10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended December 31, 2015

or

o 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)

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 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 and post such files). Yes x No o

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o No x

The number of shares outstanding of the issuer’s common stock, par value $0.01 per share, at February 16, 2016 was 7,434,582 shares.

PRECISION OPTICS CORPORATION, INC.

Table of Contents

	Page
PART I — FINANCIAL INFORMATION	3
Item 1. Financial Statements	3
Consolidated Balance Sheets	3
Consolidated Statements of Operations for the Three Months Ended December 31, 2015 and 2014	4
Consolidated Statements of Cash Flows for the six Months Ended December 31, 2015 and 2014	5
Notes to Consolidated Financial Statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
Item 3. Quantitative and Qualitative Disclosures About Market Risk	12
Item 4. Controls and Procedures	12
PART II — OTHER INFORMATION	14
Item 1. Legal Proceedings	14
Item 1A. Risk Factors	14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	14
Item 3. Defaults Upon Senior Securities	14
Item 4. Mine Safety Disclosures (Not applicable.)	14
Item 5. Other Information	14
Item 6. Exhibits	15

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	December 31, 2015			June 30, 2015
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents	$	410,893		$	241,051
Accounts Receivable, net		425,733			588,042
Inventories, net		1,093,756			1,073,256
Prepaid Expenses		89,212			65,182
Total Current Assets		2,019,594			1,967,531
PROPERTY AND EQUIPMENT
Machinery and Equipment		2,435,499			2,431,127
Leasehold Improvements		553,596			553,596
Furniture and Fixtures		148,303			148,303
Vehicles		19,674			19,674
		3,157,072			3,152,700
Less: Accumulated Depreciation and Amortization		(3,107,840	)		(3,096,993	)
Net Property and Equipment		49,232			55,707
Patents, net		21,515			18,644
TOTAL ASSETS	$	2,090,341		$	2,041,882
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts Payable	$	852,781		$	912,150
Customer Advances		47,970			118,800
Accrued Employee Compensation		223,132			222,222
Accrued Professional Services		37,536			60,735
Accrued Warranty Expense		25,000			25,000
Other Accrued Liabilities		74,258			36,087
Total Current Liabilities		1,260,677			1,374,994
STOCKHOLDERS’ EQUITY
Common Stock, $0.01 par value - Authorized - 50,000,000 shares; Issued and Outstanding – 7,434,582 shares at December 31, 2015 and 6,389,806 shares at June 30, 2015		74,346			63,898
Additional Paid-in Capital		44,048,028			43,232,500
Accumulated Deficit		(43,292,710	)		(42,629,510	)
Total Stockholders’ Equity		829,664			666,888
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,090,341		$	2,041,882

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, 2015 AND 2014

(UNAUDITED)

	Three Months Ended December 31,						Six Months Ended December 31,
	2015			2014			2015			2014
Revenues	$	954,772		$	976,548		$	1,813,199		$	1,807,262
Cost of Goods Sold		737,750			814,036			1,463,839			1,532,612
Gross Profit		217,022			162,512			349,360			274,650
Research and Development Expenses, net		108,146			138,893			258,914			215,605
Selling, General and Administrative Expenses		407,088			346,770			772,114			693,917
Gain on Sale of Assets		(16,902	)		(1,928	)		(18,468	)		(17,210	)
Total Operating Expenses		498,332			483,735			1,012,560			892,312
Net Loss		(281,310	)		(321,223	)		(663,200	)		(617,662	)
Loss Per Share:
Basic	$	(0.04	)	$	(0.05	)	$	(0.10	)	$	(0.10	)
Diluted	$	(0.04	)	$	(0.05	)	$	(0.10	)	$	(0.10	)
Weighted Average Common Shares Outstanding:
Basic		7,230,169			6,262,584			6,809,988			6,195,793
Diluted		7,230,169			6,262,584			6,809,988			6,195,793

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

4

PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED

DECEMBER 31, 2015 AND 2014

(UNAUDITED)

	Six Months Ended December 31,
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss	$	(663,200	)	$	(617,662	)
Adjustments to Reconcile Net Loss to Net Cash Used In Operating Activities -
Depreciation and Amortization		10,847			8,888
Gain on Sale of Assets		(18,468	)		(17,210	)
Stock-based Compensation Expense		142,428			40,125
Non-cash Consulting Expense		47,850			18,000
Changes in Operating Assets and Liabilities -
Accounts Receivable, net		162,309			(156,394	)
Inventories		(20,500	)		(232,870	)
Prepaid Expenses		(24,030	)		(17,586	)
Accounts Payable		(59,369	)		233,736
Customer Advances		(70,830	)		73,800
Accrued Expenses		(31,968	)		6,972
Net Cash Used In Operating Activities		(524,931	)		(660,201	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additional Patent Costs		(2,871	)		(9,270	)
Purchases of Property and Equipment		(4,372	)		(57,671	)
Proceeds from Sale of Assets		18,468			17,210
Net Cash Provided By (Used In) Investing Activities		11,225			(49,731	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Gross Proceeds from Private Placement of Common Stock		700,000			980,291
Private Placement Expenses Incurred as of December 31		(16,452	)		(87,572	)
Net Cash Provided by Financing Activities		683,548			892,719
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		169,842			182,787
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		241,051			202,380
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	410,893		$	385,167
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid for Income Taxes	$	912		$	912
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Issuance of 90,298 Shares of Common Stock to Consultants	$	–		$	65,015

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

5

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 2016. 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, 2015 together with the Report of Independent Registered Public Accounting Firm filed under cover of the Company’s 2015 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on October 13, 2015.

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, 2015 and 2014, 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, 2015 and 2014:

	Three Months Ended December 31						Six Months Ended December 31
	2015			2014			2015			2014
Net Income Loss – Basic and Diluted	$	(281,310	)	$	(321,223	)	$	(663,200	)	$	(617,662	)
Basic Weighted Average Shares Outstanding		7,230,169			6,262,584			6,809,988			6,195,793
Potentially Dilutive Securities		–			–			–			–
Diluted Weighted Average Shares Outstanding		7,230,169			6,262,584			6,809,988			6,195,793
Loss Per Share
Basic	$	(0.04	)	$	(0.05	)	$	(0.10	)	$	(0.10	)
Diluted	$	(0.04	)	$	(0.05	)	$	(0.10	)	$	(0.10	)

The number of shares issuable upon the exercise of outstanding stock options and warrants that were excluded from the computation as their effect was antidilutive was approximately 4,478,000 and 3,794,000 for the three months ended December 31, 2015 and 2014, respectively, and approximately 4,478,000 and 3,794,000 for the six months ended December 31, 2015 and 2014, respectively.

6

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.

2. INVENTORIES

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

	December 31, 2015		June 30, 2015
Raw Materials	$	482,135	$	485,266
Work-In-Progress		399,791		388,503
Finished Goods		211,830		199,487
Total Inventories	$	1,093,756	$	1,073,256

3. STOCK-BASED COMPENSATION

Stock-based compensation costs recognized during the quarters ended December 31, 2015 and 2014 amounted to $42,105 and $13,125 respectively, and the costs were included in the accompanying consolidated statements of operations in: selling, general and administrative expenses (2015 - $24,121; 2014 - $0), research and development expenses (2015 - $9,316, 2014 - $13,125) and cost of goods sold (2015 - $8,668; 2014 - $0). Stock-based compensation costs recognized during  the six month periods ended December 31, 2015 and 2014 amounted to $142,428 and $40,125, respectively, and were included in the accompanying consolidated statements of operations in: selling, general and administrative expenses (2015 - $60,378; 2014 - $27,000), research and development expenses (2015 - $38,707, 2014 - $13,125) and cost of goods sold (2015 - $43,343, 2014 - $0). 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, 2015:

	Options Outstanding
	Number of Shares		Weighted Average Exercise Price		Weighted Average Contractual Life
Outstanding at June 30, 2015		1,079,079	$	1.43		8.46 years
Cancellations		(3,800)	$	3.00
Outstanding at December 31, 2015		1,075,279	$	1.42		7.95 years

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Information related to the stock options outstanding as of December 31, 2015 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
$	0.73		316,000		9.39	$	0.73		165,000	$	0.73
$	0.73		330,000		9.39	$	0.73		132,915	$	0.73
$	0.90		35,000		8.53	$	0.90		23,334	$	0.90
$	0.90		30,000		8.53	$	0.90		30,000	$	0.90
$	1.20		207,800		6.17	$	1.20		207,800	$	1.20
$	0.90		9,000		8.01	$	0.90		9,000	$	0.90
$	0.85		9,000		7.01	$	0.85		9,000	$	0.85
$	0.55		44,000		6.17	$	0.55		44,000	$	0.55
$	0.27		40,000		5.54	$	0.27		40,000	$	0.27
$	1.35		1,200		3.90	$	1.35		1,200	$	1.35
$	1.25		1,200		2.90	$	1.25		1,200	$	1.25
$	6.25		1,600		0.91	$	6.25		1,600	$	6.25
$	7.75		1,200		1.91	$	7.75		1,200	$	7.75
$	13.75		49,279		0.36	$	13.75		49,279	$	13.75
$	0.27–$13.75		1,075,279		7.96	$	1.42		715,528	$	1.77

The aggregate intrinsic value of the Company’s “in-the-money” outstanding and exercisable options as of December 31, 2015 was $21,280.

4. SALE OF STOCK

On October 19, 2015, the Company entered into agreements with accredited investors for the sale and purchase of 1,044,776 shares of the Company’s common stock, $0.01 par value at a purchase price of $0.67 per share. The Company received $700,000 in gross proceeds from the offering. The Company intends to use the net proceeds from this placement for general working capital purposes.

In conjunction with the placement, the Company also entered into a registration rights agreement with the investors, whereby the Company is obligated to file a registration statement with the Securities Exchange Commission on or before 90 calendar days after October 19, 2015 to register the resale by the investors of the 1,044,776 shares of the Company’s common stock purchased in the placement. The registration statement was filed on January 19, 2016 and became effective on February 1, 2016.

In conjunction with the offering, certain anti-dilution provisions of the warrants issued in conjunction with the Company’s June 25, 2008 and September 28, 2012 financing transactions were triggered. As a result, the number of existing June 25, 2008 warrants increased from 493,398 to 517,222 and the related exercise price of the warrants decreased from $1.03 to $0.98 per share. Also, as a result of the offering, the number of existing September 28, 2012 warrants increased from 2,189,724 to 2,293,013 and 217,322 to 222,559, respectively, and the related exercise price decreased from $1.11 to $1.06 and from $0.85 to $0.83, respectively.

5. SALE OF ASSETS

During the six months ended December 31, 2015, the Company sold equipment that was previously written off for proceeds totaling $18,468, and recorded a gain of $18,468, which is included within operating expenses in the accompanying consolidated statements of operations.

8

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 and six months ended December 31, 2015 and with our audited consolidated financial statements for the year ended June 30, 2015 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on October 13, 2015.

This Quarterly Report on Form 10-Q contains forward-looking statements. When used in this report, the words “expects,” “anticipates,” “suggests,” “believes,” “intends,” “estimates,” “plans,” “projects,” “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, 2015 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. Today, the vast majority of our business is the design and manufacture of high-quality medical devices and approximately 10% of our business is the design and manufacture of military and industrial products. 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.

Our unique proprietary technology in the areas of micro optical lenses and prisms, micro medical fiber and CMOS based cameras, and custom design of medical grade instruments, combined with recent developments in the areas of 3D displays, has allowed us to begin commercialization of related product and service offerings to a widening group of customers addressing various medical device, defense and aerospace applications. We believe that new products based on these technologies provide enhanced optical and imaging qualities for many uses including existing surgical procedures and development of new procedures enabled by the small size and image quality of our camera modules.

We are registered to the ISO 9001:2008 and ISO 13485:2003 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. We routinely outsource specialized production efforts as required to obtain the most cost effective production. Over the years, we have achieved extensive experience collaborating with other optical specialists worldwide.

Our products and services have been principally sold to original equipment manufacturers, or OEM, customers. We believe our product offerings are competitive based on performance and other technical features. Based on certain cost advantages we maintain, we are able to offer products at a competitive price, including certain products that may be offered as single-use products to end customers. Further, our performance relating to factors such as scheduling and reliability, is essential to our customers.

We believe that our future success depends to a large degree on our ability to increase sales to current customers, to customers to whom we are currently engaged, and to new customers with whom we are in early stage evaluation. Further, we may seek to develop new technologies, processes, products and services to enhance the performance characteristics, methods of manufacture and cost 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 and 3D endoscopes.

9

For the six months ended December 31, 2015, approximately 55% of our sales were made to five customers. Of these, two are large, international, medical device companies who have been our customers for many years. Both of these customers continue to purchase products that we developed over five years ago, and both now purchase new products that were developed and launched into production by us more recently. The other three top customers purchase products that we developed in recent years, and which rely heavily on our unique, proprietary Microprecision™ lens technology and optical visualization system expertise.

Current sales and marketing activities are intended to broaden awareness of the benefits of our products, which we believe are ready for general application to medical device projects requiring surgery-grade visualization from sub-millimeter sized devices and handheld 3D endoscopy. We believe greater demand for the small size and high image quality of our Microprecision™ line products will be driven by new medical procedures that have not previously been possible, by improved performance of existing endoscopes and other medical devices used in current minimally invasive medical procedures, and by broad migration toward the use of single-use medical devices.

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.

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, 2015 filed with the Securities and Exchange Commission on October 13, 2015.

Results of Operations

Our total revenues for the quarter ended December 31, 2015, the second quarter of our fiscal year 2016, were $954,772, as compared to $976,548 for the same period in the prior year, a decrease of $21,776, or 2.2%. The decrease in revenues for the quarter ended December 31, 2015 was primarily due to lower unit volume sales of certain traditional products, partially offset by higher unit volume sales of certain new product offerings, including the advanced surgical visualization system used in spinal surgery, optical components, single-use fiberscopes and CMOS micro cameras, and higher engineering services revenue. We believe the increase in engineering services revenue is a positive indication of future product sales. Our total revenues for the six months ended December 31, 2015 were $1,813,199, as compared to $1,807,262 for the same period in the prior year, an increase of $5,937, or 0.3%. The increase in revenues for the six month period was primarily due to higher unit volume sales of the advanced surgical visualization system used in spinal surgery, optical components, single-use fiberscopes and CMOS micro cameras, and higher engineering services revenue, partially offset by lower unit volume sales of certain traditional products.

Revenues from our largest customers, as a percentage of our total revenues, for the six months ended December 31, 2015 and 2014, were as follows:

	Six Months Ended December 31,
	2015		2014
Customer A		20%		14%
Customer B		15		25
Customer C		–		10
All Others		65		51
		100%		100%

No other customer accounted for more than 10% of our revenues during those quarters.

10

Gross profit for the quarter ended December 31, 2015 was $217,022, as compared to $162,512 for the same period in the prior year, which reflects an increase of $54,510. Gross profit for the quarter ended December 31, 2015 as a percentage of our revenues was 22.7%, an increase from the gross profit percentage of 16.6% for the same period in the prior year. Gross profit for the six months ended December 31, 2015 was $349,360, as compared to $274,650 for the same period in the prior year, which reflects an increase of $74,710. Gross profit for the six months ended December 31, 2015 as a percentage of our revenues was 19.3%, an increase from the gross profit percentage of 15.2% for the same period in the prior year. During the quarter and six months ended December 31, 2014, we experienced certain start-up costs and inefficiencies related to the production of certain products. The increase in our gross profit percentage in the most recent quarter and six months was due primarily to the reduced cost of such manufacturing inefficiencies, partially offset by higher stock-based compensation expenses in the current fiscal year. Further, our quarterly gross profit and gross profit percentage depend on a number of factors, including overall sales volume, the mix of products sold, and the costs of initial production in connection with new products. If we are able to successfully increase our sales volumes, we expect our gross margins to increase.

Research and development expenses were $108,146 for the quarter ended December 31, 2015, compared to $138,893 for the same period in the prior year, a decrease of $30,747, or 22.1%. The decrease in the quarter ended December 31, 2015 compared to same period in the prior year was primarily due to the increase in our engineering services revenue. As a result of increases in such revenue, a greater portion of our fixed engineering cost is included in cost of goods sold. Quarterly research and development expenses depend on our assessment of new product opportunities and available resources. Research and development expenses were net of reimbursement of related costs of $0 and $4,792 during the quarters ended December 31, 2015 and 2014, respectively. Research and development expenses were $258,914 for the six months ended December 31, 2015, compared to $215,605 for the same period in the prior year, an increase of $43,309, or 20.1%. The increase in the six month period ended December 31, 2015 compared to the same period in the prior year was primarily due to higher stock-based compensation expenses, higher labor and materials costs incurred on product development activities, and by lower reimbursements received from customers for such activities. Research and development expenses were net of reimbursement of related costs of $0 and $23,404 during the six months ended December 31, 2015 and 2014, respectively.

Selling, general and administrative expenses were $407,088 for the quarter ended December 31, 2015, compared to $346,770 for the same period in the prior year, an increase of $60,318, or 17.4 %. The increase in the quarter ended December 31, 2015 compared to the same period in the prior year was primarily due to higher stock-based compensation expenses and consulting expenses, partially offset by the curtailment of operations of our Hong Kong subsidiary. Selling, general and administrative expenses were $772,114 for the six months ended December 31, 2015, compared to $693,917 for the same period in the prior year, an increase of $78,197, or 11.3 %. The increase in the six month period ended December 31, 2015 compared to the same period in the prior year was primarily due to higher stock-based compensation expenses and consulting expenses, partially offset by the curtailment of operations of our Hong Kong subsidiary.

No income tax provision was recorded in the first and second quarters of fiscal year 2016 or 2015 because of the losses generated in those periods.

Liquidity and Capital Resources

We have traditionally funded working capital needs through product sales, management of working capital components of our business, and by cash received from public and private offerings of our common stock, warrants to purchase shares of our common stock or convertible notes. We have incurred quarter to quarter operating losses during our efforts to develop current products including Microprecision™ optical elements, micro medical camera assemblies and 3D endoscopes. Our management expects that such operating losses will continue until sales increase to breakeven and profitable levels. Our management also believes that the opportunities represented by these products have the potential to generate sales increases to achieve breakeven and profitable results.

Until we achieve and sustain breakeven and profitable results, we will be required to pursue several options to manage cash flow and raise capital, including issuing debt or equity or entering into a strategic alliance. The sale of additional equity or convertible debt securities would result in additional dilution to our current stockholders, and debt financing, if available, may involve restrictive covenants that could restrict our operations or finances. Financing may not be available in amounts or on terms acceptable to us, if at all. If we cannot raise funds on acceptable terms or achieve positive cash flow, we may not be able to continue to conduct operations, develop new products, grow market share, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements, any of which would negatively impact our business, operating results and financial condition.

During the quarter ended December 31, 2015, we incurred a net loss of $281,310 and used cash in operating activities of $399,847. As of December 31, 2015, cash and cash equivalents were $410,893, accounts receivable were $425,733, and current liabilities were $1,260,677. As of June 30, 2015, cash and cash equivalents were $241,051, accounts receivable were $588,042, and current liabilities were $1,374,994.

11

On October 19, 2015, we closed agreements with institutional and accredited investors for the sale and purchase of 1,044,776 shares of our common stock at a purchase price of $0.67 per share. We received $700,000 in gross proceeds from the offering. We are using the net proceeds from this placement for general working capital purposes.

Capital equipment expenditures during the six months ended December 31, 2015 and 2014 were $4,372 and $57,671, respectively. Future capital equipment expenditures will be dependent upon future sales and success of on-going research and development efforts.

Contractual cash commitments for the fiscal years subsequent to December 31, 2015 are summarized as follows:

	2016		2017		Thereafter		Total
Operating Leases	$	2,190	$	–	$	–	$	2,190

We have contractual cash commitments related to open purchase orders as of December 31, 2015 of approximately $354,000, including a $51,000 commitment under a five-year capital lease obligation beginning in February 2016 for acquisition of equipment.

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 31, 2015, 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, 2015.

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, 2008-2015, 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, 2015, 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.

12

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, 2015, our management has evaluated this additional control and has determined that it is operating effectively.

Inventory Valuation: As previously disclosed in our Annual Reports on Form 10-K for the fiscal years ended June 30, 2009-2015, 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. One audit adjustment of approximately $58,000 to our audited financial statements as of June 30, 2011 was necessary as a result of this condition.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the first 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, 2015, 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.

13

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.

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, 2015, as filed with the Securities and Exchange Commission on October 13, 2015.

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

On October 19, 2015, we entered into agreements with accredited investors for the sale and purchase of 1,044,776 shares of our common stock, $0.01 par value at a purchase price of $0.67 per share. We received $700,000 in gross proceeds from the offering. We intend to use the net proceeds from this placement for general working capital purposes.

In conjunction with the placement, we also entered into a registration rights agreement with the investors, whereby we are obligated to file a registration statement with the Securities Exchange Commission on or before 90 calendar days after October 19, 2015 to register the resale by the investors of the 1,044,776 shares of our common stock purchased in the placement. The registration statement was filed with the Securities and Exchange Commission on January 19, 2016 and became effective on February 1, 2016.

We relied on the Section 4(a)(2) exemption from securities registration under the federal securities laws for transactions not involving any public offering. No advertising or general solicitation was employed in offering the securities. The securities were issued to accredited investors a limited number of non-accredited investors. The securities were offered for investment purposes only and not for the purpose of resale or distribution, and the transfers thereof was appropriately restricted by us.

Item 3. Defaults Upon Senior Securities.

We did not default upon senior securities during the quarter ended December 31, 2015.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

14

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 Company’s Current Report on Form 8-K filed July 11, 2014 and incorporated herein by reference).
4.1	Registration Rights Agreement by and among the Company and each investor named therein, dated February 1, 2007 (included as Exhibit 4.1 to the Form 8-K filed February 2, 2007 and incorporated herein by reference).
4.2	Form of Warrant to Purchase Shares of Common Stock (included as Exhibit 4.2 to the Form 8-K filed February 2, 2007 and incorporated herein by reference).
4.3	Registration Rights Agreement by and among the Company and each investor named therein, dated June 25, 2008 (included as Exhibit 4.1 to the Form 8-K filed June 27, 2008 and incorporated herein by reference).
4.4	Form of Warrant to Purchase Shares of Common Stock, dated June 25, 2008 (included as Exhibit 4.2 to the Form 8-K filed June 27, 2008 and incorporated herein by reference).
4.5	Form of 10% Senior Secured Convertible Note, dated June 25, 2008 (included as Exhibit 4.3 to the Form 8-K filed June 27, 2008 and incorporated herein by reference).
4.6	Form of Warrant to Purchase Shares of Common Stock, dated September 28, 2012 (included as Exhibit 4.1 to the Form 8-K filed October 2, 2012 and incorporated herein by reference).
4.7	Registration Rights Agreement by and among the Company and each investor named therein, dated September 28, 2012 (included as Exhibit 4.2 to the Form 8-K filed October 2, 2012 and incorporated herein by reference).
4.8	Warrant to Purchase Shares of Common Stock issued to Loewen, Ondaatje, McCutcheon USA LTD, dated September 28, 2012 (included as Exhibit 4.3 to the Form 8-K filed October 2, 2012 and incorporated herein by reference).

15

4.9	Form of Warrant to Purchase Shares of Common Stock (Special Situations Settlement), dated February 12, 2013 (included as Exhibit 4.1 to the Form 8-K filed February 13, 2013 and incorporated herein by reference).
4.10	Registration Rights Agreement by and among the Company, Special Situations Fund III QP, L.P. and Special Situations Private Equity Fund, L.P., dated February 12, 2013 (included as Exhibit 4.2 to the Form 8-K filed February 13, 2013 and incorporated herein by reference).
4.11	Form of Warrant to Purchase Shares of Common Stock (Pitlor and Schumsky Settlement), dated February 12, 2013 (included as Exhibit 4.3 to the Form 8-K filed February 13, 2013 and incorporated herein by reference).
10.1	Precision Optics Corporation, Inc. 1997 Incentive Plan, as amended and restated (included as Exhibit 10.1 to the Form 10-QSB filed November 13, 2003 and incorporated herein by reference).
10.2	Precision Optics Corporation, Inc. 2006 Equity Incentive Plan (included as Exhibit 99.1 to the Form 8-K filed December 4, 2006 and incorporated herein by reference).
10.3	Purchase Agreement by and among the Company and each investor named therein, dated February 1, 2007 (included as Exhibit 10.1 to the Form 8-K filed February 2, 2007 and incorporated herein by reference).
10.4	Form of Incentive Stock Option Certificate (included as Exhibit 10.1 to the Form 10-QSB filed February 14, 2007 and incorporated herein by reference).
10.5	Form of Nonstatutory Stock Option Certificate (included as Exhibit 10.2 to the Form 10-QSB filed February 14, 2007 and incorporated herein by reference).
10.6	Purchase Agreement by and among the Company and each investor named therein, dated June 25, 2008 (included as Exhibit 10.1 to the Form 8-K filed June 27, 2008 and incorporated herein by reference).
10.7	Pledge and Security Agreement by and among the Company and each investor named therein, dated June 25, 2008 (included as Exhibit 10.2 to the Form 8-K filed June 27, 2008 and incorporated herein by reference).
10.8	Consulting Agreement between the Company and Jack P. Dreimiller, dated August 15, 2008 (included as Exhibit 10.1 to the Form 8-K filed August 18, 2008 and incorporated herein by reference).
10.9	Side Letter Agreement between the Company and the investors signatory to the Purchase Agreement, dated November 25, 2008 (included as Exhibit 10.1 to the Form 8-K filed December 11, 2008 and incorporated herein by reference).
10.10	Side Letter Agreement between the Company and the holders signatory to the 10% Senior Secured Convertible Note, dated December 11, 2008 (included as Exhibit 10.15 to the Form S-1 filed December 18, 2008 and incorporated herein by reference).

16

10.11	Side Letter Agreement between the Company and the holders signatory to the 10% Senior Secured Convertible Note, dated April 2, 2009 (included as Exhibit 10.16 to the Form S-1/A filed April 6, 2009 and incorporated herein by reference).
10.12	Compensation Agreement with Richard E. Forkey, dated December 3, 2010 (included as Exhibit 10.11 to the Form 8-K filed December 6, 2010 and incorporated herein by reference).
10.13	Compensation Agreement with Joseph N. Forkey, dated December 3, 2010 (included as Exhibit 10.12 to the Form 8-K filed December 6, 2010 and incorporated herein by reference).
10.14	Compensation Agreement with Joel R. Pitlor, dated December 3, 2010 (included as Exhibit 10.13 to the Form 8-K filed December 6, 2010 and incorporated herein by reference).
10.15	Asset Purchase Agreement between the Company and Intuitive Surgical Operations, Inc., dated July 27, 2011 (included as Exhibit 10.1 to the Form 8-K filed August 3, 2011 and incorporated herein by reference).
10.16	Amendment to Pledge and Security Agreement by and among the Company and each investor named therein, dated July 27, 2011 (included as Exhibit 10.2 to the Form 8-K filed August 3, 2011 and incorporated herein by reference).
10.17	Demand Note in the amount of $10,000, dated July 13, 2011, issued by the Company to Dr. Joseph N. Forkey (included as Exhibit 10.22 to the Form 10-K filed September 28, 2011, and incorporated herein by reference.)
10.18	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.)
10.19	Precision Optics Corporation, Inc. 2011 Deferred Compensation Plan, dated October 13, 2011 (included as Exhibit 10.3 to Form S-8 filed October 14, 2011, and incorporated herein by reference.)
10.20	Side Letter Agreement to the Compensation Agreement with Richard E. Forkey, dated October 14, 2011 (included as Exhibit 10.4 to the Form 8-K filed October 19, 2011 and incorporated herein by reference).
10.21	Side Letter Agreement to the Compensation Agreement with Joseph N. Forkey, dated October 14, 2011 (included as Exhibit 10.5 to the Form 8-K filed October 19, 2011 and incorporated herein by reference).
10.22	Side Letter Agreement to the Compensation Agreement with Joel N. Pitlor, dated October 14, 2011 (included as Exhibit 10.6 to the Form 8-K filed October 19, 2011 and incorporated herein by reference).

17

10.23	Endorsement to 10% Senior Secured Convertible Note by the Company, dated October 31, 2011, and accepted by Special Situations Private Equity Fund, L.P. (included as Exhibit 10.2 to the Form 8-K filed November 3, 2011 and incorporated herein by reference).
10.24	Endorsement to 10% Senior Secured Convertible Note by the Company, dated October 31, 2011, and accepted by Special Situations Fund III QP, L.P. (included as Exhibit 10.3 to the Form 8-K filed November 3, 2011 and incorporated herein by reference).
10.25	Endorsement to 10% Senior Secured Convertible Note by the Company, dated July 31, 2012, and accepted by Arnold Schumsky (included as Exhibit 10.27 to the Form 10-K filed October 15, 2012, and incorporated herein by reference.)
10.26	Endorsement to 10% Senior Secured Convertible Note by the Company, dated August 31, 2012, and accepted by Arnold Schumsky (included as Exhibit 10.28 to the Form 10-K filed October 15, 2012, and incorporated herein by reference.)
10.27	Notice of Repayment of 10% Senior Secured Convertible Note in Full by the Company, dated September 28, 2012, and accepted by Arnold Schumsky (included as Exhibit 10.29 to the Form 10-K filed October 15, 2012, and incorporated herein by reference.)
10.28	Purchase Agreement by and among the Company and each investor named therein, dated September 28, 2012 (included as Exhibit 10.1 to the Form 8-K filed October 2, 2012 and incorporated herein by reference).
10.29	Settlement Agreement by and among the Company, Special Situations Fund III QP, L.P. and Special Situations Private Equity Fund, L.P., dated February 12, 2013 (included as Exhibit 10.1 to the Form 8-K filed February 13, 2013 and incorporated herein by reference).
10.30	Settlement Agreement by and between the Company and Joel Pitlor, dated February 12, 2013 (included as Exhibit 10.2 to the Form 8-K filed February 13, 2013 and incorporated herein by reference).
10.31	Settlement Agreement by and between the Company and Arnold Schumsky, dated February 12, 2013 (included as Exhibit 10.3 to the Form 8-K filed February 13, 2013 and incorporated herein by reference).
10.32	Form of Purchase Agreement by and among the Company and investor (included as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 7, 2014 and incorporated herein by reference).
10.33	Form of Registration Rights Agreement by and among the Company and investor (included as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed July 7, 2014 and incorporated herein by reference).
10.34	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).
10.35	Form of Purchase Agreement by and among the Company and investor (included as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed October 23, 2015 and incorporated herein by reference).

18

10.36	Form of Registration Rights Agreement by and among the Company and investors (included as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 23, 2015 and incorporated herein by reference).
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.
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase.
101.DEF*	XBRL Taxonomy Extension Definition Linkbase.
101.LAB*	XBRL Taxonomy Extension Label Linkbase.
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase.

* Filed herewith.

19

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 16, 2016	By:	/s/ Joseph N. Forkey
		Joseph N. Forkey
		Chief Executive Officer (Principal Executive Officer)
Date: February 16, 2016	By:	/s/ Jack P. Dreimiller
		Jack P. Dreimiller
		Chief Financial Officer  (Principal Financial Officer and Principal Accounting Officer)

20

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, 2015;

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 16, 2016		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, Jack P. Dreimiller, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Precision Optics Corporation, Inc. for the quarter ended December 31, 2015;

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/ Jack P. Dreimiller
Date: February 16, 2016		Jack P. Dreimiller
		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, 2015 (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 16, 2016	By:	/s/ Joseph N. Forkey
		Joseph N. Forkey
		Chief Executive Officer
		(Principal Executive Officer)
Date: February 16, 2016	By:	/s/ Jack P. Dreimiller
		Jack P. Dreimiller
		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.

XML

Document and Entity Information - shares	6 Months Ended
	Dec. 31, 2015	Feb. 16, 2016
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, 2015
Amendment Flag	false
Current Fiscal Year End Date	--06-30
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		7,434,582
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2016

XML

CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($)	Dec. 31, 2015	Jun. 30, 2015
Current Assets:
Cash and cash equivalents	$ 410,893	$ 241,051
Accounts receivable, net	425,733	588,042
Inventories, net	1,093,756	1,073,256
Prepaid expenses	89,212	65,182
Total current assets	2,019,594	1,967,531
Property and Equipment:
Machinery and equipment	2,435,499	2,431,127
Leasehold improvements	553,596	553,596
Furniture and fixtures	148,303	148,303
Vehicles	19,674	19,674
Total	3,157,072	3,152,700
Less: Accumulated depreciation	(3,107,840)	(3,096,993)
Net property and equipment	49,232	55,707
Patents, net	21,515	18,644
TOTAL ASSETS	2,090,341	2,041,882
Current Liabilities:
Accounts payable	852,781	912,150
Customer advances	47,970	118,800
Accrued employee compensation	223,132	222,222
Accrued professional services	37,536	60,735
Accrued warranty expense	25,000	25,000
Other accrued liabilities	74,258	36,087
Total current liabilities	1,260,677	1,374,994
Stockholders' Equity:
Common Stock, $0.01 par value - Authorized - 50,000,000 shares; Issued and Outstanding - 7,434,582 shares at December 31, 2015 and 6,389,806 shares at June 30, 2015	74,346	63,898
Additional paid-in capital	44,048,028	43,232,500
Accumulated deficit	(43,292,710)	(42,629,510)
Total stockholders' equity	829,664	666,888
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 2,090,341	$ 2,041,882

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Dec. 31, 2015	Jun. 30, 2015
STOCKHOLDERS' EQUITY
Common Stock par value	$ 0.01	$ 0.01
Common Stock shares authorized	50,000,000	50,000,000
Common Stock shares issued	7,434,582	6,389,806
Common Stock shares outstanding	7,434,582	6,389,806

XML

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2015	Dec. 31, 2014
Income Statement [Abstract]
Revenues	$ 954,772	$ 976,548	$ 1,813,199	$ 1,807,262
Cost of goods sold	737,750	814,036	1,463,839	1,532,612
Gross profit	217,022	162,512	349,360	274,650
Research and development expenses, net	108,146	138,893	258,914	215,605
Selling, general and administrative expenses	407,088	346,770	772,114	693,917
Gain on sale of assets	(16,902)	(1,928)	(18,468)	(17,210)
Total operating expenses	498,332	483,735	1,012,560	892,312
Net loss	$ (281,310)	$ (321,223)	$ (663,200)	$ (617,662)
Loss Per Share:
Basic	$ (.04)	$ (.05)	$ (.10)	$ (.10)
Diluted	$ (.04)	$ (.05)	$ (.10)	$ (.10)
Weighted Average Common Shares Outstanding:
Basic	7,230,169	6,262,584	6,809,988	6,195,793
Diluted	7,230,169	6,262,584	6,809,988	6,195,793

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)	6 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Cash Flows from Operating Activities:
Net loss	$ (663,200)	$ (617,662)
Adjustments to reconcile net loss to net cash used in operating activities -
Depreciation and amortization	10,847	8,888
Gain on sale of assets	(18,468)	(17,210)
Stock-based compensation expense	142,428	40,125
Non-cash consulting expense	47,850	18,000
Changes in operating assets and liabilities -
Accounts receivable, net	162,309	(156,394)
Inventories	(20,500)	(232,870)
Prepaid expenses	(24,030)	(17,586)
Accounts payable	(59,369)	233,736
Customer advances	(70,830)	73,800
Accrued expenses	(31,968)	6,972
Net cash used in operating activities	(524,931)	(660,201)
Cash Flows from Investing Activities:
Additional patent costs	(2,871)	(9,270)
Purchases of property and equipment	(4,372)	(57,671)
Proceeds from sale of assets	18,468	17,210
Net cash provided by (used in) investing activities	11,225	(49,731)
Cash Flows from Financing Activities:
Gross proceeds from private placement of common stock	700,000	980,291
Private placement expenses incurred as of December 31	(16,452)	(87,572)
Net cash provided by financing activities	683,548	892,719
Net increase (decrease) in cash and cash equivalents	169,842	182,787
Cash and cash equivalents, beginning of period	241,051	202,380
Cash and cash equivalents, end of period	410,893	385,167
Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes	912	912
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Issuance of 90,298 shares of common stock to consultants	$ 0	$ 65,015

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) - shares	6 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Statement of Cash Flows [Abstract]
Stock issued to consultants	0	90,298

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Dec. 31, 2015

Accounting Policies [Abstract]

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 2016. 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, 2015 together with the Report of Independent Registered Public Accounting Firm filed under cover of the Company’s 2015 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on October 13, 2015.

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, 2015 and 2014, 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, 2015 and 2014:

	Three Months Ended December 31						Six Months Ended December 31
	2015			2014			2015			2014
Net Income Loss – Basic and Diluted	$	(281,310	)	$	(321,223	)	$	(663,200	)	$	(617,662	)
Basic Weighted Average Shares Outstanding		7,230,169			6,262,584			6,809,988			6,195,793
Potentially Dilutive Securities		–			–			–			–
Diluted Weighted Average Shares Outstanding		7,230,169			6,262,584			6,809,988			6,195,793
Loss Per Share
Basic	$	(0.04	)	$	(0.05	)	$	(0.10	)	$	(0.10	)
Diluted	$	(0.04	)	$	(0.05	)	$	(0.10	)	$	(0.10	)

The number of shares issuable upon the exercise of outstanding stock options and warrants that were excluded from the computation as their effect was antidilutive was approximately 4,478,000 and 3,794,000 for the three months ended December 31, 2015 and 2014, respectively, and approximately 4,478,000 and 3,794,000 for the six months ended December 31, 2015 and 2014, 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.

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2. INVENTORIES

6 Months Ended

Dec. 31, 2015

Inventory Disclosure [Abstract]

INVENTORIES

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

	December 31, 2015		June 30, 2015
Raw Materials	$	482,135	$	485,266
Work-In-Progress		399,791		388,503
Finished Goods		211,830		199,487
Total Inventories	$	1,093,756	$	1,073,256

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3. STOCK-BASED COMPENSATION

6 Months Ended

Dec. 31, 2015

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

STOCK-BASED COMPENSATION

Stock-based compensation costs recognized during the quarters ended December 31, 2015 and 2014 amounted to $42,105 and $13,125 respectively, and the costs were included in the accompanying consolidated statements of operations in: selling, general and administrative expenses (2015 - $24,121; 2014 - $0), research and development expenses (2015 - $9,316, 2014 - $13,125) and cost of goods sold (2015 - $8,668; 2014 - $0). Stock-based compensation costs recognized during  the six month periods ended December 31, 2015 and 2014 amounted to $142,428 and $40,125, respectively, and were included in the accompanying consolidated statements of operations in: selling, general and administrative expenses (2015 - $60,378; 2014 - $27,000), research and development expenses (2015 - $38,707, 2014 - $13,125) and cost of goods sold (2015 - $43,343, 2014 - $0). 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, 2015:

	Options Outstanding
	Number of Shares		Weighted Average Exercise Price		Weighted Average Contractual Life
Outstanding at June 30, 2015		1,079,079	$	1.43		8.46 years
Cancellations		(3,800)	$	3.00
Outstanding at December 31, 2015		1,075,279	$	1.42		7.95 years

Information related to the stock options outstanding as of December 31, 2015 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
$	0.73		316,000		9.39	$	0.73		165,000	$	0.73
$	0.73		330,000		9.39	$	0.73		132,915	$	0.73
$	0.90		35,000		8.53	$	0.90		23,334	$	0.90
$	0.90		30,000		8.53	$	0.90		30,000	$	0.90
$	1.20		207,800		6.17	$	1.20		207,800	$	1.20
$	0.90		9,000		8.01	$	0.90		9,000	$	0.90
$	0.85		9,000		7.01	$	0.85		9,000	$	0.85
$	0.55		44,000		6.17	$	0.55		44,000	$	0.55
$	0.27		40,000		5.54	$	0.27		40,000	$	0.27
$	1.35		1,200		3.90	$	1.35		1,200	$	1.35
$	1.25		1,200		2.90	$	1.25		1,200	$	1.25
$	6.25		1,600		0.91	$	6.25		1,600	$	6.25
$	7.75		1,200		1.91	$	7.75		1,200	$	7.75
$	13.75		49,279		0.36	$	13.75		49,279	$	13.75
$	0.27–$13.75		1,075,279		7.96	$	1.42		715,528	$	1.77

The aggregate intrinsic value of the Company’s “in-the-money” outstanding and exercisable options as of December 31, 2015 was $21,280.

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4. SALE OF STOCK

6 Months Ended

Dec. 31, 2015

Equity [Abstract]

SALE OF STOCK

On October 19, 2015, the Company entered into agreements with accredited investors for the sale and purchase of 1,044,776 shares of the Company’s common stock, $0.01 par value at a purchase price of $0.67 per share. The Company received $700,000 in gross proceeds from the offering. The Company intends to use the net proceeds from this placement for general working capital purposes.

In conjunction with the placement, the Company also entered into a registration rights agreement with the investors, whereby the Company is obligated to file a registration statement with the Securities Exchange Commission on or before 90 calendar days after October 19, 2015 to register the resale by the investors of the 1,044,776 shares of the Company’s common stock purchased in the placement. The registration statement was filed on January 19, 2016 and became effective on February 1, 2016.

In conjunction with the offering, certain anti-dilution provisions of the warrants issued in conjunction with the Company’s June 25, 2008 and September 28, 2012 financing transactions were triggered. As a result, the number of existing June 25, 2008 warrants increased from 493,398 to 517,222 and the related exercise price of the warrants decreased from $1.03 to $0.98 per share. Also, as a result of the offering, the number of existing September 28, 2012 warrants increased from 2,189,724 to 2,293,013 and 217,322 to 222,559, respectively, and the related exercise price decreased from $1.11 to $1.06 and from $0.85 to $0.83, respectively.

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5. SALE OF ASSETS

6 Months Ended

Dec. 31, 2015

Property, Plant and Equipment Assets Held-for-sale Disclosure [Abstract]

SALE OF ASSETS

During the six months ended December 31, 2015, the Company sold equipment that was previously written off for proceeds totaling $18,468, and recorded a gain of $18,468, which is included within operating expenses in the accompanying consolidated statements of operations.

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Dec. 31, 2015

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 2016. 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, 2015 together with the Report of Independent Registered Public Accounting Firm filed under cover of the Company’s 2015 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on October 13, 2015.

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, 2015 and 2014, 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, 2015 and 2014:

	Three Months Ended December 31						Six Months Ended December 31
	2015			2014			2015			2014
Net Income Loss – Basic and Diluted	$	(281,310	)	$	(321,223	)	$	(663,200	)	$	(617,662	)
Basic Weighted Average Shares Outstanding		7,230,169			6,262,584			6,809,988			6,195,793
Potentially Dilutive Securities		–			–			–			–
Diluted Weighted Average Shares Outstanding		7,230,169			6,262,584			6,809,988			6,195,793
Loss Per Share
Basic	$	(0.04	)	$	(0.05	)	$	(0.10	)	$	(0.10	)
Diluted	$	(0.04	)	$	(0.05	)	$	(0.10	)	$	(0.10	)

The number of shares issuable upon the exercise of outstanding stock options and warrants that were excluded from the computation as their effect was antidilutive was approximately 4,478,000 and 3,794,000 for the three months ended December 31, 2015 and 2014, respectively, and approximately 4,478,000 and 3,794,000 for the six months ended December 31, 2015 and 2014, 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.

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

Dec. 31, 2015

Accounting Policies [Abstract]

Calculation of loss per share

	Three Months Ended December 31						Six Months Ended December 31
	2015			2014			2015			2014
Net Income Loss – Basic and Diluted	$	(281,310	)	$	(321,223	)	$	(663,200	)	$	(617,662	)
Basic Weighted Average Shares Outstanding		7,230,169			6,262,584			6,809,988			6,195,793
Potentially Dilutive Securities		–			–			–			–
Diluted Weighted Average Shares Outstanding		7,230,169			6,262,584			6,809,988			6,195,793
Loss Per Share
Basic	$	(0.04	)	$	(0.05	)	$	(0.10	)	$	(0.10	)
Diluted	$	(0.04	)	$	(0.05	)	$	(0.10	)	$	(0.10	)

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2. INVENTORIES (Tables)

6 Months Ended

Dec. 31, 2015

Inventory Disclosure [Abstract]

Schedule of inventory

	December 31, 2015		June 30, 2015
Raw Materials	$	482,135	$	485,266
Work-In-Progress		399,791		388,503
Finished Goods		211,830		199,487
Total Inventories	$	1,093,756	$	1,073,256

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3. STOCK-BASED COMPENSATION (Tables)

6 Months Ended

Dec. 31, 2015

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock option activity

The following tables summarize stock option activity for the six months ended December 31, 2015:

	Options Outstanding
	Number of Shares		Weighted Average Exercise Price		Weighted Average Contractual Life
Outstanding at June 30, 2015		1,079,079	$	1.43		8.46 years
Cancellations		(3,800)	$	3.00
Outstanding at December 31, 2015		1,075,279	$	1.42		7.95 years

Stock options outstanding by exercise price ranges

Information related to the stock options outstanding as of December 31, 2015 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
$	0.73		316,000		9.39	$	0.73		165,000	$	0.73
$	0.73		330,000		9.39	$	0.73		132,915	$	0.73
$	0.90		35,000		8.53	$	0.90		23,334	$	0.90
$	0.90		30,000		8.53	$	0.90		30,000	$	0.90
$	1.20		207,800		6.17	$	1.20		207,800	$	1.20
$	0.90		9,000		8.01	$	0.90		9,000	$	0.90
$	0.85		9,000		7.01	$	0.85		9,000	$	0.85
$	0.55		44,000		6.17	$	0.55		44,000	$	0.55
$	0.27		40,000		5.54	$	0.27		40,000	$	0.27
$	1.35		1,200		3.90	$	1.35		1,200	$	1.35
$	1.25		1,200		2.90	$	1.25		1,200	$	1.25
$	6.25		1,600		0.91	$	6.25		1,600	$	6.25
$	7.75		1,200		1.91	$	7.75		1,200	$	7.75
$	13.75		49,279		0.36	$	13.75		49,279	$	13.75
$	0.27–$13.75		1,075,279		7.96	$	1.42		715,528	$	1.77

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details - Loss per share) - USD ($)	3 Months Ended		6 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2015	Dec. 31, 2014
Accounting Policies [Abstract]
Net Income Loss - Basic and Diluted	$ (281,310)	$ (321,223)	$ (663,200)	$ (617,662)
Basic Weighted Average Shares Outstanding	7,230,169	6,262,584	6,809,988	6,195,793
Potentially Dilutive Securities	0	0	0	0
Diluted Weighted Average Shares Outstanding	7,230,169	6,262,584	6,809,988	6,195,793
Loss Per Share
Basic	$ (.04)	$ (.05)	$ (.10)	$ (.10)
Diluted	$ (.04)	$ (.05)	$ (.10)	$ (.10)

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - shares	3 Months Ended		6 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2015	Dec. 31, 2014
Accounting Policies [Abstract]
Outstanding stock options and warrants that were excluded from the computation as their effect was antidilutive	4,478,000	3,794,000	4,478,000	3,794,000

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2. INVENTORIES (Details) - USD ($)	Dec. 31, 2015	Jun. 30, 2015
Inventory Disclosure [Abstract]
Raw materials	$ 482,135	$ 485,266
Work-in-progress	399,791	388,503
Finished goods	211,830	199,487
Total inventories	$ 1,093,756	$ 1,073,256

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3. STOCK-BASED COMPENSATION (Details-stock option activity) - Stock Options - $ / shares	6 Months Ended	12 Months Ended
	Dec. 31, 2015	Jun. 30, 2015
Number of Shares
Options outstanding, beginning balance	1,079,079
Option cancellations	(3,800)
Options outstanding, ending balance	1,075,279	1,079,079
Weighted Average Exercise Price
Weighted average exercise price, options outstanding, beginning balance	$ 1.43
Weighted average exercise price, option cancellations	3.00
Weighted average exercise price, options outstanding, ending balance	$ 1.42	$ 1.43
Weighted Average Contractual Life	7 years 11 months 12 days	8 years 5 months 16 days

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3. STOCK-BASED COMPENSATION (Details) - $ / shares	3 Months Ended	6 Months Ended	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2015	Jun. 30, 2015
Stock Options
Range of exercise prices	$0.27-$13.75
Number of shares outstanding	1,075,279	1,075,279	1,079,079
Weighted average contractual life		7 years 11 months 12 days	8 years 5 months 16 days
Weighted average exercise price	$ 1.42	$ 1.42	$ 1.43
Exercisable number of shares	715,528	715,528
Exercisable weighted average exercise price	$ 1.77	$ 1.77
Option 1
Range of exercise prices	0.73
Number of shares outstanding	316,000	316,000
Weighted average contractual life	9 years 4 months 21 days
Weighted average exercise price	$ .73	$ .73
Exercisable number of shares	165,000	165,000
Exercisable weighted average exercise price	$ 0.73	$ 0.73
Option 2
Range of exercise prices	0.73
Number of shares outstanding	330,000	330,000
Weighted average contractual life	9 years 4 months 21 days
Weighted average exercise price	$ .73	$ .73
Exercisable number of shares	132,915	132,915
Exercisable weighted average exercise price	$ 0.73	$ 0.73
Option 3
Range of exercise prices	0.90
Number of shares outstanding	35,000	35,000
Weighted average contractual life	8 years 6 months 11 days
Weighted average exercise price	$ .90	$ .90
Exercisable number of shares	23,334	23,334
Exercisable weighted average exercise price	$ 0.90	$ 0.90
Option 4
Range of exercise prices	0.90
Number of shares outstanding	30,000	30,000
Weighted average contractual life	8 years 6 months 11 days
Weighted average exercise price	$ .90	$ .90
Exercisable number of shares	30,000	30,000
Exercisable weighted average exercise price	$ 0.90	$ 0.90
Option 5
Range of exercise prices	1.20
Number of shares outstanding	207,800	207,800
Weighted average contractual life	6 years 2 months 1 day
Weighted average exercise price	$ 1.20	$ 1.20
Exercisable number of shares	207,800	207,800
Exercisable weighted average exercise price	$ 1.20	$ 1.20
Option 6
Range of exercise prices	0.90
Number of shares outstanding	9,000	9,000
Weighted average contractual life	8 years 4 days
Weighted average exercise price	$ .90	$ .90
Exercisable number of shares	9,000	9,000
Exercisable weighted average exercise price	$ 0.90	$ 0.90
Option 7
Range of exercise prices	0.85
Number of shares outstanding	9,000	9,000
Weighted average contractual life	7 years 4 days
Weighted average exercise price	$ .85	$ .85
Exercisable number of shares	9,000	9,000
Exercisable weighted average exercise price	$ 0.85	$ 0.85
Option 8
Range of exercise prices	0.55
Number of shares outstanding	44,000	44,000
Weighted average contractual life	6 years 2 months 1 day
Weighted average exercise price	$ .55	$ .55
Exercisable number of shares	44,000	44,000
Exercisable weighted average exercise price	$ 0.55	$ 0.55
Option 9
Range of exercise prices	0.27
Number of shares outstanding	40,000	40,000
Weighted average contractual life	5 years 6 months 15 days
Weighted average exercise price	$ .27	$ .27
Exercisable number of shares	40,000	40,000
Exercisable weighted average exercise price	$ 0.27	$ 0.27
Option 10
Range of exercise prices	1.35
Number of shares outstanding	1,200	1,200
Weighted average contractual life	3 years 10 months 24 days
Weighted average exercise price	$ 1.35	$ 1.35
Exercisable number of shares	1,200	1,200
Exercisable weighted average exercise price	$ 1.35	$ 1.35
Option 11
Range of exercise prices	1.25
Number of shares outstanding	1,200	1,200
Weighted average contractual life	2 years 10 months 24 days
Weighted average exercise price	$ 1.25	$ 1.25
Exercisable number of shares	1,200	1,200
Exercisable weighted average exercise price	$ 1.25	$ 1.25
Option 12
Range of exercise prices	6.25
Number of shares outstanding	1,600	1,600
Weighted average contractual life	10 months 28 days
Weighted average exercise price	$ 6.25	$ 6.25
Exercisable number of shares	1,600	1,600
Exercisable weighted average exercise price	$ 6.25	$ 6.25
Option 13
Range of exercise prices	7.75
Number of shares outstanding	1,200	1,200
Weighted average contractual life	1 year 10 months 28 days
Weighted average exercise price	$ 7.75	$ 7.75
Exercisable number of shares	1,200	1,200
Exercisable weighted average exercise price	$ 7.75	$ 7.75
Option 14
Range of exercise prices	13.75
Number of shares outstanding	49,279	49,279
Weighted average contractual life	4 months 10 days
Weighted average exercise price	$ 13.75	$ 13.75
Exercisable number of shares	49,279	49,279
Exercisable weighted average exercise price	$ 13.75	$ 13.75

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3. STOCK-BASED COMPENSATION (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2015	Dec. 31, 2014
Stock-based compensation costs	$ 42,105	$ 13,125	$ 142,428	$ 40,125
Aggregate intrinsic value of "in the money" outstanding	21,280		21,280
Aggregate intrinsic value of "in the money" exercisable	21,280		21,280
Selling, General and Administrative Expenses
Stock-based compensation costs	24,121	0	60,378	27,000
Research and Development Expenses
Stock-based compensation costs	9,316	13,125	38,707	13,125
Cost of Goods Sold
Stock-based compensation costs	$ 8,668	$ 0	$ 43,343	$ 0

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4. SALE OF STOCK (Details Narrative)	3 Months Ended
	Dec. 31, 2015 USD ($) $ / shares shares
Stock issued new shares	1,044,776
Stock issued, value | $	$ 700,000
June 25, 2008 Warrants
Warrants outstanding	517,222
Warrant exercise price | $ / shares	$ .98
September 28, 2012 Warrants
Warrants outstanding	2,293,013
Warrant exercise price | $ / shares	$ 1.06
September 28, 2012 Warrants 2
Warrants outstanding	222,559
Warrant exercise price | $ / shares	$ .83

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5. SALE OF ASSETS (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2015	Dec. 31, 2014
Property, Plant and Equipment Assets Held-for-sale Disclosure [Abstract]
Proceeds from sale of assets			$ 18,468	$ 17,210
Gain on sale of assets	$ 16,902	$ 1,928	$ 18,468	$ 17,210