What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-09-28 compared with 2020-09-24 · 411 added, 482 removed, 255 unchanged (78% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

FINANCIAL STATEMENTS

AND SUPPLEMENTARY DATA.

Index to Financial Statements

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Notes to Consolidated Financial Statements

Report of Independent Registered Public

Accounting Firm

To the Board of Directors and Shareholders of

Precision Optics Corporation, Inc.:

Report of Independent Registered Public Accounting

To the Board of Directors and

Stockholders of Precision Optics Corporation, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets

We have audited the accompanying balance sheets

of Precision Optics Corporation, Inc.

as of June 30, 2020 and 2019 and the related consolidated statements of operations, changes

in stockholder’s equity, cash flows, for each of the two years in the period ended June 30, 2020 and the related notes (collectively

referred to as “financial statements”).

(the Company) as of June 30, 2021 and 2020, and the related statements of income, comprehensive

income, stockholders’

equity, and cash flows for each of the years in the two year period ended June 30, 2021, and the related notes

(collectively referred to as the financial statements).

In our opinion, the financial statements present fairly, in all material respects,

the financial position of the Company as of June 30, 2020 and 2019 and the results of its operations and its cash flows for the

periods then ended, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial

statements, the Company changed the manner in which it accounts for leases in fiscal year 2020.

the financial position of the Company as of June 30, 2021 and 2020, and the results of its operations and its cash flows for each of the

years in the two year period ended June 30, 2021, in conformity with accounting principles generally accepted in the United States of

Basis for Opinion

These financial statements are the responsibility of the Company’s

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required

to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and

regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of

These financial statements are the responsibility

of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance

with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the

standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial

statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged

to perform, an audit of its internal control over financial reporting.

As part of our audit, we are required to obtain an understanding

of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s

internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to

assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures

that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures

in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by

management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable

basis for our opinion.

/s/ Stowe & Degon

Our audits included performing procedures to assess the risks

of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall

presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Our audits included performing procedures to assess

the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond

to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating

the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below

are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to

the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our

especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion

on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions

on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue Recognition —

Refer to Note

A to the Consolidated Financial Statements

Critical Audit Matter Description

The Company recognizes revenue upon transfer of

control of promised products to customers in an amount that reflects the consideration the Company expects to receive in exchange for

those products.

The Company may enter into certain customer contracts that contain unique, customer-specific terms and conditions, variable

consideration, as well as multiple performance obligations.

For such contracts, significant interpretation may be required to determine

the appropriate accounting, including the identification of performance obligations, the allocation of the transaction price to performance

obligations in the arrangement, the timing of the transfer of control of promised goods for each of those performance obligations, estimates

of variable consideration and agent versus principal consideration.

Our assessment of managements’

evaluation of the above

referenced matters related to proper revenue recognition is significant to our audit because the amounts are material to the financial

statements, the assessment process involves significant judgment, and the application of U.S.

generally accepted accounting principles

in this area is complex.

How the Critical Audit Matter Was Addressed in the Audit

Our principal audit procedures related to the Company’s revenue

recognition for customer contracts included the following:

We evaluated the appropriateness of management’s revenue recognition policies.

We tested the mathematical accuracy of management’s calculations of revenue and the associated timing of revenue recognized

in the consolidated financial statements.

We selected a sample of revenue transactions and performed the following procedures:

o Obtained and read source documents for each selection, including master agreements, purchase orders and other documents that evidenced

the customer arrangement.

o Tested management’s identification and treatment of the key contract terms, including performance obligations and variable consideration.

o Assessed the terms in the customer agreement and evaluated the appropriateness of management's application of the Company’s

accounting policies, along with their use of estimates, in the determination of revenue recognition conclusions.

/s/ Stowe & Degon LLC

We have served as the Company’s auditor

Westborough, Massachusetts

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PRECISION OPTICS CORPORATION, INC.

AND SUBSIDIARIES

Consolidated Balance Sheets at June 30, 2021

2020 and 2019

Current Assets:

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Operating lease liability

Amount due for business acquisition

Total current liabilities

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TOTAL LIABILITIES AND STOCKHOLDERS’

The accompanying notes are an integral

part of these consolidated financial statements.

The accompanying notes are an integral part

of these consolidated financial statements.

PRECISION OPTICS CORPORATION, INC.

AND SUBSIDIARIES

Consolidated Statements of Operations

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Selling, general and administrative expenses

Business acquisition expenses

Total operating expenses

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Interest expense

Gain on forgiveness of bank note

Loss before provision for income taxes

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Basic and fully diluted

The accompanying notes are an integral

part of these consolidated financial statements.

The accompanying notes are an integral part

of these consolidated financial statements.

PRECISION OPTICS CORPORATION, INC.

AND SUBSIDIARIES

Consolidated Statements of Stockholders’

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$ (45,636,993 )

Proceeds from private placement of common stock, net of issuance costs of $12,250

Proceeds from exercise of stock options

Issuance of common stock for services

Proceeds from private placement of common stock subscribed, net of estimated issuance costs of $12,250

Stock-based compensation

Balance, June 30, 2019

$ (45,636,993 )

Issuance of common stock in private placement

Proceeds from exercise of stock options

Exercise of stock options net of 11,850 shares

Exercise of stock options net of 11,850 shares withheld

Issuance of common stock for consultant services

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(47,063,143 )

The accompanying notes are an integral

part of these consolidated financial statements.

Proceeds from exercise of stock options

Exercise of stock options net of 21,313 shares withheld

Stock-based compensation

Balance, June 30, 2021

$ (47,165,978 )

The accompanying notes are an integral part

of these consolidated financial statements.

PRECISION OPTICS CORPORATION, INC.

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years Ended June 30, 2020 and 2019

For the Years Ended June 30, 2021 and 2020

Cash Flows from Operating Activities:

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Non-cash consulting expense

Gain on forgiveness of bank note

Changes in operating assets and liabilities, net of effects of business acquisition-

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Accrued compensation and other

Net cash used in operating activities

Net cash provided by (used in) operating activities

Cash Flows from Investing Activities:

Cash acquired in business acquisition, net of $56,659 paid at year end

Cash paid for business acquisition

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Proceeds from Paycheck Protection Program bank loan

Private placement expenses paid

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Net cash (used in) provided by financing activities

Net decrease in cash and cash equivalents

Cash and cash equivalents, beginning of year

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Acquisition of manufacturing equipment under capital lease

The accompanying notes are an integral

part of these consolidated financial statements.

The accompanying notes are an integral part

of these consolidated financial statements.

PRECISION OPTICS CORPORATION, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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Precision Optics Corporation, Inc.

“Company”) designs, develops, manufactures and sells specialized optical and illumination systems and related components.

The Company conducts business in one industry segment only and its customers are primarily domestic.

The Company performs advanced

optical and illumination system design, development, assembly and manufacturing services, and sources for resale specialized optical

components for products that fall into two principal areas:

(the “Company”)

designs, develops, manufactures and sells specialized optical and illumination systems and related components.

The Company conducts business

in one industry segment only and its customers are primarily domestic.

The Company performs advanced optical and illumination system design,

development, assembly and manufacturing services, and sources for resale specialized optical components for products that fall into two

principal areas:

(i) medical products for use by hospitals and physicians;

products used by defense contractors and industrial customers.

and (ii) products used by defense contractors and industrial

Principles of Consolidation

The accompanying consolidated financial

statements include the accounts of the Company and its two wholly-owned subsidiaries.

All inter-company accounts and transactions

have been eliminated in consolidation.

On July 1, 2018, the Company adopted ASU

2014-09 Revenue from Contracts with Customers (ASC 606) using the modified retrospective method for contracts that were not completed

as of July 1, 2018, whereby revenues are recognized as the performance obligations to deliver products or services are satisfied

and are recorded based on the amount of consideration the Company expects to receive in exchange for satisfying the performance

Most of the Company’s products and services are marketed to medical device companies with approximately 90%

of sales to customers in the United States.

Products and services are primarily transferred to customers at a point in time based

upon when services are performed or product is shipped.

Revenues represent the amount of consideration

the Company expects to receive from customers in exchange for transferring products and services.

Other selling costs to obtain

and fulfill contracts are expensed as incurred due to the short-term nature of a majority of its revenues.

The Company extends

terms of payment to its customers based on commercially reasonable terms for the markets of its customers, while also considering

their credit quality.

Shipping and handling costs charged to customers are included in revenues.

The accompanying consolidated financial statements

include the accounts of the Company and its two wholly-owned subsidiaries.

All inter-company accounts and transactions have been eliminated

in consolidation.

Revenues are recognized as the performance obligations

to deliver products or services are satisfied and are recorded based on the amount of consideration the Company expects to receive in

exchange for satisfying the performance obligations.

Most of the Company’s products and services are marketed to medical device

companies with approximately 85% of sales to customers in the United States.

Products and services are primarily transferred to customers

at a point in time based upon when services are performed or product is shipped.

Other selling costs to obtain and fulfill contracts are

expensed as incurred due to the short-term nature of a majority of its contracts.

The Company extends terms of payment to its customers

based on commercially reasonable terms for the markets of its customers, while also considering their credit quality.

Shipping and handling

costs charged to customers are included in revenues.

The Company disaggregates revenues by product

and service types as it believes it best depicts how the nature, amount, timing and uncertainty of revenues and cash flows are

affected by economic factors.

and service types as it believes it best depicts how the nature, amount, timing and uncertainty of revenues and cash flows are affected

by economic factors.

Revenues are comprised of the following for the fiscal years ended June 30, 2021 and 2020:

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Contract Assets and Liabilities

The nature of the Company’s products

and services does not generally give rise to contract assets as it typically does not incur costs to fulfill a contract before

a product or service is provided to a customer.

The Company’s costs to obtain contracts are typically in the form of sales

commissions paid to employees.

The Company has elected to expense sales commissions associated with obtaining a contract as incurred

as the amortization period is generally less than one year.

These costs have been recorded in selling, general and administrative

As of June 30, 2020, there were no contract assets recorded in the Company’s Consolidated Balance Sheets.

The Company’s contract liabilities

arise as a result of unearned revenue received from customers at inception of contracts or where the timing of billing for services

precedes satisfaction of our performance obligations.

The Company generally satisfies performance obligations within one year from

the contract inception date.

Contract liabilities, which were recorded

as customer advances in the Company’s Consolidated Balance Sheets, and unearned revenue are comprised of the following:

The nature of the Company’s products and

services does not generally give rise to contract assets as it typically does not incur costs to fulfill a contract before a product or

service is provided to a customer.

The Company’s costs to obtain contracts are typically in the form of sales commissions paid to

The Company has elected to expense sales commissions associated with obtaining a contract as incurred as the amortization period

is generally less than one year.

These costs have been recorded in selling, general and administrative expenses.

As of June 30, 2021,

there were no contract assets recorded in the Company’s Consolidated Balance Sheets.

The Company’s contract liabilities arise

as a result of unearned revenue received from customers at inception of contracts or where the timing of billing for services precedes

satisfaction of performance obligations.

The Company generally satisfies performance obligations within one year from the contract inception

Contract liabilities, which were recorded as customer

advances in the Company’s Consolidated Balance Sheets, and unearned revenue are comprised of the following:

Fiscal Year Ended June 30,

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Cash and Cash Equivalents

The Company includes in cash equivalents

all highly liquid investments with original maturities of three months or less at the time of acquisition.

Cash and cash equivalents

of $1,134,697 and $2,288,426 at June 30, 2020 and 2019, respectively, consist primarily of cash at banks and money market funds.

The Company maintains its cash and cash equivalents in bank deposit accounts that, at times, may exceed federally insured limits.

The Company has not experienced any losses in such accounts.

The Company believes it is not exposed to any significant credit risk

on its cash and cash equivalents.

Inventories are stated at the lower of

cost (first-in, first-out) and net realizable value and include material, labor and manufacturing overhead.

The components of inventories

at June 30, 2020 and 2019 are as follows:

The Company includes in cash equivalents all highly

liquid investments with original maturities of three months or less at the time of acquisition.

Cash and cash equivalents of $861,650

and $1,134,697 at June 30, 2021 and 2020, respectively, consist primarily of cash at banks and money market funds.

The Company maintains

its cash and cash equivalents in bank deposit accounts that, at times, may exceed federally insured limits.

The Company has not experienced

any losses in such accounts.

The Company believes it is not exposed to any significant credit risk on its cash and cash equivalents.

Inventories are stated at the lower of cost (first-in,

first-out) and net realizable value and include material, labor and manufacturing overhead.

The components of inventories at June 30,

2021 and 2020 are as follows:

Work-in-progress

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on unmarketable inventory based upon assumptions about future demand and market conditions.

If actual demand and market conditions

are less favorable than those projected by management, additional inventory write-downs may be required.

Inventory, once written

down, is not subsequently written back up, as these adjustments are considered permanent adjustments to the carrying value of the

If actual demand and market conditions are

less favorable than those projected by management, additional inventory write-downs may be required.

Inventory, once written down, is

not subsequently written back up, as these adjustments are considered permanent adjustments to the carrying value of the inventory.

Fixed assets are recorded at cost.

and repair items are expensed as incurred.

The Company provides for depreciation and amortization by charges to operations, using

the straight-line and declining-balance methods, which allocate the cost of fixed assets over the following estimated useful lives:

The Company provides for depreciation and amortization by charges to operations, using the

straight-line and declining-balance methods, which allocate the cost of fixed assets over the following estimated useful lives:

Asset Classification

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Significant Customers and Concentration of Credit Risk

Financial instruments that subject the

Company to credit risk consist primarily of cash equivalents and trade accounts receivable.

The Company places its investments

with highly rated financial institutions.

Financial instruments that subject the Company

to credit risk consist primarily of cash equivalents and trade accounts receivable.

The Company places its investments with highly rated

financial institutions.

The Company has not experienced any losses on these investments to date.

2020, the Company’s largest customer account receivable balance was 14% of total accounts receivable.

At June 30, 2019,

the Company’s largest customer account receivable balance was 12% of total accounts receivable.

No other accounts accounted

for more than 10% of the accounts receivable balance at June 30, 2020 or 2019.

At June 30, 2021, the Company’s

largest customer account receivable balance was 16% of total accounts receivable.

At June 30, 2020, the Company’s largest customer

account receivable balance was 14% of total accounts receivable.

No other accounts accounted for more than 10% of the accounts receivable

balance at June 30, 2021, or 2020.

The allowance for doubtful accounts receivable

was $248,450 at June 30, 2020 from $246,953 at June 30, 2019.

$227,500 of the reserve at June 30, 2020 and 2019 was established

in fiscal year 2018 relating to one specific customer.

Other than these doubtful accounts receivable, the Company has not experienced

any material losses related to accounts receivable from individual customers.

The Company generally does not require collateral

or other security as a condition of sale, rather it relies on credit approval, balance limitation and monitoring procedures to

control credit risk in trade account financial instruments.

Management believes the allowance for doubtful accounts, which is established

based upon review of specific account balances and historical experience, is adequate at June 30, 2020.

Revenues from the Company’s largest

customers, as a percentage of total revenues, were as follows:

No other customer accounted for more than

10% of the Company’s revenues in fiscal years 2020 and 2019.

was $251,383 at June 30, 2021, and $248,450 at June 30, 2020.

$227,500 of the reserve at June 30, 2021, and 2020 was established in fiscal

year 2018 relating to one specific customer.

Other than these doubtful accounts receivable, the Company has not experienced any material

losses related to accounts receivable from individual customers.

The Company generally does not require collateral or other security as

a condition of sale, rather it relies on credit approval, balance limitation and monitoring procedures to control credit risk in trade

account financial instruments.

Management believes the allowance for doubtful accounts, which is established based upon review of specific

account balances and historical experience, is adequate at June 30, 2021.

The Company had revenues from 326 unique customers

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

30, 2021, or 2020.

Loss per Share

Basic income (loss) per share is computed

by dividing net income or net loss by the weighted average number of shares of common stock outstanding during the period.

income (loss) per share is computed by dividing net income or net loss by the weighted average number of shares of common stock

outstanding during the period, plus the number of potentially dilutive securities outstanding during the period such as stock options

and warrants.

For the year ended June 30, 2020 and 2019, the effect of such securities was antidilutive and not included in the

diluted calculation because of the net loss generated in those periods.

The following is the calculation of loss

per share for the years ended June 30, 2020 and 2019:

Basic income (loss) per share is computed by dividing

net income or net loss by the weighted average number of shares of common stock outstanding during the period.

Diluted income (loss) per

share is computed by dividing net income or net loss by the weighted average number of shares of common stock outstanding during the period,

plus the number of potentially dilutive securities outstanding during the period such as stock options and warrants.

For the year ended

June 30, 2021 and 2020, the effect of such securities was antidilutive and not included in the diluted calculation because of the net

loss generated in those periods.

The following is the calculation of loss per share

for the years ended June 30, 2021 and 2020:

Year Ended June 30

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$ (1,426,150 )

Basic Weighted Average Shares Outstanding

Potentially Dilutive Securities

Diluted Weighted Average Shares Outstanding

Basic and diluted weighted average shares outstanding

Loss per share

Basic and fully diluted

The number of shares issuable upon the

exercise of outstanding stock options and warrants that were excluded from the computation as their effect was antidilutive was

approximately 2,065,200 and 1,819,500 for the years ended June 30, 2020 and 2019, respectively.

The number of shares issuable upon the exercise

of outstanding stock options and warrants that were excluded from the computation as their effect was antidilutive was approximately 2,578,200

and 2,065,200 for the years ended June 30, 2021, and 2020, respectively.

Stock-Based Compensation

The measurement and recognition of compensation

costs for all stock-based awards made to employees and the Board of Directors are based upon fair value over the requisite service

period for awards expected to vest.

The Company estimates the fair value of share-based awards on the date of grant using the Black-Scholes

option-pricing model.

Stock-based compensation costs recognized for the years ended June 30, 2020 and 2019 amounted to $502,345

and $263,326, respectively.

costs for all stock-based awards made to employees and the Board of Directors are based upon fair value over the requisite service period

for awards expected to vest.

The Company estimates the fair value of share-based awards on the date of grant using the Black-Scholes option-pricing

Stock-based compensation costs recognized for the years ended June 30, 2021, and 2020 amounted to $733,930 and $502,345, respectively.

Goodwill and Patents

Long-lived assets such as goodwill and

patents are capitalized when acquired and reviewed for impairment whenever events or changes in circumstances indicate that the

book value of the asset may not be recoverable.

Impairment of the carrying value of long-lived assets such as goodwill and patents

would be indicated if the best estimate of future undiscounted cash flows expected to be generated by the asset grouping is less

than its carrying value.

If an impairment is indicated, any loss is measured as the difference between estimated fair value and

carrying value and is recognized in operating income or loss.

Assets to be disposed of are reported at the lower of the carrying

amount or fair value less costs to sell.

No such impairments of goodwill or patents have been estimated by management during the

years ended June 30, 2020 or 2019.

Long-lived assets such as goodwill and patents

are capitalized when acquired and reviewed for impairment whenever events or changes in circumstances indicate that the book value of

the asset may not be recoverable.

Impairment of the carrying value of long-lived assets such as goodwill and patents would be indicated

if the best estimate of future undiscounted cash flows expected to be generated by the asset grouping is less than its carrying value.

If an impairment is indicated, any loss is measured as the difference between estimated fair value and carrying value and is recognized

in operating income or loss.

Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

No such impairments of goodwill or patents have been estimated by management during the years ended June 30, 2021 or 2020.

Fair Value of Financial Instruments

Financial instruments consist principally

of cash and cash equivalents, accounts receivable and accounts payable.

The estimated fair value of these financial instruments

approximates their carrying value due to their short-term nature.

Financial instruments consist principally of cash

and cash equivalents, accounts receivable and accounts payable.

The estimated fair value of these financial instruments approximates their

carrying value due to their short-term nature.

Warranty Costs

The Company does not incur future performance

obligations in the normal course of business other than providing a standard one-year warranty on materials and workmanship to

its customers (except in certain unusual and infrequently occurring situations where extended warranty terms beyond one year are

negotiated with the customer).

obligations in the normal course of business other than providing a standard one-year warranty on materials and workmanship to its customers

(except in certain unusual and infrequently occurring situations where extended warranty terms beyond one year are negotiated with the

The Company provides for estimated warranty costs at the time product revenue is recognized.

costs have been included as a component of cost of goods sold in the accompanying consolidated statements of operations.

The following

tables summarize warranty reserve activity for the years ended June 30, 2020 and 2019:

Warranty costs have been included

as a component of cost of goods sold in the accompanying consolidated statements of operations.

The following tables summarize warranty

reserve activity for the years ended June 30, 2021 and 2020:

Balance at beginning of period

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The Company groups development and prototype costs and related reimbursements in research and development.

There were no reimbursements for research and development recorded in research and development for the years ended June 30, 2020

There were no reimbursements for research and development recorded in research and development for the years ended June 30, 2021, and

Comprehensive Income

Comprehensive income or loss is defined

as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner

The Company’s comprehensive loss or income for the years ended June 30, 2020 and 2019 was equal to its net loss

for the same periods.

Income taxes are accounted for under the

asset and liability method.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to

differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases

and operating loss and tax credit carry-forwards.

Deferred tax assets and liabilities are measured using enacted tax rates expected

to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment

In assessing the likelihood of utilization of existing deferred tax assets, management has considered historical results

of operations and the current operating environment.

Comprehensive income or loss is defined as the

change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources.

The Company’s comprehensive loss or income for the years ended June 30, 2021 and 2020 was equal to its net loss for the same periods.

Income taxes are accounted for under the asset

and liability method.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between

the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax

credit carry-forwards.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in

the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities

of a change in tax rates is recognized in income in the period that includes the enactment date.

In assessing the likelihood of utilization

of existing deferred tax assets, management has considered historical results of operations and the current operating environment.

Segment Reporting

Operating segments are identified as components

of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision

maker, or decision-making group, in making decisions about how to allocate resources and assess performance.

The Company’s

chief decision-maker is its Chief Executive Officer.

To date, the Company has viewed its operations and manages its business as

principally one segment.

For all periods presented, over 87% of the Company’s sales have been to customers in the United

of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker,

or decision-making group, in making decisions about how to allocate resources and assess performance.

The Company’s chief decision-maker

is its Chief Executive Officer.

To date, the Company has viewed its operations and manages its business as principally one segment.

all periods presented, over 85% of the Company’s sales have been to customers in the United States.

Use of Estimates

The preparation of financial statements

in conformity with accounting standards generally accepted in the United States requires management to make estimates and assumptions

that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the

financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ

from those estimates.

Recent Accounting Pronouncements

In February 2016, FASB issued ASU 2016-02,

“Leases”

ASU 2016-02 requires the recognition of lease asset and lease liabilities by lessees for those

leases currently classified as operating leases with terms greater than twelve months and make certain changes to the accounting

for lease expenses.

The Company adopted this standard effective July 1, 2019 and has reflected its impact upon the El Paso, Texas

facility operating lease entered into on July 1, 2019 in connection with the Ross Optical acquisition.

The facility lease is a

three-year operating lease obligation with total remaining minimum lease payments of $124,601 at June 30, 2020.

Total rent expense

including base rent and common area expenses were $62,717 in the fiscal year ended June 30, 2020, and $4,976 in June 2019 as included

in the accompanying financial statements since the acquisition of the Ross Optical division effective June 1, 2019.

the accompanying balance sheet at June 30, 2020 is a right-of-use asset of $118,403 and current and long-term right-of-use operating

lease liabilities of $57,156 and $61,247, respectively.

BUSINESS ACQUISITION

On July 1, 2019 the Company acquired the

operating assets of Ross Optical Industries, Inc.

of El Paso, Texas, a supplier of custom and catalogue optical components sourced

through an extensive network of worldwide specialized vendors and sold for industrial, military and medical applications.

The acquisition

had an effective date of June 1, 2019, and a purchase price of up to $2,000,000.

Pursuant to the agreement $1,500,000 was owed

at closing subject to certain holdback terms, of which $1,443,341 was recorded as a current liability in the accompanying balance

sheet at June 30, 2019 and paid during the quarter ended September 30, 2019.

The accompanying financial statements include the

results of operations of the Ross Optical division for the month of June 2019 and the entire fiscal year ended June 30, 2020 and

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

The Company agreed to pay the remaining

$500,000 as an earn-out contingent upon the satisfaction of certain financial thresholds consisting of mutually agreed upon revenue

and gross margin targets of the Ross Optical division over a term of three years, beginning on July 1, 2019 at a rate of up to

$166,667 per year.

The Company believes the Ross Optical division achieved the financial thresholds for the first year ended June

30, 2020, and therefore $166,667 of the earn out obligation is recorded as a short-term liability in the accompanying balance sheet

at June 30, 2020 with the $333,333 balance of the $500,000 earn out recorded as a long-term liability.

To partially fund the acquisition the Company

raised gross proceeds of $950,000 on July 1, 2019 through the sale of 760,000 shares of its common stock.

See Note 4(f).

Purchase Price Allocation and Goodwill

The allocation of purchase price is preliminary

and subject to change based on future payments made for the earn-out contingent liability.

Any unearned portions of the earn-out

liability will be recognized in earnings.

The acquired assets, contingent consideration and assumed liabilities at the effective

date of acquisition include the following:

At Acquisition Effective Date June 1, 2019

Cash and cash equivalents

Trade accounts receivable, net

Other current assets

Total Assets Acquired

Accounts payable

Customer advances

Accrued compensation and other

Total Liabilities Assumed

Net assets acquired

Total Purchase Price-Initial and Contingent Consideration

Consolidated Pro Forma Results

Consolidated unaudited pro forma results

of operations for the Company are presented below for the year ended June 30, 2019 assuming that the acquisition of the Ross Optical

division has occurred on July 1, 2018.

Pro forma operating results include net adjustments resulting from the acquisition transaction

and reducing operating expenses by $447,722 during the fiscal year ended June 30, 2019.

Fiscal Year Ended June 30,

Net (Loss) Income

$ (1,426,150 )

Earnings per Share

Fully Diluted

Pro forma financial information is not

necessarily indicative of the Company’s actual results of operations if the acquisition had been completed at the date indicated,

nor is it necessarily an indication of future operating results.

Amounts do not include any operating efficiencies or cost saving

that the Company believes are achievable.

The preparation of financial statements in conformity

with accounting standards generally accepted in the United States requires management to make estimates and assumptions that affect the

reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements

and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

Related Party Transactions

Transactions with Officers and Directors

In March 2019 the Company’s board

of directors approved the payment of $10,000 per quarter to the Company’s Chairman of the Board for the performance of services

to the Company beginning retroactively for the quarter ended December 31, 2018.

The agreement has no maturity date and $20,000

was paid prior to June 30, 2019 and $10,000 is included in accounts payable at June 30, 2019.

Transactions with Stockholders Known

by the Company to Own 5% or More of the Company’s Common Stock

At June 30, 2019 the Company had received

payments for common stock subscriptions totaling $925,000 at $1.25 per share.

On July 1, 2019 the Company received an additional

$25,000 and closed the placement on that date by issuing 760,000 unregistered common shares.

The placement proceeds were used to

partially fund the business acquisition of the Ross Optical division.

In conjunction with the placement, the Company also entered

into a registration rights agreement with the investors requiring submission of a registration statement with the Securities and

Exchange Commission within ninety days of the placement.

Sandra Pessin acquired 200,000 shares in this placement for $250,000

or $1.25 per share, and at that time Ms.

Transactions with Stockholders Known by the

Company to Own 5% or More of the Company’s Common Stock

At June 30, 2019 the Company had received payments

for common stock subscriptions totaling $925,000 at $1.25 per share.

On July 1, 2019 the Company received an additional $25,000 and closed

the placement on that date by issuing 760,000 unregistered common shares.

The placement proceeds were used to partially fund the business

acquisition of the Ross Optical division.

In compliance with the registration rights agreement entered into with the investors, on October

29, 2019 the Company filed a registration statement for the shares with the Securities and Exchange Commission which became effective

on November 22, 2019.

Sandra Pessin acquired 200,000 shares in this placement for $250,000 or $1.25 per share, and at that time Ms.

Pessin was an owner of more than 5% of the Company’s outstanding common stock.

On April 14, 2020 the Company sold 200,000

shares of its common stock for cash at $1.25 per share or $250,000 to be used for general working capital needs.

In compliance

with the registration rights agreement entered into with the investors, on August 14, 2020 the Company filed registration statement

for the shares with the Securities and Exchange Commission.

Hershey Strategic Capital, LP acquired 20,000 shares in this placement

for $25,000 or $1.25 per share, and at that time Hershey Strategic Capital, LP was an owner of more than 5% of the Company’s

On April 14, 2020 the Company sold 200,000 shares

of its common stock for cash at $1.25 per share or $250,000 to be used for general working capital needs.

In compliance with the registration

rights agreement entered into with the investors, on August 14, 2020 the Company filed a registration statement for the shares with the

Securities and Exchange Commission which became effective on November 4, 2020.

Hershey Strategic Capital, LP acquired 20,000 shares in

this placement for $25,000 or $1.25 per share, and at that time Hershey Strategic Capital, LP was an owner of more than 5% of the Company’s

outstanding common stock.

Acquisition Earn Out Obligation

As partial consideration for the July 2019 acquisition

of the Ross Optical division the Company agreed to pay $500,000 as an earn-out contingent upon the satisfaction of certain financial thresholds

consisting of mutually agreed upon revenue and gross margin targets of the Ross Optical division over a term of three years, beginning

on July 1, 2019, at a rate of up to $166,667 per year.

As of June 30, 2021 the first year portion of $166,667 has been paid and the remainder

of the obligation recorded as $166,667 as a short-term liability in the accompanying balance sheet at June 30, 2021 and $166,666 as a

long-term liability at June 30, 2021.

Note Payable to Bank

The Company executed an unsecured Promissory

Note with a bank on May 6, 2020 and received $808,962 of loan proceeds pursuant to the Paycheck Protection Program under the Coronavirus

Aid, Relief, and Economic Security Act (the “CARES Act”).

The Promissory Note bears interest at a fixed rate of 1%

per annum, with principal and interest payments commencing on November 6, 2020.

However, if the Small Business Administration

confirms forgiveness of the Company’s loan and reimburses the bank for the total outstanding balance of principal and interest,

the Company’s obligations under the Promissory Note will be deemed fully satisfied and paid in full.

Although the bank and

the SBA have not yet begun accepting applications for forgiveness of the CARES Act loans, the Company expects that it will ultimately

qualify for full forgiveness.

Any portion of the Company’s CARES Act loan that is not forgiven shall be converted to a term

loan with the bank with monthly payments bearing interest at no more than 1% per annum and a maturity date two years from the

Promissory Note date, or May 6, 2022.

The Company executed an unsecured Promissory Note

with a bank on May 6, 2020 and received $808,962 of loan proceeds pursuant to the Paycheck Protection Program under the Coronavirus Aid,

Relief, and Economic Security Act (the “CARES Act”).

On March 30, 2021, the Small Business Administration forgave the Promissory

Note held by the Company in full, including any accrued interest at that date.

The forgiveness of the Promissory Note is recorded as other

income in the accompanying Consolidated Statements of Operations for the fiscal year ended June 30, 2021.

Lease Obligation

The Company entered into a five-year capital

lease obligation in January 2016 for the acquisition of manufacturing equipment totaling $51,252.

In January 2020 the Company

entered into a five-year capital lease and a twelve-month operating lease for $47,750 and $65,463 respectively for the acquisition

of manufacturing equipment.

In March 2021, the Company entered into a five-year

capital lease in the amount of $161,977 for manufacturing equipment.

In January 2020, the Company entered into a five-year capital lease

for $47,750 for manufacturing equipment.

The net book value of fixed assets under capital lease obligations as of June 30, 2021 is $233,923.

In February 2016, FASB issued ASU 2016-02,

“Leases”

ASU 2016-02 requires the recognition of lease asset and lease liabilities by lessees for those

leases currently classified as operating leases with terms greater than twelve months and make certain changes to the accounting

for lease expenses.

The Company adopted this standard effective July 1, 2019 and has reflected its impact upon the El Paso, Texas

facility operating lease entered into on July 1, 2019 in connection with the Ross Optical acquisition.

The facility lease is a

three-year operating lease obligation with total remaining minimum lease payments of $124,601 at June 30, 2020.

Total rent expense

including base rent and common area expenses were $62,717 in the fiscal year ended June 30, 2020, and $4,976 in June 2019 as included

in the accompanying financial statements since the acquisition of the Ross Optical division effective June 1, 2019.

the accompanying balance sheet at June 30, 2020 is a right-of-use asset of $118,403 and current and long-term right-of-use operating

On July 1, 2019 the Company entered into a three-year

operating lease for its facility in El Paso, Texas with total remaining minimum lease payments of $62,822 at June 30, 2021.

expense including base rent and common area expenses was $62,717 during each of the fiscal years ended June 30, 2021 and 2020.

in the accompanying balance sheet at June 30, 2021 is a right-of-use asset of $61,247 and current and long-term right-of-use operating

lease liabilities of $61,247 and $0, respectively.

At June 30, 2020, future minimum lease payments under the capital

lease and operating lease obligations are as follows:

At June 30, 2021, future minimum lease payments

under the capital lease and operating lease obligations are as follows:

Fiscal Year Ending June 30:

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current portion

The Company’s operating leases for

its three Gardner, Massachusetts office, production and storage spaces plus an equipment lease have expired and are continuing

on a month to month tenant at will basis.

Rent expense on these operating leases was $145,655 and $166,228 for the years ended

June 30, 2020 and 2019, respectively.

The Company’s operating leases for its three

Gardner, Massachusetts office, production and storage spaces plus an equipment lease have expired and are continuing on a month to month

tenant at will basis.

Rent expense on these operating leases was $172,903 and $145,655 for the years ended June 30, 2021, and 2020, respectively.

STOCKHOLDERS’

Stock Options

The following table summarizes stock-based

compensation expense for the years ended June 30:

Stock-Based Compensation Expense

The following table summarizes stock-based compensation

expense for the years ended June 30:

Cost of Goods Sold

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Stock Based Compensation Expense

(b) Common Stock Award

On August 2, 2018, the Company awarded

its Chief Executive Officer 300,000 shares of common stock for services performed through June 30, 2018.

As of June 30, 2020, all

300,000 shares have been issued.

The fair market value of the 300,000 shares on the award date equal to $210,000 has been recorded

as general and administrative stock-based compensation expense in the quarter ended September 30, 2018.

No compensation has been capitalized because

such amounts would have been immaterial.

There was no net income tax benefit recognized related to such compensation for the years

ended June 30, 2020 or 2019, as the Company is currently in a loss position.

There were 315,000 stock options granted during the

year ended June 30, 2020 and 831,000 stock options granted during the year ended June 30, 2019.

As of June 30, 2021, the unrecognized compensation

costs related to options vesting in the future is $636,093.

The Company uses the Black-Scholes option-pricing model as the most

appropriate method for determining the estimated fair value for the stock awards.

The Black-Scholes method of valuation requires

several assumptions:

No compensation has been capitalized because such amounts would have been

There was no net income tax benefit recognized related to such compensation for the years ended June 30, 2021, or 2020, as

the Company is currently in a loss position.

There were 630,000 stock options granted during the year ended June 30, 2021, and 315,000

stock options granted during the year ended June 30, 2020.

The Company uses the Black-Scholes option-pricing

model as the most appropriate method for determining the estimated fair value for the stock awards.

The Black-Scholes method of valuation

requires several assumptions:

(1) the expected term of the stock award;

1 unchanged sentence

and (3) risk-free interest rate.

The expected term represents the expected period of time the Company believes the options will

be outstanding based on historical information.

Estimates of expected future stock price volatility are based on the historic volatility

of the Company’s common stock and the risk-free interest rate is based on the U.S.

The expected term represents the expected period of time the Company believes the options will be outstanding

based on historical information.

Estimates of expected future stock price volatility are based on the historic volatility of the Company’s

common stock and the risk-free interest rate is based on the U.S.

Zero-Bond rate.

The Company utilizes a

forfeiture rate based on an analysis of the Company’s actual experience.

The fair value of options at date of grant was estimated

with the following assumptions for options granted in fiscal year 2020:

The Company utilizes a forfeiture rate based on an analysis

of the Company’s actual experience.

The fair value of options at date of grant was estimated with the following assumptions for

options granted in fiscal year 2021:

June 30, 2021

Risk-free interest rate

Stock volatility

Weighted average stock volatility

Dividend yield

Weighted average fair value of grants

Stock Option and Other Compensation Plans:

The type of share-based payments currently

utilized by the Company is stock options.

The Company has various stock option and

other compensation plans for directors, officers and employees.

The Company has the following stock option plans outstanding as

of June 30, 2020:

(b) Stock Option Plans

The type of share-based payments currently utilized

by the Company is stock options.

The Company has various stock option and other

compensation plans for directors, officers and employees.

The Company has the following stock option plans outstanding as of June 30,

The Precision Optics Corporation, Inc.

2011 Equity Incentive Plan (the “2011 Plan”) and the Precision

Optics Corporation, Inc.

2006 Equity Incentive Plan (the “2006 Plan”).

Vesting periods under the 2011 Plan and the

2006 Plan are at the discretion of the Board of Directors and typically average three years and in some instances are subject to

future performance criteria.

Options under these Plans are granted at fair market value on the date of grant and typically have

a term of ten years from the date of grant.

The 2011 Plan provides eligible participants

(certain employees, directors, consultants, etc.) the opportunity to receive a broad variety of equity based and cash awards.

granted vest and are exercisable for periods determined by the Board of Directors, not to exceed 10 years from the date of grant.

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 the Company’s common stock that may be awarded under the Plan from 325,000 to 1,825,000, an increase of 1,500,000

In connection therewith, on April 20, 2015, the Company filed a registration statement on Form S-8 to register the 1,500,000

shares of the Company’s common stock.

On May 1, 2019, 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 1,825,000 to 2,825,000,

an increase of 1,000,000 shares.

At June 30, 2020, a total of 1,951,502 stock options are outstanding and 356,498 shares of common

stock were available for future grants under the 2011 Plan.

The 2006 Plan provides eligible participants

(certain employees, directors, consultants, etc.) the opportunity to receive a broad variety of equity based and cash awards.

granted vest and are exercisable for periods determined by the Board of Directors, not to exceed 10 years from the date of grant.

At June 30, 2020 a total of 113,698 stock options are outstanding, and no shares of common stock are available for future grants

under the 2006 Plan.

The following tables summarize stock option

activity for the years ended June 30, 2020 and 2019:

2021 Equity Incentive Plan (the “2021 Plan”), the Precision Optics Corporation,

2011 Equity Incentive Plan (the “2011 Plan”) and the Precision Optics Corporation, Inc.

2006 Equity Incentive Plan (the

“2006 Plan”).

Vesting periods under each of the Plans are at the discretion of the Board of Directors and typically average

three years and in some instances are subject to future performance criteria.

Options under these Plans are granted at fair market value

on the date of grant and typically have an initial term of ten years from the date of grant, subject to certain cancellation provisions

including employment termination.

As of June 30, 2021, all shares of the Company’s common stock issuable pursuant to exercise of

stock options granted pursuant to the three plans have been registered by filing of Registration Statements on Form S-8 with the Securities

and Exchange Commission.

On May 10, 2021, the Board of Directors approved

the 2021 Plan which provides eligible participants (certain employees, directors, consultants, etc.) the opportunity to receive a broad

variety of equity based and cash awards.

Options granted vest and are exercisable for periods determined by the Board of Directors, not

to exceed 10 years from the date of grant.

A maximum 1,000,000 shares of the Company’s common stock may be issued under the 2021

At June 30, 2021, a total of 268,502 stock options are outstanding and 731,498 shares of common stock were available for future

grants under the 2021 Plan.

The 2011 Plan provides eligible participants (certain

employees, directors, consultants, etc.) the opportunity to receive a broad variety of equity based and cash awards.

Options granted vest

and are exercisable for periods determined by the Board of Directors, not to exceed 10 years from the date of grant.

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 the Company’s

common stock that may be awarded and issued under the Plan from 325,000 to 1,825,000, an increase of 1,500,000 shares.

On May 1, 2019,

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 and issued under the Plan from 1,825,000 to 2,825,000, an increase of 1,000,000 shares.

At June 30, 2021, a

total of 2,240,000 stock options are outstanding and no shares of common stock were available for future grants under the 2011 Plan.

The 2006 Plan provides eligible participants (certain

employees, directors, consultants, etc.) the opportunity to receive a broad variety of equity based and cash awards.

Options granted vest

and are exercisable for periods determined by the Board of Directors, not to exceed 10 years from the date of grant.

At June 30, 2021

a total of 69,698 stock options are outstanding, and no shares of common stock were available for future grants under the 2006 Plan.

The following tables summarize stock option activity

for the years ended June 30, 2021 and 2020:

Options Outstanding

5 unchanged sentences

Outstanding at June 30, 2021

Information related to the stock options

outstanding as of June 30, 2020 is as follows:

Information related to the stock options outstanding

as of June 30, 2021 is as follows:

Exercise Prices

6 unchanged sentences

outstanding and exercisable options as of June 30, 2021, was $1,077,196 and $974,951, respectively.

Sale of Stock in October 2018

On October 16, 2018, the Company entered

into agreements with accredited investors for the sale and purchase of 1,600,000 unregistered shares of its common stock, $0.01

par value at a purchase price of $1.25 per share.

The Company received $2,000,000 in gross proceeds from the offering.

is using the net proceeds from this placement for general working capital purposes.

In connection with the placement, the Company

also entered into a registration rights agreement with the investors, whereby the Company was obligated to file a registration

statement with the Securities Exchange Commission on or before 90 calendar days after October 16, 2018 to register the resale by

the investors of 1,600,000 shares of our common stock purchased in the placement.

The registration statement was filed with the

Securities and Exchange Commission on January 3, 2019 and Amendment No.

1 to the registration statement was filed with the Securities

and Exchange Commission on January 16, 2019.

The registration statement became effective on February 5, 2019.

Sale of Stock in July 2019

On July 1, 2019, the Company entered into

agreements with accredited investors for the sale and purchase of 760,000 unregistered shares of its common stock, $0.01 par value

at a purchase price of $1.25 per share.

The Company received $950,000 in gross proceeds from the offering, $925,000 of which was

received as of June 30, 2019 and is included in the accompanying statement of stockholders’

On July 1, 2019, the Company entered into agreements

with accredited investors for the sale and purchase of 760,000 unregistered shares of its common stock, $0.01 par value at a purchase

price of $1.25 per share.

The Company received $950,000 in gross proceeds from the offering, $925,000 of which was received as of June

30, 2019, and is included in the accompanying statement of stockholders’

equity as common stock subscriptions.

The Company used the net proceeds from this placement to partially fund the July 1, 2019 acquisition of the operating assets of

Ross Optical Industries, Inc.

The Company used

the net proceeds from this placement to partially fund the July 1, 2019, acquisition of the operating assets of Ross Optical Industries,

with an effective date of June 1, 2019.

1 unchanged sentence

also entered into a registration rights agreement with the investors, whereby the Company is obligated to file a registration statement

with the Securities Exchange Commission on or before 120 calendar days after July 1, 2019 to register the resale by the investors

of 760,000 shares of our common stock purchased in the placement.

The registration statement was filed with the Securities and

Exchange Commission on October 29, 2019 and Amendment No.

1 to the registration statement was filed with the Securities and Exchange

Commission on November 22, 2019.

with the Securities Exchange Commission on or before 120 calendar days after July 1, 2019, to register the resale by the investors of

760,000 shares of our common stock purchased in the placement.

The registration statement was filed with the Securities and Exchange Commission

on October 29, 2019, and Amendment No.

1 to the registration statement was filed with the Securities and Exchange Commission on November

The registration statement became effective on November 26, 2019.

Sale of Stock in April 2020

On April 14, 2020, the Company entered

into agreements with accredited investors for the sale and purchase of 200,000 unregistered shares of its common stock, $0.01 par

value at a purchase price of $1.25 per share.

On April 14, 2020, the Company entered into agreements

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

price of $1.25 per share.

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

The Company is

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

The Company is using the net proceeds from

this placement for general working capital purposes.

In connection with the placement, the Company

also entered into a registration rights agreement with the investors, whereby the Company was 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.

The registration statement was filed with the Securities

and Exchange Commission on August 14, 2020.

The Company has identified its federal

tax return and its state tax return in Massachusetts as “major”

also entered into a registration rights agreement with the investors, whereby the Company was 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.

The registration statement was filed with the Securities and Exchange Commission

on August 14, 2020, and became effective on November 4, 2020.

The Company has identified its federal tax return

and its state tax return in Massachusetts as “major”

tax jurisdictions.

The periods subject to examination

for its federal and state income tax returns are the years ended in 2017 and thereafter.

The Company believes its income tax filing

positions and deductions will be sustained on audit and it does not anticipate any adjustments that would result in a material

change to its financial position.

The periods subject to examination for its federal

and state income tax returns are the years ended in 2017 and thereafter.

The Company believes its income tax filing positions and deductions

will be sustained on audit and it does not anticipate any adjustments that would result in a material change to its financial position.

Therefore, no liabilities for uncertain income tax positions have been recorded.

The provision for income taxes in the

accompanying consolidated statements of operations consists of the state income tax liability of $2,165 and $912 for the years

ended June 30, 2020 and 2019, respectively.

A reconciliation of the federal statutory

rate to the Company’s effective tax rate for the fiscal years ended June 30, 2020 and 2019 is as follows:

The provision for income taxes in the accompanying

consolidated statements of operations consists of the state income tax liability of $912 and $2,165 for the years ended June 30, 2021,

and 2020, respectively.

A reconciliation of the federal statutory rate

to the Company’s effective tax rate for the fiscal years ended June 30, 2021 and 2020 is as follows:

Income tax expense (benefit) at federal statutory rate

3 unchanged sentences

Stock based compensation

Forgiveness of bank note

Nondeductible items

Effective tax rate

The components of deferred tax assets and

liabilities at June 30, 2020 and 2019 are approximately as follows:

The components of deferred tax assets and liabilities

at June 30, 2021 and 2020 are approximately as follows:

Deferred tax assets:

8 unchanged sentences

to be realized.

At June 30, 2020, the Company had federal

and state net operating loss carry forwards of approximately $10,086,000 and $3,117,000, respectively, which will, if not used,

expire at various dates beginning in fiscal year 2021.

In addition, the Company had net operating loss carry forwards from its

Hong Kong operations of approximately $2,252,000, which carry forward indefinitely.

At June 30, 2021, the Company had federal and

state net operating loss carry forwards of approximately $10,205,000 and $3,354,000, respectively, which will, if not used, expire at

various dates beginning in fiscal year 2022.

In addition, the Company had net operating loss carry forwards from its Hong Kong operations

of approximately $2,252,000, which carry forward indefinitely.

PROFIT SHARING PLAN

The Company has a defined contribution

401(k) profit sharing plan.

The Company has a defined contribution 401(k)

profit sharing plan.

Employer profit sharing and matching contributions to the plan are discretionary.

No employer profit

sharing or matching contributions were made to the plan in fiscal years 2020 and 2019.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

No employer profit sharing or matching

contributions were made to the plan in fiscal years 2021 and 2020.

CHANGES IN AND DISAGREEMENTS

WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

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 8. Financial Statements and Supplementary Data