POCI 10-K & 10-Q changes, risk factors and insider trading

During the fiscal year ending June 30, 2026, one customer accounted for approximately 41% of total revenues and another customer accounted for 27% of our total revenues, representing a significant increase in customer concentration compared to prior years. For the fiscal year ended June 30, 2025, one customer accounted for approximately 22% of total revenues and another customer accounted for 20% of our total revenues. A small number of customers may continue to represent a significant portion of our total revenues in any given period. These customers may not consistently purchase our products at a particular rate over any subsequent period. A loss of any of these customers could materially and adversely affect our revenues.

While we believe we have a varied customer base and have experienced strong collections in the past, we may experience changes in our customer base, including reductions in purchasing commitments, which could also have a material adverse effect on our revenues and liquidity. Two customer accounts receivable balances accounted for 34.4% and 22.8% of total receivables on June 30, 2026. Two customer accounts receivable balances accounted for 32.1% and 17.9% of total receivables on June 30, 2025. Additionally, our customers could become unable or unwilling to pay amounts owed to us. Over the past three years, we have not had significant accounts receivable write-offs or significant additions to our accounts receivable reserve and. and we have not purchased insurance on our accounts receivable balances. Nonetheless, large uncollectible accounts receivable balances could arise in the future and could have a material adverse effect on our financial condition.

We require certain key supplies to develop and manufacture our products, particularly our precision grade optical glass, which is available from only a few sources, most of which are located located outside of the United States. Additionally, we rely on outside vendors to grind and polish certain of our lenses and other optical components, components, such as prisms and windows. We also rely on a limited number of suppliers for specialized CMOS sensors and the electronic wiring of those sensors. 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 to meet our needs. 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 arises. Our business could be severely damaged if we become unable to procure these essential materials and services in adequate quantities and at acceptable prices.

Ross Optical is ISO and ITAR registered and currently imports, exports, and manufactures optical products for the defense industry, some of which are controlled by regulations promulgated by the U.S. Departments of State and Commerce. If we fail to comply with the terms of these regulations and registrations, itwe may lose itsour ITAR registration or suffer other consequences, such as the withdrawal or suspension of approvals, suspension of imports, exports or production, or the imposition of fines or other penalties.

There is also the risk that new laws or regulations or changes in enforcement practices applicable to our business could be imposed, which may adversely affect our ability to compete effectively with other institutions that are not affected in the same way, or which may impact itstheir suppliersuppliers and customers. In addition, regulations imposed on market participants such as foreign tariff increases could negatively affect the overall profitability of Ross Optical’ s international business.

Our business reliesrelies, in part, on our patents. Filing, prosecuting and defending patents in all countries throughout the world would be prohibitively expensive, and we do not have only limited patent protection outside of the United States. In addition, the laws of some foreign countries do not protect intellectual intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These infringing products may compete with the product we develop, without any available recourse.

We are required to maintain internal control over financial reporting and to assess and report on the effectiveness of those controls. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting. Our management concluded that our internal control over financial reporting was effective as of June 30, 2025,2026, however, if we are not able to maintain effective internal control over financial reporting, our financial statements, including related disclosures, may be inaccurate, which could have a material adverse effect on our businessbusiness.

Certain provisions in our organizational documents could enable our board of directors to prevent or delay a change of control .control.

The trading market for our common stock depends in part on the research and reports that analysts and journalists publish about us or our business. If analysts or journalists publish inaccurate or unfavorable research about our business, our stock price would likely decline. If we fail to meet the expectations of analysts for our operating results, or if the analysts who coverscover us downgrade our stock, our stock price would likely decline. If one or more of of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause cause our stock price and trading volume to decline.

We are subject to credit risk primarily in our trade accounts receivable. We generally do not require collateral or other security as a condition of sale, rather we rely on credit approval, balance limitation and monitoring procedures to control credit risk in trade account financial instruments. Our customer base includes many large medical device and defense/aerospace companies, as well as newly incorporated entities pursuing emerging technologies. In those cases when we cannot determine the creditworthiness of our customer, we obtain prepayments and deposits that we judge will be sufficient to mitigate the risk of a significant financial loss. We establish reserves against losses that include both a review of specific account balances and current payment characteristics which are monitored contemporaneously to determine the adequacy of our reserve. Nevertheless, our customers may be adversely impacted by economic factors beyond our understanding and control, and which are difficult to foresee or estimate. A 1% increase in the accounts receivable reserve would increase our costs by approximately $44,000.$55,000. We recognized bad debt expenses of $38,000 and $202,000 for the years ending June 30, 2025,2026, and June 30, 2024, respectively.2025.

Total revenues for the fiscal year ended June 30, 20252026 were $19,091,269,$31,531,765, as compared to $19,104,350$19,091,269 for the same period in the prior year, aan decreaseincrease of $13,081,$12,440,496, or 0.1%.65.2%.

Revenue from Engineering Design Services decreased 42.0%29.7% during the year ending June 30, 20252026 from the prior year ending June 30, 2024.2025. Revenue decreases in the engineering category resulted from decreased demand for services, primarily from the transfer of our single-use cystoscope program from development (Engineering Design Services) to production (Systems Manufacturing), and increases in internal research and development.. Engineering revenue in the year was reduced due to unplanned increases in non-billable sustaining engineering activity to support manufacturing scale up along with delayed revenue opportunities within theinsufficient product development pipeline.engagements.

Revenue from Systems Manufacturing increased 122.2%172.9% during the year ending June 30, 20252026 from the prior year ending June 30, 2024.2025. Revenue increases in this category resulted from increasedsignificant increases in customer demand forand the resultant scaling of manufacturing services as design services engagements concluded and progressed to manufacturing.capabilities.

Revenue from the MicroOptics Lab decreased 21.5%75.7% during the year ending June 30, 20252026 from the prior year ending June 30, 2024,2025, primarily due to reorderdelays timing.in receiving new production orders from a defense contractor, which is the primary customer for this line of business.

Revenue from Ross Optical Industries decreasedincreased 9.8%31.7% for the year ending June 30, 20252026 from the prior year ending June 30, 2024.2025. We believe a portion of the decreaseincrease continues to beis attributable to athe general,inability industry-wideof slowdown, coupled with uncertainty driven by evolving tariff costs, which has ledour customers to continue to postpone deliveries.deliveries that had previously been delayed due to the uncertainty of new tariffs and the passthrough of these tariff costs which increased revenue.

Gross margin decreased to 17.8%17.2% during the year ended June 30, 2025,2026, compared to 30.3%17.8% for the year ended June 30, 2024.2025. Gross profit decreasedincreased to $3,404,433$5,431,220 during the year ended June 30, 2025,2026, compared to $5,797,777$3,404,433 for the year ended June 30, 2024,2025, primarily driven by yieldincreased issues associated with new manufacturing lines, lower utilization of billable engineering resources, and the decreasesvolume in revenueSystems discussed above.Manufacturing.

R&D expenses increaseddecreased $176,182$124,807 to $1,157,963$1,033,156 during the year ended June 30, 2025,2026, compared to $981,781$1,157,963 during the year ended June 30, 2024.2025. R&D expenses for the period primarily represent employee-related expenses to support product improvements, the development of new technologies and standardized approaches to address the opportunities for an evolving single-use medical device environment.

SG&A expenses increased $257,432,$108,911, or 3.4%1.4% to $7,906,672 during the year ended June 30, 2026, compared to $7,797,761 during the year ended June 30, 2025, compared to $7,540,329 during the year ended June 30, 2024.2025. The increasedecrease in SG&A for the year was primarily due to increased personnel costs, most related todecreased stock-based compensation and recruiting expenses, partially offset by consulting and bonus expense.

Based on our current plans and business conditions, management believes that the Company’s available cash and cash equivalents, the cash generated from operations, availability on our line of credit, and our ability to raise funds in the capital markets will be sufficient to provide for the Company’s working capital and capital expenditure requirements for at least 12 months from the date of this filing. However, our cash on hand and cash generated solely from operations may be insufficient to meet working capital needs for such period and we may be required to raise external financing in the short-term.

During the year ended June 30, 2025,2026, net cash used in operating activities totaled $3,547,400$1,550,219 as compared to $2,683,012$3,395,702 during the year ended June 30, 2024.2025. The increasedecrease in net cash used in operating activities was primarily due to the increasedecrease in net loss, accounts receivableinventory and inventoryaccrued expense during the year ended June 30, 30, 2025,2026, partially offset by the increase in accounts payable and customeraccounts advancesreceivable during such period.

During the year ended June 30, 2026, net cash used in investing activities was $429,350, consisting of purchases of property and equipment and additional patent costs. During the year ended June 30, 2025, net cash used in investing activities was $233,473, consisting of purchases of property and equipment net of adjustments in patent costs. During the year ended June 30, 2024, net cash used in investing activities was $293,883, consisting of purchases of property and equipment and patent costs.

During the year ended June 30, 2026, we made payments of $623,701 on term notes and capital leases. We raised a net of $10,630,678 from a public offering of common stock made in March 2026 pursuant to our shelf registration statement. During the year ended June 30, 2025, we made payments of $321,554 on term notes and capital leases and repaid $1,000,000 on our revolving line of credit. We raised a net of $6,270,136 from two registered direct offerings made in August 2024 and February 2025 pursuant to our shelf registration statement. During the year ended June 30, 2024, we made payments of $556,468 on term notes and capital leases offset by borrowings on the line of credit of $1,000,000.

The Company’s Loan Agreement with the Lender contains a minimum annual debt service coverage ratio covenant of 1.2x. As the Company did not meet this annual debt service coverage ratio for the fiscal year ended June 30, 2024, the Company’s Lender had agreed to waive compliance with such debt service ratio covenant covenant for the period ending June 30, 2024. In addition to such waiver, the Lender and the Company entered into an amendment dated September 30, 2024 to that certain Term Loan dated October 4, 2021, as amended and that certain Promissory Note dated June 2, 2023 (collectively, the “Notes”) which amendments provideprovided for a six monthsix-month period of interest only payments from October 15, 2024 through March 15, 2025 for the Notes. The Company commenced payments of principal and interest under the Notes beginning with the payments due on April 15, 2025, with a new amortization schedule for the remaining term for such Notes through their maturity date. On February 14, 2025, the lender agreed to waive compliance with the annual debt service coverage ratio covenant for the fiscal year ending June 30, 2025, subject to a $30,000 waiver fee and the completion of an equity raise of at least $4,500,000 by February 24, 2025, which the Company satisfied on February 21, 2025. Any future advances are contingent on the Company achieving a minimum Debt Service Coverage ratio of 1.20x based on quarterly testing which the company was not in compliance with as of June 30, 2025.2026. On September 25, 2026, the lender agreed to waive the Company’s minimum annual debt service coverage ratio covenant for the fiscal year ended June 30, 2026 and modified the Company’s credit arrangements to eliminate the debt service coverage ratio covenant and replace it with a minimum liquidity covenant of $2.0 million, retain the existing term note, and provide the Company access to $750,000 of availability under its revolving line of credit, subject to borrowing-base requirements and a $5,000 waiver fee. The lender further agreed to expand availability under the revolving line of credit to $1,250,000 upon attaining a DSCR of 1.2x. There were no other changes to or modifications to the Loan Agreement or the Notes.

The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and notes to those statements included elsewhere in this Quarterly Report on Form 10-Q for the quarter ended DecemberMarch 31, 20252026 and with our audited financial statements for the year ended June 30, 2025 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on September 29, 2025, as amended by Amendment No. 1 on Form 10-K/A filed with the Securities and Exchange Commission on October 28, 2025 (our “Annual Report on Form 10-K”) .

Effective October 1, 2021, we acquired the operating assets of Lighthouse Imaging, LLC of Windham, Maine,whichMaine, which expanded our electrical engineering capabilities in the development of end-to-end medical visualization devices. The acquisition represented a vertical integration of our established product development capabilities with a team with extensive experience developing visualization systems that we believe provides our customers with single-source value-added development services and product offerings. The operations of Lighthouse Imaging have been integrated with other operations of the company, which continue under the POC brand, so that the company now operates with single systems manufacturing and engineering departments, each of which includes historical POC and Lighthouse Imaging resources.

Total revenues for the quarter ending DecemberMarch 31, 2026 2025 were $7,367,837,$8,708,631, as compared to $4,526,907$4,185,968 for the same period in the prior year, an increase of $2,840,930$4,522,663 or 62.8%108.0% and for the nine six months ended DecemberMarch 31, 20252026 was $14,048,660$22,757,291 as compared to $8,723,960$12,909,928 for the same period in the prior year, an increase of $5,324,700,$9,847,363, or 61.0%.76.3%.

Revenue from Engineering Design Services decreasedincreased 31.2%22.0% and 46.3%decreased 31.0% during the three and six-monthnine-month periods ending DecemberMarch 31, 20252026 from the same periods in the prior fiscal year. During During the quarter ending DecemberMarch 31, 20252026 revenue decreasesincreases in the engineering category resulted from decreasednew demandproject for services.revenues. Engineering revenue for the nine-month period ending March 31, 2026 was lower due to the completion of product development engagements in the prior year and delayed revenue opportunities within the product development pipeline for the current quarter.pipeline.

Revenue from Systems Manufacturing increased 213.2%206.4% and 248.9%231.4% during the three and six-monthnine-month periods ending DecemberMarch 31, 20252026 from the same periods in the prior fiscal year, due primarily to significant increases in customer demand and the resultant scaling of manufacturing capabilities.

Revenue from the MicroOptics Lab decreased 60.1%72.4% and 68.3%69.8% during the three and six-monthnine-month periods ending DecemberMarch 31, 20252026 from the same periods in the prior fiscal year, primarily due to delays delays in receiving new production orders from our defense customer.

Revenue from Ross Optical Industries increased 0.5%65.4% and 6.8%23.7% during the three and six-monthnine-month periods ending DecemberMarch 31, 20252026 from the same periods in the prior fiscal year. We believe the increase is attributable to the inability of our customers to continue to postpone deliveries that had previously been delayed due to the introduction of new tariffs and the resultant uncertainty.

Gross margin decreasedincreased to 2.8%23.6% during the quarter ending DecemberMarch 31, 2025,2026, compared to 23.6%10.0% for the quarter ending DecemberMarch 31, 2024.2025. Gross profit decreasedincreased to $204,660$2,056,534 during the three months ending DecemberMarch 31, 2025,2026, compared to $1,069,942$417,975 for the three months ended DecemberMarch 31, 2024.2025. Within Systems Manufacturing, low gross margins improved werewith primarilygreater drivensales byvolume and improving yield lossesperformance withinacross our cystoscope single-useall manufacturing line, startup yield issues for a second customer’s single-use manufacturing line,lines, and under-absorptionthe recognition of manufacturing$224,544 overhead.of grant Costsincome. Conversely, costs associated with Engineering Design Services are primarily attributed to our engineering workforce, which we have chosen to keep in place as we focus on increasing revenue, leading to negativelow margins for the period. Similarly, the MicroOptics Lab workforce requires specialized training, and we have also experienced negative margins from this segment resulting from the reorder delays discussed above but have chosen to keep the workforce in place.

Gross margin decreased to 8.2%14.1% during the sixnine months ending DecemberMarch 31, 2025,2026, compared to 25.1%20.2% for the sixnine months ending DecemberMarch 31, 2024.2025. Gross profit decreasedincreased to $1,151,018$3,207,552 during the nine sixmonths ending March 31, 2026, compared to $2,605,247 for the nine months ending DecemberMarch 31, 2025, compared to $2,187,272 for the six months ending December 31, 2024.2025.

R&D expenses decreasedincreased $68,173$56,077 to $249,574$267,319 during the quarter ending DecemberMarch 31, 2025,2026, compared to $317,747$211,242 during the quarter ending DecemberMarch 31, 2024.2025. R&D expenses decreased $156,992$100,915 to $561,414$828,733 during the sixnine months ending DecemberMarch 31, 2025,2026, compared to $718,406$929,648 during the sixnine months ended DecemberMarch 31, 2024.2025. R&D expenses expenses for the applicable periods represent employee-related expenses to support product improvements, the development of new technologies and and standardized approaches to address the opportunities for an evolving single-use medical device environment.

SG&A expenses increaseddecreased $35,199,$373,931, or 2.1% 16.7% to $1,697,415 during the three months ending December 31, 2025, compared to $1,662,216$1,853,677 during the three months ending DecemberMarch 31, 2024.2026, SG&A expenses increased $301,360, or 8.3%compared to $3,927,188$2,245,018 during the sixthree months ending DecemberMarch 31, 2025, compared to $3,625,828 during the six months ended December 31, 2024.2025. The increase decrease in SG&A for the six-monththree-month period was primarily due to increaseddecreases stockin compensation,stock-based executive severance,compensation and consultingrecruiting expenses.costs partially offset by consulting, bonuses, and bad debt expense.

During the sixnine months ending DecemberMarch 31, 2025,2026, net cash used in operating activities totaled $177,852$901,110 as compared to $1,105,431$2,978,165 during the sixnine months ending DecemberMarch 31, 2024.2025. The decrease in net cash used in operating activities was primarily due to increased accounts payable and accrueddecreased expensesnet loss and inventory during the six nine months ending December March 31, 2025,2026, partially offset by the increase in netaccounts lossreceivable during such period.

During the sixnine months ending DecemberMarch 31, 2025,2026, net cash used in investing activities was $398,131,$348,639, consisting of purchases of property and equipment and patent costs. During the sixnine months ending DecemberMarch 31, 2024,2025, net cash used in investing activities was $60,085$149,837 consisting of purchases of property and equipment and patent costs.

During the sixnine months ending DecemberMarch 31, 2025,2026, we made made payments of $316,266$474,618 on term notes and capital leases.leases and raised a net of $10,630,678 from an underwritten offering made in March 2026. During the sixnine months ending DecemberMarch 31, 2024,2025, we made payments of $158,863 $196,487 on term notes and capital leases and repaid $100,000$1,000,000 on our revolving line of credit. We raised a net of $1,204,542$6,270,136 throughfrom the issuance of new shares in atwo registered direct commonofferings stockmade offeringin August 2024 and $27,000February in2025 proceedspursuant to fromour stockshelf optionregistration exercises.statement.

On October 4, 2021, the Company entered into a Loan Agreement with Main Street Bank of Marlborough, Massachusetts (the “Lender”), which provided for a $2,600,000 Term Loan and a $250,000 Revolving Line of Credit Loan Facility (the “Revolver”), which was increased to $500,000 effective May 17, 2022, and $1,250,000 effective June 2, 2023. Borrowings under the Revolver are limited by the borrowing base comprised of a percentage of accounts receivable and inventory and secured by all assets of the Company. Borrowings under the Revolver will bear interest payable monthly at the prime lending rate plus 1.5% per annum and shall not be less than 4.75% per annum. Borrowings under the Revolver are due upon demand. There were no borrowings under the Revolver at DecemberMarch 31, 2025.2026.

The Company’s Loan Agreement with the Lender contains a minimum annual debt service coverage ratio covenant of 1.2x. As the Company did not meet this annual debt service coverage ratio for the fiscal year ended June 30, 2024, the Company’s Lender agreed to waive compliance with such debt service ratio covenant for the period ending June 30, 2024. In addition to such waiver, the Lender and the Company entered into an amendment dated September 30, 2024 to that certain Term Loan dated October 4, 2021, as amended and that certain Promissory Note dated June 2, 2023 (collectively, the “Notes”) which amendments provided for a six monthsix-month period of interest only payments from October 15, 2024 through March 15, 2025 for the Notes. The Company commenced payments of principal and interest under the Notes beginning with the payments due on April 15, 2025, with a new amortization schedule for the remaining term for such Notes through their maturity date. On February 14, 2025, the lender agreed to waive compliance with the annual debt service coverage ratio covenant for the fiscal year ending June 30, 2025, subject to a $30,000 waiver fee and the completion of an equity raise of at least $4,500,000 by February 24, 2025, which the Company satisfied on February 21, 2025. Any future advances are contingent on the Company achieving a minimum Debt Service Coverage ratio of 1.20x based on quarterly testing which the company was not in compliance with as of DecemberMarch 31, 2025.2026. Under our current projections, we don’t expect to meet this covenant for fiscal 2026. We are currently in discussion with the Lender to grant a waiver or a longer-term solution. If the Lender seeks repayment, currently we have sufficient liquidity to repay our loans. There were no other changes to or modifications to the Loan Agreement or the Notes.

Capital equipment expenditures and additional patent costs during the sixnine months ended DecemberMarch 31, 20252026 and induring the same period in the prior year were $401,131$351,639 and $60,085,$149,837, respectively.

Contractual cash commitments for the fiscal periods subsequent to DecemberMarch 31, 2025,2026, are summarized as follows:

We have contractual cash commitments related to open purchase orders as of DecemberMarch 31, 20252026 of approximately $7,070,000.$6,200,000.