Financial Analysis

(5) PROFIT SHARING PLAN The Company has a defined contribution 401(k) profit sharing plan. Employer profit sharing and matching contributions to the plan are discretionary. No employer profit sharing or matching contributions were made to the plan in fiscal years 2026 and 2025.

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Schedule of disaggregation of revenues Year Ended June 30, 2026 2025 Engineering Design Services $ 3,473,640 $ 4,938,158 Systems Manufacturing 22,628,047 8,290,225 Micro Optics Lab 519,540 2,135,562 Ross Optical Industries 4,910,538 3,727,324 Total Revenues $ 31,531,765 $ 19,091,269

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(4) INCOME TAXES The Company has identified its federal tax return and its state tax return in Massachusetts as major tax jurisdictions. The periods subject to examination for its federal and state income tax returns are the years ended in 2018 and thereafter. The Company believes its income tax filing positions and deductions will be sustained on audit and it does not anticipate any adjustments that would result in a material change to its financial position. Therefore, no liabilities for uncertain income tax positions have been recorded. The provision for income taxes in the accompanying consolidated statements of operations consists of the state income tax liability of $ 4,958 and $ 1,936 for the years ended June 30, 2026, and 2025. A reconciliation of the federal statutory rate to the Companys effective tax rate for the fiscal years ended June 30, 2026 and 2025 is as follows: Schedule of effective income tax rate reconciliation Year Ended June 30, 2026 Income tax expense (benefit) at federal statutory rate $ (762,277 ) (21.0 )% Increase (decrease) in tax resulting from: State taxes, net of federal benefit (1) (229,409 ) (6.3 )% Change in valuation allowance (2) 702,542 19.3 % Stock based compensation 311,364 8.6 % Nondeductible items (17,262 ) (0.5 )% Effective tax rate $ 4,958 $ 0.1% Year Ended June 30, 2025 Income tax expense (benefit) at federal statutory rate $ (1,213,852 ) (21.0 )% Increase (decrease) in tax resulting from: State taxes, net of federal benefit (1) (36 …

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(p) Recent Accounting Pronouncements In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), which enhances income tax disclosure requirements, primarily related to the rate reconciliation and income taxes paid. The Company adopted ASU 2023-09 effective July 1, 2025. The adoption of ASU 2023-09 resulted in additional disclosures within the Companys consolidated financial statements and did not have a material impact on the Companys financial statements. In November 2024, the FASB issued ASU 2024-03, Income StatementReporting Comprehensive IncomeExpense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (ASU 2024-03), which requires additional disclosures about certain expenses included in the expense captions presented on the statement of operations. The guidance is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of adopting this guidance on its financial statement disclosures. In December 2025, the FASB issued ASU 2025-10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities (ASU 2025-10). ASU 2025-10 adds guidance on the recognition, measurement and presentation of government grants. ASU 2025-10 is effective for fiscal years beg …

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(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Nature of Business Precision Optics Corporation, Inc. (the Company) designs, develops, manufactures and sells specialized optical and illumination systems and related components. The Company conducts business in one industry segment only and its customers are primarily domestic. The Company performs advanced optical and illumination system design, development, assembly and manufacturing services, and sources for resale specialized optical components for products that fall into two principal areas: (i) medical products for use by hospitals and physicians; and (ii) products used by defense contractors, aerospace and industrial customers. (b) Revenues The Company determines revenue recognition for arrangements that we determine are within the scope of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers , (ASC 606), by performing the following five steps: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when, or as, we satisfy the performance obligations. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within the contract and determine those that are performance obligations and assess whether each promised good or servi …

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(3) STOCKHOLDERS EQUITY (a) Stock-Based Compensation Expense The following table summarizes stock-based compensation expense for the years ended June 30: Schedule of stock-based compensation expense 2026 2025 Cost of Goods Sold $ 135,079 $ 154,559 Selling, General and Administrative Expenses 1,004,613 1,457,547 Stock Based Compensation Expense $ 1,139,692 $ 1,612,106 As of June 30, 2026, the unrecognized compensation costs related to options vesting in the future was $ 853,104 . No compensation has been capitalized because such amounts would have been immaterial. There was no net income tax benefit recognized related to such compensation for the years ended June 30, 2026, or 2025, as the Company is currently in a loss position. There were 233,353 stock options granted during the year ended June 30, 2026, and 520,000 stock options granted during the year ended June 30, 2025. The Company uses the Black-Scholes option-pricing model as the most appropriate method for determining the estimated fair value for the stock awards. The Black-Scholes method of valuation requires several assumptions: (1) the expected term of the stock award; (2) the expected future stock volatility over the expected term; and (3) risk-free interest rate. The expected term represents the expected period of time the Company believes the options will be outstanding based on historical information. Estimates of expected future stock price volatility are based on the historic volatility of the Companys common …

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