Quarterly Report for Quarter Ending June 30, 2026 (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. Because the majority of our customers work in out-of-school-time settings, we have not attempted to align our products to fit in the classroom setting, until recently. Classroom curriculum must promote academic achievement through rigorous alignment with specific state standards to be considered for use. Each state has its own unique set of standards, making classroom curriculum development a state by-state endeavor.

On the other hand, out of school programs focus more broadly on the goals of engagement, career exploration and development of 21^st century skills. 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.

However, given the administration's stated goals of removing federal influence and administration from education, and returning those functions to the states, we are now considering which of our products would be adaptable to the educational standards of certain larger states. We intend to continue to weigh state-level priorities much more heavily in the development of future products as well. We view a transition from federal dominance to state dominance of the application of educational standards to curriculum as likely, albeit over a long-time frame, and we are adapting our product development to this change in our market.

Market feedback also indicates that products that have evidence of their effectiveness are increasingly being demanded, especially in state-funded programs and larger programs. While we maintain a library of the evidence we have accumulated about the outcomes one can expect when using our products, and while this library of evidence has helped us win larger orders, we believe that expanding this library and upgrading the tiers of evidence we have will produce meaningful benefits for future sales.

We have engaged various firms to help us generate more compelling evidence of our products' effectiveness. We are early in this process, but we intend to substantially build out our library of evidence of our products' effectiveness.

The course we take to accomplish this endeavor will depend on our experiences with these early initiatives.

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 1) a customer service component of our product that adds to its uniqueness and value in the marketplace and 2) 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 ending June 30 and September 30 tend to be the peak of this seasonality (with the quarter ending March 31 being close to these quarters), while the quarter ending December 31 tends to be the low point of our seasonality. The Table below reflects this seasonality.

Quarter Ended		2023				2024				2025				2026
March 31			2,521,470				2,262,772				1,292,819				1,642,060
June 30			2,605,281				3,159,923				2,423,308				1,740,616
September 30			3,767,326				2,267,338				1,529,503
December 31			459,087				701,147				754,889

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 June 30, 2026, our revenue was $1,740,616, which was $682,692 less than our revenue for the quarter ended June 30, 2025, of $2,423,308. The difference in revenue was due to weak market conditions, characterized by fewer large orders and declining reseller revenue.

The success of the Company initiative to solicit larger customers has waned since the onset of this period of market weakness. The table below shows customer transactions by size for the periods indicated.

Number of Customer Transactions by size

		> $1 million				>$500,000				> $100,000				> $50,000				> $25,000				> $10,000
Three (3) months ended June 30, 2026			0				0				2				8				15				43
Three (3) months ended June 30, 2025			0				0				4				13				22				46
Three (3) months ended June 30, 2024			0				0				8				13				26				50
Three (3) months ended June 30, 2023			0				0				6				12				19				42
Three (3) months ended June 30, 2022			0				0				3				7				12				24

We believe that once the uncertainty about funding streams is removed from our market, we can again show some success in soliciting 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.

Reseller revenue for the quarter ended June 30, 2026, was $161,081 as compared to reseller revenue of $344,450 for the quarter ended June 30, 2025. This provides further evidence that the market weakness we are experiencing is widespread and not isolated to any individual factor.

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.

For the quarter ended June 30, 2026, our cost of sales was $647,320, or 37.2% of revenue. For the quarter ended June 30, 2025, our cost of sales was $886,771, or 36.6% 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. 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
Higher mix of sales from internal efforts		Higher mix of sales from resellers

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.

Salary and wages were $601,346 for the quarter ended June 30, 2026. For the quarter ended June 30, 2025, salaries and wages were $610,293. For the quarter ended June 30, 2026, and going forward in time, the Company has a discretionary quarterly bonus program based on operating income. During quarters with higher operating income, salaries and wages will increase all other things equal.

We had 28 full time employees and two (2) part-time employees as of June 30, 2026, versus 25 full time employees as of June 30, 2025.

For the quarter ended June 30, 2025, the Company had a discretionary quarterly bonus program based on revenue. This produced a higher quarterly bonus pay out than the current program which is based on operating earnings. Despite a higher employee headcount, salary and wages were slightly less for the quarter ended June 30, 2026, than for the quarter ended June 30, 2025. The change in the bonus program pay out formula largely accounted for this decrease.

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 $409,949 for the quarter ended June 30, 2026. For the quarter ended June 30, 2025, general and administrative expenses were $353,924. The increase in general and administrative expenses for the quarter ended June 30, 2026, was largely due to increased spending on sales and marketing expenses, as well as for professional fees.

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 June 30, 2026, other income and expenses were $20,846, with net interest income accounting for the entire amount. For the quarter ended June 30, 2025, other income and expenses were $22,831, with net interest income accounting for the entire amount.

Net Income (Loss) Before Tax

For the quarter ended June 30, 2026, net income before tax was $102,847 versus $595,151 for the quarter ended June 30, 2025. Lower revenue accounted for the majority of the difference in net income between the June 30, 2026, quarter versus the June 30, 2025, quarter.

Taxes

The Company has significant net operating losses which arose due to past losses. At June 30, 2026, the Company had net operating losses of approximately $7.57 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 2027, 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 quarter ended June 30, 2026, the provision for income taxes was $28,252. For the quarter ended June 30, 2025, the provision for income taxes was $149,998.

Liquidity and Capital Resources

Cash Flow from Operations

For the three (3) months ended June 30, 2026, cash provided by operations was $24,279 compared to cash provided by operations of $432,279 for the three (3) months ended June 30, 2025. Cash provided by operations decreased significantly, due to the difference in net income and the increases in inventory and accounts receivable.

As of June 30, 2026, total current assets were $5,658,852 and total current liabilities were $420,508, resulting in working capital of $5,238,344. As of March 31, 2026, total current assets were $5,631,022 and total current liabilities were $448,856, resulting in working capital of $5,182,166. Working capital increased largely due to a decrease in accounts payable.

The Company had a current ratio as of June 30, 2026, of 13.5 compared to a current ratio of 12.5 as of March 31, 2026.

As of June 30, 2026, cash and cash equivalents were $2,647,668, compared to $2,674,538 in cash and cash equivalents as of March 31, 2026.The slight decline in cash during the quarter was primarily driven by inventory purchases and share repurchases on the open market.

Cash Flow from Investing Activities

For the three (3) months ended June 30, 2026, cash used by investing activities was $2,331, compared to cash used by investing activities of $7,255 for the three (3) months ended June 30, 2025. Equipment purchases were less in the quarter ended June 30, 2026, versus that for the quarter ended June 30, 2025.

Cash Flow from Financing Activities

For the three (3) months ended June 30, 2026, cash used by financing activities was $48,818, compared to cash used by financing activities of $53,501 for the three (3) months ended June 30, 2025. For the quarter ended June 30, 2026, cash used by financing activities was due to the Company repurchasing 32,556 of its common stock on the open market for total consideration of $48,818.

Off-Balance Sheet Arrangements

We had no Off-Balance Sheet arrangements during the three (3) month periods ended June 30, 2026, and 2025.