PRECISION OPTICS CORPORATION INC

Current report

Critical Accounting Policies and Estimates

Current report

Total revenues for the quarter ending September 30, 2024 were $4,197,053, as compared to $4,321,255 for the same period in the prior year, a decrease of $124,202. Revenue from Engineering Design Services decreased 2.6% during the quarter ending September 30, 2024 from the prior year period ending September 30, 2023. During the quarter ending September 30, 2024 engineering capacity, and therefore billable revenues, was reduced as a result of increased research and development activities.

Current report

Revenue from Optical Components increased 9.3% during the three-month period ending September 30, 2024 from the prior year period ending September 30, 2023. The market for Optical Components was impacted beginning in the period ending September 30, 2023, as we noted lower order volumes as customers sought to rebalance their inventories, and we believe a recovery is now underway.

Current report

Revenue from Finished Products and Assemblies decreased 48.6% during the quarter ending September 30, 2024 from the prior year quarter ending September 30, 2023. The decrease in revenue from Finished Products and Assemblies was primarily attributable to a manufacturing pause for a defense/aerospace customer that was occasioned by a change in specification finalized late in the quarter ending September 30, 2024.

Current report

R&D expenses increased $187,901 to $400,659 during the quarter ending September 30, 2024, compared to $212,758 during the quarter ending September 30, 2023. R&D expenses for the period represent employee-related expenses to support product improvements, the development of new technologies and standardized approaches to address the opportunities for an evolving single-use medical device environment.

Current report

SG&A expenses increased $307,466, or 18.6% to $1,963,612 during the three months ended September 30, 2024, compared to $1,656,146 during the three months ended September 30, 2023. The increase in SG&A for the three-month period was primarily due to increased recruitment costs, bad debt expense, consulting expenses and information technology expenses.

Current report

Based on our current plans and business conditions, management believes that the Company’s available cash and cash equivalents, the cash generated from operations, availability on our line of credit, and our ability to raise funds in the capital markets will be sufficient to provide for the Company’s working capital and capital expenditure requirements for at least 12 months from the date of this filing. However, our cash on hand and cash generated solely from operations may be insufficient to meet working capital needs for such period and we may be required to raise external financing in the short-term.

Current report

Net Cash Used in Operating Activities

Current report

During the three months ending September 30, 2024, net cash used in operating activities totaled $318,622 and included a net loss of $1,311,247, increases in inventory of $592,521, offset by increases in accounts payable and accrued expenses of $1,016,135, decreases in accounts receivable net of decreased customer deposit liabilities of $356,092, and non-cash items totaling $202,030.

Current report

During the three months ending September 30, 2023, net cash used in operating activities totaled $1,372,989 and included a net loss of $464,515, increases in inventory of $194,995, increases in accounts receivable net of increased customer deposit liabilities of $375,426, decreases in accounts payable and accrued expenses of $390,719, and non-cash items totaling $164,886.

Current report

Net Cash Used in Investing Activities

Current report

During the three months ending September 30, 2024, net cash used in investing activities was $28,099, consisting of purchases of property and equipment and patent costs. During the three months ended September 30, 2023, net cash used in investing activities was $43,517, consisting of purchases of property and equipment and patent costs.

Current report

Net Cash Provided by Financing Activities

Current report

During the three months ending September 30, 2024, we made payments of $139,527 on term notes and capital leases and repaid $500,000 on our revolving line of credit. We raised a net of $1,204,542 through the issuance of new shares in a registered direct common stock offering. During the three months ending September 30, 2023, we made payments of $138,876 on term notes and capital leases.

Current report

Indebtedness

Current report

Our loan agreement contains a minimum annual debt service coverage ratio covenant of 1.2x, for the period ending June 30, 2024. We did not meet this annual debt service coverage ratio as of June 30, 2024. Our lender has agreed to waive compliance with the debt service ratio covenant for the period ending June 30, 2024. In addition to the waiver, we have entered into amendments dated September 30, 2024 with our lender to both term loans which provide for a six month period of interest only payments from October 15, 2024 through March 15, 2025. We will begin to pay principal and interest under the Notes beginning with the payments due on April 15, 2025, with a new amortization schedule for the remaining term for such Notes through their maturity date. There were no other changes to or modifications to the Loan Agreement or the Notes.

Current report

On August 14. 2024 we entered into securities purchase agreements with institutional and accredited investors in addition to certain directors and officers of the Company for the purchase and sale of 265,868 shares of the Company’s common stock resulting in gross proceeds of approximately $1.4 million before deducting placement agent commissions and other estimated offering expenses. Net proceeds were $1,204,542.

Previous report

Total revenues for the quarter ended March 31, 2024 were $5,242,579, as compared to $5,048,065 for the same period in the prior year, an increase of $194,514 or 3.9%. Total revenues for the nine months ended March 31, 2024 were $14,388,123 as compared to $16,020,327 for the same period in the prior year, a decrease of $1,632,204, or 10.2%. Of this decrease, $600,000 was attributable to the sale of one-time technology rights sold in December 2022.

Previous report

Revenue from Engineering Design Services increased 62.4% and 35.7% during the three- and nine-month periods ending March 31, 2024 from the prior year periods ending March 31, 2023. Revenue increases in the engineering design services resulted from increasing demand for services and continued expansion of engineering capacity. Engineering sales were driven by customer design engagements that will be transitioning into the later manufacture of new Finished Products and Assemblies.

Previous report

Revenue from Optical Components decreased 7.9% and 19.9% during the three- and nine-month periods ending March 31, 2024 from the prior year periods ending March 31, 2023, due in large part to reduced industry demand. We believe the decreases in optical components continue to be driven by lower order volumes as customers sought to rebalance their inventories, which had previously grown beyond sustainable levels due to increased ordering in response to concerns about supply chain disruptions.

Previous report

Revenue from Finished Products and Assemblies decreased 45.5% and 41.3% during the three- and nine-month periods ending March 31, 2024 from the prior year periods ending March 31, 2023. The decreases in Finished Products and Assemblies were attributable to timing differences between the exit of certain mature customer programs and reorders for ongoing products and the introduction of new customer programs, primarily single-use medical devices and new defense / aerospace opportunities.

Previous report

R&D expenses decreased $13,602 to $192,773 during the three months ended March 31, 2024, compared to $206,375 during the three months ended March 31, 2023, and decreased $33,259 to $627,259 during the nine months ended March 31, 2024, compared to $660,518 during the nine months ended March 31, 2023. R&D expenses for the period represent employee-related expenses to support product improvements and the development of new technologies.

Previous report

SG&A expenses decreased $98,500, or 4.9% to $1,924,491 during the three months ended March 31, 2024, compared to $2,022,991 during the three months ended March 31, 2023, and increased $175,549, or 3.3%, to $5,514,047 during the nine months ended March 31, 2024, compared to $5,338,498 during the nine months ended March 31, 2023. The increase in SG&A for the nine-month period was primarily due to increased travel and marketing-related expenses and increases in our reserve for doubtful accounts.

Previous report

During the nine months ended March 31, 2024, cash on hand funded increases in inventory of $256,005 and a net decrease in accounts payable and accrued expenses of $843,872 and an increase of accounts receivable netted with increased customer deposit liabilities of $26,127. We also made payments of $17,109 on our term notes and capital leases and borrowed $400,000 on our revolving line of credit. These items, in addition to the impact of the quarterly net loss, net of depreciation, amortization, stock-based compensation and other non-cash items, resulted in a decrease of $2,000,785 in our cash and cash equivalents at March 31 2024 from $2,925,852 at June 30, 2023 to $925,067 at March 31, 2024.