SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
PCS EDVENTURES!.COM, INC.
(Name of Registrant as Specified in its Charter)
N/A
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(I)(4) and
0-11.
(1) Title of each class of securities to which transaction
applies: N/A
(2) Aggregate number of securities to which transaction applies:
N/A
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined: N/A
(4) Proposed maximum aggregate value of transaction: N/A
(5) Total fee paid: $0.
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: $0.
(2) Form, Schedule or Registration Statement No.: N/A
(3) Filing Party: N/A
(4) Date Filed: N/A
Contact Persons: Leonard W. Burningham, Esq.
Branden T. Burningham, Esq.
Suite 205, 455 East 500 South Street
Salt Lake City, Utah 84111
Tel: 801-363-7411; Fax: 801-355-7126
PCS EDVENTURES!.COM, INC.
345 Bobwhite Court, Suite 200
Boise, Idaho 83706
(208) 343-3110
Notice of Annual Meeting to Shareholders
To the Shareholders of PCS Edventures!.com, Inc.:
The 2006 annual meeting of shareholders of PCS Edventures!.com, Inc.
will be held at the Company's offices located at 345 Bobwhite Court, Suite 200
Boise, Idaho 83706, on Tuesday, September 19, 2006, at 9:00 a.m. MDT. At this
year's meeting, we plan to conduct the following business items:
1) To re-elect the current members of our Board of Directors;
2) To ratify the appointment of HJ & Associates, LLC as our independent
registered public accounting firm for the fiscal year ending March
31, 2007;
3) To amend the Articles of Incorporation to increase the number of our
authorized shares of common stock;
4) To amend the Articles of Incorporation to authorize 5,000,000 shares
of Series A preferred stock;
5) To amend the Articles of Incorporation to increase the number of
authorized shares of preferred stock and to authorize the Board to
designate and issue additional classes or series of stock without
further shareholder approval;
6) To amend the Articles of Incorporation to permit the Board to limit
waiver or amendment of rights, options and warrants of the Company;
7) To transact such other business as may properly come before the
annual meeting (and any adjournment thereof), all in accordance
with the accompanying Proxy Statement.
Shareholders of record at the close of business on Monday, August 14,
2006, are entitled to notice of and vote at the annual meeting.
All shareholders are cordially invited to attend the Annual Meeting in
person. However, whether or not you expect to attend the Annual Meeting in
person, you are urged to complete, date and sign the accompanying proxy card
and return it to our offices as soon as possible in the enclosed self-
addressed, stamped envelope provided for your convenience. If you send your
proxy card and then decide to attend the annual meeting to vote your shares in
person, you may still do so. Your proxy is revocable in accordance with the
procedures set forth in the Proxy Statement.
Should any shareholder wish to submit a proposal for consideration at
the Annual Meeting, the deadline is Friday, September 15, 2006. Notice of a
stockholder proposal submitted outside the processes of Rule 14a-8 of the
Securities and Exchange Commission shall be considered untimely.
By the Order of the Board of Directors,
Donald J. Farley,
Secretary
1
PROXY STATEMENT
This Proxy Statement is furnished by our Board of Directors for the
solicitation of proxies from the holders of our common stock in connection
with the annual meeting of shareholders to be held at our offices located at
345 Bobwhite Court, Suite 200 Boise, Idaho 83706, on Tuesday, September 19,
2006, at 9:00 a.m. MDT, and at any adjournment thereof. It is expected that
the Notice of Annual Meeting of Shareholders, our Annual Report on Form 10-KSB
of the Securities and Exchange Commission for fiscal year ended March 31,
2006, this Proxy Statement, and the accompanying Proxy card will be mailed to
shareholders starting on or about August 25, 2006.
Voting Procedures.
- ------------------
The presence in person or by proxy of a majority of the voting power at
the Annual Meeting is required to constitute a quorum for the transaction of
business at the Annual Meeting. Abstentions and broker non-votes will be
considered represented at the Annual Meeting for the purpose of determining a
quorum. The shares represented by each proxy will be voted in accordance with
the instructions given therein. Where no instructions are indicated, the proxy
will be voted in favor of all matters to be voted on as set forth in the proxy
and, at the discretion of the persons named in the proxy, on any other
business that may properly come before the Annual Meeting. Each stockholder
will be entitled to one vote for each share of common stock held and will not
be entitled to cumulate votes in the election of directors. Shares that are
authorized but not yet issued will not
be entitled to vote at the Annual Meeting.
Shareholders can ensure that their shares are voted at the annual
meeting by signing, dating and returning the accompanying proxy card in the
self-addressed, stamped envelope provided. The submission of a signed Proxy
will not affect a shareholder's right to attend the annual meeting and vote in
person. Shareholders who execute proxies retain the right to revoke them at
any time before they are voted by filing with the Secretary of the Company a
written revocation or a Proxy bearing a later date at the corporate address.
The presence at the annual meeting of a shareholder who has signed a proxy
does not, by itself, revoke that Proxy unless the shareholder attending the
annual meeting files a written notice of revocation of the Proxy with the
Secretary of the Company at any time prior to the voting of the Proxy at the
meeting.
Proxies will be voted as specified by the shareholders. Where specific
choices are not indicated, proxies will be voted FOR the election of each item
so presented.
The Board of Directors knows of no other matters to be presented for
shareholder action at the annual meeting. If any other matters properly come
before the annual meeting, the persons named as proxies will vote on such
matters in their discretion.
The expense of printing and mailing Proxy materials, including expenses
involved in forwarding Proxy materials to beneficial owners of common stock
held in the name of another person, will be paid by us. No solicitation,
other than by mail, is currently planned.
Only shareholders of record at the close of business on Monday, August
14, 2006 (this date is referred to as the "record date"), are entitled to
receive notice of and to vote the shares of common stock registered in their
name at the annual meeting. As of the record date, we had 30,873,238 shares
of our common stock outstanding. Each share of common stock entitles its
holder to cast one vote on each matter to be voted upon at the annual meeting.
Under Idaho law, the Idaho Business Corporation Act requires the
presence of a quorum to conduct business at the annual meeting. A quorum is
defined as the presence, either in person or by proxy, of a majority of the
outstanding shares of common stock entitled to vote at the annual meeting.
The shares represented at the annual meeting by Proxies that are marked
"withhold authority" will be counted as shares present for the purpose of
determining whether a quorum is present. Broker non-votes (i.e., Proxies from
brokers or nominees indicating that such persons have not received
instructions from beneficial owners to vote shares as to a matter with respect
to which the brokers or nominees do not have discretionary power to vote) will
also be counted as shares present for purposes of determining a quorum.
Directors are elected by the affirmative vote of a plurality of the
shares of common stock present, either in person or by proxy, at the annual
meeting and entitled to vote. For this purpose, "plurality" means that the
individuals receiving the largest number of votes are elected as directors, up
to the maximum number of directors to be chosen at the election. In the
election of directors, votes may be cast in favor or withheld. Votes that are
withheld and broker non-votes will have no effect on the outcome of the
election of directors.
The Company's Board of Directors has unanimously adopted resolutions
approving and recommending to the Company's shareholders, for their approval,
Second Amended and Restated Articles of Incorporation that include certain
amendments of the Company's current Articles of Incorporation. The Board has
determined that each of these amendments should be included in a separate
proposal for shareholder consideration, as described below in Proposals Nos.
3, 4, 5, and 6. The proposed amendments, if approved by the shareholders,
would:
* increase the number of authorized shares of common stock of the Company
from 40,000,000 shares to 60,000,000 shares of common stock as described
in Proposal Nos. 3 and 5;
* designate a series of preferred stock consisting of 5,000,000 shares
with certain rights and preferences as described in Proposal No. 4;
* increase the number of authorized shares of preferred stock from
10,000,000 shares to 20,000,000 shares of preferred stock undesignated as
to class or series; and to authorize and vest in the Board of Directors
the authority, without shareholder approval, to classify or reclassify,
from time to time, any unissued shares of the Company's authorized stock
into one or more classes or into one or more series within one or more
classes (the "Blank Check Authorization"), as described in Proposal No.
5; and
* add a provision allowing the Board to limit waiver and amendments of
certain rights, warrants, and options as described in Proposal No. 6.
The proposed amendments of the Company's Articles of Incorporation are
set forth in the Second Amended and Restated Articles of Incorporation
attached as Exhibit A. The current provisions and proposed amendments
described below are qualified in their entirety by reference to the actual
text as set forth in Exhibit A.
A majority of the outstanding shares of the Company entitled to vote,
represented in person or by proxy, constitute a quorum at the Annual Meeting
of shareholders. If a quorum is present at the Annual Meeting, each of
Proposal Nos. 3, 4, 5, and 6 will be approved if the votes cast in favor of
such proposal exceed the votes cast against such proposal. Broker non-votes
will have no effect on the outcome of the shareholder vote on Proposal Nos.
2-6.
Effective Dates
- ---------------
The election of directors and appointment of HJ & Associates as our
auditors, if approved by the shareholders, will be effective immediately
following the annual meeting. Amendments of our articles of incorporation
approved by the shareholders at the annual meeting will become effective upon
filing Second Amended and Restated Articles of Incorporation with the Idaho
Secretary of State following the Annual Meeting. If a quorum is present at
the Annual Meeting, each of Proposal Nos. 3, 4, 5, and 6 will be approved if
the votes cast in favor of such proposal exceed the votes cast against such
proposal. Broker non-votes will have no effect on the outcome of the
shareholder vote on Proposal Nos. 2-6.
PROPOSAL NO. 1
ELECTION OF BOARD OF DIRECTORS
The nominees for election as Directors are the four members of our
current Board of Directors: Anthony A. Maher, Donald J. Farley, Cecil D.
Andrus and Michael K. McMurray. Each director is to serve until the next
Annual Meeting of our stockholders or the director's prior death, resignation
or termination and the appointment and qualification of a successor.
The names of our current directors and executive officers and the
positions held by each are set forth below:
Name Age Position Held Position Since
- ---- --- -------- -------------------
Anthony A. Maher 58 Chairman, President and CEO 1989
Donald J. Farley 58 Secretary 1994
Cecil D. Andrus 74 Director 1997
Michael K. McMurray 60 Director 1989-1994,
2003-present
Anthony A. Maher. Mr. Maher was recruited to PCS at our inception as
Chairman of the Board, President and Chief Executive Officer and structured
our purchase of PCS Schools, Inc. and PCS LabMentors, LTD. Since then, Mr.
Maher has overseen the development of our curriculum from four core areas to
over 60; the development of our distance developer database; and the creation
of our web-based publishing expertise. From 1982 to 1989, he was founder and
Chairman of the Board of National Manufacturing Company, Inc. and its
subsidiary, National Medical Industries, Inc. From 1979 to 1982, Mr. Maher was
Executive Vice President for Littletree Inns, a hotel company based in Boise,
Idaho, with properties throughout the Northwest. Mr. Maher graduated from
Boise State University in 1970 with a Bachelor of Arts degree in Political
Science.
Donald J. Farley. Mr. Farley is the Secretary of the Company and acted
as our Company's legal counsel from 1994 until 2005. Mr. Farley is a founding
partner of the law firm of Hall, Farley, Oberrecht & Blanton, P.A. His legal
practice emphasizes litigation and representation of closely held businesses.
He has been in private practice since 1975, after serving a two-year judicial
clerkship with former United States District Judge J. Blaine Anderson. Mr.
Farley is admitted to practice before all state and federal courts in Idaho
and has also been admitted to practice before the United States Supreme
Court. He is a member of the American Bar Association, the International
Association of Defense Counsel, Defense Research Institute, the Idaho State
Bar Association and the Association of Trial lawyers of America. Mr. Farley
graduated from the University of Idaho in 1970 with a Bachelor of Arts degree
in Economics and from the University of Idaho College of Law in 1973.
Cecil D. Andrus. Governor Andrus joined the PCS Board of Directors in
November 1995. Following his retirement from public service in January 1995,
Mr. Andrus founded and now directs the Andrus Center for Public Policy at
Boise State University. Governor Andrus is the first person in the history of
Idaho to be elected Governor four different times (1970, 1974, 1986, and
1990). When he retired from public office, he was the senior governor in
the United States in length of service. Mr. Andrus resigned as governor in
1977 to become the Secretary of the Interior in the Carter Administration,
the first Idahoan to serve in a Presidential Cabinet. Governor Andrus is a
former Director of Albertsons and KeyCorp, and a current Director of The
Coeur D'Alene Company and Rentrak Corp. He also serves "Of Counsel" to
the Gallatin Group, a public affairs and corporate analysis company, and the
Andrus Center for Public Policy at Boise State University.
3
Michael K. McMurray. Mr. McMurray returned to the Board of PCS after
having served from 1989 through 1994. He retired from Boise Cascade after
serving there for over 30 years, starting as a Treasury Analyst in 1970,
Assistant to Realty Controller from 1971 to 1974, Manager, Cash & Banking from
1974 to 1976, Manager of Banking & Corporate Credit from 1976 to 1980,
Assistant Treasurer from 1980 to 1989, and then Assistant Treasurer and
Director, Retirement Funds from 1989 until he retired in 2000. Mr. McMurray
has served with distinction on several Boards including Regence Blue Shield of
Idaho, American Red Cross, Farmers & Merchants State Bank, Idaho Housing and
Finance, Boise Family YMCA, Hillcrest Country Club and the Downtown Boise
Association. He is a graduate of the University of Idaho with a degree in
Finance and has completed the Program for Management Development at the
Harvard Business School.
Committees.
- -----------
Audit Committee: We chartered an audit committee in 2001 for the purpose
of engaging HJ & Associates, LLC for the annual audit. The audit committee
currently consists of Board members, Michael K. McMurray and Cecil D. Andrus.
Mr. McMurray is considered an audit committee financial expert based on his
previous work experience and the definition contained in Reg. 228.401
Instructions to paragraph (e)(1) of Item 401 of the Sarbanes/Oxley Act. The
audit committee continued to implement the formal policy regarding the scope,
responsibilities and length of service for the audit committee adopted fiscal
year 2005. The audit committee did not hold any formal meetings during fiscal
year 2006, but did discuss auditing issues via telephone conference.
Compensation Committee: We adopted a compensation committee during
fiscal year 2004 for the purpose of regulating management's compensation, as
well as any incentive plans proposed by the Company. The compensation
committee currently consists of Board members, Cecil D. Andrus and Donald J.
Farley. The compensation committee held one (1) meeting during fiscal year
2006.
Nominating or Governance Committee: PCS does not have standing
nominating or governance committee or a charter with respect to the process
for nominations to our Board of Directors. Currently, our directors submit
nominations for election to fill vacancies on the Board to the entire Board
for its consideration.
Our Bylaws do not contain any provision addressing the process by which a
stockholder may nominate an individual to stand for election to the Board of
Directors, and we do not have any formal policy concerning stockholder
recommendations to the Board of Directors. To date, we have not received any
recommendations from non-affiliate stockholders requesting that the Board
consider a candidate for election to the Board. However, the absence of such
a policy does not mean that the Board of Directors would not consider any such
recommendation, had one been received. The Board would consider any candidate
proposed in good faith by a stockholder. To do so, a stockholder should send
the candidate's name, credentials, contact information and his or her consent
to be considered as a candidate to the Chairman of the Board, Anthony A.
Maher. The proposing stockholder should also include his or her contact
information and a statement of his or her share ownership in the Company (how
many shares owned and for how long).
4
In evaluating potential directors, Mr. Maher and the Board consider the
following factors:
* the appropriate size of our Board of Directors;
* our needs with respect to the particular talents and experience of our
directors;
* the knowledge, skills and experience of nominees, including experience
in finance, administration, or public service, in light of prevailing business
conditions and the knowledge, skills and experience already possessed by other
members of the Board;
* familiarity with the educational industry;
* experience with accounting rules and practices; and
* the desire to balance the benefit of continuity with the periodic
injection of the fresh perspective provided by new Board members.
Our goal is to assemble a Board of Directors that brings together a
variety of perspectives and skills derived from high quality business and
professional experience. In doing so, Mr. Maher and the Board will also
consider candidates with appropriate non-business backgrounds.
Other than the foregoing, there are no stated minimum criteria for
director nominees, although Mr. Maher and the Board of Directors may also
consider such other factors as they may believe are in the best interests of
PCS and our shareholders.
Mr. Maher and the Board of Directors identify nominees by first
evaluating the current members of the Board willing to continue in service.
Current members of the Board with skills and experience that are relevant to
our business and who are willing to continue in service are considered for re-
election. If any member of the Board does not wish to continue in service or
if we decide not to re-nominate a member for re-election, we then identify the
desired skills and experience of a new nominee in light of the criteria above.
Current members of the Board of Directors are polled for suggestions as to
individuals meeting the criteria described above. The Board may also engage
in research to identify qualified individuals. To date, we have not engaged
third parties to identify or evaluate or assist in identifying potential
nominees, although we reserve the right in the future to retain a third party
search firm, if necessary.
Our Board of Directors does not have a formal process for security
holders to send communications to the Board. However, our directors take
great interests in the concerns of stockholders. In addition, our directors
review and give careful consideration to any and all stockholder
communications. Security holder communications may be sent to: Board of
Directors, PCS Edventures!.com, Inc., 345 Bobwhite Court, Suite 200, Boise,
Idaho 83706. Communications may also be sent to any individual director at
our address.
Significant Employees.
- ----------------------
Joseph A. Khoury. Mr. Khoury is the founder of PCS LabMentors, LTD,
formerly known as 511092 N.B. LTD. Prior to forming LabMentors, he was
employed as a software engineer with MIMS Consultants, Inc. He brings to us
extensive knowledge of computer software and network communication systems.
He graduated from the University of New Brunswick in 1993 with a Bachelor of
Science in Electrical Engineering.
5
Shannon M. Wilson. Ms. Wilson joined PCS as the Assistant Chief
Financial Officer in August, 2005, after working as a Chief Accountant for
Washington Group International in the financial reporting department, internal
reporting. Prior to working for Washington Group International, she was
employed as a Registered Paralegal and Office Manager for an intellectual
property law firm. She brings to us extensive knowledge of legal obligations
and proceedings, intellectual property protection needs and management, cash
management skills, capital project evaluation, GAAP knowledge, and financial
reporting expertise. She graduated in 2002 from Boise State University with a
Bachelor of Business Administration in Finance and in 2003 from Boise State
University with a Masters of Business Administration.
Family Relationships.
- ---------------------
There are no family relationships between any of our directors or
executive officers.
Involvement in certain legal proceedings.
- -----------------------------------------
During the past five years, none of our present or former directors,
executive officers or persons nominated to become directors or executive
officers:
(1) Filed a petition under the federal bankruptcy laws or any state
insolvency law, nor had a receiver, fiscal agent or similar officer appointed
by a court for the business or property of such person, or any partnership in
which he was a general partner at or within two years before the time of such
filing, or any corporation or business association of which he was an
executive officer at or within two years before the time of such filing;
(2) Was convicted in a criminal proceeding or named subject of a
pending criminal proceeding (excluding traffic violations and other minor
offenses);
(3) Was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining him from or otherwise
limiting his involvement in any type of business, securities or banking
activities;
(4) Was found by a court of competent jurisdiction in a civil
action, by the Securities and Exchange Commission or the Commodity Futures
Trading Commission to have violated any federal or state securities law, and
the judgment in such civil action or finding by the Securities and Exchange
Commission has not been subsequently reversed, suspended, or vacated.
Certain Relationships and Related Transactions.
- -----------------------------------------------
Transactions with Management and Others.
- ----------------------------------------
During the last two fiscal years ended March 31, 2006, and 2005, we have
granted certain stock options to members of our management.
During the year ended March 31, 2003, three members of our Board of
Directors acted as guarantors on a promissory note that provided us $60,600 in
financing. This note was paid in full during 2004.
On September 14, 2004, we authorized and issued options to purchase
335,520 shares of common stock to Board Members as payment for accrued
directors fees totaling $45,000. These options vested immediately and have an
exercise price ranging from $0.10-$0.23 per share. This payment covered all
directors' fees incurred for the year ended March 31, 2004.
6
During 2004, we issued 305,441 shares of common stock to our President,
Anthony A. Maher, in payment of $32,608 in accrued interest. The stock was
valued at the market price of the stock on the dates of conversion, or an
average of $0.11 per share.
During the quarter ended June 30, 2004, we issued options to purchase
150,000 shares of common stock to a newly appointed member of the Board of
Directors for services rendered. The options are exercisable at $0.15 per
share and expire on June 30, 2014. The issuance of these options resulted in
$3,000 in non-cash director expenses included in general and administrative
expense.
During July 2004, we issued 250,000 shares of common stock to our Chief
Executive Officer, Anthony A. Maher, for the non-cash exercise of options,
reducing related party debt by $17,500.
During the month of September 2004, we issued options to purchase 14,423
shares of common stock to each of our four Board Members, for a total issuance
of 57,692 at an exercise price of $0.26 per share. The options were issued as
compensation for Board services for the quarter ending June 30, 2004.
During November 2004, we issued 344,559 shares of common stock at
$0.06 per share to our Chief Executive Officer, Anthony A. Maher, for the
non-cash reduction of related party debt of $20,674.
During the month of January 2005, we issued options to purchase 78,948
shares of common stock to each of our four Board Members, for a total issuance
of 315,792 at an exercise price of $0.10 per share. The options were issued
as compensation for Board services for the quarters ending September 30, 2004,
and December 31, 2004.
During the year ended March 31, 2005, we repaid debt owed to our
President, Anthony A. Maher, of $48,828 through cash payments and issuances of
common stock.
During the month of April 2005, we issued options to purchase 20,270
shares of common stock to each of our four Board Members, for a total issuance
of 80,080 at an exercise price of $0.185 per share. The options were issued
as compensation for Board services for the quarter ending March 31, 2005.
During the month of June 2005, we issued options to purchase 5,769
shares of common stock to each of our Board Members, for a total issuance
of 23,076 shares at an exercise price of $0.65 per share. The options were
issued as compensation for Board services for the quarter ending June 30,
2005.
During September 2005, our Chief Executive Officer, Anthony A. Maher,
exercised 100,000 options to purchase common stock for the repayment of debt
and accrued interest owed in the amount of $16,000 for which he received
100,000 shares of common stock.
During the month of September 2005, we issued options to purchase 5,597
shares of common stock to each of our three Board Members, the CEO, Anthony A.
Maher is excluded from all future issuances of Board compensation per his
request and consent minutes of the Board, for a total issuance of 16,791
shares at an exercise price of $0.67 per share. The options were issued as
compensation for Board services for the quarter ending September 30, 2005.
7
During the month of December 2005, we issued options to purchase 6,048
shares of common stock to each of our three Board Members for a total issuance
of 18,144 shares at an exercise price of $0.62 per share. The options were
issued as compensation for Board services for the quarter ending December 31,
2005.
During January 2006, our Chief Executive Officer, Anthony A. Maher,
exercised 25,000 options to purchase common stock for the repayment of debt
and accrued interest owed in the amount of $4,000 for which he received 25,000
shares of common stock.
During the month of March 2006, we issued options to purchase 7,075
shares of our common stock to each of our three Board Members for a total
issuance of 21,225 shares at an exercise price of $0.53 per share. The
options were issued as compensation for Board services for the quarter ending
March 31, 2006.
Transactions with Promoters.
- ----------------------------
None, not applicable.
Code of Ethics.
- ---------------
We have adopted a Code of Ethics and it was attached as Exhibit 14 to our
2004 Annual Report on Form 10-KSB of the Securities and Exchange Commission
and can be accessed in the Edgar archives of the Securities and Exchange
Commission. If any shareholder does not have Internet access, a copy of the
Code of Ethics will be provided on request to us at no cost.
Section 16(a) Beneficial Ownership Reporting Compliance.
- --------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires executive
officers and directors and persons who own more than ten percent (10%) of our
common stock to file initial reports of ownership (Form 3) and reports of
changes in ownership (Form 4) with the Securities and Exchange Commission.
Executive officers, directors, and greater than 10% owners are required by the
Securities and Exchange Commission's regulations to furnish us with copies of
all Section 16(a) forms that they file.
Based solely on review of the copies of such forms furnished to us, we
believe that all Section 16(a) filing requirements applicable to our executive
officers and directors were timely filed during fiscal year 2006.
Board of Directors Meetings.
- ----------------------------
During fiscal year 2006, our Board of Directors held four (4) meetings,
with all directors attending all meetings. In addition, our Board of Directors
adopted several resolutions by unanimous consent without a meeting, in
accordance with Idaho law.
8
Compensation.
- -------------
Executive Compensation Table
Long Term Compensation
-------------------------
Annual Compensation Awards Payouts
--------------------- -------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Restr. Sec. All
Name and Annual Stock Underlying LTIP Other
Principal Salary Bonus Comp. Award Options/ Payouts Comp.
Position* Year ($) ($) ($) ($) SARs(#) ($) ($)
- ----------------------------------------------------------------------
Anthony A. 3/31/06 120,000 0 0 0 0 0 *
Maher 3/31/05 120,000 0 0 0 0 0 *
President 3/31/04 120,000 0 0 0 0 0 *
Director
* Aggregate amount of other compensation is less than $50,000 or 10% of the
total annual salary and bonus reported.
Mr. Maher is the only executive officers of ours whose compensation
exceeded $100,000 during the last two fiscal years. See the table below
under the heading "Stock Option Plans and Other Incentive Compensation Plans"
of this Item for stock options granted to Mr. Maher and other members of
management during the last two fiscal years ended March 31, 2006 and 2005.
Compensation of Directors.
- --------------------------
Each fiscal year, the Board of Directors sets the dollar amount for the
compensation of outside directors for their services. Said compensation shall
be in the form of freely tradable PCS common stock at its then bid price, or
in the form of stock options to purchase PCS common stock at its then current
bid price. For fiscal years 2006 and 2005, the Board of Directors set the
amounts of $15,000 for each of said fiscal years. It is the current practice
of the Company to issue this compensation in the form of options that vest
immediately upon execution of each agreement. The current CEO is excluded
from receiving additional compensation as a Board member beginning the second
fiscal quarter of 2006 by unanimous consent of the Board and at his own
request.
Option/SAR Grants in Last Fiscal Year
- ------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of
Securities % of Total
Underlying Options/SARs
Options/ Granted to
SARs Employees in Exercise or Base Expir.
Name Granted # Fiscal Year Price ($/Sh) Date
- ------------------------------------------------------------------------------
Anthony Maher 20,270 3.7% $0.19 4/1/2016
Anthony Maher 5,769 1.0% $0.65 6/30/2015
Donald Farley 20,270 3.7% $0.19 4/1/2016
Donald Farley 5,769 1.0% $0.65 6/30/2015
Donald Farley 5,597 1.0% $0.67 9/30/2015
Donald Farley 6,048 1.1% $0.62 12/31/2015
Donald Farley 7,075 1.3% $0.53 3/31/2016
Cecil Andrus 20,270 3.7% $0.19 4/1/2016
Cecil Andrus 5,769 1.0% $0.65 6/30/2015
Cecil Andrus 5,597 1.0% $0.67 9/30/2015
Cecil Andrus 6,048 1.1% $0.62 12/31/2015
Cecil Andrus 7,075 1.3% $0.53 3/31/2016
Michael McMurray 20,270 3.7% $0.19 4/1/2016
Michael McMurray 5,769 1.0% $0.65 6/30/2015
Michael McMurray 5,597 1.0% $0.67 9/30/2015
Michael McMurray 6,048 1.1% $0.62 12/31/2015
Michael McMurray 7,075 1.3% $0.53 3/31/2016
Christina Vaughn 0 0 0 n/a
Robert Grover 0 0 0 n/a
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR
Values
- ------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
FY-End (#) FY-End ($)
Shares Acquired Exercisable/ Exercisable
Name on Exercise (#) Value Realized Unexercisable Unexercisable
- ------------------------------------------------------------------------------
Anthony Maher 364,371 $153,868 686,936 $230,326
Donald Farley 214,205 $132,857 899,222 $312,443
Cecil Andrus 555,435 $328,551 408,072 $131,279
Robert Grover 75,000 $34,500 350,000 $ 98,000
Michael McMurray 0 $0 270,716 $101,835
Christina Vaughn 0 $0 300,000 $102,000
Employment Agreements.
- ----------------------
We have no written employment agreements with our management with the
exception of our subsidiary President, Joseph A. Khoury. The contract was
effective December 1, 2005, and expires after six months. The contract
automatically renews for twelve-month periods, but may be terminated with
ninety (90) days written notice by either party. The contract provides for a
salary of $60,000 (Canadian dollars) per year, as well as issuance of Rule 144
stock if certain performance goals are met by the subsidiary as established by
the Board.
Currently, we are paying our officers the following annual salaries:
Anthony A. Maher - $120,000; Robert O. Grover - $100,000 (effective December
2005); and Christina M. Vaughn - $40,000, who is employed on a part-time
basis. We also makes available medical and dental insurance coverage
for our officers and other U.S. employees.
9
Stock Option Plans and Other Incentive Compensation Plans.
- ----------------------------------------------------------
PCS has adopted a Special Development Bonus Program ("Program") for our
development staff for fiscal years 2005 and 2006. This Program
allows the development staff, as defined therein, to receive a percentage
bonus based on the total adjusted gross sales of the Company, with an
increased percentage upon our becoming profitable.
However, there are no other formal option plans or other incentive
compensation plans as of the date of this Proxy Statement. The following were
grants of stock options made during the fiscal years ended March 31, 2006, and
2005, to our directors and executive officers and others. These options are
described as follows:
We granted the following options as of March 31, 2006:
Amount
Date of Issue Issue Amount Expired/ Amount
Description Grant Number Price Exercised Cancelled Outstanding
- ---------------- -------- --------- -------- --------- --------- ---------
1) Board Members 12-10-01 1,000,000 $ 0.30 0 (250,000) 750,000
2) Board Members 06-03-02 1,000,000 $ 0.16 (125,000) (250,000) 625,000
3) Employees 07-01-02 335,000 $ 0.16 (260,000) (75,000) 0
4) Employee 08-15-02 5,000 $ 0.16 0 (5,000) 0
5) Board Members 10-21-02 499,998 $ 0.09 (166,666) 166,666) 166,666
6) Board Members 05-15-03 892,855 $ 0.07 (464,285) (214,285) 214,285
7) Employee 05-20-03 100,000 $ 0.07 (50,000) 0 50,000
8) Employee 07-25-03 25,000 $ 0.10 0 (25,000) 0
9) Employee 07-25-03 25,000 $ 0.10 (15,000) 0 10,000
10) Employee 09-05-03 150,000 $ 0.07 0 0 150,000
11) Employee 09-25-03 25,000 $ 0.10 (15,000) 0 10,000
12) Board Member 04-28-04 150,000 $ 0.15 0 0 150,000
13) Consultant 04-28-04 2,000,000 $ 0.10 (750,000)(1,250,000) 0
14) Consultant 04-28-04 4,000,000 $ 0.10 0 (4,000,000) 0
15) Consultant 04-28-04 200,000 $ 0.10 0 (200,000) 0
16) Consultant 04-28-04 200,000 $ 0.20 0 (200,000) 0
17) Consultant 04-28-04 200,000 $ 0.30 0 (200,000) 0
18) Consultant 04-28-04 200,000 $ 0.35 0 (200,000) 0
19) Board Members 09-14-04 80,358 $ 0.14 (53,572) 0 26,786
20) Board Members 09-14-04 93,750 $ 0.12 (62,500) 0 31,250
21) Board Members 09-14-04 112,500 $ 0.10 (75,000) 0 37,500
22) Board Members 09-14-04 48,912 $ 0.23 (16,304) 0 32,608
23) Board Members 09-14-04 57,692 $ 0.26 (14,423) 0 43,269
24) Employee 07-29-04 153,533 $ 0.15 0 0 153,533
25) Employee 08-10-04 50,000 $ 0.13 0 0 50,000
26) Employee 07-10-04 50,000 $ 0.13 0 0 50,000
27) Employee 07-01-04 25,000 $ 0.31 0 0 25,000
28) Consultant 07-29-04 5,000 $ 0.15 (5,000) 0 0
29) Employee 11-15-04 100,000 $ 0.10 0 0 100,000
30) Board Members 01-04-05 315,792 $ 0.10 (157,896) 0 315,792
31) Consultant 01-06-05 4,500 $ 0.10 (4,500) 0 0
32) Employee 06-01-04 75,000 $ 0.31 0 0 75,000
33) Employee 06-14-04 250,000 $ 0.31 0 0 250,000
34) Employee 06-01-04 50,000 $ 0.31 0 0 50,000
35) Employee 06-01-04 75,000 $ 0.31 (344) 0 74,656
36) Employee 06-16-04 150,000 $ 0.31 0 0 150,000
37) Board Members 04-01-05 81,080 $ 0.185 0 0 81,080
38) Employees 05-26-05 175,000 $ 0.50 0 0 175,000
39) Employee 05-26-05 107,467 $ 0.50 0 0 107,467
40) Employee 08-24-05 100,000 $ 0.61 0 0 100,000
10
41) Board Members 06-30-05 17,307 $ 0.65 0 0 17,307
42) Board Members 09-30-05 16,791 $ 0.67 0 0 16,791
43) Board Members 12-31-05 18,144 $ 0.62 0 0 18,144
44) Board Members 03-31-06 21,225 $ 0.53 0 0 21,225
45) Consultant 02-01-06 121,429 $ 0.75 0 0 121,429
46) Consultant 03-01-06 21,429 $ 0.63 0 0 21,429
47) Consultant 02-20-06 50,000 $ 0.60 0 0 50,000
48) Investor 12-29-05 2,500,000 $ 1.20 0 0 2,500,000
49) Investor 12-29-05 2,500,000 $ 1.80 0 0 2,500,000
---------- ------------------------------
18,434,762 (2,235,490)(7,035,951)9,321,217
========== ========= ========== =========
Amount Exercisable 7,977,321
==========
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" ALL OF THE ABOVE-
NAMED NOMINEES FOR DIRECTORS OF THE COMPANY.
PROPOSAL NO. 2
RETENTION OF HJ & ASSOCIATES, LLC AS INDEPENDENT AUDITORS
The Board of Directors has selected HJ & Associates, LLC as
independent auditors for the fiscal year ending March 31, 2007. To the
knowledge of PCS, at no time has HJ & Associates, LLC had any
direct or indirect financial interest in or any connection with PCS
other than as independent public accountants. The retention of HJ &
Associates as our Independent Financial Auditors will be approved if
votes cast in favor exceed votes cast in opposition to Proposal No. 2.
It is anticipated that representatives of HJ & Associates, LLC will not be
present at the Annual Meeting.
HJ & Associates, LLC, of Salt Lake City, Utah, audited our financial
statements for the fiscal year ended March 31, 2006. These financial
statements accompanied our Form 10-KSB Annual Report for the year ended
March 31, 2006, which has been filed with the Securities and Exchange
Commission and a copy of which accompanies this Proxy Statement.
The following is a summary of the fees billed to us by our principal
accountants during the fiscal years ended March 31, 2006, and March 31, 2005:
Fee category 2006 2005
------------ ---- ----
Audit fees $ 60,300 $32,500
Audit-related fees $ 0 $ 0
Tax fees $ 0 $ 0
All other fees $ 0 $ 0
Total fees $ 60,300 $32,500
======== =======
The amounts listed above consist of fees for professional services
rendered by our principal accountants for the audit of our annual financial
statements and the review of financial statements included in our Forms 10-
QSB or services that are normally provided by our principal accountants in
connection with statutory and regulatory filings or engagements. In
addition, the audit fees include the audit undertaken of the financial
statements of the recently acquired PCS LabMentors, LTD. subsidiary.
Audit fees. Consists of fees for professional services rendered by
our principal accountants for the audit of our annual financial statements
and the review of financial statements included in our Forms 10-QSB or
services that are normally provided by our principal accountants in connection
with statutory and regulatory filings or engagements.
11
Audit-related fees. Consists of fees for assurance and related services
by our principal accountants that are reasonably related to the performance of
the audit or review of our financial statements and are not reported under
"Audit fees."
Tax fees. Consists of fees for professional services rendered by our
principal accountants for tax compliance, tax advice and tax planning.
All other fees. Consists of fees for products and services provided by
our principal accountants, other than the services reported under "Audit
fees," "Audit-related fees" and "Tax fees" above. The fees disclosed in this
category include due diligence, preparation of pro forma financial statements
as a discussion piece for a Board member, and preparation of letters in
connection with the filing of Current Reports on Form 8-K.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Auditors.
- ---------------------------------
Our Audit Committee Charter provides for the approval, in advance of
their performance, of all professional services to be provided to us by our
independent auditor, provided that the audit committee shall not approve any
non-audit services proscribed by Section 10A(g) of the Securities Exchange Act
of 1934, as amended, in the absence of an applicable exemption. The audit
committee may delegate to a designated member or members of the audit
committee the authority to approve such services so long as any such approvals
are disclosed to the full audit committee at its next scheduled meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE COMMON STOCKHOLDERS
VOTE TO APPROVE HJ & ASSOCIATES AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE
COMING YEAR.
INTRODUCTION OF
PROPOSAL NOS. 3-6
TO APPROVE AMENDMENTS TO ARTICLES OF INCORPORATION
Background Information. During the last fiscal year ended March 31,
2006, we have undertaken several steps to enhance our strategic position, as
well as increase market awareness, namely the acquisition of 511092 N.B. LTD,
the investment made from Barron Partners LP and the execution and delivery
of several Consulting Agreements that are described below.
To complete these steps, we have made commitments to issue up to
18,101,082 additional shares of our common stock, which added to the
30,887,645 shares outstanding at August 14, 2006) is 8,988,727 shares in
excess of the number of 40,000,000 currently authorized and unissued shares of
our common stock.
The commitments to issue common stock are as follows:
Commitments Reserved (1)
Barron's (common stock) 5,834,306 (2) 5,834,306
Barron's (warrants) 5,000,000 5,000,000
Options 3,803,321 100,000
LabMentors Earnout 2,950,000
Khoury (Employment agreement) 88,455
JG Capital (warrants) 50,000
E2S Letter of Intent 375,000
----------- ----------
18,101,082 10,934,306
=========== ==========
12
(1) The Reserved shares reflect a covenant to reserve shares issuable to
Barron under the Note Purchase Agreement and the requirements of Option
Agreements with Christina Vaughn and Suzanne Haislip, which provide that we
should reserve the option shares. For additional information, see below.
(2) The number of shares of common stock listed under Barron's Commitments
includes the maximum amount of stock that would be issuable on conversion of
the Barron's security if the agreed EBITDA target is not satisfied by March
31, 2007. If the EBITDA target is met, the commitment will equal 1,666,667
shares issuable upon conversion of the Barron's Note or preferred stock. For
additional information, see below.
Barron's Commitment.
- --------------------
The largest commitment of our shares is to the Barron Partners'
Agreement. Pursuant to the Note Purchase Agreement dated December 29, 2005,
by and between the Company and Barron Partners LP, a Delaware limited
partnership (the "Note Purchase Agreement"), Barron Partners LP ("Barron")
purchased from us a convertible promissory note in the principal amount of
$1,000,000 (the "Note"). The Note and the Note Purchase Agreement contemplate
that the Note shall be converted into convertible preferred stock having
certain rights, preferences, and limitations set forth in the Certificate of
Designations attached as Exhibit A to the Note; and the Note Purchase
Agreement therefore requires that we amend our Articles of Incorporation to
authorize 5,000,000 shares of preferred stock having such rights, preferences
and limitations. Further, until such preferred stock has been duly authorized
by an amendment of our Articles of Incorporation, the Note (or the preferred
stock, if issued prior to March 31, 2007) shall be convertible into 1,666,667
shares of our common stock at the Conversion Price of $0.60 per share;
provided that, if the our EBITDA (where "EBITDA" means earnings before
interest, tax, depreciation and amortization as reported from continuing
operations before any non-recurring items) is less than $4,500,000 for the
fiscal year ended March 31, 2007, then the Conversion Price shall be reduced
proportionately, but not below $0.1714 per share. Therefore, if the
Conversion Price is reduced to $0.1714, the maximum number of shares in which
the Note (or the preferred stock, if issued prior to March 31, 2007) may be
converted equals 5,834,306 shares of common stock of the Company.
13
Pursuant to the Note Purchase Agreement, Barron purchased (i) a Common
Stock Purchase Warrant "A" (the "Class A Warrant") entitling Barron to
purchase up to 2,500,000 shares of our common stock at a price of $1.20 per
share and (ii) a Common Stock Purchase Warrant "B" (the "Class B Warrant") to
purchase up to 2,500,000 shares of our common stock at a price of $1.80 per
share. The Class A Warrant is exercisable through the later of December 29,
2009, or 18 months of the effectiveness of our registration statement
registering the shares underlying the Class A Warrant. The Class A Warrant
has a "cashless exercise" feature, and the exercise price may be adjusted
downward, to as low as $0.15 per share, based upon our failure to meet certain
EBITDA targets during the period of exercisability. We may call the Class A
Warrant if the closing market price of our common stock equals or exceeds
$1.80 per share for 30 consecutive trading days and there is an effective
registration statement covering the shares of common stock underlying the
Class A Warrant during such period. The period of exercisability of the Class
B Warrant, and the other material terms thereof, are the same as for the Class
A Warrant, with the exception that the call feature is triggered if the
closing market price of our common stock equals or exceeds $2.70 per share for
30 consecutive trading days and there is an effective registration statement
covering the shares of common stock underlying the Class B Warrant during such
period.
Section 2.1(b) of the Note provides for a limitation on conversion of
the Note by Barron into common stock. Pursuant to such limitation, Barron is
not entitled to convert the Note into shares of common stock to the extent
that Barron and its affiliates would beneficially own more than 4.9% of the
then outstanding numbers of shares of common stock of PCS after such
conversion. Sections 6(a) of each of the Class A Warrant and Class B
Warrant, respectively, provides for a limitation on Barron's exercise of the
Class A Warrant and Class B Warrant to purchase shares of common stock.
Pursuant to such limitation, Barron is not entitled to exercise the Class A
Warrant or Class B Warrant to purchase shares of common stock to the extent
that Barron and its affiliates would beneficially own more than 4.9% of the
then outstanding numbers of shares of common stock of PCS after such
exercise.
The Note Purchase Agreement also requires amendment of our Articles of
Incorporation to include (A) a provision granting the Company's Board of
Directors the authority to (i) classify any unissued shares of our authorized
stock into one or more classes or into one or more series within a class; (ii)
to reclassify any unissued shares of any class of our authorized stock into
one or more classes or into one or more series within one or more classes; and
(iii) to reclassify any unissued shares of any series of any class of our
authorized stock into one or more classes or into one or more series within a
class (the "Blank Check Authorization"), and (B) a provision authorizing the
Board to provide, in any rights, options or warrants issued by us, that any
terms and conditions of such rights, options or warrants may be waived or
amended only with the consent of holders or a designated group of the holders
of a designated percentage of a designated class of our capital stock (the
"Option Amendment Provision"). See the Second Amended and Restated Articles
of Incorporation that follow.
As of August 14, 2006, the Note had not been converted and neither of the
warrants had been exercised, in whole or in part. A registration statement
was filed with the Securities and Exchange Commission that covers the shares
that can be purchased by Barron under the Class A and B warrants and the Note.
The registration statement was declared effective by the Securities and
Exchange Commission on March 15, 2006.
Options.
- --------
In addition, we also have issued to our employees and outside
consultants, pursuant to agreements therewith and the 2004 Employee Stock
Option Plan, outstanding options to purchase approximately 3,800,000 shares of
our common stock. Certain of the option agreements require us to reserve
100,000 shares of common stock for future issuance upon exercise of the
outstanding options.
14
LabMentors, Ltd.
- ----------------
On November 30, 2005, we entered into a Stock Purchase Agreement with
511092 N.B. LTD. dba LabMentors, a Canadian Company, whereby we acquired all
of the issued and outstanding shares of common stock of LabMentors and
LabMentors became our wholly-owned subsidiary. Since the acquisition, the name
of this subsidiary has been changed to PCS LabMentors, LTD.
LabMentors engages in web-based educational products. LabMentors
currently sells products to Course Technology and DeVry in the United States.
These programs offer a unique atmosphere highly conducive to individual styles
of learning and a system that utilizes computer technology to increase areas
of inquiry and application. In addition, the labs allow certifications for
several platforms and software applications at the collegiate level. The
Company intends to continue to develop products for this market, as well as
expand its reach into secondary education in the U.S. and internationally.
LabMentors' products and technologies are targeted to the public and private
school classrooms. The products and technologies are delivered to the
classroom through software and Internet access. These technologies allow
students to explore the basic foundations of computers from programming to
database technologies to server integration.
As a result of the PCS LabMentors, LTD., fka 511092 N.B. LTD. acquisition
("LabMentors Acquisition"), we are obligated to pay out to the original
shareholders of 511092 N.B. LTD. as outlined in Schedule 1.3 of the Stock
Purchase Agreement dated December 5, 2005, restricted shares of our common
stock if certain earnings objectives tiers are met as specified below. We
have estimated that we will pay out approximately 2,950,000 shares of
restricted common stock if these performance goals are met.
The Labmentors earnings objective tiers as provided in Section 2.4.2 of
the Stock Purchase Agreement are set forth as follows:
Year One. If LabMentors' EBITDA on March 31, 2006 was $100,000 as
calculated in accordance GAAP, we would have issued additional shares of our
common stock to the original shareholders of LabMentors, on a pro-rata basis,
in a total amount equal to $100,000 divided by the previous 10 day trailing
average price per share of the our common stock determined as of the first
business day after March 31, 2006. Labmentors' EBITDA as of March 31, 2006
was less than $100,000.
Year Two. If on March 31, 2007:
(i) LabMentors' EBITDA is $950,000 or higher, as calculated in
accordance with GAAP, we shall issue additional shares of our common stock to
the original shareholders of LabMentors, on a pro-rata basis, in an amount
equal to fifty percent (50%) of LabMentors' EBITDA as of March 31, 2007
divided by the previous 10 day trailing average price per share of our common
stock determined as of the first business day after March 31, 2007, or
(ii) LabMentors' EBITDA is less than $950,000, but greater than
$250,000, as calculated in accordance with GAAP, we shall issue additional
shares of our common stock to the original shareholders of LabMentors, on a
pro-rata basis, in an amount equal to twenty-five percent (25%) of LabMentors'
EBITDA as of March 31, 2007 divided by the previous 10 day trailing average
price per share of our stock determined as of the first business day after
March 31, 2007.
Year Three. If on March 31, 2008:
(i) LabMentors' EBITDA is $2,000,000 or higher, as calculated as
calculated in accordance with GAAP, we shall issue additional shares of Buyer
Stock to the original shareholders of LabMentors, on a pro-rata basis, in an
amount equal to fifty percent (50%) of LabMentors' EBITDA as of March 31, 2008
divided by the previous 10 day trailing average price per share of our common
stock determined as of the first business day after March 31, 2008, or
(ii) LabMentors' EBITDA is less than $2,000,000 but greater than
$500,000 as calculated in accordance with GAAP, we shall issue additional
shares of our common stock to the original shareholders of LabMentors, on a
pro-rata basis, in an amount equal to twenty-five percent (25%) of LabMentors'
EBITDA as of March 31, 2008 divided by the previous 10 day trailing average
per share price of our common stock determined as of the first business day
after March 31, 2008.
LabMentors' EBITDA as of March 31, 2006 was less than $100,000, so no
shares are issuable for year one. The estimated earnings objective payments
in common stock for (i) year two is 950,000 shares of common stock, and (ii)
year three is 2,000,000` shares of common stock, totaling approximately
2,950,000 shares of restricted common stock.
Pursuant to the LabMentors Acquisition, we acquired all of the assets of
LabMentors, namely current inventory of learning programs, intellectual
property comprising the delivery platform, one pending Canadian trademark
application, one Canadian copyright, accounts receivable, and cash, as
well as the liabilities, namely trade payables and deposits payable comprising
of one deposit payable due December 2005. All LabMentors stock that was
outstanding at the time of closing was converted into the our common stock at
$0.60 per share. The LabMentors Acquisition was structured through a Share
Exchange Agreement. The purchase price of the transaction was $420,000 USD,
which was converted to our common stock at $0.60 per share and our common
stock was issued as "restricted securities" under to Rule 144 in the amount of
700,000 shares. The 511092 N.B. LTD. DBA LabMentors unaudited financial
statements for September 30, 2005, along with the unaudited proforma combined
financial statements of us and LabMentors, can be viewed in our 8-K/A Current
Report filed with the Securities and Exchange Commission on December 9, 2005
and February 15, 2006,which are incorporated herein by reference and attached
as Exhibit B.
Joseph A. Khoury.
- -----------------
In connection with the 511092 N.B. LTD. acquisition, an employment
agreement was reached with Joseph A. Khoury, President of PCS LabMentors, LTD,
fka 511092 N.B. LTD. This employment agreement, among other things, provides
that we will issue restricted common stock to Mr. Khoury in payment of 40% of
his salary each quarter if the subsidiary reaches financial earnings goals as
specified by our Board of Directors for such quarter. The quantity of shares
is dependent on the price of our common stock; however, it is estimated that
we will pay out approximately 90,000 shares of common stock over the first
three years of the term of the employment agreement if the performance goals
are met (assuming a conversion rate of $0.86 US dollars per Canadian dollar
and an average common stock price of $0.70). The term of the employment
agreement is six-months. Thereafter, the employment agreement automatically
renews for twelve-month periods, but may be terminated, by either party, with
ninety (90) days written notice prior to the expiration of the then current
term. As of August 14, 2006, we have issued 11,321 shares of Rule 144 stock
to Mr. Khoury for his performance during the first quarter of calendar 2005
(last quarter of fiscal year 2006).
J.G. Capital and Colebrook Capital.
- -----------------------------------
In addition to the finder and broker fees paid with respect to the Barron
transaction, as outlined in the Form 8-K Current Report filed on January 9,
2006, that is incorporated herein by reference, the consummation of the Barron
transaction triggered our obligation to pay a consulting fee to (i) J.G.
Capital, pursuant to a Consulting Agreement, for assistance in obtaining the
Barron investment and (ii) Colebrook Capital. The fee payable to J.G. Capital
was paid on January 3, 2006 and January 27, 2006, in cash in the amount of
$10,000 and $30,000, respectfully, for a total cash payment of $40,000, and
through the issuance of warrants to purchase 50,000 shares of our common stock
for $0.60 per share that was issued on February 20, 2006. The fee payable to
Colebrook Capital was paid on January 3, 2006, and January 27, 2006, in equal
cash amounts of $10,000, for a total payment of $20,000.
16
E2S Letter of Intent
- ---------------------
Effective as of July 7, 2006, we entered into a Letter of Intent with
Education Enterprise Solutions, LLC ("E2S") regarding the acquisition of
certain tangible and intangible assets of E2S ("E2S LOI"). The proposed
closing date for the asset purchase is August 31, 2006. The E2S LOI provides
that we will purchase certain school management software and related
intellectual property from E2S payable in 375,000 shares of
restricted common stock. In addition to the purchase price payable to E2S,
the E2S LOI further provided for royalty fees to be paid to E2S and its
shareholders as follows: (i) 5% of the gross collected revenue created from
the assets purchased from E2S for a period of seven years, and (ii) 3% of the
gross collected revenues created from the assets purchased from E2S for a
period of an additional three years. As of the date of the Proxy Statement, a
definitive asset purchase agreement has not yet been executed and delivered.
PROPOSAL NO. 3:
AMENDMENT OF THE CURRENT ARTICLES OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF
COMMON STOCK
We have recently funded our operations and growth in large part by using
the Company's capital stock as currency. We have utilized the Company's
capital stock to (i) pay employee compensation and bonuses in the form of
stock options, (ii) fund corporate acquisitions, including the acquisition of
PCS LabMentors, LTD ("LabMentors") and the E2S prospective asset acquisition
and payment of earnouts with respect to such acquisitions, (iii) pay for
financial advisory and management consulting services, and (iv) to raise
working capital. We intend to continue to use our capital stock to further
the growth of the Company by funding acquisitions, paying for consulting
services, providing employment incentives and raising additional capital,
provided that we have sufficient authorized, and unissued common stock to do
so.
Article V of our current Articles of Incorporation (as previously
amended) authorizes the issuance of 40,000,000 shares of common stock, of
which 30,887,645 shares have been issued and are presently outstanding as of
August 14, 2006.
17
We have made commitments to issue up to 18,101,082 additional shares of
our common stock as detailed in the "Background Information" Introduction
above. The actual number of shares that we may be obligated to issue may be
substantially less than the amounts listed above, depending on future
circumstances. For example, if our EBITDA for the fiscal year ending March
31, 2007, exceeds $4,500,000, the shares issuable to Barron Partners LP upon
conversion of their Note will be 1,666,667 rather than 5,834,306. If,
however, we are required to issue the maximum number of shares of common stock
pursuant to the commitments listed above, these commitments would require us
to issue 8,988,727 shares of common stock in excess of the number of currently
authorized and unissued shares, thereby putting us in default of those
contractual obligations that we could not meet.
Additionally, the over-commitment of common stock limits our ability to
use common stock in connection with future financing and other corporate
needs. The lack of authorized common stock available for issuance could limit
or delay our ability to pursue opportunities for future financings,
acquisitions, and other transactions. As of July 7, 2006, entered into the
E2S LOI to acquire certain assets of a school management
software business from E2S; and we contemplate issuing 375,000
shares of common stock, which amounts to 1.21% of our current issued and
outstanding common stock, in payment for those assets, as detailed. Similar
transactions to expand our business in the future could be impaired by lack
of sufficient authorized and unissued shares of common stock.
The Board of Directors recommends an increase in the number of
authorized shares of common stock from 40,000,000 shares to 60,000,000 shares
in order to (i) meet the Company's current common stock commitments, and
(ii) provide flexibility for the Company's business and financial purposes in
the future, including acquisitions, employee incentives, and other objectives.
We may issue the additional shares of common stock for various purposes,
including (without limitation) expanding our business through acquisitions of
other businesses, raising capital, issuing stock options to officers,
directors or employees, issuing warrants to financial advisors and other
consultants, establishing strategic relationships with other companies or
individuals, and issuing stock dividends. Unless required to do so by
applicable law, a regulatory authority or a third party, further stockholder
approval for the issuance of the authorized common stock would not be sought.
Our Board of Directors believes the proposed increases in the number
of authorized shares of common stock will make a sufficient number of shares
available to us for the foreseeable future should we decide to use our
shares of common stock for one or more of the purposes identified above or
otherwise.
If Proposal No. 3 is not approved, we may have insufficient authorized
shares of common stock available to comply with all of our commitments and
covenants, listed above, under (i) the Share Exchange Agreement among PCS
Edventures!.com, Inc., 511092 NB Ltd., and its Shareholders, including
earnout shares issuable to LabMentors' shareholders and shares issuable to
Mr. Khoury pursuant to his employment contract, (ii) the Note Purchase
Agreement between PCS Edventures!.com, Inc. and Barron Partners LP, including
the Convertible Note, Common Stock Purchase Warrant A, and Common Stock
Purchase Warrant B issued to Barron Partners on December 29, 2005, (iii)
shares to be issued to E2S; and (iv) outstanding options issued to
consultants and employees. If we are unable to issue the common stock as set
forth in the above described agreements, we may become subject to legal
actions by the affected parties relating to misrepresentations and violation
of covenants as provided in the above-described agreements. In addition to
the costs of such potential legal action, we may be liable for the payment of
money damages for breach of contract. Such money damages could equal or
exceed the value of the common stock to be issued pursuant to these
agreements. We may lack sufficient capital resources or liquidity to make
such monetary payments in the future if we breach our commitments to issue
common stock.
Pursuant to the Note Purchase Agreement, we agreed to indemnify, defend,
and hold Barron Partners harmless against and in respect of any and all
claims, demands, losses, costs, expenses, obligations, liabilities or damages
that Barron Partners shall incur or suffer, which arise out of or result from
any breach of the Note Purchase Agreement. If we are unable to issue common
stock to Barron Partners as provided under the Note Purchase Agreement,
Convertible Note, Common Stock Purchase Warrant A, and/or Common Stock
Purchase Warrant B, we may incur significant monetary liability to Barron
Partners due to losses, costs or damages incurred by Barron Partners.
Further, if Proposal No. 3 is not approved, we may be limited in our
ability to use common stock in connection with future financings and other
corporate needs. The lack of authorized common stock available for issuance
could limit or delay our ability to pursue opportunities for future
financings, acquisitions, and other transactions and reduce our ability to
reach our business development and financial goals.
The additional shares of common stock that would become available for
issuance if Proposal No. 3 is adopted could be used by us to oppose a hostile
takeover attempt or delay or prevent changes in control or management, as the
Board of Directors could issue additional shares of stock of the Company,
which could dilute the stock ownership of a person attempting to obtain
control of the Company. Although the proposal to increase the authorized
common stock has been prompted by business and financial considerations and
not by the threat of any hostile takeover attempt (nor are we currently aware
of any such attempts directed at the Company), holders of common stock should
be aware that approval of this proposal could facilitate future efforts by us
to deter or prevent changes in control, including transactions in which the
shareholders might otherwise
receive a premium for their shares over then current market prices.
In addition, an issuance of additional shares by us could have an effect
on the potential realizable value of a stockholder's investment. In the
absence of a proportionate increase in our earnings and book value, an
increase in the aggregate number of outstanding shares of the Company caused
by the issuance of the additional shares would dilute the earnings per share
and book value per share of all outstanding shares of our capital stock. If
such factors were reflected in the price per share of common stock, the
potential realizable value of a stockholder's investment could be adversely
affected.
The Board of Directors believes the increase in the authorized number
of shares of common stock is necessary to provide the Company with the
flexibility to act in the future with respect to financings, acquisitions,
stock splits, and other corporate purposes, without the delay and expense of
obtaining stockholder approval each time an opportunity requiring the issuance
of shares may arise.
RECOMMENDATION OF THE BOARD. THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" APPROVAL OF THE AMENDMENT OF THE
ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF
COMMON STOCK FROM 40,000,000 TO 60,000,000 SHARES.
PROPOSAL NO. 4:
AMENDMENT OF THE ARTICLES OF INCORPORATION
TO AUTHORIZE SERIES A PREFERRED STOCK
Our Board of Directors has approved a proposal to amend our Articles of
Incorporation by adding a new Article 5A in order to authorize and designate
5,000,000 shares of the Company's preferred stock as Series A Preferred Stock
("Series A") meeting the requirements of the Barron Note Purchase Agreement
and Note. In those agreements, we covenanted to seek shareholder approval of
a class of Series A Preferred Stock with the following designations, rights
and preferences, as set forth in Article 5A of the Second Amended and Restated
Articles of Incorporation (Exhibit A):
1. Dividends: No dividends will be payable with respect to the
Series A Preferred Stock; and no dividends will be payable to
holders of common stock while the Series A Preferred Stock is
outstanding.
2. Voting: The Series A Preferred Stock shall have no voting rights.
3. Amendment: So long as any Series A Preferred Stock remains
outstanding, the Company shall not, without the affirmative approval
of the holders of Series A Preferred Stock, alter or change the
rights and preferences of the Series A Preferred Stock, create a
class of stock senior or on a parity with the Series A Preferred
Stock, or amend the Articles of Incorporation to increase the
authorized Series A Preferred Stock.
4. Liquidation: Upon any liquidation, dissolution of winding-up, the
holders of Series A shall be entitled to receive, for each share of
Series A Preferred Stock, an amount equal to $0.60 before any
distribution or payment is made to holder of any junior securities,
including the common stock.
5. Conversion: Each share of Series A Preferred Stock shall be
initially convertible into one share of common stock at the option
of the holders of the Series A Preferred Stock. The conversion of
Series A Preferred Stock into common stock shall be adjusted for
stock dividends, stock splits, dilutive equity issuance. The
conversion rate will also be adjustable based on the Company's
EBITDA at its March 31, 2007, fiscal year end, as set forth in
Section 5A.7 of the Amended and Restated Articles of Incorporation.
Pursuant to the Barron Note Purchase Agreement, we received $1,000,000
cash in exchange for our Convertible Note issued on December 29, 2005. The
Note is convertible into shares of common stock; however, the Note provides
that, upon amendment of our Articles of Incorporation to authorize and
designate Series A Preferred Stock, the Note will thereupon be automatically
converted into shares of Series A Preferred, which in turn will be convertible
into common stock.
Pursuant to the Convertible Note, we granted conversion rights to Barron
Partners to convert the $1,000,000 principal amount of the Convertible Note
into shares of PCS Edventures!.com, Inc.'s common stock or preferred stock.
The Convertible Note provides that, effective as of the date of the amendment
of the Articles of Incorporation, authorizing and designating Series A
preferred stock with the rights, preferences, and limitations set forth in an
exhibit to the Convertible Note, the Convertible Note will cease to be
convertible into common stock and will automatically be converted into shares
of such Series A preferred stock. If we are unable to issue the Series A
preferred stock as set forth in the Convertible Note, we may become subject
to legal actions by Barron Partners LP relating to misrepresentations and
violation of covenants as provided in the Note Purchase Agreement and
Convertible Note. Further, under the Note Purchase Agreement, we agreed to
indemnify, defend, and hold Barron Partners harmless against and in respect
of any and all claims, demands, losses, costs, expenses, obligations,
liabilities or damages that Barron Partners shall incur or suffer, which
arise out of or result from any breach of the Note Purchase Agreement. If we
are unable to issue to Barron Partners the preferred stock, as provided under
the Note Purchase Agreement and Convertible Series A Note, we may incur
significant monetary liability to Barron Partners due to losses, costs or
damages incurred by Barron Partners.
Additionally, under the Convertible Note, it is an event of default if
we breach any material covenant or other term or condition of the Note
Purchase Agreement or Convertible Note. Upon the occurrence of an event of
default, Barron Partners may declare all remaining sums of principal of the
Convertible Note immediately due and payable. If Proposal No. 4 is not
approved, it may be considered an event of default under the Convertible
Note, whereby the Convertible Note may be due and payable in full. In such
event, we may lack sufficient capital resources or liquidity to satisfy the
Convertible Note.
Shareholder approval of Proposal No. 4 will enable us to comply with
our covenants and agreements with Barron Partners LP.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
"FOR" APPROVAL OF THE AMENDMENT OF THE ARTICLES OF INCORPORATION TO DESIGNATE
5,000,000 SHARES OF SERIES A PREFERRED STOCK.
PROPOSAL NO. 5:
AMENDMENT OF THE CURRENT ARTICLES OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF
PREFERRED STOCK AND TO AUTHORIZE THE BOARD TO DESIGNATE AND ISSUE ADDITIONAL
CLASSES OR SERIES OF STOCK WITHOUT FURTHER SHAREHOLDER APPROVAL
We have recently funded our operations and growth in large part by using
the Company's capital stock as currency. We have utilized the Company's
capital stock to raise working capital. We intend to continue to use our
capital stock to further the growth of the Company by funding acquisitions,
paying for consulting services, providing employment incentives, and raising
additional capital, provided that we have sufficient authorized and unissued
preferred stock to do so.
Article V of our current Articles of Incorporation (as previously
amended) authorizes the issuance of 10,000,000 shares of preferred stock with
certain specific rights, preferences, and limitations. We have previously
issued 82,850 shares of this preferred stock to raise working capital, but
have subsequently reacquired and cancelled all of those shares. We have no
intention of reissuing those preferred shares because their designated rights,
preferences, and limitations are not suited to our future needs.
If the shareholders approve the Blank Check Authorization discussed
below, the Board will reclassify these reacquired preferred shares (as well
as the previously unissued shares of such preferred stock) as authorized and
unissued shares of preferred stock undesignated as to series and without any
specific rights, preferences or limitations. These 10,000,000 shares would
thereafter be available for issuance as preferred stock with such rights,
preferences, and limitations as may thereafter be designated by the Board
pursuant to the Blank Check Authorization. If the shareholders do not
approve the Blank Check Authorization, the reacquired shares of preferred
stock (as well as the previously unissued shares of such preferred stock)
will retain their existing rights, preferences, and limitations; however, we
have no intention of reissuing those preferred shares because their specific
designated rights, preferences, and limitations are not suited to our future
needs.
The Board of Directors has approved a proposal to further amend the
Company's Articles of Incorporation in order to authorize and vest in our
Board of Directors the authority to classify or reclassify, from time to
time, any unissued shares of the Company's authorized stock into one or more
classes or into one or more series within one or more classes ("Blank Check
Authorization"). This provision is set forth in new Section 5.2 of the
attached Second Amended and Restated Articles of Incorporation (Exhibit A).
The Blank Check Authorization would vest in our Board of Directors the
authority to designate one or more classes or one or more series of capital
stock by resolution. The provision authorizing the Board of Directors to
designate terms and conditions of the capital stock in this manner is often
referred to as "blank check" authority, as it gives the Board of Directors
the flexibility, at any time or from time to time, without further
shareholder approval (except as may be required by applicable laws,
regulatory authorities or the rules of any stock exchange on which our
securities are then listed), to create one or more classes or series of
capital stock and to determine by resolution the designations, price,
preferences, relative rights, and limitations of each such class or series,
including voting rights, without any further vote or action by the
shareholders. Because the Blank Check Authorization would entitle the Board
of Directors to designate the rights, preferences, and limitations of
authorized but unissued capital stock of the Company, the rights of the
holders of issued and outstanding shares of our common stock are subject to,
and may be adversely affected by, the rights of the holders of any capital
stock which may be designated and issued in the future by the Board of
Directors.
The proposed amendment also specifies the disposition of shares of
common stock or preferred stock reacquired by us from time to time. These
amendments are set forth in Sections 5.3 through 5.5 of Article 5 of the
attached Second Amended and Restated Articles of Incorporation (Exhibit A).
In particular, Section 5.5 provides that the 10,000,000 previously authorized
shares of preferred stock (including the 82,850 shares previously issued and
subsequently reacquired by us) shall resume the status of authorized and
unissued shares of preferred stock, undesignated as to Series and available
for classification or reclassification by the Board of Directors and
reissuance by the Company pursuant to the Blank Check Authorization granted
by Section 5.2.
The authorization of blank check preferred stock will enable our Board
of Directors to issue shares of preferred stock without further approval of
the holders of common stock, the terms of which might, among other things,
(i) restrict the payment of dividends on our common stock, (ii) dilute the
voting power of holders of common stock, (iii) impair the liquidation rights
of the holders of common stock, and/or (iv) delay or prevent a change of
control or management that the holders of common stock might believe is in
their best interests.
While the approval of the Blank Check Authorization, without any
immediate Board designation of any new class or series of preferred stock,
would not have any immediate effect on existing holders of common stock, the
future issuance of blank check preferred stock, while providing desirable
flexibility in connection with possible financings, acquisitions, and other
corporate purposes, would have the effect of diluting our current holders of
common stock and could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from attempting to
acquire, control of PCS Edventures!.com, Inc.
Additionally, if Proposal No. 5 is approved, the Board of Directors
could issue shares of preferred stock that could, depending on the terms of
such series, make more difficult or discourage an attempt to obtain control
of PCS Edventures!.com, Inc. by means of a merger, tender offer, proxy
contest or other means. Such preferred stock could be used to create voting
or other impediments or to discourage persons seeking to gain control of the
Company.
The issuance of a new series of preferred stock could also be used to
dilute the stock ownership of a person or entity seeking to obtain control of
the Company should the Board consider the action of such entity or person not
to be in the best interest of the stockholders and the Company. If the Board
of Directors elects to issue additional shares of preferred stock, such
issuance could have a dilutive effect on the earnings per share, book value
per share, voting power, and holdings of current shareholders. The
additional shares of preferred stock that would become available for issuance
if Proposal No. 5 is adopted could also be used by us to oppose a hostile
takeover attempt or delay or prevent changes in control or management, as the
Board of Directors could issue additional shares of preferred stock of the
Company, which could dilute the stock ownership of a person attempting to
obtain control of the Company, or could grant preferences, such as
preferences to the Company's assets in the event of liquidation or change of
control, making the common stock less valuable. Although the proposal to
increase the authorized preferred stock has been prompted by business and
financial considerations, and not by the threat of any hostile takeover
attempt (nor are we currently aware of any such attempts directed at the
Company), shareholders should be aware that approval of this proposal could
facilitate future efforts by the Company to deter or prevent changes in
control, including transactions in which the shareholders might otherwise
receive a premium for their shares over then current market prices.
Increasing the number of authorized shares of preferred stock issuable
pursuant to the Blank Check Authorization and issuing preferred stock with
rights, preferences, and limitations designated by the Board pursuant to the
Blank Check Authorization may affect the rights of the holders of our
currently outstanding common stock by (among other possibilities) granting
holders of preferred stock preferential rights such as dividend, redemption,
and liquidation preferences, and by diluting the earnings per share and
voting rights of current holders of common stock. With Blank Check
Authorization, the Board may provide for the issuance of preferred stock with
preferential dividend and liquidation preference, whereby the newly
designated preferred stock could, for example, have rights to (i) large
dividends prior and in preference to other capital stockholders and (ii)
liquidation preferences equal to multiples of the preferred stockholder's
initial investment. Such dividend and liquidations preferences granted by
the Board pursuant to the Blank Check Authorization may preclude future
investment returns of the current shareholders.
In addition, an issuance of additional preferred shares by us could have
an effect on the potential realizable value of a common stockholder's
investment. In the absence of a proportionate increase in our earnings and
book value, an increase in the aggregate number of outstanding shares of the
Company caused by the issuance of the additional shares of preferred stock
would dilute the earnings per share and book value per share of all
outstanding shares of our capital stock. If such factors were reflected in
the price per share of common stock, the potential realizable value of a
stockholder's investment could be adversely affected.
The Board of Directors recommends an increase in the number of
authorized shares of preferred stock from 10,000,000 shares to 20,000,000
shares, undesignated as to rights, preferences or limitations, coupled with
Blank Check Authorization for the Board to designate the rights, preferences,
and limitations of any class or series of such preferred stock, in order to
provide flexibility for our business and financial purposes in the future.
If Proposal No. 5 is approved, the preferred stock would include 5,000,000
shares of Series A Preferred Shares referenced in Proposal 4 and 15,000,000
shares available for designation and issuance by the Board pursuant to the
Blank Check Authorization (after reclassifying the previously unissued and
previously issued and required shares of the already existing class of
preferred stock).
We may issue the additional shares of preferred stock for various
purposes, including (without limitation) expanding our business through
acquisitions of other businesses, raising capital, and establishing strategic
relationships with other companies or individuals. Unless required to do so
by applicable law, a regulatory authority or a third party, further
stockholder approval for the issuance of the authorized preferred stock would
not be sought.
If this Proposal No. 5 is approved, the additional shares of preferred
stock would have rights, preferences, and limitations to be designated by the
Board of Directors pursuant to the Blank Check Authorization, provided that
the Note Purchase Agreement with Barron prohibits us from issuing, prior to
December 29, 2007, preferred stock which, with respect to dividend,
redemption or liquidation rights, is senior to or on a parity with the Series
A Preferred Stock to be issued to Barron as described in Proposal No. 4.
Pursuant to the Note Purchase Agreement between PCS Edventures!.com,
Inc. and Barron Partners LP, we covenanted with Barron Partners LP to propose
and submit to the holders of common stock of PCS Edventures!.com, Inc., for
their approval, amendments to the Articles of Incorporation, substantially
providing for Blank Check Authorization.
Under the Note Purchase Agreement, we agreed to indemnify, defend and
hold Barron Partners harmless against and in respect of any and all claims,
demands, losses, costs, expenses, obligations, liabilities or damages that
Barron Partners shall incur or suffer, which arise out of or result from any
breach of the Note Purchase Agreement. If the shareholders do not approve
Proposal No. 5 by granting Blank Check Authorization to the Board, as
required by the Note Purchase Agreement, we may incur significant financial
monetary liability to Barron Partners due to losses, costs or damages
incurred by Barron Partners. Additionally, under the Convertible Note it is
an event of default if we breach any material covenant or other term or
condition of the Note Purchase Agreement or Convertible Note. Upon the
occurrence of an event of default, Barron Partners may declare all remaining
sums of principal of the Convertible Note immediately due and payable. If
Proposal 5 is not approved, it may be considered an event of default under
the Convertible Note, whereby the Convertible Note may be due and payable in
full. In such event, we may lack the capital resources or liquidity to
satisfy the Convertible Note.
The Board of Directors believes that the grant of Blank Check
Authorization will provide us with greater flexibility in meeting future
capital requirements by enabling the Board to customize classes and series of
stock to meet the needs of particular transactions and then prevailing market
conditions, or to facilitate any other proper corporate purposes, such as
joint ventures or acquisitions or issuance in public or private offerings as
a means of raising working capital. Our Board of Directors believes the
proposed increase in the authorized preferred stock and the grant of Blank
Check Authorization will make a sufficient number of shares available to us
for the foreseeable future should we decide to use our shares of preferred
stock for one or more of the purposes identified above or otherwise. The
Board of Directors believes the proposed increase in the authorized shares of
preferred stock with rights, preferences, and limitations to be designated by
the Board pursuant to the Blank Check Authorization is necessary to provide
the Company with the flexibility to act in the future with respect to
financings, acquisitions, and other corporate purposes, without the delay and
expense of obtaining stockholder approval each time an opportunity requiring
the issuance of preferred shares may arise.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
"FOR" APPROVAL OF THE AMENDMENT OF THE ARTICLES OF INCORPORATION TO INCREASE
THE NUMBER OF AUTHORIZED SHARES OF PREFERRED STOCK FROM 10,000,000 TO
20,000,000 AND TO GRANT BLANK CHECK AUTHORIZATION TO THE BOARD.
PROPOSAL NO. 6:
AMENDMENT OF THE ARTICLES OF INCORPORATION TO
PERMIT THE BOARD TO LIMIT WAIVER OR
AMENDMENT OF RIGHTS, OPTIONS, AND WARRANTS OF THE COMPANY
The Board of Directors has approved a proposal to further amend the
Company's Articles of Incorporation to provide that any terms and conditions
of any rights, options, and warrants approved by the Board of Directors may
provide, within such rights, options and warrants, that any or all of such
terms and conditions may be waived or amended only upon the consent of the
holders of a designated percentage of the designated class or classes of
capital stock of the Company into which the right, warrant or option may be
converted or exercised (the "Option Amendments"). Pursuant to the Barron Note
Purchase Agreement, we covenanted to amend the current Articles of
Incorporation to provide for such limitations.
This amendment is required by the Barron Note Purchase Agreement.
Barron has advised the Company that this language has been required by the
Securities and Exchange Commission (in connection with other investments made
by Barron Partners) to assure that, as provided in the Note and the Class A
and Class B Warrants, Barron will not be able to waive or cause the waiver or
amendment of these instruments to enable it to hold 5% or more of the
Company's voting securities at any time. The applicable sections within the
Note, the Class A Warrant, and Class B Warrant is as follows:
a. Section 2.1(b) of the Note provides for a limitation on
conversion of the Note by Barron into common stock. Pursuant to such
limitations, Barron is not entitled to convert the Note into shares of common
stock to the extent that Barron and its affiliates would beneficially own
more than 4.9% of the then outstanding numbers of shares of common stock of
PCS after such conversion.
b. Section 6(a) of each of the Class A Warrant and Class B Warrant,
respectively, provides for a limitation on Barron's exercise of the Class A
Warrant and Class B Warrant to purchase shares of common stock. Pursuant to
such limitations, Barron is not entitled to exercise the Class A Warrant or
Class B Warrant to purchase shares of common stock to the extent that Barron
and its affiliates would beneficially own more than 4.9% of the then
outstanding numbers of shares of common stock of PCS after such exercise.
The proposed amendment of the Company's articles of incorporation would
ratify the Board's authority to include these limitations in the Note and
Class A and Class B Warrants issued to Barron.
The proposed amendment appears as Article 8 in the attached Amended
and Restated Articles of Incorporation:
WAIVER OR AMENDMENTS TO OPTIONS AND WARRANTS. The terms
and conditions of any rights, options and warrants
approved by the Board of Directors of the Corporation
may provide that any or all of such terms and conditions
may be waived or amended only with the consent of the
holders of a designated percentage of a designated class
or classes of capital stock of the Corporation (or a
designated group or groups of holders within such class
or classes, including, but not limited to, disinterested
holders), and the applicable terms and conditions of any
such rights, options or warrants so conditioned may not
be waived or amended absent such consent.
The Board of Directors believes that shareholder approval of this
Proposal No. 6 will enable us to comply with our covenants with Barron
Partners LP, pursuant to the Note Purchase Agreement, whereby we covenanted
and agreed to amend the current Articles of Incorporation to provide for such
limitations.
22
RECOMMENDATION OF THE BOARD. THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" APPROVAL OF THE AMENDMENT OF THE
ARTICLES OF INCORPORATION TO PERMIT THE BOARD TO LIMIT WAIVERS OR AMENDMENTS
OF RIGHTS, OPTIONS OR WARRANTS ISSUED BY THE COMPANY.
DISSENTERS' RIGHTS
There are no dissenters' rights applicable to the election of our
directors for the coming year or the retention of HJ & Associates, LLC as our
independent auditors for the coming year or the proposals to amend our
Articles of Incorporation as set forth in Proposal Nos. 3-6.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
No director, executive officer, nominee for election as a director,
associate of any director, executive officer or nominee or any other person
has any substantial interest, direct or indirect, by security holdings or
otherwise, in matters presented by the Board for voting to the shareholders at
the Company's annual meeting the election of directors for the coming year or
the retention that is not shared by all stockholders, with the exception that
only the persons who are elected directors at the Annual Meeting will serve in
that capacity.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Voting Securities.
- ------------------
The securities entitled to vote regarding the election of our directors
for the coming year, retention of our auditors and the restatement and
amendment to our Articles of Incorporation consist of shares of our common
stock. Each share of our common stock is entitled to one vote. The number of
outstanding shares of our common stock at the close of business on August 14,
2006, the Record Date for determining our stockholders who would have been
entitled to notice of and to vote on these matters, was 30,887,645.
Security ownership of management.
- ---------------------------------
The following tables set forth the share holdings of our directors and
executive officers and those persons who own more than five percent of our
common stock, based on 30,887,645 outstanding shares at August 14, 2006,
unless indicated otherwise:
DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------
Name and Address Percentage
of Beneficial Owner Shares Owned Owned
------------------- ------------ -----
Anthony A. Maher 2,741,045(1) 8.1%
345 Bobwhite Court, Suite 200,
Boise, Idaho 83706
Robert O. Grover 588,790(2) 1.7%
345 Bobwhite Court, Suite 200,
Boise, Idaho 83706
Donald J. Farley 1,730,121(3) 5.1%
345 Bobwhite Court, Suite 200,
Boise, Idaho 83706
Cecil D. Andrus 1,109,254(4) 3.3%
345 Bobwhite Court, Suite 200,
Boise, Idaho 83706
23
Michael K. McMurray 288,130(5) 0.9%
345 Bobwhite Court, Suite 200
Boise, Idaho 83706
Christina M. Vaughn 300,000(6) 0.9%
345 Bobwhite Court, Suite 200,
Boise, Idaho 83706
All officers and directors 6,757,340(7) 20.0%
as a group (six persons)
(1) Based upon 33,628,690 shares of common stock issued and outstanding
as of August 14, 2006, including 692,705 shares that may be issued upon the
exercise of currently exercisable options held by Mr. Maher. The shares
beneficially owned by Mr. Maher include: (i) 1,979,340 shares owned of record
by Mr. Maher; (ii) 10,000 shares owned by Louise Maher; (iii) 9,500 shares
which are beneficially owned by Sullivan Maher, LLC, for which Mr. Maher acts
as a manager (iv) 35,000 shares owned by the Nick Maher Foundation, of which
Mr. Maher is a trustee; (v) 4,500 shares owned by E. L. Sullivan which are
voted by Mr. Maher pursuant to an irrevocable proxy; and 10,000 shares owned
by the Maher Family Partnership LLP; and (vi) 692,705 shares which may be
issued upon the exercise of currently exercisable stock options.
(2) Based upon 31,476,435 shares of common stock issued and outstanding
as of August 14, 2006, including 350,000 shares that may be issued upon the
exercise of currently exercisable options held by Mr. Grover. The shares
beneficially owned by Mr. Grover include 238,790 shares owned of record and
350,000 shares underlying currently exercisable options.
(3) Based upon 32,617,766 shares of common stock issued and outstanding
as of August 14, 2006, including 916,636 shares that may be issued upon the
exercise of currently exercisable options held by Mr. Farley. These shares
include 813,485 shares owned of record by Mr. Farley and 916,636 shares, which
may be issued upon the exercise of currently exercisable stock options.
(4) Based upon 31,996,899 shares of common stock issued and outstanding
as of August 14,, 2006, including 425,486 shares that may be issued upon the
exercise of currently exercisable options held by Mr. Andrus. These shares
include (i) 683,768 shares owned of record by Mr. Andrus and (ii) 425,486
shares which may be issued upon the exercise of currently exercisable stock
options.
(5) Based upon 31,175,775 shares of common stock issued and outstanding
as of August 14, 2006, including 288,130 shares that may be issued upon the
exercise of currently exercisable options held by Mr. McMurray. Mr. McMurray
does not currently own any shares of our common stock.
(6) Based upon 31,187,645 shares of common stock issued and outstanding
as of August 14, 2006, including 300,000 shares that may be issued upon the
exercise of currently exercisable options held by Ms. Vaughn. Ms. Vaughn does
not currently own any shares of our common stock.
(7) Based upon 33,860,602 shares of common stock issued and outstanding
as of August 14, 2006, including all 2,972,957 shares that may be issued upon
the exercise of currently exercisable options collectively held by all of our
directors and executive officers.
24
Unless otherwise noted above, we believe that all persons named in the
table have sole voting and investment power with respect to all shares of
common stock beneficially owned by them. For purposes hereof, a person is
deemed to be the beneficial owner of securities that can be acquired by such
person within 60 days from the date hereof upon the exercise of warrants or
options or the conversion of convertible securities. Each beneficial owner's
percentage of ownership is determined by assuming that any warrants, options
or convertible securities that are held by such person (but not those held by
any other person) and which are exercisable within 60 days from the date
hereof, have been exercised.
VOTE REQUIRED FOR APPROVAL AND EFFECTIVE DATE
Vote Required for Approval.
- ---------------------------
Idaho Law.
- ----------
The Idaho Business Corporation Act (the "Idaho Act") requires the
approval of stockholders who hold at least a majority of the voting power
present at the meeting at which a quorum is present to effectuate all of the
proposals. This solicitation is being made by the Company and we will bear
the cost of preparing, printing and mailing each of these documents and of the
solicitation of proxies. Solicitation will be made by mail. We will request
brokers, custodians, nominees and other like parties to forward copies of
proxy materials to beneficial owners of our common stock and will reimburse
such parties for their reasonable and customary charges or expenses
in this regard.
Record Date and Outstanding Shares.
- -----------------------------------
The Board of Directors has fixed August 14, 2006, as the Record Date for
the determination of our holders of common stock entitled to notice of and to
vote at the Annual Meeting and any adjournment thereof. At the close of
business on that date, there were 30,887,645 shares of common stock
outstanding and
entitled to vote. Holders of common stock will be entitled to one vote per
share held and will not be entitled to cumulative voting.
Proxies and Revocability of Proxies.
- ------------------------------------
The enclosed proxy is being solicited by our Board of Directors for use
at the Annual Meeting and any adjournments thereof and will not be voted at
any other meeting. All proxies that are properly executed, received by us
prior to or at the Annual Meeting, and not properly revoked will be voted at
the Annual Meeting or any adjournment thereof in accordance with the
instructions given therein. Any proxy given pursuant to this solicitation may
be revoked by the person giving it at any time before it is voted. Proxies may
be revoked by (i) filing with Anthony A. Maher, our President and CEO, at or
before the taking of the vote at the Annual Meeting, a written notice of
revocation bearing a later date than the date of the proxy; (ii) duly
executing a subsequent proxy relating to the same shares and delivering it to
Anthony Maher before the Annual Meeting; or (iii) attending the Annual Meeting
and voting in person (although attendance at the Annual Meeting will not in
and of itself constitute a revocation of a proxy). Any written notice revoking
a proxy should be sent to 345 Bobwhite Court, Suite 200, Boise, Idaho 83706,
Attention: Anthony Maher, or hand delivered to Anthony Maher, at or before the
taking of the vote at the Annual Meeting.
25
Other Matters.
- --------------
The Board of Directors is not aware of any business other than the
aforementioned matters that will be presented for consideration at the Annual
Meeting. If other matters properly come before the Annual Meeting, it is the
intention of the person named in the enclosed proxy to vote thereon in
accordance with his best judgment.
Effective Date of Actions.
- ---------------------------
The effective date of the actions covered hereby will be following our
Annual Meeting.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. STOCKHOLDERS WHO DO NOT
EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON ARE URGED TO EXECUTE AND RETURN
THE ENCLOSED PROXY IN THE REPLY ENVELOPE PROVIDED.
By Order of the Board of Directors,
Anthony A. Maher,
Director, Chairman, and President
26
PROXY
FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD September 19, 2006
This Proxy Is Solicited by the Board of Directors and Management of the
Company.
The undersigned stockholder of PCS Edventures!.com, Inc. (the "Company"),
hereby appoints Anthony A. Maher or ___________________ as proxy-holder
for and on behalf of the undersigned to attend the Annual Meeting of
Stockholders to be held September 19, 2006 at 9:00 a.m. and to vote said
shareholder's shares as follows:
I direct that my proxy vote as follows:
1. On a proposal to elect Cecil D. Andrus, Anthony A. Maher, Donald J.
Farley, and Michael McMurray to the Board of Directors until the next Annual
Meeting.
Cecil D. Andrus ----- For ----- Withhold Authority
Anthony A. Maher ----- For ----- Withhold Authority
Donald J. Farley ----- For ----- Withhold Authority
Michael K. McMurray ----- For ----- Withhold Authority
2. On a resolution ratifying the re-selection of HJ & Associates as the
Company's financial auditors.
_____ For _____ Against _____ Abstain
3. On proposal No. 3 to amend the current Articles of Incorporation to
increase the number of authorized shares of common stock.
_____ For _____ Against _____ Abstain
4. On proposal No. 4 to amend the Articles of Incorporation to authorize
5,000,000 shares of Series A preferred stock
_____ For _____ Against _____ Abstain
5. On proposal No. 5 to amend the Articles of Incorporation to authorized a
10,000,000 share increase of undesignated preferred stock and to grant blank
check authorization.
_____ For _____ Against _____ Abstain
6. On proposal No. 6 to amend the Articles of Incorporation to permit the
Board to limit waiver or amend the rights, options and warrants of the
Company.
_____ For _____ Against _____ Abstain
I authorize my proxy to vote as his discretion may dictate on the transaction
of such other business as may properly come before the Annual Meeting or any
adjournments thereof.
In the event Anthony A. Maher is unable to attend this Annual Meeting, then
Donald J. Farley shall be authorized to vote these shares in his place in the
above-prescribed manner with all of the discretion otherwise to be held by Mr.
Maher.
The undersigned hereby revokes any Proxy previously given, and incorporates by
reference the provisions of the instructions following this proxy.
_____________________________ ______________________
Print Name of Shareholder Number of Shares
_____________________________ _______________________
Signature of Shareholder Date
Address:
__________________________________________________________________________
Street or P.O. Number City State Zip
27
Exhibit A
SECOND AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
PCS EDVENTURES!.COM, INC.
Pursuant to Section 30-1-1007 of the Idaho Business Corporation Act ("the
Act"), the undersigned corporation, effective as of _____________, 2006 (the
"Effective Date"), adopts the following Amended and Restated Articles of
Incorporation (the "Articles"), which restate and supersede in their entirety
the corporation's Articles of Incorporation as originally filed and all prior
amendments and restatements of the corporation's Articles of Incorporation.
Article 1
The name of the corporation is PCS Edventures!.COM, Inc. and its duration
shall be perpetual.
Article 2
[Deleted]
Article 3
The corporation is organized to engage in any and all lawful activities for
which corporations may be organized under the Idaho Business Corporation Act.
Article 4
[Deleted]
Article 5
5.1 Capital Stock. This corporation is authorized to issue two (2) classes
of stock designated, respectively, "Preferred Stock" and "Common Stock." This
corporation is authorized to issue a total of eighty million (80,000,000)
shares (without par value) consisting of twenty million (20,000,000) shares of
Preferred Stock, and sixty million (60,000,000) shares of Common Stock. Each
outstanding share of Common Stock shall be entitled to one (1) vote on each
matter submitted to a vote in a meeting of the shareholders. Votes may not be
cumulative. Holders of Common Stock shall have no preemptive rights.
5.2 Terms of Classes or Series Determined by Board of Directors. The Board
of Directors is expressly authorized to exercise, without shareholder
approval, all powers permitted by Idaho Code Section 30-1-602, including the
authority (i) to classify any unissued shares of the corporation's authorized
stock into one or more classes or into one or more series within a class; (ii)
to reclassify any unissued shares of any class of the corporation's authorized
stock into one or more classes or into one or more series within one or more
classes; or (iii) to reclassify any unissued shares of any series of any class
of the corporation's authorized stock into one or more classes or into one or
more series within a class. If the Board acts pursuant to this authorization,
it must determine (prior to issuance or reissuance of any such shares) the
terms, including the preferences, rights and limitations, of the shares of any
such class or series such as (without limitation) dividend rights and
preferences, conversion rights, voting rights (including, without limitation,
any special, conditional or limited voting rights or no right to vote), rights
of redemption (including any sinking fund provisions) and liquidation
preferences of such series or class. The Board of Directors is also expressly
authorized to fix the number of shares constituting each such class or series
of the corporation's authorized stock and to increase or decrease the number
of shares of any class or series prior to the issuance or reissuance of shares
of that class or series. Prior to issuing any shares of any class or series
of stock classified or reclassified by the Board of Directors pursuant to this
Section 5.2, the corporation shall deliver to the Idaho Secretary of State
articles of amendment setting forth the terms of such class or series.
5.3 Reacquired Common Stock. Unless a resolution of the Board of Directors
provides that reacquired shares of Common Stock shall constitute authorized
and unissued shares, any shares of Common Stock reacquired by the corporation
shall be treasury shares; and the corporation may hold, use, resell, cancel or
dispose of such reacquired Common Stock free of any restrictions that would be
imposed on the original issuance of Common Stock.
5.4 Reacquired Preferred Stock. Unless a resolution of the Board of Directors
provides otherwise, any shares of Preferred Stock reacquired by the
corporation (whether by redemption, repurchase, conversion to Common Stock or
other means) shall, upon such reacquisition, resume the status as authorized
and unissued shares of Preferred Stock, undesignated as to series and
available for classification or reclassification by the Board of Directors and
reissuance by the corporation as provided in Section 5.2.
5.5 Convertible Preferred Stock. Prior to the effective date of these
Articles, all of the issued and outstanding Convertible Preferred Stock of the
Company, as provided in the Articles of Amendment to the Articles of
Incorporation of the Company dated September 5, 2003, were reacquired by the
Company. All reacquired and all unissued and authorized shares of Convertible
Preferred Stock of the Company shall resume the status of authorized and
unissued shares of Preferred Stock, undesignated as to series and available
for classification or reclassification by the Board of Directors and
reissuance by the corporation as provided in Section 5.2.
ARTICLE 5A
SERIES A PREFERRED STOCK
5A.1 Definitions. Capitalized terms used and not otherwise defined
within this Article 5A that are defined in the Purchase Agreement (as defined
below), shall have the meanings given such terms in the Purchase Agreement.
With respect to this Article 5A, the following terms shall have the following
meanings:
5A.1.1 "Affiliate" means any Person that directly or indirectly, through
one or more intermediaries controls, or is controlled by, or is under common
control with the another Person.
5A.1.2 "Bankruptcy Event" means any of the following events: (a) the
corporation or any Significant Subsidiary (as such term is defined in Rule
1.02(s) of Regulation S-X) thereof commences a case or other proceeding under
any bankruptcy, reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction relating to the corporation or any Significant Subsidiary
thereof; (b) there is commenced against the corporation or any Significant
Subsidiary thereof any such case or proceeding that is not dismissed within 60
days after commencement; (c) the corporation or any Significant Subsidiary
thereof is adjudicated insolvent or bankrupt or any order of relief or other
order approving any such case or proceeding is entered; (d) the corporation or
any Significant Subsidiary thereof suffers any appointment of any custodian or
the like for it or any substantial part of its property that is not discharged
or stayed within 60 days; (e) the corporation or any Significant Subsidiary
thereof makes a general assignment for the benefit of creditors; (f) the
corporation or any Significant Subsidiary thereof calls a meeting of its
creditors with a view to arranging a composition, adjustment or restructuring
of its debts; or (g) the corporation or any Significant Subsidiary thereof, by
any act or failure to act, expressly indicates its consent to, approval of or
acquiescence in any of the foregoing or takes any corporate or other action
for the purpose of effecting any of the foregoing.
5A.1.3 "Closing Date" means the date on which the payment of the Purchase
Price (as defined herein) by the Investor to the corporation is completed
pursuant to the Purchase Agreement to purchase the Preferred Stock and
Warrants, which shall occur on or before December 29, 2005.
5A.1.4 "Commission" means the Securities and Exchange Commission.
5A.1.5 "Common Stock" means the corporation's common stock without par
value, and stock of any other class into which such shares may hereafter have
been reclassified or changed.
5A.1.6 "Common Stock Equivalents" means any securities of the corporation
or the Subsidiaries which would entitle the holder thereof to acquire at any
time Common Stock, including without limitation, any debt, preferred stock,
rights, options, warrants or other instrument that is at any time convertible
into or exchangeable for, or otherwise entitles the holder thereof to receive,
Common Stock.
5A.1.7 "Conversion Date" shall have the meaning set forth in Section
5A.6.1.
5A.1.8 "Conversion Ratio" shall have the meaning set forth in Section
5A.6.1.
5A.1.9 "Conversion Value" shall have the meaning set forth in Section
5A.6.1.
5A.1.10 "Conversion Shares" means, collectively, the shares of Common Stock
into which the shares of Series A Preferred Stock are convertible in
accordance with the terms hereof.
5A.1.11 "Conversion Shares Registration Statement" means a registration
statement that meets the requirements of the Registration Rights Agreement and
registers the resale of all Conversion Shares by the Holder, who shall be
named as a "selling stockholder" thereunder, all as provided in the
Registration Rights Agreement.
5A.1.12 "Dilutive Issuance" shall have the meaning set forth in Section
5A.7.4 hereof.
5A.1.13 "Effective Date" means the date that the Conversion Shares
Registration Statement is declared effective by the Commission.
5A.1.14 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
5A.1.15 "Exempt Issuance" means the issuance of (a) shares of Common Stock,
warrants, options or other rights (i) to employees, officers, or directors of
the corporation pursuant to any stock or option plan (including, without
limitation, the corporation's 2004 Nonqualified Stock Option Plan) duly
adopted by a majority of the non-employee members of the Board of Directors of
the corporation or a majority of the members of a committee of non-employee
directors established for such purpose, (ii) to consultants or advisors to the
corporation or to financial institutions or lessors in connection with
commercial credit arrangements, equipment financings, real property lease
transactions or similar transactions, pursuant to arrangements approved by the
Board of Directors, or (iii) in payment of compensation of the corporation's
directors, (b) securities upon the exercise or conversion of any securities
issued hereunder, (c) shares of Common Stock issued to (i) former shareholders
of LabMentors pursuant to the Share Exchange Agreement dated November 30, 2005
(excluding, however, shares of Common Stock to be issued pursuant to the
earnout provisions of that agreement if issued for less than $0.50 per share),
(ii) certain financial advisors in connection with the LabMentors acquisition,
and (iii) LabMentors' president, Joe Khoury, pursuant to an employment
agreement made in connection with the LabMentors acquisition, (d) shares of
Common Stock and warrants issued to Cyndel & Co., Inc., a consultant to the
corporation, pursuant to a Consulting Agreement effective November 1, 2005,
(e) shares of Common Stock issuable pursuant to options, warrants or rights
outstanding as of the Effective Date of the Amended and Restated Articles of
Incorporation, provided that such securities have not been amended since the
Effective Date of the Second Amended and Restated Articles of Incorporation to
increase the number of such securities, (f) shares of Common Stock issuable in
payment of noncash dividends or upon conversion of corporation's outstanding
shares of preferred stock, (g) securities issued pursuant to acquisitions or
strategic transactions provided however that there is no variable rate pricing
mechanisms without a floor price included in any such transaction (including,
without limitation, securities issued in connection with the acquisition of
Back-Up Training Corporation of Coeur d'Alene, Idaho), provided any such
issuance shall only be to a Person which is, itself or through its
subsidiaries, an operating company in a business synergistic with the business
of the corporation and in which the corporation receives benefits in addition
to the investment of funds, but shall not include a transaction in which the
corporation is issuing securities primarily for the purpose of raising capital
or to an entity whose primary business is investing in securities.
5A.1.16 "Fundamental Transaction" shall have the meaning set forth in
Section 5A.7.9 hereof.
5A.1.17 "Holder" shall have the meaning given such term in Section 5A.2
hereof.
5A.1.18 "Junior Securities" means the Common Stock and all other equity or
equity equivalent securities of the corporation other than those securities
that are explicitly senior in rights or liquidation preference to the Series A
Preferred Stock.
5A.1.19 "Original Issue Date" shall mean the date of the first issuance of
any shares of the Series A Preferred Stock regardless of the number of
transfers of any particular shares of Series A Preferred Stock and regardless
of the number of certificates which may be issued to evidence such Series A
Preferred Stock.
5A.1.20 "Person" means a company, an association, a partnership, a limited
liability company, a business association, an individual, a government or
political subdivision thereof or a governmental agency.
5A.1.21 "Purchase Agreement" means the Note Purchase Agreement, dated as of
the December 29, 2005, to which the corporation and the original Holders are
parties, as amended, modified or supplemented from time to time in accordance
with its terms, a copy of which is on file at the principal offices of the
corporation.
5A.1.22 "Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Closing Date, to which the corporation and the
original Holder are parties, as amended, modified or supplemented from time to
time in accordance with its terms.
5A.1.23 "Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
5A.1.24 "Series A Preferred Stock" shall have the meaning set forth in
Section 5A.2.
5A.1.25 "Subscription Amount" shall mean the One Million Dollars
($1,000,000.00) to be paid for the Note purchase pursuant to the Purchase
Agreement, in United States Dollars and in immediately available funds.
5A.1.26 "Subsidiary" shall mean a company, limited liability company,
partnership, joint venture or other business entity of which the corporation
owns beneficially or of record more than 19% of the equity interest.
5A.1.27 "Trading Day" means a day on which the Common Stock is traded on a
Trading Market.
5A1.28 "Trading Market" means the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in question: the
Nasdaq SmallCap Market, the American Stock Exchange, the New York Stock
Exchange, the Nasdaq National Market or the OTC Bulletin Board.
5A.1.29 "Transaction Documents" shall have the meaning set forth in the
Purchase Agreement.
5A.1.30 "VWAP" means, for any date, the price determined by the first of
the following clauses that applies: (a) if the Common Stock is then listed or
quoted on a Trading Market, the daily volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the primary
Trading Market on which the Common Stock is then listed or quoted as reported
by Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. EST to 4:02
p.m. Eastern Time) using the VAP function; (b) if the Common Stock is not then
listed or quoted on the Trading Market and if prices for the Common Stock are
then reported in the "Pink Sheets" published by the National Quotation Bureau
Incorporated (or a similar organization or agency succeeding to its functions
of reporting prices), the most recent bid price per share of the Common Stock
so reported; or (c) in all other cases, the fair market value of a share of
Common Stock as determined by a nationally recognized-independent appraiser
selected in good faith by Purchasers holding a majority of the principal
amount of Series A Preferred Stock then outstanding.
5A.2 Designation, Amount and Par Value. Pursuant to Section 5.2 of Article
5 and subject to the terms and conditions of this Article 5A, a series of
preferred stock shall be designated as the corporation's Series A Convertible
Preferred Stock without par value (the "Series A Preferred Stock" or
"Preferred Stock") and the number of shares so designated shall be five
million (5,000,000) (which shall not be subject to increase without the
consent of the holders of a majority of the outstanding shares of the Series A
Preferred Stock (each a "Holder" and collectively, the "Holders").
Capitalized terms not otherwise defined within this Article 5A shall have the
meaning given such terms in Section 5A.1 hereof.
5A.3 Dividends and Other Distributions. No dividends shall be payable with
respect to the Series A Preferred Stock. No dividends shall be payable with
respect to the Common Stock while the Series A Preferred Stock is outstanding.
The Common Stock shall not be redeemed while the Series A Preferred Stock is
outstanding.
5A.4 Voting Rights. The Series A Preferred Stock shall have no voting
rights. However, so long as any shares of Series A Preferred Stock are
outstanding, the corporation shall not, without the affirmative approval of
the Holders of the shares of the Series A Preferred Stock then outstanding,
(a) alter or change adversely the powers, preferences or rights given to the
Series A Preferred Stock or alter or amend the terms or conditions of the
Series A Preferred Stock set forth in the Amended and Restated Articles of
Incorporation of the corporation, (b) authorize or create any class of stock
ranking as to dividends or distribution of assets upon a Liquidation (as
defined in Section 5A.5) senior to or otherwise pari passu with the Series A
Preferred Stock, or any of preferred stock possessing greater voting rights or
the right to convert at a more favorable price than the Series A Preferred
Stock, (c) amend the Second Amended and Restated Articles of Incorporation or
other charter documents in breach of any of the provisions hereof, (d)
increase the authorized number of shares of Series A Preferred Stock, or (e)
enter into any agreement with respect to the foregoing.
5A.5 Liquidation. Upon any liquidation, dissolution or winding-up of the
corporation, whether voluntary or involuntary (a "Liquidation"), the Holders
shall be entitled to receive out of the assets of the corporation, whether
such assets are capital or surplus, for each share of Series A Preferred Stock
an amount equal to $0.60 (the "Liquidation Value") before any distribution or
payment shall be made to the holders of any Junior Securities, and if the
assets of the corporation shall be insufficient to pay in full such amounts,
then the entire assets to be distributed to the Holders shall be distributed
among the Holders ratably in accordance with the respective amounts that would
be payable on such shares if all amounts payable thereon were paid in full.
At the election of a Holder made by written notice delivered to the
corporation at least two (2) business days prior to the effective date of the
subject transaction, as to the shares of Series A Preferred Stock held by such
Holder, a Fundamental Transaction (excluding for purposes of this Section 5A.5
any Fundamental Transaction described in Section 5A.7.9(d)(A) or 5A.7.9(d)(B))
or Change of Control shall be treated as a Liquidation.
5A.6 Conversion.
5A.6.1 Conversions at Option of Holder. Each share of Series A
Preferred Stock shall be initially convertible (subject to the limitations set
forth in Section 5A.6.3), into one (1) share of Common Stock (as adjusted as
provided below, the "Conversion Ratio") at the option of the Holders, at any
time and from time to time from and after the Original Issue Date. Holders
shall effect conversions by providing the corporation with the form of
conversion notice attached hereto as Annex A (a "Notice of Conversion") as
fully and originally executed by the Holder, together with the delivery by the
Holder to the corporation of the stock certificate(s) representing the number
of shares of Series A Preferred Stock so converted, with such stock
certificates being duly endorsed in full for transfer to the corporation or
with an applicable stock power duly executed by the Holder in the manner and
form as deemed reasonable by the transfer agent of the Common Stock. Each
Notice of Conversion shall specify the number of shares of Series A Preferred
Stock to be converted, the number of shares of Series A Preferred Stock owned
prior to the conversion at issue, the number of shares of Series A Preferred
Stock owned subsequent to the conversion at issue, the stock certificate
number and the shares of Series A Preferred Stock represented thereby which
are accompanying the Notice of Conversion, and the date on which such
conversion is to be effected, which date may not be prior to the date the
Holder delivers such Notice of Conversion and the applicable stock
certificates to the corporation by overnight delivery service (the "Conversion
Date"). If no Conversion Date is specified in a Notice of Conversion, the
Conversion Date shall be the Trading Day immediately following the date that
such Notice of Conversion and applicable stock certificates are received by
the corporation. The calculations and entries set forth in the Notice of
Conversion shall control in the absence of manifest or mathematical error.
Shares of Series A Preferred Stock converted into Common Stock in accordance
with the terms hereof shall be canceled and may not be reissued. The initial
value of the Series A Preferred Stock on the Conversion Date shall be equal to
$0.60 per share (as adjusted pursuant to Section 5A.7 or otherwise as provided
herein, the "Conversion Value"). If the initial Conversion Value is adjusted
pursuant to Section 5A.7 or as otherwise provided herein, the Conversion Ratio
shall likewise be adjusted and the new Conversion Ratio shall equal the
Liquidation Value divided by the new Conversion Value. Thereafter, subject to
any further adjustments in the Conversion Value, each share of Series A
Preferred Stock shall be initially convertible into that number of shares of
Common Stock equal to the new Conversion Ratio.
5A.6.2 Automatic Conversions. Subject to Section 5A.5, all of the
outstanding shares of Series A Preferred Stock shall be automatically
converted into the Conversion Shares upon the close of business on the
business day immediately preceding the date fixed for consummation of any
transaction resulting in a Change of Control of the corporation (an "Automatic
Conversion Event"). A "Change in Control" means a consolidation or merger of
the corporation with or into another company or entity in which the
corporation is not the surviving entity or the sale of all or substantially
all of the assets of the corporation to another company or entity not
controlled by the then existing stockholders of the corporation in a
transaction or series of transactions. The corporation shall not be obligated
to issue certificates evidencing the Conversion Shares unless certificates
evidencing the shares of Series A Preferred Stock so converted are either
delivered to the corporation or its transfer agent or the holder notifies the
corporation or its transfer agent in writing that such certificates have been
lost, stolen, or destroyed and executes an agreement satisfactory to the
corporation to indemnify the corporation from any loss incurred by it in
connection therewith. Upon the conversion of the Series A Preferred Stock
pursuant to this Section 5A.6.2, the corporation shall promptly send written
notice thereof, by hand delivery or by overnight delivery, to the holder of
record of all of the Series A Preferred Stock at its address then shown on the
records of the corporation, which notice shall state that certificates
evidencing shares of Series A Preferred Stock must be surrendered at the
office of the corporation (or of its transfer agent for the Common Stock, if
applicable).
5A.6.3 Beneficial Ownership Limitation. Except as provided in Section
5A.6.2 above, the corporation shall not effect any conversion of the Series A
Preferred Stock, and the Holder shall not have the right to convert any
portion of the Series A Preferred Stock to the extent that after giving effect
to such conversion, the Holder (together with the Holder's affiliates), as set
forth on the applicable Notice of Conversion, would beneficially own in excess
of 4.9% of the number of shares of the Common Stock outstanding immediately
after giving effect to such conversion. For purposes of the foregoing
sentence, the number of shares of Common Stock beneficially owned by the
Holder and its affiliates shall include the number of shares of Common Stock
issuable upon conversion of the Series A Preferred Stock with respect to which
the determination of such sentence is being made, but shall exclude the number
of shares of Common Stock which would be issuable upon (A) conversion of the
remaining, nonconverted shares of Series A Preferred Stock beneficially owned
by the Holder or any of its affiliates, so long as such shares of Series A
Preferred Stock are not convertible within sixty (60) days from the date of
such determination, and (B) exercise or conversion of the unexercised or
nonconverted portion of any other securities of the corporation (including the
Warrants) subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the Holder or any of its
affiliates, so long as such other securities of the corporation are not
exercisable nor convertible within sixty (60) days from the date of such
determination. For purposes of this Section 5A.6.3, in determining the number
of outstanding shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in the most recent of the
following: (A) the corporation's most recent quarterly reports, Form 10-Q,
Form 10-QSB, Annual Reports, Form 10-K, or Form 10-KSB, as the case may be, as
filed with the Commission under the Exchange Act (B) a more recent public
announcement by the corporation or (C) any other written notice by the
corporation or the corporation's transfer agent setting forth the number of
shares of Common Stock outstanding. Upon the written or oral request of the
Holder, the corporation shall within two (2) Trading Days confirm orally and
in writing to the Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock
shall be determined after giving effect to the conversion or exercise of
securities of the corporation, including the Series A Preferred Stock, by the
Holder or its affiliates since the date as of which such number of outstanding
shares of Common Stock was publicly reported by the corporation. This Section
5A.6.3 may be waived or amended only with the consent of the Holders of all of
the Series A Preferred Stock and the consent of the holders of a majority of
the shares of outstanding Common Stock of the corporation who are not
Affiliates. For the purpose of the immediately preceding sentence, the term
"Affiliate" shall mean any person: (a) that directly or indirectly, through
one or more intermediaries controls, or is controlled by, or is under common
control with the corporation, or (b) who beneficially owns (i) any shares of
Series A Preferred Stock, or (ii) the corporation's Common Stock Purchase
Warrant(s) dated December 29, 2005. For purposes of this Section 5A.6.3,
beneficial ownership shall be calculated in accordance with Section 13(d) of
the Exchange Act.
5A.6.4 Mechanics of Conversion.
(a) Delivery of Certificate Upon Conversion. Except as otherwise set forth
herein, not later than three Trading Days after each Conversion Date (the
"Share Delivery Date"), the corporation shall deliver to the Holder (A) a
certificate or certificates which, after the Effective Date, shall be free of
restrictive legends and trading restrictions (other than those required by the
Purchase Agreement) representing the number of shares of Common Stock being
acquired upon the conversion of shares of Series A Preferred Stock, and (B) a
bank check in the amount of accrued and unpaid dividends (if the corporation
has elected or is required to pay accrued dividends in cash). After the
Effective Date, the corporation shall, upon request of the Holder, deliver any
certificate or certificates required to be delivered by the corporation under
this Section electronically through the Depository Trust Corporation or
another established clearing corporation performing similar functions. If in
the case of any Notice of Conversion such certificate or certificates are not
delivered to or as directed by the applicable Holder by the third Trading Day
after the Conversion Date, the Holder shall be entitled to elect by written
notice to the corporation at any time on or before its receipt of such
certificate or certificates thereafter, to rescind such conversion, in which
event the corporation shall immediately return the certificates representing
the shares of Series A Preferred Stock tendered for conversion.
(b) Obligation Absolute; Partial Liquidated Damages. The corporation's
obligations to issue and deliver the Conversion Shares upon conversion of
Series A Preferred Stock in accordance with the terms hereof are absolute and
unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce the same,
or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder or any other Person of any obligation
to the corporation or any violation or alleged violation of law by the Holder
or any other person, and irrespective of any other circumstance which might
otherwise limit such obligation of the corporation to the Holder in connection
with the issuance of such Conversion Shares. In the event a Holder shall
elect to convert any or all of its Series A Preferred Stock, the corporation
may not refuse conversion based on any claim that such Holder or any one
associated or affiliated with the Holder of has been engaged in any violation
of law, agreement or for any other reason unless an injunction from a court,
on notice, restraining and or enjoining conversion of all or part of this
Series A Preferred Stock shall have been sought and obtained and the
corporation posts a surety bond for the benefit of the Holder in the amount of
150% of the Conversion Value of Series A Preferred Stock outstanding, which is
subject to the injunction, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Holder to the extent it obtains judgment. In the
absence of an injunction precluding the same, the corporation shall issue
Conversion Shares or, if applicable, cash, upon a properly noticed conversion.
If the corporation fails to deliver to the Holder such certificate or
certificates pursuant to Section 5A.6.4(a) within two (2) Trading Days of the
Share Delivery Date applicable to such conversion, the corporation shall pay
to such Holder, in cash, as liquidated damages and not as a penalty, for each
$5,000 of Conversion Value of Series A Preferred Stock being converted, $200
per Trading Day (increasing to $400 per Trading Day after three (3) Trading
Days and increasing to $800 per Trading Day six (6) Trading Days after such
damages begin to accrue) for each Trading Day after the Share Delivery Date
until such certificates are delivered. Nothing herein shall limit a Holder's
right to pursue actual damages for the corporation's failure to deliver
certificates representing shares of Common Stock upon conversion within the
period specified herein and such Holder shall have the right to pursue all
remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief.
(c) Compensation for Buy-In on Failure to Timely Deliver Certificates Upon
Conversion. If the corporation fails to deliver to the Holder such
certificate or certificates pursuant to Section 5A.6.4(a) by a Share Delivery
Date, and if after such Share Delivery Date the Holder purchases (in an open
market transaction or otherwise) Common Stock to deliver in satisfaction of a
sale by such Holder of the Conversion Shares which the Holder was entitled to
receive upon the conversion relating to such Share Delivery Date (a "Buy-In"),
then the corporation shall pay in cash to the Holder the amount by which (x)
the Holder's total purchase price (including brokerage commissions, if any)
for the Common Stock so purchased exceeds (y) the product of (1) the aggregate
number of shares of Common Stock that such Holder was entitled to receive from
the conversion at issue multiplied by (2) the price at which the sell order
giving rise to such purchase obligation was executed. For example, if the
Holder purchases Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to an attempted conversion of shares of Series A
Preferred Stock with respect to which the aggregate sale price giving rise to
such purchase obligation is $10,000, under clause (A) of the immediately
preceding sentence the corporation shall be required to pay the Holder $1,000.
The Holder shall provide the corporation written notice indicating the amounts
payable to the Holder in respect of the Buy-In, together with applicable
confirmations and other evidence reasonably requested by the corporation.
Nothing herein shall limit a Holder's right to pursue any other remedies
available to it hereunder, at law or in equity including, without limitation,
a decree of specific performance and/or injunctive relief with respect to the
corporation's failure to timely deliver certificates representing shares of
Common Stock upon conversion of the shares of Series A Preferred Stock as
required pursuant to the terms hereof.
(d) Reservation of Shares Issuable Upon Conversion. The corporation
covenants that it will at all times reserve and keep available out of its
authorized and unissued shares of Common Stock solely for the purpose of
issuance upon conversion of the Series A Preferred Stock, each as herein
provided, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holders, not less than such number of shares
of the Common Stock as shall (subject to any additional requirements of the
corporation as to reservation of such shares set forth in the Purchase
Agreement) be issuable (taking into account the adjustments and restrictions
of Section 5A.7) upon the conversion of all outstanding shares of Series A
Preferred Stock. The corporation covenants that all shares of Common Stock
that shall be so issuable shall, upon issue, be duly and validly authorized,
issued and fully paid, nonassessable and, if the Conversion Shares
Registration Statement is then effective under the Securities Act, registered
for public sale in accordance with such Conversion Shares Registration
Statement.
(e) Fractional Shares. Upon a conversion hereunder, the corporation shall
not be required to issue stock certificates representing fractions of shares
of the Common Stock.
(f) Transfer Taxes. The issuance of certificates for shares of the Common
Stock on conversion of the Series A Preferred Stock shall be made without
charge to the Holders thereof for any documentary stamp or similar taxes that
may be payable in respect of the issue or delivery of such certificate,
provided that the corporation shall not be required to pay any tax that may be
payable in respect of any transfer involved in the issuance and delivery of
any such certificate upon conversion in a name other than that of the Holder
of such shares of Series A Preferred Stock so converted and the corporation
shall not be required to issue or deliver such certificates unless or until
the person or persons requesting the issuance thereof shall have paid to the
corporation the amount of such tax or shall have established to the
satisfaction of the corporation that such tax has been paid.
5A.7 Certain Adjustments.
5A.7.1 Stock Dividends and Stock Splits. If the corporation, at any
time while the Series A Preferred Stock is outstanding: (A) shall pay a stock
dividend or otherwise make a distribution or distributions on shares of its
Common Stock or any other equity or equity equivalent securities payable in
shares of Common Stock (which, for avoidance of doubt, shall not include any
shares of Common Stock issued by the corporation pursuant to this Series A
Preferred Stock), (B) subdivide outstanding shares of Common Stock into a
larger number of shares, (C) combine (including by way of reverse stock split)
outstanding shares of Common Stock into a smaller number of shares, or (D)
issue by reclassification of shares of the Common Stock any shares of capital
stock of the corporation, then the Conversion Value shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding before such event and of which
the denominator shall be the number of shares of Common Stock outstanding
after such event. Any adjustment made pursuant to this Section 5A.7.1 shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.
5A.7.2 Subsequent Equity Sales. From the date hereof until such time as
no Purchaser holds any of the Securities, the corporation shall be prohibited
from effecting or entering into an agreement to effect any Subsequent
Financing involving a "Variable Rate Transaction" or an "MFN Transaction"
(each as defined below). The term "Variable Rate Transaction" shall mean a
transaction in which the corporation issues or sells (i) any debt or equity
securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (A) at a
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the shares of Common Stock
at any time after the initial issuance of such debt or equity securities, or
(B) with a conversion, exercise or exchange price that is subject to being
reset at some future date after the initial issuance of such debt or equity
security or upon the occurrence of specified or contingent events directly or
indirectly related to the business of the corporation or the market for the
Common Stock. The term "MFN Transaction" shall mean a transaction in which
the corporation issues or sells any securities in a capital raising
transaction or series of related transactions which grants to an investor the
right to receive additional shares based upon future transactions of the
corporation on terms more favorable than those granted to such investor in
such offering. Any Purchaser shall be entitled to obtain injunctive relief
against the corporation to preclude any such issuance, which remedy shall be
in addition to any right to collect damages. Notwithstanding the foregoing,
this Section 5A.7.2 shall not apply in respect of an Exempt Issuance, except
that no Variable Rate Transaction or MFN Transaction shall be an Exempt
Issuance.
5A.7.3 Subsequent Rights Offerings. The corporation, at any time while
the Series A Preferred Stock is outstanding, shall not issue rights, options
or warrants to holders of Common Stock entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the Conversion
Price.
5A.7.4 Anti-Dilution Price Adjustment. From the date hereof until such
time as the Holder holds less than 10% of the shares of Series A Preferred
Stock issued to the original Holder, the corporation closes on the sale (other
than an Exempt Issuance) of a note or notes, shares of Common Stock, or shares
of any class of convertible preferred stock at a price per share of Common
Stock, or with a conversion right to acquire Common Stock at a price per share
of Common Stock, that is less than the Conversion Value (as adjusted to the
capitalization per share as of the Closing Date, following any stock splits,
stock dividends, or the like) (collectively, "Dilutive Issuance"), the
corporation shall make a post-Closing adjustment in the Conversion Value of
the Series A Preferred Stock so that the effective price per share paid by the
Investor is reduced to a price determined by multiplying the current exercise
price by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such Dilutive Issuance plus the
number of shares of Common Stock which the aggregate consideration received by
the corporation for the shares of Common Stock issuable in the Dilutive
Issuance would purchase at the current Conversion Value, and the denominator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such Dilutive Issuance plus the number of additional shares of Common
Stock to be issued in the Dilutive Issuance. For the purposes of the
foregoing calculation, the number of shares of Common Stock outstanding
immediately prior to such Dilutive Issuance shall be determined on a fully
diluted basis as if, immediately prior to the Dilutive Issuance, all
convertible securities issued by the corporation (including the Series A
Preferred Stock) had been fully converted into shares of Common Stock and all
outstanding warrants, options or other rights for the purchase of shares of
Common Stock or convertible securities had been fully exercised and converted
(and the resulting securities fully converted into shares of Common Stock, if
so convertible). Such reduction of the Conversion Value shall be made at the
time such Dilutive Issuance is executed.
5A.7.5 Waiver of Anti-Dilution Adjustment. Notwithstanding anything
herein to the contrary, the operation of, and any adjustment of the Series A
Conversion Value Price pursuant to this Section 5A.7.5 may be waived with
respect to any specific share or shares of Series A Preferred Stock, either
prospectively or retroactively and either generally or in a particular
instance by a writing executed by the registered Holder of such share or
shares. Any waiver pursuant to this Section 5A.7.5 shall bind all future
Holders of such shares of Series A Preferred Stock for which such rights have
been waived.
5A.7.6 Adjustment Based on EBITDA. In the event the corporation's
EBITDA is less than $4.5 million for the audited fiscal year ended March 31,
2007 as reported to the Commission on Form 10-KSB (where "EBITDA" means
earnings before interest, tax, depreciation and amortization as reported from
continuing operations before any non-recurring items), then the Conversion
Value shall be reduced proportionately by the same percentage as the
percentage decline below the $4.5 million EBITDA target, subject to a maximum
reduction of 71.43% if the EBITDA is $1,285,714 or less. For example, if the
corporation earns $3.6 million, or 20% below $4.5 million, then the Conversion
Value shall be reduced by 20%. Such reduction shall be made at the time the
March 31, 2007 financial results are reported and shall be made from the
starting Conversion Value, and shall be cumulative upon any other changes to
the Conversion Value that may already have been made. However, the Conversion
Value shall not in any circumstance be dropped below $0.1714 per share.
5A.7.7 Pro Rata Distributions. If the corporation, at any time while
Series A Preferred Stock is outstanding, shall distribute to all holders of
Common Stock (and not to Holders) evidences of its indebtedness or assets or
rights or warrants to subscribe for or purchase any security, then in each
such case the Conversion Value shall be determined by multiplying such
Conversion Value in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the VWAP determined as of the
record date mentioned above, and of which the numerator shall be such VWAP on
such record date less the then fair market value at such record date of the
portion of such assets or evidence of indebtedness so distributed applicable
to one outstanding share of the Common Stock as determined by the Board of
Directors in good faith. In either case the adjustments shall be described in
a statement provided to the Holders of the portion of assets or evidences of
indebtedness so distributed or such subscription rights applicable to one
share of Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.
5A.7.8 Calculations. All calculations under this Section 5A.7 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case may
be. The number of shares of Common Stock outstanding at any given time shall
not include shares owned or held by or for the account of the corporation, and
the description of any such shares of Common Stock shall be considered on
issue or sale of Common Stock. For purposes of this Section 5A.7, the number
of shares of Common Stock deemed to be issued and outstanding as of a given
date shall be the sum of the number of shares of Common Stock (excluding
treasury shares, if any) actually issued and outstanding.
5A.7.9 Notice to Holders.
(g) Adjustment to Conversion Price. Whenever the Conversion Value is
adjusted pursuant to any of Section 5A.7, the corporation shall promptly mail
to each Holder a notice setting forth the Conversion Value after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment. If the corporation issues a variable rate security, despite the
prohibition thereon in the Purchase Agreement, the corporation shall be deemed
to have issued Common Stock or Common Stock Equivalents at the lowest possible
conversion or exercise price at which such securities may be converted or
exercised in the case of a Variable Rate Transaction (as defined in the
Purchase Agreement), or the lowest possible adjustment price in the case of an
MFN Transaction (as defined in the Purchase Agreement).
(h) Notices of Other Events. If (A) the corporation shall declare a dividend
(or any other distribution) on the Common Stock; (B) the corporation shall
declare a redemption of the Common Stock; (C) the corporation shall authorize
the granting to all holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital stock of any class or of any
rights; (D) the approval of any stockholders of the corporation shall be
required in connection with any reclassification of the Common Stock or any
Fundamental Transaction, (E) the corporation shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs of the
corporation; then in each case, the corporation shall cause to be filed at
each office or agency maintained for the purpose of conversion of the Series A
Preferred Stock, and shall cause to be mailed to the Holders at their last
addresses as they shall appear upon the stock books of the corporation, at
least 30 calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a record is to
be taken for the purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which the holders
of the Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on which
such reclassification is expected to become effective or close, and the date
as of which it is expected that holders of the Common Stock of record shall be
entitled to exchange their shares of the Common Stock for securities, cash or
other property deliverable upon such reclassification or Fundamental
Transaction; provided, that the failure to mail such notice or any defect
therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
(i) Exempt Issuance. Notwithstanding the foregoing, no adjustment will be
made under this Section 5A.7 in respect of an Exempt Issuance.
(j) Fundamental Transaction. If, at any time while this Series A Preferred
Stock is outstanding, (A) the corporation effects any merger or consolidation
of the corporation with or into another Person, (B) the corporation effects
any sale of all or substantially all of its assets in one or a series of
related transactions, (C) any tender offer or exchange offer (whether by the
corporation or another Person) is completed pursuant to which holders of
Common Stock are permitted to tender or exchange their shares for other
securities, cash or property, or (D) the corporation effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (in any such case, a "Fundamental Transaction"),
then upon any subsequent conversion of this Series A Preferred Stock, the
Holder shall have the right to receive, for each Conversion Share that would
have been issuable upon such conversion absent such Fundamental Transaction,
the same kind and amount of securities, cash or property as it would have been
entitled to receive upon the occurrence of such Fundamental Transaction if it
had been, immediately prior to such Fundamental Transaction, the holder of one
share of Common Stock (the "Alternate Consideration"). For purposes of any
such conversion, the determination of the Conversion Price shall be
appropriately adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the corporation shall apportion the
Conversion Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate Consideration it
receives upon any conversion of this Series A Preferred Stock following such
Fundamental Transaction. To the extent necessary to effectuate the foregoing
provisions, any successor to the corporation or surviving entity in such
Fundamental Transaction shall file a new Certificate of Designations with the
same terms and conditions and issue to the Holder new preferred stock
consistent with the foregoing provisions and evidencing the Holder's right to
convert such preferred stock into Alternate Consideration. The terms of any
agreement pursuant to which a Fundamental Transaction is effected shall
include terms requiring any such successor or surviving entity to comply with
the provisions of this Section 5A.7.9(d) and insuring that this Series A
Preferred Stock (or any such replacement security) will be similarly adjusted
upon any subsequent transaction analogous to a Fundamental Transaction.
5A.8 Miscellaneous.
5A.8.1 Notices. Any and all notices or other communications or
deliveries to be provided by the Holders hereunder, including, without
limitation, any Notice of Conversion, shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight courier
service, addressed to the corporation, at the address provided in the Purchase
Agreement, facsimile number (208) 344-1321 Attn: President, or such other
address or facsimile number as the corporation may specify for such purposes
by notice to the Holders delivered in accordance with this Section. Any and
all notices or other communications or deliveries to be provided by the
corporation hereunder shall be in writing and delivered personally, by
facsimile, sent by a nationally recognized overnight courier service addressed
to each Holder at the facsimile telephone number or address of such Holder
appearing on the books of the corporation, or if no such facsimile telephone
number or address appears, at the principal place of business of the Holder.
Any notice or other communication or deliveries hereunder shall be deemed
given and effective on the earliest of (i) the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified in this Section prior to 5:30 p.m. (New York City time), (ii)
the date after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 5:30 p.m. (New York City time) on any date and earlier than
11:59 p.m. (New York City time) on such date, (iii) the second Business Day
following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice
is required to be given.
5A.8.2 Absolute Obligation. Except as expressly provided herein, no
provision of this Certificate of Designation shall alter or impair the
obligation of the corporation, which is absolute and unconditional, to pay the
liquidated damages (if any) on, the shares of Series A Preferred Stock at the
time, place, and rate, and in the coin or currency, herein prescribed.
5A.8.3 Lost or Mutilated Preferred Stock Certificate. If a Holder's
Series A Preferred Stock certificate shall be mutilated, lost, stolen or
destroyed, the corporation shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated certificate, or in lieu
of or in substitution for a lost, stolen or destroyed certificate, a new
certificate for the shares of Series A Preferred Stock so mutilated, lost,
stolen or destroyed but only upon receipt of evidence of such loss, theft or
destruction of such certificate, and of the ownership thereof, and indemnity,
if requested, all reasonably satisfactory to the corporation.
5A.8.4 Next Business Day. Whenever any payment or other obligation
hereunder shall be due on a day other than a Business Day, such payment shall
be made on the next succeeding Business Day.
Article 6
To the fullest extent permitted by law, this corporation shall have the power
to indemnify any person and to advance expenses incurred or to be incurred by
such person in defending a civil, criminal, administrative or investigative
action, suit or proceeding threatened or commenced by reason of the fact said
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise. Any such indemnification or advancement of expenses shall
not be deemed exclusive of any other rights to which such person may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors of otherwise, both as to action in such person's official capacity
and as to action in another capacity while holding such office. Any
indemnification or advancement of expenses so granted or paid by the
corporation shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs and personal representative
of such a person.
No director shall be liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duty except (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders; (ii) for
acts or omissions not in good faith or that involve intentional misconduct or
a knowing violation of law; (iii) for liability imposed for failure to comply
with the applicable legal standard of conduct for a director in any of the
circumstances described in Section 30-1-48, Idaho Code; or (iv) for any
transaction from which the director derives an improper personal benefit.
Article 7
The name and address of the incorporator is as follows:
Name Address
Donald J. Farley 702 W. Idaho Street, Suite 700
Boise, Idaho 83702
Article 8
The terms and conditions of any rights, options and warrants approved by the
Board of Directors of the corporation may provide that any or all of such
terms and conditions may be waived or amended only with the consent of the
holders of a designated percentage of a designated class or classes of capital
stock of the corporation (or a designated group or groups of holders within
such class or classes, including but not limited to disinterested holders),
and the applicable terms and conditions of any such rights, options or
warrants so conditioned may not be waived or amended absent such consent.
DATED this ____ day of ________, 2006.
Anthony A. Maher, President
ANNEX A
NOTICE OF CONVERSION
(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF SERIES
A PREFERRED STOCK)
The undersigned hereby elects to convert the number of shares of Series A
Convertible Preferred Stock indicated below, into shares of common stock
without par value (the "Common Stock"), of PCS Edventure!.COM, Inc., an Idaho
corporation (the "Company"), according to the conditions hereof, as of the
date written below. If shares are to be issued in the name of a person other
than undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith. No fee will be
charged to the Holder for any conversion, except for such transfer taxes, if
any.
Conversion calculations:
Date to Effect Conversion: _____________________________________________
Number of shares of Common Stock owned prior to Conversion: _______________
Number of shares of Series A Preferred Stock to be Converted:
________________________
Value of shares of Series A Preferred Stock to be Converted:
____________________
Number of shares of Common Stock to be Issued: ___________________________
Certificate Number of Series A Preferred Stock attached
hereto:________________________
Number of Shares of Series A Preferred Stock represented by attached
certificate:__________
Number of shares of Series A Preferred Stock subsequent to Conversion:
________________
[HOLDER]
By:__________________________________
Name:
Title:
Exhibit B
Financial Statements of LabMentors
dated May 31, 2005 and September 30, 2005
as filed in 8K statements dated
December 9, 2005 and February 15, 2006
510229 N.B. LTD. DBA LABMENTORS
Financial Statements
September 30, 2005
C O N T E N T S
Balance Sheet 3
Statement of Operations 4
Statement of Stockholders' Equity (Deficit) 5
Statement of Cash Flows 6
Notes to the Financial Statements 7
511092 N.B. LTD. DBA LABMENTORS
Balance Sheet
September 30, 2005
(Unaudited)
ASSETS
CURRENT ASSETS
Accounts receivable $ 10,061
Other receivable (Note 4) 3,935
Restricted cash (Note 3) 4,600
----------
Total Current Assets 18,596
FIXED ASSETS (NET) 4,301
EDUCATIONAL SOFTWARE (NET) 156,099
INTELLECTUAL PROPERTY (NET) 20,925
----------
TOTAL ASSETS $ 199,921
==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Bank overdraft $ 640
Accounts payable 33,969
Accrued interest 8,473
Accrued liabilities 12,793
Deposits payable 4,267
Unearned revenue 2,955
Other current liabilities 4,075
Notes payable and current portion of long-term
liabilities (Note 5) 122,466
----------
Total Current Liabilities 189,638
----------
LONG-TERM LIABILITIES
Long-term liabilities (Note 5) 130,522
----------
Total Liabilities 320,160
----------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, no par value, authorized unlimited
shares; 17,511,200 shares issued and outstanding 295,275
Accumulated other comprehensive loss (25,073)
Accumulated deficit (390,441)
----------
Total Stockholders' Equity (Deficit) (120,239)
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 199,921
==========
The accompanying notes are an integral part of these financial
statements.
3
511092 N.B. LTD. DBA LABMENTORS
Statement of Operations and Other Comprehensive Loss
For the Period Ended September 30, 2005
(Unaudited)
REVENUES $ 55,246
COST OF GOODS 22,327
----------
GROSS PROFIT 32,919
EXPENSES
Salaries and wages 50,675
Depreciation and Amortization expense 21,284
General and administrative 45,533
----------
Total Operating Expenses 117,492
----------
OPERATING LOSS (84,573)
----------
OTHER INCOME AND EXPENSES
Interest expense (21,229)
----------
Total Other Income and Expenses (21,229)
----------
NET LOSS (105,802)
OTHER COMPREHENSIVE LOSS
Foreign currency translation adjustment (5,360)
----------
TOTAL COMPREHENSIVE LOSS $ (111,162)
==========
BASIC LOSS PER SHARE $ (0.01)
==========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 17,511,250
==========
The accompanying notes are an integral part of these financial
statements.
4
511092 N.B. LTD. DBA LABMENTORS
Statement of Stockholders' Equity (Deficit)
Other
Common Shares Accumulated Comprehensive
Shares Amount Deficit Loss
Balance, May 31, 2004 10,807,000 $ 64,377 $(125,338) $ (19,553)
Stock issued for conversion
of debt - related party at
$0.04 per share 1,500,000 59,715 - -
Stock issued for services
rendered at $0.04 per share 100,000 3,981 - -
Stock issued for cash at
$0.02 per share 5,004,200 79,620 - -
Stock issued for cash at
$0.88 per share 100,000 87,582 - -
Movement in other comprehensive
income (loss) - foreign currency
translation adjustments - - - (160)
Net loss for the year ended
May 31, 2005 - - (159,301) -
---------- --------- ---------- -----------
Balance, May 31, 2005 17,511,200 $ 295,275 $ (284,639) $ (19,713)
Movement in other
comprehensive income (loss)
- foreign currency
translation adjustments
(Unaudited) - - - (5,360)
Net loss for the period ended
September 30, 2005 (Unaudited) - - (105,802) -
---------- --------- ---------- -----------
Balance, September 30, 2005
(Unaudited) 17,511,200 $ 295,275 $ (390,441) $ (25,073)
========== ========= ========== ===========
The accompanying notes are an integral part of these financial
statements.
5
511029 N.B. LTD. DBA LABMENTORS
Statement of Cash Flows
For the Period Ended September 30, 2005
(Unaudited)
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $ (105,802)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization expense 21,284
Amortization of debt discount 16,841
Changes in operating assets and liabilities:
Increase in accounts receivable 5,770
Decrease in restricted cash 9,334
Decrease in other current assets 1,086
Decrease in prepaid expenses 1,433
(Decrease) in accounts payable (11,968)
Increase in accrued liabilities 8,805
Increase in deferred revenue 2,955
Increase in accrued interest 4,509
----------
Net Cash Used by Operating Activities (45,753)
----------
CASH FLOW FROM INVESTING ACTIVITIES -
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in bank overdraft (7,946)
Cash proceeds from notes payable 53,699
----------
Net Cash Provided by Financing Activities 45,753
NET INCREASE IN CASH -
CASH AT BEGINNING OF YEAR -
----------
CASH AT END OF YEAR $ -
==========
The accompanying notes are an integral part of these financial
statements.
6
511092 N.B. LTD. DBA LABMENTORS
Notes to the Financial Statements
September 30, 2005
(Unaudited)
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
The financial statements presented are those of 511092 N.B. LTD. DBA
LabMentors, a Canadian Corporation ("the Company").
On February 2, 2000, LabMentors was incorporated under the laws of the
Province of New Brunswick, Canada as 511092 N.B. LTD. to engage in web-based
educational products. LabMentors currently sells products to Course
Technology and DeVry in the United States. These programs offer a unique
atmosphere highly conducive to individual styles of learning and a system that
utilizes computer technology to increase areas of inquiry and application. In
addition, the labs allow certifications for several platforms and software
applications at the collegiate level. The Company intends to continue to
develop products for this market, as well as expand its reach into secondary
education in the U.S. and internationally. Our products and technologies are
targeted to the public and private school classrooms. Our products and
technologies are delivered to the classroom through software and Internet
access. Our technologies allow students to explore the basic foundations of
computers from programming to database technologies to server integration.
There are currently three major shareholders of the Company stock, including
Joseph Khoury (President), Bogdan Itoafa (Co-Founder), and Workers Investment
Fund.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting. The Company has elected May 31 as its year-end.
b. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
c. Basic Loss per Share
The computation of basic loss per share of common stock is based on the
weighted average number of shares outstanding during the period of the
financial statements. As of September 30, 2005, the Company had no stock
equivalents outstanding.
7
511092 N.B. LTD. DBA LABMENTORS
Notes to the Financial Statements
September 30, 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
d. Concentration of Credit Risks and Significant Customers
The Company maintains cash in bank deposit accounts, which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts and believes it is not exposed to any significant credit risk on
cash and cash equivalents.
Financial instruments which potentially subject the Company to concentration
of credit risk consist primarily of trade receivables. In the normal course of
business, the Company provides credit terms to its customers. Accordingly, the
Company performs ongoing credit evaluations of its customers and maintains
allowances for possible losses which when realized have been within the range
of management's expectations. The Company does not require collateral from its
customers.
During the period ended September 30, 2005, the Company had sales to one major
customer that accounted for 100 percent of revenues.
e. Foreign Currency Translation
The functional currency of the Company is the Canadian dollar ($CDN). The
Company's financial statements have been translated into US 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 year. 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).
In accordance with SFAS No. 95, "Statement of Cash Flows," the cash flows of
the Company are translated using the weighted average exchange rates during
the respective period. As a result, amounts in the statement of cash flows
related to changes in assets and liabilities will not necessarily agree with
the changes in the corresponding balances on the balance sheet which was
translated at the exchange rate at the end of the period.
f. Revenue Recognition
The Company recognizes revenues relating to access to and usage of its program
and exercise software on the Company's website over the term of the
subscription or hourly units purchased.
8
511092 N.B. LTD. DBA LABMENTORS
Notes to the Financial Statements
September 30, 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
g. Newly Issued Accounting Pronouncements
During the period ended September 30, 2005, the Company adopted the following
accounting pronouncements:
The FASB issued SFAS No. 123R (revised 2004) "Share-Based Payment" in December
2004. SFAS No. 123R requires employee stock-based compensation to be measured
based on the fair value as of the grant-date of the awards and the cost is to
be recognized over the period during which an employee is required to provide
services in exchange for the award. This pronouncement eliminates the
alternative use of Accounting Principles Board (APB) No. 25, wherein the
intrinsic value method of accounting for awards. SFAS No. 123R is effective
for the Company's fiscal year beginning June 1, 2005. The company will adopt
the provisions of SFAS No. 123R on a prospective basis once the acquisition is
complete. The financial statement impact is not an issue in that all stock
currently outstanding with the Company will be converted to PCS stock upon
close, after which time all calculations will be in accordance with their
policies and procedures, which incorporate this new SFAS.
The FASB issued SFAS No. 154, Accounting Changes and Error Correction - a
replacement of APB No. 20 and SFAS No. 3, Reporting Accounting Changes in
Interim Financial Statements, in May 2005. SFAS 154 changes the requirements
for the accounting for and reporting of a change in accounting principle. It
also applies to changes required by an accounting pronouncement in the unusual
instance that the pronouncement does not include specific transition
provisions.
The implementation of the provisions of these pronouncements are not expected
to have a significant effect on the Company's consolidated financial statement
presentation.
h. Educational Software
The Company's inventory consists of internally developed education computer
programs and exercises to be accessed on the internet. In accordance with FAS
86, the costs associated with research and initial feasibility of the programs
and exercises are expensed as incurred. Once economic feasibility has been
determined, the costs to develop the programs and exercises are capitalized
until they are ready for sale and access and are reported at the lower of
unamortized cost or net realizable value. Capitalized program and exercise
inventory are amortized on a straight-line basis over the estimate useful life
of the program or exercise, generally 42 to 48 months.
9
511092 N.B. LTD. DBA LABMENTORS
Notes to the Financial Statements
September 30, 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
i. Intellectual Property
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 the Company. In accordance with FAS 86 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. Thereafter, costs incurred to develop the internet
online delivery platform and related environments were capitalized until ready
for use and able to deliver and access the Company's educational programs and
exercises. Costs incurred thereafter to maintain the delivery and access
platform are expensed as incurred. These capitalized costs are being amortized
on a straight-line basis over the estimated useful life of the Company's
delivery and access platform which has been determined to be 60 months.
j. Property and Equipment
Property and equipment are recorded at cost and being depreciated for
financial accounting purposes on the straight-line method over their
respective estimated useful lives ranging from five to seven years. Upon
retirement or other disposition of these assets, the cost and related
accumulated depreciation are removed from the accounts and the resulting gains
or losses are reflected in the results of operations.
Expenditures for maintenance and repairs are charged to operations. Renewals
and betterments are capitalized. Depreciation of leased equipment under
capital leases is included in depreciation.
NOTE 3 - RESTRICTED CASH
Pursuant to an employment arrangement, the Company has placed funds in an
escrow account with an attorney. Those funds are restricted as to their use
and have been classified as such in the Company's financial statements. A
portion of the funds are released each pay period to pay the salary of the
employee who is utilizing LabMentors until December 2005 as an employee based
immigration sponsor. The balance of restricted cash of September 30, 2005 was
$3,935.
NOTE 4 - OTHER RECEIVABLES
This amount includes receivables from employees due to travel and other
expense advances. Each will be properly categorized once documentation and/or
receipts are provided to the accounting department. No material changes
should be noted.
10
511092 N.B. LTD. DBA LABMENTORS
Notes to the Financial Statements
September 30, 2005
NOTE 5 - NOTES PAYABLE & LONG TERM DEBT
As of September 30, 2005, the following notes payable and long-term debt were
outstanding:
ACOA Loan $ 45,402
Loan #1 BH 5,587
Notes Payable WIF 98,971
Notes Payable Frank Maresca 103,028
-----------
Total 252,988
Less current portion (122,466)
-----------
Long Term Debt $ 130,522
===========
Also note that all debt, with the exception of the ACOA Loan will be
converted at close of the acquisition, which occurred as a subsequent
event referenced in Note 8.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Currently the Company has a month-to-month lease agreement for its
office location. This lease is between the Company and a related party.
This related party is wholly owned by the Company's President and CEO.
NOTE 7 - GOING CONCERN
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern, which contemplates
the realization of assets and liquidation of liabilities in the normal
course of business. However, the Company does not have significant cash
or other material assets, nor does it have an established source of
revenues sufficient to cover its operating costs. Additionally, the
Company has accumulated significant losses, has negative working
capital, and a deficit in stockholders' equity. All of these items
raise substantial doubt about its ability to continue as a going
concern. Management's plans with respect to alleviating the adverse
financial conditions that caused its auditors to express substantial
doubt about the Company's ability to continue as a going concern are as
follows:
During the fiscal year ending May 2005, the Company opened discussions
with PCS Edventures!.com, Inc. for possible acquisition activities. As
stated in Note 8, this acquisition is set to close on or before November 30,
2005. Over the next fiscal year, the Company will continue to develop
marketplace strategy for the U.S. market as well as the international
market. See Note 8 for further information.
The ability of the Company to continue as a going concern is dependent
upon its ability to successfully accomplish the plan described in the
preceding paragraph and eventually attain profitable operations. The
accompanying financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going
concern.
11
511092 N.B. LTD. DBA LABMENTORS
Notes to the Financial Statements
September 30, 2005
NOTE 8 - SUBSEQUENT EVENTS
In July 2005, the Company entered into a Letter of Intent Agreement
which provides for the Company to be acquired by PCS Edventures!.com,
Inc., an Idaho Corporation ("PCS"). On November 30, 2005, a Share
Exchange Agreement was executed by all shareholders and PCS President to
conclude the acquisition of LabMentors. LabMentors has since legally
changed its name to PCS LabMentors, LTD. The Company is structured as a
wholly owned subsidiary of PCS. All accounting is currently being
transitioned to PCS, while sales and research and development continue
to take place in Fredericton, New Brunswick Canada. No employees were
terminated as a result of the acquisition.
In addition, the Company changed locations. The Company now operates from a
smaller location owned and managed by an unrelated party on a month-to-month
basis.
510229 N.B. LTD. DBA LABMENTORS
Financial Statements
May 31, 2005
C O N T E N T S
Report of Independent Public Accounting Firm 3
Balance Sheet 4
Statement of Operations 5
Statement of Stockholders' Equity (Deficit) 6
Statement of Cash Flows 7
Notes to the Financial Statements 8
REPORT OF INDEPENDENT PUBLIC ACCOUNTING FIRM
Board of Directors
511092, Ltd. DBA LabMentors
Fredericton, Canada
We have audited the accompanying balance sheet of 511092, Ltd., DBA
LabMentors as of May 31, 2005 and the related statements of operations,
stockholders' equity (deficit) and cash flows for the year ended May 31,
2005. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of 511092,
Ltd., DBA LabMentors as of May 31, 2005 and the results of its
operations, and its cash flows for the year ended May 31, 2005 in
conformity with United States generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 7,
the Company does not have significant cash or other material assets, nor
does it have an established source of revenues sufficient to cover its
operating costs. Additionally, the Company has accumulated significant
losses, has negative working capital, and a deficit in stockholders'
equity which together raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans with regard
to these matters are also described in Note 7. The financial statements
do not include any adjustments that might result from the outcome of
this uncertainty.
/s/HJ & Associates, LLC
HJ & Associates, LLC
Salt Lake City, Utah
November 21, 2005
511092 N.B. LTD. DBA LABMENTORS
Balance Sheet
May 31, 2005
ASSETS
CURRENT ASSETS
Accounts receivable $ 15,831
Other receivable (Note 4) 4,857
Restricted cash (Note 3) 13,934
Prepaid expenses 1,433
Other current assets 164
---------
Total Current Assets 36,219
FIXED ASSETS (NET) 4,009
EDUCATIONAL SOFTWARE 163,219
INTELLECTUAL PROPERTY 22,505
---------
TOTAL ASSETS $ 225,952
=========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Bank overdraft $ 8,586
Accounts payable 45,937
Accrued interest 3,964
Accrued expenses 8,353
Deposits payable 3,977
Notes payable and current portion of long-term
liabilities (Note 5) 64,024
---------
Total Current Liabilities 134,841
---------
LONG-TERM LIABILITIES
Long-term liabilities (Note 5) 100,188
---------
Total Liabilities 235,029
---------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, no par value, authorized unlimited
shares; 17,511,200 shares issued and outstanding 295,275
Accumulated other comprehensive loss (19,713)
Accumulated deficit (284,639)
---------
Total Stockholders' Equity (Deficit) (9,077)
---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 225,952
=========
The accompanying notes are an integral part of these financial
statements.
F-4
511092 N.B. LTD. DBA LABMENTORS
Statement of Operations and Other Comprehensive Loss
For the Year Ended May 31, 2005
REVENUES $ 124,848
EXPENSES
Salaries and wages 79,406
Depreciation and Amortization expense 30,202
General and administrative 167,698
---------
Total Operating Expenses 277,306
---------
OPERATING LOSS (152,458)
---------
OTHER INCOME AND EXPENSES
Interest expense (6,864)
Gain on settlement of debt 21
---------
Total Other Income and Expenses (6,843)
---------
NET LOSS (159,301)
OTHER COMPREHENSIVE LOSS
Foreign currency translation adjustment (160)
---------
TOTAL COMPREHENSIVE LOSS $(159,461)
=========
BASIC LOSS PER SHARE $ (0.01)
=========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 15,203,769
==========
The accompanying notes are an integral part of these financial
statements.
F-5
511092 N.B. LTD. DBA LABMENTORS
Statement of Stockholders' Equity (Deficit)
Other
Common Shares Accumulated Comprehensive
Shares Amount Deficit Loss
Balance, May 31, 2004 10,807,000 $ 64,377 $ (125,338) $ (19,553)
Stock issued for conversion
of debt - related party at
$0.04 per share 1,500,000 59,715 - -
Stock issued for services
rendered at $0.04 per share 100,000 3,981 - -
Stock issued for cash at
$0.02 per share 5,004,200 79,620 - -
Stock issued for cash at
$0.88 per share 100,000 87,582 - -
Movement in other comprehensive
income (loss) - foreign currency
translation adjustments - - - (160)
Net loss for the year ended
May 31, 2005 - - (159,301) -
---------- -------- ---------- ---------
Balance, May 31, 2005 17,511,200 $295,275 $ (284,639) $ (19,713)
========== ======== ========== =========
The accompanying notes are an integral part of these financial statements.
F-6
511029 N.B. LTD. DBA LABMENTORS
Statement of Cash Flows
For the Year Ended May 31, 2005
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $ (159,301)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization expense 30,202
Gain on forgiveness of debt (21)
Common stock for services rendered 3,981
Changes in operating assets and liabilities:
Decrease in accounts receivable (15,343)
(Increase) in restricted cash (13,505)
Increase in prepaid expense (1,379)
Decrease (increase) in other assets (5,289)
Increase in accounts payable 16,553
(Decrease) in accrued liabilities (13,362)
----------
Net Cash Used by Operating Activities (157,464)
----------
CASH FLOW FROM INVESTING ACTIVITIES
Capitalization of educational software (148,113)
Purchase of fixed assets (3,498)
----------
Net Cash Used by Investing Activities (151,611)
----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in bank overdraft 8,586
Proceeds from issuance of common stock 161,083
Cash proceeds from notes payable 126,054
----------
Net Cash Provided by Financing Activities 295,723
----------
EFFECT OF EXCHANGE RATES ON CASH 112
----------
NET DECREASE IN CASH (13,240)
CASH AT BEGINNING OF YEAR 13,240
----------
CASH AT END OF YEAR $ -
==========
The accompanying notes are an integral part of these financial statements.
F-7
511092 N.B. LTD. DBA LABMENTORS
Notes to the Financial Statements
May 31, 2005
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
The financial statements presented are those of 511092 N.B. LTD. DBA
LabMentors, a Canadian Corporation ("the Company").
On February 2, 2000, LabMentors was incorporated under the laws of the
Province of New Brunswick, Canada as 511092 N.B. LTD. to engage in web-
based educational products. LabMentors currently sells products to
Course Technology and DeVry in the United States. These programs offer
a unique atmosphere highly conducive to individual styles of learning
and a system that utilizes computer technology to increase areas of
inquiry and application. In addition, the labs allow certifications for
several platforms and software applications at the collegiate level.
The Company intends to continue to develop products for this market, as
well as expand its reach into secondary education in the U.S. and
internationally. Our products and technologies are targeted to the
public and private school classrooms. Our products and technologies are
delivered to the classroom through software and Internet access. Our
technologies allow students to explore the basic foundations of
computers from programming to database technologies to server
integration.
There are currently three major shareholders of the Company stock,
including Joseph Khoury (President), Bogdan Itoafa (Co-Founder), and
Workers Investment Fund.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's financial statements are prepared using the accrual method
of accounting. The Company has elected May 31 as its year-end.
b. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
c. Basic Loss per Share
The computation of basic loss per share of common stock is based on the
weighted average number of shares outstanding during the period of the
financial statements. Diluted loss per share is equal to basic loss per
share as the result of the antidilutive nature of the stock equivalents.
As of May 31, 2005, the Company had no stock equivalents outstanding.
F-8
511092 N.B. LTD. DBA LABMENTORS
Notes to the Financial Statements
May 31, 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
d. Concentration of Credit Risks and Significant Customers
The Company maintains cash in bank deposit accounts, which, at times,
may exceed federally insured limits. The Company has not experienced any
losses in such accounts and believes it is not exposed to any
significant credit risk on cash and cash equivalents.
Financial instruments which potentially subject the Company to
concentration of credit risk consist primarily of trade receivables. In
the normal course of business, the Company provides credit terms to its
customers. Accordingly, the Company performs ongoing credit evaluations
of its customers and maintains allowances for possible losses which when
realized have been within the range of management's expectations. The
Company does not require collateral from its customers.
During the year ended May 31, 2005, the Company had sales to major
customers that exceeded 10 percent of revenues as follows:
Customer A - $ 79,112 64%
Customer B - $ 45,379 36%
The Company also has an account receivable from a major customer as of
May 31, 2005 as follows:
Customer A - $ 5,048
Customer B - $ 10,783
e. Foreign Currency Translation
The functional currency of the Company is the Canadian dollar ($CDN).
The Company's financial statements have been translated into US 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 year. 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).
In accordance with SFAS No. 95, "Statement of Cash Flows," the cash
flows of the Company are translated using the weighted average exchange
rates during the respective period. As a result, amounts in the
statement of cash flows related to changes in assets and liabilities
will not necessarily agree with the changes in the corresponding
balances on the balance sheet which was translated at the exchange rate
at the end of the period.
f. Revenue Recognition
The Company recognizes revenues relating to access to and usage of its
program and exercise software on the Company's website over the term of
the subscription or hourly units purchased.
F-9
511092 N.B. LTD. DBA LABMENTORS
Notes to the Financial Statements
May 31, 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
g. Provision for Income Taxes
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating
loss and tax credit carry forwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are
the differences between the reported amounts of assets and liabilities
and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely that not
that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
Net deferred tax assets consist of the following components as of May
31, 2005:
Deferred tax assets:
NOL Carryover $ 94,675
Deferred tax liabilities: -
Valuation allowance (94,675)
-----------
Net deferred tax asset $ -
===========
The income tax provision differs from the amount of income tax
determined by applying the Canadian federal and provincial income tax
rates totaling 35% to pretax income from continuing operations for the
years ended May 31, 2005 due to the following:
Book loss $ (55,810)
Valuation allowance 55,810
-----------
$ -
===========
At May 31, 2005, the Company had net operating loss carryforwards of
approximately $270,000 that may be offset against future taxable income
from the year 2005 through 2024. No tax benefit has been reported in
the May 31, 2005 financial statements since the potential tax benefit is
offset by a valuation allowance of the same amount.
Canadian tax laws allow a company to recoup a significant amount of
research and development costs. As a result, the Company will continue
to conduct its research and development within Fredericton, New
Brunswick and continue to apply for such tax incentives. In addition,
income taxes are/will be prepared in accordance with Revenue Canada
guidelines so as to maximize additional incentives, when available (see
Note x).
F-10
511092 N.B. LTD. DBA LABMENTORS
Notes to the Financial Statements
May 31, 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
h. Newly Issued Accounting Pronouncements
During the year ended May 31, 2005, the Company adopted the following
accounting pronouncements:
The FASB issued SFAS No. 123R (revised 2004) "Share-Based Payment" in
December 2004. SFAS No. 123R requires employee stock-based compensation
to be measured based on the fair value as of the grant-date of the
awards and the cost is to be recognized over the period during which an
employee is required to provide services in exchange for the award.
This pronouncement eliminates the alternative use of Accounting
Principles Board (APB) No. 25, wherein the intrinsic value method of
accounting for awards. SFAS No. 123R is effective for the Company's
fiscal year beginning June 1, 2005. The company will adopt the
provisions of SFAS No. 123R on a prospective basis once the acquisition
is complete. The financial statement impact is not an issue in that all
stock currently outstanding with the Company will be converted to PCS
stock upon close, after which time all calculations will be in
accordance with their policies and procedures, which incorporate this
new SFAS.
The FASB issued SFAS No. 154, Accounting Changes and Error Correction -
a replacement of APB No. 20 and SFAS No. 3, Reporting Accounting Changes
in Interim Financial Statements, in May 2005. SFAS 154 changes the
requirements for the accounting for and reporting of a change in
accounting principle. It also applies to changes required by an
accounting pronouncement in the unusual instance that the pronouncement
does not include specific transition provisions.
The implementation of the provisions of these pronouncements are not
expected to have a significant effect on the Company's consolidated
financial statement presentation.
i. Educational Software
The Company's inventory consists of internally developed education
computer programs and exercises to be accessed on the internet. In
accordance with FAS 86, the costs associated with research and initial
feasibility of the programs and exercises are expensed as incurred. Once
economic feasibility has been determined, the costs to develop the
programs and exercises are capitalized until they are ready for sale and
access and are reported at the lower of unamortized cost or net
realizable value. Capitalized program and exercise inventory are
amortized on a straight-line basis over the estimate useful life of the
program or exercise, generally 42 to 48 months.
F-11
511092 N.B. LTD. DBA LABMENTORS
Notes to the Financial Statements
May 31, 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
j. Intellectual Property
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 the Company. In
accordance with FAS 86 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. Thereafter, costs incurred to develop the internet online
delivery platform and related environments were capitalized until ready
for use and able to deliver and access the Company's educational
programs and exercises. Costs incurred thereafter to maintain the
delivery and access platform are expensed as incurred. These capitalized
costs are being amortized on a straight-line basis over the estimated
useful life of the Company's delivery and access platform which has been
determined to be 60 months.
k. Property and Equipment
Property and equipment are recorded at cost and being depreciated for
financial accounting purposes on the straight-line method over their
respective estimated useful lives ranging from five to seven years.
Upon retirement or other disposition of these assets, the cost and
related accumulated depreciation are removed from the accounts and the
resulting gains or losses are reflected in the results of operations.
Expenditures for maintenance and repairs are charged to operations.
Renewals and betterments are capitalized. Depreciation of leased
equipment under capital leases is included in depreciation.
NOTE 3 - RESTRICTED CASH
Pursuant to an employment arrangement, the Company has placed funds in
an escrow account with an attorney. Those funds are restricted as to
their use and have been classified as such in the Company's financial
statements. A portion of the funds are released each pay period to pay
the salary of the employee who is utilizing LabMentors until December
2005 as an employee based immigration sponsor. The balance of
restricted cash of May 31, 2005 was $13,934.
NOTE 4 - TAX INCENTIVES
Scientific Research & Experimental Development ("SR&ED") can allow for
tax credits to Canadian companies. SR&ED is a refundable tax credit
program offered by the Canada Revenue Agency ("CRA") to provide
incentive for companies to undertake development activities in Canada.
There are stringent reporting criteria to complete the filings to be
reimbursed for the HST to apply for these credits. The Company is in the
process of applying for such refundable tax credits for the years ended
May 31, 2004 and 2005. Because of the uncertainties surrounding the
application process and related qualifications no amounts related to
there possible credits have been recognized in these financial
statements.
As of May 31, 2005, the Company had a net refund due or receivable of
$4,857.
F-12
511092 N.B. LTD. DBA LABMENTORS
Notes to the Financial Statements
May 31, 2005
NOTE 5 - NOTES PAYABLE & LONG TERM DEBT
As of May 31, 2005, the following notes payable and long-term debt was
outstanding:
ACOA Loan $ 20,568
Loan #1 BH 5,853
Loan #2 CK 7,962
Notes Payable WIF 79,620
Notes Payable Frank Maresca 50,209
----------
Total $ 164,212
==========
Less current portion (64,024)
----------
Long Term Debt $ 100,188
==========
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Currently the Company has a month-to-month lease agreement for its
office location. This lease is between the Company and a related party.
This related party is wholly owned by the Company's President and CEO.
NOTE 7 - GOING CONCERN
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern, which contemplates
the realization of assets and liquidation of liabilities in the normal
course of business. However, the Company does not have significant cash
or other material assets, nor does it have an established source of
revenues sufficient to cover its operating costs. Additionally, the
Company has accumulated significant losses, has negative working
capital, and a deficit in stockholders' equity. All of these items
raise substantial doubt about its ability to continue as a going
concern. Management's plans with respect to alleviating the adverse
financial conditions that caused its auditors to express substantial
doubt about the Company's ability to continue as a going concern are as
follows:
During the fiscal year ending May 2005, the Company opened discussions
with PCS Edventures!.com, Inc. for possible acquisition activities. As
noted above, this acquisition is set to close on or before November 30,
2005. Over the next fiscal year, the Company will continue to develop
marketplace strategy for the U.S. market as well as the international
market.
The ability of the Company to continue as a going concern is dependent
upon its ability to successfully accomplish the plan described in the
preceding paragraph and eventually attain profitable operations. The
accompanying financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going
concern.
F-13
511092 N.B. LTD. DBA LABMENTORS
Notes to the Financial Statements
May 31, 2005
NOTE 8 - SUBSEQUENT EVENTS
In July 2005, the Company entered into a Letter of Intent Agreement
which provides for the Company to be acquired by PCS Edventures!.com,
Inc., an Idaho Corporation ("PCS"). The Letter of Intent provides for a
definitive agreement to be executed and closing to take place by
November 30, 2005 at which time, the Company is expected to become a
wholly owned subsidiary of PCS. All accounting will be undertaken by
PCS, while sales and research and development will continue to take
place in Fredericton, New Brunswick Canada. No employees will be
terminated as a result of the acquisition.
F-14
b) Pro forma financial information. Proforma financial information
will be proved within 75 days of the date of this Report.
c) Exhibits. The following exhibits are attached pursuant to Item
601 of Regulation S-B (17 CFR 228.601) and Instructions B.2 of
this form.