MIME-Version: 1.0 X-Document-Type: Workbook Content-Type: multipart/related; boundary="----=_NextPart_febd7bfa_1be5_4756_8af5_286970bc7478" This document is a Single File Web Page, also known as a Web Archive file. If you are seeing this message, your browser or editor doesn't support Web Archive files. Please download a browser that supports Web Archive, such as Microsoft Internet Explorer. ------=_NextPart_febd7bfa_1be5_4756_8af5_286970bc7478 Content-Location: file:///C:/febd7bfa_1be5_4756_8af5_286970bc7478/Workbook.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"

This page should be opened with Microsoft Excel XP or newer.

------=_NextPart_febd7bfa_1be5_4756_8af5_286970bc7478 Content-Location: file:///C:/febd7bfa_1be5_4756_8af5_286970bc7478/Worksheets/Sheet01.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Document and Entity Information
3 Months Ended
Mar. 31, 2012
May 10, 2012
Document And Entity Information
Entity Registrant Name ASPEN GROUP, INC.
Entity Central Index Key 0001487198
Document Type 10-Q
Document Period End Date Mar 31, 2012
Amendment Flag false
Current Fiscal Year End Date --12-31
Is Entity a Well-known Seasoned Issuer? No
Is Entity a Voluntary Filer? No
Is Entity's Reporting Status Current? Yes
Entity Filer Category Smaller Reporting Company
Entity Common Stock, Shares Outstanding 35,295,204
Document Fiscal Period Focus Q1
Document Fiscal Year Focus 2012
------=_NextPart_febd7bfa_1be5_4756_8af5_286970bc7478 Content-Location: file:///C:/febd7bfa_1be5_4756_8af5_286970bc7478/Worksheets/Sheet02.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Condensed Consolidated Balance Sheets (USD $)
Mar. 31, 2012
Dec. 31, 2011
Assets
Cash and cash equivalents $ 246,525 $ 766,602
Restricted cash 105,865 0
Accounts receivable, net of allowance of $61,500 and $47,595, respectively 1,162,380 847,234
Accounts receivable, secured - related party 772,793 772,793
Receivable from stockholder, secured - related party 2,209,960 2,209,960
Note receivable from officer, secured - related party 0 150,000
Prepaid expenses and other current assets 125,850 103,478
Total current assets 4,623,373 4,850,067
Property and equipment, net 113,534 129,944
Intangible assets, net 1,295,768 1,236,996
Other assets 6,559 6,559
Total assets 6,039,234 6,223,566
Liabilities and Stockholders' Equity (Deficiency)
Accounts payable 1,725,961 1,094,029
Accrued expenses 282,335 167,528
Deferred revenue 1,037,111 835,694
Convertible notes payable, current portion (includes $300,000 to related parties) 470,000 0
Notes payable, current portion 0 6,383
Loan payable to stockholder 491 0
Deferred rent, current portion 4,782 4,291
Total current liabilities 3,520,680 2,107,925
Line of credit 227,446 233,215
Loans payable (includes $50,000 to related parties) 0 200,000
Convertible notes payable (includes $50,000 to related parties) 200,000 0
Notes payable 0 8,768
Deferred rent 19,710 21,274
Total liabilities 3,967,836 2,571,182
Commitments and contingencies      
Temporary equity:
Series A preferred stock, $0.001 par value; 850,500 shares designated, none and 850,395 shares issued and outstanding, respectively 0 809,900
Series D preferred stock, $0.001 par value; 3,700,000 shares designated, none and 1,176,750 shares issued and outstanding, respectively (liquidation value of $1,176,750) 0 1,109,268
Series E preferred stock, $0.001 par value; 2,000,000 shares designated, none and 1,700,000 shares issued and outstanding, respectively (liquidation value of $1,700,000) 0 1,550,817
Total temporary equity 0 3,469,985
Stockholders' equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized      
Series C preferred stock, $0.001 par value; 11,411,400 shares designated, none and 11,307,450 shares issued and outstanding, respectively (liquidation value of $11,307) 0 11,307
Series B preferred stock, $0.001 par value; 368,421 shares designated, none and 368,411 shares issued and outstanding, respectively 0 368
Common stock, $0.001 par value; 120,000,000 shares authorized, 35,275,204 and 11,837,930 issued and outstanding, respectively 35,275 11,838
Additional paid-in capital 6,778,754 3,275,296
Accumulated deficit (4,742,631) (3,116,410)
Total stockholders' equity 2,071,398 182,399
Total liabilities and stockholders' equity $ 6,039,234 $ 6,223,566
------=_NextPart_febd7bfa_1be5_4756_8af5_286970bc7478 Content-Location: file:///C:/febd7bfa_1be5_4756_8af5_286970bc7478/Worksheets/Sheet03.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
Mar. 31, 2012
Dec. 31, 2011
Assets
Accounts receivable, allowance for doubtful accounts $ 61,500 $ 47,595
Liabilities
Convertible notes payable, related parties - current 300,000 0
Loans payable (includes $50,000 to related parties) 0 50,000
Convertible notes payable, related parties - non current 50,000 0
Temporary equity:
Preferred stock, par value Series A $ 0 $ 0.001
Preferred stock, designated shares Series A 0 850,500
Preferred stock, issued shares Series A 0 850,395
Preferred stock, outstanding shares Series A 0 850,395
Preferred stock, par value Series D $ 0 $ 0.001
Preferred stock, designated shares Series D 0 3,700,000
Preferred stock, issued shares Series D 0 1,176,750
Preferred stock, outstanding shares Series D 0 1,176,750
liquidation value, Series D 0 1,176,750
Preferred stock, par value Series E $ 0 $ 0.001
Preferred stock, designated shares Series E 0 2,000,000
Preferred stock, issued shares Series E 0 1,700,000
Preferred stock, outstanding shares Series E 0 1,700,000
liquidation value, Series E 0 1,700,000
Stockholders' Equity:
Preferred stock, par value $ 0.001 $ 0.001
Preferred stock, authorized shares 10,000,000 10,000,000
Preferred stock, par value Series C $ 0 $ 0.001
Preferred stock, designated shares Series C 0 11,411,400
Preferred stock, issued shares Series C 0 11,307,450
Preferred stock, outstanding shares Series C 0 11,307,450
liquidation value, Series C $ 0 $ 11,307
Preferred stock, par value Series B $ 0 $ 0.001
Preferred stock, designated shares Series B 0 368,421
Preferred stock, issued shares Series B 0 368,411
Preferred stock, outstanding shares Series B 0 368,411
Commont Stock, par value $ 0.001 $ 0.001
Common stock, authorized shares 120,000,000 120,000,000
Common stock, issued shares 35,275,204 11,837,930
Common stock, outstanding shares 35,275,204 11,837,930
------=_NextPart_febd7bfa_1be5_4756_8af5_286970bc7478 Content-Location: file:///C:/febd7bfa_1be5_4756_8af5_286970bc7478/Worksheets/Sheet04.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Condensed Consolidated Statements of Operations (Unaudited) (USD $)
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Income Statement [Abstract]
Revenues $ 1,357,819 $ 1,007,872
Costs and expenses:
Instructional costs and services 808,902 552,867
Marketing and promotional 482,565 113,594
General and administrative 1,606,316 312,889
Depreciation and amortization 89,749 52,445
Total costs and expenses 2,987,532 1,031,795
Operating loss (1,629,713) (23,923)
Other income (expense):
Interest income 644 4
Interest expense (3,031) (3,347)
Gain on disposal of property and equipment 5,879 0
Total other income (expense) 3,492 (3,343)
Loss before income taxes (1,626,221) (27,266)
Income tax expense (benefit) 0 0
Net loss (1,626,221) (27,266)
Cumulative preferred stock dividends (37,379) 0
Net loss allocable to common stockholders $ (1,663,600) $ (27,266)
Loss per share:
Basic and diluted $ (0.1) $ 0
Weighted average number of common shares outstanding:
Basic and diluted 16,473,874 21,000,000
------=_NextPart_febd7bfa_1be5_4756_8af5_286970bc7478 Content-Location: file:///C:/febd7bfa_1be5_4756_8af5_286970bc7478/Worksheets/Sheet05.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Shareholders Equity (Unaudited) (USD $)
Preferred Stock Series B
Preferred Stock Series C
Common Stock
Additional Paid-In Capital
Accumulated Deficit
Total
Beginning balance, amount at Dec. 31, 2011 $ 368 $ 11,307 $ 11,838 $ 3,275,296 $ (3,116,410) $ 182,399
Beginning balance, shares at Dec. 31, 2011 368,411 11,307,450 11,837,930
Conversion of all preferred shares into common shares, shares (368,411) (11,307,450) 13,677,274
Conversion of all preferred shares into common shares, amount (368) (11,307) 13,677 3,467,983    3,469,985
Recapitalization, shares 9,760,000
Recapitalization, amount 9,760 (30,629)    (20,869)
Stock-based compensation 66,104    66,104
Net loss (1,626,221) (1,626,221)
Ending balance, amount at Mar. 31, 2012 $ 0 $ 0 $ 35,275 $ 6,778,754 $ (4,742,631) $ 2,071,398
Ending balance, shares at Mar. 31, 2012 0 0 35,275,204
------=_NextPart_febd7bfa_1be5_4756_8af5_286970bc7478 Content-Location: file:///C:/febd7bfa_1be5_4756_8af5_286970bc7478/Worksheets/Sheet06.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Cash flows from operating activities:
Net loss $ (1,626,221) $ (27,266)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Provision for bad debts 32,955 36,832
Gain on disposal of property and equipment (5,879) 0
Depreciation and amortization 89,749 52,446
Issuance of convertible notes in exchange for services rendered 0 21,000
Stock-based compensation 66,104 0
Changes in operating assets and liabilities, net of effects of acquisition:
Accounts receivable (348,101) (15,749)
Accounts receivable, secured - related party 0 (6,000)
Prepaid expenses and other current assets (22,372) 2,255
Accounts payable 631,932 (1,796)
Accrued expenses 114,092 (69,656)
Deferred rent (1,073) (581)
Deferred revenue 201,417 45,455
Net cash (used in) provided by operating activities (867,397) 36,940
Cash flows from investing activities:
Cash acquired as part of merger 337 0
Purchases of property and equipment 0 (59,168)
Purchases of intangible assets (141,383) (51,750)
Increase in restricted cash (105,865) 0
Proceeds received from officer loan repayments 150,000 0
Net cash provided by (used in) investing activities (96,911) (110,918)
Cash flows from financing activities:
Proceeds from (repayments on) line of credit, net (5,769) (2,513)
Principal payments on notes payable 0 (1,422)
Proceeds received from issuance of convertible notes 450,000 126,000
Net cash provided by financing activities 444,231 122,065
Net (decrease) increase in cash and cash equivalents (520,077) 48,087
Cash and cash equivalents at beginning of period 766,602 294,838
Cash and cash equivalents at end of period 246,525 342,925
Supplemental disclosure of cash flow information:
Cash paid for interest 2,431 10,252
Cash paid for income taxes 0 0
Supplemental disclosure of non-cash investing and financing activities:
Conversion of all preferred shares into common shares 3,469,985 0
Conversion of loans payable to convertible notes 200,000 0
Liabilities assumed in recapitalization 21,206 0
Settlement of notes payable by disposal of property and equipment $ 15,151 $ 0
------=_NextPart_febd7bfa_1be5_4756_8af5_286970bc7478 Content-Location: file:///C:/febd7bfa_1be5_4756_8af5_286970bc7478/Worksheets/Sheet07.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Nature of Operations and Going Concern
3 Months Ended
Mar. 31, 2012
Notes to Financial Statements
Nature of Operations and Going Concern

 

Overview 

 

Aspen Group, Inc. (together with its subsidiaries, the “Company”, “Aspen” or the “University”) was founded in Colorado in 1987 as the International School of Information Management. On September 30, 2004, the University was acquired by Higher Education Management Group, Inc. (“HEMG”) and changed its name to Aspen University Inc. On May 13, 2011, the Company formed in Colorado a subsidiary, Aspen University Marketing, LLC, which is currently inactive. On March 13, 2012, the Company was recapitalized through an acquisition by Aspen Group, Inc., an inactive publicly-held company (See Note 9).

 

Aspen’s mission is to become an institution of choice for adult learners by offering cost-effective, comprehensive, and relevant online education. One of the key differences between Aspen and other publicly-traded, exclusively online, for-profit universities is that approximately 88% of our degree-seeking students (as of March 31, 2012) 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

 

The interim condensed 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 and cash flows for the three months ended March 31, 2012 and 2011 and our financial position as of March 31, 2012 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 condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 8-K for the year ended December 31, 2011, as filed with the SEC on March 19, 2012. The December 31, 2011 balance sheet is derived from those statements.

 

Going Concern

 

The Company had a net loss allocable to common stockholders of $1,663,600 and negative cash flows from operations of $867,397 for the three months ended March 31, 2012.  The Company’s ability to continue as a going concern is contingent on securing additional debt or equity financing from outside investors.  These matters raise substantial doubt about the Company's ability to continue as a going concern. Management plans to continue to implement its business plan and to fund operations by raising additional capital through the issuance of debt and equity securities.  The Company has presently engaged an underwriter, Laidlaw & Company (UK) Ltd., to assist with raising up to $7,200,000 in additional debt and equity capital subsequent to the close of the merger with Aspen Group, Inc. Since the beginning of 2012, the Company has raised $1,059,000 in gross funding from the sale of a convertible note of $300,000 to the Company’s CEO and $759,000 ($150,000 in March 2012 and $609,000 in April 2012) from the sale of Units under the Laidlaw arrangement (See Notes 6 and 12).     

 

The financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

------=_NextPart_febd7bfa_1be5_4756_8af5_286970bc7478 Content-Location: file:///C:/febd7bfa_1be5_4756_8af5_286970bc7478/Worksheets/Sheet08.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Significant Accounting Policies
3 Months Ended
Mar. 31, 2012
Notes to Financial Statements
Significant Accounting Policies

 

Principles of Consolidation

 

The 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 condensed 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 condensed consolidated financial statements. Actual results could differ from those estimates. Significant estimates in the accompanying unaudited condensed consolidated financial statements include the allowance for doubtful accounts and other receivables, the valuation of collateral on certain receivables, the valuation and amortization periods of intangible assets, valuation of stock-based compensation and the valuation allowance on deferred tax assets.

 

Restricted Cash

 

Restricted cash represents amounts pledged as security for transactions involving Title IV programs. Upon the DOE’s completion of its review of the Company’s application to participate in Title IV programs, the funds are expected to be released and available for use by the Company.

 

Consistent with the Higher Education Act, Aspen’s certification to participate in Title IV programs terminated after closing of the Reverse Merger, and Aspen must apply to DOE to reestablish its eligibility and certification to participate in the Title IV programs. However, in order to avoid significant disruption in disbursements of Title IV funds, the DOE may temporarily and provisionally certify an institution that is seeking approval of a change in ownership, like Aspen, under certain circumstances while the DOE reviews the institution’s application. On March 15, 2012 the DOE asked Aspen to provide to the DOE by March 28, 2012 a letter of credit in the amount of $105,865, which is 10% of Aspen’s Title IV receipts in 2011. On March 27, 2012, the Company opened a 12-month money market account, bearing 0.20% interest, maturing March 28, 2013, with its banking institution in the amount of $105,865 and pledged that to the letter of credit.  The Company shall consider $105,865 as restricted cash until such letter of credit expires.

 

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.

 

Net Loss Per Share

 

Net loss per common share is based on the weighted average number of shares of common stock outstanding during each period. Common stock equivalents, including 2,070,000 and 0 stock options, 493,500 and 0 stock warrants, and a variable amount of shares underlying $670,000 (a minimum of 670,000 common shares as of March 31, 2012) and $162,000 of convertible notes payable for the three months ended March 31, 2012 and 2011, respectively, are not considered in diluted loss per share because the effect would be anti-dilutive.

 

Recent Accounting Pronouncements

 

In June 2011, the FASB, issued ASU 2011-05, which amends ASC Topic 220, Comprehensive Income, which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. It eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity. The ASU does not change the items which must be reported in other comprehensive income, how such items are measured or when they must be reclassified to net income. This ASU is effective for interim and annual periods beginning after December 15, 2011. The Company adopted ASU 2011-05 effective January 1, 2012, and such adoption did not have a material effect on the Company's financial statements.

------=_NextPart_febd7bfa_1be5_4756_8af5_286970bc7478 Content-Location: file:///C:/febd7bfa_1be5_4756_8af5_286970bc7478/Worksheets/Sheet09.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Secured Accounts and Notes Receivable - Related Parties
3 Months Ended
Mar. 31, 2012
Notes to Financial Statements
Secured Accounts and Notes Receivable - Related Parties

 

On December 14, 2011, the Company loaned $150,000 to an officer of the Company in exchange for a promissory note bearing 3% per annum. As collateral, the note was secured by 500,000 shares of the Company’s common stock owned personally by the officer. The note along with accrued interest was due and payable on September 14, 2012. For the three months ended March 31, 2012, interest income of $594 was recognized on the note receivable. As of December 31, 2011, the balance due on the note receivable was $150,000, all of which is short-term. On February 16, 2012, the note receivable from an officer was repaid along with accrued interest (See Note 11).

 

On March 30, 2008 and December 1, 2008, the Company sold course curricula pursuant to marketing agreements to Higher Education Group Management, Inc. (“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 Company’s inability to engage Mr. Spada in good faith negotiations to increase HEMG’s pledge, Michael Mathews, the Company’s 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. As of March 31, 2012 and December 31, 2011, the remaining balance owed was $772,793 and is shown as accounts receivable, secured – related party. On April 4, 2012, the Company waived any default of the accounts receivable, secured - related party and extended the due date to September 30, 2014 (See Notes 11 and 12).

 

During 2005 through September 2011, the Company advanced funds without board authority to both Patrick Spada (former Chairman of the Company) and HEMG, of which Patrick Spada is President. Having been unsuccessful since December 2011 to negotiate a settlement agreement with Patrick Spada to secure the receivable, on March 13, 2012, three directors of the Company pledged an aggregate of 2,209,960 common shares of the Company, valued at $1.00 per share, based on recent sales of capital stock as collateral for the receivable from stockholder, secured – related party. As of March 31, 2012 and December 31, 2011, the receivable due was $2,209,960 and is shown as receivable from stockholder, secured – related party (See Note 11).

------=_NextPart_febd7bfa_1be5_4756_8af5_286970bc7478 Content-Location: file:///C:/febd7bfa_1be5_4756_8af5_286970bc7478/Worksheets/Sheet10.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Intangible Assets
3 Months Ended
Mar. 31, 2012
Notes to Financial Statements
Intangible Assets

 

Intangible assets consisted of the following at March 31, 2012 and December 31, 2011:

 

   March 31,
2012
  December 31,
2011
Course curricula  $2,075,438   $2,072,238 
Call center   1,065,638    927,455 
    3,141,076    2,999,693 
Accumulated amortization   (1,845,308)   (1,762,697)
Intangible assets, net  $1,295,768   $1,236,996 

  

The following is a schedule of estimated future amortization expense of intangible assets as of March 31, 2012:

 

 Year Ending December 31,      
         
2012   $ 350,416  
2013     317,539  
2014     276,906  
2015     238,830  
2016     112,077  
Total   $ 1,295,768  


Amortization expense for the three months ended March 31, 2012 and 2011 was $82,611 and $49,992, respectively.

------=_NextPart_febd7bfa_1be5_4756_8af5_286970bc7478 Content-Location: file:///C:/febd7bfa_1be5_4756_8af5_286970bc7478/Worksheets/Sheet11.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Loans Payable
3 Months Ended
Mar. 31, 2012
Notes to Financial Statements
Loans Payable

 

During 2009, the Company received advances aggregating $200,000 from three individuals.  Of the total funds received, $50,000 was received from a related party.  From the date the funds were received through the date the loans were converted into convertible promissory notes payable, the loans were non-interest bearing demand loans and, therefore, no interest expense was recognized or due.  As of December 31, 2011, the entire balance of the loans payable is included in long-term liabilities as the Company, in February 2012, has converted the loans into long-term convertible notes payable (See Notes 6 and 11).

------=_NextPart_febd7bfa_1be5_4756_8af5_286970bc7478 Content-Location: file:///C:/febd7bfa_1be5_4756_8af5_286970bc7478/Worksheets/Sheet12.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Convertible Notes Payable
3 Months Ended
Mar. 31, 2012
Notes to Financial Statements
Convertible Notes Payable

 

As part of the recapitalization that occurred on March 13, 2012, the Company assumed from the public entity an aggregate of $20,000 of convertible notes bearing interest at 10% per annum.  Each note holder had the right, at its option and simultaneously with the first closing thereof, to convert all or a portion of the principal amount of the note into shares of the Company’s common stock at the conversion price of the next equity offering of the Company.  The notes meet the criteria of stock settled debt under ASC 480, “Distinguishing Liabilities from Equity”, and accordingly are presented at their fixed monetary amount of $20,000.  The convertible notes were past due as of the date of assumption and, accordingly, the Company was in default.  Subsequent to March 31, 2012, the convertible notes payable of $20,000 were converted into 20,000 common shares of the Company and, accordingly, the default was cured (See Note 12).

 

On February 25, 2012, February 27, 2012 and February 29, 2012, loans payable to an individual, another individual and a related party (the brother of Patrick Spada, the former Chairman of the Company), 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.  As these loans (now convertible promissory notes) are not due for at least 12 months after the balance sheet, they have been included in long-term liabilities as of March 31, 2012 (See Notes 5 and 11).

  

On March 13, 2012, the Company’s CEO made an investment of $300,000 in 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 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 date (See Note 11).

 

On February 29, 2012, (the "Effective Date") the Company retained the investment bank of Laidlaw & Company (UK) Ltd. ("Laidlaw") on an exclusive basis with certain "carve-out" provisions for the purpose of raising up to $6,000,000 (plus up to an additional $1,200,000 million to cover over-allotments at the option of Laidlaw) through two successive best-efforts private placements of the Company's securities.  The Phase One financing is an offering of up to 40 Units of $50,000 each and is to be completed by March 31, 2012, but was extended to May 31, 2012.  Each Unit consists of: (i) senior secured convertible notes (the "Convertible Notes"), bearing 10% interest, convertible into the Company's common shares at the lower of (a) $1.00 or (b) 95% of the per share purchase price of any shares of common stock (or common stock equivalents) issued on or after the original issue date of the note and (ii) five-year warrant to purchase that number of the Company's common shares equal to 25% of the number of shares issuable upon conversion of the Convertible Notes.  Mandatory conversion will occur on the initial closing of the Phase Two financing.  The Convertible Notes mature on June 30, 2012, carry provisions for price protection and require the Company to file a registration statement for the resale of the underlying common stock nine months after closing of the Phase Two offering.  For the Phase One financing, Laidlaw will receive a cash fee of 10% of aggregate funds raised along with a five-year warrant (the "Laidlaw Warrant") equal to 10% of the common stock reserved for issuance in connection with the Units.  For funds raised by other parties, Laidlaw's compensation shall be 5% cash and 5% Laidlaw Warrant.  Separately, Laidlaw requires an activation fee of $25,000, of which $15,000 was paid upon execution of the agreement.  As of March 31, 2012, the Company, without the assistance of any broker dealer, raised $150,000 from the sale of 3.0 Units (including convertible notes payable and an estimated 37,500 warrants) from the Phase One financing and, subsequent to March 31, 2012, raised another $514,600 (net of debt issuance costs of $94,400) from the sale of 12.18 Units (including convertible notes payable and an estimated 152,250 warrants) through the Laidlaw broker arrangement.  The convertible note embedded conversion options did not qualify as derivatives since the conversion shares were not readily convertible to cash due to an inactive trading market and there was no beneficial conversion value since the conversion price equaled the fair value of the shares (See Note 12).

 

Notes payable consisted of the following at March 31, 2012:

 

   

March 31,

2012

 
         
Note payable - acquired as part of recapitalization; originating September 26, 2011; no monthly payments required; bearing interest at 10%; in default since maturity at December 26, 2011 [A]   $ 10,000  
         
Note payable - acquired as part of recapitalization; originating December 12, 2011; no monthly payments required; bearing interest at 10%; in default since maturity at February 12, 2012 [A]     10,000  
         
Note payable - originating March 15, 2012; no monthly payments required; bearing interest at 10%; maturing at June 30, 2012     50,000  
         
Note payable - originating March 23, 2012; no monthly payments required; bearing interest at 10%; maturing at June 30, 2012     100,000  
         
Note payable - related party originating March 13, 2012; no monthly payments required; bearing interest at 0.19%; maturing at March 31, 2013     300,000  
         
Note payable - originating February 25, 2012; no monthly payments required; bearing interest at 0.19%; maturing at February 25, 2014     100,000  
         
Note payable - originating February 27, 2012; no monthly payments required; bearing interest at 0.19%; maturing at February 27, 2014     50,000  
         
Note payable - related party originating February 29, 2012; no monthly payments required; bearing interest at 0.19%; maturing at February 29, 2014     50,000  
Total     670,000  
Less: Current maturities (includes $300,000 to related parties)     (470,000 )
Amount due after one year (includes $50,000 to related parties)   $ 200,000  
         
[A] - in default as of March 31, 2012 (See Note 12).        


Future maturities of the notes payable are as follows:

 

 Year Ending December 31,      
         
2012   $ 170,000  
2013     300,000  
2014     200,000  
    $ 670,000  

------=_NextPart_febd7bfa_1be5_4756_8af5_286970bc7478 Content-Location: file:///C:/febd7bfa_1be5_4756_8af5_286970bc7478/Worksheets/Sheet13.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Commitments and Contingencies
3 Months Ended
Mar. 31, 2012
Notes to Financial Statements
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 March 31, 2012).  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.  The balance due on the line of credit as of March 31, 2012 was $227,446.  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 March 31, 2012 was $22,554.

 

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 March 31, 2012, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations.

 

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.

 

Regulatory Matters

 

The University is subject to extensive regulation by Federal and State governmental agencies and accrediting bodies.  In particular, the HEA and the regulations promulgated thereunder by the DOE subject the 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.  The 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 500 student recipients for Title IV funding for the duration of the provisional certification.  During 2011, the University’s provisional certification was scheduled to expire, but the University timely filed its application for recertification with the DOE, which extended the term of the University’s certification pending DOE review.  The provisional certification restrictions continue with regard to the University’s 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 DOE’s 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.  The University performs periodic reviews of its compliance with the various applicable regulatory requirements.  If we were ineligible to receive Title IV funding, given Title IV cash receipts represented approximately 7% of total revenues in 2011, our operations and liquidity would be minimally impacted.

 

As a result of certain events in 2012, the Company has been requested by DOE to provide a letter of credit in the amount of $105,865, which is 10% of Aspen’s Title IV receipts in 2011, by March 28, 2012.  On March 27, 2012, the Company provided the DOE with the requested letter of credit expiring March 28, 2013.  The DOE may impose additional terms and conditions in any temporary provisional program participation agreement that it may issue pending review of Aspen’s application for approval of the change in ownership and control that resulted from the merger with Aspen Group, Inc. on March 13, 2012.  Furthermore, DOE may impose additional or different terms and conditions in any final provisional program participation agreement that it may issue after it reviews Aspen’s application for approval of the change in ownership and control.

  

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 the Company 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.

 

Delaware Approval to Confer Degrees

 

Aspen 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.  Aspen did not obtain such approval.  An application to the State of Delaware has been made and we are awaiting a final decision.  Aspen is authorized by the Colorado Commission on Education to operate in Colorado as a degree granting institution.

------=_NextPart_febd7bfa_1be5_4756_8af5_286970bc7478 Content-Location: file:///C:/febd7bfa_1be5_4756_8af5_286970bc7478/Worksheets/Sheet14.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Temporary Equity
3 Months Ended
Mar. 31, 2012
Notes to Financial Statements
Temporary Equity

 

Prior to their conversion to common shares on March 13, 2012, the Series A, Series D and Series E preferred shares were classified as temporary equity.  During 2012 through March 13, 2012, the preferred shares accumulated additional dividends of $37,379 and as of March 13, 2012, total cumulative preferred dividends were $124,705.  On March 13, 2012, all preferred shares were automatically converted into common shares and, based on the terms of the preferred shares, none of the cumulative dividends shall ever be paid (See Note 9).

------=_NextPart_febd7bfa_1be5_4756_8af5_286970bc7478 Content-Location: file:///C:/febd7bfa_1be5_4756_8af5_286970bc7478/Worksheets/Sheet15.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Stockholders' Equity
3 Months Ended
Mar. 31, 2012
Notes to Financial Statements
Stockholders' Equity

 

Stock Dividend and Reverse Split

 

On February 23, 2012, the Company approved a stock dividend of one new share of the Company for each share presently held.  Following the stock dividend, the Company approved a one-for-two reverse stock split as of the close of business on February 24, 2012 in which each two shares of common stock shall be combined into one share of common stock.  This was done in order to reduce the conversion ratio of the convertible preferred stock for all Series to 1 for 1 except for Series C, which had a conversion ratio of 0.8473809.

 

Common Stock

 

On March 13, 2012, all of the outstanding preferred shares of the Company were automatically converted into 13,677,274 common shares of Aspen Group, Inc. (See Note 8).

 

Pursuant to the recapitalization discussed below, the Company is deemed to have issued 9,760,000 common shares to the original stockholders of the publicly-held entity.

  

Recapitalization

 

On March 13, 2012 (the “recapitalization date”), the Company was acquired by Aspen Group, Inc., an inactive publicly-held company, in a reverse merger transaction accounted for as a recapitalization of the Company (the “Recapitalization” or the “Reverse Merger”).  The common and preferred stockholders of the Company received 25,515,204 common shares of Aspen Group, Inc. in exchange for 100% of the capital stock of Aspen University Inc.  For accounting purposes, Aspen University Inc. is the acquirer and Aspen Group, Inc. is the acquired company because the stockholders of Aspen University Inc. acquired both voting and management control of the combined entity.  The Company is deemed to have issued 9,760,000 common shares to the original stockholders of the publicly-held entity.  Accordingly, after completion of the recapitalization, the historical operations of the Company are those of Aspen University Inc. and the operations since the recapitalization date are those of Aspen University Inc. and Aspen Group, Inc.  The assets and liabilities of both companies are combined at historical cost on the recapitalization date.  As a result of the recapitalization and conversion of all Company preferred shares into common shares of the public entity, all redemption and dividend rights of preferred shares were terminated.  As a result of the recapitalization, the Company now has 120,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share authorized.  The assets acquired and liabilities assumed from the publicly-held company were as follows:

 

Cash and cash equivalents   $ 337  
Liabilities assumed     (21,206 )
Net   $ (20,869 )

 

Stock Warrants

 

All outstanding warrants issued by the Company to date have been related to capital raises.  Accordingly, the Company has not recognized any stock-based compensation for warrants issued during the periods presented.

 

A summary of the Company’s warrant activity during the three months ended March 31, 2012 is presented below:

 

                Weighted        
          Weighted     Average        
          Average     Remaining     Aggregate  
    Number of     Exercise     Contractual     Intrinsic  
Warrants   Shares     Price     Term     Value  
                             
Balance Outstanding, December 31, 2011     456,000     $ 1.00              
  Granted     37,500     $ 1.00              
  Exercised     -       -              
  Forfeited     -       -              
  Expired     -       -              
Balance Outstanding, March 31, 2012     493,500     $ 1.00       4.3     $ -  
                                 
Exercisable, March 31, 2012     493,500     $ 1.00       4.3     $ -  


All of the Company’s 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 no active public market existing, 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 2,500,000 shares in the form of incentive stock options, non-qualified stock options, restricted shares, stock appreciation rights and restricted stock units to employees, consultants, officers and directors.  As of March 31, 2012, 430,000 shares were remaining under the Plan for future issuance.

 

During the three months ended March 31, 2012, the Company granted 1,895,000 stock options to employees, all of which were under the Plan, having an exercise price of $1.00 per share.  The options vest pro rata over three years on each anniversary date; all options expire five years from the grant date.  The total fair value of stock options granted to employees during the three months ended March 31, 2012 was $625,350, which is being recognized over the respective vesting periods.  The Company recorded compensation expense of $8,354 for the three months ended March 31, 2012, in connection with employee stock options.

 

The Company estimates the fair value of share-based compensation utilizing the Black-Scholes option pricing model, which is dependent upon several variables such as the expected option term, expected volatility of the Company’s stock price over the expected term, expected risk-free interest rate over the expected option term, expected dividend yield rate over the expected option term, and an estimate of expected forfeiture rates.  The Company believes this valuation methodology is appropriate for estimating the fair value of stock options granted to employees and directors which are subject to ASC Topic 718 requirements.  These amounts are estimates and thus may not be reflective of actual future results, nor amounts ultimately realized by recipients of these grants.  The Company recognizes compensation on a straight-line basis over the requisite service period for each award.  The following table summarizes the assumptions the Company utilized to record compensation expense for stock options granted to employees during the three months ended March 31, 2012 and 2011:

 

   For the Three  For the Three
   Months Ended  Months Ended
Assumptions  March 31, 2012  March 31, 2011
Expected life (years)   3.5    N/A 
Expected volatility   44.2%   N/A 
Weighted-average volatility   44.2%   N/A 
Risk-free interest rate   0.56% - 0.60%    N/A 
Dividend yield   0.00%   N/A 
Expected forfeiture rate   2.0%   N/A 

 
The Company utilized the simplified method to estimate the expected life for stock options granted to employees.  The simplified method was used as the Company does not have sufficient historical data regarding stock option exercises.  The expected volatility is based on the average of the expected volatilities from the most recent audited financial statements available for comparative public companies that are deemed to be similar in nature to the Company.  The risk-free interest rate is based on the U.S. Treasury yields with terms equivalent to the expected life of the related option at the time of the grant.  Dividend yield is based on historical trends.  While the Company believes these estimates are reasonable, the compensation expense recorded would increase if the expected life was increased, a higher expected volatility was used, or if the expected dividend yield increased.

  

A summary of the Company’s stock option activity for employees and directors during the three months ended March 31, 2012 is presented below:

 

                Weighted        
          Weighted     Average        
          Average     Remaining     Aggregate  
    Number of     Exercise     Contractual     Intrinsic  
Options   Shares     Price     Term     Value  
                         
Balance Outstanding, December 31, 2011     -                    
  Granted     1,895,000     $ 1.00              
  Exercised     -                      
  Forfeited     -                      
  Expired     -                      
Balance Outstanding, March 31, 2012     1,895,000     $ 1.00       5.0     $ -  
                                 
Expected to vest, March 31, 2012     1,856,250     $ 1.00       5.0     $ -  
                                 
Exercisable, March 31, 2012     -       N/A       N/A       N/A  


The weighted-average grant-date fair value of options granted to employees during the three months ended March 31, 2012 was $0.33.

 

As of March 31, 2012, there was $563,968 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 1.7 years.

 

Stock Option Grants to Non-Employees

 

During the three months ended March 31, 2012, the Company granted 175,000 stock options to non-employees, all of which were under the Plan, having an exercise price of $1.00 per share.  The options vest pro rata over three years on each anniversary date; all options expire five years from the grant date.  The total fair value of stock options granted to non-employees during the three months ended March 31, 2012 was $57,750, all of which was recognized immediately as these stock options were issued for prior services rendered.  The Company recorded compensation expense of $57,750 for the three months ended March 31, 2012, in connection with non-employee stock options.

 

The following table summarizes the assumptions the Company utilized to record compensation expense for stock options granted to non-employees during the three months ended March 31, 2012 and 2011:

 

    For the Three   For the Three
    Months Ended   Months Ended
Assumptions   March 31, 2012   March 31, 2011
Expected life (years)   3.5   N/A
Expected volatility   44.2%   N/A
Weighted-average volatility   44.2%   N/A
Risk-free interest rate   0.60%   N/A
Dividend yield   0.00%   N/A


A summary of the Company’s stock option activity for employees and directors during the three months ended March 31, 2012 is presented below:

 

                Weighted        
          Weighted     Average        
          Average     Remaining     Aggregate  
    Number of     Exercise     Contractual     Intrinsic  
Options   Shares     Price     Term     Value  
                           
Balance Outstanding, December 31, 2011     -                    
  Granted     175,000     $ 1.00              
  Exercised     -                      
  Forfeited     -                      
  Expired     -                      
Balance Outstanding, March 31, 2012     175,000     $ 1.00       5.0     $ -  
                                 
Expected to vest, March 31, 2012     175,000     $ 1.00       5.0     $ -  
                                 
Exercisable, March 31, 2012     -       N/A       N/A       N/A  
                                 


The weighted-average grant-date fair value of options granted to non-employees during the three months ended March 31, 2012 was $0.33.

------=_NextPart_febd7bfa_1be5_4756_8af5_286970bc7478 Content-Location: file:///C:/febd7bfa_1be5_4756_8af5_286970bc7478/Worksheets/Sheet16.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Concentrations
3 Months Ended
Mar. 31, 2012
Notes to Financial Statements
Concentrations

 

Concentration of Revenues, Accounts Receivable and Costs and Expenses

 

For the three months ended March 31, 2012 and 2011, the Company had significant customers with individual percentage of total revenues equaling 10% or greater as follows:

 

    For the Three     For the Three  
    Months Ended     Months Ended  
    March 31, 2012     March 31, 2011  
                 
 Customer 1     45.4 %     47.0 %
 Customer 2     19.6 %     -  
 Totals     65.0 %     47.0 %


At March 31, 2012 and December 31, 2011, concentration of accounts receivable with significant customers representing 10% or greater of accounts receivable was as follows:

 

   

March 31,

2012

   

December 31,

2011

 
                 
 Customer 1     49.5 %     53.4 %
 Customer 2     27.8 %     17.3 %
 Totals     77.3 %     70.7 %


For the three months ended March 31, 2012 and 2011, the Company had significant vendors representing 10% or greater of cost and expense as follows:

 

 

    For the Three     For the Three  
    Months Ended     Months Ended  
    March 31, 2012     March 31, 2011  
                 
 Vendor 1     16.8 %     37.5 %
 Totals     16.8 %     37.5 %

------=_NextPart_febd7bfa_1be5_4756_8af5_286970bc7478 Content-Location: file:///C:/febd7bfa_1be5_4756_8af5_286970bc7478/Worksheets/Sheet17.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Related Party Transactions
3 Months Ended
Mar. 31, 2012
Notes to Financial Statements
Related Party Transactions

 

On December 14, 2011, the Company loaned $150,000 to an officer of the Company in exchange for a promissory note bearing 3% per annum. As collateral, the note was secured by 500,000 shares of the Company’s common stock owned personally by the officer. The note along with accrued interest was due and payable on September 14, 2012. For the three months ended March 31, 2012, interest income of $594 was recognized on the note receivable. As of December 31, 2011, the balance due on the note receivable was $150,000, all of which is short-term. On February 16, 2012, the note receivable from an officer was repaid along with accrued interest (See Note 3).

 

On March 30, 2008 and December 1, 2008, the Company sold course curricula 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 Company’s inability to engage Mr. Spada in good faith negotiations to increase HEMG’s pledge, Michael Mathews, the Company’s 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. As of March 31, 2012 and December 31, 2011, the remaining balance owed was $772,793 and is shown as accounts receivable, secured – related party. On April 4, 2012, the Company waived any default of the accounts receivable, secured - related party and extended the due date to September 30, 2014 (See Notes 3 and 12).

 

During 2005 through September 2011, the Company advanced funds without board authority to both Patrick Spada (former Chairman of the Company) and HEMG, of which Patrick Spada is President. Having been unsuccessful since December 2011 to negotiate a settlement agreement with Patrick Spada to secure the receivable, on March 13, 2012, three directors of the Company pledged an aggregate of 2,209,960 common shares of the Company, valued at $1.00 per share, based on recent sales of capital stock as collateral for the receivable from stockholder, secured – related party. As of March 31, 2012 and December 31, 2011, the receivable due was $2,209,960 and is shown as receivable from stockholder, secured – related party (See Note 3).

 

On February 25, 2012, February 27, 2012 and February 29, 2012, loans payable to an individual, another individual and a related party (the brother of Patrick Spada, the former Chairman of the Company), 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. As these loans (now convertible promissory notes) are not due for at least 12 months after the balance sheet, they have been included in long-term liabilities as of March 31, 2012 (See Notes 5 and 6).

 

On March 13, 2012, the Company’s CEO made an investment of $300,000 in 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 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 date (See Note 6).

------=_NextPart_febd7bfa_1be5_4756_8af5_286970bc7478 Content-Location: file:///C:/febd7bfa_1be5_4756_8af5_286970bc7478/Worksheets/Sheet18.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Subsequent Events
3 Months Ended
Mar. 31, 2012
Notes to Financial Statements
Subsequent Events

 

On April 4, 2012, the Company entered into an agreement with: (i) an individual, (ii) Higher Education Group Management, Inc. (“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 shall purchase and HEMG shall sell to the individual 400,000 common shares of the Company at $0.50 per share by April 10, 2012; (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 fulfill 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  agrees to not sell, pledge or otherwise transfer 142,500 common shares of the Company pending resolution of a dispute regarding the Company’s 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 shall waive any default of the accounts receivable, secured - related party and extend the due date to September 30, 2014 (See Notes 3 and 11).

 

On April 26, 2012 and April 30, 2012, convertible notes payable aggregating $20,000 were converted into 20,000 common shares of the Company (See Note 6).

 

On April 27, 2012, the Company, raised $514,600 (net of debt issuance costs of $94,400) from the sale of 12.18 Units (including convertible notes payable and an estimated 152,250 warrants) through the Laidlaw broker arrangement.  These convertible note embedded conversion options did not qualify as derivatives since the conversion shares were not readily convertible to cash and there was no beneficial conversion value since the conversion price equaled the fair value of the shares (See Note 6).

------=_NextPart_febd7bfa_1be5_4756_8af5_286970bc7478 Content-Location: file:///C:/febd7bfa_1be5_4756_8af5_286970bc7478/Worksheets/filelist.xml Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii" ------=_NextPart_febd7bfa_1be5_4756_8af5_286970bc7478--