Precision Optics Corporation Announces Q2 Results - Sales Increase YTD 43% Over Last Year and Q2 26% Over Q1

    GARDNER, Mass., Feb. 10 /PRNewswire-FirstCall/ -- Precision Optics
 Corporation, Inc. (Nasdaq:   POCI) today announced operating results on an
 unaudited basis for the second quarter of fiscal year 2006 ended December 31,
     In our report of operations for the quarter ending September 30, 2005 we
 drew attention to our developmental work of the past two years and highlighted
 our efforts to achieve the following:
     --  Develop proprietary, patent pending micro-precision(TM) technologies
         for use in fabricating cost effective micro-optics -- lenses, prisms,
         and optical assemblies.
     --  Redesign our line of endoscopes incorporating patent pending
         Lenslock(TM) technology which offers significant advantages over the
         current industry standard.
     Efforts in these areas as well as other new product releases began to show
 results in revenue during the latter half of the quarter ending September 30,
 2005.  We are pleased to report continued progress in the quarter ending
 December 31, 2005 highlighted by:
     --  40% of Q2 revenues were from newly released or significantly enhanced
     --  Q2 revenue included the highest level of micro-optics to date -- now
         with over 3,000 units delivered.
     --  First production units of the Company's video ophthalmoscope were
         delivered in Q2.
     --  First production units of the Company's new generation Lenslock(TM)
         2.7 mm ENT (ear/nose/throat) endoscopes were delivered in Q2.
         Follow-on order also received in Q2.
     --  First prototypes of 4 mm Lenslock(TM) arthroscope completed in Q2.
     We are also pleased to note, at the time of this filing, that the Company
 received $515,000 in new sales orders in the first five weeks of Q3.
     Second Quarter Operating Results
     Revenues -- For the quarter ended December 31, 2005, revenues were
 $529,195 compared to $397,522 for the same period last year, an increase of
 33%.  Revenues in the quarter increased 26% from the preceding quarter ended
 September 30, 2005.
     Net Loss -- For the quarter ended December 31, 2005, net loss was $636,392
 or $0.09 per share, an improvement of $184,487 from the net loss of $820,879
 or $0.12 per share, for the same period last year.  The weighted average
 common shares outstanding for the quarters ended December 31, 2005 and 2004
 was 7,008,212.
     Cash Flow and Expenditures -- For the quarter ended December 31, 2005,
 cash and cash equivalents decreased by $722,866 compared to a decrease of
 $539,375 for the previous quarter ended September 30, 2005.  Cash receipts
 during the quarter ended September 30, 2005 included $162,000 received from
 the sale of equipment previously used in the Company's discontinued
 telecommunication business.
     For the quarter ended December 31, 2005, research and development expenses
 were $269,159 up 21% from $223,069 a year earlier.  The level of future
 quarterly R&D expenses will ultimately depend on the Company's assessment of
 new product opportunities and available cash resources.
     Expense Reduction -- Selling, general and administrative expenses
 decreased by approximately $21,000, or 4.8% for the quarter ended
 December 31, 2005 compared to the same period last year.  The achieved savings
 are from actions the Company initiated in the quarters ending June 30, 2005
 and September 30, 2005, reducing professional fees, changing the CFO role to
 part-time, and through reduced premiums from changing the Company's general
 insurance provider.
     Customer Relationships
     The Company has continued development of its new line of endoscopes based
 on unique, patent pending Lenslock(TM) technology.  Having completed the
 development cycle of several products, and delivery of initial production
 orders, the Company is currently holding discussions for significant unit
 volume orders with leading companies in the endoscopy market.
     The Company is now manufacturing ultra-small lenses, prisms, and
 assemblies with sizes ranging from 0.2 mm to 1 mm, for a number of customers.
 The Company is also in discussions with several customers regarding
 manufacturing of prototypes of similar products.  These optical components and
 instruments utilize a variety of innovative techniques including the Company's
 patent-pending micro-precision(TM) lens technology.
     The Company has recently completed a partnership effort for the
 proprietary development of a new class of night vision lenses including a new
 patent-pending eyepiece lens.  With prototypes completed, the product
 incorporating the Company's new night vision lenses is currently being
 evaluated for need and use, including field testing.  The Company cannot
 control the timing of current evaluations and cannot therefore predict when
 its developed prototypes in night vision lenses might begin to generate
 revenue.  Should the Company's customer secure orders for its night vision
 system, the partnership agreement ensures the Company will either be
 contracted to manufacture the new lenses, or will receive royalties on lenses
 manufactured elsewhere.
     The Company's cash balance at December 31, 2005 was $909,452 with an
 average quarterly cash usage, over the preceding four quarters, of $746,000
 per quarter.  The Company is actively seeking additional funds through equity
 or debt financing.  While there can be no assurance that such funds will be
 available on satisfactory terms, or at all, the Company is currently engaged
 in discussions with a number of potential investors who have indicated an
 ability to and potential interest in making an investment in the near term.
 If the Company is unable to obtain additional funds within the next few months
 it may have to delay, scale back or eliminate some or all of its marketing,
 development and production activities.
     In the coming months the Company will continue to focus its efforts on
 marketing products recently introduced or redesigned.  Development costs, in
 several areas, may be reduced as the Company promotes products showing more
 immediate potential for significant revenue.  The Company believes that these
 marketing activities, if successful, will result in the continuation of its
 recent pattern of sales growth.
     About Precision Optics
     Precision Optics Corporation, a leading developer and manufacturer of
 advanced optical instruments since 1982, designs and produces high-quality
 medical instruments, optical thin film coatings, and other advanced optical
 systems.  The Company's medical instrumentation line includes laparoscopes,
 arthroscopes and endocouplers and a world-class product line of 3-D endoscopes
 for use in minimally invasive surgical procedures.
     The Company continues to move forward with new products and technical
 innovations, in particular, the development of a new generation
 (patent pending) of its world-class product line of 3-D endoscopes, the
 extension of Lenslock(TM) technology (patent pending) to its entire line of
 endoscopes, and new instruments utilizing the Company's micro-precision(TM)
 lens technology (patent pending) for optical components, assemblies and
 endoscopes under 1 mm.  The Company continues to explore potential
 applications of single-molecule technology and nanotechnology.
     Precision Optics Corporation is certified to the ISO 9001 Quality
 Standard, and complies with the FDA Good Manufacturing Practices and the
 European Union Medical Device Directive for CE Marking of its medical
 products.  The Company's Internet Website is .
                       FOR THE THREE AND SIX MONTHS ENDED
                           DECEMBER 31, 2005 AND 2004
                               Three Months                 Six Months
                             Ended December 31,          Ended December 31,
                             2005         2004           2005         2004
     REVENUES              $529,195     $397,522       $948,777     $661,332
     COST OF GOODS SOLD     487,123      572,940      1,008,623      928,955
     Gross Profit / (Loss)   42,072     (175,418)       (59,846)    (267,623)
     RESEARCH and
      DEVELOPMENT           269,159      223,069        477,270      579,475
      EXPENSES              415,571      436,727        840,259      934,166
     GAIN ON SALE OF ASSETS       -            -       (165,700)           -
       Total Operating
        Expenses            684,730      659,796      1,151,829    1,513,641
       Operating Loss      (642,658)    (835,214)    (1,211,675)  (1,781,264)
     INTEREST INCOME          6,266       14,335         15,412       26,927
     Net Loss             $(636,392)   $(820,879)   $(1,196,263) $(1,754,337)
     Basic and Diluted
      Loss Per Share         $(0.09)      $(0.12)        $(0.17)      $(0.27)
     Weighted Average
      Common Shares
      Basic and Diluted   7,008,212    7,008,212      7,008,212    6,494,022
                          CONSOLIDATED BALANCE SHEETS
     CURRENT ASSETS                         December 31, 2005  June 30, 2005
     Cash and Cash Equivalents                       $909,452     $2,171,693
     Accounts Receivable, net                         312,490        177,031
     Inventories, net                                 530,855        599,619
     Prepaid Expenses                                  82,925         62,422
         Total Current Assets                       1,835,722      3,010,765
     PROPERTY AND EQUIPMENT                         4,182,791      4,231,975
     Less: Accumulated Depreciation                (4,110,472)    (4,092,202)
         Net Property and Equipment                    72,319        139,773
         Total Other Assets                           228,044        218,067
     TOTAL ASSETS                                  $2,136,085     $3,368,605
     CURRENT LIABILITIES                             $482,753       $519,010
       Common Stock, $.01 par value-
        Authorized -- 20,000,000 shares
        Issued and Outstanding -- 7,008,212 shares
        at December 31, 2005 and at June 30, 2005      70,082         70,082
     Additional Paid-in Capital                    32,751,597     32,751,597
     Accumulated Deficit                          (31,168,347)   (29,972,084)
         Total Stockholders' Equity                 1,653,332      2,849,595
     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY    $2,136,085     $3,368,605
     Forward-looking statements contained in this news release, including those
 related to the future success of Company's newly released products and
 products under development, the Company receiving orders for significant
 volumes that are currently under discussion, and the need for and ongoing
 discussions regarding the Company obtaining additional funding are made under
 "safe harbor" provisions of the Private Securities Litigation Reform Act of
 1995 and involve a number of risks and uncertainties that could materially
 affect future results.  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;
 decisions by customers to place orders for the Company's products, the risk
 that investors will not be willing to provide the Company additional funding
 on reasonable terms or at all, 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
 customers' products for which the Company supplies components; performance of
 the Company's vendors; 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; and the other
 risk factors and cautionary statements listed from time to time in the
 Company's periodic reports filed with the Securities and Exchange Commission,
 including but not limited to, the Company's Annual Report on Form 10-KSB for
 the year ended June 30, 2005.

SOURCE Precision Optics Corporation, Inc.

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