PRECISION OPTICS CORPORATION, INC. 10-Q

Item 1. Financial Statements. PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) March 31, 2022 June 30, 2021 ASSETS Current Assets: Cash and cash equivalents $ 831,585 $ 861,650 Accounts receivable, net of allowance for doubtful accounts of $ 253,633 at March 31, 2022 and $ 251,383 at June 30, 2021 3,347,692 1,878,755 Inventories 2,965,220 1,885,395 Prepaid expenses 318,551 150,635 Total current assets 7,463,048 4,776,435 Fixed Assets: Machinery and equipment 3,196,585 3,084,511 Leasehold improvements 812,283 792,723 Furniture and fixtures 216,810 178,640 Total Fixed Assets 4,225,678 4,055,874 Less: Accumulated depreciation and amortization 3,599,491 3,461,622 Net fixed assets 626,187 594,252 Operating lease right-to-use asset 140,607 61,247 Patents, net 212,952 141,702 Goodwill 8,824,210 687,664 TOTAL ASSETS $ 17,267,004 $ 6,261,300 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Current portion of capital lease obligation $ 40,102 $ 38,347 Current maturities of long-term debt 367,714 – Current portion of acquisition earn out liability 898,855 166,667 Accounts payable 2,538,040 1,205,149 Customer advances 1,018,275 450,084 Accrued compensation and other 862,496 589,616 Operating lease liability 45,405 61,247 Total current liabilities 5,770,887 2,511,110 Capital lease obligation, net of current portion 122,096 152,397 Long-term debt, net of current maturities 2,053,070 – Acquisition earn out liability, net of current portion 697,408 166,666 Operating lease liability, net of current portion 95,202 – Stockholders’ Equity: Common stock, $ 0.01 par value: 50,000,000 shares authorized; issued and outstanding 16,887,840 shares at March 31, 2022 and 13,282,476 at June 30, 2021 168,878 132,825 Additional paid-in capital 56,723,154 50,464,280 Accumulated deficit ( 48,363,691 ) ( 47,165,978 ) Total stockholders’ equity 8,528,341 3,431,127 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 17,267,004 $ 6,261,300 The accompanying notes are an integral part of these consolidated interim financial statements. 3 PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED March 31, 2022 AND 2021 (UNAUDITED) Three Months Ended March 31, Nine Months Ended March 31, 2022 2021 2022 2021 Revenues $ 4,651,352 $ 2,458,290 $ 10,884,737 $ 8,001,641 Cost of goods sold 2,923,143 1,640,266 7,397,914 5,353,999 Gross profit 1,728,209 818,024 3,486,823 2,647,642 Research and development expenses, net 214,898 146,063 433,248 443,609 Selling, general and administrative expenses 1,574,432 927,979 3,974,824 2,671,176 Business acquisition expenses – – 172,174 – Total operating expenses 1,789,330 1,074,042 4,580,246 3,114,785 Operating loss ( 61,121 ) ( 256,018 ) ( 1,093,423 ) ( 467,143 ) Other income (expense) Interest expense ( 52,778 ) ( 666 ) ( 104,290 ) ( 2,202 ) Gain on forgiveness of bank note – 808,962 – 808,962 Net income (loss) $ ( 113,899 ) $ 552,278 $ ( 1,197,713 ) $ 339,617 Income (loss) per share: Basic $ ( 0.01 ) $ 0.04 $ ( 0.08 ) $ 0.03 Fully diluted $ ( 0.01 ) $ 0.04 $ ( 0.08 ) $ 0.02 Weighted average common shares outstanding: Basic 16,803,040 13,243,595 15,545,869 13,208,805 Fully diluted 16,803,040 14,068,459 15,545,869 13,841,700 The accompanying notes are an integral part of these consolidated interim financial statements. 4 PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE NINE MONTHS ENDED MaRCH 31 , 2022 AND 2021 (UNAUDITED) Nine Month Period Ended March 31, 2022 Number of Shares Common Stock Additional Paid-in Capital Common Stock Subscribed Accumulated Deficit Total Stockholders’ Equity Balance, July 1, 2021 13,282,476 $ 132,825 $ 50,464,280 $ – $ ( 47,165,978 ) $ 3,431,127 Stock-based compensation – – 160,071 – – 160,071 Proceeds from private placement of common stock subscribed, net of estimated issuance costs of $ 10,000 – – ( 10,000 ) 1,030,000 – 1,020,000 Net loss – – – – ( 576,801 ) ( 576,801 ) Balance, September 30, 2021 13,282,476 132,825 50,614,351 1,030,000 ( 47,742,779 ) 4,034,397 Stock-based compensation – – 330,451 – – 330,451 Proceeds from private placement of common stock 937,500 9,375 1,490,625 ( 1,030,000 ) – 470,000 Issuance of common stock in business acquisition 2,500,000 25,000 4,800,000 – – 4,825,000 Proceeds from exercise of stock option 15,000 150 16,500 – – 16,650 Exercise of stock options net of 1,435 shares withheld 2,625 26 ( 26 ) – – – Issuance of common stock for employee services 9,095 91 19,909 – – 20,000 Net loss – – – – ( 507,013 ) ( 507,013 ) Balance, December 31, 2021 16,746,696 167,467 57,271,810 – ( 48,249,792 ) 9,189,485 Correction of error in valuation of stock issued in business acquisition – – ( 825,000 ) – – ( 825,000 ) Stock-based compensation – – 231,115 – – 231,115 Proceeds from exercise of stock options 43,200 432 46,208 – – 46,640 Exercise of stock options net of 96,056 shares withheld 97,944 979 ( 979 ) – – – Net loss – – – – ( 113,899 ) ( 113,899 ) Balance, March 31, 2022 16,887,840 $ 168,878 $ 56,723,154 $ – $ ( 48,363,691 ) $ 8,528,341 Nine Month Period Ended March 31, 2021 Number of Shares Common Stock Additional Paid-in Capital Common Stock Subscribed Accumulated Deficit Total Stockholders’ Equity Balance, July 1, 2020 13,191,789 $ 131,918 $ 49,702,986 $ – $ ( 47,063,143 ) $ 2,771,761 Stock-based compensation – – 71,146 – – 71,146 Net income – – – – 793 793 Balance, September 30, 2020 13,191,789 131,918 49,774,132 – ( 47,062,350 ) 2,843,700 Stock-based compensation – – 157,079 – – 157,079 Net loss – – – – ( 213,454 ) ( 213,454 ) Balance, December 31, 2020 13,191,789 131,918 49,931,211 – ( 47,275,804 ) 2,787,325 Stock-based compensation – – 86,027 – – 86,027 Proceeds from exercise of stock options 72,000 720 27,551 – – 28,271 Net income – – – – 552,278 552,278 Balance, March 31, 2021 13,263,789 $ 132,638 $ 50,044,789 $ – $ ( 46,723,526 ) $ 3,453,901 The accompanying notes are an integral part of these consolidated interim financial statements. 5 PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED MARCH 31 , 2022 AND 2021 (UNAUDITED) Nine Months Ended March 31, 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ ( 1,197,713 ) $ 339,617 Adjustments to Reconcile Net Loss to Net Cash Used In Operating Activities - Depreciation and amortization 137,869 104,379 Stock-based compensation expense 741,637 314,252 Gain on forgiveness of bank note – ( 808,962 ) Changes in Operating Assets and Liabilities, net of effects of business acquisition - Non-cash interest expense 36,018 – Accounts receivable, net ( 791,959 ) ( 52,344 ) Inventories, net ( 623,817 ) 247,963 Due from related party 84,210 – Prepaid expenses ( 85,791 ) 1,551 Accounts payable 1,118,149 ( 41,394 ) Customer advances ( 258,487 ) ( 184,175 ) Accrued compensation and other ( 40,083 ) 3,693 Net Cash Used In Operating Activities ( 879,967 ) ( 75,420 ) CASH FLOWS FROM INVESTING ACTIVITIES: Additional patent costs ( 23,098 ) ( 40,307 ) Purchases of property and equipment ( 59,562 ) ( 49,160 ) Acquisition of businesses ( 421,729 ) ( 166,667 ) Net Cash Used In Investing Activities ( 504,389 ) ( 256,134 ) CASH FLOWS FROM FINANCING ACTIVITIES: Payment of capital lease obligations ( 28,546 ) ( 49,569 ) Payments of long-term debt ( 154,453 ) – Payment of debt issuance costs ( 26,000 ) – Gross proceeds from private placement of common stock 1,500,000 – Gross proceeds from exercise of stock options 63,290 28,271 Net Cash Provided By (Used in) Financing Activities 1,354,291 ( 21,298 ) NET DECREASE IN CASH AND CASH EQUIVALENTS ( 30,065 ) ( 352,852 ) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 861,650 1,134,697 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 831,585 $ 781,845 SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES: Offering costs included in accrued compensation and other $ 10,000 $ – Acquisition of business financed with long-term debt $ 2,600,000 $ – Acquisition of Manufacturing Equipment Under Capital Lease $ – $ 161,977 The accompanying notes are an integral part of these consolidated interim financial statements. 6 PRECISION OPTICS CORPORATION, INC. NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation and Operations The accompanying consolidated financial statements include the accounts of Precision Optics Corporation, Inc. and its wholly-owned subsidiaries (the Company). All significant intercompany accounts and transactions have been eliminated in consolidation. These consolidated financial statements have been 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 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. Use of Estimates The preparation of these consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The Company bases its 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. Revision of the Second Quarter 2022 Unaudited Consolidated Financial Statements The Company identified an error in the valuation of 2,500,000 shares of common stock issued on October 4, 2021 in the business acquisition described in Note 2 resulting in an $825,000 overstatement of Additional Paid-In Capital and Goodwill in the December 31, 2021 balance sheet presented in the quarterly report on Form 10-Q for the quarter ended December 31, 2021. This change does not impact the number of shares issued as part of the transaction; it only changes the imputed value of the common stock issued. The financial statements for the prior interim fiscal quarter ended December 31, 2021 have been revised by an $825,000 adjustment to the opening balance of Additional Paid-In Capital in the accompanying Statement of Stockholders Equity for the quarter ended March 31, 2022, and by an adjustment of Goodwill at the acquisition date as described in Note 2. No profit and loss accounts in the current or prior interim periods are affected by this revision. Income (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. Diluted income (loss) per share is computed by dividing net income (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. For the three and nine months ended March 31, 2022, the effect of such securities was antidilutive and not included in the fully diluted calculation because of the net loss generated during those periods. 7 The following is the calculation of income (loss) per share for the three and nine months ended March 31, 2022 and 2021: Schedule of earnings per share Three Months Ended March 31, Nine Months Ended March 31, 2022 2021 2022 2021 Net Income (Loss) - Basic and Diluted $ ( 113,899 ) $ 552,278 $ ( 1,197,713 ) $ 339,617 Weighted Average Shares Outstanding Basic 16,803,040 13,243,595 15,545,869 13,208,805 Fully Diluted 16,803,040 14,068,459 15,545,869 13,841,700 Income (Loss) Per Share Basic $ ( 0.01 ) $ 0.04 $ ( 0.08 ) $ 0.03 Fully Diluted $ ( 0.01 ) $ 0.04 $ ( 0.08 ) $ 0.02 The number of shares issuable upon the exercise of outstanding stock options that were excluded from the computation as their effect was antidilutive was 2,817,500 for the three and nine months ended March 31, 2022, and 15,000 and 260,000 for the three and nine months ended March 31, 2021, respectively. Income Taxes 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 carryforwards. 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. Based on this evaluation, a full valuation reserve has been provided for the deferred tax assets. 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 as of March 31, 2022. 2. BUSINESS ACQUISITION On October 4, 2021, the Company entered into an asset purchase agreement to acquire substantially all of the assets of Lighthouse Imaging, LLC, a medical optics and digital imaging business, as described in Forms 8-K and 8-K/A that the Company filed with the Securities and Exchange Commission on October 8, 2021 and December 20, 2021, respectively. The aggregate cash purchase price consisted of $ 2,855,063 in cash at closing, $ 1,500,000 as earn-out consideration over the subsequent two year period, and 2,500,000 unregistered shares of common stock issued to the seller at closing. The effective date of the acquisition was October 4, 2021, and the actual results of operations of the Lighthouse division since that date are included in the accompanying consolidated financial statements as of, and for the three and nine months ended, March 31, 2022. 8 The Company financed the cash portion of the acquisition by securing a $ 2,600,000 term loan from Main Street Bank on October 4, 2021, and by selling 937,500 shares of its common stock for $ 1,500,000 of gross proceeds in a private placement closed on October 1, 2021. The earn-out consideration will be paid at a rate of $750,000 per annum from October 1, 2021 to September 30, 2023 if certain levels of gross profit are earned by the Lighthouse division. Purchase Price Allocation and Goodwill The total purchase price of $ 8,990,670 as previously disclosed in the quarterly report on Form 10-Q for the quarter ended December 31, 2021 has been restated for a revision of the valuation of the common stock issued to the sellers as described in Note 1. Revision of the Second Quarter 2022 Unaudited Consolidated Financial Statements. The allocation of the revised 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 including the revised Goodwill, contingent consideration and assumed liabilities at the effective date of acquisition include the following: Schedule of acquired assets, contingent consideration and assumed liabilities At Acquisition Effective Date October 4, 2021 Amount Trade accounts receivable, net $ 676,977 Inventories 456,008 Other current assets 82,125 Fixed assets 110,243 Patents 48,153 Total Assets Acquired 1,373,506 Accounts payable 214,742 Customer advances 826,679 Accrued compensation and other 302,961 Total Liabilities Assumed 1,344,382 Net assets acquired 29,124 Goodwill 8,136,546 Total Purchase Price-Initial and Contingent Consideration $ 8,165,670 Consolidated Pro Forma Results Consolidated unaudited pro forma results of operations for the Company are presented below assuming that the acquisition of the Lighthouse division had occurred on July 1, 2020. Pro forma operating results include net adjustments resulting from the acquisition transaction during the three and nine months ended March 31, 2022 and 2021. Schedule of consolidated pro forma results Three Months Ended March 31, Nine Months Ended March 31, 2022 2021 2022 2021 (Actual) (Pro Forma) (Pro Forma) (Pro Forma) Revenues $ 4,651,352 $ 3,600,498 $ 12,329,074 $ 11,597,530 Net income (loss) ( 113,899 ) 593,668 ( 1,140,418 ) 382,681 Net income (loss) per share Basic $ ( 0.01 ) $ ( 0.04 ) $ ( 0.07 ) $ ( 0.02 ) Fully diluted $ ( 0.01 ) $ ( 0.03 ) $ ( 0.07 ) $ ( 0.02 ) 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 may be achievable. 9 3. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out) or market and consisted of the following: Schedule of inventory March 31, 2022 June 30, 2021 Raw Materials $ 1,292,861 $ 626,255 Work-In-Progress 426,771 453,117 Finished Goods 1,245,588 806,023 Total Inventories $ 2,965,220 $ 1,885,395 4. BANK FINANCING ACTIVITIES Bank Line of Credit On October 4, 2021, the Company entered into a Loan Agreement with Main Street Bank of Marlborough, Massachusetts, which provided for a $ 2,600,000 Term Loan and a $ 250,000 Revolving Line of Credit Loan Facility. The $250,000 line of credit is due on demand and had zero borrowings outstanding at March 31, 2022. Borrowings under the line of credit bear interest payable monthly at the prime lending rate plus 1.5% per annum and shall not be less than 4.75% per annum . Borrowings under the line of credit are limited to the borrowing base comprised of a percentage of accounts receivable and inventory and are secured by all the assets of the Company. Long-Term Debt Long-term debt consists of the following at March 31, 2022: Schedule of long-term debt Amount Term Loan Note payable to Main Street Bank with monthly principal payments of $ 30,952 .38 plus interest at the prime lending rate plus 1.5 % per annum. Secured by all assets of the Company, and subject to certain periodic reporting to the bank, an annual minimum debt service coverage ratio of 1.20:1, and other conditions. The Term Loan Note matures on October 15, 2028 . $ 2,445,238 Less current maturities ( 367,714 ) Less debt issuance costs, net of accumulated amortization of $ 1,548 ( 24,454 ) Long-term debt, net of current portion of debt issuance costs $ 2,053,070 At March 31, 2022 principal payments due on the Term Loan Note payable are as follows: Schedule of future minimum note payable Fiscal Year Ending June 30: 2022 $ 92,857 2023 371,429 2024 371,429 2025 371,429 2026 371,429 Thereafter 866,665 $ 2,445,238 10 5. LEASE OBLIGATIONS 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 in the amount of $ 47,750 for manufacturing equipment. The net book value of fixed assets under capital lease obligations as of March 31, 2022 is $ 156,640 . On July 1, 2019, the Company entered into a three-year operating lease for its facility in El Paso, Texas, and in February 2022 the Company entered into an extension of the lease for an additional three years through June 2025. Remaining minimum lease payments at March 31, 2022 total $ 150,504 . Total rent expense including base rent and common area expenses was $ 15,705 and $ 21,438 during the three months ended March 31, 2022 and 2021, respectively. Included in the accompanying balance sheet at March 31, 2022 is a right-of-use asset of $ 140,607 and current and long-term right-of-use operating lease liabilities of $ 45,405 and $ 95,202 , respectively. At March 31, 2022 future minimum lease payments under the capital lease and operating lease obligations are as follows: Future minimum lease payments Fiscal Year Ending June 30: Capital Leases Operating Lease 2022 $ 12,155 $ 15,705 2023 48,619 43,828 2024 48,619 44,924 2025 43,917 46,047 2026 28,006 – Total Minimum Payments 181,316 $ 150,504 Less: amount representing interest 19,118 Present value of minimum lease payments 162,198 Less: current portion 40,102 $ 122,096 The Company’s operating leases for its Gardner, Massachusetts office, production and storage spaces plus an equipment lease as well as the Windham, Maine office and production space have expired and are continuing on a month-to-month tenant at will basis. Rent expense on these operating leases was $ 222,112 and $ 124,848 for the nine months ended March 31, 2022 and 2021, respectively. 6. STOCK-BASED COMPENSATION Stock Options The following table summarizes stock-based compensation expense for the three and nine months ended March 31, 2022 and 2021: Schedule of stock-based compensation expense Three Months Ended March 31, Nine Months Ended March 31, 2022 2021 2022 2021 Cost of Goods Sold $ 34,712 $ 11,233 $ 91,542 $ 33,699 Research and Development 70,237 19,435 164,036 55,795 Selling, General and Administrative 126,166 55,359 466,059 224,758 Stock Based Compensation Expense $ 231,115 $ 86,027 $ 721,637 $ 314,252 No compensation has been capitalized because such amounts would have been immaterial. 11 The following tables summarize stock option activity for the nine months ended March 31, 2022: Schedule of stock option activity Options Outstanding Number of Shares Weighted Average Exercise Price Weighted Average Contractual Life Outstanding at July 1, 2021 2,578,200 $ 1.13 6.73 years Exercised ( 255,700 ) $ 1.10 Granted 584,500 $ 1.74 Cancelled ( 89,500 ) $ 0.99 Outstanding at March 31, 2022 2,817,500 $ 1.35 7.35 years Information related to the stock options outstanding as of March 31, 2022 is as follows: Schedule of stock options outstanding by exercise price range Range of Exercise Prices Number of Shares Weighted- Average Remaining Contractual Life (years) Weighted- Average Exercise Price Exercisable Number of Shares Exercisable Weighted- Average Exercise Price $ 0.48 60,000 4.00 $ 0.48 60,000 $ 0.48 $ 0.50 80,000 4.22 $ 0.50 80,000 $ 0.50 $ 0.55 15,000 6.01 $ 0.55 15,000 $ 0.55 $ 0.70 100,000 6.35 $ 0.70 100,000 $ 0.70 $ 0.73 670,000 4.81 $ 0.73 670,000 $ 0.73 $ 0.85 6,000 0.76 $ 0.85 6,000 $ 0.85 $ 0.90 36,000 2.19 $ 0.90 36,000 $ 0.90 $ 1.25 45,000 7.97 $ 1.25 30,000 $ 1.25 $ 1.30 441,000 7.20 $ 1.30 291,520 $ 1.30 $ 1.40 70,000 8.64 $ 1.40 70,000 $ 1.40 $ 1.42 100,000 7.45 $ 1.42 66,667 $ 1.42 $ 1.45 5,000 8.94 $ 1.45 1,667 $ 1.45 $ 1.50 70,000 7.69 $ 1.50 70,000 $ 1.50 $ 1.68 540,000 9.18 $ 1.68 270,000 $ 1.68 $ 2.00 140,000 9.36 $ 2.00 – $ – $ 2.09 249,500 9.86 $ 2.09 – $ – $ 2.26 190,000 9.64 $ 2.26 90,000 $ 2.26 $ 1.35 2,817,500 7.35 $ 1.35 1,856,854 $ 1.10 The aggregate intrinsic value of the Company’s in-the-money outstanding and exercisable options as of March 31, 2022 was $ 1,913,350 and $ 1,689,898 , respectively. 7. 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 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 4, 2021. In conjunction with the placement, the Company also entered into a registration rights agreement with the investors, whereby it is obligated to file a registration statement with the Securities and Exchange Commission on or before 120 calendar days after October 4, 2021 to register the resale by the investors of 937,500 shares of its common stock purchased in the placement. The registration statement was filed on January 31, 2022 and became effective on February 11, 2022. 12 8. ISSUANCE OF COMMON STOCK IN BUSINESS ACQUISITION On October 4, 2021, the Company issued 2,500,000 unregistered shares of its common stock to the sellers of Lighthouse Imaging, LLC, valued on that date at $ 1.60 per share or $ 4,000,000 , as shown in the accompanying statement of stockholders’ equity for the nine months ended March 31, 2022. In conjunction with the issuance, the Company agreed to use reasonable efforts to effectuate within a reasonable period after the October 4, 2021 business acquisition date a registration statement with the Securities and Exchange Commission to register the resale by the sellers of 2,500,000 shares of its common stock issued in the business acquisition. 9. REVENUE RECOGNITION 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 almost exclusively 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 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. Revenues are comprised of the following for the three and nine months ended March 2022 and 2021: Schedule of disaggregation of revenues Three Months Ended March 31, Nine Months Ended March 31, 2022 2021 2022 2021 Engineering Design Services $ 1,532,414 $ 549,636 $ 3,659,667 $ 1,986,856 Optical Components 1,927,963 1,456,213 4,873,294 4,330,511 Medical Device Products and Assemblies 1,190,975 452,441 2,351,776 1,684,274 Total Revenues $ 4,651,352 $ 2,458,290 $ 10,884,737 $ 8,001,641 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 expenses. As of March 31, 2022, there were no contract assets recorded in the Company’s Consolidated Balance Sheets. The Company’s contract liabilities arise from 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. 13 Contract liabilities, which were recorded as customer advances in the Company’s Consolidated Balance Sheets, and unearned revenue are comprised of the following: Schedule of contract liabilities Three Months Ended March 31, Nine Months Ended March 31, 2022 2021 2022 2021 Contract Liabilities, Beginning of Period $ 1,137,470 $ 151,877 $ 450,084 $ 417,059 Assumed in Business Acquisition – – 826,679 – Unearned Revenue Received from Customers 774,316 442,681 1,388,700 614,384 Revenue Recognized ( 893,511 ) ( 361,674 ) ( 1,647,188 ) ( 798,559 ) Contract Liabilities, End of Period $ 1,018,275 $ 232,884 $ 1,018,275 $ 232,884 10. COVID-19 PANDEMIC The COVID-19 world-wide pandemic that began during the quarter ended March 31, 2020 and the domestic and international impact of policy decisions being made in major countries around the world has had, and could continue to have, an adverse impact on the Company’s sources of supply, current and future orders from its customers, collection of amounts owed to the Company from its customers, its internal operating procedures, and the Company’s overall financial condition. Given the uncertainty surrounding the continuation of economic impacts both domestically and abroad, the Company cannot predict with certainty at this time what the future impact of COVID-19 and resulting business and economic policies in the US and abroad will be on its up-coming quarterly fiscal operating results. 14