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3. STOCKHOLDERS' EQUITY

12 Months Ended

Jun. 30, 2018

Equity [Abstract]

STOCKHOLDERS' EQUITY

(3)

STOCKHOLDERS’ EQUITY

(a)

Stock Options

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

		2018				2017
Cost of Goods Sold		$	8,669			$	34,676
Research and Development Expenses			15,423				31,952
Selling, General and Administrative Expenses			28,249				134,984
Stock Based Compensation Expense		$	52,341			$	201,612

No compensation has been capitalized because such amounts would have been immaterial. There was no net income tax benefit recognized related to such compensation for the years ended June 30, 2018 or 2017, as the Company is currently in a loss position. There were 40,000 stock options granted during the year ended June 30, 2018 and 15,000 stock options granted during the year ended June 30, 2017.

As of June 30, 2018, the unrecognized compensation costs related to options vesting in the future is $0. The Company uses the Black-Scholes option-pricing model as the most appropriate method for determining the estimated fair value for the stock awards. The Black-Scholes method of valuation requires several assumptions: (1) the expected term of the stock award; (2) the expected future stock volatility over the expected term; and (3) risk-free interest rate. The expected term represents the expected period of time the Company believes the options will be outstanding based on historical information. Estimates of expected future stock price volatility are based on the historic volatility of the Company’s common stock and the risk-free interest rate is based on the U.S. Zero-Bond rate. The Company utilizes a forfeiture rate based on an analysis of the Company’s actual experience. The fair value of options at date of grant was estimated with the following assumptions for options granted in fiscal year 2018:

		Year Ended
		June 30, 2018
Assumptions:
Option life			5.3 years
Risk-free interest rate			1.01	%
Stock volatility			171	%
Dividend yield			0
Weighted average fair value of grants		$	0.58

Stock Option and Other Compensation Plans:

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

The Company has various stock option and other compensation plans for directors, officers and employees. The Company has the following stock option plans outstanding as of June 30, 2018: The Precision Optics Corporation, Inc. 2011 Equity Incentive Plan (the “2011 Plan”) and the Precision Optics Corporation, Inc. 2006 Equity Incentive Plan (the “2006 Plan”). Vesting periods under the 2011 Plan and the 2006 Plan are at the discretion of the Board of Directors and typically average three to five years. Options under these Plans are granted at fair market value on the date of grant and typically have a term of ten years from the date of grant.

The 2011 Plan provides eligible participants (certain employees, directors, consultants, etc.) the opportunity to receive a broad variety of equity based and cash awards. Options granted vest and are exercisable for periods determined by the Board of Directors, not to exceed 10 years from the date of grant. On April 16, 2015, the Board of Directors approved an amendment to the 2011 Equity Incentive Plan which increased the maximum number of shares of the Company’s common stock that may be awarded under the Plan from 325,000 to 1,825,000, an increase of 1,500,000 shares. In connection therewith, on April 20, 2015, the Company filed a registration statement on Form S-8 to register the 1,500,000 shares of the Company’s common stock. At June 30, 2018, a total of 933,102 stock options are outstanding and 789,898 shares of common stock were available for future grants under the 2011 Plan.

The 2006 Plan provides eligible participants (certain employees, directors, consultants, etc.) the opportunity to receive a broad variety of equity based and cash awards. Options granted vest and are exercisable for periods determined by the Board of Directors, not to exceed 10 years from the date of grant. A total of 122,598 shares of common stock, including shares rolled forward from the 1997 Plan, have been reserved for issuance under the 2006 Plan. At June 30, 2017, a total of 123,798 stock options are outstanding, and no shares of common stock are available for future grants under the 2006 Plan.

The following tables summarize stock option activity for the years ended June 30, 2018 and 2017:

		Options Outstanding
		Number of Shares				Weighted Average Exercise Price				Weighted Average Contractual Life
Outstanding at July 1, 2016			1,136,000			$	0.79			8.00 years
Grants			15,000			$	0.40
Cancellations			(72,600	)		$	0.85
Outstanding at June 30, 2017			1,078,400			$	0.78			7.01 years
Grants			40,000			$	0.61
Cancellations			(62,700	)		$	0.99
Outstanding at June 30, 2018			1,055,700			$	0.76			6.13 years

Information related to the stock options outstanding as of June 30, 2018 is as follows:

Range of Exercise Prices				Number of Shares				Weighted- Average Remaining Contractual Life (years)				Weighted- Average Exercise Price				Exercisable Number of Shares				Exercisable Weighted- Average Exercise Price
$	0.27				40,000				3.04			$	0.27				40,000			$	0.27
$	0.40				15,000				8.83			$	0.40				10,000			$	0.40
$	0.48				60,000				7.75			$	0.48				60,000			$	0.48
$	0.50				100,000				7.98			$	0.50				100,000			$	0.50
$	0.55				44,500				5.69			$	0.55				34,500			$	0.55
$	0.64				25,000				9.37			$	0.64				15,000			$	0.64
$	0.73				513,000				6.88			$	0.73				493,000			$	0.73
$	0.85				9,000				4.51			$	0.85				9,000			$	0.85
$	0.90				9,000				5.51			$	0.90				9,000			$	0.90
$	0.95				30,000				6.03			$	0.95				30,000			$	0.95
$	1.20				207,800				3.67			$	1.20				207,800			$	1.20
$	1.25				1,200				0.41			$	1.25				1,200			$	1.25
$	1.35				1,200				1.40			$	1.35				1,200			$	1.35
$	0.27–1.35				1,055,700				6.13			$	0.76				1,010,700			$	0.77

The aggregate intrinsic value of the Company’s “in-the-money” outstanding and exercisable options as of June 30, 2018 was $18,350 and $17,700, respectively.

(b)

Warrants

As of June 30, 2017, there were warrants outstanding for the issuance of an aggregate of 3,661,560 shares of common stock, at a weighted average exercise price of $0.75 per share. Warrants for the issuance of 2,994,893 of these shares expired on September 28, 2017, and warrants for the issuance of the remaining 666,667 shares were exercised on or before October 16, 2017, by payment to the Company for the aggregate purchase price of $6,667. There are no warrants for the purchase of the Company’s stock outstanding as of June 30, 2018.

(c)

Sale of Stock in November 2016

On November 22, 2016, the Company entered into agreements with accredited investors for the sale and purchase of 1,333,334 units with each unit consisting of one share of the Company’s common stock, $0.01 par value and one warrant to purchase one-half of one share of the Company’s common stock, at a purchase price of $0.60 per unit. The Company received $780,000 in gross cash proceeds from the offering and settled an outstanding accounts payable balance with a consultant in the amount of $20,000 by issuing units. The warrants for 666,667 shares were all exercised in October 2017 as described in Footnote 3.(b) Warrants. The Company used the net proceeds from this placement for general working capital purposes.

In conjunction with the offering, the Company also entered into a registration rights agreement with the investors, whereby the Company was obligated to file a registration statement with the Securities Exchange Commission on or before 90 calendar days after November 22, 2016 to register the resale by the investors of the 1,333,334 shares and warrant shares purchased in the offering. The registration statement was filed with the Securities and Exchange Commission on February 3, 2017 and became effective on March 2, 2017.

(d)

Sale of Stock in August 2017

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

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

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