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<SEC-DOCUMENT>0001047469-03-005456.txt : 20030214
<SEC-HEADER>0001047469-03-005456.hdr.sgml : 20030214
<ACCEPTANCE-DATETIME>20030214100645
ACCESSION NUMBER:		0001047469-03-005456
CONFORMED SUBMISSION TYPE:	10QSB
PUBLIC DOCUMENT COUNT:		3
CONFORMED PERIOD OF REPORT:	20021231
FILED AS OF DATE:		20030214

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			PRECISION OPTICS CORPORATION INC
		CENTRAL INDEX KEY:			0000867840
		STANDARD INDUSTRIAL CLASSIFICATION:	ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845]
		IRS NUMBER:				042795294
		STATE OF INCORPORATION:			MA
		FISCAL YEAR END:			0630

	FILING VALUES:
		FORM TYPE:		10QSB
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-10647
		FILM NUMBER:		03563155

	BUSINESS ADDRESS:	
		STREET 1:		22 EAST BROADWAY
		CITY:			GARDNER
		STATE:			MA
		ZIP:			01440-3338
		BUSINESS PHONE:		9786301800

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	PRECISION OPTICS CORP INC
		DATE OF NAME CHANGE:	19600201
</SEC-HEADER>
<DOCUMENT>
<TYPE>10QSB
<SEQUENCE>1
<FILENAME>a2103423z10qsb.htm
<DESCRIPTION>10QSB
<TEXT>
<HTML>
<HEAD>

</HEAD>
<BODY BGCOLOR="#FFFFFF" LINK=BLUE  VLINK=PURPLE>
<BR>
<FONT SIZE=3 ><A HREF="#03BOS1249_1">QuickLinks</A></FONT>
<font size=3> -- Click here to rapidly navigate through this document</font>
<HR NOSHADE>
<HR NOSHADE>
<P ALIGN="CENTER"><FONT SIZE=5><B>FORM 10-QSB  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=5><B> UNITED STATES<BR>
SECURITIES AND EXCHANGE COMMISSION<BR>  </B></FONT><FONT SIZE=2><B>Washington, D.C. 20549  </B></FONT></P>

<HR NOSHADE ALIGN="CENTER" WIDTH="120">

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<TR VALIGN="TOP">
<TD WIDTH="12%" ALIGN="CENTER"><BR><FONT SIZE=3><FONT FACE="WINGDINGS">&#253;</FONT></FONT></TD>
<TD WIDTH="88%"><BR><FONT SIZE=3><B>QUARTERLY REPORT PURSUANT TO SECTION 13 OR&nbsp;15(d)&nbsp;OF&nbsp;THE SECURITIES&nbsp;EXCHANGE ACT OF 1934</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="CENTER"><BR><FONT SIZE=2><B>For the Quarterly Period Ended December 31, 2002</B></FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER"><FONT SIZE=2><B> Commission file number 001-10647  </B></FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=5><B>PRECISION OPTICS CORPORATION, INC.<BR>  </B></FONT><FONT SIZE=2>(Exact name of small business issuer as specified in its charter) </FONT></P>

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<TD WIDTH="49%" ALIGN="CENTER"><FONT SIZE=2><B>Massachusetts</B></FONT><FONT SIZE=2><BR>
(State or other jurisdiction of<BR>
incorporation or organization)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%" ALIGN="CENTER"><FONT SIZE=2><B>04-2795294</B></FONT><FONT SIZE=2><BR>
(IRS Employer Identification No.)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="49%" ALIGN="CENTER"><BR><FONT SIZE=2><B>22 East Broadway, Gardner, Massachusetts</B></FONT><FONT SIZE=2><BR>
(Address of principal executive offices)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="49%" ALIGN="CENTER"><BR><FONT SIZE=2><B>01440-3338</B></FONT><FONT SIZE=2><BR>
(Zip Code)</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=3 ALIGN="CENTER" VALIGN="TOP"><BR><FONT SIZE=2><B>(978) 630-1800<BR> </B></FONT><FONT SIZE=2>(Registrant's telephone number, including area code)</FONT></TD>
</TR>
</TABLE>
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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Check
whether the issuer (1)&nbsp;filed all reports required to be filed by Section&nbsp;13 or 15(d)&nbsp;of the Securities Exchange Act of 1934 during the past 12&nbsp;months
(or for such shorter period that the registrant was required to file such reports), and (2)&nbsp;has been subject to such filing requirements for the past 90
days.&nbsp;Yes&nbsp;<FONT FACE="WINGDINGS">&#253;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;No&nbsp;<FONT FACE="WINGDINGS">&#111;</FONT> </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
number of shares outstanding of issuer's common stock, par value $.01 per share, at February&nbsp;13, 2003 was 1,752,052 shares. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Transitional
Small Business Disclosure Format (check
one):&nbsp;Yes&nbsp;<FONT FACE="WINGDINGS">&#111;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;No&nbsp;<FONT FACE="WINGDINGS">&#253;</FONT> </FONT></P>

<HR NOSHADE>
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<HR NOSHADE>
<!-- ZEQ.=1,SEQ=1,EFW="2103423",CP="PRECISION OPTICS CORPORATION,INC",DN="1",CHK=1009741,FOLIO='blank',FILE='DISK008:[03BOS9.03BOS1249]BA1249A.;3',USER='CJOHNSOC',CD='13-FEB-2003;17:29' -->
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<!-- TOC_END -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="bg1249_precision_optics_corporation,_inc._and_subsidiaries"> </A>
<A NAME="toc_bg1249_1"> </A>
<BR></FONT><FONT SIZE=2><B>PRECISION OPTICS CORPORATION,&nbsp;INC. AND SUBSIDIARIES    <BR>  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><I>INDEX  </I></FONT></P>

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<TR VALIGN="BOTTOM">
<TH WIDTH="11%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH WIDTH="78%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="6%" ALIGN="CENTER"><FONT SIZE=1><B>Page</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="11%"><FONT SIZE=2>PART I.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="78%"><FONT SIZE=2>FINANCIAL INFORMATION:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" VALIGN="BOTTOM"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="11%"><FONT SIZE=2><BR>
Item 1</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="78%"><FONT SIZE=2><BR>
Consolidated Financial Statements</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" VALIGN="BOTTOM"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="11%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="78%"><FONT SIZE=2><BR>
Consolidated Balance Sheets&#151;December 31, 2002 (unaudited) and June 30, 2002</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM"><FONT SIZE=2><BR>
3</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="11%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="78%"><FONT SIZE=2><BR>
Consolidated Statements of Operations&#151;Quarter Ended December 31, 2002 and December 31, 2001 (unaudited) Six Months Ended December 31,2002 and December 31, 2001 (unaudited)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM"><FONT SIZE=2><BR>
4</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="11%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="78%"><FONT SIZE=2><BR>
Consolidated Statements of Cash Flows&#151;Six Months Ended December 31, 2002 and 2001 (unaudited)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM"><FONT SIZE=2><BR>
5</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="11%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="78%"><FONT SIZE=2><BR>
Notes to Consolidated Financial Statements</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM"><FONT SIZE=2><BR>
6-7</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="11%"><FONT SIZE=2><BR>
Item 2</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="78%"><FONT SIZE=2><BR>
Management's Discussion and Analysis of Financial Condition and Results of Operations</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM"><FONT SIZE=2><BR>
8-14</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="11%"><FONT SIZE=2><BR>
Item 3</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="78%"><FONT SIZE=2><BR>
Controls and Procedures</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM"><FONT SIZE=2><BR>
14</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="11%"><FONT SIZE=2><BR>
PART II.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="78%"><FONT SIZE=2><BR>
OTHER INFORMATION</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM"><FONT SIZE=2><BR>
15</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="11%"><FONT SIZE=2><BR>
Item 1</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="78%"><FONT SIZE=2><BR>
Not Applicable</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="11%"><FONT SIZE=2><BR>
Item 2</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="78%"><FONT SIZE=2><BR>
Changes in Securities and Use of Proceeds</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="11%"><FONT SIZE=2><BR>
Item 3</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="78%"><FONT SIZE=2><BR>
Not Applicable</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="11%"><FONT SIZE=2><BR>
Item 4</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="78%"><FONT SIZE=2><BR>
Submission of Matters to a Vote of Security Holders</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="11%"><FONT SIZE=2><BR>
Item 5</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="78%"><FONT SIZE=2><BR>
Not Applicable</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="11%"><FONT SIZE=2><BR>
Item 6</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="78%"><FONT SIZE=2><BR>
Exhibits and Reports on Form 8-K</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="11%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="78%"><FONT SIZE=2><BR>
&nbsp;&nbsp;&nbsp;&nbsp;(a) Exhibits&#151;<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) Exhibit 3(i)&#151;Articles of Organization as amended<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) Exhibit 99&#151;Certification of Quarterly Report</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" VALIGN="BOTTOM"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="11%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="78%"><FONT SIZE=2><BR>
&nbsp;&nbsp;&nbsp;&nbsp;(c) Reports on Form 8-K</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" VALIGN="BOTTOM"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
</TABLE>
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<HR NOSHADE>
<!-- ZEQ.=1,SEQ=2,EFW="2103423",CP="PRECISION OPTICS CORPORATION,INC",DN="1",CHK=1012162,FOLIO='blank',FILE='DISK008:[03BOS9.03BOS1249]BG1249A.;9',USER='CJOHNSOC',CD='13-FEB-2003;17:29' -->
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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_fa1249_1_3"> </A> </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="fa1249_precision_optics_corporation,___pre03088"> </A>
<A NAME="toc_fa1249_1"> </A>
<BR></FONT><FONT SIZE=2><B>PRECISION OPTICS CORPORATION,&nbsp;INC. AND SUBSIDIARIES<BR>  CONSOLIDATED BALANCE SHEETS    <BR>  </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="89%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>December 31, 2002<BR>
(Unaudited)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>June 30, 2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=9 ALIGN="CENTER"><FONT SIZE=2><B>ASSETS</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>CURRENT ASSETS</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Cash and Cash Equivalents</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>4,589,217</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>5,825,601</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Accounts Receivable, Net</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>277,925</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>374,499</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Inventories</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>1,165,375</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,009,009</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Prepaid Expenses</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>234,554</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>93,574</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Refundable Income Taxes</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>13,849</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Assets Held for Sale</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>278,192</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>847,696</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="54%"><FONT SIZE=2>Total Current Assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>6,545,263</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>8,164,228</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>PROPERTY AND EQUIPMENT</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>4,002,282</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>3,983,698</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Less: Accumulated Depreciation</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>(3,608,237</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(3,492,403</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net Property and Equipment</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>394,045</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>491,295</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>OTHER ASSETS</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>219,023</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>224,516</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>TOTAL ASSETS</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>7,158,331</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>8,880,039</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=9 ALIGN="CENTER"><BR><FONT SIZE=2><B>LIABILITIES AND STOCKHOLDERS' EQUITY</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>CURRENT LIABILITIES</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Current Portion of Capital Lease Obligation</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>12,874</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>33,544</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Customer Advances</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>9,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>30,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Accounts Payable</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>159,347</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>118,901</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Accrued Payroll</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>100,315</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>63,650</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Accrued Bonuses</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>30,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>30,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Accrued Professional Services</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>67,655</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>105,995</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Accrued Vacation</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>103,060</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>121,042</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Accrued Warranty Expense</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>50,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>50,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Accrued Income Taxes</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>912</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Other Accrued Liabilities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>8,482</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>24,509</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Accrued Restructuring Expense</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>167,971</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="54%"><FONT SIZE=2>Total Current Liabilities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>540,733</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>746,524</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>CAPITAL LEASE OBLIGATION, Net of Current Portion, AND OTHER</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>4,665</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>17,705</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>STOCKHOLDERS' EQUITY</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Common Stock, $.01 par value&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="54%"><FONT SIZE=2>Authorized&#151;20,000,000 shares</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="54%"><FONT SIZE=2>Issued and Outstanding&#151;1,752,052 shares at December 31, 2002 and June 30, 2002<SUP>(1)</SUP></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>17,521</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>17,521</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Additional Paid-in Capital<SUP>(1)</SUP></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>27,770,175</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>27,770,175</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Accumulated Deficit</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>(21,174,763</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(19,671,886</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="54%"><FONT SIZE=2>Total Stockholders' Equity</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>6,612,933</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>8,115,810</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>7,158,331</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>8,880,039</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2><SUP>(1)</SUP></FONT></DT><DD><FONT SIZE=2>After
giving effect to a 1-for-6 reverse stock split that became effective on January&nbsp;29, 2003. </FONT></DD></DL>
<P ALIGN="CENTER"><FONT SIZE=2>3</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=1,SEQ=3,EFW="2103423",CP="PRECISION OPTICS CORPORATION,INC",DN="1",CHK=998005,FOLIO='3',FILE='DISK008:[03BOS9.03BOS1249]FA1249A.;6',USER='CJOHNSOC',CD='13-FEB-2003;17:29' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_fc1249_1_4"> </A> </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="fc1249_precision_optics_corporation,___pre05737"> </A>
<A NAME="toc_fc1249_1"> </A>
<BR></FONT><FONT SIZE=2><B>PRECISION OPTICS CORPORATION,&nbsp;INC. AND SUBSIDIARIES<BR>  CONSOLIDATED STATEMENTS OF OPERATIONS<BR>  FOR THE SECOND QUARTER AND SIX MONTHS ENDED<BR>  DECEMBER 31, 2002 AND 2001    <BR>  </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>SECOND QUARTER</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>SIX MONTHS</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002<BR>
(UNAUDITED)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2001<BR>
(UNAUDITED)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002<BR>
(UNAUDITED)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2001<BR>
(UNAUDITED)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>REVENUES</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>589,759</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>323,314</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,132,202</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>814,410</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>COST OF GOODS SOLD</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>480,199</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>476,728</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,011,937</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,972,912</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="29%"><FONT SIZE=2>Gross Profit (Loss)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>109,560</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(153,414</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>120,265</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(1,158,502</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>RESEARCH and DEVELOPMENT</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>339,137</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>737,187</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>649,193</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,412,897</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>SELLING, GENERAL and ADMINISTRATIVE EXPENSES</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>431,091</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>479,060</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>933,320</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>948,169</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>PROVISION FOR ASSET IMPAIRMENT and RESTRUCTURING</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>53,131</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>668,250</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>53,131</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>4,112,628</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="29%"><FONT SIZE=2>Total Operating Expenses</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>823,359</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,884,497</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,635,644</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>6,473,694</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="29%"><FONT SIZE=2>Operating Loss</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(713,799</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(2,037,911</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(1,515,379</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(7,632,196</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>INTEREST INCOME</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>17,739</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>46,349</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>39,105</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>136,633</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>INTEREST EXPENSE</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(324</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(3,739</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(6,562</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(5,667</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>LOSS ON SALE OF ASSETS HELD FOR SALE</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(14,602</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(20,041</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="29%"><FONT SIZE=2>Net Loss</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(710,986</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(1,995,301</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(1,502,877</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(7,501,230</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Basic and Diluted Loss Per Share<SUP>(1)</SUP></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>($</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>0.41</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>($</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1.14</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>($</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>0.86</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>($</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>4.28</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Weighted Average Common Shares Outstanding<SUP>(1)</SUP></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,752,052</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,752,052</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,752,052</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,752,052</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2><SUP>(1)</SUP></FONT></DT><DD><FONT SIZE=2>After
giving effect to a 1-for-6 reverse stock split that became effective on January&nbsp;29, 2003. </FONT></DD></DL>
<P ALIGN="CENTER"><FONT SIZE=2>4</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=1,SEQ=4,EFW="2103423",CP="PRECISION OPTICS CORPORATION,INC",DN="1",CHK=879024,FOLIO='4',FILE='DISK008:[03BOS9.03BOS1249]FC1249A.;4',USER='CJOHNSOC',CD='13-FEB-2003;17:29' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_fe1249_1_5"> </A> </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="fe1249_precision_optics_corporation,___pre05274"> </A>
<A NAME="toc_fe1249_1"> </A>
<BR></FONT><FONT SIZE=2><B>PRECISION OPTICS CORPORATION,&nbsp;INC. AND SUBSIDIARIES<BR>  CONSOLIDATED STATEMENTS OF CASH FLOWS<BR>  FOR THE SIX MONTHS ENDEDDECEMBER 31, 2002 AND 2001<BR>  (UNAUDITED)    <BR>  </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="87%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=5 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=5><FONT SIZE=2>CASH FLOWS FROM OPERATING ACTIVITIES:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=4><FONT SIZE=2>Net Loss</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(1,502,877</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(7,501,230</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=4><FONT SIZE=2>Adjustments to Reconcile Net Loss to Net Cash Used In Operating Activities&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Depreciation and Amortization</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>130,383</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>287,477</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Provision for Asset Impairment and Restructuring</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>53,131</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>4,112,628</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Provision for Inventory Writedown</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>540,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Loss on Sale of Assets Held for Sale</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>20,041</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Other</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(6,872</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(19,418</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Changes in Operating Assets and Liabilities&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="56%"><FONT SIZE=2>Accounts Receivable, Net</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>96,574</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>858,790</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="56%"><FONT SIZE=2>Inventories</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(156,366</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(121,123</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="56%"><FONT SIZE=2>Prepaid Expenses</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(140,980</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(133,876</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="56%"><FONT SIZE=2>Refundable Income Taxes</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>13,849</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="56%"><FONT SIZE=2>Accounts Payable</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>40,446</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(478,709</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="56%"><FONT SIZE=2>Accrued Restructuring Expense</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(221,102</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(113,159</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="56%"><FONT SIZE=2>Customer Advances</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(21,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="56%"><FONT SIZE=2>Other Accrued Expenses</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(39,704</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(126,598</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="56%"><FONT SIZE=2>Net Cash Used In Operating Activities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(1,734,477</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(2,695,218</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=5><FONT SIZE=2>CASH FLOWS FROM INVESTING ACTIVITIES:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=4><FONT SIZE=2>Purchases of Property and Equipment</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(16,321</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(58,554</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=4><FONT SIZE=2>Net Proceeds from Sale of Assets Held for Sale</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>550,091</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=4><FONT SIZE=2>Increase in Other Assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(11,948</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(22,348</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=3><FONT SIZE=2>Net Cash Provided By (Used In) Investing Activities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>521,822</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(80,902</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=5><FONT SIZE=2>CASH FLOWS FROM FINANCING ACTIVITIES:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=4><FONT SIZE=2>Repayment of Capital Lease Obligation</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(23,729</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(14,347</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=3><FONT SIZE=2>Net Cash Used In Financing Activities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(23,729</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(14,347</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=5><FONT SIZE=2>NET DECREASE IN CASH AND CASH EQUIVALENTS</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(1,236,384</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(2,790,467</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=5><FONT SIZE=2>CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>5,825,601</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>10,530,298</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=5><FONT SIZE=2>CASH AND CASH EQUIVALENTS AT END OF PERIOD</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4,589,217</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>7,739,831</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=5><FONT SIZE=2>SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=4><FONT SIZE=2>Cash Paid for&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=3><FONT SIZE=2>Interest</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>6,562</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>5,667</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=3><FONT SIZE=2>Income Taxes</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,824</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>912</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>5</FONT></P>

<HR NOSHADE>
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NAME="page_fg1249_1_6"> </A> </FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="fg1249_precision_optics_corporation,___pre03071"> </A>
<A NAME="toc_fg1249_1"> </A>
<BR></FONT><FONT SIZE=2><B>PRECISION OPTICS CORPORATION,&nbsp;INC.<BR>  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    <BR>  </B></FONT></P>

<P><FONT SIZE=2><B>1.&nbsp;&nbsp;&nbsp;&nbsp;SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The accompanying consolidated financial statements include the accounts of Precision Optics Corporation,&nbsp;Inc. and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in consolidation. All shares and per share data reflect the effects of a 1-for-6 reverse stock split
that became effective on January&nbsp;29, 2003. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These
consolidated financial statements have been prepared by the Company, without audit, and reflect normal recurring adjustments which, in the opinion of management, are necessary for
a fair statement of the results of the second quarter and first half of the Company's fiscal year 2003. 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&nbsp;30, 2002
together with the auditors' report filed under cover of the Company's 2002 Annual Report on Form&nbsp;10-KSB. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic
loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. For the six months ended December&nbsp;31,
2002 and 2001, the effect of stock options and warrants was antidilutive; therefore, they were not included in the computation of diluted loss per share. The number of shares issuable upon the
exercise of outstanding stock options and warrants that were excluded from the computation as their effect would be antidilutive were approximately 203,748 and 184,100, for the six months ended
December&nbsp;30, 2002 and 2001, respectively. </FONT></P>

<P><FONT SIZE=2><B>2.&nbsp;&nbsp;&nbsp;&nbsp;INVENTORIES  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following: </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="70%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>December 31,<BR>
2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>June 30,<BR>
2002</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Raw Materials</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>638,770</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>532,228</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Work-In-Progress</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>331,675</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>302,128</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Finished Goods</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>194,930</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>174,653</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%">&nbsp;</TD>
<TD WIDTH="53%"><FONT SIZE=2>Total Inventories</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>1,165,375</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>1,009,009</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
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<P><FONT SIZE=2><B>3.&nbsp;&nbsp;&nbsp;&nbsp;EXPENSE REDUCTION  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2002, the Company reduced its full-time workforce by approximately 16%, or six employees. As a result of this action, the Company
recorded a non-recurring pretax charge to earnings of $53,131 for employee severance benefits that were paid in the quarter ended December&nbsp;31, 2002. </FONT></P>

<P><FONT SIZE=2><B>4.&nbsp;&nbsp;&nbsp;&nbsp;SUBSEQUENT EVENT  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective as of the open of business on January&nbsp;29, 2003 (the "Effective Time"), the Company effected a reverse stock split (the "Reverse Stock Split") of
its Common Stock, par value $.01 per share (the "Common Stock"). The purpose of the Reverse Stock Split, which was approved by the shareholders of the Company at the Annual Meeting of Shareholders
held in November 2002 and which the Board of Directors determined to be in the best interests of the Company and its shareholders, was to increase the per share price of the Company's Common Stock in
order to comply with the minimum bid price listing requirement of Nasdaq. As previously disclosed, the Company had </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>6</FONT></P>

<HR NOSHADE>
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<BR>

<P><FONT SIZE=2>
been notified that it was not in compliance with the $1.00 minimum share price requirement for continued listing on the Nasdaq SmallCap Market. In order to regain compliance, the bid price of the
Company's Common Stock had to close at or above $1.00 per share for a minimum of 10 consecutive trading days. On each of the 10 consecutive trading days including and following January&nbsp;29,
2003, the bid price of the Company's Common Stock closed at or above $1.00 per share. Accordingly, the Company believes that it has regained compliance with the minimum share price requirement for
continued listing on the Nasdaq SmallCap Market. There can be no assurance, however, that the market price of the Common Stock will not subsequently decrease to a level that causes the Company to
again face de-listing, or that the Company's market capitalization will not subsequently be less than its market capitalization before the Reverse Stock Split. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
the Effective Time, every six shares of Common Stock were reclassified and combined into one share of Common Stock. No fractional shares were issued as a result of the Reverse Stock
Split. Instead, each resulting fractional share of Common Stock was rounded up to one whole share. The Reverse Stock Split reduced the number of shares of Common Stock outstanding from 10,503,908 to
1,752,052. Immediately after the Effective Time, the total number of authorized shares of Common Stock continued to be 20,000,000 and the par value per share of the Common Stock continued to be $.01. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All
shares and per share data in the accompanying consolidated financial statements reflect the effects of the 1-for-6 Reverse Stock Split that became effective
on January&nbsp;29, 2003. In addition, capital stock has been decreased by $87,518, with a corresponding increase to paid-in capital to reflect the adjusted number of shares of $.01 per
value common stock outstanding as a result of the 1-for-6 Reverse Stock Split. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>7</FONT></P>

<HR NOSHADE>
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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="fi1249_precision_optics_corporation,___pre05484"> </A>
<A NAME="toc_fi1249_1"> </A>
<BR></FONT><FONT SIZE=2><B>PRECISION OPTICS CORPORATION,&nbsp;INC. AND SUBSIDIARIES<BR>  <BR>    Management's Discussion and Analysis of Financial<BR>  Condition and Results of Operations    <BR>  </B></FONT></P>

<P><FONT SIZE=2><B>Important Factors Regarding Forward-Looking Statements  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;When used in this discussion, the words "believes", "anticipates", "intends to", and similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those projected. These risks and uncertainties, many of which are not within the
Company's control, include, but are not limited to, uncertainty of future demand for the Company's products, the uncertainty and timing of the successful development of the Company's new products, the
risks associated with reliance on a few key customers; the Company's ability to maintain compliance with requirements for continued listing on the Nasdaq SmallCap Market; the Company's ability to
attract and retain personnel with the necessary scientific and technical skills; the timing and completion of significant orders; the timing and amount of the Company's research and development
expenditures; the timing and level of market acceptance of customers' products for which the Company supplies components; the level of market acceptance of competitors' products; the ability of the
Company to control costs associated with performance under fixed price contracts; the performance and reliability of the Company's vendors; and the continued availability to the Company of essential
supplies, materials and services. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to
publicly release the result of any revision to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated
events. </FONT></P>

<P><FONT SIZE=2><B>Critical Accounting Policies and Estimates  </B></FONT></P>

<P><FONT SIZE=2><I>General  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Management's discussion and analysis of financial condition and results of operations are based upon the Company's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The preparation of these 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. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. </FONT></P>

<P><FONT SIZE=2><I>Revenue Recognition  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company recognizes revenue in accordance with U.S. GAAP and SEC Staff Accounting Bulletin ("SAB") No.&nbsp;101, </FONT><FONT SIZE=2><I>Revenue Recognition
in Financial Statements.</I></FONT><FONT SIZE=2> SAB No.&nbsp;101 requires that four basic criteria must be met before revenue can be recognized: (1)&nbsp;persuasive evidence of an arrangement
exists; (2)&nbsp;delivery has occurred or services have been rendered; (3)&nbsp;the price to the buyer is fixed and determinable; and (4)&nbsp;collectibility is reasonably assured. Determination
of criteria (3)&nbsp;and (4)&nbsp;are based on management's judgments regarding the fixed nature of the price to the buyer charged for products delivered or services rendered and collectibility of
the sales price. The Company assesses credit worthiness of customers based upon prior history with the customer and assessment of financial condition. The Company's shipping terms are customarily FOB
shipping point. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>8</FONT></P>

<HR NOSHADE>
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<BR>

<P><FONT SIZE=2><I>Bad Debt  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Allowances
for doubtful accounts are established based upon review of specific account balances and historical experience. If the financial condition of the Company's customers were to deteriorate, resulting in
an impairment of their ability to make future payments, additional allowances may be required. </FONT></P>

<P><FONT SIZE=2><I>Inventories  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. </FONT></P>

<P><FONT SIZE=2><I>Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On July&nbsp;1, 2002, the Company adopted Statement of Financial Accounting Standards ("SFAS") No.&nbsp;144, </FONT><FONT SIZE=2><I>Accounting for the
Impairment or Disposal of Long-Lived Assets.</I></FONT><FONT SIZE=2> SFAS No.&nbsp;144 supercedes SFAS No.&nbsp;121, </FONT><FONT SIZE=2><I>Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of</I></FONT><FONT SIZE=2>. This statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of through sale are reported at the lower of the carrying
amount or fair value less estimated costs to sell. </FONT></P>

<P><FONT SIZE=2><B>Results of Operations  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total revenues for the quarter and six months ended December&nbsp;31, 2002 increased by $266,445 or 82.4% and $317,792 or 39.0%, respectively, from the same
periods in the prior year. Revenues for the quarter increased 8.7% sequentially from the preceding quarter. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
increase in revenues for the quarter was due primarily to higher sales of medical products (up by approximately $293,000, or 112%), partially offset by lower sales of
non-medical products (down by approximately $26,000, or 43%). Sales of medical products were higher due primarily to higher shipments of stereo endoscopes and cameras. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
revenue increase from the prior year for the six months ended December&nbsp;31, 2002 was due to higher sales of medical products (up approximately $497,000, or 89%), partially
offset by lower sales of non-medical products (down approximately $179,000 or 70%). For the six months ended December&nbsp;31, 2002, medical sales were higher due primarily to higher
shipments of stereo endoscopes and cameras. Non-medical sales were lower due primarily to the discontinuation of sales of Dense Wavelength Division Multiplexing (DWDM) filters. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>9</FONT></P>

<HR NOSHADE>
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<A NAME="page_fi1249_1_10"> </A>
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues
from the Company's largest customers, as a percentage of total revenues for the six months ended December&nbsp;31, 2002 and 2001, were as follows: </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="68%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="79%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>Customer A</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>36</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>Customer B</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>15</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>19</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>Customer C</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>10</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>5</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>Customer D</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>6</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>19</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>Customer E</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>2</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>12</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>Customer F</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>13</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>All Others</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>31</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>32</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>100</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>100</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No
other customer accounted for more than 10% of the Company's revenues during those periods. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
December&nbsp;31, 2002, receivables from the Company's three largest customers were approximately 39%, 24% and 14%, respectively, of the total accounts receivable. At
June&nbsp;30, 2002, receivables from the Company's largest customer were approximately 63% of the total accounts receivable. No other customer accounted for more than 10% of the Company's
receivables as of December&nbsp;31, 2002 and June&nbsp;30, 2002. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gross
profit for the quarter and six months ended December&nbsp;31, 2002 reflected a favorable change of approximately $263,000 and $1,279,000, respectively, compared to the quarter
and six months ended December&nbsp;31, 2001. Gross profit as a percentage of revenues increased from a negative 47.5% in the quarter ended December&nbsp;31, 2001 to 18.6% in the current quarter,
and increased from a negative 142.3% in the six months ended December&nbsp;31, 2001 to 10.6% in the six months ended December&nbsp;31, 2002. The favorable change in gross profit was due primarily
to (1)&nbsp;a provision for excess and obsolete inventories of DWDM filters and DWDM filter test instrumentation of approximately $540,000 recorded in the quarter ended September&nbsp;30, 2001;
(2)&nbsp;lower fixed manufacturing costs resulting from the cessation of operations in the Company's optical thin film technology facility and reductions in staff; and (3)&nbsp;the higher overall
sales volume. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research
and development expenses decreased by approximately $398,000, or 54.0%, for the quarter ended December&nbsp;31, 2002, and by approximately $764,000, or 54.1%, for the six
months ended December&nbsp;31, 2002 compared to the corresponding periods of the prior year. During the prior year, research and development expenses consisted primarily of development efforts
related to DWDM filters used in telecommunications systems. The decrease in the current year was due to discontinuation of the development of DWDM filters, as reflected in reductions in staff, and the
remaining R&amp;D resources being redeployed toward development of new medical products. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Selling,
general and administrative expenses decreased by approximately $48,000, or 10.0%, for the quarter ended December&nbsp;31, 2002 and by approximately $15,000, or 1.6%, for the
six months ended December&nbsp;31, 2002 compared to the corresponding periods of the prior year. The decrease is due primarily to lower sales and marketing expenses. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
provision for asset impairment and restructuring of $53,131 in the quarter and six months ended December&nbsp;31, 2002, consists of a provision for severance benefits paid in the
quarter ended December&nbsp;31, 2002 related to the October&nbsp;2002 workforce reduction of 16%, or six employees. The provision for asset and impairment and restructuring of $668,250 and
$4,112,628 in the quarter and six months ended December&nbsp;31, 2001, respectively consists of (1)&nbsp;a provision for restructuring costs recorded in the quarter ended December&nbsp;31,2001,
representing the present value of future lease payments related to idle space in the Company's former Optical Thin Film Technology Center, and employee severance costs; and (2)&nbsp;a provision for
asset impairment of $3,444,378 recorded in the </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>10</FONT></P>

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<BR>

<P><FONT SIZE=2>
quarter ended September&nbsp;30, 2001, representing a writedown to the lower of carrying value or fair market value of certain of the Company's property and equipment invested in its optical thin
films coating business. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest
expense relates primarily to capital lease obligations. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest
income decreased by approximately $29,000 for the quarter and by $98,000 for the six months ended December&nbsp;31, 2002 compared to the corresponding periods of the prior
year due to the lower base of cash and cash equivalents and to lower interest rates. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
loss on sale of assets held for sale of $14,602 and $20,041 in the quarter and six months ended December&nbsp;31, 2002, respectively, represents the loss on the sales of a portion
of the property and equipment held for sale, which formerly was invested in the Company's telecommunications product line. The Company received net proceeds from these sales of approximately $550,000
in the six months ended December&nbsp;31, 2002. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No
income tax provision was recorded in the first or second quarters of fiscal year 2003 or 2002 because of the losses generated in those periods. </FONT></P>

<P><FONT SIZE=2><B>Liquidity and Capital Resources  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the six months ended December&nbsp;31, 2002, the Company's cash and cash equivalents decreased by approximately $1,236,000 to $4,589,000. The decrease in
cash and cash equivalents was due to cash used by operating activities of approximately $1,734,000, capital expenditures of approximately $16,000, repayment of debt of approximately $24,000, and an
increase in other assets of approximately $12,000, partially offset by net proceeds received from the sale of assets of approximately $550,000. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Contractual
cash commitments for the fiscal years subsequent to December&nbsp;31, 2002 are summarized as follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="78%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2004</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Thereafter</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Total</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Capital leases</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>8,765</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>3,874</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>12,639</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Operating leases</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>27,671</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>15,383</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>43,054</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="39%"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>36,436</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>19,257</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>55,693</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company intends to continue devoting resources to internally funded research and development spending on both new products and the improvement of existing products. The Company also
intends to devote resources to the marketing and product support of its medical instrument product line and medical instruments related optical thin films. These investments may temporarily result in
negative cash flow, but the Company anticipates that the result of these efforts will translate into increased revenues. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company believes that its cash and cash equivalents are sufficient to support working capital and investment needs for at least the next twelve months. </FONT></P>

<P><FONT SIZE=2><B>Recent Accounting Pronouncements  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Statement of Financial Accounting Standards ("SFAS") No.&nbsp;148</FONT><FONT SIZE=2><B>, </B></FONT><FONT SIZE=2><I>Accounting for Stock-Based
Compensation&#151;Transition and Disclosure&#151;an amendment of SFAS No.&nbsp;123 (Issued 12/02) amends SFAS No.&nbsp;123</I></FONT><FONT SIZE=2>, </FONT><FONT SIZE=2><I>Accounting
for Stock-Based Compensation</I></FONT><FONT SIZE=2>, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of SFAS No.&nbsp;123 to require prominent disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method used on reported results. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>11</FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
Statement seeks to improve the prominence and clarity of the pro forma disclosures required by SFAS No.&nbsp;123 by prescribing a specific tabular format and by requiring
disclosure in the "Summary of Significant Accounting Policies" or its equivalent. In addition, this Statement seeks to improve the timeliness of those disclosures by requiring their inclusion in
financial reports for interim periods. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
provisions of SFAS No.&nbsp;148 generally will be effective for fiscal years ended after December&nbsp;15, 2002. The disclosures to be provided in annual financial statements
will be required for fiscal years ended after December&nbsp;15, 2002, and the disclosures to be provided in interim financial reports will be required for interim periods begun after
December&nbsp;15, 2002, with earlier application encouraged. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company will comply with the disclosure requirement of the Statement beginning with the interim period ending March&nbsp;31, 2003. However, the Company currently intends to retain
the intrinsic value method of accounting for stock-based employee compensation as allowed by SFAS No.&nbsp;123. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FASB
Interpretation 45, an interpretation of SFAS No.'s 5, 57 and 107 (and rescission of FASB Interpretation No.&nbsp;34), </FONT><FONT SIZE=2><I>Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,</I></FONT><FONT SIZE=2> introduces the concept of two different obligations related to the issuance of a
guarantee: (1)&nbsp;the contingent obligation to make future payments under the conditions of the guarantee and (2)&nbsp;the non-contingent obligation to stand ready to perform
(stand-ready obligation). Interpretation 45 addresses the accounting for the stand-ready obligation under the guarantee, while SFAS No.&nbsp;5, </FONT><FONT SIZE=2><I>Accounting for
Contingencies</I></FONT><FONT SIZE=2>, addresses the recognition and measurement of the contingent obligation. A guarantor is required to recognize a liability with respect to its stand-ready
obligation under the guarantee even if the probability of future payments under the conditions of a guarantee is remote. The initial liability will be measured as the fair value of the stand-ready
obligation. The Interpretation excludes certain guarantees from its scope while others are excluded solely from the recognition requirements (i.e., subject to disclosure only). The disclosure
requirements are effective for interim and annual financial statements ending after December&nbsp;15, 2002 (December&nbsp;31, 2002 financial statements for calendar year companies). The initial
recognition and measurement provisions are effective for all guarantees within the scope of Interpretation 45 issued or modified after December&nbsp;31, 2002. Adoption of FASB Interpretation 45 as
of December&nbsp;31, 2002 will not have an effect on the Company's financial statements. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FASB
Interpretation No.&nbsp;46, issued in January&nbsp;2003, is an interpretation of Accounting Research Bulletin No.&nbsp;51, </FONT><FONT SIZE=2><I>Consolidated Financial
Statements</I></FONT><FONT SIZE=2>, and addresses consolidation by business enterprises of variable interest entities. This Interpretation requires existing unconsolidated variable interest entities
to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among parties involved. Variable interest entities that effectively disperse risks will not be
consolidated unless a single party holds an interest or combination of interests that effectively recombines risks that were previously dispersed. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
Interpretation applies immediately to variable interest entities created after January&nbsp;31, 2003, and to variable interest entities in which an enterprise obtains an interest
after that date. It applies in the first fiscal year or interim period beginning after June&nbsp;15, 2003, to variable interest entities in which an enterprise holds a variable interest that it
acquired before February&nbsp;1, 2003. The Interpretation applies to public enterprises as of the beginning of the applicable interim or annual period, and it applies to nonpublic enterprises as of
the end of the applicable annual period. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company does not expect that the adoption of FASB Interpretation No.&nbsp;46 will have a significant effect on its consolidated financial statements. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>12</FONT></P>

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<BR>

<P><FONT SIZE=2><B>Expense Reduction  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has taken additional measures to realign its cost structure with current revenue expectations. In October&nbsp;2002, the Company reduced its
full-time workforce by approximately 16%, or six employees. As a result of this action, the Company recorded a non-recurring pretax charge to earnings of approximately $53,000
for employee severance benefits in the quarter ended December&nbsp;31, 2002. In addition, the Company is in the process of reviewing other expense areas to determine where additional reductions in
discretionary spending can be achieved. </FONT></P>

<P><FONT SIZE=2><B>Trends and Uncertainties That May Affect Future Results  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the quarter ended December&nbsp;31, 2002, cash and cash equivalents decreased by approximately $500,000 from September&nbsp;30, 2002. Cash receipts during
the quarter included approximately $545,000 related to the sale of certain assets held for sale. Cash disbursements during the quarter included approximately $414,000 for certain
non-recurring payments (such as employee severance and legal expenses associated with corporate governance issues and other matters), and certain payments occurring only during the second
quarter each year (such as annual insurance premiums and costs associated with preparation of annual shareholder proxy materials). Cash disbursements in the preceding quarter ended
September&nbsp;30, 2002 included a non-recurring payment for lease cancellation of approximately $168,000. Excluding these incremental receipts and disbursements, cash usage during the
quarter ended December&nbsp;31, 2002 would have been approximately $631,000, an 11% sequential increase in cash usage compared to the previous quarter ended September&nbsp;30, 2002. This increased
cash usage is attributable primarily to higher inventory purchases and customer receivables (net of advances) to support the higher sales levels in the quarter ended December&nbsp;31, 2002. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the quarter ended December&nbsp;31, 2002, the Company received net proceeds of approximately $545,000 related to the sale of a portion of its assets held for sale (the property
and equipment previously used in the Company's telecommunications product line). The remaining assets in this category are anticipated to be sold by June&nbsp;30, 2003. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Capital
equipment expenditures during the six months ended December&nbsp;31, 2002 were approximately $16,000, down 72% from the six months ended December&nbsp;31, 2001. Future
capital expenditures will be dependent upon future sales and success of on-going research and development efforts. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
the quarter ended December&nbsp;31, 2002, research and development expenses were approximately $339,000, down 54% from the $737,000 in the quarter ended December&nbsp;31, 2001.
It is anticipated that the quarterly level of R&amp;D expenses for the foreseeable future will remain in this lower range, but is ultimately dependent upon the Company's assessment of new product
opportunities. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company's new medical products and certain non-medical applications of its optical technology have been well received by the marketplace. Some of these new products
include: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Stereo
endoscope systems (used in cardiac surgery and a growing number of other minimally invasive surgical procedures). </FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>30<SUP>o</SUP>
line of sight version of the successful 5 mm autoclavable laparoscope. </FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>4
mm short endoscope (used in carpal tunnel surgery). </FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Longer
version of the 10 mm laparoscope (used in bariatric surgery for treatment of morbid obesity). </FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>5
mm 30<SUP>o</SUP> endoscope (used in vessel transplant for cardiac bypass surgery). </FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Relay
lens system (for use in medical digital photo microscopy). </FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Episcope
(for use in examination of the epidermis). </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These
initiatives alone have already generated orders from new and existing customers totaling approximately $1,272,000, of which approximately $83,000 was shipped in fiscal year 2002, </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>13</FONT></P>

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<BR>

<P><FONT SIZE=2>
approximately $181,000 was shipped in the quarter ended September&nbsp;30, 2002, and approximately $360,000 was shipped in the quarter ended December&nbsp;31, 2002. A positive trend in shipments
is expected to continue during the quarter ending March&nbsp;31, 2003. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Achievements
of ISO 9001 and CE Mark certification, as previously announced, are also expected to support increased future sales opportunities, both foreign and domestic, for the
Company's medical products. </FONT></P>

<P><FONT SIZE=2><B>Common Stock Listing on NASDAQ SmallCap Market  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective as of the open of business on January&nbsp;29, 2003 (the "Effective Time"), the Company effected a reverse stock split (the "Reverse Stock Split") of
its Common Stock, par value $.01 per share (the "Common Stock"). The purpose of the Reverse Stock Split, which was approved by the shareholders of the Company at the Annual Meeting of Shareholders
held in November 2002 and which the Board of Directors determined to be in the best interests of the Company and its shareholders, was to increase
the per share price of the Company's Common Stock in order to comply with the minimum bid price listing requirement of Nasdaq. As previously disclosed, the Company had been notified that it was not in
compliance with the $1.00 minimum share price requirement for continued listing on the Nasdaq SmallCap Market. In order to regain compliance, the bid price of the Company's Common Stock had to close
at or above $1.00 per share for a minimum of 10 consecutive trading days. On each of the 10 consecutive trading days including and following January&nbsp;29, 2003, the bid price of the Company's
Common Stock closed at or above $1.00 per share. Accordingly, the Company believes that it has regained compliance with the minimum share price requirement for continued listing on the Nasdaq SmallCap
Market. There can be no assurance, however, that the market price of the Common Stock will not subsequently decrease to a level that causes the Company to again face de-listing, or that
the Company's market capitalization will not subsequently be less than its market capitalization before the Reverse Stock Split. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
the Effective Time, every six shares of Common Stock were reclassified and combined into one share of Common Stock. No fractional shares were issued as a result of the Reverse Stock
Split. Instead, each resulting fractional share of Common Stock was rounded up to one whole share. The Reverse Stock Split reduced the number of shares of Common Stock outstanding from 10,503,908 to
1,752,052. Immediately after the Effective Time, the total number of authorized shares of Common Stock continued to be 20,000,000 and the par value per share of the Common Stock continued to be $.01. </FONT></P>

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<TR VALIGN="TOP">
<TD WIDTH="8%"><FONT SIZE=2><I>Item 3</I></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Controls and Procedures</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>(a)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="83%"><FONT SIZE=2><I>Evaluation of Disclosure Controls and Procedures.</I></FONT><FONT SIZE=2> The Company's Chief Executive Officer and Chief Financial Officer have conducted an evaluation of the Company's disclosure controls and
procedures as of a date within 90&nbsp;days of filing this quarterly report. Based on their evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures are
effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the
applicable Securities and Exchange Commission rules and forms.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2><BR>
(b)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="83%"><BR><FONT SIZE=2><I>Changes in Internal Controls and Procedures.</I></FONT><FONT SIZE=2> There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls
subsequent to the date of the most recent evaluation of these controls by the Company's Chief Executive Officer and Chief Financial Officer, including any corrective actions with regard to significant deficiencies and material weaknesses.</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER"><FONT SIZE=2>14</FONT></P>

<HR NOSHADE>
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<P><FONT SIZE=2><A
NAME="page_ja1249_1_15"> </A> </FONT> <FONT SIZE=2><B>PART II. OTHER INFORMATION  </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="79%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="8%"><FONT SIZE=2><I>Item 1</I></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Not Applicable.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%"><BR><FONT SIZE=2><I>Item 2</I></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2><BR>
Changes in Securities and Use of Proceeds.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Effective as of the open of business on January&nbsp;29, 2003 (the "Effective Time"), the Company effected a reverse stock split (The "Reverse Stock Split") of its Common Stock, par value $.01 per share (the "Common
Stock"). At the Effective Time, every six shares of Common Stock were reclassified and combined into one share of Common Stock. No fractional shares were issued as a result of the Reverse Stock Split. Instead, each resulting fractional share of
Common Stock was rounded up to one whole share. The Reverse Stock Split reduced the number of shares of Common Stock outstanding from 10,503,908 to 1,752,052. Immediately after the Effective Time, the total number of authorized shares of Common Stock
continued to be 20,000,000 and the par value per share of the Common Stock continued to be $.01.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%"><BR><FONT SIZE=2><I>Item 3</I></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2><BR>
Not Applicable.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%"><BR><FONT SIZE=2><I>Item 4</I></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2><BR>
Submission of Matters to a Vote of Security Holders</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>At the Annual Meeting of Shareholders of the Company held on November&nbsp;12, 2002, 9,570,838 (or 91.1%) of the 10,503,908 then-outstanding shares of the common stock of the Company were present and voted by proxy. Robert
R. Shannon was reelected as a Class&nbsp;III Director of the Company, by a vote of 9,385,511 shares for, 0 shares against and 185,327 shares abstaining. The shareholders also approved a proposal to amend the Articles of Organization, to be filed at
the discretion of the Board, to effect a Reverse Stock Split, by a vote of 9,144,165 shares for, 396,830 shares against, and 29,843 shares abstaining.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%"><BR><FONT SIZE=2><I>Item 5</I></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2><BR>
Not Applicable.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%"><BR><FONT SIZE=2><I>Item 6</I></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2><BR>
Exhibits and Reports on Form&nbsp;8-K</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>(a)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="83%"><FONT SIZE=2>Exhibits&#151;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="83%"><FONT SIZE=2>(i) Exhibit&nbsp;3(i)&#151;Articles of Organization as amended<BR>
(ii) Exhibit&nbsp;99&#151;Certification of Quarterly Report</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="8%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2><BR>
(b)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="83%"><FONT SIZE=2><BR>
Reports on Form&nbsp;8-K&#151;The Company filed one Current Report on Form&nbsp;8-K during the quarter ended December&nbsp;31, 2002 as follows: On November&nbsp;1, 2002, the Company reported a press release issued on November&nbsp;1, 2002, reporting
its operating results for the quarter ended September&nbsp;30, 2002.</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
accordance with 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. </FONT></P>

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<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="39%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=2><BR><FONT SIZE=2>PRECISION OPTICS CORPORATION,&nbsp;INC.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="39%"><FONT SIZE=2><BR>
DATE: FEBRUARY&nbsp;13, 2003</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%"><BR><FONT SIZE=2>By:</FONT></TD>
<TD WIDTH="54%" ALIGN="CENTER"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>JACK P. DREIMILLER</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Jack P. Dreimiller<BR></FONT> <FONT SIZE=2><I>Senior Vice President, Finance, Chief Financial Officer and
Clerk </I></FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>15</FONT></P>

<HR NOSHADE>
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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_jc1249_1_16"> </A> </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="jc1249_certifications"> </A>
<A NAME="toc_jc1249_1"> </A>
<BR></FONT><FONT SIZE=2><B>CERTIFICATIONS    <BR>  </B></FONT></P>

<P><FONT SIZE=2>I,
Richard E. Forkey, certify that: </FONT></P>

<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>1.</FONT></DT><DD><FONT SIZE=2>I
have reviewed this quarterly report on Form&nbsp;10-QSB of Precision Optics Corporation,&nbsp;Inc.;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>2.</FONT></DT><DD><FONT SIZE=2>Based
on my knowledge, this quarterly 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 quarterly report;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>3.</FONT></DT><DD><FONT SIZE=2>Based
on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>4.</FONT></DT><DD><FONT SIZE=2>The
registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules&nbsp;13a-14 and 15d-14) for the registrant and have:
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>a)</FONT></DT><DD><FONT SIZE=2>designed
such disclosure controls and procedures 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 quarterly report is being prepared;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>b)</FONT></DT><DD><FONT SIZE=2>evaluated
the effectiveness of the registrant's disclosure controls and procedures as of a date within 90&nbsp;days prior to the filing date of this quarterly report (the "Evaluation
Date"); and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>c)</FONT></DT><DD><FONT SIZE=2>presented
in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; </FONT></DD></DL>
</DD></DL>
<UL>
<BR>
</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>5.</FONT></DT><DD><FONT SIZE=2>The
registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>a)</FONT></DT><DD><FONT SIZE=2>all
significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial
data and have identified for the registrant's auditors any material weaknesses in internal controls; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>b)</FONT></DT><DD><FONT SIZE=2>any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and </FONT></DD></DL>
</DD></DL>
<UL>
<BR>
</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>6.</FONT></DT><DD><FONT SIZE=2>The
registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. </FONT></DD></DL>

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<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="40%"><FONT SIZE=2><BR>
DATE: February&nbsp;13, 2003</FONT></TD>
<TD WIDTH="60%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="40%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="60%" ALIGN="CENTER"><FONT SIZE=2>/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>RICHARD E. FORKEY</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Richard E. Forkey<BR></FONT> <FONT SIZE=2><I>Chief Executive
Officer</I></FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>16</FONT></P>

<HR NOSHADE>
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<A NAME="page_jc1249_1_17"> </A>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="jc1249_certifications_1"> </A>
<A NAME="toc_jc1249_2"> </A>
<BR></FONT><FONT SIZE=2><B>CERTIFICATIONS    <BR>  </B></FONT></P>


<P><FONT SIZE=2>I,
Jack P. Dreimiller, certify that: </FONT></P>

<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>1.</FONT></DT><DD><FONT SIZE=2>I
have reviewed this quarterly report on Form&nbsp;10-QSB of Precision Optics Corporation,&nbsp;Inc.;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>2.</FONT></DT><DD><FONT SIZE=2>Based
on my knowledge, this quarterly 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 quarterly report;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>3.</FONT></DT><DD><FONT SIZE=2>Based
on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>4.</FONT></DT><DD><FONT SIZE=2>The
registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules&nbsp;13a-14 and 15d-14) for the registrant and have:
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>a)</FONT></DT><DD><FONT SIZE=2>designed
such disclosure controls and procedures 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 quarterly report is being prepared;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>b)</FONT></DT><DD><FONT SIZE=2>evaluated
the effectiveness of the registrant's disclosure controls and procedures as of a date within 90&nbsp;days prior to the filing date of this quarterly report (the "Evaluation
Date"); and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>c)</FONT></DT><DD><FONT SIZE=2>presented
in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; </FONT></DD></DL>
</DD></DL>
<UL>
<BR>
</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>5.</FONT></DT><DD><FONT SIZE=2>The
registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>a)</FONT></DT><DD><FONT SIZE=2>all
significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial
data and have identified for the registrant's auditors any material weaknesses in internal controls; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>b)</FONT></DT><DD><FONT SIZE=2>any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and </FONT></DD></DL>
</DD></DL>
<UL>
<BR>
</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>6.</FONT></DT><DD><FONT SIZE=2>The
registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. </FONT></DD></DL>

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<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="40%"><FONT SIZE=2><BR>
DATE: February&nbsp;13, 2003</FONT></TD>
<TD WIDTH="60%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="40%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="60%" ALIGN="CENTER"><FONT SIZE=2>/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>JACK P. DREIMILLER</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Jack P. Dreimiller<BR></FONT> <FONT SIZE=2><I>Chief Financial
Officer</I></FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER"><FONT SIZE=2>17</FONT></P>

<HR NOSHADE>
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<BR>
<P><br><A NAME="03BOS1249_1">QuickLinks</A><br></P>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_bg1249_1">PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_fa1249_1">PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS</A></FONT><BR>

<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_fc1249_1">PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SECOND QUARTER AND SIX MONTHS ENDED DECEMBER 31, 2002 AND 2001</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_fe1249_1">PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDEDDECEMBER 31, 2002 AND 2001 (UNAUDITED)</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_fg1249_1">PRECISION OPTICS CORPORATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</A></FONT><BR>

<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_fi1249_1">PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_jc1249_1">CERTIFICATIONS</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_jc1249_2">CERTIFICATIONS</A></FONT><BR>

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</BODY>
</HTML>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.(I)
<SEQUENCE>3
<FILENAME>a2103423zex-3_i.txt
<DESCRIPTION>EXHIBIT 3.(I)
<TEXT>
<PAGE>

                                                        EXHIBIT 3(i)

                                                        FEDERAL IDENTIFICATION
                                                        NO.    04-2795294
                                                            ------------------
   BJ
- --------             THE COMMONWEALTH OF MASSACHUSETTS
Examiner                  William Francis Galvin
                       Secretary of the Commonwealth
           One Ashburton Place, Boston, Massachusetts 02108-1512

  N/A                       ARTICLES OF AMENDMENT
- --------           (General Laws, Chapter 156B, Section 72)
Name
Approved
         We,                 Richard E. Forkey                  , *President
            ----------------------------------------------------

         and                 Jack P. Dreimiller                 , *Clerk
            ----------------------------------------------------

         of          Precision Optics Corporation, Inc.
            ----------------------------------------------------
                         (Exact name of corporation)

         located at 22 East Broadway - Gardner, Massachusetts 01440
                    ------------------------------------------------
                    (Street address of corporation in Massachusetts)

         certify that these Articles of Amendment affecting articles numbered:

                              Articles III and IV
         ---------------------------------------------------------------------
            (Number those articles 1, 2, 3, 4, 5 and/or 6 being amended)

         of the Articles of Organization were duly adopted at a meeting held
         on November 12, 2002, by vote of:

         9,144,165 shares of Common Stock of 10,503,908 shares outstanding,
         ---------           ------------    ----------
                             (type, class
                              and series,
                                if any)


                   shares of              of            shares outstanding, and
         ---------           ------------    ----------
                             (type, class
                              and series,
                                if any)


                   shares of              of            shares outstanding.
         ---------           ------------    ----------
                             (type, class
                              and series,
                                if any)
C    |_|
P    |_|
M    |_| 1**being at least a majority of each type, class or series
R.A. |_| outstanding and entitled to vote thereon:


         * Delete the inapplicable words.  ** Delete the inapplicable clause.
         1 For amendments adopted pursuant to Chapter 156B, Section 70.
         2 For amendments adopted pursuant to Chapter 156B, Section 71.
         Note: If the space provided under any article or item on this form
         is insufficient, additions shall be set forth on one side only of
         separate 8 1/2 x 11 sheets of paper with a left margin of at least
         1 inch. Additions to more than one article may be made on a single
- -------- sheet so long as each article requiring each addition is clearly
 P.C.    indicated.


<PAGE>

To change the number of shares and the par value (if any) of any type, class
or series of stock which the corporation is authorized to issue, fill in the
following:

The total PRESENTLY authorized is:

<TABLE>
<CAPTION>

- ------------------------------------------------------------------------------
   WITHOUT PAR VALUE STOCKS                   WITH PAR VALUE STOCKS
- ------------------------------------------------------------------------------
<S>           <C>                  <C>           <C>                 <C>
  TYPE        NUMBER OF SHARES       TYPE        NUMBER OF SHARES    PAR VALUE
- ------------------------------------------------------------------------------
Common:                            Common:          20,000,000          $.01
- ------------------------------------------------------------------------------

- ------------------------------------------------------------------------------
Preferred:                         Preferred:
- ------------------------------------------------------------------------------

- ------------------------------------------------------------------------------

</TABLE>


CHANGE the total authorized to:


<TABLE>
<CAPTION>

- ------------------------------------------------------------------------------
   WITHOUT PAR VALUE STOCKS                   WITH PAR VALUE STOCKS
- ------------------------------------------------------------------------------
<S>           <C>                  <C>           <C>                 <C>
  TYPE        NUMBER OF SHARES       TYPE        NUMBER OF SHARES    PAR VALUE
- ------------------------------------------------------------------------------
Common:                            Common:          20,000,000          $.01
- ------------------------------------------------------------------------------

- ------------------------------------------------------------------------------
Preferred:                         Preferred:
- ------------------------------------------------------------------------------

- ------------------------------------------------------------------------------

</TABLE>


Article IV of the Corporation's Articles of Organization, as amended, is
amended hereby by inserting the following:

Upon the filing of these Articles of Amendment with the Massachusetts
Secretary of the Commonwealth (the "Effective Time"), each six issued and
outstanding shares of authorized Common Stock of the Corporation, $.01 par
value per share, shall be reclassified and combined into one (1) share of
Common Stock. There shall be no fractional shares issued. Each resulting
fractional share shall be rounded up to a whole share. The total number of
authorized shares of Common Stock immediately after the Effective Time shall
continue to be 20,000,000*.


*At the Effective Time, the total number of authorized shares of Common Stock
is being reduced by 8,753,257 shares, then immediately increased by 8,753,257
shares so that the total number of authorized shares of Common Stock
immediately after the Effective Time is 20,000,000.


<PAGE>

The foregoing amendment(s) will become effective when these Articles of
Amendment are filed in accordance with General Laws, Chapter 156B, Section 6
unless these articles specify, in accordance with the vote adopting the
amendment, a LATER effective date not more than THIRTY DAYS after such
filing, in which event the amendment will become effective on such later date.

Later effective date: _________________________

SIGNED UNDER THE PENALTIES OF PERJURY, this 28th day of January, 2003.

/s/ Richard E. Forkey                   Richard E. Forkey,  *President

/s/ Jack P. Dreimiller                  Jack P. Dreimiller, *Clerk

* Delete the inapplicable words.


<PAGE>

                       THE COMMONWEALTH OF MASSACHUSETTS

                             ARTICLES OF AMENDMENT
                    (General Laws, Chapter 156B, Section 72)

                 ----------------------------------------------
                 ----------------------------------------------
                 I hereby approve the within Articles of
                 Amendment and, the filing fee in the amount of
                 $8,878.26 having been paid, said articles are
                 deemed to have been filed with me this 29th day
                 of January, 2003.


                 Effective date: _______________________________



                         /s/ William Francis Galvin

                            WILLIAM FRANCIS GALVIN
                         Secretary of the Commonwealth



                        TO BE FILLED IN BY CORPORATION
                             Contact information

                             Daniel P. Ricciardi
                 ----------------------------------------------

                                 Ropes & Gray
                 ----------------------------------------------

                            One International Place
                 ----------------------------------------------

                 Telephone:  Boston, Massachusetts 02110
                            -----------------------------------

                 Email:      dricciardi@ropesgray.com
                        ---------------------------------------

                 A copy this filing will be available on-line at
                 www.state.ma.us/sec/cor once the document is
                 filed.


<Page>

                                                 FEDERAL IDENTIFICATION
                                                         NO. 04-2795294

                   THE COMMONWEALTH OF MASSACHUSETTS

                        WILLIAM FRANCIS GALVIN
                     SECRETARY OF THE COMMONWEALTH
         ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108-1512

                      CERTIFICATE OF CORRECTION
              (GENERAL LAWS, CHAPTER 156B, SECTION 6A)

1. Exact name of corporation: PRECISION OPTICS CORPORATION, INC.

2. Document to be corrected: ARTICLES OF AMENDMENT

3. The above mentioned document was filed with the Secretary of the
   Commonwealth on November 22, 1999.

4. Please state the inaccuracy or defect in said document:

   Said Articles of Amendment were filed on behalf of the corporation
   changing the number of authorized shares of common stock from 10,000,000
   shares, no par value to 20,000,000 shares, no par value. The 20,000,000
   shares of common stock should have a par value of $0.01.

5. Please state corrected version of the document:

   The corporation is authorized to issue 20,000,000 shares of common stock,
   with par value of $0.01.



NOTE: THIS CORRECTION SHOULD BE SIGNED BY THE PERSON(S) REQUIRED BY LAW TO
SIGN THE ORIGINAL DOCUMENT.

SIGNED UNDER THE PENALTIES OF PERJURY, this 14th day of January, 2000.

/s/ Richard Forkey, *President,
- -------------------

/s/ Jack P. Dreimiller, *Clerk.
- -----------------------
*DELETE THE INAPPLICABLE WORDS

NOTE: IF THE INACCURACY OR DEFECTS TO BE CORRECTED IS NOT APPARENT ON THE
FACE OF THE DOCUMENT, MINUTES OF THE MEETING SUBSTANTIATING THE ERROR MUST BE
FILED WITH THE CERTIFICATE. ADDITIONAL INFORMATION MAY BE PROVIDED ON
SEPARATE 8 1/2 X 11 SHEETS OF WHITE PAPER WITH A LEFT MARGIN OF AT LEAST 1
INCH.

<Page>

                                                          FEDERAL IDENTIFICATION
                                                                  NO. 04-2795294

                        THE COMMONWEALTH OF MASSACHUSETTS
                             WILLIAM FRANCIS GALVIN
                          Secretary of the Commonwealth
              One Ashburton Place, Boston, Massachusetts 02108-1512

                              ARTICLES OF AMENDMENT
                    (GENERAL LAWS, CHAPTER 156B, SECTION 72)

We, RICHARD E. FORKEY, PRESIDENT
    ----------------------------------------------------------------------------

and JACK P. DREIMILLER
    ----------------------------------------------------------------------------

of PRECISION OPTICS CORPORATION, INC.
   -----------------------------------------------------------------------------

located at 22 EAST BROADWAY, GARDNER, MASSACHUSETTS 01440
           ---------------------------------------------------------------------

certify that these Articles of Amendment affecting articles numbered: III
                                                                      ----------

of the Articles of Organization were duly adopted at a meeting held on

NOVEMBER 9, 1999, by vote of: 7,205,181 shares of COMMON of 7,687,595 shares

outstanding, being at least two-thirds of each type, class or series outstanding

and entitled to vote thereon and of each type, class or series of stock whose

rights are adversely affected thereby.


<Page>



To CHANGE the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:

The total PRESENTLY authorized is:

<Table>
<Caption>

WITHOUT PAR VALUE STOCKS                      WITH PAR VALUE STOCKS
TYPE         NUMBER OF SHARES     TYPE        NUMBER OF SHARES    PAR VALUE
<S>          <C>                  <C>         <C>                 <C>

Common:      10,000,000           Common:

Preferred:                        Preferred:
</Table>

CHANGE the total authorized to:

<Table>
<Caption>

WITHOUT PAR VALUE STOCKS                      WITH PAR VALUE STOCKS
TYPE       NUMBER OF SHARES      TYPE         NUMBER OF SHARES   PAR VALUE
<S>        <C>                   <C>          <C>                <C>
Common:    20,000,000            Common:

Preferred:                       Preferred:
</Table>


<Page>


      The foregoing amendment(s) will become effective when these Articles of
Amendment are filed in accordance with General Laws, Chapter 156B, Section 6
unless these articles specify, in accordance with the vote adopting the
amendment, a LATER effective date not more than THIRTY DAYS after such filing,
in which event the amendment will become effective on such later date.

Later effective date:
                     ------------------------

SIGNED UNDER THE PENALTIES OF PERJURY, this 16TH day of NOVEMBER, 1999
                                                        --------------

  /s/    RICHARD E. FORKEY                                           , President
- ---------------------------------------------------------------------

 /s/     JACK P. DREIMILLER                                          , Clerk
- ---------------------------------------------------------------------


<Page>


FORM CD-72-30M-4/86-808881

                        THE COMMONWEALTH OF MASSACHUSETTS
                 OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
                       MICHAEL JOSEPH CONNOLLY, Secretary
                    ONE ASHBURTON PLACE, BOSTON, MASS. 02108


                                                          FEDERAL IDENTIFICATION
                                                          NO. 04-2795294

                              ARTICLES OF AMENDMENT

                     General Laws, Chapter 156B, Section 72

                  This certificate must be submitted to the Secretary of the
                  Commonwealth within sixty days after the date of the vote of
                  stockholders adopting the amendment. The fee for filing this
                  certificate is prescribed by General Laws, Chapter 156B,
                  Section 114. Make check payable to the Commonwealth of
                  Massachusetts.

      I, Richard Forkey, President and Clerk of

                       PRECISION OPTICS CORPORATION, INC.
- --------------------------------------------------------------------------------

located at               22 EAST BROADWAY, GARDNER, MA
          ----------------------------------------------------------------------

do hereby certify that the following amendment to the articles of organization
of the corporation was duly adopted by unanimous written consent of the
stockholders dated June 21, 1990.


<Page>


TO CHANGE the number of shares and the par value, if any, of each class of stock
within the corporation fill in the following:

The total presently authorized is:

<Table>
<Caption>

                                  NO PAR VALUE                 WITH PAR VALUE                  PAR
      KIND OF STOCK             NUMBER OF SHARES              NUMBER OF SHARES                VALUE
<S>                             <C>                              <C>                          <C>

         COMMON                                                  200,000                      $.01

        PREFERRED
</Table>

CHANGE the total to:

<Table>
<Caption>

                                  NO PAR VALUE                 WITH PAR VALUE                   PAR
      KIND OF STOCK             NUMBER OF SHARES              NUMBER OF SHARES                 VALUE
<S>                             <C>                              <C>                          <C>
         COMMON                                                  10,000,000                   $.01

        PREFERRED
</Table>


<Page>



VOTED:   That the Articles of Organization of the Corporation be and hereby are
         amended as follows: (a) under Article 2, to add to the Corporation's
         purposes the following business activities: "To carry on any
         manufacturing, mercantile, selling, management, service, or other
         business, operation, or activity which may be lawfully carried on by a
         corporation organized under the Business Corporation Law of The
         Commonwealth of Massachusetts, whether or not related to those referred
         to in the foregoing paragraph"; (b) under Article 3, to change the
         200,000 shares of Common Stock, par value $0.01 per share, currently
         authorized, of which 100,000 shares are outstanding, into 4,300,000
         shares of Common Stock, par value $0.01 per share, of which 2,150,000
         shall be outstanding, and to increase the number of shares of Common
         Stock, par value $0.01 per share, that the Corporation is authorized to
         issue to 10,000,000 shares; (c) under Article 5, to delete in their
         entirety the restrictions imposed upon the transfer of shares of stock
         of any class of stock under Article 5 of the Articles of Organization;
         and (d) under Article 6, to add to the Corporation's other lawful
         provisions the provisions enumerated in Exhibit B to this Consent;

                              (Exhibit B Attached)

      The foregoing amendment will become effective when these articles of
amendment are filed in accordance with Chapter 156B, Section 6 of The General
Laws unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.

IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our
names this 25th day of June, in the year 1990.

         /s/        RICHARD E. FORKEY                               , President
- ---------------------------------------------------------------------

         /s/        EDWARD BENJAMIN                                 , Clerk
- ---------------------------------------------------------------------


<Page>


                                                                       EXHIBIT B

      6.1. The corporation may carry on any business, operation, or activity
referred to in Article 2 to the same extent as might an individual, whether as
principal, agent, contractor or otherwise, and either alone or in conjunction
with or in a joint venture or other arrangement with any corporation,
association, trust, firm, or individual.

      6.2. The corporation may carry on any business, operation or activity
through a wholly or partly owned subsidiary.

      6.3. The corporation may be a partner in any business enterprise which it
would have power to conduct by itself.

      6.4. The directors may make, amend, or repeal the by-laws in whole or in
part, except with respect to any provision thereof which by law or the by-laws
requires action by the stockholders.

      6.5. Meetings of the stockholders may be held anywhere in the United
States.

      6.6. Except as otherwise provided by law, no stockholder shall have any
right to examine any property or any books, accounts, or other writings of the
corporation if there is reasonable ground for belief that such examination will
for any reason be adverse to the interests of the corporation, and a vote of the
directors refusing permission to make such examination and setting forth that in
the opinion of the directors such examination would be adverse to the interests
of the corporation shall be prima facie evidence that such examination would be
adverse to the interests of the corporation. Every such examination shall be
subject to such reasonable regulations as the directors may establish in regard
thereto.

      6.7. The directors may specify the manner in which the accounts of the
corporation shall be kept and may determine what constitutes net earnings,
profits, and surplus, what amounts, if any, shall be reserved for any corporate
purpose, and what amounts, if any, shall be declared as dividends. Unless the
board of directors otherwise specifies, the excess of the consideration for any
share of its capital stock with par value issued by it over such par value shall
be surplus. The board of directors may allocate to capital stock less than all
of the consideration for any share of its capital stock without par value issued
by it, in which case the balance of such consideration shall be surplus. All
surplus shall be available for any corporate purpose, including the payment of
dividends.

      6.8. The purchase or other acquisition or retention by the corporation of
shares of its own capital stock shall not be deemed a reduction of its capital
stock. Upon any reduction of capital or capital stock, no stockholder shall have
any right to demand any


<Page>



distribution from the corporation, except as and to the extent that the
stockholders shall have provided at the time of authorizing such reduction.

      6.9. The directors shall have the power to fix from time to time their
compensation. No person shall be disqualified from holding any office by reason
of any interest. In the absence of fraud, any director, officer, or stockholder
of this corporation individually, or any individual having any interest in any
concerning which is a stockholder of this corporation, or any concern in which
any of such directors, officers, stockholders, or individuals has any interest,
may be a party to, or may be pecuniarily or otherwise interested in, any
contract, transaction, or other act of the corporation, and

      (1)     such contract, transaction, or act shall not be in any way
              invalidated or otherwise affected by that fact;

      (2)     no such director, officer, stockholder, or individual shall be
              liable to account to the corporation for any profit or benefit
              realized through any such contract, transaction, or act; and

      (3)     any such director of the corporation may be counted in determining
              the existence the existence of a quorum at any meeting of the
              directors or of any committee thereof which shall authorize any
              such contract, transaction, or act, and may vote to authorize the
              same;

provided, however, that any contract, transaction, or act in which any director
or officer of the corporation is so interested individually or as a director,
officer, trustee, or member of any concern which is not a subsidiary or
affiliate of the corporation, or in which any directors or officers are so
interested as holders, collectively, of a majority of shares of capital stock or
other beneficial interest at the time outstanding in any concern which is not a
subsidiary or affiliate of the corporation, shall be duly authorized or ratified
by a majority of the directors who are not so interested, to whom the nature of
such interest has been disclosed and who have made any findings required by law;

      the term "interest" including personal interest and interest as a
      director, officer, stockholder, shareholder, trustee, member, or
      beneficiary of any concern;

      the term "concern" meaning any corporation, association, trust,
      partnership, firm, person, or other entity other than the corporation; and

      the phrase "subsidiary or affiliate" meaning a concern in which a majority
      of the directors, trustees, partners, or controlling persons is elected or
      appointed by the directors of the corporation, or is constituted of the
      directors or officers of the corporation.


<Page>



To the extent permitted by law, the authorizing or ratifying vote of the holders
of shares representing a majority of the votes of the capital stock of the
corporation outstanding and entitled to vote for the election of directors at
any annual meeting or a special meeting duly called for the purpose (whether
such vote is passed before or after judgment rendered in a suit with respect to
such contract, transaction, or act) shall validate any contract, transaction, or
act of the corporation, or of the board of directors or any committee thereof,
with regard to all stockholders of the corporation, whether or not of record at
the time of such vote, and with regard to all creditors and other claimants
under the corporation; provided, however, that

      A.      with respect to the authorization or ratification of contracts,
              transactions, or acts in which any of the directors, officers, or
              stockholders of the corporation have an interest, the nature of
              such contracts, transactions, or acts and the interest of any
              director, officer, or stockholder therein shall be summarized in
              the notice of any such annual or special meeting, or in a
              statement or letter accompanying such notice, and shall be fully
              disclosed at any such meeting;

      B.      the stockholders so voting shall have made any findings required
              by law;

      C.      the stockholders so interested may vote at any such meeting except
              to the extent otherwise provided by law; and

      D.      any failure of the stockholders to authorize or ratify such
              contract, transaction, or act shall not be deemed in any way to
              invalidate the same or to deprive the corporation, its directors,
              officers or employees of its or their right to proceed with or
              enforce such contract, transaction, or act.

If the corporation has more than one class or series of capital stock
outstanding, the vote required by this paragraph shall be governed by the
provisions of the Articles of Organization applicable to such classes or series.

No contract, transaction, or act shall be avoided by reason of any provision of
this paragraph 6.9 which would be valid but for such provision or provisions.

      6.10. A director of the corporation shall not be liable to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent that exculpation from liability is not permitted
under the Massachusetts Business Corporation Law as in effect at the time such
liability is determined. No amendment or repeal of this paragraph 6.10 shall
apply to or have any effect on the liability or alleged liability of any
director of the corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment or repeal.


<Page>



      6.11. The corporation shall have all powers granted to corporations by the
laws of The Commonwealth of Massachusetts, provided that no such power shall
include any activity inconsistent with the Business Corporation Law or the
general laws of said Commonwealth


<Page>



                        THE COMMONWEALTH OF MASSACHUSETTS
                 OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
                       MICHAEL JOSEPH CONNOLLY, Secretary
                    ONE ASHBURTON PLACE, BOSTON, MASS. 02108

                                                          FEDERAL IDENTIFICATION
                                                          NO. 04-2795294

                              ARTICLES OF AMENDMENT

                     General Laws, Chapter 156B, Section 72

              This certificate must be submitted to the Secretary of the
              Commonwealth within sixty days after the date of the vote of
              stockholders adopting the amendment. The fee for filing this
              certificate is prescribed by General Laws, Chapter 156B, Section
              114. Make check payable to the Commonwealth of Massachusetts.

We, Richard E. Forkey, President and
       Richard E. Forkey, Clerk of

                       PRECISION OPTICS CORPORATION, INC.
- --------------------------------------------------------------------------------

located at               22 EAST BROADWAY, GARDNER, MA 01440
           ---------------------------------------------------------------------

do hereby certify that the following amendment to the articles of organization
of the corporation was duly adopted by unanimous written consent on May 25,
1989, by vote of

100 shares of COMMON STOCK out of 100 shares outstanding, being at least a
majority of each class outstanding and entitled to vote therein.


<Page>



TO CHANGE the number of shares and the par value, if any, of each class of stock
within the corporation fill in the following:

The total presently authorized is:

<Table>
<Caption>

                                  NO PAR VALUE                 WITH PAR VALUE                   PAR
      KIND OF STOCK             NUMBER OF SHARES              NUMBER OF SHARES                 VALUE
<S>                                 <C>                       <C>                              <C>

         COMMON                     100

        PREFERRED
</Table>


CHANGE the total to:

<Table>
<Caption>

                                  NO PAR VALUE                 WITH PAR VALUE                   PAR
      KIND OF STOCK             NUMBER OF SHARES              NUMBER OF SHARES                 VALUE
<S>                                 <C>                            <C>                         <C>
         COMMON                                                    200,000                     $0.01

        PREFERRED
</Table>


<Page>



VOTED:        That the Articles of Organization of the Corporation be and hereby
              are amended to change the 100 shares of Common Stock, no par value
              per share, currently authorized, of which 100 shares are
              outstanding, into 100,000 shares of Common Stock, $0.01 per share,
              of which 100,000 shares shall be outstanding, and to increase the
              number of shares of Common Stock, par value $0.01 per share, that
              the Corporation is authorized to issue to 200,000 shares.

      The foregoing amendment will become effective when these articles of
amendment are filed in accordance with Chapter 156B, Section 6 of The General
Laws unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.

IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, WE HAVE HERETO SIGNED OUR
NAMES THIS 26th day of May, in the year 1989.

/s/        RICHARD E. FORKEY                                         , President
- ---------------------------------------------------------------------

/s/        RICHARD E. FORKEY                                         , Clerk
- ---------------------------------------------------------------------


<Page>


                        THE COMMONWEALTH OF MASSACHUSETTS
                             MICHAEL JOSEPH CONNOLLY
                          SECRETARY OF THE COMMONWEALTH
                                   STATE HOUSE
                               BOSTON, MASS. 02133

                            ARTICLES OF ORGANIZATION
                              (UNDER G.L. CH. 156B)
                                  INCORPORATORS

NAME                                                         POST OFFICE ADDRESS

      INCLUDE GIVEN NAME IN FULL IN CASE OF NATURAL PERSONS, IN CASE OF A
      CORPORATION, GIVE STATE OF INCORPORATION.

Richard Forkey                              125 East Road, Westminster, MA 01473




         The above-named incorporator(s) do hereby associate (themselves) with
the intention of forming a corporation under the provisions of General Laws,
Chapter 156B and hereby state(s):

         1.       The name by which the corporation shall be known is:

                       PRECISION OPTICS CORPORATION, INC.

         2.       The purposes for which the corporation is formed are as
                  follows:

Precision Optics Corporation, Inc. has been formed to provide a variety of
services and products to the United States Government, various specialized
industrial customers as well as individual consumers. These goods and services
include, but are not limited to, the provision of engineering, technical,
marketing and management consultation in optical intensive and multi-disciplined
fields of technology; the design, development and production of optical systems
and specialized components of both conventional and unconventional optical
materials; the development, production and marketing of optical, laser-related
and other technology oriented instrumentation for measurement, process control
and robotic application in both industrial and consumer markets.


<Page>



         3.       The total number of shares and the par value, if any, of each
                  class of stock which the corporation is authorized is as
                  follows:

<Table>
<Caption>

                                  NO PAR VALUE                  WITH PAR VALUE
     CLASS OF STOCK             NUMBER OF SHARES        NUMBER OF SHARES    PAR          AMOUNT
                                                                           VALUE
<S>                               <C>                        <C>          <C>             <C>

        PREFERRED                                                                         $

         COMMON                   100
</Table>


         *4.      If more than one class is authorized, a description of each of
                  the different classes of stock with, if any, the preferences,
                  voting powers, qualifications, special rights or privileges as
                  to each class thereof and any series now established:

         *5.      The restrictions, if any, imposed by the Articles of
                  Organization upon the transfer of shares of stock of any class
                  are as follows:

                  In the event that any of the stockholders or legal
                  representatives desire to sell their stock, they shall offer
                  the stock to the corporation for sale at least thirty days
                  prior to the actual sale to another party. In the event that
                  the corporation does not buy the stock within that period of
                  time, the stockholder will be free to sell the stock to any
                  person.

         *6.      Other lawful provisions, if any, for the conduct and
                  regulation of the business and affairs of the corporation, for
                  its voluntary dissolution, or for limiting, defining, or
                  regulating the powers of the corporation, or of its directors,
                  or stockholders or of any class of stockholders.

*If there are no provisions, state  None.


<Page>


         7.       By-laws of the corporation have been duly adopted and the
                  initial directors, president, treasurer and clerk whose names
                  are set out below have been duly elected.

         8.       The effective date of organization of the corporation shall be
                  the date of filing with the Secretary of the Commonwealth or
                  if later date is desired, specify date, (not more than 30 days
                  after date of filing).

         9.       The following information shall not for any purpose be treated
                  as a permanent part of the Articles of Organization of the
                  corporation.

                  a.       THE POST OFFICE ADDRESS of the INITIAL PRINCIPAL
                           OFFICE of the corporation in Massachusetts:

                                     125 East Road, Westminster, MA 01473

                  b.       The name, residence and post office address of each
                           of the initial directors and following officers of
                           the corporation are as follows:

<Table>
<Caption>

              NAME                 RESIDENCE POST OFFICE ADDRESS

<S>                                <C>
PRESIDENT: RICHARD FORKEY          125 EAST ROAD, WESTMINSTER, MA 01473
- --------------------------------------------------------------------------------

TREASURER: RICHARD FORKEY          125 EAST ROAD, WESTMINSTER, MA 01473
- --------------------------------------------------------------------------------

CLERK:     EDWARD J. MOLONEY       174 CENTRAL ST., LOWELL, MA 01852
- --------------------------------------------------------------------------------
</Table>

Directors:

                Richard Forkey              125 East Rd., Westminster, MA 01473

                  c.       The date initially adopted on which the corporation's
                           fiscal year ends is:

                                     June 30

                  d.       The date initially fixed in the by-laws for the
                           annual meeting of stockholders of the corporation is:

                                                 15th of July

                  e.       The name and business address of the resident agent,
                           if any of the corporation is:

      IN WITNESS WHEREOF and under the penalties of perjury the above named
      INCORPORATOR(S) sign(s) these Articles of Organization the 27 day of
      December 1982.

                                      /s/ Richard Forkey
                                      ------------------------------------------
                                      Richard Forkey

The signature of each incorporator which is not a natural person must be by an
individual who shall show the capacity in which he acts and by signing shall
represent under the penalties of perjury that he is duly authorized on his
behalf to sign the Articles of Organization.









</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>4
<FILENAME>a2103423zex-99.txt
<DESCRIPTION>EXIHIBIT 99
<TEXT>
<PAGE>

                                   EXHIBIT 99


                       PRECISION OPTICS CORPORATION, INC.

                            CERTIFICATION PURSUANT TO
            SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


We, Richard E. Forkey, Chief Executive Officer, and Jack P. Dreimiller, Chief
Financial Officer, of Precision Optics Corporation, Inc. (the "Company"),
certify, pursuant to Section 1350, Chapter 63 of Title 18, United States Code,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)  The Quarterly Report on Form 10-QSB of the Company for the quarter and six
     months ended December 31, 2002 (the "Report") fully complies with the
     requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
     1934 (15 U.S.C. 78 m or 78o(d)); and

(2)  The information contained in the Report fairly presents, in all material
     respects, the financial condition and results of operations of the Company.




DATE:  February 13, 2003


                                              /s/ RICHARD E. FORKEY
                                              ---------------------------------
                                              Richard E. Forkey,
                                              Chairman of the Board, Chief
                                              Executive Officer, President
                                              and Treasurer




                                              /s/ JACK P. DREIMILLER
                                              ---------------------------------
                                              Jack P. Dreimiller,
                                              Senior Vice President Finance,
                                              Chief Financial Officer and Clerk





</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
