United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended December 31, 2006
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
For the transition period from to
-------------- ---------------
Commission File No. 000-49990
PCS EDVENTURES!.COM, INC.
-------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
IDAHO 82-0475383
----- ----------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
345 Bobwhite Court, Suite #200
Boise, Idaho 83706
------------------
(Address of Principal Executive Offices)
Issuer's Telephone Number: (208) 343-3110
Check whether the Registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X]
No [ ]
Indicate by check mark whether the Registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes No X
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Not applicable.
Check whether the Registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of the latest practicable date:
31,427,637
February 3, 2007
Transitional Small Business Disclosure Format (Check One): Yes No X
--- ---
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The Financial Statements of the Registrant required to be filed with
this 10-QSB Quarterly Report were prepared by management, and commence on the
following page, together with Related Notes. In the opinion of management,
the Financial Statements fairly present the financial condition of the
Registrant.
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006 and March 31, 2006
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
ASSETS
December 31, March 31,
2006 2006
----------- ----------
(Unaudited)
CURRENT ASSETS
Cash $ 55,169 $ 297,239
Accounts receivable 294,399 608,453
Prepaid expenses 19,362 14,137
Deferred costs 35,841 13,073
Finished goods inventory 84,862 75,606
Capitalized costs (Net) (Note 3) - 89,667
----------- ----------
Total Current Assets 489,633 1,098,175
----------- ----------
FIXED ASSETS (NET) (Note 4) 9,011 18,164
----------- ----------
INTELLECTUAL PROPERTY (NET) (Note 5) 215,126 16,145
----------- ----------
EDUCATIONAL SOFTWARE (NET) (Note 6) 88,155 130,404
----------- ----------
GOODWILL (Note 7) 485,238 485,238
----------- ----------
OTHER ASSETS
Deposits 7,371 6,175
Employee receivable - 1,550
----------- ----------
Total Other Assets 7,371 7,725
----------- ----------
TOTAL ASSETS $ 1,294,534 $1,755,851
=========== ==========
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,
2006 2006
--------- ----------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 171,707 $ 312,866
Accrued compensation 5,672 109,531
Payroll liabilities payable 10,552 54,886
Accrued expenses (Note 8) 25,014 34,092
Unearned revenue 154,834 136,554
Notes payable - related parties (Note 9) 116,423 116,590
Notes payable (Net) (Note 10) 279,030 471,022
Stock Payable (Note 12) 737,539 -
Other current liabilities 8,994 17,477
---------- ---------
Total Current Liabilities 1,509,765 1,253,018
---------- ---------
Total Liabilities 1,509,765 1,253,018
---------- ---------
STOCKHOLDERS' EQUITY (DEFICIT) (Note 11)
Preferred stock, no par value, authorized
20,000,000 shares, 1,666,667 shares issued
and outstanding 1,000,000 -
Common stock, no par value, authorized 60,000,000
shares; 31,427,637 and 31,903,555 shares issued
and outstanding, respectively 27,055,910 26,377,041
Accumulated comprehensive loss (21,274) (7,136)
Accumulated deficit (28,249,867)(25,867,072)
----------- -----------
Total Stockholders' Equity (Deficit) (215,231) 502,833
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 1,294,534 $ 1,755,851
=========== ===========
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,
-------------------------- -----------------------
2006 2005 2006 2005
---------- ---------- ---------- ----------
REVENUE
Lab Revenue $ 412,489 $ 224,338 $1,370,919 $1,876,712
License Revenue 37,956 59,209 145,229 150,691
Subscription Revenue - 1,091 - 3,644
---------- ---------- ---------- ----------
Total Revenues 450,445 284,638 1,516,148 2,031,047
COST OF GOODS SOLD/
COST OF SALES 215,172 354,858 664,300 1,214,150
---------- ---------- ---------- ----------
GROSS PROFIT 235,273 (70,220) 851,848 816,897
---------- ---------- ---------- ----------
OPERATING EXPENSES
Salaries and wages 179,628 205,324 620,228 510,132
Stock Compensation 5,170 98,000 51,416 188,116
Debt costs 714,300 - 714,300 -
Depreciation and
amortization expense 37,543 6,788 831,950 9,169
Options/Warrants expense 112,112 - 323,910 -
General and administrative 188,514 202,013 678,884 667,604
---------- ---------- ---------- ----------
Total Operating Expenses 1,237,267 512,125 3,220,688 1,375,021
---------- ---------- ---------- ----------
OPERATING INCOME (LOSS) (1,001,994) (582,345) (2,368,840) (558,124)
---------- --------- ---------- ----------
OTHER INCOME AND EXPENSES
Interest income 336 11 1,425 -
Interest expense (15,603) (12,220) (26,605) (47,087)
Other income - 4,957 15,011 19,449
Other expense - - (3,785) -
---------- ---------- ---------- ----------
Total Other Income and
(Expenses) (15,267) (7,252) (13,954) (27,638)
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE
INCOME TAXES (1,017,261) (589,597) (2,382,794) (585,762)
INCOME TAX EXPENSE - - - -
---------- ---------- ---------- ----------
NET INCOME (LOSS) (1,017,261) (589,597) (2,382,794) (585,762)
Foreign currency
translation 9,769 210 14,137 210
---------- ---------- ---------- ----------
COMPREHENSIVE NET
INCOME (LOSS) $(1,007,492) $ (589,387) $(2,368,657)$ (585,552)
========== ========== =========== ==========
BASIC INCOME (LOSS)
PER SHARE $ (0.04) $ (0.02) $ (0.08)$ (0.02)
========== ========== =========== ==========
WEIGHTED AVERAGE NUMBER OF
BASIC SHARES OUTSTANDING 27,756,654 27,226,279 28,768,864 27,277,971
========== ========== =========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
For the
Nine Months Ended
December 31,
----------------------
2006 2005
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(2,382,794) $(585,762)
Adjustments to reconcile net income (loss) to
net cash used by operating activities:
Depreciation and amortization 76,486 9,169
Amortization of debt discount 666,667 -
Amortization of capitalized costs 89,667 -
Stock/Stock options issued for consulting services 41,909 96,782
Stock options issued for board compensation 37,487 48,750
Stock options issued for employee compensation 384,702 19,700
Stock issued for notes payable and interest 714,300 -
Amortization of expenses prepaid with common stock - (6,667)
Stock issued for legal expenses - 35,000
Gain on return of common stock - (13,750)
Changes in operating assets and liabilities:
(Increase) Decrease in accounts receivable 314,054 (389,303)
(Increase) decrease in inventory (9,256) (26,366)
Decrease in deferred costs (22,768) 105,040
Decrease in accounts payable and accrued
liabilities (317,239) 404,475
Increase (decrease) in interest payable 10,879 38,393
Increase in unearned revenue 7,095 40,614
Decrease in other assets 11,202 (16,449)
--------- --------
Net Cash Provided (Used) by Operating Activities (377,609) (240,374)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets - (5,465)
Cash payment on notes receivable - -
Loss on sale of fixed assets 3,758 -
-------- --------
Net Cash Provided by (Used) Investing Activities 3,758 (5,465)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments to related parties - -
Proceeds from issuance of common stock 7,400 147,880
Principal payments on notes payable (95,163) (13,807)
Proceeds from notes payable 235,750 151,104
Cash from acquisition - 63
Increase in bank overdraft - 7,157
-------- ---------
Net Cash Provided (Used) by Financing Activities 147,987 292,397
Conversions (16,206) -
-------- ---------
NET INCREASE (DECREASE) IN CASH (242,070) 46,558
CASH AT BEGINNING OF PERIOD 297,239 16,752
-------- ---------
CASH AT END OF PERIOD $ 55,169 $ 63,310
======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
For the
Nine Months Ended
December 31,
----------------------
2006 2005
--------- ---------
Cash Paid For:
Interest $ 25,580 $ 38,393
Income taxes $ - $ -
NON-CASH INVESTING & FINANCING ACTIVITIES:
Purchase of Assets for stock $ 225,000 $ 420,000
Issuance of stock for payment on notes payable
and interest $ - $ 141,017
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Notes to the Consolidated Financial Statements
December 31, 2006 and December 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 October 1994 and November 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 includes
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 not to make the
information 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, 2006 Annual Report on Form 10-KSB, which is on file with the SEC.
The financial statements presented are on a consolidated basis and
include post-acquisition numbers of PCS LabMentors, LTD. The pre-acquisition
net income(loss) and balance sheet accounts are not included herein.
The operating results for the nine-month period ended December 31,
2006 and 2005 are not necessarily indicative of the results that may be
expected for the year ending March 31, 2007.
NOTE 2 - GOING CONCERN
The Company's consolidated financial statements are prepared using Generally
Accepted Accounting Principals applicable to a going concern that contemplates
the realization of assets and liquidation of liabilities in the normal course
of business. However, the Company does not have significant cash or other
material assets, nor does it have an established source of revenues sufficient
to cover its operating costs. Additionally, the Company has accumulated
significant losses, has negative working capital, and a deficit in
stockholders' equity. All of these items raise substantial doubt about its
ability to continue as a going concern. Management's plans with respect to
alleviating the adverse financial conditions that caused shareholders to
express substantial doubt about the Company's ability to continue as a going
concern are as follows:
F-7
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Notes to the Consolidated Financial Statements
December 31, 2006 and December 31, 2005
NOTE 2 (continued) - GOING CONCERN
During the interim period ending December 31, 2006, the Company has
established alternative supplier channels, including manipulatives being
supplied by FischerTechnik, LTD. By establishing the FischerTechnik supplier
relationship, the Company has been able to diversify its product line. The
Company has increased marketing efforts throughout the United States for the
newly developed PCS Edventures Robotic Challenge (ERC) curriculum package that
utilizes FischerTechnik manipulatives. The Company continues to enhance
existing products and create new products to fit the ever-changing needs of
the educational market for both domestic and international markets. Current
projects include development of our PCS Young Learner BrickLab(tm), which
serves the growing needs of preschool students; new curriculum for our PCS
Applied Mathematics programs; ERC package, which utilizes FischerTechnik
manipulatives to teach robotics; and revisions to our PCS Academy of
Engineering(tm) products.
The ability of the Company to continue as a going concern is dependent upon
its ability to successfully accomplish the plan described in the preceding
paragraphs and eventually attain profitable operations. The accompanying
consolidated financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
NOTE 3 - CAPITALIZED COSTS (Net)
The total capitalized costs of $134,500 were the costs associated with the
Note Purchase Agreement dated December 29, 2005, which was funded on January
3, 2006, between the Company and Barron Partners, LP. The capitalized costs
were fully amortized as of September 30, 2006.
NOTE 4 - FIXED ASSETS
Fixed Assets as of December 31, 2006 were composed of computer equipment and
office equipment. The net carrying value as of March 31, 2006 was $18,164.
Total depreciation for fixed assets for the nine-month period ended December
31, 2006 was $9,153.
NOTE 5 - INTELLECTUAL PROPERTY
Intellectual property consists of capitalized costs associated with the
development of the Internet software and delivery platform developed by PCS
LabMentors to enable access to the various educational programs and exercises
developed by the Company. In accordance with FAS 86 as discussed previously
regarding inventory, the initial costs associated with researching the
delivery platform and methods were expensed until economic feasibility and
acceptance were determined. Thereafter, costs incurred to develop the Internet
online delivery platform and related environments were capitalized until ready
for use and able to deliver and access the Company's educational programs and
exercises. Costs incurred thereafter to maintain the delivery and access
platform are expensed as incurred. These capitalized costs are being amortized
on a straight-line basis over the estimated useful life of the Company's
delivery and access platform, which has been determined to be 60 months. This
intellectual property had a carrying value of $16,145 as of March 31, 2006.
Amortization recognized for the nine-month period ended December 31, 2006 was
$7,269.
F-8
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Notes to the Consolidated Financial Statements
December 31, 2006 and December 31, 2005
NOTE 5 - INTELLECTUAL PROPERTY (Continued)
Another component of intellectual property is educational assets. The
educational assets consisted of Edventures! platform, Senior Driver content,
VR Quest content, and proprietary curriculum. These assets were fully
depreciated prior to September 30, 2006. On August 31, 2006, the Company
purchased an additional educational asset for $225,000 from Education
Enterprise Solutions. The additional asset is being depreciated over its
useful life. The Company has estimated this asset's useful life to be 36
months. The amortization recognized for the period ended December 31, 2006
was $18,750.
NOTE 6 - EDUCATIONAL SOFTWARE
Educational software was purchased by the Company as a part of the acquisition
of LabMentors and consists of internally developed education computer
programs and exercises to be accessed on the Internet. In accordance with FAS
86, the costs associated with research and initial feasibility of the programs
and exercises are expensed as incurred. Once economic feasibility has been
determined, the costs to develop the programs and exercises are capitalized
until they are ready for sale and access and are reported at the lower of
unamortized cost or net realizable value. Capitalized program and exercise
inventory are amortized on a straight-line basis over the estimated useful
life of the program or exercise, generally 42 to 48 months. This educational
software had a carrying value of $130,404 as of March 31, 2006. A total of
$42,249 of related depreciation was recognized during the nine-month period
ended December 31, 2006.
NOTE 7 - GOODWILL
The entire goodwill balance of $485,238 at December 31, 2006, which is not
deductible for tax purposes due to the purchase being completed through the
exchange of stock, is related to the Company's acquisition of PCS LabMentors
in November 2005. Included within this amount of goodwill is $135,658 of
costs associated with the acquisition. The capitalized costs are for
accounting, consulting, and legal fees associated with the transaction. With
the acquisition of PCS LabMentors, the Company gained LabMentors' significant
interest in the technical college market and increased the products available
to educational outlets. The Company also obtained the information technology
and programming expertise of LabMentors' workforce, gained additional cost
optimization, and gained greater market flexibility in optimizing market
information and access to collegiate level sales.
The provisions of SFAS 142 require that a two-step impairment test be
performed annually or whenever events or changes in circumstances indicate
that the carrying value of an asset may not be recoverable. The first step of
the test for impairment compares the book value of the Company to its
estimated fair value.
F-9
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Notes to the Consolidated Financial Statements
December 31, 2006 and December 31, 2005
NOTE 7 - GOODWILL (Continued)
At the end of the December 31, 2006 quarter, we undertook an impairment
review. After reviewing current operating losses and future growth potential
of the subsidiary, the Company determined that no impairment was created. The
basis for this determination included the growth of existing clients since the
end of the fiscal year, conversations with potential customers for the
upcoming year, the proven record since a bank account was established for the
company to sustain operations for the foreseeable future, as well as the added
economies of scale the subsidiary has added to the Company as a whole,
including several technical performance enhancements supplied by LabMentors to
supplement the core capabilities of PCS, such as creation of added internet
service bandwidth and associated signal routing capabilities not known to the
technical people at PCS; locating and managing a demonstration server on their
system for a wide variety of PCS products; and assisting technical people from
PCS and E2S in the creation and management of a server to host the STEPS
product. In conclusion, the Company felt and still feels that LabMentors
brought more than a cutting edge product to PCS, but the acquisition also
brings vertical integration and technology not previously known by PCS.
NOTE 8 - ACCRUED EXPENSES
Accrued expenses are made up of credit card debt of $25,014 at December 31,
2006.
NOTE 9 - NOTES PAYABLE - RELATED PARTY
Notes payable - related party consisted of the following at December 31,
2006:
Notes payable to the President bearing interest
at 10% per annum, all unpaid principal and
interest payments due on demand $ 116,423
---------
Total Notes Payable Related Party $ 116,423
=========
F-10
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Notes to the Consolidated Financial Statements
December 31, 2006 and December 31, 2005
NOTE 10 - NOTES PAYABLE
Notes payable consisted of the following at December 31, 2006:
Notes payable to a Canadian governmental agency
bearing no interest, with payments due
September 1, 2006, unsecured (1) $ 43,653
Notes payable to a third-party financing company,
bearing an interest rate of 0.65% plus financing costs,
with full payment due March 2, 2007, secured (2) 96,750
Notes payable to a non-related party bearing
an interest rate of 9% per annum, all unpaid
principal and interest due on March 15, 2007,
unsecured (3) 100,000
Notes payable to a financial institution for a
revolving line of credit bearing an interest
rate of 21.75%, with monthly payments due
November 19, 2007, unsecured (4) 38,627
----------
Total Notes Payable $ 279,030
==========
(1) The notes payable to a Canadian governmental agency varied from the amount
shown at fiscal year end March 31, 2006 ($47,699) due to a fluctuation in the
currency exchange rate, as well as monthly repayments since September 1, 2006.
(2) The notes payable to the third-party financing company was per the
Agreement dated December 22, 2006. The notes payable is secured through the
accounts receivable of $148,555 from a sale in September 2006.
(3) The notes payable to a non-related party was per the Agreement dated
November 15, 2006. The notes payable is an unsecured loan payable in full,
including interest, on March 15, 2007.
(4) The notes payable to a financial institution is an unsecured, revolving
line of credit. Minimum monthly payments of $1,000 are due on the 19th of
each month.
NOTE 11 - Stockholders' Equity
The Stockholders' Equity Section increased during the quarter due to the
following transactions:
During the quarter ended June 30, 2006, the Company issued 25,000 shares of
common stock in exchange for conversion of related party note payable with
interest valued at $4,000.
During the quarter ended June 30, 2006, the Company issued 18,312 shares of
common stock in exchange for consulting services valued at $9,115.
During the quarter ended June 30, 2006, the Company issued stock options to
purchase 64,287 shares of common stock in exchange for consulting services
valued at $31,745.
During the quarter ended June 30, 2006, the Company expensed options in
accordance with FAS 123(R) valued at $111,927.
F-11
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Notes to the Consolidated Financial Statements
December 31, 2006 and December 31, 2005
NOTE 11 (continued)- STOCKHOLDERS' EQUITY
During the quarter ended June 30, 2006, the Company issued stock options to
purchase 18,750 share of common stock as board compensation valued at $11,245.
During the quarter ended June 30, 2006, the Company issued 11,321 shares of
stock as employee compensation valued at $6,000.
During the quarter ended September 30, 2006, the Company issued 2,473 shares
of common stock in exchange for consulting services valued at $1,048.
During the quarter ended September 30, 2006, the Company issued stock options
to purchase 24,999 shares of common stock as board compensation valued at
$11,247.
During the quarter ended September 30, 2006, the Company issued 30,000 shares
of common stock for the exercise of stock options by an employee valued at
$3,900.
During the quarter ended September 30, 2006, the Company issued 18,035 shares
of common stock to employees for bonuses related to fiscal year 2006 valued at
$11,363.
During the quarter ended September 30, 2006, the Company expensed options in
accordance with FAS 123(R) valued at $99,871.
During the quarter ended September 30, 2006, the Company issued 375,000 shares
of common stock valued at $225,000 in exchange for the purchase of a
technological asset.
During the quarter ended September 30, 2006, the Company issued 36,957 shares
of common stock to an employee as additional compensation valued at $17,000.
During the quarter ended September 30, 2006, the Company issued 50,000 shares
of common stock for the exercise of stock options by an employee valued at
$3,500.
During the quarter ended September 30, 2006, the Company issued stock options
to purchase 75,000 shares of common stock as additional compensation to an
employee valued at $34,737.
During the quarter ended December 31, 2006, the Company expensed options in
accordance with FAS 123(R) valued at $112,112.
During the quarter ended December 31, 2006, the Company issued warrants
to purchase 100,000 shares of common stock to a non-related third-party valued
at $33,133.
During the quarter ended December 31, 2006, the Company issued warrants
to purchase 10,000 shares of common stock to a non-related third-party valued
at $3,313.
During the quarter ended December 31, 2006, the Company issued stock options
to purchase 35,716 shares of common stock as board compensation valued at
$14,995.
F-12
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Notes to the Consolidated Financial Statements
December 31, 2006 and December 31, 2005
NOTE 11 (continued)- STOCKHOLDERS' EQUITY
During the quarter ended December 31, 2006, the Company issued 30,000 shares
of common stock in exchange for conversion of related party note payable with
interest valued at $4,800.
Some of the transactions listed above were a result of the Company's adoption
of SFAS 123(R)(see next paragraph). The value of the stock options granted
during the current quarter was properly accounted for under the stockholders'
equity section because the Company's stock has no par value.
The Company accounts for stock-based employee compensation in accordance with
SFAS 123(R) (revised 2004) "Share-Based Payment." SFAS No. 123(R) requires
employee stock-based compensation to be measured based on the fair value as of
the grant-date of the awards and the cost is to be recognized over the period
during which an employee is required to provide services in exchange for the
award. Historically, the company used the intrinsic method of valuation as
specified in APB No. 25, "Accounting for Stock Issued to Employees" and
related interpretations and accordingly no compensation cost had been
recognized for stock options in prior years. This pronouncement eliminates
the alternative use of Accounting Principles Board (APB) No. 25, wherein the
intrinsic value method of accounting for awards is used. As a result of
adopting the fair value method for stock compensation, all future awards and
current awards vesting in future periods will be expensed over the stock
options' vesting period as defined in its contract award. The Company adopted
this provision during the first quarter of fiscal year 2007, which ends March
31, 2007.
A summary of the status of the Company's outstanding stock options and
warrants as of December 31, 2006 is presented below:
Weighted
Average
Exercise
Shares Price
---------- --------
Outstanding, March 31, 2006 9,109,090 $0.94
Granted 1,368,752 $0.49
Expired/Cancelled - -
Exercised (105,000) $0.11
---------- -------
Outstanding, December 31, 2006 10,372,842 $0.98
========== =======
Exercisable, December 31, 2006 8,526,842 $0.98
========== =======
NOTE 12 - STOCK PAYABLE
The stock payable was made up of approximately $7,000 due as royalty payments
on our PCS Academy of Science(tm) product line; $16,000 due to our subsidiary
President pursuant to his Employment Agreement; and $714,300 due to Barron
Partners, LP (see below).
SFAS No. 5, Accounting for Contingencies, defines a contingency as "an
existing condition, situation, or set of circumstances involving uncertainty
as to possible gain or loss to an enterprise that will ultimately be resolved
when one or more future events occur or fail to occur." On December 29, 2006,
the Company entered into a Note Purchase Agreement with Barron Partners, LP.
The Agreement included an EBITDA (Earnings Before Interest, Tax, Depreciation,
and Amortization) clause, wherein the Company must meet an EBITDA of $4.5M for
the fiscal year ending March 31, 2007. If the EBITDA target is not met, the
Company must issue additional shares to Barron Partners, LP at a discount no
greater than 71.34% of the original issue price ($0.60), whereas the
additional shares would be issued at $0.174 per share. As of the quarter
ended December 31, 2006, the Company had a negative EBITDA of approximately
$570,000.
SFAS No. 5 states that when a loss contingency exists, the Company must
determine if the loss is probable, reasonably possible, or remote. Once that
determination is made, the Company must determine if the loss can be
reasonably estimated. If the contingency is reasonably possible or probable
and can be reasonably estimated, the Company must accrue for the contingency
in its financial statements.
At this time, the Company feels there is a probable chance that the Company
will not meet the EBITDA target. The probable chance is based on information
being communicated to the Company through potential clients and vendors. The
Company has also determined that the loss can be reasonably estimated at this
time. As such, the company has accrued for this contingent liability in its
financial statements for the quarter ended December 31, 2006. The additional
shares of stock to be issued to Barron Partners, LP at the conclusion of the
Fiscal Year ending March 31, 2007 is worth $714,333. The dollar amount is
reflected on the Balance Sheet under Stock Payable. The total shares more
likely than not to be issued are 4,167,638 shares.
NOTE 13 - SUBSEQUENT EVENTS
On January 16, 2007, PCS BrickLab (& Design)(r) was registered with the United
States Patent and Trademark Office, with Registration Number 3,198,009. The
application was originally filed on November 17, 2003.
F-13
Item 2. Management's Discussion and Analysis or Plan of Operation.
--------------------------------------------------------------------
Overview.
---------
PCS Edventures!.com, Inc. (the "Company," "PCS," "we," "our," "us" or
similar words) was incorporated in 1994 in the State of Idaho. In October
1994, we acquired PCS Schools, Inc. ("PCS Schools"), and in November 2005, we
acquired 511092 N.B. LTD. dba LabMentors based in Fredericton, New Brunswick
Canada, which are both wholly owned subsidiaries of PCS Edventures!.com, Inc.
The 511092 N.B. LTD. company was renamed PCS LabMentors, LTD. ("LabMentors" or
"PCS LabMentors").
PCS Schools had created an educational enrichment program that was
delivered in owner-operated, free standing Learning Centers. This program
offered a unique atmosphere highly conducive to individual styles of learning
and a system that utilized computer technology to increase areas of inquiry
and application. Subsequently, we changed our business plan and business
strategy and, in connection with this change, we divested the Learning Centers
developed by PCS Schools and focused our efforts on creating web based
educational systems utilizing and improving PCS Schools legacy curriculum.
PCS LabMentors is the exclusive provider of a proprietary virtual lab
technology designed to provide hands-on experience to high school through
college students studying a variety of technical topics. These technical
topics include programming, network management, security, and operating
systems. LabMentors' technology provides students with the ability to manage
and configure any hardware/software platform remotely, through a proprietary
client accessed remote server farm. Also embedded within the LabMentors
system is a Learning Management System (LMS) that enables the delivery and
tracking of curriculum and tasks to students. Using LabMentors' complete
solution, any school or institution can offer advanced IT training topics in
any number of areas such as Windows Server 3000(Registered), Linux(Registered)
system administration, and various other applications without the associated
overhead of owning and managing various hardware platforms.
The Company is engaged in the business of developing and marketing
educational learning labs bundled with related technologies and programs. Our
products and technologies are targeted and marketed to the public and private
school classrooms for pre-kindergarten through college, after school market,
and home school market. Our products and technologies are delivered to each
of these markets through an inventory of hardware, software, books (both
developed in-house and from external sources), and Internet access. Our
technologies and products are delivered to the home user through Internet
access via a subscription based website. Our products and technologies allow
students ages 3 and up to explore the basic foundations of mechanical
engineering, structures in architecture, robotics, mathematics, art, computer
science, programming, and physical science.
PCS Edventures!.com, Inc. has developed several innovative technology
based educational programs directed to the pre-kindergarten through high
school age groups. Our Academy of Engineering(Trademarked); Academy of
Electric Engineering(Trademarked); PCS Academy of Science(Trademarked);
Academy of Robotics(Trademarked); Edventures! Lab(Trademarked); and Discover!
Lab products are site-license installations for classrooms and learning
programs. Our PCS BrickLab(Trademarked) and Young Learner Building
Box(Trademarked) products are also for classrooms and learning programs, but
are not licensed. Our Edventures! Online(Trademarked) product is our
comprehensive Internet delivered educational experience that supports our
Edventures! Labs and our Discover! Labs site licenses and also serves as a
stand-alone program for home use on a monthly subscription basis. Separately,
and in combination, these products present a platform for delivering
educational services and support to classrooms, learning centers, and home
users, and create a virtual community of learners and parents on the web. It
is our business strategy that as this online community grows, it will become
an education portal through which additional PCS programs and services can be
marketed and delivered.
The results of operations discussed herein are on a consolidated basis.
Foreign Currency Exchange Rate Risk.
------------------------------------
The Company sells many products throughout the international market, as
well as having operations in Canada as a result of the acquisition of
LabMentors. As a result, our statement of cash flows and operating results
could be affected by changes in foreign currency exchange rates or weak
economies of foreign countries. Working capital necessary to continue
operating our foreign subsidiary are held in local, Canadian currency, with
additional funds utilized through the parent company being held in U.S.
dollars. Any gains or losses from the foreign currency translation are
presented in our statements of operations. The recently acquired subsidiary
is not a significant component of our business and as such the risk associated
therewith is minimal.
Results of Operations.
----------------------
Results of Operations Overview.
-------------------------------
The quarter ended December 31, 2006, resulted in a net loss of $1,017,261
as compared to the net loss for quarter ended December 31, 2005, of $589,597.
The Basic Loss per Share for the quarter ended December 31, 2006, is $0.04, as
compared to the loss per share of $0.02 for the quarter ended December 31,
2005. Details of changes in revenues and expenses can be found below.
During the nine-month period ended December 31, 2006, the Company
experienced significant, non-recurring, non-cash losses. Excluding these
non-cash, non-recurring losses, namely the amortization of capitalized costs
($89,667), amortization of stock options in accordance with FAS 123(R)
($323,910), accrual for the contingent liability to issue additional stock to
Barron Partners, LP ($714,300) and amortization of the debt discount
($666,667), which total $1,794.534 in expenses, the Company would have had a
net loss of $588,260, as compared to the net loss of $585,552 for the
nine-month period ended December 31, 2005. This would have resulted in a loss
per share of $0.02.
Three months ended December 31, 2006, compared to three months ended
December 31, 2005.
------------------
Revenues for the three-month period ended December 31, 2006, increased
to $450,445 or by approximately 58% as compared to $284,638 for the three-
month period ended December 31, 2005. This increase is due to a large sale to
a new customer, Wichita State University, during the quarter ending December
31, 2006, which was partially offset by the unusually large sales during the
September 30, 2005, quarter to Meridian Joint School District and Detroit
Public Schools.
Cost of goods sold for the three-month period ended December 31, 2006,
decreased by approximately 39% to $215,172 as compared to $354,858 for the
three-month period ended December 31, 2005. This decrease was due to changes
in suppliers, price negotiations with current suppliers, as well as material
changes to our products. This decrease was partially offset by the increase
in shipping costs.
Operating expenses for the three-month period ended December 31, 2006,
increased by approximately 142% to $1,237,267 as compared to $512,125 for the
three-month period ended December 31, 2005. Part of the increase during this
quarter as compared to the December 31, 2005, quarter was due to the increase
in the number of employees, amortization of options, accrual for the
contingent liability related to the Note Purchase Agreement between PCS and
Barron Partners, LP (see Note 12 to the financial statements), and the
acquisition of LabMentors. This increase was partially offset by a decrease
in health and dental insurance premiums, Directors & Officers insurance
premiums, and stock compensation expenses. We also had marketing expenses of
approximately $23,000 for the quarter ended December 31, 2006, which are
included in the SG&A figure above. This amount for marketing includes all
travel and conference fees related to trade shows that our sales team attends.
The remainder of the increase during the quarter ended December 31, 2006 was
primarily due to the non-cash amortization expense as outlined below.
We had a non-cash amortization expense during the quarter in the amount
of $112,112 relating to the expense of options issued in accordance with FAS
123(R).
Interest expenses for the three-month period ended December 31, 2006,
increased to $15,603 as compared to $12,220 for the three-month, period ended
December 31, 2005. This increase was due to an increase in short-term
borrowing to fund development projects and inventory needs for the large order
during the quarter ended September 30, 2006, for which the Company has yet to
be repaid.
Nine months ended December 31, 2006, compared to nine months ended December
31, 2005.
---------
Revenues for the nine-month period ended December 31, 2006, decreased
to $1,516,148. This is approximately a 25% decrease when compared to revenues
of $2,031,047 for the nine-month period ended December 31, 2005. This
decrease is due to the unusually large sales during the September 30, 2005,
quarter to Meridian Joint School District and Detroit Public Schools, as well
as a decrease in our PCS Academy of Science product line. This amount was
partially offset by increased sales for our PCS BrickLab((tm)), Discover Lab,
and Edventures Lab, as well as an increase in sales for the current quarter.
Cost of goods sold for the nine-month period ended December 31, 2006,
decreased by approximately 45% to $664,300 as compared to $1,214,150 for the
nine-month period ended December 31, 2005. This decrease was due to changes
in suppliers, price negotiations with current suppliers, as well as material
changes to our products. This decrease was partially offset by the increase
in shipping costs.
Operating expenses for the nine-month period ended December 31, 2006,
increased by approximately 134% to $3,220,688 as compared to $1,375,021 for
the nine-month period ended December 31, 2005. Part of the increase during
this interim period as compared to the interim period ended December 31, 2005,
was due to the increase in the number of employees, as well as the acquisition
of LabMentors. We also had marketing expenses of approximately $121,000 for
the nine-month period ended December 31, 2006, which are included in the SG&A
figure above. This amount for marketing includes all travel and conference
fees related to trade shows that our sales team attends. The Company has seen
an increase in marketing expense since last year (approximately $95,000 for
the same period last year), due to the additional marketing effort by the
in-house sales team. The remainder of the increase during the interim period
was primarily due to the non-cash expenses as outlined below.
We had a non-cash depreciation expense of $89,667 related to the
amortization of capitalized costs for the Barron Partners transaction. This
non-cash expense of the capitalized costs has been fully amortized as of
September 30, 2006. The Company also booked non-cash amortization of debt
discount related to the Barron Partners transaction for the interim period
ended September 30, 2006, in the amount of $666,667. The debt discount has
also been fully amortized as of September 30, 2006. We had a non-cash
amortization expense during the nine-month period ending December 31, 2006 in
the amount of $323,910 relating to the expense of options issued in accordance
with FAS 123(R). In addition, we had a non-cash accrual for the contingent
liability related to the Note Purchase Agreement between PCS and Barron
Partners, LP (see Note 12 to the financial statements).
Interest expenses for the nine-month period ended December 31, 2006,
decreased to $26,605 as compared to $47,087 for the nine-month period ended
December 31, 2005. This decrease was due to a decrease in short-term
borrowing to fund product development and inventory needs during the first two
quarters of the current fiscal year, which was partially offset by an increase
in borrowing during the current quarter.
Liquidity.
----------
As of the quarter ended December 31, 2006, we had $55,169 in Cash, with
total current assets of $489,633 and total current liabilities of $1,509,765.
We have an accumulated deficit of $28,249,867 and shareholders' deficit of
$215,231.
The Company has a current ratio of 0.32. The current ratio for the
Quarter ended December 31, 2005 was 0.88. The ratio indicates that we are
currently utilizing all available resources to help grow the Company through
internal and external means. We have utilized the current ratio over a quick
ratio due to the fact that most items in inventory are easily saleable should
the need to liquidate arise.
Item 3A(T). Controls and Procedures.
--------------------------------------
Management's annual report on internal control over financial reporting.
As of the end of the period covered by this Quarterly Report, we carried out
an evaluation, under the supervision and with the participation of our
President, Chief Compliance Officer, and Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures. Based on this
evaluation, our President, Chief Compliance Officer, and Chief Financial
Officer concluded that our disclosure controls and procedures are effective
and designed to ensure that information required to be disclosed or filed by
us is recorded, processed or summarized, within the time periods specified in
the rules and regulations of the Securities and Exchange Commission. It
should be noted that the design of any system of controls is based in part
upon certain assumptions about the likelihood of future events, and there can
be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions, regardless of how remote. In addition,
we reviewed our internal controls over financial reporting, and there have
been no changes in our internal controls or in other factors in the last
fiscal quarter that has materially affected or is reasonably likely to
materially affect our internal control over financial reporting.
Changes in internal control over financial reporting.
As of the end of the period covered by this Quarterly Report, There were no
changes in the Company's internal controls over financial reporting that
has materially affected, or is reasonably likely to materially effect,
the Company's internal control over financial reporting.
We are currently undergoing a comprehensive effort to ensure compliance with
Section 404 of the Sarbanes-Oxley Act of 2002. As a non-accelerated filer with
a fiscal year end of March 31, we must begin to comply with the requirements
of Section 404 for the fiscal year ending March 31, 2009. We believe that our
present internal control program has been effective at a reasonable assurance
level to ensure that our financial reporting has not been materially
misstated. Nonetheless, during the remaining periods through March 31, 2009,
we will continue to review, and where necessary, enhance our internal control
design and documentation, management review, and ongoing risk assessment as
part of our internal control program.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
----------------------------
None; not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
----------------------------------------------------------------------
Sales of Unregistered Securities During the Last Quarter.
---------------------------------------------------------
Common Preferred
Description Shares Amount Shares Amount
----------- ------ ------ ------ ------
Anthony A. Maher (1) 30,000 $4,800 - -
Barron Partners, LP - - 1,666,667 $1,000,000
(1) These shares were issued for conversion of interest payable on related
party debt through the exercise of options at $0.16 per share for a total
value of $4,800.
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.
Item 3. Defaults Upon Senior Securities.
------------------------------------------
None; not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
--------------------------------------------------------------
None; not applicable.
Item 5. Other Information.
----------------------------
None; not applicable.
Item 6. Exhibits.
-------------------
Exhibits.
31.1 302 Certification of Anthony A. Maher
31.2 302 Certification of Shannon M. Wilson
32 906 Certifications
SB-2 Registration Statement Filed with an Effective Date
of May 11, 2001*
SB-2 Registration Statement Filed with an Effective Date
of March 15, 2006*
Form 10-KSB dated June 29, 2006*
* Incorporated by Reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PCS EDVENTURES!.COM, INC.
Date: 2/7/2007 By: /s/Anthony A. Maher
----------- -------------------------------------
Anthony A. Maher
Chief Executive Officer, President and
Chairman of the Board of Directors
Date: 2/7/2007 By: /s/Shannon M. Wilson
----------- -------------------------------------
Shannon M. Wilson
Chief Financial Officer
Date: 2/7/2007 By: /s/Donald J. Farley
---------- -------------------------------------
Donald J. Farley
Secretary and Director
Date: 2/7/2007 By: /s/Cecil D. Andrus
----------- -------------------------------------
Cecil D. Andrus
Director
Date: 2/7/2007 By: /s/Dehryl A. Dennis
----------- -------------------------------------
Dehryl A. Dennis
Director