UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from to
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| ☒ | Smaller reporting company | |||
| Emerging growth company |
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The number of shares outstanding of the issuer’s common stock, par value $0.01 per share, at November 12, 2025 was shares.
PRECISION OPTICS CORPORATION, INC.
Table of Contents
| 2 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
PRECISION OPTICS CORPORATION, INC.
BALANCE SHEETS
(UNAUDITED)
| September 30, | June 30, | |||||||
| 2025 | 2025 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowance for credit losses of $ | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Fixed Assets: | ||||||||
| Machinery and equipment | ||||||||
| Leasehold improvements | ||||||||
| Furniture and fixtures | ||||||||
| Total fixed assets | ||||||||
| Less—accumulated depreciation and amortization | ||||||||
| Net fixed assets | ||||||||
| Operating lease right-to-use asset | ||||||||
| Patents, net | ||||||||
| Goodwill | ||||||||
| Total other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Current portion of capital lease obligation | $ | $ | ||||||
| Current maturities of long-term debt | ||||||||
| Accounts payable | ||||||||
| Contract liabilities | ||||||||
| Accrued compensation and other | ||||||||
| Current portion of operating lease liability | ||||||||
| Total current liabilities | ||||||||
| Long-term debt, net of current maturities | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Total liabilities | ||||||||
| Stockholders’ Equity: | ||||||||
| Common stock, $ par value: shares authorized; issued and outstanding – shares at September 30, 2025 and June 30, 2025 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these interim financial statements.
| 3 |
PRECISION OPTICS CORPORATION, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2025 AND 2024
(UNAUDITED)
| Three Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Revenues | $ | $ | ||||||
| Cost of Goods Sold | ||||||||
| Gross Profit | ||||||||
| Research and Development Expenses | ||||||||
| Selling, General and Administrative Expenses | ||||||||
| Total Operating Expenses | ||||||||
| Operating Loss | ( | ) | ( | ) | ||||
| Interest Expense | ( | ) | ( | ) | ||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Loss Per Share: | ||||||||
| Basic & Fully Diluted | $ | ) | $ | ) | ||||
| Weighted Average Common Shares Outstanding: | ||||||||
| Basic & Fully Diluted | ||||||||
The accompanying notes are an integral part of these interim financial statements.
| 4 |
PRECISION OPTICS CORPORATION, INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED
sEPTEMBER 30, 2025 AND 2024
(UNAUDITED)
| Three Month Period Ended September 30, 2025 | ||||||||||||||||||||
| Number of Shares | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders’ Equity | ||||||||||||||||
| Balance, July 1, 2025 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Stock-based compensation | – | |||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Balance, September 30, 2025 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Three Month Period Ended September 30, 2024 | ||||||||||||||||||||
| Number of Shares | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders’ Equity | ||||||||||||||||
| Balance, July 1, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Issuance of common stock in registered direct offering | ||||||||||||||||||||
| Proceeds from exercise of stock option | ||||||||||||||||||||
| Stock-based compensation | – | |||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Balance, September 30, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
The accompanying notes are an integral part of these interim financial statements.
| 5 |
PRECISION OPTICS CORPORATION, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
September 30, 2025 AND 2024
(UNAUDITED)
| Three Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities - | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation expense | ||||||||
| Non-cash interest expense | ||||||||
| Non-cash operating lease expense | ||||||||
| Loss on disposal of fixed assets | ||||||||
| Changes in operating assets and liabilities - | ||||||||
| Accounts receivable, net | ||||||||
| Inventories, net | ( | ) | ( | ) | ||||
| Prepaid expenses | ( | ) | ||||||
| Accounts payable | ||||||||
| Contract liabilities | ( | ) | ||||||
| Accrued compensation and other | ||||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash Flows from Investing Activities: | ||||||||
| Purchases of fixed assets | ( | ) | ( | ) | ||||
| Proceeds from sale of fixed assets | ||||||||
| Additional patent costs | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Payments of capital lease obligations | ( | ) | ( | ) | ||||
| Payments of long-term debt | ( | ) | ( | ) | ||||
| Payment of debt modification costs | ( | ) | ||||||
| Payment on revolving line of credit | ( | ) | ||||||
| Proceeds from registered direct sale of common stock, net | ||||||||
| Gross proceeds from the exercise of stock options | ||||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net increase(decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Operating right-of-use assets obtained in exchange for operating lease liabilities | $ | $ | ||||||
| Lease improvements financed by landlord | $ | $ | ||||||
The accompanying notes are an integral part of these interim financial statements.
| 6 |
PRECISION OPTICS CORPORATION, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED)
| 1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Principles of Consolidation and Operations
These 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 first three months of the Company’s fiscal year 2026. These financial statements do not include all disclosures associated with annual financial statements and, accordingly, should be read in conjunction with footnotes contained in the Company’s financial statements for the year ended June 30, 2025, together with the Report of Independent Registered Public Accounting Firm filed under cover of the Company’s 2025 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on September 29, 2025, as amended by Amendment No. 1 on Form 10-K/A filed with the Securities and Exchange Commission on October 28, 2025.
Use of Estimates
The preparation of these 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.
Basic income (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 income (loss) per share is computed by dividing net income (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 months ended September 30, 2025 and 2024, potentially dilutive securities outstanding have been excluded from the computations of weighted-average shares outstanding because such securities have an antidilutive impact due to the net loss reported during those periods. The number of shares issuable upon the exercise of outstanding stock options that were excluded from the computation of fully dilutive weighted average shares outstanding was approximately for the three months ended September 30, 2025 and for the three months ended September 30, 2024.
The following is the calculation of income (loss) per share for the three months ended September 30, 2025 and 2024:
| Three Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Net Income (Loss) Basic and Fully Diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted Average Shares Outstanding | ||||||||
| Basic & Fully Diluted | ||||||||
| Loss Per Share – Basic & Fully Diluted | $ | ) | ) | |||||
Significant Customers and Concentration of Credit Risk
Financial instruments that subject the Company to credit risk consist primarily of cash equivalents and trade accounts receivable. The Company places its investments with highly rated financial institutions. The Company has not experienced any losses on these investments to date.
| 7 |
The allowance for credit losses was $
| Three Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Allowance for credit losses, beginning of period | $ | $ | ||||||
| Change in the provision for expected credit losses | ( | ) | ( | ) | ||||
| Allowance for credit losses, end of period | $ | $ | ||||||
During the three months ended September 30, 2025, the Company decreased the credit loss reserve. Management believes the allowance for credit losses, which is established based upon review of specific account balances and historical experience, is adequate at September 30, 2025.
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 the 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.
Segment Reporting
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions about how to allocate resources and assess performance. The Company’s chief decision-maker is its Chief Executive Officer. To date, the Company has viewed its operations and manages its business as principally segment. The chief operating decision maker assesses performance for the single reporting segment and decides how to allocate resources based on revenues, gross profit, and net income (loss) that also is reported on the income statement as revenues, gross profit, and net income (loss). The measure of segment assets is reported on the balance sheet as total 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 September 30, 2025. Amortization expense for the three
months ended September 30, 2025 and 2024 was $
| 2. | INVENTORIES |
Inventories are stated at the lower of cost (first-in, first-out) or market and consisted of the following:
| September 30, 2025 | June 30, 2025 | |||||||
| Raw Materials | $ | $ | ||||||
| Work-In-Progress | ||||||||
| Finished Goods | ||||||||
| Total Inventories | $ | $ | ||||||
| 8 |
| 3. | BANK FINANCING ACTIVITIES |
Bank Line of Credit
The Company’s Loan Agreement with the Lender
contains a minimum annual debt service coverage ratio covenant of 1.2x. The Company did not meet this annual debt service coverage ratio
for the fiscal year ended June 30, 2024. The Company’s Lender has agreed to waive compliance with such debt service ratio covenant
for the period ending June 30, 2024. In addition to such waiver, the Lender and the Company have entered into an amendment dated September
30, 2024 to that certain Term Loan dated October 4, 2021, as amended and that certain Promissory Note dated June 2, 2023 (collectively,
the “Notes”) which amendments provide for a six-month period of interest only payments from October 15, 2024 through March
15, 2025 for the Notes. The Company commenced payments of principal and interest under the Notes beginning with the payments due on April
15, 2025, with a new amortization schedule for the remaining term for such Notes through their maturity date. On February 14, 2025, the
Lender agreed to waive compliance with the annual debt service coverage ratio covenant for the fiscal year ending June 30, 2025,
There were no other changes to or modifications to the Loan Agreement or the Notes.
Long-Term Debt
Long-term debt consists of the following at September 30, 2025:
| Amount | ||||
| Term Loan Note payable to Main Street Bank with | $ | |||
| Permanent Working Capital Loan payable to Main Street Bank with | ||||
| Less current maturities | ( | ) | ||
| Less debt issuance and modification costs, net of accumulated amortization of $ | ( | ) | ||
| Long-term debt, net of current maturities and debt issuance costs | $ | |||
At September 30, 2025 principal payments due on the Term Loan Note payable are as follows:
| Fiscal Year Ending June 30: | ||||
| 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Total long-term debt | $ | |||
| 9 |
| 4. | LEASE OBLIGATIONS |
In March 2021 the Company entered into a five-year
capital lease in the amount of $
On July 1, 2019 the Company entered into a three-year
operating lease for its facility in El Paso, Texas, and in February 2022 the Company entered into an extension of the lease for an additional
three years through June 2025. In May 2025, this lease was extended for an additional three years through May 2028. Remaining minimum
lease payments at September 30, 2025 total $
On May 15, 2025 the Company entered into a eight-year
lease in South Portland, Maine with two five-year extension options. Remaining minimum lease payments at September 30, 2025 total $
On June 2, 2025 the Company entered into a seven-year operating lease in Littleton, Massachusetts with two five-year extension options.
Remaining minimum lease payments at September
30, 2025 total $
At September 30, 2025 future minimum lease payments under the capital lease and operating lease obligations are as follows:
| Fiscal Year Ending June 30: | Capital Leases | Operating Leases | ||||||
| 2026 | $ | $ | ||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | ||||||||
| 2030 | ||||||||
| 2031 and thereafter | ||||||||
| Total Minimum Payments | ||||||||
| Less: amount representing interest | ||||||||
| Present value of minimum lease payments | ||||||||
| Less: current portion | ||||||||
| Future minimum long-term lease liability | $ | $ | ||||||
The Company’s four facilities in Gardner,
Massachusetts which are used for offices, production and storage spaces are leased primarily on a tenant-at-will basis. Rent expense on
these operating leases was $
| 10 |
| 5. | STOCK-BASED COMPENSATION |
Stock Options
The following table summarizes stock-based compensation expense for the three months ended September 30, 2025 and 2024.
| Three Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Cost of Goods Sold | $ | $ | ||||||
| Selling, General and Administrative | ||||||||
| Stock Based Compensation Expense | $ | $ | ||||||
No compensation has been capitalized because such amounts would have been immaterial.
The following tables summarize stock option activity for the three months ended September 30, 2025:
| Options Outstanding | ||||||||||||
| Number of Shares | Weighted Average Exercise Price | Weighted Average Contractual Life | ||||||||||
| Outstanding at June 30, 2025 | $ | years | ||||||||||
| Exercised | – | |||||||||||
| Cancelled, forfeited, or expired | – | |||||||||||
| Outstanding at September 30, 2025 | $ | years | ||||||||||
The aggregate intrinsic value of the Company’s in-the-money outstanding and exercisable options as of September 30, 2025 were $ and $, respectively.
| 6. | REVENUE RECOGNITION |
The Company determines revenue recognition for arrangements that we determine are within the scope of Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers,” or ASC 606, by performing the following five steps: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when, or as, the Company satisfies the performance obligations. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within the contract and determine those that are performance obligations and assesses whether each promised good or service is distinct based on the contract.
The Company disaggregates revenues by product and service types as it believes 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 months ended September 30, 2025 and 2024:
| Three Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Engineering Design Services | $ | $ | ||||||
| Systems Manufacturing | ||||||||
| Micro Optics Lab | ||||||||
| Ross Optical Industries | ||||||||
| Total Revenues | $ | $ | ||||||
| 11 |
Other selling costs to obtain and fulfill contracts are expensed as incurred due to the short-term nature of a majority of contracts. 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 revenue.
Revenue recognition policies for each of the four product and service types appear below.
Engineering Design Services
The Company enters into contractual agreements with its customers, including design services agreements, statements of work and receive purchase orders for development projects. These agreements provide costs on an estimated basis for the services the Company has agreed to provide. Engineering Design Services are rendered on a time and materials basis. The Company recognizes revenue as customers are invoiced for the actual engineering services provided in the period. Revenue is also recognized on materials purchased for development projects at the time of receipt. Engineering Design Services are provided on a best-efforts basis; no warranty is provided as there is no guarantee that the work will result in the attainment of the customer’s project objectives. The Company may obtain customer deposits in advance of rendering engineering design services. Customer deposits are treated as contractual liabilities until the terms of customer agreements are satisfied and are not a component of revenue.
Systems Manufacturing, Micro Optics Laboratory, Ross Optical Industries
The Company provides fixed price quotations to its customers and requires purchase orders for items manufactured and distributed through the Systems Manufacturing, Micro Optics Laboratory and Ross Optical Industries business units. Revenue is recognized at the time title passes to the customer based on the Company’s review of the customer contract, generally at the time of shipment from the Company’s facilities. Occasionally the Company may enter into “bill and hold” contractual arrangements where title is held by its customers while goods are stored at the Company’s facilities for the customer’s convenience.
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 September 30, 2025, there were no contract assets recorded in the Company’s Balance Sheets.
The Company’s contract liabilities arise from 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’s inception date.
Contract liabilities, which are recorded in the Company’s Balance Sheets, and unearned revenue are comprised of the following:
| Three Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Contract liabilities, beginning of period | $ | $ | ||||||
| Unearned revenue received from customers | ||||||||
| Revenue recognized | ( | ) | ( | ) | ||||
| Contract liabilities, end of period | $ | $ | ||||||
| 12 |
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 financial statements and notes to those statements included elsewhere in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2025 and with our audited financial statements for the year ended June 30, 2025 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on September 29, 2025, as amended by Amendment No. 1 on Form 10-K/A filed with the Securities and Exchange Commission on October 28, 2025.
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, 2025, as amended by Amendment No. 1 on Form 10-K/A filed with the Securities and Exchange Commission on October 28, 2025, 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, and we operate primarily in two key market segments: medical devices and advanced defense/aerospace products. Within our proprietary optical and imaging technology, our unique custom designs, expert manufacturing capabilities, and advanced engineering and development capabilities have generated traditional endoscopes and endocouplers, digital imaging endoscopes using CMOS sensor technology, some designed and manufactured for single-use, as well as other, more advanced, custom imaging and illumination products for our customers’ use in minimally invasive surgical procedures. We design and manufacture ultra-high precision 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 also apply our unique technologies to applications in the Defense / Aerospace markets including applications supporting satellite network communications.
To support these two critical market categories, our business operations are conducted in four areas: systems manufacturing, engineering and product development, Ross Optical components and assemblies, and our micro-optics laboratory. Our systems manufacturing operations assemble and manufacture components and systems for both medical device and advanced aerospace customers who choose to outsource these services based on our ability to handle high complexity components, specific optical technologies, micro-optical assemblies and other advanced manufacturing challenges. Our engineering and product development team assesses specific customer product needs, designs devices to solve those needs, and creates manufacturing processes that enable higher volume production of these devices and assemblies that can then be executed by our manufacturing operations group.
Effective June 1, 2019, we acquired the operating assets of Ross Optical Industries, Inc. of El Paso, Texas. This acquisition expanded our optics components and assemblies’ business. As Ross Optical Industries we 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 suppliers. 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 applied using our in-house coating department.
Effective October 1, 2021, we acquired the operating assets of Lighthouse Imaging, LLC of Windham, Maine,which expanded our electrical engineering capabilities in the development of end-to-end medical visualization devices. The acquisition represented a vertical integration of our established product development capabilities with a team with extensive experience developing visualization systems that we believe provides our customers with single-source value-added development services and product offerings. The operations of Lighthouse Imaging have been integrated with other operations of the company, which continue under the POC brand, so that the company now operates with single systems manufacturing and engineering departments, each of which includes historical POC and Lighthouse Imaging resources.
Our website is www.poci.com. The information contained on our websites does not constitute part of this report.
| 13 |
General
This management’s discussion and analysis of financial condition and results of operations is based upon our unaudited financial statements, which have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. 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 under different assumptions or conditions and any such differences may be material.
Critical Accounting Policies and Estimates
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, 2025 filed with the Securities and Exchange Commission on September 29, 2025, as amended by Amendment No. 1 on Form 10-K/A filed with the Securities and Exchange Commission on October 28, 2025.
Results of Operations
Revenue
Three Months Ended September 30, | ||||||||||||||||||||||||
| 2025 | Percent of Sales | 2024 | Percent of Sales | Increase (Decrease) | Percent Change | |||||||||||||||||||
| Engineering Design Services | 656,101 | 9.8 | 1,613,901 | 38.4 | (957,800 | ) | (59.3 | ) | ||||||||||||||||
| Systems Manufacturing | 4,866,706 | 72.9 | 1,225,178 | 29.2 | 3,641,528 | 297.3 | ||||||||||||||||||
| MicroOptics Lab | 100,376 | 1.5 | 428,157 | 10.2 | (327,781 | ) | (76.5 | ) | ||||||||||||||||
| Ross Optical Industries | 1,057,640 | 15.8 | 929,817 | 22.2 | 127,823 | 13.7 | ||||||||||||||||||
| Total Revenues | 6,680,823 | 100.0 | 4,197,053 | 100.0 | 2,483,770 | 59.2 | ||||||||||||||||||
Total revenues for the quarter ending September 30, 2025 were $6,680,823, as compared to $4,197,053 for the same period in the prior year, an increase of $2,483,770. Revenue from Engineering Design Services decreased 59.3% during the quarter ending September 30, 2025 from the prior year period ending September 30, 2024. During the quarter ending September 30, 2025 revenue decreases in the engineering category resulted from decreased demand for services, primarily from the transfer of our single-use cystoscope program from Engineering Design Services to Systems Manufacturing. Engineering revenue was lower due to the completion of product development engagements in the prior year and delayed revenue opportunities within the product development pipeline for the current quarter.
Revenue from Systems Manufacturing increased nearly 300% during the quarter ending September 30, 2025 from the same period in the prior year, due primarily to significant increases in customer demand and the resultant scaling of manufacturing capabilities.
Revenue from the MicroOptics Lab decreased 76.5% during the quarter ending September 30, 2025 from the same period in the prior year, primarily due to delays in receiving new production orders from our defense customer.
Revenue from Ross Optical Industries increased 13.7% during the quarter ending September 30, 2025 from the same period in the prior year. We believe the increase is attributable to the inability of our customers to continue to postpone deliveries that had previously been delayed due to the introduction of new tariffs and the resultant uncertainty.
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Gross Profit
Gross margin decreased to 14.2% during the quarter ending September 30, 2025, compared to 26.6% for the quarter ending September 30, 2024. Gross profit decreased to $946,358 during the three months ending September 30, 2025, compared to $1,117,330 for the three months ending September 30, 2024. The primary factors for the decrease in gross profit include lower utilization of engineering resources for customer-paid engineering, low yields for manufacturing lines producing single-use medical devices, and delays in the reorder for the MicroOptics Lab.
Research & Development
R&D expenses decreased $88,819 to $311,840 during the quarter ending September 30, 2025, compared to $400,659 during the quarter ending September 30, 2024. R&D expenses for the period represent employee-related expenses to support product improvements, the development of new technologies and standardized approaches to address the opportunities for an evolving single-use medical device environment.
Selling, General and Administrative Expenses
SG&A expenses increased $266,161, or 13.6% to $2,229,773 during the three months ended September 30, 2025, compared to $1,963,612 during the three months ended September 30, 2024. The increase in SG&A for the three-month period was primarily due to increased stock compensation, severance, and consulting expenses.
Liquidity and Capital Resources
Based on our current plans and business conditions, management believes that the Company’s available cash and cash equivalents, the cash generated from operations, the eventual availability of our line of credit, and our ability to raise funds in the capital markets will be sufficient to provide for the Company’s working capital and capital expenditure requirements for at least 12 months from the date of this filing. However, our cash on hand and cash generated solely from operations may be insufficient to meet working capital needs for such period and we may be required to raise external financing in the short-term.
Net Cash Used in Operating Activities
During the three months ending September 30, 2025, net cash provided by operating activities totaled $78,227 as compared to $318,622 net cash used in operating activities during the three months ending September 30, 2024. The increase in net cash provided by operating activities was primarily due to the increase in accounts payable, stock compensation and inventory during the three months ending September 30, 2025, partially offset by the decrease in accounts receivable and net losses during such period.
Net Cash Used in Investing Activities
During the three months ending September 30, 2025, net cash used in investing activities was $301,789, consisting of purchases of property and equipment and patent costs. During the three months ended September 30, 2024, net cash used in investing activities was $28,099, consisting of purchases of property and equipment and patent costs.
Net Cash Provided by Financing Activities
During the three months ending September 30, 2025, we made payments of $158,068 on term notes and capital leases. During the three months ending September 30, 2024, we made payments of $139,527 on term notes and capital leases, repaid $500,000 on our revolving line of credit and raised a net of $1,204,542 through the issuance of new shares in a registered direct common stock offering.
Indebtedness
On October 4, 2021, the Company entered into a Loan Agreement with Main Street Bank of Marlborough, Massachusetts (the “Lender”), which provided for a $2,600,000 Term Loan and a $250,000 Revolving Line of Credit Loan Facility (the “Revolver”), which was increased to $500,000 effective May 17, 2022, and $1,250,000 effective June 2, 2023. Borrowings under the Revolver are limited by the borrowing base comprised of a percentage of accounts receivable and inventory and secured by all assets of the Company. Borrowings under the Revolver will bear interest payable monthly at the prime lending rate plus 1.5% per annum and shall not be less than 4.75% per annum. Borrowings under the Revolver are due upon demand. There were no borrowings under the Revolver at June 30, 2025.
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The Company’s Loan Agreement with the Lender contains a minimum annual debt service coverage ratio covenant of 1.2x. As the Company did not meet this annual debt service coverage ratio for the fiscal year ended June 30, 2024, the Company’s Lender had agreed to waive compliance with such debt service ratio covenant for the period ending June 30, 2024. In addition to such waiver, the Lender and the Company entered into an amendment dated September 30, 2024 to that certain Term Loan dated October 4, 2021, as amended and that certain Promissory Note dated June 2, 2023 (collectively, the “Notes”) which amendments provided for a six month period of interest only payments from October 15, 2024 through March 15, 2025 for the Notes. The Company commenced payments of principal and interest under the Notes beginning with the payments due on April 15, 2025, with a new amortization schedule for the remaining term for such Notes through their maturity date. On February 14, 2025, the lender agreed to waive compliance with the annual debt service coverage ratio covenant for the fiscal year ending June 30, 2025, subject to a $30,000 waiver fee and the completion of an equity raise of at least $4,500,000 by February 24, 2025, which the Company satisfied on February 21, 2025. Any future advances are contingent on the Company achieving a minimum Debt Service Coverage ratio of 1.20x based on quarterly testing which the company was not in compliance with as of September 30, 2025. There were no other changes to or modifications to the Loan Agreement or the Notes.
Capital equipment expenditures and additional patent costs during the three months ended September 30, 2025 and in the same period in the prior year were $523,539 and $28,099, respectively.
Contractual cash commitments for the fiscal periods subsequent to September 30, 2025, are summarized as follows:
| Fiscal 2026 | Thereafter | Total | ||||||||||
| Capital lease for equipment, including interest | $ | 18,669 | $ | – | $ | 18,669 | ||||||
| Minimum operating lease payments | $ | 197,123 | $ | 3,643,812 | $ | 3,840,935 | ||||||
We have contractual cash commitments related to open purchase orders as of September 30, 2025 of approximately $7,402,000.
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, who is our principal executive officer, and our Chief Financial Officer, who is our principal 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 effective as of September 30, 2025, 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.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting that occurred during the period 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.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
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.
Item 1A. Risk Factors.
For information regarding factors that could affect our results of operations, financial condition and liquidity, refer to the section entitled “Risk Factors” in Part I, Item 1A in our annual report on Form 10-K for the year ended June 30, 2025, as amended on Form 10-K/A. There have been no material changes from the risk factors previously disclosed in our annual report on Form 10-K for the year ended June 30, 2025 as filed with the SEC on September 29, 2025, as amended by Amendment No. 1 on Form 10-K/A filed with the Securities and Exchange Commission on October 28, 2025.
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.
Item 5. Other Information.
During the period covered by this Quarterly Report
on Form 10-Q, no director or officer of the Company
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Item 6. Exhibits.
| Exhibit | Description | |
| 10.1 | Modification Agreement dated October 2, 2025 by and between Precision Optics Corporation, Inc. and Mahesh Lawande (included as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed October 3, 2025, and incorporated herein by reference). | |
| 10.2 | Employment Agreement dated September 29, 2025 by and between Precision Optics Corporation, Inc. and Joseph W. Traut (included as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed October 3, 2025, and incorporated herein by reference). | |
| 10.3 | Non Competition Agreement dated September 29, 2025 by and between Precision Optics Corporation, Inc. and Joseph W. Traut (included as Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed October 3, 2025, and incorporated herein by reference). | |
| 10.4* | Stock Option Agreement made effective as of October 1, 2025 by and between Precision Optics Corporation, Inc. and Joseph Traut. | |
| 31.1* | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2* | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1* | Certification of Officers pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS* | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104* | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| * | Filed Herewith. |
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SIGNATURES
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: November 13, 2025 | By: | /s/ Joseph N. Forkey |
| Joseph N. Forkey | ||
|
Chief Executive Officer (Principal Executive Officer) | ||
| Date: November 13, 2025 | By: | /s/ Wayne M. Coll |
| Wayne M. Coll | ||
|
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | ||
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