Shareholder Update: FY2016 Q3 Discussed

Dear Shareholders,

On behalf of PCS Edventures, I wanted to take a moment to discuss the results of Q3 FY2016 as reported in our recent 10Q filing. As we approach the end of Fiscal Year 2016, the company is truly excited about the groundwork we have laid in the past two years. We now have 1) a significant channel partner to carry our products into the schools with School Specialty 2) two EdventuresLab facilities providing R&D to refine this core program for scaling; 3) effectively launched our e-learning platform; 4) refined and polished our STEM product line to improve quality, reduce costs, and expedite fulfillment; and 5) expanded our PCS robotics capabilities significantly in software, hardware, and curriculum. It’s difficult for shareholders to see this infrastructure development as it doesn’t translate immediately into revenues, but working in the education industry is challenging. Long sales cycles, research-based product development, extensive testing, expensive infrastructure, and challenging budget climates make education a tough business. However, once we have established research, reputation, and infrastructure, this market can be long-lived, loyal, and lucrative. Education is like water, everyone needs it – and our business strategy is to be a major provider of STEM education to students around the world. With that in mind, let’s take a look at the results of our last quarter:

Financial Discussion

I am sure that many of our shareholders are concerned about the decrease in revenues reported as compared to last year. However, if we take into account unrecognized revenue from our Saudi Arabia contract concluded in Q3, our YTD revenues would actually be higher. Unrecognized revenue cannot be reported, and we cannot recognize it officially until contractual receiving notes are issued. We have delivered the products and services in question, and foresee no issues with final receiving notes, however, at this time we have approximately $360,840 out in un-reportable revenue.

Cost of Sales
Cost of Sales for the nine month period ended December 31, 2015 decreased $349,579 to $953,448 (27%) as compared to cost of sales during the nine month period ended December 31, 2014 of 1,303,027. Gross margin was improved in the top three revenue categories of Domestic, Learning Centers, and International through a combination of sales mix and bill of materials and freight cost reduction.

Operating Expenses
Operating expenses for the nine month period ended December 31, 2015, decreased by $108,098 (6%) to $1,587,786 compared to $1,695,884 for the nine month period ended December 31, 2014. The majority of savings stemming from employee expenses.

I hope our shareholders appreciate the significance of this combination of revenues and expenses – it means we are continuing to improve company performance and are focused on the target of profitability, growth, and scalability.

Strategic Planning and Execution Discussion

In addition to these operational highlights, PCSV continues to work very hard at creating shareholder value through product innovation and the expansion of our sales network. Some exciting sales and development occurrences that happened in Q3 include:

Training of the School Specialty Frey Scientific Sales Team
In January we attended a sales conference in Las Vegas with hundreds of School Specialty sales personnel and are even more convinced that our sales partnership with them is a sound strategy for penetrating the school market. School presentations and a variety of support activities are already underway with School Specialty and we look forward to seeing revenues from this partnership begin to ramp.

Specialty STEM Camp Development
Each year we enter into an agreement with a corporate client to produce new and exciting STEM titles for summer adventure programs hosted in school districts around the country. During Q3 our development team worked to create the final products that were recently announced in a $400K purchase order – the team is doing a great job and we look forward to seeing those numbers continue to climb.

Drone R&D
We entered the drone space a little over a year ago as we developed an advanced robotics curriculum for our Saudi Arabia client. Through this R&D it became quickly apparent that STEM could be brought to life in some amazing ways using drone technology to teach everything from electronics and power engineering to flight dynamics and material science. All of the work, testing, research, and evaluation is now coming together into a strong plan and strategy that we believe will make PCSV one of the best STEM education companies around. Q3 was extremely busy putting this all together, and we look forward to sharing details of this story with you very soon.

Another Q3 triumph was the development and deployment of EdApp Droneology and our first digital learning application. We selected the topic of drones for a few reasons – first, it is incredibly timely with all of the increased exposure to drones in society; second, it was a great technical topic to launch our phase 1 digital learning application. EdApp Droneology is getting great reviews and we hope to see it everywhere in the market soon.

Although resource-limited, we have been able to continue to move the EdventuresLab business strategy ahead through the development of additional curriculum titles and the deployment of our phase 1 digital learning management system (LMS) with the release of EdApp Droneology. We are now working on the second phase of our digital learning strategy and look forward to implementing it soon.

These are just a few highlights from Q3 on the strategic growth side that I hope put some light onto the work that is being done here on a daily basis. Thank you for your continued support of PCSV, we’re excited about what the future holds and hope you are too.

Robert Grover
Executive Vice President
PCS Edventures, Inc.
v. 208.343.3110
f. 208.343.1321