PRECISION OPTICS CORPORATION, INC.

Precision Optics Corporation, Inc. operates in two principal market segments: medical devices and advanced defense/aerospace products, designing and manufacturing ultra-high precision endoscopes, Microprecision lenses, assemblies, and complete medical devices for minimally invasive surgery, as well as applying its optical and imaging technology to defense and aerospace applications including satellite network communications. The company has been a developer and manufacturer of advanced optical instruments since 1982 and conducts business in one industry segment only, with customers primarily domestic. The company's business operations are conducted in four areas: systems manufacturing, engineering and product development, Ross Optical components and assemblies, and its micro-optics laboratory. The company believes satellite optical communications represents a significant market opportunity for its advanced defense and aerospace capabilities, as Optical Communication Terminals used in emerging satellite constellations require compact, lightweight and high-performance optical assemblies, creating a strong fit with its Microprecision optics, opto-mechanical design, precision alignment and scalable manufacturing capabilities.

The company sells its products in highly competitive markets, competing with both foreign and domestic manufacturers, many of which are larger and have substantially greater resources. The company believes it competes successfully through product quality, price, delivery and innovation tailored to customers' specifications, and that its trade secrets and unique technical capabilities in Microprecision optics, micro medical cameras, digital imaging, and illumination represent competitive advantages. The competitive advantage of the Ross Optical division is its ability to quickly provide design-for-manufacturability feedback and to provide difficult-to-find optics, augmented by its ability to provide thin-film coatings and assembly. The company's success depends in part on its ability to maintain a technological advantage over competitors and to effectively incorporate that technology into its custom designs, and it intends to continue to aggressively support and augment its internal engineering, research and development resources and to pursue patent protection for existing and new technology.

The company generates revenue through four business areas: systems manufacturing, engineering and product development, Ross Optical components and assemblies, and its micro-optics laboratory. Systems manufacturing operations assemble and manufacture components and systems for both medical device and advanced aerospace customers who choose to outsource these services. Engineering and product development assesses specific customer product needs, designs devices to solve those needs, and creates manufacturing processes that enable higher volume production. Ross Optical operates as a supplier of custom optical components and assemblies for military and defense, medical and various other industrial applications, sourcing custom or catalog optics through its extensive domestic and worldwide network of optical fabrication suppliers. The micro-optics laboratory contributes a small portion of business. Revenue is recognized upon transfer of control of promised products to customers, with Engineering Design Services rendered on a time and materials basis and revenue recognized as customers are invoiced, while Systems Manufacturing, Micro Optics Laboratory, and Ross Optical Industries recognize revenue at the time title passes to the customer, generally at the time of shipment. The company generally expects revenue to increase over time as the engineering design phase of new product programs is completed and products transition to the commercial phase, leveraging its unique manufacturing capabilities.

During the fiscal year ended June 30, 2026, approximately 72% of the company's business was from systems manufacturing, 11% was from engineering services primarily relating to the design of medical device optical assemblies, 15% was from Ross Optical, and 2% from its micro-optics laboratory. During the fiscal year ended June 30, 2025, approximately 43% of the business was from systems manufacturing, 26% was from engineering services, 20% was from Ross Optical, and 11% from the micro-optics laboratory. Systems Manufacturing revenue increased 172.9% during the year ending June 30, 2026 from the prior year, resulting from significant increases in customer demand and the resultant scaling of manufacturing capabilities. Engineering Design Services revenue decreased 29.7% during the year ending June 30, 2026, primarily due to decreased demand for services, including the transfer of the single-use cystoscope program from development to production. MicroOptics Lab revenue decreased 75.7% during the year ending June 30, 2026, primarily due to delays in receiving new production orders from a defense contractor, which is the primary customer for this line of business. Ross Optical Industries revenue increased 31.7% for the year ending June 30, 2026, with a portion of the increase attributable to the inability of customers to continue to postpone deliveries that had previously been delayed due to the uncertainty of new tariffs and the passthrough of these tariff costs which increased revenue.

In January 2025, the company launched its Unity Imaging Platform, comprising a standard baseline CMOS endoscopic system with customization options based on existing or newly designed modular sub-components, representing the culmination of many years of research, development, and collaboration with key industry players. The Unity platform provides customers with a functional video pipeline early in the development process, accelerating system integration efforts and shortening time to market. During the fiscal year ended June 30, 2026, the company recorded a receivable of $880,598 ¹ within accounts receivable representing recovery of IEEPA tariffs previously paid, with a corresponding offset to cost of goods sold, and recorded a $558,266 ² liability within accrued compensation and other as a result of its decision to refund IEEPA tariff surcharges collected from customers, with a corresponding reduction of revenue. In the year ended June 30, 2026, the company received $37,576 ³ in IEEPA tariff refund proceeds, resulting in outstanding IEEPA tariff refund claims receivable of $843,022 ⁴ within accounts receivable. The company raised a net of $10,630,678 ⁵ from a public offering of common stock made in March 2026 pursuant to its shelf registration statement, and during the prior year raised a net of $6,270,136 ⁶ from two registered direct offerings made in August 2024 and February 2025. On September 25, 2026, the lender agreed to waive the company's minimum annual debt service coverage ratio covenant for the fiscal year ended June 30, 2026 and modified the credit arrangements to eliminate the debt service coverage ratio covenant and replace it with a minimum liquidity covenant of $2.0 million ⁷, retain the existing term note, and provide the company access to $750,000 ⁸ of availability under its revolving line of credit, subject to borrowing-base requirements and a $5,000 ⁹ waiver fee.

Total revenues for the fiscal year ended June 30, 2026 were $31,531,765 ¹⁰, as compared to $19,091,269 ¹¹ for the same period in the prior year, an increase of $12,440,496 ¹², or 65.2% ¹³. Gross profit increased to $5,431,220 ¹⁴ during the year ended June 30, 2026, compared to $3,404,433 ¹⁵ for the year ended June 30, 2025, with gross margin decreasing to 17.2% ¹⁶ during the year ended June 30, 2026, compared to 17.8% ¹⁷ for the year ended June 30, 2025. The company reported a net loss of $3,629,891 ¹⁸ for the year ended June 30, 2026, compared to a net loss of $5,780,246 ¹⁹ for the year ended June 30, 2025. Basic and fully diluted loss per share was $0.43 ²⁰ for the year ended June 30, 2026, compared to $0.85 ²¹ for the year ended June 30, 2025. Net cash used in operating activities totaled $1,550,219 ²² during the year ended June 30, 2026, as compared to $3,395,702 ²³ during the year ended June 30, 2025. The company ended the year with cash and cash equivalents of $9,841,142 ²⁴ at June 30, 2026, compared to $1,773,735 ²⁵ at June 30, 2025.

The company expects revenue to increase over time as the engineering design phase of new product programs is completed and products transition to the commercial phase, leveraging its unique manufacturing capabilities. The Unity Imaging Platform, launched in January 2025, is expected to drive growth by providing customers with a modular, adaptable solution that simplifies every stage of the development process, from prototyping to production, and shortens time to market. The company believes its Microprecision and digital imaging technologies will continue to replace existing re-sterilizable endoscopes with single-use alternatives, and that the small size of its Microprecision lenses and micro medical cameras combined with proprietary illumination techniques can provide visualization for existing procedures that are currently performed blind or with sub-optimal imaging, and can facilitate the development of new surgical procedures that are currently impractical without millimeter-sized visualization instrumentation. The company also believes satellite optical communications represents a significant market opportunity for its advanced defense and aerospace capabilities, as Optical Communication Terminals used in emerging satellite constellations require compact, lightweight and high-performance optical assemblies, creating a strong fit with its Microprecision optics, opto-mechanical design, precision alignment and scalable manufacturing capabilities.

The company's growth strategy includes expanding its on-going pipeline of projects to established medical device companies as well as to emerging medical device companies, and to a growing number of major defense and aerospace companies. Due to its expertise and growing OEM trends of outsourcing complex projects, the company expects its revenues and customer base to continue to expand as development projects transition to production orders and new customer projects enter the development phase. The company markets directly to established medical device companies primarily in the United States that could benefit from its advanced endoscopy visualization systems, and through direct marketing, referrals, attendance at trade shows and an online presence, it continually seeks to expand its pipeline of projects. The company also intends to continue to innovate and extend its technological capabilities in the areas of Microprecision optics, digital imaging, micro medical cameras, related illumination techniques, and associated design and manufacturing technology and to aggressively pursue patent protection for such developments.

Gross margin decreased to 17.2% ²⁶ during the year ended June 30, 2026, compared to 17.8% ²⁷ for the year ended June 30, 2025, with gross profit increasing to $5,431,220 ²⁸ from $3,404,433 ²⁹ in the prior year, primarily driven by increased volume in Systems Manufacturing. Research and development expenses decreased $124,807 ³⁰ to $1,033,156 ³¹ during the year ended June 30, 2026, compared to $1,157,963 ³² during the year ended June 30, 2025, with R&D expenses for the period primarily representing 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 increased $108,911 ³³, or 1.4% ³⁴, to $7,906,672 ³⁵ during the year ended June 30, 2026, compared to $7,797,761 ³⁶ during the year ended June 30, 2025, with the increase primarily due to consulting and bonus expense, partially offset by decreased stock-based compensation and recruiting expenses.

The company believes that its available cash and cash equivalents, the cash generated from operations, availability on its line of credit, and its 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 the filing. The company has contractual cash commitments related to open purchase orders as of June 30, 2026, of approximately $5,050,000 ³⁷. The company's operations are subject to a variety of federal, state and local laws and regulations relating to the discharge of materials into the environment, and the company believes it currently complies with all applicable environmental laws and regulations, using limited amounts of hazardous materials in its operations, with compliance not entailing significant expense. The company relies on a global supply chain for the procurement of specialized optical components and assemblies, many of which are sourced from overseas suppliers, and believes that the availability of specialized components and cost savings from various overseas production resources is essential to its ability to deliver complex and unique device designs and to compete on a price basis in the medical products area particularly and to its profitability generally.

The company's capital allocation priorities include funding research and development expenses incurred on its own proprietary products and technology, such as Microprecision optics and the Unity platform, as well as investing in property and equipment. During the year ended June 30, 2026, net cash used in investing activities was $429,350 ³⁸, consisting of purchases of property and equipment and additional patent costs, compared to $233,473 ³⁹ during the year ended June 30, 2025. The company made payments of $623,701 ⁴⁰ on term notes and capital leases during the year ended June 30, 2026, and raised a net of $10,630,678 ⁴¹ from a public offering of common stock made in March 2026. The company has not declared any dividends during the last two fiscal years and at present intends to retain its earnings, if any, to finance research and development and the expansion of its business, with no intention of declaring dividends in the foreseeable future. The company did not repurchase any of its equity securities during the year ended June 30, 2026.

The company faces significant customer concentration risk, as during the fiscal year ending June 30, 2026, one customer accounted for approximately 41% ⁴² of total revenues and another customer accounted for 27% ⁴³ of total revenues, representing a significant increase in customer concentration compared to prior years, and the loss of these customers would have a material impact on the business. The company also faces risks related to its reliance on a small number of key scientific, technical, managerial and manufacturing personnel, particularly its Chief Executive Officer, Dr. Joseph N. Forkey, the loss of whose services could damage the business. The company has a history of losses and may continue to incur losses and not achieve profitability in the near term, and may need to raise additional funds to pursue its product development initiatives and penetrate markets for the sale of its products.

The company's business is subject to risks associated with changes in U.S. tariff policy and related trade actions, which could materially and adversely affect its operations, financial condition, and results of operations, as the imposition of new tariffs, increases in existing tariffs, or other trade restrictions by the United States government on goods imported from certain countries could increase its cost of goods sold and disrupt the availability of critical components necessary for its products. The company also faces risks related to its reliance on a limited number of suppliers for key supplies and services, including precision-grade optical glass, which is available from only a few sources, most of which are located outside of the United States, and specialized CMOS sensors and the electronic wiring of those sensors. The company's business and financial performance may be adversely affected by cyber-attacks on information technology infrastructure and products, as well as changes in cybersecurity, and the company faces reputational, litigation and financial risks in relation to potential required disclosures and increased risk of enforcement.

The company faces significant customer concentration risk, as during the fiscal year ending June 30, 2026, one customer accounted for approximately 41% ⁴⁴ of total revenues and another customer accounted for 27% ⁴⁵ of total revenues, and two customer accounts receivable balances accounted for 34.4% ⁴⁶ and 22.8% ⁴⁷ of total receivables on June 30, 2026, with the loss of these customers having a material impact on the business. The company has a history of losses and may continue to incur losses and not achieve profitability in the near term, and may need to raise additional funds to pursue its product development initiatives and penetrate markets for the sale of its products. The company relies on a small number of key scientific, technical, managerial and manufacturing personnel, particularly its Chief Executive Officer, Dr. Joseph N. Forkey, the loss of whose services could damage the business. The company's business is subject to risks associated with changes in U.S. tariff policy and related trade actions, which could materially and adversely affect its operations, financial condition, and results of operations, as the imposition of new tariffs, increases in existing tariffs, or other trade restrictions on goods imported from certain countries could increase its cost of goods sold and disrupt the availability of critical components. The company relies on a limited number of suppliers for key supplies and services, including precision-grade optical glass, which is available from only a few sources, most of which are located outside of the United States, and specialized CMOS sensors and the electronic wiring of those sensors, and its business could be severely damaged if it becomes unable to procure these essential materials and services in adequate quantities and at acceptable prices.

Management's message emphasizes the company's position as a developer and manufacturer of advanced optical instruments since 1982, operating in medical devices and advanced defense/aerospace products, with a focus on its proprietary Microprecision optics, digital imaging, and illumination technologies. The company launched its Unity Imaging Platform in January 2025, representing the culmination of many years of research, development, and collaboration with key industry players, and providing customers with a modular, adaptable solution that simplifies every stage of the development process. Management highlights the significant revenue growth in the fiscal year ended June 30, 2026, with total revenues increasing 65.2% ⁴⁸ to $31,531,765 ⁴⁹, driven primarily by a 172.9% ⁵⁰ increase in Systems Manufacturing revenue due to significant increases in customer demand and the resultant scaling of manufacturing capabilities. The company's strategic priorities include continuing to support and augment its internal engineering, research and development resources, pursuing patent protection for existing and new technology, and expanding its pipeline of projects to established medical device companies as well as to emerging medical device companies and a growing number of major defense and aerospace companies. Management also emphasizes the company's belief that satellite optical communications represents a significant market opportunity for its advanced defense and aerospace capabilities, and that its Microprecision and digital imaging technologies will continue to replace existing re-sterilizable endoscopes with single-use alternatives.