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~~

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)~~

2020


~~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

ASPEN GROUP, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

27-1933597

State or ~~other jurisdiction~~Other Jurisdiction of ~~incorporation~~Incorporation 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~~

(480) 407-7365

(Registrant’s telephone ~~number: (303) 333-4224~~

number, including area code)

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001	ASPU	The Nasdaq Stock Market (The Nasdaq Global Market)

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

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§ 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 ~~checkmark~~check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

☐

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


Class						Outstanding as of March ~~15, 2018~~ 6, 2020
Common Stock, $0.001 par value per share						~~15,072,332~~ 21,740,741 shares

~~INDEX~~

Table of Contents

TABLE OF CONTENTS


SIGNATURES			28			45

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, 2020		April 30, 2019
	(Unaudited)
Assets
Current assets:
Cash	$	20,512,808	$	9,519,352
Restricted cash	456,211		448,400
Accounts receivable, net of allowance of $1,759,824 and $1,247,031, respectively	14,128,185		10,656,470
Prepaid expenses	977,937		410,745
Other receivables	1,750		2,145
Other current assets	173,090		—
Total current assets	36,249,981		21,037,112

Property and equipment:
Call center equipment	305,766		193,774
Computer and office equipment	396,898		327,621
Furniture and fixtures	1,550,520		1,381,271
Software	5,725,500		4,314,198
	7,978,684		6,216,864
Less accumulated depreciation and amortization	(2,662,273)		(1,825,524)
Total property and equipment, net	5,316,411		4,391,340
Goodwill	5,011,432		5,011,432
Intangible assets, net	7,900,000		8,541,667
Courseware, net	121,235		161,930
Accounts receivable, secured - net of allowance of $625,963 and $625,963, respectively	45,329		45,329
Long term contractual accounts receivable	6,067,234		3,085,243
Debt issue cost, net	211,999		300,824
Right of use lease asset	7,693,268		—
Deposits and other assets	349,535		629,626
Total assets	$	68,966,424	$	43,204,503

(Continued)

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

Table of Contents

ASPEN GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (CONTINUED)


	January 31, 2020		April 30, 2019
	(Unaudited)
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	791,138	$	1,699,221
Accrued expenses	1,077,985		651,418
Deferred revenue	5,694,743		2,456,865
Refunds due students	2,311,745		1,174,501
Deferred rent, current portion	—		47,436
Convertible note payable	50,000		50,000
Operating lease obligations, current portion	1,649,934		—
Other current liabilities	584,659		270,786
Total current liabilities	12,160,204		6,350,227

Convertible notes, net of discount of $1,692,309 at January 31, 2020	8,307,691		—
Senior secured loan payable, net of discount of $353,328 at April 30, 2019	—		9,646,672
Operating lease obligations	6,043,334		—
Deferred rent	775,807		746,176
Total liabilities	27,287,036		16,743,075

Commitments and contingencies – see Note 10

Stockholders’ equity:
Preferred stock, $0.001 par value; 1,000,000 shares authorized,
0 issued and outstanding at January 31, 2020 and April 30, 2019	—		—
Common stock, $0.001 par value; 40,000,000 shares authorized
21,727,075 issued and 21,710,408 outstanding at January 31, 2020
18,665,551 issued and 18,648,884 outstanding at April 30, 2019	21,727		18,666
Additional paid-in capital	88,772,128		68,562,727
Treasury stock (16,667 shares)	(70,000)		(70,000)
Accumulated deficit	(47,044,467)		(42,049,965)
Total stockholders’ equity	41,679,388		26,461,428

Total liabilities and stockholders’ equity	$	68,966,424	$	43,204,503

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

Table of Contents

ASPEN GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended January 31,						Nine Months Ended January 31,
	2020		2019		2020		2019
Revenues	$	12,537,940	$	8,494,627	$	34,981,887	$	23,811,275

Operating expenses
Cost of revenues (exclusive of depreciation and amortization shown separately below)	5,163,007		4,076,980		13,704,121		11,664,887
General and administrative	8,627,588		6,284,041		23,264,447		18,318,061
Depreciation and amortization	475,393		555,292		1,710,192		1,577,464
Total operating expenses	14,265,988		10,916,313		38,678,760		31,560,412

Operating loss	(1,728,048)		(2,421,686)		(3,696,873)		(7,749,137)

Other income (expense)
Other income	34,117		142,180		189,486		240,074
Interest expense	(571,958)		(76,434)		(1,424,607)		(159,232)
Total other income/(expense), net	(537,841)		65,746		(1,235,121)		80,842

Loss before income taxes	(2,265,889)		(2,355,940)		(4,931,994)		(7,668,295)

Income tax expense	15,163		—		62,508		—

Net loss	$	(2,281,052)	$	(2,355,940)	$	(4,994,502)	$	(7,668,295)

Net loss per share allocable to common stockholders - basic	$	(0.12)	$	(0.13)	$	(0.26)	$	(0.42)

Weighted average number of common stock outstanding - basic	19,420,987		18,398,095		19,046,558		18,350,360

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

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

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Three Months Ended January 31, 2020 and 2019

(Unaudited)


	Common Stock					Additional Paid-In Capital		Treasury Stock		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at October 31, 2019	19,142,316	$	19,142	$	69,781,363	$	(70,000)	$	(44,763,415)	$	24,967,090
Stock-based compensation	—	—		737,820		—		—		737,820
Common stock issued for cashless stock options exercised	8,352	9		(9)		—		—		—
Common stock issued for stock options exercised for cash	121,407	121		530,547		—		—		530,668
Amortization of warrant based cost	—	—		9,125		—		—		9,125
Amortization of restricted stock issued for services	—	—		24,398		—		—		24,398
Restricted Stock Issued for Services, subject to vesting	40,000	40		(40)		—		—		—
Common stock issued for equity raise, net of underwriter costs of $1,222,371	2,415,000	2,415		16,042,464		—		—		16,044,879
Other offering costs	—	—		(51,282)		—		—		(51,282)
Beneficial conversion feature on convertible debt	—	—		1,692,309		—		—		1,692,309
Common stock short swing reclamation	—	—		5,433		—		—		5,433
Net loss	—	—		—		—		(2,281,052)		(2,281,052)
Balance at January 31, 2020	21,727,075	$	21,727	$	88,772,128	$	(70,000)	$	(47,044,467)	$	41,679,388

	Common Stock					Additional Paid-In Capital		Treasury Stock		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at October 31, 2018	18,391,092	$	18,391	$	67,102,509	$	(70,000)	$	(38,084,103)	$	28,966,797
Stock-based compensation	—	—		350,838		—		—		350,838
Common stock issued for cashless stock options exercised	55,871	56		(56)		—		—		—
Common stock issued for stock options exercised for cash	22,985	23		50,018		—		—		50,041
Common stock issued for cashless warrant exercise	35,921	36		(36)		—		—		—
Relative fair value of warrants issued with debt	—	—		255,071		—		—		255,071
Net loss	—	—		—		—		(2,355,940)		(2,355,940)
Balance at January 31, 2019	18,505,869	$	18,506	$	67,758,344	$	(70,000)	$	(40,440,043)	$	27,266,807

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

Table of Contents

ASPEN GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~

CHANGES IN STOCKHOLDERS’ EQUITY (CONTINUED)

Nine Months Ended January 31, 2020 and 2019

(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


	Common Stock					Additional Paid-In Capital		Treasury Stock		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at April 30, 2019	18,665,551	$	18,666	$	68,562,727	$	(70,000)	$	(42,049,965)	$	26,461,428
Stock-based compensation	—	—		1,627,304		—		—		1,627,304
Common stock issued for cashless stock options exercised	190,559	191		(191)		—		—		—
Common stock issued for stock options exercised for cash	234,233	234		768,147		—		—		768,381
Common stock issued for cashless warrant exercise	76,929	77		(77)		—		—		—
Amortization of warrant based cost	—	—		27,690		—		—		27,690
Amortization of restricted stock issued for services	—	—		97,748		—		—		97,748
Restricted Stock Issued for Services, subject to vesting	144,803	144		(144)		—		—		—
Common stock issued for equity raise, net of underwriter costs of $1,222,371	2,415,000	2,415		16,042,464		—		—		16,044,879
Other offerings costs	—	—		(51,282)		—		—		(51,282)
Beneficial conversion feature on convertible debt	—	—		1,692,309		—		—		1,692,309
Common stock short swing reclamation	—	—		5,433		—		—		5,433
Net loss	—	—		—		—		(4,994,502)		(4,994,502)
Balance at January 31, 2020	21,727,075	$	21,727	$	88,772,128	$	(70,000)	$	(47,044,467)	$	41,679,388

	Common Stock					Additional Paid-In Capital		Treasury Stock		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at April 30, 2018	18,333,521	$	18,334	$	66,557,005	$	(70,000)	$	(32,771,748)	$	33,733,591
Stock-based compensation	—	—		866,129		—		—		866,129
Common stock issued for cashless stock options exercised	86,635	87		(87)		—		—		—
Common stock issued for stock options exercised for cash	49,792	49		110,094		—		—		110,143
Common stock issued for cashless warrant exercise	35,921	36		(36)		—		—		—
Relative fair value of warrants issued with debt	—	—		255,071		—		—		255,071
Purchase of treasury stock, net of broker fees	—	—		—		(7,370,000)		—		(7,370,000)
Re-sale of treasury stock, net of broker fees	—	—		—		7,370,000		—		7,370,000
Fees associated with equity raise	—	—		(29,832)		—		—		(29,832)
Net loss	—	—		—		—		(7,668,295)		(7,668,295)
Balance at January 31, 2019	18,505,869	$	18,506	$	67,758,344	$	(70,000)	$	(40,440,043)	$	27,266,807

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

Table of Contents

ASPEN GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED ~~STATEMENT~~STATEMENTS OF ~~CHANGES IN STOCKHOLDERS’ EQUITY~~

~~FOR THE NINE MONTHS ENDED JANUARY 31, 2018~~

CASH FLOWS

(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


	Nine Months Ended January 31,
	2020		2019
Cash flows from operating activities:
Net loss	$	(4,994,502)	$	(7,668,295)
Adjustments to reconcile net loss to net cash used in operating activities:
Bad debt expense	651,205		480,066
Depreciation and amortization	1,710,192		1,577,464
Stock-based compensation	1,782,472		866,129
Warrants issued for services	27,690		—
Loss on asset disposition	3,918		—
Amortization of debt discounts	182,218		—
Amortization of debt issue costs	88,825		24,657
Amortization of prepaid shares for services	—		8,285
Non-cash payments to investor relations firm	97,748		—
Changes in operating assets and liabilities:
Accounts receivable	(7,104,911)		(4,209,576)
Prepaid expenses	(567,192)		(152,094)
Other receivables	395		105,334
Other current assets	(173,090)		—
Other assets	280,091		(22,846)
Accounts payable	(908,083)		(517,981)
Accrued expenses	426,567		(88,048)
Deferred rent	(17,805)		638,713
Refunds due students	1,137,244		554,219
Deferred revenue	3,237,878		885,091

Other liabilities	313,875		88,332
Net cash used in operating activities	(3,825,265)		(7,430,550)
Cash flows from investing activities:
Purchases of courseware and accreditation	(11,001)		(89,573)
Purchases of property and equipment	(1,929,878)		(1,873,326)
Net cash used in investing activities	(1,940,879)		(1,962,899)
Cash flows from financing activities:
Proceeds from sale of common stock net of underwriter costs	16,044,879		—
Disbursements for equity offering costs	(51,282)		(29,832)
Common stock short swing reclamation	5,433		—
Proceeds of stock options exercised and warrants exercised	768,381		110,143
Repayment of convertible note payable	—		(1,000,000)
Offering costs paid on debt financing	—		(100,000)
Purchase of treasury stock, net of broker fees	—		(7,370,000)
Re-sale of treasury stock, net of broker fees	—		7,370,000
Net cash provided by (used in) financing activities	16,767,411		(1,019,689)

(Continued)

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

Table of Contents

ASPEN GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED

(Unaudited)


	Nine Months Ended January 31,
	2020		2019
Net increase (decrease) in cash and cash equivalents	$	11,001,267	$	(10,413,138)
Cash, restricted cash, and cash equivalents at beginning of period	9,967,752		14,803,065
Cash and cash equivalents at end of period	$	20,969,019	$	4,389,927

Supplemental disclosure cash flow information
Cash paid for interest	$	979,792	$	163,139
Cash paid for income taxes	$	110,307	$	—

Supplemental disclosure of non-cash investing and financing activities
Common stock issued for services	$	178,447	$	—
Right-of-use lease asset offset against operating lease obligations	$	7,693,268	$	—
Beneficial conversion feature on convertible debt	$	1,692,309	$	—
Warrants issued as part of revolving credit facility	$	—	$	255,071

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



	Nine Months Ended January 31,
	2020		2019
Cash	$	20,512,808	$	4,197,235
Restricted cash	456,211		192,692
Total cash and restricted cash	$	20,969,019	$	4,389,927

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

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ASPEN GROUP, INC. AND SUBSIDIARIES

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(Unaudited)~~

For the

Nine months ended

January 31,

2018

2017

Cash flows from operating activities:






Net loss

$
(3,396,575
)

$
(381,530
)
Adjustments to reconcile net loss to net cash used in operating activities:

Bad debt expense (recovery)

298,144

(25,680
)
Gain on extinguishment of warrant liability

(52,500
)

—

Depreciation and amortization

631,969

422,782

Loss on asset disposal

27,590

—

Stock-based compensation

466,468

253,833

Amortization of debt discounts

99,726

15,625

Amortization of prepaid shares for services

37,039

52,500

Warrant buyback expense

—

206,000

Changes in operating assets and liabilities:



Accounts receivable

(4,534,118
)

(2,331,140
)
Prepaid expenses

(59,451
)

28,715

Accrued interest receivable

(45,400
)

—

Other receivables

(152,398
)

—

Other assets

(528,789
)

(25,241
)
Accounts payable

366,044

875,110

Accrued expenses

218,476

105,111

Deferred rent

22,087

17,318

Refunds due students

420,146

124,912

Deferred revenue

2,340,461

562,643

Other liabilities

186,134

—

Net cash used in operating activities

(3,654,947
)

(99,042
)

Cash flows from investing activities:

Cash paid in asset acquisition

(2,589,719
)

—

Proceeds from promissory note interest receivable

53,400

—

Increase in restricted cash

(190,506
)

—

Purchases of courseware

(33,369
)

(6,550
)
Purchases of property and equipment

(1,171,473
)

(565,306
)
Proceeds from promissory note receivable

900,000

—

Net cash used in investing activities

(3,031,667
)

(571,856
)

Cash flows from financing activities:

Warrant Buyback

—

(400,000
)
Borrowing of bank line of credit

—

247,000

Payments for bank line of credit

—

(248,783
)
Borrowing of third party line of credit

—

1,250,000

Third party line of credit financing costs

—

(60,000
)
Proceeds of warrant and stock options exercised

598,876

—

Offering costs paid on debt financing

(351,366
)

—

Disbursements for equity offering costs

(14,033
)

(4,017
)
Proceeds from senior secured term loan

7,500,000

—

Net cash provided by financing activities

7,733,477

784,200

Net increase in cash

1,046,863

113,302

Cash at beginning of period

2,756,217

783,796

Cash at end of period

$
3,803,080

$
897,098

~~(Continued)~~

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

~~ASPEN GROUP, INC. AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)~~

~~(Unaudited)~~

For the

Nine months ended

January 31,

2018

2017

Supplemental disclosure of cash flow information:

Cash paid for interest

$
316,781

$
145,105

Cash paid for income taxes

$
—

$
—

Supplemental disclosure of non-cash investing and financing activities

Warrants issued as part of senior secured loan

$
478,428

$
—

Assets acquired net of liabilities assumed for non-cash consideration

$
12,215,244

$
—

Common stock issued for services

$
—

$
62,002

Warrant derivative liability

$
—

$
52,500

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

~~ASPEN GROUP, INC. AND SUBSIDIARIES~~

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~JANUARY~~

January 31, ~~2018~~

2020

(Unaudited)

Note 1. Nature of Operations and Liquidity

Overview

Aspen Group, Inc. (together with its subsidiaries, the ~~“Company”~~“Company,” “Aspen,” or “AGI”) is a holding company, which has ~~two~~3 subsidiaries. They are Aspen University Inc. (“Aspen University”) ~~was~~ organized in 1987, Aspen Nursing, Inc. (“ANI”) (a subsidiary of Aspen University) formed in October 2018 and United States University, Inc. (“USU”) formed in May 2017. USU was ~~formed May 2017 and certain assets were acquired and liabilities assumed~~the vehicle we used to acquire United States University on December 1, 2017. (See Note ~~10)~~

4). When we refer to USU in this Report, we refer to either the online university which has operated under the name United States University or our subsidiary which operates this university, as the context implies.

AGI is an education technology holding company that leverages its infrastructure and expertise to allow its two universities, Aspen ~~Group’s~~University and United States University, to deliver on the vision ~~is to make~~of 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 reversing~~AGI’s primary focus relative to future growth is to target the ~~college-debt sentence plaguing working-class Americans. The monthly payment plan offers bachelor~~high growth nursing profession, currently 84% of all students ~~(except RN to BSN) the opportunity to pay their tuition at $250/month for 72 months ($18,000),~~across both universities are degree-seeking 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).

students.

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

2024.

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

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

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

Basis of Presentation

Interim Financial Statements

The interim consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments and reclassifications and non-recurring adjustments) necessary to present fairly our results of operations for the three and nine months ended January 31, ~~2018~~2020 and ~~2017,~~2019, our cash flows for the nine months ended January 31, ~~2018~~2020 and ~~2017,~~2019, and our financial position as of January 31, ~~2018~~2020 have been made. The results of operations for such interim periods are not necessarily indicative of the operating results to be expected for the full year.

Certain information and disclosures normally included in the notes to the annual consolidated financial statements have been condensed or omitted from these interim consolidated financial statements. Accordingly, these interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the ~~period~~fiscal year ended April 30, ~~2017~~2019 as filed with the SEC on July ~~25, 2017.~~9, 2019. The April 30, ~~2017~~2019 balance sheet is derived from those statements.

~~ASPEN GROUP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~JANUARY 31, 2018~~

~~(Unaudited)~~

Liquidity

At January 31, ~~2018,~~2020, the Company had a cash balance of ~~$3,803,080 plus $190,506~~$20,512,808 with an additional $456,211 in restricted cash.

On ~~July 25, 2017,~~November 5, 2018 the Company ~~signed~~entered into a three year, $5,000,000 senior revolving credit facility. There is currently 0 outstanding balance under that facility. (See Note 6)

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ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2020

(Unaudited)

In March 2019, the Company entered into 2 loan agreements for a principal amount of $5 million each and received total proceeds of $10 ~~million~~million. In connection with the loan agreements, the Company issued 18 month senior secured promissory notes, with the right to extend the term ~~loan with Runway Growth Capital Fund (formerly known as GSV Growth Capital Fund). The Company drew $5 million under~~of the ~~facility at closing, with~~loans for an additional ~~$2.5~~12 months subject to paying a 1% one-time extension fee. On January 23, 2020, the Term Loans were exchanged for convertible notes maturing January 22, 2023. (See Note 6)

On January 22, 2020, the Company closed on an underwritten offering under which the net proceeds were approximately $16 million ~~drawn following~~and the condition precedent to the closing of the ~~Company’s acquisition~~refinancing was satisfied. (See Note 6)

During the nine months ended January 31, 2020 the Company provided net cash 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).

$11,001,267, which included using $3,825,265 in operating activities.

Note 2. Significant Accounting Policies

Principles of Consolidation

The unaudited 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 of Estimates

The preparation of the unaudited consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts in the ~~unaudited~~ consolidated financial statements. Actual results could differ from those estimates. Significant estimates in the accompanying unaudited consolidated financial statements include the allowance for doubtful accounts and other receivables, the valuation of collateral on certain receivables, estimates of the fair value of assets acquired and liabilities assumed in a business combination, amortization periods and valuation of courseware, intangibles and software development costs, estimates of the valuation of initial right of use ("ROU") assets and corresponding lease liabilities, valuation of beneficial conversion features in convertible debt, valuation of goodwill, valuation of loss contingencies, valuation of stock-based compensation and the valuation allowance on deferred tax assets.

Cash, ~~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 cash equivalents at January 31, ~~2018~~2020 and April 30, ~~2017.~~2019. The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits of $250,000 per financial institution. The Company has not experienced any losses in such accounts from inception through January 31, ~~2018.~~ 2020.

As of January 31, ~~2018~~2020 and April 30, ~~2017, there were~~2019, the Company maintained deposits totaling ~~$3,594,104~~$22,318,390 and ~~$2,687,461~~$9,359,208, respectively, held in two separate ~~institutions greaterthan~~institutions.

Restricted cash was $456,211 as of January 31, 2020 and consisted of $123,132 which is collateral for a letter of credit issued by the ~~federally insured limits.~~

bank and required under the USU facility operating lease. Also, included was $72,022 and an additional $261,057, which was collateral for a letter of credit issued by the bank and related to USU’s receipt of Title IV funds as required by DOE in connection with the change of control of USU. Restricted cash as of April 30, 2019 was $448,400. See Note 11. Subsequent Events for information on the release of a portion of USU's restricted cash.

Goodwill and Intangibles

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

~~Intangibles~~

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ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2020

(Unaudited)

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

~~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.

Accounts Receivable and Allowance for Doubtful Accounts Receivable

All students are required to select both a primary and secondary payment option with respect to amounts due to Aspen for tuition, fees and other expenses. The monthly payment plan represents approximately 65% of the payments that are made by students, making it the most common payment type. In instances where a student selects financial aid as the primary payment option, he or she often selects personal cash as the secondary option. If a student who has selected financial aid as his or her primary payment option withdraws prior to the end of a course but after the date that Aspen’s institutional refund period has expired, the student will have incurred the obligation to pay the full cost of the course. If the withdrawal occurs before the date at which the student has earned 100% of his or her financial aid, Aspen may have to return all or a portion of the Title IV funds to the DOE and the student will owe Aspen all amounts incurred that are in excess of the amount of financial aid that the student earned, and that Aspen is entitled to retain. In this case, Aspen must collect the receivable using the student’s second payment option.

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

For accounts receivable from primary payors other than students, Aspen estimates its allowance for doubtful accounts by evaluating specific accounts where information indicates the customers may have an inability to meet financial obligations, such as bankruptcy proceedings and receivable amounts outstanding for an extended period beyond contractual terms. In these cases, Aspen uses assumptions and judgment, based on the best available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable to the amount expected to be collected. These

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ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2020

(Unaudited)

specific allowances are re-evaluated and adjusted as additional information is received. The amounts calculated are analyzed to determine the total amount of the allowance. Aspen may also record a general allowance as necessary.

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

When a student signs up for the monthly payment plan, there is a contractual amount that the Company can expect to earn over the life of the student’s program. This contractual amount cannot be recorded as an accounts receivable because, the student does have the option to stop attending. As a student takes a class, revenue is earned over the class term. Some students accelerate their program, taking two or more classes every eight week period, which increases the student’s accounts receivable balance. If any portion of that balance will be paid in a period greater than 12 months, that portion is reflected as long-term accounts receivable. At January 31, 2020 and April 30, 2019, those balances were $6,067,234 and $3,085,243, respectively. The Company has determined that the long term accounts receivable do not constitute a significant financing component as the list price, cash selling price and promised consideration are equal. Further, the interest free financing portion of the monthly payment plans are not considered significant to the contract.

Property and Equipment

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


Category						Useful Life
Call center equipment						5 years
Computer and office equipment						5 years
Furniture and fixtures						7 years
Library (online)						3 years
Software						5 years

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

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

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

Courseware and Accreditation

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

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

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ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2020

(Unaudited)

Long-Lived Assets

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

Refunds Due Students

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

Leases

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

The Company implemented ASU 2016-2 as of May 1, 2019. There were no material changes to our unaudited consolidated financial statements other than additional assets and off-setting liabilities.

In February 2016, the Financial Accounting Standards Board, of FASB, issued Accounting Standards Update, or ASU, No. 2016-2, Leases (Topic 842). This standard requires entities to recognize most operating leases on their balance sheets as right-of-use assets with a corresponding lease liability, along with disclosing certain key information about leasing arrangements. The Company adopted the standard effective May 1, 2019 using the cumulative effect adjustment transition method, which applies the provisions of the standard at the effective date without adjusting the comparative periods presented. The Company adopted the following practical expedients and elected the following accounting policies related to this standard:

•Carry forward of historical lease classification;

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

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

The adoption of this standard resulted in the recognition of an initial operating lease right-of-use assets (“ROU’s”) and corresponding lease liabilities of approximately $8.8 million, on the unaudited Consolidated Balance Sheet as of May 1, 2019. There was no impact to the Company’s net income or liquidity as a result of the adoption of this ASU. Additionally, the standard did not materially impact the Company's unaudited consolidated statements of cash flows.

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

Treasury Stock

Purchases and sales of treasury stock are accounted for using the cost method. Under this method, shares acquired are recorded at the acquisition price directly to the treasury stock account. Upon sale, the treasury stock account is reduced by the original

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ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2020

(Unaudited)

acquisition price of the shares and any difference is recorded in equity. This method does not allow the company to recognize a gain or loss to income from the purchase and sale of treasury stock.

Revenue Recognition and Deferred Revenue

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

Revenues consist primarily of tuition and course fees derived from courses taught by the Company online as well as from related educational resources and services that the Company provides to its ~~students, such as access to our online materials~~students. Under ASC 606, the tuition and ~~learning management system. Tuition~~course 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)

Cost of Revenues

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

Instructional Costs and Services

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

Marketing and Promotional Costs

Marketing and promotional costs include costs associated with producing marketing materials and advertising. Such costs are generally affected by the cost of advertising media, the efficiency of the Company's marketing and recruiting efforts, and expenditures on advertising initiatives for new and existing academic programs. Non-direct response advertising activities are expensed as incurred, or the first time the advertising takes place, depending on the type of advertising activity. For the three and nine months ended January 31, 2020, total marketing and promotional costs was $2,539,755 and $6,755,983, respectively. For the three and nine months ended January 31, 2019, total marketing and promotional costs was $2,322,998 and $6,759,065, respectively.

General and Administrative

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

Legal Expenses

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

Income Tax

The Company ~~maintains an institutional tuition refund policy, which provides for all or a portion~~uses the asset and liability method to compute the differences between the tax basis of ~~tuition~~assets and liabilities and the related financial statement amounts. Valuation allowances are established, when necessary, to ~~be refunded if a student withdraws during stated refund periods. Certain states in which students reside impose separate, mandatory refund policies, which override the Company’s policy~~reduce deferred tax assets to the extent in conflict. If a student withdraws at a time when a portion or none of the tuition is refundable, then in accordance with its revenue recognition policy, the Company recognizes as revenue the tuitionamount that ~~was~~more likely than not refunded. Since the Company recognizes revenue pro-rata over the term of the course and because, under its institutional refund policy, the amount subject to refund is never greater than the amount of the revenue that has been deferred, under the Company’s accounting policies revenue is not recognized with respect to amounts that could potentiallywill be refunded. The Company’s educational programs have starting and ending dates that differ from its fiscal quarters. Therefore, at the end of each fiscal quarter, a portion of revenue from these programs is not yet earned and is therefore deferred. The Company also charges students annual fees for library, technology and other services, which are recognized over the related service period. Deferred revenue represents the amount of tuition, fees, and other student payments received in excess of the portion recognized as revenue and it is included in current liabilities in the accompanying consolidated balance sheets. Other revenues may be recognized as sales occur or services are performed.

realized. The Company has ~~revenues from students outside~~deferred tax assets and liabilities that reflect the ~~United States representing 2.1%~~net tax

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2020

(Unaudited)

effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets are subject to periodic recoverability assessments. Realization of the ~~revenues for the quarter ended January 31, 2018.~~

~~Accounting for Derivatives~~

deferred tax assets, net of deferred tax liabilities, is principally dependent upon achievement of projected future taxable income.

The Company ~~evaluates its convertible instruments, options, warrants~~records a liability for unrecognized tax benefits resulting from uncertain tax positions taken or ~~other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives~~expected to be ~~separately accounted~~taken in a tax return. The Company accounts for ~~under ASC Topic 815, “Derivatives~~uncertainty in income taxes using a two-step approach for evaluating tax positions. Step one, recognition, occurs when the Company concludes that a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination. Step two, measurement, is only addressed if the position is more likely than not to be sustained. Under step two, the tax benefit is measured as the largest amount of benefit, determined on a cumulative probability basis, which is more likely than not to be realized upon ultimate settlement. The Company recognizes interest and ~~Hedging”. The result~~penalties, if any, related to unrecognized tax benefits in income tax expense.

Stock-Based Compensation

Stock-based compensation expense is measured at the grant date of ~~this accounting treatment~~the award and is ~~that~~expensed over the requisite service period. For employee stock-based awards, the Company calculates the fair value of the ~~derivative is marked-to-market each balance sheet~~award on the date ~~and recorded as a liability. In~~of grant using 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 atBlack-Scholes option pricing model. Determining the fair value of stock-based awards at the ~~instrument on~~grant date under this model requires judgment, including estimating volatility, employee stock option exercise behaviors and forfeiture rates. The assumptions used in calculating the ~~reclassification date.~~

~~ASPEN GROUP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~JANUARY 31, 2018~~

~~(Unaudited)~~

fair value of stock-based awards represent the Company's best estimates, but these estimates involve inherent uncertainties and the application of management judgment. For non-employee stock-based awards, the Company has early adopted ASU 2018-7, which substantially aligns share based compensation for employees and non-employees.

Business Combinations

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

Net ~~Income (Loss)~~Loss Per Share

Net ~~income (loss)~~loss per share of common ~~share~~stock is based on the weighted average number of shares of common ~~shares~~stock outstanding during each period. Options to purchase ~~2,872,546~~2,776,778 and ~~1,963,481~~3,651,448 shares of common ~~shares,~~stock, warrants to purchase ~~743,773~~566,223 and ~~934,555~~678,521 shares of common ~~shares,~~stock, unvested restricted stock of 226,922 and ~~$50,000~~0, and ~~$350,000~~50,000 and 50,000 of convertible debt (convertible into 4,167 and ~~75,596~~4,167 shares of common ~~shares)~~stock) were outstanding at January 31, ~~2018~~2020 and ~~2017,~~January 31, 2019, respectively, but were not included in the computation of diluted net loss per share because the effects would have been anti-dilutive. The options, warrants and convertible debt are considered to be common stock equivalents and are only included in the calculation of diluted earnings per share of common ~~share~~stock when their effect is ~~dilutive,~~dilutive.

Segment Information

The Company operates in 1 reportable segment as ~~noted in~~a single educational delivery operation using a core infrastructure that serves the ~~chart below.~~

~~As required to be disclosed for quarters with net~~curriculum and educational delivery needs of its online students regardless of geography. The Company's chief operating decision makers, its Chief Executive Officer and Chief Academic Officer, manage the Company's operations as a whole, and no revenue, expense or operating income ~~basic and diluted income per share for~~information is evaluated by the ~~three months ended January 31, 2017, were calculated as follows:~~

Basic

Diluted

Numerator

Net income applicable to common stock

$
7,377

$
7,377

Convertible debt interest

—

4,010

$
7,377

$
11,387

Denominator

Weighted average common shares outstanding

11,467,345

11,467,345

Convertible debt

—

75,596

Warrants and options

—

1,498,029

11,467,345

13,040,970

Net income per share

$
0.00

$
0.00

chief operating decision makers on any component level.

Recent Accounting Pronouncements

~~ASU 2017-01~~ ~~- In January 2017, the~~

Financial Accounting Standards Board, ~~issued~~ Accounting ~~Standards Update No. 2017-01:~~ ~~"Business Combinations (Topic 805)~~-Standard Updates which are not effective until after January 31, 2020, are not expected to ~~clarify~~have a significant effect on the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance is effective for interim and annual reporting periods beginning after December 15, 2017. The Company will implement this guidance effective February 1, 2018.

~~ASU 2017-04~~ ~~- In January 2017, the Financial Accounting Standards Board issued Accounting Standards Update No. 2017-04:~~ ~~"Intangibles - Goodwill and Other (Topic 350)” -~~ to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. This guidance is effective for interim and annual reporting periods beginning after December 15, 2019. The Company is evaluating the effects of this standard on itsCompany’s 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 rightposition or results of use asset and a lease liability. This guidance is effective for interim and annual reporting periods beginning after December 15, 2018. The Company expects this ASU will increase its assets and liabilities, but have no net material impact on its consolidated financial statements.

operations.

Table of Contents

ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~JANUARY~~

January 31, ~~2018~~

2020

(Unaudited)

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

Note 3. Property and Equipment

As property and equipment ~~become fully expired,~~reach the end of their useful lives, the fully expired asset is written off against the associated accumulated depreciation. There is no expense impact for such write offs. Property and equipment consisted of the following at January 31, ~~2018~~2020 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

2019:


	January 31, 2020		April 30, 2019
Call center hardware	$	305,766	$	193,774
Computer and office equipment	396,898		327,621
Furniture and fixtures	1,550,520		1,381,271
Software	5,725,500		4,314,198
	7,978,684		6,216,864
Accumulated depreciation	(2,662,273)		(1,825,524)
Property and equipment, net	$	5,316,411	$	4,391,340

Software consisted of the following at January 31, ~~2018~~2020 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

2019:


	January 31, 2020		April 30, 2019
Software	$	5,725,500	$	4,314,198
Accumulated depreciation	(1,911,096)		(1,351,193)
Software, net	$	3,814,404	$	2,963,005

Depreciation expense and ~~Amortization expense~~amortization for all Property and Equipment as well as the portion for just software is presented below for the three and nine months ended January 31, ~~2018~~2020 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

2019:


	Three Months Ended January 31,						Nine Months Ended January 31,
	2020		2019		2020		2019
Depreciation and amortization expense	$	364,504	$	263,045	$	1,012,548	$	703,886

Software amortization expense	$	265,146	$	178,459	$	728,395	$	482,153

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

2020:


	Future Expense
Remainder of 2020	$	278,959
2021	1,069,707
2022	980,233
2023	819,994
2024	530,712
Thereafter	134,799
Total	$	3,814,404

Note 4. USU Goodwill and Intangibles

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

Table of Contents

ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~JANUARY~~

January 31, ~~2018~~

2020

(Unaudited)

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

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

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

We assigned an indefinite useful life to the accreditation and regulatory approvals and the trade name and trademarks as we believe they have the ability to generate cash flows indefinitely. In addition, there are no legal, regulatory, contractual, economic or other factors to limit the intangibles’ useful life and we intend to renew the intangibles, as applicable, and renewal can be accomplished at little cost. We determined all other acquired intangibles are finite-lived and we are amortizing them on either a straight-line basis or using an accelerated method to reflect the pattern in which the economic benefits of the assets are expected to be consumed. Amortization expense for nine months ended January 31, 2020 and for the year ended April 30, 2019 were $641,667 and $1,100,000, respectively.

Intangible assets consisted of the following at January 31, 2020 and April 30, 2019:


	January 31, 2020		April 30, 2019
Intangible assets	$	10,100,000	$	10,100,000
Accumulated amortization	(2,200,000)		(1,558,333)
Net intangible assets	$	7,900,000	$	8,541,667

Note 4.5. Courseware

and Accreditation

Courseware costs capitalized were ~~$33,369~~$11,001 for the nine months ended January 31, ~~2018. Fully expired~~2020 and $34,422 for the year ended April 30, 2019. As courseware reaches the end of its useful life, it is written off against the accumulated amortization. There is no expense impact for such write-offs.

Courseware consisted of the following at January 31, ~~2018~~2020 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

2019:


	January 31, 2020		April 30, 2019
Courseware	$	284,964	$	325,987
Accreditation	59,350		57,100
Accumulated amortization	(223,079)		(221,157)
Courseware, net	$	121,235	$	161,930

The Company had capitalized accreditation costs of $2,250 and $57,100 for the nine months ended January 31, 2020 and year ended April 30, 2019, respectively.

Amortization expense of courseware for the three and nine months ended January 31, ~~2018~~2020 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

2019:


	Three Months Ended January 31,						Nine Months Ended January 31,
	2020		2019		2020		2019
Amortization expense	$	15,637	$	17,249	$	53,415	$	48,578

Table of Contents

ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2020

(Unaudited)

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

Year Ending April 30,

2018

$
14,152

2019

56,143

2020

42,301

2021

15,336

2022

9,625

Total

$
137,557

2020:


	Future Expense
2020 (remaining)	$	13,287
2021	38,845
2022	30,958
2023	25,419
2024	11,916
Thereafter	810
Total	$	121,235

Note ~~5. Senior Secured Term Loan~~

6. Debt

Convertible Notes Due January 22, 2023

On ~~July 25, 2017,~~January 23, 2020, Aspen Group, Inc. (the “Company”) issued $5 million convertible notes (“Convertible Notes”) to each of 2 lenders in exchange for the ~~Company signed a $10~~2 $5 million notes due under senior secured term ~~loan with Runway Growth Capital Fund (formerly known as GSV Growth Capital Fund)~~loans entered into in 2019 (the “Term Loans”). The Company ~~drew $5~~recorded a beneficial conversion feature on these Convertible Notes of $1,692,309.

The closing of the refinancing was conditioned upon the Company conducting an equity financing resulting in gross proceeds to the Company of at least $10 million. On January 22, 2020, the Company closed on an underwritten offering under which the net proceeds were approximately $16 million ~~under~~and the ~~facility at closing, then subsequently drew $2.5 million following~~condition precedent to the closing of the ~~Company’s acquisition of substantially all the assets~~refinancing was satisfied. The key terms of the ~~United States~~Convertible Notes are as follows:

•After six months from the issuance date, the lenders have the right to convert the principal into our shares of the Company’s common stock at a conversion price of $7.15 per share;

•The Convertible Notes automatically convert into shares of the Company’s common stock if the average closing price of our common stock is at least $10.725 over a 20 consecutive trading day period;

•The Convertible Notes are due January 22, 2023 or approximately three years from the closing;

•The interest rate of the Convertible Notes is 7% per annum (payable monthly in arrears); and

•The Convertible Notes are secured.

The former notes under the Term Loans were due in September 2020 and were subject to a one-year extension and the payment of an extension fee for each note of $50,000 (total of $100,000). The Company also paid each lender $40,400 at closing of the Convertible Notes to cover taxes they will incur as part of the note exchange and will pay their legal fees arising from the re-financing. In connection with refinancing of the Term Loans, on January 22, 2020, the Company also entered into an Investors/Registration Rights Agreement with the lenders whereby, upon request of the lenders on or after June 22, 2020, 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.

The Company’s obligations under the Convertible Notes are secured by a first priority lien in certain deposit accounts of the Company, all current and future accounts receivable of Aspen University ~~including receipt~~and USU, certain of the deposit accounts of Aspen University and USU, and all ~~required regulatory approvals,~~of the outstanding capital stock of Aspen University and USU (the “Collateral”).

On March 6, 2019, in connection with entering into the Loan Agreements, the Company also entered into an intercreditor agreement (the “Intercreditor Agreement”) among the Company, the Lenders and the Foundation, individually. The Intercreditor Agreement provides among other ~~conditions~~things that the Company’s obligations under this agreement, and the security interests in the Collateral granted pursuant to, ~~funding. Terms~~the Loan Agreements and the Amended and Restated Facility Agreement shall rankpari passu to one another. The Security Agreement was amended onJanuary 22, 2020 to give effect to the Convertible Note issuances.

Table of Contents

ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2020

(Unaudited)

Convertible Note Payable

On February 29, 2012, a loan payable of $50,000 was converted into a two-year convertible promissory note, interest of 0.19% per annum. Beginning March 31, 2012, the note was convertible into shares of common stock of the ~~4-year senior loan include a 10% over 3-month LIBOR~~Company at the conversion price of $12.00 per ~~annum interest rate.~~

share (taking into account the one-for-12 reverse stock split of the Company’s common stock). The Company ~~will~~evaluated the convertible note and determined that, for the embedded conversion option, there was no beneficial conversion value to record as the conversion price is considered to be ~~required to begin making principal repayments upon~~ the ~~24-month anniversary~~fair market value of the ~~initial closing (July 24, 2019),~~common stock on the note issue date. This loan (now a convertible promissory note) was due in February 2014. See Note 11. Subsequent Events Note for additional information on this debt extinguishment in fiscal fourth quarter 2020.

Revolving Credit Facility

On November 5, 2018, the Company entered into a loan agreement (the “Credit Facility Agreement”) with the Leon and ~~each month thereafter~~Toby Cooperman Family Foundation (the “Foundation”). The Credit Facility Agreement provides for a $5,000,000 revolving credit facility (the “Facility”) evidenced by a revolving promissory note (the “Revolving Note”). Borrowings under the Credit Facility Agreement will ~~repay 1/24th~~bear interest at 12% per annum. The Facility matures on November 4, 2021.

Pursuant to the terms of the total loan amount outstanding. Should the Company achieve both annualized revenue growth of at least 30% and operating margin of at least 7.5% for any 12-month trailing period, then at the quarter-end of that 12-month trailing period, the Company may elect to extend the interest only period for the quarter immediately following the 12-month trailing period throughout the duration of the loan.

~~Additionally,~~Credit Facility Agreement, the Company paid to the Foundation a ~~0.25% origination~~$100,000 one-time upfront Facility fee. The Company also is paying the Foundation a commitment fee, payable quarterly at the rate of 2% per annum on the ~~initial $5 million draw~~undrawn portion of the Facility. As of January 31, 2020, the Company has not borrowed any sum under the Facility.

The Credit Facility Agreement contains customary representations and ~~paid another 0.25% origination fee upon~~warranties, events of default and covenants. Pursuant to the ~~second $2.5 million draw,~~Loan Agreement and the Revolving Note, all future or contemporaneous indebtedness incurred by the Company, other than indebtedness expressly permitted by the Credit Facility Agreement and the Revolving Note, and the senior term loans described below will be ~~subject~~subordinated to ~~a final payment fee of 3.25%~~the Facility.

Pursuant to the Credit Facility Agreement, on November 5, 2018 the Company issued to the Foundation warrants to purchase 92,049 shares of the ~~principal lent, and issued 224,174 5-year warrants~~Company’s common stock exercisable for five years from the date of issuance at anthe exercise price of ~~$6.87.~~$5.85 per share which were deemed to have a relative fair value of $255,071. The relative fair value of the warrants ~~was $478,428 and was recorded~~along with the Facility fee were treated as debt ~~discount along with other direct~~issue costs, ofas the ~~term loan and is being~~facility has not been drawn on, assets to be amortized ~~to interest expense~~ over the term of the loan.

~~ASPEN GROUP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~JANUARY 31, 2018~~

~~(Unaudited)~~

~~Note 6. Convertible Notes – Related Party~~

On ~~December 1, 2017,~~March 6, 2019, in connection with entering into the Senior Secured Loans, the Company ~~completed~~amended and restated the ~~acquisition~~Credit Facility Agreement (the “Amended and Restated Facility Agreement”) and the Revolving Note. The Amended and Restated Facility Agreement provides among other things that the Company’s obligations thereunder are secured by a first priority lien in the Collateral, on a pari passu basis with the Lenders.

Senior Secured Term Loans

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

Pursuant to the ~~first~~Loan Agreements and ~~second anniversaries of~~ the ~~closing date, $1,000,000 of principal~~Term Notes, all future or contemporaneous indebtedness incurred by the Company, other than indebtedness expressly permitted by the Loan Agreements and ~~accrued interest under~~ the ~~Note~~Term Notes, will be ~~convertible into~~subordinated to the Loans.

Pursuant to the Loan Agreements, on March 6, 2019 the Company issued to each Lender warrants to purchase 100,000 shares of the Company’s common stock ~~based on~~exercisable for five years from the ~~volume weighted average~~date of issuance at the exercise price of $6.00 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~~share. The two warrants were ~~no pending or threatened lawsuits that could reasonably be expected~~deemed to have a ~~material effect on~~combined relative fair value of $360,516. The relative fair value along with closing costs of $33,693 were treated as debt discounts to be amortized over the ~~results of our operations.~~

~~Regulatory Matters~~

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

~~On August 22, 2017, the DOE informed Aspen University~~Loans.

Table of its determination that the institution has qualified to participate under the HEA and the Federal student financial assistance programs (Title IV, HEA programs), and set a subsequent program participation agreement reapplication date of March 31, 2021.

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

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

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

Contents

ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~JANUARY~~

January 31, ~~2018~~

2020

(Unaudited)

~~Return~~

On January 23, 2020, the Term Loans were cancelled and exchanged for convertible notes as discussed above. In connection with this transaction, the Company wrote off approximately $182,000 of ~~Title IV Funds~~

~~An institution participating~~unamortized debt issuance costs as the transaction qualified as a debt extinguishment.

Note 7. Stockholders’ Equity

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

Preferred Stock

The Company is authorized to issue 1,000,000 shares of “blank check” preferred stock with designations, rights and preferences as may be determined from time to time by our Board of Directors. As of January 31, 2020 and April 30, 2019, we had 0 shares of preferred stock issued and outstanding.

Common Stock

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

During the three months ended January 31, 2020, the Company issued 8,352 shares of common stock upon the cashless exercise of stock options.

During the three months ended January 31, 2020, the Company issued 121,407 shares of common stock upon the exercise of stock options for cash and received proceeds of $530,668.

During the three months ended January 31, 2020, the Company issued 25,000 shares of common stock for services in connection with the CFO transition which immediately vested. The total value of the grant was $177,500. The Company also issued 15,000 shares of common stock to its new Chief Financial Officer upon the vesting of RSUs previously granted to him for Audit Committee services. The total value of the grant was approximately $103,350.

On January 22, 2020 the Company raised $17,267,250 through the issuance of 2,415,000 common shares at a price of $7.15. The net proceeds were $16,044,879 after deducting underwriting discounts and commissions. The number of shares sold through this public offering includes 315,000 shares of common stock pursuant to an option granted to the underwriters to cover over allotments that were exercised in full.

During the three months ended October 31, 2019, the Company issued 80,313 shares of common stock upon the cashless exercise of stock options.

During the three months ended October 31, 2019, the Company issued 57,526 shares of common stock upon the cashless exercise of 121,070 warrants.

During the three months ended October 31, 2019, the Company issued 90,950 shares of common stock upon the exercise of stock options for cash and received proceeds of $192,522.

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

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

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

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ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2020

(Unaudited)

Restricted Stock

There were 226,922 unvested shares of restricted common stock outstanding at January 31, 2020. Total unrecognized compensation expense related to the unvested restricted stock as of January 31, 2020 amounted to $1,285,524 which will be amortized over the remaining vesting periods.

In December 2019, the CFO and CAO received grants of 100,000 and 20,000 RSU's, respectively, as part of their employment agreements. These grants will vest annually over three years and had a combined fair value of $826,800.

In November 2019, the Chief Nursing Officer received a grant of 50,000 RSUs as part of her employment agreement. These grants will vest annually over three years and had a combined fair value of $314,500. The Company also issued 17,250 RSUs to employees vesting over three years subject to continued employment and had a combined fair value of $108,500.

The Board approved a grant of 25,000 shares of restricted stock to the then Chief Financial Officer in September 2018. The stock price was $7.15 on the date of the grant and was to vest over a period of 36 months. The value of the compensation was approximately $180,000. Upon leaving the Company on November 30, 2019 the remaining two-thirds of restricted stock was immediately vested as part of the separation agreement resulting in accelerated amortization expense of approximately $108,000.

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

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

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

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

Warrants

A summary of the Company’s warrant activity during the nine months ended January 31, 2020 is presented below:


Warrants	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Balance Outstanding, April 30, 2019	731,152	$	5.28	3.29	$	413,296
Granted	—	—		—	—
Exercised	(164,929)	$	2.05	—	—
Surrendered	—	—		—	—
Expired	—	—		—	—
Balance Outstanding, January 31, 2020	566,223	$	6.22	3.41	$	1,425,727

Exercisable, January 31, 2020	516,223	$	6.35	3.34	$	1,233,227

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2020

(Unaudited)


ALL WARRANTS								EXERCISABLE 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	4.19	50,000

$	5.85	$	5.85	92,049	$	5.85	3.76	92,049

$	6.00	$	6.00	200,000	$	6.00	4.10	200,000

$	6.87	$	6.87	224,174	$	6.87	2.48	224,174

				566,223				566,223

On August 17, 2019 an investor elected a cashless exercise of 13,542 warrants, receiving 6,271 shares. On August 20, 2019 2 investors elected cashless exercises of 18,818 and 88,710 warrants, receiving 8,970 and 42,285 shares, respectively.

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

Stock Incentive Plan and Stock Option Grants to Employees and Directors

On March 13, 2012, the Company adopted the Aspen Group, Inc. 2012 Equity Incentive Plan (the “2012 Plan”) that provides for the grant of 3,500,000 shares in the form of incentive stock options, non-qualified stock options, restricted shares, stock appreciation rights and restricted stock units ("RSUs") to employees, consultants, officers and directors. As of January 31, 2020, there were 177,046 shares remaining available for future issuance under the 2012 Plan.

On December 13, 2018, the stockholders of the Company approved the Aspen Group, Inc. 2018 Equity Incentive Plan (the “2018 Plan”) that provides for the grant of 500,000 shares in the form of incentive stock options, non-qualified stock options, restricted shares, stock appreciation rights and restricted stock units to employees, consultants, officers and directors.

On December 30, 2019, the Company held its Annual Meeting of Shareholders and voted amend to the Company’s 2018 Equity Incentive Plan to increase the number of shares of common stock available for issuance under the Plan from 500,000 to 1,100,000 shares. As of January 31, 2020, there were 109,352 shares remaining available for future issuance under the 2018 Plan.

The Company estimates the fair value of share-based compensation utilizing the Black-Scholes option pricing model, which is dependent upon several variables such as the expected option term, expected volatility of the Company’s stock price over the expected term, expected risk-free interest rate over the expected option term, expected dividend yield rate over the expected option term, and an estimate of expected forfeiture rates. The Company believes this valuation methodology is appropriate for estimating the fair value of stock options granted to employees and directors which are subject to ASC Topic 718 requirements. These amounts are estimates and thus may not be reflective of actual future results, nor amounts ultimately realized by recipients of these grants. The Company recognizes compensation on a straight-line basis over the requisite service period for each award. The following table summarizes the assumptions the Company utilized to record compensation expense for stock options granted to employees during the period ended.


	January 31, 2020		April 30, 2019
Expected life (years)	3.5		3.5
Expected volatility	47.4	%	50.1	%
Risk-free interest rate	1.63	%	2.63	%
Dividend yield	0.00	%	0.00	%
Expected forfeiture rate	n/a		n/a

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ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2020

(Unaudited)

The Company utilized the simplified method to estimate the expected life for stock options granted to employees. The simplified method was used as the Company does not have sufficient historical data regarding stock option exercises. The expected volatility is based on historical volatility. The risk-free interest rate is based on the U.S. Treasury yields with terms equivalent to the expected life of the related option at the time of the grant. Dividend yield is based on historical trends. While the Company believes these estimates are reasonable, the compensation expense recorded would increase if the expected life was increased, a higher expected volatility was used, or if the expected dividend yield increased.

A summary of the Company’s stock option activity for employees and directors during the nine months ended January 31, 2020, is presented below:


Options	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Balance Outstanding, April 30, 2019	3,408,154	$	4.44	2.90	$	6,880,644
Granted	150,000	5.21		—	—
Exercised	(580,901)	2.72		—	—
Forfeited	(200,475)	7.44		—	—
Expired	—	—		—	—
Balance Outstanding, January 31, 2020	2,776,778	$	4.61	2.21	$	14,302,102

Exercisable, January 31, 2020	1,824,684	$	3.77	1.66	$	11,808,246


ALL OPTIONS							EXERCISABLE OPTIONS
Exercise Price	Weighted Average Exercise Price		Outstanding No. of Options	Weighted Average Exercise Price		Weighted Average Remaining Life In Years	Exercisable No. of Options

$1.57 to $2.10	$	2.00	564,724	$	2.00	0.96	564,723

$2.28 to $2.76	$	2.30	382,780	$	2.29	0.60	391,736

$3.24 to $4.38	$	3.89	323,925	$	3.91	1.73	215,817

$4.50 to $5.20	$	4.93	708,960	$	4.90	2.28	336,278

$5.95 to $6.28	$	6.07	80,417	$	6.13	2.43	36,806

$7.17 to $7.55	$	7.41	551,639	$	7.32	3.82	224,546

$8.57 to $9.07	$	8.97	164,333	$	8.97	2.94	54,778

Options only			2,776,778				1,824,684

On December 9, 2019, the Company granted 61,000 options to its directors with an exercise price of $6.92 for services performed for the calendar year 2019. The fair value of these options was approximately $116,000 and was fully recognized for the three months ended January 31, 2020.

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ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2020

(Unaudited)

On August 1, 2019, the Company granted 59,000 options to 26 employees who had been hired during the first quarter ended July 31, 2019. The fair value of these options was approximately $83,000 and will be recognized over 36 month. The exercise price is $3.99.

Effective May 13, 2019, the Company granted a total of 30,000 five years non-qualified stock options which were immediately vested to certain former directors exercisable at $4.12 per share. The fair value of the options was $33,600 and expensed during the three months ended July 31, 2019.

For the three and nine months ended January 31, 2020, the Company recorded compensation expense of $805,405 and $1,721,293, respectively, in connection with stock options and restricted stock grants. For the three months ended January 31, 2020, the Company recorded stock based compensation expense related to the executive officer target bonus plan of $188,031.

As of January 31, 2020, there was approximately $930,000 of unrecognized compensation costs related to non-vested share-based option arrangements. That cost is expected to be recognized over a weighted-average period of approximately 2.0 years.

Note 8. Revenues

Revenues consist primarily of tuition and fees derived from courses taught by the Company online as well as from related educational resources that the Company provides to its students, such as access to our online materials and learning management system. The Company’s educational programs have starting and ending dates that differ from its fiscal quarters. Therefore, at the end of each fiscal quarter, a portion of revenue from these programs is not yet earned and is therefore deferred. The Company also charges students fees for library and technology costs, which are recognized over the related service period and are not considered separate performance obligations. Other services, books, and exam fees are recognized as services are provided or when goods are received by the student. The Company’s contract liabilities are reported as deferred revenue and refunds due students. Deferred revenue represents the amount of ~~unearned Title IV Program funds that have been disbursed to students who withdraw from their educational programs before completion~~tuition, fees, and ~~must return those unearned funds~~other student invoices in excess of the portion recognized as revenue and it is included in current liabilities in the accompanying unaudited consolidated balance sheets.

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


	Three Months Ended January 31,						Nine Months Ended January 31,
	2020		2019		2020		2019
Tuition - recognized over period of instruction	$	11,177,421	$	7,732,600	$	31,275,504	$	21,808,832
Course fees - recognized over period of instruction	1,194,947		634,013		3,240,160		1,634,889
Book fees - recognized at a point in time	23,195		24,877		64,611		75,342
Exam fees - recognized at a point in time	61,500		45,700		177,015		141,540
Service fees - recognized at a point in time	80,877		57,437		224,597		150,672

	$	12,537,940	$	8,494,627	$	34,981,887	$	23,811,275

Contract Balances and Performance Obligations

The Company recognizes deferred revenue as a student participates in a ~~timely manner, no later than 45 days~~course which continues past the balance sheet date. Deferred revenue at January 31, 2020 was $5,694,743 which is future revenue that has not yet been earned for courses in progress and courses which have not started, but where the Company has received payment and obtained appropriate authorization for such funds to be applied to future courses. The Company has $2,311,745 of ~~the date the school determines that the student has withdrawn. Under Department regulations, failure to make timely returns of Title IV Program funds for 5% or more of~~refunds due students, sampled on the institution's annual compliance audit in either of its two most recently completed fiscal years can result in the institution having to post a letter of credit in an amount equal to 25% of its required Title IV returns during its most recently completed fiscal year. If unearned funds are not properly calculated and returned in a timely manner, an institution is also subject to monetary liabilities or an action to impose a fine or to limit, suspend or terminate its participation in Title IV Programs.

~~Subsequent to a compliance audit, USU recognized that it had not fully complied with all requirements for calculating and making timely returns of~~which mainly represents Title IV funds ~~(R2T4). In 2016, USU~~due to students after deducting their tuition payments.

Of the total revenue earned during the three and nine months ended January 31, 2020, approximately $5.5 million and $2.5 million, respectively, came from revenues which were deferred at October 31, 2019 and April 30, 2019.

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

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ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2020

(Unaudited)

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

Cash Receipts

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

Significant Judgments

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

The Company maintains institutional tuition refund policies, which provides for all or a portion of tuition to be refunded if a student withdraws during stated refund periods. Certain states in which students reside impose separate, mandatory refund policies, which override the Company’s policy to the extent in conflict. If a student withdraws at a time when a portion or none of the tuition is refundable, then in accordance with its revenue recognition policy, the Company recognizes as revenue the tuition that was not refunded. Since the Company recognizes revenue pro-rata over the term of the course and because, under its institutional refund policy, the amount subject to refund is never greater than the amount of the revenue that has been deferred, under the Company’s accounting policies revenue is not recognized with respect to amounts that could potentially be refunded.

The Company had revenues from students outside the United States representing 1.90% and 1.90% of the consolidated revenues for the three and nine months ended January 31, 2020, respectively. For the three and nine months ended January 31, 2019, revenues from students outside the United States represented 1.7% and 2.1% of the consolidated revenues.

Note 9. Leases

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 lease payments arising from the lease. Operating leases are included in the Operating Lease Assets, net, and Operating Lease Liabilities, Current and Long-term on the unaudited Consolidated Balance Sheet at January 31, 2020. These assets and lease liabilities are recognized based on the present value of remaining lease payments over the lease term. When the lease does not provide an implicit interest rate, the Company uses an incremental borrowing rate to determine the present value of the lease payments. The right-of-use asset includes all lease payments made and excludes lease incentives. Lease expense for operating leases is recognized on a ~~material finding~~straight-line basis over the lease term. There are no variable lease payments. Lease expense for the three and nine month period ended January 31, 2020 was $632,212 and $1,869,093, respectively. These costs are primarily related to long-term operating leases, but also include amounts for short-term leases with terms greater than 30 days that are not material.

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ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2020

(Unaudited)

The following is a schedule by years of future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of January 31, 2020 ^(a).



Maturity of Lease Obligations	Lease Payments
2020 (remaining)	$	593,925
2021	2,383,783
2022	2,225,348
2023	1,663,434
2024	1,474,175
2025	1,134,718
2026 and beyond	779,287
Total future minimum lease payments	10,254,670
Less imputed interest	(2,561,402)
Present value of operating lease obligations	$	7,693,268

_____________________

^(a)_{Lease payments exclude $4.3 million of legally binding minimum lease payments for the same issue andnew Aspen University BSN Pre-Licensure campus location in Austin, Texas lease signed but not yet commenced. Prior to commencing its Austin campus operations, Aspen is required to maintainobtain approvals from the Texas Board of Nursing, the Texas Higher Education Coordinating Board, and the Texas Workforce Commission.}


Balance Sheet Classification
Operating lease obligations, current	$	1,649,934
Operating lease obligations, long-term	6,043,334
Total operating lease obligations	$	7,693,268


Other Information
Weighted average remaining lease term (in years)	4.9
Weighted average discount rate	12.06	%

Cash Flows

An initial right of use asset of approximately $8.8 million was recognized as a ~~letter~~non-cash asset addition with the adoption of ~~credit~~the standard. During the three months ended January 31, 2020, there was additional right of use assets recognized as non-cash assets additions related to a one year lease extension. Cash paid for amounts included in the ~~amount~~present value of ~~$71,634 as a result of this finding. The letter of credit has been provided to~~operating lease obligations at adoption and for the ~~Department of Education by AGI.~~

~~Delaware Approval to Confer Degrees~~

Aspen University is a Delaware corporation. Delaware law requires an institution to obtain approval from the Delaware Department of Education (“Delaware DOE”) before it may incorporate with the power to confer degrees. In July 2012, Aspen received notice from the Delaware DOE that itthree and nine months ended January 31, 2020 was granted provisional approval status effective until June 30, 2015. On April 25, 2016 the Delaware DOE informed Aspen University it was granted full approval to operate with degree-granting authority in the State of Delaware until July 1, 2020. Aspen University is authorized by the Colorado Commission on Education to operate in Colorado as a degree granting institution.

~~USU is also a Delaware corporation~~$0.6 million and $1.7 million, respectively, and is included in ~~the process of obtaining Delaware approval.~~

operating cash flows.

Note ~~8. Stockholders’ Equity~~

~~Common Stock~~

~~Effective May 24,~~10. Commitments and Contingencies

Regulatory Matters

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

On August 22, 2017, the ~~Company entered into waiver agreements with all~~DOE informed Aspen University of its ~~investors in~~determination that the ~~April 2017 common stock offering. In consideration for waiving their registration rights,~~institution has qualified to participate under the ~~Company paid to each~~HEA and the Federal student financial assistance programs (Title IV, HEA programs) and set a subsequent program participation agreement reapplication date of ~~the investors 1.5%~~March 31, 2021.

Table 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)

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 price of $6.87. (See Note 5)~~

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

~~Stock Incentive Plan and Stock Option Grants~~2020

(Unaudited)

USU currently has provisional certification 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,participate in the ~~form of incentive stock options, non-qualified stock options, restricted shares, stock appreciation rights and restricted stock units~~Title IV Programs due to employees, consultants, officers and directors. As of January 31, 2018, there were 622,454 shares remaining under the Plan for future issuance. The Company estimates the fair value of share-based compensation utilizing the Black-Scholes option pricing model, which is dependent upon several variables such as the expected option term, expected volatility of the Company’s stock price over the expected term, expected risk-free interest rate over the expected option term, expected dividend yield rate over the expected option term, and an estimate of expected forfeiture rates. The Company believes this valuation methodology is appropriate for estimating the fair value of stock options granted to employees and directors which are subject to ASC Topic 718 requirements. These amounts are estimates and thus may not be reflective of actual future results, nor amounts ultimately realizedits acquisition by recipients of these grants. The Company recognizes compensation on a straight-line basis over the requisite service period for each award. The following table summarizes the assumptions the Company utilized to record compensation expense for stock options granted to employees during the nine months ended January 31, 2018.


	~~January 31,~~
	~~2018~~
~~Expected life (years)~~		~~4-6.5~~
~~Expected volatility~~		~~40-43~~	%
~~Risk-free interest rate~~		~~0.00~~	%
~~Dividend yield~~		~~n/a~~

The Company utilized the simplified method to estimate the expected life for stock options granted to employees. The simplified method was used as the Company does not have sufficient historical data regarding stock option exercises. The expected volatility is based on the average of the expected volatilities from the most recent audited financial statements available for comparative public companies that are deemed to be similar in nature to the Company. The ~~risk-free interest rate is based on~~provisional certification allows the ~~U.S. Treasury yields with terms equivalent~~school to continue to receive Title IV funding as it did prior to the ~~expected life~~change of ownership.

The HEA requires accrediting agencies to review many aspects of an institution's operations in order to ensure that the ~~related option at the time~~education offered is 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.

~~ASPEN GROUP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~JANUARY 31, 2018~~

~~(Unaudited)~~

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

Weighted

Average

Average

Remaining

Aggregate

Number of

Exercise

Contractual

Intrinsic

Options

Shares

Price

Term

Value

Balance outstanding, April 30, 2017

2,097,384

$
1.86

2.7

$
12,489,871

Granted

844,000

$
3.53

3.4

1,867,740

Exercised

(63,838
)

$
3.13

—

—

Forfeited

—

—

—

—

Expired

—

—

—

—

Balance outstanding, January 31, 2018

2,877,546

$
3.52

3.24

$
17,658,268

Exercisable, January 31, 2018

1,083,484

$
2.22

2.07

$
8,727,757

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

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

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

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

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

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

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

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

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

~~Note 9. Related Party Transactions~~

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

~~ASPEN GROUP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~JANUARY 31, 2018~~

~~(Unaudited)~~

~~Note 10 – Acquisition of USU~~

On December 1, 2017 certain assets were acquired and certain liabilities assumed from Educacion Significativa, LLC (dba United States University) by United States University, Inc. United States University, Inc. is a wholly owned subsidiary of Aspen Group Inc. (“AGI”) and was set up for purposes of finalizing the asset purchase transaction. For purposes of purchase accounting, 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 benefit of the seller, a convertible note of $2,000,000 and 1,203,209 shares of AGI stock valued at the quoted closing price of $8.49 per share as of November 30, 2017. The stock consideration represents $10,215,244 of the purchase consideration.

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

Purchase Price Allocation

Useful Life

Cash and cash equivalents

$
—

Current assets acquired

244,465

Other assets acquired

176,667

Intangible assets

Accreditation and regulatory approvals

6,200,000

Trade name and trademarks

1,700,000

Student relationships

2,000,000

2 years

Curriculum

200,000

1 year

Goodwill

5,011,432

Less: Current liabilities assumed

(727,601
)

Total purchase price

$
14,804,963

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

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

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

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

~~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.~~sufficiently high quality 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~~satisfactory outcomes and valuations of USU, Inc. and accordingly, the estimated fair values and allocation of purchase price noted above is provisional pending the final valuation of the assets acquired and liabilities assumed which will not exceed one-year in accordance with ASC 805.

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

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

For the Year Ended
April 30,
2017

For the Nine Months Ended
October 31,
2017

(unaudited)

(unaudited)

Revenue

$
18,038,474

$
10,719,546

Net Loss

$
(5,444,205
)

$
(3,521,086
)
Loss per common share- basic and diluted

$
(0.47
)

$(0.26
)

~~The pro forma financial information~~institution is ~~not necessarily indicative of the results that would have occurred if these acquisitions had occurred on the dates indicated or that~~complying with accrediting standards. Failure to demonstrate compliance with accrediting standards may result in the ~~future.~~

imposition of probation, the requirements to provide periodic reports, the loss of accreditation or other penalties if deficiencies are not remediated.

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

Return of Title IV Funds

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

Delaware Approval to Confer Degrees

Aspen University is a Delaware corporation. Delaware law requires an institution to obtain approval from the Delaware Department of Education (“Delaware DOE”) before it may incorporate with the power to confer degrees. The Delaware DOE granted full approval to operate with degree-granting authority in the State of Delaware until July 1, 2020. Aspen University is authorized by the Colorado Commission on Education to operate in Colorado as a degree granting institution.

USU is also a Delaware corporation and received initial approval from the Delaware DOE to confer degrees through June 2023.

Note 11. Subsequent Events

In March 2020, USU received a letter from the DOE stating that it is releasing substantially all of its existing letter of credit of $261,057 in connection with USU's most recent Compliance Audit. USU is still required to maintain a letter of credit of approximately $10,000 as restricted cash.

On March 1, 2020, the statute of limitations expired to enforce payment on a $50,000 convertible note which matured on March 1, 2014. Therefore, the Company is not liable to pay this loan and will treat this as a debt extinguishment in the fourth quarter of fiscal 2020.

On February 4, 2020, the Company approved the following grants of RSUs to the executive officers of the Company under the Company’s 2018 Equity Incentive Plan: 100,000 RSUs to the Chief Executive Officer, 75,000 RSUs to each of the Chief Financial Officer, Chief Operating Officer, and Chief Academic Officer, and 50,000 to the Chief Nursing Officer.

Each RSU represents the right to receive 1 share of the Company’s common stock. The RSUs vest subject to the Company's common stock achieving certain price targets within four years of the grant date as described below. The price targets are: (i) if the closing price of the Company’s common stock is at least $9 for 20 ~~2018, AGI announced that~~consecutive trading days, 10% of the RSUs will vest immediately; (ii) if the closing price of the Company’s common stock is at least $10 for 20 consecutive trading days, 25% of the RSUs will vest immediately; and (iii) if the closing price of the Company’s common stock is at least $12 for 20 consecutive trading days, all of the unvested RSUs will vest immediately. On the grant date, the closing price of the Company’s common stock on The Nasdaq Global Market was $9.49 per share representing an estimated fair value of $3,559,000. As the RSUs vest, the Company will deliver the underlying shares.

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ASPEN GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2020

(Unaudited)

In February 2020, the Company signed a definitive lease agreement for a new Aspen University BSN Pre-Licensure campus location in Tampa, Florida. Prior to commencing its Tampa campus operations, Aspen is ~~entering~~required to obtain approval by the ~~pre-licensure Bachelor~~Florida Board of ~~Science in~~ Nursing ~~(BSN) degree program business. Aspen’s first campus will be located in Phoenix, Arizona~~ and the ~~university is targeting to begin enrolling students for the upcoming summer semester.~~

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

~~Related to that announcement, Aspen University has entered into a 92 month lease for a total~~been submitted.

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

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

You should read the following discussion in conjunction with our consolidated financial statements, which are included elsewhere in this Form 10-Q. Management’s Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed in the Risk Factors contained in the Prospectus Supplement dated January 17, 2020, the Annual Report on Form 10-K ~~filed~~for the year ended April 30, 2019 and the Quarterly Report on Form 10-Q for the three months ended July ~~25, 2017~~31, 2019 each as filed with the Securities and Exchange Commission ~~or the SEC.~~

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

Company Overview

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

AGI leverages its education technology infrastructure and expertise to allow its two universities, Aspen University and United States University ~~Inc.~~ (“USU”)~~. On March 13, 2012,~~, to deliver on the ~~Company was recapitalized in a reverse merger.~~

~~Aspen Group’s~~ vision ~~is to make~~of 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. As of January 31, 2020, 9,240 of 11,033 or 84% of all students across both universities are degree-seeking nursing students.

In March 2014, Aspen University unveiled a monthly payment plan ~~aimed at reversing~~available to all students across every online degree program offered by the ~~college-debt sentence plaguing working-class Americans.~~university. The monthly payment plan is designed so that students will make one payment per month, and that monthly payment is applied towards the total cost of attendance (tuition and fees, excluding textbooks). Aspen University's monthly payment plan offers online associate and bachelor 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), master~~online master’s 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 the monthly payment ~~plans~~plan in the summer of 2017. Today, monthly payment ~~plans are~~plan is available for the online RN to BSN program ($250/month), online MBA/~~M.A.Ed/~~M.A. Ed/MSN programs ($325/month), and the ~~MSN-FNP~~online hybrid Masters of Nursing-Family Nurse Practitioner (“FNP”) program ($375/month).

Effective August 2019, new student enrollments for USU’s FNP monthly payment plan are offered a two-year payment plan ($375/month for 24 months) designed to pay for the first year’s pre-clinical courses only (approximate cost of $9,000). The second academic year in which students complete their clinical courses (approximate cost of $18,000) is required to be funded through conventional payment methods (either cash, private loans, corporate tuition reimbursement or federal financial aid).

Since 1993, Aspen University has been nationally accredited by the ~~Distance Education and Accrediting Council (“DEAC”),~~DEAC, a national accrediting agency recognized by the ~~U.S. Department of Education (the “DOE”). On~~DOE. In 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’s active degree-seeking student body increased year-over-year by 49% during the fiscal quarter ended January 31, 2018, from 4,064 to 6,066 students. United States University’s (USU’s) active degree-seeking student body grew from 212 to 446 students or an increase of 110% from May, 2017 to January, 2018, highlighted by the College of Nursing growing to 326 students which now represents 73% of USU’s total active student body.

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

Aspen University

United States University

Q3 FY’2018

Q3 FY’2018

New Student Enrollments

1,164

103
**
Active Student Body

6,066

446

-College of Nursing Students

4,401

326

Monthly Payment Method Students

4,194

204

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

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

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

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

New Student Enrollments

Active Degree Seeking Student Body*
Fiscal quarter end July 31, 2016

621

3,252
Fiscal quarter end October 31, 2016

811

3,726
Fiscal quarter end January 31, 2017

825

4,064
Fiscal quarter end April 30, 2017

986

4,681
Fiscal quarter end July 31, 2017

1,025

5,015
Fiscal quarter end October 31, 2017

1,255

5,641
Fiscal quarter end January 31, 2018

1,164

6,066

~~Aspen University Revenue Summary~~

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

Total Degree-Seeking Active Student Body

Nursing Degree- Seeking Active Student Body

Nursing Degree-Seeking Active Student Body (%)

Quarter ended October 31, 2016

3,726

2,538

68
%

Quarter ended January 31, 2017

4,064

2,899

71
%

Quarter ended April 30, 2017

4,681

3,363

72
%

Quarter ended July 31, 2017

5,015

3,569

71
%

Quarter ended October 31, 2017

5,641

4,068

72
%

Quarter ended January 31, 2018

6,066

4,401

73
%

Monthly Payment Programs Overview

~~Since the March 2014 monthly payment plan announcement, 69% of Aspen University’s courses are now paid through monthly payment methods (based on courses started over the last 90 days). Aspen~~

AGI offers two monthly payment ~~programs,~~ programs:

•a monthly payment plan in which students make payments every month over a fixed period ~~(36, 39 or 72 months~~ depending on the degree ~~program),~~program; and

•a monthly installment plan in which students pay three monthly installments (day 1, day 31 and day 61 after the start of each course).

Table of ~~January 31, 2018, Aspen University had a total of 4,194 active~~Contents

AU students paying tuition and fees through a monthly payment method grew by 13% year-over-year, from 5,259 to 5,966, representing 64% of ~~which 3,901~~AU’s total active student body. Aspen University’s monthly payment plan students ~~are~~currently deliver monthly recurring tuition cash payments exceeding $1.4 million.

Sequentially, USU students paying tuition and fees through a monthly payment ~~plan, and 293 students are paying through a monthly installment plan. Additionally, Aspen University is currently projecting~~method increased to ~~add approximately 120~~1,159, up from 1,101, representing 66% of USU’s total active ~~students/month net to its monthly payment programs through fiscal year 2018.~~student body. The total contractual value of ~~Aspen University’s~~USU’s monthly payment plan students ~~now exceeds $35 million which~~ currently ~~delivers~~deliver monthly recurring tuition cash payments ~~of approximately $1,000,000.~~

~~Finally, as a consequence of~~exceeding $0.5 million.

Note that during fiscal Q2, Aspen University tested changing its monthly payment amounts for baccalaureate and master-level programs ~~becoming~~from $250 to $300 and $325 to $350, respectively. The cost per lead rose materially during the two week test period, so the Company reverted back to advertising the original payment ~~method~~amounts per month immediately thereafter and lead costs returned to their original levels. No changes to Aspen’s original payment amounts per month (first introduced in 2014) are planned in the future.

AGI Student Population Overview

AGI’s overall active student body (includes both Aspen University and USU) grew 32% year-over-year from 8,354 to 11,033 as of ~~choice among~~January 31, 2020 and students seeking nursing degrees were 9,240 or 84% of total students at both universities. Active student body is comprised of active degree-seeking students, enrolled in a course during the ~~majority of Aspen’s~~quarter covered by this Form 10-Q or are registered for an upcoming course.

Aspen University’s total active degree-seeking student body ~~our HEA, Title IV Program revenue dropped~~grew 25% year-over-year from ~~25%~~7,393 to 9,274. USU's total active student body grew year-over-year from 961 to 1,759 or 83%.

AGI New Student Enrollments

For the third quarter of ~~total cash receipts in~~ fiscal year ~~2016~~2020, Aspen University accounted for 1,371 new student enrollments delivering overall enrollment growth at Aspen University of 23% year-over-year.Enrollment growth at Aspen University was driven primarily by the Pre-Licensure BSN program as a result of a full quarter of enrollments at both Phoenix, AZ campuses, as compared to ~~21%~~the prior year with only one campus open.

USU accounted for ~~fiscal year 2017.~~

375 new student enrollments in the quarter driven primarily by MSN-Family Nurse Practitioner (“FNP”) enrollments, a 49% enrollment increase year-over-year.

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


	New Student Enrollments
	Q3 '19	Q4'19	Q1'20	Q2'20	Q3'20
Aspen University	1,112	1,243	1,415	1,823	1,371
USU	251	317	514	394	375
Total	1,363	1,560	1,929	2,217	1,746

Marketing Efficiency Ratio (MER) Analysis

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~~Aspen~~

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

~~Revenue per Enrollment (RPE)~~

~~Marketing Efficiency Ratio =~~

~~—————————————~~


Marketing Efficiency Ratio (MER) =	Revenue per Enrollment (RPE)
		Cost per Enrollment (CPE)

Cost per Enrollment (CPE)

~~Cost per Enrollment (CPE)~~

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

Revenue per Enrollment (RPE)

The Revenue per Enrollment takes each quarterly cohort of new degree-seeking student enrollments, and measures the amount of earned revenue including tuition and fees to determine the average RPE for the cohort measured. For the later periods of a cohort, ~~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~~

The current ~~CPE/RPE~~third quarter fiscal year 2020 Marketing Efficiency Ratio (MER), representing revenue-per-enrollment (LTV) over cost-per-enrollment (CAC), for our universities 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)

table:

Marketing Efficiency Ratio

Enrollments

Cost-of-

Enrollment¹

LTV²

MER

Aspen University

1,371

961

$14,482³

15.1X

USU

375

1,103

$17,820⁴

16.2X

_____________________

¹Based on 6-month rolling weighted average CAC for each university’s enrollments

²Lifetime Value (LTV) of a new student enrollment

³Weighted average LTV for all Aspen University enrollments in the quarter

⁴LTV for USU’s MSN-FNP Program


	Weighted Average Cost of Enrollment
	Q3 '19 Enrollments	Q3 ’19 CAC¹		Q3 ‘20 Enrollments	Q3 ’20 CAC¹		Percent Change CAC
Aspen University	1,112	$	1,320	1,371	$	961	(27)	%
USU	251	$	1,620	375	$	1,103	(32)	%
Weighted Average		$	1,373		$	989	(28)	%

¹Based on 6-month rolling average

Bookings Analysis

On a year-over-year basis, fiscal Q3’20 bookings increased 72%, from $15.5 million to $26.5 million, delivering a company-wide average revenue per enrollment (APRU) increase of 34%, from $11,352 to $15,199.


	Total Bookings and Average Revenue Per Enrollment (ARPU)
	Q3'19 Enrollments	Q3'19 Bookings ¹		Q3'20 Enrollments	Q3'20 Bookings ¹	Percent Change Total Bookings & ARPU ¹
Aspen University	1,112	$	11,000,250	1,371	$19,855,050
USU	251	$	4,472,820	375	$6,682,500
Total	1,363	$	15,473,070	1,746	$26,537,550	72	%
ARPU		$	11,352		$15,199	34	%

_____________________

¹ “Bookings” are defined by multiplying Lifetime Value (LTV) per enrollment by new student enrollments for each operating unit. “Average Revenue Per User” (ARPU) is defined by dividing total bookings by total enrollments.

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

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

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

Aspen University’s Pre-Licensure BSN program is offered as a full-time, three-year (nine semester) program that is specifically designed for students who do not currently hold a state nursing license and have no prior nursing experience. Aspen is admitting students into one of two program components: (1) a pre-professional nursing component for students that have less than the required 41 general education credits completed (Year 1), and (2) the nursing core component for students that are ready to participate in the competitive evaluation process for entry (Years 2-3).

Pre-Licensure BSN Program - Future Campus Expansion Plans

Aspen University announced in February 2020 the signing of definitive lease agreements for two new Aspen University Pre-Licensure BSN campus locations in Tampa, Florida and Austin, Texas.

Tampa, Florida Campus

Aspen University has executed a definitive lease agreement for ten years to occupy approximately 30,000 square feet (Suites 150 and 450) of the Tampa Oaks I property 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 is targeting to begin its first semester at Tampa Oaks I in August 2020 in campus space formerly occupied by the University of Phoenix.

Aspen University has executed an agreement with Bayfront Health, a regional network of seven hospitals and over 1,900 medical professionals on staff serving the residents of Florida’s Gulf Coast to provide required clinical placements for Aspen’s nursing students. In addition, clinical affiliation agreements have been signed in the Tampa metro with John Hopkins All Children’s Hospital, Inc., Care Connections at Home, Global Nurse Network, LLC and The American National Red Cross.

Prior to commencing its campus operations, Aspen is required to obtain approval by the Florida Board of Nursing and the Florida Commission on Independent Education. Initial required regulatory filings have been submitted.

Austin, Texas Campus

Aspen University has executed a definitive lease agreement for eight years to occupy approximately 22,000 square feet in a portion of the first floor of the Frontera Crossing office building located at 101 W. Louis Henna Boulevard in the Austin 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 metro with visibility to approximately 143,362 cars per day. Aspen is targeting to begin its first semester at Frontera Crossing in November 2020 in campus space formerly occupied by The Art Institute.

Aspen has executed a clinical affiliation agreement with Baylor Scott & White Health – Central division, the largest not-for-profit healthcare system in Texas and one of the largest in the United States. Baylor Scott & White includes 48 hospitals, more than 800 patient care sites, more than 7,800 active physicians, over 47,000 employees and the Scott & White Health Plan.

Aspen is working with the Texas Board of Nursing, the Texas Higher Education Coordinating Board, and the Texas Workforce Commission to complete their respective regulatory approval processes and is required to obtain approval from all agencies prior to commencing its campus operations.

These new campuses will follow Aspen University’s existing Pre-Licensure BSN model being executed in the Phoenix, Arizona metro campuses. This model operates a stand-alone campus running six semester starts per annum (three weekday

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semesters, three weeknight/weekend semesters), implemented as an accelerated three-year program at a total cost of attendance less than $50,000.

AGI’s Plan for United States University (USU) to Implement MSN-FNP Weekend Immersions in Every Campus Metro:

AGI plans to build-out on average 10 exam rooms that will occupy approximately 3,000 square feet in each of its BSN pre-licensure metropolitan areas for United States University to implement weekend immersions for its MSN-Family Nurse Practitioner (FNP) program. As a result, following regulatory approvals, by the end of calendar year 2020, weekend immersions will be conducted in four metro areas for USU MSN-FNP students to select from; San Diego, Phoenix, Austin and Tampa.

ACCOUNTS RECEIVABLE AND MONTHLY PAYMENT PLAN

Since the inception of the monthly payment plan in the spring of 2014, the accounts receivable balance, both short-term and long-term, has grown from a net number of $649,890 at April 30, 2014 to a net number of $20,195,419 at January 31, 2020. This growth could be portrayed as the engine of the monthly payment plan. The attractive aspect of being able to pay for a degree over a fixed period of time has fueled the growth of this plan and, as a result, the increase of the accounts receivable balance.

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

The common thread is the actual monthly payment, which functions as a retail installment contract with no interest that each student commits to pay over a fixed number of months. If a student stops paying, that person can no longer register for a class. If a student decides to withdraw from the university, their account will be settled, either through collection of their balance or disbursement of the amount owed them. Aspen University students paying tuition and fees through a monthly payment method grew by 13% year-over-year, from 5,259 to 5,966, representing 64% of Aspen University’s total active student body.

USU students paying tuition and fees through a monthly payment method grew from 1,101 to 1,159 students sequentially representing 66% of USU’s total active student body.

Relationship Between Accounts Receivable and Revenue

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

1.Cash Receipts

2.Revenue

3.The net change in deferred revenue

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

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

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

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

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

AGI records an allowance for doubtful accounts for estimated losses resulting from the inability, failure or refusal of its students to make required payments, which includes the recovery of financial aid funds advanced to a student for amounts in excess of the student’s cost of tuition and related fees. At January 31, 2020, the allowance for doubtful accounts was $1,759,824 which represents 8% of the gross accounts receivable balance of $21,955,243, the sum of both short-term and long-term receivables.

The Introduction of Long-Term Accounts Receivable

As a result of the growing acceptance of our monthly payment plans, our long-term accounts receivable balance has grown from $3,085,243 at April 30, 2019 to $6,067,234 at January 31, 2020. The primary component consist of students who make monthly payments over 36 and 39 months. The average ~~RPE is approximately $7,000. Of the $7,000, $6,400~~student completes their academic program in 24 months, therefore most of the ~~RPE~~Company’s accounts receivable are short-term.

Included below 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~~graphic 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~~both short-term and ~~Marketing functions on behalf of Universities (also referred to~~long-term receivables, 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.

well as contractual value:

Classes Taken
less monthly
payments received

Payments for classes
taken that are greater
than 12 months

Expected classes
to be taken over
balance of program.

Short-Term
Accounts Receivable

Long-term
Accounts Receivable

Not recorded in
financial statements

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

Results of Operations

For the ~~Quarter~~Three Months Ended January 31, ~~2018~~2020 (Fiscal 2020 Q3) Compared ~~with~~to the ~~Quarter~~Three Months Ended January 31, ~~2017~~

~~Revenue~~

2019 (Fiscal 2019 Q3)

Revenues

Revenue from operations for the ~~quarter ended January 31, 2018 (“2018 Quarter”)~~Fiscal 2020 Q3 increased to ~~$5,701,958~~$12,537,940 from ~~$3,735,626~~$8,494,627 for the ~~quarter ended January 31, 2017 (“2017 Quarter”),~~Fiscal 2019 Q3, an increase of ~~$1,966,332~~$4,043,313 or ~~53%~~48%.

The increase was primarily due to enrollment growth in the degree programs with the highest lifetime value (LTV). By focusing our marketing spend on delivering enrollment growth in the degree programs with the highest LTV, we increased our average revenue per enrollment (or ARPU) by 34%. The Company expects revenue growth to continue in future periods as we continue prioritizing our highest LTV degree programs to achieve our long-term growth plans.

Aspen University’s revenues in the Fiscal 2020 Q3 increased 35% year-over-year. Aspen University's traditional post-licensure online nursing + other business unit contributed 59% of total Company revenue in the Fiscal 2020 Q3, while Aspen University’s Pre-Licensure BSN program delivered approximately 14.2% of the Company’s revenues in the Fiscal 2020 Q3. Finally, USU contributed approximately 27.3% of the total revenues for the Fiscal 2020 Q3.

The Company now expects annual revenue growth to meet or exceed 42% for the full fiscal year 2020.

Cost of Revenues (exclusive of ~~amortization)~~

depreciation and amortization shown separately below)

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

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Instructional Costs and Services

Instructional costs and services for ~~the 2018 Quarter rose~~Fiscal 2020 Q3 increased to ~~$1,196,949~~$2,623,252 or 21% of revenues from ~~$694,884~~$1,753,982 or 21% of revenues for the ~~2017 Quarter,~~Fiscal 2019 Q3, an increase of ~~$502,065~~$869,270 or ~~72%~~50%. ~~Instructional~~The increase was primarily due to the increase in the number of class starts year-over-year and additional full-time faculty staffing in the USU MSN-FNP program and the pre-licensure BSN campuses in Phoenix.

Aspen University instructional costs and services represented 19% of Aspen University revenues for the ~~2018 Quarter as a percentage~~Fiscal 2020 Q3, while USU instructional costs and services equaled 25% of ~~revenue was 21% as compared to 19% for~~USU revenues during the ~~2017 Quarter.~~

~~Sales~~Fiscal 2020 Q3.

Marketing and Promotional

Marketing

~~Sales~~ and ~~marketing~~promotional costs for the ~~2018 Quarter~~Fiscal 2020 Q3 were ~~$1,468,715~~$2,539,755 or 20% of revenues compared to ~~$664,247~~$2,322,998 or 27% of revenues for the ~~2017 Quarter,~~Fiscal 2019 Q3, an increase of ~~$804,468~~$216,757 or ~~121%~~9%. ~~The Company expects~~

Aspen University marketing and promotional costs represented 20% of Aspen University revenues for the Fiscal 2020 Q3, while USU marketing and promotional costs equaled 15% of USU revenues for the Fiscal 2020 Q3.

AGI corporate marketing expenses equaled $252,602 for the Fiscal 2020 Q3 compared to ~~rise in future periods, given we expect~~$219,660 for the Fiscal 2019 Q3, an increase of $32,942 or 15%.

Gross profit rose to 57% of revenues or $7,094,150 for the Fiscal 2020 Q3, or $4,221,939 for the Fiscal 2019 Q3, an increase ~~monthly marketing spend to~~of 68% year over ~~$600,000~~year.

Aspen University gross profit represented 58% of Aspen University revenues for the Fiscal 2020 Q3, while USU gross profit equaled 60% of USU revenues during the ~~next fiscal year. In addition, this~~Fiscal 2020 Q3.

Costs and Expenses

General and Administrative

General and administrative costs for the Fiscal 2020 Q3 were $8,627,588 or 69% of revenues compared to $6,284,041 or 74% of revenues during the Fiscal 2019 Q3, an increase ~~is partially attributed~~of $2,343,547 or 37%.

General and administrative expense in Fiscal 2020 Q3 includes $0.8 million of one-time expense items primarily related to the ~~addition of an outside sales force of 9 representatives~~January 2020 equity financing and ~~those salaries~~the CFO transition. Excluding these one-time expense items, general and ~~benefits~~administrative expense would have increased year-over-year by $1,598,545, meaning that G&A would have grown at 26% year-over-year.

Aspen University general and administrative costs which are included in the ~~2018 Quarter numbers.~~

~~Gross Profit was 51%~~above amount represented 43% of Aspen University revenues ~~or $2,900,633~~ for the ~~2018 Quarter as compared to 60%~~Fiscal 2020 Q3, while USU general and administrative costs equaled 56% of USU revenues ~~or $2,256,918~~ for the ~~2017 Quarter. The reasons for the change are reflected in the individual expense items described above.~~

~~Costs~~Fiscal 2020 Q3.

AGI’s general and ~~Expenses~~

~~General and Administrative~~

~~General and Administrative~~administrative costs for the ~~2018 Quarter were $4,677,359 compared to $2,133,074 during~~Fiscal 2020 Q3 and Fiscal 2019 Q3 are included in the ~~2017 Quarter, an increase of $2,544,285 or 119%. General~~above amounts equaled $2.8 million and ~~Administrative costs~~$1.5 million, respectively, include corporate employees in the NY corporate office, IT, rent, non-cash AGI stock based compensation, and professional fees (legal, accounting, and IR), as ~~a percentage of revenue for~~well as one-time expense items in the ~~2018 Quarter was 82% compared to 57% during the 2017 quarter.~~

~~The Company incurred $610,219 of one-time costs directly~~quarter, primarily related to the ~~USU acquisition. Excluding~~January 2020 equity financing and 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.~~

CFO transition.

Depreciation and Amortization

Depreciation and amortization costs for the ~~2018 Quarter rose~~Fiscal 2020 Q3 decreased to ~~$347,894~~$475,393 from ~~$132,727~~$555,292 for the ~~2017 Quarter, an increase~~Fiscal 2019 Q3, a decrease of ~~$215,167~~$(79,899), or ~~162%~~14%. ~~This increase~~The decrease in depreciation and amortization expense is ~~substantially~~mainly due to ~~the~~a 60% decrease in amortization ~~of intangible assets~~expense at USU from the ~~purchase~~AGI acquisition back in late 2017.

Operating Income and Loss

The Company reported an operating loss of ~~USU.~~

$(1,728,048) during the Fiscal 2020 Q3 as compared to $(2,421,686) for the Fiscal 2019 Q3, a decrease in the loss of $693,638, or 29% improvement.

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Aspen University generated approximately $1.3 million of operating income for the Fiscal 2020 Q3. Note that Aspen’s Pre-Licensure BSN program accounted for $0.5 million of the $1.3 million operating income generated at Aspen University, remaining the highest margin unit of the Company at 30%. USU generated $44,755 of operating income during the Fiscal 2020 Q3, which was the second consecutive quarter of generating operating income, while AGI corporate incurred approximately $(3.1) million of operating expenses for the Fiscal 2020 Q3.

Other ~~Expense, net~~

Income (Expense)

Other ~~expense,~~income/(expense), net for the ~~2018 Quarter increased~~Fiscal 2020 Q3 decreased to ~~$158,986~~$(537,841) from ~~$78,317~~$65,746 in the ~~2017 Quarter, an increase~~Fiscal 2019 Q3, a decrease of ~~$80,669 or 103%~~$(603,587). ~~This increase~~The other expense in 2020 is primarily due to interest ~~paid~~expense and the write-off of debt discount in connection with a debt extinguishment related to issued Convertible Debt on ~~the credit facility.~~

January 22, 2020. The write-off was approximately $200,000 and included in one-time expense items.

Income Taxes

Income taxes expense ~~(benefit)~~ for the ~~comparable years~~Fiscal 2020 Q3 was $15,163 compared to $0 asin the Fiscal 2019 Q3. 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.~~

either quarter.

Net ~~Income (Loss)~~

Loss

Net loss applicable to stockholders was $(2,281,052), or net loss per basic share of $(0.12) for ~~2018 Quarter was ($2,147,945)~~the Fiscal 2020 Q3 as compared to ~~income of $7,377~~$(2,355,940) for the ~~2017 Quarter,~~Fiscal 2019 Q3, a decrease in the loss 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.~~

$74,888, or 3% improvement.

For the Nine Months Ended January 31, ~~2018~~2020 (Fiscal Year 2020 Q3) Compared ~~with~~to the Nine Months Ended January 31, ~~2017~~

~~Revenue~~

~~Revenue~~2019 (Fiscal Year 2019 Q3)

Revenues

Revenues from operations for the nine months ended January 31, ~~2018 (“2018 Period”)~~2020 increased to ~~$14,796,483~~$34,981,887 from ~~$9,957,467~~$23,811,275 for the nine months ended January 31, ~~2017 (“2017 Period”),~~2019, an increase of ~~$4,839,016~~$11,170,612 or ~~49%~~47%.

Aspen University’s revenues contributed 73% to total revenue and increased $6,414,334 to $25,660,184 from $19,245,850. USU revenues increased $4,756,277 or 104% from $4,565,426 to $9,321,703.

Cost of Revenues (exclusive of ~~amortization)~~

depreciation and amortization shown separately below)

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

Instructional Costs and Services

Instructional costs and services for ~~the 2018 Period rose~~nine months ended January 31, 2020 increased to ~~$2,893,818~~$6,948,138 or 20% of revenues from ~~$1,701,945~~$4,905,822 or 21% of revenues for the ~~2017 Period,~~nine months ended January 31, 2019, an increase of ~~$1,191,873~~$2,042,316 or ~~70%~~42%.

~~Sales~~ The increase was primarily due to the increase in the number of class starts year-over-year.

Aspen University instructional costs and ~~Marketing~~

~~Sales and marketing~~services represented 18% of Aspen University revenues for the ~~2018 Period were $3,388,996 from $1,788,101~~nine months ended January 31, 2020, while USU instructional costs and services equaled 25% of USU revenues over the same period.

Marketing and Promotional

Marketing and promotional costs for the ~~2017 Period,~~nine months ended January 31, 2020 were $6,755,983 or 19% of revenues compared to $6,759,065 or 28% of revenues for the nine months ended January 31, 2019, a decrease of $3,082 or 0%.

Aspen University marketing and promotional costs represented 18% of Aspen University revenues for the nine months ended January 31, 2020, while USU marketing and promotional costs equaled 14% of USU revenues for the same period.

AGI corporate marketing expenses equaled $728,738 for the nine months ended January 31, 2020 compared to $651,715 for the nine months ended January 31, 2019, an increase of ~~$1,600,895~~$77,024 or ~~90%~~12%. ~~The Company expects sales~~

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Gross profit rose to 59% of revenues or $20,497,673 for the nine months ended January 31, 2020, or $11,615,655 for the nine months ended January 31, 2019, an increase of 76% year over year.

Aspen University gross profit represented 61% of Aspen University revenues for the nine months ended January 31, 2020, and ~~marketing to rise in future periods, given we expect to increase monthly marketing spend to over $600,000~~USU gross profit equaled 61% of USU revenues 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.~~

same period.

Costs and Expenses

General and Administrative

General and administrative costs for the ~~2018 Period~~nine months ended January 31, 2020 were ~~$10,975,085~~$23,264,447 or 67% of revenues compared to ~~$6,228,554~~$18,318,061 or 77% of revenues during the ~~2017 Period,~~nine months ended January 31, 2019, an increase of ~~$4,746,531~~$4,946,386, or ~~76%~~27%.

The increase in expense is consistent with our long term expectations that general and administrative costs will grow at approximately half the rate of revenues. There is a portion of these costs that are variable which increased as our revenues increased; but there also is a fixed cost component that tends to grow at a slower rate.

Note that AGI recorded $0.8 million of one-time G&A expense items in the quarter, primarily related to the January 2020 equity financing and the CFO transition. Excluding those one-time items, G&A would have increased year-over-year by only $4,508,948, meaning that G&A would have grown at 25% year-over-year.

Aspen University general and administrative costs which are included in the above amount represented 44% of Aspen University revenues for the nine months ended January 31, 2020, while USU general and administrative costs equaled 57% of USU revenues for the same period.

AGI’s general and administrative costs for the nine months ended January 31, 2020 and January 31, 2019 are included in the above amounts equaled $6,665,521 and $4,409,628, respectively, include corporate employees in the NY corporate office, IT, rent, non-cash AGI stock based compensation, and professional fees (legal, accounting, and IR), as well as one-time expense items in the quarter, primarily related to the January 2020 equity financing and the CFO transition.

Depreciation and Amortization

Depreciation and amortization costs for the ~~2018 Period~~nine months ended January 31, 2020 increased to ~~$631,969~~$1,710,192 from ~~$422,782~~$1,577,464 for the ~~2017 Period,~~nine months ended January 31, 2019, an increase of ~~$209,187~~$132,728, or ~~49%~~8%.

The increase in depreciation expense is mainly due to additional investment in company developed software, partially offset by a decrease in amortization expense at USU from the AGI acquisition back in late 2017. Moreover, AGI has made capital investments in the Phoenix campuses and will invest in other campus locations that will cause depreciation expense to continue to increase in the near future.

Operating Income and Loss

The Company reported an operating loss of $(3,696,873) during the nine months ended January 31, 2020 as compared to $(7,749,137) for the nine months ended January 31, 2019, a decrease in the loss of $4,052,264, or 52% improvement.

Aspen University generated approximately $4.1 million of operating income for the nine months ended January 31, 2020. Note that Aspen’s Pre-Licensure BSN program accounted for $1.1 million of the $4.1 million operating income generated at Aspen University (including $0.5 million in Q3), becoming the highest margin unit of the Company. USU incurred $(340,114) of operating loss during the nine months ended January 31, 2020, while AGI corporate incurred approximately $(7.4) million of operating expenses for the nine months ended January 31, 2020.

Other Income (Expense)

Other income/(expense), net for the nine months ended January 31, 2020 decreased to $(1,235,121) from $80,842 for the nine months ended January 31, 2019, a decrease of $(1,315,963). The other expense ~~increased to ($303,190) from ($172,615), an increase of $130,575 or 76%. This increase~~in 2020 is primarily due to interest ~~paid~~expense and the write-off of debt discount in connection with a debt extinguishment related to issued Convertible Debt on ~~the credit facility. Other income increased to $140,567 from $1,684, primarily due to the interest income earned on the $900,000 promissory note from USU~~January 22, 2020. The write-off was approximately $200,000 and ~~from the release of the warrant derivative liability of $52,500.~~

included in one-time expense items.

Income Taxes

Income taxes expense ~~(benefit)~~ for the ~~2018 Period and 2017 Period was~~nine months ended January 31, 2020 were $62,508 compared to $0 asin for the nine months ended January 31, 2019. Aspen Group experienced operating losses in both periods. As management made a full valuation allowance

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against the deferred tax assets stemming from these losses, there was no tax benefit recorded in the statement of operations in ~~both periods.~~

either period.

Net Loss

Net loss applicable to stockholders was $(4,994,502), or net loss per basic share of $(0.26) for the ~~2018 Period was ($3,396,575)~~nine months ended January 31, 2020 as compared to ~~($381,530)~~$(7,668,295), or net loss per basic share of $(0.42) for the ~~2017 Period, an increase~~nine months ended January 31, 2019, a decrease in ~~the~~ loss of ~~$3,015,045.~~

$2,673,793, or 35% improvement.

Definition of Non-GAAP – Financial Measures

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

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

~~AGI~~

Aspen Group defines Adjusted EBITDA as earnings (or loss) from continuing operations before the items in the table ~~below including~~below. It is important to note that there were $1,010,124 of non-recurring charges for the fiscal quarter ended January 31, 2020 compared to $83,174 in the fiscal quarter ended January 31, 2019, and $1,143,072 of ~~$85,853.~~non-recurring charges for the nine months ended January 31, 2020 compared to $390,711 for the nine months ended January 31, 2019. These non-recurring charges, included non-cash stock based compensation that were one-time charges and are not included in stock-based compensation, cash based compensation and amortization expense from writing off debt that were one-time charges. Adjusted EBITDA is an important measure of our operating performance because it allows management, investors and analysts to evaluate and assess our core operating results from period-to-period after removing the impact of items of a non-operational nature that affect comparability.

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

The following table presents a reconciliation of ~~EBITDA and Adjusted EBITDA to net income (loss)~~Net loss allocable to common shareholders to Adjusted EBITDA:


	Three Months Ended January 31,						Nine Months Ended January 31,
	2020		2019		2020		2019
Net loss	$	(2,281,052)	$	(2,355,940)	$	(4,994,502)	$	(7,668,295)
Interest income (expense), net	570,020		(241,607)		1,416,784		(159,332)
Taxes	98,173		315,856		243,035		325,132
Depreciation and amortization	475,393		555,292		1,710,192		1,577,464
EBITDA (loss)	(1,137,466)		(1,726,399)		(1,624,491)		(5,925,031)
Bad debt expense	2,547		187,178		651,205		480,067
Non-recurring charges*	1,010,124		83,174		1,143,072		390,711
Stock-based compensation	347,210		350,838		1,341,245		866,129
Adjusted EBITDA Profit/(Loss)	$	222,415	$	(1,105,209)	$	1,511,031	$	(4,188,124)

_____________________

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*Non-recurring charges include one-time expenses related to stock-based compensation for the three and nine months ended January 31, 2020.

For the Three Months Ended January 31, 2020 (Fiscal 2020 Q3) Compared to the Three Months Ended January 31, 2019 (Fiscal 2019 Q3)

The Company reported Adjusted EBITDA of $222,415 for the Fiscal 2020 Q3 as compared to an Adjusted EBITDA loss of $(1,105,209) for the Fiscal 2019 Q3, an improvement of >100%.

Aspen University generated $1.3 million of net income and $1.9 million of Adjusted EBITDA for the Fiscal 2020 Q3 as compared to approximately net income of $0.4 million and $0.9 million of Adjusted EBITDA for the Fiscal 2019 Q3.

USU generated net income of $40,028 and $0.25 million of Adjusted EBITDA for the Fiscal 2020 Q3 as compared to a ~~GAAP financial measure:~~

For the Quarters Ended

January 31,

2018

2017

Net income (loss)

$
(2,147,945
)

$
7,377

Interest expense, net of interest income

211,486

78,317

Depreciation & amortization

347,894

132,727

EBITDA (loss)

(1,588,565
)

218,421

Bad debt expense

132,644

(25,680
)
Acquisition expense

610,219

—

Non-recurring charges

85,853

146,809

Stock-based compensation

162,544

96,498

Adjusted EBITDA (Loss)

$
(597,305
)

$
436,048

net loss of $(0.9) million and an Adjusted EBITDA loss of approximately $(0.5) million during the Fiscal 2019 Q3.

Aspen Group corporate incurred an Adjusted EBITDA loss of ($1.9) million during the Fiscal 2020 Q3, which reflects $1.0 million of one-time expense items, as compared to an Adjusted EBITDA loss of ($1.5) million during the Fiscal 2019 Q3, which reflected $0.4 million of one-time expenses.

For the Nine Months Ended January 31, 2020 (Fiscal Year 2020 Q3) Compared to the Nine Months Ended January 31, 2019 (Fiscal Year 2019 Q3)

The Company reported Adjusted EBITDA of $1,511,031 for the nine months ended January 31, 2020 as compared to an Adjusted EBITDA loss of $(4,188,124) for the nine months ended January 31, 2019, an improvement of >100%.

Aspen University generated $4.0 million of net income and $6.0 million of Adjusted EBITDA for the nine months ended January 31, 2020 as compared to approximately net income of $0.8 million and $2.1 million of Adjusted EBITDA for the nine months ended January 31, 2019.

USU incurred a net loss of $(0.2) million and $(0.8) million of Adjusted EBITDA for the nine months ended January 31, 2020 as compared to a net loss of $(3.3) million and an Adjusted EBITDA loss of approximately $(2.1) million for the nine months ended January 31, 2019.

Aspen Group corporate incurred an Adjusted EBITDA loss of ($5.2) million for the nine months ended January 31, 2020, which reflects $1.1 million of one-time expense items, as compared to an Adjusted EBITDA loss of ($4.2) million for the nine months ended January 31, 2019 ,which reflected $0.4 million of one-time expenses.

Liquidity and Capital Resources

A summary of ~~our~~the 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,
	2020		2019
Net cash used in operating activities	$	(3,825,265)	$	(7,430,550)
Net cash used in investing activities	(1,940,879)		(1,962,899)
Net cash provided by (used in) financing activities	16,767,411		(1,019,689)
Net increase (decrease) in cash	$	11,001,267	$	(10,413,138)

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

Net cash used in operating activities ~~during~~for the ~~2018 Period~~nine months ended January 31, 2020 totaled ~~($3,654,947)~~$(3,825,265) and resulted primarily byfrom the net loss of ~~($3,396,575)~~$(4,994,502) and a net change in operating assets and liabilities of $(3,375,031), partially offset by $4,544,268 in non-cash items. The net loss included $1,424,607 for interest expense. The most significant changes in operating assets and liabilities was an increase in gross accounts receivable (both short and long term accounts receivable, before allowance for doubtful accounts) of approximately ~~$1,200,000~~$7.1 million which is primarily attributed to the growth in revenues from students paying through the monthly payment plan and an increase in deferred revenue related to the timing of class starts. The most significant non-cash items were depreciation and amortization expense of approximately $1.7 million and stock-based compensation expense of approximately $1.8 million.

Table of Contents

Cash used in operations is also affected by changes in working capital. The Company expects a favorable trend in working capital over time, but there may be volatility from quarter to quarter. So, in aggregate the Company expects a general trend toward lower cash used in operations in future quarters; however, some quarters could have higher cash used in operations as a result of more cash used to support changes in working capital. Program start timings and the related federal financial aid drawdowns also impact cash timing.

Net cash used in operating activities for the nine months ended January 31, 2019 totaled $(7,430,550) and resulted primarily from the net loss of $(7,668,295), partially offset by $2,956,601 in non-cash items and ~~approximately $1,100,000~~$2,718,856 decrease in operating assets and liabilities. The most significant item change in operating assets and liabilities was an increase in accounts receivable of ~~$4,534,118~~$4,209,576 which is primarily attributed to the growth in revenues from students paying through the monthly payment plan. The most significant non-cash items were depreciation and amortization expense of ~~$631,969~~$1,577,464 and ~~stock~~stock-based compensation expense of ~~$466,468.~~

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

$866,129.

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

Net cash used in investing activities ~~during~~for the ~~2018 Period~~nine months ended January 31, 2020 totaled ~~($3,031,667)~~$(1,940,879) mostly attributed to ~~cash paid~~investments in ~~the USU acquisition~~Company developed software, instructional and ~~the purchase of property and~~computer equipment.

Net cash used in investing activities ~~during~~for the ~~2017 Period~~nine months ended January 31, 2019 totaled ~~($571,856)~~$(1,962,899) mostly attributed to investments in the ~~increase in software.~~

purchase of property and equipment as we build up our campus.

Net Cash Provided By ~~(Used In)~~ Financing Activities

Net cash provided by financing activities ~~during~~for the ~~2018 Period~~nine months ended January 31, 2020 totaled ~~$7,733,477~~$16,767,411 which reflects ~~primarily~~$16,044,879 of proceeds from the ~~cash provided~~sale of common stock, net of under writer costs and $768,381 of proceeds from the exercise of stock options and warrants, partially offset by ~~the senior secured term loan.~~

$(51,282) of disbursements for equity offering costs.

Net cash ~~provided by~~used in financing activities ~~during~~for the ~~2017 Period~~nine months ended January 31, 2019 totaled ~~$784,200~~$(1,019,689), which reflects the ~~increase due to~~repayment of a portion of the ~~new $3,000,000 line of credit, of which $1,250,000 has been drawn,~~Convertible Note, partially offset by ~~the buyback~~stock option exercise proceeds net of ~~warrants for $400,000.~~

payment of offering costs.

Liquidity and Capital ~~Resource Considerations~~

~~Historically, our primary source~~Resources

On January 23, 2020, the Company issued $5 million convertible notes to each of ~~liquidity is cash receipts from tuition~~two lenders in exchange for the two $5 million notes due under term loans entered into in 2019. The closing of the refinancing was conditioned upon the Company conducting an equity financing resulting in gross proceeds to the Company of at least $10 million. On January 22, 2020, the Company closed on an underwritten offering under which the net proceeds were approximately $16 million and the ~~issuances of debt and equity securities. More recently, we were able~~condition precedent 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.~~

Asrefinancing was satisfied.

The Company had cash deposits of approximately $19.1 million on March ~~15, 2018,~~6, 2020, excluding $456,211 of restricted cash. Following quarter end, the Company ~~had a~~made payments totaling approximately $1.1 million for capital expenditures related to our campus expansion strategy. In addition to its 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,~~also has access to the $5 million Revolving Credit Facility, which is unused. The Company ~~believes~~expects that ~~it has~~its cash resources will be sufficient ~~cash to allow the Company~~ to meet its ~~operational expenditures~~working capital needs for ~~at least~~ the ~~next 12 months.~~

foreseeable feature.

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

Critical Accounting Policies and Estimates

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

~~Related Party Transactions~~

~~See Note 9~~

Revenue Recognition and Deferred Revenue

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

Accounts Receivable and Allowance for Doubtful Accounts Receivable

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

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

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

Direct write-offs are taken in the period when Aspen has exhausted its efforts to collect overdue and unpaid receivables or otherwise evaluate other circumstances that ~~had a material effect on our unaudited consolidated financial statements.~~

indicate that Aspen should abandon such efforts.

Business Combinations

Goodwill and Intangibles

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

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

Off Balance Sheet Arrangements

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

~~New Accounting Pronouncements~~

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

Cautionary Note Regarding Forward Looking Statements

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding ~~student~~future revenue growth, ~~projected Marketing Efficiency Ratio, overall growth~~the expectations from highest LTV programs, the impact of bookings, the expected future effect of seasonality on our operating results, the Pre-Licensure BSN program campus expansion plans, the expected timing of launching of, and ~~liquidity.~~anticipated capital expenditures and other costs related to, new campuses, and collection of our accounts receivable. 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 ~~could~~may cause actual results to differ materially from ~~those in the~~these forward-looking statements include continued high demand for nurses, the continued effectiveness of our marketing efforts, unanticipated issues with, and delays in, launching our third and fourth campuses, future U.S. economic conditions and the impact on our enrollments and our students ability to make monthly payment plan payments, the failure of our students to ~~maintain regulatory approvals, regulatory issues, competition, ineffective media and/or marketing,~~meet minimum NCLEX scores required by applicable states, and our failure to ~~maintain growth in degree seeking students~~continue obtaining enrollments at low acquisition costs and ~~the integration of USU.~~keeping teaching costs down. Further information on ~~our~~the risk factors affecting our business is contained in our filings with the SEC, including ~~the~~our Prospectus Supplement dated January 17, 2020 andour Annual Report on Form 10-K ~~filed~~for the year ended April 30, 2019, as updated by the Quarterly Report on Form 10-Q for the three months ended July 25, 2017. Any forward-looking statement made by us in this report speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them.31, 2019. 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 ~~PROCEDURES~~

PROCEDURES.

Evaluation of Disclosure Controls and Procedures.

Our management carried out an evaluation, with the participation of our Principal Executive Officer and Principal Financial Officer, required by Rule 13a-15 or 15d-15 of the Securities Exchange Act of 1934 (the “Exchange Act”) of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act. Based on their evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures are effective as of the end of the period covered by this ~~report~~Quarterly Report on Form 10-Q to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting.

Table of Contents

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

Table of Contents

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~~As of the date of this report, we are not aware of any other pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations and there are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material ~~changes~~interest adverse to our ~~legal proceedings as described in the Company’s Form 10-K during the period covered by this report.~~

interest.

ITEM 1A. RISK FACTORS

Not applicable to smaller reporting companies.

However, the Company did add a risk factor in its Quarterly Report on Form 10-Q for the three months ended July 31, 2019 and included certain risk factors in its Prospectus Supplement dated January 17, 2020.

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

~~From November 1, 2017,~~

On January 23, 2020, the Company issued $5 million convertible notes to each of two accredited investors in exchange for the two $5 million notes due under term loans entered into in 2019. The closing of the refinancing was conditioned upon the Company conducting an equity financing resulting in gross proceeds to the Company of at least $10 million which was satisfied on January ~~31, 2018, 87,470~~22, 2020, when the Company closed on an underwritten offering under which the net proceeds were approximately $16 million.

The key terms of these convertible notes are as follows:

•After six months from the issuance date, the lenders have the right to convert the principal into our shares of the Company’s common stock at a conversion price of $7.15 per share;

•The convertible notes automatically convert into shares of the Company’s common stock if the average closing price of our common stock is at least $10.725 over a 20 consecutive trading day period;

•The convertible notes are due January 23, 2023;

•The interest rate of the convertible notes is 7% per annum (payable monthly in arrears) compared to 12% under the term loans; and

•The convertible notes are secured.

The former notes under the term loans were ~~issued~~due in September 2020 and were subject to a one-year extension and the payment of an extension fee for each note of $50,000 (total of $100,000). The Company also paid each lender $40,400 at closing of the convertible notes to cover taxes they will incur as part of the note exchange and agreed to pay their legal fees arising from the re-financing. Effective upon issuance of the convertible notes, the existing notes under the term loans were cancelled and no amounts remain outstanding under the term loans.

In connection with refinancing of the ~~cashless exercise~~term loans, on January 23, 2020, the Company also entered into an Investors/Registration Rights Agreement with the lenders whereby, upon request of ~~178,917 warrants with exercise prices ranging~~the lenders on or after June 22, 2020, 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.

The convertible note exchange and refinancing was exempt from ~~3.99~~registration pursuant to ~~6.00 per share. These securities were issued without registration under~~Section 4(a)(2) of 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) promulgated thereunder.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Table of Contents

~~Not applicable.~~

None.

ITEM 6. EXHIBITS

See the Exhibit Index at the end of this report.

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, 2018~~

~~By:~~

~~/s/ Michael Mathews~~

~~Michael Mathews~~

~~Chief Executive Officer~~

~~(Principal Executive Officer)~~


March ~~15, 2018~~ 10, 2020	By:	/s/ ~~Janet Gill~~ Michael Mathews
		~~Janet Gill~~ Michael Mathews Chief Executive Officer (Principal Executive Officer)


March 10, 2020		By:	/s/ Frank J. Cotroneo
			Frank J. Cotroneo Chief Financial Officer
	(Principal Financial Officer)


March 10, 2020	By:	/s/ Robert Alessi
		Robert Alessi Chief Accounting Officer (Principal Accounting Officer)

Table of 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 Reference

Filed or
Furnished
Herewith

Exhibit #

Exhibit Description

Form

Date

Number

3.1

Certificate of Incorporation, as amended

10-K

7/9/19

3.1

3.2

Bylaws, as amended

10-Q

3/15/18

3.2

10.1

Securities Purchase Agreement, dated as of July 19, 2018, by and between Aspen Group, Inc. and ESL

8-K

7/19/18

10.1

10.2

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

10-Q

3/11/19

10.1

10.3

Form of Loan Agreement, dated March 6, 2019

10-Q

3/11/19

10.2

10.4

Form of Intercreditor Agreement, dated March 6, 2019

10-Q

3/11/19

10.3

10.5

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

10-Q

3/11/19

10.4

10.6

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

10-Q

3/11/19

10.5

10.7

Form of Loan Agreement dated January 15, 2020

Filed

10.8

Underwriting Agreement between Aspen Group, Inc. and Canaccord Genuity LLC, dated January 17, 2020

8-K

1/17/20

1.1

10.9

Form of Amended and Restated Convertible Promissory Note and Security Agreement dated January 22, 2020

8-K

1/23/20

10.1

10.10

Form of Amended and Restated Revolving Promissory Note and Security Agreement dated January 22, 2020

8-K

1/23/20

10.2

10.11

Form of Investors/Registration Rights Agreement dated January 22, 2020

8-K

1/23/20

10.3

10.12

Aspen Group, Inc. 2018 Equity Incentive Plan*

DEF14A

10/31/18

Annex A

31.1

Certification of Principal Executive Officer (302)

Filed

31.2

Certification of Principal Financial Officer (302)

Filed

32.1

Certification of Principal Executive and Principal Financial Officer (906)

Furnished**

101.INS

Inline 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.SCH

Inline XBRL Taxonomy Extension Schema Document

Filed

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Filed

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

Filed

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

Filed

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Filed

104

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

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



					Page Number
			PART I – FINANCIAL INFORMATION

Item 1.			Financial ~~Statements~~Statements..		1

	Consolidated Balance Sheets	1

	Consolidated Statements of Operations (Unaudited)	3

	Consolidated Statement of Changes in Stockholders’ Equity (Unaudited)	4

	Consolidated Statements of Cash Flows (Unaudited)	5 6

			~~Condensed Notes to Consolidated Financial Statements (Unaudited)~~	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.			19 28

Item 3.			Quantitative and Qualitative Disclosures About Market Risk.		26 41

Item 4.			Controls and Procedures.		26 41

			PART II – OTHER INFORMATION

Item 1.			Legal Proceedings.		27 43

Item 1A.			Risk Factors.		27 43

Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds.		27 43

Item 3.			Defaults Upon Senior Securities.		27 43

Item 4.			Mine Safety Disclosures.		27 43

Item 5.			Other Information.		27 43

Item 6.			Exhibits.		27 44


	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


	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


					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


	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


Year Ending April 30,
2018	$	127,811
2019		456,038
2020		386,196
2021		313,749
2022		293,848
Total	$	1,577,642


Year Ending April 30,
2018	$	14,152
2019		56,143
2020		42,301
2021		15,336
2022		9,625
Total	$	137,557


						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


	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


	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	)


	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


	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


	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	%


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)


	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