What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2021-09-28 compared with 2020-09-24 · 241 added, 297 removed, 42 unchanged (93% of the section changed)

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information

Our common stock is quoted on OTCQB, the OTC market tier for

companies that report to the SEC, under the symbol PEYE.

Our common stock is quoted on OTCQB, the OTC market tier for companies

that report to the SEC, under the symbol PEYE.

As of September 26, 2021, we had approximately

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Holders of record include nominees who may hold shares on behalf of multiple owners.

We have not declared any dividends during

the last two fiscal years.

At present, we intend to retain our earnings, if any, to finance research and development and the expansion

of our business.

We have not declared any dividends during the

last two fiscal years.

At present, we intend to retain our earnings, if any, to finance research and development and the expansion of

our business.

Recent Sales of Unregistered Securities

On April 14, 2020, we entered into agreements

with accredited investors for the sale and purchase of 200,000 shares of our common stock, $0.01 par value at a purchase price

of $1.25 per share.

We received $250,000 in gross proceeds from the offering.

The agreements also provide for the investors to

receive additional shares of our common stock in the event we have a subsequent offering of our common stock at a purchase price

lower than $1.25 per share before April 14, 2021.

The additional shares an investor would receive would be equal to the difference

between the number of shares that would have been received at the reduced purchase price and the number of shares received at the

$1.25 purchase price.

We are using the proceeds from this placement for general working capital purposes.

In conjunction with the placement, we also

entered into a registration rights agreement with the investors, whereby we are obligated to file a registration statement with

the Securities Exchange Commission on or before 120 calendar days after April 14, 2020 to register the resale by the investors

of 200,000 shares of our common stock purchased in the placement.

We filed a registration statement on August 14, 2020.

We relied on the Section 4(a)(2) exemption

from securities registration under the federal securities laws for transactions not involving any public offering.

No advertising

or general solicitation was employed in offering the securities.

The securities were issued to accredited investors.

The securities

were offered for investment purposes only and not for the purpose of resale or distribution.

The transfer thereof was appropriately

restricted by us.

Securities Authorized for Issuance under

Equity Compensation Plans

The following table summarizes information

about our equity compensation plans as of June 30, 2020.

We have not issued any unregistered securities

since March 31, 2021.

Securities Authorized for Issuance under Equity

Compensation Plans

The following table summarizes information about

our equity compensation plans as of June 30, 2021.

Plan category

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2006 Equity Incentive Plan

On November 28, 2006, our stockholders

approved the Precision Optics Corporation, Inc.

2006 Equity Incentive Plan, referred to as the 2006 Plan, which succeeded the Precision

Optics Corporation, Inc.

On November 28, 2006, our stockholders approved

the Precision Optics Corporation, Inc.

2006 Equity Incentive Plan, referred to as the 2006 Plan, which succeeded the Precision Optics

Corporation, Inc.

Amended and Restated 1997 Equity Incentive Plan, referred to as the 1997 Plan.

No further awards have

been or will be granted under the 1997 Plan.

The 2006 Plan allowed for the granting of stock options to selected employees, directors

and other persons who provide services to us or our affiliates.

No further awards have been or will be

granted under the 1997 Plan.

The 2006 Plan allowed for the granting of stock options to selected employees, directors and other persons

who provide services to us or our affiliates.

No further awards will be granted under the 2006 Plan.

1 unchanged sentence

The Precision Optics Corporation, Inc.

2011 Equity Incentive Plan, referred to as the 2011 Plan, was adopted by our Board of Directors on October 13, 2011.

The 2011 Plan

allows for the granting of stock options to selected employees, directors and other persons who provide services to us or our affiliates.

On April 16, 2015, the Board of Directors

approved an amendment to the 2011 Equity Incentive Plan which increased the maximum number of shares of our common stock that may

be awarded under the Plan from 325,000 to 1,825,000, an increase of 1,500,000 shares.

In connection therewith, on April 20, 2015,

we filed a registration statement on Form S-8 to register the 1,500,000 shares of common stock.

On May 1, 2019, the Board of Directors

approved an amendment to the 2011 Equity Incentive Plan to update the Plan for the latest changes to the tax laws and increase

the maximum number of shares of our common stock that may be awarded under the Plan from 1,825,000 to 2,825,000, an increase of

1,000,000 shares.

In connection therewith, on September 6, 2019, we filed a registration statement on Form S-8 to register the

1,000,000 shares of common stock.

Incentive Plan, referred to as the 2011 Plan, was adopted by our Board of Directors on October 13, 2011.

The 2011 Plan allows for the

granting of stock options to selected employees, directors and other persons who provide services to us or our affiliates.

On April 16, 2015, the Board of Directors approved

an amendment to the 2011 Equity Incentive Plan which increased the maximum number of shares of our common stock that may be awarded under

the Plan from 325,000 to 1,825,000, an increase of 1,500,000 shares.

In connection therewith, on April 20, 2015, we filed a registration

statement on Form S-8 to register the 1,500,000 shares of common stock.

On May 1, 2019, the Board of Directors approved

an amendment to the 2011 Equity Incentive Plan to update the Plan for the latest changes to the tax laws and increase the maximum number

of shares of our common stock that may be awarded under the Plan from 1,825,000 to 2,825,000, an increase of 1,000,000 shares.

In connection

therewith, on September 6, 2019, we filed a registration statement on Form S-8 to register the 1,000,000 shares of common stock.

2021 Equity Incentive Plan

The Precision Optics Corporation, Inc.

Incentive Plan, referred to as the 2021 Plan, was adopted by our Board of Directors on May 10, 2021.

The 2021 Plan allows for the granting

of stock options to selected employees, directors and other persons who provide services to us or our affiliates for up to a total of

1,000,000 shares of the Company’s common stock.

In connection therewith, we filed a registration statement on Form S-8 to register

the 1,000,000 shares of common stock.

SELECTED FINANCIAL DATA.

As a smaller reporting company, as defined

by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting

obligations and therefore are not required to provide the information requested by this Item.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis should

be read in conjunction with the Financial Statements and Notes thereto, and other financial information included elsewhere in this

Annual Report on Form 10-K.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations

contains descriptions of our expectations regarding future trends affecting our business.

The following discussion sets forth certain

factors we believe could cause actual results to differ materially from those contemplated by the forward-looking statements.

Effective June 1, 2019 we acquired the

operating assets of Ross Optical Industries, Inc.

of El Paso, Texas, which we began operating as a division of our Company beginning

on that date.

The accompanying financial statements include the results of operations of the Ross Optical division for the entire

fiscal year ended June 30, 2020 and the assets and liabilities of the division as of June 30, 2019 and 2020.

The acquisition of

the assets of Ross Optical Industries effective June 1, 2019 expands our optics components and assemblies business.

supplied by Ross Optical include a custom or catalog optic, which is sourced through Ross Optical’s extensive domestic and

worldwide network of optical fabrication companies.

Most systems make use of optical lenses, prisms, mirrors and windows and range

from individual optical components to complex mechano-optical assemblies.

Products often include thin film optical coatings that

are applied using the in-house coating department.

Approximately 73% of Ross Optical revenues are from customers in the United

States, 7% from Western Europe and 8% from Canada during the fiscal year ended June 30, 2020.

Ross Optical’s sales are mostly

resale of specialized optical components with the remainder being assemblies.

Ross Optical does not perform revenue generating

engineering services or internal research and development.

The majority of Ross Optical sales are for industrial applications with

the remainder split between military and medical device products.

The Management Discussion and Analysis

which follows is based on the financial condition and results of operations of our Company including the operating results for

the fiscal year ended June 30, 2020 and the month of June 2019 and the balance sheet as of June 30, 2020 and 2019 of our new division

Ross Optical.

Approximately 8% of our non-Ross Optical

division revenue in fiscal year 2020 is from the design, manufacture and resale of optical products for military and defense and

2% for other industrial, non-medical products and approximately 32-34% of our revenues in each of the fiscal years 2018, 2019 and

2020 were derived from engineering and design services we performed for our customers to incorporate our technologies and capabilities

into their medical device products.

Approximately 64-79% of our total revenues in fiscal years 2018, 2019 and 2020 were derived

from the assembly and manufacture of endoscopic medical devises, sub-assemblies and optical components ordered by our customers

and usually developed from the engineering and design services we perform for them.

We expect sales revenue increases to come from

the orders from our customers to manufacture the products we help them engineer and design.

We are registered to the ISO 9001:2015

and ISO 13485:2016 Quality Standards and comply with the FDA Good Manufacturing Practices and the European Union Medical Device

Directive for CE marking of our medical products.

As a smaller reporting company, as defined by

Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations

and therefore are not required to provide the information requested by this Item.

MANAGEMENT’S DISCUSSION

AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis should be

read in conjunction with the Financial Statements and Notes thereto, and other financial information included elsewhere in this Annual

Report on Form 10-K.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains descriptions

of our expectations regarding future trends affecting our business.

The following discussion sets forth certain factors we believe could

cause actual results to differ materially from those contemplated by the forward-looking statements.

We have been a developer and manufacturer of advanced

optical instruments since 1982.

Our medical instrumentation line includes traditional endoscopes and endocouplers as well as other custom

imaging and illumination products for use in minimally invasive surgical procedures.

Much of our recent development efforts have been

targeted at the development of next generation endoscopes.

We selectively execute internal research and development programs to develop

next generation capabilities for designing and manufacturing 3D endoscopes and very small Microprecision™

lenses, anticipating future

requirements as the surgical community continues to demand smaller and more enhanced imaging systems for minimally invasive surgery.

As Ross Optical Industries of El Paso, Texas we

also operate as a supplier of custom optical components and assemblies for military and defense, medical and various other industrial

applications.

All products sold by us under the Ross Optical name include a custom or catalog optic, which is sourced through our extensive

domestic and worldwide network of optical fabrication companies.

Most systems make use of optical lenses, prisms, mirrors and windows

and range from individual optical components to complex mechano-optical assemblies.

Products often include thin film optical coatings

that are applied using our in-house coating department.

Approximately 60% of our business during the fiscal

year ended June 30, 2021 was from the design and manufacture of high-quality medical devices.

Approximately 7% of our revenue during the

same period was from the design, manufacture and resale of optical products for military and defense, and 33% was from other industrial,

non-medical products.

Our proprietary medical instrumentation line and unique custom design and manufacturing capabilities include traditional

endoscopes and endocouplers as well as other custom imaging and illumination products for use in minimally invasive surgical procedures.

We design and manufacture 3D endoscopes and very small Microprecision™

lenses, assemblies and complete medical devices to meet the

surgical community’s continuing demand for smaller, disposable, and more enhanced imaging systems for minimally invasive surgery.

We are registered to the ISO 9001:2015 and

ISO 13485:2016 Quality Standards and comply with the FDA Good Manufacturing Practices and the European Union Medical Device Directive

for CE marking of our medical products.

Our websites are www.poci.com and www.rossoptical.com.

Information contained

on our websites does not constitute part of this report.

The markets in which we do business are

highly competitive and include both foreign and domestic competitors.

Many of our competitors are larger and have substantially

greater resources than we do.

Furthermore, other domestic or foreign companies, some with greater financial resources than we have,

may seek to produce products or services that compete with ours.

We routinely outsource specialized production efforts as required

to obtain the most cost-effective production.

Over the years and through the acquisition of the Ross Optical division in June 2019,

we have achieved extensive experience collaborating with other optical specialists worldwide.

We believe that competition for sales of

our medical products and services, which have been principally sold to original equipment manufacturers, or OEM, customers, is

based on our ability to design and produce technical features, performance, engineering service and production scheduling, on-time

delivery, quality control and product reliability, and competitive pricing.

We believe that our future success depends,

to a large degree, on our ability to develop new optical products and services to enhance the performance characteristics and methods

of manufacture of existing products.

Accordingly, we expect to continue to seek and obtain product-related design and development

contracts with customers and to selectively invest our own funds on research and development, particularly in the areas of Microprecision™

optics, micro medical cameras, illumination, and 3D endoscopes.

Information contained on our websites does

not constitute part of this report.

The markets in which we do business are highly

competitive and include both foreign and domestic competitors.

Many of our competitors are larger and have substantially greater resources

Furthermore, other domestic or foreign companies, some with greater financial resources than we have, may seek to produce

products or services that compete with ours.

We routinely outsource specialized production efforts as required to obtain the most cost-effective

Over the years we have achieved extensive experience collaborating with other optical specialists worldwide.

We believe that competition for sales of our medical

products and services, which have been principally sold to original equipment manufacturers, or OEM, customers, is based on our ability

to design and produce technical features, performance, engineering service and production scheduling, on-time delivery, quality control

and product reliability, and competitive pricing.

We believe that our future success depends, to

a large degree, on our ability to develop new optical products and services to enhance the performance characteristics and methods of

manufacture of existing products and future products fully or partially enabled by our technologies and capabilities.

Accordingly, we

expect to continue to seek and obtain product-related design and development contracts with customers and to selectively invest our own

funds on research and development, particularly in the areas of Microprecision™

optics, micro medical cameras, illumination, and

3D endoscopes.

The Ross Optical division sales are primarily

optical components and assemblies for industrial applications in addition to medical and military uses.

By combining the unique

capabilities of our Company with the Ross Optical division we believe there are opportunities for expanded sales of each division’s

products and services throughout the combined customer base.

For example, we believe that our extensive engineering and design

services may benefit Ross’

By combining the unique capabilities

of our Company with the Ross Optical division we believe there are opportunities for expanded sales of each division’s products

and services throughout the combined customer base.

For example, we believe that our extensive engineering and design services may benefit

customer base and that Ross’

expanded worldwide vendor relationships may benefit our traditional

efforts to source materials at competitive prices for our development projects and manufacturing activities.

During the fiscal year ended June 30, 2020,

we sold products and services to 646 different customers and no single customer represented 10% or more of consolidated sales.

We expect this trend to continue since consolidated sales now include those of the Ross Optical.

Current sales and marketing activities

are intended to broaden awareness of the benefits of our new technology platforms and our successful application of these new technologies

to medical device projects requiring surgery-grade visualization from sub-millimeter sized devices and 3D endoscopy, including

single-use products and assemblies.

We market directly to established medical device companies primarily in the United States that

we believe could benefit from our advanced endoscopy visualization systems.

Through this direct marketing, referrals, attendance

at trade shows and a presence in online professional association websites, we have expanded our on-going pipeline of projects to

significant medical device companies as well as well-funded emerging technology companies.

We expect our customer pipeline to continue

to expand as development projects transition to production orders and new customer projects enter the development phase.

Optical division markets through existing customers and trade shows, in addition to proactive online marketing strategies executed

primarily through its website.

We believe there are opportunities to expand the reach of sales activities of our business and that

of our new division, Ross Optical, through the gradual integration of some of the sales and marketing resources of the two operations.

expanded worldwide vendor relationships may benefit our traditional efforts to source materials

at competitive prices for our development projects and manufacturing activities.

During the fiscal year ended June 30, 2021, we

sold products and services to 326 different customers and no single customer represented 10% or more of consolidated sales.

effect of potentially receiving future significant production orders, we expect this trend to continue since consolidated sales now include

those of the Ross Optical division.

Current sales and marketing activities are intended

to broaden awareness of the benefits of our new technology platforms and our successful application of these new technologies to medical

device projects requiring surgery-grade visualization from sub-millimeter sized devices and 3D endoscopy, including single-use products

and assemblies.

We market directly to established medical device companies primarily in the United States that we believe could benefit

from our advanced endoscopy visualization systems.

Through this direct marketing, referrals, attendance at trade shows and a presence

in online professional association websites, we have expanded our on-going pipeline of projects to significant medical device companies

as well as well-funded emerging technology companies.

We expect our customer pipeline to continue to expand as development projects transition

to production orders and new customer projects enter the development phase.

Our Ross Optical division markets through existing customers

and trade shows, in addition to proactive online marketing strategies executed primarily through its website.

We believe there are opportunities

to expand the reach of sales activities of our business and that of our new division, Ross Optical, through the gradual integration of

some of the sales and marketing resources of the two operations.

Critical Accounting Policies and Estimates

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in the Notes to our Financial Statements contained in this Annual Report on Form 10-K.

Results of Operations for the Fiscal

Year Ended June 30, 2020 as Compared to the Fiscal Year Ended June 30, 2019

Total revenues for the fiscal year ended

June 30, 2020 were $9,923,355, an increase of $3,119,186, or 45.8%, from revenues for fiscal year 2019 of $6,804,169.

in fiscal year 2020 revenues is $4,583,653 from the Ross Optical division compared to $656,232 in fiscal year 2019 realized for

one month subsequent to the acquisition of the Ross Optical division effective June 1, 2019.

During fiscal year ended June 30,

2020, our non-Ross Optical division revenues were $5,339,702, a decrease of $808,235, or 13.1%, from non-Ross Optical division

revenues of $6,147,937 in fiscal year 2019.

The 13.1% decrease in non-Ross Optical

division revenues in fiscal year 2020 resulted primarily from reductions of sales to various production category customers which

we believe are the result of the COVID-19 pandemic described below as well as cyclical sales patterns periodically experienced

with certain traditional product customers.

Non-Ross Optical division engineering services and component revenues were relatively

unchanged from fiscal year 2019 to fiscal year 2020 with 2% increases each in fiscal year 2020, however, in fiscal year 2020 a

$419,423 decrease in engineering revenue from a 3D optical project customer was offset by a $671,509 increase in engineering revenue

from a new Microprecision™

CMOS customer project.

The 3D optical project has been cancelled by the customer and we do not

expect future engineering service or production revenues relating to this project.

Although fiscal revenues were consistent between

the years, the number of engineering projects we worked on in fiscal year 2020 was less than the number of engineering projects

worked on in fiscal year 2019.

The engineering projects range in type including CMOS, Microprecision™

and illumination systems.

We believe the quality of the engineering projects continues to provide the opportunity for production purchase orders from these

Results of Operations for the Fiscal Year Ended

June 30, 2021 as Compared to the Fiscal Year Ended June 30, 2020

Total revenues for the fiscal year ended June

30, 2021 were $10,674,907, an increase of $751,552, or 7.6%, from revenues for fiscal year 2020 of $9,923,355.

Engineering services increased

approximately $1,380,000 in fiscal year 2021 compared to fiscal year 2020, while product and assembly production revenues decreased approximately

$607,000, and optical component revenues were virtually unchanged during the same period.

The $1,380,000 increase in engineering service

revenues in fiscal year 2021 compared to fiscal year 2020 was the result of personnel additions in the engineering group thereby raising

revenue earning capacity, and the addition of two significant engineering projects during fiscal year 2021.

One engineering project relates

to optical spectroscopic measurements and the other relates to a single-use ophthalmic endoscope.

We believe increased engineering service

capacity and the continued addition of quality engineering projects generates opportunities for production purchase orders from these

customers as the products advance to clinical evaluation and commercialization.

The COVID-19 world-wide pandemic that began

during the quarter ended March 31, 2020 and the domestic and international impact of policy decisions being made in major countries

around the world has had, and is expected to continue to have, an adverse impact on our sources of supply, current and future orders

from our customers, collection of amounts owed to us from our customers, our internal operating procedures, and our overall financial

While we and many of our medical device and defense contracting customers continue to operate as essential businesses,

we have taken various actions to augment our operating and human resource policies and procedures to guard against the potential

health hazards of COVID-19.

These augmented procedures can have a negative impact on our operational efficiencies.

We source various

components from overseas suppliers throughout Asia including China.

We have experienced supply disruptions and customer delays

from certain vendors and customers that we believe were the result of the COVID-19 pandemic and related economic slow-down.

continue to communicate as closely as possible with our suppliers and customers to maintain a current perspective on the future

effects of COVID-19 on our business.

Given the uncertainty surrounding the continuation of economic slow-downs domestically and

abroad, we cannot predict with certainty at this time what the future impact of COVID-19 and resulting business and economic policies

in the US and abroad will be on our up-coming financial operating results.

Revenues from our largest customers, as

a percentage of total revenues, were as follows:

Year Ended June, 30

No other customer accounted for more than

10% of our revenues in fiscal years 2020 and 2019.

The $607,000 decrease in product and assembly

production revenues in fiscal year 2021 compared to fiscal year 2020 resulted primarily from reductions of sales to various production

category customers which we believe are the result of the COVID-19 pandemic described below as well as cyclical and product life sales

patterns periodically experienced with certain traditional product customers.

Two products with reduced sales revenue in fiscal year 2021

considered temporary and the result of the market impact of the COVID-19 pandemic are flexible endoscope for a cardiovascular surgical

procedure and a Microprecision™

CMOS scanning device for a diagnostic ENT procedure.

The third product with notably reduced sales

revenue in fiscal year 2021 relates to a reusable visualization instrument used in spine surgery which experiences fluctuations in periodic

revenues caused by product demand for new surgical sites and replacements for existing sites.

The COVID-19 world-wide pandemic that began during

the quarter ended March 31, 2020 and the domestic and international impact of policy decisions being made in major countries around the

world has had, and could continue to have, an adverse impact on the Company’s sources of supply, current and future orders from

our customers, collection of amounts owed to the Company from its customers, our internal operating procedures, and the Company’s

overall financial condition.

Given the uncertainty surrounding the continuation of economic impacts both domestically and abroad, we cannot

predict with certainty at this time what the future impact of COVID-19 and resulting business and economic policies in the US and abroad

will be on its up-coming quarterly fiscal operating results.

We generated revenues from 326 unique customers

during fiscal year 2021, and no single customer accounted for 10% or more of our revenue for the fiscal years ended June 30, 2021, or

Gross profit for fiscal year ended June 30, 2021

of $3,433,585, reflected an increase of $71,009, or 2.1%, as compared to gross profit for fiscal year 2020 of $3,362,576.

Gross profit, as a percentage of revenues for fiscal year 2020, was 33.9% as compared to gross profit, as a percentage of revenues

for fiscal year 2019, of 31.2%.

Gross profit and gross profit percentage for any given fiscal period depend on a number of factors,

including overall sales volume, facility utilization, product sales mix, the costs of engineering services, production start-up

costs and challenges in connection with new products, and the effects of COVID-19 pandemic policy decisions on various economies

Gross profit,

as a percentage of revenues for fiscal year 2021, was 32.2% as compared to gross profit, as a percentage of revenues for fiscal year 2020,

Gross profit and gross profit percentage for any given fiscal period depend on a number of factors, including overall sales

volume, facility utilization, product sales mix, the nature and costs of engineering services, design challenges and changes, production

start-up costs, customer-imposed project changes or delays, and the effects of COVID-19 pandemic policy decisions on various economies

and our suppliers and customers, as well as the effects on production efficiencies due to the augmented policies we have incorporated

into our operations as a result of the COVID-19 pandemic.

The increase in gross profit dollars and

gross profit percentage during the fiscal year ended June 30, 2020 compared to fiscal year 2019 is primarily due to the inclusion

of the Ross Optical division revenue at a higher gross margin percentage than we realize on non-Ross revenues.

Ross Optical division

revenues generated a gross margin percentage of 47.6% during fiscal year 2020 while non-Ross revenue margin was 22.1% for fiscal

The non-Ross gross margin is dependent on a number of factors and is expected to fluctuate from quarter to quarter.

Specifically, fiscal year 2020 gross margins for the non-Ross Optical division revenues were negatively impacted by below break-even

sales levels, unanticipated cost over-runs associated with engineering projects, and the effects of COVID-19 pandemic policy decisions

on various economies and our suppliers and customers as well as the effects on production efficiencies of the augmented policies

we have incorporated into our operations as a result of the COVID-19 pandemic.

The cost over-runs resulted primarily from design

challenges encountered in a 3D engineering project having an estimated impact of five percentage points on our consolidated gross

margin for fiscal year 2020.

This project has since been cancelled by the customer and cost over-runs will not continue.

The remainder

of our production and engineering jobs resulted in margins within our targeted range with reasonably expected fluctuations.

Our decrease in gross margin from 33.9% to 32.2%

during the fiscal year ended June 30, 2021 compared to 2020 was primarily the result of a gross margin decrease in one engineering project

due to cost over-runs, a decrease in higher margin production revenues with customers due to COVID-19 factors, and a lower realized margin

on a large volume recurring component product produced for a catalogue reselling customer.

The remainder of our production, engineering

and component revenues resulted in margins within our targeted range with reasonably expected fluctuations.

Research and development expenses were $624,253

for fiscal year 2021 as compared to $886,129 for fiscal year 2020.

The increase of $380,829, or 75.4%, in fiscal year

2020 compared to fiscal year 2019 was due primarily to engineering personnel added during the year and an increase in internal

engineering related development projects that we believe will enhance our technology platform of capabilities and our overall competitiveness

in providing unique optical and illumination solutions for medical device endoscopes.

Selling, general and administrative expenses

increased by $1,797,820, or 85.5%, to $3,899,430 for fiscal year 2020 as compared to $2,101,610 for fiscal year 2019.

in SG&A expenses in fiscal year 2020 includes $1,207,046 of Ross Optical division SG&A expenses compared to $140,635 in

fiscal year 2019, in addition to an increase in compensation to existing and newly hired sales and administrative personnel of

approximately $386,000, plus increases in consulting, director, recruiting and legal fees, advertising and trade shows, stock based

compensation, and investor relations firm and other stock related costs.

Business acquisition expenses were $128,111

in fiscal year 2019 and represent direct costs relating to the acquisition of the Ross Optical division such as audit and legal

fees and travel costs.

The decrease of $261,876, or 29.6%, in fiscal year 2021 compared to

fiscal year 2020 was due primarily to an increased amount of internal engineering related development projects in fiscal year 2020 that

we believe will enhance our technology platform of capabilities and our overall competitiveness in providing unique optical and illumination

solutions for medical device endoscopes, offset by a lesser amount of increased stock based compensation expense recognized in fiscal

Selling, general and administrative expenses decreased

by $184,515, or 4.7%, to $3,714,915 for fiscal year 2021 as compared to $3,899,430 for fiscal year 2020.

The decrease in SG&A expenses

in fiscal year 2021 is primarily driven by decreases in travel and trade shows due to the pandemic, sales salaries, and lower investor

relations costs, all of which were offset by a lesser amount by increases in stock based compensation and general insurance expense.

The income tax provisions in fiscal years 2021

1 unchanged sentence

Liquidity and Capital Resources

We have sustained recurring net losses

for several years.

During the years ended June 30, 2020 and 2019 we incurred net losses of $1,426,150 and $614,871, respectively,

and used cash in operating activities of $592,491 and $1,031,693, respectively.

At June 30, 2020, our cash and cash equivalents

were $1,134,697, accounts receivable were $1,481,437, and current liabilities were $3,149,380, including $417,059 of advances paid

against open purchase orders by our customers and a note payable to a bank for a PPP CARES Act loan amount of $808,962 that we

expect to be forgiven as planned pursuant to the terms of the CARES Act enacted in response to the COVID-19 pandemic.

Although our sales revenue has increased

and we have experienced improved financial performance in certain recent fiscal quarters, our operating expenses have also increased

and we continue to experience pricing pressure from our customers and challenges in engineering projects and production orders

that result in cost over-runs and depressed gross margins.

We also experience added uncertainty related to our vendors ability

to supply materials and our customers future order levels as a result of the economic impact the COVID-19 world-wide pandemic and

related jurisdictional policies and regulations.

Consequently, critical to our ability to maintain our financial condition is achieving

and maintaining a level of quarterly revenues that generate break even or better financial performance as well as timely collection

of accounts receivable from our customers.

We believe profitable operating results can be achieved through a combination of revenue

levels, realized gross margins and controlling operating expense increases, all of which are subject to periodic fluctuations resulting

from sales mix and the stage of completion of varying engineering service projects as they progress towards and into production

level revenues.

We have traditionally funded working capital

needs through product sales, management of working capital components of our business, cash received from public and private offerings

of our common stock, warrants to purchase shares of our common stock or convertible notes, and by customer advances paid against

purchase orders by our customers and recorded in the current liabilities section of the accompanying financial statements.

incurred year to year and quarter to quarter operating losses during our efforts to develop current products including Microprecision™

We have sustained recurring net losses for several

During the years ended June 30, 2021 and 2020 we incurred operating losses of $905,583 and $1,422,983, respectively.

2021, our cash and cash equivalents were $861,650, accounts receivable were $1,878,755, and current liabilities were $2,511,110, including

$450,084 of advances paid against open purchase orders by our customers.

Although our sales revenue has increased and we

have experienced improved financial performance in certain recent fiscal quarters, our operating expenses have also increased and we continue

to experience pricing pressure from our customers and challenges in engineering projects and production orders that result in cost over-runs

and depressed gross margins.

We also experience added uncertainty related to our vendors ability to supply materials and our customers

future order levels as a result of the economic impact the COVID-19 world-wide pandemic and related jurisdictional policies and regulations.

Consequently, critical to our ability to maintain our financial condition is achieving and maintaining a level of quarterly revenues that

generate break even or better financial performance as well as timely collection of accounts receivable from our customers.

profitable operating results can be achieved through a combination of revenue levels, realized gross margins and controlling operating

expense increases, all of which are subject to periodic fluctuations resulting from sales mix and the stage of completion of varying engineering

service projects as they progress towards and into production level revenues.

We have traditionally funded working capital needs

through product sales, management of working capital components of our business, cash received from public and private offerings of our

common stock, warrants to purchase shares of our common stock or convertible notes, manufacturing equipment leases, and by customer advances

paid against purchase orders by our customers and recorded in the current liabilities section of the accompanying financial statements.

We have incurred year to year and quarter to quarter operating losses during our efforts to develop current products including Microprecision™

optical elements, micro medical camera assemblies and 3D endoscopes.

Our management believes that the opportunities represented

by these products have the potential to generate sales increases to achieve breakeven and profitable results.

In May 2020 we received $808,962 cash for

payment of payroll and rental expenses in the form of an unsecured promissory note pursuant to the Paycheck Protection Program

under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act.

Although our lender and the Small Business Administration

have not yet begun accepting applications for forgiveness of the CARES Act loans, we expect that we will ultimately qualify for

full forgiveness.

Additionally, in April 2020, we received $250,000 cash for general working capital needs in return for 200,000

shares of our common stock.

We believe our increased levels of sales will continue and that the addition of the Ross Optical division

will enhance our financial performance such that our existing financial condition and the prospect of increased sales from the

opportunities our current products offer will be sufficient to fund our operations on a profitable basis.

However, if we are not

able to achieve sustained breakeven and profitable results using our existing financial resources, we would be required to pursue

additional financing that may not be available at acceptable terms or may cause dilution to our existing shareholders.

Capital equipment expenditures during fiscal

year 2020 and fiscal year 2019 were $232,365 and $140,038, respectively, $113,213 of which in fiscal 2020 were funded by leasing

agreements with monthly payment obligations.

Patent application expenditures during fiscal year 2020 and fiscal year 2019 were

$41,142 and $6,812, respectively.

Future capital equipment and patent expenditures will be dependent upon future sales and success

of on-going research and development efforts.

Contractual cash commitments for the fiscal

years subsequent to June 30, 2020 are summarized as follows:

Our management believes that the opportunities represented by these

technical capabilities and related products have the potential to generate sales increases to achieve breakeven and profitable results.

On May 6, 2020, we received loan proceeds in the

amount of $808,962 under the Paycheck Protection Program, or PPP, from Bank of America.

The PPP, established as part of the Coronavirus

Aid, Relief and Economic Security Act, or CARES Act, provides for loans to qualifying businesses that are forgivable provided the loan

proceeds are used for eligible purposes, including payroll, benefits, rent and utilities.

The unsecured loan dated May 6, 2020 was forgiven

on March 30, 2021 by the Small Business Administration pursuant to the CARES Act.

The forgiveness of the Promissory Note is recorded as

other income in the accompanying Consolidated Statements of Operations for the three and nine month periods ended March 31, 2021.

Capital equipment expenditures during fiscal year

2021 and fiscal year 2020 were $237,901 and $232,363, respectively, $161,977 and $113,213 of which in fiscal years 2021 and 2020, respectively,

were funded by leasing agreements with monthly payment obligations.

Patent application expenditures during fiscal year 2021 and fiscal

year 2020 were $46,473 and $41,142, respectively.

Future capital equipment and patent expenditures will be dependent upon future sales

and success of on-going research and development efforts.

Contractual cash commitments for the fiscal years

subsequent to June 30, 2021, are summarized as follows:

Capital lease for equipment, including interest

Minimum operating lease payments - Ross Optical division

We have contractual cash commitments related

to open purchase orders as of June 30, 2020 of approximately $714,398.

We have contractual cash commitments related to

open purchase orders as of June 30, 2021 of approximately $660,380.

Material Trends and Uncertainties

We currently have no material trends or

uncertainties that have or are reasonably likely to have a current or future material effect on our financial condition, changes

in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

We currently have no material trends or uncertainties

that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition,

revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Off-Balance Sheet Arrangements

We currently have no off-balance sheet

arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes

in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

We currently have no off-balance sheet arrangements

that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition,

revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK.

As a smaller reporting company, as defined by

Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations

and therefore are not required to provide the information requested by this Item.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity