What changed in this filing

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Item 1A. Risk Factors

2023-12-18 compared with 2022-12-19 · 187 added, 195 removed, 282 unchanged (58% of the section changed)

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our customers’ businesses and levels of business activity.

and political events this year have altered the landscape in which we and other U.S.

and political events in the past few years have altered the landscape in which we and other U.S.

companies operate in a variety of ways.

to inflationary pressures, the U.S.

Federal Reserve has raised interest rates, resulting in an increase in the cost of borrowing for

us, our customers, our suppliers, and other companies relying on debt financing.

In response to inflationary pressures, the U.S.

Federal Reserve has raised interest rates, resulting in an increase in the cost of borrowing

for us, our customers, our suppliers, and other companies relying on debt financing.

World events, such as the Russian invasion of Ukraine

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to COVID-related supply chain disruptions.

Prolonged inflationary conditions, high and/or increased interest rates, and additional sanctions

or retaliatory measures related to the Russia-Ukraine crisis, or other situations, could further negatively affect U.S.

and international

commerce and exacerbate or prolong the period of high energy prices and supply chain constraints.

At this time, the extent and duration

of these economic and political events and their effects on the economy and the Company are impossible to predict.

In addition, the threat of a larger war in the Middle East after the Hamas terrorist attacks

on Israel could affect oil prices and have other, potentially recessionary, effects on the global economy.

Prolonged inflationary conditions

and prolonged periods of high interest rates could further negatively affect U.S.

and international commerce and exacerbate or prolong

the period of high energy prices and supply chain constraints.

At this time, the extent and duration of these economic and political

events and their effects on the economy and the Company are impossible to predict.

unemployment and tight labor markets may adversely affect our labor costs and our ability to hire and retain a sufficient workforce required

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The limited supply

of available workers for hire, combined with increasing competition among other local industries may result in increased production costs

associated with higher wages, employee bonuses, overtime premiums and enhanced employee benefits in addition to cost increases associated

with employee recruitment, employee turnover, training and learning curve inefficiencies.

We may be unable to fill the labor positions

required to meet our customer demands in a timely or cost-effective manner which would impede our ability to meet current or increasing

production levels in line with our customer expectations and adversely affect our ability to grow revenue or maintain our current margin

of available workers for hire, combined with increasing competition among other local industries, may result in increased production

costs associated with higher wages, employee bonuses, overtime premiums and enhanced employee benefits in addition to cost increases

associated with employee recruitment, employee turnover, training and learning curve inefficiencies.

We may be unable to fill the labor

positions required to meet our customer demands in a timely or cost-effective manner, which would impede our ability to meet current

or increasing production levels in line with our customer expectations and adversely affect our ability to grow revenue or maintain our

current margin levels.

ability to fulfill our backlog may have an effect on our long-term ability to procure contracts and fulfill current contracts.

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the time made, prices of materials are subject to unanticipated adverse fluctuation.

In the event our actual costs exceed fixed contractual

costs of our product contracts, we will not be able to recover the excess costs which could have a material adverse effect on our business

and results of operations.

We examine these contracts on a regular basis and accrue for anticipated losses on these contracts, if necessary.

As of October 2, 2022, there was $289 thousand in accrued loss provisions for loss contracts or cost overruns.

In the event our actual costs exceed the fixed costs

determined under our product contracts, we will not be able to recover the excess costs which could have a material adverse effect on

our business and results of operations.

We examine these contracts on a regular basis and accrue for anticipated losses on these contracts,

if necessary.

We have several multiyear IDIQ contracts at

fixed prices which have open ordering periods and are currently at low profit rates or in a loss condition.

These contracts are

typically three-year IDIQ contracts with two optional award years, and as such, we are obligated to accept new task awards against

these contracts until the contract expiration.

Should contract costs continue to increase above the negotiated selling price, or in

the event the customer should release substantial quantities against these existing loss contracts, the losses could be material.

For contracts currently in a loss status based on the estimated per unit contract costs, losses are booked immediately on new task

order awards.

As of October 1, 2023, there was $243

thousand in accrued loss provisions for loss contracts or cost overruns.

Approximately

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depend to a large extent on the abilities and continued participation of our executive officers and other key employees.

any key employee could have a material adverse effect on our business.

We currently have only two employment agreements, with our

Chief Executive Officer which currently expires on November 30, 2025, and our Chief Financial Officer which expires on December 31,

2023 with renewable terms each 18 months thereafter.

We do not presently maintain “key man” insurance on any other key

We believe that experienced personnel will continue to be required to implement our business plan.

Competition for such

personnel is intense, and we cannot assure you that they will be available when required, or that we will have the ability to

attract and retain them.

In addition, due to our small size, we do not presently have depth of staffing in our executive,

operational and financial management areas in order to have an effective succession plan should the need arise.

Thus, in the event

of the loss of one or more of our management employees, our results of operations could be vulnerable to challenges associated with

recruiting additional key personnel, if such recruiting efforts are not successful in a timely manner.

either executive officer or any other key employee could have a material adverse effect on our business.

We currently have only two employment

We do not presently

maintain “key man” insurance on any other key employees.

We believe that experienced personnel will continue to be required

to implement our business plan.

Competition for such personnel is intense, and we cannot assure you that they will be available when

required, or that we will have the ability to attract and retain them.

In addition, due to our small size, we do not presently have depth

of staffing in our executive, operational and financial management areas in order to have an effective succession plan should the need

Thus, in the event of the loss of one or more of our management employees, our results of operations could be vulnerable to challenges

associated with recruiting additional key personnel, if such recruiting efforts are not successful in a timely manner.

of our products are dependent on specialized sources of supply potentially subject to disruption which could have a material, adverse

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to which we face such a material risk and the product lines supported by those materials utilized by us as of December 6, 2023.

Sighting Systems M36 DDAN

Digital camera system

Alternative source would

take in excess of six months to qualify

Current firm fixed price

& quantity purchase orders are in place with the supplier to meet all contractual requirements.

Die-cast housings

All die cast tooling is

consolidated at this supplier.

Systems M36 DDAN

camera system

source would take in excess of six months to qualify

firm fixed price & quantity purchase orders are in place with the supplier to meet all contractual requirements.

die cast tooling is consolidated at this supplier.

It would take approximately six months to move tooling and re-qualify a new supplier.

Current firm fixed

price & quantity purchase orders are in place with the supplier to meet all contractual requirements.

Supplier is on schedule.

Steel castings

Alternative supplier source

would take six months to qualify.

Current firm fixed price

& quantity purchase orders are in place with the supplier to meet all contractual requirements.

Vision Blocks

MIL Spec welded housings

for vision blocks

Would take approximately

8-10 months to re-qualify a new supplier source.

Currently working with current

vendor to keep supply of these parts

Vision Blocks

Large/Small/Customs Blocks

Would take approximately

4-6 months to re-qualify a new supplier source.

Currently working with single

source for purchasing material on a forecast projection basis

AL Castings for Housing

Would take approximately

8-12 months to re-qualify a new supplier source.

Currently, ordering for

a single source, new casting tool and FAT will be required to qualify a new source

Short/Long Drivers

Would take approximately

8-12 months to re-qualify a new supplier source.

Currently working with single

source for purchasing material on a forecast projection basis

Sand castings for big eye

binocular parts

Would take approximately

4-6 months to re-qualify a new supplier source

Current firm fixed price

& quantity purchase orders are in place with the supplier to meet all contractual requirements.

firm fixed price & quantity purchase orders are in place with the supplier to meet all contractual requirements.

supplier source would take six months to qualify.

firm fixed price & quantity purchase orders are in place with the supplier to meet all contractual requirements.

Spec welded housings for vision blocks

take approximately 8-10 months to re-qualify a new supplier source.

working with current vendor to keep supply of these parts

Large/Small/Customs

take approximately 4-6 months to re-qualify a new supplier source.

working with single source for purchasing material on a forecast projection basis

Castings for Housing

take approximately 8-12 months to re-qualify a new supplier source.

ordering for a single source, new casting tool and FAT will be required to qualify a new source

take approximately 8-12 months to re-qualify a new supplier source.

working with single source for purchasing material on a forecast projection basis

castings for big eye binocular parts

take approximately 4-6 months to re-qualify a new supplier source

firm fixed price & quantity purchase orders are in place with the supplier to meet all contractual requirements.

tight dimensions and Special Coating

number of suppliers that can meet tight customer specifications without deviation

firm fixed price & quantity purchase orders are in place with the supplier to meet all contractual requirements.

Optics Center

Spare Components

Only approved source due

to proprietary rights.

approved source due to proprietary rights.

Alternate source cannot be developed.

Current firm fixed price

and quantity purchase orders are in place with the supplier to meet all contractual requirements.

Supplier is on schedule.

firm fixed price and quantity purchase orders are in place with the supplier to meet all contractual requirements.

Supplier is on

Optics Center

Wrench and Retaining Ring

tooling was manufactured by and used by one source.

Tooling would not fit other potential supplier’s equipment.

Finding another

source would be very expensive and take approximately 1 year to transition

firm fixed price and quantity purchase orders are in place with the supplier to meet all contractual requirements.

Supplier is on

Optics Center

tooling was manufactured by and used by one source.

Tooling would not fit other potential supplier’s equipment.

Finding another

source would be very expensive and take approximately 1 year to transition

firm fixed price and quantity purchase orders are in place with the supplier to meet all contractual requirements.

Supplier is on

Optics Center

LFU Assemblies

(Anti-Reflective Device)

one approved Government source of supply at this time

firm fixed price and quantity purchase orders are in place with the supplier to meet all contractual requirements.

Supplier is on

defense technology supply industry is subject to technological change and if we are not able to keep up with our competitors and/or they

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effect on our business, financial condition or results of operations.

may face risks as a result of the COVID-19 pandemic.

may be at risk as a result of the continuing COVID-19 pandemic.

Risks that could affect our business include the duration and scope of

the COVID-19 pandemic and the impact on the demand for our products;

actions by governments, businesses and individuals taken in response

to the pandemic;

the length of time of the COVID-19 pandemic and the possibility of its reoccurrence;

the timing required to develop

and implement effective treatments and achieve acceptable vaccination rates in the event of future outbreaks;

the eventual impact of

the pandemic and actions taken in response to the pandemic on global and regional economies;

and the pace of recovery when the COVID-19

pandemic subsides.

pandemic has caused several program delays throughout the defense supply chain as a result of plant shutdowns, employee illnesses, travel

restrictions, remote work arrangements and similar supplier issues.

sweeping and evolving nature of the COVID-19 pandemic makes it extremely difficult to predict how our business operations will be affected

in the long term by the COVID-19 outbreak, variants of COVID-19, and any virus that spreads in a similar fashion.

A repeat of the cascading

effects of the COVID-19 pandemic could materially increase our costs, severely negatively impact our revenue, net income, and other results

of operations, and impact our liquidity position, possibly significantly.

The extent and duration of any such impacts on our business,

financial condition, and results of operations cannot be predicted.

derive almost all of our revenue from a small number of customers and the loss of any of these customers could have a material adverse

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claims will not be successful.

We may need to raise additional capital in the future beyond any cash flow from our existing business;

additional funds

may not be available on terms that are acceptable to us, or at all.

We may need to raise additional capital in the future to finance our future working capital needs.

We cannot assure you that

any additional capital will be available on a timely basis, on acceptable terms, or at all.

Future equity or debt financings may be difficult

If we are not able to obtain additional capital as may be required, our business, financial condition and results of operations

could be materially and adversely affected.

may need to raise additional capital in the future beyond any cash flow from our existing business;

additional funds may not be available

on terms that are acceptable to us, or at all.

may need to raise additional capital in the future to finance our future working capital needs.

We cannot assure you that any additional

capital will be available on a timely basis, on acceptable terms, or at all.

Future equity or debt financings may be difficult to obtain.

If we are not able to obtain additional capital as may be required, our business, financial condition and results of operations could

be materially and adversely affected.

anticipate that our capital requirements will depend on many factors, including:

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or respond to competitive pressures.

Related to our Credit Facility and Liquidity

level of debt and restrictions in our credit agreement could negatively affect our operations and limit our liquidity and our ability

to react to changes in the economy.

Loan Agreement with Texas Capital Bank contains restrictive covenants that require us to maintain a fixed charge coverage ratio of at

least 1.25:1 and a total leverage ratio of 3.00:1, which we may fail to meet if there is a material decrease in our profitability or

In addition, the Loan Agreement contains restrictive covenants governing indebtedness, liens, fundamental changes (including

changes in management), investments, and restricted payments (including cash dividends).

The borrowings under the Loan Agreement are

secured by substantially all of our operating assets as collateral.

breach of any of the restrictions and covenants could result in a default under our Loan Agreement, which, if not cured or waived, could

cause any outstanding indebtedness under the agreement (or under any future financing arrangements) to become immediately due and payable,

and result in the termination of commitments to extend further credit.

We may not have sufficient funds on hand to repay the loan, and

if we are forced to refinance these borrowings on less favorable terms, or are unable to refinance at all, our results of operations

and financial condition could be materially adversely affected by increased costs and rates.

our debt level significantly increases in the future, it could have significant consequences on our ongoing operations including requiring

us to dedicate a significant portion of our cash flow from operations to servicing debt rather than using it to execute our strategic

limiting our ability to obtain additional debt financing for future working capital, capital expenditures, or other worthwhile

and limiting our ability to react to changes in the market.

Related to Our Stock

common stock is currently quoted on an Over-The-Counter Market, which affects the liquidity of our common stock and may affect its stock

we have recently applied to list our common stock on the NASDAQ Capital Market, there can be no assurances that the application will

be granted and no assurances on the timing of any uplisting.

Until such time, if any, as our stock is listed on the NASDAQ Capital Market,

it will continue to be quoted on OTCQB under the trading symbol “OPXS”.

Trading in our common stock has been very limited

and we cannot make any assurances that the trading volume will increase, or, if and when it increases, that it will be sustained at any

Over-the-counter markets are generally considered to be less efficient than, and not as broad as, a stock exchange.

share price could decrease as a result of this limited liquidity or otherwise, and our share price is likely to be highly volatile.

Specifically,

stockholders may have difficulties reselling significant numbers of shares of common stock at any particular time, and may not be able

to resell their shares of common stock at or above the price paid for such shares.

As a result, stockholders may be required to hold

shares of common stock for an indefinite period of time.

In addition, sales of substantial amounts of common stock could lower the prevailing

market price of our common stock.

our ability to raise additional capital is impaired because of the less liquid nature of the over-the-counter markets.

We may not be

able to complete an equity financing on acceptable terms, or at all.

In that context, investors should consider that not having the common

stock listed on a national securities exchange makes us ineligible to use shorter and less costly filings, such as Form S-3, to register

our securities for sale.

While we may use Form S-1 to register a sale of our stock to raise capital or complete acquisitions, doing so

would cause us to incur higher transaction costs and adversely impact our ability to raise capital or complete acquisitions of other

companies in a timely manner.

In addition, if we are able to complete equity financings, the dilution from any equity financing while

our shares are quoted on an over-the-counter market could be greater than if we were to complete a financing while our common stock were

listed on a national securities exchange.

if we cease to qualify for quotation on OTCQB, our common stock may be forced to trade on the “pink sheets,” and the market

for resale of our common stock would be extremely limited.

In that case, holders of our common stock may find it more difficult to dispose

of, or to obtain accurate quotations as to the market value of, our common stock, and the market value of our common stock may decline

are subject to penny stock rules, which discourages broker-dealers from effecting transactions in our common stock.

SEC has adopted a number of rules to regulate “penny stock” that restricts transactions involving our shares of common stock.

Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Exchange Act.

These rules may have

the effect of reducing the liquidity of penny stocks.

“Penny stocks” generally are equity securities with a price of less

than $5.00 per share, subject to certain exclusions.

As long as we are not listed on a securities exchange or NASDAQ, our shares of common

stock constitute “penny stock” within the meaning of the rules.

The additional sales practice and disclosure requirements

imposed upon U.S.

broker-dealers in connection with effecting transactions in “penny stocks” may discourage such broker-dealers

from effecting transactions in shares of our common stock, which could severely limit the market liquidity of such shares and impede

their sale in the secondary market.

broker-dealer selling penny stock to anyone other than an established customer or “accredited investor” must make a

special suitability determination for the purchaser and must receive the purchaser’s written consent to the transaction prior to

sale, unless the broker-dealer or the transaction is otherwise exempt.

In addition, the penny stock regulations require the U.S.

broker-dealer

to deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared in accordance with SEC standards relating

to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt.

broker-dealer is also required to

disclose commissions payable to the U.S.

broker-dealer and the registered representative and current quotations for the securities.

broker-dealer is required to submit monthly statements disclosing recent price information with respect to the penny stock held

in a customer’s account and information with respect to the limited market in penny stocks.

addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment

to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer.

recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain

information about the customer’s financial status, tax status, investment objectives and other information.

Under interpretations

of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least

some customers.

The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock,

which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

transfers of our common stock may require broker-dealers to submit notice filings and pay fees in certain states, which may discourage

broker-dealers from effecting transactions in our common stock.

should also be aware that, according to the SEC, the market for penny stocks has suffered in recent years from patterns of fraud and

Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related to the

promoter or issuer;

(ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;

(iii) “boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales

(iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers;

and (v) the wholesale dumping of

the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, resulting in investor losses.

stock typically trades in low volumes daily which could lead to illiquidity, volatility, or depressed stock price.

stock is listed on Nasdaq, but typically trades in low daily volumes.

Because of a history of low trading volume, our stock is relatively

illiquid and its price may be volatile.

This may make it more difficult for our stockholders to resell shares when desired or at attractive

Some investors view low-volume stocks as unduly speculative and therefore not appropriate candidates for investment.

to the low volume of shares traded on any trading day, persons buying or selling in relatively small quantities may easily influence

prices of our stock.

analysts covering our stock could negatively impact the stock price.

trading market for our common stock will likely be influenced by the research and reports that industry or securities analysts may publish

about us, our business, our market or our competitors.

If any such analysts downgrade their evaluation of our stock, the price of our

stock could decline.

Furthermore, if our operating results fail to meet analysts’ expectations, our stock price would likely decline.

stock price has been and will likely continue to be extremely volatile, and, as a result, stockholders may not be able to resell shares

at or above their purchase price, and we may be more vulnerable to securities class action litigation.

our common stock was listed on Nasdaq in March 2023, our stock price, as reported by Nasdaq, has ranged from a low of $2.87 to a high

As a result, the market price and trading volume of our common stock is likely to be similarly volatile in the future, and

investors in our common stock may experience a decrease, which could be substantial, in the value of their stock, including decreases

unrelated to our results of operations or prospects, and could lose part or all of their investment.

the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has

often been brought against that company.

Because of the potential volatility of our stock price, we may become the target of securities

litigation in the future.

If we were to become involved in securities litigation, it could result in substantial costs, divert management’s

attention and resources from our business and adversely affect our business.

are a “ smaller reporting company ” as defined in SEC regulations, and the reduced disclosure requirements

applicable to smaller reporting companies may make our common stock less attractive to investors.

are a “smaller reporting company” as defined under SEC regulations and we may take advantage of certain exemptions from various

reporting requirements that are applicable to other public companies that are not smaller reporting companies including, among other

things, reduced financial disclosure requirements including being permitted to provide only two years of audited financial statements

and reduced disclosure obligations regarding executive compensation.

As a result, our stockholders may not have access to certain information

that they may deem important.

We could remain a smaller reporting company indefinitely.

As a smaller reporting company, investors may

deem our stock less attractive and, as a result, there may be less active trading of our common stock, and our stock price may be more

in current economic conditions may adversely affect our ability to continue operations.

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us to significant liability.

developments affecting the financial services industry, including events or concerns involving liquidity, defaults or non-performance

by financial institutions or transactional counterparties, could adversely affect our business, results of operations or financial condition.

involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional

counterparties or other companies in the financial services industry, or concerns or rumors about any events of these kinds or other

similar risks, have in the past and may in the future lead to market-wide liquidity problems.

For example, on March 10, 2023, Silicon

Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the Federal

Deposit Insurance Corporation (“FDIC”) as receiver;

on March 12, 2023, Signature Bank and Silvergate Capital Corp.

swept into receivership;

and on May 1, 2023, First Republic Bank failed and regulators sold substantially all of its assets to JPMorgan

The failure of First Republic Bank occurred despite a previous attempt by some of the nation’s largest banks to

shore up First Republic’s capital.

Although we assess our banking and customer relationships as we believe necessary or appropriate,

our access to funding sources and other credit arrangements in amounts adequate to finance or capitalize our current and projected future

business operations could be significantly impacted.

addition, investor concerns regarding the U.S.

or international financial systems could result in less favorable commercial financing

terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit

and liquidity sources, thereby making it more difficult for us to acquire financing on acceptable terms or at all.

Any decline in available

funding or access to our cash and liquidity resources could, among other risks, adversely impact our ability to meet our operating expenses,

financial obligations or other obligations, result in breaches of our contractual obligations or result in violations of federal or state

wage and hour laws.

Any of these impacts, or any other impacts resulting from the factors described above or other related or similar

factors not described above, could have material adverse impacts on our liquidity and our business, results of operations or financial

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 1A. Risk Factors