What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-09-28 compared with 2022-09-27 · 246 added, 328 removed, 503 unchanged (53% of the section changed)

2 unchanged sentences

Index to Financial Statements

Report of Independent Registered

Public Accounting Firm (PCAOB No.

Report of Independent Registered Public Accounting Firm (PCAOB No.

Consolidated Balance Sheets at June 30, 2023 and 2022

Consolidated Statements of Operations

for the Years Ended June 30, 2022 and 2022

Consolidated Statements of Operations for the Years Ended June 30, 2023 and 2022

Consolidated Statements of Stockholders’ Equity for the Years Ended June 30, 2023 and 2022

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statements present fairly, in all material respects, the financial position of the Company as of June 30, 2023 and 2022, 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.

of its operations and its cash flows for each of the years in the two year period ended June 30, 2023, in conformity with accounting

principles generally accepted in the United States of America.

Basis for Opinion

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

The Company is not required to have, nor were

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

As part of our audits, we are required to obtain an

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

the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess

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Critical Audit Matter Description

The Company recognizes revenue upon transfer of

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

those products.

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

consideration, as well as multiple performance obligations.

For such contracts, significant interpretation may be required to determine

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

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

of variable consideration and agent versus principal consideration.

The Company recognizes revenue upon transfer

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

for those products.

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

variable consideration, as well as multiple performance obligations.

For such contracts, significant interpretation may be required to

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

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

obligations, estimates of variable consideration and agent versus principal consideration.

Our assessment of managements’ evaluation of the above referenced

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recognition for customer contracts included the following:

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

We tested the mathematical accuracy of management’s calculations of revenue and the associated timing of revenue recognized in the consolidated financial statements.

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

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.

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:

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.

/s/ Stowe & Degon LLC

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AND SUBSIDIARIES

Consolidated Balance Sheets

at June 30, 2022 and 2021

Consolidated Balance Sheets at June 30, 2023

Current Assets:

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AND SUBSIDIARIES

Consolidated Statements of

Consolidated Statements of Operations

for the Years Ended June 30, 2023 and 2022

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AND SUBSIDIARIES

Consolidated Statements of

Stockholders’ Equity

Consolidated Statements of Stockholders’

for the Years Ended June 30, 2023 and 2022

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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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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

Consolidated Statements of Cash Flows

For the Years Ended June 30, 2023 and 2022

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$ ( 144,613 )

$ ( 102,835 )

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

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Non-cash interest expense

Gain on forgiveness of bank note

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

Accounts receivable, net

( 1,243,535 )

Due from related party

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Payments of long-term debt

Issuance of long-term debt

Payment of debt issuance costs

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Net cash provided by (used in) financing activities

Net decrease in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of year

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Common stock issued in business acquisition

Acquisition of Manufacturing Equipment Under Capital Lease

The accompanying notes are an integral part

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AND SUBSIDIARIES

Notes to Consolidated Financial

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Notes to Consolidated Financial Statements

OF SIGNIFICANT ACCOUNTING POLICIES

Precision Optics Corporation, Inc.

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

The Company performs advanced optical and illumination system design,

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

principal areas:

The Company performs advanced optical and illumination system

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

into two principal areas:

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

and (ii) products used by defense contractors and industrial

Principles of Consolidation

The accompanying consolidated financial statements

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

All inter-company accounts and transactions have been eliminated

in consolidation.

and (ii) products used by defense contractors and

industrial customers.

In February 2022, the Company’s Board of

Directors authorized a reverse split of the Company’s outstanding shares of common stock within a stated range of 1:1.5 to 1:3,

which was subsequently approved by stockholders holding more than a majority of the outstanding shares of Common Stock at the Company’s

Annual Meeting on April 8, 2022.

The Company effected the reverse stock split on a one-for-three basis on November 1, 2022 as reported

by the Company on Form 8-K filed with the Securities and Exchange Commission on November 2, 2022.

As a result of the reverse stock split, every

three shares of issued and outstanding common stock were automatically combined into one issued and outstanding share of common stock,

without any change in the par value per share or the number of the Company’s authorized shares.

The reverse stock split reduced

the number of shares of common stock outstanding from 16,915,089 on November 1, 2022 to approximately 5,638,302 shares, after reduction

for the elimination of fractional shares.

Unless otherwise noted, all prior year share

amounts and per share calculations throughout these financial statements have been restated to reflect the impact of this 1:3 reverse

stock split and to provide data on a comparable basis.

Such restatements include calculations regarding the Company’s weighted-average

shares, and earnings per share, as well as disclosures regarding the Company’s stock-based compensation plans.

Revenues are recognized as the performance obligations

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

Other selling costs to obtain and fulfill contracts are

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

Other selling costs to obtain and fulfill contracts

are expensed as incurred due to the short-term nature of most of its contracts.

The Company extends terms of payment to its customers

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Shipping and handling

costs charged to customers are included in revenues.

costs charged to customers are included in revenue.

The Company disaggregates revenues by product

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The nature of the Company’s products and

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

service is provided to a customer.

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

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

is generally less than one year.

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.

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Contract liabilities, end of period

Cash and Cash Equivalents

The Company includes in cash equivalents all highly

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

Cash Equivalents

The Company includes in cash equivalents all

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

Cash and cash equivalents of $ 2,925,852

and $ 861,650 at June 30, 2022 and 2021, respectively, consist primarily of cash at banks and money market funds.

and $ 605,749 on June 30, 2023 and 2022, respectively, consist primarily of cash at banks and money market funds.

The Company maintains

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

The components of inventories at June 30,

The components of inventories on June 30,

2023 and 2022 are as follows:

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Schedule of estimated useful lives

Asset Classification

Estimated Useful Life

Classification

Machinery and equipment

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and $ 245,238 for the years ended June 30, 2023 and 2022, respectively.

Significant Customers and Concentration of Credit Risk

Customers and Concentration of Credit Risk

Financial instruments that subject the Company

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

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.

At June 30, 2023 and 2022, two

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

The allowance for doubtful accounts receivable

was $ 606,715 at June 30, 2023, and $ 44,135 at June 30, 2022.

$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 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.

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

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

For the year ended

June 30, 2022 and 2021, the effect of such securities was antidilutive and not included in the diluted calculation because of the net

loss generated in those periods.

In 2023, the Company increased the allowance for doubtful accounts to cover

potential losses due to the insolvency of one customer.

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

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, 2023.

Basic income (loss) per share is computed by

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

Diluted income

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

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

For the year ended June 30, 2023 and 2022, the effect of such securities was antidilutive and not included in the diluted calculation

because of the net loss generated in those periods.

The following is the calculation of loss per

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1,017,041 and 904,666 for the years ended June 30, 2023 and 2022, respectively.

Stock-Based Compensation

The measurement and recognition of compensation

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for awards expected to vest.

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

Stock-based compensation costs recognized for the years ended June 30, 2022, and 2021 amounted to $ 895,494 and $ 733,930 , respectively.

Goodwill and Patents

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

option-pricing model.

Stock-based compensation costs recognized for the years ended June 30, 2023, and 2022 amounted to $ 919,032 and

$ 895,494 , respectively.

Long-lived assets such as goodwill and patents

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No such impairments of goodwill or patents have been estimated by management during the years ended June 30, 2023 or 2022.

Fair Value of Financial Instruments

Financial instruments consist principally of cash

and cash equivalents, accounts receivable and accounts payable.

The estimated fair value of these financial instruments approximates their

carrying value due to their short-term nature.

Warranty Costs

The Company does not incur future performance

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

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

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

Warranty costs have been included

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

The following tables summarize warranty

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

Schedule Of warranty activity

Balance at beginning of period

Provision for warranty claims

Warranty claims incurred

Balance at end of period

of Financial Instruments

Financial instruments consist principally of

cash and cash equivalents, accounts receivable and accounts payable.

The estimated fair value of these financial instruments approximates

their carrying value due to their short-term nature.

Research and Development

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There were no reimbursements for research and development recorded in research and development for the years ended June 30, 2023, and

Comprehensive Income

Comprehensive

Comprehensive income or loss is defined as the

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and liability method.

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

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

credit carry-forwards.

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

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

The effect on deferred tax assets and liabilities

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

In assessing the likelihood of utilization

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

Segment Reporting

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

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

and tax credit carry-forwards.

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

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

The effect on deferred tax assets and

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

In assessing the likelihood

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

Operating segments are identified as components

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

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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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.

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 833,333 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 fiscal year ended June 30, 2023 and the 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

acquisition by securing a $ 2,600,000 term loan from Main Street Bank on October 4, 2021, and by selling 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 of $1,500,000, which

would have been paid at a rate of $750,000 per annum from October 1, 2021 to September 30, 2023 was and will not be paid as the required

levels of gross profit will not be attained.

Price Allocation and Goodwill

The allocation of purchase price is preliminary

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Total Purchase Price-Initial and Contingent Consideration

Consolidated Pro Forma Results

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.

for the Company are presented below for the years ended June 30, 2022 assuming that the acquisition of the Lighthouse division has occurred

on July 1, 2021.

Pro forma revenues and net loss for the fiscal year ended June 30, 2022 include operating results of Lighthouse during

the three months ended September 30, 2021 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,

June 30, 2022

Net (loss) income

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Earnings (loss) per share

Fully diluted

Basic and fully diluted

Pro forma financial information is not necessarily

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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

On October 4, 2021, the Company entered into

agreements with accredited investors for the sale and purchase of 312,500 shares of our common stock, $0.01 par value, at a per unit

price of $4.80 per share.

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

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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

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 156,250 shares in this placement for $ 750,000 or $4.80 per share,

and at that time Ms.

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

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As partial consideration for the July 2019 acquisition

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

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

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

As of June 30, 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

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

The forgiveness of the Promissory Note is recorded as other

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

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

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

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

As of June 30, 2023 the full $ 500,000 has been paid.

As of June 30, 2023, the earn-out liabilities

of $ 1,500,000 associated with the Lighthouse acquisition were written off to other income due to the Lighthouse division not achieving

the minimum gross margin targets.

Bank Financing

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.

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, and $ 1,250,000 effective June 2, 2023.

The $ 1,250,000

line of credit is due on demand and had no borrowings outstanding at June 30, 2023.

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

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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

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

The Term Loan Note matures on October 15, 2028

Permanent Working Capital Loan payable to Main Street Bank with monthly principal payments of $ 12,500 .00 plus interest at a fixed rate of 8.625 % per annum.

The Term Loan Note matures on June 15, 2028

Less current maturities

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At June 30, 2023 principal payments

due on the Term Loan Note payable are as follows:

Schedule of principal

payments due term loan note payable

due on Long Term Debt are as follows:

Schedule of principal payments due term loan note payable

Fiscal Year Ending June 30:

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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.

was $ 141,351 and $ 105,051 during the fiscal year ended June 30, 2023 and 2022, respectively.

Included in the accompanying balance sheet

at June 30, 2023 is a right-of-use asset of $ 358,437 and current and long-term right-of-use operating lease liabilities of $ 168,677 and

$ 189,760 , respectively.

At June 30, 2023 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

Schedule of future minimum lease payments under the capital lease and operating lease obligations

Fiscal Year Ending June 30:

6 unchanged sentences

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

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 $ 191,088 and $ 203,355 for the fiscal years ended June 30, 2023 and 2022,

respectively.

STOCKHOLDERS’

Compensation Expense

The following table summarizes stock-based compensation

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Zero-Bond rate.

The Company utilizes a forfeiture rate based on an analysis

of the Company’s actual experience.

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

options granted in fiscal year 2022:

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 2023:

Schedule of fair value of option assumptions

12 unchanged sentences

by the Company is stock options.

The Company has various stock option and other

compensation plans for directors, officers and employees.

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

The Precision Optics Corporation, Inc.

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

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

2006 Equity Incentive Plan (the

“2006 Plan”).

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

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

Options under these Plans are granted at fair market value

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

including employment termination.

As of June 30, 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

The Company has four stock option plans outstanding

as of June 30, 2023, namely the Precision Optics Corporation, Inc.

2022 Equity Incentive Plan (the “2022 Plan”), the Precision

Optics Corporation, Inc.

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

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

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

Vesting periods under each of the Plans are at the discretion of the Board of Directors and typically average three years and in some

instances are subject to future performance criteria.

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

and typically have an initial term of ten years from the date of grant, subject to certain cancellation provisions such as upon employment

The Company has filed Registration Statements on Form S-8 with the Securities and Exchange Commission to register all

shares of common stock issuable under the 2021, 2011, and 2006 Plans.

The Company has not yet registered shares of common stock issuable

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 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.

A maximum of 333,333

shares of the Company’s common stock may be issued pursuant to stock options or other awards under the 2022 Plan.

2023, options for a total of 210,668

shares of common stock were outstanding and 122,665 shares of common stock were available for future grants under the 2022 Plan.

On May 10, 2021, the Board of Directors approved

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

variety of equity based and cash awards.

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

to exceed 10 years from the date of grant.

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

At June 30, 2022, a total of 784,502 stock options are outstanding and 206,403 shares of common stock were available for future

grants under the 2021 Plan.

The 2011 Plan provides eligible participants (certain

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

Options granted vest

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

On April 16, 2015,

the Board of Directors approved an amendment to the 2011 Equity Incentive Plan which increased the maximum number of shares of the Company’s

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

On May 1, 2019,

the Board of Directors approved an amendment to the 2011 Equity Incentive Plan which increased the maximum number of shares of our common

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

At June 30, 2022, a

total of 1,884,800 stock options are outstanding and no shares of common stock were available for future grants under the 2011 Plan.

The 2006 Plan provides eligible participants (certain

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

Options granted vest

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

At June 30, 2022,

a total of 44,698 stock options are outstanding, and no shares of common stock were available for future grants under the 2006 Plan.

the 2021 Plan which likewise authorizes a broad variety of equity based and cash awards.

A maximum of 333,333 shares of the Company’s

common stock may be issued under the 2021 Plan.

At June 30, 2023, options for a a total of 280,323 shares of common stock were outstanding

under the 2021 Plan and 47,789 shares of common stock were available for future grants under the 2021 Plan.

The 2011 Plan and 2006 Plan likewise provided

for a broad variety of equity based and cash awards, but terminated in 2021 and 2016, respectively.

At June 30, 2023, options for a

total of 623,250 shares of common stock were still outstanding under the 2011 Plan.

At June 30, 2023, options for a total of 12,899

shares of common stock were still outstanding under the 2006 Plan.

The following tables summarize stock option activity

18 unchanged sentences

“in-the-money” outstanding and exercisable options as of June 30, 2023, was $ 1,968,998 and $ 1,195,615 , respectively.

Sale of Stock in April 2020

On April 14, 2020, the Company entered into agreements

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

price of $1.25 per share.

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

The Company is using the net proceeds from

this placement for general working capital purposes.

In connection with the placement, the Company

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

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

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

The registration statement was filed with the Securities and Exchange Commission

on August 14, 2020, 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.

On October 1, 2021, the Company entered into

agreements with accredited investors for the sale and purchase of 312,500 unregistered shares of its common stock, $0.01 par value at

a purchase price of $4.80 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

to file a registration statement with the Securities and Exchange Commission on or before 120 calendar days after October 4, 2021 to

The registration statement was

filed on January 31, 2022 and became effective on February 11, 2022.

Issuance of Common Stock in Business

On October 4, 2021, the Company issued 833,333

6 unchanged sentences

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

Sale of Stock in June 2023

On June 15, 2023, the Company entered into agreements

with certain institutional and accredited investors for the sale and purchase of 420,000 unregistered shares of its common stock, $ 0.01

par value at a purchase price of $ 6.00 per share.

The Company expects to use the net proceeds from this placement for general working

capital needs.

In conjunction with the placement, the Company also entered into a registration rights agreement with the investors, whereby it is obligated

to register the resale by the investors of 420,000 shares of its common stock purchased in the placement.

The Company has identified its federal tax return

6 unchanged sentences

The provision for income taxes in the accompanying

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.

consolidated statements of operations consists of the state income tax liability of $ 1,936 and $ 952 for the years ended June 30, 2023,

and 2022, respectively.

A reconciliation of the federal statutory rate

6 unchanged sentences

Stock based compensation

Forgiveness of bank note

Net Operating Loss Utilization

Revaluation of contingent earn out liability

18 unchanged sentences

various dates beginning in fiscal year 2024.

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

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

PROFIT SHARING PLAN

PROFIT SHARING

The Company has a defined contribution 401(k)

1 unchanged sentence

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

No employer profit sharing or matching

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

IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

No employer profit sharing or

matching contributions were made to the plan in fiscal years 2023 and 2022.

CHANGES IN AND DISAGREEMENTS

WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data