Precision Optics (POCI) - 2025 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements Financial statements show increased assets from stock offerings, a wider net loss of $4.38 million from declining revenues, offset by financing activities Consolidated Balance Sheets Total assets increased to $19.6 million by March 31, 2025, driven by higher cash and equity from stock issuances Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $2,547,873 | $405,278 | | Total current assets | $9,970,851 | $7,118,233 | | Total Assets | $19,622,274 | $16,912,574 | | Total current liabilities | $5,009,212 | $4,906,816 | | Total Liabilities | $6,444,557 | $6,844,786 | | Total stockholders' equity | $13,177,717 | $10,067,788 | Consolidated Statements of Operations Revenues decreased 10.3% to $12.9 million, gross profit fell 45.4%, and net loss widened to $4.38 million for the nine months ended March 31, 2025 Statement of Operations Summary (Unaudited) | Metric | Nine Months Ended Mar 31, 2025 | Nine Months Ended Mar 31, 2024 | | :--- | :--- | :--- | | Revenues | $12,909,928 | $14,388,123 | | Gross Profit | $2,605,247 | $4,773,324 | | Operating Loss | ($4,195,247) | ($1,367,982) | | Net Loss | ($4,377,689) | ($1,540,272) | | Loss Per Share (Basic & Diluted) | ($0.67) | ($0.25) | Consolidated Statements of Stockholders' Equity Stockholders' equity increased to $13.2 million from $6.2 million in stock offering proceeds, partially offset by a $4.38 million net loss - Issued 1,272,500 shares in a registered direct offering, raising $5,065,594[17] - Issued 265,868 shares in a registered direct offering, raising $1,204,542[17] - The net loss for the nine-month period was $4,377,689, which increased the accumulated deficit[14][17] Consolidated Statements of Cash Flows Net cash used in operations increased to $3.0 million, offset by $5.3 million from financing activities, resulting in a $2.1 million net cash increase Cash Flow Summary (Unaudited) | Activity | Nine Months Ended Mar 31, 2025 | Nine Months Ended Mar 31, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | ($2,978,165) | ($1,706,998) | | Net cash used in investing activities | ($149,837) | ($282,078) | | Net cash provided by (used in) financing activities | $5,270,597 | ($11,709) | | Net increase (decrease) in cash | $2,142,595 | ($2,000,785) | | Cash and cash equivalents, end of period | $2,547,873 | $925,067 | Notes to Consolidated Financial Statements Notes detail increased inventory, debt covenant waivers contingent on a $6.3 million equity raise, and subsequent lease agreements - Inventories increased to $3.67 million from $2.87 million, with raw materials rising from $1.57 million to $2.00 million[30] - The company obtained waivers for its annual debt service coverage ratio covenant for fiscal years 2024 and 2025, the latter contingent on a successful equity raise of at least $4.5 million completed in February 2025[32] - The company raised net proceeds of $1,204,542 in August 2024 and $5,053,000 in February 2025 from registered direct offerings[39][40] - Subsequent to the quarter's end, the company extended its El Paso, Texas facility lease for 36 months and entered a new 8-year lease for a facility in South Portland, Maine[52][54] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 10.3% revenue decrease driven by Engineering Design Services decline, gross margin contraction due to yield issues, and liquidity boosted by $6.3 million in stock offerings Overview The company specializes in advanced optical instruments, including 3D endoscopes and micro-precision lenses, expanding capabilities through acquisitions - The company designs and manufactures 3D endoscopes and very small Microprecision lenses for minimally invasive surgery[60] - The Ross Optical division supplies custom optical components for military, defense, and medical applications[61] - The Lighthouse Imaging division is an industry leader in chip-on-tip visualization systems and provides expertise in electrical engineering and medical visualization device development[62] Results of Operations Total revenue decreased 10.3% to $12.9 million, driven by Engineering Design Services decline, with gross margin contracting to 20.2% due to yield issues Revenue by Segment (Nine Months Ended March 31) | Segment | 2025 Revenue | 2024 Revenue | % Change | | :--- | :--- | :--- | :--- | | Engineering Design Services | $3,980,155 | $6,440,895 | (38.2)% | | Optical Components | $8,000,344 | $6,285,808 | 27.3% | | Finished Products and Assemblies | $929,429 | $1,661,420 | (44.1)% | | Total Revenues | $12,909,928 | $14,388,123 | (10.3)% | - Gross margin for the nine-month period decreased to 20.2% from 33.2% in the prior year[76] - R&D expenses for the nine-month period increased by $302,389 to support product improvements and new technology development for single-use medical devices[77] Liquidity and Capital Resources Management believes current cash and capital access will fund operations for 12 months, with liquidity boosted by $6.3 million from stock offerings - Management believes available cash and ability to raise funds will be sufficient for at least 12 months, but cash from operations alone may be insufficient[79] - Net cash used in operating activities increased to $2,978,165 for the nine months ended March 31, 2025, from $1,706,998 in the prior year period[80] - The company raised a net of $6,270,136 from two registered direct offerings in August 2024 and February 2025[82] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the company is not required to provide quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[90] Controls and Procedures Management concluded disclosure controls were effective, with R&D cost capitalization weakness remediated and inventory valuation issues ongoing - The CEO and CFO concluded that disclosure controls and procedures were effective as of the end of the quarter[91] - A material weakness related to improperly expensing certain R&D costs was remediated as of September 30, 2024[93] - A material weakness in inventory valuation was identified, with remediation steps including ERP system updates and new monitoring processes[92] PART II OTHER INFORMATION Legal Proceedings The company is not aware of any pending or threatened litigation that could materially impact its operations or finances - The company may occasionally be involved in legal matters in the ordinary course of business, but management believes such matters are currently insignificant[96] Risk Factors The company identifies a risk that changes in U.S. tariff policy could adversely affect its international supply chain, costs, and competitive position - The company identifies a risk that changes in U.S. tariff policy could adversely affect its international supply chain, costs, and competitive position[98] - The company relies on a global supply chain for specialized optical components, and tariffs could increase the cost of goods sold and disrupt the availability of critical components[98] Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the reporting period - None[102] Other Information No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter - No director or officer adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the period[104] Exhibits The report lists several exhibits filed with the Form 10-Q, including a Securities Purchase Agreement, a waiver letter, and officer certifications