10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended December 31, 2019

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 of incorporation or organization)	(I.R.S. Employer Identification No.)

22 East Broadway, Gardner, Massachusetts 01440-3338

(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	PEYE	OTCQB

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 and posted 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 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 is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of the issuer’s common stock, par value $0.01 per share, at February 13, 2020 was 12,880,047 shares.

PRECISION OPTICS CORPORATION, INC.

Table of Contents

	Page
PART I — FINANCIAL INFORMATION	3
Item 1. Financial Statements	3
Consolidated Balance Sheets at December 31, 2019 and June 30, 2019	3
Consolidated Statements of Operations for the Three and Six Months Ended December 31, 2019 and 2018	4
Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended December 31, 2019 and 2018	5
Consolidated Statements of Cash Flows for the Three and Six Months Ended December 31, 2019 and 2018	6
Notes to Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3. Quantitative and Qualitative Disclosures About Market Risk	17
Item 4. Controls and Procedures	17
PART II — OTHER INFORMATION	19
Item 1. Legal Proceedings	19
Item 1A. Risk Factors	19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3. Defaults Upon Senior Securities	19
Item 4. Mine Safety Disclosures (Not applicable.)	19
Item 5. Other Information	19
Item 6. Exhibits	20

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	December 31, 2019			June 30, 2019
ASSETS
Current Assets:
Cash and cash equivalents	$	347,858		$	2,288,426
Accounts receivable (net of allowance for doubtful accounts of $246,953 and $246,953 at December 31, 2019 and June 30, 2019, respectively)		2,000,048			2,165,107
Inventories		2,019,195			1,734,604
Prepaid expenses		133,278			180,336
Total current assets		4,500,379			6,368,473
Fixed Assets:
Machinery and equipment		2,764,154			2,748,715
Leasehold improvements		695,981			668,446
Furniture and fixtures		171,548			168,450
		3,631,683			3,585,611
Less—Accumulated depreciation and amortization		3,248,525			3,202,605
Net fixed assets		383,158			383,006
Operating lease right-to-use asset		145,428			–
Patents, net		64,929			54,087
Goodwill		687,664			687,664
TOTAL ASSETS	$	5,781,558		$	7,493,230
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current portion of capital lease obligation	$	9,894		$	9,572
Accounts payable		1,162,457			1,174,263
Customer advances		388,506			450,192
Accrued compensation and other		405,431			533,944
Amount due for business acquisition		–			1,443,341
Operating lease liability		55,247			–
Total current liabilities		2,021,535			3,611,312
Capital lease obligation, net of current portion		–			5,027
Acquisition earn out liability		500,000			500,000
Operating lease liability		90,181			–
Stockholders’ Equity:
Common stock, $0.01 par value: 50,000,000 shares authorized; issued and outstanding – 12,880,047 shares at December 31, 2019 and 12,071,139 shares at June 30, 2019		128,801			120,712
Additional paid-in capital		49,314,969			48,893,172
Accumulated deficit		(46,273,928	)		(45,636,993	)
Total stockholders’ equity		3,169,842			3,376,891
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	5,781,558		$	7,493,230

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

3

PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED

December 31, 2019 AND 2018

(UNAUDITED)

	Three Months Ended December 31,						Six Months Ended December 31,
	2019			2018			2019			2018
Revenues	$	2,796,762		$	1,477,851		$	5,311,746		$	3,037,309
Cost of Goods Sold		1,878,823			1,122,129			3,419,690			2,219,080
Gross Profit		917,939			355,722			1,892,056			818,229
Research and Development Expenses, net		228,576			125,413			380,730			226,211
Selling, General and Administrative Expenses		1,240,961			355,916			2,148,806			1,016,405
Total Operating Expenses		1,469,537			481,329			2,529,536			1,242,616
Operating Loss		(551,598	)		(125,607	)		(637,480	)		(424,387	)
Interest Income (Expense)		773			(341	)		545			(846	)
Net Loss	$	(550,825	)	$	(125,948	)	$	(636,935	)	$	(425,233	)
Loss Per Share:
Basic and Diluted	$	(0.04	)	$	(0.01	)	$	(0.05	)	$	(0.04	)
Weighted Average Common Shares Outstanding:
Basic and Diluted		12,873,971			11,618,878			12,856,218			10,940,074

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

4

PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED

December 31, 2019 AND 2018

(UNAUDITED)

	Six Month Period Ended December 31, 2019
	Number of Shares		Common Stock		Additional Paid-in Capital			Accumulated Deficit			Total Stockholders’ Equity
Balance, July 1, 2019		12,071,139	$	120,712	$	48,893,172		$	(45,636,993	)	$	3,376,891
Issuance of common stock in private placement		760,000		7,600		17,400			–			25,000
Proceeds from exercise of stock options		12,500		125		8,550			–			8,675
Issuance of common stock for services		25,000		250		44,750			–			45,000
Stock-based compensation		–		–		76,505			–			76,505
Net loss		–		–		–			(86,110	)		(86,110	)
Balance, September 30, 2019		12,868,639		128,687		49,040,377			(45,723,103	)		3,445,961
Exercise of stock options net of 3,592 shares withheld		11,408		114		(114	)		–			–
Stock-based compensation		–		–		274,706			–			274,706
Net loss		–		–		–			(550,825	)		(550,825	)
Balance, December 31, 2019		12,880,047	$	128,801	$	49,314,969		$	(46,273,928	)	$	3,169,842

	Six Month Period Ended December 31, 2018
	Number of Shares		Common Stock		Additional Paid-in Capital			Accumulated Deficit			Total Stockholders’ Equity
Balance, July 1, 2018		10,197,139	$	101,972	$	45,484,186		$	(45,022,122	)	$	564,036
Stock-based compensation		–		–		342,984			–			342,984
Issuance of common stock for services		100,000		1,000		(1,000	)		–			–
Net loss		–		–		–			(299,285	)		(299,285	)
Balance, September 30, 2018		10,297,139		102,972		45,826,170			(45,321,407	)		607,735
Proceeds from private placement of common stock, net of issuance costs of $23,000		1,600,000		16,000		1,961,000			–			1,977,000
Stock-based compensation		–		–		10,228			–			10,228
Net loss		–		–		–			(125,948	)		(125,948	)
Balance, December 31, 2018		11,897,139	$	118,972	$	47,797,398		$	(45,447,355	)	$	2,469,015

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

5

PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED

December 31, 2019 AND 2018

(UNAUDITED)

	Six Months Ended December 31,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss	$	(636,935	)		(425,233	)
Adjustments to Reconcile Net Loss to Net Cash Provided From (Used In) Operating Activities -
Depreciation and Amortization		45,920			15,862
Stock-based Compensation Expense		351,211			353,212
Non-cash Consulting Expense		45,000			–
Changes in Operating Assets and Liabilities -
Accounts Receivable, net		165,059			68,287
Inventories, net		(284,591	)		48,543
Prepaid Expenses		47,058			(65,526	)
Accounts Payable		(11,806	)		48,482
Customer Advances		(61,686	)		(563,192	)
Accrued Liabilities		(128,513	)		(57,938	)
Net Cash Used In Operating Activities		(469,283	)		(577,503	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Paid for Business Acquisition		(1,443,341	)		–
Additional Patent Costs		(10,842	)		–
Purchases of Property and Equipment		(46,072	)		(76,184	)
Net Cash Used In Investing Activities		(1,500,255	)		(76,184	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of Capital Lease Obligation		(4,705	)		(4,407	)
Gross Proceeds from Private Placement of Common Stock		25,000			2,000,000
Gross Proceeds from Exercise of Stock Options		8,675			–
Net Cash Provided From Financing Activities		28,970			1,995,593
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(1,940,568	)		1,341,906
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		2,288,426			402,738
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	347,858		$	1,744,644
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
Offering Costs Included in Current Liabilities	$	23,000		$	23,000

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

6

PRECISION OPTICS CORPORATION, INC.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

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 and six months of the Company’s fiscal year 2020. 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, 2019, together with the Report of Independent Registered Public Accounting Firm filed under cover of the Company’s 2019 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on September 26, 2019.

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 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 three and six months ended December 31, 2019 and 2018, the effect of such securities was antidilutive and not included in the diluted calculation because of the net loss generated in these periods.

The following is the calculation of loss per share for the three and six months ended December 31, 2019 and 2018:

	Three Months Ended December 31,						Six Months Ended December 31,
	2019			2018			2019			2018
Net Income (Loss) - Basic and Diluted	$	(550,825	)	$	(125,948	)	$	(636,935	)	$	(425,233	)
Basic and Dilutive Weighted Average Shares Outstanding		12,873,971			11,618,878			12,856,218			10,940,074
Loss Per Share - Basic and Diluted	$	(0.04	)	$	(0.01	)	$	(0.05	)	$	(0.04	)

The number of shares issuable upon the exercise of outstanding stock options that were excluded from the computation as their effect was antidilutive was approximately 2,047,800 and 1,493,200 for the three and six months ended December 31, 2019 and 2018, respectively.

7

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.

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 as of December 31, 2019.

Accounting Pronouncements Recently Adopted

On July 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers. Refer to Note 5 for further information.

On July 1, 2019, the Company adopted ASU 2016-02, Topic 842 – Leases. Refer to Note 3 for further information.

2. INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out) or market and consisted of the following:

	December 31, 2019		June 30, 2019
Raw Materials	$	723,482	$	578,856
Work-In-Progress		429,268		409,019
Finished Goods		866,445		746,729
Total Inventories	$	2,019,195	$	1,734,604

3. LEASE OBLIGATION

The Company entered into a five-year capital lease obligation in January 2016 for the acquisition of manufacturing equipment totaling $51,252.

8

In February 2016, FASB issued ASU 2016-02, “Leases” (Topic 842). ASU 2016-02 requires the recognition of lease asset and lease liabilities by lessees for those leases currently classified as operating leases with terms greater than twelve months and make certain changes to the accounting for lease expenses. The Company adopted this standard effective July 1, 2019 and has reflected its impact upon the El Paso, Texas facility operating lease entered into on July 1, 2019 in connection with the Ross Optical acquisition. The facility lease is a three-year operating lease obligation with total remaining minimum lease payments of $154,981 at December 31, 2019. Total rent expense including base rent and common area expenses were $15,190 and $30,381 during the three and six months ended December 31, 2019, respectively. Included in the accompanying balance sheet at December 31, 2019 is a right-of-use asset of $145,428 and current and long-term right-of-use operating lease liabilities of $55,247 and $90,181, respectively.

At December 31, 2019, future minimum lease payments under the capital lease and operating lease obligations are as follows:

Fiscal Year Ending June 30:	Capital Lease		Operating Lease
2020	$	5,979	$	30,380
2021		5,126		61,779
2022		–		62,822
Total Minimum Payments		11,105	$	154,981
Less: amount representing interest		1,211
Present value of minimum lease payments		9,894
Less: current portion		9,894
	$	–

4. STOCK-BASED COMPENSATION

The following table summarizes stock-based compensation expense for the three and six months ended December 31, 2019 and 2018:

	Three Months Ended December 31,				Six Months Ended December 31,
	2019		2018		2019		2018
Cost of Goods Sold	$	11,233	$	–	$	22,466	$	–
Research and Development		12,683		2,411		25,368		4,822
Selling, General and Administrative		250,790		7,817		303,377		348,390
Stock Based Compensation Expense	$	274,706	$	10,228	$	351,211	$	353,212

No compensation has been capitalized because such amounts would have been immaterial.

The following tables summarize stock option activity for the six months ended December 31, 2019:

	Options Outstanding
	Number of Shares			Weighted Average Exercise Price	Weighted Average Contractual Life
Outstanding at June 30, 2019	1,819,500		$	0.87	7.05 years
Granted	270,000			–	–
Exercised	(27,500	)		–	–
Expired or Cancelled	(4,200	)		–	–
Outstanding at December 31, 2019	2,057,800		$	0.94	7.00 years

9

Information related to the stock options outstanding as of December 31, 2019 is as follows:

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
$	0.27		40,000		1.54	$	0.27		40,000	$	0.27
$	0.48		60,000		6.25	$	0.48		60,000	$	0.48
$	0.50		100,000		5.47	$	0.50		100,000	$	0.50
$	0.55		44,000		4.21	$	0.55		44,000	$	0.55
$	0.64		25,000		7.86	$	0.64		25,000	$	0.64
$	0.70		100,000		8.59	$	0.70		100,000	$	0.70
$	0.73		791,000		6.80	$	0.73		791,000	$	0.73
$	0.85		6,000		3.01	$	0.85		6,000	$	0.85
$	0.90		6,000		4.01	$	0.90		6,000	$	0.90
$	0.95		30,000		4.53	$	0.95		30,000	$	0.95
$	1.20		207,800		2.17	$	1.20		207,800	$	1.20
$	1.30		478,000		9.45	$	1.30		–	$	1.30
$	1.42		100,000		9.70	$	1.42		–	$	1.42
$	1.50		70,000		9.94	$	1.50		70,000	$	1.50
$	0.27–1.50		2,057,800		7.00	$	0.94		1,479,800	$	0.79

The aggregate intrinsic value of the Company’s “in-the-money” outstanding and exercisable options as of December 31, 2019 was $1,770,050 and $1,493,050, respectively.

Common Stock Award

On August 2, 2018, the Company awarded its Chief Executive Officer 300,000 shares of common stock for services performed through June 30, 2018. As of December 31, 2019, 200,000 shares have been issued. The fair market value of the 300,000 shares on the award date equal to $210,000 has been recorded as general and administrative stock-based compensation expense in the three months ended September 30, 2018.

5. REVENUE RECOGNITION

On July 1, 2018, the Company adopted ASU 2014-09 Revenue from Contracts with Customers (ASC 606) using the modified retrospective method for contracts that were not completed as of July 1, 2018, whereby 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 almost exclusively 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.

Revenues represent the amount of consideration the Company expects to receive from customers in exchange for transferring products and services. Other selling costs to obtain and fulfill contracts are expensed as incurred due to the short-term nature of a majority of its revenues. The Company extends terms of payment to its customers based on commercially reasonable terms for the markets of its customers, while also considering their credit quality. Shipping and handling costs charged to customers are included in revenues.

10

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 three and six months ended December 31, 2019 and 2018:

	Three Months Ended December 31,				Six Months Ended December 31,
	2019		2018		2019		2018
Engineering Design Services	$	478,441	$	318,741	$	888,169	$	830,639
Optical Components		1,532,843		225,967		2,949,087		524,024
Medical Device Products and Assemblies		785,478		933,143		1,474,490		1,682,646
Total Revenues	$	2,796,762	$	1,477,851	$	5,311,746	$	3,037,309

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 December 31, 2019, 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 our 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:

	Three Months Ended December 31,						Six Months Ended December 31,
	2019			2018			2019			2018
Contract liabilities, beginning of period	$	513,623		$	400,704		$	450,192		$	857,842
Unearned revenue received from customers		97,143			–			293,019			24,300
Revenue recognized		(222,260	)		(192,722	)		(354,705	)		(674,160	)
Contract liabilities, end of period	$	388,506		$	207,982		$	388,506		$	207,982

6. BUSINESS ACQUISITION

On July 1, 2019 the Company acquired the operating assets of Ross Optical Industries, Inc. of El Paso, Texas, a supplier of custom and catalogue optical components sourced through an extensive network of worldwide specialized vendors and sold for industrial, military and medical applications. The acquisition had an effective date of June 1, 2019. All of Ross’ results of operations are included in our financial statements for the three and six month periods ended December 31, 2019.

11

Consolidated unaudited actual and pro forma results of operations for the Company are presented below assuming that the acquisition of the Ross Optical division had occurred on July 1, 2018. Pro forma operating results include net adjustments resulting from the acquisition transaction.

	Three Months Ended December 31,					Six Months Ended December 31,
	2019			2018		2019			2018
	(Actual)			(Pro Forma)		(Actual)			(Pro Forma)
Revenues	$	2,796,762		$	2,521,927	$	5,311,746		$	4,935,365
Net income (loss)		(550,825	)		11,968		(636,935	)		88,398
Income (loss) per share
Basic	$	(0.04	)	$	0.00	$	(0.05	)	$	0.01
Fully diluted	$	(0.04	)	$	0.00	$	(0.05	)	$	0.01

Pro forma financial information is not necessarily indicative of the Company’s actual results of operations if the acquisition had been completed at the date indicated, nor is it necessarily an indication of future operating results. Amounts do not include any operating efficiencies or cost saving that the Company believes may become achievable over time.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and notes to those statements included elsewhere in this Quarterly Report on Form 10-Q for the quarter ended December 31, 2019 and with our audited consolidated financial statements for the year ended June 30, 2019 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on September 26, 2019.

This Quarterly Report on Form 10-Q contains forward-looking statements. 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 similar expressions are intended to identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks described in this report, the risks described in our Annual Report on Form 10-K for the year ended June 30, 2019 and other reports we file with the Securities and Exchange Commission. Although we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of the date on which the statements are made. We do not intend to update any of the forward-looking statements after the date of this report to conform these statements to actual results or to changes in our expectations, except as required by law.

Overview

We have been a developer and manufacturer of advanced optical instruments since 1982. Our medical instrumentation line includes traditional endoscopes and endocouplers as well as other custom imaging and illumination products for use in minimally invasive surgical procedures. Much of our recent development efforts have been targeted at the development of next generation endoscopes. For the last ten years, we have funded internal research and development programs to develop next generation capabilities for designing and manufacturing 3D endoscopes and very small Microprecision™ lenses, anticipating future requirements as the surgical community continues to demand smaller 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, which we began operating as a division of our Company beginning on that date. The accompanying financial statements include the results of operations of the Ross Optical division for the entire six and three-month periods ended December 31, 2019 and the assets and liabilities of the division as of June 30, 2019 and December 31, 2019. The acquisition of the assets of Ross Optical Industries effective June 1, 2019 expands 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 companies. 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 the in-house coating department. Approximately 76% of Ross Optical revenues are from customers in the United States, 8% from Western Europe and 5% from Canada during the six months ended December 31, 2019. Ross Optical’s sales are mostly resale of specialized optical components with the remainder being assemblies. Ross Optical does not perform revenue generating engineering services or internal research and development. The majority of Ross Optical sales are for industrial applications with the remainder split between military and medical device products.

The Management Discussion and Analysis which follows is based on the financial condition and results of operations of our Company including the operating results for the six and three month periods ended December 31, 2019 and the balance sheet as of June 30, 2019 and December 31, 2019 of our new division Ross Optical.

Our business is the design and manufacture of high-quality medical devices. Approximately 12% of our revenue in the six months ended December 31, 2019 is from the design, manufacture and resale of optical products for military and defense and 29% is from other industrial, non-medical products. Our medical instrumentation line and unique design and manufacturing capabilities include traditional endoscopes and endocouplers as well as other custom imaging and illumination products for 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. 

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We are registered to the ISO 9001:2015 and ISO 13485:2016 Quality Standards and comply with the FDA Good Manufacturing Practices and the European Union Medical Device Directive for CE marking of our medical products. Our internet website is www.poci.com. Information on our website is not intended to be integrated into this report.

The markets in which we do business are highly competitive and include both foreign and domestic competitors. Many of our competitors are larger and have substantially greater resources than we do. Furthermore, other domestic or foreign companies, some with greater financial resources than we have, may seek to produce products or services that compete with ours. We routinely outsource specialized production efforts as required to obtain the most cost effective production. Over the years and through the acquisition of the Ross Optical division in June 2019, we have developed extensive experience collaborating with other optical specialists worldwide.

We believe that our future success depends to a large degree on our ability to develop new optical products and services to enhance the performance characteristics and methods of manufacture of existing products. Accordingly, we expect to continue to seek and obtain product-related design and development contracts with customers and to selectively invest our own funds on research and development, particularly in the areas of Microprecision™ optics, micro medical cameras, illumination, and 3D endoscopes.

The Ross Optical division sales are primarily optical components and assemblies for industrial applications in addition to medical and military uses. By combining the unique capabilities of our Company with the Ross Optical division we believe there are opportunities for expanded sales of each division products and services throughout the combined customer base. Additionally, we believe Ross’ expanded worldwide vendor relationships will benefit our traditional efforts to source materials at competitive prices for our development projects and manufacturing activities.

For the six months ended December 31, 2019, approximately 24% of our sales were made to our three largest customers and no customer, including these three, made up more than 10% of our total sales. Our three largest customers during the quarter ended December 31, 2019 are in the defense and medical device industries. One represents engineering service revenue for an established defense contractor, and the other two represent production revenue for companies commercializing a cardiovascular endoscope and an ENT scanning device. Each of these three products incorporates our Microprecision™ technologies as enabling design features. In addition to the three largest customers, we made sales to two hundred thirty-eight other customers during the six month period ended December 31, 2019. 

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 from sub-millimeter sized devices and 3D endoscopy, including disposable 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 as well as well-funded emerging technology 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. Our Ross Optical division markets through existing customers and trade shows, in addition to proactive online marketing strategies executed primarily through its website. We believe there are opportunities to expand the reach of sales activities of our business and that of our new division, Ross Optical, through the gradual integration of some of the sales and marketing resources of the two operations.

General

This management’s discussion and analysis of financial condition and results of operations is based upon our unaudited consolidated financial statements, which have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base our 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.

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There have been no significant changes in our critical accounting policies as disclosed in the Notes to our Financial Statements contained in our Annual Report on Form 10-K for the year ended June 30, 2019 filed with the Securities and Exchange Commission on September 26, 2019.

Results of Operations

Our total revenues for the quarter ended December 31, 2019, were $2,796,762, as compared to $1,477,851 for the same period in the prior year, an increase of $1,318,911, or 89.2%. Revenues increased during the quarter ended December 31, 2019 compared to the same quarter of the prior year primarily due to the revenues of the Ross Optical division, which were $1,150,844 for the quarter ended December 31, 2019. Our non-Ross revenues increased $168,067 during the quarter ended December 31, 2019 from their levels in the same period of the prior year. The mix of engineering service, production and component sales were consistent between the quarters and changes were considered the result of customary fluctuations within and between the various products during the quarters.

Our total revenues for the six months ended December 31, 2019 were $5,311,746, as compared to $3,037,309 for the same period in the prior year, an increase of $2,274,437, or 74.9%. Revenues increased during the six months ended December 31, 2019 compared to the same period of the prior year primarily due to the revenues of the Ross Optical division, which were $2,241,688 for the six months ended December 31, 2019. Our non-Ross revenues increased $32,769 during the six months ended December 31, 2019 from their levels in the same period of the prior year. The mix of engineering service, production and component sales were consistent between the quarters and changes were considered the result of customary fluctuations within and between the various products during the quarters.

Gross profit for the quarter ended December 31, 2019 was $917,939, compared to $355,722 for the same period in the prior year, reflecting an increase of $562,217, or 158%. Gross profit for the quarter ended December 31, 2019 as a percentage of our revenues was 32.8%, an increase from the gross profit percentage of 24.1% for the same period in the prior year. Gross profit for the six months ended December 31, 2019 was $1,892,056, as compared to $818,229 for the same period in the prior year, which reflects an increase of $1,073,827 or 131.2%. Gross profit for the six months ended December 31, 2019 as a percentage of our revenues was 35.6%, an increase from the gross profit percentage of 26.9% for the same period in the prior year. Quarterly gross profit and gross profit percentage depend on a number of factors, including overall sales volume, facility utilization, product sales mix, the costs of engineering services, and production start-up costs and challenges in connection with new products.

The increase in gross profit dollars and gross profit percentage during the quarter and six month period ended December 31, 2019 compared to the same periods of the prior year is primarily due to the inclusion of the Ross Optical division revenue at a higher gross margin percentage than we realize on non-Ross revenues. Ross Optical division revenues generated a gross margin percentage of 48-50% while non-Ross revenue margin was 26.4% for the six months ended December 31, 2019. The non-Ross gross margin is dependent on a number of factors and is expected to fluctuate from quarter to quarter based on the nature and status of engineering projects. Specifically, periodic margins are impacted by revenue volume, facility utilization, product sales mix, and unanticipated cost over-runs associated with engineering projects and start-up production activities of new products. During the quarter ended December 31, 2019 two non-Ross engineering service projects experienced cost over-runs that negatively impacted gross margins during the period. The two projects collectively represented 18% of total revenue and negatively impacted the gross margin percentage by 6.5% during the quarter ended December 31, 2019. The cost over-runs in each of these cases resulted from design challenges and issues we are addressing and that we believe will only cause a temporary decrease in total realized gross margins. The remainder of our production and engineering jobs resulted in margins within our targeted range with reasonably expected fluctuations.

Research and development expenses were $228,576 for the quarter ended December 31, 2019, compared to $125,413 for the same period in the prior year, an increase of $103,163, or 82%. Research and development expenses were $380,730 for the six months ended December 31, 2019, compared to $226,211 for the same period in the prior year, an increase of $154,519, or 68%. In-house research and development and certain internal functions not directly related to customer engagements are classified as research and development expenses with the majority of our engineering, research and development activities being consumed in revenue generating engagements with our customers for the development of their products. During the quarter ended December 31, 2019 we had a larger staff of engineering personnel and a greater amount of our engineering personnel time was consumed in internal research and development activities; the product of which we believe will benefit various engineering design projects involving specialized fixturing and illumination features.

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Selling, general and administrative expenses were $2,148,806 for the six months ended December 31, 2019, compared to $1,016,405 for the same period in the prior year, an increase of $1,132,401, or 111%. The increase in the six months ended December 31, 2019, compared to the same quarter of the prior fiscal year was primarily due to the addition of $598,078 of selling, general and administrative expenses incurred by our Ross Optical division. Non-Ross selling, general and administrative expenses reflect a $42,999 increase in stock-based compensation and service fees in the six months ended December 31, 2019 compared to the same period of the prior year, and a $491,322 increase in compensation to existing and newly hired employees.

Selling, general and administrative expenses were $1,240,961 for the quarter ended December 31, 2019, compared to $355,916 for the same period in the prior year, an increase of $885,045, or 249%. The increase in the quarter ended December 31, 2019, compared to the same quarter of the prior fiscal year was primarily due to the addition of $325,987 of selling, general and administrative expenses incurred by our Ross Optical division. Non-Ross selling, general and administrative expenses reflect a $264,478 increase in stock-based compensation and service fees in the quarter ended December 31, 2019 compared to the same period of the prior year, and a $294,581 increase in compensation to existing and newly hired employees.

Liquidity and Capital Resources

We have sustained recurring net losses for several years. During the year ended June 30, 2019 and the six months ended December 31, 2019 we incurred net losses of $614,871 and $636,935, respectively. As a result of our acquisition of the Ross Optical division, our revenue, gross margin and components of our working capital have increased. At December 31, 2019 cash was $347,858, accounts receivables were $2,000,048 and current liabilities were $2,021,535, including $388,506 of customer advances received for future order deliveries.

Although our financial performance has improved during the last few fiscal quarters, our operating expenses have also increased and we continue to experience pricing pressure from our customers and challenges in engineering projects and production orders that result in cost over-runs and depressed gross margins. Consequently, critical to our ability to maintain our financial condition is achieving and maintaining a level of quarterly revenues that generate break even or better financial performance as well as timely collection of accounts receivable from our customers. We believe profitable operating results can be achieved through a combination of revenue levels, realized gross margins and controlling operating expense increases, all of which are subject to periodic fluctuations resulting from sales mix and the stage of completion of varying engineering service projects as they progress towards and into production level revenues.

We have traditionally funded working capital needs through product sales, management of working capital components of our business, cash received from public and private offerings of our common stock, warrants to purchase shares of our common stock or convertible notes, and by customer advances paid against purchase orders and recorded in the current liabilities section of the accompanying financial statements. Our management believes that the opportunities represented by our current production projects and engineering pipeline of Microprecision™ optical elements, micro medical camera assemblies and 3D endoscope projects have the potential to generate increasing revenues and profitable financial results.

Capital equipment expenditures and additional patent costs during the six months ended December 31, 2019 and 2018 were $56,914 and $76,184, respectively. Future capital equipment expenditures will be dependent upon the type and amount of future sales revenue and the needs of on-going research and development efforts.

We have contractual cash commitments related to open purchase orders as of December 31, 2019 of approximately $976,440, plus a $9,835 commitment remaining under a five-year capital lease obligation for the acquisition of equipment and $145,428 commitment remaining under a three-year facility lease relating the Ross Optical division in El Paso, Texas (see Note 3. Lease Obligations). We have no other contractual cash commitments since leased facilities are currently on a month-to-month basis.

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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.

Item 3. 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 4. 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 Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures, including internal control over financial reporting, were not effective as of December 13, 2019, to ensure the information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended (i) is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are intended to be designed to provide reasonable assurance that such information is accumulated and communicated to our management. Based on this evaluation, our management concluded that our internal control over financial reporting was not effective as of December 31, 2019.

The following is a description of two material weaknesses in our internal control over financial reporting:

Segregation of Duties: As previously disclosed in our Annual Reports on Form 10-K for the fiscal years ended June 30, 2008-2019, our management identified a control deficiency during the 2008 fiscal year because we lacked sufficient staff to segregate accounting duties. We believe the control deficiency resulted primarily because we have the equivalent of one and one-half persons performing all accounting-related on-site duties. As a result, we did not maintain adequate segregation of duties within our critical financial reporting applications, the related modules and financial reporting processes. This control deficiency could result in a misstatement of balance sheet and income statement accounts in our interim or annual consolidated financial statements that would not be detected. Accordingly, management has determined that this control deficiency constitutes a material weakness. During the period beginning with fiscal year 2008 through June 30, 2019, no audit adjustments resulting from this condition were required.

To address and remediate the material weakness in internal control over financial reporting described above, beginning with the quarter ended September 30, 2008, we instituted a procedure whereby our Chief Executive Officer, our Chief Financial Officer and other members of our Board of Directors perform a higher level review of the quarterly and annual reports on Form 10-Q and Form 10-K prior to filing.

We believe that the step outlined above strengthens our internal control over financial reporting and mitigates the material weakness described above. As part of our assessment of internal control over financial reporting for the fiscal year ended June 30, 2019, our management has evaluated this additional control and has determined that it is operating effectively.

Inventory Valuation: As previously disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2019, we reported a material weakness with respect to the valuation of our inventories. Specifically, the amounts used to value our inventory at June 30, 2009 with respect to overhead rates and purchased items were often inconsistent with the supporting documentation, due to year-to-year changes in overhead rates and costs of purchased items that were not properly reflected in inventory valuation. Accordingly, management had determined that this control deficiency constituted a material weakness as of June 30, 2009. Periodic fiscal year end audit adjustments of approximately $50,000 have been necessary as a result of this condition.

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Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the second quarter of our fiscal year covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

To address and remediate the material weakness in internal control over financial reporting described above, beginning in the quarter ended September 30, 2009 and continuing through the quarter ended December 31, 2019, we implemented processes to improve our inventory controls and documentation surrounding inventory valuation for overhead rates, and performed procedures to ensure that the pricing of inventory items was consistent with the supporting documentation. We believe that the step outlined above strengthens our internal control over financial reporting and mitigates the material weakness described above.

We intend to continue to remediate material weaknesses and enhance our internal controls but cannot guarantee that our efforts will result in remediation of our material weaknesses or that new issues will not be exposed in this process.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

Our Company, on occasion, may be involved in legal matters arising in the ordinary course of our business. While management believes that such matters are currently insignificant, matters arising in the ordinary course of business for which we are or could become involved in litigation may have a material adverse effect on our business, financial condition or results of operations. We are not 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 1A. Risk Factors.

Other than as described below, there have been no material changes from the risk factors previously disclosed in our annual report on Form 10-K for the fiscal year ended June 30, 2019, as filed with the Securities and Exchange Commission on September 26, 2019.

We depend on the availability of certain key supplies and services that are available from only a few sources and we may experience difficulty with certain suppliers due to the recent coronavirus outbreak in China and we may have difficulty finding alternative sources of these supplies or services.

We source certain key supplies to develop and manufacture our products, particularly our precision grade optical glass, which is available from only a few sources, in China. Due to the recent coronavirus outbreak in China in December 2019, we may experience difficulties with certain suppliers. Our business could be affected if we become unable to procure these essential materials and services in adequate quantities and at acceptable prices. We are always evaluating our suppliers and alternative sources. If we experience a shortage of certain supplies and are unable to find an alternative source, our financial condition and results of operations could be adversely affected.   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

We did not issue unregistered securities during the quarter ended December 31, 2019.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.

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	Articles of Organization of Precision Optics Corporation, Inc., as amended (included as Exhibit 3.1 to the Form SB-2 filed March 16, 2007, and incorporated herein by reference).
3.2	Bylaws of Precision Optics Corporation, Inc. (included as Exhibit 3.2 to the Form S-1 filed December 18, 2008, and incorporated herein by reference).
3.3	Articles of Amendment to the Articles of Organization of Precision Optics Corporation, Inc., dated November 25, 2008 and effective December 11, 2008 (included as Exhibit 3.1 to the Form 8-K filed December 11, 2008, and incorporated herein by reference).
3.4	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).
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	Consulting Agreement by and between the Company and Donald A. Major, dated June 15, 2016 (included as Exhibit 10.1 to the Form 8-K filed on June 23, 2016, and incorporated herein by reference).
10.4	Form of Securities Purchase Agreement, by and among the Company and the Investors, dated November 22, 2016 (included as Exhibit 10.1 to the Form 8-K filed November 29, 2016, and incorporated herein by reference).
10.5	Form of Registration Rights Agreement, by and among the Company and the Investors, dated November 22, 2016 (included as Exhibit 10.2 to the Form 8-K filed on November 29, 2016, and incorporated herein by reference).
10.6	Form of Securities Purchase Agreement, by and the Company and the Investors, dated August 22, 2017 (included as Exhibit 10.1 to the Form 8-K filed on August 25, 2017, and incorporated herein by reference).
10.7	Form of Registration Rights Agreement, by and among the Company and the Investors, dated August 22, 2017 (included as Exhibit 10.2 to the Form 8-K filed on August 25, 2017, and incorporated herein by reference).
10.8	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).
10.9	Offer letter by and between the Company and Donald A. Major, dated August 2, 2018 (included as Exhibit 10.9 to the Form 10-K filed on September 27, 2018, and incorporated herein by reference).
10.10	Form of Securities Purchase Agreement by and among the Company and the Investors, dated October 16, 2018 (included as Exhibit 10.1 to the Form 8-K filed on October 18, 2018, and incorporated herein by reference).

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10.11	Form of Registration Rights Agreement by and among the Company and the Investors, dated October 16, 2018 (included as Exhibit 10.2 to the Form 8-K filed on October 18, 2018, and incorporated herein by reference).
10.12†+	Asset Purchase Agreement dated July 1, 2019, between Precision Optics Corporation, Inc. and Ross Optical Industries, Inc. and the shareholders (included as Exhibit 10.1 to the Form 8-K filed on July 8, 2019, and incorporated herein by reference).
10.13	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).
10.14	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).
10.15	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).
10.16†	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).
10.17+	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).
10.18*	Employment Offer Letter Daniel S. Habhegger, dated December 2, 2019.
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).
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*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase 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.

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SIGNATURES

Pursuant to the requirements of the Securities 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: February 13, 2020	By:	/s/ Joseph N. Forkey
		Joseph N. Forkey
		Chief Executive Officer (Principal Executive Officer)
Date: February 13, 2020	By:	/s/ Daniel S. Habhegger
		Daniel S. Habhegger
		Chief Financial Officer  (Principal Financial Officer and Principal Accounting Officer)

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EX-10.18

Exhibit 10.18

Precision Optics Corporation

CONFIDENTIAL

Memo

To: Dan Habhegger

From: Joe Forkey

Date: November 27, 2019 POC: 19-0062

Subject: Promotion to CFO

      _______________________________________________________________________________________________________________

In recognition of the quality and extent of the work you have done in the roughly three months since you started at Precision Optics, I am pleased to offer you the position of Precision Optics Corporation’s Chief Financial Officer, effective December 2, 2019. If you accept this position, you will be required to perform all duties of the Company’s CFO, including, but not limited to, the following:

· Manage the Company’s Accounting department and all accounting related activities

· Prepare monthly / quarterly / yearly financial statements

· Prepare SEC required filings, coordinate associated audits, and approve filings as the Company’s Principal Accounting Officer

· Maintain and update accounting software systems

· Administer employee benefits

· Prepare budgets and forecasts

· Analyze Company sales, operations, margins, etc with the goal of improving Company profitability

· Act as Corporate Secretary

· Support the CEO and Board of Directors in their interactions with investors and shareholders

· Various other projects and duties as assigned by the Company CEO

If you accept this position, your annual salary will increase to $170,000. All other benefits and compensation will remain the same.

This offer and your response are not meant to constitute a contract of employment for a specific term. This means that you retain the right to terminate your employment at any time and the Company will retain a similar right. However, if your position in the Company is involuntarily terminated within six (6) months after a “Change in Ownership” for a reason other than “Cause”, the Company will give you six (6) months’ notice or payment in lieu of notice at your then current salary rate.

If you agree to this promotion and the associated terms identified in this memo, please sign and date below.

/s/ Daniel S. Habhegger	12/2/2019
Daniel S. Habhegger	Date

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

I, Joseph N. Forkey, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Precision Optics Corporation, Inc. for the quarter ended December 31, 2019;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	By:	/s/ Joseph N. Forkey
Date: February 13, 2020		Joseph N. Forkey
		Chief Executive Officer
		(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

I, Daniel S. Habhegger, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Precision Optics Corporation, Inc. for the quarter ended December 31, 2019;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	By:	/s/ Daniel S. Habhegger
Date: February 13, 2020		Daniel S. Habhegger
		Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF OFFICERS PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officers of Precision Optics Corporation, Inc., a Massachusetts corporation (the “Company”), do hereby certify, to such officers’ knowledge, that:

The Quarterly Report on Form 10-Q for the quarter ended December 31, 2019 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: February 13, 2020	By:	/s/ Joseph N. Forkey
		Joseph N. Forkey
		Chief Executive Officer
		(Principal Executive Officer)
Date: February 13, 2020	By:	/s/ Daniel S. Habhegger
		Daniel S. Habhegger
		Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

A signed original of this written statement required by Section 906 has been provided to Precision Optics Corporation, Inc. and will be retained by Precision Optics Corporation, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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Document and Entity Information - shares	6 Months Ended
	Dec. 31, 2019	Feb. 13, 2020
Document And Entity Information
Entity Registrant Name	PRECISION OPTICS CORPORATION, INC.
Entity Central Index Key	0000867840
Document Type	10-Q
Document Period End Date	Dec. 31, 2019
Amendment Flag	false
Current Fiscal Year End Date	--06-30
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		12,880,047
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2020
Entity Small Business	true
Entity Emerging Growth	false
Entity Interactive data current	Yes
Entity File number	001-10647
Entity Incorporation state code	MA
Entity shell company	false

XML

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) - USD ($)	Common Stock	Additional Paid-In Capital	Retained Earnings / Accumulated Deficit	Total
Beginning balance, shares at Jun. 30, 2018	10,197,139
Beginning balance, value at Jun. 30, 2018	$ 101,972	$ 45,484,186	$ (45,022,122)	$ 564,036
Issuance of common stock for services, shares	100,000
Issuance of common stock for services, value	$ 1,000	(1,000)
Stock based compensation		342,984		342,984
Net loss			(299,285)	(299,285)
Ending balance, shares at Sep. 30, 2018	10,297,139
Ending balance, value at Sep. 30, 2018	$ 102,972	45,826,170	(45,321,407)	607,735
Beginning balance, shares at Jun. 30, 2018	10,197,139
Beginning balance, value at Jun. 30, 2018	$ 101,972	45,484,186	(45,022,122)	564,036
Net loss				(425,233)
Ending balance, shares at Dec. 31, 2018	11,897,139
Ending balance, value at Dec. 31, 2018	$ 118,972	47,797,398	(45,447,355)	2,469,015
Beginning balance, shares at Sep. 30, 2018	10,297,139
Beginning balance, value at Sep. 30, 2018	$ 102,972	45,826,170	(45,321,407)	607,735
Issuance of stock, private placement, shares	1,600,000
Issuance of stock, private placement, value	$ 16,000	1,961,000		1,977,000
Stock based compensation		10,228		10,228
Net loss			(125,948)	(125,948)
Ending balance, shares at Dec. 31, 2018	11,897,139
Ending balance, value at Dec. 31, 2018	$ 118,972	47,797,398	(45,447,355)	2,469,015
Beginning balance, shares at Jun. 30, 2019	12,071,139
Beginning balance, value at Jun. 30, 2019	$ 120,712	48,893,172	(45,636,993)	3,376,891
Issuance of stock, private placement, shares	760,000
Issuance of stock, private placement, value	$ 7,600	17,400		25,000
Exercise of stock options, shares	12,500
Exercise of stock options, value	$ 125	8,550		8,675
Issuance of common stock for services, shares	25,000
Issuance of common stock for services, value	$ 250	44,750		45,000
Stock based compensation		76,505		76,505
Net loss			(86,110)	(86,110)
Ending balance, shares at Sep. 30, 2019	12,868,639
Ending balance, value at Sep. 30, 2019	$ 128,687	49,040,377	(45,723,103)	3,445,961
Beginning balance, shares at Jun. 30, 2019	12,071,139
Beginning balance, value at Jun. 30, 2019	$ 120,712	48,893,172	(45,636,993)	3,376,891
Net loss				(636,935)
Ending balance, shares at Dec. 31, 2019	12,880,047
Ending balance, value at Dec. 31, 2019	$ 128,801	49,314,969	(46,273,928)	3,169,842
Beginning balance, shares at Sep. 30, 2019	12,868,639
Beginning balance, value at Sep. 30, 2019	$ 128,687	49,040,377	(45,723,103)	3,445,961
Exercise of stock options, shares	11,408
Exercise of stock options, value	$ 114	(114)
Stock based compensation		274,706		274,706
Net loss			(550,825)	(550,825)
Ending balance, shares at Dec. 31, 2019	12,880,047
Ending balance, value at Dec. 31, 2019	$ 128,801	$ 49,314,969	$ (46,273,928)	$ 3,169,842

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2. INVENTORIES

6 Months Ended

Dec. 31, 2019

Inventory Disclosure [Abstract]

INVENTORIES

2. INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out) or market and consisted of the following:

	December 31, 2019		June 30, 2019
Raw Materials	$	723,482	$	578,856
Work-In-Progress		429,268		409,019
Finished Goods		866,445		746,729
Total Inventories	$	2,019,195	$	1,734,604

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2. INVENTORIES (Details) - USD ($)	Dec. 31, 2019	Jun. 30, 2019
Inventory Disclosure [Abstract]
Raw materials	$ 723,482	$ 578,856
Work-in-progress	429,268	409,019
Finished goods	866,445	746,729
Total inventories	$ 2,019,195	$ 1,734,604

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4. STOCK-BASED COMPENSATION (Details - Option activity) - Stock Options [Member]	6 Months Ended
	Dec. 31, 2019 $ / shares shares
Number of Shares
Options outstanding, beginning	1,819,500
Options granted	270,000
Options expired or cancelled	(4,200)
Options exercised	(27,500)
Options outstanding, ending	2,057,800
Weighted Average Exercise Price
Weighted average exercise price, beginning price | $ / shares	$ 0.87
Weighted average exercise price, ending price | $ / shares	$ 0.94
Weighted Average Contractual Life
Weighted Average Contractual Life, beginning	7 years 18 days
Weighted Average Contractual Life, ending	7 years

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5. REVENUE RECOGNITION (Tables)

6 Months Ended

Dec. 31, 2019

Revenue from Contract with Customer [Abstract]

Disaggregation of revenues

	Three Months Ended December 31,				Six Months Ended December 31,
	2019		2018		2019		2018
Engineering Design Services	$	478,441	$	318,741	$	888,169	$	830,639
Optical Components		1,532,843		225,967		2,949,087		524,024
Medical Device Products and Assemblies		785,478		933,143		1,474,490		1,682,646
Total Revenues	$	2,796,762	$	1,477,851	$	5,311,746	$	3,037,309

Contract Liabilities

	Three Months Ended December 31,						Six Months Ended December 31,
	2019			2018			2019			2018
Contract liabilities, beginning of period	$	513,623		$	400,704		$	450,192		$	857,842
Unearned revenue received from customers		97,143			–			293,019			24,300
Revenue recognized		(222,260	)		(192,722	)		(354,705	)		(674,160	)
Contract liabilities, end of period	$	388,506		$	207,982		$	388,506		$	207,982

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4. STOCK-BASED COMPENSATION

6 Months Ended

Dec. 31, 2019

Share-based Payment Arrangement [Abstract]

STOCK-BASED COMPENSATION

4. STOCK-BASED COMPENSATION

The following table summarizes stock-based compensation expense for the three and six months ended December 31, 2019 and 2018:

	Three Months Ended December 31,				Six Months Ended December 31,
	2019		2018		2019		2018
Cost of Goods Sold	$	11,233	$	–	$	22,466	$	–
Research and Development		12,683		2,411		25,368		4,822
Selling, General and Administrative		250,790		7,817		303,377		348,390
Stock Based Compensation Expense	$	274,706	$	10,228	$	351,211	$	353,212

No compensation has been capitalized because such amounts would have been immaterial.

The following tables summarize stock option activity for the six months ended December 31, 2019:

	Options Outstanding
	Number of Shares			Weighted Average Exercise Price	Weighted Average Contractual Life
Outstanding at June 30, 2019	1,819,500		$	0.87	7.05 years
Granted	270,000			–	–
Exercised	(27,500	)		–	–
Expired or Cancelled	(4,200	)		–	–
Outstanding at December 31, 2019	2,057,800		$	0.94	7.00 years

Information related to the stock options outstanding as of December 31, 2019 is as follows:

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
$	0.27		40,000		1.54	$	0.27		40,000	$	0.27
$	0.48		60,000		6.25	$	0.48		60,000	$	0.48
$	0.50		100,000		5.47	$	0.50		100,000	$	0.50
$	0.55		44,000		4.21	$	0.55		44,000	$	0.55
$	0.64		25,000		7.86	$	0.64		25,000	$	0.64
$	0.70		100,000		8.59	$	0.70		100,000	$	0.70
$	0.73		791,000		6.80	$	0.73		791,000	$	0.73
$	0.85		6,000		3.01	$	0.85		6,000	$	0.85
$	0.90		6,000		4.01	$	0.90		6,000	$	0.90
$	0.95		30,000		4.53	$	0.95		30,000	$	0.95
$	1.20		207,800		2.17	$	1.20		207,800	$	1.20
$	1.30		478,000		9.45	$	1.30		–	$	1.30
$	1.42		100,000		9.70	$	1.42		–	$	1.42
$	1.50		70,000		9.94	$	1.50		70,000	$	1.50
$	0.27–1.50		2,057,800		7.00	$	0.94		1,479,800	$	0.79

The aggregate intrinsic value of the Company’s “in-the-money” outstanding and exercisable options as of December 31, 2019 was $1,770,050 and $1,493,050, respectively.

Common Stock Award

On August 2, 2018, the Company awarded its Chief Executive Officer 300,000 shares of common stock for services performed through June 30, 2018. As of December 31, 2019, 200,000 shares have been issued. The fair market value of the 300,000 shares on the award date equal to $210,000 has been recorded as general and administrative stock-based compensation expense in the three months ended September 30, 2018.

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

Dec. 31, 2019

Accounting Policies [Abstract]

Income (Loss) per Share

	Three Months Ended December 31,						Six Months Ended December 31,
	2019			2018			2019			2018
Net Income (Loss) - Basic and Diluted	$	(550,825	)	$	(125,948	)	$	(636,935	)	$	(425,233	)
Basic and Dilutive Weighted Average Shares Outstanding		12,873,971			11,618,878			12,856,218			10,940,074
Loss Per Share - Basic and Diluted	$	(0.04	)	$	(0.01	)	$	(0.05	)	$	(0.04	)

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6. BUSINESS ACQUISITION (Details) - USD ($)	3 Months Ended				6 Months Ended
	Dec. 31, 2019	Sep. 30, 2019	Dec. 31, 2018	Sep. 30, 2018	Dec. 31, 2019	Dec. 31, 2018
Revenues	$ 2,796,762		$ 1,477,851		$ 5,311,746	$ 3,037,309
Net income (loss)	$ (550,825)	$ (86,110)	(125,948)	$ (299,285)	$ (636,935)	(425,233)
Income (loss) per share
Basic	$ (0.04)				$ (0.05)
Fully Diluted	$ (0.04)				$ (0.05)
Pro Froma
Revenues			2,521,927			4,935,365
Net income (loss)			$ 11,968			$ 88,398
Income (loss) per share
Basic			$ 0.00			$ 0.01
Fully Diluted			$ 0.00			$ 0.01

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3. LEASE OBLIGATIONS

6 Months Ended

Dec. 31, 2019

Debt Disclosure [Abstract]

LEASE OBLIGATIONS

3. LEASE OBLIGATION

The Company entered into a five-year capital lease obligation in January 2016 for the acquisition of manufacturing equipment totaling $51,252.

In February 2016, FASB issued ASU 2016-02, “Leases” (Topic 842). ASU 2016-02 requires the recognition of lease asset and lease liabilities by lessees for those leases currently classified as operating leases with terms greater than twelve months and make certain changes to the accounting for lease expenses. The Company adopted this standard effective July 1, 2019 and has reflected its impact upon the El Paso, Texas facility operating lease entered into on July 1, 2019 in connection with the Ross Optical acquisition. The facility lease is a three-year operating lease obligation with total remaining minimum lease payments of $154,981 at December 31, 2019. Total rent expense including base rent and common area expenses were $15,190 and $30,381 during the three and six months ended December 31, 2019, respectively. Included in the accompanying balance sheet at December 31, 2019 is a right-of-use asset of $145,428 and current and long-term right-of-use operating lease liabilities of $55,247 and $90,181, respectively.

At December 31, 2019, future minimum lease payments under the capital lease and operating lease obligations are as follows:

Fiscal Year Ending June 30:	Capital Lease		Operating Lease
2020	$	5,979	$	30,380
2021		5,126		61,779
2022		–		62,822
Total Minimum Payments		11,105	$	154,981
Less: amount representing interest		1,211
Present value of minimum lease payments		9,894
Less: current portion		9,894
	$	–

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Dec. 31, 2019

Accounting Policies [Abstract]

Principles of Consolidation and Operations

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 and six months of the Company’s fiscal year 2020. 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, 2019, together with the Report of Independent Registered Public Accounting Firm filed under cover of the Company’s 2019 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on September 26, 2019.

Use of Estimates

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

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 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 three and six months ended December 31, 2019 and 2018, the effect of such securities was antidilutive and not included in the diluted calculation because of the net loss generated in these periods.

The following is the calculation of loss per share for the three and six months ended December 31, 2019 and 2018:

	Three Months Ended December 31,						Six Months Ended December 31,
	2019			2018			2019			2018
Net Income (Loss) - Basic and Diluted	$	(550,825	)	$	(125,948	)	$	(636,935	)	$	(425,233	)
Basic and Dilutive Weighted Average Shares Outstanding		12,873,971			11,618,878			12,856,218			10,940,074
Loss Per Share - Basic and Diluted	$	(0.04	)	$	(0.01	)	$	(0.05	)	$	(0.04	)

The number of shares issuable upon the exercise of outstanding stock options that were excluded from the computation as their effect was antidilutive was approximately 2,047,800 and 1,493,200 for the three and six months ended December 31, 2019 and 2018, respectively.

Income Taxes

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.

Accounting Pronouncements Recently Adopted

Accounting Pronouncements Recently Adopted

On July 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers. Refer to Note 5 for further information.

On July 1, 2019, the Company adopted ASU 2016-02, Topic 842 – Leases. Refer to Note 3 for further information.

Goodwill and Patents

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 as of December 31, 2019.

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4. STOCK-BASED COMPENSATION (Tables)

6 Months Ended

Dec. 31, 2019

Share-based Payment Arrangement [Abstract]

Schedule of stock-based compensation expense

	Three Months Ended December 31,				Six Months Ended December 31,
	2019		2018		2019		2018
Cost of Goods Sold	$	11,233	$	–	$	22,466	$	–
Research and Development		12,683		2,411		25,368		4,822
Selling, General and Administrative		250,790		7,817		303,377		348,390
Stock Based Compensation Expense	$	274,706	$	10,228	$	351,211	$	353,212

Stock option activity

	Options Outstanding
	Number of Shares			Weighted Average Exercise Price	Weighted Average Contractual Life
Outstanding at June 30, 2019	1,819,500		$	0.87	7.05 years
Granted	270,000			–	–
Exercised	(27,500	)		–	–
Expired or Cancelled	(4,200	)		–	–
Outstanding at December 31, 2019	2,057,800		$	0.94	7.00 years

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
$	0.27		40,000		1.54	$	0.27		40,000	$	0.27
$	0.48		60,000		6.25	$	0.48		60,000	$	0.48
$	0.50		100,000		5.47	$	0.50		100,000	$	0.50
$	0.55		44,000		4.21	$	0.55		44,000	$	0.55
$	0.64		25,000		7.86	$	0.64		25,000	$	0.64
$	0.70		100,000		8.59	$	0.70		100,000	$	0.70
$	0.73		791,000		6.80	$	0.73		791,000	$	0.73
$	0.85		6,000		3.01	$	0.85		6,000	$	0.85
$	0.90		6,000		4.01	$	0.90		6,000	$	0.90
$	0.95		30,000		4.53	$	0.95		30,000	$	0.95
$	1.20		207,800		2.17	$	1.20		207,800	$	1.20
$	1.30		478,000		9.45	$	1.30		–	$	1.30
$	1.42		100,000		9.70	$	1.42		–	$	1.42
$	1.50		70,000		9.94	$	1.50		70,000	$	1.50
$	0.27–1.50		2,057,800		7.00	$	0.94		1,479,800	$	0.79

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Dec. 31, 2019

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 and six months of the Company’s fiscal year 2020. 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, 2019, together with the Report of Independent Registered Public Accounting Firm filed under cover of the Company’s 2019 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on September 26, 2019.

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 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 three and six months ended December 31, 2019 and 2018, the effect of such securities was antidilutive and not included in the diluted calculation because of the net loss generated in these periods.

The following is the calculation of loss per share for the three and six months ended December 31, 2019 and 2018:

	Three Months Ended December 31,						Six Months Ended December 31,
	2019			2018			2019			2018
Net Income (Loss) - Basic and Diluted	$	(550,825	)	$	(125,948	)	$	(636,935	)	$	(425,233	)
Basic and Dilutive Weighted Average Shares Outstanding		12,873,971			11,618,878			12,856,218			10,940,074
Loss Per Share - Basic and Diluted	$	(0.04	)	$	(0.01	)	$	(0.05	)	$	(0.04	)

The number of shares issuable upon the exercise of outstanding stock options that were excluded from the computation as their effect was antidilutive was approximately 2,047,800 and 1,493,200 for the three and six months ended December 31, 2019 and 2018, 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.

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 as of December 31, 2019.

Accounting Pronouncements Recently Adopted

On July 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers. Refer to Note 5 for further information.

On July 1, 2019, the Company adopted ASU 2016-02, Topic 842 – Leases. Refer to Note 3 for further information.

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CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2019	Dec. 31, 2018
Income Statement [Abstract]
Revenues	$ 2,796,762	$ 1,477,851	$ 5,311,746	$ 3,037,309
Cost of goods sold	1,878,823	1,122,129	3,419,690	2,219,080
Gross profit	917,939	355,722	1,892,056	818,229
Research and development expenses, net	228,576	125,413	380,730	226,211
Selling, general and administrative expenses	1,240,961	355,916	2,148,806	1,016,405
Total operating expenses	1,469,537	481,329	2,529,536	1,242,616
Operating loss	(551,598)	(125,607)	(637,480)	(424,387)
Interest Income (expense)	773	(341)	545	(846)
Net loss	$ (550,825)	$ (125,948)	$ (636,935)	$ (425,233)
Loss Per Share:
Basic and Diluted	$ (0.04)	$ (0.01)	$ (0.05)	$ (0.04)
Weighted Average Common Shares Outstanding:
Basic and Diluted	12,873,971	11,618,878	12,856,218	10,940,074

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2019	Dec. 31, 2018
Accounting Policies [Abstract]
Outstanding stock options and warrants that were excluded from the computation as their effect was antidilutive	2,047,800	1,493,200	2,047,800	1,493,200
Goodwill impairment	$ 0	$ 0	$ 0	$ 0

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4. STOCK-BASED COMPENSATION (Details - Stock based compensation) - USD ($)	3 Months Ended		6 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2019	Dec. 31, 2018
Stock based compensation expense	$ 274,706	$ 10,228	$ 351,211	$ 353,212
Cost of Goods Sold [Member]
Stock based compensation expense	11,233	0	22,466	0
Research and Development Expenses [Member]
Stock based compensation expense	12,683	2,411	25,368	4,822
Selling, General and Administrative Expenses [Member]
Stock based compensation expense	$ 250,790	$ 7,817	$ 303,277	$ 348,390

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5. REVENUE RECOGNITION (Details - Contract liabilities) - USD ($)	3 Months Ended		6 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2019	Dec. 31, 2018
Revenue from Contract with Customer [Abstract]
Contract liabilities, beginning balance	$ 513,623	$ 400,704	$ 450,192	$ 857,842
Unearned revenue received from customers	97,143	0	293,019	24,300
Revenue recognized in current period	(222,260)	(192,722)	(354,705)	(674,160)
Contract liabilities, ending balance	$ 388,506	$ 207,982	$ 388,506	$ 207,982

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5. REVENUE RECOGNITION

6 Months Ended

Dec. 31, 2019

Revenue from Contract with Customer [Abstract]

REVENUE RECOGNITION

5. REVENUE RECOGNITION

On July 1, 2018, the Company adopted ASU 2014-09 Revenue from Contracts with Customers (ASC 606) using the modified retrospective method for contracts that were not completed as of July 1, 2018, whereby 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 almost exclusively 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.

Revenues represent the amount of consideration the Company expects to receive from customers in exchange for transferring products and services. Other selling costs to obtain and fulfill contracts are expensed as incurred due to the short-term nature of a majority of its revenues. The Company extends terms of payment to its customers based on commercially reasonable terms for the markets of its customers, while also considering their credit quality. Shipping and handling costs charged to customers are included in revenues.

The Company disaggregates revenues by product 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 three and six months ended December 31, 2019 and 2018:

	Three Months Ended December 31,				Six Months Ended December 31,
	2019		2018		2019		2018
Engineering Design Services	$	478,441	$	318,741	$	888,169	$	830,639
Optical Components		1,532,843		225,967		2,949,087		524,024
Medical Device Products and Assemblies		785,478		933,143		1,474,490		1,682,646
Total Revenues	$	2,796,762	$	1,477,851	$	5,311,746	$	3,037,309

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 December 31, 2019, 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 our 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:

	Three Months Ended December 31,						Six Months Ended December 31,
	2019			2018			2019			2018
Contract liabilities, beginning of period	$	513,623		$	400,704		$	450,192		$	857,842
Unearned revenue received from customers		97,143			–			293,019			24,300
Revenue recognized		(222,260	)		(192,722	)		(354,705	)		(674,160	)
Contract liabilities, end of period	$	388,506		$	207,982		$	388,506		$	207,982

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2. INVENTORIES (Tables)

6 Months Ended

Dec. 31, 2019

Inventory Disclosure [Abstract]

Schedule of inventory

	December 31, 2019		June 30, 2019
Raw Materials	$	723,482	$	578,856
Work-In-Progress		429,268		409,019
Finished Goods		866,445		746,729
Total Inventories	$	2,019,195	$	1,734,604

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CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($)	Dec. 31, 2019	Jun. 30, 2019
Current Assets:
Cash and cash equivalents	$ 347,858	$ 2,288,426
Accounts receivable (net of allowance for doubtful accounts of $246,953 and $246,953 at December 31, 2019 and June 30, 2019, respectively)	2,000,048	2,165,107
Inventories	2,019,195	1,734,604
Prepaid expenses	133,278	180,336
Total current assets	4,500,379	6,368,473
Fixed Assets:
Machinery and equipment	2,764,154	2,748,715
Leasehold improvements	695,981	668,446
Furniture and fixtures	171,548	168,450
Total	3,631,683	3,585,611
Less: Accumulated depreciation and amortization	3,248,525	3,202,605
Net fixed assets	383,158	383,006
Operating lease right-to-use asset	145,428	0
Patents, net	64,929	54,087
Goodwill	687,664	687,664
TOTAL ASSETS	5,781,558	7,493,230
Current Liabilities:
Current portion of capital lease obligation	9,894	9,572
Accounts payable	1,162,457	1,174,263
Customer advances	388,506	450,192
Accrued compensation and other	405,431	533,944
Amount due for business acquisition	0	1,443,341
Operating lease liability	55,247	0
Total current liabilities	2,021,535	3,611,312
Capital lease obligation, net of current portion	0	5,027
Acquisition earn out liability	500,000	500,000
Operating lease liability	90,181	0
Stockholders' Equity:
Common stock, $0.01 par value: 50,000,000 shares authorized; issued and outstanding - 12,880,047 shares at December 31, 2019 and 12,071,139 shares at June 30, 2019	128,801	120,712
Additional paid-in capital	49,314,969	48,893,172
Accumulated deficit	(46,273,928)	(45,636,993)
Total stockholders' equity	3,169,842	3,376,891
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 5,781,558	$ 7,493,230

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Parenthetical) - USD ($)	3 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Statement of Stockholders' Equity [Abstract]
Exercise of stock options, net shares withheld	3,592
Proceeds private placement stock, net of issuance costs		$ 23,000

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4. STOCK-BASED COMPENSATION (Details - Options by exercise price) - $ / shares	6 Months Ended
	Dec. 31, 2019	Jun. 30, 2019
Stock Options [Member]
Range of exercise prices	$0.27-$1.42
Number of shares outstanding	2,057,800	1,819,500
Weighted average contractual life	7 years
Weighted average exercise price	$ 0.94	$ 0.87
Exercisable number of shares	1,479,800
Exercisable weighted average exercise price	$ 0.79
Option 1 [Member]
Range of exercise prices	0.27
Number of shares outstanding	40,000
Weighted average contractual life	1 year 6 months 14 days
Weighted average exercise price	$ 0.27
Exercisable number of shares	40,000
Exercisable weighted average exercise price	$ 0.27
Option 2 [Member]
Range of exercise prices	0.48
Number of shares outstanding	60,000
Weighted average contractual life	6 years 3 months
Weighted average exercise price	$ 0.48
Exercisable number of shares	60,000
Exercisable weighted average exercise price	$ 0.48
Option 3 [Member]
Range of exercise prices	0.50
Number of shares outstanding	100,000
Weighted average contractual life	5 years 5 months 19 days
Weighted average exercise price	$ 0.50
Exercisable number of shares	100,000
Exercisable weighted average exercise price	$ 0.50
Option 4 [Member]
Range of exercise prices	0.55
Number of shares outstanding	44,000
Weighted average contractual life	4 years 2 months 16 days
Weighted average exercise price	$ 0.55
Exercisable number of shares	44,000
Exercisable weighted average exercise price	$ 0.55
Option 5 [Member]
Range of exercise prices	0.64
Number of shares outstanding	25,000
Weighted average contractual life	7 years 10 months 10 days
Weighted average exercise price	$ 0.64
Exercisable number of shares	25,000
Exercisable weighted average exercise price	$ 0.64
Option 6 [Member]
Range of exercise prices	0.70
Number of shares outstanding	100,000
Weighted average contractual life	8 years 7 months 2 days
Weighted average exercise price	$ 0.70
Exercisable number of shares	100,000
Exercisable weighted average exercise price	$ 0.70
Option 7 [Member]
Range of exercise prices	0.73
Number of shares outstanding	791,000
Weighted average contractual life	6 years 9 months 18 days
Weighted average exercise price	$ 0.73
Exercisable number of shares	791,000
Exercisable weighted average exercise price	$ 0.73
Option 8 [Member]
Range of exercise prices	0.85
Number of shares outstanding	6,000
Weighted average contractual life	3 years 4 days
Weighted average exercise price	$ 0.85
Exercisable number of shares	6,000
Exercisable weighted average exercise price	$ 0.85
Option 9 [Member]
Range of exercise prices	0.90
Number of shares outstanding	6,000
Weighted average contractual life	4 years 4 days
Weighted average exercise price	$ 0.90
Exercisable number of shares	6,000
Exercisable weighted average exercise price	$ 0.90
Option 10 [Member]
Range of exercise prices	0.95
Number of shares outstanding	30,000
Weighted average contractual life	4 years 6 months 11 days
Weighted average exercise price	$ 0.95
Exercisable number of shares	30,000
Exercisable weighted average exercise price	$ 0.95
Option 11 [Member]
Range of exercise prices	1.20
Number of shares outstanding	207,800
Weighted average contractual life	2 years 2 months 1 day
Weighted average exercise price	$ 1.20
Exercisable number of shares	207,800
Exercisable weighted average exercise price	$ 1.20
Option 12 [Member]
Range of exercise prices	1.30
Number of shares outstanding	478,000
Weighted average contractual life	9 years 5 months 12 days
Weighted average exercise price	$ 1.30
Exercisable number of shares	0
Exercisable weighted average exercise price	$ 1.30
Option 13 [Member]
Range of exercise prices	1.42
Number of shares outstanding	100,000
Weighted average contractual life	9 years 8 months 12 days
Weighted average exercise price	$ 1.42
Exercisable number of shares	0
Exercisable weighted average exercise price	$ 1.42
Option 14 [Member]
Range of exercise prices	1.50
Number of shares outstanding	70,000
Weighted average contractual life	9 years 11 months 18 days
Weighted average exercise price	$ 1.50
Exercisable number of shares	70,000
Exercisable weighted average exercise price	$ 1.50

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6. BUSINESS ACQUISITION (Tables)

6 Months Ended

Dec. 31, 2019

Business Combinations [Abstract]

Pro forma operating results

	Three Months Ended December 31,					Six Months Ended December 31,
	2019			2018		2019			2018
	(Actual)			(Pro Forma)		(Actual)			(Pro Forma)
Revenues	$	2,796,762		$	2,521,927	$	5,311,746		$	4,935,365
Net income (loss)		(550,825	)		11,968		(636,935	)		88,398
Income (loss) per share
Basic	$	(0.04	)	$	0.00	$	(0.05	)	$	0.01
Fully diluted	$	(0.04	)	$	0.00	$	(0.05	)	$	0.01

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3. LEASE OBLIGATIONS (Details) - USD ($)	Dec. 31, 2019	Jun. 30, 2019
Capital lease future minimum payments
2020	$ 5,979
2021	5,126
2022	0
Total minimum payments	11,105
Less: amount representing interest	1,211
Present value of minimum lease payments	9,894
Less: current portion	9,894	$ 9,572
Capital lease obligation, noncurrent	0	$ 5,027
Operating lease future minimum payments
2020	30,380
2021	61,779
2022	62,822
Total minimum payments	$ 154,981

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CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - USD ($)	Dec. 31, 2019	Jun. 30, 2019
Statement of Financial Position [Abstract]
Allowance for doubtful accounts	$ 246,953	$ 246,953
STOCKHOLDERS' EQUITY
Common Stock par value	$ 0.01	$ 0.01
Common Stock shares authorized	50,000,000	50,000,000
Common Stock shares issued	12,880,047	12,071,139
Common Stock shares outstanding	12,880,047	12,071,139

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)	6 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Cash Flows from Operating Activities:
Net loss	$ (636,935)	$ (425,233)
Adjustments to reconcile net loss to net cash provided from (used in) operating activities
Depreciation and amortization	45,920	15,862
Stock-based compensation expense	351,211	353,212
Non-cash consulting expense	45,000	0
Changes in operating assets and liabilities
Accounts receivable, net	165,059	68,287
Inventories, net	(284,591)	48,543
Prepaid expenses	47,058	(65,526)
Accounts payable	(11,806)	48,482
Customer advances	(61,686)	(563,192)
Accrued liabilities	(128,513)	(57,938)
Net cash used in operating activities	(469,283)	(577,503)
Cash Flows from Investing Activities:
Cash paid for business acquisition	(1,443,341)	0
Additional patent costs	(10,842)	0
Purchases of property and equipment, fixed assets	(46,072)	(76,184)
Net cash used in investing activities	(1,500,255)	(76,184)
Cash Flows from Financing Activities:
Payment of capital lease obligation	(4,705)	(4,407)
Gross proceeds from private placement of common stock	25,000	2,000,000
Gross proceeds from Exercise of Stock Options	8,675	0
Net cash provided from financing activities	28,970	1,995,593
Net increase (decrease) in cash and cash equivalents	(1,940,568)	1,341,906
Cash and cash equivalents, beginning of period	2,288,426	402,738
Cash and cash equivalents, end of period	347,858	1,744,644
Supplemental disclosure of non-cash financing and investing activities:
Offering costs included in accrued compensation and other	$ 23,000	$ 23,000

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details - Loss per share) - USD ($)	3 Months Ended				6 Months Ended
	Dec. 31, 2019	Sep. 30, 2019	Dec. 31, 2018	Sep. 30, 2018	Dec. 31, 2019	Dec. 31, 2018
Accounting Policies [Abstract]
Net Income (Loss) - Basic and Diluted	$ (550,825)	$ (86,110)	$ (125,948)	$ (299,285)	$ (636,935)	$ (425,233)
Basic and Diluted Weighted Average Shares Outstanding	12,873,971		11,618,878		12,856,218	10,940,074
Loss Per Share - Basic and Diluted	$ (0.04)		$ (0.01)		$ (0.05)	$ (0.04)

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3. LEASE OBLIGATIONS (Details Narrative) - USD ($)	3 Months Ended	6 Months Ended
	Dec. 31, 2019	Dec. 31, 2019	Jun. 30, 2019	Jan. 31, 2016
Debt Disclosure [Abstract]
Capital lease obligation				$ 51,252
Operating lease obligation	$ 154,981	$ 154,981
Operating lease expense	15,190	30,381
Right of use operating lease	145,428	145,428	$ 0
Right of use operating lease current	55,247	55,247	0
Right of use operating lease noncurrent	$ 90,181	$ 90,181	$ 0

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4. STOCK-BASED COMPENSATION (Details Narrative) - USD ($)	1 Months Ended	3 Months Ended		6 Months Ended
	Aug. 02, 2018	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2019	Dec. 31, 2018
Aggregate intrinsic value of "in the money" outstanding		$ 1,770,050		$ 1,770,050
Aggregate intrinsic value of "in the money" exercisable		1,493,050		1,493,050
Share based compensation expense		$ 274,706	$ 10,228	$ 351,211	$ 353,212
Common Stock [Member] | Chief Executive Officer [Member]
Stock awarded for services, shares	300,000
Stock issued during period, shares				200,000
Share based compensation expense					$ 210,000

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5. REVENUE RECOGNITION (Details - Revenues) - USD ($)	3 Months Ended		6 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2019	Dec. 31, 2018
Revenues	$ 2,796,762	$ 1,477,851	$ 5,311,746	$ 3,037,309
Engineering Design Services [Member]
Revenues	478,441	318,741	888,169	830,639
Optical Components [Member]
Revenues	1,532,843	225,967	2,949,087	524,024
Medical Device Products and Assemblies [Member]
Revenues	$ 785,478	$ 933,143	$ 1,474,490	$ 1,682,646

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6. BUSINESS ACQUISITION

6 Months Ended

Dec. 31, 2019

Business Combinations [Abstract]

BUSINESS ACQUISITION

6. BUSINESS ACQUISITION

On July 1, 2019 the Company acquired the operating assets of Ross Optical Industries, Inc. of El Paso, Texas, a supplier of custom and catalogue optical components sourced through an extensive network of worldwide specialized vendors and sold for industrial, military and medical applications. The acquisition had an effective date of June 1, 2019. All of Ross’ results of operations are included in our financial statements for the three and six month periods ended December 31, 2019.

Consolidated unaudited actual and pro forma results of operations for the Company are presented below assuming that the acquisition of the Ross Optical division had occurred on July 1, 2018. Pro forma operating results include net adjustments resulting from the acquisition transaction.

	Three Months Ended December 31,					Six Months Ended December 31,
	2019			2018		2019			2018
	(Actual)			(Pro Forma)		(Actual)			(Pro Forma)
Revenues	$	2,796,762		$	2,521,927	$	5,311,746		$	4,935,365
Net income (loss)		(550,825	)		11,968		(636,935	)		88,398
Income (loss) per share
Basic	$	(0.04	)	$	0.00	$	(0.05	)	$	0.01
Fully diluted	$	(0.04	)	$	0.00	$	(0.05	)	$	0.01

Pro forma financial information is not necessarily indicative of the Company’s actual results of operations if the acquisition had been completed at the date indicated, nor is it necessarily an indication of future operating results. Amounts do not include any operating efficiencies or cost saving that the Company believes may become achievable over time.

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3. LEASE OBLIGATIONS (Tables)

6 Months Ended

Dec. 31, 2019

Debt Disclosure [Abstract]

Future minimum lease payments

Fiscal Year Ending June 30:	Capital Lease		Operating Lease
2020	$	5,979	$	30,380
2021		5,126		61,779
2022		–		62,822
Total Minimum Payments		11,105	$	154,981
Less: amount representing interest		1,211
Present value of minimum lease payments		9,894
Less: current portion		9,894
	$	–