1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Dec. 31, 2011

Significant Accounting Policies [Text Block]

1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Operations

The accompanying consolidated financial statements include the accounts of Precision Optics Corporation, Inc. and its wholly-owned subsidiaries (the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation.

These consolidated financial statements have been prepared by the Company, without audit, and reflect normal recurring adjustments which, in the opinion of management, are necessary for a fair statement of the results of the second quarter of the Company’s fiscal year 2012. These consolidated financial statements do not include all disclosures associated with annual consolidated financial statements and, accordingly, should be read in conjunction with footnotes contained in the Company’s consolidated financial statements for the year ended June 30, 2011 together with the Report of Independent Registered Public Accounting Firm filed under cover of the Company’s 2011 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on September 28, 2011.

Use of Estimates

The preparation of these consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Income (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 (adjusted by adding back interest expense on senior convertible notes) 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 and shares issuable upon conversion of senior convertible notes. For the three months ended December 31, 2011 and for the three and six months ended December 31, 2010, 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 income (loss) per share for the three and six months ended December 31, 2011 and 2010:

		Three Months Ended December 31						Six Months Ended December 31
		2011			2010			2011		2010
Net Income (Loss) – Basic	$	(324,875	)	$	(330,950	)	$	1,673,566	$	(488,796	)
Interest Expense on Senior Convertible Notes		-			-			27,708		-
Net Income (Loss) – Diluted	$	(324,875	)	$	(330,950	)	$	1,701,274	$	(488,796	)
Basic Weighted Average Shares Outstanding		1,191,138			1,017,896			1,081,075		1,018,153
Potentially Dilutive Securities		-			-			79,280		-
Diluted Weighted Average Shares Outstanding		1,191,138			1,017,896			1,160,355		1,018,153
Income (Loss) Per Share
Basic	$	(0.27	)	$	(0.33	)	$	1.55	$	(0.48	)
Diluted	$	(0.27	)	$	(0.33	)	$	1.47	$	(0.48	)

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 1,050,000 and 1,112,000 for the three months ended December 31, 2011 and 2010, respectively, and approximately 1,012,000 and 1,112,000 for the six months ended December 31, 2011 and 2010, respectively.

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 carryforwards. 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. Based on this evaluation, a full valuation reserve has been provided for the deferred tax assets.