You should read the following discussion and analysis by our management of our financial condition and results of operations in conjunction with our consolidated financial statements and the accompanying notes.

Effect of Certain Events Occurring at Our Chinese Subsidiaries

connection with such terminations, our China subsidiaries have engaged in certain legal proceedings with the terminated employees.

We expect to incur additional legal fees and consulting expenses in future periods as we continue to pursue our legal options and remedies; however, such future fees are expected to be at lower levels than have been incurred to date.

Operating Results for Fiscal Year Ended June 30, 2022 compared to the Fiscal Year Ended June 30, 2021:

Cost of Sales and Gross Margin.

As of June 30, 2022, the applicable interest rate was 4.25% and the outstanding balance on the BankUnited Term Loan was approximately $3.9 million.

Guidance Line terminated on September 9, 2021 in accordance with the Letter Agreement. There were no amounts outstanding under the Guidance Line at June 30, 2021 or upon its termination at September 9, 2021.

For additional information regarding the BankUnited Loans and the Equipment Loan, see Note 13, Loans Payable, to the Notes to the Consolidated Financial Statements to this Annual Report on Form 10-K.

· Maintaining an optical design and new product sampling capability,

including a high-quality and responsive optical design engineering staff;

· The fact that as our customers take products of this nature into higher

volume, commercial production (for example, in the case of molded optics,

this may be volumes over one million pieces per year) they begin to work

seriously to reduce costs - which often leads them to turn to larger or

overseas producers, even if sacrificing quality; and

· Our small business mass means that we can only offer a moderate amount of

total productive capacity before we reach financial constraints imposed by

the need to make additional capital expenditures - in other words, because

of our limited cash resources and cash flow, we may not be able to service

every opportunity that presents itself in our markets without arranging

Financial indicators that are usually reviewed at the same time include the major elements of the micro-level business cycle:

Quarterly backlog levels for fiscal years 2022 and 2021 are as follows:

Revenue Dollars and Units by Product Group.

The following table sets forth revenue dollars and units by our three product groups for the three and twelve months ended June 30, 2022 and 2021:

Three months ended June 30, 2022 compared to three months ended June 30, 2021.

Our revenue increased by 7% in the fourth quarter of fiscal year 2022, as compared to the same quarter of the prior fiscal year, primarily as a result of an increase in demand for PMO products.

Our specialty products revenue increased by 8%, as compared to the same period of the prior fiscal year, and represented 5% of total revenue for both the fourth quarters of fiscal years 2022 and 2021. The increase was primarily driven by NRE project revenue in the fourth quarter of fiscal year 2022.

Year ended June 30, 2022 compared to year ended June 30, 2021.

Our revenue decreased by approximately $2.9 million, or 8%, for fiscal year 2022, as compared to fiscal year 2021, with decreases in both infrared and PMO product sales.

Accounts Receivable Levels and Quality.

Our average DSO for fiscal year 2022 was 54, compared to 57 for fiscal year 2021. The improvement in fiscal year 2022 reflects our increased focus on collections, and tightening of payment terms policies. We strive to maintain a DSO of less than 60.

We do not engage in any activities involving variable interest entities or off balance sheet arrangements.

Critical Accounting Policies and Estimates

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