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Item 7. Management’s Discussion and Analysis

2015-06-16 compared with 2014-06-30 · 73 added, 78 removed, 90 unchanged (63% of the section changed)

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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 managements intentions, plans, beliefs, expectations, or predictions of the future based on current facts and analyses.

Except for historical facts, all matters discussed in this Annual R eport, which are forward-looking, involve a high degree of risk and uncertainty.

Certain statements in this Annual Report set forth managements 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.

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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 Companys 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 Companys SEC 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 Item 1A, Risk Factors of this report beginning on page 18 and our audited consolidated financial statements and notes thereto contained in Item 8, Consolidated Financial Statements and Supplementary Data of this report.

The following discussion should be read in conjunction with Item 1A, Risk Factors of this report beginning on page 18 and our audited financial statements and notes thereto contained in Item 8, Financial Statements and Supplementary Data of this report.

Plan of Operation.

In fiscal year 2015, PCS will expand its commitment to the research and development of PreK-12, brain-based learning programs in Science, Technology, Engineering and Math (STEM) that embed 21st century thinking skills and new technologies through the deployment of Edventures Lab programs starting in Boise, Idaho with a second site opening in Eagle, Idaho in June of 2014 and the deployment of its new tablet-based interactive software for engineering and robotics The PCS strategic plan focuses on three initiatives which work together to create a long term plan for rapid growth:

1) Domestic STEM program sales into the K12 STEM marketplace consisting of afterschool and in-school customers.

2) Consumer and retail STEM offerings through the Edventures Lab program.

4) Specialized consulting and educational services that provide K-12 STEM educational solutions for the international market

Fiscal year 2014 saw progress on all three of these initiatives as we expanded our domestic sales presence, created partnerships to strengthen our product offerings, closed significant International contracts in Saudi Arabia, and expanded our Edventures Lab program.

During fiscal year 2015 we will continue to build upon these successes through pursuing additional contracts overseas, expanding our domestic sales force further, and preparing for scaling additional Edventures Lab sites.

The PCS Edventures Lab concept is a key strategic addition to our plan as they will serve the following purposes:

1) R&D test bed for product improvement and refinement;

2) Revenue generation through afterschool and summer course fees, a revenue stream that will be more predictable and consistent compared to the seasonal revenues associated with education budgets;

3) The centers will serve as showrooms for PCS products in strategic locations and key districts around the country.

We believe this will provide PCS with significant competitive advantages over other solution providers since administrators and educators can visit local centers for support, training, and demonstrations of our products in action;

4) Revenues from experiential retail.

We believe e-commerce sales of kits associated with STEM learning targeting the families of students attending the courses will provide a boost in Q3 revenues to offset low education sales traditionally anticipated during this time frame;

and 5) the Edventures Lab sites will establish the basis for expanding a subscription-based, digital learning network into targeted communities that will eventually span the United States.

To capitalize on the expansion of the Edventures Lab, we are actively pursuing funding vehicles such as private equity and licensing arrangements.

Our plan to refine operations in our first center in Boise was successful and we are deploying a second program in Eagle Idaho opening in June of 2014.

A third site, our first licensee, is under development at this time.

The establishment of this initial network of centers will establish the groundwork required for scaling in FY2015 and beyond.

We believe the strategic deployment of Edventures Labs to be a viable and sound approach based on our initial trial programs.

PCS holds a unique position in the STEM education market with ( 1) an existing STEM library and deep expertise in creating STEM solutions comprised of curriculum and materials;

( 2) a unique PCS learning methodology an adaptive (customizes to individual learners), experiential (hands-on in nature), learning framework that can be monetized in a number of ways , with what we believe is an approach to educational assessment and incentivizing students for the future, and PCS is an innovative leader in this area;

( 3) PCS has developed an innovative K12 robotics and engineering system comprised of hardware and software specifically designed to engage students in STEM topics such as hands-on physics and engineering and coding;

( 4) PCS has established itself as a prime STEM provider in the Kingdom of Saudi Arabia and is growing its revenues from the Kingdom;

and ( 5) PCS entered the B2C space with a retail product launch this year and also has a working model for experiential learning labs operational.

With a plan to expand higher margin digital delivery products , PCS is now in the development stage of a unique, subscription-based online learning system that can be licensed to schools or non-profit organizations, as well as be used in the home environment.

As we enter FY2016, our strategy is profitability driven seeking to optimize and streamline operations while moving our digital learning and robotics product strategy forward.

A continued underlying principle will be the building of services and products with recurring revenue traits such as online licens ing .

Tactically we will focus on improving product quality, improving our delivery and support infrastructure to accommodate larger scale delivery , improving our sales infrastructure, and building our new, higher margin digital products to add to our lineup of STEM products and services.

We will continue to focus on the improvement of our web-based marketing efforts, expand our sales force and channel partners, and tighten sales processes for our domestic STEM sales.

We will continue to fulfill existing and capture new STEM contracts with the Kingdom of Saudi Arabia.

We will continue to use our EdventuresLab program for ( 1) an R&D test bed for product improvement and refinement with a major emphasis on digital delivery of content in FY2016;

( 2) r evenue generation through afterschool and summer course fees;

( 3) r evenue through licensing EdventuresLab curriculum and methods;

and ( 4) r evenues from STEM retail products.

We believe e-commerce sales of kits associated with STEM learning targeting the families of students attending the centers as well as the larger home retail market will provide a consistent, dependable boost in Q3 annual revenues to offset low education sales traditionally anticipated during this time frame.

We will actively seek retail distribution methods and channels for our robotics retail products and expand their usability for other market segments.

Management's Discussion and Analysis of Financial Condition and Results of Operation.

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Fiscal year ended March 31, 201 5 resulted in a net loss from continuing operations of ($ 1, 447,820 ) as compared to the net loss from continuing operations during the fiscal year ended March 31, 201 4 of ($ 930,635 ).

This is an increase in of $388,589 or approximately 72%, from the net loss for the fiscal year ended March 31, 2013.

The Basic Loss per Share for fiscal year 2014 and 2013 was ($0.02) and ($0.01), respectively.

This is a n in crease in of $ 517,185 or approximately 5 6 % , from the net loss for the fiscal year ended March 31, 201 4 .

The Basic Loss per Share for FY 201 5 and FY 201 4 was ($0.0 2 ) and ($0.

0 2 ) , respectively .

Details of changes in revenues and expenses can be found below.

Operating Results From Discontinued Operations .

On November 30, 2005, PCS entered into an agreement with 511092 N.B.

On November 30, 2005, we entered into an agreement with 511092 N.B.

LTD., a Canadian corporation, (LabMentors) to exchange PCS common stock for common stock of 511092 N.B.

as disclosed in the 8-K as filed with the Securities and Exchange Commission (the SEC) on December 9, 2005 and amended on February 15, 2006.

As a result of the definitive Share Exchange Agreement, 511092 N.B.

became a wholly owned subsidiary of the Company.

as disclosed in our 8-K Current Report filed with the SEC on December 9, 2005, and amended on February 15, 2006.

As a result of the definitive Share Exchange Agreement between the parties, 511092 N.B.

became our wholly-owned subsidiary.

In December, 2005, the name of this subsidiary was formally changed to PCS LabMentors, Ltd.

The Company divested the wholly owned subsidiary, PCS LabMentors, Ltd in August of 2013.

During fiscal year 2014, all PCS LabMentors, Ltd results of operations were separated and classified as Discontinued.

Revenues for discontinued operations for the period April 1, 2013 through August 31, 2013 were $46,901 compared to twelve-month period ended March 31, 2013, revenues of $159,082.

Cost of sales for discontinued operations for the period April 1, 2013 through August 31, 2013 was $20,022 compared to twelve-month period ended March 31, 2013, cost of sales of $78,113.

Operating and other expense for discontinued operations for the period April 1, 2013 through August 31, 2013 were $57,459 compared to twelve-month period ended March 31, 2013, operating and other expense of $201,383.

We divested this subsidiary in August , 2013.

F Y 2015 had no operating results for discontinued operations.

L abMentors, final results of operations were reported d uring fiscal year 2014 .

LabMentors , results of operations were separated and classified as Discontinued .

Revenues for discontinue d operations for the period April 1, 201 3 through August 31, 2013 , were $46,901 .

Cost of sales for discontinue d operations for the period April 1, 2013 thr ough August 31, 2013 , w as $20,0 22 .

Operating and other e xpense for discontinue d operations for the period April 1, 201 3, through August 31, 2013 , were $57,459 .

Operating Results Revenues.

Consolidated revenues, excluding revenues from discontinued operations, for the twelve-month period ended March 31, 2014, were $1,855,711 a decrease of $920,262 or 33%, as compared to $2,775,973 for the twelve-month period ended March 31, 2013.

The decrease was primarily due to two events:

1) a large order we received from a single customer for implementation of robotics labs into a number of after-school sites in FY2013 was not repeated in FY2014;

2 A large contract fulfillment with T4EDU in Saudi Arabia will be invoice and recognized in fiscal year 2015 due to delay in shipment;

the contract was being negotiated at the end of FY and will recognized in early 2015.

Although overall revenues were down due to these two events, tracking domestic revenues year over year show steady growth in direct domestic sales, channel partners, Edventures Lab revenues, and International projects.

R evenues , excluding revenues from discontinued operations , for the twelve-month period ended March 31, 201 5 , were $ 2 ,901,113 a n in crease of $ 1, 045,402 or 56 % , as compared to $ 1 , 855 , 711 for the twelve-month period ended March 31, 201 4 .

The revenue growth was across all three focus areas :

1) large contract fulfillment with T4EDU in Saudi Arabia generating approximately $802,764 additional revenue over FY 2014 , 2) opening of a second EdventuresLab with $72,978 additional revenue over FY 2014 , and 3) domestic sales exceeded FY 2014 by $133,479 .

Operating Results Cost of Goods Sold/Cost of Sales.

Consolidated Cost of Sales, excluding cost of sales from discontinued operations, for the twelve-month period ended March 31, 2014, decreased $378,121 or 29% to $911,808 as compared to $1,289,929 for the twelve-month period ended March 31, 2013.

The FY2014 as a percent of revenue to cost of goods sold was $49%.

The change was mainly due to fulfilling the orders associated with the additional revenues generated during the fiscal year.

Included in PCS cost of goods sold are variable costs including sales commissions, shipping expenses and product royalty payments.

In addition, LabMentors has minimal variable costs.

Cost of goods sold for FY2014 as a percent of revenues was consistent with FY2013 at 46%.

Cost of Sales for the 12 month period ended March 31, 201 5 , in creased $ 6 78,741 or 74 % to $ 1,59 0 , 549 as compared to $ 911,808 for the 12 month period ended March 31, 201 4 .

FY201 5 , as a percent of revenue to cost of goods sold , was 55 %.

Included in PCS C ost of Sales are variable costs such as sales commissions, shipping expenses , and product royalty payments.

Operating Results Operating Expenses.

Operating expenses excluding assets from discontinued operations, for the twelve-month period ended March 31, 2014, decreased by ($101,666) or 6% to $1,696,898 as compared to $1,798,655 for the twelve-month period ended March 31, 2013.

Operating expenses excluding assets from discontinued operations , for the 12 month period ended March 31, 201 5 , increased by $ 5 12 , 702 or 3 0 % to $ 2,2 09 , 691 as compared to $ 1,696, 989 8 for the 12 month period ended March 31, 201 4 .

The table below identifies the year over year changes:

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March 31, 2014

Option Warrant Expense

Contract Labor

Product Development

Employee Expenses

International Consulting

Marketing Expense

Bad Debt Expense

Board Compensation

1) Option Warrant Expense decreased due to less warrants being issued during the year ended March 31, 2014.

2) Salaries decrease due to reduced headcount and lower salaries for the positions that have turned over.

3) Contract Labor increased due to use of specialized contractors working on a project basis in the Learning Center, Domestic and International product development, and administration.

4) Marketing Expense increased with an increase in public and media relations, lead generation campaigns, and tradeshow attendance expense and related travel.

5) Bad debt increased with allowance for the entire note receivable from the sale of Labmentors.

6) Board Compensation decreased by the resignation of two board members forfeited restricted stock units.

Settlement Expense

1) Product Development E xpense in creased due to:

new Cortex, Brain 5.0 manufacturing, and international product line s developed in year ended March 31, 201 5 .

2) Employee Expense in crease d with the addition of two positions coordinating international sales efforts, learning center and domestic sales management, and a curriculum writer.

3) International Consulting Expense was incurred with the partnering of a Kingdom of Saudi Arabia contract facilitator positioned abroad.

4) Marketing Expense increased with additional efforts in website optimization, and lead generation campaigns .

5) Settlement expense was incurred with the medi ation of an employment contract dispute

Operating Results Other Income/Expenses .

___________________________________________________________________________________________

Total other income (expense) for fiscal years 2014 and 2013 was ($177,549) and ($229,439) respectively;

a change of 23%.

The change was primarily due to no derivatives valuations during the fiscal year.

Total other income (expense) for the fiscal years ended March 31, 201 5 and 201 4 was ( $ 5 48 , 693 ) and ( $ 177,549 ) respectively;

a change of 2 09 % or ( $ 3 71,14 4 ) which was p redominantly d ue to debt discount charged to interest expense on notes payable converted in FY 2015 .

As of the fiscal year ended March 31, 201 5 , we had $ 1 30 , 162 in cash, with total current assets of $ 855, 299 and total current liabilities of $ 2,257,846 .

We have an accumulated deficit of ($38,170,186), and shareholders equity of ($1,219,954).

We have an accumulated deficit of ($ 39, 618,006 ) , and stock holders equity of ( $ 1, 6 73 , 404 ) .

The Company has a working capital deficit of $ 1,402,54 7 at March 31, 201 5 .

The working capital deficit for the fiscal year ended March 31, 201 4 was $ 707,632 .

The Company has a current ratio at March 31 of 0.52 and 0.45 for fiscal years 2014 and 2013, respectively.

This increase in liquidity was due primarily to the fiscal year 2014 ending inventory included a very large order that shipped the first week of FY2015, extension of notes payable of $303,745 for two years, and accounts receivable contained a large receivable that paid the first week of FY2015.

The Company has a current ratio at March 31 of 0 .

52 for FY2 01 5 and FY 201 4 , respectively.

This de crease in liquidity was due primarily to the change in debt structure resulting in an increase in short term debt, and the expensing of the debt discount at conversion .

Critical Accounting Policies.

Our discussion herein and analysis thereof is based upon our financial statements in Item 7 below, which have been prepared in accordance with Generally Accepted Accounting Principles of the United States (GAAP).

Our discussion herein and analysis thereof is based upon our financial statements in Part II Item 7 , below, which have been prepared in accordance with Generally Accepted Accounting Principles of the United States (GAAP).

The preparation of these statements requires management to make estimates and best judgments that affect the reported amounts.

See Note 4 contained in Item 7 for additional discussions of these and other accounting policies and disclosures required by GAAP.

See Note 4 of our Financial Statements contained in Part II, Item 8 for additional discussions of these and other accounting policies and disclosures required by GAAP.

Concentration of Credit Risks and Significant Customers.

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The Company does not require collateral from its customers.

During the fiscal year ended March 31, 2014, the Company had sales to two major customers that accounted for 28% and 13% of total consolidated revenue as of March 31, 2014 and 2013.

The same two customers also accounts for 86% and 31% of total account receivable as of March 31, 2014 and 2013 respectively.

See Note 4 to the financial statements for additional information.

During the fiscal year ended March 31, 201 5 , the Company had sales to t hree major customers that accounted for 56 % and 37 % , respectively, of total revenue as of the fiscal year ended March 31, 201 5 , and 201 4 .

Three customers account ed for 81 % and 91 % of total account s receivable as of the fiscal years ended March 31, 201 5 and 201 4 respectively.

See N ote 4 to the F inancial S tatements for additional information.

Fair Value of Financial Instruments.

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The functional currency of the Company is the U.S.

The Companys financial statements include translations for the LabMentors subsidiary, which are maintained in Canadian dollars.

The Companys financial statements include translations for the LabMentors subsidiary, where applicable, which are maintained in Canadian dollars.

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.

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Intellectual Property.

The Companys intellectual property consists of capitalized costs associated with the development of the Internet software and delivery platform developed by the Company to enable access to the various educational programs and exercises developed by the Company.

The Company s intellectual property consists of capitalized costs associated with the development of the Internet software and delivery platform developed by the Company to enable access to the various educational programs and exercises developed by us .

In accordance with generally accepted accounting principles as discussed previously regarding inventory, the initial costs associated with researching the delivery platform and methods were expensed until economic feasibility and acceptance were determined.

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Costs incurred thereafter to maintain the delivery and access platform are expensed as incurred.

These capitalized costs were amortized on a straight-line basis over the estimated useful life of the Companys delivery and access platform that was determined to be 60 months.

These capitalized costs were amortized on a straight-line basis over the estimated useful life of the Companys delivery and access platform that was determined to b e 60 months.

As of March 31, 20 1 2 , Intellectual Property was fully amortized .

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The most recent acquisition did not have significant tangible assets, and, as a result, the majority of the purchase price was allocated to goodwill, which increases the potential for impairment charges that we may incur in the future.

We account for goodwill and other intangible assets in accordance with the financial accounting standards issued by the FASB pertaining to Goodwill and Other Intangible Assets. Under this standard, goodwill and intangible assets with indefinite lives are not amortized to expense and must be reviewed for impairment annually or more frequently if events or changes in circumstances indicate that impairment might have occurred.

We account for goodwill and other intangible assets in accordance with the financial accounting standards issued by the FASB pertaining to Goodwill and Other Intangible Assets.

Under this standard, goodwill and intangible assets with indefinite lives are not amortized to expense and must be reviewed for impairment annually or more frequently if events or changes in circumstances indicate that impairment might have occurred.

These events could include a significant change in the business climate, legal factors, a decline in operating performance, competition, sale or disposition of a significant portion of the business, or other factors.

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Due to the impairment at March 31, 2012, the entire balance of intangible assets was amortized .

No additions occurred during the fiscal years ended March 31, 2013 and March 31, 2014.

Despite the goodwill and intangible asset impairments described, the Companys Lab Mentors subsidiary had continuing operations and continued to produce revenue until its sale in fiscal year ended March 31, 2014

N o additions occurred during the fiscal year s ended March 31, 201 4 and March 31, 201 5 .

Despite the goodwill and intangible asset impairments described, the Companys Lab Mentors subsidiary ha d continuing operations and continue d to produce revenue until it s sale during the fiscal year ended March 31, 2014 .

Options/Warrants and Shares Issued for Services.

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Most of these inputs are either highly dependent on the current economic environment at the date of grant or forward-looking over the expected term of the award.

The Company accounts for shares issued to employees and others based upon the prior day closing price of our common stock as of grant date.

The Company accounts for shares issued to employees and others based upon the prior day closing price o f our common stock as of grant date.

Acquisitions.

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Off-Balance Sheet Arrangements.

We do not have any off-balance sheet arrangements as of March 31, 2014.

We do not have any off-balance sheet arrangements as of the fiscal year ended March 31, 201 5 .

Quantitative and Qualitative Disclosures About Market Risk.

None, not applicable.

Not required for smaller reporting companies.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis