Notes to Consolidated Financial Statements
(1)
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
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 and industrial
customers.
(b)
|
Principles of Consolidation
|
The accompanying consolidated financial statements
include the accounts of the Company and its two wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated
in consolidation.
Revenues are recognized as the performance obligations
to deliver products or services are satisfied and are recorded based on the amount of consideration the Company expects to receive in
exchange for satisfying the performance obligations. Most of the Company’s products and services are marketed to medical device
companies with approximately 85% of sales to customers in the United States. Products and services are primarily transferred to customers
at a point in time based upon when services are performed or product is shipped. Other selling costs to obtain and fulfill contracts are
expensed as incurred due to the short-term nature of a majority of its contracts. The Company extends terms of payment to its customers
based on commercially reasonable terms for the markets of its customers, while also considering their credit quality. Shipping and handling
costs charged to customers are included in revenues.
The Company disaggregates revenues by product
and service types as it believes it best depicts how the nature, amount, timing and uncertainty of revenues and cash flows are affected
by economic factors. Revenues are comprised of the following for the fiscal years ended June 30, 2021 and 2020:
|
|
2021
|
|
|
2020
|
|
Engineering Design Services
|
|
$
|
2,770,481
|
|
|
$
|
1,390,324
|
|
Optical Components
|
|
|
5,751,212
|
|
|
|
5,773,068
|
|
Medical Device Products and Assemblies
|
|
|
2,153,214
|
|
|
|
2,759,963
|
|
Total Revenues
|
|
$
|
10,674,907
|
|
|
$
|
9,923,355
|
|
Contract Assets and Liabilities
The nature of the Company’s products and
services does not generally give rise to contract assets as it typically does not incur costs to fulfill a contract before a product or
service is provided to a customer. The Company’s costs to obtain contracts are typically in the form of sales commissions paid to
employees. The Company has elected to expense sales commissions associated with obtaining a contract as incurred as the amortization period
is generally less than one year. These costs have been recorded in selling, general and administrative expenses. As of June 30, 2021,
there were no contract assets recorded in the Company’s Consolidated Balance Sheets.
The Company’s contract liabilities arise
as a result of unearned revenue received from customers at inception of contracts or where the timing of billing for services precedes
satisfaction of performance obligations. The Company generally satisfies performance obligations within one year from the contract inception
date.
Contract liabilities, which were recorded as customer
advances in the Company’s Consolidated Balance Sheets, and unearned revenue are comprised of the following:
|
|
Fiscal Year Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
Contract liabilities, beginning of period
|
|
$
|
417,059
|
|
|
$
|
450,192
|
|
Unearned revenue received from customers
|
|
|
1,322,005
|
|
|
|
554,314
|
|
Revenue recognized
|
|
|
(1,288,980
|
)
|
|
|
(587,447
|
)
|
Contract liabilities, end of period
|
|
$
|
450,084
|
|
|
$
|
417,059
|
|
(d)
|
Cash and Cash Equivalents
|
The Company includes in cash equivalents all highly
liquid investments with original maturities of three months or less at the time of acquisition. Cash and cash equivalents of $861,650
and $1,134,697 at June 30, 2021 and 2020, respectively, consist primarily of cash at banks and money market funds. The Company maintains
its cash and cash equivalents in bank deposit accounts that, at times, may exceed federally insured limits. The Company has not experienced
any losses in such accounts. The Company believes it is not exposed to any significant credit risk on its cash and cash equivalents.
Inventories are stated at the lower of cost (first-in,
first-out) and net realizable value and include material, labor and manufacturing overhead. The components of inventories at June 30,
2021 and 2020 are as follows:
|
|
2021
|
|
|
2020
|
|
Raw material
|
|
$
|
626,255
|
|
|
$
|
653,678
|
|
Work-in-progress
|
|
|
453,117
|
|
|
|
665,593
|
|
Finished goods
|
|
|
806,023
|
|
|
|
877,973
|
|
|
|
$
|
1,885,395
|
|
|
$
|
2,197,244
|
|
The Company provides for estimated obsolescence
on unmarketable inventory based upon assumptions about future demand and market conditions. If actual demand and market conditions are
less favorable than those projected by management, additional inventory write-downs may be required. Inventory, once written down, is
not subsequently written back up, as these adjustments are considered permanent adjustments to the carrying value of the inventory.
Fixed assets are recorded at cost. Maintenance
and repair items are expensed as incurred. The Company provides for depreciation and amortization by charges to operations, using the
straight-line and declining-balance methods, which allocate the cost of fixed assets over the following estimated useful lives:
Asset Classification
|
|
Estimated Useful Life
|
Machinery and equipment
|
|
2-7 years
|
Leasehold improvements
|
|
Shorter of lease term or estimated useful life
|
Furniture and fixtures
|
|
5 years
|
Vehicles
|
|
3 years
|
Depreciation and amortization expense was $146,799
and $112,219 for the years ended June 30, 2021 and 2020, respectively.
(g)
|
Significant Customers and Concentration of Credit Risk
|
Financial instruments that subject the Company
to credit risk consist primarily of cash equivalents and trade accounts receivable. The Company places its investments with highly rated
financial institutions. The Company has not experienced any losses on these investments to date. At June 30, 2021, the Company’s
largest customer account receivable balance was 16% of total accounts receivable. At June 30, 2020, the Company’s largest customer
account receivable balance was 14% of total accounts receivable. No other accounts accounted for more than 10% of the accounts receivable
balance at June 30, 2021, or 2020.
The allowance for doubtful accounts receivable
was $251,383 at June 30, 2021, and $248,450 at June 30, 2020. $227,500 of the reserve at June 30, 2021, and 2020 was established in fiscal
year 2018 relating to one specific customer. Other than these doubtful accounts receivable, the Company has not experienced any material
losses related to accounts receivable from individual customers. The Company generally does not require collateral or other security as
a condition of sale, rather it relies on credit approval, balance limitation and monitoring procedures to control credit risk in trade
account financial instruments. Management believes the allowance for doubtful accounts, which is established based upon review of specific
account balances and historical experience, is adequate at June 30, 2021.
The Company had revenues from 326 unique customers
during fiscal year 2021, and no single customer accounted for 10% or more of the Company’s revenue for the fiscal years ended June
30, 2021, or 2020.
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 year ended
June 30, 2021 and 2020, the effect of such securities was antidilutive and not included in the diluted calculation because of the net
loss generated in those periods.
The following is the calculation of loss per share
for the years ended June 30, 2021 and 2020:
|
|
Year Ended June 30
|
|
|
|
2021
|
|
|
2020
|
|
Net Loss– Basic and Diluted
|
|
$
|
(102,835
|
)
|
|
$
|
(1,426,150
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average shares outstanding
|
|
|
13,281,351
|
|
|
|
12,998,915
|
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
|
|
|
|
|
|
|
Basic and fully diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.11
|
)
|
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 2,578,200
and 2,065,200 for the years ended June 30, 2021, and 2020, respectively.
(i)
|
Stock-Based Compensation
|
The measurement and recognition of compensation
costs for all stock-based awards made to employees and the Board of Directors are based upon fair value over the requisite service period
for awards expected to vest. The Company estimates the fair value of share-based awards on the date of grant using the Black-Scholes option-pricing
model. Stock-based compensation costs recognized for the years ended June 30, 2021, and 2020 amounted to $733,930 and $502,345, respectively.
Long-lived assets such as goodwill and patents
are capitalized when acquired and reviewed for impairment whenever events or changes in circumstances indicate that the book value of
the asset may not be recoverable. Impairment of the carrying value of long-lived assets such as goodwill and patents would be indicated
if the best estimate of future undiscounted cash flows expected to be generated by the asset grouping is less than its carrying value.
If an impairment is indicated, any loss is measured as the difference between estimated fair value and carrying value and is recognized
in operating income or loss. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
No such impairments of goodwill or patents have been estimated by management during the years ended June 30, 2021 or 2020.
(k)
|
Fair Value of Financial Instruments
|
Financial instruments consist principally of cash
and cash equivalents, accounts receivable and accounts payable. The estimated fair value of these financial instruments approximates their
carrying value due to their short-term nature.
The Company does not incur future performance
obligations in the normal course of business other than providing a standard one-year warranty on materials and workmanship to its customers
(except in certain unusual and infrequently occurring situations where extended warranty terms beyond one year are negotiated with the
customer). The Company provides for estimated warranty costs at the time product revenue is recognized. Warranty costs have been included
as a component of cost of goods sold in the accompanying consolidated statements of operations. The following tables summarize warranty
reserve activity for the years ended June 30, 2021 and 2020:
|
|
2021
|
|
|
2020
|
|
Balance at beginning of period
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
Provision for warranty claims
|
|
|
7,611
|
|
|
|
12,940
|
|
Warranty claims incurred
|
|
|
(7,611
|
)
|
|
|
(12,940
|
)
|
Balance at end of period
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
(m)
|
Research and Development
|
Research and development expenses are charged
to operations as incurred. The Company groups development and prototype costs and related reimbursements in research and development.
There were no reimbursements for research and development recorded in research and development for the years ended June 30, 2021, and
2020.
Comprehensive income or loss is defined as the
change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources.
The Company’s comprehensive loss or income for the years ended June 30, 2021 and 2020 was equal to its net loss for the same periods.
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 carry-forwards. 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.
Operating segments are identified as components
of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker,
or decision-making group, in making decisions about how to allocate resources and assess performance. The Company’s chief decision-maker
is its Chief Executive Officer. To date, the Company has viewed its operations and manages its business as principally one segment. For
all periods presented, over 85% of the Company’s sales have been to customers in the United States.
The preparation of financial statements in conformity
with accounting standards generally accepted in the United States requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(a)
|
Related Party Transactions
|
Transactions with Stockholders Known by the
Company to Own 5% or More of the Company’s Common Stock
At June 30, 2019 the Company had received payments
for common stock subscriptions totaling $925,000 at $1.25 per share. On July 1, 2019 the Company received an additional $25,000 and closed
the placement on that date by issuing 760,000 unregistered common shares. The placement proceeds were used to partially fund the business
acquisition of the Ross Optical division. In compliance with the registration rights agreement entered into with the investors, on October
29, 2019 the Company filed a registration statement for the shares with the Securities and Exchange Commission which became effective
on November 22, 2019. Ms. Sandra Pessin acquired 200,000 shares in this placement for $250,000 or $1.25 per share, and at that time Ms.
Pessin was an owner of more than 5% of the Company’s outstanding common stock.
On April 14, 2020 the Company sold 200,000 shares
of its common stock for cash at $1.25 per share or $250,000 to be used for general working capital needs. In compliance with the registration
rights agreement entered into with the investors, on August 14, 2020 the Company filed a registration statement for the shares with the
Securities and Exchange Commission which became effective on November 4, 2020. Hershey Strategic Capital, LP acquired 20,000 shares in
this placement for $25,000 or $1.25 per share, and at that time Hershey Strategic Capital, LP was an owner of more than 5% of the Company’s
outstanding common stock.
Acquisition Earn Out Obligation
As partial consideration for the July 2019 acquisition
of the Ross Optical division the Company agreed to pay $500,000 as an earn-out contingent upon the satisfaction of certain financial thresholds
consisting of mutually agreed upon revenue and gross margin targets of the Ross Optical division over a term of three years, beginning
on July 1, 2019, at a rate of up to $166,667 per year. As of June 30, 2021 the first year portion of $166,667 has been paid and the remainder
of the obligation recorded as $166,667 as a short-term liability in the accompanying balance sheet at June 30, 2021 and $166,666 as a
long-term liability at June 30, 2021.
The Company executed an unsecured Promissory Note
with a bank on May 6, 2020 and received $808,962 of loan proceeds pursuant to the Paycheck Protection Program under the Coronavirus Aid,
Relief, and Economic Security Act (the “CARES Act”). On March 30, 2021, the Small Business Administration forgave the Promissory
Note held by the Company in full, including any accrued interest at that date. The forgiveness of the Promissory Note is recorded as other
income in the accompanying Consolidated Statements of Operations for the fiscal year ended June 30, 2021.
In March 2021, the Company entered into a five-year
capital lease in the amount of $161,977 for manufacturing equipment. In January 2020, the Company entered into a five-year capital lease
for $47,750 for manufacturing equipment. The net book value of fixed assets under capital lease obligations as of June 30, 2021 is $233,923.
On July 1, 2019 the Company entered into a three-year
operating lease for its facility in El Paso, Texas with total remaining minimum lease payments of $62,822 at June 30, 2021. Total rent
expense including base rent and common area expenses was $62,717 during each of the fiscal years ended June 30, 2021 and 2020. Included
in the accompanying balance sheet at June 30, 2021 is a right-of-use asset of $61,247 and current and long-term right-of-use operating
lease liabilities of $61,247 and $0, respectively.
At June 30, 2021, future minimum lease payments
under the capital lease and operating lease obligations are as follows:
Fiscal Year Ending June 30:
|
|
Capital Leases
|
|
|
Operating Lease
|
|
2022
|
|
$
|
48,619
|
|
|
$
|
62,822
|
|
2023
|
|
|
48,619
|
|
|
|
–
|
|
2024
|
|
|
48,619
|
|
|
|
–
|
|
2025
|
|
|
43,917
|
|
|
|
–
|
|
2026
|
|
|
27,985
|
|
|
|
–
|
|
Total Minimum Payments
|
|
|
217,759
|
|
|
$
|
62,822
|
|
Less: amount representing interest
|
|
|
27,015
|
|
|
|
|
|
Present value of minimum lease payments
|
|
|
190,744
|
|
|
|
|
|
Less: current portion
|
|
|
38,347
|
|
|
|
|
|
|
|
$
|
152,397
|
|
|
|
|
|
The Company’s operating leases for its three
Gardner, Massachusetts office, production and storage spaces plus an equipment lease have expired and are continuing on a month to month
tenant at will basis. Rent expense on these operating leases was $172,903 and $145,655 for the years ended June 30, 2021, and 2020, respectively.
(a)
|
Stock-Based Compensation Expense
|
The following table summarizes stock-based compensation
expense for the years ended June 30:
|
|
2021
|
|
|
2020
|
|
Cost of Goods Sold
|
|
$
|
113,659
|
|
|
$
|
44,932
|
|
Research and Development Expenses
|
|
|
171,447
|
|
|
|
68,061
|
|
Selling, General and Administrative Expenses
|
|
|
448,824
|
|
|
|
389,352
|
|
Stock Based Compensation Expense
|
|
$
|
733,930
|
|
|
$
|
502,345
|
|
As of June 30, 2021, the unrecognized compensation
costs related to options vesting in the future is $636,093. 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, 2021, or 2020, as
the Company is currently in a loss position. There were 630,000 stock options granted during the year ended June 30, 2021, and 315,000
stock options granted during the year ended June 30, 2020.
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 Company’s
common stock and the risk-free interest rate is based on the U.S. Zero-Bond rate. The Company utilizes a forfeiture rate based on an analysis
of the Company’s actual experience. The fair value of options at date of grant was estimated with the following assumptions for
options granted in fiscal year 2021:
|
|
Year Ended
|
|
|
|
June 30, 2021
|
|
Assumptions:
|
|
|
|
|
Option life
|
|
|
5.3 years
|
|
Risk-free interest rate
|
|
|
3.0%
|
|
Weighted average stock volatility
|
|
|
100%
|
|
Dividend yield
|
|
|
0
|
|
Weighted average fair value of grants
|
|
$
|
1.65
|
|
(b) Stock Option Plans
The type of share-based payments currently utilized
by the Company is stock options.
The Company has various stock option and other
compensation plans for directors, officers and employees. The Company has the following stock option plans outstanding as of June 30,
2021: The Precision Optics Corporation, Inc. 2021 Equity Incentive Plan (the “2021 Plan”), the Precision Optics Corporation,
Inc. 2011 Equity Incentive Plan (the “2011 Plan”) and the Precision Optics Corporation, Inc. 2006 Equity Incentive Plan (the
“2006 Plan”). Vesting periods under each of the Plans are at the discretion of the Board of Directors and typically average
three years and in some instances are subject to future performance criteria. Options under these Plans are granted at fair market value
on the date of grant and typically have an initial term of ten years from the date of grant, subject to certain cancellation provisions
including employment termination. As of June 30, 2021, all shares of the Company’s common stock issuable pursuant to exercise of
stock options granted pursuant to the three plans have been registered by filing of Registration Statements on Form S-8 with the Securities
and Exchange Commission.
On May 10, 2021, the Board of Directors approved
the 2021 Plan which provides eligible participants (certain employees, directors, consultants, etc.) the opportunity to receive a broad
variety of equity based and cash awards. Options granted vest and are exercisable for periods determined by the Board of Directors, not
to exceed 10 years from the date of grant. A maximum 1,000,000 shares of the Company’s common stock may be issued under the 2021
Plan. At June 30, 2021, a total of 268,502 stock options are outstanding and 731,498 shares of common stock were available for future
grants under the 2021 Plan.
The 2011 Plan provides eligible participants (certain
employees, directors, consultants, etc.) the opportunity to receive a broad variety of equity based and cash awards. Options granted vest
and are exercisable for periods determined by the Board of Directors, not to exceed 10 years from the date of grant. On April 16, 2015,
the Board of Directors approved an amendment to the 2011 Equity Incentive Plan which increased the maximum number of shares of the Company’s
common stock that may be awarded and issued under the Plan from 325,000 to 1,825,000, an increase of 1,500,000 shares. On May 1, 2019,
the Board of Directors approved an amendment to the 2011 Equity Incentive Plan which increased the maximum number of shares of our common
stock that may be awarded and issued under the Plan from 1,825,000 to 2,825,000, an increase of 1,000,000 shares. At June 30, 2021, a
total of 2,240,000 stock options are outstanding and no shares of common stock were available for future grants under the 2011 Plan.
The 2006 Plan provides eligible participants (certain
employees, directors, consultants, etc.) the opportunity to receive a broad variety of equity based and cash awards. Options granted vest
and are exercisable for periods determined by the Board of Directors, not to exceed 10 years from the date of grant. At June 30, 2021
a total of 69,698 stock options are outstanding, and no shares of common stock were available for future grants under the 2006 Plan.
The following tables summarize stock option activity
for the years ended June 30, 2021 and 2020:
|
|
|
Options Outstanding
|
|
|
|
|
Number of
Shares
|
|
|
|
Weighted
Average
Exercise Price
|
|
|
|
Weighted
Average
Contractual
Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 1, 2019
|
|
|
1,819,500
|
|
|
$
|
0.87
|
|
|
|
7.05 years
|
|
Grants
|
|
|
315,000
|
|
|
$
|
1.38
|
|
|
|
|
|
Exercised
|
|
|
(47,500
|
)
|
|
$
|
0.62
|
|
|
|
|
|
Cancellations
|
|
|
(21,800
|
)
|
|
$
|
0.96
|
|
|
|
|
|
Outstanding at June 30, 2020
|
|
|
2,065,200
|
|
|
$
|
0.95
|
|
|
|
6.59 years
|
|
Grants
|
|
|
630,000
|
|
|
$
|
1.65
|
|
|
|
|
|
Exercised
|
|
|
(112,000
|
)
|
|
$
|
0.57
|
|
|
|
|
|
Cancellations
|
|
|
(5,000
|
)
|
|
$
|
1.30
|
|
|
|
|
|
Outstanding at June 30, 2021
|
|
|
2,578,200
|
|
|
$
|
1.13
|
|
|
|
6.73 years
|
|
Information related to the stock options outstanding
as of June 30, 2021 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
|
|
$
|
0.48
|
|
|
|
60,000
|
|
|
|
4.75
|
|
|
$
|
0.48
|
|
|
|
60,000
|
|
|
$
|
0.48
|
|
$
|
0.50
|
|
|
|
80,000
|
|
|
|
4.98
|
|
|
$
|
0.50
|
|
|
|
80,000
|
|
|
$
|
0.50
|
|
$
|
0.55
|
|
|
|
40,000
|
|
|
|
2.92
|
|
|
$
|
0.55
|
|
|
|
40,000
|
|
|
$
|
0.55
|
|
$
|
0.70
|
|
|
|
100,000
|
|
|
|
7.10
|
|
|
$
|
0.70
|
|
|
|
100,000
|
|
|
$
|
0.70
|
|
$
|
0.73
|
|
|
|
758,000
|
|
|
|
5.36
|
|
|
$
|
0.73
|
|
|
|
758,000
|
|
|
$
|
0.73
|
|
$
|
0.85
|
|
|
|
6,000
|
|
|
|
1.51
|
|
|
$
|
0.85
|
|
|
|
6,000
|
|
|
$
|
0.85
|
|
$
|
0.90
|
|
|
|
36,000
|
|
|
|
2.94
|
|
|
$
|
0.90
|
|
|
|
36,000
|
|
|
$
|
0.90
|
|
$
|
1.20
|
|
|
|
200,200
|
|
|
|
0.67
|
|
|
$
|
1.20
|
|
|
|
200,200
|
|
|
$
|
1.20
|
|
$
|
1.25
|
|
|
|
45,000
|
|
|
|
8.72
|
|
|
$
|
1.25
|
|
|
|
15,000
|
|
|
$
|
1.25
|
|
$
|
1.30
|
|
|
|
453,000
|
|
|
|
7.95
|
|
|
$
|
1.30
|
|
|
|
266,522
|
|
|
$
|
1.30
|
|
$
|
1.40
|
|
|
|
70,000
|
|
|
|
9.39
|
|
|
$
|
1.40
|
|
|
|
70,000
|
|
|
$
|
1.40
|
|
$
|
1.42
|
|
|
|
100,000
|
|
|
|
8.20
|
|
|
$
|
1.42
|
|
|
|
33,334
|
|
|
$
|
1.42
|
|
$
|
1.45
|
|
|
|
5,000
|
|
|
|
9.69
|
|
|
$
|
1.45
|
|
|
|
–
|
|
|
$
|
–
|
|
$
|
1.50
|
|
|
|
70,000
|
|
|
|
8.44
|
|
|
$
|
1.50
|
|
|
|
70,000
|
|
|
$
|
1.50
|
|
$
|
1.68
|
|
|
|
540,000
|
|
|
|
9.93
|
|
|
$
|
1.68
|
|
|
|
270,000
|
|
|
$
|
1.68
|
|
$
|
1.795
|
|
|
|
15,000
|
|
|
|
9.62
|
|
|
$
|
1.795
|
|
|
|
–
|
|
|
$
|
–
|
|
$
|
0.48–1.795
|
|
|
|
2,578,200
|
|
|
|
6.73
|
|
|
$
|
1.13
|
|
|
|
2,005,056
|
|
|
$
|
1.03
|
|
The aggregate intrinsic value of the Company’s
“in-the-money” outstanding and exercisable options as of June 30, 2021, was $1,077,196 and $974,951, respectively.
(c)
|
Sale of Stock in July 2019
|
On July 1, 2019, the Company entered into agreements
with accredited investors for the sale and purchase of 760,000 unregistered shares of its common stock, $0.01 par value at a purchase
price of $1.25 per share. The Company received $950,000 in gross proceeds from the offering, $925,000 of which was received as of June
30, 2019, and is included in the accompanying statement of stockholders’ equity as common stock subscriptions. The Company used
the net proceeds from this placement to partially fund the July 1, 2019, acquisition of the operating assets of Ross Optical Industries,
Inc. with an effective date of June 1, 2019.
In connection with the placement, the Company
also entered into a registration rights agreement with the investors, whereby the Company is obligated to file a registration statement
with the Securities Exchange Commission on or before 120 calendar days after July 1, 2019, to register the resale by the investors of
760,000 shares of our common stock purchased in the placement. The registration statement was filed with the Securities and Exchange Commission
on October 29, 2019, and Amendment No. 1 to the registration statement was filed with the Securities and Exchange Commission on November
22, 2019. The registration statement became effective on November 26, 2019.
(d)
|
Sale of Stock in April 2020
|
On April 14, 2020, the Company entered into agreements
with accredited investors for the sale and purchase of 200,000 unregistered shares of its common stock, $0.01 par value at a purchase
price of $1.25 per share. The Company received $250,000 in gross proceeds from the offering. The Company is using the net proceeds from
this placement for general working capital purposes.
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 120 calendar days after April 14, 2020, to register the resale by the investors of
200,000 shares of our common stock purchased in the placement. The registration statement was filed with the Securities and Exchange Commission
on August 14, 2020, and became effective on November 4, 2020.
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 2017 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 $912 and $2,165 for the years ended June 30, 2021,
and 2020, respectively.
A reconciliation of the federal statutory rate
to the Company’s effective tax rate for the fiscal years ended June 30, 2021 and 2020 is as follows:
|
|
2021
|
|
2020
|
Income tax expense (benefit) at federal statutory rate
|
|
(21.0)%
|
|
(21.0)%
|
Increase (decrease) in tax resulting from:
|
|
|
|
|
State taxes, net of federal benefit
|
|
(145.8)%
|
|
(7.1)%
|
Change in valuation allowance
|
|
182.8%
|
|
17.9%
|
Stock based compensation
|
|
195.0%
|
|
9.6%
|
Forgiveness of bank note
|
|
(214.9)%
|
|
–
|
Nondeductible items
|
|
3.0%
|
|
0.4%
|
Effective tax rate
|
|
(0.9)%
|
|
(0.2)%
|
The components of deferred tax assets and liabilities
at June 30, 2021 and 2020 are approximately as follows:
|
|
2021
|
|
|
2020
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carry forwards
|
|
$
|
2,403,000
|
|
|
$
|
2,328,000
|
|
Tax credit carry forwards
|
|
|
186,000
|
|
|
|
259,000
|
|
Reserves and accruals not yet deducted for tax purposes
|
|
|
668,000
|
|
|
|
612,000
|
|
Total deferred tax assets
|
|
|
3,257,000
|
|
|
|
3,199,000
|
|
Valuation allowance
|
|
|
(3,257,000
|
)
|
|
|
(3,199,000
|
)
|
Net deferred tax asset
|
|
$
|
–
|
|
|
$
|
–
|
|
The Company has provided a valuation allowance
to reduce the net deferred tax asset to an amount the Company believes is “more likely than not” to be realized.
At June 30, 2021, the Company had federal and
state net operating loss carry forwards of approximately $10,205,000 and $3,354,000, respectively, which will, if not used, expire at
various dates beginning in fiscal year 2022. In addition, the Company had net operating loss carry forwards from its Hong Kong operations
of approximately $2,252,000, which carry forward indefinitely.
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 2021 and 2020.