Quarterly Report for Quarter Ending December 31, 2025 (Form 10-Q)

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

Cautionary Statements for Purposes of "Safe Harbor Provisions" of the Private Securities Litigation Reform Act of 1995:

Except for historical facts, all matters discussed in this Quarterly Report, which are forward-looking, involve a high degree of risk and uncertainty. Certain statements in this Quarterly Report set forth management's intentions, plans, beliefs, expectations or predictions of the future based on current facts and analyses. When we use the words "believe," "expect," "anticipate," "estimate," "intend" or similar expressions, we intend to identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Actual results may differ materially from those indicated in such statements, due to a variety of factors, risks and uncertainties. Potential risks and uncertainties include, but are not limited to, competitive pressures from other companies within the Educational Industries, economic conditions in the Company's primary markets, exchange rate fluctuation, reduced product demand, increased competition, inability to produce required capacity, unavailability of financing, government action, weather conditions and other uncertainties, including those detailed in our SEC filings. We assume no duty to update forward-looking statements to reflect events or circumstances after the date of such statements.

The following discussion should be read in conjunction with Item 1, Condensed Financial Statements, in Part I of this Quarterly Report.

Overview of Current and Planned Operations

PCS Edventures!, Inc. sells STEM / STEAM products to educational and recreational entities serving youth. At this time, we do not attempt to align our products to fit in the classroom setting although we are aware that some of our customers use our products to fill enrichment time blocks in the classroom during formal school time. Classroom curriculum must align with specific state standards to be considered for use. Each state has their own unique set of standards, making classroom curriculum development a state by-state endeavor.

On the other hand, out of school programs are not subject to any state governmental standard alignments, although these programs often require that educational programs align with various sets of state or national educational standards. This difference makes it easier to penetrate out-of-school programs, as more freedoms exist for curriculum development. We focus our efforts on these out-of-school programs, which include summer school, summer camps, YMCA programs, Boys and Girls club programs and various other programs offered outside of the classroom, at all times of the year, that are too numerous to list. Oftentimes, these programs are sponsored, administered and/or supported by local school districts, and we employ considerable efforts to build relationships with these types of school districts to provide desired programming for their out-of-school programs. The majority of the time, the out-of-school programs offered are funded with grants; however, some programs are run on a for- profit basis. The Company sells to all of these types of entities.

We offer professional development training for instructors using our products; and typically charge a fee for this service, with the fee primarily covering our expenses. Management does not view this service as a profit center, but rather as a customer service component of our product that adds to its uniqueness and value in the marketplace, and as a market development endeavor to build out the Company's addressable market.

The nature of our target market produces considerable seasonality for the Company's revenue. The quarters ended June 30 and September 30 tend to be the peak of this seasonality (with the quarter ended March 31 being close to these quarters), while the quarter ended December 31 tends to be the low point of our seasonality. The Table below reflects this seasonality.

		Quarterly Revenue $
Quarter Ended		2022				2023				2024				2025
March 31			1,445,594				2,521,470				2,262,772				1,292,819
June 30			1,391,785				2,605,281				3,159,923				2,423,309
September 30			1,243,662				3,767,326				2,267,338				1,529,503
December 31			1,847,659				459,087				701,147				754,889

The Company, through winning a competitive Request for Proposal, added the Air Force Junior Reserve Officers' Training Corp ("AFJROTC") as a customer in the second half of calendar year 2022. The Company experienced elevated sales due to the fulfillment of the AFJROTC orders for the quarters ended December 31, 2022, March 31, 2023, and September 30, 2023. One of the AFJROTC revenue quarters was December 31, 2022, which corresponds with the lowest seasonal revenue quarter, so the effects of seasonality in 2022 was not as readily apparent as in other calendar years.

During the quarter ended December 31, the Company focuses on product development, restocking inventory and general planning for the next year. Sales and marketing activities remain fairly constant throughout the year.

Results of Operations

Revenue

For the quarter ended December 31, 2025, our revenue was $754,889, which was $53,742 greater than our revenue for the quarter ended December 31, 2024, of $701,147. Business conditions during the quarter ended December 31, 2025, were much better than those during the quarter ended December 31, 2024. The revenue differential of $53,742 includes deferred revenue from the prior quarter for both periods.

Deferred revenue for the quarter ended September 30, 2025, of $30,160, was recognized in the quarter ended December 31, 2025. Deferred revenue for the quarter ended September 30, 2024, of $107,336, was recognized in the quarter ended December 31, 2024. Thus, the revenue differential between the quarter ended December 31, 2025, versus the quarter ended December 31, 2024, was much larger when considering sales activities that occurred during the quarter that produced the revenue for the quarter, indicating the much-improved business conditions for the quarter ended December 31, 2025, over those during the quarter ended December 31, 2024.

For the nine (9) months ended December 31, 2025, our revenue was $4,707,702, which was $1,420,707 less than our revenue for the nine (9) months ended December 31, 2024, of $6,128,409. Business conditions were impaired during the first three (3) calendar quarters of 2025 compared to the same period in 2024 and did not improve until the fourth calendar quarter on a year-over-year basis, which is our seasonally slowest quarter of the year.

Thus, the business environment for the nine (9) months ended December 31, 2025, can be characterized as impaired when compared to that of the nine (9) months ended December 31, 2024. Our reseller revenue for the nine (9) months ended December 31, 2025, was $845,637, versus $1,430,491 for the nine (9) months ended December 31, 2024, which provides another indication of the challenges faced during the nine (9) months ended December 31, 2025, compared to the nine (9) months ended December 31, 2024.

These challenges started with the expiration of the Elementary and Secondary School Emergency Relief funds on September 30, 2024, which were part of the extra funding available to schools after the Covid pandemic. This expiration was followed by a change in presidential administrations, which significantly changed the landscape of school funding. This change created hesitation in the minds of decision makers to commit to spending as they struggled to understand the nature of the changes. They wanted to wait for clarity before committing to purchasing activities.

The table below, which shows customer transactions by size for the periods indicated, illustrates the impairment our market faced for the nine (9) months ended December 31, 2025.

	Number of Customer Transactions by size
		> $1 million				>$500,000				> $100,000				> $50,000				> $25,000				> $10,000
Nine (9) months ended December 31, 2025			0				0				8				25				42				80
Nine (9) months ended December 31, 2024			0				1				14				21				44				90
Nine (9) months ended December 31, 2023			1				2				16				23				34				80
Nine (9) months ended December 31, 2022			1				1				8				18				30				49
Nine (9) months ended December 31, 2021			0				0				5				10				15				38

Despite our setback in 2025, we will continue to solicit larger customers; however, we cannot guarantee success, nor can we provide a numerical framework to describe the potential success. Risk factors include any developments that negatively impact education funding in the United States, challenges finding and retaining employees who meet our high standards and disruptions to our supply chain of critical components.

Cost of Sales

We strive to have a cost of sales that is less than 40% of revenue. We price our products once per year, at the beginning of the calendar year, and maintain that pricing level throughout the year. During inflationary environments, when the price level of the Company's raw materials is increasing, the Company must absorb that negative impact to gross margins until it can reprice its products at the beginning of the next calendar year. This repricing analysis considers the current pricing level of materials, as well as the likely increase in those levels in the year ahead. We attempt to incorporate shipping costs into the cost of raw materials, but oftentimes during the course of the year, we are compelled to ship in a more expedient manner, which is more expensive than our baseline assumptions. More recently, tariff management has become a significant factor in pricing considerations.

For the quarter ended December 31, 2025, our cost of sales was $270,138, or 35.8% of revenue. For the quarter ended December 31, 2024, our cost of sales was $348,660, or 49.7% of revenue. For any given quarter, and especially in low revenue quarters, the cost of sales can vary significantly from our desired 40% or less of revenue. However, for any given year, the calculation is relevant and desired to be 40% or less of revenue. For the nine (9) months ended December 31, 2025, our cost of sales was $1,798,560, or 38.2% of revenue, as compared to $2,459,747, or 40.1% of revenue for the nine (9) months ended December 31, 2024. Factors affecting cost of sales include:

Helps sub 40% cost of sales		Impedes sub 40% cost of sales
Higher revenue		Higher inflation
Larger order size		Expedited shipping
Ability to take advantage of volume discounts		Quality issues with raw materials
Lower reseller mix		Higher reseller mix

Operating Expenses

Operating expenses are divided into two (2) categories - salary + wages, and general + administrative. Salary and wages tend to increase over time as the Company has been increasing its number of employees, and we expect to continue to do so in the future. Also, the Company desires to retain employees over the long term, which requires periodic increases in compensation as their value to the Company increases.

The Company also has a discretionary quarterly bonus program based on qualified revenue. Qualified revenue is defined as revenue where there are no reseller fees or other price adjustments associated with that revenue. Thus, all reseller sales are disqualified from the discretionary quarterly bonus calculation, as are other miscellaneous transactions where the Company did not receive a full margin. During quarters with higher revenue, salaries and wages will increase, all other things equal.

Salary and wages were $539,034 for the quarter ended December 31, 2025. For the quarter ended December 31, 2024, salaries and wages were $436,150. We had 27 employees as of December 31, 2025, versus 24 employees as of December 31, 2024.

Salary and wages were $1,673,573 for the nine (9) months ended December 31, 2025. For the nine (9) months ended December 31, 2024, salaries and wages were $1,440,181. As with the case above, we had more employees during the nine (9) months ended December 31, 2025, than the nine (9) months ended December 31, 2024. We also want to retain our employees, which necessitates annual raises to compensate for inflation and reflect an employee's increased value to the Company.

General and administrative expenses include all operating expenses outside of salaries and wages. These include the following categories:

	1.	Advertising and marketing expenses
	2.	Trade show and travel expenses
	3.	Product development expenses
	4.	Finance charges
	5.	Contract labor expenses
	6.	Lease expenses
	7.	Insurance premiums
	8.	Workers' compensation expenses
	9.	Office supplies and repairs
	10.	Professional expenses
	11.	Licenses
	12.	State sales tax expenses
	13.	Office and warehouse infrastructure expenses

Most of these expenses are not correlated with changes in revenue, but they tend to increase over time. General and administrative expenses were $262,358 for the quarter ended December 31, 2025. For the quarter ended December 31, 2024, general and administrative expenses were $375,081. The decrease in general and administrative expenses for the quarter ended December 31, 2025, versus the quarter ended December 31, 2024, was largely due to the Company's new facilities leases, which began in the quarter ended December 31, 2024, and required upgrading expenses. These upgrading expenses were absent in the quarter ended December 31, 2025. Warehouse and Office lease and maintenance expenses were $64,149 for the quarter ended December 31, 2025, compared to $141,847 for the quarter ended December 31, 2024. The expenses included the costs of upgrading the new facilities, especially the warehouse.

General and administrative expenses were $1,026,529 for the nine (9) months ended December 31, 2025. For the nine (9) months ended December 31, 2024, general and administrative expenses were $1,091,005. An increase of warehouse and office lease expenses is largely responsible for the increase in general and administrative expenses for the nine (9) months ended December 31, 2025, over the nine (9) months ended December 31, 2024. The lease rates for our new facilities are higher than for our old facilities.

We moved into our new facilities during the quarter ended December 31, 2024, and thus, incurred lower lease rates for the nine (9) months ended December 31, 2024, than we did for the nine (9) months ended December 31, 2025.

Other Income and Expenses

Other income and expenses are those outside of the Company's ordinary course of business. Interest income and interest expense are disclosed under other income and expenses. The Company has accumulated cash which is invested in a Vanguard money market fund that invests exclusively in repurchase agreements and short-term U.S. government securities. The ticker symbol of this fund is VMFXX. The Company's investments in this fund produce interest income.

For the quarter ended December 31, 2025, other income and expenses were $28,837, with net interest income accounting for the entire amount. For the quarter ended December 31, 2024, other income and expenses were $24,920, with net interest income accounting for the entire amount.

For the nine (9) months ended December 31, 2025, other income and expenses were $82,794, with net interest income accounting for the entire amount. For the nine (9) months ended December 31, 2024, other income and expenses were $84,043, with net interest income accounting for the entire amount.

Net Income (Loss) Before Tax

For the quarter ended December 31, 2025, net income (loss) before tax was ($287,804) versus ($433,824) for the quarter ended December 31, 2024. Higher revenue and lower costs characterized the net income (loss) before tax for the quarter ended December 31, 2025, compared to the quarter ended December 31, 2024.

For the nine (9) months ended December 31, 2025, net income before tax was $291,834 versus $1,221,519 for the nine (9) months ended December 31, 2024. The nine (9) months ended December 31, 2025, can be characterized as having less revenue and higher costs when compared to the nine (9) months ended December 31, 2024.

Taxes

The Company has significant net operating losses which arose due to past losses. At March 31, 2025, the Company had net operating losses of approximately $7.9 million that may be used to offset against future taxable income.

Prior to fiscal year 2023, the Company offset its potential tax benefit from the operating loss carry-forwards with a valuation allowance in the same amount. As it became clear that the Company will more likely than not use its tax loss carry-forward amounts, the valuation allowance was partially removed for the fiscal year ended March 31, 2023, such that the tax benefit recognized by us in fiscal year 2023 was $1,011,466. The valuation allowance was fully removed as of March 31, 2024, resulting in a tax benefit of $1,529,793 for fiscal year 2024.

While we do not expect to pay federal income taxes for fiscal year 2026, the deferred tax asset will be adjusted on a quarterly basis to reflect the amount of taxes it is offsetting for the quarter. The provision for income tax is an unwinding of the tax benefit we recorded in prior periods when we recognized the value of the deferred tax asset on the income statement.

For the three (3) months ended December 31, 2025, the provision for income tax was $77,313 compared to $210,935 for the three (3) months ended December 31, 2024. A positive income tax provision indicates a net loss before income tax for the period.

For the nine (9) months ended December 31, 2025, the provision for income tax was ($56,233) compared to ($155,904) for the nine (9) months ended December 31, 2024. A negative income tax provision indicates a positive net income before tax for the period.

Liquidity and Capital Resources

Cash Flow from Operations

For the nine (9) months ended December 31, 2025, cash provided by operations was $262,875 compared to cash provided by operations of $2,727,089 for the nine (9) months ended December 31, 2024. Cash provided by operations decreased significantly for the nine (9) months ended December 31, 2025, as compared to the nine (9) months ended December 31, 2024, largely due to 1) the difference between the change in accounts receivable and 2) the difference in the net income between the two (2) periods.

For the nine (9) months ended December 31, 2025, accounts receivable decreased by $158,217 compared to a decrease of $1,512,101 for the nine (9) months ended December 31, 2024.

For the nine (9) months ended December 31, 2025, net income was $235,601 compared to net income of $1,065,615 for the nine (9) months ended December 31, 2024.

As of December 31, 2025, total current assets were $5,693,823 and total current liabilities were $399,382, resulting in working capital of $5,294,441. As of March 31, 2025, total current assets were $5,918,984 and total current liabilities were $326,439, resulting in working capital of $5,592,545. The Company had a current ratio as of December 31, 2025, of 14.3 compared to a current ratio of 18.1 as of March 31, 2025.

As of December 31, 2025, we had $2,973,457 in cash and cash equivalents compared to $3,223,147 in cash and cash equivalents as of March 31, 2025.

Cash Flow from Investing Activities

For the nine (9) months ended December 31, 2025, cash used by investing activities was $14,734 compared to cash used by investing activities of $76,725 for the nine (9) months ended December 31, 2024. During the nine (9) months ended December 31, 2024, we purchased warehouse equipment related to our recent relocation of the warehouse, expenses we did not incur during the nine (9) months ended December 31, 2025, which accounts for the decrease in cash used by investing activities.

Cash Flow from Financing Activities

For the nine (9) months ended December 31, 2025, cash used by financing activities was $497,831 compared to cash used by financing activities of $390,021 for the nine (9) months ended December 31, 2024. In both periods, cash used by financing activities was due to the Company's purchase of its common stock. For the nine (9) months ended December 31, 2025, the Company purchased 4,751,512 shares of its common stock, and for the nine (9) months ended December 31, 2024, the Company purchased 1,174,501 shares of its common stock. All common stock purchased was cancelled except for the 314,327 Treasury shares the Company held as of December 31, 2025.

Off-Balance Sheet Arrangements

We had no Off-Balance Sheet arrangements during the three (3) and nine (9) month periods ended December 31, 2025, and 2024.