Precision Optics (POCI) - 2022 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements The unaudited consolidated financial statements for March 31, 2022, reflect significant asset growth and revenue increases, primarily due to an acquisition, despite reporting a net loss Consolidated Balance Sheets Total assets significantly increased to $17.27 million by March 31, 2022, driven by an acquisition, alongside growth in liabilities and stockholders' equity Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2022 | June 30, 2021 | | :--- | :--- | :--- | | Total Assets | $17,267,004 | $6,261,300 | | Cash and cash equivalents | $831,585 | $861,650 | | Accounts receivable, net | $3,347,692 | $1,878,755 | | Inventories | $2,965,220 | $1,885,395 | | Goodwill | $8,824,210 | $687,664 | | Total Liabilities | $8,738,663 | $2,830,173 | | Total current liabilities | $5,770,887 | $2,511,110 | | Long-term debt, net | $2,053,070 | $– | | Total Stockholders' Equity | $8,528,341 | $3,431,127 | Consolidated Statements of Operations Revenues significantly increased for both the three and nine-month periods ended March 31, 2022, though the company reported a net loss for both periods Three Months Ended March 31, (Unaudited) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Revenues | $4,651,352 | $2,458,290 | | Gross Profit | $1,728,209 | $818,024 | | Operating Loss | ($61,121) | ($256,018) | | Net Income (Loss) | ($113,899) | $552,278 | | Basic EPS | ($0.01) | $0.04 | Nine Months Ended March 31, (Unaudited) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Revenues | $10,884,737 | $8,001,641 | | Gross Profit | $3,486,823 | $2,647,642 | | Operating Loss | ($1,093,423) | ($467,143) | | Net Income (Loss) | ($1,197,713) | $339,617 | | Basic EPS | ($0.08) | $0.03 | Consolidated Statements of Stockholders' Equity Stockholders' equity significantly increased to $8.53 million by March 31, 2022, driven by share issuances for an acquisition and private placement, despite a net loss - Stockholders' equity increased to $8.53 million at March 31, 2022, from $3.43 million at July 1, 2021[18] - Key equity activities included issuing 2.5 million shares for a business acquisition, a private placement of 937,500 shares, and stock-based compensation, offset by a net loss of approximately $1.2 million over the nine months[18] - A correction was made for an $825,000 overstatement of Additional Paid-In Capital and Goodwill related to the valuation of stock issued in the business acquisition[18][24] Consolidated Statements of Cash Flows Net cash used in operating and investing activities increased for the nine months ended March 31, 2022, partially offset by cash provided by financing activities Cash Flow Summary for Nine Months Ended March 31, (Unaudited) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net Cash Used In Operating Activities | ($879,967) | ($75,420) | | Net Cash Used In Investing Activities | ($504,389) | ($256,134) | | Net Cash Provided By (Used in) Financing Activities | $1,354,291 | ($21,298) | | Net Decrease in Cash | ($30,065) | ($352,852) | | Cash and Cash Equivalents, End of Period | $831,585 | $781,845 | Notes to Consolidated Financial Statements The notes detail significant accounting policies, including the acquisition of Lighthouse Imaging, LLC, its financing, and disaggregated revenue by service type - On October 4, 2021, the Company acquired substantially all assets of Lighthouse Imaging, LLC, a medical optics and digital imaging business[31] - The acquisition was financed via a $2.6 million term loan from Main Street Bank and the sale of 937,500 shares of common stock for $1.5 million in a private placement[32] Revenue by Type (Nine Months Ended March 31) | Revenue Type | 2022 | 2021 | | :--- | :--- | :--- | | Engineering Design Services | $3,659,667 | $1,986,856 | | Optical Components | $4,873,294 | $4,330,511 | | Medical Device Products and Assemblies | $2,351,776 | $1,684,274 | | Total Revenues | $10,884,737 | $8,001,641 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses significant revenue growth driven by the Lighthouse acquisition, alongside a slight gross margin decrease, increased operating expenses, and a net loss - The company operates through three main business lines: advanced optical instruments (Precision Optics), custom optical components (Ross Optical), and advanced optical imaging systems (Lighthouse Imaging)[60][61][62] - For the nine months ended March 31, 2022, revenue was composed of 34% engineering services, 45% optical components, and 21% medical device assemblies[63] Revenue and Gross Profit (Nine Months Ended March 31) | Metric | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $10,884,737 | $8,001,641 | +36.0% | | Gross Profit | $3,486,823 | $2,647,642 | +31.7% | | Gross Margin | 32.0% | 33.1% | -1.1 p.p. | - The increase in SG&A expenses for the nine months ended March 31, 2022 was primarily due to the inclusion of the Lighthouse division, plus increased stock-based compensation and marketing expenses[79] - The company acknowledges risks from the COVID-19 pandemic, including potential impacts on supply chain, customer orders, and overall financial condition[75] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Precision Optics Corporation 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[88] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes in internal control over financial reporting - Management, including the CEO and CFO, evaluated disclosure controls and procedures and concluded they were effective as of March 31, 2022[89] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[90] PART II OTHER INFORMATION Legal Proceedings The company is not aware of any pending or threatened litigation that would materially impact its operations or finances - The company is not aware of any pending or threatened litigation that would have a material impact on its operations or finances[93] Risk Factors No material changes to risk factors have occurred since the last annual report on Form 10-K - No material changes to risk factors have occurred since the last annual report on Form 10-K filed on September 28, 2021[94] Unregistered Sales of Equity Securities and Use of Proceeds The company did not issue any unregistered securities during the quarter ended March 31, 2022 - No unregistered securities were issued during the quarter ended March 31, 2022[95] Defaults Upon Senior Securities This item is not applicable to the company - Not applicable[96] Mine Safety Disclosures This item is not applicable to the company - Not applicable[97] Other Information The Board of Directors determined to hold annual 'say on pay' votes and declassify its board structure, alongside amending company bylaws - The board of directors has determined to hold future 'say on pay' advisory votes on an annual basis[98] - On May 13, 2022, the board elected to declassify its structure, resulting in all directors standing for election at each annual meeting of stockholders[99][103] - The company's bylaws were amended on May 13, 2022, with material changes affecting stockholder meetings, board of directors' powers, officer titles, and stock certificate procedures[100][103] Exhibits This section lists all exhibits filed with the Form 10-Q, including bylaws amendments, CEO/CFO certifications, and incorporated by reference documents - Lists exhibits filed with the report, including an amendment to the bylaws (3.5), CEO and CFO certifications (31.1, 31.2, 32.1), and various other corporate documents incorporated by reference[104][112]