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Item 8. Financial Statements and Supplementary Data

2025-09-29 compared with 2024-09-30 · 319 added, 319 removed, 404 unchanged (61% of the section changed)

FINANCIAL STATEMENTS AND

SUPPLEMENTARY DATA.

FINANCIAL STATEMENTS

AND SUPPLEMENTARY DATA.

Index to Financial Statements

Report of Independent Registered Public Accounting Firm (PCAOB No.

Consolidated Balance Sheets at June 30, 2024 and 2023

Consolidated Statements of Operations for the Years Ended June 30, 2024 and 2023

Consolidated Statements of Stockholders’ Equity for the Years Ended June 30, 2024 and 2023

Consolidated Statements of Cash Flows for the Years Ended June 30, 2024 and 2023

Notes to Consolidated Financial Statements

Balance Sheets at June 30, 2025 and 2024

Statements of Operations for the Years Ended June 30, 2025 and 2024

Statements of Stockholders’ Equity for the Years Ended June 30, 2025 and 2024

Statements of Cash Flows for the Years Ended June 30, 2025 and 2024

Notes to Financial Statements

Report of Independent Registered Public Accounting

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Stockholders of Precision Optics Corporation, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance

sheets of Precision Optics Corporation, Inc.

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

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

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, 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.

Opinion on the Financial Statements

We have audited the accompanying balance sheets

of Precision Optics Corporation, Inc.

(the “Company”) as of June 30, 2025 and 2024, and the related statements of operations,

stockholders’ equity, and cash flows for each of the years in the two year period ended June 30, 2025, and the related notes (collectively

referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects,

the financial position of the Company as of June 30, 2025 and 2024, and the results of its operations and its cash flows for each of the

years in the two year period ended June 30, 2025, in conformity with accounting principles generally accepted in the United States of

Basis for Opinion

These consolidated financial statements are the responsibility

These 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.

Our responsibility is to express an opinion on the Company’s financial statements based on our

We are a public accounting firm registered with the Public Company Accounting Oversight Board (PCAOB) and are required to be independent

with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities

and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the

standards of the PCAOB.

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

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

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

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Our audits included performing procedures to assess

the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures

that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the

consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by

management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide

a reasonable basis for our opinion.

the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond

to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating

the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

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:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and

(2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter

in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit

matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue Recognition — Refer to Note A

to the Consolidated Financial Statements

The critical audit matters communicated below

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

the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our

especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion

on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions

on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue Recognition — Refer to Note

A to the 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.

Our assessment of managements’ evaluation of the above referenced

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.

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 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:

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

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

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September 29, 2025

We have served as the Company’s auditor since

We have served as the Company’s auditor

PRECISION OPTICS CORPORATION, INC.

Consolidated Balance Sheets at June 30, 2024 and

Balance Sheets at June 30, 2025 and 2024

Current Assets:

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Accounts receivable, net of allowance for credit losses of $ 80,192 at June 30, 2025 and $ 118,872 at June 30, 2024

Inventories, net

Prepaid expenses

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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 financial statements.

PRECISION OPTICS CORPORATION, INC.

Consolidated Statements of Operations

Statements of Operations

for the Years Ended June 30, 2025 and 2024

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( 5,551,291 )

Other income (expense)

( 2,724,333 )

Other expense

Interest expense

Gain on revaluation of contingent earn-out liability

Loss before provision for income taxes

( 5,778,310 )

( 2,949,441 )

Provision for income taxes

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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 financial statements.

PRECISION OPTICS CORPORATION, INC.

Consolidated Statements of Stockholders’ Equity

Statements of Stockholders’ Equity

for the Years Ended June 30, 2025 and 2024

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$ ( 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 )

Issuance of common stock in a registered direct offering

Proceeds from exercise of stock option

Exercise of stock options net of 2,916 shares withheld

Issuance of common stock for consulting services and employees

Stock-based compensation

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$ ( 56,970,630 )

The accompanying notes are an integral part of these

consolidated financial statements.

The accompanying notes are an integral part

of these financial statements.

PRECISION OPTICS CORPORATION, INC.

Consolidated Statements of Cash Flows

Statements of Cash Flows

For the Years Ended June 30, 2025 and 2024

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

Gain on revaluation of contingent earn-out liability

Depreciation and amortization

Stock-based compensation expense

Non-cash legal expense

Non-cash interest expense

Non-cash operating lease expense

Changes in operating assets and liabilities:

Accounts receivable, net

( 1,243,535 )

Prepaid expenses

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( 1,034,951 )

Customer advances

Contract liabilities

Accrued compensation and other

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( 3,547,400 )

( 2,683,012 )

Cash Flows from Investing Activities:

Additional patent costs

Reclassification/additional patent costs

Purchases of property and equipment

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Payment of capital lease obligations

Payments of long-term debt

Issuance of long-term debt

Principal payments of long-term debt

Payment of debt issuance costs

Payment of acquisition earn-out liability

Borrowings on revolving line of credit

Gross proceeds from private placements of common stock

(Repayments)/Borrowings on line of credit

( 1,000,000 )

Gross proceeds from registered direct offerings of common stock

Stock issued for services

Gross proceeds from exercise of stock options

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Cash paid during the year for income taxes

The accompanying notes are an integral part of these

consolidated financial statements.

Cash paid during the year for interest

Operating right-of-use assets obtained in exchange for operating lease liabilities

The accompanying notes are an integral part

of these financial statements.

PRECISION OPTICS CORPORATION, INC.

Notes to Consolidated Financial Statements

Notes to Financial Statements

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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:

and (ii) products used by defense contractors, aerospace and

industrial customers.

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;

(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;

(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

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 factors.

Revenues are comprised of the following for year ended June 30, 2025, and 2024:

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Engineering Design Services

Optical Components

Medical Device Products and Assemblies

Systems Manufacturing

Micro Optics Lab

Ross Optical Industries

Total Revenues

Other selling costs to obtain and fulfill contracts

Selling costs to obtain and fulfill contracts

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

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Engineering Design Services

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

The Company enters into contractual agreements

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

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 the

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

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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.

Systems Manufacturing, Micro Optics Laboratory,

Ross Optical Industries

The Company provides fixed price quotations to

our customers and requires purchase orders for items manufactured and distributed through the Systems Manufacturing, Micro Optics Laboratory

and Ross Optical Industries business units.

Revenue 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.

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

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, 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.

As of June 30, 2025 and

2024, there were no contract assets recorded in the Company’s 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:

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

Schedule of contract liabilities

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( 1,949,286 )

( 2,275,740 )

Contract liabilities, end of period

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Finished goods

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.

Total Inventories (Net)

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 reserve for excess and obsolete inventory for the years ended June 30, 2025 and 2024, were $ 272,894

and $ 266,843 ,

respectively.

Fixed assets are recorded at cost.

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:

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

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Furniture and fixtures

Depreciation and amortization expense was $ 212,382

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

Depreciation expense was $ 186,990 and $ 212,382

for the years ended June 30, 2025 and 2024, respectively.

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.

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

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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.

The allowance for credit losses was $ 80,192 at

June 30, 2025, and $ 118,872 at June 30, 2024.

Schedule of allowance for credit losses

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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.

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, 2025.

Loss per Share

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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 1,357,735

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 1,623,576

and 1,357,735 for the years ended June 30, 2025 and 2024, respectively.

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 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

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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.

Long-lived assets such as goodwill and patents

are capitalized when acquired and reviewed for impairment on an annual basis or whenever events or changes in circumstances indicate that

the book value of the asset may not be recoverable.

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

would be indicated if the best estimate of future undiscounted cash flows expected to be generated by the asset grouping is less than

its carrying value.

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

and is recognized in operating income or loss.

Assets to be disposed of are reported at the lower of the carrying amount or fair value

less costs to sell.

No such impairments of goodwill or patents have been estimated by management during the years ended June 30, 2025

Amortization expense for the year ended June 30, 2025 and 2024 was $ 25,448 and $ 0 , respectively.

Fair Value of Financial Instruments

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Research and Development

Research and development expenses are charged to operations

Research and development expenses are charged

to operations as incurred.

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, 2024, and 2023.

There were no reimbursements for research and development recorded in research and development for the years ended June 30, 2025, and

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.

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, 2025 and 2024 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

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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.

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

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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.

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.

In December 2023, the FASB issued ASU No.

Improvements to Income Tax Disclosures (Topic 740).

The guidance requires disclosure of disaggregated income taxes paid, prescribes standardized

categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures.

will be effective for us beginning with our annual reporting for fiscal year 2026, with early adoption permitted.

We are currently evaluating

the impact of this standard on our income tax disclosures.

In November 2024, the FASB issued ASU 2024-03,

Income Statement - Reporting Comprehensive Income (Topic 220):

Expense Disaggregation Disclosures.

Additionally, in January 2025, the

FASB issued ASU 2025-01 to clarify the effective date of ASU 2024- 03.

This ASU provides guidance to expand disclosures related to the

disaggregation of income statement expenses.

This ASU also requires, in the notes to the financial statements, disclosure of specified

information about certain costs and expenses which includes purchases of inventory, employee compensation, depreciation, and intangible

asset amortization included in each relevant expense caption.

ASU 2025-01 is effective for fiscal years beginning after December 15, 2026,

and interim periods within annual reporting periods beginning after December 15, 2027, on a retrospective or prospective basis, with early

adoption permitted.

This ASU will be effective for the Company’s Form 10-K for fiscal 2028 and Form 10-Q filed thereafter.

is currently evaluating the impact this ASU may have on our financial statement disclosures.

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 (“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.

Bank Term Loan and Line of Credit

On October 4, 2021, the Company entered into a

Loan Agreement with Main Street Bank of Marlborough, Massachusetts (the “Lender”), which provided for a $2,600,000 Term Loan

and a $250,000 Revolving Line of Credit Loan Facility (the “Revolver”), which was increased to $500,000 effective May 17,

2022, and $1,250,000 effective June 2, 2023.

Borrowings under the Revolver are limited by the borrowing base comprised of a percentage

of accounts receivable and inventory and secured by all assets of the Company.

Borrowings under the Revolver will 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 Revolver are due

There were no borrowings under the Revolver at June 30, 2025.

The Company’s Loan Agreement with the Lender

contains a minimum annual debt service coverage ratio covenant of 1.2x.

The Company did not meet this annual debt service coverage ratio

for the fiscal year ended June 30, 2024.

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.

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 October 15, 2024 through March

15, 2025 for the Notes.

The Company commenced payments of principal and interest under the Notes beginning with the payments due on April

15, 2025, with a new amortization schedule for the remaining term for such Notes through their maturity date.

On February 14, 2025, the

lender agreed to waive compliance with the annual debt service coverage ratio covenant for the fiscal year ending June 30, 2025, subject

to a $30,000 waiver fee and the completion of an equity raise of at least $4,500,000 by February 24, 2025, which the Company satisfied

on February 21, 2025.

Any future advances are contingent on the Company achieving a minimum Debt Service Coverage ratio of 1.20x based

on quarterly testing.

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

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Long-term debt consists of the following at June

30, 2025 and 2024:

Schedule of long-term debt

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.

Term Loan Note payable to Main Street Bank with monthly principal payments of $ 35,271 , excluding six months in Fiscal 2025, 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

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

Permanent Working Capital Loan payable to Main Street Bank with monthly principal payments of $ 14,423 , excluding six months in Fiscal 2025, 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 $ 29,756

and $14,360, respectively.

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

At June 30, 2024 principal payments due on

long-term debt are as follows:

Schedule of principal payments due on loan term debt

At June 30, 2025 principal payments due

on long-term debt are as follows:

Schedule of principal payments due on term loan note payable

Fiscal Year Ending June 30:

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three years through June 2025.

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

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.

On October 4, 2021

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

The lease expires on July 31,

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

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.

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

In May 2025, this lease was extended for an additional three years through May 2028.

Remaining minimum

lease payments at June 30, 2025 total $ 148,029 .

Total lease costs including base rent and common area expenses was $ 67,552 and $ 64,621

during the fiscal years ended June 30, 2025 and 2024, respectively.

On October 4, 2021 the Company assumed the remaining term of the Windham

Maine lease as part of the Lighthouse acquisition.

The lease expired on July 31, 2025.

Remaining minimum lease payments at June 30, 2025

total $ 11,477 .

Total lease costs including base rent and common area expenses was $ 137,728 and $ 137,728 during the fiscal year ended June

30, 2025 and 2024, respectively.

The amount of variable lease payments is immaterial.

Included in the accompanying balance sheet at June

30, 2025 is a right-of-use asset of $ 141,825 and current and long-term right-of-use operating lease liabilities of $ 50,995 and $ 90,954 ,

respectively.

On May 15, 2025 the Company entered into an seven-year

lease in South Portland, Maine with two five-year extension options.

On June 2, 2025 the Company entered into a seven-year operating lease

in Littleton, Massachusetts with two five-year extension options.

As of June 30, 2025, the Company had entered into

additional operating leases with total fixed payment obligations of $ 3.8 million that have not yet commenced.

The leases are expected

to commence in fiscal year 2026 and have initial lease terms of approximately 8 years.

At June 30, 2025 future minimum lease payments

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

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

Fiscal Year Ending June 30:

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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.

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.

on these operating leases was $ 206,309 and $ 200,678 for the fiscal years ended June 30, 2025 and 2024, respectively.

STOCKHOLDERS’ EQUITY

4 unchanged sentences

Cost of Goods Sold

Research and Development Expenses

Selling, General and Administrative Expenses

1 unchanged sentence

As of June 30, 2025, the unrecognized compensation

costs related to options vesting in the future is $ 1,053,617 .

costs related to options vesting in the future was $ 1,409,980 .

No compensation has been capitalized because such amounts would have been

15 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 2024:

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 2025:

Schedule of fair value of option assumptions

3 unchanged sentences

4.02 - 4.52 %

4.35 - 4.47 %

Weighted average stock volatility

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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.

and increase 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

1 unchanged sentence

At June 30, 2025, options for a total of 264,495 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.

under the 2021 Plan.

No further shares may be issued from this 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, 2025, options for 482,990

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

At June 30, 2025, options for a total of zero shares of common stock were

outstanding under the 2006 Plan.

11 unchanged sentences

“in-the-money” outstanding and exercisable options as of June 30, 2025, was $ 833,438 and $ 787,363 , respectively.

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 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

1 unchanged sentence

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.

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.

Sale of Stock in February 2025

On February 19, 2025, the Company entered into

agreements with certain institutional and accredited investors for the sale and purchase of 1,272,500 unregistered shares of its common

stock, $ 0.01 par value at a purchase price of $ 4.00 per share, resulting in gross proceeds of approximately $ 5.1 million before deducting

placement agent commissions and other estimated offering expenses.

The Company used the net proceeds from this placement for general

working capital needs and paydown of the Company’s line of credit.

The Company has identified its federal tax return

7 unchanged sentences

consolidated statements of operations consists of the state income tax liability of $ 1,936 for the years ended June 30, 2025, and 2024.

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:

A reconciliation of the federal statutory rate

to the Company’s effective tax rate for the fiscal years ended June 30, 2025 and 2024 is as follows:

Schedule of effective income tax rate reconciliation

4 unchanged sentences

Stock based compensation

Net Operating Loss Utilization

Revaluation of contingent earn out liability

Nondeductible items

12 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, 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.

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, 2025, the Company had federal and

state net operating loss carry forwards of approximately $ 23,116,000 and $ 11,674,000 , respectively, which will, if not used, expire at

various dates beginning in fiscal year 2026.

PROFIT SHARING PLAN

The Company has a defined contribution 401(k) 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.

1 unchanged sentence

contributions were made to the plan in fiscal years 2025 and 2024.

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