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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| | | | | |
☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended January 31, 2020
or
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from ___________ to ___________ |
Commission file number 001-38175
ASPEN GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
| | | | | | | | | | | | | | |
| Delaware | | 27-1933597 | |
| State or Other Jurisdiction of Incorporation or Organization | | I.R.S. Employer Identification No. | |
| | | | |
| 276 Fifth Avenue, Suite 505, New York, New York | | 10001 | |
| Address of Principal Executive Offices | | Zip Code | |
(480) 407-7365
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.001 | ASPU | The Nasdaq Stock Market (The Nasdaq Global Market) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | |
| Large accelerated filer ¨ | Accelerated filer þ |
| Non-accelerated filer ¨ | Smaller reporting company ☑ |
| Emerging growth company ☐ | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No þ
| | | | | | | | |
Class | | Outstanding as of March 6, 2020 |
Common Stock, $0.001 par value per share | | 21,740,741 shares |
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ASPEN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| January 31, 2020 | | April 30, 2019 |
| (Unaudited) | | |
Assets | | | |
Current assets: | | | |
Cash | $ | 20,512,808 | | | $ | 9,519,352 | |
Restricted cash | 456,211 | | | 448,400 | |
Accounts receivable, net of allowance of $1,759,824 and $1,247,031, respectively | 14,128,185 | | | 10,656,470 | |
Prepaid expenses | 977,937 | | | 410,745 | |
Other receivables | 1,750 | | | 2,145 | |
Other current assets | 173,090 | | | — | |
Total current assets | 36,249,981 | | | 21,037,112 | |
| | | |
Property and equipment: | | | |
Call center equipment | 305,766 | | | 193,774 | |
Computer and office equipment | 396,898 | | | 327,621 | |
Furniture and fixtures | 1,550,520 | | | 1,381,271 | |
Software | 5,725,500 | | | 4,314,198 | |
| 7,978,684 | | | 6,216,864 | |
Less accumulated depreciation and amortization | (2,662,273) | | | (1,825,524) | |
Total property and equipment, net | 5,316,411 | | | 4,391,340 | |
Goodwill | 5,011,432 | | | 5,011,432 | |
Intangible assets, net | 7,900,000 | | | 8,541,667 | |
Courseware, net | 121,235 | | | 161,930 | |
Accounts receivable, secured - net of allowance of $625,963 and $625,963, respectively | 45,329 | | | 45,329 | |
Long term contractual accounts receivable | 6,067,234 | | | 3,085,243 | |
Debt issue cost, net | 211,999 | | | 300,824 | |
Right of use lease asset | 7,693,268 | | | — | |
Deposits and other assets | 349,535 | | | 629,626 | |
Total assets | $ | 68,966,424 | | | $ | 43,204,503 | |
(Continued)
The accompanying condensed notes are an integral part of these unaudited consolidated financial statements
ASPEN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
| | | | | | | | | | | |
| January 31, 2020 | | April 30, 2019 |
| (Unaudited) | | |
Liabilities and Stockholders’ Equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 791,138 | | | $ | 1,699,221 | |
Accrued expenses | 1,077,985 | | | 651,418 | |
Deferred revenue | 5,694,743 | | | 2,456,865 | |
Refunds due students | 2,311,745 | | | 1,174,501 | |
Deferred rent, current portion | — | | | 47,436 | |
Convertible note payable | 50,000 | | | 50,000 | |
Operating lease obligations, current portion | 1,649,934 | | | — | |
Other current liabilities | 584,659 | | | 270,786 | |
Total current liabilities | 12,160,204 | | | 6,350,227 | |
| | | |
Convertible notes, net of discount of $1,692,309 at January 31, 2020 | 8,307,691 | | | — | |
Senior secured loan payable, net of discount of $353,328 at April 30, 2019 | — | | | 9,646,672 | |
Operating lease obligations | 6,043,334 | | | — | |
Deferred rent | 775,807 | | | 746,176 | |
Total liabilities | 27,287,036 | | | 16,743,075 | |
| | | |
Commitments and contingencies – see Note 10 | | | |
| | | |
Stockholders’ equity: | | | |
Preferred stock, $0.001 par value; 1,000,000 shares authorized, | | | |
0 issued and outstanding at January 31, 2020 and April 30, 2019 | — | | | — | |
Common stock, $0.001 par value; 40,000,000 shares authorized | | | |
21,727,075 issued and 21,710,408 outstanding at January 31, 2020 | | | |
18,665,551 issued and 18,648,884 outstanding at April 30, 2019 | 21,727 | | | 18,666 | |
Additional paid-in capital | 88,772,128 | | | 68,562,727 | |
Treasury stock (16,667 shares) | (70,000) | | | (70,000) | |
Accumulated deficit | (47,044,467) | | | (42,049,965) | |
Total stockholders’ equity | 41,679,388 | | | 26,461,428 | |
| | | |
Total liabilities and stockholders’ equity | $ | 68,966,424 | | | $ | 43,204,503 | |
| | | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
ASPEN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended January 31, | | | | Nine Months Ended January 31, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Revenues | $ | 12,537,940 | | | $ | 8,494,627 | | | $ | 34,981,887 | | | $ | 23,811,275 | |
| | | | | | | |
Operating expenses | | | | | | | |
Cost of revenues (exclusive of depreciation and amortization shown separately below) | 5,163,007 | | | 4,076,980 | | | 13,704,121 | | | 11,664,887 | |
General and administrative | 8,627,588 | | | 6,284,041 | | | 23,264,447 | | | 18,318,061 | |
Depreciation and amortization | 475,393 | | | 555,292 | | | 1,710,192 | | | 1,577,464 | |
Total operating expenses | 14,265,988 | | | 10,916,313 | | | 38,678,760 | | | 31,560,412 | |
| | | | | | | |
Operating loss | (1,728,048) | | | (2,421,686) | | | (3,696,873) | | | (7,749,137) | |
| | | | | | | |
Other income (expense) | | | | | | | |
Other income | 34,117 | | | 142,180 | | | 189,486 | | | 240,074 | |
Interest expense | (571,958) | | | (76,434) | | | (1,424,607) | | | (159,232) | |
Total other income/(expense), net | (537,841) | | | 65,746 | | | (1,235,121) | | | 80,842 | |
| | | | | | | |
Loss before income taxes | (2,265,889) | | | (2,355,940) | | | (4,931,994) | | | (7,668,295) | |
| | | | | | | |
Income tax expense | 15,163 | | | — | | | 62,508 | | | — | |
| | | | | | | |
Net loss | $ | (2,281,052) | | | $ | (2,355,940) | | | $ | (4,994,502) | | | $ | (7,668,295) | |
| | | | | | | |
Net loss per share allocable to common stockholders - basic | $ | (0.12) | | | $ | (0.13) | | | $ | (0.26) | | | $ | (0.42) | |
| | | | | | | |
Weighted average number of common stock outstanding - basic | 19,420,987 | | | 18,398,095 | | | 19,046,558 | | | 18,350,360 | |
The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
ASPEN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Three Months Ended January 31, 2020 and 2019
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | Additional Paid-In Capital | | Treasury Stock | | Accumulated Deficit | | Total Stockholders’ Equity |
| Shares | | Amount | | | | | | | | |
Balance at October 31, 2019 | 19,142,316 | | | $ | 19,142 | | | $ | 69,781,363 | | | $ | (70,000) | | | $ | (44,763,415) | | | $ | 24,967,090 | |
Stock-based compensation | — | | | — | | | 737,820 | | | — | | | — | | | 737,820 | |
Common stock issued for cashless stock options exercised | 8,352 | | | 9 | | | (9) | | | — | | | — | | | — | |
Common stock issued for stock options exercised for cash | 121,407 | | | 121 | | | 530,547 | | | — | | | — | | | 530,668 | |
Amortization of warrant based cost | — | | | — | | | 9,125 | | | — | | | — | | | 9,125 | |
Amortization of restricted stock issued for services | — | | | — | | | 24,398 | | | — | | | — | | | 24,398 | |
Restricted Stock Issued for Services, subject to vesting | 40,000 | | | 40 | | | (40) | | | — | | | — | | | — | |
Common stock issued for equity raise, net of underwriter costs of $1,222,371 | 2,415,000 | | | | 2,415 | | | | 16,042,464 | | | | — | | | | — | | | | 16,044,879 | |
Other offering costs | — | | | | — | | | | (51,282) | | | | — | | | | — | | | | (51,282) | |
Beneficial conversion feature on convertible debt | — | | | | — | | | | 1,692,309 | | | | — | | | | — | | | | 1,692,309 | |
Common stock short swing reclamation | — | | | | — | | | | 5,433 | | | | — | | | | — | | | | 5,433 | |
Net loss | — | | | — | | | — | | | — | | | (2,281,052) | | | (2,281,052) | |
Balance at January 31, 2020 | 21,727,075 | | | $ | 21,727 | | | $ | 88,772,128 | | | $ | (70,000) | | | $ | (47,044,467) | | | $ | 41,679,388 | |
| | | | | | | | | | | |
| Common Stock | | | | Additional Paid-In Capital | | Treasury Stock | | Accumulated Deficit | | Total Stockholders’ Equity |
| Shares | | Amount | | | | | | | | |
Balance at October 31, 2018 | 18,391,092 | | | $ | 18,391 | | | $ | 67,102,509 | | | $ | (70,000) | | | $ | (38,084,103) | | | $ | 28,966,797 | |
Stock-based compensation | — | | | — | | | 350,838 | | | — | | | — | | | 350,838 | |
Common stock issued for cashless stock options exercised | 55,871 | | | 56 | | | (56) | | | — | | | — | | | — | |
Common stock issued for stock options exercised for cash | 22,985 | | | 23 | | | 50,018 | | | — | | | — | | | 50,041 | |
Common stock issued for cashless warrant exercise | 35,921 | | | | 36 | | | | (36) | | | | — | | | | — | | | | — | |
Relative fair value of warrants issued with debt | — | | | | — | | | | 255,071 | | | | — | | | | — | | | | 255,071 | |
Net loss | — | | | — | | | — | | | — | | | (2,355,940) | | | (2,355,940) | |
Balance at January 31, 2019 | 18,505,869 | | | $ | 18,506 | | | $ | 67,758,344 | | | $ | (70,000) | | | $ | (40,440,043) | | | $ | 27,266,807 | |
The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
ASPEN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (CONTINUED)
Nine Months Ended January 31, 2020 and 2019
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | Additional Paid-In Capital | | Treasury Stock | | Accumulated Deficit | | Total Stockholders’ Equity |
| Shares | | Amount | | | | | | | | |
Balance at April 30, 2019 | 18,665,551 | | | $ | 18,666 | | | $ | 68,562,727 | | | $ | (70,000) | | | $ | (42,049,965) | | | $ | 26,461,428 | |
Stock-based compensation | — | | | — | | | 1,627,304 | | | — | | | — | | | 1,627,304 | |
Common stock issued for cashless stock options exercised | 190,559 | | | 191 | | | (191) | | | — | | | — | | | — | |
Common stock issued for stock options exercised for cash | 234,233 | | | 234 | | | 768,147 | | | — | | | — | | | 768,381 | |
Common stock issued for cashless warrant exercise | 76,929 | | | 77 | | | (77) | | | — | | | — | | | — | |
Amortization of warrant based cost | — | | | — | | | 27,690 | | | — | | | — | | | 27,690 | |
Amortization of restricted stock issued for services | — | | | — | | | 97,748 | | | — | | | — | | | 97,748 | |
Restricted Stock Issued for Services, subject to vesting | 144,803 | | | 144 | | | (144) | | | — | | | — | | | — | |
Common stock issued for equity raise, net of underwriter costs of $1,222,371 | 2,415,000 | | | | 2,415 | | | | 16,042,464 | | | | — | | | | — | | | | 16,044,879 | |
Other offerings costs | — | | | | — | | | | (51,282) | | | | — | | | | — | | | | (51,282) | |
Beneficial conversion feature on convertible debt | — | | | | — | | | | 1,692,309 | | | | — | | | | — | | | | 1,692,309 | |
Common stock short swing reclamation | — | | | | — | | | | 5,433 | | | | — | | | | — | | | | 5,433 | |
Net loss | — | | | — | | | — | | | — | | | (4,994,502) | | | (4,994,502) | |
Balance at January 31, 2020 | 21,727,075 | | | $ | 21,727 | | | $ | 88,772,128 | | | $ | (70,000) | | | $ | (47,044,467) | | | $ | 41,679,388 | |
| | | | | | | | | | | |
| Common Stock | | | | Additional Paid-In Capital | | Treasury Stock | | Accumulated Deficit | | Total Stockholders’ Equity |
| Shares | | Amount | | | | | | | | |
Balance at April 30, 2018 | 18,333,521 | | | $ | 18,334 | | | $ | 66,557,005 | | | $ | (70,000) | | | $ | (32,771,748) | | | $ | 33,733,591 | |
Stock-based compensation | — | | | — | | | 866,129 | | | — | | | — | | | 866,129 | |
Common stock issued for cashless stock options exercised | 86,635 | | | 87 | | | (87) | | | — | | | — | | | — | |
Common stock issued for stock options exercised for cash | 49,792 | | | 49 | | | 110,094 | | | — | | | — | | | 110,143 | |
Common stock issued for cashless warrant exercise | 35,921 | | | | 36 | | | | (36) | | | | — | | | | — | | | | — | |
Relative fair value of warrants issued with debt | — | | | | — | | | | 255,071 | | | | — | | | | — | | | | 255,071 | |
Purchase of treasury stock, net of broker fees | — | | | — | | | — | | | (7,370,000) | | | — | | | (7,370,000) | |
Re-sale of treasury stock, net of broker fees | — | | | — | | | — | | | 7,370,000 | | | — | | | 7,370,000 | |
Fees associated with equity raise | — | | | — | | | (29,832) | | | — | | | — | | | (29,832) | |
Net loss | — | | | — | | | — | | | — | | | (7,668,295) | | | (7,668,295) | |
Balance at January 31, 2019 | 18,505,869 | | | $ | 18,506 | | | $ | 67,758,344 | | | $ | (70,000) | | | $ | (40,440,043) | | | $ | 27,266,807 | |
The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
ASPEN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | | | | | | |
| Nine Months Ended January 31, | | |
| 2020 | | 2019 |
Cash flows from operating activities: | | | |
Net loss | $ | (4,994,502) | | | $ | (7,668,295) | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | |
Bad debt expense | 651,205 | | | 480,066 | |
Depreciation and amortization | 1,710,192 | | | 1,577,464 | |
Stock-based compensation | 1,782,472 | | | 866,129 | |
Warrants issued for services | 27,690 | | | — | |
Loss on asset disposition | 3,918 | | | — | |
Amortization of debt discounts | 182,218 | | | — | |
Amortization of debt issue costs | 88,825 | | | 24,657 | |
Amortization of prepaid shares for services | — | | | 8,285 | |
Non-cash payments to investor relations firm | 97,748 | | | — | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | (7,104,911) | | | (4,209,576) | |
Prepaid expenses | (567,192) | | | (152,094) | |
Other receivables | 395 | | | 105,334 | |
Other current assets | (173,090) | | | — | |
Other assets | 280,091 | | | (22,846) | |
Accounts payable | (908,083) | | | (517,981) | |
Accrued expenses | 426,567 | | | (88,048) | |
Deferred rent | (17,805) | | | 638,713 | |
Refunds due students | 1,137,244 | | | 554,219 | |
Deferred revenue | 3,237,878 | | | 885,091 | |
| | | |
Other liabilities | 313,875 | | | 88,332 | |
Net cash used in operating activities | (3,825,265) | | | (7,430,550) | |
Cash flows from investing activities: | | | |
Purchases of courseware and accreditation | (11,001) | | | (89,573) | |
Purchases of property and equipment | (1,929,878) | | | (1,873,326) | |
Net cash used in investing activities | (1,940,879) | | | (1,962,899) | |
Cash flows from financing activities: | | | |
Proceeds from sale of common stock net of underwriter costs | 16,044,879 | | | | — | |
Disbursements for equity offering costs | (51,282) | | | (29,832) | |
Common stock short swing reclamation | 5,433 | | | | — | |
Proceeds of stock options exercised and warrants exercised | 768,381 | | | 110,143 | |
Repayment of convertible note payable | — | | | | (1,000,000) | |
Offering costs paid on debt financing | — | | | | (100,000) | |
Purchase of treasury stock, net of broker fees | — | | | (7,370,000) | |
Re-sale of treasury stock, net of broker fees | — | | | 7,370,000 | |
Net cash provided by (used in) financing activities | 16,767,411 | | | (1,019,689) | |
(Continued)
The accompanying condensed notes are an integral part of these unaudited consolidated financial statements
ASPEN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED
(Unaudited)
| | | | | | | | | | | |
| Nine Months Ended January 31, | | |
| 2020 | | 2019 |
Net increase (decrease) in cash and cash equivalents | $ | 11,001,267 | | | $ | (10,413,138) | |
Cash, restricted cash, and cash equivalents at beginning of period | 9,967,752 | | | 14,803,065 | |
Cash and cash equivalents at end of period | $ | 20,969,019 | | | $ | 4,389,927 | |
| | | |
Supplemental disclosure cash flow information | | | |
Cash paid for interest | $ | 979,792 | | | $ | 163,139 | |
Cash paid for income taxes | $ | 110,307 | | | $ | — | |
| | | |
Supplemental disclosure of non-cash investing and financing activities | | | |
Common stock issued for services | $ | 178,447 | | | $ | — | |
Right-of-use lease asset offset against operating lease obligations | $ | 7,693,268 | | | | $ | — | |
Beneficial conversion feature on convertible debt | $ | 1,692,309 | | | | $ | — | |
Warrants issued as part of revolving credit facility | $ | — | | | | $ | 255,071 | |
The following table provides a reconciliation of cash and restricted cash reported within the unaudited consolidated balance sheets that sum to the same such amounts shown in the unaudited consolidated statements of cash flows:
| | | | | | | | | | | |
| | | |
| Nine Months Ended January 31, | | |
| 2020 | | 2019 |
Cash | $ | 20,512,808 | | | $ | 4,197,235 | |
Restricted cash | 456,211 | | | 192,692 | |
Total cash and restricted cash | $ | 20,969,019 | | | $ | 4,389,927 | |
The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
ASPEN GROUP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2020
(Unaudited)
Note 1. Nature of Operations and Liquidity
Overview
°Ç¸ç³Ô¹Ï. (together with its subsidiaries, the “Company,” “Aspen,” or “AGI”) is a holding company, which has three subsidiaries. They are Aspen University Inc. (“Aspen University”) organized in 1987, Aspen Nursing, Inc. (“ANI”) (a subsidiary of Aspen University) formed in October 2018 and United States University, Inc. (“USU”) formed in May 2017. USU was the vehicle we used to acquire United States University on December 1, 2017. (See Note 4). When we refer to USU in this Report, we refer to either the online university which has operated under the name United States University or our subsidiary which operates this university, as the context implies.
AGI is an education technology holding company that leverages its infrastructure and expertise to allow its two universities, Aspen University and United States University, to deliver on the vision of making college affordable again. Because we believe higher education should be a catalyst to our students’ long-term economic success, we exert financial prudence by offering affordable tuition that is one of the greatest values in higher education. AGI’s primary focus relative to future growth is to target the high growth nursing profession, currently 84% of all students across both universities are degree-seeking nursing students.
Since 1993, Aspen University has been nationally accredited by the Distance Education and Accrediting Council (“DEAC”), a national accrediting agency recognized by the U.S. Department of Education (the “DOE”). In February 2019, the DEAC informed Aspen University that it had renewed its accreditation for five years through January 2024.
Since 2009, USU has been regionally accredited by WASC Senior College and University Commission. (“WSCUC”).
Both universities are qualified to participate under the Higher Education Act of 1965, as amended (HEA) and the Federal student financial assistance programs (Title IV, HEA programs). USU has a provisional certification resulting from the ownership change of control in connection with the acquisition by AGI on December 1, 2017.
Basis of Presentation
Interim Financial Statements
The interim consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments and reclassifications and non-recurring adjustments) necessary to present fairly our results of operations for the three and nine months ended January 31, 2020 and 2019, our cash flows for the nine months ended January 31, 2020 and 2019, and our financial position as of January 31, 2020 have been made. The results of operations for such interim periods are not necessarily indicative of the operating results to be expected for the full year.
Certain information and disclosures normally included in the notes to the annual consolidated financial statements have been condensed or omitted from these interim consolidated financial statements. Accordingly, these interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2019 as filed with the SEC on July 9, 2019. The April 30, 2019 balance sheet is derived from those statements.
Liquidity
At January 31, 2020, the Company had a cash balance of $20,512,808 with an additional $456,211 in restricted cash.
On November 5, 2018 the Company entered into a three year, $5,000,000 senior revolving credit facility. There is currently no outstanding balance under that facility. (See Note 6)
ASPEN GROUP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2020
(Unaudited)
In March 2019, the Company entered into two loan agreements for a principal amount of $5 million each and received total proceeds of $10 million. In connection with the loan agreements, the Company issued 18 month senior secured promissory notes, with the right to extend the term of the loans for an additional 12 months subject to paying a 1% one-time extension fee. On January 23, 2020, the Term Loans were exchanged for convertible notes maturing January 22, 2023. (See Note 6)
On January 22, 2020, the Company closed on an underwritten offering under which the net proceeds were approximately $16 million and the condition precedent to the closing of the refinancing was satisfied. (See Note 6)
During the nine months ended January 31, 2020 the Company provided net cash of $11,001,267, which included using $3,825,265 in operating activities.
Note 2. Significant Accounting Policies
Principles of Consolidation
The unaudited consolidated financial statements include the accounts of AGI and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the unaudited consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements. Actual results could differ from those estimates. Significant estimates in the accompanying unaudited consolidated financial statements include the allowance for doubtful accounts and other receivables, the valuation of collateral on certain receivables, estimates of the fair value of assets acquired and liabilities assumed in a business combination, amortization periods and valuation of courseware, intangibles and software development costs, estimates of the valuation of initial right of use ("ROU") assets and corresponding lease liabilities, valuation of beneficial conversion features in convertible debt, valuation of goodwill, valuation of loss contingencies, valuation of stock-based compensation and the valuation allowance on deferred tax assets.
Cash, Cash Equivalents, and Restricted Cash
For the purposes of the unaudited consolidated statements of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents at January 31, 2020 and April 30, 2019. The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits of $250,000 per financial institution. The Company has not experienced any losses in such accounts from inception through January 31, 2020.
As of January 31, 2020 and April 30, 2019, the Company maintained deposits totaling $22,318,390 and $9,359,208, respectively, held in two separate institutions.
Restricted cash was $456,211 as of January 31, 2020 and consisted of $123,132 which is collateral for a letter of credit issued by the bank and required under the USU facility operating lease. Also, included was $72,022 and an additional $261,057, which was collateral for a letter of credit issued by the bank and related to USU’s receipt of Title IV funds as required by DOE in connection with the change of control of USU. Restricted cash as of April 30, 2019 was $448,400. See Note 11. Subsequent Events for information on the release of a portion of USU's restricted cash.
Goodwill and Intangibles
Goodwill currently represents the excess of the purchase price of USU over the fair market value of assets acquired and liabilities assumed from Educacion Significativa, LLC. Goodwill has an indefinite life and is not amortized. Goodwill is tested annually for impairment.
ASPEN GROUP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2020
(Unaudited)
Intangible assets represent both indefinite lived and definite lived assets. Accreditation, regulatory approvals, trade name and trademarks are deemed to have indefinite useful lives and accordingly are not amortized but are tested annually for impairment. Student relationships and curriculums are deemed to have definite lives and are amortized accordingly.
Fair Value Measurements
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The Company classifies assets and liabilities recorded at fair value under the fair value hierarchy based upon the observability of inputs used in valuation techniques. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions. The fair value measurements are classified under the following hierarchy:
Level 1—Observable inputs that reflect quoted market prices (unadjusted) for identical assets and liabilities in active markets;
Level 2—Observable inputs, other than quoted market prices, that are either directly or indirectly observable in the marketplace for identical or similar assets and liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets and liabilities; and
Level 3—Unobservable inputs that are supported by little or no market activity that are significant to the fair value of assets or liabilities.
The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
Accounts Receivable and Allowance for Doubtful Accounts Receivable
All students are required to select both a primary and secondary payment option with respect to amounts due to Aspen for tuition, fees and other expenses. The monthly payment plan represents approximately 65% of the payments that are made by students, making it the most common payment type. In instances where a student selects financial aid as the primary payment option, he or she often selects personal cash as the secondary option. If a student who has selected financial aid as his or her primary payment option withdraws prior to the end of a course but after the date that Aspen’s institutional refund period has expired, the student will have incurred the obligation to pay the full cost of the course. If the withdrawal occurs before the date at which the student has earned 100% of his or her financial aid, Aspen may have to return all or a portion of the Title IV funds to the DOE and the student will owe Aspen all amounts incurred that are in excess of the amount of financial aid that the student earned, and that Aspen is entitled to retain. In this case, Aspen must collect the receivable using the student’s second payment option.
For accounts receivable from students, Aspen records an allowance for doubtful accounts for estimated losses resulting from the inability, failure or refusal of its students to make required payments, which includes the recovery of financial aid funds advanced to a student for amounts in excess of the student’s cost of tuition and related fees. Aspen determines the adequacy of its allowance for doubtful accounts using an allowance method based on an analysis of its historical bad debt experience, current economic trends, and the aging of the accounts receivable and each student’s status. Aspen estimates the amounts to increase the allowance based upon the risk presented by the age of the receivables and student status. Aspen writes off accounts receivable balances at the time the balances are deemed uncollectible. Aspen continues to reflect accounts receivable with an offsetting allowance as long as management believes there is a reasonable possibility of collection.
For accounts receivable from primary payors other than students, Aspen estimates its allowance for doubtful accounts by evaluating specific accounts where information indicates the customers may have an inability to meet financial obligations, such as bankruptcy proceedings and receivable amounts outstanding for an extended period beyond contractual terms. In these cases, Aspen uses assumptions and judgment, based on the best available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable to the amount expected to be collected. These