What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-09-30 compared with 2023-09-28 · 381 added, 407 removed, 342 unchanged (70% of the section changed)

FINANCIAL STATEMENTS

AND SUPPLEMENTARY DATA.

FINANCIAL STATEMENTS AND

SUPPLEMENTARY DATA.

Index to Financial Statements

9 unchanged sentences

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated

balance sheets of Precision Optics Corporation, Inc.

We have audited the accompanying consolidated balance

sheets of Precision Optics Corporation, Inc.

(the “Company”) as of June 30, 2024 and 2023, and the related consolidated statements

1 unchanged sentence

2024, 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, 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, 2023, in conformity with accounting

principles generally accepted in the United States of America.

In our opinion, the consolidated

financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2024 and 2023, and

the results of its operations and its cash flows for each of the years in the two year period ended June 30, 2024, in conformity with

accounting principles generally accepted in the United States of America.

Basis for Opinion

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.

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 consolidated

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.

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.

9 unchanged sentences

Critical Audit Matters

The critical audit matters communicated below

are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated

The critical audit matters communicated below is a

matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated

to the audit committee and that:

4 unchanged sentences

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

Revenue Recognition — Refer to Note A

to the Consolidated Financial Statements

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

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

matters related to proper revenue recognition is significant to our audit because of the nature and extent of audit effort required to

address the matter, the amounts are material to the financial statements, the assessment process involves significant auditor judgment,

and the application of U.S.

generally accepted accounting principles in this area is complex.

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 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.

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 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

We have served as the Company’s auditor

Westborough, Massachusetts

September 30, 2024

We have served as the Company’s auditor since

PRECISION OPTICS CORPORATION, INC.

AND SUBSIDIARIES

Consolidated Balance Sheets at June 30, 2023

Consolidated Balance Sheets at June 30, 2024 and

Current Assets:

Cash and cash equivalents

Accounts receivable, net of allowance for doubtful accounts of $ 606,715 at June 30, 2023 and $ 44,135 at June 30, 2022

Accounts receivable, net of allowance for credit losses of $ 118,872 at June 30, 2024 and $ 606,715 at June 30, 2023

Prepaid expenses

7 unchanged sentences

Net fixed assets

Operating lease right-to-use asset

Operating lease right-of-use asset

Total other assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:

Revolving line of credit

Current portion of capital lease obligation

Current maturities of long-term debt

Current portion of acquisition earn out liability

Accounts payable

5 unchanged sentences

Long-term debt, net of current maturities

Acquisition earn out liability, net of current portion

Operating lease liability, net of current portion

Total liabilities

Stockholders’ Equity:

8 unchanged sentences

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

The accompanying notes are an integral part

of these consolidated financial statements.

The accompanying notes are an integral part of these

consolidated financial statements.

PRECISION OPTICS CORPORATION, INC.

AND SUBSIDIARIES

Consolidated Statements of Operations

3 unchanged sentences

Selling, general and administrative expenses

Business acquisition expenses

Total operating expenses

3 unchanged sentences

Interest expense

Gain on forgiveness of bank note

Gain on revaluation of contingent earn-out liability

Loss before provision for income taxes

( 2,949,441 )

Provision for income taxes

5 unchanged sentences

Basic and fully diluted

The accompanying notes are an integral part

of these consolidated financial statements.

The accompanying notes are an integral part of these

consolidated financial statements.

PRECISION OPTICS CORPORATION, INC.

AND SUBSIDIARIES

Consolidated Statements of Stockholders’

Consolidated Statements of Stockholders’ Equity

for the Years Ended June 30, 2024 and 2023

3 unchanged sentences

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

1 unchanged sentence

$ ( 48,239,007 )

Issuance of common stock in private placement

Proceeds from exercise of stock option

Exercise of stock options net of 2,916 shares withheld

Stock-based compensation

( 2,951,377 )

Balance, June 30, 2024

$ ( 51,190,384 )

The accompanying notes are an integral part

of these consolidated financial statements.

The accompanying notes are an integral part of these

consolidated financial statements.

PRECISION OPTICS CORPORATION, INC.

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

2 unchanged sentences

$ ( 2,951,377 )

$ ( 144,613 )

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

3 unchanged sentences

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

( 1,243,535 )

Due from related party

Prepaid expenses

Accounts payable

( 1,034,951 )

Customer advances

Accrued compensation and other

Net cash (used in) provided by operating activities

Net cash used in operating activities

( 2,683,012 )

Cash Flows from Investing Activities:

Acquisition of businesses

Additional patent costs

7 unchanged sentences

Payment of acquisition earn-out liability

Borrowings on revolving line of credit

Gross proceeds from private placements of common stock

Gross proceeds from exercise of stock options

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

( 2,520,574 )

Cash and cash equivalents, beginning of year

2 unchanged sentences

Cash paid during the year for income taxes

Supplemental disclosure of non-cash financing activities:

Issuance of common stock for services

Acquisition of business financed with long-term debt

Common stock issued in business acquisition

The accompanying notes are an integral part

of these consolidated financial statements.

The accompanying notes are an integral part of these

consolidated financial statements.

PRECISION OPTICS CORPORATION, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Precision Optics Corporation, Inc.

3 unchanged sentences

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 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

to deliver products or services are satisfied and are recorded based on the amount of consideration the Company expects to receive in

exchange for satisfying the performance obligations.

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

companies with approximately 85% of sales 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.

and (ii) products used by defense contractors and industrial

Reverse Stock Split

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.

The Company determines revenue recognition for arrangements

that we determine are within the scope of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers , (“ASC

606”), by performing the following five steps:

(i) identify the contract with a customer;

(ii) identify the performance obligations

in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when, or as, we satisfy the performance obligations.

At contract inception, once the contract is determined

to be within the scope of ASC 606, we assess the goods or services promised within the contract and determine those that are performance

obligations and assess whether each promised good or service is distinct based on the contract.

The Company disaggregates revenues by product and

service types as it believes best depicts how the nature, amount, timing and uncertainty of revenues and cash flows are affected by economic

Revenues are comprised of the following for year ended June 30, 2024, and 2023:

Schedule of disaggregation of revenues

Year Ended June 30,

Engineering Design Services

Optical Components

Medical Device Products and Assemblies

Total Revenues

Other selling costs to obtain and fulfill contracts

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

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

The Company extends terms of payment to its customers

2 unchanged sentences

costs charged to customers are included in revenue.

The Company disaggregates revenues by product

and service types as it believes it best depicts how the nature, amount, timing and uncertainty of revenues and cash flows are affected

by economic factors.

Revenues are comprised of the following for the fiscal years ended June 30, 2023 and 2022:

Schedule of disaggregation of revenues

Revenue recognition policies for each of the three

product and service types appear below.

Engineering Design Services

Optical Components

Medical Device Products and Assemblies

Total Revenues

The Company enters into contractual

agreements with our customers, including design services agreements, statements of work and receive purchase orders for development projects.

These agreements provide costs on an estimated basis for the services we have agreed to provide.

Engineering Design Services are rendered

on a time and materials basis.

The Company recognizes revenue as customers are invoiced for the actual engineering services provided in

Revenue is also recognized on materials purchased for development projects at the time of receipt.

Engineering Design Services

are provided on a best-efforts basis;

no warranty is provided as there is no guarantee that the work will result in the attainment of

the customer’s project objectives.

The Company may obtain customer deposits in advance of rendering engineering design services.

Customer deposits are treated as contractual liabilities until the terms of customer agreements are satisfied and are not a component

Optical Components, Finished Products and Assemblies

The Company provides fixed price

quotations to our customers and requires purchase orders for all purchased optical components, finished devices and assemblies.

is recognized at the time title passes to our customer based on our review of the customer contract, generally at the time of shipment

from our facilities.

Occasionally the Company may enter into “bill and hold” contractual arrangements where title is held

by our customers while goods are stored at our facilities for their convenience.

Technology Rights and Royalties

The Company may recognize revenue

for the sale of technology rights and through the receipt of royalties obtained under a license of our intellectual property.

These revenues

are recognized in the period in which, in our judgment, they are earned and no longer contingent under the terms and conditions of the

relevant customer contract.

Contract Assets and Liabilities

The nature of the Company’s products and

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

or service is provided to a customer.

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

to employees.

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

period is generally less than one year.

The nature of the Company’s products and services

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

is provided to a customer.

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

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

less than one year.

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

As of June 30,

2023, 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

satisfaction of performance obligations.

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:

As of June 30, 2024 and 2023, 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 satisfaction

of performance obligations.

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:

Schedule of contract liabilities

Fiscal Year Ended June 30,

Year Ended June 30,

Contract liabilities, beginning of period

4 unchanged sentences

Contract liabilities, end of period

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

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 $ 405,278

13 unchanged sentences

Total Inventories

The Company provides for estimated obsolescence

on unmarketable inventory based upon assumptions about future demand and market conditions.

If actual demand and market conditions are

less favorable than those projected by management, additional inventory write-downs may be required.

Inventory, once written down, is

not subsequently written back up, as these adjustments are considered permanent adjustments to the carrying value of the inventory.

The Company provides for estimated obsolescence on

unmarketable inventory based upon assumptions about future demand and market conditions.

If actual demand and market conditions are less

favorable than those projected by management, additional inventory write-downs may be required.

Inventory, once written down, is not subsequently

written back up, as these adjustments are considered permanent adjustments to the carrying value of the inventory.

Fixed assets are recorded at cost.

and repair items are expensed as incurred.

The Company provides for depreciation and amortization by charges to operations, using the

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

Maintenance and

repair items are expensed as incurred.

The Company provides for depreciation and amortization by charges to operations, using the straight-line

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

Schedule of estimated useful lives

Classification

Asset Classification

Estimated Useful Life

Machinery and equipment

4 unchanged sentences

and $ 210,735 for the years ended June 30, 2024 and 2023, respectively.

Customers and Concentration of Credit Risk

Financial instruments that subject the Company

to credit risk consist primarily of cash equivalents and trade accounts receivable.

Significant Customers and Concentration of Credit Risk

Financial instruments that subject the Company to

credit risk consist primarily of cash equivalents and trade accounts receivable.

The Company places its investments with highly rated

2 unchanged sentences

At June 30, 2024, and 2023, 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.

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

share for the years ended June 30, 2023 and 2022:

Schedule of earnings per share

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

The allowance for credit losses was $ 118,872

at June 30, 2024, and $ 606,715

at June 30, 2023.

Schedule of allowance for credit losses

Year Ended June 30,

Allowance for credit losses, beginning of period

Change in the provision for expected credit losses

Writeoffs charged against the allowance

Allowance for credit losses, end of period

In the year ended June 30, 2023, the Company increased

the credit loss reserve to cover potential losses due to the insolvency of one customer and wrote off the receivable against the reserve

during the year ended June 30, 2024.

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 credit losses, which is established based upon review of specific account balances and historical

experience, is adequate at June 30, 2024.

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 years ended

June 30, 2024 and 2023, 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 share

for the years ended June 30, 2024 and 2023:

Schedule of loss per share

Year Ended June 30,

Net Loss– Basic and Diluted

4 unchanged sentences

Basic and fully diluted

The number of shares issuable upon the exercise

of outstanding stock options and warrants that were excluded from the computation as their effect was antidilutive was approximately

The number of shares issuable upon the exercise of

outstanding stock options and warrants that were excluded from the computation as their effect was antidilutive was approximately 1,357,735

and 1,017,041 for the years ended June 30, 2024 and 2023, respectively.

The measurement and recognition of compensation

costs for all stock-based awards made to employees and the Board of Directors are based upon fair value over the requisite service period

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 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

are capitalized when acquired and reviewed for impairment whenever events or changes in circumstances indicate that the book value of

the asset may not be recoverable.

Impairment of the carrying value of long-lived assets such as goodwill and patents would be indicated

if the best estimate of future undiscounted cash flows expected to be generated by the asset grouping is less than its carrying value.

If an impairment is indicated, any loss is measured as the difference between estimated fair value and carrying value and is recognized

in operating income or loss.

Stock-Based Compensation

The measurement and recognition of compensation costs

for all stock-based awards made to employees and the Board of Directors are based upon fair value over the requisite service period 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, 2024, and 2023 amounted to $ 959,784 and $ 919,032 , respectively.

Goodwill and Patents

Long-lived assets such as goodwill and patents are

capitalized when acquired and reviewed for impairment whenever events or changes in circumstances indicate that the book value of the

asset may not be recoverable.

Impairment of the carrying value of long-lived assets such as goodwill and patents would be indicated if

the best estimate of future undiscounted cash flows expected to be generated by the asset grouping is less than its carrying value.

an impairment is indicated, any loss is measured as the difference between estimated fair value and carrying value and is recognized in

operating income or loss.

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

No such impairments of goodwill or patents have been estimated by management during the years ended June 30, 2024 or 2023.

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.

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.

Research and Development

Research and development expenses are charged

to operations as incurred.

Research and development expenses are charged to operations

The Company groups development and prototype costs and related reimbursements in research and development.

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

Comprehensive

Comprehensive income or loss is defined as the

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, 2023 and 2022 was equal to its net loss for the same periods.

Income taxes are accounted for under the asset

and liability method.

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

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

and tax credit 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

of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker,

or decision-making group, in making decisions about how to allocate resources and assess performance.

There were no

reimbursements for research and development recorded in research and development for the years ended June 30, 2024, and 2023.

Comprehensive Income

Comprehensive income or loss is defined as the 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, 2024 and 2023 was equal to its net loss for the same periods.

Income taxes are accounted for under the asset and

liability method.

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

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

credit 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

Operating segments are identified as components of

an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or

decision-making group, in making decisions about how to allocate resources and assess performance.

The Company’s chief decision-maker

7 unchanged sentences

Actual results could differ from those estimates.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial

Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, which replaces the existing incurred loss

impairment model with an expected credit loss model and requires a financial asset measured at amortized cost to be presented at the net

amount expected to be collected.

Public business entities classified as smaller reporting companies were required to apply the provision

of ASU 2016-13 with annual reporting periods after December 15, 2022.

The Company adopted the standard as of July 1, 2023, and the adoption

of this guidance did not have a material impact on its consolidated financial statements and related disclosures.

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 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 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

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

Pro Forma Results

Consolidated unaudited pro forma results of operations

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

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.

The aggregate cash purchase price consisted of $ 2,855,063 in cash at closing, 833,333 shares of common stock and $ 1,500,000 as earn-out

consideration over the subsequent two-year period.

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 not paid because the required levels of gross profit were not attained.

the Company recognized a gain on the revaluation of the contingent earn-out liability for the final year of the earn-out in the year ended

June 30, 2023.

Net (loss) income

$ ( 871,121 )

Earnings (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 are achievable.

Related Party Transactions

Transactions with Stockholders Known by the

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 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.

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 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.

Acquisition Earn Out Obligations

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, 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 Financing Activities

Bank Line of Credit

On October 4, 2021, the Company entered into

a Loan Agreement with Main Street Bank of Marlborough, Massachusetts, which provided for a $ 2,600,000 Term Loan and a $ 250,000 Revolving

Line of Credit Loan Facility, 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.

On October 4, 2021, the Company entered into a Loan

Agreement with Main Street Bank of Marlborough, Massachusetts (“Lender”), 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

The $1,250,000 line of credit is due on demand and had $ 1,000,000 in borrowings outstanding at June 30, 2024.

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.

The Company’s Loan Agreement with the Lender contains a minimum annual

debt service coverage ratio covenant of 1.2x, for the period ending June 30, 2024.

The Company did not meet this annual debt service coverage

ratio as of such fiscal year end date.

The Company’s Lender has agreed to waive compliance with such debt service ratio covenant

for the period ending June 30, 2024.

In connection with its waiver the Company will pay a waiver fee of $ 5,000 .

In addition to such waiver,

the Lender and the Company have entered into an amendment dated September 30, 2024 to that certain Term Loan dated October 4, 2021, as

amended and that certain Promissory Note dated June 2, 2023 (collectively, the “Notes”) which amendments provide for a six

month period of interest only payments from September 15, 2024 through February 15, 2025 for the Notes.

The Company will begin to pay

principal and interest under the Notes beginning with the payments due on March 15, 2025, with a new amortization schedule for the remaining

term for such Notes through their maturity date.

There were no other changes to or modifications to the Loan Agreement or the Notes.

Long-Term Debt

1 unchanged sentence

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 % per annum.

Term Loan Note payable to Main Street Bank with monthly principal payments of $ 30,952 , excluding six months in Fiscal 2025, 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

Permanent Working Capital Loan payable to Main Street Bank with monthly

principal payments of $ 12,500

excluding six months in Fiscal 2025, plus interest at a fixed rate of 8.625 %

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 June

Less current maturities

1 unchanged sentence

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

At June 30, 2023 principal payments

due on Long Term Debt are as follows:

Schedule of principal payments due term loan note payable

At June 30, 2024 principal payments due on

long-term debt are as follows:

Schedule of principal payments due on loan term debt

Fiscal Year Ending June 30:

2 unchanged sentences

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.

capital lease in the amount of $ 161,977 and in January 2020, the Company entered into a five-year capital lease for $ 47,750 , both for

manufacturing equipment.

The net book value of fixed assets under capital lease obligations as of June 30, 2024 is $ 71,107 .

3 unchanged sentences

Remaining minimum lease payments at June 30, 2024 total $ 46,047 .

Total rent expense including base rent

Total lease costs including base rent

and common area expenses was $ 64,621 and $ 67,534 during the fiscal years ended June 30, 2024 and 2023, respectively.

3 unchanged sentences

Remaining minimum lease payments at June 30, 2024 total $ 144,943 .

Total rent expense including base rent and common area expenses

Total lease costs including base rent and common area expenses

was $ 137,728 and $ 141,351 during the fiscal year ended June 30, 2024 and 2023, 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:

The amount of variable lease payments is

Included in the accompanying balance sheet at June 30, 2024 is a right-of-use asset of $ 189,999 and current and long-term

right-of-use operating lease liabilities of $ 178,450 and $ 11,549 , respectively.

At June 30, 2024 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

6 unchanged sentences

current portion

The Company’s operating leases for its

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

tenant at will basis.

Rent expense on these operating leases was $ 191,088 and $ 203,355 for the fiscal years ended June 30, 2023 and 2022,

respectively.

STOCKHOLDERS’

Compensation Expense

Future minimum long-term lease liability

The Company’s four facilities in Gardner, Massachusetts

which are used for offices, production and storage spaces are leased primarily on a tenant-at-will basis.

Rent expense on these operating

leases was $ 200,678 and $ 191,088 for the fiscal years ended June 30, 2024 and 2023, respectively.

STOCKHOLDERS’ EQUITY

Stock-Based Compensation Expense

The following table summarizes stock-based compensation

expense for the years ended June 30:

Schedule of stock-based compensation expense

Schedule of stock-based compensation

Cost of Goods Sold

21 unchanged sentences

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 2023:

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 2024:

Schedule of fair value of option assumptions

June 30, 2024

June 30, 2023

Risk-free interest rate

4.35 - 4.47 %

Weighted average stock volatility

1 unchanged sentence

Weighted average fair value of grants

(b) Common Stock Issued

In December 2021, the Company issued 3,031 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.

(b) Stock Option Plans

The type of share-based payments currently utilized

11 unchanged sentences

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.

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 likewise authorizes a broad variety of equity based and cash awards.

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 2022, 2021, 2011, and 2006 Plans.

On April 8, 2022, our 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 633,333 shares of the Company’s common stock may be issued pursuant to stock options

or other awards under the 2022 Plan.

At June 30, 2024, options for a total of 485,258 shares of common stock were outstanding and 148,075

shares of common stock were available for future grants under the 2022 Plan.

The 2022 Plan permits the Board of Directors to authorize

and increase of up to 5% of the then outstanding shares on an annual basis.

On May 10, 2021, our Board of Directors approved 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

At June 30, 2024, options for a total of 247,326 shares of common stock were outstanding

under the 2021 Plan and 80,786 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 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, 2024, options for 614,252

shares of common stock were outstanding under the 2011 Plan.

At June 30, 2024, options for a total of 10,899 shares of common stock were

outstanding under the 2006 Plan.

The following tables summarize stock option activity

3 unchanged sentences

Exercise Price

Outstanding at July 1, 2021

Outstanding at June 30, 2022

Cancellations

2 unchanged sentences

Outstanding at June 30, 2024

Information related to the stock options outstanding

as of June 30, 2023 is as follows:

Schedule of stock options outstanding by exercise price range

Exercise Prices

Contractual Life

Exercise Price

$ 1.44 – 6.94

The aggregate intrinsic value of the Company’s

“in-the-money” outstanding and exercisable options as of June 30, 2024, was $ 1,820,411 and $ 1,761,704 , respectively.

Sale of Stock in October 2021

On October 1, 2021, the Company entered into

agreements with accredited investors for the sale and purchase of 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

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

unregistered shares of its common stock to the sellers of Lighthouse Imaging, LLC, valued on that date at $4.80 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 833,333 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.

Sale of Stock in June 2023

2 unchanged sentences

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 used 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 registered

the resale by the investors of 420,000 shares of its common stock purchased in the placement on a registration statement that was filed

on July 20, 2023, and became effective on October 18, 2023.

Sale of Stock in August 2024

On August 14, 2024, the Company entered into agreements

with certain institutional and accredited investors, in addition to certain directors and officers of the Company, for the sale and purchase

of 265,868 shares of the Company’s common stock as further described in Footnote 7, Subsequent Events.

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 $ 1,936 and $ 952 for the years ended June 30, 2023,

and 2022, respectively.

A reconciliation of the federal statutory rate

to the Company’s effective tax rate for the fiscal years ended June 30, 2023 and 2022 is as follows:

consolidated statements of operations consists of the state income tax liability of $ 1,936 for the years ended June 30, 2024, and 2023.

A reconciliation of the federal statutory rate to

the Company’s effective tax rate for the fiscal years ended June 30, 2024 and 2023 is as follows:

Schedule of effective income tax rate reconciliation

20 unchanged sentences

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.

At June 30, 2023, the Company had federal and

state net operating loss carry forwards of approximately $ 12,461,000 and $ 6,076,000 , respectively, which will, if not used, expire at

various dates beginning in fiscal year 2024.

PROFIT SHARING

The Company has a defined contribution 401(k)

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.

At June 30, 2024, the Company had federal and state

net operating loss carry forwards of approximately $ 16,418,000 and $ 8,717,000 , respectively, which will, if not used, expire at various

dates beginning in fiscal year 2025.

PROFIT SHARING PLAN

The Company has a defined contribution 401(k) profit

sharing plan.

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 2023 and 2022.

No employer profit sharing or matching

contributions were made to the plan in fiscal years 2024 and 2023.

SUBSEQUENT EVENTS

On August 14.

2024 the Company entered into securities purchase agreements

with institutional and accredited investors in addition to certain directors and officers of the Company for the purchase and sale of

265,868 shares of the Company’s common stock pursuant to a registered direct offering at a purchase price of $5.25 per share for

the institutional and unaffiliated accredited investors and $5.79 per share for the directors and officers, resulting in gross proceeds

of approximately $1.4 million before deducting placement agent commissions and other estimated offering expenses.

Net proceeds were approximately

$1.2 million.

CHANGES IN AND DISAGREEMENTS

1 unchanged sentence

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