Precision Optics (POCI) 10-K 2023 FY Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2023

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________   to __________

Commission File Number 001-10647

PRECISION OPTICS CORPORATION, INC.

(Exact name of registrant as specified in its charter)

Massachusetts	04-2795294
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)

22 East Broadway

Gardner, Massachusetts 01440

(Address of principal executive offices) (Zip Code)

(978) 630-1800

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value	POCI	Nasdaq

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. ☐ Yes ☒ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act. ☐ Yes ☒ No

The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant on June 30, 2023 was approximately $28,343,118 based on a total of 4,608,637 shares of the registrant’s common stock held by non-affiliates on June 30, 2023, at the closing price of $6.15 per share, as reported on Nasdaq on June 30, 2023.

The number of shares of outstanding common stock of the registrant as of September 22, 2023 was 6,066,518.

Documents incorporated by reference: None.

PRECISION OPTICS CORPORATION, INC.

FORM 10-K

TABLE OF CONTENTS

			PAGE
PART I
	Item 1.	Business	1
	Item 1A.	Risk Factors	6
	Item 2.	Properties	6
	Item 3.	Legal Proceedings	7
	Item 4.	Mine Safety Disclosures (Not applicable.)	7
PART II
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	8
	Item 6.	Selected Financial Data	8
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	11
	Item 8.	Financial Statements and Supplementary Data	11
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	12
	Item 9A.	Controls and Procedures	12
	Item 9B.	Other Information	12
PART III
	Item 10.	Directors, Executive Officers and Corporate Governance	13
	Item 11.	Executive Compensation	13
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	13
	Item 13.	Certain Relationships and Related Transactions, and Director Independence	13
	Item 14.	Principal Accounting Fees and Services	13
PART IV
	Item 15.	Exhibits, Financial Statement Schedules	14
	Item 16.	Form 10-K Summary	17
		Signatures	18

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PART I

This Annual Report contains forward-looking statements as defined under the federal securities laws. All statements other than statements of historical facts included in this Annual Report on Form 10-K regarding our financial performance, business strategy and plans and objectives of management for future operations and any other future events are forward-looking statements and based on our beliefs and assumptions. When used in this report, the words “anticipate,” “suggest,” “estimate,” “plan,” “project,” “continue,” “ongoing,” “potential,” “expect,” “predict,” “believe,” “intend,” “may,” “will,” “should,” “could,” “would” and other similar words are one way to identify such forward-looking statements. You should not place undue reliance on these forward-looking statements. Actual results could vary materially from these forward-looking statements. Such statements reflect our current view with respect to future events and are subject to certain risks, uncertainties, and assumptions including, without limitation, those risks and uncertainties contained in the Risk Factors section of this Annual Report on Form 10-K and our other filings made with the SEC. Although we believe that our expectations are reasonable, we can give no assurance that such expectations will prove to be correct. Based upon changing conditions, any one or more of these events described herein as anticipated, believed, estimated, expected or intended may not occur. All prior and subsequent written and oral forward-looking statements attributable to our Company or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement. We do not intend to update any of the forward-looking statements after the date of this Annual Report to conform these statements to actual results or to changes in our expectations, except as required by law.

ITEM 1.       BUSINESS.

Overview

We have been a developer and manufacturer of advanced optical instruments since 1982. Our proprietary medical instrumentation line, unique custom design and manufacturing capabilities, and expert engineering and development has generated traditional proprietary endoscopes and endocouplers as well as other custom imaging and illumination products for our customers’ use in minimally invasive surgical procedures. We design and manufacture 3D endoscopes and very small Microprecision lenses, assemblies and complete medical devices to meet the surgical community’s continuing demand for smaller, disposable, and more enhanced imaging systems for minimally invasive surgery. 

Effective June 1, 2019 we acquired the operating assets of Ross Optical Industries, Inc. of El Paso, Texas. As Ross Optical Industries we also operate as a supplier of custom optical components and assemblies for military and defense, medical and various other industrial applications. All products sold by us under the Ross Optical name include a custom or catalog optic, which is sourced through our extensive domestic and worldwide network of optical fabrication suppliers. Most systems make use of optical lenses, prisms, mirrors and windows and range from individual optical components to complex mechano-optical assemblies. Products often include thin film optical coatings that are applied using our in-house coating department.

Effective October 1, 2021 we acquired the operating assets of Lighthouse Imaging, LLC of Windham, Maine. Our Lighthouse Imaging division supplements our operations as a manufacturer of advanced optical imaging systems and accessories and has provided further expertise in electrical engineering and development of end-to-end medical visualization devices. Product development competencies at Lighthouse Imaging include Systems, Optical, Mechanical, Electrical and Process Development Engineering. Our product development team has extensive experience developing visualization systems that are used in a variety of clinical applications. Lighthouse Imaging is an industry leader in chip-on-tip visualization systems.

During the fiscal year ended June 30, 2022, approximately 34% our business was from engineering services primarily relating to the design of medical device optical assemblies, 41% from the sale of both internally manufactured and purchased optical components, and 25% from the manufacture of optical assemblies and sub-assemblies primarily for medical device instrument applications. During the fiscal year ended June 30, 2023, approximately 32% our business was from engineering services primarily relating to the design of medical device optical assemblies, 50% from the sale of both internally manufactured and purchased optical components, and 18% from the manufacture of optical assemblies and sub-assemblies primarily for medical device instrument. We expect sales revenue increases to result from assembly and manufacturing orders received from our customers for the products we assist them in designing using our unique optical product design and manufacturing capabilities. Much of the technology we have developed for making smaller medical devices can also be used in defense and aerospace systems where smaller size and weight can be beneficial.

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History

We incorporated in Massachusetts in December 1982 and have been publicly-owned since November 1990 and have no subsidiaries.

Our websites are www.poci.com, www.rossoptical.com, and www.lighthouseoptics.com. Information contained on our websites does not constitute part of this report.

Principal Products and Services

Our Current Core Business: Since 1982, we have manufactured medical products such as endoscopes and endocouplers. We have developed and sold endoscopes incorporating various optical technologies, for use in a variety of minimally invasive surgical and diagnostic procedures. Today, we produce endoscopes for various applications, which are CE marked and therefore certified for sale throughout the European Economic Area. Since 1985, we have developed, manufactured and sold a proprietary product line of endocouplers. We also design and manufacture custom optical medical devices to satisfy our customers’ specific requirements. In addition to medical devices, we also manufacture and sell components and assemblies specially designed for industrial and military use.

The acquisition of the assets of Ross Optical Industries expanded our optics components and assemblies business. All products supplied by Ross Optical include a custom or catalog optic, which is sourced through Ross Optical’s extensive domestic and worldwide network of optical fabrication suppliers. Most systems make use of optical lenses, prisms, mirrors and windows and range from individual optical components to complex mechano-optical assemblies. Products often include thin film optical coatings that are applied by the Ross Optical division in-house coating department.

The acquisition of the assets of Lighthouse Imaging LLC expanded our electrical engineering and development of end-to-end medical visualization devices. Product development competencies at Lighthouse Imaging include systems, optical, mechanical, electrical and process development engineering. The Lighthouse product development team has extensive experience developing visualization systems that are used in a variety of clinical applications representing a vertical integration of our established product development capabilities we believe will provide our customers with value-added product development service and product offerings.

Microprecision™ Lenses and Micro Medical Cameras: While the size of endoscopes has gradually decreased over time, the widespread use of very small endoscopes, with diameters of one millimeter or smaller, has been limited, in part, we believe, by the inability of traditional lens fabrication methods to support these smaller sizes with good image quality and acceptable manufacturing costs. We believe our Microprecision™ optics technology provides a solution to this problem. Combined with recent advances by other companies in complementary metal-oxide-semiconductor, or CMOS, image sensor fabrication techniques, our Microprecision™ lenses and proprietary manufacturing techniques enable the manufacture of micro medical cameras at low prices and with sizes on the order of one millimeter or less, characteristics that make them well suited to medical applications. We believe the technology developed to support the design, fabrication and manufacturing of Microprecision™ lenses and associated assemblies can also be used to satisfy the needs of defense and aerospace systems that require small size and weight. 

We are currently engaged in development projects to design and produce even smaller CMOS based camera modules together with customized illumination using various technologies to match the needs of the medical device endoscopes. We are also currently designing disposable versions of our camera modules and assemblies designed for single-use and reduced risk of contamination from repeated use. We believe these on-going improvements are significant to the continued evolution and acceptance of our Microprecision™ technology platform. 

3D Endoscopes: Our 3D endoscopes provide next generation optical imaging for minimally invasive surgical procedures that utilize hand-held rigid endoscopes by using the brain’s natural ability to perceive depth, which is the third dimension, by viewing one’s environment through two eyes. Utilizing our proprietary technology to provide independent images to right and left eyes, surgeons can view the operative field with 3D perception.

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Competition and Markets

We sell our products in highly competitive markets and we compete for business with both foreign and domestic manufacturers. Many of our current competitors are larger than us and have substantially greater resources than we do. In addition, there is an ongoing risk that other domestic or foreign companies who do not currently service or manufacture products for our target markets, some with greater experience in the optics industry and greater financial resources than we have, may seek to produce products or services that compete directly with ours.

While our resources are substantially more limited than those of some of our competitors, we believe that we can compete successfully in this market based on product quality, price, delivery and innovation tailored to our customers’ specifications. Our success will depend, in part, on our ability to maintain a technological advantage over our competitors and to effectively incorporate that technology into our custom designs. To this end, we intend to continue to aggressively support and augment our internal engineering, research and development resources and to aggressively pursue patent protection for existing and new technology. We believe that our unique technical capabilities in the areas of Microprecision™ optics, micro medical cameras and illumination, as well as 3D endoscopes, currently represent competitive advantages for us in the minimally invasive surgical device market. We recently augmented and extended these capabilities with the acquisition of Lighthouse Imaging which brings to the Company extensive experience with design and manufacture of minimally invasive optical imaging surgical devices, particularly those utilizing CMOS sensor and associated electronics technologies.

The competitive advantage of our Ross Optical division is its ability to provide difficult-to-find optics, and, increasingly, to provide a broader range of services based on its ability to source optics worldwide, augmented by its ability to provide thin-film coatings and assembly.

Market Opportunities

Microprecision™ Lenses and Micro Medical Cameras: While other approaches exist for the manufacture of camera lenses, we design custom camera module assemblies with the combined objectives of low cost, small size, range of optical specifications and high image quality required by our customer’s precise medical device specifications. By enabling the production of millimeter sized and smaller cameras with low manufacturing costs, we believe our Microprecision™ technology opens the possibility to replace existing re-sterilizable endoscopes with a single-use alternative. Also, the small size of our Microprecision™ lenses and micro medical cameras combined with our proprietary illumination techniques can provide visualization for existing procedures that are currently performed blind or with sub-optimal imaging, and we believe can facilitate the development of new surgical procedures that are currently impractical without sub-millimeter visualization instrumentation. 

3D Endoscopes and Robotic Surgery Systems: 3D endoscopes have been used for many years as part of robotic surgery systems partly because the market price of robotic surgery systems is high enough to support the cost of a high-quality custom 3D display. Competition amongst medical device companies, many of which are our customers for other products, in the area of 3D robotic surgery systems is increasing, and various companies are now pursuing less expensive, procedure specific robotic systems. We believe our experience and expertise in 3D endoscopes for medical applications could be a benefit to various companies in this area that could provide us with new product development and manufacturing opportunities.

Sales and Marketing

Current sales and marketing activities are intended to broaden awareness of the benefits of our new technology platforms and our successful application of these new technologies to medical device projects requiring surgery-grade visualization, as well as defense, aerospace and other industrial applications, from sub-millimeter sized devices and 3D endoscopy, including single-use products and assemblies. We market directly to established medical device companies primarily in the United States that we believe could benefit from our advanced endoscopy visualization systems. Through this direct marketing, referrals, attendance at trade shows and a presence in online professional association websites, we have expanded our on-going pipeline of projects to significant medical device companies and to well-funded emerging medical device companies, and to a number of major defense / aerospace companies.. We expect our customer pipeline to continue to expand as development projects transition to production orders and new customer projects enter the development phase.

3

International Business

Our medical products have received the CE mark certification, which permits sales into the European Economic Area and which benefits our customers as they market their products manufactured by us or containing our sub-assemblies into markets outside the United States. We acquire various optical components from overseas as necessary to meet the needs of custom device designs. We believe that the availability of specialized components and cost savings from various overseas production resources is essential to our ability to deliver complex and unique device designs and to compete on a price basis in the medical products area particularly and to our profitability generally. We have an expanded network of overseas suppliers of various types and sizes of optical components and assemblies that enhance our ability to meet the material demands of our customers’ unique optical and medical device designs. 

Research and Development

We believe that our future success depends, to a large degree, on our ability to continue to conceive and develop new optical products and technologies to enhance the performance characteristics and methods of manufacture of existing and new products. Although development work on behalf of customers is almost entirely performed under revenue generating contracts and customer purchase orders, research and development expenses are incurred on our own proprietary products and technology, such as Microprecision™ optics, micro medical cameras and 3D endoscopes. Accordingly, we treat engineering expenses not consumed in customer contracted development and our investment of funds and resources in internal product and intellectual property development as research and development expense in the accompanying statement of operations.

Raw Materials and Principal Suppliers

A key raw material component for our products is precision grade optical glass, which we obtain from a few suppliers, principally SCHOTT North America, Inc. and Ohara Corporation. 

We obtain CMOS sensors used in the development of endoscope products for our customers from various suppliers such as OmniVision Technologies, Inc. We believe that while the number of sources of supply is limited for the CMOS sensors with the specifications used in medical device endoscopes we develop; the manufacturing capacities of those suppliers is adequate to meet our demand in the next twelve months.

Patents and Trademarks

We rely, in part, upon patents, trade secrets and proprietary knowledge as well as personnel policies and employee confidentiality agreements concerning inventions and other creative efforts to develop and maintain our competitive position. We plan to file for patents, copyrights and trademarks in the United States and in other appropriate countries to protect our intellectual property rights to the greatest extent practicable. We currently hold rights to various United States patents, and have patent applications pending, including applications for our new generation of micro medical cameras. Our current patent portfolio includes patents, rights to patents and patent applications that cover various aspects of our technology in the following areas:

— Medical devices;

— 3-D endoscopes;

— Microprecision™ lenses and micro medical cameras;

— Defense products.

The patents contained in our current patent portfolio have various expiration dates through March 2043. We are not aware of any infringements of these patents. While we believe that our pending applications relate to patentable devices or concepts, these patents may not ultimately be issued and we may not be able to successfully defend these patents or effectively limit the development of competitive products and services. We intend to continue to innovate and extend our technological capabilities in the areas of 3-D endoscopy Microprecision™ optics, micro medical cameras, and related illumination techniques, and to aggressively pursue patent protection for such developments.

4

Employees

As of June 30, 2023, we had 85 employees, 84 of which were full-time employees. There were 43 employees in manufacturing, 20 in engineering/research and development, 8 in sales and marketing, and 14 in finance and administration. We are not a party to any collective bargaining agreements. We believe our relations with our employees are very good.

Customers

During fiscal year ended June 30, 2023 we sold product and services to 361 customers and one customer accounted for 11.4% of our total revenues for that year. The loss of this customer would not have a material impact on our business. For the fiscal year ended June 30, 2022, we sold products and services to 377 customers and no customer accounted for more than 10% of our total revenues for that year.

Two customer accounts receivable balances accounted for 14.0% and 13.7% of total receivables on June 30, 2023. No customer accounts receivable balance accounted for more than 10% of accounts receivable on June 30, 2022.

Environmental Matters

Our operations are subject to a variety of federal, state and local laws and regulations relating to the discharge of materials into the environment or otherwise relative to the protection of the environment. From time to time, we use a small amount of hazardous materials in our operations. We believe that we currently comply with all applicable environmental laws and regulations and intend to do our best efforts to remain in compliance. Such compliance does not entail significant expense to us.

Government Regulations

Domestic Regulation. We currently develop, manufacture and sell several medical products, the marketing of which is subject to governmental regulation in the United States. Medical devices are regulated in the United States by the Food and Drug Administration, or FDA, and, in some cases, by certain state agencies. The FDA regulates the research, design, testing, manufacture, safety, effectiveness, labeling, promotion and distribution of medical devices in the United States. Generally, medical devices require clearance or approval prior to commercial distribution. Additionally, certain material changes to, and changes in, intended uses of, medical devices are also subject to FDA review and clearance or approval. Non-compliance with applicable requirements can result in failure of the FDA to grant pre-market clearance or approval, withdrawal or suspension of approval, suspension of production, or the imposition of various other penalties.

We previously notified the FDA of our intent to market our endoscopes, image couplers, beamsplitters, adapters and video ophthalmoscopes, and the FDA has determined that we may market such devices, subject to the general control provisions of the Food, Drug and Cosmetic Act. We obtained this FDA permission without the need to undergo a lengthy and expensive approval process due to the FDA’s determination that such devices met the regulatory standard of being substantially equivalent to existing FDA-approved devices.

In the future, we plan to market additional medical devices that may require the FDA’s permission to market such products. We may also develop additional products or seek to sell some of our current or future medical products in a manner that requires us or our customers to obtain the permission of the FDA to market such products, as well as the regulatory approval or license of other federal, state and local agencies or similar agencies in other countries. The FDA has authority to conduct detailed inspections of manufacturing plants in order to assure that “good manufacturing practices” are being followed in the manufacture of medical devices including medical devices or components of medical devices manufactured for other medical device companies, to require periodic reporting of product defects to the FDA, and to prohibit the sale of devices which do not comply with law.

5

We design and manufacture components for the defense industry, and import, export and manufacture optical products for the defense industry, some of which is controlled by U.S. regulations. Generally, these regulations require strict control over technical data in documented form and as embodied in products, both within our company and as part of exported shipments. In particular, we maintain a technology control plan, we are ISO certified and ITAR (International Traffic in Arms Regulations) registered with the U.S. State Department and we maintain a number of technology assistance agreements with overseas suppliers that have been approved by the U.S. State Department. Non-compliance with applicable requirements can result in U.S. actions that may result in withdrawal or suspension of approvals, suspension of company imports, exports or production, or the imposition of fines or various other penalties.

Foreign Requirements. Sales of medical device products outside the United States are subject to foreign regulatory requirements that may vary from country to country. Our failure to comply with foreign regulatory requirements would jeopardize our ability to market and sell our products in foreign jurisdictions. The regulatory environment in the European Union member countries of the European Economic Area for medical device products differs from that in the United States. Medical devices sold in the European Economic Area must bear the Conformité Européenne, or CE mark. Devices are classified by manufacturers according to the risks they represent, with a classification of Class III representing the highest risk devices and Class I representing the lowest risk devices. Once a device has been classified, the manufacturer can follow one of a series of conformity assessment routes, typically through a registered quality system, and demonstrate compliance to a “European Notified Body.” The CE mark may then be applied to the device. Maintenance of the system is ensured through annual on-site audits by the notified body and a post-market surveillance system requiring the manufacturer to submit serious complaints to the appropriate governmental authority. All of our medical products are manufactured in conformity with the CE mark requirements.

Available Information

Our website is www.poci.com. We make available on our website, free of charge, copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, as soon as reasonably practicable after we electronically file or furnish such materials to the U.S. Securities and Exchange Commission (SEC). Our website and the information contained therein or connected thereto are not intended to be incorporated into this report.

The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.

ITEM 1A.    RISK FACTORS.

Smaller reporting companies are not required to provide the information required by this item.

ITEM 2.       PROPERTIES.

We conduct our domestic operations at three facilities in Gardner, Massachusetts, one facility in El Paso, Texas, and one facility in Windham, Maine. The facilities in El Paso and Windham are leased from unrelated parties. The Company leases its primary facility in Gardner, Massachusetts from Equity Assets, Inc. (“EAI”), an entity formerly owned by the Company’s founder Richard E. Forkey and then later owned by a trust controlled by his step-daughter, established for the benefit of the step-daughter and four siblings (including Joseph N. Forkey, who is Chief Executive Officer, President, Treasurer and a Director of the Company). The original lease for the principal facility in Gardner expired in 1999, and the Company has since been a tenant-at-will, paying rent to EAI of $9,000 per month for that facility. On July 19, 2023, the trust distributed the EAI shares equally among the five beneficiaries (20% each). Those shareholders then entered into a shareholder agreement under which all five were elected as directors and under which Joseph N. Forkey has been elected as president. The shareholder agreement provides that Dr. Forkey will be recused from any matters involving negotiations with the Company, including without limitation any lease negotiations. Dr. Forkey is not compensated by EAI for his services as president or a director, and his present 20% interest in rents being received from the Company is $21,600 per year.

6

The Company for many years has also been a tenant-at-will at the other two Gardner facilities, paying rent to unrelated parties.

We believe these facilities in Gardner, El Paso and Windham are adequate for our current operations and are adequately covered by insurance. Significant increases in production or the addition of significant equipment additions or manufacturing capabilities in connection with the production of our line of endoscopes and other products may, however, require improvements to existing facilities or the acquisition or lease of additional facilities.

ITEM 3.       LEGAL PROCEEDINGS.

Our Company, on occasion, may become involved in legal matters arising in the ordinary course of our business, which could have a material adverse effect on our business, financial condition or results of operations. We are not currently aware of any pending or threatened litigation against us or our officers and directors in their capacity as such that could have a material impact on our operations or finances.

ITEM 4.       MINE SAFETY DISCLOSURES.

Not applicable.

7

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information

Our common stock is quoted on the Nasdaq Stock Market under the symbol POCI.

Holders

As of September 26, 2023, we had approximately 144 holders of record of our common stock. Holders of record include nominees who may hold shares on behalf of multiple owners.

Dividends

We have not declared any dividends during the last two fiscal years. At present, we intend to retain our earnings, if any, to finance research and development and the expansion of our business.

Recent Sales of Unregistered Securities

On June 15, 2023, the Company entered into agreements, including a Stock Purchase Agreement and other related agreements (collectively, the “Purchase Agreements”), with certain institutional and accredited investors calling for the purchase and sale of 420,000 shares of common stock at a purchase price of $6.00 per share. The stock issuance closed on June 20, 2023, resulting in $2.52 million of gross proceeds to the Company. The Purchase Agreements oblige the Company to register the purchased shares for resale by those investors.

ITEM 6.       SELECTED FINANCIAL DATA. [RESERVED]

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ITEM 7.       MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis should be read in conjunction with the Financial Statements and Notes thereto, and other financial information included elsewhere in this Annual Report on Form 10-K. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains descriptions of our expectations regarding future trends affecting our business. The following discussion sets forth certain factors we believe could cause actual results to differ materially from those contemplated by the forward-looking statements.

Critical Accounting Policies and Estimates

Our critical accounting policies are included in the Notes to our Financial Statements contained elsewhere in this Annual Report on Form 10-K.

Results of Operations for the Fiscal Year Ended June 30, 2023 as Compared to the Fiscal Year Ended June 30, 2022

Total revenues for the fiscal year ended June 30, 2023 were $21,044,467, as compared to $15,678,248 for the same period in the prior year, an increase of $5,366,219, or 34.2%. Optical component revenue increased approximately $4,042,000 in fiscal year 2023 compared to fiscal year 2022, while engineering revenue increased approximately $1,357,000, and assembly production revenues were virtually unchanged during the same period. The increases in optical components were largely driven by large orders from defense/aerospace customers. Increases in the engineering revenue year over year are primarily due to improved timing of certain programs while the pipeline for these revenue sources remains strong.

Gross profit for fiscal year ended June 30, 2023 of $7,734,136, reflected an increase of $2,805,949, or 56.9%, as compared to gross profit for fiscal year 2022 of $4,928,187, and was benefited from a one-time sale of technology rights in the amount of $600,000 as well as overall increased revenue. Gross profit, as a percentage of revenues for fiscal year 2023, was 36.8% as compared to gross profit, as a percentage of revenues for fiscal year 2022, of 31.4%, due in part to improved utilization of our engineering and manufacturing resources. Gross profit and gross profit percentage for any given fiscal period depend on a number of factors, including overall sales volume, facility utilization, product sales mix, the nature and costs of engineering services, design challenges and changes, production start-up costs, customer-imposed project changes or delays, and the effects of COVID-19 pandemic policy decisions on various economies and our suppliers and customers, as well as the effects on production efficiencies due to the augmented policies we have incorporated into our operations as a result of the COVID-19 pandemic.

Research and development expenses were $809,877, or 3.8% of revenue for fiscal year 2023 as compared to $666,479, or 4.3% of revenue for fiscal year 2022, and increase of $143,398, or 21.5%.

Selling, general and administrative expenses were $7,740,562 for the fiscal year ended June 30, 2023, compared to $5,613,473 for the same period in the prior year, an increase of $2,127,089, or 37.9%. The increase in selling, general and administrative expenses in the year ended June 30, 2023 was primarily due to increased marketing related expenses, additions to our sales and administrative teams due to the growth of the overall organization and higher bad debt expense.

The income tax provisions in fiscal years 2023 and 2022 represent the minimum statutory state income tax liability.

9

Liquidity and Capital Resources

We have sustained recurring net losses for several years. During the years ended June 30, 2023 and 2022 we incurred operating losses of $638,548 and $1,513,890, respectively. At June 30, 2023, our cash and cash equivalents were $2,925,852, accounts receivable were $3,907,407, and current liabilities were $5,259,620, including $1,174,690 of customer advances received for future order deliveries.

In connection with our October 2021 acquisition of Lighthouse Imaging, we entered into a $2,600,000 bank term loan, and sold shares of our common stock for gross proceeds of $1,500,000. We also secured a $250,000 bank line of credit from the same bank in October 2021 for working capital needs, which was increased to $500,000 in May 2022. In June 2023 we added a second term loan in the amount of $750,000 and increased our line of credit to $1,250,000. There were no borrowings outstanding on the line of credit on June 30, 2023. On June 20, 2023, we raised $2,288,000 net of expenses through a private placement of 420,000 shares of our common stock.

Capital equipment expenditures and additional patent costs during fiscal year 2023 and fiscal year 2022 were $52,497 and $152,740, respectively. The level of future capital equipment and patent expenditures will depend on future sales and success of on-going research and development efforts.

Contractual cash commitments for the fiscal years subsequent to June 30, 2023, are summarized as follows:

	Fiscal 2024		Thereafter		Total
Capital lease for equipment, including interest	$	48,619	$	71,923	$	120,542
Minimum operating lease payments	$	182,652	$	195,252	$	377,904

We have contractual cash commitments related to open purchase orders as of June 30, 2023 of approximately $1,981,592.

Material Trends and Uncertainties

We currently have no material trends or uncertainties that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

10

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item. 

ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Index to Financial Statements

	Page
Report of Independent Registered Public Accounting Firm (PCAOB No. 577)	F-1
Consolidated Balance Sheets at June 30, 2023 and 2022	F-3
Consolidated Statements of Operations for the Years Ended June 30, 2023 and 2022	F-4
Consolidated Statements of Stockholders’ Equity for the Years Ended June 30, 2023 and 2022	F-5
Consolidated Statements of Cash Flows for the Years Ended June 30, 2023 and 2022	F-6
Notes to Consolidated Financial Statements	F-7

11

Report of Independent Registered Public Accounting Firm

To the Board of Directors and
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, 2023 and 2022, 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, 2023, 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.

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. 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. Accordingly, we express no such opinion.

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.

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 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

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.

F-1

Our assessment of managements’ evaluation of the above referenced matters related to proper revenue recognition is significant to our audit because the amounts are material to the financial statements, the assessment process involves significant judgment, and the application of U.S. generally accepted accounting principles in this area is complex.

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:

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

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

o Assessed the terms in the customer agreement and evaluated the appropriateness of management's application of the Company’s accounting policies, along with their use of estimates, in the determination of revenue recognition conclusions.

/s/ Stowe & Degon LLC      

We have served as the Company’s auditor since 2008

Westborough, Massachusetts

September 28, 2023

F-2

PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES

Consolidated Balance Sheets at June 30, 2023 and 2022

	2023			2022
ASSETS
Current Assets:
Cash and cash equivalents	$	2,925,852		$	605,749
Accounts receivable, net of allowance for doubtful accounts of $606,715 at June 30, 2023 and $44,135 at June 30, 2022		3,907,407			2,663,872
Inventories		2,776,216			3,022,147
Prepaid expenses		249,681			213,448
Total current assets		9,859,156			6,505,216
Fixed Assets:
Machinery and equipment		3,227,481			3,215,412
Leasehold improvements		825,752			843,903
Furniture and fixtures		242,865			219,999
Total fixed assets		4,296,098			4,279,314
Less—Accumulated depreciation and amortization		3,862,578			3,651,843
Net fixed assets		433,520			627,471
Operating lease right-to-use asset		358,437			517,725
Patents, net		265,111			229,398
Goodwill		8,824,210			8,824,210
TOTAL ASSETS	$	19,740,434		$	16,704,020
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current portion of capital lease obligation	$	43,209		$	40,705
Current maturities of long-term debt		513,259			367,714
Current portion of acquisition earn out liability		–			166,667
Accounts payable		2,432,264			2,239,175
Customer advances		1,174,690			905,113
Accrued compensation and other		927,521			716,702
Operating lease liability		168,677			150,565
Total current liabilities		5,259,620			4,586,641
Capital lease obligation, net of current portion		68,482			111,691
Long-term debt, net of current maturities		2,175,980			1,961,141
Acquisition earn out liability, net of current portion		–			705,892
Operating lease liability, net of current portion		189,760			367,160
Stockholders’ Equity:
Common stock, $0.01 par value: 50,000,000 shares authorized; issued and outstanding – 6,066,518 shares at June 30, 2023 and 5,638,302 shares at June 30, 2022		60,665			56,383
Additional paid-in capital		60,224,934			57,009,506
Accumulated deficit		(48,239,007	)		(48,094,394	)
Total stockholders’ equity		12,046,592			8,971,495
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	19,740,434		$	16,704,020

The accompanying notes are an integral part of these consolidated financial statements.

F-3

PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

for the Years Ended June 30, 2023 and 2022

	2023			2022
Revenues	$	21,044,467		$	15,678,248
Cost of goods sold		13,310,331			10,750,061
Gross profit		7,734,136			4,928,187
Research and development expenses, net		992,375			666,479
Selling, general and administrative expenses		7,380,309			5,613,473
Business acquisition expenses		–			162,125
Total operating expenses		8,372,684			6,442,077
Operating loss		(638,548	)		(1,513,890	)
Other income (expense)
Interest expense		(218,927	)		(155,658	)
Gain on forgiveness of bank note		–			–
Gain on revaluation of contingent earn-out liability		714,798			742,084
Loss before provision for income taxes		(142,677	)		(927,464	)
Provision for income taxes		1,936			952
Net loss	$	(144,613	)	$	(928,416	)
Loss per share:
Basic and fully diluted	$	(0.03	)	$	(0.18	)
Weighted average common shares outstanding:
Basic and fully diluted		5,666,034			5,295,720

The accompanying notes are an integral part of these consolidated financial statements.

F-4

PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

for the Years Ended June 30, 2023 and 2022

	Number of Shares		Common Stock		Additional Paid-in Capital			Accumulated Deficit			Total Stockholders’ Equity
Balance, June 30, 2021		4,427,432	$	44,275	$	50,552,830		$	(47,165,978	)	$	3,431,127
Issuance of common stock in private placement		312,500		3,125		1,486,875			–			1,490,000
Issuance of common stock in business acquisition		833,333		8,333		3,991,667			–			4,000,000
Proceeds from exercise of stock option		19,400		194		63,096			–			63,290
Exercise of stock options net of 109,682 shares withheld		42,606		426		(426	)		–			–
Issuance of common stock for employee services		3,031		30		19,970			–			20,000
Stock-based compensation		–		–		895,494			–			895,494
Net loss		–		–		–			(928,416	)		(928,416	)
Balance, June 30, 2022		5,638,302	$	56,383	$	57,009,506		$	(48,094,394	)	$	8,971,495
Issuance of common stock in private placement		420,000		4,200		2,284,082			–			2,288,282
Proceeds from exercise of stock option		8,216		82		12,314			–			12,396
Stock-based compensation		–		–		919,032			–			919,032
Net loss		–		–		–			(144,613	)		(144,613	)
Balance, June 30, 2023		6,066,518	$	60,665	$	60,224,934		$	(48,239,007	)	$	12,046,592

The accompanying notes are an integral part of these consolidated financial statements.

F-5

PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Years Ended June 30, 2023 and 2022

	2023			2022
Cash Flows from Operating Activities:
Net loss	$	(144,613	)		(928,416	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities-
Gain on revaluation of contingent earn-out liability		(705,892	)		(742,084	)
Depreciation and amortization		210,735			190,221
Stock-based compensation expense		919,032			915,494
Non-cash interest expense		4,087			55,017
Changes in operating assets and liabilities, net of effects of business acquisition-
Accounts receivable, net		(1,243,535	)		(108,140	)
Due from related party		–			84,210
Inventories		245,931			(680,744	)
Prepaid expenses		(36,233	)		19,312
Accounts payable		193,089			819,284
Customer advances		269,577			(371,650	)
Accrued compensation and other		206,732			(185,875	)
Net cash (used in) provided by operating activities		(81,090	)		(933,371	)
Cash Flows from Investing Activities:
Acquisition of businesses		–			(255,062	)
Additional patent costs		(35,713	)		(39,543	)
Purchases of property and equipment		(16,784	)		(113,197	)
Net cash used in investing activities		(52,497	)		(407,802	)
Cash Flows from Financing Activities:
Payment of capital lease obligations		(40,705	)		(38,349	)
Payments of long-term debt		(367,341	)		(247,002	)
Issuance of long-term debt		750,000			–
Payment of debt issuance costs		(22,275	)		(26,000	)
Payment of acquisition earn-out liability		(166,667	)		(166,667	)
Gross proceeds from private placements of common stock		2,288,281			1,500,000
Gross proceeds from exercise of stock options		12,397			63,290
Net cash provided by (used in) financing activities		2,453,690			1,085,272
Net increase (decrease) in cash and cash equivalents		2,320,103			(255,901	)
Cash and cash equivalents, beginning of year		605,749			861,650
Cash and cash equivalents, end of year	$	2,925,852		$	605,749
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes	$	1,936		$	912
Supplemental disclosure of non-cash financing activities:
Issuance of common stock for services	$	–		$	20,000
Acquisition of business financed with long-term debt	$	–		$	2,600,000
Common stock issued in business acquisition	$	–		$	4,000,000

The accompanying notes are an integral part of these consolidated financial statements.

F-6

PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Nature of Business

Precision Optics Corporation, Inc. (the “Company”) designs, develops, manufactures and sells specialized optical and illumination systems and related components. The Company conducts business 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: (i) medical products for use by hospitals and physicians; and (ii) products used by defense contractors and industrial customers.

(b) 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.

(c) Revenues

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. Other selling costs to obtain and fulfill contracts are expensed as incurred due to the short-term nature of most of its contracts. The Company extends terms of payment to its customers based on commercially reasonable terms for the markets of its customers, while also considering their credit quality. Shipping and handling costs charged to customers are included in revenue.

F-7

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
	2023		2022
Engineering Design Services	$	6,728,867	$	5,371,483
Optical Components		10,523,806		6,481,896
Medical Device Products and Assemblies		3,791,794		3,824,869
Total Revenues	$	21,044,467	$	15,678,248

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. 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 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,
	2023			2022
Contract liabilities, beginning of period	$	905,113		$	450,084
Unearned revenue received from customers		2,545,317			3,780,215
Revenue recognized		(2,275,740	)		(3,325,186	)
Contract liabilities, end of period	$	1,174,690		$	905,113

(d) 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 $2,925,852 and $605,749 on June 30, 2023 and 2022, respectively, consist primarily of cash at banks and money market funds. The Company maintains its cash and cash equivalents in bank deposit accounts that, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on its cash and cash equivalents.

F-8

(e) Inventories

Inventories are stated at the lower of cost (first-in, first-out) and net realizable value and include material, labor and manufacturing overhead. The components of inventories on June 30, 2023 and 2022 are as follows:

Schedule of inventory
	2023		2022
Raw material	$	1,142,816	$	1,414,996
Work-in-progress		322,538		460,460
Finished goods		1,310,862		1,146,691
Total Inventories	$	2,776,216	$	3,022,147

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. 

(f) Fixed Assets

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:

Schedule of estimated useful lives
Asset Classification	Estimated Useful Life
Machinery and equipment	2-7 years
Leasehold improvements	Shorter of lease term or estimated useful life
Furniture and fixtures	5 years
Vehicles	3 years

Depreciation and amortization expense was $210,735 and $245,238 for the years ended June 30, 2023 and 2022, respectively.

(g) 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 financial institutions. The Company has not experienced any losses on these investments to date. At June 30, 2023 and 2022, two individual customer accounted for more 10% of the Company’s total accounts receivable.

The allowance for doubtful accounts receivable was $606,715 at June 30, 2023, and $44,135 at June 30, 2022. 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 instruments. Management believes the allowance for doubtful accounts, which is established based upon review of specific account balances and historical experience, is adequate at June 30, 2023.

F-9

(h) Loss per Share

Basic income (loss) per share is computed by dividing net income or net loss by the weighted average number of shares of common stock outstanding during the period. Diluted income (loss) per share is computed by dividing net income or net loss by the weighted average number of shares of common stock outstanding during the period, plus the number of potentially dilutive securities outstanding during the period such as stock options and warrants. For the year ended June 30, 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
	Year Ended June 30
	2023			2022
Net Loss– Basic and Diluted	$	(144,613	)	$	(928,416	)
Basic and diluted weighted average shares outstanding		5,666,034			5,295,720
Loss per share
Basic and fully diluted	$	(0.03	)	$	(0.18	)

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

(i) 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 model. Stock-based compensation costs recognized for the years ended June 30, 2023, and 2022 amounted to $919,032 and $895,494, respectively.

(j) 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. 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, 2023 or 2022.

F-10

(k) 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.

(l) Research and Development

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, 2023, and 2022.

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

(n) Income Taxes

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. 

(o) 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 is its Chief Executive Officer. To date, the Company has viewed its operations and manages its business as principally one segment.

(p) Use of Estimates

The preparation of financial statements in conformity with accounting standards generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

F-11

(2) 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.

(a) Purchase Price Allocation and Goodwill

The allocation of purchase price is preliminary and subject to change based on future payments made for the earn-out contingent liability. Any unearned portions of the earn-out liability will be recognized in earnings. The acquired assets, contingent consideration and assumed liabilities at the effective date of acquisition include the following:

Schedule of acquired assets, contingent consideration and assumed liabilities
At Acquisition Effective Date October 4, 2021	Amount
Trade accounts receivable, net		676,977
Inventories		456,008
Other current assets		82,125
Fixed assets		110,243
Patents		48,153
Total Assets Acquired		1,373,506
Accounts payable		214,742
Customer advances		826,679
Accrued compensation and other		302,961
Total Liabilities Assumed		1,344,382
Net assets acquired		29,124
Goodwill		8,136,546
Total Purchase Price-Initial and Contingent Consideration	$	8,165,670

F-12

(b) Consolidated 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
	June 30, 2022
		Pro-Forma
Revenues	$	17,122,585
Net (loss) income	$	(871,121	)
Earnings (loss) per share
Basic and fully diluted	$	(0.16	)

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.

(3) COMMITMENTS

(a) 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. Ms. 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.

F-13

(b) 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.

Long-Term Debt

Long-term debt consists of the following at June 30, 2023:

Schedule of long-term debt
	Amount
Term Loan Note payable to Main Street Bank with monthly principal payments of $30,952.38 plus interest at the prime lending rate plus 1.5% per annum. Secured by all assets of the Company, and subject to certain periodic reporting to the bank, an annual minimum debt service coverage ratio of 1.20:1 commencing with the fiscal year ending June 30, 2023, and other conditions. The Term Loan Note matures on October 15, 2028	$	1,980,952
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. 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 15, 2028		750,000
Less current maturities		(513,259	)
Less debt issuance costs, net of accumulated amortization of $6,190.75		(41,713	)
Long-term debt, net of current portion of debt issuance costs	$	2,175,980

At June 30, 2023 principal payments due on Long Term Debt are as follows:

Schedule of principal payments due term loan note payable
Fiscal Year Ending June 30:
2024	$	513,259
2025		513,259
2026		513,259
2027		513,259
2028		513,259
Thereafter		164,657
Total long term debt	$	2,730,952

F-14

(c) Lease Obligation

In March 2021 the Company entered into a five-year capital lease in the amount of $161,977 for manufacturing equipment. In January 2020, the Company entered into a five-year capital lease for $47,750 for manufacturing equipment. The net book value of fixed assets under capital lease obligations as of June 30, 2023 is $104,208.

On July 1, 2019 the Company entered into a three-year operating lease for its facility in El Paso, Texas, and in February 2022 the Company entered into an extension of the lease for an additional three years through June 2025. Remaining minimum lease payments at June 30, 2023 total $86,480. Total rent expense including base rent and common area expenses was $67,534 and $62,822 during the fiscal years ended June 30, 2023 and 2022, respectively. On October 4, 2021 the Company assumed the remaining term of the Windham Maine lease as part of the Lighthouse acquisition. The lease expires on July 31, 2025. Remaining minimum lease payments at June 30, 2023 total $271,957. Total rent expense including base rent and common area expenses was $141,351 and $105,051 during the fiscal year ended June 30, 2023 and 2022, respectively. Included in the accompanying balance sheet at June 30, 2023 is a right-of-use asset of $358,437 and current and long-term right-of-use operating lease liabilities of $168,677 and $189,760, respectively.

At June 30, 2023 future minimum lease payments under the capital lease and operating lease obligations are as follows:

Schedule of future minimum lease payments under the capital lease and operating lease obligations
Fiscal Year Ending June 30:	Capital Leases		Operating Lease
2024	$	48,619	$	182,652
2025		43,920		183,775
2026		28,024		11,477
Total Minimum Payments		120,563	$	377,904
Less: amount representing interest		8,872
Present value of minimum lease payments		111,691
Less: current portion		43,209
	$	68,482

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.

(4) STOCKHOLDERS’ EQUITY

(a) Stock-Based Compensation Expense

The following table summarizes stock-based compensation expense for the years ended June 30:

Schedule of stock-based compensation expense
	2023		2022
Cost of Goods Sold	$	34,966	$	115,021
Research and Development Expenses		182,498		218,847
Selling, General and Administrative Expenses		701,568		561,626
Stock Based Compensation Expense	$	919,032	$	895,494

F-15

As of June 30, 2023, the unrecognized compensation costs related to options vesting in the future is $330,611. No compensation has been capitalized because such amounts would have been immaterial. There was no net income tax benefit recognized related to such compensation for the years ended June 30, 2023, or 2022, as the Company is currently in a loss position. There were 267,336 stock options granted during the year ended June 30, 2023, and 204,833 stock options granted during the year ended June 30, 2022.

The Company uses the Black-Scholes option-pricing model as the most appropriate method for determining the estimated fair value for the stock awards. The Black-Scholes method of valuation requires several assumptions: (1) the expected term of the stock award; (2) the expected future stock volatility over the expected term; and (3) risk-free interest rate. The expected term represents the expected period of time the Company believes the options will be outstanding based on historical information. Estimates of expected future stock price volatility are based on the historic volatility of the Company’s common stock and the risk-free interest rate is based on the U.S. 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:

Schedule of fair value of option assumptions
	Year Ended
	June 30, 2023
Assumptions:
Option life		5.3 years
Risk-free interest rate		3.0-7.0%
Weighted average stock volatility		101.9%
Dividend yield		0
Weighted average fair value of grants	$	4.77

(b)        Common Stock Issued for Services

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.

(c)        Stock Option Plans

The type of share-based payments currently utilized by the Company is stock options.

The Company has four stock option plans outstanding as of June 30, 2023, namely the Precision Optics Corporation, Inc. 2022 Equity Incentive Plan (the “2022 Plan”), the Precision Optics Corporation, Inc. 2021 Equity Incentive Plan (the “2021 Plan”), the Precision Optics Corporation, Inc. 2011 Equity Incentive Plan (the “2011 Plan”) and the Precision Optics Corporation, Inc. 2006 Equity Incentive Plan (the “2006 Plan”). Vesting periods under each of the Plans are at the discretion of the Board of Directors and typically average three years and in some instances are subject to future performance criteria. Options under these Plans are granted at fair market value on the date of grant and typically have an initial term of ten years from the date of grant, subject to certain cancellation provisions such as upon employment termination. . 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.

F-16

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. At June 30, 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. A maximum of 333,333 shares of the Company’s common stock may be issued under the 2021 Plan. At June 30, 2023, options for a a total of 280,323 shares of common stock were outstanding under the 2021 Plan and 47,789 shares of common stock were available for future grants under the 2021 Plan.

The 2011 Plan and 2006 Plan likewise provided for a broad variety of equity based and cash awards, but terminated in 2021 and 2016, respectively. At June 30, 2023, options for a total of 623,250 shares of common stock were still outstanding under the 2011 Plan.

At June 30, 2023, options for a total of 12,899 shares of common stock were still outstanding under the 2006 Plan.

The following tables summarize stock option activity for the years ended June 30, 2023 and 2022:

Schedule of stock option activity
	Options Outstanding
	Number of Shares			Weighted Average Exercise Price	Weighted Average Contractual Life
Outstanding at July 1, 2021	859,400		$	3.39	6.73 years
Grants	204,833		$	5.22
Exercised	(98,566	)	$	3.15
Cancellations	(61,000	)	$	4.80
Outstanding at June 30, 2022	904,667		$	3.99	7.08 years
Grants	294,003		$	6.27
Exercised	(8,523	)	$	3.05
Cancellations	(63,007	)	$	5.87
Outstanding at June 30, 2023	1,127,140		$	4.54	6.88 years

F-17

Information related to the stock options outstanding as of June 30, 2023 is as follows:

Schedule of stock options outstanding by exercise price range
Range of Exercise Prices		Number of Shares		Weighted- Average Remaining Contractual Life (years)		Weighted- Average Exercise Price		Exercisable Number of Shares		Exercisable Weighted- Average Exercise Price
$	1.44		20,000		2.75	$	1.44		20,000	$	1.44
$	1.50		26,666		2.98	$	1.50		26,666	$	1.50
$	1.65		5,000		4.76	$	1.65		5,000	$	1.65
$	2.10		33,333		5.10	$	2.10		33,333	$	2.10
$	2.19		205,663		3.70	$	2.19		205,663	$	2.19
$	2.70		12,000		0.94	$	2.70		12,000	$	2.70
$	3.75		15,000		6.72	$	3.75		15,000	$	3.75
$	3.90		146,325		5.95	$	3.90		146,325	$	3.90
$	4.20		23,332		7.39	$	4.20		23,332	$	4.20
$	4.26		33,333		6.20	$	4.26		33,333	$	4.26
$	4.35		1,666		7.69	$	4.35		1,666	$	4.35
$	4.50		23,332		6.44	$	4.50		23,332	$	4.50
$	5.04		178,173		7.93	$	5.04		178,173	$	5.04
$	5.43		10,000		8.26	$	5.43		10,000	$	5.43
$	5.61		10,000		8.87	$	5.61		2,500	$	5.61
$	5.85		23,335		8.51	$	5.85		2,224	$	5.85
$	5.93		4,000		9.53	$	5.93		4,000	$	5.93
$	6.00		26,664		8.72	$	6.00		13,334	$	6.00
$	6.78		90,000		9.50	$	6.78		90,000	$	6.26
$	6.27		77,654		8.61	$	6.27		25,885	$	6.27
$	6.78		46,664		8.39	$	6.78		35,553	$	6.78
$	6.40		65,000		9.82	$	6.40		2,500	$	6.40
$	6.94		50,000		9.96	$	6.94		–	$	–
$	1.44–6.94		1,127,140		6.85	$	4.54		909,819	$	4.04

The aggregate intrinsic value of the Company’s “in-the-money” outstanding and exercisable options as of June 30, 2023, was $1,968,998 and $1,195,615, respectively.

F-18

(d) 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 register the resale by the investors of 312,500 shares of its common stock purchased in the placement. The registration statement was filed on January 31, 2022 and became effective on February 11, 2022. 

(e) Issuance of Common Stock in Business Acquisition

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. 

(f) Sale of Stock in June 2023

On June 15, 2023, the Company entered into agreements with certain institutional and accredited investors for the sale and purchase of 420,000 unregistered shares of its common stock, $0.01 par value at a purchase price of $6.00 per share. The Company expects to use the net proceeds from this placement for general working capital needs.

In conjunction with the placement, the Company also entered into a registration rights agreement with the investors, whereby it is obligated to register the resale by the investors of 420,000 shares of its common stock purchased in the placement.

(5) INCOME TAXES

The Company has identified its federal tax return and its state tax return in Massachusetts as “major” tax jurisdictions. The periods subject to examination for its federal and state income tax returns are the years ended in 2018 and thereafter. The Company believes its income tax filing positions and deductions will be sustained on audit and it does not anticipate any adjustments that would result in a material change to its financial position. Therefore, no liabilities for uncertain income tax positions have been recorded.

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.

F-19

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:

Schedule of effective income tax rate reconciliation
	2023		2022
Income tax expense (benefit) at federal statutory rate		(21.0)%		(21.0)%
Increase (decrease) in tax resulting from:
State taxes, net of federal benefit		(5.8)%		(7.1)%
Change in valuation allowance		(23.3)%		22.6%
Stock based compensation		176.0%		26.9%
Net Operating Loss Utilization		5.0%		–
Revaluation of contingent earn out liability		(135.2)%		(21.8)%
Nondeductible items		5.6%		0.3%
Effective tax rate		1.3%		(0.1)%

The components of deferred tax assets and liabilities at June 30, 2023 and 2022 are approximately as follows:

Schedule of deferred tax assets and liabilities
	2023			2022
Deferred tax assets:
Net operating loss carry forwards	$	2,617,000		$	2,640,000
Tax credit carry forwards		247,000			164,000
Reserves and accruals not yet deducted for tax purposes		407,000			512,000
Total deferred tax assets		3,271,000			3,316,000
Valuation allowance		(3,271,000	)		(3,316,000	)
Net deferred tax asset	$	–		$	–

The Company has provided a valuation allowance to reduce the net deferred tax asset to an amount the Company believes is “more likely than not” to be realized.

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.

(6) 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.

F-20

ITEM 9.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A.    CONTROLS AND PROCEDURES.

Management’s Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and our Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of June 30, 2023, because of a material weakness in our internal controls over financial reporting described below. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Management’s Annual Report on Internal Control Over Financial Reporting

Our disclosure controls and procedures include components of our internal control over financial reporting. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, with our Company have been detected.

A “material weakness” is defined as a significant deficiency, or a combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. A “significant deficiency” is a control deficiency, or a combination of control deficiencies, that adversely affects a company’s ability to initiate, authorize, record, process or report external financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the annual or interim financial statements that is more than inconsequential will not be prevented or detected.

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an assessment of the effectiveness of our internal control over financial reporting as of June 30, 2023. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013). Based on our evaluation, our management concluded that our internal control over financial reporting was not effective as of June 30, 2023.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the fiscal year covered by this Annual Report on Form 10-K that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.    OTHER INFORMATION.

None

12

PART III

ITEM 10.     DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The information required under this item is incorporated by reference to the applicable information set forth in the Proxy Statement for the 2023 Annual Meeting of Stockholders.

ITEM 11.     EXECUTIVE COMPENSATION.

The information required under this item is incorporated by reference to the applicable information set forth in the Proxy Statement for the 2023 Annual Meeting of Stockholders.

ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The information required under this item is incorporated by reference to the applicable information set forth in the Proxy Statement for the 2023 Annual Meeting of Stockholders.

ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

The information required under this item is incorporated by reference to the applicable information set forth in the Proxy Statement for the 2023 Annual Meeting of Stockholders.

ITEM 14.     PRINCIPAL ACCOUNTING FEES AND SERVICES.

The information required under this item is incorporated by reference to the applicable information set forth in the Proxy Statement for the 2023 Annual Meeting of Stockholders.

13

PART IV

ITEM 15.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

a. Documents filed as part of this report

The following documents are filed as part of this Annual Report on 10-K:

1. FINANCIAL STATEMENTS

The following documents are filed in Part II, Item 8 of this Annual Report on Form 10-K:

2. FINANCIAL STATEMENT SCHEDULES

All financial statement schedules have been omitted as they are not required, not applicable, or the required information is otherwise included.

b. Exhibits

The exhibits listed below are filed with or incorporated by reference in this report.

Exhibit	Description
2.1	Asset Purchase Agreement between the Company and Optometrics Corporation, dated January 18, 2008 (included as Exhibit 2.1 to the Form 8-K filed January 25, 2008, and incorporated herein by reference).
3.1*	Restated Articles of Organization of Precision Optics Corporation, Inc.
3.2	Amended and Restated Bylaws of Precision Optics Corporation, Inc. (included as Exhibit 3.1 to the Current Report on Form 8-K filed July 11, 2014, and incorporated herein by reference).
3.3	Amendment to the Amended and Restated Bylaws of Precision Optics Corporation, Inc. effective May 13, 2022 (included as exhibit 3.5 to the Form 10-Q filed May 16, 2022, and incorporated herein by reference).

14

Exhibit	Description
10.1	Precision Optics Corporation, Inc. 2011 Equity Incentive Plan, dated October 13, 2011 (included as Exhibit 10.2 to Form S-8 filed October 14, 2011, and incorporated herein by reference.)
10.2	Precision Optics Corporation, Inc. Amended 2011 Equity Incentive Plan, dated October 14, 2011, as amended on April 16, 2015 (included as Exhibit 10.1 to the Company’s Registration Statement on Form S-8 filed April 20, 2015, and incorporated herein by reference).
10.3	Compensation Agreement, by and between the Company and Joseph N. Forkey, dated August 2, 2018 (included as Exhibit 10.1 to the Form 8-K filed on August 3, 2018, and incorporated herein by reference).
10.5	Form of Purchase Agreement, by and among Precision Optics Corporation, Inc. and several Investors, dated July 1, 2019 (included as Exhibit 10.2 to the Form 8-K filed on July 8, 2019, and incorporated herein by reference).
10.6	Form of Registration Rights Agreement, by and among Precision Optics Corporation, Inc. and several Investors, dated July 1, 2019 (included as Exhibit 10.3 to the Form 8-K filed on July 8, 2019, and incorporated herein by reference
10.7	Employment Agreement, by and among Precision Optics Corporation. Inc. and Divaker Mangadu, dated July 1, 2019 (included as Exhibit 10.4 to the Form 8-K filed on July 8, 2019, and incorporated herein by reference).
10.8†	Employment Agreement, by and among Precision Optics Corporation, Inc. and Jeff DiRubio, dated April 26, 2019 (included as Exhibit 10.16 to the annual report on Form 10-K filed on September 26, 2019, and incorporated herein by reference).
10.9+	Lease Agreement, by and among Precision Optics Corporation, Inc. and Texzona Industries Ltd. dated July 1, 2019 (included as Exhibit 10.17 to the annual report on Form 10-K filed on September 26, 2019, and incorporated herein by reference).
10.10	Employment Offer Letter Daniel S. Habhegger, dated December 2, 2019 (included as Exhibit 10.18 to the quarterly report on Form 10-Q filed on February 13, 2020, and incorporated herein by reference).
10.13†+	Asset Purchase Agreement, dated October 4, 2021, by and among Precision Optics Corporation, Inc. and Lighthouse Imaging, LLC and Anania & Associates Investment Company, LLC (included as Exhibit 10.1 to the current report on Form 8-K filed on October 8, 2021, and incorporated herein by reference).
10.14	Form of Securities Purchase Agreement, by and among Precision Optics Corporation, Inc. and several Investors, dated October 4, 2021 (included as Exhibit 10.2 to the current report on Form 8-K filed on October 8, 2021, and incorporated herein by reference).
10.15	Form of Registration Rights Agreement, by and among Precision Optics Corporation, Inc. and several Investors, dated October 4, 2021 (included as Exhibit 10.3 to the current report on Form 8-K filed on October 8, 2021, and incorporated herein by reference).
10.16+	Loan Agreement dated October 4, 2021, by and among Precision Optics Corporation, Inc. and Main Street Bank (included as Exhibit 10.4 to the current report on Form 8-K filed on October 8, 2021, and incorporated herein by reference).

15

Exhibit	Description
10.17	$250,000 Revolving Line of Credit Note dated October 4, 2021 (included as Exhibit 10.5 to the current report on Form 8-K filed on October 8, 2021, and incorporated herein by reference).
10.18	$2,600,000 Term Loan Note dated October 4, 2021 (included as Exhibit 10.6 to the current report on Form 8-K filed on October 8, 2021, and incorporated herein by reference).
10.19	Security Agreement dated October 4, 2021, by and among Precision Optics Corporation, Inc. and Main Street Bank (included as Exhibit 10.7 to the current report on Form 8-K filed on October 8, 2021, and incorporated herein by reference).
10.20	Director side letter agreement dated October 4, 2021 (included as Exhibit 10.8 to the current report on Form 8-K filed on October 8, 2021, and incorporated herein by reference).
10.21	Precision Optics Corporation, Inc. 2022 Equity Incentive Plan (included as Appendix B to the proxy statement on Form DEF14A filed on February 24, 2022, and incorporated herein by reference).
10.23	Employment offer letter dated January 5, 2023 between Precision Optics Corporation, Inc. and E. Kevin Dahill (included as Exhibit 10.2 to the current report on Form 8-K filed on January 5, 2023, and incorporated herein by reference)
10.24	Second Amendment to Loan Agreement dated June 2, 2023, by and between Precision Optics Corporation, Inc. and Main Street Bank (included as Exhibit 10.1 to the current report on Form 8-K filed on June 7, 2023, and incorporated herein by reference).
10.25	$750,000 Promissory Note dated June 2, 2023 (included as Exhibit 10.2 to the current report on Form 8-K filed on June 7, 2023, and incorporated herein by reference).
10.26	Second Amendment to Demand Revolving Line of Credit Note dated June 2, 2023, by and between Precision Optics Corporation, Inc. and Main Street Bank (included as Exhibit 10.3 to the current report on Form 8-K filed on June 7, 2023, and incorporated herein by reference).
10.27	Form of Securities Purchase Agreement, by and among Precision Optics Corporation, Inc. and several investors, dated June 15, 2023 (included as Exhibit 10.1 to the current report on Form 8-K filed on June 20, 2023, and incorporated herein by reference).
10.28	Form of Registration Rights Agreement, by and among Precision Optics Corporation, Inc. and several investors, dated June 15, 2023 (included as Exhibit 10.2 to the current report on Form 8-K filed on June 20, 2023, and incorporated herein by reference).
10.29	Placement Agent Agreement, by and between Precision Optics Corporation, Inc. and A.G.P./Alliance Global Partners, dated June 15, 2023 (included as Exhibit 10.3 to the current report on Form 8-K filed on June 20, 2023, and incorporated herein by reference).
10.30	Employment Agreement dated March 30, 2023 between Precision Optics Corporation, Inc. and Mahesh Lawande (included as Exhibit 10.31 to the Form S-1 filed July 20, 2023, and incorporated herein by reference).
10.31	Employment Agreement dated June 7, 2023 between Precision Optics Corporation, Inc. and Wayne M. Coll (included as Exhibit 10.31 to the Form S-1 filed July 20, 2023, and incorporated herein by reference).

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Exhibit	Description
14.1	Precision Optics Corporation, Inc. Corporate Code of Ethics and Conduct (included as Exhibit 14.1 to the Form 10-K filed September 28, 2008, and incorporated herein by reference).
23.1*	Consent of Independent Registered Public Accounting Firm.
31.1*	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Officers pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*	Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH*	Inline XBRL Taxonomy Extension Schema Document
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*	Cover Page Interactive Data File (embedded within the Inline XBRL document)

*	Filed Herewith.
†	Certain portions of the agreement have been omitted to preserve the confidentiality of such information. The Company will furnish copies of any such information to the SEC upon request.
+	The schedules to agreement have been omitted from this filing pursuant to Item 601(a)(5) of Regulation S-K. The Company will furnish copies of any such schedules to the SEC upon request.

Copies of above exhibits not contained herein are available to any stockholder, upon written request to: Chief Financial Officer, Precision Optics Corporation, Inc., 22 East Broadway, Gardner, MA 01440.

ITEM 16.     FORM 10-K SUMMARY.

None.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	PRECISION OPTICS CORPORATION, INC.
Date: September 28, 2023	By:	/s/ Joseph N. Forkey
		Joseph N. Forkey President and Chief Executive Officer
		(Principal Executive Officer)
Date: September 28, 2023	By:	/s/ Wayne M. Coll
		Wayne M. Coll Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Capacity	Date
/s/ Joseph N. Forkey Joseph N. Forkey	Chief Executive Officer, President, Treasurer and Director (Principal Executive Officer)	September 28, 2023
/s/ Wayne M. Coll Wayne M. Coll	Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	September 28, 2023
/s/ Peter V. Anania	Director	September 28, 2023
Peter V. Anania
/s/ Andrew J. Miclot	Director	September 28, 2023
Andrew J. Miclot
/s/ Richard B. Miles	Director	September 28, 2023
Richard B. Miles
/s/ Peter H. Woodward	Director, Chairman	September 28, 2023
Peter H. Woodward

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