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PCS EDVENTURES COM INC - 10-Q - Management's Discussions and Analysis of Financial Condition and Results of Operations.
(Edgar Glimpses Via Acquire Media NewsEdge) Cautionary Statements for Purposes of "Safe Harbor Provisions" of the Private
Securities Litigation Reform Act of 1995:
Except for historical facts, all matters discussed in this report, which are
forward-looking, involve a high degree of risk and uncertainty. Certain
statements in this report set forth management's intentions, plans, beliefs,
expectations, or predictions of the future based on current facts and analyses.
When we use the words "believe", "expect", "anticipate", "estimate", "intend" or
similar expressions, we intend to identify forward-looking statements. You
should not place undue reliance on these forward-looking statements. Actual
results may differ materially from those indicated in such statements, due to a
variety of factors, risks and uncertainties. Potential risks and uncertainties
include, but are not limited to, competitive pressures from other companies
within the Educational Industries, economic conditions in the Company's primary
markets, exchange rate fluctuation, reduced product demand, increased
competition, inability to produce required capacity, unavailability of
financing, government action, weather conditions and other uncertainties,
including those detailed in the Company's Securities and Exchange Commission
filings. The Company assumes no duty to update forward-looking statements to
reflect events or circumstances after the date of such statements.
The following discussion should be read in conjunction with our audited
consolidated financial statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations ("MD&A") contained in our Form
10-K for the year ended March 31, 2011.
Plan of Operation
PCS is transitioning from a challenging period to a more capable and better
positioned company. We have the SEC case resolved and the class action matter
is pending settlement; management has been strengthened and business plans have
been refined to meet changing market demands domestically and internationally.
Shareholders, debt holders and employees have been and continue to be
supportive. Increasing revenue and capital financing are primary focuses of
management to improve cash flow and liquidity.
The Company has undergone a reorganization with the resignation of Mr. Anthony
A. Maher as CEO and Chairman of the Board during the second quarter of fiscal
year 2012. Effective January 5, 2012 Mr. Robert O. Grover was appointed to
serve as Chief Executive Officer. He succeeds Valerie L. Grindle who assumed
the role of CEO upon Mr. Maher's resignation and subsequently 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 very well. Mr. Grover has traveled extensively throughout the world
promoting PCS programs and developing International relationships for the
Company. Ms. Leann Gilberg was hired as CFO in September 2011. Ms. Gilberg is
working towards improved internal controls and financial reporting. Mr. Brett
Newbold joined PCS in January of 2012 as an operational advisor and active
member of the executive management team. Management and the Board of Directors
believe the addition of Mr. Newbold will strengthen PCS operational
capabilities. 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.
In fiscal year 2012, PCS will continue its commitment to the research and
development of PreK-16, brain-based learning programs in Science, Technology,
Engineering and Math (STEM) that embed 21st century thinking skills and new
technologies. In order to deploy the technical education and K-6 programs that
had been in development and pilot testing for several years, PCS implemented a
new Strategic Business Unit (SBU) and subsidiary structure in fiscal year 2011
that targeted sales efforts to the following markets:
1) K-6 programs for the elementary classroom
2) Tech Ed programs for grades 6-12
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3) Afterschool programs
4) Services that provide K-16 educational solutions for the international market
5) Virtual labs for community colleges and universities
Fiscal year 2011 was the first year of implementation of the K-6 and Tech Ed
SBUs and represented a milestone for taking PCS programs into the core classroom
market, beyond the afterschool market. Progress was made in establishing
district and university relationships, expanding the pilot programs, compiling
research, developing grant partnerships, and refining the products and services
for the classroom through continued application and testing.
During fiscal year 2012, we will continue to build upon the SBU foundations
established in FY2011 and drive toward the establishment of synergies between
these SBUs and our subsidiary, LabMentors. This effort will include a more
focused approach to our web-based marketing efforts and tightened sales
processes. In addition, during FY2011, 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 were put on hold in November of 2011 due to
budgetary cutbacks at the Federal level, but are anticipated to be restored in
the spring of 2012. If restored, these matching funds will be used in fiscal
year 2013 to continue 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. Continued product development
resulted in upgrades to PCS intellectual Property as the Company launched sales
of its newest version of the controller for its robotics products, The Brain
4.0.
In the first three quarters of FY2012, PCS began the transition to a new
marketing model that would address the challenges presented by the current
budgetary cuts in the educational market. PCS recognizes that its experience in
operating learning centers combined with the chaos of our current national
education crisis 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 existing SBU direct sales efforts. This
marketing approach focuses on the return to the business of operating
experiential learning centers that 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, a charter
school based in Boise, to provide the facility and classroom for the afterschool
program, and PCS, in exchange, will provide 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, and after the
close of the school day. PCS conducted successful market tests of holiday camps
during November and December of 2011, refining and confirming basic assumptions
related to the business plan. Also related to the transitional emphasis to the
learning center business, PCS signed a license and royalty agreement with Kindle
Experiential Learning of India (KEL). KEL will be utilizing PCS content and
support services to build out a network of experiential learning centers
throughout India. PCS, as part of the agreement, will receive ongoing royalties
on the tuition charged to students attending PCS based programs. PCS also
participated in a tender in the Kingdom of Saudi Arabia, introducing the
educational fundamentals of the PCS learning system and the application of these
fundamentals through experiential learning centers; presented learning center
and licensing opportunities to a partner in Turkey; entered into preliminary
discussions regarding commercial licensing of PCS content with a potential
partner in Thailand; and presented learning center and licensing opportunities
to a partner in Australia.
On September 14, 2011, we announced that we had entered into a five year content
license and royalty agreement (the "Kindle License") with Kindle Experiential
Learning Private Ltd., an India domiciled and registered corporation ("KEL")
that was to be effective on the receipt of the first payment. The contract
requires payments of $150,000 based on certain milestones, plus ongoing
royalties. Of the $150,000, $25,000 is to be applied to future royalties. KEL
is a start-up business whose founders have over 30 years of combined experience
in the education field, with a business plan that anticipates opening learning
centers at a conservative pace. Future payments due under the License will be
subject to the success of KEL in its planned endeavors and further subject to
the risks inherent in enforcing international contracts, among other risks.
Results of Operations
Three-month period ended December 31, 2011, compared to three-month period ended
December 31, 2010
The quarter ended December 31, 2011, resulted in revenue of $368,743 as compared
to revenue during the quarter ended December 31, 2010 of $476,060. The decrease
in revenue was ($107,317) or 23% percent. Sales
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were lower than projected primarily due to delays encountered in production of
two of our primary curriculum components, BrickLabs and The Brain. Production
of these components was completed at the end of the quarter and orders are
currently able to be fulfilled and shipped. In addition, the quarter ended
December 31 is historically a slower sales period due to school budgetary and
funding cycles and the holiday breaks taken in educational institutions.
Gross profit decreased $119,136 or 40% for the quarter over the same quarter
last year due to lower sales and orders that were only able to be partially
fulfilled due to the delayed product manufacturing experienced. Operating
expenses decreased by $22,784 due to lower legal expenses and overall cost
control initiatives. As a result of the decrease in sales and gross profit,
which were only partially offset by the decrease in operating costs, the loss
from operations increased from ($329,960) for the third quarter of fiscal year
2010 to ($426,312) or 29% for the third quarter of fiscal year 2011.
Net loss for the quarter ended December 31, 2011 increased to ($433,182)
compared to a net loss during the quarter ended December 31, 2010, of
($139,056). The Basic Loss per Share for the quarter ended December 31, 2011,
is ($0.01) compared to the ($0.00) loss per share for the three-month period
ended December 31, 2010.
Nine-month period ended December 31, 2011, compared to nine-month period ended
December 31, 2010
Revenues for the nine-month period ended December 31, 2011 increased $250,170 to
$1,686,916 as compared to revenue during the nine-month period ended December
31, 2010 of $1,436,746. With this 17% increase in sales, gross profit rose to
$912,606 for the nine-month period compared to $877,468 for the same period last
year. Due to the increases in sales and gross profit experienced in the second
quarter of fiscal year 2012 gross profit for the nine months ended December 31,
2011 increased slightly by 4% compared to the same period in fiscal year 2011.
Operating expenses for this nine-month period decreased from $2,364,621 to
$2,021,916 which was primarily attributable to the second quarter decrease
relative to last fiscal year. The resulting net operating loss of ($1,109,310)
is a decrease of 25% or $377,843 for the first nine months of fiscal year 2012
relative to the first nine months of fiscal year 2011.
Interest expense for the nine-month period increased by $236,759 year over year
due to the discounting of debt and the issuance of warrants attached to
financing associated with the short term notes payable issued. The offsetting
of other income and other expense from the second quarter carried through to the
nine-month period. The resulting net loss of ($1,333,774) for the nine months
ended December 31, 2011 represents a 3% increase compared to a net loss during
the nine months ended December 31, 2010, of ($1,295,553). The Basic Loss per
Share for the nine months ended December 31, 2011 and December 31, 2010 was
($0.03).
Liquidity
The Company ended the third quarter of fiscal year 2012 with $29,318 in cash,
total current assets of $897,109 and total current liabilities of $1,654,982,
resulting in a working capital deficit of ($757,873) compared to the working
capital of ($25,995) at December 31, 2010. The Company had a current ratio at
December 31, 2011 and 2010 of 0.3 and 1.0, respectively. This decrease in
liquidity was due primarily to continuing net losses which were partially
financed through short term debt.
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