Precision Optics (POCI) - 2023 Q4 - Annual Report

Part I Business Precision Optics Corporation develops and manufactures advanced optical instruments, specializing in medical devices and custom optical components, expanded through strategic acquisitions - The company operates as a developer and manufacturer of advanced optical instruments, with a focus on medical devices for minimally invasive surgery, including 3D endoscopes and Microprecision™ lenses[12] - Strategic acquisitions have expanded the company's capabilities: Ross Optical Industries (acquired June 2019) for custom optical components and defense applications, and Lighthouse Imaging (acquired October 2021) for end-to-end medical visualization systems[13][14] Revenue Breakdown by Business Segment (FY 2023 vs. FY 2022) | Business Segment | FY 2023 Revenue % | FY 2022 Revenue % | | :--- | :--- | :--- | | Engineering Services | 32% | 34% | | Optical Components | 50% | 41% | | Medical Device Manufacturing | 18% | 25% | - The company holds various U.S. patents and has pending applications covering medical devices, 3D endoscopes, Microprecision™ lenses, and defense products, with expiration dates through March 2043[33] - In fiscal year 2023, the company served 361 customers, with one customer accounting for 11.4% of total revenues; in fiscal year 2022, it served 377 customers with no single customer exceeding 10% of revenues[35] Risk Factors The company is exempt from providing detailed risk factor information due to its status as a smaller reporting company - The company is not required to provide risk factor information as it qualifies as a smaller reporting company[46] Properties The company operates from five facilities across Massachusetts, Texas, and Maine, with its primary Gardner facility leased from an entity partially owned by its CEO - The company conducts operations at three facilities in Gardner, MA, one in El Paso, TX, and one in Windham, ME[47] - The primary facility in Gardner, MA is leased from Equity Assets, Inc. (EAI) on a tenant-at-will basis, and the company's CEO, Joseph N. Forkey, holds a 20% interest in EAI[47] Legal Proceedings No material pending or threatened legal proceedings are currently known to impact the company's operations or finances - There are no current legal proceedings that are expected to have a material adverse effect on the company's business or financial condition[51] Mine Safety Disclosures This disclosure item is not applicable to the company's operations - Not applicable[52] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq (POCI), with no dividends declared recently, and a June 2023 private placement raised $2.52 million - The company's common stock is listed on the Nasdaq Stock Market under the symbol POCI[55] - No dividends have been declared in the last two fiscal years, with earnings intended for reinvestment into the business[57] - On June 20, 2023, the company closed a stock issuance of 420,000 shares at $6.00 per share, generating $2.52 million in gross proceeds[58] Selected Financial Data This section is reserved, and no selected financial data is provided - This section is marked as [RESERVED], indicating no data is provided[59] Management's Discussion and Analysis of Financial Condition and Results of Operations FY2023 saw a 34.2% revenue increase to $21.0 million, improved gross profit and narrowed operating loss, supported by enhanced liquidity from a private placement and credit line increase Results of Operations FY2023 revenues grew 34.2% to $21.0 million, driven by optical component and engineering sales, with gross profit up 56.9% to $7.7 million, partly from a one-time technology rights sale Comparison of Operations (FY 2023 vs. FY 2022) | Metric | FY 2023 | FY 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $21,044,467 | $15,678,248 | +34.2% | | Gross Profit | $7,734,136 | $4,928,187 | +56.9% | | Gross Margin | 36.8% | 31.4% | +5.4 pts | | R&D Expenses | $809,877 | $666,479 | +21.5% | | SG&A Expenses | $7,740,562 | $5,613,473 | +37.9% | - The increase in revenue was largely driven by large orders from defense/aerospace customers for optical components[62] - Gross profit was benefited by a one-time sale of technology rights amounting to $600,000[63] Liquidity and Capital Resources Cash and equivalents significantly increased to $2.9 million by June 30, 2023, bolstered by a $2.29 million private placement and new debt facilities, despite ongoing net losses Key Liquidity Metrics (as of June 30, 2023) | Metric | Amount | | :--- | :--- | | Cash and cash equivalents | $2,925,852 | | Accounts receivable | $3,907,407 | | Current liabilities | $5,259,620 | | Operating Loss (FY 2023) | ($638,548) | - In June 2023, the company raised $2,288,000 net through a private placement of 420,000 common shares[69] - The company secured a new $750,000 term loan and increased its line of credit to $1,250,000 in June 2023, with no outstanding balance on the line of credit at June 30, 2023[69] Contractual Cash Commitments (Post June 30, 2023) | Commitment | Fiscal 2024 | Thereafter | Total | | :--- | :--- | :--- | :--- | | Capital lease for equipment | $48,619 | $71,923 | $120,542 | | Minimum operating lease payments | $182,652 | $195,252 | $377,904 | | Open purchase orders | $1,981,592 | - | $1,981,592 | Quantitative and Qualitative Disclosures About Market Risk The company is not required to provide market risk disclosures due to its status as a smaller reporting company - The company is electing scaled disclosure reporting obligations and is not required to provide this information[74] Financial Statements and Supplementary Data This section presents audited consolidated financial statements for FY2023 and FY22, with an unqualified auditor opinion, detailing revenue growth and a narrowed net loss Report of Independent Registered Public Accounting Firm The independent auditor issued an unqualified opinion on the consolidated financial statements, identifying revenue recognition as a critical audit matter due to its complexity - The auditor issued an unqualified (clean) opinion on the consolidated financial statements[79] - Revenue Recognition was identified as a Critical Audit Matter due to the complexity and significant judgment involved in interpreting customer contracts[84][85] Consolidated Financial Statements Consolidated financial statements show asset growth to $19.7 million, increased stockholders' equity to $12.0 million, and a narrowed net loss of $144,613 for FY2023 Consolidated Balance Sheet Highlights (at June 30) | Account | 2023 | 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $2,925,852 | $605,749 | | Total current assets | $9,859,156 | $6,505,216 | | Goodwill | $8,824,210 | $8,824,210 | | Total Assets | $19,740,434 | $16,704,020 | | Liabilities & Equity | | | | Total current liabilities | $5,259,620 | $4,586,641 | | Long-term debt, net | $2,175,980 | $1,961,141 | | Total Stockholders' Equity | $12,046,592 | $8,971,495 | Consolidated Statement of Operations Highlights (for the Year Ended June 30) | Account | 2023 | 2022 | | :--- | :--- | :--- | | Revenues | $21,044,467 | $15,678,248 | | Gross Profit | $7,734,136 | $4,928,187 | | Operating Loss | ($638,548) | ($1,513,890) | | Net Loss | ($144,613) | ($928,416) | | Loss per Share (Basic & Diluted) | ($0.03) | ($0.18) | Consolidated Statement of Cash Flows Highlights (for the Year Ended June 30) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($81,090) | ($933,371) | | Net cash used in investing activities | ($52,497) | ($407,802) | | Net cash provided by financing activities | $2,453,690 | $1,085,272 | | Net increase (decrease) in cash | $2,320,103 | ($255,901) | Notes to Consolidated Financial Statements Notes detail accounting policies, including a 1-for-3 reverse stock split, revenue growth by segment, the Lighthouse acquisition, new financing, and significant NOL carryforwards with a full valuation allowance - A 1-for-3 reverse stock split was effected on November 1, 2022, and all share and per-share amounts have been retroactively adjusted[99][100] Revenue by Type (for the Year Ended June 30) | Revenue Type | 2023 | 2022 | | :--- | :--- | :--- | | Engineering Design Services | $6,728,867 | $5,371,483 | | Optical Components | $10,523,806 | $6,481,896 | | Medical Device Products and Assemblies | $3,791,794 | $3,824,869 | | Total Revenues | $21,044,467 | $15,678,248 | - The $1,500,000 earn-out liability associated with the Lighthouse acquisition was written off to other income as the division did not achieve the required gross margin targets[133] - As of June 30, 2023, the company had federal and state net operating loss (NOL) carryforwards of approximately $12.5 million and $6.1 million, respectively, which begin to expire in fiscal year 2024[164] - A full valuation allowance of $3,271,000 has been provided against the company's net deferred tax assets, as realization is not considered 'more likely than not'[163] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reported no changes in or disagreements with its accountants regarding accounting principles or financial disclosure - None reported[167] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of June 30, 2023, due to a material weakness in internal control over financial reporting - Management concluded that disclosure controls and procedures were not effective as of June 30, 2023[168] - The ineffectiveness was attributed to a material weakness in internal controls over financial reporting[168][171] Other Information No other information is reported for this item - None[173] Part III Items 10-14 Information for Items 10 through 14 is incorporated by reference from the company's 2023 Annual Meeting of Stockholders Proxy Statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the Proxy Statement for the 2023 Annual Meeting of Stockholders[175][176][177][178][179] Part IV Exhibits, Financial Statement Schedules This section lists documents filed as part of the Form 10-K, including financial statements and a comprehensive list of exhibits, with all financial statement schedules omitted - Lists the financial statements filed under Part II, Item 8[182] - All financial statement schedules have been omitted because they are not required, not applicable, or the information is included elsewhere[183] - A detailed list of exhibits, including asset purchase agreements, equity incentive plans, loan agreements, and officer certifications, is provided[184][185][186][187] Form 10-K Summary No information is reported for this item - None[190]