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Document and Entity Information
3 Months Ended
Mar. 31, 2013
May 09, 2013
Document And Entity Information
Entity Registrant Name ASPEN GROUP, INC.
Entity Central Index Key 0001487198
Document Type 10-Q
Document Period End Date Mar 31, 2013
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 58,573,223
Document Fiscal Period Focus Q1
Document Fiscal Year Focus 2013
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CONSOLIDATED BALANCE SHEETS (USD $)
Mar. 31, 2013
Dec. 31, 2012
Assets
Cash and cash equivalents $ 479,344 $ 577,238
Restricted cash 265,131 264,992
Accounts receivable, net of allowance of $57,535 and $35,535, respectively 327,015 239,671
Prepaid expenses 157,583 192,533
Net assets from discontinued operations (Note 1) 183,747 393,214
Other current assets    69,000
Total current assets 1,412,820 1,736,648
Call center equipment 121,313 121,313
Computer and office equipment 61,037 45,718
Furniture and fixtures 32,914 11,336
Library (online) 100,000 100,000
Software 1,491,035 1,388,824
Total 1,806,299 1,667,191
Less accumulated depreciation and amortization (541,216) (455,871)
Total property and equipment, net 1,265,083 1,211,320
Courseware, net 218,559 253,571
Accounts receivable, secured - related party, net of allowance of $502,315 270,478 270,478
Other assets 25,181 25,181
Total assets 3,192,121 3,497,198
Liabilities and Stockholders' Equity
Accounts payable 258,409 215,796
Accrued expenses 97,380 75,912
Deferred revenue 1,142,195 1,036,540
Convertible notes payable, current portion (includes $50,000 to related parties) 200,000   
Loan payable to stockholder 491 491
Deferred rent, current portion 7,844 6,257
Net liabilities from discontinued operations (Note 1) 125,132 226,430
Other current liabilities    69,000
Total current liabilities 1,831,451 1,630,426
Line of credit 250,250 250,000
Convertible notes payable (includes $600,000 and $650,000, respectively, to related parties) 600,000 800,000
Deferred rent 20,319 15,017
Total liabilities 2,702,020 2,695,443
Stockholders' equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized      
Common stock, $0.001 par value; 120,000,000 shares authorized, 56,858,005 issued and 56,658,005 outstanding at March 31, 2013 and 55,243,719 issued and 55,043,719 outstanding at December 31, 2012 56,858 55,244
Additional paid-in capital 12,789,218 12,153,615
Treasury stock (200,000 shares) (70,000) (70,000)
Accumulated deficit (12,285,975) (11,337,104)
Total stockholders' equity 490,101 801,755
Total liabilities and stockholders' equity $ 3,192,121 $ 3,497,198
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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
Mar. 31, 2013
Dec. 31, 2012
Assets
Accounts receivable, allowance for doubtful accounts $ 57,535 $ 35,535
Accounts receivable, secured - related party 502,315 502,315
Current liabilities:
Convertible notes payable, current portion 50,000 50,000
Convertible notes payable 600,000 650,000
Stockholders' Equity:
Preferred stock, par value $ 0.001 $ 0.001
Preferred stock, authorized shares 10,000,000 10,000,000
Commont Stock, par value $ 0.001 $ 0.001
Common stock, authorized shares 120,000,000 120,000,000
Common stock, issued shares 56,858,005 55,243,719
Common stock, outstanding shares 56,658,005 55,043,719
Treasury stock $ 200,000 $ 200,000
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CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (USD $)
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Consolidated Statements Of Operations
Revenues $ 892,334 $ 546,778
Costs and expenses:
Instructional costs and services 235,713 187,847
Marketing and promotional 310,491 437,305
General and administrative 1,217,273 1,752,281
Depreciation and amortization 120,357 89,749
Total costs and expenses 1,883,834 2,467,182
Operating loss from continuing operations (991,500) (1,920,404)
Other income (expense):
Interest income 243 644
Interest expense (5,217) (3,031)
Gain on disposal of property and equipment    5,879
Other income 66,267   
Total other income (expense) 61,293 3,492
Loss from continuing operations before income taxes (930,207) (1,916,912)
Income tax expense (benefit)      
Loss from continuing operations (930,207) (1,916,912)
Discontinued operations (Note 1)
Income (loss) from discontinued operations, net of income taxes (18,664) 127,146
Net loss (948,871) (1,789,766)
Cumulative preferred stock dividends    (37,379)
Net loss allocable to common stockholders $ (948,871) $ (1,827,145)
Loss per share from continuing operations - basic and diluted $ (0.02) $ (0.12)
Income (loss) per share from discontinued operations - basic and diluted    0.01
Net loss per share allocable to common stockholders - basic and diluted (0.02) (0.11)
Weighted average number of common shares outstanding:
Basic and diluted 55,671,814 16,473,874
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CONSOLIDATED STOCKHOLDERS’ EQUITY (Unaudited) (USD $)
Common Stock
Additional Paid-In Capital
Treasury Stock
Accumulated Deficit
Total
Beginning Balance - Amount at Dec. 31, 2012 $ 55,244 $ 12,153,615 $ (70,000) $ (11,337,104) $ 801,755
Beginning Balance - Shares at Dec. 31, 2012 55,243,719
Issuance of common shares and warrants for cash, net of offering costs of $45,630, Shares 1,614,286
Issuance of common shares and warrants for cash, net of offering costs of $45,630, Amount 1,614 517,756       519,370
Stock-based compensation    117,847       117,847
Net loss          (948,871) (948,871)
Ending Balance, Amount at Mar. 31, 2013 $ 56,858 $ 12,789,218 $ (70,000) $ (12,285,975) $ 490,101
Ending Balance, Shares at Mar. 31, 2013 56,858,005
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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $)
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Cash flows from operating activities:
Net loss $ (948,871) $ (1,789,766)
Less income (loss) from discontinued operations (18,664) 127,146
Loss from continuing operations (930,207) (1,916,912)
Adjustments to reconcile net loss to net cash used in operating activities:
Bad debt expense 22,000 32,955
Gain on disposal of property and equipment    (5,879)
Depreciation and amortization 120,357 89,749
Stock-based compensation 117,847 66,104
Changes in operating assets and liabilities, net of effects of acquisition:
Accounts receivable (140,344) (20,524)
Prepaid expenses 34,950 (22,372)
Other current assets 69,000   
Accounts payable 42,613 622,808
Accrued expenses 21,468 125,867
Deferred rent 6,889 (1,073)
Deferred revenue 105,655 120,508
Other current liabilities (69,000)   
Net cash used in operating activities (598,772) (908,769)
Cash flow from investing activities:
Cash acquired as part of merger    337
Purchases of property and equipment (139,108) (138,183)
Purchases of courseware    (3,200)
Increase in restricted cash (139) (105,865)
Proceeds received from officer loan repayment    150,000
Net cash used in investing activities (139,247) (96,911)
Cash flows from financing activities:
Proceeds from (repayments on) line of credit, net 250 (5,769)
Proceeds from issuance of common shares and warrants, net 519,370   
Proceeds received from issuance of convertible notes and warrants    150,000
Proceeds from related party for convertible notes    300,000
Net cash provided by financing activities 519,620 444,231
Cash flows from discontinued operations:
Cash flows from operating activities 120,505 41,372
Net cash provided by discontinued operations 120,505 41,372
Net decrease in cash and cash equivalents (97,894) (520,077)
Cash and cash equivalents at beginning of period 577,238 766,602
Cash and cash equivalents at end of period 479,344 246,525
Supplemental disclosure of cash flow information:
Cash paid for interest 1,284 2,431
Cash paid for income taxes      
Supplemental disclosure of non-cash investing and financing activities:
Conversion of all preferred shares into common shares    3,469,985
Conversion of loans payable to convertible notes payable    200,000
Liabilities assumed in recapitalization    21,206
Settlement of notes payable by disposal of property and equipment    $ 15,151
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1. Nature of Operations and Going Concern
3 Months Ended
Mar. 31, 2013
Notes to Financial Statements
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 a Colorado subsidiary, Aspen University Marketing, LLC, which was inactive and was formally dissolved on November 20, 2012. On March 13, 2012, the Company was recapitalized in a reverse merger (See Note 10). All references to the Company or Aspen before March 13, 2012 are to Aspen University Inc.

 

On April 5, 2013, the Company gave 120-day notice to CLS 123, LLC of its intent to terminate the agreement between the Company and CLS 123, LLC dated November 9, 2011. Moreover, at the end of the 120-day period, the Company shall no longer be offering the “Certificate in Information Technology with a specialization in Smart Home Integration” program. Accordingly, the activities related to CLS (or the “Smart Home Integration Certificate” program) are treated as discontinued operations. As this component of the business was not sold, there was no gain or loss on the disposition of this component (see below “Basis of Presentation”).

 

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 full-time degree-seeking students (as of March 31, 2013) 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

 

1. Interim Financial Statements

 

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 months ended March 31, 2013 and 2012, our cash flows for the three months ended March 31, 2013 and 2012, and our financial position as of March 31, 2013 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 10-K for the year ended December 31, 2012, as filed with the SEC on March 18, 2013. The December 31, 2012 balance sheet is derived from those statements and it has been updated to reflect the discontinued operations for the CLS component.

 

2. Discontinued Operations

 

As of March 31, 2013, the Company decided to discontinue business activities related to its “Certificate in Information Technology with a specialization in Smart Home Integration” program so that it may focus on growing its full-time, degree-seeking student programs, which have higher gross margins. On April 5, 2013, the Company gave 120-day notice to CLS 123, LLC of its intent to terminate the agreement between the Company and CLS 123, LLC dated November 9, 2011. Thus, as of August 3, 2013, the Company shall no longer be offering the “Certificate in Information Technology with a specialization in Smart Home Integration” program. The termination of the “Smart Home Integration Certificate” program qualifies as a discontinued operation and accordingly the Company has excluded results for this component from its continuing operations in the condensed consolidated statements of operations for all periods presented. The following table shows the results of the “Smart Home Integration Certificate” program component included in the income (loss) from discontinued operations:

 

 

   

For the Three

Months Ended

March 31,

2013

   

For the Three

Months Ended

March 31,

2012

 
Revenues   $ 123,357     $ 811,041  
                 
Costs and expenses:                
Instructional costs and services     111,021       683,895  
General and administrative     31,000       -  
Total costs and expenses     142,021       683,895  
                 
Income (loss) from discontinued operations, net of income taxes   $ (18,664 )   $ 127,146  

 

The major classes of assets and liabilities of discontinued operations on the balance sheets are as follows:

 

   

March 31,

2013

   

December 31,

2012

 
Assets            
Cash and cash equivalents   $ -     $ 67,750  
Accounts receivable, net of allowance of $200,045 and $169,045, respectively     171,831       322,026  
Other current assets     11,916       3,438  
Net assets from discontinued operations   $ 183,747     $ 393,214  
Liabilities                
Accounts payable   $ 1,178     $ 1,178  
Accrued expenses     123,954       185,395  
Deferred revenue     -       39,857  
Net liabilities from discontinued operations   $ 125,132     $ 226,430  

 

Going Concern

 

The Company had a net loss of $948,871 and negative cash flows from operations of $598,772 for the three months ended March 31, 2013. While management expects operating trends to improve over the course of 2013, if the realization of the expected improvement fails to occur, it is possible the Company’s ability to continue as a going concern may be 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 has continued to implement its business plan and funded operations by raising additional capital through the issuance of equity securities. During the three months ended March 31, 2013, the Company raised $565,000 in gross funding from Units (consisting of common shares and warrants) (See Note 10). To aid the fund-raising process, the Company on March 14, 2013, engaged Laidlaw & Company to raise up to $770,000 through the sale of additional Units. Subsequent to March 31, 2013, the Company raised an additional $600,328 in gross funding from the sale of Units (consisting of common stock and warrants). This concluded the raise of $4,637,328 of gross proceeds from September 2012 to April 2013. By discontinuing the Company's CLS component, which had low gross margins, management will concentrate its efforts on expanding its full-time, degree-seeking student programs, which have higher gross margins.

 

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
3 Months Ended
Mar. 31, 2013
Notes to Financial Statements
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, amortization periods and valuation of software and courseware, valuation of stock-based compensation, the valuation of net assets and liabilities from discontinued operations and the valuation allowance on deferred tax assets.

 

Restricted Cash

 

Restricted cash represents amounts pledged as security for letters of credit for transactions involving Title IV programs. The Company considers $265,131 (includes accrued interest of $466) as restricted cash (shown as a current asset as of March 31, 2013) until such letter of credit expires on December 31, 2013. As of March 31, 2013, the account bears interest of 0.20%.

 

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.

 

Revenue Recognition and Deferred Revenue

 

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

 

 

Revenue Recognition and Deferred Revenue - Discontinued Operations

 

The Company enters into certain revenue sharing arrangements with consultants whereby the consultants will develop course content primarily for technology-related courses, recommend, but not select, faculty, lease equipment on behalf of the Company for instructional purposes for the on-site laboratory portion of distance learning courses and make introductions to corporate and government sponsoring organizations that provide students for the courses. The Company has evaluated ASC 605-45 "Principal Agent Considerations" and determined that there are more indicators than not that the Company is the primary obligor in the arrangements since the Company establishes the tuition, interfaces with the student or sponsoring organization, selects the faculty, is responsible for delivering the course, is responsible for issuing any degrees or certificates, and is responsible for collecting the tuition and fees. The gross tuition and fees are included in revenues while the revenue sharing payments are included in instructional costs and services, an operating expense. As a result of presenting this component as discontinued operations, the revenues are now included in income (loss) from discontinued operations, net of income taxes for all periods presented (See Note 1).

 

Reclassifications

 

Certain amounts in the accompanying unaudited condensed consolidated financial statements for the three months ended March 31, 2012 have been reclassified in order to conform to the March 31, 2013 presentation.

 

On the consolidated statements of operations, bad debt expense has been reclassified from instructional costs and services to general and administrative costs. The following table shows the reclassifications to the unaudited condensed consolidated statements of operations for the three months ended March 31, 2012.

 

    For the Three Months Ended March 31, 2012  
          Reclassifications              
                Discontinued        
    As Previously     Bad Debt     Operations     As  
    Reported     Expense     (See Note 1)     Reclassified  
                         
Costs and expenses:                        
Instructional costs and services   $ 904,697     $ (32,955 )   $ (683,895 )   $ 187,847  
Marketing and promotional     437,305                       437,305  
General and administrative     1,719,326       32,955               1,752,281  
Depreciation and amortization     89,749                       89,749  
Total costs and expenses   $ 3,151,077                     $ 2,467,182  

 

Net Loss Per Share

 

Net loss per common share is based on the weighted average number of common shares outstanding during each year. Options to purchase 7,353,667 and 2,070,000 common shares, warrants to purchase 8,063,665 and 493,500 common shares, and $800,000 and $650,000 of convertible debt (convertible into 1,357,143 and 951,126 common shares) were outstanding during the three months ended March 31, 2013 and 2012, respectively, but were not included in the computation of diluted loss per share because the effects would have been anti-dilutive. The options, warrants and convertible debt are considered to be common stock equivalents and are only included in the calculation of diluted earnings per common share when their effect is dilutive.

  

 

Recent Accounting Pronouncements

 

In July 2012, the FASB issued ASU 2012-02, which amends ASC Topic 350 to allow an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. An entity would not be required to determine the fair value of the indefinite-lived intangible unless the entity determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012 and early adoption is permitted. The Company has adopted this standard as of January 1, 2013.

 

We have implemented all new accounting standards that are in effect and that may impact our consolidated financial statements and do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our consolidated financial position or results of operations.

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3. Secured Note and Accounts Receivable-Related Parties
3 Months Ended
Mar. 31, 2013
Notes to Financial Statements
3. Secured Note and Accounts Receivable-Related Parties

 

Note 3. Secured Note and Accounts Receivable – Related Parties

 

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

 

On March 30, 2008 and December 1, 2008, the Company sold courseware pursuant to marketing agreements to HEMG, a related party and principal stockholder of the Company whose president is Mr. Patrick Spada, the former Chairman of the Company, in the amount of $455,000 and $600,000, respectively; UCC filings were filed accordingly. Under the marketing agreements, the receivables are due net 60 months. On September 16, 2011, HEMG pledged 772,793 Series C preferred shares (automatically converted to 654,850 common shares on March 13, 2012) of the Company as collateral for this account receivable. On March 8, 2012, due to the impending reduction in the value of the collateral as the result of the Series C conversion ratio and the 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) HEMG, a related party and principal stockholder of the Company whose president is Mr. Patrick Spada, the former Chairman of the Company and (iii) Mr. Patrick Spada. Under the agreement, (a) the individual purchased and HEMG sold to the individual 400,000 common shares of the Company at $0.50 per share; (b) the Company guaranteed it would purchase at least 600,000 common shares of the Company at $0.50 per share within 90 days of the agreement and the Company would use its best efforts to purchase from HEMG and resell to investors an additional 1,400,000 common shares of the Company at $0.50 per share within 180 days of the agreement; (c) provided HEMG and Mr. Patrick Spada fulfilled their obligations under (a) and (b) above, the Company shall consent to additional private transfers by HEMG and/or Mr. Patrick Spada of up to 500,000 common shares of the Company on or before March 13, 2013; (d) HEMG agreed to not sell, pledge or otherwise transfer 142,500 common shares of the Company pending resolution of a dispute regarding the 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 waived any default of the accounts receivable, secured - related party and extend the due date to September 30, 2014. As of September 30, 2012, third party investors purchased 336,000 shares for $168,000 and the Company purchased 264,000 shares for $132,000 per section (b) above. Based on proceeds received on September 28, 2012 under a Unit private placement that equates to approximately $0.35 per common share, the value of the aforementioned collateral decreased. Accordingly, as of December 31, 2012, the Company has recognized an allowance of $502,315 for this account receivable. As of March 31, 2013 and December 31, 2012, the balance of the account receivable, net of allowance, was $270,478, based on continuing private placement sales equating to approximately $0.35 per share, and is shown as accounts receivable, secured – related party, net (See Note 11).

 

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4. Property and Equipment
3 Months Ended
Mar. 31, 2013
Notes to Financial Statements
4. Property and Equipment

Property and equipment consisted of the following at March 31, 2013 and December 31, 2012:

 

    March 31, 2013     December 31, 2012  
Call center   $ 121,313     $ 121,313  
Computer and office equipment     61,037       45,718  
Furniture and fixtures     32,914       11,336  
Library (online)     100,000       100,000  
Software     1,491,035       1,388,824  
      1,806,299       1,667,191  
Accumulated depreciation and amortization     (541,216 )     (455,871 )
Property and equipment, net   $ 1,265,083     $ 1,211,320  

 

Depreciation and amortization expense for the three months ended March 31, 2013 and 2012 was $85,345 and $53,511, respectively. Accumulated depreciation amounted to $541,216 and $455,871 as of March 31, 2013 and December 31, 2012, respectively.

 

Amortization expense for software, included in the above amounts, for the three months ended March 31, 2013 and 2012 was $74,552 and $46,373, respectively. Software consisted of the following at March 31, 2013 and December 31, 2012:

 

    March 31, 2013     December 31, 2012  
Software   $ 1,491,035     $ 1,388,824  
Accumulated amortization     (361,296 )     (286,744 )
Software, net   $ 1,129,739     $ 1,102,080  

 

The following is a schedule of estimated future amortization expense of software at March 31, 2013:

 

Year Ending December 31,      
2013   $ 223,655  
2014     298,207  
2015     298,207  
2016     237,917  
2017     71,753  
Total   $ 1,129,739  
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5. Courseware
3 Months Ended
Mar. 31, 2013
Notes to Financial Statements
5. Courseware

Courseware costs capitalized were $0 and $3,200 for the three months ended March 31, 2013 and 2012, respectively.

 

Courseware consisted of the following at March 31, 2013 and December 31, 2012:

 

    March 31, 2013     December 31, 2012  
Courseware   $ 2,097,538     $ 2,097,538  
Accumulated amortization     (1,878,979 )     (1,843,967 )
Courseware, net   $ 218,559     $ 253,571  

 

Amortization expense of courseware for the three months ended March 31, 2013 and 2012 was $35,012 and $36,238, respectively.

  

The following is a schedule of estimated future amortization expense of courseware at March 31, 2013:

 

Year Ending December 31,      
2013   $ 85,808  
2014     77,757  
2015     39,616  
2016     12,738  
2017     2,640  
Total   $ 218,559  
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6. Loans Payable
3 Months Ended
Mar. 31, 2013
Notes to Financial Statements
6. Loans Payable

During 2009, the Company received advances aggregating $200,000 from three individuals. Of the total funds received, $50,000 was received from a related party. From the date the funds were received through the date the loans were converted into convertible promissory notes payable, the loans were non-interest bearing demand loans and, therefore, no interest expense was recognized or due. In February 2012, the Company converted the loans into long-term convertible notes payable (See Notes 7 and 12).

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7. Convertible Notes Payable
3 Months Ended
Mar. 31, 2013
Notes to Financial Statements
7. Convertible Notes Payable

 

Note 7. 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 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.

 

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 due in February 2014, they have been included in current liabilities as of March 31, 2012 and long-term liabilities as of December 31, 2012 (See Notes 6 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 note and determined that, for the embedded conversion option, there was no beneficial conversion value to record as the conversion price is considered to be the fair market value of the common shares on the note issue date. On September 4, 2012, the maturity date was extended to August 31, 2013. On December 17, 2012, the maturity date was extended to August 31, 2014. There was no accounting effect for these two modifications (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 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 following the reverse merger. Each Unit in the Phase One financing 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. As of June 30, 2012, the Company, without the assistance of any broker-dealer, raised $150,000 from the sale of 3.0 Units. Laidlaw raised $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). 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. The Phase Two financing consisted of units offered at $0.35 per unit (consisting of one common share and one-half of a warrant exercisable at $0.50 per share. The Convertible Notes 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 in the Phase Two financing, 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. Moreover, due to price protection, the exercise price of the warrants to acquire 426,500 common shares that had been issued along with the convertible notes changed from $1.00 per share to $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.

 

As of March 31, 2013, the aggregate amount of convertible notes payable outstanding was $800,000, of which $200,000 is included in current liabilities and $600,000 is included in long-term liabilities. As of March 31, 2013, the convertible notes embedded conversion options were still not accounted for as bifurcated derivatives since the conversion shares were not readily convertible to cash due to an inactive trading market.

 

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8. Commitments and Contingencies
3 Months Ended
Mar. 31, 2013
Notes to Financial Statements
8. Commitments and Contingencies

 

Line of Credit

 

The Company maintains a line of credit with a bank, up to a maximum credit line of $250,000. The line of credit bears interest equal to the prime rate plus 0.50% (overall interest rate of 3.75% at March 31, 2013). The line of credit requires minimum monthly payments consisting of interest only. The line of credit is secured by all business assets, inventory, equipment, accounts, general intangibles, chattel paper, documents, instruments and letter of credit rights of the Company. The line of credit is for an unspecified time until the bank notifies the Company of the Final Availability Date, at which time payments on the line of credit become the sum of: (a) accrued interest and (b) 1/60th of the unpaid principal balance immediately following the Final Availability Date, which equates to a five-year payment period. During February 2013, the Company repaid $250,000 on the line of credit. At the end of March 2013, the Company drew $250,000 and was charged the $250 annual fee on the line of credit. The balance due on the line of credit as of March 31, 2013 was $250,250. Since the earliest the line of credit is due and payable is over a five year period and the Company believes that it could obtain a comparable replacement line of credit elsewhere, the entire line of credit is included in long-term liabilities. The unused amount under the line of credit available to the Company at March 31, 2013 was $0.

 

Employment Agreements

 

From time to time, the Company enters into employment agreements with certain of its employees. These agreements typically include bonuses, some of which are performance-based in nature. As of March 31, 2013, the Company had entered into four employment agreements whereby the Company is obligated to pay an annual performance bonus ranging from 50% to 100% of the employee’s base salary based upon the achievement of pre-established milestones. Such annual bonuses are to be paid one-half in cash and the remainder in common shares of the Company. As of March 31, 2013, no performance bonuses have been earned and any guaranteed bonuses under the employment agreements have been waived.

 

Legal Matters

 

On February 11, 2013, HEMG and Mr. Spada sued us, certain senior management members and our directors in state court in New York seeking damages arising from losses and other matters incurred in the operation of the Company’s business since May 2011, our filings with the SEC and the DOE where we stated that HEMG and Mr. Spada borrowed $2.2 million without board authority and our failure to use our best efforts to purchase certain shares of common stock from HEMG following an April 2012 agreement. In response to a motion to dismiss filed by the defendants, the plaintiffs recently filed an amended complaint. While we have been advised by our counsel that the lawsuit is baseless, we cannot assure you that we will be successful. Defending the litigation will be expensive and divert our management from the Company’s business. If we are unsuccessful, the damages we pay may be material, although some of the claims are derivative in which relief is sought on behalf of the Company against the individual defendants.

 

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of March 31, 2013, there were no other pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations and there are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

 

Regulatory Matters

 

The Company’s subsidiary, Aspen University Inc. (“Aspen University”), is subject to extensive regulation by Federal and State governmental agencies and accrediting bodies. In particular, the Higher Education Act (the “HEA”) and the regulations promulgated thereunder by the DOE subject Aspen University to significant regulatory scrutiny on the basis of numerous standards that schools must satisfy to participate in the various types of federal student financial assistance programs authorized under Title IV of the HEA. Aspen University has had provisional certification to participate in the Title IV programs. That provisional certification imposes certain regulatory restrictions including, but not limited to, a limit of 1,200 student recipients for Title IV funding for the duration of the provisional certification. During 2011, Aspen University’s provisional certification was scheduled to expire, but Aspen University timely filed its application for recertification with the DOE, which extended the term of Aspen University’s certification to September 30, 2013. The provisional certification restrictions continue with regard to Aspen 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. Aspen University performs periodic reviews of its compliance with the various applicable regulatory requirements. As Title IV funds received in fiscal 2012 represented approximately 18% of the Company's cash revenues (including revenues from discontinued operations), as calculated in accordance with Department of Education guidelines, the loss of Title IV funding would have a material effect on the Company's future financial performance.

 

On March 27, 2012 and on August 31, 2012, Aspen University provided the DOE with letters of credit for which the due date was extended to December 31, 2013. The DOE may impose additional or different terms and conditions in any final provisional program participation agreement that it may issue (See Note 2 “Restricted Cash”).

 

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

 

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

 

Return of Title IV Funds

 

An institution participating in Title IV programs must correctly calculate the amount of unearned Title IV program funds that have been disbursed to students who withdraw from their educational programs before completion and must return those unearned funds in a timely manner, generally within 45 days of the date the school determines that the student has withdrawn. Under Department regulations, failure to make timely returns of Title IV program funds for 5% or more of students sampled on the institution's annual compliance audit in either of its two most recently completed fiscal years can result in the institution having to post a letter of credit in an amount equal to 25% of its required Title IV returns during its most recently completed fiscal year. If unearned funds are not properly calculated and returned in a timely manner, an institution is also subject to monetary liabilities or an action to impose a fine or to limit, suspend or terminate its participation in Title IV programs.

 

Delaware Approval to Confer Degrees

 

Aspen University is a Delaware corporation. Delaware law requires an institution to obtain approval from the Delaware Department of Education (“Delaware DOE”) before it may incorporate with the power to confer degrees. On July 3, 2012, Aspen University received notice from the Delaware DOE that it is granted provisional approval status effective until June 30, 2015. Aspen University is authorized by the Colorado Commission on Education to operate in Colorado as a degree granting institution.

 

Letter of Credit

 

The Company maintains a letter of credit under a DOE requirement (See Note 2 “Restricted Cash”).

 

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9. Temporary Equity
3 Months Ended
Mar. 31, 2013
Notes to Financial Statements
9. 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 10).

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10. Stockholders' Equity
3 Months Ended
Mar. 31, 2013
Notes to Financial Statements
10. Stockholders' Equity

 

Note 10. Stockholders’ Equity

 

Stock Dividends 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 then had a conversion ratio of 0.8473809.

 

Preferred Shares

 

On March 13, 2012, all preferred shares were automatically converted into common shares and, based on the terms of the preferred shares (See below).

 

Common Shares

 

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 9).

 

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.

 

 

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 for $35,000 per Unit, with each Unit consisting of 100,000 shares of common stock and 50,000 five-year warrants exercisable at $0.50 per share. 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 also agreed to 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. As of December 31, 2012, the Company raised $530,337 (net of offering costs of $184,663 and five-year warrants to purchase: (i) 100,000 common shares at $0.35 per share and (ii) 98,000 common shares at $0.50 per share.) from the sale of 20.43 Units (including 2,042,856 common shares and 1,021,432 warrants) under the offering. On December 31, 2012, the agreement with GAC was terminated. During the period from February 13, 2013 through March 1, 2013, the Company raised $519,370 (net of offering costs of $45,630) from the sale of 16.14 Units (including 1,614,286 common shares and 807,143 five-year warrants exercisable at $0.50 per share) on its own behalf without the use of a broker. The warrants have cashless exercise provisions. On March 14, 2013, and based on the Company having increased the remainder of the Offering by $20,000, the Company entered into an exclusive engagement with Laidlaw & Company (UK) Ltd. under which Laidlaw agreed to use its best effort to sell up to $770,000 of Units with the same terms as the Units the Company sold in 2012 and 2013 to date. Laidlaw will receive cash commissions of 10% based on the number of Units sold and five-year warrants equal to 10% of the securities sold exercisable at $0.50 per share. The offering shall terminate no later than April 15, 2013 (See Note 12).

 

Recapitalization

 

On March 13, 2012 (the “recapitalization date”), Aspen University was acquired by Aspen Group, Inc., an inactive publicly-held company, in a reverse merger transaction accounted for as a recapitalization of Aspen University (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 warrants issued by the Company during the three months ended March 31, 2013 have been related to capital raises. Accordingly, the Company has not recognized any stock-based compensation for these warrants.

 

A summary of the Company’s warrant activity during the three months ended March 31, 2013 is presented below:

 

                Weighted        
          Weighted     Average        
          Average     Remaining     Aggregate  
    Number of     Exercise     Contractual     Intrinsic  
Warrants   Shares     Price     Term     Value  
Balance Outstanding, December 31, 2012     7,256,522     $ 0.45              
  Granted     807,143       0.50              
  Exercised     -       -              
  Forfeited     -       -              
  Expired     -       -              
Balance Outstanding, March 31, 2013     8,063,665     $ 0.46       4.3     $ 32,349  
                                 
Exercisable, March 31, 2013     8,063,665     $ 0.46       4.3     $ 32,349  

 

 

 

Certain of the Company’s warrants contain price protection. The Company evaluated whether the price protection provision of the warrant would cause derivative treatment. In its assessment, the Company determined that since its shares are not readily convertible to cash due to an inactive trading market, the warrants are excluded from derivative treatment.

 

Stock Incentive Plan and Stock Option Grants to Employees and Directors

 

Immediately following the closing of the Reverse Merger, on March 13, 2012, the Company adopted the 2012 Equity Incentive Plan (the “Plan”) that provides for the grant of 2,500,000 shares (increased to 5,600,000 shares effective September 28, 2012 and to 8,000,000 shares effective January 16, 2013) in the form of incentive stock options, non-qualified stock options, restricted shares, stock appreciation rights and restricted stock units to employees, consultants, officers and directors. On January 16, 2013, 1,291,167 options were modified to be Plan options. There was no accounting effect for such modifications. As of March 31, 2013, 646,333 shares were remaining under the Plan for future issuance.

 

During the three months ended March 31, 2012, the Company granted 1,895,000 stock options to employees, all of which were under the Plan, having an exercise price of $1.00 per share (repriced to $0.35 per share on December 17, 2012). The options vest pro rata over three years on each anniversary date; all options expire five years from the grant date. The total fair value of stock options granted to employees during the three months ended March 31, 2012 was $625,350, which is being recognized over the respective vesting periods. The Company recorded compensation expense of $8,354 for the three months ended March 31, 2012, in connection with employee stock options.

 

During the three months ended March 31, 2013, the Company granted to employees 473,200 stock options, all of which were under the Plan, having an exercise price of $0.35 per share. The options vest pro rata over three to four years on each anniversary date; all options expire five years from the grant date. The total fair value of stock options granted to employees during the three months ended March 31, 2013 was $56,784, which is being recognized over the respective vesting periods. The Company recorded compensation expense of $117,847 for the three months ended March 31, 2013, in connection with employee stock options.

 

The Company estimates the fair value of share-based compensation utilizing the Black-Scholes option pricing model, which is dependent upon several variables such as the expected option term, expected volatility of the Company’s stock price over the expected term, expected risk-free interest rate over the expected option term, expected dividend yield rate over the expected option term, and an estimate of expected forfeiture rates. The Company believes this valuation methodology is appropriate for estimating the fair value of stock options granted to employees and directors which are subject to ASC Topic 718 requirements. These amounts are estimates and thus may not be reflective of actual future results, nor amounts ultimately realized by recipients of these grants. The Company recognizes compensation on a straight-line basis over the requisite service period for each award. The following table summarizes the assumptions the Company utilized to record compensation expense for stock options granted to employees during the three months ended March 31, 2013 and 2012:

 

    For the Three     For the Three  
    Months Ended     Months Ended  
Assumptions  

March 31,

2013

   

March 31,

2012

 
Expected life (years)     3.5 - 3.75       3.5  
Expected volatility     46.3% - 46.5 %     44.2 %
Weighted-average volatility     46.5 %     44.2 %
Risk-free interest rate     0.36% - 0.44 %     0.56% - 0.60 %
Dividend yield     0.00 %     0.00 %
Expected forfeiture rate     3.9 %     2.0 %

 

 

 

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

 

A summary of the Company’s stock option activity for employees and directors during the three months ended March 31, 2013 is presented below:

 

                Weighted        
          Weighted     Average        
          Average     Remaining     Aggregate  
    Number of     Exercise     Contractual     Intrinsic  
Options   Shares     Price     Term     Value  
Balance Outstanding, December 31, 2012     6,777,967     $ 0.35              
  Granted     473,200     $ 0.35              
  Exercised     -                      
  Forfeited     (92,500 )   $ 0.35              
  Expired     -                      
Balance Outstanding, March 31, 2013     7,158,667     $ 0.35       4.4     $ -  
                                 
Exercisable, March 31, 2013     2,056,998     $ 0.35       4.4     $ -  

 

The weighted-average grant-date fair value of options granted to employees during the three months ended March 31, 2013 was $0.12.

 

As of March 31, 2013, there was $921,606 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 1.4 years.

 

Stock Option Grants to Non-Employees

 

On March 15, 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 the stock options granted was $57,750, all of which was recognized immediately as these stock options were issued for prior services rendered. On December 17, 2012, the Company repriced the stock options issued from having an exercise price of $1.00 per share to $0.35 per share. Accordingly, the incremental increase in the fair value of $15,750 was recognized immediately.

 

The total fair value of stock options granted to non-employees during the three months ended March 31, 2013 and 2012 was $0 and $57,750, all of which was recognized immediately as these stock options were issued for prior services rendered. The Company recorded compensation expense of $0 and $57,750 for the three months ended March 31, 2013 and 2012, in connection with non-employee stock options.

 

 

 

The following table summarizes the assumptions the Company utilized to record compensation expense for stock options granted to non-employees during the three months ended March 31, 2013 and 2012:

 

 

    For the Three     For the Three  
    Months Ended     Months Ended  
Assumptions  

March 31,

2013

   

March 31,

2012

 
Expected life (years)     N/A       3.5  
Expected volatility     N/A       44.2 %
Weighted-average volatility     N/A       44.2 %
Risk-free interest rate     N/A       0.60 %
Dividend yield     N/A       0.00 %

 

A summary of the Company’s stock option activity for non-employees during the three months ended March 31, 2013 is presented below:

 

                Weighted        
          Weighted     Average        
          Average     Remaining     Aggregate  
    Number of     Exercise     Contractual     Intrinsic  
Options   Shares     Price     Term     Value  
Balance Outstanding, December 31, 2012     195,000     $ 0.35              
  Granted     -                      
  Exercised     -                      
  Forfeited     -                      
  Expired     -                      
Balance Outstanding, March 31, 2013     195,000     $ 0.35       4.0     $ -  
                                 
Exercisable, March 31, 2013     58,333     $ 0.35       4.0     $ -  

 

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11. Related Party Transactions
3 Months Ended
Mar. 31, 2013
Notes to Financial Statements
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. During the three months ended March 31, 2012, interest income of $594 was recognized on the note receivable. 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 courseware pursuant to marketing agreements to HEMG, a related party and principal stockholder of the Company whose president is Mr. Patrick Spada, the former Chairman of the Company, in the amount of $455,000 and $600,000, respectively; UCC filings were filed accordingly. Under the marketing agreements, the receivables are due net 60 months. On September 16, 2011, HEMG pledged 772,793 Series C preferred shares (automatically converted to 654,850 common shares on March 13, 2012) of the Company as collateral for this account receivable. On March 8, 2012, due to the impending reduction in the value of the collateral as the result of the Series C conversion ratio and the 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) HEMG, a related party and principal stockholder of the Company whose president is Mr. Patrick Spada, the former Chairman of the Company and (iii) Mr. Patrick Spada. Under the agreement, (a) the individual purchased and HEMG sold to the individual 400,000 common shares of the Company at $0.50 per share; (b) the Company guaranteed it would purchase at least 600,000 common shares of the Company at $0.50 per share within 90 days of the agreement and the Company would use its best efforts to purchase from HEMG and resell to investors an additional 1,400,000 common shares of the Company at $0.50 per share within 180 days of the agreement; (c) provided HEMG and Mr. Patrick Spada fulfilled their obligations under (a) and (b) above, the Company shall consent to additional private transfers by HEMG and/or Mr. Patrick Spada of up to 500,000 common shares of the Company on or before March 13, 2013; (d) HEMG agreed to not sell, pledge or otherwise transfer 142,500 common shares of the Company pending resolution of a dispute regarding the 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 waived any default of the accounts receivable, secured - related party and extend the due date to September 30, 2014. As of September 30, 2012, third party investors purchased 336,000 shares for $168,000 and the Company purchased 264,000 shares for $132,000 per section (b) above. Based on proceeds received on September 28, 2012 under a Unit private placement that equates to approximately $0.35 per common share, the value of the aforementioned collateral decreased. Accordingly, as of December 31, 2012, the Company has recognized an allowance of $502,315 for this account receivable. As of March 31, 2013 and December 31, 2012, the balance of the account receivable, net of allowance, was $270,478, based on continuing private placement sales equating to approximately $0.35 per share, 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 due in February 2014, they have been included in current liabilities as of March 31, 2012 and long-term liabilities as of December 31, 2012 (See Notes 6 and 7).

 

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 note and determined that, for the embedded conversion option, there was no beneficial conversion value to record as the conversion price is considered to be the fair market value of the common shares on the note issue date. On September 4, 2012, the maturity date was extended to August 31, 2013. On December 17, 2012, the maturity date was extended to August 31, 2014. There was no accounting effect for these two modifications (See Note 7).

 

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12. Subsequent Events
3 Months Ended
Mar. 31, 2013
Notes to Financial Statements
12. Subsequent Events

On April 5, 2013, the Company provided a 120-day notice to CLS 123, LLC of its intent to terminate the agreement between the Company and CLS 123, LLC dated November 9, 2011 (See Note 1 “Discontinued Operations”).

 

On April 18, 2013, the Company raised $522,170 (net of offering costs of $78,158 and five-year warrants to purchase 169,021 common shares at $0.50 per share) from the sale of 17.15 Units (comprised of 1,715,217 common shares and 857,606 five-year warrants exercisable at $0.50 per share). All of the Units were sold with the assistance of Laidlaw except $8,750, which the Company raised on its own behalf and was not subject to a commission. Cash commissions of $59,158 and five-year warrants to purchase 169,021 common shares at $0.50 per share are due to Laidlaw as offering fees.

 

On April 25, 2013, the Company changed its fiscal year end from December 31 to April 30.

 

Subsequent to March 31, 2013, the Company granted 160,714 stock options to executive officers in lieu of reduced salaries, 75,000 stock options to a consultant and 25,000 stock options to an employee. All of the aforementioned stock options are five-year options, vest over 3 years and have an exercise price of $0.35 per share.

 

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2. Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2013
Notes to Financial Statements
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, amortization periods and valuation of software and courseware, valuation of stock-based compensation, the valuation of net assets and liabilities from discontinued operations and the valuation allowance on deferred tax assets.

Restricted Cash

Restricted cash represents amounts pledged as security for letters of credit for transactions involving Title IV programs. The Company considers $265,131 (includes accrued interest of $466) as restricted cash (shown as a current asset as of March 31, 2013) until such letter of credit expires on December 31, 2013. As of March 31, 2013, the account bears interest of 0.20%.

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.

Revenue Recognition and Deferred Revenue

Revenues consist primarily of tuition and fees derived from courses taught by the Company online as well as from related educational resources that the Company provides to its students, such as access to our online materials and learning management system. Tuition revenue is recognized pro-rata over the applicable period of instruction. The Company maintains an institutional tuition refund policy, which provides for all or a portion of tuition to be refunded if a student withdraws during stated refund periods. Certain states in which students reside impose separate, mandatory refund policies, which override the Company’s policy to the extent in conflict. If a student withdraws at a time when a portion or none of the tuition is refundable, then in accordance with its revenue recognition policy, the Company recognizes as revenue the tuition that was not refunded. Since the Company recognizes revenue pro-rata over the term of the course and because, under its institutional refund policy, the amount subject to refund is never greater than the amount of the revenue that has been deferred, under the Company’s accounting policies revenue is not recognized with respect to amounts that could potentially be refunded. The Company’s educational programs have starting and ending dates that differ from its fiscal quarters. Therefore, at the end of each fiscal quarter, a portion of revenue from these programs is not yet earned and is therefore deferred. The Company also charges students annual fees for library, technology and other services, which are recognized over the related service period. Deferred revenue represents the amount of tuition, fees, and other student payments received in excess of the portion recognized as revenue and it is included in current liabilities in the accompanying consolidated balance sheets. Other revenues may be recognized as sales occur or services are performed. As a result of presenting this component as discontinued operations, the revenues are now included in income (loss) from discontinued operations, net of income taxes for all periods presented (See Note 1).

Revenue Recognition and Deferred Revenue - Discontinued Operations

The Company enters into certain revenue sharing arrangements with consultants whereby the consultants will develop course content primarily for technology-related courses, recommend, but not select, faculty, lease equipment on behalf of the Company for instructional purposes for the on-site laboratory portion of distance learning courses and make introductions to corporate and government sponsoring organizations that provide students for the courses. The Company has evaluated ASC 605-45 "Principal Agent Considerations" and determined that there are more indicators than not that the Company is the primary obligor in the arrangements since the Company establishes the tuition, interfaces with the student or sponsoring organization, selects the faculty, is responsible for delivering the course, is responsible for issuing any degrees or certificates, and is responsible for collecting the tuition and fees. The gross tuition and fees are included in revenues while the revenue sharing payments are included in instructional costs and services, an operating expense.

Reclassifications

Certain amounts in the accompanying unaudited condensed consolidated financial statements for the three months ended March 31, 2012 have been reclassified in order to conform to the March 31, 2013 presentation.

 

On the consolidated statements of operations, bad debt expense has been reclassified from instructional costs and services to general and administrative costs. The following table shows the reclassifications to the unaudited condensed consolidated statements of operations for the three months ended March 31, 2012.

 

    For the Three Months Ended March 31, 2012  
          Reclassifications              
                Discontinued        
    As Previously     Bad Debt     Operations     As  
    Reported     Expense     (See Note 1)     Reclassified  
                         
Costs and expenses:                        
Instructional costs and services   $ 904,697     $ (32,955 )   $ (683,895 )   $ 187,847  
Marketing and promotional     437,305                       437,305  
General and administrative     1,719,326       32,955               1,752,281  
Depreciation and amortization     89,749                       89,749  
Total costs and expenses   $ 3,151,077                     $ 2,467,182  
Net Loss Per Share

Net loss per common share is based on the weighted average number of common shares outstanding during each year. Options to purchase 7,353,667 and 2,070,000 common shares, warrants to purchase 8,063,665 and 493,500 common shares, and $800,000 and $650,000 of convertible debt (convertible into 1,357,143 and 951,126 common shares) were outstanding during the three months ended March 31, 2013 and 2012, respectively, but were not included in the computation of diluted loss per share because the effects would have been anti-dilutive. The options, warrants and convertible debt are considered to be common stock equivalents and are only included in the calculation of diluted earnings per common share when their effect is dilutive.

Recent Accounting Pronouncements

In July 2012, the FASB issued ASU 2012-02, which amends ASC Topic 350 to allow an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. An entity would not be required to determine the fair value of the indefinite-lived intangible unless the entity determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012 and early adoption is permitted. The Company has adopted this standard as of January 1, 2013.

 

We have implemented all new accounting standards that are in effect and that may impact our consolidated financial statements and do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our consolidated financial position or results of operations.

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1. Nature of Operations and Going Concern (Tables)
3 Months Ended
Mar. 31, 2013
Nature Of Operations And Going Concern Tables
Discontinued Operations

 

The following table shows the results of the “Smart Home Integration Certificate” program component included in the income (loss) from discontinued operations:

 

 

   

For the Three

Months Ended

March 31,

2013

   

For the Three

Months Ended

March 31,

2012

 
Revenues   $ 123,357     $ 811,041  
                 
Costs and expenses:                
Instructional costs and services     111,021       683,895  
General and administrative     31,000       -  
Total costs and expenses     142,021       683,895  
                 
Income (loss) from discontinued operations, net of income taxes   $ (18,664 )   $ 127,146  

 

The major classes of assets and liabilities of discontinued operations on the balance sheets are as follows:

 

   

March 31,

2013

   

December 31,

2012

 
Assets            
Cash and cash equivalents   $ -     $ 67,750  
Accounts receivable, net of allowance of $200,045 and $169,045, respectively     171,831       322,026  
Other current assets     11,916       3,438  
Net assets from discontinued operations   $ 183,747     $ 393,214  
Liabilities                
Accounts payable   $ 1,178     $ 1,178  
Accrued expenses     123,954       185,395  
Deferred revenue     -       39,857  
Net liabilities from discontinued operations   $ 125,132     $ 226,430  

 

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2. Significant Accounting Policies (Tables)
3 Months Ended
Mar. 31, 2013
Significant Accounting Policies Tables
Reclassifications

On the consolidated statements of operations, bad debt expense has been reclassified from instructional costs and services to general and administrative costs. The following table shows the reclassifications to the unaudited condensed consolidated statements of operations for the three months ended March 31, 2012.

 

    For the Three Months Ended March 31, 2012  
          Reclassifications              
                Discontinued        
    As Previously     Bad Debt     Operations     As  
    Reported     Expense     (See Note 1)     Reclassified  
                         
Costs and expenses:                        
Instructional costs and services   $ 904,697     $ (32,955 )   $ (683,895 )   $ 187,847  
Marketing and promotional     437,305                       437,305  
General and administrative     1,719,326       32,955               1,752,281  
Depreciation and amortization     89,749                       89,749  
Total costs and expenses   $ 3,151,077                     $ 2,467,182  
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4. Property and Equipment (Tables)
3 Months Ended
Mar. 31, 2013
Property And Equipment Tables
Property and equipment

Property and equipment consisted of the following at March 31, 2013 and December 31, 2012:

 

    March 31, 2013     December 31, 2012  
Call center   $ 121,313     $ 121,313  
Computer and office equipment     61,037       45,718  
Furniture and fixtures     32,914       11,336  
Library (online)     100,000       100,000  
Software     1,491,035       1,388,824  
      1,806,299       1,667,191  
Accumulated depreciation and amortization     (541,216 )     (455,871 )
Property and equipment, net   $ 1,265,083     $ 1,211,320  
Amortization expense for software

Software consisted of the following at March 31, 2013 and December 31, 2012:

 

    March 31, 2013     December 31, 2012  
Software   $ 1,491,035     $ 1,388,824  
Accumulated amortization     (361,296 )     (286,744 )
Software, net   $ 1,129,739     $ 1,102,080  

 

Estimated future amortization expense

The following is a schedule of estimated future amortization expense of software at March 31, 2013:

 

Year Ending December 31,      
2013   $ 223,655  
2014     298,207  
2015     298,207  
2016     237,917  
2017     71,753  
Total   $ 1,129,739  

 

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5. Courseware (Tables)
3 Months Ended
Mar. 31, 2013
Estimated future amortization expense

The following is a schedule of estimated future amortization expense of software at March 31, 2013:

 

Year Ending December 31,      
2013   $ 223,655  
2014     298,207  
2015     298,207  
2016     237,917  
2017     71,753  
Total   $ 1,129,739  

 

Courseware
Courseware costs capitalized

Courseware consisted of the following at March 31, 2013 and December 31, 2012:

 

    March 31, 2013     December 31, 2012  
Courseware   $ 2,097,538     $ 2,097,538  
Accumulated amortization     (1,878,979 )     (1,843,967 )
Courseware, net   $ 218,559     $ 253,571  
Estimated future amortization expense

The following is a schedule of estimated future amortization expense of courseware at March 31, 2013:

 

Year Ending December 31,      
2013   $ 85,808  
2014     77,757  
2015     39,616  
2016     12,738  
2017     2,640  
Total   $ 218,559  
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10. Stockholders' Equity (Tables)
3 Months Ended
Mar. 31, 2013
Notes to Financial Statements
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 three months ended March 31, 2013 is presented below:

 

                Weighted        
          Weighted     Average        
          Average     Remaining     Aggregate  
    Number of     Exercise     Contractual     Intrinsic  
Warrants   Shares     Price     Term     Value  
Balance Outstanding, December 31, 2012     7,256,522     $ 0.45              
  Granted     807,143       0.50              
  Exercised     -       -              
  Forfeited     -       -              
  Expired     -       -              
Balance Outstanding, March 31, 2013     8,063,665     $ 0.46       4.3     $ 32,349  
                                 
Exercisable, March 31, 2013     8,063,665     $ 0.46       4.3     $ 32,349  
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 three months ended March 31, 2013 and 2012:

 

    For the Three     For the Three  
    Months Ended     Months Ended  
Assumptions   March 31, 2013     March 31, 2012  
Expected life (years)     3.5 - 3.75       3.5  
Expected volatility     46.3% - 46.5 %     44.2 %
Weighted-average volatility     46.5 %     44.2 %
Risk-free interest rate     0.36% - 0.44 %     0.56% - 0.60 %
Dividend yield     0.00 %     0.00 %
Expected forfeiture rate     3.9 %     2.0 %

 

Stock Options Activity to Employees

A summary of the Company’s stock option activity for employees and directors during the three months ended March 31, 2013 is presented below:

 

                Weighted        
          Weighted     Average        
          Average     Remaining     Aggregate  
    Number of     Exercise     Contractual     Intrinsic  
Options   Shares     Price     Term     Value  
Balance Outstanding, December 31, 2012     6,777,967     $ 0.35              
  Granted     473,200     $ 0.35              
  Exercised     -                      
  Forfeited     (92,500 )   $ 0.35              
  Expired     -                      
Balance Outstanding, March 31, 2013     7,158,667     $ 0.35       4.4     $ -  
                                 
Exercisable, March 31, 2013     2,056,998     $ 0.35       4.4     $ -  

 

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 three months ended March 31, 2013 and 2012:

 

 

    For the Three     For the Three  
    Months Ended     Months Ended  
Assumptions   March 31, 2013     March 31, 2012  
Expected life (years)     N/A       3.5  
Expected volatility     N/A       44.2 %
Weighted-average volatility     N/A       44.2 %
Risk-free interest rate     N/A       0.60 %
Dividend yield     N/A       0.00 %

 

Stock option activity for non-employees

A summary of the Company’s stock option activity for non-employees during the three months ended March 31, 2013 is presented below:

 

                Weighted        
          Weighted     Average        
          Average     Remaining     Aggregate  
    Number of     Exercise     Contractual     Intrinsic  
Options   Shares     Price     Term     Value  
Balance Outstanding, December 31, 2012     195,000     $ 0.35              
  Granted     -                      
  Exercised     -                      
  Forfeited     -                      
  Expired     -                      
Balance Outstanding, March 31, 2013     195,000     $ 0.35       4.0     $ -  
                                 
Exercisable, March 31, 2013     58,333     $ 0.35       4.0     $ -  

 

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1. Nature of Operations and Going Concern (Details) (USD $)
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Costs and expenses:
Income (loss) from discontinued operations, net of income taxes $ (18,664) $ 127,146
Discontinued operations
Revenues 123,357 811,041
Costs and expenses:
Instructional costs and services 111,021 683,895
General and administrative 31,000   
Total costs and expenses 142,021 683,895
Income (loss) from discontinued operations, net of income taxes $ (18,664) $ 127,146
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1. Nature of Operations and Going Concern (Details 1) (USD $)
Mar. 31, 2013
Dec. 31, 2012
Assets
Net assets from discontinued operations $ 183,747 $ 393,214
Liabilities
Net liabilities from discontinued operations 125,132 226,430
Discontinued operations
Assets
Cash and cash equivalents    67,750
Accounts receivable, net of allowance of $200,045 and $169,045, respectively 171,831 322,026
Other current assets 11,916 3,438
Net assets from discontinued operations 183,747 393,214
Liabilities
Accounts payable 1,178 1,178
Accrued expenses 123,954 185,395
Deferred revenue    39,857
Net liabilities from discontinued operations $ 125,132 $ 226,430
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1. Nature of Operations and Going Concern (Details Narrative) (USD $)
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Dec. 31, 2012
Nature Of Operations And Going Concern Details Narrative
Full-time degree-seeking students percentage 87.00%
Net Loss-Allocable to Common Shareholders $ 948,871 $ 1,827,145
Negative Cash Flows from Operations 598,772 908,769
Gross fund raised 565,000
Gross fund raised additional 600,328
Accounts receivable, net of allowance $ 200,045 $ 169,045
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2. Significant Accounting Policies (Details 1) (USD $)
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Costs and expenses:
General and adminstrative $ 1,217,273 $ 1,752,281
Depreciation and amortization 120,357 89,749
Total costs and expenses 1,883,834 2,467,182
As Previously Reported [Member]
Costs and expenses:
Instructional costs and services 904,697
Marketing and promotional 437,305
General and adminstrative 1,719,326
Depreciation and amortization 89,749
Total costs and expenses 3,151,077
Bad Debt Expense [Member]
Costs and expenses:
Instructional costs and services (32,955)
General and adminstrative 32,955
Discontinued Operations [Member]
Costs and expenses:
Instructional costs and services (683,895)
As Reclassified [Member]
Costs and expenses:
Instructional costs and services 187,847
Marketing and promotional 437,305
General and adminstrative 1,752,281
Depreciation and amortization 89,749
Total costs and expenses $ 2,467,182
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2. Significant Accounting Policies (Details Narrative) (USD $)
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Dec. 31, 2012
Significant Accounting Policies Details Narrative
Restricted cash $ 265,131 $ 264,992
Accrued interest 466
Letter of credit interest rate 0.20%
Options to purchase common shares 7,353,667 2,070,000
warrants to purchase common shares 8,063,665 493,500
Convertible debt amount $ 800,000 $ 650,000
Convertible debt shares 1,357,143 951,126
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3. Secured Note and Accounts Receivable-Related Parties (Details Narrative) (USD $)
3 Months Ended
Mar. 31, 2012
Mar. 31, 2013
Dec. 31, 2012
Interest income recognized $ 594
Preferred shares converted to common shares 654,850
Allowance for account receivable 502,315
Account receivable, net of allowance $ 270,478 $ 270,478
Private placement sales per share $ 0.35 $ 0.35
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4. Property and Equipment (Details) (USD $)
Mar. 31, 2013
Dec. 31, 2012
Mar. 31, 2012
Property and equipment, gross $ 1,806,299 $ 1,667,191
Accumulated depreciation and amortization (541,216) (455,871) (455,871)
Property and equipment, net 1,265,083 1,211,320
Call Center [Member]
Property and equipment, gross 121,313 121,313
Computer and Office Equipment [Member]
Property and equipment, gross 61,037 45,718
Furniture and Fixtures [Member]
Property and equipment, gross 32,914 11,336
Library [Member]
Property and equipment, gross 100,000 100,000
Software [Member]
Property and equipment, gross $ 1,491,035 $ 1,388,824
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4. Property and Equipment (Details 1) (USD $)
Mar. 31, 2013
Dec. 31, 2012
Property And Equipment Details 1
Software $ 1,491,035 $ 1,388,824
Accumulated amortization (361,296) (286,744)
Software, net $ 1,129,739 $ 1,102,080
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4. Property and Equipment (Details 2) (USD $)
Mar. 31, 2013
Dec. 31, 2012
2013 $ 85,808
2014 77,757
2015 39,616
2016 12,738
Total 218,559 253,571
Software [Member]
2013 223,655
2014 298,207
2015 298,207
2016 237,917
2017 71,753
Total $ 1,129,739
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4. Property and Equipment (Details Narrative) (USD $)
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Dec. 31, 2012
Property And Equipment Details Narrative
Depreciation and amortization expense $ 85,345 $ 53,511
Accumulated depreciation and amortization 541,216 455,871 455,871
Amortization expense for software $ 74,552 $ 46,373
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5. Courseware (Details) (USD $)
Mar. 31, 2013
Dec. 31, 2012
Courseware Details
Courseware $ 2,097,538 $ 2,097,538
Accumulated amortization (1,878,979) (1,843,967)
Courseware, net $ 218,559 $ 253,571
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5. Courseware (Details 1) (USD $)
Mar. 31, 2013
Dec. 31, 2012
Courseware Details 1
2013 $ 85,808
2014 77,757
2015 39,616
2016 12,738
2017 2,640
Total $ 218,559 $ 253,571
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5. Courseware (Details Narrative) (USD $)
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Courseware Details Narrative
Courseware costs capitalized $ 0 $ 3,200
Courseware amortization expense $ 35,012 $ 36,238
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7. Convertible Notes Payable (Details Narrative) (USD $)
Mar. 31, 2013
Dec. 31, 2012
Jun. 30, 2012
Convertible Notes Payable Details Narrative
Aggregate amount of convertible notes payable outstanding $ 800,000
Current liabilities convertible notes payable 200,000   
Long-term liabilities convertible notes payable 600,000 800,000
Amount raised from sale of 3 units $ 150,000
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8. Commitments and Contingencies (Details Narrative) (USD $)
3 Months Ended
Mar. 31, 2013
Dec. 31, 2012
Interest rate 3.75%
Balance due on line of credit $ 250,250 $ 250,000
Unused amount under the line of credit 0
Line of credit fee $ 250
Maximum [Member]
Annual performance bonus 50.00%
Minimum [Member]
Annual performance bonus 100.00%
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10. Stockholders' Equity (Details) (USD $)
Mar. 31, 2013
Stockholders Equity Details
Cash and cash equivalents 337
Liabilities Assumed $ (21,206)
Net $ (20,869)
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10. Stockholders' Equity (Details 1) (USD $)
3 Months Ended
Mar. 31, 2013
Number of Options Outstanding, Beginning 6,777,967
Number of Options Granted 473,200
Number of Options Exercised   
Number of Options Forfeited (92,500)
Number of Options Expired   
Number of Options Outstanding, Ending 7,158,667
Number of Options Exercisable 2,056,998
Weighted Average Exercise Price Outstanding, Beginning $ 0.35
Weighted Average Exercise Price Issued $ 0.35
Weighted Average Exercise Price Forfeited $ 0.35
Weighted Average Exercise Price Outstanding, Ending $ 0.35
Weighted Average Exercise Price Exercisable $ 0.35
Weighted Average Remaining Contractual Life (in years) Outstanding 4 years 4 months 24 days
Weighted Average Remaining Contractual Life (in years) Exercisable 4 years 4 months 24 days
Aggregate Intrinsic Value Outstanding, Ending   
Aggregate Intrinsic Value Exercisable   
Warrant [Member]
Number of Options Outstanding, Beginning 7,256,522
Number of Options Granted 807,143
Number of Options Exercised   
Number of Options Forfeited   
Number of Options Expired   
Number of Options Outstanding, Ending 8,063,665
Number of Options Exercisable 8,063,665
Weighted Average Exercise Price Outstanding, Beginning $ 0.45
Weighted Average Exercise Price Issued $ 0.5
Weighted Average Exercise Price Exercised   
Weighted Average Exercise Price Forfeited   
Weighted Average Exercise Price Expired   
Weighted Average Exercise Price Outstanding, Ending $ 0.46
Weighted Average Exercise Price Exercisable $ 0.46
Weighted Average Remaining Contractual Life (in years) Outstanding 4 years 3 months 18 days
Weighted Average Remaining Contractual Life (in years) Exercisable 4 years 3 months 18 days
Aggregate Intrinsic Value Outstanding, Ending 32,349
Aggregate Intrinsic Value Exercisable $ 32,349
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10. Stockholders' Equity (Details 2)
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Stockholders Equity Details 2
Expected life (years) minimum 3 years 6 months 3 years 6 months
Expected life (years) maximum 3 years 9 months 0 years
Expected volatility minimum 46.30% 44.20%
Expected volatility maximum 46.50%
Weighted-average volatility 46.50% 44.20%
Risk-free interest rate, Minimum 0.36% 0.56%
Risk-free interest rate, Maximum 0.44% 0.60%
Dividend yield 0.00% 0.00%
Expected forfeiture rate 3.90% 2.00%
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10. Stockholders' Equity (Details 3) (USD $)
3 Months Ended
Mar. 31, 2013
Stockholders Equity Details 3
Number of Options Outstanding, Beginning 6,777,967
Number of Options Granted 473,200
Number of Options Exercised   
Number of Options Forfeited (92,500)
Number of Options Expired   
Number of Options Outstanding, Ending 7,158,667
Number of Options Exercisable 2,056,998
Weighted Average Exercise Price Outstanding, Beginning $ 0.35
Weighted Average Exercise Price Issued $ 0.35
Weighted Average Exercise Price Forfeited $ 0.35
Weighted Average Exercise Price Outstanding, Ending $ 0.35
Weighted Average Exercise Price Exercisable $ 0.35
Weighted Average Remaining Contractual Life (in years) Outstanding 4 years 4 months 24 days
Weighted Average Remaining Contractual Life (in years) Exercisable 4 years 4 months 24 days
Aggregate Intrinsic Value Outstanding, Ending   
Aggregate Intrinsic Value Exercisable   
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10. Stockholders' Equity (Details 4)
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Weighted-average volatility 46.50% 44.20%
Dividend yield 0.00% 0.00%
Stock Incentive Plan To Non Employees
Expected life (years) 0 years 3 years 6 months
Expected volatility 0.00% 44.20%
Weighted-average volatility 0.00% 44.20%
Risk-free interest rate 0.00% 0.60%
Dividend yield 0.00% 0.00%
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10. Stockholders' Equity (Details 5) (USD $)
3 Months Ended
Mar. 31, 2013
Number of Options Outstanding, Beginning 6,777,967
Number of Options Granted 473,200
Number of Options Exercised   
Number of Options Forfeited (92,500)
Number of Options Expired   
Number of Options Outstanding, Ending 7,158,667
Number of Options Exercisable 2,056,998
Weighted Average Exercise Price Outstanding, Beginning $ 0.35
Weighted Average Exercise Price Issued $ 0.35
Weighted Average Exercise Price Forfeited $ 0.35
Weighted Average Exercise Price Outstanding, Ending $ 0.35
Weighted Average Exercise Price Exercisable $ 0.35
Weighted Average Remaining Contractual Life (in years) Outstanding 4 years 4 months 24 days
Weighted Average Remaining Contractual Life (in years) Exercisable 4 years 4 months 24 days
Aggregate Intrinsic Value Outstanding, Ending   
Aggregate Intrinsic Value Exercisable   
Stock Incentive Plan To Non Employees
Number of Options Outstanding, Beginning 195,000
Number of Options Granted   
Number of Options Exercised   
Number of Options Forfeited   
Number of Options Expired   
Number of Options Outstanding, Ending 195,000
Number of Options Exercisable 58,333
Weighted Average Exercise Price Outstanding, Beginning $ 0.35
Weighted Average Exercise Price Outstanding, Ending $ 0.35
Weighted Average Exercise Price Exercisable $ 0.35
Weighted Average Remaining Contractual Life (in years) Outstanding 4 years
Weighted Average Remaining Contractual Life (in years) Exercisable 4 years
Aggregate Intrinsic Value Outstanding, Ending   
Aggregate Intrinsic Value Exercisable   
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10. Stockholders' Equity (Details Narrative) (USD $)
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Stockholders Equity Details Narrative
Offering costs the Company raised $530,337 (net of offering costs of $184,663 and five-year warrants to purchase: (i) 100,000 common shares at $0.35 per share and (ii) 98,000 common shares at $0.50 per share.) from the sale of 20.43 Units (including 2,042,856 common shares and 1,021,432 warrants) under the offering
Shares for future issuance 646,333
Stock options granted 473,200 1,895,000
Stock options granted exercise price $ 0.35 $ 1
Stock options granted, Value $ 56,784 $ 625,350
Fair value of stock options granted to employees 0 57,750
Compensation expense 117,847 8,354
Unrecognized compensation costs related to nonvested share-based compensation 921,606
Unrecognized compensation costs weighted average period 1 year 4 months 24 days
Weighted-average grant-date fair value of options granted to employees $ 0.12
Non-employee stock options compensation expense $ 0 $ 57,750
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11. Related Party Transactions (Details Narrative) (USD $)
3 Months Ended
Mar. 31, 2012
Mar. 31, 2013
Dec. 31, 2012
Related Party Transactions Details Narrative
Allowance for related party receivable $ 502,315
Related party receivable, net 270,478 270,478
Related party receivable price $ 0.35 $ 0.35
Amount due to related party 300,000
Interest on amount due to related party 0.19%
Interest income $ 594
Price of note convertible to shares $ 1
Third party investors purchased shares, discription third party investors purchased 336,000 shares for $168,000 and the Company purchased 264,000 shares for $132,000 per section (b) above. Based on proceeds received on September 28, 2012 under a Unit private placement that equates to approximately $0.35 per common share, the value of the aforementioned collateral decreased.
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