˿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 July 31, 2019


or


¨

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

ASPEN GROUP, INC.

(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.

 

 

 

276 Fifth Avenue, Suite 505, New York, New York

 

10001

Address of Principal Executive Offices

 

Zip Code


(646) 448-5144

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001

ASPU

The Nasdaq Stock Market

(The Nasdaq Global Market)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ¨    No þ 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes ¨    No þ 

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 ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes þ    No ¨

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 ¨ 

Smaller reporting company þ

Emerging growth company ¨

 

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

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


Class

 

Outstanding as of September 5, 2019

Common Stock, $0.001 par value per share

 

18,914,242 shares


 

 





 


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.

26

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

37

 

 

 

Item 4.

Controls and Procedures.

38

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings.

39

 

 

 

Item 1A.

Risk Factors.

39

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

39

 

 

 

Item 3.

Defaults Upon Senior Securities.

39

 

 

 

Item 4.

Mine Safety Disclosures.

39

 

 

 

Item 5.

Other Information.

39

 

 

 

Item 6.

Exhibits.

39


SIGNATURES

40










 


PART I. FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS


ASPEN GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


 

 

July 31, 2019

 

 

April 30, 2019

 

 

 

 

(Unaudited)

 

 

 

 

 

Assets

  

  

                    

  

  

 

                    

  

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

7,243,580

 

 

$

9,519,352

 

Restricted cash

 

 

452,021

 

 

 

448,400

 

Accounts receivable, net of allowance of $1,484,559 and $1,247,031, respectively

 

 

10,786,265

 

 

 

10,656,470

 

Prepaid expenses

 

 

546,767

 

 

 

410,745

 

Other receivables

 

 

1,435

 

 

 

2,145

 

Total current assets

 

 

19,030,068

 

 

 

21,037,112

 

 

 

 

 

 

 

 

 

 

Property and equipment:

 

 

 

 

 

 

 

 

Call center equipment

 

 

245,715

 

 

 

193,774

 

Computer and office equipment

 

 

330,267

 

 

 

327,621

 

Furniture and fixtures

 

 

1,430,349

 

 

 

1,381,271

 

Software

 

 

4,765,597

 

 

 

4,314,198

 

 

 

 

6,771,928

 

 

 

6,216,864

 

Less accumulated depreciation and amortization

 

 

(2,083,277

)

 

 

(1,825,524

)

Total property and equipment, net

 

 

4,688,651

 

 

 

4,391,340

 

Goodwill

 

 

5,011,432

 

 

 

5,011,432

 

Intangible assets, net

 

 

8,266,667

 

 

 

8,541,667

 

Courseware, net

 

 

145,063

 

 

 

161,930

 

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

 

 

45,329

 

 

 

45,329

 

Long term contractual accounts receivable

 

 

4,249,969

 

 

 

3,085,243

 

Debt issue cost, net

 

 

271,162

 

 

 

300,824

 

Right of use lease asset

 

 

7,996,585

 

 

 

 

Deposits and other assets

 

 

562,594

 

 

 

629,626

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

50,267,520

 

 

$

43,204,503

 



(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)


 

 

July 31, 2019

 

 

April 30, 2019

 

 

 

 

(Unaudited)

 

 

 

 

 

Liabilities and Stockholders’ Equity

  

  

                    

  

  

 

                    

  

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,588,331

 

 

$

1,699,221

 

Accrued expenses

 

 

577,755

 

 

 

651,418

 

Deferred revenue

 

 

2,681,037

 

 

 

2,456,865

 

Refunds due students

 

 

1,591,632

 

 

 

1,174,501

 

Deferred rent, current portion

 

 

53,140

 

 

 

47,436

 

Convertible notes payable

 

 

50,000

 

 

 

50,000

 

Right of use lease liability, current portion

 

 

1,100,411

 

 

 

 

Other current liabilities

 

 

279,411

 

 

 

270,786

 

Total current liabilities

 

 

7,921,717

 

 

 

6,350,227

 

 

 

 

 

 

 

 

 

 

Senior secured loan payable, net of discount of $287,626 and $353,328 respectively

 

 

9,712,374

 

 

 

9,646,672

 

Right of use lease liability

 

 

7,095,695

 

 

 

 

Deferred rent

 

 

704,689

 

 

 

746,176

 

Total liabilities

 

 

25,434,475

 

 

 

16,743,075

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies – see Note 10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 1,000,000 shares authorized,

 

 

 

 

 

 

 

 

0 issued and outstanding at July 31, 2019 and April 30, 2019

 

 

 

 

 

 

Common stock, $0.001 par value; 40,000,000 shares authorized

 

 

 

 

 

 

 

 

18,913,527 issued and 18,896,443 outstanding at July 31, 2019

 

 

 

 

 

 

 

 

18,665,551 issued and 18,648,884 outstanding at April 30, 2019

 

 

18,914

 

 

 

18,666

 

Additional paid-in capital

 

 

69,146,123

 

 

 

68,562,727

 

Treasury stock (16,667 shares)

 

 

(70,000

)

 

 

(70,000

)

Accumulated deficit

 

 

(44,261,992

)

 

 

(42,049,965

)

Total stockholders’ equity

 

 

24,833,045

 

 

 

26,461,428

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

50,267,520

 

 

$

43,204,503

 



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)


 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

July 31,

 

 

 

 

 

 

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

$

10,357,982

 

 

$

7,221,305

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

4,353,058

 

 

 

3,752,392

 

General and administrative

 

 

 

 

 

 

 

 

 

 

7,037,150

 

 

 

5,824,132

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

606,574

 

 

 

498,105

 

Total operating expenses

 

 

 

 

 

 

 

 

 

 

11,996,782

 

 

 

10,074,629

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

 

 

 

 

 

 

 

 

(1,638,800

)

 

 

(2,853,324

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income

 

 

 

 

 

 

 

 

 

 

22,802

 

 

 

56,401

 

Interest expense

 

 

 

 

 

 

 

 

 

 

(423,689

)

 

 

(40,353

)

Total other income/(expense), net

 

 

 

 

 

 

 

 

 

 

(400,887

)

 

 

16,048

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

 

 

 

 

 

 

 

 

(2,039,687

)

 

 

(2,837,276

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

 

 

 

 

 

 

 

 

35,595

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

$

(2,075,282

)

 

$

(2,837,276

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share allocable to common stockholders - basic and diluted

 

 

 

 

 

 

 

 

 

$

(0.11

)

 

$

(0.15

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common stock outstanding - basic and diluted

 

 

 

 

 

 

 

 

 

 

18,733,317

 

 

 

18,317,830

 



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






3



 


ASPEN GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

 (Unaudited)


 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Treasury

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Deficit

 

 

Equity

 

Balance at April 30, 2019

 

 

18,665,551

 

 

$

18,666

 

 

$

68,562,727

 

 

$

(70,000

)

 

$

(42,049,965

)

 

$

26,461,428

 

 

  

  

                    

  

  

 

                    

  

  

 

                    

  

  

 

                    

  

  

 

                    

  

  

 

                    

 

Stock-based compensation

 

 

 

 

 

 

 

 

498,417

 

 

 

 

 

 

 

 

 

498,417

 

Common stock issued for cashless stock options exercised

 

 

101,894

 

 

 

102

 

 

 

(102

)

 

 

 

 

 

 

 

 

 

Common stock issued for stock options exercised for cash

 

 

21,876

 

 

 

22

 

 

 

45,168

 

 

 

 

 

 

 

 

 

45,190

 

Common stock issued for cashless warrant exercise

 

 

19,403

 

 

 

19

 

 

 

(19

)

 

 

 

 

 

 

 

 

 

Amortization of warrant based cost

 

 

 

 

 

 

 

 

9,440

 

 

 

 

 

 

 

 

 

9,440

 

Amortization of restricted stock issued for service

 

 

 

 

 

 

 

 

30,597

 

 

 

 

 

 

 

 

 

30,597

 

Restricted Stock Issued for Services, subject to vesting

 

 

104,803

 

 

 

105

 

 

 

(105

)

 

 

 

 

 

 

 

 

 

Cumulative effect of Adoption of ASC 842

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(136,745

)

 

 

(136,745

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,075,282

)

 

 

(2,075,282

)

Balance at July 31, 2019

 

 

18,913,527

 

 

$

18,914

 

 

$

69,146,123

 

 

$

(70,000

)

 

$

(44,261,992

)

 

$

24,833,045

 


 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Treasury

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Deficit

 

 

Equity

 

Balance at April 30, 2018

 

 

18,333,521

 

 

$

18,334

 

 

$

66,557,005

 

 

$

(70,000

)

 

$

(32,771,748

)

 

$

33,733,591

 

 

  

  

                    

  

  

 

                    

  

  

 

                    

  

  

 

                    

  

  

 

                    

  

  

 

                    

 

Stock-based compensation

 

 

 

 

 

 

 

 

209,976

 

 

 

 

 

 

 

 

 

209,976

 

Common stock issued for cashless stock options exercised

 

 

5,230

 

 

 

5

 

 

 

(5

)

 

 

 

 

 

 

 

 

 

Common stock issued for stock options exercised for cash

 

 

2,689

 

 

 

2

 

 

 

7,815

 

 

 

 

 

 

 

 

 

7,817

 

Purchase of treasury stock, net of broker fees

 

 

 

 

 

 

 

 

 

 

 

(7,370,000

)

 

 

 

 

 

(7,370,000

)

Re-sale of treasury stock, net of broker fees

 

 

 

 

 

 

 

 

 

 

 

7,370,000

 

 

 

 

 

 

7,370,000

 

Fees associated with equity raise

 

 

 

 

 

 

 

 

(29,832

)

 

 

 

 

 

 

 

 

(29,832

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,837,276

)

 

 

(2,837,276

)

Balance at July 31, 2018

 

 

18,341,440

 

 

$

18,341

 

 

$

66,744,959

 

 

$

(70,000

)

 

$

(35,609,024

)

 

$

31,084,276

 




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)


 

 

Three months ended

 

 

 

July 31,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(2,075,282

)

 

$

(2,837,276

)

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

 

 

 

 

 

 

 

 

Bad debt expense

 

 

240,899

 

 

 

121,805

 

Depreciation and amortization

 

 

606,574

 

 

 

498,105

 

Stock-based compensation

 

 

498,417

 

 

 

209,976

 

Warrants issued for services

 

 

9,440

 

 

 

 

Loss on asset disposition

 

 

20,240

 

 

 

 

Amortization of debt discounts

 

 

65,702

 

 

 

 

Amortization of debt issue costs

 

 

29,662

 

 

 

 

Amortization of prepaid shares for services

 

 

 

 

 

8,285

 

Non-cash payments to investor relations firm

 

 

30,597

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(1,535,420

)

 

 

(1,592,941

)

Prepaid expenses

 

 

(136,022

)

 

 

(229,168

)

Other receivables

 

 

710

 

 

 

173,475

 

Other assets

 

 

67,032

 

 

 

 

Accounts payable

 

 

(110,890

)

 

 

(728,230

)

Accrued expenses

 

 

(73,663

)

 

 

10,401

 

Deferred rent

 

 

(35,783

)

 

 

217,433

 

Refunds due students

 

 

417,131

 

 

 

302,609

 

Deferred revenue

 

 

224,172

 

 

 

430,015

 

Right of use assets, net

 

 

62,776

 

 

 

 

Other liabilities

 

 

8,625

 

 

 

27,301

 

Net cash used in operating activities

 

 

(1,685,083

)

 

 

(3,388,210

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of courseware and accreditation

 

 

(2,275

)

 

 

(42,917

)

Purchases of property and equipment

 

 

(629,983

)

 

 

(735,757

)

Net cash used in investing activities

 

 

(632,258

)

 

 

(778,674

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Disbursements for equity offering costs

 

 

 

 

 

(29,832

)

Proceeds of stock options exercised and warrants exercised

 

 

45,190

 

 

 

7,817

 

Purchase of treasury stock, net of broker fees

 

 

 

 

 

(7,370,000

)

Re-sale of treasury stock, net of broker fees

 

 

 

 

 

7,370,000

 

Net cash provided by (used in) financing activities

 

 

45,190

 

 

 

(22,015

)

 

 

 

 

 

 

 

 

 

Net (decrease) in cash and cash equivalents

 

 

(2,272,151

)

 

 

(4,188,899

)

Cash, restricted cash, and cash equivalents at beginning of period

 

 

9,967,752

 

 

 

14,803,065

 

Cash and cash equivalents at end of period

 

$

7,695,601

 

 

$

10,614,166

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

324,861

 

 

$

 

Cash paid for income taxes

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

 

 

 

 

Common stock issued for services

 

$

178,447

 

 

$

 


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)


The following table provides a reconciliation of cash and restricted cash reported within the unaudited consolidated balance sheets that sum to the same such amounts shown in the unaudited consolidated statements of cash flows:


 

 

Three months ended

 

 

 

July 31,

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

 

Cash

 

$

7,243,580

 

 

$

10,423,660

 

Restricted cash

 

 

452,021

 

 

 

190,506

 

Total cash and restricted cash

 

$

7,695,601

 

 

$

10,614,166

 






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

July 31, 2019

(Unaudited)


Note 1. Nature of Operations and Liquidity


Overview


˿Ƶ. (together with its subsidiaries, the “Company,” “Aspen,” or “AGI”) is a holding company, which has three subsidiaries. They are Aspen University Inc. (“Aspen University”) organized in 1987, Aspen Nursing, Inc. (“ANI”) (a subsidiary of Aspen University) formed in July 2018 and United States University, Inc. (“USU”) formed in May 2017. USU was the vehicle we used to acquire United States University on December 1, 2017. (See Note 4). When we refer to USU in this Report, we refer to either the online university which has operated under the name United States University or our subsidiary which operates this university, as the context implies.


AGI is an education technology holding company that leverages its infrastructure and expertise to allow its two universities, Aspen University and United States University, to deliver on the vision of making college affordable again. 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 higher education.  AGI’s primary focus relative to future growth is to target the high growth nursing profession, currently 82% of all students across both universities are degree-seeking nursing students.


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”). In February 2019, the DEAC informed Aspen University that it had renewed its accreditation for five years through January 2024.


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 resulting from the ownership change of control in connection with the acquisition by AGI on December 1, 2017.


Basis of Presentation


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 months ended July 31, 2019 and 2018, our cash flows for the three months ended July 31, 2019 and 2018, and our financial position as of July 31, 2019 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 Annual Report on Form 10-K for the fiscal year ended April 30, 2019 as filed with the SEC on July 9, 2019. The April 30, 2019 balance sheet is derived from those statements.


Liquidity


At July 31, 2019, the Company had a cash balance of $7,243,580 with an additional $452,021 in restricted cash.

 

On November 5, 2018 the Company entered into a three year, $5,000,000 senior revolving credit facility. There is currently no outstanding balance under that facility. (See Note 6)





7



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2019

(Unaudited)

 


In March 2019, the Company entered into two loan agreements for a principal amount of $5 million each and received total proceeds of $10 million.  In connection with the loan agreements, the Company issued 18 month senior secured promissory notes, with the right to extend the term of the loans for an additional 12 months subject to paying a 1% one-time extension fee. (See Note 6)


During the quarter ended July 31, 2019 the Company used cash of $2,272,151, which included using $1,685,083 in operating activities.


Note 2. Significant Accounting Policies


Principles of Consolidation


The unaudited consolidated financial statements include the accounts of AGI 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 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, estimates of the fair value of assets acquired and liabilities assumed in a business combination, amortization periods and valuation of courseware, intangibles and software development costs, estimates of the valuation of initial right of use assets and corresponding lease liabilities, 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, Cash Equivalents, and Restricted Cash


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 July 31, 2019 and April 30, 2019.  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 July 31, 2019.


As of July 31, 2019 and April 30, 2019, the Company maintained deposits totaling $7,323,630 and $9,359,208, respectively, held in two separate institutions greater than the federally insured limits.


Restricted cash was $452,021 as of July 31, 2019 and consisted of $122,262 which is collateral for a letter of credit issued by the bank and required under the USU facility operating lease. Also, included was $71,932 and an additional $257,827, which was collateral for a letter of credit issued by the bank and related to USU’s receipt of Title IV funds as required by DOE in connection with the change of control of USU. Restricted cash as of April 30, 2019 was $448,400.


Goodwill and Intangibles


Goodwill currently represents the excess of the purchase price of USU 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.


Intangible assets represent both indefinite lived and definite lived assets. Accreditation, regulatory approvals, 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

July 31, 2019

(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.


Accounts Receivable and Allowance for Doubtful Accounts Receivable

 

All students are required to select both a primary and secondary payment option with respect to amounts due to Aspen for tuition, fees and other expenses. The monthly payment plan represents approximately 68% of the payments that are made by students, making it the most common payment type. In instances where a student selects financial aid as the primary payment option, he or she often selects personal cash as the secondary option. If a student who has selected financial aid as his or her primary payment option withdraws prior to the end of a course but after the date that Aspen’s institutional refund period has expired, the student will have incurred the obligation to pay the full cost of the course. If the withdrawal occurs before the date at which the student has earned 100% of his or her financial aid, Aspen may have to return all or a portion of the Title IV funds to the DOE and the student will owe Aspen all amounts incurred that are in excess of the amount of financial aid that the student earned, and that Aspen is entitled to retain. In this case, Aspen must collect the receivable using the student’s second payment option.


For accounts receivable from students, Aspen records an allowance for doubtful accounts for estimated losses resulting from the inability, failure or refusal of its students to make required payments, which includes the recovery of financial aid funds advanced to a student for amounts in excess of the student’s cost of tuition and related fees. Aspen determines the adequacy of its allowance for doubtful accounts using an allowance method based on an analysis of its historical bad debt experience, current economic trends, and the aging of the accounts receivable and each student’s status. Aspen estimates the amounts to increase the allowance based upon the risk presented by the age of the receivables and student status. Aspen writes off accounts receivable balances at the time the balances are deemed uncollectible. Aspen continues to reflect accounts receivable with an offsetting allowance as long as management believes there is a reasonable possibility of collection.


For accounts receivable from primary payors other than students, Aspen estimates its allowance for doubtful accounts by evaluating specific accounts where information indicates the customers may have an inability to meet financial obligations, such as bankruptcy proceedings and receivable amounts outstanding for an extended period beyond contractual terms. In these cases, Aspen uses assumptions and judgment, based on the best available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable to the amount expected to be collected. These specific allowances are re-evaluated and adjusted as additional information is received. The amounts calculated are analyzed to determine the total amount of the allowance. Aspen may also record a general allowance as necessary.


Direct write-offs are taken in the period when Aspen has exhausted its efforts to collect overdue and unpaid receivables or otherwise evaluate other circumstances that indicate that Aspen should abandon such efforts. (See Note 8)




9



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2019

(Unaudited)

 


When a student signs up for the monthly payment plan, there is a contractual amount that the Company can expect to earn over the life of the student’s program. This contractual amount cannot be recorded as an accounts receivable because, the student does have the option to stop attending. As a student takes a class, revenue is earned over the class term. Some students accelerate their program, taking two or more classes every eight week period, which increases the student’s accounts receivable balance. If any portion of that balance will be paid in a period greater than 12 months, that portion is reflected as long-term accounts receivable. At July 31, 2019 and April 30, 2019, those balances were $4,249,969 and $3,085,243, respectively. The Company has determined that the long term accounts receivable do not constitute a significant financing component as the list price, cash selling price and promised consideration are equal.  Further, the interest free financing portion of the monthly payment plans are not considered significant to the contract.


Property and Equipment


Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets per the following table.

 

Category

 

Useful Life

Call center equipment

 

5 years

Computer and office equipment

 

5 years

Furniture and fixtures

 

7 years

Library (online)

 

3 years

Software

 

5 years


Costs incurred to develop internal-use software during the preliminary project stage are expensed as incurred. Internal-use software development costs are capitalized during the application development stage, which is after: (i) the preliminary project stage is completed; and (ii) management authorizes and commits to funding the project and it is probable the project will be completed and used to perform the function intended. Capitalization ceases at the point the software project is substantially complete and ready for its intended use, and after all substantial testing is completed. Upgrades and enhancements are capitalized if it is probable that those expenditures will result in additional functionality. Depreciation is provided for on a straight-line basis over the expected useful life of five years of the internal-use software development costs and related upgrades and enhancements. When existing software is replaced with new software, the unamortized costs of the old software are expensed when the new software is ready for its intended use.


Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful lives of the leasehold improvements.


Upon the retirement or disposition of property and equipment, the related cost and accumulated depreciation are removed and a gain or loss is recorded in the consolidated statements of operations. Repairs and maintenance costs are expensed in the period incurred.


Courseware and Accreditation


The Company records the costs of courseware and accreditation in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350 “Intangibles - Goodwill and Other”.


Generally, costs of courseware creation and enhancement are capitalized. Accreditation renewal or extension costs related to intangible assets are capitalized as incurred. Courseware is stated at cost less accumulated amortization. Amortization is provided for on a straight-line basis over the expected useful life of five years.




10



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2019

(Unaudited)

 


Long-Lived Assets


The Company assesses potential impairment to its long-lived assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events and circumstances considered by the Company in determining whether the carrying value of identifiable intangible assets and other long-lived assets may not be recoverable include, but are not limited to: significant changes in performance relative to expected operating results, significant changes in the use of the assets, significant negative industry or economic trends, a significant decline in the Company’s stock price for a sustained period of time, and changes in the Company’s business strategy. An impairment loss is recorded when the carrying amount of the long-lived asset is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Any required impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds fair value and is recorded as a reduction in the carrying value of the related asset and an expense to operating results.


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.


Leases


The Company enters into various lease agreements in conducting its business. At the inception of each lease, the Company evaluates the lease agreement to determine whether the lease is an operating or capital lease. Leases may contain initial periods of free rent and/or periodic escalations. When such items are included in a lease agreement, the Company records rent expense on a straight-line basis over the initial term of a lease. The difference between the rent payment and the straight-line rent expense is recorded as additional amortization. The Company expenses any additional payments under its operating leases for taxes, insurance or other operating expenses as incurred.


The Company implemented ASU 2016-02 as of May 1, 2019.  There were no material changes to our unaudited consolidated financial statements other than additional assets and off-setting liabilities.


In February 2016, the Financial Accounting Standards Board, of FASB, issued Accounting Standards Update, or ASU, No. 2016-02, Leases (Topic 842).  This standard requires entities to recognize most operating leases on their balance sheets as right-of-use assets with a corresponding lease liability, along with disclosing certain key information about leasing arrangements. The Company adopted the standard effective May 1, 2019 using the cumulative effect adjustment transition method, which applies the provisions of the standard at the effective date without adjusting the comparative periods presented.  The Company adopted the following practical expedients and elected the following accounting policies related to this standard:


 

·

Carry forward of historical lease classification;

 

·

Short-term lease accounting policy election allowing lessees to not recognize right-of-use assets and lease liabilities for leases with a term of 12 months or less; and

 

·

Not separate lease and non-lease components for office space and campus leases.


The adoption of this standard resulted in the recognition of operating lease right-of-use assets (“ROU’s”) and corresponding lease liabilities of approximately $8.0 million and $8.2 million, respectively on the unaudited Consolidated Balance Sheet as of July 31, 2019. There was no impact to the Company’s net income or liquidity as a result of the adoption of this ASU. Additionally, the standard did not materially impact the Company's unaudited consolidated statements of cash flows.


Disclosures related to the amount, timing, and uncertainty of cash flows arising from leases are included in Note 9.




11



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2019

(Unaudited)

 


Treasury Stock


Purchases and sales of treasury stock are accounted for using the cost method. Under this method, shares acquired are recorded at the acquisition price directly to the treasury stock account. Upon sale, the treasury stock account is reduced by the original acquisition price of the shares and any difference is recorded in equity. This method does not allow the company to recognize a gain or loss to income from the purchase and sale of treasury stock.


Revenue Recognition and Deferred Revenue


On May 1, 2018, the Company adopted Accounting Standards Codification 606 (ASC 606). ASC 606 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASC also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer purchase orders, including significant judgments. Our adoption of this ASC, resulted in no change to our results of operations or our balance sheet.


Revenues consist primarily of tuition and course fees derived from courses taught by the Company online as well as from related educational resources and services that the Company provides to its students. Under ASC 606, the tuition and course fee revenue is recognized pro-rata over the applicable period of instruction and are not considered separate performance obligations.  Non-tuition related revenue and fees are recognized as services are provided or when the goods are received by the student.  (See Note 8)


The Company had revenues from students outside the United States representing 1.48% and 1.9% of the revenues for the quarters ended July 31, 2019 and 2018 respectively.


Cost of Revenues


Cost of revenues consists of two categories, instructional costs and services, and marketing and promotional costs.


Instructional Costs and Services


Instructional costs and services consist primarily of costs related to the administration and delivery of the Company's educational programs. This expense category includes compensation costs associated with online faculty, technology license costs and costs associated with other support groups that provide services directly to the students and are included in cost of revenues.


Marketing and Promotional Costs


Marketing and promotional costs include costs associated with producing marketing materials and advertising. Such costs are generally affected by the cost of advertising media, the efficiency of the Company's marketing and recruiting efforts, and expenditures on advertising initiatives for new and existing academic programs. Non-direct response advertising activities are expensed as incurred, or the first time the advertising takes place, depending on the type of advertising activity. Total marketing and promotional costs were $2,209,239 and $2,187,456 for the fiscal quarters ended July 31, 2019 and 2018, respectively and are included in cost of revenues.


General and Administrative


General and administrative expenses include compensation of employees engaged in corporate management, finance, human resources, information technology, academic operations, compliance and other corporate functions. General and administrative expenses also include professional services fees, bad debt expense related to accounts receivable, financial aid processing costs, non-capitalizable courseware and software costs, travel and entertainment expenses and facility costs.


Legal Expenses


All legal costs for litigation are charged to expense as incurred.




12



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2019

(Unaudited)

 


Income Tax


The Company uses the asset and liability method to compute the differences between the tax basis of assets and liabilities and the related financial statement amounts. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount that more likely than not will be realized. The Company has deferred tax assets and liabilities that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets are subject to periodic recoverability assessments. Realization of the deferred tax assets, net of deferred tax liabilities, is principally dependent upon achievement of projected future taxable income.


The Company records a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The Company accounts for uncertainty in income taxes using a two-step approach for evaluating tax positions. Step one, recognition, occurs when the Company concludes that a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination. Step two, measurement, is only addressed if the position is more likely than not to be sustained. Under step two, the tax benefit is measured as the largest amount of benefit, determined on a cumulative probability basis, which is more likely than not to be realized upon ultimate settlement. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.


Stock-Based Compensation


Stock-based compensation expense is measured at the grant date of the award and is expensed over the requisite service period. For employee stock-based awards, the Company calculates the fair value of the award on the date of grant using the Black-Scholes option pricing model. Determining the fair value of stock-based awards at the grant date under this model requires judgment, including estimating volatility, employee stock option exercise behaviors and forfeiture rates. The assumptions used in calculating the fair value of stock-based awards represent the Company's best estimates, but these estimates involve inherent uncertainties and the application of management judgment. For non-employee stock-based awards, the Company has early adopted ASU 2018-07, which substantially aligns share based compensation for employees and non-employees.


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 Loss Per Share


Net loss per share of common stock is based on the weighted average number of shares of common stock outstanding during each period. Options to purchase 3,237,840 and 3,515,070 shares of common stock, warrants to purchase 687,292 and 650,847 shares of common stock, unvested restricted stock of 99,803 and 0, and $50,000 and $50,000 of convertible debt (convertible into 4,167 and 4,167 shares of common stock) were outstanding at July 31, 2019 and July 31, 2018, respectively, but were not included in the computation of diluted net 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 share of common stock when their effect is dilutive.


Segment Information


The Company operates in one reportable segment as a single educational delivery operation using a core infrastructure that serves the curriculum and educational delivery needs of its online students regardless of geography. The Company's chief operating decision makers, its Chief Executive Officer and Chief Academic Officer, manage the Company's operations as a whole, and no revenue, expense or operating income information is evaluated by the chief operating decision makers on any component level.




13



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2019

(Unaudited)

 


Recent Accounting Pronouncements


Financial Accounting Standards Board, Accounting Standard Updates which are not effective until after July 31, 2019, are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.

 

ASU 2016-02 - In February 2016, the FASB issued ASU 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. We completed our assessment of the new standard on our accounting policies and processes and adopted this guidance beginning May 2019 using a modified retrospective approach without restating prior comparative periods. The most significant impact primarily relates to our accounting for real estate leases and real estate subleases. The adoption of this guidance impacts the presentation of our financial condition and disclosures, but did not materially impact our results of operations. See Note 9 “Leases” for further information.


Note 3. Property and Equipment


As property and equipment reach the end of their useful lives, 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 July 31, 2019 and April 30, 2019:


 

 

July 31,

 

 

April 30,

 

 

 

2019

 

 

2019

 

Call center hardware

 

$

245,715

 

 

$

193,774

 

Computer and office equipment

 

 

330,267

 

 

 

327,621

 

Furniture and fixtures

 

 

1,430,349

 

 

 

1,381,271

 

Software

 

 

4,765,597

 

 

 

4,314,198

 

 

 

 

6,771,928

 

 

 

6,216,864

 

Accumulated depreciation

 

 

(2,083,277

)

 

 

(1,825,524

)

Property and equipment, net

 

$

4,688,651

 

 

$

4,391,340

 


Software consisted of the following at July 31, 2019 and April 30, 2019:


 

 

July 31,

2019

 

 

April 30,

2019

 

Software

 

$

4,765,597

 

 

$

4,314,198

 

Accumulated depreciation

 

 

(1,517,765

)

 

 

(1,351,193

)

Software, net

 

$

3,247,832

 

 

$

2,963,005

 


Depreciation expense and amortization for all Property and Equipment as well as the portion for just software is presented below for the three months ended July 31, 2019 and 2018:


 

 

 

 

 

Three Months Ended

July 31,

 

 

 

 

 

 

 

 

 

2019

 

 

2018

 

Depreciation and amortization Expense

 

 

 

 

 

 

 

 

 

$

312,432

 

 

$

204,335

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software amortization Expense

 

 

 

 

 

 

 

 

 

$

170,189

 

 

$

143,774

 




14



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2019

(Unaudited)

 


The following is a schedule of estimated future amortization expense of software at July 31, 2019:


Year Ending July 31,

 

Future Expense

 

2020

 

$

689,009

 

2021

 

 

854,804

 

2022

 

 

765,330

 

2023

 

 

605,091

 

2024

 

 

315,809

 

Thereafter

 

 

17,789

 

Total

 

$

3,247,832

 


Note 4. USU Goodwill and Intangibles


On December 1, 2017, USU acquired United States University and assumed certain liabilities from Educacion Significativa, LLC (“ESL”). USU is a wholly owned subsidiary of AGI and was formed for the purpose of completing the asset purchase transaction. For purposes of purchase accounting, AGI is referred to as the acquirer. AGI acquired the assets and assumed certain liabilities of ESL.


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 consolidated balance sheet as goodwill.


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.


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 expense for the three months ended July 31, 2019 and 2018 were $275,000 and $275,000 respectively.


Intangible assets consisted of the following at July 31, 2019 and April 30, 2019:


 

 

July 31,

 

 

April 30,

 

 

 

2019

 

 

2019

 

 

 

 

 

 

 

 

Intangible assets

 

$

10,100,000

 

 

$

10,100,000

 

Accumulated amortization

 

 

(1,833,333

)

 

 

(1,558,333

)

Net intangible assets

 

$

8,266,667

 

 

$

8,541,667

 




15



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2019

(Unaudited)

 


Note 5. Courseware and Accreditation


Courseware costs capitalized were $1,525 for the three months ended July 31, 2019 and $34,422 for the year ended April 30, 2019. As courseware reaches the end of its useful life, it is written off against the accumulated amortization. There is no expense impact for such write-offs.


Courseware consisted of the following at July 31, 2019 and April 30, 2019:


 

 

July 31,

2019

 

 

April 30,

2019

 

Courseware

 

$

324,512

 

 

$

325,987

 

Accreditation

 

 

57,850

 

 

 

57,100

 

Accumulated amortization

 

 

(237,299

)

 

 

(221,157)

 

Courseware, net

 

$

145,063

 

 

$

161,930

 


The Company had capitalized accreditation costs of $750 and $57,100 for the three months ended July 31, 2019 and year ended April 30, 2019.


Amortization expense of courseware for the three months ended July 31, 2019 and 2018:


 

 

 

 

 

Three Months Ended

July 31,

 

 

 

 

 

 

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization expense

 

 

 

 

 

 

 

 

 

$

19,142

 

 

$

15,371

 


The following is a schedule of estimated future amortization expense of courseware at July 31, 2019:


Year Ending July 31,

 

Future Expense

 

2020

 

$

44,847

 

2021

 

 

37,100

 

2022

 

 

29,213

 

2023

 

 

23,673

 

2024

 

 

10,171

 

Thereafter

 

 

59

 

Total

 

$

145,063

 




16



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2019

(Unaudited)

 


Note 6. Debt


Convertible Notes


On February 29, 2012, a loan payable of $50,000 was converted into a two-year convertible promissory note, interest of 0.19% per annum. Beginning March 31, 2012, the note was convertible into shares of common stock of the Company at the conversion price of $12.00 per share (taking into account the one-for-12 reverse stock split of the Company’s common stock). The Company evaluated the convertible note and determined that, for the embedded conversion option, there was no beneficial conversion value to record as the conversion price is considered to be the fair market value of the common stock on the note issue date. This loan (now a convertible promissory note) was originally due in February 2014. The amount due under this note has been reserved for payment upon the note being tendered to the Company by the note holder. However, this $50,000 note is derived from $200,000 of loans made to Aspen University prior to 2011, which was prior to the merger of Aspen University and EGC, the acquisition vehicle led by Michael Mathews, the Company’s current Chairman and Chief Executive Officer. The bankruptcy judge in the HEMG bankruptcy proceedings has recently ruled that the Company may pursue remedies for these undisclosed loans.


Revolving Credit Facility


On November 5, 2018, the Company entered into a loan agreement (the “Credit Facility Agreement”) with the Leon and Toby Cooperman Family Foundation (the “Foundation”). The Credit Facility Agreement provides for a $5,000,000 revolving credit facility (the “Facility”) evidenced by a revolving promissory note (the “Revolving Note”). Borrowings under the Credit Facility Agreement will bear interest at 12% per annum. The Facility matures on November 4, 2021.


Pursuant to the terms of the Credit Facility Agreement, the Company paid to the Foundation a $100,000 one-time upfront Facility fee. The Company also is paying the Foundation a commitment fee, payable quarterly at the rate of 2% per annum on the undrawn portion of the Facility. As of July 31, 2019, the Company has not borrowed any sum under the Facility.


The Credit Facility Agreement contains customary representations and warranties, events of default and covenants. Pursuant to the Loan Agreement and the Revolving Note, all future or contemporaneous indebtedness incurred by the Company, other than indebtedness expressly permitted by the Credit Facility Agreement and the Revolving Note, and the senior term loans described below will be subordinated to the Facility.


Pursuant to the Credit Facility Agreement, on November 5, 2018 the Company issued to the Foundation warrants to purchase 92,049 shares of the Company’s common stock exercisable for five years from the date of issuance at the exercise price of $5.85 per share which were deemed to have a relative fair value of $255,071. The relative fair value of the warrants along with the Facility fee were treated as debt issue costs, as the facility has not been drawn on, assets to be amortized over the term of the loan.


On March 6, 2019, in connection with entering into the Senior Secured Loans, the Company amended and restated the Credit Facility Agreement (the “Amended and Restated Facility Agreement”) and the Revolving Note. The Amended and Restated Facility Agreement provides among other things that the Company’s obligations thereunder are secured by a first priority lien in the Collateral, on a pari passu basis with the Lenders.




17



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2019

(Unaudited)

 


Senior Secured Term Loans


On March 6, 2019, the Company entered into two loan agreements (each a “Loan Agreement” and together, the “Loan Agreements”) with the Foundation, of which Mr. Leon Cooperman, a stockholder of the Company, is the trustee, and another stockholder of the Company (each a “Lender” and together, the “Lenders”). Each Loan Agreement provides for a $5,000,000 term loan (each a “Loan” and together, the “Loans”), evidenced by a term promissory note and security agreement (each a “Term Note” and together, the “Term Notes”), for combined total proceeds of $10,000,000 million. The Company borrowed $5,000,000 from each Lender that day. The Term Notes bear interest at 12% per annum and mature on September 6, 2020, subject to one 12-month extension upon the Company’s option, and upon payment of a 1% one-time extension fee.


Pursuant to the Loan Agreements and the Term Notes, all future or contemporaneous indebtedness incurred by the Company, other than indebtedness expressly permitted by the Loan Agreements and the Term Notes, will be subordinated to the Loans.


The Company’s obligations under the Loan Agreements are secured by a first priority lien in certain deposit accounts of the Company, all current and future accounts receivable of Aspen University and USU, certain of the deposit accounts of Aspen University and USU, and all of the outstanding capital stock of Aspen University and USU (the “Collateral”).


Pursuant to the Loan Agreements, on March 6, 2019 the Company issued to each Lender warrants to purchase 100,000 shares of the Company’s common stock exercisable for five years from the date of issuance at the exercise price of $6.00 per share. The two warrants were deemed to have a combined relative fair value of $360,516. The relative fair value along with closing costs of $33,693 were treated as debt discounts to be amortized over the term of the Loans.


On March 6, 2019, in connection with entering into the Loan Agreements, the Company also entered into an intercreditor agreement (the “Intercreditor Agreement”) among the Company, the Lenders and the Foundation, individually. The Intercreditor Agreement provides among other things that the Company’s obligations under this agreement, and the security interests in the Collateral granted pursuant to, the Loan Agreements and the Amended and Restated Facility Agreement shall rank pari passu to one another.


Note 7. Stockholders’ Equity


Preferred Stock


On June 28, 2019, the Company amended its Certificate of Incorporation, as amended, to reduce in the number of shares of common stock the Company is authorized to issue from 250,000,000 to 40,000,000 shares, and the number of shares of preferred stock the Company is authorized to issue from 10,000,000 to 1,000,000 shares. The stockholders of the Company had previously approved the Amendment at a special meeting of stockholders held on June 28, 2019.


The Company is authorized to issue 1,000,000 shares of “blank check” preferred stock with designations, rights and preferences as may be determined from time to time by our Board of Directors. As of July 31, 2019 and April 30, 2019, we had no shares of preferred stock issued and outstanding.


Common Stock


The Company is authorized to issue 40,000,000 shares of common stock.


During the three months ended July 31, 2019, the Company issued 101,894 shares of common stock upon the cashless exercise of stock options.


During the three months ended July 31, 2019, the Company issued 19,403 shares of common stock upon the cashless exercise of 43,860 warrants.


During the three months ended July 31, 2019, the Company issued 21,876 shares of common stock upon the exercise of stock options for cash and received proceeds of $45,190.


Restricted Stock


There were 99,803 unvested shares of restricted common stock outstanding at July 31, 2019. Total unrecognized compensation expense related to the unvested common stock as of July 31, 2019 amounted to approximately $1.6 million which will be amortized over the remaining vesting periods.




18



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2019

(Unaudited)

 


During the three months ended July 31, 2019, the Company issued 30,131 shares of restricted common stock to certain directors with a fair value of $122,332.


On June 18, 2019, in order to correct errors in a third party software system used to track stock options, the Company granted Andrew Kaplan, a current director, 5,131 shares of restricted common stock and two former directors (not recipients of the May 2019 stock options mentioned above) a total of 25,000 shares of restricted common stock.


During fiscal 2019, the Company granted 25,000 shares to its investor relations firm, of which 5,000 were vested with the balance vesting quarterly over one year, subject to continued service. The total value was $122,250 which will be recognized over the service period.


The Board approved a grant of 25,000 shares of restricted stock to the Chief Financial Officer in September 2018. The stock vests over 36 months and the stock price was $7.15 on the date of the grant. The value of the compensation was approximately $180,000 and will be recognized over 36 months.


On December 24, 2018, the Company granted a total of 24,672 shares to certain directors with a value of $126,320 which will be recognized over 36 months.


Warrants


A summary of the Company’s warrant activity during the three months ended July 31, 2019 is presented below:


 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

 

 

 

 

Average

 

 

Remaining

 

 

Aggregate

 

 

 

 

Number of

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

Warrants

 

 

Shares

 

 

Price

 

 

Term

 

 

Value

 

Balance Outstanding, April 30, 2019

 

 

 

731,152

 

 

$

5.28

 

 

 

3.29

 

 

$

413,296

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

(43,860

)

 

 

 

 

 

 

 

 

 

Surrendered

 

 

 

 

 

 

 

 

 

 

 

 

 

Expired

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Outstanding, July 31, 2019

 

 

 

687,292

 

 

$

5.47

 

 

 

3.24

 

 

$

244,286

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable, July 31, 2019

 

 

 

637,292

 

 

$

5.52

 

 

 

3.13

 

 

$

244,286

 


ALL WARRANTS

 

 

EXERCISABLE WARRANTS

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Weighted

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

Outstanding

 

 

 

Average

 

 

 

Average

 

 

 

Exercisable

 

Exercise

 

 

 

Exercise

 

 

 

No. of

 

 

 

Exercise

 

 

 

Remaining Life

 

 

 

No. of

 

Price

 

 

 

Price

 

 

 

Warrants

 

 

 

Price

 

 

 

In Years

 

 

 

Warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$1.86

 

 

 

$1.86

 

 

 

88,710

 

 

 

$1.86

 

 

 

0.09

 

 

 

88,710

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$2.28

 

 

 

$2.28

 

 

 

32,359

 

 

 

$2.28

 

 

 

0.10

 

 

 

32,359

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$4.89

 

 

 

$4.89

 

 

 

50,000

 

 

 

$4.89

 

 

 

4.70

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$5.85

 

 

 

$5.85

 

 

 

92,049

 

 

 

$5.85

 

 

 

4.27

 

 

 

92,049

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$6.00

 

 

 

$6.00

 

 

 

200,000

 

 

 

$6.00

 

 

 

4.60

 

 

 

200,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$6.87

 

 

 

$6.87

 

 

 

224,174

 

 

 

$6.87

 

 

 

2.99

 

 

 

224,174

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

687,292

 

 

 

 

 

 

 

 

 

 

 

637,292

 




19



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2019

(Unaudited)

 


On June 3, 2019, a former director elected a cashless exercise of 21,930 warrants, receiving 9,806 shares. On June 7, 2019, the CEO elected a cashless exercise for the same amount receiving 9,597 shares.


Stock Incentive Plan and Stock Option Grants to Employees and Directors


On March 13, 2012, the Company adopted the ˿Ƶ. 2012 Equity Incentive Plan (the “2012 Plan”) that provides for the grant of 3,500,000 shares 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 July 31, 2019, there were 229,238 shares remaining available for future issuance under the 2012 Plan.


On December 13, 2018, the stockholders of the Company approved the ˿Ƶ. 2018 Equity Incentive Plan (the “2018 Plan”) that provides for the grant of 500,000 shares 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 July 31, 2019, there were 10,852 shares remaining available for future issuance under the 2018 Plan.


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 period ended.


 

 

July 31,

 

 

April 30,

 

 

 

2019

 

 

2019

 

Expected life (years)

 

 

3

 

 

 

3.5

 

Expected volatility

 

 

46

%

 

 

50.1

%

Risk-free interest rate

 

 

2.18

%

 

 

2.63

%

Dividend yield

 

 

0.00

%

 

 

0.00

%

Expected forfeiture rate

 

 

n/a

 

 

 

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 historical volatility. 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.




20



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2019

(Unaudited)

 


A summary of the Company’s stock option activity for employees and directors during the three months ended July 31, 2019, is presented below:


 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

 

 

 

Average

 

 

Remaining

 

 

Aggregate

 

 

 

Number of

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

Options

 

Shares

 

 

Price

 

 

Term

 

 

Value

 

Balance Outstanding, April 30, 2019

 

 

3,408,154

 

 

$

4.44

 

 

 

2.90

 

 

$

6,880,644

 

Granted

 

 

30,000

 

 

 

4.12

 

 

 

 

 

 

 

Exercised

 

 

(191,147

)

 

 

1.88

 

 

 

 

 

 

 

Forfeited

 

 

(9,167

)

 

 

7.62

 

 

 

 

 

 

 

Expired

 

 

 

 

 

 

 

 

 

 

 

 

Balance Outstanding, July 31, 2019

 

 

3,237,840

 

 

$

4.57

 

 

 

2.90

 

 

$

6,880,644

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable, July 31, 2019

 

 

2,057,324

 

 

$

3.50

 

 

 

2.79

 

 

$

5,130,588

 


ALL OPTIONS

 

 

EXERCISABLE OPTIONS

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Weighted

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

Outstanding

 

 

 

Average

 

 

 

Average

 

 

 

Exercisable

 

Exercise

 

 

 

Exercise

 

 

 

No. of

 

 

 

Exercise

 

 

 

Remaining Life

 

 

 

No. of

 

Price

 

 

 

Price

 

 

 

Options

 

 

 

Price

 

 

 

In Years

 

 

 

Options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$1.57 to $2.10

 

 

 

$1.98

 

 

 

736,577

 

 

 

$1.98

 

 

 

2.29

 

 

 

736,577

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$2.28 to $2.76

 

 

 

$2.31

 

 

 

462,747

 

 

 

$2.31

 

 

 

1.09

 

 

 

456,287

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$3.24 to $4.38

 

 

 

$3.86

 

 

 

363,223

 

 

 

$3.90

 

 

 

2.30

 

 

 

274,127

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$4.50 to $5.20

 

 

 

$4.93

 

 

 

714,792

 

 

 

$4.90

 

 

 

2.79

 

 

 

336,833

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$5.95 to $6.28

 

 

 

$6.07

 

 

 

80,417

 

 

 

$6.13

 

 

 

2.93

 

 

 

36,806

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$7.17 to $7.55

 

 

 

$7.39

 

 

 

662,417

 

 

 

$7.51

 

 

 

3.91

 

 

 

144,139

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$8.57 to $9.07

 

 

 

$8.98

 

 

 

217,667

 

 

 

$8.98

 

 

 

3.44

 

 

 

72,555

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options only

 

 

 

 

 

 

 

3,237,840

 

 

 

 

 

 

 

 

 

 

 

2,057,324

 


Effective May 13, 2019, the Company granted a total of 30,000 five-year non-qualified stock options to certain former directors exercisable at $4.12 per share.


During the three months ended July 31, 2019, the Company issued 101,894 shares of common stock upon the cashless exercise of stock options.


During the three months ended July 31, 2019, the Company issued 21,876 shares of common stock upon the exercise of stock options for cash and received proceeds of $45,190.


The Company recorded a compensation expense of $498,417 for the fiscal quarter ended July 31, 2019 in connection with stock options and restricted stock grants.


As of July 31, 2019, there was $1,576,081 of unrecognized compensation costs related to non-vested share-based option arrangements. That cost is expected to be recognized over a weighted-average period of approximately 2.0 years.




21



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2019

(Unaudited)

 


Note 8. 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. 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 fees for library and technology costs, which are recognized over the related service period and are not considered separate performance obligations. Other services, books, and exam fees are recognized as services are provided or when goods are received by the student. The Company’s contract liabilities are reported as deferred revenue and refunds due students. Deferred revenue represents the amount of tuition, fees, and other student invoices in excess of the portion recognized as revenue and it is included in current liabilities in the accompanying unaudited consolidated balance sheets.


The following table represents our revenues disaggregated by the nature and timing of services:


 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

July 31,

 

 

 

 

 

 

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tuition - recognized over period of instruction

 

 

 

 

 

 

 

 

 

$

9,290,952

 

 

$

6,633,840

 

Course fees - recognized over period of instruction

 

 

 

 

 

 

 

 

 

 

925,954

 

 

 

461,211

 

Book fees - recognized at a point in time

 

 

 

 

 

 

 

 

 

 

20,785

 

 

 

24,214

 

Exam fees - recognized at a point in time

 

 

 

 

 

 

 

 

 

 

60,100

 

 

 

52,240

 

Service fees - recognized at a point in time

 

 

 

 

 

 

 

 

 

 

60,191

 

 

 

49,800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

10,357,982

 

 

$

7,221,305

 


Contract Balances and Performance Obligations


The Company recognizes deferred revenue as a student participates in a course which continues past the balance sheet date. Deferred revenue at July 31, 2019 was $2,681,037 which is future revenue that has not yet been earned for courses in progress. The Company has $1,591,632 of refunds due students, which mainly represents Title IV funds due to students after deducting their tuition payments.


Of the total revenue earned during the three months ended July 31, 2019, approximately $2.5 million came from revenues which were deferred at April 30, 2019.


The Company begins providing the performance obligation by beginning instruction in a course, a contract receivable is created, resulting in accounts receivable. The Company accounts for receivables in accordance with ASC 310, Receivables. The Company uses the portfolio approach, as discussed below.


Aspen records an allowance for doubtful accounts for estimated losses resulting from the inability, failure or refusal of its students to make required payments, which includes the recovery of financial aid funds advanced to a student for amounts in excess of the student’s cost of tuition and related fees. Aspen determines the adequacy of its allowance for doubtful accounts using an allowance method based on an analysis of its historical bad debt experience, current economic trends, and the aging of the accounts receivable and student status. Aspen applies reserves to its receivables based upon an estimate of the risk presented by the age of the receivables and student status. Aspen writes off accounts receivable balances at the time the balances are deemed uncollectible. Aspen continues to reflect accounts receivable with an offsetting allowance as long as management believes there is a reasonable possibility of collection.




22



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2019

(Unaudited)

 


Cash Receipts


Our students finance costs through a variety of funding sources, including, among others, monthly payment plans, installment plans, federal loan and grant programs (Title IV), employer reimbursement, and various veterans and military funding and grants, and cash payments. Most students elect to use our monthly payment plan. This plan allows them to make continuous monthly payments during the length of their program and through the length of their payment plan. Title IV and military funding typically arrives during the period of instruction. Students who receive reimbursement from employers typically do so after completion of a course. Students who choose to pay cash for a class typically do so before beginning the class.


Significant Judgments


We analyze revenue recognition on a portfolio approach under ASC 606-10-10-4. Significant judgment is utilized in determining the appropriate portfolios to assess for meeting the criteria to recognize revenue under ASC Topic 606. We have determined that all of our students can be grouped into one portfolio. Students behave similarly, regardless of their payment method or academic program. Enrollment agreements and refund policies are similar for all of our students. We do not expect that revenue earned for the portfolio is significantly different as compared to revenue that would be earned if we were to assess each student contract separately.

   

The Company maintains institutional tuition refund policies, 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 had revenues from students outside the United States representing 1.48% and 1.9% of the revenues for the year ended July 31, 2019 and 2018 respectively.


Note 9. Leases


Operating lease assets are right-of-use assets, which represent the right to use an underlying asset for the lease term. Operating lease liabilities represent the obligation to make lease payments arising from the lease. Operating leases are included in the Operating Lease Assets, net, and Operating Lease Liabilities, Current and Long-term on the unaudited Consolidated Balance Sheet at July 31, 2019.  These assets and lease liabilities are recognized based on the present value of remaining lease payments over the lease term. When the lease does not provide an implicit interest rate, the Company uses an incremental borrowing rate to determine the present value of the lease payments. The right-of-use asset includes all lease payments made and excludes lease incentives. Lease expense for operating leases is recognized on a straight-line basis over the lease term. There are no variable lease payments. Lease expense for the three month period ended July 31, 2019 was $612,597. These costs are primarily related to long-term operating leases, but also include amounts for short-term leases with terms greater than 30 days that are not material.




23



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2019

(Unaudited)

 


The following is a schedule by years of future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of July 31, 2019.


 

 

Lease Payments

 

Maturity of Lease Liabilities

 

 

 

 

2020 (remaining)

 

$

1,693,602

 

2021

 

 

2,293,382

 

2022

 

 

2,225,348

 

2023

 

 

1,663,434

 

2024

 

 

1,474,175

 

2025

 

 

1,134,718

 

2026 and beyond

 

 

779,287

 

    Total future minimum lease payments

 

 

11,263,946

 

Less imputed interest

 

 

(3,067,840

)

    Present value of operating lease liabilities

 

$

8,196,106

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Classification

 

 

 

 

Operating lease liabilities, current

 

$

1,100,411

 

Operating lease liabilities, long-term

 

 

7,095,695

 

    Total operating lease liabilities

 

$

8,196,106

 

 

 

 

 

 

 

 

 

 

 

Other Information

 

 

 

 

Weighted average remaining lease term (in years)

 

 

5.3

 

Weighted average discount rate

 

 

12.0

%


Cash Flows


An initial ROU asset of $8.0 million was recognized as a non-cash asset addition with the adoption of the standard. There were no additional ROU assets recognized as non-cash asset additions during the quarter ended July 31, 2019. Cash paid for amounts included in the present value of operating lease liabilities at adoption and for the quarter ended July 31, 2019 was $1.7 million and $0.5 million, respectively, and is included in operating cash flows.


Note 10. Commitments and Contingencies


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.




24



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2019

(Unaudited)

 


USU currently has provisional certification to participate in the Title IV Programs due to its acquisition by the Company. 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 our subsidiaries operate in a highly regulated industry, each 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.


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 the DOE 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.


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. The Delaware DOE 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 received initial approval from the Delaware DOE to confer degrees through June 2023.


Note 11. Subsequent Event


Exercise of stock options


On August 20, 2019, the Company issued a former director 17,382 shares of common stock upon a cashless exercise of stock options granted on November 20, 2015 and May 19, 2016.






25



 


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 9, 2019 with the Securities and Exchange Commission (the “SEC”).


Company Overview


˿Ƶ. (together with its subsidiaries, the “Company” or “AGI”) is an education technology holding company. AGI has three subsidiaries, Aspen University Inc. organized in 1987, United States University, Inc. organized in May 2017 for the purposes of acquiring United States University in December 2017, and Aspen Nursing, Inc. (“ANI”) organized in 2018. ANI is a subsidiary of Aspen University Inc.


AGI leverages its education technology infrastructure and expertise to allow its two universities, Aspen University and United States University (“USU”), to deliver on the vision of making college affordable again. 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 higher education. AGI’s primary focus relative to future growth is to target the high growth nursing profession. As of July 31, 2019 8,002 of 9,752 or 82% of all students across both universities are degree-seeking nursing students.


In March 2014, Aspen University unveiled a monthly payment plan available to all students across every online degree program offered by the university. The monthly payment plan is designed so that students will make one payment per month, and that monthly payment is applied towards the total cost of attendance (tuition and fees, excluding textbooks). Starting October 1, 2019, the monthly payment plan will offer online associate and bachelor students the opportunity to pay their tuition and fees at $300/month, online master’s students $350/month, and online doctoral students $375/month, interest free, thereby giving students a monthly payment option versus taking out a federal financial aid loan.


USU began offering the monthly payment plan in the summer of 2017. Today, monthly payment plan is available for the online RN to BSN program ($250/month), online MBA/M.A.Ed/MSN programs ($325/month), and the online hybrid Masters of Nursing-Family Nurse Practitioner (“FNP”) program ($375/month). Effective August 2019, new student enrollments for USU’s FNP monthly payment plan are offered a two-year payment plan ($375/month for 24 months) designed to pay for the first year’s pre-clinical courses only (approximate cost of $9,000). The second academic year in which students complete their clinical courses (approximate cost of $18,000) is required to be funded through conventional payment methods (either cash, private loans, corporate tuition reimbursement or federal financial aid).


Since 1993, Aspen University has been nationally accredited by the DEAC, a national accrediting agency recognized by the DOE. In February 2019, the DEAC informed Aspen University that it had renewed its accreditation for five years to January 2024.


Since 2009, USU has been regionally accredited by WSCUC.


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


Monthly Payment Programs Overview


AGI offers two monthly payment programs:


·

a monthly payment plan in which students make payments every month over a fixed period 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).


Aspen University students paying tuition and fees through a monthly payment method grew by 17% year-over-year, from 4,769 to 5,580. Those 5,580 students paying through a monthly payment method represent 68% of Aspen University’s total active student body. The total contractual value of Aspen University’s monthly payment plan students now exceeds $48 million which currently delivers monthly recurring tuition cash payments exceeding $1,200,000.




26



 


USU students paying tuition and fees through a monthly payment method grew from 758 to 1,053 students sequentially. Those 1,053 students paying through a monthly payment method represent 71% of USU’s total active student body.  The total contractual value of USU’s monthly payment plan students now exceeds $15 million which currently delivers monthly recurring tuition cash payments exceeding $300,000.


AGI Student Population Overview


AGI’s overall active student body (including both Aspen University and USU) grew 34% year-over-year from 7,274 to 9,752 students. Active student body is comprised of active degree-seeking students, which are degree-seeking students enrolled in a course during the quarter covered by this Form 10-Q or are registered for an upcoming course.


Aspen University’s total active degree-seeking student body grew 25% year-over-year from 6,590 to 8,261 students. Aspen University’s School of Nursing grew 36% year-over-year, from 4,863 to 6,595 active students, which includes 670 active students in the BSN Pre-Licensure program in Phoenix, Arizona.


USU’s total active student body grew sequentially from 1,148 to 1,491 students or a sequential increase of 30%. On a year-over-year basis, USU’s total active student body grew from 684 to 1,491 students or 118%. USU’s MSN-FNP active student body grew sequentially from 970 to 1,294 students or a sequential increase of 33%. USU’s MSN-FNP program now represents 87% of USU’s active student body.


Of the 9,752 total active students at both universities as of July 31, 2019, 82% or 8,002 are degree-seeking nursing students.


[/all-sec-filings/content/0001553350-19-000934/aspu_10q002.gif]


AGI New Student Enrollments


AGI delivered a company record 1,929 new student enrollments for the fiscal quarter ended July 31, 2019 (the “Fiscal 2020 Q1”), a 24% sequential enrollment increase and an increase of 46% year-over-year. Moreover, this quarterly enrollment record was accomplished in the seasonally weakest (summer) fiscal first quarter.


Aspen University accounted for 1,415 new student enrollments (including 198 Doctoral enrollments and 276 Pre-licensure BSN AZ campus enrollments), delivering overall enrollment growth at Aspen University of 29% year-over-year.  Enrollment growth at Aspen University was highlighted by the Doctoral unit increasing by 68% and the Pre-Licensure BSN unit increasing by 197% year-over-year. Enrollment efforts remained focused on the highest expected return businesses as management increased the number of enrollment advisors (the “EA”)dedicated to Aspen’s Doctoral and Pre-Licensure units during the quarter.  In addition, our Aspen Nursing + Other Unit experienced an increase in the number of enrollments per EA and cost per enrollment declined.  As a result of this increased efficiency, Aspen’s Nursing + Other unit grew enrollments by 7% year-over-year.


USU accounted for 514 new student enrollments (primarily FNP enrollments), a 133% enrollment increase year-over-year.




27



 


Below is a table reflecting unconditional acceptance new student enrollments for the past five quarters:


 

 

New Student Enrollments

 

 

EAs

 

 

Enrolls/
Month/EA

 

 

 

Q1’19

 

 

Q2’19

 

 

Q3’19

 

 

Q4’19

 

 

Q1’20

 

 

 

 

 

 

 

Aspen (Nursing + Other)

 

 

882

 

 

 

1,104

 

 

 

895

 

 

 

944

 

 

 

941

 

 

 

46

 

 

 

6.8

 

Aspen (Doctoral)

 

 

118

 

 

 

133

 

 

 

120

 

 

 

113

 

 

 

198

 

 

 

10

 

 

 

6.6

 

Aspen (Pre-Licensure BSN, AZ Campuses)

 

 

93

 

 

 

57

 

 

 

97

 

 

 

186

 

 

 

276

 

 

 

5

 

 

 

18.4

 

USU (FNP + Other)

 

 

221

 

 

 

271

 

 

 

251

 

 

 

317

 

 

 

514

 

 

 

15

 

 

 

11.4

 

Total

 

 

1,314

 

 

 

1,565

 

 

 

1,363

 

 

 

1,560

 

 

 

1,929

 

 

 

76

 

 

 

 

 


Marketing Efficiency Ratio (MER) Analysis


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


 

Revenue per Enrollment (RPE)

Marketing Efficiency Ratio (MER) =

—————————————

 

Cost per Enrollment (CPE)


Cost per Enrollment (CPE)


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


The current Marketing Efficiency Ratio (MER = revenue-per-enrollment or LTV/cost-per-enrollment or CAC) for our four degree units is reflected in the below table:


 

 

Enrollments

 

 

Cost-of-
Enrollment
1

 

 

LTV

 

 

MER

Aspen (Nursing + Other)

 

 

941

 

 

$

1,231

 

 

$

7,350

 

 

 

6.0X

Aspen (Doctoral)

 

 

198

 

 

$

1,987

 

 

$

12,600

 

 

 

6.3X

USU (FNP + Other)

 

 

514

 

 

$

1,078

 

 

$

17,820

2

 

 

16.5X

Aspen (Pre-Licensure BSN, AZ)

 

 

276

 

 

$

478

 

 

$

30,000

 

 

 

62.8X

———————

1Based on 6-month rolling average

2LTV for USU’s MSN-FNP Program


The improved MER results were driven by declining cost of enrollment.  Compared to the previous quarter the weighted average cost of enrollment declined 18%, and the cost of enrollment declined for each program except the Pre-Licensure BSN program which remained at a cost of enrollment below $500.


 

 

Q1’20
Enrollments

 

 

Q1’20 Cost of
Enrollment
1

 

 

Q4’19
Enrollments

 

 

Q4’19 Cost of
Enrollment
1

 

 

Percent
Change

 

Aspen (Nursing + Other)

 

 

941

 

 

$

1,231

 

 

 

944

 

 

$

1,361

 

 

 

-10

%

Aspen (Doctoral)

 

 

198

 

 

$

1,987

 

 

 

113

 

 

$

2,892

 

 

 

-31

%

USU (FNP + Other)

 

 

514

 

 

$

1,078

 

 

 

317

 

 

$

1,619

 

 

 

-33

%

Aspen (Pre-Licensure BSN, AZ)

 

 

276

 

 

$

478

 

 

 

186

 

 

$

402

 

 

 

+19

%

Total / Weighted Average

 

 

1,929

 

 

$

1,160

 

 

 

1,560

 

 

$

1,410

 

 

 

-18

%

———————

1Based on 6-month rolling average



28



 


Bookings Analysis


On a year-over-year basis, fiscal Q1’20 bookings increased 83%, from $14.7 million to $26.9 million, delivering an average revenue per user (APRU) increase of 24%, from $11,185 to $13,919.


 

 

Lifetime Value (LTV)

 

 

Q1'2019

 

 

Q1'2019

 

 

Q1'2020

 

 

Q1'2020

 

 

 

Per Enrollment

 

 

Enrollments

 

 

Bookings*

 

 

Enrollments

 

 

Bookings*

 

AU Online (Nursing + Other) Unit

 

$

7,350

 

 

 

882

 

 

$

6,482,700

 

 

 

941

 

 

$

6,916,350

 

AU (Doctoral) Unit

 

$

12,600

 

 

 

118

 

 

$

1,486,800

 

 

 

198

 

 

$

2,494,800

 

AU (Pre-Licensure BSN) Unit

 

$

30,000

 

 

 

93

 

 

$

2,790,000

 

 

 

276

 

 

$

8,280,000

 

USU (FNP + Other) Unit

 

$

17,820

 

 

 

221

 

 

$

3,938,220

 

 

 

514

 

 

$

9,159,480

 

Total

 

 

 

 

 

 

1,314

 

 

$

14,697,720

 

 

 

1,929

 

 

$

26,850,630

 

ARPU

 

 

 

 

 

 

 

 

 

$

11,185

 

 

 

 

 

 

$

13,919

 

———————

*Note: “Bookings” are defined by multiplying Lifetime Value (LTV) per enrollment by new student enrollments for each operating unit.


ASPEN UNIVERSITY’S PRE-LICENSURE BSN HYBRID (ONLINE/ON-CAMPUS) DEGREE PROGRAM


In July 2018, Aspen University through ANI began offering its Pre-Licensure Bachelor of Science in Nursing (BSN) degree program at its initial campus in Phoenix, Arizona. As a result of overwhelming demand in the Phoenix metro area, in January 2019 Aspen University began offering both day (July, November, March semesters) and evening/weekend (January, May, September semesters) programs, equaling six semester starts per year. Moreover, in September 2018, AGI entered into a memorandum of understanding to open a second campus in the Phoenix metro area in partnership with HonorHealth (the initial semester at HonorHealth is currently scheduled to begin in September 2019).


Aspen University’s innovative hybrid (online/on-campus) program allows most of the credits to be completed online (83 of 120 credits or 69%), with pricing offered at current low tuition rates of $150/credit hour for online general education courses and $325/credit hour for online core nursing courses. For students with no prior college credits, the total cost of attendance is less than $50,000.


Aspen University’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 is admitting students into one of two program components: (1) a pre-professional nursing component for students that have less than the required 41 general education credits completed (Year 1), and (2) the nursing core component for students that are ready to participate in the competitive evaluation process for entry (Years 2-3).


New student enrollments for Aspen University’s Pre-Licensure BSN program increased from 186 to 276 or 48% sequentially, as it continued accepting in the Fiscal 2020 Q1 enrollments for prerequisite students taking online courses in anticipation of entering the HonorHealth final two-year nursing core component of the program scheduled to launch this September. Aspen University ended the fiscal year with 670 active students in its Pre-Licensure BSN program.


The end of Fiscal 2020 Q1 marked the completion of the first year of Aspen’s Pre-Licensure BSN program in Phoenix, Arizona.


Pre-Licensure BSN Program Campus Expansion Plan


Aspen University plans to launch a stand-alone campus in Tampa, Florida in the summer of calendar year 2020. A clinical affiliation agreement has been executed with Bayfront Health, a regional network of seven hospitals and over 1,900 medical professionals on staff serving the residents of Florida’s Gulf Coast.




29



 


Additionally, Aspen University plans to launch a stand-alone campus in Austin, Texas in the winter of calendar year 2020. A clinical affiliation agreement has been executed with Baylor Scott & White Health – Central division. As the largest not-for-profit healthcare system in Texas and one of the largest in the United States, Baylor Scott & White Health was born from the 2013 combination of Baylor Health Care System and Scott & White Healthcare. Today, Baylor Scott & White includes 48 hospitals, more than 800 patient care sites, more than 7,800 active physicians, over 47,000 employees and the Scott & White Health Plan.


The Company has strategically targeted existing campus locations in Austin and Tampa that are substantially built-out including FF&E (furniture, fixtures, and equipment) in order to reduce the capital expenditures (CapEx) required to launch these campuses. The Company expects this will allow the CapEx for each new campus to be in the same range as the cost of Aspen University’s embedded campus at HonorHealth located in North Phoenix.


ACCOUNTS RECEIVABLE AND MONTHLY PAYMENT PLAN


Since the inception of the monthly payment plan in the spring of 2014, the accounts receivable balance, both short-term and long-term, has grown from a net number of $649,890 at April 30, 2014 to a net number of $15,036,234 at July 31, 2019. This growth could be portrayed as the engine of the monthly payment plan. The attractive aspect of being able to pay for a degree over a fixed period of time has fueled the growth of this plan and, as a result, the increase of the accounts receivable balance.


Each student’s receivable account is different depending on how many classes a student takes each period. If a student takes two classes each eight-week period while paying $250, $325 or $375 a month as an example, that student’s account receivable balance will rise accordingly. The converse is true also. A student who takes courses at a slower pace, even taking time off between eight-week terms, could have a balance due to them. It is much more likely however that a student participating in the monthly payment plan will have an accounts receivable balance, as the majority of students complete their degree program of study prior to the completion of the fixed monthly payment plan.


The common thread is the actual monthly payment, which functions as a retail installment contract with no interest that each student commits to pay over a fixed number of months. If a student stops paying, that person can no longer register for a class. If a student decides to withdraw from the university, their account will be settled, either through collection of their balance or disbursement of the amount owed them. Aspen University students paying tuition and fees through a monthly payment method grew by 17% year-over-year, from 4,769 to 5,580. The 5,580 students paying through a monthly payment method represent 68% of Aspen University’s total active student body.


USU students paying tuition and fees through a monthly payment method grew from 758 to 1,053 students sequentially. The 1,053 students paying through a monthly payment method represent 71% of USU’s total active student body.


Relationship Between Accounts Receivable and Revenue


The gross accounts receivable balance for any period is the net effect of the following three factors:


1. Revenue;

2. Cash receipts; and

3. The net change in deferred revenue.


All three factors equally determine the gross accounts receivable. If one quarter experiences particularly high cash receipts, the gross accounts receivable will go down. The same effect if cash receipts are lower or if there are significant changes in either of the other factors.


Simply looking at the change in revenue does not translate into an equally similar change in gross accounts receivable. The relative change in cash and the deferral must also be considered. For net accounts receivable, the changes in the reserve must also be considered. Any additional reserve or write-offs will influence the balance.


As it is a straight mathematical formula for both gross accounts receivable and net accounts receivable, and most of the information is public, one can reasonably calculate the two non-public pieces of information, namely the cash receipts in gross accounts receivable and the write-offs in net accounts receivable.




30



 


For revenue, the quarterly change is primarily billings and the net impact of deferred revenue. The deferral from the prior quarter or year is added to the billings and the deferral at the end of the period is subtracted from the amount billed. The total deferred revenue at the end of every period is reflected in the liability section of the balance sheet. Deferred revenue can vary for many reasons, but seasonality and the timing of the class starts in relation to the end of the quarter will cause changes in the balance.


As mentioned in the accounts receivable section, the change in revenue cannot be compared to the change in accounts receivable. Revenue does not have the impact of cash received whereas accounts receivable does. Depending on the month and the amount of cash received, it is likely that revenue or accounts receivable will increase at a rate different from the other. The impact of cash is easy to substantiate as it agrees to deposits in our bank accounts.


AGI records an allowance for doubtful accounts for estimated losses resulting from the inability, failure or refusal of its students to make required payments, which includes the recovery of financial aid funds advanced to a student for amounts in excess of the student’s cost of tuition and related fees.  At July 31, 2019, the allowance for doubtful accounts was $1,484,559 which represents 9.0% of the gross accounts receivable balance of $16,520,793, the sum of both short-term and long-term receivables.


The Introduction of Long-Term Accounts Receivable


When a student signs up for the monthly payment plan, there is a contractual amount that the Company can expect to earn over the life of the student’s program. This contractual amount cannot be recorded as an account receivable as the student does have the option to stop attending. As a student takes a class, revenue is earned over that eight-week class. Some students accelerate their program, taking two classes every eight-week period, and as we discussed, that increases the student’s accounts receivable balance. If any portion of that balance will be paid in a period greater than 12 months, that portion is reflected as long-term accounts receivable.


As a result of the growing acceptance of our monthly payment plans, our long-term accounts receivable balance has grown from $3,085,243 at April 30, 2019 to $4,249,969 at July 31, 2019. The primary component consist of students who make monthly payments over 36 and 39 months. The average student completes their academic program in 24 months, therefore most of the Company’s accounts receivable are short-term.


Included below is a graphic of both short-term and long-term receivables, as well as contractual value:


A

B

C

 

Classes Taken
less monthly
payments received

 

Payments for classes
taken that are greater
than 12 months

Expected classes
to be taken over
balance of program.

 

Short-Term
Accounts Receivable

 

Long-term
Accounts Receivable

Not recorded in
financial statements

The Sum of A, B and C will equal the total cost of the program.


Seasonality Briefing and Revenue Impact


As Aspen University continues to scale its traditional online Nursing student body, seasonality in that unit has become more pronounced. As previously disclosed, the Company’s first fiscal quarter (May – July) is the seasonal low point because it falls on the summer months and therefore our primarily working professional students tend to take less courses during that quarter relative to the other three fiscal quarters.


By way of example, in the fiscal quarter ended April 30, 2018 (the last quarter of the 2018 fiscal year), Aspen University’s revenues were $10,214,143. In the fiscal quarter ended July 31, 2018 (the “Fiscal 2019 Q1”), revenues sequentially declined 41% or $2,992,838 to $7,221,305. For the fiscal quarter ended October 31, 2018 (the “Fiscal 2019 Q2”), revenues rose sequentially by 11% or $874,039 to $8,095,344.




31



 


As previously projected, the Company is reporting the same seasonality effect for the Fiscal 2020 Q1. Specifically, Aspen University’s Nursing + Other unit revenues declined in the Fiscal 2020 Q1 relative to Q4 by approximately 6%, however overall Company revenues rose by 1.4% sequentially given the revenue contribution from USU and Aspen’s Pre-Licensure BSN program. See Results of Operations below.


Results of Operations


For the Quarter Ended July 31, 2019 Compared with the Quarter Ended July 31, 2018

 

Revenue


Revenue from operations for the Fiscal 2020 Q1 increased to $10,357,982 from $7,221,305 for the Fiscal 2019 Q1, an increase of $3,136,677 or 43%. The increase was primarily due to enrollment growth in the degree programs with the highest lifetime value (LTV). By focusing our marketing spend on delivering enrollment growth in the degree programs with the highest lifetime value (LTV), we increased our average revenue per enrollment or ARPU by 24%. The Company expects revenue growth to continue in future periods as we continue prioritizing our highest LTV degree programs to accelerate our long-term growth.


Aspen University’s revenues in the Fiscal 2020 Q1 increased 17% year-over-year in its traditional post-licensure online nursing + other business unit, thereby contributing 66% of total Company revenue in the Fiscal 2020 Q1. Aspen University’s Pre-Licensure BSN program delivered approximately 8% of the Company’s revenues in the Fiscal 2020 Q1, which included revenues from first-year online prerequisite students enrolled in the HonorHealth campus program expected to open in September of 2019.


USU contributed approximately 26% of the total revenues for the Fiscal 2020 Q1.

 

Cost of Revenues (exclusive of amortization)


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


Instructional Costs and Services


Instructional costs and services for Fiscal 2020 Q1 increased to $2,143,820 or 21% of revenues from $1,564,936 or 22% of revenues for the Fiscal 2019 Q1, an increase of $578,883 or 37%. The increase was primarily due to the increase in the number of students taking classes.


Aspen University instructional costs and services represented 18% of Aspen University revenues for the Fiscal 2020 Q1, while USU instructional costs and services equaled 28% of USU revenues during the Fiscal 2020 Q1.


Marketing and Promotional

 

Marketing and promotional costs for the Fiscal 2020 Q1 were $2,209,238 or 21% of revenues compared to $2,187,456 or 30% of revenues for the Fiscal 2019 Q1, an increase of $21,782 or 1%.


Aspen University marketing and promotional costs represented 20% of Aspen University revenues for the Fiscal 2020 Q1, while USU marketing and promotional costs equaled 17% of USU revenues for the Fiscal 2020 Q1.


AGI corporate marketing expenses equaled $228,231 for the Fiscal 2020 Q1 compared to $226,085 for the Fiscal 2019 Q1, an increase of $2,146 or 1%.


Gross profit rose to 56% of revenues or $5,765,329 for the Fiscal 2020 Q1 from 46% of revenues or $3,309,768 for the Fiscal 2019 Q1, an increase of 78% year over year


Aspen University gross profit represented 59% of Aspen University revenues for the Fiscal 2020 Q1, while USU gross profit equaled 60% of USU revenues during the Fiscal 2020 Q1.




32



 


Costs and Expenses


General and Administrative


General and administrative costs for the Fiscal 2020 Q1 were $7,037,150 compared to $5,824,132 during the Fiscal 2019 Q1, an increase of $1,213,018 or 21%. The increase in expense is consistent with our long term expectations that general and administrative costs will grow at approximately half the rate of revenues. There is a portion these costs that are variable which increased as our revenues increased; but there also is a fixed cost component that tends to grow at a slower rate.


Aspen University general and administrative costs which are included in the above amount represented 45% of Aspen University revenues for the Fiscal 2020 Q1, while USU general and administrative costs equaled 59% of USU revenues for the Fiscal 2020 Q1.


AGI’s general and administrative costs for the Fiscal 2020 Q1 and Fiscal 2019 Q1 are included in the above amounts equaled $1,953,588 and $1,638,178, respectively include corporate employees in the NY corporate office, IT, rent, non-cash AGI stock based compensation, and professional fees (legal, accounting, and IR).


Depreciation and Amortization


Depreciation and amortization costs for the Fiscal 2020 Q1 increased to $606,574 from $498,105 for the Fiscal 2019 Q1, an increase of $108,469 or 22%. The increase in depreciation expense is mainly due to additional investment in company developed software. Moreover, AGI has made capital investments in the Phoenix campus and will invest in other campus locations that will cause depreciation expense to continue to increase in the near future.


Other Income (Expense)


Other income/ (expense), net for the Fiscal 2020 Q1 decreased to ($400,887) from $16,048 in the Fiscal 2019 Q1, a decrease of ($416,935) or (2,598%). The decrease is primarily due to amortization of original issue discount and interest on our debt.


Income Taxes

 

Income taxes expense for the Fiscal 2020 Q1 was $35,595 compared to $0 in the Fiscal 2019 Q1. 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 either quarter. In the Fiscal 2020 Q1 Aspen University recognized state income tax expense for certain states that do not allow consolidated filing.


Operating Income and Loss


Aspen University generated approximately $1.0 million of operating income for the Fiscal 2020 Q1, USU experienced an operating loss of approximately ($0.4) million during the Fiscal 2020 Q1, while AGI corporate incurred approximately ($2.2) million of operating loss for the Fiscal 2020 Q1.


Net Loss

 

Net loss applicable to stockholders was ($2,075,282) or net loss per share of ($0.11) for the Fiscal 2020 Q1 as compared to ($2,837,276) for the Fiscal 2019 Q1, a decrease in the loss of $761,994 or 27% improvement. As the result of the trends discussed above, the Company anticipates continued decrease of net loss in future periods compared to Fiscal 2020 Q1.


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 Aspen Group 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.



33



 


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.


Aspen Group defines Adjusted EBITDA as earnings (or loss) from continuing operations before the items in the table below including non-recurring charges of approximately $133,000 in the Fiscal 2020 Q1 and approximately $189,000 in the Fiscal 2019 Q1. 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 the Company 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 Adjusted EBITDA to Net loss allocable to common shareholders, a GAAP financial measure:


 

 

 

 

 

Quarter Ended

July 31,

 

 

 

 

 

 

2019

 

 

2018

 

Net loss

 

 

 

 

 

$

(2,075,282

)

 

$

(2,837,276

)

Interest expense, net of interest income

 

 

 

 

 

 

420,067

 

 

 

40,353

 

Taxes

 

 

 

 

 

 

90,277

 

 

 

 

Depreciation & amortization

 

 

 

 

 

 

606,574

 

 

 

498,105

 

EBITDA (loss)

 

 

 

 

 

 

(958,364

)

 

 

(2,298,818

)

Bad debt expense

 

 

 

 

 

 

240,899

 

 

 

121,805

 

Non-recurring charges

 

 

 

 

 

 

132,949

 

 

 

188,665

 

Stock-based compensation

 

 

 

 

 

 

498,417

 

 

 

209,976

 

Adjusted EBITDA (Loss)

 

 

 

 

 

$

(86,099

)

 

$

(1,778,372

)


The Company reported an Adjusted EBITDA loss of ($86,099) for the Fiscal 2020 Q1 as compared to an Adjusted EBITDA loss of ($1,778,372) for the Fiscal 2019 Q1, an improvement of 95%.


Aspen University generated $1.6 million of Adjusted EBITDA for the Fiscal 2020 Q1 and approximately $0.6 million of Adjusted EBITDA for the Fiscal 2019 Q1.


USU experienced an Adjusted EBITDA loss of approximately ($10,000) during the Fiscal 2020 Q1 and an Adjusted EBITDA loss of approximately $(0.8) million during the Fiscal 2019 Q1.


Aspen Group corporate incurred an Adjusted EBITDA loss of ($1.6) million which contributed to the consolidated Aspen Group Adjusted EBITDA loss of ($86) thousand for the Fiscal 2020 Q1. Aspen Group corporate incurred an Adjusted EBITDA loss of ($1.6) million that contributed to the consolidated Aspen Group Adjusted EBITDA loss of ($1.8) million for the Fiscal 2019 Q1.


Liquidity and Capital Resources


A summary of our cash flows is as follows:


 

 

 Three Months Ended

 

 

 

July 31,

 

 

 

2019

 

 

2018

 

 

  

                     

  

  

                     

  

Net cash used in operating activities

 

$

(1,685,083

)

 

$

(3,388,210

)

Net cash used in investing activities

 

 

(632,258

)

 

 

(778,674

)

Net cash provided by (used in) financing activities

 

 

45,190

 

 

 

(22,015

)

Net decrease in cash

 

$

(2,272,151

)

 

$

(4,188,899

)



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Net Cash Used in Operating Activities


Net cash used in operating activities during the Fiscal 2020 Q1 totaled ($1,685,083) and resulted primarily from the net loss of ($2,075,282) and  a net change in operating assets and liabilities of ($1,111,332), partially offset by $1,501,153 in non-cash items.  The net loss included $423,689 for interest expense. The most significant change in operating assets and liabilities was an increase in gross accounts receivable (both short and long term accounts receivable, before allowance for doubtful accounts) of approximately $1.5 million 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 approximately $0.6 million and stock-based compensation expense of approximately $0.5 million.


The Company expects revenue growth to continue, while expenses grow at a slower pace. As a result, the Company anticipates lower losses in future quarters as compared to the quarter ending July 31, 2019, which should contribute to a reduction in cash used in operations.  Cash used in operations is also affected by changes in working capital.  The Company expects a favorable trend in working capital over time, but there may be volatility from quarter to quarter.  So, in aggregate the Company expects a general trend toward lower cash used in operations in future quarters as compared to the quarter ending July 31, 2019; however, some quarters could have higher cash used in operations as a result of more cash used to support changes in working capital.


Net cash used in operating activities during the Fiscal 2019 Q1 totaled ($3,388,210) and resulted primarily from the net loss of ($2,837,276) and a net change in operating assets and liabilities of ($1,389,105), partially offset by non-cash items of $838,171. The most significant change in operating assets and liabilities was an increase of $1,592,941 in gross accounts receivable reflecting the expansion of the monthly payment plan. The most significant non-cash item was $498,105 in Depreciation and Amortization.


Net Cash Used in Investing Activities


Net cash used in investing activities during the Fiscal 2020 Q1 totaled ($632,258) mostly attributed to investments in Company developed software.


Net cash used in investing activities during the Fiscal 2019 Q1 totaled ($778,674), reflecting primarily fixed asset purchases of $735,757.


Net Cash Provided By Financing Activities


Net cash provided by financing activities during the Fiscal 2020 Q1 totaled $45,190 which reflects proceeds from the exercise of stock options and warrants.


Net cash provided by financing activities during the Fiscal 2019 Q1 totaled ($22,015), reflecting primarily disbursements for equity offering costs.


Liquidity


The Company had cash deposits of approximately $6.6 million on September 5, 2019, including $452,021 of restricted cash. In addition to its cash, the Company also had access to the $5 million Revolving Credit Facility, which is unused. The Company expects that its cash resources will be sufficient to meet its working capital needs for at least the next 12 months.


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.




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Revenue Recognition and Deferred Revenue


Revenue consisting primarily of tuition and fees derived from courses taught by Aspen online as well as from related educational resources that Aspen 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. Aspen 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 Aspen’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, Aspen recognizes as revenue the tuition that was not refunded. Since Aspen 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 Aspen’s accounting policies revenue is not recognized with respect to amounts that could potentially be refunded. Aspen’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. Aspen 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 revenue may be recognized as sales occur or services are performed.


Accounts Receivable and Allowance for Doubtful Accounts Receivable


All students are required to select both a primary and secondary payment option with respect to amounts due to Aspen for tuition, fees and other expenses. The most common payment option for Aspen’s students is personal funds or payment made on their behalf by an employer. In instances where a student selects financial aid as the primary payment option, he or she often selects personal cash as the secondary option. If a student who has selected financial aid as his or her primary payment option withdraws prior to the end of a course but after the date that Aspen’s institutional refund period has expired, the student will have incurred the obligation to pay the full cost of the course. If the withdrawal occurs before the date at which the student has earned 100% of his or her financial aid, Aspen will have to return all or a portion of the Title IV funds to the DOE and the student will owe Aspen all amounts incurred that are in excess of the amount of financial aid that the student earned and that Aspen is entitled to retain. In this case, Aspen must collect the receivable using the student’s second payment option.


For accounts receivable from students, Aspen records an allowance for doubtful accounts for estimated losses resulting from the inability, failure or refusal of its students to make required payments, which includes the recovery of financial aid funds advanced to a student for amounts in excess of the student’s cost of tuition and related fees. Aspen determines the adequacy of its allowance for doubtful accounts using a general reserve method based on an analysis of its historical bad debt experience, current economic trends, and the aging of the accounts receivable and student status. Aspen applies reserves to its receivables based upon an estimate of the risk presented by the age of the receivables and student status. Aspen writes off accounts receivable balances at the time the balances are deemed uncollectible. Aspen continues to reflect accounts receivable with an offsetting allowance as long as management believes there is a reasonable possibility of collection.


For accounts receivable from primary payers other than students, Aspen estimates its allowance for doubtful accounts by evaluating specific accounts where information indicates the customers may have an inability to meet financial obligations, such as bankruptcy proceedings and receivable amounts outstanding for an extended period beyond contractual terms. In these cases, Aspen uses assumptions and judgment, based on the best available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable to the amount expected to be collected. These specific allowances are re-evaluated and adjusted as additional information is received. The amounts calculated are analyzed to determine the total amount of the allowance. Aspen may also record a general allowance as necessary.


Direct write-offs are taken in the period when Aspen has exhausted its efforts to collect overdue and unpaid receivables or otherwise evaluate other circumstances that indicate that Aspen should abandon such efforts.


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.




36



 


Goodwill and Intangibles


Goodwill currently 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.


Intangible assets 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.


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 within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding future revenue growth, expected pace of increase in expenses, the expected future effect of seasonality on our operating results, projections with respect to our marketing efficiency ratio, the Pre-Licensure BSN program campus expansion plan, the expected timing of launching of, and anticipated capital expenditures related to, new campuses, the expected effect of changes to the tuition payment plan for our FNP program, 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, uncertainties and risks that may cause actual results to differ materially from these forward-looking statements include continued high demand for nurses, the continued effectiveness of our marketing efforts, unanticipated issues with, and delays in, launching our second, third and fourth campuses, and failure to continue obtaining enrollments at low acquisition costs and keeping teaching costs down.  Further information on the risk factors affecting our business is contained in our filings with the SEC, including our Annual Report on Form 10-K for the year ended April 30, 2019, as updated by this Quarterly Report on Form 10Q. 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.

 



37



 


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 Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.







38



 


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. As of the date of this report, except as discussed below, we are not aware of any other pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations and there are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.


ITEM 1A. RISK FACTORS


The information presented below updates, and should be read in conjunction with, the risk factors and information disclosed in our Annual Report on Form 10-K for the fiscal year ended April 30, 2019.


If our new tuition payment plan for our FNP program materially reduces our enrollments, USU’s future results of operations and cash flow may be materially and adversely affected.


Effective October 1, 2019 we are requiring new FNP students at USU to find third party financing for the second year of the program rather than using the monthly payment plan as they are permitted for the first year. Because of the income that FNP students generally have, we do not anticipate a material reduction in enrollments. If our expectations are incorrect, our future revenues and cash flows at USU may be materially and adversely affected.


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


On June 18, 2019, in order to correct certain errors in a third party software system used to track stock options, the Company granted two former directors a total of 25,000 shares of common stock. The award was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933 and Rule 506(b) promulgated thereunder.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.


ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION


None.


ITEM 6. EXHIBITS

 

See the Exhibit Index at the end of this report.





39



 


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.

 

 

 

 

 

September 9, 2019

By:

/s/ Michael Mathews

 

 

 

Michael Mathews

 

 

 

Chief Executive Officer

 

 

 

(Principal Executive Officer)

 

 

 

 

 


September 9, 2019

By:

/s/ Joseph Sevely

 

 

 

Joseph Sevely

 

 

 

Chief Financial Officer

 

 

 

(Principal Financial Officer)

 

 

 

 

 

 







40



 


EXHIBIT INDEX



 

 

 

 

 

Incorporated by Reference

 

Filed or Furnished

Exhibit #

 

Exhibit Description

 

 

Form

 

Date

 

 

Number

 

Herewith

   

Certificate of Incorporation, as amended

  

 

10-K

   

7/9/19

  

 

3.1

   

 

 

Bylaws, as amended

 

 

10-Q

 

3/15/18

 

 

3.2

 

 

 

Securities Purchase Agreement, dated as of July 19, 2018, by and between ˿Ƶ. and ESL

 

 

8-K

 

7/19/18

 

 

10.1

 

 

 

Form of Term Promissory Note and Security Agreement, dated March 6, 2019

 

 

10-Q

 

3/11/19

 

 

10.1

 

 

 

Form of Loan Agreement, dated March 6, 2019

 

 

10-Q

 

3/11/19

 

 

10.2

 

 

 

Form of Intercreditor Agreement, dated March 6, 2019

 

 

10-Q

 

3/11/19

 

 

10.3

 

 

 

Form of Warrant for the Purchase of 100,000 shares of common stock, dated March 6, 2019

 

 

10-Q

 

3/11/19

 

 

10.4

 

 

 

Amended and Restated Revolving Promissory Note and Security Agreement, dated March 6, 2019

 

 

10-Q

 

3/11/19

 

 

10.5

 

 

 

˿Ƶ. 2018 Equity Incentive Plan*

 

 

DEF 14A

 

10/31/18

 

 

Annex A

 

 

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.

 

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.






41