Legacy Education Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA LEGACY EDUCATION INC. INDEX TO FINANCIAL STATEMENTS LEGACY EDUCATION INC. CONSOLIDATED FINANCIAL STATEMENTS for the fiscal years ended June 30, 2024 and 2023 73 Legacy Education Inc. (dba High Desert Medical College) (dba Central Coast College) (dba Integrity College of Health) Consolidated Financial Statements for the fiscal years ended June 30, 2024 and 2023 Table of Contents Page Report of Independent Registered Public Accounting Firm F-2 Financial Statements: Consolidated Balance Sheets F-3 Consolidated Income Statements F-4 Consolidated Statements of Stockholders’ Equity F-5 Consolidated Statements of Cash Flows F-6 Notes to Consolidated Financial Statements F-7 to F-18 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Members of the Board of Directors of Legacy Education Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Legacy Education Inc. (the “Company”) as of June 30, 2024 and 2023, and the related consolidated income statements, consolidated statements of changes in stockholders’ equity, and consolidated cash flows for each of the years in the two-year period ended June 30, 2024, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the two years ended June 30, 2024, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ L J Soldinger Associates, LLC We have served as the Company’s auditor since 2018. Deer Park, IL October 1, 2024 PCAOB ID No. 318 F- 2 Legacy Education Inc. Consolidated Balance Sheets June 30, 2024 June 30, 2023 ASSETS Current assets Cash and cash equivalents $ 10,376,149 $ 9,291,224 Accounts receivable, net of $ 688,848 and $ 340,060 allowance for doubtful accounts as of June 30, 2024 and 2023, respectively 13,038,241 7,184,788 Prepaid expenses 1,032,325 661,559 Other receivables 140,894 141,454 Related party receivable - 69,975 Total current assets 24,587,609 17,349,000 Property and equipment, net 989,952 680,073 Restricted cash - 98,382 Operating lease right-of-use asset 3,575,369 4,433,202 Financing lease right-of-use asset 340,048 - Intangible assets 1,054,947 1,060,458 Goodwill 1,929,326 1,929,326 Accounts receivable, long-term 1,381,194 1,143,410 Deferred income tax assets 898,000 168,000 Security deposits 416,605 383,545 Total assets $ 35,173,050 $ 27,245,396 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable and accrued liabilities $ 3,862,895 $ 2,582,173 Accrued income tax payable 1,443,335 147,055 Deferred, unearned tuition 2,585,747 3,473,726 Other current liabilities 24,201 30,434 Current portion of debt 574,244 678,257 Debt owed, related party 50,000 50,000 Current portion of financing lease 57,260 - Current portion of operating lease liability 1,868,560 1,531,624 Total current liabilities 10,466,242 8,493,269 Debt, net of current portion 123,862 45,325 Financing lease, net of current portion 215,409 - Other liabilities 905 33,774 Operating lease liability, net of current portion 1,947,620 3,250,944 Total liabilities 12,754,038 11,823,312 Commitments and contingencies - - Stockholders’ equity Preferred stock: $ 0.001 par value, 10,000,000 shares authorized; no shares issued and outstanding - - Common stock: $ 0.001 par value, 100,000,000 shares authorized, 9,291,149 shares issued and outstanding 9,291 9,291 Additional paid in capital 16,186,251 14,304,175 Retained earnings (accumulated deficit) 6,223,470 1,108,618 Total stockholders’ equity 22,419,012 15,422,084 Total liabilities and stockholders’ equity $ 35,173,050 $ 27,245,396 The accompanying notes are an integral part of these consolidated financial statements. F- 3 Legacy Education Inc. Consolidated Income Statements for the fiscal years ended June 30, 2024 and 2023 2024 2023 Revenue Tuition and related income, net $ 46,000,316 $ 35,455,948 Operating expenses Educational services 26,351,326 20,785,421 General and administrative 12,999,164 10,651,402 General and administrative – related party 168,000 173,000 Depreciation and amortization 265,036 224,488 Total costs and expenses 39,783,526 31,834,311 Operating income 6,216,790 3,621,637 Other income(expense) Interest expenses ( 118,162 ) ( 96,259 ) Interest income 886,834 339,102 Total other income 768,672 242,843 Income before income taxes 6,985,462 3,864,480 Income tax expenses ( 1,870,610 ) ( 1,197,741 ) Net income $ 5,114,852 $ 2,666,739 Net income per share Basic net income per share $ 0.55 $ 0.29 Diluted net income per share $ 0.53 $ 0.28 Weighted average number of common stock outstanding Basic weighted average shares outstanding 9,291,149 9,216,949 Diluted weighted average shares outstanding 9,691,149 9,616,949 The accompanying notes are an integral part of these consolidated financial statements. F- 4 Legacy Education Inc. Consolidated Statements of Changes in Stockholders’ Equity for the fiscal years ended June 30, 2024 and 2023 Shares Amount Shares Amount capital Deficit) Total Preferred Stock Common Stock Additional paid in Retained Earnings (Accumulated Shares Amount Shares Amount capital Deficit) Total Balance, June 30, 2022 - $ - 9,204,483 $ 9,205 $ 14,259,194 $ ( 666,916 ) $ 13,601,483 Stock options exercised - - 86,666 86 44,981 45,067 Cumulative-effect adjustment (ASC 842) - - - - - 37,911 37,911 Dividends paid - - ( 929,116 ) ( 929,116 ) Net income - - 2,666,739 2,666,739 Balance, June 30, 2023 - $ - 9,291,149 $ 9,291 $ 14,304,175 $ 1,108,618 $ 15,422,084 Balance, Value - $ - 9,291,149 $ 9,291 $ 14,304,175 $ 1,108,618 $ 15,422,084 Stock-based compensation - - - - 1,882,076 - 1,882,076 Net income - - - - - 5,114,852 5,114,852 Balance, June 30, 2024 - $ - 9,291,149 $ 9,291 $ 16,186,251 $ 6,223,470 $ 22,419,012 Balance, Value - $ - 9,291,149 $ 9,291 $ 16,186,251 $ 6,223,470 $ 22,419,012 The accompanying notes are an integral part of these consolidated financial statements. F- 5 Legacy Education Inc. Consolidated Statements of Cash Flows for the fiscal years ended June 30, 2024 and 2023 2024 2023 Cash flows provided by (used in) operating activities: Net income $ 5,114,852 $ 2,666,739 Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Non cash compensation 1,882,076 - Depreciation & amortization 265,036 224,488 Deferred income tax ( 730,000 ) ( 75,792 ) Provision for allowance for doubtful accounts for accounts receivable and contracts receivable 348,788 ( 152,891 ) Changes in assets and liabilities: Accounts receivable ( 6,440,025 ) ( 1,994,737 ) Prepaid expenses ( 370,766 ) ( 5,510 ) Other receivables 560 569,040 Related party receivable 69,975 - Other assets ( 183,917 ) ( 141,802 ) Accounts payable and accrued liabilities 1,283,922 163,411 Income tax payable 1,296,280 143,220 Deferred unearned tuition ( 887,979 ) 373,270 Net cash provided by operating activities 1,648,802 1,769,436 Cash flows used in investing activities: Purchases of property and equipment ( 423,710 ) ( 195,076 ) Net cash used in investing activities ( 423,710 ) ( 195,076 ) Cash flows provided by financing activities: Dividend paid in cash - ( 916,724 ) Proceeds from exercise of options - 33,800 Principal payment on finance lease ( 67,379 ) - Principal payments on debt ( 171,170 ) ( 168,394 ) Net cash used in financing activities ( 238,549 ) ( 1,051,318 ) Net increase cash and cash equivalents and restricted cash 986,543 523,042 Cash and cash equivalents and restricted cash, beginning of year 9,389,606 8,866,564 Cash and cash equivalents and restricted cash, end of year $ 10,376,149 $ 9,389,606 Supplemental disclosure of cash flow information Cash paid during the periods for interest $ 118,162 $ 96,259 Cash paid during the periods for income taxes $ 1,304,329 $ 1,030,364 Supplemental disclosure of noncash activities Non-cash purchase of financed lease assets $ 340,048 $ - Non-cash dividend $ - $ 12,392 Non-cash purchase of equipment $ 145,694 $ 11,267 The accompanying notes are an integral part of these consolidated financial statements. F- 6 Legacy Education Inc. Notes to Consolidated Financial Statements For Fiscal Years ended June 30, 2024 and 2023 Note 1 - Nature of Business For purposes of these financial statements, “Legacy,”, the “Company,” “we,” “our,” “us,” or similar references refers to Legacy Education Inc. and its consolidated subsidiaries, unless the context requires otherwise. Legacy Education, LLC was formed on October 19, 2009 in the state of California as a limited liability company. The Company operates as career institution that focuses on real-life training by utilizing educational practices in different job markets. The Company offers programs in career paths such as healthcare, veterinary, medical information technology, business management, and green technology. The Company is accredited by the Accrediting Council for Continuing Education and Training (“ACCET”), and the Accrediting Bureau of Health Education Schools (“ABHES”) and approved to operate in the state of California by the Bureau for Private Postsecondary Education (“BPPE”). The consolidated financial statements include accounts of Legacy Education Inc. d/b/a High Desert Medical College (“HDMC”) and its wholly owned subsidiary, Legacy Education Monterey LLC (“Monterey”) d/b/a Central Coast College (“CCC”), and its wholly owned subsidiary, Advanced Health Services, LLC d/b/a Integrity College of Health (“Integrity”). Pursuant to an Agreement and Plan of Merger and Reorganization (the “Reorganization Merger”), dated September 1, 2021, effective as of September 3, 2021 (the “Effective Date”), Legacy Education Merger Sub, LLC, a wholly owned subsidiary of Legacy Education Inc. formed solely for the purpose of implementing the Reorganization Merger, merged with and into Legacy Education, LLC, with Legacy Education, LLC surviving the merger and becoming a wholly owned subsidiary of Legacy Education Inc., a corporation formed on March 18, 2020 in the State of Nevada for the sole purpose of restructuring the Company from a member-owned Limited Liability Corporation to a shareholder-owned C-Corporation. On the Effective Date, in exchange for each Class A Unit owned in Legacy Education, LLC, the members of Legacy Education, LLC received one share of common stock in Legacy Education Inc. in a one for one exchange. The members immediately prior to the Reorganization Merger became the 100 % owners of Legacy Education Inc. immediately following the Reorganization Merger. HDMC offers instruction in twenty nine programs including ultrasound technician, ultrasound technician associate of applied science degree, medical billing and coding, vocational nursing, clinical medical assisting, pharmacy technician, dental assisting, medical administrative vocational nursing associate of applied science degree and registered nursing CCC, a wholly-owned subsidiary of HDMC, offers instruction in healthcare career training programs, and veterinary career training. Integrity, a wholly-owned subsidiary of HDMC, is an accredited college offering instruction in medical assisting, vocational nursing, medical insurance coding and billing, diagnostic medical sonography (ultrasound technician) and Bachelors of Science in nursing (RN to BSN). The accompanying consolidated financial statements, and all per share information contained herein, have been retroactively adjusted to reflect the reverse stock split described in Note 16. F- 7 Legacy Education Inc. Notes to Consolidated Financial Statements For Fiscal Years ended June 30, 2024 and 2023 Note 2 – Summary of Significant Accounting Principals Principal of Consolidation The consolidated financial statements include the accounts of HDMC and its wholly-owned subsidiaries, CCC and Integrity. All significant intercompany balances and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the assumptions used in the evaluation of the Company’s distinct performance obligations, the valuation of equity instruments and allowance for credit losses related to accounts receivable. Reclassifications Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported consolidated net income. Cash and Cash Equivalents The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents. These investments are stated at cost, which approximates fair value. Letter of Credit and Restricted Cash In October 2018, Integrity received a notice from the U.S. Department of Education (“ED”) requiring Integrity to post a letter of credit in the amount of $ 138,977 due to the deficient composite score for the year ended December 31, 2017. During the fiscal year ended June 30, 2020, the Company received notice from ED permitting the Company to decrease the letter of credit to $ 98,382 . Integrity maintained passing scores on its composite score since 2019. The letter of credit is secured by cash on deposit with the issuing bank and was extended through August 2023, when the ED released the Company from the letter of credit requirement. Under Accounting Standards Update (“ASU”) 2016-18, Statements of Cash Flows – Restricted Cash, a statement of cash flows explaining the change during the period in the total cash, cash equivalents, and amount generally described as restricted cash or restricted cash equivalents is required. The accompanying balance sheets as of June 30, 2024 and 2023 have been presented in accordance with the guidance provided by ASU 2016-18 . Property and Equipment Property and equipment are recorded at cost less accumulated depreciation. Depreciation is computed using the straight-line method. Normal repairs and maintenance are expensed as incurred. Expenditures that materially extend the useful life of an asset are capitalized. Depreciation is provided using the straight-line method over the estimated useful lives of the assets. Furniture and fixtures, machinery, computer equipment, and vehicles generally have estimated useful lives of ten , seven , four , and five years , respectively. Leasehold improvements are depreciated over the shorter of their lease term or their useful life. Leases In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under current GAAP. ASU 2016-02 requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet. ASU 2016-02 is effective for fiscal years beginning after December 15, 2021, using a modified retrospective approach and early adoption is permitted. The Company adopted ASU 2016-02 on July 1, 2022. The Company has elected to apply the short-term scope exception for leases with terms of 12 months or less at the inception of the lease and will continue to recognize rent expense on a straight-line basis. As a result of the adoption, on July 1, 2022, the Company recognized a lease liability of approximately $ 5.7 million, which represented the present value of the remaining minimum lease payments using an estimated incremental borrowing rate of 3.98 % . As of July 1, 2022, the Company recognized a right-to-use asset of approximately $ 5.3 million. Lease expense did not change materially as a result of the adoption of ASU 2016-02. Goodwill and Intangibles Goodwill represents the excess of the purchase price over the fair market value of the net assets (including intangibles) acquired on December 31, 2019 and January 15, 2019. The Company has implemented the Business Combinations Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350, Intangibles - Goodwill and Other. Goodwill, tradename, and accreditation are deemed to have an indefinite life, and course curriculum has a definite life of approximately 18 years. Goodwill and indefinite life intangible assets are not amortized but are subject to, at a minimum, annual impairment tests. The Company expenses costs to maintain or extend intangible assets as incurred. F- 8 Legacy Education Inc. Notes to Consolidated Financial Statements For Fiscal Years ended June 30, 2024 and 2023 Note 2 – Summary of Significant Accounting Principals (Continued) The Company reviews intangible assets (with a definite life), excluding goodwill, accreditation and tradenames, for impairment when events or changes in circumstances indicate the carrying amount may not be recoverable. We measure the recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows that the assets are expected to generate. If the carrying value of the assets are not recoverable, the impairment recognized is measured as the amount by which the carrying value of the asset exceeds its fair value. There were no impairments for the periods presented. The Company tests goodwill, accreditation and trade names for impairment at least annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired. There were no goodwill, accreditation or trade names impairments for the periods presented. The Company amortizes intangible assets with definite lives on a straight-line basis. Long-Lived Assets The Company evaluates the recoverability of its long-lived assets for impairment, other than goodwill, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Fair value estimates are based on assumptions concerning the amount and timing of estimated future cash flows. The Company had no long-lived asset impairments as of June 30, 2024 and 2023, respectively. Revenue Recognition Revenue is recognized when control of promised goods or services is transferred to the Company’s customers in an amount of consideration to which the Company expects to be entitled to in exchange for those goods or services. The Company follows the five steps approach for revenue recognition under ASC 606: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company identifies a contract for revenue recognition when there is approval and commitment from both parties, the rights of the parties and payment terms are identified, the contract has commercial substance and the collectability of consideration is probable. The Company evaluates each contract to determine the number of distinct performance obligations in the contract, which requires the use of judgment. The Company’s contracts include promises for educational services and course materials which are distinct performance obligations. Tuition revenue is primarily derived from postsecondary education services provided to students. Generally, tuition and other fees are paid upfront and recorded in contract liabilities in advance of the date when education services are provided to the student. A tuition receivable is recorded for the portion of tuition not paid in advance. In some instances, installment billing is available to students which reduces the amount of cash consideration received in advance of performing the service. The contractual terms and conditions associated with installment billing indicate that the student is liable for the total contract price, therefore mitigating the Company’s exposure to losses associated with nonpayment. Tuition revenue is recognized ratably over the instruction period. The Company generally uses the time elapsed method, an input measure, as it best depicts the simultaneous consumption and delivery of tuition services. Revenue associated with distinct course materials is recognized at the point of time when control transfers to the student, generally when the materials are delivered to the student. Revenue associated with lab services is recognized over the period of time when the service is performed. The Company’s refund policy may permit students who do not complete a course to be eligible for a refund for the portion of the course they did not attend. Refunds generally result in a reduction of deferred revenue during the period that the student drops or withdraws from a class. The transaction price is stated in the contract and known at the time of contract inception, as such there is variable consideration for situations when a student drops from a program based on the Company’s refund policy and additional charges if a student requires additional hours to complete the program beyond the contracted end date. The Company believes that its experience with these situations is of little predictive value because the future performance of students is dependent on each individual and the amount of variable consideration is highly susceptible to factors outside of the Company’s influence. Accordingly, no variable consideration has been included in the transaction price or recognized as income until the constraint has been eliminated. Revenue is allocated to each performance obligation based on its standalone selling price. Any discounts within the contract are allocated across all performance obligations unless observable evidence exists that the discount relates to a specific performance obligation or obligations in the contract. The Company generally determines standalone selling prices based on prices charged to students. The Company excludes from revenue taxes assessed by a governmental authority as these are agency transactions collected on their behalf from the customer. Significant judgments include the allocation of the contract price across performance obligations, the methodology for earning tuition ratably over the instruction period, estimates for the amount of variable consideration included in the transaction price as well as the determination of the impact of the constraints preventing the variable consideration from being recognized in revenue. F- 9 Legacy Education Inc. Notes to Consolidated Financial Statements For Fiscal Years ended June 30, 2024 and 2023 Note 2 – Summary of Significant Accounting Principals (Continued) Disaggregation of Revenue The tuition and related revenue consist of the following during the fiscal years ended June 30, 2024 and 2023: Schedule of Disaggregation of Revenue 2024 2023 Tuition and lab fees (recognized over time) $ 41,200,761 $ 32,305,664 Books, registration and other fees (recognized at a point in time) 4,799,555 3,150,284 Total revenue $ 46,000,316 $ 35,455,948 Allowance for Credit Losses The Company records an allowance for credit losses for estimated losses resulting from the inability, failure or refusal of its students to make required payments, which includes the recovery of financial aid funds advanced to a student for amounts in excess of the student’s cost of tuition and related fees. The Company determines the adequacy of its allowance for doubtful accounts based on an analysis of its historical bad debt experience, current economic trends, and the aging of the accounts receivable and student status. The Company applies reserves to its receivables based upon an estimate of the risk presented by the age of the receivables and student status. The Company writes off account receivable balances of inactive students at the earlier of the time the balances were deemed uncollectible, or one year after the revenue is generated. Bad debt expense is recorded as a general and administrative expense in the accompanying statements of operations. The Company performs an analysis annually to determine which accounts are uncollectable and then writes them off. Refunds The Company pays or credits refunds within 45 days of a student’s cancellation or withdrawal for students who have completed 60 % or less of the period of attendance based on a pro rata calculation. Once the student has completed more than 60 % of a period of attendance, all Title IV funds are considered earned and no refunds are due to ED. Advertising The Company expenses advertising cost as incurred. Advertising costs amounted to $ 4,124,485 and $ 3,589,432 for the years ended June 30, 2024, and 2023, respectively. Share-Based Compensation The Company utilizes ASC 718, Stock Compensation, related to accounting for share-based payments and, accordingly, records compensation expense for share-based awards based upon an assessment of the grant date fair value for stock options and restricted stock awards. The Company estimates the fair value of stock-based compensation awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company’s consolidated statements of operations. The Company estimates the fair value of stock-based compensation awards using the Black-Scholes model. This model requires the Company to estimate the expected volatility and value of its common stock and the expected term of the stock options, all of which are highly complex and subjective variables. The expected life was calculated based on the simplified method as described by the SEC Staff Accounting Bulletin No. 110, Share-Based Payment. The Company’s estimate of expected volatility was based on the volatility of peers. The Company has selected a risk-free rate based on the implied yield available on U.S. Treasury securities with a maturity equivalent to the expected term of the options. The Company accounts for forfeitures upon occurrence. Fair Value of Financial Instruments The Company’s financial instruments primarily consist of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, deferred, unearned tuition, debt and finance lease obligations. The carrying values of the Company’s financial instruments approximate fair value. FASB ASC 820, Fair Value Measurements and Disclosure s (“ASC 820”) establishes a framework for all fair value measurements and expands disclosures related to fair value measurement and developments. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 requires that assets and liabilities measured at fair value are classified and disclosed in one of the following three categories: Level 1 — Quoted market prices for identical assets or liabilities in active markets or observable inputs; Level 2 — Significant other observable inputs that can be corroborated by observable market data; and Level 3 — Significant unobservable inputs that cannot be corroborated by observable market data. Concentration of Credit Risk A substantial portion of revenues and ending accounts receivable at June 30, 2024 and 2023 are a direct result of the Company’s participation in Financial Student Aid (“FSA”) programs, which represents a primary source of student tuition. The FSA programs are subject to political budgetary considerations. There is no assurance that funding will be maintained at current levels. The FSA programs are subject to significant regulatory requirements. Any regulatory violation could have a material effect on the Company. F- 10 Legacy Education Inc. Notes to Consolidated Financial Statements For Fiscal Years ended June 30, 2024 and 2023 Note 2 – Summary of Significant Accounting Principals (Continued) The Company maintains its cash and cash equivalents in various financial institutions. Accounts at these institutions are insured by the Federal Deposit Insurance Corporation up to $ 250,000 . The Company performs ongoing evaluations of these institutions to limit concentration risk exposure. The Company maintains cash balances in excess of these limits from time to time. As of June 30, 2024 and 2023, $ 2.15 and $ 6.1 million, respectively, was maintained in a redeemable money market account bearing interest at approximately 4.88 % per annum. Commitments and Contingencies The Company accrues for a contingent obligation when it is probable that a liability has been incurred and the amount is reasonably estimable. When the Company becomes aware of a claim or potential claim, the likelihood of any loss exposure is assessed. If it is probable that a loss will result and the amount of the loss is estimable, the Company records a liability for the estimated loss. If the loss is not probable or the amount of the potential loss is not estimable, the Company will disclose the claim if the likelihood of a potential loss is reasonably possible and the amount of the potential loss could be material. Estimates that are particularly sensitive to future changes include tax, legal, and other regulatory matters, which are subject to change as events evolve, and as additional information becomes available during the administrative and litigation process. The Company expenses legal fees as incurred. Income Taxes GAAP requires management to evaluate tax positions taken by the Company and recognize a tax liability if the Company has taken an uncertain position that is more likely than not would be sustained upon examination by the Internal Revenue Service. Management has analyzed the Company’s tax positions and believes there are no uncertain positions taken or expected to be taken that would require recognition of a liability or disclosure in the financial statement. The Company accounts for income taxes payable or refundable for the current year and deferred tax assets and liabilities for future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the temporary differences are expected to be realized. The Company expenses penalties and interest related to federal and state income taxes as incurred. Penalties, if any, are included in general and administration expenses on the income statement. The estimated federal and state effective tax rates are 21 % and 8.84 % , respectively. Emerging Growth Company The Company has elected to be an emerging growth company as defined under the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). Included with this election, the Company has also elected to use the provisions within the JOBS Act that allow companies that go public to continue to use the private company adoption date rules for new accounting policies. The Company will remain an emerging growth company until the earlier of (i) the last day of the Company’s fiscal year following the fifth anniversary of the closing of the Company’s initial public offering of its securities, (ii) the last day of the fiscal year (a) in which the Company total annual gross revenue of at least $1.235 billion or (b) in which the Company is deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission, and (iii) the date on which the Company has issued more than $1.0 billion of non-convertible debt in any three-year period . Earnings Per Share ASC 260, Earnings Per Share, requires dual presentation of basic and diluted earnings per share (“EPS”) with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS is calculated using the treasury stock method, and reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. The following table provides a reconciliation of the numerators and denominators used to determine basic and diluted net income per common share for years ended June 30, 2024 and 2023: Schedule of Reconciliation of Basic and Diluted 2024 2023 Numerator Net income $ 5,114,852 $ 2,666,739 Denominator Weighted-average shares outstanding, basic 9,291,149 9,216,949 Dilutive impact of share-based instruments 400,000 400,000 Weighted-average shares outstanding, diluted 9,691,149 9,616,949 Net income per share Basic $ 0.55 $ 0.29 Diluted $ 0.53 $ 0.28 F- 11 Legacy Education Inc. Notes to Consolidated Financial Statements For Fiscal Years ended June 30, 2024 and 2023 Note 2 – Summary of Significant Accounting Principals (Continued) Recent Accounting Pronouncements In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 provides guidance for recognizing credit losses on financial instruments based on an estimate of current expected credit losses model. The amendments are effective for fiscal years beginning after December 15, 2019. Recently, the FASB issued the final ASU to delay adoption for smaller reporting companies for fiscal years beginning after December 15, 2022. We adopted ASU 2016-13 on July 1, 2023 and it did not have a material impact on our consolidated financial statements and related disclosures. In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity, and also improves and amends the related earnings per share guidance for both Subtopics. The ASU will be effective for smaller reporting companies for annual reporting periods beginning after December 15, 2023 and interim periods within those annual periods and early adoption is permitted. We are currently evaluating the impact of the new guidance on our consolidated financial statements. Note 3 - Intangible Assets The intangibles consisted of the following as of June 30, 2024 and June 30, 2023: Schedule of Intangible Assets June 30, 2024 June 30, 2023 Goodwill $ 1,929,326 $ 1,929,326 Trade name 796,100 796,600 Accreditation 88,200 88,200 Course curriculum 198,000 198,000 Total cost of intangibles $ 3,011,626 $ 3,012,126 Less accumulated amortization ( 27,353 ) ( 22,342 ) Intangibles net $ 2,984,273 $ 2,989,784 As of June 30, 2024 and 2023, no impairment of the Company’s goodwill, nor other intangibles with an indefinite life was required related to its previous acquisitions of CCC and Integrity. Although the ACCET accreditation has an indefinite life, the accreditation requires renewal every five years. CCC’s ACCET accreditation was most recently renewed in April 2020 and its next renewal is in April 2025. The Company recognized $ 5,011 and $ 5,011 in amortization expense for the fiscal year ended June 30, 2024 and 2023. Although the Accrediting Bureau of Health Education Schools (“ABHES”) has an indefinite life, the accreditation requires renewal every five years. Integrity’s next ABHES accreditation renewal is in February 28, 2026. 100 % of goodwill is expected to be deductible for federal income tax purposes and will be amortized over 15 years on a straight-line basis. Note 4 - Property and Equipment Property and equipment consist of the following: Schedule of Property and Equipment June 30, 2024 June 30, 2023 Leasehold improvements $ 561,108 $ 397,598 Machinery and equipment 1,032,286 788,726 Computer equipment 704,846 566,973 Furniture, fixtures and other equipment 266,923 252,975 Furniture, Fixtures and Other Equipment [Member] Total 2,565,163 2,006,272 Less accumulated depreciation and amortization ( 1,575,211 ) ( 1,326,199 ) Property and equipment, net $ 989,952 $ 680,073 Depreciation and amortization expense associated with property and equipment totaled $ 260,025 and $ 219,477 for the years ended June 30, 2024 and 2023, respectively. Note 5 – Accounts Receivable, Long-Term TuitionFlex The TuitionFlex Program is designed to create a flexible tuition credit program for students and families to help bridge the financial gap, all in accordance with applicable federal Truth-In-Lending regulations. Through this program, we offer payment plans to all students, regardless of financial need, for up to 5 years. The long-term portion of student receivables utilizing the Tuition Flex program was $ 1,381,194 and $ 1,143,410 as of June 30, 2024 and June 30, 2023, respectively. Note 6 – Prepaid Expenses The prepaid expenses consist of the following as of June 30, 2024 and June 30, 2023: Schedule of Prepaid Expenses June 30, 2024 June 30, 2023 Books $ 199,122 $ 190,815 Supplies and other prepaid expenses 833,203 470,744 Total prepaid expenses $ 1,032,325 $ 661,559 F- 12 Legacy Education Inc. Notes to Consolidated Financial Statements For Fiscal Years ended June 30, 2024 and 2023 Note 7 – Other Receivables The other receivables consist of the following as of June 30, 2024 and June 30, 2023: Schedule of Other Receivables June 30, 2024 June 30, 2023 Other advance 94,454 94,454 Employee retention credit 46,440 47,000 Total other receivables $ 140,894 $ 141,454 The Company paid $ 106,846 federal income taxes on behalf of a foreign investor in Legacy, and the amount due back to the Company was $ 94,454 as of June 30, 2024 and June 30, 2023. During the fiscal year ended June 30, 2021, the Company applied for certain Employee Retention Credits (“ERTC”) under the CARES Act in the approximate amount of $ 2.9 million. The remaining balance of the ERTC receivable as of June 30, 2024 and June 30, 2023 was $ 46,440 and $ 47,000 , respectively. Note 8 – Accounts Payable and Accrued Liabilities Accounts payable and accrued expenses as of June 30, 2024 and June 30, 2023 consist of the following: Schedule of Accounts Payable and Accrued Expenses June 30, 2024 June 30, 2023 Accounts payable $ 1,532,576 $ 722,709 Accrued payroll and payroll taxes 641,594 450,388 Accrued vacation 447,482 453,397 Accrued bonuses 1,200,000 824,821 Accrued other expenses 41,243 130,858 Total $ 3,862,895 $ 2,582,173 Note 9 - Debts and Other Liabilities (1) Promissory Notes The Company received $ 750,000 in proceeds from several debtors, including $ 150,000 from related parties. Under the unsecured promissory notes, the principal shall be due and payable on the earlier to occur (i) the 9-month anniversary of the first advance under each promissory note; or (ii) the completion of an initial public offering by payee (“Maturity Date”), and the promissory note shall bear interest at a monthly rate of 1 % based upon the amount outstanding as of any calculation date. Interest shall be payable monthly commencing on the 15th day of each calendar month following the date funds are first advanced. The maturity dates on these promissory notes were extended to March 31, 2021 . The noteholders agreed to defer the repayment of the principal balance until the completion of a future Initial Public Offering. Schedule of Carrying Amount of Promissory Note June 30, 2024 June 30, 2023 Promissory note issued on November 12, 2019 $ 500,000 $ 500,000 Promissory note issued on December 30, 2019 related party 50,000 50,000 Promissory note issued on February 6, 2020 - 100,000 Total other debt $ 550,000 $ 650,000 A promissory note issued on December 30, 2019 to a related party was repaid during the fiscal year ended June 30, 2023. The note was repaid via a cash payment for principal amounting to $ 88,733 , and $ 11,267 was satisfied as an exercise of 43,333 common stock options at $ 0.26 per share. In September 2023, the promissory note issued on February 6, 2020 for $ 100,000 was repaid in full. (2) Equipment Loan In June 2019, the Company entered into an equipment loan for $ 26,647 . The note accrues interest at a rate of 6.5 % per annum and requires 60 equal monthly payments . As of June 30, 2024 and June 30, 2023, the principal balance of the promissory note was $ 0 and $ 6,042 , respectively. In August 2019, the Company entered into an equipment loan for $ 26,997 . The note accrues interest at a rate of 6.95 % per annum and requires 60 equal monthly payments . As of June 30, 2024 and June 30, 2023, the principal balance of the promissory note was $ 0 and $ 7,652 , respectively. F- 13 Legacy Education Inc. Notes to Consolidated Financial Statements For Fiscal Years ended June 30, 2024 and 2023 Note 9 - Debts and Other Liabilities (Continued) In January 2023, the Company entered into an equipment loan for $ 30,744 . The note accrues interest at a rate of 6.0 % per annum and requires 48 equal monthly payments . As of June 30, 2024 and June 30, 2023, the principal balance of the promissory note was $ 20,929 and $ 28,285 , respectively. In August 2023, the Company entered into an equipment loan for $ 35,580 . The note accrues interest at a rate of 10.14 % per annum and requires 48 equal monthly payments . As of June 30, 2024 and June 30, 2023, the principal balance of the promissory note was $ 27,723 and $ 0 , respectively. In November 2023, the Company entered into an equipment loan for $ 14,610 . The note accrues interest at a rate of 10.72 % per annum and requires 48 equal monthly payments . As of June 30, 2024 and June 30, 2023, the principal balance of the promissory note was $ 12,582 and $ 0 , respectively. In December 2023, the Company entered into an equipment loan for $ 11,920 . The note accrues interest at a rate of 13.53 % per annum and requires 36 equal monthly payments . As of June 30, 2024 and June 30, 2023, the principal balance of the promissory note was $ 9,853 and $ 0 , respectively. In February 2024, the Company entered into an equipment loan for $ 35,612 . The note accrues interest at a rate of 8 % per annum and requires 36 equal monthly payments . The first payment will be on April 1, 2024. As of June 30, 2024 and June 30, 2023, the principal balance of the promissory note was $ 32,950 and $ 0 , respectively. In June 2024, the Company entered into an equipment loan for $ 48,966 . The note accrues interest at a rate of 11.16 % per annum and requires 48 equal monthly payments . The first payment will be on June 1, 2024. As of June 30, 2024 and June 30, 2023, the principal balance of the promissory note was $ 48,125 and $ 0 , respectively. (3) Bank Loan On December 31, 2019, the Company acquired Integrity, assuming its two bank loans, which are secured by all business assets of the Company. Schedule of Bank Loans June 30, 2024 June 30, 2023 Bank loan #1, monthly payment $ 803.69 , due in 110 months , effective interest rate 6.44 % $ 24,447 $ 31,356 Bank loan #2, monthly payment $ 5,672.86 start on November 23, 2020, due in 48 months 21,495 78,532 Total bank loans $ 45,942 $ 109,888 Future maturities over the remaining term of total debt for (1) to (3) are as follows: Schedule of Future Maturities over the Remaining of Debt 2025 (1) $ 624,244 2026 57,924 2027 50,390 2028 15,548 Long-term debt 748,106 Less: current portion (1) ( 624,244 ) Long-term portion of debt $ 123,862 (1) Includes $ 50,000 related party debt Note 10 - Related Party Transactions A shareholder of the Company was paid $ 90,000 and $ 90,000 as consulting fees in the years ended June 30, 2024 and 2023, respectively. A director of the Company was paid $ 78,000 and $ 83,000 in consulting fees in the years ended June 30, 2024 and 2023, respectively. A director of the Company was paid $ 132,988 in consulting fees in the years ended June 30, 2024. In December 2019, the Company received $ 50,000 of proceeds from a promissory note, entered into with an executive of the Company, which bears interest at the rate of 12 % per annum and matures on the earlier of the nine-month anniversary of the loan or the completion of an initial public offering. The balance of this note was $ 50,000 as of June 30, 2024 and June 30, 2023. As of June 30, 2024 and June 30, 2023, the Company had a balance due from a shareholder, who is also the President of the Company, totaling $ 0 and $ 69,975 . This amount was included in the related party receivable on the balance sheet. F- 14 Legacy Education Inc. Notes to Consolidated Financial Statements For Fiscal Years ended June 30, 2024 and 2023 Note 11 – Lease Commitments Finance Leases In July 2023, the Company entered into an equipment lease for $ 340,048 . The related finance liability has an implied interest rate of 11.16 % per annum and requires 5 equal annually payments on September 1, 2023. As of June 30, 2024 and June 30, 2023, the balance of the finance liability was $ 272,669 and $ 0 , respectively. The present value of future minimum lease payments due at June 30, 2024 was as follows: Schedule of Future Minimum Capital Lease Payments 2024 - 2025 81,459 2026 81,459 2027 81,459 Thereafter 81,458 Total minimum payments 325,835 Less: amount representing interest ( 53,166 ) Present value of minimum payments $ 272,669 Less: current portion ( 57,260 ) Long term portion $ 215,409 Operating Leases The Company leases its instructional facilities under non-cancelable operating leases expiring at various dates through 2026. In most cases, the facility leases require the Company to pay various operating expenses of the facilities in addition to base monthly lease payments. In certain cases, the Company has options available under its leases to renew, and certain leases contain ordinary rental escalations on the space. Rent expense for the certain leases described above is recorded evenly over each lease term. The difference between rent expense recorded and the amount paid is reflected as deferred rent on the accompanying balance sheets for those leases with rent escalation clauses. Because the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate to determine the present value of the lease payments. The Company has elected the practical expedient to use the risk-free rate as its incremental borrowing rate. June 30, 2024 are as follows: Schedule of Future Minimum Operating Lease Payments 2025 $ 1,964,416 2026 1,533,688 2027 341,511 2028 123,736 Total future minimum operating lease payments 3,963,351 Less: imputed interest ( 147,171 ) Total 3,816,180 Current portion of operating lease 1,868,560 Long term portion of operating lease $ 1,947,620 Total rent expense and related taxes and operating expenses under operating leases for the fiscal years ended June 30, 2024 and 2023 were $ 3,368,780 and $ 3,066,341 , respectively. Supplemental balance sheet information related to leases was as follows: Schedule of Balance Sheet Information Related to Leases June 30, 2024 June 30, 2023 Operating lease right-of-use assets $ 3,575,369 $ 4,433,202 Operating lease liability - current $ 1,868,560 $ 1,531,624 Operating lease liability – non-current 1,947,620 3,250,944 Total operating lease liability $ 3,816,180 $ 4,782,568 Other supplemental information: Schedule of Other supplemental Information 2024 2023 Cash paid for operating lease $ 1,900,505 $ 1,520,021 F- 15 Legacy Education Inc. Notes to Consolidated Financial Statements For Fiscal Years ended June 30, 2024 and 2023 Note 12 – Stockholders’ Equity As of June 30, 2024 and June 30, 2023, the Company had 110,000,000 shares of authorized capital, par value $ 0.001 , of which 100,000,000 shares are designated as common stock, and 10,000,000 shares are designated as preferred stock, which have liquidation preference over the common stock and are non-voting. Equity Transactions No shares of common stock were issued during the year ended June 30, 2024. During the fiscal year ended June 30, 2023, the Company issued 86,666 shares of common stock at $ 0.52 per share under notice of exercise options. As of June 30, 2024 and June 30, 2023 the Company had 9,291,149 shares of common stock outstanding, and no shares of preferred stock issued and outstanding. Note 13 - Share-Based Compensation Plans Stock Options The Company utilizes ASC 718, Stock Compensation, related to accounting for share-based payments and, accordingly, records compensation expense for share-based awards based upon an assessment of the grant date fair value for stock options and restricted stock awards. The Black Scholes option pricing model was used to estimate the fair value of the options granted. This option pricing model requires a number of assumptions, of which the most significant are: expected stock price volatility, the expected pre-vesting forfeiture rate, and the expected option term (the amount of time from the grant date until the options are exercised or expire). The Company estimated a volatility factor utilizing a weighted average of comparable published volatilities of its peers. The Company applied the simplified method to determine the expected term of stock-based compensation grants. In prior years, the Company had granted time vested options to purchase shares of common stock with exercise prices ranging from $ 0.52 - $ 1.80 on the date of grant by the Board. These options vest ratably over a period of three years and expire ten years from the date of grant and the fair value of these options were calculated using the Black-Scholes-Merton model. On April 1, 2024, the Company granted stock options to purchase an aggregate of 1,425,171 shares of its common stock at an exercise price of $ 3.74 per share to employees, directors, consultants and non-employee service providers pursuant to its 2021 Equity Incentive Plan. A summary of the activity related to stock option units granted is as follows: Summary of Stock Option Units Granted Summary of Stock Options Outstanding Total Options Weighted Average Exercise Price per Option Weighted Average Remaining Contractual Term (Years) Outstanding as of June 30, 2022 502,916 1.34 4.16 Granted - - - Exercised ( 86,666 ) 0.52 - Forfeited, canceled, or expired ( 16,250 ) 0.52 - Outstanding as of June 30, 2023 400,000 1.54 4.14 Granted 1,425,171 3.74 10.00 Exercised - - Forfeited, canceled, or expired - - Outstanding as of June 30, 2024 1,825,171 3.26 8.30 Exercisable as of June 30, 2024 1,387,534 3.11 7.84 F- 16 Legacy Education Inc. Notes to Consolidated Financial Statements For Fiscal Years ended June 30, 2024 and 2023 Note 13 - Share-Based Compensation Plans (Continued) A summary of the activity related to vested and unvested stock option units granted is as follows: Summary of Vested and Unvested Stock Options Units Granted Options Outstanding Weighted Average Exercise Price Weighted Average Grant Date Fair Value Average Remaining Contractual Life (Years) Balance – June 30, 2023, unvested - $ - - - Options issued 1,425,171 3.74 1.84 10.00 Options vested ( 987,534 ) 3.74 1.84 10.00 Options expired - - - - Options exercised - - - - Balance – June 30, 2024, unvested 437,637 $ 3.74 1.84 9.75 The Company valued these options using the Black Scholes model utilizing volatility 45 %, and a risk-free rate of 4.18 %. The fair value of the options was $ 1.84 per option. The Company recorded share-based compensation expense of $ 1,882,076 during the fiscal year ended June 30, 2024, which is included in educational services. Unamortized compensation expense associated with unvested options is $ 737,333 as of June 30, 2024. The weighted average period over which these costs are expected to be recognized is approximately 2.75 years. Note 14 - Income Tax The Company has deferred tax assets and liabilities that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets are subject to periodic recoverability assessments. Realization of the deferred tax assets, net of deferred tax liabilities is principally dependent upon achievement of projected future taxable income. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences. The Company has no valuation allowance as of June 30, 2024. On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law. For businesses, the Act reduces the corporate federal tax rate from a maximum of 35 % to a flat 21 % rate. The rate reduction took effect on January 1, 2018. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted though income tax expense. The components of income tax expense (benefit) are as follows: Schedule of Components of Income Tax Expense (Benefit) June 30, 2024 June 30, 2023 Current: Federal $ 1,779,079 $ 764,827 State 821,531 357,122 Current income tax expense 2,600,610 1,121,949 Deferred: Federal ( 513,740 ) 53,339 State ( 216,260 ) 22,453 Deferred income tax expense ( 730,000 ) 75,792 Total income tax expense $ 1,870,610 $ 1,197,741 Income tax expense differed from the amount computed using the U.S. federal income tax rate of 21% for June 30, 2024 and 2023 as follows: Schedule of Federal Income Tax Expense June 30, 2024 June 30, 2023 Statutory U.S. federal income tax $ 1,466,947 $ 811,540 Non-deductible items 57,841 9,714 Change in deferred items ( 303,187 ) ( 26,154 ) Provision to return ( 151,584 ) 157,338 State income taxes, net of federal benefit 821,531 310,511 Other ( 20,938 ) ( 65,208 ) Income tax expense $ 1,870,610 $ 1,197,741 F- 17 Legacy Education Inc. Notes to Consolidated Financial Statements For Fiscal Years ended June 30, 2024 and 2023 Note 14 - Income Tax (Continued) Significant components of the Company’s deferred income tax assets included in deferred income taxes, non-current on the balance sheets are as follows: Schedule of Deferred Income Tax Assets and Liabilities June 30, 2024 June 30, 2023 Deferred tax assets: Deferred rent, right-of-use asset and lease liability $ 72,000 $ 104,000 Allowance for doubtful accounts 206,000 101,000 Accrued bonuses and vacation 492,000 355,000 Non-cash compensation 562,000 - Deferred tax assets gross 1,332,000 560,000 Valuation allowance - - Deferred tax assets 1,332,000 560,000 Deferred tax liability: Property and equipment and intangible assets ( 434,000 ) ( 392,000 ) Deferred tax liability ( 434,000 ) ( 392,000 ) Net deferred tax asset $ 898,000 $ 168,000 The Company is subject to taxation in the United States and the state of California. As of June 30, 2024, the earliest tax year still subject to examination for federal and state purposes is the fiscal year ended June 30, 2021. Note 15 - Other Commitments and Contingency Regulatory In order for students to participate in Title IV federal financial aid programs, the Company is required to maintain certain standards of financial responsibility and administrative capability. In addition, the Company is accredited with ACCET and ABHES and approved by other agencies and must comply with rules and regulations of the accrediting body. As a result, the Company may be subject from time to time to audits, investigations, claims of noncompliance or lawsuits by governmental agencies, regulatory bodies, or third parties. While there can be no assurance that such matters will not occur and if they do occur will not have a material adverse effect on these financial statements, management believes that the Company has complied with all regulatory requirements as of the date of the financial statements. The Company is subject to extensive regulation by federal and state governmental agencies and accrediting bodies. In particular, the Higher Education Act of 1965, as amended (the “Higher Education Act”), and the regulations promulgated thereunder by ED, subject the Company to significant regulatory scrutiny on the basis of numerous standards that schools must satisfy in order to participate in the various federal student financial assistance programs under Title IV of the Higher Education Act. Borrowers Defense to Repayment On October 28, 2016, ED published its new regulations with an effective date of July 1, 2017. The new regulations allow a borrower to assert a defense to repayment on the basis of a substantial misrepresentation, any other misrepresentation in cases where certain other factors are present, a breach of contract or a favorable non-default contested judgment against a school for its act or omission relating to the making of the borrower’s loan or the provision of educational services for which the loan was provided. In addition, the financial responsibility standards contained in the new regulations establish the conditions or events that trigger the requirement for an institution to provide ED with financial protection in the form of a letter of credit or other security against potential institutional liabilities. Triggering conditions or events include, among others, certain state, federal or accrediting agency actions or investigations. The new regulations also prohibits schools from requiring that students agree to settle future disputes through arbitration. Management believes no misrepresentations have occurred nor has any agency actions or investigations occurred as of the date of these financial statements. Composite Score As described above, ED requires institutions to meet standards of financial responsibility. ED deems an institution financially responsible when the composite score is at least 1.5. The Company’s composite score was 3.0 for the fiscal year ended June 30, 2023. The Company’s composite score calculation for the fiscal year ended June 30, 2024 has not been completed as of the date of these financial statements and is due on December 31, 2024. 90/10 Disclosure The Company derives a substantial portion of its revenues from student financial aid received by its students under the Title IV programs administered by ED pursuant to the Higher Education Act. To continue to participate in the student financial aid programs, the Company must comply with the regulations promulgated under the Higher Education Act. The regulations restrict the proportion of cash receipts for tuition and fees from eligible programs to not more than 90% from Title IV programs (the “90/10 revenue test”). If an institution fails to satisfy the test for one year, its participation status becomes provisional for two consecutive fiscal years. If the test is not satisfied for two consecutive years, eligibility to participate in Title IV programs is lost for at least two fiscal years. Using ED’s cash-basis, regulatory formula under the 90/10 Rule, as in effect for its 2023 fiscal year, HDMC, CCC and Integrity derived 84.53%,75.48% and 88.14% for its 90/10 revenue from Title IV program funds, respectively. The 90/10 calculation for fiscal year ended June 30, 2024 has not yet been completed as of the date of these financial statements and is due on December 31, 2024. Litigation The Company does not believe it is a party to any other pending or threatened litigation arising from services currently or formerly performed by the Company. To the extent that there may be other pending or threatened litigation that management is unaware of, they do not believe there to be any possible claims that could have a material adverse effect on their business, results of operations or financial condition. Note 16 – Subsequent Events Effective July 1, 2024 the Company entered into a sublease agreement amending a lease originally entered into January 21, 2016, as amended, to increase usage at the premises to 37,914 square feet at a facility located in Salinas, CA expiring July 31, 2032 with a base rent of $ 64,051 monthly, and such additional rent as may be applicable including a proportional share of utilities and operating costs. Concurrent with the execution of the lease the Company remitted an additional deposit of $ 37,750 . Reverse Stock Split On September 9, 2024, our stockholders approved an amendment to our articles of incorporation to effect a 1-for-2 reverse split of our common stock. The amendment to our certificate of incorporation was filed with the Nevada Secretary of State on September 9, 2024. The consolidated financial statements, and all share and per share information contained herein, have been retroactively adjusted to reflect the reverse stock split. On September 27, 2024, the Company completed its initial public offering of 2,500,000 shares, priced at $ 4.00 per share. F- 18 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.