| ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Greenwood Hall is an emerging education management
solutions provider that delivers end-to-end services that support the entire student lifecycle including offerings that increase
student enrollment, improve student experience, optimize student success and outcomes, and help schools maximize operating efficiencies.
Since 2006, we have developed and customized turnkey solutions that combine strategy, personnel, proven processes and robust technology
to help schools effectively and efficiently improve student outcomes, expand into new markets such as online learning, increase
revenues, and deliver enhanced student experiences. Our Company currently has 133 employees and has served more than 40 education
clients and over 70 degree programs. Basis of Presentation On July 23, 2014, Greenwood Hall, Inc. (formerly
Divio Holdings, Corp. (Divio)) and its wholly owned subsidiary, Merger Sub, completed the Merger Agreement, dated
July 22, 2014, by and among Divio, Merger Sub, and PCS Link, Inc. (PCS Link). Pursuant to the Merger Agreement, Merger
Sub merged with and into PCS Link with PCS Link remaining as the surviving corporation (the Surviving Corporation)
in the Merger. Upon the consummation of the Merger, the separate existence of Merger Sub ceased, and PCS Link became a wholly owned
subsidiary of Divio. In connection with the Merger and at the Effective Time, the holders of all of the issued and outstanding
shares of PCS Link Common Stock exchanged all of such shares (other than dissenting shares as defined in California
Corporations Code Section 1300) for a combined total of 25,250,000 shares of Common Stock, representing approximately 71%
of the total outstanding shares on the date of the Merger. In connection with the merger, Divio Holdings, Corp. changed its name
to Greenwood Hall, Inc. The Merger was accounted for as a reverse
merger with PCS Link as the accounting acquirer and the Company as the legal acquirer. Although, from a legal perspective,
the Company acquired PCS Link, from an accounting perspective, the transaction is viewed as a recapitalization of PCS Link accompanied
by an issuance of stock by PCS Link for the net assets of Greenwood Hall, Inc. This is because Greenwood Hall, Inc. did not have
operations immediately prior to the merger, and following the merger, PCS Link is the operating company. The board of directors
of Greenwood Hall, Inc. immediately after the merger consisted of five directors, with four of the five directors nominated by
PCS Link. Additionally, PCS Links stockholders owned 71% of the outstanding shares of Greenwood Hall, Inc. immediately after
completion of the transaction. The presentation of the consolidated statements
of stockholders' deficit reflects the historical stockholders' deficit of PCS Link through July 23, 2014. The effect of the issuance
of shares of Divio common stock in connection with the Merger and the inclusion of Divios outstanding shares of common stock
at the time of the Merger on July 23, 2014 is reflected during the eight months ended August 31, 2014. Principles of Consolidation The consolidated financial statements include
the accounts of Greenwood Hall, PCS Link, and University Financial Aid Solutions, LLC (UFAS), collectively referred
to herein as the Company, we, us, our, and Greenwood Hall. All significant intercompany accounts and transactions have been eliminated
in consolidation. Through our affiliate UFAS we provided complete financial aid solutions. During 2013, UFAS ceased operations
and is presently winding down its affairs. As a result, it is presented in the accompanying consolidated financial statements as
discontinued operations. Going Concern The consolidated financial statements have
been prepared in conformity with accounting principles generally accepted in the United States of America ( US GAAP The Company has historically funded its activities
through cash generated from operations, debt financing, the issuance of equity for cash, and advances from shareholders. During
the six months ended February 28, 2015 the Company received approximately $1,453,697 in net proceeds from financing activities. Management intends to become profitable by
continuing to grow its operations and customer base. If the Company is not successful in becoming profitable, it may have to further
delay or reduce expenses, or curtail operations. The accompanying consolidated financial statements do not include any adjustments
to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of
liabilities that could result should the Company not continue as a going concern. Use of Estimates The preparation of financial statements in
conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures.
Management uses its historical records and knowledge of its business in making these estimates. Accordingly, actual results may
differ from these estimates. Cash and Cash Equivalents For the purpose of the statement of cash flows,
the Company considers cash equivalents to include short-term, highly liquid investments with an original maturity of three months
or less. Research and Development Costs relating to designing and developing
new products are expensed in the period incurred. Revenue Recognition The Companys contracts are typically
structured into two categories, i) fixed-fee service contracts that span a period of time, often in excess of one year, and ii)
service contracts at agreed-upon rates based on the volume of service provided. Some of the Companys 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 Companys 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 Companys 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 Companys 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 Companys
accounts receivable, net of the allowance for doubtful accounts, are collectable. Property and Equipment Property and equipment are stated at cost.
Depreciation and amortization are being provided using the straight-line method over the estimated useful lives of the assets.
The estimated useful lives used are as follows:
Classification Life
Equipment 5-7 Years
Computer equipment 7 Years Expenses for repairs and maintenance are charged
to expense as incurred, while renewals and betterments are capitalized. Income Taxes The Company accounts for income taxes in accordance
with ASC 740-10, Income Taxes which requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred
income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities
and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods
in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period
and the change during the period in deferred tax assets and liabilities. Earnings (Loss) per Share Basic earnings (loss) per share is computed
using the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share are computed
using the weighted- average number of common shares and dilutive potential common shares outstanding during the period. During
2013, the Company had no instruments that could potentially dilute the number of common shares outstanding. Warrants to purchase
common stock were excluded from the computation of diluted shares during the three and six months ended February 28, 2015 and 2014
as their effect is anti-dilutive. Variable Interest Entities Generally, an entity is defined as a variable
interest entity ( VIE 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 Companys 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 shareholders / 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 $22,813 and $319,948 for the six months ended February 28, 2015 and the six
months ended February 28, 2014 respectively, and are included in selling, general and administrative expenses. Derivative Liabilities We account for warrants as either equity or
liabilities based upon the characteristics and provisions of each instrument. Warrants classified as equity are recorded as additional
paid-in capital on our Consolidated Balance Sheet and no further adjustments to their valuation are made. Some of our warrants
were determined to be ineligible for equity classification because of provisions that may result in an adjustment to their exercise
price. Warrants classified as derivative liabilities and other derivative financial instruments that require separate accounting
as assets or liabilities are recorded on our Consolidated Balance Sheet at their fair value on the date of issuance and are revalued
on each subsequent balance sheet date until such instruments are exercised or expire, with any changes in the fair value between
reporting periods recorded as other income or expense. We estimate the fair value of these liabilities using option pricing models
that are based on the individual characteristics of the warrants or instruments on the valuation date, as well as assumptions for
expected volatility, expected life and risk-free interest rate. As part of a debt financing during May 2014,
the Company issued warrants to acquire 248,011 shares of Common Stock. These warrants contain a mechanism to increase the number
of warrants upon the issuance of certain dilutive equity securities. If during the terms of the warrants, the Company issues additional
shares of Common Stock or equivalents, the warrant holders are entitled to additional warrants with the same terms as the original
warrants. As a result of these features, the warrants are subject to derivative accounting as prescribed under ASC 815. Accordingly,
the fair value of the warrants on the date of issuance was estimated using an option pricing model and recorded on the Companys
Consolidated Balance Sheet as a derivative liability. The fair value of the Warrants is estimated at the end of each reporting
period and the change in the fair value of the Warrants is recorded as a non-operating gain or loss as change in value of derivatives
in the Companys Consolidated Statement of Operations. In December 2014, the Company entered into
a Secured Convertible Note with Colgan Financial Group, Inc. ( Colgan 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 February 28, 2015 for assets and liabilities measured at fair value on a recurring basis. February 28, 2015
Level 1 Level 2 Level 3
Derivative Liabilities $ - $ - $ 578,257
The assumptions used in valuing derivative
instruments issued during the six months ended February 28, 2015 were as follows:
Risk free interest rate 1.10 %
Expected life 3.0 Years
Dividend yield None
Volatility 60 % The following is a reconciliation of the derivative liability related
to these instruments for the six months ended February 28, 2015:
Value at August 31, 2014 $ 118,363
Issuance of instruments 323,024
Change in value 136,870
Net settlements -
Value at February 28, 2015 $ 578,257 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 Companys
stock price, term and volatility. Other inputs have a comparatively insignificant effect. Effect of Recently Issued Accounting Standards In May 2014, FASB issued ASU 2014-09, Revenue
from Contracts with Customers. The standard will eliminate the transaction- and industry-specific revenue recognition guidance
under current U.S. GAAP and replace it with a principles-based approach for determining revenue recognition. ASU 2014-09 is effective
for annual and interim periods beginning after December 15, 2016. Early adoption is not permitted. The revenue recognition standard
is required to be applied retrospectively, including any combination of practical expedients as allowed in the standard. We are
evaluating the impact, if any, of the adoption of ASU 2014-09 to our financial statements and related disclosures. The Company
has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting. In July 2013, the FASB issued ASU 2013-11,
Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss,
or a Tax Credit Carryforward Exists, which eliminates diversity in practice for the presentation of an unrecognized tax benefit
when a net operating loss carryforward, a similar tax loss or a tax credit carryforward is available to reduce the taxable income
or tax payable that would result from disallowance of a tax position. ASU 2013-11 affects only the presentation of such amounts
in an entitys balance sheet and is effective for fiscal years beginning after December 15, 2013 and interim periods within
those years. Early adoption is permitted. We adopted this standard during fiscal 2015 and believe that it did not have a significant
effect on our financial position or results of operation. | 1. ORGANIZATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES Organization Greenwood
Hall is an emerging education management solutions provider that delivers end-to-end services that support the entire student
lifecycle including offerings that increase student enrollment, improve student experience, optimize student success and outcomes,
and help schools maximize operating efficiencies. Since 2006, we have developed and customized turnkey solutions that combine
strategy, personnel, proven processes and robust technology to help schools effectively and efficiently improve student outcomes,
expand into new markets such as online learning, increase revenues, and deliver enhanced student experiences. Our Company currently
has 141 employees and has served more than 40 education clients and over 70 degree programs. Basis
of Presentation On
July 23, 2014, Greenwood Hall, Inc. (formerly Divio Holdings, Corp. (Divio)) and its wholly owned subsidiary, Merger
Sub, completed the Merger Agreement, dated July 22, 2014, by and among Divio, Merger Sub, and PCS Link, Inc. (PCS Link).
Pursuant to the Merger Agreement, Merger Sub merged with and into PCS Link with PCS Link remaining as the surviving corporation
(the Surviving Corporation) in the Merger. Upon the consummation of the Merger, the separate existence of Merger Sub
ceased, and PCS Link became a wholly owned subsidiary of Divio. In connection with the Merger and at the Effective Time, the holders
of all of the issued and outstanding shares of PCS Link Common Stock exchanged all of such shares (other than dissenting
shares as defined in California Corporations Code Section 1300) for a combined total of 25,250,000 shares of Common
Stock, representing approximately 71% of the total outstanding shares on the date of the Merger. In connection with the merger,
Divio Holdings, Corp. changed its name to Greenwood Hall, Inc. The
Merger was accounted for as a reverse merger with PCS Link as the accounting acquirer and the Company as the legal
acquirer. Although, from a legal perspective, the Company acquired PCS Link, from an accounting perspective, the transaction is
viewed as a recapitalization of PCS Link accompanied by an issuance of stock by PCS Link for the net assets of Greenwood Hall,
Inc. This is because Greenwood Hall, Inc. did not have operations immediately prior to the merger, and following the merger, PCS
Link is the operating company. The board of directors of Greenwood Hall, Inc. immediately after the merger consisted of five directors,
with four of the five directors nominated by PCS Link. Additionally, PCS Links stockholders owned 71% of the outstanding
shares of Greenwood Hall, Inc. immediately after completion of the transaction. The results of Divio The
presentation of the consolidated statements of stockholders' deficit reflects the historical stockholders' deficit of PCS Link
through July 23, 2014. The effect of the issuance of shares of Divio common stock in connection with the Merger and the inclusion
of Divios outstanding shares of common stock at the time of the Merger on July 23, 2014 is reflected during the eight months
ended August 31, 2014. Principles
of Consolidation The
consolidated financial statements include the accounts of Greenwood Hall, PCS Link, and University Financial Aid Solutions, LLC
(UFAS), collectively referred to herein as the Company, we, us, our, and Greenwood Hall. All significant intercompany
accounts and transactions have been eliminated in consolidation. Through our affiliate UFAS we provided complete financial aid
solutions. During 2013, UFAS ceased operations and is presently winding down its affairs. As a result, it is presented in the
accompanying consolidated financial statements as discontinued operations. Going
Concern The
consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America ( US GAAP The
Company has historically funded its activities through cash generated from operations, debt financing, the issuance of equity
for cash, and advances from shareholders. During the eight months ended August 31, 2014, the Company received a net amount of
approximately $3.8 million from financing activities. Management
intends to become profitable by continuing to grow its operations and customer base. If the Company is not successful in becoming
profitable, it may have to further delay or reduce expenses, or curtail operations. The accompanying consolidated financial statements
do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the
amounts and classification of liabilities that could result should the Company not continue as a going concern. Use
of Estimates The
preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect
the reported amounts and disclosures. Management uses its historical records and knowledge of its business in making these estimates.
Accordingly, actual results may differ from these estimates. Cash
and Cash Equivalents For
the purpose of the statement of cash flows, the Company considers cash equivalents to include short-term, highly liquid investments
with an original maturity of three months or less. Research
and Development Costs
relating to designing and developing new products are expensed in the period incurred. Revenue
Recognition The
Companys contracts are typically structured into two categories, i) fixed-fee service contracts that span a period of time,
often in excess of one year, and ii) service contracts at agreed-upon rates based on the volume of service provided. Some of the
Companys 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 Companys 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 Companys 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 Companys 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 Companys accounts receivable, net of the allowance for doubtful accounts, are collectable. Property
and Equipment Property
and equipment are stated at cost. Depreciation and amortization are being provided using the straight-line method over the estimated
useful lives of the assets. The estimated useful lives used are as follows:
Classification Life
Equipment 5-7 Years
Computer equipment 7 Years Expenses
for repairs and maintenance are charged to expense as incurred, while renewals and betterments are capitalized. Income
Taxes The
Company accounts for income taxes in accordance with ASC 740-10, Income Taxes which requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements
or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences
between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws
and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances
are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income
taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities. Earnings
(Loss) per Share Basic
earnings (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted
earnings (loss) per share are computed using the weighted- average number of common shares and dilutive potential common shares
outstanding during the period. During 2013 and 2012, the Company had no instruments that could potentially dilute the number of
common shares outstanding. Warrants to purchase common stock were excluded from the computation of diluted shares during the eight
months ended August 31, 2014 as their effect is anti-dilutive. Variable
Interest Entities Generally,
an entity is defined as a variable interest entity ( VIE University
Financial Aid Services, LLC is 60% owned by two individuals that hold a combined 92.5% of our common stock and serve as directors
of the Company. 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 shareholders / 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 $159,377, $920,830 and $812,474 for the
eight months ended August 31, 2014 and the years ended December 31, 2013 and 2012, respectively, and are included in selling,
general and administrative expenses. Derivative
Liabilities We
account for warrants as either equity or liabilities based upon the characteristics and provisions of each instrument. Warrants
classified as equity are recorded as additional paid-in capital on our Consolidated Balance Sheet and no further adjustments to
their valuation are made. Some of our warrants were determined to be ineligible for equity classification because of provisions
that may result in an adjustment to their exercise price. Warrants classified as derivative liabilities and other derivative financial
instruments that require separate accounting as assets or liabilities are recorded on our Consolidated Balance Sheet at their
fair value on the date of issuance and are revalued on each subsequent balance sheet date until such instruments are exercised
or expire, with any changes in the fair value between reporting periods recorded as other income or expense. We estimate the fair
value of these liabilities using option pricing models that are based on the individual characteristics of the warrants or instruments
on the valuation date, as well as assumptions for expected volatility, expected life and risk-free interest rate. As
part of a debt financing during May 2014, the Company issued warrants to acquire 248,011 shares of Common Stock. These warrants
contain a mechanism to increase the number of warrants upon the issuance of certain dilutive equity securities. If during the
terms of the warrants, the Company issues additional shares of Common Stock or equivalents, the warrant holders are entitled to
additional warrants with the same terms as the original warrants. As a result of these features, the warrants are subject to derivative
accounting as prescribed under ASC 815. Accordingly, the fair value of the warrants on the date of issuance was estimated using
an option pricing model and recorded on the Companys Consolidated Balance Sheet as a derivative liability. The fair value
of the Warrants is estimated at the end of each reporting period and the change in the fair value of the Warrants is recorded
as a non-operating gain or loss as change in value of derivatives in the Companys Consolidated Statement of Operations.
During the eight months ended August 31, 2014 and the years ended December 31, 2013 and 2012, the Company recorded a non-cash
loss from the change in fair value of the derivative liability of $40,082, $0, and $0, respectively. Fair
Value of Financial Instruments The
Company groups financial assets and financial liabilities measured at fair value into three levels of hierarchy in accordance
with ASC 820-10, Fair Value Measurements and Disclosure. Assets and liabilities recorded at fair value in the accompanying
balance sheet are categorized based upon the level of judgment associated with the inputs used to measure their fair value.
Level
Input: Input
Definition:
Level I Observable quoted prices in active markets
for identical assets and liabilities.
Level II Observable quoted prices for similar
assets and liabilities in active markets, quoted prices for identical or similar instruments in markets that are not active,
and model-based valuation techniques for which all significant assumptions are observable in the market.
Level III Model-based techniques that use at least
one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that
market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models,
discounted cash flow models, and similar techniques. For
certain of our financial instruments, including working capital instruments, the carrying amounts are approximate fair value due
to their short-term nature. Our notes payable approximate fair value based on prevailing interest rates. The
following table summarizes fair value measurements at August 31, 2014 for assets and liabilities measured at fair value on
a recurring basis. There were no instruments subject to this classification at December 31, 2013. August
31, 2014:
Level
1 Level
2 Level
3
Derivative Liabilities $ - $ - $ 118,363
The
assumptions used in valuing warrants issued during the eight months ended August 31, 2014 were as follows:
Risk
free interest rate 2.12 %
Expected life 7 Years
Dividend yield None
Volatility 30 % The following
is a reconciliation of the derivative liability related to these warrants for the eight months ended August 31, 2014:
Value at December 31, 2013 $
Issuance of instruments 78,281
Change in value 40,082
Net settlements
Value at August 31, 2014 $ 118,363 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 Companys stock price, term and volatility. Other inputs have a comparatively insignificant
effect. Effect
of Recently Issued Accounting Standards In
July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net
Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, which eliminates diversity in practice for
the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax credit carryforward
is available to reduce the taxable income or tax payable that would result from disallowance of a tax position. ASU 2013-11 affects
only the presentation of such amounts in an entitys balance sheet and is effective for fiscal years beginning after December
15, 2013 and interim periods within those years. Early adoption is permitted. We adopted this standard during the first quarter
of fiscal 2014 and believe that adoption did not have a material impact to our financial statements. In
May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers. The standard will eliminate the transaction- and industry-specific
revenue recognition guidance under current U.S. GAAP and replace it with a principles-based approach for determining revenue recognition.
ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2016. Early adoption is not permitted. The
revenue recognition standard is required to be applied retrospectively, including any combination of practical expedients as allowed
in the standard. We are evaluating the impact, if any, of the adoption of ASU 2014-09 to our financial statements and related
disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing
financial reporting. |
