PART I
Item 1. Business.
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 LabMentors, Ltd. was sold in September of 2013. In January 2013 we formed a subsidiary called Premiere Science Inc. incorporated, in the State of Idaho. The subsidiary is 100% wholly owned by PCS Edventures!.com,Inc. No transactions occurred during the fiscal year ended March 31, 2014 for Premiere Science Inc.
PCS specializes in experiential, hands-on, K12 education. PCS has extensive experience and intellectual property (IP) that includes robotics software, hardware, and K12 content, as well as sophisticated turn-key lab packages that teach topics of science, technology, engineering, and math (STEM).
PCS educational solutions are implemented through the development, marketing, and distribution of educational products and services that target the PreK-12 market as well as implemented through private STEM Learning Centers called Edventures! Labs.
The education market is complex and is comprised of a number of different types of customers to whom we sell:
Afterschool: The afterschool market consists of Boys and Girls Clubs, YMCAs, and others including a large number of afterschool programs supported by the $1.1B 21st Community Learning Center (21stCCLC) Federal grant program. We sell robotics and other hands-on STEM solutions to afterschool providers.
K6: Elementary classrooms in the United States are a rich market for PCS STEM professional development programs, PCS robotics packages, and PCS STEM curriculum solutions. There are over 60,000 elementary schools in the United States.
Technical Education: Tech Ed teachers in grades 6-12 use PCS robotics and engineering programs to prepare students for engineering or other technical fields. There are over 20,000 schools offering tech ed and career programs.
Parents and Home Educators: Our Edventures! Lab private learning center concept positions PCS in key communities to build awareness and support of PCS institutional products while generating revenue from the home and retail market. Conservative estimates of the homeschool population in the United States is over one million students.
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, 2014 (FY2014):
Management and Board of Director Changes
Russelee Morton, a skilled accounting professional who had been providing contractual support for the Company beginning in Q3 of FY2014, assumed the role of Controller for the Company in February of 2014 and is maintaining the financial operations. Ms. Morton replaced interim Head Accountant Shannon Hull who replaced Controller Krystal Wright in July of 2013.
Michael Brown joined PCS in September of 2013 assuming the role of Director of Sales and Marketing. Mike Miraglio joined PCS in November of 2013 assuming the role of Project Manager for International Projects, directing the execution of contracts in Saudi Arabia.
Heidi Grover joined PCS in January of 2014 assuming the role of Director of PCS Edventures! Labs. She had been serving as a contracted consultant for developing the lab program in the year prior to joining the Company as an employee.
Dr. Dehryl Dennis resigned as a member of the board of directors of the Company to pursue other interests. Mr. Dennis resignation was effective as of January 31, 2014. There were no disagreements between the Company and Mr. Dennis regarding his resignation.
Britt Ide, joined the PCS Board of Directors in January of 2014. Ms. Ide brings experience in engineering, law, mediation, communications, marketing, and social media.
Other Activities
- In January of 2014, we renewed our D&O insurance on favorable terms for a one year period.
- We continued to explore potential partnerships during FY2014, 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 Newton Learning Summer Adventures, now Catapult Learning, providing additional customized learning labs for their summer programs, as well as supplying them with materials authored and developed in previous years. The Edison Schools program has been the source of well over $1M in revenue since the inception of the relationship, and this first year of working with Catapult Learning generated over $300,000 in sales in Q4 FY2014. These specialty programs, 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 continued to develop our growing 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 have continued our work with T4EDU, a Saudi entity charged with managing education reform activities defined by the Saudi Ministry of Education, to bid on contracts for additional STEM consulting and development services related to the design, production and implementation of a nationwide network of science centers in Saudi Arabia, as part of the King Abdullah Education Initiative. We announced a contract with T4EDU in September of 2013 for the development and delivery of up to $660K in STEM Outreach programs. We announced a contract with T4EDU in January of 2014 for a $133K training contract related to Science Center programs and fulfilled the training in February of 2014. We further expanded our statewide penetration of STEM programs into Idaho schools emphasizing our elementary STEM training program for classrooms throughout the state and partnering with the Idaho Commission for Libraries to deploy PCS STEM programs and robotics solutions into library programs around the state.
- 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 relationship with Creya Learning of India continues to evolve as they expand their network of installed sites in India. Creya Learning licenses PCS STEM programs and installs them into private schools, charging schools a per-seat fee for each student that attends the STEM lab on a weekly basis. At the conclusion of FY2014, Creya was still in their high selling season and did not have final numbers on the total number of schools now in their network. These numbers will be released pending confirmation
In the summer of 2012, PCS launched and managed a pilot program for a new Learning Center model in partnership with Sage International Charter School in Boise. The program successfully accomplished a number of things including the creation of a learning framework model for the future, an effective lab design and system established, annual learning and event calendar tested and established: successful holiday and retail product test marketing, and recruiting and training a strong core staff. The center was successfully used as a sales tool for generating institutional sales for PCS, a number of parent testimonials were accumulated on the benefits of the program, and a number of sales and marketing strategies and tactics were identified, In May of 2013, PCS migrated the pilot program to a lab adjacent to its corporate offices at 345 Bobwhite Ct. Ste. 200 Boise, Idaho and began to ramp the operation for scaling. In March of 2014 PCS secured funding for opening its second facility in Eagle, Idaho.
- In January of 2014 PCS initiated partnership discussions with Curious Media, a world-class interactive software development company, to partner on the development of interactive educational software to support PCS robotics and engineering programs. The Discover Engineering 3D Interactive Curriculum and new and improved PCS Cortex robotics programming environment will incorporate the latest technologies available.
- As of the conclusion of Q3, FY2014, Michael Brown, Director of Sales and Marketing, had doubled the size of the PCS sales team adding new direct sales representatives to the following markets: Seattle, Washington; Columbus, Ohio; and Atlanta, Georgia. He is actively recruiting additional representatives to continue growing the sales force in major metropolitan areas around the United States.
- In January of 2014 PCS entered into a reseller agreement with Priority Education Solutions, a Vero Beach Florida sales and marketing as a PCS Edventures Authorized Reseller Partner. In contrast to other PCS reseller partnerships, Priority Education has a unique arrangement with PCS to assist in building a national direct sales force. Jim Hagedorn, the owner of Priority Education, is especially qualified for this mission, having a strong history of developing national sales teams in the education industry. During his ten-year stint as CEO of Educational Options an online curriculum provider from Arlington, VA Jim built a sales force that took the company from less than $1MM in annual sales to over $12MM. Mr. Hagedorn and Priority Education Solutions has agreed to promote PCS Edventures products as their flagship product line.
- PCS applied for and was awarded Trade Adjustment Assistance funds during fiscal year ended March 31, 2011 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. PCS continues to leverage these funds for development, promotion, and consulting where applicable. PCS has Trade Adjustment Assistance funds of approximately $10,000 in matching funds to use as of March 31, 2014.
Strategy.
Our strategy is 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. PCS will market these products through direct sales and channel partners into various markets including domestic and International classrooms and afterschool programs. In addition, we will deploy and market home and retail products and services through licensed, experiential- learning centers that will establish community presence and launch a subscription-based, virtual, experiential learning program.
Our strategy consists of:
- Sales and marketing of the PCS BrickLab STEM program for elementary classrooms and afterschool programs. The elementary opportunity is over 1MM classrooms and the BrickLab solution is demonstrated to effectively improve educators comfort level with STEM, enabling them to implement more STEM activities across their curriculum. PCS has expanded curriculum and materials within its Bricklab line, added additional colors for girls, and created a special Girls Can Build program using BrickLab that will expand its appeal and reach.
- Sales and marketing of our PCS Robotics programs consisting of the Brain, the Cortex, and our various lab configurations. This focus will take advantage of the exploding robotics marketplace. Our potential partnership with Curious Media would elevated the level of our software and hardware solution to new heights, and we now offer the only tablet based robotics programming environment available for K12 users. PCS has designed a new robotics kit that we believe will give us a powerful competitive advantage based on price and features and will be taking it to multiple channels in FY2015.
- 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. Within these centers, PCS has developed a sophisticated, adaptive learning program that delivers a customized learning experience to students. PCS began the virtualization of this program in FY2014 and will begin taking it online for testing with students in FY2015. The ultimate goal is to expand this virtual software into a subscription service that can be scaled for high-margin, recurring revenues.
- Expanding our sales reach through strategic partnerships that get our products in front of more educators.
- Relentless commitment to making our products friendly and helpful for educators. If our products make their job easier, our products will increase in popularity;
- 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;
Foreign Currency Exchange Rate Risk.
The Company promotes many of our products in the international market, and had established operations in Canada as a result of the acquisition of LabMentors up until its divestiture in FY2014. 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 was 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 were 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 subsidiary provided approximately 5% of our revenue in fiscal year 2014, 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 $68,467 at March 31, 2014. At the end of fiscal year 2014, the entire amount of unearned revenue is expected to be earned during fiscal years 2015 and 2016. Of the total listed in unearned revenue at March 31, 2014, $13,910 is for orders prepaid by customers, $15,319 and $39,238 are advanced royalties and license fees resulting from our agreement with Creya Learning of India 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 International projects and our learning center and retail product strategy are 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 and services we develop is to bring engaging, effective learning experiences to K12 students, experiences that can help them be successful in the 21st century workplace. We do this through the delivery of innovative programs in our Edventures! Labs and products that make teaching STEM easier for educators and program facilitators. 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-12) classroom market, the K-12 afterschool market, the private learning center market, and the home school market. 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 todays employers, including the ability to work well with others, make thoughtful decisions, take initiative, and solve complex problems;
- 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;
The products and programs 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:
PCS Edventures! Labs
PCS Edventures! Labs are a new program piloted in FY2013 designed to offer a unique, experiential STEM education program. A space of approximately 1,000sf is turned into a high-tech lab for robotics, mechanical engineering, 3D modeling, computer programming, and manufacturing. Organized through a sophisticated learning framework called the PCS Merit System, the curriculum is designed to prepare students to thrive in the 21st century as they explore and master various topics in an environment that emphasizes the development of independent, higher order thinking skills.
The first PCS Edventures! Lab is located in Boise and is attached to the corporate offices for R&D purposes. Company owned site number two is scheduled to open in Eagle, Idaho, in June of 2014, and thereafter PCS is pursuing a licensing model to expand and scale the number of labs into additional communities.
ThinkBug
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 BrickLabTM
The PCS BrickLabTM 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 PCS 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 PCS 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.
PCS Academy of Engineering
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 PCS Academy of Engineering is currently marketed to middle and junior high schools. As an introduction to PCS engineering programs, PCS offers a Discover Engineering package that bundles fischertechnik constructs with our new 3D interactive curriculum (3DIC) as a starter bundle for educators.
PCS Academy of Robotics
The PCS 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 PCS Academy of Robotics students develop, design, and produce exciting hands-on projects ranging from simple robotic automatons to advanced manufacturing simulations. The current PCS 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 PCS 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 PCS 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 PCS Academy of Robotics Afterschool Edition, students develop, design, and produce exciting hands-on projects ranging from simple robotic automatons to advanced manufacturing simulations. Its 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. PCS 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 Discover Robotics package, which bundles a starter inventory of manipulatives from fischertechnik with our curriculum, software, and robotics hardware at a lower price point. We recommend our PCS Academy of Robotics (AOR) labs for students in grades 5-12. In FY2015 PCS will release its new robotics hardware and software, the Brain 5.0 and Cortex 5.0. This will provide an upgrade path to all existing customers, and provide an attractive entry level point for the many educators beginning to introduce robotics into the classroom.
PCS Discover STEM Lab
The PCS Discover STEM Lab is a modular, easy to present program that provides activities for afterschool facilitators in the areas of STEM. Modules include hands-on activities that utilize PCS robotics, engineering, digital media, applied math activities and more. This cost-effective lab is the perfect fit into any afterschool program, and has been a great addition to our afterschool product line.
PCS Summer Camps
PCS offers a variety of summer camp packages that provide a complete, turn-key summer camp solution for schools and afterschool programs. Titles range from Farm to Table to Renewable Energy to the Physics of the Ninja and are popular for many organizations seeking a comprehensive curriculum and materials solutions for summer activities.
PCS Designated Markets
The educational market represents significant business opportunities in the US. There are several segments within the educational market that can benefit from the products and services that PCS provides. PCS has developed sales and marketing strategies to position the Company and its products to meet the needs of specific segments in the education market.
There is increasing focus and importance being placed on the role of technology in both public and private education. Educators and parents are not only striving to integrate technology into the educational experiences of students, but also needing to increase students performance in technology-based subjects such as Engineering, Mathematics and Science, creating STEM. Public schools are trying to increase their ability to deliver technology education effectively to students. The increased value being placed on technology in the classroom has also led to an increase in growth for private, charter, and magnet school alternatives, because of their very nature, that can offer better programs for STEM education. Growth of extended learning programs continues as well. Federally funded STEM programs that include before, after and summer school programs have also remained an important educational focus and are also expected to meet demands for technology.
PCS core curriculum strength is based on STEM principles. In order to increase market penetration and continued growth PCS has identified the following as key target markets:
1) Edventures! Lab programs targeting the consumer
2) K6 Programs for the elementary classroom
3) Tech Ed Programs for grades 6-12
4) Afterschool Programs
5) Products and Services adapted to provide K-16 educational solutions for the international market
PCS understanding of the complexities of STEM subjects and our progressive methodologies give us a unique ability to deliver solutions for educators to meet the growing demands of teaching STEM and integrating technology into classrooms and afterschool settings. Here is a briefing of our current Strategic Business Units (SBU) and their markets:
Edventures! Lab Business Unit
PCS plans to utilize its IP and former experience as an owner/operator of experiential learning centers to establish a network of hands-on learning centers in the United States. Students will study robotics, engineering, applied sciences, and other engaging and exciting subjects in an advanced afterschool program. These centers will provide a valuable service to parents, students, and schools and will also serve as product showrooms to facilitate the sale of PCS programs and services into the surrounding school districts. Additional revenue streams from virtual subscription services, retail point of sale, and direct school sales are also anticipated. The first Edventures! Lab is operating as an R&D facility attached to the Boise corporate offices at this time and our second facility will be opening in Eagle, Idaho in June of 2014.
K6 Strategic Business Unit
With over 50,000 public elementary schools alone, the elementary classroom in the United States represents one of the largest markets in the education industry. We are expanding our sales channels to reach elementary teachers and district leaders in the U.S. We are gaining great traction and believe we will continue to thrive throughout the years. PCS K-6 programs for the elementary classroom consist of professional development and classroom resources that promote student centered learning, inquiry, and STEM topics. K-6 products include ThinkBug, PCS BrickLabTM, PCS Academy of Engineering, PCS Academy of Robotics and Digital Media Labs.
Technical Education Strategic Business Unit
Targeting the domestic technical education marketplace, which has an estimated 22,081 programs in the U.S, the Tech Ed SBU offers STEM products that meet the needs of technology teachers servicing grades 7-12 providing pre-engineering, computer science, and robotics solutions. With most educators and districts realizing the need for STEM education improvement, the Tech Ed SBU has a great product line to meet the markets needs. A primary focus for the Tech Ed SBU is the exploding marketplace for robotics. Markets for educational robotic kits at $27.5 million in 2007 are anticipated to reach $1.69 billion by 2014. Tech Ed products include the PCS Academy of EngineeringTM, PCSAcademy of Robotics, and PCS Digital Media Labs.
Afterschool Strategic Business Unit
Targeting the domestic afterschool marketplace, the PCS Afterschool SBU offers products that were specifically designed for the unique needs of the afterschool enrichment environment. The market for afterschool programs in the United States is significant with specific market segments such as the Boys and Girls Clubs (4,000 sites) and the $1B 21st Century Community Learning Centers program. It continues to be one of our more successful markets and we believe that this trend will continue. Afterschool products include the PCS BrickLabTM, Discover STEM Lab, the PCS Academy of Robotics afterschool version, MINDS-i packages with PCS robotics and the PCS Digital Media Labs.
International Strategic Business Unit
Internationally, PCS programs have a great deal of appeal from the perspective of STEM education needs, and also as a catalyst for developing student-centered learning environments that emphasize 21st century skills such as problem solving, critical thinking, communications, and collaboration skills. PCS continues to explore opportunities in foreign markets. PCS takes great pride in being able to adapt its products to meet the diverse and unique needs of the international market place.
Marketing and Other Agreements.
(i) In June 2011, we entered into a licensing agreement with Kindle Education, now Creya Learning, for the country of India and have provided support, curriculum, and training for their experiential learning programs.
(ii) In April 2012, we entered into a distribution agreement with STEMfinity, an online source for a variety of STEM products. STEMfinity has proven to be a reliable source of orders with sales over $35,000 during the fiscal year ending March 31, 2013 and with sales of $209K during FY2014. We have a close relationship with STEMfinity and anticipate these sales numbers to continue to grow.
(iii) In January of 2014 we entered into a reseller agreement with Priority Education Solutions of Vero Beach, FL who has four sales staff directed by Jim Hagadorn, focusing on the Florida region with plans to expand with additional staff into additional geography.
Distribution Methods of the Products or Services.
All products are drop shipped from the manufacturer or shipped through a preferred provider from our warehouse to the specified customer.
Status of any Publicly Announced New Product or Service.
PCS continues to strengthen and develop the core line of STEM products and services. During the course of FY2014:
PCS developed three new summer camp programs for Catapult (formerly Newton Learning).
PCS is in partnership discussion with Curious Media to collaboratively develop new educational software for its Discover Engineering kit and for its Discover Robotics kit. The new software brings cutting edge, tablet-based blended learning applications to the education market
PCS developed and delivered a training academy program to Saudi Arabian science educators.
PCS developed and fulfilled a number of STEM outreach education modules to Tatweer for Education, a Saudi Arabian entity charged with executing Saudi Ministry of Education initiatives.
Competitive Business Conditions and the Small Business Issuer's Competitive Position in the Industry
and Methods of Competition.
The education industry is highly competitive, fragmented, and is rapidly evolving around the STEM disciplines. We expect the industry to continue to undergo significant and rapid technology change. The Nationwide economic difficulties continue to cause budget deficits, teacher layoffs, and program reductions, which may impede industry growth.
Competitors in the STEM marketplace include a variety of publishers, technical education companies and non-profit solution providers including VEX, Pitsco, LabVolt, Pasco, LEGO® Education, McGraw Hill and Project Lead the Way. These companies along with new entrants into the market may develop products and services and technologies superior to our products that may result in our products and services becoming less competitive. Many of the companies that are established or are entering the market have substantially greater financial, manufacturing, marketing, technical resources and established historical channels than we have and represent significant long-term competition. To the extent that these companies may offer comparable products and services at lower prices or higher quality and more cost effective, our business could be adversely affected.
Potential Competitive Advantages.
We believe that we have and continue to develop certain additional competitive advantages that we will attempt to maximize in developing and implementing our business strategy.
Experiential learning centers - We believe the establishment of a network of experiential learning centers, based on our curriculum, products and expertise in afterschool programs, will yield us a significant competitive advantage through improved presence in key markets for both sales and support. The establishment of these centers, in addition to providing revenues from operations, creates a dynamic showroom that can be used for sales demonstrations, product training and support activities, and promotional events within the targeted community.
Professional development - Our BrickLab professional development institute conducted from 2008-2010 resulted in the successful deployment of this product into hundreds of Idaho elementary classrooms and the production of University authored research now available for educators and administrators through the American Association of Engineering Education (ASEE). This research documents the effectiveness of the Bricklab Institute in improving teacher attitudes and their comfort level in conducting STEM activities in the elementary classroom. The network of active teachers also provides PCS with a strong community of program advocates from which PCS can leverage and expand the program. Since elementary teachers are typically more comfortable with language arts than STEM topics, the BrickLab Institute provides a proven solution to a prevalent problem for elementary principals across the country.
Robotics programs - Our PCS Robotics programs are specifically designed to accommodate needs in the education marketplace that were identified through years of experience with K12 robotics. The result is less expensive, more flexible robotics solution that has the ability to integrate into every robotic educators classroom. Specific examples of this flexibility include a multi-level programming environment that naturally evolves in complexity to match the needs of the student, an open physical architecture that provides hooks for all major manipulative manufacturers including fischertechnik®, LEGO®, KNEX®, MINDS-i, VEX, erector, and even industry standard Radio Control (R/C) components. The open physical architecture of our microcontroller and its basis on the highly popular Arduino platform provides educators and robotic enthusiasts a highly flexible solution. With the release of our new Cortex v. 5.0, PCS will be the only K12 education company offering a tablet based programming environment for robotics. We hope to maintain this competitive advantage through constant innovation of new and better enhancements to our programs.
Learning frameworks - Our unique learning framework is designed for managing and facilitating non-formal education provides us with in-house capabilities unavailable through other channels. Initially designed over a decade ago, the PCS Merit System is a non-formal learning framework that provides flexibility, adaptability, and a variety of unique characteristics that create a highly effective pedagogical model unavailable elsewhere.
Forward looking processes - Our forward looking educational development processes include mapping our curriculum and products against future trends such as the upcoming Next Generation Science Standards, the Common Core, and the NAEPs mandated technology and engineering literacy assessment to be implemented nationwide in the US in 2014.
Our use of the Internet as a delivery and support mechanism for the programs - By leveraging our expertise in experiential learning and our potential software partnership with Curious Media, PCS believes it can achieve the following significant advantages: (1) a high level of program control and protection; (2) the building of a significant data model regarding program usage; (3) a direct channel to our users who are migrating towards digital e-reading devices; and 4) a long term strategy that includes a high-margin subscription model for access to our digital educational services. Each of these advantages provides tangible long-term benefits to the Company.
Organic expansion of program offerings - After implementing and proving a successful program model, PCS believes it can leverage its high level of customer satisfaction to expand current and additional programs designed to integrate seamlessly into the already deployed sites. This creates a long-term growth strategy that includes new and residual sales to an ever-growing list of customers.
The flexibility of products and staff to align STEM solutions to multiple types of users - Our in-house intellectual capital has experience in a variety of educational environments and has demonstrated an ability to create highly effective solutions for specific niche markets. This extensive experience of almost 25 years in STEM education provides PCS with an advantage over competitors with less experience in STEM education.
PCS believes the contiguous nature of its products creates a system that provides a competitive advantage over other companies who may have single product offerings or products with no systemic approach or plan. This system begins at the PreK level and extends through college. School districts seeking a systemic approach to STEM education will find the PCS approach comprehensive.
Sources and Availability of Raw Materials and the Names of Principal Suppliers.
We currently do not manufacture the products that accompany our curriculum and are dependent on vendors for our supply of these products. We believe that efficient purchasing is a key factor in maintaining our competitiveness. The following is a list of vendors for our key products: I.B.A., MINDS-i, Fischertechnik, KNEX, Q-Smart Robot Technologies, Gratnells, Office Value and Ingram Micro.
Dependence on One or a Few Major Customers.
In general, the PCS customer base is growing rapidly which will reduce dependence on what are emerging to be our major customers, however the following three are important to recognize: 1) Catapult Learning, formerly Edison Schools Newton Learning, is a significant customer, placing orders of $250K or more annually. In FY2014 Catapult orders were $340K; 2) STEMfinity, a PCS reseller, has been growing steadily with orders of $35K in FY2013, and orders of $198K in FY2014; and 3) Tatweer Holding Company (THC) is a Riyadh based, government-owned company dedicated to education development in the Kingdom of Saudi Arabia. PCS conducted $106K in business with THC in FY2013; signed contracts for $793K in FY2014, and invoiced $168K to THC for FY2014 with additional materials related to these contracts invoicing in FY2015.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or Labor Contracts, including Duration.
We seek to protect our technology, documentation, and other written materials under trade secret and copyright laws, which afford only limited protection. Generally, we enter into confidentiality and non-disclosure agreements with our key vendors and suppliers. At the present time, we have not applied for any patents, nor do we have any patents pending. We anticipate that our products will not be the type for which patent protection will be sought. However, we may file for patent protection on certain aspects of our proprietary technology in the future.
PCS holds registered trademarks and common law rights on numerous trademarks used in its business. It also has filed trademark registration applications that are outstanding.
Although we believe that our products have been independently developed and that we do not infringe on any third party rights, third parties may, in the future, assert infringement claims against us. We may be required to modify our products, trademarks, and/or technology or to obtain licenses to permit our continued use of those rights. We may not be able to do so in a timely manner or upon reasonable terms and conditions and as such failure to do so could irreparably harm the Company and/or our operating results.
We currently have curriculum royalty agreements with GibsonTech. The agreement with Gibson Tech, which was renewed in FY2012, is for cash royalty payments based on sales of our PCS Academy of Electronics product. An agreement with Jackie DeLuna, that was for cash royalty payments based on sales of our Digital Photography lab product(s) expired March 31, 2012.
Need for any Government Approval of Principal Products or Services.
None, not applicable.
Effect of Existing or Probable Governmental Regulations on the Business.
Exchange Act.
We are subject to the following regulations of the Securities Exchange Act of 1934, as amended (the Exchange Act), and applicable securities laws, rules and regulations promulgated under the Exchange Act by the Securities and Exchange Commission (the SEC). Compliance with these requirements of the Exchange Act also substantially increases our legal and accounting costs.
Smaller Reporting Company.
We are subject to the reporting requirements of Section 13 of the Exchange Act, and subject to the disclosure requirements of Regulation S-K of the SEC, as a smaller reporting company. That designation will relieve us of some of the informational requirements of Regulation S-K.
Sarbanes-Oxley Act.
We are also subject to the Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act created a strong and independent accounting oversight board to oversee the conduct of auditors of public companies and strengthens auditor independence. It also requires steps to enhance the direct responsibility of senior members of management for financial reporting and for the quality of financial disclosures made by public companies; establishes clear statutory rules to limit, and to expose to public view, possible conflicts of interest affecting securities analysts; creates guidelines for audit committee members appointment, compensation and oversight of the work of public companies auditors; management assessment of our internal controls; prohibits certain insider trading during pension fund blackout periods; requires companies and auditors to evaluate internal controls and procedures; and establishes a federal crime of securities fraud, among other provisions. Compliance with the requirements of the Sarbanes-Oxley Act substantially increases our legal and accounting costs.
Reporting Obligations.
Section 14(a) of the Exchange Act requires all companies with securities registered pursuant to Section 12(g) of the Exchange Act to comply with the rules and regulations of the SEC regarding proxy solicitations, as outlined in Regulation 14A. Matters submitted to stockholders of our Company at a special or annual meeting thereof or pursuant to a written consent will require our Company to provide our stockholders with the information outlined in Schedules 14A or 14C of Regulation 14; preliminary copies of this information must be submitted to the SEC at least 10 days prior to the date that definitive copies of this information are forwarded to our stockholders.
We will also be required to file annual reports on Form 10-K and quarterly reports on Form 10-Q with the SEC on a regular basis, and will be required to timely disclose certain material events (e.g., changes in corporate control; acquisitions or dispositions of a significant amount of assets other than in the ordinary course of business; and bankruptcy) in a Current Report on Form 8-K.
Cost and Effects of Compliance with Environmental Laws.
None, not applicable.
Number of Total Employees and Number of Full Time Employees.
We employ approximately thirteen full-time employees. Premiere Science Inc does not currently have any active operations and does not employ any employees at this time. We will hire part-time and additional full-time employees on an as-needed basis. We have not experienced a shortage of qualified employees. None of our employees are a party to a collective bargaining unit and we believe that our relationship with our employees is good.
Item 1A - Risk Factors.
Smaller reporting companies are not required to provide this information; however, you should be aware that an investment in the Company is highly speculative and subject to numerous risks. You should consider the following most notable risk factors together with all the other information contained in this Annual Report on Form 10-K before making an investment decision with respect to our common stock. This list is not to be considered all inclusive.
Risks Related to our Business.
Ability to Raise Capital
We have a history of significant operating losses and may not be able to achieve sustained profitability if we are unable to increase revenue from our new products and marketing efforts. To achieve sustained profitability, we will need to implement changes to existing business processes and improve our cost cutting efforts in addition to driving revenue growth. This history of operating losses could impede our future ability to raise capital.
Potential Loss of Intellectual Property
The Company has pledged its Intellectual Property as collateral for notes payable as discussed in Note 8. Risk of loss of the underlying IP exists should the Company default on these notes.
Education Funding
The education market is heavily dependent on support from federal, state and local governments. These government agencies have realized budget cuts and the government appropriations process is often slow and unpredictable. Funding difficulties can negatively impact our ability to increase revenue.
International Expertise
Our attempt to enter international markets introduces political and cultural risk. As a small company, we do not have extensive experience in international business arrangements and will need to rely on certain outside expertise which can be costly.
Item 1B-Unresolved Staff Comments.
None.
Item 2. Property.
Location.
The Company leases its Principal executive offices in Boise, Idaho. On December 31, 2013 the Company signed an amendment to an existing contract to lease 5,412 square feet for $6,765/ month for 12 months ending December 31, 2014.
The Company leases additional warehouse space in Boise, Idaho. This warehouse space consists of approximately 2,880 square feet. Rent obligations are approximately $1,400/month under a non-cancelable operating lease that expired June 30, 2012. The lease was extended effective July 1, 2012, at a rate of $1,325/month for 24 months.
Investment Policies.
None.
Description of Real Estate and Operating Data.
None.
Item 3. Legal Proceedings.
The following litigation involving PCSEdventures!.com is pending:
1. Anthony Maher v. PCSEdventures!.com, et al., filed on or about November 26, 2013, in the District Court of the Fourth Judicial District in the State of Idaho, County of Ada. Maher served PCSEdventures!.com on January 15, 2014.
In his Complaint, Maher alleges causes of action for breach of an employment contract and fraud, arising from the contract under which he was employed by PCSEdventures!.com. He alleges damages in the approximate amount of $425,000.
Attorneys for PCSEdventures!.com have filed a Notice of Appearance in the matter; no other pleadings have been filed. By stipulation, the parties have agreed to suspend the litigation to formally mediate the matter. Mediation is set for July 9, 2014, in Boise, Idaho; Hon. Ron Shilling will mediate the case.
Item 4. Mine Safety Disclosures
None.