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. We acquired PCS LabMentors, Ltd. (PCS LabMentors), which was based in Fredericton, New Brunswick, Canada, which became a wholly-owned subsidiary that we sold in September, 2013. In January, 2013, we formed Premiere Science, Inc. (Premiere Science) in the State of Idaho as a wholly-owned subsidiary, though no business was conducted by Premiere Science during the fiscal year ended March 31, 2015
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 and are marketed through 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 other organizations, including a large number of afterschool programs supported by the $1.1B 21st Community Learning Center (21stCCLC) Federal grant program. We sell robotics, EdventuresLab implementations, 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 EdventuresLab STEM lab 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 are over one million students. The EdventuresLab program can be deployed as a private learning facility, or licensed in partnership with schools and afterschool programs.
The following are business developments during our fiscal year ended March 31, 2015 (FY2015):
Management and Board of Director Changes
Todd Hackett, a member of our board of Directors, our major stockholder, and who has been a primary source of funding for our business operations, was appointed by our Board of Directors to the role of Co-CEO in Q4 of FY2015.
Russelee Horsburgh, our Controller, was appointed to PCS Vice President and Treasurer by our Board of Directors in February of 2015 and is acting as Chief Financial Officer.
Britt Ide, joined our Board of Directors in January, 2014, and was appointed to Chair of our Board of Directors in Q4 of FY2015. Ms. Ide brings experience in engineering, law, mediation, communications, marketing, and social media.
Andrew Scoggin, joined our Board of Directors in1Q of FY 2015, but resigned in 4Q of FY 2015 due to the demands of previous commitments. Mr. Scoggins resignation was effective as of January 31, 2014. There were no disagreements between the Company and Mr. Scoggin regarding his resignation.
- In January, 2015, we renewed our Director & Officer insurance on favorable terms for a one year period.
- We continued to explore potential partnerships during FY2015, seeking opportunities and values that would strengthen PCS Edventures! and advance shareholder value through improved sales and marketing, development, and/or operational efficiency.
- We continued to grow our long-term relationship with Catapult Learning, formerly Edison Schools Newton Learning Summer Adventures, providing additional customized learning labs for their summer programs, as well as supplying them with materials authored and developed in previous years. The Catapult Learning program has been the source of well over $1M in revenue since the inception of tour relationship with them; Catapult Learning generated over $200,000 in sales in Q4 FY2015. 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 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 announced a $1MM contract with T4EDU in July 2014 for the design and production of a STEM learning framework and associated curriculum.
- 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. PCS also utilized Creya educational development resources in the fulfillment of part of the recent Saudi Arabian curriculum project.
- 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 established and effective lab and system design; implemented an annual learning and event calendar tested and established; a 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, 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, 2014 PCS secured funding for opening its second facility in Eagle, Idaho which opened and was operational as of June, 2014.
- In January, 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 incorporate the latest technologies available. The Cortex and 3DIC application were released in 2014 and are now actively being marketed.
- 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 and sales channels 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 firm (Priority Education) as a PCS Edventures Authorized Reseller Partner. In contrast to other PCS reseller partnerships, Priority Education has a unique arrangement with PCS to assist us 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 10 year service as CEO of Educational Options an online curriculum provider from Arlington, VA Jim built a sales force that brough this company from less than $1MM in annual sales to over $12MM in annual sales. 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 used the remainder of these award funds in FY2015 and closed out its relationship with TAAC.
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 increasing our 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 licensings. Tactically we will focus on improving product quality, improving our delivery and support infrastructure to accommodate a larger scale, 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 the sales processes for our domestic STEM sales. We will continue to fulfill existing and capture new STEM contracts with the Kingdom of Saudi Arabia. Additionally, we will also 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) revenue generation through our afterschool and summer course fees; (3) revenue through licensing EdventuresLab curriculum and methods; and (4) Revenues from our 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 annual Q3 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.
Foreign Currency Exchange Rate Risk.
We promote 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 PCS 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 were transacted in US dollars, and thus there is not a significant exchange risk associated with those transactions.
Our unearned revenue was $158,420 at March 31, 2015. At the end of fiscal year 2015, the entire amount of unearned revenue is expected to be earned during FY 2016. Of the total listed in unearned revenue at March 31, 2015, $134,670 is for orders prepaid by customers, and $23,750 are advanced license fees resulting from our agreement with Creya Learning of India. PCS, as part of our agreement with Creya Learning, will receive ongoing royalties on the tuition charged by Creya Learning to students attending PCS based programs and royalties will be amortized as earned. Each quarter, the license fees are amortized according to the length of the subscription/license.
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, learning centers, 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:
- Provides students with exciting and relevant activities that brings curriculum to life;
- Develops essential critical thinking and problem-solving skills;
- Prepares students for real-world career demands; and
- Builds 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 that 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, that is driven by the major standards movements in the United States including Common Core and Next Generation Science Standards.
- 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; and
- 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 originally operated experiential learning centers throughout the Western United States. Founded by a rural school teacher with a remarkable vision for providing students with hands-on, meaningful learning experiences, these centers were the origin of the learning philosophy and methodology embedded in all of PCS products, curriculum, and services. PCS left the brick and mortar learning center business in the late 1990s to pursue the development of experiential curriculum and institutional products.
Today, PCS experience in hands-on STEM learning and learning centers, combined with its collective expertise and intellectual property in STEM, adaptive learning frameworks, and robotics provide the infrastructure to create a high energy, effective STEM learning environment that serves as the basis for an expanded PCS business model. This new business model aligns with major drivers and megatrends in the industry and positions PCS to become a global leader in a unique learning category adaptive, blended, STEM education.
PCS plans to seize the current business opportunity in the education industry through the STEM focused learning environments called EdventuresLabs augmented by a virtual community focused on experiential learning. The labs will generate revenue streams through: (1) a virtual community for participants that will become a global network of experiential learners; (2) experiential learning classes designed to develop STEM and 21st century skills where students, grades 4-12, identify their talents and find their passion; (3) retail sales to consumers based on hands-on experience with the products in the learning centers; (4) a model lab showroom that will leverage the lessons learned from our direct sales efforts and from which improved and refined direct sales efforts can be conducted in strategic, educational markets; (5) licenses with private and public entities to implement these labs on their premises; and (6) international opportunities for licensing and expansion.
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. This program is being upgraded in FY2016 and will migrate its media tools towards tablet platforms.
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 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.
The PCS Edventures Robotics system is comprised of The Brain, a highly versatile micro-controller and the Cortex, an engaging and easy-to-use programming environment that makes programming fun. This system provides a naturally enabling platform for engaging students in a variety of areas including computer programming, physics, math, and other topics. PCS Robotics products range from full-scale robotics lab implementations to its RiQTM robot kit designed for home users. PCS has specifically developed two curriculum models to accommodate instruction in both informal (afterschool) and formal (classroom) learning environments. Industry research from the International Federation of Robotics reports 1.2MM entertainment and hobby robotics units sold in 2013, with over 7.5MM projected from 2014 to 2017. The PCS Robotics system targets this market opportunity.
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, turnkey 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 multiple segments within the educational market that can benefit from our products and services. 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 as follows:
- Edventures! Lab programs and products targeting home use (families and homeschoolers).
- K6 Programs for the elementary classroom.
- Tech Ed Programs for grades 6-12.
- Afterschool Programs seeing informal and non-formal science programs.
- K-12 STEM solutions for the international market.
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 FY 2013, sales of $209,000 during FY2014, and sales of $434,410 during FY2015. We have a close relationship with STEMfinity and anticipate these sales numbers to continue to grow.
(iii) In January, 2014 we entered into a reseller agreement with Priority Education Solutions of Vero Beach, Florida, which has four sales staff members directed by Jim Hagadorn, focusing on the Florida region with plans to expand with additional staff into additional geographic location.
Distribution Methods of the Products or Services.
The majority of our products are consolidated or built in our warehouse facility then shipped to customers. There are several vendors we work with that drop ship product for us.
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 FY2015, PCS:
- Developed three new summer camp programs for Catapult (formerly Newton Learning).
- In partnership with Curious Media, collaboratively developed 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.
- Invested in significant R&D to redesign the hardware for its PCS Robotics system releasing the new Brain 5.0 platform in FY2015.
- Developed and delivered a training academy program to Saudi Arabian science educators.
- 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 , 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, all of 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. This network of active teachers also provides PCS with a strong community of program advocates from which we 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 K-12 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 is 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 and 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 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, we believes we 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 our 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 Pre-K level and extends through college. School districts seeking a systemic approach to STEM education will find our 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., fischertechnik, KNEX, Q-Smart Robot Technologies, and Gratnell. We believe there are adequate sources for all raw materials required for manufacture of our products.
Dependence on One or a Few Major Customers.
In general, our customer base is growing rapidly that 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 approximately $435,000 in FY2015; (2) STEMfinity, a PCS reseller, has been growing steadily with orders of approximately $434,000 in FY2015, and orders of approximately $198,000 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 approximately $106,000 in business with THC in FY2013; signed contracts for approximately $793,000 in FY2014, and invoiced approximately $971,000 to THC for FY2015, with additional sales related to these contracts invoicing in FY2016.
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.
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 us and/or our operating results.
We currently have a development agreement compensated through a revenue share with Curious Media. The agreement with Curious Media is for equity and cash revenue share/royalty payments based on sales of our 3DIC and Cortex integrated products.
Need for any Government Approval of Principal Products or Services.
None, not applicable.
Effect of Existing or Probable Governmental Regulations on the Business.
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 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, including, but not limited to, a scaled down description of our business in SEC filings; no requirement to include risk factors in Exchange Act filings; no requirement to include certain selected financial data and supplementary financial information in SEC filings; not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act; reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements that we file under the Exchange Act; and exemptions from the requirements of holding an annual nonbinding advisory vote on executive compensation and seeking nonbinding shareholder approval of any golden parachute payments not previously approved. This designation relieves us of some of the informational requirements of SEC Regulation S-K, and may reduce our regulatory operating costs and expenses.
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.
Exchange Act 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 shareholders at a special or annual meeting or pursuant to a written consent of shareholders will require us to provide our shareholders with the information outlined in Schedule 14A (where proxies are solicited) or Schedule 14C (where shareholder consents in writing to the action have already been received or are anticipated to be received) of Regulation 14, as applicable; and 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 shareholders. Actions taken under 14C requirements are customarily not effective until 21 days after the mailing to shareholders.
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 13 full-time employees. Premiere Science, Inc. does not currently have any active operations and does not employ any employees at this time. We 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 and other reports or registration statements filed by us with the SEC 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 promissory notes payable as discussed in Note 8 of our Financial Statements in Part II, Item 8 of this Annual Report. Risk of loss of the underlying IP exists should the Company default on these promissory notes.
The education market is heavily dependent on support from federal, state and local governments. These governmental 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.
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 that can be costly.
Item 2. Properties.
The Company leases its principal executive offices in Boise, Idaho. On February 1, 2015, we signed a lease for our principal offices comprised of approximately 3,609 square feet for $4,511 per month for the 12 months ending January 31, 2016.
We also lease additional warehouse space in Boise, Idaho. This warehouse space consists of approximately 2,880 square feet. Rent obligations are approximately $1,400 per month under a non-cancelable operating lease that expired June 30, 2012. The lease was extended in a fifth amendment, effective October 31, 2014, at a rate of $1,390 per month for 12 months that will expire on October 31, 2015. A sixth lease amendment was subsequently signed on April 15, 2015, to lease an additional bay from May 1, 2015, to October 31, 2015.
Item 3. Legal Proceedings.
On or about May 18, 2015, the Company was named as a co-defendant in a legal action related to one of its employees, alleged to have been driving an automobile negligently while on work related services for us, and causing damages to the plaintiffs in the action. The action was brought in the District Court of the Fourth Judicial District of the State of Idaho, in and for the County of Ada, Civil Action number CV PI 1507419. We have engaged legal counsel to represent us in this matter, and we are not presently in a position to determine what, if any, liability we may have for the actions of our employee, or even whether such employee was negligence in any manner. We also believe that we have adequate insurance coverage for our legal representation and any potential liability. As this action progresses, we will update this information.
Item 4. Mine Safety Disclosures
None; not applicable.