United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 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 I.D. No.)
incorporation or organization)
345 Bobwhite Court, Suite #200
Boise, Idaho 83706
------------------
(Address of Principal Executive Offices)
Issuer's Telephone Number: (208) 343-3110
Check whether the 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
--- ---
Not applicable.
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:
31,873,555
September 30, 2006
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
September 30, 2006 and March 31, 2006
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
ASSETS
September 30, March 31,
2006 2006
----------- ----------
(Unaudited)
CURRENT ASSETS
Cash $ 177,602 $ 297,239
Accounts receivable 175,155 608,453
Prepaid expenses 6,370 14,137
Deferred costs 28,139 13,073
Finished goods inventory 80,446 75,606
Capitalized costs (Net) (Note 3) - 89,667
----------- ----------
Total Current Assets 467,712 1,098,175
----------- ----------
FIXED ASSETS (NET) (Note 4) 10,921 18,164
----------- ----------
INTELLECTUAL PROPERTY (NET) (Note 5) 236,826 16,145
----------- ----------
EDUCATIONAL SOFTWARE (NET) (Note 6) 107,061 130,404
----------- ----------
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 $ 1,315,129 $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)
September 30, March 31,
2006 2006
--------- ----------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 187,380 $ 312,866
Accrued compensation 27,400 109,531
Payroll taxes payable 28,737 54,886
Deposits payable 4,485 4,280
Accrued interest 4,880 2,875
Accrued expenses (Note 8) 30,300 34,092
Unearned revenue 160,904 136,554
Notes payable - related parties (Note 9) 116,423 116,590
Notes payable (Net) (Note 10) 1,049,987 471,022
Other current liabilities 16,083 10,322
---------- ---------
Total Current Liabilities 1,626,579 1,253,018
---------- ---------
Total Liabilities 1,626,579 1,253,018
---------- ---------
STOCKHOLDERS' EQUITY (DEFICIT) (Note 11)
Preferred stock, no par value, authorized
20,000,000 shares, no shares issued
and outstanding - -
Common stock, no par value, authorized 60,000,000
shares; 31,873,555 and 31,306,457 shares issued
and outstanding, respectively 26,924,002 26,377,041
Accumulated comprehensive loss (2,768) (7,136)
Accumulated deficit (27,232,684)(25,867,072)
----------- -----------
Total Stockholders' Equity (Deficit) (311,450) 502,833
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 1,315,129 $ 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 Six Months Ended
September 30, September 30,
-------------------------- -----------------------
2006 2005 2006 2005
---------- ---------- ---------- ----------
REVENUE
Lab Revenue $ 447,950 $ 762,852 $ 958,332 $1,652,374
License Revenue 56,936 47,350 107,272 91,482
Subscription Revenue - 1,235 - 2,553
---------- ---------- ---------- ----------
Total Revenues 504,886 811,437 1,065,604 1,746,409
COST OF GOODS SOLD/
COST OF SALES 205,319 477,080 449,001 859,291
---------- ---------- ---------- ----------
GROSS PROFIT 299,567 334,357 616,603 887,118
---------- ---------- ---------- ----------
OPERATING EXPENSES
Salaries and wages 237,001 150,323 440,885 257,091
Stock Compensation 40,887 - 46,245 -
Depreciation and
amortization expense 397,197 1,191 794,408 2,381
Options/Warrants expense 99,871 - 211,798 -
General and administrative 208,853 310,264 490,248 604,031
---------- ---------- ---------- ----------
Total Operating Expenses 983,809 461,778 1,983,584 863,503
---------- ---------- ---------- ----------
OPERATING INCOME (LOSS) (684,242) (127,421) (1,366,981) 23,615
---------- --------- ---------- ----------
OTHER INCOME AND EXPENSES
Interest income 537 18 1,089 23
Interest expense (4,550) (11,089) (11,000) (34,867)
Other income - 676 13,565 17,131
Other expense (3,314) (2,400) (2,285) (2,400)
---------- ---------- ---------- ----------
Total Other Income and
(Expenses) (7,327) (12,795) 1,369 (20,113)
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE
INCOME TAXES (691,569) (140,216) (1,365,612) 3,502
INCOME TAX EXPENSE - - - -
---------- ---------- ---------- ----------
NET INCOME (LOSS) (691,569) (140,216) (1,365,612) 3,502
Foreign currency
translation 1,025 - 4,368 -
---------- ---------- ---------- ----------
COMPREHENSIVE NET
INCOME (LOSS) $ (690,544) $ (140,216) $(1,361,244)$ 3,502
========== ========== =========== ==========
BASIC INCOME (LOSS)
PER SHARE $ (0.02) $ 0.00 $ (0.05)$ 0.00
========== ========== =========== ==========
WEIGHTED AVERAGE NUMBER OF
BASIC SHARES OUTSTANDING 27,725,941 26,874,521 28,410,297 26,854,923
========== ========== =========== ==========
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
Six Months Ended
September 30,
----------------------
2006 2005
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(1,365,612) $ 3,502
Adjustments to reconcile net income (loss) to
net cash used by operating activities:
Depreciation and amortization 704,741 2,381
Amortization of capitalized costs 89,667 -
Stock/Stock options issued for consulting services 41,909 96,782
Stock options issued for board compensation 22,492 15,000
Stock options issued for employee compensation 272,590 9,825
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 504,186 (453,367)
(Increase) decrease in inventory (4,840) (79,112)
Decrease in deferred costs (15,066) 105,372
Decrease in accounts payable and accrued
liabilities (274,096) 226,899
Increase (decrease) in interest payable 5,839 24,954
Increase in unearned revenue (46,538) 77,739
Decrease in other assets 24,193 7,513
--------- --------
Net Cash Provided (Used) by Operating Activities (40,535) 52,071
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets - (4,298)
Cash payment on notes receivable (4,638) -
Loss on sale of fixed assets 3,758 -
-------- --------
Net Cash Provided by (Used) Investing Activities (880) (4,298)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments to related parties - -
Proceeds from issuance of common stock 7,400 55,035
Principal payments on notes payable (89,990) (43,605)
Proceeds from notes payable - 54,092
-------- ---------
Net Cash Provided (Used) by Financing Activities (82,590) 65,522
Conversions 4,368 -
-------- ---------
NET INCREASE (DECREASE) IN CASH (119,637) 113,295
CASH AT BEGINNING OF PERIOD 297,239 16,752
-------- ---------
CASH AT END OF PERIOD $177,602 $ 130,047
======== =========
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
Six Months Ended
September 30,
----------------------
2006 2005
--------- ---------
Cash Paid For:
Interest $ 5,161 $ 21,386
Income taxes $ - $ -
NON-CASH INVESTING & FINANCING ACTIVITIES:
Purchase of Assets for stock $ 225,000 $ -
Issuance of stock for payment on notes payable
and interest $ - $ 140,653
Common stock issued for related party debt $ - $ 364
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
September 30, 2006 and September 30, 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 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, 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 six-month periods ended September 30,
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
September 30, 2006 and September 30, 2005
NOTE 2 (continued) - GOING CONCERN
During the interim period ending September 30, 2006, the Company has
established alternative supplier channels, including manipulatives being
supplied by K'NEX and EduWise, Co. By creating the alternative supplier
chains, the Company has been able to better leverage its purchasing power for
such manipulatives. The Company has increased marketing efforts throughout
the United States with increased attendance at trade show conferences and new
marketing materials, including a redesigned website. The Company continues to
enhance existing 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, which serves
the growing needs of preschool students; new curriculum for our PCS Applied
Math programs; and revisions to our PCS Academy of Engineering.
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
The 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 have
been fully amortized as of September 30, 2006.
NOTE 4 FIXED ASSETS
Fixed Assets at the fiscal year ended March 31, 2006 were composed of computer
equipment and office equipment. The office equipment was fully depreciated
prior to March 31, 2006.
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 six-month period ended September 30, 2006 was
$4,319.
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 will be depreciated in future
quarters during its useful life. The Company has estimated this asset's
useful life to be 36 months.
F-8
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Notes to the Consolidated Financial Statements
September 30, 2006 and September 30, 2005
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
$23,343 of related depreciation was recognized during the six-month period
ended September 30, 2006.
NOTE 7 - GOODWILL
The entire goodwill balance of $485,238 at September 30, 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.
At the end of the September 30, 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 $30,300 at September 30,
2006.
F-9
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Notes to the Consolidated Financial Statements
September 30, 2006 and September 30, 2005
NOTE 9 - NOTES PAYABLE - RELATED PARTY
Notes payable - related party consisted of the following at September 30,
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
=========
NOTE 10 - NOTES PAYABLE
Notes payable consisted of the following at September 30, 2006:
Notes payable related to an investing company
bearing no interest, with a conversion option on
September 30, 2006
$1,000,000
Notes payable to a Canadian governmental agency
bearing no interest, with payments due
September 1, 2006, unsecured (1) 49,987
---------
Total Notes Payable $1,049,987
==========
(1) The notes payable to a Canadian governmental agency varied from the amount
shown at fiscal year end March 31, 2006 due to a fluctuation in the currency
exchange rate. No new funds were borrowed to cause the increase.
All notes payable are considered to be current. The notes payable related to
an investing company bearing no interest, with a conversion option on
September 30, 2006 is explained in further detail in our 10-KSB dated March
31, 2006 on file with the SEC.
As of September 30, 2006, the Note had not been converted and neither of the
warrants had been exercised, in whole or in part. However, on October 17,
2006, the Company received a notice that the Note obligation had been
fulfilled after the automatic conversion of the Note occurred subsequent to
the shareholders' approval of Series A Preferred Stock at the Annual Meeting
held on September 29, 2006. See Note 12 for additional information. To date,
neither of the warrants have been exercised.
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.
F-10
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Notes to the Consolidated Financial Statements
September 30, 2006 and September 30, 2005
NOTE 11 (continued)- STOCKHOLDERS' EQUITY
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.
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.
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.
F-11
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Notes to the Consolidated Financial Statements
September 30, 2006 and September 30, 2005
NOTE 11 (continued)
We account 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. 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 as
of September 30, 2006 is presented below:
Weighted
Average
Exercise
Shares Price
---------- --------
Outstanding, March 31, 2006 9,109,090 $0.94
Granted 1,223,036 $0.55
Expired/Cancelled - -
Exercised (105,000) $0.11
---------- -------
Outstanding, September 30, 2006 10,227,126 $0.99
========== =======
Exercisable, September 30, 2006 8,451,126 $0.99
========== =======
NOTE 12 - SUBSEQUENT EVENTS
On October 4, 2006, the Second Amended and Restated Articles of Incorporation
of PCS Edventures!.com, Inc. (the "Articles") were filed with the Idaho
Secretary of State. The Articles included amendments approved by the
shareholders at the Annual Meeting on September 29, 2006. A complete copy of
the Articles was filed with the SEC on October 3, 2006 on Form 8K.
On October 5, 2006, the Company filed Form 8K stating that Dr. Dehryl A.
Dennis was appointed by the Board of Directors to serve as the fifth Board
Member effective October 1, 2006. Dr. Dennis will serve until the next annual
meeting. Dr. Dennis' background can be viewed within the Form 8K filed with
the SEC on October 5, 2006.
On October 11, 2006, the Company received notification from the United States
Patent and Trademark Office (USPTO) that the PCS BrickLab (& Design) will be
published in the Official Gazette on October 31, 2006. If no opposition to
registration of the mark is received within thirty (30) days of the posting,
PCS BrickLab (& Design) will be duly registered and a Certificate of
Registration will be sent to our offices.
F-12
PCS EDVENTURES!.COM, INC.
AND SUBSIDIARY
Notes to the Consolidated Financial Statements
September 30, 2006 and September 30, 2005
NOTE 12 (continued)
On October 13, 2006, the Company received a Notice of Conversion from Barron
Partners, LP requesting that the Note Purchase Agreement dated December 29,
2005 be converted into 1,666,667 shares of Series A Preferred Stock pursuant
to the terms therein. The terms contained in the Agreement included automatic
conversion after approval of the shareholders for designation of Series A
Preferred Stock. The shareholders approved the designation at the Annual
Meeting held on September 29, 2006. The Note Purchase Agreement was cancelled
on October 19, 2006 through acknowledgement from Barron Partners, LP.
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 three 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 following 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 September 30, 2006, resulted in a net loss of $691,569.
This net loss is a decrease in income by approximately 393% as compared to the
net loss for quarter ended September 30, 2005, of $140,216. The Basic Loss
per Share for the quarter ended September 30, 2006, is $0.02, as compared to
the loss per share of $0.00 for the quarter ended September 30, 2005. Details
of changes in revenues and expenses can be found below.
During the quarter ended September 30, 2006, the Company experienced
significant, non-recurring, non-cash losses. Excluding these non-cash, non-
recurring losses, namely the amortization of capitalized costs ($44,835),
amortization of stock options in accordance with FAS 123(R) ($99,871) and
amortization of the debt discount ($333,334), which total $478,040 in
expenses, the Company would have had a net loss of $213,529, excluding non-
cash, non-recurring losses (expenditures), as compared to the net loss of
$140,216 for the quarter ended September 30, 2005. This would have resulted
in a loss per share of $0.01.
During the six-month period ended September 30, 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)
($211,798) and amortization of the debt discount ($666,667), which total
$968,132 in expenses, the Company would have had a net loss of $397,480,
excluding non-cash, non-recurring losses (expenditures), as compared to the
net income of $3,502 for the six-month period ended September 30, 2005. This
would have resulted in a loss per share of $0.01.
Three months ended September 30, 2006, compared to three months ended
September 30, 2005.
-------------------
Revenues for the three-month period ended September 30, 2006, decreased
to $504,886 or by approximately 38% as compared to $811,437 for the three-
month period ended September 30, 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.
Cost of goods sold for the three-month period ended September 30,
2006, decreased by approximately 57% to $205,319 as compared to $477,080 for
the three-month period ended September 30, 2005. This decrease was due to the
decrease in sales, which was partially offset by the increase in shipping
costs.
Operating expenses for the three-month period ended September 30, 2006,
increased by approximately 113% to $983,809 as compared to $461,778 for the
three-month period ended September 30, 2005. Part of the increase during
this quarter as compared to the September 30, 2005, quarter was due to the
increase in the number of employees, as well as the acquisition of LabMentors.
We also had marketing expenses of approximately $50,000 for the quarter ended
September 30, 2006, which are included in the Sales, General and
Administrative expense 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 ($20,667
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 first quarter
of fiscal year 2007 was primarily due to the non-cash items listed below.
We had a non-cash depreciation expense of $44,835 related to the
amortization of capitalized costs for the Barron Partners transaction. The
capitalized costs have 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 quarter ended September 30, 2006, in the
amount of $333,334. This debt discount has also been fully amortized as of
September 30, 2006. In addition, we booked a non-cash expense during the
quarter in the amount of $99,871 relating to the expense of options issued in
accordance with FAS 123(R).
Interest expenses for the three-month period ended September 30, 2006,
decreased to $4,550 as compared to $11,089 for the three-month, period ended
September 30, 2005. This decrease was due to repayment of short-term
borrowing.
Six months ended September 30, 2006, compared to six months ended September
30, 2005.
---------
Revenues for the six-month period ended September 30, 2006, decreased
to $1,065,604. This is approximately a 39% decrease when compared to revenues
of $1,746,409 for the six-month period ended September 30, 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, Discover Lab, and
Edventures Lab.
Cost of goods sold for the six-month period ended September 30, 2006,
decreased by approximately 48% to $449,001 as compared to $859,291 for the
six-month period ended September 30, 2005. This decrease was due to the
decrease in sales, which was partially offset by the increase in shipping
costs.
Operating expenses for the six-month period ended September 30, 2006,
increased by approximately 130% to $1,983,584 as compared to $863,503 for the
six-month period ended September 30, 2005. Part of the increase during this
interim period as compared to the interim period ended September 30, 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 $98,000 for the
six-month period ended September 30, 2006, which are included in the Sales,
General and Administrative expense 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 ($66,865 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 items 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. In addition, we booked a
non-cash expense during the quarter in the amount of $211,798 relating to the
expense of options issued in accordance with FAS 123(R).
Interest expenses for the six-month period ended September 30, 2006,
decreased to $11,000 as compared to $34,867 for the six-month, period ended
September 30, 2005. This decrease was due to repayment of short-term
borrowing.
Liquidity.
----------
As of the quarter ended September 30, 2006, we had $177,602 in Cash, with
total current assets of $467,712 and total current liabilities of $1,626,579.
We have an accumulated deficit of $27,232,684 and a shareholders' deficit of
$311,450.
The Company has a current ratio of 0.288. The current ratio for the
Quarter ended September 30, 2005 was 0.876. 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 3. Controls and Procedures.
----------------------------------
As of the end of the period covered by this Quarterly Report, we carried
out an evaluation, under the supervision and with the participation of our
President, our Chief Compliance Officer and our Chief Financial Officer, of
the effectiveness of the design and operation of our disclosure controls and
procedures. Based on this evaluation, our President and Secretary concluded
that information required to be disclosed is recorded, processed, summarized
and reported within the specified periods and is accumulated and communicated
to management, including our President and Chief Financial Officer, to allow
for timely decisions regarding required disclosure of material information
required to be included in our periodic Securities and Exchange Commission
reports. Our disclosure controls and procedures are designed to provide
reasonable assurance of achieving their objectives and our President and
Secretary have concluded that our disclosure controls and procedures are
effective to a reasonable assurance level of achieving such objectives.
However, 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 our internal controls over
financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
----------------------------
None; not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
----------------------------------------------------------------------
Sales of Unregistered Securities During the Last Quarter.
---------------------------------------------------------
Common Preferred
Description Shares Amount Shares Amount
----------- ------ ------ ------ ------
Cyndel & Co. (1) 2,473 1,048 - -
Laura Baran (2) 30,000 3,900 - -
Suhas Pharkute (3) 9,227 5,813 - -
Zoltan Cserna (3) 6,812 4,292 - -
Mary Roice (3) 1,996 1,257 - -
Suzy Haislip (4) 50,000 3,500 - -
Education Enterprise
Solutions (5) 375,000 225,000 - -
Suhas Pharkute (6) 36,957 17,000 - -
(1) These shares were issued for consulting expenses at a weighted average of
$0.424 per share.
(2) These shares were issued for the exercise of a stock option at $0.13 per
share.
(3) These shares were issued for the payout of a bonus related to fiscal year
2006 to employees at $0.63 per share.
(4) These shares were issued for the exercise of a stock option at $0.16 per
share.
(5) These shares were issued at $0.60 per share for the purchase of a
technological asset.
(6) These shares were issued to an employee as additional compensation at
$0.48 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 any 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 8K dated October 25, 2006*
Form 8K dated January 9, 2006*
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
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: 11/13/06 By: /s/Anthony A. Maher
----------- -------------------------------------
Anthony A. Maher
Chief Executive Officer, President and
Chairman of the Board of Directors
Date: 11/13/06 By: /s/Shannon M. Wilson
----------- -------------------------------------
Shannon M. Wilson
Chief Financial Officer
Date: 11/10/06 By: /s/Donald J. Farley
---------- -------------------------------------
Donald J. Farley
Secretary and Director
Date: 11/10/06 By: /s/Cecil D. Andrus
----------- -------------------------------------
Cecil D. Andrus
Director
Date: 11/13/06 By: /s/Michael K. McMurray
----------- -------------------------------------
Michael K. McMurray
Director