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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the Fiscal Year Ended JUNE 30, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For transition period from ____ to ____
Commission File Number 001-10647
PRECISION OPTICS CORPORATION, INC.
(Name of small business issuer in its charter)
MASSACHUSETTS 04-279-5294
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
22 EAST BROADWAY
GARDNER, MASSACHUSETTS 01440
(Address of principal executive offices) (Zip Code)
(978) 630-1800
(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Act:
NONE
Securities registered under Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes /X/ No / /
Check if no disclosure of delinquent filers to Item 405 of Regulation
S-B is contained in this form, and no disclosure will be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. __
The issuer's revenues for its most recent fiscal year were $3,009,649.
The aggregate market value of the voting stock, consisting solely of
common stock, held by non-affiliates of the issuer computed by reference to the
closing price of such stock was $98,156,138 as of August 31, 2000.
The number of shares of outstanding common stock of the issuer as of
August 31, 2000 was 10,470,758.
DOCUMENTS INCORPORATED BY REFERENCE
The issuer's Proxy Statement for the 2000 Annual Meeting of
Shareholders to be held on November 14, 2000 is incorporated into Part III of
this Form 10-KSB.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT
Precision Optics Corporation, Inc. (the "Company") was incorporated in
Massachusetts in 1982 and has been publicly owned since November 1990.
References to the Company contained herein include its two wholly owned
subsidiaries except where the context otherwise requires.
BUSINESS OF ISSUER
The Company designs, develops, manufactures and sells specialized
optical systems and components and optical thin film coatings. The Company
conducts business in one industry segment only. The Company's products and
services fall into the following areas: medical products for use by hospitals
and physicians, optical thin films used in telecommunications and other
applications and advanced optical system design and development services.
PRINCIPAL PRODUCTS AND SERVICES AND METHODS OF DISTRIBUTION.
OPTICAL THIN FILMS. Dielectric optical thin film filters are used as
the key components for devices which can separate very narrow bandwidth
constituent wavelengths (i.e. colors) in laser communication signals. This
technique of more finely splitting out constituent colors to create additional
communication channels is called Dense Wavelength Division Multiplexing
(DWDM), and the assemblage of required filters, enclosed with a means to
attach it into a fiber optic communication line, is called a Dense Wavelength
Division Multiplexer.
The Company's dielectric optical thin film filters are designed to yield
intrinsically low thermal sensitivity and very low environmental sensitivity
in general, consistent with customers' environmental requirements for passive
components. This has been verified by laboratory testing of thermal and
environmental stability of the Company's filters to the Bellcore Standards of
500 hours of 85(Degree)C temperature and 85% humidity testing (Bellcore
GR-1221-CORE).
In 1997, the Company announced efforts to develop prototype DWDM optical filters
based upon ion-assisted electron beam deposition technology developed by the
Company in the early 1990s. For filters up to 100 GHz channel separation, this
technology and its variations are presently widely used. 100 GHz refers to the
difference in frequency between channels. A lower frequency difference (e.g.,
100 GHz as compared with 200 GHz) allows a greater number of channels to be
transmitted.
The Company received initial orders in March 1999, totaling approximately $1.9
million from several customers for 100 GHz and 200 GHz channel separation DWDM
filters. First deliveries of 200 GHz filters were made in March, 1999. The
Company is currently producing 200 GHz DWDM filters. Prototypes of 100 GHz
DWDM filters have been produced and distributed to key customers and potential
customers for testing and evaluation.
Presently, the continued process development for these products represents the
major objective of the Company's development efforts.
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MEDICAL PRODUCTS. The Company's medical products include endoscopes and
image couplers, beamsplitters and adapters, the latter of which are used as
accessories to endoscopes.
Since January 1991, the Company has developed and sold endoscopes using various
optical technologies for use in a variety of minimally invasive surgical and
diagnostic procedures throughout the human body. The Company's current line of
specialized endoscopes include arthroscopes (which are used in joint surgery),
laryngoscopes (which are used in the diagnosis of diseases of the larynx),
laparoscopes (which are used in abdominal surgery) and stereo endoscopes and
cameras (which are used in cardiac surgery). In addition to its existing line of
endoscopes, the Company is continuing to develop different types of endoscopes
that incorporate varying types of construction and technology for use in various
medical specialties.
In July 1998, the Company entered into a Manufacturing Services
Agreement with a customer that is in the process of developing a sophisticated
system for computer assisted minimally invasive cardiac surgery that employs
advanced electronics and robotics and an enhanced 3-D visualization system.
Under the Agreement, the Company is this customer's primary supplier of stereo
endoscopes and cameras, both of which are used as key components in the
customer's surgical system. The Company has received several production orders
from this customer, with deliveries that commenced in the quarter ending
December 31, 1998 and are currently scheduled to continue through March 2001.
The Company developed and has manufactured and sold since 1985 a
proprietary product line of instrumentation to couple endoscopes to video
cameras. Included in this product line are imaging couplers, which physically
connect the endoscope to the video camera system and transmit the image viewed
through the scope to the video camera. Another product, the beamsplitter,
performs the same function while preserving for the viewer an eyeport for
direct, simultaneous viewing through the endoscope. The Company has sold these
devices primarily to endoscope and video camera manufacturers and suppliers for
resale under its customers' names.
The Company's image couplers and beamsplitters can withstand
surgery-approved sterilization. The Company also offers autoclavable image
couplers, which are able to withstand sterilization in superheated steam under
pressure. Autoclavability is a preferred method of sterilization because of its
relative speed, safety, and efficiency. The Company believes that it is the only
company in the world that produces autoclavable image couplers.
Included in the Company's medical products sales are sales of image
couplers and beamsplitters for video-monitored examination of a variety of
industrial cavities and interiors. The Company has developed, and may develop in
the future, specialized borescopes for industrial applications.
OPTICAL SYSTEM DESIGN AND DEVELOPMENT SERVICES: The Company provides on
a contract basis advanced lens design, imaging analysis, optical system design,
structural design and analysis, prototype production and evaluation, optics
testing, and optical system assembly. Some of the Company's development
contracts have led to optical system production business for the Company, and
the Company believes its prototype development service may lead to new product
production from time to time.
COMPETITION AND MARKETS.
The areas in which the Company does business are highly competitive and
include both foreign and domestic competitors. Many of the Company's competitors
are larger and have substantially greater resources than the Company.
Furthermore, other domestic or foreign companies, some with greater experience
in the optics industry and greater financial resources than the Company, may
seek to produce
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products or services that compete with those of the Company. The Company may
establish or use production facilities overseas to produce key components to
the Company's business, such as lenses. The Company believes that the cost
savings from such production may be essential to the Company's ability to
compete on a price basis in the medical products area particularly and to the
Company's profitability generally, and that the Company's inability to
establish or maintain such production facilities could materially adversely
affect the Company.
The Company believes that competition for sales of its products and
services, which have been principally sold to OEM customers, is based on
performance and other technical features, as well as other factors, such as
scheduling and reliability, in addition to competitive price.
The Company currently sells its image couplers, beamsplitters, and
adapters to a market that consists of approximately 30 potential OEM customers.
These potential customers sell video cameras, endoscopes, or video-endoscopy
systems. The Company has made sales to approximately 20 of these customers. The
Company estimates that it has approximately 30% of the market share in these
products. The Company's primary competition in this area is the customers' own
in-house capabilities to manufacture such products. The Company believes that
these customers typically purchase products from the Company, despite their
in-house capabilities, because they choose to devote their own technical
resources to their primary products, such as cameras or endoscopes. The Company
estimates that approximately 50% of the market demand for image couplers,
beamsplitters, and adapters is met by "captive" or in-house capabilities.
The Company has marketed and sold its endoscopes to OEM video camera
and video endoscopy suppliers for resale under the purchaser's name. A number of
domestic and foreign competitors also sell endoscopes to such OEM suppliers, and
the Company's share of endoscope market is nominal. The Company believes that,
while its resources are substantially more limited than these competitors, the
Company may be able to be more responsive to the needs of endoscope users.
The Company offers advanced optical design and development services not
related to thin film coatings to a wide range of potential customers and has
numerous competitors. The ability to supply design and development services to
such customers is highly dependent upon a company's and its employees'
reputations and prior experience.
The market for DWDM products is a multi-tiered market consisting of (1)
Services Providers (end users) such as AT&T, Sprint, MCI, WorldCom, and others,
(2) Systems Integrators such as Lucent, Nortel, Ciena, Alcatel, and others; and
(3) Device and Subsystem Manufacturers such as JDS Uniphase, Corning, DiCon
Fiberoptics and numerous smaller companies estimated to number in the range of
30 to 40 who use DWDM filters as integral components of their devices. The
Company's primary potential customers for DWDM filters are such Device and
Subsystem Manufacturers.
While the potential market for thin film coatings is perceived as
growing rapidly, particularly in the telecommunications industry, the Company's
thin film coatings competitors are numerous and have deep and broad
capabilities. Some of the companies in categories (2) and (3) above have
in-house capability to manufacture DWDM filters. The Company believes that
stand-alone companies who currently have the capability to manufacture DWDM
filters number in the range of 4 to 7.
The volume of traffic carried by telecommunication service providers
has grown substantially over the last several years due primarily to increased
use of the internet, email, cellular telephones, networking, etc. As newer
markets beyond the "traditional" market of the last 3 to 4 years of long haul
carrier demand for repeater devices have emerged, increased demands for
"metro" distribution rings, so called campus
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settings and even facility installations to the level of individual residence
requirements suggests that demand for DWDM filters will continue to increase.
The Company has had negligible direct export sales to date.
RESEARCH AND DEVELOPMENT.
The Company believes that its future success depends to a large
degree on its ability to continue to conceive and to develop new optical
products and services to enhance the performance characteristics and methods
of manufacture of existing products. Accordingly, it expects to continue to
seek to obtain product-related design and development contracts with
customers and to invest its own funds on its research and development.
The Company spent approximately $1,694,000 and $941,000 of its own
funds during fiscal years 2000 and 1999, respectively, on the Company's own
research and development. The Company expects to continue making significant
Company-funded expenditures for research and development, particularly in the
thin film coatings area. The Company received approximately $10,000 and
$434,000 for the fiscal years ended June 30, 2000 and 1999, respectively,
from customers for customer-sponsored design and development projects. Levels
of customer contract funded research and development can fluctuate greatly in
any given period depending upon the mix between design efforts and hardware
development, which is generally more expensive and time consuming than the
design phases.
RAW MATERIALS AND PRINCIPAL SUPPLIERS.
For all of the Company's products, except for thin film coatings, the
basic raw material is precision grade optical glass, which the Company obtains
from several major suppliers. Outside vendors grind and polish most of the
Company's lenses and prisms. For optical thin film coatings, the basic raw
materials are metals and dielectric compounds, which the Company obtains from a
variety of chemical suppliers. The Company believes that its demand for these
raw materials and services is small relative to the total supply and that
materials and services required for the production of its products are currently
available in sufficient production quantities and will be available for fiscal
year 2001. The Company believes, however, that there are relatively few
suppliers of the high quality lenses and prisms which its endoscopes may
require. The Company has therefore established an in-house optical shop for
producing ultra-high quality prisms, micro-optics and other specialized optics
for a variety of medical and industrial applications. Depending upon the market
acceptance of the Company's endoscopes, the Company may seek to assure itself of
a timely supply of lenses, prisms, or other key materials or components through
the acquisition of an outside supplier or expanded in-house manufacturing
facilities.
PATENTS AND TRADEMARKS.
The Company relies, 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 to
maintain its competitive position. The Company does not believe that its
business is dependent upon any patent, patent pending, or license, although it
believes that trade secrets and confidential know-how may be important to the
Company's scientific and commercial success.
The Company plans to file for patents, copyrights, and trademarks in
the United States and in appropriate countries to protect its intellectual
property rights to the extent practicable. The Company holds the rights to
several United States and foreign patents and has several patent applications
pending. The Company knows of no infringements of its patents. Although the
Company plans to protect any
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patents it has from infringement, it may not be able to pursue such protection
for economic reasons. While the Company believes that its pending applications
relate to patentable devices or concepts, there can be no assurance that
patents will be issued or that any patents issued can be successfully defended
or will effectively limit the development of competitive products and services.
Although the Company seeks to protect its proprietary information,
there can be no assurance that others will not either develop independently
the same or similar information or gain access to the Company's proprietary
information or that disputes will not arise as to proprietary rights to such
information.
The Company's products may now or in the future infringe upon others'
patents or proprietary technology. The Company's defense of any such claims
could have a material, adverse effect on the Company.
EMPLOYEES.
As of June 30, 2000, the Company had fifty full-time employees and
three part-time employees. There were 32 employees in manufacturing, 12 in
engineering, 3 in sales and marketing, and 6 in finance and administration.
CUSTOMERS.
Sales to the Company's largest customer, in terms of total sales
during fiscal year 1999, were approximately 37%. Sales to the Company's two
largest customers, in terms of total sales during fiscal year 2000, were
approximately 46% and 11%, respectively. All of these customers are medical
products customers.
ENVIRONMENTAL PROTECTION AND THE EFFECT OF EXISTING OR PROBABLE GOVERNMENT
REGULATIONS ON THE BUSINESS.
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 or otherwise relative to the protection of the environment. From
time to time the Company uses a small amount of hazardous materials in its
operations. Although the Company believes that it complies with all applicable
environmental laws and regulations, any failure to comply with such laws and
regulations could have a material, adverse effect on its capital expenditures,
earnings, and competitive position.
NEED FOR GOVERNMENT APPROVAL OF PRINCIPAL PRODUCTS OR SERVICES AND EFFECT OF
EXISTING OR PROBABLE GOVERNMENT REGULATIONS ON THE BUSINESS.
The Company currently sells and markets several medical products, the
marketing of which may require the permission of the United States Food and Drug
Administration ("FDA"). Pursuant to the Company's notification to the FDA of its
intent to market its laparoscope, additional types of endoscopes which it has
developed and is developing, image coupler, beamsplitter, and adapters, the FDA
has determined that each such device is substantially equivalent to a device
marketed in interstate commerce and that the Company may market such devices,
subject to the general controls provisions of the Food, Drug and Cosmetic Act.
Furthermore, the Company plans to market additional endoscopes and related
medical products that may require the FDA's permission to market such products.
The Company may also develop additional products or seek to sell some of its
current or future medical products in a manner that requires the Company to
obtain the permission of the FDA to market such products, as well as the
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regulatory approval or license of other federal, state, and local agencies or
similar agencies in other countries. There can be no assurance that the
Company will be able to maintain the FDA's permission to market its current
products or to obtain such regulatory permission, approvals, or licenses for
any of its other products. Furthermore, potential adverse FDA regulation
affecting the Company which might arise from future legislation or
administrative action cannot be predicted. In addition, FDA regulations may be
established that could prevent or delay regulatory clearances or approval of
the Company's products. The inability of the Company to secure any necessary
licenses or regulatory approvals or permission from the FDA could have a
material adverse effect on its business. 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 exploitation of devices which do not comply with law. Failure to
comply with applicable regulatory requirements can, among other things, result
in fines, suspensions of regulatory clearances or approvals, product recalls,
operating restrictions, and criminal prosecution.
ITEM 2. DESCRIPTION OF PROPERTY
The Company conducts its domestic operations at three facilities in
Gardner, Massachusetts. The main Gardner facility is leased from a corporation
owned by an officer-shareholder-director of the Company. The lease terminated
in December 1999 and the Company is currently a tenant at will. The other
Gardner facility is under a five-year lease which commenced on March 1, 1999.
In August 2000 the Company entered into a five-year lease for approximately
37,400 square feet of additional space to be used for its Optical Thin Film
operations. The lease contains a renewal option and an option on additional
space. Operations in the new facility are expected to commence during the
quarter ending December 31, 2000. The Company rents office space in Hong Kong
for sales, marketing and supplier quality control and liaison activities of
its Hong Kong subsidiary.
The Company believes these facilities are adequate for its current
operations. Significant increases in production or the addition of significant
equipment additions or manufacturing capabilities in connection with the
production of the Company's line of endoscopes, optical thin films, and other
products may, however, require the acquisition or lease of additional
facilities. The Company may establish production facilities domestically or
overseas to produce key assemblies or components, such as lenses, for the
Company's products. Overseas facilities may subject the Company 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 the Company's competitive position and
profitability.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of fiscal year 2000.
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DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The Company's executive officers and directors are as follows:
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY
NAME OR PRINCIPAL OCCUPATION
<S> <C>
Richard E. Forkey Chairman of the Board, Chief Executive
Officer, President, Treasurer and
Director
Jack P. Dreimiller Senior Vice President,
Finance, Chief Financial
Officer and Clerk
James D. Rancourt Senior Vice President,
Optical Thin Film Technology
Edward A. Benjamin Director. Member of Audit Committee. Mr. Benjamin is a retired partner
in the law firm of Ropes & Gray, Boston, Massachusetts.
H. Angus Macleod Director. Dr. Macleod is President of the Thin Film Center, Inc. of
Tucson, Arizona, which provides software consulting and courses for
design and analysis of thin film optical coatings and filters.
Austin W. Marxe Director. Mr. Marxe is Managing Director of Special Situations Fund III,
L.P., a registered investment company based in New York City, and
several other affiliated investment funds.
Joel R. Pitlor Director. Member of Audit Committee. Mr. Pitlor is president of J.R.
Pitlor, a management consulting firm based in Cambridge, Massachusetts.
Robert R. Shannon Director. Member of Audit Committee. Mr. Shannon is a professor at the
Optical Sciences Center of the University of Arizona in Tucson, Arizona.
</TABLE>
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is listed on the National Association of
Securities Dealers Automated Quotation (NASDAQ) System under the symbol "POCI."
Since January 1992, the NASDAQ SmallCap Market has been the principal market in
which the Company's stock is publicly traded. The high and low sales prices for
the Company's stock for each full quarterly period within the two most recent
fiscal years were as follows:
<TABLE>
<CAPTION>
1999 2000
---- ----
Quarter High Low High Low
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<S> <C> <C> <C> <C>
First $ 2 1/4 $1 $ 1 1/2 $ 15/16
Second $ 1 3/8 $5/8 $ 20 1/4 $ 15/16
Third $1 9/16 $5/8 $ 41 3/4 $ 11 1/4
Fourth $ 1 3/4 $1 $19 3/16 $5 13/16
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As of August 31, 2000, there were approximately 110 holders of record
of the Company's common stock.
The Company has not declared any dividends during the last two fiscal
years. At present, the Company intends to retain its earnings, if any, to
finance research and development and expansion of its business.
In August 1999, the Company issued pursuant to Section 4(2) of the
Securities Act of 1933 an aggregate of 1,000,000 shares of its common stock
and warrants exercisable for an additional aggregate of 1,000,000 shares of
its common stock to Special Situations Cayman Fund, L.P., Special Situations
Fund III, L.P., Special Situations Private Equity Fund, L.P. and Special
Situations Technology Fund, L.P., four affiliated private investment funds
based in New York City (the "Special Situations Funds") in exchange for
aggregate cash consideration of $1,062,500.
All of the warrants issued to the Special Situations Funds in August
1999 have been exercised. The terms of these warrants provided that the
warrants could be exercised at any time prior to August 5, 2004 at a price per
share of $1.125, subject to adjustment pursuant to customary anti-dilution
provisions triggered by any future below-market issuances of Company common
stock. The warrants also provided that they would terminate if not exercised
within 10 days of the Special Situations Funds' receipt of a notice from the
Company which could be delivered at the Company's option in the event that the
last sale price of the Company's common stock on the NASDAQ SmallCap Market
equaled or exceeded $2.25 on each of any 20 consecutive trading days.
In connection with the issuance of common stock and warrants to the
Special Situations Funds, the Company has filed with the Securities and Exchange
Commission a registration statement covering
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the resale of shares of common stock issued to, or issuable upon the exercise of
warrants issued to, the Special Situations Funds. This registration statement
has been declared effective.
On March 17, 2000, the Company issued pursuant to Section 506 of
Regulation D under the Securities Act of 1933 an aggregate of 789,463 shares of
common stock of the Company and 37 warrants exercisable for an aggregate of
394,745 shares of common stock to a total of 37 investors in exchange for
aggregate cash consideration of approximately $15 million. In connection with
the private placement, the Company paid approximately $900,000 in fees and
approximately $15,500 in expenses to its placement agent, First Security Van
Kasper and also issued to it a warrant exercisable for a total of 47,368 shares
of common stock and a warrant exercisable for a total of 23,685.
The terms of the warrants issued to the 37 investors and the warrant
issued to First Security Van Kasper exercisable for 23,685 shares provide that
the warrants may be exercised at a price per share of $27.60. The warrant issued
to First Security Van Kapser exercisable for 47,368 may be exercised at a price
per share of $19. The exercise price of each of these warrants is subject to
adjustment pursuant to customary anti-dilution provisions. Each of these
warrants expires on March 17, 2005.
In connection with the March 2000 private placement, the Company has
filed with the Securities and Exchange Commission a registration statement
covering the resale of shares of common stock issued to, or issuable upon the
exercise of warrants issued to, the investors and First Security Van Kasper.
This registration statement has been declared effective.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
When used in this discussion, the words "believes", "anticipates",
"intends to", and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties
which could cause actual results to differ materially from those projected.
These risks and uncertainties, many of which are not within the Company's
control, include, but are not limited to, the uncertainty and timing of the
successful development of the Company's new products, particularly in the
optical thin films area, the risks associated with reliance on a few key
customers; the Company's ability to attract and retain personnel with the
necessary scientific and technical skills, the timing and completion of
significant orders; the timing and amount of the Company's research and
development expenditures; the timing and level of market acceptance of
competitors' products; the ability of the Company to control costs associated
with performance under fixed price contracts; and the continued availability
to the Company of essential supplies, materials and services; which are
described further in Exhibit 99 hereto. Readers are cautioned not to place
undue reliance on these forward looking statements, which speak only as of the
date hereof. The Company undertakes no obligation to publicly release the
result of any revision to these forward-looking statements which may be made
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended June 30, 2000, the Company's cash and cash
equivalents increased by approximately $14,648,000 to $15,129,000. The increase
in cash and cash equivalents was due to net proceeds received of approximately
$14,997,000 for two private placements of common stock, and exercise of stock
options and warrants of approximately $3,927,000, partially offset by cash used
by operating activities of approximately $2,105,000, purchases of property and
equipment of approximately $1,991,000, repayment
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of capital lease obligations of approximately $143,000, and an increase in other
assets (primarily patents) of approximately $37,000.
In August 1999, the Company completed a private placement of 1,000,000
shares of common stock with gross proceeds of $1,062,500. In conjunction with
this offering, the purchasers were issued warrants to acquire 1,000,000 shares
of common stock at an exercise price of $1.125.
In March 2000, the Company completed a private placement of 789,463
shares of common stock with gross proceeds of approximately $15,000,000. In
conjunction with this offering, the purchasers and placement agent were issued
warrants to acquire an aggregate of 465,798 shares of common stock at a weighted
average exercise price of $26.73 per share. The warrants are immediately
exercisable and expire on March 17, 2005.
During the year ended June 30, 2000, stock options and warrants for a
total of 1,808,100 shares of common stock were exercised, resulting in proceeds
to the Company of $3,926,917.
During the year ended June 30, 2000, the Company entered into capital
lease obligations for the acquisition of manufacturing equipment totaling
approximately $56,000.
In August 2000, the Company entered into a five-year lease for
additional space for a new Optical Thin Films Technology Center to be devoted to
development and manufacturing of optical thin films for telecommunications and
other applications. Operations in the new facility are anticipated to commence
during the quarter ending December 31, 2000.
The Company intends to continue devoting significant resources to
internally-funded research and development spending on both new products and the
improvement of existing products. The Company also intends to devote resources
to the marketing and product support of its medical and optical thin films
product lines, and the development of new methods of distribution. These
investments may temporarily result in negative cash flow, but the Company
anticipates that the results of these efforts will translate into increased
revenues and profits. Furthermore, depending upon the market acceptance of the
Company's products, the Company believes that it may need to acquire new
facilities, add additional manufacturing or research and development equipment,
or acquire a business that has complementary products or manufactures or sells
to the Company components, materials, supplies, or services used in the
manufacture, marketing, distribution or servicing of the Company's new products,
as well as the Company's existing products.
The Company's cash and cash equivalents are considered sufficient to
support working capital and investment needs for at least the next twelve
months.
FISCAL YEAR 2000 RESULTS OF OPERATIONS
Total revenues for fiscal year 2000 were approximately $3,010,000, a
decrease of approximately $19,000, or 0.6% from fiscal year 1999.
The revenues decrease from the prior year was due to lower sales of
non-medical products (down 25%) partially offset by higher sales of medical
products (up 5%). Non-medical sales were lower due to the phasing out of night
vision products, partially offset by slightly higher sales of Dense Wavelength
Division Multiplexer (DWDM) filters used in telecommunications systems (up
3.4%). DWDM filter sales represented approximately 10% of total revenues for
fiscal year 2000. Sales of medical products were higher due primarily to higher
shipments of stereo endoscopes and cameras.
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Included in total revenues are sales for customer funded research and
development projects totaling approximately $10,000 and $434,000 for the year
ending June 30, 2000 and 1999, respectively. Levels of customer-funded research
and development can fluctuate greatly in any given period depending upon the
level of customer demand during such period. All other product sales totaled
approximately $3,000,000 and $2,595,000 for fiscal year 2000 and 1999,
respectively.
Revenues from the Company's two largest customers were approximately
46% and 11% respectively, of total revenues for fiscal year 2000. Revenues from
the Company's largest customer were approximately 37% of total revenues for
fiscal year 1999. Revenues from the Company's three largest customers were
approximately 22%, 14% and 10%, respectively, of total revenues for fiscal year
1998. No other customer accounted for more than 10% of the Company's revenues in
any of the three years ended June 30, 2000.
Gross profit increased by approximately $170,000 in fiscal year 2000,
and as a percentage of revenue increased from 28.8% to 34.7% compared to the
previous year. The increase in gross profit and the gross profit percentage was
due primarily to higher sales of medical products with a more favorable product
mix in the current year, partially offset by higher fixed manufacturing costs
such as depreciation, employee recruiting, equipment rental and indirect labor.
Research and development expenses increased by approximately $753,000
or 80% during fiscal year 2000 compared to the previous year. Approximately 85%
of the research and development expenses in fiscal year 2000 related to DWDM
filters. Efforts were focused on improving manufacturing processes for 200 GHz
DWDM filters and development of 100 GHz DWDM filters. The increase was due to
significantly more resources being devoted to the DWDM filter project during
fiscal year 2000.
Selling, general and administrative expenses increased by $151,000 or
9.4% during fiscal year 2000 compared to the previous year. The increase is due
primarily to higher professional services, insurance, and payroll related
expenses.
Interest expense relates primarily to capital lease obligations and
decreased by approximately $3,000 or 10.4% during fiscal year 2000 due to the
lower average debt balance.
Interest income increased by approximately $240,000 during fiscal year
2000 compared to the previous year. The increase was due to the higher base of
cash and cash equivalents related to net proceeds received from private
placements of common stock in August 1999 and March 2000 and from exercise of
stock options and warrants.
The income tax provision in fiscal year 2000 represents the minimum
statutory state income tax liability.
FISCAL YEAR 1999 RESULTS OF OPERATIONS
Total revenues for fiscal year 1999 were approximately $3,029,000, a
decrease of approximately $1,024,000 or 25.3% from fiscal year 1998.
The revenue decrease from the prior year was due to lower sales of
medical products (down 10%) and non-medical products (down 57%). The decrease in
sales of medical products was due primarily to lower sales of non-stereo
endoscopes and endocouplers, partially offset by higher sales of stereo
endoscopes and cameras resulting from initial shipments of these products
beginning in the second quarter of fiscal year 1999. The reduction in
non-medical sales was due to lower sales of night vision products due to
successful completion during the prior fiscal year of several government
contracts, partially offset by initial sales of DWDM filters, which began in
March 1999.
11
<PAGE>
Included in total revenues are sales for customer-funded research and
development projects totaling approximately $434,000 and $649,000 for the year
ending June 30, 1999 and 1998, respectively. Levels of customer-funded research
and development can fluctuate greatly in any given period depending upon the
level of customer demand during such period. All other product sales totaled
approximately $2,595,000 and $3,404,000 for the year ending June 30, 1999 and
1998, respectively.
Gross profit increased by approximately $416,000 in fiscal 1999, and as
a percentage of revenue increased from 11.3% to 28.8% compared to the previous
year. The increase in the gross profit percentage was due primarily to shipments
with a significantly more favorable product mix in the current year and the
benefits of on-going cost reduction efforts, which resulted in proportionately
lower manufacturing costs.
Research and development expenses increased by approximately $44,000 or
4.9% during fiscal year 1999 compared to the previous year. During both years,
internal research and development expenses consisted primarily of development
efforts related to DWDM filters used in telecommunications systems.
Selling, general and administrative expenses decreased by approximately
$100,000 or 5.9% in fiscal year 1999 compared to fiscal year 1998. The decrease
was due primarily to lower sales and marketing expenses.
During fiscal year 1998, the company sold marketable securities and
realized a gain of approximately $157,000. No such sales were made in fiscal
year 1999.
Interest income decreased by approximately $30,000 in fiscal year 1999
due to the lower base of cash and cash equivalents.
Interest expense relates primarily to capital lease obligations, and
increased by approximately $1,000 in fiscal year 1999 due to the addition of two
new capital leases during the latter part of fiscal year 1999.
The income tax provision of approximately $6,000 in fiscal year 1999 is
due primarily to prior year tax adjustments.
TRENDS AND UNCERTAINTIES THAT MAY AFFECT FUTURE RESULTS
The Company continues to aggressively pursue sales, marketing, and
technology development efforts for DWDM filters in the rapidly growing
telecommunications industry. The success of these products depends upon a number
of factors, including the Company's timely completion of development efforts,
ability to meet a set of rigorous customer specifications, and ability to
reliably manufacture such products in sufficient quantity at acceptable yields
to meet anticipated demand.
A new high volume coating system and ancillary equipment were installed
in the month of July 2000. It is anticipated that the new system will begin
higher volume production of DWDM filters during the first half of fiscal year
2001.
The Company has leased additional space for a new Optical Thin Films
Technology Center to be devoted to development and manufacturing of optical thin
films for telecommunications and other applications. Operations in the new
facility are anticipated to commence during the quarter ending December 31,
2000.
During fiscal year 1999, the Company commenced deliveries of stereo
endoscopes and cameras to a customer who has developed a computer-enhanced
surgery system. Revenues from this customer were
12
<PAGE>
approximately 46% of total revenues for the year ended June 30, 2000. This
customer has seen significant acceptance in the international marketplace for
its computer-enhanced surgical system for use in minimally invasive
cardiovascular and general surgery procedures, and in July 2000 announced that
it received clearance from the U.S. Food & Drug Administration (FDA) to begin
commercialization of its surgical system in the United States for use in
laparoscopic surgical procedures. The stereo endoscopes and cameras manufactured
by the Company are key components of this system, enabling surgeons to visualize
the operative site in high resolution 3-D imagery.
The Company anticipates additional follow-on orders from this customer,
but the magnitude of such future business depends upon a number of factors, such
as the customer's own success in marketing its computer-enhanced surgery system
and the customer's continued acceptance of the Company's pricing, performance
and product reliability.
ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS: The Consolidated Financial Statements
are filed on pages 14 through 32 of this Form 10-KSB.
13
<PAGE>
PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES
Consolidated Financial Statements
as of June 30, 2000 and 1999
Together with Auditors' Report
14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Precision Optics Corporation, Inc.:
We have audited the accompanying consolidated balance sheets of Precision Optics
Corporation, Inc. (a Massachusetts corporation) and subsidiaries as of June 30,
2000 and 1999 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended June 30, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Precision Optics Corporation,
Inc. and subsidiaries as of June 30, 2000 and 1999 and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 2000, in conformity with accounting principles generally accepted in
the United States.
Boston, Massachusetts
July 19, 2000 (except with respect to the
matters discussed in Note 9, as to
which the date is August 10, 2000)
15
<PAGE>
PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 2000 and 1999
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS 2000 1999
Current Assets:
Cash and cash equivalents $ 15,128,750 $ 480,732
Accounts receivable (net of allowance for doubtful
Accounts of approximately $95,000 and $85,000 in
2000 and 1999, respectively) 638,299 210,079
Inventories 1,109,511 979,284
Prepaid expenses 70,807 47,996
--------------- ---------------
Total current assets 16,947,367 1,718,091
--------------- ---------------
Property and Equipment, at cost:
Machinery and equipment 5,111,710 3,100,760
Leasehold improvements 523,371 510,625
Furniture and fixtures 94,346 94,346
Vehicles 39,486 44,742
--------------- ---------------
5,768,913 3,750,473
Less--Accumulated depreciation and amortization 2,901,892 2,496,949
--------------- ---------------
2,867,021 1,253,524
--------------- ---------------
Other Assets:
Cash surrender value of life insurance policies 41,292 45,589
Patents, net 229,514 237,291
--------------- ---------------
Total other assets 270,806 282,880
--------------- ---------------
$ 20,085,194 $ 3,254,495
=============== ===============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
Current Liabilities:
Accounts payable $ 319,096 $ 194,619
Accrued payroll 52,116 75,644
Accrued profit sharing and bonuses 15,000 25,000
Accrued professional services 126,866 50,283
Accrued vacation 91,930 78,056
Accrued warranty expense 50,000 50,000
Accrued income taxes 912 912
Other accrued liabilities 4,566 35,392
Current portion of capital lease obligation 95,928 105,542
--------------- ---------------
Total current liabilities 756,414 615,448
--------------- ---------------
Capital Lease Obligation, net of current portion 88,175 166,312
--------------- ---------------
Commitments (Note 4)
Stockholders' Equity:
Common stock, $0.01 par value-
Authorized--20,000,000 shares at June 30, 2000
and 10,000,000 shares at June 30, 1999
Issued and outstanding--10,285,158 and
6,687,595 shares at June 30, 2000 and 1999,
respectively 102,852 66,876
Additional paid-in capital 25,094,195 6,206,411
Accumulated deficit (5,956,442) (3,800,552)
--------------- ---------------
Total stockholders' equity 19,240,605 2,472,735
--------------- ---------------
$ 20,085,194 $ 3,254,495
=============== ===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
16
<PAGE>
PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
for the Years Ended June 30, 2000, 1999 and 1998
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Revenues $ 3,009,649 $ 3,028,600 $ 4,053,052
Cost of Goods Sold 1,965,989 2,155,070 3,595,756
--------------- --------------- ---------------
Gross profit 1,043,660 873,530 457,296
Research and Development Expenses 1,694,409 941,234 897,215
Selling, General and Administrative Expenses 1,759,886 1,608,696 1,708,864
--------------- --------------- ---------------
Total operating expenses 3,454,295 2,549,930 2,606,079
--------------- --------------- ---------------
Operating loss (2,410,635) (1,676,400) (2,148,783)
Gain on Sale of Marketable Securities -- -- 157,417
Interest Income 279,974 40,151 70,131
Interest Expense (24,317) (27,154) (26,254)
--------------- --------------- ---------------
Loss before provision from income taxes (2,154,978) (1,663,403) (1,947,489)
Provision for Income Taxes 912 5,642 13,300
--------------- --------------- ---------------
Net loss $ (2,155,890) $ (1,669,045) $ (1,960,789)
=============== =============== ===============
Basic and Diluted Loss per Share $ (.26) $ (.25) $ (.32)
============== =============== ===============
Weighted Average Common Shares Outstanding 8,379,408 6,670,308 6,099,347
=============== =============== ===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
17
<PAGE>
PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
for the Years Ended June 30, 2000, 1999 and 1998
<TABLE>
<CAPTION>
TOTAL
NUMBER OF ADDITIONAL ACCUMULATED STOCKHOLDERS'
SHARES COMMON STOCK PAID-IN CAPITAL DEFICIT EQUITY
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1997 6,021,502 $ 60,215 $ 5,202,558 $ (170,718) $ 5,092,055
Proceeds from exercise of
options and warrants to
purchase common stock 97,117 971 44,121 -- 45,092
Net proceeds from private
placement of common stock 500,000 5,000 925,670 -- 930,670
Net loss -- -- -- (1,960,789) (1,960,789)
--------------- --------------- --------------- ------------- ---------------
Balance, June 30, 1998 6,618,619 66,186 6,172,349 (2,131,507) 4,107,028
Proceeds from exercise of
options and warrants to
purchase common stock 65,760 658 81,012 -- 81,670
Common stock issued for
payment of royalties 3,216 32 7,468 -- 7,500
Costs associated with private
placement of common stock -- -- (54,418) -- (54,418)
Net loss -- -- -- (1,669,045) (1,669,045)
--------------- --------------- --------------- ------------- ---------------
Balance, June 30, 1999 6,687,595 66,876 6,206,411 (3,800,552) 2,472,735
Proceeds from exercise of
options and warrants to
purchase common stock 1,808,100 18,081 3,908,836 -- 3,926,917
Net proceeds from private
placement of common stock 1,789,463 17,895 14,978,948 -- 14,996,843
Net loss -- -- -- (2,155,890) (2,155,890)
--------------- --------------- --------------- ------------- ---------------
Balance, June 30, 2000 10,285,158 $ 102,852 $ 25,094,195 $ (5,956,442) $ 19,240,605
=============== =============== =============== ============= ===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
18
<PAGE>
PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
for the Years Ended June 30, 2000, 1999 and 1998
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (2,155,890) $ (1,669,045) $ (1,960,789)
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation and amortization 481,569 395,829 426,976
Deferred income taxes -- 145,000 12,300
Gain on sales of marketable securities -- -- (157,417)
Changes in assets and liabilities-
Accounts receivable (428,220) 275,991 (19,259)
Inventories (130,227) (29,291) 626,974
Prepaid expenses (22,811) 4,374 (4,597)
Refundable income taxes -- -- 52,970
Accounts payable 124,477 70,053 (147,345)
Customer advances -- (116,841) 116,841
Accrued expenses 26,103 (149,723) 92,319
--------------- --------------- ------------
Net cash used in operating activities (2,104,999) (1,073,653) (961,027)
--------------- --------------- ------------
Cash Flows from Investing Activities:
Proceeds from the sale of marketable securities -- -- 187,417
Purchases of property and equipment (1,990,527) (379,266) (269,402)
Increase in other assets (36,628) (38,770) (116,507)
--------------- --------------- ------------
Net cash used in investing activities (2,027,155) (418,036) (198,492)
--------------- --------------- ------------
Cash Flows from Financing Activities:
Repayment of capital lease obligation (143,588) (114,977) (104,479)
Net proceeds (costs) from private placements of common stock 14,996,843 (54,418) 930,670
Proceeds from exercise of stock options and warrants 3,926,917 81,670 45,092
--------------- --------------- ------------
Net cash provided by (used in) financing activities 18,780,172 (87,725) 871,283
--------------- --------------- ------------
Net Increase (Decrease) in Cash and Cash Equivalents 14,648,018 (1,579,414) (288,236)
Cash and Cash Equivalents, beginning of year 480,732 2,060,146 2,348,382
--------------- --------------- ------------
Cash and Cash Equivalents, end of year $ 15,128,750 $ 480,732 $ 2,060,146
=============== =============== ============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for-
Interest $ 24,317 $ 27,154 $ 26,254
=============== =============== ============
Income taxes $ 912 $ 842 $ --
=============== =============== ============
Supplemental Disclosure of Noncash Investing and Financing
Activities:
Capital lease obligation $ 55,837 $ 72,798 $ 139,567
=============== =============== ============
Common stock issued for payment of royalties $ -- $ 7,500 $ --
=============== =============== ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
19
<PAGE>
PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) NATURE OF BUSINESS
Precision Optics Corporation, Inc. (the Company) designs, manufactures
and sells optical systems, components and thin-film coatings. The Company
conducts business in one industry segment only and its customers are
primarily domestic. The Company's products and services fall into two
principal areas: (i) medical products for use by hospitals and physicians
and (ii) advanced optical system design and development services and
products.
The Company has incurred significant operating losses during the last
four fiscal years. This trend was primarily the result of the loss of two
significant customers and the completion of several large nonrecurring
government contracts. In fiscal 1998, the Company began making
significant investments in research and development and capital purchases
for new products. During fiscal 1999, the Company began commercial
shipments of the new optical filters used in telecommunications systems.
In August 1999 and March 2000, the Company raised gross proceeds of
approximately $16 million of additional cash through the issuance of
common stock (see Note 5). The Company believes, based on its operating
and strategic plans along with the cash generated from the recent equity
financings, that it will have sufficient funds to conduct operations
through at least the next fiscal year.
(B) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of the Company and its two wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
(C) REVENUES
Revenues for industrial and medical products sold in the normal course of
business are recognized upon shipment. Contract revenues including
revenues from customer-sponsored research and development contracts, are
recognized under the percentage-of-completion method. The percentage of
completion is determined by computing the percentage of the actual cost
of work performed to the anticipated total contract costs, or on the
basis of units shipped. When the estimate on a contract indicates a loss,
the Company's policy is to record the entire loss in the current period.
Amounts recorded as revenue under customer sponsored research and
development contracts are not refundable if the research effort is not
successful, and such contracts do not include future performance
obligations.
(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 equivalents consist primarily of overnight repurchase
agreements and United States Treasury bills.
20
<PAGE>
PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000
(E) INVENTORIES
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, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Raw material $ 686,856 $ 589,762
Work-in-progress 241,686 248,085
Finished goods 180,969 141,437
--------------- ---------------
$ 1,109,511 $ 979,284
=============== ===============
</TABLE>
(F) DEPRECIATION AND AMORTIZATION
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:
<TABLE>
<CAPTION>
ESTIMATED USEFUL
ASSET CLASSIFICATION LIFE
<S> <C>
Machinery and equipment 5-7 years
Leasehold improvements Life of lease
Furniture and fixtures 5 years
Vehicles 3 years
</TABLE>
(G) SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
Statement of Financial Accounting Standards (SFAS) No. 105, DISCLOSURE OF
INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND
FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK, requires
disclosure of any significant off-balance sheet and credit risk
concentrations. Financial instruments that subject the Company to credit
risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company places its investments in highly rated financial
institutions. The Company has not experienced any losses on these
investments to date. At June 30, 2000 and 1999, receivables from the
Company's largest customer were approximately 55% and 22% of the total
accounts receivable, respectively. The Company has not experienced any
material losses related to accounts receivable from individual customers.
Revenues from the Company's two largest customers were approximately 46%
and 11%, respectively, of total revenues for the year ended June 30,
2000. Revenues from the Company's largest customer was approximately 37%
of total revenues for the year ended June 30, 1999. Revenues from the
Company's three largest customers were approximately 22%, 14% and 10%,
respectively, of total revenues for the year ended June 30, 1998. No
other customers accounted for more than 10% of the Company's revenues in
any of the three years ended June 30, 2000. Approximately 0%, 2% and 25%
of the Company's revenues for the years
21
<PAGE>
PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000
ended June 30, 2000, 1999 and 1998, respectively, were derived from
sales to agencies of the U.S. government or customers that supply
agencies of the U.S. government.
(H) LOSS PER SHARE
Basic loss per share is computed by dividing net loss by the weighted
average number of shares of common stock outstanding during the period.
For each of the three years in the period ended June 30, 2000, the
effect of stock options and warrants was antidilutive; therefore, they
were not included in the computation of diluted loss per share. The
number of shares that were excluded from the computation, as their effect
would be antidilutive, were 1,396,698, 1,605,500 and 1,864,500 during
fiscal 2000, 1999 and 1998, respectively.
(I) STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation under Accounting
Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES. SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION,
establishes a fair-value-based method of accounting for stock-based
compensation plans. The Company has adopted the disclosure-only
alternative under SFAS No. 123, which requires the disclosure of the pro
forma effects on earnings and earnings per share as if the accounting
prescribed by SFAS No. 123 had been adopted, as well as certain other
information.
(J) FOREIGN CURRENCY TRANSLATION
The Company translates certain accounts and financial statements of its
foreign subsidiary in accordance with SFAS No. 52, FOREIGN CURRENCY
TRANSLATION. The functional currency of the Company's foreign subsidiary
is the United States dollar. Accordingly, translation gains or losses are
reflected in the accompanying consolidated statements of operations and
have not been significant.
(K) OTHER ASSETS
Patents are carried at cost, less accumulated amortization of
approximately $200,000 and $151,000 at June 30, 2000 and 1999,
respectively. Such costs are amortized using the straight-line method
over the shorter of their legal or estimated useful lives, generally five
to ten years.
(L) FINANCIAL INSTRUMENTS
SFAS No. 107, DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS,
requires disclosures about the fair value of financial instruments.
Financial instruments consist principally of accounts receivable,
accounts payable and capital lease obligations. The estimated fair value
of these financial instruments approximates their carrying value.
(M) LONG-LIVED ASSETS
The Company accounts for long-lived assets in accordance with SFAS No.
121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF. The Company periodically reviews its
long-lived assets for potential impairment. The Company assesses the
future useful life of these assets, primarily property, plant and
equipment whenever events or changes in circumstances indicate that the
current useful life has diminished. The Company considers the future
undiscounted cash flows of these assets in assessing their
recoverability. If impairment has occurred, any excess of carrying value
over fair value is
22
<PAGE>
PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000
recorded as a loss. As of June 30, 2000 and 1999, the Company has
determined that no material adjustment to the carrying value of its
long-lived assets was required.
(N) WARRANTY COSTS
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. The Company provides for
estimated warranty costs at the time product revenue is recognized.
(O) COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE
INCOME. SFAS No. 130 requires disclosure of all components of
comprehensive income on an annual and interim basis. Comprehensive income
is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from
nonowners sources. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997. The Company adopted SFAS No. 130, effective July
1, 1998. The Company's comprehensive loss for the years ended June 30,
2000, 1999 and 1998 was equal to its net loss for the same periods.
(P) NEW ACCOUNTING STANDARDS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, REVENUE RECOGNITION IN FINANCIAL
STATEMENTS, which the Company will be required to adopt in the first
quarter of fiscal year 2001. SAB 101 provides additional guidance on the
accounting for revenue recognition including both broad conceptual
discussions, as well as certain industry-specific guidance. The Company
is in the process of accumulating the information necessary to quantify
the potential impact, if any, of this new guidance.
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. This statement, as amended by SFAS
No. 137 and 138, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts (collectively referred to as derivatives) and for
hedging activities. It requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position
and measure those instruments at fair value. SFAS No. 133 is effective
for all fiscal quarters of fiscal years beginning after June 15, 2000.
This new standard is not anticipated to have a significant impact on the
Company's consolidated financial statements based on its current
structure and operations.
(Q) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
(2) LINE OF CREDIT
At June 30, 1999, the Company had available a demand line of credit of
$500,000 at an interest rate equal to the bank's prime rate (7.75% at June
30, 1999) plus 0.25%. Under the line of credit agreement, the Company was
23
<PAGE>
PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000
required to maintain certain financial ratios (debt service coverage,
leverage and current ratio) and must maintain a minimum cash liquidity of
$1,000,000. The Company was not in compliance with all such financial
covenants at June 30, 1999. At June 30, 1999, there were no borrowings
outstanding under this line of credit. Borrowings under this line of credit
were secured by all assets of the Company. The line of credit was terminated
in October 1999 due to the Company being out of compliance with the bank's
financial covenants.
(3) CAPITAL LEASE OBLIGATION
At June 30, 2000, future minimum lease payments under capital lease
obligations are as follows:
<TABLE>
<CAPTION>
AMOUNT
<S> <C>
Fiscal year-
2001 $ 108,326
2002 57,579
2003 34,907
2004 3,888
---------------
Total minimum lease payments 204,700
Amount representing interest 20,597
Present value of minimum lease payments 184,103
Less--Current portion 95,928
----------------
$ 88,175
</TABLE>
Capital leases are secured by all assets of the Company under a security
agreement.
(4) COMMITMENTS
(A) RELATED PARTY TRANSACTIONS
The Company leases one of its facilities from a corporation owned by an
officer of the Company. The lease terminated in December 1999 and
required lease payments of $9,000 per month. The Company is currently a
tenant at will paying lease payments of $9,000 a month.
The Company paid fees to a director of approximately $45,000, $60,000 and
$60,000 for services performed during fiscal 2000, 1999 and 1998,
respectively. Another director is a former partner in a law firm that has
performed legal services for the Company during fiscal 2000, 1999 and
1998 of approximately $253,000, $125,000 and $112,000, respectively.
Another director is the owner of a company that provided approximately
$67,000, $30,000 and $51,000 in software and consulting services to the
Company during fiscal 2000, 1999 and 1998, respectively.
(B) OPERATING LEASE COMMITMENTS
In August 2000, the Company entered into a new facility lease for future
development and manufacturing purposes. The lease includes a yearly
escalation clause and provides for the option to renew at the end of the
24
<PAGE>
PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000
term. Lease commitments begin in November 2000 and include
estimated-shared costs. The lease expires in October 2005.
The Company has entered into operating leases for its office space and
equipment that expire at various dates through 2006. Total future minimum
rental payments under all operating leases are approximately as follows:
<TABLE>
<CAPTION>
AMOUNT
<S> <C>
Fiscal year-
2001 $ 195,000
2002 166,000
2003 185,000
2004 186,000
2005 174,000
Thereafter 58,000
---------------
$ 964,000
===============
</TABLE>
Rent expense on operating leases was approximately $158,000, $188,000 and
$217,000 for the years ended June 30, 2000, 1999 and 1998, respectively.
(5) STOCKHOLDERS' EQUITY
(A) AUTHORIZED COMMON STOCK
During fiscal 2000, the Board of Directors voted to increase the number
of authorized shares of common stock from 10,000,000 to 20,000,000
shares.
(B) PRIVATE PLACEMENTS
In June 1998, the Company completed a private placement of 500,000 shares
of common stock with gross proceeds of $1,000,000. In conjunction with
this offering, the purchasers were issued warrants to acquire 500,000
shares of common stock at an exercise price of $4.00 per share. The
warrants are immediately exercisable and expire on June 25, 2003.
In August 1999, the Company completed a private placement of 1,000,000
shares of common stock with gross proceeds of $1,062,500. In conjunction
with this offering, the purchasers were issued warrants to acquire
1,000,000 shares of common stock at an exercise price of $1.125 per
share. The warrants are immediately exercisable and expire in August
2004.
In March 2000, the Company completed a private placement of 789,463
shares of common stock with gross proceeds of $15 million. In conjunction
with this offering, the purchasers were issued warrants to acquire
465,798 shares of common stock at a weighted average exercise price of
$26.73 per share. The warrants are immediately exercisable and expire in
March 2005.
25
<PAGE>
PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000
(C) WARRANTS
In conjunction with equity offerings prior to 1998, the Company issued
warrants to acquire a total of 320,000 shares of common stock, of which
warrants for a total of 218,000 at an exercise price of $1.375 per share
were outstanding as of June 30, 1998. Warrants for 55,760 shares were
exercised during fiscal 1999. Warrants for 162,240 shares expired in
approximately equal amounts on August 21, 1998 and October 23, 1998.
During fiscal 2000, warrants with an exercise price of $4.00 per share
for 500,000 shares and warrants with an exercise price of $1.125 per
share for 789,500 shares were exercised, resulting in proceeds to the
Company of $2,888,188. As of June 30, 2000, the Company had 465,798
warrants outstanding at a weighted average exercise price of $26.73, and
had 210,500 warrants outstanding at an exercise price of $1.125.
(D) STOCK OPTIONS
During 1989, the stockholders approved a stock option plan (the 1989
Plan) for key employees. The 1989 Plan, as amended, authorizes the grant
of options of up to 1,110,000 shares of the Company's common stock at an
exercise price not less than 100% of the fair market value per share at
the date of grant. Options granted are exercisable for a period
determined by the Board of Directors, not to exceed 10 years from the
date of grant.
During fiscal 1998, the stockholders approved an incentive plan (the 1997
Incentive Plan), which provides eligible participants (certain employees,
directors, consultants, etc.) the opportunity to receive a broad variety
of equity based and cash awards. A total of 1,200,000 shares of common
stock have been reserved for issuance under the 1997 Incentive Plan. Upon
the adoption of the 1997 Incentive Plan, no new awards will be granted
under the 1989 Plan. At June 30, 2000, 657,500 shares of common stock
were available for future grants under the 1997 Incentive Plan.
26
<PAGE>
PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000
The following is a summary of transactions in the plans for the three
years ended June 30, 2000:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF OPTION PRICE PER EXERCISE
SHARES SHARE PRICE
<S> <C> <C> <C>
Options outstanding, June 30, 1997 604,000 $ 1.375-$2.1875 $ 1.54
Granted 416,000 2.75-3.844 3.72
Exercised (27,500) 1.375 1.38
---------- ----------------- ----------
Options outstanding, June 30, 1998 992,500 $ 1.375-$3.844 2.46
Granted 25,000 1.312 1.31
Canceled (56,000) 3.00-3.844 3.09
----------- ----------------- ----------
Options outstanding, June 30, 1999 961,500 $ 1.312-$3.844 $ 2.39
Granted 215,000 1.00-5.00 3.91
Exercised (441,100) 1.00-3.844 3.51
Canceled (81,500) 1.00-3.844 2.55
----------- ----------------- ----------
Options outstanding, June 30, 2000 653,900 $ 1.00-5.00 $ 3.03
=========== ================= ==========
Options exercisable, June 30, 2000 386,400 $ 1.00-5.00 $ 2.42
=========== ================= ==========
Options exercisable, June 30, 1999 663,000 $ 1.312-3.844 $ 2.39
=========== ================= ==========
Options exercisable, June 30, 1998 377,500 $ 1.375-3.844 $ 2.04
=========== ================= ==========
</TABLE>
27
<PAGE>
PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000
In addition, the Company has granted options outside the plans, primarily
to directors and consultants at 100% of the fair market value per share
at the date of grant. The following is a summary of all transactions
outside the plans:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF OPTION PRICE EXERCISE
SHARES PER SHARE PRICE
<S> <C> <C> <C>
Options outstanding, June 30, 1997 221,617 $ 0.07-5.69 $ 1.02
Exercised (67,617) 0.07 0.07
----------- ------------- ------------
Options outstanding, June 30, 1998 154,000 0.50-5.69 1.43
Exercised (10,000) 0.50 0.50
----------- ------------- ------------
Options outstanding, June 30, 1999 144,000 0.50-5.69 1.50
Exercised (77,500) 0.50-5.69 1.75
----------- ------------- ------------
Options outstanding, June 30, 2000 66,500 $ 0.50-1.375 $ 1.20
=========== ============= ============
Options exercisable, June 30, 2000 66,500 $ 0.50-1.375 $ 1.20
=========== ============= ============
Options exercisable, June 30, 1999 132,000 $ 0.50-5.69 $ 1.50
============ ============= ============
Options exercisable, June 30, 1998 130,000 $ 0.50-5.69 $ 1.46
============ ============= ============
</TABLE>
The Company has computed the pro forma disclosures required under SFAS
No. 123 for all stock options granted in fiscal 2000, 1999 and 1998 using
the Black-Scholes option pricing model prescribed by SFAS No. 123.
For each of the three years ended June 30, 2000, the Company has
recognized no compensation expense in the accompanying consolidated
statements of operations, as there were no stock option grants to
recipients other than employees and directors during such periods.
28
<PAGE>
PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000
The assumptions used and the weighted average information for each of the
three years in the period ended June 30, 2000 are as follows:
<TABLE>
<CAPTION>
----------------YEAR ENDED--------------
2000 1999 1998
<S> <C> <C> <C>
Risk-free interest rates 6.30% 4.54% 6.06%
Expected dividend yield -- -- --
Expected lives 7 years 7 years 7 years
Expected volatility 99% 99% 90%
Weighted average fair value
of grants $3.32 $1.10 $3.02
Weighted-average remaining
contractual life of options
outstanding 7.11 years 7.28 years 8.33 years
</TABLE>
The effect of applying SFAS No. 123 would be as follows:
<TABLE>
<CAPTION>
-------------------YEAR ENDED----------------
2000 1999 1998
<S> <C> <C> <C>
Net loss-
As reported $ (2,155,890) $ (1,669,045) $ (1,960,789)
Pro forma $ (2,478,314) $ (2,068,728) $ (2,340,964)
Net loss per share-
As reported, basic and diluted $ (0.26) $ (0.25) $ (0.32)
Pro forma, basic and diluted $ (0.30) $ (0.31) $ (0.38)
</TABLE>
(6) INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
ACCOUNTING FOR INCOME TAXES, whereby a deferred tax asset or liability is
measured using currently enacted tax rates applied to any temporary differences
between the financial statement and tax bases of assets and liabilities.
29
<PAGE>
PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000
The provision for income taxes in the accompanying consolidated statements of
operations consists of the following for the three years ended June 30, 2000:
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Current--
Federal $ -- $ (136,346) $ --
State 912 912 1,000
Foreign -- (3,924) --
--------------- --------------- ---------------
912 (139,358) 1,000
--------------- --------------- ---------------
Deferred-
Federal -- 123,000 10,500
State -- 22,000 1,800
--------------- --------------- ---------------
-- 145,000 12,300
--------------- --------------- ---------------
$ 912 $ 5,642 $ 13,300
=============== =============== ===============
</TABLE>
A reconciliation of the federal statutory rate to the Company's effective tax
rate for the three years ended June 30, 2000 is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Income tax benefit at federal statutory rate (34.0)% (34.0)% (34.0)%
Increase (decrease) in tax resulting from-
Temporary items with no tax benefit 2.5 3.1 2.2
Change in valuation allowance (net of
valuation allowance of approximately
$1,900,000 related to exercise of
stock options during fiscal 2000) 31.6 34.7 32.5
Prior-year tax adjustments -- (3.4) --
Other (0.1) (0.1) --
--------- --------- ---------
Effective tax rate 0.0% 0.3% 0.7%
========= ========= =========
</TABLE>
30
<PAGE>
PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000
The components of the net deferred tax asset at June 30, 2000 and 1999 are
approximately as follows:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Net operating loss carryforward $ 3,446,000 $ 1,034,000
Reserves and accruals not yet deducted for
tax purposes 618,000 376,000
Other temporary differences (105,000) (22,000)
--------------- ---------------
3,959,000 1,388,000
Valuation allowance (3,959,000) (1,388,000)
--------------- ---------------
Net deferred tax asset $ -- $ --
=============== ===============
</TABLE>
The Company has provided a valuation allowance to reduce the net deferred
tax asset to an amount the Company believes it is "more likely than not" to
be realized. The valuation allowance increased in fiscal 2000 primarily due
to the generation of a net operating loss carryforward. Approximately
$1,900,000 of the valuation allowance at June 30, 2000 related to the
exercise of stock options will be allocated to stockholders' equity when
recognized. As of June 30, 2000, the Company has net operating loss
carryforwards for U.S. federal income taxes of approximately $10,000,000, of
which approximately $85,000 expires in 2012, approximately $1,500,000
expires in 2013, approximately $1,415,000 expires in 2019 and approximately
$7,000,000 expires in 2020. Pursuant to the Tax Reform Act of 1986, the
utilization of net operating loss carryforwards for tax purposes may be
subject to an annual limitation if a cumulative change or ownership of more
than 50% occurs over a three-year period. As a result of the Company's
recent stock offerings, such a change in ownership may have occurred. In the
event that the Company has had a change in ownership, as defined, the
utilization of substantially all of the Company's net operating loss
carryforwards may be restricted.
(7) PROFIT SHARING PLAN
The Company has a defined contribution profit sharing plan that covers all
eligible employees. No employer contributions were made in fiscal 2000, 1999
or 1998.
(8) SEGMENT REPORTING
The Company adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION, in the fiscal year ended June 30, 1999.
SFAS No. 131 establishes standards for reporting information regarding
operating segments in annual financial statements and requires selected
information for those segments to be presented in interim financial reports
issued to stockholders. SFAS No. 131 also establishes standards for related
disclosures about products and services and geographic areas. 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, as defined under SFAS No. 131, is the 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.
31
<PAGE>
PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000
(9) SUBSEQUENT EVENT
In July 2000, the Company reached an agreement to settle certain claims of
the Company arising under Section 16(b) of the Securities Exchange Act of
1934 involving certain investment funds and their respective investment
advisers, and to settle and dismiss with prejudice a related shareholder
lawsuit brought against the funds and their advisers. One of the defendants
in this action is a principal of the funds and is also a director of the
Company. Under the agreement, the investment funds have paid the Company a
total of $2,650,000 to resolve claims of "short-swing" trading profits
allegedly made in violation of Section 16(b). This settlement and dismissal
with prejudice of the shareholder lawsuit was approved by the United States
District Court for the Southern District of New York in August 2000.
After deducting estimated legal expenses, the net proceeds of the settlement
of approximately $2,370,000 will be credited to Additional Paid-In Capital
in the Company's Consolidated Balance Sheet in the quarter ending September
30, 2000.
32
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE: None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT: The Company will furnish
to the Securities and Exchange Commission a definitive Proxy
Statement (the "Proxy Statement") not later than 120 days after
the close of its fiscal year ended June 30, 2000. The information
required by this item is incorporated herein by reference to the
Proxy Statement.
ITEM 10. EXECUTIVE COMPENSATION: The information required by this item is
incorporated herein by reference to the Proxy Statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
The information required by this item is incorporated herein by
reference to the Proxy Statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS: The information
required by this item is incorporated herein by reference to the
Proxy Statement.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K:
(a) EXHIBITS.
The exhibits listed below are filed with or incorporated
by reference in this report.
3.1 Articles of Organization of the Company, as amended and
corrected(1)
3.2 By-laws of Precision Optics Corporation, Inc.(2)
4.1 Specimen common stock certificate(3)
4.2 Registration Rights Agreement dated as of March 13, 2000
by and among the Company and the Initial Investors as
defined therein(4)
4.3 Registration Rights Agreement dated as of June 30, 1998 by
and among the Company, Special Situations Private Equity
Fund, L.P. and Special Situations Technology Fund,
L.P.(5)
4.4 Registration Rights Agreement dated as of August 5, 1999
by and among the Company, Special Situations Cayman Funds,
L.P., Special Situations Fund III, L.P., Special
Situations Private Equity Fund, L.P. and Special
Situations Technology Fund, L.P.(6)
4.5 Form of Stock Purchase Warrant dated March 17, 2000 issued
to each investor in March 17, 2000 private placement
transaction(4)
4.6 Warrant No. 1 dated March 17, 2000 issued to First
Security Van Kasper(4)
4.7 Warrant No. 2 dated March 17, 2000 issued to First
Security Van Kasper(4)
4.8 Common Stock Purchase Warrant dated August 5, 1999 issued
to Special Situations Cayman Fund, L.P.(6)
4.9 Common Stock Purchase Warrant dated August 5, 1999 issued
to Special Situations Technology Fund, L.P.(6)
10.1 Lease dated June 29, 1984 between the Company and Equity,
First Amendment to Commercial Lease dated June 25, 1990,
and letter agreement dated June 25, 1990 renewing such
lease(3)
10.2 Second Amendment to Commercial Lease between the Company
and Equity dated December 9, 1994(7)
10.3 Precision Optics Corporation, Inc. 1989 Stock Option Plan
amended to date (the "Plan")(8)
33
<PAGE>
10.4 Three separate life insurance policies on the life of
Richard E. Forkey(3)
10.5 Master Lease Finance Agreement dated November 3, 1993
between the Company and BancBoston Leasing(8)
10.6 Lease dated March 1, 1999, between the Company and Philip
A. Wood, as executor of the Estate of Alma L. Wood and as
devisee under the Will of Alma L. Wood; Martha A. Mount,
devisee under the Will of Alma L. Wood; and Nancy E.
Popinchalk, devisee under the Will of Alma L. Wood for 21
Pleasant Street, Gardner, Massachusetts(6)
10.7 Precision Optics Corporation, Inc. 1997 Incentive Plan.(5)
10.8 Stock Subscription Agreement dated as of June 30, 1998 by
and among the Company, Special Situations Private Equity
Fund, L.P. and Special Situations Technology Fund, L.P.(5)
10.9 Stock Subscription Agreement dated as of August 5, 1999 by
and among the Company, Special Situations Cayman Funds,
L.P., Special Situations Fund III, L.P., Special
Situations Private Equity Fund, L.P. and Special
Situations Technology Fund, L.P.(6)
10.10 Securities Purchase Agreement dated as of March 13, 2000
by and among the Company and the Purchasers as defined
therein (excluding exhibits)(4)
10.11 Commercial Lease dated August 23, 2000 between the Company
and Urquhart Family LLC.
21 Subsidiaries of Precision Optics Corporation, Inc.(7)
23 Consent of Arthur Andersen.
27 Financial Data Schedule.
99 Important Factors Regarding Forward-Looking Statements.
(1) Incorporated herein by reference to the Company's Registration Statement on
Form S-8 POS (No. 333-89989).
(2) Incorporated herein by reference to the Company's 1991 Annual Report on Form
10-KSB No. 001-10647.
(3) Incorporated herein by reference to the Company's Registration Statement on
Form S-18 (No. 33-36710-B).
(4) Incorporated herein by reference to the Company's Registration Statement on
Form S-3 (No. 333-35884).
(5) Incorporated herein by reference to the Company's 1998 Annual Report on Form
10-KSB No. 001-10647.
(6) Incorporated herein by reference to the Company's 1999 Annual Report on Form
10-KSB No. 001-10647.
(7) Incorporated herein by reference to the Company's 1996 Annual Report on Form
10-KSB No. 001-10647.
(8) Incorporated herein by reference to the Company's 1994 Annual Report on Form
10-KSB No. 001-10647.
(b) REPORTS ON FORM 8-K.
None.
34
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: September 26, 2000 PRECISION OPTICS CORPORATION, INC.
By:/s/ Richard E. Forkey
------------------------------------
Richard E. Forkey
Chairman of the Board,
Chief Executive Officer, President
and Treasurer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Richard E. Forkey By:/s/ Jack P. Dreimiller
--------------------------- -----------------------------------------
Richard E. Forkey Jack P. Dreimiller
President, Treasurer and Senior Vice President, Finance,
Director (principal Chief Financial Officer and Clerk
executive officer) (principal financial and accounting
officer)
Date: September 26, 2000 Date: September 26, 2000
By: /s/ Joel R. Pitlor By: /s/ Edward A. Benjamin
--------------------------- ----------------------------------------
Joel R. Pitlor Edward A. Benjamin
Director Director
Date: September 26, 2000 Date: September 26, 2000
By: /s/ Robert R. Shannon By: /s/ H. Angus Macleod
--------------------------- ----------------------------------------
Robert R. Shannon H. Angus Macleod
Director Director
Date: September 26, 2000 Date: September 26, 2000
By: /s/ Austin W. Marxe
---------------------------
Austin W. Marxe
Director
Date: September 26, 2000
35
<PAGE>
INDEX TO EXHIBITS
3.1 Articles of Organization of the Company, as amended and
corrected(1)
3.2 By-laws of Precision Optics Corporation, Inc.(2)
4.1 Specimen common stock certificate(3)
4.2 Registration Rights Agreement dated as of March 13, 2000
by and among the Company and the Initial Investors as
defined therein(4)
4.3 Registration Rights Agreement dated as of June 30, 1998 by
and among the Company, Special Situations Private Equity
Fund, L.P. and Special Situations Technology Fund, L.P.(5)
4.4 Registration Rights Agreement dated as of August 5, 1999
by and among the Company, Special Situations Cayman Funds,
L.P., Special Situations Fund III, L.P., Special
Situations Private Equity Fund, L.P. and Special
Situations Technology Fund, L.P.(6)
4.5 Form of Stock Purchase Warrant dated March 17, 2000 issued
to each investor in March 17, 2000 private placement
transaction(4)
4.6 Warrant No. 1 dated March 17, 2000 issued to First
Security Van Kasper(4)
4.7 Warrant No. 2 dated March 17, 2000 issued to First
Security Van Kasper(4)
4.8 Common Stock Purchase Warrant dated August 5, 1999 issued
to Special Situations Cayman Fund, L.P.(6)
4.9 Common Stock Purchase Warrant dated August 5, 1999 issued
to Special Situations Technology Fund, L.P.(6)
10.1 Lease dated June 29, 1984 between the Company and Equity,
First Amendment to Commercial Lease dated June 25, 1990,
and letter agreement dated June 25, 1990 renewing such
lease(3)
10.2 Second Amendment to Commercial Lease between the Company
and Equity dated December 9, 1994(7)
10.3 Precision Optics Corporation, Inc. 1989 Stock Option Plan
amended to date (the "Plan")(8)
10.4 Three separate life insurance policies on the life of
Richard E. Forkey(3)
10.5 Master Lease Finance Agreement dated November 3, 1993
between the Company and BancBoston Leasing(8)
10.6 Lease dated March 1, 1999, between the Company and Philip
A. Wood, as executor of the Estate of Alma L. Wood and as
devisee under the Will of Alma L. Wood; Martha A. Mount,
devisee under the Will of Alma L. Wood; and Nancy E.
Popinchalk, devisee under the Will of Alma L. Wood for 21
Pleasant Street, Gardner, Massachusetts(6)
10.7 Precision Optics Corporation, Inc. 1997 Incentive Plan.(5)
10.8 Stock Subscription Agreement dated as of June 30, 1998 by
and among the Company, Special Situations Private Equity
Fund, L.P. and Special Situations Technology Fund, L.P.(5)
10.9 Stock Subscription Agreement dated as of August 5, 1999 by
and among the Company, Special Situations Cayman Funds,
L.P., Special Situations Fund III, L.P., Special
Situations Private Equity Fund, L.P. and Special
Situations Technology Fund, L.P.(6)
10.10 Securities Purchase Agreement dated as of March 13, 2000
by and among the Company and the Purchasers as defined
therein (excluding exhibits)(4)
10.11 Commercial Lease dated August 23, 2000 between the Company
and Urquhart Family LLC.
21 Subsidiaries of Precision Optics Corporation, Inc.(7)
23 Consent of Arthur Andersen.
27 Financial Data Schedule.
99 Important Factors Regarding Forward-Looking Statements.
(1) Incorporated herein by reference to the Company's Registration Statement on
Form S-8 POS (No. 333- 89989).
36
<PAGE>
(2) Incorporated herein by reference to the Company's 1991 Annual Report on Form
10-KSB No. 001-10647.
(3) Incorporated herein by reference to the Company's Registration Statement on
Form S-18 (No. 33-36710-B).
(4) Incorporated herein by reference to the Company's Registration Statement on
Form S-3 (No. 333-35884).
(5) Incorporated herein by reference to the Company's 1998 Annual Report on Form
10-KSB No. 001-10647.
(6) Incorporated herein by reference to the Company's 1999 Annual Report on Form
10-KSB No. 001-10647.
(7) Incorporated herein by reference to the Company's 1996 Annual Report on Form
10-KSB No. 001-10647.
(8) Incorporated herein by reference to the Company's 1994 Annual Report on Form
10-KSB No. 001-10647.
37
