Optex Systems Holdings Inc

Previous wording

Optex Systems, Inc. manufactures optical sighting systems and assemblies for the U.S. Department of Defense, foreign military applications and commercial markets. 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. (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 this case, the product would likely be a simple replacement part of a larger system previously produced by Optex Systems, Inc. (Delaware).

Current wording

Our wholly-owned subsidiary, Optex Systems, Inc., manufactures optical sighting systems and assemblies, primarily for DoD applications. Its products are installed on various types of U.S. military land vehicles, such as the Abrams and Bradley fighting vehicles and light armored and advanced security vehicles, and have been selected for installation on the Stryker family of vehicles. Optex Systems, Inc. also manufactures and delivers numerous periscope configurations, rifle and surveillance sights and night vision optical assemblies. Optex Systems, Inc. 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 revenue is related to the resale of products substantially manufactured by others. In this case, the product would likely be a simple replacement part of a larger system previously produced by Optex Systems, Inc.

Previous wording

We are both a prime and sub-prime contractor to the Department of Defense. Sub-prime contracts are typically issued through major defense contractors such as General Dynamics Land Systems, Raytheon Corp., BAE, ADS Inc. and others. 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.

Current wording

We are both a prime and sub-prime contractor to the DoD. Sub-prime contracts are typically issued through major defense contractors such as General Dynamics Land Systems, Raytheon Corp., BAE, ADS Inc. and others. We are also a military supplier to foreign governments such as Israel, Australia and South American countries and a subcontractor for several large U.S. defense companies serving foreign governments.

Previous wording

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. 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*.*

Current wording

The FAR is the principal set of regulations that govern the acquisition process of government agencies and contracts with the U.S. government. 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*.*

Previous wording

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”. 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.

Current wording

Many of our contracts are prime or subcontracted directly with the U.S. 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”. 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.

Previous wording

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. See also “Item 1A. 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.”

Current wording

The Optex Richardson segment has numerous fixed price multi-year contracts covering delivery periods up to five years from the contract award. Approximately 4% of our Optex Richardson segment backlog are for items priced prior to fiscal year 2021. Since fiscal year 2021, we have experienced substantial increases in the costs of aluminum, steel and acrylic commodities, which has affected the Optex Richardson segment margins for deliveries against those orders during the year ended September 28, 2025 and which is expected to continue to have a negative effect through the first fiscal quarter of 2026. See also “Item 1A. 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.”

Previous wording

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. 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. We have obtained an alternative source for one of our key components and are expediting our other suppliers to support the increased production levels.

Current wording

We experienced significant material shortages during the first half of fiscal year 2024 from several significant suppliers of our periscope covers and housings. These shortages affected several of our periscope products at the Optex Richardson segment. The delays in key components, combined with labor shortages experienced in fiscal year 2023, negatively impacted our production levels and pushed the delivery dates of several of our contracts into fiscal year 2025 and early fiscal year 2026. We have obtained an alternative source for one of our key components and expedited our other suppliers to support the increased production levels.

Previous wording

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. Further, we have invested in additional machinery and equipment and other process improvements to increase production capacity and alleviate process bottlenecks. While we are encouraged by improvements in supplier performance and available manpower for the Optex Richardson segment periscope line which yielded increased revenue performance during fiscal year 2024, we have yet to ramp up deliveries sufficiently to keep pace with our current customer demands. As such, we cannot give any assurances that expected customer delivery dates for our periscope products will not experience further delays.

Current wording

We have seen improvements in the local labor market since fiscal year 2023 and increased our direct labor force and employee overtime in concert with improvements in our supplier delivery performance. Further, we have invested in additional machinery and equipment and other process improvements to increase production capacity and alleviate process bottlenecks. During the 2025 fiscal year, we increased our periscope production levels by 56% over the 2024 fiscal year levels.

Previous wording

We refer also to “Item 1. Business – Market Opportunity: U.S. Military” for a description of current trends in U.S. government military spending and its potential impact on Optex, which may be material, including particularly the tables included in that section and disclosure on the significant reduction in spending for U.S ground system military programs, which has a direct impact on the Optex Systems Richardson segment revenue, all of which is incorporated herein by reference.

Current wording

We refer also to “Item 1. Business – Market Opportunity: U.S. Military” for a description of current trends in U.S. government military spending and its potential impact on Optex, which may be material, including particularly the tables included in that section and disclosure on the significant reduction in spending for U.S. ground system military programs, in combination with the U.S. government shutdown and CR which has a direct impact on the Optex Richardson segment revenue, all of which is incorporated herein by reference.

Previous wording

We have presented the operating results by segment to provide investors with an additional tool to evaluate our operating results. Management of Optex Systems Holdings uses the selected financial measures by segment internally to evaluate its ongoing segment operations and to allocate resources within the organization accordingly. Segments are determined based on differences in products, location, internal reporting and how operational decisions are made. Management has determined that the Optex Systems, Richardson plant (to which we refer below as the Optex Systems segment or Optex Systems), and the Applied Optics Center, Dallas plant, which was acquired on November 3, 2014 (to which we refer below as the Applied Optics Center segment or Applied Optics Center), are separately managed, organized, and internally reported as separate business segments. 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”.

Current wording

We have presented the operating results by segment to provide investors with an additional tool to evaluate our operating results. Management of Optex Systems Holdings uses the selected financial measures by segment internally to evaluate its ongoing segment operations and to allocate resources within the organization accordingly. Segments are determined based on differences in products, location, internal reporting and how operational decisions are made. Management has determined that the Optex Richardson plant and the Applied Optics Center, Dallas plant, which was acquired on November 3, 2014 (to which we refer below as the Applied Optics Center segment or Applied Optics Center), are separately managed, organized, and internally reported as separate business segments. The table below provides a summary of selective statement of operations data by operating segment for the years ended September 29, 2024 and September 28, 2025 reconciled to the Audited Consolidated Results of Operations as presented in Item 8, “Financial Statements and Supplementary Data”.

Previous wording

Our total external sales revenues increased by $8.3 million in the fiscal year 2024, or 32.5% compared to the 2023 fiscal year. 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. Intersegment revenues relate primarily to coated filters provided by the Applied Optics Center to Optex Systems in support of the Optex Systems periscope line.

Current wording

Our total external revenues increased by $7.3 million for the 2025 fiscal year, or 21.6%, compared to the 2024 fiscal year. The Optex Richardson segment realized a $5.6 million, or 30.8% increase, and the Applied Optics Center segment realized an increase of $1.8 million, or 11.1%, in external revenue compared to the prior year period. Intersegment revenues were $1.2 million for the 2025 fiscal year and $1.0 million for the 2024 fiscal year. Intersegment revenues relate primarily to coated filters provided by the Applied Optics Center to Optex Richardson in support of the Optex Richardson periscope line.

Previous wording

Consolidated general and administrative costs increased from $3.8 million for the twelve months ended October 1, 2023 to $4.7 million for the twelve months ended September 29, 2024. General and administrative costs increased $0.9 million 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. 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 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.

Current wording

Consolidated general and administrative costs increased from $4.7 million for the twelve months ended September 29, 2024 to $4.9 million for the twelve months ended September 28, 2025. General and administrative costs increased $0.2 million due to increased royalties and selling expenses of $0.1 million, increased labor and fringe costs of $0.1 million and increased information technology costs of $0.1 million, offset by decreased investor relation expenses of $0.1 million. During the fiscal years 2025 and 2024, Applied Optics Center absorbed $1.4 million and $1.5 million, respectively, of fixed general and administrative costs incurred by Optex Richardson for support services. These expenses cover accounting, executive, human resources, information technology, board fees and other corporate expenses paid by Optex Richardson and shared across both operating segments.

Previous wording

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 operating income increased across both segments as compared to the prior year on higher revenue and gross profit.

Current wording

Consolidated operating income increased by $2.3 million in the year ended September 28, 2025 to $7.1 million as compared to the prior fiscal year operating income of $4.8 million. Operating income increased as a result of higher revenues and increased gross profit as compared to the prior fiscal year.

Previous wording

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 increase in income before taxes year over year is primarily due to higher revenue and gross profit, partially offset by increased general and administrative costs.

Current wording

Income before taxes increased $1.6 million, to $6.4 million in the 2025 fiscal year from a prior fiscal year income before taxes of $4.8 million as a result of higher operating income offset by $0.8 million in asset impairment.

Previous wording

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. The orders for the most recently completed twelve months consist of $23.5 million for our Optex Richardson segment and $12.9 million attributable to the Applied Optics Center segment.

Current wording

During the twelve months ended September 28, 2025, the Company booked $36.2 million in new orders, representing a 0.5% decrease from the prior year period orders of $36.4 million. The orders for the most recently completed twelve months consist of $21.3 million for our Optex Richardson segment and $14.9 million attributable to the Applied Optics Center segment.

Previous wording

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. The Applied Optics Center has two open US Government IDIQ orders. During the year, approximately 22% of Applied Optics Center segment orders, or $2.8 million, were awards against active IDIQ contracts. We anticipate additional orders throughout the next five years for these ongoing contracts. In addition, the Company has several open bid requests for new multi-year IDIQ contracts pending with the U.S. Government and other prime contractors for additional periscopes, and unity mirrors that are expected to be awarded in the next three to six months.

Current wording

The Optex Richardson segment currently has four open US Government IDIQ type military contracts for periscopes, vision blocks and collimators with unspent funding which covers base year and option year requirement ordering periods into July 2030. During the 2025 fiscal year, approximately 31% of Optex Richardson’s segment orders, or $6.7 million, were awards against active IDIQ contracts. We anticipate additional orders throughout the next five years for these ongoing contracts. In addition, the Companyhas an active bid request for a new multi-year IDIQ contract pending with the U.S. government for additional periscopes and infrared filter assemblies that are expected to be awarded in the next three to six months. The Applied Optics Center has no open US government IDIQ orders.

Previous wording

Backlog as of September 29, 2024 was $44.2 million as compared to a backlog of $41.8 million as of October 1, 2023, representing an increase of 5.7%. 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.

Current wording

Backlog as of September 28, 2025 was $39.1 million as compared to a backlog of $44.2 million as of September 29, 2024, representing a decrease of 11.5%. The following table depicts the current expected delivery by quarter of all contracts awarded as of September 28, 2025, as well as the September 28, 2025 backlog as compared to the backlog on September 29, 2024.

Previous wording

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.

Current wording

The Applied Optics Center backlog decreased by $2.7 million, or 21.8%, for the year ended September 28, 2025, from $12.4 million in fiscal year 2024 to $9.7 million in fiscal year 2025. The majority of this reduction is due the delay in award for the BNVG Night Vision Goggle program.

Previous wording

Backlog for our optical assemblies decreased by $2.1 million, or 75.0%, as compared to the prior year on lower customer demand. We anticipate new orders during the next three to six months for deliveries in 2025.

Current wording

Backlog for our optical assemblies decreased by $0.6 million, or 85.7%, during the 2025 fiscal year, compared to prior fiscal year-end backlog on lower customer demand for commercial optical assemblies. We anticipate new orders during the next three to six months for deliveries in fiscal year 2026.

Previous wording

Other Applied Optics backlog increased by $0.2 million, or 22.2% for the year ended September 29, 2024, onan increase in customer orders for Infrared (IR) Signature Reduction Coatings used on aircraft.

Current wording

Other Applied Optics Center backlog increased by $0.2 million, or 18.2% during the 2025 fiscal year on increased customer orders on for our specialty coatings products.

Previous wording

Our total revenues increased by $8.3 million, or 32.3% in fiscal year 2024 compared to fiscal year 2023. 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.

Current wording

Our total revenues increased by $7.3 million, or 21.6% in fiscal year 2025 compared to fiscal year 2024. The Optex Richardson segment realized a $5.6 million, or 30.8%, increase in revenue and the Applied Optics Center segment realized an increase of $1.7 million, or 10.8%, in revenue compared to the prior fiscal year.

Previous wording

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.

Current wording

Revenues on sighting systems increased by $0.1 million, or 7.1% from the prior fiscal year due to increased deliveries of refurbished units for the night vision equipment program to the Government of Israel.

Previous wording

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.

Current wording

Optex Richardson revenue on other product lines decreased by $1.6 million, or 34.0%, compared to revenues in the prior fiscal year due to lower customer demand for beamsplitters, unity mirrors, bonded mirrors, wedge prism assemblies and other spare parts.

Previous wording

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.

Current wording

Laser filter revenue increased by $2.8 million, or 29.2%, for the twelve months ended September 28, 2025 as compared to the prior twelve-month period on higher customer demand.

Previous wording

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 onincreased deliveries in products for Infrared (IR) Signature Reduction Coatings used on aircraft. We anticipate these delivery levels to continue into 2025 combined with additional increases for shipments against our current binocular contract.

Current wording

Applied Optics Center revenue for other product lines increased by $0.9 million, or 56.3%, for the twelve months ended September 28, 2025 as compared to the prior twelve-month period onincreased deliveries of binoculars over the prior year combined with higher customer demand for specialty coatings.

Previous wording

Gross Margin. The gross margin for the year ended September 29, 2024 was 28.0% of revenue as compared to a gross margin of 25.8% of revenue for the year ended October 1, 2023. 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.

Current wording

Gross Margin. The gross margin for the year ended September 28, 2025 was 29.2% of revenue as compared to a gross margin of 28.0% of revenue for the year ended September 29, 2024. Cost of sales increased by $4.8 million to $29.3 million for fiscal year 2025 compared to $24.5 million for fiscal year 2024. The gross profit increased by $2.5 million to $12.1 million in fiscal year 2025 as compared to $9.5 million in fiscal year 2024. The increased gross profit as compared to the prior year is primarily driven by higher revenue and product mix changes combined with improved manufacturing overhead rates as the fixed overhead costs are spread across a significantly higher revenue base.

Previous wording

G&A Expenses. For the years ended September 29, 2024 and October 1, 2023, we recorded operating expenses of $4.7 million and $3.8 million, respectively. 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 selling expenses are directly related to new products including the Speedtracker acquisition and the Government of Israel repair and refurbishment on night vision products and the royalties are related to the new Infrared (IR) Signature Reduction Coatings product.

Current wording

G&A Expenses. For the years ended September 28, 2025 and September 29, 2024, we recorded operating expenses of $4.9 million and $4.7 million, respectively. General and administrative costs increased $0.2 million, or 4.3%, during the fiscal year 2025 due to increased royalties and selling expenses of $0.1 million, increased labor and fringe costs of $0.1 million and increased information technology costs of $0.1 million offset by decreased investor relation expenses of ($0.1) million.

Previous wording

Operating Income. 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.

Current wording

Operating Income. For the year ended September 28, 2025, we recorded operating income of $7.1 million as compared to operating income of $4.8 million during the year ended September 29, 2024. The $2.3 million increase in operating income is primarily due to increased gross profit of $2.5 million, offset by an increase of ($0.2) million in general and administrative spending.

Previous wording

Net income applicable to common shareholders. 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. 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.

Current wording

Net income applicable to common shareholders. During the year ended September 28, 2025, we recorded net income applicable to common shareholders of $5.1 million as compared to net income applicable to common shareholders of $3.8 million during the year ended September 29, 2024. The increase of net income of $1.3 million is primarily attributable to increased operating income of $2.3 million, offset by ($0.8) million in asset impairment for our Speedtracker product line acquisition and increased federal income tax expense of ($0.2) million.

Previous wording

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. 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.

Current wording

Our Adjusted EBITDA increased by $2.3 million to $8.0 million during the twelve months ended September 28, 2025 as compared to $5.7 million during the twelve months ended September 29, 2024. The increase in EBITDA is primarily driven by increased revenue and gross profit. Operating segment performance is discussed in greater detail throughout the previous sections.

Previous wording

As of September 29, 2024, Optex Systems Holdings had working capital of $15.1 million, as compared to $13.5 million as of October 1, 2023. During the twelve months ended September 29, 2024, we generated operating cash of $1.8 million, primarily driven by increased revenue and net income. As of September 29, 2024, there was no net change against the outstanding credit facility balance of $1.0 million.

Current wording

As of September 28, 2025, Optex Systems Holdings had working capital of $21.1 million, as compared to $15.1 million as of September 29, 2024. During the twelve months ended September 28, 2025, we generated operating cash of $6.9 million, primarily driven by increased net income of $5.1 million, non-cash expenses of $1.7 million for depreciation and amortization, asset impairment and stock compensation, and all other changes in other working capital of $0.1 million. During the twelve months ended September 28, 2025, we paid $1.0 million against the credit facility and purchased capital assets of $0.5 million.

Previous wording

Backlog as of September 29, 2024 was $44.2 million as compared to a backlog of $41.8 million as of October 1, 2023, representing an increase of 5.7%. For further details, see “Results of Operations – New Orders and Backlog” above.

Current wording

Backlog as of September 28, 2025 was $39.1 million as compared to a backlog of $44.2 million as of September 29, 2024, representing a decrease of 11.5%. For further details, see “Results of Operations – New Orders and Backlog” above.

Previous wording

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. During the first quarter of 2025, we paid down our credit facility to zero.

Current wording

At September 28, 2025, the Company had approximately $6.4 million in cash and no draws against its revolving credit line. Our cash balance is split between current operating interest-bearing money market accounts based on our immediate working capital requirements. As of September 28, 2025, $4.0 million of our cash balance was carried in a money market account with an annual interest rate of 3.84%. For the twelve months ended September 28, 2025, the total interest income under such money market account was $35 thousand. As of September 28, 2025, our outstanding accounts receivable balance was $4.6 million, which has been collected during the first quarter of fiscal year 2026. During the first quarter of 2025, we paid $1.0 million against our credit facility bringing the balance to zero.

Previous wording

On January 18, 2024, the Company acquired certain intellectual property and technical and marketing information relating to the Speedtracker Mach product line and entered into an asset purchase agreement and a contract manufacturing agreement with RUB Aluminium s.r.o. (“RUB”). The Company acquired the assets using $1 million cash on hand, with potential additional future cash payments based on successful completion of defined milestones. The initial term of the contract manufacturing agreement is one year, subject to additional one-year renewal terms. After the acquisition, the Company determined it would be more economical to move the manufacturing operations in house and is no longer ordering assembled units under the original contract manufacturing agreement. RUB will continue to provide the Company with purchased kit parts for the manufacture of the Speedtracker Mach products.

Current wording

On January 18, 2024, the Company acquired certain intellectual property and technical and marketing information relating to the Speedtracker Mach product line and entered into an asset purchase agreement and a contract manufacturing agreement with RUB Aluminium s.r.o. (“RUB”). The Company acquired the assets using $1 million cash on hand, with potential additional future cash payments based on successful completion of defined milestones. The initial term of the contract manufacturing agreement was one year, subject to additional one-year renewal terms. After the acquisition, the Company determined it would be more economical to move the manufacturing operations in house and is no longer ordering assembled units under the original contract manufacturing agreement. RUB will continue to provide the Company with purchased kit parts for the manufacture of the Speedtracker Mach products.

Previous wording

The acquisition included transaction costs of $30 thousand for legal fees. Pursuant to the asset purchase agreement, the total earnout payment will be $238 thousand only if the earnout revenue milestone is achieved during the earnout period, otherwise the earnout will be zero. As of September 29, 2024, it was determined that the earnout revenue milestone was unlikely to be achieved during the earnout period and the fair value of the contingent liability was zero. The asset will be amortized on a straight-line basis over a seven-year period.

Current wording

The acquisition included transaction costs of $30 thousand. Pursuant to the asset purchase agreement, the total earnout payment will be $238 thousand only if the earnout revenue milestone is achieved during the earnout period, otherwise the earnout will be zero. As of September 28, 2025, it was determined that the earnout revenue milestone was unlikely to be achieved during the earnout period and the fair value of the contingent liability was zero. The asset was amortized on a straight-line basis over a seven-year period through September 28, 2025. On September 28, 2025, the Company reviewed the intangible asset value based on the anticipated revenues and cash flow of the product line over the next five years and determined that the remaining asset value could not be recovered. As a result, the remaining $0.8 million of unamortized intangible assets was impaired and as of September 28, 2025, the remaining balance of intangible assets is zero.

Previous wording

The Company expects to generate net income and positive cash flow from operating activities over the next twelve months. To remain profitable, we need to maintain a level of revenue adequate to support our cost structure. 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. In the event the Company does not successfully implement its ultimate business plan, certain assets may not be recoverable.

Current wording

The Company expects to generate net income and positive cash flow from operating activities over the next twelve months. To remain profitable, we need to maintain a level of revenue adequate to support our cost structure. 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 delays of government funding and government shutdowns could create a working capital shortfall. In the event the Company does not successfully implement its ultimate business plan, certain assets may not be recoverable.

Previous wording

On March 22, 2023, the Company and its subsidiary, Optex Systems, Inc. (“Optex”, and with the Company, the “Borrowers”), entered into a Business Loan Agreement (the “Loan Agreement”) with Texas Capital Bank (the “Lender”), pursuant to which the Lender will make available to the Borrowers a revolving line of credit in the principal amount of $3 million (the “Credit Facility”). The commitment period for advances under the Credit Facility is twenty-six months expiring on May 22, 2025. We refer to the expiration of that time period as the “Maturity Date.” Outstanding advances under the Credit Facility will accrue interest at a rate equal to the secured overnight financing rate (SOFR) plus a specified margin, subject to a specified floor interest rate. The interest rate is currently at 7.509% per annum. As of September 29, 2024, the interest rate was 7.67% per annum.

Current wording

On May 21, 2025, the Company and Optex Systems, Inc. renewed their existing credit facility with the Lender by entering into a new Business Loan Agreement (the “Loan Agreement”) effective May 22, 2025, pursuant to which the Lender will continue to make available a revolving line of credit in the principal amount of $3 million (the “Texas Capital Facility”). The commitment period for advances under the Texas Capital Facility is twenty-four months expiring on May 22, 2027 (the “Maturity Date”). Outstanding advances under the Texas Capital Facility will accrue interest at a variable rate equal to the secured overnight financing rate (SOFR) plus a specified margin. The interest rate is currently at 6.7% per annum.

Previous wording

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 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. 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. As of September 29, 2024, the Company was in compliance with all covenants under the Credit Facility.

Current wording

The Loan Agreement contains customary events of default and negative covenants, including but not limited to those governing capital expenditures (limited to $1 million per year), indebtedness and liens, affiliate transactions, fundamental changes (including change in management), investments, and restricted payments (including dividends). The Loan Agreement also requires the borrowers to maintain a fixed charge coverage ratio of at least 1.25:1 and a total leverage ratio of 3:1. The Texas Capital Facility is secured by substantially all of the operating assets of the borrowers as collateral. The obligations under the Texas Capital Facility are subject to acceleration upon the occurrence of an event of default as defined in the Loan Agreement. The Loan Agreement further provides for a $125,000 Letter of Credit sublimit.

Previous wording

Our critical accounting estimates include warranty costs, contract losses and the deferred tax asset valuation. Future warranty costs are based on the estimated cost of replacement for expected returns based upon our most recent experience rate of defects as a percentage of warranty covered sales. Our warranty covered sales primarily include the Applied Optics Center optical assemblies. While our warranty period is 12 months, our reserve balances assume a general 90-day return period for optical assemblies previously delivered plus any returned backlog in-house that has not yet been repaired or replaced to our customer. If our actual warranty returns should significantly exceed our historical rates on new customer products, significant production changes, or substantial customer changes to the 90-day turn-around times on returned goods, the impact could be material to our operating profit. We have not experienced any significant changes to our warranty trends in the preceding three years and do not anticipate any significant impacts in the near term. We monitor the actual warranty costs incurred to the expected values on a quarterly basis and adjust our estimates accordingly. As of September 29, 2024, the Company had accrued warranty costs of $52 thousand, as compared to $75 thousand as of October 1, 2023. The primary reason for the decrease in reserve balances relates to lower shipments of our optical assemblies during the twelve months ended September 29, 2024 as compared to the prior year.

Current wording

Our critical accounting estimates include warranty costs, contract losses and the deferred tax asset valuation. Future warranty costs are based on the estimated cost of replacement for expected returns based upon our most recent experience rate of defects as a percentage of warranty covered sales. Our warranty covered sales primarily include the Applied Optics Center optical assemblies. While our warranty period is 12 months, our reserve balances assume a general 90-day return period for optical assemblies previously delivered plus any returned backlog in-house that has not yet been repaired or replaced to our customer. If our actual warranty returns should significantly exceed our historical rates on new customer products, significant production changes, or substantial customer changes to the 90-day turn-around times on returned goods, the impact could be material to our operating profit. We have not experienced any significant changes to our warranty trends in the preceding three years and do not anticipate any significant impacts in the near term. We monitor the actual warranty costs incurred to the expected values on a quarterly basis and adjust our estimates accordingly. As of September 28, 2025, the Company had accrued warranty costs of $162 thousand, as compared to $52 thousand as of September 29, 2024. The primary reason for the increase in reserve balances relates to an expected warranty repair cost of $143 thousand for shipped day windows due to a glass cracking issue which was partially offset by lower warranties realized on our commercial optical assemblies.

Previous wording

As of September 29, 2024 and October 1, 2023, we had $259 thousand, and $243 thousand, respectively, of contract loss reserves included in our balance sheet accrued expenses. 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. 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. These contracts are typically three-year IDIQ contracts with two optional award years, and as such, we are obligated to accept new task awards against these contracts until the contract expiration. Should contract costs continue to increase above the negotiated selling price, or in the event the customer should release substantial quantities against these existing loss contracts, the losses could be material. For contracts currently in a loss status based on the estimated per unit contract costs, losses are booked immediately on new task order awards. 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. We continue to monitor these contracts throughout the year for any significant changes in addition to seeking potential cost saving strategies to mitigate risk.

Current wording

As of September 28, 2025 and September 29, 2024, we had $132 thousand, and $259 thousand, respectively, of contract loss reserves included in our balance sheet accrued expenses. These loss contracts are related to some of our older legacy periscope contracts which were priced in 2019 and 2020, prior to Covid-19. 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 our contracts are in a loss condition, or at marginal profit rates. These contracts are typically three-year IDIQ contracts with two optional award years, and as such, we are obligated to accept new task awards against these contracts until the contract expiration. Should contract costs continue to increase above the negotiated selling price, or in the event the customer should release substantial quantities against these existing loss contracts, the losses could be material. For contracts currently in a loss status based on the estimated per unit contract costs, losses are booked immediately on new task order awards. There is one open IDIQ option year to which the customer may place additional awards through January 5, 2026. During the twelve months ended September 28, 2025, the accrued contract losses decreased by $127 thousand on shipments for the existing IDIQ contracts during the twelve-month period. There is no way to reasonably estimate future inflationary impacts, or customer awards on the existing loss contracts. We continue to monitor these contracts throughout the year for any significant changes in addition to seeking potential cost saving strategies to mitigate risk.

Previous wording

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. 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. 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.

Current wording

As of September 28, 2025 and September 29, 2024, Optex Systems, Inc. had a net carrying value of $1.2 million and $0.9 million, respectively, in deferred tax assets represented by deferred tax assets of $2.0 million and $1.7 million, respectively, and a deferred tax asset valuation allowance of ($0.8) million each year, against those 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 reserve includes assumptions related to future taxable income which would be available to cover net operating loss carryforward amounts. 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.