions and renewals in which payment is received before the service has been performed. Deferred revenue is recognized into revenue as courses are attended in-person or on-line, coaching and mentor sessions are provided or material is delivered by electronic media.

Deferred course expenses

We defer licensing fees paid to Rich Global and commissions and fees paid to our speakers and telemarketers until such time as the revenue is earned. Our speakers, who are all independent contractors, earn commissions on the cash receipts received at our training events and are paid approximately 45 days after the training event. The deferred course expenses are tracked as a percentage of deferred revenue and based on whether the related sale was originated by telemarketers or in basic training courses. The deferred course expenses are expensed as the corresponding deferred revenue is recognized. We also capitalize the commissions and fees paid to our speakers and expense them as the corresponding deferred revenue is recognized.

Advertising and sales expenses

We expense advertising and sales costs as incurred. Advertising costs, rental fees for training facilities and direct sales expenses are expensed as incurred. Advertising paid in advance is recorded as prepaid until such time as the advertisement is published.

Income taxes

We account for income taxes in conformity with the requirements of ASC 740, Income Taxes  ("ASC 740"). Per ASC 740, the provision for income taxes is calculated using the asset and liability approach of accounting for income tax.

Foreign currency translation

We account for foreign currency translation in accordance with ASC 830, Foreign Currency Translation. The functional currencies of the Company's foreign operations are the reported local currencies. Translation adjustments result from translating our foreign subsidiaries' financial statements into United States dollars. The balance sheet accounts of our foreign subsidiaries are translated into United States dollars using the exchange rate in effect at the balance sheet date. Revenue and expenses are translated using average exchange rates for each month during the fiscal year. The resulting translation gains or losses are recorded as a component of accumulated other comprehensive income in shareholders' equity.

Net income (loss) per share

Net income (loss) per share is computed by applying the provisions of ASC 260, Earnings Per Share. Basic net income (loss) per share is calculated using the weighted average number of common shares outstanding. Diluted income (loss) per share reflects the potential dilution that could occur from common shares issuable through stock options, warrants, restricted share grant awards and restricted performance shares, as appropriate.

Note 3—Income Taxes Notes

During the nine months ended September 30, 2011 and September 30, 2010, the Company recorded a net income tax expense of $1.1 million and $1.4 million, respectively.  For the three months ended September 30, 2011, the Company recorded a net income tax benefit of ($0.7) million.  The benefit recorded for the third quarter of 2011 resulted from the recording of $0.4 million of tax expense that was offset by a tax return to accrual adjustment of $1.1 million related to the 2010 income tax returns filed September 15, 2011.

The Company's net deferred tax asset as of September 30, 2011 was comprised primarily of deferred revenue offset by deferred expenses and foreign net operating losses, and was reduced by a full valuation allowance.

The difference between the tax provision at the statutory federal income tax rate and the tax provision attributable to income before income taxes for the nine months ended September 30, 2011 was as follows:

     
(in percentages)    
Statutory federal income tax rate  35.0%  
Valuation allowance  (28.5)  
Foreign equity income/loss  1.6  
State income net of federal benefit  4.7  
Tax expense recorded pursuant ASC 740-10 (FIN 48)  4.5  
Non-U.S. income taxed at different rates  4.1  
Penalties  0.4  
Other  0.0  
Effective income tax rate  21.8%  
     
 

Our federal and state tax returns for all years after 2007 are subject to future examination by tax authorities for all of our tax jurisdictions. In addition, the Company has executed waivers of the federal statute of limitations that extend the period for adjustments for the years 2005, 2006 and 2007 until June 30, 2012.  We recognize interest and penalties related to income tax matters in other income and general and administrative expenses, respectively.

On March 17, 2009 we were notified by the Internal Revenue Service ("IRS") that our Company's federal tax returns for the years ended December 31, 2005, December 31, 2006, and December 31, 2007 are under examination. No Notices of Proposed Adjustment (NOPA's) have been issued; however, the results of this examination, and any other issues discussed with the IRS in the course of the examination, may result in changes to the Company's future tax liability.

Note 4—Legal and Subsequent Events

On September 6, 2011, the approval by the U.S. District Court for the Southern District of Florida originally granted on August 5, 2011 of the proposed settlement of the lawsuit styled Eric Springer and Maurice J. Seghers, Jr., on behalf of themselves and all others similarly situated vs. Tigrent Inc., Wealth Intelligence Academy, Inc., et al., Case No. 09-81470-CIV (originally filed in 2009) became final.  Under the terms of the settlement, the Company provided certain services, but paid no money to the plaintiff class members.  The Company reimbursed the plaintiff class an immaterial amount for attorneys' fees and other costs.

On November 14, 2006, the Company was notified by the Securities and Exchange Commission ("SEC") that it is conducting a formal, nonpublic investigation to determine whether we complied with securities laws in connection with (i) the claimed efficacy or trading success of our stock market training programs and, (ii) our acquisition of certain other companies. We are continuing to cooperate with the SEC in their investigation. Neither the Company nor any of its subsidiaries or present or former directors or officers has been charged by the SEC.

The Company continues to cooperate with the Office of the Attorney General of the State of Florida with respect to their investigations relating to (i) the marketing of our courses and seminars offered in Florida, including those offered under the Rich Dad brand, and (ii) consumer-investors who attended our Millionaire University ("MU") course and invested in Florida homes built by Gulfstream, Gulfstream Realty ("GR") and Gulfstream Realty and Development, LLC ("GRD") since August 1, 2004 ending in 2008, as well as the amount of payments received by us from Gulfstream, GR and GRD.  The Company currently expects that this matter will likely result in a settlement involving monetary payments, although the amount of such payments is not yet known or reasonably estimable.

On November 16, 2011, a lawsuit was filed in U.S. District Court for the Southern District of New York styled Robert Crewe, on behalf of himself and all others similarly situated, v. Rich Dad Education, LLC, et al.  The complaint seeks class action certification and alleges causes of action against the Company for breach of contract, breach of implied covenant of good faith and fair dealing, violations of the Florida Deceptive and Unfair Trade Practices Act, unjust enrichment, negligent misrepresentation, and fraud.  The plaintiff seeks unspecified monetary damages and other declaratory and equitable relief.  The Company believes the claims are without merit and intends to defend them vigorously.

We are involved from time to time in routine legal matters incidental to our business, including disputes with students and requests from state regulatory agencies. Based upon available information, we believe that the resolution of such matters will not have a material adverse effect on our consolidated financial position or results of operations.

Note 5 – Commitments and Contingencies

Custodial and counterparty risk

The Company is subject to custodial and other potential forms of counterparty risk in respect of a variety of contractual and operational matters.   In the course of ongoing company-wide risk assessment, management monitors the Company arrangements that involve potential counterparty risk, including the custodial risk associated with amounts prepaid to certain vendors and deposits with credit card and other payment processors.  Of the deposits held by our credit card processors, $3.4 million is held by an international financial service company with a long-term debt rating by Moody's of A2 and S&P of BBB+ .   Another $8.3 million is held by a private Independent Sales Organization ("ISO") which is not publicly rated by national statistical rating agencies and is an agent of the bank that processes our customers' credit cards.  Because of concerns over the arrangements with this ISO, the Company has provided notice of non-renewal of the processing agreement to the ISO, which agreement is scheduled to expire in January 2012.  We are currently in discussions with the ISO regarding the return of the deposit, but it is unclear how promptly we will be able to obtain release of these deposits or to what extent we may incur costs or impairment charges in connection with these efforts.   These balances do not have the benefit of federal deposit insurance and are subject to the financial risk of the parties holding these funds.  No reserve has been recorded with respect to these deposits; however, the Company could be required to take a charge with respect to these deposits, if an impairment were probable and could be reasonably estimated.

Operating leases

We lease office space for administrative and training requirements. These leases expire from December 2011 to February 2014.  We do not have any related party leases.  Two of these leases expire within the next quarter and have not yet been renewed, but we anticipate no issues either renewing or replacing these leases.

SOURCE Tigrent Inc.



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