As filed with the Securities and Exchange
Commission on December 5, 2017
Registration Statement No. 333-221673
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1 to the
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
PRECISION OPTICS CORPORATION, INC.
(Exact name of registrant as specified in
its charter)
Massachusetts
|
3845
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04-2795294
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(State or other jurisdiction
of incorporation
or organization)
|
(Primary Standard
Industrial Classification
Code Number)
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(I.R.S. Employer
Identification Number)
|
|
|
Dr. Joseph N. Forkey
|
Precision Optics Corporation, Inc.
|
|
Precision Optics Corporation, Inc.
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22 East Broadway
|
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22 East Broadway
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Gardner, MA 01440
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Gardner, MA 01440
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(978) 630-1800
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(978) 630-1800
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(Address and telephone number of registrant’s principal executive offices)
|
|
(Name, address, and telephone of agent for service)
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Copies of communications to:
Amy M. Trombly, Esq.
1314 Main Street, Suite 102
Louisville, CO 80027
Phone (617) 243-0060
Fax (617) 243-0066
Approximate date of commencement of
proposed sale to the public: From time to time after this registration statement becomes effective.
If any of the securities being registered
on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933
check the following box:
x
If this Form is filed to register
additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
☐
If this Form is a post-effective amendment
filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering.
☐
If this Form is a post-effective amendment
filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering.
☐
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. (Check one):
Large accelerated filer
o
|
Accelerated filer
o
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
|
Smaller reporting company
x
|
|
Emerging growth company
o
|
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.
☐
CALCULATION OF REGISTRATION FEE
Title of Each Class of
Securities to be Registered
|
Amount to be
Registered (1)
|
Proposed Maximum
Offering Price
Per Share (2)
|
Proposed Maximum
Aggregate
Offering Price (2)
|
Amount of
Registration
Fee
|
Common Stock, par value $0.01, to be sold by existing
stockholders
|
555,556
|
$0.64
|
$355,556
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$44.27 *
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* Previously paid.
(1)
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Pursuant to Rule 416(a) of the Securities Act of 1933, as amended, this registration statement shall be deemed to cover additional securities that may be offered or issued to prevent dilution resulting from stock splits, stock dividends or similar transactions.
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(2)
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Estimated solely for the purpose of calculating the amount of the registration fee pursuant
to Rule 457 of the Securities Act. The price per share and aggregate offering prices for the shares registered hereby are
calculated on the basis of $0.64, which is the average of the high and low prices of the registrant’s common stock as
reported on the OTCQB on November 17, 2017.
|
The registrant hereby amends this registration
statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment
which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.
Table
of Contents
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
|
SUBJECT TO COMPLETION, THE
DATE OF THIS PROSPECTUS IS DECEMBER 5, 2017.
PROSPECTUS
PRECISION OPTICS CORPORATION, INC.
OFFERING UP TO 555,556 SHARES OF COMMON
STOCK
This prospectus relates to the sale or
other disposition of up to 555,556 shares of our common stock by selling stockholders. We are not selling any securities in this
offering and therefore, we will not receive any proceeds from this offering or the sale or other disposition of common stock by
the selling stockholders. All costs associated with this registration will be borne by us. Our common stock is quoted on the OTCQB
under the symbol “PEYE.” On December 4, 2017, the last reported sale price of our common stock on the OTCQB
was $0.41 per share.
THIS INVESTMENT INVOLVES A HIGH DEGREE
OF RISK. YOU SHOULD PURCHASE
SECURITIES ONLY IF YOU CAN AFFORD A COMPLETE
LOSS.
SEE “RISK FACTORS” BEGINNING
ON PAGE 4.
You should rely only on the information
provided in this prospectus or any supplement to this prospectus and information incorporated by reference. We have not authorized
anyone else to provide you with different information. Neither the delivery of this prospectus nor any distribution of the shares
of common stock pursuant to this prospectus shall, under any circumstances, create any implication that there has been no change
in our affairs since the date of this prospectus.
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful
or complete. Any representation to the contrary is a criminal offense.
Subject to completion, the date of this
prospectus is December 5, 2017
.
TABLE
OF CONTENTS
PRECISION OPTICS CORPORATION, INC.
PROSPECTUS SUMMARY
The following information is a summary
of the prospectus and it does not contain all of the information you should consider before making an investment decision. You
should read the entire prospectus carefully, including the financial statements and the notes relating to the financial statements.
ABOUT US
We incorporated in Massachusetts in December 1982
and have been publicly-owned since November 1990. References to our Company contained herein include our two wholly-owned
subsidiaries, Precise Medical, Inc. and Wood’s Precision Optics Corporation, Limited, except where the context otherwise
requires. Our fiscal year end is June 30. Our principal executive offices are located at 22 East Broadway, Gardner, Massachusetts
01440-3338. Our telephone number is (978) 630-1800. Our website is www.poci.com. Information contained on our website does not
constitute part of this prospectus.
We have been developing and
manufacturing advanced optical instruments since 1982. Today, the vast majority of our business is the design and manufacture
of high-quality medical devices and approximately 3% of our business is the design and manufacture of military and industrial
products. 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. Over the last ten years, we have funded 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. Our unique proprietary technology in these areas, combined with
recent developments in the areas of 3D displays and millimeter sized CMOS image sensors, has allowed us to begin
commercialization of these technologies. Thus, a portion of our revenues are now derived from engineering and design services
we performed for our customers to incorporate our technologies and capabilities into their medical device products. We
believe that new products based on these technologies provide enhanced imaging for existing surgical procedures and can
enable development of many new medical device products and related medical procedures.
SUMMARY FINANCIAL DATA
Because this is only a summary of our financial
information, it does not contain all of the financial information that may be important to you. Therefore, you should
carefully read all of the information in this prospectus and any prospectus supplement, including the financial statements and
their explanatory notes and the section entitled “
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
,” before making a decision to invest in our common stock. The information contained
in the following summary is derived from our audited consolidated financial statements for the fiscal years ended June 30, 2017
and 2016, and our unaudited consolidated financial statements for the quarters ended September 30, 2017 and 2016.
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Fiscal Year
ended June 30
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Quarter ended
September 30
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2017
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2016
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2017
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2016
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(audited)
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(unaudited)
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Revenues
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$
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3,154,547
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$
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3,916,702
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|
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$
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1,028,746
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$
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849,548
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Cost of Goods Sold
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2,380,823
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2,974,681
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642,004
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682,497
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Gross Profit
|
|
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773,724
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942,021
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386,742
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167,051
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Research and Development Expenses, net
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464,162
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478,267
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118,427
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116,992
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Selling, General and Administrative Expenses
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1,313,478
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1,551,895
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296,584
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343,782
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Gain on Sale of Assets
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|
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(1,515
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)
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(32,707
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)
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|
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–
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(315
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)
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Total Operating Expenses
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1,776,125
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1,997,455
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415,011
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460,459
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|
|
|
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|
|
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|
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Interest expense
|
|
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(3,144
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)
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|
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(469
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)
|
|
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(516
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)
|
|
|
–
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Other income
|
|
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–
|
|
|
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22,050
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|
|
|
|
|
|
|
|
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Provision for income taxes
|
|
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912
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|
|
|
912
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Net Loss
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$
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(1,006,457
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)
|
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$
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(1,034,765
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)
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$
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(28,785
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)
|
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$
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(293,408
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)
|
|
|
|
|
|
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|
|
|
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Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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Basic and Diluted
|
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$
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(0.12
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)
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$
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(0.15
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)
|
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$
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(0.00
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)
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$
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(0.04
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)
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Weighted average common shares outstanding
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|
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|
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Basic and Diluted
|
|
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8,343,235
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|
|
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7,157,978
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|
|
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9,108,423
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|
|
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7,539,582
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|
THE OFFERING
Common stock outstanding as of
December 4, 2017 (1)
|
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10,095,139 shares
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|
|
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Common stock to be registered
|
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555,556
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Use of proceeds
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We will not receive any proceeds from the sale or other disposition
of common stock by the selling stockholders.
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Stock symbol
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PEYE
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(1)
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This number includes the 555,556 shares of common stock issued in the 2017 private placement described below in the section entitled “
The Transactions
.”
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THE TRANSACTIONS
Private Placement of Common Stock
August 2017
On August 22, 2017, we entered into agreements
with accredited investors for the sale and purchase of 466,668 shares of our common stock at a per unit price of $0.45 per share.
We received $210,001 in gross proceeds from the offering. We intend to use the net proceeds from this placement for general working
capital purposes.
Concurrently with the placement, we entered
into an agreement with an investor for the sale of 88,888 unregistered shares of our common stock for services provided to us at
a price of $0.45 per share.
In conjunction with the placement, we also
entered into a registration rights agreement with the investors, whereby we are obligated to file a registration statement with
the Securities Exchange Commission on or before 90 calendar days after August 22, 2017 to register the resale by the investors
of the 555,556 shares of the common stock purchased in the placement.
The selling stockholders who participated
in the August 2017 private placement are as follows:
Name
|
Common Shares
Purchased in the
August 2017
Offering
|
Aggregate
Purchase
Price
|
Diana Pessin
|
233,334
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$105,000
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Sandra Pessin
|
233,334
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$105,000
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Proactive Capital Resources Group, LLC
|
88,888
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$40,000 (1)
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TOTAL
|
555,556
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$250,000
|
|
(1)
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The purchase price was provided as services to us by Proactive Capital Resources Group, LLC.
|
RISK FACTORS
Risks Related to Our Business
An investment in our common stock involves
a high degree of risk. Before making an investment decision, you should give careful consideration to the following risk factors,
in addition to the other information included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2017 filed with
the Securities and Exchange Commission on September 28, 2017. If any of the following risks actually occur, our business, financial
condition or results of operations could be materially and adversely affected and you may lose some or all of your investment.
As of September 30, 2017, we may not have sufficient cash
to continue operations for the next six to nine months.
As of September 30, 2017, we had $194,714
in cash and cash equivalents, $613,961 in accounts receivable, and $1,096,876 in current liabilities. We incurred net losses of
$28,785 and $1,006,457 during the quarter ended September 30, 2017 and the fiscal year ended June 30, 2017, respectively. If quarterly
sales revenues do not increase to near cash breakeven in the next six to nine months, we may be required to obtain cash for operations
from non-working capital sources, which may not be available, in which case we would have to significantly decrease or cease operations.
We are currently evaluating several options to manage cash flow and raise capital if necessary, including issuing debt, equity
or entering into a strategic alliance. The sale of additional equity or convertible debt securities would result in additional
dilution to our stockholders, and debt financing, if available, may involve restrictive covenants that could restrict our operations
or finances. Financing, if necessary, may not be available in amounts or on terms acceptable to us, if at all. If we cannot raise
funds on acceptable terms or achieve positive cash flow, we may not be able to continue to conduct operations, develop new products,
grow market share, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements, any
of which would negatively impact our business, operating results and financial condition.
As of June 30, 2017 and September
15, 2017, we may not have sufficient cash to continue operations, and if we do not obtain funding for our operations, we may cease
to exist as a going concern.
For the year ended June 30, 2017, net cash
used in operating activities amounted to $667,434, and our net loss for the year was $1,006,457. As of June 30, 2017, we had $118,405
in cash and cash equivalents. Although we raised $210,001 from the sale of 555,556 shares of our common stock on August 22, 2017,
we still may not have sufficient cash to continue operations through the end of fiscal 2017 if we do not achieve cash flow break
even or receive additional funding for operations. We may have to pursue several options to manage cash flow and raise capital
including issuing debt, equity or entering into a strategic alliance. The sale of additional equity or convertible debt securities
would result in additional dilution to our stockholders, and debt financing, if available, may involve restrictive covenants that
could restrict our operations or finances. Financing may not be available in amounts or on terms acceptable to us, if at all. If
we cannot raise funds on acceptable terms or achieve positive cash flow, we may not be able to continue to conduct operations,
develop new products, grow market share, take advantage of future opportunities or respond to competitive pressures or unanticipated
requirements, any of which would negatively impact our business, operating results and financial condition. If we are not successful
in increasing our revenues, reducing our expenses or raising additional equity capital to generate sufficient cash flows to meet
our obligations as they come due, we may not be able to continue as a going concern.
We have a history of losses, we expect
to continue to incur losses and we may never achieve profitability; and our June 30, 2017 audited consolidated financial statements
included disclosure casts substantial doubt regarding our ability to continue as a going concern.
During the years ended June 30, 2017
and 2016, we incurred net losses of $1,006,457 and $1,034,765, respectively. Our accumulated deficit at June 30, 2017 amounted
to $44,670,732. We had working capital of $479,604 and $518,058 as of June 30, 2017 and 2016, respectively. During the year ended
June 30, 2017, net cash used in operating activities amounted to $667,434. Our independent auditors have included a “going
concern” qualification in their audit report for the year ended June 30, 2017. We expect to continue incurring losses for
the foreseeable future and may never achieve or sustain profitability. We must generate sufficient cash flow or raise additional
capital to pursue our product development initiatives, penetrate markets for the sale of our products and continue as a going concern.
We cannot provide any assurance that we will raise additional capital. We believe that we have access to capital resources through
possible public or private equity offerings, debt financings, corporate collaborations or other means. We may not raise enough
capital to meet our needs and we may have to raise additional capital in the future. If we are unable to secure additional capital,
we may be required to curtail our research and development initiatives and take additional measures to reduce costs in order to
conserve our cash in amounts sufficient to sustain operations and meet our obligations. These measures could cause significant
delays in our efforts to further commercialize our products and complete development projects and manufacturing services for our
customers, which are critical to the realization of our business plan and to our future operations. These matters raise substantial
doubt about our ability to continue as a going concern or become profitable.
We rely on a small number of customers
who may not consistently purchase our products in the future and if we lose any one of these customers, our revenues may decline.
In the fiscal year ended June 30,
2017, our three largest customers represented approximately 11%, 10% and 10%, respectively, of our total revenues. In the fiscal
year ended June 30, 2016, our two largest customers represented approximately 16% and 12%, respectively, of our total revenues.
No other customer accounted for more than 10% of our revenues during those periods. At June 30, 2016, our five largest customer
account receivable balances were 16%, 15%, 12%, 12% and 11%, respectively, of total accounts receivable. At June 30, 2016, our
three largest account receivable balances were 19%, 13%, and 10%, respectively, of the total accounts receivable.
In the future, a small number of customers
may continue to represent a significant portion of our total revenues in any given period. These customers may not consistently
purchase our products at a particular rate over any subsequent period. A loss of any of these customers could adversely affect
our revenues.
We could suffer unrecoverable losses
on our customers’ accounts receivable, which would adversely affect our financial results.
At June 30, 2017, our five largest customer
account receivable balances were 16%, 15%, 12%, 12% and 11%, respectively, of total accounts receivable. While we believe we have
a varied customer base and have experienced strong collections in the past, we may experience changes in our customer base, including
reductions in purchasing commitments, which could also have a material adverse effect on our revenues and liquidity. We have not
purchased insurance on our accounts receivable balances.
We rely heavily upon the talents
of our Chief Executive Officer, the loss of whom could damage our business.
Our performance depends, to a large extent,
on a small number of key scientific, technical, managerial and marketing personnel. In particular, we believe our success is highly
dependent upon the services and reputation of our Chief Executive Officer, Dr. Joseph N. Forkey. The loss of Dr. Forkey’s
services could damage our business. Dr. Forkey provides highly valuable contributions to our capabilities in optical instrument
development, in management of new technology and in potentially significant longer-term Company initiatives.
We must continue to be able to attract
employees with the scientific and technical skills that our business requires and if we are unable to attract and retain such individuals,
our business could be severely damaged.
Our ability to attract employees with a
high degree of scientific and technical talent is crucial to the success of our business. There is intense competition for the
services of such persons and we cannot guarantee that we will be able to attract and retain individuals possessing the necessary
qualifications. If we cannot attract such individuals, we may not be able to produce our products and our business could be damaged.
We are subject to a high degree of
regulatory oversight and, if we do not continue to receive the necessary regulatory approvals, our revenues may decline.
The FDA has granted us clearance to market
the medical products we currently sell in the United States. However, prior FDA approval may be required before we can market additional
medical products that we may develop in the future. We may also seek to sell current or future medical products in a manner that
requires us to obtain FDA permission to market such products. We may also require the regulatory approval or license of other federal,
state or local agencies or comparable agencies in other countries.
We may lose the FDA’s permission
to market our current products or may not obtain the necessary regulatory permission, approvals or licenses for the marketing of
any of our future products. Also, we cannot predict the impact on our business of FDA regulations or determinations arising from
future legislation or administrative action. If we lose the FDA’s permission to market our current products or we do not
obtain regulatory permission to market our future products, our revenues may decline and our business may be harmed.
We face risks inherent in product
development and production under fixed-price purchase orders and these purchase orders may not be profitable over time.
A portion of our business has been devoted
to research, development and production under fixed-price purchase orders. For our purposes, a fixed-price purchase order is any
purchase order under which we will provide products or services for a fixed-price over an extended period of time, usually six
months or longer. Fixed-price purchase orders represented approximately 25% to 50% of our total revenues during the last several
years. We expect that revenues from fixed-price purchase orders will continue to represent a significant portion of our total revenues
in future fiscal years.
Because they involve performance over time,
we cannot predict with certainty the expenses involved in meeting our obligations under fixed-price purchase orders. Therefore,
we can never be sure at the time we enter into any single fixed-price purchase order that such purchase order will be profitable
for us.
We primarily perform engineering
and manufacturing services for our customers who could decide to use another vendor for these services in the future.
A significant portion of our revenues are
derived from engineering and manufacturing services that we perform to design and fabricate medical device products or sub-assemblies
of medical device products for our original equipment manufacturer, or OEM, customers who in turn sell the products to the end
users. Our customers typically own the proprietary rights to and control commercial distribution of the final products. Therefore,
in many of these cases we do not own the proprietary rights to the medical device products that we manufacture or that our sub-assemblies
are made a part of. Our customers could decide to use other suppliers for these services based on cost, quality, delivery time,
production capacities, competitive and regulatory considerations or other factors. Thus, revenues from our customers and the products
and services we provide them are subject to significant fluctuation on a product to product basis from period to period.
Third parties may infringe on our
intellectual property and, as a result, we could incur significant expense in protecting our patents or not have sufficient resources
to protect them.
We utilize a number of licensed patents
that are important to our business. In July 2011, we entered into an asset purchase agreement with Intuitive Surgical Operations, Inc.,
in which we received $2.5 million in connection with the sale of certain intellectual property. Pursuant to the agreement, we agreed
to assign to Intuitive Surgical all of the issued and non-expired patents and pending patent applications we held at the time of
the agreement and, in return, Intuitive Surgical agreed to grant to us a royalty-free, worldwide license to these patents
in fields outside of medical robotics.
Although we are not currently aware of
any past or present infringements of our patents, we plan, jointly with Intuitive Surgical, to protect these patents from infringement
and obtain additional patents whenever feasible. To this end, we have obtained confidentiality agreements from our employees and
consultants and others who have access to the design of our products and other proprietary information. Protecting and obtaining
patents, however, is both time consuming and expensive. We therefore may not have the resources necessary to assert all potential
patent infringement claims or pursue all patents that might be available to us. If our competitors or other third parties infringe
on our patents, our business may be harmed.
Third parties may claim that we have infringed on their
patents and, as a result, we could be prohibited from using all or part of any technology used in our products.
Should third parties claim a proprietary
right to all or part of any technology that we use in our products, such a claim, regardless of its merit, could involve us in
costly litigation. If successful, such a claim could also result in us being unable to freely use the technology that was the subject
of the claim, or sell products embodying such technology. If we engage in litigation, our expenses may increase and our business
may be harmed. If we are prohibited from using a particular technology in our products, our revenues may decline and our business
may be harmed.
We depend on the availability of
certain key supplies and services that are available from only a few sources and if we experience difficulty with a supplier, we
may have difficulty finding alternative sources of these supplies or services.
We require certain key supplies to develop
and manufacture our products, particularly our precision grade optical glass, which is available from only a few sources, each
of which is located outside of the United States. Additionally, we rely on outside vendors to grind and polish certain of our lenses
and other optical components, such as prisms and windows. We also rely on a limited number of suppliers for specialized CMOS sensors
and the electronic wiring of those sensors. Based upon our ordering experience to date, we believe the materials and services required
for the production of our products are currently available in sufficient quantities to meet our needs. Our requirements are small
relative to the total supply, and we are not currently encountering problems with availability. However, this does not mean that
we will continue to have timely access to adequate supplies of essential materials and services in the future or that supplies
of these materials and services will be available on satisfactory terms when the need arises. Our business could be severely damaged
if we become unable to procure these essential materials and services in adequate quantities and at acceptable prices.
From time to time, subcontractors may produce
some of our products for us, and our business is subject to the risk that these subcontractors fail to make timely delivery. Our
products and services are also used as components of the products and services of other manufacturers. We are therefore subject
to the risk that manufacturers who integrate our products or services into their own products or services are unable to acquire
essential supplies and services from third parties in a timely fashion. If this occurs, we may not be able to deliver our products
on a timely basis and our revenues may decline.
Our customers may claim that the
products we sold them were defective and if our insurance is not sufficient to cover such a claim, we would be liable for the excess.
Like any manufacturer, we are and
always have been exposed to liability claims resulting from the use of our products. We maintain product liability insurance
to cover us in the event of liability claims, and as of November 20, 2017, no such claims have been asserted or
threatened against us. However, our insurance may not be sufficient to cover all possible future product liabilities.
We would be liable if our business
operations harmed the environment and a failure to maintain compliance with environmental laws could severely damage our business.
Our operations are subject to a variety
of federal, state and local laws and regulations relating to the protection of the environment. From time to time, we use hazardous
materials in our operations. Although we believe that we are in compliance with all applicable environmental laws and regulations,
our business could be severely damaged by any failure to maintain such compliance.
Our quarterly financial results vary
quarter to quarter and depend on many factors. As a result, we cannot predict with a high degree of certainty our operating results
in any particular fiscal quarter.
Our quarterly operating results may vary
significantly depending upon factors such as:
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the timing of completion of significant customer orders;
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the timing and amount of our research and development expenditures;
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the costs of initial product production in connection with new products;
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the timing of new product introductions—both by us and by our competitors;
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the timing and level of market acceptance of new products or enhanced versions of our existing products;
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our ability to retain existing customers and customers’ continued demand for our products and services;
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our customers’ inventory levels, and levels of demand for our customers’ products and services; and
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competitive pricing pressures.
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We may not be able to grow or sustain revenues
or achieve or maintain profitability on a quarterly or annual basis and levels of revenue and/or profitability may vary from one
such period to another.
Some of our competitors are large,
well-financed companies who have research and marketing capabilities that are superior to ours.
The industries in which we operate are
highly competitive. Many of our existing and potential competitors have greater financial resources and manufacturing capabilities,
more established and larger marketing and sales organizations and larger technical staffs than we have. Other companies, some with
greater experience in the optics, semiconductor or medical products industries, are seeking to produce products and services that
compete with our products and services.
RISKS RELATED TO OUR STOCK
Trading in our common stock is limited
and the price of our common stock may be subject to substantial volatility.
Our common stock is quoted on OTCQB, the
OTC market tier for companies that report to the SEC, under the symbol PEYE. We expect our common stock to continue to be quoted
on the OTCQB for the foreseeable future. Broker-dealers may decline to trade in OTCQB stocks given the market for such securities
is often limited, the stocks are more volatile and the risk to investors is greater. These factors may reduce the potential market
for our common stock by reducing the number of potential investors. This may make it more difficult for investors in our common
stock to sell shares to third parties or to otherwise dispose of their shares. This could cause our stock price to decline.
Additionally, the price of our common stock
may be volatile as a result of a number of factors, including, but not limited to, the following:
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our ability to successfully conceive and to develop new products and services to enhance the performance characteristics and methods of manufacture of existing products;
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our ability to retain existing customers and customers’ continued demand for our products and services;
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the timing of our research and development expenditures and of new product introductions;
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the timing and level of acceptance of new products or enhanced versions of our existing products; and
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price and volume fluctuations in the stock market at large which do not relate to our operating performance.
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“Penny stock” rules may
make buying or selling our securities difficult which may make our stock less liquid and make it harder for investors to buy and
sell our securities.
Trading in our securities is subject to
the SEC’s “penny stock” rule and we anticipate that trading in our securities will continue to be subject to
the penny stock rules for the foreseeable future. The SEC has adopted regulations that generally define a penny stock to be
any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These rules require
that any broker-dealer who recommends our securities to persons other than prior customers and accredited investors must, prior
to the sale, make a special written suitability determination for the purchaser and receive the purchaser’s written agreement
to execute the transaction. Unless an exception is available, the regulations require the delivery, prior to any transaction involving
a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock
market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative
and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by these requirements
may discourage broker-dealers from recommending transactions in our securities, which could severely limit the liquidity of our
securities and consequently adversely affect the market price for our securities.
We are contractually obligated to
issue shares in the future, diluting your interest in us.
As of November 15, 2017, there were
1,103,400 shares of our common stock issuable upon exercise of stock options outstanding, at a weighted average exercise price
of $0.80 per share. As of November 15, 2017, a total of 845,398 shares of our common stock are reserved for issuance under our
2011 Equity Incentive Plan. As of November 15, 2017, there were no warrants outstanding for the issuance of shares of our common
stock. Moreover, we expect to issue additional shares and options to purchase shares of our common stock to compensate employees,
consultants and directors, and we may issue additional shares to raise capital. Any such issuances will have the effect of further
diluting the interest of the holders of our securities.
RISKS RELATED TO THE OFFERING
The market price
of our common stock may be volatile, and the value of stockholders’ investment could decline significantly.
The trading price
for our common stock has been, and we expect it to continue to be, volatile. The price at which our common stock trades depends
upon a number of factors, including our historical and anticipated operating results, our financial situation, announcements of
new products by us or our competitors, our ability or inability to raise the additional capital we may need and the terms on which
we raise it, and general market and economic conditions. Some of these factors are beyond our control. Broad market fluctuations
may lower the market price of our common stock and affect the volume of trading in our stock, regardless of our financial condition,
results of operations, business or prospects. It is impossible to assure you that the market price of our shares of common stock
will not fall in the future.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS
This prospectus contains forward-looking
statements that involve risks and uncertainties. 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
reasons described in our “
Risk Factors
” section. 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 prospectus to conform these statements to actual results or to changes
in our expectations, except as required by law.
USE OF PROCEEDS
This prospectus relates to shares of our
common stock that may be offered and sold from time to time by certain selling stockholders. We will not receive any proceeds
from the sale or other disposition of common stock by the selling stockholders.
SELLING SECURITY
HOLDERS
Based upon information available to us
as of November 15, 2017 the following table sets forth the names of the selling stockholders, the number of shares owned, the number
of shares registered by this registration statement and the number and percent of outstanding shares that the selling stockholders
will own, assuming all of the shares are sold. The information provided in the table and discussions below has been obtained from
the selling stockholders. The selling stockholders may have sold, transferred or otherwise disposed of, or may sell, transfer or
otherwise dispose of, at any time or from time to time since the date on which it provided the information regarding the shares
beneficially owned, all or a portion of the shares of common stock beneficially owned in transactions exempt from the registration
requirements of the Securities Act of 1933. As used in this prospectus, “selling stockholder” includes donees,
pledgees, transferees or other successors-in-interest selling shares received from the named selling stockholder as a gift, pledge,
distribution or other transfer.
Beneficial ownership is determined in accordance
with Rule 13d-3(d) promulgated by the Commission under the Securities Exchange Act of 1934. Unless otherwise noted, each
person or entity identified possesses sole voting and investment power with respect to the shares, subject to community property
laws where applicable.
Name of Selling Security Holder
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Beneficial
Ownership Before Offering (1), (3)
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Percentage of Outstanding Shares Owned Prior to Offering (2)
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Number of Shares Offered (3)
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Number of Shares Beneficially Owned After Offering (3)
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Percentage of Shares Owned After Offering (2), (3)
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Diana Pessin (4)
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233,334
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2.3%
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233,334
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0
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0
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Sandra Pessin (5)
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233,334
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2.3%
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233,334
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0
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0
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ProActive Capital Resources Group, LLC (6)
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153,813
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1.5%
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88,888
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64,925
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*
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TOTAL
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555,556
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* Percentage of shares owned does not exceed
one percent.
(1)
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The column includes common stock beneficially owned under Rule 13(d)-3 of the Exchange Act, including shares being registered by this prospectus and shares that may be acquired upon exercise of warrants or options.
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(2)
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Based on 10,095,139 shares outstanding as of November 15, 2017. We calculated the percentages based on the actual number of shares outstanding, not including shares issuable upon exercise of warrants or options.
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(3)
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These numbers assume the selling stockholders sell all of their shares being registered by this prospectus, including shares that may be acquired upon exercise of warrants and shares pursuant to anti-dilution provisions of warrants, and they do not sell any of the other common stock they own on November 15, 2017 that is not included in this registration statement.
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(4)
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Diana Pessin beneficially owns 233,334 shares of common stock acquired in the August 2017 transaction.
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(5)
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Sandra Pessin beneficially owns 233,334 shares of common stock acquired in the August 2017 transaction.
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(6)
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ProActive Capital Resources Group, LLC beneficially owns 153,813 shares of common stock of which 88,888 shares of common stock were acquired in the August 2017 transaction.
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As of November 15, 2017, in addition to
the information provided in the prospectus summary regarding the transactions, in the past three years, we have had the following
material relationships with the selling stockholders or affiliates of a selling stockholder:
ProActive Capital Resources Group, LLC
purchased 33,333 shares of common stock and 16,667 warrants in the November 2016 private placement for a per unit price of $0.60
each, with each unit consisting of one share of common stock and one warrant to purchase one-half of one share of common stock.
In addition, ProActive Capital Resources Group, LLC purchased 14,925 shares of common stock in the October 2015 private placement
for a price of $0.67 per share.
PLAN OF DISTRIBUTION
The selling stockholders, which as used
herein includes donees, pledgees, transferees or other successors-in-interest selling shares of common stock or interests in shares
of common stock received after the date of this prospectus from a selling stockholder as a gift, pledge, partnership distribution
or other transfer, may, from time to time, sell, transfer or otherwise dispose of any or all of their shares of common stock or
interests in shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private
transactions. These dispositions may be at fixed prices, at prevailing market prices at the time of sale, at prices related to
the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices.
The selling stockholders may use any one
or more of the following methods when disposing of shares or interests therein:
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ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
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block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction;
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purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
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an exchange distribution in accordance with the rules of the applicable exchange;
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privately negotiated transactions;
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short sales effected after the date the registration statement, of which this prospectus is a part, is declared effective by the SEC;
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through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
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broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;
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a combination of any such methods of sale; and
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any other method permitted by applicable law.
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The selling stockholders may, from time
to time, pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in
the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock, from
time to time, under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision
of the Securities Act of 1933, as amended, or the Securities Act, amending the list of selling stockholders to include the pledgee,
transferee or other successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer
the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will
be the selling beneficial owners for purposes of this prospectus.
In connection with the sale of our common
stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial
institutions, who may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The
selling stockholders may also sell shares of our common stock short and deliver these securities to close out their short positions,
or loan or pledge the common stock to broker-dealers who may in turn sell these securities. The selling stockholders may also enter
into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative
securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus,
which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended
to reflect such transaction).
The aggregate proceeds to the selling stockholders
from the sale of the common stock offered by them will be the purchase price of the common stock less discounts or commissions,
if any. Each of the selling stockholders reserves the right to accept and, together with their agents from time to time, to reject,
in whole or in part, any proposed purchase of common stock to be made directly or through agents. We will not receive any of the
proceeds from this offering.
The selling stockholders also may resell
all or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act, provided that they
meet the criteria and conform to the requirements of that rule.
The selling stockholders and any underwriters,
broker-dealers or agents that participate in the sale of the common stock or interests therein may be "underwriters"
within the meaning of Section 2(11) of the Securities Act. Any discounts, commissions, concessions or profit they earn on any resale
of the shares may be underwriting discounts and commissions under the Securities Act. Selling stockholders who are "underwriters"
within the meaning of Section 2(11) of the Securities Act will be subject to the prospectus delivery requirements of the Securities
Act.
To the extent required, the shares of our
common stock to be sold, the names of the selling stockholders, the respective purchase prices and public offering prices, the
names of any agents, dealer or underwriter, any applicable commissions or discounts with respect to a particular offer will be
set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement
that includes this prospectus.
In order to comply with the securities
laws of some states, if applicable, the common stock may be sold in these jurisdictions only through registered or licensed brokers
or dealers. In addition, in some states the common stock may not be sold unless it has been registered or qualified for sale or
an exemption from registration or qualification requirements is available and is complied with.
We have advised the selling stockholders
that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities
of the selling stockholders and their affiliates. In addition, to the extent applicable we will make copies of this prospectus
(as it may be supplemented or amended from time to time) available to the selling stockholders for the purpose of satisfying the
prospectus delivery requirements of the Securities Act. The selling stockholders may indemnify any broker-dealer that participates
in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities
Act.
We have agreed to indemnify the selling
stockholders against liabilities, including liabilities under the Securities Act and state securities laws, relating to the registration
of the shares offered by this prospectus.
We have agreed with the selling stockholders
to keep the registration statement, of which this prospectus constitutes a part, effective until the earlier of (1) such time as
all of the shares covered by this prospectus have been disposed of pursuant to and in accordance with the registration statement
or (2) the date on which the shares may be sold without restriction pursuant to Rule 144 of the Securities Act.
DESCRIPTION OF SECURITIES
TO BE REGISTERED
The following description of our capital
stock and provisions of our Articles of Organization, as amended, and Bylaws, each as amended, is only a summary. You should also
refer to our Articles of Organization, as amended, a copy of which is incorporated by reference as an exhibit to the registration
statement, of which this prospectus is a part, and our Bylaws, a copy of which is incorporated by reference as an exhibit to the
registration statement of which this prospectus is a part.
Common Stock
We are authorized to issue up to a total
of 50,000,000 shares of common stock, par value $0.01 per share. Holders of our common stock are entitled to one vote for each
share held on all matters submitted to a vote of our stockholders. Holders of our common stock have no rights under our Articles
of Organization, as amended, or our Bylaws regarding dividends unless and until dividends are declared by the board of directors,
nor do they have any rights under our Articles of Organization, as amended, or our Bylaws regarding preemption rights. Each outstanding
share of common stock is, and all shares of common stock to be issued in this offering, when they are paid for will be, fully paid
and non-assessable.
INTERESTS OF NAMED
EXPERTS AND COUNSEL
No expert or counsel named in this prospectus
as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being
registered or upon other legal matters in connection with the registration or offering of the securities being registered was employed
for such purpose on a contingency basis, or had, or is to receive, in connection with this offering, a substantial interest, direct
or indirect, in us or any of our subsidiaries, nor was any such person connected with us or any of our subsidiaries as a promoter,
managing or principal underwriter, voting trustee, director, officer, or employee.
INFORMATION ABOUT
THE COMPANY
DESCRIPTION OF BUSINESS
Overview
We have been developing and
manufacturing advanced optical instruments since 1982. Today, the vast majority of our business is the design and manufacture
of high-quality medical devices and approximately 3% of our business is the design and manufacture of military and industrial
products. 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. Over the last ten years, we have funded 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. Our unique proprietary technology in these areas, combined with
recent developments in the areas of 3D displays and millimeter sized CMOS image sensors, has allowed us to begin
commercialization of these technologies. Thus, a portion of our revenues are now derived from engineering and design services
we performed for our customers to incorporate our technologies and capabilities into their medical device products. We
believe that new products based on these technologies provide enhanced imaging for existing surgical procedures and can
enable development of many new medical device products and related medical procedures.
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, and 3D endoscopes.
For the fiscal year ended June 30, 2017,
approximately 66% of our sales were made to nine customers. Of these, three are large, international, medical device companies
who have been our customers for many years. These three customers continue to purchase products that we developed over five years
ago, and both now purchase new products that were developed and launched into production by us more recently. The other six top
customers have engaged our engineering services or purchase products that we developed in recent years, and which rely heavily
on our unique, proprietary Microprecision™ lens technology and optical visualization system expertise.
Current sales and marketing activities
are intended to broaden awareness of the benefits of our new technology platforms, which we believe are ready for general application
to medical device projects requiring surgery-grade visualization from sub-millimeter sized devices and 3D endoscopy. 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.
History
We incorporated in Massachusetts in December 1982
and have been publicly-owned since November 1990. References to our Company contained herein include our two wholly-owned
subsidiaries, Precise Medical, Inc. and Wood’s Precision Optics Corporation, Limited, except where the context otherwise
requires. Our website is www.poci.com. Information contained on our website does not constitute part of this report.
Principal Products and Services
Our Current Core Business:
Since
1982, we have manufactured medical products such as endoscopes and endocouplers. We have developed and sold endoscopes incorporating
various optical technologies including our proprietary Lenslock™ technology, for use in a variety of minimally invasive surgical
and diagnostic procedures. Today, we produce endoscopes for various applications, which are CE marked and therefore certified for
sale throughout the European Economic Area. Since 1985, we have developed, manufactured and sold a proprietary product line of
endocouplers. We also design and manufacture custom optical medical devices to satisfy our customers’ specific requirements.
In addition to medical devices, we also manufacture and sell components and assemblies specially designed for industrial and military
use.
Microprecision™ Lenses and Micro
Medical Cameras:
While the size of endoscopes has gradually decreased over time, the widespread use of very small endoscopes,
with diameters of one millimeter or smaller, has been limited, in part, we believe, by the inability of traditional lens fabrication
methods to support these smaller sizes with good image quality and acceptable manufacturing costs. We believe our Microprecision™
optics technology provides a solution to this problem. Combined with recent advances by other companies in complementary metal-oxide-semiconductor,
or CMOS, image sensor fabrication techniques, our Microprecision™ lenses and proprietary manufacturing techniques enable
the manufacture of micro medical cameras at low prices and with sizes on the order of one millimeter or less, characteristics that
make them well suited to medical applications.
In June 2015, we announced a partnership
with OmniVision Technologies, Inc., and Fujikura, Ltd., in which we jointly developed a CMOS based camera module with a diameter
of 1.6 mm and 400 x 400 pixel resolution, representing superior image quality for camera modules of its size. In June 2017, OmniVision
Technologies, Inc. announced our collaboration with them in the development of an even smaller, high-quality optical solution based
on a newly developed OmniVision image sensor integrated with our Microprecsion™ lenses. This solution enables even smaller
diameter endoscopes for use in medical procedures.
We are currently engaged in development
projects with numerous customers to design and produce even smaller CMOS based camera modules together with customized illumination
using various technologies to match the needs of the medical device endoscopes. We are also currently designing disposable versions
of our camera modules and assemblies designed for single-use and reduced risk of contamination from repeated use. We believe these
on-going improvements are significant to the continued evolution and acceptance of our Microprecision™ technology platform.
We have been engaged by various customers
for an increasing amount of development work relating to the design of endoscopes and camera assemblies that utilize our Microprecision™
technology. We have a limited amount of production orders for these designed products, but we believe such orders will increase
in the future as a result of this development work.
3D Endoscopes:
Our 3D endoscopes
provide next generation optical imaging for minimally invasive surgical procedures that utilize hand-held rigid endoscopes by using
the brain’s natural ability to perceive depth, which is the third dimension, by viewing one’s environment through two
eyes. Utilizing our proprietary technology to provide independent images to right and left eyes, surgeons can view the operative
field with 3D perception.
Market Opportunities
Microprecision™ Lenses and Micro
Medical Cameras:
While other approaches exist for the manufacture of camera lenses, we design custom camera module assemblies
with the combined objectives of low cost, small size, range of optical specifications and high image quality desired by our customer’s
device specifications. By enabling the production of millimeter sized and smaller cameras with low manufacturing costs, we believe
our Microprecision™ technology opens the possibility to replace existing re-sterilizable endoscopes with a single-use alternative.
Also, the small size of our Microprecision™ lenses and micro medical cameras combined with our proprietary illumination techniques
can provide visualization for existing procedures that are currently performed blind or with sub-optimal imaging, and we believe
can facilitate the development of new surgical procedures that are currently impractical without sub-millimeter visualization instrumentation.
3D Endoscopes and Robotic Surgery Systems
:
3D endoscopes have been used for many years as part of robotic surgery systems partly because the market price of robotic surgery
systems is high enough to support the cost of a high quality custom 3D display. Competition amongst medical device companies, many
of which are our customers for other products, in the area of 3D robotic surgery systems is increasing, and various companies are
now pursuing less expensive, procedure specific robotic systems. We believe our experience and expertise in 3D endoscopes for medical
applications could be a benefit to various companies in this area that could provide us with new product development and manufacturing
opportunities.
Competition and Markets
We sell our products in a highly competitive
market and we compete for business with both foreign and domestic manufacturers. Many of our current competitors are larger than
us and have substantially greater resources than we do. In addition, there is an ongoing risk that other domestic or foreign companies
who do not currently service or manufacture products for our target markets, some with greater experience in the optics industry
and greater financial resources than we have, may seek to produce products or services that compete directly with ours.
While our resources are substantially more
limited than those of some of our competitors, we believe that we can compete successfully in this market on the basis of product
quality, price, delivery and innovation. Our success will depend, in part, on our ability to maintain a technological advantage
over our competitors. To this end, we intend to continue to aggressively support and augment our internal engineering, research
and development resources and to aggressively pursue patent protection for existing and new technology. We believe that our unique
technical capabilities in the areas of Microprecision™ optics, micro medical cameras and illumination, as well as 3D endoscopes
currently represent competitive advantages for us in the minimally invasive surgical device market.
Sales and Marketing
We market our engineering design and manufacturing
services relating to 3D endoscopes, Microprecision™ optical components and micro medical cameras by leveraging our existing
relationships with major medical device companies – many of whom are current customers. We intend to make our existing and
future technologies available to our customers for use in their current and newly developed minimally invasive surgical products
and to eventually develop and market our own proprietary products, which incorporate these new technologies. In addition to direct
sales channels through our existing customer relationships and referrals, we also develop new sales opportunities through our website,
email mailings and attendance at market specific tradeshows.
International Business
We have had negligible direct export sales
to date. However, our medical products have received the CE mark certification, which permits sales into the European Economic
Area and which benefits our customers as they market their products manufactured by us or containing our sub-assemblies into markets
outside the United States. In the future, we may establish or use additional production facilities overseas to produce key components
for our business, such as lenses. Since the 1990s, we have maintained a presence in Asia to support business and quality control
activities throughout the region as needed. We believe that the cost savings from such overseas production may be essential to
our ability to compete on a price basis in the medical products area particularly and to our profitability generally.
Research and Development
We believe that our future success depends,
to a large degree, on our ability to continue to conceive and develop new optical products and technologies to enhance the performance
characteristics and methods of manufacture of existing and new products. Research and development expenses are incurred on our
own proprietary products and technology, such as Microprecision™ optics, micro medical cameras and 3D endoscopes, as well
as on certain custom projects on behalf of our customers. Accordingly, we expect to continue to seek to obtain product-related
design and development contracts with customers and to invest our own funds in research and development. For the years ended June
30, 2017 and 2016, research and development expenses were $464,162 and $478,267, respectively.
Raw Materials and Principal Suppliers
A key raw material component for our products
is precision grade optical glass, which we obtain from a few suppliers, principally SCHOTT North America, Inc. and Ohara Corporation.
We obtain CMOS sensors used in our development
of endoscope products for our customers from various suppliers including OmniVision Technologies, Inc., and AWAIBA Lda. We believe
that while the number of sources of supply is limited for the CMOS sensors with the specifications used in medical device endoscopes
we develop, the manufacturing capacities of those suppliers is adequate to meet our demand in the next twelve months. Likewise,
a limited number of suppliers provide CMOS electronic cabling services for the smallest sensors, such as FujiKura, Ltd. and NET
USA, Inc., and High Speed Interconnects. However, we believe our demand for these services is relatively small compared to these
companies’ and others’ capacities for CMOS sensor electronic cabling services.
Patents and Trademarks
We rely, in part, upon patents, trade secrets
and proprietary knowledge as well as personnel policies and employee confidentiality agreements concerning inventions and other
creative efforts to develop and maintain our competitive position. We plan to file for patents, copyrights and trademarks in the
United States and in other appropriate countries to protect our intellectual property rights to the greatest extent practicable.
We currently hold rights to various United States patents, and have patent applications pending, including applications for our
new generation of micro medical cameras and 3D endoscopes. Our current patent portfolio includes patents, rights to patents and
patent applications that cover various aspects of our technology in the following areas:
|
—
|
Medical devices:
|
|
—
|
3-D endoscopes:
|
|
—
|
Microprecision™ lenses and micro medical cameras:
|
|
—
|
Military products:
|
The patents contained in our current patent
portfolio have expiration dates ranging from December 2016 to May 2036. We are not aware of any infringements of these patents.
While we believe that our pending applications relate to patentable devices or concepts, these patents may not ultimately be issued
and we may not be able to successfully defend these patents or effectively limit the development of competitive products and services.
In July 2011, we entered into an asset
purchase agreement with Intuitive Surgical Operations, Inc., in which we received $2.5 million in connection with the sale of certain
intellectual property. Pursuant to the agreement, we agreed to assign to Intuitive Surgical all of the issued and non-expired patents
and pending patent applications that we held on the date of the agreement, and in return, Intuitive Surgical agreed to grant to
us a royalty-free, worldwide license to these patents in fields outside of medical robotics.
We intend to continue to innovate and extend
our technological capabilities in the areas of 3-D endoscopy Microprecision™ optics, micro medical cameras, and related illumination
techniques, and to aggressively pursue patent protection for such developments.
Employees
As of June 30, 2017, we had 27 employees,
23 of which were full-time employees. There were 17 employees in manufacturing, 6 in engineering/research and development and 4
in finance and administration. We are not a party to any collective bargaining agreements. We believe our relations with our employees
are very good.
Customers
Revenues from our largest customers, as
a percentage of total revenues, for fiscal years 2017 and 2016 were as follows:
|
|
2017
|
|
|
2016
|
|
Customer A
|
|
|
11
|
|
|
|
4
|
|
Customer B
|
|
|
10
|
|
|
|
7
|
|
Customer C
|
|
|
10
|
|
|
|
16
|
|
Customer D
|
|
|
–
|
|
|
|
12
|
|
All Others
|
|
|
69
|
|
|
|
61
|
|
|
|
|
100%
|
|
|
|
100%
|
|
No other customer accounted for more than
10% of our revenues in fiscal years 2017 and 2016. At June 30, 2017, our five largest customer account receivable balances
were 16%, 15%, 12%, 12% and 11%, respectively, of total accounts receivable. At June 30, 2016, our three largest account receivable
balances were 19%, 13%, and 10% of the total accounts receivable. No other accounts accounted for more than 10% of accounts receivable
at June 30, 2017 or 2016.
Environmental Matters
Our operations are subject to a variety
of federal, state and local laws and regulations relating to the discharge of materials into the environment or otherwise relative
to the protection of the environment. From time to time, we use a small amount of hazardous materials in our operations. We believe
that we currently comply with all applicable environmental laws and regulations and intend to do our best efforts to remain in
compliance.
Government Regulations
Domestic Regulation
. We currently
develop, manufacture and sell several medical products, the marketing of which is subject to governmental regulation in the United
States. Medical devices are regulated in the United States by the Food and Drug Administration, or FDA, and, in some cases, by
certain state agencies. The FDA regulates the research, testing, manufacture, safety, effectiveness, labeling, promotion and distribution
of medical devices in the United States. Generally, medical devices require clearance or approval prior to commercial distribution.
Additionally, certain material changes to, and changes in, intended uses of, medical devices are also subject to FDA review and
clearance or approval. Non-compliance with applicable requirements can result in failure of the FDA to grant pre-market clearance
or approval, withdrawal or suspension of approval, suspension of production, or the imposition of various other penalties.
We previously notified the FDA of our intent
to market our endoscopes, image couplers, beamsplitters, adapters and video ophthalmoscopes, and the FDA has determined that we
may market such devices, subject to the general control provisions of the Food, Drug and Cosmetic Act. We obtained this FDA permission
without the need to undergo a lengthy and expensive approval process due to the FDA’s determination that such devices met
the regulatory standard of being substantially equivalent to existing FDA-approved devices.
In the future, we plan to market additional
medical devices that may require the FDA’s permission to market such products. We may also develop additional products or
seek to sell some of our current or future medical products in a manner that requires us to obtain the permission of the FDA to
market such products, as well as the regulatory approval or license of other federal, state and local agencies or similar agencies
in other countries. The FDA has authority to conduct detailed inspections of manufacturing plants in order to assure that “good
manufacturing practices” are being followed in the manufacture of medical devices, to require periodic reporting of product
defects to the FDA and to prohibit the sale of devices, which do not comply with law.
Foreign Requirements
. Sales of medical
device products outside the United States are subject to foreign regulatory requirements that may vary from country to country.
Our failure to comply with foreign regulatory requirements would jeopardize our ability to market and sell our products in foreign
jurisdictions. The regulatory environment in the European Union member countries of the European Economic Area for medical device
products differs from that in the United States. Medical devices sold in the European Economic Area must bear the Conformité
Européenne, or CE mark. Devices are classified by manufacturers according to the risks they represent, with a classification
of Class III representing the highest risk devices and Class I representing the lowest risk devices. Once a device has
been classified, the manufacturer can follow one of a series of conformity assessment routes, typically through a registered quality
system, and demonstrate compliance to a “European Notified Body.” The CE mark may then be applied to the device. Maintenance
of the system is ensured through annual on-site audits by the notified body and a post-market surveillance system requiring the
manufacturer to submit serious complaints to the appropriate governmental authority. All of our medical products are manufactured
in conformity with the CE mark requirements.
Available Information
Our website is www.poci.com. We make available
on our website, free of charge, copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K and amendments to those reports, as soon as reasonably practicable after we electronically file or furnish such
materials to the U.S. Securities and Exchange Commission, or SEC. Our website and the information contained therein or connected
thereto are not intended to be incorporated into this report.
You may also read and copy any materials
we file with the SEC at the SEC's Public Reference Room, located at 100 F Street, N.E., Washington, DC 20549. Information on the
operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site
that contains reports, proxy and information statements, and other information regarding issuers that file electronically with
the SEC at http://www.sec.gov.
DESCRIPTION OF PROPERTY
We conduct our domestic
operations at three facilities in Gardner, Massachusetts. The main Gardner facility is leased from a corporation owned by Mr. Richard
E. Forkey, who resigned from our board of directors on July 9, 2014. We are currently a tenant-at-will, paying rent of $9,000 per
month. We rent two other smaller Gardner facilities on a month-to-month basis.
We believe these facilities are adequate
for our current operations and are adequately covered by insurance. Significant increases in production or the addition of significant
equipment additions or manufacturing capabilities in connection with the production of our line of endoscopes and other products
may, however, require the acquisition or lease of additional facilities. We may establish production facilities domestically or
overseas to produce key assemblies or components, such as lenses, for our products. Overseas facilities may subject us to the political
and economic risks associated with overseas operations. The loss of or inability to establish or maintain such additional domestic
or overseas facilities could materially adversely affect our competitive position and profitability.
LEGAL PROCEEDINGS
Our Company, on occasion, may also be involved
in other 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.
MARKET PRICE OF AND
DIVIDENDS ON COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our common stock is quoted on OTCQB, the
OTC market tier for companies that report to the SEC, under the symbol PEYE. The following table sets forth the high and low
bid prices for our common stock for each quarter during the last two fiscal years and the first quarter of the current fiscal year
as quoted on OTCQB. Such OTC market quotations reflect inter-dealer prices, without retail markup, markdown or commissions and
may not necessarily represent actual transactions.
|
|
High
|
|
|
Low
|
|
For the Fiscal Year Ended June 30, 2016
|
|
|
|
|
|
|
|
|
First Quarter ended September 30, 2015
|
|
$
|
0.90
|
|
|
$
|
0.40
|
|
Second Quarter ended December 31, 2015
|
|
$
|
1.02
|
|
|
$
|
0.36
|
|
Third Quarter ended March 31, 2016
|
|
$
|
0.66
|
|
|
$
|
0.35
|
|
Fourth Quarter ended June 30, 2016
|
|
$
|
0.56
|
|
|
$
|
0.45
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended June 30, 2017
|
|
|
|
|
|
|
|
|
First Quarter ended September 30, 2016
|
|
$
|
0.70
|
|
|
$
|
0.48
|
|
Second Quarter ended December 31, 2016
|
|
$
|
0.70
|
|
|
$
|
0.46
|
|
Third Quarter ended March 31, 2017
|
|
$
|
0.60
|
|
|
$
|
0.40
|
|
Fourth Quarter ended June 30, 2017
|
|
$
|
0.65
|
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ending June 30, 2018
|
|
|
|
|
|
|
|
|
First Quarter ended September 30, 2017
|
|
$
|
0.62
|
|
|
$
|
0.40
|
|
Second Quarter ending December 31, 2017 (1)
|
|
$
|
0.64
|
|
|
$
|
0.40
|
|
|
(1)
|
Through December 1, 2017.
|
Holders
As of November 20, 2017, we
had approximately 80 holders of record of our common stock. Holders of record include nominees who may hold shares on behalf
of multiple owners.
Dividends
We have not declared any dividends during
the last two fiscal years. At present, we intend to retain our earnings, if any, to finance research and development and the expansion
of our business.
Securities Authorized for Issuance under
Equity Compensation Plans
The following table summarizes information
about our equity compensation plans as of June 30, 2017.
Plan category
|
|
Number of
securities to
be issued upon
exercise of
outstanding
options,
warrants and
rights
|
|
|
Weighted-
average
exercise price
of outstanding
options,
warrants and
rights
|
|
|
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans
(excluding
securities
reflected in
column (a))
|
|
Equity compensation plans approved by security holders
|
|
|
123,798
|
|
|
$
|
0.64
|
|
|
|
–
|
|
Equity compensation plans not approved by security holders
|
|
|
954,602
|
|
|
$
|
0.80
|
|
|
|
870,398
|
|
Total
|
|
|
1,078,400
|
|
|
$
|
0.78
|
|
|
|
870,398
|
|
2006 Equity Incentive Plan
On November 28, 2006, our stockholders
approved the Precision Optics Corporation, Inc. 2006 Equity Incentive Plan, referred to as the 2006 Plan, which succeeded the Precision
Optics Corporation, Inc. Amended and Restated 1997 Equity Incentive Plan, referred to as the 1997 Plan. No further awards have
been or will be granted under the 1997 Plan. The 2006 Plan allowed for the granting of stock options to selected employees, directors
and other persons who provide services to us or our affiliates. No further awards will be granted under the 2006 Plan.
2011 Equity Incentive Plan
The Precision Optics Corporation, Inc.
2011 Equity Incentive Plan, referred to as the 2011 Plan, was adopted by our Board of Directors on October 13, 2011. The 2011 Plan
allows for the granting of stock options to selected employees, directors and other persons who provide services to us or our affiliates.
On April 16, 2015, the Board of Directors
approved an amendment to the 2011 Equity Incentive Plan which increased the maximum number of shares of our common stock that may
be awarded under the Plan from 325,000 to 1,825,000, an increase of 1,500,000 shares. In connection therewith, on April 20, 2015,
we filed a registration statement on Form S-8 to register the 1,500,000 shares of common stock.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis
should be read in conjunction with the Financial Statements and Notes thereto, and other financial information included
elsewhere in this prospectus. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains
descriptions of our expectations regarding future trends affecting our business. The following discussion sets forth
certain factors we believe could cause actual results to differ materially from those contemplated by the forward-looking
statements.
Critical Accounting Policies and Estimates
Our critical accounting policies are included
in the Notes to our Financial Statements contained in our latest Annual Report on Form 10-K.
Results of Operations for the Fiscal
Year Ended June 30, 2017 as Compared to the Fiscal Year Ended June 30, 2016
Total revenues for fiscal year 2017 were
$3,154,547, a decrease of $762,155, or 19.5%, from revenues for fiscal year 2016 of $3,916,702. Revenues decreased during the fiscal
year ended June 30, 2017 in the engineering services category by 4% and in the production category by 28%. Production revenues
decreased due to the loss of a customer’s Microprecision™ technology product, cyclical declines in traditional laryngoscopes
and in the advanced surgical visualization product. These production revenue declines were partially offset by increases in various
traditional coupler products, various Microprecision™ component products and a traditional laparoscope product. Engineering
revenues for the fiscal year ended June 30, 2017 declined primarily due to the transitioning to production of one project and completion
of initial phases of four other customer projects. However, offsetting these engineering revenue declines in the fiscal year ended
June 30, 2017 were revenues from over 30 additional projects during the period. Engineering projects worked on by us during the
fiscal year ended June 30, 2017 have nearly doubled to a total of thirty-eight, compared to the number of engineering projects
worked on during fiscal year 2016, which represents the continued expansion of our sales pipeline and deepening demand for unique
CMOS based optics and the other Microprecision™ capabilities we offer.
Revenues from our largest customers, as
a percentage of total revenues, were as follows:
|
|
Year Ended June 30
|
|
|
|
2017
|
|
|
2016
|
|
Customer A
|
|
|
11%
|
|
|
|
4%
|
|
Customer B
|
|
|
10
|
|
|
|
7
|
|
Customer C
|
|
|
10
|
|
|
|
16
|
|
Customer D
|
|
|
–
|
|
|
|
12
|
|
All Others
|
|
|
69
|
|
|
|
61
|
|
|
|
|
100%
|
|
|
|
100%
|
|
No other customer accounted for more than
10% of our revenues in fiscal years 2017 and 2016.
Gross profit for fiscal year 2017 of $773,724
reflected a decrease of $168,297, or 17.9%, as compared to gross profit for fiscal year 2016 of $942,021. Gross profit, as a percentage
of revenues for fiscal year 2017, was 24.5% as compared to gross profit, as a percentage of revenues for fiscal year 2016, of 24.1%.
The decrease in gross margin dollars in fiscal 2017 was due primarily to a reduction in sales revenue causing unabsorbed fixed
manufacturing expenses. The increase in gross margin percentage realized on lower sales revenue in fiscal year 2017 compared to
fiscal year 2016 reflects increased manufacturing efficiencies on traditional and new technology products as well as increased
utilization and efficiency of engineering services provided to our customers. Our gross profit margins depend on a number of factors,
including overall sales volume, the mix of products sold and services performed and the costs of initial production in connection
with new products, technologies and manufacturing techniques. We believe that as we have gained experience in developing and manufacturing
products based on the new Microprecision™ and CMOS technologies, we have become more efficient in estimating and executing
engineering service contracts and manufacturing activities, causing margins to rise. We also expect that as overall revenues increase
beyond breakeven the absorption of fixed manufacturing costs will also cause gross profit percentages to increase from their current
levels.
Research and development expenses were
$464,162 for fiscal year 2017 as compared to $478,267 for fiscal year 2016. The decrease of $14,105, or 2.9%, in the fiscal year
2017 compared to fiscal year 2016 was due to a reduction of engineering staff and continued high utilization of our engineering
resources in revenue generating activities for our customers. As a result of increases in engineering service revenue, a greater
portion of our fixed engineering cost is included in cost of goods sold.
Selling, general and administrative expenses
decreased by $238,417, or 15.4%, to $1,313,478 for fiscal year 2017 as compared to $1,551,895 for fiscal year 2016. The decrease
in fiscal year ended June 30, 2017, compared to fiscal year 2016, was primarily due to reduced legal, consulting, travel, advertising
and trade show expenses, plus reduced wages, commissions and related employee costs resulting from the retirement of a sales person
in January 2017.
The gain on sale of assets in fiscal years
2017 and 2016 of $1,515 and $32,707, respectively, represents primarily the sale of previously written off assets for proceeds
of $1,515 and $32,707, respectively.
Other income in the amount of $22,050 for
fiscal year 2016 represents non-cash gains equal to the difference between the recorded amount of certain consulting service liabilities
and the value of common stock issued as payment for such liabilities.
The income tax provisions in fiscal years
2017 and 2016 represent the minimum statutory state income tax liability.
Results of Operations for the Quarter
ended September 30, 2017 as Compared to the Quarter ended September 30, 2016
Our total revenues for the quarter ended
September 30, 2017, were $1,028,746, as compared to $849,548 for the same period in the prior year, an increase of $179,198, or
21.1%. Revenues increased during the quarter ended September 30, 2017 compared to the same quarter of the prior year in the engineering
services and production categories by 22% and 20%, respectively. The majority of our revenues are derived from engineering design
and manufacturing services related to products marketed or under development by our OEM customers. Therefore, our revenues are
subject to fluctuations on a product by product basis from period to period. Production revenue during the quarter ended September
30, 2017 when compared to the same quarter of the prior year included a reduction in sales of a traditional product, offset by
a larger increase in sales of optical components to a defense contractor customer. Engineering service revenue during the quarter
ended September 30, 2017 when compared to the same quarter of the prior year included a large reduction of sales to one customer,
which was offset by a larger increase in engineering and design revenues from numerous customers developing new products. We believe
each of these engineering design projects have the potential to generate production revenues when our customers achieve commercialization
of the products currently under design.
Gross profit for the quarter ended September
30, 2017 was $386,742, compared to $167,051 for the same period in the prior year, reflecting an increase of $219,691, or 131.5%.
Gross profit for the quarter ended September 30, 2017 as a percentage of our revenues was 37.6%, an increase from the gross profit
percentage of 19.7% 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, and the costs of engineering services and
initial production in connection with new products. The improvement in our gross profit performance during the quarter ended September
30, 2017 resulted from increased revenues absorbing a higher percentage of fixed manufacturing costs, stable gross margins throughout
all production projects during the quarter ended September 30, 2017, and targeted or better margins on seven different engineering
projects which accounted for 81% of engineering revenue during the same quarter.
Research and development expenses were
$118,427 for the quarter ended September 30, 2017, compared to $116,992 for the same period in the prior year, an increase of $1,435,
or 1.2%. The vast majority of our engineering, research and development activities are consumed in revenue generating engagements
with our customers for the development of their products. In-house research and development and certain internal functions not
directly related to customer engagements are classified as research and development expenses.
Selling, general and administrative expenses
were $296,584 for the quarter ended September 30, 2017, compared to $343,782 for the same period in the prior year, a decrease
of $47,198, or 13.7%. The decrease in the quarter ended September 30, 2017, compared to the same periods in the prior year was
primarily due to reduced stock based compensation expense of $50,819 relating to stock options and stock accrued for consulting
services, plus reduced wages resulting from the retirement of a sales person in January 2017. The expense reductions were partially
offset by a $25,000 increase in the reserve for doubtful accounts receivable relating to one specific customer.
No income tax provision was recorded in
the quarters ended September 30, 2017 and 2016 because of the losses generated in those periods.
Liquidity and Capital Resources
We have sustained recurring net losses
for several years. During the quarters ended September 30, 2017 and 2016, we incurred net losses of $28,785 and $293,408, respectively.
We also incurred net losses of $1,006,457 and $1,034,765 during the fiscal years ended June 30, 2017 and 2016, respectively, and
used cash in operating activities of $667,434 and $876,298 during the same fiscal periods, respectively. As of September 30, 2017,
cash and cash equivalents were $194,714, accounts receivable were $613,961, and current liabilities were $1,096,876. Our working
capital consisted of $730,478 and $479,604 at September 30, 2017 and June 30, 2017, respectively.
We have traditionally funded working capital
needs through product sales, management of working capital components of our business, and by cash received from public and private
offerings of our common stock, warrants to purchase shares of our common stock or convertible notes. We have incurred 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 products have
the potential to generate sales increases to achieve breakeven and profitable results. However, our current financial condition
may raise doubt regarding our ability to continue as a going concern, as referenced by the Report of our Independent Registered
Public Accounting Firm on our financial statements for the year ended June 30, 2017, included in our Annual Report on Form 10-K.
We recognize that the working capital described
above and our cash and accounts receivable as of September 30, 2017 is low considering the level of cash historically used in our
operations at our current sales levels. Our accounts receivable and cash balances are subject to significant fluctuations based
on the timing and amount of customer billings and accounts receivable collections as well as the terms of vendor payment obligations.
If we are unable to increase quarterly sales revenues to near cash breakeven in the next six to nine months, we may be required
to obtain cash for operations from non-working capital sources, which may not be available, in which case we would have to significantly
decrease or cease operations.
The sale of additional equity or convertible
debt securities would result in additional dilution to our current stockholders, and debt financing, if available, may involve
restrictive covenants that could restrict our operations or finances. Financing may not be available in amounts or on terms acceptable
to us, if at all. If we are unable to secure additional capital, we may be required to curtail our research and development initiatives
and take additional measures to reduce costs in order to conserve our cash in amounts sufficient to sustain operations and meet
our obligations.
On November 22, 2016, we closed agreements
with institutional and accredited investors for the sale and purchase of 1,333,334 shares of our common stock at a purchase price
of $0.60 per share. We received $780,000 in gross proceeds from the offering. We are using the net proceeds from this placement
for general working capital purposes.
On August 22, 2017, we entered into agreements
with accredited investors for the sale and purchase of 466,668 shares of our common stock, $0.01 par value at a purchase price
of $0.45 per share. We received $210,001 in gross proceeds from the offering. We intend to use the net proceeds from this placement
for general working capital purposes.
Concurrently with the placement, we entered
into an agreement with an investor for the sale of 88,888 unregistered shares of our common stock for services provided to us at
a price of $0.45 per share.
In connection with the placement, we also
entered into a registration rights agreement with the investors, whereby we are obligated to file a registration statement with
the Securities Exchange Commission on or before 90 calendar days after August 22, 2017 to register the resale by the investors
of 555,556 shares of our common stock purchased in the placement.
Capital equipment expenditures during fiscal
year 2017 and fiscal year 2016 were $27,719 and $4,372, respectively. Capital equipment expenditures during the quarters ended
September 30, 2017 and 2016 were $0 and $3,500, respectively. Future capital equipment expenditures will be dependent upon future
sales and success of on-going research and development efforts.
Contractual cash commitments for the fiscal
years subsequent to June 30, 2017 are summarized as follows:
|
|
Fiscal 2018
|
|
|
Thereafter
|
|
|
Total
|
|
Capital lease for equipment, including interest
|
|
$
|
10,250
|
|
|
$
|
25,626
|
|
|
$
|
35,876
|
|
We have contractual cash commitments
related to open purchase orders as of June 30, 2017 of approximately $206,712. We have contractual cash commitments related
to open purchase orders as of September 30, 2017 of approximately $235,000, including a $29,909 commitment remaining under a
five-year capital lease obligation for the acquisition of equipment (see Note 3. Capital Lease Obligation in our financial statements).
We have no other contractual cash commitments since leased facilities are currently on a month-to-month basis.
Material Trends and Uncertainties
We have sustained recurring net losses
for several years. Until we achieve breakeven and profitable results, we will be required to pursue several options to manage cash
flow and raise capital, including issuing debt or equity or entering into a strategic alliance. If we are unable to secure additional
capital, it may be required to curtail research and development initiatives and take additional measures to reduce costs in order
to conserve cash in amounts sufficient to sustain operations and meet its obligations. If we cannot raise funds on acceptable terms
or achieve positive cash flow, it may not be able to continue to develop new products, grow market share, take advantage of future
opportunities or respond to competitive pressures or unanticipated requirements, any of which could negatively impact our business,
operating results and financial condition, or impact our ability to continue to conduct operations.
While sales of our traditional endoscope
products we manufacture for our customers for the past few years continue, we have many revenue generating engineering development
projects ongoing with existing and new customers that are currently consuming the capacity of our engineering department. These
projects are selected by us as those that have the greatest potential to result in follow-on manufacturing orders as our customers
introduce their products to market.
Our capabilities to design and manufacture
entire endoscope instruments and sub-assemblies, but specifically those utilizing CMOS and our Microprecision™ lens and camera
module technologies, is the basis for our increased level of revenue generating engineering projects. We have developed expertise,
intellectual property, and unique know-how in the area of micro sized camera modules comprising micro optical lens and prism elements,
CMOS sensors, fiber optics, and various forms of illumination that are increasingly in demand with medical device companies. We
believe our capabilities in this area make endoscope products available to our customers in small sizes with high resolution and
at low prices not available in the past. We also believe our technologies and know-how can lead to products meeting these criteria
and they are also designed to be disposable, which is also in demand by medical device companies to mitigate the risks of operating
room cross contamination.
Our future success in capitalizing on the
demand for our design and manufacturing capabilities will be dependent on our ability to raise the necessary amount of cash to
fund our operating losses until profitability is achieved as well as our subsequent revenue growth, to continue to provide engineering
services valued by our customers, and to efficiently manufacture those products when orders are received.
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.
CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no disagreements with our
independent registered public accounting firm in regards to accounting and financial disclosure.
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.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS
Identification of Directors
Set forth below is certain information
with respect to the individuals who are our directors as of October 20, 2017.
Name
|
|
Age
|
|
|
Position(s) or Office(s) Held
|
Joseph N. Forkey
|
|
|
49
|
|
|
Chief Executive Officer, President, Treasurer and Director
|
Andrew J. Miclot
|
|
|
61
|
|
|
Director
|
Richard B. Miles
|
|
|
74
|
|
|
Director
|
Kenneth S. Schwartz
|
|
|
72
|
|
|
Director
|
Peter H. Woodward
|
|
|
44
|
|
|
Chairman of the Board of Directors
|
Board Composition.
Our Board of
Directors is divided into three classes that are as nearly equal in number as possible, with each class serving for a staggered
term of office. Only one class is elected each year. Each director serves a three-year term and until his or her successor has
been duly elected and qualified. Our Board currently consists of five directors. Our Class I directors are Peter H. Woodward and
Kenneth S. Schwartz. Our Class II director is Andrew J. Miclot. Our Class III directors are Joseph N. Forkey and Richard Miles.
Biographies and Qualifications of Our
Directors.
The biographies of our directors and certain information regarding each director’s experience, attributes,
skills and/or qualifications that led to the conclusion that the individual should be serving as a director of our Company are
as follows:
Dr. Joseph N. Forkey
Dr. Joseph N. Forkey, son of Richard E.
Forkey, has served as our Chief Executive Officer, President and Treasurer since February 8, 2011. Dr. Forkey has been a member
of our Board of Directors since 2006. He served as our Chairman of our Board of Directors from February 2011 to July 2014.
He served as our Executive Vice President and Chief Scientific Officer from April 2006 to February 2011, and held the position
of our Chief Scientist from September 2003 to April 2006. Since joining us, he has been involved in general technical and management
activities of our Company, as well as investigations of opportunities that leverage our newly developed technologies. Dr. Forkey
holds B.A. degrees in Mathematics and Physics from Cornell University, and a Ph.D. in Mechanical and Aerospace Engineering from
Princeton University. Prior to joining us, Dr. Forkey spent seven years at the University of Pennsylvania Medical School as a postdoctoral
fellow and research staff member. Dr. Forkey is a valuable member of our Board due to his depth of scientific, operating, strategic,
transactional, and senior management experience in our industry. Additionally, Dr. Forkey has held positions of increasing responsibility
at our Company and holds an intimate knowledge of our Company due to his longevity in the industry and with us.
Andrew Miclot
Mr. Miclot was appointed to our Board on
March 2, 2016. Mr. Miclot has more than 26 years of leadership experience with medical device suppliers and brings substantial
global industry knowledge to our Company. Since October 2015, Mr. Miclot has been the President, CEO and Director of Micro Machine
Co., a supplier of medical products for the orthopedic and spinal industries. Prior to joining Micro Machine Co., from May 2013
to September 2014, Mr. Miclot was Executive Vice President of MicroTechnologies, Inc., a medical device supplier. Mr. Miclot was
General Manager and Senior Vice President of ArthroCare Corporation from June 2009 to March 2013. From January 2008 to March 2009,
Mr. Miclot was President, CEO and Director of Ascension Orthopedics, Inc. He was Vice President of Marketing for the orthopedic
global business unit at Orthofix, Inc. from April 2007 to January 2008, and from March 1994 to April 2007, he served as Senior
Vice President with Symmetry Medical Inc., a medical device supplier. Mr. Miclot has a BA degree in Speech and Hearing and a MA
degree in Audiology from Indiana University and a MBA from the Lake Forest Graduate School of Management, earned in 1991.
Richard B. Miles
Professor Richard B. Miles was appointed
to our Board of Directors in November 2005. He has been a member of the faculty at Princeton University since 1972, and serves
as the Director of the Applied Physics Group in Princeton University’s Mechanical and Aerospace Engineering Department. Professor
Miles is a valuable member of our Board due to his depth of scientific experience and familiarity with the field of our technologies,
insight into the academic community, and familiarity with the latest developments and innovations in science and technology.
Kenneth S. Schwartz
Dr. Schwartz was appointed to our Board
effective July 9, 2014 in connection with the sale and purchase agreement we entered into in July 2014. Dr. Schwartz is currently
the Medical Director at New York Radiology Alliance, a position he has held since October 2010, and the Director of the Radiology
Residency Program at Brookhaven Memorial Hospital Medical Center. He was the founding and managing Partner of S and D Medical LLP,
a 60 person radiology group providing radiology services to eleven hospitals and imaging centers in the New York metropolitan area,
for over ten years until he sold the practice in 2010. He has served on the Board of Directors at ARKS Radiology Management, Inc.
since June 1999 and serves on the Board of Trustees at the Brookhaven Memorial Hospital Medical Center. Dr. Schwartz also served
as the Adjunct Clinical Associate Professor in the Department of Medical Imaging at the New York Institute of Technology in the
College of Osteopathic Medicine from July 2007 to July 2012. Dr. Schwartz earned a BS from Brooklyn College and a Medical Degree
from Albert Einstein College of Medicine. He was a Diagnostic Radiology Resident at North Shore University Hospital in the Memorial
Hospital-Sloan Kettering Cornell Cooperating Program.
Peter H. Woodward
Mr. Woodward was appointed to
our Board effective July 9, 2014 and as chairman of the Board in connection with the sale and purchase agreement we entered
into in July 2014. Mr. Woodward is the founder of MHW Capital Management, LLC, or MHW, a position he has held since
September 2005. MHW specializes in large equity investments in public companies implementing operating strategies to
significantly improve their profitability. From 1996 to 2005, Mr. Woodward was the Managing Director for Regan Fund
Management, LLC. He currently serves as the Director and Special Advisor to the Executive Chairman of Cartesian, Inc. and,
until November 15, 2017, he served as President and Chief Executive Officer of Cartesian. He also currently serves as the
Chairman of the Board and member of the Audit Committee for TSS, Inc. Mr. Woodward holds a BA in economics from Colgate
University and a Masters of International Affairs with a concentration in international economics and finance from Columbia
University. He is also a Chartered Financial Analyst.
Richard E. Forkey
Mr. Richard E. Forkey currently serves
as Founder and Director Emeritus. Effective February 8, 2011, Mr. Forkey resigned as Chief Executive Officer, President and Treasurer
of our Company, and effective July 9, 2014, he resigned as Director. He had served as a Director and Chief Executive Officer since
he founded our Company in 1982.
Identification of Executive Officers
Set forth below is certain information
with respect to the individuals who are our executive officers as of October 20, 2017.
Name
|
|
Age
|
|
Position(s) or Office(s) Held
|
Joseph N. Forkey
|
|
49
|
|
Chief Executive Officer, President, Treasurer and Director
|
Donald A. Major
|
|
56
|
|
Chief Financial Officer and Secretary
|
Biographies and Qualifications of Our
Executive Officers.
The biographies of our executive officers and certain information regarding each officer’s experience,
attributes, skills and/or qualifications that led to the conclusion that the individual should be serving as an executive officer
of our Company are as follows:
Dr. Joseph N. Forkey
For Dr. Forkey’s full biography,
please refer to the section entitled
“Biographies and Qualifications of Our Directors.”
Donald A. Major
Mr. Major served as a member of our Board
from 2005 until June 15, 2016, when he resigned as a Board member and assumed the role of our Chief Financial Officer. From February
2, 2012 until June 15, 2016, Mr. Major also served as our Executive Vice President for Corporate Development. Mr. Major is a Certified
Public Accountant (inactive) and has experience in public accounting and in financial officer positions in publicly held and start-up
medical device companies. Mr. Major has been an independent consultant since October 2007, providing companies with interim management,
turnaround, restructuring and reorganization services as well as sourcing services for a private equity firm and in 2013 co-founded
an Ecommerce retailer of window coverings. From October 2006 to May 2007, he served as Vice President of Corporate Development
of Advanced Duplication Services LLC. From February 2002 to late 2008, Mr. Major served as Vice President and Treasurer of Anderson
Entertainment, LLC (formerly Digital Excellence LLC), which was owned by a private equity firm and sold to Advanced Duplication
Services LLC. Prior to that time, Mr. Major served in various executive financial positions in public and closely held medical
device companies such as Bioplasty, Inc, Uroplasty, Inc., Advanced Bio-Surfaces, Inc. and as an audit manager with Grant Thornton,
Minneapolis. He earned his B.A. in Accounting in 1984 from Michigan State University.
Other Involvement in Certain Legal Proceedings
None of our directors or executive officers
has been involved in any bankruptcy or criminal proceedings, nor have there been any judgments or injunctions brought against any
of our directors or executive officers during the last ten years that we consider material to the evaluation of the ability and
integrity of any director or executive officer.
EXECUTIVE COMPENSATION
Executive Compensation
Summary Executive Compensation
The following table sets forth all compensation
for our fiscal years ended June 30, 2017 and 2016 awarded to, earned by, or paid to our Principal Executive Officer, our most highly
compensated executive officer and our most highly compensated employee, all of which are referred to herein as the “Named
Executive Officers.” No other executive officer earned over $100,000 in the last completed fiscal year.
Summary Executive Compensation Table
for the Fiscal Years Ended June 30, 2017 and 2016
Name and Principal Position
|
|
Year
June 30,
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($) (1)
|
|
|
Option
Awards
($) (2)
|
|
|
All Other Compensation ($)
|
|
|
Total
($)
|
|
Joseph N. Forkey
|
|
|
2017
|
|
|
|
120,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
120,000
|
|
Director,
Chief Executive Officer,
President and Treasurer
|
|
|
2016
|
|
|
|
120,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald A. Major
|
|
|
2017
|
|
|
|
160,183
|
(3)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
160,183
|
|
Chief Financial Officer, Secretary
|
|
|
2016
|
|
|
|
84,235
|
(3)
|
|
|
0
|
|
|
|
21,150
|
(4)
|
|
|
39,200
|
(5)
|
|
|
1,250
|
(6)
|
|
|
145,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard G. Cyr
|
|
|
2017
|
|
|
|
145,000
|
|
|
|
8,127
|
(7)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
153,127
|
|
Optics Laboratory Manager
|
|
|
2016
|
|
|
|
145,000
|
|
|
|
36,537
|
(7)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
181,537
|
|
(1)
|
Represents the aggregate grant date fair value of stock awards granted in the
respective fiscal year as computed in accordance with FASB ASC Topic 718, Compensation — Stock Compensation. The fair
value of each stock award is estimated on the date of grant using the Black-Scholes option valuation model. A discussion of
the assumptions used in calculating the amounts in this column may be found in the Notes to our audited consolidated
financial statements for the year ended June 30, 2017 set forth elsewhere in this prospectus. These amounts
do not represent the actual amounts paid to or realized by the directors during the fiscal year ended June 30, 2017.
|
|
|
(2)
|
Represents the aggregate grant date fair value of stock option awards granted in the
respective fiscal year as computed in accordance with FASB ASC Topic 718, Compensation — Stock Compensation. The fair
value of each stock option award is estimated on the date of grant using the Black-Scholes option valuation model. A
discussion of the assumptions used in calculating the amounts in this column may be found in the Notes to our audited
consolidated financial statements for the year ended June 30, 2017 set forth elsewhere in this prospectus.
These amounts do not represent the actual amounts paid to or realized by the directors during the fiscal year ended June 30,
2017.
|
|
|
(3)
|
Mr. Major was a Director of the Company from 2005 until June 15, 2016 when he resigned as a Director to become our Chief Financial Officer. Since 2012, he has consulted with the Company. Mr. Major’s fiscal 2016 compensation consisted of $84,235 earned as salary compensation for his services as our Executive Vice President for Corporate Development until June 15, 2016, and his fiscal 2017 compensation consisted of $160,183 earned as salary compensation for his services as our Chief Financial Officer beginning June 15, 2016.
|
|
|
(4)
|
On February 18, 2016, we granted Mr. Major 45,000 shares of restricted stock for his services as Executive Vice President of Corporate Development in fiscal year 2016.
|
|
|
(5)
|
On June 15, 2016, we granted Mr. Major an option to purchase 80,000 shares of our common stock as compensation for services rendered to us as Chief Financial Officer. The option expires June 15, 2026 and the exercise price is $0.50 per share. 35,000 of these options vested on December 20, 2016, 10,000 vested on June 20, 2017, and 35,000 will vest on June 20, 2018.
|
|
|
(6)
|
During fiscal year 2016, we paid Mr. Major $1,250 for his services as a member of our board of directors for fiscal year 2016 until his resignation on June 15, 2016.
|
|
|
(7)
|
Represents a performance award for the respective fiscal year.
|
Employment Contracts
We entered into a consulting agreement
with Mr. Major to serve as our Chief Financial Officer from June 15, 2016 to June 30, 2017, with such term to renew automatically
on a month to month basis thereafter unless terminated by either party with 30 days’ notice. Mr. Major receives compensation
at a rate of $6,500 per month to work up to an estimated 40% full-time equivalent per month in his capacity as our Chief Financial
Officer. If Mr. Major works more than the 40% full-time equivalent in any given month, Mr. Major will receive additional compensation,
up to a maximum amount of $16,000 in any given month.
Apart from the agreement above, we have
no employment contracts in place with any Named Executive Officer or any compensatory plan or arrangement with respect to any Named
Executive Officer where such plan or arrangement will result in payments to such Named Executive Officer upon or following his
resignation, or other termination of employment with us and our subsidiaries, or as a result of a change-in-control of our Company
or a change in the Named Executive Officers’ responsibilities following a change-in-control.
Outstanding Equity Awards at Fiscal Year-End Table for the
Fiscal Year Ended June 30, 2017
The following table shows grants of options
outstanding on June 30, 2017, the last day of our fiscal year, to each of the Named Executive Officers named in the Summary Executive
Compensation Table.
Name
|
|
Number of securities
underlying unexercised
options
exercisable
|
|
|
Number of securities
underlying unexercised
options
unexercisable
|
|
|
Option
exercise
price ($)
|
|
|
Option
expiration
date
|
|
Joseph N. Forkey
|
|
|
20,469
|
|
|
|
0
|
|
|
|
0.95
|
|
|
|
09/28/2017
|
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
1.20
|
|
|
|
03/02/2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald A. Major
|
|
|
25,580
|
|
|
|
0
|
|
|
|
0.95
|
|
|
|
09/28/2017
|
|
|
|
|
400
|
|
|
|
0
|
|
|
|
7.75
|
|
|
|
11/27/2017
|
|
|
|
|
400
|
|
|
|
0
|
|
|
|
1.25
|
|
|
|
11/25/2018
|
|
|
|
|
400
|
|
|
|
0
|
|
|
|
1.35
|
|
|
|
11/24/2019
|
|
|
|
|
27,600
|
|
|
|
0
|
|
|
|
1.20
|
|
|
|
03/02/2022
|
|
|
|
|
3,000
|
|
|
|
0
|
|
|
|
0.85
|
|
|
|
01/02/2023
|
|
|
|
|
3,000
|
|
|
|
0
|
|
|
|
0.90
|
|
|
|
01/02/2024
|
|
|
|
|
30,000
|
|
|
|
0
|
|
|
|
0.95
|
|
|
|
07/09/2024
|
|
|
|
|
60,000
|
|
|
|
0
|
|
|
|
0.73
|
|
|
|
05/18/2025
|
|
|
|
|
45,000
|
(1)
|
|
|
35,000
|
(1)
|
|
|
0.50
|
|
|
|
06/20/2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard G. Cyr
|
|
|
40,000
|
|
|
|
0
|
|
|
|
0.27
|
|
|
|
07/14/2021
|
|
|
|
|
5,000
|
(2)
|
|
|
20,000
|
(2)
|
|
|
0.73
|
|
|
|
05/18/2025
|
|
|
(1)
|
The options were granted on June 15, 2016. These options vest in three installments: 35,000 vested on December 20, 2016; 10,000 vested on June 20, 2017; and 35,000 will vest on June 20, 2018.
|
|
|
|
|
(2)
|
The options were granted on May 18, 2015. 5,000 shares vested on August 18, 2015. The remaining 20,000 shares will vest in accordance with the achievement of specified performance criteria.
|
Profit Sharing and 401(k) Plan
We have a
defined contribution 401(k) profit sharing plan. Employer profit sharing and matching contributions to the plan are discretionary.
No employer profit sharing contributions were made to the plan in fiscal years 2017 and 2016. No employer matching contributions
were made to the plan in fiscal years 2017 and 2016.
Director Compensation
The following table sets forth cash amounts
and the value of other compensation paid to our directors, but does not include the compensation of Dr. Joseph N. Forkey, our Chief
Executive Officer, President, and Treasurer, as his compensation is reflected in the Summary Executive Compensation Table. During
the fiscal year ended June 30, 2017, our Board of Directors determined that Dr. Joseph N. Forkey was our employee director and,
therefore, would not earn any fees related to service on our Board.
Director Compensation Table for the
Fiscal Year Ended June 30, 2017
Name of Director
|
|
Fees earned or
paid in cash
($)(1)
|
|
|
Total
($)
|
|
Richard E. Forkey (2)
|
|
|
0
|
|
|
|
0
|
|
Andrew J. Miclot
|
|
|
1,500
|
|
|
|
1,500
|
|
Richard B. Miles
|
|
|
1,500
|
|
|
|
1,500
|
|
Kenneth S. Schwartz
|
|
|
1,500
|
|
|
|
1,500
|
|
Peter H. Woodward
|
|
|
1,500
|
|
|
|
1,500
|
|
(1)
|
Under our director compensation plan, each director receives $250 per board or committee meeting that the director attends. We also reimburse our directors for travel expenses.
|
(2)
|
Mr. Richard E. Forkey served as our Chief Executive Officer until February 8, 2011 and as a Director until July 9, 2014. He currently serves as the Founder and Director Emeritus. He receives no compensation for this position.
|
SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth information
regarding our common stock owned as of the close of business on November 15, 2017 by the following persons: (i) each person who
is known by us to own beneficially more than 5% of our common stock, (ii) each of our directors who beneficially owns our common
stock, (iii) each of our Named Executive Officers who beneficially own our common stock and (iv) all executive officers and directors,
as a group, who beneficially own our common stock. The information on beneficial ownership in the table and footnotes thereto is
based upon data furnished to us by, or on behalf of, the persons listed in the table.
We have determined beneficial ownership
in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe, based on the information furnished
to us, that the persons and entities named in the table below have sole voting and investment power with respect to all shares
of common stock that they beneficially own, subject to applicable community property laws.
In computing the number of shares of common
stock beneficially owned by a person and the percentage ownership of that person, we deemed outstanding shares of common stock
subject to options held by that person or group that are currently exercisable or exercisable within 60 days after November 15,
2017. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person
or group.
Stockholders Known by Us to Own Over
5% of Our Common Stock
|
|
Amount of beneficial ownership (1)
|
|
|
Percent of
|
|
Name and Address of Beneficial Owner
|
|
Shares Owned
|
|
|
Shares –
Rights to
Acquire
|
|
|
Total
Number
|
|
|
Shares
Beneficially
Owned (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hershey Strategic Capital, LP (3)
888 7
th
Ave., 17
th
Floor
New York, New York 10019
|
|
|
986,480
|
|
|
|
0
|
|
|
|
986,480
|
|
|
|
9.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stuart L Sternberg (4)
85 Bellevue Ave
Rye, NY 10580
|
|
|
1,091,355
|
|
|
|
0
|
|
|
|
1,091,355
|
|
|
|
10.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MHW Partners, L.P. (6)
150 East 52
nd
Street
30
th
Fl.
New York, New York 10022
|
|
|
674,013
|
|
|
|
90,000
|
|
|
|
764,013
|
|
|
|
7.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dolphin Offshore Partners LP (7)
4828 First Coast Highway, STE 5
Fernandina, FL 32034
|
|
|
2,070,625
|
|
|
|
0
|
|
|
|
2,070,625
|
|
|
|
20.5%
|
|
(1)
|
Represents shares with respect to which each beneficial owner listed has or will have, upon acquisition of such shares upon exercise or conversion of options, warrants, conversion privileges or other rights exercisable within 60 sixty days, sole voting and investment power. For the purposes of this table, we have not assumed the limitations on exercise set forth in certain warrants, which limit the number of shares of common stock that the holder, together with all other shares of common stock beneficially owned by such person, does not exceed 4.999% of the total outstanding shares of common stock.
|
(2)
|
As of November 15, 2017, there were 10,095,139 shares of our common stock issued and outstanding. Percentages are calculated on the basis of the amount of issued and outstanding common stock plus, for each person or group, any securities that such person or group has the right to acquire within 60 days pursuant to options, warrants, conversion privileges or other rights.
|
|
|
(3)
|
We relied, in part, on the Schedule
13D/A jointly filed by Hershey Strategic Capital, LP, Hershey Management I, LLC and Hershey Strategic Capital GP, LLC on October
10, 2017 and a Form 4 jointly filed by Hershey Strategic Capital, LP, Hershey Management I, LLC and Hershey Strategic Capital GP,
LLC on October 10, 2017.
Hershey Management I, LLC, a
Delaware limited liability company, is the investment advisor of Hershey Strategic Capital, LP, a Delaware limited partnership.
Hershey Strategic Capital GP, LLC, a Delaware limited liability company, is the general partner of Hershey Strategic Capital, LP.
Adam Hershey is the sole managing member of both Hershey Management I, LLC and Hershey Strategic Capital GP, LLC. As the investment
advisor, Hershey Management I, LLC has the voting and dispositive power with respect to all of the shares of common stock owned
by Hershey Strategic Capital, LP. On July 9, 2014, Richard E. Forkey resigned as a director and Hershey Strategic Capital, LP designated
Peter H. Woodward and Dr. Kenneth S. Schwartz to our Board of Directors and such designees were so appointed.
Pursuant to the securities purchase
agreement among us and several investors dated July 1, 2014, Hershey Strategic Capital, LP is entitled to designate two members
of our Board of Directors, one of whom will be Chairman. If either of the directors designated by Hershey Strategic Capital, LP
resigns from the Board of Directors before the third anniversary of the closing date of the transaction reflected in the purchase
agreement, Hershey Strategic Capital, LP has the right to appoint an additional member of our Board of Directors, provided that
funds and accounts managed Hershey Strategic Capital, LP at such time own more than one-half the number of shares purchased by
Hershey Strategic Capital, LP in the transaction.
Hershey Strategic Capital, LP
beneficially owns 986,480 shares of common stock. Hershey Strategic Capital, LP is managed by Adam Hershey, and in such capacity,
Mr. Hershey holds the power to vote and direct the disposition of all shares of common stock owned by Hershey Strategic Capital,
LP. Hershey Management I disclaims beneficial ownership in the shares. However, the aggregate number of shares of common stock
into which such warrants are exercisable, and which Hershey Strategic Capital, LP has the right to acquire beneficial ownership,
is limited to the number of shares of common stock that, together with all other shares of common stock beneficially owned by Hershey
Strategic Capital, LP, does not exceed 4.999% of the total outstanding shares of common stock. Accordingly, such warrants are not
currently exercisable into common stock until the actual shares of common stock held by Hershey Strategic Capital, LP is less than
4.999% of the total outstanding shares of common stock. Hershey Strategic Capital, LP may waive this 4.999% restriction with 61
days’ notice to us.
|
|
|
(4)
|
We relied, in part, on the Schedule
13G and Form 3 jointly filed by Stuart Sternberg on November 25, 2015, and on a Form 4 filed with the SEC on January 26, 2016 by
Stuart Sternberg for this information.
Stuart Sternberg beneficially
owns 1,091,355 shares of common stock, of which 924,688 shares are held in street name.
|
(6)
|
We relied, in part, on a Schedule
13D/A jointly filed with the SEC on November 3, 2015 by MHW Partners, L.P., MHW Capital, LLC, MHW Capital Management, LLC and on
a Form 4 filed with the SEC on October 26, 2015 by Peter H. Woodward for this information.
MHW Partners, L.P. is a Delaware
limited partnership. MHW Capital, LLC is a Delaware limited liability company. MHW Capital Management, LLC is a Delaware limited
liability company. MHW Capital, LLC is the general partner of MHW Partners, L.P. Mr. Woodward is the principal of MHW Capital Management,
LLC and MHW Capital, LLC and in such capacity, Mr. Woodward holds the power to vote and direct the disposition of all shares of
common stock owned by MHW Partners, L.P. MHW Partners, L.P., MHW Capital, LLC, MHW Capital Management, LLC and Mr. Woodward share
the power to vote and direct the disposition of all shares of common stock owned by MHW Partners, L.P. Mr. Woodward is a citizen
of the United States and our current Chairman of our Board of Directors.
MHW Partners, L.P. beneficially
owns 595,680 shares of common stock, and 90,000 shares that may be acquired upon the exercise of outstanding stock options by Mr.
Woodward. The options vested in three installments: one-third vested immediately on the date of grant; one-third vested on May
18, 2016; the remaining one-third vested on May 18, 2017. The options have an exercise price of $0.73 and expire on May 18, 2025.
However, the aggregate number of shares of common stock into which such options are exercisable, and which MHW Partners, L.P. has
the right to acquire beneficial ownership, is limited to the number of shares of common stock that, together with all other shares
of common stock beneficially owned by MHW Partners, L.P., does not exceed 4.999% of the total outstanding shares of common stock.
Accordingly, such warrants and options are not currently exercisable into common stock until the actual shares of common stock
held by MHW Partners, L.P. is less than 4.999% of the total outstanding shares of common stock. MHW Partners, L.P. may waive this
4.999% restriction with 61 days’ notice to us.
|
|
|
(7)
|
We relied, in part, on the Schedule
13D/A filed jointly by Dolphin Offshore Partners, L.P., Dolphin Mgmt. Services, Inc. and Peter E. Salas on October 13, 2017 for
this information.
Dolphin Offshore Partners, L.P.,
a Delaware limited partnership, is an investment manager. Dolphin Mgmt. Services, Inc., a Delaware corporation, is the managing
general partner of Dolphin Offshore Partners, L.P. Peter E. Salas is the President, sole shareholder and controlling person of
Dolphin Mgmt. Services, Inc. Peter Salas is a U.S. citizen.
Dolphin Offshore Partners,
L.P., Dolphin Mgmt. Services, Inc. and Peter E. Salas each may be deemed to beneficially own an aggregate of 2,070,625 shares of
common stock. Dolphin Offshore Partners, L.P., Dolphin Mgmt. Services, Inc. and Peter E. Salas each may be deemed to have shared
power to vote or direct the vote, and dispose or direct the disposition, of all such shares of common stock and warrants. However,
the aggregate number of shares of common stock into which such warrants and options are exercisable, and which MHW Dolphin Offshore
Partners, L.P., Dolphin Mgmt. Services, Inc. and Peter E. Salas have the right to acquire beneficial ownership, is limited to the
number of shares of common stock that, together with all other shares of common stock beneficially owned by Dolphin Offshore Partners,
L.P., Dolphin Mgmt. Services, Inc. and Peter E. Salas, does not exceed 4.999% of the total outstanding shares of common stock.
Accordingly, such warrants and options are not currently exercisable into common stock until the actual shares of common stock
held by Dolphin Offshore Partners, L.P., Dolphin Mgmt. Services, Inc. and Peter E. Salas is less than 4.999% of the total outstanding
shares of common stock. Dolphin Offshore Partners, L.P., Dolphin Mgmt. Services, Inc. and Peter E. Salas may waive this 4.999%
restriction with 61 days’ notice to us.
|
Officers and Directors
|
|
|
|
Amount of beneficial ownership (2)
|
|
Percent of
|
Name and address of beneficial owner (1)
|
|
Nature of beneficial ownership
|
|
Shares
Owned
|
|
Shares – Rights
to Acquire
|
|
Total
Number
|
|
Shares
Beneficially
Owned (3)
|
Joseph N. Forkey (4)
|
|
Chief Executive Officer, President, Treasurer and Director
|
|
33,620
|
|
|
150,000
|
|
|
183,620
|
|
|
1.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard E. Forkey (5)
|
|
Director Emeritus
|
|
200,377
|
|
|
0
|
|
|
200,377
|
|
|
2.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter H. Woodward (6)
|
|
Chairman of the Board of Directors
|
|
674,013
|
|
|
90,000
|
|
|
764,013
|
|
|
7.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard B. Miles (7)
|
|
Director
|
|
15,112
|
|
|
74,800
|
|
|
89,912
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kenneth S. Schwartz (8)
|
|
Director
|
|
14,925
|
|
|
60,000
|
|
|
74,925
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew J. Miclot (9)
|
|
Director
|
|
0
|
|
|
40,000
|
|
|
40,000
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald A. Major (10)
|
|
Chief Financial Officer, Secretary
|
|
125,778
|
|
|
169,800
|
|
|
295,578
|
|
|
2.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard G. Cyr (11)
|
|
Optics Laboratory Manager
|
|
0
|
|
|
45,000
|
|
|
45,000
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All directors and executive officers as a group
|
|
|
|
1,063,825
|
|
|
649,600
|
|
|
1,713,425
|
|
|
16.0%
|
|
* Percentage of shares beneficially owned
does not exceed one percent of issued and outstanding shares of stock.
(1)
|
Unless otherwise stated, the address of each beneficial owners listed on the table is c/o Precision Optics Corporation, Inc., 22 East Broadway, Gardner, MA 01440.
|
|
|
(2)
|
Represents shares with respect to which each beneficial owner listed has or will have, upon acquisition of such shares upon exercise or conversion of options, warrants, conversion privileges or other rights exercisable within 60 sixty days, sole voting and investment power.
|
|
|
(3)
|
As of November 15, 2017, we had 10,095,139 shares of our common stock issued and outstanding. Percentages are calculated on the basis of the amount of issued and outstanding common stock plus, for each person or group, any securities that such person or group has the right to acquire within 60 days of October 20, 2017 pursuant to options, warrants, conversion privileges or other rights.
|
|
|
(4)
|
Dr. Forkey is a member of our Board of Directors and serves as our Chief Executive Officer, President and Treasurer. Dr. Forkey’s beneficial ownership consists of (a) 33,620 shares of common stock held in joint ownership with his wife, Heather Forkey, with whom he shares voting and dispositive control, and (b) 150,000 shares of common stock that may be acquired upon the exercise of outstanding stock options.
|
(5)
|
Mr. Forkey is our Director Emeritus. He served as our Chief Executive Officer until February 8, 2011, and Director until July 9, 2014. Mr. Forkey’s beneficial ownership consists of 200,377 shares of common stock.
|
(6)
|
Mr. Peter Woodward is the Chairman of our Board of Directors. Mr. Woodward is the managing member and general partner of MHW Partners and in such capacity, Mr. Woodward holds the power to vote and direct the disposition of all shares of common stock owned by MHW Partners. On September 28, 2012, MHW Partners purchased 222,223 shares of our common stock, and warrants to purchase up to 168,386 shares of our common stock at an exercise price of $1.11 per share, subject to adjustment and a call provision if certain market price targets are reached, and an expiration date of September 28, 2017. On July 2, 2014, MHW Partners purchased 125,000 shares of common stock. On October 19, 2015, MHW Partners purchased 100,000 shares of common stock. On November 22, 2016, MHW Partners purchased 156,667 shares of common stock, and warrants to purchase 78,333 shares of common stock at an exercise at a variable exercise price subject to our achievement of certain performance criteria. The November 22, 2016 warrants became exercisable on October 2, 2017 at $0.01 per share and expired on October 16, 2017. Mr. Woodward’s beneficial ownership consists of (a) 674,013 shares of common stock held through MHW Partners, L.P., and (b) 90,000 shares of common stock which may be acquired upon the exercise of outstanding stock options.
|
|
|
(7)
|
Mr. Miles is a member of our Board of Directors. Mr. Miles’ beneficial ownership consists of (a) 15,112 shares of common stock, and (b) 74,800 shares of common stock that may be acquired upon the exercise of outstanding stock options.
|
|
|
(8)
|
Mr. Kenneth Schwartz is a member of our Board of Directors. Mr. Schwartz’s beneficial ownership consists of (a) 14,925 shares of common stock, and (b) 60,000 shares that may be acquired upon the exercise of outstanding stock options.
|
|
|
(9)
|
Mr. Andrew Miclot is a member of our Board of Directors. Mr. Miclot’s beneficial ownership consists of 40,000 shares that may be acquired upon the exercise of outstanding stock options.
|
|
|
(10)
|
Mr. Major is our Chief Financial Officer. Mr. Major’s beneficial ownership consists of (a) 125,778 shares of common stock, and (b) 169,800 shares of common stock that may be acquired upon the exercise of outstanding stock options.
|
|
|
(11)
|
Mr. Cyr is our Optics Laboratory Manager and is considered a “named executive officer” as defined in Item 402(a)(3) of Regulation S-K. Mr. Cyr’s beneficial ownership consists of 45,000 shares of common stock that may be acquired upon the exercise of outstanding stock options.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Relationships and Related Transactions
Since the beginning of the last fiscal
year we had the following related party transactions.
Transactions with Officers and Directors
We lease our main facility in Gardner,
Massachusetts from Equity Assets, Inc., a company wholly-owned by Mr. Richard E. Forkey, our Director Emeritus and our
former Director and Chief Executive Officer until July 9, 2014. We are currently a tenant-at-will, paying rent of $9,000 per month,
or an aggregate of $108,000 per year, for each of fiscal years 2017 and 2016.
Sale of Stock in October 2015
On October 19, 2015, we entered into agreements
with accredited investors for the sale and purchase of 1,044,776 shares of our common stock, $0.01 par value at a purchase price
of $0.67 per share. We received $700,000 in gross proceeds from the offering. We used the majority of the net proceeds from this
placement for general working capital purposes.
In conjunction with the 2015 private placement,
we also entered into a registration rights agreement with the investors, and in compliance with the terms of the agreement the
registration statement was filed on January 19, 2016 and became effective on February 1, 2016.
Pursuant to the 2015 private placement,
our director Mr. Schwartz purchased 14,925 shares of our common stock at an aggregate purchase price of $10,000, and our Chairman
of the Board Mr. Woodward, as principal of MHW Partners, L.P., purchased 87,313 shares of our common stock at an aggregate purchase
price of $58,500.
In conjunction with the 2015 private placement,
certain anti-dilution provisions of the warrants issued in conjunction with our September 28, 2012 financing transaction were
triggered. Our Chief Executive Officer, Dr. Forkey, our Chief Financial Officer, Mr. Major, and our director Richard B. Miles
and our Chairman of the Board Mr. Woodward, as principal of MHW Partners, L.P. participated in the 2012 financing and held 2012
warrants. As a result of the 2015 placement, the warrant exercise price decreased from $1.11 to $1.06 and the number of existing
September 28, 2012 warrants increased from 17,519 to 18,346 for Dr. Forkey, from 21,898 to 22,930 for Mr. Major, from 8,760 to
9,173 for Mr. Miles and 175,177 to 183,440 for Mr. Woodward, respectively. The 2012 warrants expired on September 28, 2017.
Sale of Stock in November
2016
On November 22, 2016,
we entered into agreements with accredited investors for the sale and purchase of 1,333,334 units with each unit consisting of
one share of our common stock, $0.01 par value and one warrant to purchase one-half of one share of our common stock, at a purchase
price of $0.60 per unit. We received $780,000 in gross cash proceeds from the offering and settled an outstanding accounts payable
balance with a consultant in the amount of $20,000 by issuing units. We are using the net proceeds from this placement for general
working capital purposes.
In conjunction with the 2016 placement,
we also entered into a registration rights agreement with the investors, and in compliance with the terms of the agreement the
registration statement was filed on February 3, 2017 and became effective on February 24, 2017.
The warrants issued in this offering vested
on October 2, 2017 and expired on October 16, 2017. The warrant exercise price was variable and depended on our achievement of
certain performance criteria. The warrant exercise price was agreed to be $0.40 per share if we achieved both of the revenue and
income performance criteria as defined, the exercise price would be $0.20 per share if we achieved one of the performance criteria,
and the exercise price would be $0.01 if we did not achieve either of the performance criteria. Since we did not achieve either
of the criteria, the exercise price of the warrants was $0.01.
Pursuant to the 2016 private placement,
our Chairman of the Board Mr. Woodward, as principal of MHW Partners, L.P., purchased 156,667 shares of our common stock and 78,333
warrants to purchase common stock at an aggregate purchase price of $94,000. The 78,333 warrants were exercised on October 15,
2017 at a price $0.01 per share.
In conjunction with the 2016 private placement,
certain anti-dilution provisions of the warrants issued in conjunction with our September 28, 2012 financing transaction were
triggered. Our Chief Executive Officer, Dr. Forkey, our Chief Financial Officer, Mr. Major, and our director Richard B. Miles
and our Chairman of the Board Mr. Woodward, as principal of MHW Partners, L.P. participated in the 2012 financing and held 2012
warrants. As a result of the 2016 offering, the warrant exercise price decreased from $1.06 to $0.95 and the number of existing
September 28, 2012 warrants increased from 18,346 to 20,496 for Dr. Forkey, from 22,930 to 25,580 for Mr. Major, from 9,173 to
10,235 for Mr. Miles and 183,440 to 204,680 for Mr. Woodward, respectively. The 2012 warrants expired on September 28, 2017.
Sale of Stock in August 2017
On August 22, 2017, we entered into agreements
with accredited investors for the sale and purchase of 466,668 shares of our common stock, $0.01 par value at a purchase price
of $0.45 per share. We received $210,000 in gross proceeds from the offering. We intend to use the net proceeds from this placement
for general working capital purposes.
Concurrently with the 2017 placement, we
entered into an agreement with an investor for the sale of 88,888 unregistered shares of our common stock for services provided
to us at a price of $0.45 per share.
In conjunction with the 2017 private placement,
certain anti-dilution provisions of the warrants issued in conjunction with our September 28, 2012 financing transaction were triggered.
Our Chief Executive Officer, Dr. Forkey, our Chief Financial Officer, Mr. Major, and our director Richard B. Miles and our Chairman
of the Board Mr. Woodward, as principal of MHW Partners, L.P. participated in the 2012 financing and held 2012 warrants. As a result
of the 2017 offering, the warrant exercise price decreased from $0.95 to $0.89 and the number of existing September 28, 2012 warrants
increased from 20,496 to 21,849 for Dr. Forkey, from 25,580 to 27,304 for Mr. Major, from 10,235 to 10,925 for Mr. Miles and 204,680
to 218,479 for Mr. Woodward, respectively.
Transactions with Stockholders Known
by Us to Own 5% or More of Our Common Stock
Pursuant to the October 2015 placement
described above, Hershey Strategic Capital, L.P. purchased 37,313 shares of our common stock at an aggregate purchase price of
$25,000. At the time of the transaction, Hershey Strategic Capital was a beneficial owner of more than 5% of our outstanding common
stock.
Pursuant to the November 2016 placement
described above, Dolphin Offshore Partners LP purchased 916,667 shares of our common stock and warrants to purchase 458,334 shares
of our common stock at an aggregate purchase price of $550,000, and Hershey Strategic Capital L.P. purchased 125,000 shares of
our common stock and warrants to purchase 62,500 shares of our common stock at an aggregate purchase price of $75,000. Hershey
Strategic Capital L.P. exercised 62,500 warrants and Dolphin offshore Partners LP exercised 458,334 warrants at an exercise price
of $0.01 per share in October 2017. Dolphin Offshore Partners and Hershey Strategic Capital were beneficial owners of more than
5% of our outstanding common stock.
DIRECTOR INDEPENDENCE
During the fiscal year ended June 30,
2017, the Board of Directors determined that Messrs. Richard B. Miles, and Andrew J. Miclot were “independent” as defined
under the standards of independence set forth in the NASDAQ Listing Rules and the rules under the Securities Exchange Act of 1934.
LEGAL MATTERS
Certain legal matters in connection with
the securities will be passed upon for us by the law firm of Trombly Business Law, P.C., 1314 Main Street, Suite 102, Louisville,
CO 80027. Ms. Trombly, the principal of Trombly Business Law, P.C., will not receive a direct or indirect interest in our Company
and has never been a promoter, underwriter, voting trustee, director, officer, or employee of our Company. Nor does Ms. Trombly
have any contingent based agreement with us or any other interest in or connection to us.
EXPERTS
The June 30, 2017 and 2016 financial statements
included in this prospectus have been audited by Stowe & Degon LLC, independent auditors, and have been included in reliance
upon the report of such firm given upon their authority as experts in accounting and auditing. Stowe & Degon LLC, has no direct
or indirect interest in us, nor were they a promoter or underwriter.
DISCLOSURE OF COMMISSION
POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
We have been advised that, in the opinion
of the Securities and Exchange Commission, indemnification for liabilities arising under the Securities Act is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such
liabilities is asserted by one of our directors, officers, or controlling persons in connection with the securities being registered,
we will, unless in the opinion of our legal counsel the matter has been settled by controlling precedent, submit the question of
whether such indemnification is against public policy to a court of appropriate jurisdiction. We will then be governed by the court’s
decision.
Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the registrant pursuant
to the foregoing provisions, the registrant has been informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is therefore unenforceable.
FINANCIAL STATEMENTS
Index
to Financial Statements
Report of Independent Registered Public Accounting
Firm
To the Board of Directors and Shareholders of Precision Optics Corporation,
Inc.:
We have audited the accompanying consolidated
balance sheets of Precision Optics Corporation, Inc. and subsidiaries (the Company) as of June 30, 2017 and 2016 and
the related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its internal controls over financial reporting. An audit includes
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the consolidated financial position of Precision Optics
Corporation, Inc. and subsidiaries as of June 30, 2017 and 2016 and the results of their operations and their cash flows
for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated
financial statements, the Company has suffered recurring net losses and negative cash flows from operations, which raises substantial
doubt about its ability to continue as a going concern. Management’s plans concerning these matters are described in Note 1.
The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Stowe & Degon LLC
Westborough, Massachusetts
September 28, 2017
PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets at June 30, 2017 and 2016
|
|
2017
|
|
|
2016
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
118,405
|
|
|
$
|
50,059
|
|
Accounts receivable (net of allowance for doubtful accounts of $5,000 at June 30, 2017 and $23,377 at June 30, 2016)
|
|
|
468,548
|
|
|
|
750,380
|
|
Inventories
|
|
|
1,055,447
|
|
|
|
1,133,451
|
|
Prepaid expenses
|
|
|
55,985
|
|
|
|
88,129
|
|
Total current assets
|
|
|
1,698,385
|
|
|
|
2,022,019
|
|
Fixed Assets:
|
|
|
|
|
|
|
|
|
Machinery and equipment
|
|
|
2,507,190
|
|
|
|
2,479,471
|
|
Leasehold improvements
|
|
|
553,596
|
|
|
|
553,596
|
|
Furniture and fixtures
|
|
|
148,303
|
|
|
|
148,303
|
|
Vehicles
|
|
|
–
|
|
|
|
19,674
|
|
|
|
|
3,209,089
|
|
|
|
3,201,044
|
|
Less—Accumulated depreciation and amortization
|
|
|
3,136,835
|
|
|
|
3,122,849
|
|
Net fixed assets
|
|
|
72,254
|
|
|
|
78,195
|
|
Patents, net
|
|
|
30,086
|
|
|
|
22,874
|
|
|
|
$
|
1,800,725
|
|
|
$
|
2,123,088
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Current portion of capital lease obligation
|
|
$
|
8,391
|
|
|
$
|
7,857
|
|
Accounts payable
|
|
|
694,958
|
|
|
|
1,151,561
|
|
Customer advances
|
|
|
180,137
|
|
|
|
–
|
|
Accrued employee compensation
|
|
|
189,783
|
|
|
|
238,381
|
|
Accrued professional services
|
|
|
71,000
|
|
|
|
65,550
|
|
Accrued warranty expense
|
|
|
25,000
|
|
|
|
25,000
|
|
Other accrued liabilities
|
|
|
49,512
|
|
|
|
15,612
|
|
Total current liabilities
|
|
|
1,218,781
|
|
|
|
1,503,961
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligation, net of current portion
|
|
|
23,564
|
|
|
|
31,955
|
|
Commitments (Note 2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value: 50,000,000 shares authorized; issued and outstanding – 8,872,916 shares at June 30, 2017 and 7,539,582 shares at June 30, 2016
|
|
|
88,729
|
|
|
|
75,396
|
|
Additional paid-in capital
|
|
|
45,140,383
|
|
|
|
44,176,051
|
|
Accumulated deficit
|
|
|
(44,670,732
|
)
|
|
|
(43,664,275
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
558,380
|
|
|
|
587,172
|
|
|
|
$
|
1,800,725
|
|
|
$
|
2,123,088
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
for the Years Ended June 30, 2017 and 2016
|
|
2017
|
|
|
2016
|
|
Revenues
|
|
$
|
3,154,547
|
|
|
$
|
3,916,702
|
|
Cost of goods sold
|
|
|
2,380,823
|
|
|
|
2,974,681
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
773,724
|
|
|
|
942,021
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses, net
|
|
|
464,162
|
|
|
|
478,267
|
|
Selling, general and administrative expenses
|
|
|
1,313,478
|
|
|
|
1,551,895
|
|
Gain on sale of assets
|
|
|
(1,515
|
)
|
|
|
(32,707
|
)
|
Total operating expenses
|
|
|
1,776,125
|
|
|
|
1,997,455
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(1,002,401
|
)
|
|
|
(1,055,434
|
)
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(3,144
|
)
|
|
|
(469
|
)
|
Other income
|
|
|
–
|
|
|
|
22,050
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
|
(1,005,545
|
)
|
|
|
(1,033,853
|
)
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
912
|
|
|
|
912
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,006,457
|
)
|
|
$
|
(1,034,765
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.12
|
)
|
|
$
|
(0.15
|
)
|
Diluted
|
|
$
|
(0.12
|
)
|
|
$
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
8,343,235
|
|
|
|
7,157,978
|
|
Diluted
|
|
|
8,343,235
|
|
|
|
7,157,978
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
for the Years Ended June 30, 2017 and 2016
|
|
Number
of
Shares
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Accumulated
Deficit
|
|
|
Total
Stockholders’
Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, July 1, 2015
|
|
|
6,389,806
|
|
|
$
|
63,898
|
|
|
$
|
43,232,500
|
|
|
$
|
(42,629,510
|
)
|
|
$
|
666,888
|
|
Proceeds from private placement of common stock, net of issuance costs of $34,639
|
|
|
1,044,776
|
|
|
|
10,448
|
|
|
|
654,913
|
|
|
|
–
|
|
|
|
665,361
|
|
Common stock issued for services rendered to the Company
|
|
|
105,000
|
|
|
|
1,050
|
|
|
|
47,250
|
|
|
|
–
|
|
|
|
48,300
|
|
Stock-based compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
241,388
|
|
|
|
–
|
|
|
|
241,388
|
|
Net loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(1,034,765
|
)
|
|
|
(1,034,765
|
)
|
Balance, June 30, 2016
|
|
|
7,539,582
|
|
|
$
|
75,396
|
|
|
$
|
44,176,051
|
|
|
$
|
(43,664,275
|
)
|
|
$
|
587,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from private placement of common stock, net of issuance costs of $23,947
|
|
|
1,333,334
|
|
|
|
13,333
|
|
|
|
762,720
|
|
|
|
–
|
|
|
|
776,053
|
|
Stock-based compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
201,612
|
|
|
|
–
|
|
|
|
201,612
|
|
Net loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(1,006,457
|
)
|
|
|
(1,006,457
|
)
|
Balance, June 30, 2017
|
|
|
8,872,916
|
|
|
$
|
88,729
|
|
|
$
|
45,140,383
|
|
|
$
|
(44,670,732
|
)
|
|
$
|
558,380
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows for the
Years Ended June 30, 2017 and 2016
|
|
2017
|
|
|
2016
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,006,457
|
)
|
|
$
|
(1,034,765
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities-
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
33,660
|
|
|
|
25,856
|
|
Gain on sale of assets
|
|
|
(1,515
|
)
|
|
|
(32,707
|
)
|
Stock-based compensation expense
|
|
|
201,612
|
|
|
|
241,388
|
|
Non-cash consulting expense
|
|
|
33,900
|
|
|
|
63,000
|
|
Non-cash gain on settlement of liabilities by issuing common stock
|
|
|
–
|
|
|
|
(22,050
|
)
|
Changes in operating assets and liabilities-
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
281,832
|
|
|
|
(162,338
|
)
|
Inventories
|
|
|
78,004
|
|
|
|
(60,195
|
)
|
Prepaid expenses
|
|
|
32,144
|
|
|
|
(22,947
|
)
|
Accounts payable
|
|
|
(457,603
|
)
|
|
|
261,461
|
|
Customer advances
|
|
|
180,137
|
|
|
|
(118,800
|
)
|
Accrued expenses
|
|
|
(43,148
|
)
|
|
|
(14,201
|
)
|
Net cash used in operating activities
|
|
|
(667,434
|
)
|
|
|
(876,298
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from sale of assets
|
|
|
1,515
|
|
|
|
32,707
|
|
Additional patent costs
|
|
|
(7,212
|
)
|
|
|
(4,230
|
)
|
Purchases of fixed assets
|
|
|
(27,719
|
)
|
|
|
(4,372
|
)
|
Net cash provided by (used in) investing activities
|
|
|
(33,416
|
)
|
|
|
24,105
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Payment of capital lease obligation
|
|
|
(7,857
|
)
|
|
|
(4,160
|
)
|
Proceeds from private placements of common stock
|
|
|
780,000
|
|
|
|
700,000
|
|
Private placement expenses incurred and paid as of June 30, 2017 and 2016
|
|
|
(2,947
|
)
|
|
|
(34,639
|
)
|
Net cash provided by financing activities
|
|
|
769,196
|
|
|
|
661,201
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
68,346
|
|
|
|
(190,992
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
50,059
|
|
|
|
241,051
|
|
Cash and cash equivalents, end of year
|
|
$
|
118,405
|
|
|
$
|
50,059
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during the year for income taxes
|
|
$
|
912
|
|
|
$
|
912
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Issuance of common stock to consultants
|
|
$
|
–
|
|
|
$
|
48,300
|
|
Private placement expenses incurred but not yet paid
|
|
$
|
21,000
|
|
|
$
|
37,781
|
|
Issuance of common stock in settlement of accounts payable
|
|
$
|
20,000
|
|
|
$
|
–
|
|
Capital expenditures funded by capital lease borrowings
|
|
$
|
–
|
|
|
$
|
43,972
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1)
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
(a)
|
Nature of Business and Liquidity
|
Precision Optics Corporation, Inc. (the “Company”)
designs, develops, manufactures and sells specialized optical and illumination systems and related components. The Company conducts
business in one industry segment only and its customers are primarily domestic. The Company performs advanced optical and illumination
system design, development, assembly and manufacturing services for products that fall into two principal areas: (i) medical products
for use by hospitals and physicians; and (ii) products used by military and industrial customers.
The Company has sustained recurring net losses
for several years. During the year ended June 30, 2017, the Company incurred a net loss of $1,006,457 and used cash in operating
activities of $667,434. As of June 30, 2017, cash and cash equivalents were $118,405, accounts receivable were $468,548, and current
liabilities were $1,218,781. As of June 30, 2016, cash and cash equivalents were $50,059, accounts receivable were $750,380, and
current liabilities were $1,503,961. The accompanying consolidated financial statements have been prepared assuming that the Company
will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal
course of business. The financial statements do not include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to
continue as a going concern. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
Until the Company achieves breakeven and profitable
results, the Company will be required to pursue several options to manage cash flow and raise capital, including issuing debt or
equity or entering into a strategic alliance. The sale of additional equity or convertible debt securities, if converted into common
stock, would result in additional dilution to the Company’s current stockholders, and debt financing, if available, may involve
restrictive covenants that could restrict our operations or finances and encumber the Company’s assets. Financing may not
be available in amounts or on terms acceptable to the Company, if at all. If the Company is unable to secure additional capital,
it may be required to curtail our research and development initiatives and take additional measures to reduce costs in order to
conserve our cash in amounts sufficient to sustain operations and meet our obligations. If the Company cannot raise funds on acceptable
terms or achieve positive cash flow, it may not be able to continue to develop new products, grow market share, take advantage
of future opportunities or respond to competitive pressures or unanticipated requirements, any of which could negatively impact
the Company’s business, operating results and financial condition, or impact the Company’s ability to continue to conduct
operations.
(b)
|
Principles of Consolidation
|
The accompanying consolidated financial statements
include the accounts of the Company and its two wholly-owned subsidiaries. All inter-company accounts and transactions have been
eliminated in consolidation.
The Company recognizes revenue when four basic
criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the price
to the buyer is fixed and determinable; and (4) collectability is reasonably assured. The Company’s shipping terms are customarily
FOB shipping point.
The sales price of products and services sold
is fixed and determinable after receipt and acceptance of a customer’s purchase order or properly executed sales contract,
typically before any work is performed. Management reviews each customer purchase order or sales contract to determine that the
work to be performed is specified and there are no unusual terms and conditions that would raise questions as to whether the sales
price is fixed or determinable. The Company assesses credit worthiness of customers based upon prior history with the customer
and assessment of financial condition. Accounts receivable are stated at the amount management expects to collect from outstanding
balances. An allowance for doubtful accounts is provided for that portion of accounts receivable considered to be uncollectible,
based upon historical experience and management’s evaluation of outstanding accounts receivable at the end of the year. Bad
debts are written off against the allowance when identified.
The Company’s revenue transactions typically
do not contain multiple deliverable elements for future performance obligations to customers, other than a standard one-year warranty
on materials and workmanship, the estimated costs for which are provided for at the time revenue is recognized.
Revenues for industrial and medical products
sold in the normal course of business are recognized upon shipment when delivery terms are FOB shipping point and all other revenue
recognition criteria have been met. Gross shipping charges reimbursable from customers, to deliver product, are insignificant and
are included in the “Revenues” section of the Company’s consolidated statement of operations, while shipping
costs are classified in the “selling, general and administrative expenses” section of the Company’s consolidated
statement of operations.
(d)
|
Cash and Cash Equivalents
|
The Company includes in cash equivalents all
highly liquid investments with original maturities of three months or less at the time of acquisition. Cash and cash equivalents
of $118,405 and $50,059 at June 30, 2017 and 2016, respectively, consist primarily of cash at banks and money market funds. The
Company maintains its cash and cash equivalents in bank deposit accounts that, at times, may exceed federally insured limits. The
Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk
on its cash and cash equivalents.
Inventories are stated at the lower of cost
(first-in, first-out) or market and include material, labor and manufacturing overhead. The components of inventories at June 30,
2017 and 2016 are as follows:
|
|
2017
|
|
|
2016
|
|
Raw material
|
|
$
|
501,346
|
|
|
$
|
520,490
|
|
Work-in-progress
|
|
|
388,614
|
|
|
|
383,889
|
|
Finished goods
|
|
|
165,487
|
|
|
|
229,072
|
|
|
|
$
|
1,055,447
|
|
|
$
|
1,133,451
|
|
The Company provides for estimated obsolescence
on unmarketable inventory based upon assumptions about future demand and market conditions. If actual demand and market conditions
are less favorable than those projected by management, additional inventory write-downs may be required. Inventory, once written
down, is not subsequently written back up, as these adjustments are considered permanent adjustments to the carrying value of the
inventory.
(f)
|
Property and Equipment
|
Property and equipment are recorded at cost.
Maintenance and repair items are expensed as incurred. The Company provides for depreciation and amortization by charges to operations,
using the straight-line and declining-balance methods, which allocate the cost of property and equipment over the following estimated
useful lives:
Asset Classification
|
|
Estimated Useful Life
|
Machinery and equipment
|
|
2-7 years
|
Leasehold improvements
|
|
Shorter of lease term or estimated useful life
|
Furniture and fixtures
|
|
5 years
|
Vehicles
|
|
3 years
|
Depreciation expense was $33,660 and $25,856
for the years ended June 30, 2017 and 2016, respectively.
(g)
|
Significant Customers and Concentration of Credit Risk
|
Financial instruments that subject the Company
to credit risk consist primarily of cash equivalents and trade accounts receivable. The Company places its investments with highly
rated financial institutions. The Company has not experienced any losses on these investments to date. At June 30, 2017, the
Company’s five largest customer account receivable balances were 16%, 15%, 12%, 12% and 11%, respectively, of total accounts
receivable. At June 30, 2016, receivables from the Company’s three largest customers were 19%, 13% and 10%, respectively,
of the total accounts receivable. No other customer accounted for more than 10% of the Company’s receivables as of June 30,
2017 and 2016. The Company has not experienced any material losses related to accounts receivable from individual customers. The
Company generally does not require collateral or other security as a condition of sale, rather it relies on credit approval, balance
limitation and monitoring procedures to control credit risk of trade account financial instruments. Management believes that allowances
for doubtful accounts, which are established based upon review of specific account balances and historical experience, are adequate.
Revenues from the Company’s largest customers,
as a percentage of total revenues, were as follows:
|
|
2017
|
|
|
2016
|
|
Customer A
|
|
|
11%
|
|
|
|
4%
|
|
Customer B
|
|
|
10
|
|
|
|
7
|
|
Customer C
|
|
|
10
|
|
|
|
16
|
|
Customer D
|
|
|
–
|
|
|
|
12
|
|
All Others
|
|
|
69
|
|
|
|
61
|
|
|
|
|
100%
|
|
|
|
100%
|
|
No other customer accounted for more than 10%
of the Company’s revenues in fiscal years 2017 and 2016.
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 or net 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
and warrants. For the year ended June 30, 2017 and 2016, the effect of such securities was antidilutive and not included in the
diluted calculation because of the net loss generated in those periods.
The following is the calculation of loss per
share for the years ended June 30, 2017 and 2016:
|
|
Year Ended June 30
|
|
|
|
2017
|
|
|
2016
|
|
Net Loss– Basic and Diluted
|
|
$
|
(1,006,457
|
)
|
|
$
|
(1,034,765
|
)
|
|
|
|
|
|
|
|
|
|
Basic Weighted Average Shares Outstanding
|
|
|
8,343,235
|
|
|
|
7,157,978
|
|
Potentially Dilutive Securities
|
|
|
–
|
|
|
|
–
|
|
Diluted Weighted Average Shares Outstanding
|
|
|
8,343,235
|
|
|
|
7,157,978
|
|
|
|
|
|
|
|
|
|
|
Loss Per Share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.12
|
)
|
|
$
|
(0.15
|
)
|
Diluted
|
|
$
|
(0.12
|
)
|
|
$
|
(0.15
|
)
|
The number of shares issuable upon the exercise
of outstanding stock options and warrants that were excluded from the computation as their effect was antidilutive was approximately
4,553,213 and 4,169,000 for the years ended June 30, 2017 and 2016, respectively.
(i)
|
Stock-Based Compensation
|
The measurement and recognition of compensation
costs for all stock-based awards made to employees and the Board of Directors are based upon fair value over the requisite service
period for awards expected to vest. The Company estimates the fair value of share-based awards on the date of grant using the Black-Scholes
option-pricing model. Stock-based compensation costs recognized for the years ended June 30, 2017 and 2016 amounted to $201,612
and $241,388, respectively.
Patent costs are amortized using the straight-line
method over the shorter of their legal or estimated useful lives, generally five to ten years. Amortization expense was $0 for
the years ended June 30, 2017 and 2016, respectively.
In July 2011, the Company assigned all of its
currently issued and pending patents, as well as new inventions that it conceived before July 28, 2012, to Intuitive Surgical Operations,
Inc. The Company retained a royalty-free, worldwide license to these patents in fields outside of medical robotics.
(k)
|
Fair Value of Financial Instruments
|
Financial instruments consist principally of
cash and cash equivalents, accounts receivable and accounts payable. The estimated fair value of these financial instruments approximates
their carrying value due to their short-term nature.
Long-lived assets and certain identifiable
intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset
to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
The Company does not incur future performance
obligations in the normal course of business other than providing a standard one-year warranty on materials and workmanship to
its customers (except in certain unusual and infrequently occurring situations where extended warranty terms beyond one year are
negotiated with the customer). The Company provides for estimated warranty costs at the time product revenue is recognized. Warranty
costs have been included as a component of cost of goods sold in the accompanying consolidated statements of operations. The following
tables summarize warranty reserve activity for the years ended June 30, 2017 and 2016:
|
|
2017
|
|
|
2016
|
|
Balance at beginning of period
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
Provision for warranty claims
|
|
|
14,842
|
|
|
|
4,189
|
|
Warranty claims incurred
|
|
|
(14,842
|
)
|
|
|
(4,189
|
)
|
Balance at end of period
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
(n)
|
Research and Development
|
Research and development expenses are charged
to operations as incurred. The Company groups development and prototype costs and related reimbursements in research and development.
There were no reimbursements for research and development recorded in research and development for the years ended June 30, 2017
and 2016.
Comprehensive income or loss is defined as
the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owners
sources. The Company’s comprehensive loss or income for the years ended June 30, 2017 and 2016 was equal to its net loss
for the same periods.
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 carry-forwards. 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.
Operating segments are identified as components
of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision
maker, or decision-making group, in making decisions about how to allocate resources and assess performance. The Company’s
chief decision-maker is its Chief Executive Officer. To date, the Company has viewed its operations and manages its business as
principally one segment. For all periods presented, over 90% of the Company’s sales have been to customers in the United
States.
The preparation of financial statements in
conformity with accounting standards generally accepted in the United States requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates.
(s)
|
Recent Accounting Pronouncements
|
In July 2015, the Financial Accounting Standards
Board ("FASB") issued new accounting guidance for measuring inventory. The core principal of the guidance is that
an entity should measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling
prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This
guidance does not apply to inventory that is being measured using the Last-In, First-Out (LIFO) or the retail inventory method.
The guidance is effective for financial statements issued for annual and interim periods beginning after December 15, 2016 on a
prospective basis. Early adoption is permitted. The Company is currently evaluating the impact this will have on the
consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09,
“Revenue from Contracts with Customers” (“ASU 2014-09”). ASU 2014-09 provides a single, comprehensive accounting
model for revenues arising from contracts with customers that supersedes most of the existing revenue recognition guidance, including
industry-specific guidance. Under this model, revenue is recognized at an amount that an entity expects to be entitled to upon
transferring control of goods or services to a customer, as opposed to when risks and rewards transfer to a customer under existing
revenue recognition guidance. ASU 201-09 is effective for the Company beginning in its fiscal year 2018, and may be applied retrospectively
to all prior periods presented or through a cumulative adjustment to the opening retained earnings balance in the year of adoption.
The Company is currently in the process of evaluating the impact of ASU 2014-09 on its consolidated financial statements.
(a)
|
Related Party Transactions
|
The Company leases its main Gardner facility
from a corporation owned by Mr. Richard E. Forkey, who resigned from the Company’s board of directors on July 9, 2014. The
Company is currently a tenant-at-will, paying rent of $9,000 per month. Total rent expense paid or accrued to such related party
was $108,000 in each of fiscal years 2017 and 2016, and is included in the Company’s accompanying consolidated statements
of operations.
On November 22, 2016, the Company entered into
agreements with accredited investors for the sale and purchase of 1,333,334 units with each unit consisting of one share of the
Company’s common stock, $0.01 par value and one warrant to purchase one-half of one share of the Company’s common stock,
at a purchase price of $0.60 per unit. The Company received $780,000 in gross cash proceeds from the offering and settled an outstanding
accounts payable balance with a consultant in the amount of $20,000 by issuing units. The Company is using the net proceeds from
this placement for general working capital purposes.
The warrants issued in this offering will vest
on October 2, 2017 and expire on October 16, 2017. The warrant exercise price is variable and depends on the Company’s achievement
of certain performance criteria. The warrant exercise price was agreed to be $0.40 per share if the Company achieved both of the
revenue and income performance criteria as defined, the exercise price would be $0.20 per share if the Company achieves one of
the performance criteria, and the exercise price would be $0.01 if the Company did not achieve either of the performance criteria.
Since the Company did not achieve either of the criteria, the exercise price of the warrants is $0.01.
In conjunction with the offering, the Company
also entered into a registration rights agreement with the investors, whereby the Company was obligated to file a registration
statement with the Securities Exchange Commission on or before 90 calendar days after November 22, 2016 to register the resale
by the investors of the 1,333,334 shares and warrant shares purchased in the offering. The registration statement was filed with
the Securities and Exchange Commission on February 3, 2017 and became effective on March 2, 2017.
Pursuant to the above transaction, the Company’s
Chairman of the Board Mr. Woodward, as principal of MHW Partners, L.P., purchased 156,667 units at an aggregate purchase price
of $94,000.
On October 19, 2015, the Company entered into
agreements with accredited investors for the sale and purchase of 1,044,776 shares of the Company’s common stock, $0.01 par
value at a purchase price of $0.67 per share. The Company received $700,000 in gross proceeds from the offering. The Company used
the net proceeds from this placement for general working capital purposes.
In conjunction with the placement, the Company
also entered into a registration rights agreement with the investors, whereby it was obligated to file a registration statement
with the Securities Exchange Commission on or before 90 calendar days after October 19, 2015 to register the resale by the investors
of the 1,044,776 shares of common stock purchased in the placement. The registration statement was filed with the Securities Exchange
Commission on January 19, 2016 and became effective on February 1, 2016.
Pursuant to the above transaction, the Company’s
director Mr. Schwartz purchased 14,925 shares of common stock at an aggregate purchase price of $10,000, and the Chairman of the
Board Mr. Woodward, as principal of MHW Partners, L.P., purchased 87,313 shares of common stock at an aggregate purchase price
of $58,500.
Transactions with Stockholders Known by
the Company to Own 5% or More of the Company’s Common Stock
Pursuant to the November 2016 placement described
above, Dolphin Offshore Partners L.P. and Hershey Strategic Capital, L.P. purchased 916,667 and 125,000, respectively, at aggregate
purchase prices of $550,000 and $75,000, respectively. At the time of the transaction, both Dolphin Offshore Partners L.P. and
Hershey Strategic Capital, L.P. were beneficial owners of more than 5% of outstanding common stock.
Pursuant to the October 2015 placement described
above, Hershey Strategic Capital, L.P. purchased 37,313 shares of common stock at an aggregate purchase price of $25,000. At the
time of the transaction, Hershey Strategic Capital was a beneficial owner of more than 5% of outstanding common stock.
(b)
|
Capital Lease Obligation
|
The Company entered into a five-year capital
lease obligation in January 2016 for the acquisition of manufacturing equipment with payments totaling $51,252. At June 30, 2017,
future minimum lease payments under the capital lease obligation are as follows:
Fiscal Year Ending June 30:
|
|
Amount
|
|
2018
|
|
$
|
10,250
|
|
2019
|
|
|
10,250
|
|
2020
|
|
|
10,250
|
|
2021
|
|
|
5,126
|
|
Total minimum payments
|
|
|
35,876
|
|
Less: amount representing interest
|
|
|
3,921
|
|
Present value of minimum lease payments
|
|
|
31,955
|
|
Less: current portion
|
|
|
8,391
|
|
|
|
$
|
23,564
|
|
The net book value of assets held under capital leases is $30,780
at June 30, 2017.
(c)
|
Operating Lease Commitments
|
The Company’s operating leases for its
office space and equipment expired at various dates during fiscal year 2017 and the Company is continuing those rents on a month
to month tenant at will basis. Rent expense on operating leases, excluding the related party rent described above, was $54,912
and $52,168 for the years ended June 30, 2017 and 2016, respectively.
Stock-based compensation costs recognized during
the year ended June 30, 2017 and 2016 amounted to $201,612 and $241,388 respectively, and were included in the accompanying consolidated
statements of operations in: selling, general and administrative expenses (2017 — $134,984; 2016 — $123,370), cost
of goods sold (2017 — $34,676; 2016 — $60,680), and research and development expenses, net (2017 — $31,952; 2016
— $57,338). No compensation has been capitalized because such amounts would have been immaterial. There was no net income
tax benefit recognized related to such compensation for the years ended June 30, 2017 or 2016, as the Company is currently in a
loss position. There were 15,000 stock options granted during the year ended June 30, 2017 and 160,000 stock options granted during
the year ended June 30, 2016.
As of June 30, 2017, the unrecognized compensation
costs related to options vesting in the future is $0. The Company uses the Black-Scholes option-pricing model as the most appropriate
method for determining the estimated fair value for the stock awards. The Black-Scholes method of valuation requires several assumptions:
(1) the expected term of the stock award; (2) the expected future stock volatility over the expected term; and (3) risk-free interest
rate. The expected term represents the expected period of time the Company believes the options will be outstanding based on historical
information. Estimates of expected future stock price volatility are based on the historic volatility of the Company’s common
stock and the risk-free interest rate is based on the U.S. Zero-Bond rate. The Company utilizes a forfeiture rate based on an analysis
of the Company’s actual experience. The fair value of options at date of grant was estimated with the following assumptions
for options granted in fiscal 2017:
|
|
Year Ended
|
|
|
|
June 30, 2017
|
|
Assumptions:
|
|
|
|
|
Option life
|
|
|
5.3 years
|
|
Risk-free interest rate
|
|
|
1.01%
|
|
Stock volatility
|
|
|
175%
|
|
Dividend yield
|
|
|
0
|
|
Weighted average fair value of grants
|
|
$
|
0.38
|
|
Stock Option and Other Compensation Plans:
The type of share-based payments currently
utilized by the Company is stock options.
The Company has various stock option and other
compensation plans for directors, officers and employees. The Company has the following stock option plans outstanding as of June
30, 2017: The Precision Optics Corporation, Inc. 2011 Equity Incentive Plan (the “2011 Plan”); the Precision Optics
Corporation, Inc. 2006 Equity Incentive Plan (the “2006 Plan”), and the Precision Optics Corporation, Inc. Amended
and Restated 1997 Incentive Plan (the “1997 Plan”). Vesting periods under the 2011 Plan, the 2006 Plan, and the 1997
Plan are at the discretion of the Board of Directors and typically average three to five years. Options under these Plans are granted
at fair market value on the date of grant and typically have a term of ten years from the date of grant.
The 2011 Plan, which provides eligible participants
(certain employees, directors, consultants, etc.) the opportunity to receive a broad variety of equity based and cash awards. Options
granted vest and are exercisable for periods determined by the Board of Directors, not to exceed 10 years from the date of grant.
On April 16, 2015, the Board of Directors approved an amendment to the 2011 Equity Incentive Plan which increased the maximum number
of shares of the Company’s common stock that may be awarded under the Plan from 325,000 to 1,825,000, an increase of 1,500,000
shares. In connection therewith, on April 20, 2015, the Company filed a registration statement on Form S-8 to register the 1,500,000
shares of the Company’s common stock. At June 30, 2017, a total of 954,602 stock options are outstanding and 870,398 shares
of common stock were available for future grants under the 2011 Plan.
The 2006 Plan, which provides eligible participants
(certain employees, directors, consultants, etc.) the opportunity to receive a broad variety of equity based and cash awards. Options
granted vest and are exercisable for periods determined by the Board of Directors, not to exceed 10 years from the date of grant.
A total of 139,898 shares of common stock, including shares rolled forward from the 1997 Plan, have been reserved for issuance
under the 2006 Plan. At June 30, 2017, a total of 123,798 stock options are outstanding, 23,100 stock options have been cancelled
and no shares of common stock are available for future grants under the 2006 Plan.
The 1997 Plan as amended and restated in 2006
provided eligible participants (certain employees, directors, consultants, etc.) the opportunity to receive a broad variety of
equity based and cash awards. Options granted vested and were exercisable for periods determined by the Board of Directors, not
to exceed 10 years from the date of grant. All stock options outstanding under the 1997 Plan expired during fiscal 2016, no options
are outstanding under the 1997 Plan at June 30, 2017, and no shares of common stock are available for future grants under the 1997
Plan.
The following tables summarize stock option
activity for the years ended June 30, 2017 and 2016:
|
|
Options Outstanding
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Contractual
Life
|
Outstanding at July 1, 2015
|
|
|
1,079,079
|
|
|
$
|
1.43
|
|
|
8.46 years
|
Grants
|
|
|
160,000
|
|
|
$
|
0.49
|
|
|
|
Cancellations
|
|
|
(103,079
|
)
|
|
$
|
7.03
|
|
|
|
Outstanding at June 30, 2016
|
|
|
1,136,000
|
|
|
$
|
0.79
|
|
|
8.00 years
|
Grants
|
|
|
15,000
|
|
|
$
|
0.40
|
|
|
|
Cancellations
|
|
|
(72,600
|
)
|
|
$
|
0.85
|
|
|
|
Outstanding at June 30, 2017
|
|
|
1,078,400
|
|
|
$
|
0.78
|
|
|
7.01 years
|
Information related to the stock options outstanding
as of June 30, 2017 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
|
|
$
|
0.27
|
|
|
|
40,000
|
|
|
|
4.04
|
|
|
$
|
0.27
|
|
|
|
40,000
|
|
|
$
|
0.27
|
|
$
|
0.40
|
|
|
|
15,000
|
|
|
|
9.83
|
|
|
$
|
0.40
|
|
|
|
5,000
|
|
|
$
|
0.40
|
|
$
|
0.48
|
|
|
|
60,000
|
|
|
|
8.75
|
|
|
$
|
0.48
|
|
|
|
40,000
|
|
|
$
|
0.48
|
|
$
|
0.50
|
|
|
|
100,000
|
|
|
|
8.98
|
|
|
$
|
0.50
|
|
|
|
65,000
|
|
|
$
|
0.50
|
|
$
|
0.55
|
|
|
|
29,500
|
|
|
|
4.62
|
|
|
$
|
0.55
|
|
|
|
29,500
|
|
|
$
|
0.55
|
|
$
|
0.73
|
|
|
|
539,500
|
|
|
|
7.88
|
|
|
$
|
0.73
|
|
|
|
479,500
|
|
|
$
|
0.73
|
|
$
|
0.85
|
|
|
|
9,000
|
|
|
|
5.51
|
|
|
$
|
0.85
|
|
|
|
9,000
|
|
|
$
|
0.85
|
|
$
|
0.90
|
|
|
|
9,000
|
|
|
|
6.51
|
|
|
$
|
0.90
|
|
|
|
9,000
|
|
|
$
|
0.90
|
|
$
|
0.95
|
|
|
|
65,000
|
|
|
|
7.03
|
|
|
$
|
0.95
|
|
|
|
65,000
|
|
|
$
|
0.95
|
|
$
|
1.20
|
|
|
|
207,800
|
|
|
|
4.67
|
|
|
$
|
1.20
|
|
|
|
207,800
|
|
|
$
|
1.20
|
|
$
|
1.25
|
|
|
|
1,200
|
|
|
|
1.41
|
|
|
$
|
1.25
|
|
|
|
1,200
|
|
|
$
|
1.25
|
|
$
|
1.35
|
|
|
|
1,200
|
|
|
|
2.40
|
|
|
$
|
1.35
|
|
|
|
1,200
|
|
|
$
|
1.35
|
|
$
|
7.75
|
|
|
|
1,200
|
|
|
|
0.41
|
|
|
$
|
7.75
|
|
|
|
1,200
|
|
|
$
|
7.75
|
|
$
|
0.27–7.75
|
|
|
|
1,078,400
|
|
|
|
7.01
|
|
|
$
|
0.78
|
|
|
|
953,400
|
|
|
$
|
0.81
|
|
The aggregate intrinsic value of the Company’s
“in-the-money” outstanding and exercisable options as of June 30, 2017 was $34,875 and $26,975, respectively.
As of June 30, 2017, there are warrants
outstanding for the issuance of an aggregate of 3,661,560 shares of common stock, at a weighted average exercise price of $0.75
per share. Warrants for the issuance of 2,994,893 of these shares at an average exercise price of $0.87 per share expire on September
28, 2017, and warrants for the issuance of the remaining 666,667 shares at an exercise price $0.01 per share expire on October
16, 2017.
(c)
|
Sale of Stock in October 2015
|
On October 19, 2015, the Company entered into
agreements with accredited investors for the sale and purchase of 1,044,776 shares of the Company’s common stock, $0.01 par
value at a purchase price of $0.67 per share. The Company received $700,000 in gross proceeds from the offering. The Company used
the majority of the net proceeds from this placement for general working capital purposes.
In conjunction with the placement, the Company
also entered into a registration rights agreement with the investors, and in compliance with the terms of the agreement the registration
statement was filed on January 19, 2016 and became effective on February 1, 2016.
In conjunction with the 2015 offering, certain
anti-dilution provisions of the warrants issued in conjunction with the Company’s June 25, 2008 and September 28, 2012 financing
transactions were triggered. As a result of the offering, the number of existing September 28, 2012 warrants increased from 2,189,724
to 2,293,013 and from 217,322 to 222,559, respectively, and the related exercise price decreased from $1.11 to $1.06 and from $0.85
to $0.83, respectively.
(d)
|
Sale of Stock in November 2016
|
On November 22, 2016, the Company entered into
agreements with accredited investors for the sale and purchase of 1,333,334 units with each unit consisting of one share of the
Company’s common stock, $0.01 par value and one warrant to purchase one-half of one share of the Company’s common stock,
at a purchase price of $0.60 per unit. The Company received $780,000 in gross cash proceeds from the offering and settled an outstanding
accounts payable balance with a consultant in the amount of $20,000 by issuing units. The Company is using the net proceeds from
this placement for general working capital purposes.
The warrants issued in this offering will vest
on October 2, 2017 and expire on October 16, 2017. The warrant exercise price is variable and depends on the Company’s achievement
of certain performance criteria. The warrant exercise price was agreed to be $0.40 per share if the Company achieved both of the
revenue and income performance criteria as defined, the exercise price would be $0.20 per share if the Company achieves one of
the performance criteria, and the exercise price would be $0.01 if the Company did not achieve either of the performance criteria.
Since the Company did not achieve either of the criteria, the exercise price of the warrants is $0.01.
In conjunction with the offering, the Company
also entered into a registration rights agreement with the investors, whereby the Company was obligated to file a registration
statement with the Securities Exchange Commission on or before 90 calendar days after November 22, 2016 to register the resale
by the investors of the 1,333,334 shares and warrant shares purchased in the offering. The registration statement was filed with
the Securities and Exchange Commission on February 3, 2017 and became effective on March 2, 2017.
In conjunction with the 2016 offering, certain
anti-dilution provisions of the warrants issued in conjunction with the Company’s September 28, 2012 financing transaction
were triggered. As a result of the offering, the number of existing September 28, 2012 warrants increased from 2,293,013 to 2,558,519
and from 222,559 to 249,627, respectively, and the related exercise price decreased from $1.06 to $0.95 and from $0.83 to $0.74,
respectively.
The Company has identified its federal tax
return and its state tax return in Massachusetts as “major” tax jurisdictions. The periods subject to examination for
its federal and state income tax returns are the years ended in 2014 and thereafter. The Company believes its income tax filing
positions and deductions will be sustained on audit and it does not anticipate any adjustments that would result in a material
change to its financial position. Therefore, no liabilities for uncertain income tax positions have been recorded.
The provision for income taxes in the accompanying
consolidated statements of operations consists of the minimum statutory state income tax liability of $912 for the years ended
June 30, 2017 and 2016.
A reconciliation of the federal statutory rate
to the Company’s effective tax rate for the fiscal years ended June 30, 2017 and 2016 is as follows:
|
|
2017
|
|
|
2016
|
|
Income tax expense (benefit) at federal statutory rate
|
|
|
(34.0
|
)%
|
|
|
(34.0
|
)%
|
Increase (decrease) in tax resulting from:
|
|
|
|
|
|
|
|
|
State taxes, net of federal benefit
|
|
|
(5.4
|
)
|
|
|
(6.3
|
)
|
Change in valuation allowance
|
|
|
30.9
|
|
|
|
30.6
|
|
Stock based compensation
|
|
|
8.0
|
|
|
|
9.3
|
|
Nondeductible items
|
|
|
0.2
|
|
|
|
0.4
|
|
Prior-year tax adjustments
|
|
|
0.2
|
|
|
|
0.8
|
|
Other
|
|
|
–
|
|
|
|
(0.9
|
)
|
Effective tax rate
|
|
|
(0.1
|
)%
|
|
|
(0.1
|
)%
|
The components of deferred tax assets and liabilities
at June 30, 2017 and 2016 are approximately as follows:
|
|
2017
|
|
|
2016
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carry forwards
|
|
$
|
3,716,000
|
|
|
$
|
3,396,000
|
|
Tax credit carry forwards
|
|
|
404,000
|
|
|
|
439,000
|
|
Reserves and accruals not yet deducted for tax purposes
|
|
|
383,000
|
|
|
|
362,000
|
|
Total deferred tax assets
|
|
|
4,503,000
|
|
|
|
4,197,000
|
|
Valuation allowance
|
|
|
(4,503,000
|
)
|
|
|
(4,197,000
|
)
|
Net deferred tax asset
|
|
$
|
–
|
|
|
$
|
–
|
|
The Company has provided a valuation allowance
to reduce the net deferred tax asset to an amount the Company believes is “more likely than not” to be realized. The
valuation allowance increased in fiscal 2017, as compared to the prior year, by approximately $311,000.
At June 30, 2017, the Company had federal and
state net operating loss carry forwards of approximately $9,220,000 and $3,520,000, respectively, which will, if not used, expire
at various dates from 2017 through 2036. In addition, the Company had net operating loss carry forwards from its Hong Kong operations
of approximately $2,252,000, which carry forward indefinitely.
The Company has a defined contribution 401(k)
profit sharing plan. Employer profit sharing and matching contributions to the plan are discretionary. No employer profit sharing
or matching contributions were made to the plan in fiscal years 2017 and 2016.
In fiscal year 2017, the Company sold equipment
that was previously written off for proceeds totaling $1,515 and recorded a gain of $1,515. In fiscal year 2016, the Company
sold equipment that was previously written off for proceeds totaling $32,707 and recorded a gain of $32,707. These gains are included
within operating expenses in the accompanying consolidated statements of operations.
Other income in the amount of $22,050 for fiscal
year 2016 represents non-cash gains on the settlement of liabilities for services rendered to the Company, by issuing 105,000 shares
in February 2016. The non-cash gain is the difference between the recorded amount of the liabilities and the value of the stock
when issued.
On August 22, 2017, the Company entered into
agreements with accredited investors for the sale and purchase of 466,668 shares of its common stock, $0.01 par value at a purchase
price of $0.45 per share. The Company received $210,000 in gross proceeds from the offering. The Company intends to use the net
proceeds from this placement for general working capital purposes.
Concurrently with the placement, the Company
entered into an agreement with an investor for the sale of 88,888 unregistered shares of our common stock for services provided
to the Company at a price of $0.45 per share.
In connection with the placement, the Company
also entered into a registration rights agreement with the investors, whereby the Company is obligated to file a registration statement
with the Securities Exchange Commission on or before 90 calendar days after August 22, 2017 to register the resale by the investors
of 555,556 shares of our common stock purchased in the placement.
In conjunction with the 2017 offering, certain
anti-dilution provisions of the warrants issued in conjunction with our September 28, 2012 financing transaction were triggered.
As a result of the offering, the number of existing September 28, 2012 warrants increased from 2,558,519 to 2,731,003 and 249,627
to 263,891, respectively, and the related exercise price decreased from $0.95 to $0.89 and from $0.74 to $0.70, respectively.
PRECISION
OPTICS CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|
|
September 30,
2017
|
|
|
June 30,
2017
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
$
|
194,714
|
|
|
$
|
118,405
|
|
Accounts Receivable, net
|
|
|
613,961
|
|
|
|
468,548
|
|
Inventories, net
|
|
|
967,285
|
|
|
|
1,055,447
|
|
Prepaid Expenses
|
|
|
51,394
|
|
|
|
55,985
|
|
Total Current Assets
|
|
|
1,827,354
|
|
|
|
1,698,385
|
|
PROPERTY AND EQUIPMENT
|
|
|
|
|
|
|
|
|
Machinery and Equipment
|
|
|
2,507,190
|
|
|
|
2,507,190
|
|
Leasehold Improvements
|
|
|
553,596
|
|
|
|
553,596
|
|
Furniture and Fixtures
|
|
|
148,303
|
|
|
|
148,303
|
|
|
|
|
3,209,089
|
|
|
|
3,209,089
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated Depreciation and Amortization
|
|
|
(3,145,585
|
)
|
|
|
(3,136,835
|
)
|
Net Fixed Assets
|
|
|
63,504
|
|
|
|
72,254
|
|
|
|
|
|
|
|
|
|
|
Patents, net
|
|
|
30,086
|
|
|
|
30,086
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
1,920,944
|
|
|
$
|
1,800,725
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Current Portion of Capital Lease Obligation
|
|
$
|
8,531
|
|
|
$
|
8,391
|
|
Accounts Payable
|
|
|
663,302
|
|
|
|
694,958
|
|
Customer Advances
|
|
|
122,495
|
|
|
|
180,137
|
|
Accrued Employee Compensation
|
|
|
144,873
|
|
|
|
189,783
|
|
Accrued Professional Services
|
|
|
91,500
|
|
|
|
71,000
|
|
Accrued Warranty Expense
|
|
|
25,000
|
|
|
|
25,000
|
|
Other Accrued Liabilities
|
|
|
41,175
|
|
|
|
49,512
|
|
Total Current Liabilities
|
|
|
1,096,876
|
|
|
|
1,218,781
|
|
|
|
|
|
|
|
|
|
|
Capital Lease Obligation, net of current portion
|
|
|
21,378
|
|
|
|
23,564
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Common Stock, $0.01 par value - Authorized - 50,000,000 shares; Issued and Outstanding – 9,428,472 shares at September 30, 2017 and 8,872,916 shares at June 30, 2017
|
|
|
94,285
|
|
|
|
88,729
|
|
Additional Paid-in Capital
|
|
|
45,407,922
|
|
|
|
45,140,383
|
|
Accumulated Deficit
|
|
|
(44,699,517
|
)
|
|
|
(44,670,732
|
)
|
Total Stockholders’ Equity
|
|
|
802,690
|
|
|
|
558,380
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
1,920,944
|
|
|
$
|
1,800,725
|
|
The accompanying notes are an integral
part of these consolidated interim financial statements.
PRECISION OPTICS CORPORATION, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2017 AND 2016
(UNAUDITED)
|
|
Three Months
Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Revenues
|
|
$
|
1,028,746
|
|
|
$
|
849,548
|
|
|
|
|
|
|
|
|
|
|
Cost of Goods Sold
|
|
|
642,004
|
|
|
|
682,497
|
|
Gross Profit
|
|
|
386,742
|
|
|
|
167,051
|
|
|
|
|
|
|
|
|
|
|
Research and Development Expenses, net
|
|
|
118,427
|
|
|
|
116,992
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative Expenses
|
|
|
296,584
|
|
|
|
343,782
|
|
|
|
|
|
|
|
|
|
|
Gain on Sale of Assets
|
|
|
–
|
|
|
|
(315
|
)
|
Total Operating Expenses
|
|
|
415,011
|
|
|
|
460,459
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
|
(28,269
|
)
|
|
|
(293,408
|
)
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
(516
|
)
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(28,785
|
)
|
|
$
|
(293,408
|
)
|
|
|
|
|
|
|
|
|
|
Loss Per Share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.00
|
)
|
|
$
|
(0.04
|
)
|
Diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
9,108,423
|
|
|
|
7,539,582
|
|
Diluted
|
|
|
9,108,423
|
|
|
|
7,539,582
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral
part of these consolidated interim financial statements.
PRECISION OPTICS CORPORATION, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2017 AND 2016
(UNAUDITED)
|
|
Three Months
Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(28,785
|
)
|
|
$
|
(293,408
|
)
|
Adjustments to Reconcile Net Loss to Net Cash Provided From (Used In) Operating Activities -
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
|
8,750
|
|
|
|
7,621
|
|
Gain on Sale of Assets
|
|
|
–
|
|
|
|
(315
|
)
|
Stock-based Compensation Expense
|
|
|
26,057
|
|
|
|
60,901
|
|
Non-cash Consulting Expense
|
|
|
(7,425
|
)
|
|
|
8,550
|
|
Changes in Operating Assets and Liabilities -
|
|
|
|
|
|
|
|
|
Accounts Receivable, net
|
|
|
(145,413
|
)
|
|
|
184,327
|
|
Inventories, net
|
|
|
88,162
|
|
|
|
140,979
|
|
Prepaid Expenses
|
|
|
4,591
|
|
|
|
6,297
|
|
Accounts Payable
|
|
|
5,381
|
|
|
|
60,085
|
|
Customer Advances
|
|
|
(57,642
|
)
|
|
|
11,025
|
|
Accrued Liabilities
|
|
|
(25,322
|
)
|
|
|
(28,274
|
)
|
Net Cash Provided From (Used In) Operating Activities
|
|
|
(131,646
|
)
|
|
|
157,788
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Additional Patent Costs
|
|
|
–
|
|
|
|
(340
|
)
|
Purchases of Property and Equipment
|
|
|
–
|
|
|
|
(3,500
|
)
|
Proceeds from Sale of Assets
|
|
|
–
|
|
|
|
315
|
|
Net Cash Used In Investing Activities
|
|
|
–
|
|
|
|
(3,525
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Payment of Capital Lease Obligation
|
|
|
(2,046
|
)
|
|
|
(1,916
|
)
|
Gross Proceeds from Private Placement of Common Stock
|
|
|
210,001
|
|
|
|
–
|
|
Net Cash Provided From (Used In) Financing Activities
|
|
|
207,955
|
|
|
|
(1,916
|
)
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
76,309
|
|
|
|
152,347
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
118,405
|
|
|
|
50,059
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
194,714
|
|
|
$
|
202,406
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Issuance of Common Stock in Settlement of Accounts Payable
|
|
$
|
40,000
|
|
|
$
|
–
|
|
Offering Costs Included in Accounts Payable
|
|
$
|
2,963
|
|
|
$
|
–
|
|
The accompanying notes are an integral
part of these consolidated interim financial statements.
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 first quarter of the Company’s fiscal year 2018. 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, 2017, together with the Report of Independent Registered Public Accounting Firm filed under cover of the Company’s
2017 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on September 28, 2017.
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 under different
assumptions or conditions.
Income (Loss) Per Share
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 or net 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
and warrants. For the three months ended September 30, 2017 and 2016, the effect of such securities was antidilutive and not included
in the diluted calculation because of the net loss generated in these periods.
The following is the calculation of loss per share for the three
months ended September 30, 2017 and 2016:
|
|
Three Months
Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net Income (Loss) – Basic and Diluted
|
|
$
|
(28,785
|
)
|
|
$
|
(293,408
|
)
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Weighted Average Shares Outstanding
|
|
|
9,108,423
|
|
|
|
7,539,582
|
|
|
|
|
|
|
|
|
|
|
Loss Per Share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.00
|
)
|
|
$
|
(0.04
|
)
|
Diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.04
|
)
|
The number of shares issuable upon the
exercise of outstanding stock options and warrants that were excluded from the computation as their effect was antidilutive was
approximately 1,745,067 and 4,169,000 for the three months ended September 30, 2017 and 2016, 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.
Inventories are stated at the lower of
cost (first-in, first-out) or market and consisted of the following:
|
|
September 30,
2017
|
|
|
June 30,
2017
|
|
Raw Materials
|
|
$
|
412,847
|
|
|
$
|
501,346
|
|
Work-In-Progress
|
|
|
356,278
|
|
|
|
388,614
|
|
Finished Goods
|
|
|
198,160
|
|
|
|
165,487
|
|
Total Inventories
|
|
$
|
967,285
|
|
|
$
|
1,055,447
|
|
3.
|
CAPITAL LEASE OBLIGATION
|
The Company entered into a five-year capital lease obligation
in January 2016 for the acquisition of manufacturing equipment totaling $51,252. At September 30, 2017, future minimum lease payments
under the capital lease obligation are as follows:
Fiscal Year Ending June 30:
|
|
|
Amount
|
|
|
2018
|
|
|
$
|
7,688
|
|
|
2019
|
|
|
|
10,250
|
|
|
2020
|
|
|
|
10,250
|
|
|
2021
|
|
|
|
5,126
|
|
|
Total minimum payments
|
|
|
|
33,314
|
|
|
Less: amount representing interest
|
|
|
|
3,405
|
|
|
Present value of minimum lease payments
|
|
|
|
29,909
|
|
|
Less: current portion
|
|
|
|
8,531
|
|
|
|
|
|
$
|
21,378
|
|
4.
|
STOCK-BASED COMPENSATION
|
Stock-based compensation costs recognized
during the three months ended September 30, 2017 and 2016 amounted to $26,057 and $60,901 respectively, and the costs were included
in the accompanying consolidated statements of operations in: selling, general and administrative expenses (2017 - $10,696; 2016
- $42,915), research and development expenses (2017 - $6,692, 2016 - $9,317) and cost of goods sold (2017 - $8,669; 2016 - $8,669).
No compensation has been capitalized because such amounts would have been immaterial.
The following tables summarize stock option
activity for the three months ended September 30, 2017:
|
|
|
Options Outstanding
|
|
|
|
|
Number of
Shares
|
|
|
|
Weighted Average
Exercise Price
|
|
|
|
Weighted Average
Contractual Life
|
|
Outstanding at June 30, 2017
|
|
|
1,078,400
|
|
|
$
|
0.78
|
|
|
|
7.01 years
|
|
Granted
|
|
|
–
|
|
|
|
|
|
|
|
|
|
Expired or Cancelled
|
|
|
–
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2017
|
|
|
1,078,400
|
|
|
$
|
0.78
|
|
|
|
6.76 years
|
|
Information related to the stock options
outstanding as of September 30, 2017 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
|
|
$
|
0.27
|
|
|
|
40,000
|
|
|
|
3.79
|
|
|
$
|
0.27
|
|
|
|
40,000
|
|
|
$
|
0.27
|
|
$
|
0.40
|
|
|
|
15,000
|
|
|
|
9.58
|
|
|
$
|
0.40
|
|
|
|
5,000
|
|
|
$
|
0.40
|
|
$
|
0.48
|
|
|
|
60,000
|
|
|
|
8.50
|
|
|
$
|
0.48
|
|
|
|
40,000
|
|
|
$
|
0.48
|
|
$
|
0.50
|
|
|
|
80,000
|
|
|
|
8.73
|
|
|
$
|
0.50
|
|
|
|
45,000
|
|
|
$
|
0.50
|
|
$
|
0.50
|
|
|
|
20,000
|
|
|
|
3.72
|
|
|
$
|
0.50
|
|
|
|
20,000
|
|
|
$
|
0.50
|
|
$
|
0.55
|
|
|
|
29,500
|
|
|
|
4.36
|
|
|
$
|
0.55
|
|
|
|
29,500
|
|
|
$
|
0.55
|
|
$
|
0.73
|
|
|
|
539,500
|
|
|
|
7.63
|
|
|
$
|
0.73
|
|
|
|
479,500
|
|
|
$
|
0.73
|
|
$
|
0.85
|
|
|
|
9,000
|
|
|
|
5.26
|
|
|
$
|
0.85
|
|
|
|
9,000
|
|
|
$
|
0.85
|
|
$
|
0.90
|
|
|
|
9,000
|
|
|
|
6.26
|
|
|
$
|
0.90
|
|
|
|
9,000
|
|
|
$
|
0.90
|
|
$
|
0.95
|
|
|
|
65,000
|
|
|
|
6.78
|
|
|
$
|
0.95
|
|
|
|
65,000
|
|
|
$
|
0.95
|
|
$
|
1.20
|
|
|
|
207,800
|
|
|
|
4.42
|
|
|
$
|
1.20
|
|
|
|
207,800
|
|
|
$
|
1.20
|
|
$
|
1.25
|
|
|
|
1,200
|
|
|
|
1.15
|
|
|
$
|
1.25
|
|
|
|
1,200
|
|
|
$
|
1.25
|
|
$
|
1.35
|
|
|
|
1,200
|
|
|
|
2.15
|
|
|
$
|
1.35
|
|
|
|
1,200
|
|
|
$
|
1.35
|
|
$
|
7.75
|
|
|
|
1,200
|
|
|
|
0.16
|
|
|
$
|
7.75
|
|
|
|
1,200
|
|
|
$
|
7.75
|
|
$
|
0.27–$7.75
|
|
|
|
1,078,400
|
|
|
|
6.76
|
|
|
$
|
0.78
|
|
|
|
953,400
|
|
|
$
|
0.81
|
|
The aggregate intrinsic value of the Company’s “in-the-money”
outstanding and exercisable options as of September 30, 2017 was $7,950 and $7,450, respectively.
As of September 30, 2017, there were warrants
outstanding for the issuance of an aggregate of 666,667 shares of common stock, $0.01 par value at a purchase price of $0.01 per
share. The warrants were exercisable beginning on October 2, 2017 and expired on October 16, 2017. All warrants for 666,667 shares
were exercised before October 16, 2017, by payment to the Company for the aggregate purchase price of $6,667.
Warrants previously outstanding for the
issuance of an aggregate of 2,994,893 shares of common stock, $0.01 par value at an average exercise price of $0.75 per share expired
on September 28, 2017. None of these warrants were exercised before their expiration.
On August 22, 2017, the Company entered
into agreements with accredited investors for the sale and purchase of 466,668 unregistered shares of its common stock, $0.01 par
value at a purchase price of $0.45 per share. The Company received $210,001 in gross proceeds from the offering. The Company is
using the net proceeds from this placement for general working capital purposes.
Concurrently with the placement, the Company
entered into an agreement with an investor for the sale of 88,888 unregistered shares of its common stock for services provided
to the Company at a price of $0.45 per share.
In connection with the placement, the Company
also entered into a registration rights agreement with the investors, whereby the Company is obligated to file a registration statement
with the Securities Exchange Commission on or before 90 calendar days after August 22, 2017 to register the resale by the investors
of 555,556 shares of our common stock purchased in the placement.
During the three months ended September
30, 2016, the Company sold equipment that was previously written off for proceeds totaling $315 and recorded gains of $315, which
is included within operating expenses in the accompanying consolidated statements of operations.
PROSPECTUS
PRECISION OPTICS CORPORATION, INC.
OFFERING UP TO 555,556 SHARES OF COMMON
STOCK
PART II — INFORMATION NOT
REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated costs of the issuance and
distribution of the securities registered under this prospectus are denoted below. Please note that all amounts are estimates other
than the Commission’s registration fee.
Approximate SEC registration fee
|
|
$
|
45
|
|
Transfer agent fees
|
|
|
200
|
|
Accounting fees and expenses
|
|
|
3,000
|
|
Legal fees and expenses
|
|
|
20,000
|
|
Miscellaneous (including EDGAR filing fees)
|
|
|
1,755
|
|
|
|
|
|
|
Total
|
|
$
|
25,000
|
|
We will pay all expenses of the offering
listed above from cash on hand. No portion of these expenses will be borne by the selling stockholders.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
We are organized under the laws of the
Commonwealth of Massachusetts. Our officers and directors are indemnified as provided by the Massachusetts Business Corporation
Act as set forth in Chapter 156D of the General Laws of Massachusetts, our Articles of Organization, as amended, and our Bylaws.
Section 2.02(b)(4) of the Massachusetts
Business Corporation Act (the “MBCA”) provides that a corporation may, in its articles of organization, eliminate or
limit a director’s personal liability to the corporation for monetary damages for breaches of fiduciary duty, except in circumstances
involving (1) a breach of the director’s duty of loyalty to the corporation or its shareholders, (2) acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of law, (3) improper distributions, and (4) transactions
from which the director derived an improper personal benefit.
Section 8.52 of the MBCA provides that
we must indemnify a director who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he
was a party because he was a director of our Company against reasonable expenses incurred by him in connection with the proceeding.
In addition, under Section 8.51 of the
MBCA, we may indemnify a director against liability incurred in a proceeding if:
|
(1)
|
(i) he conducted himself in good faith; (ii) he reasonably believed that his conduct was in the best interests of our Company or that his conduct was at least not opposed to the best interests of our Company; and (iii) in the case of any criminal proceeding, he had no reasonable cause to believe his conduct was unlawful; or
|
|
(2)
|
he engaged in conduct for which he shall not be liable as provided in our Articles of Organization, as amended, which may limit personal liability of a director as provided in the General Laws of Massachusetts.
|
The termination of a proceeding by judgment,
order, settlement, or conviction, or upon a plea of nolo contendere or its equivalent, is not, of itself, determinative that the
director did not meet the relevant standard of conduct described in Section 8.51 of the MBCA.
Section 8.56 of the MBCA permits a corporation
to indemnify an officer (1) under those circumstances in which the corporation would be allowed to indemnify a director and (2)
if such officer is not a director of the corporation, to such further extent as the corporation chooses provided that the liability
does not arise out of acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law.
Section 8.56 of the MBCA further requires that a corporation indemnify an officer who was wholly successful on the merits or otherwise
in the defense of any proceeding to which such officer was a party because he was a director of the corporation.
Prior to the final disposition of a proceeding
involving a director or officer, Sections 8.53 and 8.56 of the MBCA allow us to pay for or reimburse reasonable expenses. As a
condition, the director or officer must deliver a written undertaking to repay the funds if the individual is determined not to
have met the relevant standard of conduct, which determination is made in the same manner as the determination of whether an individual
is entitled to indemnification. This undertaking may be accepted without security and without regard to the individual’s
financial ability to make repayment. Another condition to advancement of expenses is that the individual submit a written affirmation
of his or her good faith that he or she has met the standard of conduct necessary for indemnification (or that the matter involved
conduct for which liability has been eliminated pursuant to the charter exculpation provision referred to above). Furthermore,
Section 8.54 of the MBCA provides that a court may direct a corporation to indemnify a director or officer under certain circumstances.
Section 8.58 of the MBCA allows a corporation
to obligate itself in advance of the act or omission giving rise to a proceeding to provide indemnification to a director or officer
or to advance funds or reimburse expenses. Such a commitment may be made in the corporation’s articles of organization or
bylaws or in a resolution adopted or a contract approved by the board of directors or the shareholders.
Under Section 8.51(b) of the MBCA, a director’s
conduct with respect to an employee benefit plan for a purpose he reasonably believed to be in the interests of the participants
in, and the beneficiaries of, the plan is conduct that satisfies the requirement that his conduct was at least not opposed to the
best interests of the corporation. Unless ordered by a court as provided in the statute, we may not indemnify a director if his
conduct did not satisfy the standards set forth above.
Our Articles of Organization, as amended,
provide that our directors shall not be liable to us or our stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent that the exculpation from liabilities is not permitted under the MBCA, or Massachusetts Business
Corporation Act, as in effect at the time such liability is determined. Our Bylaws provide that we shall indemnify our directors
and officers (including persons who serve at our request as directors, officers, or trustees of another organization, or in any
capacity with respect to any employee benefit plan) to the full extent permitted by the laws of the Commonwealth of Massachusetts
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 in 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 our Company (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 interests of the participants
or beneficiaries of an employee benefit plan. In addition, we hold a Director and Officer Liability and Corporate Indemnification
Policy.
RECENT SALES OF UNREGISTERED SECURITIES
On May 21, 2015, we issued 45,000 restricted
shares of our common stock valued at $0.60 per share to Mr. Donald Major as compensation for consulting services rendered to us.
On October 19, 2015, we closed on agreements
with institutional and accredited investors for the sale and purchase of 1,044,776 shares of our common stock, $0.01 par value
at a purchase price of $0.67 per share. We received $700,000 in gross proceeds from the offering, we used the net proceeds from
this placement for general working capital.
On November 22, 2016, we entered into agreements
with accredited investors for the sale and purchase of 1,333,334 units with each unit consisting of one share of our common stock,
$0.01 par value and one warrant to purchase one-half of one share of our common stock, at a purchase price of $0.60 per unit. We
received $780,000 in gross cash proceeds from the offering and settled an outstanding accounts payable balance with a consultant
in the amount of $20,000 by issuing units. We are using the net proceeds from this placement for general working capital purposes.
The warrants issued in this offering vested on October 2, 2017 and expired on October 16, 2017. The warrant exercise price was
variable and depended on our achievement of certain performance criteria. The warrant exercise price was agreed to be $0.40 per
share if we achieved both of the revenue and income performance criteria as defined, the exercise price would be $0.20 per share
if we achieved one of the performance criteria, and the exercise price would be $0.01 if we did not achieve either of the performance
criteria. Since we did not achieve either of the criteria, the exercise price of the warrants was $0.01.
On August 22, 2017, we entered into agreements
with accredited investors for the sale and purchase of 466,668 shares of our common stock, $0.01 par value at a purchase price
of $0.45 per share. We received $210,000 in gross proceeds from the offering. We intend to use the net proceeds from this placement
for general working capital purposes. Concurrently with the placement, we entered into an agreement with an investor for the sale
of 88,888 unregistered shares of our common stock for services provided to us at a price of $0.45 per share.
We relied on the Section 4(a)(2) exemption
from securities registration under the federal securities laws for transactions not involving any public offering. No advertising
or general solicitation was employed in offering the securities, the securities were issued to accredited investors, the securities
were offered for investment purposes only and not for the purpose of resale of distribution, and the transfers thereof was appropriately
restricted by us.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibit
|
|
Description
|
|
|
|
2.1
|
|
Asset Purchase Agreement between the Company and Optometrics Corporation, dated January 18, 2008
(included as Exhibit 2.1 to the Form 8-K filed January 25, 2008 and incorporated herein by reference).
|
|
|
|
3.1
|
|
Articles of Organization of Precision Optics Corporation, Inc., as amended
(included as Exhibit 3.1 to the Form SB-2 filed March 16, 2007, and incorporated herein by reference).
|
|
|
|
3.2
|
|
Bylaws of Precision Optics Corporation, Inc.
(included as Exhibit 3.2 to the Form S-1 filed December 18, 2008, and incorporated herein by reference).
|
|
|
|
3.3
|
|
Articles of Amendment to the Articles of Organization of Precision Optics Corporation, Inc., dated November 25, 2008 and effective December 11, 2008
(included as Exhibit 3.1 to the Form 8-K filed December 11, 2008, and incorporated herein by reference).
|
|
|
|
3.4
|
|
Amended and Restated Bylaws of Precision Optics Corporation, Inc.
(included as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed July 11, 2014, and incorporated herein by reference).
|
|
|
|
4.1
|
|
Form of Warrant, by and among Precision Optics Corporation, Inc. and several Investors, dated November 22, 2016
(included as Exhibit 10.3 to the Form 8-K filed November 29, 2016, and incorporated herein by reference).
|
|
|
|
5.1*
|
|
Legal Opinion of Amy M. Trombly, Esq.
|
|
|
|
10.1
|
|
Precision Optics Corporation, Inc. 2006 Equity Incentive Plan
(included as Exhibit 99.1 to the Form 8-K filed December 4, 2006, and incorporated herein by reference).
|
|
|
|
10.2
|
|
Form of Incentive Stock Option Certificate
(included as Exhibit 10.1 to the Form 10-QSB filed February 14, 2007, and incorporated herein by reference).
|
|
|
|
10.3
|
|
Form of Nonstatutory Stock Option Certificate
(included as Exhibit 10.2 to the Form 10-QSB filed February 14, 2007, and incorporated herein by reference).
|
|
|
|
10.4
|
|
Asset Purchase Agreement between the Company and Intuitive Surgical Operations, Inc., dated July 27, 2011
(included as Exhibit 10.1 to the Form 8-K filed August 3, 2011, and incorporated herein by reference).
|
|
|
|
10.5
|
|
Precision Optics Corporation, Inc. 2011 Equity Incentive Plan, dated October 13, 2011
(included as Exhibit 10.2 to Form S-8 filed October 14, 2011, and incorporated herein by reference.)
|
|
|
|
10.6
|
|
Precision Optics Corporation, Inc. 2011 Deferred Compensation Plan, dated October 13, 2011
(included as Exhibit 10.3 to Form S-8 filed October 14, 2011, and incorporated herein by reference.)
|
|
|
|
10.7
|
|
Side Letter Agreement to the Compensation Agreement with Joseph N. Forkey, dated October 14, 2011
(included as Exhibit 10.5 to the Form 8-K filed October 19, 2011, and incorporated herein by reference).
|
|
|
|
10.8
|
|
Form of Purchase Agreement by and among the Company and Investor
(included as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 7, 2014, and incorporated herein by reference).
|
|
|
|
10.9
|
|
Form of Registration Rights Agreement by and among the Company and Investor
(included as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed July 7, 2014, and incorporated herein by reference).
|
|
|
|
10.10
|
|
Precision Optics Corporation, Inc. Amended 2011 Equity Incentive Plan, dated October 14, 2011, as amended on April 16, 2015
(included as Exhibit 10.1 to the Company’s Registration Statement on Form S-8 filed April 20, 2015, and incorporated herein by reference).
|
|
|
|
10.11
|
|
Form of Purchase Agreement by and among the Company and Investor
(included as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed October 23, 2015, and incorporated herein by reference).
|
|
|
|
10.12
|
|
Form of Registration Rights Agreement by and among the Company and Investors
(included as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 23, 2015, and incorporated herein by reference).
|
|
|
|
10.13
|
|
Consulting Agreement with Donald A. Major dated June 15, 2016
(included as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 23, 2016, and incorporated herein by reference).
|
|
|
|
10.14
|
|
Form of Purchase Agreement, by and among Precision Optics Corporation, Inc. and several Investors, dated November 22, 2016
(included as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 29, 2016, and incorporated herein by reference).
|
|
|
|
10.15
|
|
Form of Registration Rights Agreement, by and among Precision Optics Corporation, Inc. and several Investors, dated November 22, 2016
(included as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on November 29, 2016, and incorporated herein by reference).
|
|
|
|
10.16
|
|
Form of Purchase Agreement, by and among Precision Optics Corporation, Inc. and several Investors, dated August 22, 2017
(included as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 25, 2017, and incorporated herein by reference).
|
|
|
|
10.17
|
|
Form of Registration Rights Agreement, by and among Precision Optics Corporation, Inc. and several Investors, dated August 22, 2017
(included as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 25, 2017, and incorporated herein by reference).
|
|
|
|
14.1
|
|
Precision Optics Corporation, Inc. Corporate Code of Ethics and Conduct
(included as Exhibit 14.1 to the Form 10-K filed September 28, 2008, and incorporated herein by reference).
|
|
|
|
23.1*
|
|
Consent of Independent Registered Public Accounting Firm.
|
|
|
|
23.2
|
|
Consent of Amy M. Trombly, Esq.
(included in Exhibit 5.1 above).
|
101.INS*
|
|
XBRL Instance Document
|
|
|
|
101.SCH*
|
|
XBRL Taxonomy Extension Schema Document
|
|
|
|
101.CAL*
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
|
101.DEF*
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
|
101.LAB*
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
|
|
101.PRE*
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
* Filed herewith.
Financial Statement Schedules
Schedules have been omitted because the
information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.
UNDERTAKINGS
(a) The undersigned registrant hereby
undertakes:
|
(1)
|
To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
|
|
(i)
|
To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
|
|
(ii)
|
To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) (§ 230.424(b) of this chapter) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;
|
|
(iii)
|
To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
|
Provided,
however, that:
|
(2)
|
That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
|
|
(3)
|
To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
|
|
(4)
|
(i)
|
That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
|
|
(A)
|
Each prospectus filed by the registrant pursuant to Rule 424(b)(3) (§230.424(b)(3) of this chapter) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
|
|
(B)
|
Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) (§230.424(b)(2), (b)(5), or (b)(7) of this chapter) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) (§230.415(a) (1)(i), (vii), or (x) of this chapter) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
Provided, however,
that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.
|
(h)
|
(3)
|
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Gardner, Commonwealth of Massachusetts, on December 5, 2017.
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PRECISION OPTICS CORPORATION, INC.
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By:
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/s/ Joseph N. Forkey
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Joseph N. Forkey
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Chief Executive Officer, President and Treasurer
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(Principal Executive Officer)
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Pursuant to the requirements of the Securities
Act of 1933, this registration statement was signed by the following persons in the capacities and on the dates stated.
Signature
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Capacity
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Date
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/s/ Joseph N. Forkey
Joseph N. Forkey
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Chief Executive Officer, President, and Treasurer
(Principal Executive Officer)
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December 5, 2017
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/s/ Donald A. Major
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Chief Financial Officer
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December 5, 2017
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Donald A. Major
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(Principal Financial Officer and Principal Accounting Officer)
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/s/ *
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Director
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December 5, 2017
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Andrew J. Miclot
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/s/ *
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Director, Chairman
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December 5, 2017
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Peter H. Woodward
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/s/ *
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Director
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December 5, 2017
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Richard B. Miles
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/s/ *
Kenneth S. Schwartz
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Director
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December 5, 2017
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* By
Donald A. Major as attorney-in-fact.
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