Optex Systems Holdings Inc

Previous wording

These forward-looking statements represent our expectations, beliefs, intentions or strategies concerning future events, including, but not limited to, any statements regarding growth strategy; product and development programs; financial performance and financial condition (including revenue, net income, profit margins and working capital); orders and backlog; expected timing of contract deliveries to customers and corresponding revenue recognition; increases in the cost of materials and labor; costs remaining to fulfill contracts; contract loss reserves; labor shortages; follow-on orders; supply chain challenges; the continuation of historical trends; the sufficiency of our cash balances for future liquidity and capital resource needs; the expected impact of changes in accounting policies on our results of operations, financial condition or cash flows; anticipated problems and our plans for future operations; and the economy in general or the future of the defense industry.

Current wording

These forward-looking statements represent our expectations, beliefs, intentions or strategies concerning future events, including, but not limited to, any statements regarding growth strategy; product and development programs; financial performance and financial condition (including revenue, net income, profit margins and working capital); expected awards, orders and backlog; expected timing of contract deliveries to customers and corresponding revenue recognition; increases in the cost of materials and labor; costs remaining to fulfill contracts; contract loss reserves; labor shortages; follow-on orders; supply chain challenges; the continuation of historical trends; the sufficiency of our cash balances for future liquidity and capital resource needs; the expected impact of changes in accounting policies on our results of operations, financial condition or cash flows; anticipated problems and our plans for future operations; and the economy in general or the future of the defense industry.

Previous wording

We caution that these statements by their nature involve risks and uncertainties, certain of which are beyond our control, and actual results may differ materially depending on a variety of important factors. Such risks and uncertainties include, but are not limited to, continued funding of defense programs and military spending, the timing of such funding, general economic and business conditions, including unforeseen weakness in the Company’s markets, effects of continued geopolitical unrest and regional conflicts, competition, changes in technology and methods of marketing, delays in completing engineering and manufacturing programs, changes in customer order patterns, changes in product mix, continued success in technological advances and delivering technological innovations, changes in the U.S. Government’s interpretation of federal procurement rules and regulations, changes in spending due to policy changes in any new federal presidential administration, market acceptance of the Company’s products, shortages in components, production delays due to performance quality issues with outsourced components, inability to fully realize the expected benefits from acquisitions and restructurings or delays in realizing such benefits, challenges in integrating acquired businesses and achieving anticipated synergies, changes to export regulations, increases in tax rates, changes to generally accepted accounting principles, difficulties in retaining key employees and customers, unanticipated costs under fixed-price service and system integration engagements, changes in the market for microcap stocks regardless of growth and value and various other factors beyond our control. Some of these risks and uncertainties are identified in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and the section “Risk Factors” in our Annual Report on Form 10-K and you are urged to review those sections. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete list of all potential risks or uncertainties.

Current wording

We caution that these statements by their nature involve risks and uncertainties, certain of which are beyond our control, and actual results may differ materially depending on a variety of important factors. Such risks and uncertainties include, but are not limited to, continued funding of defense programs and military spending, the timing of such funding, general economic and business conditions, including unforeseen weakness in the Company’s markets, effects of continued geopolitical unrest and regional conflicts (including the U.S.-Israeli war with Iran), competition, changes in technology and methods of marketing, delays in completing engineering and manufacturing programs, changes in customer order patterns, changes in product mix, continued success in technological advances and delivering technological innovations, changes in the U.S. government’s interpretation of federal procurement rules and regulations, changes in spending due to policy changes in any new federal presidential administration, market acceptance of the Company’s products, shortages in components, production delays due to performance quality issues with outsourced components, inability to fully realize the expected benefits from acquisitions and restructurings or delays in realizing such benefits, challenges in integrating acquired businesses and achieving anticipated synergies, changes to export regulations, increases in tax rates, changes to generally accepted accounting principles, difficulties in retaining key employees and customers, unanticipated costs under fixed-price service and system integration engagements, changes in the market for microcap stocks regardless of growth and value and various other factors beyond our control. Some of these risks and uncertainties are identified in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and the section “Risk Factors” in our Annual Report on Form 10-K and you are urged to review those sections. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete list of all potential risks or uncertainties.

Previous wording

Many of our contracts are prime or subcontracted directly with the U.S. Government and, as such, are subject to FAR Subpart 49.5, “Contract Termination Clauses” and more specifically FAR 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. government and, as such, are subject to FAR Subpart 49.5, “Contract Termination Clauses” and more specifically FAR 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. However, a material termination for convenience of several of our purchase contracts related to the U.S. Army M10 Booker Combat Vehicle is currently pending. The total backlog value subject to such termination is approximately $1.3 million. We are currently under audit with the customer to recover all of our incurred costs plus fee against the program to date, but do not expect resolution and payment against the final contract balance until sometime in 2027. We expect to recover up to approximately $1.0 million against the pending termination claim. We are currently not aware of any other material pending terminations for convenience or for default on our existing contracts.

Previous wording

We have had numerous fixed price multi-year contracts covering delivery periods up to five years from the contract award. Since fiscal year 2021, we have experienced substantial increases in the costs of aluminum, steel, gold and acrylic commodities, which have affected both the Optex Richardson and Applied Optics segment margins for deliveries against those orders during the year ended September 28, 2025 and during the first half of 2026. As of March 29, 2026, all but one of these legacy fixed price contracts have been completed, and the sole contract that remains active represents approximately 1% of our contract backlog, is for items priced prior to fiscal year 2021, and is in a loss condition due to cost increases.

Current wording

We have had numerous fixed price multi-year contracts covering delivery periods up to five years from the contract award. Since fiscal year 2021, we have experienced substantial increases in the costs of aluminum, steel, gold and acrylic commodities, which have affected segment margins for deliveries against those orders during the year ended September 28, 2025 and during the first half of fiscal year 2026 for both Optex Richardson, our Richardson plant (“Optex Richardson”), and the Applied Optics Center, our Dallas plant (“Applied Optex Center” or “AOC”). As of June 28, 2026, all but one of these legacy fixed price contracts have been completed. The sole contract that remains active represents approximately 1% of our total contract backlog and is in a current loss condition due to cost increases on the price of gold.

Previous wording

From October 1, 2025 through November 12, 2025, the U.S. federal government was in a shutdown as Congress did not pass appropriations legislation for fiscal year 2026. On November 10, 2025, Congress passed a CR that funded the federal government at existing spending levels through January 30, 2026. On February 3, 2026, Congress passed and the President signed an appropriations bill funding the majority of U.S. Government operations for fiscal year 2026. This legislation excluded the Department of Homeland Security, which remains subject to further negotiations.

Current wording

From October 1, 2025 through November 12, 2025, the U.S. federal government was in a shutdown as Congress did not pass appropriations legislation for fiscal year 2026. On November 10, 2025, Congress passed a CR that funded the federal government at existing spending levels through January 30, 2026. On February 3, 2026, Congress passed and the President signed an appropriations bill funding the majority of U.S. government operations for fiscal year 2026, and on April 30, 2026, a Department of Homeland Security appropriations bill was enacted for fiscal year 2026.

Previous wording

We refer also to “Item 1. Business – Market Opportunity: U.S. Military” in our Annual Report on Form 10-K for the year ended September 28, 2025 for a description of current trends in U.S. government military spending and its potential impact on the Company, 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 Company’s revenue, all of which is incorporated herein by reference.

Current wording

We refer also to “Item 1. Business – Market Opportunity: U.S. Military” in our Annual Report on Form 10-K for the year ended September 28, 2025 for a description of current trends in U.S. government military spending and its potential impact on the Company, 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 had a direct impact on the Company’s 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 and to have a better understanding of the overall performance of each business segment. 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 Optex Richardson, our Richardson plant (“Optex Richardson”), and the Applied Optics Center (“Applied Optex Center” or “AOC”), our Dallas plant, are separately managed, organized, and internally reported as separate business segments. The tables below provides a summary of selective statement of operations data by operating segment for the three and six months ended March 29, 2026 and March 30, 2025 reconciled to the Condensed Consolidated Results of Operations as presented in Item 1, “Condensed Consolidated Financial Statements.”

Current wording

We have presented the operating results by segment to provide investors with an additional tool to evaluate our operating results and to have a better understanding of the overall performance of each business segment. 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 Optex Richardson and the Applied Optics Center are separately managed, organized, and internally reported as separate business segments. The tables below provides a summary of selective statement of operations data by operating segment for the three and nine months ended June 28, 2026 and June 29, 2025 reconciled to the Condensed Consolidated Results of Operations as presented in Item 1, “Condensed Consolidated Financial Statements.”

Previous wording

For the three months ended March 29, 2026, consolidated revenue decreased by $1.1 million, or 10.3%, compared to the same period in the prior year. The decrease was primarily attributable to a $1.0 million decline in revenue at the Applied Optics Center.

Current wording

For the three months ended June 28, 2026, consolidated revenue decreased by $1.4 million, or 12.4%, compared to the same period in the prior year.

Previous wording

The decrease in revenue was primarily attributable to the federal government shutdown during October and November 2025 and the delayed enactment of the annual appropriations bill, which was not approved until February 3, 2026. These events delayed contract awards and deferred anticipated revenue into the second half of fiscal year 2026.

Current wording

The decrease in revenue for the three and nine month periods was primarily attributable to lower revenue on our periscope product line at the Optex Richardson segment and lower revenue on our laser filter products at the Applied Optics Center segment. More specifically, the decline was primarily due to (1) delayed delivery of approximately $1.5 million of periscopes from the third fiscal quarter into the fourth fiscal quarter, and (2) the federal government shutdown during October and November 2025 and the delayed enactment of the annual appropriations bill, which was not approved until February 3, 2026 and deferred anticipated revenue into the second half of fiscal year 2026.

Previous wording

For the six months ended March 29, 2026, consolidated gross profit was relatively unchanged compared to the same period in the prior year. Gross profit at the Applied Optics Center decreased primarily due to higher cost of sales resulting from increased contract loss reserves, higher gold prices used in the coating process for one product line, and fixed manufacturing costs spread over lower revenue. This decrease was offset by higher gross profit at Optex Richardson, reflecting the completion of loss-making contracts and increased revenue from more favorably priced programs. Consolidated gross margin increased slightly to 29.2%, compared to 29.0% in the prior-year period.

Current wording

For the nine months ended June 28, 2026, consolidated gross profit increased $0.2 million compared to the same period in the prior year. Gross profit at the Applied Optics Center decreased $0.9 million primarily due to lower revenue and changes in product mix. This decrease was offset by increased gross profit at the Optex Richardson segment with changes in product mix and the replacement of low margin and loss contracts with newer orders at more favorable pricing. Consolidated gross margin increased to 30.9%, compared to 28.8% in the prior year period.

Previous wording

Operating income for the six months ended March 29, 2026 decreased by $1.3 million compared to the same period in the prior year. The decrease primarily resulted from a $1.3 million increase in general and administrative expenses, consisting of approximately $0.7 million in higher labor and fringe benefit costs, $0.3 million in increased stock-based compensation expense, and $0.3 million in higher professional fees, information technology support services, research and development costs, consulting fees, and other expenses. Higher labor costs were primarily attributable to executive leadership transition costs, including overlapping compensation associated with the former and current Chief Executive Officer (“CEO”), the addition of the Optex Richardson General Manager position, and other organizational changes.

Current wording

Operating income for the nine months ended June 28, 2026 decreased by $1.9 million compared to the same period in the prior year. The decrease primarily resulted from general and administrative expenses of $2.0 million, offset by higher gross profit of $0.2 million as compared to the prior year period. The increase in general and administrative costs consisted of approximately $1.0 million in higher labor and fringe benefit costs, $0.5 million in increased stock-based compensation expense, $0.2 million in higher royalty expenses, and $0.3 million in higher professional fees, information technology support services, research and development costs, consulting fees, and other expenses. Higher labor costs were primarily attributable to executive leadership transition costs, including overlapping compensation associated with the former and current Chief Executive Officer (“CEO”), the addition of the Optex Richardson General Manager position, and other organizational changes in support of research and product development programs.

Previous wording

Management expects general and administrative expenses to remain elevated as the Company continues to realign its organizational structure to support increased research and development activity, comply with Cybersecurity Maturity Model Certification (CMMC) requirements, and enhance internal software reporting systems.

Current wording

Management expects general and administrative expenses to remain elevated as the Company continues to realign its organizational structure to support increased research and development activity, comply with Cybersecurity Maturity Model Certification (CMMC) and National Institute of Standards and Technology (NIST) requirements, and enhance internal software reporting systems.

Previous wording

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. We believe that Adjusted EBITDA is a meaningful indicator of our operating performance because it permits period-over-period comparisons of our ongoing core operations before the excluded items, which we do not consider relevant to our operations. Adjusted EBITDA is a financial measure not required by, or presented in accordance with, U.S. generally accepted accounting principles (“GAAP”).

Current wording

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 non-recurring general and administrative expense (including noncash compensation expenses related to equity stock issues), as well as depreciation, amortization, interest expenses and federal income taxes. We believe that Adjusted EBITDA is a meaningful indicator of our operating performance because it permits period-over-period comparisons of our ongoing core operations before the excluded items, which we do not consider relevant to our operations. Adjusted EBITDA is a financial measure not required by, or presented in accordance with, U.S. generally accepted accounting principles (“GAAP”).

Previous wording

The table below summarizes our three-month and six-month operating results for the periods ended March 29, 2026 and March 30, 2025, in terms of both the GAAP net income measure and the non-GAAP Adjusted EBITDA measure. We believe that including both measures allows the reader better to evaluate our overall performance.

Current wording

The table below summarizes our three-month and nine-month operating results for the periods ended June 28, 2026 and June 29, 2025, in terms of both the GAAP net income measure and the non-GAAP Adjusted EBITDA measure. We believe that including both measures allows the reader better to evaluate our overall performance.

Previous wording

Net income declined in both the quarter and year-to-date periods ended March 29, 2026, reflecting a deliberate step-up in corporate overhead during a leadership transition. Quarterly net income decreased by $0.4 million to $1.4 million from $1.8 million, and year-to-date net income decreased by $1.0 million to $1.6 million from $2.6 million. The primary cause was higher general and administrative expense, partially offset by higher interest income and lower federal income taxes.

Current wording

Net income declined in both the quarter and year-to-date periods ended June 28, 2026, reflecting a deliberate step-up in corporate overhead during a leadership transition. Quarterly net income decreased by $0.2 million to $1.3 million from $1.5 million, and year-to-date net income decreased by $1.3 million to $2.9 million from $4.1 million. The primary cause was higher general and administrative expense, partially offset by higher gross profit, interest income and lower federal income taxes.

Previous wording

Adjusted EBITDA also trended lower, consistent with the net income decline. Quarterly Adjusted EBITDA decreased $0.4 million to $2.0 million from $2.4 million, and year-to-date Adjusted EBITDA decreased $0.8 million to $2.8 million from $3.6 million.

Current wording

Adjusted EBITDA also trended lower, consistent with the net income decline. Quarterly Adjusted EBITDA decreased $0.4 million to $1.8 million from $2.1 million, and year-to-date Adjusted EBITDA decreased $1.2 million to $4.5 million from $5.7 million.

Previous wording

The Company incurred increased non-recurring general and administrative expenses of $0.3 million, primarily due to higher salaries and benefits resulting from executive leadership changes. These changes included Chad George’s transition to President and CEO following Danny Schoening’s, retirement effective December 20, 2025, as well as the temporary double-staffing of certain senior roles during their retirement transition periods to allow for training and knowledge transfer.

Current wording

The Company incurred non-recurring general and administrative expenses of $0.3 million in the nine months ended June 28, 2026, primarily due to higher salaries and benefits resulting from executive leadership changes. These changes included Chad George’s transition to President and CEO following Danny Schoening’s, retirement effective December 20, 2025, as well as the temporary double-staffing of certain senior roles during the related transition period to allow for training and knowledge transfer.

Previous wording

During the three-month and six-month periods ended March 29, 2026, the Company incurred approximately $0.2 million and $0.3 million in additional stock-based compensation compared to the same periods in the prior year. This increase was primarily attributable to the issuance of market-based equity awards to the Company’s CEO and Chief Financial Officer on December 18, 2025. The fair value of these awards totaled $679 thousand as of the grant date and is being amortized over the estimated service period based on a Monte Carlo valuation model.

Current wording

During the three-month and nine-month periods ended June 28, 2026, the Company incurred approximately $0.2 million and $0.5 million, respectively, in additional stock-based compensation compared to the same periods in the prior year. This increase was primarily attributable to the issuance of market-based equity awards to the Company’s CEO and Chief Financial Officer on December 18, 2025. The fair value of these awards totaled $679 thousand as of the grant date and is being amortized over the estimated service period based on a Monte Carlo valuation model.

Previous wording

Depreciation and amortization expense decreased by approximately $0.03 million and $0.1 million for the three-month and six-month periods ended March 29, 2026, respectively, compared to the corresponding prior year periods. This decline was primarily driven by the write-off of intangible assets related to the Speedtracker product line acquisition on September 29, 2025, which eliminated the associated amortization expense. The reduction was partially offset by increased depreciation related to the acquisition of new capital equipment during the current year.

Current wording

Depreciation and amortization expense decreased by approximately $0.02 million and $0.09 million for the three-month and nine-month periods ended June 28, 2026, respectively, compared to the corresponding prior year periods. This decline was primarily driven by the write-off of intangible assets related to the Speedtracker product line acquisition on September 28, 2025, which eliminated the associated amortization expense. The reduction was partially offset by increased depreciation related to the acquisition of new capital equipment during the current year.

Previous wording

During the six months ended March 29, 2026, the Company booked $16.3 million in new orders, representing a 3.8% increase compared to the prior year period orders of $15.7 million. The orders for the most recently completed six months consist of $7.4 million for our Optex Richardson segment and $8.9 million attributable to the Applied Optics Center segment.

Current wording

During the nine months ended June 28, 2026, the Company booked $19.5 million in new orders, representing a 19.1% decrease compared to the prior year period orders of $24.1 million. The orders for the most recently completed nine months consist of $6.5 million attributable to our Optex Richardson segment and $13.0 million attributable to our Applied Optics Center segment.

Previous wording

The following table depicts the new customer orders for the six months ending March 29, 2026 as compared to the prior year period in millions of dollars:

Current wording

The following table depicts the new customer orders for the nine months ending June 28, 2026 as compared to the prior year period in millions of dollars:

Previous wording

Orders for the Optex Richardson segment decreased by $1.5 million, or 16.9%, from the prior year period, primarily as a result lower customer demand for periscopes and other optical assemblies.

Current wording

Orders for the Optex Richardson segment decreased by $4.0 million, or 38.1%, from the prior year period, primarily as a result of lower customer demand for periscopes and other optical assemblies combined with the cancellation of a $2.0 million Howitzer order. The Howitzer order cancellation was at our request as we were unable to come to an acceptable agreement on an equitable adjustment associated with the significant schedule delays in the receipt of customer furnished material and first article inspection.

Previous wording

In contrast, orders for the Applied Optics Center increased by $2.1 million, or 30.9%, compared to the prior-year period. The increase was primarily driven by new orders for commercial optical assemblies and higher demand for specialty coating products. Orders for the Applied Optics Center may fluctuate from quarter to quarter due to factors such as government funding levels and the timing of orders from key customers.

Current wording

Orders for the Applied Optics Center decreased by $0.6 million, or 4.4%, compared to the prior-year period. The decrease was primarily driven by lower customer orders for laser filters and day windows, offset by increases in Optical assemblies and specialty coating products. Orders for the Applied Optics Center may fluctuate from quarter to quarter due to factors such as government funding levels and the timing of orders from key customers.

Previous wording

Backlog as of March 29, 2026 was $36.6 million as compared to a backlog of $41.1 million as of March 30, 2025, representing a decrease of 10.9%. The following table depicts the current expected delivery by quarter of all contracts awarded as of March 29, 2026, as well as the March 29, 2026 backlog as compared to the backlog on March 30, 2025.

Current wording

Backlog as of June 28, 2026 was $30.1 million as compared to a backlog of $38.3 million as of June 29, 2025, representing a decrease of 21.4%. The following table depicts the current expected delivery by quarter of all contracts awarded as of June 28, 2026, as well as the backlog as of June 28, 2026 compared to the backlog as of June 29, 2025.

Previous wording

Optex Richardson revenue decreased by $0.1 million or 1.2% for the three months ended March 29, 2026 as compared to the prior year period with lower revenue in our periscope product line. We are seeing lower demand for our standard periscopes based on the most recent U.S. defense budget appropriation and the entrance of new competition for several of our periscope products. The lower periscope revenue was mostly offset by increased revenue in sighting systems under our XM30 display periscope assemblies program, sales of back-up sight units, and shipments under our Israel Aquila repair program, combined with increased revenue in other product lines including muzzle reference systems, big eye units, beamsplitters, and mirrors.

Current wording

We are seeing lower demand for our standard periscopes based on the most recent U.S. defense budget appropriation and the entrance of new competition for several of our periscope products.

Previous wording

Revenue. For the three months ended March 29, 2026, revenue decreased by $1.1 million or 10.3% compared to the prior year period as set forth in the table below:

Current wording

Revenue. For the three months ended June 28, 2026, revenue decreased by $1.4 million or 12.4% compared to the prior year period as set forth in the table below:

Previous wording

Gross Margin. The gross margin during the three-month period ended March 29, 2026 was 35.2% of revenue as compared to a gross margin of 31.3% of revenue for the prior year period. Consolidated gross profit for the three months ended March 29, 2026 increased $0.03 million compared to the same period in the prior year, despite lower revenue. Cost of sales decreased to $6.2 million for the recently completed period as compared to the prior year period of $7.4 million on lower revenue, a change in mix toward more profitable contracts and improved warranty trends.

Current wording

Gross Margin. The gross margin during the three-month period ended June 28, 2026 was 34.2% of revenue as compared to a gross margin of 28.5% of revenue for the prior year period. Consolidated gross profit for the three months ended June 28, 2026 increased $0.2 million compared to the same period in the prior year. Cost of sales decreased to $6.4 million for the recently completed period as compared to the prior year period of $7.9 million on lower revenue, changes in mix and completion of low margin and loss contracts during the first half of fiscal year 2026.

Previous wording

G&A Expenses. During the three months ended March 29, 2026 and March 30, 2025, we recorded operating expenses of $1.7 million and $1.1 million, respectively. Operating expenses increased by $0.6 million over the prior year period primarily due approximately $0.2 million in higher labor and fringe benefit costs, $0.2 million in increased stock-based compensation expense, and $0.2 million in other spending. Higher labor costs were primarily attributable to the addition of the Optex Richardson General Manager position and other staffing and organizational changes within the engineering and administrative functions.

Current wording

G&A Expenses. During the three months ended June 28, 2026 and June 29, 2025, we recorded operating expenses of $1.9 million and $1.3 million, respectively. The increase in general and administrative costs consisted of approximately $0.3 million in higher labor and fringe benefit costs, $0.2 million in increased stock-based compensation expense, $0.1 million in higher royalty expenses, and $0.1 million in higher professional fees, information technology support services, research and development costs, consulting fees, and other expenses.

Previous wording

Operating Income. For the three months ended March 29, 2026, we recorded operating income of $1.7 million, as compared to operating income of $2.2 million for the three months ended March 30, 2025. The $0.5 million decrease was primarily attributable to higher general and administrative expenses of $0.6 million.

Current wording

Operating Income. For the three months ended June 28, 2026, we recorded operating income of $1.4 million, as compared to operating income of $1.9 million for the three months ended June 29, 2025. The $0.5 million decrease was primarily attributable to increased general and administrative costs, partially offset by higher gross profit.

Previous wording

Revenue. For the six months ended March 29, 2026, revenue decreased by $0.2 million or 0.8% compared to the prior year period as set forth in the table below:

Current wording

Revenue. For the nine months ended June 28, 2026, revenue decreased by $1.5 million or 5.1% compared to the prior year period as set forth in the table below:

Previous wording

G&A Expenses. For the six months ended March 29, 2026 and March 30, 2025, general and administrative expenses were $3.7 million and $2.3 million, respectively, representing an increase of $1.3 million compared to the prior-year period. The increase was primarily attributable to approximately $0.7 million in higher labor and fringe benefit costs, $0.3 million in increased stock-based compensation expense, and $0.3 million in higher spending on other general and administrative costs. Higher labor costs were primarily driven by executive leadership transition costs, including overlapping compensation associated with the former and current CEO, the addition of the Optex Richardson General Manager position, and other organizational changes.

Current wording

G&A Expenses. For the nine months ended June 28, 2026 and June 29, 2025, general and administrative expenses were $5.6 million and $3.6 million, respectively, representing an increase of $2.0 million compared to the prior-year period. The increase in general and administrative costs consisted of approximately $1.0 million in higher labor and fringe benefit costs, $0.5 million in increased stock-based compensation expense, $0.2 million in royalty expenses, and $0.3 million in higher professional fees, information technology support services, research and development costs, consulting fees, and other expenses.

Previous wording

Operating Income. For the six months ended March 29, 2026, operating income was $1.8 million, compared to $3.2 million for the six months ended March 30, 2025. The decrease in operating income was primarily attributable to the increase in general and administrative expenses described above.

Current wording

Operating Income. For the nine months ended June 28, 2026, operating income was $3.2 million, compared to $5.1 million for the nine months ended June 29, 2025. The decrease in operating income was primarily attributable to increased general and administrative costs partially offset by higher gross profit.

Previous wording

As of March 29, 2026, Optex Systems Holdings had working capital of $22.6 million, as compared to $21.1 million as of September 28, 2025. During the six months ended March 29, 2026, we used operating cash of $1.3 million, primarily driven by $1.3 million in increased inventory. During the six months ended March 29, 2026, there were no borrowings or payments against the Texas Capital Facility (as defined below).

Current wording

As of June 28, 2026, Optex Systems Holdings had working capital of $23.9 million, as compared to $21.1 million as of September 28, 2025. During the nine months ended June 28, 2026, we generated operating cash of $1.0 million, primarily driven by net income, partially offset by changes in working capital. During the nine months ended June 28, 2026, there were no borrowings or payments against the Texas Capital Facility (as defined below).

Previous wording

The Company has capital commitments of $1.1 million for the purchase of property and equipment including a DLC coater, a prototype metal machining center, a high vacuum coating system and a 4D PhaseCam LWIR Interferometer and accessories.

Current wording

The Company has capital commitments of $2.8 million for the purchase of property and equipment including a DLC coater, a prototype metal machining center, a high vacuum coating system and a 4D PhaseCam LWIR Interferometer and accessories.

Previous wording

Backlog as of March 29, 2026 was $36.6 million as compared to $41.1 million as of March 30, 2025, representing a decrease of 10.9%. For further details, see “Results of Operations – New Orders and Backlog” above.

Current wording

Backlog as of June 28, 2026 was $30.1 million as compared to $38.3 million as of June 29, 2025, representing a decrease of 21.4%. For further details, see “Results of Operations – New Orders and Backlog” above.

Previous wording

At March 29, 2026, the Company had approximately $4.2 million in cash and no outstanding balance on our revolving credit line. As of March 29, 2026, our outstanding accounts receivable balance was $5.7 million which will be collectible during the following quarter.

Current wording

At June 28, 2026, the Company had approximately $6.2 million in cash and no outstanding balance on our revolving credit line. As of June 28, 2026, our outstanding accounts receivable balance was $4.3 million which will be collectible during the following quarter.

Previous wording

On March 22, 2023, the Company and its subsidiary, Optex Systems, Inc. (collectively, the “Borrowers”), entered into a Business 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.

Current wording

On March 22, 2023, the Company and its subsidiary, 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 credit facility expired on May 22, 2025.

Previous 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 SOFR plus a specific margin. The interest rate is currently 6.4% 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 continues to make available to Borrowers 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 secured overnight financing rate plus a specific margin. The interest rate is currently 6.4% per annum.

Previous wording

During the six months ended March 29, 2026 the Company declared and paid no dividends. As of March 29, 2026, there are no outstanding declared and unpaid dividends.

Current wording

During the nine months ended June 28, 2026 the Company declared and paid no dividends. As of June 28, 2026, there are no outstanding declared and unpaid dividends.

Previous wording

As of March 29, 2026 and September 28, 2025, we had $56 thousand, and $132 thousand, respectively, of contract loss reserves included in our balance sheet accrued expenses. These loss contracts were related to some of our older legacy periscope and day window contracts which were priced prior to the Covid-19 pandemic and have been affected by inflationary price increases on component parts and commodities and higher internal manufacturing costs (as a result of escalating labor costs and higher burden rates). These contracts are three-year Indefinite Delivery Indefinite Quantity (“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 three and six months ended March 29, 2026, the Company recognized zero and $174 thousand, respectively, in new loss reserves against two long term IDIQ contracts, made shipments resulting in reductions of $111 thousand and $191 thousand, respectively, 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, respectively, changes in estimates for the contract loss reserves of ($10) thousand and $4 thousand, respectively, and applied reserves of $8 thousand and $47 thousand to cost of sales against revenue booked during the periods, respectively. As of March 26, 2026, one of the loss contracts was completed and the Company has one remaining loss contract on our backlog with an expired ordering period that is no longer subject to new contract task awards.

Current wording

As of June 28, 2026 and September 28, 2025, we had $29 thousand and $132 thousand, respectively, of contract loss reserves included in our balance sheet accrued expenses. These loss contracts were related to some of our older legacy periscope and day window contracts which were priced prior to the Covid-19 pandemic and have been affected by inflationary price increases on component parts and commodities and higher internal manufacturing costs (as a result of escalating labor costs and higher burden rates). These contracts are three-year Indefinite Delivery Indefinite Quantity (“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 three and nine months ended June 28, 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 $27 thousand and $218 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 nine months ended June 29, 2025, the Company recognized $32 thousand and $101 thousand, respectively, in loss reserves on new contract awards, changes in estimates for the contract loss reserves of $184 thousand and $134 thousand, respectively, and applied reserves of ($19) thousand and ($71) thousand, respectively to cost of sales against revenue booked during the periods. As of June 28, 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.