What changed in this filing

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Item 1. Business

2023-12-18 compared with 2022-12-19 · 430 added, 414 removed, 478 unchanged (64% of the section changed)

Line of Business

manufacture optical sighting systems and assemblies, primarily for Department of Defense applications.

Our products are installed on

various types of U.S.

military land vehicles, such as the Abrams and Bradley fighting vehicles, light armored and armored security vehicles

and the Stryker family of vehicles.

We also manufacture and deliver numerous periscope configurations, rifle and surveillance sights

and night vision optical assemblies.

Our products consist primarily of build-to-customer print products that are delivered both directly

to the armed services and to other defense prime contractors.

Less than 1% of our revenue is related to the resale of products substantially

manufactured by others.

In this case, the product would likely be a simple replacement part of a larger system previously produced by

Lines of Business

manufacture optical sighting systems and assemblies for the U.S.

Department of Defense, foreign military applications and commercial

Our products are installed on a variety of U.S.

military land vehicles, such as the Abrams and Bradley fighting vehicles, light

armored and advanced security vehicles and the Stryker family of vehicles.

We also manufacture and deliver numerous periscope configurations,

rifle and surveillance sights and night vision optical assemblies.

Our products consist primarily of build-to-customer print products

that are delivered both directly to the armed services and to other defense prime contractors.

Less than 1% of our revenue is related

to the resale of products substantially manufactured by others.

In this case, the product would likely be a simple replacement part of

a larger system previously produced by us.

continue to field new product opportunities from both domestic and international customers.

6 unchanged sentences

these requirements.

Listing Application

December 7, 2022 the Company submitted an application to list its common stock on the NASDAQ Capital Market.

There are no assurances

(1) that the Company will continue to meet the initial listing criteria throughout the pendency of the application (including with respect

to its share price), (2) that NASDAQ will approve the application or (3) relating to the timing of any such approval.

If and when listed

on NASDAQ, there are no assurances that the Company will continue to meet NASDAQ’s continued listing requirements.

and Restated Employment Agreement for Danny Schoening

November 28, 2022, the Company entered into a new employment agreement with Danny Schoening.

Pursuant to the agreement, which is dated

as of December 1, 2022, Mr.

Schoening will continue to serve as the Company’s President and Chief Executive Officer through November

Schoening’s base salary initially is $304,912 per annum, and will be increased to $314,060 on December 1, 2023 and

$323,481 on December 1, 2024.

Schoening will be eligible for a performance bonus based on a one-year operating plan adopted by the

Company’s Board of Directors (the “Board”).

The bonus will be based on financial and/or operating metrics decided annually

by the Board or the Compensation Committee and tied to such one-year plan.

The target bonus will equate to 30% of Mr.

The Board will have discretion in good faith to alter the performance bonus upward or downward by 20%.

updated employment agreement also served to amend Mr.

Schoening’s RSU Agreement, dated January 2, 2019, which had been previously

amended as of December 1, 2021, by changing the third and final vesting date for the restricted stock units granted under such agreement

from the “change of control date” to January 1, 2023.

employment agreement events of termination consist of:

(i) death or permanent disability of Mr.

(ii) termination by the Company

for cause (including conviction of a felony, commission of fraudulent, illegal or dishonest acts, certain willful misconduct or gross

negligence by Mr.

Schoening, continued failure to perform material duties or cure material breach after written notice, violation of

securities laws and material breach of the employment agreement), (iii) termination by the Company without cause and (iv) termination

Schoening for good reason (including continued breach by the Company of its material obligations under the agreement after written

notice, the requirement for Mr.

Schoening to move more than 100 miles away for his employment without consent, and merger or consolidation

that results in more than 66% of the combined voting power of the Company’s then outstanding securities or those of its successor

changing ownership or a sale of all or substantially all of its assets, without the surviving entity assuming the obligations under the

For a termination by the Company for cause or upon death or permanent disability of Mr.

Schoening, Mr.

Schoening will be

paid accrued and unpaid salary and any bonus earned through the date of termination.

For a termination by the Company without cause or

Schoening with good reason, Mr.

Schoening will also be paid six months’ base salary in effect.

May 9, 2023, the Board of Directors approved a grant of 40,000 shares of restricted stock to independent board member Dayton Judd.

shares vest 50% on each of January 1, 2024 and January 1, 2025.

As of the grant date, the fair value of the shares was $124 thousand,

to be amortized on a straight-line basis through December 31, 2024.

May 3, 2023, the Board of Directors approved a grant of 100,000 and 35,000 performance shares to Danny Schoening, CEO, and Karen Hawkins,

CFO, respectively.

Each performance share represents a contingent right to receive one share of common stock.

The performance shares

vest in five equal increments if, in each case and during a five-year performance period beginning on October 2, 2023, the average VWAP

per share of common stock over a 30 consecutive trading day period equals or exceeds $3.70, $4.45, $5.35, $6.40, or $7.70.

The fair value

of the shares as of the grant date was $320 thousand and will be amortized through December 31, 2025 based on the derived service periods

using a Monte Carlo simulation valuation model.

On October 2, 2023, 20,000 of Mr.

Schoening’s performance shares and 7,000 of Ms.

Hawkins’ performance shares vested, resulting in the net issuance of 15,600 and 5,460 shares of common stock, respectively.

May 1, 2023, the Company granted an aggregate of 39,000 restricted stock units to eleven employees under its 2023 Equity Incentive

The restricted stock units will vest at a rate of 33.33% annually beginning on the anniversary date of the grant and any

unvested restricted stock units will be forfeited if employment terminates prior to the relevant vesting date.

As of the grant date,

assuming a 23.1% forfeiture rate based on expected turnover across the three years, the aggregate value of the restricted stock

units is $90 thousand which will be amortized across the three-year period on a straight-line basis.

On August 14, 2023, the Company

granted an additional 3,000 restricted stock units to one new employee under the 2023 Equity Incentive Plan.

The restricted stock

units will vest at a rate of 33.33% annually beginning on the anniversary date of the grant and any unvested restricted stock units

will be forfeited if employment terminates prior to the relevant vesting date.

The fair value of the 3,000 restricted stock units at

grant date was $11 thousand.

During the twelve months ended October 1, 2023, there were 3,000 restricted stock units

Loan Agreement

April 12, 2022, the Company and its subsidiary, Optex Systems, Inc.

March 22, 2023, the Company and its subsidiary, Optex Systems, Inc.

(collectively with the Company, the “Borrowers”), entered

into an Amended and Restated Loan Agreement (the “Loan Agreement”) with PNC Bank, National Association, successor to BBVA

USA (the “Lender”), pursuant to which the Borrowers’ existing revolving line of credit facility was decreased from

$2.25 million to $1.125 million, and the maturity date was extended from April 15, 2022 to April 15, 2023.

Loan Agreement requires the Borrowers to maintain a fixed charge coverage ratio of at least 1.25:1.

November 21, 2022, the Borrowers issued an Amended and Restated Revolving Line of Credit Note (the “Line of Credit Note”)

to the Lender in connection with an increase of the Borrowers’ revolving line of credit facility under the Loan Agreement from

$1.125 million to $2.0 million.

The maturity date remains April 15, 2023.

Obligations outstanding under the credit facility will accrue

interest at a rate equal to the Lender’s prime rate minus 0.25%.

Line of Credit Note and Loan Agreement contain customary events of default and negative covenants, including but not limited to those

governing indebtedness, liens, fundamental changes, investments, and restricted payments.

The credit facility is secured by substantially

all of the operating assets of the Borrowers as collateral.

The Borrowers’ obligations under the credit facility are subject to

acceleration upon the occurrence of an event of default as defined in the Line of Credit Note and Loan Agreement.

of New Director

October 19, 2022, the Board of Directors of the Company expanded the size of the Board from four to five members and elected Mr.

Judd as a director, to hold office until the Company’s next annual meeting of shareholders and until his successor has been elected

and qualified.

September 15, 2022, the Company’s “modified Dutch auction” tender offer expired.

In accordance with the terms and conditions

of the tender offer, the Company accepted for purchase 1,603,773 shares of common stock at a price of $2.65 per share, for an aggregate

cost of approximately $4.25 million, excluding fees and expenses relating to the tender offer.

These shares represented approximately

19.3% of its shares of common stock outstanding as of September 15, 2022.

Because the tender offer was oversubscribed, the Company accepted

for payment only a pro-rated portion of the shares of common stock properly tendered by each tendering stockholder (other than “odd

lot” holders whose shares were purchased on a priority basis).

of Employment Agreement for Karen Hawkins

July 1, 2022, the employment agreement for Karen Hawkins, CFO, auto-renewed for an additional 18-month period, expiring on December 31,

The contract automatically renews for subsequent 18-month periods unless Ms.

Hawkins or the Company give notice of termination

at least 90 days before the end of the term then in effect.

On March 28, 2022, the Compensation Committee of the Board of Directors approved

a salary increase of 4% for Karen Hawkins, CFO to be effective on April 1, 2022.

As a result of the increase, the salary has been changed

from $205,425 to $213,642.

September 22, 2021 the Company announced authorization for a $1 million stock repurchase program.

the twelve months ended October 2, 2022, there were 190,954 common shares repurchased through the repurchase programs at a cost of $371

As of October 2, 2022, there were zero shares held in treasury purchased under the September 2021 stock repurchase program.

The shares authorized to be repurchased under the repurchase program were purchased from time to time at prevailing market prices,

through open market or in negotiated transactions, depending upon market conditions and subject to Rule 10b-18 as promulgated by the

November 2, 2022, the Company announced it has been awarded a maximum order value of $7,500,000

for spare Light Interference Filters associated with various Night Vision Goggle systems.

The expected average annual revenue over the following five-year period is $1,000,000-$1,500,000.

The products will be manufactured at the Applied Optics Center (AOC) Division of Optex Systems,

November 1, 2022, the Company announced it has been awarded a $3.4 million order to repair

and refurbish night vision equipment for the Government of Israel, which includes an additional

100% optional award quantity.

The majority of this work will be performed in the Optex Systems,

Inc., Richardson facility.

October 24, 2022, the Company announced it has been awarded a $720,000 order from a major

US prime contractor in support of the US Army’s Mobile Protected Firepower (MPF) tank

The majority of this work will be performed in the Optex Systems, Inc., Richardson

October 4, 2022, the Company announced it has been awarded a $1.75 million order as part

of its continuing support to the M1 Abrams Tank Program.

The products will be manufactured

into a Business Loan Agreement (the “Loan Agreement”) with Texas Capital Bank (the “Lender”), pursuant to which

the Lender will make available to the Borrowers a revolving line of credit in the principal amount of $3 million (the “Texas Capital

The Texas Capital Facility replaced the Borrowers’ previous line of credit facility with PNC Bank, National Association,

successor to BBVA USA, which had been increased from $1.125 million to $2 million on November 21, 2022.

commitment period for advances under the Texas Capital Facility is twenty-six months expiring on May 22, 2025.

We refer to the expiration

of that time period as the “Maturity Date.” Outstanding advances under the Texas Capital Facility will accrue interest at

a rate equal to the secured overnight financing rate (SOFR) plus a specified margin, subject to a specified floor interest rate.

October 1, 2023 the interest rate was 8.07% per annum and is currently 8.08% per annum.

Loan Agreement contains customary events of default (including a 25% change in ownership) and negative covenants, including but not limited

to those governing indebtedness, liens, fundamental changes (including changes in management), investments, and restricted payments (including

cash dividends).

The Loan Agreement also requires the Borrowers to maintain a fixed charge coverage ratio of at least 1.25:1 and a total

leverage ratio of 3.00:1.

The Texas Capital Facility is secured by substantially all of the operating assets of the Borrowers as collateral.

The Borrowers’ obligations under the Texas Capital Facility are subject to acceleration upon the occurrence of an event of default

as defined in the Loan Agreement.

The Loan Agreement further provides for a $125,000 Letter of Credit sublimit.

outstanding balance under the Texas Capital Facility was $1.0 million as of October 1, 2023.

March 14, 2023, the Company’s shares of common stock were listed on the NASDAQ Capital Market under the ticker symbol “OPXS.”

Equity Incentive Plan

February 16, 2023, the Company’s shareholders approved the Company’s 2023 Equity Incentive Plan (the “2023 Plan”),

under which 600,000 shares of common stock are reserved for issuance.

The 2023 Plan permits the grant of stock options, performance shares,

performance units, restricted stock, restricted stock units and stock appreciation rights to officers, other employees, individuals engaged

to become officers or employees, consultants, advisors and non-executive directors of the Company.

In connection with the approval of

the 2023 Plan, the Company’s 2016 Restricted Stock Unit Plan and 2009 Stock Option Plan were both canceled.

November 14, 2023, the Company announced the award of a new contract from a U.S.

Government Prime Contractor for Sighting Systems

for $2.9 Million.

The Sighting Systems are critical in protecting armored vehicles fielded by the U.S.

These units will

be manufactured at our Optex Division of Optex Systems, Inc.

in Richardson.

November 13, 2023, the Company announced it was awarded a new laser filter unit contract from a U.S.

Government Prime Contractor,

in support of a visible sighting system.

The order value is $1.3 million and the products for this contract will be manufactured

at the Applied Optics Center (AOC) Division of Optex Systems, Inc.

September 6, 2022, the Company announced it has been awarded a $1.1 million order as part

of a multi-year strategic supplier agreement with a domestic commercial manufacturer of premium

optical devices.

The products will be manufactured at the Applied Optics Center (AOC) Division

of Optex Systems, Inc.

August 30, 2022, the Company announced it has been awarded a $2.23 million order as part

of a multi-year strategic supplier agreement with a domestic commercial manufacturer of premium

optical devices.

The products will be manufactured at the Applied Optics Center (AOC) Division

of Optex Systems, Inc.

June 29, 2022, the Company announced a $1 million laser filter unit order as part of XM157

(NGWS-FC) Scope.

The products will be manufactured at the Applied Optics Center (AOC) Division

of Optex Systems, Inc.

April 20, 2022, the Company announced a contract for $1.1 million as part of a multi-year

strategic supplier agreement with a domestic manufacturer of premium optical devices.

products will be manufactured at the Applied Optics Center (AOC) Division of Optex Systems,

● On March 1, 2022, the Company announced a contract for $2.1 million as part of a multi-year

strategic supplier agreement with a domestic manufacturer of premium optical devices.

products will be manufactured at the Applied Optics Center (AOC) Division of Optex Systems,

October 18, 2023, the Company announced it was awarded a new laser filter unit contract from a U.S.

Government Prime Contractor,

in support of a visible sighting system.

The order value is $1.1M and the products for this contract will be manufactured at the

Applied Optics Center (AOC) Division of Optex Systems, Inc.

September 18, 2023, the Company announced it was awarded a 5 year Indefinite Delivery Indefinite Quantity (IDIQ) contract from the

Government, for M22 (7 x 50) Binoculars with an estimated value of $2.12 million.

The products for this contract will be manufactured

at the Applied Optics Center (AOC) Division of Optex Systems, Inc.

August 21, 2023, the Company announced the award of a $1.25 million delivery order for Laser Interference Filter (LIF) and Sacrificial

Window assemblies.

Both are critical in protecting Night Vision Goggle systems fielded by the U.S.

The products for this

contract will be manufactured at the Applied Optics Center (AOC) Division of Optex Systems, Inc.

August 14, 2023, the Company announced an awarded delivery order from a new domestic customer for $1.4 million of Laser Protected

The Periscopes are critical in protecting armored vehicles fielded by the U.S.

The products will be manufactured

at the Optex Division of Optex Systems, Inc.

July 5, 2023, the Company announced it was awarded a delivery order from the U.S.

Government for Laser Interference Filter (LIF)

assemblies for $3 million.

The LIF is critical in protecting Night Vision Goggle systems fielded by the U.S.

will be manufactured at the Applied Optics Center (AOC) Division of Optex Systems, Inc.

June 27, 2023, the Company announced the award of an Indefinite Delivery Indefinite Quantity (IDIQ) from Defense Logistics Agency

(DLA) for five different Optical Assemblies with a maximum value of $5.3 million.

The majority of this work will be performed in

the Richardson facility.

November 2 ,2022, the Company announced it was awarded a maximum order value of $7.5 million for spare Light Interference Filters

associated with various Night Vision Goggle systems.

The expected average annual revenue over the five-year period covered by the

order is $1.0 million to $1.5 million.

The products will be manufactured at the Applied Optics Center (AOC) Division of Optex Systems,

November 1, 2022, the Company announced the award of a $3.4 million order to repair and refurbish night vision equipment for the

Government of Israel.

The majority of this work will be performed in the Richardson facility.

October 24, 2022, the Company announced it was awarded a $720 thousand order from a major US Prime Contractor in support of the US

Army’s M10 Booker (Mobile Protected Firepower) tank program.

The majority of this work will be performed in the Richardson

October 4, 2022, the Company announced it was awarded a $1.75 million order as part of their continuing support to the M1 Abrams

Tank Program.

The products will be manufactured at the Applied Optics Center (AOC) Division of Optex Systems, Inc.

products are installed on various types of U.S.

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to prime contractors.

addition, the Company offers mil-spec quality High Efficiency Anti-Reflective Coatings for Infrared applications in both the military

and commercial markets.

These coatings are manufactured at the Applied Optics Center (AOC) Division of the Company in Dallas, Texas.

addition, the Company offers military specification (“ mil-spec”) quality High Efficiency Anti-Reflective Coatings for Infrared

applications in both the military and commercial markets.

These coatings are manufactured at the Applied Optics Center (AOC)

Division of the Company in Dallas, Texas.

deliver high volume products, under multi-year contracts, to large defense contractors and government customers.

8 unchanged sentences

product categories by product line include:

Laser & Non-Laser Protected

Plastic & Glass Periscopes, Electronic M17 Day/Thermal Periscopes, Vision Blocks

Sighting Systems

Back Up Sights, Digital

Day and Night Sighting Systems (DDAN), M36 Thermal Periscope, Unity Mirrors, Optical Weapon System Support and Maintenance, Commander

Weapon Station Sight (CWSS)

M137 Telescope, M187 Mount,

M119 Aiming Device, XM10 Aiming Circle

Muzzle Reference Systems

(MRS), Binoculars, Collimators, Optical Lenses & Elements, Windows

Applied Optics Center

Laser Interference Filter,

Optical Assemblies, Laser Filter Units, Day Windows, Binoculars, Specialty Thin Film Coatings.

& Non-Laser Protected Plastic & Glass Periscopes, Electronic M17 Day/Thermal Periscopes, Vision Blocks

Up Sights, Digital Day and Night Sighting Systems (DDAN), M36 Thermal Periscope, Unity Mirrors, Optical Weapon System Support and

Maintenance, Commander Weapon Station Sight (CWSS), Sight Assembly Refurbishment (GOI MOD/Aquila)

Telescope, M187 Mount, M119 Aiming Device, XM10 Aiming Circle

Reference Systems (MRS), Binoculars, Collimators, Optical Lenses & Elements, Windows

Optics Center

Interference Filter, Optical Assemblies, Laser Filter Units, Day Windows, Binoculars, Specialty Thin Film Coatings.

of our contracts may allow for government contract financing in the form of contract progress payments pursuant to Federal Acquisition

7 unchanged sentences

government contracts allow for Federal Acquisition Regulation 52.243-1 which entitles the contractor to an “equitable adjustment”

for contract or statement of work changes effecting cost or time of performance.

for contract or statement of work changes eaffecting cost or time of performance.

In essence, an equitable price adjustment request is

18 unchanged sentences

Single-sourced component requirements span across all of our major product lines.

Of these single

sourced components, we have material contracts (purchase orders) with firm pricing and delivery schedules in place with each of the suppliers

Of these single-sourced components, we have material contracts (purchase orders) with firm pricing and delivery schedules in place with each of the suppliers

to supply the parts necessary to satisfy our current contractual needs.

7 unchanged sentences

In the event these clauses should be invoked by our customer, future

revenues against these contracts could be affected, however these clauses allow for a full recovery of any incurred contract costs plus

revenues against these contracts could be affected.

However, these clauses allow for a full recovery of any incurred contract costs plus

a reasonable fee up through and as a result of the contract termination.

9 unchanged sentences

are summarized in the table below.

Federal Acquisition Regulation

The principal set of rules

in the Federal Acquisition Regulation System.

This system consists of sets of regulations issued by agencies of the federal government

of the United States to govern what is called the “acquisition process,” which is the process through which the government

acquires goods and services.

Acquisition Regulation (FAR)

principal set of rules in the Federal Acquisition Regulation System.

This system consists of sets of regulations issued by agencies

of the federal government of the United States to govern what is called the “acquisition process,” which is the process

through which the government acquires goods and services.

That process consists of three phases:

(1) need recognition and acquisition planning, (2) contract formation,

and (3) contract administration.

This system regulates the activities of government personnel in carrying out that process.

not regulate the purchasing activities of private sector firms, except to the extent that those activities involve government solicitations

and contracts by reference.

International Traffic in

Arms Regulations (ITAR)

United States government

regulations that control the export and import of defense-related articles and services on the United States Munitions List.

regulations implement the provisions of the Arms Export Control Act.

Truth in Negotiations Act

A public law enacted for

the purpose of providing for full and fair disclosure by contractors in the conduct of negotiations with the government.

significant provision included is the requirement that contractors submit certified cost and pricing data for negotiated procurements

above a defined threshold of $2 million for contracts entered into after June, 30, 2018.

The law requires contractors to provide

the government with an extremely broad range of cost or pricing information relevant to the expected costs of contract performance,

and it requires contractors and subcontractors to submit cost or pricing data to the government and to certify that, to the best

of their knowledge and belief, the data are current, accurate, and complete.

A contracting officer may still request cost or price

data, if necessary, without certification, to determine whether the proposed cost or price is fair and reasonable for contracts which

are below the threshold.

(1) need recognition and acquisition

planning, (2) contract formation, and (3) contract administration.

This system regulates the activities of government personnel in

carrying out that process.

It does not regulate the purchasing activities of private sector firms, except to the extent that those

activities involve government solicitations and contracts by reference.

International

Traffic in Arms Regulations (ITAR)

States government regulations that control the export and import of defense-related articles and services on the United States Munitions

These regulations implement the provisions of the Arms Export Control Act.

in Negotiations Act (TINA)

public law enacted for the purpose of providing for full and fair disclosure by contractors in the conduct of negotiations with the

The most significant provision included is the requirement that contractors submit certified cost and pricing data for

negotiated procurements above a defined threshold of $2 million for contracts entered into after June, 30, 2018.

The law requires

contractors to provide the government with an extremely broad range of cost or pricing information relevant to the expected costs

of contract performance, and it requires contractors and subcontractors to submit cost or pricing data to the government and to certify

that, to the best of their knowledge and belief, the data are current, accurate, and complete.

A contracting officer may still request

cost or price data, if necessary, without certification, to determine whether the proposed cost or price is fair and reasonable for

contracts which are below the threshold.

are responsible for full compliance with the Federal Acquisition Regulation (FAR).

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other things and impose accounting rules that define allowable and unallowable costs governing our right to reimbursement under certain

Article Testing and Acceptance requirements consist of specific steps which could be comprehensive and time consuming.

The dimensions

and material specifications of each piece of the assembly must be verified, and some products may have in excess of 100 assembled parts.

Once the individual piece parts are verified to be compliant to the specification, the assembly processes are documented and verified.

Article Acceptance and Testing requirements consist of specific steps which could be comprehensive and time consuming.

dimensions and material specifications of each piece of the assembly must be verified, and some products may have in excess of 100

assembled parts.

Once the individual piece parts are verified to be compliant to the specification, the assembly processes are

documented and verified.

A sample of the production (typically three units) is verified to meet final performance specifications.

Once the units meet the final

performance specification, they are then subjected to accelerated life testing, a series of tests which simulate the lifetime use of

the product in the field.

This consists of exposing the units to thermal extremes, humidity, mechanical shock, vibration, and other physical

exposure tests.

Once completed, the units undergo a final verification process to ensure that no damage has occurred as a result of the

testing and that they continue to meet the performance specification.

All of the information and data is recorded into a final first

article inspection and test report and submitted to the customer along with the test units for final approval.

First Article Acceptance

and Testing is generally required on new contracts/product awards but may also be required on existing products or contracts where there

has been a significant gap in production, or where the product has undergone significant manufacturing process, material, tooling, equipment

or product configuration changes.

Once the units meet the final performance specification, they are then subjected to accelerated life testing, a series of tests

which simulate the lifetime use of the product in the field.

This consists of exposing the units to thermal extremes, humidity,

mechanical shock, vibration, and other physical exposure tests.

Once completed, the units undergo a final verification process to

ensure that no damage has occurred as a result of the testing and that they continue to meet the performance specification.

the information and data is recorded into a final first article inspection and test report and submitted to the customer along with

the test units for final approval.

First Article Acceptance and Testing is generally required on new contracts/product awards but

may also be required on existing products or contracts where there has been a significant gap in production, or where the product

has undergone significant manufacturing process, material, tooling, equipment or product configuration changes.

are also subject to laws, regulations and executive orders restricting the use and dissemination of information deemed classified for

17 unchanged sentences

BIS-711 (export).

aforementioned licenses are valid for 48 months from date that each license is issued.

A summary of our active ITAR licenses is presented

below (updated as of November 30, 2022):

above licenses are valid for 48 months from date that each license is issued.

A summary of our active ITAR licenses is presented below

(updated as of December 1, 2023):

Total Contract

1 unchanged sentence

of Expiration

Issued 2023 (none issued)

Total DSP-5 Licenses

DSP-6 (no active licenses)

Issued in 2019

Total DSP-73 Licenses

Issued in 2019

Issued in 2020

Issued in 2021

Issued in 2022

DSP-73 (no active licenses)

Total BIS-711 Licenses

25 unchanged sentences

as a result of noncompliance.

terms of our material contracts as of November 30, 2022, are as follows:

Customer PO/Contract

Contract Type

Total Award Value (millions)

Remaining Value (millions)

US Prime Contractor (1)

Sighting Systems

Oct 2017- Mar 2025

DLA Land and Maritime (2)

terms of our significant contracts as of December 6, 2023, are as follows:

Award Value (millions)

Value (millions)

Prime Contractor (1)

with Option years

2017- Mar 2026

Land and Maritime (2)

SPE7LX-18-D-0108

Feb 2020 - Apr 2023

DLA Land and Maritime (3)

2020 - Jun 2024

Land and Maritime (3)

SPE7LX-19-D-0089

Feb 2021 - Jan 2023

DLA Land and Maritime (4)

2021 - Jul 2026

Land and Maritime (4)

SPE7LX-20-D-0020

Dec 2021 - July 2023

DLA Land and Maritime (5)

Glass Periscopes

SPE7MX-20-D-0012

No task awards as of current date

DLA Land and Maritime (6)

2021 – Jan 2024

Land and Maritime (5)

SPE7MX-20-D-0028

No task awards as of current date

DLA Land and Maritime (7)

task awards as of current date

Land and Maritime (6)

SPE7MX-20-D-0032

No task awards as of current date

task awards as of current date

Prime Contractor (7)

XM10 Aiming Circles

Pending Revision (2023-2024)

DLA Land and Maritime (9)

Sept 2021 - Jan 2023

Aiming Circles

Schedule Pending

Land and Maritime (8)

SPE7LX-21-D-0057

2021 – May 2024

Prime Contractor (9)

Laser Filter Units (AOC)

Aug 2021 - Mar 2024

US Prime Contractor (11)

Filter Units (AOC)

2021 - July 2024

Prime Contractor (10)

PO 40389248,40389250

Feb 2022 - Jan 2024

Commercial Customer (12)

Optical Assemblies (AOC)

Jul 2022 - Dec 2022

Commercial Customer (13)

Optical Assemblies (AOC)

Aug 2022 - Jan 2023

US Prime Contractor (14)

Laser Filter Unit (AOC)

Nov 2022 - Dec 2023

Commercial Customer (15)

Optical Assemblies (AOC)

Apr 2023 - Dec 2023

Commercial Customer (16)

Optical Assemblies (AOC)

Jun 2023 - Dec 2023

US Prime Contractor (17)

Day Windows (AOC)

Dec 2022 - Jul 2025

US Prime Contractor (18)

Jun 2023 - Aug 2024

Government of Israel MOD (19)

Refurbish Night Vision Equip

Foreign Military Sales

2022 - Jan 2024

Prime Contractor (11)

Filter Unit (AOC)

2022 - Dec 2023

Customer (12)

Assemblies (AOC)

2023 - Apr 2024

Customer (13)

Assemblies (AOC)

2023 - May 2024

Prime Contractor (14)

Windows (AOC)

2022 - Sep 2025

Prime Contractor (15)

2023 - Aug 2024

of Israel MOD (16)

Night Vision Equip

Military Sales

PO 4441236828

Pending Revision (2023-2024)

DLA Land at Aberdeen (20)

Light Interference Filters (AOC)

Revision (Jan 2024 - 2025)

Land at Aberdeen (17)

Interference Filters (AOC)

SPRBL1-23-D-0001

2023-May 2025

Land and Maritime (18)

SPE7LX-23-D-0092

2024 – Jun 2024

Land and Maritime (19)

SPE7LX-23-D-0093

2024 – Jun 2024

Prime Contractor (20)

2024 – Dec 2024

Prime Contractor (21)

Interface Filters (AOC)

2023 - Dec 2024

Binoculars (AOC)

W56HZV-23-D-0071

Prime Contractor (23)

Filter Units (AOC)

2024 - Jun 2025

Prime Contractor (24)

Filter Units (AOC)

PO 4500045781

2024 - Aug 2025

Prime Contractor (25)

2024 - May 2025

Prime Contractor (26)

2025 - Dec 2026

original three-year contract was awarded on September 11, 2017 to provide LAV 6.0 optimized weapon system support for Optex’s

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On June 23, 2022 the customer exercised the option for the final option year 2.

The ordering period for option year 2 expires on

September 10, 2023.

The ordering period for option year 2 expired

as of September 10, 2023.

awarded March 4, 2019.

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duration of a base period of three (3) years plus two (2) firm fixed priced option years for a potential total of (5) five years.

On March 2, 2022, the customer exercised the first of two option years extending the ordering period of the contract through March

On February 27, 2023, the customer exercised the second of two option years extending the ordering period of the contract through

March 3, 2024.

awarded on November 12, 2019.

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years for periscopes valued up to $2.3 million.

awarded on December 5, 2019.

This is a shared long-term, Indefinite Delivery Indefinite Quantity (IDIQ) Contract with firm fixed

pricing for the duration of a base period of three (3) years plus two (2) firm fixed priced option years.

The contract was a split

award between Optex Systems Inc.

and another supplier.

As of October 2, 2022, there have been no task orders released against the

base contract award.

The ordering period for the base award expired on November 11, 2022 with no option

The current remaining value of $0.3 million is pending cancellation as the orders were executed in error by the customer.

awarded on January 24, 2020.

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As of October 1, 2023, there have been no task orders released against the base contract

On January 24, 2023, the customer exercised the first of two option years extending the ordering period of the contract through

January 23, 2024.

awarded on February 12, 2020.

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As of October 1, 2023, there have been no task orders released against the base contract

On February 6, 2023, the customer exercised the first of two option years extending the ordering period of the contract through

February 12, 2024.

Order by a U.S.

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years for periscopes valued up to $14.4 million.

On November 29, 2023 Optex Systems Inc.

received formal letter notification of the

DLA’s intent to exercise the first of two option years extending the ordering period from January 6, 2024 through January

The contract modification for the option exercise is pending as of December 6, 2023.

Order awarded August 3, 2021 by a U.S.

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Award includes first article inspection

in August 2021 and production deliveries commencing in September 2021 through October 2023.

in August 2021 and production deliveries commencing in September 2021 through July 2024.

Orders awarded September 24, 2021 by a U.S.

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government contracts.

Orders awarded February 28, 2022 to a commercial customer in support of optical assemblies.

Orders awarded April 19, 2022 to a commercial customer in support of optical assemblies.

Orders awarded June 28, 2022 from a U.S.

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for an additional quantity up to 100%.

The Contract is pending a firm delivery schedule pending receipt of customer furnished material

and evaluation.

The Contract is pending a firm delivery schedule pending receipt of the export license.

Deliveries are expected to begin in January 2024.

awarded on November 2, 2022 for spare Light Interference Filters associated with various Night Vision Goggle systems.

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year Indefinite Delivery Indefinite Quantity (IDIQ) Contract with firm fixed pricing for the duration of the contract.

has a maximum order value of $7,500,000 with an expected average annual revenue over the following five year period of $1,000,000-$1,500,000.

The award has

a maximum order value of $7.5 million with an expected average annual revenue over the following five year period of $1.0 million

to $1.5 million.

awarded on June 27, 2023.

This is a long-term, Indefinite Delivery Indefinite Quantity (IDIQ) Contract with firm fixed pricing for

the duration of a base period of three (3) years plus two (2) firm fixed priced option years for a potential total of (5) five years

for periscopes.

The award has a maximum order value of $2.1 million.

awarded on June 28, 2023.

This is a long-term, Indefinite Delivery Indefinite Quantity (IDIQ) Contract with firm fixed pricing for

the duration of a base period of three (3) years plus two (2) firm fixed priced option years for a potential total of (5) five years

for periscopes.

The award has a maximum order value of $1.8 million.

Order awarded on August 2, 2023 by a U.S.

prime contractor in support of U.S.

government contracts.

Order awarded on August 17, 2023 by a U.S.

prime contractor in support of U.S.

government contracts.

awarded on September 15, 2023.

This is a long-term, Indefinite Delivery Indefinite Quantity (IDIQ) Contract with firm fixed pricing

for the duration of a base period of three (3) years plus two (2) firm fixed priced option years for a potential total of (5) five

years for binoculars and includes first article testing and production deliveries.

The award has an estimated value of $2.1 million

across the five-year period.

Order awarded on October 16, 2023 by a U.S.

prime contractor in support of U.S.

government contracts.

Order awarded on November 9, 2023 by a U.S.

prime contractor in support of U.S.

government contracts.

Order awarded on November 10, 2023 by a U.S.

prime contractor in support of U.S.

government contracts.

Order awarded on November 6, 2023 by a U.S.

prime contractor in support of U.S.

government contracts.

Opportunity — U.S.

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increase of 11.9% over estimated 2023 spending.

The chart below also depicts increased spending through 2027 of 10.9% from the current

estimated fiscal year 2022 level, reflecting an average increase of 2.2% per year.

Military procurement spending, a subset of total military

spending, depicts an overall increase of $3.6 billion, or 2.7%, in fiscal year 2023 as compared to the estimated spending in fiscal year

As of December 7, 2022, the National Defense Authorization Act for Fiscal Year 2023 (2023 NDAA) has not yet been passed by Congress but

had cleared negotiations through the U.S.

House and Senate with an expected $45 billion increase over the original funding request.

Chart below depicts the original estimated funding levels from the U.S.

The chart below also depicts increased spending through 2028 of 6.1% from the 2024 plan

level, reflecting an average increase of 1.5% per year for years 2025 through 2028.

Military procurement spending, a subset of total

military spending, depicts an overall increase of $15.3 billion, or 10.8%, in fiscal year 2024 as compared to the estimated spending

in fiscal year 2023.

National Defense Authorization Act (NDAA) for Fiscal Year 2024 was enacted by Congress in December 2023 for $886 billion, an increase

of $28 billion, or 3% over the prior year NDAA.

The 2024 NDAA includes DOD military procurement of $169 billion, 8% above the Department

of Defense procurement budget request of $156.4 billion.

The Chart below depicts the original estimated funding levels from the U.S.

Department of Defense based on the FY2024 budget request.

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The last five

years have experienced a significant reduction in spending for U.S ground system military programs, which has a direct impact on the

Optex Systems Richardson segment revenue.

The total fiscal year 2023 budget request for major ground system programs decreased by 15.4%

from the fiscal year 2022 levels and by 37.0% from the fiscal year 2019 levels.

Although it is difficult to directly tie the budget request

to specific components provided by Optex Systems, we provide periscopes, collimator assemblies, vision blocks and laser interface filters

armed forces on almost all of the ground system platforms categorized below.

years have experienced a significant reduction in spending for U.S ground system military programs, and more specifically on the Abrams

Tank Modifications/Upgrades, which has a direct impact on the Optex Systems Richardson segment revenue.

The total fiscal year 2024 budget

request for major ground system programs decreased by 2.3% from the fiscal year 2023 levels and by 10.8% from the fiscal year 2020 levels.

Although it is difficult to directly tie the budget request to specific components provided by Optex Systems, we provide periscopes,

collimator assemblies, vision blocks and laser interface filters to the U.S.

armed forces on almost all of the ground system platforms

categorized below.

($ in Millions)

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Office of the Under Secretary of Defense (Comptroller)/Chief Financial Officer, “Program Acquisition Cost by Weapon System, United

States Department of Defense, Fiscal Year 2023 Budget Request”, April 2022 and “Program Acquisition Cost by Weapon System,

United States Department of Defense, Fiscal Year 2022 Budget Request”, May 2021.

States Department of Defense, Fiscal Year 2024 Budget Request”, March 2023 and “Program Acquisition Cost by Weapon System,

United States Department of Defense, Fiscal Year 2023 Budget Request”, April 2022 and “Program Acquisition Cost by Weapon

System, United States Department of Defense, Fiscal Year 2022 Budget Request”, May 2021.

2024 Department of Defense Budget indicates an overall decrease in ground system vehicle program spending in the fiscal year 2023 and

the 2023 appropriation budget years.

2024 appropriation budget years.

There is generally a six- to eighteen-month delay between U.S.

defense budget requests and program

delivery orders related to our products from government agencies and our prime defense customers.

In addition, DoD budget requests are

often changed throughout the congressional NDAA Budgeting and Budget appropriations process.

The DoD budget requests exclude any foreign

military sales as they are funded separately from the annual NDAA budgets.

We are carefully watching the projected trends in both DoD

military spending and FMS as defense allocation priorities change, as well as challenges which are presented from the current pandemic,

global recession, and changes in political climate to ascertain any potential impact to the company’s future revenue.

defense budget requests and program delivery

orders related to our products from government agencies and our prime defense customers.

In addition, DoD budget requests are often changed

throughout the congressional NDAA Budgeting and Budget appropriations process.

The DoD budget requests exclude any foreign military sales

as they are funded separately from the annual NDAA budgets.

We are carefully watching the projected trends in both DoD military spending

and FMS as defense allocation priorities change, as well as challenges which are presented from the global recession and changes in political

climate to ascertain any potential impact to the Company’s future revenue.

Applied Optics Center supports numerous other military platforms outside of the ground system vehicles budget, such as infantry rifle

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were successful with the Israeli Ministry of Defense (IMOD) in refurbishing a small quantity of their Night Vision Rifle Scopes.

this success, the IMOD subsequently awarded us a $3.4 million follow on contract to continue this activity.

If we successfully execute

this contract, we would expect another contract award of similar size and duration.

this success, in November 2022, the IMOD awarded us a $3.4 million follow on contract to continue this activity.

We anticipate deliveries

against the contract to begin during the second quarter of fiscal year 2024.

If we successfully execute this contract, we would expect

another contract award of similar size and duration.

are also exploring possibilities to adapt some of our products for commercial use in those markets that demonstrate potential for solid

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Our initial focus will be directed in three product areas.

Big Eye Binoculars —

While the military application we produce is based on mature military designs, we own all castings, tooling and glass technology.

Eye Binoculars — While the military application we produce is based on mature military designs, we own all castings, tooling

and glass technology.

These large fixed mount binoculars could be sold to cruise ships, personal yachts and cities/municipalities.

The binoculars are also

applicable to fixed, land-based outposts for private commercial security as well as border patrols and regional law enforcement.

Thin Film Coatings —

The acquisition of the Applied Optics Center (AOC) also creates a new sector of opportunity for commercial products for us.

commercial optical products use thin film coatings to create product differentiation.

These coatings can be used for redirecting

light (mirrors), blocking light (laser protection), absorbing select light (desired wavelengths), and many other combinations.

are used in telescopes, rifle scopes, binoculars, microscopes, range finders, protective eyewear, photography, etc.

Given this broad

potential, the commercial applications are a key opportunity going forward.

The binoculars are also applicable to fixed, land-based outposts for private commercial security as well as border patrols and regional

law enforcement.

Film Coatings — The acquisition of the Applied Optics Center (AOC) also creates a new sector of opportunity for commercial

products for us.

Globally, commercial optical products use thin film coatings to create product differentiation.

These coatings can

be used for redirecting light (mirrors), blocking light (laser protection), absorbing select light (desired wavelengths), and many

other combinations.

They are used in telescopes, rifle scopes, binoculars, microscopes, range finders, protective eyewear, photography,

Given this broad potential, the commercial applications are a key opportunity going forward.

Assemblies – Through the Applied Optics Center, we are utilizing our experience in military sighting systems to pursue commercial

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Army, Navy and Marine Corps), as defense subcontractor (General Dynamics, L-3 Communications, Elbit Systems, BAE,

Sig Sauer, and ADS Inc.), as a military supplier to foreign governments (Israel, Australia, South America and Canada) and also as a commercial

optical assembly supplier (Nightforce Optics, Cabela’s, Amazon).

During the twelve months ended October 2, 2022, we derived approximately

80% of our gross business revenue from five major customers:

government agencies (14%), three major defense contractors (22%, 15%,

and 7%), and one commercial customer (22%).

We have approximately 111 discrete contracts for items that are utilized in vehicles, optical

product lines and as spare parts.

Due to the high percentage of prime and subcontracted U.S.

defense revenues, large customer size and

the fact that there are multiple contracts with each entity, which are not interdependent, we are of the opinion that this provides us

with a fairly well diversified revenue pool.

Sig Sauer, Enterprise Cabling and Vortex Optics), as a military supplier to foreign governments (Israel, Australia, South America and

Canada) and also as a commercial optical assembly supplier (Nightforce Optics, Gables Engineering, Amazon).

During the twelve months

ended October 1, 2023, we derived approximately 72% of our gross business revenue from five major customers:

government agencies

(22%), three U.S.

defense contractors (14%, 7%, and 6%) and one major commercial customer (23%).

We have approximately 151 discrete contracts

for items that are utilized in vehicles, optical product lines and as spare parts.

Due to the high percentage of prime and subcontracted

defense revenues, large customer size and the fact that there are multiple contracts with each entity, which are not interdependent,

we are of the opinion that this provides us with a fairly well diversified revenue pool.

believe we are well positioned to service both U.S.

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factors important to the U.S.

Product reliability —

failure can cost lives

Speed to delivery and adherence

to delivery schedule

System life cycle extension

Low cost/best value

Visual aids for successful

execution of mission objectives

Mission critical products

specifically related to soldier safety.

reliability — failure can cost lives

to delivery and adherence to delivery schedule

life cycle extension

cost/best value

aids for successful execution of mission objectives

critical products specifically related to soldier safety.

Entrants — Low Risk to us.

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We believe that this, in conjunction with the 30-year life span,

supports our expectation that they will continue to be used through 2040.

supports our expectation that they will continue to be used through approximately 2040.

— Low to Medium Risk to Optex Systems Holdings.

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following matrix reflects the current focus of our four basic approaches for sales and development:

Sell existing products

to existing customers.

Sell existing products

to new customers.

Develop new products to

meet the needs of our existing customers.

Develop new products to

meet the needs of new customers.

Chile M17 Day/Thermal

USACC Binoculars

Brazil M17 Day/Thermal

GDLS DDAN, OWSS

existing products to existing customers.

existing products to new customers.

new products to meet the needs of our existing customers.

new products to meet the needs of new customers.

M17 Day/Thermal

M17 Day/Thermal, OWSS

Prime Contractor - XM10 Aiming Circle

Commercial Optical

Optical Lens, Spotting Scopes, Monocular

Existing Products

USACC Periscopes, Back Up Sights,

Marines Sighting Systems

Binoculars, Vision Blocks,

Laser Filter Units

Optical Lens, Spotting Scopes, Monocular Lens

Periscopes, Back Up Sights,

Sighting Systems

Vision Blocks,

Optical Lens, Spotting

GDLS Periscopes, Collimators

Scopes, Monocular Lens

BAE Periscopes

L3 - Laser Interface Filters

Periscopes, Collimators

Monocular Lens

Laser Interface Filters

Prime Contractor – Laser Filter Units

DLA Optical Elements

Optical Elements

operations plan can be broken down into three distinct areas:

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We have completed the following activities in order to demonstrate continuous improvement:

Successful completion of

annual surveillance audit for ISO 9001:2008 certificate, with no major nonconformance issues

Weekly cycle counts on

inventory items

Weekly material review

board meeting on non-moving piece parts

Kanban kitting on products

with consistent ship weekly ship quantities

Daily cross functional

floor meetings focused on delivery, yields and labor savings

Redesigned floor layout

using tenant improvement funds

Daily review of yields

and product velocity

Bill of material reviews

prior to work order release

completion of annual surveillance audit for ISO 9001:2008 certificate, with no major nonconformance issues

cycle counts on inventory items

material review board meeting on non-moving piece parts

kitting on products with consistent ship weekly ship quantities

cross functional floor meetings focused on delivery, yields and labor savings

floor layout using tenant improvement funds

review of yields and product velocity

of material reviews prior to work order release

continuous improvement opportunities include installation and training of shop floor control module within the ERP system and organizational

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of the work environment.

In addition, we use many tools including 5S programs, six sigma processes, and define, measure, analyze, improve,

control (DMAIC) problem solving techniques to identify bottlenecks within the process flow, reduce cost and improve product yields.

results can then be replicated across the production floor and drive operational improvements.

In addition, we use many tools including 5S programs and six sigma processes, and define, measure, analyze,

improve, control (DMAIC) problem solving techniques to identify bottlenecks within the process flow, reduce cost and improve product

Successful results can then be replicated across the production floor and drive operational improvements.

efficiencies fluctuate as a function of program longevity, complexity and overall production volume.

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support labor (fixed) costs and they are spread across a higher volume base.

On the contrary, as production volumes decline, our labor

and material costs per unit of production generally increase.

Additional factors that contribute to economies of scale relate to the

longevity of the program.

Long running, less complex programs (e.g., periscopes) do not experience as significant of an impact on labor

costs as production volumes change, as the associated workforce is generally less skilled and can be ramped quickly as headcounts shift.

Our more complex thin laser filter coatings, Howitzer and thermal day/night programs are more significantly impacted by volume changes

as they require a more highly-skilled workforce and ramp time is longer as the training is more complex.

We continually monitor customer

demand over a rolling twelve-month window and in order to anticipate any changes in necessary manpower and material which allows us to

capitalize on any benefits associated with increased volume and minimize any negative impact associated with potential declines in product

Conversely, as production volumes decline, our labor and

material costs per unit of production generally increase.

Additional factors that contribute to economies of scale relate to the longevity

of the program.

Long running, less complex programs (e.g., periscopes) do not experience as significant of an impact on labor costs as

production volumes change, as the associated workforce is generally less skilled and can be ramped quickly as headcounts shift.

complex thin laser filter coatings, Howitzer and thermal day/night programs are more significantly impacted by volume changes as they

require a more highly-skilled workforce and ramp time is longer as the training is more complex.

We continually monitor customer demand

over a rolling twelve-month window and in order to anticipate any changes in necessary manpower and material which allows us to capitalize

on any benefits associated with increased volume and minimize any negative impact associated with potential declines in product quantities.

and Availability of Raw Materials

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utilize several highly specialized and unique processes in the manufacture of our products.

While we believe that these trade secrets

have value, it is probable that our future success will depend primarily on the innovation, technical expertise, manufacturing and marketing

abilities of our personnel.

We cannot assure you that we will be able to maintain the confidentiality of our trade secrets or that our

non-disclosure agreements will provide meaningful protection of our trade secrets, know-how or other proprietary information in the event

of any unauthorized use, misappropriation or other disclosure.

The confidentiality agreements that are designed to protect our trade

secrets could be breached, and we might not have adequate remedies for the breach.

Additionally, our trade secrets and proprietary know-how

might otherwise become known or be independently discovered by others.

We possess three utility patents and two design patents.

While we believe that these trade

secrets have value, it is probable that our future success will depend primarily on the innovation, technical expertise,

manufacturing and marketing abilities of our personnel.

We cannot assure you that we will be able to maintain the confidentiality of

our trade secrets or that our non-disclosure agreements will provide meaningful protection of our trade secrets, know-how or other

proprietary information in the event of any unauthorized use, misappropriation or other disclosure.

The confidentiality agreements

that are designed to protect our trade secrets could be breached, and we might not have adequate remedies for the breach.

Additionally, our trade secrets and proprietary know-how might otherwise become known or be independently discovered by others.

possess three utility patents and three design patents.

competitors, many of which have substantially greater resources, may have applied for or obtained, or may in the future apply for and

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following patents generally expire 20 years after issuance.

October 17, 2022, we filed for a new design patent, currently under review with the United States Patent and Trademark Office for an

“Interchangeable Offset Image Prism” which provides a method for adapting a quick release prism with offset image.

April 4, 2023, we were issued U.S.

11,619,824 B2 titled “Selectable Offset Image Wedge” which is a mechanical

wedge used to offset the image anywhere in the selectable range of circular travel within the defined offset field of view.

This application

is a continuation-in-part of U.S.

10,324,298 and claims priority to U.S.

10,324,298, issued on June 18, 2019.

November 4, 2021 we were issued U.S.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business