As filed with the Securities and Exchange Commission on February 24, 2006.
==============================================================================
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PCS EDVENTURES!.COM, INC.
-------------------------
(Name of small business issuer in its charter)
Idaho 8200 82-0475383
----- ---- ----------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
345 Bobwhite Court, Suite 200
Boise, Idaho 83706
(208) 343-3110
--------------
(Address and telephone number of principal executive offices)
345 Bobwhite Court, Suite 200
Boise, Idaho 83706
------------------
(Address of principal place of business
or intended principal place of business)
Anthony A. Maher
345 Bobwhite Court, Suite 200
Boise, Idaho 83706
(208) 343-3110
--------------
(Name, address and telephone number of agent for service)
Copies to:
Branden T. Burningham, Esq.
455 East 500 South, Suite 205
Salt Lake City, Utah 84111
(801) 363-7411
--------------
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If this Form is a post effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box: [ ]
==============================================================================
CALCULATION OF REGISTRATION FEE
Title of
Each Proposed Proposed
Class of Maximum Maximum
Securities Amount of Offering Aggregate Amount of
to be shares to be Price per Offering Registration
Registered Registered Share Price Fee
==============================================================================
Common Stock (1) 1,666,667 $0.60 $1,000,000 $ 126.70
Common Stock (2) 2,500,000 $1.20 $3,000,000 $ 380.10
Common Stock (3) 2,500,000 $1.80 $4,500,000 $ 570.15
TOTALS 6,666,667 $8,500,000 $1,076.95
==============================================================================
(1) Represents 100% of the shares issuable upon the conversion of a
convertible note having a principal amount of $1,000,000, convertible into
1,666,667 shares of our common stock at $0.60 per share.
(2) Represents shares issuable upon the exercise of warrants issued by us
having an exercise price of $1.20 per share as outlined in our warrant table
in the description of our securities.
(3) Represents shares issuable upon the exercise of warrants issued by us
having an exercise price of $1.80 per share as outlined in our warrant table
in the description of our securities.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
PROSPECTUS
PCS EDVENTURES!.COM, INC.
6,666,667 Shares of Common Stock Offered by One Selling Stockholder
This prospectus covers an aggregate of 6,666,667 shares of common stock
of PCS Edventures!.com, Inc., an Idaho corporation ("PCS," the "Company,"
"we," "our," "us" or words of similar import) that may be sold by Barron
Partners LP, a Delaware limited partnership (the "Selling Stockholder").
Our common stock is quoted on the OTC Bulletin Board of the NASD
under the symbol "PCSV." On February 23, 2006, the last sale price of our
common stock as quoted on the OTC Bulletin Board was $0.73.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE THE CAPTION "RISK
FACTORS," BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED ANY OF THESE SECURITIES OR PASSED UPON
THE ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is ____________, 2006.
1
TABLE OF CONTENTS
Prospectus Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Forward-Looking Information . . . . . . . . . . . . . . . . . . . . . . 10
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Determination of Offering Price and Dilution. . . . . . . . . . . . . . 10
Selling Security Holder . . . . . . . . . . . . . . . . . . . . . . . . 11
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . 13
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Directors, Executive Officers, Promoters and Control Persons . . . . . 15
Security Ownership of Certain Beneficial Owners and Management . . . . 18
Description of Securities . . . . . . . . . . . . . . . . . . . . . . . 19
Interest of Named Experts and Counsel . . . . . . . . . . . . . . . . . 21
Disclosure of Commission Position on Indemnification for Securities . . 22
Act Liabilities
Description of Business . . . . . . . . . . . . . . . . . . . . . . . 23
Management's Discussion and Analysis or Plan of Operation . . . . . . . 36
Certain Relationships and Related Transactions . . . . . . . . . . . . 39
Market for Common Equity and Related Stockholder Matters . . . . . . . 39
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . 41
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 44
Changes in and Disagreements with Accountants on Accounting and . . . . 46
Financial Disclosure
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . 46
2
PROSPECTUS SUMMARY
PCS EDVENTURES!.COM, INC.
-------------------------
The Company
-----------
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 schools
classroom, the after school market and home 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,
electrical engineering, math, science, and computer programming.
PCS Edventures!.com, Inc. has developed several innovative technology
based educational Programs directed to the kindergarten through K-12 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(Registered) 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 home usage
program. Our Edventures! Online(Trademarked) program is delivered to the home
user over the Internet on a monthly subscription basis. Separately, and in
combination, these seven products present a platform for delivering
educational services and support to classroom, learning center 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.
PCS LabMentors, LTD is a wholly owned subsidiary of PCS Edventures!.com,
Inc. that 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.
We have only commenced marketing efforts for our current products and
technologies during the last four years. We continue to expand distribution
and marketing channels. To date, PCS Edventures has sold approximately 2,500
Learning Labs to the US and international markets. In addition, the
LabMentors subsidiary has two major customers in the US that it continues to
service.
Our principal executive offices consist of approximately 5,400 square
feet of office space located at 345 Bobwhite Court, Suite 200, Boise, Idaho.
Our telephone number is (208) 343-3110. We also lease additional warehouse
space at 7646 Lemhi Street, Unit 13, Boise, Idaho 83709. This warehouse space
consists of approximately 1,400 square feet. The LabMentors subsidiary has
approximately 1,000 square feet of office space located at 634 Queen Street,
Suite 201, Fredericton, New Brunswick Canada.
The Offering
------------
Securities offered by us . . . .None.
Securities that may be sold
by our stockholders . . . . . . 6,666,667 shares of our common stock.
Use of proceeds . . . . . . . . We will not receive any money from the
Selling Stockholder when it sells shares of
our common stock; however, we may receive up
to $7,500,000 from the exercise of
outstanding warrants to acquire shares
underlying warrants that are being registered.
As of the date of this prospectus, none of
these warrants has been exercised.
Offering Price . . . . . . . . .Market prices prevailing at the time of sale,
at prices related to the prevailing market
prices, at negotiated prices or at fixed
prices, all of which may change.
Transfer Agent . . . . . . . . .Interwest Transfer Company, 1981 East Murray-
Holladay Road, Salt Lake City, Utah 84117,
Telephone No. 801-272-9294, serves as the
transfer agent and registrar for our
outstanding securities.
3
We have agreed to pay all costs and expenses relating to the registration
of our common stock. The Selling Stockholder will only be responsible for
any commissions, taxes, attorney's fees, and other charges relating to the
offer or sale of these securities. The Selling Stockholder may sell its
common stock through one or more brokers/dealers, and these brokers/dealers
may receive customary compensation in the form of underwriting discounts,
concessions or commissions from the Selling Stockholder as they shall agree.
RISK FACTORS
------------
You should carefully read our entire prospectus and consolidated
financial statements and related notes.
Our present and intended business operations are highly speculative and
involve substantial risks. Only investors who can bear the risk of losing
their entire investment should consider buying our shares. Among the risk
factors that you should consider are the following:
We Face Risks Related to Our Business
-------------------------------------
We have a limited operating history in our current line of business.
--------------------------------------------------------------------
We have only commenced marketing efforts for our current products and
technologies during the last four years and more recently our PCS LabMentors
product lines in 2006. We are at an early stage of market development and
must be evaluated in light of the uncertainties and complications present in a
development stage company. The likelihood of our success must be considered in
light of the problems, expenses, difficulties, complications, and delays, many
of which are beyond our control, frequently encountered with the development
of new products and services, the utilization of new technology, and the
competitive educational software environment in which we operate.
We have incurred significant operating losses and there is no assurance
that we will be profitable in the future.
-----------------------------------------
We have incurred significant operating losses since our inception. For
the fiscal year ended March 31, 2005, our net loss was $938,632. At March 31,
2005, our accumulated deficit was more than $24,662,568. Similarly, our net
loss for the nine months ended December 31, 2005, was $585,762, and our
accumulated deficit as of that date was $25,248,330. There can be no
assurance that we will be able to achieve or sustain profitability in the
development, commercialization, manufacturing or marketing of our products and
services.
Our auditor's "going concern" opinion highlights the risk that we may not
be able to continue in business.
--------------------------------
The Independent Auditor's Report for our audited financial statements for
the fiscal years ended March 31, 2005, and 2004, expresses "substantial doubt
about [our] ability to continue as a going concern," due to our recurring
losses from operations and our working capital deficit. The financial
statements do not include any adjustments that might result from the outcome
of these uncertainties.
4
We will likely need additional financing in order to fully implement our
business plan.
--------------
To date, we have had insufficient revenues to satisfy our ongoing
expenses of operation and we have been funded primarily by the sale of our
securities in private transactions. Due to our history of losses, we cannot
assure you that we will ever be profitable. If we do not become profitable or
obtain additional financing, we will be unable to continue our current level
of operations and fully implement our growth objectives. As a result, we
cannot assure you we will have adequate capital to implement our business plan
and to maintain our current level of operation. Our failure to obtain
sufficient additional financing could result in the delay or abandonment of
some or all of our operations, which could have a negative effect on us and on
the value of our common stock.
We need to build public awareness of our product lines.
------------------------------------------------------
Our efforts to develop widespread PCS name, products, and brand
recognition are likely to be expensive and may fail. The development of our
PCS name, product lines, and brand recognition is important to our future
success. If we fail to develop sufficient name, product lines, and brand
recognition, our ability to attract subscription revenue may be impaired, and
our revenue will suffer. In addition, our business and future revenue growth
will suffer if we fail to retain and grow our user base, generate frequent and
recurring usage by our users, or demonstrate that our users are actually using
our service.
We need to increase our customer base.
--------------------------------------
The success of our business will depend on our ability to add users and
to demonstrate that our users are using the PCS network on a regular basis.
Our ability to grow our user base depends largely on our ability to deploy our
network to additional schools and to extend our network to home users. If we
are unable to rapidly deploy our network to a large number of additional
schools, we will not be able to grow our core school user base, and our
ability to generate revenue and implement our strategy will be severely
limited. Our ability to grow our user base also depends on our success with
the development and implementation of programs designed to help schools
encourage their students to register. We must also encourage our users to use
our service regularly and for long periods of time. PCS has developed
programs and features to encourage this type of use of our network; however,
these programs could fail, in whole or in part.
Educational budget constraints could limit our sales in the future.
-------------------------------------------------------------------
Our products and services require an investment in hardware, computer
hardware and software, and Internet access at a time when many schools and
school districts are facing increased budget constraints. If these
constraints persuade our potential customers to rely on more traditional and
less expensive teaching methods, sales of our products may suffer.
5
Our operations may be affected by the vagaries of foreign markets.
------------------------------------------------------------------
A substantial portion of our marketing efforts focuses on the development
of overseas markets, including several in the Middle East. Our international
success will depend on the continued political and economic stability of these
countries and the strength of their currencies. Civil unrest, economic
recession or depression, currency devaluation, rampant inflation, or general
political upheaval could significantly impair our internationals sales
efforts. Nor will we be able to control foreign governments' or regulatory
authorities' imposition of new or increased taxes or tariffs on American
imports in general or our products in particular.
If we fail to manage the growth of our operations, our business could be
harmed and it could strain our managerial, operational, and financial
resources.
----------
We have rapidly and significantly expanded our operations, namely the
expanded product lines and recent PCS LabMentors, LTD. acquisition. We
anticipate that further significant expansion will be required to grow our
user base in order to be successful in implementing our business strategy. We
may not be able to implement management information and control systems in an
efficient and timely manner, and our current or planned personnel, systems,
procedures, and controls may not be adequate to support our future operations.
If we are unable to manage growth effectively, our business would suffer.
However, we are currently working to mitigate any potential thereof.
Our business may be hurt by rapid changes in technology if we don't stay
current.
--------
The industry in which we operate is characterized by rapid technological
changes. The recent growth of the Internet and intense competition in our
industry exacerbate these market characteristics. Our future success will
depend on our ability to adapt to rapidly changing technologies by continually
improving the performance, features, and reliability of our networks and
Learning Labs. New products through research and development are expected to
continue at a rapid pace in both industry and academia. Many companies with
substantially greater resources than we have are engaged in the development of
products and services to provide content and solutions and to address issues
in education. Commercial availability of such products and services could
render our products and services obsolete and could seriously damage our
business, financial condition, and results of operations.
We face significant competition from other companies.
-----------------------------------------------------
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, which may
result in our products and services becoming less competitive. We are aware
of several development stage and established enterprises that 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 higher quality and more cost
effective, our business could be damaged.
6
Our success depends on our hiring additional key employees in the future.
-------------------------------------------------------------------------
As our business grows, we will be required to hire additional employees
as programmers, designers, support staff, and salespersons. We will face
competition for hiring such personnel from other companies, research and
academic institutions, government entities and other organizations. We may not
be able to attract and retain the necessary personnel to accomplish our
business objectives, and we may experience constraints that will adversely
affect our ability to deploy the PCS products in a timely fashion or to
support our users and operations. Because of our limited product sales,
capital, and revenues, we have experienced, and continue to experience,
difficulty in recruiting qualified personnel. Recruiting qualified personnel
is an intensely competitive and time-consuming process. There can be no
assurance that we will be successful in hiring or retaining the personnel it
requires for operating its business.
Our success depends on us developing and maintaining collaborative
relationships.
--------------
Our strategy for the development and commercialization of certain of our
products and services includes entering into various collaborations with
corporate partners, licensors, licensees, and others. We may not be able to
negotiate successful collaborative arrangements in the future on acceptable
terms, if at all.
Our network is relatively new and we may need to develop tools to attract
subscribers and partners.
-------------------------
It is important to our customers that we accurately measure the user base
demographics and subscription delivery on our network and use of our Learning
Labs. We are currently implementing systems designed to leverage non-
personally identifying demographic data about our users, including age,
gender, and school location by zip code, in such a way as to permit sponsors
to address their intended market segment. This effort may be complicated by
the remote nature of the Learning Labs and online subscribers in which this
information is generated and recorded before being transmitted back to our
network operations center. If we fail to implement these systems successfully,
we may not be able to accurately evaluate the demographic characteristics of
our users. Companies may choose not to sponsor our network or may pay less for
subscriptions if they perceive our measurements to be unreliable.
Our operations could be harmed if our intellectual property rights are
not adequately protected.
-------------------------
We rely on a combination of trademark, copyright, and trade secret laws,
as well as contractual restrictions, such as confidentiality agreements and
licenses, to establish and protect our proprietary rights. Our ability to
compete and grow our business could suffer if these rights are not adequately
protected. Despite our precautionary measures, unauthorized third parties may
infringe on our intellectual property rights, which could harm our competitive
position and market share. Moreover, the laws of some foreign countries may
not protect proprietary rights to the same extent as do the laws of the United
States. Our means of protecting proprietary rights in the United States or
abroad may not be adequate and competitors may independently develop similar
technology.
7
In addition, our present or future products may be found to infringe upon
the intellectual property rights of others. If our products were found to
infringe on intellectual property rights of others, our development and sale
of such products could be severely restricted or prohibited. In such
eventuality, we would be required to obtain licenses to utilize such patents,
trademarks or proprietary rights of others, for which acceptable terms may be
unavailable. If we are not able to obtain such licenses, the development or
sale of products requiring such licenses could be materially and adversely
affected. In addition, we could incur substantial costs in defending against
challenges to our intellectual property and/or infringement claims made by
third parties or in enforcing any patents, copyrights or trademarks we may
obtain.
We face a higher risk of failure because we cannot accurately forecast
our future revenues and operating results.
------------------------------------------
Our short operating history and the rapidly changing nature of the market
in which we compete make it difficult to accurately forecast our revenues and
operating results. Furthermore, we expect our revenues and operating results
to fluctuate in the future due to a number of factors, including the
following:
* the timing of sales of our products and services;
* the timing of product implementation, particularly large
new projects;
* unexpected delays in introducing new products and services;
* increased expenses, whether related to sales and marketing,
product development, or administration; and
* costs related to possible acquisitions of technology or
businesses.
We anticipate that our sales will be slower during the summer months when
school is out.
--------------
We believe that in-school sales and e-commerce sales will be lower during
the summer, in late December and early January and during other school holiday
periods when most users of the products will be on vacation and away from
school. If our market makes the transition from an emerging to a more
developed market, these traditional seasonal and cyclical patterns would be
further exacerbate seasonality to which we are subject year. Seasonal and
cyclical patterns in online subscriptions and e-commerce in general may also
affect our revenue. Because our operating history is so limited, it is
difficult for us to accurately predict these trends and plan accordingly.
Since our operating expenses are based on future revenue performance, it is
possible that seasonal fluctuations could materially and adversely affect our
revenue and results of operations on a quarter-by-quarter basis.
If we lose our key personnel or are unable to hire additional personnel,
we will have trouble growing our business.
------------------------------------------
We depend to a large extent on the abilities of our key management and
technical personnel, in particular Anthony A. Maher, our President and Chief
Executive Officer. The loss of any key employee or our inability to attract
or retain other qualified employees could seriously impair our results of
operations and financial condition.
8
Our future success depends on our ability to attract, retain and motivate
highly skilled technical, marketing, management, accounting, and
administrative personnel. We plan to hire additional personnel in all areas
of our business. Competition for qualified personnel is intense. As a
result, we may be unable to attract, assimilate or retain qualified personnel.
We may also be unable to retain the employees that we currently employ or to
attract additional technical personnel. The failure to retain and attract the
necessary personnel could seriously harm our business, financial condition and
results of operations.
There Are Substantial Risks Related to Our Common Stock
-------------------------------------------------------
Due to the instability in our common stock price, you may not be able to
sell your shares at a profit.
-----------------------------
The public market for our common stock is limited and volatile. As with
the market for many other companies in new and emerging industries, any market
price for our shares is likely to continue to be very volatile. In addition,
the other risk factors disclosed in this prospectus may significantly affect
our stock price. The historical volatility of our stock price may make it
more difficult for you to resell shares when you want at prices you find
attractive.
In addition, the stock market in general and the market for technology
companies in particular, have experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to the
operating performance of these companies. These broad market and industry
factors may reduce our stock price, regardless of our operating performance.
Because our common stock is "penny stock," you may have greater difficulty
selling your shares.
--------------------
Our common stock is "penny stock" as defined in Rule 3a51-1 of the
Securities and Exchange Commission. Section 15(g) of the Exchange Act and
Rule 15g-2 of the Securities and Exchange Commission require brokers/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. In addition, 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. Compliance with these requirements may make it
harder for our Selling Stockholder and other stockholders to resell their
shares. For more information about "penny stocks," see the heading "Penny
Stock" under the caption "Description of Securities."
The sale of already outstanding shares of our common stock could hurt our
common stock market price.
--------------------------
The number of our shares available for resale in the public market may
exceed the number of shares that purchasers wish to buy. This imbalance may
place downward pressure on our stock price.
9
Approximately 14,853,759 shares of our common stock are presently
eligible to be publicly traded. This number will be increased by the
5,000,000 shares underlying the warrants, and the 1,666,667 shares that are
issuable upon conversion of our convertible note, which may be offered by this
prospectus. This potential increase in the number of shares that may be
available for public trading from 14,853,759 shares to 21,520,426 shares may
dramatically reduce the price of our common stock on the basis of supply and
demand alone. In addition, a significant number of our other currently
outstanding shares are eligible for public resale under Rule 144 of the
Securities and Exchange Commission, and sales of these shares may also place
downward pressure on our stock price.
FORWARD-LOOKING INFORMATION
---------------------------
This prospectus contains forward-looking statements. These statements
can be identified by the use of the forward-looking words "anticipate,"
"estimate," "project," "likely," "believe," "intend," "expect" or similar
words. These statements discuss future expectations, contain projections
regarding future developments, operations or financial conditions, or state
other forward-looking information. When considering such forward-looking
statements, you should keep in mind the risk factors noted in this section and
other cautionary statements throughout this prospectus and any prospectus
supplement. You should also keep in mind that all forward-looking statements
are based on management's existing beliefs about present and future events
outside of management's control and on assumptions that may prove to be
incorrect. If one or more risks identified in this prospectus, a prospectus
supplement, or any applicable filings materializes, or any other underlying
assumptions prove incorrect, PCS' actual results may vary materially from
those anticipated, estimated, projected or intended.
USE OF PROCEEDS
---------------
We will not receive any part of the proceeds from sale of our common
stock. However, we will receive $7,500,000 if all of the warrants referenced
herein are exercised. As of the date of this prospectus, none of the warrants
had been exercised. Our Class A Warrants, of which 2,500,000 are outstanding,
are exercisable at a price of $1.20 per share. Our Class B Warrants, of which
2,500,000 are outstanding, are exercisable at a price of $1.80 per share. As
of January 23, 2006, the bid price of our common stock was $0.71 per share.
As of that date, our stock price was less than the exercise price of all of
our Class A Warrants and all of our Class B Warrants. For a detailed
description of our outstanding warrants, see the Warrant Table under the
caption "Description of Securities."
DETERMINATION OF OFFERING PRICE AND DILUTION
--------------------------------------------
We will not receive any money from the Selling Stockholder when it sells
its shares of common stock, although we will receive funds from any exercise
of the warrants. The Selling Stockholder may sell all or any part of its
shares in private transactions or in the over-the-counter market at prices
related to the prevailing prices of our common stock at the time of
negotiation. Because we cannot accurately predict the prices of these sales,
we cannot accurately estimate the amount of any dilution that may result from
the purchase price of any of these shares. Dilution is the difference between
the price paid for the shares and our net tangible book value. The net
tangible book value of our common stock on December 31, 2005, was $(935,159)
or $(0.031)per share, based upon 30,540,212 outstanding shares. Net tangible
book value per share is determined by subtracting our total liabilities from
our total tangible assets and dividing the remainder by the number of shares
of common stock outstanding. These computations do not include the estimated
10
expenses of this offering of approximately $40,000. The offer and sale by the
Selling Stockholder of shares issuable upon conversion of our convertible
note, or of those shares underlying the Class A Warrants and/or the Class B
Warrants, will not affect the net tangible book value of our common stock,
excluding computations taking into account the issuance of the shares
underlying the convertible note and/or the warrants and any reduction in our
outstanding debt in connection with the conversion of the convertible note and
the payment for the exercise of the warrants.
We cannot assure you that any public market for our common stock will
equal or exceed the sales prices of the shares of common stock that our
stockholders sell. Purchasers of our shares face the risk that their shares
will not be worth what they paid for them.
SELLING SECURITY HOLDER
-----------------------
On January 3, 2006, we closed a Note Purchase Agreement by which Barron
Partners LP, a Delaware limited partnership (the "Selling Stockholder")
purchased:
* a Convertible Promissory Note (the "Note") in the principal amount of
$1,000,000, convertible into a total of 1,666,667 shares of our common
stock at a price of $0.60 per share. Upon filing of a Certificate of
Designations of Preferences, Rights and Limitations of our class of
preferred stock with the Secretary of State of Idaho, the Note shall be
convertible only into 1,666,667 shares of preferred stock, at a price
of $0.60 per share. As of January 23, 2006, we have not filed any
Certificate of Designations. The Note is payable on September 30,
2006, subject to automatic extension on a month-by-month basis. The
Note does not bear any interest.
* a Common Stock Purchase Warrant "A" (the "Class A Warrant") entitling
the Selling Stockholder to purchase up to 2,500,000 shares of our
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 our 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 our failure to meet certain EBITDA
(i.e., earnings before interest, tax, depreciation and amortization)
targets during the period of exercisability. We may call the Class A
Warrant if the closing market price of our 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 our 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 our 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 the closing date of this transaction, the Note had not been
converted and neither of the warrants had been exercised, in whole or in part.
11
Not later than 45 days after the closing date of the Note Purchase
Agreement, we are required to file a registration statement registering all
shares issuable upon conversion of the Note and the warrants. We must use our
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 45-day and/or 150-day deadlines
have 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, we are to issue to the Selling Stockholder liquidated
damages equal to 548 shares of common stock.
The following table shows the following information about the selling
stockholder:
* the number of shares of our common stock that the Selling
Stockholder beneficially owned as of the business day
immediately prior to the filing of our registration statement;
* the number of shares covered by this prospectus; and
* the number of shares to be retained after this offering, if
any.
All figures in this table assume the issuance of all shares issuable upon
conversion of the Note and all shares issuable upon conversion of the
warrants.
Common Stock (1)
----------------
Number and Number and
Percentage of Percentage of
Outstanding Shares Number of Shares Outstanding Shares
Name of Selling Owned Prior to Registered in Beneficially Owned
Stockholder (2) the Offering the Offering after the Offering
----------- ------------ ------------ ------------------
Barron Partners LP 6,666,667 - 6,666,667 (3) -0- (4)
18.5% (3)(4)
(1) We assume no purchase in this offering by the Selling Stockholder of
any shares of our common stock.
(2) No director, advisory director, executive officer or any associate of
any director, advisory director or executive officer has any interest, direct
or indirect, by security holdings or otherwise, in the Selling Stockholder.
Andrew Worden has investment power with respect to this entity.
(3) Includes the following shares issuable upon conversion of the Note
and the shares underlying warrants that are described in the warrant table in
our description of our securities, and assumes that the note is fully
converted and that all warrants are exercised and all common stock owned or
received on the conversion of the note and the exercise of the warrants are
sold:
12
1,666,667 shares issuable upon full conversion of Note; 2,500,000 shares
issuable upon exercise of all Class A Warrants; and 2,500,000 shares issuable
upon exercise of all Class B Warrants.
The Note is convertible at $0.60 per share; the Class A Warrants are
exercisable at a price of $1.20 per share; and the Class B Warrants are
exercisable at a price of $1.80 per share.
(4) Under the Note Purchase Agreement, the Note and the warrants, the
Selling Stockholder may not convert any portion of the Note or exercise any
portion of a warrant if such conversion or exercise would result in its being
the beneficial owner of more than 4.9% of PCS' outstanding shares of common
stock.
PLAN OF DISTRIBUTION
--------------------
We are registering the shares of our common stock covered by this
prospectus.
We will pay the costs, expenses and fees of registering our common stock.
The Selling Stockholder will be responsible for any commissions, taxes,
attorney's fees and other charges that it may incur in the offer or sale of
these securities.
The Selling Stockholder may sell our common stock at market prices
prevailing at the time of the sale, at prices related to the prevailing market
prices, at negotiated prices or at fixed prices, any of which may change. It
may sell some or all of its common stock through:
* ordinary broker's transactions, which may include long or
short sales;
* purchases by brokers, dealers or underwriters as principal and
resale by those purchasers for their own accounts under this
prospectus;
* market makers or into an existing market for our common stock;
* transactions in options, swaps or other derivatives; or
* any combination of the selling options described in this
prospectus, or by any other legally available means.
In addition, the Selling Stockholder may enter into hedging transactions
with broker/dealers, who may engage in short sales of our common stock in the
course of hedging the positions they assume. Finally, they may enter into
options or other transactions with broker/dealers that require the delivery of
our common stock to those broker/dealers. Subsequently, the shares may be
resold under this prospectus.
In its selling activities, the Selling Stockholder will have to comply
with applicable provisions of the Securities Exchange Act of 1934, and its
rules and regulations, including Regulation M. The Exchange Act and these
rules and regulations may limit the timing of purchases and sales of our
common stock by the Selling Stockholder.
13
The Selling Stockholder and any brokers/dealers involved in the sale or
resale of our common stock may qualify as underwriters within the meaning of
Section 2(11) of the Securities Act. In addition, the brokers/dealers'
commissions, discounts or concessions may qualify as underwriters'
compensation under the Exchange Act. If any broker/dealer or the Selling
Stockholder qualifies as an underwriter, it will have to deliver our
prospectus as required by Rule 154 of the Securities and Exchange Commission.
In addition, any broker/dealer that participates in a distribution of these
shares will not be able to bid for, purchase or attempt to induce any person
to bid for or purchase any of these shares as long as the broker/dealer is
participating in the distribution. The ability of participating
brokers/dealers to stabilize the price of our shares will also be restricted.
If the Selling Stockholder sells our shares to or through brokers,
dealers or agents, it may agree to indemnify these brokers, dealers or agents
against liabilities arising under the Securities Act or the Exchange Act. We
do not know of any existing arrangements between the Selling Stockholder and
any other stockholder, broker, dealer, underwriter or agent relating to the
sale or distribution of our common stock.
In addition to selling their common stock under this prospectus, the
Selling Stockholder may:
* transfer its common stock in other ways not involving market
makers or established trading markets, including by gift,
distribution or other transfer; or
* sell its common stock under Rule 144 of the Securities and
Exchange Commission, if the transaction meets the requirements
of Rule 144.
We have advised the Selling Stockholder that during the time it is
engaged in the distribution of our common stock that it owns, it must comply
with Rule 10b-5 and Regulation M promulgated by the Securities and Exchange
Commission under the Exchange Act. It must do all of the following under this
Rule and Regulation:
* not engage in any stabilization activity in connection with
our common stock;
* furnish each broker who may be offering our common stock on
its behalf the number of copies of this prospectus required
by each broker;
* not bid for or purchase any of our common stock or attempt to
induce any person to purchase any of our common stock, other
than as permitted under the Exchange Act;
* not use any device to defraud;
* not make any untrue statement of material fact or fail to
state any material fact; and
* not engage in any act that would operate as a fraud or deceit
upon any person in connection with the purchase or sale of our
shares.
To the extent that the Selling Stockholder may be an affiliated purchaser
as defined in Regulation M, it has been further advised of the requirements of
Rule 10b-1, and that it must coordinate its sales under this prospectus with
us for the purposes of Regulation M.
14
To the extent required by the Securities Act, a supplemental prospectus
will be filed, disclosing:
* the name of any broker/dealers;
* the number of securities involved;
* the price at which the securities are to be sold;
* the commissions paid or discounts or concessions allowed to
the broker/dealers, where applicable;
* that the broker/dealers did not conduct any investigation to
verify the information set out in this prospectus, as
supplemented; and
* other facts material to the transaction.
There is no guarantee that the Selling Stockholder will sell any of our
common stock.
LEGAL PROCEEDINGS
-----------------
PCS is not involved in any legal or administrative proceedings or claims
of any type. We have no material pending legal or administrative proceedings,
to which we or any of our subsidiaries are a party or of which any property is
the subject. While any proceeding or claim contains an element of
uncertainty, management does not expect that any such proceeding or claim will
have a material adverse effect on our results of operations or financial
position.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
------------------------------------------------------------
The following table sets forth the names of all of our current directors
and executive officers. These persons will serve until the next annual
meeting of our stockholders or until their successors are elected or appointed
and qualified, or their prior resignations or terminations.
Directors and Executive Officers.
---------------------------------
The following table sets forth the name, address, age and position of
each officer and director of PCS:
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 57 Secretary, Director
Cecil D. Andrus 77 Director
Michael K. McMurray 60 Director
15
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.
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 a director and the Secretary of PCS.
Mr. Farley is a founding partner of the law firm of Hall, Farley, Oberrecht &
Blanton, P.A. and currently serves as its managing partner. 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
and 9th Circuit Court of Appeals. 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. Former Idaho State Governor Andrus joined the PCS Board
of Directors in November 1995. Following his retirement from public service
in January 1995, Governor 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 also a director of Albertson's, KeyCorp, and The Gallatin
Group.
16
Michael K. McMurray. Mr. McMurray comes back 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.
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:
* was a general partner or executive officer of any business
against which any bankruptcy petition was filed, either at the
time of the bankruptcy or two years prior to that time;
* was convicted in a criminal proceeding or named subject to a
pending criminal proceeding, excluding traffic violations and
other minor offenses;
* was subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type
of business, securities or banking activities; or
* was found by a court of competent jurisdiction in a civil
action, the Commission or the Commodity Futures Trading
Commission to have violated a federal or state securities or
commodities law, and the judgment has not been reversed,
suspended or vacated.
17
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND 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 30,269,680 outstanding shares at January 16, 2006,
unless indicated otherwise:
DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------
Name and Address Percentage
of Beneficial Owner Shares Owned Owned
------------------- ------------ -----
Anthony A. Maher 2,735,276(1) 8.2%
345 Bobwhite Court, Suite 200,
Boise, Idaho 83706
Robert O. Grover 572,600(2) 1.7%
345 Bobwhite Court, Suite 200,
Boise, Idaho 83706
Donald J. Farley 1,723,046(3) 5.1%
345 Bobwhite Court, Suite 200,
Boise, Idaho 83706
Cecil D. Andrus 1,102,179(4) 3.3%
345 Bobwhite Court, Suite 200,
Boise, Idaho 83706
Michael K. McMurray 281,055(5) 0.8%
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 6,714,156 20.0%(7)
as a group (six persons)
(1) Based upon 30,981,616 shares of common stock issued and outstanding
as of February 23, 2006, including 711,936 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) 1,954,340 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) 711,936 shares which may be
issued upon the exercise of currently exercisable stock options.
(2) Based upon 30,619,680 shares of common stock issued and outstanding
as of February 23, 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 222,600 shares owned of record and
350,000 shares underlying currently exercisable options.
(3) Based upon 31,179,241 shares of common stock issued and outstanding
as of February 23, 2006, including 909,561 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 909,561 shares, which
may be issued upon the exercise of currently exercisable stock options.
(4) Based upon 30,550,735 shares of common stock issued and outstanding
as of February 23, 2006, including 418,411 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) 418,411
shares which may be issued upon the exercise of currently exercisable stock
options.
18
(5) Based upon 30,550,735 shares of common stock issued and outstanding
as of February 23, 2006, including 281,055 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 30,569,680 shares of common stock issued and outstanding
as of February 23, 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 33,240,643 shares of common stock issued and outstanding
as of February 23, 2006, including all 2,970,963 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.
DESCRIPTION OF SECURITIES
-------------------------
Common Stock.
-------------
We are authorized to issue 40,000,000 shares of common stock, no par
value per share. On February 23, 2006, there were 30,269,680 outstanding
shares of our common stock.
Holders of our common stock are entitled to one vote per share on all
matters submitted to a vote of stockholders and may not cumulate votes for the
election of directors. Common stock holders have the right to receive
dividends when, as, and if declared by the Board of Directors from funds
legally available therefore. Holders of common stock have no preemptive
rights and have no rights to convert their common stock into any other
securities.
In order to meet current and anticipated future commitments to issue our
common stock, we will need to increase the number of authorized common shares.
Our Board of Directors has not yet determined the amount of the increase.
However, we expect to submit a proposal in this regard to our stockholders at
our next annual stockholders meeting, scheduled to be held on August 10, 2006.
See the captions "Warrants" and "Stock Option Plans and Other Incentive
Compensation Plans."
Penny Stock
-----------
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
* 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.
19
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
broker/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 the Selling
Stockholder and other stockholders to resell their shares.
Registration Rights
-------------------
We have granted registration rights for all shares included in our
registration statement and offered for resale by this prospectus. In
accordance with our agreement with the Selling Stockholder, we were required
to file the registration statement on or before February 17, 2006, and the
registration statement must become effective on or before July 3, 2006, or
we will be liable to the Selling Stockholder as liquidated damages an
amount equal to 548 shares of common stock for each day that we are not in
compliance with these registration requirements.
Convertible Preferred Stock.
----------------------------
We have 10,000,000 shares of preferred stock authorized, none of which
are currently issued and outstanding. The preferred stock is designated as
Convertible Preferred Stock. Each share of Convertible Preferred Stock is
entitled to one vote on each matter submitted to a vote of stockholders. The
Convertible Preferred Stock does not have any cumulative voting rights or
preemptive rights. Holders of the Convertible Preferred Stock are entitled to
receive a 10 percent cumulative non-cash dividend per year. The Convertible
Preferred Stock is convertible into shares of our common stock at a price of
$0.25 per share. At conversion, the holders of our Convertible Preferred
Stock shall receive a discount of 20 percent off the price per share of our
common stock. We may convert all Convertible Preferred Stock into common
stock if the average bid price of the common stock is equal to or exceeds
$0.50 per share in any 30-day trading period. The Convertible Preferred Stock
has no liquidation preference.
20
Upon our filing of a Certificate of Designations with respect to our
preferred stock, the Selling Stockholder's Note will be convertible only into
preferred stock. The Certificate of Designations, which we expect to file
after our next annual stockholders' meeting, will designate a class of five
million shares of Series A Convertible Preferred Stock (the "Series A
Preferred Stock") without par value, dividend rights or voting rights. The
Certificate of Designations further provides that no dividends shall be
payable on our common stock while the Series A Preferred Stock is outstanding.
Upon liquidation of PCS, the holders of the Series A Preferred Stock shall be
entitled to receive out of the assets of the Company $0.60 per share before
any payment to the holders of our common stock. Subject to adjustment in the
event that we do not reach an EBITDA target of $4.5 million for the fiscal
year ended March 31, 2007, each share of Series A Preferred Stock shall be
convertible, at the option of the holder, into one share of our common stock.
As with our common stock, we will need to increase the authorized number
of preferred shares by an as yet undetermined amount. We expect to submit
such a proposal at our next annual stockholders' meeting.
Warrants.
---------
Warrant Table
-------------
The following is a description of our outstanding warrants:
Per Share
Date of Number of Exercise
Holder Grant Term Shares Price
------ ----- ---- ------ -----
Barron Partners LP 12-29-05 Four years 2,500,000(1) $1.20
Barron Partners LP 12-29-05 Four years 2,500,000(1) $1.80
JG Capital, Inc. 2-20-06 Two years 50,000 $0.60
(1) These shares are among the shares that may be offered and sold
pursuant to the registration statement of which this prospectus is a part.
INTEREST OF NAMED EXPERTS AND COUNSEL
-------------------------------------
We have included our financial statements as of March 31, 2005, and
2004, in reliance on the report of HJ & Associates, LLC of Salt Lake City,
Utah, independent certified public accountants. HJ & Associates, LLC has no
interest, direct or indirect, in our company.
Leonard W. Burningham, Esq. and Branden T. Burningham, Esq., lawyers,
of Salt Lake City, Utah, are co-counsel for our company. Leonard W.
Burningham, Esq., is the beneficial owner of 125,000 "unregistered" and
"restricted" shares of our common stock. Branden T. Burningham, Esq., has no
interest, direct or indirect, in our company. Messrs. Burningham and
Burningham have prepared the registration statement and this prospectus and
will provide any legal opinions required with respect to any related matter.
We have not hired any expert or counsel on a contingent basis. Except as
indicated above, no expert or counsel will receive a direct or indirect
interest in our company, and no such person was a promoter, underwriter,
voting trustee, director, officer or employee of our company.
21
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
-----------
Section 30-1-851(1) of the Idaho Business Corporation Act (the "Idaho
Act") authorizes an Idaho corporation to indemnify any director against
liability incurred in any proceeding if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was
unlawful. Section 30-1-851(2) of the Idaho Act also permits indemnification
of a director who engaged in conduct for which broader indemnification has
been made permissible or obligatory under the corporation's articles of
incorporation.
Unless ordered by a court, Section 30-1-851(4) of the Idaho Act prohibits
a corporation from indemnifying a director in connection with a proceeding by
or in the right of the corporation, except for reasonable expenses incurred in
connection with the proceeding if it is determined that the director has met
the standard of conduct under Section 30-1-851(1). Nor may a corporation
indemnify the director in connection with any proceeding with respect to
conduct for which he or she was adjudged liable on the basis that he or she
received a financial benefit to which he or she was not entitled, whether or
not involving action in his or her official capacity.
Under Section 30-1-852 of the Idaho Act, a corporation shall indemnify a
director who was wholly successful, on the merits or otherwise, in the defense
of any proceeding to which he or she was a party because he or she was a
director of the corporation against reasonable expenses incurred by him or her
in connection with the proceeding.
We have not entered into any written indemnification agreements with our
officers, directors or employees. However, our bylaws provide for
indemnification in certain situations. Article V of our bylaws reads as
follows:
To the fullest extent permitted by law, this corporation shall indemnify
any person and to advance expenses incurred or to be incurred by such
person in defending a civil, criminal, administrative or investigative
action, suit or proceeding threatened or commenced by reason of the fact
said person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise. Any such indemnification or
advancement of expenses shall not be deemed exclusive of any other rights
to which such person may be entitled under any bylaw, agreement, vote of
shareholders or disinterested directors or otherwise, both as to action
in such person's official capacity and as to action in another capacity
while holding such office. Any indemnification or advancement of expenses
so granted or paid by the corporation shall, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to be
a director, officer, employee or agent and shall inure to the benefit of
the heirs and personal representative of such a person.
As to indemnification for liabilities arising under the Securities Act of
1933 for directors, officers or persons controlling PCS, we have been informed
that in the opinion of the Securities and Exchange Commission this
indemnification is against public policy and unenforceable.
22
DESCRIPTION OF BUSINESS
-----------------------
Business Development.
---------------------
PCS was incorporated in 1994 in the State of Idaho. In October 1994, we
acquired PCS Schools, Inc. ("PCS Schools") as a wholly owned subsidiary and in
December 2005 PCS LabMentors, LTD as a wholly owned subsidiary based in
Fredericton, New Brunswick Canada.
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 had created and became the exclusive provider of a proprietary
virtual lab technology designed to provide hands-on experience to students
studying a variety of technical topics including programming, network
management, security, and operating systems. LabMentors' technology provides
students with the ability to manage and configure any hardware/software
platform remotely by accessing a 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, Linux
system administration, and more without the associated overhead of owning and
managing various hardware platforms.
Business.
---------
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 schools
classroom, the after school market and home 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,
electrical engineering, math, science, and computer programming.
PCS Edventures!.com, Inc. has developed several innovative technology
based educational Programs directed to the kindergarten through K-12 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(Registered) 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 home usage
program. Our Edventures! Online(Trademarked) program is delivered to the home
user over the Internet on a monthly subscription basis. Separately, and in
combination, these seven products present a platform for delivering
educational services and support to classroom, learning center 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.
23
PCS LabMentors, LTD is a wholly owned subsidiary of PCS Edventures!.com,
Inc. that 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.
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.
Fiscal Year Ended March 31, 2005.
---------------------------------
The following are the material business developments during fiscal 2005:
* Opened discussions with several target companies for possible
merger and acquisition activities;
* Sold an additional 300 Labs to Edison Schools;
* Continued to investigate using parts of our Learning Labs to
create a line of specialty retail learning toys;
* Expanded our 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;
* Developed a strategic alliance with Gibson TechEd, 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, Saudi Arabia and the AOE and sold
and installed Learning Labs in each country;
24
* Began to develop relationships with the World Bank and USAID for
the purpose of being included in several RFP's in the Middle
East;
* 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;
* Continued to expand our building brick supplier choices and
Reduced our reliance on our former supplier.
Nine Months Ended December 31, 2005.
------------------------------------
The following are our material business developments during the nine
months ended December 31, 2005:
* Launched the new PCS BrickLab(Registered) for Kindergarten
curriculum;
* Sold and installed suites of Learning Labs in various locations
around the world, including Abu Dhabi; Portugal; Saudi Arabia;
Texas; Chicago; and New York;
* Entered into a formal strategic alliance and partnership with
Foundations, Inc., of Moorestown, New Jersey, involving the
licensing of Foundations, Inc., core curriculum products and
their quality assessment system for a World Bank-funded project
involving PCS in the Middle East;
* Completed the first deployment of our new Professional
Development series in Science for elementary school teachers at
the new Fairview Magnet School in Texarkana, Arkansas;
* Began offering expanded BrickLab@Home and Edventures!Online
packages;
* Created a catalog of its own product offerings along with over
20,000 other education-related products such as school supplies,
books, software and furniture;
* Attended the 21st CCLC 2005 National Summer Institute in Chicago;
* Received a $305,000 order for its Academy of Engineering Labs
with the Detroit Public School After-School System, the largest
single order for this particular lab unit since its introduction;
* Our Chairman, President and Chief Executive Officer, Anthony A.
Maher, served as a panelist and spoke at the 2005 Frontiers in
Education Conference held in Indianapolis in October;
* Expanded and improved our internal IT systems with the
implementation of Asynchronous JavaScript Variables and the
enabling of mobile delivery of educational content, fulfillment
services and sales force data.
25
In addition, on December 5, 2005, we completed our acquisition of 511092
N.B. LTD., a Canadian corporation doing business as "LabMentors." After the
acquisition, the name was changed to PCS LabMentors, LTD. LabMentors
currently sells web-based educational products to two primary customers in the
United States, namely Course Technology and DeVry. 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. Through the acquisition of LabMentors, we acquired all of its
assets, namely current inventory of learning programs, intellectual property
comprising the delivery platform, one pending Canadian trademark application,
one Canadian copyright, and accounts receivable, as well as the liabilities,
namely trade payables and deposits payable comprising of one deposit payable
due December 2005. All outstanding LabMentors shares were exchanged for
"unregistered" and "restricted" shares of our common stock.
Principle Products or Services and their Markets.
-------------------------------------------------
We have now developed and are currently marketing several innovative
technology based educational programs for the kindergarten through 14th grade
("K-14") after-school market, learning center market, and home 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.
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 four books from the mechanical
engineering strand and 12 extension books covering a variety of topics.
Future topic strands for expanding the program include structural, electrical,
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, and 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 40 Academy of
Engineering(Trademarked) Labs during the current fiscal year through January
31, 2006. Each site license includes all materials necessary to utilize the
complete Academy of Engineering(Trademarked) program.
26
The Academy of Robotics(Trademarked) Lab serves as a complement to
our Academy of Engineering(Trademarked) Lab or can also serve as a
stand-alonerobotics 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 29 Academy of Robotics(Trademarked) Labs during
current fiscal year.
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 20 Edventures! Labs during the current fiscal year.
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 10 Discover! Labs(Trademarked) during the
current fiscal year.
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. We have
sold 352 Brick Labs during the current fiscal year. 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 an excess of over 200 technological projects
relevant to the real world. For the fiscal year ended 2005, Grades 1 and 2
are available. Grades 3 and 4 are scheduled for completion this fiscal year,
and grades 5 and 6 for the following fiscal year. We sold 352 PCS
BrickLabs(Trademarked) during the current fiscal year.
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 25 Young Learner Building Boxes(Trademarked)
during the current fiscal year.
27
Edventures! Online(Trademarked) is an Internet delivered program
that provides a safe, secure, and exciting learning environment for students
to interact within from home and from 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.
The PCS Academy of Science(Trademarked). This series is a complete
science curriculum for grades K-12. The PCS Academy of Science(Trademarked)
labs are unique, hands-on science packages that combine curriculum and simple,
effective apparatus. The curriculum is aligned with National and State
science standards and do 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 individual 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.
28
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.
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.
29
We 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 this 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 as our primary market for our labs traditional public
and private schools and the after-school programs that are growing quickly
across the United States. 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.
K-12 Market in International and U.S. We have entered into a sales
agency agreement and product alliance relationship with Pitsco
LEGO(Registered) Dacta, a Pittsburgh, Kansas, based educational company that
holds the exclusive distribution rights to LEGO(Registered) Dacta product
sales in the United States. Pitsco, established in 1966, has established a
market presence and reputation in the school market place and now markets its
own line of modular school labs, as well as hundreds of other hands-on type
products. The Academy of Engineering(Trademarked) product complements the
Pitsco existing product line.
30
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 3,300 Boys & Girls Clubs nationwide.
Extended Learning Market. In addition to the Boys & Girls Clubs of
America, additional non-school-based programs are increasing through such
institutions as the YMCA, 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 include
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(Trademarked) 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.
Marketing and Other Agreements.
-------------------------------
Direct Sales Force. Currently, we have a direct sales force consisting
of five employees and several independent agency groups. This direct sales
force markets our products and programs in a variety of methods to various
users, providers, and others.
PCS Edventures! has reached a formal agreement with Science Demo, Ltd.,
an Israeli manufacturer and marketer of a premier line of compact Science
Demonstration Labs, for PCS to market the products in the US and Canada. This
agreement expands the products and services offered by PCS sales
representatives to include the core physical science market for K-12 schools
nationwide. A recent report released by the National Science Foundation
indicates that science and technology preparedness in US students is dropping
at an alarming rate and we are losing jobs and a leadership role to
international competitors. Solid, proven science activities fit within our
project based learning educational framework.
31
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 higher quality and more
cost effective, our business could be adversely affected.
Potential Competitive Advantages.
---------------------------------
We believe that we potentially 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 15 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.
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.
32
Sources and Availability of Raw Materials.
------------------------------------------
None, not applicable.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or
Labor Contracts.
----------------
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(Registered),
PCS Academy of Science(Trademarked), PCS Edventures!.com, Inc.(Registered),
WebLab(Trademarked), STEPS & Design(Trademarked), Young Learning, 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 use the mark in commerce.
Governmental Approval of Principal Products or Services.
--------------------------------------------------------
None, not applicable.
Effects of Existing or Probable Governmental Regulations.
---------------------------------------------------------
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 securities 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.
33
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.
Sarbanes-Oxley Act.
-------------------
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley
Act of 2002 (the "Sarbanes-Oxley Act"). The Sarbanes-Oxley Act imposes a wide
variety of new regulatory requirements on publicly-held companies and their
insiders. Many of these requirements will affect us. For example:
* Our chief executive officer and chief financial officer must
now certify the accuracy of all of our periodic reports that contain financial
statements;
* Our periodic reports must disclose our conclusions about the
effectiveness of our disclosure controls and procedures; and
* We may not make any loan to any director or executive officer
and we may not materially modify any existing loans.
The Sarbanes-Oxley Act has required us to review our current procedures
and policies to determine whether they comply with the Sarbanes-Oxley Act and
the new regulations promulgated thereunder. We will continue to monitor our
compliance with all future regulations that are adopted under the Sarbanes-
Oxley Act and will take whatever actions are necessary to ensure that we are
in compliance.
"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
* 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:
34
* 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.
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.
Cost and Effect of Compliance with Environmental Laws.
------------------------------------------------------
None, not applicable.
Research and Development Expenses.
----------------------------------
PCS Edventures! incurred no research and development expenses during the
last fiscal year due to a lack of funding. However, 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 for the HST to apply for these credits.
The Company is in the process of applying for such refundable tax credits for
the years ended May 31, 2004 and 2005. Because of the uncertainties
surrounding the application process and related qualifications no amounts
related to there possible credits have been recognized in the consolidated
financial statements.
35
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
Results of Operations.
----------------------
Results and Comparison for Fiscal Years.
----------------------------------------
Fiscal year ended March 31, 2005 resulted in a net loss of ($938,632).
This net loss is an increase of ($786,281) from the net loss for
fiscal year 2004 of ($152,351). The basic loss per share for fiscal year
2005 is ($0.04), as compared to a loss per share of ($0.01) for fiscal year
2004. Details of changes in revenues and expenses can be found below.
Revenues
Revenues of $1,468,671 for fiscal year 2005 were down from revenues of
$1,830,861 for fiscal year 2004, or $362,190, for a 20% decrease.
Revenues for our fourth quarter of our 2005 fiscal year were 10% higher
than revenues for the same period during last fiscal year, $496,672 and
$449,745, respectively. Revenues for the first three quarters decreased due
to a combination of a policy change in the fourth quarter of fiscal year 2004,
as well as a slight decrease in sales. We changed our policy to give our
customers more choice in their lab materials. Under the new policy, our
customers can choose where to purchase their lab materials (e.g.
LEGO(Registered) manipulatives) or they simply purchase the PCS curriculum,
customized furniture unit, and site license materials from us. There is no
effect on our gross profit as a result of our policy change as our revenues
are reduced by same amount as our cost of goods sold.
Cost of Goods Sold/Cost of Sales
Cost of goods sold increased $315 or 0.04%, from fiscal year 2004,
$679,009, to fiscal year 2005, $679,324. Costs of goods sold remained flat,
in spite of a decrease in sales. This is primarily due to increases in
shipping costs as well as the slight increase in sales during the fourth
quarter.
Operating Expenses
Operating expenses increased by $623,335, or 57%. Operating expenses
were $1,098,815 in fiscal year 2004 and $1,731,150 in fiscal year 2005. This
increase is primarily due to non-cash expenditures of $525,004 associated with
stock and options that were issued for services. The scope of said
consulting agreement includes advisement and consultation regarding
distribution strategies, evaluation of potential acquisition targets and the
structuring of any such transactions, and business development strategies,
including geographic and service expansion plans.
36
Excluding the non-cash expenditure mentioned above, operating expenses
for the fourth quarter of fiscal year 2005 increased 25%, or $101,022, from
$97,366 during the fourth quarter of fiscal year 2004 to $118,092 for the same
period during fiscal year 2005. This increase is mainly due to increased
copier repair expense, warehouse expense, and increased consulting and
marketing expenses.
Three months ended December 31, 2005, compared to three months ended
December 31, 2004.
------------------
Revenues for the three-month period ended December 31, 2005,
increased to $284,638 or by $30,477 (12.0%) as compared to $254,161 for the
three-month period ended December 31, 2004. This increase is due to
increased sales and marketing efforts throughout the country, as well as
increased international sales. In addition, the new subsidiary has
contributed to the slight increase.
Cost of goods sold for the three-month period ended December 31, 2005,
increased by $240,970 (211.6%) to $354,858 as compared to $113,888 for the
three-month period ended December 31, 2004. 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 royalty payments for our distribution
rights on the Academy of Science product line.
Operating expenses for the three-month period ended December 31, 2005,
increased by $182,190 (55.2%) to $512,125 as compared to $329,935 for the
three-month period ended December 31, 2004. This increase is primarily due
the Company experiencing an increase in legal and accounting expenses due
to the due diligence associated with acquisition activity. In addition, the
Company hired additional development personnel and had other increases from
the acquisition of LabMentors.
Interest expenses for the three-month period ended December 31, 2005,
decreased by $3,838 (-23.9%) to $12,209 as compared to $16,047 for the
three-month, period ended December 31, 2004. This decrease was due to partial
repayment of short term borrowing, and partially offset by the increase in
interest rates.
Nine months ended December 31, 2005, compared to nine months ended
December 31, 2004.
------------------
Revenues for the nine-month period ended December 31, 2005, increased to
$2,031,047 or by $1,059,049 (109.0%) as compared to $971,998 for the nine-
month period ended December 31, 2004. 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.
Cost of goods sold for the nine-month period ended December 31, 2005,
increased by $827,629 (214.1%) to $1,214,150 as compared to $386,521 for the
nine-month period ended December 31, 2004. 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 royalty payments for our distribution
rights on the Academy of Science product line.
37
Operating expenses for the nine-month period ended December 31, 2005,
decreased by $50,762 (-3.6%) to $1,375,022 as compared to $1,425,784 for the
nine-month period ended December 31, 2004. This decrease is primarily due the
non-recurring expense we booked during last year's period for non-cash
consulting expense of $322,442. The decrease in consulting expenses booked
were offset by increased legal and accounting expenses due to the due
diligence associated with acquisition activity, as well as the hiring of
additional personnel.
Interest expenses for the nine-month period ended December 31, 2005,
decreased $9,410 (-16.7%) to $47,087 as compared to $56,497 for the
nine-month period ended December 31, 2004. This decrease is due to our
efforts during the first quarter to convert debt to equity.
Liquidity and Capital Resources.
--------------------------------
Results and Comparison for Fiscal Years
As of the fiscal year ended March 31, 2005, we had $16,752 in cash, with
total current assets of $280,818 and total current liabilities of $1,037,487.
We had a stockholders' deficit of ($738,527) as of that date.
Nine Months Ended December 30, 2005
We had a consolidated cash balance of $54,093 at December 31, 2005.
Management believes that the cash received from delivered sales orders,
continued limited offerings of our common stock, and the subsequent events
noted in Note 4 to our unaudited financial statements for the nine months
ended December 31, 2005, will be sufficient to meet our operating expenses for
the foreseeable future.
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 regard to disclosure controls and
procedures are effective in timely alerting our Chief Executive Officer and
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.
38
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Transactions with Management and Others.
----------------------------------------
On May 15, 2003, we authorized and issued options to purchase 892,855
shares of common stock to Board members as payment of $45,000 in accrued
director fees. The intrinsic value of these options was $17,857, while the
difference, $27,143, was treated as contributed capital from extinguishment of
related party debt.
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 for 10 years. The issuance of these options resulted in $3,000 in non-
cash director expenses included in general and administrative expense.
During July 2004, we issued 250,000 shares of common stock to our Chief
Executive Officer 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.
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 prices ranging from $0.10-$0.23 per share. This payment
covered all directors fees incurred for the year ended March 31, 2004.
During October 2004, we issued 344,559 shares of common stock at $0.06
per share to our Chief Executive Officer for the non-cash reduction of related
party debt of $20,674.
During 2004, we issued 305,441 shares of common stock to our President 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 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 $48,828 of debt owed to
our President.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------
Market Information.
-------------------
There has never been any "established 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.
39
The range of high and low bid quotations for our common stock during
each quarter of our past two fiscal years and the first three quarters of our
2006 fiscal year, 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, 2003 $0.12 $0.065
September 30, 2003 $0.12 $0.07
December 31, 2003 $0.17 $0.09
March 31, 2004 $0.30 $0.10
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 $0.57
Holders.
--------
As of January 27, 2006, we had about 398 stockholders of record. This
figure does not include an indeterminate number of stockholders who may hold
their shares in street name.
Dividends.
----------
We have not paid any cash dividends since our inception and do not
anticipate or contemplate paying dividends in the foreseeable future. It is
the present intention of management to utilize all available funds for the
development of our business.
40
Securities Authorized For Issuance under Equity Compensation Plans.
-------------------------------------------------------------------
Equity Compensation Plan Category
---------------------------------
Number of
securities
remaining
available for
future
Number of
issuance under
securities to be equity compen-
issued upon sation plans
exercise of Weighted-average (excluding
outstanding exercise price of securities
options, warrants options, warrants reflected in
Plan category and rights and rights column (a))
(a) (b) (c)
------------------------------------------------------------------------------
Equity compensation
plans approved by
security holders -0- -0- -0-
Equity compensation
plans not approved
by security holders
Total
Use of Proceeds From the Sale of Registered Securities.
-------------------------------------------------------
None.
Purchases of Equity Securities.
-------------------------------
None.
EXECUTIVE COMPENSATION
----------------------
Cash Compensation.
------------------
The following table shows the aggregate compensation that we have paid to
directors and executive officers for services rendered during the periods
indicated:
41
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Secur-
ities All
Name and Year or Other Rest- Under- LTIP Other
Principal Period Salary Bonus Annual ricted lying Pay- Comp-
Position Ended ($) ($) Compen-Stock Options outs ensat'n
-----------------------------------------------------------------
Anthony A. 3/31/05 120,000 0 0 0 * 0 0
Maher 3/31/04 120,000 0 0 0 0 0 0
President 3/31/04 120,000 0 0 0 0 0 0
Director
Robert O,
Grover 12/31/05 110,000 5,000 0 0 0 0 0
* Mr. Maher was the only executive officer of PCS whose cash
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" for stock options granted to Mr. Maher and other members
of management during the two fiscal years ended March 31, 2005 and 2004. Mr.
Grover was given a Board approved salary increase in fiscal year 2006, which
increased his salary to $110,000 per year. In addition, he received $5,000
worth of free trading common stock as an added bonus.
Options Grants in Last Fiscal Year.
-----------------------------------
During the fiscal years ended March 31, 2005, 2004, and 2003, we granted
stock options to our directors and executive officers and others. These
options are described below under the heading "Stock Option Plans and Other
Incentive Compensation Plans."
Compensation of Directors.
--------------------------
Each fiscal year, the Board of Directors sets the dollar amount for the
compensation of outside directors for their services. This 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 each of our fiscal years ended March 31, 2005, 2004, and 2003,
the Board of Directors set this amount at $15,000 per year, with the exception
of Mr. Maher who is not compensated for his additional time served on the
Board.
Employment Agreements.
----------------------
We have no written employment agreements with our management. Currently,
we are paying our officers the following annual salaries: Anthony A. Maher -
$120,000; Robert O. Grover - $110,000; Christina Vaughn - $40,000, who is
currently employed part-time. We also provide medical and dental insurance
for our officers and other employees.
Stock Option Plans and Other Incentive Compensation Plans.
----------------------------------------------------------
On April 28, 2004, our Board of Directors adopted our 2004 Nonqualified
Stock Option Plan (the "Option Plan"). On the same date, we granted to Javan
Khazali an option to purchase up to six million shares of our common stock
under the Option Plan. Two million of these options were exercisable at a
price of $0.10 per share, expiring on June 28, 2004, and the remaining four
million shares were exercisable at $0.25 per share, expiring on August 28,
2004. As such, all six million of these options have since expired.
42
PCS has granted the following options to officers, directors, employees
and consultants through the end of the fiscal year ended March 31, 2005:
Number Date of Exercise Expiration
Option Holder Shares Grant Price Date
------------- ------ ----- ----- ----
Board Members* 1,000,000 6/03/02 $.16 6/03/12
Suzanne Haislip 50,000 7/01/02 $.16 1/01/06
Christina Vaughn* 50,000 7/01/02 $.16 1/01/06
William Albert 75,000 7/01/02 $.16 1/01/06
David Chase 35,000 7/01/02 $.16 1/01/06
Joe Egusquiza 15,000 7/01/02 $.16 1/01/06
Laura Baran 25,000 7/01/02 $.16 1/01/06
Robert O. Grover* 75,000 7/01/02 $.16 1/01/06
Nic Perner 5,000 8/15/02 $.16 2/15/06
Donald J. Farley* 166,666 10/21/02 $.09 10/21/12
Cecil Andrus* 166,666 10/21/02 $.09 10/21/12
Donald J. Farley* 214,285 5/15/03 $.07 5/15/13
Cecil Andrus* 214,285 5/15/03 $.07 5/15/13
Anthony Maher* 250,000 5/15/03 $.07 5/15/13
Suzanne Haislip 100,000 5/20/03 $.07 5/20/07
Joe Egusquiza 25,000 7/25/03 $.10 7/15/07
Christina Vaughn* 150,000 9/05/03 $.07 9/15/07
Suhas Pharkute 25,000 9/25/03 $.10 7/29/07
Michael McMurray* 150,000 4/28/04 $.15 4/28/14
Consultant 2,000,000 4/28/04 $.10 6/28/04
Consultant 4,000,000 4/28/04 $.25 8/28/04
Consultant 200,000 4/28/04 $.10 4/28/05
Consultant 200,000 4/28/04 $.20 4/28/05
Consultant 200,000 4/28/04 $.30 4/28/05
Consultant 200,000 4/28/04 $.35 4/28/05
David Chase 75,000 6/01/04 $.31 6/08/09
Suzanne Haislip 50,000 6/01/04 $.31 6/01/09
Richard Wright 75,000 6/01/04 $.31 6/01/09
Robert O. Grover* 250,000 6/14/04 $.31 6/14/09
Christina Vaughn* 150,000 6/16/04 $.31 6/16/09
David Chase 25,000 7/01/04 $.31 7/01/09
William Albert 50,000 7/10/04 $.13 7/10/09
Consultant 5,000 7/29/04 $.15 7/29/09
Robert O. Grover* 153,533 7/29/04 $.15 7/29/07
Laura Baran 50,000 8/10/04 $.13 7/10/09
Board Members* 80,358 9/14/04 $.14 9/22/14
Board Members* 93,750 9/14/04 $.12 9/22/14
Board Members* 112,500 9/14/04 $.10 9/22/14
Board Members* 48,912 9/14/04 $.23 9/22/14
Board Members* 57,692 9/14/04 $.26 9/22/14
Robert O. Grover* 100,000 11/14/04 $.10 11/15/09
Board Members* 315,792 1/04/05 $.10 1/04/15
Consultant 4,500 1/06/05 $.10 1/06/10
* Denotes directors and executive officers.
Pension Table.
--------------
None.
43
Other Compensation.
-------------------
None.
Termination of Employment and Change of Control Arrangements.
-------------------------------------------------------------
None.
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.
FINANCIAL STATEMENTS
--------------------
(1) Consolidated Financial Statements for the years ended
March 31, 2005 and 2004
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheet - March 31, 2005
Consolidated Statements of Operations for the
years ended March 31, 2005 and 2004
Consolidated Statements of Stockholders' Equity (Deficit)
Consolidated Statements of Cash Flows
for the Years Ended March 31, 2005 and 2004
Notes to Consolidated Financial Statements
(2) Consolidated Financial Statements for the periods ended
December 31, 2005 and March 31, 2005
Consolidated Balance Sheet - December 31, 2005, and March 31, 2005
Consolidated Statements of Operations for the three and nine
months ended December 31, 2005 and 2004
Consolidated Statements of Stockholders' Equity (Deficit)
Consolidated Statements of Cash Flows for the nine months
ended December 31, 2005 and 2004
Notes to Consolidated Financial Statements
44
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
PCS Edventures!.com, Inc., and Subsidiary
Boise, Idaho
We have audited the consolidated balance sheet of PCS Edventures!.com, Inc.,
and Subsidiary (the "Company") as of March 31, 2005, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the years ended March 31, 2005 and 2004. 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 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 provided a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of PCS Edventures!.com, Inc., and Subsidiary as of March 31, 2005 and the
results of their operations and their cash flows for the years ended March 31,
2005 and 2004, 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 9 to
the consolidated financial statements, the Company has suffered recurring
losses from operations and has a working capital deficit that raises
substantial doubt about their ability to continue as a going concern.
Management's plans in regard to those matters are also described in Note 9 to
the consolidated financial statements. The consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
HJ & Associates, LLC
Salt Lake City, Utah
July 15, 2005
F-3
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Balance Sheet
ASSETS
March 31,
2005
CURRENT ASSETS
Cash $ 16,752
Accounts receivable 130,569
Prepaid expenses 14,826
Deferred costs (Note 2) 110,367
Inventory 8,304
---------
Total Current Assets 280,818
---------
FIXED ASSETS, NET (Note 3) 11,917
---------
OTHER ASSETS
Deposits 6,225
---------
Total Other Assets 6,225
---------
TOTAL ASSETS $ 298,960
=========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
March 31,
2005
CURRENT LIABILITIES
Accounts payable $ 183,068
Accrued Compensation 40,537
Payroll taxes payable 87,669
Accrued interest 75,044
Accrued expenses (Note 12) 59,079
Unearned revenue (Note 2) 269,571
Notes payable - related party (Note 5) 117,054
Notes payable (Note 6) 205,465
-----------
Total Current Liabilities 1,037,487
-----------
Total Liabilities 1,037,487
-----------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, no par value, authorized 10,000,000
shares, 15,246 shares issued and outstanding (Note 4) 56,372
Common stock, no par value, authorized 40,000,000
shares; 27,355,451 shares issued and outstanding 23,868,669
Variable deferred consulting (Note 4) (1,000)
Accumulated deficit (24,662,568)
------------
Total Stockholders' Equity (Deficit) (738,527)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 298,960
============
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the Years Ended
March 31,
2005 2004
REVENUES
Lab Revenue $1,294,709 $1,661,838
License Revenue 158,917 156,164
Subscription Revenue 15,045 12,859
---------- ----------
Total Revenues 1,468,671 1,830,861
COST OF GOODS SOLD 679,324 679,009
---------- ----------
GROSS PROFIT 789,347 1,151,852
---------- ----------
OPERATING EXPENSES
Salaries and wages 452,756 463,918
Depreciation expense 2,052 25,447
General and administrative 751,338 578,976
Stock for services expense 525,004 30,474
---------- ----------
Total Operating Expenses 1,731,150 1,098,815
---------- ----------
OPERATING INCOME (LOSS) (941,803) 53,037
---------- ----------
OTHER INCOME AND EXPENSES
Interest expense (58,877) (214,804)
Interest income 993 18
Other income 17,065 4,398
Gain on settlement of debt (Note 7) 43,990 5,000
---------- ----------
Total Other Income and Expenses 3,171 (205,388)
---------- ----------
NET LOSS $ (938,632) $ (152,351)
========== ==========
BASIC LOSS PER SHARE (Note 2) $ (0.04) $ (0.01)
========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 26,253,256 19,447,429
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit)
Common Shares Preferred Shares
----------------------- --------------------
Shares Amount Shares Amount
---------- ----------- --------- ----------
Balance, March 31, 2003 17,832,301 $ 22,105,987 - $ -
Common stock issued for
extinguishment of debt and
interest at $0.09 per
share 35,000 3,150 - -
Options issued to directors
for accrued directors fees
(Note 11) - 17,857 - -
Contribution to capital
(Note 11) - 27,143 - -
Common stock issued for
conversion of accounts
payable at $0.09 per
share 11,111 1,000 - -
Common stock issued to
related party for
conversion of accrued
interest at $0.10 per
share 202,234 20,223 - -
Common stock issued for
the conversion of
warrants at $0.01 per
share 19,050 191 - -
Repriced options granted
below market value - 6,000 - -
Value of options granted below
market value - 8,250 - -
---------- ----------- --------- ------------
Balance Forward 18,099,696 $22,189,801 - $ -
---------- ----------- --------- ------------
F-7
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit)
Common Shares Preferred Shares
------------------------- ----------------------
Shares Amount Shares Amount
---------- ------------ --------- -----------
Balance Forward 18,099,696 $22,189,801 - $ -
Preferred stock issued
for conversion of debt
at $1.00 per share - - 5,000 5,000
Preferred stock issued
for cash at $1.00 per
share - - 5,000 5,000
Discount on preferred
stock - - - 2,500
Common stock issued for
extension of debt at
$0.10 per share 57,600 5,760 - -
Common stock issued for
conversion of
debt at $0.10 per share 150,000 15,000 - -
Common stock issued for
cash at $0.01 per share 150,000 15,000 - -
Common stock issued for
the conversion of
warrants at $0.01 per
share 6,000 60 - -
Common stock issued for
cash at $0.10 per share 550,000 55,000 - -
Revaluation of repriced
and outstanding options - (500) - -
----------- ------------- --------- -----------
Balance forward 19,013,296 $ 22,280,121 10,000 $ 12,500
---------- ----------- --------- ------------
F-8
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit)
Common Shares Preferred Shares
------------------------- ----------------------
Shares Amount Shares Amount
---------- ------------ --------- -----------
Balance forward 19,013,296 $ 22,280,121 10,000 $ 12,500
Common stock issued for
cash at $0.10 per share 200,000 20,000 - -
Common stock issued for
the conversion of
warrants at $0.01 per
share 6,000 60 - -
Common stock issued for
cash at $0.10 per share 250,000 25,000 - -
Common stock issued for
cash at $0.10 per share 200,000 20,000 - -
Common stock issued for
the conversion of warrants
at $0.01 per share 3,000 30 - -
Common stock issued for
cash at $0.10 per share 200,000 20,000 - -
Common stock issued for
cash at $0.12 per share 200,000 24,000 - -
Common stock issued for
cash at $.012 per share 200,000 24,000 - -
Common stock issued for
services and prepaid
services at $0.12 680,000 85,000 - -
------------ ------------- ---------- ------------
Balance forward 20,952,296 $ 22,498,211 10,000 $ 12,500
---------- ----------- --------- ------------
F-9
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit)
Common Shares Preferred Shares
------------------------- ----------------------
Shares Amount Shares Amount
---------- ------------ --------- -----------
Balance forward 20,952,296 $ 22,498,211 10,000 $ 12,500
Common stock issued for
accrued interest at $0.12 103,207 12,385 - -
Common stock issued for
accrued legal fees at $.012 106,384 12,766 - -
Common stock issued for cash
at $0.12 per share 100,000 12,000 - -
Common stock issued for cash
at $0.12 per share 75,000 15,000 - -
Preferred stock issued for
cash at $1.00 per share - - 12,000 12,000
Discount on preferred stock - - - 3,000
Common stock issued for cash
at $0.20 per share 50,000 10,000 - -
Common stock issued for cash
at $0.20 per share 50,000 10,000 - -
Preferred stock issued
for conversion of debt
at $1.00 per share - - 11,614 11,613
Discount on preferred stock - - - 2,903
---------- ----------- --------- ------------
Balance forward 21,436,887 $22,570,362 33,614 $ 42,016
---------- ----------- --------- ------------
F-10
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit)
Common Shares Preferred Shares
------------------------- ----------------------
Shares Amount Shares Amount
---------- ------------ --------- -----------
Balance forward 21,436,887 $22,570,362 33,614 $ 42,016
Common stock issued for
conversion of preferred at
$0.20 per share 58,070 11,613 (11,614) (11,613)
Preferred stock issued for
conversion of debt at $1.00
per share - - 15,165 15,165
Discount on preferred stock - - - 3,791
Preferred stock issued
for conversion of debt
at $1.00 per share - - 25,275 25,274
Discount on preferred stock - - - (2,527)
Common stock issued for
conversion of preferred at
$0.20 per share 126,375 25,274 (25,275) (25,274)
Common stock issued for cash
at $0.12 per share 166,667 20,000 - -
Preferred stock issued for
conversion of debt at $1.00
per share - - 15,181 15,181
Discount on preferred stock - - - 3,795
Common stock issued for cash
at $.125 per share 400,000 50,000 - -
---------- ----------- --------- ------------
Balance forward 22,187,999 $22,677,249 52,346 $ 70,862
---------- ----------- --------- ------------
F-11
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit)
Common Shares Preferred Shares
------------------------- ----------------------
Shares Amount Shares Amount
---------- ------------ --------- -----------
Balance forward 22,187,999 $22,677,249 52,346 $ 70,862
Preferred stock issued
for conversion of debt
at $1.00 per share - - 10,134 10,134
Common stock issued for
conversion of preferred at
$0.20 per share 50,670 10,134 (10,134) (10,134)
Preferred stock issued for
conversion of debt at $1.00
per share - - 5,069 5,069
Discount on preferred stock - - - 1,267
Common stock issued for
cash at $0.20 per share 125,000 25,000 - -
Common stock issued for
cash at $.016 per share 1,562,500 250,000 - -
Preferred stock issued for
conversion of debt at $1.00
per share - - 10,154 10,154
Discount on preferred stock - - - 2,538
Preferred stock issued for
conversion of debt at $1.00
per share - - 5,092 5,092
Discount on preferred stock - - - 1,273
---------- ----------- --------- ------------
Balance forward 23,926,169 $22,962,383 72,661 $ 96,255
---------- ----------- --------- ------------
F-12
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit)
Common Shares Preferred Shares
------------------------- ----------------------
Shares Amount Shares Amount
---------- ------------ --------- -----------
Balance forward 23,926,169 $22,962,383 72,661 $ 96,255
Common stock issued for cash
at $0.20 per share 50,000 10,000 - -
Preferred stock issued for
conversion of debt at $1.00
per share - - 40,746 40,745
Discount on preferred stock - - - 8,149
Common stock issued for
conversion of preferred at
$0.25 per share 203,730 40,745 (40,746) (40,745)
Preferred stock issued for
conversion of debt at $1.00
per share - - 10,189 10,189
Discount on preferred stock - - - 2,547
Preferred stock issued for
conversion of debt at $1.00
per share - - 10,195 10,195
Discount on preferred stock - - - 2,039
Common stock issued for
conversion of debt at $0.25
per share 50,975 10,195 (10,195) (10,195)
Pro-rata cumulative non-cash
preferred stock dividend - - - 1,294
Net loss for the year
ended March 31, 2004 - - - -
---------- ----------- --------- ------------
Balance, March 31, 2004 24,230,874 $23,023,323 82,850 $ 120,473
---------- ----------- --------- ------------
F-13
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit)
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 consultantsbelow 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 - -
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 - -
---------- ----------- --------- ------------
Balance forward 26,215,059 $23,784,472 15,246 $ 52,870
---------- ----------- --------- ------------
F-14
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit)
Common Shares Preferred Shares
------------------------- ----------------------
Shares Amount Shares Amount
---------- ------------ --------- -----------
Balance forward 26,215,059 $23,784,472 15,246 $ 52,870
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 - - - -
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
=========== ============ ========= ============
F-15
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Variable
Expenses Prepaid Deferred Accumulated
with Common Stock Consulting Deficit
----------------- ---------- -----------
Balance, March 31, 2003 $ - $ - $(23,530,460)
Common stock issued for
extinguishment of debt and
interest at $0.09 per share - - -
Options issued to directors for
accrued director's fees - - -
Contribution of capital - - -
Common Stock issued for
conversion of accounts payable
at $0.09 per share - - -
Common stock issued to
related party for
conversion of accrued
interest at $0.10 per - - -
Common stock issued for
the conversion of
warrants at $0.01 per
share - - -
Repriced options granted
below market value - - -
Options granted below
market value - - -
----------- --------- ------------
Balance Forward $ - $ - $(23,530,460)
----------- --------- ------------
F-7
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit)
Variable
Expenses Prepaid Deferred Accumulated
with Common Stock Consulting Deficit
----------------- ---------- -----------
Balance forward $ - $ - $(23,530,460)
Preferred stock issued
for conversion of debt
at $1.00 per share - - -
Preferred stock issued
for cash at $1.00 per
share - - -
Discount on preferred
stock - - (2,500)
Common stock issued for
extension of debt at
$0.10 per share - - -
Common stock issued for
conversion of
debt at $0.10 per share - - -
Common stock issued for
cash at $0.01 per share - - -
Common stock issued for the
conversion of warrants at
$0.01 per share - - -
Common stock issued for cash
at $0.10 per share - - -
Revaluation of repriced and
outstanding options - - -
----------- --------- -----------
Balance forward $ - $ $(23,532,960)
----------- --------- -----------
F-8
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit)
Variable
Expenses Prepaid Deferred Accumulated
with Common Stock Consulting Deficit
----------------- ---------- -----------
Balance forward $ - $ - $(23,532,960)
Common stock issued for
cash at $0.10 per share - - -
Common stock issued for
the conversion of
warrants at $0.01 per
share - - -
Common stock issued for
cash at $0.10 per share - - -
Common stock issued for
cash at $0.10 per share - - -
Common stock issued for
the conversion of warrants
at $0.01 per share - - -
Common stock issued for
cash at $0.10 per share - - -
Common stock issued for
cash at $0.12 per share - - -
Common stock issued for
cash at $.012 per share - - -
Common stock issued for
services and prepaid
services at $0.12 (67,292) - -
---------- ---------- ------------
Balance forward $ (67,292) $ - $(23,532,960)
----------- --------- -----------
F-9
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit)
Variable
Expenses Prepaid Deferred Accumulated
with Common Stock Consulting Deficit
----------------- ---------- -----------
Balance forward $ (67,292) $ - $(23,532,960)
Common stock issued for
accrued interest at $0.12 - - -
Common stock issued for
accrued legal fees at $.012 - - -
Common stock issued for cash
at $0.12 per share - - -
Common stock issued for cash
at $0.12 per share - - -
Preferred stock issued for
cash at $1.00 per share - - -
Discount on preferred stock - - (3,000)
Common stock issued for cash
at $0.20 per share - - -
Common stock issued for cash
at $0.20 per share - - -
Preferred stock issued
for conversion of debt
at $1.00 per share - - -
Discount on preferred stock - - (2,903)
----------- --------- ------------
Balance forward $ (67,292) $ - $(23,538,863)
----------- --------- ------------
F-10
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit)
Variable
Expenses Prepaid Deferred Accumulated
with Common Stock Consulting Deficit
----------------- ---------- -----------
Balance forward $ (67,292) $ - $(23,538,863)
Common stock issued for
conversion of preferred at
$0.20 per share - - -
Preferred stock issued for
conversion of debt at $1.00
per share - - -
Discount on preferred stock - - (3,791)
Preferred stock issued
for conversion of debt
at $1.00 per share - - -
Discount on preferred stock - - (2,527)
Common stock issued for
conversion of preferred at
$0.20 per share - - -
Common stock issued for cash
at $0.12 per share - - -
Preferred stock issued for
conversion of debt at $1.00
per share - - -
Discount on preferred stock - - (3,795)
Common stock issued for cash
at $0.125 per share - - -
----------- --------- ------------
Balance forward $ (67,292) $ - $(23,548,976)
----------- --------- ------------
F-11
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit)
Variable
Expenses Prepaid Deferred Accumulated
with Common Stock Consulting Deficit
----------------- ---------- -----------
Balance forward $ (67,292) $ - $(23,548,976)
Preferred stock issued
for conversion of debt
at $1.00 per share - - -
Common stock issued for
conversion of preferred at
$0.20 per share - - -
Preferred stock issued for
conversion of debt at $1.00
per share - - -
Discount on preferred stock - - (1,267)
Common stock issued for
cash at $0.20 per share - - -
Common stock issued for
cash at $.016 per share - - -
Preferred stock issued for
conversion of debt at $1.00
per share - - -
Discount on preferred stock - - (2,538)
Preferred stock issued for
conversion of debt at $1.00
per share - - -
Discount on preferred stock - - (1,273)
----------- --------- ------------
Balance forward $ (67,292) $ - $(23,554,054)
----------- --------- ------------
F-12
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit)
Variable
Expenses Prepaid Deferred Accumulated
with Common Stock Consulting Deficit
----------------- ---------- -----------
Balance forward $ (67,292) $ - $(23,554,054)
Common stock issued for cash
at $0.20 per share - - -
Preferred stock issued for
conversion of debt at $1.00
per share - - -
Discount on preferred stock - - (8,149)
Common stock issued for
conversion of preferred at
$0.25 per share - - -
Preferred stock issued for
conversion of debt at $1.00
per share - - -
Discount on preferred stock - - (2,547)
Preferred stock issued for
conversion of debt at $1.00
per share - - -
Discount on preferred stock - - (2,039)
Common stock issued for
conversion of debt at $0.25
per share - - -
Pro-rata cumulative non-cash
preferred stock dividend - - (1,294)
Net loss for the year
ended March 31, 2004 - - (152,351)
------------ --------- ------------
Balance, March 31, 2004 $ (67,292) $ - $(23,720,434)
------------ --------- ------------
F-13
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit)
Variable
Expenses Prepaid Deferred Accumulated
with Common Stock Consulting Deficit
----------------- ---------- -----------
Balance, March 31, 2004 $(67,292) $ - $(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 - - -
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 - - -
----------- --------- ------------
Balance forward $ (67,292) $(507,877) $(23,720,434)
----------- --------- ------------
F-14
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit)
Variable
Expenses Prepaid Deferred Accumulated
with Common Stock Consulting Deficit
----------------- ---------- -----------
Balance forward $ (67,292) $(507,877) $(23,720,434)
Pro-rata cumulative
non-cash preferred stock
dividend - - (3,502)
Amortization of prepaid
expense 67,292 - -
Amortization and revaluation
of consulting expense - 506,877 -
Stock issued for marketing
services at $0.09 per share
(unaudited) (22,500) - -
Stock issued for legal
services at $0.09 per share (45,000) - -
Stock issued for accounts
payable at $0.15 per share - - -
Stock issued for note
payable to related party
at $0.06 per share
(unaudited) - - -
Amortization of prepaid
expense 67,500 - -
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 -0- $ (1,000) $(24,662,568)
========== ========= ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-15
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended
March 31,
2005 2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (938,632) $ (152,351)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 2,052 25,447
Non-cash debt default additions - 52,625
Amortization of debt offering and extension costs - 5,460
Amortization of services prepaid with common
stock 101,042 -
Stock options issued for compensation 5,000 30,474
Stock options issued for consulting services 415,962 -
Stock options issued for board compensation 3,000 -
Intrinsic value of stock options issued for
services - 14,250
Gain on settlement of debt (43,990) (5,000)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 318,949 (104,185)
(Increase) decrease in prepaid expenses - 97,578
(Increase) decrease in inventories (118,671) 2,073
(Increase) decrease in deposits - (5,750)
Increase in accounts payable and
accrued liabilities 69,063 25,096
Increase in interest payable - -
Increase in unearned revenue 65,166 (178,085)
Decrease in other assets 69,958 -
--------- ----------
Net Cash Provided/ Used by Operating Activities (51,101) (192,368)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from note receivable 50,000 -
Payment of note receivable - (50,000)
Deposit on distribution rights - (45,000)
Purchase of fixed assets (13,968) -
--------- ----------
Net Cash Provided(Used) for Investing Activities 36,032 (95,000)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in cash overdraft - (8,053)
Payments on related party notes (10,654) -
Proceeds from notes payable - 450,898
Payments on notes payable (71,345) (675,447)
Proceeds from preferred stock - 17,000
Proceeds from common stock - 605,341
--------- ----------
Net Cash Provided (Used) by Financing Activities (81,999) 389,739
--------- ----------
DECREASE IN CASH (97,068) 102,371
CASH AT BEGINNING OF YEAR 113,820 11,449
--------- ----------
CASH AT END OF YEAR $ 16,752 $ 113,820
========= ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-16
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (Continued)
For the Years Ended
March 31,
2005 2004
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of stock for payment on notes payable
and interest $ 75,232 $ 53,370
Common stock issued for related party debt $ 38,174 $ -
Stock options issued for accrued director fees $ 90,000 $ 45,000
Common stock issued for stock offering costs $ 45,900 $ -
Common stock issued for payment on accounts payable $ 6,875 $ 4,000
Preferred stock for notes payable $ - $ 166,124
Common stock issued for conversion of preferred
stock $ - $ 97,961
Stock options issued for consulting services $ 415,962 $ -
Stock options issued for employee and
board compensation $ 3,000 $ -
Stock options issued for deferred consulting $ 507,877 $ -
Common stock issued for services $ - $ 30,474
Cash Paid For:
Interest $ 37,142 $ 115,975
Income taxes $ - $ -
The accompanying notes are an integral part of these consolidated financial
statements.
F-17
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2005 and 2004
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 subsidiary,
PCS Schools, Inc., an Idaho corporation (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.
Certain balances 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 principles 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.
c. 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 Academy of
Engineering (AOE) and Edventures! labs as they are delivered to the customers.
Revenue is only recognized once the product has been delivered to the
customer and all other obligations have been met. All product inventory is
purchased on a sale-by-sale basis, and is shipped directly from third-
party suppliers to the end customer. Accordingly, all costs associated with
the purchase of product inventory are also deferred until the product is
delivered. As of March 31,2005, the Company has recorded unearned revenues
and deferred costs of $269,570 and $110,367, respectively.
F-18
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2005 and 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
c. Revenue Recognition (Continued)
Licensing Revenue
The Company recognizes revenues relating to the AOE, AOE Jr., AOR,
Edventures!, and the Discover! lab site licenses over the 1-year term of the
license beginning when the physical lab equipment and the license has been
delivered. Subsequent sales of AOE, AOE Jr., AOR, Edventures! or Discover!
lab licenses are recorded on the sale of the license and recognized over a 1
year time period to revenue. Each lab license is for a period of 1 year from
the date of the renewal.
Subscription Revenue
The Company recognizes revenues relating to the subscriptions sold on their
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.
d. Principles of Consolidation
The accompanying consolidated financial statements consolidate the accounts of
the parent company and its wholly owned subsidiary. All significant inter-
company accounts and transactions have been eliminated in consolidation.
e. 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 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.
F-19
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2005 and 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
e. Provision for Income Taxes (Continued)
Net deferred tax assets consist of the following components as of March 31,
2005, and 2004:
2005 2004
Deferred tax assets:
NOL Carryover $ 3,114,065 $2,981,523
Accrued Expenses 96,665 -
Deferred tax liabilities: - -
Valuation allowance (3,210,730) (2,981,523)
----------- -----------
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, 2005 and 2004 due to the
following:
2005 2004
Book loss $(366,065) $ (59,420)
Stock for services/options expense 259,500 19,233
Penalties 445 27,365
Other 4,430 (673)
NOL utilization - 13,495
Valuation allowance 101,690 -
-------- ---------
$ - $ -
======== =========
At March 31, 2005 the Company had net operating loss carry forwards of
approximately $7,900,000 that may be offset against future taxable income from
the year 2005 through 2025. No tax benefit has been reported in the March 31,
2005 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 carry forwards for Federal income tax reporting purposes are
subject to annual limitations. Should a change in ownership occur, net
operating loss carry forwards may be limited as to use in future years.
F-20
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2005 and 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. 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. Diluted loss per share is equal to basic loss per share
as the result of the anti-dilutive nature of the stock equivalents. The
Company has excluded 3,538,441 potential common stock equivalents from the
calculation of basic loss per share.
For the Years Ended
March 31,
2005 2004
Basic loss per share from operations:
Numerator - loss $(938,632) $(152,351)
Denominator - weighted average number
of shares outstanding 26,253,256 19,447,429
---------- ----------
Loss per share $ (0.04) $ (0.01)
========== ==========
F-21
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2005 and 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
g. Newly Issued Accounting Pronouncements
During the year ended March 31, 2005, the Company adopted the following
accounting pronouncements:
On December 16, 2004 the FASB issued SFAS No. 123(R), Share-Based
Payment, which is an amendment to SFAS No. 123, Accounting for Stock-Based
Compensation. This new standard eliminates the ability to account for
share-based compensation transactions using Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
generally requires such transactions to be accounted for using a
fair-value-based method and the resulting cost recognized in our financial
statements. This new standard is effective for awards that are granted,
modified or settled in cash in interim and annual periods beginning after June
15, 2005. In addition, this new standard will apply to unvested options
granted prior to the effective date. We will adopt this new standard
effective for the fourth fiscal quarter of 2005, and have not yet determined
what impact this standard will have on our financial position or results of
operations.
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 principle 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
principle. 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.
The implementation of the provisions of these pronouncements are not
expected to have a significant effect on the Company's consolidated financial
statement presentation.
h. 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 Principles 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.
i. 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 operations. Renewals
and betterments are capitalized. Depreciation of leased equipment under
capital leases is included in depreciation.
F-23
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2005 and 2004
NOTE 3 - FIXED ASSETS
Assets and depreciation for the period are as follows:
March 31,
2005
Computer equipment $ 8,468
Office equipment 5,500
Education assets and software 278,886
Accumulated depreciation (280,937)
-------------
Total Fixed Assets $ 11,917
=============
Depreciation expense for the years ended March 31, 2005 and 2004 was $2,052
and $25,447, respectively.
NOTE 4 - COMMON AND PREFERRED STOCK TRANSACTIONS
a. Common Stock
During the year ended March 31, 2004, the Company received $341 in exchange
for the conversion of 34,050 in warrants at $0.01 per share.
During the year ended March 31, 2004, the Company issued 57,600 shares of
common stock in exchange for a one-year extension agreement related to the
2001 private placement. The shares were valued at $0.10 per share, or $5,760.
During the year ended March 31, 2004, the Company sold 4,529,167 shares of
common stock for cash of $653,000, or an average price of $0.12 per share.
F-24
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2005 and 2004
NOTE 4 - COMMON AND PREFERRED STOCK TRANSACTIONS (Continued)
a. Common Stock (Continued)
During the year ended March 31, 2004, the Company issued 46,111 shares of
common stock in exchange for accounts payable valued at $4,150, or an average
of $0.09 per share.
During the year ended March 31, 2004, the Company issued 150,000 shares of
common stock for conversion of $15,000 in notes payable or $0.10 per share.
During the year ended March 31, 2004, the Company issued 786,384 shares of
common stock in exchange for services valued at $30,474, or an average of
$0.04 per share.
During the year ended March 31, 2004, the Company issued 305,441 shares of
common stock for accrued interest payable to a related party in the amount of
$34,220, or an average of $0.11 per share.
During the year ended March 31, 2004, the Company issued 489,820 shares of
common stock for the conversion of 97,964 shares of preferred stock at $0.20
per share.
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.
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.
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. The preferred shares are
convertible into shares of common stock at a 20% discount and have a $0.25 cap
on the conversion price. The Company has reserved the option to convert the
shares into common stock at any point that the average trading price of the
Company's common stock for the previous 30 days exceeds to $0.50.
The Company recognized a total of $20,712 as beneficial conversion feature on
the issuance of preferred stock during 2004 as a result of the ability to
convert into common stock at a 20% discount. The beneficial conversion
feature has been charged directly to accumulated deficit.
The convertible preferred shares also include a cumulative 10% per annum non-
cash dividend, which at March 31, 2004 amounted to $1,294 and has been charged
directly to accumulated deficit.
During the year ended March 31, 2004, the Company sold 17,000 shares of
preferred stock for cash of $17,000, or $1.00 per share.
During the year ended March 31, 2004, the Company issued 163,814 shares of
preferred stock for conversion of $161,500 in notes payable and $2,310 in
accrued interest, or $1.00 per share.
During the year ended March 31, 2005, the Company issued 338,020 shares of
common stock for the conversion of 67,603 shares of preferred stock. The
preferred shares, originally sold for $1.00 per share were converted to common
at $0.20 per share.
The convertible preferred shares also include a cumulative 10% per annum non-
cash dividend, which at March 31, 2005 amounted to $3,502 and has been charged
directly to accumulated deficit.
F-25
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2005 and 2004
NOTE 5 - NOTES PAYABLE - RELATED PARTY
Notes payable - related party consisted of the following at March 31, 2005:
Notes payable to the President bearing interest
at 10% per annum, all unpaid principal and
interest due on demand $ 117,094
---------
Total Notes Payable Related Party $ 117,094
=========
NOTE 6 - NOTES PAYABLE
Notes payable consisted of the following at March 31, 2005:
Notes payable related to private placement memorandum
bearing interest at 8.00% per annum, with payments due
April 6, 2002, through August 29, 2004, $101,000 past due $ 101,000
Notes payable to four unrelated individuals bearing interest
at 8.0% to 11.2% per annum, with payment due within
one year, unsecured 15,003
Line of credit with a bank bearing interest at 13.99%
per annum, unsecured 36,127
Line of credit with a bank bearing interest at 7.0%
per annum, past due, unsecured 26,549
Line of credit with a financing institution with varying
interest charges, due periodically (generally monthly),
secured by assets and specific receivables 26,786
---------
Total Notes Payable $ 205,465
=========
All notes payable are considered to be current.
NOTE 7 - GAIN ON SETTLEMENT OF DEBT
During March 2004, the Company received a notice of default from the attorneys
for Xerox Capital Services, LLC (Xerox), in which Xerox assets that the
Company is in default on two lease agreements and a promissory note in the
amount of $88,242. During July 2004, the Company agreed to a Release of All
Claims and Settlement Agreement (the Settlement) with Xerox Capital Services,
LLC in regard to a past due notes payable and copier lease payments. The
Settlement calls for the payment of $44,252 in installments as follows: $7,500
upon execution; $10,000 on or before August 5, 2004; $10,000 on or before
August 19, 2004; $12,500 on or before September 15, 2004; and $4,252 on or
before October 15, 2004. In addition, the Company agreed to return the
copier. The Company has recognized a gain on extinguishment of debt of $43,990
as a result of this Settlement. As of March 31, 2005, all scheduled payments
have been made.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Operating Lease Obligation
The Company leases its 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
2006 $ 81,500
2007 87,500
2008 85,250
2009 -
2010 -
---------
Total $ 254,250
=========
Rent expense was $75,500 and $69,500 for the years ended March 31, 2005 and
2004, respectively.
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 of $10,368. Rent expense was $1,246 for the year ended March 31,
2005.
Litigation
During March 2004, the Company received a notice of default from the attorneys
for Xerox Capital Services, LLC (Xerox), in which Xerox assets that the
Company is in default on two lease agreements and a promissory note in the
amount of $88,242. During July 2004, the Company agreed to a Release of All
Claims and Settlement Agreement (the Settlement) with Xerox Capital Services,
LLC in regard to a past due notes payable and copier lease payments. The
Settlement calls for the payment of $44,252 in installments as follows: $7,500
upon execution; $10,000 on or before August 5, 2004; $10,000 on or before
August 19, 2004; $12,500 on or before September 15, 2004; and $4,252 on or
before October 15, 2004. In addition, the Company agreed to return the
copier. The Company has recognized a gain on extinguishment of debt of $43,990
as a result of this Settlement. As of March 31, 2005, all scheduled payments
have been made; the obligation is paid in full.
NOTE 9 - GOING CONCERN
The Company's consolidated financial statements are prepared using generally
accepted accounting principles applicable to a going concern which
contemplates the realization of assets and liquidation of liabilities in the
normal course of business. However, the Company does not have significant
cash or other material assets, nor does it have an established source of
revenues sufficient to cover its operating costs. Additionally, the Company
has accumulated significant losses, has negative working capital, and a
deficit in stockholders' equity. All of these items raise substantial doubt
about its ability to continue as a going concern. Management's plans with
respect to alleviating the adverse financial conditions that caused you to
express substantial doubt about the Company's ability to continue as a going
concern are as follows:
During the fiscal year ending March 2005, the Company opened discussions with
several target companies for possible merger and acquisition activities. In
addition, the Company also continued to investigate the feasibility of
utilizing parts of our Learning Labs to create a line of specialty retail
learning toys. The Company has also entered into several strategic alliances
with K-NEX, Science Demo, and Gibson TechEd for further product development
and enhancement. The Company has also strengthened its international position
by naming agents and installing Learning Labs in Egypt, Dubai, and Saudi
Arabia. Over the next fiscal year, the Company will continue to develop
marketplace strategy for the US market as well as the international market.
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
paragraph 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.
NOTE 10 - DILUTIVE INSTRUMENTS
a. Stock Options
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,
2005 2004
Net loss:
As reported $ (938,632) $ (152,351)
Pro Forma (1,106,204) (272,508)
Net loss per share:
As reported $ (0.04) $ (0.01)
Pro Forma (0.04) (0.01)
F-28
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2005 and 2004
NOTE 10 - DILUTIVE INSTRUMENTS (Continued)
a. Stock Options (Continued)
The Company has granted the following options as of March 31, 2005:
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 0 (250,000) 750,000
3) Employees 07-01-02 335,000 $ 0.16 0 (10,000) 325,000
4) Employee 08-15-02 5,000 $ 0.16 0 0 5,000
5) Board Members 10-21-02 499,998 $ 0.09 0 (166,666) 333,332
6) Board Members 05-15-03 892,855 $ 0.07 (250,000) (214,285) 428,570
7) Employee 05-20-03 100,000 $ 0.07 0 0 100,000
8) Employee 07-25-03 25,000 $ 0.10 0 0 25,000
9) Employee 09-05-03 150,000 $ 0.07 0 0 150,000
10) Employee 09-25-03 25,000 $ 0.15 0 0 25,000
11) Board Member 04-28-04 150,000 $ 0.15 0 0 150,000
12) Consultant 04-28-04 2,000,000 $ 0.10 (750,000)(1,250,000) 0
13) Consultant 04-28-04 4,000,000 $ 0.25 0 (4,000,000) 0
14) Consultant 04-28-04 200,000 $ 0.10 0 0 200,000
15) Consultant 04-28-04 200,000 $ 0.20 0 0 200,000
16) Consultant 04-28-04 200,000 $ 0.30 0 0 200,000
17) Consultant 04-28-04 200,000 $ 0.35 0 0 200,000
18) Board Members 09-14-04 80,358 $ 0.14 0 0 80,358
19) Board Members 09-14-04 93,750 $ 0.12 0 0 93,750
20) Board Members 09-14-04 112,500 $ 0.10 0 0 112,500
21) Board Members 09-14-04 48,912 $ 0.23 0 0 48,912
22) Board Members 09-14-04 57,692 $ 0.26 0 0 57,692
23) Employee 07-29-04 153,533 $ 0.15 0 0 153,533
24) Employee 08-10-04 50,000 $ 0.13 0 0 50,000
25) Employee 07-10-04 50,000 $ 0.13 0 0 50,000
26) Employee 07-01-04 25,000 $ 0.31 0 0 25,000
27) Consultant 07-29-04 5,000 $ 0.15 0 0 5,000
28) Employee 11-15-04 100,000 $ 0.10 0 0 100,000
29) Board Members 01-04-05 315,792 $ 0.10 0 0 315,792
30) Consultant 01-06-05 4,500 $ 0.10 0 0 4,500
31) Employee 06-01-04 75,000 $ 0.31 0 0 75,000
32) Employee 06-14-04 250,000 $ 0.31 0 0 250,000
33) Employee 06-01-04 50,000 $ 0.31 0 0 50,000
34) Employee 06-01-04 75,000 $ 0.31 0 0 75,000
35) Employee 06/16/04 150,000 $ 0.31 0 0 150,000
---------- --------- ---------- ----------
12,679,890 (1,000,000) 6,140,951 5,538,939
========== ========= ========== ==========
Amount Exercisable 4,540,406
==========
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) Employee $ 0.14 2.84% 3.50 157.77%
4) Employee $ 0.14 2.84% 3.30 163.77%
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 $ 0.11 2.81% 4.00 152.03%
10) Employee $ 0.12 3.07% 5.85 152.03%
11) Board Member $ 0.17 4.43% 10.00 344.55%
12) Consultant $ 0.17 0.98% 0.17 187.13%
13) Consultant $ 0.17 0.98% 0.33 187.13%
14) Consultant $ 0.17 1.55% 1.00 537.80%
15) Consultant $ 0.17 1.55% 1.00 537.80%
16) Consultant $ 0.17 1.55% 1.00 537.80%
17) Consultant $ 0.17 1.55% 1.00 537.80%
18) Board Members $ 0.15 4.14% 10.00 247.04%
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) Employee $ 0.14 3.78% 5.00 250.60%
24) Employee $ 0.13 3.47% 5.00 247.04%
25) Employee $ 0.23 3.64% 5.00 250.60%
26) Employee $ 0.27 3.81% 5.00 240.27%
27) Consultant $ 0.14 3.78% 5.00 250.60%
28) Employee $ 0.10 3.53% 5.00 236.98%
29) Board Members $ 0.09 4.29% 10.00 234.54%
30) Consultant $ 0.11 3.65% 5.00 236.98%
31) Employee $ 0.31 3.91% 5.00 235.04%
32) Employee $ 0.26 3.98% 5.00 235.04%
33) Employee $ 0.31 3.91% 5.00 235.04%
34) Employee $ 0.31 3.91% 5.00 235.04%
35) Employee $ 0.31 3.91% 5.00 235.04%
F-29
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2004 and 2003
NOTE 10 - DILUTIVE INSTRUMENTS (Continued)
a. Stock Options (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.
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.
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.
F-31
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 2005 and 2004
NOTE 11 -RELATED PARTY TRANSACTIONS
On September 14, 2004, the Company 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 prices ranging from $0.10-$0.23 per share. This payment covered all
directors fees incurred for the year ended March 31, 2004
During 2004, the Company issued 305,441 shares of common stock to the
Company's President 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, the Company 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 for 10 years. The issuance of these options resulted in $3,000 in non-
cash director expenses included in general and administrative expense.
During July 2004, the Company issued 250,000 shares of common stock to its
Chief Executive Officer for the non-cash exercise of options, reducing related
party debt by $17,500.
During the month of September 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 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, 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.
During the month of January 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 year ended March 31, 2005, the Company repaid debt owed to the
President of the Company of $48,828 through cash payments and issuances of
common stock.
NOTE 12 - ACCRUED EXPENSES
Accrued expenses are made up of the following at March 31, 2005:
Accrued directors fees $ 15,000
Credit card and other
miscellaneous accrued expenses 44,079
----------
Total $ 59,079
==========
NOTE 13 - SUBSEQUENT EVENTS
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 at an exercise price of $0.185 per share. The options
expire on April 1, 2016. The options were issued as compensation for Board
services for the quarter ending March 31, 2005.
On May 26, 2005, the Company issued options to purchase a total of 282,467 to
eight employees. The options are exercisable at $0.50 per share and expire in
five years.
During the month of June 2005, the Board of Directors authorized the issuance
of common stock to the indentured trust holders for conversion of notes
payable. 654,706 shares were issued in exchange for the reduction of
$101,000, plus interest, in notes payable.
F-33
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and March 31, 2005
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
ASSETS
December 31, March 31,
2005 2005
----------- ----------
(Unaudited)
CURRENT ASSETS
Cash $ 63,310 $ 16,752
Restricted cash 1,155 -
Accounts receivable 539,005 130,569
Inventory 39,666 8,304
Deferred costs 382 110,367
Prepaid expenses 18,422 14,826
Other assets 10,931 -
----------- ----------
Total Current Assets 672,871 280,818
----------- ----------
FIXED ASSETS (NET) 17,713 11,917
----------- ----------
INTELLECTUAL PROPERTY (NET) 18,593 -
----------- ----------
EDUCATIONAL SOFTWARE (NET) 142,097 -
----------- ----------
GOODWILL 349,580 -
----------- ----------
OTHER ASSETS
Deposits 6,175 6,225
----------- ----------
Total Other Assets 6,175 6,225
----------- ----------
TOTAL ASSETS $ 1,207,029 $ 298,960
=========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
December 31, March 31,
2005 2005
--------- ----------
(Unaudited)
CURRENT LIABILITIES
Bank overdraft $ 9,217 $ -
Accounts payable 414,324 183,068
Stock payable 289,001 -
Accrued compensation 44,016 40,537
Payroll taxes payable 33,999 87,669
Deposits payable 4,286 -
Accrued interest 63,035 75,044
Accrued expenses 63,867 59,079
Unearned revenue 310,184 269,571
Loan payable 47,766 -
Notes payable - related parties 116,690 117,054
Notes payable 235,263 205,465
---------- ---------
Total Current Liabilities 1,631,648 1,037,487
---------- ---------
Total Liabilities 1,631,648 1,037,487
---------- ---------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, no par value, authorized
10,000,000 shares, 15,246 shares issued
and outstanding 56,372 56,372
Common stock, no par value, authorized 40,000,000
shares; 30,540,212 and 27,355,451 shares issued
and outstanding, respectively 24,767,129 23,868,669
Variable deferred consulting fees - (1,000)
Accumulated other comprehensive loss 210 -
Accumulated deficit (25,248,330)(24,662,568)
----------- -----------
Total Stockholders' Equity (Deficit) (424,619) (738,527)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 1,207,029 $ 298,960
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended For the Nine Months Ended
December 31, December 31,
-------------------------- ------------------------
2005 2004 2005 2004
---------- ---------- ---------- -----------
REVENUE
Lab Revenue $ 224,338 $ 213,936 $ 1,876,712 $ 837,648
License Revenue 59,209 36,057 150,691 123,132
Subscription Revenue 1,091 4,168 3,644 11,218
----------- ----------- ----------- -----------
Total Revenues 284,638 254,161 2,031,047 971,998
COST OF GOODS SOLD/
COST OF SALES 354,858 113,888 1,214,150 368,521
----------- ----------- ----------- -----------
GROSS PROFIT (70,220) 140,273 816,897 603,477
----------- ----------- ----------- -----------
OPERATING EXPENSES
Salaries and wages 205,324 162,241 510,132 430,108
Depreciation expense 6,788 275 9,169 367
Common stock and stock
options issued for
consulting expense - (3,509) - 483,921
General and administrative 299,680 170,928 855,720 511,388
Other operating expenses 333 - - -
----------- ----------- ----------- -----------
Total Operating Expenses 512,125 329,935 1,375,021 1,425,784
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) (582,345) (189,662) (558,124) (822,307)
----------- ----------- ----------- -----------
OTHER INCOME AND EXPENSES
Gain on settlement of debt - - - 43,990
Interest income 11 15 - 987
Interest expense (12,220) (16,047) (47,087) (56,497)
Other income 4,957 3,517 19,449 16,086
Other expense - (1,788) - (3,783)
----------- ----------- ----------- -----------
Total Other Income and
(Expenses) (7,252) (14,303) (27,638) 783
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES (589,597) (203,965) (585,762) (821,524)
INCOME TAX EXPENSE - - - -
----------- ----------- ----------- -----------
NET INCOME (LOSS) (589,597) (203,965) (585,762) (821,524)
Foreign currency
translation 210 - 210 -
----------- ----------- ----------- -----------
COMPREHENSIVE NET
INCOME (LOSS) $ (589,387) $ (203,965) $ (585,552)$ (821,524)
=========== =========== =========== ===========
F-4
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
(Continued)
For the Three Months Ended For the Nine Months Ended
December 31, December 31,
--------------------------- ------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
BASIC INCOME (LOSS)
PER SHARE $ (0.02) $ (0.01) $ (0.02)$ (0.03)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
BASIC SHARES OUTSTANDING 27,226,279 25,745,125 27,277,971 18,640,974
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit)
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 - -
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 - -
---------- ----------- --------- ------------
Balance forward 26,215,059 $23,784,472 15,246 $ 52,870
---------- ----------- --------- ------------
F-6
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Common Shares Preferred Shares
------------------------- ----------------------
Shares Amount Shares Amount
---------- ------------ --------- -----------
Balance forward 26,215,059 $23,784,472 15,246 $ 52,870
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 - - - -
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
---------- ----------- --------- ----------
F-7
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit) (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
(unaudited) - 15,000 - -
Treasury stock issued for
legal services (unaudited) - 21,250 - -
Stock issued for the
exercise of options for
$0.16 per share (unaudited) 15,000 2,400 - -
Stock issued for cash
for $0.20 per share
(unaudited) 35,000 7,000 - -
Stock issued for public
relations services for
$0.095/share (unaudited) 90,972 8,649 - -
Stock issued for the
exercise of options for
$0.13 per share (unaudited) 205,211 26,645 - -
Stock issued for conversion
of debt and interest at
$0.17 per share (unaudited) 654,706 112,485 - -
Stock issued for conversion
of debt and interest at
$0.17 per share (unaudited) 12,815 2,178 - -
Stock issued for cash
for $0.17 per share
(unaudited) 33,430 5,683 - -
Amortization and revaluation
of consulting expense
(unaudited) - (7,667) - -
Value of options issued to
employees below market value
(unaudited) - 2,825 - -
Stock issued for services at
$0.705 per share (unaudited) 20,000 14,100 - -
Stock issued for conversion
of debt and interest at
$0.17 per share (unaudited) 60,900 10,353 - -
Stock issued for the
exercise of options for
$0.15 per share (unaudited) 5,000 750 - -
Stock issued for marketing
services @ $0.12 per share
(unaudited) 25,208 3,025 - -
Value of stock issued for
marketing services below
market value
(unaudited) - 1,008 - -
Stock issued for the
exercise of options for
$0.10 per share (unaudited) 4,500 450 - -
Stock issued for the
exercise of options for
$0.31 per share (unaudited) 344 107 - -
Value of options issued to
employee below market value
(unaudited) - 7,000 - -
Stock issued for services at
$0.70 per share (unaudited) 100,000 70,000 - -
Stock issued for the
reduction of interest and
principal for a note
payable for a related party
(unaudited) 100,000 16,000 - -
Stock issued for the
exercise of options for
$0.16 per share (unaudited) 75,000 12,000 - -
Stock issued for the
exercise of options for
$0.16 per share (unaudited) 50,000 8,000 - -
Stock issued for the
exercise of options at
weighted average of
$0.0885 per share
(unaudited) 555,435 49,145 - -
Stock issued for
interest payments at
$0.20 per share (unaudited) 53,746 10,749 - -
Stock issued for the
exercise of options for
$0.07 per share (unaudited) 214,285 15,000 - -
Stock issued for the
exercise of options for
$0.10 per share (unaudited) 15,000 1,500 - -
Options issued to directors
for accrued director fees
(unaudited) - 22,500 - -
Stock issued for purchase of
LabMentors (unaudited) 700,000 420,000
Stock issued to Officer
for compensation at
$0.74 per share (unaudited) 6,756 5,000 - -
Stock issued for royalty
payments at $0.155 per share
(unaudited) 31,453 4,875 - -
Stock issued for the
exercise of options for
$0.16 per share (unaudited) 35,000 5,600 - -
Stock issued for the
exercise of options for
$0.16 per share (unaudited) 10,000 1,600 - -
Stock issued for the
exercise of options for
$0.16 per share (unaudited) 75,000 12,000 - -
Options issued to directors
for accrued director fees
(unaudited) - 11,250 - -
Net income,
December 31, 2005
(unaudited) - - - -
Foreign currency adjustment
(unaudited) - - - -
---------- ----------- --------- ------------
Balance,
December 31, 2005
(unaudited) 30,540,212 $24,767,129 15,246 $ 56,372
=========== ============ ========= ============
F-8
[CONTINUED]
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Variable
Expenses Prepaid Deferred Accumulated
with Common Stock Consulting Deficit
----------------- ---------- -----------
Balance, March 31, 2004 $(67,292) $ - $(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 - - -
Value of employee options
issued below market value - - -
Common stock issued for
related party note payable
reduction at $0.07 per
share - - -
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 - - -
----------- --------- ------------
Balance forward $ (67,292) $(507,877) $(23,720,434)
----------- --------- ------------
F-6
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Variable
Expenses Prepaid Deferred Accumulated
with Common Stock Consulting Deficit
----------------- ---------- -----------
Balance forward $ (67,292) $(507,877) $(23,720,434)
Pro-rata cumulative
non-cash preferred stock
dividend - - (3,502)
Amortization of prepaid
expense 67,292 - -
Amortization and revaluation
of consulting expense - 506,877 -
Stock issued for marketing
services at $0.09 per share (22,500) - -
Stock issued for legal
services at $0.09 per share (45,000) - -
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 67,500 - -
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)
---------- ---------- -----------
F-7
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Variable
Expenses Prepaid Deferred Accumulated
with Common Stock Consulting Deficit
----------------- ---------- -----------
Balance, March 31, 2005 $ - $ (1,000) $(24,662,568)
Options issued to directors
for accrued director fees
(unaudited) - - -
Treasury stock issued for
legal services (unaudited) - - -
Stock issued for the
exercise of options for
$0.16 per share (unaudited) - - -
Stock issued for cash
for $0.20 per share (unaudited) - - -
Stock issued for public
relations services for
$0.095/share (unaudited) - - -
Stock issued for the
exercise of options for
$0.13 per share (unaudited) - - -
Stock issued for conversion
of debt and interest at
$0.17 per share (unaudited) - - -
Stock issued for conversion
of debt and interest at
$0.17 per share (unaudited) - - -
Stock issued for cash
for $0.17 per share (unaudited) - - -
Amortization and revaluation
of consulting expense (unaudited) - 1,000 -
Value of options issued to
employees below market value
(unaudited) - - -
Stock issued for services at
$0.705 per share (unaudited) - - -
Stock issued for conversion
of debt and interest at
$0.17 per share (unaudited) - - -
Stock issued for the
exercise of options for
$0.15 per share (unaudited) - - -
Stock issued for marketing
services @ $0.12 per share
(unaudited) - - -
Value of stock issued for
marketing services below
market value (unaudited) - - -
Stock issued for the
exercise of options for
$0.10 per share (unaudited) - - -
Stock issued for the
exercise of options for
$0.31 per share (unaudited) - - -
Value of options issued to
employee below market value
(unaudited) - - -
Stock issued for services at
$0.70 per share (unaudited) - - -
Stock issued for the reduction of
interest and principal for a note
payable for a related party
(unaudited) - - -
Stock issued for the
exercise of options for
$0.16 per share (unaudited) - - -
Stock issued for the
exercise of options for
$0.16 per share (unaudited) - - -
Stock issued for the
exercise of options at
weighted average of
$0.0885 per share
(unaudited) - - -
Stock issued for
interest payments at
$0.20 per share (unaudited) - - -
Stock issued for the
exercise of options for
$0.07 per share (unaudited) - - -
Stock issued for the
exercise of options for
$0.10 per share (unaudited) - - -
Options issued to directors
for accrued director fees
(unaudited) - - -
Stock issued for purchase
of LabMentors (unaudited) - - -
Stock issued to Officer
for compensation at
$0.74 per share (unaudited) - - -
Stock issued for royalty
payments at $0.155 per share
(unaudited) - - -
Stock issued for the
exercise of options for
$0.16 per share (unaudited) - - -
Stock issued for the
exercise of options for
$0.16 per share (unaudited) - - -
Stock issued for the
exercise of options for
$0.16 per share (unaudited) - - -
Options issued to directors
for accrued director fees
(unaudited) - - -
Net income,
December 31, 2005
(unaudited) - - (585,762)
Foreign currency adjustment
(unaudited) - - 210
---------- --------- ------------
Balance,
December 31, 2005
(unaudited) - $ - $(25,248,120)
========== ========= ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
For the
Nine Months Ended
December 31,
----------------------
2005 2004
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(585,762) $(821,524)
Adjustments to reconcile net income (loss) to
net cash used by operating activities:
Depreciation 9,169 367
Gain on extinguishment - (43,990)
Stock/Stock options issued for consulting services 96,782 411,629
Stock options issued for board compensation 48,750 3,000
Stock options issued for compensation 19,700 5,000
Stock issued for legal services 35,000 -
Gain on return of common stock (13,750) -
Amortization of expenses prepaid with common stock (6,667) 101,042
Changes in operating assets and liabilities:
(Increase) Decrease in accounts receivable (389,303) 299,522
(Increase) in inventory (26,366) (112,102)
Decrease in deferred costs 105,040 -
Increase (decrease) in accounts payable and accrued
liabilities 404,475 (48,741)
Increase in interest payable 38,393 -
Increase in unearned revenue 40,614 137,030
Decrease in other assets (16,449) 5,405
--------- --------
Net Cash Provided (Used) by Operating Activities (240,374) (63,362)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash receipt on notes receivable - 50,000
Purchase of fixed assets (5,465) (5,500)
-------- --------
Net Cash Provided by (Used) Investing Activities (5,465) 44,500
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments to related parties - (10,654)
Principal payments on notes payable (13,807) (96,171)
Cash proceeds from notes payable 151,104 -
Proceeds from common stock 147,880 75,000
Cash from acquisition 63 -
Increase in bank overdraft 7,157 -
-------- ---------
Net Cash Provided (Used) by Financing Activities 292,397 (31,825)
-------- ---------
NET INCREASE (DECREASE) IN CASH 46,558 (50,687)
CASH AT BEGINNING OF PERIOD 16,752 113,820
-------- ---------
CASH AT END OF PERIOD $ 63,310 $ 63,133
======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
For the
Nine Months Ended
December 31,
---------------------
2005 2004
----------- ---------
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of stock for payment on notes payable
and interest $ 141,017 $ 75,232
Common stock issued for related party debt $ - $ 38,174
Stock options issued for accrued director fees $ - $ 90,000
Common stock issued for stock offering costs $ - $ 45,900
Common stock issued for accounts payable $ 10,749 $ 6,875
Stock options issued for consulting services $ 1,000 $ 411,629
Stock options issued for employee and
board compensation $ 48,750 $ 3,000
Issuance of stock for acquisition $ 420,000 $ -
Common stock issued for marketing $ 8 $ -
Cash Paid For:
Interest $ 38,393 $ 19,490
Income taxes $ - $ -
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Notes to the Consolidated Financial Statements
December 31 and March 31, 2005
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC). The condensed consolidated
financial statements include the results of PCS Edventures!.com, Inc. and its
subsidiaries. The subsidiaries include PCS School, Inc. and PCS LabMentors,
LTD., which the Company acquired in 1994 and November 30, 2005, respectively.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted in
accordance with such rules and regulations. The information furnished in the
interim condensed consolidated financial statements include normal recurring
adjustments and reflects all adjustments, which, in the opinion of management,
are necessary for a fair presentation of such financial statements and
presented on an unaudited basis. Although management believes the disclosures
and information presented are adequate to make the information not misleading,
it is suggested that these interim condensed consolidated financial statements
be read in conjunction with the Company's most recent audited financial
statements and notes thereto included in its March 31, 2005 Annual Report on
Form 10-KSB, which is on file with the SEC, and the Company's current 8-K on
file relating to the acquisition of PCS LabMentors dated December 9, 2005.
The financial statements previously presented are on a consolidated basis and
include post-acquisition numbers of PCS LabMentors, LTD., which includes
December 1, 2005 through December 31, 2005. The pre-acquisition net
income(loss) and balance sheet accounts are not included herein.
The operating results for the three and nine month periods ended December 31,
2005 and 2004 are not necessarily indicative of the results that may be
expected for the year ending March 31, 2006.
NOTE 2 - GOING CONCERN
The Company's consolidated financial statements are prepared using generally
accepted accounting principles 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 2005, the Company opened discussions with
several target companies for possible merger and acquisition activities. The
Company has also entered into several strategic alliances with K'NEX, Science
Demo, and Gibson TechEd for further product development and enhancement. The
Company has also strengthened its international position by naming agents and
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
paragraph 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.
NOTE 3 - DILUTIVE INSTRUMENTS
a. Stock Options
We account for stock-based employee compensation in accordance with Accounting
Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to
Employees," and SFAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure an amendment of Financial Accounting Standards Board
Statement No. 123." All of which requires the Company to provide pro forma
information regarding net income (loss) and net income (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. Had this method been in place for the Company, it would have
resulted in additional expense of $9,825 and $10,291 for the nine months ended
December 31, 2005 and 2004, respectively.
The Company would also like to note that the SEC issued SFAS 123(R),
"Share-Based Payment." This new SFAS establishes how companies should account
for transactions wherein the company issues equity instruments in exchange for
services and/or goods. This is not a reporting requirement for the Company
due to its small business filing status.
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 Nine Months Ended
December 31,
2005 2004
Net income(loss):
As reported $ (585,195) $ (625,551)
Pro Forma (863,467) (747,918)
Net income(loss) per share:
As reported $ (0.02) $ (0.02)
Pro Forma (0.03) (0.03)
The pro forma amounts presented above may not be indicative of the expected
results for the fiscal year ending March 31, 2006.
F-11
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
December 31 and March 31, 2005
NOTE 3 - DILUTIVE INSTRUMENTS (Continued)
a. Stock Options (Continued)
A summary of the status of the Company's outstanding stock options as
of December 31, 2005 is presented below:
Weighted
Average
Exercise
Shares Price
---------- --------
Outstanding, March 31, 2005 12,704,890 $0.19
Granted 515,789 $0.49
Expired/Cancelled (7,010,951) $0.21
Exercised (2,145,490) $0.11
---------- -------
Outstanding, December 31, 2005 4,064,238 $0.23
========== =======
Exercisable, December 31, 2005 2,938,238 $0.19
========== =======
F-12
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
December 31 and March 31, 2005
NOTE 4 - SUBSEQUENT EVENTS
On November 18 2005, the Company signed a Letter of Intent (LOI) for a stock
purchase by the investment company known as Barron Partners, LP. Barron
conducted due diligence and after a thorough analysis, continued with its
investment in the Company. The investment is structured as stated in the
Company's recent 8-K filed with the SEC on January 1, 2006. All details are
outlined therein and any potential investee is encouraged to review such
document.
In addition, one of PCS' Board Members has exercised stock options after the
quarter close. The total number of shares purchased through exercising stock
options is 25,000 with an exercise price of $0.16 cents per share.
The total amount received by PCS for these transactions was $4,000, which was
applied to a note payable principle and interest due to the Board Member.
NOTE 5 - BUSINESS COMBINATIONS
On November 30, 2005, the Company entered into a Stock Purchase Agreement with
511092 N.B. LTD. dba LabMentors, a Canadian Company, wherein the Company
acquired all of the issued and outstanding shares of common stock of
LabMentors. Since the acquisition the name has been legally changed to PCS
LabMentors, LTD. (LabMentors). The effective date was November 30, 2005 and
as such the results of LabMentors operations are included in our consolidated
financial information from December 1, 2005 forward. LabMentors virtual
on-line labs are utilized by all sectors of education and business
communities, particularly at the university level for educational curriculum.
LabMentors will continue to operate as a Canadian company and based in
Fredericton, New Brunswick. We will be renaming the LabMentors brand as "PCS
LabMentors", since the company will be a wholly owned subsidiary of PCS.
The acquisition provides opportunities for expansion into the college market,
as well as synergies to complement the educational whole learning lab
solutions currently undertaken by the Company. We expect the acquisition to
continue the growth of PCS into the educational markets. The products
provided by LabMentors compliment the current Edventures! lab provided by PCS
as well as incorporates new products into the product mix.
The aggregate purchase price was $420,000, which consisted of 700,000 shares
of PCS stock. There was no cash exchange for the acquisition. The purchase
price was allocated to the assets and liabilities, as well as future earning
potential with the Company's marketing staff, acquired by the Company. The
fair value of the assets and liabilities of LabMentors as of the close of the
acquisition is as follows:
ASSETS
CURRENT ASSETS
Accounts receivable $ 18,947
Other receivable 4,449
Restricted cash 1,152
---------
Total Current Assets 24,548
FIXED ASSETS (NET) 4,308
EDUCATIONAL SOFTWARE (NET) 146,835
INTELLECTUAL PROPERTY (NET) 19,347
---------
TOTAL ASSETS $ 195,038
=========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Bank overdraft $ 1,996
Accounts payable 44,451
Deposits payable 4,273
Payroll payable 13,803
Other current liabilities 12,460
Notes payable 47,632
---------
Total Current Liabilities 124,615
---------
Total Liabilities 124,615
---------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, no par value,
authorized unlimited shares;
32,073,961 shares issued
and outstanding 495,781
Accumulated other comprehensive loss (36,648)
Accumulated deficit (388,713)
---------
Total Stockholders' Equity (Deficit) 70,420
---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 195,035
=========
Pro forma financials of PCS as if LabMentors was acquired March 31, 2005 and
September 30, 2005, as well as the financial statements for LabMentors as of
September 30, 2005, are available in the Form 8K/A filed on February 15, 2006.
Periods Ended
Sept. 30, May 31,
2005 2005
------- -------
Revenues $1,801,655 $ 1,593,519
Net loss $ (107,660)$(1,098,093)
Net loss per share* $ (0.00)$ (0.04)
Note that the pro forma results of operations are not necessarily indicative
of what the actual results of operations of the Company would have been had
the acquisition occurred at the beginning of fiscal year 2006, nor are they
indicative of future results of operations of the Company.
The purchase of goodwill is normally deductible for tax purposes. However,
since the acquisition was completed through the exchange of stock, goodwill is
not deductible for such purposes.
F-13
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
----------
During the past two fiscal years, there have been no changes or
disagreements with our independent auditors.
AVAILABLE INFORMATION
---------------------
We file periodic reports with the Securities and Exchange Commission.
You may inspect and copy these documents at the Public Reference Room of the
Commission at Room 1580, 100 F Street, N.E., Washington, D.C. 20549. Please
call the Securities and Exchange Commission at 202-942-8090 for additional
information. Our Securities and Exchange Commission filings are also
available on its web site: http://www.sec.gov.
We have filed a registration statement with the Securities and Exchange
Commission on Form SB-2, under the Securities Act, with respect to the
securities described in this prospectus. This prospectus is filed as part of
the registration statement. It does not contain all of the information set
forth in the registration statement and the exhibits and schedules filed with
it. For further information about us and the common stock described by this
prospectus, we refer you to the registration statement and to the exhibits and
schedules filed with it. You may inspect or copy these documents at the
Public Reference Room or on the Securities and Exchange Commission's web
site.
------------------------------------------------------------------------------
------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors And Officers.
------------------------------------------
Section 30-1-851(1) of the Idaho Business Corporation Act (the "Idaho
Act") authorizes an Idaho corporation to indemnify any director against
liability incurred in any proceeding if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was
unlawful. Section 30-1-851(2) of the Idaho Act also permits indemnification
of a director who engaged in conduct for which broader indemnification has
been made permissible or obligatory under the corporation's articles of
incorporation.
Unless ordered by a court, Section 30-1-851(4) of the Idaho Act prohibits
a corporation from indemnifying a director in connection with a proceeding by
or in the right of the corporation, except for reasonable expenses incurred in
connection with the proceeding if it is determined that the director has met
the standard of conduct under Section 30-1-851(1). Nor may a corporation
indemnify the director in connection with any proceeding with respect to
conduct for which he or she was adjudged liable on the basis that he or she
received a financial benefit to which he or she was not entitled, whether or
not involving action in his or her official capacity.
Under Section 30-1-852 of the Idaho Act, a corporation shall indemnify a
director who was wholly successful, on the merits or otherwise, in the defense
46
of any proceeding to which he or she was a party because he or she was a
director of the corporation against reasonable expenses incurred by him or her
in connection with the proceeding.
We have not entered into any written indemnification agreements with our
officers, directors or employees. However, our bylaws provide for
indemnification in certain situations. Article V of our bylaws reads as
follows:
To the fullest extent permitted by law, this corporation shall indemnify
any person and to advance expenses incurred or to be incurred by such
person in defending a civil, criminal, administrative or investigative
action, suit or proceeding threatened or commenced by reason of the fact
said person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise. Any such indemnification or
advancement of expenses shall not be deemed exclusive of any other rights
to which such person may be entitled under any bylaw, agreement, vote of
shareholders or disinterested directors or otherwise, both as to action
in such person's official capacity and as to action in another capacity
while holding such office. Any indemnification or advancement of expenses
so granted or paid by the corporation shall, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to be
a director, officer, employee or agent and shall inure to the benefit of
the heirs and personal representative of such a person.
As to indemnification for liabilities arising under the Securities Act of
1933 for directors, officers or persons controlling PCS, we have been informed
that in the opinion of the Securities and Exchange Commission this
indemnification is against public policy and unenforceable.
Item 25. Other Expenses of Issuance And Distribution.
--------------------------------------------
The following table sets forth the expenses that we expect to incur in
connection with the registration of the shares of common stock being
registered by this registration statement. All of these expenses, except for
the Commission registration fee, are estimated:
Securities and Exchange Commission registration fee........$ 1,076.95
Legal fees and expenses....................................$37,500.00
Accounting fees............................................$ 3,500.00
Printing and engraving expenses............................$ 1,000.00
Transfer agent fees........................................$ 500.00
Miscellaneous..............................................$ 500.00
Total.................................................$44,076.95
Item 26. 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.
47
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)
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)
48
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)
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
49
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)
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
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
William & Laura Baran 12/30/05 10,000 1,600
Robert Grover 12/30/05 75,000 12,000
(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.
(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.
50
(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.
(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.
51
(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.
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.
52
Item 27. Exhibits
--------
The following exhibits are filed as a part of this Registration
Statement:
Exhibit
Number Description
------ ------------
4.1 Note Purchase Agreement, with the following Exhibits:
Exhibit A: Convertible Note in the principal amount
of $1,000,000
Exhibit B-1: Common Stock Purchase Warrant "A"
Exhibit B-2: Common Stock Purchase Warrant "B"
Exhibit C: Registration Rights Agreement
Exhibit D: Escrow Agreement
5 Opinion of Branden T. Burningham, Esq. regarding legality
23.1 Consent of Branden T. Burningham, Esq.
23.2 Consent of HJ & Associates, LLC
Item 28. Undertakings
------------
PCS hereby undertakes:
(1) To file, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to:
(i) include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement; and, notwithstanding the foregoing, any increase
or decrease in volume of securities offered, if the total dollar value of
securities offered would not exceed that which was registered, and any
deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in the volume and price
represent no more than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act, to treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time shall be deemed to be
the initial bona fide offering.
(3) To file a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
(4) For determining liability of the undersigned small business issuer
under the Securities Act to any purchaser in the initial distribution of the
securities, the undersigned small business issuer undertakes that in a primary
offering of securities of the undersigned small business issuer pursuant to
53
this registration statement, regardless of the underwriting method used to
sell the securities to the purchaser, if the securities are offered or sold to
such purchaser by means of any of the following communications, the
undersigned small business issuer will be a seller to the purchaser and will
be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned
small business issuer relating to the offering required to be filed pursuant
to Rule 424 (Section 230.424 of this chapter);
(ii) Any free writing prospectus relating to the offering prepared
by or on behalf of the undersigned small business issuer or used or referred
to by the undersigned small business issuer;
(iii) The portion of any other free writing prospectus relating to
the offering containing material information about the undersigned small
business issuer or its securities provided by or on behalf of the undersigned
small business issuer; and
(iv) Any other communication that is an offer in the offering made
by the undersigned small business issuer to the purchaser.
(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the small business issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(6) Each prospectus filed pursuant to Rule 424(b)(Section 230.424(b) of
this chapter) as part of a registration statement relating to an offering,
other than registration statements relying on Rule 430B or other than
prospectuses filed in reliance on Rule 430A (Section 230.430A of this
chapter), shall be deemed to be part of and included in the registration
statement as of the date it is first used after effectiveness. Provided,
however, that no statement made in a registration statement or prospectus that
is part of the registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a time
of contract of sale prior to such first use, supersede or modify any statement
that was made in the registration statement or prospectus that was part of the
registration statement or made in any such document immediately prior to such
date of first use.
54
SIGNATURES
----------
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned in the
City of Boise, State of Idaho, on February 24, 2006.
PCS EDVENTURES!.COM, INC.
Date: 2/24/2006 By/s/Anthony A. Maher
--------- --------------------
Anthony A. Maher
CEO, President and Chairman of the
Board of Directors
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
and on the dates stated.
Date: 2/24/2006 /s/Anthony A. Maher
--------- --------------------
Anthony A. Maher
CEO, President and Chairman of the
Board of Directors
Date: 2/24/2006 /s/Christina M. Vaughn
--------- -----------------------
Christina M. Vaughn
Vice President and CFO
Date: 2/24/2006 /s/Donald J. Farley
--------- --------------------
Donald J. Farley
Secretary and Director
Date: 2/24/2006 /s/Michael R. McMurray
--------- ----------------------
Michael K. McMurray
Director
55