Quarterly Report for Quarter Ending September 30, 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 Annual Report, which are forward-looking, involve a high degree of risk and uncertainty. Certain statements in this Annual 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 freedom exists 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 programing for their out-of-school programs. Most 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 new 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 longer 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 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 illustrates 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

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 three (3) months ended September 30, 2025, our revenue was $1,529,503, which was $737,835 less than our revenue for the quarter ended September 30, 2024 of $2,267,338. The factors below account for this difference:

	1.	The market environment for the quarter ended September 30, 2024 was significantly more robust than that for the quarter ended September 30, 2025. The Elementary and Secondary School Emergency Relief ("ESSER") funds were expiring on September 30, 2024, incentivizing the spending of those funds prior to their expiration. Not only were those funds absent in the quarter ended September 30, 2025, but also the market was faced with the uncertainty of future funding which held back some purchasing decisions until further clarity was reached.
	2.	For the quarter ended September 30, 2024, we had $445,113 in revenue from the Air Force JROTC program. For the quarter ended September 30, 2025, we had $8,144 in revenue from this customer. It is reasonable to assume that our sales experience with the Air Force JROTC program will decline as the contract ages, as they have a limited number of sites (approximately 870 sites), and we have already sold our Discover Drones program into the vast majority of these sites.
	3.	For the quarter ended September 30, 2024, we had $613,330 in reseller sales, as compared to $223,492 in reseller sales for the quarter ended September 30, 2025.
	4.	On the positive side, we recorded revenue of $424,790 from our Iowa Scale-Up customer for the quarter ended September 30, 2025. We did not win a contract from this customer in the prior year and, thus, had $0 in revenue from them for the quarter ended September 30, 2024, from this customer.

For the six (6) months ended September 30, 2025, our revenue was $3,952,812, which was $1,474,450 less than our revenue for the six (6) months ended September 30, 2024, of $5,427,262. The same factors that affected the difference in quarterly revenue described above also explain the revenue difference for the six (6) month periods ended September 30, 2025, and 2024. Reseller revenue was $1,095,651 for the six (6) months ended September 30, 2024, versus $571,934 for the six (6) months ended September 30, 2025. Revenue from the Air Force JROTC was negligible during the three-month periods ended June 30, 2025, and 2024. Thus, revenue from the Air Force JRTOC for the six (6) month periods ended September 30, 2025, and 2024, mirror that for the three (3) month periods ended September 30, 2025, and 2024.

The market environment was also more robust for the six (6) months ended September 30, 2024, versus conditions for the six (6) months ended September 30, 2025. The approaching deadline to spend ESSER funds stimulated sales activity for the six (6) months ended September 30, 2024. Funding uncertainty hindered sales activity for the six (6) months ended September 30, 2025.

The table below, which shows sales by customer size, illustrates the restrained market environment for the three (3) and six (6) month periods ended September 30, 2025.

Number of Customer Transactions by size

		>$1 million				>$500,000				> $100,000				> $50,000				> $25,000				> $10,000
Three months ended 9/30/2022			0				0				2				10				15				22
Three months ended 9/30/2023			1				1				11				13				17				34
Three months ended 9/30/2024			0				0				6				10				18				33
Three months ended 9/30/2025			0				0				2				10				16				29

Number of Customer Transactions by size

		>$1 million				>$500,000				> $100,000				> $50,000				> $25,000				> $10,000
Six months ended 9/30/2022			0				0				7				15				26				43
Six months ended 9/30/2023			1				1				16				23				33				72
Six months ended 9/30/2024			0				0				14				20				41				78
Six months ended 9/30/2025			0				0				6				22				37				71

We believe that we can resume the success we experienced in soliciting larger customers, but we can offer no assurances that success will be certain; nor can we offer any numerical framework in describing the success that may occur. Risk factors include anything that would negatively affect educational funding in the United States; finding and retaining employees that meet our high standards; and anything that would negatively affect 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.

For the quarter ended September 30, 2025, our cost of sales was $641,650, or 42.0% of revenue. For the quarter ended September 30, 2024, our cost of sales was $912,651, or 40.3% 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. The difference in the cost of sales for the two (2) quarters was due to cost inflation arising primarily from tariff expenses being incorporated into the final costs of items in our inventory.

Reseller revenue was down from 27.1% of revenue in the quarter ended September 30, 2024, compared to 14.6% of revenue in the quarter ended September 30, 2025. Because reseller revenue has a higher cost of goods due to the reseller's margin being deducted from revenue, a lower reseller percentage of revenue, like that experienced in the quarter ended September 30, 2025, would have the effect of reducing our cost of sales as a percentage of revenue. Thus, our reseller mix of sales for the quarter ended September 30, 2025, was a favorable factor in reducing our cost of sales. Because our cost of sales increased for the quarter ended September 30, 2025, versus that for the quarter ended September 30, 2024, the inflationary impact of tariffs had a greater negative impact on our cost of sales than the actual change in cost of sales.

For the six (6) months ended September 30, 2025, our cost of sales was $1,528,421, or 38.7% of revenue. For the six (6) months ended September 30, 2024, our cost of sales was $2,111,087, or 38.9% 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
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 $524,247 for the quarter ended September 30, 2025. For the quarter ended September 30, 2024, salaries and wages were $485,734. For the six (6) months ended September 30, 2025, salary and wages were $1,134,539 versus $1,004,031 for the six (6) months ended September 30, 2024. Salaries and wages increased during the three (3) and six (6) month periods ended September 30, 2025, compared to the three (3) and six (6) month periods ended September 30, 2024, as increases in salaries and employee additions outweighed a lower bonus amount.

As of September 30, 2025, we had 26 full-time employees and one (1) part-time employee. As of September 30, 2024, we had 24 full-time employees.

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.	Software
	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 $387,920 for the quarter ended September 30, 2025. For the quarter ended September 30, 2024, general and administrative expenses were $356,154. For the six (6) months ended September 30, 2025, general and administrative expenses were $764,171, compared to $715,924 for the six (6) months ended September 30, 2024.

This increase in general and administrative expenses during the three (3) and six (6) month periods ended September 30, 2025, compared to the three (3) and six (6) month period ended September 30, 2024, was largely due to the increased costs of our new warehouse and office facilities for the periods ended September 30, 2025, compared to those costs for our prior facilities for the period ended September 30, 2024.

Other Income

Net interest income was the sole source of other income for the quarters ended September 30, 2025, and 2024. For the quarter ended September 30, 2025, other income was $31,126, while other income was $37,613 for the quarter ended September 30, 2024.

For the six (6) months ended September 30, 2025, and 2024, net interest income was the sole source of other income. For the six (6) months ended September 30, 2025, other income was $53,957, while other income was $59,123 for the quarter ended September 30, 2024.

The Company's surplus cash 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." For comparisons for both periods, net interest income declined as our cash invested in our money market savings declined, and because the yield of the fund has declined in tandem with short-term interest rates.

Net Income Before Tax

For the three (3) months ended September 30, 2025, net income before tax was $6,812 versus $550,412 for the three (3) months ended September 30, 2024. For the six (6) months ended September 30, 2025, net income before tax was $579,638 versus $1,655,343 for the six (6) months ended September 30, 2024. Lower revenue and lower gross margin during the three (3) and six (6) month periods ended September 30, 2025, versus those for the period ended September 30, 2024, were responsible for the variance in net income before taxes.

Taxes

The Company has a significant tax-loss carry-forward asset, which arose due to past losses. At March 31, 2025, the Company had net operating losses of approximately $8.0 million that may be offset against future taxable income. At September 30, 2025, the Company had net operating losses of approximately $7.3 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 income statement.

Liquidity and Capital Resources

Cash Flow from Operations

For the six (6) months ended September 30, 2025, cash provided by operations was $488,877, compared to cash provided by operations of $2,852,232 for the six (6) months ended September 30, 2024. Major factors in this difference are a lower net income and, with that, a lower tax provision; and the changes in accounts receivable for the two (2) periods.

As of September 30, 2025, total current assets were $6,087,877 and total current liabilities were $453,862, resulting in working capital of $5,634,015. 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 September 30, 2025, of 13.4, compared to a current ratio of 18.1 as of March 31, 2025.

As of September 30, 2025, we had $3,247,793 in cash and cash equivalents, compared to $3,223,147 in cash as of March 31, 2025.

Cash Flow from Investing Activities

For the six (6) months ended September 30, 2025, cash used by investing activities was $12,041, compared to cash used by investing activities of $32,982 for the six (6) months ended September 30, 2024.

We purchased a forklift for the warehouse for $26,829 during the six (6) months ended September 30, 2024, which accounts for the majority of the difference between the two (2) periods.

Cash Flow from Financing Activities

For the six (6) months ended September 30, 2025, cash used by financing activities was $452,190, compared to cash used by financing activities of $143,813 for the six (6) months ended September 30, 2024. For both periods, the Company was active in buying back its stock and cancelling it. Until May of 2025, our purchase activity was in the form of private transactions where the owner of the stock approached us soliciting an offer to buy. Starting in May of 2025, we also began buying our stock on the open market. During the six (6) months ended September 30, 2025, we purchased 3,951,370 shares of our common stock in the open market, with an aggregate cost basis of $399,061. All of these shares, except for 115,500 shares, were cancelled during the quarter.

Off-Balance Sheet Arrangements

We had no Off-Balance Sheet Arrangements during the three (3) month periods ended September 30, 2025, and 2024, nor did we have any such Arrangements during the six (6) month periods ended September 30, 2025, and 2024.