Precision Optics Corporation, Inc. — Q1 FY2023 Form 10-Q
Reporting period: Three months ended September 30, 2022. The unaudited consolidated results include Lighthouse Imaging, acquired October 4, 2021; the comparable 2021 quarter did not include Lighthouse actual results.
Financial performance
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Revenue | $5.085 million | $2.336 million |
| Gross profit / margin | $1.725 million / 33.9% | $639,032 / 27.4% |
| Operating loss | $16,589 | $571,952 |
| Net loss | $73,511 | $576,801 |
| Operating cash flow | $199,734 provided | $182,340 used |
| Cash at period end | $673,502 | $1,669,569 |
- Revenue grew 118%, primarily reflecting Lighthouse’s inclusion and higher medical-device manufacturing and optical-component sales. Management reports that, excluding Lighthouse, component revenue increased 82%, production 37%, and engineering revenue 18% year over year.
- Revenue mix was engineering design services $1.643 million, optical components $2.653 million, and medical-device products and assemblies $790,000. The largest customer represented 16.6% of revenue; the Company served 194 customers.
- Gross margin improved year over year. Management cited higher volume, Lighthouse’s contribution, and improved engineering-project efficiencies, partly offset by Lighthouse’s lower-margin engineering and production mix.
- Research and development expense rose 133% to $245,477, mainly due to Lighthouse; selling, general and administrative expense rose 60.2% to $1.496 million, reflecting Lighthouse, added headcount, compensation, and marketing costs.
Liquidity, debt, and balance sheet
- At September 30, cash was $673,502, accounts receivable $3.415 million, inventory $2.756 million, and current assets $7.031 million. Current liabilities were $5.196 million on the balance sheet, including $1.033 million of customer advances.
- Term-loan principal was $2.260 million, with $371,429 in current maturities; the term loan bears 7.00% interest and matures October 2028. The $500,000 revolving facility was undrawn and is due on demand, subject to a borrowing base.
- Capital-lease obligations totaled $142,446; operating-lease liabilities were approximately $478,645. The Company also reported approximately $3.253 million of open-purchase-order commitments.
- Cash increased $67,753 during the quarter. Operating cash generation was partly offset by investing outflows of $29,174 and financing outflows of $102,807, including $92,857 of term-loan payments.
Outlook, risks, and notable items
- No quantified revenue or earnings guidance is provided. Management says profitability depends on achieving sufficient quarterly revenue and gross margins while controlling expenses, and expects its customer pipeline to expand as development projects move into production.
- The Company has incurred recurring operating losses over several years. Management highlights pricing pressure, project cost overruns, variable product mix, collection timing, and vendor supply and customer-order uncertainty as risks to financial performance and liquidity.
- The filing says COVID-19-related effects and lingering supply-chain issues could continue to affect supply, orders, collections, operations, and financial condition. The Company also competes with larger, better-resourced domestic and foreign companies.
- A remaining Lighthouse earn-out is contingent on meeting a gross-profit target for October 1, 2022–September 30, 2023. No goodwill or patent impairment was estimated as of September 30, 2022. Management reported no pending or threatened litigation expected to have a material impact and no material changes to previously disclosed risk factors.
- After quarter-end, the Company effected a 1-for-3 reverse stock split on November 1, 2022, reducing outstanding shares from 16,915,089 to 5,638,302. The filing reports disclosure controls and internal control over financial reporting were effective as of September 30, 2022.
Investor verification priorities
- Assess whether revenue growth and improved gross margin can persist as Lighthouse integration continues, particularly given differing divisional margins and project variability.
- Monitor operating cash flow, receivable collections, customer advances, and the availability and borrowing-base limits of the demand line of credit.
- Review the term-loan coverage covenant beginning in fiscal 2023, scheduled principal payments, and the Company’s ability to meet lease and purchase-order commitments.
- Track the Lighthouse earn-out target and any resulting payment, and confirm how the post-quarter reverse split affects per-share comparisons and share-based data.