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Document and Entity Information
9 Months Ended
Sep. 30, 2012
Nov. 20, 2012
Document And Entity Information
Entity Registrant Name ASPEN GROUP, INC.
Entity Central Index Key 0001487198
Document Type 10-Q
Document Period End Date Sep 30, 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 53,200,863
Document Fiscal Period Focus Q3
Document Fiscal Year Focus 2012
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Condensed Consolidated Balance Sheets (Unaudited) (USD $)
Sep. 30, 2012
Dec. 31, 2011
Assets
Cash and cash equivalents $ 2,477,356 $ 766,602
Accounts receivable, net of allowance of $99,580 and $47,595, respectively 726,063 847,234
Accounts receivable, secured - related party 0 772,793
Note receivable from officer, secured - related party 0 150,000
Prepaid expenses and other current assets 80,682 103,478
Other current assets 20,927 0
Total current assets 3,305,028 2,640,107
Restricted cash 264,832 0
Property and equipment, net 104,762 129,944
Intangible assets, net 1,388,531 1,236,996
Accounts receivable, secured-related party, net of allowance of $502,315 and $0, respectively 270,478 0
Other assets 6,559 6,559
Total assets 5,340,190 4,013,606
Liabilities and Stockholders' Equity (Deficiency)
Accounts payable 1,435,595 1,094,029
Accrued expenses 973,500 167,528
Deferred revenue 1,107,274 835,694
Convertible notes payable, current portion - related parties 600,000 0
Notes payable, current portion 22,000 6,383
Loan payable to stockholder 491 0
Deferred rent, current portion 5,766 4,291
Total current liabilities 4,144,626 2,107,925
Line of credit 215,754 233,215
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 16,582 21,274
Total liabilities 4,576,962 2,571,182
Commitments and contingencies - See note 7      
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:
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 53,165 11,838
Additional paid-in capital 11,212,809 3,275,296
Accumulated deficit (10,502,746) (5,326,370)
Total stockholders' equity 763,228 (2,027,561)
Total liabilities and stockholders' equity $ 5,340,190 $ 4,013,606
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Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
Sep. 30, 2012
Dec. 31, 2011
Assets
Accounts receivable, allowance for doubtful accounts $ 99,580 $ 47,595
Temporary equity:
Preferred stock, par value Series A $ 0.001 $ 0.001
Preferred stock, designated shares Series A 850,500 850,500
Preferred stock, issued shares Series A 850,395 850,395
Preferred stock, outstanding shares Series A 850,395 850,395
Preferred stock, par value Series D $ 0.001 $ 0.001
Preferred stock, designated shares Series D 3,700,000 3,700,000
Preferred stock, issued shares Series D 1,176,750 1,176,750
Preferred stock, outstanding shares Series D 1,176,750 1,176,750
liquidation value, Series D 1,176,750 1,176,750
Preferred stock, par value Series E $ 0.001 $ 0.001
Preferred stock, designated shares Series E 2,000,000 2,000,000
Preferred stock, issued shares Series E 1,700,000 1,700,000
Preferred stock, outstanding shares Series E 1,700,000 1,700,000
liquidation value, Series E 1,700,000 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 $ 0.001 $ 0.001
Preferred stock, designated shares Series C 11,411,400 11,411,400
Preferred stock, issued shares Series C 11,307,450 11,307,450
Preferred stock, outstanding shares Series C 11,307,450 11,307,450
liquidation value, Series C $ 11,307 $ 11,307
Preferred stock, par value Series B $ 0.001 $ 0.001
Preferred stock, designated shares Series B 368,421 368,421
Preferred stock, issued shares Series B 368,411 368,411
Preferred stock, outstanding shares Series B 368,411 368,411
Commont Stock, par value $ 0.001 $ 0.001
Common stock, authorized shares 120,000,000 120,000,000
Common stock, issued shares 53,164,863 11,837,930
Common stock, outstanding shares 53,164,863 11,837,930
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Condensed Consolidated Statements of Operations (Unaudited) (USD $)
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Income Statement [Abstract]
Revenues $ 1,253,190 $ 1,134,315 $ 4,018,291 $ 3,092,779
Costs and expenses:
Instructional costs and services 759,805 512,053 2,504,215 1,498,667
Marketing and promotional 299,401 132,569 1,176,814 272,959
General and administrative 1,389,940 1,274,238 4,368,454 2,328,421
Receivable collateral valuation service 193,198 0 502,315 0
Depreciation and amortization 103,738 71,442 289,675 177,846
Total costs and expenses 2,746,082 1,990,302 8,841,473 4,277,893
Operating loss (1,492,892) (855,987) (4,823,182) (1,185,114)
Other income (expense):
Interest income 153 347 882 355
Interest expense (229,237) (4,550) (359,955) (11,376)
Gain on disposal of property and equipment 0 0 5,879 0
Loss due to unauthorized borrowing 0 0 0 (14,876)
Total other income (expense) (229,084) (4,203) (353,194) (25,897)
Loss before income taxes (1,721,976) (860,190) (5,176,376) (1,211,011)
Income tax expense (benefit) 0 0 0 0
Net loss (1,721,976) (860,190) (5,176,376) (1,211,011)
Cumulative preferred stock dividends 0 (24,685) (37,379) (40,219)
Net loss allocable to common stockholders $ (1,721,976) $ (884,875) $ (5,213,755) $ (1,251,230)
Loss per share:
Basic and diluted $ (0.05) $ (0.07) $ (0.18) $ (0.08)
Weighted average number of common shares outstanding:
Basic and diluted 35,687,944 11,871,950 29,172,716 16,559,115
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Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficiency) (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 $ (5,326,370) $ (2,027,561)
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)
Conversion of convertible notes into common shares, Shares 5,293,152
Conversion of convertible notes into common shares, Amount 5,293 1,770,532    1,775,825
Issuance of common shares and warrants for cash 7,877,144
Issuance of common shares and warrants for cash 7,877 2,487,022    2,494,899
Issuance of common shares and warrants due to price protection, Shares 4,516,917
Issuance of common shares and warrants due to price protection, Amount 4,517 (4,517)    0
Issuance of common shares and warrants to settle accrued interest, Shares 202,446
Issuance of common shares and warrants to settle accrued interest, Amount 203 70,451    70,654
Stock-based compensation 176,671    176,671
Net loss (5,176,376) (5,176,376)
Ending Balance, Amount at Sep. 30, 2012 $ 0 $ 0 $ 53,165 $ 11,212,809 $ (10,502,746) $ 763,228
Ending Balance, Shares at Sep. 30, 2012 0 0 53,164,863
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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)
9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Cash flows from operating activities:
Net loss $ (5,176,376) $ (1,211,011)
Adjustments to reconcile net loss to net cash (used in) operating activities:
Provision for bad debts 197,952 16,963
Receivable collateral valuation service 502,315 0
Amortization of debt issuance costs 266,473 0
Gain on disposal of property and equipment (5,879) 0
Depreciation and amortization 289,675 177,845
Loss on settlement of accrued interest 3,339 0
Issuance of convertible notes in exchange for service rendered 38,175 22,000
Stock-based compensation 176,671 0
Changes in operating assets and libilities, net of effects of acquisition:
Accounts receivable (76,781) 314,588
Accounts receivable, secured-related party 0 7,376
Prepaid expenses 22,796 (171,116)
Other current assets (20,927) (274)
Accounts payable 353,216 570,388
Accrued expenses 872,572 (246,083)
Deferred rent (3,217) (1,743)
Deferred revenue 271,580 131,012
Net cash (used in) operating activities (2,288,416) (390,055)
Cash flow from investing activities:
Cash acquired as part of merger 337 3,200
Purchases of property and equipment (6,005) (133,431)
Purchases of intangible assets (419,295) (789,262)
Increase in restricted cash (264,832) 0
Advances to officer for note receivable 0 (238,210)
Proceeds received from officer loan repayment 150,000 0
Net cash (used in) investing activities (539,795) (1,157,703)
Cash flows from financing activities:
Proceeds from (repayments in) line of credit, net (17,461) (4,529)
Proceeds from issuance of common shares and warrants, net 2,494,899 0
Principal payment on note payable 0 (4,357)
Proceeds received from issuance of convertible notes and warrants 1,706,000 255,000
Proceeds from related party for convertible notes 600,000 73,000
Disbursemenents for debt issuance costs (266,473) 0
Proceeds from issuance of Series A and D preferred stock 0 3,469,985
Repayments of convertible notes payable 0 (25,000)
Proceeds from note payable 22,000 0
Disbursements to purchase treasury shares 0 (740,000)
Net cash provided by financing activities 4,538,965 3,024,099
Net (decrease) increase in cash and cash equivalents 1,710,754 1,476,341
Cash and cash equivalents at beginning of period 766,602 294,838
Cash and cash equivalents at end of period 2,477,356 1,771,179
Supplemental disclosure of cash flow information:
Cash paid for interest 273,170 18,329
Income taxes paid 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 convertible notes payable into common shares 1,775,825 0
Conversion of loans payable to convertible notes payable 200,000 0
Issuance of common shares and warrants to settle accrued interest 70,654 0
Liabilities assumed in recapitalization 21,206 0
Settlement of notes payable by disposal of property and equipment 15,151 0
Issuance of convertible notes payable to pay accounts payable 11,650 0
Conversion of convertible notes payable into Preferred Series B shares 0 350,000
Recognition of accrual to rescing common shares $ 0 $ 165,000
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1. Nature of Operations and Going Concern
9 Months Ended
Sep. 30, 2012
Organization, Consolidation and Presentation of Financial Statements [Abstract]
1. Nature of Operations and Going Concern

 

Note 1.Nature of Operations and Going Concern

 

Overview

 

Aspen Group, Inc. (together with its subsidiaries, the “Company” or “Aspen”) was founded in Colorado in 1987 as the International School of Information Management.  On September 30, 2004, it was acquired by Higher Education Management Group, Inc. (“HEMG”) and changed its name to Aspen University Inc.  On 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 in a reverse merger (See Note 9).  All references to the Company or Aspen before March 13, 2012 are to Aspen University, Inc.

 

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 87% of our degree-seeking students (as of September 30, 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 for the three and nine months ended September 30, 2012 and 2011, our cash flows for the nine months ended September 30, 2012 and 2011 and our financial position as of September 30, 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 Report on Form 8-K/A for the year ended December 31, 2011, as filed with the SEC on September 21, 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 $5,213,755 and negative cash flows from operations of $2,288,416 for the nine months ended September 30, 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 equity securities.  Since the beginning of 2012, the Company has raised $5,063,000 in gross funding including: (i) $1,706,000 from the sale of convertible notes and warrants under the Laidlaw arrangement (See Note 6), (ii) $600,000 from the sale of convertible notes to the Company’s CEO (See Notes 6 and 11), and (iii) $2,757,000 from Units (consisting of common shares and warrants) (See Note 9).  In addition, the Company is seeking to raise up to $2,030,000 from the sale of additional Units as part of the same Unit offering described above.

 

The consolidated 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. 

 

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2. Significant Accounting Policies
9 Months Ended
Sep. 30, 2012
Notes to Financial Statements
2. Significant Accounting Policies

 

Note 2. 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, maturing March 28, 2013, with its banking institution in the amount of $105,865 and pledged that to the letter of credit.  On June 18, 2012, the DOE, having reviewed Aspen’s same-day balance sheet filing and application for approval of the change in ownership and control, notified Aspen of the DOE’s requirement that Aspen increase its letter of credit by August 31, 2012 from 10% to 25% of Aspen’s Title IV receipts in 2011.  Accordingly, on August 27, 2012, the Company deposited an additional $158,500 into the money market acct.  On August 31, 2012, the Company pledged the additional $158,500 to the letter of credit and extended the due date to December 31, 2013.  The Company shall consider $264,832 (includes accrued interest of $467) as restricted cash (shown as a long-term asset as of September 30, 2012) until such letter of credit expires.  As of September 30, 2012, the account bears interest of 0.25%.

 

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 4,764,371 and 0 stock options, 6,643,264 and 456,000 stock warrants, and a variable amount of shares (a minimum of 1,357,143 and 0 common shares as of September 30, 2012 and 2011) underlying $800,000 and $0 of convertible notes payable for the nine months ended September 30, 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.

 

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3. Secured Note and Accounts Receivable-Related Parties
9 Months Ended
Sep. 30, 2012
Text Block [Abstract]
3. Secured Note and Accounts Receivable-Related Parties

 

Note 3. Secured Note and Accounts Receivable – Related Parties

 

Note Receivable, Secured – Related Party

 

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 nine months ended September 30, 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).

 

Accounts Receivable, Secured – Related Party

 

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.

 

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.  A group of predominantly existing shareholders implemented the purchase of 400,000 common shares at $0.50 per share per section (a) above on or before the April 10, 2012 deadline.  As of September 30, 2012, third party investors purchased 336,000 shares for $168,000 per section (b) above (See Note 7).  Based on proceeds received on September 28, 2012 under a private placement at $0.35 per unit (consisting of one common share and one-half of a warrant exercisable at $0.50 per share), the value of the aforementioned collateral decreased.  Accordingly, as of September 30, 2012, the Company has recognized an allowance of $502,315 for this account receivable.  As of September 30, 2012 and December 31, 2011, the balance of the account receivable, net of allowance, was $270,478 and $772,793 and is shown as accounts receivable, secured – related party, net (See Note 11).

 

 

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4. Intangible Assets
9 Months Ended
Sep. 30, 2012
Goodwill and Intangible Assets Disclosure [Abstract]
4. Intangible Assets

 

Note 4. Intangible Assets

 

Intangible assets consisted of the following at September 30, 2012 and December 31, 2011:

 

    Septmber 30, 2012     December 31, 2011  
Course curricula   $ 2,097,038     $ 2,072,238  
Call center     1,321,950       927,455  
      3,418,988       2,999,693  
Accumulated amortization     (2,030,457 )     (1,762,697 )
Intangible assets, net   $ 1,388,531     $ 1,236,996  


The following is a schedule of estimated future amortization expense of intangible assets as of September 30, 2012:

 

Year Ending December 31,      
2012   $ 393,478  
2013     352,005  
2014     313,418  
2015     258,574  
2016     71,056  
Total   $ 1,388,531  


Amortization expense for the nine months ended September 30, 2012 and 2011 was $267,760 and $161,599, respectively.

 

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5. Loans Payable
9 Months Ended
Sep. 30, 2012
Notes to Financial Statements
5. Loans Payable

 

Note 5. Loans Payable

 

During 2009, the Company received advances aggregating $200,000 from three individuals.  Of the total funds received, $50,000 was received from the brother of the Company’s former Chairman.  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).

 

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6. Convertible Notes Payable
9 Months Ended
Sep. 30, 2012
Debt Disclosure [Abstract]
6. Convertible Notes Payable

 

Note 6. 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 were 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.  In April 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 9).

 

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 September 30, 2012 (See Notes 5 and 11).

 

On March 13, 2012, the Company’s CEO loaned the Company $300,000 and received a convertible promissory note due March 31, 2013, bearing interest at 0.19% per annum.  The note is convertible into common shares of the Company at the rate of $1.00 per share upon five days written notice to the Company.  The Company evaluated the convertible 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.  On September 4, 2012, the maturity date was extended to August 31, 2013 (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 was an offering of up to 40 Units of $50,000 each and was to be completed by March 31, 2012, but was extended to June 30, 2012.  Each Unit consisted 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 was to occur on the initial closing of the Phase Two financing, which occurred September 28, 2012.  The Convertible Notes (as extended) had a maturity date of September 30, 2012, carried provisions for price protection and contained registration rights.  For the Phase One financing, Laidlaw received 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.  Separately, Laidlaw required an activation fee of $25,000.   As of June 30, 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, raised another $1,289,527 (net of debt issuance costs of $266,473) from the sale of 31.12 Units (including Convertible Notes payable and an estimated 389,000 warrants) through Laidlaw.  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.  As a result of proceeds received on September 28, 2012 under a private placement at $0.35 per unit (consisting of one common share and one-half of a warrant exercisable at $0.50 per share), all of the $1,706,000 (face value) of Convertible Notes were automatically converted into 5,130,795 common shares at the contractual rate of $0.3325 per share.  In addition, 202,334 common shares and 50,591 five-year warrants exercisable at $0.3325 per share were issued to settle $67,276 of accrued interest on the aforementioned Convertible Notes.  Accordingly, a loss of $3,339 was recognized in general and administrative expenses upon settlement (See Note 9).

 

On May 1, 2012, the Company issued a convertible note payable to a consultant in the amount of $49,825 in exchange for past services rendered, of which $38,175 pertains to the nine months ended September 30, 2012.  The note bore interest at 0.19% per annum, had a maturity date of September 30, 2012, and was convertible into the Company’s common shares at the lower (a) $1.00 or (b) 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.  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. As a result of the private placement closing on September 28, 2012, the $49,825 (face value) convertible note was automatically converted into 142,357 common shares at the contractual rate of $0.35 per share.  In addition, 112 common shares were issued to settle $39 of accrued interest on the aforementioned convertible note.  No gain or loss was recognized upon settlement (See Note 9).

 

On August 14, 2012, the Company’s CEO loaned the Company $300,000 and received a convertible promissory note, payable on demand, bearing interest at 5% per annum.  The note is convertible into common shares of the Company at the rate of $0.35 per share (based on proceeds received on September 28, 2012 under a private placement at $0.35 per unit).  The Company evaluated the convertible notes and determined that, for the embedded conversion option, there was no beneficial conversion value to record as the conversion price is considered to be the fair market value of the common shares on the note issue date.  On September 4, 2012, the maturity date was extended to August 31, 2013 (See Note 11).

 

Convertible notes payable consisted of the following at September 30, 2012:

 

    Septmber 30, 2012  
Note payable - related party originating August 14, 2012; no monthly payments required; bearing interest at 5%; due on demand [A]   $ 300,000  
         
Note payable - related party originating March 13, 2012; no monthly payments required; bearing interest at 0.19%; maturing at March 31, 2013 [A]     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     800,000  
Less: Current maturities (includes $600,000 to related parties)     (600,000 )
Amount due after one year (includes $50,000 to related parties)   $ 200,000  
         
[A] - effective September 4, 2012, note amended to provide a maturity date of August 31, 2013.        


Future maturities of the convertible notes payable are as follows:

 

Year Ending December 31,      
2013   $ 600,000  
2014     200,000  
    $ 800,000  

 

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7. Commitments and Contingencies
9 Months Ended
Sep. 30, 2012
Commitments and Contingencies Disclosure [Abstract]
7. Commitments and Contingencies

 

Note 7. 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 September 30, 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 September 30, 2012 was $215,754.  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 September 30, 2012 was $34,246.

  

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 September 30, 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.  On June 18, 2012, the DOE, having reviewed Aspen’s same-day balance sheet filing and application for approval of the change in ownership and control, notified Aspen of the DOE’s requirement that Aspen increase its letter of credit by August 31, 2012 from 10% to 25% of Aspen’s Title IV receipts in 2011.  Accordingly, on August 31, 2012, the Company provided the DOE with the increased letter for which the due date was extended to December 31, 2013.  The DOE may impose additional or different terms and conditions in any final provisional program participation agreement that it may issue.

 

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.  On July 3, 2012, Aspen received notice from the Delaware DOE that it is granted provisional approval status effective until June 30, 2015.  Aspen is authorized by the Colorado Commission on Education to operate in Colorado as a degree granting institution.

  

Guarantee to Purchase Common Shares

 

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 (See Note 3).  As part of the agreement, 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.  As of July 3, 2012, the guarantee resulted in a liability of the Company to purchase these shares.  As of September 30, 2012, third party investors purchased 336,000 common shares for $168,000, leaving the Company with a remaining liability to purchase 264,000 common shares for $132,000.  On October 1, 2012, the Company purchased the 264,000 common shares for $132,000 and the shares became treasury shares.

 

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8. Temporary Equity
9 Months Ended
Sep. 30, 2012
Text Block [Abstract]
8. Temporary Equity

 

Note 8. 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).

 

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9. Stockholders' Equity
9 Months Ended
Sep. 30, 2012
Equity [Abstract]
9. Stockholders' Equity

 

Note 9. Stockholders’ Equity (Deficiency)

 

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.

 

In April 2012, the Company issued 20,000 common shares upon the conversion of $20,000 of convertible notes payable (See Note 6).

 

On September 28, 2012, the Company raised $2,494,899 (net of offering costs of $262,101) from the sale of 78.77 Units (including 7,877,144 common shares and 3,938,570 five-year warrants exercisable at $0.50 per share) through Laidlaw.  Also, on September 28, 2012, as a result of this financing, all of the $1,706,000 (face value) of Convertible Notes from the Phase One financing automatically converted into 5,130,795 common shares at the contractual rate of $0.3325 per share.  In addition, 202,334 common shares and 50,591 five-year warrants exercisable at $0.3325 per share were issued to settle $67,276 of accrued interest on the aforementioned Convertible Notes.  Accordingly, a loss of $3,339 was recognized upon settlement (See Note 6).

 

On September 28, 2012, as a result of the aforementioned financing, a $49,825 (face value) convertible note was automatically converted into 142,357 common shares at the contractual rate of $0.35 per share.  In addition, 112 common shares were issued to settle $39 of accrued interest on the aforementioned convertible note.  No gain or loss was recognized upon settlement (See Note 6).

 

550,000 of the former Series D shares and all 1,700,000 of the former Series E shares continue to have price protection through March 13, 2015.  On September 28, 2012, as a result of the initial closing of the Phase Two financing, 4,516,917 common shares were issued to the former owners of Series D and Series E shares under the price protection provision.  This resulted in an increase in common stock of $4,517 with a corresponding decrease in additional paid-in capital.

 

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 nine months ended September 30, 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     $ 0.33              
Issued     6,187,264     $ 0.44              
Exercised     -       -              
Forfeited     -       -              
Expired     -       -              
Balance Outstanding, September 30, 2012     6,643,264     $ 0.43       4.7     $ 47,332  
                                 
Exercisable, September 30, 2012     6,643,264     $ 0.43       4.7     $ 47,332  


Of the Company’s outstanding warrants, 2,654,103 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.  Certain of the company’s outstanding warrants also have a cashless exercise provision.

 

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 (increased to 5,600,000 shares effective September 28, 2012) 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 September 30, 2012, 835,629 shares were remaining under the Plan for future issuance.

 

During the nine months ended September 30, 2012, the Company granted 4,779,371 stock options to employees, all of which were under the Plan, having an exercise price ranging from $0.35 to $1.00 per share.  While most of the options vest pro rata over three to four years on each anniversary date, 166,665 vested immediately; all options expire five years from the grant date.  The total fair value of stock options granted to employees during the nine months ended September 30, 2012 was $961,808, which is being recognized over the respective vesting periods.  The Company recorded compensation expense of $118,921 for the nine months ended September 30, 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 nine months ended September 30, 2012 and 2011:

 

    For the Nine     For the Nine  
    Months Ended     Months Ended  
Assumptions   Septmber 30, 2012     Septmber 30, 2011  
Expected life (years)     2.5 - 3.8       N/A  
Expected volatility     44.2 %     N/A  
Weighted-average volatility     44.2 %     N/A  
Risk-free interest rate     0.31% - 0.60 %     N/A  
Dividend yield     0.00 %     N/A  
Expected forfeiture rate     1.4 %     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 nine months ended September 30, 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     4,779,371     $ 0.61              
Exercised     -                      
Forfeited     (190,000 )   $ 1.00              
Expired     -                      
Balance Outstanding, September 30, 2012     4,589,371     $ 0.59       4.8     $ -  
                                 
Expected to vest, September 30, 2012     4,531,194     $ 0.59       4.8     $ -  
                                 
Exercisable, September 30, 2012     166,665     $ 0.35       5.0     $ -  


The weighted-average grant-date fair value of options granted to employees during the nine months ended September 30, 2012 was $0.20.

 

As of September 30, 2012, there was $768,582 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 1.6 years.

 

Stock Option Grants to Non-Employees

 

During the nine months ended September 30, 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 nine months ended September 30, 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 nine months ended September 30, 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 nine months ended September 30, 2012 and 2011:

 

    For the Nine     For the Nine  
    Months Ended     Months Ended  
Assumptions   Septmber 30, 2012     Septmber 30, 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 non-employees during the nine months ended September 30, 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, September 30, 2012     175,000     $ 1.00       4.5     $ -  
                                 
Expected to vest, September 30, 2012     175,000     $ 1.00       4.5     $ -  
                                 
Exercisable, September 30, 2012     -       N/A       N/A       N/A  


The weighted-average grant-date fair value of options granted to non-employees during the nine months ended September 30, 2012 was $0.33.

 

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10. Concentrations
9 Months Ended
Sep. 30, 2012
Risks and Uncertainties [Abstract]
10. Concentrations

 

Note 10. Concentrations

 

Concentration of Revenues, Accounts Receivable and Costs and Expenses

 

For the three and nine months ended September 30, 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     For the Nine     For the Nine  
    Months Ended     Months Ended     Months Ended     Months Ended  
    Septmber 30, 2012     Septmber 30, 2011     Septmber 30, 2012     Septmber 30, 2011  
 Customer 1     27.5 %     38.3 %     35.9 %     42.9 %
 Customer 2     -       11.4 %     13.1 %     -  
 Totals     27.5 %     49.7 %     49.0 %     42.9 %


At September 30, 2012 and December 31, 2011, concentration of accounts receivable with significant customers representing 10% or greater of accounts receivable was as follows:

 

    Septmber 30, 2012     December 31, 2011  
 Customer 1     22.1 %     53.4 %
 Customer 2     15.0 %     17.3 %
 Customer 3     15.0 %     -  
 Totals     52.1 %     70.7 %

 

For the three and nine months ended September 30, 2012 and 2011, the Company had significant vendors representing 10% or greater of cost and expense as follows:

 

    For the Three     For the Three     For the Nine     For the Nine  
    Months Ended     Months Ended     Months Ended     Months Ended  
    Septmber 30, 2012     Septmber 30, 2011     Septmber 30, 2012     Septmber 30, 2011  
 Vendor 1     10.2 %     17.6 %     13.3 %     25.2 %
 Totals     10.2 %     17.6 %     13.3 %     25.2 %

 

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11. Related Party Transactions
9 Months Ended
Sep. 30, 2012
Related Party Transactions [Abstract]
11. Related Party Transactions

 

Note 11. 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 September 30, 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 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.

 

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.  A group of predominantly existing shareholders implemented the purchase of 400,000 common shares at $0.50 per share per section (a) above on or before the April 10, 2012 deadline.  As of September 30, 2012, third party investors placed $168,000 in escrow to purchase 336,000 shares per section (b) above (See Note 7).  Based on proceeds received on September 28, 2012 under a private placement at $0.35 per unit (consisting of one common share and one-half of a warrant exercisable at $0.50 per share), the value of the aforementioned collateral decreased.  Accordingly, as of September 30, 2012, the Company has recognized an allowance of $502,315 for this account receivable.  As of September 30, 2012 and December 31, 2011, the balance of the account receivable, net of allowance, was $270,478 and $772,793 and is shown as accounts receivable, secured – related party, net (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 September 30, 2012 (See Notes 5 and 6).

 

On March 13, 2012, the Company’s CEO loaned the Company $300,000 and received a convertible promissory note due March 31, 2013, bearing interest at 0.19% per annum.  The note is convertible into common shares of the Company at the rate of $1.00 per share upon five days written notice to the Company.  The Company evaluated the convertible 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.  On September 4, 2012, the maturity date was extended to August 31, 2013 (See Note 6).

 

On August 14, 2012, the Company’s CEO loaned the Company an additional $300,000 and received a convertible promissory note, payable on demand, bearing interest at 5% per annum.  The note is convertible into common shares of the Company at the rate of $0.35 per share (based on proceeds received on September 28, 2012 under a private placement at $0.35 per unit).  The Company evaluated the convertible note and determined that, for the embedded conversion option, there was no beneficial conversion value to record as the conversion price is considered to be the fair market value of the common shares on the note issue date.  On September 4, 2012, the maturity date was extended to August 31, 2013 (See Note 6).

 

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12. Subsequent Events
9 Months Ended
Sep. 30, 2012
Subsequent Events [Abstract]
12. Subsequent Events

 

Note 12. Subsequent Events

 

On October 1, 2012, the Company purchased 264,000 common shares for $132,000 from the Company’s former chairman (see Note 7). The shares are being held as treasury shares.

 

On October 10, 2012, the Company entered into a non-exclusive agreement with Global Arena Capital Corp. (“GAC”), a broker-dealer, through which GAC agreed to use its best efforts to raise up to $2,030,000 from the sale of Units of common stock and warrants that are identical to those Units sold on September 28, 2012.  The Company agreed to compensate GAC from sales of Units by paying it compensation equal to 10% of the gross proceeds sold by it.  The Company will also issue GAC five-year warrants to purchase 10% of the same Units it sells to investors with an exercise price equal to the purchase price paid by investors ($35,000 per Unit).  In addition, the Company agreed to pay GAC a 3% non-accountable expense allowance from the proceeds of Units sold by it.

 

On October 23, 2012, the Company issued a number of options and warrants as described below.  The Company retained two investor relations firms agreeing to pay one firm $50,000 a year for two years and issuing it 200,000 shares of common stock.  The second firm was retained for one year with a fee of $5,000 per month.  It also received 100,000 shares of common stock and 100,000 five-year warrants exercisable at $0.60 per share.  The Company issued another consultant $150,000 five-year warrants exercisable at $0.50 per share.  Under the Plan, the Company issued another consultant 20,000 five-year stock options exercisable at $0.50 per share vesting in equal annual increments over a three-year period subject to the consultant continuing to provide services for the Company.

 

The Company issued non-plan stock options to its executive officers as compensation for salary deferrals through August 31, 2012.  Messrs. Michael Mathews, Brad Powers and David Garrity received 288,911, 255,773, and 136,008 five-year stock options, respectively, exercisable at $0.35 per share which options are fully vested.  Further, the Company issued additional non-plan options to executive officers who reduced their salaries for the period September 1 through December 31, 2012.  The Company granted Messrs. Mathews, Powers and Garrity 166,666 five-year options, respectively, and Dr. Gerald Williams 47,620 five-year options, all exercisable at $0.35 per share with 25% of these options vesting on the last day of September, October, November and December 2012, subject to the applicable executive remaining employed on each applicable vesting date. Under the Plan, the Company granted its controller 75,000 five-year options exercisable at $0.35 per share vesting annually over a four-year period subject to her remaining employed by the Company on each applicable vesting date.  All stock options or shares granted are valued on the appropriate measurement date and the related expense shall be recognized over the requisite service period.

 

On October 4, 2012, the Company entered into a three-year lease agreement for its call center in Scottsdale, Arizona.  The lease agreement commenced October 4, 2012 and requires rent payments of $4,491 per month during months 4 through 12, $4,601 per month during the second year, and $4,710 per month during the third year.

 

In November 2012, Dr. Michael D’Anton, a director, forgave an outstanding $22,000 loan made to Aspen University in exchange for 62,857 five-year vested options exercisable at $0.35 per share. 

 

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2. Significant Accounting Policies (Policies)
9 Months Ended
Sep. 30, 2012
Notes to Financial Statements
Principles of Consolidation

 

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

 

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

 

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, maturing March 28, 2013, with its banking institution in the amount of $105,865 and pledged that to the letter of credit.  On June 18, 2012, the DOE, having reviewed Aspen’s same-day balance sheet filing and application for approval of the change in ownership and control, notified Aspen of the DOE’s requirement that Aspen increase its letter of credit by August 31, 2012 from 10% to 25% of Aspen’s Title IV receipts in 2011.  Accordingly, on August 27, 2012, the Company deposited an additional $158,500 into the money market acct.  On August 31, 2012, the Company pledged the additional $158,500 to the letter of credit and extended the due date to December 31, 2013.  The Company shall consider $264,832 (includes accrued interest of $467) as restricted cash (shown as a long-term asset as of September 30, 2012) until such letter of credit expires.  As of September 30, 2012, the account bears interest of 0.25%.

Fair Value Measurements

 

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

Net Loss Per Share

 

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 4,764,371 and 0 stock options, 6,643,264 and 456,000 stock warrants, and a variable amount of shares (a minimum of 1,357,143 and 0 common shares as of September 30, 2012 and 2011) underlying $800,000 and $0 of convertible notes payable for the nine months ended September 30, 2012 and 2011, respectively, are not considered in diluted loss per share because the effect would be anti-dilutive.

 

Recent Accounting Pronouncements

 

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.

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4. Intangible Assets (Tables)
9 Months Ended
Sep. 30, 2012
Goodwill and Intangible Assets Disclosure [Abstract]
Intangible Assets

 

Intangible assets consisted of the following at September 30, 2012 and December 31, 2011:

 

    Septmber 30, 2012     December 31, 2011  
Course curricula   $ 2,097,038     $ 2,072,238  
Call center     1,321,950       927,455  
      3,418,988       2,999,693  
Accumulated amortization     (2,030,457 )     (1,762,697 )
Intangible assets, net   $ 1,388,531     $ 1,236,996  


The following is a schedule of estimated future amortization expense of intangible assets as of September 30, 2012:

 

Year Ending December 31,      
2012   $ 393,478  
2013     352,005  
2014     313,418  
2015     258,574  
2016     71,056  
Total   $ 1,388,531  

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6. Convertible Notes Payable (Tables)
9 Months Ended
Sep. 30, 2012
Debt Disclosure [Abstract]
Notes Payable

 

Convertible notes payable consisted of the following at September 30, 2012:

 

    Septmber 30, 2012  
Note payable - related party originating August 14, 2012; no monthly payments required; bearing interest at 5%; due on demand [A]   $ 300,000  
         
Note payable - related party originating March 13, 2012; no monthly payments required; bearing interest at 0.19%; maturing at March 31, 2013 [A]     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     800,000  
Less: Current maturities (includes $600,000 to related parties)     (600,000 )
Amount due after one year (includes $50,000 to related parties)   $ 200,000  
         
[A] - effective September 4, 2012, note amended to provide a maturity date of August 31, 2013.        


Future maturities of the convertible notes payable are as follows:

 

Year Ending December 31,      
2013   $ 600,000  
2014     200,000  
    $ 800,000  

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9. Stockholders' Equity (Tables)
9 Months Ended
Sep. 30, 2012
Equity [Abstract]
Assets and Liabilities acquired

 

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 )

Warranty Activity

 

A summary of the Company’s warrant activity during the nine months ended September 30, 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     $ 0.33              
Issued     6,187,264     $ 0.44              
Exercised     -       -              
Forfeited     -       -              
Expired     -       -              
Balance Outstanding, September 30, 2012     6,643,264     $ 0.43       4.7     $ 47,332  
                                 
Exercisable, September 30, 2012     6,643,264     $ 0.43       4.7     $ 47,332  

Compensation Expense for Stock Options Granted

 

The following table summarizes the assumptions the Company utilized to record compensation expense for stock options granted to employees during the nine months ended September 30, 2012 and 2011:

 

    For the Nine     For the Nine  
    Months Ended     Months Ended  
Assumptions   Septmber 30, 2012     Septmber 30, 2011  
Expected life (years)     2.5 - 3.8       N/A  
Expected volatility     44.2 %     N/A  
Weighted-average volatility     44.2 %     N/A  
Risk-free interest rate     0.31% - 0.60 %     N/A  
Dividend yield     0.00 %     N/A  
Expected forfeiture rate     1.4 %     N/A  

Stock Options Activity to Employees

 

A summary of the Company’s stock option activity for employees and directors during the nine months ended September 30, 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     4,779,371     $ 0.61              
Exercised     -                      
Forfeited     (190,000 )   $ 1.00              
Expired     -                      
Balance Outstanding, September 30, 2012     4,589,371     $ 0.59       4.8     $ -  
                                 
Expected to vest, September 30, 2012     4,531,194     $ 0.59       4.8     $ -  
                                 
Exercisable, September 30, 2012     166,665     $ 0.35       5.0     $ -  

Stock Options Grants to Non-Employees

 

The following table summarizes the assumptions the Company utilized to record compensation expense for stock options granted to non-employees during the nine months ended September 30, 2012 and 2011:

 

    For the Nine     For the Nine  
    Months Ended     Months Ended  
Assumptions   Septmber 30, 2012     Septmber 30, 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 non-employees during the nine months ended September 30, 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, September 30, 2012     175,000     $ 1.00       4.5     $ -  
                                 
Expected to vest, September 30, 2012     175,000     $ 1.00       4.5     $ -  
                                 
Exercisable, September 30, 2012     -       N/A       N/A       N/A  

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10. Concentrations (Tables)
9 Months Ended
Sep. 30, 2012
Risks and Uncertainties [Abstract]
Concentrations Of Revenues

 

For the three and nine months ended September 30, 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     For the Nine     For the Nine  
    Months Ended     Months Ended     Months Ended     Months Ended  
    Septmber 30, 2012     Septmber 30, 2011     Septmber 30, 2012     Septmber 30, 2011  
 Customer 1     27.5 %     38.3 %     35.9 %     42.9 %
 Customer 2     -       11.4 %     13.1 %     -  
 Totals     27.5 %     49.7 %     49.0 %     42.9 %

Concentrations Of Accounts Receivable

 

At September 30, 2012 and December 31, 2011, concentration of accounts receivable with significant customers representing 10% or greater of accounts receivable was as follows:

 

    Septmber 30, 2012     December 31, 2011  
 Customer 1     22.1 %     53.4 %
 Customer 2     15.0 %     17.3 %
 Customer 3     15.0 %     -  
 Totals     52.1 %     70.7 %

Concentrations Of Expense

 

For the three and nine months ended September 30, 2012 and 2011, the Company had significant vendors representing 10% or greater of cost and expense as follows:

 

    For the Three     For the Three     For the Nine     For the Nine  
    Months Ended     Months Ended     Months Ended     Months Ended  
    Septmber 30, 2012     Septmber 30, 2011     Septmber 30, 2012     Septmber 30, 2011  
 Vendor 1     10.2 %     17.6 %     13.3 %     25.2 %
 Totals     10.2 %     17.6 %     13.3 %     25.2 %

 

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4. Intangible Assets (Details) (USD $)
Sep. 30, 2012
Dec. 31, 2011
Intangible Assets Details
Course curricula $ 2,097,038 $ 2,072,238
Call center 1,321,950 927,455
Total 3,418,988 2,999,693
Accumulated amortization (2,030,457) (1,762,697)
Intangible assets, net $ 1,388,531 $ 1,236,996
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4. Intangible Assets (Details 1) (USD $)
Sep. 30, 2012
Dec. 31, 2011
Intangible Assets Details 1
For the year ended December 31, 2012 $ 393,478
For the year ended December 31, 2013 352,005
For the year ended December 31, 2014 313,418
For the year ended December 31, 2015 258,574
For the year ended December 31, 2016 71,056
Total $ 1,388,531 $ 1,236,996
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6. Convertible Notes Payable (Details) (USD $)
Sep. 30, 2012
Notes Payable $ 800,000
Less: Current Maturities (600,000)
Amount due after one year 200,000
Payable August 14 12012 Due On Demand
Notes Payable 300,000
Notes Payable March 13 2012 Thru March 31 2013
Notes Payable 300,000
Notes Payable February 25 2012 Thru Feb 25 2014
Notes Payable 100,000
Notes Payable February 27 2012 Thru Feb 27 2014
Notes Payable 50,000
Notes Payable February 29 2012 Thru Feb 29 2014
Notes Payable $ 50,000
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6. Convertible Notes Payable (Details 1) (USD $)
Sep. 30, 2012
Convertible Notes Payable Details 1
For the year ended December 31, 2013 $ 600,000
For the year ended December 31, 2014 200,000
Total $ 800,000
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9. Stockholders' Equity (Details) (USD $)
Sep. 30, 2012
Stockholders Equity Details
Cash and cash equivalents 337
Liabilities Assumed $ (21,206)
Net $ (20,869)
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9. Stockholders' Equity (Details 1) (USD $)
9 Months Ended
Sep. 30, 2012
Stock Warrants
Number of Options Outstanding, Beginning 456,000
Number of Options Issued 6,187,264
Number of Options Exercised 0
Number of Options Forfeited 0
Number of Options Exercisable 6,643,264
Weighted Average Exercise Price Outstanding, Beginning $ 0.33
Weighted Average Exercise Price Issued $ 0.44
Weighted Average Exercise Price Outstanding, Ending $ 0.43
Weighted Average Exercise Price Exercisable $ 0.43
Weighted Average Remaining Contractual Life (in years) Outstanding 4 years 8 months 15 days
Weighted Average Remaining Contractual Life (in years) Exercisable 4 years 8 months 15 days
Aggregate Intrinsic Value Outstanding, Ending $ 47,332
Aggregate Intrinsic Value Exercisable $ 47,332
Grants to Employee and Directors
Number of Options Outstanding, Beginning 0
Number of Options Issued 4,779,371
Number of Options Exercised 0
Number of Options Forfeited (190,000)
Number of Options Outstanding, Ending 4,589,371
Number of Options Exercisable 4,589,371
Weighted Average Exercise Price Outstanding, Beginning $ 0.61
Weighted Average Exercise Price Forfeited $ 1
Weighted Average Exercise Price Outstanding, Ending $ 0.59
Weighted Average Exercise Price Exercisable $ 0.35
Weighted Average Remaining Contractual Life (in years) Outstanding 4 years 9 months 22 days
Weighted Average Remaining Contractual Life (in years) Exercisable 5 years
Grants to Non Employees
Number of Options Outstanding, Beginning 175,000
Number of Options Issued 0
Number of Options Exercised 0
Number of Options Forfeited 0
Number of Options Outstanding, Ending 175,000
Weighted Average Exercise Price Outstanding, Beginning $ 1
Weighted Average Exercise Price Outstanding, Ending $ 1
Weighted Average Exercise Price Exercisable $ 1
Weighted Average Remaining Contractual Life (in years) Outstanding 4 years 6 months
Weighted Average Remaining Contractual Life (in years) Exercisable 4 years 6 months
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9. Stockholders' Equity (Details 2)
9 Months Ended
Sep. 30, 2012
Stock Incentive Plan To Employees And Directors
Expected life (years) 2.5-3.8
Expected volatility 44.20%
Weighted-average volatility 44.20%
Risk-free interest rate, Minimum 3.10%
Risk-free interest rate, Maximum 6.00%
Dividend yield 0.00%
Expected forfeiture rate 1.40%
Stock Incentive Plan To Non Employees
Expected life (years) 3.5
Expected volatility 44.20%
Weighted-average volatility 44.20%
Risk-free interest rate, Maximum 6.00%
Dividend yield 0.00%
Expected forfeiture rate 0.00%
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10. Concentrations (Details)
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Concentrations Details
Customer 1 27.50% 38.30% 35.90% 42.90%
Customer 2 0.00% 11.40% 13.10% 0.00%
Totals 27.50% 49.70% 49.00% 42.90%
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10. Concentrations (Details 1)
Sep. 30, 2012
Dec. 31, 2011
Concentrations Details 1
Customer 1 22.10% 53.40%
Customer 2 15.00% 17.30%
Customer 3 15.00% 0.00%
Totals 52.10% 70.70%
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10. Concentrations (Details 2)
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Concentrations Details 2
Vendor 1 10.20% 17.60% 13.30% 25.20%
Totals 10.20% 17.60% 13.30% 25.20%
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1. Nature of Operations and Going Concern (Details Narrative) (USD $)
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Nature Of Operations And Going Concern Details Narrative
Net Loss-Allocable to Common Shareholders $ 1,721,976 $ 884,875 $ 5,213,755 $ 1,251,230
Negative Cash Flows from Operations $ 2,288,416 $ 390,055
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2. Significant Accounting Policies (Details Narrative) (USD $)
9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Dec. 31, 2011
Significant Accounting Policies Details Narrative
Restricted cash $ 264,832 $ 0
Antidilutive shares 12,764,778 456,000
Convertible Notes Payable $ 800,000
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7. Commitments and Contingencies (Details Narrative) (USD $)
Sep. 30, 2012
Dec. 31, 2011
Commitments And Contingencies Details Narrative
Line of Credit-Balance Due $ 215,754 $ 233,215
Line of Credit-Credit Available 250,000
Unused credit line available 34,246
Common shares purchased 336,000
Common shares value $ 168,000
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11. Related Party Transactions (Details Narrative) (USD $)
Sep. 30, 2012
Dec. 31, 2011
Related Party Transactions Details Narrative
Allowance for related party receivable $ 502,315
Related party receivable, net $ 270,478 $ 772,793
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