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What changed in Optex Systems Holdings Inc's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Optex Systems Holdings Inc's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+280 added−277 removedSource: 10-K (2024-12-19) vs 10-K (2022-12-19)

Top changes in Optex Systems Holdings Inc's 2024 10-K

280 paragraphs added · 277 removed · 188 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

72 edited+19 added−20 removed53 unchanged
Biggest changeWe are currently in compliance with all applicable regulations and do not have any pending claims as a result of noncompliance. 9 The terms of our material contracts as of November 30, 2022, are as follows: Customer Customer PO/Contract Contract Type Total Award Value (millions) Remaining Value (millions) Delivery Period US Prime Contractor (1) Sighting Systems Subcontract PO 35515590 FFPQ $ 3.5 $ 1.0 Oct 2017- Mar 2025 DLA Land and Maritime (2) Periscopes Prime SPE7LX-18-D-0108 IDIQ $ 1.6 $ 0.6 Feb 2020 - Apr 2023 DLA Land and Maritime (3) Periscopes Prime SPE7LX-19-D-0089 IDIQ $ 0.2 $ 0.3 Feb 2021 - Jan 2023 DLA Land and Maritime (4) Periscopes Prime SPE7LX-20-D-0020 IDIQ $ 0.8 $ 0.2 Dec 2021 - July 2023 DLA Land and Maritime (5) Glass Periscopes Prime/Shared SPE7MX-20-D-0012 IDIQ $ - $ - No task awards as of current date DLA Land and Maritime (6) Periscopes Prime SPE7MX-20-D-0028 IDIQ $ - $ - No task awards as of current date DLA Land and Maritime (7) Periscopes Prime SPE7MX-20-D-0032 IDIQ $ - $ - No task awards as of current date U.S.
Biggest changeWe are currently in compliance with all applicable regulations and do not have any pending claims as a result of noncompliance. 8 The terms of our significant contracts with a total award value of more than $1.0 million as of December 9, 2024, are as follows: ( $ in millions) Location Customer Contract/PO Product Type Award Backlog Delivery Period OPX U.S.
First 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.
First Article Acceptance and Testing 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.
On June 18, 2019 we were issued U.S. Patent No. 10,324,298 titled “Offset Image Wedge with Dual Capability and Alignment Technique”. The invention relates to an offset image wedge for use on a bore-sighted rifle mounted directly onto the scope via a clamp mounting device.
Patent No. 10,324,298, issued on June 18, 2019. On June 18, 2019 we were issued U.S. Patent No. 10,324,298 titled “Offset Image Wedge with Dual Capability and Alignment Technique”. The invention relates to an offset image wedge for use on a bore-sighted rifle mounted directly onto the scope via a clamp mounting device.
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. 7 We are responsible for full compliance with the Federal Acquisition Regulation (FAR). Upon award, the contract may identify certain regulations that we need to meet.
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. We are responsible for full compliance with the Federal Acquisition Regulation (FAR). Upon award, the contract may identify certain regulations that we need to meet.
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. Globally, commercial optical products use thin film coatings to create product differentiation.
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 also creates a new sector of opportunity for commercial products for us. Globally, commercial optical products use thin film coatings to create product differentiation.
In May 2012, we purchased a perpetual, non-exclusive license, with a single up-front license fee of $200,000 to use Patent 7,880,792 “Optical and Infrared Periscope with Display Monitor” (issued in 2011 and owned by Synergy International Optronics, LLC).
Licenses In May 2012, we purchased a perpetual, non-exclusive license, with a single up-front license fee of $200,000 to use Patent 7,880,792 “Optical and Infrared Periscope with Display Monitor” (issued in 2011 and owned by Synergy International Optronics, LLC).
This invention improves previously accepted levels of periscope performance that, in turn, improve soldier’s safety. In December 2013, Optex Systems, Inc. was issued U.S.
This invention improves previously accepted levels of periscope performance that, in turn, improve soldier’s safety. 16 In December 2013, Optex Systems, Inc. was issued U.S.
We are currently unaware of any pending terminations on our existing contracts. In some cases, contract awards may be issued that are subject to renegotiation at a date (up to 180 days) subsequent to the initial award date. Generally, these subsequent negotiations have had an immaterial impact (zero to 5%) on the contract price of the affected contracts.
We are currently unaware of any pending terminations on our existing contracts. In some cases, contract awards may be issued that are subject to renegotiation at a date (up to 180 days) subsequent to the initial award date. Generally, these subsequent negotiations have had an immaterial impact (0% to 5%) on the contract price of the affected contracts.
Approximately 78% of our contracts contain termination clauses for convenience. 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 a reasonable fee up through and as a result of the contract termination.
Approximately 96% of our contracts contain termination clauses for convenience. 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 a reasonable fee up through and as a result of the contract termination.
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.
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.
The information on the Company’s website is not incorporated by reference in this Annual Report on Form 10-K. 18
The information on the Company’s website is not incorporated by reference in this Annual Report on Form 10-K.
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.
Our more complex thin laser filter coatings, Howitzer and thermal day/night programs are more significantly impacted by volume changes as they require a highly specialized workforce and ramp time is longer as the training is more complex.
The purchase order was awarded on July 30, 2020 for $2 million and amended to $2.3 million on September 14, 2020 and includes non-recurring engineering, first article testing and production deliveries. Contract has been delayed pending receipt of customer furnished material and is pending changes to the contract delivery schedule. (9) Contract awarded on January 6, 2021.
The purchase order was awarded on July 30, 2020 for $2 million and amended to $2.3 million on September 14, 2020 and includes non-recurring engineering, first article testing and production deliveries. Contract has been delayed pending receipt of customer furnished material and is pending changes to the contract delivery schedule. (4) Prime contract awarded on January 6, 2021.
The approval process for the license can vary from several weeks to six months or more. The licenses we currently use are the Department of State licenses: DSP-5 (permanent export), DSP-6 (license revisions) and DSP-73 (temporary export) and Department of Commerce: BIS-711 (export). The aforementioned licenses are valid for 48 months from date that each license is issued.
The approval process for the license can vary from several weeks to six months or more. The licenses we currently use are the Department of State licenses: DSP-5 (permanent export), DSP-6 (license revisions) and DSP-73 (temporary export) and Department of Commerce: BIS-711 (export). 7 The above licenses are valid for 48 months from date that each license is issued.
Sources and Availability of Raw Materials Disclosure responsive to this item is incorporated herein by reference to “ Risk Factors – Risks Related to Our Business – Certain of our products are dependent on specialized sources of supply potentially subject to disruption which could have a material, adverse impact on our business.” Intellectual Property We utilize several highly specialized and unique processes in the manufacture of our products.
Sources and Availability of Raw Materials Disclosure responsive to this item is incorporated herein by reference to “ Risk Factors – Risks Related to Our Business – Certain of our products are dependent on specialized sources of supply potentially subject to disruption which could have a material, adverse impact on our business.” Intellectual Property Trade Secrets and Know-How We utilize several highly specialized and unique processes in the manufacture of our products.
Marketing Plan We believe we are well positioned to service both U.S. and foreign military needs by our focus on delivering products that satisfy the following factors important to the U.S. military : ● 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.
Marketing Plan We believe we are well positioned to service both U.S. and foreign military needs by our focus on delivering products that satisfy the following factors important to the U.S. military : ● 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. 13 Potential Entrants — Low Risk to us.
Digital Day and Night technology has advanced the capabilities of these installed weapon systems and is the first in a series of patents we have applied for to protect our Intellectual Property portfolio in support of the warfighters who use these systems.
DDAN technology has advanced the capabilities of these installed weapon systems and is the first in a series of patents we have applied for to protect our Intellectual Property portfolio in support of the warfighters who use these systems.
Patent No. 2021/0341746A1 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. Patent No. 10,324,298 and claims priority to U.S. Patent No. 10,324,298, issued on June 18, 2019.
Patent No. 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. Patent No. 10,324,298 and claims priority to U.S. Patent No. 10,324,298, issued on June 18, 2019.
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.
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. Patents We possess three utility patents and three design patents.
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 valued up to $3.6 million.
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.
This licensing of this patent allows us to develop additional products for this vehicle type, including the M17 Day/Thermal and M17 Day/Night periscopes. We are actively marketing the new periscopes internationally and completed our first international shipment utilizing this technology in March 2014.
This licensing of this patent allows us to develop additional products for this vehicle type, including the M17 Day/Thermal and M17 Day/Night periscopes. We are actively marketing the new periscopes internationally and completed our first international shipment utilizing this technology in March 2014. We continue to prototype these products and demonstrate them to potential customers.
We possess three utility patents and two design patents. 16 Our competitors, many of which have substantially greater resources, may have applied for or obtained, or may in the future apply for and obtain, patents that will prevent, limit or interfere with our ability to make and sell some of our products.
Our competitors, many of which have substantially greater resources, may have applied for or obtained, or may in the future apply for and obtain, patents that will prevent, limit or interfere with our ability to make and sell some of our products.
Prime Contractor – Laser Filter Units DLA Optical Elements Operations Plan Our operations plan can be broken down into three distinct areas: material management, manufacturing space planning and efficiencies associated with economies of scale. Materials Management The largest portion of our costs is materials.
Prime Contractor – Laser Filter Units GDLS - Periscopes, Collimators BAE - Periscopes L3 - Laser Interface Filters DLA - Optical Elements 14 Operations Plan Our operations plan can be broken down into three distinct areas: material management, manufacturing space planning and efficiencies associated with economies of scale. Materials Management The largest portion of our costs is materials.
As our volume increases, our support labor, material and scrap costs decline as a percentage of revenue as we are able to obtain better material pricing, and scrap, start up and support labor (fixed) costs and they are spread across a higher volume base.
As our volume increases, our support labor, material and scrap costs decline as a percentage of revenue as we are able to obtain better material pricing, and scrap, start up and support labor (fixed) costs and they are spread across a higher volume base. Conversely, as production volumes decline, our labor and material costs per unit of production generally increase.
We are also subject to laws, regulations and executive orders restricting the use and dissemination of information deemed classified for national security purposes and the exportation of certain products and technical data as covered by the International Traffic in Arms Regulation (ITAR). In order to import or export items listed on the U.S.
We are also subject to laws, regulations and executive orders restricting the use and dissemination of information deemed classified for national security purposes and the exportation of certain products and technical data as covered by the International Traffic in Arms Regulation (ITAR).
Initial activities in this area have been the successful six sigma projects in several production areas which have led to improved output and customer approval on the aesthetics of the work environment.
Our activities in this area have included the use of six sigma projects in several production areas which has led to improved output and customer approval on the aesthetics of the work environment.
Potential Entrants — Low Risk to us. In order to enter this market, potential competitors must overcome several barriers to entry. The first hurdle is that an entrant would need to prove to the government agency in question the existence of a government approved accounting system for larger contracts.
In order to enter this market, potential competitors must overcome several barriers to entry. The first hurdle is that an entrant would need to prove to the government agency in question the existence of a government approved accounting system for larger contracts. Second, the entrant would need to develop the processes required to produce the product.
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 valued up to $9.2 million.
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.
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).
Army, Navy and Marine Corps), as defense subcontractor (General Dynamics, L-3 Communications, Elbit Systems, BAE, Sig Sauer, Enterprise Cabling and Vortex Optics), as a military supplier to foreign governments (Israel, Australia, South America and Canada) and as a commercial optical assembly supplier (Nightforce Optics, Gables Engineering).
Currently, none of our awarded contracts are subject to renegotiation. We are subject to, and must comply with, various governmental regulations that impact, among other things, our revenue, operating costs, profit margins and the internal organization and operation of our business. The material regulations affecting our U.S. government business are summarized in the table below.
Currently, none of our awarded contracts are subject to renegotiation. We are subject to, and must comply with, various laws and governmental regulations that impact, among other things, our revenue, operating costs, profit margins and the internal organization and operation of our business.
We cannot assure you that we will be able to compete successfully in the future. Employees and Human Capital We had 84 full time equivalent employees as of October 2, 2022 and 88 employees as of December 1, 2022, which include a small temporary work force to handle peak loads as needed.
We cannot assure you that we will be able to compete successfully in the future. 17 Employees and Human Capital We had 128 full time equivalent employees as of September 29, 2024, which include a small temporary work force to handle peak loads as needed.
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.
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 specialized and can be ramped quickly as headcounts shift.
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. Successful results can then be replicated across the production floor and drive operational improvements.
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.
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 15 Future continuous improvement opportunities include installation and training of shop floor control module within the ERP system and organizational efficiencies of common procurement techniques among buyers.
Our continuous improvements to effectively manage material costs include the following activities: - 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 - Supplier management and notification tools for on time delivery and quality tracking Future continuous improvement opportunities include the full implementation and training of the shop floor control module within our ERP system.
Although we believe that our products do not infringe on the patents or other proprietary rights of third parties, we cannot assure you that third parties will not assert infringement claims against us or that such claims will not be successful. The following patents generally expire 20 years after issuance.
Although we believe that our products do not infringe on the patents or other proprietary rights of third parties, we cannot assure you that third parties will not assert infringement claims against us or that such claims will not be successful. Competition The markets for our products are competitive.
Department of Defense based on the FY2023 budget request. Source: Government Publishing Office, U.S. Budget Historical Tables, FY 2023, Table 3.2 Outlays by function and sub function, 1962-2027. The table below depicts the U.S. Department of Defense budget request for fiscal year 2023 for major ground system programs.
Budget Historical Tables, FY 2025, Table 3.2 Outlays by function and sub function, 1962-2029. The table below depicts the U.S. Department of Defense (“DoD”) budget request for fiscal year 2025 for major ground system programs.
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. 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.
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.
Economies of Scale Plant efficiencies fluctuate as a function of program longevity, complexity and overall production volume. Our internal processes are primarily direct labor intensive and can be more easily adapted to meet fluctuations in customer demand; however, our material purchases, subcontracted operations and manufacturing support costs are extremely sensitive to changes in volume.
Our internal processes are primarily direct labor intensive and can be more easily adapted to meet fluctuations in customer demand; however, our material purchases, subcontracted operations and manufacturing support costs are extremely sensitive to changes in volume.
Munitions List, we are required to be registered with the Directorate of Defense Trade Controls office. The registration is valid for one year, and the registration fees are established based on the number of license applications submitted the previous year. We currently have an approved and current registration on file with the Directorate of Defense Trade Controls office.
In order to import or export items listed on the United States Munitions List, we are required to be registered with the Directorate of Defense Trade Controls office. The registration is valid for one year, and the registration fees are established based on the number of license applications submitted the previous year.
During the twelve months ended October 2, 2022, we derived approximately 80% of our gross business revenue from five major customers: U.S. 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.
During the twelve months ended September 29, 2024, we derived approximately 77% of our gross business revenue from six major customers: U.S. government agencies (20%), four U.S. defense contractors (25%, 7%, 6% and 6%) and one major commercial customer (13%). We have approximately 150 discrete contracts for items that are utilized in vehicles, optical product lines and as spare parts.
Those suppliers of products that use top secret clearance processes have a slight advantage; however, there continues to be multiple avenues of supply and therefore only moderate power.
The suppliers of standard processes (e.g., casting, machining and plating) need to be very competitive to gain and/or maintain contracts. Those suppliers of products that use top secret clearance processes have a slight advantage; however, there continues to be multiple avenues of supply and therefore only moderate power.
These cost reductions can then be either passed through directly to the bottom line or used for business investment. Our manufacturing process is driven by the use of six sigma techniques and process standardization.
Consistent with the space planning, we will drive economies of scale to reduce support costs on a percentage of sales basis. These cost reductions can then be either passed through directly to the bottom line or used for business investment. Our manufacturing process is driven by the use of six sigma techniques and process standardization.
The Abrams is the principal battle tank of the United States Army and Marine Corps, and the armies of Egypt, Kuwait, Saudi Arabia, Iraq, and since 2007, Australia. On average, there has been a new improvement package every seven years. The Army is currently upgrading the Abrams with a System Enhancement Package Version 3 (SEPv3), with additional upgrades in development.
Since it was first fielded in 1980, the Abrams tank has undergone near-continuous upgrades and improvements and is the principal battle tank of the United States Army and Marine Corps, and the armies of Egypt, Kuwait, Saudi Arabia, Iraq and Australia. On average, there has been a new improvement package every seven years.
There are a limited number of competitors in each of the markets for the various types of products that we design, manufacture and sell. At this time, we consider our primary competitors for the Optex, Richardson site to be Kent Periscopes and Synergy International Optronics, LLC.
Product pricing, quality, customer support, experience, reputation and financial stability are also important competitive factors. There are a limited number of competitors in each of the markets for the various types of products that we design, manufacture and sell. At this time, we consider our primary competitors for the Optex Systems Richardson site to be Gus Periscopes.
Regulation Summary Federal Acquisition Regulation (FAR) 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.
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.
We are also exploring possibilities to adapt some of our products for commercial use in those markets that demonstrate potential for solid revenue growth, both domestically and internationally. Market Opportunity — Commercial Our products are currently sold to military and related government markets. We believe there may be opportunities to commercialize various products we presently manufacture to address other markets.
If we successfully execute this contract, we would expect another contract award of similar size and duration. We are also exploring possibilities to adapt some of our products for commercial use in those markets that demonstrate potential for solid revenue growth, both domestically and internationally. Market Opportunity — Commercial Our products are currently sold to military and related government markets.
Prime Contractor - XM10 Aiming Circle Commercial Optical Lens Commercial: Optical Lens, Spotting Scopes, Monocular Lens Existing Products USACC Periscopes, Back Up Sights, Marines Sighting Systems Binoculars, Vision Blocks, Laser Filter Units Commercial: Optical Lens, Spotting GDLS Periscopes, Collimators Scopes, Monocular Lens BAE Periscopes L3 - Laser Interface Filters U.S.
Prime Contractor - XM10 Aiming Circle Commercial - Optical Lens Reticles Commercial - Optical Lens, Spotting Scopes, Monocular Lens, Chronographs, Optical Wedges Existing Products US Army Central Command - Periscopes, Back Up Sights, Commercial - Optical Lens, Spotting Scopes Monocular Lens Binoculars, Vision Blocks, Laser Filter Units U.S.
A summary of our active ITAR licenses is presented below (updated as of November 30, 2022): Fiscal Year Number of Total Contract Value of Active ITAR Licenses of Expiration Licenses Licenses DSP-5 Issued 2019 2023 4 20,934,845 Issued 2020 2024 3 51,365 Issued 2021 2025 3 232,630 Issued 2022 2026 4 321,722 Total DSP-5 Licenses 14 $ 21,540,562 DSP-6 (no active licenses) N/A — $ — DSP-73 Issued in 2019 2023 1 $ 4,000 Total DSP-73 Licenses 1 $ 4,000 BIS-711 Issued in 2019 2023 4 3,416 Issued in 2020 2024 5 92,554 Issued in 2021 2025 4 323,911 Issued in 2022 2026 1 9,372 Total BIS-711 Licenses 14 $ 429,253 Total All Licenses 29 $ 21,973,815 8 These licenses are subject to termination if a licensee is found to be in violation of the Arms Export Control Act or the ITAR requirements.
A summary of our active ITAR licenses is presented below (updated as of November 15, 2024): Fiscal Year Number of Total Contract Value of Active ITAR Licenses of Expiration Licenses Licenses DSP-5 Issued 2021 2025 3 $ 232,630 Issued 2022 2026 4 321,722 Issued 2023 (none issued) N/A — — Issues 2024 2028 3 125,577 Total DSP-5 Licenses 10 $ 679,929 DSP-6 (no active licenses) N/A — $ — DSP-73 (no active licenses) N/A — — BIS-711 Issued 2020 (expires December 31, 2024) 2024 2 15,016 Issued 2021 2025 4 323,911 Issued 2022 2026 1 9,372 Issued 2023 2027 10 1,359,344 Issued 2024 2028 7 1,270,327 Total BIS-711 Licenses 24 $ 2,977,970 Total All Licenses 34 $ 3,657,899 These licenses are subject to termination if a licensee is found to be in violation of the Arms Export Control Act or the ITAR requirements.
We were successful with the Israeli Ministry of Defense (IMOD) in refurbishing a small quantity of their Night Vision Rifle Scopes. Given 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.
We were successful with the Israeli Ministry of Defense (“IMOD”) in refurbishing a small quantity of their Night Vision Rifle Scopes. Given this success, in November 2022, the IMOD awarded us a $3.4 million follow on contract to continue this activity through 2026. We began deliveries against the contract during the first quarter of fiscal year 2024.
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.
The last five 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.
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. These large fixed mount binoculars could be sold to cruise ships, personal yachts and cities/municipalities.
We believe there may be opportunities to commercialize various products we presently manufacture to address other markets. Our initial focus will be directed in four 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.
The contract includes option years to extend the period of performance through 2035 if awarded. The current contract option extends the in-service support through March 2025 for their existing fleet of Light Armored Vehicles. 10 (2) Contract awarded September 5, 2018.
The current contract option extends the in-service support through March 2027 for their existing fleet of Light Armored Vehicles. (2) Prime contract awarded March 4, 2019.
The chart below was derived from public government spending sources and depicts total U.S. military spending from 2018 through 2022 and estimated spending through 2027. The purpose of including this chart is to provide the reader with historical trend data and projected U.S. military defense and procurement spending over time.
The purpose of including this chart is to provide the reader with historical trend data and projected U.S. military defense and procurement spending over time. However, the Company cannot provide any assurances that the historical trend data is predictive of future spending.
Second, the entrant would need to develop the processes required to produce the product. Third, the entrant would then need to produce the product and submit successful test requirements (many of which require lengthy government consultation for completion).
Third, the entrant would then need to produce the product and submit successful test requirements (many of which require lengthy government consultation for completion). Finally, in many cases, the customer has an immediate need and therefore cannot wait for this qualification cycle and therefore must issue the contracts to existing suppliers.
For fiscal year 2023, the total projected military spending is estimated at $767.6 billion, an overall increase of 3.6% over estimated 2022 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.
For fiscal year 2025, the Government Publishing Office (GPO) projects total military spending at $878.5 billion, an overall increase of 2.2% over estimated 2024 spending. The chart below also depicts the GPO’s projection of increased spending through 2029 of 6.4% from the 2025 plan level, reflecting an average increase of 1.6% per year for years 2026 through 2029.
Manufacturing Space Planning We currently lease 93,967 square feet of manufacturing space (see “Properties”). Our current facilities are sufficient to meet our immediate production needs without excess capacity. As our processes are primarily labor driven, we are able to easily adapt to changes in customer demand by adjusting headcounts, overtime schedules and shifts in line with production needs.
We have begun testing and implementation within selected process. Manufacturing Space Planning We currently lease 93,967 square feet of manufacturing space (see “Properties”). Our current facilities are sufficient to meet our immediate production needs without excess capacity.
($ in Millions) FY2019 FY2020 FY2021 FY2022 FY2023B Joint Light Tactical Vehicle $ 1,901.8 $ 1,716.5 $ 1,408.3 $ 1,048.5 $ 1,058.8 ARMY Abrams Tank Modification/Upgrade 2,646.0 2,186.0 1,404.2 1,261.2 717.6 Armored Multi-Purpose Vehicle 787.8 525.2 132.1 118.9 380.7 Paladin Integrated Management 561.6 744.5 681.4 838.0 629.7 Family of Medium Tactical Vehicles 127.2 141.4 211.2 77.2 97.4 Family Of Heavy Tactical Vehicles 324.1 50.8 28.8 201.7 147.0 Next Generation Squad Weapon - 86.2 125.3 176.4 287.8 Ground Mobility Vehicle 44.0 - - - - Stryker 661.5 953.2 1,186.3 1,113.8 742.4 USMC Amphibious Combat Vehicle 230.8 349.3 478.1 594.4 531.2 Total Ground Systems Vehicles (millions) $ 7,284.8 $ 6,753.1 $ 5,655.7 $ 5,430.1 $ 4,592.6 Source: 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. 12 The 2023 Department of Defense Budget indicates an overall decrease in ground system vehicle program spending in the fiscal year 2022 and the 2023 appropriation budget years.
($ in Millions) FY2021 FY2022 FY2023 FY2024 FY2025 Joint Light Tactical Vehicle $ 1,408.3 $ 1,046.6 $ 1,429.7 $ 1,191.8 $ 1,179.5 ARMY Abrams Tank Modification/Upgrade 1,404.2 1,264.3 1,297.7 896.5 1,020.2 Armored Multi-Purpose Vehicle 132.1 984.6 1,237.0 567.1 527.7 Paladin Integrated Management 681.4 662.9 1,026.8 511.6 460.2 Family of Medium Tactical Vehicles 211.2 144.4 233.9 142.9 153.5 Family Of Heavy Tactical Vehicles 28.8 214.0 326.3 110.6 148.9 Next Generation Squad Weapon 125.3 127.6 199.6 328.1 389.4 XM30 Combat Vehicle - 194.9 519.1 996.7 504.8 M10 Booker (Mobile Protected Firepower) - - 410.5 496.8 508.7 Stryker 1,186.3 1,112.7 1,275.0 639.1 469.4 USMC Amphibious Combat Vehicle 478.1 591.9 605.4 660.8 870.5 Total Ground Systems Vehicles (millions) $ 5,655.7 $ 6,343.9 $ 8,561.0 $ 6,542.0 $ 6,232.8 Source: Office of the Under Secretary of Defense (Comptroller)/Chief Financial Officer, “Program Acquisition Cost by Weapon System, United States Department of Defense, Fiscal Year 2025 Budget Request”, March 2024 and “Program Acquisition Cost by Weapon System, United States Department of Defense, Fiscal Year 2024 Budget Request”, April 2023 and “Program Acquisition Cost by Weapon System, United States Department of Defense, Fiscal Year 2023 Budget Request”, May 2022. 11 The 2025 Department of Defense Budget indicates an overall decrease in ground system vehicle program spending in the fiscal year 2024 and 2025 appropriation budget years from fiscal year 2023.
Once the registration is approved, each import/export license must be filed separately.
We currently have an approved and current registration on file with the Directorate of Defense Trade Controls office. Once the registration is approved, each import/export license must be filed separately.
The first M-1 Abrams Tank entered service with the Army in 1980; the M-2/M-3 Bradley Fighting Vehicle in 1981; and the Stryker Combat Vehicle in 2001. Under current Army modernization plans, the Army envisions all three vehicles in service with Active and National Guard forces beyond FY2028.
We have both new vehicle contracts and replacement part contracts for the same product. Three combat vehicles have a long history of service in the U.S. Army. The first M-1 Abrams Tank entered service with the Army in 1980; the M-2/M-3 Bradley Fighting Vehicle in 1981; and the Stryker Combat Vehicle in 2001.
Existing Customers New Customers New Products Chile M17 Day/Thermal USACC Binoculars Brazil M17 Day/Thermal GDLS DDAN, OWSS Israel M17 Day/Thermal, OWSS U.S.
Existing Customers New Customers New Products US Army Central Command - Binoculars GDLS - DDAN, OWSS Israel - GOI MOD/Aquila U.S.
In the case of larger contracts, the customer can request an open book policy on costs and expects a reasonable margin to have been applied. Substitutes — Low Risk to us. We have both new vehicle contracts and replacement part contracts for the same product. Three combat vehicles have a long history of service in the U.S. Army.
It is in their best interest to keep at least two, and therefore, in some cases, the contracts are split between suppliers. In the case of larger contracts, the customer can request an open book policy on costs and expects a reasonable margin to have been applied. Substitutes — Low Risk to us.
Our customers include military and government end users as well as prime contractors that purchase component parts or subassemblies, which they incorporate into their end products. Product pricing, quality, customer support, experience, reputation and financial stability are also important competitive factors.
We compete primarily on the basis of our ability to design and engineer products to meet performance specifications set by our customers. Our customers include military and government end users as well as prime contractors that purchase component parts or subassemblies, which they incorporate into their end products.
Finally, in many cases, the customer has an immediate need and therefore cannot wait for this qualification cycle and therefore must issue the contracts to existing suppliers. Given the expense of development and qualification testing, the barrier to entry is high for new competitors. Buyers — Medium Risk to us.
Given the expense and time commitment of development and qualification testing, the barrier to entry is high for new competitors. Buyers — Medium Risk to us. In most cases the buyers (usually government agencies or defense contractors) have two fairly strong suppliers.
As of October 3, 2021, there have been no task orders released against the base contract award. (8) Purchase Order by a U.S. prime contractor in support of government contract W15QKN-16-D-0055 for Aiming Circle optical subassemblies.
On February 27, 2023, the customer exercised the second of two option years extending the ordering period of the contract through March 3, 2024. (3) Subcontract purchase order by a U.S. prime contractor in support of government contract W15QKN-16-D-0055 for Aiming Circle optical subassemblies.
Support to domestic customers for these type products has driven significant increases in Applied Optics Segment sales during the last five years. 13 Customer Base We serve customers in four primary categories: as prime defense contractor (Defense Logistics Agency (DLA) Land and Maritime, DLA Warren, DLA Aviation, U.S.
Each product is engineered and built in Richardson, Texas. 12 Customer Base We serve customers in four primary categories: as prime defense contractor (Defense Logistics Agency (“DLA”) Land and Maritime, DLA Warren, DLA Aviation, U.S.
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 2022.
For military procurement spending, a subset of total military spending, the GPO projects an overall increase of $18.6 billion, or 12.6%, in fiscal year 2025 as compared to the estimated spending in fiscal year 2024. The National Defense Authorization Act (“NDAA”) for Fiscal Year 2025 current request of $895 billion has not yet been enacted by Congress in 2024.
(19) Purchase Orders awarded October 27, 2022 to repair and refurbish night vision equipment for the Government of Israel which includes an option for an additional quantity up to 100%. The Contract is pending a firm delivery schedule pending receipt of customer furnished material and evaluation.
On October 7, 2024, option two was exercised by DLA, extending the ordering period from January 6, 2025 through January 5, 2026. 9 (5) Foreign Military Sales purchase orders awarded October 27, 2022 to repair and refurbish night vision equipment for the Government of Israel which includes an option for an additional quantity up to 100%.
In the event additional floor space is required to accommodate new contracts, Optex has the option to lease adjacent floor space at the current negotiated lease cost per square foot. Consistent with the space planning, we will drive economies of scale to reduce support costs on a percentage of sales basis.
As our processes are primarily labor driven, we are able to easily adapt to changes in customer demand by adjusting headcounts, overtime schedules and shifts in line with production needs. In the event additional floor space is required to accommodate new contracts, Optex has the option to lease adjacent floor space at the current negotiated lease cost per square foot.
(10) Purchase Order awarded August 3, 2021 by a U.S. prime contractor in support of U.S. government contracts. Award includes first article inspection in August 2021 and production deliveries commencing in September 2021 through October 2023. (11) Purchase Orders awarded September 24, 2021 by a U.S. prime contractor in support of U.S. government contracts.
(7) Subcontract purchase order awarded on November 10, 2023 by a U.S. prime contractor in support of U.S. government contracts. (8) Subcontract purchase order awarded on November 6, 2023 by a U.S. prime contractor in support of U.S. government contracts. (9) Subcontract purchase order awarded on April 24, 2024 by a U.S. prime contractor in support of U.S. government contracts.
(17) Purchase Orders awarded August 29, 2021 and modified with a significant quantity increase on September 28, 2022 by a U.S. prime contractor in support of U.S. government contracts. (18) Purchase Orders awarded September 16, 2022 by a U.S. prime contractor in support of U.S. government contracts.
(10) Subcontract purchase order awarded on September 20, 2024 by a U.S. prime contractor in support of U.S. government contracts. (11) Subcontract purchase order originally awarded August 29, 2021 with multiple revisions and additions through November 15, 2024. (12) Prime contract awarded on November 2, 2022 for spare Light Interference Filters associated with various Night Vision Goggle systems.
Prime Contractor (8) XM10 Aiming Circles Subcontract PO 63659 FFPQ $ 2.3 $ 2.3 Pending Revision (2023-2024) DLA Land and Maritime (9) Prime IDIQ $ 2.2 $ 0.9 Sept 2021 - Jan 2023 Periscopes SPE7LX-21-D-0057 U.S.
Prime Contractor (3) PO 63659 XM10 Aiming Circles FFPQ 2.3 2.3 Estimated 2026 OPX DLA Land and Maritime (4) SPE7LX21D0057 Periscopes IDIQ 7.4 2.5 Dec 2024 - Jun 2025 OPX Government of Israel MOD (5) PO 40385578 Refurbish Night Vision Equipment FFPQ 3.1 2.3 2025 - 2026 OPX DLA Land and Maritime (6) SPE7LX23D0092 Periscopes IDIQ 2.0 1.1 Dec 2024 - Oct 2025 OPX U.S.
(20) Contract awarded on November 2, 2022 for spare Light Interference Filters associated with various Night Vision Goggle systems. This is a five year Indefinite Delivery Indefinite Quantity (IDIQ) Contract with firm fixed pricing for the duration of the contract.
This is a five-year Indefinite Delivery Indefinite Quantity (IDIQ) Contract with firm fixed pricing for the duration of the contract. The award has a maximum order value of $7.5 million. (13) Subcontract purchase order awarded on October 16, 2023 by a U.S. prime contractor in support of U.S. government contracts.
Removed
Prime Contractor (10) Laser Filter Units (AOC) Subcontract PO 631537 FFPQ $ 8.4 $ 5.0 Aug 2021 - Mar 2024 US Prime Contractor (11) Periscopes Subcontract PO 40389248,40389250 FFPQ $ 1.7 $ 0.5 Feb 2022 - Jan 2024 Commercial Customer (12) Optical Assemblies (AOC) Subcontract PO 27044 FFPQ $ 2.1 $ 1.9 Jul 2022 - Dec 2022 Commercial Customer (13) Optical Assemblies (AOC) Subcontract PO 27377 FFPQ $ 1.1 $ 1.0 Aug 2022 - Jan 2023 US Prime Contractor (14) Laser Filter Unit (AOC) Subcontract PO 52960 FFPQ $ 1.0 $ 1.0 Nov 2022 - Dec 2023 Commercial Customer (15) Optical Assemblies (AOC) Subcontract PO 28012 FFPQ $ 2.2 $ 2.2 Apr 2023 - Dec 2023 Commercial Customer (16) Optical Assemblies (AOC) Subcontract PO 28043 FFPQ $ 1.1 $ 1.1 Jun 2023 - Dec 2023 US Prime Contractor (17) Day Windows (AOC) Subcontract PO 40385578 IDIQ $ 1.9 $ 1.9 Dec 2022 - Jul 2025 US Prime Contractor (18) Periscopes Subcontract PO 319216 FFPQ $ 0.7 $ 0.7 Jun 2023 - Aug 2024 Government of Israel MOD (19) Refurbish Night Vision Equip Foreign Military Sales PO 4441236828 FFPQ $ 3.4 $ 3.4 Pending Revision (2023-2024) DLA Land at Aberdeen (20) Light Interference Filters (AOC) Prime SPRBL1-23-D-0001 IDIQ $ 0.1 $ 0.1 May 2023 (1) The original three-year contract was awarded on September 11, 2017 to provide LAV 6.0 optimized weapon system support for Optex’s Commander Sighting System.
Added
The material laws and regulations affecting our U.S. government business are summarized in the table below. 6 Law/Regulation Summary Federal Acquisition Regulation (FAR) The principal set of rules is the Federal Acquisition Regulation System.
Removed
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. On June 23, 2022 the customer exercised the option for the final option year 2.
Added
Prime Contractor (1) PO 35515590 Sighting Systems FFPQ $ 4.6 $ 1.3 Dec 2024 - Mar 2027 OPX DLA Land and Maritime (2) SPE7LX19D0089 Periscopes IDIQ 1.7 0.7 Dec 2024 - Nov 2025 OPX U.S.
Removed
The ordering period for option year 2 expires on September 10, 2023. (3) Contract awarded March 4, 2019. 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.
Added
Prime Contractor (7) PO 40431189 Periscopes FFPQ 1.9 1.3 Dec 2024 - Nov 2025 OPX U.S. Prime Contractor (8) PO 40431702 Collimators FFPQ 1.3 1.3 Jul 2025 - Mar 2027 OPX U.S. Prime Contractor (9) PO 363920 Periscopes FFPQ 3.7 3.6 Dec 2024 - Mar 2026 OPX U.S.
Removed
On March 2, 2022, the customer exercised the first of two option years extending the ordering period of the contract through March 3, 2023. (4) Contract awarded on November 12, 2019.
Added
Prime Contractor (10) PO 1402471 Periscopes FFPQ 1.2 1.2 Mar 2025 AOC U.S. Prime Contractor (11) PO 40385578 Day Windows IDIQ 2.9 1.0 Dec 2024 - Nov 2025 AOC DLA Land at Aberdeen (12) SPRBL123D0001 Light Interference Filters IDIQ 4.2 2.2 Dec 2024 - Dec 2025 AOC U.S.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeObtaining 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.
Biggest changeTherefore, 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.
If 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. Significant fluctuations in customer demand place a significant strain on our management personnel, infrastructure and resources.
If 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. Significant fluctuations in customer demand place a significant strain on our management personnel, infrastructure and resources.
Product Line Supply Item Risk Purchase Orders 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. Periscopes Die-cast housings All die cast tooling is consolidated at this supplier.
Product Line Supply Item Risk Purchase Orders Sighting Systems 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. Periscopes Die-cast housings All die cast tooling is consolidated at this supplier.
Costs associated with warranty and product liability claims could materially affect our financial condition and results of operations. 22 We rely on the proper function, availability and security of information technology systems to operate our business and a cyber-attack or other breach of these systems could have a material adverse effect on our business, financial condition or results of operations.
Costs associated with warranty and product liability claims could materially affect our financial condition and results of operations. We rely on the proper function, availability and security of information technology systems to operate our business and a cyber-attack or other breach of these systems could have a material adverse effect on our business, financial condition or results of operations.
If they choose to terminate these contracts, we are entitled to fully recover all contractual costs and reasonable profits incurred up to or as a result of the terminated contract. 23 We only possess six patents and rely primarily on trade secrets to protect our intellectual property.
If they choose to terminate these contracts, we are entitled to fully recover all contractual costs and reasonable profits incurred up to or as a result of the terminated contract. We possess only six patents and rely primarily on trade secrets to protect our intellectual property.
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 MRS AL Castings for Housing Would take approximately 8-12 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 MRS Aluminum Castings for Housing Would take approximately 8-12 months to re-qualify a new supplier source.
There can be no assurance that we could replace these customers on a timely basis or at all. We have approximately 111 discrete contracts with major defense contractors and the U.S. Government (primarily Defense Logistics Agencies (DLA)), and other prime U.S. defense contractors.
There can be no assurance that we could replace these customers on a timely basis or at all. We 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.
We 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 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.
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.
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.
The trading price of our common stock has in the past and may in the future be subject to wide fluctuations in response to factors such as the following: ● revenue or results of operations in any quarter failing to meet the expectations, published or otherwise, of the investment community; ● speculation in the press or investment community; ● wide fluctuations in stock prices, particularly with respect to the stock prices for other defense industry companies; ● announcements of technological innovations by us or our competitors; 26 ● new products or the acquisition of significant customers by us or our competitors; ● changes in investors’ beliefs as to the appropriate price-earnings ratios for us and our competitors; ● changes in management; ● sales of common stock by directors and executive officers; ● rumors or dissemination of false or misleading information, particularly through Internet chat rooms, instant messaging, and other rapid-dissemination methods; ● conditions and trends in the defense industry generally; ● the announcement of acquisitions or other significant transactions by us or our competitors; ● adoption of new accounting standards affecting our industry; ● general market conditions; ● domestic or international terrorism and other factors; and ● other factors as described in this section.
The trading price of our common stock has in the past and may in the future be subject to wide fluctuations in response to factors such as the following: ● revenue or results of operations in any quarter failing to meet the expectations, published or otherwise, of the investment community; ● speculation in the press or investment community; ● wide fluctuations in stock prices, particularly with respect to the stock prices for other defense industry companies; ● announcements of technological innovations by us or our competitors; ● new products or the acquisition of significant customers by us or our competitors; ● changes in investors’ beliefs as to the appropriate price-earnings ratios for us and our competitors; ● changes in management; ● sales of common stock by directors and executive officers; ● rumors or dissemination of false or misleading information, particularly through Internet chat rooms, instant messaging, and other rapid-dissemination methods; ● conditions and trends in the defense industry generally; ● the announcement of acquisitions or other significant transactions by us or our competitors; ● adoption of new accounting standards affecting our industry; ● general market conditions; ● domestic or international terrorism and other factors; and ● other factors as described in this section. 25 Fluctuations in the price of our common stock may expose us to the risk of securities class action lawsuits.
We 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.
We 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.
Current firm fixed price & quantity purchase orders are in place with the supplier to meet all contractual requirements. 21 Vision Blocks MIL Spec welded housings for vision blocks Would take approximately 8-10 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. Vision Blocks Military Spec welded housings for vision blocks Would take approximately 8-10 months to re-qualify a new supplier source.
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 80% of our gross business revenue.
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.
Risks Related to our Business Our results of operations could be adversely affected by economic and political conditions globally and the effects of these conditions on our customers’ businesses and levels of business activity. Economic and political events this year have altered the landscape in which we and other U.S. companies operate in a variety of ways.
Risks Related to our Business Our results of operations could be adversely affected by economic and political conditions globally and the effects of these conditions on our customers’ businesses and levels of business activity. Economic 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.
While we do not expect that attack to 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 condition and results of operations.
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 condition and results of operations.
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. 20 Certain of our products are dependent on specialized sources of supply potentially subject to disruption which could have a material, adverse impact on our business.
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. Certain of our products are dependent on specialized sources of supply potentially subject to disruption which could have a material, adverse impact on our business.
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 1, 2022.
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 September 29, 2024.
Any of these events may cause us to have difficulty preventing, detecting, and controlling fraud, be subject to legal claims and liability, have regulatory sanctions or penalties imposed, have increases in operating expenses, incur expenses or lose revenues as a result of a data privacy breach or theft of intellectual property, or suffer other adverse consequences, any of which could have a material adverse effect on our business, financial condition or results of operations.
Any of these events may cause us to have difficulty preventing, detecting, and controlling fraud, be subject to legal claims and liability, have regulatory sanctions or penalties imposed, have increases in operating expenses, incur expenses or lose revenues as a result of a data privacy breach or theft of intellectual property, or suffer other adverse consequences, any of which could have a material adverse effect on our business, financial condition or results of operations. 22 We 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 effect on our revenues.
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.
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.
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. 19 Our historical operations depend on government contracts and subcontracts.
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.
We anticipate that our capital requirements will depend on many factors, including: ● our ability to fulfill backlog; ● our ability to procure additional production contracts; ● our ability to control costs; ● the timing of payments and reimbursements from government and other contracts, including but not limited to changes in federal government military spending and the federal government procurement process; ● increased sales and marketing expenses; ● technological advancements and competitors’ response to our products; ● capital improvements to new and existing facilities; ● our relationships with customers and suppliers; and ● general economic conditions including the effects of future economic slowdowns, acts of war or terrorism and the current international conflicts.
We anticipate that our capital requirements will depend on many factors, including: ● our ability to fulfill backlog; ● our ability to procure additional production contracts; ● our ability to control costs; ● the timing of payments and reimbursements from government and other contracts, including but not limited to changes in federal government military spending and the federal government procurement process; ● increased sales and marketing expenses; ● technological advancements and competitors’ response to our products; ● capital improvements to new and existing facilities; ● our relationships with customers and suppliers; and ● general economic conditions including the effects of future economic slowdowns, acts of war or terrorism and the current international conflicts. 23 Even if available, financings may involve significant costs and expenses, such as legal and accounting fees, diversion of management’s time and efforts, and substantial transaction costs.
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.
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. 19 Our ability to fulfill our backlog may have an effect on our long-term ability to procure contracts and fulfill current contracts.
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 a reasonable fee up through and as a result of the contract termination. We are currently unaware of any pending terminations on our existing contracts.
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. We are currently unaware of any pending terminations on our existing contracts.
Currently working with single source for purchasing material on a forecast projection basis Big Eye 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.
Currently, ordering for a single source, new casting tool and FAT will be required to qualify a new source Big Eye 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.
We consider it a material financial or schedule risk if we believe it will take us at least three months to identify and qualify a suitable replacement for specialized single source suppliers.
Single-sourced component requirements span across all of our major product lines. 20 We consider it a material financial or schedule risk if we believe it will take us at least three months to identify and qualify a suitable replacement for specialized single source suppliers.
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.
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.
Applied Optics Center M22/M24 Binocular Spare Components Only 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.
Beamsplitter Glass tight dimensions and Special Coating Limited number of suppliers that can meet tight customer specifications without deviation Current firm fixed price & quantity purchase orders are in place with the supplier to meet all contractual requirements. Applied Optics Center M22/M24 Binocular Spare Components Only approved source due to proprietary rights. Alternate source cannot be developed.
We have selectively single-sourced some of our material components in order to mitigate excess procurement costs associated with significant tooling and startup costs. Furthermore, because of the nature of government contracts, we are often required to purchase selected items from U.S. government approved suppliers, which may further limit our ability to utilize multiple supply sources for these key components.
Furthermore, because of the nature of government contracts, we are often required to purchase selected items from U.S. government approved suppliers, which may further limit our ability to utilize multiple supply sources for these key components.
We are experiencing 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 market wide material shortages for paint and resin products as well as critical epoxies and chemicals used in our manufacturing process. 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.
For the year ended October 2, 2022, the Company’s consolidated revenues were derived from U.S. government agencies (14%), three U.S. defense contractors (22%, 15%, and 7%), one major commercial customer (22%) and all other customers (20%). Approximately 93% of total Company revenue is generated from domestic customers and 7% is derived from foreign customers, primarily Canada.
The Company’s revenues for fiscal year ended September 29, 2024 were derived from sales to U.S. government agencies (20%), four major U.S. defense contractors (25%, 7%, 6% and 6%), one major commercial customer (13%) and all other customers (23%). Approximately 94% of total Company revenue is generated from domestic customers and 6% is derived from foreign customers.
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.
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.
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. Low 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.
Low 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.
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.
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.
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.
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.
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.
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.
As of December 1, 2022, approximately 1% of our material requirements are single-sourced across 7 suppliers representing approximately 12% of our active supplier order value. Single-sourced component requirements span across all of our major product lines.
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.
We face risks related to contracting with the federal government, including federal budget issues and fixed price contracts. Future general political and economic conditions, which cannot be accurately predicted, may directly and indirectly affect the quantity and allocation of expenditures by federal agencies.
Future general political and economic conditions, which cannot be accurately predicted, may directly and indirectly affect the quantity and 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.
In addition, we have experienced supplier schedule delays for other key components which are 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.
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. We have selectively single-sourced some of our material components in order to mitigate excess procurement costs associated with significant tooling and startup costs.
As of October 2, 2022, there was $289 thousand in accrued loss provisions for loss contracts or cost overruns. Approximately 77% of our contracts contain termination clauses for convenience.
As of September 29, 2024, there was $259 thousand in accrued loss provisions for loss contracts or cost overruns. Approximately 96% of our contracts contain termination clauses for convenience. In the event these clauses should be invoked by our customer, future revenues against these contracts could be affected.
The loss of 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.
The loss of either executive officer or any other key employee could have a material adverse effect on our business. We currently have only two employment agreements. 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.
Our ability to fulfill our backlog may have an effect on our long-term ability to procure contracts and fulfill current contracts. Our 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.
Our ability to fulfill our backlog may be limited by our ability obtain material supplies and to devote sufficient financial and human capital resources. 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.
Removed
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.
Added
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.
Removed
Currently, ordering for a single source, new casting tool and FAT will be required to qualify a new source Short/Long Drivers Mirrors Would take approximately 8-12 months to re-qualify a new supplier source.
Added
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. 18 Our historical operations depend on government contracts and subcontracts. We face risks related to contracting with the federal government, including federal budget issues and fixed price contracts.
Removed
We may face risks as a result of the COVID-19 pandemic. We may be at risk as a result of the continuing COVID-19 pandemic.
Added
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.
Removed
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.
Added
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.
Removed
The 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.
Added
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.
Removed
The 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.
Added
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.
Removed
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.
Added
Current firm fixed price and quantity purchase orders are in place with the supplier to meet all contractual requirements. Supplier is on schedule. Applied Optics Center LIF Assembly Container Wrench and Retaining Ring Mold tooling was manufactured by and used by one source. Tooling would not fit other potential supplier’s equipment.
Removed
We 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 effect on our revenues.
Added
Finding another source would be very expensive and take approximately 1 year to transition Current firm fixed price and quantity purchase orders are in place with the supplier to meet all contractual requirements. Supplier is on schedule. 21 Applied Optics Center LIF Assembly Rubber Seal Mold tooling was manufactured by and used by one source.
Removed
Even if available, financings may involve significant costs and expenses, such as legal and accounting fees, diversion of management’s time and efforts, and substantial transaction costs.
Added
Tooling would not fit other potential supplier’s equipment. Finding another source would be very expensive and take approximately 1 year to transition Current firm fixed price and quantity purchase orders are in place with the supplier to meet all contractual requirements. Supplier is on schedule.
Removed
Risks Related to Our Stock Our common stock is currently quoted on an Over-The-Counter Market, which affects the liquidity of our common stock and may affect its stock price.
Added
Applied Optics Center Assorted LFU Assemblies Anti-Reflective Device Only one approved government source of supply at this time Current firm fixed price and quantity purchase orders are in place with the supplier to meet all contractual requirements. Supplier is on schedule.
Removed
Although 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.
Added
Risks Related to our Credit Facility and Liquidity Our 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.
Removed
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”.
Added
Our 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 liquidity.
Removed
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 level.
Added
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.
Removed
Over-the-counter markets are generally considered to be less efficient than, and not as broad as, a stock exchange. 24 Our share price could decrease as a result of this limited liquidity or otherwise, and our share price is likely to be highly volatile.
Added
A 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.
Removed
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.
Added
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.
Removed
In addition, sales of substantial amounts of common stock could lower the prevailing market price of our common stock. Furthermore, 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.
Added
If 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 initiatives; limiting our ability to obtain additional debt financing for future working capital, capital expenditures, or other worthwhile endeavors; and limiting our ability to react to changes in the market.
Removed
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.
Added
Risks Related to Our Stock Our stock typically trades in low volumes daily which could lead to illiquidity, volatility, or depressed stock price. Our 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.
Removed
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.
Added
This may make it more difficult for our stockholders to resell shares when desired or at attractive prices. Some investors view low-volume stocks as unduly speculative and therefore not appropriate candidates for investment.
Removed
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.
Added
Also, due 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. Any analysts covering our stock could negatively impact the stock price.
Removed
Finally, 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.

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Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 27 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 28 Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations 29 Item 8. Financial Statements and Supplementary Data 40
Biggest changeItem 4. Mine Safety Disclosures 26 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 27 Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations 27 Item 8. Financial Statements and Supplementary Data 37

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIf and when listed on NASDAQ, there are no assurances that the Company will continue to meet NASDAQ’s continued listing requirements. Securities outstanding and holders of record On December 16, 2022, there were approximately 80 shareholders of record for our common stock and 6,716,638 shares of our common stock issued and outstanding.
Biggest changeSecurities outstanding and holders of record On December 18, 2024, there were approximately 87 shareholders of record for our common stock and 6,896,738 shares of our common stock issued and outstanding. Dividends We have in the past paid dividends but we have no plans to do so in the foreseeable future.
Issuer Purchases of Equity Securities The table below sets forth information with respect to purchases made by or on behalf of the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act) of its common shares during the three months ended October 2, 2022.
Issuer Purchases of Equity Securities There were no purchases made by or on behalf of the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) of its common stock under the Exchange Act) during the three months ended September 29, 2024.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market information Our common stock is currently quoted on the OTCQB Marketplace under the symbol “OPXS”. Trading in our common stock has historically lacked consistent volume, and the market price has been volatile.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market information Our common stock is listed on the Nasdaq Capital Market under the symbol “OPXS”. On December 18, 2024, the closing price for our common stock was $8.91 per share.
Removed
Over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. On December 16, 2022, the closing price for our common stock as reported on the OTCQB was $3.07 per share. On December 7, 2022, the Company submitted an application to list its common stock on the NASDAQ Capital Market.
Removed
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.
Removed
Dividends We have in the past paid dividends but we have no plans to do so in the foreseeable future. Unregistered Sales of Equity Securities On January 4, 2022, the Company issued 23,216 common shares to an officer and a key employee in settlement of 33,000 restricted stock units which vested on such date.
Removed
The issuance was made pursuant to the exemption from registration afforded by Rule 506(b) under the Securities Act as an issuance to an accredited investors.
Removed
Period Total number of shares purchased Total purchase cost (thousands) Average price paid per share (with transaction fees) Maximum dollar value that may yet be purchased under the plan July 4, 2022 through July 25, 2022 (1) 610 $ 1 $ 2.10 $ 564 July 26, 2022 through August 28, 2022 (1) 1,930 4 2.09 560 August 29, 2022 to October 2, 2022 (2) 1,603,773 4,361 2.72 560 (1) On September 22, 2021 the Company announced authorization for a $1 million stock repurchase program.
Removed
As of October 2, 2022, there were zero shares held in treasury purchased under the September 2021 stock repurchase program.
Removed
The shares authorized to be repurchased under the repurchase program may be 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 SEC. (2) Common shares repurchased pursuant to the tender offer that closed on September 15, 2022.
Removed
Total tendered shares of 1,603,773 at $2.65, or $4.25 million, plus transaction costs of $111 thousand. The repurchased shares were immediately cancelled. 28

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

71 edited+46 added−28 removed24 unchanged
Biggest changeResults of Operations Selective Financial Info (Thousands) Twelve months ended October 2, 2022 October 3, 2021 Optex Richardson Applied Optics Center Dallas Other (non-allocated costs and eliminations) Consolidated Optex Richardson Applied Optics Center Dallas Other (non-allocated costs and eliminations) Consolidated Revenue from External Customers $ 9,533 $ 12,850 $ - $ 22,383 $ 11,827 $ 6,395 $ - $ 18,222 Intersegment Revenues - 879 (879 ) - - 1,056 (1,056 ) - Total Segment Revenue 9,533 13,729 (879 ) 22,383 11,827 7,451 (1,056 ) 18,222 Total Cost of Sales 8,441 9,924 (879 ) 17,486 9,934 6,824 (1,056 ) 15,702 Gross Margin 1,092 3,805 - 4,897 1,893 627 - 2,520 Gross Margin % 11.5 % 27.7 % - 21.9 % 16.0 % 8.4 % - 13.8 % General and Administrative Expense 2,613 475 162 3,250 2,319 467 228 3,014 Segment Allocated G&A Expense (1,141 ) 1,141 - - (677 ) 677 - - Net General & Administrative Expense 1,472 1,616 162 3,250 1,642 1,144 228 3,014 Operating Income (Loss) (380 ) 2,189 (162 ) 1,647 251 (517 ) (228 ) (494 ) Operating Income (Loss) % (4.0 )% 15.9 % - 7.4 % 2.1 % (6.9 %) - (2.7 )% Gain (Loss) on Change in Fair Value of Warrants - - - - - - 2,535 2,535 ) Interest Expense - - - - - - (11 ) (11 ) Income (Loss) before taxes $ (380 ) 2,189 (162 ) 1,647 $ 251 $ (517 ) $ 2,296 $ 2,030 Income (loss) before taxes % (4.0 )% 15.9 % - 7.4 % 2.1 % (6.9 %) - 11.1 % 31 Our total external sales revenues increased by $4.2 million in the fiscal year 2022, or 23.1% compared to the 2021 fiscal year.
Biggest changeResults of Operations Selective Financial Info (Thousands) Twelve months ended September 29, 2024 October 1, 2023 Optex Systems Richardson Applied Optics Center Dallas Other (non- allocated costs and eliminations) Consolidated Optex Systems Richardson Applied Optics Center Dallas Other (non- allocated costs and eliminations) Consolidated Revenue from External Customers $ 18,171 $ 15,824 $ - $ 33,995 $ 12,120 $ 13,539 $ - $ 25,659 Intersegment Revenues - 1,042 (1,042 ) - - 893 (893 ) - Total Segment Revenue 18,171 16,866 (1,042 ) 33,995 12,120 14,432 (893 ) 25,659 Total Cost of Sales 14,401 11,107 (1,042 ) 24,466 9,729 10,204 (893 ) 19,040 Gross Profit 3,770 5,759 - 9,529 2,391 4,228 - 6,619 Gross Margin % 20.7 % 34.1 % - 28.0 % 19.7 % 29.3 % - 25.8 % General and Administrative Expense 3,630 653 425 4,708 3,121 464 247 3,832 Segment Allocated G&A Expense (1,486 ) 1,486 - - (1,338 ) 1,338 - - Net General & Administrative Expense 2,144 2,139 425 4,708 1,783 1,802 247 3,832 Operating Income (Loss) 1,626 3,620 (425 ) 4,821 608 2,426 (247 ) 2,787 Operating Income (Loss) % 8.9 % 21.5 % - 14.2 % 5.0 % 16.8 % - 10.9 % Interest Expense - - (47 ) (47 ) - - (55 ) (55 ) Income (Loss) before taxes $ 1,626 3,620 (472 ) 4,774 $ 608 2,426 (302 ) 2,732 Income (loss) before taxes % 8.9 % 21.5 % - 14.0 % 5.0 % 16.8 % - 10.6 % Our total external sales revenues increased by $8.3 million in the fiscal year 2024, or 32.5% compared to the 2023 fiscal year.
These clauses are standard clauses on our prime military contracts and generally apply to us as subcontractors. It has been our experience that the termination for convenience is rarely invoked, except where it is mutually beneficial for both parties. We are currently not aware of any pending terminations for convenience or for default on our existing contracts.
These clauses are standard clauses on our prime military contracts and generally apply to us as subcontractors. It has been our experience that the termination for convenience is rarely invoked, except where it is mutually beneficial for both parties. We are currently not aware of any material pending terminations for convenience or for default on our existing contracts.
Management intends to manage operations commensurate with its level of working capital and facilities line of credit during the next twelve months and beyond; however, uneven revenue levels driven by changes in customer delivery demands, first article inspection requirements or other program delays associated with the pandemic could create a working capital shortfall.
Management intends to manage operations commensurate with its level of working capital and line of credit facility during the next twelve months and beyond; however, uneven revenue levels driven by changes in customer delivery demands, first article inspection requirements or other program delays associated with the pandemic could create a working capital shortfall.
Due to inflationary price increases on component parts and higher internal manufacturing costs (as a result of escalating labor costs and higher burden rates on reduced volume), some of these contracts are in a loss condition, or at marginal profit rates.
Due to inflationary price increases on component parts and higher internal manufacturing costs (as a result of escalating labor costs and higher burden rates), some of these contracts are in a loss condition, or at marginal profit rates.
Longer term, excess cash beyond our operating needs may be used to fund new product development, company or product line acquisitions, or additional stock purchases as attractive opportunities present themselves.
Longer term, excess cash beyond our operating needs may be used to fund new product development, company, product line or other asset acquisitions, or additional stock purchases as attractive opportunities present themselves.
Optex Systems, Inc. (Delaware) 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.
(Delaware) 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 addition, some of our contracts allow for government contract financing in the form of contract progress payments pursuant to Federal Acquisition Regulation 52.232-16, “Progress Payments”. Subject to certain limitations, this clause provides for government payment of up to 90% of incurred program costs prior to product delivery for small businesses like us.
In addition, some of our contracts allow for government contract financing in the form of contract progress payments pursuant to FAR 52.232-16, “Progress Payments”. Subject to certain limitations, this clause provides for government payment of up to 90% of incurred program costs prior to product delivery for small businesses like us.
We would not be liable for any excess costs if the failure to perform the contract arises from causes beyond the control and without the fault or negligence of the company as defined by Federal Acquisition Regulation clause 52.249-8.
We would not be liable for any excess costs if the failure to perform the contract arises from causes beyond the control and without the fault or negligence of the Company as defined by FAR clause 52.249-8.
In the event a termination for convenience were to occur, Federal Acquisition Regulation clause 52.249-2 provides for full recovery of all contractual costs and profits reasonably occurred up to and as a result of the terminated contract.
In the event a termination for convenience were to occur, FAR clause 52.249-2 provides for full recovery of all contractual costs and profits reasonably occurred up to and as a result of the terminated contract.
This management’s discussion and analysis reflects information known to management as of our fiscal year end, October 2, 2022, and the date of filing. This MD&A is intended to supplement and complement our audited financial statements and notes thereto for the year ended October 2, 2022, prepared in accordance with U.S. generally accepted accounting principles (GAAP).
This management’s discussion and analysis reflects information known to management as of our fiscal year end, September 29, 2024, and the date of filing. This MD&A is intended to supplement and complement our audited financial statements and notes thereto for the year ended September 29, 2024, prepared in accordance with U.S. generally accepted accounting principles (GAAP).
We are also a military supplier to foreign governments such as Israel, Australia and NAMSA and South American countries and as a subcontractor for several large U.S. defense companies serving foreign governments. By way of background, the Federal Acquisition Regulation is the principal set of regulations that govern the acquisition process of government agencies and contracts with the U.S. government.
We are also a military supplier to foreign governments such as Israel, Australia and the NATO Support and Procurement Agency and South American countries, and as a subcontractor for several large U.S. defense companies serving foreign governments. 27 By way of background, the Federal Acquisition Regulation (“FAR”) is the principal set of regulations that govern the acquisition process of government agencies and contracts with the U.S. government.
Some of our contracts may allow for government contract financing in the form of contract progress payments pursuant to Federal Acquisition Regulation 52.232-16, “Progress Payments.” Subject to certain limitations, this clause provides for government payment of up to 90% of incurred program costs prior to product delivery for small businesses like us.
In some instances, new contract awards may allow for government contract financing in the form of contract progress payments pursuant to FAR 52.232-16, “Progress Payments.” Subject to certain limitations, this clause provides for government payment of up to 90% of incurred program costs prior to product delivery for small businesses like us.
Its 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 have been selected for installation on the Stryker family of vehicles. Optex Systems, Inc. (Delaware) also manufactures and delivers numerous periscope configurations, rifle and surveillance sights and night vision optical assemblies.
Its 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. Optex Systems, Inc. (Delaware) also manufactures and delivers numerous periscope configurations, rifle and surveillance sights and night vision optical assemblies. Optex Systems, Inc.
In the event the Company does not successfully implement its ultimate business plan, certain assets may not be recoverable. On April 12, 2022, the Company and its subsidiary, Optex Systems, Inc.
In the event the Company does not successfully implement its ultimate business plan, certain assets may not be recoverable. On March 22, 2023, the Company and its subsidiary, Optex Systems, Inc.
The table below provides a summary of selective statement of operations data by operating segment for the years ended October 2, 2022 and October 3, 2021 reconciled to the Audited Consolidated Results of Operations as presented in Item 8, “Financial Statements and Supplementary Data”.
The table below provides a summary of selective statement of operations data by operating segment for the years ended September 29, 2024 and October 1, 2023 reconciled to the Audited Consolidated Results of Operations as presented in Item 8, “Financial Statements and Supplementary Data”.
Business – Recent Events ” of this report for recent material events affecting the Company. 30 Results of Operations Segment Information We have presented the operating results by segment to provide investors with an additional tool to evaluate our operating results.
We refer to “ Item 1. Business – Recent Events ” of this report for recent developments affecting the Company. 28 Results of Operations by Segment We have presented the operating results by segment to provide investors with an additional tool to evaluate our operating results.
The table below summarizes our twelve-month operating results for the periods ended October 2, 2022 and October 3, 2021, in terms of both the GAAP net income measure and the non-GAAP Adjusted EBITDA measure.
The table below summarizes our twelve-month operating results for the periods ended September 29, 2024 and October 1, 2023, in terms of both the GAAP net income measure and the non-GAAP Adjusted EBITDA measure.
Intersegment revenues relate primarily to coated filters provided by the Applied Optics Center to Optex Systems in support of the Optex Systems periscope line. Gross margin increased $2.4 million and the gross margin percentage increased by 8.1 points from 13.8% in the 2021 fiscal year to 21.9% in the 2022 fiscal year.
Intersegment revenues relate primarily to coated filters provided by the Applied Optics Center to Optex Systems in support of the Optex Systems periscope line. 29 Gross profit increased $2.9 million and the gross margin percentage increased by 2.2 points from 25.8% in the 2023 fiscal year to 28.0% in the 2024 fiscal year.
(Millions) Product Line Q1 2023 Q2 2023 Q3 2023 Q4 2023 2023 Delivery 2024+ Delivery Total Backlog 10/2/2022 Total Backlog 10/3/2021 Variance % Chg Periscopes $ 1.4 $ 2.6 $ 1.9 $ 0.1 $ 6.0 $ 1.6 $ 7.6 $ 5.6 $ 2.0 35.7 % Sighting Systems 0.2 0.6 0.1 0.1 1.0 0.7 1.7 1.7 - - % Howitzer - - 0.1 0.3 0.4 1.9 2.3 2.3 - - % Other 0.1 0.9 0.3 0.9 2.2 1.2 3.4 1.4 2.0 142.9 % Optex Systems – Richardson 1.7 4.1 2.4 1.4 9.6 5.4 15.0 11.0 4.0 36.4 % Optical Assemblies 1.3 2.1 1.3 1.0 5.7 1.1 6.8 5.0 1.8 36.0 Laser Filters 0.4 1.2 2.4 1.4 5.4 3.3 8.7 9.9 (1.2 ) (12.1 ) Day Windows 0.2 0.1 0.2 0.1 0.6 1.4 2.0 1.1 0.9 81.8 Other 0.3 - - - 0.3 0.1 0.4 0.3 0.1 33.3 Applied Optics Center – Dallas 2.2 3.4 3.9 2.5 12.0 5.9 17.9 16.3 1.6 9.8 % Total Backlog $ 3.9 $ 7.5 $ 6.3 $ 3.9 $ 21.6 $ 11.3 $ 32.9 $ 27.3 $ 5.6 20.5 % 33 Optex Systems - Richardson During the twelve months ended October 2, 2022, backlog for our Optex Richardson segment increased by 36.4%, or 4.0 million to $15.0 million, as compared to the prior year ending backlog of $11.0 million.
(Millions) Product Line Q1 2025 Q2 2025 Q3 2025 Q4 2025 2025 Delivery 2026+ Delivery Total Backlog 9/29/2024 Total Backlog 10/1/2023 Variance % Chg Periscopes $ 3.6 $ 5.7 $ 5.6 $ 4.7 $ 19.6 $ 3.1 $ 22.7 $ 14.9 $ 7.8 52.3 Sighting Systems 0.4 0.4 0.3 0.4 1.5 2.3 3.8 4.7 (0.9 ) (19.1 ) Howitzer - - - - - 2.3 2.3 2.3 - - Other 0.4 0.5 0.9 - 1.8 1.2 3.0 4.6 (1.6 ) (34.8 ) Optex Systems – Richardson 4.4 6.6 6.8 5.1 22.9 8.9 31.8 26.5 5.3 20.0 Optical Assemblies 0.5 0.2 - - 0.7 - 0.7 2.8 (2.1 ) (75.0 ) Laser Filters 3.3 2.7 1.8 0.9 8.7 0.8 9.5 9.9 (0.4 ) (4.0 ) Day Windows 0.2 0.2 0.2 0.2 0.8 0.3 1.1 1.7 (0.6 ) (35.3 ) Other 0.4 0.2 0.2 0.3 1.1 - 1.1 0.9 0.2 22.2 Applied Optics Center – Dallas 4.4 3.3 2.2 1.4 11.3 1.1 12.4 15.3 (2.9 ) (19.0 ) Total Backlog $ 8.8 $ 9.9 $ 9.0 $ 6.5 $ 34.2 $ 10.0 $ 44.2 $ 41.8 $ 2.4 5.7 Optex Systems - Richardson During the twelve months ended September 29, 2024, backlog for our Optex Richardson segment increased by 20.0%, or $5.3 million to $31.8 million, as compared to the prior year ending backlog of $26.5 million.
In general, parts of the Federal Acquisition Regulation are incorporated into government solicitations and contracts by reference as terms and conditions effecting contract awards and pricing solicitations . 29 Many of our contracts are prime or subcontracted directly with the Federal government and, as such, are subject to Federal Acquisition Regulation Subpart 49.5, “Contract Termination Clauses” and more specifically Federal Acquisition Regulation clauses 52.249-2 “Termination for Convenience of the Government Fixed-Price)”, and 49.504 “Termination of fixed-price contracts for default”.
Many of our contracts are prime or subcontracted directly with the Federal government and, as such, are subject to FAR Subpart 49.5, “Contract Termination Clauses” and more specifically Federal Acquisition Regulation clauses 52.249-2 “Termination for Convenience of the Government Fixed-Price)”, and 49.504 “Termination of fixed-price contracts for default”.
During the year ended October 2, 2022, we recorded net income applicable to common shareholders of $1.3 million as compared to net income applicable to common shareholders of $1.5 million during the year ended October 3, 2021.
During the year ended September 29, 2024, we recorded net income applicable to common shareholders of $3.8 million as compared to net income applicable to common shareholders of $2.3 million during the year ended October 1, 2023.
All references in the following section to 2021 or 2022 with respect to our financial position and results of operations are to our fiscal years ended October 3, 2021 or October 2, 2022, respectively. Background Optex Systems, Inc. manufactures optical sighting systems and assemblies, primarily for Department of Defense applications.
All references in the following section to 2023 or 2024 with respect to our financial position and results of operations are to our fiscal years ended October 1, 2023 or September 29, 2024, respectively. Background Optex Systems, Inc. manufactures optical sighting systems and assemblies for the U.S. Department of Defense, foreign military applications and commercial markets.
To the extent our contracts allow for progress payments, we intend to utilize this benefit, thereby minimizing the working capital impact on Optex Systems Holdings for materials and labor required to complete the contracts. Recent Developments and Material Trends Refer to “ Item 1. Business – Market Opportunity: U.S.
To the extent our contracts allow for progress payments, we intend to utilize this benefit, thereby minimizing the working capital impact on Optex Systems Holdings for materials and labor required to complete the contracts.
The Optex Systems segment realized a $2.3 million decrease and the Applied Optics Center segment realized an increase of $6.5 million in external revenue compared to the prior year period. Intersegment revenues decreased by $0.2 million to $0.9 million in 2022 from $1.1 million in 2021.
The Optex Systems segment realized a $6.1 million, or 49.9% increase, and the Applied Optics Center segment realized an increase of $2.3 million, or 16.9%, in external revenue compared to the prior year period. Intersegment revenues were $1.0 million for 2024 and $0.9 million in 2023.
Twelve months ended (Millions) Product Line October 2, 2022 October 3, 2021 Variance % Chg Periscopes $ 7.2 $ 7.2 $ - - Sighting Systems 0.8 2.3 (1.5 ) (65.2 ) Howitzers - 0.2 (0.2 ) (100.0 ) Other 1.5 2.1 (0.6 ) (28.6 ) Optex Systems – Richardson 9.5 11.8 (2.3 ) (19.5 ) Optical Assemblies 4.9 1.9 3.0 157.9 Laser Filters 5.9 3.0 2.9 96.7 Day Windows 1.0 1.0 - - Other 1.1 0.5 0.6 120.0 Applied Optics Center – Dallas 12.9 6.4 6.5 101.6 Total Revenue $ 22.4 $ 18.2 $ 4.2 23.1 34 Our total revenues increased by $4.2 million, or 23.1% in fiscal year 2022 compared to fiscal year 2021.
Twelve months ended (Millions) Product Line September 29, 2024 October 1, 2023 Variance % Chg Periscopes $ 12.1 $ 8.6 $ 3.5 40.7 Sighting Systems 1.4 1.0 0.4 40.0 Howitzers - - - - Other 4.7 2.5 2.2 88.0 Optex Systems – Richardson 18.2 12.1 6.1 50.4 Optical Assemblies 3.9 5.6 (1.7 ) (30.4 ) Laser Filters 9.6 6.4 3.2 50.0 Day Windows 0.7 0.6 0.1 16.7 Other 1.6 1.0 0.6 60.0 Applied Optics Center – Dallas 15.8 13.6 2.2 16.2 Total Revenue $ 34.0 $ 25.7 $ 8.3 32.3 Our total revenues increased by $8.3 million, or 32.3% in fiscal year 2024 compared to fiscal year 2023.
As of October 2, 2022, there was an authorized balance of $560 thousand remaining to be spent against the repurchase program. During the twelve months ended October 2, 2022 the Company declared and paid no dividends. As of October 2, 2022, there are no outstanding declared and unpaid dividends.
As of September 29, 2024, there was an authorized balance of $560 thousand remaining to be spent against the repurchase program. During the years ended September 29,2024 and October 1, 2023, there were no stock repurchases against the plan. During the twelve months ended September 29, 2024 the Company declared and paid no dividends.
During the twelve months ended October 2, 2022, there accrued contract losses increased by $238 thousand on new awards against the active IDIQ contracts. There is no way to reasonably estimate future inflationary impacts, or customer awards on the existing loss contracts.
During the twelve months ended September 29, 2024, the accrued contract losses increased by $16 thousand on new awards against one of our loss IDIQ contracts, partially offset by shipments during the twelve month period. There is no way to reasonably estimate future inflationary impacts, or customer awards on the existing loss contracts.
Twelve month period ended October 2, 2022 compared to the twelve month period ended October 3, 2021 Revenues The table below details the revenue changes by segment and product line for the year ended October 2, 2022 as compared to the year ended October 3, 2021.
Twelve months ended September 29, 2024 compared to the twelve months ended October 1, 2023 Revenues The table below details the revenue changes by segment and product line for the year ended September 29, 2024 as compared to the year ended October 1, 2023.
Short term cash in excess of our working capital needs may be also be used to fund the purchase of property and equipment required to maintain or meet our growing backlog in addition to repurchasing common stock against our current stock repurchase plan.
Short term cash in excess of our working capital needs may be also be used to fund the purchase of product lines and other assets. We may also repurchase common stock against our current stock repurchase plan.
Optex Systems Holdings continues to pursue new international and commercial opportunities in addition to maintaining its current footprint with U.S. military vehicle manufacturers, with existing as well as new product lines. We are also reviewing potential products, outside our traditional product lines, which could be manufactured using our current production facilities in order to capitalize on our existing capacity.
The Company continues to pursue domestic, international and commercial opportunities in addition to maintaining its current footprint with U.S. vehicle manufactures, with existing as well as new product lines. We are also reviewing potential products outside our traditional product lines.
Non GAAP Adjusted EBITDA We use adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) as an additional measure for evaluating the performance of our business as “net income” includes the significant impact of noncash valuation gains and losses on warrant liabilities, noncash compensation expenses related to equity stock issues, as well as depreciation, amortization, interest expenses and federal income taxes.
The increase of net income of $1.5 million is primarily attributable to increased revenue and gross profit, offset by higher general and administrative costs and increased federal income taxes of $0.5 million. 33 Non GAAP Adjusted EBITDA We use adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) as an additional measure for evaluating the performance of our business as “net income” includes the significant impact of noncash compensation expenses related to equity stock issues, as well as depreciation, amortization, interest expenses and federal income taxes.
The Optex Systems gross margin decreased by $0.8 million and the gross margin percentage decreased to 11.5% as compared to 16.0% in the prior year period on lower revenue. The Applied Optics Center gross margin increased by $3.2 million and the gross margin percentage increased by 19.3 points to 27.7% as compared to the prior year period of 8.4%.
Optex Systems gross profit increased by $1.4 million and the gross margin percentage increased to 20.7% as compared to 19.7% in the prior year period. Applied Optics Center gross profit increased by $1.5 million and the gross margin percentage increased to 34.1% as compared to 29.3% in the prior year period.
The following table depicts the current expected delivery by quarter of all contracts awarded as of October 2, 2022.
The following table depicts the current expected delivery by quarter of all contracts awarded as of September 29, 2024, as well as the September 29, 2024 backlog as compared to the backlog on October 1, 2023.
Optex Systems-Richardson revenue on other product lines decreased by $0.6 million, or 28.6%, compared to revenues in the prior year due to lower contract demand on MRS collimators and cell assemblies attributable to reductions in US spending for military ground systems.
Optex Systems-Richardson revenue on other product lines increased by $2.2 million, or 88.0%, compared to revenues in the prior year due to increased orders for collimators, windows, beamsplitters, cell assemblies and other spares.
These expenses cover accounting, executive, human resources, information technology, board fees and other corporate expenses paid by Optex Systems and shared across both operating segments. Operating income increased by $2.1 million in the year ended October 2, 2022 to an income of $1.6 million as compared to the prior year operating loss of $(0.5) million.
The increase in allocated general and administrative expenses during the 2024 year is directly attributable to increased general and administrative costs during the current year period as compared to the prior year. These expenses cover accounting, executive, human resources, information technology, board fees and other corporate expenses paid by Optex Systems and shared across both operating segments.
The orders for the most recently completed twelve months consist of $13.5 million for our Optex Richardson segment and $14.5 million attributable to the Applied Optics Center segment. 32 The following table depicts the new customer orders for the twelve months ending October 2, 2022 as compared to the prior year period in millions of dollars: (Millions) Product Line Twelve months ended October 2, 2022 Twelve months ended October 3, 2021 Variance % Chg Periscopes $ 9.2 $ 7.6 $ 1.6 21.1 % Sighting Systems 0.7 1.2 (0.5 ) (41.7 )% Howitzer - - - - % Other 3.6 0.8 2.8 350.0 % Optex Systems – Richardson 13.5 9.6 3.9 40.6 % Optical Assemblies 6.7 6.1 0.6 9.8 % Laser Filters 4.7 11.9 (7.2 ) (60.5 )% Day Windows 1.9 0.7 1.2 171.4 % Other 1.2 0.9 0.3 33.3 % Applied Optics Center – Dallas 14.5 19.6 (5.1 ) (26.0 )% Total Customer Orders $ 28.0 $ 29.2 $ (1.2 ) (4.1 )% The primary reason for the decline in orders in 2022 as compared to 2021 relates to the $8.4 million order awarded in August 2021 for laser filters which was deliverable over twenty-four months.
The following table depicts the new customer orders for the twelve months ending September 29, 2024 as compared to the prior year period in millions of dollars: (Millions) Product Line Twelve months ended September 29, 2024 Twelve months ended October 1, 2023 Variance % Chg Periscopes $ 19.9 $ 15.9 $ 4.0 25.2 Sighting Systems 0.4 4.0 (3.6 ) (90.0 ) Howitzer - - - - Other 3.2 3.4 (0.2 ) (5.9 ) Optex Systems – Richardson 23.5 23.3 0.2 0.9 Optical Assemblies 1.8 1.9 (0.1 ) (5.3 ) Laser Filters 9.2 7.6 1.6 21.1 Day Windows 0.1 0.3 (0.2 ) (66.7 ) Other 1.8 1.5 0.3 20.0 Applied Optics Center – Dallas 12.9 11.3 1.6 14.2 Total Customer Orders $ 36.4 $ 34.6 $ 1.8 5.2 30 During the year ended September 29, 2024, orders in the Company’s Optex Richardson segment increased by $0.2 million, or 0.9%, as compared to the prior year.
These loss contracts are related to some of our older legacy periscope IDIQ contracts which were priced in 2018 through early 2020, prior to Covid-19 and the significant downturn in defense spending on ground system vehicles.
These loss contracts are related to some of our older legacy periscope IDIQ contracts which were priced in 2018 through early 2020, prior to Covid-19 and the subsequent decline in revenue at the Optex Systems Richardson segment combined with significant inflationary pressures on materials and labor in the last two years.
In the short term, the Company plans to utilize its current cash, open line of credit and operating cash flow to fund inventory purchases in support of the backlog growth and higher anticipated revenue during the next twelve months.
We refer to the disclosure above under “ Material Trends and Recent Developments” with respect to recent supply chain disruptions and material shortages, which disclosure is incorporated herein by reference. 34 In the short term, the Company plans to utilize its current cash, available line of credit and operating cash flow to fund inventory purchases in support of the backlog growth and higher anticipated revenue during the next twelve months.
Applied Optics Center revenue for other product lines increased by $0.6 million, or 120.0%, during the twelve months ended October 2, 2022 as compared to the prior twelve-month period on increased revenue for unity mirrors and specialty coatings. Gross Margin .
Applied Optics Center revenue for other product lines increased by $0.6 million, or 60.0%, during the twelve months ended September 29, 2024 as compared to the prior twelve-month period on increased deliveries in products for Infrared (IR) Signature Reduction Coatings used on aircraft.
The delays in key components, combined with labor shortages during the first quarter of fiscal year 2023 to date have negatively impacted our production levels and have pushed the expected delivery dates into the second and third quarters of fiscal year 2023.
These shortages affect several of our periscope products at the Optex Richardson segment. The delays in key components, combined with labor shortages during the first half of the fiscal year ended September 29, 2024, have negatively impacted our production levels and have pushed back expected delivery dates.
The $2.1 million increase in operating income in the current year over the prior year is primarily due to higher revenue and gross margin, partially offset by increased general and administrative expenses. 35 Net income applicable to common shareholders .
For the year ended September 29, 2024, we recorded operating income of $4.8 million as compared to operating income of $2.8 million during the year ended October 1, 2023. The $2.0 million increase in operating income is primarily due to increased revenue and gross profit, offset by higher general and administrative costs. Net income applicable to common shareholders .
The Loan Agreement requires the Borrowers to maintain a fixed charge coverage ratio of at least 1.25:1.
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 Credit Facility is secured by substantially all of the operating assets of the Borrowers as collateral.
Applied Optics Center – Dallas The Applied Optics Center backlog increased by $1.6 million, or 9.8%, for the year ended October 2, 2022, from $16.3 million in 2021 to $17.9 million in 2022. Backlog for our optical assemblies increased by $1.8 million, or 36.0%, as compared to the prior year on new orders from one of our commercial customers.
Applied Optics Center – Dallas The Applied Optics Center backlog decreased by $2.9 million, or 19.0%, for the year ended September 29, 2024, from $15.3 million in 2023 to $12.4 million in 2024. Backlog for our optical assemblies decreased by $2.1 million, or 75.0%, as compared to the prior year on lower customer demand.
Further, we continue to look for strategic businesses to acquire that will strengthen our existing product line, expand our operations, and enter new markets. Backlog as of October 2, 2022 was $32.9 million as compared to a backlog of $27.3 million as of October 3, 2021, representing an increase of 20.5%.
Further, we continue to look for strategic businesses to acquire that will strengthen our existing product line, expand our operations, offer operational scale and enter new markets.
The increase in EBITDA is primarily driven by increased revenue and operating profit during the current year as compared to the prior year twelve-month period. Operating segment performance is discussed in greater detail throughout the previous sections.
The increase in EBITDA is primarily driven by increased net income, offset by increased taxes, depreciation and amortization, and stock compensation. Operating segment performance is discussed in greater detail throughout the previous sections.
We continue to monitor these contracts throughout the year for any significant changes in addition to seeking potential cost saving strategies to mitigate risk. As of October 2, 2022 and October 3, 2021, Optex Systems Inc. had a net carrying value of $0.9 million and $1.3 million, respectively in deferred tax assets.
We continue to monitor these contracts throughout the year for any significant changes in addition to seeking potential cost saving strategies to mitigate risk.
While we believe our current estimate to be reasonable, changing market conditions and profitability, changes in equity structure and changes in tax regulations may impact our estimated reserves in future periods. Recent Accounting Pronouncements Recent Accounting Pronouncements are detailed under Note 3 of Item 8 “Financial Statements and Supplementary Data” of this report.
Because of the uncertainties of future income forecasts combined with the complexity of some of the deferred assets, these forecasts are subject to change over time. While we believe our current estimate to be reasonable, changing market conditions and profitability, changes in equity structure and changes in tax regulations may impact our estimated reserves in future periods.
During the years ended 2022 and 2021, Applied Optics Center absorbed $1.1 million and $0.7 million of fixed general and administrative costs incurred by Optex Systems for support services. The increase in allocated general and administrative expenses during the 2022 year is directly attributable to the shift in revenue volume between segments.
During the fiscal years 2024 and 2023, Applied Optics Center absorbed $1.5 million and $1.3 million, respectively, of fixed general and administrative costs incurred by Optex Systems for support services.
The Optex Systems Richardson segment currently has seven open US Government IDIQ type military contracts for periscopes with unspent funding which covers government base year and option year requirement periods into 2025. We anticipate additional orders throughout the next three years for these contracts.
The Optex Richardson segment currently has five open US Government IDIQ type military contracts for periscopes, collimators, and big eye assemblies with unspent funding which covers base year and option year requirement ordering periods into January 2029. During the year, approximately 20% of Optex Richardson’s segment orders, or $4.8 million, were awards against active IDIQ contracts.
Obligations outstanding under the credit facility will accrue interest at a rate equal to the Lender’s prime rate minus 0.25%. The 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.
As of September 29, 2024, the interest rate was 7.67% per annum. The 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 gross margin increased by $2.4 million to $4.9 million in 2022 as compared to $2.5 million in 2021. The increase is primarily due to higher revenue and shifts between segments and product lines combined with higher fixed cost absorption at the Applied Optics Center segment related to increased production volume. G&A Expenses .
Cost of sales increased by $5.4 million to $24.5 million for 2024 compared to $19.0 million for 2023. The gross profit increased by $2.9 million to $9.5 million in 2024 as compared to $6.6 million in 2023. The increase is primarily due to increased revenue, and higher absorption of fixed cost and changes in product mix between the segments.
During the twelve-month period ended October 2, 2022, we collected $0.3 million in tax refunds related to the prior year net operating loss carryback in deferred tax assets. The valuation allowance covers certain deferred tax assets where we believe we will be unlikely to recover those tax assets through future operations.
The valuation allowance covers certain deferred tax assets where we believe we will be unlikely to recover those tax assets through future operations. The valuation reserve includes assumptions related to future taxable income which would be available to cover net operating loss carryforward amounts.
The increase in operating income is primarily attributable to increased revenue and gross margin at the Applied Optics Center segment. Income before taxes decreased $0.4 million, to $1.6 million in the 2022 fiscal year from a prior year income before taxes of $2.0 million.
The operating income increased across both segments as compared to the prior year on higher revenue and gross profit. Income before taxes increased $2.0 million, to $4.8 million in the 2024 fiscal year from a prior year income before taxes of $2.7 million.
The Optex Systems Richardson segment realized a $2.3 million, or 19.5%, decrease in revenue and the Applied Optics Center segment realized an increase of $6.5 million, or 101.6%, in revenue compared to the prior year period.
The Optex Systems Richardson segment realized a $6.1 million, or 50.4%, increase in revenue and the Applied Optics Center segment realized an increase of $2.2 million, or 16.2%, in revenue compared to the prior year. 32 Optex Systems - Richardson Revenues on our periscope line increased $3.5 million, or 40.7%, during the twelve months ended September 29, 2024 and October 1, 2023 on increased customer demand and higher production throughput during the year.
Laser filter revenue increased by $2.9 million, or 96.7%, during the twelve months ended October 2, 2022 as compared to the prior twelve-month period on significantly higher demand for laser filter units from multiple defense contract customers.
Laser filter revenue increased by $3.2 million, or 50.0%, during the twelve months ended September 29, 2024 as compared to the prior twelve-month period on increased customer demand. We anticipate revenue to continue at the higher levels throughout 2025.
(Thousands) Twelve months ended October 2, 2022 October 3, 2021 Net Income — GAAP $ 1,283 $ 2,131 Add: Gain on Change in Fair Value of Warrants - (2,535 ) Federal Income Tax Expense (Benefit) 364 (101 ) Depreciation 307 263 Stock Compensation 162 228 Interest Expense - 11 Adjusted EBITDA - Non GAAP $ 2,116 $ (3 ) Our Adjusted EBITDA increased by $2.1 million to $2.1 million during the twelve months ended October 2, 2022 as compared to $0.0 million during the twelve months ended October 3, 2021.
(Thousands) Twelve months ended September 29, 2024 October 1, 2023 Net Income — GAAP $ 3,768 $ 2,263 Add: Federal Income Tax Expense 1,006 469 Depreciation & Amortization 487 345 Stock Compensation 425 247 Interest Expense 47 55 Adjusted EBITDA - Non GAAP $ 5,733 $ 3,379 Our Adjusted EBITDA increased by $2.4 million to $5.7 million during the twelve months ended September 29, 2024 as compared to $3.4 million during the twelve months ended October 1, 2023.
Net deferred tax assets as October 2 2022 and October 3, 2021 consisted of deferred tax assets of $ 1.8 million and $2.1 million, and valuation reserves of $0.9 million and $0.8 million, respectively.
As of September 29, 2024 and October 1, 2023, Optex Systems Inc. had a net carrying value of $0.9 million in deferred tax assets consisting of deferred tax assets of $1.7 million and valuation reserves of ($0.8) million.
Laser filter backlog decreased by $1.2 million, or 12.1%, during the year due to shipments against our long term laser filter unit contract. Day window backlog increased by $0.9 million during the period as compared to the prior year on new orders from a major U.S. defense contractor.
Day window backlog decreased by $0.6 million, or 35.3%, during the period as compared to the prior year primarily due to shipments against a long-term IDIQ contract with deliveries scheduled into 2026. We anticipate additional orders in the next three months.
Risk Factors – Risks Related to Our Business - Certain of our products are dependent on specialized sources of supply potentially subject to disruption which could have a material, adverse impact on our business” for a description of recent supply chain disruptions, which have strained our suppliers and extended supplier delivery lead times, affecting their ability to sustain operations.
Risk Factors – Risks Related to Our Business - Certain of our products are dependent on specialized sources of supply potentially subject to disruption which could have a material, adverse impact on our business.” We have experienced significant material shortages during the fiscal year ended October 1, 2023 and the first half of fiscal year ended September 29, 2024 from several significant suppliers of our periscope covers and housings.
The Howitzer contract awarded in July 2020 continues to experience customer driven delays related to customer furnished materials. We expect to complete the first article testing during the third fiscal quarter and to begin production deliveries during the fourth fiscal quarter of 2023.
The Howitzer contract awarded in July 2020 continues to experience customer driven delays related to customer furnished materials. This program is currently on hold pending statement of work changes and materials furnished by the customer.
Backlog as of October 2, 2022 was $32.9 million as compared to a backlog of $27.3 million as of October 3, 3021, representing an increase of 20.5%. 36 The Company has historically funded its operations through cash from operations, convertible notes, common and preferred stock offerings and bank debt.
The Company has historically funded its operations through cash from operations, convertible notes, common and preferred stock offerings and bank debt. The Company’s ability to generate positive cash flows depends on a variety of factors, including the continued development and successful marketing of the Company’s products.
Revenues on our day windows remained flat at $1.0 million during the twelve months ended October 2, 2022 and October 3, 2021 as we continue to ship against our existing contracts.
Revenues on our day windows increased by $0.1 million, or 16.7%, during the twelve months ended September 29, 2024 as compared to October 1, 2023 as we continue to ship against the long-term IDIQ contract for these units. We anticipate revenues to continue at this, or a slightly increased, level through 2025.
For the years ended October 2, 2022 and October 3, 2021, we recorded operating expenses of $3.3 million and $3.0 million, respectively. General and administrative cost increases of $0.3 million, or 10%, during fiscal year 2022 are primarily attributable to increased labor and expenses based on labor, increased office expenses and higher selling expenses as compared to the prior year.
General and administrative cost increased $0.9 million, or 22.9%, for fiscal year 2024 as compared to the prior year due to increased royalties and selling expenses of $0.4 million, increased stock compensation expenses of $0.2 million, increased labor and fringe costs of $0.2 million and increased information technology costs of $0.1 million.
The change in income due to the warrants and taxes is partially offset by higher revenue and operating income of $2.1 million in the current year as compared to the prior year period and elimination of the deemed dividends of $0.7 million associated with the warrants which expired in 2021.
Consolidated operating income increased by $2.0 million in the year ended September 29, 2024 to $4.8 million as compared to the prior year operating income of $2.8 million. The increase in operating income is primarily attributable to higher revenue and gross profit, partially offset by increases in general and administrative costs.
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. 37 We intend to renew or replace the line of credit facility.
The Borrowers’ obligations under the Credit 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. As of September 29, 2024, there was $1.0 million borrowed under the Credit Facility.
Backlog for our periscope product line has increased 35.7% or $2.0 million to $7.6 million, from our 2021 fiscal year end level of $5.6 million. Sighting Systems and Howitzer product line backlog remained flat during the twelve months ended October 2, 2022 as compared to the prior year end backlog at $1.7 million and $2.3 million, respectively.
Backlog for our periscope product line has increased 52.3% or $7.8 million to $22.7 million, from our 2023 fiscal year end level of $14.9 million, primarily on increased orders above our delivery capacity during the 2024 year.
Backlog During the twelve months ended October 2, 2022, the Company booked $28.0 million in new orders, representing a 4.1% decrease from the prior year period orders of $29.2 million.
However, we provide customer order and backlog information as we believe it provides significant insight into forward demand, with some predictive power to short term future revenues. During the twelve months ended September 29, 2024, the Company booked $36.4 million in new orders, representing a 5.2% increase from the prior year period orders of $34.6 million.
Other backlog increased by $0.1 million, or 33.3% for the year ended October 2, 2022, on new orders booked during the period for specialty coatings.
Other Applied Optics backlog increased by $0.2 million, or 22.2% for the year ended September 29, 2024, on an increase in customer orders for Infrared (IR) Signature Reduction Coatings used on aircraft.
The Company’s ability to generate positive cash flows depends on a variety of factors, including the continued development and successful marketing of the Company’s products. At October 2, 2022, the Company had approximately $0.9 million in cash and an outstanding payable balance of zero against its then $1.125 million line of credit (which has since been increased to $2.0 million).
At September 29, 2024, the Company had approximately $1.0 million in cash and an outstanding payable balance of $1.0 against its $3.0 million line of credit. As of September 29, 2024, our outstanding accounts receivable balance was $3.8 million, which has been collected during the first quarter of fiscal 2025.
Revenues on sighting systems decreased by $1.5 million, or 65.2% from the prior year period due to completion of the Commander Weapon Sighting Systems in the prior year with no follow-on order for the current year period, combined with lower revenue on the DDAN and OWSS repair units during the current year as compared to the prior year.
Revenues on sighting systems increased by $0.4 million, or 40.0% from the prior year period due to deliveries against the 2023 order for repair and refurbishment of night vision equipment to the Government of Israel.
On September 22, 2021 the Company announced authorization for an additional $1 million stock repurchase program. During the twelve months ended October 2, 2022, the Company purchased 190,954 common shares under the September 2021 stock repurchase plan at a cost of $371 thousand. As of October 2, 2022, there were zero shares held in treasury.
As of September 29, 2024, the Company was in compliance with all covenants under the Credit Facility. The Credit Facility replaced the prior $2 million line of credit with PNC Bank, National Association. 35 On September 22, 2021 the Company announced authorization for an additional $1 million stock repurchase program.
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We anticipate 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.
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In general, parts of the FAR are incorporated into government solicitations and contracts by reference as terms and conditions effecting contract awards and pricing solicitations .
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We have experienced significant material shortages during the three months ended October 2, 2022 and extending into the first three months of fiscal year 2023 from two significant suppliers of our periscope covers and housings. These shortages affect several of our periscope products at the Optex Richardson segment.
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Material Trends and Recent Developments We have experienced substantial increases in the costs of aluminum, steel and acrylic commodities, which has affected our net income in the year ended September 29, 2024 and is expected to continue to have a negative effect on the margins generated under several of our long-term fixed contracts over the next two years.
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We are aggressively seeking alternative sources for these components as well as increasing employee recruitment initiatives and overtime to mitigate any continuing risks to the periscope line.
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We have obtained an alternative source for one of our key components and are expediting our other suppliers to support the increased production levels. We have seen improvements in the local labor market since 2023 and increased our direct labor force and employee overtime in concert with improvements in our supplier delivery performance.
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In addition, one of our major customers for the Applied Optics Center has requested a significant schedule delay pushing their laser filter unit delivery schedules from the first half into the second half of fiscal year 2023. We expect the combination of these issues to negatively impact our revenue during the first three months of fiscal year 2023.
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Further, we have invested in additional machinery and equipment and other process improvements to increase production capacity and alleviate process bottlenecks.
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Our first quarter revenue projection is expected to be approximately 8-9% below the 2022 first quarter level. In November 2022, we increased our line of credit to $2.0 million from $1.125 million to facilitate our working capital requirements due to the delays and increased backlog.

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