What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-05-13 compared with 2026-02-17 · 71 added, 101 removed, 149 unchanged (54% of the section changed)

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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 December 31, 2025 and with our audited financial statements

included elsewhere in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2026 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

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Results of Operations

Ended December 31,

Percent of Sales

Percent Change

Ended March 31,

Engineering Design Services

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Total Revenues

Ended December 31,

Percent of Sales

Percent Change

Ended March 31,

Engineering Design Services

$ (1,203,877 )

Systems Manufacturing

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Total Revenues

Total revenues for the quarter ending December 31,

2025 were $7,367,837, as compared to $4,526,907 for the same period in the prior year, an increase of $2,840,930 or 62.8% and for the

six months ended December 31, 2025 was $14,048,660 as compared to $8,723,960 for the same period in the prior year, an increase of $5,324,700,

Revenue from Engineering Design Services decreased

31.2% and 46.3% during the three and six-month periods ending December 31, 2025 from the same periods in the prior fiscal year.

the quarter ending December 31, 2025 revenue decreases in the engineering category resulted from decreased demand for services.

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.

Total revenues for the quarter ending March 31, 2026

were $8,708,631, as compared to $4,185,968 for the same period in the prior year, an increase of $4,522,663 or 108.0% and for the nine

months ended March 31, 2026 was $22,757,291 as compared to $12,909,928 for the same period in the prior year, an increase of $9,847,363,

Revenue from Engineering Design Services increased

22.0% and decreased 31.0% during the three and nine-month periods ending March 31, 2026 from the same periods in the prior fiscal year.

During the quarter ending March 31, 2026 revenue increases in the engineering category resulted from new project revenues.

revenue for the nine-month period ending March 31, 2026 was lower due to the completion of product development engagements in the prior

year and delayed revenue opportunities within the product development pipeline.

Revenue from Systems Manufacturing increased 206.4%

and 248.9% during the three and six-month periods ending December 31, 2025 from the same periods in the prior fiscal year, due primarily

and 231.4% during the three and nine-month periods ending March 31, 2026 from the same periods in the prior fiscal year, due primarily

to significant increases in customer demand and the resultant scaling of manufacturing capabilities.

Revenue from the MicroOptics Lab decreased 72.4% and

68.3% during the three and six-month periods ending December 31, 2025 from the same periods in the prior fiscal year, primarily due to

delays in receiving new production orders from our defense customer.

69.8% during the three and nine-month periods ending March 31, 2026 from the same periods in the prior fiscal year, primarily due to delays

in receiving new production orders from our defense customer.

Revenue from Ross Optical Industries increased 65.4%

and 6.8% during the three and six-month periods ending December 31, 2025 from the same periods in the prior fiscal year.

and 23.7% during the three and nine-month periods ending March 31, 2026 from the same periods in the prior fiscal year.

We believe the

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the introduction of new tariffs and the resultant uncertainty.

Gross margin decreased to 2.8% during the quarter

ending December 31, 2025, compared to 23.6% for the quarter ending December 31, 2024.

Gross profit decreased to $204,660 during the three

months ending December 31, 2025, compared to $1,069,942 for the three months ended December 31, 2024.

Within Systems Manufacturing, low

gross margins were primarily driven by yield losses within our cystoscope single-use manufacturing line, startup yield issues for a second

customer’s single-use manufacturing line, and under-absorption of manufacturing overhead.

Costs associated with Engineering Design

Services are primarily attributed to our engineering workforce, which we have chosen to keep in place as we focus on increasing revenue,

leading to negative margins for the period.

Similarly, the MicroOptics Lab workforce requires specialized training, and we have also experienced

negative margins resulting from the reorder delays discussed above but have chosen to keep the workforce in place.

Gross margin decreased to 8.2% during the six months

ending December 31, 2025, compared to 25.1% for the six months ending December 31, 2024.

Gross profit decreased to $1,151,018 during the

six months ending December 31, 2025, compared to $2,187,272 for the six months ending December 31, 2024.

Gross margin increased to 23.6% during the quarter

ending March 31, 2026, compared to 10.0% for the quarter ending March 31, 2025.

Gross profit increased to $2,056,534 during the three

months ending March 31, 2026, compared to $417,975 for the three months ended March 31, 2025.

Within Systems Manufacturing, gross margins

improved with greater sales volume and improving yield performance across all manufacturing lines, and the recognition of $224,544 of

grant income.

Conversely, costs associated with Engineering Design Services are primarily attributed to our engineering workforce, which

we have chosen to keep in place as we focus on increasing revenue, leading to low margins for the period.

Similarly, the MicroOptics Lab

workforce requires specialized training, and we have also experienced negative margins from this segment resulting from the reorder delays

discussed above but have chosen to keep the workforce in place.

Gross margin decreased to 14.1% during the nine months

ending March 31, 2026, compared to 20.2% for the nine months ending March 31, 2025.

Gross profit increased to $3,207,552 during the nine

months ending March 31, 2026, compared to $2,605,247 for the nine months ending March 31, 2025.

Research & Development

R&D expenses decreased $68,173 to $249,574 during

the quarter ending December 31, 2025, compared to $317,747 during the quarter ending December 31, 2024.

R&D expenses increased $56,077 to $267,319 during

the quarter ending March 31, 2026, compared to $211,242 during the quarter ending March 31, 2025.

R&D expenses decreased $100,915

to $561,414 during the six months ending December 31, 2025, compared to $718,406 during the six months ended December 31, 2024.

expenses for the applicable periods 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.

to $828,733 during the nine months ending March 31, 2026, compared to $929,648 during the nine months ended March 31, 2025.

for the applicable periods 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 $35,199, or 2.1% to $1,697,415

during the three months ending December 31, 2025, compared to $1,662,216 during the three months ending December 31, 2024.

SG&A expenses

increased $301,360, or 8.3% to $3,927,188 during the six months ending December 31, 2025, compared to $3,625,828 during the six months

ended December 31, 2024.

The increase in SG&A for the six-month period was primarily due to increased stock compensation, executive

severance, and consulting expenses.

SG&A expenses decreased $373,931, or 16.7%

to $1,853,677 during the three months ending March 31, 2026, compared to $2,245,018 during the three months ending March 31, 2025.

decrease in SG&A for the three-month period was primarily due to decreases in stock-based compensation and recruiting costs partially

offset by consulting, bonuses, and bad debt expense.

SG&A expenses decreased $72,571, or 1.2%

to $5,780,865 during the nine months ending March 31, 2026, compared to $5,870,846 during the nine months ended March 31, 2025.

in SG&A for the nine-month period was primarily due to decreases in stock-based compensation and recruiting partially offset by severance,

bonuses, and bad debt expense.

Liquidity and Capital Resources

These financial statements have been prepared on a going concern

basis, which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business.

continuation of the Company as a going concern is dependent upon the ability of the Company to obtain necessary equity financing to continue

operations and the attainment of profitable operations.

Management anticipates that its cash on hand of $0.9 million as of December 31,

2025 is insufficient to fund its planned operations for a period of at least one year from when these financial statements are issued.

These factors raise substantial doubt regarding the Company's ability to continue as a going concern.

These unaudited condensed consolidated

financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification

of liabilities that might be necessary should the Company be unable to continue as a going concern.

During fiscal 2026 through the date of the filing of this Quarterly

Report on Form 10-Q, we have taken the following actions, and implemented the following plans, to improve our operational and financial

performance and enhance our liquidity and financial condition:

· Through new leadership and improved accountability and process discipline

implemented throughout the organization, improved manufacturing yields and increased production throughput;

· Renegotiated pricing and added tariff reimbursement with some of our major

manufacturing customers

· Improved the quality and depth of our product development pipeline;

· Planned increased utilization of engineering resources and the capabilities

of our MicroOptics Laboratory;

· Planned launch of several maturing development projects into manufacturing

in the coming twelve months.;

· Planned reductions in our cost structure to better align operating expenses

with revenue expectations, including headcount rationalization and optimization.

Our ability to meet future anticipated liquidity needs over the next

year beyond the date of this Quarterly Report on Form 10-Q will largely depend on our ability to execute our operational strategy, generate

positive cash inflows from operations, maximize our borrowing capacity and secure additional capital.

The Company intends to seek in the near term additional

funding through one or more of the following:

equity offerings, debt financings, government funding, and delay of planned cash outlays.

However, our ability to do so, and on favorable terms, may be affected by general economic, financial and other factors which are beyond

There can be no assurance that any such additional capital raises, management of planned cash outlays, or a combination thereof

can be achieved or achieved on favorable terms.

Based on our current plans and business conditions,

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.

Net Cash Used in Operating Activities

During the six months ending December 31, 2025, net

cash used in operating activities totaled $177,852 as compared to $1,105,431 during the six months ending December 31, 2024.

in net cash used in operating activities was primarily due to increased accounts payable and accrued expenses during the six months ending

December 31, 2025, partially offset by the increase in net loss during such period.

During the nine months ending March 31, 2026, net

cash used in operating activities totaled $901,110 as compared to $2,978,165 during the nine months ending March 31, 2025.

in net cash used in operating activities was primarily due to increased accounts payable and decreased net loss and inventory during the

nine months ending March 31, 2026, partially offset by the increase in accounts receivable during such period.

Net Cash Used in Investing Activities

During the six months ending December 31, 2025, net

During the nine months ending March 31, 2026, net

cash used in investing activities was $348,639, consisting of purchases of property and equipment and patent costs.

During the six months

ending December 31, 2024, net cash used in investing activities was $60,085 consisting of purchases of property and equipment and patent

During the nine months

ending March 31, 2025, net cash used in investing activities was $149,837 consisting of purchases of property and equipment and patent

Net Cash Provided by Financing Activities

During the six months ending December 31, 2025, we

made payments of $316,266 on term notes and capital leases.

During the six months ending December 31, 2024, we made payments of $158,863

on term notes and capital leases and repaid $100,000 on our revolving line of credit.

We raised a net of $1,204,542 through the issuance

of new shares in a registered direct common stock offering and $27,000 in proceeds from stock option exercises.

During the nine months ending March 31, 2026, we made

payments of $474,618 on term notes and capital leases and raised a net of $10,630,678 from an underwritten offering made in March 2026.

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.

On October 4, 2021, the Company entered into a Loan

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Borrowings under the Revolver are due upon demand.

There were no borrowings under the Revolver at December 31, 2025.

There were no borrowings under the Revolver at March 31, 2026.

The Company’s Loan Agreement with the Lender

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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 December 31, 2025.

on quarterly testing which the company was not in compliance with as of March 31, 2026.

Under our current projections, we don’t

expect to meet this covenant for fiscal 2026.

We are currently in discussion with the Lender to grant a waiver or a longer-term solution.

If the Lender seeks repayment, currently we have sufficient liquidity to repay our loans.

There were no other changes to or modifications

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Capital equipment expenditures and additional patent

costs during the six months ended December 31, 2025 and in the same period in the prior year were $401,131 and $60,085, respectively.

costs during the nine months ended March 31, 2026 and during the same period in the prior year were $351,639 and $149,837, respectively.

Contractual cash commitments for the fiscal periods

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

Capital lease for equipment, including interest

subsequent to March 31, 2026, are summarized as follows:

Minimum operating lease payments

We have contractual cash commitments related to open

purchase orders as of December 31, 2025 of approximately $7,070,000.

purchase orders as of March 31, 2026 of approximately $6,200,000.

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