What changed in this filing

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Item 1A. Risk Factors

2024-12-19 compared with 2023-12-18 · 162 added, 155 removed, 314 unchanged (50% of the section changed)

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companies operate in a variety of ways.

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

and the resulting economic sanctions, have impacted the global economy, including by exacerbating inflationary and other pressures linked

to COVID-related supply chain disruptions.

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

to meet the backlog and customer demands.

If we are not able to maintain a sufficient workforce and attract and retain additional personnel

as required, we may not be able to implement our business plan and our results of operations could be materially and adversely affected.

compete with several other large defense contractors, as well as homebuilding, industrial manufacturing and warehousing industries within

the immediate area of our manufacturing facilities for both lower and higher skill level manufacturing employees.

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 levels.

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

ability to fulfill our backlog may be limited by our ability to devote sufficient financial and human capital resources and limited by

available material supplies.

Disruptions in our supply chain and transportation delays, combined with inflationary pressures and tight

labor market conditions could impede our ability to meet customer requirements.

If we do not fulfill our backlog in a timely manner,

we may experience delays in product delivery which would postpone receipt of revenue from those delayed deliveries.

Additionally, if

we are consistently unable to fulfill our backlog, this may be a disincentive to customers to award large contracts to us in the future

until they are comfortable that we can effectively manage our backlog.

In response to inflationary pressures, between January 2022 and July 2023, the U.S.

Federal Reserve incrementally 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 and the resulting economic sanctions, have impacted the global economy, including

by exacerbating inflationary and other pressures linked to COVID-related supply chain disruptions.

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

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

time, the extent and duration of these economic and political events and their effects on the economy and the Company are impossible

historical operations depend on government contracts and subcontracts.

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general political and economic conditions, which cannot be accurately predicted, may directly and indirectly affect the quantity and

allocation of expenditures by federal agencies.

Even the timing of incremental funding commitments to existing, but partially funded,

contracts can be affected by these factors.

Therefore, cutbacks or re-allocations in the federal budget could have a material adverse

impact on our results of operations.

Obtaining government contracts may also involve long purchase and payment cycles, competitive bidding,

qualification requirements, delays or changes in funding, budgetary constraints, political agendas, extensive specification development,

price negotiations and milestone requirements.

In addition, our government contracts are primarily fixed price contracts, which may prevent

us from recovering costs incurred in excess of budgeted costs.

Fixed price contracts require us to estimate the total project cost based

on preliminary projections of the project’s requirements.

The financial viability of any given project depends in large part on

our ability to estimate such costs accurately and complete the project on a timely basis.

Some of those contracts are for products that

are new to our business and are thus subject to unanticipated impacts to manufacturing costs.

Even if our estimates are reasonable at

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

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.

allocation of expenditures by federal agencies and foreign governments.

Even the timing of incremental funding commitments to existing,

but partially funded, contracts can be affected by these factors.

Therefore, cutbacks or re-allocations in the federal or foreign government

budgets could have a material adverse impact on our results of operations.

Obtaining government contracts may also involve long purchase

and payment cycles, competitive bidding, qualification requirements, delays or changes in funding, budgetary constraints, political agendas,

extensive specification development, price negotiations and milestone requirements.

In addition, our government contracts are primarily

fixed price contracts, which may prevent us from recovering costs incurred in excess of budgeted costs.

Fixed price contracts require

us to estimate the total project cost based on preliminary projections of the project’s requirements.

The financial viability of

any given project depends in large part on our ability to estimate such costs accurately and complete the project on a timely basis.

Some of those contracts are for products that are new to our business and are thus subject to unanticipated impacts to manufacturing

Even if our estimates are reasonable at the time made, prices of materials are subject to unanticipated adverse fluctuation, and

are affected by inflationary pressures.

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.

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 September 29, 2024, there was $259 thousand in accrued loss provisions for loss contracts

or cost overruns.

Approximately

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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.

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defense spending.

we fail to scale our operations appropriately in response changes in demand, we may be unable to meet competitive challenges or exploit

potential market opportunities, and our business could be materially and adversely affected.

we fail to scale our operations appropriately in response to changes in demand, we may be unable to meet competitive challenges or

exploit potential market opportunities, and our business could be materially and adversely affected.

fluctuations in customer demand place a significant strain on our management personnel, infrastructure and resources.

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and our current or future business could be materially and adversely affected.

do not have employment agreements with our key personnel, other than our Chief Executive and Financial Officers, and our management has

minimal unencumbered equity ownership in us.

If we are not able to retain our key personnel or attract additional key personnel as required,

we may not be able to implement our business plan and our results of operations could be materially and adversely affected.

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

to meet the backlog and customer demands.

If we are not able to maintain a sufficient workforce and attract and retain additional personnel

as required, we may not be able to implement our business plan and our results of operations could be materially and adversely affected.

compete with several other large defense contractors, as well as homebuilding, industrial manufacturing and warehousing industries within

the immediate area of our manufacturing facilities for both lower and higher skill level manufacturing employees.

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 levels.

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

ability to fulfill our backlog may be limited by our ability obtain material supplies and to devote sufficient financial and human capital

Disruptions in our supply chain and transportation delays, combined with inflationary pressures and tight labor market conditions

could impede our ability to meet customer requirements.

If we do not fulfill our backlog in a timely manner, we may experience delays

in product delivery which would postpone receipt of revenue from those delayed deliveries.

Additionally, if we are consistently unable

to fulfill our backlog, this may be a disincentive to customers to award large contracts to us in the future until they are comfortable

that we can effectively manage our backlog.

do not have employment agreements with our key personnel, other than our Chief Executive Officer and Chief Financial Officer, and our

management has minimal unencumbered equity ownership in us.

If we are not able to retain our key personnel or attract additional key

personnel as required, we may not be able to implement our business plan and our results of operations could be materially and adversely

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

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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.

We presently maintain “key man” insurance on the Chief Executive Officer.

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.

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

impact on our business.

expect recent supply chain disruptions driven by the pandemic and Russia’s invasion of Ukraine and the related sanctions, combined

with raw material shortages, labor shortages, transportation delays and inflationary pressures, to continue for the foreseeable future.

These conditions have strained our suppliers and extended supplier delivery lead times, affecting their ability to sustain operations.

We are experiencing market wide material shortages for paint and resin products as well as critical epoxies and chemicals used in our

expect recent supply chain disruptions driven by Russia’s invasion of Ukraine and the related sanctions, combined with raw material

shortages, labor shortages, and transportation delays, to continue for the foreseeable future.

These conditions have strained our suppliers

and extended supplier delivery lead times, affecting their ability to sustain operations.

Further, a dockworker strike on the east coast

which has been suspended until January 15, 2025, pending negotiations, could have a negative impact on our ability to obtain key manufacturing

materials such as adhesives and epoxies should the strike ensue and continue for a sustained period of time beyond our safety stock levels.

We have experienced market wide material shortages for paint and resin products as well as critical epoxies and chemicals used in our

manufacturing process.

In addition, we are seeing substantial increases in the costs of aluminum, steel and acrylic commodities.

we have experienced supplier schedule delays for other key components which are driven by supplier labor and material shortages.

cases, spotty supply and material shortages have resulted in stocking higher inventory “safety stock” levels to ensure adequate

lead time to replenish critical supplies.

In addition, we have seen substantial increases in the costs of aluminum, steel and acrylic commodities and experienced

supplier schedule delays for other key components which were driven by supplier labor and material shortages.

In several cases, spotty

supply and material shortages have resulted in stocking higher inventory “safety stock” levels to ensure adequate lead time

to replenish critical supplies.

have selectively single-sourced some of our material components in order to mitigate excess procurement costs associated with significant

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In some cases, the entire volume is given to

a single supplier and in other cases;

the volume might be split between several suppliers.

a single supplier and in other cases, the volume might be split between several suppliers.

If a contract has a single source supplier

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Contractual deliverables would then generally be re-negotiated (e.g., specifications, delivery,

As of December 1, 2023, approximately 9% of our material requirements are single-sourced across 13 suppliers representing approximately

27% of our active supplier order value.

As of September 29, 2024, approximately 7% of our material requirements were single-sourced across 10 suppliers representing

approximately 15% of our active supplier order value.

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

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In the table below, we identify those specialized single source suppliers with respect

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

Systems M36 DDAN

to which we face such a material risk and the product lines supported by those materials utilized by us as of September 29, 2024.

camera system

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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

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July 13, 2021, we experienced a ransomware attack.

While we do not expect that attack to have material adverse consequences, similar

While that attack did not have material adverse consequences, similar

attacks, if not caught and effectively addressed in a timely manner, could have a material adverse effect on our business, financial

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effect on our revenues.

the year ended October 1, 2023, the Company’s consolidated revenues were derived from U.S.

government agencies (22%), three U.S.

Company’s revenues for fiscal year ended September 29, 2024 were derived from sales to U.S.

government agencies (20%), four major

defense contractors (25%, 7%, 6% and 6%), one major commercial customer (13%) and all other customers (23%).

Approximately 95% of total

Company revenue is generated from domestic customers and 5% is derived from foreign customers, primarily Canada.

In particular, a decision

by one of our major defense contract customers, U.S.

government agencies, or major commercial customers to cease issuing contracts to

us could have a significant material impact on our business and results of operations given that they represent over 72% of our gross

business revenue.

Approximately 94% of

total Company revenue is generated from domestic customers and 6% is derived from foreign customers.

In particular, a decision by one

of our major defense contract customers, U.S.

government agencies or other major customers to cease issuing contracts to us could have

a significant material impact on our business and results of operations given that they represent over 77% of our gross business revenue.

There can be no assurance that we could replace these customers on a timely basis or at all.

have approximately 151 discrete contracts with major defense contractors and the U.S.

Government (primarily Defense Logistics Agencies

(DLA), and other prime U.S.

have approximately 150 discrete contracts with major defense contractors, the U.S.

Government (primarily Defense Logistics Agencies (DLA)),

and other prime U.S.

defense contractors.

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costs and reasonable profits incurred up to or as a result of the terminated contract.

only possess six patents and rely primarily on trade secrets to protect our intellectual property.

possess only six patents and rely primarily on trade secrets to protect our intellectual property.

utilize several highly specialized and unique processes in the manufacture of our products, for which we rely solely on trade secrets

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

is also possible that our trade secrets will otherwise become known or independently developed by our competitors, many of which have

substantially greater resources than us, and these competitors may have applied for or obtained, or may in the future apply for or obtain,

patents that will prevent, limit or interfere with our ability to make and sell some of our products.

Although based upon our general

knowledge (and we have not conducted patent searches), we believe that our products do not infringe on the patents or other proprietary

rights of third parties;

however, we cannot assure you that third parties will not assert infringement claims against us or that such

claims will not be successful.

It is also possible that our trade secrets will otherwise

become known or independently developed by our competitors, many of which have substantially greater resources than us, and these competitors

may have applied for or obtained, or may in the future apply for or obtain, patents that will prevent, limit or interfere with our ability

to make and sell some of our products.

Although based upon our general knowledge (and we have not conducted patent searches), we believe

that our products do not infringe on the patents or other proprietary rights of third parties;

however, we cannot assure you that third

parties will not assert infringement claims against us or that such claims will not be successful.

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

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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

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

from 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

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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

Cybersecurity

Risk Management and Strategy

recognize the increasing volume and sophistication of cyber threats and take our responsibility to protect the information and systems

under our purview seriously.

We consider cybersecurity threat risks alongside other Company risks as part of our overall risk assessment

Our cybersecurity processes aim to provide a comprehensive approach to assess, identify, manage, mitigate, and respond to cybersecurity

maintain a cybersecurity risk program predicated on a risk-based approach.

We use cost-effective controls that are commensurate with

the risk and sensitivity of our specific information systems, control systems and enterprise data.

Our cybersecurity program incorporates

best practices and industry standards from multiple sources and is designed to comply with applicable regulations.

The cybersecurity

program includes, but is not limited to, the following elements:

risk assessment, policies and procedures, training and awareness, auditing,

log collection and analysis, threat hunting and intelligence surveillance, compliance monitoring and testing, and incident response.

internal professionals collaborate with external subject matter specialists, as necessary.

All third parties engaged for such matters

are subjected to scrutiny to ensure they satisfy our security standards.

We periodically review our third-party engagements to ensure

that the providers maintain the necessary levels of protection and competency, as well as to oversee and identify potential cybersecurity

risks and/or threats from such engagements.

describe how risks from cybersecurity threats could materially affect us, including our business strategy, results of operations, or

financial condition, as part of our risk factor disclosures at Part I, Item 1A, “Risk Factors” of this Annual Report on Form

Cybersecurity

is an important part of our risk management processes and an area of focus for our Board and management.

Our Board is responsible for

oversight of our cybersecurity risk, including the effectiveness of cybersecurity risk management policies and protocols, while our Facilities

Security Officer (“FSO”), and IT Manager are responsible for assessing and managing cybersecurity risk.

We use a third-party

service which monitors the Company’s security threats twenty-four hours each day throughout the year.

Any detected deviation from

the expected operating parameters will initiate a communication to our IT Manager for investigation and remediation of the detected deviation

in a timely manner.

IT Manager provides timely reports on cyber security incidents to the FSO, Danny Schoening, who also serves as the CEO and as Chairman

of the board of directors.

These reports may in turn be presented to the full board depending on the severity of the incident.

event of a major incident, the Company’s Incident Response policy will be executed and the appropriate parties notified.

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