What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-02-14 compared with 2023-11-14 · 99 added, 79 removed, 106 unchanged (63% of the section changed)

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and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and notes to those

statements included elsewhere in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 and with our audited consolidated

statements included elsewhere in this Quarterly Report on Form 10-Q for the quarter ended December 31, 2023 and with our audited consolidated

financial statements for the year ended June 30, 2023 included in our Annual Report on Form 10-K, filed with the Securities and Exchange

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been driven by the demand for smaller and more enhanced imaging systems by the needs of the surgical community, including applications

for the brain, eye, wear, urology, cardiology/angiography and the spine.

for the brain, eye, ear, urology, cardiology/angiography and the spine.

We market directly to established medical device companies primarily

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division markets through existing customers and trade shows, in addition to proactive online marketing strategies executed primarily through

We produce micro-precision optics, which are millimeter

sized and smaller cameras with low manufacturing costs.

The small size provides visualization for new procedures in new parts of the body

and for existing procedures that are currently performed blind or with sub-optimal imaging, facilitating the development of new surgical

procedures that are currently impractical.

We use patented and patent-pending approaches to fabricating opto-mechanical and opto-electronic

We have developed and helped commercialize applications for numerous customers in the medical device and defense/aerospace industries.

We produce micro-precision optics, which are nominally

millimeter sized and smaller cameras with low manufacturing costs.

The small size provides visualization for new procedures in new parts

of the body and for existing procedures that are currently performed blind or with sub-optimal imaging, facilitating the development of

new surgical procedures that are currently impractical.

We use patented and patent-pending approaches to fabricating opto-mechanical and

opto-electronic systems.

We have developed and helped commercialize applications for numerous customers in the medical device and defense/aerospace

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.

Competition amongst medical device companies is increasing with multiple companies now pursuing less expensive,

procedure specific robotic systems.

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 TM optics,

a large degree on our ability to develop new optical products and services to enhance the performance characteristics and methods of

manufacture or existing products.

Competition amongst medical device companies is increasing with multiple companies now pursuing less

expensive, procedure specific robotic systems.

We expect to continue to seek and obtain product-related design and development contracts

with customers and to selectively invest our own funds on research and development, particularly in the areas of Microprecision™ optics,

micro medical cameras, illumination, single-use endoscopes, and 3D endoscopes.

We are one of only a handful of companies in the world

to design and provide 3D endoscopes.

By designing systems with low manufacturing costs, we have also begun to penetrate the single-use

endoscope market.

Single-use endoscopes virtually eliminate the potential for patient cross-contamination and support a number of additional

operational benefits for hospitals and surgeons.

We estimate this segment of the overall minimally invasive surgical market is growing

at two to three times the rate of the overall market.

to design and provide high-quality 3D endoscopes.

By designing systems with low manufacturing costs, we have also begun to penetrate

the single-use endoscope market.

Single-use endoscopes virtually eliminate the potential for patient cross-contamination and support

a number of additional operational benefits for hospitals and surgeons.

We estimate this segment of the overall minimally invasive surgical

market is growing at two to three times the rate of the overall market.

Current sales and marketing activities are intended

to broaden awareness of the benefits of our new technology platforms and our successful application of these new technologies to medical

device projects requiring surgery-grade visualization from sub-millimeter sized devices and 3D endoscopy, including single-use products

and assemblies.

device projects requiring surgical-grade visualization from millimeter sized devices and 3D endoscopy, including single-use products and

We are registered to the ISO 9001:2015 and ISO

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financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and

We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the

circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not

readily apparent from other sources.

Actual results may differ from these estimates.

expenses and related disclosures.

We base our estimates on historical experience and on various other assumptions that are believed to

be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and

liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions

or conditions and any such differences may be material.

There have been no significant changes in our

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Results of Operations

Total revenues for the quarter ended September

30, 2023 were $4,321,255, as compared to $5,085,301 for the same period in the prior year, a decrease of $764,046, or 15.0%.

three months ended September 30, 2023, approximately 44% our business was from engineering services primarily relating to the design of

medical device optical assemblies, 44% from the sale of both internally manufactured and purchased optical components, and 12% from the

manufacture of optical assemblies and sub-assemblies primarily for medical device instrument.

During the three months ended September

30, 2022, approximately 32% our business was from engineering services primarily relating to the design of medical device optical assemblies,

52% from the sale of both internally manufactured and purchased optical components, and 16% from the manufacture of optical assemblies

and sub-assemblies primarily for medical device instrument applications.

During the quarter ended September 30, 2023, compared

to the same period in the prior year, optical component revenue decreased approximately $749,000, assembly production revenues decreased

$273,000, while engineering revenue increased approximately $258,000 to $1,901,000 from $1,643,000.

We believe the decreases in optical

components were largely driven by lower order volumes as customers sought to rebalance their inventories, which had previously grown beyond

sustainable levels due to increased ordering in response to concerns about supply chain disruptions.

The decreases in medical device products

and assemblies was attributable to timing differences between the exit of certain mature customer programs, reorders for ongoing products

and the introduction of new customer programs, primarily in the areas of medical endoscopes, including single-use devices and new defense

/ aerospace commitments.

Revenue increases in the engineering category were driven by efforts to complete design engagements on these

very same products in preparation for commercial production later in our fiscal year.

Gross profit for the quarter ended September 30,

2023 of $1,463,611 reflected a decrease of $175,830, or 10.7%, as compared to gross profit for the same period in the prior year and was

primarily driven by the decrease in revenue discussed above.

Gross profit, as a percentage of revenues for the quarter ended September

30, 2023, was 33.9% as compared to gross profit, as a percentage of revenues for the same period in the prior year, of 32.2%, due in part

to improved utilization of our engineering resources.

Gross profit and the gross profit percentage for any given fiscal period depend

on many factors, including overall sales volume, facility utilization, product sales mix, the nature and costs of engineering services,

design challenges and changes, production start-up costs, customer-imposed project changes or delays, and the effects of COVID-19 pandemic

policy decisions on various economies and our suppliers and customers.

Research and development expenses were $212,758,

or 4.9% of revenue for the quarter ended September 30, 2023, as compared to $245,477, or 4.8% of revenue for the same period in the prior

year, a decrease of $32,719, or 13.3%.

Selling, general and administrative expenses were

$1,656,146 for the quarter ended September 30, 2023, compared to $1,495,766 for the same period in the prior year, an increase of $160,380

The increase in selling, general and administrative expenses in the three months ended September 30, 2023 was primarily due to

increased marketing-related expenses, increased personnel costs and increased professional fees associated with public company expenses.

Ended December 31,

Engineering Design Services

Optical Components

Finished Products and Assemblies

Technology Rights

Total Revenues

Ended December 31,

Engineering Design Services

Optical Components

Finished Products and Assemblies

Technology Rights

Total Revenues

Total revenues for the quarter ended December

31, 2023 were $4,824,289, as compared to $5,886,961 for the same period in the prior year, and for the six months ended December 31, 2023

was $9,145,544 as compared to $10,972,262 for the same period in the prior year, a decrease of $1,826,718, or 16.6%.

A decrease of $600,000

in both periods was attributable to the sale of one-time technology rights recognized in the prior year.

Revenue from Engineering Design Services increased

33.1% and 24.6% during the three- and six-month periods ending December 31, 2023 from the same periods in the year ending December 31,

Revenue increases in the engineering category resulted from increasing demand for services and expansion of engineering capacity.

Engineering sales were driven by customer design engagements that will be transitioning into the later manufacture of new Finished Products

and Assemblies.

Revenue from Optical Components decreased 23.3%

and 25.8% during the three- and six-month periods ending December 31, 2023 from the same periods in the year ending December 31, 2022

due in part to reduced industry demand.

We believe the decreases in optical components were largely driven by lower order volumes as customers

sought to rebalance their inventories, which had previously grown beyond sustainable levels due to increased ordering in response to concerns

about supply chain disruptions.

Revenue from Finished Products and Assemblies

decreased 42.4% and 38.9% during the three- and six-month periods ending December 31, 2023 from the same periods in the year ending December

The decreases in Finished Products and Assemblies was attributable to timing differences between the exit of certain mature

customer programs and reorders for ongoing products and the introduction of new customer programs, primarily single-use medical devices

and new defense / aerospace opportunities.

Gross margin decreased to 30.1% during the three

months ended December 30, 2023, compared to 44.2% for the three months ended December 31, 2022, and decreased to 31.9% during the six

months ended December 31, 2023 compared to 38.6% during the six months ended December 31, 2022.

Gross profit decreased to $1,450,976 during

the three months ended December 31, 2023, compared to $2,599,472 for the three months ended December 31, 2022, and decreased to $2,914,587

during the six months ended December 31, 2023 compared to $4,238,913 during the six months ended December 31, 2022, primarily driven by

changes in the product sales mix and the decreases in revenue discussed above.

The $600,000 in Technology rights revenue in the prior

year had a significant impact on gross margin as it had no cost of sales associated with it.

Excluding that revenue from both sales and

gross profit for comparison purposes, the gross margin would have been 37.8% and 35.1% for the three- and six-month periods ending December

31, 2022, respectively.

In addition, we recorded an increase in our reserve for excess and obsolete inventory in the amount of $75,000.

Research & Development

R&D expenses increased $66,464 to $221,728

during the three months ended December 31, 2023, compared to $155,264 during the three months ended December 31, 2022, and increased $68,595

to $434,486 during the six months ended December 31, 2023, compared to $365,891 during the six months ended December 31, 2022.

in R&D expenses was primarily due to employee-related expenses to support product improvements and the development of new technologies.

Selling, General and Administrative Expenses

SG&A expenses increased $60,267 to $1,933,410

during the three months ended December 31, 2023, compared to $1,873,143 during the three months ended December 31, 2022, and increased

$185,797, or 5.5%, to $3,589,556 during the six months ended December 31, 2023, compared to $3,403,759 during the six months ended December

The increase in SG&A was primarily due to increased personnel costs, increased travel-related expenses, increased stock-based

compensation and increases in our reserve for doubtful accounts.

Liquidity and Capital Resources

During the quarter ended September 30, 2023, cash

on hand funded increases in accounts receivable of $625,719, offset by increased customer advances of $250,293, increases in inventory

of $194,995, increases in prepaid expenses of $112,120, and a net decrease in accounts payable, accrued expenses and other of $390,720.

During the quarter ended September 30, 2023 we also made payments of $138,876 on our term notes and capital leases.

These items, in addition

to the impact of the quarterly net loss, net of depreciation, amortization, stock-based compensation and other non-cash items, resulted

in a decrease of $1,555,383 in our cash and cash equivalents at September 30 2023 from $2,925,852 at June 30, 2023 to $1,370,769 at September

During the six months ended December 31, 2023,

cash on hand funded increases in inventory of $323,770 and a net decrease in accounts payable and accrued expenses of $945,002, partially

offset by decreases in accounts receivable of $395,863.

We also made payments of $277,912 on our term notes and capital leases.

items, in addition to the impact of the quarterly net loss, net of depreciation, amortization, stock-based compensation and other non-cash

items, resulted in a decrease of $1,938,808 in our cash and cash equivalents at December 31 2023 from $2,925,852 at June 30, 2023 to $987,044

at December 31, 2023.

In October 2021 we entered a $2,600,000 term loan

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the same bank in October 2021 for working capital needs, which was increased to $500,000 in May 2022 and to $1,250,000 in June 2023.

June 20, 2023, we also raised $2,288,000, net of expenses, through a private placement of 420,000 shares of our common stock.

There were no borrowings outstanding on the line

of credit on September 30, 2023 and full availability in the amount of $1,250,000.

were no borrowings outstanding on the line of credit on December 31, 2023 and full availability in the amount of $1,250,000.

Capital equipment expenditures and additional

patent costs during the quarter ended September 30, 2023 and the same period in the prior year were $43,517 and $29,174, respectively.

patent costs during the six months ended December 31, 2023 and in the same period in the prior year were $170,772 and $37,637, respectively.

The increase was primarily attributable to the implementation of a new computer system.

Contractual cash commitments for the fiscal periods

subsequent to September 30, 2023, are summarized as follows:

subsequent to December 31, 2023, are summarized as follows:

Capital lease for equipment, including interest

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We have contractual cash commitments related to

open purchase orders as of September 30, 2023 of approximately $2,060,000.

open purchase orders as of December 31, 2023 of approximately $3,163,000.

Off-Balance Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis