PCS Edventures!, Inc. 10-Q

Item 1. Financial Statements The Financial Statements of the Registrant required to be filed with this 10-Q Quarterly Report were prepared by management and commence below, together with related notes. In the opinion of management, the Financial Statements fairly present the financial condition of the Registrant. (This space intentionally left blank.) 4 PCS EDVENTURES!, INC. Balance Sheets December 31, 2023 (Unaudited) March 31, 2023 (Audited) CURRENT ASSETS Cash $ 2,006,618 $ 442,657 Accounts receivable, net of allowance for doubtful accounts of $ 18,469 149,121 363,947 Accounts receivable, other receivables 45,370 13,312 Prepaid expenses 954,917 436,118 Inventory, net 1,794,416 1,237,872 Total Current Assets 4,950,442 2,493,906 NONCURRENT ASSETS Lease Right-of-Use Asset 301,569 173,352 Deposits 6,300 6,300 Property and equipment, net 39,766 31,533 Deferred tax asset 1,011,466 1,011,466 Total Noncurrent Assets 1,359,101 1,222,651 TOTAL ASSETS $ 6,309,543 $ 3,716,557 CURRENT LIABILITIES Accounts payable $ 364,436 $ 27,927 Payroll liabilities and accrued expenses 108,358 226,231 Deferred revenue 51,185 7,085 Lease Liability, current portion 90,657 103,026 Total Current Liabilities 614,636 364,269 Lease Liability, net of current portion 222,448 72,726 Total Noncurrent Liabilities 222,448 72,726 TOTAL LIABILITIES 837,084 436,995 STOCKHOLDERS’ EQUITY (DEFICIT) Preferred stock, no par value, 20,000,000 authorized shares, no shares issued and outstanding - - Common stock, no par value, 150,000,000 authorized shares, 124,733,494 and 125,732,479 shares issued and outstanding - - Additional Paid-in Capital 40,570,459 40,635,392 Accumulated deficit ( 35,098,000 ) ( 37,355,830 ) Total Stockholders’ Equity 5,472,459 3,279,562 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 6,309,543 $ 3,716,557 The accompanying notes are an integral part of these financial statements. 5 PCS EDVENTURES!, INC. Statements of Operations (Unaudited) 2023 2022 2023 2022 For the Three Months Ended December 31, For the Nine Months Ended December 31, 2023 2022 2023 2022 REVENUE 459,087 1,847,659 6,831,694 4,483,106 COST OF SALES 310,657 751,711 2,503,552 1,833,669 GROSS PROFIT 148,430 1,095,948 4,328,142 2,649,437 OPERATING EXPENSES Salaries and wages 353,934 389,795 1,313,886 1,050,032 General and administrative expenses 231,475 191,117 821,116 587,718 Total Operating Expenses 585,409 580,912 2,135,002 1,637,750 INCOME (LOSS) FROM OPERATIONS ( 436,979 ) 515,036 2,193,140 1,011,687 OTHER INCOME AND (EXPENSES) Tax credit - 94,703 31,258 94,703 Net interest income (expense) 20,183 ( 40,544 ) 30,774 ( 114,705 ) (Gain) loss on lease modification 2,658 - 2,658 - Total Other Income (Expense) 22,841 54,159 64,690 ( 20,002 ) NET INCOME (LOSS) BEFORE TAXES ( 414,138 ) 569,195 2,257,830 991,685 Provision for income taxes - - - - NET INCOME (LOSS) $ ( 414,138 ) $ 569,195 2,257,830 $ 991,685 Net income (loss) per common share: Basic $ ( 0.00 ) $ 0.00 $ 0.02 $ 0.01 Diluted $ ( 0.00 ) $ 0.00 $ 0.02 $ 0.01 Weighted Average Common Shares Outstanding Basic 124,733,494 125,482,479 125,183,945 124,973,388 Diluted 124,733,494 125,647,758 125,183,945 125,138,667 The accompanying notes are an integral part of these financial statements. 6 PCS EDVENTURES!, INC. Statement of Stockholders’ Deficit (Unaudited) # of Common Shares O/S Common Stock Additional Paid-in Capital Accumulated Deficit Stockholders’ Equity (Deficit) Balance at 3/31/2022 124,482,479 - $ 40,589,402 $ ( 40,132,007 ) $ 457,395 Net Income - - - 991,685 991,685 Shares Issued (exercise of warrants) 1,000,000 - 25,000 - 25,000 Option expense - - 15,990 - 15,990 Balance at 12/31/2022 125,482,479 - $ 40,630,392 $ ( 39,140,322 ) $ 1,490,070 Balance at 3/31/2023 125,732,479 - $ 40,635,392 $ ( 37,355,830 ) $ 3,279,562 Net Income - - - 2,257,830 2,257,830 Shares Redeemed ( 998,985 ) ( 64,933 ) - ( 64,933 ) Option expense - - - - - Balance at 12/31/2023 124,733,494 - $ 40,570,459 $ ( 35,098,000 ) $ 5,472,459 Balance at 9/30/2022 125,482,479 - $ 40,630,392 $ ( 39,709,517 ) $ 920,875 Net Income - - - 569,195 569,195 Shares Issued (exercise of warrants) - - - - - Option expense - - - - - Balance at 12/31/2022 125,482,479 - $ 40,630,392 $ ( 39,140,322 ) $ 1,490,070 Balance at 9/30/2023 124,733,494 - $ 40,570,459 $ ( 34,683,862 ) $ 5,886,597 Balance 124,733,494 - $ 40,570,459 $ ( 34,683,862 ) $ 5,886,597 Net Loss - - - ( 414,138 ) ( 414,138 ) Net Income (Loss) - - - ( 414,138 ) ( 414,138 ) Shares Redeemed - - - - Option expense - - - - - Balance at 12/31/2023 124,733,494 - $ 40,570,459 $ ( 35,098,000 ) $ 5,472,459 Balance 124,733,494 - $ 40,570,459 $ ( 35,098,000 ) $ 5,472,459 The accompanying notes are an integral part of these financial statements. 7 PCS EDVENTURES!, INC . Statements of Cash Flows (Unaudited) Nine Months Ended December 31, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES Net Income 2,257,830 991,685 Stock based compensation - 15,990 Depreciation and amortization 7,863 3,470 Amortization of right of use asset 112,063 73,833 Changes in operating assets and liabilities (Increase) decrease in accounts receivable 214,826 ( 68,572 ) (Increase) decrease in prepaid expenses ( 518,799 ) ( 336,247 ) (Increase) decrease in inventories ( 556,544 ) ( 358,716 ) (Increase) decrease in other current assets ( 32,058 ) 92,002 (Decrease) increase in accounts payable and accrued liabilities 218,636 ( 98,641 ) Increase (decrease) in lease liability ( 102,927 ) ( 72,433 ) Increase (decrease) in unearned revenue 44,100 2,288 Net Cash Provided by Operating Activities 1,644,990 244,659 CASH FLOWS FROM INVESTING ACTIVITIES Cash paid for purchase of fixed assets ( 16,096 ) ( 16,459 ) Net Cash Used by Investing Activities ( 16,096 ) ( 16,459 ) CASH FLOWS FROM FINANCING ACTIVITIES Common stock repurchased and cancelled ( 64,933 ) - Principal payments on debt - ( 143,327 ) Proceeds from sale of stock - 25,000 Net Cash Used by Financing Activities ( 64,933 ) ( 118,327 ) Net Increase (Decrease) in Cash 1,563,961 109,873 Cash at Beginning of Period 442,657 584,070 Cash at End of Period 2,006,618 693,943 Cash Paid for Interest 648 107,955 Cash Paid for taxes 41,957 4,868 Non Cash Investing and Financing Transactions: Right of use assets obtained in exchange for new operating lease liabilities 240,281 - The accompanying notes are an integral part of these financial statements. 8 PCS EDVENTURES!, INC. Notes to the Financial Statements December 31, 2023 (Unaudited) NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Description of Business The financial statements presented are those of PCS Edventures!, Inc., an Idaho corporation (the “Company,” “PCS,” “PCSV,” “we,” “our,” “us” or similar words), incorporated in 1994, in the State of Idaho. PCS specializes in experiential, hands-on, K12 education and drone technology. PCS has extensive experience and intellectual property (IP) that includes drone hardware, product designs, and K-12 curriculum content. PCS continually develops new educational products based upon market needs that the Company identifies through its sales and customer networks. Our products facilitate STEM education by providing engaging activities that demonstrate STEM concepts and inspire further STEM studies, with the goal of ultimately leading students to pursue STEM career pathways. Due to our exceptionally detailed curriculum, our products are easy to teach and do not require a teaching degree or experience to administer. Our educational products are developed from both in-house efforts and contracted services. They are marketed through reseller channels, direct sales efforts, partner networks, and web-based channels. PCS has developed and sells a variety of STEM education products into the K12 market which can be categorized as follows: 1. Enrichment Programs These camps are for the informal learning market and are designed to be highly engaging for students while easily administered by the instructor. The Company offers approximately thirty (30) different enrichment programs and typically develops at least two (2) new programs each year. Some of the more popular programs include Ready, Set, Drone!; Traveling Artist; Unleash Your Wild Side, Build a Better World; Claymation; Oceanic Exploration; Pirate; and Flight and Aerodynamics. 2. Discover Series Products These products are designed for the makerspace environment and include engaging STEM activities that motivate students to pursue educational pathways toward STEM careers. The Discover Series includes Discover Engineering; Discover Robotics & Physics; Discover Robotics & Programming; and Discover STEM. 3. BrickLAB Products These products are designed for the grade school market and use the Company’s proprietary bricks (which are Lego compatible) and curriculum to engage students to explore, imagine and create within a STEM education framework. The Company offers a variety of grade-specific BrickLAB products. 4. Discover Drones, Add-on Drone Packages and Ala Carte Drone Items These products are designed around using drones as a platform for STEM education and career exploration. These titles include the Discover Drones series of Products; Discover Drones Indoor Coding Bundle; Discover Drones Indoor Racing Add-On; Discover Drones Outdoor Practice Add-on ; and all the spare parts and ala carte drone items offered in the Company’s comprehensive drone packages. 5. STEAMventures BUILD Activity Book These series of activity books are designed for the K-3 market and ideal for a distance-learning environment. The series includes twelve (12) different issues. Instructor guides and/or family engagement guides are included. The Company also provides the necessary bricks for the builds in the activity books as a separate, but related product. 9 6. Professional Development Training The Company offers professional development trainings, for a fee, to educators who are implementing the Company’s products in their classroom. The Company intends to continue developing STEM education products that address demand from large markets. Accounting Method The Company’s financial statements are prepared using the accrual method of accounting. The Company has elected a March 31 fiscal year end. Cash and Cash Equivalents Cash and cash equivalents, totaling $ 2,006,618 and $ 442,657 at December 31, 2023, and March 31, 2023, respectively, consist of operating and savings accounts. For purposes of the statements of cash flows, the Company considers all highly-liquid financial instruments with original maturities of three months or less at date of purchase to be cash equivalents. Use of Estimates The preparation of these financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the 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. The Company’s significant estimates include reserves related to accounts receivable and inventory, the valuation allowance related to deferred tax assets, the valuation of equity instruments, and debt discounts. Concentration of Credit Risks and Significant Customers The Company extends credit to customers and is therefore subject to credit risk. Financial instruments that 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. An allowance for doubtful accounts is recorded to account for potential bad debts. Estimates are used in determining the allowance for doubtful accounts and are based upon an assessment of selected accounts, historic averages, and as a percentage of remaining accounts receivable by aging category. In determining these percentages, the Company evaluates historical write- offs, and current trends in customer credit quality, as well as changes in credit policies. The Company generally does not require collateral from its customers. The Company has established an allowance for doubtful accounts of $ 18,469 at December 31, 2023, and March 31, 2023. Inventory Finished goods inventory is composed of items produced in-house, as well as items from outside suppliers. These items include, but are not limited to, Fischertechnik® manipulatives, Brick manipulatives, drone components, digital media equipment, furniture units, curriculum, and other miscellaneous items used in our various labs. Our inventory is carried at the lower of cost or market and valued using the average cost method for each item. When indicators of inventory impairment exist, the Company measures the carrying value of the inventory against its market value, and if the carrying value exceeds the market value, the inventory value is adjusted accordingly. The Company has established a provision for excess and obsolete inventory reserve of $ 6,343 as of December 31, 2023, and March 31, 2023. 10 Property, Plant and Equipment Depreciation on property and equipment is computed using the straight-line method over the estimated useful life of the asset. The Company had fully depreciated property and equipment prior to March 31, 2018. Beginning in fiscal year 2022 through the current reporting period, the Company purchased various warehouse and office equipment for $ 54,419 and recognized $ 14,653 in depreciation of that equipment for a total property and equipment of $ 39,766 as of December 31, 2023. As of March 31, 2023, property and equipment was $ 31,533 , net of $ 6,790 in depreciation. Software has been fully depreciated as of December 31, 2023 and March 31, 2023. Impairment of Long-Lived Assets Long-lived assets are reviewed for impairment annually, or when events or circumstances arise that indicate the existence of impairment for patents and other intangibles. There was no impairment recorded during the three and nine months ended December 31, 2023, and 2022. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date. In November 2015, the Financial Accounting Standards Board issued ASU No. 2015-17, “Income Taxes (Topic 740)-Balance Sheet Classification of Deferred Taxes” (ASU 2015-17), which requires reporting the net amount of deferred tax assets and liabilities as a single noncurrent item on the classified balance sheet. Before this change, the net amounts of current and noncurrent deferred tax assets and liabilities were reported separately. We account for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”). ASC 740 prescribes the use of the asset and liability method to compute the differences between the tax bases of assets and liabilities and the related financial amounts, using currently enacted tax laws. If necessary, a valuation allowance is established, based on the weight of available evidence, to reduce deferred tax assets to the amount that is more likely than not to be realized. Realization of the deferred tax assets, net of deferred tax liabilities, is principally dependent upon achievement of sufficient future taxable income. We exercise significant judgment in determining our provisions for income taxes, our deferred tax assets and liabilities and our future taxable income for purposes of assessing our ability to utilize any future tax benefit from our deferred tax assets. In accordance with GAAP, the Company has analyzed its filing positions in all jurisdictions where it is required to file income tax returns for the open tax years in such jurisdictions. The Company currently believes that all significant filing positions are highly certain and that all of its significant income tax filing positions and deductions would be sustained upon audit. Therefore, the Company has no significant reserves for uncertain tax positions, and no adjustment to such reserves was required by GAAP. No interest or penalties have been levied against the Company and none are anticipated, therefore no interest or penalty has been included in the provision for income taxes in the consolidated statements of operations. The Internal Revenue Code contains provisions which reduce or limit the availability and utilization of net operating loss (NOL) carry forwards in the event of a more than 50 % change in ownership. If such an ownership change occurs with the Company, the use of these net operating losses could be limited. The table below details the years that remain open to tax examinations: SCHEDULE OF INCOME TAX EXAMINATION Tax Year Fiscal Year End Filed Date Open Through 2021 3/31/2022 2/3/2023 2/3/2026 2020 3/31/2021 1/18/2022 1/18/2025 2019 3/31/2020 1/28/2021 1/28/2024 11 Revenue Recognition The Company accounts for revenue in accordance with FASB ASC 606, Revenue from Contracts with Customers , which we adopted on April 1, 2018. Revenue amounts presented in our financial statements are recognized net of sales tax, value-added taxes, and other taxes. Amounts received as prepayment on future products or services are recorded as unearned revenues and recognized as income when the product is shipped, or service performed. The Company had deferred revenue of $ 51,185 as of December 31, 2023, related to contractual commitments with customers where the performance obligation will be satisfied within the fiscal year ended March 31, 2024. The revenue associated with these performance obligations is recognized as the obligation is satisfied. The Company had $ 7,085 of deferred revenue as of March 31, 2023. Most of our contracts with customers contain transaction prices with fixed consideration; however, some contracts may contain variable consideration in the form of discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties and other similar items. When a contract includes variable consideration, we evaluate the estimate of variable consideration to determine whether the estimate needs to be constrained; therefore, we include the variable consideration in the transaction price only to the extent that it is probable that a significant reversal of the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. We recognize revenue when we satisfy a performance obligation by transferring control over a product or service to a customer. This can result in recognition of revenue over time as we perform services or at a point in time when the deliverable is transferred to the customer, depending on an evaluation of the criteria for over time recognition in FASB ASC 606. For certain fixed-fee per transaction contracts, such as delivering training courses or conducting workshops, revenue is recognized during the period in which services are delivered in accordance with the pricing outlined in the contracts. Stock-Based Compensation We recognize stock-based compensation expense under the provisions of ASC 718, Compensation—Stock Compensation (“ASC 718”). We use the Black-Scholes option pricing model to calculate the fair value of stock options at their respective grant date. The use of option valuation models requires the input of highly subjective assumptions, including the expected stock price volatility and the expected term of the option. The fair value of restricted stock awards is the fair market value on the date of grant. We recognize these compensation costs on a straight-line basis over the requisite service period, which is generally the vesting period of the award. During fiscal year 2023, two sets of performance options were exercised. Mike J. Bledsoe, President, exercised 1,000,000 options at $ 0.025 per share. Michelle Fisher, Director of STEM Curriculum, exercised 250,000 options at $ 0.02 per share. As of December 31, 2023, and March 31, 2023, the Company had no outstanding warrants or options. Business Segments and Related Information GAAP establishes standards for the way public business enterprises are to report information about operating segments in annual financial statements and requires enterprises to report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosure about products and services, geographic areas and major customers. The Company currently operates in one business segment. Net Earnings (Loss) Per Share of Common Stock The Company calculates net income (loss) per share in accordance with ASC 260, Earnings Per Share (“ASC 260”). Under ASC 260, basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period. The weighted average number of shares of common stock outstanding includes vested restricted stock awards. Diluted net income (loss) per share (“EPS”) reflects the potential dilution that could occur assuming exercise of all dilutive unexercised stock options and warrants. The dilutive effect of these instruments was determined using the treasury stock method. Under the treasury stock method, the proceeds received from the exercise of stock options and restricted stock awards, the amount of compensation cost for future service not yet recognized by the Company and the amount of tax benefits that would be recorded as income tax expense when the stock options become deductible for income tax purposes are all assumed to be used to repurchase shares of the Company’s common stock. 12 Common stock outstanding reflected in the Company’s balance sheets includes restricted stock awards outstanding. Securities that may participate in undistributed net income with common stock are considered participating securities. The computation of diluted earnings per share does not assume exercise or conversion of securities that would have an anti-dilutive effect. The following schedules presents the calculation of basic and diluted net income per share: SCHEDULE OF BASIC AND DILUTED NET INCOME 2023 2022 For the Three Months ended December 31, 2023 2022 Net Income per common Share: Basic $ ( 0.00 ) $ 0.00 Diluted $ ( 0.00 ) $ 0.00 Weighted average number of common shares outstanding Basic 124,733,494 125,482,479 Weighted average number of common shares outstanding Fully Diluted 124,733,494 125,647,758 Net income for the three months ended December 31, 2023, and 2022 was $ ( 414,138 ) and $ 569,195 , respectively. 2023 2022 For the Nine Months ended December 31, 2023 2022 Net Income per common Share: Basic $ 0.02 $ 0.01 Diluted $ 0.02 $ 0.01 Weighted average number of common shares outstanding Basic 125,183,945 124,973,388 Weighted average number of common shares outstanding Fully Diluted 125,183,945 125,138,667 Net Income for the nine months ended December 31, 2023, and 2022, was $ 2,257,830 and $ 991,685 , respectively. Recently Issued Accounting Pronouncements The Company has reviewed recent accounting pronouncements and has determined that they will not significantly impact the Company’s results of operations or financial position. NOTE 2 – BUSINESS CONDITION As of December 31, 2023, the Company had $ 2.0 million in cash, $ 1.8 million in inventory, and $ 0.9 million in prepaid inventory, with no debt. Management strongly believes that the Company can sustain its operations over the course of the next twelve (12) months with the cash it has on hand, and with the revenue and associated profit generated from the sales expected over the course of the next twelve (12) months, especially given the Company’s large inventory and prepaid inventory balances. NOTE 3 – ACCOUNTS RECEIVABLE In the Company’s normal course of business, the Company provides credit terms to its customers, which generally range from net fifteen (15) to thirty (30) days. The Company performs ongoing credit evaluations of its customers. The Company established an allowance for doubtful accounts of $ 18,469 at December 31, 2023, and March 31, 2023. NOTE 4 – ACCOUNTS RECEIVABLE, OTHER RECEIVABLES Other Receivables include receivables due to the Company derived from activities outside of its typical business transactions. As of December 31, 2023, these other receivables included overpayments to the Internal Revenue Service of payroll taxes in the amount of $ 44,570 and an $ 800 advance to an employee for a total of $ 45,370 . As of March 31, 2023, these other receivables included an Employee Retention Tax Credit of $ 13,312 , which was ultimately deemed uncollectable by the Company as of September 30, 2023. 13 NOTE 5 - PREPAID EXPENSES Prepaid expenses for the periods are as follows: SCHEDULE OF PREPAID EXPENSES December 31, 2023 March 31, 2023 Prepaid insurance $ 17,464 $ 8,891 Prepaid tradeshows 43,480 34,316 Prepaid inventory 852,753 374,926 Prepaid software 21,677 16,287 Prepaid other 19,543 1,698 Total Prepaid Expenses $ 954,917 $ 436,118 NOTE 6 - COMMON AND PREFERRED STOCK TRANSACTIONS a. Common Stock The Company has 150,000,000 authorized shares of common stock, no par value. At December 31, 2023 the total common shares issued and outstanding was 124,733,494 . During the nine months ended December 31, 2023, the Company had no option expense. During the nine months ended December 31, 2023, the Company did not issue shares of common stock. During the nine months ended December 31, 2023, the Company repurchased 998,985 shares common stock at $ 0.065 per share for total payments of $ 64,933 . These shares were then immediately cancelled. b. Preferred Stock The Company has 20,000,000 authorized shares of preferred stock. As of December 31, 2023, and March 31, 2023, there were no preferred shares issued or outstanding. NOTE 7 - NOTES PAYABLE The Company had no notes payable outstanding as of December 31, 2023, and March 31, 2023. NOTE 8 - COMMITMENTS AND CONTINGENCIES Leases The Company adopted ASC 842 as of November 9, 2019 using a modified retrospective transition approach for all leases existing at December 31, 2019, the date of the initial application. Consequently, financial information will not be updated, and disclosures required under ASC 842 will not be provided for dates and periods before January 1, 2020. The Company determines if a contract is a lease or contains a lease at inception. Right of use assets related to operating type leases are reported in other noncurrent assets and the present value of remaining lease obligations is reported in accrued and other liabilities and other noncurrent liabilities on the Balance Sheets. The Company does not currently have any financing type leases. Operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The Company’s leases do not provide an implicit rate. The Company determine the incremental borrowing rates applicable to the economic environment based on the information available at commencement date, in determining the present value of future payments. The right of use asset for operating leases is measured using the lease liability adjusted for the impact of lease payments made prior to commencement, lease incentives received, initial direct costs incurred and any asset impairments. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Lease expense for minimum lease payments is recognized on a straight-line basis over the term of the lease. 14 The Company re-measures and reallocates the consideration in a lease when there is a modification of the lease that is not accounted for as a separate contract. The lease liability is re-measured when there is a change in the lease term or a change in the assessment of whether the Company will exercise a lease option. The Company assesses right of use assets for impairment in accordance with its long-lived asset impairment policy. The Company accounts for lease agreements with contractually required lease and non-lease components on a combined basis. Lease payments made for cancellable leases, variable amounts that are not based on an observable index and lease agreements with an original duration of less than twelve months are recorded directly to lease expense. a. Office and Warehouse The Company leases one building containing its main office and warehouse space under a non-cancelable lease agreement, which commenced on March 2, 2016, accounted for as an operating lease expiring March 14, 2020. On March 3, 2020, a third amendment extended the lease for nineteen and one-half ( 19.5 ) months, expiring October 31, 2021 at $ 0.60 a square foot. On September 16, 2021, the Company signed a fourth amendment to the lease with a monthly rental amount starting at $ 6,800 and escalating by $ 200 per month at the end of each lease year, which is due to expire on October 31, 2024 . Building lease expense was $ 80,020 and $ 79,093 for the nine months ended December 31, 2023, and 2022, respectively. b. Equipment The Company leased a production printer for sixty-three ( 63 ) months commencing on November 3, 2023. The first three payments were deferred, with the first payment due February 3, 2024. Equipment lease expense was $ 28,596 for the nine months ended December 31, 2023, and $ 23,922 for the nine months ended December 31, 2022. As of December 31, 2023, accounted for and presented under ASC 842 guidance, the future minimum lease payments on operating leases, were as follows: Total minimum lease obligation over the next 7 years SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS Fiscal Year Amount 2024 27,272 2025 82,330 2026 38,892 2027 43,232 2028 48,024 2029 53,315 2030 20,040 Total $ 313,105 SCHEDULE OF LEASE PAYABLE Balance Sheet Location December 31, 2023 Right of use assets Other noncurrent assets $ 301,569 Lease payable Current liabilities $ 90,657 Lease payable Long-term liabilities 222,448 Total lease payable $ 313,105 Supplemental cash flow information related to operating leases: SCHEDULE OF SUPPLEMENTAL CASH FLOW INFORMATION RELATED TO OPERATING LEASES December 31, 2023 Operating cash paid to settle lease liabilities $ 82,006 Right of use asset additions in exchange for lease liabilities - December 31, 2023 Weighted average remaining lease term (in years) 6.3 Weighted average discount rate 10 % 15 NOTE 9 – ACCOUNTS PAYABLE Accounts payable for the periods are as follows: SCHEDULE OF ACCOUNTS PAYABLE December 31, 2023 March 31, 2023 Accounts payable $ 357,893 $ 18,814 Credit cards payable 6,543 9,113 Total $ 364,436 $ 27,927 NOTE 10 – PAYROLL LIABILITIES & ACCRUED EXPENSES Accrued expenses for the periods are as follows: SCHEDULE OF ACCRUED EXPENSES December 31, 2023 March 31, 2023 Payroll liabilities $ 93,184 $ 201,724 Sales tax payable 5,184 3,399 State income tax payable - 21,108 Production printer accrued expenses 9,990 - Total $ 108,358 $ 226,231 NOTE 11 – INCOME TAXES For the three and nine months ended December 31, 2023, the Company recognized no income tax expense (or benefit) due to the partial reversal of its valuation allowance. For the year ended March 31, 2023, the Company partially reversed its valuation allowance recognizing an income tax benefit of $ 1,011,466 , which represents an effective tax rate of ( 57 %) . As the Company recently generated positive income, management expects the effective tax rate to differ from its annual effective tax rate from the most recent year and from its U.S. Federal statutory rate due to changes in the valuation allowance. For the three and nine month period ended December 31, 2023, the Company relieved its valuation allowance equal to the estimated income tax expense based on U.S statutory rate of 21 % and a State statutory rate of 7 %. The net effect is that no income tax expense was recorded for the three and nine months ended December 31, 2023, and the effective tax rate is 0.00 %. For the three and nine months ended December 31, 2023, no benefit from income taxes was recorded due to the Company being in a full valuation allowance position, resulting in an effective tax rate of 0.0 %. FASB ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. There were no unrecognized tax benefits as of December 31, 2023. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. No amounts were accrued for the payment of interest and penalties as of December 31, 2023. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception. The Company may be subject to potential examination by federal, state, and city taxing authorities in the areas of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions, and compliance with federal, state, and city tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months. Although we believe that our tax estimates are reasonable, the ultimate tax determination involves significant judgments that could become subject to examination by tax authorities in the ordinary course of business. We periodically assess the likelihood of adverse outcomes resulting from these examinations to determine the impact on our deferred taxes and income tax liabilities and the adequacy of our provision for income taxes. Changes in income tax legislation, statutory income tax rates or future taxable income levels, among other things, could materially impact our valuation of income tax assets and liabilities and could cause our income tax provision to vary significantly among financial reporting periods. The Company files income tax returns in the United States, the State of Idaho and the State of California. The statute of limitations on a Federal tax return is the due date of the tax return plus three years. In the case of NOLs, the year in which the NOL was generated remains open up to the amount of the NOL until the statute of limitations expires on the year it was used. All required tax returns of the Company due since inception have been filed. The Company does not have any unrecognized tax benefits to report in the current period. 16 NOTE 12 - DILUTIVE INSTRUMENTS Stock Options and Warrants As of December 31, 2023, and March 31, 2023, the Company had no dilutive instruments outstanding. NOTE 13 - RELATED PARTY TRANSACTIONS On August 21, 2018, the Company granted 1,000,000 stock options to our President, Michael J. Bledsoe. The expected volatility rate of 254.03 % was calculated using the Company’s stock price over the period beginning August 21, 2018, through date of issue. A risk-free interest rate of 0.27 % was used to value the options. The options were valued using the Black-Scholes valuation model. The options vested immediately and were exercisable at $ 0.025 per share which represents the fair market value at the date of grant in accordance with the 2009 Equity Incentive Plan. The maturity date was August 21, 2021. The entire value of the options were expensed at time of grant as they vested immediately. On August 21, 2021, the options expired and the Company issued 1,000,000 new options with a one year maturity and a strike price of $ 0.025 accounted for as a modification. These options were exercised on August 18, 2022. From April 1, 2013 to March 31, 2017, the Company executed related party promissory notes with the Chairman and CEO of the Company, Todd R. Hackett, for $ 1,292,679 , $ 175,000 , and $ 340,000 paid down to a principal balance of $ 220,648 , with interest of 10 % per annum. Monthly interest payments have been made in cash starting in January of 2019. On April 19, 2019, these notes were consolidated to one promissory note for $ 1,688,327 , with interest of 10 % per annum, and extending the due date to April 20, 2020 . Total interest accrued and paid in the fiscal year ended March 31, 2020 totaled $ 142,210 . Principal payments were made totaling $ 245,000 for an ended principal balance at March 31, 2020 of $ 1,443,327 . The note was subsequently amended with a maturity date of May 1, 2021 , with all other terms and conditions remaining the same. No principal payments were made on this note in fiscal year 2021, leaving a principal balance as of March 31, 2021 of $ 1,443,327 . This promissory note due date was subsequently amended to a new due date of May 1, 2022 , with all other terms and conditions remaining the same. No principal payments were made on this note during fiscal year 2022, leaving a principal balance as of March 31, 2022, of $ 1,443,327 . During fiscal year 2023, this promissory note was paid in full to Mr. Hackett. On February 1, 2017, the Company, in the capacity of borrower, executed a non-convertible promissory note payable, with no warrants attached, with lender Mike J. Bledsoe, a member of the Executive Management Team and Board of Directors, for $ 50,000 at 20 % interest per annum, due April 30, 2017 . The note’s principal balance of $ 50,000 , and accrued interest of $ 23,342 as of May 31, 2019, was amended on June 1, 2019. The promissory note June 1, 2019, amendment reduced the interest rate to 10 % per annum, but to accrue interest on both the $ 50,000 principal balance and the $ 23,342 accrued interest and extended the due date to May 31, 2020. This promissory note due date was subsequently amended to a new due date of May 31, 2021 . As of March 31, 2021, the principal balance on this note was $ 50,000 and the accrued interest was $ 36,805 . This promissory note due date was subsequently amended to a new due date of May 1, 2022 , with all other terms and conditions remaining the same. During fiscal year 2023, the Company paid this promissory note in full to Mr. Bledsoe. NOTE 14 - SUBSEQUENT EVENTS At the time of the filing of this Quarterly Report, there were no subsequent events to report. 17