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.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
December 31, 2007 and December 31, 2006
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, 2007 Annual Report on Form 10-KSB, which is on file with the SEC.
The operating results for the three-month or nine-month periods ended December 31, 2007 and December 31, 2006 are not necessarily indicative of the results that may be expected for the year ending March 31, 2008.
NOTE 2 - GOING CONCERN
The Company's consolidated financial statements are prepared using Generally Accepted Accounting Principles applicable to a going concern that contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company does not have an established source of revenues sufficient to cover its current operating costs. The Company has recently increased its cash position and reduced its liabilities as compared to prior periods to assist in demonstrating its ability to continue as a going concern. In addition, the Company has accumulated significant losses during previous operating years. All of these items raise substantial doubt about the Company's ability to continue as a going concern, but are partially offset by the recent improved cash and liability positions. Management's plans with respect to alleviating the adverse financial conditions, which may cause some doubt about the Company's ability to continue as a going concern, are as follows:
During the fiscal quarter ending December 31, 2007, the Company continued to strengthen its strategic alliances with fischertechnik®, Lego®, S & L Manufacturing, Flexitoys Corporation, Science Demo, and several curriculum writers throughout the United States for further product development and enhancement to existing curriculum. To date, the Company has continued to develop marketplace strategy for the US market, as well as the international market, through exhibits at trade shows, enhanced marketing material, and cooperative marketing with several of our vendors. Furthermore, the Company continued to discuss potential acquisitions with companies that will provide synergies to existing products, increase revenues, and provide access to many of the emerging educational markets, both domestically and internationally.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plan described in the preceding paragraph and eventually attain profitable operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
PAGE 7
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
December 31, 2007 and December 31, 2006
NOTE 3 - FIXED ASSETS
Assets and depreciation for the period are as follows:
|
|
|
December 31, 2007
|
Computer/office equipment
|
$ 24,580
|
Server equipment
|
91,965
|
Accumulated depreciation
|
(78,530)
|
Total Fixed Assets
|
$ 38,015
|
NOTE 4 - EDUCATIONAL SOFTWARE
Educational software was purchased by the Company as a part of the acquisition of 511092 N.B. LTD. and consists of internally developed education computer programs and exercises to be accessed on the Internet. In accordance with FAS 86, the costs associated with research and initial feasibility of the programs and exercises are expensed as incurred. Once economic feasibility has been determined, the costs to develop the programs and exercises are capitalized until they are ready for sale and access and are reported at the lower of unamortized cost or net realizable value. Capitalized program and exercise inventory are amortized on a straight-line basis over the estimated useful life of the program or exercise, generally 42 to 48 months. This educational software had a carrying value of $77,924 at March 31, 2007 with a total of $11,694 of related depreciation recognized during the nine-month period ended December 31, 2007, with a resulting carrying value of $66,230 at December 31, 2007.
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, as well as the PCS STEPS® program acquired during fiscal year 2007, as outlined in the section entitled "Status of any publicly announced new product or service" in the Annual Report on Form 10-KSB filed with the SEC on June 29, 2007. In accordance with FAS 86, 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 Companys delivery and access platform, which has been determined to be 60 months. This intellectual property had a carrying value of $194,007 at March 31, 2007. Amortization recognized for the nine-month period ended December 31, 2007 was $62,757, with a carrying value of $131,250 at December 31, 2007.
PAGE 8
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
December 31, 2007 and December 31, 2006
NOTE 6 - GOODWILL
The entire goodwill balance of $485,238 at December 31, 2007, which is not deductible for tax purposes due to the purchase being completed through the exchange of stock, is related to the Company's acquisition of PCS LabMentors in December 2005. Included within this amount of goodwill is $135,658 of costs associated with the 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.
We undertook an impairment review at the end of the fiscal year ended March 31, 2007. 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 PCS 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 7 EQUITY INVESTMENT
On October 1, 2007, PCS Edventures!.com (hereinafter PCS) entered into a Promissory Note (hereinafter Note) agreement with Mohammed Yasser Refai and Global Techniques collectively dba PCS Middle East (hereinafter PCSME). The Note had a maturity date of December 31, 2007. There was an extension provision in the Note that would allow PCS to allow for an additional one-month period of time in which to collect payment provided that PCS would receive documentation satisfactory to Lender (PCS) that
PCS Middle East, the Saudi Arabian company (Saudi Company), have entered into a binding and enforceable contract
(with) the Minister of Education. On December 31, 2007, PCSME neither repaid the Note in full nor provided sufficient documentation, which could be made public, to PCS to satisfy the terms of the Note. As such, PCS placed PCSME in default of the Note.
The Note was converted to an equity investment as of December 31, 2007. In accordance with APB Opinion No. 18,
The Equity Method of Accounting for Investments in Common Stock
(hereinafter Opinion No. 18), the cost-method has been utilized to record the equity investment. The equity-method was also considered as the Company has gained a twenty-five percent (25%) interest in PCSME. However, in accordance with FIN 35,
Criteria for Applying the equity Method of Accounting for Investments in Common Stock
(hereinafter FIN35), management has exercised its right to determine how to record the equity investment. The decision was based on managements knowledge that the majority of PCSMEs ownership is concentrated among a small group of shareholders who operate PCSME without regard to the views of PCS.
NOTE 8 -ACCRUED EXPENSES
Accrued expenses are made up of credit card debt of $14,165 at December 31, 2007.
PAGE 9
NOTE 9 - NOTES PAYABLE - RELATED PARTY
Notes payable - related party, including associated interest, was converted from debt to equity during the fiscal quarter ended June 30, 2007.
NOTE 10 - NOTES PAYABLE
Notes payable are made up of the following at December 31, 2007:
|
|
Notes payable to a Canadian governmental agency bearing no interest, with payments due the 1st of each month, unsecured
|
$ 32,285
|
Total Notes Payable
|
$ 32,285
|
NOTE 11 COMMITMENTS AND CONTINGENCIES
a. Operating Lease Obligation
The Company leases its main office under a non-cancelable lease agreement accounted for as an operating lease. The lease expires in June 2012.
|
|
Fiscal Year
|
Monthly Obligation
|
2008
|
$10,050
|
2009
|
$10,350
|
2010
|
$10,650
|
2011
|
$10,950
|
2012
|
$11,250
|
Rent expense for the corporate offices was $74,389 and $65,250 for the nine-month ended December 31, 2007 and 2006, respectively, under this lease arrangement.
The Company leases warehouse space close to its headquarters. The lease expires in February 2008. The monthly rental obligation is approximately $1,500 for total lease payments remaining of $3,000. Rent expense was approximately $13,500 and $7,000 for the nine-month ended December 31, 2007 and 2006, respectively. The Company intends to renew the lease upon expiration.
The Company leases office space for its subsidiary in Canada. This lease is a month-to-month lease that may be cancelled at any time. The monthly rental obligation is approximately $1,100 each month. The Company intends to continue to lease this space on a month-to-month basis. Rent expense was approximately $6,600 for the nine-month period ended December 31, 2007 and 2006.
b. Litigation
None; not applicable.
PAGE 10
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
December 31, 2007 and December 31, 2006
NOTE 12 - STOCKHOLDERS' EQUITY
The Stockholders' Equity Section increased during the quarter due to the following transactions:
During the quarter ended December 31, 2007, the Company issued 12,048 shares of common stock as compensation to an employee valued at approximately $10,000.
During the quarter ended December 31, 2007, the Company issued 22,805 shares of common stock to an employee as compensation valued at approximately $18,700.
During the quarter ended December 31, 2007, the Company issued 2,810 shares of common stock as payment of accounts payable to two vendors valued at approximately $3,400.
During the quarter ended December 31, 2007, the Company issued 460,000 shares of common stock for the exercise of a warrant agreement to an investor valued at approximately $312,800.
During the quarter ended December 31, 2007, the Company issued 40,000 shares of common stock for the exercise of a stock option agreement to an employee valued at approximately $21,000.
During the quarter ended December 31, 2007, the Company issued 6,919 shares of common stock for the exercise of a stock option agreement to a former contract employee valued at approximately $4,900.
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 fiscal year ended March 31, 2007.
A summary of the status of the Company's outstanding stock options and warrants as of December 31, 2007 is presented below:
|
|
|
|
|
Weighted Average
|
|
Shares
|
Exercise Price
|
Outstanding, beginning of year
|
10,321,790
|
$ 0.98
|
Granted
|
461,139
|
$ 1.10
|
Expired/Cancelled
|
(150,000)
|
$ 0.00
|
Exercised
|
(3,602,809)
|
$ 0.45
|
Outstanding, end of year
|
7,030,120
|
$ 0.76
|
|
|
|
Exercisable
|
5,906,620
|
$ 0.72
|
PAGE 11
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
December 31, 2007 and December 31, 2006
NOTE 13 DEPRECIATION AND AMORTIZATION EXPENSE
During the nine-month period ended December 31, 2006, the Company had depreciation and amortization expense of $131,119. This amount was composed of depreciation related to fixed assets, as well as the amortization of Warrant A and Warrant B expenses of $666,667. The warrants were fully amortized as of December 31, 2006. Thus, the decrease in depreciation and amortization expense during the period ended December 31, 2007 was due to the lack of the warrant amortization. The full expense of $131,119 was related to depreciation of fixed assets for the nine-month period ended December 31, 2007.
NOTE 14 - SUBSEQUENT EVENTS
On January 7, 2008, the Company filed Form 8K related to Item 1.02 of the SEC for Termination of Material Definitive Agreement. On October 1, 2007, the Company entered into a Non-Interest Bearing Promissory Note and Assignment of Equity (hereinafter Note) with Global Techniques dba PCS Middle East and Mohammed Yasser Refai (hereinafter Borrowers). The Note was due on December 31, 2007. If the Note was not paid by December 31, 2007, Borrowers could provide documentation acceptable to PCS showing that Borrowers had entered into a contract with the Ministry of Education. On December 31, 2007, satisfactory documentation was not provided to the Company. The Company is in the process of perfecting its security interest with Borrowers.
PAGE 12