PRECISION OPTICS CORPORATION, INC.

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.

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 service is distinct based on the contract.

The Company disaggregates revenues by product and service types as it believes 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 year ended June 30, 2026, and 2025:

Selling costs to obtain and fulfill contracts are expensed as incurred due to the short-term nature of a majority of 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 revenue.

At June 30, 2026, and 2025, two individual customers accounted for more than 10% of the Company’s total revenue.

Revenue recognition policies for each of the three product and service types appear below.

Engineering Design Services

The Company enters into contractual agreements with our customers, including design services agreements, statements of work and receive purchase orders for development projects. These agreements provide costs on an estimated basis for the services we have agreed to provide. Engineering Design Services are rendered on a time and materials basis. The Company recognizes revenue as customers are invoiced for the actual engineering services provided in the period. Revenue is also recognized on materials purchased for development projects at the time of receipt. Engineering Design Services are provided on a best-efforts basis; no warranty is provided as there is no guarantee that the work will result in the attainment of the customer’s project objectives. The Company may obtain customer deposits in advance of rendering engineering design services. Customer deposits are treated as contractual liabilities until the terms of customer agreements are satisfied and are not a component of revenue.

Systems Manufacturing, Micro Optics Laboratory, Ross Optical Industries

The Company provides fixed price quotations to our customers and requires purchase orders for items manufactured and distributed through the Systems Manufacturing, Micro Optics Laboratory and Ross Optical Industries business units. Revenue is recognized at the time title passes to our customer based on our review of the customer contract, generally at the time of shipment from our facilities. Occasionally the Company may enter into “bill and hold” contractual arrangements where title is held by our customers while goods are stored at our facilities for their convenience.

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, 2026 and 2025, there were no contract assets recorded in the Company’s 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 Balance Sheets, and unearned revenue are comprised of the following:

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 $9,841,142 and $1,773,735 on June 30, 2026 and 2025, 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 on June 30, 2026 and 2025 are as follows:

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. The reserve for excess and obsolete inventory for the years ended June 30, 2026 and 2025, were $330,965 and $272,894, respectively.

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:

Depreciation expense was $254,109 and $186,990 for the years ended June 30, 2026 and 2025, respectively.

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, 2026, and 2025, two individual customers accounted for more than 10% of the Company’s total accounts receivable.

The allowance for credit losses was $108,220 at June 30, 2026, and $80,192 at June 30, 2025.

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 credit losses, which is established based upon review of specific account balances and historical experience, is adequate at June 30, 2026.

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 years ended June 30, 2026 and 2025, 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, 2026 and 2025:

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 1,659,909 and 1,623,576 for the years ended June 30, 2026 and 2025, respectively.

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, 2026, and 2025 amounted to $1,139,692 and $1,612,106, respectively.

Long-lived assets such as goodwill and patents are capitalized when acquired and reviewed for impairment on an annual basis or 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, 2026 or 2025. Amortization expense for the year ended June 30, 2026 and 2025 was $25,168 and $25,448, respectively.

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.

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, 2026, and 2025.

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, 2026 and 2025 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 for which separate discrete financial information is available and is regularly reviewed by the chief operating decision maker (“CODM”) in making decisions regarding resource allocation and assessing performance. The Company’s CODM is its Chief Executive Officer.

The Company operates as asingle reportable segment. The CODM assesses the Company’s performance and allocates resources based on the Company’s results of operations, including the revenues and expenses presented in the statements of operations. The CODM uses net income (loss) as the measure of segment profit or loss in evaluating the Company’s operating performance and making resource allocation decisions.

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.

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 Company’s consolidated financial statements and did not have a material impact on the Company’s financial statements.

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense 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 beginning after December 15, 2028, including interim periods within those fiscal years, and permits modified prospective, modified retrospective, or full retrospective adoption. The Company has elected to early adopt the guidance effective for the fiscal year ended June 30, 2026.

The Company recognizes grants or subsidies from governments as a receivable when it is probable that the Company will comply with any conditions associated with the grant arrangement and the grant will be received. The Company evaluates the conditions of each grant as of each reporting period to determine whether it is probable that the Company has met the conditions of each grant arrangement. Grants are recognized in the statements of operations on a systematic basis over the periods in which the Company recognized the related costs for which the grant is intended to compensate. The Company records grant receivables in the balance sheets in accounts receivable, depending on when the amounts are expected to be received from the government agency.

During the year ended June 30, 2026, the Company recognized a reduction to expense of $224,544 related to grants within the statements of operations, all in cost of goods sold. As of June 30, 2026, the Company has $224,544 recorded as a government receivable, included in accounts receivable, which relates to personnel, direct costs and operating expenses to be reimbursed and received as cash. As of June 30, 2025, the Company hadno government receivable.

The Company evaluates warrants and other financial instruments to determine whether such instruments or embedded features qualify as derivatives to be accounted for separately in accordance with ASC 480,Distinguishing Liabilities from Equity, and ASC 815,Derivatives and Hedging. Warrants that do not meet the criteria for equity classification are recorded as liabilities at fair value and are remeasured at each reporting date until exercised, expired, modified, or otherwise settled. Changes in the fair value of warrant liabilities are recognized in other income (expense), net in the statements of operations.

Warrants that meet the criteria for equity classification, including the scope exception under ASC 815-10-15-74(a), are classified within stockholders’ equity and are not subsequently remeasured as long as the conditions for equity classification continue to be met.

The Company reassesses the classification of warrants at each reporting date. As of June 30, 2026, the Company determined that all outstanding warrants qualified for equity classification.

Certain items in the 2025 financial statements have been reclassified to conform to the current year classifications. Such classifications have no effect on previously reported loss from operations or net loss.

On February 20, 2026, the U.S. Supreme Court issued a ruling relating to tariffs imposed under the International Emergency Economic Powers Act (“IEEPA”). Following the ruling, the U.S. Customs and Border Protection and other federal agencies issued additional guidance and took actions affecting the assessment, collection, refund, and/or protest of certain tariffs. In March 2026, the U.S. Court of International Trade issued an additional ruling stating that importers that have paid tariffs under IEEPA are due refunds.

Accordingly, during the year ended June 30, 2026, the Company recorded a receivable of $880,598 within accounts receivable in the balance sheet, representing recovery of IEEPA tariffs previously paid, with a corresponding offset to cost of goods sold. In addition, the Company recorded a $558,266 liability within accrued compensation and other in the balance sheet as a result of its decision to refund IEEPA tariff surcharges collected from customers, with a corresponding reduction of revenue in the statement of operations. In the year ended June 30, 2026, we received $37,576 in IEEPA tariff refund proceeds, resulting in outstanding IEEPA tariff refund claims receivable of $843,022 within “accounts receivable” in the balance sheet, representing a recovery of IEEPA tariffs previously paid.

Bank Term Loan and Line of Credit

On October 4, 2021, the Company entered into a Loan Agreement with Main Street Bank of Marlborough, Massachusetts (the “Lender”), which provided for a $2,600,000 Term Loan and a $250,000 Revolving Line of Credit Loan Facility (the “Revolver”), which was increased to $500,000 effective May 17, 2022, and $1,250,000 effective June 2, 2023. Borrowings under the Revolver are limited by the borrowing base comprised of a percentage of accounts receivable and inventory and secured by all assets of the Company. Borrowings under the Revolver bear interest payable monthly at the prime lending rate plus 1.5% per annum and shall not be less than 4.75% per annum. Borrowings under the Revolver are due upon demand. There wereno borrowings under the Revolver at June 30, 2026.

The Company’s Loan Agreement with the Lender contains a minimum annual debt service coverage ratio covenant of 1.2x. The Company did not meet this annual debt service coverage ratio for the fiscal year ended June 30, 2024. The Company’s Lender agreed to waive compliance with such debt service ratio covenant for the period ending June 30, 2024. In addition to such waiver, the Lender and the Company entered into an amendment dated September 30, 2024 to that certain Term Loan dated October 4, 2021, as amended and that certain Promissory Note dated June 2, 2023 (collectively, the “Notes”) which amendments provided for a six-month period of interest only payments from October 15, 2024 through March 15, 2025 for the Notes. The Company commenced payments of principal and interest under the Notes beginning with the payments due on April 15, 2025, with a new amortization schedule for the remaining term for such Notes through their maturity date. On February 14, 2025, the Lender agreed to waive compliance with the annual debt service coverage ratio covenant for the fiscal year ending June 30, 2025, subject to a $30,000 waiver fee and the completion of an equity raise of at least $4,500,000 by February 24, 2025, which the Company satisfied on February 21, 2025. Any future advances are contingent on the Company achieving a minimum Debt Service Coverage ratio of 1.20x based on quarterly testing, which the Company was not in compliance with as of June 30, 2026.

On September 25, 2026, the lender agreed to waive the Company’s minimum annual debt service coverage ratio covenant for the fiscal year ended June 30, 2026 and modified the Company’s credit arrangements to eliminate the debt service coverage ratio covenant and replace it with a minimum liquidity covenant of $2.0 million, retain the existing term note, and provide the Company access to $750,000 of availability under its revolving line of credit, subject to borrowing-base requirements and a $5,000 waiver fee. The lender further agreed expand availability under the revolving line of credit to $1,250,000 upon attaining a DSCR of 1.2x. There were no other changes to or modifications to the Loan Agreement or the Notes.

Long-Term Debt

Long-term debt consists of the following at June 30, 2026 and 2025:

At June 30, 2026 principal payments due on long-term debt are as follows:

In March 2021 the Company entered into a five-year capital lease in the amount of $161,977 and in January 2020, the Company entered into a five-year capital lease for $47,750, both for manufacturing equipment. The net book value of fixed assets under capital lease obligations as of June 30, 2026 is $0.

On July 1, 2019 the Company entered into a three-year operating lease for its facility in El Paso, Texas, and in February 2022 the Company entered into an extension of the lease for an additional three years through June 2025. In May 2025, this lease was extended for an additional three years through May 2028. Remaining minimum lease payments at June 30, 2026 total $98,687. Total lease costs including base rent and common area expenses was $73,085 and $67,552 during the fiscal years ended June 30, 2026 and 2025, respectively. The amount of variable lease payments is immaterial. Included in the accompanying balance sheet at June 30, 2026 is a right-of-use asset of $89,462 and current and long-term operating lease liabilities of $44,831 and $46,123, respectively. The applicable discount rate utilized for this lease at commencement was 9.0%.

On May 14, 2025 the Company entered into a seven-year lease in South Portland, Maine with two five-year extension options. The extensions associated with the lease have been accounted with the assumption that they will not be extended. Remaining minimum lease payments at June 30, 2026 total $1,046,762. Total lease costs including base rent and common area expenses was $179,638 and $0 during the fiscal year ended June 30, 2026 and 2025, respectively. The amount of variable lease payments is immaterial. Included in the accompanying balance sheet at June 30, 2026 is a right-of-use asset of $522,098 and current and long-term operating lease liabilities of $71,291 and $706,328, respectively. The applicable discount rate utilized for this lease at commencement was 9.0%.

On June 2, 2025 the Company entered into a seven-year operating lease in Littleton, Massachusetts with two five-year extension options. The extensions associated with the lease have been accounted with the assumption that they will not be extended. Remaining minimum lease payments at June 30, 2026 total $2,498,362. Total lease costs including base rent and common area expenses was $354,216 and $0 during the fiscal year ended June 30, 2026 and 2025, respectively. The amount of variable lease payments is immaterial. Included in the accompanying balance sheet at June 30, 2026 is a right-of-use asset of $1,689,306 and current and long-term operating lease liabilities of $209,378 and $1,694,125, respectively. The applicable discount rate utilized for this lease at commencement was 9.0%.

The weighted average discount rate is 9.0% at June 30,2026 and 8.3% June 30, 2025. The weighted average lease term is 6.4 years at June 30, 2026 and 2.4 years at June 30, 2025. As the rates implicit in the Company’s leases are generally not readily determinable, the Company utilizes its incremental borrowing rate to determine the present value of lease payments. The incremental borrowing rate represents the interest rate the Company would be required to pay to borrow on a collateralized basis over a similar term in an amount equal to the lease payments. The Company estimates the incremental borrowing rate using information available at the lease commencement date, including prevailing market interest rates, the Company’s credit profile, and the term of the lease. In circumstances where the implicit rate is readily determinable, that rate is used instead of the incremental borrowing rate.

At June 30, 2026 future minimum lease payments under the operating lease obligations are as follows:

The Company’s three facilities in Gardner, Massachusetts, which are used for offices, production and storage spaces, are leased primarily on a tenant-at-will basis. Rent expense on these operating leases was $210,187 and $206,309 for the fiscal years ended June 30, 2026 and 2025, respectively.

The following table summarizes stock-based compensation expense for the years ended June 30:

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 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 2026:

The type of share-based payments currently utilized by the Company is stock options.

The Company has four stock option plans outstanding as of June 30, 2026, namely the Precision Optics Corporation, Inc. 2022 Equity Incentive Plan (the “2022 Plan”), 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 such as upon employment termination. The Company has filed Registration Statements on Form S-8 with the Securities and Exchange Commission to register all shares of common stock issuable under the 2022, 2021, 2011, and 2006 Plans.

On April 8, 2022, our Shareholders approved the 2022 Plan which provides eligible participants (certain employees, directors, consultants, etc.) the opportunity to receive a broad variety of equity based and cash awards. A maximum of 1,318,333 shares of the Company’s common stock may be issued pursuant to stock options or other awards under the 2022 Plan. At June 30, 2026, options for a total of 918,591 shares of common stock were outstanding and 399,742 shares of common stock were available for future grants under the 2022 Plan. The 2022 Plan permits the Board of Directors to authorize and increase up to 5% of the then outstanding shares on an annual basis.

On May 10, 2021, our Board of Directors approved the 2021 Plan which likewise authorizes a broad variety of equity based and cash awards. A maximum of 333,333 shares of the Company’s common stock may be issued under the 2021 Plan. At June 30, 2026, options for a total of 248,989 shares of common stock were outstanding under the 2021 Plan. No further shares may be issued from this plan.

The 2011 Plan and 2006 Plan likewise provided for a broad variety of equity based and cash awards, but terminated in 2021 and 2016, respectively. At June 30, 2026, options for 432,325 shares of common stock were outstanding under the 2011 Plan, andnone were outstanding under the 2006 Plan.

The following tables summarize stock option activity for the years ended June 30, 2026 and 2025:

The aggregate intrinsic value of the Company’s “in-the-money” outstanding and exercisable options as of June 30, 2026, was $974,540 and $833,438, respectively.

On February 19, 2025, the Company entered into agreements with certain institutional and accredited investors for the sale and purchase of 1,272,500 unregistered shares of its common stock, $0.01 par value at a purchase price of $4.00 per share, resulting in gross proceeds of approximately $5.1 million before deducting placement agent commissions and other estimated offering expenses. The Company used the net proceeds from this placement for general working capital needs and paydown of the Company’s line of credit.

On March 27, 2026, the Company entered into an underwriting agreement for a public offering of 2,777,777 shares of common stock at a price of $3.60 per share. The underwriter exercised its over-allotment option in full at closing, resulting in 3,194,444 total shares issued. The offering closed on March 30, 2026. Net proceeds after underwriting discounts, commissions, and offering expenses were $10,630,678. The Company is using the net proceeds for working capital and general corporate purposes.

In connection with the public offering that closed on March 30, 2026, the Company issued to the underwriter warrants to purchase 159,722 shares of common stock at an exercise price of $4.21 per share. The warrants are immediately exercisable and expire on March 27, 2031. Each warrant is exercisable for one share of common stock.

The warrants met the criteria for equity classification under ASC 815-40 and were recorded within stockholders’ equity. The warrants are not subsequently remeasured as long as the conditions for equity classification continue to be met.

The grant-date fair value of the warrants on the issuance date of March 30, 2026 was approximately $342,687, determined using a Black-Scholes option pricing model with the following assumptions: stock price $4.20, exercise price $4.21, expected term of approximately 5 years, expected volatility of 54.8%, risk-free interest rate of 3.9%, and dividend yield of 0%. The fair value was recorded as an additional issuance cost and recognized as a reduction to additional paid-in capital, with an offsetting credit to additional paid-in capital — warrants outstanding. The net impact on total stockholders’ equity was zero.

As of June 30, 2026, all 159,722 warrants remain outstanding and unexercised.

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 Company’s effective tax rate for the fiscal years ended June 30, 2026 and 2025 is as follows:

The components of deferred tax assets and liabilities at June 30, 2026 and 2025 are approximately as follows:

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, 2026, the Company had federal and state net operating loss carry forwards of approximately $25,468,000 and $13,179,000, respectively, which will, if not used, expire at various dates beginning in fiscal year 2027.

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.

Effective June 1, 2026, the Company established a self-funded employee health insurance program and began participating in a group captive insurance arrangement. Under the program, the Company is responsible for eligible employee healthcare claims, subject to stop-loss insurance coverage designed to limit exposure to significant individual and aggregate claims.

The Company recognizes the cost of healthcare claims in the period in which the underlying services are incurred, including an estimate for claims incurred but not reported (“IBNR”). The estimated liability is based on available claims information, historical healthcare costs and other relevant information available to management. Estimates are subject to uncertainty, and actual claims may differ from amounts estimated and recorded.

At June 30, 2026, the Company’s accrued liability for healthcare claims, including IBNR, was approximately $70,000.