Precision Optics (POCI) - 2021 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION Financial Statements The financial statements for the period ended March 31, 2021, reflect decreased assets, reduced liabilities due to loan forgiveness, and a shift to net income from prior losses Consolidated Balance Sheets As of March 31, 2021, total assets decreased to $5.91 million, while total liabilities significantly reduced to $2.45 million, increasing equity Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2021 ($) | June 30, 2020 ($) | | :--- | :--- | :--- | | Total Assets | 5,905,975 | 6,351,531 | | Cash and cash equivalents | 781,845 | 1,134,697 | | Total current assets | 4,397,063 | 4,947,085 | | Total Liabilities | 2,452,074 | 3,579,770 | | Note payable to bank | – | 808,962 | | Total current liabilities | 2,107,535 | 3,149,380 | | Total Stockholders' Equity | 3,453,901 | 2,771,761 | Consolidated Statements of Operations Net income for Q3 2021 was $552,278, a turnaround from prior-year losses, primarily driven by a significant gain on loan forgiveness Statement of Operations Summary (Unaudited) | Metric | Three Months Ended Mar 31, 2021 ($) | Three Months Ended Mar 31, 2020 ($) | Nine Months Ended Mar 31, 2021 ($) | Nine Months Ended Mar 31, 2020 ($) | | :--- | :--- | :--- | :--- | :--- | | Revenues | 2,458,290 | 2,374,584 | 8,001,641 | 7,686,330 | | Gross Profit | 818,024 | 817,019 | 2,647,642 | 2,709,075 | | Operating Loss | (256,018) | (465,447) | (467,143) | (1,102,927) | | Net Income (Loss) | 552,278 | (466,130) | 339,617 | (1,103,065) | | Basic EPS | 0.04 | (0.04) | 0.03 | (0.09) | - A gain of $808,962 from the forgiveness of a bank note was recognized in the three and nine months ended March 31, 2021, significantly impacting net income[13] Consolidated Statements of Cash Flows Net cash used in operating activities was $75,420 for the nine months ended March 31, 2021, resulting in a net decrease in cash to $781,845 Cash Flow Summary for Nine Months Ended March 31 (Unaudited) | Cash Flow Activity | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Net Cash Used In Operating Activities | (75,420) | (84,421) | | Net Cash Used In Investing Activities | (256,134) | (1,586,174) | | Net Cash (Used In) Provided From Financing Activities | (21,298) | 14,300 | | Net Decrease in Cash | (352,852) | (1,656,295) | | Cash at End of Period | 781,845 | 632,131 | Notes to Consolidated Financial Statements Notes detail accounting policies, revenue recognition, and inventory, highlighting the $808,962 PPP loan forgiveness and COVID-19 impact - On March 30, 2021, the Small Business Administration forgave the company's $808,962 Promissory Note from the Paycheck Protection Program (PPP) in full, including accrued interest, recorded as other income[29] Revenue by Type for Nine Months Ended March 31 | Revenue Type | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Engineering Design Services | 1,986,856 | 1,098,234 | | Optical Components | 4,330,511 | 4,428,409 | | Medical Device Products and Assemblies | 1,684,274 | 2,159,687 | | Total Revenues | 8,001,641 | 7,686,330 | - The company acknowledges that the COVID-19 pandemic has had, and could continue to have, an adverse impact on its supply chain, customer orders, and overall financial condition, but the future impact remains uncertain[41] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's medical device focus, revenue growth driven by engineering services, slight gross margin decrease, and improved profitability aided by PPP loan forgiveness Overview The company develops optical instruments, primarily for medical devices (60% of business), with additional revenue from military/defense and industrial applications - The company's business is segmented with approximately 60% from medical devices, 8% from military and defense, and 32% from other industrial products for the nine months ended March 31, 2021[47] - Development efforts are focused on next-generation technologies like 3D endoscopes and very small Microprecision™ lenses for minimally invasive surgery[45][52] Results of Operations Q3 2021 revenues increased 3.5% to $2.46 million, driven by engineering services, while gross margins slightly decreased due to project costs Revenue Comparison | Period | FY 2021 ($) | FY 2020 ($) | Change ($) | % Change | | :--- | :--- | :--- | :--- | :--- | | Q3 Revenue | 2,458,290 | 2,374,584 | 83,706 | 3.5% | | 9-Month Revenue | 8,001,641 | 7,686,330 | 315,311 | 4.1% | - Revenue growth was primarily due to an increase in engineering revenue from new projects, which was partially offset by decreases in production revenue due to COVID-19 related slowdowns experienced by customers[57][58] - Gross margin decreased in Q3 and the nine-month period due to cost over-runs on an engineering project and a decrease in higher-margin production revenues[60] Liquidity and Capital Resources The company reported a net operating loss of $467,143 and held $781,845 in cash, with liquidity significantly boosted by $808,962 PPP loan forgiveness - As of March 31, 2021, the company had $781,845 in cash, $1,533,781 in accounts receivable, and $2,107,535 in current liabilities[64] - The company's ability to maintain its financial condition is critically dependent on achieving and maintaining profitable quarterly revenues and timely collection of receivables[65] - A PPP loan of $808,962 was forgiven on March 30, 2021, and the gain was recorded as other income, significantly improving the company's financial results for the period[67] 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[71] Controls and Procedures Management concluded that disclosure controls were ineffective as of March 31, 2021, due to material weaknesses in segregation of duties and inventory valuation - Management concluded that the company's disclosure controls and procedures were not effective as of March 31, 2021[73] - A material weakness exists due to a lack of sufficient staff to properly segregate accounting duties, an issue disclosed since fiscal year 2008[74] - A second material weakness relates to inventory valuation, specifically inconsistencies in applying overhead rates and costs of purchased items, with remediation ongoing since September 2009[77][79] 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 reports no significant legal matters and is not aware of any pending or threatened litigation that would have a material adverse effect[82] Risk Factors No material changes to risk factors have occurred since the last Annual Report on Form 10-K filing - No material changes to risk factors have occurred since the last Annual Report on Form 10-K was filed[83] Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds during the reporting period - There were no unregistered sales of equity securities during the period[84] Other Information No other information is required to be reported for this item - There is no other information to report for this item[87] Exhibits This section lists exhibits filed with the Form 10-Q, including agreements, corporate governance documents, and certifications - The report includes a list of exhibits, such as asset purchase agreements, bylaws, equity incentive plans, and Sarbanes-Oxley certifications[89][90]