**EXHIBIT
99.1**
 
 
 **PRECISION
OPTICS CORPORATION, INC.**
 **Important
Factors Regarding Forward-Looking Statements**
 
 In
our annual report on Form 10-KSB for the fiscal year ended June 30, 2004 and
from time to time in public statements made by our management, we have made and
will continue to make forward-looking statements about our business, including
predictions about our future financial performance. *Our
actual results may differ significantly from the results predicted in our annual
report and in future public statements.* Factors that might cause such a difference include, but are not limited to, the
factors discussed below:
 
 ***Our
Quarterly Financial Results*** **** ***Depend
on a Large Number of Factors and Therefore May Vary Quarter to Quarter--As a
Result, We Cannot Predict with a High Degree of Certainty Our Operating Results
in Any Particular Fiscal Quarter.***
 
 Our
quarterly operating results may vary significantly depending upon factors such
as:
 
 ·
    the
      timing of completion of significant orders
 
 ·
    the
      timing and amount of our research and development expenditures
 
 ·
    the
      costs of initial product production in connection with new
    products
 
 ·
    the
      timing of new product introductions -- both by us and by our
      competitors
  ·
    the
      timing and level of market acceptance of new products or enhanced versions
      of our existing products
  ·
    our
      ability to retain existing customers and customers’ continued demand for
      our products and services
  ·
    our
      customers’ inventory levels, and levels of demand for our customers’
      products and services
  ·
    competitive
      pricing pressures
 
 We
cannot be certain whether we will be able to grow or sustain revenues or achieve
or maintain profitability on a quarterly or annual basis or that levels of
revenue and/or profitability may not vary from one such period to another.
 
 ***We
May Need to Raise Additional Funds in The Future - If We Cannot Obtain Adequate
Financing on Acceptable Terms When Required, Our Business Will Be Adversely
Affected.***
 
 We
believe that our existing cash and cash equivalents are sufficient to support
our working capital and investment needs through at least fiscal year 2005,
however, we may need to raise additional capital in the future. We may seek
funding through additional pubic or private equity offerings or debt financings.
Our ability to raise additional capital, however, will be heavily influenced by
the investment market. Additional financing may not be available when needed,
or, if available, may not be available on favorable terms. If we cannot obtain
adequate financing on acceptable terms when such financing is required, our
business will be adversely affected.
 
 
  PRECISION OPTICS CORPORATION, INC. AND
SUBSIDIARIES
  ***If
We Cannot Maintain Compliance with the Requirements for Continued Listing on the
Nasdaq SmallCap Market, Our Common Stock Could Be Delisted—As a Result, the
Market Price and Liquidity of Our Common Stock Might Decline and Our Ability to
Raise Capital Might Be Impaired.***
  Effective
as of the opening of business on January 29, 2003, we effected a reverse stock
split of our Common Stock. The purpose of the reverse stock split was to
increase the per share price of our Common Stock in order to comply with the
minimum bid price listing of Nasdaq. We had previously been notified that we
were 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 our 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 29, 2003, the bid price of our Common Stock
closed at or above $1.00 per share. Accordingly, we 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 our Common
Stock will not subsequently decrease to a level that causes us to again face
de-listing, or that our market capitalization will not subsequently be less than
our market capitalization before the reverse stock split. The delisting of our
Common Stock from the Nasdaq SmallCap Market may materially impair your ability
to buy and sell shares of our Common Stock and could have an adverse effect on
the market price of, and the efficiency of the trading market for, our Common
Stock. In addition, the delisting of our Common Stock could significantly impair
our ability to raise capital should we desire to do so in the future. There is
no assurance that we will continue to comply with the minimum bid or other
continuing listing requirements of the Nasdaq SmallCap Market.
 ******
 ***We
Rely on a Small Number of Customers and Cannot Be Certain They Will Consistently
Purchase Our Products in the Future.***
 
 In
the fiscal year ended June 30, 2004, our two largest customers represented
approximately 24% and 22%, respectively, of our total revenues. In the fiscal
year ended June 30, 2003, our two largest customers represented approximately
44% and 17%, respectively, of our total revenues. In the fiscal year ended June
30, 2002, our largest customers represented approximately 23% and 18%,
respectively, of our total revenues. No other customer accounted for more than
10% of our revenues during those periods.
 
 In
the future, a small number of customers may continue to represent a significant
portion of our total revenues in any given period. We cannot be certain that
such customers will consistently purchase our products at any particular rate
over any subsequent period.
 
 ***We
Rely Heavily Upon the Talents***  ***of
Our Chief Executive Officer and Chief Scientist, The Loss of Whom Could Severely
Damage Our Business.***
 
 Our
performance depends to a large extent on a small number of key scientific,
technical, managerial, and marketing personnel. In particular, we believe our
success is highly dependent upon the services and reputation of our Chief
Executive Officer, Mr. Richard E. Forkey. Loss of Mr. Forkey’s services could
severely damage our business.
 
 Additionally,
Dr. Joseph N. Forkey was appointed our Chief Scientist in September 2003. Dr.
Forkey’s appointment is expected to provide us with significant additional
capabilities in optical instrument development, in management of new technology
and in potentially significant longer-term initiatives in Biophysics and
Biomedical instrumentation, as well as new photonics-based market opportunities.
Dr. Forkey, in his capacity as Chief Scientist, expects to continue to explore
the development and application of optical-based microscopic single-molecule
technologies. The loss of Dr. Forkey’s scientific contributions could severely
damage our business.
 
 PRECISION OPTICS CORPORATION, INC. AND
SUBSIDIARIES
 ******
 ***We
Must Continue to be Able to Attract Employees With the Scientific and Technical*** ***Skills
That our Business Requires--If We Are Unable to Attract and Retain Such
Individuals, Our Business Could Be Severely Damaged.*** ****
 
 Our
ability to attract employees with a high degree of scientific and technical
talent is crucial to the success of our business. There is intense competition
for the services of such persons, and we cannot guarantee that we will be able
to attract and retain individuals possessing the necessary qualifications.
 
 ***We
Have a Number of Large, Well-Financed Competitors Who Have Research and
Marketing Capabilities That Are Superior to Ours.***
 
 The
industries in which we compete are highly competitive. Many of our existing and
potential competitors have greater financial resources and manufacturing
capabilities, more established and larger marketing and sales organizations and
larger technical staffs than we have. Other companies, some with greater
experience in the telecommunications, optics, semiconductor or medical products
industries, are seeking to produce products and services that compete with our
products and services.
 
 ***We
Are Subject to a High Degree of Regulatory Oversight--We Cannot Be Certain That
We Will Continue to Receive the Necessary Regulatory
Approvals.***
 
 The
FDA has allowed us to market the medical products we currently sell in the
United States. However, prior FDA approval may be required before we can market
additional medical products that we may develop in the future. We may also seek
to sell current or future medical products in a manner that requires us to
obtain FDA permission to market such products. We may also require the
regulatory approval or license of other federal, state or local agencies or
comparable agencies in other countries.
 
 We
cannot be certain that we will continue to receive the FDA’s permission to
market our current products or obtain the necessary regulatory permission,
approvals or licenses for the marketing of any of our future products. Also, we
cannot predict the impact on our business of FDA regulations or determinations
arising from future legislation or administrative action.
 
 ***We
Face Risks Inherent in Product Development and Production Under Fixed Price
Contracts--We Cannot Be Sure That These Contracts Will Be Profitable over
Time.***
 
 A
significant portion of our business has been devoted to research, development
and production under fixed price contracts. For our purposes, a fixed price
contract is any contract under which we will provide products or services for a
fixed price over an extended period of time (usually six months or longer). In
our 2004, 2003, and 2002 fiscal years, fixed price contracts represented
approximately 29%, 64% and 58%, respectively, of our total revenues. We expect
that revenues from fixed price contracts will continue to represent a
significant portion of our total revenues in future fiscal years.
 
 Because
they involve performance over time, we cannot predict with certainty the
expenses involved in meeting our obligations under fixed price contracts.
Therefore, we can never be sure at the time we enter into any single fixed price
contract that such contract will be profitable for us.
 
 PRECISION OPTICS CORPORATION, INC. AND
SUBSIDIARIES
 ***Third
Parties May Infringe on Our Patents--As a Result, We Could Incur Significant
Expense in Protecting Our Patents or Not Have Sufficient Resources to Protect
Them.***
 
 We
hold a number of patents that are important to our business. Although we are not
currently aware of any past or present infringements of our patents, we plan to
protect these patents from infringement and obtain additional patents whenever
feasible. To this end, we have obtained confidentiality agreements from our
employees and consultants and others who have access to the design of our
products and other proprietary information. Protecting and obtaining patents,
however, is both time consuming and expensive. We therefore may not have the
resources necessary to assert all potential patent infringement claims or pursue
all patents that might be available to us.
 
 ***Third
Parties May Claim that We Have Infringed on Their Patents--As a Result, We Could
Be Prohibited from Using All or Part of Any Technology Used in Our
Products.***
 
 Should
third parties claim a proprietary right to all or part of any technology that we
use in our products, such a claim, regardless of its merit, could involve us in
costly litigation. If successful, such a claim could also result in us being
unable to freely to use the technology that was the subject of the claim, or
sell products embodying such technology.
 
 ***We
Depend on the Availability of Certain Key Supplies and Services That Are
Available From Only a Few Sources--If We Experience Difficulty with a Supplier,
We May Have Difficulty Finding Alternative Sources of
Supply.***
 
 Certain
key supplies used in our products, particularly precision grade optical glass,
are available from only a few sources, each of which is located outside the
United States. Also, outside vendors grind and polish certain of our lenses and
other optical components, such as prisms and windows. Based upon our ordering
experience to date, we believe the materials and services required for the
production of our products are currently available in sufficient quantities. Our
requirements are small relative to the total supply, and we are not currently
encountering problems with availability. However, this does not mean that we
will continue to have timely access to adequate supplies of essential materials
and services in the future or that supplies of these materials and services will
be available on satisfactory terms when the need arises. Our business could be
severely damaged if we become unable to procure essential materials and services
in adequate quantities and at acceptable prices.
 
 From
time to time, certain of our products may be produced for us by subcontractors,
and our business is subject to the risk that these subcontractors fail to make
timely delivery. Our products and services are also from time to time used as
components of the products and services of other manufacturers. We are therefore
subject to the risk that manufacturers that integrate our products or services
into their own products or services are unable to acquire essential supplies and
services from third parties in a timely fashion.
 
 ***Our
Customers May Claim that the Products We Sold Them Were Defective--If Our
Insurance Is Not Sufficient to Cover a Claim, We Would Be Liable for the
Excess.***
 
 Like
any manufacturer, we are and always have been exposed to liability claims
resulting from the use of our products. We maintain product liability insurance
to cover us in the event of liability claims, and no such claims have been
asserted or threatened against us to date. However, we cannot be certain that
our insurance will be sufficient to cover all possible future product
liabilities.
 
 PRECISION OPTICS CORPORATION, INC. AND
SUBSIDIARIES
 ***We
Would Be Liable If Our Business Operations Harmed the Environment--Failure to
Maintain Compliance with Environmental Laws Could Severely Damage Our
Business.***
 
 Our
operations are subject to a variety of federal, state and local laws and
regulations relating to the protection of the environment. From time to time, we
use hazardous materials in our operations. Although we believe that we are in
compliance with all applicable environmental laws and regulations, our business
could be severely damaged by any failure to maintain such compliance.