˿Ƶ

 



 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended January 31, 2018

  

OR

 

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________ to ________

 

Commission file number: 001-38175

 

˿Ƶ.

(Exact name of registrant as specified in its charter)

 

Delaware

27-1933597

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

 

1660 S Albion Street, Suite 525

Denver, CO

 

80222

(Address of principal executive offices)

(Zip Code)

 

Registrants telephone number: (303) 333-4224

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes þ  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer   ¨

 

Accelerated filer   þ

Non-accelerated filer     ¨

(Do not check if a smaller

Smaller reporting company  þ

 

reporting company)

Emerging growth company  ¨


If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No þ

 

Class

 

Outstanding as of March 15, 2018

Common Stock, $0.001 par value per share

 

15,072,332

 

 




 


INDEX


 

PART I FINANCIAL INFORMATION

 

                      

 

 

Item 1.

Financial Statements.

1

 

 

 

 

Consolidated Balance Sheets

1

 

 

 

 

Consolidated Statements of Operations (Unaudited)

3

 

 

 

 

Consolidated Statement of Changes in Stockholders’ Equity (Unaudited)

4

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited)

5

 

 

 

 

Condensed Notes to Consolidated Financial Statements (Unaudited)

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

19

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

26

 

 

 

Item 4.

Controls and Procedures.

26

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings.

27

 

 

 

Item 1A.

Risk Factors.

27

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

27

 

 

 

Item 3.

Defaults Upon Senior Securities.

27

 

 

 

Item 4.

Mine Safety Disclosures.

27

 

 

 

Item 5.

Other Information.

27

 

 

 

Item 6.

Exhibits.

27


SIGNATURES

28






 


PART I. FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS


ASPEN GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


 

 

January 31,

 

 

April 30,

 

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

3,803,080

 

 

$

2,756,217

 

Restricted cash

 

 

190,506

 

 

 

 

Accounts receivable, net of allowance of $544,492 and $328,864, respectively

 

 

8,592,958

 

 

 

4,434,862

 

Prepaid expenses

 

 

288,640

 

 

 

133,531

 

Promissory note receivable

 

 

 

 

 

900,000

 

Other receivables

 

 

233,862

 

 

 

81,464

 

Accrued interest receivable

 

 

 

 

 

8,000

 

Total current assets

 

 

13,109,046

 

 

 

8,314,074

 

 

 

 

 

 

 

 

 

 

Property and equipment:

 

 

 

 

 

 

 

 

Call center equipment

 

 

96,305

 

 

 

53,748

 

Computer and office equipment

 

 

130,137

 

 

 

103,649

 

Furniture and fixtures

 

 

712,209

 

 

 

255,984

 

Software

 

 

2,590,297

 

 

 

2,131,344

 

 

 

 

3,528,948

 

 

 

2,544,725

 

Less accumulated depreciation and amortization

 

 

(1,161,030

)

 

 

(1,090,010

)

Total property and equipment, net

 

 

2,367,918

 

 

 

1,454,715

 

Goodwill

 

 

5,011,432

 

 

 

 

Intangible assets, net

 

 

9,916,667

 

 

 

 

Courseware, net

 

 

137,557

 

 

 

145,477

 

Accounts receivable, secured - related party, net of allowance of $625,963, and $625,963, respectively

 

 

45,329

 

 

 

45,329

 

Long term contractual receivable

 

 

935,878

 

 

 

657,542

 

Other assets

 

 

585,206

 

 

 

56,417

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

32,109,033

 

 

$

10,673,554

 


(Continued)



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




1



 


ASPEN GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (CONTINUED)


 

 

January 31,

 

 

April 30,

 

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,273,990

 

 

$

756,701

 

Accrued expenses

 

 

596,633

 

 

 

262,911

 

Deferred revenue

 

 

4,156,550

 

 

 

1,354,989

 

Refunds due students

 

 

730,722

 

 

 

310,576

 

Deferred rent, current portion

 

 

7,429

 

 

 

11,200

 

Convertible notes payable- related party, current portion

 

 

1,000,000

 

 

 

 

Convertible notes payable, current portion

 

 

50,000

 

 

 

50,000

 

Other current liabilities

 

 

186,134

 

 

 

 

Total current liabilities

 

 

8,001,458

 

 

 

2,746,377

 

 

 

 

 

 

 

 

 

 

Convertible note payable - related party

 

 

1,000,000

 

 

 

 

Senior secured term loan, net of discount

 

 

6,769,932

 

 

 

 

Warrant Liability

 

 

 

 

 

52,500

 

Deferred rent

 

 

60,295

 

 

 

34,437

 

Total liabilities

 

 

15,831,685

 

 

 

2,833,314

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies - See Note 7

 

 

— 

 

 

 

— 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, $0.001 par value; 250,000,000 shares authorized,

 

 

 

 

 

 

 

 

15,072,332 issued and 15,055,665 outstanding at January 31, 2018

 

 

 

 

 

 

 

 

13,504,012 issued and 13,487,345 outstanding at April 30, 2017

 

 

15,072

 

 

 

13,504

 

Additional paid-in capital

 

 

45,439,538

 

 

 

33,607,423

 

Treasury stock (16,667 shares)

 

 

(70,000

)

 

 

(70,000

)

Accumulated deficit

 

 

(29,107,262

)

 

 

(25,710,687

)

Total stockholders’ equity

 

 

16,277,348

 

 

 

7,840,240

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

32,109,033

 

 

$

10,673,554

 




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



2



 


ASPEN GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


 

 

For the

 

 

For the

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

January 31,

 

 

January 31,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

  

                     

  

  

                     

  

  

                     

  

  

                     

  

Revenues

 

$

5,701,958

 

 

$

3,735,626

 

 

$

14,796,483

 

 

$

9,957,467

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues (exclusive of depreciation and amortization shown separately below)

 

 

2,665,664

 

 

 

1,359,131

 

 

 

6,282,814

 

 

 

3,490,046

 

General and administrative

 

 

4,677,359

 

 

 

2,133,074

 

 

 

10,975,085

 

 

 

6,228,554

 

Program review settlement expense

 

 

 

 

 

25,000

 

 

 

 

 

 

25,000

 

Depreciation and amortization

 

 

347,894

 

 

 

132,727

 

 

 

631,969

 

 

 

422,782

 

Total operating expenses

 

 

7,690,917

 

 

 

3,649,932

 

 

 

17,889,868

 

 

 

10,166,382

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (loss) income

 

 

(1,988,959

)

 

 

85,694

 

 

 

(3,093,385

)

 

 

(208,915

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income

 

 

46,179

 

 

 

1,684

 

 

 

88,067

 

 

 

3,047

 

Gain on extinguishment of warrant liability

 

 

52,500

 

 

 

 

 

 

52,500

 

 

 

 

Interest expense

 

 

(257,665

)

 

 

(80,001

)

 

 

(443,757

)

 

 

(175,662

)

Total other expense, net

 

 

(158,986

)

 

 

(78,317

)

 

 

(303,190

)

 

 

(172,615

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income before income taxes

 

 

(2,147,945

)

 

 

7,377

 

 

 

(3,396,575

)

 

 

(381,530

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(2,147,945

)

 

$

7,377

 

 

$

(3,396,575

)

 

$

(381,530

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income per share allocable to common stockholders - basic

 

$

(0.15

)

 

$

0.00

 

 

$

(0.25

)

 

$

(0.03

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income per share allocable to common stockholders - diluted

 

$

(0.15

)

 

$

0.00

 

 

$

(0.25

)

 

$

(0.03

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding: basic

 

 

14,491,634

 

 

 

11,467,345

 

 

 

13,862,992

 

 

 

11,419,270

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding: diluted

 

 

14,491,634

 

 

 

13,040,970

 

 

 

13,862,992

 

 

 

11,419,270

 



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




3



 


ASPEN GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED JANUARY 31, 2018

(Unaudited)


 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Treasury

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Deficit

 

 

Equity

 

Balance at April 30, 2017

 

 

13,504,012

 

 

$

13,504

 

 

$

33,607,423

 

 

$

(70,000

)

 

$

(25,710,687

)

 

$

7,840,240

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fees associated with equity raise

 

 

 

 

 

 

 

 

(14,033

)

 

 

 

 

 

 

 

 

(14,033

)

Restricted stock issued for services

 

 

10,000

 

 

 

10

 

 

 

88,690

 

 

 

 

 

 

 

 

 

88,700

 

Stock-based compensation

 

 

 

 

 

 

 

 

466,468

 

 

 

 

 

 

 

 

 

466,468

 

Common stock issued for acquisition

 

 

1,203,209

 

 

 

1,203

 

 

 

10,214,041

 

 

 

 

 

 

 

 

 

10,215,244

 

Common stock issued for cashless warrant exercises

 

 

162,072

 

 

 

162

 

 

 

(162

)

 

 

 

 

 

 

 

 

 

Common stock issued for warrants exercised for cash

 

 

79,442

 

 

 

79

 

 

 

143,410

 

 

 

 

 

 

 

 

 

143,489

 

Common stock issued for stock options exercised

 

 

113,597

 

 

 

114

 

 

 

455,273

 

 

 

 

 

 

 

 

 

455,387

 

Warrants issued with senior secured term loan

 

 

 

 

 

 

 

 

478,428

 

 

 

 

 

 

 

 

 

478,428

 

Net loss, for the Nine months ended January 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,396,575

)

 

 

(3,396,575

)

Balance at January 31, 2018

 

 

15,072,332

 

 

$

15,072

 

 

$

45,439,538

 

 

$

(70,000

)

 

$

(29,107,262

)

 

$

16,277,348

 



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





4



 


ASPEN GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


 

 

For the

 

 

 

Nine months ended

 

 

 

January 31,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

  

                     

  

  

                     

  

Net loss

 

$

(3,396,575

)

 

$

(381,530

)

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

 

 

 

 

 

 

 

 

Bad debt expense (recovery)

 

 

298,144

 

 

 

(25,680

)

Gain on extinguishment of warrant liability

 

 

(52,500

)

 

 

 

Depreciation and amortization

 

 

631,969

 

 

 

422,782

 

Loss on asset disposal

 

 

27,590

 

 

 

 

Stock-based compensation

 

 

466,468

 

 

 

253,833

 

Amortization of debt discounts

 

 

99,726

 

 

 

15,625

 

Amortization of prepaid shares for services

 

 

37,039

 

 

 

52,500

 

Warrant buyback expense

 

 

 

 

 

206,000

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

  

 

Accounts receivable

 

 

(4,534,118

)

 

 

(2,331,140

)

Prepaid expenses

 

 

(59,451

)

 

 

28,715

 

Accrued interest receivable

 

 

(45,400

 

 

 

Other receivables

 

 

(152,398

 

 

 

Other assets

 

 

(528,789

)

 

 

(25,241

)

Accounts payable

 

 

366,044

 

 

 

875,110

 

Accrued expenses

 

 

218,476

 

 

 

105,111

 

Deferred rent

 

 

22,087

 

 

 

17,318

 

Refunds due students

 

 

420,146

 

 

 

124,912

 

Deferred revenue

 

 

2,340,461

 

 

 

562,643

 

Other liabilities

 

 

186,134

 

 

 

 

Net cash used in operating activities

 

 

(3,654,947

)

 

 

(99,042

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Cash paid in asset acquisition

 

 

(2,589,719

)

 

 

 

Proceeds from promissory note interest receivable

 

 

53,400

 

 

 

 

Increase in restricted cash

 

 

(190,506

)

 

 

 

Purchases of courseware

 

 

(33,369

)

 

 

(6,550

)

Purchases of property and equipment

 

 

(1,171,473

)

 

 

(565,306

)

Proceeds from promissory note receivable

 

 

900,000

 

 

 

 

Net cash used in investing activities

 

 

(3,031,667

)

 

 

(571,856

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Warrant Buyback

 

 

 

 

 

(400,000

)

Borrowing of bank line of credit

 

 

 

 

 

247,000

 

Payments for bank line of credit

 

 

 

 

 

(248,783

)

Borrowing of third party line of credit

 

 

 

 

 

1,250,000

 

Third party line of credit financing costs

 

 

 

 

 

(60,000

)

Proceeds of warrant and stock options exercised

 

 

598,876

 

 

 

 

Offering costs paid on debt financing

 

 

(351,366

 

 

 

Disbursements for equity offering costs

 

 

(14,033

)

 

 

(4,017

)

Proceeds from senior secured term loan

 

 

7,500,000

 

 

 

 

Net cash provided by financing activities

 

 

7,733,477

 

 

 

784,200

 

 

 

 

 

 

 

 

 

 

Net increase in cash

 

 

1,046,863

 

 

 

113,302

 

Cash at beginning of period

 

 

2,756,217

 

 

 

783,796

 

Cash at end of period

 

$

3,803,080

 

 

$

897,098

 


(Continued)


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



5



 


ASPEN GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(Unaudited)


 

 

For the

 

 

 

Nine months ended

 

 

 

January 31,

 

 

 

2018

 

 

2017

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

316,781

 

 

$

145,105

 

Cash paid for income taxes

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

 

 

 

 

Warrants issued as part of senior secured loan

 

$

478,428

 

 

$

 

Assets acquired net of liabilities assumed for non-cash consideration

 

$

12,215,244

 

 

$

 

Common stock issued for services

 

$

 

 

$

62,002

 

Warrant derivative liability

 

$

 

 

$

52,500

 


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





6



 


ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2018

(Unaudited)


Note 1. Nature of Operations and Liquidity


Overview


˿Ƶ. (together with its subsidiaries, the “Company” or “AGI”) is a holding company, which has two subsidiaries. Aspen University Inc. (“Aspen University”) was organized in 1987 and United States University Inc. (“USU”) was formed May 2017 and certain assets were acquired and liabilities assumed on December 1, 2017. (See Note 10)


Aspen Group’s vision is to make college affordable again in America. Because we believe higher education should be a catalyst to our students’ long-term economic success, we exert financial prudence by offering affordable tuition that is one of the greatest values in online higher education. In March 2014, Aspen University unveiled a monthly payment plan aimed at reversing the college-debt sentence plaguing working-class Americans. The monthly payment plan offers bachelor students (except RN to BSN) the opportunity to pay their tuition at $250/month for 72 months ($18,000), nursing bachelor students (RN to BSN) $250/month for 39 months ($9,750), master students $325/month for 36 months ($11,700) and doctoral students $375/month for 72 months ($27,000), interest free, thereby giving students a monthly payment tuition payment option versus taking out a federal financial aid loan.


United States University (USU) began offering monthly payment plans in the summer of 2017.  Today, monthly payment plans are available for the RN to BSN program ($250/month), MBA/M.A.Ed/MSN programs ($325/month), and the MSN-FNP program ($375/month).


Since 1993, Aspen University has been nationally accredited by the Distance Education and Accrediting Council (“DEAC”), a national accrediting agency recognized by the U.S. Department of Education (the “DOE”). On February 25, 2015, the DEAC informed Aspen University that it had renewed its accreditation for five years to January, 2019.


Since 2009, USU has been regionally accredited by WASC Senior College and University Commission. (“WSCUC”).


Both universities are qualified to participate under the Higher Education Act of 1965, as amended (HEA) and the Federal student financial assistance programs (Title IV, HEA programs). USU has a provisional certification.


Basis of Presentation


A. Interim Financial Statements


The interim consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments and reclassifications and non-recurring adjustments) necessary to present fairly our results of operations for the three and nine months ended January 31, 2018 and 2017, our cash flows for the nine months ended January 31, 2018 and 2017, and our financial position as of January 31, 2018 have been made. The results of operations for such interim periods are not necessarily indicative of the operating results to be expected for the full year.


Certain information and disclosures normally included in the notes to the annual consolidated financial statements have been condensed or omitted from these interim consolidated financial statements. Accordingly, these interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Report on Form 10-K for the period ended April 30, 2017 as filed with the SEC on July 25, 2017. The April 30, 2017 balance sheet is derived from those statements.





7



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2018

(Unaudited)



B. Liquidity


At January 31, 2018, the Company had a cash balance of $3,803,080 plus $190,506 in restricted cash.


On July 25, 2017, the Company signed a $10 million senior secured term loan with Runway Growth Capital Fund (formerly known as GSV Growth Capital Fund). The Company drew $5 million under the facility at closing, with an additional $2.5 million drawn following the closing of the Company’s acquisition of substantially all the assets of United States University, including receipt of all required regulatory approvals, among other conditions to funding. Terms of the 4-year senior loan include a 10% over 3-month LIBOR per annum interest rate. (See Notes 5 and 10).  


Note 2. Significant Accounting Policies


Principles of Consolidation


The unaudited consolidated financial statements include the accounts of ˿Ƶ. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.


Use of Estimates


The preparation of the unaudited consolidated 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 in the unaudited consolidated financial statements. Actual results could differ from those estimates. Significant estimates in the accompanying unaudited consolidated financial statements include the allowance for doubtful accounts and other receivables, the valuation of collateral on certain receivables, amortization periods and valuation of courseware, intangibles and software development costs, valuation of beneficial conversion features in convertible debt, valuation of goodwill, valuation of loss contingencies, valuation of stock-based compensation and the valuation allowance on deferred tax assets.


Cash and Cash Equivalents


For the purposes of the unaudited consolidated statements of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents at January 31, 2018 and April 30, 2017. The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits of $250,000 per financial institution. The Company has not experienced any losses in such accounts from inception through January 31, 2018. As of January 31, 2018 and April 30, 2017, there were deposits totaling $3,594,104 and $2,687,461 respectively, held in two separate institutions greater than the federally insured limits.


Goodwill and Intangibles


Goodwill represents the excess of purchase price over the fair market value of assets acquired and liabilities assumed from Educacion Significativa, LLC. Goodwill has an indefinite life and is not amortized. Goodwill is tested annually for impairment.


Intangibles represent both indefinite lived and definite lived assets. Accreditation and regulatory approvals and Trade name and trademarks are deemed to have indefinite useful lives and accordingly are not amortized but are tested annually for impairment.  Student relationships and curriculums are deemed to have definite lives and are amortized accordingly.

 



8



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2018

(Unaudited)



Fair Value Measurements


Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The Company classifies assets and liabilities recorded at fair value under the fair value hierarchy based upon the observability of inputs used in valuation techniques. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions. The fair value measurements are classified under the following hierarchy:


Level 1—Observable inputs that reflect quoted market prices (unadjusted) for identical assets and liabilities in active markets;

Level 2—Observable inputs, other than quoted market prices, that are either directly or indirectly observable in the marketplace for identical or similar assets and liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets and liabilities; and

Level 3—Unobservable inputs that are supported by little or no market activity that are significant to the fair value of assets or liabilities.


The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.


Refunds Due Students


The Company receives Title IV funds from the Department of Education to cover tuition and living expenses. After deducting tuition and fees, the Company sends checks for the remaining balances to the students.


Revenue Recognition and Deferred Revenue


Revenues consist primarily of tuition and fees derived from courses taught by the Company online as well as from related educational resources that the Company provides to its students, such as access to our online materials and learning management system. Tuition revenue is recognized pro-rata over the applicable period of instruction. The Company maintains an institutional tuition refund policy, which provides for all or a portion of tuition to be refunded if a student withdraws during stated refund periods. Certain states in which students reside impose separate, mandatory refund policies, which override the Company’s policy to the extent in conflict. If a student withdraws at a time when a portion or none of the tuition is refundable, then in accordance with its revenue recognition policy, the Company recognizes as revenue the tuition that was not refunded. Since the Company recognizes revenue pro-rata over the term of the course and because, under its institutional refund policy, the amount subject to refund is never greater than the amount of the revenue that has been deferred, under the Company’s accounting policies revenue is not recognized with respect to amounts that could potentially be refunded. The Company’s educational programs have starting and ending dates that differ from its fiscal quarters. Therefore, at the end of each fiscal quarter, a portion of revenue from these programs is not yet earned and is therefore deferred. The Company also charges students annual fees for library, technology and other services, which are recognized over the related service period. Deferred revenue represents the amount of tuition, fees, and other student payments received in excess of the portion recognized as revenue and it is included in current liabilities in the accompanying consolidated balance sheets. Other revenues may be recognized as sales occur or services are performed.


The Company has revenues from students outside the United States representing 2.1% of the revenues for the quarter ended January 31, 2018.


Accounting for Derivatives


The Company evaluates its convertible instruments, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and Hedging”. The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income (expense). Upon conversion, exercise, or other extinguishment (transaction) of a derivative instrument, the instrument is marked to fair value at the transaction date and then that fair value is recognized as an extinguishment gain or loss. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liability at the fair value of the instrument on the reclassification date.



9



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2018

(Unaudited)



Business Combinations


We include the results of operations of businesses we acquire from the date of the respective acquisition. We allocate the purchase price of acquisitions to the assets acquired and liabilities assumed at fair value. The excess of the purchase price of an acquired business over the amount assigned to the assets acquired and liabilities assumed is recorded as goodwill. We expense transaction costs associated with business combinations as incurred.


Net Income (Loss) Per Share


Net income (loss) per common share is based on the weighted average number of common shares outstanding during each period. Options to purchase 2,872,546 and 1,963,481 common shares, warrants to purchase 743,773 and 934,555 common shares, and $50,000 and $350,000 of convertible debt (convertible into 4,167 and 75,596 common shares) were outstanding at January 31, 2018 and 2017, respectively, but were not included in the computation of diluted loss per share because the effects would have been anti-dilutive. The options, warrants and convertible debt are considered to be common stock equivalents and are only included in the calculation of diluted earnings per common share when their effect is dilutive, as noted in the chart below.


As required to be disclosed for quarters with net income, basic and diluted income per share for the three months ended January 31, 2017, were calculated as follows:


 

 

Basic

 

 

Diluted

 

Numerator

 

 

 

 

 

 

Net income applicable to common stock

 

$

7,377

 

 

$

7,377

 

Convertible debt interest

 

 

 

 

 

4,010

 

 

 

$

7,377

 

 

$

11,387

 

 

 

 

 

 

 

 

 

 

Denominator

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

11,467,345

 

 

 

11,467,345

 

Convertible debt

 

 

 

 

 

75,596

 

Warrants and options

 

 

 

 

 

1,498,029

 

 

 

 

11,467,345

 

 

 

13,040,970

 

 

 

 

 

 

 

 

 

 

Net income per share

 

$

0.00

 

 

$

0.00

 


Recent Accounting Pronouncements


ASU 2017-01 - In January 2017, the Financial Accounting Standards Board issued Accounting Standards Update No. 2017-01: "Business Combinations (Topic 805)-  to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance is effective for interim and annual reporting periods beginning after December 15, 2017.  The Company will implement this guidance effective February 1, 2018.


ASU 2017-04 - In January 2017, the Financial Accounting Standards Board issued Accounting Standards Update No. 2017-04: "Intangibles - Goodwill and Other (Topic 350)” - to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill.  This guidance is effective for interim and annual reporting periods beginning after December 15, 2019.  The Company is evaluating the effects of this standard on its consolidated financial statements.  


ASU 2016-02 - In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-02: “Leases (Topic 842)” whereby lessees will need to recognize almost all leases on their balance sheet as a right of use asset and a lease liability.  This guidance is effective for interim and annual reporting periods beginning after December 15, 2018.  The Company expects this ASU will increase its assets and liabilities, but have no net material impact on its consolidated financial statements.




10



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2018

(Unaudited)



ASU 2014-09 - In May 2014, the Financial Accounting Standards Board issued Update No. 2014-09: “Revenue from Contracts with Customers (Topic 606)” which requires that an entity recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.  Since the issuance of the original standard, the FASB has issued several updates to the standard which i) clarify the application of the principal versus agent guidance; ii) clarify the guidance relating to performance obligations and licensing;  iii) clarify assessment of the collectability criterion, presentation of sales taxes, measurement date for non-cash consideration and completed contracts at transaction; and iv) clarify narrow aspects of ASC 606 or corrects unintended application of the guidance. The new revenue recognition standard, amended by the updates, becomes effective in the first quarter of fiscal 2019 and is to be applied retrospectively using one of two prescribed methods.  Early adoption is permitted.  The Company currently plans to adopt the new standard effective May 1, 2018 and does not believe the adoption of this standard will have a material impact on the amount or timing of its revenues.


Note 3. Property and Equipment


As property and equipment become fully expired, the fully expired asset is written off against the associated accumulated depreciation. There is no expense impact for such write offs. Property and equipment consisted of the following at January 31, 2018 and April 30, 2017:


 

 

January 31,

 

 

April 30,

 

 

 

2018

 

 

2017

 

Call center hardware

 

$

96,305

 

 

$

53,748

 

Computer and office equipment

 

 

130,137

 

 

 

103,649

 

Furniture and fixtures

 

 

712,209

 

 

 

255,984

 

Software

 

 

2,590,297

 

 

 

2,131,344

 

 

 

 

3,528,948

 

 

 

2,544,725

 

Accumulated depreciation and amortization

 

 

(1,161,030

)

 

 

(1,090,010

)

Property and equipment, net

 

$

2,367,918

 

 

$

1,454,715

 


Software consisted of the following at January 31, 2018 and April 30, 2017:


 

 

January 31,

 

 

April 30,

 

 

 

2018

 

 

2017

 

Software

 

$

2,590,297

 

 

$

2,131,344

 

Accumulated amortization

 

 

(1,012,655

)

 

 

(994,017

)

Software, net

 

$

1,577,642

 

 

$

1,137,327

 


Depreciation and Amortization expense for all Property and Equipment as well as the portion for just software is presented below for three and nine months ended January 31, 2018 and 2017:


 

 

For the

 

 

For the

 

 

 

Three Months Ended

January 31,

 

 

Nine Months Ended

January 31,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization Expense

 

$

150,596

 

 

$

119,064

 

 

$

407,346

 

 

$

378,118

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software amortization Expense

 

$

121,695

 

 

$

105,914

 

 

$

341,825

 

 

$

342,938

 


The following is a schedule of estimated future amortization expense of software at January 31, 2018:


Year Ending April 30,

 

 

 

2018

 

$

127,811

 

2019

 

 

456,038

 

2020

 

 

386,196

 

2021

 

 

313,749

 

2022

 

 

293,848

 

Total

 

$

1,577,642

 



11



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2018

(Unaudited)



Note 4. Courseware


Courseware costs capitalized were $33,369 for the nine months ended January 31, 2018. Fully expired courseware is written off against the accumulated amortization. There is no expense impact for such write-offs.


Courseware consisted of the following at January 31, 2018 and April 30, 2017:


 

 

January 31,

 

 

April 30,

 

 

 

2018

 

 

2017

 

Courseware

 

$

283,046

 

 

$

271,777

 

Accumulated amortization

 

 

(145,489

)

 

 

(126,300

)

Courseware, net

 

$

137,557

 

 

$

145,477

 


Amortization expense of courseware for the three and nine months ended January 31, 2018 and 2017:


 

 

For the

 

 

For the

 

 

 

Three Months Ended

January 31,

 

 

Nine Months Ended

January 31,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization expense

 

$

13,966

 

 

$

13,663

 

 

$

41,289

 

 

$

44,664

 


The following is a schedule of estimated future amortization expense of courseware at January 31, 2018:


Year Ending April 30,

 

 

 

2018

 

$

14,152

 

2019

 

 

56,143

 

2020

 

 

42,301

 

2021

 

 

15,336

 

2022

 

 

9,625

 

Total

 

$

137,557

 


Note 5. Senior Secured Term Loan


On July 25, 2017, the Company signed a $10 million senior secured term loan with Runway Growth Capital Fund (formerly known as GSV Growth Capital Fund). The Company drew $5 million under the facility at closing, then subsequently drew $2.5 million following the closing of the Company’s acquisition of substantially all the assets of the United States University, including receipt of all required regulatory approvals, among other conditions to funding. Terms of the 4-year senior loan include a 10% over 3-month LIBOR per annum interest rate.


The Company will be required to begin making principal repayments upon the 24-month anniversary of the initial closing (July 24, 2019), and each month thereafter will repay 1/24th of the total loan amount outstanding.  Should the Company achieve both annualized revenue growth of at least 30% and operating margin of at least 7.5% for any 12-month trailing period, then at the quarter-end of that 12-month trailing period, the Company may elect to extend the interest only period for the quarter immediately following the 12-month trailing period throughout the duration of the loan.


Additionally, the Company paid a 0.25% origination fee on the initial $5 million draw and paid another 0.25% origination fee upon the second $2.5 million draw, will be subject to a final payment fee of 3.25% of the principal lent, and issued 224,174 5-year warrants at an exercise price of $6.87. The relative fair value of the warrants was $478,428 and was recorded as debt discount along with other direct costs of the term loan and is being amortized to interest expense over the term of the loan.




12



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2018

(Unaudited)



Note 6. Convertible Notes – Related Party


On December 1, 2017, the Company completed the acquisition of USU and, as part of the consideration, a $2.0 million convertible note (the “Note”) was issued, bearing 8% annual interest that matures over a two-year period after the closing. (See Note 10) At the option of the Note holder, on each of the first and second anniversaries of the closing date, $1,000,000 of principal and accrued interest under the Note will be convertible into shares of the Company’s common stock based on the volume weighted average price per share for the ten preceding trading days (subject to a floor of $2.00 per share) or become payable in cash. There was no beneficial conversion feature on the note date and the conversion terms of the note exempt it from derivative accounting.


Note 7. Commitments and Contingencies


Employment Agreements


From time to time, the Company enters into employment agreements with certain of its employees. These agreements typically include bonuses, some of which are performance-based in nature. As of January 31, 2018, no performance bonuses have been earned.


Legal Matters


From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of January 31, 2018, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations.


Regulatory Matters


The Company’s subsidiaries, Aspen University and United States University, are subject to extensive regulation by Federal and State governmental agencies and accrediting bodies. In particular, the Higher Education Act (the “HEA”) and the regulations promulgated thereunder by the DOE subject the subsidiaries to significant regulatory scrutiny on the basis of numerous standards that schools must satisfy to participate in the various types of federal student financial assistance programs authorized under Title IV of the HEA.


On August 22, 2017, the DOE informed Aspen University of its determination that the institution has qualified to participate under the HEA and the Federal student financial assistance programs (Title IV, HEA programs), and set a subsequent program participation agreement reapplication date of March 31, 2021.


USU currently has provisional certification to participate in the Title IV Programs due to the business combination. The provisional certification allows the school to continue to receive Title IV funding as it did prior to the change of ownership.


The HEA requires accrediting agencies to review many aspects of an institution's operations in order to ensure that the education offered is of sufficiently high quality to achieve satisfactory outcomes and that the institution is complying with accrediting standards. Failure to demonstrate compliance with accrediting standards may result in the imposition of probation, the requirements to provide periodic reports, the loss of accreditation or other penalties if deficiencies are not remediated.


Because Aspen University and USU operate in a highly regulated industry, it may be subject from time to time to audits, investigations, claims of noncompliance or lawsuits by governmental agencies or third parties, which allege statutory violations, regulatory infractions or common law causes of action.




13



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2018

(Unaudited)



Return of Title IV Funds


An institution participating in Title IV Programs must correctly calculate the amount of unearned Title IV Program funds that have been disbursed to students who withdraw from their educational programs before completion and must return those unearned funds in a timely manner, no later than 45 days of the date the school determines that the student has withdrawn. Under Department regulations, failure to make timely returns of Title IV Program funds for 5% or more of students sampled on the institution's annual compliance audit in either of its two most recently completed fiscal years can result in the institution having to post a letter of credit in an amount equal to 25% of its required Title IV returns during its most recently completed fiscal year. If unearned funds are not properly calculated and returned in a timely manner, an institution is also subject to monetary liabilities or an action to impose a fine or to limit, suspend or terminate its participation in Title IV Programs.


Subsequent to a compliance audit, USU recognized that it had not fully complied with all requirements for calculating and making timely returns of Title IV funds (R2T4).  In 2016, USU had a material finding related to the same issue and is required to maintain a letter of credit in the amount of $71,634 as a result of this finding.  The letter of credit has been provided to the Department of Education by AGI.


Delaware Approval to Confer Degrees


Aspen University is a Delaware corporation. Delaware law requires an institution to obtain approval from the Delaware Department of Education (“Delaware DOE”) before it may incorporate with the power to confer degrees. In July 2012, Aspen received notice from the Delaware DOE that it was granted provisional approval status effective until June 30, 2015. On April 25, 2016 the Delaware DOE informed Aspen University it was granted full approval to operate with degree-granting authority in the State of Delaware until July 1, 2020. Aspen University is authorized by the Colorado Commission on Education to operate in Colorado as a degree granting institution.


USU is also a Delaware corporation and is in the process of obtaining Delaware approval.


Note 8. Stockholders’ Equity


Common Stock


Effective May 24, 2017, the Company entered into waiver agreements with all of its investors in the April 2017 common stock offering. In consideration for waiving their registration rights, the Company paid to each of the investors 1.5% of their investment amount in the offering. The total amount paid was $112,500 and was recorded in general and administrative expenses during the quarter ended July 31, 2017.


In November 2017, the company issued 5,000 restricted shares each to two consultants assisting with establishing the new campus. The shares were valued at $88,700 based on the trading price of $8.87 on the grant date and recorded as a prepaid asset being amortized over the six month term of the agreement. (See Note 11)


On December 1, 2017 certain assets were acquired and certain liabilities assumed from Educacion Significativa, LLC (dba United States University) by United States University, Inc. United States University, Inc. is a wholly owned subsidiary of Aspen Group Inc. As part of the purchase price the company issued 1,203,209 shares of AGI stock were valued at the quoted closing price of $8.49 per share as of November 30, 2017. (See Note 10)




14



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2018

(Unaudited)



Warrants


A summary of the Company’s warrant activity during the nine months ended January 31, 2017 is presented below:


 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

 

 

 

Average

 

 

Remaining

 

 

Aggregate

 

 

 

Number of

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

Warrants

 

Shares

 

 

Price

 

 

Term

 

 

Value

 

Balance outstanding, April 30, 2017

 

 

914,123

 

 

$

2.82

 

 

 

1.6

 

 

$

1,100,203

 

Granted

 

 

224,174

 

 

 

6.87

 

 

 

5.0

 

 

 

307,118

 

Exercised

 

 

(356,267

)

 

 

0.55

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

Expired

 

 

(38,257

)

 

 

 

 

 

 

 

 

 

Balance outstanding, January 31, 2018

 

 

743,773

 

 

$

4.08

 

 

 

2.1

 

 

$

3,095,502

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable, January 31, 2018

 

 

743,773

 

 

$

4.08

 

 

 

2.1

 

 

$

3,095,502

 


In connection with the Senior Secured Term Loan that was finalized on July 25, 2017, the Company issued 224,174 5-year warrants at an exercise price of $6.87. (See Note 5)


The Company issued 241,514 shares of Common Stock in conjunction with the cash and cashless exercise of 356,267 warrants. The Company received $143,489 in conjunction with the cash exercises.


Stock Incentive Plan and Stock Option Grants to Employees and Directors


On March 13, 2012, the Company adopted the 2012 Equity Incentive Plan (the “Plan”) that provides for the grant of 1,691,667 shares effective November 2015, 2,108,333 shares effective June 2016 and 3,500,000 shares effective July 2017, in the form of incentive stock options, non-qualified stock options, restricted shares, stock appreciation rights and restricted stock units to employees, consultants, officers and directors. As of January 31, 2018, there were 622,454 shares remaining under the Plan for future issuance. The Company estimates the fair value of share-based compensation utilizing the Black-Scholes option pricing model, which is dependent upon several variables such as the expected option term, expected volatility of the Company’s stock price over the expected term, expected risk-free interest rate over the expected option term, expected dividend yield rate over the expected option term, and an estimate of expected forfeiture rates. The Company believes this valuation methodology is appropriate for estimating the fair value of stock options granted to employees and directors which are subject to ASC Topic 718 requirements. These amounts are estimates and thus may not be reflective of actual future results, nor amounts ultimately realized by recipients of these grants. The Company recognizes compensation on a straight-line basis over the requisite service period for each award. The following table summarizes the assumptions the Company utilized to record compensation expense for stock options granted to employees during the nine months ended January 31, 2018.


 

 

 

 

 

January 31,

 

 

 

 

 

 

2018

 

Expected life (years)

 

 

 

 

 

 

4-6.5

 

Expected volatility

 

 

 

 

 

 

40-43

%

Risk-free interest rate

 

 

 

 

 

 

0.00

%

Dividend yield

 

 

 

 

 

 

n/a

 


The Company utilized the simplified method to estimate the expected life for stock options granted to employees. The simplified method was used as the Company does not have sufficient historical data regarding stock option exercises. The expected volatility is based on the average of the expected volatilities from the most recent audited financial statements available for comparative public companies that are deemed to be similar in nature to the Company. The risk-free interest rate is based on the U.S. Treasury yields with terms equivalent to the expected life of the related option at the time of the grant. Dividend yield is based on historical trends. While the Company believes these estimates are reasonable, the compensation expense recorded would increase if the expected life was increased, a higher expected volatility was used, or if the expected dividend yield increased.




15



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2018

(Unaudited)



A summary of the Company’s stock option activity for employees and directors during the nine months ended January 31, 2018, is presented below:


 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

 

 

 

Average

 

 

Remaining

 

 

Aggregate

 

 

 

Number of

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

Options

 

Shares

 

 

Price

 

 

Term

 

 

Value

 

Balance outstanding, April 30, 2017

 

 

2,097,384

 

 

$

1.86

 

 

 

2.7

 

 

$

12,489,871

 

Granted

 

 

844,000

 

 

$

3.53

 

 

 

3.4

 

 

 

1,867,740

 

Exercised

 

 

(63,838

)

 

$

3.13

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

Expired

 

 

 

 

 

 

 

 

 

 

 

 

Balance outstanding, January 31, 2018

 

 

2,877,546

 

 

$

3.52

 

 

 

3.24

 

 

$

17,658,268

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable, January 31, 2018

 

 

1,083,484

 

 

$

2.22

 

 

 

2.07

 

 

$

8,727,757

 


On May 13, 2017, the Company granted its executive officers a total of 500,000 five-year options to purchase shares of the Company’s common stock under the Plan. The options vest annually over three years, subject to continued employment at each applicable vesting date, and are exercisable at $4.90 per share. The Chairman and Chief Executive Officer received 200,000 options with a fair value of $282,000, the Chief Operating Officer received 200,000 options with a fair value of $282,000, the Chief Academic Officer received 70,000 options with a fair value of $98,700 and the Chief Financial Officer received 30,000 options with a fair value of $42,300.


In May 2017, the Company issued 5,500 stock options to various employees at exercise prices ranging from $4.95 to $5.10 per share.


Effective June 11, 2017, the Company granted the Chief Academic Officer 30,000 five-year options. The options vest quarterly over a three-year period in 12 equal quarterly increments with the first vesting date being September 11, 2017, subject to continued employment on each applicable vesting date. The options are exercisable at $6.28 per share and the fair value is $54,000.


On August 21, 2017, 53,000 options were issued to 26 employees with an exercise price of $5.95 per share and a fair value of $90,630.


On January 4, 2018, 180,000 options were issued to the board of directors with an exercise price of $9.07 per share and a fair value of $421,200.


On January 14, 2018, 75,500 options were issued to employees with an exercise price of $8.57 per share and a fair value of $152,510.


During the nine months ended January 31, 2018, the company issued 113,597 shares of common stock in conjunction with the exercise of 63,838 stock options. The company received $455,387 related to these exercises.


As of January 31, 2018, there was $1,474,855 of unrecognized compensation costs related to nonvested share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of 2.0 years.


The Company recorded compensation expense of $466,468 and $253,833 for the nine months ended January 31, 2018 and 2017, respectively, in connection with stock options.


Note 9. Related Party Transactions


See Note 6 for discussion of convertible notes payable to a related party.




16



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2018

(Unaudited)



Note 10 – Acquisition of USU


On December 1, 2017 certain assets were acquired and certain liabilities assumed from Educacion Significativa, LLC (dba United States University) by United States University, Inc. United States University, Inc. is a wholly owned subsidiary of Aspen Group Inc. (“AGI”) and was set up for purposes of finalizing the asset purchase transaction.  For purposes of purchase accounting, ˿Ƶ. is referred to as the acquirer. ˿Ƶ. acquired the assets and assumed the liabilities of Educacion Significativa, LLC (dba United States University) for a purchase price of approximately $14.8 million. The purchase consideration consisted of a cash payment of $2,500,000 less an adjustment for working capital of approximately $110,000 plus approximately $200,000 of additional costs paid to/on behalf of and for the benefit of the seller, a convertible note of $2,000,000 and 1,203,209 shares of AGI stock valued at the quoted closing price of $8.49 per share as of November 30, 2017. The stock consideration represents $10,215,244 of the purchase consideration.


The acquisition was accounted for by AGI in accordance with the acquisition method of accounting pursuant to ASC 805 “Business Combinations” and pushdown accounting was applied to record the fair value of the assets acquired and liabilities assumed on United States University, Inc. Under this method, the purchase price is allocated to the identifiable assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the amount paid over the estimated fair values of the identifiable net assets was $5,011,432 which has been reflected in the balance sheet as goodwill.


The following is a summary of the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition:


 

 

Purchase Price Allocation

 

 

Useful Life

 

Cash and cash equivalents

 

$

 

 

 

 

Current assets acquired

 

 

244,465

 

 

 

 

 

Other assets acquired

 

 

176,667

 

 

 

 

 

Intangible assets

 

 

 

 

 

 

 

 

Accreditation and regulatory approvals

 

 

6,200,000

 

 

 

 

 

Trade name and trademarks

 

 

1,700,000

 

 

 

 

 

Student relationships

 

 

2,000,000

 

 

2 years

 

Curriculum

 

 

200,000

 

 

1 year

 

Goodwill

 

 

5,011,432

 

 

 

 

 

Less: Current liabilities assumed

 

 

(727,601

)

 

 

 

 

Total purchase price

 

$

14,804,963

 

 

 

 

 


We determined the fair value of assets acquired and liabilities assumed based on assumptions that reasonable market participants would use while employing the concept of highest and best use of the respective items. We used the following assumptions, the majority of which include significant unobservable inputs (Level 3), and valuation methodologies to determine fair value:


·

Intangibles - We used the multiple period excess earnings method to value the Accreditation and regulatory approvals. The Trade name and trademarks were valued using the relief-from-royalty method, which represents the benefit of owning these intangible assets rather than paying royalties for their use. The Student relationships were valued using the excess earnings method.  The curriculum was valued using the replacement cost approach.

·

Other assets and liabilities - The carrying value of all other assets and liabilities approximated fair value at the time of acquisition.


The goodwill resulting from the acquisition may become deductible for tax purposes in the future.  The goodwill resulting from the acquisition is principally attributable to the future earnings potential associated with enrollment growth and other intangibles that do not qualify for separate recognition such as the assembled workforce.


We have selected an April 30th annual goodwill impairment test date.




17



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2018

(Unaudited)



We assigned an indefinite useful life to the accreditation and regulatory approvals and the trade name and trademarks as we believe they have the ability to generate cash flows indefinitely. In addition, there are no legal, regulatory, contractual, economic or other factors to limit the intangibles’ useful life and we intend to renew the intangibles, as applicable, and renewal can be accomplished at little cost. We determined all other acquired intangibles are finite-lived and we are amortizing them on either a straight-line basis or using an accelerated method to reflect the pattern in which the economic benefits of the assets are expected to be consumed. Amortization for the period of inception through January 31, 2018 was $183,333.


The expected benefits from the business acquisition will allow USU, Inc. to achieve its vision of making college affordable again on a much broader scale along with providing various accreditations.


The Company is in the process of completing its accounting and valuations of USU, Inc. and accordingly, the estimated fair values and allocation of purchase price noted above is provisional pending the final valuation of the assets acquired and liabilities assumed which will not exceed one-year in accordance with ASC 805.


The total acquisition costs that AGI incurred was approximately $1,050,000, of which approximately $200,000 was incurred in the fiscal year ended April 30, 2017 and $850,000 was incurred in the current year.  


The results of operations of USU are included in the Company’s consolidated statement of operations from the date of acquisition of December 1, 2017. The following supplemental unaudited pro forma combined information assumes that the acquisitions had occurred as of the beginning of each period present:


 

 

For the Year Ended
April 30,
2017

 

 

For the Nine Months Ended
October 31,
2017

 

 

 

(unaudited)

 

 

(unaudited)

 

Revenue

 

$

18,038,474

 

 

$

10,719,546

 

Net Loss 

 

$

(5,444,205

)

 

$

(3,521,086

)

Loss per common share- basic and diluted

 

$

(0.47

)

 

 

$(0.26

)


The pro forma financial information is not necessarily indicative of the results that would have occurred if these acquisitions had occurred on the dates indicated or that result in the future.

 

Note 11. Subsequent Events

 

On February 20, 2018, AGI announced that Aspen University is entering the pre-licensure Bachelor of Science in Nursing (BSN) degree program business. Aspen’s first campus will be located in Phoenix, Arizona and the university is targeting to begin enrolling students for the upcoming summer semester.


Aspen’s pre-licensure BSN program is offered as a full-time, three-year (nine semester) program that is specifically designed for students who do not currently hold a state nursing license and have no prior nursing experience. Aspen will admit students into three tracks; 1) High school graduates with no prior college credits, 2) students that have less than 48 general education prerequisites completed, and 3) students that have completed all 48 general education prerequisite credits and are ready to enter the core Nursing courses and clinical experiences.


Related to that announcement, Aspen University has entered into a 92 month lease for a total of 38,014 rentable square feet in a building complex in Phoenix for both the pre-licensure program and the enrollment center. The lease commencement date is expected to be in the spring of 2018 and upon commencement, the monthly payments will be approximately $67,000 per month subject to escalation terms.  During the quarter ended 1-31-18, the Company paid a deposit of $519,000.  


 






18



 


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.


You should read the following discussion in conjunction with our consolidated financial statements, which are included elsewhere in this Form 10-Q. Management’s Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed in the Risk Factors contained in the Annual Report on Form 10-K filed on July 25, 2017 with the Securities and Exchange Commission, or the SEC.


All references to “we,” “our,” “us,” “AGI,” and “Aspen” refer to ˿Ƶ. and its subsidiaries, Aspen University Inc. (“Aspen University”) and United States University Inc. (“USU”), unless the context otherwise indicates.


Company Overview


˿Ƶ. (together with its subsidiaries, the “Company” or “AGI”) is a holding company. AGI has two subsidiaries, Aspen University Inc. (“Aspen University”) organized in 1987 and United States University Inc. (“USU”). On March 13, 2012, the Company was recapitalized in a reverse merger.


Aspen Group’s vision is to make college affordable again in America. Because we believe higher education should be a catalyst to our students’ long-term economic success, we exert financial prudence by offering affordable tuition that is one of the greatest values in online higher education. In March 2014, Aspen University unveiled a monthly payment plan aimed at reversing the college-debt sentence plaguing working-class Americans. The monthly payment plan offers bachelor students (except RN to BSN) the opportunity to pay their tuition at $250/month for 72 months ($18,000), nursing bachelor students (RN to BSN) $250/month for 39 months ($9,750), master students $325/month for 36 months ($11,700) and doctoral students $375/month for 72 months ($27,000), interest free, thereby giving students a monthly payment tuition payment option versus taking out a federal financial aid loan.


United States University (USU) began offering monthly payment plans in the summer of 2017. Today, monthly payment plans are available for the RN to BSN program ($250/month), MBA/M.A.Ed/MSN programs ($325/month), and the MSN-FNP program ($375/month).


Since 1993, Aspen University has been nationally accredited by the Distance Education and Accrediting Council (“DEAC”), a national accrediting agency recognized by the U.S. Department of Education (the “DOE”). On February 25, 2015, the DEAC informed Aspen University that it had renewed its accreditation for five years to January, 2019.


Since 2009, USU has been regionally accredited by WASC Senior College and University Commission. (“WSCUC”).


Both universities are qualified to participate under the Higher Education Act of 1965, as amended (HEA) and the Federal student financial assistance programs (Title IV, HEA programs).


AGI Student Population Overview*


Aspen University’s active degree-seeking student body increased year-over-year by 49% during the fiscal quarter ended January 31, 2018, from 4,064 to 6,066 students. United States University’s (USU’s) active degree-seeking student body grew from 212 to 446 students or an increase of 110% from May, 2017 to January, 2018, highlighted by the College of Nursing growing to 326 students which now represents 73% of USU’s total active student body.


Aspen University’s most popular school is also its School of Nursing, which represents 73% of Aspen’s total active student body, similar to USU. Aspen’s School of Nursing grew from 2,899 to 4,401 student’s year-over-year, which represented 75% of Aspen’s active degree-seeking student body growth. At January 31, 2018, Aspen’s School of Nursing included 2,869 active students in the RN to BSN program and 1,532 active students in the MSN program, RN to MSN Bridge program, or DNP program.


 

 

Aspen University

 

 

United States University

 

 

 

Q3 FY’2018

 

 

Q3 FY’2018

 

New Student Enrollments

 

 

1,164

 

 

 

103

**

Active Student Body

 

 

6,066

 

 

 

446

 

-College of Nursing Students

 

 

4,401

 

 

 

326

 

Monthly Payment Method Students

 

 

4,194

 

 

 

204

 


*

Note: “Active Degree-Seeking Students” are defined as degree-seeking students who were enrolled in a course during the quarter reported, or are registered for an upcoming course.



19



 



**

Enrollment results for the two month period from December 1, 2017 – January 31, 2018.


Aspen University New Student Enrollment and Active Degree Seeking Student Body Growth


Since the launch of the BSN marketing campaign in November, 2014, Aspen University’s growth rate of new student enrollments has accelerated significantly. Below is a quarterly analysis of the growth of Aspen University’s new student enrollments, as well as the growth of the active degree seeking student body over the past seven quarters, including the recent quarter ending January 31, 2018.


 

 

New Student Enrollments

 

Active Degree Seeking Student Body*

Fiscal quarter end July 31, 2016

 

621

 

3,252

Fiscal quarter end October 31, 2016

 

811

 

3,726

Fiscal quarter end January 31, 2017

 

825

 

4,064

Fiscal quarter end April 30, 2017

 

986

 

4,681

Fiscal quarter end July 31, 2017

 

1,025

 

5,015

Fiscal quarter end October 31, 2017

 

1,255

 

5,641

Fiscal quarter end January 31, 2018

 

1,164

 

6,066


Aspen University Revenue Summary


Below is a summary of the nursing active degree-seeking student body as a percentage of the total active degree-seeking student body over the past six fiscal quarters.


 

 

Total Degree-Seeking Active Student Body

 

 

Nursing Degree- Seeking Active Student Body

 

 

Nursing Degree-Seeking Active Student Body (%)

 

 

Quarter ended October 31, 2016

 

 

3,726

 

 

 

2,538

 

 

 

68

%

 

Quarter ended January 31, 2017

 

 

4,064

 

 

 

2,899

 

 

 

71

%

 

Quarter ended April 30, 2017

 

 

4,681

 

 

 

3,363

 

 

 

72

%

 

Quarter ended July 31, 2017

 

 

5,015

 

 

 

3,569

 

 

 

71

%

 

Quarter ended October 31, 2017

 

 

5,641

 

 

 

4,068

 

 

 

72

%

 

Quarter ended January 31, 2018

 

 

6,066

 

 

 

4,401

 

 

 

73

%

 


Monthly Payment Programs Overview


Since the March 2014 monthly payment plan announcement, 69% of Aspen University’s courses are now paid through monthly payment methods (based on courses started over the last 90 days). Aspen offers two monthly payment programs, a monthly payment plan in which students make payments every month over a fixed period (36, 39 or 72 months depending on the degree program), and a monthly installment plan in which students pay three monthly installments (day 1, day 31 and day 61 after the start of each course).


As of January 31, 2018, Aspen University had a total of 4,194 active students paying tuition through a monthly payment method of which 3,901 active students are paying through a monthly payment plan, and 293 students are paying through a monthly installment plan. Additionally, Aspen University is currently projecting to add approximately 120 active students/month net to its monthly payment programs through fiscal year 2018. The total contractual value of Aspen University’s monthly payment plan students now exceeds $35 million which currently delivers monthly recurring tuition cash payments of approximately $1,000,000.


Finally, as a consequence of monthly payment programs becoming the payment method of choice among the majority of Aspen’s degree-seeking student body, our HEA, Title IV Program revenue dropped from 25% of total cash receipts in fiscal year 2016 to 21% for fiscal year 2017.




20



 


Marketing Efficiency Analysis


Aspen has developed a marketing efficiency ratio to continually monitor the performance of its business model.


Revenue per Enrollment (RPE)

Marketing Efficiency Ratio =

—————————————

Cost per Enrollment (CPE)


Cost per Enrollment (CPE)

The Cost per Enrollment measures the marketing investment spent in a given quarter, divided by the number of new student enrollments achieved in that given quarter, in order to obtain an average CPE for the quarter measured.


Revenue per Enrollment (RPE)

The Revenue per Enrollment takes each quarterly cohort of new degree-seeking student enrollments, and measures the amount of earned revenue including tuition and fees to determine the average RPE for the cohort measured. For the later periods of a cohort, in particular students four years or older, we have used reasonable projections based off of historical results to determine the amount of revenue we will earn in later periods of the cohort.


We created the reporting to track the CPE and RPE starting in 2012 and can accurately predict the CPE and RPE for each new student cohort. Our current CPE/RPE Marketing Efficiency Ratio is reflected in the below table.


Quarterly New Student Cohort Actuals Data:


CPE/RPE Analysis *

6 Months Out

12 Months Out

2 Years Out

3 Years Out

4+ Years Out

 

 

 

 

 

 

Courses completed

2.24

3.52

5.28

6.48

8

 

 

 

 

 

 

Average RPE

$1,974

$3,078

$4,630

$5,684

$7,000

 

 

 

 

 

 

RPE % earned

28%

44%

66%

81%

100%

 

 

 

 

 

 

Marketing efficiency ratio**

2.3x

3.5x

5.3x

6.5x

8.0x


*

Projection

**

Based on current $876 CPE (six month rolling CPE average)

 

 

 

 


The average RPE is approximately $7,000. Of the $7,000, $6,400 of the RPE is earned through tuition, with the remaining $600 on average earned through miscellaneous fees (includes annual technology fee, withdrawal fees, graduation fees, proctored exams, course specific fees, etc.)


Aspen is projecting to average a Marketing Efficiency Ratio of 8.0x, in other words an 8.0x return on our marketing investment. Third-party companies in the higher education industry that manage the Enrollment and Marketing functions on behalf of Universities (also referred to as Managed Services companies) reportedly average 3-4x return on their marketing investments, meaning that Aspen’s business model is currently performing at approximately double the efficiency level of that sector.


Results of Operations


For the Quarter Ended January 31, 2018 Compared with the Quarter Ended January 31, 2017

 

Revenue


Revenue from operations for the quarter ended January 31, 2018 (“2018 Quarter”) increased to $5,701,958 from $3,735,626 for the quarter ended January 31, 2017 (“2017 Quarter”), an increase of $1,966,332 or 53%.



21



 


Cost of Revenues (exclusive of amortization)


The Company’s cost of revenues consists of instructional costs and services and sales and marketing costs.


Instructional Costs and Services


Instructional costs and services for the 2018 Quarter rose to $1,196,949 from $694,884 for the 2017 Quarter, an increase of $502,065 or 72%. Instructional costs and services for the 2018 Quarter as a percentage of revenue was 21% as compared to 19% for the 2017 Quarter.  


Sales and Marketing

 

Sales and marketing costs for the 2018 Quarter were $1,468,715 compared to $664,247 for the 2017 Quarter, an increase of $804,468 or 121%. The Company expects marketing and promotional costs to rise in future periods, given we expect to increase monthly marketing spend to over $600,000 during the next fiscal year. In addition, this increase is partially attributed to the addition of an outside sales force of 9 representatives and those salaries and benefits are included in the 2018 Quarter numbers.


Gross Profit was 51% of revenues or $2,900,633 for the 2018 Quarter as compared to 60% of revenues or $2,256,918 for the 2017 Quarter. The reasons for the change are reflected in the individual expense items described above.


Costs and Expenses


General and Administrative


General and Administrative costs for the 2018 Quarter were $4,677,359 compared to $2,133,074 during the 2017 Quarter, an increase of $2,544,285 or 119%. General and Administrative costs as a percentage of revenue for the 2018 Quarter was 82% compared to 57% during the 2017 quarter.  


The Company incurred $610,219 of one-time costs directly related to the USU acquisition. Excluding the $610,219 one-time USU acquisition expenses, G&A increased sequentially by $900,750. The acquisition of United States University accounted for over three-quarters of the G&A increase, as the company’s non-faculty full-time staff rose from 110 to 142 employees. The majority of the remaining increase was a one-time expense of legal fees related to the HEMG NJ bankruptcy proceeding in which the company is a creditor.


Aspen University also recorded $100,000 as a bad debt reserve, an increase reflective of the increase in revenue and students paying by monthly plans.


Depreciation and Amortization


Depreciation and amortization costs for the 2018 Quarter rose to $347,894 from $132,727 for the 2017 Quarter, an increase of $215,167 or 162%. This increase is substantially due to the amortization of intangible assets from the purchase of USU.


Other Expense, net


Other expense, net for the 2018 Quarter increased to $158,986 from $78,317 in the 2017 Quarter, an increase of $80,669 or 103%. This increase is due to interest paid on the credit facility.


Income Taxes

 

Income taxes expense (benefit) for the comparable years was $0 as Aspen Group experienced operating losses in both periods. As management made a full valuation allowance against the deferred tax assets stemming from these losses, there was no tax benefit recorded in the statement of operations in both periods.


Net Income (Loss)

 

Net loss for 2018 Quarter was ($2,147,945) as compared to income of $7,377 for the 2017 Quarter, a decrease of $2,155,322. In the 2018 Quarter, the results for USU have been included as well as all of the costs associated with the acquisition.




22



 


For the Nine Months Ended January 31, 2018 Compared with the Nine Months Ended January 31, 2017

 

Revenue


Revenue from operations for the nine months ended January 31, 2018 (“2018 Period”) increased to $14,796,483 from $9,957,467 for the nine months ended January 31, 2017 (“2017 Period”), an increase of $4,839,016 or 49%.


Cost of Revenues (exclusive of amortization)


The Company’s cost of revenues consists of instructional costs and services and sales and marketing costs.


Instructional Costs and Services


Instructional costs and services for the 2018 Period rose to $2,893,818 from $1,701,945 for the 2017 Period, an increase of $1,191,873 or 70%.


Sales and Marketing

 

Sales and marketing for the 2018 Period were $3,388,996 from $1,788,101 for the 2017 Period, an increase of $1,600,895 or 90%. The Company expects sales and marketing to rise in future periods, given we expect to increase monthly marketing spend to over $600,000 during the 2019 fiscal year.


Gross Profit rose to $8,513,669 for the 2018 Period from $6,467,421 for the 2017 Period. The reasons for the change are reflected in the individual expense items described above.


Costs and Expenses


General and Administrative


General and administrative costs for the 2018 Period were $10,975,085 compared to $6,228,554 during the 2017 Period, an increase of $4,746,531 or 76%.


Depreciation and Amortization


Depreciation and amortization costs for the 2018 Period increased to $631,969 from $422,782 for the 2017 Period, an increase of $209,187 or 49%.


Other Income (Expense)


Other expense increased to ($303,190) from ($172,615), an increase of $130,575 or 76%. This increase is primarily due to interest paid on the credit facility. Other income increased to $140,567 from $1,684, primarily due to the interest income earned on the $900,000 promissory note from USU and from the release of the warrant derivative liability of $52,500.


Income Taxes

 

Income taxes expense (benefit) for the 2018 Period and 2017 Period was $0 as Aspen Group experienced operating losses in both periods. As management made a full valuation allowance against the deferred tax assets stemming from these losses, there was no tax benefit recorded in the statement of operations in both periods.


Net Loss

 

Net loss for the 2018 Period was ($3,396,575) as compared to ($381,530) for the 2017 Period, an increase in the loss of $3,015,045.




23



 


Non-GAAP – Financial Measures


The following discussion and analysis includes both financial measures in accordance with Generally Accepted Accounting Principles, or GAAP, as well as non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flows that either excludes or includes amounts that are not normally included or excluded in the most directly comparable measure calculated and presented in accordance with GAAP. Non-GAAP financial measures should be viewed as supplemental to, and should not be considered as alternatives to net income, operating income, and cash flow from operating activities, liquidity or any other financial measures. They may not be indicative of the historical operating results of AGI nor are they intended to be predictive of potential future results. Investors should not consider non-GAAP financial measures in isolation or as substitutes for performance measures calculated in accordance with GAAP.


Our management uses and relies on EBITDA and Adjusted EBITDA, which are non-GAAP financial measures. We believe that both management and shareholders benefit from referring to the following non-GAAP financial measures in planning, forecasting and analyzing future periods. Our management uses these non-GAAP financial measures in evaluating its financial and operational decision making and as a means to evaluate period-to-period comparison. Our management recognizes that the non-GAAP financial measures have inherent limitations because of the described excluded items.


AGI defines Adjusted EBITDA as earnings (or loss) from operations before the items in the table below including non-recurring charges of $85,853. Adjusted EBITDA is an important measure of our operating performance because it allows management, investors and analysts to evaluate and assess our core operating results from period-to-period after removing the impact of items of a non-operational nature that affect comparability.


We have included a reconciliation of our non-GAAP financial measures to the most comparable financial measure calculated in accordance with GAAP. We believe that providing the non-GAAP financial measures, together with the reconciliation to GAAP, helps investors make comparisons between Aspen Group and other companies. In making any comparisons to other companies, investors need to be aware that companies use different non-GAAP measures to evaluate their financial performance. Investors should pay close attention to the specific definition being used and to the reconciliation between such measure and the corresponding GAAP measure provided by each company under applicable SEC rules.


The following table presents a reconciliation of EBITDA and Adjusted EBITDA to net income (loss) allocable to common shareholders, a GAAP financial measure:


 

 

For the Quarters Ended

 

 

 

January 31,

 

 

 

2018

 

 

2017

 

Net income (loss)

 

$

(2,147,945

)

 

$

7,377

 

Interest expense, net of interest income

 

 

211,486

 

 

 

78,317

 

Depreciation & amortization

 

 

347,894

 

 

 

132,727

 

EBITDA (loss)

 

 

(1,588,565

)

 

 

218,421

 

Bad debt expense

 

 

132,644

 

 

 

(25,680

Acquisition expense

 

 

610,219

 

 

 

 

Non-recurring charges

 

 

85,853

 

 

 

146,809

 

Stock-based compensation

 

 

162,544

 

 

 

96,498

 

Adjusted EBITDA (Loss)

 

$

(597,305

)

 

$

436,048

 




24



 


Liquidity and Capital Resources


A summary of our cash flows is as follows:


 

 

For the

 

 

 

Nine Months Ended

 

 

 

January 31,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

Net cash used in operating activities

 

$

(3,654,947

)

 

$

(99,042

)

Net cash used in investing activities

 

 

(3,031,667

)

 

 

(571,856

)

Net cash provided by financing activities

 

 

7,733,477

 

 

 

784,200

 

Net increase in cash and cash equivalents

 

$

1,046,863

 

 

$

113,302

 


Net Cash Provided by (Used in) Operating Activities


Net cash used in operating activities during the 2018 Period totaled ($3,654,947) and resulted primarily by the net loss of ($3,396,575), offset by approximately $1,200,000 in non-cash items and approximately $1,100,000 decrease in operating assets and liabilities. The most significant item change operating assets and liabilities was an increase in accounts receivable of $4,534,118 which is primarily attributed to the growth in revenues from students paying through the monthly payment plan. The most significant non-cash items were depreciation and amortization expense of $631,969 and stock compensation expense of $466,468.


Net cash used in operating activities during the 2017 Period totaled ($99,042) and resulted primarily by non-cash items of $925,740 and a net change in operating assets and liabilities of ($668,252), reduced by the net loss of $381,530. The most significant item change operating assets and liabilities was an increase in accounts receivable of $2,331,140 which is primarily attributed to the growth in revenues from students paying through the monthly payment plan. The most significant non-cash items were depreciation and amortization expense of $422,782 and stock compensation expense of $253,833.


Net Cash Provided by (Used in) Investing Activities


Net cash used in investing activities during the 2018 Period totaled ($3,031,667) mostly attributed to cash paid in the USU acquisition and the purchase of property and equipment.


Net cash used in investing activities during the 2017 Period totaled ($571,856) mostly attributed to the increase in software.


Net Cash Provided By (Used In) Financing Activities


Net cash provided by financing activities during the 2018 Period totaled $7,733,477 which reflects primarily the cash provided by the senior secured term loan.


Net cash provided by financing activities during the 2017 Period totaled $784,200 which reflects the increase due to the new $3,000,000 line of credit, of which $1,250,000 has been drawn, offset by the buyback of warrants for $400,000.


Liquidity and Capital Resource Considerations


Historically, our primary source of liquidity is cash receipts from tuition and the issuances of debt and equity securities. More recently, we were able to secure traditional non-convertible debt. The primary uses of cash are payroll related expenses, professional expenses, and instructional and marketing expenses. We did issue a convertible note as part of the USU purchase price since the seller wanted the potential for capital appreciation and required part of the purchase price evidenced by a convertible note. On July 25, 2017, the Company finalized a $10 million senior secured term loan, $5 million of which was funded at the close and $2.5 million with the closing of the USU acquisition.


As of March 15, 2018, the Company had a cash balance of approximately $3.7 million. With the cash from the Company’s senior secured term loan of $10 million in total (of which $7.5 million has been funded) and the growth in the Company revenues, the Company believes that it has sufficient cash to allow the Company to meet its operational expenditures for at least the next 12 months.

 



25



 


Our cash balances are kept liquid to support our growing infrastructure needs. The majority of our cash is concentrated in large financial institutions.


Critical Accounting Policies and Estimates


In response to financial reporting release FR-60, Cautionary Advice Regarding Disclosure About Critical Accounting Policies, from the SEC, we have selected our more subjective accounting estimation processes for purposes of explaining the methodology used in calculating the estimate, in addition to the inherent uncertainties pertaining to the estimate and the possible effects on our financial condition. There were no material changes to our principal accounting estimates during the period covered by this report.


Related Party Transactions


See Note 9 to the unaudited consolidated financial statements included herein for additional description of related party transactions that had a material effect on our unaudited consolidated financial statements.


Off Balance Sheet Arrangements

 

We do not engage in any activities involving variable interest entities or off-balance sheet arrangements.


New Accounting Pronouncements


See Note 2 to our unaudited consolidated financial statements included herein for discussion of recent accounting pronouncements.


Cautionary Note Regarding Forward Looking Statements


This report contains forward-looking statements including statements regarding student growth, projected Marketing Efficiency Ratio, overall growth and liquidity. All statements other than statements of historical facts contained in this report, including statements regarding our future financial position, liquidity, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.

 

The results anticipated by any or all of these forward-looking statements might not occur. Important factors that could cause actual results to differ from those in the forward-looking statements include the failure to maintain regulatory approvals, regulatory issues, competition, ineffective media and/or marketing, failure to maintain growth in degree seeking students and the integration of USU. Further information on our risk factors is contained in our filings with the SEC, including the Form 10-K filed on July 25, 2017. Any forward-looking statement made by us in this report speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.


ITEM 4. CONTROLS AND PROCEDURES


Evaluation of Disclosure Controls and Procedures. Our management carried out an evaluation, with the participation of our Principal Executive Officer and Principal Financial Officer, required by Rule 13a-15 or 15d-15 of the Securities Exchange Act of 1934 (the “Exchange Act”) of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act. Based on their evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.




26



 


PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. There were no material changes to our legal proceedings as described in the Company’s Form 10-K during the period covered by this report.   


ITEM 1A. RISK FACTORS


Not applicable to smaller reporting companies.


ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

From November 1, 2017, to January 31, 2018, 87,470 shares were issued in connection with the cashless exercise of 178,917 warrants with exercise prices ranging from 3.99 to 6.00 per share.  These securities were issued without registration under the Securities Act of 1933 in reliance upon the exemption provided in Section 3(a)(9) thereunder.


From November 1, 2017 to January 31, 2018, 64,584 shares were issued in connection with the exercise of warrants with exercise prices ranging from $2.40 to $6.00 per share.  The Company received $162,504 from these cash exercises. During the quarter ended January 31, 2018, 5,000 shares of common stock were issued to each of two consultants working on the Arizona campus initiative. These securities were issued without registration under the Securities Act of 1933 in reliance upon the exemption provided in Section 4(a)(2) and Rule 506(b) thereunder.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.


ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION


Not applicable.


ITEM 6. EXHIBITS

 

See the Exhibit Index at the end of this report.





27



 


SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


 

˿Ƶ.

 

 

 

 

 

March 15, 2018

By:

/s/ Michael Mathews

 

 

 

Michael Mathews

 

 

 

Chief Executive Officer

 

 

 

(Principal Executive Officer)

 

 

 

 

 


March 15, 2018

By:

/s/ Janet Gill

 

 

 

Janet Gill

 

 

 

Chief Financial Officer

 

 

 

(Principal Financial Officer)

 

 

 

 

 

 







28



 


EXHIBIT INDEX


 

 

 

 

 

Incorporated by Reference

 

Filed or Furnished

Exhibit #

 

Exhibit Description

 

 

Form

 

Date

 

 

Number

 

Herewith

3.1

   

  

 

10-Q

   

3/9/17

  

 

3.1

   

 

3.2

 

Bylaws, as amended

 

 

 

 

 

 

 

 

 

Filed

4.1

 

 

 

8-K

 

12/1/17

 

 

4.1

 

 

10.1

 

 

 

10-Q

 

3/9/17

 

 

10.1

 

 

10.2

 

 

 

8-K

 

7/28/17

 

 

10.1

 

 

10.3

 

 

 

8-K

 

7/28/17

 

 

10.2

 

 

10.4

 

 

 

8-K

 

7/28/17

 

 

10.3

 

 

10.5

 

 

 

10-Q

 

9/14/17

 

 

10.4

 

 

10.6

 

 

 

10-K

 

7/25/17

 

 

10.1

 

 

10.7

 

 

 

8-K

 

6/15/17

 

 

10.1

 

 

10.8

 

 

 

8-K

 

5/18/17

 

 

10.1

 

 

10.9

 

 

 

10-K

 

7/28/15

 

 

10.19

 

 

10.10

 

 

 

10-K

 

7/28/15

 

 

10.18

 

 

10.11

 

2012 Equity Incentive Plan, as amended*

 

 

 

 

 

 

 

 

 

Filed

10.12

 

 

 

8-K

 

4/10/17

 

 

10.1

 

 

10.13

 

 

 

8-K

 

5/30/17

 

 

10.1

 

 

10.14

 

 

 

8-K

 

4/10/17

 

 

10.2

 

 

10.15

 

 

 

8-K

 

9/7/16

 

 

2.1

 

 

10.16

 

 

 

8-K

 

9/7/16

 

 

2.2

 

 

10.17

 

 

 

8-K

 

9/7/16

 

 

3.1

 

 

10.18

 

 

 

10-K

 

7/27/16

 

 

10.4

 

 

10.19

 

 

 

10-K

 

7/27/16

 

 

10.19

 

 

31.1

 

Certification of Principal Executive Officer (302)

 

 

 

 

 

 

 

 

 

Filed

31.2

 

Certification of Principal Financial Officer (302)

 

 

 

 

 

 

 

 

 

Filed

32.1

 

Certification of Principal Executive and Principal Financial Officer (906)

 

 

 

 

 

 

 

 

 

Furnished**

101.INS

 

XBRL Instance Document

 

 

 

 

 

 

 

 

 

Filed

101.SCH

 

XBRL Taxonomy Extension Schema Document

 

 

 

 

 

 

 

 

 

Filed

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

 

 

 

 

 

 

Filed

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

 

 

 

 

 

 

Filed

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

 

 

 

 

 

 

Filed

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

 

 

 

 

 

 

Filed

———————

*

Management contract or compensatory plan or arrangement.

**

This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K.

+

Certain schedules, appendices and exhibits to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished supplementally to the Securities and Exchange Commission staff upon request.

 

Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our shareholders who make a written request to ˿Ƶ., at the address on the cover page of this report, Attention: Corporate Secretary.





29