What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-11-15 compared with 2021-05-13 · 132 added, 367 removed, 212 unchanged (70% of the section changed)

3 unchanged sentences

CONSOLIDATED BALANCE SHEETS

September 30,

Current Assets:

Cash and cash equivalents

Accounts receivable (net of allowance for doubtful accounts of $250,633 at March 31, 2021 and $248,450 at June 30, 2020)

Accounts receivable (net of allowance for doubtful accounts of $ 252,133 at September 30, 2021 and $ 251,383 at June 30, 2021)

Prepaid expenses

4 unchanged sentences

Furniture and fixtures

Less—Accumulated depreciation and amortization

Net fixed assets

Operating lease right-to-use asset

LIABILITIES AND STOCKHOLDERS’

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:

1 unchanged sentence

Current portion of acquisition earn out liability

Note payable to bank

Accounts payable

1 unchanged sentence

Accrued compensation and other

Current portion of operating lease liability

Operating lease liability

Total current liabilities

Capital lease obligation, net of current portion

Acquisition earn out liability

Acquisition earn out liability, net of current portion

Operating lease liability, net of current portion

Stockholders’

Stockholders’ Equity:

Common stock, $ 0.01 par value:

50,000,000 shares authorized;

issued and outstanding –

13,263,789 shares at March 31, 2021 and 13,191,789 June 30, 2020

issued and outstanding – 13,282,476 shares at September 30, 2021 and at June 30, 2021

Additional paid-in capital

Common stock subscribed

Accumulated deficit

1 unchanged sentence

( 47,165,978 )

Total stockholders’

TOTAL LIABILITIES AND STOCKHOLDERS’

Total stockholders’ equity

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

The accompanying notes are an integral part

2 unchanged sentences

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED

FOR THE THREE MONTHS ENDED

30 , 2021 AND 2020

Ended March 31,

Ended September 30,

Cost of Goods Sold

1 unchanged sentence

Selling, General and Administrative Expenses

Business acquisition expenses

Total Operating Expenses

Operating Loss

Other Income (Expense)

Operating Income (Loss)

Interest Expense

Gain on Forgiveness of Bank Note

Net Income (Loss)

$ ( 576,801 )

Income (Loss) Per Share:

Fully Diluted

Loss Per Share:

Basic and Fully Diluted

Weighted Average Common Shares Outstanding:

4 unchanged sentences

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

FOR THE THREE AND NINE MONTHS ENDED

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

FOR THE THREE MONTHS ENDED

30 , 2021 AND 2020

Nine Month Period Ended March 31, 2021

Stockholders’

Three Month Period Ended September 30, 2021

Stockholders’

Balance, July 1, 2021

1 unchanged sentence

Stock-based compensation

Proceeds from private placement of common stock subscribed, net of estimated issuance costs of $ 10,000

Balance, September 30, 2021

$ ( 47,742,779 )

Stock-based compensation

Balance, December 31, 2020

(47,275,804 )

Proceeds from exercise of stock options

Stock-based compensation

Balance, March 31, 2021

$ (46,723,526 )

Nine Month Period Ended March 31, 2020

Stockholders’

Three Month Period Ended September 30, 2020

Stockholders’

Balance, July 1, 2020

$ ( 47,063,143 )

Issuance of common stock in private placement

Proceeds from exercise of stock options

Issuance of common stock for services

Stock-based compensation

1 unchanged sentence

$ ( 47,062,350 )

Exercise of stock options net of 3,592 shares withheld

Stock-based compensation

Balance, December 31, 2019

(46,273,928 )

Issuance of common stock for services

Exercise of stock options net of 8,258 shares withheld

Stock-based compensation

Balance, March 31, 2020

$ (46,740,058 )

The accompanying notes are an integral part

3 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED

FOR THE THREE MONTHS ENDED

30 , 2021 AND 2020

Ended March 31,

Ended September 30,

Cash Flows from Operating Activities:

1 unchanged sentence

$ ( 576,801 )

Adjustments to Reconcile Net Loss to Net Cash Used In Operating Activities -

Adjustments to reconcile net loss to net cash used in by operating activities -

Depreciation and amortization

Stock-based compensation expense

Non-cash consulting expense

Gain on forgiveness of bank note

Changes in operating assets and liabilities -

Accounts receivable, net

Inventories, net

Prepaid expenses

4 unchanged sentences

Cash Flows from Investing Activities:

Cash paid for business acquisition

Purchases of fixed assets

Additional patent costs

Purchases of property and equipment

Net cash used in investing activities

1 unchanged sentence

Payment of capital lease obligation

Gross proceeds from private placement of common stock

Gross proceeds from exercise of stock options

Private placement expense paid

Net Cash (Used In) Provided From Financing Activities

NET DECREASE IN CASH AND CASH EQUIVALENTS

Gross Proceeds from private placement of common stock subscribed

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:

Offering Costs Included in Accrued Liabilities

Acquisition of Manufacturing Equipment Under Capital Lease

Supplemental disclosure of non-cash financing activities:

Offering costs included in accrued compensation and other

The accompanying notes are an integral part

6 unchanged sentences

include the accounts of Precision Optics Corporation, Inc.

and its wholly-owned subsidiaries (the “Company”).

All significant

2 unchanged sentences

prepared by the Company, without audit, and reflect normal recurring adjustments which, in the opinion of management, are necessary for

a fair statement of the results of the third quarter and nine months of the Company’s fiscal year 2021.

These consolidated financial

statements do not include all disclosures associated with annual consolidated financial statements and, accordingly, should be read in

conjunction with footnotes contained in the Company’s consolidated financial statements for the year ended June 30, 2020, together

with the Report of Independent Registered Public Accounting Firm filed under cover of the Company’s 2020 Annual Report on Form 10-K,

a fair statement of the results of the first quarter of the Company’s fiscal year 2022.

These consolidated financial statements

do not include all disclosures associated with annual consolidated financial statements and, accordingly, should be read in conjunction

with footnotes contained in the Company’s consolidated financial statements for the year ended June 30, 2021, together with

the Report of Independent Registered Public Accounting Firm filed under cover of the Company’s 2021 Annual Report on Form 10-K,

filed with the Securities and Exchange Commission on September 28, 2021.

12 unchanged sentences

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

For the three and nine months

ended March 31, 2020, the effect of such securities was antidilutive and not included in the fully diluted calculation because of the

net loss generated in that period.

For the three months ended September

30, 2021, the effect of such securities was antidilutive and not included in the fully diluted calculation because of the net loss generated

in that period.

The following is the calculation of income (loss) per share for the

three and nine months ended March 31, 2021 and 2020:

Ended March 31,

Net Income (Loss) - Basic and Diluted

three months ended September 30, 2021 and 2020:

Loss Per Share

Ended September 30,

Net Income (Loss) – Basic and Fully Diluted

$ ( 576,801 )

1 unchanged sentence

Fully Diluted

Income (Loss) Per Share

Fully Diluted

Loss Per Share - Basic and Fully Diluted

The number of shares issuable upon the exercise

of outstanding stock options that were excluded from the computation as their effect was antidilutive was 15,000 and 260,000 for the three

and nine months ended March 31, 2021, respectively, and 2,072,800 for the three and nine months ended March 31, 2020.

of outstanding stock options that were excluded from the computation as their effect was antidilutive was approximately 2,563,200 and

893,200 for the three months ended September 30, 2021 and 2020, respectively.

Income taxes are accounted for under the asset

19 unchanged sentences

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 as of March 31, 2021.

No such impairments of goodwill or patents have been estimated by management as of September 30, 2021.

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

first-out) or market and consisted of the following:

Schedule of inventory

September 30,

Raw Materials

2 unchanged sentences

Total Inventories

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”).

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 three and nine month periods ended March 31, 2021.

LEASE OBLIGATION

3 unchanged sentences

for $ 47,750 for manufacturing equipment.

The net book value of fixed assets under capital lease obligations as of March 31, 2021 is $197,790.

The net book value of fixed assets under capital lease obligations as of September 30, 2021 is

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 $78,266 at March 31, 2021.

expense including base rent and common area expenses was $21,438 and $19,632 during the three months ended March 31, 2021 and 2020, respectively.

Included in the accompanying balance sheet at March 31, 2021 is a right-of-use asset of $75,804 and current and long-term right-of-use

operating lease liabilities of $60,131 and $15,673, respectively.

At March 31, 2021, future minimum lease payments under the capital

lease and operating lease obligations are as follows:

operating lease for its facility in El Paso, Texas with total remaining minimum lease payments of $ 47,116

at September 30, 2021.

Total rent expense including base rent and common area expenses was $ 13,997

during the three months ended September 30, 2021 and 2020, respectively.

Included in the accompanying balance sheet at September

30, 2021 is a right-of-use asset of $ 46,244 and current

and long-term right-of-use operating lease liabilities of $ 46,244

and $ 0 , respectively.

At September 30, 2021, future minimum lease payments

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

Future minimum lease payments

Fiscal Year Ending June 30:

5 unchanged sentences

current portion

The Company’s operating leases for its 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 $124,848 and $109,241 for the nine months ended March 31, 2021 and 2020, respectively.

The Company’s operating leases for its 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 $ 50,826 and $ 41,616 for the three months ended September 30, 2021 and 2020,

respectively.

STOCK-BASED COMPENSATION

The following table summarizes stock-based compensation

expense for the three and nine months ended March 31, 2021 and 2020:

Ended March 31,

expense for the three months ended September 30, 2021 and 2020:

Schedule of stock-based compensation expense

Ended September 30,

Cost of Goods Sold

Research and Development

Selling, General and Administrative

Stock Based Compensation Expense

Research and Development Expenses

Selling, General and Administrative Expenses

No compensation has been capitalized because such

1 unchanged sentence

The following tables summarize stock option activity

for the nine months ended March 31, 2021:

for the three months ended September 30, 2021:

Stock option activity

Options Outstanding

4 unchanged sentences

Outstanding at June 30, 2021

Outstanding at March 31, 2021

Outstanding at September 30, 2021

Information related to the stock options outstanding

as of March 31, 2021 is as follows:

as of September 30, 2021 is as follows:

Stock options outstanding by exercise price range

Exercise Prices

2 unchanged sentences

Exercise Price

$ 0.48–1.795

The aggregate intrinsic value of the Company’s

“in-the-money”

outstanding and exercisable options as of March 31, 2021 was $1,074,132 and $935,406, respectively.

The aggregate intrinsic value of the Company’s

“in-the-money” outstanding and exercisable options as of September 30, 2021 was $ 1,564,100 and $ 1,355,063 , respectively.

SALE OF STOCK IN OCTOBER 2021

On October 1, 2021, the Company entered into agreements

with accredited investors for the sale and purchase of 937,500 unregistered shares of its common stock, $0.01 par value at a purchase

price of $ 1.60 per share.

The Company received $ 1,500,000 in gross proceeds from the offering, $ 1,030,000 of which was received as of

September 30, 2021, and is included in cash in the accompanying balance sheet and in the accompanying statement of stockholders’

equity as common stock subscriptions.

The Company used the net proceeds from this placement to partially fund the October 4, 2021, acquisition

of the operating assets of Lighthouse Imaging, LLC with an effective date of October 1, 2021.

Subsequent Event-Business

Acquisition below.

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 October 4, 2021 to register

the resale by the investors of 937,500 shares of our common stock purchased in the placement.

REVENUE RECOGNITION

2 unchanged sentences

exchange for satisfying the performance obligations.

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

companies almost exclusively in the United States.

11 unchanged sentences

by economic factors.

Revenues are comprised of the following for the three and nine months ended March 31, 2021 and 2020:

Ended March 31,

Revenues are comprised of the following for the three and nine months ended September 30, 2021 and 2020:

Disaggregation of revenues

Ended September 30,

Engineering Design Services

Optical Components

Medical Device Products and Assemblies

Total Revenues

Medical Device Products & Assemblies

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

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

1 unchanged sentence

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

As of March 31,

2021, there were no contract assets recorded in the Company’s Consolidated Balance Sheets.

The Company’s contract liabilities arise

As of September

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

3 unchanged sentences

Contract liabilities, which were recorded as customer

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

Ended March 31,

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

Contract Liabilities

Three Months Ended September 30,

Contract liabilities, beginning of period

5 unchanged sentences

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

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

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

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

overall financial condition.

2 unchanged sentences

the US and abroad will be on its up-coming quarterly fiscal operating results.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations.

The following discussion of our financial condition

and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and notes to those

statements included elsewhere in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 and with our audited consolidated

financial statements for the year ended June 30, 2020 included in our Annual Report on Form 10-K, filed with the Securities and Exchange

Commission on September 24, 2020.

This Quarterly Report on Form 10-Q contains

forward-looking statements.

When used in this report, the words “anticipate,”

“suggest,”

“estimate,”

“plan,”

“project,”

“continue,”

“ongoing,”

“potential,”

“expect,”

“predict,”

“believe,”

“intend,”

“may,”

“will,”

“should,”

“could,”

“would”

and similar expressions are intended to identify forward-looking statements.

You should not place undue reliance on

these forward-looking statements.

Our actual results could differ materially from those anticipated in the forward-looking statements

for many reasons, including the risks described in this report, the risks described in our Annual Report on Form 10-K for the year ended

June 30, 2020 and other reports we file with the Securities and Exchange Commission.

Although we believe the expectations reflected in the forward-looking statements are

reasonable, they relate only to events as of the date on which the statements are made.

We do not intend to update any of the forward-looking

statements after the date of this report to conform these statements to actual results or to changes in our expectations, except as required

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 nine

months ended March 31, 2021 is from the design and manufacture of high-quality medical devices.

Approximately 8% of our revenue during

the same period is from the design, manufacture and resale of optical products for military and defense, and 32% is 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 internet websites are www.poci.com and www.rossoptical.com.

Information on our websites is not intended to be integrated into this report.

Investors and others should note that we announce material

financial information using our company websites (www.poci.com;

www.rossoptical.com), our investor relations website, SEC filings, press

releases, public conference calls and webcasts.

Information about Precision Optics, our business, and our results of operations may also

be announced by social media posts on our Ross Optical LinkedIn page (www.linkedin.com/company/ross-optical-industries/) and Twitter feed

(http://twitter.com/rossoptical).

The information that we post on these social media

channels could be deemed to be material information.

Therefore, we encourage investors, the media, and others interested in Precision

Optics to review the information that we post on these social media channels.

These social media channels may be updated from time to

time on Precision Optics’

investor relations website.

The information on, or accessible through, our websites and social media channels

is not incorporated by reference in this Quarterly Report on Form 10-Q.

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 developed extensive experience collaborating with other optical specialists worldwide.

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, single-use endoscopes and 3D endoscopes.

Our largest customer during the nine months ended

March 31, 2021 accounted for 11.3% of our revenue and represented engineering, design and assembly revenues for a medical diagnostic system.

During the nine months ended March 31, 2021 we had revenue from another two hundred seventy-nine customers, and none of those customers

accounted for more than 10% of our total revenue.

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.

This management’s discussion and analysis

of financial condition and results of operations is based upon our unaudited consolidated financial statements, which have been prepared

without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.

The preparation of these consolidated

financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and

We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the

circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not

readily apparent from other sources.

Actual results may differ from these estimates.

There have been no significant changes in our

critical accounting policies as disclosed in the Notes to our Financial Statements contained in our Annual Report on Form 10-K for

the year ended June 30, 2020 filed with the Securities and Exchange Commission on September 24, 2020.

Results of Operations

Our total revenues for the quarter ended March

31, 2021, were $2,458,290, as compared to $2,374,584 for the same period in the prior year, an increase of $83,706, or 3.5%.

revenue during the quarter ended March 31, 2021 increased approximately $340,000 compared to the same fiscal quarter of the prior year

due primarily to the addition of projects with two new customers.

Production revenue had a decrease in quarter-over-quarter revenue of

approximately $232,756 due primarily to COVID-19 related slow-downs instituted by our existing customers.

Other revenue changes between

the quarter ended March 31, 2021 and the same period of the prior year were considered customary fluctuations with existing customers

and project progressions.

Our total revenues for the nine months ended March 31,

2021 were $8,001,641, as compared to $7,686,330 for the same period in the prior year, an increase of $315,311, or 4.1%.

Similar to the

quarter ended March 31, 2021, revenues increased during the nine months ended March 31, 2021 compared to the same period of the prior

year due to a $889,000 increase in engineering revenue caused by the addition of two new projects, offset by a smaller amount from decreases

in production revenue from various customers experiencing slow-downs due to the effects of COVID-19.

Gross profit for the quarter ended March 31, 2021

was $818,024, compared to $817,019 for the same period in the prior year, reflecting an increase of $1,005.

Gross profit for the quarter

ended March 31, 2021 as a percentage of our revenues was 33.3%, a decrease from the gross profit percentage of 34.4% for the same period

in the prior year.

Gross profit for the nine months ended March 31, 2021 was $2,647,642, as compared to $2,709,075 for the same period

in the prior year, which reflects a decrease of $61,433 or 2.3%.

Gross profit for the nine months ended March 31, 2021 as a percentage

of our revenues was 33.1%, a decrease from the gross profit percentage of 35.2% for the same period in the prior year.

Quarterly gross

profit and gross profit percentage depend on a number of factors, including overall sales volume, facility utilization, product sales

mix, the costs of engineering services, and production start-up costs and challenges in connection with new products, 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.

Our gross margin on individual engineering projects

is dependent on a number of factors and is expected to fluctuate from quarter to quarter based on the nature and status of engineering

projects, unanticipated cost over-runs, design challenges and changes, start-up production activities or other customer-imposed project

changes or delays.

Our decrease in gross margin from 34.4% to 33.3% during the fiscal quarter ended March 31, 2021 compared to 2020 and

from 35.2% to 33.1% during the nine months ended March 31, 2021 and 2020 was primarily the result of a gross margin decrease in one engineering

project due to cost over-runs, plus a decrease in higher margin production revenues with customers due to COVID-19 factors.

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 $146,063

for the quarter ended March 31, 2021, compared to $319,875 for the same period in the prior year, a decrease of $173,812, or 54.3%.

and development expenses were $443,609 for the nine months ended March 31, 2021, compared to $700,605 for the same period in the

prior year, a decrease of $256,996, or 36.7%.

In-house research and development and certain internal functions not directly related to

customer engagements are classified as research and development expenses with the majority of our engineering, research and development

activities being consumed in revenue generating engagements with our customers for the development of their products.

During the quarter

and nine months ended December 31, 2019 and March 31, 2020 we had a greater amount of our engineering personnel time consumed in internal

research and development activities causing increased research and development expense compared to the quarter and nine months ended March

Selling, general and administrative expenses were

$2,671,176 for the nine months ended March 31, 2021, compared to $3,111,397 for the same period in the prior year, a decrease of

$440,221, or 14.1%.

The decrease in the nine months ended March 31, 2021, compared to the same period of the prior fiscal year was due

to decreased recruiting, shareholder relations, stock compensation and administrative travel costs offset by increases in consulting,

professional accounting and insurance expenses.

Selling, general and administrative expenses were

$927,979 for the quarter ended March 31, 2021, compared to $962,591 for the same period in the prior year, a decrease of $34,612, or 3.6%.

The decrease in the quarter ended March 31, 2021, compared to the same quarter of the prior fiscal year was due to decreased shareholder

relations, stock compensation and administrative travel costs offset by increases in consulting, professional accounting and insurance

Liquidity and Capital Resources

We have sustained recurring net losses from operations

for several years.

During the year ended June 30, 2020, we incurred a net loss of 1,426,150 and used cash in operating activities of $592,492.

During the nine months ended March 31, 2021 we had a net loss from operations of $467,143 and used cash in operating activities of $75,420.

At March 31, 2021, cash was $781,845, accounts receivables were $1,533,781 and current liabilities were $2,107,535, including $232,884

of customer advances received for future order deliveries.

Although our sales levels have increased, our

financial performance has shown signs of periodic improvement during certain recent fiscal quarters, and our operating expenses have decreased,

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

result in cost over-runs and lower gross margins, and decreased orders from customers experiencing COVID-19 related slowdowns.

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

and recorded in the current liabilities section of the accompanying financial statements.

Our management believes that the opportunities

represented by our current production projects and engineering pipeline of Microprecision™

optical projects have the potential to

generate increasing revenues and profitable financial 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 and additional

patent costs during the nine months ended March 31, 2021 were $89,467.

Future capital equipment expenditures will be dependent upon the

type and amount of future sales revenue and the needs of on-going research and development efforts.

We have contractual cash commitments related to

open purchase orders as of March 31, 2021 of approximately $440,000, plus a $229,914 commitment remaining under three capital lease obligations

for the acquisition of equipment and $78,266 commitment remaining under a three-year facility lease relating the Ross Optical division

in El Paso, Texas (see Note 3.

Lease Obligations).

We have no other contractual cash commitments since other leased facilities are currently

on a month-to-month basis.

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.

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.

SUBSEQUENT EVENT – BUSINESS ACQUISITION

On October 4, 2021, the Company closed on an asset

purchase agreement with an effective date of October 1, 2021 with Lighthouse Imaging, LLC and Anania & Associates Investment Company,

LLC for substantially all of the assets of Lighthouse Imaging, LLC, a Maine limited liability company operating a medical optics and digital

imaging business, as more fully described in Form 8-K filed with the Securities and Exchange Commission on October 10, 2021.

The aggregate

cash purchase price consisted of $2,855,000 in cash at closing and $1,500,000 as earn-out consideration contingent on certain performance

criteria over a period of two years.

The Company also issued 2,500,000 unregistered shares of its common stock to the sellers at the closing

The wife of the Company’s VP of sales and marketing Jeffrey Di Rubio participated in the private placement by purchasing 12,500

shares of common stock for $20,000.

The Company financed the acquisition in October

2021 by taking on a $2,600,000 term loan from Main Street Bank, and by closing a $1,500,000 private placement for the sale and purchase

of 937,500 of its common stock, $0.01 par value, at a purchase price of $1.60 per share.

Gross proceeds from the offering totaling $1,030,000

were received from investors prior to September 30, 2021 and are included in common stock subscribed in the accompanying Consolidated

Statements of Stockholders Equity.

The Company also secured a revolving line of credit not to exceed $250,000 for general working capital

The financial

statements of Lighthouse Imaging, LLC and pro forma financial information required to be filed by Items 9.01(a) and (b) of Form 8-K will

be filed by amendment no later than the required 71 calendar days after the October 10, 2021 filing of the Form 8-K, or by December 20,

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-Q

Item 1. Financial Statements