UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended May 31, 2017

☐ 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	(I.R.S. Employer
of incorporation or organization)	Identification No.

12424 Wilshire Blvd,. Suite 1030, Los Angeles, CA 90025

(Address of principal executive offices) (Zip Code)

310-905-8300

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 ☒ 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 ☒ No ☐

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 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 ☐

(Do not check if a

smaller reporting company)

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 ☒

APPLICABLE ONLY TO CORPORATE ISSUERS

As of July 21, 2017, there were 62,266,683 shares of the issuer’s common stock, par value $.001 per share, 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 third fiscal quarter.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION	3
Item 1. Financial Statements	3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3. Quantitative and Qualitative Disclosures About Market Risk	23
Item 4. Controls and Procedures	24

PART II - OTHER INFORMATION	25
Item 1. Legal Proceedings	25
Item 1A. Risk Factors	25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3. Defaults Upon Senior Securities	25
Item 4. Mine Safety Disclosures	25
Item 5. Other Information	25
Item 6. Exhibits	25

SIGNATURES	26

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

Our unaudited financial statements are stated in United States Dollars and are prepared in accordance with United States generally accepted accounting principles.

It is the opinion of management that the unaudited interim financial statements for the quarter ended May 31, 2017 includes all adjustments, consisting of normal recurring adjustments, necessary in order to ensure that the unaudited interim financial statements are not misleading.

GREENWOOD HALL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

MAY 31, 2017 (UNAUDITED) AND AUGUST 31, 2016

	(unaudited)
	31-May			31-Aug
	2017			2016
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	—		$	—
Accounts receivable, net		603,687			800,836
Prepaid expenses and other current assets		82,896			96,343
Current assets to be disposed of		36,860			36,860

TOTAL CURRENT ASSETS		723,443			934,039

PROPERTY AND EQUIPMENT, net		35,132			80,315

OTHER ASSETS
Deposits and other assets		79,783			79,783

TOTAL OTHER ASSETS		79,783			79,783

TOTAL ASSETS	$	838,358		$	1,094,137

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
Accounts payable	$	1,994,044		$	2,062,464
Accrued expenses		428,303			687,624
Accrued payroll and related expenses		956,509			745,405
Bank Overdraft		47,026			801,784
Deferred revenue		32,474			194,861
Accrued interest		308,431			755,083
Due to shareholders / officer		205,486			302,880
Notes payable, net of discount of $1,214,362 and $183,732 respectively		5,518,922			5,329,149
Line of Credit		—			2,000,000
Derivative liability		1,188,949			846,583
Current liabilities to be disposed of		335,857			335,857

TOTAL CURRENT LIABILITIES		11,016,001			14,061,690

TOTAL LIABILITIES		11,016,001			14,061,690

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY (DEFICIT)

Common stock, $0.001 par value; 937,500,000 shares authorized, 60,691,683 and 53,717,501 shares issued and outstanding, respectively		60,684			53,718

Additional paid-in capital		15,125,039			14,835,385
Subscription Receivable		—			(190,000	)
Accumulated deficit		(25,363,366	)		(27,666,656	)

TOTAL STOCKHOLDERS' EQUITY (DEFICIT)		(10,177,643	)		(12,967,553	)

Noncontrolling interest		—			—

TOTAL STOCKHOLDERS' EQUITY (DEFICIT)		(10,177,643	)		(12,967,553	)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$	838,358		$	1,094,137

GREENWOOD HALL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended						Nine Months Ended
	May 31 2017			May 31 2016			May 31 2017			May 31 2016

REVENUES	$	2,401,345		$	2,155,082		$	7,590,125		$	4,823,251

OPERATING EXPENSES
Direct cost of services		1,303,683			1,212,169			4,276,108			3,396,866
Personnel		809,020			809,815			2,311,026			2,121,787
Selling, general and administrative		570,736			457,335			1,678,762			2,083,371
Equity-based expense		73,289			222,566			130,233			748,992

TOTAL OPERATING EXPENSES		2,756,728			2,701,885			8,396,129			8,351,016

INCOME (LOSS) FROM OPERATIONS		(355,383	)		(546,803	)		(806,004	)		(3,527,765	)

OTHER INCOME (EXPENSE)
Subscription Receivable Write-Off		—			—			(190,000	)		—
Gain on Settlement		—			—			4,359,054			—
Interest expense		(497,738	)		(550,801	)		(1,530,332	)		(3,240,317	)
Change in value of derivatives		49,670			(412,115	)		470,987			(189,380	)
Miscellaneous income (expense), net		(1,186	)		(16,482	)		(2,021	)		(49,752	)

TOTAL OTHER INCOME (EXPENSE)		(449,254	)		(979,398	)		3,107,688			(3,479,449	)

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE PROVISION FOR (BENEFIT FROM) INCOME TAXES		(804,637	)		(1,526,201	)		2,301,684			(7,007,214	)

Provision for (benefit from) income taxes		—			—			—			—

INCOME (LOSS) FROM CONTINUING OPERATIONS		(804,637	)		(1,526,201	)		2,301,684			(7,007,214	)

INCOME (LOSS) FROM DISCONTINUED OPERATIONS, net of tax		—			—			—			—

NET INCOME (LOSS)		(804,637	)		(1,526,201	)		2,301,684			(7,007,214	)

Net income (loss) attributable to noncontrolling interests		—			—			—			—

Net income (loss) attributable to Greenwood Hall, Inc. common stockholders	$	(804,637	)	$	(1,526,201	)	$	2,301,684		$	(7,007,214	)

Earnings per share - basic and diluted
Income (loss) from continuing operations attributable to Greenwood Hall, Inc. common stockholders	$	(0.01	)	$	(0.03	)	$	0.04		$	(0.14	)
Income (loss) from discontinuing operations attributable to Greenwood Hall, Inc. common stockholders		—			—			—			—

Net income (loss) attributable to Greenwood Hall, Inc. common stockholders	$	(0.01	)	$	(0.03	)	$	0.04		$	(0.14	)

Weighted average common shares - basic		60,691,683			49,281,151			59,565,216			48,397,602

Weighted average common shares - diluted		60,691,683			49,281,151			60,168,241			48,397,602

GREENWOOD HALL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended
	May 31, 2017			May 31, 2016
Net income (loss)	$	2,301,684		$	(7,007,214	)
Net (income) loss from discontinued operations		—			—
Net income (loss) from continuing operations		2,301,684			(7,007,214	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities of continuing operations:
(Gain)/Loss in Extinguishment of Debt		(4,303,175	)		—
Subscription Receivable Write-Off		190,000			—
Non-cash interest on convertible promissory notes		766,489			1,091,761
Warrants issued for services		130,033			123,772
Stock-based compensation		73,289			170,215
Shares issued for services		21,450			455,176
Shares issued for settlement		35,494			1,572,675
Depreciation and amortization		46,593			49,073

Change in value of derivatives		(470,987	)		189,380
Changes in operating assets and liabilities:
Accounts receivable		197,149			(132,696	)
Prepaid expenses and other current assets		13,447			46,804
Deposits and other assets		—			251
Accounts payable		(91,966	)		374,755
Accrued expenses		(259,307	)		280,976
Accrued payroll and related		211,104			444,747
Deferred revenue		(162,388	)		349,748
Accrued interest		170,867			377,228
Advances from officers, net		—			82,049
Net cash provided by (used in) operating activities of continuing operations		(1,130,224	)		(1,531,300	)
Net cash provided by (used in) operating activities of discontinued operations		—			—

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		(1,130,224	)		(1,531,300	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(1,411	)		—
Net cash used in investing activities of continuing operations		(1,411	)		—
Net cash used in investing activities of discontinued operations		—			—

NET CASH USED IN INVESTING ACTIVITIES		(1,411	)		—

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable		3,554,850			595,000
Payments on notes payable		(2,101,634	)		(30,542	)
Bank Overdraft		(224,187	)		445,117
Repayments of due to officers, net		(97,394	)		—
Proceeds from the sale of stock		—			310,000
Net cash provided by (used in) financing activities of continuing operations		1,131,635			1,319,575
Net cash provided by (used in) financing activities of discontinued operations		—			—

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		1,131,635			1,319,575

NET INCREASE (DECREASE) IN CASH FROM CONTINUING OPERATIONS		—			(211,725	)
NET INCREASE (DECREASE) IN CASH FROM DISCONTINUED OPERATIONS		—			—
NET INCREASE (DECREASE) IN CASH		—			(211,725	)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		—			211,725

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	—		$	—

Supplemental disclosures:
Interest paid in cash	$	219,163		$	181,340
Income taxes paid in cash	$	—		$	—

Supplemental disclosure of non-cash investing and financing activities:
Conversion of convertible note and accrued interest into common stock	$	37,433		$	80,000

GREENWOOD HALL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Greenwood Hall, Inc., a Nevada corporation (hereinafter referred to as the “Company”, “Greenwood Hall”, “we”, “us” or “our”) 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 152 employees and has served more than 62 education clients and over 75 degree programs.

Basis of Presentation

On July 23, 2014, Greenwood Hall (formerly Divio Holdings, Corp. (“Divio”)) and its wholly owned subsidiary (“Merger Sub”) consummated the transactions contemplated under a 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 “Merger”). Upon the consummation of the Merger, the separate existence of Merger Sub ceased, and PCS Link became a wholly owned subsidiary of Divio. As a result of the Merger, 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 Divio, representing approximately 71% of the total outstanding shares on the effective date of the Merger. Immediately following 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, the Company acquired PCS Link from a legal 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 from an accounting perspective. This is because Greenwood Hall did not have operations immediately prior to the Merger, and PCS Link became the operating company as a result thereof. The board of directors of Greenwood Hall immediately after the Merger consisted of five directors, four of whom were nominated by PCS Link. Additionally, PCS Link’s stockholders owned 71% of the outstanding shares of Greenwood Hall immediately after completion of the transaction.

This Quarterly Report on Form 10-Q for the quarter ended May 31, 2017 should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended August 31, 2016, filed with the Securities and Exchange Commission (“SEC”) on December 6, 2016. As contemplated by the SEC under Article 8 of Regulation S-X, the accompanying consolidated financial statements and footnotes have been condensed and therefore do not contain all disclosures required by generally accepted accounting principles. The interim financial data are unaudited; however, in the opinion of management, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. Results for interim periods are not necessarily indicative of those to be expected for the full year.

Reclassifications

Certain amounts from prior years have been reclassified to conform to current year presentation.

Principles of Consolidation

The consolidated financial statements include the accounts of Greenwood Hall, PCS Link, a wholly owned subsidiary of Greenwood Hall (“PCS Link”), and University Financial Aid Solutions, LLC (“UFAS”), collectively referred to herein as the “Company”, “we”, “us”, “our”, or “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, UFAS is presented in the accompanying consolidated financial statements as discontinued operations.

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 May 31, 2017, and has continued to incur a loss from operations during the first nine months of fiscal year 2017.

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 nine months ended May 31, 2017, the Company generated $1,131,635 in financing activities.

Management intends to become profitable by continuing to grow its operations and customer base. In addition, to maintain operations, the Company continues to seek to raise additional cash through debt and equity financing. As of June 30, 2017, the Company is negotiating the termination of the lease for office space in Los Angeles as part of a plan to reduce operating costs where possible. 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 or a flat monthly subscription fee. 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		3-5 Years
Computer equipment		3-7 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

We report earnings per share in accordance with FASB ASC 260-10. Basic earnings (loss) per share is computed by dividing income available to common shareholders by the weighted-average number of common shares available. Diluted earnings (loss) per share is computed similar to basic earnings per share except that the denominator in increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the common shares were dilutive. The components of basic and diluted earnings per share for the three and nine months ended May 31, 2017 and May 31, 2016 were as follows:

	Three Months Ended						Nine Months Ended
	May 31 2017			May 31 2016			May 31 2017		May 31 2016
Numerator:
Income (loss) attributable to common shareholders	$	(804,637	)	$	(1,526,201	)	$	2,301,684	$	(7,007,214	)

Denominator:
Weighted average number of common shares outstanding during the period		60,691,683			49,281,151			59,565,216		48,397,602
Dilutive effect of stock options and warrants		0			0			603,025		0
Common stock and common stock equivalents used for dilutive earnings per share		60,691,683			49,281,151			60,168,241		48,397,602

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 $37,507 and $16,411 for the three months ended May 31, 2017 and May 31, 2016, respectively, and, $48,266 and $53,689 for the nine months ended May 31, 2017 and May 31, 2016, 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 $70,970 and $71,465 for the three months ended May 31, 2017 and May 31, 2016, respectively, and $73,289 and $170,215 for the nine months ended May 31, 2017 and May 31, 2016, 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 three months ended May 31, 2017 and May 31, 2016, the Company recognized a change in value of the derivative liability of $49,670 and $(412,115), respectively. During the nine months ended May 31, 2017 and May 31, 2016, the Company recognized a change in value of the derivative liability of $470,987 and $(189,380), 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 May 31, 2017 and August 31, 2016 for assets and liabilities measured at fair value on a recurring basis.

May 31, 2017

		Level 1				Level 2				Level 3				Total
Derivative Liabilities		$	—			$	—			$	1,188,949			$	1,188,949

August 31, 2016

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

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

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

The assumptions used in valuing derivative instruments issued during the nine months ended May 31, 2017 were as follows:

Risk free interest rate	1.08% - 2.02%
Expected life	0.59 Years- 6.37 years
Dividend yield	None
Volatility	26.9% - 119.7%

The following is a reconciliation of the derivative liability related to these instruments for the nine months ended May 31, 2017:

Value at August 31, 2016	$	846,583
Issuance of instruments		1,161,043
Change in value		(470,987)
Net settlements		(347,690)
Value as of May 31, 2017	$	1,188,949

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

There were no recently issued accounting standards during the period ended May 31, 2017 that impacted our consolidated financial statements or ongoing financial reporting.

2. PROPERTY AND EQUIPMENT

Depreciation and amortization of the Company’s property and equipment amounted to $13,461 and $16,482 for the three months ended May 31, 2017 and the three months ended May 31, 2016, respectively, and $46,593 and $49,073 for the nine months ended May 31, 2017 and the nine months ended May 31, 2016, respectively, and is included in the accompanying consolidated statements of operations in selling, general and administrative expenses.

At May 31, 2017 and August 31, 2016, property and equipment consists of the following:

	May 2017		August 2016
Computer equipment	$	554,665		553,255
Software and Equipment		42,398		42,398
Furniture & Fixtures		9,177		9,177
		606,240		604,830
Accumulated depreciation		(571,108)		(524,515	)
Net property and equipment	$	35,132		80,315

3. NOTES PAYABLE

On October 14, 2016, the Company executed a new credit agreement (“Moriah Agreement”) with Moriah Educational Management LLC (“Moriah”). The Moriah Agreement provided for a revolving loan (“Revolving Loan”) for up to $3,500,000. The Revolving Loan may be drawn in tranches of not less than $500,000. On October 14, 2016 (“Advance Date”) the Company borrowed the full $3,500,000 (“Principal”). Interest on the Revolving Loan shall be computed on the basis of the actual number of days elapsed and a year of 360 days and shall accrue on the outstanding principal balance of advances at an annual rate equal to the greater of (i) the sum of (A) the “Prime Rate” as reported in the “Money Rates” column of The Wall Street Journal, adjusted as and when such Prime Rate changes, plus (B) Seven and Three Quarters Percent (7.75%), or (ii) Ten Percent (10.0%), but in no event in excess of Fourteen Percent (14%) per annum unless an event of default has occurred and is continuing. The prime rate was 3.5% on the Advance date. The Principal is due and payable, with all accrued and unpaid interest on October 13, 2018 with monthly payments of $29,167 starting on April 1, 2017. The Moriah Agreement contains a prepayment penalty. The Moriah Agreement contains a prepayment penalty had the entire unpaid Principal and accrued interest thereon been paid before April 30, 2017.

As part of the Moriah Agreement, the Company issued two warrants to Moriah for the purchase of the Company’s common stock:

The Moriah Warrant is for the purchase, for a period of seven years, of up to 3,500,000 shares of the Company common stock at a purchase price of $0.12 per share, which is adjustable downward (“Ratchet-down”) if the Company issues share of its common stock, or securities convertible into or exercisable for the Company’s common stock at a price below $0.12. The Company has determined the Ratchet-down provision causes the Moriah Warrant to be a derivative, accordance with ASC 815 Derivatives and Hedging (ASC 815”). ASC 815 requires the Moriah Warrant to be recorded as a liability on the date of issuance and revalued every reporting period, with the increase or decrease in fair value recorded as a loss or gain in the Company’s statement of operations. As of the October 14, 2016, the fair value of the Moriah Warrant was approximately $23,000, which was recorded as a discount to the Revolving Loan and amortized as an expense over the life of the Revolving Loan. As of May 31, 2017, the fair value of the Moriah Warrant was approximately $50,949.

Moriah Put is for the purchase, for a period of five years, of up to 8,125,000 shares of the Company common stock at a purchase price of $0.14 per share, which is adjustable downward (“Ratchet-down”) if the Company issues share of its common stock, or securities convertible into or exercisable for the Company’s common stock at a price below $0.14. Also, the Moriah Put grants the holder of the option to sell all or any portion of the Moriah Put or the Moriah Put Shares (“Put Option”) for which the Moriah Put has been exercised to the Company for a total purchase price of up to $1,137,500, pro-rated for any portion thereof, representing a purchase price of Fourteen Cents ($0.14) per Moriah Put Share, subject to adjustment. The Put Option may be exercised at any time and, if for a portion thereof, from time to time, during the fifteen-day period (the “Put Period”) commencing on the earliest of (1) the date when Moriah receives written notice from the Company of the Company’s intention to prepay the Revolving Loan, which notice shall be delivered by the Company to Moriah so as to be received by Moriah no later than fifteen days prior to the proposed date of prepayment; (2) the date of Moriah’s acceleration of the Obligations following an event of default, or (3) September 29, 2018

The Company has determined the Ratchet-down and Put Option provisions causes the Moriah Put to be a derivative, accordance with ASC 815 Derivatives and Hedging (ASC 815”). ASC 815 requires the Moriah Put to be recorded as a liability on the date of issuance and revalued every reporting period, with the increase or decrease in fair value recorded as a loss or gain in the Company’s statement of operations. As of the October 14, 2016, the fair value of the Moriah Put was approximately $1,137,500, which was recorded as a discount to the Revolving Loan and amortized as an expense over the life of the Revolving Loan. As of May 31, 2017, the fair value of the Moriah Put was approximately $1,137,500.

Also, the Moriah Put provides the Company call the Moriah Put (“Call Option”) so long as any portion of this Warrant is outstanding, if the Company’s Common Stock has both (a) an average closing price greater than $0.50 per share, and (b) an average daily trading volume in excess of 300,000 shares, in each case for the immediately preceding ninety (90) consecutive trading days and continuing through the call notice period or such earlier date as the Moriah Put is exercised or transferred, the Company shall have the irrevocable right, but not the obligation, to demand automatic exercise, in whole or in part, by the Holder. The Company has determined the Call Option to be a derivative asset in a accordance with ASC 815 Derivatives and Hedging (ASC 815”). ASC 815 requires the Call Option to be recorded as an asset on the date of issuance and revalued every reporting period, with the increase or decrease in fair value recorded as a loss or gain in the Company’s statement of operations. As of October 14, 2016 and May 31, 2017, the Company has determined the Call Option fair value to be approximately $0.

Under the Moriah Agreement the Company has the following reporting and financial covenants:

Annual financial statements of Company, certified by the Chief Financial Officer of each and audited by an outside accounting firm acceptable to Lender, as soon as available, but in any event within ninety (90) days after the end of Borrower’s Fiscal Year during the Term. Such financial statements shall fairly present the financial position of Company as of the dates thereof and the results of its operations, cash flows and stockholders’ equity for each of the periods then ended in all material aspects; and be prepared in accordance with GAAP.

Quarterly financial statements of the Company, as soon as available but in any event no later than forty-five (45) days after the close of each calendar quarter, consisting of the unaudited balance sheet and the related statement of income of the Company, prepared in accordance with GAAP, subject to year-end audit adjustments, together with such other information with respect to the business of Company as Moriah may request.

Monthly Financial Statements. Not later than eighteen (18) days after the end of the first three (3) calendar months ending after the date hereof, and thereafter not later than fifteen (15) days after the end of each subsequent calendar month, the unaudited balance sheets and the related statements of income of Company, certified by the Chief Financial Officer of Borrower, subject to year end audit adjustments, with an aging schedule for all accounts receivable and accounts payable and calculation of LTM EBITDA as of the date of such financial statements, together with such other information with respect to the business of Company as Moriah may request.

Bi-Monthly Accounts Receivable and Accounts Payable Aging Reports. Twice a month, not later than the 15th day and the last day of each calendar month, respectively, an aging schedule for all accounts receivable and accounts payable, in form and substance satisfactory to Moriah.

Borrower shall timely file all reports required to be filed with the SEC pursuant to Section 13 or 15(d) of the 1934 Act. The Company was late in the filing of the Company’s Form 10-Q for the quarter ended November 30, 2016, and such untimely filing was cured to the satisfaction of the lender.

Adjusted Gross Revenues. Borrower will maintain (i) minimum monthly gross revenues of not less than eighty percent (80%) of the projected monthly plan provided by Borrower to Lender prior to the date hereof and annexed to our Annual Report on Form 10-k as Exhibit 9.18, as measured monthly as of the last day of each month during the Term, and (ii) minimum quarterly gross revenues of not less than eighty-five percent (85%) of the projected quarterly plan provided by Borrower to Lender prior to, as measured quarterly as of the last day of each fiscal quarter during the Term. As of May 31, 2017, the Company is not in compliance with the Adjusted Gross Revenues covenant.

As a result of the noncompliance, the note may become payable immediately at the discretion of the lender, and is subject to a default interest rate.

EBITDA. Borrower will maintain minimum quarterly EBITDA of not less than eighty-five percent (85%) of the projected quarterly plan provided by Borrower to Lender, as measured quarterly as of the last day of each fiscal quarter during the Term. As of May 31, 2017, the Company is not in compliance with the EBITDA covenant.

From the Principal advances, the Company was required to make certain payments to the Company’s existing note holders, specifically $1,200,000 to Opus Bank (“Opus”), $177,578 to California United Bank (“CUB”), $150,000 to Colgan Financial Group, Inc. (“Colgan”), $305,000 to First Fire Capital (“First Fire”), $187,257 to Redwood Fund (“Redwood). Also, the Company prepaid approximately $131,000 of interest under the Revolving Loan.

As consideration for Moriah to enter in to the Moriah Agreement, the Company was required to settle the Opus and CUB loans, settle or extend the maturity dates on all other existing notes to date after the repayment of Moriah Principal and the for the other notes holders to execute an agreement to subordinate their security position to Moriah.

On October 7, 2016, CUB, agreed to tender its secured promissory note in the amount of $1,250,000 dated October 21, 2010 with a remaining balance of $876,251 and all accrued and unpaid interest of approximately $75,000 for a one-time payment of $177,578. Also, the Company was required to issue a new warrant to purchase 523,587 shares of the Company’s common stock at an exercise price of $0.10 per share.

On October 13, 2016 Opus agreed to tender its secured promissory note and letter of credit agreement for total principal of $3,515,152 and all accrued and unpaid interest of approximately $218,000 for a one-time payment of $1,205,778. Also, the Company was required to issue a new warrant for to purchase 2,000,000 shares of the Company’s common stock at an exercise price of $0.10 per share.

On October 16, 2016 Colgan agreed to amend the secured promissory note dated December 23, 2013. Colgan agreed to accept a payment of $150,000, forgive $150,000 of accrued and unpaid interest and subordinate its secured position to Moriah. Also, the maturity date was extended to the earlier of (a) the date that the Company’s obligation to Moriah is paid or (b) December 31, 2017. The note shall accrue interest at a rate of 12% per annum.

On October 6, 2016 Colgan agreed to amend the secured promissory note dated December 18, 2014. Colgan agreed that the maturity date was extend to the earlier of (a) the date that the Company’s obligation to Moriah is paid or (b) December 31, 2017, with an interest rate of 12% per annum.

On September 30, 2016, Colgan converted $12,932 in notes payable into 1,901,960 shares of Common Stock at $0.0068 per share.

On October 13, 2016, First Fire agreed to tender its secured promissory note in the amount of $392,500 dated December 21, 2015 and all accrued and unpaid interest of approximately $18,000 for a one-time payment of $305,000. In addition, $24,500 of the outstanding balance of the note was converted into 3,122,222 shares of common stock.

On September 30, 2016, Redwood agreed to accept a new promissory note, maturing on September 30, 2017 and an interest rate of 12% per annum, in the amount of $1,418,496 in exchange for a payment of $300,000 and the cancelation of the promissory notes dated March 31, 2015, August 14, 2015, November 6, 2015, December 14, 2015, and February 4, 2016 and all accrued and unpaid interest under these notes. Also, Redwood agreed to to tender its promissory notes dated November 6, 2015 and January 18, 2016 for total principal of $170,000 and all accrued and unpaid of approximately $17,000 for a one-time payment of $187,257.

On October 3, 2016, Lincoln Park Capital Fund, LLC agreed to accept new promissory notes maturing on September 30, 2019 and an interest rate of 12% per annum, in the amount of $685,000 in exchange for the cancellation of the promissory notes dated April 24, 2015 in the amount of $295,000 and August 21, 2015 in the amount of $295,000 and all accrued and unpaid interest under these notes of approximately $95,000. In addition, Lincoln Park was issued a new promissory note maturing September 30, 2019 of $250,000 reflecting $200,000 in net proceeds to the Company.

The following is a schedule, by year, of the aggregate maturities of the notes payable as of May 31, 2017:

Periods Ending May 31,	Note Principal		Note Discount			Total
2018	$	6,733,284	$	(1,214,362	)	$	5,518,922
2019		—		—			—
2020		—		—			—
2021		—		—			—
Thereafter		—		—			—
	$	6,733,284	$	(1,214,362	)	$	5,518,922

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.

Stock Issued for Services

During the nine months ended May 31, 2017, the Company issued 1,950,000 shares of its common stock in exchange for services valued at $21,450.

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 are reserved for issuance. The 2014 Stock Option Plan will terminate in September 2024.

Stock Options

Transactions in FY 2017	Quantity			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life
Outstanding, August 31, 2016		4,985,000		$	0.23		8.53
Granted		500,000		$	0.03		9.85
Exercised		0		$	—		—
Cancelled/Forfeited		(492,534	)	$	0.09		8.77
Outstanding, May 31, 2017		4,992,466		$	0.23		8.33
Exercisable, May 31, 2017		3,353,711		$	0.30		7.96

The fair value of these options was estimated at the date of grant using the Black Scholes option pricing model with the following assumptions: no dividends, expected volatility of 100%, risk free interest rate between 1.21% and 1.87%, and expected life of 5.5 years.

The weighted average remaining contractual life of options outstanding issued under the Plan was 8.13 years at May 31, 2017. The exercise prices for the options outstanding at May 31, 2017 ranged from $0.01 to $0.75, and the information relating to these options is as follows:


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		7.59		700,000	$	0.01		7.59
600,000	$	0.50		7.25		600,000	$	0.50		7.25
450,000	$	0.75		7.33		450,000	$	0.75		7.33
910,000	$	0.35		8.43		910,000	$	0.35		8.43
1,425,000	$	0.08		8.73		558,025	$	0.08		8.73
407,466	$	0.11		8.83		135,686	$	0.11		8.83
500,000	$	0.03		9.85
4,992,466	$	0.23		8.33		3,353,711	$	0.30		7.96

Warrants Outstanding

The following is a summary of warrants outstanding at May 31, 2017:

			NUMBER OF WARRANTS
Exercise Price		Expiration	5/31/2017

$	1.000	12/11/2024		1,264,023
$	0.010	7/20/2016		100,000
$	0.010	2/28/2018		150,000
$	0.500	8/14/2020		1,176,473
$	1.000	8/1/2021		1,200,000
$	1.000	8/1/2021		20,000
$	1.000	8/1/2021		10,000
$	0.100	6/23/2018		800,000
$	0.125	6/23/2018		800,000
$	0.032	6/23/2018		3,184,126
$	0.040	6/23/2018		3,184,126
$	0.050	6/30/2021		100,000
$	0.050	9/22/2021		100,000
$	0.100	9/30/2026		3,571,429
$	0.100	10/1/2026		1,428,571
$	0.100	12/14/2020		523,587
$	0.100	10/13/2020		2,000,000
$	0.120	10/13/2021		3,500,000
$	0.140	10/13/2021		8,125,000
$	0.100	10/13/2021		5,000,000
				36,237,335

Warrants were issued pursuant to certain consulting agreements and amendments to financing terms. Warrants are booked to additional paid in capital and to interest expense based on stock price at date of grant, exercise price, warrant life, risk free rate and annual volatility. During the nine months ended May 31, 2017, the Company granted warrants to purchase up to 24,248,587 shares of Common Stock, with exercise prices ranging from $0.05 to $0.14 per share.

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 nine months ended May 31, 2017, five (5) customers represented 60% of net revenues and for the nine months ended May 31, 2016, five (5) customers represented a total of 60% of revenues. A decision by 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. On February 27, 2017, the Company ceased providing services to one of its major customers, Concordia University, representing 26% of the nine months net revenue, in exchange for an aggregate payment of $840,000 during March 2017.

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 May 31, 2017 and August 31, 2016.

As of May 31, 2017, 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 expire at various dates through 2037. 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.

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 nine months ended May 31, 2017 and the nine months ended May 31, 2016, amounted to $441,420 and $553,983, respectively. The Company is responsible for certain operating expenses in connection with these leases. The following is a schedule, by year, of future minimum lease payments required under non-cancelable operating leases as of May 31, 2017:

Years Ending August 31,			Property Total
	2017	(remainder of)		141,477
	2018			566,156
	2019			581,867
	2020			581,696
	2021			477,606
	Thereafter			1,281,167
	Total			3,629,969

Employment Agreements

At May 31, 2017, the Company maintains employment agreements with two officers, 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 August 26, 2016, Zantine Greenwood (“Greenwood”), a former officer and founder of the Company, commenced a proceeding in Arbitration alleging that the Company had breached its obligations under a consulting agreement entered into by and between Greenwood and the Company on or about July 24, 2014 (the “Consulting Agreement”). The Company did not appear at the Arbitration. On September 23, 2016, the Arbitrator issued an award to Greenwood against the Company in the sum of $236,251. On October 26, 2016, Greenwood filed a petition to confirm the award in the Los Angeles Superior Court, Case No. BS165962. The Company opposed the petition and requested that the court vacate the award, asserting that the arbitration provision in the Consulting Agreement was void under applicable law and therefore the Arbitrator had no jurisdiction over the dispute. Pursuant to a Settlement Agreement and Mutual Release (the “Settlement Agreement”) by and between the Company and Greenwood, dated January 9, 2017, the Company agreed to pay Greenwood $115,000 plus 5.5% simple interest in monthly installments of $10,000 until payment in full in exchange for a release of any and all claims against the Company arising from or relating to the dispute. Conditions to the settlement were that the Court vacate the award and retain jurisdiction until all payments have been made, which Order was entered by the Court on February 15, 2017.

On March 11, 2016, StoryCorp Consulting, Inc. and David R. Wells filed suit against the Company and 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. While the Company believed it had strong defenses as it relates to this claim, in the interest of avoiding the cost of litigation, in exchange for full dismissal of the lawsuit against the Company and Hall, in his individual capacity, on July 10, 2017, the Company agreed to issue David R. Wells 625,000 shares of common stock and pay StoryCorp. a sum of $ 70,000 (“Cash Payment”). The Cash Payment will be made in installments with the first payment of $ 10,000 due to StoryCorp. by August 15, 2017 and ten (10) equal payments of $ 6,000 to be paid every thirty (30) days thereafter.

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 nine month periods ended May 31, 2017 and May 31, 2016.

9. SUBSEQUENT EVENTS

On July 10, 2017, the Company entered into a Settlement Agreement with StoryCorp. Consulting, Inc. and David R. Wells. While the Company believed it had strong defenses as it relates to this claim, in the interest of avoiding the cost of litigation, in exchange for full dismissal of the lawsuit against the Company and Hall, in his individual capacity, the Company agreed to issue David R. Wells 625,000 shares of common stock and pay StoryCorp. a sum of $ 70,000 (“Cash Payment”). The Cash Payment will be made in installments with the first payment of $ 10,000 due to StoryCorp. by August 15, 2017 and ten (10) equal payments of $ 6,000 to be paid every thirty (30) days thereafter.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward-Looking Statements

This quarterly report on Form 10-Q contains forward-looking statements. These statements are based on the Company’s (as hereinafter defined) current beliefs, expectations and assumptions about future events, conditions and results and on information currently available to them. All statements, other than statements of historical fact, included herein 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 the 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” included in the Company’s annual report on Form 10-K for the year ended August 31, 2016, filed with the U.S. Securities and Exchange Commission on December 6, 2016. 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.

As used in this Form 10-Q, the terms “we”, “us”, “our”, the “Company”, mean Greenwood Hall, Inc. (formerly Divio Holdings, Corp.), unless otherwise indicated. The forward-looking statements relate only to events as of the date on which the statements are made. Neither the Company nor PCS Link (as hereinafter defined) 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, however, to consult any further disclosures the Company makes in future public filings, statements and press releases.

All dollar amounts refer to US dollars unless otherwise indicated.

Company Overview

Greenwood Hall, Inc., a Nevada corporation (hereinafter referred to as the “Company”, “Greenwood Hall”, “we”, “us” or “our”), is an education technology company. 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 Services

Our core services include:

●

solutions that support the entire student lifecycle including lead generation/marketing, new student recruitment, enrollment counseling, financial aid advising, new student recruitment, retention counseling, career advising, student concierge, and help desk services;

●

consulting services, including market assessments and analysis of internal operational efficiency, retention counseling/coaching and the reengagement of students who have dropped out of a particular institution;

●

student support solutions, including help desk, career advising, student concierge and financial aid advising services; and

●

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.

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 Business Model

Substantially all of our revenue is derived from fee-for-service arrangements with our customers – either as a result of transactions processed/handled by the Company and/or monthly recurring subscription fees. Until recently, the majority of our revenue was transactional in nature. Moving forward, we anticipate the majority of our non-project based revenue will be subscription-based, in which customers generate a minimum set amount of revenue on a monthly and/or annual basis.

We continue to grow our new business pipeline and we believe the expansion of our sales resources position us well for substantial revenue growth in our core higher education business.

Recent Financing Transactions

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 restructured its existing debt held by Redwood Fund LP, Lincoln Park Capital Fund, LLC, Colgan Financial Group, Inc., Opus Bank and California United Bank, as further described in the notes to the financial statements contained herein.

Non-GAAP Measures: Adjusted EBITDA (Unaudited)

In this report, we supplement our reporting of certain financial measures determined in accordance with GAAP by utilizing certain non-GAAP financial measures. 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 described below are in addition to, and not meant to be considered superior to, or a substitute for, our financial statements prepared in accordance with 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 include the following:

●

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:

	Three Months Ended						Nine Months Ended
	May 31 2017			May 31 2016			May 31 2017			May 31 2016

NET INCOME (LOSS)	$	(804,637	)	$	(1,526,201	)	$	2,301,684		$	(7,007,214	)
Adjustments:
Equity Expense		73,289			222,566			130,233			748,992
Interest Expense		497,738			550,801			1,530,332			3,240,317
Other Income/Expense		42,446			—			(4,316,608	)		—
Write Off of Subscription Receivable		—			—			190,000			—
Transaction Related Expenses		114,856			150,000			240,045			410,000
Change in Value of Derivatives		(49,670	)		412,115			(470,987	)		189,380
Misc Income (Expense) Net		1,186			16,482			2,021			49,752
Total Adjustments		679,845			1,351,964			(2,694,964	)		4,638,441
ADJUSTED EBITDA	$	(124,792	)	$	(174,237	)	$	(393,280	)	$	(2,368,773	)

Results of Operations

The following table summarizes our consolidated statements of operations for the three months ended May 31, 2017 and May 31, 2016 and the nine months ended May 31, 2017 and May 31, 2016.

	Three Months Ended						Nine Months Ended
	May 31, 2017			May 31, 2016			May 31, 2017			May 31, 2016
Revenue		2,401,345			2,155,082			7,590,125			4,823,251
Direct cost of services		1,303,683			1,212,169			4,276,108			3,396,866
Personnel		809,020			809,815			2,311,026			2,121,787
Selling, general and administrative		570,736			457,335			1,678,762			2,083,371
Equity-based expense		73,289			222,566			130,233			748,992
Total Operating Expenses		2,756,728			2,701,885			8,396,129			8,351,016
Loss from operations		(355,383	)		(546,803	)		(806,004	)		(3,527,765	)
Other Income (Expense)		(449,254	)		(979,398	)		3,107,688			(3,479,449	)
Income tax provision		0			0			0			0
NET INCOME (LOSS)		(804,637	)		(1,526,201	)		2,301,684			(7,007,214	)

Revenue, Net

Overall Revenue increased by $246,263, or 11.4%, during the three months ended May 31, 2017 compared with the three months ended May 31, 2016, and increased by $2,766,874, or 57.4%, during the nine months ended May 31, 2017 compared with the nine months ended May 31, 2016, primarily due to increased sales.

Direct Cost of Services

Direct cost of service increased by $91,514, or 7.5%, during the three months ended May 31, 2017, and increased by $879,242, or 25.9%, during the nine months ended May 31, 2017 compared with the nine months ended May 31, 2016, primarily due to increased sales and personnel required to deliver services for additional client contracts in place with the Company.

Personnel

Personnel costs decreased by $795, or 0.1%, during the three months ended May 31, 2017, due to staff turnover, and increased by $189,239, or 8.9%, during the nine months ended May 31, 2017 compared with the nine months ended May 31, 2016, primarily due to increased management costs associated with the Company’s increase in revenues.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $113,401, or 24.8%, during the three months ended May 31, 2017, primarily due to an increase in fixed rent costs associated with the Arizona location and decreased by $404,609, or 19.4%, during the nine months ended May 31, 2017 compared with the nine months ended May 31, 2016, primarily due to reductions in overhead.

Equity-based Expense

Equity-based expense decreased by $149,277, or 67.1%, during the three months ended May 31, 2017 compared with the three months ended May 31, 2016, and decreased by $618,759, or 82.6% during the nine months ended May 31, 2017 compared with the nine months ended May 31, 2016 due to reductions in stock-based transactions and compensation.

Other Income (Expense)

Other expenses decreased by $530,144, or 54.1%, during the three months ended May 31, 2017 compared with the three months ended May 31, 2016, due primarily to the change in value of derivatives, and Other income increased by $6,587,137, or 189.3%, during the nine months ended May 31, 2017 compared with the nine months ended May 31, 2016, primarily due to non-cash gains associated with the financing transactions completed by the Company in October 2016.

Net Income (Loss) From Continuing Operations

We experienced a net loss of $804,637 from continuing operations for the three months ended May 31, 2017. This compares with a net loss from continuing operations of $1,526,201, during the three months ended May 31, 2016, an decrease of $721,564, or 47.3%. We generated net income of $2,301,684 for the nine months ended May 31, 2017. This compares with a net loss of $7,007,214 during the nine months that ended May 31, 2016, an increase of net income of $9,308,898, or 132.8%, primarily due to non-cash gains associated with the financing transactions completed by the Company in October 2016.

Period-to-Period Fluctuations

Our revenue, cash position and accounts receivable may fluctuate significantly from quarter to quarter due to variations driven by the academic schedules of our clients’ programs. These programs generally start classes for new and returning students on an average of four times per year. Class start dates are not necessarily evenly spaced throughout the year, do not necessarily correspond to the traditional academic calendar and may vary from year to year. As a result, the number of classes our client programs have in session, and therefore the number of students enrolled, will vary from month to month and quarter to quarter, leading to variability in our revenue.

Liquidity and Capital Resources

Working Capital

	May 31, 2017			August 31, 2016
Total Current Assets		723,443			934,039
Total Current Liabilities		11,016,001			14,061,690
Working Capital Deficit		(10,292,558	)		(13,127,651	)

The working capital deficit decreased by $2,835,093, or 21.6%, from August 31, 2016 to May 31, 2017, due primarily to the financing transactions completed by the Company in October 2016.

Cash Flows

	9 Months			9 Months
	Ended			Ended
	31-May-17			31-May-16
Net Cash used by Operating Activities		(1,130,224	)		(1,531,300	)
Net Cash used by Investing Activities		(1,411	)		0
Net Cash provided by Financing Activities		1,131,635			1,319,575

The decrease by $401,076, or 26.2% in net cash used in operating activities in the nine months ended May 31, 2017 as compared to the nine months ended May 31, 2016 was due to increases in revenue. The increase by $1,411 in cash used in investing activities in the nine months ended May 31, 2017 as compared to the nine months ended May 31, 2016 was due to investing in Property, Plant, and Equipment. The decrease by $187,940, or 14.2%, in cash provided by financing activities in the nine months ended May 31, 2017 as compared with the nine months ended May 31, 2016 was due to increased payments on notes payable.

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. The Company has an accumulated deficit and a working capital deficit as of May 31, 2017 and continues to incur a loss from operations during the third quarter of FY-2017. Presently, the Company does not have sufficient cash resources to meet its plans in the twelve months following May 31, 2017. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management is in the process of evaluating various financing alternatives in order to finance our growth and general and administrative expenses as well as materially reducing the Company’s debt load. These alternatives include raising funds through public or private equity markets and either through institutional or retail investors. Although there is no assurance that the Company will be successful with our fund raising initiatives, Management believes that the Company will be able to secure the necessary financing as a result of ongoing financing discussions with third party investors and existing stockholders. There can be no assurance that potential financing will be obtained on term acceptable to management and future financing may substantially dilute the ownership of existing stockholders

Management intends to restore profitability by continuing to grow our operations and customer base while maintaining the overhead savings we achieved during our recent restructuring. Management’s recent restructuring of the Company’s debt contributed to reducing the Company’s debt load. Management believes that the actions presently being taken to further implement its business plan, generate additional revenues and restructure certain liabilities provide the opportunity for the Company to continue as a going concern. 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.

Lack of Working Capital

As a result of the Company’s ongoing evaluation of its capital structure, it 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 as 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.

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.

Contractual Obligations

Except as described below, there were no other significant changes to our outstanding contractual obligations as of May 31, 2017 from amounts previously disclosed in our 2016 Annual Report.

Debt

A detailed description of the Company’s debt is provided in Note 3 under Item 1 hereunder and is incorporated herein by reference.

Critical Accounting Policies

Our critical accounting policies require management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and the accompanying notes. These estimates are based on historical experience, the advice of external experts or on other assumptions management believes to be reasonable. Where actual amounts differ from estimates, revisions are included in the results for the period in which actual amounts become known. Historically, differences between estimates and actual amounts have not had a significant impact on our consolidated financial statements.

Critical accounting policies and estimates used to prepare the financial statements are discussed with our Board of Directors as they are implemented and on an annual basis.

We have no material changes to our Critical Accounting Policies and Estimates disclosure as filed in our 2016 Annual Report.

Recent Accounting Pronouncements

See Note 1 to the consolidated financial statements for a discussion of recent accounting guidance.

Subsequent Events

On June 30, 2017, the Company renewed an enrollment services contract with University of the Southwest.

On July 1, 2017, Cary Sucoff resigned his position as a Director of the Company and Chair of the Compensation Committee of the Company’s Board of Directors.

On July 1, 2017, Jerry Rubinstein resigned his position as a Director of the Company and Chair of the Audit Committee of the Company’s Board of Directors.

On July 6, 2017, the Company executed a multi-year contract with the Maricopa County Community College System to provide student lifecycle services.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial and accounting officer, as appropriate, to allow timely decisions regarding required disclosure.

We carried out an evaluation under the supervision and with the participation of management, including our principal executive officer and principal financial and accounting officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of May 31, 2017, the end of the period covered by this Quarterly Report. Based upon the evaluation of our disclosure controls and procedures as of May 31, 2017, our Chief Executive Officer (principal executive officer and principal financial and accounting officer) concluded that, as of such date, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

No changes in the Company’s internal control over financial reporting have come to management’s attention during the Company’s most recently completed fiscal quarter that have materially affected, or are likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Except as disclosed in our Annual Report on Form 10-K for the year ended August 31, 2016 and Note 7 under Item 1 hereunder, incorporated herein by reference, we are not subject to any material pending legal proceedings. From time to time, we may be involved in routine legal proceedings, as well as demands, claims and threatened litigation, which arise in the normal course of business.

ITEM 1A. RISK FACTORS

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item. A description of “Risk Factors” applicable to the Company, its business and investment in its securities is disclosed in our Annual Report on Form 10-K for the year ended August 31, 2016.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

Exhibit		Description of Exhibit

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

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amended report to be signed on its behalf by the undersigned, thereunto duly authorized.

	GREENWOOD HALL, INC.

Date: July 24, 2017	By:	/s/ John Hall
		John Hall
		Chief Executive Officer
		Principal Executive Officer and Principal Financial and Accounting Officer

GREENWOOD HALL, INC. 10-Q