UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2020
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-10647
PRECISION OPTICS CORPORATION, INC.
(Exact name of registrant as specified in its charter)
| Massachusetts | 04-2795294 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
22 East Broadway, Gardner, Massachusetts 01440-3338
(Address of principal executive offices) (Zip Code)
(978) 630-1800
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered |
| Common Stock, $0.01 par value | PEYE | OTCQB |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares outstanding of the issuer’s common stock, par value $0.01 per share, at February 12, 2021 was 13,191,789 shares.
PRECISION OPTICS CORPORATION, INC.
| 2 |
PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES
(UNAUDITED)
| December 31, 2020 | June 30, 2020 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 816,263 | $ | 1,134,697 | ||||
| Accounts receivable (net of allowance for doubtful accounts of $249,883 at December 31, 2020 and $248,450 at June 30, 2020) | 1,590,867 | 1,481,437 | ||||||
| Inventories | 1,945,066 | 2,197,244 | ||||||
| Prepaid expenses | 146,619 | 133,707 | ||||||
| Total current assets | 4,498,815 | 4,947,085 | ||||||
| Fixed Assets: | ||||||||
| Machinery and equipment | 2,915,847 | 2,907,533 | ||||||
| Leasehold improvements | 759,281 | 731,801 | ||||||
| Furniture and fixtures | 178,640 | 178,640 | ||||||
| 3,853,768 | 3,817,974 | |||||||
| Less—Accumulated depreciation and amortization | 3,385,552 | 3,314,824 | ||||||
| Net fixed assets | 468,216 | 503,150 | ||||||
| Operating lease right-to-use asset | 90,181 | 118,403 | ||||||
| Patents, net | 118,468 | 95,229 | ||||||
| Goodwill | 687,664 | 687,664 | ||||||
| TOTAL ASSETS | $ | 5,863,344 | $ | 6,351,531 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Current portion of capital lease obligation | $ | 14,293 | $ | 51,761 | ||||
| Current portion of acquisition earn out liability | 166,667 | 166,667 | ||||||
| Note payable to bank | 808,962 | 808,962 | ||||||
| Accounts payable | 997,125 | 1,066,005 | ||||||
| Customer advances | 151,877 | 417,059 | ||||||
| Accrued compensation and other | 482,264 | 581,770 | ||||||
| Current portion of operating lease liability | 59,127 | 57,156 | ||||||
| Total current liabilities | 2,680,315 | 3,149,380 | ||||||
| Capital lease obligation, net of current portion | 31,317 | 35,810 | ||||||
| Acquisition earn out liability | 333,333 | 333,333 | ||||||
| Operating lease liability, net of current portion | 31,054 | 61,247 | ||||||
| Stockholders’ Equity: | ||||||||
| Common stock, $0.01 par value: 50,000,000 shares authorized; issued and outstanding – 13,191,789 shares at December 31, 2020 and June 30, 2020 | 131,918 | 131,918 | ||||||
| Additional paid-in capital | 49,931,211 | 49,702,986 | ||||||
| Accumulated deficit | (47,275,804 | ) | (47,063,143 | ) | ||||
| Total stockholders’ equity | 2,787,325 | 2,771,761 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 5,863,344 | $ | 6,351,531 | ||||
The accompanying notes are an integral part of these consolidated interim financial statements.
| 3 |
PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED
December 31, 2020 AND 2019
(UNAUDITED)
| Three Months Ended December 31, | Six Months Ended December 31, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Revenues | $ | 2,785,450 | $ | 2,796,762 | $ | 5,543,351 | $ | 5,311,746 | ||||||||
| Cost of Goods Sold | 1,931,010 | 1,878,823 | 3,713,733 | 3,419,690 | ||||||||||||
| Gross Profit | 854,440 | 917,939 | 1,829,618 | 1,892,056 | ||||||||||||
| Research and Development Expenses, net | 145,970 | 228,576 | 297,546 | 380,730 | ||||||||||||
| Selling, General and Administrative Expenses | 921,195 | 1,240,961 | 1,743,197 | 2,148,806 | ||||||||||||
| Total Operating Expenses | 1,067,165 | 1,469,537 | 2,040,743 | 2,529,536 | ||||||||||||
| Operating Loss | (212,725 | ) | (551,598 | ) | (211,125 | ) | (637,480 | ) | ||||||||
| Interest (Expense) Income | (729 | ) | 773 | (1,536 | ) | 545 | ||||||||||
| Net Loss | $ | (213,454 | ) | $ | (550,825 | ) | $ | (212,661 | ) | $ | (636,935 | ) | ||||
| Loss Per Share: | ||||||||||||||||
| Basic and Fully Diluted | $ | (0.02 | ) | $ | (0.04 | ) | $ | (0.02 | ) | $ | (0.05 | ) | ||||
| Weighted Average Common Shares Outstanding: | ||||||||||||||||
| Basic and Fully Diluted | 13,191,789 | 12,873,971 | 13,191,789 | 12,856,218 | ||||||||||||
The accompanying notes are an integral part of these consolidated interim financial statements.
| 4 |
PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE AND SIX MONTHS ENDED
December 31, 2020 AND 2019
(UNAUDITED)
| Six Month Period Ended December 31, 2020 | ||||||||||||||||||||
| Number of Shares | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders’ Equity | ||||||||||||||||
| Balance, July 1, 2020 | 13,191,789 | $ | 131,918 | $ | 49,702,986 | $ | (47,063,143 | ) | $ | 2,771,761 | ||||||||||
| Stock-based compensation | – | – | 71,146 | – | 71,146 | |||||||||||||||
| Net income | – | – | – | 793 | 793 | |||||||||||||||
| Balance, September 30, 2020 | 13,191,789 | 131,918 | 49,774,132 | (47,062,350 | ) | 2,843,700 | ||||||||||||||
| Stock-based compensation | – | – | 157,079 | – | 157,079 | |||||||||||||||
| Net loss | – | – | – | (213,454 | ) | (213,454 | ) | |||||||||||||
| Balance, December 31, 2020 | 13,191,789 | $ | 131,918 | $ | 49,931,211 | $ | (47,275,804 | ) | $ | 2,787,325 | ||||||||||
| Six Month Period Ended December 31, 2019 | ||||||||||||||||||||
| Number of Shares | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders’ Equity | ||||||||||||||||
| Balance, July 1, 2019 | 12,071,139 | $ | 120,712 | $ | 48,893,172 | $ | (45,636,993 | ) | $ | 3,376,891 | ||||||||||
| Issuance of common stock in private placement | 760,000 | 7,600 | 17,400 | – | 25,000 | |||||||||||||||
| Proceeds from exercise of stock options | 12,500 | 125 | 8,550 | – | 8,675 | |||||||||||||||
| Issuance of common stock for services | 25,000 | 250 | 44,750 | – | 45,000 | |||||||||||||||
| Stock-based compensation | – | – | 76,505 | – | 76,505 | |||||||||||||||
| Net loss | – | – | – | (86,110 | ) | (86,110 | ) | |||||||||||||
| Balance, September 30, 2019 | 12,868,639 | 128,687 | 49,040,377 | (45,723,103 | ) | 3,445,961 | ||||||||||||||
| Exercise of stock options net of 3,592 shares withheld | 11,408 | 114 | (114 | ) | – | – | ||||||||||||||
| Stock-based compensation | – | – | 274,706 | – | 274,706 | |||||||||||||||
| Net loss | – | – | – | (550,825 | ) | (550,825 | ) | |||||||||||||
| Balance, December 31, 2019 | 12,880,047 | $ | 128,801 | $ | 49,314,969 | $ | (46,273,928 | ) | $ | 3,169,842 | ||||||||||
The accompanying notes are an integral part of these consolidated interim financial statements.
| 5 |
PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
December 31, 2020 AND 2019
(UNAUDITED)
| Six Months Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net Loss | $ | (212,661 | ) | $ | (636,935 | ) | ||
| Adjustments to Reconcile Net Loss to Net Cash Provided From (Used In) Operating Activities - | ||||||||
| Depreciation and amortization | 70,728 | 45,920 | ||||||
| Stock-based compensation expense | 228,225 | 351,211 | ||||||
| Non-cash consulting expense | – | 45,000 | ||||||
| Changes in Operating Assets and Liabilities - | ||||||||
| Accounts receivable, net | (109,430 | ) | 165,059 | |||||
| Inventories, net | 252,178 | (284,591 | ) | |||||
| Prepaid expenses | (12,912 | ) | 47,058 | |||||
| Accounts payable | (68,880 | ) | (11,806 | ) | ||||
| Customer advances | (265,182 | ) | (61,686 | ) | ||||
| Accrued compensation and other | (99,506 | ) | (128,513 | ) | ||||
| Net Cash Used In Operating Activities | (217,440 | ) | (469,283 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Cash Paid for business acquisition | – | (1,443,341 | ) | |||||
| Additional patent costs | (23,239 | ) | (10,842 | ) | ||||
| Purchases of property and equipment | (35,794 | ) | (46,072 | ) | ||||
| Net Cash Used In Investing Activities | (59,033 | ) | (1,500,255 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Payment of Capital Lease Obligation | (41,961 | ) | (4,705 | ) | ||||
| Gross Proceeds from Private Placement of Common Stock | – | 25,000 | ||||||
| Gross Proceeds from Exercise of Stock Options | – | 8,675 | ||||||
| Net Cash (Used in) Provided By Financing Activities | (41,961 | ) | 28,970 | |||||
| NET DECREASE IN CASH AND CASH EQUIVALENTS | (318,434 | ) | (1,940,568 | ) | ||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 1,134,697 | 2,288,426 | ||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 816,263 | $ | 347,858 | ||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES: | ||||||||
| Offering costs included in current liabilities | $ | – | $ | 23,000 | ||||
The accompanying notes are an integral part of these consolidated interim financial statements.
| 6 |
PRECISION OPTICS CORPORATION, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
| 1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Principles of Consolidation and Operations
The accompanying consolidated financial statements include the accounts of Precision Optics Corporation, Inc. and its wholly-owned subsidiaries (the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation.
These consolidated financial statements have been prepared by the Company, without audit, and reflect normal recurring adjustments which, in the opinion of management, are necessary for a fair statement of the results of the second quarter and six months of the Company’s fiscal year 2021. These consolidated financial statements do not include all disclosures associated with annual consolidated financial statements and, accordingly, should be read in conjunction with footnotes contained in the Company’s consolidated financial statements for the year ended June 30, 2020, together with the Report of Independent Registered Public Accounting Firm filed under cover of the Company’s 2020 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on September 24, 2020.
Use of Estimates
The preparation of these consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
Loss Per Share
Basic loss per share is computed by dividing net income or net loss by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period, plus the number of potentially dilutive securities outstanding during the period such as stock options. For the three and six months ended December 31, 2020 and 2019, the effect of such securities was antidilutive and not included in the fully diluted calculation because of the net loss generated in those periods.
The following is the calculation of loss per share for the three and six months ended December 31, 2020 and 2019:
| Three Months Ended December 31, | Six Months Ended December 31, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Net Loss - Basic and Diluted | $ | (213,454 | ) | $ | (550,825 | ) | $ | (212,661 | ) | $ | (636,935 | ) | ||||
| Basic and Dilutive Weighted Average Shares Outstanding | 13,191,789 | 12,873,971 | 13,191,789 | 12,856,218 | ||||||||||||
| Loss Per Share - Basic and Diluted | $ | (0.02 | ) | $ | (0.04 | ) | $ | (0.02 | ) | $ | (0.05 | ) | ||||
| 7 |
The number of shares issuable upon the exercise of outstanding stock options that were excluded from the computation as their effect was antidilutive was approximately 2,135,200 and 2,047,800 for the three and six months ended December 31, 2020 and 2019, respectively.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
In assessing the likelihood of utilization of existing deferred tax assets, management has considered historical results of operations and the current operating environment. Based on this evaluation, a full valuation reserve has been provided for the deferred tax assets.
Goodwill and Patents
Long-lived assets such as goodwill and patents are capitalized when acquired and reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. Impairment of the carrying value of long-lived assets such as goodwill and patents would be indicated if the best estimate of future undiscounted cash flows expected to be generated by the asset grouping is less than its carrying value. If an impairment is indicated, any loss is measured as the difference between estimated fair value and carrying value and is recognized in operating income or loss. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. No such impairments of goodwill or patents have been estimated by management as of December 31, 2020.
| 2. | INVENTORIES |
Inventories are stated at the lower of cost (first-in, first-out) or market and consisted of the following:
| December 31, 2020 | June 30, 2020 | |||||||
| Raw Materials | $ | 614,114 | $ | 653,678 | ||||
| Work-In-Progress | 509,307 | 665,593 | ||||||
| Finished Goods | 821,645 | 877,973 | ||||||
| Total Inventories | $ | 1,945,066 | $ | 2,197,244 | ||||
| 3. |
NOTE PAYABLE TO BANK |
The Company executed an unsecured Promissory Note with a bank on May 6, 2020 and received $808,962 of loan proceeds pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The Promissory Note bears interest at a fixed rate of 1% per annum, with principal and interest payments commencing on August 16, 2021. However, if the Small Business Administration confirms forgiveness of the Company’s loan and reimburses the bank for the total outstanding balance of principal and interest, the Company’s obligations under the Promissory Note will be deemed fully satisfied and paid in full. The Company has begun the loan forgiveness application process and expects that it will ultimately qualify for full forgiveness. Any portion of the Company’s CARES Act loan that is not forgiven shall be converted to a term loan with the bank with monthly payments bearing interest at no more than 1% per annum and a maturity date two years from the Promissory Note date, or May 6, 2022.
| 8 |
| 4. | LEASE OBLIGATION |
In January 2020 the Company entered into a five-year capital lease and a twelve-month capital lease in the amounts of $47,750 and $65,463 respectively, for manufacturing equipment. The net book value of fixed assets under capital lease obligations as of December 31, 2020 is $90,570.
On July 1, 2019 the Company entered into a three-year operating lease for its facility in El Paso, Texas with total remaining minimum lease payments of $93,711 at December 31, 2020. Total rent expense including base rent and common area expenses was $23,090 and $15,190 during the three months ended December 31, 2020 and 2019, respectively. Included in the accompanying balance sheet at December 31, 2020 is a right-of-use asset of $90,181 and current and long-term right-of-use operating lease liabilities of $59,127 and $31,054, respectively.
At December 31, 2020, future minimum lease payments under the capital lease and operating lease obligations are as follows:
| Fiscal Year Ending June 30: | Capital Leases | Operating Lease | ||||||
| 2021 | $ | 11,095 | $ | 30,889 | ||||
| 2022 | 11,280 | 62,822 | ||||||
| 2023 | 11,280 | – | ||||||
| 2024 | 11,280 | – | ||||||
| 2025 | 6,580 | – | ||||||
| Total Minimum Payments | 51,515 | $ | 93,711 | |||||
| Less: amount representing interest | 5,905 | |||||||
| Present value of minimum lease payments | 45,610 | |||||||
| Less: current portion | 14,293 | |||||||
| $ | 31,317 | |||||||
The Company’s operating leases for its three Gardner, Massachusetts office, production and storage spaces plus an equipment lease have expired and are continuing on a month to month tenant at will basis. Rent expense on these operating leases was $83,231 and $72,827 for the six months ended December 31, 2020 and 2019, respectively.
| 5. | STOCK-BASED COMPENSATION |
The following table summarizes stock-based compensation expense for the three and six months ended December 31, 2020 and 2019:
| Three Months Ended December 31, | Six Months Ended December 31, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Cost of Goods Sold | $ | 11,233 | $ | 11,233 | $ | 22,466 | $ | 22,466 | ||||||||
| Research and Development | 19,435 | 12,683 | 36,360 | 25,368 | ||||||||||||
| Selling, General and Administrative | 126,411 | 250,790 | 169,399 | 303,377 | ||||||||||||
| Stock Based Compensation Expense | $ | 157,079 | $ | 274,706 | $ | 228,225 | $ | 351,211 | ||||||||
| 9 |
No compensation has been capitalized because such amounts would have been immaterial.
The following tables summarize stock option activity for the six months ended December 31, 2020:
| Options Outstanding | ||||||||||
| Number of Shares | Weighted Average Exercise Price | Weighted Average Contractual Life | ||||||||
| Outstanding at June 30, 2020 | 2,065,200 | $ | 0.95 | 6.59 years | ||||||
| Granted | 70,000 | $ | – | – | ||||||
| Outstanding at December 31, 2020 | 2,135,200 | $ | 0.96 | 6.21 years | ||||||
Information related to the stock options outstanding as of December 31, 2020 is as follows:
| Range of Exercise Prices | Number of Shares | Weighted- Average Remaining Contractual Life (years) | Weighted- Average Exercise Price | Exercisable Number of Shares | Exercisable Weighted- Average Exercise Price | |||||||||||||||||
| $ | 0.27 | 40,000 | 0.53 | $ | 0.27 | 40,000 | $ | 0.27 | ||||||||||||||
| $ | 0.48 | 60,000 | 5.24 | $ | 0.48 | 60,000 | $ | 0.48 | ||||||||||||||
| $ | 0.50 | 100,000 | 4.47 | $ | 0.50 | 100,000 | $ | 0.50 | ||||||||||||||
| $ | 0.55 | 44,000 | 3.20 | $ | 0.55 | 44,000 | $ | 0.55 | ||||||||||||||
| $ | 0.70 | 100,000 | 7.59 | $ | 0.70 | 100,000 | $ | 0.70 | ||||||||||||||
| $ | 0.73 | 786,000 | 5.81 | $ | 0.73 | 786,000 | $ | 0.73 | ||||||||||||||
| $ | 0.85 | 6,000 | 2.01 | $ | 0.85 | 6,000 | $ | 0.85 | ||||||||||||||
| $ | 0.90 | 36,000 | 3.44 | $ | 0.90 | 36,000 | $ | 0.90 | ||||||||||||||
| $ | 1.20 | 200,200 | 1.17 | $ | 1.20 | 200,200 | $ | 1.20 | ||||||||||||||
| $ | 1.25 | 45,000 | 9.22 | $ | 1.25 | – | $ | – | ||||||||||||||
| $ | 1.30 | 478,000 | 8.38 | $ | 1.30 | 160,679 | $ | 1.30 | ||||||||||||||
| $ | 1.40 | 70,000 | 9.88 | $ | 1.40 | 70,000 | $ | 1.40 | ||||||||||||||
| $ | 1.42 | 100,000 | 8.70 | $ | 1.42 | 33,334 | $ | 1.42 | ||||||||||||||
| $ | 1.50 | 70,000 | 9.94 | $ | 1.50 | 70,000 | $ | 1.50 | ||||||||||||||
| $ | 0.27–1.50 | 2,135,200 | 6.21 | $ | 0.96 | 1,706,213 | $ | 0.88 | ||||||||||||||
The aggregate intrinsic value of the Company’s “in-the-money” outstanding and exercisable options as of December 31, 2020 was $875,330 and $795,283, respectively.
| 10 |
| 6. | REVENUE RECOGNITION |
Revenues are recognized as the performance obligations to deliver products or services are satisfied and are recorded based on the amount of consideration the Company expects to receive in exchange for satisfying the performance obligations. Most of the Company’s products and services are marketed to medical device companies almost exclusively in the United States. Products and services are primarily transferred to customers at a point in time based upon when services are performed or product is shipped.
Revenues represent the amount of consideration the Company expects to receive from customers in exchange for transferring products and services. Other selling costs to obtain and fulfill contracts are expensed as incurred due to the short-term nature of a majority of its revenues. The Company extends terms of payment to its customers based on commercially reasonable terms for the markets of its customers, while also considering their credit quality. Shipping and handling costs charged to customers are included in revenues.
The Company disaggregates revenues by product and service types as it believes it best depicts how the nature, amount, timing and uncertainty of revenues and cash flows are affected by economic factors. Revenues are comprised of the following for the three and six months ended December 31, 2020 and 2019:
| Three Months Ended December 31, | Six Months Ended December 31, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Engineering Design Services | $ | 847,988 | $ | 478,441 | $ | 1,437,220 | $ | 888,169 | ||||||||
| Optical Components | 1,398,213 | 1,532,843 | 2,874,298 | 2,949,087 | ||||||||||||
| Medical Device Products and Assemblies | 539,249 | 785,478 | 1,231,833 | 1,474,490 | ||||||||||||
| Total Revenues | $ | 2,785,450 | $ | 2,796,762 | $ | 5,543,351 | $ | 5,311,746 | ||||||||
Contract Assets and Liabilities
The nature of the Company’s products and services does not generally give rise to contract assets as it typically does not incur costs to fulfill a contract before a product or service is provided to a customer. The Company’s costs to obtain contracts are typically in the form of sales commissions paid to employees. The Company has elected to expense sales commissions associated with obtaining a contract as incurred as the amortization period is generally less than one year. These costs have been recorded in selling, general and administrative expenses. As of December 31, 2020, there were no contract assets recorded in the Company’s Consolidated Balance Sheets.
The Company’s contract liabilities arise as a result of unearned revenue received from customers at inception of contracts or where the timing of billing for services precedes satisfaction of our performance obligations. The Company generally satisfies performance obligations within one year from the contract inception date.
| 11 |
Contract liabilities, which were recorded as customer advances in the Company’s Consolidated Balance Sheets, and unearned revenue are comprised of the following:
| Three Months Ended December 31, | Six Months Ended December 31, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Contract liabilities, beginning of period | $ | 206,665 | $ | 513,623 | $ | 417,059 | $ | 450,192 | ||||||||
| Unearned revenue received from customers | 127,571 | 97,143 | 171,703 | 293,019 | ||||||||||||
| Revenue recognized | (182,359 | ) | (222,260 | ) | (436,885 | ) | (354,705 | ) | ||||||||
| Contract liabilities, end of period | $ | 151,877 | $ | 388,506 | $ | 151,877 | $ | 388,506 | ||||||||
| 7. | COVID-19 PANDEMIC |
The COVID-19 world-wide pandemic that began during the quarter ended March 31, 2020 and the domestic and international impact of policy decisions being made in major countries around the world has had, and could continue to have, an adverse impact on the Company’s sources of supply, current and future orders from its customers, collection of amounts owed to the Company from its customers, its internal operating procedures, and the Company’s overall financial condition. Given the uncertainty surrounding the continuation of economic impacts both domestically and abroad, the Company cannot predict with certainty at this time what the future impact of COVID-19 and resulting business and economic policies in the US and abroad will be on its up-coming quarterly fiscal operating results.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and notes to those statements included elsewhere in this Quarterly Report on Form 10-Q for the quarter ended December 31, 2020 and with our audited consolidated financial statements for the year ended June 30, 2020 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on September 24, 2020.
This Quarterly Report on Form 10-Q contains forward-looking statements. When used in this report, the words “anticipate,” “suggest,” “estimate,” “plan,” “project,” “continue,” “ongoing,” “potential,” “expect,” “predict,” “believe,” “intend,” “may,” “will,” “should,” “could,” “would” and similar expressions are intended to identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks described in this report, the risks described in our Annual Report on Form 10-K for the year ended June 30, 2020 and other reports we file with the Securities and Exchange Commission. Although we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of the date on which the statements are made. We do not intend to update any of the forward-looking statements after the date of this report to conform these statements to actual results or to changes in our expectations, except as required by law.
Overview
We have been a developer and manufacturer of advanced optical instruments since 1982. Our medical instrumentation line includes traditional endoscopes and endocouplers as well as other custom imaging and illumination products for use in minimally invasive surgical procedures. Much of our recent development efforts have been targeted at the development of next generation endoscopes. We selectively execute internal research and development programs to develop next generation capabilities for designing and manufacturing 3D endoscopes and very small Microprecision™ lenses, anticipating future requirements as the surgical community continues to demand smaller and more enhanced imaging systems for minimally invasive surgery.
As Ross Optical Industries of El Paso, Texas we also operate as a supplier of custom optical components and assemblies for military and defense, medical and various other industrial applications. All products sold by us under the Ross Optical name include a custom or catalog optic, which is sourced through our extensive domestic and worldwide network of optical fabrication companies. Most systems make use of optical lenses, prisms, mirrors and windows and range from individual optical components to complex mechano-optical assemblies. Products often include thin film optical coatings that are applied using our in-house coating department.
Approximately 61% of our business during the six months ended December 31, 2020 is from the design and manufacture of high-quality medical devices. Approximately 9% of our revenue during the same period is from the design, manufacture and resale of optical products for military and defense, and 30% is from other industrial, non-medical products. Our proprietary medical instrumentation line and unique custom design and manufacturing capabilities include traditional endoscopes and endocouplers as well as other custom imaging and illumination products for use in minimally invasive surgical procedures. We design and manufacture 3D endoscopes and very small Microprecision™ lenses, assemblies and complete medical devices to meet the surgical community’s continuing demand for smaller, disposable, and more enhanced imaging systems for minimally invasive surgery.
We are registered to the ISO 9001:2015 and ISO 13485:2016 Quality Standards and comply with the FDA Good Manufacturing Practices and the European Union Medical Device Directive for CE marking of our medical products.
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Our internet websites are www.poci.com and www.rossoptical.com. Information on our websites is not intended to be integrated into this report. Investors and others should note that we announce material financial information using our company websites (www.poci.com; www.rossoptical.com), our investor relations website, SEC filings, press releases, public conference calls and webcasts. Information about Precision Optics, our business, and our results of operations may also be announced by social media posts on our Ross Optical LinkedIn page (www.linkedin.com/company/ross-optical-industries/) and Twitter feed (http://twitter.com/rossoptical).
The information that we post on these social media channels could be deemed to be material information. Therefore, we encourage investors, the media, and others interested in Precision Optics to review the information that we post on these social media channels. These social media channels may be updated from time to time on Precision Optics’ investor relations website. The information on, or accessible through, our websites and social media channels is not incorporated by reference in this Quarterly Report on Form 10-Q.
The markets in which we do business are highly competitive and include both foreign and domestic competitors. Many of our competitors are larger and have substantially greater resources than we do. Furthermore, other domestic or foreign companies, some with greater financial resources than we have, may seek to produce products or services that compete with ours. We routinely outsource specialized production efforts as required to obtain the most cost-effective production. Over the years we have developed extensive experience collaborating with other optical specialists worldwide.
We believe that our future success depends to a large degree on our ability to develop new optical products and services to enhance the performance characteristics and methods of manufacture of existing products. Accordingly, we expect to continue to seek and obtain product-related design and development contracts with customers and to selectively invest our own funds on research and development, particularly in the areas of Microprecision™ optics, micro medical cameras, illumination, single-use endoscopes and 3D endoscopes.
Our largest customer during the six months ended December 31, 2020 accounted for 13.3% of our revenue and represented engineering, design and assembly revenues for a medical diagnostic system. During the six months ended December 31, 2020 we had revenue from another two hundred twenty-six customers, and none of those customers accounted for more than 10% of our total revenue.
Current sales and marketing activities are intended to broaden awareness of the benefits of our new technology platforms and our successful application of these new technologies to medical device projects requiring surgery-grade visualization from sub-millimeter sized devices and 3D endoscopy, including single-use products and assemblies. We market directly to established medical device companies primarily in the United States that we believe could benefit from our advanced endoscopy visualization systems. Through this direct marketing, referrals, attendance at trade shows and a presence in online professional association websites, we have expanded our on-going pipeline of projects to significant medical device companies as well as well-funded emerging technology companies. We expect our customer pipeline to continue to expand as development projects transition to production orders and new customer projects enter the development phase. Our Ross Optical division markets through existing customers and trade shows, in addition to proactive online marketing strategies executed primarily through its website.
General
This management’s discussion and analysis of financial condition and results of operations is based upon our unaudited consolidated financial statements, which have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
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There have been no significant changes in our critical accounting policies as disclosed in the Notes to our Financial Statements contained in our Annual Report on Form 10-K for the year ended June 30, 2020 filed with the Securities and Exchange Commission on September 24, 2020.
Results of Operations
Our total revenues for the quarter ended December 31, 2020, were $2,785,450, as compared to $2,796,762 for the same period in the prior year, a decrease of $11,312, or 0.4%. Engineering revenue during the quarter ended December 31, 2020 increased approximately $370,000 compared to the same fiscal quarter of the prior year due primarily to the addition of projects with two new customers. Production revenue had a decrease in quarter-over-quarter revenue of approximately $246,000 due primarily to COVID-19 related slow-downs instituted by our existing customers. Other revenue changes between the quarter ended December 31, 2020 and the same period of the prior year were considered customary fluctuations with existing customers and project progressions.
Our total revenues for the six months ended December 31, 2020 were $5,543,351, as compared to $5,311,746 for the same period in the prior year, an increase of $231,605, or 4.4%. Similar to the quarter ended December 31, 2020, revenues increased during the six months ended December 31, 2020 compared to the same period of the prior year due to a $549,000 increase in engineering revenue caused by the addition of two new projects, offset by a smaller amount from decreases in production revenue from various customers experiencing slow-downs due to the affects of COVID-19.
The COVID-19 world-wide pandemic that began during the quarter ended March 31, 2020 and the domestic and international impact of policy decisions being made in major countries around the world has had, and could continue to have, an adverse impact on our sources of supply, current and future orders from our customers, collection of amounts owed to us from our customers, our internal operating procedures, and our overall financial condition. Given the uncertainty surrounding the continuation of economic impacts both domestically and abroad, we cannot predict with certainty at this time what the future impact of COVID-19 and resulting business and economic policies in the US and abroad will be on our up-coming quarterly fiscal operating results.
Gross profit for the quarter ended December 31, 2020 was $854,440, compared to $917,939 for the same period in the prior year, reflecting a decrease of $63,499, or 6.9%. Gross profit for the quarter ended December 31, 2020 as a percentage of our revenues was 30.7%, a decrease from the gross profit percentage of 32.8% for the same period in the prior year. Gross profit for the six months ended December 31, 2020 was $1,829,618, as compared to $1,892,056 for the same period in the prior year, which reflects a decrease of $62,438 or 3.3%. Gross profit for the six months ended December 31, 2020 as a percentage of our revenues was 33.0%, a decrease from the gross profit percentage of 35.6% for the same period in the prior year. Quarterly gross profit and gross profit percentage depend on a number of factors, including overall sales volume, facility utilization, product sales mix, the costs of engineering services, and production start-up costs and challenges in connection with new products, the effects of COVID-19 pandemic policy decisions on various economies and our suppliers and customers, as well as the effects on production efficiencies due to the augmented policies we have incorporated into our operations as a result of the COVID-19 pandemic.
Our gross margin on individual engineering projects is dependent on a number of factors and is expected to fluctuate from quarter to quarter based on the nature and status of engineering projects, unanticipated cost over-runs, design challenges and changes, start-up production activities or other customer-imposed project changes or delays. Our decrease in gross margin from 32.8% to 30.7% during the fiscal quarter ended December 31, 2019 compared to 2020 and from 35.6% to 33.0% during the six months ended December 31, 2019 and 2020 was primarily the result of a gross margin decrease in one engineering project due to cost over-runs, plus a decrease in higher margin production revenues with customers due to COVID-19 factors. The remainder of our production, engineering and component revenues resulted in margins within our targeted range with reasonably expected fluctuations.
| 15 |
Research and development expenses were $145,970 for the quarter ended December 31, 2020, compared to $228,576 for the same period in the prior year, a decrease of $82,606, or 36.1%. Research and development expenses were $297,546 for the six months ended December 31, 2020, compared to $380,730 for the same period in the prior year, a decrease of $83,184, or 21.8%. In-house research and development and certain internal functions not directly related to customer engagements are classified as research and development expenses with the majority of our engineering, research and development activities being consumed in revenue generating engagements with our customers for the development of their products. During the quarter ended December 31, 2019 we had a greater amount of our engineering personnel time consumed in internal research and development activities causing increased research and development expense compared to the quarter and six months ended December 31, 2020.
Selling, general and administrative expenses were $1,743,197 for the six months ended December 31, 2020, compared to $2,148,806 for the same period in the prior year, a decrease of $405,609, or 18.9%. The decrease in the six months ended December 31, 2020, compared to the same period of the prior fiscal year was due to decreased recruiting, shareholder relations, stock compensation and administrative travel costs offset by increases in consulting, professional accounting and insurance expenses.
Selling, general and administrative expenses were $921,195 for the quarter ended December 31, 2020, compared to $1,240,961 for the same period in the prior year, a decrease of $319,766, or 25.8%. The decrease in the quarter ended December 31, 2020, compared to the same quarter of the prior fiscal year was due to decreased shareholder relations, stock compensation and administrative travel costs offset by increases in consulting, professional accounting and insurance expenses
Liquidity and Capital Resources
We have sustained recurring net losses for several years. During the year ended June 30, 2020 we incurred a net loss of 1,426,150 and used cash in operating activities of $592,492. During the six months ended December 31, 2020 we had net loss of $212,661 and used cash in operating activities of $217,440. At December 31, 2020 cash was $816,263, accounts receivables were $1,590,867 and current liabilities were $2,680,315, including $151,877 of customer advances received for future order deliveries and $808,962 of a CARES Act PPP Promissory Note payable expected to be forgiven in full on or before August 16, 2022.
Although our sales levels have increased and our financial performance has shown signs of periodic improvement during certain recent fiscal quarters, our operating expenses have decreased, however, we continue to experience pricing pressure from our customers and challenges in engineering projects and production orders that result in cost over-runs and lower gross margins, and decreased orders from customers experiencing COVID-19 related slow downs. Consequently, critical to our ability to maintain our financial condition is achieving and maintaining a level of quarterly revenues that generate break even or better financial performance as well as timely collection of accounts receivable from our customers. We believe profitable operating results can be achieved through a combination of revenue levels, realized gross margins and controlling operating expense increases, all of which are subject to periodic fluctuations resulting from sales mix and the stage of completion of varying engineering service projects as they progress towards and into production level revenues.
We have traditionally funded working capital needs through product sales, management of working capital components of our business, cash received from public and private offerings of our common stock, warrants to purchase shares of our common stock or convertible notes, and by customer advances paid against purchase orders and recorded in the current liabilities section of the accompanying financial statements. Our management believes that the opportunities represented by our current production projects and engineering pipeline of Microprecision™ optical projects have the potential to generate increasing revenues and profitable financial results.
| 16 |
On May 6, 2020, we received loan proceeds in the amount of $808,962 under the Paycheck Protection Program, or PPP, from Bank of America. The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, provides for loans to qualifying businesses that are forgivable provided the loan proceeds are used for eligible purposes, including payroll, benefits, rent and utilities. The unsecured loan, which is in the form of a note dated May 6, 2020 and recorded as a current liability in accompanying financial statements, matures on May 6, 2022 and bears interest at a rate of 1% per annum, payable monthly commencing on August 16, 2021. While we currently believe that our use of the loan proceeds meets the conditions for forgiveness of the loan, we have begun the forgiveness application process and we cannot yet be assured that our $808,962 PPP loan will be eligible for forgiveness, in whole or in part.
Capital equipment expenditures and additional patent costs during the six months ended December 31, 2020 were $59,033. Future capital equipment expenditures will be dependent upon the type and amount of future sales revenue and the needs of on-going research and development efforts.
We have contractual cash commitments related to open purchase orders as of December 31, 2020 of approximately $696,000, plus a $51,515 commitment remaining under two capital lease obligations for the acquisition of equipment and $93,711 commitment remaining under a three-year facility lease relating the Ross Optical division in El Paso, Texas (see Note 3. Lease Obligations). We have no other contractual cash commitments since other leased facilities are currently on a month-to-month basis.
Off-Balance Sheet Arrangements
We currently have no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item.
Item 4. Controls and Procedures.
Management’s Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and our Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures, including internal control over financial reporting, were not effective as of December 13, 2019, to ensure the information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended (i) is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are intended to be designed to provide reasonable assurance that such information is accumulated and communicated to our management. Based on this evaluation, our management concluded that our internal control over financial reporting was not effective as of December 31, 2020.
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The following is a description of two material weaknesses in our internal control over financial reporting:
Segregation of Duties: As previously disclosed in our Annual Reports on Form 10-K for the fiscal years ended June 30, 2008-2020, our management identified a control deficiency during the 2008 fiscal year because we lacked sufficient staff to segregate accounting duties. We believe the control deficiency resulted primarily because we have the equivalent of one and one-half persons performing all accounting-related on-site duties. As a result, we did not maintain adequate segregation of duties within our critical financial reporting applications, the related modules and financial reporting processes. This control deficiency could result in a misstatement of balance sheet and income statement accounts in our interim or annual consolidated financial statements that would not be detected. Accordingly, management has determined that this control deficiency constitutes a material weakness. During the period beginning with fiscal year 2008 through June 30, 2020, no audit adjustments resulting from this condition were required.
To address and remediate the material weakness in internal control over financial reporting described above, beginning with the quarter ended September 30, 2008, we instituted a procedure whereby our Chief Executive Officer, our Chief Financial Officer and other members of our Board of Directors perform a higher level review of the quarterly and annual reports on Form 10-Q and Form 10-K prior to filing.
We believe that the step outlined above strengthens our internal control over financial reporting and mitigates the material weakness described above. As part of our assessment of internal control over financial reporting for the fiscal year ended June 30, 2020, our management has evaluated this additional control and has determined that it is operating effectively.
Inventory Valuation: As previously disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020, we reported a material weakness with respect to the valuation of our inventories. Specifically, the amounts used to value our inventory at June 30, 2009 with respect to overhead rates and purchased items were often inconsistent with the supporting documentation, due to year-to-year changes in overhead rates and costs of purchased items that were not properly reflected in inventory valuation. Accordingly, management had determined that this control deficiency constituted a material weakness as of June 30, 2009. Periodic fiscal year end audit adjustments of approximately $50,000 have been necessary as a result of this condition.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the second quarter of our fiscal year covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
To address and remediate the material weakness in internal control over financial reporting described above, beginning in the quarter ended September 30, 2009 and continuing through the quarter ended December 31, 2020, we implemented processes to improve our inventory controls and documentation surrounding inventory valuation for overhead rates, and performed procedures to ensure that the pricing of inventory items was consistent with the supporting documentation. We believe that the step outlined above strengthens our internal control over financial reporting and mitigates the material weakness described above.
We intend to continue to remediate material weaknesses and enhance our internal controls but cannot guarantee that our efforts will result in remediation of our material weaknesses or that new issues will not be exposed in this process.
| 18 |
Our Company, on occasion, may be involved in legal matters arising in the ordinary course of our business. While management believes that such matters are currently insignificant, matters arising in the ordinary course of business for which we are or could become involved in litigation may have a material adverse effect on our business, financial condition or results of operations. We are not aware of any pending or threatened litigation against us or our officers and directors in their capacity as such that could have a material impact on our operations or finances.
There have been no material changes from the risk factors previously disclosed in our annual report on Form 10-K for the fiscal year ended June 30, 2020, as filed with the Securities and Exchange Commission on September 24, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
None.
| 19 |
| Exhibit | Description | |
| 2.1 | Asset Purchase Agreement between the Company and Optometrics Corporation, dated January 18, 2008 (included as Exhibit 2.1 to the Form 8-K filed January 25, 2008, and incorporated herein by reference). | |
| 3.1 | Articles of Organization of Precision Optics Corporation, Inc., as amended (included as Exhibit 3.1 to the Form SB-2 filed March 16, 2007, and incorporated herein by reference). | |
| 3.2 | Bylaws of Precision Optics Corporation, Inc. (included as Exhibit 3.2 to the Form S-1 filed December 18, 2008, and incorporated herein by reference). | |
| 3.3 | Articles of Amendment to the Articles of Organization of Precision Optics Corporation, Inc., dated November 25, 2008 and effective December 11, 2008 (included as Exhibit 3.1 to the Form 8-K filed December 11, 2008, and incorporated herein by reference). | |
| 3.4 | Amended and Restated Bylaws of Precision Optics Corporation, Inc. (included as Exhibit 3.1 to the Current Report on Form 8-K filed July 11, 2014, and incorporated herein by reference). | |
| 10.1 | Precision Optics Corporation, Inc. 2011 Equity Incentive Plan, dated October 13, 2011 (included as Exhibit 10.2 to Form S-8 filed October 14, 2011, and incorporated herein by reference.) | |
| 10.2 | Precision Optics Corporation, Inc. Amended 2011 Equity Incentive Plan, dated October 14, 2011, as amended on April 16, 2015 (included as Exhibit 10.1 to the Company’s Registration Statement on Form S-8 filed April 20, 2015, and incorporated herein by reference). | |
| 10.3 | Consulting Agreement by and between the Company and Donald A. Major, dated June 15, 2016 (included as Exhibit 10.1 to the Form 8-K filed on June 23, 2016, and incorporated herein by reference). | |
| 10.4 | Form of Securities Purchase Agreement, by and among the Company and the Investors, dated November 22, 2016 (included as Exhibit 10.1 to the Form 8-K filed November 29, 2016, and incorporated herein by reference). | |
| 10.5 | Form of Registration Rights Agreement, by and among the Company and the Investors, dated November 22, 2016 (included as Exhibit 10.2 to the Form 8-K filed on November 29, 2016, and incorporated herein by reference). | |
| 10.6 | Form of Securities Purchase Agreement, by and the Company and the Investors, dated August 22, 2017 (included as Exhibit 10.1 to the Form 8-K filed on August 25, 2017, and incorporated herein by reference). | |
| 10.7 | Form of Registration Rights Agreement, by and among the Company and the Investors, dated August 22, 2017 (included as Exhibit 10.2 to the Form 8-K filed on August 25, 2017, and incorporated herein by reference). | |
| 10.8 | Compensation Agreement, by and between the Company and Joseph N. Forkey, dated August 2, 2018 (included as Exhibit 10.1 to the Form 8-K filed on August 3, 2018, and incorporated herein by reference). | |
| 10.9 | Offer letter by and between the Company and Donald A. Major, dated August 2, 2018 (included as Exhibit 10.9 to the Form 10-K filed on September 27, 2018, and incorporated herein by reference). | |
| 10.10 | Form of Securities Purchase Agreement by and among the Company and the Investors, dated October 16, 2018 (included as Exhibit 10.1 to the Form 8-K filed on October 18, 2018, and incorporated herein by reference). |
| 20 |
| 101.INS* | XBRL Instance Document | |
| 101.SCH* | XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB* | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document |
| * | Filed herewith. |
| † | Certain portions of the agreement have been omitted to preserve the confidentiality of such information. The Company will furnish copies of any such information to the SEC upon request. |
| + | The schedules to agreement have been omitted from this filing pursuant to Item 601(a)(5) of Regulation S-K. The Company will furnish copies of any such schedules to the SEC upon request. |
Copies of above exhibits not contained herein are available to any stockholder, upon written request to: Chief Financial Officer, Precision Optics Corporation, Inc., 22 East Broadway, Gardner, MA 01440.
| 21 |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| PRECISION OPTICS CORPORATION, INC. | ||
| Date: February 16, 2021 | By: | /s/ Joseph N. Forkey |
| Joseph N. Forkey | ||
|
Chief Executive Officer (Principal Executive Officer) | ||
| Date: February 16, 2021 | By: | /s/ Daniel S. Habhegger |
| Daniel S. Habhegger | ||
|
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | ||
| 22 |
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
I, Joseph N. Forkey, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Precision Optics Corporation, Inc. for the quarter ended December 31, 2020;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| By: | /s/ Joseph N. Forkey | |
| Date: February 16, 2021 | Joseph N. Forkey | |
| Chief Executive Officer | ||
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
I, Daniel S. Habhegger, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Precision Optics Corporation, Inc. for the quarter ended December 31, 2020;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| By: | /s/ Daniel S. Habhegger | |
| Date: February 16, 2021 | Daniel S. Habhegger | |
|
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
Exhibit 32.1
CERTIFICATION OF OFFICERS PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officers of Precision Optics Corporation, Inc., a Massachusetts corporation (the “Company”), do hereby certify, to such officers’ knowledge, that:
The Quarterly Report on Form 10-Q for the quarter ended December 31, 2020 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: February 16, 2021 | By: | /s/ Joseph N. Forkey |
| Joseph N. Forkey | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: February 16, 2021 | By: | /s/ Daniel S. Habhegger |
| Daniel S. Habhegger | ||
| Chief Financial Officer | ||
| (Principal Financial Officer and Principal Accounting Officer) |
A signed original of this written statement required by Section 906 has been provided to Precision Optics Corporation, Inc. and will be retained by Precision Optics Corporation, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Document and Entity Information - shares |
6 Months Ended | |
|---|---|---|
Dec. 31, 2020 |
Feb. 12, 2021 |
|
| Cover [Abstract] | ||
| Entity Registrant Name | PRECISION OPTICS CORPORATION, INC. | |
| Entity Central Index Key | 0000867840 | |
| Document Type | 10-Q | |
| Document Period End Date | Dec. 31, 2020 | |
| Amendment Flag | false | |
| Current Fiscal Year End Date | --06-30 | |
| Is Entity's Reporting Status Current? | Yes | |
| Entity Filer Category | Non-accelerated Filer | |
| Entity Common Stock, Shares Outstanding | 13,191,789 | |
| Document Fiscal Period Focus | Q2 | |
| Document Fiscal Year Focus | 2021 | |
| Entity Small Business | true | |
| Entity Emerging Growth | false | |
| Entity Interactive data current | Yes | |
| Entity File number | 001-10647 | |
| Entity Incorporation state code | MA | |
| Entity shell company | false |
CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - USD ($) |
Dec. 31, 2020 |
Jun. 30, 2020 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Allowance for doubtful accounts | $ 249,883 | $ 248,450 |
| STOCKHOLDERS' EQUITY | ||
| Common Stock par value | $ 0.01 | $ 0.01 |
| Common Stock shares authorized | 50,000,000 | 50,000,000 |
| Common Stock shares issued | 13,191,789 | 13,191,789 |
| Common Stock shares outstanding | 13,191,789 | 13,191,789 |
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
Dec. 31, 2020 |
Dec. 31, 2019 |
|
| Income Statement [Abstract] | ||||
| Revenues | $ 2,785,450 | $ 2,796,762 | $ 5,543,351 | $ 5,311,746 |
| Cost of goods sold | 1,931,010 | 1,878,823 | 3,713,733 | 3,419,690 |
| Gross profit | 854,440 | 917,939 | 1,829,618 | 1,892,056 |
| Research and development expenses, net | 145,970 | 228,576 | 297,546 | 380,730 |
| Selling, general and administrative expenses | 921,195 | 1,240,961 | 1,743,197 | 2,148,806 |
| Total operating expenses | 1,067,165 | 1,469,537 | 2,040,743 | 2,529,536 |
| Operating Loss | (212,725) | (551,598) | (211,125) | (637,480) |
| Interest (Expense) Income | (729) | 773 | (1,536) | 545 |
| Net Loss | $ (213,454) | $ (550,825) | $ (212,661) | $ (636,935) |
| Loss Per Share: | ||||
| Basic and Fully Diluted | $ (0.02) | $ (0.04) | $ (0.02) | $ (0.05) |
| Weighted Average Common Shares Outstanding: | ||||
| Basic and Fully Diluted | 13,191,789 | 12,873,971 | 13,191,789 | 12,856,218 |
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Parenthetical) |
3 Months Ended |
|---|---|
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Dec. 31, 2019
shares
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| Statement of Stockholders' Equity [Abstract] | |
| Exercise of stock option, shares withheld | 3,592 |
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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Dec. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Principles of Consolidation and Operations
The accompanying consolidated financial statements include the accounts of Precision Optics Corporation, Inc. and its wholly-owned subsidiaries (the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation.
These consolidated financial statements have been prepared by the Company, without audit, and reflect normal recurring adjustments which, in the opinion of management, are necessary for a fair statement of the results of the second quarter and six months of the Company’s fiscal year 2021. These consolidated financial statements do not include all disclosures associated with annual consolidated financial statements and, accordingly, should be read in conjunction with footnotes contained in the Company’s consolidated financial statements for the year ended June 30, 2020, together with the Report of Independent Registered Public Accounting Firm filed under cover of the Company’s 2020 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on September 24, 2020.
Use of Estimates
The preparation of these consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
Loss Per Share
Basic loss per share is computed by dividing net income or net loss by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period, plus the number of potentially dilutive securities outstanding during the period such as stock options. For the three and six months ended December 31, 2020 and 2019, the effect of such securities was antidilutive and not included in the fully diluted calculation because of the net loss generated in those periods.
The following is the calculation of loss per share for the three and six months ended December 31, 2020 and 2019:
The number of shares issuable upon the exercise of outstanding stock options that were excluded from the computation as their effect was antidilutive was approximately 2,135,200 and 2,047,800 for the three and six months ended December 31, 2020 and 2019, respectively.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
In assessing the likelihood of utilization of existing deferred tax assets, management has considered historical results of operations and the current operating environment. Based on this evaluation, a full valuation reserve has been provided for the deferred tax assets.
Goodwill and Patents
Long-lived assets such as goodwill and patents are capitalized when acquired and reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. Impairment of the carrying value of long-lived assets such as goodwill and patents would be indicated if the best estimate of future undiscounted cash flows expected to be generated by the asset grouping is less than its carrying value. If an impairment is indicated, any loss is measured as the difference between estimated fair value and carrying value and is recognized in operating income or loss. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. No such impairments of goodwill or patents have been estimated by management as of December 31, 2020. |
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2. INVENTORIES |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||
| INVENTORIES |
Inventories are stated at the lower of cost (first-in, first-out) or market and consisted of the following:
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3. NOTE PAYABLE TO BANK |
6 Months Ended | ||
|---|---|---|---|
Dec. 31, 2020 | |||
| Debt Disclosure [Abstract] | |||
| NOTE PAYABLE TO BANK |
The Company executed an unsecured Promissory Note with a bank on May 6, 2020 and received $808,962 of loan proceeds pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The Promissory Note bears interest at a fixed rate of 1% per annum, with principal and interest payments commencing on August 16, 2021. However, if the Small Business Administration confirms forgiveness of the Company’s loan and reimburses the bank for the total outstanding balance of principal and interest, the Company’s obligations under the Promissory Note will be deemed fully satisfied and paid in full. The Company has begun the loan forgiveness application process and expects that it will ultimately qualify for full forgiveness. Any portion of the Company’s CARES Act loan that is not forgiven shall be converted to a term loan with the bank with monthly payments bearing interest at no more than 1% per annum and a maturity date two years from the Promissory Note date, or May 6, 2022. |
4. LEASE OBLIGATION |
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| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LEASE OBLIGATION |
In January 2020 the Company entered into a five-year capital lease and a twelve-month capital lease in the amounts of $47,750 and $65,463 respectively, for manufacturing equipment. The net book value of fixed assets under capital lease obligations as of December 31, 2020 is $90,570.
On July 1, 2019 the Company entered into a three-year operating lease for its facility in El Paso, Texas with total remaining minimum lease payments of $93,711 at December 31, 2020. Total rent expense including base rent and common area expenses was $23,090 and $15,190 during the three months ended December 31, 2020 and 2019, respectively. Included in the accompanying balance sheet at December 31, 2020 is a right-of-use asset of $90,181 and current and long-term right-of-use operating lease liabilities of $59,127 and $31,054, respectively.
At December 31, 2020, future minimum lease payments under the capital lease and operating lease obligations are as follows:
The Company’s operating leases for its three Gardner, Massachusetts office, production and storage spaces plus an equipment lease have expired and are continuing on a month to month tenant at will basis. Rent expense on these operating leases was $83,231 and $72,827 for the six months ended December 31, 2020 and 2019, respectively. |
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5. STOCK-BASED COMPENSATION |
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| Share-based Payment Arrangement [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| STOCK-BASED COMPENSATION |
The following table summarizes stock-based compensation expense for the three and six months ended December 31, 2020 and 2019:
No compensation has been capitalized because such amounts would have been immaterial.
The following tables summarize stock option activity for the six months ended December 31, 2020:
Information related to the stock options outstanding as of December 31, 2020 is as follows:
The aggregate intrinsic value of the Company’s “in-the-money” outstanding and exercisable options as of December 31, 2020 was $875,330 and $795,283, respectively. |
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6. REVENUE RECOGNITION |
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| Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| REVENUE RECOGNITION |
Revenues are recognized as the performance obligations to deliver products or services are satisfied and are recorded based on the amount of consideration the Company expects to receive in exchange for satisfying the performance obligations. Most of the Company’s products and services are marketed to medical device companies almost exclusively in the United States. Products and services are primarily transferred to customers at a point in time based upon when services are performed or product is shipped.
Revenues represent the amount of consideration the Company expects to receive from customers in exchange for transferring products and services. Other selling costs to obtain and fulfill contracts are expensed as incurred due to the short-term nature of a majority of its revenues. The Company extends terms of payment to its customers based on commercially reasonable terms for the markets of its customers, while also considering their credit quality. Shipping and handling costs charged to customers are included in revenues.
The Company disaggregates revenues by product and service types as it believes it best depicts how the nature, amount, timing and uncertainty of revenues and cash flows are affected by economic factors. Revenues are comprised of the following for the three and six months ended December 31, 2020 and 2019:
Contract Assets and Liabilities
The nature of the Company’s products and services does not generally give rise to contract assets as it typically does not incur costs to fulfill a contract before a product or service is provided to a customer. The Company’s costs to obtain contracts are typically in the form of sales commissions paid to employees. The Company has elected to expense sales commissions associated with obtaining a contract as incurred as the amortization period is generally less than one year. These costs have been recorded in selling, general and administrative expenses. As of December 31, 2020, there were no contract assets recorded in the Company’s Consolidated Balance Sheets.
The Company’s contract liabilities arise as a result of unearned revenue received from customers at inception of contracts or where the timing of billing for services precedes satisfaction of our performance obligations. The Company generally satisfies performance obligations within one year from the contract inception date.
Contract liabilities, which were recorded as customer advances in the Company’s Consolidated Balance Sheets, and unearned revenue are comprised of the following:
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7. COVID-19 PANDEMIC |
6 Months Ended | ||
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Dec. 31, 2020 | |||
| Covid-19 Pandemic | |||
| COVID-19 PANDEMIC |
The COVID-19 world-wide pandemic that began during the quarter ended March 31, 2020 and the domestic and international impact of policy decisions being made in major countries around the world has had, and could continue to have, an adverse impact on the Company’s sources of supply, current and future orders from its customers, collection of amounts owed to the Company from its customers, its internal operating procedures, and the Company’s overall financial condition. Given the uncertainty surrounding the continuation of economic impacts both domestically and abroad, the Company cannot predict with certainty at this time what the future impact of COVID-19 and resulting business and economic policies in the US and abroad will be on its up-coming quarterly fiscal operating results. |
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Principles of Consolidation and Operations | Principles of Consolidation and Operations
The accompanying consolidated financial statements include the accounts of Precision Optics Corporation, Inc. and its wholly-owned subsidiaries (the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation.
These consolidated financial statements have been prepared by the Company, without audit, and reflect normal recurring adjustments which, in the opinion of management, are necessary for a fair statement of the results of the second quarter and six months of the Company’s fiscal year 2021. These consolidated financial statements do not include all disclosures associated with annual consolidated financial statements and, accordingly, should be read in conjunction with footnotes contained in the Company’s consolidated financial statements for the year ended June 30, 2020, together with the Report of Independent Registered Public Accounting Firm filed under cover of the Company’s 2020 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on September 24, 2020. |
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| Use of Estimates | Use of Estimates
The preparation of these consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. |
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| Loss Per Share | Loss Per Share
Basic loss per share is computed by dividing net income or net loss by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period, plus the number of potentially dilutive securities outstanding during the period such as stock options. For the three and six months ended December 31, 2020 and 2019, the effect of such securities was antidilutive and not included in the fully diluted calculation because of the net loss generated in those periods.
The following is the calculation of loss per share for the three and six months ended December 31, 2020 and 2019:
The number of shares issuable upon the exercise of outstanding stock options that were excluded from the computation as their effect was antidilutive was approximately 2,135,200 and 2,047,800 for the three and six months ended December 31, 2020 and 2019, respectively. |
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| Income Taxes | Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
In assessing the likelihood of utilization of existing deferred tax assets, management has considered historical results of operations and the current operating environment. Based on this evaluation, a full valuation reserve has been provided for the deferred tax assets. |
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| Goodwill and Patents | Goodwill and Patents
Long-lived assets such as goodwill and patents are capitalized when acquired and reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. Impairment of the carrying value of long-lived assets such as goodwill and patents would be indicated if the best estimate of future undiscounted cash flows expected to be generated by the asset grouping is less than its carrying value. If an impairment is indicated, any loss is measured as the difference between estimated fair value and carrying value and is recognized in operating income or loss. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. No such impairments of goodwill or patents have been estimated by management as of December 31, 2020. |
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loss Per Share | The following is the calculation of loss per share for the three and six months ended December 31, 2020 and 2019:
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2. INVENTORIES (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
| Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of inventory | Inventories are stated at the lower of cost (first-in, first-out) or market and consisted of the following:
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4. LEASE OBLIGATION (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Future minimum lease payments | At December 31, 2020, future minimum lease payments under the capital lease and operating lease obligations are as follows:
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5. STOCK-BASED COMPENSATION (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of stock-based compensation expense | The following table summarizes stock-based compensation expense for the three and six months ended December 31, 2020 and 2019:
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| Stock option activity | The following tables summarize stock option activity for the six months ended December 31, 2020:
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| Stock options outstanding by exercise price range | Information related to the stock options outstanding as of December 31, 2020 is as follows:
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6. REVENUE RECOGNITION (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Disaggregation of revenues | Revenues are comprised of the following for the three and six months ended December 31, 2020 and 2019:
|
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| Contract Liabilities | Contract liabilities, which were recorded as customer advances in the Company’s Consolidated Balance Sheets, and unearned revenue are comprised of the following:
|
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details - Loss per share) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
Dec. 31, 2020 |
Dec. 31, 2019 |
|
| Accounting Policies [Abstract] | ||||
| Net Loss - Basic and Diluted | $ (213,454) | $ (550,825) | $ (212,661) | $ (636,935) |
| Basic and Dilutive Weighted Average Shares Outstanding | 13,191,789 | 12,873,971 | 13,191,789 | 12,856,218 |
| Loss Per Share - Basic and Diluted | $ (0.02) | $ (0.04) | $ (0.02) | $ (0.05) |
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
Dec. 31, 2020 |
Dec. 31, 2019 |
|
| Accounting Policies [Abstract] | ||||
| Outstanding stock options and warrants that were excluded from the computation as their effect was antidilutive | 2,135,200 | 2,135,200 | 2,047,800 | 2,047,800 |
| Goodwill impairment | $ 0 | $ 0 | $ 0 | $ 0 |
2. INVENTORIES (Details) - USD ($) |
Dec. 31, 2020 |
Jun. 30, 2020 |
|---|---|---|
| Inventory Disclosure [Abstract] | ||
| Raw materials | $ 614,114 | $ 653,678 |
| Work-in-progress | 509,307 | 665,593 |
| Finished goods | 821,645 | 877,973 |
| Total inventories | $ 1,945,066 | $ 2,197,244 |
3. NOTE PAYABLE TO BANK (Details Narrative) - Paycheck Protection Program [Member] |
10 Months Ended |
|---|---|
|
May 06, 2020
USD ($)
| |
| Proceeds from loan | $ 808,962 |
| Interest rate | 1.00% |
| Term | 2 years |
| Maturity date | May 06, 2022 |
4. LEASE OBLIGATION (Details) - USD ($) |
Dec. 31, 2020 |
Jun. 30, 2020 |
|---|---|---|
| Capital lease future minimum payments | ||
| 2021 | $ 11,095 | |
| 2022 | 11,280 | |
| 2023 | 11,280 | |
| 2024 | 11,280 | |
| 2025 | 6,580 | |
| Total minimum payments | 51,515 | |
| Less: amount representing interest | 5,905 | |
| Present value of minimum lease payments | 45,610 | |
| Less: current portion | 14,293 | $ 51,761 |
| Capital lease obligation, noncurrent | 31,317 | $ 35,810 |
| Operating lease future minimum payments | ||
| 2021 | 30,889 | |
| 2022 | 62,822 | |
| 2023 | 0 | |
| 2024 | 0 | |
| 2025 | 0 | |
| Total minimum payments | $ 93,711 |
4. LEASE OBLIGATION (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | ||||
|---|---|---|---|---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
Dec. 31, 2020 |
Dec. 31, 2019 |
Jun. 30, 2020 |
Jan. 31, 2020 |
|
| Capital lease obligation | $ 45,610 | $ 45,610 | ||||
| Operating lease obligation | 93,711 | 93,711 | ||||
| Operating lease right-to-use asset | 90,181 | 90,181 | $ 118,403 | |||
| Right of use operating lease current | 59,127 | 59,127 | 57,156 | |||
| Right of use operating lease noncurrent | 31,054 | 31,054 | $ 61,247 | |||
| El Paso, TX [Member] | ||||||
| Operating lease expense | 23,090 | $ 15,190 | ||||
| Gardner, MA [Member] | ||||||
| Operating lease expense | 83,231 | $ 72,827 | ||||
| Capital Lease 5 yr [Member] | ||||||
| Capital lease obligation | $ 47,750 | |||||
| Net book value of fixed assets under capital lease obligations | $ 90,570 | $ 90,570 | ||||
| Capital Lease 12 month [Member] | ||||||
| Capital lease obligation | $ 65,463 | |||||
5. STOCK-BASED COMPENSATION (Details - Stock based compensation) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
Dec. 31, 2020 |
Dec. 31, 2019 |
|
| Stock based compensation expense | $ 157,079 | $ 274,706 | $ 228,225 | $ 351,211 |
| Cost of Goods Sold [Member] | ||||
| Stock based compensation expense | 11,233 | 11,233 | 22,466 | 22,466 |
| Research and Development Expenses [Member] | ||||
| Stock based compensation expense | 19,435 | 12,683 | 36,360 | 25,368 |
| Selling, General and Administrative Expenses [Member] | ||||
| Stock based compensation expense | $ 126,411 | $ 250,790 | $ 169,399 | $ 303,377 |
5. STOCK-BASED COMPENSATION (Details - Option activity) - Stock Options [Member] |
6 Months Ended |
|---|---|
|
Dec. 31, 2020
$ / shares
shares
| |
| Number of Shares | |
| Options outstanding, beginning | shares | 2,065,200 |
| Options granted | shares | 70,000 |
| Options outstanding, ending | shares | 2,135,200 |
| Weighted Average Exercise Price | |
| Weighted average exercise price, beginning price | $ / shares | $ 0.95 |
| Weighted average exercise price, granted | $ / shares | |
| Weighted average exercise price, ending price | $ / shares | $ 0.96 |
| Weighted Average Contractual Life | |
| Weighted Average Contractual Life, beginning | 6 years 7 months 2 days |
| Weighted Average Contractual Life, ending | 6 years 2 months 16 days |
5. STOCK-BASED COMPENSATION (Details Narrative) |
Dec. 31, 2020
USD ($)
|
|---|---|
| Share-based Payment Arrangement [Abstract] | |
| Aggregate intrinsic value of "in the money" outstanding | $ 875,330 |
| Aggregate intrinsic value of "in the money" exercisable | $ 795,283 |
6. REVENUE RECOGNITION (Details - Revenues) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
Dec. 31, 2020 |
Dec. 31, 2019 |
|
| Revenues | $ 2,785,450 | $ 2,796,762 | $ 5,543,351 | $ 5,311,746 |
| Engineering Design Services [Member] | ||||
| Revenues | 847,988 | 478,441 | 1,437,220 | 888,169 |
| Optical Components [Member] | ||||
| Revenues | 1,398,213 | 1,532,843 | 2,874,298 | 2,949,087 |
| Medical Device Products and Assemblies [Member] | ||||
| Revenues | $ 539,249 | $ 785,478 | $ 1,231,833 | $ 1,474,490 |
6. REVENUE RECOGNITION (Details - Contract liabilities) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
Dec. 31, 2020 |
Dec. 31, 2019 |
|
| Revenue from Contract with Customer [Abstract] | ||||
| Contract liabilities, beginning balance | $ 206,665 | $ 513,623 | $ 417,059 | $ 450,192 |
| Unearned revenue received from customers | 127,571 | 97,143 | 171,703 | 293,019 |
| Revenue recognized in current period | (182,359) | (222,260) | (436,885) | (354,705) |
| Contract liabilities, ending balance | $ 151,877 | $ 388,506 | $ 151,877 | $ 388,506 |