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Risk Factors Dashboard

Once a year, publicly traded companies issue a comprehensive report of their business, called a 10-K. A component mandated in the 10-K is the ‘Risk Factors’ section, where companies disclose any major potential risks that they may face. This dashboard highlights all major changes and additions in new 10K reports, allowing investors to quickly identify new potential risks and opportunities.

Risk Factors - ASPU

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$ASPU Risk Factor changes from 00/07/13/21/2021 to 00/07/29/22/2022

ITEM 1A. RISK FACTORS.Investing in our common stock involves a high degree of risk. Investors should carefully consider the following Risk Factors before deciding whether to invest in Aspen Group. Additional risks and uncertainties not presently known to us, or that we currently deem immaterial, may also impair our business operations or our financial condition. If any of the events discussed in the Risk Factors below occur, our business, consolidated financial condition, results of operations or prospects could be materially and adversely affected. In such case, the value and marketability of the common stock could decline.Risk Factors Summary Our business is subject to numerous risks and uncertainties that you should consider before investing in our common stock.19Table of ContentsRisk Factors Summary Our business is subject to numerous risks and uncertainties that you should consider before investing in our common stock. The following is a summary of the principal risk factors we face:•the sufficiency of our cash resources;•any inability by AU to comply with the terms of the Consent Agreement and probation imposed by the AZ BON;•strong competition in the postsecondary education market;•the impact of the COVID-19 pandemic and any future public health emergencies;•our ability to successfully execute our growth strategy of opening new nursing campuses;•our ability to update and expand the content of existing programs and develop new programs and specializations on a timely basis and in a cost-effective manner;•continued growth and acceptance of online education;•the effectiveness of our marketing and advertising efforts;21Table of Contents •the accuracy of our assumptions with respect to our long-term accounts receivable;•continued demand for the nursing workforce;•the long-term success of our monthly payment plan;•our ability to develop awareness among, and attract and retain, high quality learners to our schools;•the impact on our business of failure by the third parties on which we rely to provide services in running our operations, including administration and hosting of learning management system software for our online classroom;•any system disruptions to our online computer networks;•the loss of the services of key personnel and our continued ability to attract and retain our faculty, administrators, management and skilled personnel;•our and our service providers’ ability to update the technology that we rely upon to offer online education;•any interruption to our technology infrastructure or service on our websites, including through privacy and data security breaches;•the potential impact of new laws or regulations governing Internet commerce;•compliance with laws and regulations relating to privacy, data protection, information security, advertising and consumer protection, government access requests, or, new laws in one or more of these areas;•failure to protect our intellectual property and the impact of potential intellectual property infringement claims against us;•inflation and government responses thereto could result in a recession in the U.S., which could adversely impact us, directly and through lower student enrollments; •tax treatment of companies engaged in Internet commerce;•potential impairment of goodwill and intangible assets arising from the USU acquisition;•failure to comply with the extensive regulatory requirements for our business;•our continued ability to maintain authorizations in the states where we have campuses;•our ability to achieve and maintain a required minimum pass rate on the NCLEX in the BSN Pre-Licensure nursing programs;•potential repayment liability to the Department of Education (the “DOE”) resulting from a defense to repayment of federal student loans by our students;•our continued ability to maintain institutional accreditation and comply with the complex regulations associated with Title IV Programs;•USU’s provisional certification by the DOE resulting in the need to reestablish our eligibility and certification to participate in the Title IV Programs;•potential adverse actions and litigation resulting from compliance reviews by the DOE;•potential loss of eligibility to participate in Title IV Programs if percentage of our revenues derived from Title IV Programs is too high;•new regulations or congressional action or reduction in funding for Title IV Programs;•potential sanctions for failure to calculate correctly and return timely Title IV Program funds for students who stop participating before completing their educational program;•potential loss of eligibility to participate in the Title IV Programs, including as the result of our distance education programs being considered “correspondence courses,” failure to demonstrate “financial responsibility” or “administrative capability,” failure by third parties on which we rely to administer our participation in Title IV Programs to comply with applicable regulations, or loan default rates;•potential sanctions for failure to comply with the DOE’s substantial misrepresentation rules or credit hour requirements;•future legislation or additional rulemaking by the DOE that may limit or condition Title IV Program participation of proprietary schools; and•potential sanctions for failure to comply with the federal campus safety and security reporting requirements as implemented by the DOE.Risks Relating to Our BusinessIn order to meet our working capital needs, we expect to raise capital or materially reduce our cash outflows. In order to meet our short-term working capital requirements and to achieve our operational goals during the next 12 months, we expect to either raise sufficient capital or reduce our expenditures. While we consider our plans through the end of August, we have implemented two key steps. First we have reduced our marketing expenses by $700,000 per month on an interim basis. Our monthly marketing spend had been approximately $1.4 million. In addition, we expect to enter into an at-the-market offering which has the potential to supply additional cash. As of July 22, 2022, we have $4.2 million of unrestricted cash on hand. 22Table of Contents The issuance of securities by us in a financing could have a dilutive effect on our current investors, and any such issuance or the possibility of such issuance may cause the market price of our common stock to decline. In addition, any debt or equity financing secured by us could involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital, continue our operations as presently contemplated and to pursue business opportunities. If we are unable to raise additional capital sufficient to meet our current requirements and growth goals, we may have to further reduce our operations. There can be no assurance that such funding will be available to the Company in the amount required at any time or, if available, that it can be obtained on terms satisfactory to the Company. Finally, even a temporary reduction of marketing will effect our future enrollments and class starts and reduce our future revenue. If we are unable to satisfy the probation terms under the Consent Agreement with the Arizona State Board of Nursing, or fail to meet the requirements of other states in which we operate, our future results of operations could be materially and adversely affected.Aspen University, our largest subsidiary which is based in Phoenix, Arizona, entered into a Consent Agreement related to its BSN pre-licensure program in Arizona, in which the AZ BON revoked its approval of AU’s core component of its pre-licensure program in Arizona but simultaneously imposed a conditional stay on the revocation. Approximately 12% of AU’s enrollments are students in its BSN Pre-Licensure nursing programs at two campus locations in Phoenix. The AU Arizona Pre-Licensure program accounted for 19.5% of our consolidated revenue in fiscal year 2022 and is projected to decline to approximately 10% of our revenue in fiscal year 2023.The stay is broken into two phases. During Phase I of the Consent Agreement which lasts through calendar year 2022, Aspen University is not permitted to enroll any new students into the core component of its pre-licensure nursing program in Arizona, and must achieve the AZ BON required 80% NCLEX first-time pass rate for the Calendar Year 2022 annual reporting cycle. If this benchmark is not achieved, the AZ BON may lift the stay and initiate the revocation. If Phase I is completed successfully, Phase II will commence with Aspen University on Probation (regular or “stayed revocation” probation, depending on the outcome of Phase I). During Phase II, Aspen University is permitted to begin enrollments into the core component of its pre-licensure nursing program in Arizona once four consecutive quarters of 80% first-time pass rate occurs. However, if the NCLEX pass rate falls below 80% for any quarter, the AZ BON may limit enrollments, and repeated failures may result in a required cessation of enrollments and teach-out of the program. Aspen University did not meet the 80% minimum for the first two quarters of 2022.As long as Aspen University is unable to enroll new students in the Phoenix metro area, our results of operations and cash flow may be materially and adversely affected. Until the minimum probationary period ends, should Aspen University not successfully satisfy the probation terms, our future results of operations and cash flow could be materially and adversely affected. Additionally, if we lose the Arizona approval and are forced to teach out those locations as a result of the foregoing developments, we will be prohibited from further utilizing the two Phoenix campus locations for future in-person pre-licensure classes at AU, and will be forced to find other uses for the premises, such as subletting the premises to USU or an outside party which we may be unable to do on commercially reasonable terms or at all. In such an event, our investments in those campuses will not result in the long-term benefits originally anticipated, and our future prospects at those locations would be materially diminished.Further, any similar adverse developments in other states in which we operate could also have a material adverse effect on us. The regulatory risks of our other state locations could also be at higher risk as a result of the developments in Arizona as regulators could review our operations with enhanced scrutiny following the investigations and actions taken by the AZ BON.If the Arizona State Board for Private Postsecondary Education does not reduce the surety bond, it will eliminate one possible way of increasing our working capital.The Arizona Board required us to post an $18.3 million surety bond which we were able to do. In addition to the premium cost, we had to subordinate our $20 million debt financing to support the surety bond which eliminated our ability to borrow additional funds from the two lenders. If the Arizona State Board for Private Postsecondary Education does not agree during this fiscal year to reduce the size of the surety bond, we will have to incur the cost of an additional renewal premium and be unable to use the debt facility for our working capital needs. As a result of the disclosure of the recent AZ BON probation and related matters, we are subject to a class action lawsuit and are or may become subject other litigation which could expose us to significant costs and cause business and reputational harm.23Table of Contents As more particularly described in “Item 3 – Legal Proceedings,” in April 2022 certain students who had completed the PPN portion of AU’s BSN Pre-Licensure nursing degree program filed a class action lawsuit in Arizona state court against AU, alleging violation of the Arizona Consumer Fraud Act and unjust enrichment, claiming that AU made false representations and promises and material omissions to the students with respect to its BSN Pre-Licensure program in Arizona. To the extent that costs exceed our insurance coverage, we could be materially and adversely affected. Further, the existence and facts alleged in this litigation could have a material adverse effect on our public image, and in turn on future enrollments. Should we fail to effectively defend against the above lawsuit, or other litigation arises against us with respect to AU Arizona or otherwise, our financial condition and results of operations may be materially adversely affected.Because there is strong competition in the postsecondary education market, especially in the online education market and as a result of COVID-19, our cost of acquiring students may increase and our results of operations may be materially and adversely affected.20Table of ContentsRisks Relating to Our BusinessBecause there is strong competition in the postsecondary education market, especially in the online education market and as a result of COVID-19, our cost of acquiring students may increase and our results of operations may be harmed. Postsecondary education is highly fragmented and competitive. We compete with traditional public and private two-year and four-year brick and mortar institutions as well as other for-profit schools and online not-for-profit schools. Public and private colleges and universities, as well as other for-profit schools, offer programs similar to those we offer. Public institutions receive substantial government subsidies, and public and private institutions have access to government and foundation grants, tax-deductible contributions that create large endowments and other financial resources generally not available to for-profit schools. Accordingly, public and private institutions may have instructional and support resources that are superior to those in the for-profit sector. In addition, some of our competitors, including both traditional colleges and universities and online for-profit schools, have substantially greater name recognition and financial and other resources than we have, which may enable them to compete more effectively for potential students. We also expect to face increased competition as a result of new entrants to the online education market, including established colleges and universities that have not previously emphasized online education programs, a trend which has been amplified and accelerated as a result of the COVID-19 pandemic. Major brick and mortar universities continue to develop and advertise their online course offerings. Purdue University’s 2017 acquisition of Kaplan University and the University of Arizona Global Campus’ 2020 acquisition of Ashford University are prime examples of this change. Another example is Arizona State University which spends considerable sums on advertising its online degree programs in partnership with its Online Program Manager.COVID-19 has created a tendency to increase remote learning as well as create a movement away from in person interactions to a limited extent. Our for-profit competitors such as Adtalem Global Education, Inc. and American Public Education, Inc., as well as public non-profit institutions, shifted their licensure program from on-campus classes to 100% online classes in response to the pandemic, although transitions back to campus learning have commenced or been completed in some cases., as well as public non-profit institutions, shifted their licensure program on-campus classes to 100% online classes in response to the pandemic. Because the long-term effects of COVID-19, including the widespread adoption of online learning methods employed by our competitors, remain uncertain, the resulting increase in competition may subsist going forward. Because the long-term effects of COVID-19, including the widespread adoption of online learning methods employed by our competitors, remain uncertain, the resultant increase in competition may subsist beyond the pandemic. For example, our competitors may determine that a new potential revenue stream has been opened to them and decide to maintain their increased online course offerings indefinitely or permanently to capitalize on the perceived opportunities, which would result in relatively new additional competitors.Additionally, another side effect of the pandemic was to force many prospective higher education students in the U.S. to defer commencement of their college and postsecondary courses and/or to more closely consider the possibility of declining to pursue a college or post-graduate degree. The result of these and other factors has been steepened declines in new college and graduate student enrollments in recent years. While we believe another factor in this decline has been the sustained increases in degree costs, which could render our offerings more attractive than some competitors given the relatively lower costs of our programs to other more traditional educational programs, the trend poses significant uncertainty and challenges to the industry as a whole, including AGI, and may cause us to experience lower revenue, be less competitive and otherwise harm our business as we continue to compete with a lower and lower pool of prospective enrollments. We may not be able to compete successfully against current or future competitors and may face competitive pressures including price pressures that could adversely affect our business or results of operations and reduce our operating margins.We may not be able to compete successfully against current or future competitors and may face competitive pressures including price pressures that could adversely affect our business or results of operations and reduce our operating margins. These competitive factors could cause our enrollments, revenues and profitability to materially decrease.COVID-19 has materially and adversely affected our business.The COVID-19 pandemic caused a significant downturn to the U.S. and global economies for an extended period. Our nursing students include many working nurses who became over stressed due to the healthcare crisis and necessary long hours they had 24Table of Contents to work. As a result, our attrition rates increased. We also believe nursing students delayed taking courses and also enrollments were adversely affected.All of these factors and remote work inefficiencies have materially and adversely affected our results of operations. If we are unable to successfully execute our growth strategy of opening new nursing campuses, our results of operations and future growth could be materially and adversely affected.21Table of ContentsIf we are unable to successfully execute our growth strategy of opening new nursing campuses, our results of operations and future growth could be materially and adversely affected. In addition to its two existing campus locations in Phoenix, the Company opened two additional new metro locations in fiscal year 2021 (Austin and Tampa) and opened two new locations in fiscal year 2022 (Nashville and Atlanta).In addition to its two existing campus locations in Phoenix, the Company opened two additional new metro locations in fiscal year 2021 (Austin and Tampa) and plans to open one new location in early fiscal year 2022 (Nashville) and one in late fiscal year 2022. Opening new campus locations will require us to obtain appropriate state and accrediting agency approvals and to comply with any requirements from those agencies related to a new location. Adding new locations will also require significant financial investments, including capital improvements, human resource capabilities, and new clinical placement relationships. If we are unable to obtain the required approvals, attract sufficient additional students to new campus locations, offer programs at new campuses in a cost-effective manner, identify appropriate clinical placements, or otherwise manage effectively the operations of newly established campus locations, our results of operations and financial condition could be materially and adversely affected.In the event that we are unable to update and expand the content of existing programs and develop new programs and specializations on a timely basis and in a cost-effective manner, our results of operations may be harmed.The updates and expansions of our existing programs and the development of new programs and specializations may not be accepted by existing or prospective students or employers. If we cannot respond to changes in market requirements, our business may be adversely affected. Even if we are able to develop acceptable new programs, we may not be able to introduce these new programs as quickly as students require or as quickly as our competitors introduce competing programs. To offer a new academic program, we may be required to obtain appropriate federal, state and accrediting agency approvals, which may be conditioned, delayed or declined in a manner that could significantly affect our growth plans. In addition, a new academic program that must prepare students for gainful employment must be approved by the DOE for Title IV purposes if the institution is provisionally certified. If we are unable to respond adequately to changes in market requirements due to financial constraints, regulatory limitations or other factors, our ability to attract and retain students could be impaired and our financial results could suffer.Establishing new academic programs or modifying existing programs may require us to make investments in management and faculty, incur marketing expenses and reallocate other resources. If we are unable to increase the number of students, or offer new programs in a cost-effective manner, or are otherwise unable to manage effectively the operations of newly established academic programs, our results of operations and financial condition could be adversely affected.Because we are an online provider of education, we are substantially dependent on continued growth and acceptance of online education and, if the recognition by students and employers of the value of online education does not continue to grow, our ability to grow our business could be adversely impacted. We believe that continued growth in online education will be largely dependent on additional students and employers recognizing the value of degrees and courses from online institutions. If students and employers are not convinced that online schools are an acceptable alternative to traditional schools or that an online education provides necessary value, or if growth in the market penetration of exclusively online education slows, growth in the industry and our business could be adversely affected. Because our business model is in part based on online education, if the acceptance of online education does not grow, our ability to continue to grow our business and our financial condition and results of operations could be materially adversely affected.Because our future growth and profitability will depend in large part upon the effectiveness of our marketing and advertising efforts, if those efforts are unsuccessful we may not be profitable in the future.Our future growth and profitability will depend in large part upon our media performance, including our ability to:•Maintain and grow our nursing programs including Aspen University’s BSN Pre-Licensure hybrid online/campus program; USU’s MSN-FNP program; Aspen University’s legacy Baccalaureate, Master’s and Doctoral online degree programs; and USU's legacy Baccalaureate and Master's degree programs;•Select communities which have excess demand for nursing students interested in an on-campus model.Our future growth and profitability will depend in large part upon our media performance, including our ability to:•Grow our nursing programs including Aspen University’s BSN Pre-Licensure hybrid online/campus program; USU’s MSN-FNP program; Aspen University’s legacy Baccalaureate, Master’s and Doctoral online degree programs; and USU's legacy Baccalaureate and Master's degree program;•Select communities which have excess demand for nursing students interested in an on-campus model. In this respect, we are uncertain if our commercial experience in Phoenix can be replicated in other metros. To date we have not had the same enrollment results in Austin, Tampa, or Nashville; and Atlanta began enrollments in February 2022; Further, 25Table of Contents enrollments in Tampa have been much lower than expected due to students in Florida preferring Associate-level, 2-year nursing degree programs versus Bachelor-level pre-licensure programs;•Replicate the success we have had with nursing in other programs;•Create greater awareness of our schools and our programs;•Identify the most effective and efficient level of spending in each market and specific media vehicle;•Determine the appropriate creative message and media mix for advertising, marketing and promotional expenditures;•Comply with applicable laws and regulations affecting our marketing activities; and•Effectively manage marketing costs (including creative and media).Further as a result of our cash needs, we will not be able to expand BSN Pre-Licensure program beyond Atlanta until we improve our operating results.Our marketing expenditures may not result in increased revenue or generate sufficient levels of brand name and program awareness. If our media performance is not effective, our future results of operations and financial condition will be adversely affected. Further, as disclosed earlier in this Report and Item 7, we are purposely slowing our growth rate and re-allocating marketing expenses. Further, as disclosed earlier in this Report, we are purposely slowing our growth rate and re-allocating marketing expenses. We may not achieve the results anticipated for a number of reasons including any future recession, unanticipated regulatory actions, the impact of COVID-19 on nurse enrollments and any adverse reaction of potential students who learn of the regulatory actions in Arizona.Because of the Russian invasion of Ukraine, the effect on the capital markets and the economy is uncertain, and we may have to deal with a recessionary economy and economic uncertainty including possible adverse effects upon our business.As a result of the Russian invasion of Ukraine, certain events have affected the global and United States economy including increased inflation, substantial increases in the prices of oil and gas and other goods, large Western companies ceasing to do business in Russia and uncertain capital markets with declines in leading market indexes. The duration of this war and its impact are at best uncertain and continuation may result in Internet access issues if Russia, for example, began illicit cyber activities. In addition, in the U. In addition, the U. S. the Federal Reserve has begun raising interest rates sharply, the continuation of which could lead to a recession. Ultimately the economy may turn into a recession with uncertain and potentially severe impacts upon public companies and us. We cannot predict how this will affect our business but the impact may be adverse. If the U.S. or global economy enters a recession, one possible if not probable result could be reduced spending by individuals on higher education, which could materially and adversely affect us.If our assumptions with respect to our long-term accounts receivable prove to be inaccurate, we may be required to take a charge to our Allowance for Doubtful accounts and incur a material non-cash charge to earnings.As a result of the growing acceptance of our monthly payment plans, our long-term accounts receivable balance has grown from $10,249,833 at April 30, 2021 to $11,406,525 at April 30, 2022.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 $10,249,833 at April 30, 2021. The primary component consists of 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 72-month payment plan, they all transition to long-term accounts receivable when their liability increases to over $4,500. Our ability to collect the sums owed directly by students in contrast to the federal government or other third parties is directly tied to the future ability of students to pay us and their other obligations stemming from a variety of factors including the impact of any economic decline in the United States, the students’ individual and family financial conditions, including unemployment and under-employment, health issues which affect students, and/or family members and whether students continue with their courses or cease taking courses. Due to inflation, Federal Interest rate hikes and other factors, many market analysists predict a recession is probable later in 2022 or 2023, which would diminish the spending power of prospective students, as well as possibly reduce demand for our offerings due to a weakened labor market. Further if we experience a recession, it is possible that we will face more difficulty in collecting our accounts receivable from students and former students.While our management, based on its experience, makes assumptions which affect the reserves we take against our long-term accounts receivable, these assumptions may be incorrect and the above or other factors may cause us to increase our reserves and reduce the long-term accounts receivable on our consolidated balance sheet. While our management, based on its experience, makes assumptions which affect the reserves we take against our long-term accounts receivable, these assumptions may be incorrect and the above or other factors may cause us to increase our reserves and reduce the long-term accounts receivable on our consolidated balance sheet. The amount of any future reductions we take may be a non-cash material charge to future earnings.We experienced a reduction in enrollments year-over-year, and if we are unable to change the trend in future periods, our results of operations and prospects, and your investment in us, could be materially adversely impacted.26Table of Contents On a Company-wide basis, new student enrollments were down 14% year-over-year, primarily as a result of three factors: (1) Aspen University dropped advertising spend in the BSN pre-licensure program in the Phoenix metro down to a maintenance spend, causing enrollments in that metro to drop, and subsequently stopped enrollments in Phoenix starting in Q4 of fiscal 2022, (2) enrollments at USU were down 1% year-over-year given the impact of the ongoing COVID-19 pandemic as prospective nursing post-licensure students continue to delay their education goals on a short-term basis as they continued to care for COVID patients, and (3) Aspen University saw a COVID-19 related increase in attrition among current nursing students and a reduction in prospective nursing post-licensure students. Further, due to the probation imposed by the AZ BON, AU’s Arizona pre-licensure locations will continue to contribute to the slowing of enrollment growth or a decline in enrollments. If the trend continues without offsetting reductions in expenses, it could materially adversely impact our business and financial condition, and in turn reduce our common stock price.If the demand for the nursing workforce decreases or the educational requirements for nurses were relaxed, our business will be adversely affected.Aspen Group’s primary focus has been the continued growth of enrollment in its nursing programs at both universities. As of April 30, 2022, approximately 86% of our active degree-seeking students were enrolled in our nursing programs. If the demand for nurses or family nurse practitioners does not continue to grow (or declines) or there are changes within the healthcare industry that make the nursing occupation less attractive to learners or reduce the benefits of a bachelor’s or an advanced degree, our enrollment and results of operations will be adversely affected.Although our management has successfully implemented a monthly payment business model, it may not be successful long-term.Under the leadership of Mr. Michael Mathews, our Chief Executive Officer, we have developed a monthly payment business model designed to substantially increase our student enrollment and reduce student debt among Aspen University’s and USU’s student bodies. While results to date have been as anticipated, there are no assurances that this business model will continue to be successful. Among the risks are the following:•Our ability to compete with existing online institutions which have substantially greater financial resources, deeper management and academic resources, and enhanced public reputations;•The emergence of more successful competitors including traditional campus based universities which accelerated their online presence as a result of the pandemic;•Factors related to our marketing, including the costs of Internet advertising and broad-based branding campaigns;•Limits on our ability to attract and retain effective employees because of the incentive compensation rule;•Performance problems with our online systems;•Our failure to maintain accreditation or regulatory approvals;•Student dissatisfaction with our services and programs;•Adverse publicity regarding us, our competitors or online or for-profit education generally;•A decline in the acceptance of online education;•A decrease in the perceived or actual economic benefits that students derive from our programs;•The potential that potential students may not be able to afford the monthly payments as a result of declines in the economy;•The failure to collect our growing accounts receivable;•The inability to expand our monthly payment program due to working capital requirements;•If our monthly payment plan business model does not continue to be favorably received, our revenues may not increase.If we are unable to develop awareness among, and attract and retain, high quality learners to our schools, our ability to generate significant revenue or achieve profitability will be significantly impaired.23Table of ContentsIf we are unable to develop awareness among, and attract and retain, high quality learners to our schools, our ability to generate significant revenue or achieve profitability will be significantly impaired. Building awareness of Aspen University and USU and the programs we offer are critical to our ability to attract prospective learners. If we are unable to successfully market and advertise our educational programs, our ability to attract and enroll prospective students could be adversely affected, and consequently, our ability to increase revenue or achieve profitability could be impaired. It is also critical to our success that we convert these applicants to enrolled students in a cost-effective manner and that these students remain active in our programs. Some of the factors that could prevent us from successfully enrolling and retaining students in our programs include:•The emergence of more successful competitors;•Factors related to our marketing, including the costs of Internet advertising and broad-based branding campaigns;27Table of Contents •Performance problems with our online systems;•Failure to maintain accreditation or regulatory approvals;•Student dissatisfaction with our services and programs, including with our customer service and responsiveness;•Adverse publicity regarding us, our competitors, or online or for-profit education in general;•Price reductions by competitors that we are unwilling or unable to match;•A decline in the acceptance of online education or our degree offerings by students or current and prospective employers;•Increased regulation of online education, including in states in which we do not have a physical presence;•A decrease in the perceived or actual economic benefits that students derive from our programs;•Litigation or regulatory investigations including those arising in Arizona that may damage our reputation; and•Difficulties in executing on our strategy as a preferred provider to employers for the vertical markets we serve. Some of the factors that could prevent us from successfully enrolling and retaining students in our programs include:•The emergence of more successful competitors;•Factors related to our marketing, including the costs of Internet advertising and broad-based branding campaigns;•Performance problems with our online systems;•Failure to maintain accreditation or regulatory approvals;•Student dissatisfaction with our services and programs, including with our customer service and responsiveness;•Adverse publicity regarding us, our competitors, or online or for-profit education in general;•Price reductions by competitors that we are unwilling or unable to match;•A decline in the acceptance of online education or our degree offerings by students or current and prospective employers;•Increased regulation of online education, including in states in which we do not have a physical presence;•A decrease in the perceived or actual economic benefits that students derive from our programs;•Litigation or regulatory investigations that may damage our reputation; and•Difficulties in executing on our strategy as a preferred provider to employers for the vertical markets we serve. If we are unable to continue to develop awareness of Aspen University and USU and the programs we offer, and to enroll and retain students, our enrollments would suffer and our ability to increase revenues and achieve profitability would be significantly impaired.Because we rely on third parties to provide certain services in running our operations, if any of these parties fail to provide the agreed services at an acceptable level, it could limit our ability to provide services and/or cause student dissatisfaction, either of which could adversely affect our business.We rely on third parties to provide us with services in order for us to efficiently and securely operate our business including our computer network and the courses we offer to students. Any interruption in our ability to obtain the services of these or other third parties or deterioration in their performance could impair the quality of our educational product and overall business. Generally, there are multiple sources for the services we purchase. Our business could be disrupted if we were required to replace any of these third parties, especially if the replacement became necessary on short notice, which could adversely affect our business and results of operations.Because we rely on third-party administration and hosting of learning management system software for our online classroom, if that third-party were to cease to do business or alter its business practices and services, it could have an adverse impact on our ability to operate.Our online classrooms at Aspen University and USU employ the D2L learning management system called Brightspace. The system is a web-based portal that stores and delivers course content, provides interactive communication between students and faculty, and supplies online evaluation tools. We rely on third parties to host and help with the administration of it. We further rely on third parties, the D2L agreement and our internal staff for ongoing support and customization and integration of the system with the rest of our technology infrastructure. If D2L were unable or unwilling to continue to provide us with service, we may have difficulty maintaining the software required for our online classroom or updating it for future technological changes. Any failure to maintain our online classroom would have an adverse impact on our operations, damage our reputation and limit our ability to attract and retain students.If we cannot manage our growth, our results of operations may suffer and could adversely affect our ability to comply with federal regulations.The growth that we have experienced as well as any future growth that we may experience, may place a significant strain on our resources and increase demands on our management information and reporting systems and financial management controls.The growth that we have experienced as well as any future growth that we experience, may place a significant strain on our resources and increase demands on our management information and reporting systems and financial management controls. We have experienced growth at Aspen University over the last several years and USU has grown significantly since we acquired it, although in the fiscal years 2021 and 2022 our growth has declined primarily as a result of the COVID-19 pandemic, reduced marketing spending and regulatory challenges. We have experienced growth at Aspen University over the last several years and USU has grown significantly since we acquired it. Further, we have less experience in managing our hybrid programs and anticipate substantial growth from this business. Further, we have somewhat limited experience in managing our hybrid programs and anticipate substantial growth from this 24Table of Contentsbusiness. Managing multiple campuses in many locations will pose operational challenges which may impact our ability to manage our business with the same level of effectiveness as we achieved in the past fiscal years. If growth negatively impacts our ability to manage our business, the learning experience for our students could be adversely affected, resulting in a higher rate of student attrition and fewer student referrals. Future growth will also require continued improvement of our internal controls and systems, particularly those related to complying with federal regulations under the Higher Education Act, as administered by the DOE, including as a result of our participation in federal student financial aid programs under Title IV. If we are unable to manage our growth, we may also experience operating inefficiencies that could increase our costs and adversely affect our profitability and results of operations. If we experience system disruptions to our online computer networks, it could impact our ability to generate revenue and damage our reputation, limiting our ability to attract and retain students.28Table of Contents We continue to make investments to update our computer network and systems primarily to permit accelerated student enrollment and enhance our students’ learning experience.We continue to make investments to update our computer network and systems primarily to permit accelerated student enrollment and enhance our students’ learning experience. We plan to make significant changes to our student systems and our accounting systems to enhance our ability to support the growth of the business, improve the visibility of program specific activities and related costs and enhance overall business intelligence to support capital allocation decision making. The performance and reliability of our technology infrastructure is critical to our reputation and ability to attract and retain students and manage our business. Any system error or failure, or a sudden and significant increase in bandwidth usage, could result in the unavailability of our online classroom, damaging our reputation, and could cause a loss in enrollment. In addition, changes in systems can be disruptive, divert management's time and typically may involve bugs which cause further disruptions. Our technology infrastructure and systems could be vulnerable to interruption or malfunction due to events beyond our control, including natural disasters, terrorist activities, hacking or cyber security issues and telecommunications failures.If we lose the services of key personnel, it could adversely affect our business.Our future success depends, in part, on our ability to attract and retain key personnel. Our future also significantly depends on the continued services of Mr. Michael Mathews, our Chief Executive Officer. We also rely upon Mr. Matthew LaVay, our Chief Financial Officer, Mr. Gerard Wendolowski, our Chief Operating Officer and Dr. Cheri St. Arnauld, our Chief Academic Officer, all of whom are important to the management of our business and operations and the development of our strategic direction and would also be difficult to replace. Anne McNamara, our Chief Nursing Officer, all of whom are critical to the management of our business and operations and the development of our strategic direction and would also be difficult to replace. We have a $3 million key man life insurance policy on Mr. Mathews. The loss of the services of Mr. Mathews and other key individuals and the process to replace these individuals would involve significant time and expense and may significantly delay or prevent the achievement of our business objectives.If we are unable to attract and retain our faculty, administrators, management and skilled personnel, we may not be able to support our operations.To maintain our operations and to execute our growth strategy, we must attract and retain highly qualified faculty, administrators, management and skilled personnel. Competition for hiring these individuals is intense, especially with regard to faculty in specialized areas. If we fail to attract new skilled personnel or faculty or fail to retain and motivate our existing faculty, administrators, management and skilled personnel, our business and growth prospects could be severely harmed. Further, we have moved to a new hybrid model focused on using full-time faculty members in addition to adjunct or part-time faculty. These efforts may not be successful resulting in the loss of faculty and difficulties in recruiting. Further, we cannot predict the effect of our recent layoffs on our retained staff. Our remaining employees may be fearful of being laid off or be concerned over whether we may remain operational. Accordingly, we may sustain a further decline in our employees which could adversely affect the services we provide.If we or our service providers are unable to update the technology that we rely upon to offer online education, our future growth may be impaired.We believe that continued growth will require our service providers to increase the capacity and capabilities of their technology infrastructure. Increasing the capacity and capabilities of the technology infrastructure will require these third parties to invest capital, time and resources, and there is no assurance that even with sufficient investment their systems will be scalable to accommodate future growth. Our service providers may also need to invest capital, time and resources to update their technology in response to competitive pressures in the marketplace. If they are unwilling or unable to increase the capacity of their resources or update their resources appropriately and we cannot change over to other service providers efficiently, our ability to handle growth, our ability to attract or retain students, and our financial condition and results of operations could be adversely affected.If we experience any interruption to our technology infrastructure, it could prevent students from accessing their courses, could have a material adverse effect on our ability to attract and retain students and could require us to incur additional expenses to correct or mitigate the interruption.Our computer networks may be vulnerable to unauthorized access, computer hackers, computer viruses and other security problems.25Table of ContentsOur computer networks may be vulnerable to unauthorized access, computer hackers, computer viruses and other security problems. A user who circumvents security measures could misappropriate proprietary information, personal information about our students or cause interruptions or malfunctions in operations. As a result, we may be required to expend significant resources to protect against the threat of these security breaches or to alleviate problems caused by any breaches.Because the CAN-SPAM Act imposes certain obligations on the senders of commercial emails, it could adversely impact our ability to market Aspen University’s and USU’s educational services, and otherwise increase the costs of our business.29Table of Contents The Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003, or the CAN-SPAM Act, establishes requirements for commercial email and specifies penalties for commercial email that violates the CAN-SPAM Act.The Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003, or the CAN-SPAM Act, establishes requirements for commercial email and specifies penalties for commercial email that violates the CAN-SPAM Act. In addition, the CAN-SPAM Act gives consumers the right to require third parties to stop sending them commercial email.The CAN-SPAM Act covers email sent for the primary purpose of advertising or promoting a commercial product, service, or Internet website. The Federal Trade Commission, a federal consumer protection agency, is primarily responsible for enforcing the CAN-SPAM Act, and the Department of Justice, other federal agencies, state attorneys general, and Internet service providers also have authority to enforce certain of its provisions.The CAN-SPAM Act’s main provisions include:•Prohibiting false or misleading email header information;•Prohibiting the use of deceptive subject lines;•Ensuring that recipients may, for at least 30 days after an email is sent, opt out of receiving future commercial email messages from the sender;•Requiring that commercial email be identified as a solicitation or advertisement unless the recipient affirmatively permitted the message; and•Requiring that the sender include a valid postal address in the email message.The CAN-SPAM Act also prohibits unlawful acquisition of email addresses, such as through directory harvesting and transmission of commercial emails by unauthorized means, such as through relaying messages with the intent to deceive recipients as to the origin of such messages.Violations of the CAN-SPAM Act’s provisions can result in criminal and civil penalties, including statutory penalties that can be based in part upon the number of emails sent, with enhanced penalties for commercial email companies who harvest email addresses, use dictionary attack patterns to generate email addresses, and/or relay emails through a network without permission.The CAN-SPAM Act acknowledges that the Internet offers unique opportunities for the development and growth of frictionless commerce, and the CAN-SPAM Act was passed, in part, to enhance the likelihood that wanted commercial email messages would be received.The CAN-SPAM Act preempts, or blocks, most state restrictions specific to email, except for rules against falsity or deception in commercial email, fraud and computer crime. The scope of these exceptions, however, is not settled, and some states have adopted email regulations that, if upheld, could impose liabilities and compliance burdens in addition to those imposed by the CAN-SPAM Act.Moreover, some foreign countries, including the countries of the European Union, have regulated the distribution of commercial email and the online collection and disclosure of personal information. Foreign governments may attempt to apply their laws extraterritorially or through treaties or other arrangements with U.S. governmental entities.Because we use email marketing, the need to comply with, and any failure by us to comply with the CAN-SPAM Act could adversely affect our marketing activities and increase our costs.If our data or our users’ content is hacked, including through privacy and data security breaches, our business could be damaged, and we could be subject to liability.Our business is, and we expect it will continue to be, heavily reliant upon the Internet. Cyber security events have caused significant damage to large well-known companies. If our systems are hacked and our students’ confidential information is misappropriated, we could be subject to liability.We may fail to detect the existence of a breach of user content and be unable to prevent unauthorized access to user and company content.26Table of ContentsWe may fail to detect the existence of a breach of user content and be unable to prevent unauthorized access to user and company content. The techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and are often not recognized until launched against a target. They may originate from less regulated third world countries where lax local enforcement and poverty create opportunities for hacking. If our security measures are breached, or our students’ content is otherwise accessed through unauthorized means, or if any such actions are believed to occur, Aspen University and USU may lose existing students and/or fail to enroll new students or otherwise be materially harmed.Our business could be harmed by any significant disruption of service on our websites.Because of the importance of the Internet to our business, in addition to cybersecurity, we face the risk that our systems will fail to function in a robust manner. Our reputation and ability to attract, retain, and serve our students are dependent upon the 30Table of Contents reliable performance of our websites, including our underlying technical infrastructure. Our reputation and ability to attract, retain, and serve our students are dependent upon the reliable performance of our websites, including our underlying technical infrastructure. Our technical infrastructure may not be adequately designed with sufficient reliability and redundancy to avoid performance delays or outages that could be harmful to our business. If our websites are unavailable when students and professors attempt to access them, or if they experience frequent slowdowns or disruptions, we may lose students and professors.If we incur liability for the unauthorized duplication or distribution of class materials posted online during our class discussions, it may affect our future operating results and financial condition.In some instances, our faculty members or our students may post various articles or other third-party content on class discussion boards. We may incur liability for the unauthorized duplication or distribution of this material posted online for class discussions. Third parties may raise claims against us for the unauthorized duplication of this material. Any such claims could subject us to costly litigation and impose a significant strain on our financial resources and management personnel regardless of whether the claims have merit. As a result, we may be required to alter the content of our courses or pay monetary damages.Because the personal information that we or our vendors collect may be vulnerable to breach, theft or loss, any of these factors could adversely affect our reputation and operations.Possession and use of personal information in our operations subjects us to risks and costs that could harm our business. We use a third parties to collect and retain large amounts of personal information regarding our students and their families, including social security numbers, tax return information, personal and family financial data and credit card numbers. We also collect and maintain personal information on our employees in the ordinary course of our business. Some of this personal information is held and managed by certain of our vendors. Errors in the storage, use or transmission of personal information could result in a breach of student or employee privacy. Possession and use of personal information in our operations also subjects us to legislative and regulatory burdens that could require notification of data breaches, restrict our use of personal information, and cause us to lose our certification to participate in the Title IV Programs. We cannot guarantee that there will not be a breach, loss or theft of personal information that we store or our third parties store. A breach, theft or loss of personal information regarding our students and their families or our employees that is held by us or our vendors could have a material adverse effect on our reputation and results of operations and result in liability under state and federal privacy statutes and legal or administrative actions by state attorneys general, private litigants, and federal regulators and by such other international laws including the European Union’s General Data Protection Regulation (the "E.U. GDPR") and, following the United Kingdom’s departure from the European Union on January 31, 2020, the United Kingdom’s General Data Protection Regulation (the “U.K. GDPR”) and their respective enforcement mechanisms, any of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.If governments enact new laws to regulate Internet commerce, it may negatively affect our business.The widespread use of the Internet has led and may in the future lead to the adoption of new laws and regulatory practices in the U.S. and to new interpretations of existing laws and regulations. and to new interpretations of existing laws and regulations, as well as regulations elsewhere including the European Union. These new laws and interpretations may relate to issues such as online privacy, data protection and breach copyrights, trademarks and service marks, sales taxes, fair business practices and the requirement that online education institutions qualify to do business as foreign corporations or be licensed in one or more jurisdictions where they have no physical location or other presence. New laws, regulations or interpretations related to doing business over the Internet could increase our costs and materially and adversely affect our enrollments, revenues and results of operations.If we fail to comply with laws and regulations relating to privacy, data protection, information security, advertising and consumer protection, government access requests, or, if new laws in one or more of these areas are enacted, it could result in proceedings, actions, or penalties against us and could adversely affect our business, financial condition, and results of operations.We rely on a variety of marketing techniques, including email, radio, telemarketing, display advertising, and social media marketing, targeted online advertisements, and postal mailings, and we are or may become subject to various laws and regulations that govern such marketing and advertising practices.27Table of ContentsWe rely on a variety of marketing techniques, including email, radio, telemarketing, display advertising, and social media marketing, targeted online advertisements, and postal mailings, and we are or may become subject to various laws and regulations that govern such marketing and advertising practices. A variety of federal, state, and international laws and regulations, including those enforced by various federal government agencies such as the Federal Trade Commission, Federal Communications Commission, and state and local agencies, govern the collection, use, retention, sharing, and security of personal data, particularly in the context of online advertising, which we utilize to attract new students.The laws and regulations which may restrict, limit or otherwise affect our advertising efforts include the Telephone Consumer Protection Act of 1991, the Telemarketing Sales Rule, the CAN-SPAM Act and various U.S. state laws regarding telemarketing. These laws generally impose restrictions on advertising practices, may be subject to varying interpretations by courts and governmental authorities and often require subjective interpretation, which could render our compliance efforts more 31Table of Contents challenging. We cannot guarantee our efforts to comply with these laws, rules and regulations will be successful, or, if they are successful, that the cost of such compliance will not be materially adverse to our business. If any laws, rules or regulations applicable to our advertising techniques significantly restrict our business, we may not be able to implement adequate alternative communication and marketing strategies at favorable costs or at all. Further, any non-compliance with these laws, rules and regulations may result in financial penalties or litigation, which would adversely affect our financial condition and reputation.The use and storage of data, files, and information on our websites and those of our third-party service providers concerning, among others, student information is essential to their enrollment in our schools. Laws and regulations relating to privacy, data protection, information security, marketing and advertising, and consumer protection are evolving and subject to potentially differing interpretations. These requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another or may conflict with other regulations or our current practices. As a result, our practices may not have complied or may not comply in the future with all such laws, regulations, requirements, and obligations. We have implemented various features, integrations, and capabilities as well as contractual obligations intended to enable us to comply with applicable privacy and security requirements in our collection, use, and transmittal of data, but these features do not ensure our compliance and may not be effective against all potential privacy concerns. In particular, as a United States company, we may be obliged to disclose data pursuant to government requests under United States law. Compliance with such requests may be inconsistent with local laws in other countries where our students reside. Any failure, or perceived failure, by us to comply with our posted privacy policies or with any privacy or consumer protection-related laws, regulations, industry self-regulatory principles, industry standards or codes of conduct, regulatory guidance, orders to which we may be subject, or other legal obligations relating to privacy or consumer protection, whether federal, state, or international, could adversely affect our reputation, brand, and business, and may result in claims, proceedings, or actions against us by governmental entities, students, users of our website, third party service providers, or others, or may require us to change our operations and/or cease using certain types of data. Any such claims, proceedings, or actions could hurt our reputation, brand, and business, force us to incur significant expenses in defense of such proceedings or actions, result in adverse publicity, distract our management, increase our costs of doing business, result in a loss of students and/or third-party service providers, and result in the imposition of monetary penalties.The legislative and regulatory bodies or self-regulatory organizations in various jurisdictions both inside and outside the United States may expand current laws or regulations, enact new laws or regulations, or issue revised rules or guidance regarding privacy, data protection, consumer protection, information security, and online advertising. California has enacted the California Consumer Privacy Act of 2018 (the “CCPA”), which became operative on January 1, 2020, and its implementing regulations took effect in August, 2020. The CCPA requires companies that process personal information on California residents to make new disclosures to consumers about such companies’ data collection, use, and sharing practices and inform consumers of their personal information rights such as deletion rights, allows consumers to opt out of certain data sharing with third parties, and provides a new cause of action for data breaches. Additionally, in November 2020, California enacted the California Privacy Rights Act of 2020 (the “CPRA”), which amends and expands the scope of the CCPA, while introducing new privacy protections that extend beyond those included in the CCPA and its implementing regulations. The CCPA, as amended and expanded by the CPRA, is one of the most prescriptive general privacy law in the United States and may lead to similar laws being enacted in other U.S. states or at the federal level. For example, the State of Nevada also passed a law, which went into effect on October 1, 2019, that amends the state’s online privacy law to allow consumers to submit requests to prevent websites and online service providers (“Operators”) from selling personally identifiable information that Operators collect through a website or online service. Additionally, the Federal Trade Commission and many state attorneys general are interpreting federal and state consumer protection laws to impose standards for the online collection, use, dissemination, and security of data. Each of these privacy, security, and data protection laws and regulations, and any other such changes or new laws or regulations, could impose significant limitations, require changes to our business model or practices, or restrict our use or storage of personal information, which may increase our compliance expenses and make our business more costly or less efficient to conduct. Each of these privacy, security, and data protection laws and regulations, and any other such changes or new laws or regulations, 28Table of Contentscould impose significant limitations, require changes to our business model or practices, or restrict our use or storage of personal information, which may increase our compliance expenses and make our business more costly or less efficient to conduct. In addition, any such changes could compromise our ability to develop an adequate marketing strategy and pursue our growth strategy effectively, which, in turn, could adversely affect our business, financial condition, and results of operations.In addition, federal and state governmental authorities continue to evaluate the privacy implications inherent in the use of third-party “cookies” and other methods of online tracking for behavioral advertising and other purposes. The U.S. government has enacted legislation and regulations, and may enact further legislation or regulations in the future, that could significantly restrict the ability of companies and individuals to utilize online behavioral tracking, such as by regulating the level of consumer notice and consent required before a company can employ cookies or other electronic tracking tools or the use of data gathered with such tools. Additionally, some providers of consumer devices and web browsers have implemented, or announced plans to implement, means to make it easier for Internet users to prevent the placement of cookies or to block other tracking technologies, which could, if widely adopted, result in the use of third-party cookies and other methods of online tracking becoming significantly less effective. The regulation of the use of these cookies and other current online tracking and advertising practices or a loss in our ability to make effective use of services that employ such technologies could increase our 32Table of Contents costs of operations and limit our ability to acquire new students on cost-effective terms and consequently, materially and adversely affect our business, financial condition, and results of operations. The regulation of the use of these cookies and other current online tracking and advertising practices or a loss in our ability to make effective use of services that employ such technologies could increase our costs of operations and limit our ability to acquire new students on cost-effective terms and consequently, materially and adversely affect our business, financial condition, and results of operations. At least 35 states and the District of Columbia introduced or considered almost 200 consumer privacy bills in 2022. More and more states will continue to enact similar laws. Proposed federal legislation, like the American Data Privacy and Protection Act, will likely continue to be debated and, at some point, enacted in some form.Furthermore, judgments from foreign courts or regulatory actions of other foreign nations could impact our ability to transfer, process, and/or receive data relating to students outside the United States, or alter our ability to use cookies to deliver advertising and other products to such users. Such judgments or actions could affect the manner in which we provide services to our students or adversely affect our financial results if foreign students are not able to lawfully transfer data to us.We strive to comply with all applicable laws, policies, legal obligations, and industry codes of conduct relating to privacy and data protection. However, U.S. federal, U.S. state, and international laws and regulations regarding privacy and data protection, including the CCPA and CPRA are rapidly evolving and may be inconsistent and we could be deemed out of compliance with such laws and their interpretations. state, and international laws and regulations regarding privacy and data protection, including the CCPA, CPRA, E. The costs of compliance with, and other burdens imposed by, such laws and regulations that are applicable to our business operations may limit the use and adoption of our services and reduce overall demand for them. Furthermore, any changes in such laws and regulations or a change or differing interpretation or application to our business of the existing laws and regulations, GDPR, could also hinder our operational flexibility, raise compliance costs and, particularly if our compliance efforts are deemed to be insufficient, result in additional historical or future liabilities and regulatory scrutiny for us, resulting in adverse impacts on our business and our results of operations.Release of personally identifiable information or other confidential information could subject us to civil penalties or cause us to lose our eligibility to participate in Title IV programs.As educational institutions participating in federal and state student assistance programs and collecting financial receipts from students and their families, we collect and retain certain personally identifiable information and other confidential information. Such information is subject to federal and state privacy and security rules, including the Family Educational Rights to Privacy Act (“FERPA”), the Health Insurance Portability and Accountability Act (“HIPAA”), and the Fair and Accurate Credit Transactions Act of 2003 (“FACTA”). Release or failure to secure confidential information or other noncompliance with FERPA, HIPAA, FACTA or other similar laws could subject us to fines, loss of our capacity to conduct Internet commerce, and loss of eligibility to participate in Title IV programs, which could have a materially adverse effect on our business, financial condition, results of operations, and cash flows.Jurisdictions, both nationally and internationally, are continuing to enact additional laws and regulations relating to privacy, data protection, information security, marketing and advertising, and consumer protection, and compliance with one set of laws and regulations rarely suffice for compliance with another. On March 2, 2021, the Governor of Virginia signed into law the Virginia Consumer Data Protection Act (the “VCDPA”), which will go into effect on January 1, 2023. On March 2, 2021, the Governor of Virginia signed into law the Virginia Consumer Data Protection Act (the “VCDPA”). The VCDPA, creates consumer rights, similar to the CCPA, but also imposes security and assessment requirements for businesses. The VCDPA creates consumer rights, similar to the CCPA, but also imposes security and assessment requirements for businesses. That law applies to all persons that conduct business in Virginia which (i) control or process personal data of at least 100,000 consumers, or, (ii) derive over 50% of gross revenue from the sale of personal data and control or process personal data of at least 25,000 consumers. In addition, on July 7, 2021, Colorado enacted the Colorado Privacy Act (“CoCPA”), becoming the third comprehensive consumer privacy law to be passed in the United States (after the CCPA and VCDPA), which will go into effect on July 1, 2023. In addition, on July 7, 2021, Colorado enacted the Colorado Privacy Act (“CoCPA”), becoming the third comprehensive consumer privacy law to be passed in the United States (after the CCPA and VCDPA). This additional legislation addresses consumers’ rights to privacy, companies’ responsibility to protect personal data, and authorizes the state to take enforcement action for violations. Although the CoCPA closely resembles the VCDPA, both of which do not contain a private right of action and will instead be enforced by the respective states’ Attorney General and district attorneys, the two differ in many ways and once they become enforceable in 2023, we must comply with each if our operations fall within the scope of these newly enacted comprehensive mandates. Section 6(3) of a Connecticut statute signed May 10, 2022, states a data controller shall “establish, implement and maintain reasonable administrative, technical and physical data security practices to protect the confidentiality, integrity and accessibility of personal data appropriate to the volume and nature of the personal data at issue.” The effective date for that law is July 1, 2023. Utah’s Consumer Privacy Act provides consumers the right to know what personal data a business collects, how the business uses the personal data, and whether the business sells the personal data. The effective date is December 31, 2023. Additionally, Maine recently enacted the Data Collection Protection Act, creating the Maine Data Collection Protection Act, which prohibits data collectors from collecting and aggregating, selling, or using specific types of public documents or information. Prior efforts undertaken to comply with other recent privacy-related laws have proven that 33Table of Contents these initiatives require time to carefully plan, assess gaps in current compliance mechanisms, and implement new policies, processes and remediation efforts. Prior efforts undertaken to comply with other recent privacy-related laws have proven that these initiatives require time to carefully plan, assess gaps in current compliance mechanisms, and implement new policies, processes and remediation efforts. If we are unable to protect our intellectual property, our business could be harmed.In the ordinary course of our business, we develop intellectual property of many kinds that is or will be the subject of copyright, trademark, service mark, trade secret or other protections. This intellectual property includes but is not limited to courseware materials, business know-how and internal processes and procedures developed to respond to the requirements of operating and various education regulatory agencies. We rely on a combination of copyrights, trademarks, service marks, trade secrets, domain names, agreements and registrations to protect our intellectual property. We rely on service mark and trademark protection in the U.S. to protect our rights to the mark ASPEN UNIVERSITY and the mark UNITED STATES UNIVERSITY as well as distinctive logos and other marks associated with our services. We rely on agreements under which we obtain rights to use course content developed by faculty members and other third-party content experts. We cannot assure you that the measures that we take will be adequate or that we have secured, or will be able to secure, appropriate protections for all of our proprietary rights in the U.S. or select foreign jurisdictions, or that third parties will not infringe upon or violate our proprietary rights. Despite our efforts to protect these rights, unauthorized third parties may attempt to duplicate or copy the proprietary aspects of our curricula, online resource material and other content, and offer competing programs to ours.In particular, third parties may attempt to develop competing programs or duplicate or copy aspects of our curriculum, online resource material, quality management and other proprietary content. Any such attempt, if successful, could adversely affect our business. Protecting these types of intellectual property rights can be difficult, particularly as it relates to the development by our competitors of competing courses and programs.We may encounter disputes from time to time over rights and obligations concerning intellectual property, and we may not prevail in these disputes. Third parties may raise a claim against us alleging an infringement or violation of the intellectual property of that third-party.If we are subject to intellectual property infringement claims, it could cause us to incur significant expenses and pay substantial damages.Third parties may claim that we are infringing or violating their intellectual property rights. Any such claims could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages and prevent us from using our intellectual property that may be fundamental to our business. Even if we were to prevail, any litigation regarding the intellectual property could be costly and time-consuming and divert the attention of our management and key personnel from our business operations.If there is new tax treatment of companies engaged in Internet commerce, this may adversely affect the commercial use of our marketing services and our financial results.Due to the growing budgetary problems facing state and local governments, it is possible that governments might attempt to tax our activities. New or revised tax regulations may subject us to additional sales, income and other taxes. In 2018 the United States Supreme Court ruled that states can tax the sale of goods sold to residents of their respective state. In the wake of the Court’s decision, 45 states and the District of Columbia impose sales taxes on remote business. Although the effective date of these new state taxes vary by state, all collection requirements are expected to be in effect by January 1, 2023. Moreover, the minimum thresholds for the taxes to apply varies by state and ranges $100,000 and $500,000. In addition to monetary threshold requirements, some states also require transaction threshold requirements that range from 100 to 200 transactions. The decision also allows local governments to collect sales tax, per the United States Government Accountability Office; of the 45 states with sales tax 37 also have local sales taxes.While we are still evaluating the potential impact of these developments, including whether these states are intended to tax educational services, the new or revised tax requirements are expected to increase the cost of doing business online which could have an adverse effect on our business and results of operations. In addition to the direct added costs from any applicable taxes, we may need to establish systems and procedures to track the volume and monetary value of our course offerings and material sales on a state-by-state basis, and, when necessary, collect and remit taxes on behalf of the states, and potentially consult with tax or other experts to monitor and oversee compliance efforts with respect to certain state and local sales tax provisions, which can also be costly. These developments, including any potential failure by us to pay the required tax in a state or locality in which we are deemed to do business, could have an adverse consequences on our operations and financial condition. Our business is subject to the risks of earthquakes, hurricanes, tornadoes, fires, power outages, floods and other catastrophic events, any of which may adversely affect our business and results of operations.Our business is subject to the risks of earthquakes, hurricanes, tornadoes, fires, power outages, floods and other catastrophic events, any of which may adversely affect our business and results of operations. 34Table of Contents Our business, including our brick and mortar campuses, may experience business interruptions resulting from natural disasters such as earthquakes, hurricanes, tornadoes, floods, fires or significant power outages.Our business, including our brick and mortar campuses, may experience business interruptions resulting from natural disasters such as earthquakes, hurricanes, tornadoes, floods, fires or significant power outages. In addition to our largest office facility and two locations in Phoenix, AZ, we presently have locations in San Diego, CA, Austin, TX, Tampa, FL, Nashville, TN, and Atlanta, GA, which are susceptible to weather related problems. In addition to our largest office facility and two campus locations in Phoenix, AZ, we presently have locations in San Diego, CA, Austin, TX, Tampa, FL and Nashville, TN, which are susceptible to weather related problems. These events could cause us to close schools — temporarily or permanently — and could affect student recruiting opportunities in those locations, causing enrollment and revenue to decline, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.If our goodwill and intangible assets on our consolidated balance sheet arising from the USU acquisition become impaired, it would require us to record a material charge to earnings in accordance with generally accepted accounting principles.If our goodwill and intangible assets on our balance sheet arising from the USU acquisition become impaired, it would require us to record a material charge to earnings in accordance with generally accepted accounting principles. As a result of our acquisition of USU, we recorded approximately $5 million of goodwill and $7.9 million of intangible assets which are currently shown as assets on our consolidated balance sheet at April 30, 2022. Generally Accepted Accounting Principles (“GAAP”) require us to test our goodwill and intangible assets for impairment on an annual basis, or more frequently if indicators for potential impairment exist. Generally Accepted Accounting Principles (“GAAP”) require us to test our goodwill and intangible assets for impairment on an annual basis, or more frequently 30Table of Contentsif indicators for potential impairment exist. The testing required by GAAP involves estimates and judgments by management. Although we believe our assumptions and estimates are reasonable and appropriate, any changes in key assumptions, including a failure to meet business plans or other unanticipated events and circumstances, may affect the accuracy or validity of such estimates. If in the future we determine that an impairment exists, we may be required to record a material charge to earnings in our consolidated financial statements during the period in which any impairment of our goodwill or intangible assets is determined.Risks Related to the Regulation of Our IndustryIf we fail to comply with the extensive regulatory requirements for our business, we could face penalties and significant restrictions on our operations, including loss of access to Title IV Program funds.We are subject to extensive regulation by (1) the federal government through the DOE under the HEA/HEOA, (2) state regulatory bodies and (3) accrediting agencies recognized by the DOE, including the DEAC and WSCUC, institutional accrediting agencies recognized by the DOE. In addition, the U.S. Department of Defense and the U.S. Department of Veterans Affairs regulate our participation in the military’s tuition assistance program and the VA’s veteran's education benefits program, respectively. The laws, regulations, standards and policies of these agencies cover the vast majority of our operations, including our educational programs, facilities, instructional and administrative staff, administrative procedures, marketing, recruiting, financial operations and financial condition. These regulatory requirements can also affect our ability to add new or expand existing educational programs and to change our corporate structure and ownership.Institutions of higher education that grant degrees, diplomas, or certificates must be authorized by an appropriate state education agency or agencies. In addition, in certain states, as a condition of continued authorization to grant degrees, a school must be accredited by an accrediting agency recognized by the U.S. Secretary of Education. Accreditation is a non-governmental process through which an institution submits to qualitative review by an organization of peer institutions, based on the standards of the accrediting agency and the stated aims and purposes of the institution. Accreditation is also required in order to participate in various federal programs, including tuition assistance programs of the United States Armed Forces and the federal programs of student financial assistance administered pursuant to Title IV of the Higher Education Act. The Higher Education Act and its implementing regulations require accrediting agencies recognized by the DOE to review and monitor many aspects of an institution’s operations and to take appropriate action when the institution fails to comply with the accrediting agency’s standards.Our operations are also subject to regulation due to our participation in Title IV Programs which are administered by the DOE and include loans made directly to students by the DOE and several grant programs for students with economic need as determined in accordance with the HEOA and the DOE regulations. To participate in Title IV Programs, a school must receive and maintain authorization by the appropriate state education agencies, be accredited by an accrediting agency recognized by the U.S. Secretary of Education and be certified as an eligible institution by the DOE. Our growth strategy is partly dependent on being able to offer financial assistance through Title IV Programs as it may increase the number of potential students who may choose to enroll in our programs. Our highest long-term value program, Aspen University’s BSN Pre-Licensure nursing program, which only offers a monthly payment program for the first year of each program, make these students dependent upon Title IV or other payment options in order to continue their education. Our two highest long-term value programs, Aspen University’s BSN Pre-Licensure nursing program, and USU’s MSN-FNP program which only offers a monthly payment program for the first year of each program, make these students dependent upon Title IV or other payment options in order to continue their education. The laws, regulations, standards, and policies of the DOE, state education agencies, and our accrediting agencies change frequently particularly when there is a change in the U.S. President. Pending changes in, or new interpretations of, applicable 35Table of Contents laws, regulations, standards, or policies, or our noncompliance with any applicable laws, regulations, standards, or policies, could have a material adverse effect on our accreditation, authorization to operate in various states, activities, receipt of funds under tuition assistance programs of the United States Armed Forces, our ability to participate in Title IV Programs, receipt of veterans education benefits funds, or costs of doing business. Pending changes in, or new interpretations of, applicable laws, regulations, standards, or policies, or our noncompliance with any applicable laws, regulations, standards, or policies, could have a material adverse effect on our accreditation, authorization to operate in various states, activities, receipt of funds under tuition assistance programs of the United States Armed Forces, our ability to participate in Title IV Programs, receipt of veterans education benefits funds, or costs of doing business. Findings of noncompliance with these laws, regulations, standards and policies also could result in our being required to pay monetary damages, or subjected to fines, penalties, injunctions, limitations on our operations, termination of our ability to grant degrees, revocation of our accreditation, restrictions on or loss of our access to Title IV Program funds or other censure that could have a material adverse effect on our business.If we do not maintain authorization in Arizona, Florida, Texas, Tennessee, Georgia and California and future states where we plan to have campuses, our operations would be curtailed, and we would not be able to grant degrees.If we do not maintain authorization in Colorado, Arizona, Florida, Texas, Tennessee, and California and future states where we plan to have campuses, our operations would be curtailed, and we would not be able to grant degrees. Aspen University is headquartered in Arizona and is authorized by the Arizona Board to grant degrees, diplomas or certificates.Aspen University is headquartered in Colorado and is authorized by the Colorado Commission and the Arizona Board to grant degrees, diplomas or certificates. Aspen’s BSN Pre-Licensure hybrid program is authorized by the Texas Board, Tennessee Commission, Georgia Commission and Florida Commission. Aspen’s BSN Pre-Licensure hybrid program is authorized by the Texas Board, Tennessee Commission, and Florida Commission. If Aspen were to lose its authorization from the Arizona Board, Texas Board, Tennessee Commission, Georgia Commission or Florida Commission, Aspen would be unable to provide educational services in Arizona, Texas, Tennessee, Georgia and Florida and would lose its access to accreditation and eligibility to participate in the Title IV Programs. If Aspen were to lose its authorization from the Colorado 31Table of ContentsCommission, Arizona Board, Texas Board, Tennessee Commission, or Florida Commission, Aspen would be unable to provide educational services in Colorado, Arizona, Texas, Tennessee, and Florida and would lose its access to accreditation and eligibility to participate in the Title IV Programs. USU is headquartered in California and is authorized by the California Bureau to grant degrees, diplomas or certificates. USU is headquartered in California and is authorized by the California Bureau and Arizona Board to grant degrees, diplomas or certificates. If USU were to lose its authorization from the California Bureau or Arizona Board, it would be unable to provide educational services in California and would lose access to accreditation and its eligibility to participate in the Title IV Programs. If USU were to lose its authorization from the California Bureau or Arizona Board, it would be unable to provide educational services in California and Arizona and would lose access to accreditation and its eligibility to participate in the Title IV Programs. See the risk factor relating to our operations in Arizona at page 23.Our failure to comply with regulations of various states could have a material adverse effect on our enrollments, revenues, and results of operations.Various states impose regulatory requirements on education institutions operating within their boundaries. Many states assert jurisdiction over online education institutions that have no physical location or other presence in the state but offer education services to students who reside in the state or advertise to or recruit prospective students in the state. State regulatory requirements for online education are inconsistent among states and not well developed in many jurisdictions. As such, these requirements change frequently and, in some instances, are not clear or are left to the discretion of state regulators.State laws typically establish standards for instruction, qualifications of faculty, administrative procedures, marketing, recruiting, financial operations, and other operational matters. To the extent that we have obtained, or obtain in the future, state authorizations or licensure, changes in state laws and regulations and the interpretation of those laws and regulations by the applicable regulators may limit our ability to offer educational programs and award degrees. Some states may also prescribe financial regulations that are different from those of the DOE. If we fail to comply with state licensing or authorization requirements, we may be subject to the loss of state licensure or authorization. If we fail to comply with state requirements to obtain licensure or authorization, we may be the subject of injunctive actions or other penalties or fines. Loss of licensure or authorization or the failure to obtain required licensures or authorizations could prohibit us from recruiting or enrolling students in particular states, reduce significantly our enrollments and revenues and have a material adverse effect on our results of operations.In addition, the DOE’s 2016 regulations for distance education ultimately took effect on May 26, 2019. On November 1, 2019, the Department issued the Final Regulations on accreditation and the authorization of distance education, which took effect July 1, 2020. Like the 2016 regulations, the Final Regulations require us to (i) obtain authorization to offer our programs from each state where authorization is required or through participation in a reciprocity agreement, and (ii) provide specific consumer disclosures regarding our educational programs, including both general and direct disclosures to current and prospective students relating to professional licensure and whether the curriculum for on-ground and online professional licensure or certification programs meet states’ educational requirements for licensure. If we fail to obtain required state authorization to provide postsecondary distance education in a specific state, we could lose our ability to award Title IV aid to students within that state or be required to refund Title IV funds related to jurisdictions in which we failed to have state authorization. We must be able to document state approval for distance education if requested by the DOE. In addition, effective with the DOE’s new state authorization regulations in effect as of July 1, 2020, the consumer disclosures required pursuant to the distance education rule are detailed and include disclosures regarding licensure and certification requirements, state authorization, student complaints, adverse actions by state and accreditation agencies, and refund policies. These disclosure requirements will require a considerable amount of data gathering needed to support such disclosures and will require our institutions to closely track where students enrolled in online programs are located during the course of their studies. These various disclosure requirements could subject us to financial penalties from the DOE and heightened the risk of potential federal and private misrepresentation claims. 36Table of Contents Moreover, in the event we are found not to be in compliance with a state’s new or existing requirements for offering distance education within that state, the state could seek to restrict one or more of our business activities within its boundaries, we may not be able to recruit students from that state, and we may have to cease providing service to students in that state. Moreover, in the event we are found not to be in compliance with a state’s new or existing requirements for offering distance education within that state, the state could seek to restrict one or more of our business activities within its boundaries, we may not be able to recruit students from that state, and we may have to cease providing service to students in that state. In addition, a state may impose penalties on an institution for failure to comply with state requirements related to an institution’s activities in a state, including the delivery of distance education to persons in that state. In addition, if Aspen University is unable to re-join or is found not to be in compliance with applicable eligibility criteria, including requirements related to financial responsibility that require institutions to maintain a composite score of 1. In addition, if Aspen University is found not to be in compliance with SARA’s eligibility criteria, including requirements related to financial responsibility that require institutions to maintain a composite score of 1. 0 or higher, Aspen University could become ineligible to participate in interstate reciprocity programs such as SARA.0 or higher, Aspen University could become ineligible to participate in SARA. Even if Aspen University again participates in SARA as discussed on Page 8, if Aspen University fails to meet such eligibility criteria and can no longer participate in SARA or similar programs, Aspen University would need to comply with each state’s requirements for offering distance education in that state, which could lead to disruptions in enrollments and operations and additional costs while Aspen University obtains any necessary authorizations. Further, the required criteria could be altered in a manner rendering it more costly or difficult for us to comply, which would jeopardize our ability to operate as we have historically or as planned.If the DOE determines that borrowers of federal student loans who attended our institutions have a defense to repayment of their federal student loans, our institution’s repayment liability to the DOE could have a material adverse effect on our enrollments, revenues and results of operations.The DOE’s 2016 BDTR regulations, effective for federal Direct Loans disbursed between July 1, 2017, and June 30, 2020, as well as the new 2019 BDTR Rule, effective for loans disbursed after July 1, 2020, as well as the anticipated 2022 version of the BDTR, provide borrowers of loans under the Direct Loan program a defense against repayment under certain circumstances outlined in each rule.The DOE’s 2016 BDTR regulations, effective for federal Direct Loans disbursed between July 1, 2017 and June 30, 2020, as well as the new 2019 BDTR Rule, effective for loans disbursed after July 1, 2020, provide borrowers of loans under the Direct Loan program a defense against repayment under certain circumstances outlined in each rule. In the event the borrower’s defense against repayment is successful, DOE has the authority to discharge all or part of the student’s obligation to repay the loan and may require the institution to repay to DOE the amount of the loan to which the defense applies.Under the 2016 BDTR Rule, there are three grounds for a borrower defense to repayment claim, for loans disbursed between July 1, 2017 and June 30, 2020: (1) the student borrower obtained a state or federal court judgment against the institution; (2) the institution failed to perform on a contract with the student; and/or (3) the institution committed a “substantial misrepresentation” on which the borrower reasonably relied to his or her detriment. Claims based on a court judgment or claims to assert a defense against loan payments that are still due can be made any time (with no statute of limitations), while other claims (such as to recoup loan funds already repaid to DOE) must be made within six years. For loans disbursed after July 1, 2020, the basis for a BDTR claim will be limited to a misrepresentation claim, under the DOE’s 2020 definition, and generally, the claim must be made within three years of the borrower’s last date of enrollment. For loans disbursed after July 1, 2020, the basis for a BDTR claim will be limited to a misrepresentation claim, under the DOE’s new definition, and generally, the claim must be made within three years of the borrower’s last date of enrollment. As noted under “Regulations” on page 13, the 2022 version of the Rule is currently with OIRA/OMB and is not public. However, based on information available to us regarding the 2021 negotiations we believe that the new BDTR rule will likely expand the bases for borrower claims to include the original three bases from the 2016 BDTR Rule, as well as additional bases. Additionally, DOE indicated it wanted to apply the new BDTR rules to all borrower defense claims to alleviate the challenge of trying to process claims under multiple versions of the Rule. The DOE also indicated it planned to update definitions, reinstitute the group claim process, and remove all statutes of limitations on borrower claims, as long as borrowers still have an outstanding balance on a Direct Loan.Claim resolution process: Under the 2016 Rule, the DOE has also given itself authority to process claims on a group basis, and to take the initiative to create groups and include borrowers who have not filed a claim. In addition, under the 2016 Rule, the DOE has also given itself authority to process claims on a group basis, and to take the initiative to create groups and include borrowers who have not filed a claim. Borrowers who file successful claims may have their loans forgiven in whole or in part, with the DOE reserving the right to calculate the amount of forgiveness in various ways. As noted above, the 2019 BDTR Rule removed the group claim option, and the discussion proposal provided during negotiated rulemaking in late 2021 would add the group claim process back into the Rule. As noted above, the 2019 BDTR Rule removes the group claim option, but DOE will continue to evaluate student claims individually and make determinations about the borrower’s relief. For debts relieved for individual borrowers, the prior regulations and the pending proposal give the DOE the authority to initiate a proceeding to seek repayment from the institution for any loan amounts forgiven. For debts relieved for individual borrowers, both the 2016 and 2019 regulations give the DOE the authority to initiate a proceeding to seek repayment from the institution for any loan amounts forgiven. If the DOE determines that borrowers of Direct Loan program loans who attended Aspen University or USU have a defense to repayment of their Direct Loan program loans based on our acts or omissions, the repayment liability to the DOE could have a material adverse effect on our financial condition, results of operations and cash flows. In addition, excessive BDTR claims could become a “financial trigger” under the Financial Responsibility regulations, based on the proposal discussed during negotiated rulemaking. In such circumstances, the DOE could determine that we are not financially responsible, resulting in a requirement that we post an additional letter of credit, possible negative impacts on the status of our Title IV program participation agreement, additional reporting, growth limitations, and a change to a more stringent funding process, such as Heightened Cash Monitoring II or “reimbursement.If our institutions experience a “financial trigger” event as defined in the 2019 BDTR Rules, DOE could determine that we are not financially responsible, resulting in a requirement that we post an additional letter of credit, possible negative impacts on the status of our Title IV program participation agreement, additional reporting, growth limitations, and a change to a more stringent funding process, such as Heightened Cash Monitoring II or “reimbursement. ” The financial responsibility regulations include numerous operational or financial events that would potentially indicate that the institution will have difficulty meeting its financial or administrative obligations.” Both 2019 BDTR Rules amend the financial responsibility regulations to describe numerous operational or financial events that would potentially indicate that the institution will have difficulty meeting its financial or administrative obligations. If one of the enumerated triggering events 37Table of Contents occur, the institution is required to report to DOE according to the reporting requirements included in the regulation. If one of the enumerated triggering events occur, the institution is required to report to DOE according to the reporting requirements included in the regulation. We fully expect the list of triggers will grow substantially in the anticipated 2022 BDTR Rule. For certain of the triggers, the DOE assesses the potential liability or fiscal impact reported and recalculates the institution’s composite score. For certain of the triggers, the DOE will assess the potential liability or fiscal impact reported and recalculate the institution’s composite score. If the institution’s composite score drops below 1.0, the DOE may require the institution to provide additional surety to continue Title IV participation. The regulations (both current and expected) also include “discretionary trigger” events or conditions that institutions must report, and which the DOE will review to determine whether they are reasonably likely to have a materially adverse effect on the institution’s fiscal or operational condition. The regulations also include “discretionary trigger” events or conditions that institutions must report, and which the DOE will review to determine whether they are reasonably likely to have a materially adverse effect on the institution’s fiscal or operational condition. If based on these events and the DOE’s assessment, it is determined that the institution is not financially responsible, DOE will require the institution to become provisionally certified and post a letter of credit in an amount specified, generally at least 10% of the Title IV funds received in the most recent fiscal year. The institution and the DOE may also agree to an offset of the institution's future Title IV funds for six to 12 months until the DOE is able to capture the amount of the surety required. If Aspen University or USU were to experience an event that the DOE determines is an indication that either institution is not financially responsible, we could be forced to post letter(s) of credit which could have material adverse effects on our financial condition, results of operations and cash flows. If Aspen University or USU were to experience an event that the DOE determines is an indication that either institution is not financially responsible, we could be forced to post letter(s) of credit and be moved to provisional certification, both of which could have material adverse effects on our financial condition, results of operations and cash flows. The 2016 BDTR Rule had included a prohibition on mandatory pre-dispute arbitration clauses and class action waivers as means to resolve a borrower defense-related claim (meaning related to the making of a Direct Loan or the educational services for which the Direct Loan was issued). Under the 2016 Rule, institutions were required to amend their arbitration and class action waiver agreements to include mandatory DOE language, and to provide notice to students under previous (non-compliant) versions of these agreements that the institution would not compel the borrower to arbitrate their claim or waive the right to join a class action for similar types of claims. Students who borrowed through the Direct Loan program between July 1, 2017 and June 30, 2020 cannot be compelled to bring an action in arbitration or waive their right to be a member of a class action lawsuit against Aspen University or USU, if the basis of the borrower’s claim is rooted in the making of the Direct Loan or the educational services it paid for. In addition, under the 2016 Rule, institutions were required to report and provide DOE with arbitral and judicial records when a student files a borrower defense-related claim.Under the 2019 BDTR Rule, which became effective on July 1, 2020, pre-dispute arbitration agreements and class action waivers are no longer prohibited. Institutions that opt to use these types of agreements will be required to provide “plain language” disclosures that explain arbitration and class action, and make those disclosures publicly available on the institution’s admission webpage.During the 2021 negotiated rulemaking, the DOE indicated its intent to reinstate the 2016 prohibition on the use of pre-dispute arbitration and class actions waivers as enrollment contract conditions. It is unclear whether this proposal was included in the packages that have been sent to OIRA/OMB, as it was negotiated separately instead of as an element of the BDTR rules, as had been the case in prior rounds. If we fail to maintain our institutional accreditations, we would lose our ability to participate in the tuition assistance programs of the U.If we fail to maintain our institutional accreditations, we would lose our ability to participate in the tuition assistance programs of the U. S. Armed Forces and also to participate in Title IV Programs.Aspen University is accredited by the DEAC and USU is accredited by WSCUC. Both the DEAC and WSCUC are institutional accreditors and recognized by the U.S. Secretary of Education for Title IV purposes. Accreditation by an accrediting agency that is recognized by the Secretary of Education is required for an institution to become and remain eligible to participate in Title IV Programs as well as in the tuition assistance programs of the United States Armed Forces. The DEAC or WSCUC may impose restrictions on our accreditation or may terminate our accreditation. To remain accredited, we must continuously meet certain criteria and standards relating to, among other things, performance, governance, institutional integrity, educational quality, faculty qualification, administrative capability, resources and financial stability. Failure to meet any of these criteria or standards could result in the loss of accreditation at the discretion of the accrediting agency. The loss of accreditation would, among other things, render our students and us ineligible to participate in the tuition assistance programs of the U.S. Armed Forces or Title IV Programs and have a material adverse effect on our enrollments, revenues and results of operations. In addition, although the loss of accreditation by one school would not necessarily result in the loss of accreditation by the other school, the accreditor may consider the loss of accreditation by one school as a factor in considering the on-going qualification for accreditation of the other school.Because we participate in Title IV Programs, our failure to comply with the complex regulations associated with Title IV Programs would have a significant adverse effect on our operations and prospects for growth.38Table of Contents Aspen University and USU participate in Title IV Programs. Compliance with the requirements of the Higher Education Act and Title IV Programs is highly complex and imposes significant additional regulatory requirements on our operations, which require additional staff, contractual arrangements, systems and regulatory costs. We have a limited demonstrated history of compliance with these additional regulatory requirements. If we fail to comply with any of these additional regulatory requirements, the DOE could, among other things, impose monetary penalties, place limitations on our ability to access Title IV funds, and/or condition or terminate the eligibility of one or both of our schools to receive Title IV Program funds, which would limit our potential for growth and materiality and adversely affect our enrollment, revenues and results of operations. In addition, the failure to comply with the Title IV Program requirements by one institution could increase the DOE's scrutiny of the other institution and could impact the other institution’s participation in the Title IV Programs.We must regularly reestablish our eligibility and certification to participate in the Title IV Programs, and there are no assurances that the DOE will recertify us to participate in the Title IV Programs.An institution generally must seek re-certification from the DOE at least every six years and possibly more frequently depending on various factors. In certain circumstances, the DOE provisionally certifies an institution to participate in Title IV Programs, such as when it is an initial participant in Title IV Programs or has undergone a change in ownership and control.On May 14, 2019, United States University was granted temporary provisional approval to participate in the Title IV Programs and had a program participation agreement reapplication date of December 31, 2020, which it met.34Table of ContentsOn May 14, 2019, United States University was granted temporary provisional approval to participate in the Title IV Programs and had a program participation agreement reapplication date of December 31, 2020, which it met. As part of the provisional approval, USU posted a letter of credit in the amount of $255,708 which was funded by AGI. USU was notified that amount would be reduced to $9,872 and that the reduced amount would remain in effect for the duration of the provisional approval. On May 6, 2022, the DOE fully certified USU and issued a new Program Participation Agreement, effective through December 31, 2025, thereby removing the provisional status of its participation. USU is working with the DOE to address the outstanding LOC. Under provisional certification, an institution must obtain prior DOE approval to add an educational program or make other significant changes and may be subject to closer scrutiny by the DOE. In addition, if the DOE determines that a provisionally certified institution is unable to meet its responsibilities to comply with the Title IV requirements, the DOE may revoke the institution’s certification to participate in the Title IV Programs without advance notice or opportunity to challenge the action. If the DOE does not ultimately approve an institution's recertification to participate in Title IV Programs, students would no longer be able to receive Title IV Program funds. If this scenario were to affect us, it would have a material adverse effect on our enrollments, revenues and results of operations.Our failure to comply with regulations of various states could have a material adverse effect on our enrollments, revenues, and results of operations. In addition, regulatory restraints related to the addition of new programs or substantive change of existing programs or imposition of an additional letter of credit could impair our ability to attract and retain students and could negatively affect our financial results.Because the DOE may conduct compliance reviews of us, we may be subject to adverse actions and future litigation which could affect our ability to offer Title IV student loans.Because we operate in a highly regulated industry, we are subject to compliance reviews and claims of non-compliance and lawsuits by government agencies, regulatory agencies, and third parties, including claims brought by third parties on behalf of the federal government. If the results of compliance reviews or other proceedings are unfavorable to us, or if we are unable to defend successfully against lawsuits or claims, we may be required to pay monetary damages or be subject to fines, limitations, loss of Title IV funding, injunctions or other penalties, including the requirement to make refunds.