PRECISION OPTICS CORPORATION, INC. SEC 10-K Report

Precision Optics Corporation, Inc., a leader in the design and manufacture of advanced optical instruments for medical and industrial applications, has released its annual Form 10-K report for the fiscal year ended June 30, 2025. The report provides a comprehensive overview of the company's financial performance, business operations, strategic initiatives, and the challenges and risks it faces in a competitive market.

Financial Highlights

• Total Revenues: $19.1 million, a slight decrease of 0.1% from the previous year, primarily due to decreased demand in Engineering Design Services.
• Gross Profit: $3.4 million, a decrease from $5.8 million in the prior year, driven by yield issues with new manufacturing lines and lower utilization of billable engineering resources.
• Operating Loss: $5.6 million, compared to an operating loss of $2.7 million in the previous year, reflecting increased R&D and SG&A expenses.
• Net Loss: $5.8 million, compared to a net loss of $3.0 million in the prior year, influenced by higher operating expenses and interest costs.
• Loss per share: $(0.85), compared to $(0.49) in the previous year, reflecting the increased net loss.

Business Highlights

• Revenue Segments: During the fiscal year ended June 30, 2025, the company generated 43% of its business from systems manufacturing, 26% from engineering services related to medical device optical assemblies, 20% from Ross Optical, and 11% from the micro-optics laboratory.
• New Product Launches: In January 2025, the company launched the Unity Imaging Platform, a modular CMOS endoscopic system designed to accelerate system integration and reduce time to market for medical imaging devices.
• Acquisitions: The company expanded its capabilities through the acquisition of Lighthouse Imaging, LLC, enhancing its electrical engineering capabilities for medical visualization devices.
• Operational Strategy: The company focuses on leveraging its proprietary Microprecision™ optics technology to produce smaller, high-quality medical cameras and digital endoscopes, aiming to replace existing re-sterilizable endoscopes with single-use alternatives.
• Market Opportunities: The company is targeting the replacement of existing endoscopes with single-use alternatives, leveraging its Microprecision™ and digital imaging technologies to enable new surgical procedures with millimeter-sized visualization instrumentation.
• Future Outlook: The company expects revenue to increase over time as engineering design phases transition to commercial production, leveraging its manufacturing capabilities. It also plans to continue supporting and augmenting its internal engineering, research, and development resources to maintain a technological advantage.
• Sales and Marketing: The company is actively broadening awareness of its technology platforms and successful applications in medical device projects, as well as defense, aerospace, and industrial applications, through direct marketing, trade shows, and online presence.
• International Business: The company relies on an expanded network of domestic and overseas suppliers to meet the material demands of its customers' unique optical and medical device designs, emphasizing the importance of international components for cost savings and specialized needs.

Strategic Initiatives

• Strategic Initiatives: The company undertook strategic initiatives to enhance its financial position by raising $6.27 million through two registered direct offerings in August 2024 and February 2025. These funds were aimed at supporting general working capital needs and reducing reliance on credit facilities. Additionally, the company focused on transitioning its single-use cystoscope program from development to production, which contributed to a significant increase in revenue from Systems Manufacturing.
• Capital Management: Capital management activities included repaying $1 million on the revolving line of credit and making payments on term notes and capital leases. The company also issued common stock in registered direct offerings, raising net proceeds of approximately $1.2 million and $5.1 million in August 2024 and February 2025, respectively. These actions were part of a broader strategy to manage liquidity and reduce debt obligations. The company did not declare any dividends during the last two fiscal years and did not repurchase any equity securities.
• Future Outlook: Looking ahead, the company plans to maintain sufficient liquidity through available cash, cash equivalents, and potential capital market activities. Management believes these resources will meet working capital and capital expenditure requirements for at least 12 months. However, there is an acknowledgment that external financing may be necessary in the short term if cash generated from operations is insufficient. The company also aims to achieve a minimum debt service coverage ratio of 1.20x for future advances, indicating a focus on maintaining financial stability.

Challenges and Risks

• Competitive Market: The company operates in highly competitive markets, facing competition from larger companies with greater resources. The ability to maintain a technological advantage is crucial for success.
• Global Supply Chain: The company relies on a global supply chain, which is subject to risks from changes in U.S. tariff policy and related trade actions that could increase costs and disrupt supply chains.
• Financial Risks: The company faces several risks, including a history of losses and the potential need to raise additional funds. Dependence on a small number of customers poses a risk if these customers reduce purchases.
• Regulatory Risks: Regulatory risks are significant, with the need for FDA approvals for new products and compliance with international regulations like ISO 13485.
• Cybersecurity Threats: The company is also exposed to cybersecurity threats, which could disrupt operations and lead to financial losses.
• Intellectual Property Risks: Intellectual property risks include potential infringement by third parties and challenges in protecting IP globally.
• Market Risks: Market risks include stock price volatility and the potential for dilution of ownership through future stock issuances.
• Operational Challenges: The company experienced a decrease in gross profit due to yield issues with new manufacturing lines and lower utilization of engineering resources. There is a noted increase in R&D expenses to support product improvements and new technology development.
• Liquidity Concerns: Liquidity concerns are highlighted, with a reliance on external financing to meet working capital needs. The company has contractual cash commitments and is not currently in compliance with certain debt covenants, which could impact future financing.
• Market Risk Exposure: The company acknowledges exposure to market risks such as foreign currency exchange rate fluctuations and changes in interest rates that could affect financial results.

SEC Filing: PRECISION OPTICS CORPORATION, INC. [ POCI ] - 10-K - Sep. 29, 2025