The Financial Statements of the Registrant required
to be filed with this 10-Q Quarterly Report were prepared by management and commence below, together with related notes. In the
opinion of management, the Financial Statements fairly present the financial condition of the Registrant.
The accompanying notes are an integral part
of these consolidated financial statements
The accompanying notes
are an integral part of these consolidated financial statements.
The accompanying notes are an integral part
of these financial statements.
The accompanying notes are an integral part
of these financial statements.
The accompanying notes are an integral part
of these financial statements.
Notes to the Consolidated Financial Statements
June 30, 2013
(Unaudited)
NOTE 1 - ORGANIZATION AND DESCRIPTION
OF BUSINESS
The consolidated financial
statements presented are those of PCS Edventures!.com, Inc., an Idaho corporation, and its wholly owned subsidiary, PCS LabMentors,
Ltd., a Canadian company (collectively, “the Company”). The assets and liabilities of LabMentors have been disclosed
in the financials to show the hold for sale of the subsidiary.
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. The Company currently has a memo of understanding with a company for the potential sale of LabMentors.
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 quarter year ended June 30, 2013.
NOTE 2 - UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
The June 30, 2013, consolidated
financial statements presented herein are unaudited, and in the opinion of management, include all adjustments (consisting of only
normal recurring accruals) necessary for a fair presentation of financial position, results of operations and cash flows. Such
financial statements do not include all of the information and footnote disclosures normally included in financial statements prepared
in accordance with accounting principles generally accepted in the United States of America. This Quarterly Report on Form 10-Q
should be read in conjunction with the Annual Report on Form 10-K for PCS Edventures!.com for the fiscal year ended March 31, 2013.
The March 31, 2013, consolidated balance sheet is derived from the audited balance sheet included therein.
The operating results for
the three-month period ended June 30, 2013, are not necessarily indicative of the results that may be expected for the fiscal year
ending March 31, 2014.
NOTE 3 - GOING CONCERN
The Company’s 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 Company’s 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. Management’s plans with respect
to alleviating this adverse position are as follows:
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 a local school, and a third opening
in a market of strategic importance yet to be determined. The premise of the business plan is three-fold: 1) learning center revenues
will be more consistent and predictable for the Company to plan and manage cash and growth; 2) learning centers will serve as a
foundation from which PCS can grow a subscription-based, virtual community of students emphasizing experiential, blended education;
and 3) 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.
PCS has continued to pursue
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. PCS signed a license and royalty agreement with Creya Learning of India (CL). CL uses PCS content
and support services to implement experiential learning curriculums into Indian schools. PCS, as part of the agreement, will receive
ongoing royalties on the tuition charged to students attending PCS based programs. In FY2013 Creya established programs in twelve
schools that will serve as anchor and reference sites as they work to expand the program in FY2014. In the Middle East, PCS continues
to work with the Ministry of Education in The Kingdom of Saudi Arabia on STEM related projects. The King Abdullah Project for the
Development of Public Education is a USD $2.3B intended to implement major changes throughout the Kingdom, with STEM and science
literacy a heavy emphasis. PCS successfully completed $106K in STEM consulting for the Saudi Ministry of Education in FY2013 and
is working now to secure additional work related to implementation of STEM programs. PCS received a formal award notice on July
8, 2013 regarding a STEM outreach program in the Kingdom and is working to complete contractual negotiations on this project.
Adding Murali Ranganathan
to the Board of Directors has brought financial knowledge that has been extraordinary as PCS continues to refine its business plan.
During FY2014, PCS plans to expand and strategically recruit new board members who can help the management team focus and execute
its business plan.
The Company reported improved
results during FY2013 with revenue for the twelve months ended March 31, 2013 up 26% compared to the same period in the prior year
and managed to cut operating expenses by $908,806 throughout the year. During the quarter ended June 30, 2013, the company had
a strong influx of new sales orders, however, was unable to fulfill them due to low volumes of inventory that were in production,
therefore experiencing a decline in reported revenues. Revenue for the quarter ending June 30, 2013 was $393,259 compared to revenue
of $565,032, down approximately 30% compared to the same quarter last fiscal year. Net loss for the three months ended was ($278,707),
compared to ($355,818) a 22% improvement over the same quarter last year thus showing a marked improvement in its continued effort
to keep costs down. Cash flow from operations for the three months ended June 30, 2013 was $(258,132), which partially had to do
with our inability to fulfill orders.
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 4 – PREPAID EXPENSES
Prepaid expenses for the periods are as follows:
|
|
June 30, 2013
|
|
|
March 31, 2013
|
|
Prepaid insurance
|
|
$
|
3,500
|
|
|
$
|
5,440
|
|
Prepaid trade show/travel
|
|
|
—
|
|
|
|
1,990
|
|
Prepaid inventory
|
|
|
32,130
|
|
|
|
2,341
|
|
Prepaid software
|
|
|
2,864
|
|
|
|
11,457
|
|
Prepaid expenses, other
|
|
|
5,706
|
|
|
|
13,610
|
|
Prepaid expenses, held for sale
|
|
|
857
|
|
|
|
1,548
|
|
Total Prepaid Expenses
|
|
$
|
45,057
|
|
|
$
|
36,386
|
|
NOTE 5 - FIXED ASSETS
Assets and depreciation for the periods are
as follows:
|
|
June 30, 2013
|
|
|
March 31, 2013
|
|
Computer/office equipment
|
|
$
|
10,112
|
|
|
$
|
10,112
|
|
Server equipment
|
|
|
154,107
|
|
|
|
154,107
|
|
Software
|
|
|
127,355
|
|
|
|
127,355
|
|
Accumulated depreciation
|
|
|
(258,076
|
)
|
|
|
(253,397
|
)
|
Total Fixed Assets
|
|
$
|
33,498
|
|
|
$
|
38,177
|
|
Fixed asset depreciation
expense for the three months ended June 30, 2013 and 2012 was $4,679 and $4,679, respectively.
NOTE 6 - ACCRUED EXPENSES
Accrued expenses for the periods are as follows:
|
|
June 30, 2013
|
|
|
March 31, 2013
|
|
Interest payable
|
|
|
56,744
|
|
|
|
63,732
|
|
Sales tax payable
|
|
|
5,690
|
|
|
|
1,230
|
|
Credit card debt
|
|
|
60,797
|
|
|
|
61,281
|
|
Professional fees: legal, accounting & other
|
|
|
—
|
|
|
|
10,116
|
|
Total accrued expenses
|
|
$
|
123,231
|
|
|
$
|
136,359
|
|
NOTE 7 – NOTES PAYABLE
Notes payable consisted of the following:
|
|
June 30, 2013
|
|
|
March 31, 2013
|
|
Short Term Note Payable, Related Party
|
|
$
|
208,467
|
|
|
$
|
408,129
|
|
|
|
|
|
|
|
|
|
|
Short Term Convertible Note
|
|
|
190,000
|
|
|
|
185,000
|
|
|
|
|
|
|
|
|
|
|
Short Term Convertible Note, Related Party
|
|
|
180,000
|
|
|
|
80,000
|
|
|
|
|
|
|
|
|
|
|
Line of Credit
|
|
|
31,092
|
|
|
|
32,061
|
|
|
|
|
|
|
|
|
|
|
Long Term Note Payable, Related Party
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
Long Term Convertible Note, Related Party
|
|
|
161,500
|
|
|
|
66,500
|
|
Total Notes Payable
|
|
$
|
796,059
|
|
|
$
|
796,690
|
|
Note Payable – Related Party
|
1.
|
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 later extended for the fourth time to July 31, 2013. Subsequently, this note was extended from July 31, 2013 to September
30, 2013 under the same terms and conditions.
|
|
2.
|
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. 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.
The company has paid $1,529 in principal leaving a balance of $62,671 at June 30, 2013.
|
|
3.
|
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.
|
|
4.
|
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, which states that the note is due August 24, 2016. The
debt discount on the convertible note was calculated as $21,923, in which $609 was amortized.
|
|
5.
|
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, which states that the note is
due August 24, 2016. See number 4 for a debit discount and amortization amounts.
|
|
6.
|
On March 22, 2013, we entered into a loan transaction that bears interest at a rate of 8% per annum,
secured with one of our board members in the amount of $25,000. The note is secured by three of our accounts receivables to finance
inventory purchases. The promissory note and all accrued interest are due and payable on May 31, 2013. This note was subsequently
extended for 90 days unsecured, due on or before August 31, 2013.
|
|
7.
|
On May 24, 2013, we entered into a Promissory Note in the amount of $150,000 with one of our board
members, 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.
|
Line of Credit
|
1.
|
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. As of June
30, 2013, the Company has paid $7,958 in principal leaving a balance of $31,092 payable.
|
Convertible Note Payable
|
1.
|
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 Borrower’s 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 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 Lender’s 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.
|
2.
|
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. No debt discount was recognized as the conversion price is considered “out of the money”, therefore no discount
was necessary.
|
Convertible Note Payable – Related
Party
|
1.
|
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 Company’s financial statements and accompanying notes at
June 30, 2013.
|
|
2.
|
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 Borrower’s 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 later extended to June 30, 2013. On June 28, 2013, the company negotiated a sixth extension with a new
maturity date of September 30, 2013.
|
|
3.
|
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 $1,237 was amortized during the period ended June 30, 2013.
|
|
4.
|
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 Company’s
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 $1,121
has been amortized.
$509 was accrued
and amortized
during the period
March 31, 2013
and $612 during
the three months
ended June 30,
2013.
|
|
5.
|
On January 17, 2013, the Company entered into
a loan transaction with a related party. The transaction involved the issuance of a Promissory Note in the amount of $200,000 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 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. The remaining discount of $1,716 was amortized for the period ending June 30, 2013.
|
|
6.
|
On May 24, 2013, the Company modified two existing promissory notes to form one convertible promissory
note in the amount of $95,000 as describe in the 8-K filed on May 24, 2013, The note is due August 24, 2016 with a interest rate
of 8%. The debt discount was calculated as $21,923, in which $609 was amortized.
|
|
7.
|
On May 24, 2013, 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 debt discount was calculated as $23,077, in which $7,692 was amortized during
the three months ended June 30, 2013. Subsequently, due to the company’s inability to secure the promissory note until its
maturity, Mr. Hackett elected to convert the Promissory Note along with all accrued interest effective July 24, 2013 into 3,138,630
shares.
|
NOTE 8 – 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.
The Company, in prior year ended March
31, 2013, 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 Company’s
common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock.
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 Company’s derivative liabilities were estimated at the issuance
date and are revalued at each subsequent reporting date, using a lattice model.
The Company eliminated the derivative as
of March 31, 2013. As a result, the loss on derivative liabilities was $-0- and $77,227 as of June 30, 2013 and 2012.
NOTE 9 – 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 Company’s
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).
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 recurring basis in the balance sheets as of June 30, 2013:
|
|
|
Fair
Value Measurements at June 30, 2013
|
|
Liabilities
|
|
|
Level 1
|
|
|
|
Level 2
|
|
|
|
Level 3
|
|
|
|
Gain/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
NOTE 10 – DISCONTINUED OPERATIONS
On July 31, 2013, the Company signed a Memorandum of Understanding
with a Canadian company owned by Joseph Khoury (“JAK”) for the desire to execute a purchase agreement in which JAK
shall purchase LabMentors from PCS for USD $150,000. JAK has agreed to assume 100% of LabMentors outstanding liabilities and to
pay the remainder of the USD $150,000 through a note payable. The note shall carry an annual interest rate of 3% compounded annually
and be paid over a period of 60 months in equal monthly payments beginning in month 13 of the 60 month period. Once finalized,
it is anticipated that this sale will not result in a loss.
The results of discontinued operations is a
net loss of ($16,836) and ($8,093) for the quarter ended June 30, 2013 and 2012. The assets and liabilities of PCS LabMentors are
segregated in the balance sheet and appropriately labeled as held for sale.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
a. Operating Lease Obligation
The Company leases its
main office under a non-cancelable lease agreement accounted for as an operating lease. The lease 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 29,591, under this lease
arrangement. The company is 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, however at this time the Company is month to month.
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 three months ended June 30, 2013 and 2012, respectively.
Effective March 31, 2010,
the Company relinquished its leased space for the LabMentors subsidiary located in Fredericton, New Brunswick, Canada. For the
period April 2010 through September 2010 the employees of LabMentors worked from their respective homes. There was no rent expense
during that period. Effective October 2010 LabMentors entered into a five year office lease. This lease was cancelled effective
July 1, 2012 in which the Company incurred a 3 month penalty for opting out early. 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 increase 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 the cost savings efforts being implemented within LabMentors and reduces the monthly lease payments. Rent
expense, converted to USD, for LabMentors was $1,360 and $4,673 for the three months ended June 30, 2013 and 2012, respectively.
If the Company successfully completes the Purchase Agreement with JAK for the sale of LabMentors, this liability would be transferred
with the sale.
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 Company’s 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 Company’s 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.
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 12 - STOCKHOLDERS’ EQUITY
a. Common Stock
During
the three months ending June 30, 2013, $12,175 has been accrued in stock payable that will be issued in future periods. The increase
in stock payable for services during the period was $1,535.
During the three months
ending June 30, 2013, the Company recognized $45,000 in debt discount as an increase to stockholders’ equity pursuant to
the terms of two different convertible promissory notes issued. The debt discount consists of a beneficial conversion feature on
both convertible promissory notes in which $8,301 was amortized for the period.
During the three months
ending June 30, 2013, the Company expensed amounts related to stock options and warrants granted in the current period as well
as prior periods valued at $13,139.
During the three months ended June 30, 2013,
the company accrued $15,000 payable in Restricted Stock Unit to its non-management directors. Each restricted stock unit is valued
at a range from $0.07-$0.20, based on the closing price of the Company’s 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. As of June 30, 2013,
$45,000 has been accrued for director services. For the directors who chose to defer payment last year 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 reclassed to stock payable.
b. Preferred Stock
The Company has 20,000,000 authorized shares
of preferred stock. As of June 30, 2013, there are no preferred shares issued or outstanding.
NOTE 13 - BASIC AND DILUTED NET LOSS
PER COMMON SHARE
Basic and diluted net loss
per common share for the three-month periods ended June 30, 2013 and 2012, are based on 49,293,845 and
45,284,144, respectively, of weighted average common shares outstanding. No adjustment has been
made for any common stock equivalents outstanding because their effects would be antidilutive. An adjustment has been made to show
that effect on the loss per share from discontinued operations as outlined below.
Basic and diluted net income (loss) per common share:
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share from continuing operations
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
Basic and diluted loss per share from discontinued operations
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
Basic and diluted net loss per share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
Weighted Average Number of Shares
Outstanding, Basic and Diluted
|
|
|
49,293,845
|
|
|
|
45,284,144
|
|
NOTE 14 - 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 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.
|
|
|
|
|
|
|
|
|
|
|
Total Issued
|
|
|
|
|
|
Not
|
|
|
|
Issued
|
|
|
Cancelled
|
|
|
Executed
|
|
|
and Outstanding
|
|
|
Exercisable
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2013
|
|
|
27,166,655
|
|
|
|
13,097,336
|
|
|
|
9,952,210
|
|
|
|
4,117,109
|
|
|
|
3,337,109
|
|
|
|
1,107,500
|
|
Warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
—
|
|
|
|
314,285
|
|
|
|
—
|
|
|
|
(314,285
|
)
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2013
|
|
|
27,166,655
|
|
|
|
13,411,621
|
|
|
|
9,952,210
|
|
|
|
3,802,824
|
|
|
|
2,762,824
|
|
|
|
1,040,000
|
|
No common stock options were exercised during
the quarter ended June 30, 2013.
During the three months
ended June 30, 2013 the Company had 314,285 common stock options and 0 warrants cancelled or expired. 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 and the remaining discount of $1,716 was amortized during the three months ending June 30, 2013.
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 June 30, 2013, $16,673 of the total value of the
option was expensed.
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. As of June 30, 2013, $7,334, 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. As of June 30, 2013, $3,871 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. As of June 30, 2013, $33,256 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.
As of June 30, 2013, $16,932 of the total value was expensed.
NOTE 15 - SUBSEQUENT EVENTS
On May 24, 2013, 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. Subsequently, due to the company’s
inability to secure the promissory note until its maturity, Mr. Hackett elected to convert the Promissory Note along with all accrued
interest effective July 24, 2013 into 3,138,630 shares.
On July 31, 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 July 31, 2015.
On July 31, 2013, the Company signed a Memo
of Understanding with a Canadian company owned by Joseph Khoury (“JAK”) for the desire to execute a purchase agreement
in which JAK shall purchase LabMentors from PCS. JAK has agreed to purchase 100% of LabMentors outstanding liabilities and to pay
the remainder of the USD $150,000 through a note payable.
The Board of Directors of PCS Edventures!.com, Inc. (the “Company”)
has accepted the resignation of Donald J. Farley as a member of the board of directors of the Company. Mr. Farley’s resignation
is effective as of August 1, 2013. Mr. Farley has resigned his position as a Director and Secretary with the Company to concentrate
on the pressing needs of his law practice. There were no disagreements between the Company and Mr. Farley regarding his resignation.