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 March 31, 2018

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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	x
(Do not check if a smaller reporting company)
		Emerging growth company	o

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

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 May 15, 2018 was 10,095,139 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 and Nine Months Ended March 31, 2018 and 2017	4
Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2018 and 2017	5
Notes to Consolidated Financial Statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3. Quantitative and Qualitative Disclosures About Market Risk	13
Item 4. Controls and Procedures	13
PART II — OTHER INFORMATION	15
Item 1. Legal Proceedings	15
Item 1A. Risk Factors	15
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	15
Item 3. Defaults Upon Senior Securities	15
Item 4. Mine Safety Disclosures (Not applicable.)	15
Item 5. Other Information	15
Item 6. Exhibits	16

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	March 31, 2018			June 30, 2017
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents	$	201,897		$	118,405
Accounts Receivable, net		579,165			468,548
Inventories, net		1,124,420			1,055,447
Prepaid Expenses		88,630			55,985
Total Current Assets		1,994,112			1,698,385
PROPERTY AND EQUIPMENT
Machinery and Equipment		2,507,190			2,507,190
Leasehold Improvements		553,596			553,596
Furniture and Fixtures		148,303			148,303
		3,209,089			3,209,089
Less: Accumulated Depreciation and Amortization		(3,158,563	)		(3,136,835	)
Net Fixed Assets		50,526			72,254
Patents, net		47,275			30,086
TOTAL ASSETS	$	2,091,913		$	1,800,725
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Current Portion of Capital Lease Obligation	$	8,816		$	8,391
Accounts Payable		642,579			694,958
Customer Advances		621,341			180,137
Accrued Employee Compensation		159,975			189,783
Accrued Professional Services		75,500			71,000
Accrued Warranty Expense		25,000			25,000
Other Accrued Liabilities		56,100			49,512
Total Current Liabilities		1,589,311			1,218,781
Capital Lease Obligation, net of current portion		16,897			23,564
STOCKHOLDERS’ EQUITY
Common Stock, $0.01 par value - Authorized - 50,000,000 shares; Issued and Outstanding – 10,095,139 shares at March 31, 2018 and 8,872,916 shares at June 30, 2017		100,952			88,729
Additional Paid-in Capital		45,423,867			45,140,383
Accumulated Deficit		(45,039,114	)		(44,670,732	)
Total Stockholders’ Equity		485,705			558,380
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,091,913		$	1,800,725

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 NINE MONTHS ENDED

March 31, 2018 AND 2017

(UNAUDITED)

	Three Months Ended March 31,						Nine Months Ended March 31,
	2018			2017			2018			2017
Revenues	$	735,597		$	983,186		$	2,577,116		$	2,434,324
Cost of Goods Sold		499,444			705,062			1,653,999			1,840,742
Gross Profit		236,153			278,124			923,117			593,582
Research and Development Expenses, net		126,365			122,313			334,823			358,520
Selling, General and Administrative Expenses		388,611			318,581			955,230			1,003,590
Gain on Sale of Assets		–			–			–			(1,515	)
Total Operating Expenses		514,976			440,894			1,290,053			1,360,595
Operating Loss		(278,823	)		(162,770	)		(366,936	)		(767,013	)
Interest Expense		(448	)		(583	)		(1,446	)		(1,843	)
Net Loss		(279,271	)		(163,353	)		(368,382	)		(768,856	)
Loss Per Share:
Basic	$	(0.03	)	$	(0.02	)	$	(0.04	)	$	(0.09	)
Diluted	$	(0.03	)	$	(0.02	)	$	(0.04	)	$	(0.09	)
Weighted Average Common Shares Outstanding:
Basic		10,095,139			8,872,916			9,724,904			8,167,320
Diluted		10,095,139			8,872,916			9,724,904			8,167,320

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 NINE MONTHS ENDED

March 31, 2018 AND 2017

(UNAUDITED)

	Nine Months Ended March 31,
	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss	$	(368,382	)	$	(768,856	)
Adjustments to Reconcile Net Loss to Net Cash Used In Operating Activities -
Depreciation and Amortization		21,728			24,909
Gain on Sale of Assets		–			(1,515	)
Stock-based Compensation Expense		42,002			154,743
Non-cash Consulting Expense		6,588			13,500
Bad Debt Expense		113,750			(18,377	)
Changes in Operating Assets and Liabilities -
Accounts Receivable, net		(224,367	)		234,835
Inventories, net		(68,973	)		10,229
Prepaid Expenses		(32,645	)		(14,225	)
Accounts Payable		(12,379	)		(229,445	)
Customer Advances		441,204			69,421
Accrued Liabilities		(25,308	)		(107,143	)
Net Cash Used In Operating Activities		(106,782	)		(631,924	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additional Patent Costs		(17,189	)		(5,848	)
Purchases of Property and Equipment		–			(27,719	)
Proceeds from Sale of Assets		–			1,515
Net Cash Used In Investing Activities		(17,189	)		(32,052	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of Capital Lease Obligation		(6,242	)		(5,844	)
Gross Proceeds from Private Placement of Common Stock		210,001			780,000
Gross Proceeds from Exercise of Stock Purchase Warrants		6,667			–
Private Placement Expense Paid		(2,963	)		(1,650	)
Net Cash Provided From Financing Activities		207,463			772,506
NET INCREASE IN CASH AND CASH EQUIVALENTS		83,492			108,530
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		118,405			50,059
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	201,897		$	158,589
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash Paid for Income Taxes	$	912		$	912
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
Issuance of Common Stock in Settlement of Accounts Payable	$	40,000		$	–
Offering Costs Included in Accounts Payable	$	–		$	22,296

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 third quarter and nine months of the Company’s fiscal year 2018. 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, 2017, together with the Report of Independent Registered Public Accounting Firm filed under cover of the Company’s 2017 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on September 28, 2017.

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 nine months ended March 31, 2018 and 2017, 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 nine months ended March 31, 2018 and 2017:

	Three Months Ended March 31						Nine Months Ended March 31
	2018			2017			2018			2017
Net Income (Loss) - Basic and Diluted	$	(279,271	)	$	(163,353	)	$	(368,382	)	$	(768,856	)
Basic and Dilutive Weighted Average Shares Outstanding		10,095,139			8,872,916			9,724,904			8,167,320
Loss Per Share - Basic and Diluted	$	(0.03	)	$	(0.02	)	$	(0.04	)	$	(0.09	)

The number of shares issuable upon the exercise of outstanding stock options and warrants that were excluded from the computation as their effect was antidilutive was approximately 1,042,200 and 5,152,547 for the three months ended March 31, 2018 and 2017, respectively, and approximately 4,739,960 and 5,152,547 for the nine months ended March 31, 2018 and 2017, respectively.

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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.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU guidance requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required regarding customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. The standard will be effective for the Company for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The Company is reviewing the effect on our financial statements, if any, of implementing ASU No. 2014-09, that will be adopted effective July 1, 2018.

2. INVENTORIES

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

	March 31, 2018		June 30, 2017
Raw Materials	$	427,859	$	501,346
Work-In-Progress		500,883		388,614
Finished Goods		195,678		165,487
Total Inventories	$	1,124,420	$	1,055,447

3. CAPITAL LEASE OBLIGATION

The Company entered into a five-year capital lease obligation in January 2016 for the acquisition of manufacturing equipment totaling $51,252. At March 31, 2018, future minimum lease payments under the capital lease obligation are as follows:

Fiscal Year Ending June 30:		Amount
	2018	$	2,562
	2019		10,250
	2020		10,250
	2021		5,126
	Total minimum payments		28,188
	Less: amount representing interest		2,475
	Present value of minimum lease payments		25,713
	Less: current portion		8,816
		$	16,897

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4. STOCK-BASED COMPENSATION

The following table summarizes stock-based compensation expense for the three and nine months ended March 31, 2018 and 2017:

	Three Months Ended March 31				Nine Months Ended March 31
	2018		2017		2018		2017
Cost of Goods Sold	$	–	$	8,669	$	8,669	$	26,007
Research and Development Expenses		2,323		6,692		9,335		22,701
Selling, General and Administrative Expenses		6,651		28,949		23,998		106,035
Stock Based Compensation Expense	$	8,974	$	44,310	$	42,002	$	154,743

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

The following tables summarize stock option activity for the nine months ended March 31, 2018:

	Options Outstanding
	Number of Shares			Weighted Average Exercise Price	Weighted Average Contractual Life
Outstanding at June 30, 2017	1,078,400		$	0.78	7.01 years
Granted	25,000
Expired or Cancelled	(61,200	)
Outstanding at March 31, 2018	1,042,200		$	0.77	6.33 years

Information related to the stock options outstanding as of March 31, 2018 is as follows:

Range of Exercise Prices		Number of Shares		Weighted- Average Remaining Contractual Life (years)		Weighted- Average Exercise Price		Exercisable Number of Shares		Exercisable Weighted- Average Exercise Price
$	0.27		40,000		3.29	$	0.27		40,000	$	0.27
$	0.40		15,000		9.08	$	0.40		10,000	$	0.40
$	0.48		60,000		8.00	$	0.48		60,000	$	0.48
$	0.50		80,000		8.23	$	0.50		45,000	$	0.50
$	0.50		20,000		3.22	$	0.50		20,000	$	0.50
$	0.55		29,500		3.87	$	0.55		29,500	$	0.55
$	0.64		25,000		9.62	$	0.64		15,000	$	0.64
$	0.73		514,500		7.13	$	0.73		494,500	$	0.73
$	0.85		9,000		4.76	$	0.85		9,000	$	0.85
$	0.90		9,000		5.76	$	0.90		9,000	$	0.90
$	0.95		30,000		6.28	$	0.95		30,000	$	0.95
$	1.20		207,800		3.92	$	1.20		207,800	$	1.20
$	1.25		1,200		0.65	$	1.25		1,200	$	1.25
$	1.35		1,200		1.65	$	1.35		1,200	$	1.35
$	0.27–1.35		1,042,200		6.33	$	0.77		972,200	$	0.78

The aggregate intrinsic value of the Company’s “in-the-money” outstanding and exercisable options as of March 31, 2018 was $22,650 and $20,150, respectively.

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5. WARRANTS

As of September 30, 2017, there were warrants outstanding for the issuance of an aggregate of 666,667 shares of common stock, $0.01 par value, at a purchase price of $0.01 per share. All warrants for 666,667 shares were exercised on or before October 16, 2017, by payment to the Company for the aggregate purchase price of $6,667. There are no warrants for the purchase of the Company’s stock outstanding as of March 31, 2018.

6. SALE OF STOCK

On August 22, 2017, the Company entered into agreements with accredited investors for the sale and purchase of 466,668 unregistered shares of its common stock, $0.01 par value at a purchase price of $0.45 per share. The Company received $210,001 in gross proceeds from the offering. The Company is using the net proceeds from this placement for general working capital purposes.

Concurrently with the placement, the Company entered into an agreement with an investor for the sale of 88,888 unregistered shares of its common stock for services provided to the Company at a price of $0.45 per share.

In connection with the placement, the Company also entered into a registration rights agreement with the investors, whereby the Company was obligated to file a registration statement with the Securities Exchange Commission on or before 90 calendar days after August 22, 2017 to register the resale by the investors of 555,556 shares of our common stock purchased in the placement. The registration statement was filed with the Securities and Exchange Commission on November 20, 2017 and became effective on December 13, 2017.

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

The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and notes to those statements included elsewhere in this Quarterly Report on Form 10-Q for the quarter and nine months ended March 31, 2018 and with our audited consolidated financial statements for the year ended June 30, 2017 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on September 28, 2017.

This Quarterly Report on Form 10-Q contains forward-looking statements. When used in this report, the words “anticipate,” “suggest,” “estimate,” “plan,” “project,” “continue,” “ongoing,” “potential,” “expect,” “predict,” “believe,” “intend,” “may,” “will,” “should,” “could,” “would” and similar expressions are intended to identify forward-looking statements. You should not place undue reliance on these forward-looking statements.  Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks described in this report, the risks described in our Annual Report on Form 10-K for the year ended June 30, 2017 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 developing and manufacturing advanced optical instruments since 1982. Today, the vast majority of our business is the design and manufacture of high-quality medical devices and less than 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. During the last ten to fifteen years, we 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 demanded smaller and more enhanced imaging systems for minimally invasive surgery. Over the last two years, our customers have engaged our unique engineering services to develop their custom imaging and illumination devices using our 3D endoscope and proprietary Microprecision™ technologies and know-how. Ultimately, those engineering projects provide us with prototype development and manufacturing service orders as our customers test and deliver their custom products to market.

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. Thus, a portion of our revenues is now derived from engineering and design services we performed for our customers to incorporate our technologies and capabilities into their medical device products. We believe that new products based on these technologies provide enhanced imaging for existing surgical procedures and can enable development of many new medical device products and related medical procedures.

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. Furthermore, other domestic or foreign companies, some with greater financial resources than we have, may seek to produce products or services that compete with ours. We routinely outsource specialized production efforts as required to obtain the most cost effective production.

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We believe that competition for sales of our medical products and services, which have been principally sold to original equipment manufacturers, or OEM, customers, is based on our ability to design and produce technical features, performance, engineering service and production scheduling, on-time delivery, quality control and product reliability, and competitive pricing.

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

For the nine months ended March 31, 2018, approximately 67% of our sales were made to seven customers. Of these, four were medium to large, international, medical device companies, and one was a large defense contractor. Each of these customers has been our customer for numerous years. The other two customers were early-stage companies developing endoscopic products that incorporate our unique design capabilities. Sales to these seven customers included both products we developed over five years ago and products we are currently developing 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 new technology platforms, which we believe are ready for general application to medical device projects requiring surgery-grade visualization from sub-millimeter sized devices and 3D endoscopy. We market directly to established medical device companies primarily in the United States that we believe could benefit from our advanced endoscopy visualization systems. Through this direct marketing, referrals, attendance at trade shows including Medical Design and Manufacturing West and MD&M East, and periodically a presence in online professional association websites, we have expanded our on-going pipeline of projects to significant medical device companies as well as well-funded emerging technology companies. We expect our customer pipeline to continue to expand as development projects transition to production orders and new customer projects enter the development phase.

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, 2017 filed with the Securities and Exchange Commission on September 28, 2017.

Results of Operations

Our total revenues for the quarter ended March 31, 2018, were $735,597, as compared to $983,186 for the same period in the prior year, a decrease of $247,589, or 25.2%. Engineering service revenues decreased during the quarter ended March 31, 2018 compared to the same quarter of the prior year by 53% and production revenues increased 9% during the quarter ended March 31, 2018 compared to the same quarter of the prior year. The majority of our revenues are derived from engineering design and manufacturing services related to products marketed or under development by our customers. Therefore, our revenues are subject to fluctuations on a product by product basis from period to period. The increase in production revenue during the quarter ended March 31, 2018 when compared to the same quarter of the prior year resulted primarily from an increase in sales of a traditional product to two long-standing customers. Engineering service revenue during the quarter ended March 31, 2018, when compared to the same quarter of the prior year included a similar number and size of projects, but decreased revenue recognized in the current quarter due to the stage of completion of the projects at March 31, 2018. We expect revenue recognized in the fourth quarter of fiscal 2018 to result from engineering services performed during the third quarter on projects in process at March 31, 2018. We believe most engineering design projects have the potential to generate production revenues when our customers achieve commercialization of the products under design.

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Our total revenues for the nine months ended March 31, 2018 were $2,577,116, as compared to $2,434,324 for the same period in the prior year, an increase of $142,792, or 5.9%. The increase in total revenues for the nine-month period ended March 31, 2018 compared to the same period of the prior year resulted from a decrease in engineering service revenue of 6% and an increase in production revenues of 15% during the current quarter. The engineering revenue decrease during the nine months ended March 31, 2018 compared to the same period of the prior year resulted primarily from revenue not yet recognized at March 31, 2018 due to the stage of completion of on-going projects. Production revenues increased during the nine months ended March 31, 2018 compared to the same period of the prior year due to the addition of an optical component project plus increases in various traditional device product sales to long-standing customers.

Management expects increases in production revenues in future fiscal quarters as customer engineering projects transition to customer production orders. We have now received production orders from two customers totaling approximately $2,000,000 which we expect to begin to fulfill in the fourth quarter of fiscal year 2018 and continuing into the next two fiscal years.

Gross profit for the quarter ended March 31, 2018 was $236,153, compared to $278,124 for the same period in the prior year, reflecting a decrease of $41,971, or 15.1%. Gross profit for the quarter ended March 31, 2018 as a percentage of our revenues was 32.1%, an increase from the gross profit percentage of 28.3% for the same period in the prior year. Gross profit for the nine months ended March 31, 2018 was $923,117, as compared to $593,582 for the same period in the prior year, which reflects an increase of $329,535 or 55.5%. Gross profit for the nine months ended March 31, 2018 as a percentage of our revenues was 35.8%, an increase from the gross profit percentage of 24.4% for the same period in the prior year. Quarterly gross profit and gross profit percentage depend on a number of factors, including overall sales volume, facility utilization, product sales mix, and the costs of engineering services and initial production in connection with new products. The improvement in our gross profit performance during the quarter and nine month periods ended March 31, 2018 resulted from current project mix, increased engineering and production activity absorbing a higher percentage of fixed manufacturing costs, and lower fixed compensation expense during a large portion of the nine months ended March 31, 2018. Management expects compensation costs to increase since new hires for similar positions have now been made. Additionally, targeted or better margins were realized on most engineering and production projects during the quarters ended December 31, 2017 and March 31, 2018, including the larger revenue projects in each category, due to experience related efficiencies in producing traditional products and engineering development activities associated with Microprecision™ technologies. Product mix and start-up production activities on products transitioning from engineering to production could result in lower future gross profit margins.

Research and development expenses were $126,365 for the quarter ended March 31, 2018, compared to $122,313 for the same period in the prior year, a slight increase of $4,052, or 3.3%. Research and development expenses were $334,823 for the nine months ended March 31, 2018, compared to $358,520 for the same period in the prior year, a decrease of $23,697, or 6.6%. The decrease in research and development expenses during the nine months ended March 31, 2018, compared to the same period of the prior year, resulted from a temporary reduction in engineering department staffing and a higher percentage of available engineering resources being consumed in revenue generating engagements with our customers for the development of their products. In-house research and development and certain internal functions not directly related to customer engagements are classified as research and development expenses.

Selling, general and administrative expenses were $388,611 for the quarter ended March 31, 2018, compared to $318,581 for the same period in the prior year, an increase of $70,030, or 22.0%, resulting primarily from an increase in the reserve for doubtful accounts receivable relating to one specific customer and charged to bad debt expense during the quarter ended March 31, 2018. Selling, general and administrative expenses were $955,230 for the nine months ended March 31, 2018, compared to $1,003,590 for the same period in the prior year, a decrease of $48,360, or 4.8%. The decrease in nine months ended March 31, 2018, compared to the same period in the prior year was primarily due to reduced stock-based compensation expense relating to stock options and stock accrued for consulting services, plus reduced wages resulting from the retirement of a sales person in January 2017 and a temporarily vacated administrative position which has since been filled. The expense reductions during the nine month period ended March 31, 2018 were partially offset by increased sales commissions and a $113,750 increase in the reserve for doubtful accounts receivable relating to one specific customer, $25,000 of which was charged to bad debt expense in the quarter ended December 31, 2017 and $88,750 charged in the quarter ended March 31, 2018.

12

No income tax provision was recorded in the quarter and nine-month periods ended March 31, 2018 and 2017 because of the losses generated in those periods.

Liquidity and Capital Resources

We have sustained recurring net losses for several years. During the quarter and nine-month periods ended March 31, 2018, we incurred net losses of $279,271 and $368,382, respectively. We also incurred net losses of $1,006,457 and $1,034,765 during the fiscal years ended June 30, 2017 and 2016, respectively, and used cash in operating activities of $667,434 and $876,298 during the same fiscal periods, respectively. As of March 31, 2018, cash and cash equivalents were $201,897, accounts receivable were $579,165, and current liabilities were $1,589,311. Our working capital was $404,801 and $479,604 at March 31, 2018 and June 30, 2017, respectively.

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 believes that the opportunities represented by these products have the potential to generate sales increases to achieve sustained breakeven and profitable results. However, our current financial condition may raise doubt regarding our ability to continue as a going concern, as referenced by the Report of our Independent Registered Public Accounting Firm on our financial statements for the year ended June 30, 2017, included in our Annual Report on Form 10-K.

We recognize that the working capital described above and our cash and accounts receivable as of March 31, 2018 is low considering the level of cash historically used in our operations at our current sales levels. Our accounts receivable and cash balances are subject to significant fluctuations based on the timing and amount of customer billings and accounts receivable collections as well as the terms of vendor payment obligations. If quarterly sales revenues do not increase and maintain near or above cash breakeven levels during the next six to nine months, we may be required to obtain cash for operations from non-working capital sources, which may not be available, in which case we would have to significantly decrease or cease operations.

The sale of additional equity or convertible debt securities would result in additional dilution to our stockholders, and debt financing, if available, may involve restrictive covenants that could restrict our operations or finances. Financing, if necessary, may not be available in amounts or on terms acceptable to us, if at all. If we cannot raise funds on acceptable terms, achieve positive cash flow, or continue to sufficiently manage our working capital, we may not be able to continue to conduct operations, develop new products, grow periodic revenues or 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, financial condition, and ability to continue as a going concern.

Capital equipment and patent application related expenditures during the nine months ended March 31, 2018 and 2017 were $17,189 and $33,567, respectively. Future capital equipment and patent application expenditures will depend upon future sales and success of on-going research and development efforts.

We have contractual cash commitments related to open purchase orders as of March 31, 2018 of approximately $674,413, including a $25,713 commitment remaining under a five-year capital lease obligation for the acquisition of equipment (see Note 3. Capital Lease Obligation). The increase in contractual cash commitments at March 31, 2018 compared to commitments of $388,000 at December 31, 2017, is the result of our entering into increased vendor purchase agreements related to anticipated sales from two customer production orders received in the recent quarter totaling approximately $2,000,000 of expected revenue in the next two fiscal years. We have no other contractual cash commitments since leased facilities are currently on a month-to-month basis.

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.

13

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 March 31, 2018, 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 March 31, 2018.

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, 2008-2017, 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, 2017, no audit adjustments resulting from this condition were required.

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

We believe that the step outlined above strengthens our internal control over financial reporting and mitigates the material weakness described above. As part of our assessment of internal control over financial reporting for the fiscal year ended June 30, 2017, our management has evaluated this additional control and has determined that it is operating effectively.

Inventory Valuation: As previously disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2017, 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. Audit adjustments of approximately $58,000 and $41,000 to our audited financial statements as of June 30, 2011 and June 30, 2017, respectively, were 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 March 31, 2018, 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.

14

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

Other than as described below, there have been no material changes from the risk factors previously disclosed in our annual report on Form 10-K for the fiscal year ended June 30, 2017, as filed with the Securities and Exchange Commission on September 28, 2017; our quarterly report for the quarter ended September 30, 2017, as filed with the Securities and Exchange Commission on November 14, 2017; and our quarterly report for the quarter ended December 31, 2017, as filed with the Securities and Exchange Commission on February 14, 2018.

As of March 31, 2018, we may not have sufficient cash to continue operations for the next six to nine months.

As of March 31, 2018, we had $201,897 in cash and cash equivalents, $579,165 in accounts receivable, and $1,589,311 in current liabilities. We incurred net losses of $368,382 and $1,006,457 during the nine months ended March 31, 2018 and the fiscal year ended June 30, 2017, respectively. If quarterly sales revenues do not increase and maintain near or above cash breakeven levels in the next six to nine months, we may be required to obtain cash for operations from non-working capital sources, which may not be available, in which case we would have to significantly decrease or cease operations. The sale of additional equity or convertible debt securities would result in additional dilution to our stockholders, and debt financing, if available, may involve restrictive covenants that could restrict our operations or finances. Financing, if necessary, 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, financial condition and our ability to continue as a going concern.

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

We did not issue any unregistered equity securities during the quarter ended March 31, 2018.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

15

Item 6. Exhibits.

Exhibit	Description
2.1	Asset Purchase Agreement between the Company and Optometrics Corporation, dated January 18, 2008 (included as Exhibit 2.1 to the Form 8-K filed January 25, 2008 and incorporated herein by reference).
3.1	Articles of Organization of Precision Optics Corporation, Inc., as amended (included as Exhibit 3.1 to the Form SB-2 filed March 16, 2007, and incorporated herein by reference).
3.2	Bylaws of Precision Optics Corporation, Inc. (included as Exhibit 3.2 to the Form S-1 filed December 18, 2008, and incorporated herein by reference).
3.3	Articles of Amendment to the Articles of Organization of Precision Optics Corporation, Inc., dated November 25, 2008 and effective December 11, 2008 (included as Exhibit 3.1 to the Form 8-K filed December 11, 2008, and incorporated herein by reference).
3.4	Amended and Restated Bylaws of Precision Optics Corporation, Inc. (included as Exhibit 3.1 to the Current Report on Form 8-K filed July 11, 2014, and incorporated herein by reference).
10.1	Precision Optics Corporation, Inc. 2011 Equity Incentive Plan, dated October 13, 2011 (included as Exhibit 10.2 to Form S-8 filed October 14, 2011, and incorporated herein by reference.)

10.2	Precision Optics Corporation, Inc. Amended 2011 Equity Incentive Plan, dated October 14, 2011, as amended on April 16, 2015 (included as Exhibit 10.1 to the Company’s Registration Statement on Form S-8 filed April 20, 2015, and incorporated herein by reference).
10.3	Consulting Agreement with Donald A. Major dated June 15, 2016 (included as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 23, 2016, and incorporated herein by reference).
10.4	Form of Purchase Agreement, by and among Precision Optics Corporation, Inc. and several Investors, dated November 22, 2016 (included as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 29, 2016, and incorporated herein by reference).
10.5	Form of Registration Rights Agreement, by and among Precision Optics Corporation, Inc. and several Investors, dated November 22, 2016 (included as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on November 29, 2016, and incorporated herein by reference).
10.6	Form of Purchase Agreement, by and among Precision Optics Corporation, Inc. and several Investors, dated August 22, 2017 (included as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 25, 2017, and incorporated herein by reference).
10.7	Form of Registration Rights Agreement, by and among Precision Optics Corporation, Inc. and several Investors, dated August 22, 2017 (included as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 25, 2017, 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.

16

101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

17

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: May 15, 2018	By:	/s/ Joseph N. Forkey
		Joseph N. Forkey
		Chief Executive Officer (Principal Executive Officer)
Date: May 15, 2018	By:	/s/ Donald A. Major
		Donald A. Major
		Chief Financial Officer  (Principal Financial Officer and Principal Accounting Officer)

18

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 March 31, 2018;

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: May 15, 2018		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, Donald A. Major, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Precision Optics Corporation, Inc. for the quarter ended March 31, 2018;

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/ Donald A. Major
Date: May 15, 2018		Donald A. Major
		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 March 31, 2018 (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: May 15, 2018	By:	/s/ Joseph N. Forkey
		Joseph N. Forkey
		Chief Executive Officer
		(Principal Executive Officer)
Date: May 15, 2018	By:	/s/ Donald A. Major
		Donald A. Major
		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	9 Months Ended
	Mar. 31, 2018	May 15, 2018
Document And Entity Information
Entity Registrant Name	PRECISION OPTICS CORPORATION, INC.
Entity Central Index Key	0000867840
Document Type	10-Q
Document Period End Date	Mar. 31, 2018
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		10,095,139
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2018
Entity Small Business	true

XML

CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($)	Mar. 31, 2018	Jun. 30, 2017
Current Assets:
Cash and cash equivalents	$ 201,897	$ 118,405
Accounts receivable, net	579,165	468,548
Inventories, net	1,124,420	1,055,447
Prepaid expenses	88,630	55,985
Total current assets	1,994,112	1,698,385
Property and Equipment:
Machinery and equipment	2,507,190	2,507,190
Leasehold improvements	553,596	553,596
Furniture and fixtures	148,303	148,303
Total	3,209,089	3,209,089
Less: Accumulated depreciation and amortization	(3,158,563)	(3,136,835)
Net fixed assets	50,526	72,254
Patents, net	47,275	30,086
TOTAL ASSETS	2,091,913	1,800,725
Current Liabilities:
Current portion of capital lease obligation	8,816	8,391
Accounts payable	642,579	694,958
Customer advances	621,341	180,137
Accrued employee compensation	159,975	189,783
Accrued professional services	75,500	71,000
Accrued warranty expense	25,000	25,000
Other accrued liabilities	56,100	49,512
Total current liabilities	1,589,311	1,218,781
Capital lease obligation, net of current portion	16,897	23,564
Stockholders' Equity:
Common Stock, $0.01 par value - Authorized - 50,000,000 shares; Issued and Outstanding 10,095,139 shares at March 31, 2018 and 8,872,916 shares at June 30, 2017	100,952	88,729
Additional paid-in capital	45,423,867	45,140,383
Accumulated deficit	(45,039,114)	(44,670,732)
Total stockholders' equity	485,705	558,380
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 2,091,913	$ 1,800,725

XML

CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares	Mar. 31, 2018	Jun. 30, 2017
STOCKHOLDERS' EQUITY
Common Stock par value	$ 0.01	$ 0.01
Common Stock shares authorized	50,000,000	50,000,000
Common Stock shares issued	10,095,139	8,872,916
Common Stock shares outstanding	10,095,139	8,872,916

XML

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Mar. 31, 2018	Mar. 31, 2017
Income Statement [Abstract]
Revenues	$ 735,597	$ 983,186	$ 2,577,116	$ 2,434,324
Cost of goods sold	499,444	705,062	1,653,999	1,840,742
Gross profit	236,153	278,124	923,117	593,582
Research and development expenses, net	126,365	122,313	334,823	358,520
Selling, general and administrative expenses	388,611	318,581	955,230	1,003,590
Gain on sale of assets	0	0	0	(1,515)
Total operating expenses	514,976	440,894	1,290,053	1,360,595
Operating loss	(278,823)	(162,770)	(366,936)	(767,013)
Interest expense	(448)	(583)	(1,446)	(1,843)
Net loss	$ (279,271)	$ (163,353)	$ (368,382)	$ (768,856)
Loss Per Share:
Basic	$ (.03)	$ (.02)	$ (0.04)	$ (0.09)
Diluted	$ (0.03)	$ (0.02)	$ (0.04)	$ (0.09)
Weighted Average Common Shares Outstanding:
Basic	10,095,139	8,872,916	9,724,904	8,167,320
Diluted	10,095,139	8,872,916	9,724,904	8,167,320

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)	9 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Cash Flows from Operating Activities:
Net loss	$ (368,382)	$ (768,856)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization	21,728	24,909
Gain on sale of assets	0	(1,515)
Stock-based compensation expense	42,002	154,743
Non-cash consulting expense	6,588	13,500
Bad debt expense	113,750	(18,377)
Changes in operating assets and liabilities
Accounts receivable, net	(224,367)	234,835
Inventories, net	(68,973)	10,229
Prepaid expenses	(32,645)	(14,225)
Accounts payable	(12,379)	(229,445)
Customer advances	441,204	69,421
Accrued liabilities	(25,308)	(107,143)
Net cash used in operating activities	(106,782)	(631,924)
Cash Flows from Investing Activities:
Additional patent costs	(17,189)	(5,848)
Purchases of property and equipment	0	(27,719)
Proceeds from sale of assets	0	1,515
Net cash used in investing activities	(17,189)	(32,052)
Cash Flows from Financing Activities:
Payment of capital lease obligation	(6,242)	(5,844)
Gross proceeds from private placement of common stock	210,001	780,000
Gross proceeds from exercise of stock purchase warrrants	6,667	0
Private Placement Expense Paid	(2,963)	(1,650)
Net cash provided from financing activities	207,463	772,506
Net increase in cash and cash equivalents	83,492	108,530
Cash and cash equivalents, beginning of period	118,405	50,059
Cash and cash equivalents, end of period	201,897	158,589
Supplemental disclosure of cash flow information:
Cash paid for income taxes	912	912
Supplemental disclosure of non-cash financing and investing activities:
Issuance of common stock in settlement of accounts payable	40,000	0
Offering costs included in accounts payable	$ 0	$ 22,296

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Mar. 31, 2018

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Operations

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

These consolidated financial statements have been prepared by the Company, without audit, and reflect normal recurring adjustments which, in the opinion of management, are necessary for a fair statement of the results of the third quarter and nine months of the Company’s fiscal year 2018. 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, 2017, together with the Report of Independent Registered Public Accounting Firm filed under cover of the Company’s 2017 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on September 28, 2017.

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 nine months ended March 31, 2018 and 2017, 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 nine months ended March 31, 2018 and 2017:

	Three Months Ended March 31						Nine Months Ended March 31
	2018			2017			2018			2017
Net Income (Loss) - Basic and Diluted	$	(279,271	)	$	(163,353	)	$	(368,382	)	$	(768,856	)
Basic and Dilutive Weighted Average Shares Outstanding		10,095,139			8,872,916			9,724,904			8,167,320
Loss Per Share - Basic and Diluted	$	(0.03	)	$	(0.02	)	$	(0.04	)	$	(0.09	)

The number of shares issuable upon the exercise of outstanding stock options and warrants that were excluded from the computation as their effect was antidilutive was approximately 1,042,200 and 5,152,547 for the three months ended March 31, 2018 and 2017, respectively, and approximately 4,739,960 and 5,152,547 for the nine months ended March 31, 2018 and 2017, 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.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU guidance requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required regarding customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. The standard will be effective for the Company for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The Company is reviewing the effect on our financial statements, if any, of implementing ASU No. 2014-09, that will be adopted effective July 1, 2018.

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2. INVENTORIES

9 Months Ended

Mar. 31, 2018

Inventory Disclosure [Abstract]

INVENTORIES

2. INVENTORIES

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

	March 31, 2018		June 30, 2017
Raw Materials	$	427,859	$	501,346
Work-In-Progress		500,883		388,614
Finished Goods		195,678		165,487
Total Inventories	$	1,124,420	$	1,055,447

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3. CAPITAL LEASE OBLIGATION

9 Months Ended

Mar. 31, 2018

Debt Disclosure [Abstract]

CAPITAL LEASE OBLIGATION

3. CAPITAL LEASE OBLIGATION

The Company entered into a five-year capital lease obligation in January 2016 for the acquisition of manufacturing equipment totaling $51,252. At March 31, 2018, future minimum lease payments under the capital lease obligation are as follows:

Fiscal Year Ending June 30:		Amount
	2018	$	2,562
	2019		10,250
	2020		10,250
	2021		5,126
	Total minimum payments		28,188
	Less: amount representing interest		2,475
	Present value of minimum lease payments		25,713
	Less: current portion		8,816
		$	16,897

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4. STOCK-BASED COMPENSATION

9 Months Ended

Mar. 31, 2018

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

STOCK-BASED COMPENSATION

4. STOCK-BASED COMPENSATION

The following table summarizes stock-based compensation expense for the three and nine months ended March 31, 2018 and 2017:

	Three Months Ended March 31				Nine Months Ended March 31
	2018		2017		2018		2017
Cost of Goods Sold	$	–	$	8,669	$	8,669	$	26,007
Research and Development Expenses		2,323		6,692		9,335		22,701
Selling, General and Administrative Expenses		6,651		28,949		23,998		106,035
Stock Based Compensation Expense	$	8,974	$	44,310	$	42,002	$	154,743

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

The following tables summarize stock option activity for the nine months ended March 31, 2018:

	Options Outstanding
	Number of Shares			Weighted Average Exercise Price	Weighted Average Contractual Life
Outstanding at June 30, 2017	1,078,400		$	0.78	7.01 years
Granted	25,000
Expired or Cancelled	(61,200	)
Outstanding at March 31, 2018	1,042,200		$	0.77	6.33 years

Information related to the stock options outstanding as of March 31, 2018 is as follows:

Range of Exercise Prices		Number of Shares		Weighted- Average Remaining Contractual Life (years)		Weighted- Average Exercise Price		Exercisable Number of Shares		Exercisable Weighted- Average Exercise Price
$	0.27		40,000		3.29	$	0.27		40,000	$	0.27
$	0.40		15,000		9.08	$	0.40		10,000	$	0.40
$	0.48		60,000		8.00	$	0.48		60,000	$	0.48
$	0.50		80,000		8.23	$	0.50		45,000	$	0.50
$	0.50		20,000		3.22	$	0.50		20,000	$	0.50
$	0.55		29,500		3.87	$	0.55		29,500	$	0.55
$	0.64		25,000		9.62	$	0.64		15,000	$	0.64
$	0.73		514,500		7.13	$	0.73		494,500	$	0.73
$	0.85		9,000		4.76	$	0.85		9,000	$	0.85
$	0.90		9,000		5.76	$	0.90		9,000	$	0.90
$	0.95		30,000		6.28	$	0.95		30,000	$	0.95
$	1.20		207,800		3.92	$	1.20		207,800	$	1.20
$	1.25		1,200		0.65	$	1.25		1,200	$	1.25
$	1.35		1,200		1.65	$	1.35		1,200	$	1.35
$	0.27–1.35		1,042,200		6.33	$	0.77		972,200	$	0.78

The aggregate intrinsic value of the Company’s “in-the-money” outstanding and exercisable options as of March 31, 2018 was $22,650 and $20,150, respectively.

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5. WARRANTS

9 Months Ended

Mar. 31, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

WARRANTS

5. WARRANTS

As of September 30, 2017, there were warrants outstanding for the issuance of an aggregate of 666,667 shares of common stock, $0.01 par value, at a purchase price of $0.01 per share. All warrants for 666,667 shares were exercised on or before October 16, 2017, by payment to the Company for the aggregate purchase price of $6,667. There are no warrants for the purchase of the Company’s stock outstanding as of March 31, 2018.

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6. SALE OF STOCK

9 Months Ended

Mar. 31, 2018

Equity [Abstract]

SALE OF STOCK

6. SALE OF STOCK

On August 22, 2017, the Company entered into agreements with accredited investors for the sale and purchase of 466,668 unregistered shares of its common stock, $0.01 par value at a purchase price of $0.45 per share. The Company received $210,001 in gross proceeds from the offering. The Company is using the net proceeds from this placement for general working capital purposes.

Concurrently with the placement, the Company entered into an agreement with an investor for the sale of 88,888 unregistered shares of its common stock for services provided to the Company at a price of $0.45 per share.

In connection with the placement, the Company also entered into a registration rights agreement with the investors, whereby the Company was obligated to file a registration statement with the Securities Exchange Commission on or before 90 calendar days after August 22, 2017 to register the resale by the investors of 555,556 shares of our common stock purchased in the placement. The registration statement was filed with the Securities and Exchange Commission on November 20, 2017 and became effective on December 13, 2017.

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Mar. 31, 2018

Accounting Policies [Abstract]

Principles of Consolidation

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 third quarter and nine months of the Company’s fiscal year 2018. 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, 2017, together with the Report of Independent Registered Public Accounting Firm filed under cover of the Company’s 2017 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on September 28, 2017.

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 nine months ended March 31, 2018 and 2017, 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 nine months ended March 31, 2018 and 2017:

	Three Months Ended March 31						Nine Months Ended March 31
	2018			2017			2018			2017
Net Income (Loss) - Basic and Diluted	$	(279,271	)	$	(163,353	)	$	(368,382	)	$	(768,856	)
Basic and Dilutive Weighted Average Shares Outstanding		10,095,139			8,872,916			9,724,904			8,167,320
Loss Per Share - Basic and Diluted	$	(0.03	)	$	(0.02	)	$	(0.04	)	$	(0.09	)

The number of shares issuable upon the exercise of outstanding stock options and warrants that were excluded from the computation as their effect was antidilutive was approximately 1,042,200 and 5,152,547 for the three months ended March 31, 2018 and 2017, respectively, and approximately 4,739,960 and 5,152,547 for the nine months ended March 31, 2018 and 2017, 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.

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU guidance requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required regarding customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. The standard will be effective for the Company for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The Company is reviewing the effect on our financial statements, if any, of implementing ASU No. 2014-09, that will be adopted effective July 1, 2018.

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

9 Months Ended

Mar. 31, 2018

Accounting Policies [Abstract]

Income (Loss) per Share

	Three Months Ended March 31						Nine Months Ended March 31
	2018			2017			2018			2017
Net Income (Loss) - Basic and Diluted	$	(279,271	)	$	(163,353	)	$	(368,382	)	$	(768,856	)
Basic and Dilutive Weighted Average Shares Outstanding		10,095,139			8,872,916			9,724,904			8,167,320
Loss Per Share - Basic and Diluted	$	(0.03	)	$	(0.02	)	$	(0.04	)	$	(0.09	)

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2. INVENTORIES (Tables)

9 Months Ended

Mar. 31, 2018

Inventory Disclosure [Abstract]

Schedule of inventory

	March 31, 2018		June 30, 2017
Raw Materials	$	427,859	$	501,346
Work-In-Progress		500,883		388,614
Finished Goods		195,678		165,487
Total Inventories	$	1,124,420	$	1,055,447

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3. CAPITAL LEASE OBLIGATION (Tables)

9 Months Ended

Mar. 31, 2018

Debt Disclosure [Abstract]

Future minimum capital lease payments

Fiscal Year Ending June 30:		Amount
	2018	$	2,562
	2019		10,250
	2020		10,250
	2021		5,126
	Total minimum payments		28,188
	Less: amount representing interest		2,475
	Present value of minimum lease payments		25,713
	Less: current portion		8,816
		$	16,897

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4. STOCK-BASED COMPENSATION (Tables)

9 Months Ended

Mar. 31, 2018

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

Schedule of stock-based compensation expense

	Three Months Ended March 31				Nine Months Ended March 31
	2018		2017		2018		2017
Cost of Goods Sold	$	–	$	8,669	$	8,669	$	26,007
Research and Development Expenses		2,323		6,692		9,335		22,701
Selling, General and Administrative Expenses		6,651		28,949		23,998		106,035
Stock Based Compensation Expense	$	8,974	$	44,310	$	42,002	$	154,743

Stock option activity

	Options Outstanding
	Number of Shares			Weighted Average Exercise Price	Weighted Average Contractual Life
Outstanding at June 30, 2017	1,078,400		$	0.78	7.01 years
Granted	25,000
Expired or Cancelled	(61,200	)
Outstanding at March 31, 2018	1,042,200		$	0.77	6.33 years

Stock options outstanding by exercise price range

Range of Exercise Prices		Number of Shares		Weighted- Average Remaining Contractual Life (years)		Weighted- Average Exercise Price		Exercisable Number of Shares		Exercisable Weighted- Average Exercise Price
$	0.27		40,000		3.29	$	0.27		40,000	$	0.27
$	0.40		15,000		9.08	$	0.40		10,000	$	0.40
$	0.48		60,000		8.00	$	0.48		60,000	$	0.48
$	0.50		80,000		8.23	$	0.50		45,000	$	0.50
$	0.50		20,000		3.22	$	0.50		20,000	$	0.50
$	0.55		29,500		3.87	$	0.55		29,500	$	0.55
$	0.64		25,000		9.62	$	0.64		15,000	$	0.64
$	0.73		514,500		7.13	$	0.73		494,500	$	0.73
$	0.85		9,000		4.76	$	0.85		9,000	$	0.85
$	0.90		9,000		5.76	$	0.90		9,000	$	0.90
$	0.95		30,000		6.28	$	0.95		30,000	$	0.95
$	1.20		207,800		3.92	$	1.20		207,800	$	1.20
$	1.25		1,200		0.65	$	1.25		1,200	$	1.25
$	1.35		1,200		1.65	$	1.35		1,200	$	1.35
$	0.27–1.35		1,042,200		6.33	$	0.77		972,200	$	0.78

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details - Loss per share) - USD ($)	3 Months Ended		9 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Mar. 31, 2018	Mar. 31, 2017
Accounting Policies [Abstract]
Net Income (Loss) - Basic and Diluted	$ (279,271)	$ (163,353)	$ (368,382)	$ (768,856)
Basic and Diluted Weighted Average Shares Outstanding	10,095,139	8,872,916	9,724,904	8,167,320
Loss Per Share - Basic and Diluted	$ (0.03)	$ (0.02)	$ (0.04)	$ (0.09)

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - shares	3 Months Ended		9 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Mar. 31, 2018	Mar. 31, 2017
Accounting Policies [Abstract]
Outstanding stock options and warrants that were excluded from the computation as their effect was antidilutive	1,042,200	5,152,547	4,739,960	5,152,547

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2. INVENTORIES (Details) - USD ($)	Mar. 31, 2018	Jun. 30, 2017
Inventory Disclosure [Abstract]
Raw materials	$ 427,859	$ 501,346
Work-in-progress	500,883	388,614
Finished goods	195,678	165,487
Total inventories	$ 1,124,420	$ 1,055,447

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3. CAPITAL LEASE OBLIGATION (Details) - USD ($)	Mar. 31, 2018	Jun. 30, 2017
Debt Disclosure [Abstract]
2018	$ 2,562
2019	10,250
2020	10,250
2021	5,126
Total minimum payments	28,188
Less: amount representing interest	2,475
Present value of minimum lease payments	25,713
Less: current portion	8,816	$ 8,391
Capital lease obligation, noncurrent	$ 16,897	$ 23,564

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3. CAPITAL LEASE OBLIGATION (Details Narrative)	Jan. 31, 2016 USD ($)
Debt Disclosure [Abstract]
Capital lease obligation	$ 51,252

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4. STOCK-BASED COMPENSATION (Details - Stock based compensation) - USD ($)	3 Months Ended		9 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Mar. 31, 2018	Mar. 31, 2017
Stock based compensation expense	$ 8,974	$ 44,310	$ 42,002	$ 154,743
Cost of Goods Sold [Member]
Stock based compensation expense	0	8,669	8,669	26,007
Research and Development Expenses [Member]
Stock based compensation expense	2,323	6,692	9,335	22,701
Selling, General and Administrative Expenses [Member]
Stock based compensation expense	$ 6,651	$ 28,949	$ 23,998	$ 106,035

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4. STOCK-BASED COMPENSATION (Details - Option activity) - Stock Options [Member]	9 Months Ended
	Mar. 31, 2018 $ / shares shares
Number of Shares
Options outstanding, beginning	1,078,400
Options granted	25,000
Options expired or cancelled	(61,200)
Options outstanding, ending	1,042,200
Weighted Average Exercise Price
Weighted average exercise price, beginning price | $ / shares	$ 0.78
Weighted average exercise price, ending price | $ / shares	$ 0.77
Weighted Average Contractual Life
Weighted Average Contractual Life, beginning	7 years 4 days
Weighted Average Contractual Life, ending	6 years 3 months 29 days

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4. STOCK-BASED COMPENSATION (Details - Options by exercise price) - $ / shares	9 Months Ended
	Mar. 31, 2018	Jun. 30, 2017
Stock Options [Member]
Range of exercise prices	$0.27-$1.35
Number of shares outstanding	1,042,200	1,078,400
Weighted average contractual life	6 years 3 months 29 days
Weighted average exercise price	$ 0.77	$ 0.78
Exercisable number of shares	972,200
Exercisable weighted average exercise price	$ 0.78
Option 1 [Member]
Range of exercise prices	0.27
Number of shares outstanding	40,000
Weighted average contractual life	3 years 3 months 15 days
Weighted average exercise price	$ .27
Exercisable number of shares	40,000
Exercisable weighted average exercise price	$ 0.27
Option 2 [Member]
Range of exercise prices	0.40
Number of shares outstanding	15,000
Weighted average contractual life	9 years 29 days
Weighted average exercise price	$ 0.40
Exercisable number of shares	10,000
Exercisable weighted average exercise price	$ 0.40
Option 3 [Member]
Range of exercise prices	0.48
Number of shares outstanding	60,000
Weighted average contractual life	8 years
Weighted average exercise price	$ 0.48
Exercisable number of shares	60,000
Exercisable weighted average exercise price	$ 0.48
Option 4 [Member]
Range of exercise prices	0.50
Number of shares outstanding	80,000
Weighted average contractual life	8 years 2 months 23 days
Weighted average exercise price	$ 0.50
Exercisable number of shares	45,000
Exercisable weighted average exercise price	$ 0.50
Option 5 [Member]
Range of exercise prices	0.50
Number of shares outstanding	20,000
Weighted average contractual life	3 years 2 months 19 days
Weighted average exercise price	$ 0.50
Exercisable number of shares	20,000
Exercisable weighted average exercise price	$ 0.50
Option 6 [Member]
Range of exercise prices	0.55
Number of shares outstanding	29,500
Weighted average contractual life	3 years 10 months 14 days
Weighted average exercise price	$ 0.55
Exercisable number of shares	29,500
Exercisable weighted average exercise price	$ 0.55
Option 7 [Member]
Range of exercise prices	0.64
Number of shares outstanding	25,000
Weighted average contractual life	9 years 7 months 13 days
Weighted average exercise price	$ 0.64
Exercisable number of shares	15,000
Exercisable weighted average exercise price	$ 0.64
Option 8 [Member]
Range of exercise prices	0.73
Number of shares outstanding	514,500
Weighted average contractual life	7 years 1 month 16 days
Weighted average exercise price	$ 0.73
Exercisable number of shares	494,500
Exercisable weighted average exercise price	$ 0.73
Option 9 [Member]
Range of exercise prices	0.85
Number of shares outstanding	9,000
Weighted average contractual life	4 years 9 months 3 days
Weighted average exercise price	$ 0.85
Exercisable number of shares	9,000
Exercisable weighted average exercise price	$ 0.85
Option 10 [Member]
Range of exercise prices	0.90
Number of shares outstanding	9,000
Weighted average contractual life	5 years 9 months 3 days
Weighted average exercise price	$ 0.90
Exercisable number of shares	9,000
Exercisable weighted average exercise price	$ 0.90
Option 11 [Member]
Range of exercise prices	0.95
Number of shares outstanding	30,000
Weighted average contractual life	6 years 3 months 11 days
Weighted average exercise price	$ 0.95
Exercisable number of shares	30,000
Exercisable weighted average exercise price	$ 0.95
Option 12 [Member]
Range of exercise prices	1.20
Number of shares outstanding	207,800
Weighted average contractual life	3 years 11 months 1 day
Weighted average exercise price	$ 1.20
Exercisable number of shares	207,800
Exercisable weighted average exercise price	$ 1.20
Option 13 [Member]
Range of exercise prices	1.25
Number of shares outstanding	1,200
Weighted average contractual life	7 months 24 days
Weighted average exercise price	$ 1.25
Exercisable number of shares	1,200
Exercisable weighted average exercise price	$ 1.25
Option 14 [Member]
Range of exercise prices	1.35
Number of shares outstanding	1,200
Weighted average contractual life	1 year 7 months 24 days
Weighted average exercise price	$ 1.35
Exercisable number of shares	1,200
Exercisable weighted average exercise price	$ 1.35

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4. STOCK-BASED COMPENSATION (Details Narrative)	Mar. 31, 2018 USD ($)
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Aggregate intrinsic value of "in the money" outstanding	$ 22,650
Aggregate intrinsic value of "in the money" exercisable	$ 20,150

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5. WARRANTS (Details - Warrant activity) - USD ($)	9 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Jun. 30, 2017
Derivative Instruments and Hedging Activities Disclosure [Abstract]
Warrants outstanding	0		666,667
Warrants exercised	666,667
Proceeds from warrant exercises	$ 6,667	$ 0

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6. SALE OF STOCK (Details Narrative) - USD ($)	9 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Proceeds from sale of stock	$ 210,001	$ 780,000
Private Placement [Member] | Accredited Investors [Member]
Stock issued, new	466,668
Proceeds from sale of stock	$ 210,001
Stock issued, price per share	$ 0.45
Private Placement [Member] | An Investor [Member]
Stock issued, new	88,888
Stock issued, price per share	$ 0.45