What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-11-13 compared with 2025-05-15 · 153 added, 199 removed, 49 unchanged (88% of the section changed)

Management’s Discussion and Analysis of Financial

Condition and Results of Operations.

Management’s Discussion

and Analysis of Financial Condition and Results of Operations.

The following discussion of our financial condition

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

statements included elsewhere in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2025 and with our audited consolidated

financial statements for the year ended June 30, 2024 included in our Annual Report on Form 10-K, filed with the Securities and Exchange

Commission on September 30, 2024 , as amended by that certain Amendment No.

1 on Form 10-K/A filed with the Securities and Exchange Commission

on October 28, 2024.

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

included elsewhere in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2025 and with our audited financial statements

for the year ended June 30, 2025 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on September

29, 2025, as amended by Amendment No.

1 on Form 10-K/A filed with the Securities and Exchange Commission on October 28, 2025.

This Quarterly Report on Form 10-Q contains

forward-looking statements.

When used in this report, the words anticipate, suggest, estimate, plan, project, continue, ongoing, potential,

expect, predict, believe, intend, may, will, should, could, would and similar expressions are intended to identify forward-looking statements.

When used in this report, the words "anticipate," "suggest," "estimate," "plan,"

"project," "continue," "ongoing," "potential," "expect," "predict," "believe,"

"intend," "may," "will," "should," "could," "would" and similar expressions

are intended to identify forward-looking statements.

You should not place undue reliance on these forward-looking statements.

Our actual results could differ materially from those anticipated

in the forward-looking statements for many reasons, including the risks described in this report, the risks described in our Annual Report

on Form 10-K for the year ended June 30, 2024 and other reports we file with the Securities and Exchange Commission.

Although we believe

the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of

the date on which the statements are made.

We do not intend to update any of the forward-looking statements after the date of this report

to conform these statements to actual results or to changes in our expectations, except as required by law.

results could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks described

in this report, the risks described in our Annual Report on Form 10-K for the year ended June 30, 2025, as amended by Amendment No.

on Form 10-K/A filed with the Securities and Exchange Commission on October 28, 2025, and other reports we file with the Securities and

Exchange Commission.

Although we believe the expectations reflected in the forward-looking statements are reasonable,

they relate only to events as of the date on which the statements are made.

We do not intend to update any of the forward-looking

statements after the date of this report to conform these statements to actual results or to changes in our expectations, except as required

We have been a developer and manufacturer of advanced

optical instruments since 1982.

Our proprietary medical instrumentation line, unique custom design and manufacturing capabilities, and

expert engineering and development has generated traditional proprietary endoscopes and endocouplers as well as other custom imaging and

illumination products for our customers’ use in minimally invasive surgical procedures.

We design and manufacture 3D endoscopes

and very small Microprecision lenses, assemblies and complete medical devices to meet the surgical community’s continuing demand

for smaller, disposable, and more enhanced imaging systems for minimally invasive surgery.

optical instruments since 1982, and we operate primarily in two key market segments:

medical devices and advanced defense/aerospace products.

Within our proprietary optical and imaging technology, our unique custom designs, expert manufacturing capabilities, and advanced engineering

and development capabilities have generated traditional endoscopes and endocouplers, digital imaging endoscopes using CMOS sensor technology,

some designed and manufactured for single-use, as well as other, more advanced, custom imaging and illumination products for our customers’

use in minimally invasive surgical procedures.

We design and manufacture ultra-high precision endoscopes and very small Microprecision

lenses, assemblies and complete medical devices to meet the surgical community’s continuing demand for smaller, disposable, and

more enhanced imaging systems for minimally invasive surgery.

We also apply our unique technologies to applications in the Defense

/ Aerospace markets including applications supporting satellite network communications.

To support these two critical market categories,

our business operations are conducted in four areas:

systems manufacturing, engineering and product development, Ross Optical components

and assemblies, and our micro-optics laboratory.

Our systems manufacturing operations assemble and manufacture components and systems

for both medical device and advanced aerospace customers who choose to outsource these services based on our ability to handle high complexity

components, specific optical technologies, micro-optical assemblies and other advanced manufacturing challenges.

Our engineering and product

development team assesses specific customer product needs, designs devices to solve those needs, and creates manufacturing processes that

enable higher volume production of these devices and assemblies that can then be executed by our manufacturing operations group.

Effective June 1, 2019, we acquired the operating

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of El Paso, Texas.

As Ross Optical Industries we also operate as a supplier of custom optical

components and assemblies for military and defense, medical and various other industrial applications.

All products sold by us under the

Ross Optical name include a custom or catalog optic, which is sourced through our extensive domestic and worldwide network of optical

fabrication suppliers.

Most systems make use of optical lenses, prisms, mirrors and windows and range from individual optical components

to complex mechano-optical assemblies.

Products often include thin film optical coatings that are applied using our in-house coating department.

This acquisition expanded our optics components and assemblies’ business.

As Ross Optical Industries we operate as a supplier of custom optical components and assemblies for military and defense, medical and

various other industrial applications.

All products sold by us under the Ross Optical name include a custom or catalog optic, which is

sourced through our extensive domestic and worldwide network of optical fabrication suppliers.

Most systems make use of optical lenses,

prisms, mirrors and windows and range from individual optical components to complex mechano-optical assemblies.

Products often include

thin film optical coatings applied using our in-house coating department.

Effective October 1, 2021, we acquired the operating

assets of Lighthouse Imaging, LLC of Windham, Maine.

Our Lighthouse Imaging division supplements our operations as a manufacturer of advanced

optical imaging systems and accessories and has provided further expertise in electrical engineering and development of end-to-end medical

visualization devices.

Product development competencies at Lighthouse Imaging include Systems, Optical, Mechanical, Electrical and Process

Development Engineering.

Since the purchase we have integrated these acquired engineering and operational capabilities to provide an expanded,

unified offering to our customers.

Our product development team has extensive experience developing visualization systems that are used

in a variety of clinical applications.

Lighthouse Imaging is an industry leader in chip-on-tip visualization systems.

The markets in which we do business are highly

competitive and include both foreign and domestic competitors.

Many of our competitors are larger and have substantially greater resources

Furthermore, other domestic or foreign companies, some with greater financial resources than we have, may seek to produce

products or services that compete with ours.

Over the years we have developed extensive experience collaborating with other optical specialists

The markets for our products have increasingly

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, ear, urology, cardiology/angiography and the spine.

We market directly to established medical device companies primarily

in the United States that we believe could benefit from our advanced endoscopy visualization systems.

Through this direct marketing, referrals,

attendance at trade shows and a presence in online professional association websites, we have expanded our on-going pipeline of projects

to significant medical device companies as well as well-funded emerging technology companies.

We expect our customer pipeline to continue

to expand as development projects transition to production orders and new customer projects enter the development phase.

Our Ross Optical

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

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 systems.

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

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 among 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, 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

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 millimeter sized devices and 3D endoscopy, including single-use products and

We are registered to the ISO 9001:2015 and ISO

13485:2016 Quality Standards and comply with the FDA Good Manufacturing Practices.

Our websites are www.poci.com, www.rossoptical.com,

and www.lighthouseoptics.com.

assets of Lighthouse Imaging, LLC of Windham, Maine,which expanded our electrical engineering capabilities in the development of end-to-end

medical visualization devices.

The acquisition represented a vertical integration of our established product development capabilities

with a team with extensive experience developing visualization systems that we believe provides our customers with single-source value-added

development services and product offerings.

The operations of Lighthouse Imaging have been integrated with other operations of the company,

which continue under the POC brand, so that the company now operates with single systems manufacturing and engineering departments, each

of which includes historical POC and Lighthouse Imaging resources.

Our website is www.poci.com.

The information contained on our websites does not constitute part of this report.

This management’s discussion and analysis

of financial condition and results of operations is based upon our unaudited consolidated financial statements, which have been prepared

without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.

The preparation of these consolidated

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

expenses 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.

of financial condition and results of operations is based upon our unaudited financial statements, which have been prepared without audit,

pursuant to the rules and regulations of the Securities and Exchange Commission.

The preparation of these financial statements requires

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

Critical Accounting Policies and Estimates

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critical accounting policies as disclosed in the Notes to our Financial Statements contained in our Annual Report on Form 10-K for

the year ended June 30, 2024 filed with the Securities and Exchange Commission on September 30, 2024.

the year ended June 30, 2025 filed with the Securities and Exchange Commission on September 29, 2025 , as amended by Amendment

1 on Form 10-K/A filed with the Securities and Exchange Commission on October 28, 2025.

Results of Operations

Ended March 31,

Ended September 30,

Percent of Sales

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Engineering Design Services

$ (1,349,887 )

Optical Components

Finished Products and Assemblies

Total Revenues

$ (1,056,611 )

Ended March 31,

Engineering Design Services

$ (2,460,740 )

Optical Components

Finished Products and Assemblies

Systems Manufacturing

MicroOptics Lab

Ross Optical Industries

Total Revenues

$ (1,478,195 )

Total revenues for the quarter ended March 31,

2025 were $4,185,968, as compared to $5,242,579 for the same period in the prior year, a decrease of $1,056,611 or 20.2% and for the nine

months ended March 31, 2025 was $12,909,928 as compared to $14,388,123 for the same period in the prior year, a decrease of $1,478,195,

Revenue from Engineering Design Services decreased

59.3% and 38.2% during the three- and nine-month periods ending March 31, 2025 from the same periods in the prior fiscal year.

decreases in the engineering category resulted from decreased demand for services, increases in internal research and development, and

delays related to milestone completion.

Engineering revenue in the quarter was reduced due to unplanned increases in non-billable sustaining

engineering activity to support manufacturing scale up along with delayed revenue opportunities within the product development pipeline.

Revenue from Optical Components increased 22.2%

and 27.3% during the three- and nine-month periods ending March 31, 2025 from the same periods in the prior fiscal year due to the introduction

of new defense/aerospace and medical device programs.

Revenue from Finished Products and Assemblies

decreased 42.3% and 44.1% during the three- and nine-month periods ending March 31, 2025 from the same periods in the prior fiscal year.

The decreases in Finished Products and Assemblies were attributable to lower demand for certain production programs and the timing of

order fulfillment.

Total revenues for the quarter ending September

30, 2025 were $6,680,823, as compared to $4,197,053 for the same period in the prior year, an increase of $2,483,770.

Revenue from Engineering

Design Services decreased 59.3% during the quarter ending September 30, 2025 from the prior year period ending September 30, 2024.

the quarter ending September 30, 2025 revenue decreases in the engineering category resulted from decreased demand for services, primarily

from the transfer of our single-use cystoscope program from Engineering Design Services to Systems Manufacturing.

Engineering revenue

was lower due to the completion of product development engagements in the prior year and delayed revenue opportunities within the product

development pipeline for the current quarter.

Revenue from Systems Manufacturing increased nearly

300% during the quarter ending September 30, 2025 from the same period in the prior year, due primarily to significant increases in customer

demand and the resultant scaling of manufacturing capabilities.

Revenue from the MicroOptics Lab decreased 76.5%

during the quarter ending September 30, 2025 from the same period in the prior year, primarily due to delays in receiving new production

orders from our defense customer.

Revenue from Ross Optical Industries increased

13.7% during the quarter ending September 30, 2025 from the same period in the prior year.

We believe the increase is attributable to

the inability of our customers to continue to postpone deliveries that had previously been delayed due to the introduction of new tariffs

and the resultant uncertainty.

Gross margin decreased to 14.2% during the quarter

ending March 31, 2025, compared to 35.5% for the quarter ending March 31, 2024.

Gross profit decreased to $417,975 during the three months

ending March 31, 2025, compared to $1,858,737 for the three months ended March 31, 2024, primarily driven by yield issues associated with

new manufacturing lines, lower utilization of billable engineering resources, and the decreases in revenue discussed above.

Gross margin decreased to 20.2% during the nine

months ending March 31, 2025, compared to 33.2% for the nine months ending March 31, 2024.

Gross profit decreased to $2,605,247 during

the nine months ending March 31, 2025, compared to $4,773,324 for the nine months ending March 31, 2024.

ending September 30, 2025, compared to 26.6% for the quarter ending September 30, 2024.

Gross profit decreased to $946,358 during the

three months ending September 30, 2025, compared to $1,117,330 for the three months ending September 30, 2024.

The primary factors for

the decrease in gross profit include lower utilization of engineering resources for customer-paid engineering, low yields for manufacturing

lines producing single-use medical devices, and delays in the reorder for the MicroOptics Lab.

Research & Development

R&D expenses increased $18,469 to $211,242

during the quarter ending March 31, 2025, compared to $192,773 during the quarter ending March 31, 2024.

R&D expenses increased $302,389

to $929,648 during the nine months ending March 31, 2025, compared to $627,259 during the nine months ending March 31, 2024.

for the period represent employee-related expenses to support product improvements, the development of new technologies and standardized

approaches to address the opportunities for an evolving single-use medical device environment.

R&D expenses decreased $88,819 to $311,840

during the quarter ending September 30, 2025, compared to $400,659 during the quarter ending September 30, 2024.

R&D expenses for

the period represent employee-related expenses to support product improvements, the development of new technologies and standardized approaches

to address the opportunities for an evolving single-use medical device environment.

Selling, General and Administrative Expenses

SG&A expenses increased $266,161, or 13.6%

to $2,245,018 during the three months ending March 31, 2025, compared to $1,924,491 during the three months ending March 31, 2024.

increase in SG&A for the three-month period was primarily due to increased personnel costs, chiefly stock-based compensation and recruiting

expense, SG&A expenses increased $356,799, or 6.5% to $5,870,846 during the nine months ending March 31, 2025, compared to $5,514,047

during the nine months ending March 31, 2024.

to $2,229,773 during the three months ended September 30, 2025, compared to $1,963,612 during the three months ended September 30, 2024.

The increase in SG&A for the three-month period was primarily due to increased stock compensation, severance, and consulting expenses.

Liquidity and Capital Resources

Based on our current plans and business conditions,

management believes that the Company’s available cash and cash equivalents, the cash generated from operations, availability on

our line of credit, and our ability to raise funds in the capital markets will be sufficient to provide for the Company’s working

management believes that the Company’s available cash and cash equivalents, the cash generated from operations, the eventual availability

of our line of credit, and our ability to raise funds in the capital markets will be sufficient to provide for the Company’s working

capital and capital expenditure requirements for at least 12 months from the date of this filing.

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Net Cash Used in Operating Activities

During the nine months ending March 31, 2025,

net cash used in operating activities totaled $2,978,165 as compared to $1,706,998 during the nine months ending March 31, 2024.

in net cash used in operating activities was primarily due to the increase in net loss and inventory during the nine months ending March

31, 2025, partially offset by the increase in accounts payable and customer advances during such period.

During the three months ending September 30, 2025,

net cash provided by operating activities totaled $78,227 as compared to $318,622 net cash used in operating activities during the three

months ending September 30, 2024.

The increase in net cash provided by operating activities was primarily due to the increase in accounts

payable, stock compensation and inventory during the three months ending September 30, 2025, partially offset by the decrease in accounts

receivable and net losses during such period.

Net Cash Used in Investing Activities

During the nine months ending March 31, 2025,

net cash used in investing activities was $149,837, consisting of purchases of property and equipment net of adjustments in patent costs.

During the nine months ending March 31, 2024, net cash used in investing activities was $282,078, consisting of purchases of property

and equipment and patent costs.

During the three months ending September 30,

2025, net cash used in investing activities was $301,789, consisting of purchases of property and equipment and patent costs.

the three months ended September 30, 2024, net cash used in investing activities was $28,099, consisting of purchases of property and

equipment and patent costs.

Net Cash Provided by Financing Activities

During the nine months ending March 31, 2025,

we made payments of $196,487 on term notes and capital leases and repaid $1,000,000 on our revolving line of credit.

We raised a net of

$6,270,136 from two registered direct offerings made in August 2024 and February 2025 pursuant to our shelf registration statement.

the nine months ending March 31, 2024, we made payments of $417,109 on term notes and capital leases offset by borrowings on the line

of credit of $400,000.

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

with a commercial bank.

In June 2023 we added a second term loan in the amount of $750,000.

We secured a $250,000 line of credit from

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.

were no borrowings under the Revolver at March 31, 2025.

Our loan agreement contains a minimum annual

debt service coverage ratio covenant of 1.2x.

We did not meet this annual debt service coverage ratio as of June 30, 2024.

lender has agreed to waive compliance with the debt service ratio covenant for the period ending June 30, 2024.

In addition to the

waiver, we have entered into amendments dated September 30, 2024 with our lender to both term loans which provide for a six-month

period of interest only payments from October 15, 2024 through March 15, 2025.

We will begin to pay principal and interest under the

Notes beginning with the payments due on April 15, 2025, with a new amortization schedule for the remaining term for such Notes

through their maturity date.

On February 14, 2025 the lender agreed to waive compliance with the annual debt service coverage ratio

covenant for the fiscal year ended June 30, 2025 subject to a $30,000 waiver fee and the completion of an equity raise of at least

$4,500,000 by February 24, 2025, which we completed on February 21, 2025.

Any future advances are contingent on the Company

achieving a minimum Debt Service Coverage ratio of 1.20x based on quarterly testing.

During the three months ending September 30, 2025,

we made payments of $158,068 on term notes and capital leases.

During the three months ending September 30, 2024, we made payments of

$139,527 on term notes and capital leases, repaid $500,000 on our revolving line of credit and raised a net of $1,204,542 through the

issuance of new shares in a registered direct common stock offering.

On October 4, 2021, the Company entered into a

Loan Agreement with Main Street Bank of Marlborough, Massachusetts (the “Lender”), which provided for a $2,600,000 Term Loan

and a $250,000 Revolving Line of Credit Loan Facility (the “Revolver”), which was increased to $500,000 effective May 17,

2022, and $1,250,000 effective June 2, 2023.

Borrowings under the Revolver are limited by the borrowing base comprised of a percentage

of accounts receivable and inventory and secured by all assets of the Company.

Borrowings under the Revolver will bear interest payable

monthly at the prime lending rate plus 1.5% per annum and shall not be less than 4.75% per annum.

Borrowings under the Revolver are due

There were no borrowings under the Revolver at June 30, 2025.

The Company’s Loan Agreement with the Lender

contains a minimum annual debt service coverage ratio covenant of 1.2x.

As the Company did not meet this annual debt service coverage

ratio for the fiscal year ended June 30, 2024, the Company’s Lender had agreed to waive compliance with such debt service ratio

covenant for the period ending June 30, 2024.

In addition to such waiver, the Lender and the Company entered into an amendment dated September

30, 2024 to that certain Term Loan dated October 4, 2021, as amended and that certain Promissory Note dated June 2, 2023 (collectively,

the “Notes”) which amendments provided for a six month period of interest only payments from October 15, 2024 through March

15, 2025 for the Notes.

The Company commenced payments of principal and interest under the Notes beginning with the payments due on April

15, 2025, with a new amortization schedule for the remaining term for such Notes through their maturity date.

On February 14, 2025, the

lender agreed to waive compliance with the annual debt service coverage ratio covenant for the fiscal year ending June 30, 2025, subject

to a $30,000 waiver fee and the completion of an equity raise of at least $4,500,000 by February 24, 2025, which the Company satisfied

on February 21, 2025.

Any future advances are contingent on the Company achieving a minimum Debt Service Coverage ratio of 1.20x based

on quarterly testing which the company was not in compliance with as of September 30, 2025.

There were no other changes to or modifications

to the Loan Agreement or the Notes.

On August 14.

2024 we entered into securities

purchase agreements with institutional and accredited investors in addition to certain directors and officers of the Company for the purchase

and sale of 265,868 shares of the Company’s common stock resulting in gross proceeds of approximately $1.4 million before deducting

placement agent commissions and other estimated offering expenses.

Net proceeds were $1,204,542.

On February 19, 2025 the Company entered into

securities purchase agreements with institutional and accredited investors for the sale of $1,272,500 shares of the Company’s common

stock in a registered direct offering at a purchase price of $4.00 per share.

The offering closed on February 21, 2025 with net proceeds

after transaction costs of $5,053,000.

Capital equipment expenditures and additional

patent costs during the nine months ended March 31, 2025 and in the same period in the prior year were $7,484 and $282,078, respectively.

patent costs during the three months ended September 30, 2025 and in the same period in the prior year were $523,539 and $28,099, respectively.

Contractual cash commitments for the fiscal periods

subsequent to March 31, 2025, are summarized as follows:

subsequent to September 30, 2025, 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 March 31, 2025 of approximately $5,740,000.

open purchase orders as of September 30, 2025 of approximately $7,402,000.

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