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 March 31, 2022
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
(Registrants 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 issuers common stock, par value $0.01 per share, at May 16, 2022 was shares.
PRECISION OPTICS CORPORATION, INC.
Table of Contents
| 2 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| March 31, 2022 | June 30, 2021 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 831,585 | $ | 861,650 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $253,633 at March 31, 2022 and $251,383 at June 30, 2021 | 3,347,692 | 1,878,755 | ||||||
| Inventories | 2,965,220 | 1,885,395 | ||||||
| Prepaid expenses | 318,551 | 150,635 | ||||||
| Total current assets | 7,463,048 | 4,776,435 | ||||||
| Fixed Assets: | ||||||||
| Machinery and equipment | 3,196,585 | 3,084,511 | ||||||
| Leasehold improvements | 812,283 | 792,723 | ||||||
| Furniture and fixtures | 216,810 | 178,640 | ||||||
| Total Fixed Assets | 4,225,678 | 4,055,874 | ||||||
| Less: Accumulated depreciation and amortization | 3,599,491 | 3,461,622 | ||||||
| Net fixed assets | 626,187 | 594,252 | ||||||
| Operating lease right-to-use asset | 140,607 | 61,247 | ||||||
| Patents, net | 212,952 | 141,702 | ||||||
| Goodwill | 8,824,210 | 687,664 | ||||||
| TOTAL ASSETS | $ | 17,267,004 | $ | 6,261,300 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Current portion of capital lease obligation | $ | 40,102 | $ | 38,347 | ||||
| Current maturities of long-term debt | 367,714 | – | ||||||
| Current portion of acquisition earn out liability | 898,855 | 166,667 | ||||||
| Accounts payable | 2,538,040 | 1,205,149 | ||||||
| Customer advances | 1,018,275 | 450,084 | ||||||
| Accrued compensation and other | 862,496 | 589,616 | ||||||
| Operating lease liability | 45,405 | 61,247 | ||||||
| Total current liabilities | 5,770,887 | 2,511,110 | ||||||
| Capital lease obligation, net of current portion | 122,096 | 152,397 | ||||||
| Long-term debt, net of current maturities | 2,053,070 | – | ||||||
| Acquisition earn out liability, net of current portion | 697,408 | 166,666 | ||||||
| Operating lease liability, net of current portion | 95,202 | – | ||||||
| Stockholders’ Equity: | ||||||||
| Common stock, $ par value: shares authorized; issued and outstanding shares at March 31, 2022 and at June 30, 2021 | 168,878 | 132,825 | ||||||
| Additional paid-in capital | 56,723,154 | 50,464,280 | ||||||
| Accumulated deficit | (48,363,691 | ) | (47,165,978 | ) | ||||
| Total stockholders’ equity | 8,528,341 | 3,431,127 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 17,267,004 | $ | 6,261,300 | ||||
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 NINE MONTHS ENDED
March 31, 2022 AND 2021
(UNAUDITED)
| Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | $ | 4,651,352 | $ | 2,458,290 | $ | 10,884,737 | $ | 8,001,641 | ||||||||
| Cost of goods sold | 2,923,143 | 1,640,266 | 7,397,914 | 5,353,999 | ||||||||||||
| Gross profit | 1,728,209 | 818,024 | 3,486,823 | 2,647,642 | ||||||||||||
| Research and development expenses, net | 214,898 | 146,063 | 433,248 | 443,609 | ||||||||||||
| Selling, general and administrative expenses | 1,574,432 | 927,979 | 3,974,824 | 2,671,176 | ||||||||||||
| Business acquisition expenses | – | – | 172,174 | – | ||||||||||||
| Total operating expenses | 1,789,330 | 1,074,042 | 4,580,246 | 3,114,785 | ||||||||||||
| Operating loss | (61,121 | ) | (256,018 | ) | (1,093,423 | ) | (467,143 | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense | (52,778 | ) | (666 | ) | (104,290 | ) | (2,202 | ) | ||||||||
| Gain on forgiveness of bank note | – | 808,962 | – | 808,962 | ||||||||||||
| Net income (loss) | $ | (113,899 | ) | $ | 552,278 | $ | (1,197,713 | ) | $ | 339,617 | ||||||
| Income (loss) per share: | ||||||||||||||||
| Basic | $ | (0.01 | ) | $ | 0.04 | $ | (0.08 | ) | $ | 0.03 | ||||||
| Fully diluted | $ | (0.01 | ) | $ | 0.04 | $ | (0.08 | ) | $ | 0.02 | ||||||
| Weighted average common shares outstanding: | ||||||||||||||||
| Basic | 16,803,040 | 13,243,595 | 15,545,869 | 13,208,805 | ||||||||||||
| Fully diluted | 16,803,040 | 14,068,459 | 15,545,869 | 13,841,700 | ||||||||||||
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 NINE MONTHS ENDED
MaRCH 31, 2022 AND 2021
(UNAUDITED)
| Nine Month Period Ended March 31, 2022 | ||||||||||||||||||||||||
| Number
of Shares | Common Stock | Additional Paid-in Capital | Common Stock Subscribed | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||
| Balance, July 1, 2021 | 13,282,476 | $ | 132,825 | $ | 50,464,280 | $ | $ | (47,165,978 | ) | $ | 3,431,127 | |||||||||||||
| Stock-based compensation | – | 160,071 | 160,071 | |||||||||||||||||||||
| Proceeds from private placement of common stock subscribed, net of estimated issuance costs of $10,000 | – | (10,000 | ) | 1,030,000 | 1,020,000 | |||||||||||||||||||
| Net loss | – | (576,801 | ) | (576,801 | ) | |||||||||||||||||||
| Balance, September 30, 2021 | 13,282,476 | 132,825 | 50,614,351 | 1,030,000 | (47,742,779 | ) | 4,034,397 | |||||||||||||||||
| Stock-based compensation | – | 330,451 | 330,451 | |||||||||||||||||||||
| Proceeds from private placement of common stock | 937,500 | 9,375 | 1,490,625 | (1,030,000 | ) | 470,000 | ||||||||||||||||||
| Issuance of common stock in business acquisition | 2,500,000 | 25,000 | 4,800,000 | 4,825,000 | ||||||||||||||||||||
| Proceeds from exercise of stock option | 15,000 | 150 | 16,500 | 16,650 | ||||||||||||||||||||
| Exercise of stock options net of 1,435 shares withheld | 2,625 | 26 | (26 | ) | ||||||||||||||||||||
| Issuance of common stock for employee services | 9,095 | 91 | 19,909 | 20,000 | ||||||||||||||||||||
| Net loss | – | (507,013 | ) | (507,013 | ) | |||||||||||||||||||
| Balance, December 31, 2021 | 16,746,696 | 167,467 | 57,271,810 | – | (48,249,792 | ) | 9,189,485 | |||||||||||||||||
| Correction of error in valuation of stock issued in business acquisition | – | (825,000 | ) | (825,000 | ) | |||||||||||||||||||
| Stock-based compensation | – | 231,115 | 231,115 | |||||||||||||||||||||
| Proceeds from exercise of stock options | 43,200 | 432 | 46,208 | 46,640 | ||||||||||||||||||||
| Exercise of stock options net of 96,056 shares withheld | 97,944 | 979 | (979 | ) | ||||||||||||||||||||
| Net loss | – | (113,899 | ) | (113,899 | ) | |||||||||||||||||||
| Balance, March 31, 2022 | 16,887,840 | $ | 168,878 | $ | 56,723,154 | $ | – | $ | (48,363,691 | ) | $ | 8,528,341 | ||||||||||||
| Nine Month Period Ended March 31, 2021 | ||||||||||||||||||||||||
| Number
of Shares | Common Stock | Additional Paid-in Capital | Common Stock Subscribed | 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 | |||||||||||||||||
| Stock-based compensation | – | 86,027 | 86,027 | |||||||||||||||||||||
| Proceeds from exercise of stock options | 72,000 | 720 | 27,551 | 28,271 | ||||||||||||||||||||
| Net income | – | 552,278 | 552,278 | |||||||||||||||||||||
| Balance, March 31, 2021 | 13,263,789 | $ | 132,638 | $ | 50,044,789 | $ | – | $ | (46,723,526 | ) | $ | 3,453,901 | ||||||||||||
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 NINE MONTHS ENDED
MARCH 31, 2022 AND 2021
(UNAUDITED)
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 third quarter and nine months of the Company’s fiscal year 2022. 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, 2021, together with the Report of Independent Registered Public Accounting Firm filed under cover of the Company’s 2021 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on September 28, 2021.
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.
Revision of the Second Quarter 2022 Unaudited Consolidated Financial Statements
The Company identified an error in the valuation of 2,500,000 shares of common stock issued on October 4, 2021 in the business acquisition described in Note 2 resulting in an $825,000 overstatement of Additional Paid-In Capital and Goodwill in the December 31, 2021 balance sheet presented in the quarterly report on Form 10-Q for the quarter ended December 31, 2021. This change does not impact the number of shares issued as part of the transaction; it only changes the imputed value of the common stock issued. The financial statements for the prior interim fiscal quarter ended December 31, 2021 have been revised by an $825,000 adjustment to the opening balance of Additional Paid-In Capital in the accompanying Statement of Stockholders Equity for the quarter ended March 31, 2022, and by an adjustment of Goodwill at the acquisition date as described in Note 2. No profit and loss accounts in the current or prior interim periods are affected by this revision.
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 and nine months ended March 31, 2022, the effect of such securities was antidilutive and not included in the fully diluted calculation because of the net loss generated during those periods.
| 7 |
The following is the calculation of income (loss) per share for the three and nine months ended March 31, 2022 and 2021:
| Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net Income (Loss) - Basic and Diluted | $ | (113,899 | ) | $ | 552,278 | $ | (1,197,713 | ) | $ | 339,617 | ||||||
| Weighted Average Shares Outstanding | ||||||||||||||||
| Basic | 16,803,040 | 13,243,595 | 15,545,869 | 13,208,805 | ||||||||||||
| Fully Diluted | 16,803,040 | 14,068,459 | 15,545,869 | 13,841,700 | ||||||||||||
| Income (Loss) Per Share | ||||||||||||||||
| Basic | $ | (0.01 | ) | $ | 0.04 | $ | (0.08 | ) | $ | 0.03 | ||||||
| Fully Diluted | $ | (0.01 | ) | $ | 0.04 | $ | (0.08 | ) | $ | 0.02 | ||||||
The number of shares issuable upon the exercise of outstanding stock options that were excluded from the computation as their effect was antidilutive was for the three and nine months ended March 31, 2022, and and for the three and nine months ended March 31, 2021, 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 March 31, 2022.
| 2. | BUSINESS ACQUISITION |
On October 4, 2021, the Company entered into an asset purchase agreement to acquire substantially all of the assets of Lighthouse Imaging, LLC, a medical optics and digital imaging business, as described in Forms 8-K and 8-K/A that the Company filed with the Securities and Exchange Commission on October 8, 2021 and December 20, 2021, respectively. The aggregate cash purchase price consisted of $2,855,063 in cash at closing, $1,500,000 as earn-out consideration over the subsequent two year period, and unregistered shares of common stock issued to the seller at closing. The effective date of the acquisition was October 4, 2021, and the actual results of operations of the Lighthouse division since that date are included in the accompanying consolidated financial statements as of, and for the three and nine months ended, March 31, 2022.
| 8 |
The Company financed the cash portion of the acquisition by securing a $2,600,000 term loan from Main Street Bank on October 4, 2021, and by selling shares of its common stock for $1,500,000 of gross proceeds in a private placement closed on October 1, 2021.
The earn-out consideration will be paid at a rate of $750,000 per annum from October 1, 2021 to September 30, 2023 if certain levels of gross profit are earned by the Lighthouse division.
| Purchase Price Allocation and Goodwill |
The total purchase price of $8,990,670 as previously disclosed in the quarterly report on Form 10-Q for the quarter ended December 31, 2021 has been restated for a revision of the valuation of the common stock issued to the sellers as described in Note 1. Revision of the Second Quarter 2022 Unaudited Consolidated Financial Statements. The allocation of the revised purchase price is preliminary and subject to change based on future payments made for the earn-out contingent liability. Any unearned portions of the earn-out liability will be recognized in earnings. The acquired assets including the revised Goodwill, contingent consideration and assumed liabilities at the effective date of acquisition include the following:
Consolidated Pro Forma Results
Consolidated unaudited pro forma results of operations for the Company are presented below assuming that the acquisition of the Lighthouse division had occurred on July 1, 2020. Pro forma operating results include net adjustments resulting from the acquisition transaction during the three and nine months ended March 31, 2022 and 2021.
| Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| (Actual) | (Pro Forma) | (Pro Forma) | (Pro Forma) | |||||||||||||
| Revenues | $ | 4,651,352 | $ | 3,600,498 | $ | 12,329,074 | $ | 11,597,530 | ||||||||
| Net income (loss) | (113,899 | ) | 593,668 | (1,140,418 | ) | 382,681 | ||||||||||
| Net income (loss) per share | ||||||||||||||||
| Basic | $ | (0.01 | ) | $ | (0.04 | ) | $ | (0.07 | ) | $ | (0.02 | ) | ||||
| Fully diluted | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.07 | ) | $ | (0.02 | ) | ||||
Pro forma financial information is not necessarily indicative of the Company’s actual results of operations if the acquisition had been completed at the date indicated, nor is it necessarily an indication of future operating results. Amounts do not include any operating efficiencies or cost saving that the Company believes may be achievable.
| 9 |
| 3. | INVENTORIES |
Inventories are stated at the lower of cost (first-in, first-out) or market and consisted of the following:
| March 31, 2022 | June 30, 2021 | |||||||
| Raw Materials | $ | 1,292,861 | $ | 626,255 | ||||
| Work-In-Progress | 426,771 | 453,117 | ||||||
| Finished Goods | 1,245,588 | 806,023 | ||||||
| Total Inventories | $ | 2,965,220 | $ | 1,885,395 | ||||
| 4. | BANK FINANCING ACTIVITIES |
Bank Line of Credit
On October 4, 2021, the Company entered into a Loan Agreement with Main Street Bank of Marlborough, Massachusetts, which provided for a $2,600,000 Term Loan and a $250,000 Revolving Line of Credit Loan Facility. The $250,000 line of credit is due on demand and had zero borrowings outstanding at March 31, 2022. Borrowings under the line of credit 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 line of credit are limited to the borrowing base comprised of a percentage of accounts receivable and inventory and are secured by all the assets of the Company.
Long-Term Debt
Long-term debt consists of the following at March 31, 2022:
| Amount | ||||
| Term Loan Note payable to Main Street Bank with monthly principal payments of $30,952.38 plus interest at the prime lending rate plus 1.5% per annum. Secured by all assets of the Company, and subject to certain periodic reporting to the bank, an annual minimum debt service coverage ratio of 1.20:1, and other conditions. The Term Loan Note matures on October 15, 2028. | $ | 2,445,238 | ||
| Less current maturities | (367,714 | ) | ||
| Less debt issuance costs, net of accumulated amortization of $1,548 | (24,454 | ) | ||
| Long-term debt, net of current portion of debt issuance costs | $ | 2,053,070 | ||
At March 31, 2022 principal payments due on the Term Loan Note payable are as follows:
| Fiscal Year Ending June 30: | ||||
| 2022 | $ | 92,857 | ||
| 2023 | 371,429 | |||
| 2024 | 371,429 | |||
| 2025 | 371,429 | |||
| 2026 | 371,429 | |||
| Thereafter | 866,665 | |||
| $ | 2,445,238 | |||
| 10 |
| 5. |
LEASE OBLIGATIONS |
In March 2021, the Company entered into a five-year capital lease in the amount of $161,977 for manufacturing equipment. In January 2020, the Company entered into a five-year capital lease in the amount of $47,750 for manufacturing equipment. The net book value of fixed assets under capital lease obligations as of March 31, 2022 is $156,640.
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. Remaining minimum lease payments at March 31, 2022 total $150,504. Total rent expense including base rent and common area expenses was $15,705 and $21,438 during the three months ended March 31, 2022 and 2021, respectively. Included in the accompanying balance sheet at March 31, 2022 is a right-of-use asset of $140,607 and current and long-term right-of-use operating lease liabilities of $45,405 and $95,202, respectively.
At March 31, 2022 future minimum lease payments under the capital lease and operating lease obligations are as follows:
| Fiscal Year Ending June 30: | Capital Leases | Operating Lease | ||||||
| 2022 | $ | 12,155 | $ | 15,705 | ||||
| 2023 | 48,619 | 43,828 | ||||||
| 2024 | 48,619 | 44,924 | ||||||
| 2025 | 43,917 | 46,047 | ||||||
| 2026 | 28,006 | – | ||||||
| Total Minimum Payments | 181,316 | $ | 150,504 | |||||
| Less: amount representing interest | 19,118 | |||||||
| Present value of minimum lease payments | 162,198 | |||||||
| Less: current portion | 40,102 | |||||||
| $ | 122,096 | |||||||
The Company’s operating leases for its Gardner, Massachusetts office, production and storage spaces plus an equipment lease as well as the Windham, Maine office and production space have expired and are continuing on a month-to-month tenant at will basis. Rent expense on these operating leases was $222,112 and $124,848 for the nine months ended March 31, 2022 and 2021, respectively.
| 6. | STOCK-BASED COMPENSATION |
Stock Options
The following table summarizes stock-based compensation expense for the three and nine months ended March 31, 2022 and 2021:
| Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Cost of Goods Sold | $ | 34,712 | $ | 11,233 | $ | 91,542 | $ | 33,699 | ||||||||
| Research and Development | 70,237 | 19,435 | 164,036 | 55,795 | ||||||||||||
| Selling, General and Administrative | 126,166 | 55,359 | 466,059 | 224,758 | ||||||||||||
| Stock Based Compensation Expense | $ | 231,115 | $ | 86,027 | $ | 721,637 | $ | 314,252 | ||||||||
No compensation has been capitalized because such amounts would have been immaterial.
| 11 |
The following tables summarize stock option activity for the nine months ended March 31, 2022:
| Options Outstanding | ||||||||||||
| Number of Shares | Weighted Average Exercise Price | Weighted Average Contractual Life | ||||||||||
| Outstanding at July 1, 2021 | 2,578,200 | $ | 1.13 | years | ||||||||
| Exercised | (255,700 | ) | $ | 1.10 | ||||||||
| Granted | 584,500 | $ | 1.74 | |||||||||
| Cancelled | (89,500 | ) | $ | 0.99 | ||||||||
| Outstanding at March 31, 2022 | 2,817,500 | $ | 1.35 | years | ||||||||
Information related to the stock options outstanding as of March 31, 2022 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 | |||||||||||||||||
| $ | 0.48 | 60,000 | $ | 0.48 | 60,000 | $ | 0.48 | |||||||||||||||
| $ | 0.50 | 80,000 | $ | 0.50 | 80,000 | $ | 0.50 | |||||||||||||||
| $ | 0.55 | 15,000 | $ | 0.55 | 15,000 | $ | 0.55 | |||||||||||||||
| $ | 0.70 | 100,000 | $ | 0.70 | 100,000 | $ | 0.70 | |||||||||||||||
| $ | 0.73 | 670,000 | $ | 0.73 | 670,000 | $ | 0.73 | |||||||||||||||
| $ | 0.85 | 6,000 | $ | 0.85 | 6,000 | $ | 0.85 | |||||||||||||||
| $ | 0.90 | 36,000 | $ | 0.90 | 36,000 | $ | 0.90 | |||||||||||||||
| $ | 1.25 | 45,000 | $ | 1.25 | 30,000 | $ | 1.25 | |||||||||||||||
| $ | 1.30 | 441,000 | $ | 1.30 | 291,520 | $ | 1.30 | |||||||||||||||
| $ | 1.40 | 70,000 | $ | 1.40 | 70,000 | $ | 1.40 | |||||||||||||||
| $ | 1.42 | 100,000 | $ | 1.42 | 66,667 | $ | 1.42 | |||||||||||||||
| $ | 1.45 | 5,000 | $ | 1.45 | 1,667 | $ | 1.45 | |||||||||||||||
| $ | 1.50 | 70,000 | $ | 1.50 | 70,000 | $ | 1.50 | |||||||||||||||
| $ | 1.68 | 540,000 | $ | 1.68 | 270,000 | $ | 1.68 | |||||||||||||||
| $ | 2.00 | 140,000 | $ | 2.00 | – | $ | – | |||||||||||||||
| $ | 2.09 | 249,500 | $ | 2.09 | – | $ | – | |||||||||||||||
| $ | 2.26 | 190,000 | $ | 2.26 | 90,000 | $ | 2.26 | |||||||||||||||
| $ | 1.35 | 2,817,500 | $ | 1.35 | 1,856,854 | $ | 1.10 | |||||||||||||||
The aggregate intrinsic value of the Company’s in-the-money outstanding and exercisable options as of March 31, 2022 was $ and $, respectively.
| 7. | SALE OF STOCK IN OCTOBER 2021 |
On October 1, 2021, the Company entered into agreements with accredited investors for the sale and purchase of unregistered shares of its common stock, $0.01 par value at a purchase price of $1.60 per share. The Company used the net proceeds from this placement to partially fund the October 4, 2021, acquisition of the operating assets of Lighthouse Imaging, LLC with an effective date of October 4, 2021.
In conjunction with the placement, the Company also entered into a registration rights agreement with the investors, whereby it is obligated
to file a registration statement with the Securities and Exchange Commission on or before 120 calendar days after October 4, 2021 to register
the resale by the investors of 937,500 shares of its common stock purchased in the placement. The registration statement was filed on
January 31, 2022 and became effective on February 11, 2022.
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| 8. | ISSUANCE OF COMMON STOCK IN BUSINESS ACQUISITION |
On October 4, 2021, the Company issued unregistered shares of its common stock to the sellers of Lighthouse Imaging, LLC, valued on that date at $ per share or $4,000,000, as shown in the accompanying statement of stockholders’ equity for the nine months ended March 31, 2022.
In conjunction with the issuance, the Company agreed to use reasonable efforts to effectuate within a reasonable period after the October 4, 2021 business acquisition date a registration statement with the Securities and Exchange Commission to register the resale by the sellers of 2,500,000 shares of its common stock issued in the business acquisition.
| 9. | 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 nine months ended March 2022 and 2021:
| Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Engineering Design Services | $ | 1,532,414 | $ | 549,636 | $ | 3,659,667 | $ | 1,986,856 | ||||||||
| Optical Components | 1,927,963 | 1,456,213 | 4,873,294 | 4,330,511 | ||||||||||||
| Medical Device Products and Assemblies | 1,190,975 | 452,441 | 2,351,776 | 1,684,274 | ||||||||||||
| Total Revenues | $ | 4,651,352 | $ | 2,458,290 | $ | 10,884,737 | $ | 8,001,641 | ||||||||
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 March 31, 2022, there were no contract assets recorded in the Company’s Consolidated 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 inception date.
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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 March 31, | Nine Months Ended March 31, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Contract Liabilities, Beginning of Period | $ | 1,137,470 | $ | 151,877 | $ | 450,084 | $ | 417,059 | ||||||||
| Assumed in Business Acquisition | – | – | 826,679 | – | ||||||||||||
| Unearned Revenue Received from Customers | 774,316 | 442,681 | 1,388,700 | 614,384 | ||||||||||||
| Revenue Recognized | (893,511 | ) | (361,674 | ) | (1,647,188 | ) | (798,559 | ) | ||||||||
| Contract Liabilities, End of Period | $ | 1,018,275 | $ | 232,884 | $ | 1,018,275 | $ | 232,884 | ||||||||
| 10. | 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. Managements 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 March 31, 2022 and with our audited consolidated financial statements for the year ended June 30, 2021 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on September 28, 2021.
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, 2021 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.
As Lighthouse Imaging of Windham, Maine we also operate as a manufacturer of advanced optical imaging systems and accessories. We have a strong expertise in electrical engineering and development of end-to-end medical visualization devices. Product development competencies at Lighthouse Imaging include Systems, Optical, Mechanical, Electrical and Process Development Engineering. Our product development team has extensive experience developing visualization systems that are used in a variety of clinical applications. Lighthouse Imaging is an industry leader in chip on tip visualization systems.
Approximately 34% our business during the nine months ended March 31, 2022 is from engineering services primarily relating to the design of medical device optical assemblies, 45% from the sale of both internally manufactured and purchased optical components, and 21% from the manufacture of optical assemblies and sub-assemblies primarily for medical device instrument applications. Our proprietary medical instrumentation line, unique custom design and manufacturing capabilities, and expert electrical engineering and development has generated traditional proprietary endoscopes and endocouplers as well as other custom imaging and illumination products for our customers’ 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.
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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.
Our internet websites are www.poci.com, www.rossoptical.com, and www.lighthouseoptics.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; www.lighthouseoptics.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 and Lighthouse LinkedIn pages (www.linkedin.com/company/ross-optical-industries/) (https://www.linkedin.com/company/lighthouse-imaging-corporation/) and Twitter feed (http://twitter.com/rossoptical) and on our Lighthouse Facebook page (https://www.facebook.com/lighthouseoptics/).
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.
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.
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, 2021 filed with the Securities and Exchange Commission on September 28, 2021.
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Results of Operations
Our total revenues for the quarter ended March 31, 2022, were $4,651,352, as compared to $2,458,290 for the same period in the prior year, an increase of $2,193,062, or 89.2%, primarily due to inclusion of the Lighthouse division since its acquisition on October 4, 2021 and an increase in medical devise manufacturing revenue. Excluding the effect of the Lighthouse acquisition, engineering revenue experienced a slight quarter-over-quarter decrease while production revenue was up 106% and component revenue increased 32% from the quarter ended March 31, 2021 to 2022.
Our total revenues for the nine months ended March 31, 2022 were $10,884,737, as compared to $8,001,641 for the same period in the prior year, an increase of $2,883,096, or 36.0% primarily due to inclusion of the Lighthouse division since its acquisition on October 4, 2021. Excluding the effect of the Lighthouse acquisition, engineering revenue during the nine months ended March 31, 2022 decreased approximately $287,000 compared to the same period of the prior year due primarily to a change in mix of engineering projects. Component revenues increased approximately $543,000 during the nine months ended March 31, 2022 compared to the same period of the prior year, and production revenue increased approximately $161,000 over the same period as production on some products began to return to pre-pandemic levels.
Our largest customer during the three and nine months ended March 31, 2022 accounted for 10.9% and 9.0%, respectively, of our revenue and represented manufacturing assembly revenues for a medical diagnostic system. We generated revenues from 193 unique customers during the nine months ended March 31, 2022, and one single customer accounted for slightly more than 10% or more of our revenue for the quarter and no single customer accounted for 10% or more of our revenue for the nine months ended March 31, 2022 or the fiscal year ended June 30, 2021.
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 March 31, 2022 was $1,728,209, compared to $818,024 for the same period in the prior year, an increase of $910,185, or 111.3%. Gross profit for the quarter ended March 31, 2022 as a percentage of our revenues was 37.2%, an increase from the gross profit percentage of 33.3% for the same period in the prior year. Gross profit for the nine months ended March 31, 2022 was $3,486,823, as compared to $2,647,642 for the same period in the prior year, an increase of $839,181 or 31.7%. Gross profit for the nine months ended March 31, 2022 as a percentage of our revenues was 32.0%, a decrease from the gross profit percentage of 33.1% 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 increase in gross margin dollars during the quarter ended March 31, 2022 was due to inclusion of the Lighthouse division since its acquisition on October 4, 2021, an increase in medical devise manufacturing revenue, and improved efficiencies in engineering projects, which is partially offset by inclusion of the Lighthouse division engineering and production revenues at overall margins lower than the Ross Optical division revenues. The remainder of our production, engineering and component revenues resulted in margins within our targeted range with reasonably expected fluctuations.
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Research and development expenses were $214,898 for the quarter ended March 31, 2022, compared to $146,063 for the same period in the prior year, an increase of $68,835, or 47.1%. Research and development expenses were $433,248 for the nine months ended March 31, 2022, compared to $443,609 for the same period in the prior year, a decrease of $10,361, or 2.3%. 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 and nine months ended March 31, 2022 we had an increase in research and development costs due to the inclusion of the Lighthouse division offset by a greater amount of our engineering personnel time consumed in customer focused compared to the same periods of the prior fiscal year.
Selling, general and administrative expenses were $1,574,432 for the quarter ended March 31, 2022, compared to $927,979 for the same period in the prior year, an increase of $646,453, or 69.7%. Selling, general and administrative expenses were $3,974,824 for the nine months ended March 31, 2022, compared to $2,671,176 for the same period in the prior year, an increase of $1,303,648, or 48.8%. The increase in selling, general and administrative expenses in the three and nine months ended March 31, 2022 compared to the same periods of the prior fiscal year was primarily due to inclusion of the Lighthouse division since its acquisition on October 4, 2021, plus increased stock-based compensation and marketing related expenses.
Liquidity and Capital Resources
We have sustained recurring net losses from operations for several years. During the nine months ended March 31, 2022, we had a net loss of $1,197,713 and used cash in operating activities of $879,967. At March 31, 2022, cash was $831,585, accounts receivables were $3,347,692 and current liabilities were $5,770,887, including $1,018,275 of customer advances received for future order deliveries.
Although our revenue and gross margin have increased due to the acquisition of the Lighthouse division, our operating expenses have also increased, and we continue to experience pricing pressure from our customers and challenges in engineering projects and production orders that can result in cost over-runs and depressed gross margins. We also experience added uncertainty related to our vendors ability to supply materials and our customers future order levels as a result of the economic impact the COVID-19 world-wide pandemic and related jurisdictional policies and regulations and lingering supply-chain issues. 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, manufacturing equipment leases, and by customer advances paid against purchase orders by our customers and recorded in the current liabilities section of the accompanying financial statements. We have incurred year to year and quarter to quarter operating losses during our efforts to develop current products including Microprecision optical elements, micro medical camera assemblies and 3D endoscopes. Our management believes that the opportunities represented by these technical capabilities and related products have the potential to generate sales increases to achieve breakeven and profitable results.
On October 4, 2021 we acquired the assets of Lighthouse Imaging, LLC as described in note 2. Business Acquisition to the accompanying financial statements in this Form 10-Q. To finance the cash portion of the acquisition price we entered into a $2,600,000 bank term loan, sold shares of our common stock for gross proceeds of $1,500,000. We also secured a $250,000 bank line of credit from the same bank on October 4, 2021 for working capital needs, upon which no borrowings are outstanding as of December 31, 2021.
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Capital equipment expenditures and additional patent costs during the nine months ended March 31, 2022 were $82,660. Future capital equipment and patent expenditures will be dependent upon future sales and success of on-going research and development efforts.
Contractual cash commitments for the fiscal periods subsequent to March 31, 2022, are summarized as follows:
| Fiscal 2022 | Thereafter | Total | ||||||||||
| Capital lease for equipment, including interest | $ | 12,155 | $ | 171,161 | $ | 183,316 | ||||||
| Minimum operating lease payments - Ross Optical division | $ | 15,705 | $ | 134,799 | $ | 150,504 | ||||||
We have contractual cash commitments related to open purchase orders as of March 31, 2022 of approximately $1,263,003.
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.
Managements 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 effective as of March 31, 2022, 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 effective as of March 31, 2022.
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.
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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.
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, 2021, as filed with the Securities and Exchange Commission on September 28, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
We did not issue unregistered securities during the quarter ended March 31, 2022.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Frequency of Say on Pay
As previously reported on Form 8-K, in a non-binding advisory vote on the frequency of future say on pay votes held at the 2022 annual meeting on April 8, 2022, 7,877,182 shares voted for one year, 84,778 shares voted for two years, 41 shares voted for three years, and 5,045 shares abstained. On May 13, 2022, our board of directors has considered the outcome of this advisory vote and has determined, as was recommended with respect to this proposal by our board of directors in the proxy statement for the 2022 annual meeting, that we will hold future say on pay votes on an annual basis until the occurrence of the next advisory vote on the frequency of say on pay votes. The next advisory vote regarding the frequency of say on pay votes is required to occur no later than our 2028 annual meeting of stockholders.
Election to Waive Application of Mandatory Staggered Board Provision in Massachusetts General Laws Section 8.06(b)
On May 13, 2022, our board elected to be exempt from the provisions of Section 8.06(b) of the Massachusetts General Laws and to declassify the current board. Section 8.06(b) of the Massachusetts General Laws provides that the board of every public Massachusetts corporation shall be staggered by dividing the number of directors into three groups, as nearly equal in number as possible; the term of office of those of the first group, ''Class I Directors'', to continue until the first annual meeting following the date such public corporation becomes subject to this subsection and until their successors are elected and qualified; the term of office of those of the second group, ''Class II Directors'', to continue until the second annual meeting following the date the public corporation becomes subject to this subsection and until their successors are elected and qualified; and the term of office of those of the third group, ''Class III Directors'', to continue until the third annual meeting following the date such public corporation becomes subject to this subsection and until their successors are elected and qualified. Accordingly, and in accordance with our bylaws, prior to the waiver our board was staggered into three classes of directors.
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Amendments of the Bylaws
On May 13, 2022, our board adopted an amendment to our amended and restated bylaws. Previously, our bylaws had not been amended since 2014.
The material changes to our bylaws comprise the following:
| - | Annual meeting of stockholders |
We made several clarifying changes, such as specifying that a majority of the board can call special meetings of stockholders and that such meetings can be postponed or rescheduled by the board.
Under the new bylaws, notice of meetings of stockholders must now be given at least ten days nor more than 60 days before the meeting, instead of at least seven days before the meeting. The notice may now also explicitly be given by electronic means. If the stockholders meeting is rescheduled or adjourned, the new bylaws clarify that no new notice need be given, unless the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting. The new bylaws state, that if a quorum initially is present at any meeting of stockholders, the stockholders may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum, but if quorum is not present at least initially, no business other than the adjournment may be transacted.
We added a provision that a stockholder may revoke any proxy that is not irrevocable by attending the meeting and voting in person, by filing with the secretary an instrument in writing revoking the proxy or by granting another duly executed proxy bearing a later date.
We also added a new provision giving the board or the presiding officer at the meeting the power to appoint an inspector of election.
Further, we added a new provision regarding stockholder proposals and nominations, specifically who can make such proposals, what information must be submitted, when and where to direct such proposals.
| - | Board of Directors |
Regarding the composition of the board, we dropped the maximum number of seats on the board leaving the decision up to the board. Further, the power to decrease or increase the board and to fill vacancies now rests solely with the board and not with the shareholders or the board alternatively. We further decided to declassify the board and have all directors stand for election at each annual meeting of stockholders. Notices for board meeting can now be transmitted electronically instead of by telegram. In addition, we added a provision to clarify that the board has the power to fix its remuneration, which may include reimbursement of expenses, salaries or attendance fees and can comprise cash or equity. The new bylaws also explicitly authorize us to purchase and maintain D&O insurance.
| - | Officers |
We updated the outdated terms of clerk and assistant clerk to secretary and assistant secretary, respectively. Further, we specified that the board has the power to elect the officers from time to time and deleted the dated reference to the incorporators or an election after each annual meeting. Thus, the tenure of each officers extends until the board has chosen, elected and qualified a successor.
| - | Shares |
Regarding stock certificates, the new bylaws state that shares may be uncertificated or represented by certificate, as before, and removed the entitlement for stockholders to request certificates. Further, in order to replace lost, destroyed or stolen certificates, the bylaws specify that we may now request documentation, indemnification or security to protect against claims.
| - | Amendments of the Bylaws |
The new bylaws removed the prohibition that the directors may not provide for indemnification of the board or amend the section on amendments to the bylaws.
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Item 6. Exhibits.
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| 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 (formatted in iXBRL, and included in exhibit 101). |
| * | 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.
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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: May 16, 2022 | By: | /s/ Joseph N. Forkey |
| Joseph N. Forkey | ||
|
Chief Executive Officer (Principal Executive Officer) | ||
| Date: May 16, 2022 | By: | /s/ Daniel S. Habhegger |
| Daniel S. Habhegger | ||
|
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | ||
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Exhibit 3.5
AMENDED AND RESTATED
BY-LAWS
of
PRECISION OPTICS CORPORATION, INC.
Section 1. ARTICLES OF ORGANIZATION
The name and purposes of the corporation shall be as set forth in the Articles of Organization. These By-laws, the powers of the corporation and of its directors and stockholders, or of any class of stockholders if there shall be more than one class of stock, and all matters concerning the conduct and regulation of the corporation’s business and affairs shall be subject to such provisions in regard thereto, if any, as are set forth in the Articles of Organization as from time to time in effect.
Section 2. STOCKHOLDERS
| 2.1 | Annual Meeting. The annual meeting of Precision Optics Corporation, Inc.’s stockholders shall be held each year at such date and time as shall be designated from time to time by the Board of Directors or the president and state in the notice of the meeting. The Board may postpone and reschedule any previously scheduled annual or special meeting of the stockholders. | |
| 2.2 | Special Meetings. The president or the majority of the Board of Directors may call a special meeting of the stockholders at any time. Each call of a meeting shall state the place, date, hour and purposes of the meeting. | |
| 2.3 | Place of Meetings. All meetings of the stockholders shall be held at the corporation’s principal office in Massachusetts or, to the extent permitted by the Articles of Organization, at such other place within the United States as the president or directors shall fix. Any adjourned session of any meeting of the stockholders shall be held at the same city or town as the initial session, or within Massachusetts, in either case at the place designated in the vote of adjournment. | |
| 2.4 | Notice of Meetings. A written notice of each meeting of stockholders, stating the place, date and hour and the purposes of the meeting, shall be given at least ten (10) calendar days nor more than sixty (60) calendar days before the meeting to each stockholder entitled to vote thereat and to each stockholder who, by law, by the Articles of Organization, or by these By-laws, is entitled to notice, by leaving such notice with such stockholder or at his or her residence or usual place of business, by electronic transmission, or by mailing it, postage prepaid, addressed to such stockholder at such stockholder’s address at it appears in the records of the corporation. If mailed, notice is given when deposited in the United States mail, postage prepaid, addressed to such stockholder at such stockholder’s address at it appears in the records of the corporation. The secretary or an officer designed by the Board shall give such notice. When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date, and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the adjournment is for more than thirty (30) calendar days, or if after the adjournment a new record date is fixed for the adjourned meeting, written notice of the place, date and time of the adjourned meeting must be given in conformity herewith. At any adjourned meeting, any business may be transacted which properly could have been transacted at the original meeting. Whenever notice of a meeting is required to be given to a stockholder under any provision of the Business Corporation Law of the Commonwealth of Massachusetts, the Articles of Organization, or these By-laws, a written waiver thereof, executed before or after the meeting by such stockholder or his or her attorney thereunto authorized and filed with the records of the meeting, shall be deemed equivalent to such notice. |
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| 2.5 | Quorum of Stockholders. At any meeting of the stockholders, a quorum as to any matter shall consist of a majority of the votes entitled to be cast on the matter, present in person or represented by proxy, except when the Articles of Organization or these By-laws require a larger quorum. Stock owned directly or indirectly by the corporation, if any, shall not be deemed outstanding for this purpose. Any meeting may be adjourned from time to time by a majority of the votes properly cast upon the question, whether or not a quorum is present. If a quorum initially is present at any meeting of stockholders, the stockholders may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum, but if quorum is not present at least initially, no business other than the adjournment may be transacted. | |
| 2.6 | Action by Vote. When a quorum is present at any meeting, a plurality of the votes properly cast for election of directors to any office shall elect to such office, and a majority of the votes properly cast upon any question other than an election to an office shall decide the question, except when the law, the Articles of Organization, or these By-laws require a larger vote. No ballot shall be required for any election unless requested by a stockholder present or represented at the meeting and entitled to vote in the election. | |
| 2.7 | Voting. Stockholders entitled to vote shall have one vote for each share of stock entitled to vote held by them of record according to the records of the corporation, unless otherwise provided by the Articles of Organization. The corporation shall not, directly or indirectly, vote any share of its own stock. | |
| 2.8 | Action by Writing. Any action required or permitted to be taken at any meeting of the stockholders may be taken without a meeting, without prior notice and without a vote, if any stockholders entitled to vote on the matter consent to the action in writing and the written consents are filed with the records of the meeting of stockholders. Such consents shall be treated for all purposes as a vote at a meeting. | |
| 2.9 | Proxies. To the extent permitted by law, stockholders entitled to vote may vote either in person or by proxy. Except to the extent permitted by law, no proxy dated more than six months before the meeting named therein shall be valid. Unless otherwise specifically limited by their terms, such proxies shall entitle the holders thereof to vote at any adjournment of such meeting but shall not be valid after such meeting’s final adjournment. A stockholder may revoke any proxy that is not irrevocable by attending the meeting and voting in person, by filing with the secretary an instrument in writing revoking the proxy or by granting another duly executed proxy bearing a later date. | |
| 2.10 | Inspectors. The Board of Directors or the presiding officer of the meeting may appoint one or more inspectors of election to act as judges of the voting and to determine those entitled to vote at any meeting of the stockholders, or any adjournment thereof, in advance of such meeting or any adjournment thereof. The Board or presiding officer of the meeting may designate one or more persons as alternate inspectors to replace any inspector who fails to act. |
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| 2.11 | Notice of Stockholder Business and Nominations. |
(a) Stockholder Proposals Relating to Nominations for and Election of Directors.
(i) Nominations by a stockholder of candidates for election to the Board by stockholders at any meeting of stockholders may be made only if the stockholder complies with the procedures set forth in this Section 2.11(a), and any candidate proposed by a stockholder not nominated in accordance with such provisions shall not be considered or acted upon for execution at such meeting of stockholders. A proposal by a stockholder for the nomination of a candidate for election by stockholders as a director at any meeting of stockholders at which directors are to be elected may be made only by notice in writing, delivered by a nationally recognized courier service or mailed by first class United States mail, postage or delivery charges prepaid, within the time limits specified in Section 2.11(c).
(ii) A stockholder’s notice to the secretary shall set forth (A) as to each person whom the stockholder proposes to nominate for election or reelection as a director: (I) the name, age, business address and, if known, residence address of each such person, (II) the principal occupation or employment of each such person for the past five years, (III) the class, series and number of shares of the corporation that are beneficially owned and of record by each such person and beneficial owner, and the earliest date of acquisition of any such capital stock, (IV) a description of any arrangement or understanding between each such person and the stockholder making such nomination with respect to such person’s proposal for nomination and election as a director and actions to be proposed or taken by such person if elected a director, (V) the written consent of each person so proposed to serve as a director if nominated and elected as a director and (VI) any other information that would be required to be provided by the stockholder pursuant to the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder (collectively, the “1934 Act”) in such stockholder’s capacity as a proponent of a stockholder proposal if proxies were to be solicited for the election as a director of each person whom the stockholder proposes; and (B) as to the stockholder giving notice, (I) the name and record address of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made and (II) the class, series and number of shares of the corporation that are owned beneficially and of record by the stockholder and such beneficial owner.
(b) Stockholder Proposals Relating to Matters Other Than Nominations for and Elections of Directors.
(i) A stockholder of the corporation may bring such business (other than a nomination of a candidate for election as a director, which is covered by Section 2.11(a)) (a “Stockholder Matter”) before any meeting of stockholders only if such Stockholder Matter is a proper matter for stockholder action and such stockholder shall have provided notice in writing, delivered by a nationally recognized courier service or mailed by first class United States mail, postage or delivery charges prepaid, within the time limits specified in Section 2.11(c); provided, however, that a proposal submitted by a stockholder for inclusion in the corporation’s proxy statement for an annual meeting that is appropriate for inclusion therein and otherwise complies with the provisions of Rule 14a-8 under the 1934 Act (including timeliness) shall be deemed to have also been submitted on a timely basis pursuant to this Section 2.11.
(ii) A stockholder’s notice to the secretary of a proposal of a Stockholder Matter shall set forth (A) as to each matter the stockholder proposes to bring before the meeting a brief description of the business desired to be brought before the meeting, (I) the text of the proposal or business (including the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend these bylaws of the corporation, the language of the proposed amendment), (II) the reasons for conducting such business at the meeting and (III) any other information that would be required to be provided by the stockholder pursuant to Section 14 of the 1934 Act in such stockholder’s capacity as a proponent of a stockholder proposal if proxies were solicited for stockholder consideration of such Stockholder Matter at a meeting of stockholders, and (B) as to the stockholder giving Notice, (I) the name and record address of the stockholder proposing such business and the beneficial owner, if any, on whose behalf the proposal is made, (II) the class, series and number of shares of the corporation that are owned beneficially and of record by the stockholder and such beneficial owner and (III) any material interest of the stockholder in such business.
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(c) Time for Notice of Stockholder Proposals Relating to Nominations or Stockholder Matters.
(i) In the case of an annual meeting of stockholders, to be timely, any written proposal of a nomination or of a Stockholder Matter must be received at the principal executive offices of the corporation addressed to the attention of the secretary not less than one hundred twenty (120) days before the date of the corporation’s proxy statement was released to the stockholders in connection with the previous year’s annual meeting of stockholders; provided, however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than thirty (30) days from the date contemplated at the time of the previous year’s proxy statement, notice by the stockholder must be received by the secretary not later than the close of business on the later of (x) the ninetieth (90th) day prior to such annual meeting and (y) the seventh (7th) day following the day on which public announcement of the date of such meeting is first made (or, in the case of (x) and (y), if such day is not a business day, then the close of the next business day). For the purposes of these By-laws, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or a comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission. In no event shall the public announcement of an adjournment or postponement of any meeting of stockholders commence a new time period (or extend any time period) for the giving of stockholder’s notice as described in these By-laws.
(ii) In the case of a special meeting of stockholders, to be timely, any written proposal of a nomination or of a Stockholder Matter must be delivered by a nationally recognized courier service or mailed by first class United States mail, postage or delivery charges prepaid, and received at the principal executive offices of the corporation addressed to the attention of the Secretary of the corporation not later than the close of business on the seventh (7th) day following the earlier of (x) the date that the corporation mailed notice to its stockholders that a special meeting of stockholders will be held and (y) the date on which public announcement of the date of such meeting is first made (or, in the case of (x) or (y), if such day is not a business day, then the close of the next business day).
(d) Determination of Defective Notice. Notwithstanding anything in these By-laws to the contrary, no nomination or Stockholder Matter shall be presented at a meeting of stockholders except in accordance with the procedures set forth in this Section 2.11, and any nomination or Stockholder Matter not submitted in accordance with such provisions shall not be considered or acted upon at any meeting of stockholders. The Chairman of the Board (or such other person presiding at a meeting of stockholders in accordance with these By-laws) shall, if the facts warrant, determine and declare to a meeting of stockholders that a proposal of a nomination or of a Stockholder Matter was not properly brought before the meeting in accordance with the provisions of this Section 2.11, and if he or she should so determine, he or she shall so declare to the meeting and any such defective nomination or Stockholder Matter shall be disregarded.
Section 3. BOARD OF DIRECTORS
| 3.1 | Number. The Board shall be comprised of not less than three (3) directors, with the exact number of directors fixed by the majority of the Board. The number of directors may be increased at any time or from time to time by vote of a majority of the directors then in office. Sole power to fill vacancies and newly created directorships resulting from any increase in the authorized number of directors shall be vested in the Board through action by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and each director so chosen shall hold office until the next annual election at which the term to which they have been elected expires and until such director’s successor is duly elected and qualified or until such director’s earlier resignation, removal from office, death or incapacity. If there are no directors in office, then an election of directors may be held in the manner provided by statute. In the event of a vacancy in the Board, the remaining directors, except as otherwise provided by law or these bylaws, may exercise the powers of the full board until the vacancy is filled. The number of directors may be decreased to any number permitted by law at any time or from time to time by a vote of a majority of the directors then in office, but only to eliminate vacancies existing by reason of the death, resignation, removal, or disqualification of one or more directors. No director need be a stockholder. |
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| 3.2 | Election, Terms. Except as otherwise provided by law, by the Articles of Organization, or by these By-laws, each director shall hold office until the next annual meeting of the stockholders and until his or her successor is duly elected and qualified, or until he or she sooner dies, resigns, is removed, or becomes disqualified. | |
| 3.3 | Powers. Except as reserved to the stockholders by law, by the Articles of Organization, or by these By-laws, the business of the corporation shall be managed by the directors who shall have and may exercise all the powers of the corporation. In particular, and without limiting the generality of the foregoing, the directors may at any time issue all of them from time to time any part of the unissued capital stock of the corporation from time to time authorized under the Articles of Organization and may determine, subject to any requirements of law, the consideration for which stock is to be issued and the manner of allocating such consideration between capital and surplus. | |
| 3.4 | Committees. The directors may, by vote of a majority of the directors then in office, elect from their number an executive committee and other committees and delegate to any such committee or committees some or all of the powers of the directors except those which the law, the Articles of Organization, or these By-laws prohibit them from delegating. Except as the directors may otherwise determine, any such committee may make rules for the conduct of its business, but unless otherwise provided by the directors or such rules, its business shall be conducted as nearly as may be in the same manner as is provided by these By-laws for the conduct of business by the directors. | |
| 3.5 | Regular Meetings. Regular meetings of the directors may be held without call or notice at such places and at such times as the directors may from time to time determine, provided that reasonable notice of the first regular meeting following any such determination shall be given to absent directors. A regular meeting of the directors may be held without call or notice immediately after and at the same place as the annual meeting of the stockholders. | |
| 3.6 | Special Meetings. Special meetings of the directors may be held at any time and at any place designated in the call of the meeting, when called by the chairman of the board, if any, the present, or the treasurer or by two or more directors, reasonable notice thereof being given to each director by the secretary or an assistant secretary, or, if there be none, by the clerk or an assistant clerk, or by the officer or one of the directors calling the meeting. | |
| 3.7 | Notice. It shall be sufficient notice to a director to send notice by mail at least forty-eight hours or by electronic transmission at least twenty-four hours before the meeting addressed to him or her at his or her usual or last known business of residence address or to give notice to him or her in person or by telephone at least twenty-four hours before the meeting. Notice of a meeting need not be given to any director if a written waiver of notice, executed by him or her before or after the meeting, is filed with the records of the meeting, or to any director who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him or her. Neither notice of a meeting nor a waiver of a notice need specify the purposes of the meeting. | |
| 3.8 | Quorum. At any meeting of the directors a majority of the directors then in office shall constitute a quorum. Any meeting may be adjourned from time to time by a majority of the votes cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice. | |
| 3.9 | Action by Vote. When a quorum is present at any meeting, a majority of the directors present may take any action, except when the law, the Articles of Organization, or these By-laws require a larger vote. |
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| 3.10 | Action by Writing. Unless the Articles of Organization otherwise provide, any action required or permitted to be taken at any meeting of the directors may be taken without a meeting if all the directors consent to the action in writing and the written consents are filed with the records of the meetings of the directors. Such consents shall be treated for all purposes as a vote taken at a meeting. | |
| 3.11 | Presence Through Communications Equipment. Unless otherwise provided by law or the Articles of Organization, members of the board of directors may participate in a meeting of such board by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time and participation by such means shall constitute presence in person at a meeting. | |
| 3.12 | Fees and Compensation of Directors. Unless otherwise restricted by the Articles of Organization or these By-laws, the Board shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board and may be paid a fixed sum for attendance at each meeting of the Board or a stated salary as director. Compensation may also include equity awards. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. |
Section 4. OFFICERS AND AGENTS
| 4.1 | Enumeration; Qualifications. The officers of the corporation shall be a president, treasurer, secretary, and such other officers, if any, as the Board from time to time, may in its discretion elect or appoint. The corporation may also have such agents, if any, as the Board from time to time, may in its discretion appoint. Any officer may be but none need be a director or stockholder. The secretary shall be a resident of Massachusetts unless the corporation has a resident registered agent appointed for the purpose of service of process. Any two or more offices may be held by the same person. Any of the offices may be left vacant from time to time as the Board may determine. Any officer may be required by the Board to give bond for the faithful performance of his or her duties to the corporation in such amount and with such sureties as the Board may determine. | |
| 4.2 | Powers. Subject to law, to the Articles of Organization and to the other provisions of these By-laws, each officer shall have, in addition to the duties and powers herein set forth, such duties and powers as are commonly incident to his or her office and such duties and powers as the Board may from time to time designate. | |
| 4.3 | Tenure. Except as otherwise provided by law or by the Articles of Organization or by these By-laws, the officers of the corporation shall hold office until their respective successors are elected and qualified, or in each case until the officer sooner dies, resigns, is removed or becomes disqualified. Each officer or agent shall retain his or her authority at the pleasure of the Board. Any vacancy occurring in any office of the corporation may be filled by a majority of the Board. | |
| 4.4 | Chief Executive Officer. The chief executive officer of the corporation shall, subject to the control of the Board, have general charge and supervision of the business of the corporation. If no such designation is made, the president shall be the chief executive officer. Unless the Board of directors otherwise specifies, if there is no chairman of the board, the chief executive officer shall preside, or designate the person who shall preside, at all meetings of the stockholders and of the Board of directors. | |
| 4.5 | Chairman of the Board. If a chairman of the board of directors is elected, he or she shall have the duties and powers specified in these By-laws and shall have such other duties and powers as the Board may determine. Unless the board of directors otherwise specifies, the chairman of the board shall president, or designate the person who shall preside, at all meetings of the stockholders and of the board of directors. |
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| 4.6 | President and Vice Presidents. The president shall have the duties and powers specified in these By-laws and shall have such other duties and powers as the Board may determine. Any vice presidents shall have such duties and powers as the Board shall designate from time to time. | |
| 4.7 | Treasurer and Assistant Treasurers. Except as the Board shall otherwise determine, the treasurer shall be the chief financial and accounting officer of the corporation and shall be in charge of its funds and valuable papers, books of account, and accounting records, and shall have such other duties and powers as the Board may designate from time to time. Any assistant treasurers shall have such duties and powers as the Board shall designate from time to time. | |
| 4.8 | Secretary and Assistant Secretaries. The secretary shall record all proceedings of the stockholders in a book or series of books to be kept therefore, which book or books shall be kept at the principal office of the corporation or at the office of its transfer agent or of its secretary and shall be open at all reasonable times to any stockholder’s inspection. In the absence of the secretary from any meeting of stockholders, an assistant secretary, or if there be none or he or she is absent, a temporary secretary chosen at the meeting, shall record the proceedings thereof in the aforesaid book. Unless a transfer agent has been appointed, the secretary shall keep or cause to be kept the stock and transfer records of the corporation, which shall contain the names and record addresses of all stockholders and the amount of stock held by each. The secretary shall keep a true record of the proceedings of all meetings of the directors and in his or her absence from any such meeting, an assistant secretary, or if there be none or he or she is absent, a temporary secretary chosen at the meeting, shall record the proceedings thereof. Any assistant secretaries shall have such other duties and powers as the Board shall designate from time to time. |
Section 5. RESIGNATIONS AND REMOVALS
Any director or officer may resign at any time by delivering his or her resignation in writing to the chairman of the board, if any, the president, the treasurer, or the clerk or to a meeting of the directors. Such resignation shall be effective upon receipt unless specified to be effective at some other time. A director (including persons elected by directors to fill vacancies in the board) may be removed from office (a) with or without cause by the vote of the holders of a majority of the shares issued and outstanding and entitled to vote in the election of the directors, provided that the directors of a class elected by a particular class of stockholders may be removed only by the vote of the holders of a majority of the shares of such class, or (b) with cause by the vote of a majority of the shares of such class, or (b) with cause by the vote of a majority of the directors then in office. The directors may remove any officer elected by them with or without cause by the vote of a majority of the directors then in office. A director or officer may be removed for cause only after reasonable notice and opportunity to be heard before the body proposing to remove him or her. No director or officer resigning, and (except where a right to receive compensation shall be expressly provided in a duly authorized written agreement with the corporation) no director or officer removed, shall have any right to any compensation as such director or officer for any period following his or her resignation or removal, or any right to damages on account of such removal, whether his or her compensation be by the month, by the year, or otherwise; unless in the case of a resignation, the directors, or in the case of a removal, the body acting on the removal, shall in their or its discretion provide for compensation.
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Section 6. CAPITAL STOCK
| 6.1 | Number and Par Value. The total number of shares and the par value, if any, of each class of stock which the corporation is authorized to issue shall be as stated in the Articles of Organization. | |
| 6.2 | Shares Represented by Certificates and Uncertificated Shares. The shares of the corporation shall be represented by certificates or shall be uncertificated. Certificate shall be signed by the chairman of the board, if any, the president, or a vice president and by the treasurer or an assistant treasurer. Such signatures may be facsimiles if the certificate is signed by a transfer agent or by a registrar, other than a director, officer, or employee of the corporation. In case any officer who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he or she were such officer at the time of its issue. | |
| 6.3 | Loss of Certificates. The corporation may direct that a new certificate or certificates be issued to replace any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed and on such terms and conditions as the corporation may require. When authorizing the issue of a new certificate or certificates, the corporation may, in its discretion and as a condition precedent to the issuance thereof, require the owner of the lost, stolen or destroyed certificate or certificates, or his or her legal representative, to advertise the same in such manner as it shall require, to indemnify the corporation in such manner as it may require, and/or to give the corporation a bond or other adequate security in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. |
Section 7. TRANSFER OF SHARES OF STOCK
| 7.1 | Transfer on Books. Subject to the restrictions, if any, stated or noted on the stock certificates, shares of stock may be transferred on the books of the corporation by the surrender to the corporation or its transfer agent of the certificate therefore properly endorsed or accompanied by a written assignment and power of attorney properly executed, with necessary transfer stamps affixed, and with such proof of the authenticity of signature as the corporation or the transfer agent of the corporation may reasonably require. Except as may be otherwise required by law, by the Articles of Organization or by these By-laws, the corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to receive notice and to vote with respect thereto, regardless of any transfer, pledge, or other disposition of such stock until the shares have been transferred on the books of the corporation in accordance with the requirements of these By-laws. | |
| It shall be the duty of each stockholder to notify the corporation of his or her post office address. | ||
| 7.2 | Record Date and Closing Transfer Books. The Board directors may fix in advance a time, which shall not be more than sixty (60) calendar days before the date of any meeting of stockholders or the date for the payment of any dividend or making of any distribution to stockholders or the last day on which the consent or dissent of stockholders may be effectively expressed for any purpose, as the record date for determining the stockholders having the right to notice of and to vote at such meeting and any adjournment thereof or the right to receive such dividend or distribution or the right to give such consent or dissent, and in such case only stockholders of record on such record date shall have such right, notwithstanding any transfer of stock on the books of the corporation after the record date; or without fixing such record date the directors may for any of such purposes close the transfer books for all or any part of such period. If no record date is fixed and the transfer books are not closed: | |
| (a) The record date for determining stockholders having the right to notice of or to vote at a meeting of stockholders shall be at the close of business on the date next preceding the day on which notice is given. | ||
| (b) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the board of directors acts with respect thereto. |
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Section 8. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the extent legally permissible, indemnify each of its directors and officers (including persons who serve at its request as directors, officers, or trustees of another organization, or in any capacity with respect to any employee benefit plan) against all liabilities and expenses, including amounts paid in satisfaction of judgments, in compromise, or as fines and penalties, and counsel fees, reasonably incurred by him or her in connection with the defense or disposition of any action, suit, or other proceeding, whether civil or criminal, in which he or she may be involved or with which he or she may be threatened, while the office or thereafter, by reason of his or her being or having been such a director or officer, except with respect to any matter as to which he or she shall have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that his or her action was in the best interest of the corporation (any person serving another organization in one or more of the indicated capacities at the request of the corporation who shall have acted in good faith in the reasonable belief that his or her action was in the best interest of such other organization to be deemed as having acted in such manner with respect to the corporation) or, to the extent that such matter relates to service with respect to any employee benefit plan, in the best interest of the participants or beneficiaries of such employee benefit plan; provided, however, that as to any matter disposed of by a compromise payment by such director or officer, pursuant to a consent decree or otherwise, no indemnification either for said payment or for any other expense shall be provided unless such compromise shall be approved as in the best interest of the corporation, after notice that it involves such indemnification: (a) by a disinterested majority of the directors then in office; or (b) by a majority of the disinterested directors then in office, provided that there has been obtained an opinion in writing of independent legal counsel to the effect that such director of officer appears to have acted in good faith in the reasonable belief that his or her action was in the best interest of the corporation; or (c) by the holders of a majority of the outstanding stock at the time entitled to vote for directors, voting as a single class, exclusive of any stock owned by any interested director or officer. Expenses, including counsel fees, reasonably incurred by any director or officer in connection with the defense or disposition of any such action, suite, or other proceeding may be paid from time to time by the corporation in advance of the final disposition thereof upon receipt of an undertaking by such director or officer to repay the amounts so paid to the corporation if it is ultimately determined that indemnification for such expenses is not authorized under this section. The right of indemnification hereby provided shall not be exclusive of or affect any other right to which any director or officer may be entitled. As used in this section, the terms “director” and “officer” include the relevant individual’s heirs, executors, and administrators, and an “interested” director or officer is one against whom in such capacity the proceedings in question or another proceeding on the same or similar grounds is then pending. Nothing contained in this section shall affect any rights to indemnification to which corporate personnel other than directors and officers may be entitled by contract or otherwise under law. The corporation may purchase and maintain insurance to protect itself and any director, officer, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under Massachusetts statute. The corporation may enter into contracts with any person entitled to indemnification under these By-laws or otherwise, and may create a trust fund, grant a security interest, or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification as provided in these By-laws.
Section 9. CORPORATE SEAL
The seal of the corporation shall, subject to alteration by the directors, consist of a flat-faced circular die with the word “Massachusetts” together with the name of the corporation and the year of its organization, cut or engraved thereon.
Section 10. EXECUTIVE OF PAPERS
Except as the Board of directors may generally or in particular cases authorize the execution thereof in some other manner, all deeds, leases, transfers, contracts, bonds, notes, checks, drafts, and other obligations made, accepted, or endorsed by the corporation shall be signed by the chairman of the board, if any, the president, a vice president, or the treasurer.
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Section 11. FISCAL YEAR
The fiscal year of the corporation shall end on June 30.
Section 12. AMENDMENTS
Except as otherwise provided by law and subject to the Articles of Organization, these By-laws may be altered, amended, or repealed either (1) at any annual or special meeting of the stockholders called for the purpose, of which the notice shall specify the subject matter of the proposed alteration, amendment, or repeal or the sections to be affected thereby, by vote of the stockholders, or (2) at any meeting of the Board.
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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 March 31, 2022.
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: May 16, 2022 | 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 March 31, 2022;
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: May 16, 2022 | 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 March 31, 2022 (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: May 16, 2022 | By: | /s/ Joseph N. Forkey |
| Joseph N. Forkey | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: May 16, 2022 | 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.