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EXHIBIT 99
PRECISION OPTICS CORPORATION, INC.
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
In our annual report on Form 10-KSB for the fiscal year ended June 30, 2000
and from time to time in public statements made by our management, we have made
and will continue to make forward-looking statements about our business,
including predictions about our future financial performance. OUR ACTUAL RESULTS
MAY DIFFER SIGNIFICANTLY FROM THE RESULTS PREDICTED IN OUR ANNUAL REPORT AND IN
FUTURE PUBLIC STATEMENTS. Factors that might cause such a difference include,
but are not limited to, the factors discussed below:
THE SUCCESS OF OUR DWDM INITIATIVE IS NOT GUARANTEED--IF THIS INITIATIVE IS
UNSUCCESSFUL, OUR OPERATING RESULTS MAY BE SEVERELY IMPAIRED.
We plan to devote the majority of our research and development resources to
the development and marketing of new products, particularly filters made of
specially treated glass which will be used as
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components in Dense Wavelength Division Multiplexers (DWDMs). DWDMs are devices
which, when inserted in fiber optic cable lines, increase significantly the
amount of data that such lines can carry.
The Company is in the process of developing DWDM filter prototypes which can
reliably meet a set of performance requirements supplied to us by potential
customers. While in recent months we have begun to market, produce and
distribute DWDM filters which meet certain of our customers' performance
requirements, we cannot guarantee that our DWDM initiative as a whole will be
successful or that we will succeed in developing and marketing DWDM filters or
any other new products. Also, certain domestic and foreign companies have begun
marketing products which employ technologies similar to our DWDM filter
technology. We cannot predict whether the DWDM filters, which we have developed
or will develop in the future, will be perceived in the marketplace as more
cost-effective, efficient or reliable than these competing products.
Based upon our expectations about market acceptance of our DWDM filters, we
expect to continue to increase our research and development expenditures in the
DWDM area. Our operating results may be severely impaired if these development
efforts are unsuccessful or if sales of our new products are below expectations.
OUR QUARTERLY FINANCIAL RESULTS DEPEND ON A LARGE NUMBER OF FACTORS AND
THEREFORE MAY VARY QUARTER TO QUARTER--AS A RESULT, WE CANNOT PREDICT WITH A
HIGH DEGREE OF CERTAINTY OUR OPERATING RESULTS IN ANY PARTICULAR FISCAL QUARTER.
Our quarterly operating results may vary significantly depending upon
factors such as:
- the timing of completion of significant orders
- the timing and amount of our research and development
expenditures
- the costs of initial product production in connection with new
products
- the timing of new product introductions -- both by us and by our
competitors
- the timing and level of market acceptance of new products or
enhanced versions of our existing products
We cannot be certain whether we will be able to grow or sustain revenues or
achieve or maintain profitability on a quarterly or annual basis or that levels
of revenue and/or profitability may not vary from one such period to another.
WE RELY ON A SMALL NUMBER OF CUSTOMERS AND CANNOT BE CERTAIN THEY WILL
CONSISTENTLY PURCHASE OUR PRODUCTS IN THE FUTURE.
In the fiscal year ended June 30, 2000, our two largest customers
represented approximately 46% and 11%, respectively, of our total revenues. In
the fiscal year ended June 30, 1999, our largest customer represented
approximately 46%, of our total revenues. In the fiscal year ended June 30,
1998, our three largest customers represented approximately 22%, 14% and 10%,
respectively, of our total revenues. No other customer accounted for more than
10% of our revenues during those periods.
The customer described above (representing 22% of 1998 revenues) no longer
place orders with us. We attribute the loss of their business to two primary
factors: declining demand for their own products (of
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which our products were components) and the availability to those customers of
lower cost alternatives to our products sold by foreign manufacturers.
In the future, a small number of customers may continue to represent a
significant portion of our total revenues in any given period. We cannot be
certain that such customers will consistently purchase our products at any
particular rate over any subsequent period.
WE RELY HEAVILY UPON THE TALENTS OF OUR CHIEF EXECUTIVE OFFICER AND OUR SENIOR
VICE PRESIDENT, OPTICAL THIN FILMS TECHNOLOGY--THE LOSS OF EITHER OF THEM COULD
SEVERELY DAMAGE OUR BUSINESS.
Our performance depends to a large extent on a small number of key
scientific, technical, managerial, and marketing personnel. In particular, we
believe our success is highly dependent upon the services and reputation of our
Chief Executive Officer, Mr. Richard E. Forkey, and our Senior Vice President,
Optical Thin Films Technology, Dr. James D. Rancourt (who has recently assumed
primary operating responsibility for our optical thin films initiative). Loss of
either Mr. Forkey's or Dr. Rancourt's services and scientific contributions
could severely damage our business.
WE MUST CONTINUE TO BE ABLE TO ATTRACT EMPLOYEES WITH THE SCIENTIFIC AND
TECHNICAL SKILLS THAT OUR BUSINESS REQUIRES--IF WE ARE UNABLE TO ATTRACT AND
RETAIN SUCH INDIVIDUALS, OUR BUSINESS COULD BE SEVERELY DAMAGED.
Our ability to attract employees with a high degree of scientific and
technical talent is crucial to the success of our business. There is intense
competition for the services of such persons, and we cannot guarantee that we
will be able to attract and retain individuals possessing the necessary
qualifications.
WE HAVE A NUMBER OF LARGE, WELL-FINANCED COMPETITORS WHO HAVE RESEARCH AND
MARKETING CAPABILITIES THAT ARE SUPERIOR TO OURS.
The industries in which we compete are highly competitive. Many of our
existing and potential competitors have greater financial resources and
manufacturing capabilities, more established and larger marketing and sales
organizations and larger technical staffs than we have. Other companies, some
with greater experience in the telecommunications, optics, semiconductor or
medical products industries, are seeking to produce products and services that
compete with our products and services.
WE ARE SUBJECT TO A HIGH DEGREE OF REGULATORY OVERSIGHT--WE CANNOT BE CERTAIN
THAT WE WILL CONTINUE TO RECEIVE THE NECESSARY REGULATORY APPROVALS.
The FDA has allowed us to market the medical products we currently sell in
the United States. However, prior FDA approval may be required before we can
market additional medical products that we may develop in the future. We may
also seek to sell current or future medical products in a manner that requires
us to obtain FDA permission to market such products. We may also require the
regulatory approval or license of other federal, state or local agencies or
comparable agencies in other countries.
We cannot be certain that we will continue to receive the FDA's permission
to market our current products or obtain the necessary regulatory permission,
approvals or licenses for the marketing of any of our future products. Also, we
cannot predict the impact on our business of FDA regulations or determinations
arising from future legislation or administrative action.
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WE FACE RISKS INHERENT IN PRODUCT DEVELOPMENT AND PRODUCTION UNDER FIXED PRICE
CONTRACTS--WE CANNOT BE SURE THAT THESE CONTRACTS WILL BE PROFITABLE OVER TIME.
A significant portion of our business has been devoted to research,
development and production under fixed price contracts. For our purposes, a
fixed price contract is any contract under which we will provide products or
services for a fixed price over an extended period of time (usually six months
to a year, with some government contracts extending as long as three years). In
our 2000, 1999, and 1998 fiscal years, fixed price contracts represented
approximately 68%, 62% and 55%, respectively, of our total revenues. We expect
that revenues from fixed price contracts will continue to represent a
significant portion of our total revenues in future fiscal years.
Because they involve performance over time, we cannot predict with certainty
the expenses involved in meeting our obligations under fixed price contracts.
Therefore, we can never be sure at the time we enter into any single fixed price
contract that such contract will be profitable for us. Although fixed price
contracts were profitable for us overall in each of 2000, 1999 and 1998, cost
overruns have caused, and will likely continue to cause, individual fixed price
contracts that we enter into from time to time to be unprofitable.
THIRD PARTIES MAY INFRINGE ON OUR PATENTS--AS A RESULT, WE COULD INCUR
SIGNIFICANT EXPENSE IN PROTECTING OUR PATENTS OR NOT HAVE SUFFICIENT RESOURCES
TO PROTECT THEM.
We hold a number of patents that are important to our business. Although we
are not currently aware of any past or present infringements of our patents, we
plan to protect these patents from infringement and obtain additional patents
whenever feasible. To this end, we have obtained confidentiality agreements from
our employees and consultants and others who have access to the design of our
products and other proprietary information. Protecting and obtaining patents,
however, is both time consuming and expensive. We therefore may not have the
resources necessary to assert all potential patent infringement claims or pursue
all patents that might be available to us.
THIRD PARTIES MAY CLAIM THAT WE HAVE INFRINGED ON THEIR PATENTS--AS A RESULT, WE
COULD BE PROHIBITED FROM USING ALL OR PART OF ANY TECHNOLOGY USED IN OUR
PRODUCTS.
The technologies used or to be used in our advanced optical systems may
infringe upon patents or proprietary technology held or owned by other persons.
Should these persons claim a proprietary right to all or part of any technology
that we use in our products, such a claim, regardless of its merit, could
involve us in costly litigation. If successful, such a claim could also result
in us being unable to freely to use the technology that was the subject of the
claim, or sell products embodying such technology.
WE DEPEND ON THE AVAILABILITY OF CERTAIN KEY SUPPLIES AND SERVICES THAT ARE
AVAILABLE FROM ONLY A FEW SOURCES--IF WE EXPERIENCE DIFFICULTY WITH A SUPPLIER,
WE MAY HAVE DIFFICULTY FINDING ALTERNATIVE SOURCES OF SUPPLY.
Certain key supplies used in our products, particularly precision grade
optical glass, are available from only a few sources, each of which is located
outside the United States. Also, outside vendors grind and polish certain of our
lenses and other optical components, such as prisms and windows. Based upon our
ordering experience to date, we believe the materials and services required for
the production of our products are currently available in sufficient quantities.
Our requirements are small relative to the total supply, and we are not
currently encountering problems with availability. However, this does not mean
that we will continue to have timely access to adequate supplies of essential
materials and services in the future or that supplies of these materials and
services will be available on satisfactory terms when the need
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arises. Our business could be severely damaged if we become unable to procure
essential materials and services in adequate quantities and at acceptable
prices.
From time to time, certain of our products may be produced for us by
subcontractors, and our business is subject to the risk that these
subcontractors fail to make timely delivery. Our products and services are also
from time to time used as components of the products and services of other
manufacturers. We are therefore subject to the risk that manufacturers that
integrate our products or services into their own products or services are
unable to acquire essential supplies and services from third parties in a timely
fashion.
OUR CUSTOMERS MAY CLAIM THAT THE PRODUCTS WE SOLD THEM WERE DEFECTIVE--IF OUR
INSURANCE IS NOT SUFFICIENT TO COVER A CLAIM, WE WOULD BE LIABLE FOR THE EXCESS.
Like any manufacturer, we are and always have been exposed to liability
claims resulting from the use of our products. We maintain product liability
insurance to cover us in the event of liability claims, and no such claims have
been asserted or threatened against us to date. However, we cannot be certain
that our insurance will be sufficient to cover all possible future product
liabilities.
WE WOULD BE LIABLE IF OUR BUSINESS OPERATIONS HARMED THE ENVIRONMENT--FAILURE TO
MAINTAIN COMPLIANCE WITH ENVIRONMENTAL LAWS COULD SEVERELY DAMAGE OUR BUSINESS.
Our operations are subject to a variety of federal, state and local laws and
regulations relating to the protection of the environment. From time to time, we
use hazardous materials in our operations. Although we believe that we are in
compliance with all applicable environmental laws and regulations, our business
could be severely damaged by any failure to maintain such compliance.
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