UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-K

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended August 31, 2016

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

 

Commission file number: 333-184796

 

 

Greenwood Hall, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada	99-0376273
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
12424 Wilshire Blvd., Suite 1030, Los Angeles,	90025
California	(Zip Code)
(Address of principal executive offices)

 

Registrant’s telephone
number (310) 905-8300

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act: None

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ¨ No x

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company x
(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

As of November 29, 2016, there were 58,741,683 shares of the issuer’s $.001 par value common stock issued and outstanding. No market value has been computed based upon the fact that no active trading market had been established as of the last business day of the registrant’s most recently completed second fiscal quarter.

 

 

DOCUMENTS INCORPORATED BY REFERENCE

 

None.

 

 

 

 

GREENWOOD HALL, INC.

TABLE OF CONTENTS

 

Cautionary Statement Regarding Forward-Looking Statements		1
Item 1. Business		1
Item 1A. Risk Factors		8
Item 1B. Unresolved Staff Comments		20
Item 2. Properties		20
Item 3. Legal Proceedings		20
Item 4. Mine Safety Disclosures		21
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		21
Item 6. Selected Financial Data		22
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk		33
Item 8. Financial Statements		34
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		56
Item 9A. Controls and Procedures		56
Item 9B. Other Information		56
Item 10. Directors, Executive Officers and Corporate Governance		56
Item 11. Executive Compensation		61
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		67
Item 13. Certain Relationships and Related Transactions, and Director Independence		67
Item 14. Principal Accountant Fees and Services		69
Item 15. Exhibits		70

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This report contains forward-looking statements. These statements are based on the current beliefs, expectations and assumptions of Greenwood Hall, Inc., a Nevada corporation (herein after referred to as the “Company”, “Greenwood Hall”, “we”, “us” or “our”, as applicable), about future events, conditions and results based on information currently available to us. All statements included herein, other than statements of historical fact, regarding the Company’s strategy, future operations, financial position, future revenues, projected costs, plans, prospects and objectives are forward-looking statements. Words such as “expect”, “may”, “anticipate”, “intend”, “would”, “plan”, “believe”, “estimate”, “should” and similar words and expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements. Forward-looking statements in this report include express or implied statements concerning the Company’s future revenues, expenditures, capital or other funding requirements, the adequacy of the Company’s current cash and working capital to fund present and planned operations and financing needs, expansion of and demand for product offerings and the growth of the Company’s business and operations through acquisitions or otherwise, as well as future economic and other conditions both generally and in the Company’s specific geographic and product markets. These statements are based on currently available operating, financial and competitive information and are subject to various risks, uncertainties and assumptions that could cause actual results to differ materially from those anticipated or implied in the forward-looking statements due to a number of factors, including, but not limited to, those set forth below in the section entitled “Risk Factors and Special Considerations” in this report. Given those risks, uncertainties and other factors, many of which are beyond the Company’s control, you should not place undue reliance on these forward-looking statements.

 

The forward-looking statements relate only to events as of the date on which the statements are made. Neither the Company nor PCS Link, a wholly owned subsidiary of Greenwood Hall (“PCS Link”), undertakes any obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, even if experience or future changes make it clear that any projected results or events expressed or implied therein will not be realized. You are advised to consult any further disclosures the Company makes in future public filings, statements and press releases.

 

ITEM 1. BUSINESS

 

Our Mission

 

Our corporate mission is to enable colleges and universities to remain relevant by helping them expand access to personalized educational opportunities that are flexible and affordable, and to prepare students for career opportunities. We assist schools in maximizing the student experience and driving successful student outcomes while leveraging technology to help reinvent their operating and financial models.

 

We provide cloud-based education management services that address the entire student lifecycle. Our solutions combine strategy, people, proven processes and robust technology to provide end-to-end services that begin with recruitment and student enrollment and can end with post-graduation job placement, career networking and alumni relations. Our solutions are utilized by schools that need to enhance the student experience and are looking to expand into new markets such as online learning, international and/or competency-based learning. All of our solutions are designed to help public and not-for-profit higher education institutions generate sustainable improvements in operating and financial results, while improving student success and satisfaction.

 

Our core services include: (a) enrollment management solutions, including lead generation/marketing, prospective student qualification, new student recruitment and enrollment counseling; (b) retention counseling/coaching and the reengagement of students who have dropped out of a particular institution; and (c) student support solutions, including help desk, career advising, student concierge and financial aid advising services. In conjunction with or prior to providing the aforementioned core services, the we also provide (x) consulting services, including market assessments and analysis of internal operational efficiency; and (y) various data and technology enabled solutions that enable school clients to better manage/analyze data, deliver instruction to students (online, hybrid and classroom) and make certain institutional decisions; and (z) management services. In addition to services provided to educational institutions, we provide donor lifecycle management services to various major non-profit organizations. The lifecycle management services for non-profit organizations are mainly related to legacy operations of our Company prior to entering the education marketplace in 2006.

 

We believe that our end-to-end solutions that span the entire student lifecycle provide us with an advantage over competing providers that often address isolated segments of the student lifecycle spectrum, such as student acquisition and student retention. We generally focus on small to medium-sized private and not-for-profit institutions and medium-sized to large public institutions.

 

 

We have a demonstrated track record of helping higher education clients improve their operating and financial performance while improving student outcomes. Since 2006, we have helped colleges and universities generate or retain in excess of $300 million in college tuition revenue by custom tailoring our solutions to each institution’s requirements and organizational structure.

 

The measured benefits of our clients include:

 

·

Generating more than 31,000 new enrollments;

 

·

Securing more than 27,400 continuing enrollments;

 

·

Generating over 400% return on investment for one major national university on a student retention initiative;

 

·

Reducing the cost of student services by an average of 41% (excluding intangible costs); and

 

·

Producing an average client return of 35%-50% on investment using our solutions.

 

Our key achievements since 2006 include:

 

·

Serving more than 600,000 traditional and non-traditional students (adult learners/online students);

 

·

Managing more than 7.6 million student inquiries and transactions; and

 

·

Responding to 90% of all inquiries for student service (admissions, financial aid and other student services) compared to an average of fewer than 65%, in certain cases where institutions handled their own inquiries.

 

Our Company is built on a strong foundation of experience. We have an operating history of over 18 years in providing mission critical lifecycle management solutions to leading non-profit ogranizations such as the American Red Cross, Habitat For Humanity and NBC Red Nose Day. During that time, we have generated more than $1.2 billion in aggregate donor contributions for non-profit clients. In 2006, we entered the education sector by leveraging our know-how in serving non-profit organizations and our highly differentiated model for the benefit of higher education clients. We remain committed to providing services to the non-profit sector, but expect the majority of future revenue will continue to come from the education sector.

 

We have a growing list of clients that include many prestigious colleges and universities, most of which are non-profit institutions. As of November 30, 2016, we have served more than 60 education clients and more than 75 individual degree programs since entering the education sector. Among these notable institutions include the University of Alabama, Pepperdine University, University of Massachusetts, Texas Tech University, Saint Leo University, Concordia University, Simmons College, University of Mississippi, University of Houston and the University of Maine. During 2016, we served the following new clients: University of Arizona, University of Oklahoma, College of Southern Nevada, Nevada State College, Concordia University, Technical College of the Low Country, Oklahoma City Community College, Rowan-Cabarrus Community College, Cleary University, Tri County Technical College and San Juan Community College. The Company also expanded relationships with Troy University, Spartanburg Technical Community College, Greenville Technical College and Red Nose Day USA, organized by Comic Relief Inc. in partnership with NBCUniversal, Inc. Several of our contracts are fixed-fee, subscription-based, annual or multi-year contracts that generate recurring monthly revenue. The remaining contracts are negotiated at an agreed-upon rate, based on the volume of services provided, most of which have at least a one-year term and minimum revenue guarantees. Over the past four years, we have enjoyed a 100% renewal rate among our state school contracts that go through the formal renewal bid process.

 

We believe that our business is well positioned for growth with an unparalleled technology and services delivery platform that supports the entire student lifecycle. We have a multi-pronged growth strategy that includes adding new clients and expanding our solution offerings to existing clients. To execute our growth strategy, we expanded our sales force and thought leadership through presentations at industry conferences to develop relationships that drive our business. We also plan to enhance our offerings through additional “software as a service” and other technology offerings aimed at supporting student engagement and success.

 

Our Company has a strong operational infrastructure to support continued growth. Our technology-enabled platform is capable of handling millions of inquiries, we operate state-of-the-art education service centers and our cloud-based technology platform supports multilingual inbound and outbound calls, email inquiries, web chat, click-to-chat, text messaging and instant messaging twenty-four hours per day, seven days per week. Our platform is technology-agnostic and can be easily incorporated with any client technology that comes with a client engagement.

 

 

Our Company is headquartered in Los Angeles, California, and we have facilities and offices in Phoenix, Arizona and College Station, Texas.

 

We generate revenue by charging recurring (subscription) and transactional fees associated with the specific services we provide to our customers. Our most significant expenses are employee compensation, sales and marketing, developing and maintaining facilities and technology and debt service.

 

Market Overview and Opportunities

 

Based on a report released in September 2014, by Eduventures, a research and advisory firm focused on higher education, estimates that the near-term addressable market for student lifecycle management services and technology exceeds $20 billion in the higher education market alone. As of August 31, 2016, we have market penetration of less than 1% of the more than 4,700 not-for-profit colleges and universities in the United States. Our low-level of current market penetration creates a sizable opportunity for Greenwood Hall and positions us for revenue growth.

 

The market for higher education management services is currently ripe for disruption due to declining enrollment at many not-for-profit institutions, which has increased the cost per enrolled student in some instances. Additionally, due to shifts in how students want their education delivered, many institutions are facing new challenges in enrolling, engaging and retaining students. More students are seeking solutions that provide flexible access to education, meet affordability requirements, help accomplish education and career goals and meet their return-on-investment expectations given tuition costs. Among the trends driving these changes include the proliferation of cost-effective mobile devices and social media, broad availability of data (including predictive analytics and more data-based decision making), greater flexibility in the delivery of education (including online, on-campus and mobile) and students’ desire for more personalized support. Most colleges and universities do not have the resources (human capital, technology or financial) or know-how to effectively meet these challenges.

 

Longer-term market trends for growth bode well for our Company due to increasing demand for post-secondary education. Additionally, it is expected that the economy will create 55 million job openings by 2020, 65% of which will require postsecondary education. (Source: Georgetown University Center on Education and the Workforce).

 

Subsequent Events

 

The following events occurred after August 31, 2016, through November 29, 2016.

 

On September 2, 2016, the Company entered into a Services Agreement with Fourth Quadrant, Inc., pursuant to which the Company will provide education management services to Marian University in Indianapolis, Indiana.

 

On October 14, 2016, the Company entered into a Loan and Security Agreement (“Loan Agreement”) with PCS Link, Inc., a California corporation and the Company’s wholly-owned subsidiary (“PCS”), and Moriah Education Management, LLC, a Delaware limited liability company (“Moriah”), pursuant to which Moriah granted a loan to PCS in exchange for a promissory note in the principal amount of $3,500,000 (“Moriah Loan”). The Company also entered into a Stock Pledge Agreement (the “Stock Pledge Agreement”) with Moriah, pursuant to which the Company pledged 1,007,920 shares of common stock of PCS held by the Company, representing 100% of the issued and outstanding shares of common stock of PCS, and (ii) John R. Hall, the Chief Executive Officer of the Company and the Chief Executive Officer of PCS, executed a personal guaranty (the “Personal Guaranty”), to secure PCS’ obligations under the Loan Agreement. In connection with the Loan Agreement, on October 14, 2016, the Company and Moriah entered into a Securities Issuance Agreement pursuant to which the Company issued a five-year warrant to purchase 8,125,000 shares of the Company’s common stock at a price of $0.14 per share and a seven-year warrant to purchase 3,500,000 shares of the Company’s common stock at a price of $0.12 per share. The warrants were issued in reliance on Section 4(a)(2) of the Securities Act of 1933. On October 14, 2016, in consideration for the Personal Guaranty, the Company issued to John Hall, its Chief Executive Officer, a five-year warrant to purchase up to 5,000,000 shares of common stock of the Company at a price of $0.10 per share. The warrants were issued in reliance on Section 4(a)(2) of the Securities Act of 1933.

 

 

In connection with the Moriah Loan, the Company entered into a Note Purchase and Restructuring Agreement, dated September 30, 2016, with Redwood Fund LP (“Redwood”), pursuant to which Redwood agreed to (i) forgive all amounts owed to Redwood under that certain convertible promissory note issued on November 6, 2015 with a principal amount of $125,000 and all amounts owed to Redwood under that certain convertible promissory note issued on December 14, 2015 with a principal amount of $30,000, (ii) consolidate all other indebtedness owed by the Company to Redwood in exchange for $300,000 (the “Additional Funding”), and (iii) accept from the Company a promissory note (“September 2016 Promissory Note”) in the principal amount of $1,418,496.92, representing such consolidated indebtedness and Additional Funding at an original issue discount of 15%. The September 2016 Promissory Note shall be due and payable on the first anniversary thereof. In further connection with the Moriah Loan, the Company, Moriah and Redwood entered into a Subordination Agreement, dated October 14, 2016, pursuant to which Redwood agreed to subordinate all indebtedness owed thereto so long as any obligations of the Company owed to Moriah under the Loan Agreement remain outstanding; provided, however, that the Company may continue to make regular payments of interest under the September 2016 Promissory Note.

 

In connection with the Moriah Loan, the Company entered into an Exchange Agreement, dated October 14, 2016, with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which the Company authorized the issuance to Lincoln Park new notes (the “September 2016 Lincoln Park Notes”) in the respective principal amounts of $685,000 and $250,000, and corresponding warrants exchange for the cancellation of any and all obligations under notes and warrants issued by the Company to Lincoln Park pursuant to note purchase agreements dated April 24, 2015 and August 21, 2015. In further connection with the Moriah Loan, the Company, Moriah and Lincoln Park entered into a Subordination Agreement, dated October 14, 2016, pursuant to which Lincoln Park agreed to subordinate all indebtedness owed thereto so long as any obligations of the Company owed to Moriah under the Loan Agreement remain outstanding; provided, however, that the Company may continue to make regular payments of interest under the September 2016 Lincoln Park Notes.

 

On October 14, 2016, in connection with the Moriah Loan, the Company amended and restated that certain secured promissory note, dated December 23, 2013 (as amended, amended and restated, supplemented or otherwise, modified, the “2013 Colgan Note”) (the “2013 Colgan Amended Note”), in a principal amount equal to $840,892.80, representing the outstanding balance of the 2013 Colgan Note, less $150,000 paid by the Company to Colgan Financial Group, Inc. (“CFG”) and Robert Logan (together with CFG, the “Colgan Investor”). On the effective date of the 2013 Colgan Amended Note, in connection with the Moriah Loan, the Company amended and restated that certain secured convertible promissory note, dated December 5, 2014 (as amended, amended and restated, supplemented or otherwise modified, the “2014 Colgan Note”) (the “2014 Colgan Amended Note”), to extend the exercise period of any stock purchase warrants issued to the Investor in connection with the 2014 Colgan Note to five years following the issuance of the 2014 Colgan Amended Note in a principal amount equal to $400,000. In further connection with the Moriah Loan, the Company, Moriah and CFG entered into a Subordination Agreement, dated October 14, 2016, pursuant to which CFG agreed to subordinate all indebtedness owed thereto so long as any obligations of the Company owed to Moriah under the Loan Agreement remain outstanding; provided, however, that the Company may continue to make regular payments of interest under the 2013 Colgan Amended Note and 2014 Colgan Amended Note.

 

On October 14, 2016, in connection with the Moriah Loan, the Company entered into certain payoff and settlement agreements (“Payoff Agreements”) with Opus Bank (“Opus”) and California United Bank (“CUB”). In accordance with the Payoff Agreements, the Company (a) issued to Opus a five (5) year warrant for the purchase of 2,000,000 shares of the Company’s common stock with an exercise price of $ 0.10 per share, and (b) amended the exercise price of a warrant issued to CUB on December 14, 2015 for the purchase of 523,587 shares of the Company’s common stock from $ 1.00 per share to $ 0.10 per share.

 

On October 28, 2016, Seminole State College in Sanford Florida extended its services agreement with the Company through April 30, 2017.

 

On November 1, 2016, Michael Sims and Matthew Toledo notified the Company and the Company’s Board of Directors (the “Board”) of their resignations as directors on the Board, effective November 1, 2016. The resignations of Mssrs. Sims and Toledo were not due to any disagreements relating to the operations, policies or practices of the Company.

 

On November 1, 2016, we entered into an amendment to our services agreement with the University of Alabama to extend the agreement through December 31, 2017.

 

On November 4, 2016, we entered into an amendment to our services and subscription agreement with Troy University in Troy, Alabama to extend the agreement through December 31, 2017.

 

On November 22, 2016, Frederic Boyer tendered to the Company a written resignation (the “Resignation”) as director on the Board, effective immediately, in which Mr. Boyer expressed disagreement with certain management practices as it related to the Board of Directors. A copy of the Resignation is filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on November 29, 2016.

 

On November 28, 2016, the Company announced it had entered into an agreement with Borough of Manhattan Community College to provide various advisory services.

 

On November 28, 2016, the Board of Directors appointed Michael Poutre II, Cary Sucoff and Jerry Rubinstein to the Board of Directors, effective as of December 7, 2016.  

 

 

Our Solutions

 

We offer cloud-based, end-to-end solutions that address the pressures that make the efficient management of the student lifecycle among the most critical priorities for higher education institutions today. We believe we are uniquely qualified to help institutions of higher learning face these dynamic changes due to our comprehensive student lifecycle management solutions. We have a demonstrated track record of generating results as well as financial and operational improvement for colleges and universities in multiple sectors, a proven and scalable operating model and a clearly defined technology roadmap to expand our service offerings.

 

Our solutions have helped our clients to improve student recruitment and retention, increase revenue and reduce costs, enhance student satisfaction, better understand students’ needs, provide students with support twenty-four hours per day, seven days per week, launch online learning enterprises and compete with larger or more well-known schools.

 

We have a competitive advantage in offering a unique, comprehensive student lifecycle management solution that combines technology, processes, strategy and people. We take a flexible approach to developing customized programs for each client engagement with the ability to deliver solutions either bundled or unbundled. Additionally, we offer a fee-for-service model, which offers more compatibility with the marketplace than a “tuition sharing” approach.

 

Our Growth Strategy

 

Key initiatives of our growth strategy include (1) expanding direct sales and marketing resources to generate growth from new and existing customers; (2) enhancing and developing new strategic partnerships to expand reach; (3) employing differentiated technologies, including analytics and business intelligence, that aim to maximize student success and enhance experiences while providing our education partners with increased levels of visibility into their student populations; and (4) building on our industry and thought leadership position to create visibility and demand.

 

 

Our Services

 

Key components of our end-to-end student lifecycle management solutions are:

 

·

Student Recruitment & Enrollment – Our Student Recruitment and Enrollment services include interactive and traditional lead-generation as well as end-to-end recruitment solutions for academic programs of all types, including online degree programs. We help clients identify and reach out to qualified potential students, recruit prospective students, provide enrollment counseling and advice on financial aid options and eligibility, guide students through the enrollment process and help to ensure that students have a positive first week experience. From the first interaction with prospective students, our enrollment counselors act as an extension of the client to establish and foster close, collaborative relationships with students. In our experience, these close relationships, which begin in the recruitment process and extend through the entire student lifecycle, result in significantly improved leads to enrollment rates, increased persistence, enhanced student experience and better student outcomes over the long term.

 

·

Retention & Reengagement – Our student retention counselors and success coaches leverage web-based tools and analytics to monitor and assess student progress against their stated education and career goals and provide student-specific advising. Counselors proactively contact their assigned students each term to ensure students register for the next term, have all necessary instructional materials and textbooks, have made any necessary payment arrangements and are current on any financial aid requirements and to offer the necessary support to foster student persistence. In many cases, our counselors also work to reengage students who have left a particular institution or have dropped out of an academic program.

 

·

Student Services - We also offer student concierge services that provide students with personalized support on a wide range of needs including financial aid, payments, registration, help desk, password resets and portal navigation.

 

 

Competition

 

The Company competes with a number of firms directly and indirectly. Key competitors include: 2U, Inc., Embanet-Pearson, Blackboard Inc., Ellucian, Inc., Xerox Higher Education Services, Royall & Company, Keypath Education, Wiley Higher Education Solutions, Instructure, Inc., Ruffalo Noel Levitz, Academic Partnerships, LLC and Global Financial Aid Services, Inc. In many cases, companies serving the marketplace focus on specific services, such as enrollment, online programs, marketing or financial aid. Competitors may also differ based on their revenue and pricing models. While some companies generate revenue based on a percentage of tuition from programs they support for their clients, we employ a fee-for-service model. While Greenwood Hall generally focuses on small to medium-sized private and not-for-profit and medium-sized to large public institutions, the Company is also planning to focus more resources on conducting business with larger private-for-profit institutions and certain select not-for-profit institutions.

 

Customers

 

The Company principally supports post-secondary colleges and universities, primarily in the not-for-profit and public sectors. Current and past education customers include: the University of Alabama, University of Arizona, Concordia University, University of Central Florida, Embry Riddle Aeronautical University, University of the Southwest, Seminole State College, University of South Alabama, Orange Coast Community College, University of Mississippi, Pepperdine University, University of Massachusetts, Simmons College, Texas Tech University, University of Houston and Shorelight Education. Our not-for-profit customers outside of the education market include American Red Cross, NBC Red Nose Day, MarkeTouch Media, Inc. and Patriot Communications, LLC. Currently, our four (4) largest customers account for approximately one-third of our revenue.

 

Government Regulation

 

Higher education is heavily regulated by state and federal governmental , market forces and self-regulation in the form of private accreditation associations of universities, as recognized by the United States Department of Education (the “USDOE”). Accrediting bodies play a significant role in overseeing institutional financial health, operating practices and academic quality. The USDOE supervises these accrediting bodies while playing a major role in regulating the higher education marketplace through the federal government’s involvement in higher education through the issuance and guarantee of student loans as well as direct grant funding. These programs, known as Federal Student Aid (FSA), are regulated under the authority of Title IV of the United States Code. Title IV’s design ensures colleges and universities act as ethical stewards of federal funds. Mainly, it regulates enrollment practices, accountability reporting and, in the case of for-profit institutions, how much of a school’s revenue comes from federal student aid programs. Funding through Title IV is important as it relates to students’ ability to attend college and institutions to operate. The federal government has taken a more involved role in the regulation of higher education over the past six (6) years. With federal education policy focused on increasing college attainment, the likelihood of reduction of overall federal support of higher education is minimal; however, the federal government has begun to fund alternative forms of higher education, including “competency-based” programs, and has indicated a desire to provide funding based on student outcomes. Further, the federal government requires colleges and universities to increase disclosures regarding student experiences and outcomes, implemented a “score card” system that rates post-secondary schools and has enacted regulations that could limit the ability of certain schools to offer certain types of academic programs if they are deemed to not provide a sufficient level of employment and income for students compared to the cost of the program.

 

Employees

 

As of the date of this report, we have 163 employees, all of whom are employed full-time.

 

 

Available Information

 

We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We are not required to deliver an annual report to our security holders, but will provide one voluntarily if a written request is sent to us at our principal executive office at 12424 Wilshire Boulevard, Suite 1030, Los Angeles, California 90024. Reports filed with the SEC pursuant to the Exchange Act, including our annual and quarterly reports, can be inspected and copied on official business days during the hours of 10:00 a.m. to 3:00 p.m. prevailing eastern time at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. Investors may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. Investors can request copies of these documents upon payment of a duplicating fee by writing to the SEC. The reports we file with the SEC are also available on the SEC’s website (http://www.sec.gov ).

 

ITEM 1A. RISK FACTORS

 

Information provided in this report may contain forward-looking statements that reflect management’s current view with respect to future events, the viability or efficacy of our products and our future performance. Such forward-looking statements may include projections with respect to market size and acceptance, revenues and earnings, marketing and sales strategies and business operations, as well as efficacy of our products.

 

We operate in a highly competitive and highly regulated business environment. Our business can be expected to be affected by government regulation, economic, political and social conditions, and other conditions and factors. Our actual results could differ materially from management’s expectations because of changes both within and outside of our control. Due to such uncertainties and the risk factors set forth in this report, prospective investors are cautioned not to place undue reliance upon such forward-looking statements.

 

Going Concern

 

Our financial statements have been prepared on a going concern basis. We must raise additional capital to fund our operations in order to continue as a going concern.

 

Rose, Snyder & Jacobs LLP, our independent registered public accounting firm for the fiscal year ended August 31, 2016, has included an explanatory paragraph in their opinion that accompanies our audited consolidated financial statements as of and for the year ended August 31, 2016, indicating that our current liquidity position raises substantial doubt about our ability to continue as a going concern. If we are unable to improve our liquidity position we may not be able to continue as a going concern. Our ability to raise the capital needed to improve our financial condition may be hindered by the existing anti-dilution protections in existing investor agreements. The accompanying consolidated financial statements do not include any adjustments that might result if we are unable to continue as a going concern and, therefore, be required to realize our assets and discharge our liabilities other than in the normal course of business which could cause investors to suffer the loss of all or a substantial portion of their investment.

 

We currently do not have sufficient sources of liquidity to fund our activities and debt service needs and we will need to raise additional equity or debt capital immediately in order to continue as a going concern and we cannot provide any assurance that we will be successful in doing so.

 

Risks Related to Our Business

 

We have incurred losses for fiscal 2016 and we expect our operating expenses to increase in the foreseeable future, which may make it more difficult for us to achieve and maintain profitability.

 

We are not profitable and have incurred losses in the last fiscal year. Our net loss for the year ended August 31, 2016 was $8.5 million. As of August 31, 2016, we had an accumulated deficit of $13.0 million. We will need to generate and sustain increased revenue levels in future periods in order to become profitable, and even if we do, we may not be able to maintain or increase our level of profitability. We anticipate that our operating expenses will increase substantially in the foreseeable future as we undertake increased technology and production efforts to support a growing number of client programs, and increase our program marketing and sales efforts to drive the increase of universities and colleges utilizing our services. In addition, as a public company, we will incur significant accounting, legal and other expenses that we did not incur as a private company. These expenditures will make it harder for us to achieve and maintain profitability. Our efforts to grow our business may be more costly than we expect, and we may not be able to increase our revenue enough to offset our higher operating expenses. If we are forced to reduce our expenses, our growth strategy could be compromised. We may incur significant losses in the future for a number of reasons, including unforeseen expenses, difficulties, complications and delays and other unknown events. As a result, we can provide no assurance as to whether or when we will again achieve profitability. If we are not able to achieve and maintain profitability, the value of our Company and our Common Stock could decline significantly.

 

Our ability to grow and compete in the future will be adversely affected if adequate capital is not available to us or not available on terms favorable to us.

 

The ability of our business to grow and compete depends on the availability of adequate capital. We cannot be certain that we will be able to obtain equity or debt financing on acceptable terms, or at all, to implement our growth strategy. As a result, we cannot be certain that adequate capital will be available to finance our current growth plans, take advantage of business opportunities or respond to competitive pressures, any of which could harm our business.

 

 

We will need substantial additional funding to continue our operations, which could result in dilution. We may not be able to raise capital when needed, if at all, which would force us to delay, reduce or eliminate our development of new programs or commercialization efforts and could cause our business to have insufficient funding for our current operations.

 

The expansion of our operations and our restructuring have consumed substantial amounts of cash during the last year. We expect to need substantial additional funding to continue to pursue our business and continue with our expansion plans. Furthermore, we expect to incur additional costs associated with operating as a public company. We may also encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may increase our capital needs and/or cause us to spend our cash resources faster than we expect. Accordingly, we will need to obtain substantial additional funding in order to continue our operations. To date, we have financed our operations entirely through equity investments by founders and other investors and the incurrence of debt, and we expect to continue to do so in the foreseeable future. Additional funding from those or other sources may not be available when or in the amounts needed, on acceptable terms, or at all. If we raise capital through the sale of equity, or securities convertible into equity, it would result in dilution to our then existing stockholders, which could be significant depending on the price at which we may be able to sell our securities. If we raise additional capital through the incurrence of additional indebtedness, we would likely become subject to further covenants restricting our business activities, and holders of debt instruments may have rights and privileges senior to those of our equity investors. In addition, servicing the interest and principal repayment obligations under debt facilities could divert funds that would otherwise be available to support development of new programs and marketing to current and potential new clients. If we are unable to raise capital when needed, or on attractive terms, we could be forced to delay, reduce or eliminate development of new programs or future marketing efforts. Any of these events could significantly harm our business, financial condition and prospects.

 

Our future success is dependent, in part, on the performance and continued service of our Chief Executive Officer, John Hall, Ed.D.

 

The loss of services of our Chief Executive Officer, Dr. John Hall, could have a material adverse effect on our business, financial condition or results of operation. We are highly dependent on Dr. Hall and his services are critical to the successful implementation of our continued success and expansion plans.

 

 

Our business depends heavily on colleges and universities co-sourcing their education management services and non-profit and for-profit corporations co-sourcing their contact center services. If we fail to attract new clients, our revenue growth and profitability may suffer.

 

The success of our business depends in large part on our ability to enter into agreements with additional colleges and universities regarding their education management activities. In particular, in order to engage new clients, we need to convince colleges and universities we can provide responsive and informative education management services more effectively and efficiently than they could do themselves. Some administrators have expressed concern regarding the perceived loss of control over the education management activities that are outsourced to third parties and are concerned about the collection of personal student information by third parties that might result as part of the outsourcing of education management services, as well as skepticism regarding the ability of colleges and universities to adequately connect with students if student management services are outsourced to third parties. It may be difficult to overcome this resistance, and there can be no assurance that education management services of the kind we develop with our clients will ever achieve significant market acceptance. Similarly, many non-profit and for-profit organizations are reluctant to outsource their contact center services due to the negative press and feedback that is often received with outsourcing contact services to a third party. There is no assurance that we will be able to overcome these doubts to achieve market acceptance of our services.

 

Our financial performance depends heavily on our ability to successfully generate positive results for colleges and universities and our non-profit and for-profit organizations, and our ability to do so may be affected by circumstances beyond our control.

 

Assisting our clients in recruiting and retaining larger numbers of better qualified applicants and assisting non-profit and for-profit corporations in outsourcing their contact center operations in a positive manner is critical to our ability to increase our client base and generate revenue. A substantial portion of our expenses is attributable to marketing and sales efforts dedicated to attracting potential students to our clients’ colleges and universities, providing services to those same colleges and universities so those students remain enrolled as well as marketing the positive results of our contact center services to non-profit and for-profit corporations. Because we generate revenue through transactional fees and recurring service fees, it is critical to our success that we are able to help the colleges and universities increase and maintain their enrollment, as well as provide positive demonstrative results in a cost-effective manner for both our college and university clients and our non-profit and for-profit contact center clients.

 

The following factors, many of which are largely outside of our control, may prevent us from successfully attracting and maintaining our client base:

 

	·	Cost of marketing. The cost of recruiting students continues to rise. If the cost of marketing becomes too prohibitive, universities and colleges may not be able to afford our services.
	·	Financial outlook for colleges and universities. Demographic changes, increased competition, concerns about return on investment as it relates to a post-secondary education, market saturation, public scrutiny involved in raising tuition and less costly alternatives have impacted a large number of post-secondary schools in the United States. Many of our clients are highly dependent on tuition revenue and/or funding that is derived from state/federal sources or federally-guaranteed student loan programs. Without reliable tuition revenue coming in, many of our clients would not be able to continue to operate. Further, the financial condition of many of our would-be clients can impact their ability to contract with our Company. If the financial outlook for colleges and universities continues to worsen, it could be increasingly difficult to generate new business and to maintain existing client contracts. This could have a material impact on our ability to grow and operate profitably.
	·	Lower cost alternatives such as competency based learning programs and Massive Open Online Courses (MOOCs). Technology, open source content, and a focus on mastery/competency versus completing a traditional academic program could provide students with viable alternatives to completing a traditional degree program at a fraction of the cost and potentially better job prospects. Should these alternatives become commonly accepted or provide specific paths and usable credentials to students in a more efficient way than earning a degree, our ability to market our programs to our clients could be significantly compromised.
	·	Damage to client reputation. Because we market to specific colleges, universities, non-profit and for-profit organizations, the reputations of our clients are critical to those institutions and organizations having a need for our education management and relationship management services. Many factors affecting our clients’ reputations are beyond our control and can change over time, including their academic performance and ranking among educational institutions and negative publicity about the college, university, non-profit or for-profit corporations.

 

 

	·	Our lack of control over our clients’ admissions decisions. Even if we are able to identity prospective students for a program, there is no guarantee that students will be admitted to the program. Our clients retain complete discretion in their admissions decisions, and any changes to admissions standards, or inconsistent application of admissions standards, could affect student enrollment and our ability to generate revenue for our education management services.
	·	Our lack of control over our clients’ ability to serve students. Even if we are able to identity prospective students or enroll students for a program, there is no guarantee that students will be served well and efficiently. Today’s students expect state-of-the-art amenities and service twenty-four hours per day, seven days per week. If one component of the student experience is lacking, there could be an adverse impact on student enrollment and our ability to generate revenue for our education management services.

 

Disruption to or failures of our platform could reduce client satisfaction with our clients’ programs and could harm our reputation.

 

Despite the implementation of security measures, our internal computer systems and those of our contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunications and electrical failures. The performance and reliability of our platform is critical to our operations, reputation and ability to attract new clients. Our college and university clients rely on our cloud-based technology solutions to recruit new students and provide communication with students both before and after their enrollment. Students and clients access our platform on a frequent basis as an important part of the educational experience. Likewise, our non-profit and corporate clients rely heavily on our platform of services to do everything from collect donations to provide critical crisis communications to the public. Accordingly, any errors, defects, disruptions or other performance problems with our platform could damage our or our clients’ reputations, decrease student and customer satisfaction and impact our ability to attract new clients. While we have not experienced any such system failure, if any of these problems occur, our clients may, following notice and our failure to cure, terminate their agreements with us, or make indemnification or other claims against us. In addition, sustained or recurring disruptions in our technology platform could adversely affect our and our clients’ compliance with applicable regulations and accrediting body standards.

 

Launching a new program and attracting new clients for the new program is complex, expensive and time-consuming. If we pursue unsuccessful client opportunities, we may forego more profitable opportunities, and it may be several years, if ever, before we generate revenue from a new program sufficient to recover our costs.

 

The process of identifying programs and student management needs at Tier 2 and Tier 3 colleges and universities that we believe will be a good fit for our platform, and then negotiating contracts with potential clients, is complex and time consuming. We must integrate our platform with the various student information and other operating systems our clients use to manage functions within their institutions. This process of launching a new program is time-consuming and costly and, under our agreements with our clients, we are primarily responsible for the significant costs of this effort, even before we generate any revenue. Additionally, during the life of our client agreements, we are responsible for the costs associated with continued program marketing, maintaining our technology platform and providing non-academic and other support for students enrolled with our clients. Further, because of the initial reluctance on the part of some colleges and universities to embrace a new method of delivering and managing their education services and the complicated approval process within universities, our sales process to attract and engage a new client can be lengthy. Depending on the particular college or university, during the process, we may face resistance from university administrators or faculty members. The sales cycle for a new student management program often spans one year or longer. In addition, our sales cycle can vary substantially from program to program because of a number of factors, including the approval processes of the client or disagreements over the information and manner in which we are providing our student management services. Even if a college or university is ready to proceed with our services, limitations on funding can prevent us from finalizing an agreement with a new client. Further, even when a new program is launched with a client, because of the lengthy period required to recoup our investment in a program, unexpected developments beyond our control could occur that result in the client ceasing or significantly curtailing a program before we are able to fully recoup our investment. We spend substantial effort and management resources on our new sales efforts without any assurance that our efforts will result in the launch of a new service for a client. If we invest substantial resources pursuing unsuccessful opportunities, we may never recover our costs, we may forego other more profitable client relationships, and our operating results and growth would be harmed.

 

 

Future programs with colleges and universities outside the United States could expose us to risks inherent in international operations.

 

One element of our growth strategy is to expand our international operations and establish a worldwide client base. We cannot be certain whether our expansion efforts into international markets will be successful. Our experience with attracting clients in the United States may not be relevant to our ability to attract clients in other emerging markets. In addition, we would face risks in doing business internationally that could constrain our operations and compromise our growth prospects, including:

 

	·	the need to localize and adapt online degree programs for specific countries, including translation into foreign languages and ensuring that these programs enable our clients to comply with local education laws and regulations;
	·	data privacy laws that may require data to be handled in a specific manner;
	·	difficulties in staffing and managing foreign operations, including employment laws and regulations, different pricing environments, longer sales cycles, longer accounts receivable payment cycles and collections issues;
	·	new and different sources of competition and practices that may favor local competitors;
	·	weaker protection for legal rights than in the United States and practical difficulties in enforcing rights outside of the United States;
	·	compliance challenges related to the complexity of multiple, conflicting and changing governmental laws and regulations, including employment, tax, privacy and data protection, and anti-bribery laws and regulations, such as the U.S. Foreign Corrupt Practices Act;
	·	increased financial accounting and reporting burdens and complexities;
	·	restrictions on the transfer of funds;
	·	adverse tax consequences, including the potential for required withholding taxes for our overseas employees;
	·	unstable regional and economic political conditions; and
	·	future agreements with international clients that may provide for payments to us to be denominated in local currencies. In such case, fluctuations in the value of the U.S. dollar and foreign currencies could impact our operating results when translated into U.S. dollars, and we may not be able to engage in currency hedging activities to effectively limit the risk of exchange rate fluctuations.

 

If we are not successful in quickly and efficiently scaling up programs with new and existing clients, our reputation and our revenue could suffer.

 

Our continued growth and future profitability depends on our ability to successfully scale up newly launched programs with our clients. As we continue growing our business, we plan to continue to hire new employees at a rapid pace, particularly in our program marketing and sales team, our technology team and our operations team. If we cannot adequately train these new employees, we may not be successful in acquiring new clients and expanding the services we are providing for our current clients, which would adversely impact our ability to generate revenue, and our clients could lose confidence in the knowledge and capability of our employees. If we cannot quickly and efficiently scale up our technology to handle growing numbers of students and data, and new client programs, our clients’ experiences with our platform may suffer, which could damage our reputation among colleges and universities, and their faculty and students, as well as our reputation with our non-profit and corporate clients and their customers. Our ability to effectively manage any significant growth of new programs will depend on a number of factors, including our ability to:

 

	·	satisfy existing clients and attract new clients to our existing programs;
	·	assist our clients in recruiting qualified faculty to support their programs;
	·	successfully introduce new features and enhancements, and maintain a high level of functionality in our platform; and
	·	deliver high quality support to our clients and their faculty, students and customers.

 

 

Establishing new client programs or expanding existing programs will require us to make investments in management and key staff, increase capital expenditures, incur additional marketing expenses and reallocate other resources. If we do not expand the programs we currently have with our clients, we are unable to launch new programs in a cost-effective manner or we are otherwise unable to manage new client programs effectively, our ability to grow our business and achieve profitability would be impaired, and the quality of our solutions and the satisfaction of our clients and their students and customers could suffer.

 

We currently have, and for the foreseeable future expect to continue to have, a small number of clients, and therefore we expect the loss, or material underperformance, of any one client could hurt our future financial performance.

 

We are currently engaged by fewer than 50 colleges and universities, and of these colleges and universities, our two largest clients account for approximately one-third of our revenue. For the foreseeable future, we expect to launch a small number of new programs that will be added with existing or new clients each year. As a result of the small number of our clients, the material underperformance of any one program with a client or any decline in the ranking of one of our clients’ or other impairment of their reputation, could have a disproportionate effect on our business. Additionally, because we rely on our own reputation for delivering high quality education management services and recommendations from existing clients in order to attract potential new clients, the loss of several key clients, or the failure of several key clients to renew their agreements with us upon expiration, could impair our ability to pursue our growth strategy and ultimately to become profitable.

 

If our security measures are breached or fail, resulting in unauthorized disclosure of data, we could lose clients, fail to attract new clients and be exposed to protracted and costly litigation.

 

Maintaining platform security is of critical importance for our clients because the platform stores and transmits proprietary and confidential customer, university and student information, which may include sensitive personally identifiable information, credit card or financial institution information that is subject to stringent legal and regulatory obligations. As a technology company, we face an increasing number of threats to our technology platform, including unauthorized activity and access, system viruses, worms, malicious code and organized cyber-attacks, which could breach our security and disrupt our solutions and our clients’ programs. If our security measures are breached or fail as a result of third-party action, employee error, malfeasance or otherwise, we could be subject to liability or our business could be interrupted, potentially over an extended period of time. Any or all of these issues could harm our reputation, adversely affect our ability to attract new clients, cause existing clients to scale back their programs or elect to not renew their agreements, or subject us to third-party lawsuits, regulatory fines or other action or liability. Further, any reputational damage resulting from breach of our security measures could create distrust of our Company by prospective clients. In addition, our insurance coverage may not be adequate to cover losses associated with such events, and in any case, such insurance may not cover all of the types of costs, expenses and losses we could incur to respond to and remediate a security breach. As a result, we may be required to expend significant additional resources to protect against the threat of these disruptions and security breaches or to alleviate problems caused by such disruptions or breaches.

 

We plan to grow rapidly and expect to continue to invest in our growth for the foreseeable future. If we fail to manage this growth effectively, the success of our business model will be compromised.

 

We expect to experience rapid growth in a relatively short period of time, which will place a significant strain on our administrative and operational infrastructure, facilities and other resources. Our ability to manage our operations and growth will require us to continue to expand our program marketing and sales personnel, technology team, and finance and administration teams, as well as our facilities and infrastructure. We will also be required to refine our operational, financial and management controls, and reporting systems and procedures.

 

These activities will require significant capital expenditures and allocation of valuable management and employee resources, and our growth will continue to place significant demands on our management and our operational and financial infrastructure. There are no guarantees that we will be able to effectively manage any future growth in an efficient, cost-effective or timely manner, or at all.

 

 

Risks Related to Our Market

 

We face competition from established as well as other emerging companies, which could divert clients to our competitors, result in pricing pressure and significantly reduce our revenue.

 

We expect existing competitors and new entrants to the education management market to constantly revise and improve their business models in response to challenges from competing businesses, including ours. If these or other market participants introduce new or improved delivery of education management and technology-enabled services that we cannot match or exceed in a timely or cost-effective manner, our ability to grow our revenue and achieve profitability could be compromised. Our primary competitors include 2U, Inc., Embanet-Pearson, Blackboard Inc., Xerox Higher Education Services, Keypath Education., Ellucian, Inc., Instructure, Inc., Royall & Company, Wiley & Company, Ruffalo Noel Levitz,, Academic Partnerships, LLC and Global Financial Aid Services, Inc., all of which are large education management companies. There are also several new and existing vendors providing some or all of the services we provide to other segments of the education market, and these vendors may pursue the institutions we target. In addition, colleges and universities may choose to continue using or develop their own education management solutions in-house, rather than pay for our solutions. Some of our competitors and potential competitors have significantly greater resources than we do. Increased competition may result in pricing pressure for us in terms of the fees that we are able to negotiate to receive from a client. The competitive landscape may also result in longer and more complex sales cycles with a prospective client or a decrease in our market share among selective colleges and universities, either of which could negatively affect our revenue and future operating results and our ability to grow our business.

 

If we cannot compete successfully against our competitors, our ability to grow our business and achieve profitability could be impaired.

 

The education marketplace is experiencing significant change, which could adversely impact the need for our services.

 

Due to significant technological innovations, changes in marketplace demand, and increased regulatory intervention, the entire model of higher education could significantly change in ways that could significantly reduce the Company’s market, as well as the ways in which students receive education and interact with schools. As a result, the Company’s products and services could become irrelevant or of diminished value in the Company’s marketplace.

 

Macroeconomic conditions may significantly impact our ability to generate revenue.

 

The services we offer to colleges, universities, non-profit and for-profit organizations require these companies and organizations to have a need for our education management and relationship management services. To the extent economic conditions make it difficult for students to obtain the necessary employment or financial aid, enrollment numbers may drop and colleges and universities may not have as great a need for our services. Similarly, if macroeconomic conditions are such that non-profit and for-profit corporations reduce their event marketing efforts or reduce the services they offer, they may not have a need for our services.

 

Activities of the U.S. Congress could result in legislation or regulations that negatively impact our operations.

 

The United States Department of Education (“USDOE”) plays a significant role in regulating the higher education marketplace. Federal Student Aid (“FSA”) programs are regulated under the authority of Title IV of the United States Code and ensure that colleges and universities act as ethical stewards of federal funds. The federal government has increased its role in the regulation of higher education over the past five years, has begun to fund alternative forms of higher education, including “competency-based” programs, and has indicated a desire to provide funding based on student outcomes. Further, the federal government is requiring colleges and universities to increase disclosures regarding student experiences and outcomes, is implementing a “score card” system that rates post-secondary schools, and is actively considering additional regulations that could limit the ability of certain schools to offer certain types of academic programs if they fail to provide a sufficient level of employment and income for students compared to the cost of the program. The increased scrutiny and results-based accountability initiatives may place additional regulatory burdens on colleges and universities and companies like us that provide services to them. Congress could also enact laws or regulations that require us to modify our practices in ways that could increase our costs. In addition, the USDOE is conducting an ongoing series of rulemakings to assure the integrity of the Title IV programs. The USDOE also has proposed implementing a ratings system by the 2015-16 academic year that would “rate” the effectiveness of every college and university in the United States that receives federal funding. The vast majority of colleges and universities are not selective schools and could be rated poorly. The USDOE has also proposed that colleges and universities with more favorable ratings might receive additional funding (including federally guaranteed student loans) from the federal government, whereas, schools that do not meet a certain minimum rating threshold, could find themselves at a disadvantage. Any of these, or other changes, implemented by the USDOE could hurt our ability to market and recruit for our university clients or adversely impact the viability of a significant number of clients in our market.

 

 

We are required to comply with The Family Educational Rights and Privacy Act (“FERPA”) and failure to do so could harm our reputation and negatively affect our business.

 

FERPA generally prohibits an institution of higher education from disclosing personally identifiable information from a student’s education records without the student’s consent. Our clients and their students disclose to us certain information that originates from or comprises a student education record under FERPA. As an entity that provides services to institutions, we are indirectly subject to FERPA, and we may not transfer or otherwise disclose any personally identifiable information from a student record to another party other than in a manner permitted under the statute. If we violate FERPA, it could result in a material breach of contract with one or more of our clients and could harm our reputation. Further, in the event that we disclose student information in violation of FERPA, the USDOE could require a client to suspend our access to their student information for at least five years.

 

If we or our subcontractors or agents violate the Higher Education Act and corresponding regulations established by USDOE as it relates to the ban on incentive compensation and student enrollments, we could be liable to our clients for substantial fines, sanctions or other liabilities.

 

We are subject to other provisions of the Higher Education Act’s ban on incentive compensation that prohibit us from offering to our employees who are involved with or responsible for recruiting or admissions activities any bonus or incentive-based compensation based on the successful identification, admission or enrollment of students into any institution. If we or our subcontractors or agents violate the incentive compensation rule, we could be liable to our clients for substantial fines, sanctions or other liabilities, including liabilities related to “whistleblower” claims under the federal False Claims Act. Any such claims, even if without merit, could require us to incur significant costs to defend the claim, distract management’s attention and damage our reputation.

 

If we or our subcontractors or agents violate the misrepresentation rule, or similar federal and state regulatory requirements, we could face fines, sanctions and other liabilities.

 

We are required to comply with other regulations promulgated by the USDOE that affect our student recruitment activities, including the misrepresentation rule. The misrepresentation rule is broad in scope and applies to statements our employees, subcontractors or agents may make about the nature of a client’s program, a client’s financial charges or the employability of a client’s program graduates. A violation of this rule or other federal or state regulations applicable to our marketing activities by an employee, subcontractor or agent performing services for clients could hurt our reputation, result in the termination of client contracts, require us to pay fines or other monetary penalties and require us to pay the fees associated with indemnifying a client from private claims or government investigations.

 

 

If other colleges and universities, which outsource education management services and programs different from ours, experience poor or unsatisfactory results with their education management services and programs, it could tarnish the reputation of outsourcing education management services as a whole, which could impair our ability to grow our business.

 

Many colleges and universities, particularly for-profit institutions, are under intense regulatory and other scrutiny, which has led to media attention that has sometimes portrayed the use of online education and education services in an unflattering light. Some school operators have been subject to governmental investigations alleging the misuse of public funds, financial irregularities, and failure to achieve positive outcomes for students, including the inability to obtain gainful employment in their fields. These allegations have attracted significant adverse media coverage and have prompted legislative hearings and regulatory responses. These investigations have focused on specific companies and individuals, and even entire industries in the case of recruiting practices by for-profit higher education companies. Even though we are not an educational institution, this negative media attention may nevertheless add to skepticism about outsourcing recruiting and other online educational management services generally, including our programs. The precise impact of these negative public perceptions on our current and future business is difficult to discern. If these few situations, or any additional misconduct, cause all online provision of education management services to be viewed by the public or policymakers unfavorably, we may find it difficult to enter into or renew contracts with colleges and universities or attract additional clients. In addition, this perception could serve as the impetus for more restrictive legislation, which could limit our future business opportunities. Moreover, allegations of abuse of federal financial aid funds and other statutory violations against higher education companies could negatively impact our opportunity to succeed due to increased regulation and decreased demand. Any of these factors could negatively impact our ability to increase our client base and grow our clients’ programs, which would make it difficult to continue to grow our business.

 

Risks Related to Ownership of Our Common Stock

 

There is not now, and there may never be, an active, liquid and orderly trading market for our Common Stock, which may make it difficult for to sell shares of our Common Stock.

 

There is not now, nor has there been since our inception, significant trading activity in our Common Stock or a market for shares of our Common Stock, and an active trading market for our shares may never develop or be sustained. As a result, investors in our Common Stock must bear the economic risk of holding those shares for an indefinite period of time. Although our Common Stock is quoted on the OTC Quote Board (“OTCQB”), an over-the-counter quotation system, trading of our common stock is extremely limited and sporadic and at very low volumes. We do not now, and may not in the future, meet the initial listing standards of any national securities exchange, and we presently anticipate that our Common Stock will continue to be quoted on the OTCQB or another over-the-counter quotation system in the foreseeable future. In those venues, our stockholders may find it difficult to obtain accurate quotations as to the market value of their shares of our Common Stock, and may find few buyers to purchase their stock and few market makers to support its price. As a result of these and other factors, it may not be possible to resell shares of our Common Stock at or above the price for which they were purchased, or at all. Further, an inactive market may also impair our ability to raise capital by selling additional equity in the future, and may impair our ability to enter into strategic partnerships or acquire companies or products by using shares of our Common Stock as consideration.

 

 

We have no plans to pay dividends.

 

To date, we have paid no cash dividends on our Common Stock. For the foreseeable future, earnings generated from our operations will be retained for use in our business and not to pay dividends. In addition, the terms of our existing credit facilities preclude, and the terms of any future debt agreements is likely to similarly preclude, us from paying dividends. As a result, capital appreciation, if any, of our common stock will be the sole resource of gain for stockholders for the foreseeable future. Investors seeking cash dividends should not purchase our common stock.

 

The application of the SEC’s “penny stock” rules to our Common Stock could limit trading activity in the market, and our stockholders may find it more difficult to sell their stock.

 

Our Common Stock is trading at less than $5.00 per share and is therefore subject to the SEC penny stock rules. Penny stocks generally are equity securities with a price of less than $5.00. Penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. The broker-dealer must also make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit their market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our Common Stock and may affect the ability to resell our Common Stock.

 

If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares of our Common Stock.

 

Effective internal controls are necessary for us to provide reliable financial reports and to effectively prevent fraud. We maintain a system of internal control over financial reporting, which is defined as a process designed by, or under the supervision of, our principal executive officer and principal financial officer, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

 

As a public company, we have significant additional requirements for enhanced financial reporting and internal controls. We are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent registered public accounting firm addressing these assessments. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. This annual report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the company’s registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.

 

 

We cannot be certain that we will, in the future, identify areas requiring improvement in our internal control over financial reporting. We cannot be certain that the measures we will take to remediate any areas in need of improvement will be successful or that we will implement and maintain adequate controls over our financial processes and reporting in the future as we continue our growth. If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares of our Common Stock.

 

The market price of our Common Stock is volatile.

 

The market price of our Common Stock may be highly volatile. Some of the factors that may materially affect the market price of our Common Stock are beyond our control, such as changes in financial estimates by industry and securities analysts, conditions or trends in the industry in which we operate or sales of our Common Stock. These factors may materially adversely affect the market price of our Common Stock, regardless of our performance. In addition, public stock markets have experienced extreme price and trading volume volatility. This volatility has significantly affected the market prices of securities of many companies for reasons frequently unrelated to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of our Common Stock.

 

Because our directors and executive officers are among our largest stockholders, they can exert significant control over our business and affairs, and have actual or potential interests that may depart from those of investors.

 

Certain of our executive officers and directors own a significant percentage of our outstanding capital stock. As of the date of this report, our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates beneficially own over 60% of our outstanding voting stock. The holdings of our directors and executive officers may increase further in the future upon vesting or other maturation of exercise rights under any of the options or warrants they may hold or in the future be granted or if they otherwise acquire additional shares of Common Stock. The interests of such persons may differ from the interests of our other stockholders, including investors. As a result, in addition to their board seats and offices, such persons will have significant influence over and control all corporate actions requiring stockholder approval, irrespective of how the Company’s other stockholders, including investors, may vote, including the following actions:

 

	·	to elect or defeat the election of our directors;
	·	to amend or prevent amendment of our Certificate of Incorporation or By-laws;
	·	to effect or prevent a merger, sale of assets or other corporate transaction; and
	·	to control the outcome of any other matter submitted to our stockholders for vote.

 

This concentration of ownership by itself may have the effect of impeding a merger, consolidation, takeover or other business consolidation, or discouraging a potential acquirer from making a tender offer for the Common Stock that in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price.

 

We may issue more shares in a future financing which could result in substantial dilution.

 

Our Certificate of Incorporation authorizes the issuance of a maximum of 937,500,000 shares of Common Stock and no shares of preferred stock. Any future merger or acquisition effected by us would result in the issuance of additional securities without stockholder approval and the substantial dilution in the percentage of our Common Stock held by our then existing stockholders. Moreover, the Common Stock issued in any such merger or acquisition transaction may be valued on an arbitrary or non-arm’s-length basis by our management, resulting in an additional reduction in the percentage of Common Stock held by our then existing stockholders. Additionally, we expect to seek additional financing in order to provide working capital to the operating business. Our board of directors has the power to issue any or all of such authorized but unissued shares without stockholder approval. To the extent that additional shares of Common Stock or preferred stock are issued in connection with and following a business combination or otherwise, dilution to the interests of our stockholders will occur and the rights of the holders of Common Stock might be materially and adversely affected.

 

 

Some provisions of our charter documents and Nevada law may discourage an acquisition of us by others, even if the acquisition may be beneficial to some of our stockholders.

 

Provisions in our Amended and Restated Articles of Incorporation and Bylaws as in effect upon the closing of the Merger, as well as certain provisions of Nevada law, could make it more difficult for a third-party to acquire us, even if doing so may benefit some of our stockholders. These provisions include the authorization of “blank check” preferred stock, the rights, preferences and privileges of which may be established and shares of which may be issued by our board of directors at its discretion from time to time and without stockholder approval.

 

Because we are incorporated in Nevada, we may be governed by Nevada’s statutes governing combinations with interested stockholders and control share acquisitions, which may discourage, delay or prevent someone from acquiring us or merging with us, whether or not it is desired by or beneficial to our stockholders. Pursuant to our Amended and Restated Articles of Incorporation and our Bylaws, we have elected not to be governed by Nevada’s laws governing combinations with interested stockholders, and as a result will only be subject to those laws upon a future amendment to the applicable provisions of the Amended and Restated Articles of Incorporation. Under Nevada’s laws governing combinations with interested stockholders, a corporation may not, in general, engage in certain types of business combinations with any beneficial owner of 10% or more of the corporation’s voting shares or an affiliate of the corporation who at any time within two years immediately prior to the date in question was the beneficial owner of 10% or more of the corporation’s voting shares, unless the holder has held the stock for two years or the board of directors approved the beneficial owner’s acquisition of its shares, the board of directors approved the transaction before the beneficial owner acquired its shares, or holders of at least a majority of the outstanding voting power approve the transaction after the beneficial owner acquired its shares. In addition, Nevada’s control share acquisition laws prohibit a purchaser of the shares of an “issuing corporation” from voting those shares, under certain circumstances and subject to certain limitations, after crossing specified threshold ownership percentages, unless the purchaser obtains the approval of the issuing corporation’s disinterested stockholders. As the control share acquisition law only applies to an “issuing corporation,” which is a corporation with 200 or more stockholders of record and at least 100 stockholders of record with addresses in Nevada appearing on the stock ledger of the corporation, we do not presently believe that the control share acquisition laws are applicable to us. However, such control share acquisition laws could become applicable to us in the future and could have an anti-takeover effect.

 

Any provision of our Amended and Restated Articles of Incorporation or Bylaws or of Nevada law that is applicable to us that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock in the event that a potentially beneficial acquisition is discouraged, and could also affect the price that some investors are willing to pay for our common stock.

 

The elimination of personal liability against our directors and officers under Nevada law and the existence of indemnification rights held by our directors, officers and employees may result in substantial expenses.

 

Our Amended and Restated Articles of Incorporation and our Bylaws limit the personal liability of our directors and officers for damages for breach of fiduciary duty as a director or officer to the extent permissible under Nevada law. Further, our Amended and Restated Articles of Incorporation and our Bylaws and individual indemnification agreements we have entered with each of our directors and executive officers provide that we are obligated to indemnify each of our directors or officers to the fullest extent authorized by Nevada law and, subject to certain conditions, advance the expenses incurred by any director or officer in defending any action, suit or proceeding prior to its final disposition. Those indemnification obligations could expose us to substantial expenditures to cover the cost of settlement or damage awards against our directors or officers, which we may be unable to afford. Further, those provisions and resulting costs may discourage us or our stockholders from bringing a lawsuit against any of our current or former directors or officers for breaches of their fiduciary duties, even if such actions might otherwise benefit our stockholders.

 

We do not intend to pay cash dividends on our capital stock in the foreseeable future.

 

We do not anticipate paying any dividends in the foreseeable future. Any future payment of cash dividends in the future would depend on our financial condition, contractual restrictions, solvency tests imposed by applicable corporate laws, results of operations, anticipated cash requirements and other factors, and will be at the discretion of the our board of directors. Our stockholders should not expect that we will ever pay cash or other dividends on our outstanding capital stock.

 

 

We might not be able to utilize a significant portion of our net operating loss carry-forwards, which could adversely affect our profitability.

 

As of August 31, 2016, PCS Link had federal and state net operating loss carry-forwards due to prior period losses, which, if not utilized, will begin to expire in 2032 for federal and state purposes, respectively. These net operating loss carry-forwards could expire unused and be unavailable to offset future income tax liabilities, which could adversely affect our profitability. In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50% change, by value, in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss carry-forwards and other pre-change tax attributes to offset its post-change income may be limited. We have not completed an analysis to determine what, if any, impact any prior ownership change has had on our ability to utilize our net operating loss carry-forwards. In addition, we may experience ownership changes in the future as a result of subsequent shifts in our stock ownership. If we determine that an ownership change has occurred and our ability to use our historical net operating loss carry-forwards is materially limited, it would harm our future operating results by increasing our future tax obligations.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2. PROPERTIES

 

We do not own any real property. We lease our corporate headquarters and education service center facilities. Our corporate headquarters are located at 12424 Wilshire Blvd, Suite 1030, Los Angeles, California 90024. We also lease space located at 2504 Kent Street, Bryan, Texas 77802, and 21410 North 19^th Avenue, Suite 210, Phoenix, Arizona 85027.

 

ITEM 3. LEGAL PROCEEDINGS

 

The Company is involved from time to time in various legal proceedings in the normal conduct of its business.

 

On January 15, 2015, Finance 500, Inc. (“F500”) and Bridgewater Capital Corporation (“BCC”) filed suit against PCS Link alleging breach of contract. On April 18, 2016, the Company’s subsidiary, PCS Link, Inc. (“PCS Link”) entered into a confidential settlement agreement (the "F500 Settlement Agreement") with F500 and BCC related to the resolution of disputes arising under a consulting agreement dated August 5, 2013 (the "F500 Consulting Agreement") between PCS Link, F500, and BCC. Pursuant to the F500 Settlement Agreement and in order avoid the continued cost and uncertainty of litigation, the Company agreed to issue a total of 750,000 shares of Common Stock to F500 and BCC, in return for (a) a general release of all claims F500 and BCC may have against PCS Link and (b) F500 and BCC’s dismissal of the lawsuit. The Company also agreed to pay to F500 and BCC a total $ 130,000, over a twelve-month period commencing on June 12, 2016.

 

On August 31, 2013, the Robin Hood Foundation (“Robin Hood”) filed suit against Patriot Communications, LLC (“Patriot”), a client of the Company, in the Superior Court of the State of California for the County of Los Angeles (Central District) alleging breach of contract and failure to perform, including among other things an intentional tort claim, in the amount of not less than $5,000,000. On May 6, 2014, Patriot filed a cross-complaint naming PCS Link as a cross-defendant. Patriot denies the allegations set forth by Robin Hood. On August 22, 2014, Robin Hood filed a First Amended Complaint, naming the Company and John Hall, Chief Executive Officer of the Company (“Hall”), in his individual capacity, as defendants. The First Amended Complaint asserts claims against the Company and Hall for fraud, fraudulent concealment, negligent misrepresentation, negligence and violation of Business & Professions Code section 17200. The First Amended Complaint also alleges a cause of action for breach of contract solely against the Company. In October 2015, Hall, in his individual capacity, was dismissed from the litigation as a defendant upon a successful motion to dismiss him. On July 5, 2016, PCS Link entered into a confidential settlement agreement (“Robin Hood Settlement Agreement”) with the Robin Hood and Patriot regarding, among other things, the resolution of all claims associated with the lawsuit. Pursuant to the Robin Hood Settlement Agreement, (i) Robin Hood received a settlement payment, of which approximately $380,000 was paid by the Company’s insurance carrier and $20,000 was paid by the Company, and (ii) Robin Hood agreed to (a) release the Company and Hall from all claims, (b) dismiss the Action against the Company, and (c) refrain from pursuing an appeal of Hall’s dismissal from the action by the Superior Court. The action also included a cross-complaint filed by Patriot against PCS Link. As part of a full resolution of the action and in order to avoid the continued cost and uncertainty of litigation, PCS Link entered into a separate confidential settlement agreement (the “Patriot Settlement Agreement”) with Patriot, pursuant to which PCS Link agreed to enter into a new five (5) year Master Services Agreement (“MSA”) with Patriot that extended the existing service relationship between the Company and Patriot, providing for certain preferential pricing and terms to Patriot and requiring PCS Link to provide services to Patriot through October 2021. In return, Patriot agreed to (i) release all claims against PCS Link and (ii) dismiss its counter-complaint against PCS Link.

 

On March 11, 2016, StoryCorp Consulting, Inc. and David R. Wells filed suit against the Company and the John R. Hall, in his individual capacity, in the Superior Court of the State of California for the County of Los Angeles (Central District) for breach of contract and promissory fraud/false promise, among other things, seeking an amount of not less than $100,000. The Company believes that it has a strong defenses and is vigorously defending against this lawsuit, but the potential range of loss related to this matter cannot be determined, as the pleadings are still not resolved, and will not be resolved until 2017, at the earliest. No trial date has been set. If we fail in defending any such claims or settling these claims, in addition to paying monetary damages or a settlement payment, the outcome of this matter could have a material adverse effect on our business, financial condition and results of operations.

 

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

  

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

 

Our Common Stock is currently available for trading in the over-the-counter market and is quoted on the Over the Counter Quote Board (“OTCQB”) under the symbol “ELRN.” Prior to July 29, 2014, our stock traded under the symbol “DIVO.” As of the date of this report, there was no minimal bid history for the Common Stock.

 

Trades in our Common Stock may be subject to Rule 15g-9 of the Exchange Act, which imposes requirements on broker/dealers who sell securities subject to the rule to persons other than established customers and accredited investors. For transactions covered by the rule, broker/dealers must make a special suitability determination for purchasers of the securities and receive the purchaser’s written agreement to the transaction before the sale.

 

The SEC also has rules that regulate broker/dealer practices in connection with transactions in “penny stocks.” Penny stocks generally are equity securities with a price of less than $5.00 (other than securities listed on certain national exchanges, provided that the current price and volume information with respect to transactions in that security is provided by the applicable exchange or system). The penny stock rules require a broker/dealer, before effecting a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document prepared by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker/dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker/dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker/dealer and salesperson compensation information, must be given to the customer orally or in writing before effecting the transaction, and must be given to the customer in writing before or with the customer’s confirmation. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for shares of our Common Stock. As a result of these rules, investors may find it difficult to sell their shares.

 

Holders

 

As of November 29, 2016, there are approximately 12 record holders of 58,741,683 shares of Common Stock. As of the date of this filing, 37,567,335 shares of Common Stock are issuable upon the exercise of outstanding warrants and options, and pursuant to certain executed stock purchase agreements. As of August 31, 2016, 18,942,335 shares of Common Stock were issuable upon the exercise of outstanding warrants and options, and pursuant to certain executed stock purchase agreements.

 

Dividend Policy

 

We have never declared or paid dividends. We do not intend to pay cash dividends on our Common Stock for the foreseeable future. We currently intend to retain any future earnings to fund the development and growth of our business. The payment of dividends, if any, on our Common Stock will rest solely within the discretion of our board of directors and will depend, among other things, upon our earnings, capital requirements, financial condition and other relevant factors.

 

 

Sales of Unregistered Securities

 

The Company disclosed its sales of unregistered securities during the fiscal year in its Quarterly Report on Form 10-Q for the quarter ended November 30, 2015, filed on January 19, 2016, and in its Current Reports on Form 8-K, filed on April 19, 2016, July 5, 2016 and October 19, 2016.

 

ITEM 6. SELECTED FINANCIAL DATA

 

This item has been omitted as the Company qualifies as a smaller reporting company.

 

ITEM 7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following management’s discussion and analysis should be read in conjunction with the Company historical financial statements and the related notes. This management’s discussion and analysis contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this report. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section entitled “Risk Factors” included elsewhere in this report. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this report.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The discussion and analysis of our financial condition and results of operations are based on PCS Link’s financial statements, which PCS Link has prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires PCS Link to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, PCS Link evaluates such estimates and judgments, including those described in greater detail below. PCS Link bases its estimates on historical experience and on various other factors that PCS Link believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

 

Company Overview

 

Based in Los Angeles, California with Education Service Centers in Phoenix, Arizona and College Station, Texas, Greenwood Hall is a provider of technology-enabled student lifecycle management solutions that help colleges and universities increase revenue and improve student engagement and outcomes. Since 2006, Greenwood Hall has developed customized turnkey solutions that combine strategy, people, proven processes and robust technology to help schools effectively and efficiently improve student outcomes, as well as increase revenues and expand into new marketing channels, such as online learning. Greenwood Hall has served more than 70 education clients, over 80 degree programs and over 600,000 students.

 

We provide cloud-based education management services that address the entire student lifecycle. Our end-to-end services begin with recruitment and student enrollment and end with post-graduation job placement, career networking and alumni relations. Our solutions are utilized by schools that need to enhance the student experience and are looking to expand into new markets such as online learning, international and/or competency-based learning. All of our solutions are designed to help public and not-for-profit higher education institutions generate sustainable improvements in operating and financial results, while improving student success and satisfaction.

 

Our core services include: (a) enrollment management solutions, including lead generation/marketing, prospective student qualification, new student recruitment, and enrollment counseling; (b) retention counseling/coaching and the reengagement of students who have dropped out of a particular institution; and (c) student support solutions including help desk, career advising, student concierge, and financial aid advising services. In conjunction with or prior to providing the aforementioned core services, we also provide (x) consulting services, including market assessments and analysis of internal operational efficiency; (y) various data and technology enabled solutions that enable school clients to better manage/analyze data, deliver instruction to students (online, hybrid, and classroom) and make certain institutional decisions; and (z) management services. In addition to services provided to educational institutions, we provide donor lifecycle management services to various major non-profit organizations. The lifecycle management services for non-profit organizations are mainly related to legacy operations of our Company prior to entering the education marketplace in 2006.

 

We believe that our end-to-end solutions that span the entire student lifecycle provide us with an advantage over competing providers that often address isolated segments of the student lifecycle spectrum, such as student acquisition and student retention. We generally focus on small to medium-sized private and not-for-profit institutions and medium-sized to large public institutions.

 

 

Our Services

 

Key components of our end-to-end student lifecycle management solution are:

 

·

Student Recruitment & Enrollment – Our Student Recruitment and Enrollment services include interactive and traditional lead-generation as well as end-to-end recruitment solutions for academic programs of all types, including online degree programs. We help clients identify and reach out to qualified potential students, recruit prospective students, provide enrollment counseling and advice on financial aid options and eligibility, guide students through the enrollment process and help to ensure that students have a positive first week experience. From the first interaction with prospective students, our enrollment counselors act as an extension of the client to establish and foster close, collaborative relationships with students. In our experience, these close relationships, which begin in the recruitment process and extend through the entire student lifecycle, result in significantly improved leads to enrollment rates, increased persistence, enhanced student experience and better student outcomes over the long term.

 

·

Retention & Reengagement – Our student retention counselors and success coaches leverage web-based tools and analytics to monitor and assess student progress against their stated education and career goals and provide student-specific advising. Counselors proactively contact their assigned students each term to ensure students register for the next term, have all necessary instructional materials and textbooks, have made any necessary payment arrangements and are current on any financial aid requirements and to offer the necessary support to foster student persistence. In many cases, our counselors also work to reengage students who have left a particular institution or have dropped out of an academic program.

 

·

Student Services - We also offer student concierge services that provide students with personalized support on a wide range of needs including financial aid, payments, registration, help desk, password resets and portal navigation.

 

 

Going Concern

 

As more fully described in Note 1 to the financial statements appearing later in this report, our independent registered public accounting firm has included an explanatory paragraph in their report on our financial statements included with this report for the year ended August 31, 2016 related to the uncertainty of our ability to continue as a going concern. The Company has an accumulated deficit and a working capital deficit as of August 31, 2016 and incurred a loss from continuing operations during fiscal 2016. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

 

The Company has historically funded its activities through cash generated from operations, debt financing and advances from stockholders. During the twelve (12) months ended August 31, 2016, the Company received a gross amount of approximately $905,000 from debt and equity financing.

 

Management intends to restore profitability by continuing to grow our operations and customer base. If the Company is not successful in becoming profitable, it may have to further delay or reduce expenses, or curtail operations. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that could result should the Company not continue as a going concern.

 

As a result, there is uncertainty about our ability to continue as a going concern.

 

Lack of Working Capital

 

The Company has never been adequately capitalized. As a result, the Company has at times suffered from costly cash flow challenges as well as associated costs, missed opportunities and inability to fully scale its operations. The lack of working capital has caused the Company to rely heavily on operating revenue as well as other sources of capital, such a debt. The Company believes proper capital investment and less reliance on incurring new debt to finance the Company’s growth will enable the Company to improve its financial performance in the future.

 

 

Debt Service

 

The costs associated with the Company’s debt coupled with restrictions on the Company’s cash flow availability, created significant strain on the Company’s cash flow, ability to invest in new business opportunities, operate efficiently and maximize employee morale.

 

Critical Accounting Policies

 

Our financial statements, which appear at Item 8, have been prepared in accordance with accounting principles generally accepted in the United States, which require that we make certain assumptions and estimates that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses during each reporting period. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, variable interest entities, allowances for doubtful accounts, the valuation of deferred income taxes, tax contingencies and long-lived assets. These estimates are based on historical experience and on various other factors that we believe to be reasonable under the circumstances. Actual results could differ from those estimates. For additional information relating to these and other accounting policies, see note 1 to our financial statements appearing elsewhere in this report.

 

Our significant accounting policies are set forth in Note 1 to our financial statements. Of those policies, we believe that the policies discussed below may involve a higher degree of judgment and may be more critical to an accurate reflection of our financial condition and results of operations.

 

Revenue Recognition

 

The Company’s contracts are typically structured into two categories, (i) fixed-fee service contracts that span a period of time, often in excess of one year, and (ii) service contracts at agreed-upon rates based on the volume of service provided, typically with a term of one year. Some of the Company’s service contracts are subject to guaranteed minimum amounts of service volume.

 

The Company recognizes revenue when all of the following have occurred: (i) persuasive evidence of an agreement with the customer exists, (ii) services have been rendered, (iii) the selling price is fixed or determinable, and (iv) collectability of the selling price is reasonably assured. For fixed-fee service contracts, the Company recognizes revenue on a straight-line basis over the period of contract performance. Costs incurred under these service contracts are expensed as incurred.

 

 

Allowance for Doubtful Accounts Receivable

 

An allowance for doubtful accounts is maintained for estimated losses resulting from the inability of the Company’s customers to make required payments. Management specifically analyzes the age of our customer balances, historical bad debt experience, customer credit-worthiness, and changes in customer payment terms when making estimates of the collectability of the Company’s trade accounts receivable balances. If the Company determines that the financial condition of any of its customers has deteriorated, whether due to customer specific or general economic issues, an increase in the allowance may be made. After all attempts to collect a receivable have failed, the receivable is written off. Based on the information available, management believes the Company’s accounts receivable, net of the allowance for doubtful accounts, are collectable.

 

Income Taxes

 

The Company accounts for income taxes in accordance with ASC 740-10, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities.

 

Derivative Liabilities

 

We account for stock purchase warrants as either equity or liabilities based upon the characteristics and provisions of each instrument. Warrants classified as equity are recorded as additional paid-in capital on our Consolidated Balance Sheet and no further adjustments to their valuation are made. Some of our warrants were determined to be ineligible for equity classification because of provisions that may result in an adjustment to their exercise price. Warrants classified as derivative liabilities and other derivative financial instruments that require separate accounting as assets or liabilities are recorded on our Consolidated Balance Sheet at their fair value on the date of issuance and are revalued on each subsequent balance sheet date until such instruments are exercised or expire, with any changes in the fair value between reporting periods recorded as other income or expense. We estimate the fair value of these liabilities using option pricing models that are based on the individual characteristics of the warrants or instruments on the valuation date, as well as assumptions for expected volatility, expected life and risk-free interest rate.

 

The following is a discussion and analysis of the results of operations and financial condition for the years ended August 31, 2015 and August 31, 2016. The Financial Statements should not be relied on for an understanding of the current financial status of the Company.

 

Overview

 

The Company was incorporated under the laws of the State of Nevada on February 27, 2012 under the name “Divio Holdings, Corp.” Initially, the Company sold motorcycles but later discontinued the motorcycle business and was engaged in organizational efforts, obtaining initial financing and seeking a business combination.

 

On July 22, 2014, Divio entered into a Merger Agreement (the “Merger Agreement”) with its wholly owned subsidiary, Merger Sub, and PCS Link, Inc. (“PCS Link”). Pursuant to the Merger Agreement, Merger Sub merged with and into PCS Link with PCS Link remaining as the surviving corporation (the “Merger”). Upon the consummation of the Merger, the separate existence of Merger Sub ceased, and PCS Link became a wholly owned subsidiary of Divio. In connection with the Merger and at the effective time thereof, the holders of all of the issued and outstanding shares of PCS Link Common Stock exchanged all of such shares (other than “dissenting shares” as defined in California Corporations Code Section 1300) for a combined total of 25,250,000 shares of Common Stock of the Company, representing approximately 71% of the total outstanding shares on the date of the Merger. In connection with the merger, Divio Holdings, Corp. changed its name to Greenwood Hall, Inc.

 

The Merger was accounted for as a “reverse merger” with PCS Link as the accounting acquirer and the Company as the legal acquirer. Although, from a legal perspective, the Company acquired PCS Link, from an accounting perspective, the transaction is viewed as a recapitalization of PCS Link accompanied by an issuance of stock by PCS Link for the net assets of Greenwood Hall. This is because Greenwood Hall did not have operations immediately prior to the merger, and following the merger, PCS Link was the operating company. PCS Link’s stockholders owned 71% of the outstanding shares of Greenwood Hall immediately after completion of the transaction.

 

 

Results of Operations

 

		Year				Year
		Ended				Ended
		31-Aug-16				31-Aug-15
REVENUES			7,554,436				8,064,245
OPERATING EXPENSES
Direct cost of services			4,843,395				6,174,794
Personnel			3,029,631				2,044,157
Selling, general and administrative			2,549,223				3,164,891
Equity-based expense			828,978				1,658,149
TOTAL OPERATING EXPENSES			11,251,237				13,041,991
INCOME (LOSS) FROM OPERATIONS			(3,696,801	)			(4,977,746	)
OTHER INCOME (EXPENSE)
Interest expense			(3,799,891	)			(4,687,542	)
Change in value of derivatives			(962,135	)			(112,735	)
Miscellaneous income (expense), net			(66,234	)			(63,888	)
TOTAL OTHER INCOME (EXPENSE)			(4,828,260	)			(4,864,165	)
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR (BENEFIT FROM) INCOME TAXES			(8,525,061	)			(9,841,911	)
Provision for (benefit from) income taxes			(633	)			-
INCOME (LOSS) FROM CONTINUING OPERATIONS			(8,524,428	)			(9,841,911	)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, net of tax			-				-
NET INCOME (LOSS)			(8,524,428	)			(9,841,911	)
Net income (loss) attributable to noncontrolling interests			-				-
Net income (loss) attributable to Greenwood Hall, Inc. common stockholders		$	(8,524,428	)		$	(9,841,911	)

 

 

Revenues : Revenues decreased $509,809, or 6.3%, during the period ended August 31, 2016, primarily due to the one-time nature of a significant portion of revenue that was not associated with the Company’s core higher education business that was booked during the first quarter of the one year period ended August 31, 2015. Recurring revenues from the Company’s core higher education business increased by 46% during period ended August 31, 2016, compared 2015, primarily due to the addition of new customer contracts in FY-2016.

 

Direct Cost of Services: Direct cost of services decreased by $1,331,399 or 21.6 %, during the period ended August 31, 2016, largely reflecting improvements in operating efficiencies.

 

Personnel : Personnel costs increased by $985,474, or 48.2%, during the period ended August 31, 2016, mostly because of an increase in the number of employees required to serve growth in the Company’s core higher education business.

 

Selling, General and Administrative : Selling, general and administrative expenses decreased by $ 615,658, or 19.5%, during the period ended August 31, 2016, primarily due to a reduction in overhead costs.

 

Equity-based expense: Equity-based expense decreased by $829,171 or 50% during the period ending August 31, 2016 mainly due to significant warrants being issued in 2015 for services compared to 2016.

 

Other Income (Expense): Other expense decreased by $35,905, or 0.7%, during the period ended August 31, 2016, substantially due to non-cash interest expenses including a $ 1,500,000 expense that was recognized as interest expense for the issuance of Common Stock associated with the termination of a registration rights agreement in September 2015..

 

Income (Loss) From Continuing Operations : As a result of the aforementioned items, we experienced a net loss of $8,524,428 from continuing operations during the period ended August 31, 2016, compared with a net loss from continuing operations of $9,841,911 during the period ended August 31, 2015, a decrease of $1,317,483, or 13.4%.

 

EdTech Versus Legacy/Non-Recurring Revenue

 

We have two revenue streams – EdTech and Legacy. The EdTech side of our business includes all of our technology-enabled solutions offerings to higher education. It is the growth side of our business and the area that Management believes will generate the highest stockholder value. As such, the Company is focused on the growth of our EdTech product suite. Our Legacy business represents the Company’s non-education lifecycle management services for non-profit organizations as well as certain non-strategic higher education offerings. In order to best maximize stockholder value, Management opted in 2014 to end its efforts to grow the Company’s Legacy business. The Company’s revenues for FY-2015 reflect a disproportionate share of Legacy business revenue, whereas revenues for FY-2016 reflect a much higher proportion of EdTech revenue.

 

		Twelve Months Ended
		August 31, 2016				August 31, 2015
Legacy		$	1,413,207			$	3,853,088
EdTech		$	6,141,229			$	4,211,177
Total Revenue			7,554,436				8,064,265

 

EdTech revenue increased by $ 1,930,052 or 46% during the year period that ended on August 31, 2016 compared to the year period that ended August 31, 2015, primarily due to an increase in EdTech contracts, that commenced services in the third and fourth quarters of FY-2016.

 

 

Adjusted EBITDA 

 

Adjusted EBITDA represents our earnings before interest expense, other income (expense), income taxes, depreciation and amortization, transactional-related expenses, stock-based compensation, and changes in the fair value of our derivative financial instruments. Adjusted EBITDA is a key measure used by Management and the Board of Directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short and long-term operational plans. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core business. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our Management and Board of Directors.

 

Adjusted EBITDA should not be considered as an alternative to any measure of financial performance calculated and presented in accordance with U.S. GAAP. In addition, Adjusted EBITDA may not be comparable to similarly titled measures of other companies because other companies may not calculate Adjusted EBITDA in the same manner as we do.

 

Our use of Adjusted EBITDA has limitations as an analytical tool, and investors should not consider it in isolation or as a substitute for analysis of our financial results as reported under U.S. GAAP. Some of these limitations are:

 

·

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized

 

·

may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

 

·

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

 

·

Adjusted EBITDA does not reflect the potentially dilutive impact of equity-based compensation;

 

·

Adjusted EBITDA does not reflect interest or tax payments that may represent a reduction in cash available to us; and

 

·

other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

 

 

Due to these and other limitations, investors should consider adjusted EBITDA alongside other U.S. GAAP-based financial performance measures, including various cash flow metrics, net income (loss) and our other U.S. GAAP results. The following table presents a reconciliation of Adjusted EBITDA (loss) to net loss for each of the periods indicated:

 

		Twelve Months Ended
		August 31, 2016				August 31, 2015
NET LOSS		$	(8,524,428	)		$	(9,841,911	)
Adjustments:
Equity Expense			827,569				1,658,149
Interest Expense			3,799,891				4,687,542
Other Expense			-				-
Transaction Related Expenses			455,642				-
Change in Value of Derivatives			962,135				112,735
Miscellaneous Income (expense), net			66,234				63,888
Total Adjustments			6,111,471				6,522,314
ADJUSTED EBITDA (LOSS)		$	(2,412,957	)		$	(3,319,597	)

 

Adjusted EBITDA improved by $ 906,640 or 27% during the year period that ended on August 31, 2016 compared to the year period that ended August 31, 2015, primarily due to increases in revenue and efficiencies.

 

Liquidity and Capital Resources

 

Working Capital

 

		31-Aug-16				31-Aug-15
Total Current Assets			934,039				968,511
Total Current Liabilities			14,061,690				9,797,027
Working Capital Deficit			-13,127,651				-8,828,516

 

The decrease in working capital was due to the funding of on-going operations.

 

Cash Flows

 

We experienced a net loss of $8,524,428 from continuing operations during the period ended August 31, 2016. Historically, we have financed our operations from cash generated through operating activities and proceeds from debt instruments. We intend to return to profitability in the future, however, we will require additional capital funding until such time.

 

The following is a summary of the Company’s cash flows provided by operating, investing and financing activities for the twelve months ended August 31, 2016 and August 31, 2015.

 

		Year Ended				Year Ended
		31-Aug-16				31-Aug-15
Net Cash used by Operating Activities			-1,874,788				-3,363,812
Net Cash provided by Financing Activities			1,666,061				3,217,428

 

Net cash used in operating activities from continuing operations was $1,874,788 compared with net cash used by operating activities from continuing operations of $3,363,812 during the year ended August 31, 2015, representing a 44.3% decrease. The primary factor resulting in the change in cash provided by operating activities from continuing operations was increased efficiciencies and the reduction of overhead.

 

Net cash provided by financing activities during 2016 amounted to $1,666,061 compared with net cash provided by financing activities during 2015 of $3,217,428, representing a 48.2% decrease, primarily due to a decrease in fundraising.

 

Debt of Companies

 

Opus Bank

   

As of August 31, 2016, the aggregate balance outstanding on the promissory notes owed to Opus Bank (“Opus Notes”), as amended, amounted to $3,515,152. The maturity date of the Opus Notes was October 31, 2016. The Opus Notes were secured by substantially all the assets of the Company and its subsidiaries. The Opus Notes were not-convertible into shares of the Company’s common stock.

 

 

California United Bank

 

As of August 31, 2016, the aggregate balance outstanding on the promissory note owed to California United Bank (“CUB Note”), as amended, amounted to $876,250. The maturity date of the CUB Note was October 31, 2016. The CUB Note was secured by substantially all the assets of the Company and its subsidiaries. The CUB Note was not-convertible into shares of the Company’s common stock.

 

Colgan Financial Group, Inc.

 

As of August 31, 2016, the aggregate principal balance outstanding on the promissory notes owed to Colgan Financial Group, Inc. (“Colgan Notes”), as amended, amounted to $1,088,120. The maturity date of the Colgan Notes was October 31, 2016. The Colgan Notes, combined are convertible into 47,127,133 shares of the Company’s common stock. The Colgan Notes are secured by substantially all the assets of the Company and its subsidiaries.

 

Redwood Fund, LP

 

As of August 31, 2016, the aggregate principal balance outstanding on the unsecured promissory notes owed to Redwood Fund, LP. (“Redwood Notes”), as amended, amounted to $993,530. The maturity date of the Redwood Notes was October 15, 2016. One of the Redwood Notes was convertible into 1,680,674 common shares of the Company.

 

Lincoln Park Capital Fund, LLP

 

As of August 31, 2016, the aggregate principal balance outstanding on the unsecured promissory notes owed to Lincoln Park Capital Fund, LLP. (“Lincoln Park Notes”), as amended, amounted to $590,000. The maturity date of the Lincoln Park Notes was October 31, 2016. The Lincoln Park Notes were convertible into 1,180,000 common shares of the Company.

 

 

FirstFire Global Opportunities Fund, LLC

 

As of August 31, 2016, the principal balance outstanding on the unsecured promissory note owed to First Fire Global Opportunities Fund, LLC. (“First Fire Note”), as amended, amounted to $392,500. The maturity date of the First Fire note was September 26, 2016. The First Fire Note was convertible into 26,166,667 common shares of the Company.

 

Off-Balance Sheet Arrangements

 

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Holding Company

 

From the time of the Company’s inception until consummation of the Merger, the Company operated as a development stage enterprise by devoting substantially all of its efforts to financial planning, raising capital, research and development and developing markets for its services. Since the consummation of the Merger, the Company has acted as a holding company, holding its wholly owned subsidiary, PCS Link.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. The Company maintains cash and cash equivalents at financial institutions, which periodically may exceed federally insured amounts.

 

Income (Loss) Per Common Share

 

Basic earnings (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share are computed using the weighted-average number of common shares and dilutive potential common shares outstanding during the period.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

This item has been omitted as the Company qualifies as a smaller reporting company. 

 

 

ITEM 8. FINANCIAL STATEMENTS

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of Greenwood Hall, Inc. and Subsidiaries

 

We have audited the accompanying consolidated balance sheets of Greenwood Hall, Inc. and Subsidiaries (the “Company”) as of August 31, 2016 and 2015, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the years then ended. The Company’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of August 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has an accumulated deficit, a working capital deficit, and has generated substantial losses during the years ended August 31, 2016 and 2015. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters also are described in Note 1. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. Our opinion is not modified with respect to that matter.

 

/s/ Rose, Snyder & Jacobs LLP

 

Encino, California

November 29, 2016

 

 

GREENWOOD HALL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AUGUST 31, 2016 AND AUGUST 31, 2015

 

		2016				2015
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	-			$	211,725
Accounts receivable, net			800,836				594,035
Prepaid expenses and other current assets			96,343				125,891
Current assets to be disposed of			36,860				36,860
TOTAL CURRENT ASSETS			934,039				968,511
PROPERTY AND EQUIPMENT, net			80,315				142,872
OTHER ASSETS
Deposits and other assets			79,783				75,034
TOTAL OTHER ASSETS			79,783				75,034
TOTAL ASSETS		$	1,094,137			$	1,186,417
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable		$	2,062,464			$	1,332,057
Accrued expenses			687,624				634,780
Accrued payroll and related expenses			745,405				441,279
Bank Overdraft			801,784				-
Deferred revenue			194,861				11,100
Accrued interest			755,083				251,751
Due to stockholders / officer			302,880				169,970
Notes payable, net of discount of $183,732 and $1,363,242 respectively			5,329,149				2,955,240
Line of Credit			2,000,000				2,000,000
Derivative liability			846,583				1,664,993
Current liabilities to be disposed of			335,857				335,857
TOTAL CURRENT LIABILITIES			14,061,690				9,797,027
Notes payable, non-current			-				552,329
TOTAL LIABILITIES			14,061,690				10,349,356
COMMITMENTS AND CONTINGENCIES (see Note 8)
STOCKHOLDERS’ EQUITY (DEFICIT)
Common stock, $0.001 par value; 937,500,000 shares authorized, 53,717,501 and 47,943,273 shares issued and outstanding, respectively			53,718				47,943
Additional paid-in capital			14,835,385				9,934,174
Subscription Receivable			(190,000	)			-
Accumulated deficit			(27,666,656	)			(19,142,228	)
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)			(12,967,553	)			(9,162,939	)
Noncontrolling interest			—				—
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)			(12,967,553	)			(9,162,939	)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)		$	1,094,137			$	1,186,417

 

See report of independent registered public accounting firm

and notes to consolidated financial statements.

 

 

GREENWOOD HALL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED AUGUST 31, 2016 AND AUGUST 31, 2015

 

		2016				2015
REVENUES			7,554,436				8,064,245
OPERATING EXPENSES
Direct cost of services			4,843,395				6,174,794
Personnel			3,029,631				2,044,157
Selling, general and administrative			2,549,223				3,164,891
Equity Based expense			828,978				1,658,149
TOTAL OPERATING EXPENSES			11,251,237				13,041,991
INCOME (LOSS) FROM OPERATIONS			(3,696,801	)			(4,977,746	)
OTHER INCOME (EXPENSE)
Interest expense			(3,799,891	)			(4,687,542	)
Change in value of derivatives			(962,135	)			(112,735	)
Miscellaneous income (expense), net			(66,234	)			(63,888	)
TOTAL OTHER INCOME (EXPENSE)			(4,828,260	)			(4,864,165	)
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR (BENEFIT FROM) INCOME TAXES			(8,525,061	)			(9,841,911	)
Provision for (benefit from) income taxes			-633				-
INCOME (LOSS) FROM CONTINUING OPERATIONS			(8,524,428	)			(9,841,911	)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, net of tax			-				-
NET INCOME (LOSS)			(8,524,428	)			(9,841,911	)
Net income (loss) attributable to noncontrolling interests			-				-
Net income (loss) attributable to PCS Link, Inc. common stockholders		$	(8,524,428	)		$	(9,841,911	)
Earnings per share - basic and diluted
Income (loss) from continuing operations attributable to Greenwood Hall, Inc. common stockholders		$	(0.17	)		$	(0.24	)
Income (loss) from discontinuing operations attributable to Greenwood Hall, Inc. common stockholders		$	-			$	-
Net income (loss) attributable to Greenwood Hall, Inc. common stockholders		$	(0.17	)		$	(0.24	)
Weighted average common shares - basic and diluted			49,391,957				40,552,638

 

See report of independent registered public accounting firm
and notes to consolidated financial statements.

 

 

GREENWOOD HALL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

 

		Common Stock								Additional Paid-				Subscription				Accumulated				Total Greenwood Hall, Inc. Stockholders' Equity				Noncontrolling				Total Stockholders' Equity
		Shares				Amount				in Capital				Receivable				Deficit				(Deficit)				Interest				(Deficit)
Balance, August 31, 2014			38,536,450			$	38,536			$	3,149,711							$	(9,300,317	)		$	(6,112,070	)		$	-			$	(6,112,070	)
Issuance of units (1 share and 1 warrant) for cash, net of fees			1,000,000				1,000				999,000												1,000,000								1,000,000
Issuance of shares for cash, net			250,000				250				238,195												238,445								238,445
Warrants issued for service											656,998												656,998								656,998
Conversion of notes payable			3,064,755				3,065				303,411												306,476								306,476
Issuance of stock with debt																							-								-
Issuance of warrants with debt											231,818												231,818								231,818
Reclassification of warrants to liabilities																							-								-
Shares issued for services			1,518,092				1,519				809,246												810,765								810,765
Stock-based Compensation											190,386												190,386								190,386
Settlement of derivatives											27,925												27,925								27,925
Warrants exercised			545,000				545				4,905												5,450								5,450
Warrants and shares issued with debt			200,000				200				976,148												976,348								976,348
Inducement to exercise warrants and convert debt											2,346,431												2,346,431								2,346,431
Net loss			-				-				-				-				(9,841,911	)			(9,841,911	)			-				(9,841,911	)
Balance, August 31, 2015			45,114,297			$	45,115			$	9,934,174			$	-			$	(19,142,228	)		$	(9,162,939	)		$	-			$	(9,162,939	)
Shares issued for settlement			2,000,000			$	2,000			$	1,570,675												1,572,675								1,572,675
Shares issued for cash			500,000			$	500			$	499,500			$	(190,000	)							310,000								310,000
Conversion of notes payable and accuued interest			4,484,126			$	4,484			$	293,384												297,868								297,868
Warrants issued with debt										$	344,902												344,902								344,902
Warrants issued for services										$	123,771												123,771								123,771
Stock-based Compensation										$	250,031												250,031								250,031
Shares issued for services			1,410,332			$	1,410			$	453,766												455,176								455,176
Settlement of derivative liabilities										$	1,365,391												1,365,391								1,365,391
Exercise of common stock warrants			208,746			$	209			$	(209	)											-								-
Net loss			-				-				-				-				(8,524,428	)			(8,524,428	)			-				(8,524,428	)
Balance, August 31, 2016			53,717,501			$	53,718			$	14,835,385			$	(190,000	)		$	(27,666,656	)		$	(12,967,553	)		$	-			$	(12,967,553	)

 

See report of independent registered public accounting firm
and notes to consolidated financial statements.

 

 

GREENWOOD HALL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 2016 AND AUGUST 31, 2015

 

		2016				2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	(8,524,428	)		$	(9,841,911	)
Net (income) loss from discontinued operations			—				—
Net income (loss) from continuing operations			(8,524,428	)			(9,841,911	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities of continuing operations:
Non-cash interest on convertible promissory notes			1,391,336				3,957,214
Warrants issued for services			123,771				656,998
Stock-based compensation			250,031				190,386
Shares issued for services			455,176				810,764
Shares issued for settlement			1,572,675
Loss on Extinguishment of debt			37,480
Depreciation and amortization			65,555				63,888
Change in value of derivatives			962,135				112,735
Changes in operating assets and liabilities:
Accounts receivable			(206,801	)			445,030
Prepaid expenses and other current assets			29,548				179,800
Deposits and other assets			(4,749	)			(17,375	)
Accounts payable			732,119				500,573
Accrued expenses			50,200				350,417
Accrued payroll and related			304,126				29,999
Deferred revenue			183,761				(1,091,400	)
Accrued interest			570,367				227,456
Advances from officers, net			132,190				61,614
Net cash used in operating activities of continuing operations			(1,874,788	)			(3,363,812	)
Net cash used in operating activities of discontinued operations			—				—
NET CASH USED IN OPERATING ACTIVITIES			(1,874,788	)			(3,363,812	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment			(2,998	)			(9,177	)
Net cash used in investing activities of continuing operations			(2,998	)			(9,177	)
Net cash used in investing activities of discontinued operations			—				—
NET CASH USED IN INVESTING ACTIVITIES			(2,998	)			(9,177	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank Overdraft			801,784				-
Proceeds from issuance of notes payable			595,000				2,439,250
Payments on notes payable			(40,723	)			(465,717	)
Proceeds from the sale of stock			310,000				1,243,895
Net cash provided by financing activities of continuing operations			1,666,061				3,217,428
Net cash provided by financing activities of discontinued operations			—				—
NET CASH PROVIDED BY FINANCING ACTIVITIES			1,666,061				3,217,428
NET INCREASE (DECREASE) IN CASH FROM CONTINUING OPERATIONS			(211,725	)			(155,561	)
NET INCREASE (DECREASE) IN CASH FROM DISCONTINUED OPERATIONS			—				—
NET INCREASE (DECREASE) IN CASH			(211,725	)			(155,561	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			211,725				367,286
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	-			$	211,725
Supplemental disclosures:
Interest paid in cash		$	212,255			$	297,009
Income taxes paid in cash		$	—			$	—
Supplemental disclosure of non-cash investing and financing activities:
Conversion of convertible note and accrued interest into common stock		$	189,535			$	306,476

 

See report of independent registered public accounting firm

and notes to consolidated financial statements.

 

 

GREENWOOD HALL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Organization

 

Greenwood Hall is an emerging education management solutions provider that delivers end-to-end services that support the entire student lifecycle including offerings that increase student enrollment, improve student experience, optimize student success and outcomes, and help schools maximize operating efficiencies. Since 2006, we have developed and customized turnkey solutions that combine strategy, personnel, proven processes and robust technology to help schools effectively and efficiently improve student outcomes, expand into new markets such as online learning, increase revenues, and deliver enhanced student experiences. Our Company currently has 163 employees and has served more than 60 education clients and over 75 degree programs.

  

Basis of Presentation

  

On July 23, 2014, Greenwood Hall, Inc. (formerly Divio Holdings, Corp. (“Divio”)) and its wholly owned subsidiary, Merger Sub, completed the Merger Agreement, dated July 22, 2014, by and among Divio, Merger Sub, and PCS Link, Inc. (“PCS Link”). Pursuant to the Merger Agreement, Merger Sub merged with and into PCS Link with PCS Link remaining as the surviving corporation (the “Surviving Corporation”) in the Merger. Upon the consummation of the Merger, the separate existence of Merger Sub ceased, and PCS Link became a wholly owned subsidiary of Divio. In connection with the Merger and at the Effective Time, the holders of all of the issued and outstanding shares of PCS Link Common Stock exchanged all of such shares (other than “dissenting shares” as defined in California Corporations Code Section 1300) for a combined total of 25,250,000 shares of Common Stock, representing approximately 71% of the total outstanding shares on the date of the Merger. In connection with the merger, Divio Holdings, Corp. changed its name to Greenwood Hall, Inc.

 

The Merger was accounted for as a “reverse merger” with PCS Link as the accounting acquirer and the Company as the legal acquirer. Although, from a legal perspective, the Company acquired PCS Link, from an accounting perspective, the transaction is viewed as a recapitalization of PCS Link accompanied by an issuance of stock by PCS Link for the net assets of Greenwood Hall, Inc. This is because Greenwood Hall, Inc. did not have operations immediately prior to the merger, and following the merger, PCS Link is the operating company. The board of directors of Greenwood Hall, Inc. immediately after the merger consisted of five directors, with four of the five directors nominated by PCS Link. Additionally, PCS Link’s stockholders owned 71% of the outstanding shares of Greenwood Hall, Inc. immediately after completion of the transaction.

  

The presentation of the consolidated statements of stockholders’ deficit reflects the historical stockholders’ deficit of PCS Link through July 23, 2014.

  

Principles of Consolidation

  

The consolidated financial statements include the accounts of Greenwood Hall, PCS Link, and University Financial Aid Solutions, LLC (“UFAS”), collectively referred to herein as the Company, we, us, our, and Greenwood Hall. All significant intercompany accounts and transactions have been eliminated in consolidation. Through our affiliate UFAS we provided complete financial aid solutions. During 2013, UFAS ceased operations and is presently winding down its affairs. As a result, it is presented in the accompanying consolidated financial statements as discontinued operations.

 

Reclassifications

 

Certain numbers in the prior year have been reclassified to conform to the current year’s presentation.

  

Going Concern

  

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”), which contemplates the continuation of the Company as a going concern. The Company has an accumulated deficit and a working capital deficit as of August 31, 2016 and has incurred a loss from operations during 2016. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

 

The Company has historically funded its activities through cash generated from operations, debt financing, the issuance of equity for cash, and advances from stockholders. During the year ended August 31, 2016, the Company received approximately $905,000 in gross proceeds from financing activities.

 

Management intends to become profitable by continuing to grow its operations and customer base. If the Company is not successful in becoming profitable, it may have to further delay or reduce expenses, or curtail operations. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that could result should the Company not continue as a going concern.

 

 

Use of Estimates

 

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures. Management uses its historical records and knowledge of its business in making these estimates. Accordingly, actual results may differ from these estimates.

  

Cash and Cash Equivalents

  

For the purpose of the statement of cash flows, the Company considers cash equivalents to include short-term, highly liquid investments with an original maturity of three months or less.

  

Research and Development

  

Costs relating to designing and developing new products are expensed in the period incurred.

  

Revenue Recognition

  

The Company’s contracts are typically structured into two categories, (i) fixed-fee service contracts that span a period of time, often in excess of one year, and (ii) service contracts at agreed-upon rates based on the volume of service provided. Some of the Company’s service contracts are subject to guaranteed minimum amounts of service volume.

  

The Company recognizes revenue when all of the following have occurred: persuasive evidence of an agreement with the customer exists, services have been rendered, the selling price is fixed or determinable, and collectability of the selling price is reasonably assured. For fixed-fee service contracts, the Company recognizes revenue on a straight-line basis over the period of contract performance. Costs incurred under these service contracts are expensed as incurred.

  

Deferred Revenue

  

Deferred revenue primarily consists of prepayments received from customers for which the Company’s revenue recognition criteria have not been met. The deferred revenue will be recognized as revenue once the criteria for revenue recognition have been met.

  

Accounts Receivable

  

The Company extends credit to its customers. An allowance for doubtful accounts is maintained for estimated losses resulting from the inability of the Company’s customers to make required payments. Management specifically analyzes the age of customer balances, historical bad debt experience, customer credit-worthiness, and changes in customer payment terms when making estimates of the collectability of the Company’s trade accounts receivable balances. If the Company determines that the financial condition of any of its customers has deteriorated, whether due to customer specific or general economic issues, an increase in the allowance may be made. After all attempts to collect a receivable have failed, the receivable is written off. Based on the information available, management believes the Company’s accounts receivable, net of the allowance for doubtful accounts, are collectable.

 

 

Property and Equipment

  

Property and equipment are stated at cost. Depreciation and amortization are being provided using the straight-line method over the estimated useful lives of the assets. The estimated useful lives used are as follows:

  

Classification		Life
Equipment		5-7 Years
Computer equipment		7 Years

  

Expenses for repairs and maintenance are charged to expense as incurred, while renewals and betterments are capitalized.

 

Income Taxes

  

The Company accounts for income taxes in accordance with ASC 740-10, “Income Taxes” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities.

  

Earnings (Loss) per Share

 

Basic earnings (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share are computed using the weighted-average number of common shares and dilutive potential common shares outstanding during the period. During 2016, the Company had no instruments that could potentially dilute the number of common shares outstanding. Warrants to purchase common stock were excluded from the computation of diluted shares during the years ended August 31, 2016 and 2015, respectively, as their effect is anti-dilutive.

 

 

Variable Interest Entities

  

Generally, an entity is defined as a variable interest entity (“VIE”) under current accounting rules if it has (a) equity that is insufficient to permit the entity to finance its activities without additional subordinated financial support from other parties, or (b) equity investors that cannot make significant decisions about the entity’s operations, or that do not absorb the expected losses or receive the expected returns of the entity. When determining whether an entity that is a business qualifies as a VIE, we also consider whether (i) we participated significantly in the design of the entity, (ii) we provided more than half of the total financial support to the entity, and (iii) substantially all of the activities of the VIE either involve us or are conducted on our behalf. A VIE is consolidated by its primary beneficiary, which is the party that absorbs or receives a majority of the entity’s expected losses or expected residual returns.

  

University Financial Aid Services, LLC was 60% owned by John Hall and Zan Greenwood, who at the time held a combined 92.5% of our common stock and served as directors of PCS Link. John Hall is the CEO of the Company and Zan Greenwood served as the Company’s Chief Operating Officer through June 2013. The equity owners of UFAS have no equity at risk, Greenwood Hall has funded UFAS’ operations since it was formed in 2010, and we have the ability to exercise control over UFAS through our two stockholders / directors.

 

Based on our assessment, we have determined that UFAS is a VIE and that we are the primary beneficiary, as defined in current accounting rules. Accordingly, we are required to consolidate the revenues and expenses of UFAS. To date, the Company has not allocated any income or loss of UFAS to noncontrolling interests as the noncontrolling interests never had any equity at risk. As previously discussed, UFAS ceased operations during 2013 and is presently winding down its affairs. The Company does not anticipate having any future involvement with UFAS after it is dissolved.

  

Marketing and Advertising

 

Marketing and advertising costs are expensed as incurred. Marketing and advertising amounted to $61,724 and $137,553 for the years ended August 31, 2016 and August 31, 2015, respectively, and are included in selling, general and administrative expenses.

  

Stock-Based Compensation

 

Compensation costs related to stock options and other equity awards are determined in accordance with FASB ASC 718-10, “Compensation-Stock Compensation.” Under this method, compensation cost is calculated based on the grant-date fair value estimated in accordance FASB ASC 718-10, amortized on a straight-line basis over the awards’ vesting period. Stock-based compensation was $250,031 and $190,386 for the years ended August 31, 2016, and August 31, 2015, respectively. This expense is included in the condensed consolidated statements of operations as Equity-Based Compensation.

 

Derivative Liabilities

 

We account for warrants and conversion features as either equity or liabilities based upon the characteristics and provisions of each instrument. Warrants and conversion features classified as equity are recorded as additional paid-in capital on our Consolidated Balance Sheet and no further adjustments to their valuation are made. Some of our warrants and conversion features were determined to be ineligible for equity classification because of provisions that may result in an adjustment to their exercise price. Instruments classified as derivative liabilities and other derivative financial instruments that require separate accounting as assets or liabilities are recorded on our Consolidated Balance Sheet at their fair value on the date of issuance and are revalued on each subsequent balance sheet date until such instruments are exercised or expire, with any changes in the fair value between reporting periods recorded as other income or expense. We estimate the fair value of these liabilities using option pricing models that are based on the individual characteristics of the warrants or instruments on the valuation date, as well as assumptions for expected volatility, expected life and risk-free interest rate.

 

 

During the years ended August 31, 2016 and August 31, 2015, the Company recognized a change in value of the derivative liability of $962,135, $112,735 respectively.

  

Fair Value of Financial Instruments

  

The Company groups financial assets and financial liabilities measured at fair value into three levels of hierarchy in accordance with ASC 820-10, “Fair Value Measurements and Disclosure.” Assets and liabilities recorded at fair value in the accompanying balance sheet are categorized based upon the level of judgment associated with the inputs used to measure their fair value.

 

 

Level Input:		Input Definition:
Level I		Observable quoted prices in active markets for identical assets and liabilities.
Level II		Observable quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level III		Model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models, and similar techniques.

 

For certain of our financial instruments, including working capital instruments, the carrying amounts are approximate fair value due to their short-term nature. Our notes payable approximate fair value based on prevailing interest rates.

  

The following table summarizes fair value measurements at August 31, 2016 and 2015 for assets and liabilities measured at fair value on a recurring basis.

  

August 31, 2016

 

		Level 1				Level 2				Level 3
Derivative Liabilities		$	—			$	—			$	846,583

 

August 31, 2015

 

		Level 1				Level 2				Level 3
Derivative Liabilities		$	—			$	—			$	1,664,993

 

The assumptions used in valuing derivative instruments issued during the year ended August 31, 2016 and August 31, 2015 were as follows:

 

August 31, 2016

  

Risk free interest rate			0.68% - 0.71	%
Expected life			0.08 – 2.00 Years
Dividend yield			None
Volatility			100	%

 

August 31, 2015

 

Risk free interest rate			0.38% - 1.54	%
Expected life			0.65 – 5.75 Years
Dividend yield			None
Volatility			30% -60	%

  

 

The following is a reconciliation of the derivative liability related to these instruments for the year ended August 31, 2016:

  

Value at August 31, 2014		$	118,363
Issuance of instruments			1,461,820
Change in value			112,735
Net settlements			(27,925	)
Value at August 31, 2015		$	1,664,493
Issuance of instruments			1,313
Change in value			962,135
Net settlements			(1,781,358	)
Value at August 31, 2016		$	846,583

 

The derivative liabilities are estimated using option pricing models that are based on the individual characteristics of the warrants or instruments on the valuation date, as well as assumptions for expected volatility, expected life and risk-free interest rate. Changes in the assumptions used could have a material impact on the resulting fair value. The primary input affecting the value of our derivatives liabilities is the Company’s stock price, term and volatility. Other inputs have a comparatively insignificant effect.

 

Effect of Recently Issued Accounting Standards

  

In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers. The standard will eliminate the transaction-and industry-specific revenue recognition guidance under current U.S. GAAP and replace it with a principles-based approach for determining revenue recognition. ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2016. Early adoption is not permitted. The revenue recognition standard is required to be applied retrospectively, including any combination of practical expedients as allowed in the standard. We are evaluating the impact, if any, of the adoption of ASU 2014-09 to our financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

 

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 will explicitly require management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. The new standard will be effective for all entities in the first annual period ending after December 15, 2016. Earlier adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2014-15. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

 

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. This standard modifies existing consolidation guidance for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. ASU 2015-02 is effective for fiscal years and interim periods within those years beginning after December 15, 2015, and requires either a retrospective or a modified retrospective approach to adoption. Early adoption is permitted. The company is currently evaluating the potential impact of this standard on its Consolidated Financial Statements, as well as the available transition methods.

 

In April 2015, the FASB issued ASU No 2015-3, Simplifying the Presentation of Debt Issuance Costs. This update changes the presentation of debt issuance costs in the balance sheet. ASU 2015-03 requires debt issuance costs related to a recognized debt obligation to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability rather than being presented as an asset. Amortization of debt issuance costs will continue to be reported as interest expense. In August 2015, the FASB issued ASU 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements”. This ASU clarified guidance in ASC 2015-03 stating that the SEC staff would not object to a company presenting debt issuance costs related to a line-of-credit arrangement on the balance sheet as a deferred asset, regardless of whether there were any outstanding borrowings at period-end. This update is effective for annual and interim periods beginning after December 15, 2015, which will require us to adopt these provisions in the second quarter of 2016. This update will be applied on a retrospective basis, wherein the balance sheet of each period presented will be adjusted to reflect the effects of applying the new guidance.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes existing guidance on accounting for leases in "Leases (Topic 840)" and generally requires all leases to be recognized in the consolidated balance sheet. ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018; early adoption is permitted. The provisions of ASU 2016-02 are to be applied using a modified retrospective approach. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

 

In March 2016, the FASB issued ASU 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which outlines new provisions intended to simplify various aspects related to accounting for share-based payments and their presentation in the financial statements. The standard is effective for the Company beginning December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The Company is evaluating the impact of the adoption of this guidance on its financial statements.

 

In April 2016, the FASB issued AS 2016-10, Revenue from Contracts with Customers (Topic 606), which amends certain aspects of the Board’s new revenue standard, ASU 2014-09, Revenue from Contracts with Customers. The standard should be adopted concurrently with adoption of ASU 2014-09 which is effective for annual and interim periods beginning after December 15, 2017. Early adoption is permitted. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

 

 

2. PROPERTY AND EQUIPMENT

 

Depreciation and amortization of property and equipment amounted to $65,555 and $63,888 for the years ended August 31, 2016 and, August 31, 2015, respectively, and is included in the accompanying consolidated statements of operations in selling, general and administrative expenses.

 

At August 31, 2016 and 2015, property and equipment consists of the following:

  

		August 2016				August 2015
Computer equipment		$	553,255				553,255
Software and Equipment			42,398				39,400
Furniture & Fixtures			9,177				9,177
			604,830				601,832
Accumulated depreciation			(524,515	)			(458,960	)
Net property and equipment		$	80,315				142,872

  

3. NOTES PAYABLE

 

Opus Bank:

  

On May 28, 2014, the Company entered into a Credit Agreement and related term loan and line of credit with Opus Bank (“Opus”). Pursuant to the terms of the agreement, the Company issued a promissory note in the amount of $2,000,000, the proceeds of which were required to be used to finance repayment of the amounts owed to TCA Global Credit Master Fund, LP. Monthly payments of principal and interest are required through the maturity date in May 2017. The amounts owed to Colgan Financial Group (“CFG”) and California United Bank (“CUB”) are subordinated to amounts owed to Opus under the Credit Agreement and related debt facilities. Amounts outstanding under the Credit Agreement are secured by substantially all assets of the Company.

  

On April 13, 2015, the Company and its lenders executed a second amendment (“Second Amendment”) of the Company’s Credit Facilities (the “Credit Agreement”) with Opus ratified by CUB and CFG (collectively “Lenders”). The Second Amendment was designed to provide the Company with increased cash and credit availability as the Company seeks to expand and raise additional equity for working capital purposes. Under the terms of the Second Amendment, the Lenders agreed to waive any and all covenant violations that existed prior to the Second Amendment or that may occur through June 30, 2015. The Amendment also permitted the Company to not make any principal and/or interest payments to the Lenders through August 1, 2015, provided there are no Events of Default by the Company. The line of credit is for a maximum amount of $3,000,000. Payments of interest only will be due monthly with the unpaid balance due, in full, on the maturity date in January 2016.

  

As of August 31, 2016, the balance outstanding on the term loan and line of credit amounted to $1,606,387 and $2,126,560, respectively. At August 31, 2016, amounts owed pursuant to the Credit Agreement bear interest at a rate of 8.00% per annum.

 

In connection with the Credit Agreement, the Company issued 248,011 warrants to purchase common stock at an exercise price of $1.00 per share, which increased to 375,000 warrants due to dilutive issuances of equity by the Company during the eight months ended August 31, 2014. The warrants are exercisable immediately. In the event of future dilutive issuances, the number of warrants issuable shall be increased based on a specified formula. The warrants were valued at $78,281 on the date of issuance, which was recorded as a note discount. During the year ended August 31, 2016, the Company recognized $26,094 of amortization related to this discount, leaving a balance of $19,570 at August 31, 2016. 

  

As of August 31, 2016, the Company was not in compliance with the covenants of the Credit Agreement with Opus. In connection with the Third Amendment, Waiver and Ratification dated September 15, 2015, Opus has agreed to waive the covenant defaults through August 31, 2015 and extend the maturity date to April 15, 2016. In December 2015, Opus agreed to cancel the 375,000 warrants in exchange for 1,200,000 warrants at an exercise price of $1.00.

 

On July 11, 2016, PCS Link, the Company, and Opus agreed to terms to amend the Third Amendment, Waiver and Ratification Agreement (the “Fourth Amendment”), which extended the Maturity Date to October 31, 2016.

 

 

California United Bank:

  

In October 2010, the Company issued a promissory note to California United Bank (“CUB”) for $1,250,000 and has been amended several times since issuance. The note was last amended in May 2013. The note bears interest at a variable rate, subject to a minimum of 7.25% per annum. The interest rate at December 31, 2013 was 7.25%. Payments of interest are due monthly with one payment of all outstanding principal plus accrued interest due on March 5, 2014. The note is secured by substantially all assets of the Company and is guaranteed by one former stockholders/officer, by one stockholders/officer, a trust of one of the officers/stockholders, and UFAS.

 

On May 22, 2014, the Company and CUB amended the promissory note of $1,250,000 to extend the maturity date to the earlier of i) October 31, 2014 or ii) the completion of specified debt / equity funding. CUB also agreed to subordinate its security interest to another lender if certain criteria were met. In December 2014, the Company entered into a Change in Terms Agreement with CUB which included an extension of the maturity date of the facility to April 30, 2015 and an adjustment of the interest rate to five percent (5%) in excess of the Prime Rate.

  

On April 13, 2015, the Company and its lenders executed a second amendment (“Second Amendment”) of the Company’s Credit Facilities (the “Credit Agreement”) with Opus ratified by CUB and CFG (collectively “Lenders”). The Lenders agreed to waive any and all covenant violations that existed prior to the Second Amendment or that may occur through June 30, 2015. The Amendment also permitted the Company to not make any principal and/or interest payments to the Lenders through August 1, 2015, provided there are no Events of Default by the Company and extended the maturity date of the facility to January 1, 2016.

 

In Deccember 2015, the Company and CUB agreed to extend the maturity date until April 15, 2016 in consideration of 523,587 warrants issued at exercise price of $1.00. The warrants were valued at $23,463 and booked to interest expense during the year ended August 31, 2016.

 

On July 14, 2016, CUB extended the Maturity Date of the CUB Note to October 31, 2016.

 

As of August 31, 2016, the balance remaining is $876,251.

 

Colgan Financial Group, Inc.:

 

In December 2014, in consideration for funds in the amount of $500,000 received by Greenwood Hall, Inc. from Colgan Financial Group, Inc. (“CFG”) and Robert Logan (“Logan,” and together with CFG, the “Holder”), the Company executed a secured convertible promissory note. The note bears interest at 12% per year, the interest of which is payable monthly. This is a two (2) year note and is secured by substantially all assets of the Company. This note is subordinate to the notes held by Opus and CUB.

  

On April 13, 2015, the Company and its lenders executed a second amendment (“Second Amendment”) of the Company’s Credit Facilities (the “Credit Agreement”) with Opus ratified by CUB and CFG (collectively “Lenders”). The Lenders agreed to waive any and all covenant violations that existed prior to the Second Amendment or that may occur through June 30, 2015. The Amendment also permitted the Company to not make any principal and/or interest payments to the Lenders through August 1, 2015, provided there are no Events of Default by the Company.

 

In connection with this debt, the Company issued the right to purchase warrants upon the payment or conversion of the note principal. The conversion feature and warrants both include provisions that call for the instrument to be converted to equity at a price equal to the lesser of i) $1.50 per share or ii) 85% of the weighted average price per share of the Company’s trading price for the ten (10) trading days prior to conversion / exercise. As a result of this feature, the warrants and conversion feature are subject to derivative accounting pursuant to ASC 815. Accordingly, the fair value of the warrants and conversion feature on the date of issuance was estimated using an option pricing model and recorded on the Company’s Consolidated Balance Sheet as a derivative liability and a note discount. The fair value of the discount on the issuance date was estimated at approximately $295,927 and is being amortized over the term of the note using the effective interest method. Amortization of the note discount during the year ended August 31, 2016 amounted to approximately $155,896.

 

On October 9, 2015, Colgan converted $80,000 in notes payable for 800,000 shares and one set of warrants with the right to purchase 800,000 shares at $0.10 per share and another set of warrants with the the right to purchase 800,000 shares at $0.125 per share. The warrants were booked to additional paid in capital of approximately $41,000 which resulted in a loss on extinguishment of debt.

 

On June 23, 2016, Colgan converted $35,000 in notes payable and $67,035 in accrued interest for 3,184,126 shares and one set of warrants with the right to purchase 3,184,126 shares at $0.032 per share and and another set of warrants with the right to purcashe 3,184,126 shares at $0.04 per share. Upon conversion approximately $3,000 was booked to common stock and $204,000 to additional paid in capital which resulted in a loss of approximately $105,000 on extinguishment of debt. Each set of warrants were booked to additional paid in capital of approximately $142,000 and $132,000 respectively which resulted in a loss on extinguishment of debt. The conversion also resulted in an approximately $412,000 decrease in derivative liablity and increase in additional paid in capital.

 

The remaining principal on the note is $400,000 and has a remaining discount of approximately $32,000.

 

On July 12, 2016, CFG extended the Maturity Date of the Consolidated CFG Note to October 31, 2016.

 

 

Redwood Fund, LP:

 

On or about March 31, 2015, the Company entered into a Convertible Note with Redwood Fund, LP (“Redwood”) pursuant to which the Company issued a convertible promissory note of $250,000 and the right to purchase warrants upon the payment or conversion of the note principal. The conversion feature includes provisions that call for the instrument to be converted to equity at a price equal to (i) $1.00 if the Company’s common stock price closes above $1.00; (ii) the average of the publicly reported closing bid and ask price if the Company’s publicly reported common stock price closes between $0.50 and $0.99; or (iii) $0.50 if the Company’s publicly reported common stock price closes below $0.50. As a result of this feature, the conversion feature is subject to derivative accounting pursuant to ASC 815. Accordingly, the fair value of the conversion feature on the date of issuance was estimated using an option pricing model and recorded on the Company’s Consolidated Balance Sheet as a derivative liability and a note discount. The fair value of the conversion feature is estimated at the end of each reporting period and the change in the fair value is recorded as a non-operating gain or loss as change in value of derivatives in the Company’s Consolidated Statement of Operations. In connection with this note, the Company recorded an aggregate note discount of $177,647, which was amortized to interest expense during the year ended August 31, 2016. On August 18, 2015, Redwood as part of an additional investment, elected to exercise its existing conversion rights under its March 2015 convertible promissory note and warrant under revised terms which resulted in an issuance of 3,359,775 additional shares of Common Stock to Redwood. In connection with the revision of terms, which related to reducing the exercise price of warrants and the conversion price of the note, the Company recognized a charge to interest expense of $2,346,461 during the year ended August 31, 2015.

 

On August 14, 2015, the Company entered into a one-year $588,236 unsecured Convertible Note with Redwood. In conjunction with this note, the Company issued Redwood warrants that are exercisable for 295,000 shares of the Company’s common stock over the next five (5) years at an exercise price of $1.00 per share. Redwood has an option to provide additional convertible debt to the Company in the amount of $250,000 at the same terms. Interest will accrue monthly at 10% annually and the note is unsecured. In connection with this debt, the Company recorded a note discount equal to $588,236 associated with the measurement of the warrants and conversion issued therewith. In addition to this note and the Warrant, at the Closing, the Company issued 200,000 shares of common stock to Redwood, which were measured at the closing price on the date of issuance. The aggregate value of the shares, warrants and conversion feature exceeded the face value of the note. As a result, the Company recognized a charge to interest expense in the amount of $1,165,202 on the date of issuance related to such excess value. During the year ended August 31, 2016, the Company recognized approximately $564,000 of amortization of note discount and is fully amortized as of August 31, 2016. The maturity date of this note was October 15, 2016.

 

On November 6. 2015 the Company entered into a six month $125,000 unsecured promissory note with Redwood with a $25,000 issue discount and an interest rate of 10%. As of August 31, 2016 the discount was fully amortized. As of August 31, 2016, the balance on this note was $ 125,000. The maturity date of this note was October 15, 2016.

 

On December 14, 2015 the Company entered into a three month $30,000 unsecured promissory note with Redwood with an interest rate of 18% and added an additional $15,000 on January 18, 2016 increasing the total note to $45,000. As of August 31, 2016 the discount was fully amortized. As of August 31, 2016, the balance on this note was $ 45,000. The maturity date of this note was October 15, 2016.

 

On February 4, 2016 the Company entered into a one year $235,294 unsecured promissory note with Redwood with an interest rare of 10% and $35,294 issue discount. As of August 31, 2016, the Company recognized approximately $20,000 of note discount. As of August 31, 2016, the balance on this note was $ 235,294. As of August 31, 2016, the Company recognized approximately $ 20,000 of amortization.The maturity date of this note was October 15, 2016.

 

 

Lincoln Park Capital Fund, LLP:

 

In April 2015, the Company entered into an unsecured Convertible Note with Lincoln Park Capital Fund, LLP (“Lincoln Park”) pursuant to which the Company issued a convertible promissory note of $295,000 and the right to purchase warrants upon the payment or conversion of the note principal. The conversion feature includes provisions that call for the instrument to be converted to equity at a price equal to (i) $1.00 if the Company’s common stock price closes above $1.00; (ii) the average of the publicly reported closing bid and ask price if the Company’s publicly reported common stock price closes between $0.50 and $0.99; or (iii) $0.50 if the Company’s publicly reported common stock price closes below $0.50. As a result of this feature, the conversion feature is subject to derivative accounting pursuant to ASC 815. Accordingly, the fair value of the conversion feature on the date of issuance was estimated using an option pricing model and recorded on the Company’s Consolidated Balance Sheet as a derivative liability and a note discount. The fair value of the conversion feature is estimated at the end of each reporting period and the change in the fair value is recorded as a non-operating gain or loss as change in value of derivatives in the Company’s Consolidated Statement of Operations. In connection with this debt, the Company recorded a note discount equal to approximately $215,000 associated with the measurement of the warrants and conversion feature issued therewith. During the year ended August 31, 2016, the Company recognized approximately $153,000 of amortization of note discount leaving a zero balance at August 31, 2016.

 

On August 21, 2015, the Company entered into a one-year $295,000 unsecured Convertible Note with Lincoln Park. In conjunction with this note, the Company issued Lincoln Park warrants that are exercisable for 400,000 shares of the Company’s common stock over the next five (5) years at an exercise price of $1.00 per share. Interest will accrue monthly at 10% annually and the note is unsecured. In connection with this debt, the Company recorded a note discount equal to approximately $247,000 associated with the measurement of the warrants and conversion issued therewith. During the year ended August 31, 2016, the Company recognized approximately $243,000 of amortization of note discount or the remaining discount balance.

 

On July 15, 2016, Lincoln Park agreed to extend the maturity date of both Lincoln Park Notes to October 31, 2016.

 

As of August 31, 2016, the balance owed on the Lincoln Park notes was $ 590,000. As of August 31, 2016, if Lincoln Park converted its debt into common stock of the Company, it would be issued 1,180,000 shares.

 

FirstFire Global Opportunities Fund, LLC

 

In December 2015, the Company issued a convertible unsecured promissory note to FirstFire Global Opportunities Fund, LLC (“FirstFire”) in the principal amount of $275,000 (the “FirstFire Note”) and a warrant to purchase 250,000 shares of Common Stock at an exercise price of $0.01. The FirstFire Note is convertible a price of $0.40 per share (the “Fixed Conversion Price”); provided, however that from and after the occurrence of any Event of Default thereunder, the conversion price shall be the lower of: (i) the Fixed Conversion Price or (ii) 75% multiplied by the lowest sales price of the Common Stock in a public market during the twenty-one (21) consecutive Trading Day period immediately preceding the Trading Day that the Company receives a Notice of Conversion; and provided, further, however, and notwithstanding the above calculation of the conversion price, if, prior to the repayment or conversion of the FirstFire Note, in the event the Company consummates a registered or unregistered primary offering of its securities for capital raising purposes (a “Primary Offering”), FirstFire shall have the right, in its discretion, to (x) demand repayment in full of an amount equal to any amounts outstanding under the FirstFire Note as of the closing date of the Primary Offering or (y) convert any amounts outstanding under the FirstFire Note into Common Stock at the closing of such Primary Offering at a conversion price equal to the lower of (A) the Fixed Conversion Price and (B) a ten percent (10%) discount to the offering price to investors in the Primary Offering; provided, however, that from and after the occurrence of any Event of Default thereunder, the conversion price shall equal the lower of (Y) the Fixed Conversion Price and (Z) a twenty percent (20%) discount to the offering price to investors in the Primary Offering. The Company booked $52,320 in discounts related to the FirstFirst Note. During the twelve months ended August 31, 2016, the Company amortized all the of note discount.

 

On June 30, 2016, FirstFire agreed to extend the maturity date of the FirstFire Note to August 28, 2016. In consideration for this extension the Company gave FirstFire the right to purchase 100,000 shares at an exercise price of $0.05, along with adding an additional $25,000 principal to the loan. This additional $25,000 discount was fully amortized as of August 31, 2016. The warrants were booked as approximately $5,000 in additional paid in capital and charged to interest expense.

 

On August 28, 2016, FirstFire agreed to extend the maturity date from August 28, 2016 to September 26, 2016 in consideration of additional $100,000 in principal. As of August 31, 2016 aproximately $10,000 of the $100,000 discount was amortized. FirstFire was not allowed to convert greater that $25,000 per week.

 

On August 31, 2016, FirstFire converted $7,500 in debt to 500,000 shares. This resulted in a $4,000 loss on extinguishment of debt.

 

As of August 31, 2016, the balance on the First Fire note was $ 392,500.

 

As of August 31, 2016, if First Fire converted its note into shares of common stock of the Company, it would be issued 26,166,667 shares.

 

 

Colgan Financial Group, Inc.:

 

During 2013, the Company entered into a Loan and Security Agreement with CFG pursuant to which the Company issued a promissory note of $600,000. The note bears interest at 2.5% per month, is payable in monthly installments of principal and interest through June 2014, is guaranteed by one stockholder of the Company and an advisor to the Company and is secured by substantially all assets of the Company. This note is subordinate to the notes held by CUB. In July 2014, a payment of $144,000 was made in connection with an equity funding. In April 2015, the Company received an additional $200,000 in funding under this agreement.

 

On April 13, 2015, the Company and its lenders executed a second amendment (“Second Amendment”) of the Company’s Credit Facilities (the “Credit Agreement”) with Opus ratified by CUB and CFG (collectively “Lenders”). The Lenders agreed to waive any and all covenant violations that existed prior to the Second Amendment or that may occur through June 30, 2015. The Amendment also permitted the Company to not make any principal and/or interest payments to the Lenders through August 1, 2015, provided there are no Events of Default by the Company. In connection therewith, the Company entered into Amendment No. 4 to the Loan and Security Agreement with CFG. Pursuant to the 4^th amendment, the Company consolidated two of the notes outstanding to CFG (the December 2013 promissory note and the $200,000 promissory note issued in February 2015). The balance of the amended note on the date of Amendment No. 4 was $688,120. Amendment No. 4 provided CFG with the ability to convert the note, at its option, at a conversion price equal to the lesser of (i) 85% of the weighted average price per share of the Company’s common stock as reported by the exchange or over the counter market for the ten (10) trading days prior to the date of the notice of conversion or (ii) $1.50. The conversion feature is accounted for as a derivative liability in accordance with ASC 815. On the grant date, the conversion feature was valued at approximately $188,000, which was recorded as a note discount. During the year ended August 31, 2016, amortization of the note discount amounted to approximately $117,000. As of August 31, 2016, the balance remaining is $982,623 including accrued interest. The note maturity was extended to April 2016 pursuant to an amendment to the note that became effective in September 2015.

 

As of August 31, 2016, if CFG converted its 2013 note into shares of common stock of the Company, it would be issued 29,560,206 shares.

  

In December 2014, the Company issued to CFG and Robert Logan a promissory note with a principal amount of $500,000 (the “2014 CFG Note”), which bears interest at a rate of 12% per year, payable monthly with a maturity date on the third anniversary of the issuance thereof. The 2014 CFG Note is secured by substantially all assets of the Company and is subordinate to the notes held by Opus and CUB.

 

In connection with the 2014 CFG Note, the Company granted to CFG the right to receive a warrant to purchase shares of Common Stock upon the full payment or conversion of the principal under the 2014 CFG Note. The conversion feature and warrants both include provisions that call for the respective instruments to be converted or exercised, as applicable, into equity at a price equal to the lesser of i) $1.50 per share or ii) 85% of the weighted average price per share of the Company’s trading price for the ten (10) trading days prior to conversion / exercise. As a result of this feature, the warrant and conversion feature are subject to derivative accounting pursuant to ASC 815. Accordingly, the fair value of the warrant and conversion feature on the date of issuance was estimated using an option pricing model and recorded on the Company’s Consolidated Balance Sheet as a derivative liability and a note discount. The fair value of the discount on the issuance date was estimated at approximately $295,927 and is being amortized over the term of the note using the effective interest method. Amortization of the 2014 CFG Note discount during the twelve months ended August 31, 2016 amounted to approximately $155,896.

 

As of August 31, 2016, if CFG converted the balance and accrued interest owed on the 2014 CFG Note, CFG would be issued 17,566,927 shares and two sets of warrants – the first set excercisable for 17,566,927 shares of the Company’s Common Stock at an exercise price of $ 0.023/share and the second set excercisable for 17,566,927 shares of the Company’s Common Stock at an exercise price of $ 0.029/share.

 

In April 2015, the Company issued to CFG a promissory note for the principal amount of $200,000 (the “2015 CFG Note”) under the Loan and Security Agreement.

 

 

The Company also finances the purchases of small equipment. The amount of such notes is not significant at August 31, 2016. The following is a schedule, by year, of future minimum principal payments required under notes payable as of August 31, 2016:

 

Years Ending August 31,
2017		$	7,512,881
2018			—
2019			—
2020			—
Total			7,512,881
Note discount			(183,732	)
		$	7,329,149

 

4. STOCKHOLDERS’ EQUITY

 

The Company is authorized to issue one class of stock, which represents 937,500,000 shares of common stock, par value $0.001.

 

Common Stock

 

In September 2014, the Company sold 1,000,000 units, comprised of one share of common stock and one warrant to purchase common stock, at a price of $1.00 per unit, for total proceeds of $1,000,000. The warrants have an exercise price of $1.30 per share and expire twenty-four (24) months from the date of issuance.

 

In January 2015, the Company sold 250,000 units, comprised of one share of common stock and one warrant to purchase common stock, at a price of $1.00 per unit, for total proceeds of $250,000. The Company incurred $11,555 of fees associated with this raise, which are presented net of the proceeds. The warrants have an exercise price of $1.30 per share and expire twenty-four (24) months from the date of issuance.

 

During the year ended August 31, 2015, the Company issued 545,000 shares of common stock in connection with the exercise of warrants. This resulted in total proceeds of $5,450.

 

During the year ended August 31, 2015, as more fully discussed in Note 3, the Company issued 200,000 shares as a debt kicker. The shares were measured at their issuance date fair value of $170,000 and were considered in the measurement of the note discount on the date of issuance.

 

The Company issued 3,064,755 common shares associated with the conversion of debt and accrued interest totaling $306,476. In connection with the conversion of the promissory note and accrued interest totaling $306,476, the Company offered to the holder (Redwood), as an inducement to convert, a reduction of the conversion price of the note from $0.85 to $0.096 per share and a reduction of the exercise price of 295,000 warrants from $0.85 to $0.01 per share. As a result, the Company assessed the incremental cost associated with these inducements, which management estimated as approximately $2.34 million. The incremental cost associated with the inducement was expensed as interest immediately. Redwood elected to convert the note and exercise the warrants pursuant to these new terms.

 

On September 16, 2015, the Company entered into a stock purchase agreement with Neil Rogers (“Rogers”) pursuant to which the Company issued to Rogers 500,000 shares of Common Stock in exchange for an aggregate purchase price of $500,000. The Company agreed that payment of $190,000 of the cash consideration is subject to the effectiveness of a registration statement for the issued shares.

 

On September 16, 2015, pursuant to the termination of a registration rights agreement between the Company, Rogers and Byrne United S.A. (“Byrne”), the Company agreed to issue 625,000 shares of Common Stock to Rogers and 625,000 shares of Common Stock to Byrne.

 

On April 18, 2016, Greenwood Hall, Inc.’s subsidiary, PCS Link, Inc. (“PCS”), entered into a confidential settlement agreement (the "F500 Settlement Agreement") with Finance 500, Inc. (“F500”) and Bridgewater Capital Corporation (“BCC”) related to the resolution of disputes under a consulting agreement dated August 5, 2013 (the "F500 Consulting Agreement") between PCS, F500, and BCC. Pursuant to the the F500 Settlement Agreement and in order avoid the continued cost and uncertainty of litigation, the Company agreed to issue a total of 750,000 shares of Common Stock to F500 and BCC, in return for (a) general release of all claims F500 and PCS may have against PCS and (b) dismissal of the lawsuit filed by F500 and BCC against the Company and referenced in this annual report on Form 10-K. The shares were valued at $72,675 and recorded as a charge to operating expenses on the date of issuance.

 

Stock Issued for Services

 

During the year ended August 31, 2016, the Company entered into agreements with vendors for advisory and consulting services in which the vendors received shares totaling 1,410,332 which were measured based on their grant-date fair value and recognized as operating expense of $578,947.

 

 

Stock Option Plan

 

In July 2014, the Board of Directors adopted, and the stockholders approved, the 2014 Stock Option Plan under which a total of 5,000,000 shares of common stock had been reserved for issuance. The 2014 Stock Option Plan will terminate in September 2024.

 

Stock Options

 

As of August 31, 2016, the members of the Board of Directors hold options to purchase 2,660,000 shares of common stock at exercise prices ranging from $0.01 to $0.75, which were granted prior to August 31, 2016.

 

As of August 31, 2016, employees and officers hold options to purchase 2,325,000 shares of common stock at exercise prices ranging from $0.08 to $0.11.

 

Transactions in FY2016		Quantity				Weighted- Average Exercise Price Per  Share				Weighted- Average Remaining  Contractual Life
Outstanding, August 31, 2015			1,750,000				0.37				9.29
Granted			3,235,000				0.16				9.42
Exercised			0
Cancelled/Forfeited			0				-				-
Outstanding, August 31, 2016			4,985,000				0.23				9.03
Exercisable, August 31, 2016			1,750,000				0.37				8.29

 

The fair value of the options granted during the years ended August 31, 2016 and August 31, 2015 is estimated at approximately $401,440 and $210,000 respectively. The fair value of these options was estimated at the date of grant using the Black Scholes option pricing model with the following assumptions for the fiscal years ended August 31, 2016 and August 31, 2015: no dividends, expected volatility of 100 %, risk free interest rate range of 1.21% to 1.65%, and expected life of 5.5 years.

 

The weighted average remaining contractual life of options outstanding issued under the Plan was 9.03 years at August 31, 2016. The exercise prices for the options outstanding at August 31, 2016 ranged from $0.01 to $0.75, and the information relating to these options is as follows:

 

OPTIONS OUTSTANDING												OPTIONS EXERCISABLE
Quantity				Weighted- Average Exercise Price Per Share				Weighted- Average Remaining Contractual Life				Quantity				Weighted- Average Exercise Price Per Share				Weighted- Average Remaining Contractual Life
	700,000			$	0.01				7.90				700,000				0.01				7.90
	600,000			$	0.50				8.53				300,000				0.50				8.53
	450,000			$	0.75				8.59				450,000				0.75				8.59
	910,000			$	0.35				9.19
	1,825,000			$	0.08				9.49
	500,000			$	0.11				9.59
	4,985,000			$	0.23				9.03				1,750,000			$	0.37				8.29

 

Warrants Issued for Services

 

During fiscal year 2016, the Company issued 1,753,587 warrants to various creditors to further extend their payment term. The warrants are exercisable at $1.00 per share, have a term of 5.5 years, and were 100% vested upon issuance. The Company valued these warrants at $78,580 using the Black-Scholes model and the significant inputs to that model below. The Company recognized these warrants as an expense during the year period ended August 31, 2016. Also during that period the Company issued to Colgan Financial based on an old Consultant agreement 150,000 warrants which were expensed at $11,436.

 

During the year ended August 31, 2016, the Company issued 250,000 warrants for services. The warrants are exercisable at $0.01 per share, have a term of 5 years, and were 100% vested upon issuance. The Company valued these warrants at $30,349 using the Black-Scholes model and the significant inputs to that model below. The Company recognized these warrants as an expense during the year ended August 31, 2016. There were also another 500,000 warrants issued at $1.10 and expensed for $3,407

 

In March 2015, the Company issued an S-1 to register 5,673,980 shares of common stock. As part of this offering, the Company agreed to issue 1,387,530 shares to Company stockholders holding warrants for the purchase of the Company’s common stock. This resulted in the warrant holders forfeiting warrants equal that could have been exercised for 4,286,450 shares of common stock of the Company. The company recognized $693,765 of expense associated with this exchange.

 

The assumptions used in valuing warrants issued for services during the twelve months ended August 31, 2016 were as follows:

 

Risk free interest rate			0.78% - 1.66	%
Expected life			2 – 5.64 Years
Dividend yield			None
Volatility			66	%

 

 

Warrants Outstanding

 

The following is a summary of warrants outstanding at August 31, 2016:

 

Exercise Price				Number of Warrants				Expiration Date
$	1.00				1,264,023			Dec-24
$	0.01				100,000			Jul-16
$	1.00				295,000			Apr-20
$	0.03				3,184,332			Jun-18
$	0.04				3,184,332			Jun-18
$	0.10				800,000			Jun-18
$	0.13				800,000			Jun-18
$	0.01				150,000			Feb-18
$	0.50				1,176,473			Aug-20
$	1.00				400,000			Aug-20
$	1.00				1,200,000			Aug-21
$	1.00				523,587			Aug-21
$	1.00				20,000			Aug-21
$	1.00				10,000			Aug-21
$	0.01				250,000			Dec-19
$	1.10				500,000			Mar-21
$	0.05				100,000			Aug-21

 

5. CONCENTRATIONS

 

Concentration of Credit Risk

 

The Company maintains its cash and cash equivalents at a financial institution which may, at times, exceed federally insured limits. Historically, the Company has not experienced any losses in such accounts.

 

Major Customers

 

For the year ended August 31, 2016, three (3) customers, and three (3) specific projects with one of those specific customers, represented 35% of net revenues. For the year ended August 31, 2015, one (1) customer and three (3) specific projects with that customer represented 32% of net revenues. A decision by any of these customers to cease business relations with the Company may have a material adverse effect on the Company’s financial condition and results of operations. As of August 31, 2016, two (2) customers represented 22% of accounts receivable and as of August 31, 2015, three (3) customers represented 44% of accounts receivable.

 

6. INCOME TAXES

 

The difference between income tax expense attributable to continuing operations and the amount of income tax expense that would result from applying domestic federal statutory rates to pre-tax income (loss) is mainly related to an increase in the valuation allowance, partially offset by state income taxes. Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amount expected to be realized. Deferred income tax assets are mainly related to net operating loss carryforwards. Management has chosen to take a 100% valuation allowance against the deferred income tax asset until such time as management believes that its projections of future profits make the realization of the deferred income tax assets more likely than not. Significant judgment is required in the evaluation of deferred income tax benefits and differences in future results from management’s estimates could result in material differences.

 

A majority of the Company’s deferred tax asset is comprised of net operating loss carryforwards, offset by a 100% valuation allowance at August 31, 2016 and August 31, 2015.

 

A reconciliation of the expected income tax (benefit) from continuing operations computed using the federal statutory income tax rate to the Company’s effective income tax rate is as follows for the years ended August 31, 2016 and August 31, 2015:

 

		2016				2015
Income tax (benefit) computed at federal statutory tax rate			(34.00	)%			(34.00	)%
State taxes, net of federal			(5.83	)			(5.83	)
Permanent differences			0.10				0.10
Change in valuation allowance			39.73				39.73
Effective income tax rate			—	%			—	%

 

As of August 31, 2016, the Company is in process of determining the amount of Federal and State net operating loss carry forwards (“NOL”) available to offset future taxable income. The Company’s NOLs will begin expiring in 2032. These NOLs may be used to offset future taxable income, to the extent the Company generates any taxable income, and thereby reduce or eliminate future federal income taxes otherwise payable. Section 382 of the Internal Revenue Code imposes limitations on a corporation’s ability to utilize NOLs if it experiences an ownership change as defined in Section 382. In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50% over a three-year period. In the event that an ownership change has occurred, or were to occur, utilization of the Company’s NOLs would be subject to an annual limitation under Section 382. Any unused annual limitation may be carried over to later years. The Company could experience an ownership change under Section 382 as a result of events in the past in combination with events in the future. If so, the use of the Company’s NOLs, or a portion thereof, against future taxable income may be subject to an annual limitation under Section 382, which may result in expiration of a portion of the NOLs before utilization.

 

 

Due to the existence of the valuation allowance, future changes in the Company’s unrecognized tax benefits will not impact its effective tax rate. Any carryforwards that expire prior to utilization as a result of such limitations will be removed, if applicable, from deferred tax assets with a corresponding reduction of the valuation allowance.

 

The difference between income tax expense attributable to continuing operations and the amount of income tax expense that would result from applying domestic federal statutory rates to pre-tax income (loss) is mainly related to an increase in the valuation allowance, partially offset by state income taxes. Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amount expected to be realized. Deferred income tax assets are mainly related to net operating loss carryforwards. Management has chosen to take a 100% valuation allowance against the deferred income tax asset until such time as management believes that its projections of future profits make the realization of the deferred income tax assets more likely than not. Significant judgment is required in the evaluation of deferred income tax benefits and differences in future results from management’s estimates could result in material differences.

 

7. COMMITMENTS AND CONTINGENCIES

 

Lease Commitments

 

The Company leases its operating facilities under non-cancelable operating leases that expire through 2024. Total rent expense for the years ended August 31, 2016 and August 31, 2015, amounted to $611,002, and $562,910, respectively. The Company is responsible for certain operating expenses in connection with these leases. There are no renewal options with any of the current leases. The following is a schedule, by year, of future minimum lease payments required under non-cancelable operating leases as of August 31, 2016:

 

Years Ending August 31,
2017		$	516,484
2018			555,762
2019			571,259
2020			571,513
2021			467,211
Thereafter			1,258,795
		$	3,941,025

 

Employment Agreements

 

At August 31, 2016, the Company maintained an employment agreement with an officer, the terms of which may require the payment of severance benefits upon termination.

 

Legal Matters

 

The Company is involved from time to time in various legal proceedings in the normal conduct of its business.

 

On January 15, 2015, Finance 500, Inc. (“F500”) and Bridgewater Capital Corporation (“BCC”) filed suit against PCS Link alleging breach of contract. On April 18, 2016, the Company’s subsidiary, PCS Link, Inc. (“PCS Link”) entered into a confidential settlement agreement (the "F500 Settlement Agreement") with F500 and BCC related to the resolution of disputes arising under a consulting agreement dated August 5, 2013 (the "F500 Consulting Agreement") between PCS Link, F500, and BCC. Pursuant to the F500 Settlement Agreement and in order avoid the continued cost and uncertainty of litigation, the Company agreed to issue a total of 750,000 shares of Common Stock to F500 and BCC, in return for (a) a general release of all claims F500 and BCC may have against PCS Link and (b) F500 and BCC’s dismissal of the lawsuit. The Company also agreed to pay to F500 and BCC a total $ 130,000, over a twelve-month period commencing on June 12, 2016.

 

On August 31, 2013, the Robin Hood Foundation (“Robin Hood”) filed suit against Patriot Communications, LLC (“Patriot”), a client of the Company, in the Superior Court of the State of California for the County of Los Angeles (Central District) alleging breach of contract and failure to perform, including among other things an intentional tort claim, in the amount of not less than $5,000,000. On May 6, 2014, Patriot filed a cross-complaint naming PCS Link as a cross-defendant. Patriot denies the allegations set forth by Robin Hood. On August 22, 2014, Robin Hood filed a First Amended Complaint, naming the Company and John Hall, Chief Executive Officer of the Company (“Hall”), in his individual capacity, as defendants. The First Amended Complaint asserts claims against the Company and Hall for fraud, fraudulent concealment, negligent misrepresentation, negligence and violation of Business & Professions Code section 17200. The First Amended Complaint also alleges a cause of action for breach of contract solely against the Company. In October 2015, Hall, in his individual capacity, was dismissed from the litigation as a defendant upon a successful motion to dismiss him. On July 5, 2016, PCS Link entered into a confidential settlement agreement (“Robin Hood Settlement Agreement”) with the Robin Hood and Patriot regarding, among other things, the resolution of all claims associated with the lawsuit. Pursuant to the Robin Hood Settlement Agreement, (i) Robin Hood received a settlement payment, of which approximately $380,000 was paid by the Company’s insurance carrier and $20,000 was paid by the Company, and (ii) Robin Hood agreed to (a) release the Company and Hall from all claims, (b) dismiss the Action against the Company, and (c) refrain from pursuing an appeal of Hall’s dismissal from the action by the Superior Court. The action also included a cross-complaint filed by Patriot against PCS Link. As part of a full resolution of the action and in order to avoid the continued cost and uncertainty of litigation, PCS Link entered into a separate confidential settlement agreement (the “Patriot Settlement Agreement”) with Patriot, pursuant to which PCS Link agreed to enter into a new five (5) year Master Services Agreement (“MSA”) with Patriot that extended the existing service relationship between the Company and Patriot, providing for certain preferential pricing and terms to Patriot and requiring PCS Link to provide services to Patriot through October of 2021. In return, Patriot agreed to (i) release all claims against PCS Link and (ii) dismiss its counter-complaint against PCS Link.

 

On March 11, 2016, StoryCorp Consulting, Inc. and David R. Wells filed suit against the Company and the John R. Hall, in his individual capacity, in the Superior Court of the State of California for the County of Los Angeles (Central District) for breach of contract and promissory fraud/false promise, among other things, seeking an amount of not less than $ 100,000. The Company believes that it has a strong defenses and is vigorously defending against this lawsuit, but the potential range of loss related to this matter cannot be determined, as the pleadings are still not resolved, and will not be resolved until 2017, at the earliest. No trial date has been set. If we fail in defending any such claims or settling those claims, in addition to paying monetary damages or a settlement payment, the outcome of this matter could have a materially adverse effect on our business, financial condition and results of operations.

 

 

8. DISCONTINUED OPERATIONS

 

During 2013, we ceased operations in our affiliated company, UFAS. The operations of UFAS are now presented as discontinued operations in the accompanying consolidated financial statements. UFAS was inactive during the periods ended August 31, 2016 and 2015.

 

9. SUBSEQUENT EVENTS

 

The following events occurred after August 31, 2016, through November 29, 2016.

 

On October 14, 2016, the Company entered into a Loan and Security Agreement (“Loan Agreement”) with PCS Link, Inc., a California corporation and the Company’s wholly-owned subsidiary (“PCS”), and Moriah Education Management, LLC, a Delaware limited liability company (“Moriah”), pursuant to which Moriah granted a loan to PCS in exchange for a promissory note in the principal amount of $3,500,000 (“Moriah Loan”). The Company also entered into a Stock Pledge Agreement (the “Stock Pledge Agreement”) with Moriah, pursuant to which the Company pledged 1,007,920 shares of common stock of PCS held by the Company, representing 100% of the issued and outstanding shares of common stock of PCS, and (ii) John R. Hall, the Chief Executive Officer of the Company and the Chief Executive Officer of PCS, executed a personal guaranty (the “Personal Guaranty”), to secure PCS’ obligations under the Loan Agreement. In connection with the Loan Agreement, on October 14, 2016, the Company and Moriah entered into a Securities Issuance Agreement pursuant to which the Company issued a five-year warrant to purchase 8,125,000 shares of the Company’s common stock at a price of $0.14 per share and a seven-year warrant to purchase 3,500,000 shares of the Company’s common stock at a price of $0.12 per share. The warrants were issued in reliance on Section 4(a)(2) of the Securities Act of 1933. On October 14, 2016, in consideration for the Personal Guaranty, the Company issued to John Hall, its Chief Executive Officer, a five-year warrant to purchase up to 5,000,000 shares of common stock of the Company at a price of $0.10 per share. The warrants were issued in reliance on Section 4(a)(2) of the Securities Act of 1933.

 

In connection with the Moriah Loan, the Company entered into a Note Purchase and Restructuring Agreement, dated September 30, 2016, with Redwood Fund LP (“Redwood”), pursuant to which Redwood agreed to (i) forgive all amounts owed to Redwood under that certain convertible promissory note issued on November 6, 2015 with a principal amount of $125,000 and all amounts owed to Redwood under that certain convertible promissory note issued on December 14, 2015 with a principal amount of $30,000, (ii) consolidate all other indebtedness owed by the Company to Redwood in exchange for $300,000 (the “Additional Funding”), and (iii) accept from the Company a promissory note (“September 2016 Promissory Note”) in the principal amount of $1,418,497, representing such consolidated indebtedness and Additional Funding at an original issue discount of 15%. The September 2016 Promissory Note shall be due and payable on the first anniversary thereof. In further connection with the Moriah Loan, the Company, Moriah and Redwood entered into a Subordination Agreement, dated October 14, 2016, pursuant to which Redwood agreed to subordinate all indebtedness owed thereto so long as any obligations of the Company owed to Moriah under the Loan Agreement remain outstanding; provided, however, that the Company may continue to make regular payments of interest under the September 2016 Promissory Note.

 

In connection with the Moriah Loan, the Company entered into an Exchange Agreement, dated October 14, 2016, with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which the Company authorized the issuance to Lincoln Park new notes (the “September 2016 Lincoln Park Notes”) and warrants with a principal amount of $685,000 in exchange for the cancellation of any and all obligations under notes and warrants issued by the Company to Lincoln Park pursuant to note purchase agreements dated April 24, 2015 and August 21, 2015. In further connection with the Moriah Loan, the Company, Moriah and Lincoln Park entered into a Subordination Agreement, dated October 14, 2016, pursuant to which Lincoln Park agreed to subordinate all indebtedness owed thereto so long as any obligations of the Company owed to Moriah under the Loan Agreement remain outstanding; provided, however, that the Company may continue to make regular payments of interest under the September 2016 Lincoln Park Notes.

 

On October 14, 2016, in connection with the Moriah Loan, the Company amended and restated that certain secured promissory note, dated December 23, 2013 (as amended, amended and restated, supplemented or otherwise, modified, the “2013 Colgan Note”) (the “2013 Colgan Amended Note”), in a principal amount equal to $840,892.80, representing the outstanding balance of the 2013 Colgan Note, less $150,000 paid by the Company to Colgan Financial Group, Inc. (“CFG”) and Robert Logan (together with CFG, the “Colgan Investor”). On the effective date of the 2013 Colgan Amended Note, in connection with the Moriah Loan, the Company amended and restated that certain secured convertible promissory note, dated December 5, 2014 (as amended, amended and restated, supplemented or otherwise modified, the “2014 Colgan Note”) (the “2014 Colgan Amended Note”), to extend the exercise period of any stock purchase warrants issued to the Investor in connection with the 2014 Colgan Note to five years following the issuance of the 2014 Colgan Amended Note in a principal amount equal to $400,000. In further connection with the Moriah Loan, the Company, Moriah and CFG entered into a Subordination Agreement, dated October 14, 2016, pursuant to which CFG agreed to subordinate all indebtedness owed thereto so long as any obligations of the Company owed to Moriah under the Loan Agreement remain outstanding; provided, however, that the Company may continue to make regular payments of interest under the 2013 Colgan Amended Note and 2014 Colgan Amended Note.

 

On October 14, 2016, in connection with the Moriah Loan, the Company entered into certain payoff and settlement agreements (“Payoff Agreements”) with Opus Bank (“Opus”) and California United Bank (“CUB”). In accordance with the Payoff Agreements, the Company (a) issued to Opus a five (5) year warrant for the purchase of 2,000,000 shares of the Company’s common stock with an exercise price of $ 0.10 per share, and (b) amended the exercise price of a warrant issued to CUB on December 14, 2015 for the purchase of 523,587 shares of the Company’s common stock from $ 1.00 per share to $ 0.10 per share.

 

The Company is currently evaluating the impact that the aforementioned subsequent events will have on its financial position and results of operation.

 

 

ITEM 10. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 10A. CONTROLS AND PROCEDURES

 

This annual report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the company’s registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.

 

ITEM 10B. OTHER INFORMATION

 

ITEM 11. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Our directors hold office until the next annual meeting of stockholders or until their successors have been elected and qualified or until their death, resignation or removal. Our board of directors is to elect annually our officers at its first board meeting held after each annual meeting of stockholders or as soon thereafter as conveniently may be possible. Our officers hold office until their successors have been elected and qualified, or until their death, resignation or removal. The following table sets forth certain information regarding the Company’s directors and executive officers as of November 29, 2016:

 

Name		Age		Position
John Hall		41		Chief Executive Officer
				Chairman of the Board Secretary and Treasurer
Tina J. Gentile		46		Former Interim Chief Financial Officer
Frederic T. Boyer		72		Former Director
Lyle M. Green		45		Director
Jonathan Newcomb		70		Director
Mike Sims		70		Former Director
Matt Toledo		53		Former Director

 

 

John Hall, Ed. D., Chief Executive Officer, Chairman of the Board, Secretary and Treasurer

 

Dr. John Hall was appointed Chief Executive Officer, Secretary, Treasurer and member of the Board of Directors as of July 24, 2014.

 

In 1998, Dr. Hall co-founded PCS Link. PCS Link has become a market leader in supporting universities throughout the United States in all areas of the student life cycle including recruitment, student experience, retention, learning outcomes, and financial aid advising. Dr. Hall is a sought-after leader in the education management space. He possesses an unparalleled knowledge of the marketplace coupled with an ability to innovate, extensive industry relationships, and a substantial educational background. Dr. Hall is also a respected business leader, successfully incubating and spinning off other well-known educational, high value companies, including enCircle Media, Inc. (now US Interactive Media), which Mr. Hall founded and served as a member of the board of directors from March 2007 through December 2010.

 

Dr. Hall is a trusted advisor to university presidents across the country in the areas of sustainability, the future of higher education, enrollment management, new markets, overcoming institutional resistance to change, and school turnarounds. He has also been a distinguished speaker for groups, including the Western Association of Schools and Colleges, United States Distance Learning Association, and The Education Alliance. Industry financial analysts, as well as leading authors who write about the higher education marketplace, have also relied upon Dr. Hall’s unique knowledge of the space. Further, Dr. Hall has published work in the area of higher education oversight as it relates to accreditation, federal, and market regulation.

 

Dr. Hall has served as PCS Link’s CEO since February 1998. In his role, Dr. Hall oversees the vision and strategic direction of the Company, provides thought leadership as it relates to higher education and the PCS Link’s opportunities in the education space, plays a prominent role in business development, has overseen the restructuring of the Company, and oversees investor relations. Dr. Hall was also a founder and board member of encircle Media, Inc. from March 2007 through December 2010.

 

Education is not only a profession for Dr. Hall, but also a lifelong passion. He has served on the Board of Trustees of Roosevelt University in Chicago since June 2011 and has mentored college-ready high school students at the Roybal Education Center in Downtown Los Angeles. Dr. Hall, a dedicated lifelong learner holds a B.A. in Political Science, an M.B.A. from Pepperdine University, and a Doctorate of Education from the University of Southern California.

 

Given Dr. Hall’s history of building and growing PCS Link, his extensive experience and well known reputation in the educational industry, the Company feels that Dr. Hall is well qualified to serve as chairman of the board of directors, chief executive officer, treasurer and secretary of the Company.

 

 

Tina J. Gentile, Former Interim Chief Financial Officer

 

Ms. Gentile served as Interim Chief Financial Officer from October 2014 until December 21, 2015 and had more than 17 years of experience in senior financial management and strategic advisory roles working with companies ranging from start-ups to mid to large size private and public companies. She had hands on experience in implementing strategic initiatives involving financial and operational management, business development, mergers and acquisitions, restructuring and capital markets issues.

 

At Greenwood Hall, Ms. Gentilewas responsible for overseeing the company’s financial and accounting functions, investor relations, and legal compliance programs. Prior to joining Greenwood Hall, Ms. Gentile served as vice president of business development – program services for State National Insurance Companies. Earlier, she served as CFO of Univessence Digital Studios, a multinational company producing and distributing multimedia products, where she was involved in equity raising and M&A activities. Ms. Gentile also previously served as a senior financial advisory consultant with PricewaterhouseCoopers, Goldman Sachs and Insieme Consulting, specializing in credit, corporate planning, equity, restructuring and debt finance issues.

 

Ms. Gentile is a graduate of Claremont McKenna College with a Bachelor of Arts degree in government. In addition, she earned an MBA degree in finance and accounting from the Anderson School of Business at University of California Los Angeles. The Company believes that Ms. Gentile’s extensive experience in executive leadership positions, her numerous roles in finance and strategy and her experience as a senior level executive in high growth companies made her well qualified to be a member of the Company’s management team.

 

 

Frederic T. Boyer, Former Director

 

Frederic T. Boyer served as a director of the Company from November 1, 2015 until November 22, 2016. Mr. Boyer is a seasoned strategic and operational chief financial officer and independent director with diversified domestic and international experience in building value for privately held and publicly-traded companies in growth and turnaround situations. Mr. Boyer brought to Greenwood Hall diversified industry experience in high technology, entertainment, telecommunications, manufacturing, software, consumer products, publishing, data and digital storage, power electronics, networking and fiber optics. In his leadership roles, he has raised more than $200 million in capital through public offerings, private equity, bank, lease and strategic partner financings. Mr. Boyer currently serves on the board of directors and as treasurer and chairman of the finance and audit committee of C5 Youth Foundation of Southern California, a five-year youth leadership development program for high-potential, at-risk youth. Most recently, Mr. Boyer was chief financial officer of enterprise software provider Condusiv Technologies Corporation from 2013 to 2014. From 2011 to 2012 he was CFO of Spanish language radio and television broadcaster Liberman Broadcasting, Inc. Earlier, he worked with Data Direct Networks to direct the company’s financial turnaround, serving as CFO from 2009 to 2011. Prior to that, he was CFO and corporate secretary of Nasdaq-listed Optical Communications Products, Inc. from 2006 until the company’s premium priced acquisition by Oplink in 2008. From 2002 to 2006 Mr. Boyer was CFO of Nasdaq-listed Qualstar Corporation, a manufacturer of automated electronic data storage solutions and power supplies, and earlier, he was CFO and corporate secretary of Nasdaq-listed Accelerated Networks, Inc., joining the company in its pre-revenue and pre-IPO beginning through its successful merger with Occam Networks in 2001. Earlier in his career, Mr. Boyer held progressive financial and operational positions with Software Dynamics, Incorporated (sold to SI Corp.); ADC Telecommunications, Inc.; CBS, Inc.; Raytheon Company; and Beatrice Foods. Various positions held were chief financial officer, vice president of finance and administration, and controller. Mr. Boyer’s professional affiliations include active membership in Financial Executives International and National Association of Corporate Directors (NACD), and previous independent board positions with GF Acquisition Corporation and WISE & Healthy Aging. Mr. Boyer is a certified Director of UCLA’s Public Company Training and Certification Program. Mr. Boyer holds an MBA from Loyola Marymount University and BS degrees from California State University Los Angeles and California State Polytechnic University. The Company believes that Mr. Boyer’s experience in finance and accounting made him well qualified to serve as a member of the Company’s Board of Directors.  

 

Lyle M. Green, Director

 

Mr. Green was appointed to the Board of Directors on August 1, 2016 and has held executive management positions within the telecommunications and direct marketing industry since 1994. Mr. Green has been a partner at MarkeTouch Media since 2002 and currently serves as their Vice President of Sales/Marketing. Mr. Green oversees the sales marketing, clinical and account management departments at MarkeTouch Media and during his tenure, MarkeTouch has achieve double digit growth in sales growth year over year. Prior to joining MarkeTouch, Mr. Green held executive sales & marketing positions at Patriot Communications, Vista Telecom and WorldxChange. Mr. Green holds a Bachelor of Arts in communications from the University of Cincinnati.

 

The Company believes that Mr. Green’s experience in telecommunications and direct marketing makes him well qualified to be a member of the Company’s board of directors.

 

Jonathan Newcomb, Director

 

Mr. Newcomb was appointed to the Board of Directors on December 1, 2014 and has more than 40 years of leadership experience in the financial, education and publishing industries. Mr. Newcomb is managing director at Berenson & Company, LLC, a New York-based advisory and investment firm. Previously he served as Chief Executive Officer of Cambium Learning, an education services company that was sold to private equity firm Veronis Suhler in 2008. From 1994 to 2002, Mr. Newcomb was Chairman and Chief Executive Officer of Simon & Schuster, which was at that time the largest education, reference, professional and trade publisher in the U.S. Mr. Newcomb previously served as President and Chief Operating Officer of Simon & Shuster, and as President of McGraw-Hill’s Financial and Economic Information Group, which included the busses of Standard & Poor’s and Data Resources Inc. Newcomb began his career with the Dun & Bradstreet Corporation.

 

Newcomb currently serves on the boards of directors of United Business Media, Journal Communications and LearningExpress, LLC. Mr. Newcomb is a past member of the board of trustees of Dartmouth College, and also currently serves on the boards of the Columbia University School of Business and New School University in New York City. Mr. Newcomb holds a Bachelor’s Degree in economics from Dartmouth College and an MBA in finance from Columbia Graduate School of Business.

 

The Company believes that his extensive hands-on leadership and direct industry experience at top educational publishing firms make Mr. Newcomb a valuable member of the Company’s board of directors.

 

 

Mike Sims, Former Director

 

Mike Sims served as a director of the Company from August 1, 2016 until November 1, 2016. Mr. Sims has held senior executive management positions in industries as diverse as commercial banking, publishing, graduate business education and high profile business federations.

 

Mr. Sims has served as Executive Officer, Corporate & External Relations for the Graziadio School of Business and Management at Pepperdine University from 2001 to 2014. During that time he has been responsible for market strategy, communications, public relations, MBA recruitment, alumni relations, career support services, advancement (fundraising), the Graziadio School Board of Visitors, Dean’s Executive Leadership Series, the Annual Los Angeles Economic Forecast, Senior Fellows in Entrepreneurship, the 15X Project (Early X Foundation) and aiding in the development of the national Private Capital Markets Project. Prior to joining Pepperdine University, Mr. Sims was a member of the senior management team at Imperial Bank serving as the Senior Vice President in charge of marketing for the $8 billion commercial bank that merged with Comerica in 2000. Mr. Sims also co-founded and co-owned Siena Publishing Inc., a boutique publishing, marketing and sales company from 1992 to 2014. Additionally, he serves as co-founder, chairman of the board and chief executive officer of the Early X Foundation, an Intellectual Property monetization and education organization.

 

Mr. Sims has served as the chief paid executive for the Hollywood Chamber of Commerce, which included his leadership and management of the campaign to rebuild the Hollywood Sign, expand the development and promotion of the Hollywood Walk of Fame and the Hollywood Christmas Parade TV for syndication nationally. Mr. Sims has previously served as the chief paid executive for the Beverly Hills Chamber of Commerce & Visitors Bureau, the Rodeo Drive Merchants Association and written a weekly business column for the Beverly Hills Post newspaper.

 

Mr. Sims has served as a member of several boards of directors. He has served as Chairman of the Board of Ramona’s Mexican Food Company, and as a director on the Hollywood Revitalization Committee, the Burbank/Hollywood/Glendale Airport Advisory Committee, Pan American Bank, and the SoCal Tech Group. He is former Chairman of the National Veterans Association and is also a founder and board director of Champion Technology Company, Inc. a big data analytical software company.

 

Mr. Sims has a Bachelor of Science Degree in Business Administration from the University of Nebraska.

 

The Company believes that Mr. Sims’ extensive experience in executive leadership positions, his extensive involvement in higher education and his experience as a director of several successful companies made him well qualified to be a member of the Company’s board of directors.

 

Matt Toledo, Former Director

 

Matt Toledo served as a director of the Company from December 1, 2014 until November 1, 2016. Mr. Toledo is Publisher and CEO of the Los Angeles Business Journal, the largest regional business media company in California. In this capacity, he oversees all operations of the media company including editorial, events, advertising and audience development. He is also Group Publisher of California Business Journals; which owns and operates the Orange County Business Journal, San Diego Business Journal, and the San Fernando Valley Business Journal. The Business Journal enjoys a loyal following by the region’s most dynamic entrepreneurs, corporate leaders, politicians, and philanthropists.

 

Under Mr. Toledo’s direction, the Los Angeles Business Journal has been recognized as the best regional business journal in the country for its compelling coverage and quality journalism. In addition to leading the Business Journal for the past 20 years, Mr. Toledo is a passionate civic leader; serving on numerous boards as a director and advisor. Mr. Toledo has served as a member of several boards of directors. He has served as Chairman of Los Angeles County Economic Development Corporation and the Alliance of Area Business Publications. He has served as a director for United Way of Greater LA, Junior Achievement and the Los Angeles Police Foundation. He is a former member of the Board of Visitors of Pepperdine University’s George L. Graziadio School of Business and Management. The Company believes that Mr. Toledo’s extensive experience in executive leadership positions, his extensive involvement in publishing and his experience as a director of several successful companies made him well qualified to be a member of the Company’s board of directors.

 

Board of Directors and Corporate Governance

 

Our board of directors currently consists of three (3) members. As of the filing date, John Hall, Lyle M. Green and Jonathan Newcomb, serve as directors of the Company.

 

 

Board Independence and Committees

 

We are not currently listed on the Nasdaq Stock Market. In evaluating the independence of our members and the composition of the committees of our board of directors, our Board utilizes the definition of “independence” as that term is defined by applicable listing standards of the Nasdaq Stock Market and SEC rules, including the rules relating to the independence standards of an audit committee and the non-employee director definition of Rule 16b-3 promulgated under the Exchange Act.

 

Our board of directors expects to continue to evaluate its independence standards and whether and to what extent the composition of the Board and its committees meets those standards. We ultimately intend to appoint such persons to our Board and committees of our Board as are expected to be required to meet the corporate governance requirements imposed by a national securities exchange. Therefore, we intend that a majority of our directors will be independent directors of which at least one director will qualify as an “audit committee financial expert,” within the meaning of Item 407(d)(5) of Regulation S-K, as promulgated by the SEC.

 

Additionally, our board of directors is expected to appoint an audit committee, governance committee and compensation committee and to adopt charters relative to each such committee.

 

Legal Proceedings

 

To the best of our knowledge, except as described in Item 3 of this Annual Report, none of our directors or executive officers has, during the past ten years, been involved in any legal proceedings described in subparagraph (f) of Item 401 of Regulation S-K.

 

Code of Ethics

 

We have not adopted a formal code of ethics within the meaning of Item 406 of Regulation S-K promulgated under the Securities Act, that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and that that establishes, among other things, procedures for handling actual or apparent conflicts of interest. Our board of directors intends to adopt such a formal code of ethics when it deems appropriate based on the size of our operations and personnel.

 

Indemnification Agreements

 

The Company has entered into separate indemnification agreements, substantially in the form of Exhibit 10.9 to the Current Report on Form 8-K filed on July 29, 2014, consistent with Nevada law and the form approved by our board of directors with each of our current directors and executive officers. We also contemplate entering into such indemnification agreements with directors and certain executive officers that may be elected or appointed in the future, as the case may be. The information set forth under the heading “Indemnification Agreements” in Item 1.01 of the July 29, 2014 Form 8-K is incorporated herein by reference.

 

ITEM 12. EXECUTIVE COMPENSATION

 

EXECUTIVE COMPENSATION

 

Summary Compensation Table for Greenwood Hall

 

 

The following table summarizes the compensation that Greenwood Hall (through its wholly owned subsidiary PCS Link) paid to its named executive officers during its fiscal years ending August 31, 2016 and 2015.

 

 

Summary Compensation Table for Greenwood Hall

 

																				Non-Equity
																				Incentive
Name and												Stock				Option				Plan				Deferred				All Other				Total
Principal								Bonus				Awards				Awards				Compensation				Compensation				Compensation				Compensation
Position		Year		Salary				($)				($)				($)				($)				($)				($)				($)
John Hall		2015		$	325,000																							$	62,038			$	387,038
Chairman, Chief Executive Officer		2016		$	325,000																							$	134,576			$	459,576
Tina J. Gentile		2015		$	133,585																											$	133,585
Former Interim Chief Financial Officer (1)		2016		$	99,948																							$	50,609			$	150,557
Josh Cage		2015		$	180,000			$	30,000																			$	3,498			$	213,498
EVP, Operations		2016		$	180,000			$	62,563																			$	4,754			$	247,317
Dave Ruderman		2015		$	161,154																							$	8,671			$	169,825
EVP, Strategic Partnerships		2016		$	160,000				79,762																			$	5,261			$	245,023
Brett Johnson		2015		$	268,000																											$	268,000
Former President (2)		2016																														$	-
Bill Bradfield		2016		$	126,923				24,204																			$	36,237			$	187,364
EVP, Business Development (3)
Shane Cobb		2016		$	150,000				10,611																			$	3,046			$	163,657
VP, Talent Management (4)

 

(1) Tina Gentile served as the Company’s Interim Chief Financial Officer from October 2014 until December 21, 2015.

(2) Brett Johnson served as the Company’s President from April 2013 until April 2015.

(3) Bill Bradfield was appointed as the Company’s Executive Vive President, Business Development as of October 2015.

(4) Shane Cobb was appointed as the Company’s Vice President, Talent Management as of October 2014.

 

Narrative for Compensation Summary

 

Company

 

There are no understandings or agreements regarding compensation that our management will receive that is required to be included in this table, or otherwise. In addition, the Company has no option plans, pension or profit sharing plans for the benefit our officers or directors.

 

PCS Link

 

The Company’s now wholly owned subsidiary, PCS Link, provided no other compensation to its named executive offers or directors during its fiscal years ending August 31, 2016 and 2015, other than the base salary and other compensation information set forth in the chart above. Amounts designated in the column labeled “All Other Compensation” are for car allowances, home office allowances and health insurance.

 

 

Changes in Executive Compensation

 

Immediately following the Merger, our Company’s board of directors approved a compensation program for our named executive officers. Consistent with the size and nature of our Company, our executive compensation program is simple, consisting of a base salary, an annual performance-based cash award and an annual long-term equity award under our 2014 Stock Option Plan.

 

○

Base Salary: The Company’s base salaries are designed as a means to provide a fixed level of compensation in order to attract and retain talent. The base salaries of our named executive officers depend on their job responsibilities, the market rate of compensation paid by companies in our industry for similar positions, our financial position and the strength of our business.

 

○

Performance-Based Cash Awards: As part of the Company’s executive compensation program, the board intends to establish an annual performance-based cash award program for our executive officers and other key employees based upon individual performance and the Company’s performance. The award program will also be designed to reinforce the Company’s goals and then current strategic initiatives. The annual performance-based cash awards will be based on the achievement of Company and individual performance metrics established at the beginning of each fiscal year by the compensation committee and our board of directors. Following the end of each fiscal year, the compensation committee will be responsible for determining the bonus amount payable to the executive officer based on the achievement of the Company’s performance and the individual performance metrics established for such executive.

 

○

Long-Term Equity Awards: Our board of directors believes that equity ownership by our executive officers and key employees encourages them to create long-term value and aligns their interest with those of our stockholders. We intend to grant annual equity awards to our executive officers under our 2014 Stock Option Plan. Our board of directors adopted and approved the following 2014 Stock Option Plan and intends to submit it for approval by our stockholders.

 

○

2014 Stock Option Plan: 5,000,000 shares of our common stock were initially authorized and reserved for issuance under our 2014 Stock Plan as option awards. This reserve automatically increased on January 1, 2015 and will increase on each subsequent anniversary through January 1, 2024 by an amount equal to the smaller of 5% of the number of shares of common stock issued and outstanding on the immediately preceding December 31 or an amount determined by our board of directors. Appropriate adjustments will be made in the number of authorized shares and other numerical limits in our 2014 Stock Option Plan and in outstanding awards to prevent dilution or enlargement of participants’ rights in the event of a stock split or other change in our capital structure. Shares subject to awards granted under our 2014 Stock Option Plan which expire, are repurchased or are cancelled or forfeited will again become available for issuance under our 2014 Stock Option Plan. The shares available will not be reduced by awards settled in cash. Shares withheld to satisfy tax withholding obligations will not again become available for grant. The gross number of shares issued upon the exercise of stock appreciation rights or options exercised by means of a net exercise or by tender of previously owned shares will be deducted from the shares available under our 2014 Stock Option Plan.

 

 

Awards may be granted under our 2014 Stock Option Plan to our employees, including officers, director or consultants, and our present or future affiliated entities. While we may grant incentive stock options only to employees, we may grant non-statutory stock options, stock appreciation rights, restricted stock purchase rights or bonuses, restricted stock units, performance shares, performance units and cash-based awards or other stock based awards to any eligible participant.

 

The 2014 Stock Option Plan is administered by our board of directors and, upon its formation, will be administered by our compensation committee. Subject to the provisions of our 2014 Stock Option Plan, the compensation committee determines, in its discretion, the persons to whom, and the times at which, awards are granted, as well as the size, terms and conditions of each award. All awards are evidenced by a written agreement between us and the holder of the award. The compensation committee has the authority to construe and interpret the terms of our 2014 Stock Option Plan and awards granted under our 2014 Stock Option Plan.

 

Our board of directors approved the following compensation for our named officers:

 

John Hall, Ed. D., Chairman of the Board of Directors, CEO, Secretary and Treasurer:

 

Base Salary: Dr. Hall’s base salary will be $325,000.

 

Bonus: Dr. Hall shall receive a minimum bonus of $75,000 in 2014 and is eligible for an additional bonus amount based upon the Company’s performance and the Company’s adjusted EBITDA. If the adjusted EBITDA of the Company is in excess of 10% of the Company’s gross revenues, the total annual cash bonus awarded to Dr. Hall shall be no less than 1% of the Company’s gross revenues but not less than $ 75,000 for any calendar year. In the event that the adjusted EBITDA of the Company is in excess of 20% of the Company’s gross revenues, the total annual cash bonus awarded to Dr. Hall shall be no less than 2% of the Company’s gross revenues but no less than $ 100,000 for any calendar year. Any cash bonuses in excess of the above shall be payable subject to the reasonable discretion of the board of directors. Dr. Hall waived any bonus he was eligible to receive for calendar years 2014 and 2015. Dr. Hall has not waived any bonus he may be eligible for calendar year 2016.

 

Stock Options: Dr. Hall shall receive minimum stock options equal to or greater than 500,000 shares of the Company’s common stock each calendar year. In the event that the adjusted EBITDA of the Company, in a calendar year, is in excess of 15% of the Company’s gross revenues, stock options awarded to Dr. Hall shall be no less than stock options equal to or greater than 750,000 shares of the Company’s common stock. In the event that the adjusted EBITDA of the Company, in a calendar year, is in excess of 20% of the Company’s gross revenues, stock options awarded to Dr. Hall shall be no less than stock options equal to or greater than 1,000,000 shares of the Company’s common stock. Any additional stock options award to Dr. Hall in excess of the above shall be at the discretion of the board of directors. As of November 29, 2016, Dr. Hall has not been issued stock options for 2014 or 2015, associated with his Employment Agreement. Dr. Hall has not waived stock options he may be eligible for calendar year 2016.

 

The board of directors believes that Dr. Hall’s compensation is in line with the Company’s goal of rapidly increasing its profitability and helps to ensure that Dr. Hall’s interests are aligned with those of the Company’s stockholders. The board of directors also believes that the compensation awarded to Dr. Hall provides appropriate incentives and provides for rewards appropriate for the level of difficulty in achieving the applicable metrics.

 

 

Compensation Committee

 

The Company intends to establish a compensation committee which may be comprised of independent directors and the Company’s Chairman and Chief Executive Officer. The compensation committee will have the responsibility for evaluating and authorizing the compensation payable to our executive officers, including our named executive officers. The board of directors may also hire a compensation consultant to advise the compensation committee on how to best compensate our executive officers and directors. Generally, a compensation consultant would provide us with competitive market data and analysis regarding the compensation elements proposed to be offered to our Company’s executive officers and directors, including base salary, cash incentives and equity incentives. The compensation committee will also take into account the votes of the Company’s stockholders with respect to the compensation for our executive officers, including our named executive officers.

 

Employment Agreements

 

The Company has entered into an employment agreement with John Hall as described below:

 

John Hall, Ed. D.: Immediately following the Merger, the Company entered into an employment agreement with Dr. Hall (the “Hall Employment Agreement”), pursuant to which Dr. Hall will serve as the Company’s Chief Executive Officer and Chairman of the Board for a five-year period through May 31, 2019. Dr. Hall has the option to renew the Hall Employment Agreement for a second five-year term by providing the Company with notice of intention to exercise such option at least 30 days prior to the expiration of the initial five-year term. If Dr. Hall chooses to renew the Hall Employment Agreement for a second five-year term, he shall have the option to again renew the agreement for a third five-year term at the end of the second term. Dr. Hall’s base salary shall increase by no less than 10% per year and he shall receive a minimum of that portion of $75,000 prorated over the number of completed months of service during the last calendar year of his service to the Company. Please see our discussion of Changes in Executive Compensation for further information regarding Dr. Hall’s compensation pursuant to the Hall Employment Agreement. Please see our discussion of Potential Payments Upon Termination or Change in Control for information regarding any termination payments that may become due to Dr. Hall pursuant to his employment agreement with the Company.

 

If the Company terminates Dr. Hall’s employment, other than for Cause, as defined in the Hall Employment Agreement, or if Dr. Hall terminates his employment due to a breach of the Hall Employment Agreement by the Company, or if Dr. Hall terminates the Hall Employment Agreement for Good Reason, as defined therein, the Company shall immediately pay to Dr. Hall in one lump sum all salary, unpaid vacation, outstanding reimbursements for business expenses, bonuses and stock options otherwise payable to Dr. Hall pursuant to the Hall Employment Agreement, discounted to present value at the rate of eight percent (8%) per annum. In addition, all stock options owed to Dr. Hall shall be exercisable by Dr. Hall immediately or at any other time or times on or before the termination of the option as to any share or shares subject to such option for which the option has not yet been exercised. In no event shall the amount paid by the Company to Dr. Hall under in connection with the aforementioned termination be less than $1,250,000, which shall be payable immediately upon Dr. Hall’s termination.

 

 

Grants of Plan-Based Awards

 

The Company did not grant any equity awards to our named executive officers during the fiscal years ended August 31, 2016 and August 31, 2015.

 

Outstanding Equity Awards at Fiscal Year End

 

The Company had no outstanding equity awards owed to our named executive officers that were outstanding as of the end of our fiscal years ended August 31, 2016 and August 31, 2015.

 

Director Compensation

 

Lyle M. Green: Mr. Green shall serve as a director of the Company for a one-year term or until his successor is duly appointed. Mr. Green shall receive compensation of $1,000 per in-person meeting during his tenure as a board member. In addition, Mr. Green shall receive stock options equal to 150,000 shares of the Company’s common stock, exercisable no sooner than two years after issuance, at the end of every year of service as a board member for the Company.

 

Jonathan Newcomb: Mr. Newcomb shall serve as a director of the Company for a one-year term or until his successor is duly appointed. Mr. Newcomb shall receive stock options equal to 150,000 shares of the Company’s common stock, exercisable no sooner than two years after issuance, at the end of every year of service as a board member for the Company.

 

 

Mike Sims: Mr. Sims served as a director of the Company for a one-year term. Mr. Sims received compensation of $1,000 per in-person meeting during his tenure as a board member. In addition, Mr. Sims received stock options equal to 180,000 shares of the Company’s common stock, exercisable no sooner than two years after issuance, at the end of his year of service as a board member for the Company.

 

Matt Toledo: Mr. Toledo served as a director of the Company for a one-year term. Mr. Toledo received compensation of $1,000 per in-person meeting during his tenure as a board member. In addition, Mr. Toledo received stock options equal to 150,000 shares of the Company’s common stock, exercisable no sooner than two years after issuance, at the end of his year of service as a board member for the Company.

 

Frederic Boyer: Mr. Boyer served as a director of the Company for a one-year term. Mr. Boyer received stock options equal to 250,000 shares of the Company’s common stock, exercisable no sooner than two years after issuance, at the end of his year of service as a board member for the Company.

 

The Company’s board of directors is not entitled to any retirement, pension, profit sharing or other benefit plans. Further, the Company’s board of directors is not entitled to any payments, stock options or any other benefit or payment upon their resignation, retirement or termination as a board member or a change control of the Company.

 

ITEM 13. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth certain information as of November 29, 2016 based on 58,741,683 shares of common stock issued and outstanding as of such date, regarding (i) each person known by Greenwood Hall to be the beneficial owner of more than 5% of the outstanding shares of Common Stock, (ii) each director, nominee and executive officer of Greenwood Hall, and (iii) all officers and directors as a group.

 

Greenwood Hall

 

				Amount and Nature
				of
		Title of		Beneficial				Percentage
Name and Address		Class		Ownership				of Class
John Hall (1)
12424 Wilshire Boulevard
Suite 1030
Los Angeles, CA 90025		Common Stock			27,666,091				47	%
All Officers and Directors as a group		Common Stock			27,666,091				47	%

 

(1) Executive Officer and/or Director

 

Section 16(a) Beneficial Ownership reporting Compliance.

 

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Act”), requires our executive officers and directors and persons who beneficially own more than 10% of our Common Stock to file initial reports of beneficial ownership and reports of changes in beneficial ownership with the SEC. Such persons are required by SEC regulations to furnish us with copies of all Section 16(a) forms filed by such persons.

 

To the Company’s knowledge, no person who, during the fiscal year ended August 31, 2016, was a director or officer of the Company, or beneficial owner of more than ten percent of the Company’s Common Stock (which is the only class of securities of the Company registered under Section 12 of the Act), failed to file on a timely basis reports required by Section 16 of the Act during such fiscal year. The foregoing is based solely upon a review by the Company of Forms 3 and 4 relating to the most recent fiscal year as furnished to the Company under Rule 16a-3(d) under the Act, and Forms 5 and amendments thereto furnished to the Company with respect to its most recent fiscal year, and any representation received by the Company from any reporting person that no Form 5 is required.

 

ITEM 14. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

Relationships and Related Party Transactions

 

Except as disclosed below, none of the following persons has any direct or indirect material interest in any transaction to which we are a party since our incorporation or in any proposed transaction to which we are proposed to be a party:

 

·

Any of our directors or officers;

·

Any proposed nominee for election as our director;

·

Any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to our Common Stock; or

·

Any relative or spouse of any of the foregoing persons, or any relative of such spouse, who lives in the same house as such person or who is a director or officer of any parent or subsidiary of our Company.

 

 

On March 8, 2016, John Hall loaned the Company funds of $ 45,000 and in exchange, the Company issued to John Hall a promissory note  in the principal amount of $49,473.71, which note had an outstanding balance of $56,925.00 as of October 14, 2016. On October 14, 2016, the Company made a one-time payment of $15,000 to Hall in exchange for (a) the full and final extinguishment of all amounts and obligations owed to Hall under such promissory note, and (b) a general release of all claims by Hall arising therefrom or related thereto. On October 14, 2016, in consideration for the Personal Guaranty associated with a $ 3,500,000 financing for the Company, the Company issued to John Hall, its Chief Executive Officer, a five-year warrant to purchase up to 5,000,000 shares of common stock of the Company at a price of $0.10 per share. The warrants were issued in reliance on Section 4(a)(2) of the Securities Act of 1933. Copies of the Loan Agreement, the Stock Pledge Agreement and the Personal Guaranty are filed as Exhibits 10.19, 10.20 and 10.21, respectively, hereto and are incorporated herein by reference.

 

Review, Approval or Ratification of Transactions with Related Persons

 

Due to the small size of our Company, we do not at this time have a formal written policy regarding the review of related party transactions, and rely on our full board of directors to review, approve or ratify such transactions and identify and prevent conflicts of interest. Our board of directors reviews any such transaction in light of the particular affiliation and interest of any involved director, officer or other employee or stockholder and, if applicable, any such person’s affiliates or immediate family members. Management aims to present transactions to our board of directors for approval before they are entered into or, if that is not possible, for ratification after the transaction has occurred. If our board of directors finds that a conflict of interest exists, then it will determine the appropriate action or remedial action, if any. Our board of directors approves or ratifies a transaction if it determines that the transaction is consistent with our best interests and the best interest of our stockholders.

 

Director Independence

 

Based upon information requested from and provided by each director concerning his background, employment and affiliations, including family relationships, our board of directors has determined that Lyle M. Green and Jonathan Newcomb (the “Independent Directors”) would qualify as “independent” as that term is defined by NASDAQ Listing Rule 5605(a)(2). Further, although we do not presently have separately standing audit, governance or compensation committees of our board of directors, our board of directors has determined that each of the independent directors would qualify as “independent” under NASDAQ Listing Rules applicable to such board committees. John Hall would not qualify as “independent” under applicable NASDAQ Listing Rules applicable to the board of directors generally or to separately designated board committees because he currently serves as our Chief Executive Officer. In making such determinations, our board of directors considered the relationships that each of our nonemployee directors has with the Company and all other facts and circumstances deemed relevant in determining independence, including the beneficial ownership of our capital stock by each non-employee director.

 

Subject to some exceptions, NASDAQ Listing Rule 5605(a)(2) provides that a director will only qualify as an “independent director” if, in the opinion of our board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, and that a director cannot be an “independent director” if (a) the director is, or in the past three years has been, an employee of ours; (b) a member of the director’s immediate family is, or in the past three years has been, an executive officer of ours; (c) the director or a member of the director’s immediate family has received more than $120,000 per year in direct compensation from us within the preceding three years, other than for service as a director or benefits under a tax-qualified retirement plan or non-discretionary compensation (or, for a family member, as a non-executive employee); (d) the director or a member of the director’s immediate family is a current partner of our independent public accounting firm, or has worked for such firm in any capacity on our audit at any time during the past three years; (e) the director or a member of the director’s immediate family is, or in the past three years has been, employed as an executive officer of a company where one of our executive officers serves on the compensation committee; or (f) the director or a member of the director’s immediate family is an executive officer, partner or controlling stockholder of a company that makes payments to, or receives payments from, us in an amount which, in any twelve-month period during our past three fiscal years, exceeds the greater of 5% of the recipient’s consolidated gross revenues for that year or $200,000 (except for payments arising solely from investments in our securities or payments under non-discretionary charitable contribution matching programs). Additionally, in order to be considered an independent member of an audit committee under Rule 10A-3 of the Exchange Act, a member of an audit committee may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other committee of the board of directors, accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the applicable company or any of its subsidiaries or otherwise be an affiliated person of the applicable company or any of its subsidiaries.

 

 

ITEM 15. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

Set forth below is certain information concerning fees billed to us by Rose, Snyder & Jacobs LLP in respect of services provided for the year ended August 31, 2016 and 2015.

 

		2016				2015
Audit fees		$	101,250			$	123,750
Audit-related fees			-				-
Tax Fees		$	16,850				23,100
All other fees			-				-
Total		$	118,100			$	146,850

 

Audit Fees: For the year ended August 31, 2016 and 2015, the aggregate audit fees billed by Rose, Snyder & Jacobs LLP were for professional services rendered for audits and quarterly reviews of our consolidated financial statements as well as services that are normally provided by the accountant in connection with statutory and regulatory filings.

 

Audit-Related Fees: For the year ended August 31, 2016 and 2015, there were no audit-related fees billed by Rose, Snyder & Jacobs LLP.

 

Tax Fees: For the year ended August 31, 2016 and 2015, fees billed by Rose, Snyder & Jacobs related to tax return preparation and tax planning services.

 

All Other Fees: For the year ended August 31, 2016 and 2015, there were no fees billed by Rose, Snyder & Jacobs for other services, other than the fees described above.

 

Policy on Board pre-approval of audit and permitted non-audit services of independent auditors

 

The Board has determined that all services provided by Rose, Snyder & Jacobs were compatible with maintaining the independence of such audit firm. The charter of the Board requires advance approval of all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for the company by our independent registered public accounting firm, subject to any exception permitted by law or regulation. The Board has delegated to the Chair of the Board authority to approve permitted services, provided that the Chair reports any decisions to the Board at its next scheduled meeting. During 2016 and 2015, the Chair of the Board, subsequently advising the Board, or the Board itself pre-approved all audit related and the tax services provided by our independent auditors. During 2016 and 2015, no non-permitted or non-authorized services were performed by our independent registered public accounting firm.

 

 

ITEM 16. EXHIBITS

 

(a)

The following documents are filed as part of this report:

 

(1)

The following financial statements of Greenwood Hall, Inc. are included in Item 8:

 

Report of Independent Registered Public Accounting Firm		34
Consolidated Balance Sheets		35
Consolidated Statements of Operations		36
Consolidated Statements of Stockholders’ Deficit		37
Consolidated Statements of Cash Flows		38
Notes to Consolidated Financial Statements		39

  

(2)

All financial statement schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or other notes thereto.

 

(3)

See the Exhibits under Item 15(b) below for all Exhibits being filed or incorporated by reference herein.

 

(b)

Exhibits:

 

The following exhibit index shows those exhibits filed with this report and those incorporated herein by reference:

 

 

DESCRIPTION OF EXHIBITS

 

See Exhibit Index below and the corresponding exhibits, which are incorporated by reference herein.

 

(c)

Exhibits

 

Exhibit
No.		Description
2.1		Merger Agreement and Plan of Reorganization, dated as of July 22, 2014, by and among Greenwood Hall, Inc., Greenwood Hall Acquisition, Inc. and PCS Link, Inc. d/b/a Greenwood & Hall (Incorporated by reference to our Current Report on Form 8-K filed with the Commission on July 29, 2014)
2.2		Articles of Merger with Divio Holdings, Corp and Greenwood Hall, Inc., as filed with the Nevada Secretary of State effective July 1, 2014 (Incorporated by reference to our Current Report on Form 8-K filed with the Commission on July 29, 2014)
3.1		Articles of Incorporation of Greenwood Hall, Inc. previously known as Divio Holdings, Corp. as filed with the Nevada Secretary of State (Incorporated by reference to our Current Report on Form 8-K filed with the Commission on July 29, 2014)
3.2		Bylaws of Greenwood Hall, Inc. (Nevada) (Incorporated by reference to our Current Report on Form 8-K filed with the Commission on July 29, 2014)
10.1		Office Lease Agreement, dated as of March 30, 2015, by and between Greenwood Hall, Inc. and AX Union Hills L.P. (Incorporated by reference to our Current Report on Form 10-Q (Q2 2015) filed with the Commission on April 15, 2015)
10.2		Second Amendment, Waiver and Ratification, dated as of April 13, 2015, by and among, PCS Link, Inc. d/b/a Greenwood & Hall, as the borrower, Greenwood Hall, Inc., as the guarantor, and Opus Bank (Incorporated by reference to our Current Report on Form 10-Q (Q2 2015) filed with the Commission on April 15, 2015)
10.3		Letter Agreement, dated as of April 13, 2015, by and between Opus Bank and California United Bank (Incorporated by reference to our Current Report on Form 10-Q (Q2 2015) filed with the Commission on April 15, 2015)
10.4		Change in Terms Agreement, dated as of April 13, 2015, by and between PCS Link, Inc. and California United Bank (Incorporated by reference to our Current Report on Form 10-Q (Q2 2015) filed with the Commission on April 15, 2015)
10.5		Consent, Waiver and Amendment No. 1 to Secured Promissory Note, dated as of April 13, 2015, by and between Greenwood Hall, Inc. and Colgan Financial Group, Inc. (Incorporated by reference to our Current Report on Form 10-Q (Q2 2015) filed with the Commission on April 15, 2015)
10.6		Consent, Waiver and Amendment No. 4 to Secured Promissory Note, dated as of April 13, 2015, by and among PCS Link, Inc., Greenwood Hall, Inc., and Colgan Financial Group, Inc. (Incorporated by reference to our Current Report on Form 10-Q (Q2 2015) filed with the Commission on April 15, 2015)
10.7		Amendment Number Ten to Business Loan Agreement, dated as of April 13, 2015, by and between PCS Link, Inc., dba Greenwood & Hall, and California United Bank  (Incorporated by reference to our Current Report on Form 10-Q (Q2 2015) filed with the Commission on April 15, 2015)
10.8		Form of Stock Option Award Agreement under the 2014 Stock Option Plan+ (Incorporated by reference to our Current Report on Form 8-K filed with the Commission on July 29, 2014)
10.12		Third Amendment, Waiver and Ratification, dated as of September 15, 2015, by and among, PCS Link, Inc. d/b/a Greenwood & Hall, as the borrower, Greenwood Hall, Inc., as the guarantor, and Opus Bank (Incorporated by reference to our Annual Report on Form 10-K filed with the Commission on December 15, 2016)
10.13		Change in Terms Agreement, dated as of September 15, 2015, by and between PCS Link, Inc. and California United Bank (Incorporated by reference to our Annual Report on Form 10-K filed with the Commission on December 15, 2016)
10.16		Amended and Restated Warrant dated as of December 14, 2015, issued by Greenwood Hall, Inc. to Opus Bank (Incorporated by reference to our Annual Report on Form 10-K filed with the Commission on December 15, 2016)

 

 

10.17		Warrant dated as of December 14, 2015, issued by Greenwood Hall, Inc. to California United Bank (Incorporated by reference to our Annual Report on Form 10-K filed with the Commission on December 15, 2016)
10.18		Registration Rights Agreement dated as of August 28, 2015, between Greenwood  Hall, Inc. and the Holders of the Registrable Securities (Incorporated by reference to our Annual Report on Form 10-K filed with the Commission on December 15, 2016)
10.19		Loan and Security Agreement by and among the Company, PCS Link and Moriah Education Management, LLC, dated as of October 14, 2016*
10.20		Stock Pledge Agreement by and among the Company and Moriah Education Management, LLC, dated as of October 14, 2016*
10.21		Personal Guaranty of John R. Hall, dated as of October 14, 2016*
10.22		Note Purchase and Restructuring Agreement by and between the Company and Redwood Fund, LP, dated as of September 30, 2016*
10.23		September 2016 Promissory Note to Redwood Fund, LP, dated as of September 30, 2016*
10.24		Exchange Agreement by and Between the Company and Lincoln Park Capital, dated as of October 14, 2016*
10.25		First Promissory Note to Lincoln Park Capital, dated as of October 14, 2016*
10.26		Second Promissory Note to Lincoln Park Capital, dated as of October 14, 2016*
10.27		2013 Colgan Amended Note, dated as of October 14, 2016*
10.28		2014 Colgan Amended Note, dated as of October 14, 2016*
10.29		Opus Bank Payoff Letter, dated as of October 14, 2016*
10.30		California United Bank Payoff Letter, dated as of October 14, 2016*
31		Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32		Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
101.INS		XBRL Instance Document*
101.SCH		XBRL Taxonomy Extension Schema*
101.CAL		XBRL Taxonomy Extension Calculation Linkbase*
101.DEF		XBRL Taxonomy Extension Definition Linkbase*
101.LAB		XBRL Taxonomy Extension Label Linkbase*
101.PRE		XBRL Taxonomy Extension Presentation Linkbase*

  

*

Filed herewith

+

Designates management contracts and compensation plans.

 

(c)

Financial Statement Schedules

 

All financial statement schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or other notes hereto.

 

 

SIGNATURES

 

In accordance with the requirements of Section 13 on 15(k) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf on December 6, 2016 by the undersigned thereto.

 

	GREENWOOD HALL, INC.
	/s/ JOHN HALL
	John Hall,
	Chief Executive Officer

 

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints John Hall his attorney-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this report, and to file the same, with exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorney-in-fact, or his substitute or substitutes may do or cause to be done by virtue hereof.

 

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on December 6, 2016.

 

Signature		Title		Date
/s/ John Hall		Chief Executive Officer, and Director		December 6, 2016
John Hall		(Principal Executive Officer)
/s/ Lyle Green		Director		December 6, 2016
Lyle Green
/s/ Jonathan Newcomb		Director		December 6, 2016
Jonathan Newcomb

 

SIGNATURE PAGE TO GREENWOOD HALL, INC. 2016 ANNUAL REPORT ON FORM 10-K