What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-09-27 compared with 2021-09-28 · 363 added, 198 removed, 468 unchanged (55% of the section changed)

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Index to Financial Statements

Report of Independent Registered Public Accounting Firm

Report of Independent Registered

Public Accounting Firm (PCAOB No.

Consolidated Balance Sheets at June 30, 2022 and 202 1

Consolidated Statements of Operations for the Years Ended June 30, 2021 and 2020

Consolidated Statements of Stockholders’

Equity for the Years Ended June 30, 2021 and 2020

Consolidated Statements of Operations

for the Years Ended June 30, 2022 and 2022

Consolidated Statements of Stockholders’ Equity for the Years Ended June 30, 2022 and 2021

Consolidated Statements of Cash Flows for the Years Ended June 30, 2022 and 2021

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Stockholders of Precision Optics Corporation, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets

of Precision Optics Corporation, Inc.

(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, 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

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated

balance sheets of Precision Optics Corporation, Inc.

(the Company) as of June 30, 2022 and 2021, and the related consolidated statements

of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the two year period ended June 30,

2022, and the related notes (collectively referred to as the consolidated financial statements).

In our opinion, the consolidated financial

statements present fairly, in all material respects, the financial position of the Company as of June 30, 2022 and 2021, and the results

of its operations and its cash flows for each of the years in the two year period ended June 30, 2022, in conformity with accounting principles

generally accepted in the United States of America.

Basis for Opinion

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.

These consolidated financial statements are the

responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial

statements based on our audits.

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.

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.

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

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

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.

the risks of material misstatement of the consolidated 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

consolidated 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 consolidated 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

are matters arising from the current period audit of the consolidated 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 consolidated 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 consolidated 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

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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.

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

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 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.

Obtained and read source documents for each selection, including master agreements, purchase orders and other documents that evidenced the customer arrangement.

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

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.

Goodwill Impairment

Assessment – Lighthouse Imaging Division

As described in Note

2 to the consolidated financial statements, the Company’s consolidated goodwill balance and goodwill balance for the Lighthouse

Imaging Division was $8.8 million and $8.1 million, respectively, as of June 30, 2022.

As disclosed, management conducts a goodwill impairment

test whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable.

For reporting units

evaluated using a quantitative assessment, the fair values are determined using an income approach.

The income approach determines fair

value based on discounted cash flow models derived from the reporting units’ long-term forecasts.

An impairment loss would be recognized

when the carrying amount of a reporting unit’s net assets exceeds the estimated fair value of the reporting unit.

Estimates and

assumptions are utilized in the valuations, including discounted projected cash flows, terminal value growth rates, revenue growth rates,

earnings before interest, taxes, depreciation and amortization (EBITDA) margins, and discount rates.

The principal considerations

for our determination that performing procedures relating to the goodwill impairment assessment of the Lighthouse Imaging Division is

a critical audit matter are (i) the high degree of auditor judgment and subjectivity in applying procedures relating to the goodwill impairment

assessment due to the significant judgment by management when developing the fair value measurement of the reporting unit and (ii) significant

audit effort was necessary to perform procedures and evaluate audit evidence related to the revenue growth rates and EBITDA margins assumptions

utilized in the income approach.

Addressing the matter

involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial

These procedures included, among others, (i) testing management’s process for developing the fair value estimate;

evaluating the appropriateness of the valuation model used in management’s estimate;

(iii) testing the completeness, accuracy, and

relevance of underlying data used in the model;

and (iv) evaluating the reasonableness of the revenue growth rates and EBITDA margins

assumptions used by management.

Evaluating management’s assumptions related to the revenue growth rates and EBITDA margins involved

evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting

unit, and (ii) whether these assumptions were consistent with evidence obtained in other areas of the audit.

/s/ Stowe & Degon LLC

We have served as the Company’s auditor

Westborough, Massachusetts

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AND SUBSIDIARIES

Consolidated Balance Sheets at June 30, 2021

Consolidated Balance Sheets

at June 30, 2022 and 2021

Current Assets:

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Furniture and fixtures

Less—Accumulated depreciation and amortization

Total Fixed Assets

Less—Accumulated depreciation and amortization

Net fixed assets

Operating lease right-to-use asset

LIABILITIES AND STOCKHOLDERS’

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:

Current portion of capital lease obligation

Current maturities of long-term debt

Current portion of acquisition earn out liability

Note payable to bank

Accounts payable

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Capital lease obligation, net of current portion

Acquisition earn out liability

Operating lease liability

Stockholders’

Long-term debt, net of current maturities

Acquisition earn out liability, net of current portion

Operating lease liability, net of current portion

Stockholders’ Equity:

Common stock, $ 0.01 par value:

50,000,000 shares authorized;

issued and outstanding –

13,282,476 shares at June 30, 2021 and 13,191,789 shares at June 30, 2020

issued and outstanding – 16,915,089 shares at June 30, 2022 and 13,282,476 shares at June 30, 2021

Additional paid-in capital

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( 47,165,978 )

Total stockholders’

TOTAL LIABILITIES AND STOCKHOLDERS’

Total stockholders’ equity

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

The accompanying notes are an integral part

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AND SUBSIDIARIES

Consolidated Statements of Operations

Consolidated Statements of

for the Years Ended June 30, 2022 and 2021

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Selling, general and administrative expenses

Business acquisition expenses

Total operating expenses

Operating loss

( 1,513,890 )

Other income (expense)

Interest expense

Gain on forgiveness of bank note

Gain on revaluation of contingent earn-out liability

Loss before provision for income taxes

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$ ( 928,416 )

$ ( 102,835 )

Loss per share:

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AND SUBSIDIARIES

Consolidated Statements of Stockholders’

Consolidated Statements of

Stockholders’ Equity

for the Years Ended June 30, 2022 and 2021

Stockholders’

Balance, July 1, 2019

Stockholders’

Balance, June 30, 2020

$ ( 47,063,143 )

Issuance of common stock in private placement

Proceeds from exercise of stock options

Exercise of stock options net of 21,313 shares withheld

Issuance of common stock for consultant services

Issuance of common stock for employee services

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

Stock-based compensation

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( 47,165,978 )

Proceeds from exercise of stock options

Issuance of common stock in private placement

Issuance of common stock in business acquisition

Proceeds from exercise of stock option

Exercise of stock options net of 109,682 shares withheld

Issuance of common stock for employee services

Stock-based compensation

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AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Consolidated Statements of

For the Years Ended June 30, 2022 and 2021

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$ ( 928,416 )

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

$ ( 102,835 )

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

Gain on revaluation of contingent earn-out liability

Depreciation and amortization

Provision for doubtful accounts receivable

Stock-based compensation expense

Non-cash consulting expense

Non-cash interest expense

Gain on forgiveness of bank note

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

Accounts receivable

Accounts receivable, net

Due from related party

Prepaid expenses

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Accrued compensation and other

Net cash provided by (used in) operating activities

Net cash (used in) provided by operating activities

Cash Flows from Investing Activities:

Cash paid for business acquisition

Acquisition of businesses

Additional patent costs

Purchases of fixed assets

Purchases of property and equipment

Net cash used in investing activities

Cash Flows from Financing Activities:

Payment of capital lease obligation

Payment of capital lease obligations

Payments of long-term debt

Payment of debt issuance costs

Payment of acquisition earn-out liability

Gross proceeds from private placements of common stock

Gross proceeds from exercise of stock options

Proceeds from Paycheck Protection Program bank loan

Net cash (used in) provided by financing activities

Net cash provided by (used in) financing activities

Net decrease in cash and cash equivalents

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Issuance of common stock for services

Offering costs included in accrued liabilities

Acquisition of business financed with long-term debt

Common stock issued in business acquisition

Acquisition of Manufacturing Equipment Under Capital Lease

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AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Notes to Consolidated Financial

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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Precision Optics Corporation, Inc.

(the “Company”)

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

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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.

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Revenues are comprised of the following for the fiscal years ended June 30, 2022 and 2021:

Schedule of disaggregation of revenues

Engineering Design Services

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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

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

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As of June 30, 2022,

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

The Company’s contract liabilities arise

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

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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:

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

Fiscal Year Ended June 30,

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Revenue recognized

( 3,325,186 )

( 1,288,980 )

Contract liabilities, end of period

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2022 and 2021 are as follows:

Schedule of inventory

Work-in-progress

Finished goods

Total Inventories

The Company provides for estimated obsolescence

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

Schedule of estimated useful lives

Asset Classification

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

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.

At June 30, 2022, no individual

customer accounted for more 10 % of the Company’s total accounts receivable.

At June 30, 2021, the Company’s largest customer

account receivable balance was 16 % of total accounts receivable, and no other account totaled more than 10% of the accounts receivable

balance at June 30, 2021.

The allowance for doubtful accounts receivable

was $ 44,135 at June 30, 2022, and $ 251,383 at June 30, 2021.

$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.

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

2018 relating to one specific customer, which was written off as uncollectable in fiscal year 2022.

Other than these doubtful accounts

receivable, the Company has not experienced any material losses related to accounts receivable from individual customers.

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, 2022.

The Company had revenues from 377 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

during fiscal year 2022, and no single customer accounted for 10% or more of the Company’s revenue for the fiscal years ended June

30, 2022, or 2021.

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loss generated in those periods.

The following is the calculation of loss per share

for the years ended June 30, 2021 and 2020:

The following is the calculation of loss per

share for the years ended June 30, 2022 and 2021:

Schedule of earnings per share

Year Ended June 30

Net Loss–

Basic and Diluted

Net Loss– Basic and Diluted

$ ( 928,416 )

$ ( 102,835 )

Basic and diluted weighted average shares outstanding

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reserve activity for the years ended June 30, 2022 and 2021:

Schedule Of warranty activity

Balance at beginning of period

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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.

The Company’s comprehensive loss or income for the years ended June 30, 2022 and 2021 was equal to its net loss for the same periods.

Income taxes are accounted for under the asset

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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.

all periods presented, over 88% of the Company’s sales have been to customers in the United States.

Use of Estimates

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Actual results could differ from those estimates.

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, June 30, 2022.

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

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:

Schedule of acquired assets, contingent consideration and assumed liabilities

At Acquisition Effective Date October 4, 2021

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 years ended June 30, 2022 and 2021 assuming that the acquisition of the Lighthouse division

has occurred on July 1, 2020.

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

operating expenses by $ 253,914

and decreasing other income by $ 419,076 , including

of SBA Payroll Protection Program note forgiveness by Lighthouse, during the fiscal year ended June 30, 2021.

Pro forma revenues

and net loss for the year ended June 30, 2022 include operating results of the Lighthouse during the three months ended September 30,

2022 before its acquisition and approximately $ 70,200

of pro forma operating expense adjustments relating to interest, depreciation, management fees, and grant reimbursements.

Schedule of consolidated pro forma results

Fiscal Year Ended June 30,

Net (loss) income

$ ( 871,121 )

Earnings (loss) 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.

Related Party Transactions

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 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

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

On October 4, 2021, the Company entered into agreements

with accredited investors for the sale and purchase of 937,500 shares of our common stock, $0.01 par value, at a per unit price of $1.60

We received $ 1,500,000 in gross proceeds from the offering.

The placement proceeds were used to partially

fund the business acquisition of the Lighthouse division.

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

on January 31, 2022 the Company filed a registration statement for the shares with the Securities and Exchange Commission which became

effective on February 11, 2022.

Sandra Pessin acquired 468,750 shares in this placement for $ 750,000 or $1.60 per share, and at that

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

Acquisition Earn Out Obligations

As partial consideration for the July 2019 acquisition

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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

As of June 30, 2022 the first and second year portions of $ 166,667 have been paid

and the $ 166,667 remainder of the obligation is recorded as a short-term liability in the accompanying balance sheet at June 30, 2022.

As partial consideration for the October 2021

acquisition of the Lighthouse division the Company agreed to pay $ 1,500,000 as an earn-out at the rate of $750,000 per annum from October

1, 2021 contingent upon the Lighthouse division achieving certain levels of gross margin during the two year earn-out periods.

30, 2022 the first annual earn-out liability of $ 750,000 for the period ending September 30, 2022 has been written off to other income

due to the Company’s determination that the Lighthouse division will not achieve the minimum gross margin requirement for the first

annual period ending September 30, 2022.

The second $ 750,000 portion of the earn-out contingency remains in long-term liabilities in the

accompanying balance sheet at June 30, 2022.

Bank Financing Activities

SBA PPP Loan Forgiveness

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

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

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, which was increased to $500,000 effective May 17, 2022.

The $ 500,000 line of credit is due on demand and

had zero borrowings outstanding at June 30, 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 June

Schedule of long-term debt

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 %

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 commencing with the fiscal year ending June 30, 2023, and other conditions.

The Term Loan Note

matures on October

Less current maturities

Less debt issuance costs, net of accumulated amortization of $ 2,167

Long-term debt, net of current portion of debt issuance costs

At June 30, 2022 principal payments

due on the Term Loan Note payable are as follows:

Schedule of principal

payments due term loan note payable

Fiscal Year Ending June 30:

Total long term debt

Lease Obligation

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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.

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 June 30, 2022 total $ 134,799 .

Total rent expense including base rent

and common area expenses was $ 62,822 and $ 62,717 during the fiscal years ended June 30, 2022 and 2021, respectively.

On October 4, 2021

the Company assumed the remaining term of the Windham Maine lease as part of the Lighthouse acquisition.

The lease expires on July 31,

Remaining minimum lease payments at June 30, 2022 total $ 424,661 .

Total rent expense including base rent and common area expenses

was $ 105,051 during the fiscal year ended June 30, 2022.

Included in the accompanying balance sheet at June 30, 2022 is a right-of-use

asset of $ 517,725 and current and long-term right-of-use operating lease liabilities of $ 150,565 and $ 367,160 , respectively.

At June 30, 2022 future minimum lease payments

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

Schedule of future minimum lease payments

under the capital lease and operating lease obligations

Fiscal Year Ending June 30:

5 unchanged sentences

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 $172,903 and $145,655 for the years ended June 30, 2021, and 2020, respectively.

STOCKHOLDERS’

The Company’s operating leases for its

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

at will basis.

Rent expense on these operating leases was $ 203,355 and $ 172,903 for the fiscal years ended June 30, 2022 and 2021, respectively.

STOCKHOLDERS’ EQUITY

Stock-Based Compensation Expense

1 unchanged sentence

expense for the years ended June 30:

Schedule of stock-based compensation expense

Cost of Goods Sold

18 unchanged sentences

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.

1 unchanged sentence

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 2022:

Schedule of fair value of option assumptions

June 30, 2022

3 unchanged sentences

Weighted average fair value of grants

(b) Stock Option Plans

(b) Common Stock Issued

In December 2021, the Company issued 9,095 shares

of its common stock to its Chief Financial Officer as compensation for services performed.

The company recognized $ 20,000 of stock based

compensation expense during the three months ended December 31, 2021 relating to these common stock shares.

The type of share-based payments currently utilized

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The Precision Optics Corporation, Inc.

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

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

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

3 unchanged sentences

including employment termination.

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

As of June 30, 2022, 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 April 8, 2022,

the Shareholders approved the 2022 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 2022 Plan.

At June 30, 2022, there were no stock options outstanding and 1,000,000 shares of common stock were available for

future grants under the 2022 Plan.

On May 10, 2021, the Board of Directors approved

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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, 2022, a total of 784,502 stock options are outstanding and 206,403 shares of common stock were available for future

5 unchanged sentences

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.

12 unchanged sentences

for the years ended June 30, 2022 and 2021:

Schedule of stock option activity

Options Outstanding

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as of June 30, 2022 is as follows:

Schedule of stock options outstanding by exercise price range

Exercise Prices

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Exercise Price

$ 0.48–1.795

The aggregate intrinsic value of the Company’s

“in-the-money”

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

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’

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,

with an effective date of June 1, 2019.

In connection with the placement, the Company

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

The registration statement became effective on November 26, 2019.

$ 0.48 – 2.26

The aggregate intrinsic value of the Company’s

“in-the-money” outstanding and exercisable options as of June 30, 2022, was $ 1,844,170 and $ 1,779,345 , respectively.

Sale of Stock in April 2020

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

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.

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 fiscal year ended June 30, 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.

The registration statement was filed on June 13, 2022 and became effective on July 14, 2022.

The Company has identified its federal tax return

and its state tax return in Massachusetts as “major”

tax jurisdictions.

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

The periods subject to examination for its federal

4 unchanged sentences

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.

consolidated statements of operations consists of the state income tax liability of $ 952 and $ 912 for the years ended June 30, 2022, and

2021, 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:

to the Company’s effective tax rate for the fiscal years ended June 30, 2022 and 2021 is as follows:

Schedule of effective income tax rate reconciliation

Income tax expense (benefit) at federal statutory rate

4 unchanged sentences

Forgiveness of bank note

Revaluation of contingent earn out liability

Nondeductible items

2 unchanged sentences

at June 30, 2022 and 2021 are approximately as follows:

Schedule of deferred tax assets and liabilities

Deferred tax assets:

4 unchanged sentences

Valuation allowance

( 3,316,000 )

( 3,257,000 )

Net deferred tax asset

The Company has provided a valuation allowance

to reduce the net deferred tax asset to an amount the Company believes is “more likely than not”

to be realized.

to reduce the net deferred tax asset to an amount the Company believes is “more likely than not” to be realized.

At June 30, 2022, the Company had federal and

9 unchanged sentences

contributions were made to the plan in fiscal years 2022 and 2021.

CHANGES IN AND DISAGREEMENTS

WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

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