PCSV Shareholder Update | CEO Update

Dear Friends and Shareholders,

Greetings from PCS Edventures – I am excited to be writing this update to you all as we enter our 2nd Quarter for Fiscal Year 2015 and as we rapidly approach the upcoming date of our Annual Shareholder’s meeting in September. Today, I would like to look back at the results of FY2014 and discuss our 10K Financial Report in some detail, as well as look forward and discuss the remarkable progress the company is making on three major fronts.

First, let’s look at the results of FY2014 as it has set the stage for what we see happening in FY2015.

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REVENUES

Although our revenues for FY2014 are lower than the prior year, closer analysis provides some very good reasons for it. The decrease in our gross revenues of $1.9MM, down from 2.9MM in FY2013, is attributable to the following events:

1) Divestiture of our Canadian LabMentors subsidiary. Labmentors was divested in July of FY2014, and with that a decrease in gross revenues. At its peak, Labmentors was generating strong revenues annually, but had seen steady decline from FY2012 on. The decision to divest Labmentors was sound as the entity was losing money and outside our core focus of  K12 STEM. Based on historical date, this represents $333K(2012) – $158K(2013) of lost gross revenue in FY2014.

2) A one-time event, a large sale of approximately $1MM to Army related education programs in 13 states was not repeated. Although the Army program was delivered on schedule and with positive results, budgetary constraints unfortunately precluded the expansion of the program in FY2014. Although PCS continues to work with the organizations involved and looks forward to potential future business when funds become available, this event represented a significant amount of revenue that was not repeated in FY2014.

3) International contracts of $260K secured in FY2014 were still in the process of being fulfilled at the end of the quarter and this revenue was not recognized in FY2014’s results.  Materials and services delivered in Q1 2015 we will discuss in more detail after the release of our Q1 results.

Collectively, if you take these events together they represent a potential decrease of $1.7MM in anticipated revenues for FY2014. The fact that we actually reported a much lower decrease of only $1MM was due to some very healthy growth in increased channel partner  sales such as STEMfinity, up $150K from FY2013; an annual corporate educational account purchase seen every Q4 was up $150K from FY2013; and increased domestic STEM product sales as a result of our expanding sales force and reseller agreements were up 11.9% in Q3 and 53.7% in Q4 and preliminary analysis of Q1 2015 shows an increase of 49.3% over 2014. Finally, we saw increased revenues from our EdventuresLab group, up from $60K in FY2013 to $116K in FY2014 as they exit the pilot phase and enter the scale up phase.

GROSS PROFIT

Our gross profit margin of 51% shows a decrease from 53.4% in FY2013 attributable to higher cost of goods, transportation, and smaller margins on International projects. We are very pleased that with all of these issues, we were still able to hold our gross profit margins to above 50%. As our International business continues to ramp and we also invest more in sales compensation for our domestic market, we anticipate this margin to diminish somewhat in FY2015, but are watching all contributing costs to preserve our profit margins.

OPERATING EXPENSES

On behalf of the entire PCS team, I am very pleased to announce the fourth year in row in which we have reduced our company operating overhead. I am personally proud of each and every one of our employees and contractors for their dedication to watching and reducing expenses wherever possible. PCS is a personnel intensive business that requires expertise for product development, service delivery, training, support, and sales.  This year, I have no doubt we will see our operating costs and personnel increasing to accommodate the growth in sales and projects both domestically and Internationally, but we are working hard to maintain as lean an infrastructure as possible. Examples of this include squeezing our office space – in January of 2014 we negotiated an office space reduction in floorspace that reduced our lease by nearly $3,000/month. Very few people at this point have private offices and we now how have a public conference room which, although inconvenient from time to time, our staff has cheerfully adjusted to it. We have also continued to take advantage of our Northwest Trade Adjustment Act funding to offset research and development costs. PCS applied for and was awarded $75K in matching development funds in FY2011 that we have been carefully using to maximize our development efforts. The results of this are lower operating expenses and improved product development and support.

FY2015 – THE WAY FORWARD

In conclusion, I’d like to tell all of our shareholders who have stayed with us and who have believed in PCS, that the time and money invested has been worth it. All of the work we have done in the past few years to evolve our business model for growth and scalability, the time we have invested to improve processes and products, and the effort that has been invested by everyone from our Board of Directors to each and every contributing employee or contractor has set the stage for very positive growth and change in FY2015. With our expanding sales reach, improved products and services, and strong International positioning FY2015 will be a year filled with good news and excitement. Briefly, I will reiterate the three primary initiatives driving our strategy and recap our progress within each of these initiatives:

1) Expanding our EdventuresLab program and positioning it to scale.

2) Building our domestic sales reach.

3) Securing and fulfilling projects in Saudi Arabia and expanding our international presence.

EdventuresLabs

We have successfully opened our second EdventuresLab in Eagle, Idaho effective Monday, June 9th, 2014. Students are now attending summer programs in both our Boise and Eagle locations and our programs are maturing with curriculum, methodology, systems, and more. We are currently in discussions with potential licensees in other major metropolitan areas around the country.  Our 5-year goal is to create licensing relationships for deploying 100 EdventuresLabs in major metropolitan areas. These labs will host a number of diverse revenue generating programs, serve as a focus for community presence and brand building, and act as a hub for sales and support into the local schools.  These sites will be the primary driver for expanding a virtual network of experiential learners from around the world.

Domestic Sales

Through internal expansion and the addition of reseller partners, we have effectively grown our US sales force from 3 to 11 sales people in the past six months and recently entered into an agreement to accelerate the growth of our sales force even more quickly.  We have also seen increasing sales from existing channel partners and are in discussions with additional prospective partners.   We have launched two major new products that will give our sales force a major competitive advantage over other STEM providers:

1) Our 3D Interactive Curriculum (3DIC), which will augment our Discover Engineering Kit with digitally delivered and enhanced instructional material; and

2) Our Cortex and Brain v. 5.0 – the only tablet based robotics programming platform available for K-12 robotics.

Both of these products are available through our partnership with Curious Media, a digital production company that specializes in the production of games and interactive, digital experiences for clients like Disney, PBS, Warner Brothers, and more.  Our partnership results in a unique blend of education and gaming that is a learning experience for students like no other. Visit http://www.edventures.com to check out the new 3DIC on our Edventures website.

International Projects

Since the announcement of our STEM outreach program in Saudi Arabia last September we have been actively fulfilling work orders against this contract. We also successfully delivered a training program in Dammam under a separate contract in February.  We will be releasing details on additional contracts and orders that we are working on in the coming weeks. As a company, we have committed tremendous time and resources to building a presence in the Middle East and to cultivating the relationships and support partnerships necessary to make our projects there successful.

On other International fronts, our partners in India, Creya Learning, have expanded their network of schools substantially over the past year, and we are actively evaluating strategies for assisting them to scale more quickly.  We have also received inquiries about additional license programs and STEM outreach throughout Southeast Asia and China, and are working with our manufacturing partner, Fischertechnik, in Germany, to distribute our Fischertechnik related products through their global distribution network.

The above initiatives all work together to produce multiple, stable revenue streams that peak at different times of the year with strong, recurring revenue attributes.

CONCLUSION

In conclusion, the future is very bright for PCS shareholders, customers, partners, and employees. I look forward to seeing shareholders at our Annual Shareholder’s meeting on Friday, September 26th, at 10 am here at our corporate offices.

Thanks to you all for your continued support.

Best wishes,

Robert Grover

CEO

PCS Edventures, Inc.

 

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