Table of Contents
UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON,

Washington, D.C. 20549

FORM 10-Q

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

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

For the quarterly period endedJanuary 31, 2018

OR

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

For the transition period from ________ to ________

Commission file number: 001-38175

Aspen Group, Inc.

(Exact name of registrant as specified in its charter)

2022
or

Delaware

27-1933597

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
aspu-20220131_g1.jpg
ASPEN GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware27-1933597
State or other jurisdictionOther Jurisdiction of incorporationIncorporation or organization)

Organization

(

I.R.S. Employer Identification No.)

1660 S Albion Street,

276 Fifth Avenue, Suite 525

Denver, CO

505
, New York, New York

80222

10001

(

Address of principal executive offices)

Principal Executive Offices

(

Zip Code)

Code

Registrants

(646) 448-5144
(Registrant’s telephone number: (303) 333-4224

number, including area code)

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

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001ASPU
The Nasdaq Stock Market
(The Nasdaq Global Market)
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 daysdays.  Yes þ     No o

¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ    No o

¨

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


Large accelerated filer ¨

Accelerated filer þ

¨

Non-accelerated filer ¨

(Do not check if a smaller

Smaller reporting company þ

reporting company)

Emerging growth company ¨


If an emerging growth company, indicate by checkmarkcheck 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 Exchange Act).  Yes o    No þ

Class

Outstanding as of March 15, 2018

11, 2022

Common Stock, $0.001 par value per share

15,072,332

25,190,410 shares






INDEX


Table of Contents
TABLE OF CONTENTS

Page Number

5

7

19

26

26

27

27

27

27

27

27

27


28









Table of Contents
PART I. FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS


ASPEN GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


 

 

January 31,

 

 

April 30,

 

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

3,803,080

 

 

$

2,756,217

 

Restricted cash

 

 

190,506

 

 

 

 

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

 

 

8,592,958

 

 

 

4,434,862

 

Prepaid expenses

 

 

288,640

 

 

 

133,531

 

Promissory note receivable

 

 

 

 

 

900,000

 

Other receivables

 

 

233,862

 

 

 

81,464

 

Accrued interest receivable

 

 

 

 

 

8,000

 

Total current assets

 

 

13,109,046

 

 

 

8,314,074

 

 

 

 

 

 

 

 

 

 

Property and equipment:

 

 

 

 

 

 

 

 

Call center equipment

 

 

96,305

 

 

 

53,748

 

Computer and office equipment

 

 

130,137

 

 

 

103,649

 

Furniture and fixtures

 

 

712,209

 

 

 

255,984

 

Software

 

 

2,590,297

 

 

 

2,131,344

 

 

 

 

3,528,948

 

 

 

2,544,725

 

Less accumulated depreciation and amortization

 

 

(1,161,030

)

 

 

(1,090,010

)

Total property and equipment, net

 

 

2,367,918

 

 

 

1,454,715

 

Goodwill

 

 

5,011,432

 

 

 

 

Intangible assets, net

 

 

9,916,667

 

 

 

 

Courseware, net

 

 

137,557

 

 

 

145,477

 

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

 

 

45,329

 

 

 

45,329

 

Long term contractual receivable

 

 

935,878

 

 

 

657,542

 

Other assets

 

 

585,206

 

 

 

56,417

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

32,109,033

 

 

$

10,673,554

 


January 31, 2022April 30, 2021
(Unaudited)
Assets
Current assets:
Cash and cash equivalents$5,969,286 $12,472,082 
Restricted cash1,433,397 1,193,997 
Accounts receivable, net of allowance of $3,381,204 and $3,289,816, respectively19,635,715 16,724,744 
Prepaid expenses1,375,628 1,077,831 
Other current assets31,032 68,529 
Total current assets28,445,058 31,537,183 
Property and equipment:
Computer equipment and hardware1,486,201 956,463 
Furniture and fixtures2,153,124 1,705,101 
Leasehold improvements7,179,896 5,729,324 
Instructional equipment656,409 421,039 
Software9,829,329 8,488,635 
Construction in progress900 247,767 
21,305,859 17,548,329 
Less: accumulated depreciation and amortization(7,533,571)(4,892,987)
Total property and equipment, net13,772,288 12,655,342 
Goodwill5,011,432 5,011,432 
Intangible assets, net7,907,075 7,908,360 
Courseware, net289,680 187,296 
Accounts receivable, net of allowance of $— and $625,963, respectively— 45,329 
Long-term contractual accounts receivable12,701,452 10,249,833 
Deferred financing costs88,393 18,056 
Operating lease right of use assets, net13,090,470 12,714,863 
Deposits and other assets523,898 479,212 
Total assets$81,829,746 $80,806,906 
(Continued)



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





1



Table of Contents
ASPEN GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (CONTINUED)


 

 

January 31,

 

 

April 30,

 

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,273,990

 

 

$

756,701

 

Accrued expenses

 

 

596,633

 

 

 

262,911

 

Deferred revenue

 

 

4,156,550

 

 

 

1,354,989

 

Refunds due students

 

 

730,722

 

 

 

310,576

 

Deferred rent, current portion

 

 

7,429

 

 

 

11,200

 

Convertible notes payable- related party, current portion

 

 

1,000,000

 

 

 

 

Convertible notes payable, current portion

 

 

50,000

 

 

 

50,000

 

Other current liabilities

 

 

186,134

 

 

 

 

Total current liabilities

 

 

8,001,458

 

 

 

2,746,377

 

 

 

 

 

 

 

 

 

 

Convertible note payable - related party

 

 

1,000,000

 

 

 

 

Senior secured term loan, net of discount

 

 

6,769,932

 

 

 

 

Warrant Liability

 

 

 

 

 

52,500

 

Deferred rent

 

 

60,295

 

 

 

34,437

 

Total liabilities

 

 

15,831,685

 

 

 

2,833,314

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies - See Note 7

 

 

— 

 

 

 

— 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

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

 

 

15,072

 

 

 

13,504

 

Additional paid-in capital

 

 

45,439,538

 

 

 

33,607,423

 

Treasury stock (16,667 shares)

 

 

(70,000

)

 

 

(70,000

)

Accumulated deficit

 

 

(29,107,262

)

 

 

(25,710,687

)

Total stockholders’ equity

 

 

16,277,348

 

 

 

7,840,240

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

32,109,033

 

 

$

10,673,554

 




January 31, 2022April 30, 2021
(Unaudited)
Liabilities and Stockholders’ Equity
Liabilities:
Current liabilities:
Accounts payable$1,806,656 $1,466,488 
Accrued expenses2,079,249 2,040,896 
Deferred revenue6,182,781 6,825,014 
Due to students3,229,516 2,747,484 
Operating lease obligations, current portion2,106,981 2,029,821 
Credit Facility5,000,000 — 
Other current liabilities136,027 307,921 
Total current liabilities20,541,210 15,417,624 
Operating lease obligations, less current portion17,317,396 16,298,808 
Total liabilities37,858,606 31,716,432 
Commitments and contingencies – see Note 1100
Stockholders’ equity:
Preferred stock, $0.001 par value; 1,000,000 shares authorized,
0 issued and 0 outstanding at January 31, 2022 and April 30, 2021— — 
Common stock, $0.001 par value; 40,000,000 shares authorized,
25,228,580 issued and 25,073,094 outstanding at January 31, 2022
25,066,297 issued and 24,910,811 outstanding at April 30, 202125,229 25,067 
Additional paid-in capital111,378,471 109,040,824 
Treasury stock (155,486 at both January 31, 2022 and April 30, 2021)(1,817,414)(1,817,414)
Accumulated deficit(65,615,146)(58,158,003)
Total stockholders’ equity43,971,140 49,090,474 
Total liabilities and stockholders’ equity$81,829,746 $80,806,906 

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




2



Table of Contents
ASPEN GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


 

 

For the

 

 

For the

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

January 31,

 

 

January 31,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

  

                     

  

  

                     

  

  

                     

  

  

                     

  

Revenues

 

$

5,701,958

 

 

$

3,735,626

 

 

$

14,796,483

 

 

$

9,957,467

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

2,665,664

 

 

 

1,359,131

 

 

 

6,282,814

 

 

 

3,490,046

 

General and administrative

 

 

4,677,359

 

 

 

2,133,074

 

 

 

10,975,085

 

 

 

6,228,554

 

Program review settlement expense

 

 

 

 

 

25,000

 

 

 

 

 

 

25,000

 

Depreciation and amortization

 

 

347,894

 

 

 

132,727

 

 

 

631,969

 

 

 

422,782

 

Total operating expenses

 

 

7,690,917

 

 

 

3,649,932

 

 

 

17,889,868

 

 

 

10,166,382

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (loss) income

 

 

(1,988,959

)

 

 

85,694

 

 

 

(3,093,385

)

 

 

(208,915

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income

 

 

46,179

 

 

 

1,684

 

 

 

88,067

 

 

 

3,047

 

Gain on extinguishment of warrant liability

 

 

52,500

 

 

 

 

 

 

52,500

 

 

 

 

Interest expense

 

 

(257,665

)

 

 

(80,001

)

 

 

(443,757

)

 

 

(175,662

)

Total other expense, net

 

 

(158,986

)

 

 

(78,317

)

 

 

(303,190

)

 

 

(172,615

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income before income taxes

 

 

(2,147,945

)

 

 

7,377

 

 

 

(3,396,575

)

 

 

(381,530

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(2,147,945

)

 

$

7,377

 

 

$

(3,396,575

)

 

$

(381,530

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

(0.15

)

 

$

0.00

 

 

$

(0.25

)

 

$

(0.03

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

(0.15

)

 

$

0.00

 

 

$

(0.25

)

 

$

(0.03

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding: basic

 

 

14,491,634

 

 

 

11,467,345

 

 

 

13,862,992

 

 

 

11,419,270

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding: diluted

 

 

14,491,634

 

 

 

13,040,970

 

 

 

13,862,992

 

 

 

11,419,270

 




Three Months Ended January 31,Nine Months Ended January 31,
2022202120222021
Revenue$18,944,798 $16,624,837 $57,316,004 $48,761,444 
Operating expenses:
   Cost of revenue (exclusive of depreciation and amortization shown separately below)9,275,419 7,559,951 26,658,188 20,732,254 
   General and administrative11,771,487 10,644,438 34,359,276 30,723,349 
   Bad debt expense350,000 670,000 1,050,000 1,702,000 
   Depreciation and amortization883,536 535,273 2,480,179 1,552,254 
Total operating expenses22,280,442 19,409,662 64,547,643 54,709,857 
   Operating loss(3,335,644)(2,784,825)(7,231,639)(5,948,413)
Other income (expense):
   Interest expense(180,697)(33,539)(353,738)(2,018,664)
   Other income (expense), net13,954 13,558 516,754 (116,820)
Total other (expense) income, net(166,743)(19,981)163,016 (2,135,484)
Loss before income taxes(3,502,387)(2,804,806)(7,068,623)(8,083,897)
Income tax expense231,610 10,460 388,520 45,090 
Net loss$(3,733,997)$(2,815,266)$(7,457,143)$(8,128,987)
Net loss per share - basic and diluted$(0.15)$(0.11)$(0.30)$(0.35)
Weighted average number of common stock outstanding - basic and diluted25,041,733 24,544,334 24,971,056 23,354,036 


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





3



Table of Contents
ASPEN GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED JANUARY

Three Months Ended January 31, 2018

2022 and 2021

(Unaudited)


 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Treasury

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Deficit

 

 

Equity

 

Balance at April 30, 2017

 

 

13,504,012

 

 

$

13,504

 

 

$

33,607,423

 

 

$

(70,000

)

 

$

(25,710,687

)

 

$

7,840,240

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fees associated with equity raise

 

 

 

 

 

 

 

 

(14,033

)

 

 

 

 

 

 

 

 

(14,033

)

Restricted stock issued for services

 

 

10,000

 

 

 

10

 

 

 

88,690

 

 

 

 

 

 

 

 

 

88,700

 

Stock-based compensation

 

 

 

 

 

 

 

 

466,468

 

 

 

 

 

 

 

 

 

466,468

 

Common stock issued for acquisition

 

 

1,203,209

 

 

 

1,203

 

 

 

10,214,041

 

 

 

 

 

 

 

 

 

10,215,244

 

Common stock issued for cashless warrant exercises

 

 

162,072

 

 

 

162

 

 

 

(162

)

 

 

 

 

 

 

 

 

 

Common stock issued for warrants exercised for cash

 

 

79,442

 

 

 

79

 

 

 

143,410

 

 

 

 

 

 

 

 

 

143,489

 

Common stock issued for stock options exercised

 

 

113,597

 

 

 

114

 

 

 

455,273

 

 

 

 

 

 

 

 

 

455,387

 

Warrants issued with senior secured term loan

 

 

 

 

 

 

 

 

478,428

 

 

 

 

 

 

 

 

 

478,428

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,396,575

)

 

 

(3,396,575

)

Balance at January 31, 2018

 

 

15,072,332

 

 

$

15,072

 

 

$

45,439,538

 

 

$

(70,000

)

 

$

(29,107,262

)

 

$

16,277,348

 






Common StockAdditional
Paid-In
Capital
Treasury
Stock
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance at October 31, 202125,148,194 $25,149 $110,526,729 $(1,817,414)$(61,881,149)$46,853,315 
Stock-based compensation— — 700,697 — — 700,697 
Common stock issued for stock options exercised for cash41,667 41 134,959 — — 135,000 
Common stock issued for vested restricted stock units38,719 39 (39)— — — 
Amortization of warrant based cost— — 16,125 — — 16,125 
Net loss— — — — (3,733,997)(3,733,997)
Balance at January 31, 202225,228,580 $25,229 $111,378,471 $(1,817,414)$(65,615,146)$43,971,140 
Common StockAdditional
Paid-In
Capital
Treasury
Stock
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance at October 31, 202024,416,539 $24,417 $105,092,551 $— $(53,022,751)$52,094,217 
Stock-based compensation— — 701,170 — — 701,170 
Common stock issued for stock options exercised for cash447,134 447 2,180,352 (1,817,414)— 363,385 
Common stock issued for vested restricted stock units74,000 74 (74)— — — 
Common stock issued for services2,000 19,898 — — 19,900 
Amortization of warrant based cost— — 9,125 — — 9,125 
Net loss— — — — (2,815,266)(2,815,266)
Balance at January 31, 202124,939,673 $24,940 $108,003,022 $(1,817,414)$(55,838,017)$50,372,531 




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






4



Table of Contents
ASPEN GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

CHANGES IN STOCKHOLDERS’ EQUITY (CONTINUED)

Nine Months Ended January 31, 2022 and 2021
(Unaudited)


 

 

For the

 

 

 

Nine months ended

 

 

 

January 31,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

  

                     

  

  

                     

  

Net loss

 

$

(3,396,575

)

 

$

(381,530

)

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

 

 

 

 

 

 

 

 

Bad debt expense (recovery)

 

 

298,144

 

 

 

(25,680

)

Gain on extinguishment of warrant liability

 

 

(52,500

)

 

 

 

Depreciation and amortization

 

 

631,969

 

 

 

422,782

 

Loss on asset disposal

 

 

27,590

 

 

 

 

Stock-based compensation

 

 

466,468

 

 

 

253,833

 

Amortization of debt discounts

 

 

99,726

 

 

 

15,625

 

Amortization of prepaid shares for services

 

 

37,039

 

 

 

52,500

 

Warrant buyback expense

 

 

 

 

 

206,000

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

  

 

Accounts receivable

 

 

(4,534,118

)

 

 

(2,331,140

)

Prepaid expenses

 

 

(59,451

)

 

 

28,715

 

Accrued interest receivable

 

 

(45,400

 

 

 

Other receivables

 

 

(152,398

 

 

 

Other assets

 

 

(528,789

)

 

 

(25,241

)

Accounts payable

 

 

366,044

 

 

 

875,110

 

Accrued expenses

 

 

218,476

 

 

 

105,111

 

Deferred rent

 

 

22,087

 

 

 

17,318

 

Refunds due students

 

 

420,146

 

 

 

124,912

 

Deferred revenue

 

 

2,340,461

 

 

 

562,643

 

Other liabilities

 

 

186,134

 

 

 

 

Net cash used in operating activities

 

 

(3,654,947

)

 

 

(99,042

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Cash paid in asset acquisition

 

 

(2,589,719

)

 

 

 

Proceeds from promissory note interest receivable

 

 

53,400

 

 

 

 

Increase in restricted cash

 

 

(190,506

)

 

 

 

Purchases of courseware

 

 

(33,369

)

 

 

(6,550

)

Purchases of property and equipment

 

 

(1,171,473

)

 

 

(565,306

)

Proceeds from promissory note receivable

 

 

900,000

 

 

 

 

Net cash used in investing activities

 

 

(3,031,667

)

 

 

(571,856

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Warrant Buyback

 

 

 

 

 

(400,000

)

Borrowing of bank line of credit

 

 

 

 

 

247,000

 

Payments for bank line of credit

 

 

 

 

 

(248,783

)

Borrowing of third party line of credit

 

 

 

 

 

1,250,000

 

Third party line of credit financing costs

 

 

 

 

 

(60,000

)

Proceeds of warrant and stock options exercised

 

 

598,876

 

 

 

 

Offering costs paid on debt financing

 

 

(351,366

 

 

 

Disbursements for equity offering costs

 

 

(14,033

)

 

 

(4,017

)

Proceeds from senior secured term loan

 

 

7,500,000

 

 

 

 

Net cash provided by financing activities

 

 

7,733,477

 

 

 

784,200

 

 

 

 

 

 

 

 

 

 

Net increase in cash

 

 

1,046,863

 

 

 

113,302

 

Cash at beginning of period

 

 

2,756,217

 

 

 

783,796

 

Cash at end of period

 

$

3,803,080

 

 

$

897,098

 


(Continued)





Common StockAdditional
Paid-In
Capital
Treasury
Stock
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance at April 30, 202125,066,297 $25,067 $109,040,824 $(1,817,414)$(58,158,003)$49,090,474 
Stock-based compensation— — 1,965,567 — — 1,965,567 
Common stock issued for stock options exercised for cash58,419 58 190,976 — — 191,034 
Common stock issued for cashless stock options exercised30,156 30 (30)— — — 
Common stock issued for vested restricted stock units73,708 74 (74)— — — 
Amortization of warrant based cost— — 43,708 — — 43,708 
Warrants issued for deferred financing costs related to Credit Facility— — 137,500 — — 137,500 
Net loss— — — — (7,457,143)(7,457,143)
Balance at January 31, 202225,228,580 $25,229 $111,378,471 $(1,817,414)$(65,615,146)$43,971,140 
Common StockAdditional
Paid-In
Capital
Treasury
Stock
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance at April 30, 202021,770,520 $21,771 $89,505,216 $(70,000)$(47,709,030)$41,747,957 
Stock-based compensation— — 3,019,828 — — 3,019,828 
Common stock issued for stock options exercised for cash1,364,721 1,365 4,394,749 (1,817,414)— 2,578,700 
Common stock issued for cashless stock options exercised22,339 22 (22)— — — 
Common stock issued for conversion of Convertible Notes1,398,602 1,399 9,998,601 — — 10,000,000 
Common stock issued for vested restricted stock units206,109 206 (206)— — — 
Common stock issued for warrants exercised for cash192,049 192 1,081,600 — — 1,081,792 
Common stock issued for services2,000 19,898 — — 19,900 
Modification charge for warrants exercised— — 25,966 — — 25,966 
Amortization of warrant based cost— — 27,375 — — 27,375 
Cancellation of Treasury Stock(16,667)(17)(69,983)70,000 — — 
Net loss— — — — (8,128,987)(8,128,987)
Balance at January 31, 202124,939,673 $24,940 $108,003,022 $(1,817,414)$(55,838,017)$50,372,531 



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








5

Table of Contents


ASPEN GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(Unaudited)


 

 

For the

 

 

 

Nine months ended

 

 

 

January 31,

 

 

 

2018

 

 

2017

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

316,781

 

 

$

145,105

 

Cash paid for income taxes

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

 

 

 

 

Warrants issued as part of senior secured loan

 

$

478,428

 

 

$

 

Assets acquired net of liabilities assumed for non-cash consideration

 

$

12,215,244

 

 

$

 

Common stock issued for services

 

$

 

 

$

62,002

 

Warrant derivative liability

 

$

 

 

$

52,500

 


Nine Months Ended January 31,
 20222021
Cash flows from operating activities:
Net loss$(7,457,143)$(8,128,987)
Adjustments to reconcile net loss to net cash used in operating activities:
Bad debt expense1,050,000 1,702,000 
Depreciation and amortization2,480,179 1,552,254 
Stock-based compensation1,965,567 3,019,828 
Amortization of warrant based cost43,708 27,375 
Amortization of debt discounts— 1,550,854 
Amortization of debt issue costs18,056 156,029 
Amortization of deferred financing costs49,107 — 
Modification charge for warrants exercised— 25,966 
Loss on asset disposition36,445 — 
Lease benefit(96,450)— 
Tenant improvement allowances received from landlords816,591 — 
Common stock issued for services— 19,900 
Changes in operating assets and liabilities:
Accounts receivable(6,412,590)(6,493,238)
Prepaid expenses(297,797)(267,526)
Other receivables— 23,097 
Other current assets37,498 (1,205,083)
Accounts receivable, other45,329 — 
Deposits and other assets(44,686)(185,599)
Accounts payable340,168 (349,882)
Accrued expenses38,353 1,756,102 
Due to students482,032 (128,154)
Deferred revenue(642,233)1,887,377 
Other current liabilities(171,894)(238,032)
Net cash used in operating activities(7,719,760)(5,275,719)
Cash flows from investing activities:
Purchases of courseware and accreditation(161,262)(31,330)
Purchases of property and equipment(3,573,408)(2,877,758)
Net cash used in investing activities(3,734,670)(2,909,088)
Cash flows from financing activities:
Borrowings under the Credit Facility5,000,000 — 
Proceeds from stock options exercised191,034 2,578,700 
Proceeds from warrants exercised— 1,081,792 
Net cash provided by financing activities5,191,034 3,660,492 


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








6

Table of Contents

ASPEN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
Nine Months Ended January 31,
20222021
Net decrease in cash, cash equivalents and restricted cash$(6,263,396)$(4,524,315)
Cash, cash equivalents and restricted cash at beginning of period13,666,079 17,906,765 
Cash, cash equivalents and restricted cash at end of period$7,402,683 $13,382,450 
Supplemental disclosure cash flow information:
Cash paid for interest$258,630 $310,958 
Cash paid for income taxes$13,520 $49,008 
Supplemental disclosure of non-cash investing and financing activities:
Common stock issued for conversion of Convertible Notes$— $10,000,000 
Warrants issued as part of Credit Facility$137,500 $— 

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the accompanying consolidated balance sheet to the total amounts shown in the accompanying unaudited consolidated statements of cash flows:
January 31, 2022April 30, 2021
Cash and cash equivalents$5,969,286 $12,472,082 
Restricted cash1,433,397 1,193,997 
Total cash, cash equivalents and restricted cash$7,402,683 $13,666,079 


The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
7

Table of Contents

ASPEN GROUP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JANUARY

January 31, 2018

2022

(Unaudited)




Note 1. Nature of Operations and Liquidity


Overview


Aspen Group, Inc. (together with its subsidiaries, the “Company” or “AGI”("AGI") is aan education technology holding company, whichcompany. AGI has two subsidiaries.2 subsidiaries, Aspen University Inc. (“("Aspen University”University") was, organized in 1987, and United States University Inc. (“USU”("United States University" or "USU") was formed May 2017.
All references to the “Company”, “AGI”, “Aspen Group”, “we”, “our” and certain assets were acquired“us” refer to Aspen Group, Inc., unless the context otherwise indicates.
AGI leverages its education technology infrastructure and liabilities assumedexpertise to allow its two universities, Aspen University and United States University, to deliver on December 1, 2017. (See Note 10)


Aspen Group’sthe vision is to makeof making college affordable again in America.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 online higher education.  In March 2014, Aspen University unveiled a monthly payment plan aimed at reversingAGI’s primary focus relative to future growth is to target the college-debt sentence plaguing working-class Americans. The monthly payment plan offers bachelor students (except RN to BSN) the opportunity to pay their tuition at $250/month for 72 months ($18,000),high growth nursing bachelor students (RN to BSN) $250/month for 39 months ($9,750), master students $325/month for 36 months ($11,700) and doctoral students $375/month for 72 months ($27,000), interest free, thereby giving students a monthly payment tuition payment option versus taking out a federal financial aid loan.


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


profession.

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


2024.

Since 2009, USU has been regionallyinstitutionally 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.


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

COVID-19 Update
Nursing students represented 87% or 11,889 of the Company’s total student body of 13,724 students at the end of the third quarter of fiscal 2022. Of the 11,889 nursing students, 2,277 are BSN Pre-Licensure students located across our 4 metro locations (Phoenix, Austin, Tampa and Nashville). The remaining 9,612 nursing students are licensed registered nurses (RNs) studying to earn an advanced degree (RN to BSN, MSN, MSN-FNP or DNP degree programs). Therefore, these 9,612 post-licensure nursing students represent 70% of the Company’s total student body at the end of the third quarter and are the AGI students primarily affected by the COVID-19 pandemic.

Starting in the second half of June 2021 and continuing through January 2022, the Company saw lower course starts than seasonally expected among our RN student body. For example, at Aspen University, course starts among RNs from June through January 2022 increased by approximately 3% year-over-year.By comparison, over the previous two full fiscal years (Fiscal Year 2021 and Fiscal Year 2020), course starts among RNs at Aspen University increased by an average of approximately 10% year-over-year.

We cannot be certain what impact future COVID-19 variants will have on the Company’s results as we progress through the remainder of fiscal 2022.

Basis of Presentation


A.

Interim Financial Statements


The interim consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments and reclassifications and non-recurring adjustments) necessary to present fairly our results of operations for the three and nine months ended January 31, 20182022 and 2017,2021, our cash flows for the nine months ended January 31, 20182022 and 2017,2021, and our financial position as of January 31, 20182022 have been made.
8

Table of Contents
ASPEN GROUP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2022
(Unaudited)

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 periodfiscal year ended April 30, 20172021 as filed with the SEC on July 25, 2017.13, 2021. The April 30, 20172021 consolidated balance sheet is derived from those statements.





7



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2018

(Unaudited)



B. Liquidity


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


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


Note 2. Significant Accounting Policies


Principles

Basis of Presentation and Consolidation



The unauditedCompany prepares its consolidated financial statements in accordance with U.S. generally accepted accounting principles ("GAAP").
The consolidated financial statements include the accounts of Aspen Group, Inc.AGI and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.


Use

A full listing of our significant accounting policies is described in Note 2. Summary of Significant Accounting Policies of our Annual Report on Form 10-K for the fiscal year ended April 30, 2021 as filed with the SEC on July 13, 2021.
Accounting Estimates


The

Management of the Company is required to make certain estimates, judgments and assumptions during the preparation of the unauditedits consolidated financial statements in conformityaccordance with accounting principles generally accepted in the United States of America (“GAAP”) requires management to makeGAAP. These estimates, judgments and assumptions that affectimpact the reported amounts inof assets, liabilities, revenue and expenses and the unaudited consolidated financial statements.related disclosure of contingent assets and liabilities. 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,lease liabilities and the carrying value of the related right-of-use ("ROU") assets, depreciable lives of property and equipment, amortization periods and valuation of courseware, intangibles and software development costs, valuation of beneficial conversion features in convertible debt, valuation of goodwill, valuation of loss contingencies, valuation of stock-based compensation and the valuation allowance on deferred tax assets.


Cash, and Cash Equivalents,


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
Restricted cash equivalents atas of January 31, 20182022 of $1,433,397 consists of $1,173,525 which is collateral for letters of credit for the Aspen University and USU facility operating leases, $9,872 which is collateral for a letter of credit for USU required to be posted based on the level of Title IV funding in connection with USU's most recent Compliance Audit, and a $250,000 compensating balance under a secured credit line.
Restricted cash as of April 30, 2017. 2021 of $1,193,997 consisted of $934,125 which is collateral for letters of credit for the Aspen University and USU facility operating leases, $9,872 which is collateral for a letter of credit for USU required to be posted based on the level of Title IV funding in connection with USU's most recent Compliance Audit, and a $250,000 compensating balance under a secured credit line.
Concentration of Credit Risk
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
9

Table of Contents
ASPEN GROUP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2018.2022
(Unaudited)

January 31, 2022. As of January 31, 20182022 and April 30, 2017, there were2021, the Company maintained deposits totaling $3,594,104exceeding federally insured limits by approximately $7,549,724 and $2,687,461$13,005,537, respectively, held in two separate institutions greaterthan the federally insured limits.


Goodwill and Intangibles


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


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



8



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2018

(Unaudited)



Fair Value Measurements


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


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

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

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


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


Refunds Due Students


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


institutions.

Revenue Recognition and Deferred Revenue


Revenues consist

The Company follows 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.
Revenue consists primarily of tuition and course fees derived from courses taught by the Company online and in-person as well as from related educational resources and services that the Company provides to its students, such as access to our online materialsstudents. Under ASC 606, tuition and learning management system. Tuitioncourse fee revenue is recognized pro-rata over the applicable period of instruction.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. Revenue) Students may receive discounts, scholarships, or refunds, which gives rise to variable consideration. The Company maintains an institutional tuition refund policy, which provides for allamounts of discounts or a portion of tuitionscholarships are applied to be refunded if aindividual 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 timeaccounts when a portion or none ofsuch amounts are awarded. Therefore, 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 thanreduced directly by these discounts or scholarships from the amount of the revenue that has been deferred, under the Company’s accounting policies revenue is not recognized with respect to amounts that could potentially be refunded. The Company’s educational programs have starting and ending dates that differ from its fiscal quarters. Therefore, at the end of each fiscal quarter, a portion of revenue from these programs is not yet earned and is therefore deferred. The Company also charges students annual fees for library, technology and other services, which are recognized over the related service period. standard tuition rate charged.
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 revenuesrevenue may be recognized as sales occur or services are performed.


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


Accounting for Derivatives


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



9



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2018

(Unaudited)



Business Combinations


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


Net Income (Loss)Loss Per Share


Net income (loss)loss per common share is based on the weighted average number of shares of common sharesstock outstanding during each period.
Options, to purchase 2,872,546warrants, restricted stock units ("RSUs") and 1,963,481 common shares, warrants to purchase 743,773 and 934,555 common shares, and $50,000 and $350,000 of convertible debt (convertible into 4,167 and 75,596 common shares) were outstanding at January 31, 2018 and 2017, respectively, but wereunvested restricted stock are 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 beThese common stock equivalents and are only included in the calculation of diluted earnings per share of common sharestock when their effect is dilutive,dilutive. See Note 7. Stockholders’ Equity.
Segment Information
The Company operates in 1 reportable segment as noted ina single educational delivery operation using a core infrastructure that serves the chart below.


As required to be disclosed for quarters with net income, basiccurriculum and diluted income per share foreducational delivery needs of its online and campus students regardless of geography. The Company's chief operating decision makers, its Chief Executive Officer, Chief Operating Officer and Chief Academic Officer, manage the three months ended January 31, 2017, were calculatedCompany's operations as follows:


 

 

Basic

 

 

Diluted

 

Numerator

 

 

 

 

 

 

Net income applicable to common stock

 

$

7,377

 

 

$

7,377

 

Convertible debt interest

 

 

 

 

 

4,010

 

 

 

$

7,377

 

 

$

11,387

 

 

 

 

 

 

 

 

 

 

Denominator

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

11,467,345

 

 

 

11,467,345

 

Convertible debt

 

 

 

 

 

75,596

 

Warrants and options

 

 

 

 

 

1,498,029

 

 

 

 

11,467,345

 

 

 

13,040,970

 

 

 

 

 

 

 

 

 

 

Net income per share

 

$

0.00

 

 

$

0.00

 


a whole.

Recent Accounting Pronouncements


Pronouncement Not Yet Adopted

ASU 2017-01 - No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
In January 2017,June 2016, the FASB issued ASU No. 2016-13, Financial Accounting Standards Board issued Accounting Standards UpdateInstruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which significantly changes how entities will measure credit losses for most financial assets, including accounts receivable. ASU No. 2017-01: "Business Combinations (Topic 805)-  to clarify2016-13 will replace today’s “incurred loss” approach with an “expected loss” model, under which companies will recognize allowances based on expected rather than incurred losses. On November 15, 2019, the definitionFASB delayed the effective date of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accountedTopic 326 for as acquisitions (or disposals) of assets or businesses. This guidance is effective for interimcertain small public companies and annual reporting periodsother private companies until fiscal years beginning after December 15, 2017.  The Company will implement this guidance effective February 1, 2018.


ASU 2017-04 - In January 2017,2022 for SEC filers that are eligible to be smaller reporting companies under the Financial Accounting Standards Board issued Accounting Standards Update No. 2017-04: "Intangibles - GoodwillSEC’s definition, as well as private companies and Other (Topic 350)” - to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill.  This guidance is effective for interim and annual reporting periods beginning after December 15, 2019.not-for-profit entities. The Company is currently evaluating the effects of this standard on its consolidated financial statements.  


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




10



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2018

(Unaudited)



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

adoption.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
10

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ASPEN GROUP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2022
(Unaudited)

The Company has concluded that based on industry practices, the preferred presentation for cash received in advance for unearned tuition and stipends should be reclassified from "restricted cash" to "cash and cash equivalents." The cash balance of $3,958,793 for funds held for students for unbilled educational services that were received from Title IV and non-Title IV programs at April 30, 2021, which was previously included in "restricted cash" in the accompanying consolidated balance sheet, was reclassified to "cash and cash equivalents" to align with the current year presentation. There is no impact to total current assets included in accompanying consolidated balance sheet at April 30, 2021. The restricted cash balance at April 30, 2021, now includes letters of credit and a compensating balance under a secured credit line of $1,193,997.


Note 3. Property and Equipment


As property and equipment become fully expired,reach the end of their useful lives, the fully expired asset isassets are written off against the associated accumulated depreciation. There is no expense impact for such write offs. Propertydepreciation and equipment consistedamortization.
When assets are disposed of before reaching the end of their useful lives both the recorded cost of the following at January 31, 2018fixed asset and April 30, 2017:


 

 

January 31,

 

 

April 30,

 

 

 

2018

 

 

2017

 

Call center hardware

 

$

96,305

 

 

$

53,748

 

Computer and office equipment

 

 

130,137

 

 

 

103,649

 

Furniture and fixtures

 

 

712,209

 

 

 

255,984

 

Software

 

 

2,590,297

 

 

 

2,131,344

 

 

 

 

3,528,948

 

 

 

2,544,725

 

Accumulated depreciation and amortization

 

 

(1,161,030

)

 

 

(1,090,010

)

Property and equipment, net

 

$

2,367,918

 

 

$

1,454,715

 


the corresponding amount of accumulated depreciation is reversed. Any remaining difference between the two is recognized as either other income or expense.

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


 

 

January 31,

 

 

April 30,

 

 

 

2018

 

 

2017

 

Software

 

$

2,590,297

 

 

$

2,131,344

 

Accumulated amortization

 

 

(1,012,655

)

 

 

(994,017

)

Software, net

 

$

1,577,642

 

 

$

1,137,327

 


following:
January 31,
2022
April 30,
2021
Software$9,829,329 $8,488,635 
Accumulated amortization(4,727,413)(3,444,325)
Software, net$5,101,916 $5,044,310 

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


 

 

For the

 

 

For the

 

 

 

Three Months Ended

January 31,

 

 

Nine Months Ended

January 31,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization Expense

 

$

150,596

 

 

$

119,064

 

 

$

407,346

 

 

$

378,118

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software amortization Expense

 

$

121,695

 

 

$

105,914

 

 

$

341,825

 

 

$

342,938

 


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


Year Ending April 30,

 

 

 

2018

 

$

127,811

 

2019

 

 

456,038

 

2020

 

 

386,196

 

2021

 

 

313,749

 

2022

 

 

293,848

 

Total

 

$

1,577,642

 



11



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2018

(Unaudited)



summarized below:
Three Months Ended January 31,Nine Months Ended January 31,
2022202120222021
Depreciation and amortization expense:
Property and equipment, excluding software$418,081 $158,110 $1,136,929 $490,868 
Software$443,284 $366,908 $1,283,088 $1,028,668 

Note 4. Courseware


Courseware costs capitalized were $33,369 for and Accreditation

As courseware and accreditation reach the nine months ended January 31, 2018. Fully expired courseware isend of their useful life, they are written off against the accumulated amortization. There iswas no expense impact for such write-offs.


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


 

 

January 31,

 

 

April 30,

 

 

 

2018

 

 

2017

 

Courseware

 

$

283,046

 

 

$

271,777

 

Accumulated amortization

 

 

(145,489

)

 

 

(126,300

)

Courseware, net

 

$

137,557

 

 

$

145,477

 


Amortization expense of coursewarewrite-offs for the three and nine months ended January 31, 20182022 and 2017:


 

 

For the

 

 

For the

 

 

 

Three Months Ended

January 31,

 

 

Nine Months Ended

January 31,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization expense

 

$

13,966

 

 

$

13,663

 

 

$

41,289

 

 

$

44,664

 


The following2021.

Courseware and accreditation consisted of the following:
January 31,
2022
April 30,
2021
Courseware$569,483 $408,222 
Accreditation59,350 59,350 
628,833 467,572 
Accumulated amortization(339,153)(280,276)
Courseware and accreditation, net$289,680 $187,296 
Amortization expense for courseware and accreditation is a schedulesummarized below:
Three Months Ended January 31,Nine Months Ended January 31,
2022202120222021
Amortization expense$21,744 $10,255 $58,877 $32,718 
11

Table of estimated future amortization expense of courseware at Contents
ASPEN GROUP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2018:


Year Ending April 30,

 

 

 

2018

 

$

14,152

 

2019

 

 

56,143

 

2020

 

 

42,301

 

2021

 

 

15,336

 

2022

 

 

9,625

 

Total

 

$

137,557

 


2022

(Unaudited)

Amortization expense is included in "Depreciation and amortization" in the unaudited consolidated statements of operations.
Note 5. Senior Secured Term Loan


Note and Accounts Receivable

On July 25, 2017,March 30, 2008 and December 1, 2008, Aspen University sold courseware pursuant to marketing agreements to Higher Education Management Group, Inc. (“HEMG”), which was then a related party and principal stockholder of the Company. As discussed in Note 11. Commitments and Contingencies, the Company signedand Aspen University sued HEMG seeking to recover sums due under the agreements. Ultimately, the Company and Aspen University obtained a $10 million senior secured termfavorable default judgment, and as a result received a distribution from the bankruptcy trustee court of $498,120, which was included in "other (expense) income, net" in the unaudited consolidated statements of operations during the nine months ended January 31, 2022. Due to the bankruptcy of HEMG, the Company also wrote off a net receivable of $45,329 in the same period.
Note 6. Debt
Credit Facility
On November 5, 2018, the Company entered into a loan agreement (the “Credit Facility Agreement”) with Runway Growth Capital Fund (formerly known as GSV Growth Capital Fund)the Leon and Toby Cooperman Family Foundation (the “Foundation”). The Credit Facility Agreement provides for a $5,000,000 revolving credit facility (the “Credit Facility”) evidenced by a revolving promissory note (the “Revolving Note”). Borrowings under the Credit Facility Agreement bear interest at 12% per annum. Interest payments are due monthly through the term of the Credit Facility.
On August 31, 2021, the Company extended the Credit Facility Agreement with the Foundation by one year from November 4, 2021 to November 4, 2022. In conjunction with the extension of the Credit Facility, the Company drew $5 million underdown funds of $5,000,000.
Additionally, on August 31, 2021, the facility at closing, then subsequently drew $2.5 million followingCompany issued to the closingFoundation warrants, as an extension fee, to purchase 50,000 shares of the Company’s acquisitioncommon stock exercisable for five years from the date of substantially all the assets of the United States University, including receipt of all required regulatory approvals, among other conditions to funding. Terms of the 4-year senior loan include a 10% over 3-month LIBOR per annum interest rate.


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


Additionally, the Company paid a 0.25% origination fee on the initial $5 million draw and paid another 0.25% origination fee upon the second $2.5 million draw, will be subject to a final payment fee of 3.25% of the principal lent, and issued 224,174 5-year warrants at an exercise price of $6.87.$5.85 per share. The relative fair value of the warrants was $478,428 and was recorded as debt discount along with other direct costs of the term loanis $137,500 and is being amortized to interest expense over the 14-month line of credit period. The fair value of the warrants are treated as deferred financing costs in the accompanying consolidated balance sheets at January 31, 2022 to be amortized over the term of the loan.




12



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JANUARYCredit Facility. Total unamortized costs at January 31, 2018

(Unaudited)



2022 were $88,393. See Note 6. Convertible Notes – Related Party


On December 1, 2017,7. Stockholders’ Equity for additional information related to these warrants.

At January 31, 2022 and April 30, 2021, there were $5,000,000 and no outstanding borrowings, respectively, under the Credit Facility. For information on a recent amendment to the Credit Facility and related financings, see Note 12. Subsequent Events.
The Credit Facility Agreement contains customary representations and warranties and events of default. Pursuant to the Loan Agreement and the Revolving Note, all future or contemporaneous indebtedness incurred by the Company, completedother than indebtedness expressly permitted by the acquisition of USUCredit Facility Agreement and as part of the consideration, a $2.0 million convertible note (the “Note”) was issued, bearing 8% annual interest that matures over a two-year period after the closing. (See Note 10) At the option of the Note holder, on each of the first and second anniversaries of the closing date, $1,000,000 of principal and accrued interest under theRevolving Note, will be convertible intosubordinated to the Facility. On March 6, 2019, 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 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.
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 based onexercisable for five years from the volume weighted averagedate of issuance at the exercise price of $5.85 per share for the ten preceding trading days (subject to a floor of $2.00 per share) or become payable in cash. There was no beneficial conversion feature on the note date and the conversion terms of the note exempt it from derivative accounting.


Note 7. Commitments and Contingencies


Employment Agreements


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


Legal Matters


From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of January 31, 2018, there were no pending or threatened lawsuits that could reasonably be expecteddeemed to have a material effectrelative fair value of $255,071 (the "2018 Cooperman Warrants"). These warrants were exercised on the results of our operations.


Regulatory Matters


June 8, 2020. 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 IVfair value of the HEA.


On August 22, 2017,warrants along with the DOE informed Aspen Universityupfront Facility fee were treated as debt issue cost assets to be amortized over the term of its determination that the institution has qualified to participate underloan. As a result of the HEA andaforementioned note extension, the Federal student financial assistance programs (Title IV, HEA programs), and set a subsequent program participation agreement reapplication dateremainder of Marchthe unamortized costs of $9,722 were written off during the quarter ended October 31, 2021.


USU currently has provisional certification to participate in the Title IV Programs due to the business combination. The provisional certification allows the school to continue to receive Title IV funding as it did prior to the change Total unamortized costs at January 31, 2022 and April 30, 2021 were $0 and $18,056, respectively.

Note 7. Stockholders’ Equity
12

Table of ownership.


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


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




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Contents

ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JANUARY

January 31, 2022
(Unaudited)

AGI maintains 2 stock-based incentive plans: the 2012 Equity Incentive Plan (the “2012 Plan”) and 2018

(Unaudited)



Return Equity Incentive Plan (the “2018 Plan”) that provide for the grant of Title IV Funds


An institution participatingshares in Title IV Programs must correctly calculatethe form of incentive stock options, non-qualified stock options, restricted shares, stock appreciation rights and RSUs to employees, consultants, officers and directors. The 2012 Plan expired March 15, 2022 and remains in effect for outstanding grants only, and is no longer available for new grants. On March 8, 2022 we transferred the 129,009 unused shares under the 2012 Plan to the 2018 Plan.


On December 22, 2021, the Company held its Annual Meeting of Shareholders at which the shareholders voted to amend the 2018 Plan to increase the number of shares of common stock available for issuance under the 2018 Plan from 1,600,000 to 2,350,000 shares.

As of January 31, 2022 and April 30, 2021 there were 732,013 and 549,739 shares remaining available for future issuance under the 2012 and the 2018 Plans, respectively. Following the increase to the 2018 Plan by shareholder approval and by virtue of the transfer of the former 2012 Plan shares to the 2018 Plan shares described above, there are now a total of 732,013 shares under the 2018 Plan of which zero shares are available for new grants. Because we reserved 12 million shares of common stock which covers the 10 million shares issuable upon the conversion of the new convertible notes (plus an extra 2 million shares required by the lenders), we cannot issue all of the awards available under the 2018 Plan unless our stockholders approve an increase in our authorized capital.

Common Stock

On January 3, 2022, the Compensation Committee approved a 117,316 common stock grant to the members of the Board of Directors for services in the 2021 calendar year. The grant had a grant date fair value of $279,212 based on a closing stock price of $2.38 per share. The grant was under the Company’s 2018 Plan and was fully vested and amortized as of January 31, 2022. These shares will be issued in the fourth quarter of fiscal year 2022. The amortization expense is included within stock-based compensation in general and administrative expense in the accompanying consolidated statement of operations.

Restricted Stock

As of January 31, 2022, there were no unvested shares of restricted common stock outstanding. During the nine months ended January 31, 2022, there were no new restricted stock grants, forfeitures, or expirations. There is no unrecognized compensation expense related to restricted stock as of January 31, 2022.

Restricted Stock Units
A summary of the Company’s RSU activity during the nine months ended January 31, 2022 is presented below:
Restricted Stock UnitsNumber of SharesWeighted Average Grant Price
Unvested balance outstanding, April 30, 2021549,972 $6.58 
Granted514,142 5.62 
Forfeits(36,353)9.67 
Vested(75,124)(1)4.54 
Expired— — 
Unvested balance outstanding, January 31, 2022952,637 $4.84 

(1) Includes 1,416 RSUs that will be issued in the fourth quarter of fiscal year 2022.

Of the 514,142 RSUs granted during the nine months ended January 31, 2022, 410,000 RSUs correspond to executive compensation grants summarized below.

On August 16 2021, the Compensation Committee approved a 125,000 RSU grant to the Company’s newly hired Chief Financial Officer as part of his employment agreement. The grant has a grant date fair value of $725,000 based on a closing stock price of $5.80 per share. On August 12, 2021, the Compensation Committee approved individual grants of 80,000 RSUs
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ASPEN GROUP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2022
(Unaudited)

to the Company’s Chief Operating Officer and Chief Academic Officer. The grants have a total grant date fair value of $1.0 million based on a closing stock price of $6.48 per share.

The three executive grants discussed above are under the Company’s 2018 Plan and are set to vest annually over a period of three years and are subject to continued employment as an officer of the Company on each applicable vesting date. The amortization expense related to these grants for the three and nine months ended January 31, 2022 was $146,817 and $293,633, respectively and is included in "general and administrative expense" in the accompanying consolidated statement of operations.

On July 21, 2021, as part of a new employment agreement, the Compensation Committee approved a 125,000 RSU grant to the Company's Chief Executive Officer under the Company's 2018 Plan. The grant has a grant date fair value of $873,750 based on a closing stock price of $6.99 per share. As stipulated in the grant, vesting is subject to continued employment with the Company and will occur in full on the date the Company files with the SEC a quarterly or annual report on Forms 10-Q or 10-K, as applicable, which reflects the Company's reported net income on a GAAP basis. At January 31, 2022, the Company is amortizing the expense over three years through July 2024 (the filing date of the Form 10-K for Fiscal Year 2024). The Company will continue to assess the performance condition at each reporting period. If the RSUs do not vest within three years from the July 21, 2021 effective date, they will be forfeited. The amortization expense related to this grant for the three and nine months ended January 31, 2022 was $(121,354) and $169,896, respectively, which is included in general and administrative expense in the consolidated statements of operations.

The remaining 104,142 RSUs granted during the nine months ended January 31, 2022 were granted to employees and have a grant date fair value that ranges from $2.09 to $6.50 per share, or a total of $253,738, vesting annually over three years and subject to continued employment on each applicable vesting date.

Of the 952,637 unvested RSUs outstanding at January 31, 2022, 195,000 remain from the February 4, 2020 executive grant. These RSUs vest four years from the grant date, if each applicable executive is still employed by the Company on the vesting date and subject to accelerated vesting for all RSUs if the closing price of the Company’s common stock is at least $12 for 20 consecutive trading days. On the grant date, the closing price of the Company's common stock on The Nasdaq Global Market was $9.49 per share. The amortization expense related to this grant for the three and nine months ended January 31, 2022 and 2021, was approximately $112,155 and $336,466, and $149,855 and $1.6 million, respectively, which is included in general and administrative expense in the consolidated statements of operations.

At January 31, 2022, total unrecognized compensation expense related to unvested RSUs is $4,612,404 and is expected to be recognized over a weighted-average period of approximately 1.59 years.
Warrants
The Company estimates the fair value of warrants utilizing the Black-Scholes pricing model, which is dependent upon several variables such as the expected term, expected volatility of the Company’s stock price over the expected term, expected risk-free interest rate over the expected term and expected dividend yield rate over the expected term. The Company believes this valuation methodology is appropriate for estimating the fair value of warrants issued to 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 expense on a straight-line basis over the vesting period of each warrant issued.
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ASPEN GROUP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2022
(Unaudited)

A summary of the Company’s warrant activity during the nine months ended January 31, 2022 is presented below:
WarrantsNumber of
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
Balance Outstanding, April 30, 2021374,174 $6.37 1.90$— 
Granted75,000 $6.23 4.55— 
Exercised— $— — — 
Surrendered— $— — — 
Expired— $— — — 
Balance Outstanding, January 31, 2022449,174 $6.35 1.71$— 
Exercisable, January 31, 2022424,174 $6.31 1.55$— 

OUTSTANDING WARRANTSEXERCISABLE WARRANTS
Exercise
Price
Weighted
Average
Exercise
Price
Outstanding
No. of
Warrants
Weighted
Average
Exercise
Price
Weighted
Average
Remaining Life
In Years
Exercisable
No. of
Warrants
$4.89 $4.89 50,000 $4.89 2.1950,000 
$5.85 $5.85 50,000 $5.85 4.5850,000 
$6.00 $6.00 100,000 $6.00 2.09100,000 
$6.87 $6.87 224,174 $6.87 0.48224,174 
$6.99 $6.99 25,000 
 449,174   424,174 

On August 31, 2021, the Compensation Committee approved the issuance of warrants to the Leon and Toby Cooperman Family Foundation as an extension fee in connection with the extension of the Credit Facility Agreement. The warrants allow for the purchase of 50,000 shares of the Company’s common stock and have an exercise price of $5.85. The warrants have an exercise period of five years from the August 31, 2021 issuance date and will terminate automatically and immediately upon the expiration of the exercise period. The fair value of the warrants is $137,500 and is being amortized over the 14-month line of credit period. The Company has recognized $29,464 and $49,107 of amortization expense in connection with the fair value of the warrants for the three and nine months ending January 31, 2022, respectively, which is included in "interest expense" in the accompanying consolidated statement of operations.

On July 21, 2021, the Executive Committee approved the issuance of warrants to a former member of the Board of Directors for the purchase of 25,000 shares of the Company's common stock with an exercise price of $6.99 per share. The warrants have an exercise period of five years from the July 21, 2021 issuance date and vest annually over a three year period subject to continued service on the Company's Advisory Board on each applicable vesting date. The warrants will terminate automatically and immediately upon the expiration of the exercise period. The fair value of the warrants is $84,000 and is being amortized over the three year vesting period. The Company has recognized $7,000 and $16,333 of amortization expense in connection with the fair value of the warrants for the three and nine months ending January 31, 2022, respectively, which is included in general and administrative expense in the accompanying consolidated statement of operations.
During the three months ended July 31, 2020, there was a warrant modification and acceleration charge of $25,966 related to the exercise of 192,049 warrants by the Leon and Toby Cooperman Family Foundation, which was included in “other (expense) income, net” in the accompanying consolidated statement of operations.
On April 10, 2019, the Company issued warrants to an Advisory Board member for services to purchase 50,000 shares of the Company's common stock with an exercise price of $4.89 per share. The warrants have an exercise period of five years from the April 10, 2019 issuance date and vest annually over a three year period. The warrants will terminate automatically and
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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2022
(Unaudited)

immediately upon the expiration of the exercise period. The fair value of the warrants is $109,500 and is being amortized over the three year vesting period. The Company has recognized $9,125and $27,375 of amortization expense in connection with the fair value of the warrants for the three and nine months ending January 31, 2022 and 2021, respectively, which is included in general and administrative expense in the accompanying consolidated statement of operations.
Stock Option Grants to Employees and Directors

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 and expected dividend yield rate over the expected option term. 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 Company utilizes 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.

A summary of the Company’s stock option activity for employees and directors during the nine months ended January 31, 2022, is presented below:
OptionsNumber of
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
Balance Outstanding, April 30, 20211,214,473 $6.24 1.88$204,719 
Granted— — — — 
Exercised(258,419)5.60 — — 
Forfeited(4,586)4.59 — — 
Expired(22,793)3.21 — — 
Balance Outstanding, January 31, 2022928,675 $6.84 1.41$— 
Exercisable, January 31, 2022891,264 $6.92 1.38$— 

Of the 258,419 options exercised, 200,000 options were exercised via the cashless method by the Company’s Chief Operating Officer in September 2021. As part of this cashless transaction, 30,156 net shares were issued and 169,844 were retained by the Company. The remainder of the 58,419 options were exercised for cash.
During the three and nine months ended January 31, 2022 and 2021, the Company received proceeds from the exercise of stock options for cash of $135,000 and $191,034,and $363,385 and $2,578,700, respectively.
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ASPEN GROUP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2022
(Unaudited)


OUTSTANDING OPTIONSEXERCISABLE OPTIONS
Exercise
Price
Weighted
Average
Exercise
Price
Outstanding
Number of
Options
Weighted
Average
Exercise
Price
Weighted
Average
Remaining Life
In Years
Exercisable
Number of
Options
$3.24 to $4.38$4.14 115,890 $4.15 0.94103,389 
$4.50 to $5.20$4.99 153,944 $5.03 1.77137,394 
$5.95 to $6.28$5.95 28,000 $5.95 0.5528,000 
$7.17 to $7.55$7.45 473,092 $7.46 1.57465,092 
$8.57 to $9.07$8.98 157,749 $8.98 0.93157,749 
928,675 891,624 
As of January 31, 2022, there was approximately $11,263 of unrecognized compensation costs related to unvested stock options. That cost is expected to be recognized over a weighted-average period of approximately 0.67 years.

Stock-based compensation related stock options, RSUs and restricted stock

For the three and nine months ended January 31, 2022, the Company recorded stock-based compensation expense of $700,697 and $1,965,567, respectively, which consisted of: $17,225, $397,241 and $286,231 and $126,137, $1,532,147 and $307,283, respectively, in connection with stock options, RSUs and restricted stock, which is included in “general and administrative” expense in the unaudited consolidated statements of operations.

For the three and nine months ended January 31, 2021, the Company recorded stock-based compensation expense of $721,067 and $3,039,729, respectively, which consisted of: $123,401, $567,239 and $30,427, and $434,532, $2,553,717 and $51,480, respectively, in connection with stock options, RSUs and restricted stock, which is included in “general and administrative” expense in the unaudited consolidated statements of operations.

Treasury Stock

As of both January 31, 2022 and April 30, 2021, 155,486 shares of common stock were held in treasury representing shares of common stock surrendered upon the exercise of stock options in payment of the exercise prices and the taxes and similar amounts due arising from the option exercises. The value of these shares is approximately $1.8 million and represents the fair market value of shares surrendered as of the date of each applicable exercise date.
Note 8. Revenue

Revenue consists 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 due to students. Deferred revenue represents the amount of unearnedtuition, 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.
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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2022
(Unaudited)

The following table represents our revenue disaggregated by the nature and timing of services:
Three Months Ended
January 31,
Nine Months Ended
January 31,
 2022202120222021
Tuition - recognized over period of instruction
$16,550,586 $14,580,439 $50,304,380 $42,922,429 
Course fees - recognized over period of instruction
1,981,470 1,834,251 5,967,581 5,220,308 
Book fees - recognized at a point in time
— 44,468 42,777 129,643 
Exam fees - recognized at a point in time
199,924 69,500 590,337 219,055 
Service fees - recognized at a point in time
212,818 96,179 410,929 270,009 
 $18,944,798 $16,624,837 $57,316,004 $48,761,444 
Contract Balances and Performance Obligations
The Company recognizes deferred revenue as a student participates in a course which continues past the consolidated balance sheet date.
The deferred revenue balance as of January 31, 2022 and April 30, 2021, was $6,182,781 and $6,825,014, respectively. During the nine months ended January 31, 2022, the Company recognized $5,424,788 of revenue that was included in the deferred revenue balance as of April 30, 2021. The Company's classifies deferred revenue as current when the remaining term of the course, including affect to the refund policy, is one year or less.
When 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.
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 Program fundsand 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 have been disbursedall of our students can be grouped into one portfolio. Students behave similarly, regardless of their payment method. 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 who withdraw from their educational programs before completion and must return those unearned fundsreside impose separate, mandatory refund policies, which override the Company’s policy to the extent in conflict. If a timely manner, no later than 45 daysstudent withdraws at a time when a portion or none of the datetuition is refundable, then in accordance with its revenue recognition policy, the school determinesCompany recognizes as revenue the tuition that was not refunded. Since the studentCompany 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 withdrawn. Under Department regulations, failurebeen deferred, under the Company’s accounting policies revenue is not recognized with respect to amounts that could potentially be refunded.
The Company had revenue from students outside the United States totaling approximately 1% of consolidated revenue for each of the three and nine months ended January 31, 2022 and 2021.
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ASPEN GROUP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2022
(Unaudited)

Note 9. Leases
We determine if a contract contains a lease at inception. We have entered into operating leases totaling approximately 191,328 square feet of office and classroom space in Phoenix, San Diego, New York City, Denver, Austin, Tampa, Nashville, Atlanta and New Brunswick Province in Canada. These leases expire at various dates through April 2031, the majority contain annual base rent escalation clauses. Most of these leases include options to terminate for a fee or extend for additional five-year periods. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company does not have any financing leases.

As of January 31, 2022, our longer term operating leases are located in Tampa, Phoenix, Austin and Nashville and are set to expire in six to eight years. These leases make up approximately 96% of the total future minimum lease payments.
Operating lease assets are right of use assets ("ROU assets"), which represent the right to use an underlying asset for the lease term. Operating lease liabilities represent the obligation to make timely returnslease payments arising from the lease. Operating leases are included in "Operating lease right of Title IV Program funds for 5% or more of students sampleduse assets, net", "Operating lease obligations, current portion" and "Operating lease obligations, less current portion" in the consolidated balance sheet at January 31, 2022 and April 30, 2021. These assets and lease liabilities are recognized based on the institution's annual compliance auditpresent value of remaining lease payments over the lease term. Variable lease costs such as common area maintenance, property taxes and insurance are expensed as incurred. When the lease does not provide an implicit interest rate, the Company uses an incremental borrowing rate of 12% to determine the present value of the lease payments.
Lease incentives are deducted from the ROU assets. Incentives such as tenant improvement allowances are amortized as leasehold improvements, separately, over the life of the lease term. For the three and nine months ended January 31, 2022 and 2021, the amortization expense for these tenant improvement allowances was $177,259 and $0 and $483,872 and $0, respectively.
Lease expense for operating leases is recognized on a straight-line basis over the lease term. Lease expense for the three and nine months ended January 31, 2022 and 2021 was $1,008,704 and $717,664 and $2,861,876 and $1,779,317, respectively, which is included in either of its two most recently completed fiscal years can resultgeneral and administrative expenses in the institution having to post a letterconsolidated statements of credit in an amount equal to 25% of its required Title IV returns during its most recently completed fiscal year. If unearned fundsoperations.
ROU assets are not properly calculated and returned in a timely manner, an institution is also subject to monetary liabilities or an action to impose a fine or to limit, suspend or terminate its participation in Title IV Programs.


Subsequent to a compliance audit, USU recognized that it had not fully complied with all requirements for calculating and making timely returns of Title IV funds (R2T4).  In 2016, USU had a material findingsummarized below:
January 31, 2022April 30, 2021
ROU assets - Operating facility leases$15,958,721 $14,308,296 
Less: accumulated amortization(2,868,251)(1,593,433)
Total ROU assets$13,090,470 $12,714,863 


Operating lease obligations, related to the same issue and is required to maintain a letterROU assets are summarized below:
January 31, 2022April 30, 2021
Total lease liabilities$22,509,568 $19,946,229 
Reduction of lease liabilities(3,085,191)(1,617,600)
Total operating lease obligations$19,424,377 $18,328,629 
19

Table of credit in the amount of $71,634 as a result of this finding.  Contents
ASPEN GROUP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2022
(Unaudited)

The letter of credit has been provided to the Department of Education by AGI.


Delaware Approval to Confer Degrees


Aspen Universityfollowing is a Delaware corporation. Delaware law requires an institutionschedule by fiscal years of future minimum lease payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of January 31, 2022 (a) (by fiscal year).

Maturity of Lease ObligationsLease Payments
2022 (remaining)$1,139,587 
20234,142,637 
20244,018,977 
20253,802,960 
20263,908,722 
Thereafter11,963,226 
Total future minimum lease payments28,976,109 
    Less: imputed interest(9,551,732)
Present value of operating lease liabilities$19,424,377 
_____________________
(a) Lease payments exclude $3.7 million of legally binding minimum lease payments for the new BSN Pre-Licensure campus location in Atlanta, Georgia for the lease signed but not yet commenced.

Balance Sheet ClassificationJanuary 31, 2022April 30, 2021
Operating lease obligations, current portion$2,106,981 $2,029,821 
Operating lease obligations, less current portion17,317,396 16,298,808 
Total operating lease liabilities$19,424,377 $18,328,629 
Other InformationJanuary 31, 2022
Weighted average remaining lease term (in years)6.97
Weighted average discount rate12 %

Note 10. Taxes
The Company determined that it has a permanent establishment in Canada, as defined by article V(2)(c) of the Convention between Canada and the United States of America with Respect to obtain approval fromTaxes on Income and on Capital (the “Treaty”), which would be subject to Canadian taxation as levied under the Delaware Department of Education (“Delaware DOE”) before it may incorporateIncome Tax Act. The Company is preparing to file Canadian T2 Corporation Income Tax Returns and related information returns under the Voluntary Disclosure Program with the powerCanada Revenue Agency ("CRA") to confer degrees. In July 2012, Aspen received notice fromcover the Delaware DOE that it2013 through 2021 tax years during which a permanent establishment was granted provisional approval status effective until June 30, 2015. On April 25, 2016in place. The Company will also file an annual Canadian T2 Corporation Income Tax return to report the Delaware DOE informed Aspen University it was granted full approval to operate with degree-granting authority inongoing activity of the Statepermanent establishment for 2022 and future taxation years.
As of Delaware until July 1, 2020. Aspen University is authorized byJanuary 31, 2022, the Colorado Commission on Education to operate in Colorado asCompany recorded a degree granting institution.


USU is alsoreserve of approximately $300,000 for the estimate of the 2013 through 2021 tax year foreign income tax liability. Additionally, for the 2022 tax year, the Company recorded a Delaware corporation and is inreserve of approximately $75,000 for the process of obtaining Delaware approval.

related foreign income tax liability.


Note 8. Stockholders’ Equity


Common Stock


Effective May 24, 2017,11. Commitments and Contingencies

Employment Agreements
From time to time, the Company enteredenters into waiveremployment agreements with allcertain of its investorsemployees. These agreements typically include bonuses, some of which may or may not be performance-based in the April 2017 common stock offering. In consideration for waiving their registration rights, the Company paid to eachnature.
Legal Matters
20

Table of the investors 1.5% of their investment amount in the offering. The total amount paid was $112,500 and was recorded in general and administrative expenses during the quarter ended July 31, 2017.


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


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




14



Contents

ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2018

(Unaudited)



Warrants


A summary of the Company’s warrant activity during the nine months ended

January 31, 2017 is presented below:


 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

 

 

 

Average

 

 

Remaining

 

 

Aggregate

 

 

 

Number of

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

Warrants

 

Shares

 

 

Price

 

 

Term

 

 

Value

 

Balance outstanding, April 30, 2017

 

 

914,123

 

 

$

2.82

 

 

 

1.6

 

 

$

1,100,203

 

Granted

 

 

224,174

 

 

 

6.87

 

 

 

5.0

 

 

 

307,118

 

Exercised

 

 

(356,267

)

 

 

0.55

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

Expired

 

 

(38,257

)

 

 

 

 

 

 

 

 

 

Balance outstanding, January 31, 2018

 

 

743,773

 

 

$

4.08

 

 

 

2.1

 

 

$

3,095,502

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable, January 31, 2018

 

 

743,773

 

 

$

4.08

 

 

 

2.1

 

 

$

3,095,502

 


In connection with the Senior Secured Term Loan that was finalized on July 25, 2017, the Company issued 224,174 5-year warrants at an exercise price2022

(Unaudited)

From time to time, we may be involved in litigation relating to claims arising out of $6.87. (See Note 5)


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


Stock Incentive Plan and Stock Option Grants to Employees and Directors


On March 13, 2012, the Company adopted the 2012 Equity Incentive Plan (the “Plan”) that provides for the grant of 1,691,667 shares effective November 2015, 2,108,333 shares effective June 2016 and 3,500,000 shares effective July 2017,our operations in the formnormal course of incentive stock options, non-qualified stock options, restricted shares, stock appreciation rights and restricted stock units to employees, consultants, officers and directors.business. As of January 31, 2018,2022, except as discussed below, there were 622,454no other pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our consolidated 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.

On February 11, 2013, HEMG, and its Chairman, Mr. Patrick Spada, sued the Company, certain senior management members and our directors in state court in New York seeking damages arising principally from (i) allegedly false and misleading statements in the filings with the SEC and the DOE where the Company disclosed that HEMG and Mr. Spada borrowed $2.2 million without board authority, (ii) the alleged breach of an April 2012 agreement whereby the Company had agreed, subject to numerous conditions and time limitations, to purchase certain shares remaining underof the Plan for future issuance. The Company estimatesfrom HEMG, and (iii) alleged diminution to the fair value of share-based compensation utilizingHEMG’s shares of the Black-Scholes option pricing model,Company due to Mr. Spada’s disagreement with certain business transactions the Company engaged in, all with Board approval.
On December 10, 2013, the Company filed a series of counterclaims against HEMG and Mr. Spada in the same state court of New York. By order dated August 4, 2014, the New York court denied HEMG and Spada’s motion to dismiss the fraud counterclaim the Company asserted against them.
In November 2014, the Company and Aspen University sued HEMG seeking to recover sums due under two 2008 Agreements where Aspen University sold course materials to HEMG in exchange for long-term future payments. On September 29, 2015, the Company and Aspen University obtained a default judgment in the amount of $772,793. This default judgment precipitated the bankruptcy petition discussed in the next paragraph.
On July 21, 2021, the bankruptcy trustee paid the Company $498,120 based on assets available in the trust, which is dependent upon several variables such asincluded in "other income (expense), net" in the expected option term, expected volatilityaccompanying consolidated statements of operations. As a result, the Company wrote off the net receivable of $45,329, described in Note 5. Secured Note and Accounts Receivable, at July 31, 2021. No further assets are available for distribution. At some point, the New York state court litigation may resume.

Regulatory Matters
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,subsidiaries, Aspen University 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 whichUnited States University, are subject to ASC Topic 718 requirements. These amounts are estimatesextensive regulation by Federal and thus may not be reflective of actual future results, nor amounts ultimately realizedState governmental agencies and accrediting bodies. In particular, the Higher Education Act (the “HEA”) and the regulations promulgated thereunder 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 summarizesDOE subject the assumptions the Company utilizedsubsidiaries to record compensation expense for stock options granted to employees during the nine months ended January 31, 2018.


January 31,

2018

Expected life (years)

4-6.5

Expected volatility

40-43

%

Risk-free interest rate

0.00

%

Dividend yield

n/a


The Company utilized the simplified method to estimate the expected life for stock options granted to employees. The simplified method was used as the Company does not have sufficient historical data regarding stock option exercises. The expected volatility is basedsignificant regulatory scrutiny on the averagebasis 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 expected volatilities fromHEA.

On August 22, 2017, the most recent auditedDOE informed Aspen University of its determination that the institution qualifies to participate under the HEA and the Federal student financial statements availableassistance programs (Title IV, HEA programs) and set a subsequent program participation agreement reapplication date of March 31, 2021. On April 16, 2021, the DOE granted provisional certification for comparative public companies that are deemeda two-year timeframe, and set a subsequent program participation reapplication date of September 30, 2023.
USU currently has provisional certification to be similarparticipate in naturethe Title IV Programs due to its acquisition by the Company. The risk-free interest rate is based onprovisional certification allows the U.S. Treasury yields with terms equivalentschool to continue to receive Title IV funding as it did prior to the expected lifechange of the related option at the time of the grant. Dividend yield is basedownership. The provisional certification expired on historical trends.December 31, 2020. While the Company believes these estimatesinstitution submitted its recertification application timely in October 2020, the DOE has not issued its final certification. The institution is able to continue operating under its current participation agreement until the DOE issues its recertification.
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 reasonable, the compensation expense recorded would increase if the expected life was increased,not remediated.
Because our subsidiaries operate in a higher expected volatility was used,highly regulated industry, each may be subject from time to time to audits, investigations, claims of noncompliance or if the expected dividend yield increased.




15


lawsuits by governmental agencies or third parties, which allege statutory violations, regulatory infractions or common law causes of action.
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ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2018

(Unaudited)



A summary of the Company’s stock option activity for employees and directors during the nine months ended

January 31, 2018,2022
(Unaudited)

The Company is presented below:


 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

 

 

 

Average

 

 

Remaining

 

 

Aggregate

 

 

 

Number of

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

Options

 

Shares

 

 

Price

 

 

Term

 

 

Value

 

Balance outstanding, April 30, 2017

 

 

2,097,384

 

 

$

1.86

 

 

 

2.7

 

 

$

12,489,871

 

Granted

 

 

844,000

 

 

$

3.53

 

 

 

3.4

 

 

 

1,867,740

 

Exercised

 

 

(63,838

)

 

$

3.13

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

Expired

 

 

 

 

 

 

 

 

 

 

 

 

Balance outstanding, January 31, 2018

 

 

2,877,546

 

 

$

3.52

 

 

 

3.24

 

 

$

17,658,268

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable, January 31, 2018

 

 

1,083,484

 

 

$

2.22

 

 

 

2.07

 

 

$

8,727,757

 


On May 13, 2017,also subject to regulation by self-regulatory bodies such as accreditors and by state regulators in certain states including states where the Company granted its executive officershas a total of 500,000 five-year options to purchase shares of the Company’s common stock under the Plan. The options vest annually over three years, subject to continued employment at each applicable vesting date,physical presence. For certain recent information, see Note 12. Subsequent Events.

Title IV Funding
Aspen University and are exercisable at $4.90 per share. The Chairman and Chief Executive Officer received 200,000 options with a fair value of $282,000, the Chief Operating Officer received 200,000 options with a fair value of $282,000, the Chief Academic Officer received 70,000 options with a fair value of $98,700 and the Chief Financial Officer received 30,000 options with a fair value of $42,300.


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


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


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


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


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


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


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


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


Note 9. Related Party Transactions


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




16



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2018

(Unaudited)



Note 10 – Acquisition of USU


On December 1, 2017 certain assets were acquired and certain liabilities assumed from Educacion Significativa, LLC (dba United States University) by United States University Inc. United States University, Inc. isderive a wholly owned subsidiaryportion of Aspen Group Inc. (“AGI”) and was set up for purposes of finalizing the asset purchase transaction.  For purposes of purchase accounting, Aspen Group, Inc. is referred to as the acquirer. Aspen Group, Inc. acquired the assets and assumed the liabilities of Educacion Significativa, LLC (dba United States University) for a purchase price of approximately $14.8 million. The purchase consideration consisted of a cash payment of $2,500,000 less an adjustment for working capital of approximately $110,000 plus approximately $200,000 of additional costs paid to/on behalf of and for the benefittheir revenue from financial aid received by its students under programs authorized by Title IV of the seller, a convertible noteHEA, which are administered by the US Department of $2,000,000Education. When students seek funding from the federal government, they receive loans and 1,203,209 shares of AGI stock valued at the quoted closing price of $8.49 per share as of November 30, 2017. The stock consideration represents $10,215,244 of the purchase consideration.


The acquisition was accounted for by AGI in accordance with the acquisition method of accounting pursuantgrants 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 onfund their estimated fair values at the date of acquisition. The excess of the amount paid over the estimated fair values of the identifiable net assets was $5,011,432 which has been reflected in the balance sheet as goodwill.


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


 

 

Purchase Price Allocation

 

 

Useful Life

 

Cash and cash equivalents

 

$

 

 

 

 

Current assets acquired

 

 

244,465

 

 

 

 

 

Other assets acquired

 

 

176,667

 

 

 

 

 

Intangible assets

 

 

 

 

 

 

 

 

Accreditation and regulatory approvals

 

 

6,200,000

 

 

 

 

 

Trade name and trademarks

 

 

1,700,000

 

 

 

 

 

Student relationships

 

 

2,000,000

 

 

2 years

 

Curriculum

 

 

200,000

 

 

1 year

 

Goodwill

 

 

5,011,432

 

 

 

 

 

Less: Current liabilities assumed

 

 

(727,601

)

 

 

 

 

Total purchase price

 

$

14,804,963

 

 

 

 

 


We determined the fair value of assets acquired and liabilities assumed based on assumptions that reasonable market participants would use while employing the concept of highest and best use of the respective items. We usededucation under the following assumptions,Title IV Programs: (1) the majority of which include significant unobservable inputs (Level 3),Federal Direct Loan program, or Direct Loan; (2) the Federal Pell Grant program, or Pell; (3) Federal Work Study and valuation methodologies to determine fair value:


·

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

·

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


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


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




17



ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2018

(Unaudited)



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


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


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


The total acquisition costs that AGI incurred was approximately $1,050,000, of which approximately $200,000 was incurred in(4) Federal Supplemental Opportunity Grants. For the fiscal year ended April 30, 20172021, 44.72% of Aspen University’s and $850,000 was incurred33.81% for United States University's cash-basis revenue for eligible tuition and fees were derived from Title IV Programs.

Return of Title IV Funds
An institution participating in Title IV Programs must correctly calculate the current year.  


The resultsamount of operationsunearned 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 USU are included in the Company’s consolidated statement of operations from the date of acquisition of December 1, 2017. The following supplemental unaudited pro forma combined information assumesthe school determines that the acquisitions had occurred asstudent has withdrawn. Under the DOE regulations, failure to make timely returns of the beginningTitle IV Program funds for 5% or more of each period present:


 

 

For the Year Ended
April 30,
2017

 

 

For the Nine Months Ended
October 31,
2017

 

 

 

(unaudited)

 

 

(unaudited)

 

Revenue

 

$

18,038,474

 

 

$

10,719,546

 

Net Loss 

 

$

(5,444,205

)

 

$

(3,521,086

)

Loss per common share- basic and diluted

 

$

(0.47

)

 

 

$(0.26

)


The pro forma financial information is not necessarily indicative of the results that would have occurred if these acquisitions had occurredstudents sampled on the dates indicated or thatinstitution's annual compliance audit in either of its two most recently completed fiscal years can result in the future.

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.
On September 28, 2020, the DOE notified USU that the funds held for a letter of credit in the amount of $255,708, based on the audited same day balance sheet requirements that apply in a change of control, which was funded by the University’s sole shareholder, AGI, were released. In August 2020, the DOE informed USU that it is required to post a new letter of credit in the amount of $379,345, based on the current level of Title IV funding. This irrevocable letter of credit was to expire on August 25, 2021. Pursuant to USU’s provisional Program Participation Agreement ("PPA"), the DOE indicated that USU must agree to participate in Title IV under the HCM1 funding process; however, the DOE does retain discretion on whether or not to implement that term of the agreement. Although DOE has not, to date, notified USU that it has been placed in the HCM1 funding process, nor does the DOE’s public disclosure website identify USU as being on HCM1, it is possible that prior to the end of the PPA term, the DOE may notify USU that it must begin funding under the HCM1 procedure. If this occurs, the Company believes this will not have a material impact on the consolidated financial statements. In December 2020, the DOE reduced USU's existing letter of credit by $369,473, which was required to be posted based on the level of Title IV funding. In connection with USU's most recent Compliance Audit, USU currently maintains a letter of credit of $9,872 at January 31, 2022.

Approval to Confer Degrees
Aspen University is a Delaware corporation and is approved to operate in the State of Delaware. Aspen University is authorized by the Colorado Commission on Education in the State of Colorado and the Arizona State Board for Private Post-Secondary Education in the State of Arizona to operate as a degree granting institution for all degrees. Aspen University is authorized to operate as a degree granting institution for bachelor degrees by the Texas Higher Education Coordinating Board in the State of Texas. Aspen University has been granted Optional Expedited Authorization as a postsecondary educational institution in Tennessee for its Bachelor of Science in Nursing (Pre-Licensure) degree program. Aspen University has received a Provisional License for its Bachelor of Science in Nursing (Pre-Licensure) degree program to operate in the state of Florida by the Commission for Independent Education of the Florida Department of Education and is in the process for full licensure.
USU is also a Delaware corporation and received initial approval from the Delaware DOE to confer degrees through June 2023. United States University is authorized by the California Bureau of Private Postsecondary Education and the Arizona State Board for Private Post-Secondary Education to operate as degree granting institutions for all degrees.

Note 11.12. Subsequent Events

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Table of Contents
ASPEN GROUP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2022
(Unaudited)

On February 20, 2018, AGI announced that Aspen University is enteringMarch 14, 2022, the pre-licensure BachelorCompany closed an offering of Science in Nursing (BSN) degree program business. Aspen’s first campus$10 million convertible notes and a $20 million revolving credit facility. Proceeds from the $10 million convertible note received at closing will be locatedused for general corporate purposes, including funding the Company’s expansion of its BSN Pre-Licensure nursing degree program.
The $10 million of convertible notes mature five years from the issuance date and pay interest monthly at the rate of 12% per annum. These notes are convertible into shares of the Company’s common stock at the lender’s option at a conversion price of $1.00 per share any time after the issuance date. In addition, the notes are mandatorily convertible into shares of common stock, should the closing price of the common stock be at least $2.00 per share for 30 consecutive trading days and certain other conditions be met. This mandatory conversion is subject to each lender’s 9.9% beneficial ownership limitation and is also subject to the Nasdaq combined 19.99% requirement which generally provides that a listed issuer may not issue 20% or more of its outstanding common stock or voting power in Phoenix,a non-public offering at below a minimum price unless the Company’s stockholders first approve such issuance.
The balance of the financing is a one-year, $20 million secured revolving line of credit that will require monthly interest payments on sums borrowed at the rate of 12% per annum. No sums have been borrowed under this revolving credit line as of this date. Currently, the Company does not anticipate making drawdowns on the revolving credit line. The Company paid a 1% commitment fee ($200,000) at closing and if the revolving credit facility has not been replaced in six months of the closing date, it must pay another 1% commitment fee.
Additionally, the Company extended its existing $5 million Credit Facility by one year to November 4, 2023 at an increased interest rate from 12% to 14% per annum.
These financings will provide capital for Aspen Group to continue expanding its national footprint of BSN Pre-Licensure campuses in states with rapidly growing populations and to pursue a marketing strategy to support growth of its post-licensure nursing degree programs.

Aspen University’s first-time pass rates for our BSN pre-licensure students taking the NCLEX-RN test in Arizona fell from 80% in 2020 to 58% in 2021, which is below the minimum 80% standard set by the Arizona Board of Nursing. As a result of the decline in NCLEX pass rates and other issues, and in alignment with a recommendation from the Arizona Board of Nursing, we voluntarily suspended BSN pre-licensure enrollments and the university is targeting to begin enrolling students forformation of new cohorts at our 2 Phoenix pre-licensure campuses, effective February 2022. We’re continuing discussions with the upcoming summer semester.


Aspen’s pre-licensure BSN program is offered asArizona Board of Nursing regarding our future status, and until we have a full-time, three-year (nine semester) program that is specifically designed for students who do not currently hold a state nursing license and have no prior nursing experience. Aspen will admit students into three tracks; 1) High school graduates with no prior college credits, 2) students that have less than 48 general education prerequisites completed, and 3) students that have completed all 48 general education prerequisite credits and are ready to enterformal agreement in place we won’t be publicly commenting on the core Nursing courses and clinical experiences.


Related to that announcement, matter.


Aspen University has also entered into a 92 month leaseStipulated Agreement with the Arizona State Board for Private Post-secondary Education which includes a totalrequirement to post a letter of 38,014 rentable square feet in a building complex in Phoenixcredit or surety bond for both$18.3 million within 45 days (in the pre-licensure program and the enrollment center. The lease commencement date is expected to be in the springfourth quarter of 2018 and upon commencement, the monthly payments will be approximately $67,000 per month subject to escalation terms.  During the quarter ended 1-31-18, the Company paid a depositfiscal year 2022).

23

Table of $519,000.  








Contents


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


You should read the following discussion in conjunction with our unaudited consolidated financial statements, which are included elsewhere in this Form 10-Q. Management’s Discussion and Analysis of Financial Condition and Results of Operations containThis Quarterly Report on Form 10-Q contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. FactorsSee "Cautionary Note Regarding Forward Looking Statements" for more information.
Key Terms
In connection with the management of our businesses, we identify, measure and assess a variety of operating metrics. The principal metrics we use in managing our businesses are set forth below:
Operating Metrics
Lifetime Value ("LTV") - Lifetime Value as the weighted average total amount of tuition and fees paid by every new student that could cause or contribute to these differences include those discussedenrolls in the Risk Factors containedCompany’s universities, after giving effect to attrition.
Bookings - defined by multiplying LTV by new student enrollments for each operating unit.
Average Revenue per Enrollment ("ARPU") - defined by dividing total bookings by total enrollments for each operating unit.
Operating costs and expenses
Cost of revenue - consists of instructional costs and services and marketing and promotional costs.
Instructional costs - 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 revenue.
Marketing and promotional costs - include costs associated with producing marketing materials and advertising, and outside sales costs. Such costs are generally affected by the Annual Reportcost of advertising media, the efficiency of the Company's marketing and recruiting efforts, and expenditures on Form 10-K filed on July 25, 2017 with the Securitiesadvertising initiatives for new and Exchange Commission,existing academic programs. Non-direct response advertising activities are expensed as incurred, or the SEC.


All referencesfirst time the advertising takes place, depending on the type of advertising activity and are included in cost of revenue.

General and administrative expense - consists primarily of compensation expense (including stock-based compensation expense) and other employee-related costs for personnel engaged in executive and academic management and operations, finance, legal, tax, information technology and human resources, fees for professional services, financial aid processing costs, non-capitalizable courseware and software costs, corporate taxes and facilities costs.
Non-GAAP financial measures:
Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") - is a non-GAAP financial measure. See "Non-GAAP Financial Measures" for a reconciliation of net loss to “we,” “our,” “us,” “AGI,”EBITDA for the three and “Aspen” refernine months ended January 31, 2022 and 2021.
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA")- is a non-GAAP financial measure. See "Non-GAAP Financial Measures" for a reconciliation of net loss to Adjusted EBITDA for the three and nine months ended January 31, 2022 and 2021.
Adjusted EBITDA Margin - is a non-GAAP financial measure. See "Non-GAAP Financial Measures" for a reconciliation of net loss to Adjusted EBITDA for the three and nine months ended January 31, 2022 and 2021.

24

Table of Contents
Company Overview
Aspen Group, Inc. and its subsidiaries,is an education technology holding company. It operates two universities, Aspen University Inc. (“("Aspen University”University") and United States University Inc. (“USU”("United States University" or "USU").
All references to the “Company”, “AGI”, “Aspen Group”, “we”, “our” and “us” refer to Aspen Group, Inc., unless the context otherwise indicates.


Company Overview


Aspen Group, Inc. (together with

AGI leverages its subsidiaries, the “Company” or “AGI”) is a holding company. AGI haseducation technology infrastructure and expertise to allow its two subsidiaries,universities, Aspen University Inc. (“Aspen University”) organized in 1987 and United States University, Inc. (“USU”). On March 13, 2012,to deliver on the Company was recapitalized in a reverse merger.


Aspen Group’s vision is to makeof making college affordable again in America.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 online higher education. AGI’s primary focus relative to future growth is to target the high growth nursing profession.

In March 2014, Aspen University unveiled abegan offering monthly payment plans available to all students across every online degree program offered by Aspen University. The monthly payment plan aimed at reversingis designed so that students will make one payment per month, and that monthly payment is applied towards the college-debt sentence plaguing working-class Americans.total cost of attendance (tuition and fees, excluding textbooks). The monthly payment plan offers bacheloronline undergraduate students (except RN to BSN) the opportunity to pay their tuition and fees at $250/month, for 72 months ($18,000), nursing bachelor students (RN to BSN) $250/month for 39 months ($9,750),online master students $325/month, for 36 months ($11,700) and online doctoral students $375/month, for 72 months ($27,000), interest free, thereby giving students a monthly payment tuition payment option versus taking out a federal financial aid loan.


United States University (USU)

USU began offering monthly payment plans in the summer of 2017. Today, monthly payment plans are available for the online RN to BSN program ($250/month), online MBA/M.A.Ed/MAEd/MSN programs ($325/month), online hybrid Bachelor of Arts in Liberal Studies, Teacher Credentialing tracks approved by the California Commission on Teacher Credentialing ($350/month), and the MSN-FNP program ($375/month).


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


2024.

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


WSCUC.

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


AGI Student Population Overview*


Aspen University’sOverview

AGI’s overall active degree-seeking student body increased(includes both Aspen University and USU) grew 2% year-over-year by 49% during the fiscal quarter endedto 13,724 as of January 31, 2018,2022 from 4,064 to 6,066 students. United States University’s (USU’s) active degree-seeking student body grew from 212 to 44613,407 as of January 31, 2021 and students seeking nursing degrees were 11,889 or an increase87% of 110% from May, 2017 to January, 2018, highlighted by the College of Nursing growing to 326 students which now represents 73% of USU’s total active student body.


students at both universities. Of the 11,889 students seeking nursing degrees, 9,612 are Registered Nurses (RNs) studying to earn an advanced degree, including 6,839 at Aspen University and 2,773 at USU, while the remaining 2,277 nursing students are enrolled in Aspen University’s most popular school is also its SchoolBSN Pre-Licensure program in the Phoenix, Austin, Tampa, Nashville and Atlanta metros.

The chart below shows five quarters of Nursing, which represents 73% of Aspen’s total active student body similar to USU. Aspen’s Schoolresults. Active student body is comprised of Nursing grew from 2,899 to 4,401 student’s year-over-year, which represented 75% of Aspen’s active degree-seeking student body growth. At January 31, 2018, Aspen’s School of Nursing included 2,869 active students, in the RN to BSN program and 1,532 active students in the MSN program, RN to MSN Bridge program, or DNP program.


 

 

Aspen University

 

 

United States University

 

 

 

Q3 FY’2018

 

 

Q3 FY’2018

 

New Student Enrollments

 

 

1,164

 

 

 

103

**

Active Student Body

 

 

6,066

 

 

 

446

 

-College of Nursing Students

 

 

4,401

 

 

 

326

 

Monthly Payment Method Students

 

 

4,194

 

 

 

204

 


*

Note: “Active Degree-Seeking Students” are defined as degree-seeking students who were enrolled in a course duringat the end of the third quarter reported,of fiscal year 2022 or are registered for an upcoming course.




25



**

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


Aspen University


Table of Contents
aspu-20220131_g2.jpg
AGI New Student Enrollment and Active Degree Seeking Student Body Growth


Since the launch of the BSN marketing campaign in November, 2014, Aspen University’s growth rate ofEnrollments

On a Company-wide basis, new student enrollments has accelerated significantly. Below iswere down 16% year-over-year, primarily as a quarterly analysisresult of three factors.
First, as previously announced, Aspen University dropped advertising spend in the BSN pre-licensure program in the Phoenix metro down to a maintenance spend through January 2022, causing enrollments in that metro to drop by 51% year-over-year.*
Second, enrollments at USU were down 10% year-over-year given the impact of the growthongoing COVID-19 pandemic as prospective nursing post-licensure students continue to delay their education goals on a short-term basis as they continued to care for COVID patients.
Third, in addition to Aspen University also seeing a COVID effect among prospective nursing post-licensure students, Aspen’s 2.0 business plan called for a $1.3 million annual reduction of ad spend in fiscal 2022 in Aspen’s post-licensure Nursing + Other unit which in the third quarter equated to a 14% drop in ad spend year-over-year. Consequently, given the drop in ad spend and the COVID effect, enrollments in the Aspen University’sNursing + Other unit dropped by 18% year-over-year.
In summary, and to provide additional context, excluding the 51% drop in enrollments in the Phoenix metro (BSN pre-licensure program) and the 18% drop in enrollments in Aspen University's Nursing + Other unit, total enrollments for the Company would have been down by approximately 1% year-over-year.
*Note: Beginning in the month of February 2022, Aspen University has temporarily suspended advertising spend and new pre-licensure student enrollments in the Phoenix metro.

New student enrollments for the past five quarters are shown below:

Q3'21Q4'21Q1'22Q2'22Q3'22
Aspen University1,593 1,593 1,601 1,750 1,301 
USU536 589 675 630 481 
Total2,129 2,182 2,276 2,380 1,782 

Bookings Analysis and ARPU
On a year-over-year basis, Q3 Fiscal 2022 Bookings decreased 20%, to $26.3 million from $33.0 million in the prior year. As previously discussed, the proactive Phoenix pre-licensure enrollment reduction, planned post licensure marketing reductions and the recent COVID surge caused Bookings to decrease year-over-year.
On a year-over-year basis, Q3 Fiscal 2022 ARPU decreased 5% from the prior year period due primarily to a decrease in new enrollments at Aspen University in the pre-licensure program and Nursing + Other.

26

Table of Contents
Third Quarter Bookings1 and Average Revenue Per Enrollment (ARPU)1
Q3'21 Enrollments
Q3'21 Bookings 1
Q3'22 Enrollments
Q3'22 Bookings 1
Percent Change Total Bookings & ARPU 1
Aspen University1,593 $23,476,050 1,301 $17,776,050 
USU536 $9,551,520 481 $8,571,420 
Total2,129 $33,027,570 1,782 $26,347,470 (20)%
ARPU$15,513 $14,785 (5)%
_____________________
1 “Bookings” are defined by multiplying Lifetime Value (LTV) by new student enrollments for each operating unit. “Average Revenue Per Enrollment” (ARPU) is defined by dividing total Bookings by total new student enrollments for each operating unit.
During the Q3 Fiscal 2022, the Company continued to focus its growth capital almost exclusively on its two licensure degree programs which have higher lifetime values. Set forth below is the description of these two key licensure degree programs.
Bachelor of Science in Nursing (BSN) Pre-Licensure Program
Aspen’s Pre-licensure BSN program provides students with opportunities to become a BSN-educated nurse and learn the essential skills needed to practice as well asa professional registered nurse (RN). Skills lab, clinical simulation, seminars and community-based clinical experiences anchor the curriculum. Upon completion of their studies, students are eligible to take the National Council Licensure Examination (NCLEX) in the state or territory in which they choose to practice (the NCLEX is the national registered nurse examination used by all states for potential registered nursing licensure). Students provide their state board of nursing applicable forms to the School of Nursing, which completes them on behalf of the individual student, and take the exam in the state in which they choose to practice. Upon passing the NCLEX, students then work with their state Board of Nursing to finalize their professional licensure.
We designed this program for students who do not currently hold a state registered nurse license and have little to no prior nursing experience. For students with no prior college credits, the total cost of attendance is $52,175 ($41,445 Tuition, $10,730 Fees), not including textbooks.
Phoenix, AZ Campus Locations
Aspen University began offering the BSN Pre-Licensure program in July 2018 at its initial campus in Phoenix, Arizona.As a result of overwhelming demand in the Phoenix metropolitan area, in January 2019 Aspen University began offering both day (July, November, March) and evening/weekend (January, May, September) terms, equaling six term starts per year. In September 2019, Aspen University opened a second campus in the Phoenix metropolitan area in partnership with HonorHealth.
Note that Aspen University previously announced that it has voluntarily suspended new student enrollments and the formation of new cohorts immediately (starting with February 2022 cohort) after receiving guidance from the Arizona State Board of Nursing at its January 28, 2022 meeting. We will not form any additional nursing cohorts in the Phoenix metropolitan without prior approval from the Board of Nursing.
Atlanta, GA
On January 20, 2022, the Company announced that Aspen University received the final required state and board of registered nursing regulatory approvals for their new BSN Pre-Licensure campus location in Atlanta, Georgia. The Atlanta site was occupied by the University of Phoenix, located at 859 Mt. Vernon Highway NE, Suite 100, which is situated just off Interstate 285 in the Sandy Springs suburb in the inner ring of Atlanta. Aspen University will begin enrolling first-year Pre-Professional Nursing (“PPN”) students in Atlanta starting in February 2022 and Nursing Core students (Years 2-3) in September 2022.
Austin, TX
Aspen University’s BSN Pre-Licensure program in Austin is based in the Frontera Crossing office building located at 101 W. Louis Henna Boulevard in the suburb of Round Rock. The building is situated at the junction of Interstate 35 and State Highway 45, one of the most heavily trafficked freeway exchanges in the metropolitan area with visibility to approximately 143,362 cars per day. Aspen University's initial PPN nursing student enrollments began on the September 29, 2020 semester start date.
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Table of Contents
Tampa, FL
Aspen University’s BSN Pre-Licensure program in Tampa is located at 12802 Tampa Oaks Boulevard. The building is visible from the intersection of Interstate 75 and East Fletcher Avenue, near the University of South Florida, providing visibility to approximately 126,500 cars per day. Aspen University's initial PPN nursing student enrollments began on the December 8, 2020 semester start date.
Nashville, TN
On March 8, 2021, the Company announced that Aspen University received the final required state and board of registered nursing regulatory approvals for their new BSN Pre-Licensure campus location in Nashville, Tennessee, with permission to commence marketing and begin to enroll first-year PPN students effective immediately. Aspen University's initial PPN nursing student enrollments began on the April 27, 2021 semester start date.
USU Master of Science in Nursing-Family Nurse Practitioner (MSN-FNP)
USU offers a number of nursing degree programs and other degree programs in health sciences, business & technology and education. Its primary enrollment program is its MSN-FNP which is designed for BSN-prepared registered nurses who are seeking a Nurse Practitioner license. The MSN-FNP is an online-hybrid 48-credit degree program with 100% of the curriculum online, including the curricular component to complete 540 clinical and 32 lab hours.
While MSN-FNP lab hours have been done at USU’s San Diego facility through the end of calendar 2020, the rapid growth of the active degree seeking student body overMSN-FNP program has caused AGI to open two additional immersion locations in 2021. Specifically, the past seven quarters, includingCompany built-out an additional suite on the recent quarter ending January 31, 2018.


 

 

New Student Enrollments

 

Active Degree Seeking Student Body*

Fiscal quarter end July 31, 2016

 

621

 

3,252

Fiscal quarter end October 31, 2016

 

811

 

3,726

Fiscal quarter end January 31, 2017

 

825

 

4,064

Fiscal quarter end April 30, 2017

 

986

 

4,681

Fiscal quarter end July 31, 2017

 

1,025

 

5,015

Fiscal quarter end October 31, 2017

 

1,255

 

5,641

Fiscal quarter end January 31, 2018

 

1,164

 

6,066


Aspen University Revenue Summary


Below is a summaryground floor of our main facility in Phoenix (by the nursing active degree-seeking student body as a percentage ofairport). Consequently, students now have the total active degree-seeking student body over the past six fiscal quarters.


 

 

Total Degree-Seeking Active Student Body

 

 

Nursing Degree- Seeking Active Student Body

 

 

Nursing Degree-Seeking Active Student Body (%)

 

 

Quarter ended October 31, 2016

 

 

3,726

 

 

 

2,538

 

 

 

68

%

 

Quarter ended January 31, 2017

 

 

4,064

 

 

 

2,899

 

 

 

71

%

 

Quarter ended April 30, 2017

 

 

4,681

 

 

 

3,363

 

 

 

72

%

 

Quarter ended July 31, 2017

 

 

5,015

 

 

 

3,569

 

 

 

71

%

 

Quarter ended October 31, 2017

 

 

5,641

 

 

 

4,068

 

 

 

72

%

 

Quarter ended January 31, 2018

 

 

6,066

 

 

 

4,401

 

 

 

73

%

 


option to attend their weekend immersions at three different metro locations: San Diego, Phoenix and Tampa.

Accounts Receivable - Monthly Payment Programs Overview


Since the March 2014 monthlyPlan ("MPP")

The Company offers several payment plan announcement, 69% of Aspen University’s courses are now paid through monthly payment methods (based on courses started over the last 90 days). Aspen offers two monthly payment programs,options to its students including a monthly payment plan (MPP), installment plans and financial aid. Our growth in accounts receivable over the last several years has predominantly been a result of students taking advantage of our groundbreaking monthly payment plan which studentswe introduced in 2014 at Aspen University and subsequently in Fiscal Year 2018 at USU. At January 31, 2022, Gross MPP accounts receivable was 89% of total gross accounts receivable. Of the Gross MPP accounts receivable, approximately 50% was generated at each AU and USU.
The Monthly Payment Plan, offered by both Aspen University and United State University, is a private education loan with a 0% fixed rate of interest (0% APR) and no down payment. Each month the student will make payments every monthone payment of $250, $325, $350 or $375 (depending on the program) until the program is paid for. The attractive aspect of being able to pay for a degree over a fixed period (36, 39 or 72 months depending onof time has fueled the growth of this plan. MPP is designed so students can build the cost of their degree program), andinto their monthly budget.
Long-Term Accounts Receivable
When a monthly installment plan in which students pay three monthly installments (day 1, day 31 and day 61 afterstudent signs up for the start of each course).


As of January 31, 2018, Aspen University had a total of 4,194 active students paying tuition through a monthly payment method of which 3,901 active students are paying through a monthly payment plan, there is a contractual amount that the Company can expect to earn over the life of the student’s program. This full contractual amount cannot be recorded as an account receivable upon enrollment. 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 293that 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 $10,249,833 at April 30, 2021 to $12,701,452 at January 31, 2022. These are MPP students who make monthly payments over 36, 39 and 72 months. The average student completes their academic program in 30 months; therefore, most of the Company’s accounts receivable are short-term. However, when students graduate earlier than the 30 month average completion duration, they transition to long-term accounts receivable. Also, long-term account receivable includes the impact of USU's 72-month payment plan. These are the primary factors that have driven an increase in long-term accounts receivable.
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Here is a graphic of both short-term and long-term receivables, as well as contractual value:
ABC
Payments owed for classes taken where payment plans for classes are less than 12 months, less monthly payments receivedPayments owed for classes taken where payment plans are greater than 12 monthsExpected 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.

COVID-19 Update
Nursing students represented 87% or 11,889 of the Company’s total student body of 13,724 students at the end of the third quarter of fiscal 2022. Of the 11,889 nursing students, 2,277 are BSN Pre-Licensure students located across our four metro locations (Phoenix, Austin, Tampa and Nashville). The remaining 9,612 nursing students are payinglicensed registered nurses (RNs) studying to earn an advanced degree (RN to BSN, MSN, MSN-FNP or DNP degree programs). Therefore, these 9,612 post-licensure nursing students represent 70% of the Company’s total student body at the end of the third quarter and are the AGI students primarily affected by the COVID-19 pandemic.

Starting in the second half of June 2021 and continuing through a monthly installment plan. Additionally,January 2022, the Company saw lower course starts than seasonally expected among our RN student body. For example, at Aspen University, is currently projecting to addcourse starts among RNs from June through January 2022 increased by approximately 120 active students/month net to its monthly payment programs through3% year-over-year.By comparison, over the previous two full fiscal year 2018. The total contractual value ofyears (Fiscal Year 2021 and Fiscal Year 2020), course starts among RNs at Aspen University’s monthly payment plan students now exceeds $35 million which currently delivers monthly recurring tuition cash paymentsUniversity increased by an average of approximately $1,000,000.


Finally,10% year-over-year.


We cannot be certain what impact future COVID-19 variants will have on the Company’s results as a consequencewe progress through the remainder of monthly payment programs becomingFiscal Year 2022.
Results of Operations
Set forth below is the payment methoddiscussion of choice among the majorityresults of Aspen’s degree-seeking student body, our HEA, Title IV Program revenue dropped from 25%operations of total cash receipts in fiscal year 2016 to 21% for fiscal year 2017.






Marketing Efficiency Analysis


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


Revenue per Enrollment (RPE)

Marketing Efficiency Ratio =

—————————————

Cost per Enrollment (CPE)


Cost per Enrollment (CPE)

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


Revenue per Enrollment (RPE)

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


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


Quarterly New Student Cohort Actuals Data:


CPE/RPE Analysis *

6 Months Out

12 Months Out

2 Years Out

3 Years Out

4+ Years Out

 

 

 

 

 

 

Courses completed

2.24

3.52

5.28

6.48

8

 

 

 

 

 

 

Average RPE

$1,974

$3,078

$4,630

$5,684

$7,000

 

 

 

 

 

 

RPE % earned

28%

44%

66%

81%

100%

 

 

 

 

 

 

Marketing efficiency ratio**

2.3x

3.5x

5.3x

6.5x

8.0x


*

Projection

**

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

 

 

 

 


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


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


Results of Operations


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

Revenue


Revenue from operations for the quarterthree months ended January 31, 20182022 (“2018 Quarter”Q3 Fiscal 2022”) increasedcompared to $5,701,958 from $3,735,626 for the quarterthree months ended January 31, 20172021 (“2017 Quarter”Q3 Fiscal 2021”), an increase of $1,966,332 or 53%.





Cost of Revenues (exclusive of amortization)


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


Instructional Costs and Services


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


Sales and Marketing

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


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


Costs and Expenses


General and Administrative


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


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


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


Depreciation and Amortization


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


Other Expense, net


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


Income Taxes

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


Net Income (Loss)

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






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

Revenue


Revenue from operations for the nine months ended January 31, 20182022 (“2018 Period”9M Fiscal 2022”) increasedcompared to $14,796,483 from $9,957,467 for the nine months ended January 31, 20172021 (“2017 Period”9M Fiscal 2021”), an increase

The following table presents selected consolidated statement of $4,839,016 or 49%.


operations as a percentage of revenue (differences due to rounding):

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Three Months Ended January 31,Nine Months Ended January 31,
2022202120222021
Revenue100 %100 %100 %100 %
Operating expenses:
   Cost of revenue (exclusive of depreciation and amortization shown separately below)
         Instructional costs and services26 %24 %25 %22 %
         Marketing and promotional costs23 %22 %22 %21 %
Total cost of revenue (exclusive of depreciation and amortization shown separately below)49 %45 %47 %43 %
   General and administrative62 %64 %60 %63 %
   Bad debt expense%%%%
   Depreciation and amortization%%%%
Total operating expenses118 %117 %113 %112 %
   Operating loss(18)%(17)%(13)%(12)%
Other income (expense):
   Interest expense(1)%— %(1)%(4)%
   Other income (expense), net— %— %%— %
Total other (expense) income, net(1)%— %— %(4)%
Loss before income taxes(18)%(17)%(12)%(17)%
Income tax expense%— %%— %
Net loss(20)%(17)%(13)%(17)%
Revenue
Three Months Ended January 31,Nine Months Ended January 31,
2022$ Change% Change20212022$ Change% Change2021
AU$13,027,338 $1,167,164 10%$11,860,174 $39,035,841 $4,401,315 13%$34,634,526 
USU5,917,460 1,152,797 24%4,764,663 18,280,163 4,153,245 29%14,126,918 
Revenue$18,944,798 $2,319,961 14%$16,624,837 $57,316,004 $8,554,560 18%$48,761,444 
Q3 Fiscal 2022 compared to Q3 Fiscal 2021
AU revenue increased 10% in Q3 Fiscal 2022 compared to Q3 Fiscal 2021 due primarily to Aspen’s BSN Pre-Licensure program, the AU degree program with the highest LTV.
USU revenue increased 24% in Q3 Fiscal 2022 compared to Q3 Fiscal 2021 due primarily to USU's MSN-FNP program, the USU degree program with the highest concentration of students and the highest LTV.
The Company expects the majority of its revenue growth in future periods to be derived from these two degree programs as we continue prioritizing our highest LTV degree programs to achieve our long-term growth plans.
9M Fiscal 2022 compared to 9M Fiscal 2021
AU and USU revenue increased 13% and 29% in 9M Fiscal 2022 compared to 9M Fiscal 2021, respectively, primarily due to the factors described above in the three month discussion.
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Cost of Revenuesrevenue (exclusive of amortization)


The Company’s cost of revenues consists ofdepreciation and amortization shown separately below)
Three Months Ended January 31,Nine Months Ended January 31,
2022$ Change% Change20212022$ Change% Change2021
Cost of Revenue (exclusive of depreciation and amortization shown separately below)$9,275,419$1,715,46823%$7,559,951$26,658,188$5,925,93429%$20,732,254

Q3 Fiscal 2022 compared to Q3 Fiscal 2021
Instructional Costs and Services
Consolidated instructional costs and services for Q3 Fiscal 2022 increased to $4,923,148 or 26% of revenue from $3,915,095 or 24% of revenue for Q3 Fiscal 2021, an increase of $1,008,053 or 26%.
AU instructional costs and salesservices was 25% and 22% of AU revenue for Q3 Fiscal 2022 and Q3 Fiscal 2021, respectively. As a percentage of revenue, instructional costs and services increased due primarily to an increase in faculty compensation costs related to the faculty hiring in the BSN Pre-Licensure campus locations in Phoenix, Austin, Tampa and Nashville, and increases in student technology license costs.
USU instructional costs and services was 28% and 27% of USU revenue for Q3 Fiscal 2022 and Q3 Fiscal 2021, respectively. As a percentage of revenue, instructional costs and services have increased due to the increased number of immersions with associated faculty and supplies cost.
Marketing and Promotional
Consolidated marketing costs.


and promotional costs for Q3 Fiscal 2022 were $4,352,271 or 23% of revenue compared to $3,644,856 or 22% of revenue for Q3 Fiscal 2021, an increase of $707,415 or 19%.

AU marketing and promotional costs represented 22% and 20% of AU revenue for Q3 Fiscal 2022 and Q3 Fiscal 2021, respectively. As a percentage of revenue, marketing and promotional costs have increased due primarily to the advertising spending increase directed to the new pre-licensure metropolitan locations.
USU marketing and promotional costs was 20% and 21% of USU revenue for Q3 Fiscal 2022 and Q3 Fiscal 2021, respectively.
Corporate marketing costs were $327,697 for Q3 Fiscal 2022 compared to $250,474 for Q3 Fiscal 2021, an increase of $77,223 or 31%.
9M Fiscal 2022 compared to 9M Fiscal 2021
Instructional Costs and Services


Instructional

Consolidated instructional costs and services for the 2018 Period rose9M Fiscal 2022 increased to $2,893,818$14,259,622 or 25% of revenue from $1,701,945$10,698,056 or 22% of revenue for the 2017 Period,9M Fiscal 2021, an increase of $1,191,873$3,561,566 or 70%33%.


Sales

AU instructional costs and Marketing

Salesservices were 25% and 21% of AU revenue for 9M Fiscal 2022 and 9M Fiscal 2021, respectively. As a percentage of revenue, instructional costs and services increased primarily due to the factors described above in the three month discussion.

USU instructional costs and services was 25% of USU revenue for both 9M Fiscal 2022 and 9M Fiscal 2021, respectively.
Marketing and Promotional
Consolidated marketing and promotional costs for the 2018 Period9M Fiscal 2022 were $3,388,996 from $1,788,101$12,398,566 or 22% of revenue compared to $10,034,198 or 21% of revenue for the 2017 Period,9M Fiscal 2021, an increase of $1,600,895$2,364,368 or 90%24%.
AU marketing and promotional represented 21% and 20% of AU revenue for 9M Fiscal 2022 and 9M Fiscal 2021, respectively. As a percentage of revenue, marketing and promotional costs increased due primarily to the planned advertising spending
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increase throughout Fiscal Year 2022, targeted primarily to our highest LTV program. The Company expects salesmajority of the year-over-year advertising spending increase is directed to the new pre-licensure metro locations: Austin, Nashville and Tampa.
USU marketing to riseand promotional costs was 17% and 18% of USU revenue for 9M Fiscal 2022 and 9M Fiscal 2021, respectively.
Corporate marketing and promotional costs was $994,681 in future periods, given we expect to increase monthly marketing spend to over $600,000 during the 2019 fiscal year.


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


Costs and Expenses


General and Administrative


General and administrative costs for the 2018 Period were $10,975,0859M Fiscal 2022 compared to $6,228,554 during the 2017 Period,$757,877 in 9M Fiscal 2021, an increase of $4,746,531$236,804 or 76%31%.


Depreciation The increase in marketing and Amortization


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


Other Income (Expense)


Other expense increased to ($303,190) from ($172,615), an increase of $130,575 or 76%. This increase is primarily due to interest paid ongraduation production costs for the credit facility. Other income increasedOctober 2021 ceremony.

General and administrative
Three Months Ended January 31,Nine Months Ended January 31,
2022$ Change% Change20212022$ Change% Change2021
General and administrative$11,771,487$1,127,04911%$10,644,438$34,359,276$3,635,92712%$30,723,349
Q3 Fiscal 2022 compared to $140,567 from $1,684,Q3 Fiscal 2021

AU general and administrative expense was 36% and 36% of AU revenue for Q3 Fiscal 2022 and Q3 Fiscal 2021, respectively. As a percentage of revenue, general and administrative expense remained flat.

USU general and administrative costs was 43% and 44% of USU revenue for Q3 Fiscal 2022 and Q3 Fiscal 2021, respectively. As a percentage of revenue, general and administrative expense decreased due primarily to a decrease in compensation and facilities costs.

Corporate general and administrative costs was $4.5 million in Q3 Fiscal 2022 and $4.2 million in Q3 Fiscal 2021, an increase of $0.2 million, or 5%. The increase was primarily due to the interest income earned on the $900,000 promissory note from increases in professional fees, facilities costs and insurance expense, partially offset by a decrease in merchant fees.
9M Fiscal 2022 compared to 9M Fiscal 2021

AU general and administrative expense was 35% and 34% of Aspen University revenue for 9M Fiscal 2022 and 9M Fiscal 2021, respectively. As a percentage of revenue, general and administrative expense increased due primarily to increases in compensation and other employee-related costs, facilities costs, professional fees and merchant fees.

USU general and from the releaseadministrative expense was 41% and 42% of the warrant derivative liabilityUSU revenue for 9M Fiscal 2022 and 9M Fiscal 2021, respectively. As a percentage of $52,500.


Income Taxes

Income taxesrevenue, general and administrative expense (benefit)decreased due primarily to higher revenue for the 2018 Period9M Fiscal 2022 and 2017 Perioda decreases in merchant fees, partially offset by increases in compensation and other employee-related costs, facilities costs, professional fees and technology costs.


Corporate general and administrative expense was $0 as Aspen Group experienced operating losses$13.1 million in both periods. As management made9M Fiscal 2022 and 9M Fiscal 2021, respectively. General and administrative expense remained flat year-over-year due to planned Corporate cost control.
Bad debt expense
Three Months Ended January 31,Nine Months Ended January 31,
2022$ Change% Change20212022$ Change% Change2021
Bad debt expense$350,000$(320,000)(48)%$670,000$1,050,000$(652,000)(38)%$1,702,000
For both the three and nine months ended January 31, 2022 compared to the three and nine months ended January 31 2020, bad debt expense decreased as a full valuation allowancepercentage of total revenue. Based on our review of accounts receivable and historical write-off trends, the Company evaluated its reserve methodology and adjusted reserves for AU and USU accordingly. At AU and USU, approximately $766,000 and $146,000 of student accounts receivable were written off against the deferred tax assets stemming from these losses, there was no tax benefit recorded inaccounts receivable allowance during 9M Fiscal 2022.

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Depreciation and amortization
Three Months Ended January 31,Nine Months Ended January 31,
2022$ Change% Change20212022$ Change% Change2021
Depreciation and amortization$883,536$348,26365%$535,273$2,480,179$927,92560%$1,552,254

For both the statement of operations in both periods.


Net Loss

Net loss for the 2018 Period was ($3,396,575) asthree and nine months ended January 31, 2022 compared to ($381,530) for the 2017 Period,three and nine months ended January 31 2021, the increase in depreciation is primarily due to investments in new campuses, including capital expenditures of leasehold improvements and computer equipment, and an increase in amortization of internally developed capitalized software placed into service to support the lossCompany's services and the opening of $3,015,045.

new campuses, partially offset by a decrease of fully depreciated assets.
Other (expense) income, net
Three Months Ended January 31,Nine Months Ended January 31,
2022$ Change% Change20212022$ Change% Change2021
Other (expense) income, net$(166,743)$(146,762)735%$(19,981)$163,016$2,298,500NM$(2,135,484)





NM - Not meaningful


Q3 Fiscal 2022 compared to Q3 Fiscal 2021
Other expense, net in Q3 Fiscal 2022 of $166,743 includes $150,000 of interest expense related to the $5 million Credit Facility borrowings on August 31, 2021 and $30,000 of amortization expense in connection with the fair value of the warrants issued to the Leon and Toby Cooperman Family Foundation as an extension fee in connection with the $5 million revolving line of credit.

Other expense, net in Q3 Fiscal 2021 of $19,981 primarily includes interest expense related to the commitment fees on the undrawn $5 million Revolving Credit Facility which was then scheduled to mature on November 4, 2021 and as amended matures on November 4, 2023; with a 2% annual commitment fee on the undrawn portion payable quarterly.
9M Fiscal 2022 compared to 9M Fiscal 2021
Other income, net in 9M Fiscal 2022 of $163,016 primarily includes $498,120 of a litigation settlement amount received on July 21, 2021 offset by the write-off of a related net receivable of $45,329 with the party in this litigation; partially offset by interest expense of approximately $233,000 related to the $5 million Credit Facility borrowings on August 31, 2021, interest expense of $25,000 related to the 2% annual commitment fee on the undrawn portion of the $5 million Revolving Credit Facility payable quarterly through August 31, 2021 and a $36,000 write off of fixed assets.
Other expense, net in 9M Fiscal Q3 2021 of $2,135,484 primarily includes: interest expense of (i) a non-cash charge of $1.4 million of accelerated amortization expense related to the conversion of the $10 million Convertible Notes which occurred on September 14, 2020; (ii) $0.5 million for the $10 million Convertible Notes issued on January 22, 2020 as well as the commitment fee on the $5 million Revolving Credit Facility; (iii) an adjustment of $0.3 million related to the previously reported earned revenue fee calculation deemed immaterial to our Fiscal 2019 revenue; (iv) a non-cash modification and accelerated amortization charges of $0.2 million related to the exercise of the 2018 and 2019 Cooperman Warrants on June 5, 2020; partially offset by $0.3 million of other income.
Income tax expense
Three Months Ended January 31,Nine Months Ended January 31,
2022$ Change% Change20212022$ Change% Change2021
Income tax expense$231,610$221,1502114%$10,460$388,520$343,430762%$45,090
Q3 Fiscal 2022 compared to Q3 Fiscal 2021
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Income tax expense in Q3 Fiscal 2022 includes a reserve of approximately $150,000 for the estimate of the Canada foreign income tax liability which covers the 2013 through 2021 tax years during which a permanent establishment was in place in Canada. Additionally, the Company recorded a reserve of $75,000 for the estimated Fiscal Year 2022 Canada foreign income tax liability. The Company is preparing to file Canadian T2 Corporation Income Tax Returns and related information returns under the Voluntary Disclosure Program with the Canada Revenue Agency ("CRA") to cover the 2013 through 2021 tax years. The Company will also file an annual Canadian T2 Corporation Income Tax return to report the ongoing activity of the permanent establishment for 2022 and future taxation years.
9M Fiscal 2022 compared to 9M Fiscal 2021
Income tax expense in 9M Fiscal 2022 includes a reserve of approximately $300,000 for the estimate of the 2013 through 2021 tax year foreign income tax liability. Additionally, for the 2022 tax year, the Company recorded a reserve of approximately $75,000.
Non-GAAP Financial Measures


The following

This 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 (loss), operating income (loss), and cash flow from operating activities, liquidity or any other financial measures. They may not be indicative of the historical operating results of AGI nor are they intended to be predictive of potential future results. Investors should not consider non-GAAP financial measures in isolation or as substitutes for performance measures calculated in accordance with GAAP.


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


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


Our management recognizes that the non-GAAP financial measures have inherent limitations because of the excluded items described below.

We have included a reconciliation of our non-GAAP financial measures to the most comparable financial measuremeasures calculated in accordance with GAAP. We believe that providing the non-GAAP financial measures, together with the reconciliation to GAAP, helps investors make comparisons between Aspen GroupAGI 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.



EBITDA and Adjusted EBITDA

AGI defines Adjusted EBITDA as EBITDA excluding: (1) bad debt expense; (2) stock-based compensation; and (3) non-recurring charges or gains. The following table presents a reconciliation of net loss to EBITDA and Adjusted EBITDA and of net loss margin to the Adjusted EBITDA margin:
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Three Months Ended January 31,Nine Months Ended January 31,
2022202120222021
Net loss$(3,733,997)$(2,815,266)$(7,457,143)$(8,128,987)
Interest expense, net180,642 33,436 350,838 2,018,176 
Taxes231,610 10,460 388,520 45,090 
Depreciation and amortization883,536 535,273 2,480,179 1,552,254 
EBITDA(2,438,209)(2,236,097)(4,237,606)(4,513,467)
Bad debt expense350,000 670,000 1,050,000 1,702,000 
Stock-based compensation700,697 701,170 1,965,567 3,019,828 
Non-recurring charges - Severance— — 19,665 44,000 
Non-recurring (income) charges - Other49,310 — (345,056)375,437 
Adjusted EBITDA$(1,338,202)$(864,927)$(1,547,430)$627,798 
Net loss Margin(20)%(17)%(13)%(17)%
Adjusted EBITDA Margin(7)%(5)%(3)%1%
In 9M Fiscal 2022, non-recurring income of $345,056 primarily includes $498,120 of a litigation settlement amount received on July 21, 2021 offset by the write-off of a related net receivable of $45,329 with the party in this litigation, which are included in "other (expense) income, (loss) allocablenet."
In 9M Fiscal 2021, stock-based compensation expense includes $1.2 million related to common shareholders,the accelerated amortization expense for the price vesting of Executive RSUs in Q2 Fiscal 2021 and non-recurring charges of $375,437 in Q1 Fiscal 2021. EBITDA in Q2 Fiscal 2021 includes $1.4 million related to the accelerated amortization expense of the original issue discount for the automatic conversion of $10 million Convertible Notes on September 14, 2020 (included in "Interest expense, net"). An additional non-recurring item in Q1 Fiscal 2021 of $123,947 (included in "Interest expense, net"), which arose from the acceleration of amortization arising from the exercise of warrants issued to a lender.
The following tables present a reconciliation of net loss to EBITDA and Adjusted EBITDA and of net loss margin to the Adjusted EBITDA margin by subsidiary:
Q3 Fiscal 2022 compared to Q3 Fiscal 2021
Three Months Ended January 31, 2022
ConsolidatedAGI CorporateAUUSU
Net income (loss)$(3,733,997)$(5,020,149)$941,437 $344,715 
Interest expense, net180,642 180,682 — (40)
Taxes231,610 951 230,660 (1)
Depreciation and amortization883,536 47,536 738,172 97,828 
EBITDA(2,438,209)(4,790,980)1,910,269 442,502 
Bad debt expense350,000 — 225,000 125,000 
Stock-based compensation700,697 616,166 56,880 27,651 
Non-recurring charges - Severance— — — — 
Non-recurring charges - Other49,310 49,310 — — 
Adjusted EBITDA$(1,338,202)$(4,125,504)$2,192,149 $595,153 
Net income (loss) Margin(20)%NM7%6%
Adjusted EBITDA Margin(7)%NM17%10%

NM - Not meaningful
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Three Months Ended January 31, 2021
ConsolidatedAGI CorporateAUUSU
Net income (loss)$(2,815,266)$(4,537,882)$1,375,359 $347,257 
Interest expense, net33,436 33,516 — (80)
Taxes10,460 3,600 6,800 60 
Depreciation and amortization535,273 15,540 492,303 27,430 
EBITDA(2,236,097)(4,485,226)1,874,462 374,667 
Bad debt expense670,000 — 610,000 60,000 
Stock-based compensation701,170 692,244 (12,468)21,394 
Non-recurring charges - Severance— — — — 
Non-recurring charges - Other— — — — 
Adjusted EBITDA$(864,927)$(3,792,982)$2,471,994 $456,061 
Net income (loss) Margin(17)%NM12%7%
Adjusted EBITDA Margin(5)%NM21%10%

Adjusted EBITDA margin decreased to (7)% in Q3 Fiscal 2022 from (5)% in Q3 Fiscal 2021, due primarily to an increase in faculty compensation costs related to the faculty hiring in the BSN Pre-Licensure campus locations in Phoenix, Austin and Tampa, and increases in books and other educational materials and facilities costs related to the opening of new campus locations. Additionally, our strategic shift in marketing spend and the impact of COVID-19 impacted enrollments in our AU Online business unit, which contributed to the decrease in Adjusted EBITDA margin.
9M Fiscal 2022 compared to 9M Fiscal 2021
Nine Months Ended January 31, 2022
ConsolidatedAGI CorporateAUUSU
Net income (loss)$(7,457,143)$(14,537,849)$4,605,707 $2,474,999 
Interest expense, net350,838 353,193 (1,739)(616)
Taxes388,520 3,363 383,867 1,290 
Depreciation and amortization2,480,179 116,720 2,082,972 280,487 
EBITDA(4,237,606)(14,064,573)7,070,807 2,756,160 
Bad debt expense1,050,000 — 725,000 325,000 
Stock-based compensation1,965,567 1,732,412 149,773 83,382 
Non-recurring charges - Severance19,665 — — 19,665 
Non-recurring (income) charges - Other(345,056)107,635 (452,691)— 
Adjusted EBITDA$(1,547,430)$(12,224,526)$7,492,889 $3,184,207 
Net income (loss) Margin(13)%NM12%14%
Adjusted EBITDA Margin(3)%NM19%17%

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Nine Months Ended January 31, 2021
ConsolidatedAGI CorporateAUUSU
Net income (loss)$(8,128,987)$(15,929,868)$5,892,892 $1,907,989 
Interest expense, net2,018,176 2,018,258 — (82)
Taxes45,090 14,250 30,580 260 
Depreciation and amortization1,552,254 42,023 1,424,030 86,201 
EBITDA(4,513,467)(13,855,337)7,347,502 1,994,368 
Bad debt expense1,702,000 — 1,522,000 180,000 
Stock-based compensation3,019,828 2,768,687 135,166 115,975 
Non-recurring charges - Severance44,000 44,000 — — 
Non-recurring charges - Other375,437 375,437 — — 
Adjusted EBITDA$627,798 $(10,667,213)$9,004,668 $2,290,343 
Net income (loss) Margin(17)%NM17%14%
Adjusted EBITDA Margin1%NM26%16%
Adjusted EBITDA margin decreased to (3)% in 9M Fiscal 2022 from 1% in 9M Fiscal 2021, due primarily to the factors described above in the three months discussion.
Adjusted Gross Profit
GAAP financial measure:


 

 

For the Quarters Ended

 

 

 

January 31,

 

 

 

2018

 

 

2017

 

Net income (loss)

 

$

(2,147,945

)

 

$

7,377

 

Interest expense, net of interest income

 

 

211,486

 

 

 

78,317

 

Depreciation & amortization

 

 

347,894

 

 

 

132,727

 

EBITDA (loss)

 

 

(1,588,565

)

 

 

218,421

 

Bad debt expense

 

 

132,644

 

 

 

(25,680

Acquisition expense

 

 

610,219

 

 

 

 

Non-recurring charges

 

 

85,853

 

 

 

146,809

 

Stock-based compensation

 

 

162,544

 

 

 

96,498

 

Adjusted EBITDA (Loss)

 

$

(597,305

)

 

$

436,048

 




Gross Profit is revenue less cost of revenue less amortization expense. The Company defines Adjusted Gross Profit as GAAP Gross Profit adjusted to exclude amortization expense. The following table presents a reconciliation of GAAP Gross Profit to Adjusted Gross Profit:

Three Months Ended January 31,Nine Months Ended January 31,
2022202120222021
Revenue$18,944,798 $16,624,837 $57,316,004$48,761,444
Cost of Revenue9,275,419 7,559,951 26,658,18820,732,254
Adjusted Gross Profit9,669,379 9,064,886 30,657,81628,029,190
Less amortization expense included in cost of revenue:
   Intangible asset amortization22,174 10,255 60,16232,718
   Call center software/website amortization419,026 363,030 1,255,1691,024,790
Total amortization expense included in cost of revenue441,200 373,285 1,315,3311,057,508
GAAP Gross Profit$9,228,179 $8,691,601 $29,342,485$26,971,682
GAAP Gross Profit as a percentage of revenue49%52%51%55%
Adjusted Gross Profit as a percentage of revenue51%55%53%57%



Q3 Fiscal 2022 compared to Q3 Fiscal 2021

Adjusted gross profit as a percentage of revenue decreased due primarily to a more than anticipated decrease in class starts year-over-year in the post-licensure programs due to the effects of the COVID surge, higher instructional costs related to an increase in faculty hiring in the BSN Pre-Licensure new campus locations and higher immersion costs related to the growth in the USU MSN-FNP program. Additionally, we incurred seasonally higher marketing costs over the third quarter holiday period, targeted primarily to our highest LTV programs including new campus locations in our AU pre-licensure program.
Aspen University GAAP Gross Profit represented 50% of Aspen University revenue for Q3 Fiscal Year 2022, and USU GAAP Gross Profit represented 52% of USU revenue for Q3 Fiscal Year 2022.
9M Fiscal 2022 compared to 9M Fiscal 2021
Adjusted gross profit as a percentage of revenue decreased due primarily to the factors described above in the three months discussion.
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Aspen University GAAP Gross Profit represented 51% of Aspen University revenue for 9M Fiscal Year 2022, and USU GAAP Gross Profit represented 57% of USU revenue for 9M Fiscal Year 2022.
Liquidity and Capital Resources


Debt
For a detailed description of debt, see “Note 6. Debt” to the consolidated financial statements included in “Item 1. Consolidated Financial Statements.”

Cash flow information

A summary of ourthe Company's cash flows is as follows:


 

 

For the

 

 

 

Nine Months Ended

 

 

 

January 31,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

Net cash used in operating activities

 

$

(3,654,947

)

 

$

(99,042

)

Net cash used in investing activities

 

 

(3,031,667

)

 

 

(571,856

)

Net cash provided by financing activities

 

 

7,733,477

 

 

 

784,200

 

Net increase in cash and cash equivalents

 

$

1,046,863

 

 

$

113,302

 


Nine Months Ended
January 31,
20222021
Net cash (used in) provided by
   Operating activities$(7,719,760)$(5,275,719)
   Investing activities(3,734,670)(2,909,088)
   Financing activities5,191,034 3,660,492 
   Net decrease in cash$(6,263,396)$(4,524,315)

Net Cash Provided by (Used in)Used in Operating Activities


Net cash used in operating activities duringfor the 2018 Period totaled ($3,654,947) and resulted primarily by thenine months ended January 31, 2022 includes adjustments to net loss consisting primarily of ($3,396,575),depreciation and amortization expense of $2,480,179, stock-based compensation of $1,965,567, bad debt expense of $1,050,000, tenant improvement allowances received from landlords of $816,591, amortization of deferred financing costs of $49,107, warrant based cost of $43,708 and debt issue costs of $18,056, partially offset by approximately $1,200,000 in non-cash items and approximately $1,100,000lease benefits of $96,450. The decrease in operating assetscash from changes in working capital primarily consists of increases in gross accounts receivable (both short and liabilities.long term accounts receivable, before allowance for doubtful accounts) of $6,412,590, prepaid expenses of $297,797 and a decrease in deferred revenue of $642,233, partially offset by increases in accrued expenses of $38,353, accounts payable of $340,168 and due to students of $482,032. The most significant item change operating assets and liabilities was an increase in accounts receivable is primarily attributed to the growth in students paying through the monthly payment plan as well as timing of $4,534,118 whichbillings for class starts. Prepaid expenses increased due to the annual insurance renewal in the first quarter of the Fiscal Year 2022. The decrease in deferred revenue is due primarily to timing of billings for class starts in our pre-licensure program. Accrued expenses increased due primarily to accrual of approximately $300,000 for the estimate of the 2013 through 2021 tax year foreign income tax liability and an increase in accrued marketing due to timing of marketing payments. The increases in accounts payable and due to students are primarily due to timing of payments.
The Company expects working capital and long-term student accounts receivable to trend higher over time as more students utilize our monthly payment plan. Additionally, there may be working capital volatility from quarter to quarter, especially regarding the timing of financial aid payments and student course starts that impact deferred revenue and accounts receivable balances. Offsetting the trend toward higher working capital and long-term student accounts receivable will be a trend toward improved adjusted EBITDA as we continue to grow our high LTV programs. We believe the adjusted EBITDA growth will result in positive operating cash flow in the next 2-3 years. We are actively seeking additional long-term financing arrangements to provide funds to continue the expansion of our high LTV programs. See Financing Arrangements discussed below.
Net cash used in operations for the nine months ended January 31, 2021 includes adjustments to net loss consisting primarily of stock-based compensation of $3,019,828, bad debt expense of $1,702,000, amortization of debt discounts of $1,550,854, and depreciation and amortization expense of $1,552,254. The decrease in cash from changes in working capital primarily consists of increases in gross accounts receivable (both short and long term accounts receivable, before allowance for doubtful accounts) of $6,493,238 and other current assets of $1,205,083, partially offset by an increase in deferred revenue of $1,887,377 and accrued expenses of $1,756,102. The increase in accounts receivable is primarily attributed to the growth in revenues from students paying through the monthly payment plan.plan as well as timing of billings for class starts. Other current assets increased primarily due to reimbursable tenant improvement costs of $1.3 million paid in Fiscal 2021 related to the build out of the Tampa and Austin campuses. The most significant non-cash items were depreciationincrease in deferred revenue is due primarily to timing of billings for class starts. The
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increase in accrued expenses is due primarily to accrual of executive bonus for Fiscal Year 2021, accrued payroll due to higher headcount and amortizationrelated increase in compensation and benefits expense to support the growth of $631,969the business and stock compensation expense of $466,468.


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


timing.


Net Cash Provided by (Used in)Used in Investing Activities


Net cash used in investing activities duringfor the 2018 Period totaled ($3,031,667) mostly attributed to cash paid in the USU acquisition and the purchasenine months ended January 31, 2022 includes purchases of property and equipment.


equipment of $3.6 million primarily due to investments in leasehold improvements, computer equipment and hardware and Company developed software. Purchases of courseware and accreditation were $0.2 million. A significant portion of cash used for investing activities relates to the opening of new campus locations.

Net cash used in investing activities duringfor the 2017 Period totaled ($571,856) mostly attributednine months ended January 31, 2021 includes purchases of property and equipment of $2,877,758 primarily due to the increaseinvestments in software.


computer equipment and hardware, Company developed software and new campuses; and purchases of courseware and accreditation of $31,330.

Net Cash Provided By (Used In) Financing Activities


Net cash provided by financing activities duringfor the 2018 Period totaled $7,733,477 which reflects primarilynine months ended January 31, 2022 includes proceeds of $5,000,000 from borrowings under the cash provided by the senior secured term loan.


Credit Facility and proceeds from stock options exercised of $191,034.

Net cash provided by financing activities duringfor the 2017 Period totaled $784,200 which reflectsnine months ended January 31, 2021 includes proceeds from stock options exercised of $2,578,700 and proceeds from warrants exercised of $1,081,792 received from the increase due to the new $3,000,000 line of credit, of which $1,250,000 has been drawn, offset by the buybackcash exercise of warrants for $400,000.


associated with the Term Loan and Revolving Credit Facility.


Liquidity and Capital Resource Considerations


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


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



Resources


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


Financing Arrangements
Convertible Note and New Credit Facility
On March 14, 2022, the Company closed an offering of a $10 million convertible note and a $20 million Revolving Credit Facility (the “New Facility”). The Company received the proceeds from the convertible note of $10 million at the closing. Proceeds from the $10 million convertible note offering will be used for general corporate purposes, including funding the Company’s expansion of its BSN Pre-Licensure nursing degree program. No sums have been borrowed under this revolving credit line as of this date. Currently, the Company does not anticipate making drawdowns on the revolving credit line.

Credit Facility

On August 31, 2021, the Company extended the Credit Facility by one year to November 4, 2022. The Credit Facility Agreement provides for a $5,000,000 revolving credit facility evidenced by a revolving promissory note. Borrowings under the Credit Facility Agreement bear interest at 12% per annum. In conjunction with the extension of the Credit Facility, the Company drew down $5,000,000 of funds at 12% interest per annum due November 4, 2022. Pursuant to this agreement, on August 31, 2021 the Company issued to the Foundation warrants to purchase 50,000 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. Additionally on March 14, 2022, the Company extended the $5 million Credit Facility by one additional year to November 4, 2023 at an increased interest rate of 14% per annum. The Company uses these funds for general business purposes, including the roll out of the new campuses.
At January 31, 2022 and April 30, 2021, there were $5,000,000 and no outstanding borrowings, respectively, under the Credit Facility.
The Company expects that its existing cash resources will be sufficient to fund its working capital, including capital
expenditures, investing and other needs for the next 12 months.
Capital and other expenditures
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The Company anticipates that it will need to make capital and other expenditures in connection with the development and expansion of its campus operations and the implementation of new on-line programs. The Company's Fiscal year 2022 capital expenditures will be between approximately $4 million and $5 million, a decrease from Fiscal Year 2021 capital expenditures primarily due to campus costs for the opening of one new campus in the current year compared to two campuses in the prior year.
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

At January 31, 2022, there were no material changes to our principalcritical accounting policies and estimates. A full listing of our critical accounting policies and estimates duringis described in the period covered by this report.


Related Party Transactions


See Note 9 to"Critical Accounting Policies and Estimates" of our Annual Report on Form 10-K for the unaudited consolidated financial statements included hereinfiscal year ended April 30, 2021 and listed here below:

Revenue Recognition and Deferred Revenue
Accounts Receivable and Allowance for additional description of related party transactions that had a material effect on our unaudited consolidated financial statements.


Doubtful Accounts Receivable

Goodwill and Intangibles
Stock-based compensation
Off Balance Sheet Arrangements

We do

The Company does not engage inhave 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 discussionarrangements as of recent accounting pronouncements.


January 31, 2022.

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 studentAdjusted EBITDA growth projected Marketing Efficiency Ratio, overalland expectations for positive operating cash flow in the next 2-3 years, our focusing of advertising spend on the highest LTV units and the expectation that a majority of our future revenue growth will be derived from those units, the anticipated impact of this plan on our future operating results, liquidity and growth, the expected continued revenue growth in Aspen University’s BSN Pre-Licensure and USU’s MSN-FNP programs, the impact of COVID-19, our anticipated working capital trends including working capital volatility from quarter to quarter, the intended use of proceeds from recent financings including towards the continued expansion of our BSN Pre-Licensure campuses in states with high population growth and a growth-focused marketing strategy for our post-licensure nursing degree programs, our expected capital expenditures related to new campus openings and the implementation of new on-line programs, letters of credit and promissory notes,and our 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 couldmay cause actual results to differ materially from those in thethese forward-looking statements include, without limitation, our ability to successfully implement the failure to maintain regulatory approvals, regulatory issues, competition, ineffective media and/or marketing, failure to maintain growth in degree seeking studentsAspen 2.0 business plan and the integrationaccuracy of USU.the assumptions used in estimating the results of such implementation, the continued demand of nursing students for the new programs, student attrition, national and local economic factors including the substantial impact of whether COVID-19 will continue to have an adverse effect on the economy, uncertainties arising from the Russian invasion of Ukraine including its effect on the U.S. economy,supply chain issues and the labor market, competition from nursing schools in local markets, the competitive impact from the trend of major non-profit universities using online education and consolidation among our competitors, and the impact of possible actions arising from the Arizona Board of Nursing investigation. Further information on the risks and uncertainties affecting our risk factorsbusiness is contained in our filings with the SEC, including thethis Form 10-Q and our Annual Report on Form 10-K filed on July 25, 2017. Any forward-looking statement made by us in this report speaks only as offor the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them.fiscal year ended April 30, 2021. 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

RISK.

Not applicable.


ITEM 4. CONTROLS AND PROCEDURESPROCEDURES.
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Evaluation of Disclosure Controls and Procedures.
Our management carried out an evaluation, with the participation of our Principal Executive Officer and Principal Financial Officer, required by Rule 13a-15 or 15d-15 of the Securities Exchange Act of 1934 (the “Exchange Act”) of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act. Based on their evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

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





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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS


From time to time,time-to-time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. There were no material changes to our legalOther than the previously disclosed receipt of payment of $498,120 as a final distribution by the bankruptcy trustee in HEMG bankruptcy proceedings, as described in the Company’s Form 10-K during the period covered by this report.   

report, there were no material changes to the description of legal proceedings set forth in our Annual Report on Form 10-K for the fiscal year ended April 30, 2021.


ITEM 1A. RISK FACTORS


Not applicable

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, 2021.
If we are unable to smaller reporting companies.

satisfy the probation terms following the execution of a mutually acceptable consent agreement with the Arizona Board of Nursing, our future results of operations could be materially and adversely affected.
Our largest subsidiary, Aspen University Inc., is based in Phoenix, Arizona. Approximately 12% of its enrollments are students in its BSN Pre-Licensure nursing programs at two campus locations in Phoenix. On January 28, 2022, Aspen University voluntarily agreed to cease enrollments in the pre-nursing and core nursing programs at its Arizona Pre-licensure campuses effective immediately related to an investigation by the Arizona Board of Nursing resulting from student complaints, unacceptable NCLEX first-time pass rates in CY’2021, among other issues. Aspen University will continue the suspension of enrollments in the pre-nursing and core nursing programs at its Arizona Pre-licensure campuses at least until it has successfully negotiated a consent agreement with the Arizona Board of Nursing which will outline the terms of the impending probation. Once the probation period begins and until the probation period ends, should Aspen University not successfully satisfy the probation terms, future results of operations could be materially and adversely affected.
Aspen University has also entered into a Stipulated Agreement with the Arizona State Board for Private Postsecondary Education which includes a requirement to post a letter of credit or surety bond for $18.3 million within 45 days (approximately April 21st).
Because of the Russian invasion of Ukraine, the effect on the capital markets and the economy is uncertain, and we may have to deal with a recessionary economy and economic uncertainty including possible adverse effects upon our business.

As a result of the Russian invasion of Ukraine, certain events are beginning to effect the global and United States economy including increased inflation, substantial increases in the prices of oil and gas, large Western companies ceasing to do business in Russia and uncertain capital markets with declines in leading market indexes. The duration of this war and its impact are at best uncertain and continuation may result in Internet access issues if Russia, for example, began illicit cyber activities. Ultimately the economy may turn into a recession with uncertain and potentially severe impacts upon public companies and us. We cannot predict how this will affect our business but the impact may be adverse.


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

From November 1, 2017, to January 31, 2018, 87,470 shares were issued


Other than as set forth in connection with the cashless exercise"Item 5. Other Information" which is incorporated herein by reference, all recent sales of 178,917 warrants with exercise prices ranging from 3.99 to 6.00 per share.  Theseunregistered securities were issued without registration under the Securities Act of 1933 in reliance upon the exemption provided in Section 3(a)(9) thereunder.


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

have been previously reported.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

As of March 8, 2022, the 2012 Equity Incentive Plan (the “2012 Plan”) had 129,009 shares of common stock available to be issued under the 2012 Plan. The 2012 Plan expires on March 15, 2022. On March 8, 2022 the Company increased the 2018
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Not applicable.

Equity Incentive Plan (the “2018 Plan”) by an additional 129,009 shares of common stock available for awards under the 2018 Plan and transferred the remaining 129,009 unused awards under the 2012 Plan to the 2018 Plan.

On March 14, 2022 ,the Company issued (i) Revolving Promissory Note and Security Agreements (the “Revolver Notes”) in the principal amount of up to $20 million in the aggregate and (ii) Convertible Promissory Note and Security Agreements (the “Convertible Notes”, and together with the Revolver Notes, collectively, the “Notes”) in the principal amount of up to $10 million in the aggregate, to two unaffiliated lenders (the “Lenders”).

The Convertible Notes mature five years from the issuance date and pay interest monthly at the rate of 12% per annum. The Convertible Notes are convertible into up to 10,000,000 shares of the Company’s common stock at each lender’s option at a conversion price of $1.00 per share any time after the issuance date. In addition, the Convertible Notes are mandatorily convertible into shares of common stock if the closing price of the Company’s common stock is at least $2.00 per share for 30 consecutive trading days. This mandatory conversion is subject to each Lender’s 9.9% beneficial ownership limitation and subject to the Nasdaq combined 19.99% requirement until the Company’s stockholders approve further conversion.

The Revolver Notes will require monthly interest payments on sums borrowed at the rate of 12% per annum. No sums have been borrowed as of the date of the Quarterly Report on Form 10-Q. Currently, the Company does not anticipate making drawdowns on the revolving credit line. The Company paid a 1% commitment fee ($200,000) at closing and if the Revolver Notes have not been terminated by September 14, 2022, it must pay another 1% commitment fee.

Pursuant to the Notes, all future indebtedness incurred by the Company, other than indebtedness expressly permitted by the Notes, will be subordinated to the Notes and the Prior Credit Facility, as defined below, with an exception for acquisitions of software and equipment under purchase money agreements and capital leases.

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 the Company’s subsidiaries, certain of the deposit accounts of the Company and its subsidiaries and a pledge of the common stock of the Company held by its chief executive officer (the “Collateral”).

On March 14, 2022, in connection with the issuance of the Notes, the Company also entered into an intercreditor agreement (the “Intercreditor Agreement”) among the Company, the Lenders and the lender under a prior credit facility dated November 5, 2018 (as amended, the “Prior Credit Facility”). The Intercreditor Agreement provides among other things that the Company’s obligations under, and the security interests in the Collateral granted pursuant to, the Note and the Prior Credit Facility shall rank pari passu to one another.

In connection with the issuance of the Notes, the Company also entered into an Investors/Registration Rights Agreement with the Lenders (the “Registration Rights Agreement”) whereby, upon request of either Lender on or after August 15, 2022 the Company must file and obtain and maintain the effectiveness of a registration statement registering the shares of common stock issued or issuable upon conversion of the Convertible Notes.

On March 14, 2022, the Company entered into an amendment with the lender pursuant to the Prior Credit Facility (the “Amendment”) to extend the maturity date of the Prior Credit Facility by one year to November 4, 2023.

On March 14, 2022, the Company entered into a letter agreement with the Lenders (the “Letter Agreement”). Pursuant to the Letter Agreement, the Company and its subsidiaries made certain representations and warranties to the Lenders. The Letter Agreement also contained certain conditions precedent to the closing of the transactions.

The foregoing description of the terms of the Revolver Notes, the Convertible Notes, Investor Rights Agreement, the Registration Rights Agreement, the Amendment, the Letter Agreement and the transactions contemplated thereby, does not purport to be complete and is qualified in its entirety by reference to the form of the Revolver Note, the form of the Convertible Note, the form of Intercreditor Agreement, the form of Investors/Registration Rights Agreement, the form of the Amendment, and the Form of Letter Agreement, copies which are filed as Exhibits 10.1, 10.2, 10.3, 10.4, 10.5, and 10.6, respectively, to this Quarterly Report on Form 10-Q and are incorporated herein by reference.


ITEM 6. EXHIBITS

See the Exhibit Index at the end of this report.






43


SIGNATURES


Pursuant to the requirementsTable 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.


Aspen Group, Inc.

March 15, 2018

By:

/s/ Michael Mathews

Michael Mathews

Chief Executive Officer

(Principal Executive Officer)


March 15, 2018

By:

/s/ Janet Gill

Janet Gill

Chief Financial Officer

(Principal Financial Officer)







Contents


EXHIBIT INDEX


 

 

 

 

 

Incorporated by Reference

 

Filed or Furnished

Exhibit #

 

Exhibit Description

 

 

Form

 

Date

 

 

Number

 

Herewith

3.1

   

Certificate of Incorporation, as amended

  

 

10-Q

   

3/9/17

  

 

3.1

   

 

3.2

 

Bylaws, as amended

 

 

 

 

 

 

 

 

 

Filed

4.1

 

Form of Convertible Note

 

 

8-K

 

12/1/17

 

 

4.1

 

 

10.1

 

Employment Agreement with Michael Mathews dated November 2, 2016*

 

 

10-Q

 

3/9/17

 

 

10.1

 

 

10.2

 

Loan and Security Agreement – Runway+

 

 

8-K

 

7/28/17

 

 

10.1

 

 

10.3

 

Registration Rights Agreement – Runway

 

 

8-K

 

7/28/17

 

 

10.2

 

 

10.4

 

Warrant Agreement – Runway +

 

 

8-K

 

7/28/17

 

 

10.3

 

 

10.5

 

Form of Registration Rights Waiver

 

 

10-Q

 

9/14/17

 

 

10.4

 

 

10.6

 

Promissory Note dated March 8, 2017 – Linden Finance

 

 

10-K

 

7/25/17

 

 

10.1

 

 

10.7

 

Employment Agreement dated June 11, 2017 – St. Arnauld*

 

 

8-K

 

6/15/17

 

 

10.1

 

 

10.8

 

Asset Purchase Agreement dated May 13, 2017 +

 

 

8-K

 

5/18/17

 

 

10.1

 

 

10.9

 

Employment Agreement dated November 24, 2014 - Gerard Wendolowski*

 

 

10-K

 

7/28/15

 

 

10.19

 

 

10.10

 

Employment Agreement dated November 24, 2014 - Janet Gill*

 

 

10-K

 

7/28/15

 

 

10.18

 

 

10.11

 

2012 Equity Incentive Plan, as amended*

 

 

 

 

 

 

 

 

 

Filed

10.12

 

Form of Stock Purchase Agreement

 

 

8-K

 

4/10/17

 

 

10.1

 

 

10.13

 

Form Waiver of Registration Rights Agreement

 

 

8-K

 

5/30/17

 

 

10.1

 

 

10.14

 

Form of Registration Rights Agreement

 

 

8-K

 

4/10/17

 

 

10.2

 

 

10.15

 

Loan Agreement dated August 31, 2016 – Cooperman

 

 

8-K

 

9/7/16

 

 

2.1

 

 

10.16

 

Revolving Promissory Note dated August 31, 2016 – Cooperman

 

 

8-K

 

9/7/16

 

 

2.2

 

 

10.17

 

Warrant dated August 31, 2016 – Cooperman

 

 

8-K

 

9/7/16

 

 

3.1

 

 

10.18

 

Note Conversion Agreement dated April 16, 2016 – Mathews

 

 

10-K

 

7/27/16

 

 

10.4

 

 

10.19

 

Letter Agreement with Warrant Holders for Reduced Exercise Price and Early Exercise 2016

 

 

10-K

 

7/27/16

 

 

10.19

 

 

31.1

 

Certification of Principal Executive Officer (302)

 

 

 

 

 

 

 

 

 

Filed

31.2

 

Certification of Principal Financial Officer (302)

 

 

 

 

 

 

 

 

 

Filed

32.1

 

Certification of Principal Executive and Principal Financial Officer (906)

 

 

 

 

 

 

 

 

 

Furnished**

101.INS

 

XBRL Instance Document

 

 

 

 

 

 

 

 

 

Filed

101.SCH

 

XBRL Taxonomy Extension Schema Document

 

 

 

 

 

 

 

 

 

Filed

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

 

 

 

 

 

 

Filed

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

 

 

 

 

 

 

Filed

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

 

 

 

 

 

 

Filed

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

 

 

 

 

 

 

Filed

———————

Incorporated by ReferenceFiled or
Furnished
Herewith
Exhibit #Exhibit DescriptionFormDateNumber
Certificate of Incorporation, as amended10-K7/9/193.1
Bylaws, as amended10-Q3/15/183.2
Form of Revolving Promissory Note and Security Agreement+Filed
Form of Convertible Promissory Note and Security Agreement+Filed
Form of Intercreditor AgreementFiled
Form of Investors/Registration Rights AgreementFiled
Form of Third Amendment to the Amended and Restated Revolving Promissory Note and Security Agreement dated as of November 5, 2018Filed
Form of Letter Agreement+Filed
Amendment No. 4 to the Aspen Group, Inc. 2018 Equity Incentive Plan*Filed
Amendment No. 3 to the Aspen Group, Inc. 2018 Equity Incentive Plan*DEF 14A11/5/21Annex A
Warrant dated July 21, 202110-Q9/14/2110.1
Employment Agreement, effective August 16, 2021, by the Company and Matthew LaVay*8-K8/16/2110.1
Certification of Principal Executive Officer (302)Filed
Certification of Principal Financial Officer (302)Filed
Certification of Principal Executive and Principal Financial Officer (906)Furnished**
101.INSInline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCHInline XBRL Taxonomy Extension Schema DocumentFiled
101.CALInline XBRL Taxonomy Extension Calculation Linkbase DocumentFiled
101.DEFInline XBRL Taxonomy Extension Definition Linkbase DocumentFiled
101.LABInline XBRL Taxonomy Extension Label Linkbase DocumentFiled
101.PREInline XBRL Taxonomy Extension Presentation Linkbase DocumentFiled
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

_____________________
*

Management contract or compensatory plan or arrangement.

**

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

+

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

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





29


44

Table of Contents
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.
Aspen Group, Inc.
March 15, 2022By:/s/ Michael Mathews
Michael Mathews
Chief Executive Officer
(Principal Executive Officer)


March 15, 2022By:/s/ Matthew LaVay
Matthew LaVay
Chief Financial Officer
(Principal Financial Officer)


March 15, 2022By:/s/ Robert Alessi
Robert Alessi
Chief Accounting Officer
(Principal Accounting Officer)
45