Business context and reporting period
Precision Optics Corporation, Inc. designs and manufactures optical components, medical instruments and related products. This filing covers the quarter and nine months ended March 31, 2021 (fiscal Q3 and nine months of FY2021); the request metadata’s “2020 Q3” does not match the filing period.
For the nine months, approximately 60% of revenue came from medical-device design and manufacturing, 8% from military and defense products, and 32% from other industrial products.
Financial performance and position
| Metric | Three months ended March 31, 2021 | Nine months ended March 31, 2021 |
|---|---|---|
| Revenue | $2.46 million | $8.00 million |
| Gross profit / margin | $818,024 / 33.3% | $2.65 million / 33.1% |
| Operating loss | $256,018 | $467,143 |
| Net income | $552,278 | $339,617 |
| Net income per share, basic / diluted | $0.04 / $0.04 | $0.03 / $0.02 |
Nine-month operating cash use was $75,420; investing cash use was $256,134 and financing cash use was $21,298. Cash declined $352,852 to $781,845. At March 31, 2021, current assets were $4.40 million and current liabilities were $2.11 million. The $808,962 bank note was forgiven in full on March 30, 2021; remaining reported obligations included capital leases of $199,979 present value and acquisition earn-out liability of $333,333.
Changes versus the prior comparable period
Quarterly revenue rose 3.5% year over year, while nine-month revenue rose 4.1%. Engineering revenue increased approximately $340,000 for the quarter and $889,000 for nine months, largely from two new projects; production revenue weakened amid customer slowdowns attributed to COVID-19. Gross margin fell from 34.4% to 33.3% for the quarter and from 35.2% to 33.1% for nine months, attributed mainly to cost overruns on one engineering project and lower higher-margin production revenue. Nine-month R&D expense declined 36.7% and SG&A declined 14.1%.
Net income turned positive, but included the one-time $808,962 gain from PPP loan forgiveness. Excluding the forgiveness gain, the company reported an operating loss for the nine-month period.
Outlook, risks and notable items
Management expects its engineering and production pipeline, including Microprecision optical projects, to have potential to increase revenue and support profitable results, but provided no quantified financial guidance. Management says reaching break-even depends on revenue, margins, expense control and timely receivable collection. It also notes pricing pressure, project cost overruns, production slowdowns and COVID-19 uncertainty affecting supply, orders, collections and operations.
Cash commitments included approximately $440,000 of open purchase orders, $229,914 of remaining capital-lease payments and $78,266 of remaining El Paso facility-lease payments. The company reported recurring operating losses in prior years and continued operating cash use for the nine months. Disclosure controls and internal control over financial reporting were deemed ineffective; material weaknesses related to segregation of duties and inventory valuation remain under remediation. The filing reported no material changes to previously disclosed risk factors and no known pending or threatened litigation expected to materially affect operations or finances.
Most important facts for investors to verify
- How much of reported profit reflects PPP forgiveness rather than recurring operations, and whether the business can reach operating break-even.
- Whether revenue from new engineering projects converts to production orders, and whether margins recover from project overruns and COVID-related production weakness.
- Cash needs, receivable collections and the capacity to meet purchase-order and lease commitments.
- Progress in remediating the disclosed material weaknesses in financial reporting controls, especially inventory valuation and segregation of duties.
- Continuing COVID-19 effects, customer concentration and the durability of the project pipeline.