What changed in this filing

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Item 1. Financial Statements

2023-11-14 compared with 2023-05-15 · 116 added, 270 removed, 213 unchanged (64% of the section changed)

3 unchanged sentences

CONSOLIDATED BALANCE SHEETS

September 30,

Current Assets:

Cash and cash equivalents

Accounts receivable, net of allowance for doubtful accounts of $ 74,593 at March 31, 2023 and $ 44,135 at June 30, 2022

Accounts receivable, net of allowance for doubtful accounts of $ 690,097 at September 30, 2023 and $ 606,715 at June 30, 2022

Prepaid expenses

10 unchanged sentences

Current Liabilities:

Current portion of financing lease obligation

Current portion of capital lease obligation

Current maturities of long-term debt

Current portion of acquisition earn out liabilities

Accounts payable

Contract liabilities

Customer advances

Accrued compensation and other

1 unchanged sentence

Total current liabilities

Financing lease obligation, net of current portion

Capital lease obligation, net of current portion

Long-term debt, net of current maturities and debt issuance costs

Acquisition earn out liability, net of current portion

Operating lease liability, net of current portion

2 unchanged sentences

50,000,000 shares authorized;

issued and outstanding – 5,640,995 shares at March 31, 2023 and 5,638,302 June 30, 2022

issued and outstanding – 6,066,518 shares at September 30, 2023 and June 30, 2023

Additional paid-in capital

7 unchanged sentences

PRECISION OPTICS CORPORATION, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED

MARCH 31, 2023 AND 2022

Ended March 31,

FOR THE THREE MONTHS ENDED

SEPTEMBER 30, 2023 AND 2022

Ended September 30,

Cost of Goods Sold

Research and development expenses, net

Research and Development Expenses

Selling, General and Administrative Expenses

Business acquisition expenses

Total Operating Expenses

Operating income (loss)

( 1,093,423 )

Other income (expense)

Operating Loss

Interest Expense

Gain on revaluation of contingent earn-out liability

Net income (loss)

$ ( 464,415 )

$ ( 158,724 )

$ ( 1,197,713 )

Income (loss) per share:

Loss Per Share:

Basic and Fully Diluted

Weighted Average Common Shares Outstanding:

Basic and fully diluted

Basic & Fully Diluted

The accompanying notes are an integral part

3 unchanged sentences

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

FOR THE NINE MONTHS ENDED

FOR THE THREE MONTHS ENDED

30 , 2023 AND 2022

Nine Month Period Ended March 31, 2023

Three Month Period Ended September 30, 2023

Stockholders’

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$ ( 48,703,422 )

Stock-based compensation

Balance, December 31, 2022

( 47,744,450 )

Stock-based compensation

Proceeds from exercise of stock option

Exercise of stock options net of 307 shares withheld

Balance, March 31, 2023

$ ( 48,142,882 )

Nine Month Period Ended March 31, 2022

Three Month Period Ended September 30, 2022

Stockholders’

2 unchanged sentences

Stock-based compensation

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

Balance, September 30, 2022

$ ( 48,253,118 )

Stock-based compensation

Proceeds from private placement of common stock

( 1,030,000 )

Issuance of common stock in business acquisition

Proceeds from exercise of stock option

Exercise of stock options net of 478 shares withheld

Issuance of common stock for employee services

Balance, December 31, 2021

( 48,249,792 )

Correction of error in valuation of stock issued in business acquisition

Stock-based compensation

Proceeds from exercise of stock options

Exercise of stock options net of 32,018 shares withheld

Balance, March 31, 2022

$ ( 48,363,691 )

The accompanying notes are an integral part

3 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED

FOR THE THREE MONTHS ENDED

30 , 2023 AND 2022

Nine Months Ended

Ended September 30,

Cash Flows from Operating Activities:

$ ( 464,415 )

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

Gain on revaluation of contingent earn-out liability

$ ( 158,724 )

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

Depreciation and amortization

1 unchanged sentence

Non-cash interest expense

Changes in Operating Assets and Liabilities, net of effects of business acquisition -

Changes in operating assets and liabilities -

Accounts receivable, net

( 1,726,035 )

Inventories, net

Due from related party

Prepaid expenses

2 unchanged sentences

Accrued compensation and other

Net Cash Provided By (Used In) Operating Activities

Net cash (used in) provided by operating activities

( 1,372,989 )

Cash Flows from Investing Activities:

Additional patent costs

Purchases of fixed assets

Acquisition of business

Additional patent costs

Net cash used in investing activities

Cash Flows from Financing Activities:

Payment of financing lease obligation

Payment of capital lease obligation

Payments of long-term debt

Payment of debt issuance costs

Payment of acquisition earn-out liability

Gross proceeds from private placement of common stock

Gross proceeds from exercise of stock options

Net Cash (Used In) Provided By Financing Activities

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

Net cash used in financing activities

Net (decrease) increase in cash and cash equivalents

( 1,555,383 )

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:

Offering costs included in accrued compensation and other

Issuance of common stock for services

Acquisition of business financed with long-term debt

The accompanying notes are an integral part

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

a fair statement of the results of the third quarter and nine months of the Company’s fiscal year 2023.

These consolidated financial

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

conjunction with footnotes contained in the Company’s consolidated financial statements for the year ended June 30, 2022, together

with the Report of Independent Registered Public Accounting Firm filed under cover of the Company’s 2022 Annual Report on Form 10-K,

a fair statement of the results of the first quarter of the Company’s fiscal year 2024.

These consolidated financial statements

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

with footnotes contained in the Company’s consolidated financial statements for the year ended June 30, 2023, together with

the Report of Independent Registered Public Accounting Firm filed under cover of the Company’s 2023 Annual Report on Form 10-K,

filed with the Securities and Exchange Commission on September 28, 2023.

Reclassifications

Certain reclassifications have been made to conform

the prior period consolidated financial statements to the current period.

Reverse Stock Split

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 this Form 10-Q 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.

Use of Estimates

11 unchanged sentences

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

For the three and nine months

ended March 31, 2023 and 2022, the effect of such securities was antidilutive and not included in the fully diluted calculation because

of the net loss generated during those periods.

For the three months ended September

30, 2023 and 2022, the following potentially dilutive securities outstanding have been excluded from the computations of weighted-average

shares outstanding because such securities have an antidilutive impact due to the net loss reported during those periods.

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

three and nine months ended March 31, 2023 and 2022:

Schedule of earnings per share

Ended March 31,

Net Income (Loss) - Basic and Diluted

$ ( 398,432 )

three months ended September 30, 2023 and 2022:

Schedule of income (loss) per share

Ended September 30,

Net Income (Loss) Basic and Fully Diluted

$ ( 464,415 )

2 unchanged sentences

Basic and Fully Diluted

Income (Loss) Per Share

Basic and Fully Diluted

The number of shares issuable upon the exercise of outstanding stock

options that were excluded from the computation as their effect was antidilutive was 1,058,630 for the three and nine months ended March

31, 2023, respectively, and 939,166 for the three and nine months ended March 31, 2022.

Loss Per Share - Basic and Fully Diluted

The number of shares issuable upon the exercise

of outstanding stock options that were excluded from the computation as their effect was antidilutive was approximately 1,123,140 and

904,667 for the three months ended September 30, 2023 and 2022, respectively.

Income taxes are accounted for under the asset

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

No such impairments of goodwill or patents have been estimated by management as of March 31, 2023.

REVISION OF THE FIRST AND SECOND QUARTER FISCAL YEAR 2023 UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

During the third quarter of fiscal year 2023,

the Company identified errors in the accrual of certain costs for the fiscal quarters ended September 30, 2022 and December 31, 2022,

which resulted in an understatement of accounts payable and costs of goods sold for those two quarters.

The corrections of these errors

impacted the unaudited condensed consolidated financial statements for the first and second quarters of fiscal year 2023.

assessed the applicable guidance issued by the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB)

and concluded these misstatements were not material, individually or in the aggregate, to its unaudited condensed consolidated financial

statements for the aforementioned interim periods.

However, because of the significance of these items, and to facilitate comparisons

among periods, the Company decided to revise the previously issued first and second quarter unaudited condensed consolidated financial

information by increasing accounts payable and cost of goods sold by $85,213 and 125,752 in the quarters ended September 30, 2022 and

December 31, 2022, respectively.

These quarterly and year to date financial statements will be revised in subsequent filings with the

Securities and Exchange Commission that include such statements, including when the first and second quarter Form 10-Q’s are filed

for fiscal year 2024.

Accumulated deficit at January 1, 2023 in the

accompanying statement of stockholders’ equity for the quarter ended March 31, 2023 was made larger by $210,965 due to the effects

of the increased expense accruals for the first and second quarters of fiscal year 2023.

The following are selected line items from the

financial statements illustrating the effect of the error corrections for the quarters ended September 30, 2022 and December 31, 2022:

Schedule of error corrections

Quarter Ended September 30, 2022

As Previously Reported

Adjustment(1)

Cost of goods sold

Operating loss

Net loss per share, basic and fully diluted

Quarter Ended December 31, 2022

As Previously Reported

Adjustment(1)

Cost of goods sold

Operating income

Net income per share, basic

Net income per share, fully diluted

The errors in each of the two fiscal quarters resulted from the omission of invoices from a small identifiable group of outside contractors used for certain services relating to research and development activities.

In addition to the above adjustments, trade accounts payable will be increased in future filings by $85,213 and $210,965 as of September 30, 2022 and December 31, 2022, respectively.

BUSINESS ACQUISITION

On October 4, 2021, the Company acquired substantially

all of the assets of Lighthouse Imaging, LLC, of Windham, Maine, a medical optics and digital imaging business operating as a designer

and manufacturer of advanced optical imaging systems and accessories with a strong expertise in electrical engineering and development

of end-to-end medical visualization devices.

The actual results of operations of the Lighthouse division are included in the accompanying

consolidated financial statements as of, and for the three and nine months ended, March 31, 2023, and for the six months ended March 31,

The purchase price for Lighthouse Imaging included

$ 1,500,000 as potential earn-out consideration over the subsequent two year period, contingent on the Lighthouse division meeting specified

annual gross profit targets.

The Lighthouse division did not meet the target for the first $ 750,000 portion of the earn-out, and the contingent

liability associated with that portion was reversed and recognized as other income in the fiscal quarter ended June 30, 2022.

The second $ 750,000 portion of the earn-out contingent

liability was renegotiated in March 2023 and adjusted to $ 600,000 in return for modifications to the target level of gross profit for

the second earnout period.

The $ 150,000 reduction in the contingent earn-out liability was recognized as other income in the fiscal quarter

ended March 31, 2023.

The second portion of the contingent earn-out liability of $ 600,000 will be paid if the adjusted target level of

gross profit is earned by the Lighthouse division for the period from October 1, 2022 through September 30, 2023.

Consolidated unaudited actual and pro forma results

of operations for the Company are presented below assuming that the acquisition of the Lighthouse division had occurred on July 1, 2021.

Pro forma operating results include net adjustments resulting from the acquisition transaction during the three months ended September

Schedule of consolidated pro forma results

Ended March 31,

( 1,140,418 )

Net loss per share:

Basic and 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 may be achievable.

No such impairments of goodwill or patents have been estimated by management as of September 30, 2023.

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

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

Schedule of inventory

Schedule of inventories

September 30,

Raw Materials

6 unchanged sentences

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 no borrowings outstanding at March 31, 2023.

Borrowings under the line of credit bear interest payable monthly at the prime lending

rate plus 1.5% per annum, or 9.50 % as of March 31, 2023, 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 eligible accounts receivable and inventory and are secured by all the assets

of the Company.

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 September 30, 2023.

Borrowings under the line of credit would 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 would be limited to the borrowing base comprised of a percentage of accounts receivable and inventory and are secured by

all the assets of the Company.

Long-Term Debt

Long-term debt consists of the following at March

Long-term debt consists of the following at September

Schedule of long-term debt

Term Loan Note payable to Main Street Bank with monthly principal payments of $ 30,952 plus interest at the rate of 7.00 % as of March 31, 2023 is secured by all assets of the Company, and subject to certain periodic reporting to the bank, an annual minimum EBITDA plus stock based compensation to debt service coverage ratio of 1.20:1 commencing with the fiscal year ending June 30, 2023, and other conditions.

Term Loan Note payable to Main Street Bank with monthly principal payments of $ 30,952 .38 plus interest at a fixed rate of 7.0 % per annum.

Secured by all assets of the Company, and subject to certain periodic reporting to the bank and other conditions including an annual minimum EBITDA plus stock-based compensation to debt service coverage ratio of 1.20:1 commencing with the fiscal year ending June 30, 2023.

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 plus interest at a fixed rate of 8.625 % per annum.

The Permanent Working Capital Loan matures on June 15, 2028 .

Less current maturities

Less debt issuance costs, net of accumulated amortization of $ 8,233

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

At March 31, 2023 principal payments due on the Term Loan Note payable

are as follows:

Schedule of principal payments due term loan note payable

Long-term debt, net of current maturities and debt issuance costs

At September 30, 2023 principal payments due on the Term Loan Note

payable are as follows:

Schedule of principal payments due on the term loan note

Fiscal Year Ending June 30:

Total long term debt

long term debt

LEASE OBLIGATIONS

In March 2021 the Company entered into a five-year

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

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

lease for $ 47,750 for manufacturing equipment.

The net book value of fixed assets under financing lease obligations as of March 31, 2023

is $ 114,695 .

In March 2021 the Company entered into a five-year capital lease in

the amount of $ 161,977 for manufacturing equipment.

In January 2020, the Company entered into a five-year capital lease for $ 47,750 for

manufacturing equipment.

The net book value of fixed assets under capital lease obligations as of September 30, 2023 is $ 42,572 .

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

1 unchanged sentence

three years through June 2025.

Remaining minimum lease payments at March 31, 2023 total $ 101,928 .

Total rent expense including base rent

and common area expenses was $ 15,973 and $ 15,705 during the three months ended March 31, 2023 and 2022, 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, 2025.

Remaining minimum lease payments

at March 31, 2023 total $ 321,365 .

Total rent expense including base rent and common area expenses was $ 36,495 during the three months

ended March 31, 2023.

Included in the accompanying balance sheet at

March 31, 2023 is a right-of-use asset of $ 399,007 and current and long-term right-of-use operating lease liabilities of $ 166,316 and

Remaining minimum lease payments at September 30, 2023 total $ 79,740 .

Total rent expense including base

rent and common area expenses was $ 15,973 and $ 11,630 during the fiscal quarters ended September 30, 2023 and 2022, respectively.

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, 2025.

Remaining minimum lease payments on September 30, 2023 total $ 252,501 .

Total rent expense including base rent and common

area expenses was $ 34,432 during the fiscal quarter ended September 30, 2023.

Included in the accompanying balance sheet at September

30, 2023 is a right-of-use asset of $ 317,083 and current and long-term right-of-use operating lease liabilities of $ 171,075 and $ 146,008 ,

respectively.

At March 31, 2023 future minimum lease payments

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

Future minimum lease payments

At September 30, 2023 future minimum lease payments

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

Schedule of minimum lease payments

Fiscal Year Ending June 30:

Financing Leases

Capital Leases

Operating Lease

3 unchanged sentences

current portion

Lease Obligation, net of current portion

The Company’s operating leases for its Gardner,

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

at will basis.

Rent expense on these operating leases was $ 150,862 and $ 152,078 for the nine months ended March 31, 2023 and 2022, respectively.

Massachusetts office, production and storage spaces plus an equipment lease have expired and continue on a month-to-month tenant-at-will

Rent expense on these operating leases was $ 48,799 and $ 50,826 for the fiscal quarter ended September 30, 2023 and 2022, respectively.

STOCK-BASED COMPENSATION

1 unchanged sentence

The following table summarizes stock-based compensation

expense for the three and nine months ended March 31, 2023 and 2022:

Schedule of stock-based compensation expense

Ended March 31,

expense for the three months ended September 30, 2023 and 2022.

The share amounts and prices shown below reflect adjustment for a 1-for-3

reverse stock split that took effect after the close of business on November 1, 2022.

Schedule of stock-based compensation

Ended September 30,

Cost of Goods Sold

Research and Development

Selling, General and Administrative

Stock Based Compensation Expense

Research and Development Expenses

Selling, General and Administrative Expenses

No compensation has been capitalized because such

1 unchanged sentence

The following tables summarize stock option activity

for the nine months ended March 31, 2023:

for the three months ended September 30, 2023:

Schedule of stock option activity

5 unchanged sentences

Outstanding at June 30, 2023

Outstanding at March 31, 2023

Exercised, Granted and Cancelled

Outstanding at September 30, 2023

Information related to the stock options outstanding

as of March 31, 2023 is as follows:

Schedule of stock options outstanding by exercise price range

Exercise Prices

Contractual Life

Exercise Price

as of September 30, 2023 is as follows:

The aggregate intrinsic value of the Company’s

in-the-money outstanding and exercisable options as of March 31, 2023 was $ 2,623,768 and $ 2,515,877 , respectively.

in-the-money outstanding and exercisable options as of September 30, 2023 was $ 1,810,767 and $ 1,810,242 , respectively.

REVENUE RECOGNITION

2 unchanged sentences

exchange for satisfying the performance obligations.

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

companies with over 93% of all revenues to customers in the United States.

Products and services are primarily transferred to customers

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

Other selling costs to obtain and fulfill contracts are

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

The Company extends terms of payment to its customers

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

Shipping and handling

costs charged to customers are included in revenue.

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

upon when services are performed or product is shipped.

Other selling costs to obtain and fulfill contracts are expensed as incurred due

to the short-term nature of a majority of its contracts.

The Company extends terms of payment to its customers based on commercially reasonable

terms for the markets of its customers, while also considering their credit quality.

Shipping and handling costs charged to customers

are included in revenues.

The Company disaggregates revenues by product

1 unchanged sentence

by economic factors.

Technology rights revenue represents amounts paid by customers for rights to use the Company’s intellectual

property including product designs, patents, and know-how to manufacture and commercialize their products under specified contractual

Revenues are comprised of the following for the three and nine months ended March 31, 2023 and 2022:

Revenues are comprised of the following for the three months ended September 30, 2023 and 2022:

Schedule of disaggregation of revenues

Ended March 31,

Ended September 30,

Engineering Design Services

Optical Components

Medical Device Products and Assemblies

Technology Rights

Total Revenues

Medical Device Products & Assemblies

Contract Assets and Liabilities

6 unchanged sentences

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

As of March 31,

As of September

30, 2023, there were no contract assets recorded in the Company’s Consolidated Balance Sheets.

3 unchanged sentences

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

Contract liabilities, which were recorded as

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

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

Ended March 31,

Ended September 30,

Contract liabilities, beginning of period

Assumed in Business Acquisition

Unearned revenue received from customers

Revenue recognized

( 1,435,082 )

( 1,647,188 )

Contract liabilities, end of period

COVID-19 PANDEMIC

The COVID-19 world-wide pandemic that began during

the quarter ended March 31, 2020 and the domestic and international impact of policy decisions being made in major countries around the

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

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

overall financial condition.

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

What changed 10-Q

Item 1. Financial Statements