U. S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2006
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission File No. 000-49990
PCS EDVENTURES!.COM, INC.
(Name of Small Business Issuer 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) (Zip Code)
Issuer's telephone number: (208) 343-3110
N/A
(Former Name or Former Address, if changed since last Report)
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of Each Exchange on Which Registered
None.
Securities Registered under Section 12(g) of the Exchange Act:
No par value common stock
Check whether the Registrant (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 registrant was required to file such reports),
and (2)has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
1
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
--- ---
State issuer's revenues for its most recent fiscal year: $2,602,039.
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days.
June 9, 2006: $15,169,759 - There are approximately 27,088,855 shares of
common voting stock of the Registrant beneficially owned by non-affiliates.
These computations are based upon the bid price for the common stock of the
Registrant on the OTC Bulletin Board of the National Association of Securities
Dealers, Inc. ("NASD") on June 9, 2006 or $0.56 per share.
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS)
Not Applicable.
Check whether the issuer has 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)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
June 9, 2006
31,306,457
DOCUMENTS INCORPORATED BY REFERENCE
Transitional Small Business Issuer Format Yes X No
--- ---
2
TABLE OF CONTENTS
PAGE
Part I
Item 1. Description of Business. 4
Item 2. Description of Property. 23
Item 3. Legal Proceedings. 23
Item 4. Submission of Matters to a Vote of Security Holders. 23
Part II
Item 5. Market for Common Equity, Related Stockholder Matters and
Small Business Issuer Purchases of Equity Securities. 24
Item 6. Management's Discussion and Analysis or Plan of Operation. 32
Item 7. Financial Statements. 38
Item 8. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure. 85
Item 8A. Controls and Procedures. 85
Item 8B. Other Information 85
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act. 86
Item 10. Executive Compensation. 89
Item 11. Security Ownership of Certain Beneficial Owners and Management
and related Stockholder Matters. 90
Item 12. Certain Relationships and Related Transactions. 92
Item 13. Exhibits. 94
Item 14. Principal Accountant Fees and Services. 95
Signatures 96
3
PART I
Item 1. Description of Business.
------------------------
Business Development.
---------------------
General.
--------
PCS Edventures!.com, Inc. (the "Company," "PCS," "we," "our," "us" or
similar words) was incorporated in 1994 in the State of Idaho. In October
1994, we acquired PCS Schools, Inc. ("PCS Schools") and in November 2005 we
acquired 511092 N.B. LTD. dba LabMentors based in Fredericton, New Brunswick
Canada, which are both wholly owned subsidiaries of PCS Edventures!.com, Inc.
The 511092 N.B. LTD. company was renamed PCS LabMentors, LTD. ("LabMentors" or
"PCS LabMentors").
PCS Schools had created an educational enrichment program that was
delivered in owner-operated, free standing Learning Centers. This program
offered a unique atmosphere highly conducive to individual styles of learning
and a system that utilized computer technology to increase areas of inquiry
and application. Subsequently, we changed our business plan and business
strategy and in connection with this change, we divested the Learning Centers
developed by PCS Schools and focused our efforts on creating web based
educational systems utilizing and improving PCS Schools legacy curriculum.
PCS LabMentors is the exclusive provider of a proprietary virtual lab
technology designed to provide hands-on experience to high school through
college students studying a variety of technical topics. These technical
topics include programming, network management, security, and operating
systems. LabMentors' technology provides students with the ability to manage
and configure any hardware/software platform remotely, through a proprietary
client accessed remote server farm. Also embedded within the LabMentors
system is a Learning Management System (LMS) that enables the delivery and
tracking of curriculum and tasks to students. Using LabMentors' complete
solution, any school or institution can offer advanced IT training topics in
any number of areas such as Windows Server 3000(Registered), Linux(Registered)
system administration, and various other applications without the associated
overhead of owning and managing various hardware platforms.
The Company is engaged in the business of developing and marketing
educational learning labs bundled with related technologies and programs. Our
products and technologies are targeted and marketed to the public and private
school classrooms for pre-kindergarten through college, after school market,
and home school market. Our products and technologies are delivered to each
of these markets through an inventory of hardware, software, books (both
developed in-house and from external sources), and Internet access. Our
technologies and products are delivered to the home user through Internet
access via a subscription based website. Our products and technologies allow
students ages 3 and up to explore the basic foundations of mechanical
engineering, structures in architecture, robotics, mathematics, art, computer
science, programming, and physical science.
4
PCS Edventures!.com, Inc. has developed several innovative technology based
educational programs directed to the pre-kindergarten through high school age
groups. Our Academy of Engineering(Trademarked); Academy of Electric
Engineering(Trademarked); Academy of Science(Trademarked); Academy of
Robotics(Trademarked); Edventures! Lab(Trademarked); and Discover! Lab
products are site-license installations for classrooms and learning programs.
Our PCS BrickLab(Trademarked) and Young Learner Building Box(Trademarked)
products are also for classrooms and learning programs, but are not licensed.
Our Edventures! Online(Trademarked) product is our comprehensive Internet
delivered educational experience that supports our Edventures! Labs and our
Discover! Labs site licenses and also serves as a stand-alone program for home
use on a monthly subscription basis. Separately, and in combination, these
products present a platform for delivering educational services and support to
classrooms, learning centers, and home users, and create a virtual community
of learners and parents on the web. It is our business strategy that as this
online community grows, it will become an education portal through which
additional PCS programs and services can be marketed and delivered.
The results of operations discussed herein are on a consolidated basis
and include post-acquisition numbers of PCS LabMentors, LTD., which includes
December 1, 2005 through March 31, 2006.
Recent Developments.
---------------------
The following are the business developments during fiscal 2006:
We continued to open discussions with several target companies for
possible merger and acquisition activities to increase market share and
product depth. The synergies we see in these target companies will strengthen
our position in the marketplace and/or reduce costs associated with producing,
marketing, and selling our products.
We continued our relationship with Edison Schools. We currently sell
various labs, including custom developed labs for use in the Edison School
system. We sold additional labs to Edison Schools during the current fiscal
year. These labs included custom work for lab "camps" relating to bugs,
famous structures, history, space, wheels, architecture, ships, and animation.
During the current fiscal year, we expanded our market share in the
Detroit Public School system. We sold over $300,000 to this school system
relating to our Academy of Engineering labs.
We began developing marketing material, including a catalog and website,
through a consultant for use with our sales for various retail products. By
investing in a catalog medium of marketing, we are able to reach additional
customers through new means.
5
During the current fiscal year, our development staff continued the
development and release of additional curriculum for our classroom learning
labs. This new curriculum included the following:
* Academy of Engineering (Trademarked) Training Manual
* PCS Academy of Science (Trademarked) (AOS):
o Electricity Book
o Forces Book
o Energy Book
o Matter Book
* Academy of Electronics Books 1 and 2
* PCS BrickLab (Trademarked):
o Kindergarten Series, including workbooks
o Grade 2 Series workbooks
o Grade 3 Series, including workbooks
o Homeschool survey booklet
* Edventures! Online(Trademarked) 5 curriculum modules
* ERC Online for two semesters, as well as license updates
* Young Learner Lab (Trademarked) curriculum development
We further developed our relationships with the World Bank and USAID for
the purpose of being included in several RFP's in the Middle East. This
continued relationship building has enhanced our marketing position for future
sales in that region.
We completed our acquisition of 511092 N.B. LTD. on November 30, 2005.
This acquisition will help us penetrate the collegiate market for their
products, as well as expand our current product dispersion. In addition, the
similarities in the companies will help reduce costs on a long-term basis once
adequate sales persons are allocated to the subsidiary.
Pursuant to the LabMentors acquisition, the Company acquired all of the
assets of LabMentors, namely current inventory of learning programs,
intellectual property comprising the delivery platform, one pending Canadian
trademark application, and one Canadian copyright, accounts receivable, and
cash, as well as the liabilities, namely trade payables and deposits payable
comprising of one deposit payable due December 2005. All LabMentors stock
that was outstanding at the time of closing was converted into the Company's
stock at $0.60 per share. The LabMentors acquisition was structured through a
Share Exchange Agreement. The purchase price of the transaction was $420,000
USD, which was converted to the Company's stock at $0.60 per share and Company
stock was issued pursuant to Rule 144 in the amount of 700,000 shares. The
511092 N.B. LTD. DBA LabMentors unaudited financial statements for September
30, 2005 can be viewed in the 8-K/A filed with the SEC on February 15, 2006,
which is incorporated herein by reference.
We signed a Note Purchase Agreement dated December 29, 2005, by and
between the Company and Barron Partners LP, a Delaware limited partnership
(the "Note Purchase Agreement"), Barron Partners LP ("Barron") purchased from
the Corporation a convertible promissory note in the principal amount of
$1,000,000 (the "Note"). The Note and the Note Purchase Agreement contemplate
that the Note shall be converted into convertible preferred stock having
certain rights, preferences and limitations set forth in the Certificate of
Designations attached as Exhibit A to the Note; and the Note Purchase
Agreement therefore requires that the Company amend its Articles of
Incorporation to authorize 5,000,000 shares of preferred stock having such
rights, preferences and limitations. Further, until such preferred stock has
been duly authorized by an amendment of the Company's Articles of
Incorporation, the Note (or the preferred stock, if issued prior to March 31,
2007) shall be convertible into 1,666,667 shares of the Corporation's common
stock at the Conversion Price of $0.60 per share; provided that, if the
Corporation's EBITDA (where "EBITDA" means earnings before interest, tax,
depreciation and amortization as reported from continuing operations before
any non-recurring items) is less than $4,500,000 for the fiscal year ended
March 31, 2007, then the Conversion Price shall be reduced proportionately but
not below $0.1714 per share. Therefore, if the Conversion Price is reduced to
$0.1714, the maximum number of shares in which the Note (or the preferred
stock, if issued prior to March 31, 2007) may be converted equals 5,834,306
shares of common stock of the Company.
Pursuant to the Note Purchase Agreement, Barron purchased (i) a Common
Stock Purchase Warrant "A" (the "Class A Warrant") entitling Barron to
purchase up to 2,500,000 shares of the Company's common stock at a price of
$1.20 per share and (ii) a Common Stock Purchase Warrant "B" (the "Class B
Warrant") to purchase up to 2,500,000 shares of the Company's common stock at
a price of $1.80 per share. The Class A Warrant is exercisable through the
later of December 29, 2009, or 18 months of the effectiveness of the Company's
registration statement registering the shares underlying the Class A Warrant.
The Class A Warrant has a "cashless exercise" feature, and the exercise price
may be adjusted downward, to as low as $0.15 per share, based on the Company's
failure to meet certain EBITDA targets during the period of exercisability.
The Company may call the Class A Warrant if the closing market price of its
common stock equals or exceeds $1.80 per share for 30 consecutive trading days
and there is an effective registration statement covering the shares of common
stock underlying the Class A Warrant during such period. The period of
exercisability of the Class B Warrant, and the other material terms thereof,
are the same as for the Class A Warrant, with the exception that the call
feature is triggered if the closing market price of the Company's common stock
equals or exceeds $2.70 per share for 30 consecutive trading days and there is
an effective registration statement covering the shares of common stock
underlying the Class B Warrant during such period.
The Note Purchase Agreement also requires amendment of the Company's
Articles of Incorporation to include (A) a provision granting the Company's
Board of Directors the authority to (i) classify any unissued shares of the
Company's authorized stock into one or more classes or into one or more series
within a class; (ii) to reclassify any unissued shares of any class of the
Company's authorized stock into one or more classes or into one or more series
within one or more classes; and (iii) to reclassify any unissued shares of any
series of any class of the Company's authorized stock into one or more classes
or into one or more series within a class (the "Blank Check Authorization"),
and (B) a provision authorizing the Board to provide, in any rights, options
or warrants issued by the Company, that any terms and conditions of such
rights, options or warrants may be waived or amended only with the consent of
holders or a designated group of the holders of a designated percentage of a
designated class of the Company's capital stock (the "Option Amendment
Provision").
6
The following are the business developments during the fiscal years
ended March 31, 2005 and 2004.
------------------------------
* Opened discussions with several target companies for possible
merger and acquisition activities;
* Sold an additional 480 Labs to Edison Schools;
* Investigated using parts of our Learning Labs to
create a line of specialty educational retail learning toys;
* Developed and expanded a strategic alliance with K-Nex
Corporation, a manufacturer and distributor of learning
manipulatives to the US K-12 market;
* Developed a strategic alliance with Science Demo, an Israeli
Science Kit designer and manufacturer, for the Academy of
Science to be the exclusive distributor in the United States;
* Developed a strategic alliance with GibsonTechEd, for electronic
components to fit into our Academy of Electrical Engineering;
* Continued the development and release of additional curriculum
for a line of learning labs destined for the classroom;
* Named Agents in Egypt, Dubai, and Saudi Arabia, where we sold
and installed Learning Labs in each Country;
* Began to develop relationships with the World Bank and USAID for
the purpose of being included in several RFP's in the Middle
East;
* Announced and continued to develop new marketplace strategy for
the US market by introducing new products, added sales
representation and continued to expand the state and national
standards alignment in all 50 states; and
* Developed a strategic alliance with the Air University in
Pakistan.
7
Strategy.
---------
Our strategy is to provide a broad range of educational products tied to
educational standards in the U.S. and international markets delivered via the
Internet, after school programs, and in classrooms to address the various
needs of pre-kindergarten through college age levels. Our strategy consists
of the following key areas:
* working with various customers to customize educational products
to meet their growing needs and adapt current curriculum to fit
specific standards;
* expanding our sales force to increase market awareness and
penetration at all targeted market levels;
* building the PCS brand to continue to increase market awareness;
* developing new and enhancing current curriculum to increase market
appeal; and
* utilizing the Internet to bring our products to other areas,
persons, and markets to increase market penetration.
Foreign Currency Exchange Rate Risk.
------------------------------------
The Company sells many products throughout the international market, as well
as having operations in Canada as a result of the acquisition of LabMentors.
As a result, our statement of cash flows and operating results could be
affected by changes in foreign currency exchange rates or weak economies of
foreign countries. Working capital necessary to continue operating our
foreign subsidiary is held in local, Canadian currency, with additional funds
utilized through the parent company being held in U.S. dollars. Any gains or
losses from the foreign currency translation are presented in our statements
of operations. The recently acquired subsidiary is not a significant
component of our business, and as such the risk associated therewith is
minimal.
Backlog.
--------
Our unearned revenue was $136,554 at the fiscal year ended March 31, 2006.
The unearned revenue was $269,571 for the same period ending March 31, 2005.
At the end of fiscal year 2006, the entire amount of unearned revenue was
expected to be earned during fiscal years 2007 and 2008. All amounts listed
in unearned revenue are for orders placed by customers to the Company that
merely have yet to be delivered to the customers or license fees paid but that
have been yet to be fully utilized by our customers. Once the products are
delivered to the customers, the amounts will be invoiced and recognized as
revenue in the appropriate period. Each month, the license fees are amortized
according to the length of the subscription/license.
Seasonality.
------------
Our quarterly operating results fluctuate as a result of a number of factors,
including, but not limited to, the funding of customers, timing of product
development and release, availability and timeliness of items required for
assembly of the products, budget cycles, and period ending dates. Because of
these factors, the results for the interim periods presented are not
necessarily indicative of the results one could expect to see for the
Company's entire fiscal year.
8
Business of Issuer.
-------------------
We are engaged in the business of developing and marketing educational
Learning Labs, virtual labs, and related technologies and programs directed to
the kindergarten through college levels, as well as the after-school market.
Our products and technologies are targeted to the public and private school
classrooms, the after school market, and the home school market. Our products
and technologies are delivered to the classroom through an inventory of
hardware, software, books, and Internet access. Our technologies and products
are delivered to the home user through Internet access to our subscription
based website. Our products and technologies allow students of all ages to
explore the basic foundations of mechanical engineering, structures in
architecture, art, electrical engineering, mathematics, science, and computer
programming.
We have only commenced marketing efforts for our current products and
technologies during the last four years, and more recently the PCS LabMentors'
products in 2006. We continue to expand distribution and marketing channels.
To date, we have sold approximately 2,500 Labs to the US and international
markets. In addition, the LabMentors subsidiary has two major customers in
the US that it continues to service with its multi-platform virtual labs.
Principal products or services and their markets.
-------------------------------------------------
We have now developed and are currently marketing several innovative
technology based educational programs for the kindergarten through 12th grade
("K-12"), after-school market, learning center market, and home school market,
as well as the virtual labs currently marketed to the collegiate level.
Separately, and in combination, these lab products present a platform for
delivering educational services and support, and create a virtual community of
learners and parents on the web. It is our intent that as this community
grows, it becomes an education portal through which additional PCS programs
and services can be deployed.
Customers currently use our products to:
* uniquely motivate students by engaging them in their own learning;
* provide opportunities for students to pursue their own interests
and questions and make decisions about how they will find answers
and solve problems;
* to make learning relevant and useful to students by establishing
connections to life outside the classroom, addressing real world
concerns, and developing real world skills, which are desired by
today's employers, including the ability to work well with others,
make thoughtful decisions, take initiative, and solve complex
problems;
* to provide opportunities for teachers to build relationships with
each other and with those in the larger community through sharing
with other teachers, parents, mentors, and the business community
who all have a stake in the student's education;
* to provide exciting, hands-on, inquiry based instruction, which
recommended by The NSTA National Science Teachers Association, The
National Science Education Standards, AAAS American Association
for the Advancement of Science, Project 2061, and many more;
9
* to help increase test scores and understanding in Science,
Technology, Math and Engineering (STEM) standards; and
* to enable teachers to teach science lab activities without a
science lab.
The technologies and products for PCS Edventures!.com, Inc. that we are
currently marketing, are as follows:
Our Academy of Engineering(Trademarked) Lab is a site license
program designed for use within various K-12 environments. The Academy of
Engineering(Trademarked) Lab is available in a 10, 20 or 30 student edition.
Using the Academy of Engineering(Trademarked), students develop, design, and
produce exciting hands-on projects ranging from catapults to robots in
response to engaging challenges in a variety of topics. The current Academy
of Engineering(Trademarked) product includes books from the mechanical and
electrical engineering strand and 12 extension books covering a variety of
topics. Future topic strands for expanding the program include structural and
software engineering. Each strand, when completed, includes courseware for
over 272 hours of instruction.
The Academy of Engineering(Trademarked) program includes a variety
of LEGO(Registered) products that are used as mechanical engineering learning
aids. An Academy of Engineering(Trademarked) site license currently sells for
between $13,995 and $23,995 and includes materials, LEGO(Registered)
manipulatives and other building components, curriculum, a custom designed
storage and organization unit, a digital camera, web-based support by our
Edventures! Online(Trademarked) product, various electronic assessment tools,
and two days of teacher training. We sold forty-three Academy of
Engineering(Trademarked) Labs during the fiscal year ended March 31, 2006.
Each site license includes all materials necessary to utilize the complete
Academy of Engineering(Trademarked) program.
The Academy of Robotics(Trademarked) Lab serves as a complement to
our Academy of Engineering(Trademarked) Lab or can also serve as a stand-alone
robotics lab. The Academy of Robotics(Trademarked) Lab is available in a 10,
20 or 30 student edition. Each Lab contains a comprehensive LEGO(Registered)
inventory, including LEGO(Registered) Mindstorms(Registered) kits, additional
LEGO(Registered) manipulatives, a digital camera, web services, and
curriculum. This Lab ranges in price from $6,995 to $18,995. We sold thirty-
eight Academy of Robotics(Trademarked) Labs during the fiscal year ended March
31, 2006.
PCS Edventures! Lab(Trademarked) is a site license system intended
for students ages 7-13, which provides a broader set of subject areas
including art, programming, web page design, chess, physics, electricity, and
others. It contains curriculum, storage cabinet, and a smaller inventory of
LEGO(Registered) manipulatives. It relies on Edventures! Online(Trademarked)
for delivery of the curriculum. A site license for a PCS Edventures!
Lab(Trademarked) currently costs between $4,995 and 12,995, which includes a
10, 20 or 30 student license for access to Edventures! Online(Trademarked).
We have sold forty Edventures! Labs the fiscal year ended March 31, 2006.
10
Discover! Lab(Trademarked) is a scaled down model of the Edventures!
Lab(Trademarked) site license system and is intended for smaller groups of
approximately 15 students. It contains curriculum, a storage cabinet, and
other material, but has a reduced inventory of LEGO(Registered) materials and
relies on Edventures! Online(Trademarked) for delivery of the curriculum. A
site license for a Discover! Lab(Trademarked) currently costs $3,250, which
includes a 30-student block license for access to Edventures!
Online(Trademarked). We have sold thirteen Discover! Labs(Trademarked) during
the fiscal year ended March 31, 2006.
PCS Brick Labs!(Trademarked) provide an inexpensive hands-on
learning solution for educators in all types of teaching environments. The
PCS Brick Lab!(Trademarked) combines the Edventures! Online(Trademarked)
curriculum, LEGO(Registered) manipulatives, storage bins, and Internet/web
services for smaller groups of approximately 30 students. The PCS Brick
Lab!(Trademarked) sells for between $95 and $595 and is not licensed. In
addition, we have developed the PCS BrickLab!(Trademarked) Grade Series. This
series is a complete technology curriculum for grades 1-6. Aligned with the
ITEA standards, each level in the grade series offers hands-on and open-ended
projects for up to 30 students at one time. Each individual grade package
includes a sturdy plastic tub filled with over 5,700 building bricks, one
teacher curriculum book -- grade specific -- and accompanying posters and
labels. Each level contains in excess of over 200 technological projects
relevant to the real world. Grades 4, 5, and 6 are scheduled for completion
during fiscal year 2007. We sold 605 PCS Brick Lab!(Trademarked) during the
fiscal year ended March 31, 2006.
The Young Learner Building Box(Trademarked) was designed to meet the
needs of preschoolers. Introducing children to hands-on learning, this lab
utilizes activities and games to teach number and letter recognition, build
vocabulary, counting, and more. The Young Learner Building Box(Trademarked)
includes activity cards, large-size plastic building blocks, the exclusive
"HIGHRISE" board game, developed by PCS for this specific Lab, and a sturdy
mobile storage container. This labs sells for $299 and is unlicensed.
Introduced in 2003, we have sold twenty-six Young Learner Building
Boxes(Trademarked) during the fiscal year ended March 31, 2006.
Edventures! Online(Trademarked) is an Internet delivered program
that provides a safe, secure, and exciting learning environment for students
to interact with from home and/or school. Edventures! Online(Trademarked)
includes online curriculum and assessment, filtered communication tools,
forums, and a variety of additional online services. The program utilizes
Internet based resources and services as a stand-alone product and also serves
as an extension service to our school-based Edventures! Lab(Trademarked).
Edventures Online(Trademarked) can be viewed on the web at www.edventures.com.
This environment features over 200 do-at-home projects organized into a
sophisticated learning model (Merit System), an animated glossary, monitored
chat rooms, live interaction with online instructors, personal email accounts
for all students, and more. The Edventures! Online(Trademarked) at-home
curriculum utilizes found materials, LEGO(Registered) products, software, and
other resources to teach concepts in physics, electricity, Internet,
programming, art, architecture, engineering, and robotics. Edventures!
Online(Trademarked) provides all lab licensees an online support tool and
provides a framework within which students can safely communicate,
collaborate, and learn. Edventures! Online(Trademarked) is also available as
a stand-alone, home based subscription product for $69.95 per year.
11
The PCS Academy of Science(Trademarked). This series is a complete
science curriculum for grades K-12. The PCS Academy of Science(Trademarked)
line is a unique, hands-on science package that combines curriculum and a
simple, effective apparatus. The curriculum is aligned with National and
State science standards and does not require an actual laboratory. We have
sold several individual items that make up our recently positioned PCS Academy
of Science(Trademarked) lab. This fiscal year to date, we have not sold any
of the newly positioned lab packages. The products can be purchased in a lab
format or individually based on the specific needs of the customer. The labs
currently sell for between $1,495 and $7,995, while individual products vary
in price.
The Academy of Engineering(Trademarked), Academy of Science(Trademarked),
Academy of Electrical Engineering(Trademarked), Academy of
Robotics(Trademarked), Edventures! Lab(Trademarked), Discover!
Lab(Trademarked), and PCS BrickLab!(Registered) have three main delivery
models, which makes these products suitable for use in various learning
Environments:
School Resource Center. The Academy of Engineering(Trademarked),
PCS Academy of Science(Trademarked), Academy of Electrical
Engineering(Trademarked), Academy of Robotics(Trademarked), Edventures!
Lab(Trademarked), and Discover!(Trademarked) Labs are currently being deployed
as a school-wide resource center that allows K-12 teachers to integrate hands-
on project based learning activities into their daily curriculum. As a
resource center, these mobile Labs are rolled from classroom to classroom
throughout the course of a typical school week, being used by the entire
school. Examples of how the program is used include: (1) a platform for
gifted and talented programs; (2) to enhance and extend a science curriculum;
(3) to enhance and extend mathematics activities; (4) to serve as a foundation
for an after-school program; (5) as a vocational-technical or technology
education program; (6) and to serve as a special education resource. This
model makes the program an ideal resource for schools around the country that
are seeking innovative and organized methods for integrating technology and
hands-on learning in the classroom.
Pre-Engineering Course. The Academy of Engineering(Trademarked),
Academy of Robotics(Trademarked), and Edventures! Labs(Trademarked) provide a
comprehensive engineering curriculum designed around the hands-on use of
LEGO(Registered) manipulatives. This curriculum allows the program to serve as
the foundation for pre-engineering courses suitable for students in Jr./Sr.
High. The hands-on applications of technology, design and production
techniques, and the integration of the Internet based services, makes it a
highly attractive total classroom solution.
After School Program. The Academy of Engineering(Trademarked),
Academy of Robotics(Trademarked), Edventures! Lab(Trademarked), Discover!
Lab(Trademarked), and PCS Brick Lab!(Trademarked) programs were originally
designed in an after-school environment and are ideal to meet the expanding
need for educational solutions for school-based programs, Boys & Girls Clubs,
YMCA, Community Learning Centers and similar organizations. When used in this
format, these programs become a hub for educational activities out of the
engineering curriculum, or from the Edventures! Online(Trademarked) program.
The complete support, assessment and curriculum components provide a system
for offering a flexible, effective educational offering.
12
The technologies and products for PCS LabMentors, LTD. that we are
currently marketing are as follows:
On-call mentoring. This is a 24 hour 7 days per week call in and/or
email service for students to contact the company for technical assistance.
The current price is $25 per student per month for unlimited assistance.
Windows(Registered) Based Applications. Currently LabMentors has virtual
labs on its proprietary platform for Windows XP(Registered) and Windows Server
2003(Registered). These labs currently sell for between $60 and $75 per
student. The pricing is for individual students, while large clients are
billed based on virtual machine lab hours at a negotiated rate.
Linux(Registered) Based Applications. Currently LabMentors has virtual
labs on its proprietary platform for Linux+(Registered). These labs currently
sell for $75 per student. The pricing is for individual students, while large
clients are billed based on virtual machine lab hours at a negotiated rate.
Custom Labs. In addition, LabMentors also provides custom lab
development. This pricing is based on the complexity and resources involved
in developing such curriculum/virtual labs.
We believe that education programs of our type are not currently
available from any other source and present a unique opportunity for sales and
marketing to specific segments of the education industry. We believe that PCS'
education programs deliver a unique, proven learning experience that:
* provides students with exciting and relevant activities that
brings curriculum to life;
* develops essential critical thinking and problem-solving skills;
* prepares students for real-world career demands; and
* builds a strong foundation in technical literacy.
Markets.
--------
The educational market is a significant market in the United States but
is fragmented into various segments ranging from non-profit educational
programs to the public school system. We focus our sales and marketing
efforts on specific market segments in an integrated strategy that is intended
to build brand name awareness of our PCS products in schools, at home, and
within the larger educational marketplace.
13
We continue to believe that a major shift of focus is taking place in
education in our public and private schools as educators and parents seek to
maximize educational experiences for children based upon advances in
technology. We believe that this shift necessitates sweeping changes in how
schools are operated, programs are taught, technology is integrated, students
are assessed, and classrooms are managed. Over the past few years, the
emergence of a for-profit education industry has begun to evolve in response
to parents' and society's demand for more and better alternatives in
education. Parents are giving their children's schools low grades for
teaching performance and at the same time there is an increase in public
support for school choice. The issue of education, including the public
funding of private school vouchers is significant. A school voucher program
has also been recently upheld in a case decided at the United States Supreme
Court. These factors are driving the growth of private and charter school
alternatives.
Capitalizing on this atmosphere, private education based companies
specializing in after-school, tutoring, and special skills programs are
marketing programs, technologies, and products catering to teachers, students,
and parents. Parents support alternative education programs and enrichment
activities and actively seek them out for their children, as well as exert
more and more pressure on public schools to improve their performance. We
believe that with the change and unrest taking place within the education
industry, enormous opportunities are emerging for companies who understand the
problems and promise of technology and new educational methodologies. It is
our business strategy to, through our technologies and experience, develop and
market technology enhanced learning programs to address this education demand.
The growth of the Extended Learning Market. Recent high-profile federal
programs indicate a growing opportunity within the extended learning market
which encompasses before, after, and summer school programs on the campus of
public schools, or operated through the venue of organizations like the Boys &
Girls Clubs of America. The website, www.afterschool.gov, summarizes many
of the federal funding sources now available for this growing market segment.
Our salespersons are constantly reviewing the new funding sources and
attempting to position our current products in ways that fit each sources'
criteria.
PCS Designated Markets.
-----------------------
We have identified public and private schools and the after-school
programs, which are growing quickly across the United States, as our primary
market for our labs. Widespread financial support for implementing school-
based after-school programs is driving the growth of public school programs in
this segment. The growth of programs such as those offered by the Boys & Girls
Clubs of America are further proof of the market need for this product. As a
niche market, after school programs, on and off the campus of public schools
(the Extended Learning Market), represent a potential market for PCS products.
14
Boys & Girls Clubs. We are currently continuing our efforts to
distribute our labs into the Boys & Girls Clubs. To date, clubs have evidenced
a strong interest in our program due to an organization-wide mandate to
implement educational programs like the Academy of Engineering(Trademarked).
The funding cycle access to funds for these programs are a significant factor
in our ability to market the Academy of Engineering(Trademarked) to Boys &
Girls Clubs. We currently have labs in over 50 of the 3,300 Boys & Girls
Clubs nationwide.
YMCA. We are currently continuing our efforts to distribute our labs
into the YMCA. To date, clubs have evidenced a strong interest in our program
due to an organization-wide mandate to implement educational programs like the
Academy of Engineering(Trademarked). The funding cycle access to funds for
these programs are a significant factor in our ability to market the Academy
of Engineering(Trademarked) to YMCAs. We currently have labs in several YMCAs
nationwide.
Extended Learning Market. In addition to the Boys & Girls Clubs of
America and YMCA, additional non-school-based programs are increasing through
such institutions as Community Learning Centers and other sites such as
Science Museums. PCS is currently working to establish reference sites in
each of these markets and will follow a strategy similar to the one it is
pursuing with the Boys & Girls Clubs of America. Progress to date in these
market segments includes implementation of labs within over 10 science museums
nationwide.
Collegiate Market. Through the LabMentors subsidiary, we currently have
installations of the virtual labs utilizing our proprietary software in
several outlets serviced by DeVry University and Thompson Learning/Course
Technologies. We are continuing to expand the agreements with each of these
customers to expand market presence and gain brand recognition.
Edventures! Online Markets.
---------------------------
Edventures! Online(Trademarked) is designed to provide a full-featured
educational extension via the Internet to all students participating in PCS
programs such as the Academy of Engineering(Trademarked). However, for
families and students who do not have access to PCS Labs through a local site
license, the program is available on a subscription basis for $69.95 per year.
PCS describes the primary market for the current Edventures!
Online(Trademarked) product as families with children ages six to thirteen who
have a strong interest in education. Edventures! Online(Trademarked) has been
approved for state level funding for home school students in the states of
California and Alaska. PCS is currently developing a promotional effort that
will take advantage of this funding availability to promote the Edventures!
program to the thousands of home school families in these states.
15
Marketing and Other Agreements.
-------------------------------
Our sales and marketing efforts are designed to expand market share in
the markets discussed above. We currently utilize a direct sales force and
are creating a catalog for distribution to increase our market coverage.
Direct Sales Force. Currently, we have a direct sales force consisting
of five employees (in-house) and several independent agency groups
(Representatives). This in-house direct sales force markets our products and
programs in a variety of methods to various users, providers, and others. The
Representatives use their own networks to drive increased sales in various
states and countries to increase market awareness for PCS (Registered)
products and services. The in-house salespersons utilize trade show
conferences, referrals, and telephone communications to sell and market the
PCS (Registered) products.
Distribution methods of the products or services.
-------------------------------------------------
All products except the virtual labs produced by LabMentors and our
Edventures! Online subscriptions are drop shipped from the manufacturer or
shipped through a preferred provider from our warehouse to the specified
customer. The virtual labs produced by LabMentors and our Edventures! Online
are delivered through the Internet through server farms located off-site.
Status of any publicly announced new product or service.
--------------------------------------------------------
PCS announced a new Mobile Device Content Delivery IT service on November
22, 2005. This project has been fully implemented and is being utilized by
our sales force while traveling throughout the United States. This service
allows our sales team to query our Internal Management System (IMS) for
information such as telephone numbers and e-mail addresses through use of a
PDA or cell phone.
PCS announced on July 26, 2005 the launch of a new service for its education
customers with the addition of a catalog of commonly used school supplies.
The catalog service offers over 30,000 products that range from pencils and
paper products to software and book supplies. PCS began distribution of print
versions of the catalog in January 2006 and a web enabled version of the
service is scheduled for deployment in Q1 of fiscal year 2007. Product
fulfillment is managed through EDI processes that tie PCS internal management
systems to its wholesale partner Educators Resource of Semmes, Alabama.
16
Competitive business conditions and the small business issuer's competitive
position in the industry and methods competition.
-------------------------------------------------
Both the education marketplace and the Internet are highly competitive
and rapidly evolving fields, and are expected to continue to undergo
significant and rapid technological change. Other companies may develop
products and services and technologies superior to our products that may
result in our products and services becoming less competitive. We are aware
of several development stage and established enterprises, including major
telecommunications and computer software and technology companies, which are
exploring the fields of online educational products and services or are
actively engaged in research and development of products and services targeted
at these fields. Many of these companies have substantially greater financial,
manufacturing, marketing, and technical resources than we have and represent
significant long-term competition. To the extent that these companies offer
comparable products and services at lower prices, or with higher quality and
that are more cost effective, our business could be adversely affected.
Potential Competitive Advantages.
---------------------------------
We believe that we have certain competitive advantages which we will
attempt to maximize in developing and effecting our business strategy.
These potential advantages include the following:
High barriers exist to entry. PCS' educational programs are innovative,
unique and based on over 20 years of experience and product development.
Barriers to entry for competitive products that are time tested are
extremely high. Early and significant market penetration will guarantee
a "first and best" name recognition for the types of educational
services that PCS will deliver.
Utilize the Internet as a delivery and support mechanism for the
programs. By leveraging our extensive expertise in Internet technology,
PCS achieves the following significant advantages: (1) a high level of
program control; (2) the building of a significant data model regarding
program usage; and (3) a direct channel to enrolled students who access
the program at home. Each of these advantages provides tangible long-
term benefits to the Company.
Expand program offerings and distribute them via established program
licensees. After implementing and proving a successful program model,
PCS will utilize its established network of licensees to distribute
additional programs designed to integrate seamlessly into the already
deployed sites. This creates a long-term growth strategy that includes
new and residual sales to an ever-growing list of existing licensees on
an annual basis.
17
Proliferate licensing of PCS programs by continuing to expand other
educational market segments. PCS recognizes that the public schools and
community organizations offering educational programs are the best
choice for rapid expansion and capturing market share and visibility.
Additional market segments will be attacked individually as PCS
demonstrates program viability, market by market. By taking a long term
strategic approach to market penetration and maintaining a policy of
solid strategic alliances for distribution, each PCS educational program
will be an asset that will continue to generate growth and sales.
Sources and availability of raw materials and the names of principal
suppliers.
----------
None, not applicable.
Dependence on one or a few major customers.
-------------------------------------------
In general, PCS does not rely on one or a few major customers. However,
during fiscal year 2006, PCS had one major customer as part of their overall
customer base, namely Detroit Public Schools. In addition, PCS LabMentors has
two major customers that make up the majority of its revenue stream, namely
Thomson Course Technology and DeVry University.
Patents, trademarks, licenses, franchises, concessions, royalty agreements or
labor contracts, including duration.
------------------------------------
We seek to protect our technology, documentation, and other written
materials under trade secret and copyright laws, which afford only limited
protection. Generally, we enter into confidentiality and non-disclosure
agreements with our employees, key vendors, and suppliers. Currently we use
the following trade names: PCS & Design(Registered), Academy of
Learning(Trademarked), Edventures!(Trademarked), and PCS
BrickLab!(Trademarked), PCS Academy of Science(Trademarked), PCS
Edventures!.com, Inc.(Registered), WebLab(Trademarked), PCS STEPS &
Design(Trademarked), Young Learning(Trademarked), and PCS Academy of
Engineering(Trademarked). We intend to evaluate continually the
appropriateness of seeking registration of additional product names and
trademarks as they evolve.
At the present time, we have not applied for any patents, nor do we have
any patents pending. We anticipate that our products will not be the type for
which patent protection will be sought. However, we may file for patent
protection on certain aspects of our proprietary technology in the future.
Our PCS & Design(Registered) mark (Registration No. 2,213,678) has been
in service since at least as early as 1992 and trademarked since December 29,
1998. PCS Edventures!.COM(Registered) has been in service since at least as
early as January 1, 1999 and trademarked since November 27, 2001. We applied
for a trademark (application #78/329127) for PCS BrickLab!(Trademarked) on
November 13, 2003. We applied for a trademark (application #78/472600) for
PCS ACADEMY OF SCIENCE(Trademarked) on August 24, 2004. We anticipate that
these pending trademark applications will be granted in the near future.
Protection for all trademarks is for a 10-year period, with renewals available
indefinitely so long as we continue to show proof of use of the mark in
commerce.
18
Although we believe that our products have been independently developed
and that we do not infringe on any third party rights, third parties may, in
the future, assert infringement claims against us. We may be required to
modify our products, trademarks, and/or technology or to obtain licenses to
permit our continued use of those rights. We may not be able to do so in a
timely manner or upon reasonable terms and conditions and as such, failure to
do so could irreparably harm the Company and/or our operating results.
We currently have royalty agreements with PCS Effective Education and Gibson
Tech. The agreement with PCS Effective Education is for royalty payments made
through the issuance of stock based on sales of PCS Academy of
Science(Trademarked) product line. The ten-month agreement, which terminates
August 1, 2006) with Gibson Tech is for a constant monthly cash payment of
$550 with additional cash commission payments based on sales of our Academy of
Engineering (Trademarked) products generated by their firm.
Need for any government approval of principal products or services.
-------------------------------------------------------------------
None, not applicable.
Effect of existing or probably governmental regulations on the business.
------------------------------------------------------------------------
Small Business Issuer.
----------------------
The integrated disclosure system for small business issuers adopted by
the Securities and Exchange Commission in Release No. 34-30968 and effective
as of August 13, 1992, substantially modified the information and financial
requirements of a "Small Business Issuer," defined to be an issuer that has
revenues of less than $25 million; is a U.S. or Canadian issuer; is not an
investment company; and if a majority owned subsidiary, the parent is also a
small business issuer. Provided however, an entity is not a small business
issuer if it has a public float (the aggregate market value of the issuer's
outstanding voting and non-voting common equity held by non-affiliates) of $25
million or more.
The Securities and Exchange Commission, state securities commissions and
the North American Securities Administrators Association, Inc. ("NASAA") have
expressed an interest in adopting policies that will streamline the
registration process and make it easier for a small business issuer to have
access to the public capital markets.
We are deemed to be a "small business issuer," and we have selected to
comply with the "small business issuer" disclosure requirements of Regulation
SB of the Securities and Exchange Commission.
19
Sarbanes-Oxley Act.
-------------------
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, beginning with
our Annual Report on Form 10-K for the fiscal year ending March 31, 2006, we
will be required to furnish a report by our management on our internal control
over financial reporting. We were not subject to these requirements for the
fiscal year ended March 31, 2005. The internal control report must contain
(i) a statement of management's responsibility for establishing and
maintaining adequate internal control over financial reporting, (ii) a
statement identifying the framework used by management to conduct the required
evaluation of the effectiveness of our internal control over financial
reporting, (iii) management's assessment of the effectiveness of our internal
control over financial reporting as of the end of our most recent fiscal year,
including a statement as to whether or not internal control over financial
reporting is effective, and (iv) a statement that our independent auditors
have issued an attestation report on management's assessment of internal
control over financial reporting.
Management acknowledges its responsibility for internal controls over
financial reporting and seeks to continually improve those controls. In order
to achieve compliance with Section 404 within the prescribed period, beginning
on our next fiscal year, our CFO along with management is engaged in the
process to document and evaluate our internal control over financial
reporting. In this regard, management will need to adopt a detailed work plan
to (i) assess and document the adequacy of internal control over financial
reporting, (ii) take steps to improve control processes where appropriate,
(iii) validate through testing that controls are functioning as documented,
and (iv) implement a continuous reporting and improvement process for internal
control over financial reporting. Despite our efforts, we can provide no
assurance as to our, or our independent auditors', conclusions as of March 31,
2006 with respect to the effectiveness of our internal control over financial
reporting under Section 404. There is a risk that neither our independent
auditors nor we will be able to conclude at or around March 31, 2006 that our
internal controls over financial reporting are effective as required by
Section 404. This could result in an adverse reaction in the financial markets
due to a loss of confidence in the reliability of our financial statements.
The CFO and management intend to take every step necessary to ensure
compliance with Section 404.
"Penny Stock" Designation.
--------------------------
Our common stock is "penny stock" as defined in Rule 3a51-1 of the
Securities and Exchange Commission. Penny stocks are stocks:
* with a price of less than five dollars per share;
* that are not traded on a "recognized" national exchange;
* whose prices are not quoted on the NASDAQ automated quotation
system; or
20
* in issuers with net tangible assets less than $2,000,000, if the
issuer has been in continuous operation for at least three years, or
$5,000,000, if in continuous operation for less than three years, or with
average revenues of less than $6,000,000 for the last three years.
Section 15(g) of the Exchange Act and Rule 15g-2 of the Securities and
Exchange Commission require broker/dealers dealing in penny stocks to provide
potential investors with a document disclosing the risks of penny stocks and
to obtain a manually signed and dated written receipt of the document before
making any transaction in a penny stock for the investor's account. You are
urged to obtain and read this disclosure carefully before purchasing any of
our shares.
Rule 15g-9 of the Securities and Exchange Commission requires
brokers/dealers in penny stocks to approve the account of any investor for
transactions in these stocks before selling any penny stock to that investor.
This procedure requires the broker/dealer to:
* get information about the investor's financial situation,
investment experience, and investment goals;
* reasonably determine, based on that information, that transactions
in penny stocks are suitable for the investor and that the investor can
evaluate the risks of penny stock transactions;
* provide the investor with a written statement setting forth the
basis on which the broker/dealer made his or her determination; and
* receive a signed and dated copy of the statement from the
investor, confirming that it accurately reflects the investor's financial
situation, investment experience, and investment goals.
Compliance with these requirements may make it harder for our
stockholders to resell their shares.
21
Reporting Obligations.
----------------------
Section 14(a) of the Exchange Act requires all companies with securities
registered pursuant to Section 12(g) of the Exchange Act to comply with the
rules and regulations of the Securities and Exchange Commission regarding
proxy solicitations, as outlined in Regulation 14A. Matters submitted to
stockholders of our Company at a special or annual meeting thereof or pursuant
to a written consent will require our Company to provide our stockholders with
the information outlined in Schedules 14A or 14C of Regulation 14; preliminary
copies of this information must be submitted to the Securities and Exchange
Commission at least 10 days prior to the date that definitive copies of this
information are forwarded to our stockholders.
We are also required to file annual reports on Form 10-KSB and quarterly
reports on Form 10-QSB with the Securities Exchange Commission on a regular
basis, and will be required to timely disclose certain material events (e.g.,
changes in corporate control; acquisitions or dispositions of a significant
amount of assets other than in the ordinary course of business; and
bankruptcy) in a current report on Form 8-K.
Research and Development Expenses.
----------------------------------
PCS Edventures! incurred research and development expenses during the
last fiscal year for re-design of lab modules, as well as for development of
additional marketing materials. We believe that continued investment in
research and development will contribute to attaining our strategic objectives
and, as a result, expect research and development expenses to increase in
future periods.
PCS LabMentors, LTD. utilizes the Scientific Research & Experimental
Development ("SR&ED") credits, which can allow for tax credits to Canadian
companies. SR&ED is a refundable tax credit program offered by the Canada
Revenue Agency ("CRA") to provide incentive for companies to undertake
development activities in Canada. There are stringent reporting criteria to
complete the filings to be reimbursed and to apply for these credits. The
Company has applied for the refundable tax credits for the year ended May 31,
2004 for the LabMentors subsidiary. The Company is in the process of applying
for such refundable tax credits for the year ended May 31, 2005 for the
LabMentors subsidiary. Because of the uncertainties surrounding the
application process and related qualifications, no amounts related to these
possible credits have been recognized in the consolidated financial
statements.
Number of total employees and number of full time employees.
------------------------------------------------------------
We employ approximately twelve full-time and five part-time employees,
and our LabMentors subsidiary has five full-time employees. We will hire
part-time and additional full-time employees on an "as-needed" basis. None of
our employees are represented by a labor union. We believe that our
relationship with our employees is good.
Reports to security holders.
----------------------------
None, not applicable.
22
Item 2. Description of Property.
------------------------
Location.
---------
The Company leases its Principal executive offices in Boise, Idaho.
These offices consist of approximately 5,412 square feet of office space.
Rent obligations are currently $7,250/month under a non-cancelable operating
lease that expires February 28, 2008. The rent will increase to $7,750/month
during fiscal year 2008.
The Company leases additional warehouse space in Boise, Idaho. This
warehouse space consists of approximately 1,400 square feet. Rent obligations
are $670/month through May 2006.
The Company leases space for the LabMentors subsidiary located in
Fredericton, New Brunswick Canada. This space consists or approximately 1,000
square feet. Rent obligations are $1,143/month under a month-to-month lease.
Investment policies.
--------------------
None, not applicable.
Description of Real Estate and Operating Data.
----------------------------------------------
None, not applicable.
Item 3. Legal Proceedings.
------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
None.
23
PART II
Item 5. Market for Common Equity, Related Stockholder Matters and Small
Business Issuer Purchases of Equity Securities.
-----------------------------------------------
Market Information.
-------------------
There has never been any "established public trading market" for our shares of
common stock. Our common stock is presently quoted on the OTC Bulletin Board
of the NASD under the symbol "PCSV" as discussed below. No assurance can be
given that any market for our common stock will develop in the future or will
be maintained. If an "established trading market" ever develops in the
future, the sale of "restricted securities" (common stock) pursuant to Rule
144 of the Securities and Exchange Commission by members of management or
others may have a substantial adverse impact on any such market.
The range of high and low bid quotations for our common stock during each
quarter of our past two fiscal years are shown below. Prices are inter-dealer
quotations as reported by the NQB, LLC, and do not necessarily reflect
transactions, retail markups, markdowns or commissions.
Stock Quotations
----------------
Quarter Ended High Low
------------- ---- ---
June 30, 2004 $0.35 $0.13
September 30, 2004 $0.27 $0.10
December 31, 2004 $0.12 $0.06
March 31, 2005 $0.18 $0.08
June 30, 2005 $0.83 $0.16
September 30, 2005 $0.80 $0.61
December 31, 2005 $0.80 $0.57
March 31, 2006 $0.81 $0.44
Holders.
--------
As of March 31, 2006, we had approximately 900 stockholders of record.
This figure does not include an indeterminate number of stockholders who may
hold their shares in a street name.
24
Dividends.
----------
We have not paid any cash dividends since our inception and do not
anticipate or contemplate paying dividends in the foreseeable future. It is
the present intent of management to utilize all available funds for the
development of our business.
Recent Sales of Unregistered Securities.
----------------------------------------
During the last three years, we sold the securities listed below in
unregistered transactions. Each of the sales was sold in reliance on the
exemption provided for in Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act"). No underwriting fee or other compensation was
paid in connection with the issuance of shares.
Description Date Shares Amount
----------- ------- ------ ------
Armand LaSorsa 6/24/03 200,000 20,000(1)
Carl S. Derwig 6/24/03 200,000 20,000(1)
Vincent Simon 6/24/03 100,000 10,000(1)
Robert Graybill 6/24/03 150,000 15,000(1)
David R. & Alice M. Evers 6/24/03 100,000 10,000(1)
Robert D. & Rita Y. Ervin 6/24/03 200,000 20,000(1)
Trevor J. Brown & Annette Kowalaski 6/24/03 100,000 10,000(1)
Mark S. Borland 6/24/03 30,000 3,000(1)
Jim & Kathleen M. Cullinan 6/24/03 10,000 1,000(1)
Norman R. Morris 6/24/03 100,000 10,000(1)
Frederick R. Stahl, Jr. 6/24/03 100,000 10,000(1)
Thomas Hay 5/8/03 35,000 3,150(2)
William F. Albert 6/5/03 11,111 1,000(3)
Anthony A. Maher 6/6/03 202,234 20,223(4)
Thomas M. Lorentzen 7/30/03 57,600 5,760(5)
A. Joan Nordberg and Bruno Nordberg 8/31/03 100,000 10,000(5)
Thomas S. Brower 8/31/03 100,000 5,000(5)
John C. Bult 9/24/03 6,000 60(6)
Jack A. McLeod 9/30/03 550,000 55,000(7)
Samuel R. Trozzo 10/6/03 200,000 20,000(8)
Richard E. Bean 10/8/03 250,000 25,000(8)
Frank W. Klescewski 10/6/03 400,000 40,000(8)
Digital Wallstreet, Inc. 1/22/04 680,000 (9)
Anthony A. Maher 1/22/04 103,207 (10)
Leonard Burningham 1/22/04 106,384 (11)
Moshe Weiss and Hanna Weiss 2/9/04 75,000 15,000(13)
Barry L. Brown 2/2/04 100,000 12,000(12)
Eliezer Schloss 2/11/04 50,000 10,000(13)
Shmuel Dabi 2/12/04 50,000 10,000(13)
David Levosky 2/14/04 58,070 (14)
John Ariko 2/19/04 75,825 (14)
Hazen Sandwick 2/19/04 50,550 (14)
Samuel R. Trozzo 2/23/04 166,667 20,000(12)
Kenneth E. Dawkins 2/25/04 400,000 50,000(16)
Dave and Sue Kimball 3/1/04 50,670 (14)
Ronald A. Nelson 3/5/04 125,000 25,000(13)
Temporary Financial Services, Inc. 3/10/04 1,562,500 250,000(17)
25
Description Date Shares Amount
----------- ------ ------ ------
Sam Mayer 3/24/04 50,000 10,000(13)
Charles Bradley 3/25/04 101,865 (14)
Sina Leatha 3/25/04 101,865 (14)
Steve Womack 3/29/04 50,975 (14)
Verl Jensen 2/19/04 15,165 (15)
Leonard and Sonia Coote 2/24/04 15,181 (15)
Robert and Ann Fyfe 3/3/04 5,069 (15)
Michael Yokoyama and Jaye Venuti 3/10/04 10,154 (15)
Kathleen Cullinan 3/24/04 5,092 (15)
Kapital Koncepts 3/26/04 10,189 (15)
Diana Gayle Smith 2/9/04 12,000 (18)
David C. Levosky 2/14/04 11,614 (15)
Hazen A. Sandwick 2/19/04 10,110 (15)
John G. Ariko, Jr. 2/19/04 15,165 (15)
Kimball Family Trust 3/1/04 10,134 (15)
Charles L. Bradley 3/25/04 20,373 (15)
Sina L. Leatha 3/25/04 20,373 (15)
Steve Womack 3/29/04 10,195 (15)
Hazen & Josephine Sandwick 3/29/04 10,110 (19)
David Levosky 3/29/04 11,614 (19)
John Ariko, Jr. 3/29/04 15,165 (19)
Dave & Sue Kimball 3/29/04 10,134 (19)
Sina Leatha 3/29/04 20,373 (19)
Charles Bradley 3/29/04 20,373 (19)
Steve Womack 3/29/04 10,195 (19)
Frank Klescewski 4/28/04 30,000 (20)
Ralph & Vera Long 5/5/04 51,380 (21)
Mark Boland 5/11/04 36,015 (21)
Diane Stump 5/12/04 5,145 (21)
Trevor Brown 5/12/04 51,460 (21)
Paul Kuen 5/12/04 25,730 (21)
Barbara Harris 5/19/04 77,300 (21)
Kenneth Flint 5/12/04 25,730 (21)
Ronald Scheeler 5/12/04 25,805 (21)
Tammy Reuben 6/4/04 25,855 (21)
Fred & Debbie Harper 6/7/04 51,745 (21)
Javan Khazali 6/18/04 750,000 75,000(22)
Anthony A. Maher 7/13/04 250,000 (23)
Diana Gayle Smith 8/27/04 60,000 (24)
Robert & Ann Fyfe 8/27/04 25,345 (24)
Donald Lorenzen 8/27/04 50,000 (24)
Kapital Koncepts 8/27/04 50,945 (24)
Leonard & Sonia Coote 8/27/04 75,905 (24)
Verl & Margene Jensen 8/27/04 75,825 (24)
Equitilink 10/13/04 250,000 (25)
Michael Corrigan 10/13/04 500,000 (26)
Richard Schmidt 10/31/04 45,833 (27)
Anthony Maher 11/30/04 344,559 (28)
Laura & Bill Baran 5/25/05 15,000 (29)
Hazen & Josephine Sandwick 5/25/05 35,000 (30)
Scott Peyron & Associates 5/25/05 90,972 (31)
Anthony A. Maher 5/27/05 205,211 (32)
26
Description Date Shares Amount
----------- ------ ------ ------
Paul & Lynn Kalcic 6/20/05 12,815 (33)
Matamo Corp. LLC 6/20/05 16,715 (34)
Douglas Miller 6/20/05 16,715 (34)
Trace G. Barnes 6/20/05 33,382 (33)
Trevor Brown Living Trust 6/20/05 71,030 (33)
William & Linda Hamm 6/20/05 81,000 (33)
Mary Kalcic 6/20/05 75,000 (33)
Armand LaSorsa 6/20/05 66,911 (33)
Baker-Louderback Living Trust 6/20/05 39,539 (33)
Rodney C. Luker 6/20/05 100,494 (33)
Clifford W. Nichols 6/20/05 71,030 (33)
Nelson Wooster 6/20/05 40,235 (33)
John R. Coghlan 6/20/05 76,085 (33)
James Boston 7/6/05 800 (35)
Loretta Cook 7/6/05 800 (35)
Jerry Sexton 7/6/05 800 (35)
Thomas Tice 7/6/05 800 (35)
Mark Stutzman 7/6/05 1,200 (35)
Douglas Miller 7/6/05 7,800 (35)
Matamo Development LLC 7/6/05 7,800 (35)
Baker-Louderback Living Trust 7/6/05 60,900 (36)
Joe D. and Gina L. Egusquiza 7/6/05 5,000 750
Scott Peyron & Associates 8/31/05 25,208 (37)
Joe D. and Gina L. Egusquiza 8/31/05 4,500 450
Richard Mussler-Wright 8/31/05 344 107
Harbor View Fund Inc. 9/8/05 100,000 (38)
Anthony A. Maher 9/14/05 100,000 (39)
Bill Albert 9/23/05 75,000 12,000
Suzanne Haislip 10/3/05 50,000 8,000
Cecil Andrus 10/5/05 555,435 49,145
Robert Fyfe 10/20/05 928 (40)
Leonard & Sonia Coote 10/20/05 2,640 (40)
Steve Womack 10/20/05 2,229 (40)
Hazen & Josephine Sandwick 10/20/05 1,724 (40)
John Ariko, Jr. 10/20/05 2,568 (40)
Ronald Scheeler 10/20/05 1,468 (40)
Sina Leatha 10/20/05 2,218 (40)
Brown Living Trust 10/20/05 2,768 (40)
Mary Kalcic 10/20/05 2,091 (40)
Armand LaSorsa 10/20/05 3,249 (40)
Nelson Wooster 10/20/05 1,967 (40)
Kathleen Cullinan 10/20/05 1,091 (40)
Kenneth Klauer 10/20/05 2,182 (40)
Harris Family Living Trust 10/20/05 4,224 (40)
Diane Stump 10/20/05 299 (40)
Mark Boland 10/20/05 1,969 (40)
Flint Family Trust 10/20/05 1,366 (40)
Paul Kuehn 10/20/05 808 (40)
Ralph Long 10/20/05 2,684 (40)
Allen Reuben 10/20/05 1,468 (40)
Charles Bradley 10/20/05 4,364 (40)
Dave & Sue Kimball 10/20/05 1,724 (40)
David Levosky 10/20/05 1,899 (40)
27
Description Date Shares Amount
----------- ------ ------ ------
Fred & Debbie Harper 10/20/05 3,249 (40)
Verl A. Jensen 10/20/05 2,569 (40)
Donald J. Farley 11/3/05 214,285 15,000
Joe & Sarah Egusquiza 11/17/05 15,000 1,500
Robert O. & Heidi K. Grover 12/08/05 6,756 (53)
Zvi Ludmer 12/9/05 6,915 (41)
Roy A. Ludmer 12/9/05 6,246 (41)
Mid-Atlantic Training, Inc. 12/9/05 7,584 (41)
Gregory Shiffner 12/9/05 6,692 (41)
Martin and Helen Tarlow 12/9/05 1,785 (41)
Nimrod Arad 12/9/05 2,231 (41)
David and Sarah Chase 12/30/05 35,000 5,600(42)
William & Laura Baran 12/30/05 10,000 1,600(42)
Robert Grover 12/30/05 75,000 12,000(43)
Suzy Haislip 01/03/06 50,000 (44)
Anthony A. Maher 01/24/06 25,000 4,000(45)
Cyndel & Co. 01/31/06 4,156 (46)
Yokoyama 02/02/06 50,770 (47)
Cullinan 02/02/06 25,460 (47)
Sean Kenlon 02/10/06 100,000 (54)
Dale Harris 02/10/06 12,767 (55)
Frank Maresca 02/10/06 156,892 (55)
Jae Wan Jeon 02/10/06 1,964 (55)
Chris Grady 02/10/06 1,355 (55)
Mark Veinot 02/10/06 4,675 (55)
Bogdan Itoafa 02/10/06 97,719 (55)
Joseph Khoury 02/10/06 135,039 (55)
William Schnell 02/10/06 5,000 (55)
William Decandido 02/10/06 10,000 (55)
William Grazier 02/10/06 5,500 (55)
Pieter Natte 02/10/06 5,500 (55)
Growthworks Atlantic Venture Fund 02/10/06 263,589 (55)
Cyndel & Co. 02/28/06 4,490 (48)
Suzy Haislip 03/03/06 50,000 3,500(49)
Suhas Pharkute 03/09/06 15,000 1,500(50)
Cyndel & Co. 03/31/06 5,896 (51)
Solomon & Michelle Tamari 03/31/06 13,161 (41)
Solomon & Michelle Tamari 03/31/06 92,299 (52)
Zvi Ludmer 03/31/06 48,496 (52)
Roy A Ludmer 03/31/06 43,803 (52)
Mid-Atlantic Training, Inc. 03/31/06 53,189 (52)
Gregory Shiffner 03/31/06 46,932 (52)
Martin & Helen E. Tarlow 03/31/06 12,515 (52)
Nimrod Arad 03/31/06 15,644 (52)
William Albert 03/31/06 50,000 (44)
Joe D. & Sarah Egusquiza 03/31/06 50,000 (44)
Robert O. & Heidi K. Grover 03/31/06 9,434 (53)
(1) These shares of common stock were issued for conversion of debt at $0.10
per share.
(2) These shares were issued at $0.09 for conversion of debt and interest.
(3) These shares were issued at $0.09 for conversion of accounts payable.
(4) These shares were issued at $0.10 for conversion of accrued interest
relating to a related party.
(5) Common stock issued at $0.10 for conversion of debt.
(6) Common stock issued at $0.01 for exercise of warrants.
(7) Common stock issued at $0.10 for cash.
(8) These shares were issued for cash at $0.10 per share.
28
(9) These shares of common stock were issued for services at $0.11 per share
($75,000).
(10) These shares of common stock were issued for interest at $0.12 per
share.
(11) These shares of common stock were issued for services at $0.12 per
share.
(12) These shares of common stock were issued for cash at $0.12 per share.
(13) These shares of common stock were issued for cash at $0.20 per share.
(14) These shares of common stock were issued for conversion of preferred
stock which was issued for indentured trust debt ranging from $10,000
plus interest to $20,000 plus interest.
(15) These preferred shares were issued for the conversion of indentured
trust notes for amounts varying from $5,000 to $15,000, plus interest.
(16) These shares of common stock were issued for cash at $0.125 per share.
(17) These shares of common stock were issued for services at $.16 per share.
(18) These shares of preferred stock were issued for cash at $1.00 per share.
(19) These shares were issued to correct the number of shares issued for a
previous conversion of indentured trust debt into common stock. The
original conversion shares were issued at $0.25/share, but should have
been issued at $0.20/share. These are the additional shares due said
investors.
(20) Issued for services.
(21) These shares were issued for conversion of indentured trust debt at
$0.20/share.
(22) These shares were issued in conjunction with PCS' Form S-8 Filing in
April, 2004, for consulting services.
(23) 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.
(24) Issued for conversion of preferred stock at $0.20 per share.
(25) 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 at $0.09 per share.
29
(26) 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 at $0.09 per share.
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.
(27) During October 2004, the Company issued 45,833 shares of common stock at
$0.15 per share for the non-cash reduction of accounts payable debt of
$6,875.
(28) During October 2004, the Company issued 344,559 shares of common stock
at $0.06 per share to its Chief Executive Officer for the non-cash
reduction of related party debt of $20,674.
(29) These shares were issued to an employee who exercised some options.
These options were exercisable at $0.16 per share.
(30) These shares were issued for cash at $0.20 per share.
(31) These shares were issued for public relations services at $0.095 per
share.
(32) These shares were issued to an Officer/Board Member who exercised some
options. These options were exercisable at $0.13 per share.
(33) These shares were issued for the conversion of indentured trust debt and
interest at $0.17 per share.
(34) These shares were issued for cash at $0.17 per share.
(35) These shares were issued for consulting services at $0.705 per share.
(36) These shares were issued for the conversion of debt and interest at
$0.20 per share.
(37) These shares were issued for public relations services at $0.12 per
share.
(38) These shares were issued for consulting services at $0.70 per share.
(39) These shares were issued to an Officer/Board Member who exercised some
options in consideration for a reduction of notes payable and interest.
These options were exercisable at $0.16 per share.
(40) These shares were issued for interest at a weighted average of $0.0885
per share.
(41) These shares were issued for royalties at $0.155 per share.
(42) These shares were issued to an employees who exercised some options.
These options were exercisable at $0.16 per share.
(43) These shares were issued to an Officer/Board Member who exercised some
options. These options were exercisable at $0.16 per share.
30
(44) These shares were issued to an employee after implementation of a sales
force bonus program. They were issued at the current market price of
$0.71 per share.
(45) These shares were issued to an Officer/Board Member who exercised some
options in consideration for a reduction of notes payable and interest.
These options were exercisable at $0.16 per share.
(46) These shares were issued for consulting services at a weighted five day
average of $0.6016 per share.
(47) Issued for conversion of preferred stock at $0.20 per share.
(48) These shares were issued for consulting services at a weighted five day
average of $0.5568 per share.
(49) These shares were issued to employees who exercised some options.
These options were exercisable at $0.07 per share.
(50) These shares were issued to employees who exercised some options.
These options were exercisable at $0.10 per share.
(51) These shares were issued for consulting services at a weighted five day
average of $0.424 per share.
(52) These shares were issued for royalties at $0.53 per share.
(53) These shares were issued for bonus payment to an Officer at $0.74 and
$0.53 per share, respectively.
(54) These shares were issued for consulting expenses relating to the
LabMentors acquisition at $0.66 per share.
(55) These shares were issued to shareholders of 511092 N.B. LTD. for
acquisition of LabMentors at $0.60 per share.
We issued these securities to persons who were either "accredited investors,"
or "sophisticated investors" who, by reason of education, business acumen,
experience or other factors, were fully capable of evaluating the risks and
merits of an investment in our Company; and each had prior access to all
material information about us. We believe that the offer and sale of these
securities was exempt from the registration requirements of the Securities Act
of 1933, as amended (the "Securities Act"), pursuant to Sections 4(2) and 4(6)
thereof, and Rule 506 of Regulation D of the Securities and Exchange
Commission and from various similar state exemptions, and with respect to the
foreign investors, pursuant to Regulation S of the Securities and Exchange
Commission.
Securities authorized for issuance under equity compensation plans.
-------------------------------------------------------------------
None.
31
Item 6. Management's Discussion and Analysis or Plan of Operation.
----------------------------------------------------------
Plan of Operation.
------------------
PCS intends to continue to operate in the same manner as prior years,
including continuing to look for viable acquisition candidates to further
enhance the product lines. PCS LabMentors will continue to expand into the
collegiate market, as well as undertake new projects with existing customers
for an increased revenue base. PCS as a whole intends to continue to fund
operations based on lab sales to existing and new customers to provide cash
for operations throughout the coming fiscal year. There are not expected to
be any significant changes in the number of employees.
Management's Discussion and Analysis of Financial Condition
and Results of Operation.
-------------------------
Operating Results - Overview.
Fiscal year ended March 31, 2006 resulted in a net loss of ($1,204,504).
This net loss is an increased loss of ($265,872) or approximately twenty-eight
percent (28%) from the net loss for fiscal year ended March 31, 2005 of
($938,632). The Basic Loss per Share for fiscal year 2006 is ($0.04), as
compared to a loss per share of ($0.04) for fiscal year 2005. Details of
changes in revenues and expenses can be found below.
During fiscal year ended March 31, 2006, the Company experienced
significant, non-recurring, non-cash losses. These losses are described in
more detail below. Excluding these non-cash, non-recurring losses, namely the
amortization of capitalized costs ($44,833), expense related to stock issued
below or above market value ($213,301), and amortization of the debt discount
($333,333), which total $594,520, the Company had a net loss of ($607,688),
excluding non-cash, non-recurring losses (expenditures), as compared to the
net loss of ($938,632) for the fiscal year ended March 31, 2005. This would
have resulted in a loss per share of ($0.02).
32
Operating Results Percentage of Revenue.
2006 2005
REVENUES
Lab Revenue 91.4% 88.2%
License Revenue 8.5% 10.8%
Subscription Revenue 0.1% 1.0%
------- --------
Total Revenues 100.0% 100.0%
COST OF GOODS SOLD 54.5% 46.3%
---------- -------
GROSS PROFIT 45.5% 53.7%
---------- -------
OPERATING EXPENSES
Salaries and wages 29.3% 30.8%
Depreciation expense 2.7% 0.1%
General and administrative 41.1% 51.2%
Stock for services expense 0.0% 35.7%
---------- ------
Total Operating Expenses 73.1% 117.9%
---------- -------
OPERATING INCOME (LOSS) (27.7%) (64.1%)
OTHER INCOME AND EXPENSES
Interest expense (15.1%) (4.0%)
Interest income 0.0% 0.0%
Other income 0.8% 1.2%
Loss on extinguishment of debt, net (4.3%) 3.0%
---------- -------
Total Other Income and Expenses (18.6%) 0.2%
---------- -------
NET LOSS (46.3%) (63.9%)
========== ========
Operating Results Revenues.
Revenues for the twelve-month period ended March 31, 2006, increased
to $2,602,039 or by $1,133,368 (77.2%) as compared to $1,468,671 for the
twelve-month period ended March 31, 2005. This increase is due to increased
sales and marketing efforts throughout the country, as well as increased
international sales. The largest increase in sales occurred in our second
quarter, when several large lab orders were delivered to schools within the
United States, namely Detroit Public Schools of Detroit, MI, Meridian Public
Schools of Meridian, ID, and Friendship Edison Public Charter School of
Washington, DC. The majority of the Company's revenue is generated from lab
sales. The sales team is allocating additional marketing resources and
efforts into generating higher license and subscription revenues and will
continue to do so throughout fiscal year 2007.
33
Operating Results Cost of Goods Sold/Cost of Sales.
Cost of goods sold for the twelve-month period ended March 31, 2006,
increased by $738,794 (108.8%) to $1,418,118 as compared to $679,324 for the
twelve-month period ended March 31, 2005. This increase is due to an increase
in sales, as well as an increase in shipping costs. Included in the Cost of
Goods sold figure is sales commissions, which have also increased due to the
increase in sales, and accrual of non-cash royalty payments for our
distribution rights on the PCS Academy of Science (Trademarked) product line.
The non-cash payment of royalties relating to the PCS Effective Education
agreement relating to the PCS Academy of Science(Trademarked) line discussed
above were $6,916 and $165,825, for fiscal years 2005 and 2006, respectively,
both of which are included in these amounts.
Operating Results Operating Expenses.
Operating expenses for the twelve-month period ended March 31, 2006,
increased by $398,786 (23.0%) to $2,129,936 as compared to $1,731,150 for the
twelve-month period ended December 31, 2004. The increase was due to the
increased legal and accounting expenses due to the due diligence associated
with acquisition activity, increased rent payments, and increased operating
costs relative to operating the newly acquired subsidiary, as well as the
hiring of additional personnel to support the increased sales volume.
Operating Expenses - non-cash items. In addition to the above operating
expense increases, we booked several non-cash items during the last quarter of
fiscal year 2006. We had non-cash depreciation expense of $44,833 related to
the amortization of capitalized costs for the Barron Partners transaction. We
expect to continue to book this non-cash expense over the first two quarters
of fiscal year 2007, after which time the capitalized costs will be fully
amortized. In addition, we booked a non-recurring, non-cash expense during
the last quarter of fiscal year 2006 in the amount of $213,301 relating to the
conversion of the debt related to the 2001 Capital Planning Group indentured
trust that was converted to common stock during fiscal year 2006 because the
conversion amounts were less than the stated market price of our common stock
on the date the stock was issued. This amount was offset through a non-cash
gain due to interest and line of credit forgiveness that occurred during the
last quarter of fiscal year 2006.
Operating Results Interest Expenses.
Interest expenses for the twelve-month period ended March 31, 2006,
increased $334,014 (567.3%) to $392,891 as compared to $58,877 for the twelve-
month period ended March 31, 2005. This increase is due to the non-cash
expense of $333,333 as a result of the debt discount relating to the recent
note payable signed on December 29, 2005 and warrants issued relating to that
note payable agreement. This non-cash expense will continue to be booked in
the first and second quarters of fiscal year 2007, after which time the debt
discount will be fully amortized.
Liquidity.
----------
As of the fiscal year ended March 31, 2006, we had $297,239 in Cash, with
total current assets of $1,098,175 and total current liabilities of
$1,253,018. We have an accumulated deficit of ($25,867,072) and shareholder's
equity of $502,883.
The Company has a current ratio of 87.6%. The current ratio for the
fiscal year ended March 31, 2005 was 27.1%. The ratio indicates that we are
currently utilizing all available resources to help grow the company through
internal and external means. We have utilized the current ratio over a quick
ratio due to the fact that most items in inventory are easily saleable should
the need to liquidate arise.
The Company has working capital deficit of ($154,843) at March 31, 2006.
This ratio indicates that our ability to pay current debt obligations through
our current assets is unfavorable. The working capital for the fiscal year
ended March 31, 2005 was ($756,669). This decrease was due primarily to the
recording of the recent note payable and intrinsic value of the associated
warrants issued, both of which are non-cash transactions.
34
Critical Accounting Policies.
-----------------------------
Estimates
Our discussion herein and analysis thereof is based upon our financial
statements in Item 7 below, which have been prepared in accordance with
Generally Accepted Accounting Principals of the United States (GAAP). The
preparation of these statements requires management to make estimates and best
judgments that affect the reported amounts. See Note 2 contained in Item 7
for additional discussions of these and other accounting policies and
disclosures required by GAAP.
Concentration of Credit Risks and Significant Customers
The Company maintains cash in bank deposit accounts, which, at times, may
exceed federally insured limits. The Company has not experienced any losses
in such accounts and believes it is not exposed to any significant credit risk
on cash and cash equivalents.
Financial instruments, which potentially subject the Company to concentration
of credit risk, consist primarily of trade receivables. In the normal course
of business, the Company provides credit terms to its customers. Accordingly,
the Company performs ongoing credit evaluations of its customers and maintains
allowances for possible losses which when realized have been within the range
of management's expectations. The Company does not require collateral from
its customers.
During the period ended March 31, 2006, the LabMentors subsidiary had sales to
two major customers that accounted for 100 percent of revenues. See notes to
financial statement for additional information.
Foreign Currency Translation
The functional currency of the Company is the U.S. dollar. The Company's
financial statements include translations for the LabMentors subsidiary, which
are maintained in Canadian dollars. All assets and liabilities are translated
at the exchange rate on the balance sheet date and all revenues and
expenditures are translated at the average rate for the year. Translation
adjustments are reflected as a separate component of stockholders' equity,
accumulated other comprehensive income (loss), and the net change for the year
reflected separately in the statements of operations and other comprehensive
income (loss).
In accordance with SFAS No. 95, "Statement of Cash Flows," the cash flows of
the Company are translated using the weighted average exchange rates during
the respective period. As a result, amounts in the statement of cash flows
related to changes in assets and liabilities will not necessarily agree with
the changes in the corresponding balances on the balance sheet that was
translated at the exchange rate at the end of the period.
35
Educational Software
The Company's inventory consists partially of internally developed education
computer programs and exercises to be accessed on the Internet. In accordance
with FAS 86, the costs associated with research and initial feasibility of the
programs and exercises are expensed as incurred. Once economic feasibility has
been determined, the costs to develop the programs and exercises are
capitalized until they are ready for sale and access and are reported at the
lower of unamortized cost or net realizable value. Capitalized program and
exercise inventory are amortized on a straight-line basis over the estimate
useful life of the program or exercise, generally 42 to 48 months.
Intellectual Property
The Company's intellectual property consists of capitalized costs associated
with the development of the Internet software and delivery platform developed
by the Company to enable access to the various educational programs and
exercises developed by the Company. In accordance with FAS 86 as discussed
previously regarding inventory, the initial costs associated with researching
the delivery platform and methods were expensed until economic feasibility and
acceptance were determined. Thereafter, costs incurred to develop the Internet
online delivery platform and related environments were capitalized until ready
for use and able to deliver and access the Company's educational programs and
exercises. Costs incurred thereafter to maintain the delivery and access
platform are expensed as incurred. These capitalized costs are being amortized
on a straight-line basis over the estimated useful life of the Company's
delivery and access platform that has been determined to be 60 months.
Property and Equipment
Property and equipment are recorded at cost and being depreciated for
financial accounting purposes on the straight-line method over their
respective estimated useful lives ranging from three to seven years. Upon
retirement or other disposition of these assets, the cost and related
accumulated depreciation are removed from the accounts and the resulting gains
or losses are reflected in the results of operations.
Expenditures for maintenance and repairs are charged to operations. Renewals
and betterments are capitalized. Depreciation of leased equipment under
capital leases is included in depreciation.
Goodwill and Intangible Assets
We recorded our acquisition of LabMentors in accordance with Statements of
Financial Accounting Standards 141 (SFAS 141) entitled "Business
Combinations." We allocate the cost of acquired companies to the tangible and
identified intangible assets and liabilities acquired with the remaining
amount being recorded as goodwill. Certain intangible assets, such as
acquired technology, are amortized (see Intellectual Property above).
The most recent acquisition did not have significant tangible assets and, as a
result, the majority of the purchase price was allocated to goodwill, which
increases the potential for impairment charges that we may incur in the
future.
36
We account for goodwill and other intangible assets in accordance with
Statements of Financial Accounting Standards 142 (SFAS 142) entitled "Goodwill
and Other Intangible Assets." Under SFAS 142, goodwill and intangible assets
with indefinite lives are not amortized to expense and must be reviewed for
impairment annually, or more frequently if events or changes in circumstances
indicate that impairment might have occurred. The first step used to identify
potential impairment is the comparison of the fair value of the item with its
carrying amount, including goodwill and intangible assets with indefinite
lives. We operate as one company and therefore compare our book value to
market value, which management must determine upon review based on similar
transactions. If our fair value exceeds our book value, our goodwill is
considered not impaired. If the book value exceeds the fair value, the
goodwill is considered impaired and management must measure the amount of
impairment loss, if any. For the measurement step, if the carrying amount of
the goodwill exceeds the estimated fair value of the goodwill, an impairment
loss would be recognized in an amount equal to that excess. The fair value
estimate requires that future cash flows relating to the acquisition, in this
case, be forecasted. These forecasts requirement management to make
assumptions on the future sale of current and future products and services,
future market conditions, technological advances, future growth rates, and
discount rates utilized. Any loss recognized cannot exceed the carrying
amount of the goodwill. After an impairment loss is recognized, the adjusted
carrying amount of goodwill is its new accounting basis.
We undertook an impairment review at the end of the current fiscal year end,
despite the fact that the goodwill was calculated during the third quarter of
the current fiscal year. After reviewing current operating losses and future
growth potential of the subsidiary, the Company determined that no impairment
was created.
Acquisitions.
-------------
Our acquisition strategy is to acquire companies and/or assets that continue
to increase our product depth, market penetration, and synergies within the
company.
The Company has made one acquisition over the last two years, namely 511092
N.B. LTD. dba LabMentors on November 30, 2005 for the purchase price of
$420,000. LabMentors was acquired due to the access it provided to collegiate
markets, as well as the online learning programs it has available to
compliment current learning materials.
Off-Balance Sheet Arrangements.
-------------------------------
We do not have any off-balance sheet arrangements as of March 31, 2006.
37
Item 7. Financial Statements.
---------------------
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheet - March 31, 2006
Consolidated Statements of Operations for the
years ended March 31, 2006 and 2005
Consolidated Statements of Stockholders' Equity for the
years ended March 31, 2006 and 2005
Consolidated Statements of Cash Flows
for the Years Ended March 31, 2006 and 2005
Notes to Consolidated Financial Statements
38
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
PCS Edventures!.com, Inc. and Subsidiaries
Boise, Idaho
We have audited the accompanying consolidated balance sheet of PCS
Edventures!.com, Inc. and Subsidiaries as of March 31, 2006, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended March 31, 2006 and 2005. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the auditing standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of PCS
Edventures!.com, Inc. and Subsidiaries as of March 31, 2006 and 2005, and the
results of their operations and their cash flows for the years then ended, in
conformity with United States generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 16 to
the consolidated financial statements, the Company has suffered recurring
losses from operations and has a working capital deficit that raises
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to those matters are also described in Note 16 to
the consolidated financial statements. The consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/HJ & Associates, LLC
HJ & Associates, LLC
Salt Lake City, Utah
June 6, 2006
39
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Balance Sheet
ASSETS
March 31,
2006
CURRENT ASSETS ----------
Cash $297,239
Accounts receivable 608,453
Prepaid expenses 14,137
Deferred costs 13,073
Finished goods inventory 75,606
Capitalized costs (Net)(Note 8) 89,667
---------
Total Current Assets 1,098,175
---------
FIXED ASSETS, NET (Notes 2 & 3) 18,164
---------
EDUCATIONAL SOFTWARE (NET) (Notes 2 & 11) 130,404
---------
INTELLECTUAL PROPERTY (NET) (Notes 2 & 12) 16,145
---------
GOODWILL (Notes 2 & 10) 485,238
---------
OTHER ASSETS
Deposits 6,175
Employee Receivable 1,550
---------
Total Other Assets 7,725
---------
TOTAL ASSETS $1,755,851
=========
The accompanying notes are an integral part of these consolidated financial
statements.
40
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31,
2006
CURRENT LIABILITIES -----------
Accounts payable $ 312,866
Accrued compensation 109,531
Payroll taxes payable 54,886
Deposits payable 4,280
Accrued interest 2,875
Accrued expenses (Note 15) 34,092
Unearned revenue 136,554
Notes payable - related party (Note 5) 116,590
Notes payable (net) (Note 6) 471,022
Other current liabilities 10,322
-----------
Total Current Liabilities 1,253,018
-----------
Total Liabilities 1,253,018
-----------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY (Note 4)
Preferred stock, no par value, authorized 10,000,000
shares, no shares issued and outstanding -
Common stock, no par value, authorized 40,000,000
shares; 31,306,457 shares issued and outstanding 26,377,041
Accumulated comprehensive loss (7,136)
Accumulated deficit (25,867,072)
------------
Total Stockholders' Equity 502,833
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,755,851
============
The accompanying notes are an integral part of these consolidated financial
statements.
41
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the Years Ended
March 31,
2006 2005
----------- ----------
REVENUES (Note 2)
Lab Revenue $ 2,377,282 $1,294,709
License Revenue 221,622 158,917
Subscription Revenue 3,135 15,045
----------- ----------
Total Revenues 2,602,039 1,468,671
COST OF GOODS SOLD 1,418,118 679,324
----------- ----------
GROSS PROFIT 1,183,921 789,347
----------- ----------
OPERATING EXPENSES
Salaries and wages 763,448 452,756
Depreciation and amortization expense 70,917 2,052
General and administrative 1,070,231 751,338
Stock for services expense - 525,004
---------- ----------
Total Operating Expenses 1,904,596 1,731,150
---------- ----------
OPERATING LOSS (720,675) (941,803)
---------- ----------
OTHER INCOME AND EXPENSES
Interest expense (392,891) (58,877)
Interest income 1,838 993
Other income 19,894 17,065
Loss on extinguishment of debt (net) (Note 9) (112,670) 43,990
---------- ----------
Total Other Income and Expenses (483,829) 3,171
---------- ----------
NET LOSS (1,204,504) ( 938,632)
---------- ----------
Foreign currency translation (7,136) -
---------- ----------
NET COMPREHENSIVE LOSS $(1,211,640) $( 938,632)
========== ==========
BASIC LOSS PER SHARE (Note 2) $ (0.04) $ (0.04)
========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 27,713,809 26,253,256
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
42
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
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 30,000 5,100 - -
Stock offering costs - (5,100) - -
Common stock issued for
services at $0.17 per
share 240,000 40,800 - -
Stock offering costs - (40,800) - -
Value of options issued
to employees below market
value - 3,000 - -
Value of options issued
to consultants below market
value - 507,877 - -
Common stock issued for
conversion of debt and
interest at $0.20 per
share 376,165 75,232 - -
Common stock issued for
cash at $0.10 per share
for option exercise 750,000 75,000 - -
Intrinsic value of
employee options issued
below market value - 5,000 - -
Common stock issued for
related party note payable
reduction at $0.07 per
share 250,000 17,500 - -
---------- ----------- --------- ------------
Balance Forward 25,877,039 $23,706,932 82,850 $ 120,473
---------- ----------- --------- ------------
43
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Continued)
Common Shares Preferred Shares
------------------------- ----------------------
Shares Amount Shares Amount
---------- ------------ --------- -----------
Balance Forward 25,877,039 $ 23,706,932 82,850 $ 120,473
Fair value of options
issued to consultant - 696 - -
Common stock issued for
conversion of preferred
stock at $0.20 per share 338,020 67,603 (67,604) (67,603)
Options issued to directors
for accrued director fees - 9,241 - -
Contributed capital for
accrued director fee - 50,759 - -
Pro-rata cumulative
non-cash preferred stock
dividend - - - 3,502
Amortization of prepaid
expense - - - -
Amortization and revaluation
of consulting expense - (92,102) - -
Stock issued for marketing
services at $0.09 per share 250,000 22,500 - -
Stock issued for legal
services at $0.09 per share 500,000 45,000 - -
Stock issued for accounts
payable at $0.15 per share 45,833 6,875 - -
Stock issued for note
payable to related party
at $0.06 per share 344,559 20,674 - -
Amortization of prepaid
expense - - - -
---------- ----------- --------- ------------
Balance Forward 27,355,451 $23,838,178 15,246 $ 56,372
---------- ----------- --------- ------------
44
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Continued)
Common Shares Preferred Shares
------------------------- ----------------------
Shares Amount Shares Amount
---------- ------------ --------- -----------
Balance Forward 27,355,451 23,838,178 15,246 56,372
Fair value of options
issued to consultant - 491 - -
Options issued to directors
for accrued director fees - 28,416 - -
Contributed capital for
accrued director fees - 1,584 - -
Net loss,
March 31, 2005 - - - -
---------- ----------- --------- ------------
Balance,
March 31, 2005 27,355,451 $23,868,669 15,246 $ 56,372
---------- ----------- --------- ------------
45
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Continued)
Common Shares Preferred Shares
----------------------- --------------------
Shares Amount Shares Amount
---------- ----------- --------- ----------
Balance, March 31, 2005 27,355,451 $ 23,868,669 15,246 $ 56,372
Options issued to directors
for accrued director fees - 15,000 - -
Treasury stock issued for
legal services - 21,250 - -
Stock issued for the
exercise of options at
$0.16 per share 15,000 2,400 - -
Stock issued for cash
at $0.20 per share 35,000 7,000 - -
Stock issued for public
relations services at
$0.095 per share 90,972 8,649 - -
Stock issued for the
exercise of options at
$0.13 per share 205,211 26,645 - -
Stock issued for conversion
of debt and interest at
$0.17 per share 654,706 112,485 - -
Stock issued for conversion
of debt and interest at
$0.17 per share 12,815 2,178 - -
Stock issued for cash
at $0.17 per share 33,430 5,683 - -
Amortization and revaluation
of consulting expense - (7,667) - -
Value of options issued to
employees below market value - 2,825 - -
Stock issued for services at
$0.705 per share 20,000 14,100 - -
Stock issued for conversion
of debt and interest at
$0.17 per share 60,900 10,353 - -
Stock issued for the
exercise of options at
$0.15 per share 5,000 750 - -
---------- ----------- --------- ----------
Balance Forward 28,488,485 $24,090,320 15,246 $ 56,372
---------- ----------- --------- ----------
46
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Continued)
Common Shares Preferred Shares
------------------------- ----------------------
Shares Amount Shares Amount
---------- ------------ --------- -----------
Balance Forward 28,488,485 $24,090,320 15,246 $ 56,372
Stock issued for marketing
services at $0.12 per share 25,208 3,025 - -
Value of stock issued for
marketing services below
market value - 1,008 - -
Stock issued for the
exercise of options at
$0.10 per share 4,500 450 - -
Stock issued for the
exercise of options at
$0.31 per share 344 107 - -
Value of options issued to
employee below market value - 7,000 - -
Stock issued for services
at $0.70 per share 100,000 70,000 - -
Stock issued for the
reduction of interest and
Principal for a note
payable for a related party 100,000 16,000 - -
Stock issued for the
exercise of options at
$0.16 per share 75,000 12,000 - -
Stock issued for the
exercise of options at
$0.16 per share 50,000 8,000 - -
Stock issued for the
exercise of options at
weighted average of
$0.0885 per share 555,435 49,145 - -
Stock issued for
interest payments at
$0.20 per share 53,746 10,749 - -
Stock issued for the
exercise of options at
$0.07 per share 214,285 15,000 - -
Stock issued for the
exercise of options at
$0.10 per share 15,000 1,500 - -
---------- ----------- --------- ------------
Balance Forward 29,682,003 $24,284,304 15,246 $ 56,372
---------- ----------- --------- ------------
47
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Continued)
Common Shares Preferred Shares
------------------------- ----------------------
Shares Amount Shares Amount
---------- ------------ --------- -----------
Balance Forward 29,682,003 $24,284,304 15,246 $ 56,372
Options issued to directors
for accrued director fees - 22,500 - -
Stock issued for purchase of
LabMentors at $0.60
per share 700,000 420,000 - -
Stock issued for consulting
expenses related to the
purchase of LabMentors at
$0.66 per share 100,000 66,000 - -
Stock issued to Officer
for compensation at
$0.74 per share 6,756 5,000 - -
Stock issued for royalty
payments at $0.155 per share 31,453 4,875 - -
Stock issued for the
exercise of options at
$0.16 per share 35,000 5,600 - -
Stock issued for the
exercise of options at
$0.16 per share 10,000 1,600 - -
Stock issued for the
exercise of options at
$0.16 per share 75,000 12,000 - -
Options issued to directors
for accrued director fees - 11,250 - -
Stock issued for sales
competition to employee
at $0.71 per share 50,000 35,500 - -
Stock issued to officer for
the exercise of options at
$0.16 per share 25,000 4,000 - -
Stock issued for consulting
services at $0.6016
per share 4,156 2,500 - -
Stock issued for consulting
services at $0.5568
per share 4,490 2,500 - -
---------- ----------- --------- ------------
Balance Forward 30,723,858 $24,877,629 15,246 $ 56,372
---------- ----------- --------- ------------
48
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Continued)
Common Shares Preferred Shares
------------------------- ----------------------
Shares Amount Shares Amount
---------- ------------ --------- -----------
Balance Forward 30,723,858 $24,877,629 15,246 $ 56,372
Stock issued for conversion
of preferred stock at $0.20
per share 76,230 15,245 (15,246) (15,246)
Conversion of preferred
stock - - - (41,126)
Stock issued to employee for
exercise of options at
$0.70 per share 50,000 3,500 - -
Stock issued to employee for
exercise of options at
$0.10 per share 15,000 1,500 - -
Stock issued for consulting
services at $0.424
per share 5,896 2,500 - -
Stock issued for royalty
payment at $0.155 per
share 13,161 2,040 - -
Stock issued for royalty
payment at $0.53 per share 312,878 165,826 - -
Stock issued for sales
competition to employees
at $0.71 per share 100,000 71,000 - -
Stock issued to Officer
for compensation at
$0.53 per share 9,434 5,000 - -
Intrinsic value of warrants
issued for consulting fees
relating to the acquisition - 4,500 - -
Options issued to directors
for accrued director fees - 15,000 - -
Intrinsic value of warrants
issued - 1,000,000 - -
Total value of stock issued for
conversion of debt and interest
below or above market value - 213,301 - -
Foreign currency translation - - - -
Net loss March 31, 2006 - - - -
-------- --------- --------- --------
Balance March 31, 2006 31,306,457 $26,377,041 - $ -
========== ========== ========= ========
49
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Continued)
Variable
Deferred Accumulated
Consulting Deficit
---------- -----------
Balance, March 31, 2004 $ - $(23,720,434)
Common stock issued for
services at $0.17 per
share - -
Stock offering costs - -
Common stock issued for
services at $0.17 per share - -
Stock offering costs - -
Value of options issued to
employees below market value - -
Value of options issued to
consultants below market value (507,877) -
Common stock issued for
conversion of debt and
interest at $0.20 per
share - -
Common stock issued for
cash at $0.10 per share
for option exercise - -
Intrinsic value of
employee options issued
below market value - -
Common stock issued for
related party note payable
reduction at $0.07 per
share - -
---------- ------------
Balance Forward $ (507,877) $(23,720,434)
---------- ------------
50
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Continued)
Variable
Deferred Accumulated
Consulting Deficit
---------- -----------
Balance Forward $(507,877) $(23,720,434)
Fair value of options
issued to consultant - -
Common stock issued for
conversion of preferred
stock at $0.20 per share - -
Options issued to directors
for accrued director fees - -
Contributed capital for
accrued director fees - -
Pro-rata cumulative
non-cash preferred stock
dividend - (3,502)
Amortization of prepaid
expense - -
Amortization and revaluation
of consulting expense 506,877 -
Stock issued for marketing
services at $0.09 per share - -
Stock issued for legal
services at $0.09 per share - -
Stock issued for accounts
payable at $0.15 per share - -
Stock issued for note
payable to related party
at $0.06 per share - -
Amortization of prepaid
expense - -
---------- -----------
Balance Forward $ (1,000) $(23,723,936)
---------- -----------
51
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Continued)
Variable
Deferred Accumulated
Consulting Deficit
---------- -----------
Balance Forward $ (1,000) $(23,723,936)
Fair value of options
issued to consultant - -
Options issued to directors
for accrued director fees - -
Contributed capital for
accrued director fees - -
Net loss,
March 31, 2005 - (938,632)
--------- ------------
Balance,
March 31, 2005 $ (1,000) $(24,662,568)
--------- ------------
52
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Continued)
Variable
Deferred Accumulated
Consulting Deficit
---------- -----------
Balance, March 31, 2005 $ (1,000) $(24,662,568)
Options issued to directors
for accrued director fees - -
Treasury stock issued for
legal services - -
Stock issued for the
exercise of options at
$0.16 per share - -
Stock issued for cash
at $0.20 per share - -
Stock issued for public
relations services at
$0.095 per share - -
Stock issued for the
exercise of options at
$0.13 per share - -
Stock issued for conversion
of debt and interest at
$0.17 per share - -
Stock issued for conversion
of debt and interest at
$0.17 per share - -
Stock issued for cash
at $0.17 per share - -
Amortization and revaluation
of consulting expense 1,000 -
Value of options issued to
employees below market value - -
Stock issued for services at
$0.705 per share - -
Stock issued for conversion
of debt and interest at
$0.17 per share - -
Stock issued for the
exercise of options at
$0.15 per share - -
---------- ------------
Balance Forward $ - $(24,662,568)
---------- ------------
53
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Continued)
Variable
Deferred Accumulated
Consulting Deficit
---------- -----------
Balance Forward $ - $(24,662,568)
Stock issued for marketing
services at $0.12 per share - -
Value of stock issued for
marketing services below
market value - -
Stock issued for the
exercise of options at
$0.10 per share - -
Stock issued for the
exercise of options at
$0.31 per share - -
Value of options issued to
employee below market value - -
Stock issued for services at
$0.70 per share - -
Stock issued for the reduction of
interest and Principal for a note
payable for a related party - -
Stock issued for the
exercise of options at
$0.16 per share - -
Stock issued for the
exercise of options at
$0.16 per share - -
Stock issued for the
exercise of options at
weighted average of
$0.0885 per share - -
Stock issued for
interest payments at
$0.20 per share - -
Stock issued for the
exercise of options at
$0.07 per share - -
Stock issued for the
exercise of options at
$0.10 per share - -
--------- ------------
Balance Forward $ - $(24,662,568)
--------- ------------
54
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Continued)
Variable
Deferred Accumulated
Consulting Deficit
---------- -----------
Balance Forward $ - $(24,662,568)
Options issued to directors
for accrued director fees - -
Stock issued for purchase
of LabMentors at $0.60
per share - -
Stock issued for consulting
expenses related to the
purchase of LabMentors at
$0.66 per share - -
Stock issued to Officer
for compensation at
$0.74 per share - -
Stock issued for royalty
payments at $0.155 per share - -
Stock issued for the
exercise of options at
$0.16 per share - -
Stock issued for the
exercise of options at
$0.16 per share - -
Stock issued for the
exercise of options at
$0.16 per share - -
Options issued to directors
for accrued director fees - -
Stock issued for sales competition
to employee at $0.71 per share - -
Stock issued to officer for
the exercise of options at
$0.16 per share - -
Stock issued for consulting
services at $0.6016 per share - -
Stock issued for consulting
services at $0.5568 per share - -
---------- ----------
Balance Forward $ - $(24,662,568)
---------- -----------
55
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Continued)
Variable
Deferred Accumulated
Consulting Deficit
---------- -----------
Balance Forward $ - $(24,662,568)
Stock issued for conversion
of preferred stock at $0.20
per share - -
Conversion of preferred stock - -
Stock issued to employee for
exercise of options at
$0.70 per share - -
Stock issued to employee for
exercise of options at
$0.10 per share - -
Stock issued for consulting
services at $0.424
per share - -
Stock issued for royalty
payment at $0.155 per
share - -
Stock issued for royalty
payment at $0.53 per share - -
Stock issued for sales competition
to employees at $0.71 per share - -
Stock issued to Officer
for compensation at
$0.53 per share - -
Intrinsic value of warrants issued
for consulting fees relating
to the acquisition - -
Options issued to directors
for accrued director fees - -
Intrinsic value of warrants
issued - -
Total value of stock issued for
Conversion of debt and interest
below or above market value - -
Foreign currency translation - (9,432)
Net loss March 31, 2006 - (1,204,504)
--------- ------------
Balance March 31, 2006 - (25,867,072)
========= ============
The accompanying notes are an integral part of these consolidated financial
statements.
56
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended
March 31,
---------------------
2006 2005
CASH FLOWS FROM OPERATING ACTIVITIES --------- ----------
-
Net loss $ (1,204,504) $(938,632)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 26,084 2,052
Amortization of debt offering and
capitalized costs 44,833 -
Amortization of services prepaid with common
stock - 101,042
Stock and options issued for compensation 126,325 5,000
Stock options issued for consulting services 118,867 415,962
Stock options issued for board compensation 48,750 3,000
Amortization of debt discount 333,333 -
Common stock/stock options issued for royalties 172,741 -
Common stock issued for conversion of
preferred stock (41,126) -
Loss on extinguishment of debt, net 112,670 (43,990)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (458,938) 318,949
(Increase) decrease in inventories (67,302) (118,671)
Decrease in deferred costs 97,294 -
(Decrease) increase in accounts payable and
accrued liabilities 132,404 69,063
Increase in interest payable 19,536 -
Increase in unearned revenue (133,017) 65,166
(Increase) decrease in other assets 4,101 69,958
Decrease in prepaid assets 689 -
--------- ----------
Net Cash Provided/ Used by Operating Activities (667,260) (51,101)
--------- ---------
57
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from note receivable - 50,000
Purchase of fixed assets (8,390) (13,968)
Cash overdraft from LabMentors acquisition (1,996) -
Costs relating to the acquisition (69,658) -
--------- ---------
Net Cash Provided(Used) for Investing Activities (80,044) 36,032
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on related party notes - (10,654)
Proceeds from notes payable 1,089,990 -
Payments on notes payable (77,939) (71,345)
Costs relating to notes payable (130,000)
Proceeds from common stock and exercise
of options 152,876 -
--------- ----------
Net Cash Provided (Used) by Financing Activities 1,034,927 (81,999)
--------- ----------
Foreign currency translation (7,136) -
NET INCREASE (DECREASE) IN CASH 280,487 (97,068)
CASH AT BEGINNING OF YEAR 16,752 113,820
---------- ----------
CASH AT END OF YEAR $ 297,239 $ 16,752
========== ==========
For the Years Ended
March 31,
-------------------------
2006 2005
NON-CASH INVESTING AND FINANCING ACTIVITIES: ---------- ------------
Issuance of stock for payment on notes payable
and interest $(65,839) $ 75,232
Common stock issued for related party debt (12,100) 38,174
Common stock issued for consulting 66,000 -
Common stock issued for acquisition 420,000 -
Cash Paid For:
Interest $ 45,117 $ 37,142
Income taxes 3,260 -
The accompanying notes are an integral part of these consolidated financial
statements.
58
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2006 and 2005
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
The consolidated financial statements presented are those of PCS
Edventures!.COM, Inc., an Idaho Corporation, and its wholly-owned
subsidiaries, PCS Schools, Inc., an Idaho corporation, and PCS LabMentors,
LTD., a Canadian company, (collectively, "the Company").
On August 3, 1994, PCS Edventures!.COM, Inc., was incorporated under the laws
of Idaho to engage in web-based and site-licensable educational products.
In October 1994, an agreement was authorized allowing the Company to exchange,
on a one-for-one basis, common stock for stock of PCS Schools, Inc. As a
result of this Agreement, PCS Schools, Inc. became a wholly-owned subsidiary
of the Company.
On March 27, 2000, the Company changed its name from PCS Education Systems,
Inc. to PCS Edventures!.COM, Inc.
On November 30, 2005, the Company entered into an agreement with 511092 N.B.
LTD. dba LabMentors to exchange PCS stock for stock of 511092 N.B. LTD. as
disclosed in the 8-K as filed with the SEC on December 9, 2005 and amended on
February 15, 2006. As a result of the Share Exchange Agreement, 511092 N.B.
LTD. became a wholly owned subsidiary of the Company. In December 2005, the
name of this subsidiary was formally changed to PCS LabMentors, LTD. It
remained a Canadian corporation.
Certain prior year amounts have been reclassified to conform to current year
presentation.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's consolidated financial statements are prepared using the accrual
method of accounting. The Company has elected a March 31 year end.
b. Estimates
The preparation of financial statements in conformity with generally accepted
Accounting Principals requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
59
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2006 and 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
c. Concentration of Credit Risks and Significant Customers
The Company maintains cash in bank deposit accounts, which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts and believes it is not exposed to any significant credit risk on
cash and cash equivalents.
Financial instruments that potentially subject the Company to concentration of
credit risk consist primarily of trade receivables. In the normal course of
business, the Company provides credit terms to its customers. Accordingly, the
Company performs ongoing credit evaluations of its customers and maintains
allowances for possible losses which when realized have been within the range
of management's expectations. The Company does not require collateral from its
customers.
During the period from December 1, 2005 ending March 31, 2006, the PCS
LabMentors' subsidiary had sales to two major customers that exceeded 10
percent of their individual revenues as follows:
Customer A - $ 32,065 56.3%
Customer B - $ 24,890 43.7%
The PCS LabMentors subsidiary also has an account receivable from these
same major customers as of March 31, 2006 as follows:
Customer A - $ 19,621
Customer B - $ 17,912
During the year ended March 31, 2006, the Company had sales to a major
customer that exceeded 10 percent of their individual revenues as follows:
Customer C - $ 300,109 11.8%
The Company also has an account receivable from a major customer as of
March 31, 2006 as follows:
Customer C - $ 299,089
d. Foreign Currency Translation
The functional currency of our subsidiaries is considered the local currency.
Our PCS LabMentors' subsidiary has a functional currency in Canadian dollars
($CDN). The subsidiaries financial statements have been translated into US
dollars in accordance with SFAS No. 52 "Foreign Currency Translation." All
assets and liabilities are translated at the exchange rate on the balance
sheet date and all revenues and expenditures are translated at the average
rate for the year. Translation adjustments are reflected as a separate
component of stockholders' equity, accumulated other comprehensive income
(loss) and the net change for the year reflected separately in the statements
of operations and other comprehensive income (loss). Through this, all of the
Company financial documents are stated within the functional currency of the
parent company, which is the United States dollar ($USD).
In accordance with SFAS No. 95 "Statement of Cash Flows," the cash flows of
the subsidiary are translated using the weighted average exchange rates during
the respective period. As a result, amounts in the statement of cash flows
related to changes in assets and liabilities will not necessarily agree with
the changes in the corresponding balances on the balance sheet that was
translated at the exchange rate at the end of the period.
60
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2006 and 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
e. Revenue Recognition
The Company recognizes revenues as required by Staff Accounting Bulletin No.
101 "Revenue Recognition in Financial Statements."
Lab Revenue
The Company recognizes revenues relating to sales of the learning labs listed
under Products herein as they are delivered to the customers. Delivery is
constituted when ninety percent (90%) or greater of the weighted average cost
of goods have been received by the customer. Revenue is only recognized once
the product has been delivered on this basis to the customer and all other
obligations have been met. All product inventory is purchased on a sale-by-
sale basis, and is either shipped directly from third-party suppliers to the
end customer or shipped to our warehouse, where it is packaged and then sent
to the customer. Accordingly, all costs associated with the purchase of
product inventory are also deferred until the product is delivered.
Licensing Revenue
The Company recognizes site license revenues relating to the sales of the
learning labs listed under Products herein, as well as the LabMentors virtual
labs, as they are utilized to the customers. The site license is for a 1-year
term, which begins when the physical lab is delivered to the customer. As
such, license revenue is amortized and recorded as revenue over the life of
the site license. The revenues for each virtual lab are recorded in the
period in which they are utilized relating to access to and usage of its
programs and exercise software on the LabMentors' website over the term of the
subscription or hourly units purchased. Amounts paid in advance of the
license use/virtual lab access are recorded under Deferred Revenue and
recognized as described above in the proper periods.
Subscription Revenue
The Company recognizes revenues relating to the subscriptions sold on its
edventures.com website on a monthly basis. Revenues relating to other
activities such as education services delivered are recognized when the
services are rendered. If a customer decides to discontinue the use of the
products, the customer must return all of the information received except for
the physical lab equipment. Additionally, the customer will not have access
to the license when the contract is terminated. The Company does not have an
obligation to refund any portion of the proceeds received for either the sale
of a lab license or the subsequent renewals of the licenses.
61
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2006 and 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
f. Goodwill
Goodwill represents the excess of the cost of PCS LabMentors' acquisition over
the net of the amounts assigned to the assets acquired and liabilities
assumed. The Company accounts for its goodwill in accordance with Statement
of Financial Accounting Standards No. 142 (SFAS 142) "Goodwill and Other
Intangible Assets," which requires the Company to test goodwill for impairment
annually or whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable, rather than amortize.
The entire goodwill balance of $485,238 at March 31, 2006, which is not
deductible for tax purposes due to the purchase being completed through the
exchange of stock, is related to the Company's acquisition of PCS LabMentors
in December 2005. With the acquisition of PCS LabMentors, the Company gained
LabMentors' significant interest in the technical college market and increased
the products available to educational outlets. The Company also obtained the
information technology and programming expertise of LabMentors' workforce,
gained additional cost optimization, and gained greater market flexibility in
optimizing market information and access to collegiate level sales.
The provisions of SFAS 142 require that a two-step impairment test be
performed annually or whenever events or changes in circumstances indicate
that the carrying value of an asset may not be recoverable. The first step of
the test for impairment compares the book value of the Company to its
estimated fair value. The second step of the goodwill impairment test, which
is only required when the net book value of the item exceeds the fair value,
compares the implied fair value of goodwill to its book value to determine if
an impairment is required.
g. Business Combinations
On November 30, 2005, the Company acquired certain assets, properties, and
operations of 511092 N.B. LTD. (LabMentors), a provider of Internet based
information technology to the post-secondary educational market. The
acquisition of LabMentors is expected to provide for strategic growth
opportunities, cost optimization, and further diversification of our product
offerings.
LabMentors engages in web-based educational products. LabMentors
currently sells products to Course Technology and DeVry in the United States.
These programs offer a unique atmosphere highly conducive to individual styles
of learning and a system that utilizes computer technology to increase areas
of inquiry and application. In addition, the labs allow certifications for
several platforms and software applications at the collegiate level. The
Company intends to continue to develop products for this market, as well as
expand its reach into secondary education in the U.S. and internationally.
LabMentors' products and technologies are targeted to the public and private
school classrooms. The products and technologies are delivered to the
classroom through software and Internet access. These technologies allow
students to explore the basic foundations of computers from programming to
database technologies to server integration.
As a result of the PCS LabMentors, Ltd., fka 511092 N.B. LTD.
acquisition ("LabMentors Acquisition"), the Company is obligated to pay out to
the original shareholders of 511092 N.B.LTD. as outlined in Schedule 1.3 of
the Stock Purchase Agreement dated December 5, 2005 restricted shares of the
Company's common stock if certain earnings objectives tiers are met as
specified in Section 2.4.2 of the Stock Purchase Agreement. The Company has
estimated that it will pay out approximately 3,150,000 shares of restricted
common stock if the performance goals are met. No liability was recorded for
fiscal year ended March 31, 2006 as the EBITDA was not met by the subsidiary.
Pursuant to the LabMentors Acquisition, the Company acquired all of the
assets of LabMentors, namely current inventory of learning programs,
intellectual property comprising the delivery platform, one pending Canadian
trademark application, and one Canadian copyright, accounts receivable, and
cash, as well as the liabilities, namely trade payables and deposits payable
comprising of one deposit payable due December 2005. All LabMentors stock
that was outstanding at the time of closing was converted into the Company's
stock at $0.60 per share. The LabMentors Acquisition was structured through a
Share Exchange Agreement. The purchase price of the transaction was $420,000
USD, which was converted to the Company's stock at $0.60 per share and Company
stock was issued pursuant to Rule 144 in the amount of 700,000 shares. The
511092 N.B. LTD. DBA LabMentors unaudited financial statements for September
30, 2005 can be viewed in the 8-K/A filed with the SEC on February 15, 2006,
which are incorporated herein by reference.
The LabMentors acquisition is being accounted for under the purchased method
of accounting. Accordingly, the results of LabMentors are included in the
consolidated financial statements from December 1, 2005. The excess of the
allocated amounts to assets and liabilities was recorded as goodwill on the
consolidated financial statements.
62
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2006 and 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
h. Principals of Consolidation
The accompanying consolidated financial statements consolidate the accounts of
the parent company and its wholly owned subsidiaries. All significant inter-
company accounts and transactions have been eliminated through consolidation.
i. Provision for Income Taxes
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely that not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of
enactment.
Net deferred tax assets consist of the following components as of March 31,
2006, and 2005:
2006 2005
Deferred tax assets:
NOL Carryover $ 3,337,732 $ 3,114,065
Accrued Expenses 59,354 96,665
Accumulated depreciation 3,836 -
Deferred tax liabilities: - -
Valuation allowance (3,400,922) (3,210,730)
----------- -----------
Net deferred tax asset $ - $ -
=========== ===========
The income tax provision differs from the amount of income tax determined by
applying the U.S. federal income tax rate of 39% to pretax income from
continuing operations for the years ended March 31, 2006 and 2005 due to the
following:
2006 2005
Book loss $( 448,832) $ (366,065)
State taxes 935 -
Stock for services/options expense 221,305 259,500
Penalties 5,050 445
Beneficial conversion 147,485 -
Other 2,470 4,430
NOL utilization - -
Valuation allowance 71,587 101,690
-------- ---------
$ - $ -
======== =========
63
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2006 and 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
At March 31, 2006 the Company had net operating loss carryforwards of
approximately $8,700,000 that may be offset against future taxable income from
the year 2006 through 2026. No tax benefit has been reported in the March 31,
2006 consolidated financial statements since the potential tax benefit is
offset by a valuation allowance of the same amount.
Due to the change in ownership provisions of the Tax Reform Act of 1986, net
operating loss carryforwards for Federal income tax reporting purposes are
subject to annual limitations. Should a change in ownership occur, net
operating loss carryforwards may be limited as to use in future years.
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carry forwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely that not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of
enactment.
Net deferred tax assets for the LabMentors subsidiary consisted of the
following components as of March 31, 2006:
Deferred tax assets:
NOL Carryover $ 23,319
Accrued Expenses 16,949
Deferred tax liabilities: -
Valuation allowance (40,268)
-----------
Net deferred tax asset $ -
===========
The income tax provision differs from the amount of income tax determined by
applying the Canadian federal and provincial income tax rates totaling 35% to
pretax income from continuing operations for the years ended March 31, 2006
due to the following:
2006
Book loss $ (10,763)
Penalties 170
Other 100
Valuation allowance 10,493
---------
$ -
At March 31, 2006, the PCS LabMentors subsidiary had net operating loss
carryforwards of approximately $100,000 that may be offset against future
taxable income from the year 2006 through 2026. No tax benefit has been
reported in the March 31, 2006 financial statements since the potential tax
benefit is offset by a valuation allowance of the same amount.
64
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2006 and 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Canadian tax laws allow a company to recoup a significant amount of research
and development costs. As a result, the Company will continue to conduct its
research and development within Fredericton, New Brunswick and continue to
apply for such tax incentives. In addition, income taxes are/will be prepared
in accordance with Revenue Canada guidelines so as to maximize additional
incentives, when available (see Note x).
j. Basic Loss Per Share
The computation of basic loss per share of common stock is based on the
weighted average number of shares outstanding during the period of the
financial statements in accordance with SFAS No. 128 "Earnings per Share."
Diluted loss per share is equal to basic loss per share as the result of the
anti-dilutive nature of the stock equivalents.
For the Years Ended
March 31,
2006 2005
Basic loss per share from operations:
Numerator - loss $(1,202,208) $(938,632)
Denominator - weighted average number
of shares outstanding 27,713,809 26,253,256
---------- ----------
Loss per share $ (0.04) $ (0.04)
========== ==========
k. Newly Issued Accounting Pronouncements
During the year ended March 31, 2006, the Company adopted the following
accounting pronouncements:
In 2005, the FASB issued DFAS 149, "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities." This amendment clarified certain
decision-making criteria as well as the definition of a derivative. On June
15, 1999, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This standard established the criteria for which an
entity is to recognize all derivatives as either assets or liabilities in the
financial statements and measure them at fair value. The intended use of the
derivative determines how it is accounted for on the statements. The Company
adopted these pronouncements during the fourth quarter of fiscal year 2006
relating to the recent note payable agreement signed December 29, 2005, which
funded on January 3, 2006.
65
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2006 and 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The Company continues to follow the following accounting pronouncements:
In November 2004, the FASB issued SFAS No. 151, Inventory Costs an
amendment of ARB No. 43, Chapter 4. This Statement amends the guidance in ARB
No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and wasted material
(spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that ". .
..under some circumstances, items such as idle facility expense, excessive
spoilage, double freight, and rehandling costs may be so abnormal as to
require treatment as current period charges. . . ." This Statement requires
that those items be recognized as current-period charges regardless of whether
they meet the criterion of "so abnormal." In addition, this Statement requires
that allocation of fixed production overheads to the costs of conversion be
based on the normal capacity of the production facilities. This statement is
effective for inventory costs incurred during fiscal years beginning after
June 15, 2005. Management does not believe the adoption of this Statement will
have any immediate material impact on the Company.
In December 2004, the FASB issued SFAS No. 152, Accounting for Real
Estate Time-sharing Transactions, which amends FASB statement No. 66,
Accounting for Sales of Real Estate, to reference the financial accounting and
reporting guidance for real estate time-sharing transactions that is provided
in AICPA Statement of Position (SOP) 04-2, Accounting for Real Estate Time-
Sharing Transactions. This statement also amends FASB Statement No. 67,
Accounting for Costs and Initial Rental Operations of Real Estate Projects, to
state that the guidance for (a) incidental operations and (b) costs incurred
to sell real estate projects does not apply to real estate time-sharing
transactions. The accounting for those operations and costs is subject to the
guidance in SOP 04-2. This Statement is effective for financial statements for
fiscal years beginning after June 15, 2005. Management believes the adoption
of this Statement will have no impact on the financial statements of the
Company.
In December 2004, the FASB issued SFAS No. 153, Exchange of Non-monetary
Assets. This Statement addresses the measurement of exchanges of non-monetary
assets. The guidance in APB Opinion No. 29, Accounting for Non-monetary
Transactions, is based on the Principal that exchanges of non-monetary assets
should be measured based on the fair value of the assets exchanged. The
guidance in that Opinion, however, included certain exceptions to that
Principal. This Statement amends Opinion 29 to eliminate the exception for
non-monetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of non-monetary assets that do not have
commercial substance. A non-monetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a
result of the exchange. This Statement is effective for financial statements
for fiscal years beginning after June 15, 2005. Earlier application is
permitted for non-monetary asset exchanges incurred during fiscal years
beginning after the date of this statement is issued. Management believes the
adoption of this Statement will have no impact on the financial statements of
the Company.
66
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2006 and 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The FASB issued SFAS No. 123R (revised 2004) "Share-Based Payment". SFAS No.
123R requires employee stock-based compensation to be measured based on the
fair value as of the grant-date of the awards and the cost is to be recognized
over the period during which an employee is required to provide services in
exchange for the award. Historically, the company used the intrinsic method
of valuation as specified in APB No. 25, "Accounting for Stock Issued to
Employees" and related interpretations and accordingly no compensation cost
had been recognized for stock options in prior years. The Company has adopted
this provision as of the quarter ending March 31, 2006. This pronouncement
eliminates the alternative use of Accounting Principles Board (APB) No. 25,
wherein the intrinsic value method of accounting for awards. As a result of
adopting the fair value method for stock compensation, all future awards and
current awards vesting in future periods will be expensed over the stock
options' vesting period as defined in its contract award. The Company will
adopt this provision for fiscal year 2007, which ends March 31, 2007.
The FASB issued SFAS No. 154, Accounting Changes and Error Correction - a
replacement of APB No. 20 and SFAS No. 3, Reporting Accounting Changes in
Interim Financial Statements, in May 2005. SFAS 154 changes the requirements
for the accounting for and reporting of a change in accounting principle. It
also applies to changes required by an accounting pronouncement in the unusual
instance that the pronouncement does not include specific transition
provisions.
The implementation of the provisions of these pronouncements is not expected
to have a significant effect on the Company's consolidated financial statement
presentation.
The implementation of the provisions of these pronouncements are not
expected to have a significant effect on the Company's consolidated financial
statement presentation.
l. Educational Software
The Company's inventory consists of internally developed education computer
programs and exercises to be accessed on the Internet. In accordance with FAS
86, the costs associated with research and initial feasibility of the programs
and exercises are expensed as incurred. Once economic feasibility has been
determined, the costs to develop the programs and exercises are capitalized
until they are ready for sale and access and are reported at the lower of
unamortized cost or net realizable value. Capitalized program and exercise
inventory are amortized on a straight-line basis over the estimate useful life
of the program or exercise, generally 42 to 48 months.
m. Intellectual Property
The Company's intellectual property consists of capitalized costs associated
with the development of the Internet software and delivery platform developed
by the Company to enable access to the various educational programs and
exercises developed by the Company. In accordance with FAS 86 as discussed
previously regarding inventory, the initial costs associated with researching
the delivery platform and methods were expensed until economic feasibility and
acceptance were determined. Thereafter, costs incurred to develop the Internet
online delivery platform and related environments were capitalized until ready
for use and able to deliver and access the Company's educational programs and
exercises. Costs incurred thereafter to maintain the delivery and access
platform are expensed as incurred. These capitalized costs are being amortized
on a straight-line basis over the estimated useful life of the Company's
delivery and access platform, which has been determined to be 60 months.
67
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2006 and 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
n. Property and Equipment
Property and equipment are recorded at cost and being depreciated for
financial accounting purposes on the straight-line method over their
respective estimated useful lives ranging from five to seven years. Upon
retirement or other disposition of these assets, the cost and related
accumulated depreciation are removed from the accounts and the resulting gains
or losses are reflected in the results of operations.
Expenditures for maintenance and repairs are charged to operating expense.
Renewals and betterments are capitalized. Depreciation of leased equipment
under capital leases is included in depreciation.
o. Finished Goods Inventory
Finished goods inventory at March 31, 2006 was composed of items produced in-
house, as well as items from outside supplies. These items included, but are
not limited to, furniture units, curriculum, blocks, PCS Academy of Science
(Trademarked) science kits, poster packs, and other miscellaneous items used
in our various labs.
p. Stock Options
As permitted by FASB Statement 148 "Accounting for Stock Based Compensation
Transition and Disclosure" (SFAS No. 148), the Company elected to measure and
record compensation cost relative to employee stock option costs in accordance
with Accounting Principals Board ("APB") Opinion 25, "Accounting for Stock
Issued to Employees", and related interpretations and make pro forma
disclosures of net income and earnings per share as if the fair value method
of valuing stock options granted to employees when the option price is less
that the market price of the underlying common stock on the date of grant.
NOTE 3 - FIXED ASSETS
Assets and depreciation for the period are as follows:
March 31,
2006
Computer equipment $ 23,173
Office equipment 6,832
Education assets and software 278,885
Accumulated depreciation (290,726)
----------
Total Fixed Assets $ 18,164
==========
Fixed Asset depreciation expense for the years ended March 31, 2006 and 2005
was $6,833 and $2,052, respectively.
68
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2006 and 2005
NOTE 4 - COMMON AND PREFERRED STOCK TRANSACTIONS
a. Common Stock
During the year ended March 31, 2005, the Company issued 270,000 shares of
common stock in exchange for services valued at $45,900.
During the year ended March 31, 2005, the Company issued 376,165 shares of
common stock for the conversion of promissory notes associated with the 2001
private placement. The shares were valued at $0.20 per share, or $75,232,
which included Principal and interest.
During the year ended March 31, 2005, the Company received $75,000 in exchange
for the exercise of 750,000 options.
During the year ended March 31, 2005, the Company received a $17,500 reduction
in related party note payable in exchange for the exercise of 250,000 options
valued at $0.07 each.
During the year ended March 31, 2005, the Company issued 338,020 shares of
common stock valued at $67,603, or $0.20 per share, for the conversion of
preferred stock.
During the year ended March 31, 2005, the Company issued 250,000 shares of
common stock in exchange for marketing services valued at $22,500.
69
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2006 and 2005
NOTE 4 - COMMON AND PREFERRED STOCK TRANSACTIONS (Continued)
During the year ended March 31, 2005, the Company issued 500,000 shares of
common stock in exchange for legal services valued at $45,000.
During the year ended March 31, 2005, the Company issued 45,833 shares of
common stock in exchange for accounts payable valued at $6,875.
During the year ended March 31, 2005, the Company issued 344,559 shares of
common stock in exchange for related party note payable valued at $20,674.
During the year ended March 31, 2006, the Company issued 15,000 shares of
common stock in exchange for the exercise of options valued at $2,400.
During the year ended March 31, 2006, the Company issued 35,000 shares of
common stock in exchange for cash of $7,000.
During the year ended March 31, 2006, the Company issued 90,972 shares of
common stock for public relations services valued at $8,649.
During the year ended March 31, 2006, the Company issued 205,211 shares of
common stock in exchange for the exercise of options valued at $26,645.
During the year ended March 31, 2006, the Company issued 654,706 shares of
common stock in exchange for the conversion of note payables valued at
$112,485.
During the year ended March 31, 2006, the Company issued 12,815 shares of
common stock in exchange for the conversion of note payables valued at $2,179.
During the year ended March 31, 2006, the Company issued 33,430 shares of
common stock in exchange for cash of $5,683.
During the year ended March 31, 2006, the Company issued 20,000 shares of
common stock in exchange for investing services valued at $14,100.
During the year ended March 31, 2006, the Company issued 60,900 shares of
common stock in exchange for the conversion of note payables valued at
$10,353.
During the year ended March 31, 2006, the Company issued 5,000 shares of
common stock in exchange for the exercise of options valued at $750.
During the year ended March 31, 2006, the Company issued 25,208 shares of
common stock in exchange for marketing services valued at $4,033.
During the year ended March 31, 2006, the Company issued 4,500 shares of
common stock in exchange for the exercise of options valued at $450.
During the year ended March 31, 2006, the Company issued 344 shares of common
stock in exchange for the exercise of options valued at $107.
During the year ended March 31, 2006, the Company issued 100,000 shares of
common stock in exchange for consulting services valued at $70,000.
70
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2006 and 2005
NOTE 4 - COMMON AND PREFERRED STOCK TRANSACTIONS (Continued)
During the year ended March 31, 2006, the Company issued 100,000 shares of
common stock in exchange for conversion of related party note payable with
interest valued at $16,000.
During the year ended March 31, 2006, the Company issued 75,000 shares of
common stock in exchange for the exercise of options valued at $12,000.
During the year ended March 31, 2006, the Company issued 50,000 shares of
common stock in exchange for the exercise of options valued at $8,000.
During the year ended March 31, 2006, the Company issued 555,435 shares of
common stock in exchange for the exercise of options valued at $49,145.
During the year ended March 31, 2006, the Company issued 53,746 shares of
common stock in exchange for the payment of interest valued at $10,749 or
$0.20 per share.
During the year ended March 31, 2006, the Company issued 214,285 shares of
common stock in exchange for the exercise of options valued at $15,000.
During the year ended March 31, 2006, the Company issued 15,000 shares of
common stock in exchange for the exercise of options valued at $1,500.
During the year ended March 31, 2006, the Company issued 700,000 shares of
common stock in exchange for the acquisition of 511092 N.B. LTD. valued at
$420,000, or $0.60 per share representing fair market value on the date of the
transaction.
During the year ended March 31, 2006, the Company issued 6,756 shares of
common stock for a bonus to an officer of the company valued at $5,000.
During the year ended March 31, 2006, the Company issued 31,453 shares of
common stock for royalty payments relating to fiscal year 2005 valued at
$4,875.
During the year ended March 31, 2006, the Company issued 35,000 shares of
common stock in exchange for the exercise of options valued at $5,600.
During the year ended March 31, 2006, the Company issued 10,000 shares of
common stock in exchange for the exercise of options valued at $1,600.
During the year ended March 31, 2006, the Company issued 75,000 shares of
common stock in exchange for the exercise of options valued at $12,000.
During the year ended March 31, 2006, the Company issued 150,000 shares of
common stock for additional incentive to the sales team valued at $106,500.
During the year ended March 31, 2006, the Company issued 25,000 shares of
common stock for the exercise of options at $0.16 per share.
During the year ended March 31, 2006, the Company issued 4,156 shares of
common stock in exchange for consulting services valued at $2,500.
During the year ended March 31, 2006, the Company issued 76,230 shares of
common stock in exchange for conversion of preferred stock valued at $15,245.
71
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2006 and 2005
NOTE 4 - COMMON AND PREFERRED STOCK TRANSACTIONS (Continued)
During the year ended March 31, 2006, the Company issued 4,490 shares of
common stock in exchange for consulting services valued at $2,500.
During the year ended March 31, 2006, the Company issued 50,000 shares of
common stock in exchange for the exercise of options valued at $3,500.
During the year ended March 31, 2006, the Company issued 15,000 shares of
common stock in exchange for the exercise of options valued at $1,500.
During the year ended March 31, 2006, the Company issued 5,896 shares of
common stock in exchange for consulting services valued at $2,500.
During the year ended March 31, 2006, the Company issued 13,161 shares of
common stock for royalty payments relating to fiscal year 2005 valued at
$2,040.
During the year ended March 31, 2006, the Company issued 312,878 shares of
common stock in exchange for royalty payments relating to fiscal year 2006
valued at $165,825.
During the year ended March 31, 2006, the Company issued 9,424 shares of
common stock for a bonus to an officer of the company valued at $5,000.
During the year ended March 31, 2006, the Company issued 100,000 shares of
common stock for consulting expenses relating to the LabMentors acquisition
valued at $66,000.
In connection with the conversion of various notes payable and related
interest during the year ended March 31, 2006, as previously discussed, total
loss on the extinguishment of those obligations of $213,301 was recognized
representing the fair market value of the common stock issued in excess of the
carrying value of the debt.
b. Preferred Stock
On September 4, 2003, the Company amended its Articles of Incorporation to
establish a preferred class of stock. Under the amendment, 10,000,000 shares
of the preferred stock have been authorized. All preferred shares were
converted into shares of common stock at a 20% discount and have a $0.25 cap
on the conversion price.
During the year ended March 31, 2006, the Company issued 76,230 shares of
common stock for the conversion of 15,246 shares of preferred stock. The
preferred shares originally sold for $1.00 per share were converted to common
at $0.20 per share.
NOTE 5 - NOTES PAYABLE - RELATED PARTY
Notes payable - related party consisted of the following at March 31, 2006:
Notes payable to the President bearing interest
at 10% per annum, all unpaid principal and
interest payments due on demand $ 116,590
---------
Total Notes Payable Related Party $ 116,590
=========
72
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2006 and 2005
NOTE 6 - NOTES PAYABLE
Notes payable consisted of the following at March 31, 2006:
Notes payable related to an investing company
bearing no interest, with a conversion option on
September 30, 2006
$1,000,000
Debt Discount on notes payable $(666,667)
Notes payable to a Canadian governmental agency
bearing no interest, with payments due
September 1, 2006, unsecured 47,699
Line of credit with a financing institution with varying
interest rates, due periodically (generally monthly),
secured by assets and specific receivables 89,990
---------
Total Notes Payable $ 471,022
=========
All notes payable are considered to be current. The discount on notes payable
is being amortized monthly over the length of the agreement (conversion date
of September 30, 2006) in accordance with EITF 00-27, "Application of Issue
98-5 to Certain Convertible Instruments" and APB Opinion No. 14, "Accounting
for Convertible Debt and Debt Issued with Stock Purchase Warrants."
The notes payable related to an investing company bearing no interest, with a
conversion option on September 30, 2006 is explained in further detail as
follows. On January 3, 2006, PCS Edventures!.com, Inc., an Idaho
corporation (the "Company"), closed a Note Purchase Agreement dated December
29, 2005 by which Barron Partners LP, a Delaware limited partnership (the
"Subscriber") purchased:
* a convertible promissory note in the principal amount of
$1,000,000 (the "Note"). The Note and the Note Purchase Agreement contemplate
that the Note shall be converted into convertible preferred stock having
certain rights, preferences, and limitations set forth in the Certificate of
Designations attached as Exhibit A to the Note; and the Note Purchase
Agreement therefore requires that we amend our Articles of Incorporation to
authorize 5,000,000 shares of preferred stock having such rights, preferences
and limitations. Further, until such preferred stock has been duly authorized
by an amendment of our Articles of Incorporation, the Note (or the preferred
stock, if issued prior to March 31, 2007) shall be convertible into 1,666,667
shares of our common stock at the Conversion Price of $0.60 per share;
provided that, if the our EBITDA (where "EBITDA" means earnings before
interest, tax, depreciation and amortization as reported from continuing
operations before any non-recurring items) is less than $4,500,000 for the
fiscal year ended March 31, 2007, then the Conversion Price shall be reduced
proportionately, but not below $0.1714 per share. Therefore, if the
Conversion Price is reduced to $0.1714, the maximum number of shares in which
the Note (or the preferred stock, if issued prior to March 31, 2007) may be
converted equals 5,834,306 shares of common stock of the Company.
* a Common Stock Purchase Warrant "A" (the "Class A Warrant") entitling
the Subscriber to purchase up to 2,500,000 shares of the Company's common
stock at a price of $1.20 per share. The Class A Warrant is exercisable
through the later of December 29, 2009, or 18 months of the effectiveness of
the Company's registration statement registering the shares underlying the
Class A Warrant. The Class A Warrant has a "cashless exercise" feature, and
the exercise price may be adjusted downward, to as low as $0.15 per share,
based on the Company's failure to meet certain EBITDA (i.e., earnings before
interest, tax, depreciation and amortization) targets during the period of
exercisability. The Company may call the Class A Warrant if the closing
market price of its common stock equals or exceeds $1.80 per share for 30
consecutive trading days and there is an effective registration statement
covering the shares of common stock underlying the Class A Warrant during such
period.
* A Common Stock Purchase Warrant "B" (the "Class B Warrant") to purchase
up to 2,500,000 shares of the Company's common stock at a price of $1.80 per
share. The period of exercisability of the Class B Warrant, and the other
material terms thereof, are the same as for the Class A Warrant, with the
exception that the call feature is triggered if the closing market price of
the Company's common stock equals or exceeds $2.70 per share for 30
consecutive trading days and there is an effective registration statement
covering the shares of common stock underlying the Class A Warrant during such
period.
As of June 22, 2006, the Note had not been converted and neither of the
warrants had been exercised, in whole or in part.
Not later than 45 days after the closing date of the Note Purchase
Agreement, the Company was required to file a Registration Statement
registering all shares issuable upon conversion of the Note and the warrants.
The Registration Statement must use its best efforts to have the registration
statement declared effective not later than the earlier of: (i) 150 days after
the closing date; (ii) 10 days following the receipt of a "no review" letter
from the Securities and Exchange Commission (the "Commission"); or (iii) the
first business day following the date that the Commission determines the
registration statement eligible to be declared effective. For every day that
the 150-day deadline has not been met, or if the registration statement is not
effective at any time from the 150-day deadline through two years following
the date of the Note Purchase Agreement, the Company is to issue to the
Subscriber liquidated damages equal to 548 shares of common stock.
The Company prepared and filed the Registration Statement on Form SB-2 to
comply with the above-referenced registration obligations. This Form SB-2 was
effective on March 16, 2006.
EITF 00-19 provides that the warrants associated with notes payable
to Barron should be valued as equity since it is a physical transaction,
Barron gives us cash for the stock, and it's a counter party's choice.
According to EITF 00-27, we created a debt discount that is amortized over the
term of the Note. The term of the note is nine months from the date of
possible conversion of the note. This results in $111,111 in amortization
expense each month. The debt discount was limited to the total note purchase
price of $1,000,000 in accordance with EITF 98-5. The Note and warrants were
valued using the Black-Scholes pricing model in determining the value and debt
discount.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
a. Operating Lease Obligation
The Company leases its main office under a non-cancelable lease agreement
accounted for as an operating lease. The lease expires in March 2008.
Minimum rental payments under the non-cancelable operating lease is as
follows:
Years ending
March 31, Amount
2007 87,500
2008 85,250
2009 -
2010 -
---------
Total $ 172,750
=========
Rent expense was $81,591 and $75,500 for the years ended March 31, 2006 and
2005, respectively, under this lease arrangement.
73
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2006 and 2005
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)
The Company leases warehouse space close to its headquarters. The lease
expires in May 2006. The monthly rental obligation is $576.00 for total lease
payments remaining of $1,152. Rent expense was $8,762 and $1,246 for the
years ended March 31, 2006 and 2005, respectively. The Company plans to
continue to lease this warehouse space and sign another lease.
The Company leases office space for its subsidiary in Canada. This lease is a
month-to-month lease that may be cancelled at any time. The monthly rental
obligation is $1,143. The Company intends to continue to lease this space on
a month-to-month basis. Rent expense for the period from December 1, 2005
through March 31, 2006 was $5,764.
b. Litigation
None, not applicable.
NOTE 8 CAPITALIZED COSTS
The capitalized costs of $89,667 are the costs associated with the Note
Payable Agreement dated December 29, 2005, which funded on January 3, 2006,
between the Company and Barron Partners, LP. The total amount of $134,500 is
being amortized over the life of the note payable, which has a conversion date
of September 30, 2006. To date, $44,833 has been amortized. The additional
amounts will be amortized each month for the first two quarters of fiscal year
2007, after which time the capitalized costs will be fully amortized.
NOTE 9 GAINS AND LOSSES ON EXTINGUISHMENT OF DEBT
During fiscal year 2006, the Company received notification from Key Bank Corp.
that certain line of credit debt incurred in previous periods was no longer
due by the Company. As such, the debt obligation, along with accrued
interest, was removed from the balance sheet and recognized as a gain on
extinguishment of debt in the amount of $26,459.
In addition to forgiveness of the line of credit debt and interest, certain
other liabilities of the Company were settled for amounts less than their
recorded value. This resulted in additions to gain on extinguishment of debt
in the amount of $74,172.
During fiscal year 2006, the Company recognized a loss on the net amounts
relating to issuance of Rule 144 common stock either above or below market
value on the date of issuance. The calculation resulted in a non-cash, non-
recurring expense of $213,301. The expense was mostly related to the issuance
of stock for the conversion of outstanding debt and interest relating to the
2001 Capital Growth Protection Indentured Trust Agreement.
NOTE 10 - GOODWILL
The entire goodwill balance of $485,238 at March 31, 2006, which is not
deductible for tax purposes due to the purchase being completed through the
exchange of stock, is related to the Company's acquisition of PCS LabMentors
in December 2005. Included within this amount of goodwill is $135,658 of
costs associated with the accquisition. The capitalized costs are for
accounting, consulting, and legal fees associated with the transaction. With
the acquisition of PCS LabMentors, the Company gained LabMentors' significant
interest in the technical college market and increased the products available
to educational outlets. The Company also obtained the information technology
and programming expertise of LabMentors' workforce, gained additional cost
optimization, and gained greater market flexibility in optimizing market
information and access to collegiate level sales.
The provisions of SFAS 142 require that a two-step impairment test be
performed annually or whenever events or changes in circumstances indicate
that the carrying value of an asset may not be recoverable. The first step of
the test for impairment compares the book value of the Company to its
estimated fair value.
We undertook an impairment review at the end of the current fiscal
year end, despite the fact that the goodwill was calculated during the third
quarter of the current fiscal year. After reviewing current operating losses
and future growth potential of the subsidiary, the Company determined that no
impairment was created. The basis for this determination included the growth
of existing clients since the end of the fiscal year, conversations with
potential customers for the upcoming year, the proven record since a bank
account was established for the company to sustain operations for the
foreseeable future, as well as the added economies of scale the subsidiary has
added to the Company as a whole, including several technical performance
enhancements supplied by LabMentors to supplement the core capabilities of
PCS, such as creation of added internet service bandwidth and associated
signal routing capabilities not known to the technical people at PCS; locating
and managing a demonstration server on their system for a wide variety of PCS
products; and assisting technical people from PCS and E2S in the creation and
management of a server to host the STEPS product. In conclusion, the Company
felt and still feels that LabMentors brought more than a cutting edge product
to PCS, but the acquisition also brings vertical integration and technology
not previously known by PCS.
74
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2006 and 2005
NOTE 11 - EDUCATIONAL SOFTWARE
Educational software was purchased by the Company as a part of the acquisition
of 511092 N.B. LTD. and consists of internally developed education computer
programs and exercises to be accessed on the Internet. In accordance with FAS
86, the costs associated with research and initial feasibility of the programs
and exercises are expensed as incurred. Once economic feasibility has been
determined, the costs to develop the programs and exercises are capitalized
until they are ready for sale and access and are reported at the lower of
unamortized cost or net realizable value. Capitalized program and exercise
inventory are amortized on a straight-line basis over the estimate useful life
of the program or exercise, generally 42 to 48 months. This educational
software had a carrying value of $146,835 at the date of the acquisition with
a total of $16,432 of related depreciation recognized during the period of
December 1, 2005 through March 31, 2006.
NOTE 12 - INTELLECTUAL PROPERTY
Intellectual property consists of capitalized costs associated with the
development of the Internet software and delivery platform developed by PCS
LabMentors to enable access to the various educational programs and exercises
developed by the Company. In accordance with FAS 86 as discussed previously
regarding inventory, the initial costs associated with researching the
delivery platform and methods were expensed until economic feasibility and
acceptance were determined. Thereafter, costs incurred to develop the Internet
online delivery platform and related environments were capitalized until ready
for use and able to deliver and access the Company's educational programs and
exercises. Costs incurred thereafter to maintain the delivery and access
platform are expensed as incurred. These capitalized costs are being amortized
on a straight-line basis over the estimated useful life of the Company's
delivery and access platform, which has been determined to be 60 months. This
intellectual property had a carrying value of $19,347 at the date of the
acquisition. Amortization recognized for the period of December 1, 2005
through March 31, 2006 was $3,202.
75
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2006 and 2005
NOTE 13 - DILUTIVE INSTRUMENTS
Stock Options and Warrants
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 year
pro forma net loss includes $13,722 of prior year 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 with the following weighted
average assumptions used for grants, respectively; dividend yield of zero
percent for all years; expected volatility of 100% to 538% percent for all
years; risk-free interest rates of 1% to 6%, and expected lives of 1 to 10
years.
For the Years Ended
March 31,
2006 2005
Net loss:
As reported $(1,204,504) $ (938,632)
Pro Forma (1,375,452) (1,106,204)
Net loss per share:
As reported $ (0.04) $ (0.04)
Pro Forma $ (0.05) $ (0.04)
76
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2006 and 2005
NOTE 13 - DILUTIVE INSTRUMENTS (Continued)
The Company has granted the following options and warrants as of March 31,
2006:
Amount
Date of Issue Issue Amount Expired/ Amount
Description Grant Number Price Exercised Cancelled
Outstanding
---------------- -------- --------- -------- --------- --------- ----------
1) Board Members 12-10-01 1,000,000 $ 0.30 0 (250,000) 750,000
2) Board Members 06-03-02 1,000,000 $ 0.16 (125,000) (250,000) 625,000
3) Employees 07-01-02 335,000 $ 0.16 (260,000) (75,000) 0
4) Employee 08-15-02 5,000 $ 0.16 0 (5,000) 0
5) Board Members 10-21-02 499,998 $ 0.09 (166,666) 166,666) 166,666
6) Board Members 05-15-03 892,855 $ 0.07 (464,285) (214,285) 214,285
7) Employee 05-20-03 100,000 $ 0.07 (50,000) 0 50,000
8) Employee 07-25-03 25,000 $ 0.10 0 (25,000) 0
9) Employee 07-25-03 25,000 $ 0.10 (15,000) 0 10,000
10) Employee 09-05-03 150,000 $ 0.07 0 0 150,000
11) Employee 09-25-03 25,000 $ 0.10 (15,000) 0 10,000
12) Board Member 04-28-04 150,000 $ 0.15 0 0 150,000
13) Consultant 04-28-04 2,000,000 $ 0.10 (750,000) (1,250,000) 0
14) Consultant 04-28-04 4,000,000 $ 0.10 0 (4,000,000) 0
15) Consultant 04-28-04 200,000 $ 0.10 0 (200,000) 0
16) Consultant 04-28-04 200,000 $ 0.20 0 (200,000) 0
17) Consultant 04-28-04 200,000 $ 0.30 0 (200,000) 0
18) Consultant 04-28-04 200,000 $ 0.35 0 (200,000) 0
19) Board Members 09-14-04 80,358 $ 0.14 (53,572) 0 26,786
20) Board Members 09-14-04 93,750 $ 0.12 (62,500) 0 31,250
21) Board Members 09-14-04 112,500 $ 0.10 (75,000) 0 37,500
22) Board Members 09-14-04 48,912 $ 0.23 (16,304) 0 32,608
23) Board Members 09-14-04 57,692 $ 0.26 (14,423) 0 43,269
24) Employee 07-29-04 153,533 $ 0.15 0 0 153,533
25) Employee 08-10-04 50,000 $ 0.13 0 0 50,000
26) Employee 07-10-04 50,000 $ 0.13 0 0 50,000
27) Employee 07-01-04 25,000 $ 0.31 0 0 25,000
28) Consultant 07-29-04 5,000 $ 0.15 (5,000) 0 0
29) Employee 11-15-04 100,000 $ 0.10 0 0 100,000
30) Board Members 01-04-05 315,792 $ 0.10 (157,896) 0 157,896
31) Consultant 01-06-05 4,500 $ 0.10 (4,500) 0 0
32) Employee 06-01-04 75,000 $ 0.31 0 0 75,000
33) Employee 06-14-04 250,000 $ 0.31 0 0 250,000
34) Employee 06-01-04 50,000 $ 0.31 0 0 50,000
35) Employee 06-01-04 75,000 $ 0.31 (344) 0 74,656
36) Employee 06-16-04 150,000 $ 0.31 0 0 150,000
37) Board Members 04-01-05 81,080 $ 0.185 0 0 81,080
38) Employees 05-26-05 175,000 $ 0.50 0 0 175,000
39) Employee 05-26-05 107,467 $ 0.50 0 0 107,467
40) Employee 08-24-05 100,000 $ 0.61 0 0 100,000
41) Board Members 06-30-05 23,076 $ 0.65 0 0 23,076
42) Board Members 09-30-05 16,791 $ 0.67 0 0 16,791
43) Board Members 12-31-05 18,144 $ 0.62 0 0 18,144
44) Board Members 03-31-06 21,225 $ 0.53 0 0 21,225
45) Consultant 02-01-06 121,429 $ 0.75 0 0 121,429
46) Consultant 03-01-06 21,429 $ 0.63 0 0 21,429
47) Consultant 02-20-06 50,000 $ 0.60 0 0 50,000
48) Investor 12-29-05 2,500,000 $ 1.20 0 0 2,500,000
49) Investor 12-29-05 2,500,000 $ 1.80 0 0 2,500,000
---------- -------------------------------
18,440,531 (2,235,490)(7,035,951) 9,169,090
========== ========= ========== ==========
Amount Exercisable 8,003,090
==========
77
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2006 and 2005
NOTE 13 - DILUTIVE INSTRUMENTS (Continued)
Risk-Free
Fair Interest Expected Expected
Description Value Rate Life Volatility
--------------------------- --------- -------- ----------
1) Board Members $ 0.20 5.69% 10.00 99.80%
2) Board Members $ 0.15 5.48% 10.00 128.91%
3) Employees $ 0.14 2.84% n/a n/a
4) Employee $ 0.14 2.84% n/a n/a
5) Board Members $ 0.09 3.94% 10.00 158.83%
6) Board Members $ 0.09 3.94% 10.00 151.61%
7) Employee $ 0.06 2.54% 4.00 151.61%
8) Employee $ 0.12 2.81% 4.00 156.24%
9) Employee $ 0.12 2.81% 4.00 156.24%
10) Employee $ 0.11 2.81% 4.00 152.03%
11) Employee $ 0.12 3.07% 5.85 152.03%
12) Board Member $ 0.17 4.43% 10.00 344.55%
13) Consultant $ 0.17 0.98% n/a n/a
14) Consultant $ 0.17 0.98% n/a n/a
15) Consultant $ 0.17 1.55% n/a n/a
16) Consultant $ 0.17 1.55% n/a n/a
17) Consultant $ 0.17 1.55% n/a n/a
18) Consultant $ 0.17 1.55% n/a n/a
19) Board Members $ 0.15 4.14% 10.00 247.04%
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) Employee $ 0.14 3.78% 5.00 250.60%
25) Employee $ 0.13 3.47% 5.00 247.04%
26) Employee $ 0.23 3.64% 5.00 250.60%
27) Employee $ 0.27 3.81% 5.00 240.27%
28) Consultant $ 0.14 3.78% n/a n/a
29) Employee $ 0.10 3.53% n/a n/a
30) Board Members $ 0.09 4.29% 10.00 234.54%
31) Consultant $ 0.11 3.65% 5.00 236.98%
32) Employee $ 0.31 3.91% 5.00 235.04%
33) Employee $ 0.26 3.98% 5.00 235.04%
34) Employee $ 0.31 3.91% 5.00 235.04%
35) Employee $ 0.31 3.91% 5.00 235.04%
36) Employee $ 0.31 3.91% 5.00 235.04%
37) Board Members $ 0.185 4.24% 10.00 237.88%
38) Employees $ 0.51 3.91% 5.00 257.85%
39) Employee $ 0.51 3.91% 5.00 257.85%
40) Employee $ 0.68 4.07% 4.0 253.43%
41) Board Members $ 0.65 3.97% 10.00 256.17%
42) Board Members $ 0.67 4.30% 10.00 246.09%
43) Board Members $ 0.62 4.37% 10.00 241.33%
44) Consultant $ 0.75 4.52% 3.00 225.67%
45) Consultant $ 0.69 4.72% 2.00 240.67%
46) Consultant $ 0.63 4.71% 3.00 225.42%
47) Board Members $ 0.53 4.80% 10.00 237.68%
48) Investor $ 1.20 4.30% 4.00 237.68%
49) Investor $ 1.80 4.30% 4.00 237.68%
78
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2006 and 2005
NOTE 13 - DILUTIVE INSTRUMENTS (Continued)
On April 28,2004, 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 first quarter of fiscal year 2005, 750,000 options were
exercised at $0.10 and 1,250,000 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.
The issuance of these options resulted in the recording of an increase in
deferred valuation of $34,787 and $287,775 in non-cash consulting expense
during the quarter ended June 30, 2004.
On April 28, 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, the issuance of these options resulted in the
recording of an increase in deferred valuation of $73,111 and $34,667 in non-
cash consulting expense during the quarter ended June 30, 2004.
79
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2006 and 2005
NOTE 13 - DILUTIVE INSTRUMENTS (Continued)
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 year
pro forma net loss includes $13,722 of prior year 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.
During June 2004, the Company issued options to purchase 600,000 of its common
stock to five employees, including one Officer. The options are exercisable
immediately at a price of $0.31 per share for five years.
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.
On July 29, 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.
On July 29, 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.
On July 10, 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.
On July 1, 2004, the Company issued options to purchase 25,000 shares of its
common stock to an employee. The options are exercisable at $0.31 per share
as follows: 5,000 on or after July 1, 2005; 5,000 on or after July 1, 2006;
and, 15,000 on or after July 1, 2007. The options expire on July 1, 2009.
On August 10, 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.
On September 14, 2004, the Company issued options to purchase 20,786 shares of
common stock to each of its three Board Members, for a total issuance of
80,358 at an exercise price of $0.14 per share. The options were issued as
compensation for Board services for the quarter ending June 30, 2003. The
options expire on September 14, 2014.
On September 14, 2004, the Company issued options to purchase 31,250 shares of
common stock to each of its three Board Members, for a total issuance of
93,750 at an exercise price of $0.12 per share. The options were issued as
compensation for Board services for the quarter ending September 30, 2003.
The options expire on September 14, 2014.
80
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2006 and 2005
NOTE 13 - DILUTIVE INSTRUMENTS (Continued)
On September 14, 2004, the Company issued options to purchase 37,500 shares of
common stock to each of its three Board Members, for a total issuance of
112,500 at an exercise price of $0.10 per share. The options were issued as
compensation for Board services for the quarter ending December 31, 2003. The
options expire on September 14, 2014.
On September 14, 2004, the Company issued options to purchase 16,304 shares of
common stock to each of its three Board Members, for a total issuance of
48,912 at an exercise price of $0.23 per share. The options were issued as
compensation for Board services for the quarter ending March 31, 2004. The
options expire on September 14, 2014.
On September 14, 2004, the Company issued options to purchase 14,423 shares of
common stock to each of its four Board Members, for a total issuance of 52,692
at an exercise price of $0.26 per share. The options were issued as
compensation for Board services for the quarter ending June 30, 2004. The
options expire on September 14, 2014.
On January 4, 2005, the Company issued options to purchase 78,948 shares of
common stock to each of its four Board Members, for a total issuance of
315,792 at an exercise price of $0.10 per share. The options were issued as
compensation for Board services for the quarters ending September 30, 2004 and
December 31, 2004.
During the month of January 2005, the Company issued options to purchase 4,500
shares of common stock to a consultant for purchasing services at an exercise
price of $0.10 per share. These figures are included in the above financial
statements.
On April 1, 2005, the Company issued options to purchase 20,270 shares of
common stock to each of its four Board Members, for a total issuance of 81,080
shares at an exercise price of $0.185 per share. The options were issued as
compensation for Board services for the quarters ending September 30, 2004,
December 31, 2004, and March 31, 2005.
On May 26, 2005, the Company issued options to purchase 25,000 shares of
common stock to seven employees, for a total issuance of 175,000 shares at an
exercise price of $0.50 per share. These options were issued as a bonus to
employees for exception service to the Company.
On May 26, 2005, the Company issued options to purchase 107,467 shares of
common stock to an Officer at an exercise price of $0.50 per share. These
options were issued as a bonus to the Officer for exception service to the
Company.
On June 30, 2005, the Company issued options to purchase 5,769 shares of
common stock to each of its four Board Members, for a total issuance of 23,076
shares at an exercise price of $0.65 per share. These options were issued as
compensation for Board services for the quarter ending June 30, 2005.
On August 24, 2005, the Company issued options to purchase 100,000 shares of
common stock to an employee at an exercise price of $0.61 per share. These
options were issued as additional recruitment incentive.
81
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2006 and 2005
NOTE 13 - DILUTIVE INSTRUMENTS (Continued)
On September 30, 2005, the Company issued options to purchase 5,597 shares of
common stock to each of its three Board Members, for a total issuance of
16,791 shares at an exercise price of $0.67 per share. These options were
issued as compensation for Board services for the quarter ending September 30,
2005.
On December 29, 2005, the Company issued warrants to purchase common stock to
a company at exercise prices of $1.20 and $1.80 for 2,500,000 shares at each
price for a total of 5,000,000 shares. The warrants were issued to a company
as a result of the Note Payable Agreement signed by the Company as of that
date with Barron Partners, LP.
On December 31, 2005, the Company issued options to purchase 6,048 shares of
common stock to each of its three Board Members, for a total issuance of
18,144 shares at an exercise price of $0.62 per share. These options were
issued as compensation for Board services for the quarter ending December 31,
2005.
On February 1, 2006, the Company issued options to purchase 121,429 shares of
common stock to a company at an exercise price of $0.75. These options were
issued as compensation to a company for consulting services.
On February 20, 2006, the Company issued options to purchase 50,000 shares of
common stock to a company at an exercise price of $0.60. These options were
issued as compensation to a company for consulting services.
On March 1, 2006, the Company issued options to purchase 21,429 shares of
common stock to a company at an exercise price of $0.63. These options were
issued as compensation to a company for consulting services.
On March 31, 2006, the Company issued options to purchase 7,075 shares of
common stock to each of its three Board Members, for a total issuance of
21,225 shares at an exercise price of $0.53 per share. These options were
issued as compensation for Board services for the quarter ending March 31,
2006.
NOTE 14 - RELATED PARTY TRANSACTIONS
During 2004, the Company issued 305,441 shares of common stock to the
Company's President, Anthony A. Maher, in payment of $32,608 in accrued
interest. The stock was valued at the market price of the stock on the dates
of conversion, or an average of $0.11 per share.
During July 2004, the Company issued 250,000 shares of common stock to its
Chief Executive Officer, Anthony A. Maher, for the non-cash exercise of
options, reducing related party debt by $17,500.
During October 2004, the Company issued 344,559 shares of common stock at
$0.06 per share to its Chief Executive Officer, Anthony A. Maher, for the non-
cash reduction of related party debt of $20,674.
During the year ended March 31, 2005, the Company repaid debt owed to the
President of the Company, Anthony A. Maher, of $48,828 through cash payments
and issuances of common stock.
82
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2006 and 2005
NOTE 14 - RELATED PARTY TRANSACTIONS (Continued)
During September 2005, the Chief Executive Officer, Anthony A. Maher,
exercised 100,000 options to purchase common stock for the repayment of debt
and accrued interest owed in the amount of $16,000 for which he received
100,000 shares of common stock.
During January 2006, the Chief Executive Officer, Anthony A. Maher, exercised
25,000 options to purchase common stock for the repayment of debt and accrued
interest owed in the amount of $4,000 for which he received 25,000 shares of
common stock.
NOTE 15 - ACCRUED EXPENSES
Accrued expenses are made up of the following at March 31, 2006:
Credit card debt $ 34,092
---------
Total $ 34,092
=========
NOTE 16 - GOING CONCERN
The Company's consolidated financial statements are prepared using Generally
Accepted Accounting Principals applicable to a going concern that 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. Management's plans with respect to
alleviating the adverse financial conditions that caused shareholders to
express substantial doubt about the Company's ability to continue as a going
concern are as follows:
During the fiscal year ending March 2006, the Company continued discussions
with several target companies for possible merger and acquisition activities.
The Company continued to strengthen its strategic alliances with K'NEX,
Science Demo, and Absolute Toy Marketing for further product development and
enhancement. The Company has also strengthened its international position by
installing Learning Labs in Egypt, Dubai, and Saudi Arabia. To date, the
Company has continued to develop marketplace strategy for the US market, as
well as the international market. Further, the Company is still pursuing
merger and acquisition candidates and looking at different marketing
strategies to realign products.
The ability of the Company to continue as a going concern is dependent upon
its ability to successfully accomplish the plan described in the preceding
paragraphs and 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.
83
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2006 and 2005
NOTE 17 - SUBSEQUENT EVENTS
STEPS(TM)
------
In May 2006, the Company introduced a new school information management tool
called STEPS(TM) for the $1.0B annual US market. STEPS(TM) (School Tracking
Education Performance System) is a comprehensive school information management
software and centralized data-warehousing system designed to meet criteria for
NCLB and the needs of teachers, administrators, parents, and students. Its
four components allow for absent students to locate homework assignments,
parents to access their children's progress, teachers to simply and quickly
enter student data from their desk, and administrators to quickly locate data
on students as a group, a class or an individual. Those components are Master
Scheduler, Office, Classroom, and In-Touch. Master Scheduler has a 90%
placement rate and In-Touch allows teachers to do some of their work from
home, by remotely accessing the system at school. Teachers were an integral
part of the design and function of this system and as such, it is the most
robust and user friendly of all the systems available today.
STEPS(TM) manages an education-enterprise through tight Internet-technology
integration, unique technology leveraged product support, and advanced cross-
platform technologies that ensure usability, security, and reliability on
Microsoft Windows , Apple Mac-OS , and many various Unix operating systems.
This cross platform flexibility and proven architecture provide a vehicle for
PCS to cross-market into the school administration software marketplace.
As of the end of May 2006, several demonstrative sessions have been scheduled
for interested customers. In addition, we have had three demonstrations to
potential customers interested in the product. These demonstrations are
provided online through desktop sharing with the presentation given by our in-
house sales team.
Stock Option Issuance.
----------------------
In May 2006, the Company issued Stock Options to all employees. The issuance
was a bonus to employees based on contribution and longevity with the Company.
These options will begin vesting in May 2007. No option may be exercised
prior to that date. The options were created to vest in three tiers, with the
last tier vesting in May 2008. The total options issued to all employees were
approximately 900,000 shares at an exercise price of $0.54 per share. In
accordance with FASB 123(R), the Company expects to book an expense of
$171,470, $171,470, $107,761, and $65,289 in fiscal years 2006, 2007, 2008,
and 2009, respectively.
Proxy Statement Requests.
-------------------------
During the last fiscal year ended March 31, 2006, we have undertaken several
steps to enhance our strategic position, as well as increase market awareness,
namely the acquisition of 511092 N.B. LTD., the investment made from Barron
Partners LP, and the execution and delivery of several Consulting Agreements.
To complete these steps, we have made commitments to issue up to 18,309,203
additional shares of our common stock, which is 9,505,660 shares in excess of
the number of currently authorized and unissued shares of our common stock.
As such, the Company filed a Preliminary Proxy Statement with the SEC. We
have requested that the shareholders approve such increase within this
Statement.
84
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
---------------------
None.
Item 8A. Controls and Procedures.
----------------------------------
On June 1, 2005, the Company's Audit Committee submitted for Board
approval the following policies and procedure manuals: Accounting Policies
and Procedures; Internal Control Procedures; and Sarbanes-Oxley Compliance.
All three manuals were reviewed and unanimously approved by the Board of
Directors. In addition to formalizing the Company's already existing
policies, the Accounting Policies and Procedures and the Internal Control
Procedures manuals include guidelines that offer an additional level of review
of financial information. Due to the small accounting staff, the Company
viewed this as an area for improvement. We believe that the approval and
implementation of these policies with regards to disclosure controls and
procedures are effective in timely alerting the Chief Executive Officer and
the Chief Financial Officer to material information required to be included in
our periodic reports that are filed with the Securities and Exchange
Commission. 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.
As of the end of the period covered by this 10-KSB Annual Report, we carried
out an evaluation, under the supervision and with the participation of our
President and Audit Committee Chair, of the effectiveness of the design and
operation of our disclosure controls and procedures. Based on this
evaluation, our President and Chief Financial Officer concluded that our
disclosure controls and procedures are effectively designed to ensure that
information required to be disclosed or filed by us is recorded, processed or
summarized, within the time periods specified in the rules and regulations of
the Securities and Exchange Commission. 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, and there have been no significant changes in our internal controls
or in other factors that could significantly affect those controls subsequent
to the date of their last evaluation.
Item 8B. Other Information.
----------------------------
None.
85
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
--------------------------------------------------
Identification of Directors and Executive Officers.
---------------------------------------------------
The following table sets forth the name, address, age and position of
each officer and director of the Company:
Name Age Position
---- --- --------
Anthony A. Maher 58 Chairman of the Board,
President, and
Chief Executive Officer
Robert O. Grover 43 Executive Vice President, Chief
Technology Officer
Christina M. Vaughn 37 Vice President, Chief Financial
Officer
Donald J. Farley 58 Secretary
Cecil D. Andrus 74 Director
Michael K. McMurray 60 Director
Term of Office.
---------------
The terms of office of the current directors shall continue until the
annual meeting of stockholders, which has been scheduled by the Board of
Directors to be held in August of each year. The annual meeting of the Board
of Directors immediately follows the annual meeting of stockholders, at which
executive officers for the coming year are elected.
Business Experience.
--------------------
Anthony A. Maher. Mr. Maher was recruited to PCS at its inception as
Chairman of the Board, President and Chief Executive Officer and structured
the purchase of PCS Schools, Inc. and PCS LabMentors, LTD. Since then, Mr.
Maher has overseen the development of the curriculum from four core areas to
over 60; the development of its distance developer database; and the creation
of its web-based publishing expertise. From 1982 to 1989 he was founder and
Chairman of the Board of National Manufacturing Company, Inc. and its
subsidiary, National Medical Industries, Inc. From 1979 to 1982, Mr. Maher was
Executive Vice President for Littletree Inns, a hotel company based in Boise,
Idaho with properties throughout the Northwest. Mr. Maher graduated from Boise
State University in 1970 with a Bachelor of Arts degree in Political Science.
86
Robert O. Grover. Mr. Grover joined PCS at its inception and became
Executive Vice President in May 1996. Mr. Grover's current focus is on the
development of PCS distance education applications including the web-based
support and delivery systems that are integral to PCS
Edventures!.COM(Registered), Edventures Labs(Trademarked), the Academy of
Engineering(Trademarked), and PCS LabMentors' software. In 1992, he developed
the PCS Merit System that has become the foundation of the PCS
Edventures!.COM(Registered) learning systems online. Mr. Grover graduated
from Boise State University in 1987 with a Bachelor of Arts degree in English.
Christina M. Vaughn. Ms. Vaughn was promoted to Vice President and CFO
from Assistant CFO on May 1, 2002. She joined PCS in September 2000 after
serving eight years as an analyst for the local natural gas utility. She
brings to PCS extensive knowledge of revenue, cash, and cost forecasting,
asset/liability mitigation, and managed reporting of commodities pricing, as
well as capital project analysis. She graduated, cum laude, in 1990 from the
College of Idaho with a Bachelor of Business Administration in Finance, and in
1992 from Atkinson Graduate School of Management/Willamette University with a
Masters of Business Administration.
Donald J. Farley. Mr. Farley is the Secretary of the Company and acted
as the Company's legal counsel from 1994 until 2005. Mr. Farley is a founding
partner of the law firm of Hall, Farley, Oberrecht & Blanton, P.A. His legal
practice emphasizes litigation and representation of closely held businesses.
He has been in private practice since 1975, after serving a two-year judicial
clerkship with former United States District Judge J. Blaine Anderson. Mr.
Farley is admitted to practice before all state and federal courts in Idaho
and has also been admitted to practice before the United States Supreme Court.
He is a member of the American Bar Association, the International Association
of Defense Counsel, Defense Research Institute, the Idaho State Bar
Association and the Association of Trial lawyers of America. Mr. Farley
graduated from the University of Idaho in 1970 with a Bachelor of Arts degree
in Economics and from the University of Idaho College of Law in 1973.
Cecil D. Andrus. Governor Andrus joined the PCS Board of Directors in
November 1995. Following his retirement from public service in January 1995,
Mr. Andrus founded and now directs the Andrus Center for Public Policy at
Boise State University. Governor Andrus is the first person in the history of
Idaho to be elected Governor four different times (1970, 1974, 1986, and
1990). When he retired from public office, he was the senior governor in
the United States in length of service. Mr. Andrus resigned as governor in
1977 to become the Secretary of the Interior in the Carter Administration,
the first Idahoan to serve in a Presidential Cabinet. Governor Andrus is a
former Director of Albertsons and KeyCorp, and a current Director of The
Coeur D'Alene Company and Rentrak Corp. He also serves "Of Counsel" to
the Gallatin Group, a public affairs and corporate analysis Company, and the
Andrus Center for Public Policy at Boise State University.
Michael K. McMurray. Mr. McMurray returned to the Board of PCS after
having served from 1989 through 1994. He retired from Boise Cascade after
serving there for over 30 years, starting as a Treasury Analyst in 1970,
Assistant to Realty Controller from 1971 to 1974, Manager, Cash & Banking from
1974 to 1976, Manager of Banking & Corporate Credit from 1976 to 1980,
Assistant Treasurer from 1980 to 1989, and then Assistant Treasurer and
Director, Retirement Funds from 1989 until he retired in 2000. Mr. McMurray
has served with distinction on several Boards including Regence Blue Shield of
Idaho, American Red Cross, Farmers & Merchants State Bank, Idaho Housing and
Finance, Boise Family YMCA, Hillcrest Country Club, and the Downtown Boise
Association. He is a graduate of the University of Idaho with a degree in
Finance and has completed the Program for Management Development at the
Harvard Business School.
87
Identify Significant Employees.
-------------------------------
Joseph A. Khoury. Mr. Khoury is the founder of PCS LabMentors, LTD,
formerly known as 511092 N.B. LTD. Prior to forming LabMentors, he was
employed as a software engineer with MIMS Consultants, Inc. He brings to PCS
extensive knowledge of computer software and network communication systems.
He graduated from the University of New Brunswick in 1993 with a Bachelor of
Science in Electrical Engineering.
Shannon M. Wilson. Ms. Wilson joined PCS as the Assistant Chief
Financial Officer in August 2005 after working as a Chief Accountant for
Washington Group International in the financial reporting department; internal
reporting. Prior to working for Washington Group International, she was
employed as a Registered Paralegal and Office Manager for an intellectual
property law firm. She brings to PCS extensive knowledge of legal obligations
and proceedings, intellectual property protection needs and management, cash
management skills, capital project evaluation, GAAP knowledge, and financial
reporting expertise. She graduated in 2002 from Boise State University with a
Bachelor of Business Administration in Finance and in 2003 from Boise State
University with a Masters of Business Administration.
Family relationships.
---------------------
There are no family relationships between any of our directors or
executive officers.
Involvement in certain legal proceedings.
-----------------------------------------
During the past five years, none of our present or former directors,
executive officers or persons nominated to become directors or executive
officers:
(1) Filed a petition under the federal bankruptcy laws or any state
insolvency law, nor had a receiver, fiscal agent or similar officer appointed
by a court for the business or property of such person, or any partnership in
which he was a general partner at or within two years before the time of such
filing, or any corporation or business association of which he was an
executive officer at or within two years before the time of such filing;
(2) Was convicted in a criminal proceeding or named subject of a
pending criminal proceeding (excluding traffic violations and other minor
offenses);
(3) Was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining him or her from or
otherwise limiting his involvement in any type of business, securities or
banking activities;
(4) Was found by a court of competent jurisdiction in a civil
action, by the Securities and Exchange Commission or the Commodity Futures
Trading Commission to have violated any federal or state securities law, and
the judgment in such civil action or finding by the Securities and Exchange
Commission has not been subsequently reversed, suspended, or vacated.
Compliance with Section 16(a) of the Exchange Act.
--------------------------------------------------
PCS believes all forms required to be filed under Section 16 of the
Exchange Act for all of the Company's directors and executive officers have
been timely filed.
88
Audit committee financial expert.
---------------------------------
We chartered an audit committee in 2001 for the purpose of engaging HJ &
Associates for the annual audit. The audit committee currently consists of
board members, Michael McMurray and Cecil Andrus. Mr. McMurray is considered
an audit committee financial expert based on his previous work experience and
the definition contained in Reg. 228.401 Instructions to paragraph (e)(1) of
Item 401. The audit committee continued to implement the formal policy
regarding the scope, responsibilities, and length of service for the audit
committee adopted in fiscal year 2005.
Code of Ethics.
---------------
We have adopted a Code of Ethics and it was attached as Exhibit 14 to our
2004 Annual Report.
Item 10. Executive Compensation.
-----------------------
Compensation.
-------------
The following table shows the aggregate compensation that we have paid to
directors and executive officers for services rendered during the periods
indicated:
SUMMARY COMPENSATION TABLE
Long Term Compensation
-------------------------
Annual Compensation Awards Payouts
--------------------- -------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Restr. Sec. All
Name and Annual Stock Underlying LTIP Other
Principal Salary Bonus Comp. Award Options/ Payouts Comp.
Position* Year ($) ($) ($) ($) SARs(#) ($) ($)
----------------------------------------------------------------------
Anthony A. 3/31/06 120,000 0 0 0 0 0 *
Maher 3/31/05 120,000 0 0 0 0 0 *
President
Director
* Aggregate amount of other compensation is less than $50,000 or 10% of the
total annual salary and bonus reported.
Mr. Maher is the only executive officer of PCS whose compensation
exceeded $100,000 during the last two fiscal years. See the table below
under the heading "Stock Option Plans and Other Incentive Compensation Plans"
of this Item for stock options granted to Mr. Maher and other members of
management during the last two fiscal years ended March 31, 2006 and 2005.
89
Options Grants in Last Fiscal Year.
-----------------------------------
There were grants of stock options made during the fiscal years ended
March 31, 2006 and 2005 to our directors and executive officers and others.
These options are described below under the heading "Stock Option Plans and
Other Incentive Compensation Plans" of this Item.
Compensation of Directors.
--------------------------
Each fiscal year, the Board of Directors sets the dollar amount for the
compensation of outside directors for their services. Said compensation shall
be in the form of freely tradable PCS common stock at its then bid price, or
in the form of stock options to purchase PCS common stock at its then current
bid price. For fiscal years 2006 and 2005, the Board of Directors set the
amounts of $15,000 for each of said fiscal years. It is the current practice
of the Company to issue this compensation in the form of options that vest
immediately upon execution of each agreement. The current CEO is excluded
from receiving additional compensation as a Board member beginning in the
second fiscal quarter of 2006 by unanimous consent of the Board and his own
request.
Employment Agreements.
----------------------
We have no written employment agreements with our management with the
exception of our subsidiary president, Joseph A. Khoury. The contract was
effective December 1, 2005 and expires after six months. The contract
automatically renews for twelve-month periods, but may be terminated with
ninety (90) days written notice by either party. The contract provides for a
salary of $60,000 (Canadian dollars) per year, as well as issuance of Rule 144
stock if certain performance goals are met by the subsidiary as established by
the Board.
Currently, the Company is paying the officers the following annual salaries:
Anthony A. Maher - $120,000; Robert O. Grover - $100,000 (effective December
2005); and Christina M. Vaughn - $40,000, who is employed on a part-time
basis. The Company also makes available medical and dental insurance coverage
for its officers and other U.S. employees.
Stock Option Plans and Other Incentive Compensation Plans.
----------------------------------------------------------
PCS has adopted a Special Development Bonus Program ("Program") for its
development staff for fiscal years 2005 and 2006. This Program
allows the development staff, as defined therein, to receive a percentage
bonus based on the total adjusted gross sales of the Company, with an
increased percentage upon the Company being profitable.
However, there are no other formal option plans or other incentive
compensation plans as of the date of this report. Please see Note 13 for
options issued by the Company.
Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
----------------------------
Security ownership of certain beneficial owners.
------------------------------------------------
None.
90
Security ownership of management.
---------------------------------
The following tables set forth the share holdings of our directors and
executive officers and those persons who own more than five percent of our
common stock, based on 30,873,238 outstanding shares at June 9, 2006,
unless indicated otherwise:
DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------
Name and Address Percentage
of Beneficial Owner Shares Owned Owned
------------------- ------------ -----
Anthony A. Maher 2,741,045(1) 8.1%
345 Bobwhite Court, Suite 200,
Boise, Idaho 83706
Robert O. Grover 588,790(2) 1.7%
345 Bobwhite Court, Suite 200,
Boise, Idaho 83706
Donald J. Farley 1,730,121(3) 5.1%
345 Bobwhite Court, Suite 200,
Boise, Idaho 83706
Cecil D. Andrus 1,109,254(4) 3.3%
345 Bobwhite Court, Suite 200,
Boise, Idaho 83706
Michael K. McMurray 288,130(5) 0.9%
345 Bobwhite Court, Suite 200
Boise, Idaho 83706
Christina M. Vaughn 300,000(6) 0.9%
345 Bobwhite Court, Suite 200,
Boise, Idaho 83706
All officers and directors 6,757,340 20.0%(7)
as a group (six persons)
(1) Based upon 33,614,283 shares of common stock issued and outstanding
as of June 9, 2006, including 692,705 shares that may be issued upon the
exercise of currently exercisable options held by Mr. Maher. The shares
beneficially owned by Mr. Maher include: (i) 1,979,340 shares owned of record
by Mr. Maher; (ii) 10,000 shares owned by Louise Maher; (iii) 9,500 shares
which are beneficially owned by Sullivan Maher, LLC, for which Mr. Maher acts
as a manager (iv) 35,000 shares owned by the Nick Maher Foundation, of which
Mr. Maher is a trustee; (v) 4,500 shares owned by E. L. Sullivan which are
voted by Mr. Maher pursuant to an irrevocable proxy; and 10,000 shares owned
by the Maher Family Partnership LLP; and (vi) 692,705 shares which may be
issued upon the exercise of currently exercisable stock options.
(2) Based upon 31,462,028 shares of common stock issued and outstanding
as of June 9, 2006, including 350,000 shares that may be issued upon the
exercise of currently exercisable options held by Mr. Grover. The shares
beneficially owned by Mr. Grover include 238,790 shares owned of record and
350,000 shares underlying currently exercisable options.
(3) Based upon 32,603,359 shares of common stock issued and outstanding
as of June 9, 2006, including 916,636 shares that may be issued upon the
exercise of currently exercisable options held by Mr. Farley. These shares
include 813,485 shares owned of record by Mr. Farley and 916,636 shares, which
may be issued upon the exercise of currently exercisable stock options.
91
(4) Based upon 31,982,492 shares of common stock issued and outstanding
as of June 9, 2006, including 425,486 shares that may be issued upon the
exercise of currently exercisable options held by Mr. Andrus. These shares
include (i) 683,768 shares owned of record by Mr. Andrus and (ii) 425,486
shares which may be issued upon the exercise of currently exercisable stock
options.
(5) Based upon 31,161,368 shares of common stock issued and outstanding
as of June 9, 2006, including 288,130 shares that may be issued upon the
exercise of currently exercisable options held by Mr. McMurray. Mr. McMurray
does not currently own any shares of our common stock.
(6) Based upon 31,173,238 shares of common stock issued and outstanding
as of June 9, 2006, including 300,000 shares that may be issued upon the
exercise of currently exercisable options held by Ms. Vaughn. Ms. Vaughn does
not currently own any shares of our common stock.
(7) Based upon 33,846,195 shares of common stock issued and outstanding
as of June 9, 2006, including all 2,972,957 shares that may be issued upon the
exercise of currently exercisable options collectively held by all of our
directors and executive officers.
Changes in Control.
-------------------
To our knowledge, there are no present arrangements or pledges of our
securities that may result in a change in control of our company.
Item 12. Certain Relationships and Related Transactions.
-----------------------------------------------
Transactions with Management and Others.
----------------------------------------
During the last two fiscal years ended March 31, 2006, and 2005, we have
granted certain stock options to members of our management.
During the year ended March 31, 2003, three members of our Board of
Directors acted as guarantors on a promissory note that provided us $60,600 in
financing. This note was paid in full during 2004.
On September 14, 2004, we authorized and issued options to purchase
335,520 shares of common stock to Board Members as payment for accrued
directors fees totaling $45,000. These options vested immediately and have an
exercise price ranging from $0.10-$0.23 per share. This payment covered all
directors' fees incurred for the year ended March 31, 2004.
During 2004, we issued 305,441 shares of common stock to our President,
Anthony A. Maher, in payment of $32,608 in accrued interest. The stock was
valued at the market price of the stock on the dates of conversion, or an
average of $0.11 per share.
During the quarter ended June 30, 2004, we issued options to purchase
150,000 shares of common stock to a newly appointed member of the Board of
Directors for services rendered. The options are exercisable at $0.15 per
share and expire on June 30, 2014. The issuance of these options resulted in
$3,000 in non-cash director expenses included in general and administrative
expense.
92
During July 2004, we issued 250,000 shares of common stock to our Chief
Executive Officer, Anthony A. Maher, for the non-cash exercise of options,
reducing related party debt by $17,500.
During the month of September 2004, we issued options to purchase 14,423
shares of common stock to each of our four Board Members, for a total issuance
of 57,692 at an exercise price of $0.26 per share. The options were issued as
compensation for Board services for the quarter ending June 30, 2004.
During October 2004, we issued 344,559 shares of common stock at
$0.06 per share to our Chief Executive Officer, Anthony A. Maher, for the
non-cash reduction of related party debt of $20,674.
During the month of January 2005, we issued options to purchase 78,948
shares of common stock to each of our four Board Members, for a total issuance
of 315,792 at an exercise price of $0.10 per share. The options were issued
as compensation for Board services for the quarters ending September 30, 2004,
and December 31, 2004.
During the year ended March 31, 2005, we repaid debt owed to our
President, Anthony A. Maher, of $48,828 through cash payments and issuances of
common stock.
During the month of April 2005, we issued options to purchase 20,270
shares of common stock to each of our four Board Members, for a total issuance
of 80,080 at an exercise price of $0.185 per share. The options were issued
as compensation for Board services for the quarter ending March 31, 2005.
During the month of June 2005, we issued options to purchase 5,769
shares of common stock to each of our four Board Members, for a total issuance
of 23,076 shares at an exercise price of $0.65 per share. The options were
issued as compensation for Board services for the quarter ending June 30,
2005.
During September 2005, our Chief Executive Officer, Anthony A. Maher,
exercised 100,000 options to purchase common stock for the repayment of debt
and accrued interest owed in the amount of $16,000 for which he received
100,000 shares of common stock.
During the month of September 2005, we issued options to purchase 5,597
shares of common stock to each of our three Board Members, the CEO, Anthony A.
Maher is excluded from all future issuances of Board compensation per his
request and consent minutes of the Board, for a total issuance
of 16,791 shares at an exercise price of $0.67 per share. The options were
issued as compensation for Board services for the quarter ending September 30,
2005.
During the month of December 2005, we issued options to purchase 6,048
shares of common stock to each of our three Board Members for a total issuance
of 18,144 shares at an exercise price of $0.62 per share. The options were
issued as compensation for Board services for the quarter ending December 31,
2005.
During January 2006, our Chief Executive Officer, Anthony A. Maher,
exercised 25,000 options to purchase common stock for the repayment of debt
and accrued interest owed in the amount of $4,000 for which he received 25,000
shares of common stock.
During the month of March 2006, we issued options to purchase 7,075
shares of our common stock to each of our three Board Members for a total
issuance of 21,225 shares at an exercise price of $0.53 per share. The
options were issued as compensation for Board services for the quarter ending
March 31, 2006.
93
Item 13. Exhibits.
------------------
Exhibits*
(i)
Where Incorporated
in this Report
--------------
Registration Statement on SB-2/A
filed May 2, 2001, as Parts I, II and III
amended.**
Registration Statement on SB-2/A
filed March 13, 2006, as Parts I, II and III
amended.**
8K filed December 9, 2005 re: LabMentors Parts I, II and III
8K/A filed February 15, 2006 re: LabMentors Parts I, II and III
8K filed January 9, 2006 re: Barron Parts I, II and III
(ii)
Exhibit
Number Description
------ -----------
2 Letter of Intent between the Company and 511092 N.B. LTD*
10 Note Purchase Agreement between the Company and Barron
Partners*
21 Subsidiaries of the Company
31.1 302 Certification of Anthony A. Maher
31.2 302 Certification of Christina M. Vaughn
32 906 Certification
* Summaries of all exhibits contained within this
Report are modified in their entirety by reference
to these Exhibits.
** These documents and related exhibits have been
previously filed with the Securities and Exchange
Commission and are incorporated herein by reference.
94
ITEM 14. Principal Accountant Fees And Services.
---------------------------------------
Audit Fees.
The following is a summary of the fees billed to PCS by its Principal
accountants during the last two fiscal years:
Fee category 2006 2005
------------ ---- ----
Audit fees $ 60,300 $32,500
Audit-related fees $ 0 $ 0
Tax fees $ 0 $ 0
All other fees $ 0 $ 0
-------- -------
Total fees $ 60,300 $32,500
======== =======
The amounts listed above consist of fees for professional services
rendered by our Principal accountants for the audit of our annual financial
statements and the review of financial statements included in our Forms 10-QSB
or services that are normally provided by our Principal accountants in
connection with statutory and regulatory filings or engagements. In addition,
the audit fees include the audit undertaken of the financial statements of the
recently acquired PCS LabMentors, LTD. subsidiary.
Audit-Related Fees. Consists of fees for assurance and related services
by our Principal accountants that are reasonably related to the performance of
the audit or review of our financial statements and are not reported under
"Audit fees."
Tax Fees. Consists of fees for professional services rendered by our
Principal accountants for tax compliance, tax advice and tax planning.
All Other Fees. Consists of fees for products and services provided by
our Principal accountants, other than the services reported under "Audit
Fees," "Audit-Related Fees," and "Tax Fees" above. The fees disclosed in this
category include miscellaneous fees performed by our Principal accountants not
related to those categorized above.
95
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PCS EDVENTURES!.COM, INC.
Date: 06/29/2006 By:/s/Anthony A. Maher
---------- ------------------------------------
Anthony A. Maher
CEO, President and Chairman of the
Board of Directors
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Date: 06/29/2006 By:/s/Christina M. Vaughn
---------- ------------------------------------
Christina M. Vaughn
Vice President, CAO, and CFO
Date: 06/29/2006 By:/s/Donald J. Farley
---------- ------------------------------------
Donald J. Farley
Secretary and Director
Date: 06/29/2006 By:/s/Cecil D. Andrus
---------- -----------------------------------
Cecil D. Andrus
Director
Date: 06/29/2006 By:/s/Michael K. McMurray
---------- -----------------------------------
Michael K. McMurray
Director
96