United States Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
For the transition period from to
-------------- ---------------
Commission File No. 000-49990
PCS EDVENTURES!.COM, INC.
-------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
IDAHO 82-0475383
----- ----------
(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
345 Bobwhite Court, Suite #200
Boise, Idaho 83706
------------------
(Address of Principal Executive Offices)
Issuer's Telephone Number: (208) 343-3110
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Not applicable.
Check whether the Registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of the latest practicable date:
26,965,059
September 30, 2004
Transitional Small Business Disclosure Format (Check One): Yes X No
--- ---
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The Financial Statements of the Registrant required to be filed with
this 10-QSB Quarterly Report were prepared by management, and commence on the
following page, together with Related Notes. In the opinion of management,
the Financial Statements fairly present the financial condition of the
Registrant.
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004 and March 31, 2004
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
ASSETS
September 30, March 31,
2004 2004
----------- ----------
(Unaudited)
CURRENT ASSETS
Cash $ 139,977 $ 113,820
Accounts receivable 204,912 449,518
Inventory 33,968 -
Note receivable - 50,000
Prepaid expenses 899 6,084
----------- ----------
Total Current Assets 379,756 619,422
----------- ----------
FIXED ASSETS (NET) 5,408 -
----------- ----------
OTHER ASSETS
Deposit on distribution rights 45,000 45,000
Deposits 6,175 6,175
----------- ----------
Total Other Assets 51,175 51,175
----------- ----------
TOTAL ASSETS $ 436,339 $ 670,597
=========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
September 30, March 31,
2004 2004
--------- ----------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 52,239 $ 55,665
Wages payable 33,091 38,436
Payroll taxes payable 107,216 182,949
Accrued interest 76,299 60,563
Accrued expenses 133,732 256,818
Unearned revenue 252,602 204,404
Notes payable - related parties 137,727 165,882
Notes payable 194,754 349,810
---------- ---------
Total Current Liabilities 987,660 1,314,527
---------- ---------
Total Liabilities 987,660 1,314,527
---------- ---------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, no par value, authorized
10,000,000 shares, 15,246 and 82,850 shares
issued and outstanding, respectively 56,372 120,473
Common stock, no par value, authorized 50,000,000
shares; 26,215,059 and 24,230,874 shares issued
and outstanding, respectively 23,751,129 23,023,323
Expenses prepaid with common stock - (67,292)
Variable deferred consulting fees (9,333) -
Accumulated deficit (24,349,489)(23,720,434)
----------- -----------
Total Stockholders' Equity (Deficit) (551,321) (643,930)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 436,339 $ 670,597
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended For the Six Months Ended
September 30, September 30,
-------------------------- ------------------------
2004 2003 2004 2003
---------- ---------- ---------- -----------
REVENUE
Lab Revenue $ 227,983 $ 659,091 $ 623,712 $ 1,108,217
License Revenue 41,114 35,613 87,075 74,091
Subscription Revenue 4,042 4,199 7,050 7,949
----------- ----------- ----------- -----------
Total Revenues 273,139 698,903 717,837 1,190,257
----------- ----------- ----------- -----------
COST OF GOODS SOLD/
COST OF SALES 115,154 174,237 262,626 359,503
----------- ----------- ----------- -----------
GROSS PROFIT 157,985 524,666 455,211 830,754
----------- ----------- ----------- -----------
OPERATING EXPENSES
Salaries and wages 123,307 104,897 240,166 232,538
Depreciation expense 92 11,039 92 25,447
Common stock and stock
options issued for
consulting expense 138,042 - 481,733 -
General and administrative 152,385 206,322 373,858 355,301
----------- ----------- ----------- -----------
Total Operating Expenses 413,826 322,258 1,095,849 613,286
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) (255,841) 202,408 (640,638) 217,468
----------- ----------- ----------- -----------
OTHER INCOME AND EXPENSES
Gain on settlement of debt - - 43,990 -
Interest income 24 - 973 -
Interest expense (10,012) (46,591) (40,450) (71,871)
Other income 5,276 - 12,569 -
Other expense (528) - (1,995) -
----------- ----------- ----------- -----------
Total Other Income and
(Expenses) (5,240) (46,591) 15,087 (71,871)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES (261,081) 155,817 (625,551) 145,597
INCOME TAX EXPENSE - - - -
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (261,081) $ 155,817 $ (625,551)$ 145,597
----------- ----------- ----------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
4
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended For the Six Months Ended
September 30, September 30,
--------------------------- ------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (261,081) $ 155,817 $ (625,551)$ 145,597
Accretion of preferred
stock discount - (2,500) - (2,500)
Pro-rata preferred stock
non-cash dividend - (184) - (184)
----------- ----------- ----------- -----------
NET INCOME AVAILABLE
(LOSS ATTRIBUTABLE)
TO COMMON
SHAREHOLDERS $ (261,081) $ 153,133 $ (625,551)$ 142,913
=========== =========== =========== ===========
BASIC INCOME (LOSS)
PER SHARE $ (0.01) $ 0.01 $ (0.02)$ 0.01
=========== =========== =========== ===========
DILUTED INCOME (LOSS)
PER SHARE $ 0.01 $ 0.01
=========== ===========
WEIGHTED AVERAGE NUMBER OF
BASIC SHARES OUTSTANDING 25,688,359 22,311,724 25,386,545 18,072,861
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
DILUTED SHARES OUTSTANDING 27,028,082 22,368,079
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit)(Continued)
Common Shares Preferred Shares
-------------------------- ------------------------
Shares Amount Shares Amount
------------- ----------- ---------- ------------
Balance, March 31, 2004 24,230,874 $ 23,023,323 82,850 $120,473
Common stock issued for
services at $0.17 per
share (unaudited) 30,000 5,100 - -
Stock offering costs
(unaudited) - (5,100) - -
Common stock issued for
services at $0.17 per
share (unaudited) 240,000 40,800 - -
Stock offering costs
(unaudited) - (40,800) - -
Options issued to employees
below market value
(unaudited) - 3,000 - -
Options issued to consultants
below market value (unaudited) - 507,877 - -
Common stock issued for
conversion of debt and
interest at $0.20 per
share (unaudited) 376,165 75,232 - -
Common stock issued for
cash at $0.10 per share
for option exercise
(unaudited) 750,000 75,000 - -
Intrinsic value of
employee options issued
below market value
(unaudited) - 5,000 - -
Common stock issued for
related party note payable
reduction at $0.07 per
share (unaudited) 250,000 17,500 - -
Fair value of options
issued to consultant
(unaudited) - 696 - -
Common stock issued for
conversion of preferred
stock at $0.20 per share
(unaudited) 338,020 67,603 (67,604) (67,603)
Options issued to directors
for accrued director fees
(unaudited) - 9,241 - -
Contributed capital for
accrued director fees
(unaudited) - 50,759 - -
Pro-rata cumulative
non-cash preferred stock
dividend (unaudited) - - - 3,502
Amortization of prepaid
expense (unaudited) - - - -
Amortization and revaluation
of consulting expense
(unaudited) - (84,102) - -
Net loss,
September 30, 2004
(unaudited) - - - -
---------- ----------- --------- ------------
Balance,
September 30, 2004
(unaudited) 26,215,059 $23,751,129 15,246 $ 56,372
=========== ============ ========= ============
[CONTINUED]
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Variable
Expenses Prepaid Deferred Accumulated
with Common Stock Consulting Deficit
----------------- ---------- -----------
Balance, March 31, 2004
(unaudited) $(67,292) - $(23,720,436)
Common stock issued for
services at $0.17 per
share (unaudited) - - -
Stock offering costs
(unaudited) - - -
Common stock issued for
services at $0.17 per share
(unaudited) - - -
Stock offering costs
(unaudited) - - -
Options issued to employees
below market value (unaudited) - - -
Options issued to consultants
below market value (unaudited) - (507,877) -
Common stock issued for
conversion of debt and
interest at $0.20 per
share (unaudited) - - -
Common stock issued for
cash at $0.10 per share
for option exercise (unaudited) - - -
Intrinsic value of
employee options issued
below market value (unaudited) - - -
Common stock issued for
related party note payable
reduction at $0.07 per
share (unaudited) - - -
Fair value of options
issued to consultant
(unaudited) - - -
Common stock issued for
conversion of preferred
stock at $0.20 per share
(unaudited) - - -
Options issued to directors
for accrued director fees
(unaudited) - - -
Contributed capital for
accrued director fees
(unaudited) - - -
Pro-rata cumulative
non-cash preferred stock
dividend (unaudited) - - (3,502)
Amortization of prepaid
expense (unaudited) 67,292 - -
Amortization and revaluation
of consulting expense
(unaudited) - 498,544 -
Net loss,
September 30, 2004 (unaudited) - - (625,551)
---------- --------- ------------
Balance,
September 30, 2004 (unaudited) - $ (9,333) $(24,349,489)
========== ========= ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-13
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
For the
Six Months Ended
September 30,
----------------------
2004 2003
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(625,551) $ 145,597
Adjustments to reconcile net income (loss) to
net cash used by operating activities:
Depreciation 92 25,447
Gain on extinguishment (43,990) -
Stock options issued for consulting services 415,138 -
Stock options issued for board compensation 3,000 -
Stock options issued for compensation 5,000 31,607
Common stock issued for debt extensions - 5,760
Amortization of expenses prepaid with common stock 67,292 -
Amortization of debt offering and extension costs - 5,460
Changes in operating assets and liabilities:
(Increase) Decrease in accounts receivable 244,606 (139,098)
Decrease in prepaid expenses - 45,944
(Increase) in inventory (33,967) 2,073
Increase (decrease) in accounts payable and accrued
liabilities (88,357) 70,037
Increase (decrease) in interest payable - (2,114)
(Decrease) in unearned revenue 48,198 (196,951)
Decrease in other assets 5,185 -
--------- --------
Net Cash Used by Operating Activities (3,354) (6,238)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash receipt on notes receivable 50,000 -
Purchase of fixed assets (5,500) -
-------- --------
Net Cash Provided by Investing Activities 44,500 -
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
(Decrease) in cash overdraft - (8,053)
Payments to related parties (10,654) -
Principal payments on notes payable (79,335) (306,837)
Proceeds from long-term debt - 300,966
Proceeds from common stock 75,000 70,251
Proceeds from preferred stock - 5,000
-------- ---------
Net Cash Provided (Used) by Financing Activities (14,989) 61,327
-------- ---------
NET INCREASE IN CASH 26,157 55,089
CASH AT BEGINNING OF PERIOD 113,820 11,449
-------- ---------
CASH AT END OF PERIOD $139,977 $ 66,538
======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-14
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
For the
Six Months Ended
September 30,
---------------------
2004 2003
----------- ---------
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of stock for payment on notes payable
and interest $ 75,232 $ 38,373
Common stock issued for related party debt $ 17,500 $ -
Stock options issued for accrued director fees $ 60,000 $ -
Common stock issued for stock offering costs $ 45,900 $ -
Common stock issued for payment on accounts payable $ - $ 28,143
Common stock issued for debt extensions $ - $ 5,760
Preferred stock issued for conversion of
notes payable $ - $ 5,000
Stock options issued for consulting services $ 415,138 $ -
Stock options issued for employee and
board compensation $ 8,000 $ -
Cash Paid For:
Interest $ 24,949 $ 40,676
Income taxes $ - $ -
The accompanying notes are an integral part of these consolidated financial
statements.
F-15
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Notes to the Consolidated Financial Statements
September 30 and March 31, 2004
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed or omitted in accordance with such rules and regulations.
The information furnished in the interim condensed consolidated financial
statements include normal recurring adjustments and reflects all adjustments,
which, in the opinion of management, are necessary for a fair presentation of
such financial statements. Although management believes the disclosures and
information presented are adequate to make the information not misleading, it
is suggested that these interim condensed consolidated financial statements be
read in conjunction with the Company's most recent audited financial
statements and notes thereto included in its March 31, 2004 Annual Report on
Form 10-KSB. Operating results for the six months ended September 30, 2004
are not necessarily indicative of the results that may be expected for the
year ending March 31, 2005.
Certain prior period balances have been reclassified to conform to current
period presentation.
NOTE 2 - GOING CONCERN
The Company's consolidated financial statements are prepared using accounting
principles generally accepted in the United States of America applicable to a
going concern which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. However, the Company does not
have significant cash or other material assets, nor does it have an
established source of revenues sufficient to cover its operating costs.
Additionally, the Company has accumulated significant losses, has negative
working capital, and a deficit in stockholders' equity. All of these items
raise substantial doubt about its ability to continue as a going concern.
During the fiscal year ending March 2004, the Company added depth to one of
its most popular product lines, the PCS Brick Lab, introducing the Brick Lab
Grade Series for Grades 1 and 2 with plans to introduce Grades 3 and 4 during
fiscal year 2005 and Grades 5 and 6 during fiscal year 2006. The Company has
also entered into an exclusive distribution agreement with a company whose
science-oriented products will complement its engineering curriculum and labs.
In addition to widening and deepening its product mix, the Company has also
entered into agreements with independent sales agency groups which the Company
believes will provide better market penetration and coverage. In addition,
the Company intends to continue offering its common stock to raise and
additional capital necessary to cover operating expenses and its cost
containment strategy, not investing significant amounts of capital to research
and development.
The ability of the Company to continue as a going concern is
dependent upon its ability to successfully accomplish this plan and to
eventually attain profitable operations. The accompanying consolidated
financial statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern.
NOTE 3 - DILUTIVE INSTRUMENTS
a. Stock Options
The Company applied Accounting Principles Board ("APB") Opinion 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for all stock option plans. Under APB Opinion 25, compensation
cost is recognized for stock options granted to employees when the option
price is less than the market price of the underlying common stock on the date
of grant.
F-16
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Notes to the Consolidated Financial Statements
September 30, 2004 and March 31, 2004
NOTE 3 - DILUTIVE INSTRUMENTS (Continued)
a. Stock Options (Continued)
During July 2004, the Company issued 250,000 shares of common stock to its
Chief Executive Officer for the non-cash exercise of options, reducing related
party debt by $17,500.
During July 2004, the Company issued options to purchase 5,000 shares of its
common stock for consulting services rendered. The options are exercisable
immediately at a price of $0.15 per share for five years.
During July 2004, the Company issued options to purchase 153,533 shares of its
common stock to an employee. The options are exercisable at $0.15 per share
as follows: 50,000 on or after July 29, 2005; 50,000 on or after July 29,
2006; and, 53,533 on or after July 29, 2007. The options expire on July 29,
2009.
During July 2004, the Company issued options to purchase 50,000 shares of its
common stock to an employee. The options are exercisable at $0.13 per share
as follows: 10,000 on or after July 10, 2005; 20,000 on or after July 10,
2006; and, 20,000 on or after July 10, 2007. The options expire on July 10,
2009.
During August 2004, the Company issued options to purchase 50,000 shares of
its common stock to an employee. The options are exercisable at $0.13 per
share as follows: 10,000 on or after July 10, 2005; 20,000 on or after July
10, 2006; and, 20,000 on or after July 10, 2007. The options expire on July
10, 2009.
During the period ended September 30, 2004, the Company issued options to
purchase 6,000,000 shares of its common stock for prepaid consulting fees.
The options are exercisable immediately with 2,000,000 options exercisable at
a price of $0.10 per share for 60 days while 4,000,000 are exercisable at a
price of $0.25 per share for 120 days. During the period, 750,000 options
were exercised at $0.10 and 5,250,000 were allowed to expire unexercised. The
issuance of these options resulted in the recording of $372,988 in variable
deferred consulting fees.
In accordance with EITF 96-18, "Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services", and due to the options being issued for ongoing services,
the options are being valued as the services are completed. In order to
capture the changes in the fair value of the options over the term of service,
changes in the fair values at interim reporting dates are attributed in
accordance with FIN 28, "Accounting for Stock Appreciation Rights and Other
Variable Stock Option or Award Plans". FIN 28 states that consulting expense
should be measured at the end of each period as the amount by which the fair
value of the options covered by a grant exceeds the option price or value
specified under the plan and should be accrued as a charge to expense over the
periods the grantee performs the related services. Changes in the quoted
market value are being reflected as adjustments of deferred consulting and
consulting expense in the period and will continue until the date the services
are complete. Consulting deferred during the service period is being adjusted
in subsequent periods up to the measurement date for changes, either increases
or decreases, in the fair value of the options covered by the grant but shall
not be adjusted below zero. The offsetting adjustment is being made to
consulting expense of the period in which changes in the fair value occur.
During the quarter ended September 30, 2004, these options expired
unexercised. PCS recognized the remaining $120,000 in non-cash consulting
expense.
During the quarter ended June 30, 2004, the Company issued options to purchase
800,000 shares of its common stock for prepaid consulting fees. The options
are exercisable immediately in groups of 200,000 at prices of $0.10, $0.20,
$0.30 and $0.35 per share for one year. The issuance of these options
resulted in the recording of $134,889 in variable deferred consulting fees.
In accordance with EITF 96-18 and FIN 48, during the quarter ended September
30, 2004, the revaluation of these options resulted in the recording of a
decrease in deferred valuation of $192,000 and a decrease of $28,000 in
non-cash consulting expense.
SFAS No. 148, requires the Company to provide pro forma information regarding
net loss and net loss per share as if compensation costs for the Company's
stock option plans and other stock awards had been determined in accordance
with the fair value based method prescribed in SFAS No. 148. The current
period pro forma net loss includes $6,861 of prior period option expense
amortization. The Company estimates the fair value of each stock award at the
grant date by using the Black-Scholes option pricing model.
For the Six Months Ended
September 30,
--------------------------
2004 2003
------------ ----------
Net income (loss):
As reported $ (625,551) $ 145,597
Pro Forma (747,918) 31,301
Net income (loss) per share:
As reported $ (0.02) $ 0.01
Pro Forma (0.03) 0.00
The Company has the following outstanding options as of September 30,
2004:
Amount
Date of Issue Issue Amount Expired/ Amount
Description Grant Number Price Exercised Cancelled
Outstanding
---------------- -------- --------- -------- --------- --------- ----------
1) Employee 10-24-01 50,000 $ 0.30 0 0 50,000
2) Employee 12-01-01 24,230 $ 0.15 0 (2,297) 21,933
3) Board Members 12-10-01 1,000,000 $ 0.30 0 (250,000) 750,000
4) Board Members 06-03-02 1,000,000 $ 0.16 0 (250,000) 750,000
5) Employees 07-01-02 335,000 $ 0.16 0 (10,000) 325,000
6) Employee 08-15-02 5,000 $ 0.16 0 0 5,000
7) Board Members 10-21-02 499,998 $ 0.09 0 (166,666) 333,332
8) Board Members 05-15-03 892,855 $ 0.07 (250,000) (214,285) 428,570
9) Employee 05-20-03 100,000 $ 0.07 0 0 100,000
10) Employee 07-25-03 25,000 $ 0.10 0 0 25,000
11) Employee 09-05-03 150,000 $ 0.07 0 0 150,000
12) Employee 09-25-03 25,000 $ 0.15 0 0 25,000
13) Board Member 04-28-04 150,000 $ 0.15 0 0 150,000
14) Consultant 04-28-04 2,000,000 $ 0.10 (750,000)(1,250,000) 0
15) Consultant 04-28-04 4,000,000 $ 0.25 0 (4,000,000) 0
16) Consultant 04-28-04 200,000 $ 0.10 0 0 200,000
17) Consultant 04-28-04 200,000 $ 0.20 0 0 200,000
18) Consultant 04-28-04 200,000 $ 0.30 0 0 200,000
19) Consultant 04-28-04 200,000 $ 0.35 0 0 200,000
20) Board Members 09-14-04 80,358 $ 0.14 0 0 80,358
21) Board Members 09-14-04 93,750 $ 0.12 0 0 93,750
22) Board Members 09-14-04 112,500 $ 0.10 0 0 112,500
23) Board Members 09-14-04 48,912 $ 0.23 0 0 48,912
24) Board Members 09-14-04 57,692 $ 0.26 0 0 57,692
25) Employee 07-29-04 153,533 $ 0.15 0 0 153,533
26) Employee 08-10-04 50,000 $ 0.13 0 0 50,000
27) Employee 07-10-04 50,000 $ 0.13 0 0 50,000
28) Employee 07-0104 25,000 $ 0.31 0 0 25,000
29) Consultant 07-29-04 5,000 $ 0.15 0 0 5,000
---------- --------- ---------- ----------
11,733,828 (1,000,000) 6,143,248 4,590,580
========== ========= ========== ==========
Amount Exercisable 4,292,047
==========
F-18
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Notes to the Consolidated Financial Statements
September 30 and March 31, 2004
NOTE 3 - DILUTIVE INSTRUMENTS (Continued)
a. Stock Options (Continued)
Risk-Free
Fair Interest Expected Expected
Description Value Rate Life Volatility
---------------- --------- --------- -------- ----------
1) Employees $ 0.19 3.76% 3.00 100.52%
2) Employee $ 0.14 3.76% 3.00 99.80%
3) Board Members $ 0.20 5.69% 10.00 99.80%
4) Board Members $ 0.15 5.48% 10.00 128.91%
5) Employee $ 0.14 2.84% 3.50 157.77%
6) Employee $ 0.14 2.84% 3.30 163.77%
7) Board Members $ 0.09 3.94% 10.00 158.83%
8) Board Members $ 0.09 3.94% 10.00 151.61%
9) Employee $ 0.06 2.54% 4.00 151.61%
10) Employee $ 0.12 2.81% 4.00 156.24%
11) Employee $ 0.11 2.81% 4.00 152.03%
12) Employee $ 0.12 3.07% 5.85 152.03%
13) Board Member $ 0.17 4.43% 10.00 344.55%
14) Consultant $ 0.17 0.98% 0.17 187.13%
15) Consultant $ 0.17 0.98% 0.33 187.13%
16) Consultant $ 0.17 1.55% 1.00 537.80%
17) Consultant $ 0.17 1.55% 1.00 537.80%
18) Consultant $ 0.17 1.55% 1.00 537.80%
19) Consultant $ 0.17 1.55% 1.00 537.80%
20) Board Members $ 0.15 4.14% 10.00 247.04%
21) Board Members $ 0.15 4.14% 10.00 247.04%
22) Board Members $ 0.15 4.14% 10.00 247.04%
23) Board Members $ 0.15 4.14% 10.00 247.04%
24) Board Members $ 0.15 4.14% 10.00 247.04%
25) Employee $ 0.14 3.78% 5.00 250.60%
26) Employee $ 0.13 3.47% 5.00 247.04%
27) Employee $ 0.23 3.64% 5.00 250.60%
28) Employee $ 0.27 3.81% 5.00 240.27%
29) Consultant $ 0.14 3.78% 5.00 250.60%
NOTE 4 - MATERIAL EVENTS
During July 2004, the Company agreed to a Release of All Claims and Settlement
Agreement (the Settlement) with Xerox Capital Services, LLC in regard to a
past due notes payable and copier lease payments. The Settlement calls for
the payment of $44,252 in installments as follows: $7,500 upon execution;
$10,000 on or before August 5, 2004; $10,000 on or before August 19, 2004;
$12,500 on or before September 15, 2004; and $4,252 on or before October 15,
2004. In addition, the Company agreed to return the copier. The Company has
recognized a gain on extinguishment of debt of $43,990 as a result of this
Settlement. As of September 30, 2004, all scheduled payments have been made
and a balance of $4,252 remains unpaid.
F-19
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Notes to the Consolidated Financial Statements
September 30, 2004 and March 31, 2004
NOTE 5 - SUBSEQUENT EVENTS
On October 1, 2004, PCS entered into a six-month agreement with Equitilink.
The scope of said agreement includes public relations and investor
communications services. The six-month agreement will be extended for an
additional three months, unless cancelled by PCS. Compensation for
Equitilink's services is 250,000 shares of restricted stock.
On October 1, 2004, PCS entered into a twelve-month agreement with Michael
Corrigan, attorney. The scope of said agreement is for legal representation
for such matters that PCS deem necessary. Compensation for Corrigan's
services for the first six months is 500,000 of free trading, non-restricted
shares of common stock. Unless PCS cancels the agreement at the end of six
months, compensation for the remainder of the twelve-month agreement will be
an additional 500,000 free trading, non-restricted shares of common stock.
F-20
Item 2. Management's Discussion and Analysis or Plan of Operation.
--------------------------------------------------------------------
Results of Operations.
----------------------
Six months ended September 30, 2004, compared to six months ended
September 30, 2003.
-------------------
Revenues for the six-month period ended September 30, 2004,
decreased by $472,420 (39.7%) to $717,837 as compared to $1,190,257 for the
six-month period ended September 30, 2003. Revenues decreased due to a policy
change in the fourth quarter of fiscal year 2004. We changed our policy to
give our customers more choice in their lab materials. Under the new policy,
our customers can choose where to purchase their lab materials (e.g. LEGO
[Registered] manipulatives) and they simply purchase the PCS curriculum,
customized furniture unit and site license materials from us. There is no
effect on our gross profit as our revenues are reduced by same amount as our
cost of goods sold. We sold 191 labs during the six-month period ended
September 30, 2004, which is a decrease of 54.8%, or 232 labs, as compared to
423 labs for the six-month period ended September 30, 2003.
General and administrative costs have increased slightly by $18,557,
or 5.2% to $373,858 for the six-month period ended September 30, 2004, as
compared to $355,301 for the six-month period ended September 30, 2003. This
increase is primarily due to an increase in outside consulting services and an
increase in marketing expenses, including travel, trade shows and marketing
brochures.
Operating expenses for the six-month period ended September 30, 2004,
included a non-cash expenditure for $481,733 associated with stock and options
which were granted to consultants. Of this amount, $414,442 relates to a
consulting agreement. The scope of said consulting agreement includes
advisement and consultation regarding distribution strategies, evaluation of
potential acquisition targets and the structuring of any such transactions,
and business development strategies, including geographic and service
expansion plans.
Interest expense for the six-month period ended September 30, 2004,
decreased to $40,450 as compared to $71,871 for the six-month period ended
September 30, 2003. This decrease is due to less interest expense associated
with the conversion of indentured trust debt to common stock as well as a
reduction in finance charges associated with the financing of our cost of
goods sold. Said reduction corresponds to our change in our revenue policy
(see revenue section).
We had a net loss of ($625,551), or ($0.02) per share, for the six
months ended September 30, 2004, as compared to net income of $145,597, or
$0.01 per share, for the six-month period ended September 30, 2003. The net
loss for the six months ended September 30, 2004, after removing the costs of
stock and options issued for services of $481,733, is ($143,818), or ($0.00)
per share.
Liquidity and Capital Resources.
--------------------------------
We had a cash balance of $139,977 at September 30, 2004. Management
believes that the cash received from delivered sales orders, as well as
continued limited offerings of our common stock, will be sufficient to meet
our operating expenses.
Item 3. Controls and Procedures.
----------------------------------
As of the end of the period covered by this Quarterly Report, we
carried out an evaluation, under the supervision and with the participation of
our President and Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures. Based on this evaluation, our President
and Chief Financial Officer concluded that our disclosure controls and
procedures are effective in timely alerting them to material information
required to be included in our periodic Securities and Exchange Commission
reports. It should be noted that the design of any system of controls is
based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions, regardless of how remote.
In addition, we reviewed our internal controls over financial reporting, and
there have been no changes in our internal controls or in other factors in the
last fiscal quarter that has materially affected or is reasonably likely to
materially affect our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
----------------------------
None; not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
----------------------------------------------------------------------
Sales of Unregistered Securities During the Last Quarter.
---------------------------------------------------------
Common Preferred
Description Shares Amount Shares Amount
----------- ------ ------ ------ ------
Anthony A. Maher 250,000 (1)
Diana Gayle Smith 60,000 (2)
Robert & Ann Fyfe 25,345 (2)
Donald Lorenzen 50,000 (2)
Kapital Koncepts 50,945 (2)
Leonard & Sonia Coote 75,905 (2)
Verl & Margene Jensen 75,825 (2)
(1) These shares were issued for the exercise of an option
agreement. The corresponding note payable to related party was reduced by
$17,500 in lieu of cash.
(2) Issued for conversion of preferred stock at $0.20 per share.
Item 3. Defaults Upon Senior Securities.
------------------------------------------
None; not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
--------------------------------------------------------------
None; not applicable.
Item 5. Other Information.
----------------------------
None; not applicable.
Item 6. Exhibits and Reports on Form 8-K.
-------------------------------------------
(a) Exhibits.
31.1 302 Certification of Anthony A. Maher
31.2 302 Certification of Christina M. Vaughn
32 906 Certifications
SB-2 Registration Statement Filed with an Effective Date
of May 11, 2001*
* Incorporated by Reference.
(b) Reports on Form 8-K.
8-K Current Report Dated July 1, 2004, and filed with the
Securities and Exchange Commission on July 2, 2004.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
PCS EDVENTURES.COM, INC.
Date: 11/8/04 /s/Anthony A. Maher
---------- -------------------------------------
Anthony A. Maher
Chief Executive Officer, President and
Chairman of the Board of Directors
Date: 11/9/04 /s/Christina M. Vaughn
---------- -------------------------------------
Christina M. Vaughn
Chief Financial Officer