PCS Edventures!.com, Inc. (the “Company”, “PCS”, “we”, ”our”, “us” or similar words) was incorporated in 1994 in the State of Idaho. In November 2005, we acquired PCS LabMentors, Ltd. (“PCS LabMentors”) based in Fredericton, New Brunswick, Canada, which is a wholly owned subsidiary of PCS Edventures!.com, Inc.
PCS is engaged in the business of developing, marketing, and distributing educational products and services for the PreK-16 market that are implemented in PCS private learning centers and sold to public and private schools and institutions. These products include professional development, proprietary hardware and software, curriculum, and comprehensive learning labs bundled with related technologies and programs. Our products and technologies target public and private school classrooms for pre-kindergarten through college, as well as the afterschool market that includes YMCAs, Boys and Girls Clubs, and 21st Century Learning Centers. Our products and technologies enable students ages 3 and up to explore the foundations of science, technology, engineering, and mathematics (“STEM”) through experiential-learning programs that embed 21st century skills.
PCS has developed a number of innovative technology-based educational products and programs directed to the pre-kindergarten through college educational market, as well as Professional Development STEM Institutes for educators. Our PCS BrickLab, ThinkBug, PCS Academy of Engineering™, PCS Academy of Electronics™, PCS Academy of Science™, PCS Academy of Robotics™, and Digital Media Labs (“Audio/Video/Photography”) products are sold to classrooms and afterschool learning programs. The PCS Brain is a proprietary robotic microcontroller designed to facilitate educational robotic activities and the Cortex is a proprietary, progressive programming environment developed to manage the Brain and teach robotic programming concepts. Our online Learning Management System (“LMS”) supports our customers with online learning activities, support, assessment, file sharing, and social networking services for our customers. Our Professional Development STEM Institute offers a 30-hour professional development certification program in the areas of science, technology, engineering, and mathematics for elementary teachers. Separately, and in combination, these products present a platform for delivering educational services and support to classrooms, and learning centers. They help create a virtual community of learners on the web. PCS also partners with several companies to represent their product lines including fischertechnik®, Valiant Technologies, LEGO® Education, and K’NEX® Education. These companies offer products known for their hands-on, educational nature and PCS includes many of these products in our curriculum offerings. In addition, we have partnered with MINDS-i, Inc., of Liberty Lake, Washington, to combine their innovative construction system with the PCS robotic and controller programming solutions, which we believe offers a unique advantage over other competitors.
PCS LabMentors is the exclusive provider of a proprietary virtual lab technology which is designed to provide hands-on experience to high school, community college and university students studying a variety of technical topics. These technical topics include programming, network management, security, operating systems, and other IT subjects. LabMentors’ technology provides students with the ability to manage and configure any hardware/software platform remotely, through a proprietary client accessed remote server farm. Also embedded within the LabMentors system is a Learning Management System (“LMS”) that enables the delivery and tracking of curriculum and tasks to students. Using LabMentors' complete solution, any school or institution can offer advanced IT training topics in any number of areas such as Windows Server® 2008, Windows® 7, Exchange 2010, SharePoint® 2010, Linux® system administration, and various other applications without the associated overhead of owning and managing heterogeneous hardware and software platforms.
The Results of Operations discussed herein are on a consolidated basis.
Recent Developments.
The following are business developments during the fiscal year that ended March 31, 2012 (FY2012):
In addition to product enhancements and the beginning stages of phasing in learning center operations, several management changes have been implemented. Effective January 5, 2012 Robert O. Grover was appointed to serve as
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Chief Executive Officer. He succeeds Valerie L. Grindle who resigned on January 4, 2012. Mr. Grover has spent the last two decades with PCS designing, developing, and creating PCS learning programs and services intended to facilitate student-centered, experiential-learning. Mr. Grover has worked closely with partners and customers in the education industry over the past two decades and knows the complexities of the domestic and international educational marketspace well. Mr. Grover has traveled extensively throughout the world promoting PCS programs and developing International relationships for the Company. He was appointed to the Idaho District Export Council by the US Secretary of Commerce in January of 2012. A Merit Scholar, Mr. Grover attended Michigan State University for course work in Astrophysics, Philosophy, Computer Science, and Religious Studies; he attended the University of Idaho for additional coursework in History, Religious Studies, and Philosophy; and graduated with a B.A. in English, Creative Writing and an A.A.S in Management from Boise State University in 1988.
To strengthen financial planning and control capabilities, and better address the reporting needs of a publicly held company, PCS initiated an extensive search for a skilled financial officer in Q2 of FY2012. As a result, Ms. Leann Gilberg joined PCS in September 2011 as Chief Financial Officer. Ms. Gilberg has held multiple high-level financial management roles including work with Albertson’s Inc, Resources Global Professionals and two of the leading firms in the public accounting industry – KPMG LLP and Arthur Andersen LLP. She gained extensive business and accounting experience by serving publicly- traded and privately-owned companies and was a Senior Manager with KPMG LLP when she left public accounting in 2003. Her experiences have included audit and consulting engagements, work with internal controls, periodic filings with the Securities and Exchange Commission (the “SEC”), assisting on an initial public offering (“IPO”), management reporting and financial analysis. Ms. Gilberg, a Certified Public Accountant, earned a Bachelor of Science Degree in Business Administration (Accounting Emphasis) from the University of Montana with a minor in Political Science in 1992. She is a past member and chairperson of the University of Montana Accounting Advisory Board.
To strengthen PCS operational capabilities PCS initiated a search in Q2 of FY2012 for a candidate to fill the role of Chief Operating Officer. As a result, Mr. Brett Newbold joined PCS in January of 2012 as an operational advisor and active member of the executive management team. In March 2012 he was appointed Chief Operating Officer for PCS. Mr. Newbold has extensive executive management experience having served the role of CEO, COO, and CTO for a variety of companies both domestic and international over the past three decades. Mr. Newbold served as a direct report to Larry Ellison for eight years as a Vice President of R&D with Oracle, managing many significant technology initiatives. In addition, he has served as the Managing Director (CEO role) on several International startups, building them to successful levels and selling them after reaching profitability. As President of OpenText Corporation, a publicly held company with over 1,000 employees, from February 1997 - October 1998, he tripled revenues and market cap. We believe Mr. Newbold, whose extensive experience in detailed operating efficiencies, from development to product management to sales/marketing, will strengthen our bottom-line progressively.
During FY2012 the Company settled both the SEC case and the class action lawsuit that had been pending against the Company and certain of its former officers with no significant penalties or financial liabilities resulting. On January 3, 2012, the U.S. District Court for the District of Idaho signed Final Judgment in 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. 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 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. Both of these matters were costly, financially and as a burden on management. Settlement has allowed focus to return more completely to operations.
In November of 2011, we entered into an agreement with Colebrook Capital to assist with financial restructuring and raise capital. No additional capital was raised under this arrangement.
In January of 2012, we restructured a defaulted note payable to eight note holders that established a payment plan and new terms for the notes eliminating the default.
In January of 2012, we renewed our D&O insurance on favorable terms for a one year period.
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In February of 2012, we filed documents and released a private placement offer to raise capital using convertible notes. Thus far no funding has been raised under this offering.
From January of 2012 going forward, we have researched and pursued potential capital investments through the EB5 foreign investment program.
In March of 2012, we successfully initiated the process required to expand our pool of authorized shares for the purposes of raising capital and compensating employees through our incentive stock option program. These changes were approved by a vote of shareholders via proxy at a Special Meeting held on April 4, 2012. Shareholders voted to increase our authorized no par value common stock from 60,000,000 shares to 90,000,000 and to increase the shares of common stock available for grants, incentive or other purposes under our 2009 Equity Incentive Plan from 4,000,000 shares to 8,000,000 shares.
We continued to explore potential partnerships during FY2012, seeking opportunities and values that would strengthen PCS Edventures and advance shareholder value through improved sales and marketing, development, or operational efficiency.
We continued to grow our long term relationship with Edison schools in 2011, providing additional customized learning labs for their summer adventures programs, as well as supplying them with materials authored and developed in previous years. Edison Schools has been the resource of well over $1M in revenue since the inception of the relationship. Edison program, developed by PCS, range from primary stage camps in life science and biology to high school age activities in engineering, electronics, and robotics. Development, packaging, fulfillment, and support were further streamlined this year to improve efficiency and the overall customer experience.
We formed a relationship with STEM Academy (“STEM 101”) in which PCS provides the robotics curriculum and Labs for their 6th and 8th grade programs, and are working on developing additional programs for their elementary and high school STEM solutions.
We executed a contract with Tatweer Holding Company, a Saudi entity charged with managing education reform activities defined by the Saudi Ministry of Education, to compete for STEM consulting services related to the design and implementation of a nationwide network of science centers in Saudi Arabia, as part of the King Abdullah Education Initiative.
We further expanded our statewide penetration of STEM programs into Idaho schools. PCS is one of four state selected vendors for supplying a high school technical professional solution.
We further expanded our penetration into the Boys and Girls Clubs of America, a significant niche market for PCS afterschool products with over 5,000 sites across the United States.
Our LabMentors division partnered with Cengage Learning to develop and release two new titles in late fiscal year 2012.
PCS continues to strengthen and develop the core line of STEM products and services. Our Academy of Robotics™ was updated and improved through a major technical upgrade of the PCS Brain, our microcontroller, to version 4.0. Improved supply chain and engineering resources are increasing our product margin and improving overall efficiencies in production and fulfillment.
Our relationship with Creya Learning of India was significantly strengthened through extended support, a two week visit from Creya business owners and educators to Boise for training and development. Expanded market testing has enabled Creya to refine and improve their business plan for delivering experiential education to the Indian marketplace. Creya opened its first learning center in the spring.
PCS launched and managed a series of pilot programs related to the afterschool center model in partnership with Sage International Charter School located in Boise. These programs went well and the offerings were extended to regularly scheduled afterschool offerings and summer programs.
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Net Loss in Q4 FY2012 decreased nearly 68% from the same quarter FY2011 before inclusion of the impairment charge on the LabMentors assets. We anticipate that our new focus on operating efficiencies and increased revenue generation should continue to narrow that gap.
During fiscal year 2011, PCS applied for and was awarded Trade Adjustment Assistance funds in the amount of $75,000 to apply to the development and promotion of PCS programs to improve our competitiveness against foreign imports. These matching funds are being used to improve and expand the PCS Robotics line of controllers, proprietary software, and curriculum solutions to take advantage of the rapidly growing robotics education market. Trade Adjustment Assistance funds suffered budgetary cutbacks in FY2012. PCS is continuing to apply for additional project assistance.
Strategy.
Our strategy is to continue to design and develop brain-based learning educational products and services for the PreK-16 market that emphasize STEM topics and develop contemporary skills for the 21st century learner. These skills include critical thinking, problem solving, innovation, creativity and communications. These products, PCS will deploy in experiential-learning centers which will serve as direct revenue generating entities as well as product and service showrooms that will improve our sales, service, and support to school districts around the country.
Our strategy consists of:
·
Using licensing and partnerships to drive the development of a global network of experiential-learning centers that will generate revenues and act as a sales and support network for PCS products and services;
Relentless commitment to making our products friendly and helpful for educators. If our products make their job easier, our products will be more and more popular;
The continued emphasis on forward looking development of products and services, recognizing the challenges that educators will be facing in several years, and preparing our products to help them meet those challenges early. We strive to be seen as thought leaders in the space;
Building PCS brand recognition and market appeal through a network of learning centers and strong commitment to customer loyalty;
Continuing to incorporate the latest in brain-based research to improve the effectiveness of our curriculum and content product;
Using the Internet and other digital technologies to bring our products and services to other areas, persons, and markets, to increase market penetration;
Leveraging our expertise in K-12 and educational robotics to expand our robotics offerings and capture market share in the K-12 educational and afterschool robotics space; and
Expanding our STEM professional development programs for K-6 classrooms to take advantage of market conditions that represent demand for these solutions.
Foreign Currency Exchange Rate Risk.
The Company promotes many of our products in the international market, as well as having established operations in Canada as a result of the acquisition of LabMentors. As a result, our statement of cash flows and operating results could be affected by changes in foreign currency exchange rates or weak economies of foreign countries. Working capital necessary to continue operating our foreign subsidiary are held in local, Canadian currency, with additional funds used through the parent company being held in U.S. dollars. In accordance with SFAS 52, “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 reflected separately in the statements of operations and other comprehensive income (loss). While our Canadian
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subsidiary provided approximately 14% of our revenue in fiscal year 2012, the sales and receivables are transacted in USD$ and thus there is not a significant exchange risk associated with those transactions.
Backlog.
Our unearned revenue was $117,314 at March 31, 2012. At the end of fiscal year 2012, the entire amount of unearned revenue is expected to be earned during fiscal years 2013 and 2014. Of the total listed in unearned revenue at March 31, 2012, $4,058 is for orders prepaid by customers, $25,000 and $68,750 are advanced royalties and license fees resulting from our agreement with Creya Learning of India, and the remaining amount is for license fees paid but that have yet to be fully used by our domestic customers. PCS, as part of the agreement with Creya Learning, will receive ongoing royalties on the tuition charged to students attending PCS based programs and royalties will be amortized as earned. Each month, the license fees are amortized according to the length of the subscription/license.
Seasonality.
Our quarterly operating results fluctuate as a result of a number of factors, including, but not limited to, the funding of customers, timing of product development and release, availability and timeliness of items required for assembly of the products, budget cycles, buying patterns of our customers, period ending dates, and the general health of the economy. Our learning center strategy is designed to offset these factors and smooth cash flow and revenue predictability over time.
Principal Products or Services and Their Markets.
The primary goal of the products we develop for the education industry is to make teaching STEM easier for the classroom teacher. To this end, we have developed and are currently marketing a number of innovative technology-based educational programs for the pre-kindergarten through university (“PreK-16”) classroom market, the K-12 afterschool market, the private learning center market, and the home school market. In addition, the virtual lab programs from our LabMentors division are currently marketed to the collegiate level. Separately, and in combination, these lab products present a platform for delivering educational services and support, and create a virtual community of learners and parents on the web. It is our intent that as this community grows, it becomes an education portal through which additional PCS programs and services can be deployed.
We believe that education programs of our type are not currently available from any other source and present a unique opportunity for sales and marketing to specific segments of the education industry. We believe that PCS' education programs deliver a unique, proven learning experience that:
Provide students with exciting and relevant activities that brings curriculum to life;
Develop essential critical thinking and problem-solving skills;
Prepare students for real-world career demands; and
Build a strong foundation in technical literacy.
Customers currently use our products to:
Uniquely motivate students by engaging them in their own learning;
Provide opportunities for students to pursue their own interests and questions and make decisions about how they will find answers and solve problems;
Make learning relevant and useful to students by establishing connections to life outside the classroom, addressing real world concerns, and developing real world skills which are desired by today’s employers, including the ability to work well with others, make thoughtful decisions, take initiative, and solve complex problems;
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Provide opportunities for teachers to build relationships with each other and with those in the larger community through sharing with other teachers, parents, mentors, and the business community who all have a stake in the student's education;
Provide exciting, hands-on, inquiry based instruction, which is aligned by standards produced by The National Science Teachers Association, the American Association for the Advancement of Science, Project 2061, the National Curriculum of the UK, the Core, Knowledge, Sequence, the National Association for the Education of Young Children (“NAEYC”), and many more depending on grade level or subject focus;
Help increase test scores and understanding in STEM standards;
Infuse engaging, technology-based methods and practices into the traditional classroom;
Teach concepts from mechanical, electrical, structural, and software engineering as well as mechatronics and robotics;
Challenge students through promoting critical thinking, creativity, and problem solving techniques;
Enable teachers to teach science lab activities without a science lab;
Enable IT training professionals at the high school and college level to offer sophisticated hands-on training labs through virtualization, effectively eliminating their need to own and manage expensive server networks.
The products we are currently marketing are applicable and useful to a variety of educational market segments. These product lines have been designed to stand-alone as well as integrate with one another to create contiguous, systemic solutions:
The ThinkBug product line includes an Alphabet Builder Curriculum, a Number Builder Curriculum, PCS Big Bricks, and an optional mobile furniture unit. Designed around the most current brain and block play research, ThinkBug brings a comprehensive manipulative based literacy and numeracy STEM solution to early childhood and kindergarten educators
PCS BrickLab®
The PCS BrickLab® is a remarkably effective system of building blocks combined with PCS curriculum resources that addresses technology, math, construction engineering, communication, and science principles at the early primary grades. Simple to use, manage, and teach, it is an engaging and effective tool for hands-on STEM education. PCS currently has over six volumes of curriculum that support the BrickLab manipulative package addressing needs for students in the elementary and afterschool setting.
PCS Professional Development STEM Institutes
The PCS STEM institutes offer a 30 hour professional development program for elementary teachers that develops student-centered learning environments, improves student academic performance, promotes 21st century skills in students, and improves teacher comfort and competence in teaching science, technology, engineering, and mathematics (STEM) across the curriculum. Our institutes use products such as Bricklab to make STEM education approachable, less intimidating, and easier for the teacher.
PCS Digital Media Labs
Designed for today's “digital native” youth, PCS Digital Media Labs transform educational settings into technology-driven environments that use digital photography, video, and podcasting to make daily lesson plans more engaging. The curriculum is aligned with technology standards from the International Society for Technology Education (“ISTE”) and the International Technology Education Association (“ITEA”). Each Digital Media Lab contains hands-on lesson plans, a hard cover mobile case, digital cameras, camcorders or voice recorders, accessories, and a teacher guide. It is currently available in Elementary and Secondary versions for classrooms and afterschool programs.
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The PCS Academy of Engineering™ Lab is a STEM program designed for use within tech-ed programs and is scalable for various environments using 10 student modules that include hardware, software, lab furniture, and curriculum. Using the PCS Academy of Engineering™ students develop, design, and produce exciting hands-on projects ranging from catapults to robots in response to engaging challenges in a variety of topics. The current PCS Academy of Engineering™ product includes three primary volumes of mechanical engineering activities. The Tech Ed configuration of the Academy of Engineering uses fischertechnik constructs for hands-on activities. The Academy of Engineering includes online assessment and support tools as well as access to an online competition framework that enables all lab students to share information and compete. The AOE is currently marketed to middle and junior high schools.
The Academy of Robotics™ Lab is a STEM program that is scalable for various environments using 10 student modules that include hardware, software, lab furniture, and curriculum. Using the Academy of Robotics™ students develop, design, and produce exciting hands-on projects ranging from simple robotic automatons to advanced manufacturing simulations. The current Academy of Robotics™ product for the classroom setting includes three primary volumes of robotics curriculum covering the basics of mobility, structural integrity, motorization, end effectors, working envelopes, programming, sensor integration, and more. In addition, three volumes of applied mathematics activities, Pre-Algebra, Algebra Book 1, and Algebra Book 2, have been developed to provide real world applications and illustrations of mathematics. The Tech Ed configuration of the Academy of Robotics uses fischertechnik constructs for hands-on activities. Fischertechnik solutions are typically used in more rigorous applications at the high school or university level. We also have the Academy of Robotics™ Lab Afterschool Edition available. With the use of LEGO® building elements, we have created an in-depth robotics program that was designed specifically for use in afterschool programs. Using the Academy of Robotics™ Afterschool Edition, students develop, design, and produce exciting hands-on projects ranging from simple robotic automatons to advanced manufacturing simulations. It’s a great way to introduce students outside the classroom to the importance of robotics and STEM, so they will look forward to these subjects within their regular school day. Academy of Robotics™ Labs include online assessment and support tools as well as access to an online competition framework that enables all lab students to share information and compete in exciting virtual challenges. Also available is a smaller package called the Robotic Educator Pack (REP), which bundles the Academy of Robotics Challenge with a starter inventory of manipulatives from fischertechnik at a lower price point. We recommend our AOR labs for students in grades 5-12.
The PCS Academy of Electronics™ Lab is designed for use within Tech Ed programs and is scalable using 10 student modules that include hardware, software, lab furniture and curriculum. Using the Academy of Electronics™ students develop, design, and produce exciting hands-on projects ranging from simple analog circuits demonstrating resistance to advanced digital logic projects using a variety of industry standard integrated circuits. The current Academy of Electronics™ product includes two primary volumes of electronics curriculum covering the basics of analog and digital electronics. Academy of Electronics™ modules use standard electronic components and breadboards as constructs for hands-on activities.
PCS Academy of Science®
The PCS Academy of Science® is an integrated chemistry-physical science solution designed for use within Tech Ed and science programs and is scalable using 10 student modules that include hardware, software, and curriculum. The unique, hands-on science packages within the PCS Academy of Science® combine curriculum and simple, effective apparatus that enable teachers to quickly and easily demonstrate complex science concepts. Various configurations of the products enable it to be effective as an afterschool or classroom solution and the curriculum is aligned with National and State science standards. The products can be purchased in a lab format or individually based on the specific needs of the customer. The AOS is currently marketed to classrooms and afterschool programs for a variety of age groups.