The accompanying notes are an integral part of these consolidated financial statements.
PCS EDVENTURES!.COM, INC. AND SUBSIDIARY
The consolidated financial statements presented are those of PCS Edventures!.com, Inc., an Idaho corporation, and its wholly owned subsidiary, PCS LabMentors, Ltd., a Canadian company (collectively, the Company).
On August 3, 1994, PCS Education Systems, Inc. was incorporated under the laws of Idaho to develop and operate stand-alone learning labs.
In October 1994, PCS exchanged common stock on a one-for-one basis for common stock of PCS Schools, Inc. As a result of this exchange, PCS Schools, Inc. became a wholly owned subsidiary of PCS. In the late 1990s, the Company divested the stand-alone learning labs to focus more on a hands-on module coupled with web-based technology for use in the classroom.
On March 27, 2000, PCS changed its name from PCS Education Systems, Inc. to PCS Edventures!.com, Inc.
On November 30, 2005, PCS entered into an agreement with 511092 N.B. LTD., a Canadian corporation, (LabMentors) to exchange PCS common stock for common stock of 511092 N.B. LTD. as disclosed in the 8-K as filed with the Securities and Exchange Commission (the SEC) on December 9, 2005 and amended on February 15, 2006. As a result of the definitive Share Exchange Agreement, 511092 N.B. LTD. became a wholly owned subsidiary of the Company. In December 2005, the name of this subsidiary was formally changed to PCS LabMentors, Ltd. It remains a Canadian corporation.
On January 31, 2013, PCS Edventures!.com, Inc. formed a subsidiary called Premiere Science Inc.
incorporated and registered in the State of Idaho. The subsidiary is 100% wholly owned by PCS Edventures!.com,Inc. and was formed to use as an additional sales and marketing tool to gain other business opportunities. There were no operations for the subsidiary during the fiscal year ended March 31, 2013.
The Companys consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern that contemplates the realization of assets and liquidation of liabilities in the normal course of business. The established sources of revenues are not sufficient to cover the Companys operating costs. The Company has accumulated significant losses and payables and generated negative cash flows. The combination of these items raises substantial doubt about its ability to continue as a going concern. Managements plans with respect to alleviating this adverse position are as follows:
During the fiscal year ended March 31, 2012, PCS began the transition to a new marketing model that would address the challenges presented by the current budgetary cuts in the educational market. First, PCS has focused its primary development and marketing resources on the afterschool market where funding is more predictable and available than traditional school budgets, many of which are undergoing significant cuts. Second, PCS recognizes that its experience in operating learning centers creates a unique opportunity to supplement the current PCS business model through opening learning centers in partnership with schools. This approach combines PCS expertise in experiential learning with its considerable store of intellectual property comprised of learning frameworks, content, proprietary hardware, and software developed over the past two decades while increasing the throughput of our existing direct sales efforts. This marketing approach will incorporate the large body of PCS intellectual property into an afterschool program that families will pay tuition to attend. PCS developed a relationship with Sage International, an International Baccalaureate charter school based in Boise, to provide the facility and classroom for the afterschool program, and PCS, in exchange, provides the equipment and support. The school uses the material during the day as part of the curriculum, and PCS operates for-profit afterschool classes on weekends, evenings, during breaks and after the close of the school day. PCS conducted market tests of holiday camps during November and December of 2011 and in March of 2012, refining and confirming basic assumptions related to the business plan, and opened for afterschool and summer programs
in April of 2012. The PCS Learning Center generated $17,830 and $60,961 of revenue in the three and twelve months ended March 31, 2013, respectively.
The business plan proposes the continued promotion and growth of the PCS Learning Center to further demonstrate proof of the concept, and the opening of two additional learning centers in FY2014, one more located in the Boise market, partnering with another local school, and a third opening in a market of strategic importance yet to be determined. The premise of the business plan is two-fold: 1) learning center revenues will be more consistent and predictable for the Company to plan and manage cash and growth; and 2) an established network of learning centers will serve as highly effective showrooms for sales of PCS products and services into neighboring districts. Also of note, close partnerships with schools provide an opportunity to test and improve PCS products on a regular basis.
Also related to the learning center business, PCS signed a license and royalty agreement with Creya Learning of India (CL). CL will use PCS content and support services to implement experiential learning curriculums into Indian schools and to build out a network of experiential learning centers in India that will function as premier afterschool locations as well as product showrooms. PCS, as part of the agreement, will receive ongoing royalties on the tuition charged to students attending PCS based programs. In Q1, FY2013, PCS also executed a STEM consulting agreement with Cultural Innovations for science center and STEM consulting services in the Kingdom of Saudi Arabia and concluded work associated with a tender competition contract initiated in Q2 of FY2012 with Tatweer Holding Company of Saudi Arabia. PCS will continue to pursue additional international opportunities to offset the continued challenges to the domestic economy and to take advantage of global market needs for PCS type products and services.
Product development in FY2013 has focused on continued improvements and refinements to PCS products and curriculum, primarily PCS Robotics related materials. Executive management continues in its conviction that the K12 educational robotics market represents a viable market opportunity for PCS.
In addition, Murali Ranganathan was appointed to the Board of Directors on January 11, 2013 and will act as Audit Committee Chairman. Mr. Ranganathan is the Senior Manager of Finance Strategy for Micron, and is the financial lead for evaluating, negotiating, and conducting due diligence on Micron's M&A and venture investment opportunities. Mr. Ranganathan has a long and impressive career in both engineering and finance, with a Masters in Industrial and Systems Engineering from Ohio State, and an MBA from the Booth School of Business at the University of Chicago. Mr, Ranganathans experience and financial knowledge will be extraordinary as PCS continues to refine its business plan.
The Company continues to report improved results during FY2013. Although during the quarter ended March 31, 2013, revenue was $458,316 down 29% from the same quarter last year, the Company had a net loss of ($260,247), compared to a loss of ($632,740) in the same quarter last year which was a significant improvement. Offsetting the income effect on sales was a charge of $27,949 due to the change in fair value of the derivatives related to a portion of our debt (see Note 8 and 9). Revenue for the twelve months ended March 31, 2013, were $2,934,598, an increase of 26% compared to the same period in the prior year. Net loss for the twelve month period ended March 31, 2013 was ($662,465) after the charge of $78,408 for the change in fair value of the derivatives related to a portion of our debt (see Note 8 and 9). Net loss for the same period of the prior year, during which time there was no derivative charge, was ($1,966,526), thus showing a marked improvement in the results of operations. Although the Company continues to show increased sales and decreased expenses, cash flow remains a challenge. Cash flow from operations for the twelve months ended was $(41,499).
While the efforts put in by management and the entire employee team are beginning to be realized, as illustrated by the improved results during this fiscal year, the ability of the Company to continue as a going concern is dependent upon our ability to successfully accomplish the plans described to raise capital as needed, to continue to monitor and reduce overhead costs, and to 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 OTHER RECEIVABLES
|
|
|
|
| |
|
|
March 31,
|
|
2013
|
|
2012
|
Canadian SRED credit receivable
|
|
-
|
|
|
15,084
|
Canadian GST tax receivable
|
|
2,144
|
|
|
2,251
|
Employee advance
|
|
-
|
|
|
9,281
|
Total Other Receivable
|
$
|
2,144
|
|
$
|
26,616
|
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's consolidated financial statements are prepared using the accrual method of accounting. The Company has elected a March 31 year-end.
b. Estimates
The preparation of financial statements in conformity with Generally Accepted Accounting Principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
c. Concentration of Credit Risks and Significant Customers
The Company maintains cash in bank deposit accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of trade receivables. In the normal course of business, the Company provides credit terms to its customers. Accordingly, the Company performs ongoing credit evaluations of its customers and maintains allowances for possible losses which when realized have been within the range of management's expectations. The Company does not require collateral from its customers. The Company has established an allowance for doubtful accounts of $2,669 and $4,805 for the years ended March 31, 2013 and 2012, respectively.
39
During the last two fiscal years ending March 31, 2013 and March 31, 2012, the following major customers exceeded 10% of revenue:
|
|
|
|
|
|
| |
|
|
For the Years Ended
|
|
|
March 31,
|
|
2013
|
|
2012
|
Customer A
|
$
|
805,350
|
27%
|
|
$
|
229,992
|
10%
|
|
|
|
|
|
|
|
|
Customers with accounts receivable greater than 10% of total accounts receivable at March 31, 2013 and March 31, 2012, were as follows:
|
|
|
|
|
|
| |
|
|
For the Years Ended
|
|
|
March 31,
|
|
2013
|
|
2012
|
Customer A
|
$
|
15,090
|
13%
|
|
$
|
13,728
|
4%
|
Customer B
|
|
19,845
|
17%
|
|
|
207,719
|
57%
|
Customer C
|
|
26,724
|
22%
|
|
|
-
|
-
|
|
|
|
|
|
|
|
|
d. Foreign Currency Translation
The functional currency of our subsidiary is considered the local currency. Our PCS LabMentors' subsidiary has a functional currency in Canadian dollars (CAD). The subsidiarys financial statements have been translated into US dollars in accordance with generally accepted accounting principles regarding foreign currency translation. All assets and liabilities are translated at the exchange rate on the balance sheet date and all revenues and expenditures are translated at the average rate for the period. Translation adjustments are reflected as a separate component of stockholders' equity, accumulated other comprehensive income (loss) and the net change for the year are reflected separately in the statements of operations and other comprehensive income (loss). Through this, all of the Companys financial documents are stated within the functional currency of the parent company, which is the United States dollar (USD).
In accordance with generally accepted accounting principles regarding the presentation of the Statement of Cash Flows, the cash flows of the subsidiary are translated using the weighted average exchange rates during the respective period. As a result, amounts in the statement of cash flows related to changes in assets and liabilities will not necessarily agree with the changes in the corresponding balances on the balance sheet that was translated at the exchange rate at the end of the period.
e. Fair Value of Financial Instruments
On January 1, 2008, the Company adopted guidance which defines fair value, establishes a framework for using fair value to measure financial assets and liabilities on a recurring basis, and expands disclosures about fair value measurements. Beginning on January 1, 2009, the Company also applied the guidance to non-financial assets and liabilities measured at fair value on a non-recurring basis, which includes goodwill and intangible assets. The guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Companys assumptions of what market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of the inputs as follows:
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
40
Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.
The following schedule summarizes the valuation of financial instruments at fair value on a non-recurring basis in the balance sheets as of March 31, 2013:
|
|
|
|
|
|
| |
|
Fair Value Measurements at March 31, 2013
|
|
Liabilities
|
Level 1
|
|
Level 2
|
|
Level 3
|
Gain/(loss)
|
|
|
|
|
|
|
|
Derivative Liabilities *
|
$ -
|
|
$ -
|
|
$ -
|
($78,408)
|
|
$ -
|
|
$ -
|
|
$ -
|
($78,408)
|
*The derivative liability ended on January 14, 2013 when the promissory note was repaid in full.
The following table presents assets and liabilities that are measured and recognized at fair value as of March 31, 2012 on a non-recurring basis:
|
|
|
|
|
|
| |
|
Fair Value Measurements at March 31, 2012
|
|
Liabilities
|
Level 1
|
|
Level 2
|
|
Level 3
|
Gain/(loss)
|
|
|
|
|
|
|
|
Goodwill
|
$ -
|
|
$ -
|
|
$ -
|
($202,688)
|
|
$ -
|
|
$ -
|
|
$ -
|
($202,688)
|
The standard issued by the FASB concerning the fair value option for financial assets and liabilities became effective for the Company on January 1, 2008. The standard establishes a fair value option that permits entities to choose to measure eligible financial instruments and certain other items at fair value at specified election dates. A business entity shall report unrealized gains and losses on items for which the fair value options have been elected in earnings at each subsequent reporting date. For the periods ended March 31, 2013 and 2012 there were no applicable items on which the fair value option was elected.
f. Revenue Recognition
PCS recognizes revenue for its two revenue streams: Product (Learning Labs) and Licensing in accordance with generally accepted accounting standards pertaining to revenue recognition of single unit and/or multiple deliverables.
The Company recognizes product revenue in accordance with generally accepted accounting standards, which is codified under FASB ASC Topic 605 Revenue Recognition, under which revenue is recognized when it is realizable and when earned.
Licensing Revenue is in relation to the sales of the learning labs. This revenue is based on a contractual term of one year, which begins when the physical lab is shipped to the customer. Should the customer terminate the licensing prior to the expiration of the contract, PCS does not have an obligation to refund any portion of the fees. As such, revenue is amortized and recorded over the life of the contractual license, in accordance with generally accepted accounting standards.
g. Goodwill
Goodwill represents the excess of the cost of PCS LabMentors' acquisition over the net of the amounts assigned to the assets acquired and liabilities assumed. The Company accounts for its goodwill in accordance with generally accepted accounting standards, which requires the Company to test goodwill for impairment annually or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, rather than amortize.
The Company undertook a Goodwill impairment review during fiscal years 2012. The Companys evaluation of goodwill completed at March 31, 2012, resulted in a full impairment of the goodwill due to continued operating losses and lack of growth of the subsidiary. This impairment was recorded as an operating expense of $202,688.
41
Despite the goodwill impairments described, the Companys Lab Mentors subsidiary has continuing operations and continues to produce revenue.
h. Business Combinations
There were no business combinations during the fiscal years ended March 31, 2013 and 2012.
i. Principles of Consolidation
The accompanying consolidated financial statements consolidate the accounts of the parent company and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated through consolidation.
j. Provision for Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company recorded net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, and results of recent operations. In the event we were to determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance.
We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process whereby (1) we determine whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and (2) those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is greater than 50 percent likely to be realized upon ultimate settlement with the related taxing authority. The Company has no uncertain tax positions to disclose.
Net deferred tax assets and liabilities consist of the following components as of March 31, 2013 and 2012:
|
| |
|
March 31,
|
|
2013
|
2012
|
Deferred Tax Assets
|
|
|
NOL carryover
|
$ 4,934,039
|
$ 5,254,964
|
Deferred revenue
|
32,665
|
45,752
|
Accrued expenses
|
12,172
|
25,944
|
Idaho ITC
|
9,716
|
10,558
|
Allowance for Bad Debt
|
1,041
|
1,874
|
Gross deferred tax assets
|
4,989,633
|
5,339,092
|
Valuation allowance
|
(4,968,748)
|
(5,319,531)
|
Net deferred tax asset
|
$ 20,885
|
$ 19,561
|
|
|
|
Deferred Tax Liabilities
|
|
|
Accumulated depreciation
|
$ (20,885)
|
$ (94,555)
|
Other
|
-
|
-
|
Gross deferred tax liabilities
|
$ (20,885)
|
$ (94,555)
|
|
| |
Net deferred tax assets (liabilities)
|
$ -
|
$ -
|
42
The reconciliation between the Companys effective tax rate on income from continuing operations and the statutory tax rate is as follows:
|
| |
|
March 31,
|
|
2013
|
2012
|
Book income
|
$ (225,238)
|
$ (668,615)
|
State taxes
|
(33,124)
|
(98,329)
|
Stock for services/expense
|
0
|
5,758
|
Penalties/dues
|
0
|
3,287
|
Options expense
|
32,253
|
95,018
|
Goodwill
|
0
|
79,048
|
Other
|
797
|
896
|
NOL utilization
|
-
|
-
|
Valuation allowance
|
225,312
|
582,937
|
|
$ -
|
$ -
|
At March 31, 2013 the Company had a net operating loss carry-forward of approximately $12,651,381 that may be offset against future taxable income. No tax benefit has been reported in the March 31, 2013 consolidated financial statements since the potential tax benefit is offset by a valuation allowance of the same amount
.
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forward for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, the net operating loss carry-forward may be limited as to use in future years.
The Company and its subsidiary file income tax returns in the United States, Canada, the State of Idaho and the State of California. The statute of limitations on a Federal tax return is the due date of the tax return plus three years. In the case of NOLs, the year in which the NOL was generated remains open up to the amount of the NOL until the statute of limitations expires on the year it was used. PCS Edventures first filed a tax return in 1994. Therefore no statutes have closed. The Company does not have any unrecognized tax benefits to report in the current period.
The Companys policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.
Canadian tax laws allow a company to recoup a significant amount of research and development costs. As a result, the Company has continued to conduct its research and development within Fredericton, New Brunswick and continue to apply for such tax incentives. In addition, income taxes are/will be prepared in accordance with Revenue Canada guidelines so as to maximize additional incentives, when available.
k. Basic Loss Per Share
The computation of basic loss per share of common stock is based on the weighted average number of shares outstanding during the period of the financial statements in accordance with generally accepted accounting standards. Diluted loss per share is equal to basic loss per share as the result of the anti-dilutive nature of the stock equivalents.
|
|
|
|
| |
|
|
|
|
|
|
|
For the Years Ended
|
|
March 31,
|
|
2013
|
|
2012
|
Basic loss per share from operations:
|
|
|
|
|
|
Net loss
|
$
|
(662,465)
|
|
$
|
(1,966,526)
|
|
|
|
|
|
|
Weighted average number of
|
|
|
|
|
|
shares outstanding
|
|
47,264,151
|
|
|
43,588,970
|
Basic loss per share
|
$
|
(0.01)
|
|
$
|
(0.05)
|
43
l. Recently Issued Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02,
Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
, to improve the transparency of reporting these reclassifications. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in the ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP. The new amendments will require an organization to:
-
Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period; and
-
Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.
The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods (interim and annual). The amendments are effective for reporting periods beginning after December 15, 2012, for public companies. Early adoption is permitted. The adoption of ASU No. 2013-02 is not expected to have a material impact on our financial position or results of operations.
In January 2013, the FASB issued ASU No. 2013-01,
Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities
, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements originally established by ASU 2011-11. The new ASU addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to financial statement users. In choosing to narrow the scope of the offsetting disclosures, the Board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with U.S. GAAP and those prepared under IFRSs. Like ASU 2011-11, the amendments in this update will be effective for fiscal periods beginning on, or after January 1, 2013. The adoption of ASU 2013-01 is not expected to have a material impact on our financial position or results of operations.
In October 2012, the FASB issued Accounting Standards Update ASU 2012-04, Technical Corrections and Improvements in Accounting Standards Update No. 2012-04. The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 is not expected to have a material impact on our financial position or results of operations.
In August 2012, the FASB issued ASU 2012-03, Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC Update) in Accounting Standards Update No. 2012-03. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 is not expected to have a material impact on our financial position or results of operations.
In July 2012, the FASB issued ASU 2012-02, Intangibles Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment in Accounting Standards Update No. 2012-02. This update amends ASU 2011-08,
Intangibles Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment
and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30,
Intangibles - Goodwill and Other - General Intangibles Other than Goodwill
. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September
44
15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entitys financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU 2012-02 has not had a material impact on our financial position or results of operations.
In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. This update defers the requirement to present items that are reclassified from accumulated other comprehensive income to net income in both the statement of income where net income is presented and the statement where other comprehensive income is presented. The adoption of ASU 2011-12 has not had a material impact on our financial position or results of operations.
In December 2011, the FASB issued ASU No. 2011-11 Balance Sheet: Disclosures about Offsetting Assets and Liabilities (ASU 2011-11). This Update requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS. The amended guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Company is currently evaluating the impact, if any, that the adoption of this pronouncement may have on its results of operations or financial position.
m. Educational Software
Educational software was purchased by the Company as a part of its acquisition of 511092 N.B. LTD. In addition, the Company has internally developed education computer programs and student exercises to be accessed on the Internet. In accordance with financial accounting standards pertaining to internally developed software, the costs associated with research and initial feasibility of the programs and student exercises are expensed as incurred. Once economic feasibility has been determined, the costs to develop the programs and student exercises are capitalized until the software is ready for sale. At that point, the development costs are reported at the lower of unamortized cost or net realizable value. Capitalized programs and student exercise inventory items are amortized on a straight-line basis over the estimated useful life of the program or exercise, generally 24 to 48 months.
The Company evaluates its purchased intangibles for possible impairment on an ongoing basis. When impairment indicators exist, the Company will perform an assessment to determine if the intangible asset has been impaired and to what extent. The assessment of purchased intangibles impairment is conducted by first estimating the undiscounted future cash flows to be generated from the use and eventual disposition of the purchased intangibles and comparing this amount with the carrying value of these assets. If the undiscounted cash flows are less than the carrying amounts, impairment exists and future cash flows are discounted at an appropriate rate and compared to the carrying amounts of the purchased intangibles to determine the amount of the impairment.
During fiscal year ending March 31, 2012, the Company reassessed the acquired assets and recognized $92,468 of impairment of intangible assets pertaining to the education software acquired with and subsequently developed at LabMentors. No additions or changes occurred during fiscal year ending March 31, 2013.
Despite the asset impairments described, the Companys Lab Mentors subsidiary has continuing operations and continues to produce revenue.
n. Intellectual Property
The Company's intellectual property consists of capitalized costs associated with the development of the Internet software and delivery platform developed by the Company to enable access to the various educational programs and exercises developed by the Company. In accordance with generally accepted accounting standards 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 sale. 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.
45
o. Property and Equipment
Property and equipment are recorded at cost and are being depreciated for financial accounting purposes on the straight-line method over their respective estimated useful lives ranging from three to seven years. Upon retirement or other disposition of these assets, the cost and related accumulated depreciation are removed from the accounts and the resulting gains or losses are reflected in the results of operations.
Expenditures for maintenance and repairs are charged to operating expense. Renewals and betterments are capitalized.
p. Finished Goods Inventory
Finished goods inventory is composed of items produced in-house, as well as items from outside suppliers. These items include, but are not limited to, KNEX manipulatives, fischertechnik® manipulatives, Eduwise manipulatives, LEGO® manipulatives, digital media equipment, furniture units, curriculum, blocks, PCS Academy of Science® science kits, poster packs, and other miscellaneous items used in our various labs. Our inventory is carried at the lower of cost or market and valued using the average cost method for each item. In addition, we have established a reserve for obsolete and slow moving items.
q. Stock Options and stock grants
Effective January 1, 2006, the Company accounts for stock issued for employee benefits and goods and services received from non-employees in accordance with generally accepted accounting standards. The Company is required to recognize expense of options or similar equity instruments including restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. Application of this standard requires significant judgment regarding the assumptions used in the selected option-pricing model, including stock price volatility and employee exercise behavior.
Most of these inputs are either highly dependent on the current economic environment at the date of grant or forward-looking over the expected term of the award.
The Company accounts for shares issued to employees and others based upon the closing price of our common stock at the grant date.
The Company has granted options and warrants to purchase PCS Edventures!.com common stock. These instruments have been valued using the Black-Scholes model and are fully detailed in Note 13.
r. Derivative Financial Instruments
The Company generally does not use derivative financial instruments to hedge exposures to cash-flow risks or market-risks that may affect the fair values of its financial instruments. The Company utilizes various types of financing to fund our business needs, including preferred stock with warrants attached and other instruments not indexed to our stock. The Company is required to record its derivative instruments at their fair value. Changes in the fair value of derivatives are recognized in earnings in accordance with ASC 815. The Company utilized multinomial lattice models that value the derivative liability within the notes based on a probability weighted discounted cash flow model.
46
NOTE 5 - PREPAID EXPENSES
Prepaid expenses for the periods are as follows:
|
| |
|
March 31, 2013
|
March 31, 2012
|
Prepaid insurance
|
$ 6,988
|
$ 15,991
|
Prepaid trade show/travel
|
1,990
|
3,354
|
Prepaid inventory
|
2,341
|
17,000
|
Prepaid software
|
11,457
|
11,964
|
Prepaid expenses, other
|
13,610
|
10,000
|
Total Prepaid Expenses
|
$ 36,386
|
$ 58,309
|
NOTE 6 - FIXED ASSETS
Assets and depreciation for the period are as follows:
|
|
|
|
| |
|
|
March 31,
|
2013
|
|
2012
|
Computer/office equipment
|
$
|
10,112
|
|
$
|
10,112
|
Server equipment
|
|
154,107
|
|
|
154,107
|
Software
|
|
127,355
|
|
|
127,355
|
Accumulated depreciation
|
|
(253,397)
|
|
|
(234,682)
|
Total Fixed Assets
|
$
|
38,177
|
|
$
|
56,892
|
Fixed Asset depreciation expense for the years ended March 31, 2013 and 2012 was $18,715 and $25,930, respectively.
Due to continued operating losses and lack of growth of the Canadian subsidiary, LabMentors, the Company recognized an impairment charge for the year ended March 31, 2012 in the amount of $26,731 to write down server equipment.
NOTE 7 - COMMON AND PREFERRED STOCK TRANSACTIONS
a. Common Stock
During the fiscal year ended March 31, 2013, the Company issued 134,096 shares of common stock as additional compensation to employees. The per share value ranged from $0.038 to $0.15 for a net value of $7,152 based on the closing price of the Companys common stock on the date of grant. Of the 134,096 shares issued 48,522 were issued in payment of amounts accrued as of March 31, 2012, with a value of $2,426. As of March 31, 2013, a shares payable in the amount of $600 has been accrued, representing shares that will be issued in future periods.
During the fiscal year ended March 31, 2013, the Company issued 658,343 shares of common stock as a bonus to employees. The per share value ranged from $0.04 to $0.11 for a net value of $47,001 based on the closing price of the
47
Companys common stock on the date of grant. Of the 658,343 shares issued, the Company granted 200,000 shares of restricted stock to an officer during fiscal year 2012. The Shares are immediately forfeited if the officer is not an employee of the Company at the date that Rule 144 of the current rules of the Securities and Exchange Commission provides that the restrictions are removed and the restricted stock may be registered or otherwise qualified for sale. The stock certificate was issued in October 2012 and was held at PCS until the shares fully vested in April 2012. The shares vested over a six-month period and are valued at $0.11 per share which represents the fair market value at the date of grant in accordance with the 2009 Equity Incentive Plan. The value of the shares was amortized over the vesting period in the amount of $3,667 per month. $18,335 was expensed during fiscal year ended March 31, 2012 and the balance, $3,667 was expensed during fiscal year ending March 31, 2013 at which time the certificate was released.
During the fiscal year ended March 31, 2013, the Company issued 777,069 shares of common stock for services. The per share value ranged from $0.04 to $0.20 for a net value of $44,448 based on the closing price of the Companys common stock on the date of grant. Of the 777,069 shares issued, 329,627 were issued in payment of amounts accrued at March 31, 2012 with a value of $16,481. As of March 31, 2012, shares payable in the amount of $1,040 has been accrued, representing 26,000 shares that will be issued in future periods.
During the fiscal year ended March 31, 2013, the Company recognized $54,000 of restricted stock units payable to non-management directors for services rendered at a rate of one share of common stock for each restricted stock unit. Each restricted stock unit is valued at $0.20, based on the closing price of the Companys common stock at the date of grant. These agreements call for payment of current year director fees via issuance of restricted stock units over a vesting period of not less than twelve months, and require continued service for twelve months and reelection at the next annual shareholder meeting. These directors were reelected at the Annual Meeting on September 28, 2012 and the shares are fully vested and have been issued to those directors who chose not to defer their compensation. RSU Payable was decreased by $90,000. $60,000 was recorded to common stock for the issuances in December 2012, which represent 300,000 shares of common stock. For the directors who chose to defer payment an entry was made to book fair market value of the RSU, in which $21,000 was recorded to Common Stock and $9,000 was reclassified to stock payable.
During the nine months ended December 31, 2012, the Company issued new RSU agreements for the active board members for the service period of September 2012 to August 2013. Each restricted stock unit is valued at $0.10, based on the closing price of the Companys common stock at the date of grant. These agreements call for payment of current year director fees via issuance of restricted stock units over a vesting period of not less than twelve months, and require continued service for twelve months and reelection at the next annual shareholder meeting. The Company accrued an amount of $30,000 during the period ending March 31, 2013, related to shares subscribed for services performed.
During the fiscal year ending March 31, 2013, the Company issued 2,535,001 shares of common stock for the conversion of promissory notes issued to private investors. The price per share value ranged from $0.02 to $0.05 for a net value of $97,296. See Note 8.
During the fiscal year ending March 31, 2013, the Company recognized $7,977 in debt discount as an increase to stockholders equity pursuant to the terms of convertible promissory notes issued with attached warrants. The debt discount consists of a beneficial conversion feature and attached warrants. See Note 8.
During the fiscal year ended March 31, 2013, the Company expensed amounts related to stock options and warrants granted in the current period as well as prior periods valued at $82,700.
During the fiscal year ended March 31, 2013, the Company expensed amounts related to the change is derivative liabilities in the amount of 190,837 as an increase in stockholders equity due to conversion of convertible notes payable. See note 8 and 9.
During the fiscal year ended March 31, 2013, the Company expensed 8,236 related to a deemed dividend that was generated during the September 30, 2013 quarter for the expiration date extension of the warrants issued in consideration for the promissory note extensions, which resulted in a deemed dividend of $8,236 consistent with current accounting guidance. The deemed dividend was valued using the Black-Scholes model.
During the fiscal year ended March 31, 2012, the Company issued 877,810 shares of common stock as additional compensation to employees. The per share value ranged from $0.03 to $0.49 for a net value of $92,052 based on the closing price of the Companys common stock on the date of grant. Of the 877,810 shares issued 45,546 were issued in payment of amounts accrued as of March 31, 2011, with a value of $8,623. As of March 31, 2012, a shares payable in the amount of $2,426 has been accrued, representing 48,522 shares that will be issued in future periods.
48
During the fiscal year ended March 31, 2012, the Company issued 27,662 shares of common stock as a bonus to employees. The per share value was $0.21 for a net value of $5,809 based on the closing price of the Companys common stock on the date of grant.
During the fiscal year ended March 31, 2012, the Company issued 767,863 shares of common stock for services. The per share value ranged from $0.03 to $0.45 for a net value of $96,068 based on the closing price of the Companys common stock on the date of grant. Of the 767,863 shares issued, 26,475 were issued in payment of amounts accrued at March 31, 2011 with a value of $5,295. During the period, $107,255 has been accrued in stock payable, and shares valued at $96,068 have been issued from stock payable for a net reduction in stock payable for services the amount of $11,187. As of March 31, 2012, a shares payable in the amount of $16,481 has been accrued, representing 329,627 shares that will be issued in future periods.
During the fiscal year ended March 31, 2012, the Company received $39,000 for the exercise of 260,000 outstanding warrants.
During the fiscal year ended March 31, 2012, the Company issued 50,000 shares of restricted Rule 144 common stock to an officer, at $0.10 per share. The officer purchased the restricted Rule 144 common stock for cash in fiscal year 2011 and the purchase was included in Stock Payable during the year ended March 31, 2011 in the amount of $5,000.
During the fiscal year ended March 31, 2012, the Company issued 30,000 shares of restricted Rule 144 common stock to a consultant at $0.10 per share. The consultant had purchased the restricted Rule 144 common stock for cash in fiscal year 2011 and the purchase was included in Stock Payable during the year ended March 31, 2011 in the amount of $3,000.
During the fiscal year ending March 31, 2012, the Company recognized $106,366 in debt discount as an increase to stockholders equity pursuant to the terms of convertible promissory notes issued with attached warrants. The debt discount consists of a beneficial conversion feature and attached warrants. See Note 8.
During the fiscal year ended March 31, 2012, the Company expensed amounts related to stock options granted in the current period as well as prior periods valued at $147,058.
During the fiscal year ended March 31, 2012, the Company expensed amounts related to warrants granted to holders of promissory notes as consideration in exchange for an extension of the maturity date of the notes valued at $90,211.
During the fiscal year ended March 31, 2012, the Company recognized restricted stock units payable to non-management directors for services rendered at a rate of one share of common stock for each restricted stock unit. Each restricted stock unit is valued at $0.85, based on the closing price of the Companys common stock at the date of grant. These restricted stock units were awarded to non-management directors in RSU agreements on September 23, 2010. These agreements called for payment of current year director fees, $30,000 per non-management director, of which there were three, via issuance of restricted stock units over a vesting period of not less than twelve months, and require continued service for twelve months and re-election at the next annual shareholder meeting. The resulting expense of $90,000 was recognized ratably over the service period. During the fiscal year ended March 31, 2012, 176,472 shares were issued in satisfaction of RSUs for which the 12 month service and re-election requirements were met. These shares were valued at the market value on the date these requirements were met, resulting in a value of $38,824. Stock Payable was reduced by a total of $90,000, a portion of which ($52,500) was expensed in the period ended March 31, 2011. A gain of $51,176 was recognized upon the settlement of the amount owed. The gain was calculated as the difference between the value of the stock on the date the service requirements were met, $38,824, and the amount expensed over the service period, $90,000. The Company accrued an amount of $52,500 during the period related to shares subscribed for services performed.
b. Preferred Stock
The Company has 20,000,000 authorized shares of preferred stock. As of March 31, 2013 there are no preferred shares issued or outstanding.
49
NOTE 8 - NOTES PAYABLE
Notes payable consisted of the following at March 31, 2013 and March 31, 2012
|
|
|
|
|
| |
|
|
March 31,
|
|
|
2013
|
|
2012
|
Short Term Note Payable, Related Party
|
$
|
408,129
|
|
$
|
283,668
|
Short Term Convertible Note
|
|
185,000
|
|
|
185,000
|
Short Term Convertible Note, Related Party
|
|
80,000
|
|
|
130,000
|
Line of Credit
|
|
32,061
|
|
|
36,335
|
Long Term Note Payable, Related Party
|
|
25,000
|
|
|
-
|
Long Term Convertible Note, Related Party
|
|
66,500
|
|
|
-
|
Total Notes Payable
|
$
|
796,690
|
|
$
|
635,003
|
Note Payable
On July 3, 2012, the Company entered into a promissory note in the amount of $10,000. The note bears interest at fifteen percent (15%) per annum and was due on September 2, 2012. On July 30, 2012, the Company repaid this note in the amount of $10,113. The payment consisted of $10,000 in principal and $113 in accrued interest.
Note Payable Related Party
On December 30, 2011, the Company entered into a note payable in the amount of $30,000. The note bears interest at ten percent (10%) per annum and was due on February 28, 2012. This note was subsequently extended to July 31, 2012. A second extension was issued on this note, under the same terms and conditions, with a new maturity date of December 31, 2012. The company negotiated a third extension for this promissory note from the lender with a maturity date of March 31, 2013, which was subsequently extended to July 31, 2013.
On January 6, 2012 the Company entered into a promissory note in the amount of $35,000. The note paid interest at ten percent (10.0%) per annum. The note was due and payable with accrued interest on or before March 6, 2012 and was secured by certain accounts receivable of the Company. Upon collection of the pledged receivables the amount was rolled into a new Promissory Note dated January 26, 2012 in the aggregate amount of $175,000 with interest payable at fifteen percent (15%) per annum. This note was due and payable on or before April 10, 2012. The aggregate amount of $175,000 plus accrued interest was paid in full on April 18, 2012 upon receipt of the receivable related to the pledged purchase order used to secure the January 26, 2012 note. The January 26, 2012 note included attached warrants to purchase 175,000 shares of restricted Rule 144 common stock at a rate of $0.12 per share for the first 18 months and $0.18 per share for the remaining 18 months. The warrants expire 36 months from date of agreement. The warrants were evaluated for embedded derivatives in accordance with ASC 815 and were found to not include any embedded derivatives. The warrants attached to the note were valued using the Black Scholes Valuation Model, resulting in a fair value of $8,006.
On January 13, 2012, the Company entered into two separate promissory notes in the amount of $35,000 each for an aggregate amount of $70,000. The notes bear interest at nine percent (9%) per annum and are due and payable on or before January 10, 2013. Minimum monthly payments of 1.5% of the loan balances are required and are submitted to Lenders financial institution. Principal payments of $5,799 had been paid as of March 31, 2013. The note was amended April 1, 2013 and re-written with a new principal amount of $32,100 each for an aggregate amount of $64,200. The notes bear interest at nine percent (9%) per annum and are due and payable on or before April 1, 2020. The underlying loan requires that the Company pay to the lenders financial institution monthly payments of $1,033.17 on or before the 1
st
day of each month, beginning May 1, 2013, and continuing each month in like amount until the final payment due on April 1, 2020.
50
On March 14, 2012, the Company entered into a promissory note for $10,000 with one of our board members. The note bears interest at ten percent (10%) per annum and was due and payable on or before April 30, 2012. This note was subsequently extended and was due and payable on or before July 31, 2012. On July 30, 2012, the Company repaid this note in the amount of $10,381. The payment consisted of $10,000 in principal and $381 in accrued interest. The interest paid included $47 that was accrued in Interest Payable and expensed as of March 31, 2012.
On April 18, 2012, we entered into a long term promissory note with Anthony A. Maher for $25,000 with an interest rate of 7.5% per annum. The balance is due in full on or before April 18, 2017. Monthly payments are made for interest only to the lenders financial intuition.
On June 14, 2012, we executed a promissory note with one of our shareholders, for $60,000 at 15% interest per annum, secured by seven of our sales orders to finance inventory purchases. The promissory note was due on or before August 14, 2012. There is no conversion feature associated with this promissory note. This note was subsequently rolled into a $560,000 note dated July 17, 2012.This transaction involved the issuance of a promissory note, which was payable with interest of 15% per annum, in cash on or before September 30, 2012. The $60,000 due August 14, 2012 was rolled into the new promissory note agreement as part of the amount borrowed. The Company issued 100,000 warrants with a 36 month term at $0.15 per share exercise price as part of this agreement. The promissory note was secured by a purchase order in the amount of $741,780 dated July 16, 2012. The loan proceeds were utilized to purchase inventory to fulfill the Purchase Order, bring certain vendors and payable accounts current, and finance the operations and logistics required to fulfill and support the order. This loan was repaid in full, including accrued interest of $11,277, on September 4, 2012.
On October 12, 2012, we entered into a loan transaction in the amount of $75,000 with an accredited investor as that term is defined in Rule 501 of Regulation D of the SEC. The transaction involved the issuance of a Promissory Note, which is payable with interest of 12.5% per annum, in cash on or before December 14, 2012. The Promissory Note is secured by a Purchase Order in the amount of $220,405 dated August 1, 2012 and by the proceeds from the Accounts Receivable, after shipping to and receipt by the customer. The loan proceeds will be utilized to finance operations and logistics required to fulfill and support the remaining unshipped portion of the order. This note was paid in full with all accrued interest in the amount of $1,413 on December 7, 2012.
On October 23, 2012, we entered into a loan transaction in the amount of $25,000 with an accredited investor as that term is defined in Rule 501 of Regulation D of the SEC. The transaction involved the issuance of a Promissory Note, which is payable with interest of 12.5% per annum, in cash on or before December 23, 2012. The Promissory Note is secured by a Purchase Order in the amount of $220,405 dated August 1, 2012 and by the proceeds from the Accounts Receivable, after shipping to and receipt by the customer. The loan proceeds will be utilized to finance operations and logistics required to fulfill and support the remaining unshipped portion of the order. This note was paid in full with all accrued interest in the amount of $368 on December 7, 2012.
On November 16, 2012, we entered into a loan transaction in the amount of $40,000 with an accredited investor as that term is defined in Rule 501 of Regulation D of the SEC. The transaction involved the issuance of a Promissory Note, which is payable with interest of 12.5% per annum, in cash on or before December 14, 2012. The Promissory Note is secured by a Purchase Order in the amount of $220,405 dated August 1, 2012 and by the proceeds from the Accounts Receivable, after shipping to and receipt by the customer. The loan proceeds will be utilized to finance operations and logistics required to fulfill and support the remaining unshipped portion of the order. This note was paid in full with all accrued interest in the amount of $274 on December 7, 2012.
On December 26, 2012, we entered into a loan transaction in the amount of $63,000 with an accredited investor as that term is defined in Rule 501 of Regulation D of the SEC. The transaction involved the issuance of a Promissory Note, which is payable with interest of 12.5% per annum, in cash on or before February 18, 2013. The Promissory Note is secured by a Purchase Order in the amount of $63,600 and by the proceeds from the Accounts Receivable, after shipping to and receipt by the customer. The loan proceeds will be utilized to finance operations and logistics required to fulfill and support the remaining unshipped portion of the order. This note was subsequently combined with the $137,000 Promissory Note issued on January 17, 2013 under the terms and conditions described below.
On January 17, 2013, the Company entered into a loan transaction with an accredited investor as that term is defined in Rule 501 of regulation D of the SEC. The transaction involved the issuance of a Promissory Note in the amount of $200,000, in which $63,000 was to be considered advanced under a previous Note between Borrower and Lender dated December 26, 2012. The note bears interest at a rate of 15% per annum and is due and payable on April 30, 2013. In consideration for the financing, the Company issued 100,000 warrants to purchase common stock at an exercise price of $0.07. The warrants expire 36 months from date of agreement. The warrants were evaluated for embedded
51
derivatives in accordance with ASC 815 and were found to not include any embedded derivatives. The warrants attached to the note were valued using the Black Scholes Valuation Model, resulting in a fair value of $7,977. This value was recorded as a debt discount and is being amortized over the life of the loan. The note was paid in full on April 1, 2013.
On February 26, 2013, we executed a promissory note with one of our shareholders, for $65,000 at 15% interest per annum, secured by seven of our sales orders to finance inventory purchases. The promissory note was due on or before April 20, 2013. There is no conversion feature associated with this promissory note. A payment of $20,000 was made against the principal on the note on April 1, 2013. Subsequently the note was extended and made part of the $95,000 convertible promissory note issued on May 24, 2013 as describe in the 8-K filed on May 24, 2013.
On March 22, 2013, we entered into a loan transaction with one of our board members in the amount of $25,000. The note bears interest at a rate of 8% per annum, secured by three of our accounts receivables to finance inventory purchases. The promissory note and all accrued interest is due and payable on May 31, 2013. This note was subsequently extended for 90 days, due on or before August 31, 2013.
On March 28, 2013, we executed a promissory note with one of our shareholders, for $50,000 at 12% interest per annum, secured by eight of our sales orders to finance inventory purchases. The promissory note was due on or before June 5, 2013. There is no conversion feature associated with this promissory note. Subsequently the note was extended and made part of the $95,000 convertible promissory note issued on May 24, 2013 as described in the 8-K filed on May 24, 2013.
Line of Credit
On September 13, 2011, the Company drew down a line of credit at a financial institution in the amount of $39,050. The line of credit bears interest at 17.5% per annum. The Company makes variable monthly payments. During the twelve months ended March 31, 2013, the Company had repaid $4,468 of principal.
Convertible Note Payable
On March 31, 2011, the Company entered into several convertible promissory notes in the aggregate amount of $215,000. The notes are convertible into common stock at a rate of $0.15 per share. The notes bear interest at ten percent (10%) per annum and include attached warrants to purchase two shares of restricted Rule 144 common stock for every dollar loaned, at a rate of $0.15 per share, for an aggregate total of 430,000 restricted Rule 144 common shares. The notes were due on June 29, 2011, and are secured by that portion or percentage of the Borrowers Intellectual Property which the principal amount of the note bears to the fair market value of all Intellectual Property of the Borrower. Intellectual Property of the Borrower is defined to mean all trademarks, registered or unregistered, marks, logos, business names, proprietary computer software, curriculum, copyrighted material, registered or unregistered, trade names, patents and patent applications, and all general intangibles relating to the foregoing. Notwithstanding the foregoing, Intellectual Property shall not include any license, property or contract right the granting of a security in which would be prohibited by law or contract. The warrants expire 36 months from date of agreements. The Company recognized a discount on the debt issued, which was composed of an embedded beneficial conversion feature and attached warrants. The Company measured the beneficial conversion feature by allocating a portion of the proceeds equal to the intrinsic value of the feature to additional paid-in-capital. The intrinsic value of the feature was calculated on the commitment date using the effective conversion price of the notes. This intrinsic value is limited to the portion of the proceeds allocated to the notes, and was calculated as $58,000. The warrants attached to the notes were valued using the Black Scholes Valuation Model, resulting in a fair value of $63,479, the balance of which was fully amortized as of June 30, 2011.
The Company extended the due date on the convertible notes payable dated March 31, 2011 in the aggregate amount of $215,000. These notes were originally due on June 29, 2011 and subsequently extended. In consideration for the first note extension, the Company issued an additional 430,000 restricted Rule 144 common stock warrants. The restricted Rule 144 common stock warrants allow for the purchase of one share of restricted Rule 144 common stock at $0.15 per restricted Rule 144 common stock warrant. The warrants expire 36 months from the date of the original warrant agreement. The fair market value of these warrants was calculated using the Black Scholes Valuation Model, resulting in an expense of $61,995 during the quarter ended June 30, 2011. On February 10, 2012, the notes were extended to August 25, 2013, with repayments to be made quarterly beginning in May, 2012, in the amount of $40,000 per quarter, with the remaining balance due in August 2013. No additional warrants were issued in connection with subsequent extensions.
On August 1, 2012, the Company issued amendments to the convertible note agreements in the aggregated amount of $215,000 and extended the due date with the repayments in the amount of $40,000 per quarter to begin April, 2013, and the final payments due in August, 2014, with any remaining balance due at that time. In consideration for
52
extending the due date of the promissory notes, the expiration dates on the warrants issued on March 31, 2011 and June 27, 2011, were amended and extended an additional three years, making the new expiration dates August 1, 2017. At the Lenders sole option, Lenders may elect to receive payment of their respective note and all accrued interest in restricted common stock of the Borrower at the price per share of said common stock at same rate as the warrants. Subsequently and effective June 7, 2013, we executed an amendment to the loan transaction. The amended transaction involved the extension of the Promissory Note from April 30, 2013 to April 30, 2016, with the creditors waiving any default under the previous note. The company made interest payments to each of the eight note holders for all accrued interest from August 1, 2012 to April 30, 2013 for consideration of the extension. The company has agreed to make quarterly interest payments to each of the note holders during the term of the extension. All other terms of the previous Promissory Note, Security Agreement and related warrants remain in full force and effect.
Convertible Note Payable Related Party
For the transactions described above in regard to the $215,000 convertible note, $30,000 was loaned from a related party and has been broken out as described in the Companys financial statements and accompanying notes a March 31, 2013.
On June 20, 2011 the Company entered into a convertible promissory note in the amount of $100,000. The note paid interest at ten percent (10.0%) per annum and included attached warrants to purchase two shares of restricted Rule 144 common stock for every dollar loaned, at a rate of $0.15 per share, for a total of 200,000 restricted Rule 144 common shares. The Note was due on August 20, 2011. At the Lenders sole option, Lender could elect to receive payment of this Note and all accrued interest on the due date in restricted Rule 144 common stock of the Borrower at the price per share of said restricted Rule 144 common stock at same rate as the warrants. The warrants expire 36 months from date of agreement. The note was evaluated for embedded derivatives in accordance with ASC 815 and was found to not include any embedded derivatives. The Company recognized a discount on the debt issued, which was composed of an embedded beneficial conversion feature and attached warrants. The Company measured the beneficial conversion feature by allocating a portion of the proceeds equal to the intrinsic value of the feature to additional paid-in-capital. The intrinsic value of the feature was calculated on the commitment date using the effective conversion price of the notes. This intrinsic value is limited to the portion of the proceeds allocated to the notes, and was calculated as $63,862. The warrants attached to the notes were valued using the Black Scholes Valuation Model, resulting in a fair value of $36,138. On September 30, 2011 the due date of this note was extended to November 1, 2011 at the same ten percent (10.0%) per annum rate. As part of the extension specific accounts receivable were pledged as collateral on the note and as consideration for the extension, additional warrants to purchase two shares of restricted Rule 144 common stock for every dollar loaned, at a rate of $0.15 per share, for a total of 200,000 restricted Rule 144 common shares were granted to the Lender. The attached warrants were valued using the Black Scholes Valuation Model, resulting in a fair value of $28,216 that was expensed at date of issue. The note was repaid in full on November 7, 2011, the same day as the receivable that had been pledged as collateral was collected.
On February 29, 2012, the Company entered into three separate convertible promissory notes in the aggregate amount of $100,000. The notes bear interest at ten percent (10%) per annum and were due on May 30, 2012. At the sole option each respective Lender, the outstanding balance of the notes may be converted into shares of restricted Rule 144 common stock of the Borrower at a price per share of $0.05. In the event Lender elects to convert any outstanding balance due under this note into such shares, Lender shall give written notice to the Borrower seven (7) days prior to the effective date of such exercise. At Borrowers sole option, Borrower may elect to pay Lender in cash up to one-half (1/2) of the then principal and interest due under the note. In such event, the remaining balance of principal and interest shall be converted as provided under the note agreement. On June 14, 2012, one of the notes, in the amount of $50,000, was converted into 1,028,770 shares of our restricted common stock in accordance with the terms of the convertible promissory note. A second extension was issued for the remaining two notes in an aggregate amount of $50,000, under the same terms and conditions, with a new maturity date of October 31, 2012. These two notes were subsequently extended, with no changes to the terms, were due and payable on or before December 31, 2012. The company negotiated a new maturity date with the lender and issued extensions on the two convertible promissory notes with due dates of March 31, 2013, which were subsequently extended to June 30, 2013.
On April 23, 2012, we entered into a Securities Purchase Agreement whereby we issued an 8% convertible promissory note in an aggregate amount of $32,500, convertible into shares of common stock of the Company at the expiration of six months, at a discount to market of 42% of the Market Price, which means the average of the lowest three (3) Closing Bid Prices for the common stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. The convertible promissory note has a due date of January 26, 2013; can be pre-paid, subject to varying Optional Prepayment Date payments ranging from 125% if prepaid during the first 30 days to 150% if prepaid prior to the expiration of 180 days. Conversion is restricted so that conversions will not result in an
53
ownership of more than 4.99% of the outstanding common stock of the Company by the note holder. The Company is at all times required to reserve at least four times the amount of shares that may be subject to conversion at any time for issuance on conversion. The note holder also has a first right of refusal on any additional funding of up to $100,000. The agreements contain customary representations and warranties, customary affirmative and negative covenants, customary anti-dilution provisions, and customary events of default that entitle the note holder to accelerate the due date of the unpaid principal amount of, and all accrued and unpaid interest on, the convertible promissory note. The Company recognized a discount on the debt issued related to the derivative liability. The Company measured the derivative liability using a lattice model as described in Note 9, of which $12,213 was amortized during the twelve months ended March 31, 2013. On October 31, 2012, the lender exercised their right and converted the principal amount of $10,000 into 215,517 shares of Common Stock. On November 8, 2012, $8,000 of principal was converted and 225,589 shares of Common Stock were issued, leaving a principal balance of $14,500. The final transaction occurred on November 20, 2012 when the lender converted the remaining balance of $14,500 in principal and $1,300 in accrued interest into 763,285 shares of common stock, fully converting the promissory note of $32,500. Due to the conversion within the terms, no gain or loss was recognized.
On June 4, 2012, we entered into a second Securities Purchase Agreement with the same party as the April 23, 2012 agreement, whereby we issued an 8% convertible promissory note in an aggregate amount of $28,750, convertible into shares of common stock of the Company under the same terms as the first note dated April 23, 2012. The Company recognized a discount on the debt issued related to the derivative liability. This debt discount was calculated as $28,750, of which $5,174 was amortized during the twelve months ended March 31, 2013. On December 4, 2012, the Company elected and submitted payment to pre- pay the promissory note in full. The payment consisted of the principal amount of $28,750 along with $1,150 in accrued interest and the payoff penalty amount of $14,359.
On July 16, 2012, we entered into a third Securities Purchase Agreement with the same party as our April 23 and June 4, 2012 agreements, whereby we issued an 8% convertible promissory note in an aggregate amount of $13,750, convertible into shares of common stock of the Company under the same terms as the first note dated April 23, 2012. The Company recognized a discount on the debt issued related to the derivative liability. This debt discount was calculated as $13,750, of which $1,952 was amortized during the twelve months ended March 31, 2013. The company elected and submitted payment to pre-pay the promissory note on January 14, 2013. The total payment made was $21,173, which consisted of the principal amount of $13,750 along with $550 in accrued interest and a payoff penalty in the amount of $6,873.
On June 7, 2012, Leann R. Gilberg, Robert O. Grover and Brett A. Newbold, three of our officers, as well as one employee shareholder, and one additional shareholder, each converted his/her respective $2,400 convertible promissory note dated May 3, 2012, into 60,288 shares of our restricted common stock in accordance with the terms of said convertible promissory notes. Forms 4 were filed for the three officers on June 12, 2012. The Company recognized a discount on the debt issued related to the embedded beneficial conversion feature. The Company measured the beneficial conversion feature by allocating a portion of the proceeds equal to the intrinsic value of the feature to additional paid-in-capital. The intrinsic value of the feature was calculated on the commitment date using the effective conversion price of the notes. This intrinsic value was calculated as $9,889, of which $7,184 was amortized during the three months ended June 30, 2012, at the time of conversion with the remaining balance included in the gain on redemption at conversion.
On December 3, 2012, the company entered into a long term convertible promissory note with board member and shareholder Todd Hackett in the amount of $45,000. The note is convertible into common stock at a rate of $0.04 per share. The note bears interest at eight (8%) per annum and is due 36 months from the date of the agreement, on or before December 03, 2015. The proceeds from the note were used by the company to pay off the Security Purchase Agreement (tranche 2) issued on June 4, 2012, along with any accrued interest, penalties and administrative costs. The debt discount was calculated as $18,255, of which $1,233 was amortized during the twelve months ended March 31, 2013.
On January 11, 2013, we entered into an 8% Convertible Promissory Note with an accredited investor, in the amount of $21,500, convertible into shares of common stock of the Company, at the market price of $0.065. The note is due thirty six months from the date of note. The note is secured by a secondary security interest in all of the Companys intellectual property.
The proceeds received by the Company from the sale of this note will be used by the Company for prepaying the Promissory Note dated June 5, 2012 (Tranche 3) issued to Asher Enterprises, Inc., as well as any administrative costs associated with the payment. This final payment completes and pays off all outstanding notes with Asher Enterprises.
The Company recognized a discount on the debt issued related to the derivative liability. This debt discount was calculated as $9,285, of which $1,952 was amortized during the twelve months ended March 31, 2013.
54
NOTE 9 DERIVATIVE FINANCIAL INSTRUMENTS
The Company generally does not use derivative financial instruments to hedge exposures to cash-flow risks or market-risks that may affect the fair values of its financial instruments. The Company utilizes various types of financing to fund our business needs, including convertible debts with conversion features and other instruments not indexed to our stock. The convertible notes include fluctuating conversion rates. The Company uses a lattice model for valuation of the derivative. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and then re-valued at each reporting date, with changes in the fair value reported in income in accordance with ASC 815. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether net cash settlement of the derivative instrument could be required within the 12 months of the balance sheet date.
As discussed in Note 8 under convertible notes, the Company issued convertible notes payable that provide for the issuance of convertible notes with variable conversion provisions. The conversion terms of the convertible notes are variable based on certain factors, such as the future price of the Companys common stock. The number of shares of common stock to be issued is based on the future price of the Companys common stock. As of March 31, 2013, the number of shares of common stock issuable upon conversion of promissory notes and warrants could exceed the Companys maximum number of authorized common shares. Due to the fact that the number of shares of common stock issuable is not able to be determined definitively, the equity environment is tainted and all additional convertible debentures and warrants are included in the value of the derivative. Pursuant to ASC 815-15 Derivatives, the fair values of the variable conversion option and warrants and shares to be issued were recorded as derivative liabilities on the issuance date. The fair values of the Companys derivative liabilities were estimated at the issuance date and are revalued at each subsequent reporting date, using a lattice model. The derivative ended due to the final payment of the convertible promissory note on January 14, 2013, in which the Company had no derivative liabilities at March 31, 2013. The change in fair value of the derivative liabilities for the twelve months ended March 31, 2013 resulted in a loss of ($78,408), respectively, which was reported as other income/(expense) in the consolidated statements of operations.
The following presents the derivative liability value by instrument type at March 31, 2013:
|
|
| |
|
March 31, 2013
|
|
|
Convertible Notes
|
|
-
|
Common Stock Warrants
|
|
-
|
|
$ -
|
The fair market value determined for the derivative liability is $0 at March 31, 2013. A total of $112,429 was recorded as a debt discount up to the face value of the notes and the excess of $36,933 was expensed.
55
The following is a summary of changes in the fair market value of the derivative liability during the twelve months ended March 31, 2013:
| |
|
Derivative
Liability Total
|
Balance, April 23, 2012
|
|
Increase in derivative value due to issuances of convertible notes and tainting of other
convertible notes and warrants
|
$ 108,905
|
Promissory notes converted during the period
|
(36,349)
|
Change in fair market value of derivative liabilities due to mark to market adjustments
|
39,461
|
Balance, June 30, 2012
|
112,017
|
Increase in derivative value due to issuances of convertible notes and warrants
|
18,054
|
Change in fair market value of derivative liabilities due to mark to market adjustments
|
123,740
|
Balance, September 30, 2012
|
$ 253,811
|
Increase in derivative value due to issuances of convertible notes and tainting of other
convertible notes and warrants
Promissory notes converted during the period
Change in fair market value of derivative liabilities due to mark to market adjustments
Balance, December 31, 2012
Increase in derivative value due to issuances of convertible notes and tainting of other
convertible notes and warrants
Promissory notes repaid during the period
Change in fair market value of derivative liabilities due to mark to market adjustments
Balance, March 31, 2013
|
18,255
(45,153)
(154,812)
$ 72,101
11,011
(109,355)
26,223
$ -
|
Key inputs and assumptions used to value the convertible debentures and warrants issued during the twelve months ended March 31, 2013:
·
The projected volatility curve for each valuation period was based on the historical volatility of the Company.
·
The stock price would fluctuate with the Company projected volatility.
·
An event of default for the convertible note would occur 5% of the time, increasing 1.00% per month to a maximum of 10%.
·
Alternative financing for the convertible note would be initially available to redeem the note 0% of the time and increase monthly by 1% to a maximum of 10%.
·
The monthly trading volume would average $200,000 in the period and would increase at 5% per month.
·
The Holder would automatically convert the notes at the greater of two times the conversion price or stock price if the registration was effective and the Company was not in default.
·
The Holder would exercise the warrant at maturity if the stock price was above the exercise price.
·
The Holder would exercise the warrant at target prices starting at the greater of two times the exercise price or the stock price; and lowering such target as the warrants approached maturity.
·
The Holder would automatically convert all of the shares at a stock price of price equal to the target price.
·
The Holder would convert on a monthly basis in amounts not to exceed the average quarters trading volume based on historical performance, assuming the volume would increase by 5% each month.
NOTE 10 - 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 expired in May 2012. This lease was extended for 13 months beginning June 1, 2012. Rent expense for the corporate offices was $26,041 and 31,291 for the quarter ended March 31, 2013 and 2012, and $107,714 and $127,251 for the twelve months ended March 31, 2013 and 2012, respectively, under this lease arrangement. The company is
56
evaluating whether or not it will continue to lease space at its current location at the conclusion of the extended lease period. The intention is to extend again effective June 1, 2013, at a rate of $8,680/month for 13 months.
The Company leases additional warehouse space in Boise, Idaho. This warehouse space consists of approximately 2,880 square feet. The lease expired in June 2012. This lease was extended for 24 months, beginning July 1, 2012. Rent expense for the warehouse was $3,975 and $4,200 for the quarter ended March 31, 2013 and 2012, and $16,200 and $16,800 for the twelve months ended March 31, 2013 and 2012, respectively.
Effective October 2010 LabMentors entered into a five year office lease. This lease was cancelled effective July 1, 2012, which resulted in a penalty for early termination of the lease equal to three months rent. The Company was able to obtain a new, fully furnished office at the National Research Council facility effective July 1, 2012. The new lease is a three year commitment to be paid in Canadian dollars each month. Lease payments are $395 per month CAD, before 13% tax, for the first nine months, then increases annually over the three-year term with payments for the final three months of the term being $558 per month CAD, before tax. The move was initiated as part of cost savings efforts being implemented within LabMentors and reduces the monthly lease payments. Rent expense, converted to USD, for LabMentors was $1,188 and $4,724 for the quarter ended March 31, 2013 and 2012, and $8,598 and $18,457 for the twelve months ended March 31, 2013, respectively.
|
|
| |
Minimum lease obligation
over the next 5 years
|
|
|
|
|
Fiscal Year
|
|
Amount (USD)
|
2013
|
|
$
|
131,897
|
2014
|
|
|
47,456
|
2015
|
|
|
10,430
|
2016
|
|
|
1,646
|
2017
|
|
|
-
|
Total
|
|
$
|
191,429
|
b. Litigation
(i) On January 3, 2012, the U.S. District Court for the District of Idaho signed the Final Judgment in the Securities and Exchange Commission (the SEC) case pursuant to the Consent that the Company and Mr. Anthony Maher, its former CEO, had previously executed. Without admitting or denying the allegations of the Complaint, the Company and Mr. Maher consented to the entry of the Final Judgment which, among other things: permanently restrained and enjoined the Company from violations of, and permanently restrained and enjoined Mr. Maher from aiding and abetting violations of, Section 13(a) of the Securities Exchange Act of 1934 (the Exchange Act) and Rules 12b-20, 13a-1, and 13a-11 thereunder; permanently restrained and enjoined Mr. Maher from violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; permanently restrained and enjoined Mr. Maher from violations of Section 13(a) of the Exchange Act and Rule 13a-14 thereunder; barred Mr. Maher from serving as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act, as amended, or that is required to file reports pursuant to Section 15(d) of the Exchange Act, for a period of five years from the date of the entry of the Final Judgment; and ordered Mr. Maher to pay a civil penalty in the amount of $100,000 to be paid in equal quarterly amounts of $25,000. There were no monetary sanctions imposed against the Company.
(ii)
Class Action Lawsuit
: The Company, along with its former CEO and former CFO, was named in a class action lawsuit (
Niederklein v. PCS Edventures!.com, Inc., et al.
, U.S. District Court for the District of Idaho, Case 1:10-cv-00479-CWD). The class action was brought on behalf of shareholders who purchased shares of the Companys common stock during the period between March 28, 2007 and August 15, 2007. In September, the Company announced that it had entered into an agreement to settle the class action lawsuit, subject to further proceedings and approval by the Court. While the Company denies the allegations made in the class action lawsuit, the settlement was entered to eliminate the burden and expense of further litigation. On October 5, 2011, the Court granted preliminary approval to the settlement, and approved the notices that were sent to potential class members. At the Settlement Fairness Hearing on February 22, 2012, the Court gave final approval to the settlement and entered the Final Judgment and Order of Dismissal With Prejudice. The class action was settled for $665,000, with the Companys insurance carrier providing most of the settlement funds. In accordance with the Court ordered settlement, all settlement funds were paid on or before February 29, 2012.
57
c. Contingencies
During the year ended March 31, 2012, the Company worked with the State of California and a private consulting firm specializing in California State sales and use tax in relation to a review of sales and use tax for our California customers during the period April 1, 2002 through June 30, 2011. During this period, there was an estimated $0.6 million in reportable sales in which the Company did not file or collect sales and use tax, as required by California State law. The review determined that approximately $60,000 in prior period sales and use tax, including interest and late fees, was due to the California State Board of Equalization (BOE) as of June 30, 2011. Of this amount the Company was successful in collecting approximately $41,000 from prior customers. A check in the amount of $41,473 was mailed to the BOE on August 31, 2011 and applied against the liability leaving a balance of $7,146 in sales and use tax and $13,316 in interest. The Company was able to work with the BOE to have all penalties allotted, relieved from the account. The estimated recognized loss due to the inability to collect from customers was decreased to adjust the reported loss during fiscal year 2011 from $30,000 to approximately $7,100 during the quarter ending September 30, 2011. The Company was able to establish a payment plan with the Board of Equalization to begin payments starting February 20, 2012 in the amount of $3,542 per month until the remaining balance is paid in full. The final payment was paid in July 2012.
NOTE 11 - EDUCATIONAL SOFTWARE
Educational software was purchased by the Company as a part of its acquisition of 511092 N.B. LTD. and consists of internally developed education computer programs and student exercises to be accessed on the Internet. In accordance with financial accounting standards pertaining to internally developed software, the costs associated with research and initial feasibility of the programs and student exercises are expensed as incurred. Once economic feasibility has been determined, the costs to develop the programs and student exercises are capitalized until the software is ready for sale. At that point, the development costs are reported at the lower of unamortized cost or net realizable value. Capitalized programs and student exercise inventory items are amortized on a straight-line basis over the estimated useful life of the program or exercise, generally 24 to 48 months.
NOTE 12 - ACCRUED EXPENSES
Accrued expenses are made up of the following at March 31, 2013 and March 31, 2012.
|
|
|
|
| |
|
|
March 31,
|
|
2013
|
|
2012
|
Interest payable
|
|
63,732
|
|
|
31,915
|
Sales tax payable
|
|
1,230
|
|
|
14,030
|
Credit card debt
|
|
61,281
|
|
|
56,872
|
Professional fees: legal, accounting & other
|
|
10,116
|
|
|
953
|
Total accrued expenses
|
$
|
136,359
|
|
$
|
103,770
|
NOTE 13 - DILUTIVE INSTRUMENTS
Stock Options and Warrants
The Company is required to recognize expense of options or similar equity instruments issued to employees using the fair-value-based method of accounting for stock-based payments in compliance with the financial accounting standard pertaining to share-based payments. This standard covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. Application of this pronouncement requires significant judgment regarding the assumptions used in the selected option pricing model, including stock price volatility and employee exercise behavior. Most of these inputs are either highly dependent on the current economic environment at the date of grant or forward-looking over the expected term of the award.
58
|
|
|
|
|
| |
|
|
|
|
Total Issued
|
|
Not
|
|
Issued
|
Cancelled
|
Executed
|
and Outstanding
|
Exercisable
|
Vested
|
Balance as of March 31, 2011
|
23,451,655
|
10,161,085
|
9,692,210
|
3,598,360
|
2,419,430
|
1,178,930
|
|
|
|
|
|
|
|
Warrants
|
1,455,000
|
|
260,000
|
1,195,000
|
|
|
Common Stock
|
275,000
|
623,751
|
|
(348,751)
|
|
|
Balance as of March 31, 2012
|
25,181,655
|
10,784,836
|
9,952,210
|
4,444,609
|
3,337,109
|
1,107,500
|
|
|
|
|
|
|
|
Warrants
|
385,000
|
375,000
|
|
10,000
|
|
|
Common Stock
|
1,600,000
|
1,937,500
|
|
(337,500)
|
|
|
Balance as of March 31, 2013
|
27,166,655
|
13,097,336
|
9,952,210
|
4,117,109
|
|
4,117,109
|
No common stock options were exercised during the years ended March 31, 2013 and 2012, respectively.
During the year ended March 31, 2013 and 2012, the Company had 1,937,500 and 623,751 common stock options and 375,000 and 0 warrants cancelled or expired, respectively. Cancellations are, in general, due to employee terminations prior to the common stock option being fully vested. Expirations are due to common stock options not being purchased prior to the stated expiration date.
On January 17, 2013, the Company issued 100,000 warrants to a shareholder with a 36 month term at $0.07 per share exercise price as consideration for the issuance of a Promissory Note in the amount of $200,000, in which $63,000 was to be considered advanced under a previous Note between Borrower and Lender dated December 26, 2012. The warrants were evaluated for embedded derivatives in accordance with ASC 815 and were found to not include any embedded derivatives. The warrants attached to the note were valued using the Black Scholes Valuation Model, resulting in a fair value of $7,977. This value was recorded as a debt discount and is being amortized over the life of the loan. The note was paid in full on April 1, 2013.
On January 11, 2013, the Company issued 120,000 warrants to a shareholder and lender and 65,000 warrants to another shareholder and lender both with a 36 month term at $0.07 per share exercise price as consideration for renewal of outstanding debt and promissory notes. The warrants were tainted and had a derivative value of $1,726 expensed during the quarter ended March 31, 2013.
On January 11, 2013, the Company granted 150,000 incentive stock options to an employee under the Companys 2009 Equity Incentive Plan. The incentive options are convertible to restricted Rule 144 common stock. The options were valued using the Black-Scholes valuation model. The restricted Rule 144 shares have an expected volatility rate of 323.15%. The total value of this option was $9,482.The options vest over a 12 month period and are exercisable at $0.06 per share. The fair market value was calculated and as of March 31, 2013, $1,184 in value of the options was expensed. The employee was terminated and the options were expensed through termination date and options were forfeited due to termination.
On July 16, 2012, the Company issued 100,000 warrants with a 36 month term at $0.15 per share exercise price in conjunction with a Promissory Note agreement which was secured by a purchase order in the amount of $741,780 dated July 16, 2012.
On May 15, 2012, the Company granted 850,000 incentive stock options to an officer, Robert Grover. The expected volatility rate of 223.62% calculated using the Company stock price over the period beginning June 1, 2009 through date of issue. A risk free interest rate of 0.38 % was used to value the options. The options were valued using the Black-Scholes valuation model. The total value of this option was $46,175. The options vest over a three year period and are exercisable at $0.06 per share which represents the fair market value at the date of grant in accordance with the 2009 Equity Incentive Plan. As of March 31, 2013, $12,826 in value of the options was expensed.
On April 13, 2012, the Company granted 450,000 incentive stock options to an officer, Leann Gilberg. The incentive stock options are convertible to restricted Rule 144 common stock. The restricted Rule 144 shares have an
59
expected volatility rate of 220.15% calculated using the Company stock price over the period June 1, 2009 through date of issue. A risk free interest rate of 0.41% was used to value the options. The options were valued using the Black-Scholes valuation model. The total value of this option was $22,192. The options vest over a two year period and are exercisable at $0.05 per share which represents the fair market value at the date of grant in accordance with the 2009 Equity Incentive Plan. As of March 31, 2013, $11,712 in value of the options was expensed before Ms. Gilberg was resigned in November 2012.
On March 16, 2012, the Company granted 150,000 incentive stock options to an officer, Brett Newbold. The options were granted but not issued until the fiscal year ending March 31, 2013. The incentive stock options are convertible to restricted Rule 144 common stock. The restricted Rule 144 shares have an expected volatility rate of 219.31% calculated using the Company stock price over the period beginning June 1, 2009 through the date of issue. A risk free interest rate of 0.21% was used to value the options. The options were valued using the Black-Scholes valuation model. The total value of this option was $5,915. The options vest over a 12-month period and are exercisable at $0.04 per share which represents the fair market value at the date of grant in accordance with the 2009 Equity Incentive Plan. As of March 31, 2013, $4,929 in value of the options was expensed upon Mr. Newbolds departure in February 2013.
On January 26, 2012, the Company entered into a promissory note in the amount of $175,000. The note included attached warrants to purchase 175,000 shares of restricted Rule 144 common stock at a rate of $0.12 per share for the first 18 months and $0.18 per share for the remaining 18 months. The warrants expire 36 months from date of agreement. The per share price represented a premium on the $0.05 closing price of the Companys common stock on the OTC Bulletin Board on the commencement date of the note. The warrants computed volatility is 220.47%. A risk free interest rate of 0.31% was used to value the warrants using the Black Scholes Model. The value calculated was recorded as a debt discount and amortized over the term of the loan.
During the year ended March 31, 2012, the Company had 260,000 warrants exercised at a price of $0.15 per share.
On June 29, 2011, the Company granted a stock purchase agreement to a consultant for 250,000 stock purchase warrants. Each purchase warrant is convertible into one share of restricted Rule 144 common stock at $0.17 per share. The purchase warrant is contingent upon the delivery of a signed distribution agreement and receipt of revenue by the Company in an amount of no less than $250,000 (USD). The warrant expires 36 months from the effective date. Due to the fact that these warrants are contingently exercisable and the contingency is not resolved, no amount has been recorded for these warrants.
On June 20, 2011, the Company entered into a convertible promissory note in the amount of $100,000. The note included attached warrants to purchase two shares of restricted Rule 144 common stock for every dollar loaned, at a rate of $0.15 per share, for a total of 200,000 restricted Rule 144 common shares. The warrants expire 36 months from date of agreement. The per share price represented an 11.7% discount from the closing price of the Companys common stock on the OTC Bulletin Board on the commencement date of the note. The warrants computed volatility is 159.30%. A risk free interest rate of 0.68% was used to value the warrants using the Black Scholes Model. The beneficial conversion feature pertaining to the promissory note and attached warrants were valued and a debt discount of $100,000 was recorded. On September 30, 2011 the due date of this note was extended and as consideration for the extension, additional warrants to purchase two shares of restricted Rule 144 common stock for every dollar loaned, at a rate of $0.15 per share, for a total of 200,000 restricted Rule 144 common shares were granted to the Lender. The per share price represented an 11.7 % discount from the closing price of the Companys common stock on the OTC Bulletin Board on the commencement date of the note. The warrants computed volatility is 164.98%. A risk free interest rate of 0.42% was used to value the warrants using the Black Scholes Model. The value of the warrants issued for the extension of the maturity date was expensed.
On May 31, 2011, the Company granted 275,000 incentive options to an officer. These options were issued as additional incentive compensation. The options vest over a six month period and are exercisable at $0.17 per share which represents the fair market value at the date of grant in accordance with the 2009 Equity Incentive Plan. The options were valued using the Black-Scholes valuation model. The options have an expected volatility rate of 147.21% calculated using the Company stock price for a two-year period beginning June 24, 2010. A risk free interest rate of 0.79% was used to value the options. The total value of these options of $36,473.
On April 27, 2011, the Company issued contingent warrants to purchase an aggregate of 200,000 shares of restricted Rule 144 common stock at $0.35 per share. The conversion of the warrants to common stock is based upon the successful creation of a predetermined sales or distribution agreement that generates recognized revenue in an amount no
60
less than $250,000. The warrant expires 36 months from date of warrant. Due to the fact that these warrants are contingently exercisable and the contingency is not resolved, no amount has been recorded for these warrants.
On August 24, 2010, the Company granted 133,930 incentive options to an employee. These options were issued as additional incentive compensation. The options were valued using the Black-Scholes valuation model. The shares have an expected volatility rate of 109.70% calculated using the Company stock price for a two-year period beginning August 25, 2010. A risk free interest rate of .39% was used to value the options. The options vest over a three-year period and are exercisable at $.70 per share which represents the fair market value at the date of grant in accordance with the 2009 Equity Incentive Plan. During the twelve-months ended March 31, 2013, $7,259, of the total value was expensed.
On August 23, 2010, the Company granted 50,000 options to a consultant. These options were issued to the consultant due to exemplary performance. The shares have an expected volatility rate of 109.81% calculated using the Company stock price for a two-year period beginning August 23, 2010. A risk free interest rate of .37% was used to value the options. The options were valued using the Black-Scholes valuation model. The total value of these options was $11,988. The options vest over a three-year period, contain a number of performance conditions and are exercisable at $.71 per share which represents the fair market value at the date of grant in accordance with the 2009 Equity Incentive Plan. During the twelve-months ended March 31, 2013, $3,097 of the total value was expensed.
On June 24, 2010, the Company granted 800,000 incentive options to a select group of employees. These options were issued as incentive compensation to the employees. The options were valued using the Black-Scholes valuation model. The options have an expected volatility rate of 114.06% calculated using the Company stock price for a two-year period beginning June 24, 2010. A risk free interest rate of 0.48% was used to value the options. The total value of these options was $258,170. The options vest over a three-year period and are exercisable at $.55 per share which represents the fair market value at the date of grant in accordance with the 2009 Equity Incentive Plan. During the twelve-months ended March 31, 2013, $28,146 of the total value was expensed.
On June 17, 2010, the Company granted 300,000 incentive stock options to an officer. These options were issued as incentive compensation to the officer. The options were valued using the Black-Scholes valuation model. The options have an expected volatility rate of 113.82% calculated using the Company stock price for a two-year period beginning June 17, 2010. A risk free interest rate of .53% was used to value the options. The total value of these options was $92,897. The options vest over a three-year period and are exercisable at $.60 per share, which represents the fair market value at the date of grant in accordance with the 2009 Equity Incentive Plan. During the twelve-months ended March 31, 2013, $13,547 of the total value was expensed.
NOTE 14 - RELATED PARTY TRANSACTIONS
During the fiscal year ended March 31, 2013 and March 31, 2012, the Company entered into various loan transactions with members of the Board of Directors (Donald Farley, Todd Hackett and Murali Ranganathan) and Shareholders. The loans were done at arms length and are fully disclosed in Note 8.
During the fiscal year ending March 31, 2013 the Company converted 300,000 restricted stock units (RSUs) of the 450,000 issued to common stock for non-management directors for services rendered during the period September 1, 2011 to August 31, 2012 at a rate of one share of common stock for each restricted stock unit. In addition, the board members we all issued new Restricted Stock Awards for the current period of September 1, 2012 to August 31, 2013. The transaction is described in detail on page 44, Note 7.
During the fiscal year ended March 31, 2013, the Company granted 200,000 shares of restricted stock to officer, Robert Grover, in addition to a 150,000 restricted stock award as a bonus and 850,000 shares of Incentive Stock Options. Full disclosures can be read under Note 7 and Note 13.
During the fiscal year ended March 31, 2013, the Company granted 50,000 shares of restricted stock to officer, Leann Gilberg, in addition to 450,000 shares of Incentive Stock Options. Full disclosures can be read under Note 7 and Note 13.
During the year ended March 31, 2013, the Company had an employment agreement with Brett A. Newbold as the Companys new Chief Operating Officer. In conjunction with the employment agreement, the Company granted Mr. Newbold 100,000 shares of restricted common shares of PCS stock. In addition to the monthly salary and the
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aforementioned 100,000 shares of common restricted stock, the Company issued to Newbold 150,000 shares of Incentive Stock Options. The details of these stock issuances are fully disclosed in Note 7 and Note 13.
During the year ended March 31, 2012, the Company issued 27,662 shares of common stock to Joesph Khoury, an officer of LabMentors, our wholly owned subsidiary, for bonuses for a net value of $5,809, based on the closing price of our common stock at the grant dates.
NOTE 15 ACCOUNTS RECEIVABLE
The Companys concentration of credit risk consists primarily of trade receivables. In the normal course of business, the Company provides credit terms to its customers, which generally range from net 30 to 45 days. The Company performs ongoing credit evaluations of its customers and maintains allowances for possible losses, which, when realized, have been within the range of management's expectations. The allowance is based on the prior three-year historical uncollectable accounts as a percentage of sales. Total bad debt allowance as of March 31, 2013 and 2012, was $2,669 and $4,805, respectively. The bad debt expense for the year ending March 31, 2013 and 2012 was ($2,135) and $1,526, respectively.
NOTE 16 OTHER ASSETS
During the year ended March 31, 2009, the Company contracted for the production of a plastic mold (a covering for the third generation proprietary electronic controller, The Brain). The Brain is incorporated into AOR product line. The cost of the mold was $28,426. The cost is amortized on a per unit basis with a total estimated 10,000 units. As of March 31, 2013, the Company had amortized 2,805 units. Due to usage of the mold being slower than anticipated an additional amortization charge of $4,592 was recorded during the year ended March 31, 2012 to better approximate straight-line depreciation. During the fiscal year ended March 31, 2013, the Company continued to use the straight-line method to depreciate the mold. As a cost savings measure the Company outsourced some of its manufacturing to a company in China for the controller case, The Brain, in which a new mold was created. The cost of the mold was $7,088 USD. Use of this mold began in December 2012, in which at that time amortization began using the straight-line method. Amortization of the mold is included in cost of sales for AOR. The Company recorded a charge of $3,849 during the fiscal year ended March 31, 2013 for the amortization of both molds.
NOTE 17 OTHER INCOME
Other income is made up of the following at March 31, 2013 and March 31, 2012.
|
|
|
|
| |
|
2013
|
|
2012
|
State of California BOE settlement true-up
|
$
|
-
|
|
$
|
23,070
|
SR&ED refund
|
|
-
|
|
|
15,134
|
Recovery of previously written off receivables
|
|
5,651
|
|
|
10,186
|
Other
|
|
243
|
|
|
2,356
|
Total Other Income
|
$
|
5,894
|
|
$
|
50,746
|
NOTE 18 - SUBSEQUENT EVENTS
Effective June 7, 2013, we executed an amendment to the loan transaction. The amended transaction involved the extension of the Promissory Note from April 30, 2013 to April 30, 2016, with the creditors waiving any default under the previous note. The Company made interest payments to each of the eight note holders for all accrued interest from August 1, 2012 to April 30, 2013 for consideration of the extension. The Company has agreed to make quarterly interest
62
payments to each of the note holders during the term of the extension. All other terms of the previous Promissory Note, Security Agreement and related warrants remain in full force and effect.
On May 24, 2013, we entered into three different loan transactions with an accredited investor, one of our board members and a shareholder, Todd Hackett. Mr. Hackett financed a long term Convertible Promissory Note, payable with interest at 8% per annum in the amount of $95,000, convertible into shares of common stock of the Company at a price of $0.0325 per share, which represents a 20% discount from the market price as of the date of the note. The note is due thirty six months from the date of the note in cash on or before May 24, 2016. The note has a security interest in those assets of Borrower designated as fixed assets on the financial statements of Borrower for the fiscal year ended March 31, 2013, and a security interest (the IP Security Interest) in all intellectual property owned by the Borrower. The IP Security Interest granted under this Note shall be, and be deemed to be, subordinated to any prior security interests granted prior to the date of this note by the Borrower in any or all Intellectual Property under any note obligations in favor of any one or more lenders to the Borrower.
In addition, Mr. Hackett financed a 12% Convertible Promissory Note in the amount of $100,000, convertible into shares of common stock of the Company, at a price of $0.0325 per share, which represents a 20% discount from the market price as of the date of the note. The note is due ninety days from the date of the note on or before August 24, 2013.
If the Lender does not decide to convert the note after 60 days from the date of the note, the Borrower must amend the note and secure the $100,000 with unsecured accounts receivable or customer purchase orders from its customers (to be determined) as collateral.
The third loan transaction Mr. Hackett financed was a short term Promissory Note in the amount of $150,000, payable with interest at 12% per annum, in cash on or before August 24, 2013. The Promissory Note is secured by several customer Purchase Orders in the amount of $150,229, in which the Company has structured to pay back $0.50 for every $1.00 received from the customer purchase order, in which for the remaining $0.50 outstanding, the Company would re-secured with new customer purchase orders (to be determined). The loan proceeds will be utilized to support the fulfillment of the orders pledged as well as finance operations for a short term.
On April 30, 2013, we entered into a loan transaction with an accredited investor for a Promissory Note, payable with interest at 8% per annum in the amount of $5,000, convertible into shares of common stock of the Company at a price of $0.20 per share. The note is due twenty four months from the date of the note, on or before August 31, 2015.
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9(A). Controls and Procedures.
Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as the Securities and Exchange Commission (SEC) defines such term. We have designed these controls and procedures to reasonably assure that information required to be disclosed in our reports filed under the Exchange Act, such as this Form 10-K, is recorded, processed, summarized, and reported within the periods specified in the SECs rules and forms. We have also designed our disclosure controls to provide reasonable assurance that such information is accumulated and communicated to the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow them to make timely decisions regarding our required disclosures.
Our management has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) as of March 31, 2013. Based on this evaluation, the Chief Executive Officer concluded that our Companys disclosure controls and procedures, including the accumulation and communication of disclosures to the Companys Chief Executive Officer as appropriate to allow timely decisions regarding required disclosure were not effective as of this date to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SECs rules and forms. The Companys year-end closing process did not adequately ensure that all transactions were accounted for in accordance with GAAP and that required adjustments were made to the financial statements to prevent them from being materially misstated. Management acknowledges that as a smaller reporting entity, it is difficult to have adequate accounting staff to perform appropriate additional reviews of
63
the financial statements. In addition, two personnel positions turned over in the finance area just prior to year-end and training new personnel has taken time.
Managements Report on Internal Control Over Financial Reporting
.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Our management, including our Chief Executive Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.
Our management, with the participation of the principal executive officer, evaluated the effectiveness of the Companys internal control over financial reporting as of March 31, 2013. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control Integrated Framework. As a result of its review, management identified a material weakness in the internal control over financial reporting. This material weakness was evidenced through the Companys year-end closing process, which did not adequately ensure that all transactions were accounted for in accordance with GAAP and that required adjustments were made to the financial statements to prevent them from being materially misstated. Based on this evaluation, our management, with the participation of the principal executive officer, concluded that, as of March 31, 2013, our internal control over financial reporting was not effective. Management acknowledges that as a smaller reporting entity, it is difficult to have adequate accounting staff to perform appropriate additional reviews of the financial statements. In addition, the Companys Chief Financial Officer resigned prior to year-end and training and transitioning has taken time.
This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to provide only managements report in this Annual Report.
Changes in Internal Control Over Financial Reporting
On November 30, 2012, Ms Gilberg resigned as Chief Financial Officer.
Item 9(B). Other Information
None.
PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act.
Identification of Directors and Executive Officers.
The following table sets forth the name, age and position of each officer and director of the Company:
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|
| |
Name
|
Age
|
Position
|
Robert O. Grover
|
50
|
Chief Executive Officer
|
Donald J. Farley
|
65
|
Secretary
|
Dehryl A. Dennis
|
72
|
Director
|
Todd R. Hackett
|
52
|
Director
|
Murali Ranganathan
|
43
|
Director
|
Term of Office.
The terms of office of the current directors shall continue until the annual meeting of stockholders, which has been scheduled by the Board of Directors to be held no later than September of each year. The annual meeting of the Board of Directors immediately follows the annual meeting of stockholders, at which executive officers for the coming year are elected.
Business Experience.
Robert O. Grover
. On January 5, 2012, Mr. Grover was appointed Chief Executive Officer, Mr. Grover became Executive Vice President in May 1996 and served as President, Chief Operating Officer, and Chief Technology Officer from March 2010 until January 2012. Mr. Grover has been instrumental in the continued development and growth of the PCS family of products. Mr. Grover joined PCS at its inception. Mr. Grover graduated from Boise State University in 1987 with a Bachelor of Arts degree in English and an A.A.S. in Business Management.
Donald J. Farley
. Mr. Farley is the Secretary of the Company and acted as the Company's legal counsel from 1994 until 2005. Mr. Farley is a founding partner of the law firm of Hall, Farley, Oberrecht & Blanton, P.A. His legal practice emphasizes litigation and representation of closely held businesses. He has been in private practice since 1975, after serving a two-year judicial clerkship with former United States District Judge J. Blaine Anderson. Mr. Farley is admitted to practice before all state and federal courts in Idaho and has also been admitted to practice before the United States Supreme Court. He is a member of the American Bar Association, the International Association of Defense Counsel, Defense Research Institute, the Idaho State Bar Association and the Association of Trial lawyers of America. Mr. Farley graduated from the University of Idaho in 1970 with a Bachelor of Arts degree in Economics and from the University of Idaho, College of Law in 1973.
Dehryl A. Dennis, Ed.D.
Dr. Dennis has had a 36-year career that took him from teaching in small public schools in southwest Idaho to Puerto Rico and Illinois, and then returned him to his native state as a district administrator in Boise, Idaho. During his entire professional career, Dr. Dennis was an outspoken advocate for programs that emphasized applied learning. Because of his strong belief that most people learn by doing rather than thinking about doing, he supported and helped implement off-school site classrooms in malls and hospitals; partnerships with trade unions, small business, and industry; and cooperative agreements with institutions of higher learning. The success of these programs culminated in the construction of the Dehryl A. Dennis Professional Technical Center, which opened in 1999 and presently serves approximately 900 students from 16 area high schools. Appointed in 1976 as Director of Personnel, he later served as Assistant Superintendent and then Deputy Superintendent until he was appointed District Superintendent in 1994. He remained as Superintendent until his retirement in July 1999.
Todd R. Hackett.
Mr. Hackett is the owner Todd Hackett Construction Co., a successful construction company in Iowa where he has served as President for the last 25 years. Mr. Hackett first became aware of PCS as an investment opportunity in 2007. Over the past five years, his involvement with PCS has grown from a casual investor to providing short-term financing to us to meet our operational needs. He is a strong advocate for bringing educational opportunities to both children and young adults to strengthen their knowledge in math and science. Mr. Hackett brings a strong business background to PCS, well founded in the fundamental principles of building a successful company. He has demonstrated his abilities in the building of his own company from a start-up in 1981 to a major construction firm now handling multi-million dollar projects. Many of his projects involve educational institutions such as community colleges, middle schools, libraries and applied technology labs.
Murali Ranganathan.
Mr. Ranganathan is the Senior Manager of Finance Strategy for Micron, where he is the financial lead for evaluating, negotiating, and conducting due diligence on Microns M&A and venture investment
65
opportunities. Mr. Ranganathan is a planning and financial expert who is well versed in due diligence. Mr. Ranganathan is Chairman of the Audit Committee for PCS Edventures. Mr. Ranganathan has a long and impressive career in both engineering and finance, with a Masters in Industrial and Systems Engineering from Ohio State, and an MBA from the Booth School of Business at the University of Chicago.
Significant Employees.
Joseph A. Khoury
. Mr. Khoury is the founder of PCS LabMentors, Ltd. formerly known as 511092 N.B. LTD. Prior to forming LabMentors, he was employed as a software engineer with MIMS Consultants, Inc. He brings to PCS extensive knowledge of computer software and network communication systems. He graduated from the University of New Brunswick in 1993 with a Bachelor of Science in Electrical Engineering.
Family Relationships.
There are no family relationships between any of our directors or executive officers, however, Chief Executive Officer, Robert Grover spouse works for the company on a contract basis in our Learning Center.
Involvement in Certain Legal Proceedings.
With the exception of the consent judgment involving the Companys former Chief Financial Officer Ms. Stith and the Final Judgment involving the Companys former Chief Executive Officer Mr. Maher in the Securities and Exchange Commission (the SEC) case discussed in Note 8(b), during the past 10 years, to our knowledge, none of our present or former directors, executive officers or persons nominated to become directors or executive officers has been the subject of any of the following:
(1) A petition under the federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two (2) years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two (2) years before the time of such filing;
(2) Such person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);
(3) Such person was the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him or her from, or otherwise limiting, the following activities:
(i) Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of
any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
(ii) Engaging in any type of business practice; or
(iii) Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;
(4) Such person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than sixty (60) days the right of such person to engage in any activity described in paragraph (f)(3)(i) of this section, or to be associated with persons engaged in any such activity;
66
(5) Such person was found by a court of competent jurisdiction in a civil action or by the SEC to have violated any federal or state securities law, and the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated;
(6) Such person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;
(7) Such person was the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:
(i) Any federal or state securities or commodities law or regulation; or
(ii) Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or
(iii) Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
(8) Such person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
Compliance with Section 16(a) of the Exchange Act.
Based solely on review of the copies of such forms furnished to us, we believe that all Section 16(a) filing requirements applicable to our executive officers and directors were timely filed during fiscal year 2013 with the exception of the below:
Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that during fiscal year ended March 31, 2013, all filing requirements applicable to our officers, directors and greater than 10% percent beneficial owners were complied with.
Code of Ethics.
We adopted a Code of Ethics and it was attached as Exhibit 14 to our 2004 Annual Report. The Code was revised in 2010 and is available on our web site at https://edventures.com.
Nominating Committee.
No changes have been made to the process by which shareholders may nominate a person or persons to serve as a member of the Companys Board of Directors.
Audit Committee.
We chartered an audit committee in 2001 for the purpose of engaging an accounting firm, which is currently M&K CPAs, PLLC, for the annual audit and quarterly reviews. The audit committee currently consists of Board members Murali Ranganathan and Dehryl A. Dennis. Mr. Ranganathan is considered an audit committee financial expert based on his previous work experience and the definition contained in Reg. 228.401 Instructions to paragraph (e)(1) of Item 401 of the Sarbanes-Oxley Act. The audit committee continued to implement its Charter regarding the scope and responsibilities
67
for the audit committee adopted in fiscal year 2005 and revised in fiscal year 2010. The audit committee meets with M&K CPAs, PLLC via telephone on a quarterly basis and meets separately with management to review quarterly financial results and discuss any issues. The audit committee facilitated a teleconference meeting with the Board of Directors and M&K CPAs, PLLC on during the Companys Annual Meeting. In addition, the audit committee discusses auditing issues as needed during regularly scheduled board meetings, which are documented in the Companys minutes.
Item 11. Executive Compensation.
Compensation.
SUMMARY COMPENSATION TABLE FOR FISCAL YEARS 2011-2013
The following table provides information relative to compensation paid to our executive officers for the years ended March 31, 2011 through March 31, 2013. During the fiscal year ended March 31, 2013, Mr. Grovers salary comprised 11.0% of the total compensation paid to all employees, Ms. Gilbergs salary comprised 6.6% of the total compensation paid to all employees and Mr. Newbolds salary comprised less than 6.1% of the total compensation paid to all employees.