Optex Systems Holdings Inc

Note 1 -Organization and Operations

Optex Systems Holdings, Inc. (together with its subsidiaries, the “Company,” “Optex Systems Holdings,” “we,” “us,” and “our”) manufactures optical sighting systems and assemblies for the United States (“U.S.”) Department of Defense, foreign military applications and commercial markets. Our products are installed on a variety of U.S. military land vehicles, such as the Abrams and Bradley fighting vehicles, light armored and advanced security vehicles, and have been selected for installation on the Stryker family of vehicles. The Company also manufactures and delivers numerous periscope configurations, rifle and surveillance sights and night vision optical assemblies. Optex Systems Holdings’ products consist primarily of build to customer print products that are delivered both directly to the military and to other defense prime contractors or commercial customers. The Company’s consolidated revenue for the six months ended March 29, 2026 was derived from U.S. prime military contractors (67%), military sales to the U.S. government (26%), foreign military contractors (4%), and commercial customers (3%). Approximately 96% of the total company revenue is generated from domestic customers and 4% is derived from foreign customers, primarily in Canada and Israel. Optex Systems Holdings’ operations are based in Dallas and Richardson, Texas in leased facilities comprising 93,967 square feet. As of March 29, 2026, Optex Systems Holdings operated with 134 full-time equivalent employees.

Note 2 -Accounting Policies

Basis of Presentation

***Principles of Consolidation:***The condensed consolidated financial statements include the accounts of Optex Systems Holdings and its wholly-owned subsidiary, Optex Systems, Inc. All significant inter-company balances and transactions have been eliminated in consolidation.

The condensed consolidated financial statements of Optex Systems Holdings included herein have been prepared by Optex Systems Holdings, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in conjunction with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.

These condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and the notes thereto included in the Optex Systems Holdings’ Form 10-K for the year ended September 28, 2025 and other reports filed with the SEC.

The accompanying unaudited interim condensed consolidated financial statements reflect all adjustments of a normal and recurring nature which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows of Optex Systems Holdings for the interim periods presented. The results of operations for these periods are not necessarily comparable to, or indicative of, results of any other interim period or for the fiscal year taken as a whole. Certain information that is not required for interim financial reporting purposes has been omitted.

***Inventory:***As of March 29, 2026 and September 28, 2025, inventory included:

***Cash and Cash Equivalents:***For financial statement presentation purposes, Optex Systems Holdings considers those short-term, highly liquid investments with original maturities of three months or less to be cash or cash equivalents. As of March 29, 2026 and September 28, 2025, Optex Systems Holdings has $4.2 million and $6.4 million in cash on deposit with our banks, respectively. As of March 29, 2026 and September 28, 2025, $3.1 million and $4.3 million of our cash balance, respectively, was carried in a money market account with an annual interest rate of 3.8%. For the six months ended March 29, 2026 and September 28, 2025, the total interest income under the money market account was $83 thousand andzero, respectively. Only a portion of the cash, currently $250 thousand, would be covered by federal deposit insurance and the uninsured balances are substantially greater than the insured amounts.

Concentration of Credit Risk: Optex Systems Holdings’ revenue for the quarter ended March 29, 2026 was derived from sales to U.S. government agencies (26%), five major U.S. defense contractors (21%,15%,11%,7%, and 6%), and all other customers (14%). The Company does not believe that this concentration results in undue credit risk because of the financial strength of the obligees.

Accrued Warranties: Optex Systems Holdings accrues product warranty liabilities based on the historical return rate against period shipments as they occur and reviews and adjusts these accruals quarterly for any significant changes in estimated costs or return rates. The accrued warranty liability includes estimated costs to repair or replace returned warranty backlog units currently in-house plus estimated costs for future warranty returns that may be incurred against warranty covered products previously shipped as of the period end date. As of March 29, 2026, and September 28, 2025, the Company had warranty reserve balances of $25 and $162 thousand, respectively. As of March 29, 2026, the Company reviewed the prior twelve month history of customer returns and incurred costs for warranties and determined that reserves for the Applied Optics Center daywindows and optical assemblies were no longer necessary due to the low return and repair costs. As such, the estimate for preexisting warranty liabilities was reduced by $143 thousand. The Company keeps a warranty reserve of $25 thousand to cover small return items which are generally expensed as incurred.

The table below summarizes the warranty activity for the three and six months ended March 29, 2026 and March 30, 2025.

***Use of Estimates:***The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statement and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from the estimates.

***Fair Value of Financial Instruments:***Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of the financial statement presentation date.

The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are carried at, or approximate, fair value as of the reporting date because of their short-term nature. The Texas Capital Facility (as defined below) is reported at fair value as it bears market rates of interest.

The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value and requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs reflecting the reporting entity’s own assumptions.

The accounting guidance establishes a hierarchy which requires an entity to maximize the use of quoted market prices and minimize the use of unobservable inputs. An asset or liability’s level is based on the lowest level of input that is significant to the fair value measurement. Fair value estimates are reviewed at the origination date and again at each applicable measurement date and interim or annual financial reporting dates, as applicable for the financial instrument, and are based upon certain market assumptions and pertinent information available to management at those times.

***Revenue Recognition:***The majority of the Company’s contracts and customer orders originate with fixed determinable unit prices for each deliverable quantity of goods defined by the customer order line item (performance obligation) and include the specific due date for the transfer of control and title of each of those deliverables to the customer at pre-established payment terms, which are generally within thirty to sixty days from the transfer of title and control. We have elected to account for shipping and handling costs as fulfillment costs after the customer obtains control of the goods. In addition, the Company has one ongoing service contract which relates to optimized weapon system support (OWSS) and includes ongoing program maintenance, repairs and spare inventory support for the customer’s existing fleet units in service during the duration of the contract. Revenue recognition for this program has been recorded by the Company, and compensated by the customer, at fixed monthly increments over time, consistent with the defined contract maintenance period. During the three- and six-month periods ended March 29, 2026, we recognized $132 and $265, respectively, in service contract revenue. During the three and six month-periods ended March 30, 2025, we recognized $126 thousand and $252 thousand, respectively, in service contract revenue.

During the three and six months ended March 29, 2026, we recognized $16 thousand and $7 thousand, respectively, of revenue from customer deposit liabilities (deferred contract revenue). During the three- and six-month periods ended March 30, 2025, we recognized $42 thousand and $87 thousand, respectively, of revenue from customer deposit liabilities (deferred contract revenue). As of March 29, 2026 and September 28, 2025, customer deposit liabilities were $227 thousand and $234 thousand, respectively.

As of March 29, 2026 and September 28, 2025, there was $134 thousand and $141 thousand in accrued selling expenses, respectively, and $115 thousand and $142 thousand, respectively, in contract assets related to a contract booked in November 2022. The selling costs are amortized against the revenue for the contract deliveries which began in the first half of fiscal year 2024 and are expected to extend through fiscal year 2026. During the three months ended March 29, 2026 and March 30, 2025, we booked zero and $12 thousand of selling expenses against the contract asset for shipments against the contract, respectively. During the six months ended March 29, 2026 and March 30, 2025, we booked $8 thousand and $36 thousand of selling expenses against the contract asset for shipments against the contract, respectively.

***Contract Loss Reserves:***The Company records loss provisions in the event that the current estimated total revenue against a contract and the total estimated cost remaining to fulfill the contract indicate a loss upon completion. When the estimated costs indicate a loss, we record the entire value of the loss against the contract loss reserve in the period the determination is made. The Company has one long-term fixed price contract that is currently indicative of a loss condition due to recent inflationary pressures on material and labor, combined with increased manufacturing overhead costs. The contract has deliveries scheduled through January of 2027. As of March 29, 2026 and September 28, 2025, the accrued contract loss reserves were $56 thousand and $132 thousand, respectively.

During the three and six months ended March 29, 2026, the Company recognized zero and $174 thousand, respectively, in new loss reserves against two long-term Indefinite Delivery Indefinite Quantity contracts, made shipments resulting in reductions of $111 thousand and $191 thousand, respectively, against existing loss reserves, and recognized a reduction due to a change in estimate of $59 thousand with respect to existing loss reserves. During the three and six months ended March 30, 2025, the Company recognized $11 thousand and $18 thousand in loss reserves on new contract awards, changes in estimates for the contract loss reserves of ($10) thousand and $4 thousand and applied reserves of $8 thousand and $47 thousand to cost of sales against revenue booked during the periods, respectively. As of March 29, 2026, one of the loss contracts was completed and the Company had one remaining loss contract on its backlog with an expired ordering period that is no longer subject to new contract task awards.

***Income Tax/Deferred Tax:***As of March 29, 2026 and September 28, 2025, the Company had a net carrying value of $1.1 million and $1.2 million in deferred tax assets, respectively, represented by deferred tax assets of $1.9 million and $2.0 million, respectively, and a deferred tax asset valuation allowance of $0.8 million and $0.8 million, respectively, against those assets. The valuation allowance has been established due to historical losses resulting in a Net Operating Loss Carryforward for each of the fiscal years 2011 through 2016 which cannot be fully recognized due to an IRS Section 382 limitation related to a change in control.

***Earnings per Share:***Basic earnings per share is computed by dividing income available for common shareholders (the numerator) by the weighted average number of common shares outstanding (the denominator) for the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

The Company has potentially dilutive securities outstanding, which include unvested restricted stock units and unvested shares of restricted stock. The Company uses the Treasury Stock Method to compute the dilutive effect of any dilutive shares. Unvested restricted stock units and shares of restricted stock that are anti-dilutive are excluded from the calculation of diluted earnings per common share.

For the three and six months ended March 29, 2026,67,000 shares of unvested restricted stock units and 16,700 unvested restricted shares (which convert to an aggregate of 5,498 and 35,371 incremental dilutive shares, respectively), were included in the diluted earnings per share calculation as dilutive. For the three and six months ended March 29, 2026,67,500 market-based shares were excluded from the diluted earnings per share calculation as the vesting price was higher than the market price.

For the three and six months ended March 30, 2025,22,800 shares of unvested restricted stock and 59,000 unvested restricted stock units (which convert to an aggregate of 21,271 and 59,963 incremental shares), respectively, were included in the diluted earnings per share calculation as dilutive.

Note 3 -Segment Reporting

The Company’stwo reportable segments, Applied Optics Center (“Applied Optics Center” or “AOC”) and Optex Systems – Richardson (“Optex Richardson”), are strategic businesses offering similar products to similar markets and customers; however, they are operated and managed separately due to differences in manufacturing technology, equipment, geographic location, and specific product mix. Applied Optics Center was acquired as a unit, and management at the time of the acquisition was retained.

The Applied Optics Center segment also serves as the key supplier of laser coated filters used in the production of periscope assemblies for the Optex Richardson segment. Intersegment sales and transfers are accounted for at annually agreed to pricing rates based on estimated segment product cost, which includes segment direct manufacturing and general and administrative costs but exclude profits that would apply to third party external customers.

The Chief Operating Decision Maker (“CODM”), which is our Chief Executive Officer (“CEO”), uses segment revenue, cost of sales and net operating income to assess the Company’s performance and allocation of resources. For the periods ended March 29, 2026 and March 30, 2025, the Company’s CODMs were Chad George and Danny Schoening, respectively. Danny Schoening resigned his position as CEO effective as of December 20, 2025, at which time Chad George assumed the position of CEO and CODM.

A summary of segment performance for the three months and six months ended March 29, 2026 and March 30, 2025 is included in the tables below:

Optex Richardson (OPX) – Richardson, Texas

Optex Richardson revenue is primarily in support of prime and subcontracted military customers. Approximately 94% of the Optex Richardson segment revenue is comprised of domestic military customers, and 6% is comprised of foreign military customers. For the six months ended March 29, 2026, Optex Richardson represented 62% of the Company’s total consolidated revenue and consisted of revenue from the U.S. Government (24%), and two major U.S. defense contractors (16% and 15%).

Optex Richardson is located in Richardson Texas, with leased premises consisting of approximately 49,100 square feet. As of March 29, 2026, the Richardson facility operated with 90 full-time equivalent employees in a single shift operation. The facilities at Optex Richardson serve as the home office for both the Optex Richardson and Applied Optics Center segments.

Applied Optics Center – Dallas, Texas

The Applied Optics Center serves primarily domestic U.S. customers. Sales to commercial customers represent 8% and military sales to prime and subcontracted customers represent 92% of the total external segment revenue for the six months ended March 29, 2026. Approximately 92% of the AOC revenue was derived from external customers and approximately 8% was related to intersegment sales to Optex Richardson in support of military contracts. For the six months ended March 29, 2026, AOC represented 38% of the Company’s total consolidated revenue and consisted of revenue from three major defense contractors representing 11%,7% and 6% of the Company’s consolidated revenue, respectively.

The Applied Optics Center is located in Dallas, Texas with leased premises consisting of approximately 44,867 square feet of space. As of March 29, 2026, AOC operated with 44 full-time equivalent employees in a single shift operation.

The financial tables below present information on the reportable segments’ profit or loss for each period, as well as segment assets as of each period end. The Company does not allocate interest expense, income taxes or unusual items to segments. A summary of segment performance for the three and six months ended March 29, 2026 and March 30, 2025 is included in the tables below:

Note 4 -Commitments and Contingencies

Non-cancellable Operating Leases

Optex Systems Holdings leases its office and manufacturing facilities for the Optex Systems, Inc., Richardson location and the Applied Optics Center Dallas location. The Company also leases certain office equipment under non-cancellable operating leases.

The facility leased by Optex Systems, Inc. located at 1420 Presidential Drive, Richardson, Texas consists of 49,100 square feet of space at the premises. The previous lease term for this location expired March 31, 2021 andthe monthly base rent was $24.6 thousand through March 31, 2021. On January 11, 2021 the Company executed a sixth amendment extending the terms of the lease for eighty-six (86) months, commencing on April 1, 2021 and ending on May 31, 2028. The initial base rent is set at $25.3 thousand and escalates 3% on April 1 each year thereafter. The initial term included 2 months of rent abatement for April and May of 2021. The monthly rent includes approximately $15 thousand for additional Common Area Maintenance fees and taxes (“CAM”), to be adjusted annually based on actual expenses incurred by the landlord.

The facility leased by Applied Optics Center located at 9839 and 9827 Chartwell Drive, Dallas, Texas, consists of 44,867 square feet of space at the premises. The previous lease term for this location expired on October 31, 2021 andthe monthly base rent was $21.9 thousand through the end of the lease. On January 11, 2021 the Company executed a first amendment extending the terms of the lease for eighty-six (86) months, commencing on November 1, 2021 and ending on December 31, 2028. The initial base rent is set at $23.6 thousand as of January 1, 2022 and escalates 2.75% on January 1 each year thereafter. The initial term included two months of rent abatement for November and December of 2021. The amendment provides for a five-year renewal option at the end of the lease term at the greater of the then “prevailing rental rate” or the then current base rental rate. Our obligations to make payments under the lease are secured by a $125,000 standby letter of credit. The monthly rent includes approximately $9 thousand for additional CAM, to be adjusted annually based on actual expenses incurred by the landlord.

The Company had one non-cancellable office equipment lease with a commencement date of October 1, 2018 and a term of 39 months. The lease cost for the equipment was $1.5 thousand per month from October 1, 2018 through December 31, 2021. The lease was renewed on November 18, 2021 for an additional 48 months at a cost of $1.2 thousand per month. On December 11, 2025, the Company entered into a new non-cancellable office equipment lease agreement with Datamax Inc. for seven copy machines. The lease cost for the equipment is $1.7 thousand per month from January 1, 2026 through December 31, 2030. During the six-month period ended March 29, 2026, the Company recognized $77 thousand in right-of-use assets, and lease liabilities as a result of the agreement.

As of March 29, 2026, the remaining minimum base lease and estimated CAM payments under the non-cancellable office equipment and facility space leases are as follows:

Total expense under both facility lease agreements for the three months ended March 29, 2026 and March 30, 2025 was $235 thousand and $245 thousand, respectively. Total office equipment rentals included in operating expenses were $19 thousand and $7 thousand for the three months ended March 29, 2026 and March 30, 2025, respectively.

Total expense under both facility lease agreements for the six months ended March 29, 2026 and March 30, 2025 was $475 thousand and $469 thousand, respectively. Total office equipment rentals included in operating expenses were $26 thousand and $14 thousand for the six months ended March 29, 2026 and March 30, 2025, respectively.

Note 5 -Debt Financing

Credit Facility — Texas Capital Bank

On March 22, 2023, the Company and Optex Systems, Inc. (collectively, the “Borrowers”) entered into a Business Loan Agreement with Texas Capital Bank (the “Lender”), pursuant to which the Lender makes available to the Borrowers a revolving line of credit in the principal amount of $3 million.

The commitment period for advances under the facility expired on May 22, 2025. Outstanding advances under the facility accrued interest at a rate equal to the secured overnight financing rate (“SOFR”) plus a specified margin, subject to a specified floor interest rate. The related agreement provided for a $125 thousand letter of credit sublimit.

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 SOFR plus a specific margin. The interest rate is currently 6.4% per annum.

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 3.00:1. The Texas Capital Facility is secured by substantially all of the operating assets of the Borrowers as collateral. The Borrowers’ obligations under the Texas Capital Facility are subject to acceleration upon the occurrence of an event of default as defined in the Loan Agreement. The Loan Agreement further provides for a $125,000 Letter of Credit sublimit. As of March 29, 2026, the Company is in compliance with all covenants.

There were no borrowings or payments against the line of credit during the three and six months ended March 29, 2026. During the three and six months ended March 29, 2026, the Company paid zero against the outstanding loan balance. The outstanding balance under the Texas Capital Facility waszero as of March 29, 2026 and March 30, 2025.

For the three and six months ended March 29, 2026, the interest expense under the Texas Capital Facility waszero. For the three and six months ended March 30, 2025, the interest expense under the Texas Capital Facility was $1 thousand and $12 thousand, respectively. During the three months ended March 30, 2025, the Company received $1 thousand in an interest expense refund for overcharged interest during the previous period.

Note 6 -Stock Based Compensation

Restricted Stock, Market-Based Shares and Restricted Stock Units issued to Directors, Officers and Employees

The following table summarizes the status of Optex Systems Holdings’ aggregate non-vested restricted stock and restricted stock units, and market-based shares:

Restricted Stock Units

On May 1, 2024, the Company granted an aggregate of 39,000 restricted stock units to 11 employees under the Company’s 2023 Equity Incentive Plan (the “2023 Plan”). As of the grant date, assuming a 7.7% forfeiture rate based on expected turnover across the three years, the aggregate value of the restricted stock units is $258 thousand which will be amortized across the three-year period on a straight-line basis. The restricted stock units will vest at a rate of 33.33% annually on the anniversary date of the grant and any unvested restricted stock units will be forfeited if employment terminates prior to the relevant vesting date. On June 4, 2024 there was an additional grant of 500 restricted stock units to one employee with a fair value of $4 thousand. The 500 restricted stock units will vest 100% on the anniversary date of the grant and will be forfeited if employment terminates prior to the relevant vesting date. On July 3, 2024 there was an additional grant of 1,000 restricted stock units to one employee with a fair value of $7 thousand. The 1,000 restricted stock units will vest 100% on the anniversary date of the grant and will be forfeited if employment terminates prior to the relevant vesting date.

During the twelve months ended September 28, 2025, there were 24,000 shares vested and 7,500 shares forfeited under the 2023 Plan.

On May 1, 2025, the Company granted an aggregate of 39,000 restricted stock units to 11 employees under the 2023 Plan. As of the grant date, assuming a 12.8% forfeiture rate based on expected turnover across the three years, the aggregate value of the restricted stock units is $216 thousand which will be amortized across the three-year period on a straight-line basis. The restricted stock units will vest at a rate of 33.33% on each of the first, second and third anniversaries of the date of the grant and any unvested restricted stock units will be forfeited if employment terminates prior to the relevant vesting date.

On October 15, 2025, the Company granted 1,000 restricted stock units to one employee under the 2023 Plan. As of the grant date, the fair value of the restricted stock units is $15 thousand which will be amortized across the twelve-month period on a straight-line basis. The restricted stock units will vest on October 15, 2026 and any unvested restricted stock units will be forfeited if employment terminates prior to the vesting date.

On January 5, 2026, the Company granted 1,000 restricted stock units to one employee under the 2023 Plan. As of the grant date, the fair value of the restricted stock units is $13 thousand which will be amortized across the twelve-month period on a straight-line basis. The restricted stock units will vest on January 5, 2026 and any unvested restricted stock units will be forfeited if employment terminates prior to the vesting date.

On January 5, 2026 and January 23, 2026, there were 3,000 and 6,000 restricted stock units, respectively, that were forfeited due to employee departures prior to the vesting date.

As of March 29, 2026, there were 67,000 unvested restricted stock units outstanding.

Restricted Shares

On April 30, 2020, the Board of Directors voted to increase the annual board compensation for the three independent directors from $22,000 to $36,000 withan effective date of January 1, 2020, in addition to granting 100,000 shares of restricted stock to each independent director which vest at a rate of 20% per year (20,000 shares) each January 1 st through January 1, 2025. The total fair value for the 300,000 shares was $525 thousand based on the stock price of $1.75 as of April 30, 2020. On each of January 1, 2021, January 1, 2022, and January 1, 2023,60,000 of the restricted director shares vested. On February 16, 2023,40,000 of the unvested restricted shares were forfeited and cancelled when one of the independent directors departed the Board. On May 9, 2023, the Board of Directors approved a grant of 40,000 shares of restricted stock to independent board member Dayton Judd. The shares vest 50% on each of December 31, 2023 and January 1, 2025. As of the grant date, the fair value of the shares was $124 thousand, to be amortized on a straight-line basis through December 31, 2024. The Company amortizes the grant date fair value to stock compensation expense on a straight-line basis across the five-year and two-year vesting periods beginning on April 30, 2020 and May 9, 2023, respectively. As of December 29, 2024, there were 60,000 of such unvested restricted shares outstanding which vested January 1, 2025.

On November 5, 2024, the Board approved the following Board compensation for the three independent directors, effective January 1, 2025:(a) a cash payment of $44,000, and (b) $66,000 in restricted stock awarded under the 2023 Plan, with 100% vesting on January 1, 2026, the share price calculated on the basis of the 10-day VWAP, and the number of shares rounded up to the nearest 100 shares. The restricted stock award was made on November 5, 2024 and consisted of 7,600 shares of restricted stock for each independent director. The total fair value for the 22,800 shares was $185 thousand based on the stock price of $8.10 as of November 5, 2024. As of December 28, 2025, there were 22,800 of such unvested restricted shares outstanding, which vested on January 1, 2026.

On August 11, 2025, the Board approved an award to Chad George of 10,000 shares of restricted stock under the Company’s 2023 Plan pursuant to his employment as Optex Systems Holdings, Inc.’s President. The total fair value for the 10,000 shares was $120 thousand based on the stock price of $12.00 as of August 12, 2025. As of December 28, 2025, there were 10,000 of such unvested restricted shares outstanding which vested on January 1, 2026.

On November 4, 2025, the Board approved the following Board compensation for the three independent directors, effective January 1, 2026:(a) a cash payment of $44,000, and (b) $66,000 in restricted stock awarded under the 2023 Plan, with 100% vesting on January 1, 2027, the share price calculated on the basis of the 10-day (immediately preceding and including the date of grant) VWAP, and the number of shares rounded up to the nearest 100 shares. The restricted stock award was made on November 4, 2025 and consisted of 4,000 shares of restricted stock for each independent director. The total fair value for the 12,000 shares was $201 thousand based on the stock price of $16.74 as of November 4, 2025. As of March 29, 2026, there were 12,000 of such unvested restricted shares outstanding, which will vest on January 1, 2027.

On December 5, 2025, the Board approved the annual director compensation for Danny Schoening, effective January 1, 2026:(a) $44,000 in cash and (b) $66,000 in restricted stock granted as of December 5, 2025 under the Company’s 2023 Plan, with 100% vesting on January 1, 2027, the share price calculated on the basis of the 10-day (immediately preceding and including the date of grant) VWAP, and the number of shares rounded up to the nearest 100 shares. The restricted stock award was made on December 5, 2025 and consisted of 4,700 shares of restricted stock. The total fair value for the shares was $67 thousand based on the stock price of $14.33 as of December 5, 2025. As of March 29, 2025, there were 4,700 of such unvested restricted shares outstanding, which will vest on January 1, 2027.

On January 1, 2026,32,800 restricted shares vested, and as of March 29, 2026, there were 16,700 restricted shares remaining to vest on January 1, 2027.

Market-Based Shares

Effective December 18, 2025, the Board approved a grant of 50,000 and 17,500 market-based shares to Chad George, the Company’s President and CEO, and Karen Hawkins, the Company’s Chief Financial Officer, respectively, pursuant to the Company’s 2023 Plan. Each market-based share represents a contingent right to receive one share of the Company’s common stock. The market-based shares vest in five equal increments if, in each case and during a performance period beginning on December 18, 2025 and ending on September 29, 2030, the average VWAP per share of common stock over a 30 consecutive trading day period equals or exceeds $17.54, $21.05, $25.26, $30.31, or $36.37. The fair value of the market-based shares as of the grant date is $679 thousand to be amortized over the estimated service period based on a Monte Carlo simulation.

As of March 29, 2026, there were 67,500 market-based shares remaining to vest.

The assumptions and results for the Monte Carlo simulation employed for the market-based shares are as follows:

Stock Based Compensation Expense

Equity compensation is amortized based on a straight-line basis across the vesting or service period as applicable. The recorded compensation costs for restricted shares granted and restricted stock units and market-based shares awarded as well as the unrecognized compensation costs are summarized in the table below:

The unrecognized compensation expense for restricted shares, market-based shares and restricted stock units as of March 29, 2026, is expected to be recognized over a weighted-average period of 0.8 years,1.4 and 2.2 years, respectively.

Note 7 -Stockholders’ Equity

Dividends

No dividends were declared or paid during the three and six months ended March 29, 2026 or the twelve months ended September 28, 2025.

Common stock

During the six months ended March 29,2026, the Company issued 16,700 restricted shares to four board members which will vest on January 1, 2027.

During the six months ended March 30, 2025, the Company issued 22,800 restricted shares to three independent board members which vested on January 1,2026.

On February 9, 2026, the Board of Directors of the Company terminated the Company’s existing stock repurchase program and approved a new stock repurchase program pursuant to which the Company may purchase up to $10,000,000 in shares of the Company’s outstanding common stock (the “Repurchase Program”). The Repurchase Program allows the Company to purchase common stock from time to time through, among other methods, open market purchases, privately negotiated transactions, and/or pursuant to Rule 10b5-1 trading plans, subject to applicable securities laws and other legal requirements and relevant factors. The number of shares purchased and the timing of any purchases will depend upon a number of factors, including the price and availability of the Company’s common stock and general market conditions. The Repurchase Program may be modified, suspended or terminated at any time, without prior notice. During the three and six months ended March 29, 2026 and March 30, 2025, there were no stock repurchases under the Repurchase Program.

As of March 29, 2026 and September 28, 2025, the total issued and outstanding common shares were 6,937,358 and 6,920,658, respectively.

Note 8 -Subsequent Events

On May 1, 2026, the Company issued 22,515 shares to nine employees in connection with 32,000 shares vested under the 2023 Plan, net of withholding.

On May 4, 2026, the Company granted an aggregate of 28,500 restricted stock units to thirteen employees under the 2023 Plan. As of the grant date, assuming a 15.8% forfeiture rate based on expected turnover across the next three years, the aggregate value of the restricted stock units is $260 thousand, which will be amortized across the three-year period on a straight-line basis. The restricted stock units will vest at a rate of 33.33% on each of the first, second and third anniversaries of the date of the grant, and any unvested restricted stock units will be forfeited if employment terminates prior to the relevant vesting date.