UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2014
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number: 000-55107
Aspen Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 27-1933597 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
|
|
720 South Colorado Boulevard, Suite 1150N Denver, CO |
80246 |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number: (646) 450-1843
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | o | Accelerated filer | o |
Non-accelerated filer | o (Do not check if a smaller reporting company) | Smaller reporting company | þ |
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 September 12, 2014 |
Common Stock, $0.001 par value per share |
| 112,501,897 shares |
INDEX
| PART I FINANCIAL INFORMATION |
|
|
|
|
1 | ||
|
|
|
| 1 | |
|
|
|
| 3 | |
|
|
|
| Consolidated Statements of Changes in Stockholders Deficiency (Unaudited) | 4 |
|
|
|
| 5 | |
|
|
|
| 7 | |
|
|
|
Managements Discussion and Analysis of Financial Condition and Results of Operations. | 21 | |
|
|
|
28 | ||
|
|
|
28 | ||
|
|
|
| PART II OTHER INFORMATION |
|
|
|
|
29 | ||
|
|
|
29 | ||
|
|
|
Unregistered Sales of Equity Securities and Use of Proceeds. | 29 | |
|
|
|
29 | ||
|
|
|
29 | ||
|
|
|
29 | ||
|
|
|
29 |
30 |
ASPEN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
| July 31, |
|
| April 30, |
| ||
|
| 2014 |
|
| 2014 |
| ||
|
| (Unaudited) |
|
|
|
| ||
Assets |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 1,416,407 |
|
| $ | 247,380 |
|
Restricted cash |
|
| 898,225 |
|
|
| 868,298 |
|
Accounts receivable, net of allowance of $234,049 and $221,537, respectively |
|
| 671,723 |
|
|
| 649,890 |
|
Prepaid expenses |
|
| 93,250 |
|
|
| 45,884 |
|
Net assets from discontinued operations (Note 1) |
|
| 5,250 |
|
|
| 5,250 |
|
Total current assets |
|
| 3,084,855 |
|
|
| 1,816,702 |
|
|
|
|
|
|
|
|
|
|
Property and equipment: |
|
|
|
|
|
|
|
|
Call center equipment |
|
| 122,653 |
|
|
| 122,653 |
|
Computer and office equipment |
|
| 67,561 |
|
|
| 66,118 |
|
Furniture and fixtures |
|
| 36,447 |
|
|
| 36,446 |
|
Library (online) |
|
| 100,000 |
|
|
| 100,000 |
|
Software |
|
| 1,975,640 |
|
|
| 1,894,215 |
|
|
|
| 2,302,301 |
|
|
| 2,219,432 |
|
Less accumulated depreciation and amortization |
|
| (1,044,098 | ) |
|
| (938,703 | ) |
Total property and equipment, net |
|
| 1,258,203 |
|
|
| 1,280,729 |
|
Courseware, net |
|
| 127,493 |
|
|
| 108,882 |
|
Accounts receivable, secured - related party, net of allowance of $625,963, and $625,963, respectively |
|
| 146,831 |
|
|
| 146,831 |
|
Debt issuance costs, net |
|
| 149,075 |
|
|
| 205,515 |
|
Other assets |
|
| 25,181 |
|
|
| 25,181 |
|
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 4,791,638 |
|
| $ | 3,583,840 |
|
1
ASPEN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
|
| July 31, |
|
| April 30, |
| ||
|
| 2014 |
|
| 2014 |
| ||
|
| (Unaudited) |
|
|
|
| ||
Liabilities and Stockholders' Deficiency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 536,659 |
|
| $ | 454,783 |
|
Accrued expenses |
|
| 170,205 |
|
|
| 143,975 |
|
Deferred revenue |
|
| 624,152 |
|
|
| 653,518 |
|
Refunds Due Students |
|
| 356,720 |
|
|
| 288,121 |
|
Loan payable to stockholder |
|
| 491 |
|
|
| 491 |
|
Deferred rent, current portion |
|
| 14,519 |
|
|
| 13,699 |
|
Convertible notes payable, current portion |
|
| 175,000 |
|
|
| 175,000 |
|
Debenture payable, net of discounts of $328,428 and $452,771 |
|
| 1,911,572 |
|
|
| 1,787,229 |
|
Total current liabilities |
|
| 3,789,318 |
|
|
| 3,516,816 |
|
|
|
|
|
|
|
|
|
|
Line of credit |
|
| 244,028 |
|
|
| 244,175 |
|
Loan payable officer - related party |
|
| 1,000,000 |
|
|
| 1,000,000 |
|
Convertible notes payable - related party |
|
| 600,000 |
|
|
| 600,000 |
|
Deferred rent |
|
| 3,752 |
|
|
| 7,751 |
|
Total liabilities |
|
| 5,637,098 |
|
|
| 5,368,742 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies - See Note 8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficiency: |
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 120,000,000 shares authorized, |
|
|
|
|
|
|
|
|
73,414,478 issued and 73,214,478 outstanding at April 30,2014 |
|
|
|
|
|
|
|
|
88,203,020 issued and 88,003,020 outstanding at July 31, 2014 |
|
| 88,203 |
|
|
| 73,414 |
|
Additional paid-in capital |
|
| 18,091,032 |
|
|
| 16,302,118 |
|
Treasury stock (200,000 shares) |
|
| (70,000 | ) |
|
| (70,000 | ) |
Accumulated deficit |
|
| (18,954,695 | ) |
|
| (18,090,434 | ) |
Total stockholders' deficiency |
|
| (845,460 | ) |
|
| (1,784,902 | ) |
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' deficiency |
| $ | 4,791,638 |
|
| $ | 3,583,840 |
|
The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements.
2
ASPEN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
| For the Three Months Ended |
| |||||
|
| July 31, |
| |||||
|
| 2014 |
|
| 2013 |
| ||
|
|
|
|
| (See Note 2) |
| ||
Revenues |
| $ | 1,169,860 |
|
| $ | 901,199 |
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization shown separately below) |
|
| 449,098 |
|
|
| 455,759 |
|
General and administrative |
|
| 1,200,216 |
|
|
| 1,476,767 |
|
Depreciation and amortization |
|
| 125,607 |
|
|
| 109,435 |
|
Total operating expenses |
|
| 1,774,921 |
|
|
| 2,041,961 |
|
|
|
|
|
|
|
|
|
|
Operating loss from continuing operations |
|
| (605,061 | ) |
|
| (1,140,762 | ) |
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
Interest income |
|
| 1,671 |
|
|
| 289 |
|
Interest expense |
|
| (260,871 | ) |
|
| (16,160 | ) |
Total other expense, net |
|
| (259,200 | ) |
|
| (15,871 | ) |
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes |
|
| (864,261 | ) |
|
| (1,156,633 | ) |
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) |
|
| |
|
|
| |
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
| (864,261 | ) |
|
| (1,156,633 | ) |
|
|
|
|
|
|
|
|
|
Discontinued operations (Note 1) |
|
|
|
|
|
|
|
|
Income from discontinued operations, net of income taxes |
|
| |
|
|
| 22,263 |
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (864,261 | ) |
| $ | (1,134,370 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share from continuing operations - basic and diluted |
| $ | (0.01 | ) |
| $ | (0.02 | ) |
Income per share from discontinued operations - basic and diluted |
| $ | |
|
| $ | 0.00 |
|
Net loss per share allocable to common stockholders - basic and diluted |
| $ | (0.01 | ) |
| $ | (0.02 | ) |
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
basic and diluted |
|
| 73,818,014 |
|
|
| 58,527,790 |
|
The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements.
3
ASPEN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS DEFICIENCY
FOR THE THREE MONTHS ENDED JULY 31, 2014
(Unaudited)
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
|
| ||||||
|
| Common Stock |
|
| Paid-In |
|
| Treasury |
|
| Accumulated |
|
| Stockholders' |
| |||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Stock |
|
| Deficit |
|
| (Deficiency) |
| ||||||
Balance at April 30, 2014 |
|
| 73,414,478 |
|
| $ | 73,414 |
|
| $ | 16,302,118 |
|
| $ | (70,000 | ) |
| $ | (18,090,434 | ) |
| $ | (1,784,902 | ) |
Issuance of common shares for cash |
|
| 11,315,283 |
|
|
| 11,316 |
|
|
| 1,770,184 |
|
|
| |
|
|
| |
|
|
| 1,781,500 |
|
Offering cost for professional services from private placement |
|
| |
|
|
| |
|
|
| (75,000 | ) |
|
| |
|
|
| |
|
|
| (75,000 | ) |
Stock-based compensation |
|
| |
|
|
| |
|
|
| 97,203 |
|
|
| |
|
|
| |
|
|
| 97,203 |
|
Shares issued for price protection |
|
| 3,473,259 |
|
|
| 3,473 |
|
|
| (3,473 | ) |
|
| |
|
|
| |
|
|
| |
|
Net loss, three months ended July 31, 2014 |
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| (864,261 | ) |
|
| (864,261 | ) |
Balance at July 31, 2014 |
|
| 88,203,020 |
|
| $ | 88,203 |
|
| $ | 18,091,032 |
|
| $ | (70,000 | ) |
| $ | (18,954,695 | ) |
| $ | (845,460 | ) |
The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements.
4
ASPEN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
| For the |
| |||||
|
| Three Months Ended July 31, |
| |||||
|
| 2014 |
|
| 2013 |
| ||
|
|
|
|
| (See Note 2) |
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net loss |
| $ | (864,261 | ) |
| $ | (1,134,370 | ) |
Less income from discontinued operations |
|
| |
|
|
| 22,263 |
|
Loss from continuing operations |
|
| (864,261 | ) |
|
| (1,156,633 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Bad debt expense |
|
| 105,511 |
|
|
| 13,837 |
|
Amortization of debt issuance costs |
|
| 56,440 |
|
|
| |
|
Amortization of debt discount |
|
| 124,343 |
|
|
| |
|
Depreciation and amortization |
|
| 125,607 |
|
|
| 109,435 |
|
Stock-based compensation |
|
| 97,203 |
|
|
| 149,356 |
|
Amortization of prepaid shares for services |
|
| |
|
|
| 25,060 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (127,344 | ) |
|
| (142,635 | ) |
Prepaid expenses |
|
| (47,367 | ) |
|
| 6,345 |
|
Accounts payable |
|
| 81,876 |
|
|
| 118,450 |
|
Accrued expenses |
|
| 26,231 |
|
|
| (2,107 | ) |
Deferred rent |
|
| (3,179 | ) |
|
| (2,359 | ) |
Refunds due students |
|
| 68,599 |
|
|
| (32,086 | ) |
Deferred revenue |
|
| (29,366 | ) |
|
| (99,931 | ) |
Net cash used in operating activities |
|
| (385,707 | ) |
|
| (1,013,268 | ) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
| (82,869 | ) |
|
| (104,385 | ) |
Purchases of courseware |
|
| (38,823 | ) |
|
| (500 | ) |
Increase in restricted cash |
|
| (29,927 | ) |
|
| (137 | ) |
Net cash used in investing activities |
|
| (151,619 | ) |
|
| (105,022 | ) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from (repayments on) line of credit, net |
|
| (147 | ) |
|
| (4,518 | ) |
Proceeds from issuance of common shares and warrants, net |
|
| 1,781,500 |
|
|
| 1,000,000 |
|
Offering costs associated with private placement |
|
| (75,000 | ) |
|
| (48,240 | ) |
Net cash provided by financing activities |
|
| 1,706,353 |
|
|
| 947,242 |
|
|
|
|
|
|
|
|
|
|
Cash flows from discontinued operations: |
|
|
|
|
|
|
|
|
Cash flows from operating activities |
|
| |
|
|
| 87,075 |
|
Net cash provided by discontinued operations |
|
| |
|
|
| 87,075 |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
| 1,169,027 |
|
|
| (83,973 | ) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
| 247,380 |
|
|
| 724,982 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
| $ | 1,416,407 |
|
| $ | 641,009 |
|
(Continued)
5
ASPEN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
|
| For the |
| |||||
|
| Three Months Ended July 31, |
| |||||
|
| 2014 |
|
| 2013 |
| ||
|
|
|
|
|
|
| ||
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | 70,307 |
|
| $ | 11,158 |
|
Cash paid for income taxes |
| $ | |
|
| $ | |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing activities |
|
|
|
|
|
|
|
|
Common stock issued for prepaid services |
| $ | |
|
| $ | 216,000 |
|
The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements.
6
ASPEN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2014
(Unaudited)
Note 1. Nature of Operations and Liquidity
Overview
Aspen Group, Inc. (together with its subsidiary, the Company or Aspen) was founded in Colorado in 1987 as the International School of Information Management. On September 30, 2004, it was acquired by Higher Education Management Group, Inc. (HEMG) and changed its name to Aspen University Inc. On March 13, 2012, the Company was recapitalized in a reverse merger. All references to the Company or Aspen before March 13, 2012 are to Aspen University Inc.
On April 5, 2013, the Company gave 120-day notice to CLS 123, LLC of its intent to terminate the agreement between the Company and CLS 123, LLC dated November 9, 2011. Moreover, at the end of the 120-day period, the Company is no longer offering the Certificate in Information Technology with a specialization in Smart Home Integration program. Accordingly, the activities related to CLS (or the Smart Home Integration Certificate program) are treated as discontinued operations. As this component of the business was not sold, there was no gain or loss on the disposition of this component (see below Discontinued Operations).
On April 25, 2013, our Board of Directors approved a change in our fiscal year-end from December 31 to April 30, with the change to the calendar year reporting cycle beginning May 1, 2013. Consequently, we filed a Transition Report on Form 10-KT for the four-month transition period ended April 30, 2013.
Aspen Universitys mission is to offer any motivated college-worthy student the opportunity to receive a high quality, responsibly priced distance-learning education for the purpose of achieving sustainable economic and social benefits for themselves and their families. One of the key differences between Aspen and other publicly-traded, exclusively online, for-profit universities is that approximately 87% of our full-time degree-seeking students (as of July 31, 2014) were enrolled in graduate degree programs (Master or Doctorate degree program). Since 1993, we have been nationally accredited by the Distance Education and Training Council (DETC), a national accrediting agency recognized by the U.S. Department of Education (the DOE).
Basis of Presentation
A. Interim Financial Statements
The interim consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). In the opinion of the Companys management, all adjustments (consisting of normal recurring adjustments and reclassifications and non-recurring adjustments) necessary to present fairly our results of operations for the three months ended July 31, 2014 and 2013, our cash flows for the three months ended July 31, 2014 and 2013, and our financial position as of July 31, 2014 have been made. The results of operations for such interim periods are not necessarily indicative of the operating results to be expected for the full year.
Certain information and disclosures normally included in the notes to the annual consolidated financial statements have been condensed or omitted from these interim consolidated financial statements. Accordingly, these interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Report on Form 10-K for the period ended April 30, 2014 as filed with the SEC on July 29, 2014. The April 30, 2014 balance sheet is derived from those statements.
7
ASPEN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
July 31, 2014
(Unaudited)
B. Discontinued Operations
As of March 31, 2013, the Company decided to discontinue business activities related to its Certificate in Information Technology with a specialization in Smart Home Integration program so that it may focus on growing its full-time, degree-seeking student programs, which have higher gross margins. On April 5, 2013, the Company gave 120-day notice to CLS 123, LLC of its intent to terminate the agreement between the Company and CLS 123, LLC dated November 9, 2011. Thus, as of August 3, 2013, the Company is no longer offering the Certificate in Information Technology with a specialization in Smart Home Integration program. The termination of the Smart Home Integration Certificate program qualifies as a discontinued operation and accordingly the Company has excluded results for this component from its continuing operations in the consolidated statements of operations for all periods presented. The following table shows the results of the Smart Home Integration Certificate program component included in the income (loss) from discontinued operations:
|
| For the Three Months Ended |
| |||||
|
| July 31, |
| |||||
|
| 2014 |
|
| 2013 |
| ||
|
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Revenues |
| $ | |
|
| $ | 222,625 |
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
Instructional costs and services |
|
| |
|
|
| 200,362 |
|
Total costs and expenses |
|
| |
|
|
| 200,362 |
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of income taxes |
| $ | |
|
| $ | 22,263 |
|
The major classes of assets and liabilities of discontinued operations on the balance sheet are as follows:
|
| July 31, |
|
| April 30, |
| ||
|
| 2014 |
|
| 2014 |
| ||
Assets |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | |
|
| $ | |
|
Accounts receivable, net of allowance of $481,351, and $481,531, respectively |
|
| 5,250 |
|
|
| 5,250 |
|
Other current assets |
|
| |
|
|
| |
|
Net assets from discontinued operations |
| $ | 5,250 |
|
| $ | 5,250 |
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | |
|
| $ | |
|
Accrued expenses |
|
| |
|
|
| |
|
Deferred revenue |
|
| |
|
|
| |
|
Net liabilities from discontinued operations |
| $ | |
|
| $ | |
|
C. Liquidity
At July 31, 2014, the Company had a cash balance of approximately $2.3 million which includes $898,225 of restricted cash. In September 2014, the company completed the second closing of its equity financing of $3,766,325. With the additional cash raised in the financing, the growth in the company revenues and improving operating margins, the Company believes that it has sufficient cash to allow the Company to implement its long-term business plan.
8
ASPEN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
July 31, 2014
(Unaudited)
Note 2. Significant Accounting Policies
Principles of Consolidation
The unaudited consolidated financial statements include the accounts of Aspen Group, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the unaudited consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts in the unaudited consolidated financial statements. Actual results could differ from those estimates. Significant estimates in the accompanying unaudited consolidated financial statements include the allowance for doubtful accounts and other receivables, the valuation of collateral on certain receivables, amortization periods and valuation of courseware and software development costs, valuation of beneficial conversion features in convertible debt, valuation of stock-based compensation, the valuation of net assets and liabilities from discontinued operations and the valuation allowance on deferred tax assets.
Restricted Cash
Restricted cash represents amounts pledged as security for letters of credit for transactions involving Title IV programs, as well as funds held in escrow. The company considers $898,225 and $868,298 as restricted cash (shown as a current asset as of July 31, 2014 and April 30, 2014 respectively).
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 1Observable inputs that reflect quoted market prices (unadjusted) for identical assets and liabilities in active markets;
Level 2Observable 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 3Unobservable inputs that are supported by little or no market activity that are significant to the fair value of assets or liabilities.
The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
Refunds Due Students
The Company receives Title IV funds from the Department of Education to cover tuition and living expenses. Until forwarded to the student, this amount is captured in a current liability account called Refunds Due Students. Typically, the funds are paid to the students within two weeks.
9
ASPEN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
July 31, 2014
(Unaudited)
Revenue Recognition and Deferred Revenue
Revenues consist primarily of tuition and fees derived from courses taught by the Company online as well as from related educational resources that the Company provides to its students, such as access to our online materials and learning management system. Tuition revenue is recognized pro-rata over the applicable period of instruction. The Company allows a student to make three monthly tuition payments during each 10-week class. The Company maintains an institutional tuition refund policy, which provides for all or a portion of tuition to be refunded if a student withdraws during stated refund periods. Certain states in which students reside impose separate, mandatory refund policies, which override the Companys 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 Companys accounting policies revenue is not recognized with respect to amounts that could potentially be refunded. The Companys 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.
Net Loss Per Share
Net loss per common share is based on the weighted average number of common shares outstanding during each period. Options to purchase 10,686,412 and 9,110,592 common shares, warrants to purchase 31,858,524 and 9,090,292 common shares, and $775,000 and $800,000 of convertible debt (convertible into 1,314,732 and 1,357,143 common shares, respectively) were outstanding during the three months ended July 31, 2014 and 2013, respectively, but were not included in the computation of diluted loss per share because the effects would have been anti-dilutive. The options, warrants and convertible debt are considered to be common stock equivalents and are only included in the calculation of diluted earnings per common share when their effect is dilutive.
Reclassifications
The Company discovered that its system did not properly update all student withdrawals on the reports that were used to defer revenue. The effect of this was that revenue for the quarter ended July 31, 2013 was overstated by $28,794 and deferred revenue understated by the same amount. This system problem was corrected during the second quarter of the fiscal year ended April 30, 2014 and was not an issue at July 31, 2014. The company evaluated SEC Staff Accounting Bulletin #108, and applied a dual method to evaluate if the adjustment was material. Under the dual method, both a rollover method and an iron curtain method were applied. In both methods, the adjustment was not material to the comparative three month period ended July 31, 2013. As a result, the following reclassification was made for the quarter ended July 31, 2013:
Revenue as |
|
|
|
|
| Revenue as |
Originally Reported |
|
| Adjustment |
|
| Adjusted |
|
|
|
|
|
|
|
$929,993 |
|
| $28,794 |
|
| $901,199 |
Additionally, the statement of cash flows for the three months ended July 31, 2013 was adjusted to conform to the income statement presentation by increasing the net loss and deferred revenue.
10
ASPEN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
July 31, 2014
(Unaudited)
The Company reclassified $103,711, from Cost of Revenues to General and Administrative, both within Operating Expenses for the three months ending July 31, 2013, to conform to the current period presentation.
|
| For the 3 Months ended July 31, 2013 |
| |||||||||||||||||||||
|
| Reclassifications |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
| Dues, |
|
| Internet |
|
|
|
|
|
|
|
|
|
| ||||||
|
| As Previously |
|
| Fees, & |
|
| Related |
|
| Marketing |
|
| Library |
|
| As |
| ||||||
|
| Reported |
|
| Licenses |
|
| Expense |
|
| Fees |
|
| Services |
|
| Reclassified |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Instructional |
|
| 224,381 |
|
|
| (30,335 | ) |
|
| (31,576 | ) |
|
|
|
|
| 200 |
|
|
| 162,670 |
| |
Marketing |
|
| 335,089 |
|
|
|
|
|
|
|
|
|
|
| (42,000 | ) |
|
|
|
|
|
| 293,089 |
|
Cost of Revenues |
| $ | 559,470 |
|
|
| (30,335 | ) |
|
| (31,576 | ) |
|
| (42,000 | ) |
|
| 200 |
|
| $ | 455,759 |
|
General and administrative |
|
| 1,373,056 |
|
|
| 30,335 |
|
|
| 31,576 |
|
|
| 42,000 |
|
|
| (200 | ) |
|
| 1,476,767 |
|
Depreciation and amortization |
|
| 109,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 109,435 |
|
Total Operating Expenses |
| $ | 2,041,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 2,041,961 |
|
Recent Accounting Pronouncements
We have implemented all new accounting standards that are in effect and that may impact our unaudited consolidated financial statements and do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our consolidated financial position or results of operations.
11
ASPEN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
July 31, 2014
(Unaudited)
Note 3. Secured Note and Accounts Receivable Related Parties
On March 30, 2008 and December 1, 2008, the Company sold courseware pursuant to marketing agreements to HEMG, a related party and principal stockholder of the Company whose president is Mr. Patrick Spada, the former Chairman of the Company, in the amount of $455,000 and $600,000, respectively; UCC filings were filed accordingly. Under the marketing agreements, the receivables are due net 60 months. On September 16, 2011, HEMG pledged 772,793 Series C preferred shares (automatically converted to 654,850 common shares on March 13, 2012) of the Company as collateral for this account receivable. On March 8, 2012, due to the impending reduction in the value of the collateral as the result of the Series C conversion ratio and the Companys inability to engage Mr. Spada in good faith negotiations to increase HEMGs pledge, Michael Mathews, the Companys CEO, pledged 117,943 common shares of the Company, owned personally by him, valued at $1.00 per share based on recent sales of capital stock as additional collateral to the accounts receivable, secured related party. On March 13, 2012, the Company deemed the receivables stemming from the sale of courseware curricula to be in default. On April 4, 2012, the Company entered into an agreement with: (i) an individual, (ii) HEMG, a related party and principal stockholder of the Company whose president is Mr. Patrick Spada, the former Chairman of the Company and (iii) Mr. Patrick Spada. Under the agreement, (a) the individual purchased and HEMG sold to the individual 400,000 common shares of the Company at $0.50 per share; (b) the Company guaranteed it would purchase at least 600,000 common shares of the Company at $0.50 per share within 90 days of the agreement and the Company would use its best efforts to purchase from HEMG and resell to investors an additional 1,400,000 common shares of the Company at $0.50 per share within 180 days of the agreement; (c) provided HEMG and Mr. Patrick Spada fulfilled their obligations under (a) and (b) above, the Company shall consent to additional private transfers by HEMG and/or Mr. Patrick Spada of up to 500,000 common shares of the Company on or before March 13, 2013; (d) HEMG agreed to not sell, pledge or otherwise transfer 142,500 common shares of the Company pending resolution of a dispute regarding the Companys claim that HEMG sold 131,500 common shares of the Company without having enough authorized shares and a stockholder did not receive 11,000 common shares of the Company owed to him as a result of a stock dividend; and (e) the Company waived any default of the accounts receivable, secured - related party and extend the due date to September 30, 2014. However, the Company has elected to show as long term due to the expectation that no collection will occur within 1 year. As of September 30, 2012, third party investors purchased 336,000 shares for $168,000 and the Company purchased 264,000 shares for $132,000 per section (b) above. Based on proceeds received on September 28, 2012 under a private placement at $0.35 per unit (consisting of one share of common stock and one-half of a warrant exercisable at $0.50 per share), the value of the aforementioned collateral decreased. Accordingly, as of December 31, 2012, the Company recognized an allowance of $502,315 for this account receivable. Based on the reduction in value of the collateral to $0.19, the Company recognized an expense of $123,647 during the year ended April 30, 2014. As of both April 30, and July 31, 2014, the balance of the account receivable, net of allowance, was $146,831.
Note 4. Property and Equipment
Property and equipment consisted of the following at July 31, 2014 and April 30, 2014:
|
| July 31, |
|
| April 30, |
| ||
|
| 2014 |
|
| 2014 |
| ||
Call center hardware |
| $ | 122,653 |
|
| $ | 122,653 |
|
Computer and office equipment |
|
| 67,561 |
|
|
| 66,118 |
|
Furniture and fixtures |
|
| 36,447 |
|
|
| 36,446 |
|
Library (online) |
|
| 100,000 |
|
|
| 100,000 |
|
Software |
|
| 1,975,640 |
|
|
| 1,894,215 |
|
|
|
| 2,302,301 |
|
|
| 2,219,432 |
|
Accumulated depreciation and amortization |
|
| (1,044,098 | ) |
|
| (938,703 | ) |
Property and equipment, net |
| $ | 1,258,203 |
|
| $ | 1,280,729 |
|
Depreciation and amortization expense for the three months ended July 31, 2014 and 2013 were $105,395 and $78,694, respectively.
12
ASPEN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
July 31, 2014
(Unaudited)
Amortization expense for software, included in the above amounts, for the three months ended July 31, 2014, and 2013 was $95,977 and $71,920, respectively. Software consisted of the following at July 31, 2014 and April 30, 2014:
|
| July 31, |
|
| April 30, |
| ||
|
| 2014 |
|
| 2014 |
| ||
Software |
| $ | 1,975,640 |
|
| $ | 1,894,215 |
|
Accumulated amortization |
|
| (816,801 | ) |
|
| (720,823 | ) |
Software, net |
| $ | 1,158,839 |
|
| $ | 1,173,392 |
|
The following is a schedule of estimated future amortization expense of software at July 31, 2014:
Year Ending April 30, |
|
|
| |
2015 |
| $ | 296,346 |
|
2016 |
|
| 394,282 |
|
2017 |
|
| 271,550 |
|
2018 |
|
| 138,515 |
|
2019 |
|
| 58,146 |
|
Total |
| $ | 1,158,839 |
|
Note 5. Courseware
Courseware costs capitalized were $38,823 for the three months ended July 31, 2014.
Courseware consisted of the following at July 31, 2014 and April 30, 2014:
|
| July 31, |
|
| April 30, |
| ||
|
| 2014 |
|
| 2014 |
| ||
Courseware |
| $ | 2,142,861 |
|
| $ | 2,104,038 |
|
Accumulated amortization |
|
| (2,015,368 | ) |
|
| (1,995,156 | ) |
Courseware, net |
| $ | 127,493 |
|
| $ | 108,882 |
|
Amortization expense of courseware for the three months ended July 31, 2014 and 2013 was $20,212, and $30,471, respectively.
The following is a schedule of estimated future amortization expense of courseware at July 31, 2014:
Year Ending April 30, |
|
|
| |
2015 |
| $ | 51,978 |
|
2016 |
|
| 36,795 |
|
2017 |
|
| 18,161 |
|
2018 |
|
| 10,072 |
|
2019 |
|
| 10,487 |
|
Total |
| $ | 127,493 |
|
Note 6. Loan Payable Officers Related Party
On June 28, 2013, the Company received $1,000,000 as a loan from the Chief Executive Officer. This loan is for a term of 6 months with an annual interest rate of 10%, payable monthly. On September 25, 2013, as a term of the convertible debenture issued as discussed in Note 7, the maturity of the debt to the CEO has been extended to April 2, 2015. On July 16, 2014, the maturity of the debt to the CEO was extended to January 1, 2016.
13
ASPEN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
July 31, 2014
(Unaudited)
Note 7. Convertible Notes and Debenture Payable
On February 25, 2012, February 27, 2012 and February 29, 2012, loans payable of $100,000, $50,000 and $50,000, respectively, were converted into two-year convertible promissory notes, bearing interest of 0.19% per annum. Beginning March 31, 2012, the notes are convertible into common shares of the Company at the rate of $1.00 per share. The Company evaluated the convertible notes and determined that, for the embedded conversion option, there was no beneficial conversion value to record as the conversion price is considered to be the fair market value of the common shares on the note issue dates. These loans (now convertible promissory notes) were originally due in February 2014, and have been included in current liabilities as of July 31, 2014 and April 30, 2014. Two of the above mentioned notes were modified in February 2014, see below and one is currently in default.
On February 18, 2014 the Company renegotiated the terms of one of the $50,000 convertible notes, specifically the one dated February 27, 2012. The maturity date was extended to December 1, 2014 and the conversion price has been reduced to $0.19 per share. The interest rate has been amended to 3.25% from February 27, 2012. This was treated as a note extinguishment in accordance with ASC 470-50. No gain or loss on extinguishment was recorded and no beneficial conversion feature existed on the modification date.
On February 28, 2014 the Company renegotiated the terms of the $100,000 convertible note dated February 25, 2012. A payment was made in the amount of $25,000 on February 28, 2014, reducing the principal to $75,000. Another principal payment of $25,000 was made on August 1, 2014 and $50,000 will be made on December 1, 2014. The interest rate was raised to 3.25% from February 25, 2012. The conversion price was reduced to $0.19 per share. This was treated as a note extinguishment in accordance with ASC 470-50. No gain or loss on extinguishment was recorded and no beneficial conversion feature existed on the modification date.
On March 13, 2012, the Companys CEO loaned the Company $300,000 and received a convertible promissory note due March 31, 2013, bearing interest at 0.19% per annum. The note is convertible into common shares of the Company at the rate of $1.00 per share upon five days written notice to the Company. The Company evaluated the convertible note and determined that, for the embedded conversion option, there was no beneficial conversion value to record as the conversion price is considered to be the fair market value of the common shares on the note issue date. On September 4, 2012, the maturity date was extended to August 31, 2013. On December 17, 2012, the maturity date was extended to August 31, 2014. On September 25, 2013, as a term of the convertible Debenture issued as discussed further in this Note, the maturity of the debt to the CEO, has been extended to April 5, 2015. On July 16, 2014, the maturity of the debt to the CEO has been extended to January 1, 2016. There was no accounting effect for these modifications.
On August 14, 2012, the Companys CEO loaned the Company $300,000 and received a convertible promissory note, payable on demand, bearing interest at 5% per annum. The note is convertible into shares of common stock of the Company at a rate of $0.35 per share (based on proceeds received on September 28, 2012 under a private placement at $0.35 per unit). The Company evaluated the convertible notes and determined that, for the embedded conversion option, there was no beneficial conversion value to record as the conversion price is considered to be the fair market value of the shares of common stock on the note issue date. On September 4, 2012, the maturity date was extended to August 31, 2013. On December 17, 2012 the maturity date was extended to August 31, 2013. On September 25, 2013, as a term of the convertible Debenture issued as discussed further in this Note, the maturity of the debt to the CEO has been extended to April 5, 2015. On July 16, 2014, the maturity of the debt to the CEO has been extended to January 1, 2016. There was no accounting effect for these modifications.
14
ASPEN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
July 31, 2014
(Unaudited)
On September 26, 2013, the Company and an institutional investor (the "Institutional Investor") signed a Securities Purchase Agreement (the Agreement) with respect to a loan of $2,240,000 evidenced by an 18 month original issue discount secured convertible debenture (the "Debenture") with gross proceeds of $2,000,000 prior to fees. Payments on the Debenture are due 25% on November 1, 2014, 25% on January 1, 2015 and the remaining 50% on April 1, 2015 as a final payment. The Company has the option to pay the interest or principal in stock subject to certain Equity Conditions such as giving notice of its intent 20 trading days beforehand. The Agreement provides that the Debenture may be converted at the holders option at $0.3325 per share at any time after the closing and subject to adjustments. The Company evaluated that for the embedded conversion option, there was no beneficial conversion value to record as the conversion price was greater than the fair market value of the common shares on the note issue date. Warrants with a relative fair value of $389,565 were issued for 100% of the number of shares of common stock that could be purchased at the conversion price at closing or 6,736,842. The warrants have a five-year term and are exercisable for cash if an outstanding registration statement is in effect within 90 days of closing. The $389,565 is recorded as a debt discount to be amortized over the debt term. The Debenture bears 8% per annum interest and are amortizable in installments over their term. The financing closed on September 26, 2013 and the Company received proceeds of approximately $1.7 million, net of certain offering costs and before payment of various debt issue costs. Offering costs to the lender included an original issue discount of $240,000 and cash loan fees of $117,846. At July 31, 2014, the balance of the Debenture payable was $1,911,572, which is the loan of $2,240,000 less $328,428 of unamortized original issue discount. The Debenture was paid on September 4, 2014. (See Note 11)
In September 2013 Company had entered into an engagement agreement with Laidlaw & Co. ("Laidlaw") to act as placement agent for the offering and receive customary compensation. Laidlaw introduced the Institutional Investor. As a placement agent fee, the Company paid Laidlaw $207,500 and issued 1,347,368 five year warrants with an exercise price of $0.3325, valued at $94,316. The warrants and fees paid plus legal fees of $35,356 were recorded as a debt issue cost asset and are being amortized over the debt term.
Note 8. Commitments and Contingencies
Line of Credit
The Company maintains a line of credit with a bank, up to a maximum credit line of $250,000. The line of credit bears interest equal to the prime rate plus 0.50% (overall interest rate of 3.75% at July 31, 2014). The line of credit requires minimum monthly payments consisting of interest only. The line of credit is secured by all business assets, inventory, equipment, accounts, general intangibles, chattel paper, documents, instruments and letter of credit rights of the Company. The line of credit is for an unspecified time until the bank notifies the Company of the Final Availability Date, at which time payments on the line of credit become the sum of: (a) accrued interest and (b) 1/60th of the unpaid principal balance immediately following the Final Availability Date, which equates to a five-year payment period. The balance due on the line of credit as of July 31, 2014 was $244,028. Since the earliest the line of credit is due and payable is over a five year period and the Company believes that it could obtain a comparable replacement line of credit elsewhere, the entire line of credit is included in long-term liabilities. The unused amount under the line of credit available to the Company at July 31, 2014 was $5,972.
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 July 31, 2014, 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 July 31, 2014, there were no other pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations and there are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
15
ASPEN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
July 31, 2014
(Unaudited)
On February 11, 2013, HEMG and Mr. Spada sued the Company, certain senior management members and our directors in state court in New York seeking damages arising principally from (i) allegedly false and misleading statements in the filings with the SEC and the DOE where the Company disclosed that HEMG and Mr. Spada borrowed $2.2 million without board authority, (ii) the alleged breach of an April 2012 agreement whereby the Company had agreed, subject to numerous conditions and time limitations, to purchase certain shares of the Company from HEMG, and (iii) alleged diminution to the value of HEMGs shares of the Company due to Mr. Spadas disagreement with certain business transactions the Company engaged in, all with Board approval. On November 8, 2013, the state court in New York granted the Companys motion to dismiss all of the derivative claims and all of the fiduciary duty claims. The state court in New York also granted the Companys motion to dismiss the duplicative breach of good faith and fair dealing claim, as well as the defamation claim. The state court in New York denied the Companys motion to dismiss as to the defamation per se claim. On December 10, 2013, the Company filed a series of counterclaims against HEMG and Mr. Spada in state court of New York. Discovery is currently being pursued by the parties. By decision and order dated August 4, 2014, the New York court denied HEMG and Spadas motion to dismiss the fraud counterclaim the Company asserted against them. The New York court dismissed the Companys related money had and received, money lent and unjust enrichment claims as being duplicative of the fraud claim. HEMG and Spada have filed a notice of appeal of the New York courts decision.
On November 21, 2013, HEMG and Mr. Spada filed a derivative suit on behalf of the Company against certain former senior management member and our directors in state court in Delaware. The Company is a nominal defendant. The complaint is substantially similar to the complaint filed in state court of New York, except that if successful, the Company will receive the benefits. On February 28, 2014, the Company filed a motion to dismiss the complaint. In July 2014, the court heard oral argument and reserved decision.
While the Company has been advised by its counsel that these lawsuits are baseless, the Company cannot provide any assurance as to the ultimate outcome of the cases. Defending the lawsuits will be expensive and will require the expenditure of time which could otherwise be spent on the Companys business. While unlikely, if Mr. Spadas and HEMGs claims in the New York litigation were to be successful, the damages the Company could pay could potentially be material.
Regulatory Matters
The Companys subsidiary, Aspen University Inc. (Aspen University), is 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 Aspen University 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. Aspen University has had provisional certification to participate in the Title IV programs. That provisional certification imposes certain regulatory restrictions including, but not limited to, a limit of 1,200 student recipients for Title IV funding for the duration of the provisional certification. The provisional certification restrictions continue with regard to Aspen Universitys participation in Title IV programs.
To participate in the Title IV programs, an institution must be authorized to offer its programs of instruction by the relevant agencies of the State in which it is located, and since July 2011, potentially in the States where an institution offers postsecondary education through distance education. In addition, an institution must be accredited by an accrediting agency recognized by the DOE and certified as eligible by the DOE. The DOE will certify an institution to participate in the Title IV programs only after the institution has demonstrated compliance with the HEA and the DOEs extensive academic, administrative, and financial regulations regarding institutional eligibility and certification. An institution must also demonstrate its compliance with these requirements to the DOE on an ongoing basis. Aspen University performs periodic reviews of its compliance with the various applicable regulatory requirements. As Title IV funds received in fiscal 2013 represented approximately 26% of the Company's cash revenues (including revenues from discontinued operations), as calculated in accordance with Department of Education guidelines, the loss of Title IV funding would have a material effect on the Company's future financial performance.
16
ASPEN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
July 31, 2014
(Unaudited)
On March 27, 2012 and on August 31, 2012, Aspen University provided the DOE with letters of credit for which the due date was extended to December 31, 2013. On January 30, 2014, the DOE provided Aspen University with an option to become permanently certified by increasing the letter of credit to 50% of all Title IV funds received in the last program year, equaling $1,696,445, or to remain provisionally certified by increasing the 25% letter of credit to $848,225. Aspen informed the DOE of its desire to remain provisionally certified and posted the $848,225 letter of credit by the DOE on April 14, 2014. The DOE may impose additional or different terms and conditions in any final provisional program participation agreement that it may issue (See Note 2 Restricted Cash).
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 operates 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.
Return of Title IV Funds
An institution participating in Title IV programs must correctly calculate the amount of unearned Title IV program funds that have been disbursed to students who withdraw from their educational programs before completion and must return those unearned funds in a timely manner, no later than 45 days of the date the school determines that the student has withdrawn. Under Department regulations, failure to make timely returns of Title IV program funds for 5% or more of students sampled on the institution's annual compliance audit in either of its two most recently completed fiscal years can result in the institution having to post a letter of credit in an amount equal to 25% of its required Title IV returns during its most recently completed fiscal year. If unearned funds are not properly calculated and returned in a timely manner, an institution is also subject to monetary liabilities or an action to impose a fine or to limit, suspend or terminate its participation in Title IV programs.
Subsequent to a program review by the Department of Education, the Company recognized that it had not fully complied with all requirements for calculating and making timely returns of Title IV funds (R2T4). In November 2013, the Company returned a total of $102,810 of Title IV funds to the Department of Education.
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. On July 3, 2012, Aspen University received notice from the Delaware DOE that it is granted provisional approval status effective until June 30, 2015. Aspen University is authorized by the Colorado Commission on Education to operate in Colorado as a degree granting institution.
Letter of Credit
The Company maintains a letter of credit under a DOE requirement (See Note 2 Restricted Cash).
Note 9. Stockholders Deficiency
Common Stock
On June 4, 2014, a member of the Board of Directors invested $50,000 in exchange for 263,158 shares of common stock and 263,158 warrants at $0.19 per share. On June 24, 2014, a member of the Board of Directors and the Companys CEO each invested $50,000 in exchange for 263,158 shares of common stock and 263,158 warrants at $0.19 per share.
17
ASPEN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
July 31, 2014
(Unaudited)
On July 29, 2014, as part of a private placement offering, seven accredited investors, including the Companys CFO, paid a total of $1,631,500 in exchange for 10,525,809 shares of common stock and 5,262,907 five-year warrants exercisable at $0.19 per share. Aspen incurred $75,000 of expenses relating to this offering. As a result of this private placement, on July 31, 2014, Aspen issued 3,473,259 shares of common stock to prior investors who had price protection on their investments, issued 2,662,139 warrants to a prior investor who had price protection on their investment, and reduced the exercise and conversion price on 14,451,613 outstanding warrants and its outstanding Debenture to $0.155.
Warrants
A summary of the Companys warrant activity during the three months ended July 31, 2014 is presented below:
|
|
|
|
|
|
|
| Weighted |
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|
|
| ||||
|
|
|
|
| Weighted |
|
| Average |
|
|
|
| ||||
|
|
|
|
| Average |
|
| Remaining |
|
| Aggregate |
| ||||
|
| Number of |
|
| Exercise |
|
| Contractual |
|
| Intrinsic |
| ||||
Warrants |
| Shares |
|
| Price |
|
| Term |
|
| Value |
| ||||
Balance Outstanding, April 30, 2014 |
|
| 23,144,005 |
|
| $ | 0.31 |
|
|
|
|
|
|
| ||
Granted |
|
| 8,714,519 |
|
|
| 0.19 |
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|
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|
| ||
Exercised |
|
| |
|
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|
|
|
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| ||
Forfeited |
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| |
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|
|
| ||
Expired |
|
| |
|
|
|
|
|
|
|
|
|
|
| ||
Balance Outstanding, July 31, 2014 |
|
| 31,858,524 |
|
| $ | 0.27 |
|
|
| 4.9 |
|
| $ | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, July 31, 2014 |
|
| 31,858,524 |
|
| $ | 0.27 |
|
|
| 4.9 |
|
| $ | |
|
On June 4, 2014, a member of the Board of Directors invested $50,000 in exchange for 263,158 shares of common stock and 263,158 warrants at $0.19 per share. On June 24, 2014, a member of the Board of Directors and the Companys CEO each invested $50,000 in exchange for 263,158 shares of common stock and 263,158 warrants at $0.19 per share.
On July 29, 2014, as part of a private placement offering seven accredited investors, including the Companys CFO, paid a total of $1,631,500 from the sale of 10,525,809 shares of common stock and 5,262,907 five-year warrants exercisable at $0.19 per share. As a result of this private placement, on July 31, 2014, Aspen issued 3,473,259 shares of common stock to prior investors who had price protection on their investments, issued 2,662,139 warrants to a prior investor who had price protection on their investment and reduced the exercise and conversion price on 14,451,613 outstanding warrants and its outstanding Debenture to $0.155.
Certain of the Companys warrants contain price protection. The Company evaluated whether the price protection provision of the warrant would cause derivative treatment. In its assessment, the Company determined that since its shares are not readily convertible to cash due to an inactive trading market, through July 31, 2014 the warrants are excluded from derivative treatment.
Stock Incentive Plan and Stock Option Grants to Employees and Directors
Immediately following the closing of the Reverse Merger, on March 13, 2012, the Company adopted the 2012 Equity Incentive Plan (the Plan) that provides for the grant of 9,300,000 shares, and 14,300,000 effective July 2014, in the form of incentive stock options, non-qualified stock options, restricted shares, stock appreciation rights and restricted stock units to employees, consultants, officers and directors. As of July 31, 2014, there were 613,588 shares remaining under the Plan for future issuance.
18
ASPEN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
July 31, 2014
(Unaudited)
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 Companys 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.
A summary of the Companys stock option activity for employees and directors during the quarter ended July 31, 2014 is presented below:
|
|
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|
|
| Weighted |
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|
|
| ||||
|
|
|
|
| Weighted |
|
| Average |
|
|
|
| ||||
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|
|
|
| Average |
|
| Remaining |
|
| Aggregate |
| ||||
|
| Number of |
|
| Exercise |
|
| Contractual |
|
| Intrinsic |
| ||||
Options |
| Shares |
|
| Price |
|
| Term |
|
| Value |
| ||||
Balance Outstanding, April 30, 2014 |
|
| 10,476,412 |
|
| $ | 0.35 |
|
|
|
|
|
|
| ||
Granted |
|
| |
|
|
|
|
|
|
|
|
|
|
| ||
Exercised |
|
| |
|
|
|
|
|
|
|
|
|
|
| ||
Forfeited |
|
| (10,000 | ) |
|
|
|
|
|
|
|
|
|
| ||
Expired |
|
| |
|
|
|
|
|
|
|
|
|
|
| ||
Balance Outstanding, July 31, 2014 |
|
| 10,466,412 |
|
| $ | 0.23 |
|
|
| 3.5 |
|
| $ | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, July 31, 2014 |
|
| 5,082,712 |
|
| $ | 0.27 |
|
|
| 3.4 |
|
| $ | |
|
There were no stock options granted to employees during the three months ended July 31, 2014. The Company recorded compensation expense of $96,455 for the three months ended July 31, 2014 in connection with employee stock options. $148,608 was recorded during the same period in 2013.
As of July 31, 2014, there was $622,536 of total unrecognized compensation costs related to nonvested share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of 4 years.
Stock Option Grants to Non-Employees
There were no stock options granted to non-employees during the three months ended July 31, 2014. The Company recorded compensation expense of $748 for the three months ended July 31, 2014 in connection with non-employee stock options. $748 was recorded during the same period in 2013. There was no unrecognized compensation cost at July 31, 2014.
A summary of the Company's stock option activity for non-employees during the three months ended July 31, 2014 is presented below:
|
|
|
|
| Weighted |
|
| Average |
|
|
|
| ||||
|
|
|
|
| Average |
|
| Remaining |
|
| Aggregate |
| ||||
|
| Number of |
|
| Exercise |
|
| Contractual |
|
| Intrinsic |
| ||||
Options |
| Shares |
|
| Price |
|
| Term |
|
| Value |
| ||||
Balance Outstanding, April 30, 2014 |
|
| 270,000 |
|
| $ | 0.35 |
|
|
|
|
|
|
| ||
Granted |
|
| |
|
|
|
|
|
|
|
|
|
|
| ||
Exercised |
|
| |
|
|
|
|
|
|
|
|
|
|
| ||
Forfeited |
|
| (50,000 | ) |
| $ | 0.19 |
|
|
|
|
|
|
| ||
Expired |
|
| |
|
|
|
|
|
|
|
|
|
|
| ||
Balance Outstanding, July 31, 2014 |
|
| 220,000 |
|
| $ | 0.30 |
|
|
| 2.8 |
|
|
| 2.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, July 31, 2014 |
|
| 73,333 |
|
| $ | 0.30 |
|
|
| 2.8 |
|
|
| 2.8 |
|
19
ASPEN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
July 31, 2014
(Unaudited)
Note 10. Related Party Transactions
See Note 3 for discussion of secured note and account receivable to related parties and see Notes 6 and 7 for discussion of loans payable and convertible notes payable to related parties.
Note 11. Subsequent Events
On September 4, 2014, Aspen raised $3,766,325 from the sale of 24,298,877 shares of common stock and 12,149,439 five-year warrants exercisable at $0.19 per share in a private placement offering to 15 accredited investors. In connection with the offering, Aspen agreed to register the shares of common stock and the shares of common stock underlying the warrants. The net proceeds to Aspen were approximately $3.7 million.
On September 4, 2014, Aspen used part of the proceeds to fully prepay principal and interest owed under its outstanding debenture held by Hillair Capital Investments L.P. Aspen paid Hillair $2,310,000, after entering into an agreement whereby Hillair agreed to the prepayment and agreed to limit the future sale of shares of common stock upon exercise of its warrants or otherwise.
20
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our unaudited consolidated financial statements, which are included elsewhere in this Form 10-Q. Managements Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed in the Risk Factors contained in the Annual Report on Form 10-K filed July 29, 2014, filed with the Securities and Exchange Commission, or the SEC.
All references to we, our and us refer to Aspen Group, Inc. and its subsidiaries (including Aspen), unless the context otherwise indicates. In referring to academic matters, these words refer solely to Aspen University.
Company Overview
Founded in 1987, Aspens mission is to offer any motivated college-worthy student the opportunity to receive a high quality, responsibly priced distance-learning education for the purpose of achieving sustainable economic and social benefits for themselves and their families. 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. On March 20, 2014, Aspen University unveiled a monthly payment plan aimed at reversing the college-debt sentence plaguing working-class Americans. The monthly payment plan offers bachelor students the opportunity to pay $250/month for 60 months ($15,000) and master/doctoral students the opportunity to pay $325/month for 36 months ($11,700), thereby giving students the ability to earn a degree debt free. In the five months since the announcement, already 26% of courses are now paid through monthly payment methods.
One of the key differences between Aspen and other publicly-traded, exclusively online, for-profit universities is an emphasis on post-graduate degree programs (master or doctorate). As of July 31, 2014, 2,624 students were enrolled as full-time degree-seeking students with 2,275 of those students or 87% in a master or doctoral graduate
degree program.
Student Population
Aspens full-time degree-seeking student body increased by 30% during the quarter ended July 31, 2014, from 2,016 to 2,624 students. In addition, 1,092 students are engaged in part-time programs, such as continuing education courses and certificate level programs.
Our most popular school is our School of Nursing. Aspens School of Nursing has grown from 5% of our full-time, degree-seeking student body at year-end 2011, to 35% of our full-time, degree-seeking student body at July 31, 2014. Aspens School of Nursing grew from 467 to 920 students year-over-year, which represented 75% of Aspens full-time degree-seeking student body growth.
Results of Operations
For the Three Months Ended July 31, 2014 Compared with the Three Months Ended July 31, 2013
Revenue
Revenue from continuing operations for the quarter ended July 31, 2014 (2014 Quarter) increased to $1,169,860 from $901,199 for the three months ended July 31, 2013 (2013 Quarter), an increase of 30%. The increase is primarily attributable to the growth in Aspens School of Nursing student enrollments, as well as the 27% increase in new class starts and the 11% increase in average tuition rates from the comparable prior year period. Of particular note, revenues from Aspens Nursing degree program increased to $395,075 during the quarter ended July 31, 2014 from $231,980 during the quarter ended July 31, 2013, an increase of 70%.
21
Our revenues for the quarter ended July 31, 2013 were impacted by the 2011 (and previous years) pre-payment tuition plan, or the Legacy Tuition Plan, which was discontinued on July 15, 2011. The Legacy Tuition Plan had students pre-paying tuition for a degree programs first four courses ($675/course) and a steeply discounted tuition rate for the programs eight course balance ($112.50/course). Specifically, the Legacy Tuition Plan produced immediate cash flow, but unsustainably low gross profit margins over the length of the degree program. As of July 31, 2014, 488 of our full-time degree-seeking students were still enrolled under the Legacy Tuition Plan. However the contribution from Legacy Tuition Plan students to overall Aspen revenue and profits has diminished steadily as the population of full-time degree-seeking students paying regular tuition rates increased to 81% of the population and the population of Legacy Tuition Plan students fell to 19%. In fact, Legacy Tuition Plan students contribution to financial results was immaterial for the quarter ended July 31, 2014.
Cost of Revenues (exclusive of amortization)
The Companys cost of revenues consist of instructional costs and services and marketing and promotional costs.
Instructional Costs and Services
Instructional costs and services for the 2014 Quarter rose to $269,833 from $162,670 for the 2013 Quarter, an increase of $107,163 or 66%. As student enrollment levels increase, instructional costs and services should rise proportionately. However, as Aspen increases its full-time degree-seeking student enrollments and related class starts, the higher gross margins associated with such students should lead to the growth rate in instructional costs and services to significantly lag that of overall revenues growth.
Marketing and Promotional
Marketing and promotional costs for the 2014 Quarter were $179,265 compared to $293,089 for the 2013 Quarter, a decrease of $113,824 or 39%. This decrease reflects significant marketing efficiencies gained, specifically the fact that enrollment costs have dropped to $557 from $920 year-over-year. With the cash from our recently completed offering, we expect that beginning in November 2014, internet advertising expenses will increase by at least $50,000 per month and sales expenses will increase by at least $60,000 per month.
GAAP Gross Profit rose to 52% of revenues or $604,572 for the 2014 Quarter from 38% of revenues or $343,049 for the 2013 Quarter. Gross Profit (exclusive of amortization) rose to 62% of revenues or $720,762 for the 2014 Quarter from 49% of revenues or $445,440 for the 2013 Quarter, a year-over-year increase of $275,322 or 62%. This 62% increase year-over-year primarily reflects the increase in new class starts and higher average tuition rates described above, as well as marketing efficiency improvements.
Costs and Expenses
General and Administrative
General and administrative costs for the 2014 Quarter were $1,200,216 compared to $1,476,767 during the 2013 Quarter, a decrease of $276,551 or 19%. The decrease is attributable to the elimination of expenses year-over-year including $25,000 of expenses related to the biennial graduation ceremony, $40,000 due to the audit related to the switch in our fiscal year to April 30, and consulting expense reduction of $125,000 compared to the 2013 Quarter. Additionally, stock compensation was $52,000 higher in the 2013 Quarter relating to the issuance of executive options.
Depreciation and Amortization
Depreciation and amortization costs for the 2014 Quarter rose to $125,607 from $109,435 for the 2013 Quarter, an increase of $16,172 or 15%. The increase is primarily attributable to higher levels of capitalized technology costs as Aspen prepares to launch a new academic learning system, Desire2Learn.
22
Interest Income (Expense)
Interest income for the 2014 Quarter increased to $1,671 from $289 in the 2013 Quarter, an increase of $1,382 or 478%. Interest expense increased from $16,160 to $260,871, an increase of $244,711 or 1,514%. The increase is due to the monthly interest expense of $13,333, primarily resulting from the amortization of the original issue discount and the amortization of debt issuance costs, all associated with the Debenture issue.
Income Taxes
Income taxes expense (benefit) for the 2014 Quarter and 2013 Quarter was $0 as Aspen Group experienced operating losses in both periods. As management made a full valuation allowance against the deferred tax assets stemming from these losses, there was no tax benefit recorded in the statement of operations in both periods.
Net Loss
Net loss for the 2014 Quarter was ($864,261) as compared to ($1,134,370) for the 2013 Quarter, a decrease in the loss of $270,109 or approximately 24%. Contributing to this lower loss was the increase in revenues in the 2014 Quarter, lower marketing costs, lower payroll and lower consulting expenses. Included in these numbers are the Discontinued Operations results.
Discontinued Operations
As of August 4, 2013, Aspen Group discontinued business activities related to its agreement with CLS. See Note 1 of the unaudited consolidated financial statements contained herein. The following table details the results of the discontinued operations for the three months ended July 31, 2014 and 2013:
|
| For the Three Months Ended |
| |||||
|
| July 31, |
| |||||
|
| 2014 |
|
| 2013 |
| ||
|
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Revenues |
| $ | |
|
| $ | 222,625 |
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
Instructional costs and services |
|
| |
|
|
| 200,362 |
|
Total costs and expenses |
|
| |
|
|
| 200,362 |
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of income taxes |
| $ | |
|
| $ | 22,263 |
|
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 companys performance, financial position or cash flows that either excludes or includes amounts that are not normally included or excluded in the most directly comparable measure calculated and presented in accordance with GAAP. Non-GAAP financial measures should be viewed as supplemental to, and should not be considered as alternatives to net income, operating income, and cash flow from operating activities, liquidity or any other financial measures. They may not be indicative of the historical operating results of Aspen Group nor are they intended to be predictive of potential future results. Investors should not consider non-GAAP financial measures in isolation or as substitutes for performance measures calculated in accordance with GAAP.
Our management uses and relies on Adjusted EBITDA and Gross Profit (exclusive of depreciation and amortization), 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.
23
Aspen Group defines Adjusted EBITDA as earnings (or loss) from continuing operations before interest expense, income taxes, depreciation and amortization, amortization of stock-based compensation and the additional items in the table below. Adjusted EBITDA is an important measure of our operating performance because it allows management, investors and analysts to evaluate and assess our core operating results from period-to-period after removing the impact of items of a non-operational nature that affect comparability.
We have included a reconciliation of our non-GAAP financial measures to the most comparable financial measure calculated in accordance with GAAP. We believe that providing the non-GAAP financial measures, together with the reconciliation to GAAP, helps investors make comparisons between Aspen Group and other companies. In making any comparisons to other companies, investors need to be aware that companies use different non-GAAP measures to evaluate their financial performance. Investors should pay close attention to the specific definition being used and to the reconciliation between such measure and the corresponding GAAP measure provided by each company under applicable SEC rules.
The following table presents a reconciliation of Adjusted EBITDA to Net loss allocable to common shareholders, a GAAP financial measure:
Note that the Adjusted EBITDA loss declined by 69% in the 2014 quarter as compared to the 2013 quarter, and declined 32% sequentially from $(374,720) to $(253,720).
|
| Three Months Ended |
| |||||||||
|
| 07/31/2014 |
|
| 4/30/2014 |
|
| 7/31/2013 |
| |||
Net loss allocable to common shareholders |
| $ | (864,261 | ) |
| $ | (1,122,763 | ) |
| $ | (1,134,370 | ) |
Interest Expense, net of interest income |
|
| 78,417 |
|
|
| 86,287 |
|
|
| 15,871 |
|
Bad Debt Expense |
|
| 105,511 |
|
|
| 5,895 |
|
|
| 13,837 |
|
Depreciation & Amortization |
|
| 125,608 |
|
|
| 123,762 |
|
|
| 109,435 |
|
Amortization of Prepaid Services |
|
| |
|
|
| |
|
|
| 25,060 |
|
Amortization of Debt Issue Costs |
|
| 56,440 |
|
|
| 54,599 |
|
|
| |
|
Amortization of Debt Discount |
|
| 124,343 |
|
|
| 120,289 |
|
|
| |
|
Stock-based compensation |
|
| 97,203 |
|
|
| 212,489 |
|
|
| 149,356 |
|
Non-recurring charges |
|
| 23,019 |
|
|
| 144,722 |
|
|
| |
|
Adjusted EBITDA (Loss) |
| $ | (253,720 | ) |
| $ | (374,720 | ) |
| $ | (820,811) |
|
The following table presents a reconciliation of Gross Profit (exclusive of amortization), a non-GAAP financial measure, to gross profit calculated in accordance with GAAP:
|
| For the |
| |||||
|
| Three Months Ended July 31, |
| |||||
|
| 2014 |
|
| 2013 |
| ||
|
|
|
|
|
|
| ||
Revenues |
| $ | 1,169,860 |
|
| $ | 901,199 |
|
|
|
|
|
|
|
|
|
|
Costs of revenues (exclusive of amortization shown separately) |
|
| 449,098 |
|
|
| 455,759 |
|
|
|
|
|
|
|
|
|
|
Gross profit (exclusive of amortization) |
|
| 720,762 |
|
|
| 445,440 |
|
|
|
|
|
|
|
|
|
|
Amortization expenses excluded from cost of revenues |
|
| 116,190 |
|
|
| 102,391 |
|
|
|
|
|
|
|
|
|
|
GAAP gross profit |
| $ | 604,572 |
|
| $ | 343,049 |
|
GAAP gross profit increased to 52% of revenues or $604,572 for the 2014 Period compared to 38% or $343,049 for the 2013 Period. Gross Profit (exclusive of amortization) for the 2014 Quarter increased to 62% of revenues or $720,762 compared to 49% for the 2013 Quarter or $445,440.
24
Liquidity and Capital Resources
A summary of our cash flows is as follows:
|
| Three Months Ended |
| |||||
|
| July 31, |
| |||||
|
| 2014 |
|
| 2013 |
| ||
Net cash used in operating activities |
| $ | (385,707 | ) |
| $ | (1,013,268 | ) |
Net cash used in investing activities |
|
| (151,619 | ) |
|
| (105,022 | ) |
Net cash provided by financing activities |
|
| 1,706,353 |
|
|
| 947,242 |
|
Net cash provided by discontinued operations |
|
| |
|
|
| 87,075 |
|
Net increase in cash and cash equivalents |
| $ | 1,169,027 |
|
| $ | (83,973 | ) |
Net Cash Used in Operating Activities
Net cash used in operating activities during the three months ended July 31, 2014 totaled ($385,707) and resulted primarily from a net loss from continuing operations of ($864,261) offset by non-cash items of $509,105, of which the $125,608 in depreciation and amortization, $124,343 of amortization of debt discount and $105,511 of bad debt expense were the most significant, and a net change in operating assets and liabilities of $(30,550), of which the $(127,344) decrease in accounts receivable was the most significant.
Net cash used in operating activities during the three months ended July 31, 2013 totaled ($1,013,268) and resulted primarily from a net loss from continuing operations of $(1,134,370) offset by non-cash items of $297,688 and a net change in operating assets and liabilities of $(154,325).
Net Cash Used in Investing Activities
Net cash used in investing activities during the three months ended July 31, 2014 totaled ($151,619) and resulted primarily from capitalized technology expenditures.
Net cash used in investing activities during the three months ended July 31, 2013 totaled ($105,022), resulting primarily from capitalized technology expenditures and increase in restricted cash.
Net Cash Provided By Financing Activities
Net cash provided by financing activities during the three months ended July 31, 2014 totaled $1,706,353 which resulted primarily from proceeds from the issuance of common shares.
Net cash provided by financing activities during the three months ended July 31, 2013 totaled $947,242 which resulted primarily from the receipt of a $1,000,000 loan from the CEO.
Historical Financings
Historically, our primary source of liquidity is cash receipts from tuition and the issuances of debt and equity securities. The primary uses of cash are payroll related expenses, professional expenses and instructional and marketing expenses.
On July 1, 2013, Mr. Michael Mathews, our Chief Executive Officer, loaned Aspen Group $1 million and was issued a $1 million promissory note. The promissory note bears 10% interest per annum, payable monthly in arrears. Mr. Mathews also holds two $300,000 convertible notes, one of which is convertible at $0.35 per share and the other at $1.00 per share. These Notes held by Mr. Mathews were recently extended to January 1, 2016. Additionally, $200,000 in notes convertible at $0.19 per share are due in December 2014.
In September 2013, the Company sold a $2,240,000 Original Issue Discount Secured Convertible Debenture (the Debenture) and 6,736,842 five-year warrants (exercisable at $0.3325) in a private placement offering to an institutional investor. The Company received proceeds of approximately $1.7 from this offering.
25
On January 15, 2014, a warrant exercise offering was completed whereby 4,231,840 warrants were exercised at an exercise price of $0.19 per warrant. The total proceeds received were $804,049 and since the exercise price was discounted from the stated prices of either $0.50 or $0.3325, therefore a warrant conversion exercise expense of $156,952 was recorded. This expense was calculated by comparing the value of the warrants before and after the reduced price.
Related to this, additional 5,178,947 new warrants were issued at $0.19 per warrant as part of a price protection agreement with two investors.
On March 10, 2014, several members of the Board of Directors invested $600,000 in exchange for 3,157,895 shares of common stock and 3,157,895 warrants at $0.19 per share.
On July 29, 2014, in the first part of a two part private placement offering, seven accredited investors, including the companys CFO, paid a total of $1,631,500 in exchange for 10,525,809 shares of common stock and 5,262,907 five-year warrants exercisable at $0.19 per share. Aspen reimbursed expenses in total of $75,000 related to this offering. As a result of this private placement, on July 31, 2014, Aspen issued 3,473,259 shares of common stock to prior investors who had price protection on their investments, issued 2,662,139 warrants to a prior investor who had price protection on their investment and reduced the exercise and conversion price on 14,451,613 outstanding warrants and its outstanding Debenture to $0.155.
On September 4, 2014, Aspen raised $3,766,325 from the sale of 24,298,877 shares of common stock and 12,149,439 five-year warrants exercisable at $0.19 per share in the second part of a two part private placement offering to 15 accredited investors. In connection with the offering, Aspen agreed to register the shares of common stock and the shares of common stock underlying the warrants. The net proceeds to Aspen were approximately $3.7 million. With the proceeds from this offering, we pre-paid the full principal owed and interest due under the Debenture (described above).
Liquidity and Capital Resource Considerations
At September 15, 2014, the Company had a cash balance of $3.5 million. In September 2014, the company completed the second closing of its equity financing of $3,766,325. With the additional cash raised in the financing, the growth in the company revenues and improving operating margins, the Company believes that it has sufficient cash to allow the Company to implement its long-term business plan.
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 the our financial condition. The accounting estimates are discussed below and involve certain assumptions that, if incorrect, could have a material adverse impact on our results of operations and financial condition.
26
Revenue Recognition and Deferred Revenue
Revenue consisting primarily of tuition and fees derived from courses taught by Aspen online as well as from related educational resources that Aspen provides to its students, such as access to our online materials and learning management system. Tuition revenue is recognized pro-rata over the applicable period of instruction. Aspen maintains an institutional tuition refund policy, which provides for all or a portion of tuition to be refunded if a student withdraws during stated refund periods. Certain states in which students reside impose separate, mandatory refund policies, which override Aspens policy to the extent in conflict. If a student withdraws at a time when a portion or none of the tuition is refundable, then in accordance with its revenue recognition policy, Aspen recognizes as revenue the tuition that was not refunded. Since Aspen recognizes revenue pro-rata over the term of the course and because, under its institutional refund policy, the amount subject to refund is never greater than the amount of the revenue that has been deferred, under Aspens accounting policies revenue is not recognized with respect to amounts that could potentially be refunded. Aspens 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 Aspens students is personal funds or payment made on their behalf by an employer. In instances where a student selects financial aid as the primary payment option, he or she often selects personal cash as the secondary option. If a student who has selected financial aid as his or her primary payment option withdraws prior to the end of a course but after the date that Aspens 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 students 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 students 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 payors other than students, Aspen estimates its allowance for doubtful accounts by evaluating specific accounts where information indicates the customers may have an inability to meet financial obligations, such as bankruptcy proceedings and receivable amounts outstanding for an extended period beyond contractual terms. In these cases, Aspen uses assumptions and judgment, based on the best available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable to the amount expected to be collected. These specific allowances are re-evaluated and adjusted as additional information is received. The amounts calculated are analyzed to determine the total amount of the allowance. Aspen may also record a general allowance as necessary.
Direct write-offs are taken in the period when Aspen has exhausted its efforts to collect overdue and unpaid receivables or otherwise evaluate other circumstances that indicate that Aspen should abandon such efforts.
Related Party Transactions
At January 31, 2014, we included as a long term asset an account receivable of $146,831 net of an allowance of $625,962 from Aspens former Chairman. Although it is secured by stock pledges, there is a risk that we may not collect all or any of this amount.
27
See Note 10 to our July 31, 2014 unaudited consolidated financial statements included herein for additional description of related party transactions that had a material effect on our consolidated financial statements.
Off Balance Sheet Arrangements
We do not engage in any activities involving variable interest entities or off-balance sheet arrangements.
New Accounting Pronouncements
See Note 2 to our July 31, 2014 unaudited consolidated financial statements included herein for discussion of recent accounting pronouncements.
Cautionary Note Regarding Forward Looking Statements
This report contains forward-looking statements including revenue and gross profit growth, achieving positive Adjusted EBITDA, expected increase or decrease in expenses, capital expenditures, and liquidity. All statements other than statements of historical facts contained in this report, including statements regarding our future financial position, liquidity, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words believe, may, estimate, continue, anticipate, intend, should, plan, could, target, potential, is likely, will, expect and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.
The results anticipated by any or all of these forward-looking statements might not occur. Important factors that could cause actual results to differ from those in the forward-looking statements include the failure to maintain regulatory approvals including our ability to obtain permanent certification from our accreditor, competition, ineffective media and/or marketing, failure to maintain growth in degree seeking students and the failure to generate sufficient revenue. Further information on our risk factors is contained in our filings with the SEC, including the Form 10-K filed on July 29, 2014. Any forward-looking statement made by us in this report speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. Our management carried out an evaluation, with the participation of our Principal Executive Officer and Principal Financial Officer, required by Rule 13a-15 or 15d-15 of the Securities Exchange Act of 1934 (the Exchange Act) of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act. Based on their evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms and is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
28
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 July 31, 2014, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations and there are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest other than described below or previously reported.
On December 10, 2013, the Company filed a series of counterclaims against HEMG and Mr. Spada in state court of New York relating to the litigation which has previously been reported. The plaintiffs filed a motion to dismiss our counterclaims. By decision and order dated August 4, 2014, the New York court denied HEMG and Spadas motion to dismiss the fraud counterclaim the Company asserted against them. The New York court dismissed the related money had and received, money lent and unjust enrichment claims as being duplicative of the fraud claim. The plaintiffs filed notice of appeal concerning the denial of that motion on September 3, 2014.
Not applicable to smaller reporting companies.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
None.
See the Exhibit Index at the end of this report.
29
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. |
| |
|
|
|
|
September 15, 2014 | By: | /s/ Michael Mathews |
|
|
| Michael Mathews |
|
|
| Chief Executive Officer |
|
|
| (Principal Executive Officer) |
|
|
|
|
|
September 15, 2014 | By: | /s/ Janet Gill |
|
|
| Janet Gill |
|
|
| Executive Vice President, Chief Financial Officer (Interim) |
|
|
| (Principal Financial Officer) |
|
|
|
|
|
30
EXHIBIT INDEX
|
|
|
|
| Incorporated by Reference |
| Filed or Furnished | |||||
Exhibit # |
| Exhibit Description |
|
| Form |
| Date |
|
| Number |
| Herewith |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2012 Equity Incentive Plan, as amended* |
|
|
|
|
|
|
|
|
| Filed | |
10.2 |
| Form of Securities Purchase Agreement |
|
| 8-K |
| 7/30/14 |
|
| 10.1 |
|
|
10.3 |
| Form of Registration Rights Agreement |
|
| 8-K |
| 7/30/14 |
|
| 10.2 |
|
|
10.4 |
| Form of Warrant |
|
| 8-K |
| 7/30/14 |
|
| 10.3 |
|
|
10.5 |
| Form of Convertible Note Mathews - $1.00 |
|
| 8-K |
| 7/25/14 |
|
| 10.2 |
|
|
10.6 |
| Form of Convertible Note Mathews - $0.35 |
|
| 8-K |
| 7/25/14 |
|
| 10.1 |
|
|
10.7 |
| Promissory Note dated July 21, 2014 - Mathews |
|
| 8-K |
| 7/25/14 |
|
| 10.2 |
|
|
| Certification of Principal Executive Officer (302) |
|
|
|
|
|
|
|
|
| Filed | |
| Certification of Principal Financial Officer (302) |
|
|
|
|
|
|
|
|
| Filed | |
| Certification of Principal Executive and Principal Financial Officer (906) |
|
|
|
|
|
|
|
|
| Furnished** | |
101.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 |
*
Represents compensatory plan of management.
**
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.
31
EXHIBIT 10.1
ASPEN GROUP, INC.
2012 EQUITY INCENTIVE PLAN, As Amended
1.
Scope of Plan; Definitions.
(a)
This 2012 Equity Incentive Plan (the Plan) is intended to advance the interests of Aspen Group, Inc. (the Company) and its Related Corporations by enhancing the ability of the Company to attract and retain qualified employees, consultants, Officers and directors, by creating incentives and rewards for their contributions to the success of the Company and its Related Corporations. This Plan will provide to (a) Officers and other employees of the Company and its Related Corporations opportunities to purchase common stock (Common Stock) of the Company pursuant to Options granted hereunder which qualify as incentive stock options (ISOs) under Section 422(b) of the Internal Revenue Code of 1986 (the Code), (b) directors, Officers, employees and consultants of the Company and Related Corporations opportunities to purchase Common Stock in the Company pursuant to options granted hereunder which do not qualify as ISOs (Non-Qualified Options); (c) directors, Officers, employees and consultants of the Company and Related Corporations opportunities to receive shares of Common Stock of the Company which normally are subject to restrictions on sale (Restricted Stock); (d) directors, Officers, employees and consultants of the Company and Related Corporations opportunities to receive grants of stock appreciation rights (SARs); and (e) directors, Officers, employees and consultants of the Company and Related Corporations opportunities to receive grants of restricted stock units (RSUs). ISOs, Non-Discretionary Options and Non-Qualified Options are referred to hereafter as Options. Options, Restricted Stock, RSUs and SARs are sometimes referred to hereafter collectively as Stock Rights. Any of the Options and/or Stock Rights may in the Compensation Committees discretion be issued in tandem to one or more other Options and/or Stock Rights to the extent permitted by law.
(b)
For purposes of the Plan, capitalized words and terms shall have the following meaning:
Board means the board of directors of the Company.
Bulletin Board shall mean the Over-the-Counter Bulletin Board.
Chairman means the chairman of the Board.
Change of Control means the occurrence of any of the following events: (i) the consummation of the sale or disposition by the Company of all or substantially all of the Companys assets in a transaction which requires shareholder approval under applicable state law; or (ii) the consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least 50% of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation.
Code shall have the meaning given to it in Section 1(a).
Common Stock shall have the meaning given to it in Section 1(a).
Company shall have the meaning given to it in Section 1(a).
Compensation Committee means the compensation committee of the Board, if any, which shall consist of two or more members of the Board, each of whom shall be both an outside director within the meaning of Section 162(m) of the Code and a non-employee director within the meaning of Rule 16b-3. All references in this Plan to the Compensation Committee shall mean the Board when (i) there is no Compensation Committee or (ii) the Board has retained the power to administer this Plan.
Disability means permanent and total disability as defined in Section 22(e)(3) of the Code or successor statute.
Disqualifying Disposition means any disposition (including any sale) of Common Stock underlying an ISO before the later of (i) two years after the date of employee was granted the ISO or (ii) one year after the date the employee acquired Common Stock by exercising the ISO.
Exchange Act shall have the meaning given to it in Section 1(a).
Fair Market Value shall be determined as of the last Trading Day before the date a Stock Right is granted and shall mean:
(1) the closing price on the principal market if the Common Stock is listed on a national securities exchange or the Bulletin Board.
(2) if the Companys shares are not listed on a national securities exchange or the Bulletin Board, then the closing price if reported or the average bid and asked price for the Companys shares as published by Pink Sheets LLC;
(3) if there are no prices available under clauses (1) or (2), then Fair Market Value shall be based upon the average closing bid and asked price as determined following a polling of all dealers making a market in the Companys Common Stock; or
(4) if there is no regularly established trading market for the Companys Common Stock or if the Companys Common Stock is listed, quoted or reported under clauses (1) or (2) but it trades sporadically rather than every day, the Fair Market Value shall be established by the Board or the Compensation Committee taking into consideration all relevant factors including the most recent price at which the Companys Common Stock was sold.
ISO shall have the meaning given to it in Section 1(a).
Non-Discretionary Options shall have the meaning given to it in Section 1(a).
Non-Qualified Options shall have the meaning given to it in Section 1(a).
Officers means a person who is an executive officer of the Company and is required to file ownership reports under Section 16(a) of the Exchange Act.
Options shall have the meaning given to it in Section 1(a).
Plan shall have the meaning given to it in Section 1(a).
Related Corporations shall mean a corporation which is a subsidiary corporation with respect to the Company within the meaning of Section 425(f) of the Code.
Restricted Stock shall have the meaning contained in Section 1(a).
RSU shall have the meaning given to it in Section 1(a).
SAR shall have the meaning given to it in Section 1(a).
Securities Act means the Securities Act of 1933.
Stock Rights shall have the meaning given to it in Section 1(a).
Trading Day shall mean a day on which the New York Stock Exchange is open for business.
This Plan is intended to comply in all respects with Rule 16b-3 (Rule 16b-3) and its successor rules as promulgated under Section 16(b) of the Securities Exchange Act of 1934 (the Exchange Act) for participants who are subject to Section 16 of the Exchange Act. To the extent any provision of the Plan or action by the Plan administrators fails to so comply, it shall be deemed null and void to the extent permitted by law and deemed advisable by the Plan administrators. Provided, however, such exercise of discretion by the Plan administrators shall not interfere with the contract rights of any grantee. In the event that any interpretation or construction of the Plan is required, it shall be interpreted and construed in order to ensure, to the maximum extent permissible by law, that such grantee does not violate the short-swing profit provisions of Section 16(b) of the Exchange Act and that any exemption available under Rule 16b-3 or other rule is available.
2.
Administration of the Plan.
(a)
The Plan may be administered by the entire Board or by the Compensation Committee. Once appointed, the Compensation Committee shall continue to serve until otherwise directed by the Board. A majority of the members of the Compensation Committee shall constitute a quorum, and all determinations of the Compensation Committee shall be made by the majority of its members present at a meeting. Any determination of the Compensation
Committee under the Plan may be made without notice or meeting of the Compensation Committee by a writing signed by all of the Compensation Committee members. Subject to ratification of the grant of each Stock Right by the Board (but only if so required by applicable state law), and subject to the terms of the Plan, the Compensation Committee shall have the authority to (i) determine the employees of the Company and Related Corporations (from among the class of employees eligible under Section 3 to receive ISOs) to whom ISOs may be granted, and to determine (from among the class of individuals and entities eligible under Section 3 to receive Non-Qualified Options, Restricted Stock, RSUs and SARs) to whom Non-Qualified Options, Restricted Stock, RSUs and SARs may be granted; (ii) determine when Stock Rights may be granted; (iii) determine the exercise prices of Stock Rights other than Restricted Stock and RSUs, which shall not be less than the Fair Market Value; (iv) determine whether each Option granted shall be an ISO or a Non-Qualified Option; (v) determine when Stock Rights shall become exercisable, the duration of the exercise period and when each Stock Right shall vest; (vi) determine whether restrictions such as repurchase options are to be imposed on shares subject to or issued in connection with Stock Rights, and the nature of such restrictions, if any, and (vii) interpret the Plan and promulgate and rescind rules and regulations relating to it. The interpretation and construction by the Compensation Committee of any provisions of the Plan or of any Stock Right granted under it shall be final, binding and conclusive unless otherwise determined by the Board. The Compensation Committee may from time to time adopt such rules and regulations for carrying out the Plan as it may deem best.
No members of the Compensation Committee or the Board shall be liable for any action or determination made in good faith with respect to the Plan or any Stock Right granted under it. No member of the Compensation Committee or the Board shall be liable for any act or omission of any other member of the Compensation Committee or the Board or for any act or omission on his own part, including but not limited to the exercise of any power and discretion given to him under the Plan, except those resulting from his own gross negligence or willful misconduct.
(b)
The Compensation Committee may select one of its members as its chairman and shall hold meetings at such time and places as it may determine. All references in this Plan to the Compensation Committee shall mean the Board if no Compensation Committee has been appointed. From time to time the Board may increase the size of the Compensation Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies however caused or remove all members of the Compensation Committee and thereafter directly administer the Plan.
(c)
Stock Rights may be granted to members of the Board, whether such grants are in their capacity as directors, Officers or consultants. All grants of Stock Rights to members of the Board shall in all other respects be made in accordance with the provisions of this Plan applicable to other eligible persons. Members of the Board who are either (i) eligible for Stock Rights pursuant to the Plan or (ii) have been granted Stock Rights may vote on any matters affecting the administration of the Plan or the grant of any Stock Rights pursuant to the Plan.
(d)
In addition to such other rights of indemnification as he may have as a member of the Board, and with respect to administration of the Plan and the granting of Stock Rights under it, each member of the Board and of the Compensation Committee shall be entitled without further act on his part to indemnification from the Company for all expenses (including advances of litigation expenses, the amount of judgment and the amount of approved settlements made with a view to the curtailment of costs of litigation) reasonably incurred by him in connection with or arising out of any action, suit or proceeding, including any appeal thereof, with respect to the administration of the Plan or the granting of Stock Rights under it in which he may be involved by reason of his being or having been a member of the Board or the Compensation Committee, whether or not he continues to be such member of the Board or the Compensation Committee at the time of the incurring of such expenses; provided, however, that such indemnity shall be subject to the limitations contained in any Indemnification Agreement between the Company and the Board member or Officer. The foregoing right of indemnification shall inure to the benefit of the heirs, executors or administrators of each such member of the Board or the Compensation Committee and shall be in addition to all other rights to which such member of the Board or the Compensation Committee would be entitled to as a matter of law, contract or otherwise.
(e)
The Board may delegate the powers to grant Stock Rights to Officers to the extent permitted by the laws of the Companys state of incorporation.
3.
Eligible Employees and Others. ISOs may be granted to any employee of the Company or any Related Corporation. Those Officers and directors of the Company who are not employees may not be granted ISOs under the Plan. Subject to compliance with Rule 16b-3 and other applicable securities laws, Non-Qualified Options, Restricted Stock, RSUs and SARs may be granted to any director (whether or not an employee), Officers, employees or consultants of the Company or any Related Corporation. The Compensation Committee may take into consideration a recipients individual circumstances in determining whether to grant an ISO, a Non-Qualified Option, Restricted Stock, RSUs or a SAR. Granting of any Stock Right to any individual or entity shall neither entitle that individual or entity to, nor disqualify him from participation in, any other grant of Stock Rights.
4.
Common Stock. The Common Stock subject to Stock Rights shall be authorized but unissued shares of Common Stock, par value $0.001, or shares of Common Stock reacquired by the Company in any manner, including purchase, forfeiture or otherwise. The aggregate number of shares of Common Stock which may be issued pursuant to the Plan is 16,300,000, less any Stock Rights previously granted or exercised subject to adjustment as provided in Section 14. Any such shares may be issued under ISOs, Non-Qualified Options, Restricted Stock, RSUs or SARs, so long as the number of shares so issued does not exceed the limitations in this Section. If any Stock Rights granted under the Plan shall expire or terminate for any reason without having been exercised in full or shall cease for any reason to be exercisable in whole or in part, or if the Company shall reacquire any unvested shares, the unpurchased shares subject to such Stock Rights and any unvested shares so reacquired by the Company shall again be available for grants under the Plan.
5.
Granting of Stock Rights.
(a)
The date of grant of a Stock Right under the Plan will be the date specified by the Board or Compensation Committee at the time it grants the Stock Right; provided, however, that such date shall not be prior to the date on which the Board or Compensation Committee acts to approve the grant. The Board or Compensation Committee shall have the right, with the consent of the optionee, to convert an ISO granted under the Plan to a Non-Qualified Option pursuant to Section 17.
(b)
The Board or Compensation Committee shall grant Stock Rights to participants that it, in its sole discretion, selects. Stock Rights shall be granted on such terms as the Board or Compensation Committee shall determine except that ISOs shall be granted on terms that comply with the Code and regulations thereunder.
(c)
A SAR entitles the holder to receive, as designated by the Board or Compensation Committee, cash or shares of Common Stock, value equal to (or otherwise based on) the excess of: (a) the Fair Market Value of a specified number of shares of Common Stock at the time of exercise over (b) an exercise price established by the Board or Compensation Committee. The exercise price of each SAR granted under this Plan shall be established by the Compensation Committee or shall be determined by a method established by the Board or Compensation Committee at the time the SAR is granted, provided the exercise price shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date of the grant of the SAR, or such higher price as is established by the Board or Compensation Committee. A SAR shall be exercisable in accordance with such terms and conditions and during such periods as may be established by the Board or Compensation Committee. Shares of Common Stock delivered pursuant to the exercise of a SAR shall be subject to such conditions, restrictions and contingencies as the Board or Compensation Committee may establish in the applicable SAR agreement or document, if any. The Board or Compensation Committee, in its discretion, may impose such conditions, restrictions and contingencies with respect to shares of Common Stock acquired pursuant to the exercise of each SAR as the Board or Compensation Committee determines to be desirable. A SAR under the Plan shall be subject to such terms and conditions, not inconsistent with the Plan, as the Board or Compensation Committee shall, in its discretion, prescribe. The terms and conditions of any SAR to any grantee shall be reflected in such form of agreement as is determined by the Board or Compensation Committee. A copy of such document, if any, shall be provided to the grantee, and the Board or Compensation Committee may condition the granting of the SAR on the grantee executing such agreement.
(d)
An RSU gives the grantee the right to receive a number of shares of the Companys Common Stock on applicable vesting or other dates. Delivery of the RSUs may be deferred beyond vesting as determined by the Board or Compensation Committee. RSUs shall be evidenced by an RSU agreement in the form determined by the Board or Compensation Committee. With respect to an RSU, which becomes non-forfeitable due to the lapse of time, the Compensation Committee shall prescribe in the RSU agreement the vesting period. With respect to the granting of the RSU, which becomes non-forfeitable due to the satisfaction of certain pre-established performance-based objectives imposed by the Board or Compensation Committee, the measurement date of whether such performance-based objectives have been satisfied shall be
a date no earlier than the first anniversary of the date of the RSU. A recipient who is granted an RSU shall possess no incidents of ownership with respect to such underlying Common Stock, although the RSU agreement may provide for payments in lieu of dividends to such grantee.
(e)
Notwithstanding any provision of this Plan, the Board or Compensation Committee may impose conditions and restrictions on any grant of Stock Rights including forfeiture of vested Options, cancellation of Common Stock acquired in connection with any Stock Right and forfeiture of profits.
(f)
The Options and SARs shall not be exercisable for a period of more than 10 years from the date of grant.
6.
Sale of Shares. The shares underlying Stock Rights granted to any Officers, director or a beneficial owner of 10% or more of the Companys securities registered under Section 12 of the Exchange Act shall not be sold, assigned or transferred by the grantee until at least six months elapse from the date of the grant thereof.
7.
ISO Minimum Option Price and Other Limitations.
(a)
The exercise price per share relating to all Options granted under the Plan shall not be less than the Fair Market Value per share of Common Stock on the last trading day prior to the date of such grant. For purposes of determining the exercise price, the date of the grant shall be the later of (i) the date of approval by the Board or Compensation Committee or the Board, or (ii) for ISOs, the date the recipient becomes an employee of the Company. In the case of an ISO to be granted to an employee owning Common Stock which represents more than 10% of the total combined voting power of all classes of stock of the Company or any Related Corporation, the price per share shall not be less than 110% of the Fair Market Value per share of Common Stock on the date of grant and such ISO shall not be exercisable after the expiration of five years from the date of grant.
(b)
In no event shall the aggregate Fair Market Value (determined at the time an ISO is granted) of Common Stock for which ISOs granted to any employee are exercisable for the first time by such employee during any calendar year (under all stock option plans of the Company and any Related Corporation) exceed $100,000.
8.
Duration of Stock Rights. Subject to earlier termination as provided in Sections 3, 5, 9, 10 and 11, each Option and SAR shall expire on the date specified in the original instrument granting such Stock Right (except with respect to any part of an ISO that is converted into a Non-Qualified Option pursuant to Section 17), provided, however, that such instrument must comply with Section 422 of the Code with regard to ISOs and Rule 16b-3 with regard to all Stock Rights granted pursuant to the Plan to Officers, directors and 10% shareholders of the Company.
9.
Exercise of Options and SARs; Vesting of Stock Rights. Subject to the provisions of Sections 3 and 9 through 13, each Option and SAR granted under the Plan shall be exercisable as follows:
(a)
The Options and SARs shall either be fully vested and exercisable from the date of grant or shall vest and become exercisable in such installments as the Board or Compensation Committee may specify.
(b)
Once an installment becomes exercisable it shall remain exercisable until expiration or termination of the Option and SAR, unless otherwise specified by the Board or Compensation Committee.
(c)
Each Option and SAR or installment, once it becomes exercisable, may be exercised at any time or from time to time, in whole or in part, for up to the total number of shares with respect to which it is then exercisable.
(d)
The Board or Compensation Committee shall have the right to accelerate the vesting date of any installment of any Stock Right; provided that the Board or Compensation Committee shall not accelerate the exercise date of any installment of any Option granted to any employee as an ISO (and not previously converted into a Non-Qualified Option pursuant to Section 17) if such acceleration would violate the annual exercisability limitation contained in Section 422(d) of the Code as described in Section 7(b).
10.
Termination of Employment. Subject to any greater restrictions or limitations as may be imposed by the Board or Compensation Committee or by a written agreement, if an optionee ceases to be employed by the Company and all Related Corporations other than by reason of death or Disability, no further installments of his Options shall vest or become exercisable, and his Options shall terminate as provided for in the grant or on the day 12 months after the day of the termination of his employment (except three months for ISOs), whichever is earlier, but in no event later than on their specified expiration dates. Employment shall be considered as continuing uninterrupted during any bona fide leave of absence (such as those attributable to illness, military obligations or governmental service) provided that the period of such leave does not exceed 90 days or, if longer, any period during which such optionees right to re-employment is guaranteed by statute. A leave of absence with the written approval of the Board shall not be considered an interruption of employment under the Plan, provided that such written approval contractually obligates the Company or any Related Corporation to continue the employment of the optionee after the approved period of absence. ISOs granted under the Plan shall not be affected by any change of employment within or among the Company and Related Corporations so long as the optionee continues to be an employee of the Company or any Related Corporation.
11.
Death; Disability. Unless otherwise determined by the Board or Compensation Committee or by a written agreement:
(a)
If the holder of an Option or SAR ceases to be employed by the Company and all Related Corporations by reason of his death, any Options or SARs held by the optionee
may be exercised to the extent he could have exercised it on the date of his death, by his estate, personal representative or beneficiary who has acquired the Options or SARs by will or by the laws of descent and distribution, at any time prior to the earlier of: (i) the Options or SARs specified expiration date or (ii) one year (except three months for an ISO) from the date of death.
(b)
If the holder of an Option or SAR ceases to be employed by the Company and all Related Corporations, or a director or Director Advisor can no longer perform his duties, by reason of his Disability, any Options or SARs held by the optionee may be exercised to the extent he could have exercised it on the date of termination due to Disability until the earlier of (i) the Options or SARs specified expiration date or (ii) one year from the date of the termination.
12.
Assignment, Transfer or Sale.
(a)
No ISO granted under this Plan shall be assignable or transferable by the grantee except by will or by the laws of descent and distribution, and during the lifetime of the grantee, each ISO shall be exercisable only by him, his guardian or legal representative.
(b)
Except for ISOs, all Stock Rights are transferable subject to compliance with applicable securities laws and Section 6 of this Plan.
13.
Terms and Conditions of Stock Rights. Stock Rights shall be evidenced by instruments (which need not be identical) in such forms as the Board or Compensation Committee may from time to time approve. Such instruments shall conform to the terms and conditions set forth in Sections 5 through 12 hereof and may contain such other provisions as the Board or Compensation Committee deems advisable which are not inconsistent with the Plan. In granting any Stock Rights, the Board or Compensation Committee may specify that Stock Rights shall be subject to the restrictions set forth herein with respect to ISOs, or to such other termination and cancellation provisions as the Board or Compensation Committee may determine. The Board or Compensation Committee may from time to time confer authority and responsibility on one or more of its own members and/or one or more Officers of the Company to execute and deliver such instruments. The proper Officers of the Company are authorized and directed to take any and all action necessary or advisable from time to time to carry out the terms of such instruments.
14.
Adjustments Upon Certain Events.
(a)
Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Stock Right, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Stock Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of a Stock Right, as well as the price per share of Common Stock (or cash, as applicable) covered by each such outstanding Option or SAR, shall be proportionately adjusted for any increases or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company or the voluntary cancellation whether by virtue of a cashless exercise of a derivative security of the Company or otherwise shall not be deemed to have been effected without receipt of consideration. Such adjustment shall be made by the Board or Compensation Committee, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to a Stock Right. No adjustments shall be made for dividends or other distributions paid in cash or in property other than securities of the Company.
(b)
In the event of the proposed dissolution or liquidation of the Company, the Board or Compensation Committee shall notify each participant as soon as practicable prior to the effective date of such proposed transaction. To the extent it has not been previously exercised, a Stock Right will terminate immediately prior to the consummation of such proposed action.
(c)
In the event of a merger of the Company with or into another corporation, or a Change of Control, each outstanding Stock Right shall be assumed (as defined below) or an equivalent option or right substituted by the successor corporation or a parent or subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Stock Rights, the participants shall fully vest in and have the right to exercise their Stock Rights as to which it would not otherwise be vested or exercisable. If a Stock Right becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Board or Compensation Committee shall notify the participant in writing or electronically that the Stock Right shall be fully vested and exercisable for a period of at least 15 days from the date of such notice, and any Options or SARs shall terminate one minute prior to the closing of the merger or sale of assets.
For the purposes of this Section 14(c), the Stock Right shall be considered assumed if, following the merger or Change of Control, the option or right confers the right to purchase or receive, for each share of Common Stock subject to the Stock Right immediately prior to the merger or Change of Control, the consideration (whether stock, cash, or other securities or property) received in the merger or Change of Control by holders of Common Stock for each share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or Change of Control is not solely common stock of the successor corporation or its parent, the Board or Compensation Committee may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Stock Right, for each share of Common Stock subject to the Stock Right, to be solely common stock of the successor corporation or its parent equal in Fair Market Value to the per share consideration received by holders of Common Stock in the merger or Change of Control.
(d)
Notwithstanding the foregoing, any adjustments made pursuant to Section 14(a), (b) or (c) with respect to ISOs shall be made only after the Board or Compensation Committee, after consulting with counsel for the Company, determines whether such adjustments would constitute a modification of such ISOs (as that term is defined in Section 425(h) of the Code) or would cause any adverse tax consequences for the holders of such ISOs. If the Board or Compensation Committee determines that such adjustments made with respect to ISOs would constitute a modification of such ISOs it may refrain from making such adjustments.
(e)
No fractional shares shall be issued under the Plan and the optionee shall receive from the Company cash in lieu of such fractional shares.
15.
Means of Exercising Stock Rights.
(a)
An Option or SAR (or any part or installment thereof) shall be exercised by giving written notice to the Company at its principal office address. Such notice shall identify the Stock Right being exercised and specify the number of shares as to which such Stock Right is being exercised, accompanied by full payment of the exercise price therefor (to the extent it is exercisable in cash) either (i) in United States dollars by check or wire transfer; or (ii) at the discretion of the Board or Compensation Committee, through delivery of shares of Common Stock having a Fair Market Value equal as of the date of the exercise to the cash exercise price of the Stock Right; or (iii) at the discretion of the Board or Compensation Committee, by any combination of (i) and (ii) above. If the Board or Compensation Committee exercises its discretion to permit payment of the exercise price of an ISO by means of the methods set forth in clauses (ii) or (iii) of the preceding sentence, such discretion need not be exercised in writing at the time of the grant of the Stock Right in question. The holder of a Stock Right shall not have the rights of a shareholder with respect to the shares covered by his Stock Right until the date of issuance of a stock certificate to him for such shares. Except as expressly provided above in Section 14 with respect to changes in capitalization and stock dividends, no adjustment shall be made for dividends or similar rights for which the record date is before the date such stock certificate is issued.
(b)
Each notice of exercise shall, unless the shares of Common Stock are covered by a then current registration statement under the Securities Act, contain the holders acknowledgment in form and substance satisfactory to the Company that (i) such shares are being purchased for investment and not for distribution or resale (other than a distribution or resale which, in the opinion of counsel satisfactory to the Company, may be made without violating the registration provisions of the Securities Act), (ii) the holder has been advised and understands that (1) the shares have not been registered under the Securities Act and are restricted securities within the meaning of Rule 144 under the Securities Act and are subject to restrictions on transfer and (2) the Company is under no obligation to register the shares under the Securities Act or to take any action which would make available to the holder any exemption from such registration, and (iii) such shares may not be transferred without compliance with all applicable federal and state securities laws. Notwithstanding the above, should the Company be advised by counsel that issuance of shares should be delayed pending registration under federal or state securities laws or the receipt of an opinion that an appropriate exemption therefrom is
available, the Company may defer exercise of any Stock Right granted hereunder until either such event has occurred.
16.
Term, Termination and Amendment.
(a)
This Plan was adopted by the Board. This Plan may be approved by the Companys shareholders, which approval is required for ISOs.
(b)
The Board may terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on March 13, 2022 [or 10 years from the date the Board adopts the Plan]. No Stock Rights may be granted under the Plan once the Plan is terminated. Termination of the Plan shall not impair rights and obligations under any Stock Right granted while the Plan is in effect, except with the written consent of the grantee.
(c)
The Board at any time, and from time to time, may amend the Plan. Provided, however, except as provided in Section 14 relating to adjustments in Common Stock, no amendment shall be effective unless approved by the shareholders of the Company to the extent (i) shareholder approval is necessary to satisfy the requirements of Section 422 of the Code or (ii) required by the rules of the principal national securities exchange or trading market upon which the Companys Common Stock trades. Rights under any Stock Rights granted before amendment of the Plan shall not be impaired by any amendment of the Plan, except with the written consent of the grantee.
(d)
The Board at any time, and from time to time, may amend the terms of any one or more Stock Rights; provided, however, that the rights under the Stock Right shall not be impaired by any such amendment, except with the written consent of the grantee.
17.
Conversion of ISOs into Non-Qualified Options; Termination of ISOs. The Board or Compensation Committee, at the written request of any optionee, may in its discretion take such actions as may be necessary to convert such optionees ISOs (or any installments or portions of installments thereof) that have not been exercised on the date of conversion into Non-Qualified Options at any time prior to the expiration of such ISOs, regardless of whether the optionee is an employee of the Company or a Related Corporation at the time of such conversion. Provided, however, the Board or Compensation Committee shall not reprice the Options or extend the exercise period or reduce the exercise price of the appropriate installments of such Options without the approval of the Companys shareholders. At the time of such conversion, the Board or Compensation Committee (with the consent of the optionee) may impose such conditions on the exercise of the resulting Non-Qualified Options as the Board or Compensation Committee in its discretion may determine, provided that such conditions shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to give any optionee the right to have such optionees ISOs converted into Non-Qualified Options, and no such conversion shall occur until and unless the Board or Compensation Committee takes appropriate action. The Compensation Committee, with the consent of the optionee, may also terminate any portion of any ISO that has not been exercised at the time of such termination.
18.
Application of Funds. The proceeds received by the Company from the sale of shares pursuant to Options or SARS (if cash settled) granted under the Plan shall be used for general corporate purposes.
19.
Governmental Regulations. The Companys obligation to sell and deliver shares of the Common Stock under this Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance or sale of such shares.
20.
Withholding of Additional Income Taxes. In connection with the granting, exercise or vesting of a Stock Right or the making of a Disqualifying Disposition the Company, in accordance with Section 3402(a) of the Code, may require the optionee to pay additional withholding taxes in respect of the amount that is considered compensation includable in such persons gross income.
To the extent that the Company is required to withhold taxes for federal income tax purposes as provided above, if any optionee may elect to satisfy such withholding requirement by (i) paying the amount of the required withholding tax to the Company; (ii) delivering to the Company shares of its Common Stock (including shares of Restricted Stock) previously owned by the optionee; or (iii) having the Company retain a portion of the shares covered by an Option exercise. The number of shares to be delivered to or withheld by the Company times the Fair Market Value of such shares shall equal the cash required to be withheld.
21.
Notice to Company of Disqualifying Disposition. Each employee who receives an ISO must agree to notify the Company in writing immediately after the employee makes a Disqualifying Disposition of any Common Stock acquired pursuant to the exercise of an ISO. If the employee has died before such stock is sold, the holding periods requirements of the Disqualifying Disposition do not apply and no Disqualifying Disposition can occur thereafter.
22.
Continued Employment. The grant of a Stock Right pursuant to the Plan shall not be construed to imply or to constitute evidence of any agreement, express or implied, on the part of the Company or any Related Corporation to retain the grantee in the employ of the Company or a Related Corporation, as a member of the Companys Board or in any other capacity, whichever the case may be.
23.
Governing Law; Construction. The validity and construction of the Plan and the instruments evidencing Stock Rights shall be governed by the laws of the Companys state of incorporation. In construing this Plan, the singular shall include the plural and the masculine gender shall include the feminine and neuter, unless the context otherwise requires.
24.
(a)
Forfeiture of Stock Rights Granted to Employees or Consultants. Notwithstanding any other provision of this Plan, and unless otherwise provided for in a Stock Rights Agreement, all vested or unvested Stock Rights granted to employees or consultants shall be immediately forfeited at the discretion of the Board if any of the following events occur:
(1)
Termination of the relationship with the grantee for cause including, but not limited to, fraud, theft, dishonesty and violation of Company policy;
(2)
Purchasing or selling securities of the Company in violation of the Companys insider trading guidelines then in effect;
(3)
Breaching any duty of confidentiality including that required by the Companys insider trading guidelines then in effect;
(4)
Competing with the Company;
(5)
Being unavailable for consultation after leaving the Companys employment if such availability is a condition of any agreement between the Company and the grantee;
(6)
Recruitment of Company personnel after termination of employment, whether such termination is voluntary or for cause;
(7)
Failure to assign any invention or technology to the Company if such assignment is a condition of employment or any other agreements between the Company and the grantee; or
(8)
A finding by the Board that the grantee has acted disloyally and/or against the interests of the Company.
(b)
Forfeiture of Stock Rights Granted to Directors. Notwithstanding any other provision of this Plan, and unless otherwise provided for in a Stock Rights Agreement, all vested or unvested Stock Rights granted to directors shall be immediately forfeited at the discretion of the Board if any of the following events occur:
(1)
Purchasing or selling securities of the Company in violation of the Companys insider trading guidelines then in effect;
(2)
Breaching any duty of confidentiality including that required by the Companys insider trading guidelines then in effect;
(3)
Competing with the Company;
(4)
Recruitment of Company personnel after ceasing to be a director;
or
(5)
A finding by the Board that the grantee has acted disloyally and/or against the interests of the Company.
The Company may impose other forfeiture restrictions which are more or less restrictive and require a return of profits from the sale of Common Stock as part of said forfeiture provisions if such forfeiture provisions and/or return of provisions are contained in a Stock Rights Agreement.
(c)
Profits on the Sale of Certain Shares; Redemption. If any of the events specified in Section 24(a) or (b) of the Plan occur within one year from the date the grantee last performed services for the Company in the capacity for which the Stock Rights were granted (the Termination Date) (or such longer period required by any written agreement), all profits earned from the sale of the Companys securities, including the sale of shares of common stock underlying the Stock Rights, during the two-year period commencing one year prior to the Termination Date shall be forfeited and immediately paid by the grantee to the Company. Further, in such event, the Company may at its option redeem shares of common stock acquired upon exercise of the Stock Right by payment of the exercise price to the grantee. To the extent that another written agreement with the Company extends the events in Section 24(a) or (b) beyond one year following the Termination Date, the two-year period shall be extended by an equal number of days. The Companys rights under this Section 24(c) do not lapse one year form the Termination Date but are contract rights subject to any appropriate statutory limitation period.
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Michael Mathews, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Aspen Group, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5.
The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: September 15, 2014
/s/ Michael Mathews |
Michael Mathews Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Janet Gill, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Aspen Group, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5.
The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: September 15, 2014
/s/ Janet Gill |
Janet Gill Executive Vice President, Chief Financial Officer (Interim) (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Aspen Group, Inc. (the Company) on Form 10-Q for the quarter ended July 31, 2014, as filed with the Securities and Exchange Commission on the date hereof, I, Michael Mathews, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1.
The quarterly report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and
2.
The information contained in the quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Michael Mathews Michael Mathews Chief Executive Officer (Principal Executive Officer) |
Dated: September 15, 2014
In connection with the quarterly report of Aspen Group, Inc. (the Company) on Form 10-Q for the quarter ended July 31, 2014, as filed with the Securities and Exchange Commission on the date hereof, I, Janet Gill, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1.
The quarterly report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and
2.
The information contained in the quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Janet Gill |
Janet Gill Executive Vice President, Chief Financial Officer (Interim) (Principal Financial Officer) |
Dated: September 15, 2014
Stockholders' Deficiency (Common Stock and Warrants Narrative) (Details) (USD $)
|
1 Months Ended | 1 Months Ended | 3 Months Ended | 1 Months Ended | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2013
Laidlaw and Co [Member]
|
Jun. 30, 2014
Director [Member]
Equity Issuance Transaction One [Member]
|
Jun. 30, 2014
Director [Member]
Equity Issuance Transaction Two [Member]
|
Jun. 30, 2014
CEO [Member]
|
Mar. 08, 2012
CEO [Member]
|
Jul. 31, 2014
Institutional Investor [Member]
|
Sep. 30, 2013
Institutional Investor [Member]
|
Jul. 31, 2014
Common Stock [Member]
|
Jun. 30, 2014
Common Stock [Member]
Director [Member]
Equity Issuance Transaction One [Member]
|
Jun. 30, 2014
Common Stock [Member]
Director [Member]
Equity Issuance Transaction Two [Member]
|
Jun. 30, 2014
Common Stock [Member]
CEO [Member]
|
Jul. 31, 2014
Common Stock [Member]
Institutional Investor [Member]
|
Sep. 30, 2013
Warrant [Member]
Laidlaw and Co [Member]
|
Jun. 30, 2014
Warrant [Member]
Director [Member]
Equity Issuance Transaction One [Member]
|
Jun. 30, 2014
Warrant [Member]
Director [Member]
Equity Issuance Transaction Two [Member]
|
Jun. 30, 2014
Warrant [Member]
CEO [Member]
|
Jul. 31, 2014
Warrant [Member]
Institutional Investor [Member]
|
Sep. 30, 2013
Warrant [Member]
Institutional Investor [Member]
|
|
Stockholders Equity [Line Items] | ||||||||||||||||||
Debt conversion, price per share | $ 0.155 | $ 0.3325 | ||||||||||||||||
Issuance of common shares and warrants for cash, net of offering costs | $ 50,000 | $ 50,000 | $ 50,000 | $ 1,631,500 | ||||||||||||||
Offering costs | $ 75,000 | |||||||||||||||||
Issuance of common shares and warrants for cash, net of offering costs, shares | 263,158 | 263,158 | 263,158 | 10,525,809 | 263,158 | 263,158 | 263,158 | 5,262,907 | ||||||||||
Option expiration period | 5 years | 5 years | 5 years | |||||||||||||||
Exercise price of warrants | $ 0.3325 | $ 0.155 | $ 0.19 | |||||||||||||||
Number of warrants outstanding | 14,451,613 | |||||||||||||||||
Shares issued for price protection, shares | 3,473,259 | 3,473,259 | 2,662,139 | |||||||||||||||
Price per share | $ 0.19 | $ 0.19 | $ 0.19 | $ 1.00 |
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