TMCnet News
GREENWOOD HALL, INC. FILES (8-K) Disclosing Financial Statements and Exhibits(Edgar Glimpses Via Acquire Media NewsEdge) Item 9.01 Financial Statements and Exhibits ii TABLE OF CONTENTS Item 1.01. Entry into a Material Definitive Agreement 1 Item 2.01. Entry into a Material Definitive Agreement 1 THE MERGER AND RELATED TRANSACTIONS 1 DESCRIPTION OF BUSINESS 5 RISK FACTORS AND SPECIAL CONSIDERATIONS 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 22 DESCRIPTION OF PROPERTY 30 SECURITY OWNERSHIP OF CERTAIN STOCKHOLDERS AND MANAGEMENT 31 DIRECTORS AND EXECUTIVE OFFICERS 34 EXECUTIVE COMPENSATION 38 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 48 DESCRIPTION OF CAPITAL STOCK 50 LIMITATIONS ON TRANSFER OF SHARES 51 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 53 LEGAL PROCEEDINGS 54 RECENT SALES OF UNREGISTERED SECURITIES 55 INDEMNIFICATION OF OFFICERS AND DIRECTORS 56 PART F/S 58 INDEX TO EXHIBITS 59 Item 3.02. Unregistered Sales of Equity Securities 60 Item 5.01. Changes in Control of the Registrant 60 Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers 60 Item 5.03. Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year 60 Item 5.06. Change in Shell Company Status 60 Item 9.01. Financial Statements and Exhibits 60 DESCRIPTION OF EXHIBITS 61 SIGNATURES 62 iii Item 1.01. Entry into a Material Definitive Agreement The Merger Agreement On July 22, 2014, we entered into the Merger Agreement, and on July 23, 2014, we completed the Merger. For a description of the Merger and the material agreements entered into in connection with the Merger, please see the disclosures set forth in Item 2.01 to this Current Report, which disclosures are incorporated into this item by reference. Indemnification Agreements On July 28, 2014, our board of directors approved a form of indemnification agreement (the "Indemnification Agreement") to be entered into between us and our directors and certain executive officers. The Indemnification Agreement requires that we, under the circumstances and to the extent provided for therein, indemnify such persons to the fullest extent permitted by applicable law against certain expenses and other amounts incurred by any such person as a result of such person being made a party to certain actions, suits and proceedings by reason of the fact that such person is or was a director, officer, employee or agent of the Company, any entity that was a predecessor corporation of the Company or any of the Company's affiliates. The rights of each person who is a party to an Indemnification Agreement are in addition to any other rights such person may have under applicable law, our Articles of Incorporation, our Bylaws, any other agreement, a vote of our stockholders, a resolution adopted by our board of directors or otherwise. Immediately following the closing of the Merger, we entered into indemnification agreements in the form of the Indemnification Agreement with each of our newly appointed executive officers and directors. The foregoing is only a brief description of the Indemnification Agreement, does not purport to be a complete description of the rights and obligations of the parties thereunder and is qualified in its entirety by reference to the form of Indemnification Agreement filed as Exhibit 10.9 to this Current Report on Form 8-K and incorporated herein by reference. Item 2.01. Entry into a Material Definitive Agreement. THE MERGER AND RELATED TRANSACTIONS The Merger On July 23, 2014, the Company and its wholly-owned subsidiary, Merger Sub, completed the Merger Agreement, dated July 22, 2014, by and among the Company, Merger Sub, and 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 the Company. A copy of the Merger Agreement is attached as Exhibit 2.1 to this Current Report and is incorporated herein by reference. In connection with the Merger and at the Effective Time (as defined below), 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 the Company's Common Stock (the "Company Merger Consideration"). Each share of capital stock of Merger Sub that was issued and outstanding immediately prior to the effective time of the Merger (the "Effective Time"), by virtue of the Merger and without further action on the part of PCS Link, Merger Sub, or the Company, was converted into one share of the Surviving Corporation at the Effective Time. After the Merger, each certificate evidencing ownership of shares of Merger Sub common stock evidenced ownership of such shares of common stock of the Surviving Corporation. At the Effective Time, all shares of PCS Link Common Stock that were owned by PCS Link as treasury stock or reserved for issuance by PCS Link immediately prior to the Effective Time were cancelled and extinguished without any conversion thereof and no amount of the Company Merger Consideration was allocated or paid in connection threrewith. 1 The Merger Agreement contains customary representations, warranties, and covenants of the Company, PCS Link, and Merger Sub for a reverse triangular merger (and accompanying transactions). Breaches of representations and warranties are secured by customary indemnification provisions. The Merger will be treated as a recapitalization of the Company for financial accounting purposes. The historical financial statements of the Company before the Merger will be replaced with the historical financial statements of PCS Link before the Merger in all future filings with the Securities and Exchange Commission (the "SEC"). Following the Effective Time, our board of directors will be as identified in this Current Report under the heading "Directors and Executive Officers." The Shares will be offered pursuant to exemptions provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the "Securities Act"), and Rule 506 of Regulation D as promulgated by the SEC. In the post-Merger Offering, no general solicitation will be made by us or any person acting on our behalf. Convertible Note Financing On March 24, 2014, PCS Link entered into a convertible note with Pareall International Limited ("Pareall"), whereby Pareall provided PCS Link with a loan of $1,350,000 ("Pareall Loan") on terms set out in a promissory note ("Pareall Note") of the same date. The Pareall Loan was used by PCS Link for general working capital purposes. In connection with the closing of the Merger, the proceeds of the Pareall Loan and all accrued interest thereon converted into 1,386,450 Units (as defined below), which were issued to Pareall in full satisfaction of all amounts due and owing to Pareall under Pareall Note. The Pareall Note is filed as Exhibit 4.2(i) to this Current Report Form 8K and is incorporated herein by reference. Private Placement On July 23, 2014, the Company completed a private placement of units (each, a "Unit") at $1.00 per Unit (the "Financing Price") for aggregate gross proceeds of $1,650,000 (the "Private Placement Financing"). Each Unit consists of one share of Common Stock and one immediately vested warrant, with each such warrant entitling the holder to acquire one additional share of Common Stock on or before the date which is two years from the date of the Merger for a price of $1.30 per share. The Company neither has nor will be required to pay any other fees, issue additional stock/warrants other than described in this paragraph, or enter into any consulting agreements with any third parties in connection with the aforementioned Private Placement Financing. Share Cancellation In connection with the consummation of the Merger, James Grant, a former director and officer of the Company, returned 43,750,000 shares (3,500,000 pre-split shares) of the Company's common stock to the treasury of the Company for cancellation without consideration (the "Share Cancellation"). The share cancellations became effective on July 23, 2014. The Merger, the Private Placement Financing, the Pareall Loan and the related transactions are collectively referred to in this Current Report Form 8K as the "Transactions." All of the securities issued in connection with the Transactions are "restricted securities," and as such are subject to all applicable restrictions specified by federal and state securities laws. Effective as of the closing of the Private Placement Financing, the Company entered into registration rights agreements with the investors that participated in the Private Placement Financing and Pareall, pursuant to which the Company has agreed to file with the SEC one or more registration statements relating to the resale of the shares of its common stock issued and sold in the Private Placement Financing. 2 Recapitalizations Divio Recapitalization Effective July 1, 2014, the Company completed the DHC Merger. As a result, the Company changed its name from "Divio Holdings, Corp." to "Greenwood Hall, Inc." Also effective July 1, 2014, the Company effected a 12.5 to one forward stock split of its authorized and issued and outstanding common stock. As a result, the Company's authorized capital of common stock increased from 75,000,000 shares of common stock with a par value of $0.001 per share to 937,500,000 shares of common stock with a par value of $0.001 per share and the Company's previously outstanding 4,320,000 shares of common stock increased to 54,000,000 shares of common stock outstanding. The name change and forward split became effective with the OTC Bulletin Board at the opening of trading on July 1, 2014 under the stock symbol "DVIOD". The Company's stock symbol is expected to be changed to "ELRN" effective on or about July 29, 2014. The Company's new CUSIP number is 39715T 100. Current Ownership The Pro Forma table below gives effect to (i) the Merger with PCS Link in exchange for the issuance of 25,250,000 shares of Common Stock, which represents a conversion rate of 25.051, to the stockholders of PCS Link as set forth in the Merger Agreement; (ii) the shares of Common Stock sold in the Private Placement Financing at a purchase price per share equal to $1.00 for a maximum gross aggregate purchase price of $1,650,000; (iii) the warrants issued in the Private Placement Financing exercisable for shares of Common Stock at an exercise price per share equal to $1.30 for a maximum gross aggregate purchase price of $2,145,000; (iii) the conversion of principal and accrued interest owed under the Bridge Notes into 1,386,450 shares of Common Stock and 1,386,450 warrants to purchase shares of Common Stock at an exercise price per share equal to $1.30 for a maximum gross aggregate purchase price under the warrants of $1,802,385; (v) the shares underlying issued and outstanding options and warrants that are exercisable within 60 days of the consummation of the Merger; (vi) the shares underlying options issued pursuant to the Stock Option Plan that will vest within 2 years of the consummation of the Merger; and (vii) the shares underlying options that are currently reserved but will be issued in the future under the Stock Option Plan. We do not represent that the information in the table below is accurate or complete and it should not be relied on as such. These forward-looking statements are based on current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions. Actual results in each case could differ materially from those currently anticipated. Greenwood Hall, Inc. PRO FORMA Name of Beneficial Owner or Identity of Group Shares Percentage5% or greater stockholders: John Hall 1936 East Deere Avenue Suite 120 Santa Ana, CA 92705 25,051,591 57.7 % All stockholders < 5% 18,331,309 42.3 % All current directors and executive officers as a group 26,136,591 60.2 % Total Issued and Outstanding(1) 43,382,900 3 Greenwood Hall, Inc. PRO FORMA Name of Beneficial Owner or Identity of Group Shares PercentageShares Reserved for Issued and Outstanding Options and Warrants(2) Option Plan 2,450,000 5.1 % Shares Reserved for Future Issuances of Options: Option Plan 2,200,000 4.5 % Total - Fully Diluted Shares 48,032,900 1 The number of shares of Common Stock issued and outstanding that were used to calculate the percentage ownership of each listed person includes the shares of Common Stock underlying options and warrants that are exercisable immediately after or within 60 days of the consummation of the Merger. 2 These issued and outstanding options and warrants are not exercisable within 60 days of the consummation of the Merger. Accounting Treatment; Change of Control The Merger is being 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 will consist of five directors, with four of the five directors being nominated by PCS Link. Additionally, PCS Link's stockholders will own 71% of the outstanding shares of Greenwood Hall, Inc. immediately after completion of the transaction. Except as described in the previous paragraphs, no arrangements or understandings exist among present or former controlling stockholders with respect to the election of members of our board of directors and, to our knowledge, no other arrangements exist that might result in a change of control of the Company. Furthermore, as a result of the issuance of the shares of Common Stock pursuant to the Merger, a change in control of the Company occurred as of the date of consummation of the Merger. 4 DESCRIPTION OF BUSINESS Immediately following the Merger, the business of PCS Link became our business. The Company's primary business is providing "cloud-based" education management services to colleges and universities. These services include: (a) solutions that support the "student lifecycle" - lead generation/marketing, financial aid advising, new student recruitment, retention counseling, and help desk services; (b) consulting services, including market assessments and analyzing the efficiency of internal operations; and (c) various data and IT services that enable school clients to better manage/analyze data, deliver instruction to students online, and make certain institutional decisions. In addition to education management services, the Company provides outsourced contact center services to various non-profit organizations as well as for-profit corporations. The outsourced contact center services are mainly related to legacy operations of the Company prior to the Company entering the education management marketplace in 2006. Products The Company provides the following products/services to colleges and universities via a cloud-based platform: - New Student Recruitment - Enrollment Counseling - Lead Generation & Marketing - Lead Qualification - Retention Counseling & Coaching - Student Services - Financial Aid Advising - Student Help Desk Services - Emergency Communications Services - IT Infrastructure - Content - Data Management & Analytics - Instructional Design Services - Career Advising & Placement - Fundraising/Development - Student Satisfaction - Business Intelligence - Consulting 5 The Company provides non-profit organizations and for-profit corporations with the following products/services: - Outsourced Contact Center Services - Payment Processing - Web Services - IT Infrastructure - Interactive Voice Response (IVR) Services - Fulfillment - Event Management - Consulting PCS Link's Business Strategy The Company's business strategy is to continue its focus on the education management marketplace as it relates to post-secondary schools and colleges. With an addressable market of approximately 4,500 colleges and universities in the United States, we believe there is a healthy market for the current services and products that we offer. We plan to offer a variety of new products and services to post-secondary schools as market needs dictate. The Company believes its value propositions which include a unique understanding of the end-to-end lifecycle of a student, a proven track-record generating results for its school customers, consultative capabilities, and "immersion' strategy put it in a unique position to attract and retain customers needed to grow. The Company is also evaluating entry into new educational markets including international, K-12, and corporate education. Industry Trends The education management space is dynamic, competitive, and growing. It is impacted by the substantial change that is occurring in higher education in both the United States and around the world. Constituents of higher education are demanding more flexible delivery of education, greater access to educational opportunities, more personalized experiences, competency-based educational offerings, and high levels of student support. The Company is focused on providing and enhancing solutions that enable schools to succeed and thrive in tomorrow's higher education marketplace. Key Opportunities We believe we have a unique opportunity to leverage the significant change that is occurring in the higher education marketplace. We believe key opportunities exist in continuing to support clients expand their markets via online learning enterprises we help our school clients develop and maintain. We also believe that opportunities exist in expanding our student lifecycle offerings including financial aid advising and student services that enable school clients to more efficiently enhance individual student experiences. Finally, we believe there are strong opportunities as it relates to developing business intelligence offerings that enable our clients to better understand and support their markets as well as students. 6 Competition The Company competes with a number of firms directly and indirectly. Key competitors include: 2U, Inc., Embanet-Pearson plc, Deltak.edu, LLC, Blackboard Student Services provided by Blackboard Inc., Education Sales Management provided by Ellucian, Inc., Xerox Higher Education Services, PlattForm Advertising, Inc., Ruffalo CODY, LLC, Academic Partnerships, LLC and Global Financial Aid Services, Inc. In many cases, companies serving the marketplace focus on specific services (e.g. enrollment, online programs, marketing, financial aid, etc.), different types of schools, etc. Companies may also differ based on their revenue and pricing model. Some companies generate revenue based on a percentage of tuition of programs they support for their school clients while other providers, such as Greenwood & Hall, employ a fee-for-service model. While the Company generally focuses on small to medium-sized, private, 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 some select for-profit institutions. Customers The Company principally supports post-secondary colleges and universities, mainly in the not-for-profit and public sectors. Our education customers include: the University of Alabama, Capella University, Pepperdine University, and Shorelight Education. Our other customers include: the American Red Cross, MarkeTouch Media, Inc. ("MarkeTouch"), Joint Juice, and Patriot Communications. Currently, our three largest customers account for approximately one-third of our revenue. Government Regulation Higher education is a heavily regulated sector. The sector is regulated via market forces and through 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. Essentially, the USDOE supervises these accrediting bodies. At the same time, the USDOE plays a major role in regulating the higher education marketplace due to the federal government's involvement in higher education through guaranteed student loan and 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. Title IV and its funding 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 five (5) 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 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 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 Current Report, we have 151 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 1936 East Deere Avenue, Suite 120, Santa Ana, California. Reports filed with the SEC pursuant to the Exchange Act, including our annual and quarterly reports, and other reports we file, can be inspected and copied on official business days during the hours of 10 a.m. to 3 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). 7 RISK FACTORS AND SPECIAL CONSIDERATIONS Information provided in this Current Report may contain forward-looking statements which 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, business' response to new and existing products and services. 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 Current Report, prospective investors are cautioned not to place undue reliance upon such forward-looking statements. Risks Related to Our Business We have incurred losses for calendar year 2013 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 December 31, 2013 and for the three months ended March 31, 2014 was $3.17 million and $0.42 million, respectively. As of December 31, 2013, we had an accumulated deficit of $5.8 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 . . . |