ASPEN : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-Q)

You should read the following discussion in conjunction with our consolidated
financial statements, which are included elsewhere in this Form 10-Q. This
Quarterly Report on Form 10-Q contains forward-looking statements that reflect
our plans, estimates, and beliefs. Our actual results could differ materially
from those discussed in the forward-looking statements. See "Cautionary Note
Regarding Forward Looking Statements" for more information.
Key Terms
In connection with the management of our businesses, we identify, measure and
assess a variety of operating metrics. The principal metrics we use in managing
our businesses are set forth below:
Operating Metrics
•Lifetime Value ("LTV") - Lifetime Value as the weighted average total amount of
tuition and fees paid by every new student that enrolls in the Company's
universities, after giving effect to attrition.
•Bookings - defined by multiplying LTV by new student enrollments for each
operating unit.
•Average Revenue per Enrollment ("ARPU") - defined by dividing total bookings by
total enrollments for each operating unit.
•Marketing Efficiency Ratio ("MER") - is defined as revenue per enrollment
divided by cost per enrollment.
Operating costs and expenses
•Cost of revenues - consists of instructional costs and services and marketing
and promotional costs.
•Instructional costs - consist primarily of costs related to the administration
and delivery of the Company's educational programs. This expense category
includes compensation costs associated with online faculty, technology license
costs and costs associated with other support groups that provide services
directly to the students and are included in cost of revenues.
•Marketing and promotional costs - include costs associated with producing
marketing materials and advertising, and outside sales costs. Such costs are
generally affected by the cost of advertising media, the efficiency of the
Company's marketing and recruiting efforts, and expenditures on advertising
initiatives for new and existing academic programs. Non-direct response
advertising activities are expensed as incurred, or the first time the
advertising takes place, depending on the type of advertising activity.
•General and administrative expense - consists primarily of compensation expense
(including stock-based compensation expense) and other employee-related costs
for personnel engaged in executive and academic management and operations,
finance, legal, tax, information technology and human resources, fees for
professional services, financial aid processing costs, non-capitalizable
courseware and software costs, corporate taxes and facilities costs.
Long-term debt (for additional information see Note 6. "Debt" in "Item 1.
Financial Statements"):
•Convertible Notes - On September 14, 2020, the $10 million secured Convertible
Notes, which were issued by the Company on January 22, 2020 automatically
converted into shares of the Company's common stock when the closing price of
our common stock was at least $10.725 over a 20 consecutive trading day period
at a conversion price of $7.15 per share. The accelerated non-cash amortization
charge related to unamortized debt discounts as a result of the debt
extinguishment in the second quarter of fiscal year 2021 was approximately
$1.4 million, which is included in interest expense.
•Revolving Credit Facility - The $5 million Revolving Credit Facility matures on
November 4, 2021; with a 2{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} Commitment Fee on the undrawn portion payable
quarterly. At October 31, 2020 and April 30, 2020, there were no outstanding
borrowings under the Revolving Credit Facility. With the conversion of the
Convertible Notes, the Company does not intend to borrow under this Facility.
                                       31
--------------------------------------------------------------------------------
  Table of Contents
•Term Loans - On January 22, 2020, the Senior Secured Term Loans were cancelled
and exchanged for the Convertible Notes discussed above. The $10 million Senior
Secured Term Loans were entered into on March 6, 2019; with an annual interest
rate of 12{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} payable monthly.
Non-GAAP financial measures:
•Adjusted Net Income (Loss) and Adjusted Earnings (Loss) per Share - are
non-GAAP financial measures that the Company is providing beginning in first
quarter of fiscal year 2021. See "Non-GAAP - Financial Measures" for a
reconciliation of net earnings (loss) and earnings (loss) per share to Adjusted
Net Income (Loss) and Adjusted Earnings (Loss) per Share for the three and six
months ended October 31, 2020 and 2019.
•Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") - is
a non-GAAP financial measure. See "Non-GAAP - Financial Measures" for a
reconciliation of net loss to EBITDA for the three and six months ended October
31, 2020 and 2019.
•Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization
("Adjusted EBITDA") - is a non-GAAP financial measure. See "Non-GAAP - Financial
Measures" for a reconciliation of net loss to Adjusted EBITDA for the three and
six months ended October 31, 2020 and 2019.
AGI Student Population Overview
AGI's overall active student body (includes both Aspen University and USU) grew
24{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} year-over-year from 10,718 to 13,238 as of October 31, 2020 and students
seeking nursing degrees were 11,442 or 86{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} of total active students at both
universities. Active student body is comprised of active degree-seeking
students, enrolled in a course at the end of the second quarter of fiscal year
2021 or are registered for an upcoming course.
Aspen University's total active degree-seeking student body grew 21{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb}
year-over-year from 9,016 to 10,779. USU's total active degree-seeking student
body grew year-over-year from 1,702 to 2,459 or 44{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb}.
[[Image Removed: aspu-20201031_g2.jpg]]
Company Overview
AGI is an education technology holding company. It operates two universities,
Aspen University ("Aspen University" or "Aspen") and United States University
("United States University" or "USU").
All references to the "Company", "AGI", "Aspen Group", "we", "our" and "us"
refer to Aspen Group, Inc., unless the context otherwise indicates.
AGI leverages its education technology infrastructure and expertise to allow its
two universities, Aspen University and United States University, to deliver on
the vision of making college affordable again. Because we believe higher
education should be a catalyst to our students' long-term economic success, we
exert financial prudence by offering affordable tuition that is one of the
greatest values in higher education. AGI's primary focus relative to future
growth is to target the high growth nursing profession. As of October 31, 2020,
11,442 of 13,238 or 86{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} of all active students across both universities are
degree-seeking nursing students.
In March 2014, Aspen University unveiled a monthly payment plan available to all
students across every online degree program offered by the university. The
monthly payment plan is designed so that students will make one payment per
month, and that monthly payment is applied towards the total cost of attendance
(tuition and fees, excluding textbooks). The monthly payment plan offers online
associate and most bachelor students the opportunity to pay their tuition and
fees at $250/month, online
                                       32
--------------------------------------------------------------------------------
  Table of Contents
master students $325/month, and online doctoral students $375/month, interest
free, thereby giving students a monthly payment option versus taking out a
federal financial aid loan.
USU began offering monthly payment plans in the summer of 2017. Today, monthly
payment plans are available for the online RN to BSN program ($250/month),
online MBA/M.A. Ed/MSN programs ($325/month), hybrid Bachelor of Arts in Liberal
Studies, Teacher Credentialing tracks approved by the California Commission on
Teacher Credentialing ($350/month), and the online hybrid Masters of
Nursing-Family Nurse Practitioner ("FNP") program ($375/month). Since August 1,
2019, new student enrollments for USU's FNP monthly payment plan have been
offered a $9,000 two-year payment plan ($375/month x 24 months) designed to pay
for the first year's pre-clinical courses only (approximate cost of $9,000). The
second academic year of the two-year FNP program in which students complete
their clinical courses (approximate cost of $18,000) is required to be funded
through conventional payment methods (either cash, private loans, corporate
tuition reimbursement or federal financial aid).
Since 1993, Aspen University has been nationally accredited by the DEAC, a
national accrediting agency recognized by the DOE and CHEA. On February 25,
2019, the DEAC informed Aspen University that it had renewed its accreditation
for five years to January 2024.
Since 2009, USU has been regionally accredited by WSCUC.
Both universities are qualified to participate under the Higher Education Act
and the Federal student financial assistance programs (Title IV, HEA programs).
AGI New Student Enrollments
In the second quarter of fiscal year 2021, the Company delivered a quarterly
record of 2,659 new student enrollments, a sequential increase of 13{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb}, and 20{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb}
year-over-year. Aspen University accounted for 2,010 new student enrollments, a
sequential increase of 13{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} and 10{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} year-over-year. The strong enrollment growth
at Aspen University was a result of record quarterly enrollments in its Doctoral
and BSN Pre-Licensure units. Millennials that aspire to become RNs enrolled in
the BSN Pre-Licensure program in Phoenix in record numbers in the second quarter
given that many have been furloughed or laid off since the pandemic first began.
USU delivered 649 new student enrollments in the quarter driven primarily by FNP
enrollments, a 65{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} increase year-over-year.
Below is a table reflecting new student enrollments for the past five quarters:
                                                 New Student Enrollments
                          Q2'20           Q3'20           Q4'20           Q1'21          Q2'21
Aspen University         1,823           1,371           1,344           1,779          2,010
USU                        394             375             432             572            649
Total                    2,217           1,746           1,776           2,351          2,659



Marketing Efficiency Ratio (MER) Analysis
AGI has developed a marketing efficiency ratio to continually monitor the
performance of its business model.
Marketing Efficiency Ratio (MER) =       Revenue per Enrollment (RPE)
                                          Cost per Enrollment (CAC)


Cost per Enrollment (CAC) (previously referred to as CPE)
The Cost per Enrollment measures the advertising investment spent in a given six
month period, divided by the number of new student enrollments achieved in that
given six month period, in order to obtain an average CAC.
Revenue per Enrollment (RPE)
                                       33
--------------------------------------------------------------------------------
  Table of Contents
The Revenue per Enrollment takes each quarterly cohort of new degree-seeking
student enrollments, and measures the amount of earned revenue on a weighted
average basis, including tuition and fees to determine the weighted average RPE
for the cohort measured. For the later periods of a cohort, we have used
reasonable projections based off of historical results to determine the amount
of revenue we will earn in later periods of the cohort.
In the second quarter of fiscal year 2021 the Marketing Efficiency Ratio (MER)
for our universities remained above 13X, representing revenue-per-enrollment
(LTV) over cost-per-enrollment (CAC), which was a decline of 10{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} for Aspen
University and 30{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} for USU, as shown in the table below:

Second Quarter Marketing Efficiency Ratio

                                  Enrollments             CAC1              LTV2              Q2 '21 MER              Q2 '20 MER            MER {de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} Change
Aspen University                     2,010             $  1,112$ 15,181    3                 13.7X                   15.2X                (10) {de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb}
USU                                    649             $  1,240$ 17,820    4                 14.4X                   20.7X                (30) {de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb}

_____________________

1 Based on 6-month rolling weighted average CAC for each university’s
enrollments
2 Weighted Lifetime Value (LTV) of a new student enrollment
3 Weighted average LTV for all Aspen University enrollments in the quarter
4 LTV for USU’s MSN-FNP Program

Compared to the prior year period, AGI’s weighted average cost of enrollment
(CAC) increased 31{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb}, from $875 to $1,143, as shown in the table below. On a
sequential basis, AGI’s CAC declined 5{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb}, from $1,203 to $1,143.

                                                                  Second

Quarter Weighted Average Cost of Enrollment

                                    Q2 '20 Enrollments         Q2'20 CAC1           Q2'21 Enrollments           Q2'21 CAC1          CAC {de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} Change
Aspen University                            1,823             $      879                  2,010               $     1,112                    27  {de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb}
USU                                           394             $      862                    649               $     1,240                    44  {de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb}
Weighted Average                                              $      875$     1,143                    31  {de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb}



_
1Based on 6-month rolling average
Bookings Analysis and ARPU
On a year-over-year basis, fiscal second quarter 2021 Bookings increased 34{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} to
$42,079,380, delivering a company-wide average revenue per enrollment (ARPU)
increase of 12{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} to $15,825, reflecting a shift in the revenue mix toward higher
LTV nursing licensure degree programs.
                                                                    Second

Quarter Bookings and Average Revenue Per Enrollment (ARPU)

                                                                                                                                                  Percent Change
                                                                                                                                                 Total Bookings &
                                       Q2'20 Enrollments         Q2'20 Bookings 1           Q2'21 Enrollments           Q2'21 Bookings 1              ARPU 1
Aspen University                             1,823             $      24,294,600                  2,010               $      30,514,200                      26  {de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb}
USU                                            394             $       7,021,080                    649               $      11,565,180                      65  {de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb}
Total                                        2,217             $      31,315,680                  2,659               $      42,079,380                      34  {de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb}
ARPU                                                           $          14,125                                      $          15,825                      12  {de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb}

_____________________

1 "Bookings" are defined by multiplying Lifetime Value (LTV) per enrollment by
new student enrollments for each operating unit. "Average Revenue Per
Enrollment" (ARPU) is defined by dividing total Bookings by total new student
enrollments for each operating unit.
ASPEN UNIVERSITY'S PRE-LICENSURE BSN HYBRID (ONLINE/ON-CAMPUS) DEGREE PROGRAM
In July 2018, Aspen University through Aspen Nursing of Arizona, Inc. began its
Pre-Licensure Bachelor of Science in Nursing degree program at its initial
campus in Phoenix, Arizona. As a result of overwhelming demand in the Phoenix
metropolitan area, in January 2019Aspen University began offering both day
(July, November, March semesters) and evening/weekend (January, May, September
semesters) programs, equaling six semester starts per year. Moreover, in
September 2018, Aspen University opened a second campus in the Phoenix
metropolitan area in partnership with HonorHealth.
Aspen University's innovative hybrid (online/on-campus) program allows most of
the credits to be completed online (83 of 120 credits or 69{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb}), with pricing
offered at current low tuition rates of $150/credit hour for online general
education courses and
                                       34
--------------------------------------------------------------------------------
  Table of Contents
$325/credit hour for online core nursing courses. For students with no prior
college credits, the total cost of attendance is less than $50,000.
Aspen University's Pre-Licensure BSN program is offered as a full-time,
three-year (nine semester) program that is specifically designed for students
who do not currently hold a state nursing license and have no prior nursing
experience. Aspen University is admitting students into one of two program
components: (1) a pre-professional nursing (PPN) component for students that
have less than the required 41 general education credits completed (Year 1), and
(2) the nursing core component for students that are ready to participate in the
competitive evaluation process for entry (Years 2-3).
As of the end of the second fiscal quarter, Aspen University had nearly 500
active students in the final two-year core program which drives revenues of
approximately $20,000 per year, per student in those final two years compared to
approximately $7,000 per year, per student in year one of the program. In
addition, Aspen University currently has approximately 1,800 active students in
the first-year PPN program in the Phoenix metro. In order to ensure these
students have very short wait times to begin in the core program, Aspen
University will be moving to double cohorts in the main Phoenix campus by the
airport starting this coming February, 2021. So rather than starting 30 students
into the core program each semester, Aspen University will increase that
capacity by approximately 50{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} to a total of approximately 45 students each
semester start. This will increase Aspen University's annual revenue run rate at
the main Phoenix campus by approximately $1.8 million starting in the fiscal
fourth quarter.

Pre-Licensure BSN Program – Campus Expansion

Tampa, Florida Campus

Aspen University has executed a definitive lease agreement for ten years to
occupy approximately 30,000 square feet (Suites 150 and 450) of the Tampa Oaks I
property located at 12802 Tampa Oaks Boulevard. The building is visible from the
intersection of Interstate 75 and East Fletcher Avenue, near the University of
South Florida, providing visibility to approximately 126,500 cars per day.
Regulatory approvals were completed in August 2020 and marketing has begun in
the Tampa metropolitan area. Aspen University enrolled PPN nursing students for
its December 8, 2020 semester start date.

Aspen University has executed an agreement with Bayfront Health, a regional
network of seven hospitals and over 1,900 medical professionals on staff serving
the residents of Florida'sGulf Coast to provide required clinical placements
for Aspen's nursing students. In addition, clinical affiliation agreements have
been signed in the Tampa metropolitan area with John Hopkins All Children's
Hospital, Inc., Care Connections at Home, Global Nurse Network, LLC and The
American National Red Cross.

Austin, Texas Campus

Aspen University has executed a definitive lease agreement for eight years to
occupy approximately 22,000 square feet in a portion of the first floor of the
Frontera Crossing office building located at 101 W. Louis Henna Boulevard in the
Austin suburb of Round Rock. The building is situated at the junction of
Interstate 35 and State Highway 45, one of the most heavily trafficked freeway
exchanges in the metropolitan area with visibility to approximately 143,000 cars
per day. Regulatory approvals were completed in July 2020 and marketing has
begun in the Austin metropolitan area.

Aspen has executed a clinical affiliation agreement with Baylor Scott & White
Health - Central division, the largest not-for-profit healthcare system in Texas
and one of the largest in the United States. Baylor Scott & White includes 48
hospitals, more than 800 patient care sites, more than 7,800 active physicians,
over 47,000 employees and the Scott & White Health Plan.

In addition to the Round Rock campus, effective August 1, 2020, Aspen University
executed a sublease to take over the remaining 20-month lease held by
sublandlord National American University (NAU) to occupy approximately 7,200
square feet of their campus in the suburb of Georgetown, Texas, which is
approximately 10 miles north of Aspen's future Frontera Crossing campus in the
suburb of Round Rock. In exchange, Aspen as subtenant, at no additional cost,
shall have the right to utilize all the existing furniture, fixtures and
equipment owned by sublandlord and will convey all such furniture, fixtures and
equipment to subtenant via a bill of sale for $10.00. Aspen University enrolled
PPN and core nursing students for its September 29, 2020 semester start date.

AGI’s Plan for United States University (USU) to Implement MSN-FNP Weekend
Immersions in Every Campus Metropolitan Area:

                                       35
--------------------------------------------------------------------------------
  Table of Contents
While lab hours to date have been done at USU's San Diego facility, the rapid
growth of the MSN-FNP program has caused AGI to plan to expand the lab
immersions in multiple locations across the United States. For example, the
Company has leased an additional suite on the ground floor of our main campus
facility in Phoenix (by the airport) to begin offering weekend immersions for
MSN-FNP students in both San Diego and Phoenix. We expect this additional
clinical facility in Phoenix, as well as the Tampa campus clinical facility to
be open at the end of this calendar year, for a total of three clinical
facilities available for MSN-FNP weekend immersions scheduled to start early in
2021.

AGI’s Tele-Health Affiliation Partnership with American-Advanced Practice
Network (A-APN)

On July 7, 2020, the Company announced an affiliation partnership with
American-Advanced Practice Network (A-APN), a national clinical network for
advanced practice nurses that provides comprehensive health care and nursing
services at its outpatient centers and clinical facilities throughout the U.S.

A-APN offers independent nurse practitioners (NPs) a unique, multi-state network
or "group practice without walls" with best-in-class technology and business
support. A-APN was created for and by NPs. Rural and remote members of the
network have nationwide, trusted peer cross-coverage for patients. A-APN members
deliver clinical care using CareSpan's Digital Care Delivery platform,
facilitating care delivery in-person, or at a distance. The platform includes
diagnostics, EMR, e-prescribing, remote monitoring, and dynamic documentation.

Through this affiliation, A-APN will appoint an Educational Coordinator to work
with USU's Office of Field Experience to place USU MSN-FNP students with
qualified, experienced NP preceptors. We expect that this telehealth partnership
will enable MSN-FNP students to complete their required direct care clinical
hours with A-APN throughout the COVID-19 crisis and thereafter. As a benefit,
the Company doesn't anticipate any material delays to their projected graduation
dates.

ACCOUNTS RECEIVABLE AND MONTHLY PAYMENT PLAN
Since the beginning of fiscal year 2021, the monthly payment plan accounts
receivable balance, both short-term and long-term, has increased by
approximately $6.3 million. The attractive aspect of being able to pay for a
degree over a fixed period of time has fueled the growth of this plan.

Each student's receivable account is different depending on how many classes a
student takes each period. If a student takes two classes each eight-week period
while paying $250, $325 or $375 a month, that student's account receivable
balance will rise accordingly.
The common thread is the actual monthly payment, which functions as a retail
installment contract with no interest that each student commits to pay over a
fixed number of months. Aspen University students paying tuition and fees
through a monthly payment method grew by 12{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} year-over-year, from 5,927 to
6,638, representing 62{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} of Aspen University's total active student body.

USU students paying tuition and fees through a monthly payment method grew from
1,427 to 1,609 students sequentially. Those 1,609 students paying through a
monthly payment method represent 65{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} of USU’s total active student body.

Change in Business Mix and Relationship to Accounts Receivable

During the second quarter of fiscal year 2021, revenue from students using the
Monthly Payment Plan increased by approximately 34.9{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} year over year, but
declined as a percentage of total revenue for the second year in a row down from
approximately 2.2{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} in Q2 Fiscal 2020 to 52.4{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} in Q2 Fiscal 2021, while total
revenue increased 40{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} year over year.

Our two highest lifetime value programs are Aspen University's Pre-Licensure BSN
Program and USU's MSN-Family Nurse Practitioner Program. These programs are our
fastest growing programs and now represent 50{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} of total annual revenue. We
expect the revenue from these programs to continue to grow as a percentage of
our total revenue as we continue to expand our campus footprint from 2 to over
10 campuses over the next 3-4 years.

This change in our business mix is expected to have a meaningful impact on our
accounts receivable and our allowance for doubtful accounts. The BSN
Pre-Licensure program and the second academic year of the MSN-FNP program
require payment prior to the start of each term. This means that approximately
90{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} of all revenue from these two programs will be paid in
                                       36
--------------------------------------------------------------------------------
  Table of Contents
advance; meaningfully reducing our accounts receivable and the allowance for
doubtful accounts as a percentage of our total revenue.

As revenue from these programs continues to grow as a percentage of overall
revenue, we expect that we will see a corresponding increase in our cash flows
from operations that in turn will allow AGI to turn cash flow positive and
generate positive free cash flow over time.

In addition to this change in our business mix, we have built upon the existing
analysis of our accounts receivable and expanded our analysis to include
evaluation of all payment types, student status, and aging within programs.
Previously our evaluation was focused primarily on students using the Monthly
Payment Plan. As we upgrade our financial systems we expect to gain greater
ability to track discrete data faster and easier to support more proactive
student engagement that we believe will improve the performance of our student
receivable portfolio.

As we identify program and student status specific trends, we will strive to
create ways to isolate program specific revenue and accounts receivable activity
to gather, analyze and report program specific data and trends. Over time we
will use this knowledge to enhance our allowance reserving policies going
forward.

By improving visibility into trends earlier we expect to see improvement in
overall student performance and a reduction of account delinquencies.

Reserving for Allowance for Doubtful Accounts and Charges to the Allowance

During the fourth quarter of fiscal 2020, we built upon the existing analysis of
our accounts receivable and evaluated several segments of our older dated
student files. During this analysis we made the determination that receivables
for approximately 656 students, amounting to $686,000 for Aspen University and
$81,000 of receivables for approximately 39 students for USU were deemed
uncollectible based on the payment detail and student status. These amounts were
charged against the allowance for doubtful accounts in the fourth quarter of
fiscal year 2020.
As part of the account receivable analysis discussed earlier, we evaluated our
long-term MPP student receivables. The analysis evaluated students in two
categories: nursing and non-nursing. Based on our analysis of the payment
details and student performance, in the fourth quarter of fiscal 2020, we
elected to charge $152,000 of MPP receivables against the reserve for doubtful
accounts. The MPP receivables will be evaluated in conjunction with our updated
recovery and collection process and we expect results to be positive. In the
first half of fiscal year 2021, no changes to the methodology were made and
$232,000 of student accounts were written off.

Our accounts receivable remaining for former students are from 2018 or more
recent with the exception of certain alumni from our nursing programs. We
believe our analysis is appropriate and reasonable. We further believe that we
are positioned to focus our enhanced recovery and collections efforts on
delinquencies and past due amounts from recent graduates and current enrolled
students.

Based on our review of accounts receivable, overall revenue growth trends and
changes in our mix of business, we evaluated our reserve methodology and
increased our reserve by $572,000 for Aspen University and by $60,000 for USU in
the second quarter of fiscal year 2021. Note that the AGI's bad debt allowance
started the quarter at $2.16 million and ended the quarter at $2.52 million.

As part of the process of evaluating our reserving methodology we also evaluated
our processes in student accounts, our accounts receivable recovery and
collections processes. We have designed an enhanced recovery and collections
process that is expected to begin recovery of student late payments earlier and
manage these students more proactively during their course of study and
post-graduation for MPP students.

We will continue to reserve against our receivables based on revenue growth
trends, mix of business and specific trends we identify on a program by program
basis. We believe we currently have sufficient reserves against our current
student portfolio but we intend to stay vigilant to become aware of external
changes that could affect our students ability to meet their obligations such as
the continuation of the COVID-19 economic slowdown or other exogenous events and
circumstances that could give us reason to make a material change to our current
methodology and reserve policy.

37
--------------------------------------------------------------------------------
Table of Contents
Overtime we expect the change in our mix of business together with process
improvements and collection enhancements to result in a better managed portfolio
of student receivables and improving cash flow from operations.
Relationship Between Accounts Receivable and Revenue
The gross accounts receivable balance for any period is the net effect of the
following three factors:
1.Revenue;
2.Cash receipts; and
3.The net change in deferred revenue.
All three factors equally determine the gross accounts receivable. If one
quarter experiences particularly high cash receipts, the gross accounts
receivable will go down. The same effect happens if cash receipts are lower or
if there are significant changes in either of the other factors.
Simply looking at the change in revenue does not translate into an equally
similar change in gross accounts receivable. The relative change in cash and the
deferral must also be considered. For net accounts receivable, the changes in
the reserve must also be considered. Any additional reserve or write-offs will
influence the balance.
As it is a straight mathematical formula for both gross accounts receivable and
net accounts receivable, and most of the information is public, one can
reasonably calculate the two non-public pieces of information, namely the cash
receipts in gross accounts receivable and the write-offs in net accounts
receivable.
For revenue, the quarterly change is primarily billings and the net impact of
deferred revenue. The deferral from the prior quarter or year is added to the
billings and the deferral at the end of the period is subtracted from the amount
billed. The total deferred revenue at the end of every period is reflected in
the liability section of the consolidated balance sheet. Deferred revenue can
vary for many reasons, but seasonality and the timing of the class starts in
relation to the end of the quarter will cause changes in the balance.
As mentioned in the accounts receivable discussion above, the change in revenue
cannot be compared to the change in accounts receivable. Revenue does not have
the impact of cash received whereas accounts receivable does. Depending on the
month and the amount of cash received, it is likely that revenue or accounts
receivable will increase at a rate different from the other. The impact of cash
is easy to substantiate as it agrees to deposits in our bank accounts.
At October 31, 2020, the allowance for doubtful accounts was $2,523,293 which
represents approximately 8{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} of the gross accounts receivable balance of
$30,765,400, the sum of both short-term and long-term receivables.
The Introduction of Long-Term Accounts Receivable
When a student signs up for the monthly payment plan, there is a contractual
amount that the Company can expect to earn over the life of the student's
program. This contractual amount cannot be recorded as an account receivable as
the student does have the option to stop attending. As a student takes a class,
revenue is earned over that eight-week class. Some students accelerate their
program, taking two classes every eight-week period, and as we discussed, that
increases the student's accounts receivable balance. If any portion of that
balance will be paid in a period greater than 12 months, that portion is
reflected as long-term accounts receivable.

As a result of the growing acceptance of our monthly payment plans, our
long-term accounts receivable balance has grown from $6,701,136 at April 30,
2020 to $10,246,622 at October 31, 2020. The primary components of MPP are
students who make monthly payments over 36, 39 and 72 months. The average
student completes their academic program in 30 months, therefore most of the
Company's accounts receivable are short-term. However, when students graduate
earlier than the 30 month average completion duration, and as students enter
academic year two of USU's MSN-FNP legacy 72 month payment plan, they transition
to long-term accounts receivable when their liability increases to over $4,500.
Those are the two primary factors that have driven an increase in long-term
accounts receivable.
Here is a graphic of both short-term and long-term receivables, as well as
contractual value:
38

——————————————————————————–

Table of Contents

                  A                                      B                                      C

Payments owed for classes taken where Payments owed for classes taken where

             Expected classes

payment plans for classes are less payment plans are greater than

              to be taken over
than 12 months, less monthly payments                12 months                         balance of program.
               received
              Short-Term                             Long-term                           Not recorded in
         Accounts Receivable                    Accounts Receivable                    financial statements
                          The Sum of A, B and C will equal the total cost

of the program.

Fiscal 2021 Developments
On September 14, 2020, after the closing price of our common stock was at least
$10.725 over a 20 consecutive trading day period the $10 million Convertible
Notes automatically converted into 1,398,602 shares of the Company's common
stock at a conversion price of $7.15 per share. The accelerated amortization
charge related to unamortized debt discounts as a result of the debt
extinguishment in the second quarter of fiscal year 2021 was approximately
$1.4 million, which was included in interest expense in the consolidated
statement of operations.
On August 31, 2020, the closing price of the Company's common stock was at least
$9 for 20 consecutive trading days, resulting in, 10{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} or 37,500 of the February
4, 2020 RSU grants to executives vesting immediately. Additionally, on September
2, 2020, the Company's common stock was at least $10 for 20 consecutive trading
days and 25{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} or 93,750 of the RSUs granted vested immediately. On the grant
date, the closing price of the Company's common stock on The Nasdaq Global
Market was $9.49 per share. See Note 7. "Stockholders' Equity" in "Item 1.
Financial Statements" for additional information on the vesting terms for these
RSUs. The accelerated amortization expense related to this transaction in the
second quarter of fiscal year 2021 was approximately $1.2 million for the
vesting of these 131,250 RSUs, which is included in general and administrative
expense in the consolidated statement of operations.
On August 31, 2020, the Company entered into an Equity Distribution Agreement
(the "Agreement") with Canaccord Genuity LLC ("Canaccord"), pursuant to which
the Company may issue and sell from time to time, through Canaccord, up to
$12,309,750 of shares of the Company's common stock. The purpose of this
Agreement is to allow the Company to sell common stock that has been surrendered
from executive officers and director vesting events to pay their portion of
withholding taxes as well as to pay the Company the strike price of options upon
cashless exercise. As of the date of this filing, 292,000 shares have been sold
under the Agreement.
On June 5, 2020, the Company, as an inducement to exercise, reduced by 5{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} the
exercise price of the common stock purchase warrants issued to The Leon and Toby
Cooperman Family Foundation (the "Foundation"), of which Mr. Leon Cooperman, a
stockholder of the Company, is the trustee. The warrants were issued on November
5, 2018 (the "2018 Cooperman Warrants") and on March 5, 2020 (the "2019
Cooperman Warrants"). The 2018 Cooperman Warrants exercise price was reduced
from $5.85 to $5.56 per share. The 2019 Cooperman Warrants exercise price was
reduced from $6.00 to $5.70 per share. On June 8, 2020, the Foundation
immediately exercised the 2018 and 2019 Cooperman Warrants paying the Company
$1,081,792 and the Company issued 192,049 shares of common stock to the
Foundation.

COVID-19 Update

The COVID-19 crisis did not have a material impact on the Company's consolidated
financial results for the second quarter of fiscal year 2021, as evidenced by
our record revenues of approximately $17.0 million. In fact, the Company's two
highest LTV programs, USU's MSN-FNP and Aspen's BSN Pre-Licensure program, saw
enrollment tailwinds this quarter related to COVID-19. RN's, looking to attain
their nurse practitioner license to broaden their career options, drove MSN-FNP
enrollment. Additionally, millennials, aspiring to become RNs, enrolled in the
BSN Pre-Licensure program in Phoenix in record numbers, given that many were
furloughed or laid off since the pandemic first started.

COVID-19 has focused a spotlight on the shortage of nurses in the U.S. and, in
particular, the need for nurses with four-year and advanced degrees such as
USU’s MSN-FNP and Aspen University’s DNP programs. We believe we will be
operating in a tailwind environment for many years relative to the planned
expansion of our Pre-Licensure BSN hybrid campus business.

                                       39
--------------------------------------------------------------------------------
  Table of Contents
In our current, third fiscal quarter ending January 31, 2021, which has been
historically a seasonally slower quarter given it falls during the holiday
months of November and December, Aspen University is seeing slightly lower
course registrations than seasonally expected in our Aspen Nursing + Other unit.
We believe COVID-19 'Wave Two' is partly a factor given that all the states in
the country are now affected - not just some of the major metros. Our
predominant student demographic of RNs has been especially overwhelmed over the
past few months, so this isn't unexpected. Given the rollout of COVID-19
vaccines, we are anticipating a full recovery in expected course registrations
in our fourth quarter.

Results of Operations
Set forth below is the discussion of the results of operations of the Company
for the three months ended October 31, 2020 ("Q2 Fiscal 2021") compared to the
three months ended October 31, 2019 ("Q2 Fiscal 2020"), and for the first six
months ended October 31, 2020 ("1H Fiscal 2021") compared to the six months
ended October 31, 2019 ("1H Fiscal 2020").
Revenue
                                       Three Months Ended October 31,                                                         Six Months Ended October 31,
                    2020                $ Change             {de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} Change               2019                  2020                $ Change            {de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} Change               2019
Revenue        $ 16,971,045$ 4,885,080               40{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb}             $ 12,085,965$ 32,136,607$ 9,692,660               43{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb}            $ 22,443,947