UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Securities registered pursuant to Section 12(b) of the Act:
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| The
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Indicate
by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
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| Large Accelerated Filer ☐ | Accelerated Filer ☐ | Smaller
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OPTEX SYSTEMS HOLDINGS, INC.
FORM 10-Q
For the period ended June 29, 2025
INDEX
| PART I— FINANCIAL INFORMATION | F-1 | |
| Item 1. | Unaudited Condensed Consolidated Financial Statements | F-1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 1 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 11 |
| Item 4. | Controls and Procedures | 11 |
| PART II— OTHER INFORMATION | 12 | |
| Item 1. | Legal Proceedings | 12 |
| Item 1A. | Risk Factors | 12 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 12 |
| Item 3. | Defaults Upon Senior Securities | 12 |
| Item 4. | Mine Safety Disclosures | 12 |
| Item 6. | Exhibits | 12 |
| SIGNATURE | 13 | |
Part 1. Financial Information
Item 1. Unaudited Condensed Consolidated Financial Statements
OPTEX SYSTEMS HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| F-1 |
Optex Systems Holdings, Inc.
Condensed Consolidated Balance Sheets
(Thousands, except share and per share data) | ||||||||
| June 29, 2025 | September 29, 2024 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Cash and Cash Equivalents | $ | $ | ||||||
| Accounts Receivable, Net | ||||||||
| Inventory, Net | ||||||||
| Contract Asset | ||||||||
| Prepaid Expenses | ||||||||
| Current Assets | ||||||||
| Property and Equipment, Net | ||||||||
| Other Assets | ||||||||
| Deferred Tax Asset | ||||||||
| Intangible Assets, Net | ||||||||
| Right-of-use Asset | ||||||||
| Security Deposits | ||||||||
| Other Assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts Payable | $ | $ | ||||||
| Credit Facility | ||||||||
| Operating Lease Liability | ||||||||
| Federal Income Taxes Payable | ||||||||
| Accrued Expenses | ||||||||
| Accrued Selling Expense | ||||||||
| Accrued Warranty Costs | ||||||||
| Contract Loss Reserves | ||||||||
| Customer Advance Deposits | ||||||||
| Current Liabilities | ||||||||
| Other Liabilities | ||||||||
| Operating Lease Liability, net of current portion | ||||||||
| Other Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Equity | ||||||||
| Common Stock – ($ par, authorized, and shares issued and outstanding, respectively) | ||||||||
| Additional Paid in Capital | ||||||||
| Retained Earnings (Accumulated Deficit) | ( | ) | ||||||
| Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| F-2 |
Optex Systems Holdings, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
| (Thousands, except share and per share data) | ||||||||||||||||
| Three months ended | Nine months ended | |||||||||||||||
| June 29, 2025 | June 30, 2024 | June 29, 2025 | June 30, 2024 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of Sales | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| General and Administrative Expense | ||||||||||||||||
| Operating Income | ||||||||||||||||
| Interest Expense | ||||||||||||||||
| Income Before Taxes | ||||||||||||||||
| Income Tax Expense, net | ||||||||||||||||
| Net Income | $ | $ | $ | $ | ||||||||||||
| Basic income per share | $ | $ | $ | $ | ||||||||||||
| Weighted Average Common Shares Outstanding - basic | ||||||||||||||||
| Diluted income per share | $ | $ | $ | $ | ||||||||||||
| Weighted Average Common Shares Outstanding – diluted | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| F-3 |
Optex Systems Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Thousands) Nine months ended | ||||||||
| June 29, 2025 | June 30, 2024 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net Income | $ | $ | ||||||
| Adjustments to Reconcile Net Income to Net Cash provided by Operating Activities: | ||||||||
| Depreciation and Amortization | ||||||||
| Stock Compensation Expense | ||||||||
| Deferred Tax | ||||||||
| Accounts Receivable | ( | ) | ||||||
| Allowance for Doubtful Accounts | ||||||||
| Inventory | ( | ) | ||||||
| Contract Asset | ||||||||
| Prepaid Expenses | ( | ) | ( | ) | ||||
| Leases | ( | ) | ||||||
| Accounts Payable and Accrued Expenses | ||||||||
| Federal Income Taxes Payable | ( | ) | ( | ) | ||||
| Accrued Warranty Costs | ( | ) | ||||||
| Accrued Selling Expense | ( | ) | ( | ) | ||||
| Customer Advance Deposits | ( | ) | ||||||
| Contract Loss Reserves | ( | ) | ||||||
| Total Adjustments | ( | ) | ||||||
| Net Cash provided by Operating Activities | ||||||||
| Cash Flows from Investing Activities | ||||||||
| Purchase of Intangible Assets | ( | ) | ( | ) | ||||
| Purchases of Property and Equipment | ( | ) | ( | ) | ||||
| Net Cash used in Investing Activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Borrowing from Credit Facility | ||||||||
| Payments to Credit Facility | ( | ) | ( | ) | ||||
| Cash Paid for Taxes Withheld on Net Settled Restricted Stock Unit Shares Issued | ( | ) | ( | ) | ||||
| Net Cash used in Financing Activities | ( | ) | ( | ) | ||||
| Net Increase (Decrease) in Cash and Cash Equivalents | ( | ) | ||||||
| Cash and Cash Equivalents at Beginning of Period | ||||||||
| Cash and Cash Equivalents at End of Period | $ | $ | ||||||
| Supplemental Cash Flow Information: | ||||||||
| Cash Transactions: | ||||||||
| Cash Paid for Taxes | ||||||||
| Cash Paid for Interest | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| F-4 |
Optex Systems Holdings, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Thousands, except share data)
(Unaudited)
| Three months ended June 29, 2025 | ||||||||||||||||||||
| Common | Additional | (Accumulated Deficit) | Total | |||||||||||||||||
| Shares | Common | Paid in | Retained | Stockholders | ||||||||||||||||
| Issued | Stock | Capital | Earnings | Equity | ||||||||||||||||
| Balance at March 30, 2025 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Vested Restricted Stock Units Issued Net of Tax Withholding | ( | ) | ( | ) | ||||||||||||||||
| Stock Compensation Expense | - | |||||||||||||||||||
| Net Income | - | |||||||||||||||||||
| Balance at June 29, 2025 | $ | $ | $ | $ | ||||||||||||||||
| Three months ended June 30, 2024 | ||||||||||||||||||||
| Common | Additional | Total | ||||||||||||||||||
| Shares | Common | Paid in | Accumulated | Stockholders | ||||||||||||||||
| Issued | Stock | Capital | Deficit | Equity | ||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Stock Compensation Expense | - | |||||||||||||||||||
| Vested restricted stock units issued net of tax withholding | ( | ) | ( | ) | ||||||||||||||||
| Net Income | - | |||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Nine months ended June 29, 2025 | ||||||||||||||||||||
| Common | Additional | (Accumulated Deficit) | Total | |||||||||||||||||
| Shares | Common | Paid in | Retained | Stockholders | ||||||||||||||||
| Issued | Stock | Capital | Earnings | Equity | ||||||||||||||||
| Balance at September 29, 2024 | $ | $ | $ | ( | ) | |||||||||||||||
| Stock Compensation Expense | - | |||||||||||||||||||
| Restricted Shares Issued(1) | ||||||||||||||||||||
| Vested Restricted Stock Units Issued Net of Tax Withholding | ( | ) | ( | ) | ||||||||||||||||
| Net Income | - | |||||||||||||||||||
| Balance at June 29, 2025 | $ | $ | $ | $ | ||||||||||||||||
| Nine months ended June 30, 2024 | ||||||||||||||||||||
| Common | Additional | Total | ||||||||||||||||||
| Shares | Common | Paid in | Accumulated | Stockholders | ||||||||||||||||
| Issued | Stock | Capital | Deficit | Equity | ||||||||||||||||
| Balance at October 1, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Stock Compensation Expense | - | |||||||||||||||||||
| Vested restricted stock units issued net of tax withholding | ( | ) | ( | ) | ||||||||||||||||
| Net Income | - | |||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| (1) |
The accompanying notes are an integral part of these condensed consolidated financial statements
| F-5 |
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 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 revenues for
the nine months ended June 29, 2025 were derived from the U.S. government (
Note 2 - Accounting Policies
Basis of Presentation
Principles of Consolidation: The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Optex Systems, Inc. (“Optex”). All significant intercompany 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 29, 2024 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 June 29, 2025 and September 29, 2024, inventory included:
| (Thousands) | ||||||||
| June 29, 2025 | September 29, 2024 | |||||||
| Raw Material | $ | $ | ||||||
| Work in Process | ||||||||
| Finished Goods | ||||||||
| Gross Inventory | $ | $ | ||||||
| Less: Inventory Reserves | ( | ) | ( | ) | ||||
| Net Inventory | $ | $ | ||||||
Concentration
of Credit Risk: The Company’s accounts receivables as of June 29, 2025 consist of U.S. government agencies (
| F-6 |
Accrued
Warranties: The Company 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
June 29, 2025, and September 29, 2024, the Company had warranty reserve balances of $
| (Thousands) | ||||||||||||||||
| Three months ended | Nine Months ended | |||||||||||||||
| June 29, 2025 | June 30, 2024 | June 29, 2025 | June 30, 2024 | |||||||||||||
| Beginning balance | $ | $ | $ | $ | ||||||||||||
| Incurred costs for warranties satisfied during the period | ( | ) | ( | ) | ||||||||||||
| Warranty Expenses: | ||||||||||||||||
| Warranties reserved for new product shipped during the period(1) | ||||||||||||||||
| Change in estimate for pre-existing warranty liabilities(2) | ( | ) | ( | ) | ||||||||||||
| Warranty Expense | ( | ) | ||||||||||||||
| Ending balance | $ | $ | $ | $ | ||||||||||||
| (1) | |
| (2) |
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 revenues 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 credit facility 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.
| F-7 |
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 nine months ended June 29, 2025, we recognized $
During
the three and nine-month periods ended June 29, 2025, we recognized revenue from customer deposit liabilities (deferred contract revenue)
of $
As
of June 29, 2025 and September 29, 2024, there was $
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 several long-term fixed price contracts that are currently indicative of a loss condition due to recent inflationary
pressures on material and labor, combined with increased manufacturing overhead costs. One of these long-term contracts has an
option year ordering period ending in February 2025 with deliveries that may extend into February 2026. As of June 29, 2025 and
September 29, 2024, the accrued contract loss reserves were $
Income
Tax/Deferred Tax: As of June 29, 2025 and September 29, 2024, the Company had a deferred tax asset valuation allowance of ($
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 nine months ended June 29, 2025, shares of unvested restricted stock and unvested restricted stock units (which convert to an aggregate of and incremental shares), respectively, were included in the diluted earnings per share calculation. For the three and nine months ended June 30, 2024, shares of unvested restricted stock and unvested restricted stock units (which convert to an aggregate of and incremental shares), respectively, were included in the diluted earnings per share calculation.
| F-8 |
Note 3 - Segment Reporting
The Company’s two reportable segments, Applied Optics Center and 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 include segment direct manufacturing and general and administrative costs but exclude profits that would apply to third party external customers.
Optex Richardson – Richardson, Texas
Optex
Richardson revenues are primarily in support of prime and subcontracted military customers. Military sales to prime and subcontracted
customers represented approximately
Optex
Richardson is located in Richardson Texas, with leased premises consisting of approximately
Applied Optics Center (AOC) – Dallas, Texas
The
Applied Optics Center serves primarily domestic U.S. customers. Sales to commercial customers represented approximately
The
Applied Optics Center is located in Dallas, Texas with leased premises consisting of approximately
| F-9 |
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.
Reportable Segment Financial Information (thousands) | ||||||||||||||||
| As of and for the three months ended June 29, 2025 | ||||||||||||||||
Optex Richardson | Applied Optics Center Dallas | Other (non- allocated costs and intersegment eliminations) | Consolidated Total | |||||||||||||
| Revenues from external customers | $ | $ | $ | $ | ||||||||||||
| Intersegment revenues | ( | ) | ||||||||||||||
| Total revenue | $ | $ | $ | ( | ) | $ | ||||||||||
| Interest (income) expense | $ | $ | $ | $ | ||||||||||||
| Depreciation and amortization | $ | $ | $ | $ | ||||||||||||
| Income before taxes | $ | $ | $ | ( | ) | $ | ||||||||||
| Other significant noncash items: | ||||||||||||||||
| Allocated home office expense | $ | ( | ) | $ | $ | $ | ||||||||||
| Stock compensation expense | $ | $ | $ | $ | ||||||||||||
| Warranty expense | $ | $ | $ | $ | ||||||||||||
| Segment assets | $ | $ | $ | $ | ||||||||||||
| Expenditures for segment assets | $ | $ | $ | $ | ||||||||||||
Reportable Segment Financial Information (thousands) | ||||||||||||||||
| As of and for the three months ended June 30, 2024 | ||||||||||||||||
Optex Richardson | Applied Optics Center Dallas | Other (non- allocated costs and intersegment eliminations) | Consolidated Total | |||||||||||||
| Revenues from external customers | $ | $ | $ | $ | ||||||||||||
| Intersegment revenues | ( | ) | ||||||||||||||
| Total revenue | $ | $ | $ | ( | ) | $ | ||||||||||
| Interest expense | $ | $ | $ | $ | ||||||||||||
| Depreciation and amortization | $ | $ | $ | $ | ||||||||||||
| Income (loss) before taxes | $ | $ | $ | ( | ) | $ | ||||||||||
| Other significant noncash items: | ||||||||||||||||
| Allocated home office expense | $ | ( | ) | $ | $ | $ | ||||||||||
| Stock compensation expense | $ | $ | $ | $ | ||||||||||||
| Warranty expense | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Segment assets | $ | $ | $ | $ | ||||||||||||
| Expenditures for segment assets | $ | $ | $ | $ | ||||||||||||
| F-10 |
Reportable Segment Financial Information (thousands) | ||||||||||||||||
| As of and for the nine months ended June 29, 2025 | ||||||||||||||||
Optex Richardson | Applied Optics Center Dallas | Other (non- allocated costs and intersegment eliminations) | Consolidated Total | |||||||||||||
| Revenues from external customers | $ | $ | $ | $ | ||||||||||||
| Intersegment revenues | ( | ) | ||||||||||||||
| Total revenue | $ | $ | $ | ( | ) | $ | ||||||||||
| Interest expense | $ | $ | $ | $ | ||||||||||||
| Depreciation and amortization | $ | $ | $ | $ | ||||||||||||
| Income before taxes | $ | $ | $ | ( | ) | $ | ||||||||||
| Other significant noncash items: | ||||||||||||||||
| Allocated home office expense | $ | ( | ) | $ | $ | $ | ||||||||||
| Stock compensation expense | $ | $ | $ | $ | ||||||||||||
| Warranty expense | $ | $ | $ | $ | ||||||||||||
| Segment assets | $ | $ | $ | $ | ||||||||||||
| Expenditures for segment assets | $ | $ | $ | $ | ||||||||||||
Reportable Segment Financial Information (thousands) | ||||||||||||||||
| As of and for the nine months ended June 30, 2024 | ||||||||||||||||
Optex Richardson | Applied Optics Center Dallas | Other (non- allocated costs and intersegment eliminations) | Consolidated Total | |||||||||||||
| Revenues from external customers | $ | $ | $ | $ | ||||||||||||
| Intersegment revenues | ( | ) | ||||||||||||||
| Total revenue | $ | $ | $ | ( | ) | $ | ||||||||||
| Interest expense | $ | $ | $ | $ | ||||||||||||
| Depreciation and amortization | $ | $ | $ | $ | ||||||||||||
| Income (loss) before taxes | $ | $ | $ | ( | ) | $ | ||||||||||
| Other significant noncash items: | ||||||||||||||||
| Allocated home office expense | $ | ( | ) | $ | $ | $ | ||||||||||
| Stock compensation expense | $ | $ | $ | $ | ||||||||||||
| Warranty expense | $ | $ | ( | ) | $ | $ | ||||||||||
| Segment assets | $ | $ | $ | $ | ||||||||||||
| Expenditures for segment assets | $ | $ | $ | $ | ||||||||||||
| F-11 |
Note 4 - Commitments and Contingencies
Non-cancellable Operating Leases
The Company leases its office and manufacturing facilities for the Optex Richardson location and the Applied Optics Center Dallas location. The Company also leases certain office equipment under non-cancellable operating leases.
The
leased facility under Optex Systems Inc. located at 1420 Presidential Drive, Richardson, Texas consists of
The
leased facility under the Applied Optics Center located at 9839 and 9827 Chartwell Drive, Dallas, Texas, consists of
As of June 29, 2025, the remaining minimum base lease and estimated common area maintenance (CAM) payments under the non-cancellable office equipment and facility space leases are as follows:
Non-cancellable Operating Leases Minimum Payments
| (Thousands) | ||||||||||||||||||||
| Optex Richardson | Applied Optics Center | Office Equipment | Consolidated | |||||||||||||||||
| Fiscal Year | Facility Lease Payments | Facility Lease Payments | Lease Payments | Total Lease Payments | Total Variable CAM Estimate | |||||||||||||||
| 2025 Base year lease | $ | $ | $ | | $ | $ | | |||||||||||||
| 2026 Base year lease | ||||||||||||||||||||
| 2027 Base year lease | ||||||||||||||||||||
| 2028 Base year lease | ||||||||||||||||||||
| 2029 Base year lease | ||||||||||||||||||||
| Total base lease payments | $ | $ | $ | $ | $ | |||||||||||||||
| Imputed interest on lease payments (1) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Total Operating Lease Liability(2) | $ | $ | $ | $ | ||||||||||||||||
| Right-of-use Asset(3) | $ | $ | $ | $ | ||||||||||||||||
| (1) | |
| (2) | |
| (3) |
| F-12 |
Total
expense under both facility lease agreements for the three months ended June 29, 2025 and June 30, 2024 was $
Total
expense under both facility lease agreements for the nine months ended June 29, 2025 and June 30, 2024 was $
Note 5 - Debt Financing
Credit Facility — Texas Capital Bank
On
March 22, 2023, the Company 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 Company a revolving line of credit in the principal amount of $
The
commitment period for advances under the facility expired on
On
May 21, 2025, the Company and Optex 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 $
The
Loan Agreement contains customary events of default and negative covenants, including but not limited to those governing capital expenditures
(limited to $
The
outstanding balance under the Texas Capital Facility was
For
the three months and nine months ended June 29, 2025, the total interest expense under the facility was
Restricted Stock, Restricted Stock Units and Performance Shares issued to Officers and Employees
The following table summarizes the status of Optex Systems Holdings’ aggregate non-vested restricted stock and restricted stock units and performance shares:
Restricted | Weighted Average Grant Date Fair Value | Restricted Shares | Weighted Average Grant Date Fair Value | Performance Shares | Weighted Average Date Fair | |||||||||||||||||||
| Outstanding at October 1, 2023 | $ | $ | ||||||||||||||||||||||
| Granted | ||||||||||||||||||||||||
| Vested | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Forfeited | ||||||||||||||||||||||||
| Outstanding at September 29, 2024 | $ | $ | ||||||||||||||||||||||
| Granted | ||||||||||||||||||||||||
| Vested | ( | ) | ( | ) | ||||||||||||||||||||
| Forfeited | ( | ) | ||||||||||||||||||||||
| Outstanding at June 29, 2025 | $ | $ | $ | |||||||||||||||||||||
| F-13 |
Restricted Stock Units
On
May 1, 2023, the Company granted an aggregate of restricted stock units to eleven employees under its 2023 Equity Incentive Plan.
As of the grant date, assuming a
On
May 1, 2024, the Company granted an aggregate of restricted stock units to eleven employees under its 2023 Equity Incentive Plan.
As of the grant date, assuming a
On May 1, 2024, there were shares vested under its 2023 Equity Incentive Plan for restricted stock units granted on May 1, 2023. On May 3, 2024, shares were issued to ten employees, net of tax withheld of $ thousand.
On August 14, 2024, there were shares vested under its 2023 Equity Incentive Plan for restricted stock units granted on August 14, 2023. On August 20, 2024, shares were issued to one employee, net of tax withheld of $ thousand.
During
the three months ended December 29, 2024, there were
On May 1, 2025, there were shares vested under its 2023 Equity Incentive Plan for restricted stock units granted on May 1, 2023 and May 1, 2024 which resulted in shares issued to ten employees, net of tax withheld of $ thousand.
On
May 1, 2025, the Company granted an aggregate of restricted stock units to eleven employees under its 2023 Equity Incentive Plan.
As of the grant date, assuming a
As of June 29, 2025, there were unvested restricted stock units outstanding.
| F-14 |
Restricted Shares
On April 30, 2020, the Board of Directors voted to increase the annual board compensation for the three independent directors from $ to $ with The total fair value for the shares was $ thousand based on the stock price of $ as of April 30, 2020. On each of January 1, 2021, January 1, 2022, and January 1, 2023, of the restricted director shares vested. On February 16, 2023, 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 shares of restricted stock to independent board member Dayton Judd. The shares vested % on each of December 31, 2023 and January 1, 2025. As of the grant date, the fair value of the shares was $ thousand, to be amortized on a straight-line basis through December 31, 2024. The Company amortized 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. On January 1, 2025 restricted shares were vested.
On November 5, 2024, the Board of Directors approved the following Board compensation for the three independent directors, effective January 1, 2025: The restricted stock award was made on November 5, 2024 and consisted of shares of restricted stock for each independent director. The total fair value for the shares was $ thousand based on the stock price of $ as of November 5, 2024. As of June 29, 2025, there were of such unvested restricted shares outstanding which will vest on January 1, 2026.
Performance Shares
On May 3, 2023, the Board of Directors approved a grant of and performance shares to Danny Schoening, CEO, and Karen Hawkins, CFO, respectively. Each performance share represents a contingent right to receive one share of common stock. The performance shares vest in five equal increments if, in each case and during a The fair value of the shares, as of the grant date, is $ thousand and will be amortized through December 31, 2025 based on the derived service periods using a Monte Carlo simulation valuation model.
On October 2, 2023, performance shares vested each date for reaching the 30-day VWAP for Tranche 1. The Company issued a total of shares on October 24, 2023 in settlement of the vested shares, net of tax withheld of $ thousand.
On December 22, 2023 and December 29, 2023, performance shares vested each date for reaching the 30-day VWAP for Tranche 2 and Tranche 3. On January 8, 2024 the Company issued a total of shares in settlement of the vested shares, net of tax withheld of $thousand.
On March 11, 2024, performance shares vested each date for reaching the 30-day VWAP for Tranche 4. The Company issued a total of shares on March 13, 2024 in settlement of the vested shares, net of tax withheld of $ thousand.
On May 17, 2024, performance shares vested for reaching the 30-day VWAP for Tranche 5. The Company issued a total of shares on May 17, 2024 in settlement of the vested shares, net of tax withheld of $ thousand.
As of June 29, 2025, there were performance shares remaining to vest.
| F-15 |
| Assumptions | ||||
| Performance Period Start | ||||
| Performance Period End | ||||
| Term of simulation (1) | years | |||
| Time steps in simulation | ||||
| Time steps per year | ||||
| Common share price at valuation date (2) | $ | |||
| Dividend yield (3) | % | |||
| Volatility (annual) (4) | % | |||
| Risk-free rate (annual) (5) | % | |||
| Cost of equity (6) | % | |||
| Tranche 1 | Tranche 2 | Tranche 3 | Tranche 4 | Tranche 5 | ||||||||||||||||
| Number of performance shares in the Tranche (1) | ||||||||||||||||||||
| Derived Service Period (Years) (7) | ||||||||||||||||||||
| Fair Value of One Performance share (7) | $ | $ | $ | $ | $ | |||||||||||||||
| Total Fair Value of Tranche | $ | $ | $ | $ | $ | |||||||||||||||
| (1) | ||
| (2) | ||
| (3) | ||
| (4) | ||
| (5) | ||
| (6) | ||
| (7) |
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 options and shares granted and restricted stock units awarded as well as the unrecognized compensation costs are summarized in the table below:
| Stock Compensation | ||||||||||||||||||||||||
| (thousands) | ||||||||||||||||||||||||
| Recognized Compensation Expense | Unrecognized Compensation Expense | |||||||||||||||||||||||
| Three months ended | Nine months ended | As of period ended | ||||||||||||||||||||||
| June 29, 2025 | June 30, 2024 | June 29, 2025 | June 30, 2024 | June 29, 2025 | September 29, 2024 | |||||||||||||||||||
| Restricted Shares | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Performance Shares | ||||||||||||||||||||||||
| Restricted Stock Units | ||||||||||||||||||||||||
| Total Stock Compensation | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Note 7 – Asset Purchase of Intellectual Property
On
January 18, 2024, Optex Systems Holdings, Inc., through its wholly owned subsidiary Optex Systems, Inc. (collectively, the “Company”),
entered into an asset purchase agreement and a contract manufacturing agreement with RUB Aluminium s.r.o. (“RUB”). Under
the agreements, the Company acquired certain intellectual property and technical and marketing information relating to the Speedtracker
Mach product line, which is primarily used for firearm projectile speed detection, measuring and tracking. RUB may continue to manufacture
Speedtracker Mach products on behalf of the Company. The Company acquired the assets using $
| F-16 |
Subsequent
to the asset purchases, the Company invested an additional $
Unlike
indefinite-lived intangible assets and goodwill, which are required to be tested for impairment at least annually, ASC 360-10 does not
require annual impairment testing for long-lived assets that are held and used. Instead, a long-lived asset (asset group) that is held
and used should be tested for recoverability whenever events or changes in circumstances indicate that the carrying amount of the asset
group may not be recoverable regardless of whether such carrying amount is zero or negative. Due to delays in the Speedtracker product
line launch during the twelve months ended September 29, 2024, the Company reviewed the recoverability of the intangible assets as of
September 29, 2024 and found
As of June 29, 2025 and September 29, 2024 the value of intangible assets was:
| June 29, 2025 | September 29, 2024 | |||||||
| Intangible Assets – Intellectual Property Acquisition | $ | $ | ||||||
| Software App Development | ||||||||
| Amortization of Intangible Assets | ( | ) | ( | ) | ||||
| Net Intangible Assets | $ | $ | ||||||
Note 8 - Stockholders’ Equity
Dividends
Common Stock
During the three and nine months ended June 29, 2025 and June 30, 2024, there were common shares repurchased.
During the three and nine months ended June 30, 2024, the Company issued and shares to Danny Schoening and Karen Hawkins in settlement of and performance shares which vested during the three and nine months, respectively. The shares were issued net of and shares withheld for taxes.
During the three and nine months ended June 30, 2024, the Company issued shares to ten employees in settlement of restricted stock units, which vested during the three and nine months. The shares were issued net of shares withheld for taxes.
During the three and nine months ended June 29, 2025, the Company issued and shares for vesting of restricted stock units as of May 1, 2025 and restricted shares issued to the three independent board members which will vest on January 1, 2026.
As of June 29, 2025, and September 29, 2024, the total outstanding common shares were and , respectively.
| F-17 |
Note 9 - Subsequent Events
Effective August 10, 2025, the Board of Directors of the Company amended the Company’s Bylaws to, among other things, (i) create a new Chief Executive Officer position, allowing for the offices of Chief Executive Officer and President to be held by different individuals, with the Chief Executive Officer being the principal executive officer of the Company, (ii) add deadlines and procedural requirements for shareholders to follow in making (A) proposals for consideration at an annual meeting, (B) nominations for directors to be elected at an annual meeting, and (C) nominations for directors to be elected at a special meeting, (iii) add a new article to provide for indemnification of directors and officers to the fullest extent permitted by Delaware law, and (iv) add a forum selection clause.
Effective August 11, 2025, the Board of Directors of the Company appointed Chad George as the Company’s new President. Danny Schoening will continue to serve in the position of Chairman and Chief Executive Officer.
In
connection with the appointment, the Company entered into an employment agreement with Mr. George effective August 11, 2025. Pursuant
to the agreement, Mr. George will serve as the Company’s President through July 1, 2028. Thereafter, the term of the agreement
will automatically extend for successive additional -month periods unless Mr. George or the Company provides written notice of termination
at least 90 days prior to the end of the term then in effect. Mr. George’s initial annual base salary under the new agreement is
$
Mr. George will be eligible for a performance bonus based upon a one-year operating plan adopted by the Company’s Board.
The employment agreement may be terminated by either party upon written notice. Other events of termination consist of: (i) death or permanent disability of Mr. George; (ii) termination by the Company for cause (including in connection with the conviction of a felony, commission of fraudulent, illegal or dishonest acts, certain willful misconduct or gross negligence, continued failure to perform material duties or cure material breach after written notice, violation of securities laws and material breach of the employment agreement), For a termination by the Company for cause or upon death or permanent disability of Mr. George, Mr. George will be paid accrued and unpaid salary and any bonus earned through the date of termination. For a termination by the Company without cause or by Mr. George with good reason, Mr. George will also be paid six months’ base salary in effect.
In connection with Mr. George’s appointment, the Board granted him shares of restricted stock under an exemption from registration effective August 11, 2025, which will vest on January 1, 2026.
Effective August 11, 2025, the Board of Directors of the Company approved amendments of the charters of the Nominating and Corporate Governance Committee, Audit Committee and Compensation Committee.
| F-18 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to supplement and complement our audited condensed consolidated financial statements and notes thereto for the fiscal year ended September 29, 2024 and our unaudited consolidated financial statements and notes thereto for the quarter ended June 29, 2025, prepared in accordance with U.S. generally accepted accounting principles (GAAP). You are encouraged to review our consolidated financial statements in conjunction with your review of this MD&A. The financial information in this MD&A has been prepared in accordance with GAAP, unless otherwise indicated. In addition, we use non-GAAP financial measures as supplemental indicators of our operating performance and financial position. We use these non-GAAP financial measures internally for comparing actual results from one period to another, as well as for planning purposes. We will also report non-GAAP financial results as supplemental information, as we believe their use provides more insight into our performance. When a non-GAAP measure is used in this MD&A, it is clearly identified as a non-GAAP measure and reconciled to the most closely corresponding GAAP measure.
The following discussion highlights the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital resources for the periods described. The operating results for the periods presented were not significantly affected by inflation.
Cautionary Note Regarding Forward-Looking Information
This Quarterly Report on Form 10-Q, in particular the MD&A, contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. When used in this Quarterly Report on Form 10-Q and other reports, statements, and information we have filed with the Securities and Exchange Commission (“Commission” or “SEC”), in our press releases, presentations to securities analysts or investors, or in oral statements made by or with the approval of an executive officer, the words or phrases “believes,” “may,” “will,” “expects,” “should,” “continue,” “anticipates,” “intends,” “will likely result,” “estimates,” “projects” or similar expressions and variations thereof are intended to identify such forward-looking statements.
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.
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.
| 1 |
We do not assume the obligation to update any forward-looking statement. You should carefully evaluate such statements in light of factors described in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K.
Background
Our wholly-owned subsidiary, Optex Systems, Inc., manufactures optical sighting systems and assemblies, primarily for Department of Defense applications. Its products are installed on various types of U.S. military land vehicles, such as the Abrams and Bradley fighting vehicles, light armored and armored security vehicles and have been selected for installation on the Stryker family of vehicles. Optex Systems, Inc. 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.
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 South American countries and as a subcontractor for several large U.S. defense companies serving foreign governments.
The Federal Acquisition Regulation is the principal set of regulations that govern the acquisition process of government agencies and contracts with the U.S. government. In general, parts of the Federal Acquisition Regulation are incorporated into government solicitations and contracts by reference as terms and conditions effecting contract awards and pricing solicitations.
Many of our contracts are prime or subcontracted directly with the Federal government and, as such, are subject to Federal Acquisition Regulation Subpart 49.5, “Contract Termination Clauses” and more specifically Federal Acquisition Regulation clauses 52.249-2 “Termination for Convenience of the Government (Fixed-Price)”, and 49.504 “Termination of fixed-price contracts for default”. These clauses are standard clauses on our prime military contracts and generally apply to us as subcontractors. It has been our experience that the termination for convenience is rarely invoked, except where it is mutually beneficial for both parties. We are currently not aware of any pending terminations for convenience or for default on our existing contracts.
In the event a termination for convenience were to occur, Federal Acquisition Regulation clause 52.249-2 provides for full recovery of all contractual costs and profits reasonably occurred up to and as a result of the terminated contract. In the event a termination for default were to occur, we could be liable for any excess cost incurred by the government to acquire supplies from another supplier similar to those terminated from us. We would not be liable for any excess costs if the failure to perform the contract arises from causes beyond the control and without the fault or negligence of the Company as defined by Federal Acquisition Regulation clause 52.249-8.
Material Trends and Recent Developments
The Optex Richardson segment has numerous fixed price multi-year contracts covering delivery periods up to five years from the contract award. Approximately 7% of our Optex Richardson segment backlog are for items priced prior to 2021. Since the 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 three and nine months ended June 29, 2025 and which are expected to continue to have a negative effect on the margins generated under several of our long-term fixed contracts 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” in our Annual Report on Form 10-K for the year ended September 29, 2024.
| 2 |
We experienced significant material shortages during the fiscal year ended October 1, 2023 into the first half of fiscal year ended September 29, 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 during the first half of the fiscal year ended September 29, 2024, negatively impacted our production levels and pushed expected delivery dates into fiscal year 2025. We have obtained an alternative source for one of our key components and expedited our other suppliers to support the increased production levels.
We have seen improvements in the local labor market since 2023 and increased our direct labor force and employee overtime in concert with improvements in our supplier delivery performance. Further, we have invested in additional machinery and equipment and other process improvements to increase production capacity and alleviate process bottlenecks. In the first nine months of fiscal year 2025, we have increased our periscope production levels by 74% over the corresponding period in fiscal year 2024. 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 and 2025, 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.
We currently do not anticipate any significant material risks as a result of the recent tariff uncertainties. Our defense products are primarily sourced domestically, but those which are imported are primarily duty free. We produce some commercial optical assemblies with selective components sourced from Taiwan; however, our existing customer backlog is covered with existing material in inventory. We anticipate any future orders for these commercial products will have updated pricing inclusive of any tariff impact.
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 29, 2024 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.
Results of Operations
Non-GAAP Adjusted EBITDA
We use adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) as an additional measure for evaluating the performance of our business as “net income” includes the significant impact of noncash compensation expenses related to equity stock issues, as well as depreciation, amortization, interest expenses and federal income taxes. 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”).
Adjusted EBITDA has limitations and should not be considered in isolation or a substitute for performance measures calculated under GAAP. This non-GAAP measure excludes certain cash expenses that we are obligated to make. In addition, other companies in our industry may calculate Adjusted EBITDA differently than we do or may not calculate it at all, which limits the usefulness of Adjusted EBITDA as a comparative measure.
The table below summarizes our three and nine-month operating results for the periods ended June 29, 2025 and June 30, 2024, 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.
| (Thousands) | ||||||||||||||||
| Three months ended | Nine months ended | |||||||||||||||
| June 29, 2025 | June 30, 2024 | June 29, 2025 | June 30, 2024 | |||||||||||||
| Net Income (GAAP) | $ | 1,510 | $ | 1,261 | $ | 4,122 | $ | 2,754 | ||||||||
| Add: | ||||||||||||||||
| Federal Income Tax Expense | 401 | 337 | 931 | 737 | ||||||||||||
| Depreciation and Amortization | 131 | 132 | 386 | 341 | ||||||||||||
| Stock Compensation | 83 | 90 | 247 | 360 | ||||||||||||
| Interest (Income) Expense | - | 17 | 12 | 32 | ||||||||||||
| Adjusted EBITDA - Non GAAP | $ | 2,125 | $ | 1,837 | $ | 5,698 | $ | 4,224 | ||||||||
| 3 |
Our net income increased by $0.2 million to $1.5 million for the three months ended June 29, 2025, as compared to net income of $1.3 million for the prior year period. Our adjusted EBITDA increased by $0.3 million to $2.1 million for the three months ended June 29, 2025, as compared to adjusted EBITDA of $1.8 million for the prior year period.
Our net income increased by $1.3 million to $4.1 million for the nine months ended June 29, 2025, as compared to net income of $2.8 million for the prior year period. Our adjusted EBITDA increased by $1.5 million to $5.7 million for the nine months ended June 29, 2025, as compared to adjusted EBITDA of $4.2 million for the prior year period.
The increase in net income and adjusted EBITDA for the most recent three and nine-month periods compared to the prior year periods is primarily driven by increased revenue and gross profit. Operating segment performance is discussed in greater detail throughout the following sections.
Results of Operations Selective Financial Information (Thousands) | ||||||||||||||||||||||||||||||||
| Three months ended | ||||||||||||||||||||||||||||||||
| June 29, 2025 | June 30, 2024 | |||||||||||||||||||||||||||||||
Optex Richardson | Applied | Other (non-allocated | Consolidated | Optex Richardson | Applied | Other (non-allocated | Consolidated | |||||||||||||||||||||||||
| Revenue from External Customers | $ | 6,838 | 4,272 | - | 11,110 | $ | 4,675 | 4,385 | - | 9,060 | ||||||||||||||||||||||
| Intersegment Revenues | - | 325 | (325 | ) | - | - | 282 | (282 | ) | - | ||||||||||||||||||||||
| Total Segment Revenue | 6,838 | 4,597 | (325 | ) | 11,110 | 4,675 | 4,667 | (282 | ) | 9,060 | ||||||||||||||||||||||
| Total Cost of Sales | 5,081 | 3,186 | (325 | ) | 7,942 | 3,575 | 2,886 | (282 | ) | 6,179 | ||||||||||||||||||||||
| Gross Profit | 1,757 | 1,411 | - | 3,168 | 1,100 | 1,781 | - | 2,881 | ||||||||||||||||||||||||
| Gross Margin % | 25.7 | % | 30.7 | % | - | 28.5 | % | 23.5 | % | 38.2 | % | - | 31.8 | % | ||||||||||||||||||
| General and Administrative Expense | 982 | 192 | 83 | 1,257 | 997 | 179 | 90 | 1,266 | ||||||||||||||||||||||||
| Segment Allocated G&A Expense | (328 | ) | 328 | - | - | (339 | ) | 339 | - | - | ||||||||||||||||||||||
| Net General & Administrative Expense | 654 | 520 | 83 | 1,257 | 658 | 518 | 90 | 1,266 | ||||||||||||||||||||||||
| Operating Income | 1,103 | 891 | (83 | ) | 1,911 | 442 | 1,263 | (90 | ) | 1,615 | ||||||||||||||||||||||
| Operating Income % | 16.1 | % | 19.4 | % | - | 17.2 | % | 9.5 | % | 27.1 | % | - | 17.8 | % | ||||||||||||||||||
| Interest Expense | - | - | - | - | - | - | 17 | 17 | ||||||||||||||||||||||||
| Net Income before taxes | $ | 1,103 | 891 | (83 | ) | 1,911 | $ | 442 | 1,263 | (107 | ) | 1,598 | ||||||||||||||||||||
| Net Income % | 16.1 | % | 19.4 | % | - | 17.2 | % | 9.5 | % | 27.1 | % | - | 17.6 | % | ||||||||||||||||||
| 4 |
|
Results of Operations Selected Financial Info by Segment (Thousands) |
||||||||||||||||||||||||||||||||
| Nine months ended | ||||||||||||||||||||||||||||||||
| June 29, 2025 | June 30, 2024 | |||||||||||||||||||||||||||||||
|
Optex Richardson |
Applied Optics Center Dallas |
Other (non-allocated costs and eliminations) |
Consolidated |
Optex Richardson |
Applied Optics Center Dallas |
Other (non-allocated costs and eliminations) |
Consolidated | |||||||||||||||||||||||||
| Revenue from External Customers | 16,572 | 13,466 | - | 30,038 | $ | 12,344 | 12,208 | - | 24,552 | |||||||||||||||||||||||
| Intersegment Revenues | - | 917 | (917 | ) | - | - | 700 | (700 | ) | - | ||||||||||||||||||||||
| Total Segment Revenue | 16,572 | 14,383 | (917 | ) | 30,038 | 12,344 | 12,908 | (700 | ) | 24,552 | ||||||||||||||||||||||
| Total Cost of Sales | 12,836 | 9,461 | (917 | ) | 21,380 | 9,763 | 8,367 | (700 | ) | 17,430 | ||||||||||||||||||||||
| Gross Profit | 3,736 | 4,922 | - | 8,658 | 2,581 | 4,541 | - | 7,122 | ||||||||||||||||||||||||
| Gross Margin % | 22.5 | % | 34.2 | % | - | 28.8 | % | 20.9 | % | 35.2 | % | - | 29.0 | % | ||||||||||||||||||
| General and Administrative Expense | 2,789 | 557 | 247 | 3,593 | 2,750 | 489 | 360 | 3,599 | ||||||||||||||||||||||||
| Segment Allocated G&A Expense | (983 | ) | 983 | - | - | (1,019 | ) | 1,019 | - | - | ||||||||||||||||||||||
| Net General & Administrative Expense | 1,806 | 1,540 | 247 | 3,593 | 1,731 | 1,508 | 360 | 3,599 | ||||||||||||||||||||||||
| Operating Income | 1,930 | 3,382 | (247 | ) | 5,065 | 850 | 3,033 | (360 | ) | 3,523 | ||||||||||||||||||||||
| Operating Income % | 11.6 | % | 23.5 | % | - | 16.9 | % | 6.9 | % | 23.5 | % | - | 14.3 | % | ||||||||||||||||||
| Interest Expense | - | - | 12 | 12 | - | - | 32 | 32 | ||||||||||||||||||||||||
| Income before taxes | 1,930 | 3,382 | (259 | ) | 5,053 | $ | 850 | 3,033 | (392 | ) | 3,491 | |||||||||||||||||||||
| Income (Loss) before taxes % | 11.6 |
% | 23.5 | % |
- |
16.8 | % | 6.9 | % | 23.5 | % | - | 14.2 | % | ||||||||||||||||||
For the three months ended June 29, 2025, our total revenues increased by $2.1 million, or 22.6%, compared to the prior year period. The increase in revenue was primarily driven by increased customer demand at the Company’s Optex Richardson segment.
For the nine months ended June 29, 2025, our total revenues increased by $5.5 million, or 22.3%, compared to the prior year period. The increase in revenue was primarily driven by increased customer demand across both the Optex Richardson and the Applied Optics operating segments.
Consolidated gross profit for the three months ended June 29, 2025 increased by $0.3 million, or 10.0%, compared to the prior year period. Consolidated gross profit for the nine months ended June 29, 2025 increased by $1.5 million, or 21.6%, compared to the prior year period.
The increase in the most recent three and nine-month period gross margin was primarily attributable to increased revenue and changes in product mix.
Our operating income for the three months ended June 29, 2025 increased by $0.3 million, or 18.3%, compared to the prior year period. The increase in operating income was primarily driven by higher revenue and gross profit.
Our operating income for the nine months ended June 29, 2025 increased by $1.5 million, or 43.8%, compared to the prior year period. The increase in operating income was primarily driven by higher revenue and gross profit.
| 5 |
New Orders and Backlog
Product backlog represents the value of unfulfilled customer manufacturing orders yet to be recognized as revenue. While backlog is not a non-GAAP financial measure, it is also not defined by GAAP. Therefore, our methodology for calculating backlog may not be consistent with methodologies used by other companies. The booked backlog by period may also not be fully indicative of the predicted revenues for those periods as many of our orders provide for accelerated delivery without penalty and may additionally provide customers the option to adjust schedules to meet their most recent projected demand quantities. However, we provide customer order and backlog information as we believe it provides significant insight into forward demand, with some predictive power to short term future revenues.
During the nine months ended June 29, 2025, the Company booked $24.1 million in new orders, representing a 14.8% decrease over the prior year period. The decrease in orders was primarily attributable to a 43.2% decrease in the Optex Richardson segment orders, which was partially offset by increases of 38.8% at the Applied Optics Center, over the prior year period.
The following table depicts the new customer orders for the nine months ending June 29, 2025 as compared to the prior year period in millions of dollars by segment and product line:
| (Millions) | ||||||||||||||||
| Product Line | Nine months ended June 29, 2025 | Nine months ended June 30, 2024 | Variance | % Chg | ||||||||||||
| Periscopes | $ | 8.1 | $ | 15.9 | $ | (7.8 | ) | (49.1 | )% | |||||||
| Sighting Systems | 0.5 | 0.3 | 0.2 | 66.7 | % | |||||||||||
| Other | 1.9 | 2.3 | (0.4 | ) | (17.4 | )% | ||||||||||
| Optex Richardson | 10.5 | 18.5 | (8.0 | ) | (43.2 | )% | ||||||||||
| Optical Assemblies | 1.1 | 1.8 | (0.7 | ) | (38.9 | )% | ||||||||||
| Laser Filters | 10.2 | 6.5 | 3.7 | 56.9 | % | |||||||||||
| Day Windows | 0.8 | 0.1 | 0.7 | 700.0 | % | |||||||||||
| Other | 1.5 | 1.4 | 0.1 | 7.1 | % | |||||||||||
| Applied Optics Center | 13.6 | 9.8 | 3.8 | 38.8 | % | |||||||||||
| Total Customer Orders | $ | 24.1 | $ | 28.3 | $ | (4.2 | ) | (14.8 | )% | |||||||
During the current year nine-month period, Optex Richardson orders decreased by ($8.0) million, or (43.2%) as compared to the prior year period. The primary reason for the decrease relates to lower orders in our periscope product line. We have seen an increase in proposal requests over the last three months and expect additional orders to be forthcoming over the next three months. On July 7, 2025 the Company announced a $2.8 million order from a major prime contractor in support of the XM30 combat vehicle and on July 22, 2025, the Company announced the award of a five-year requirement-type contract by the Army Contracting Command for Abrams based optical sighting systems. We anticipate the initial year task award against this contract within the fiscal year.
Backlog as of June 29, 2025 was $38.3 million, compared to a backlog of $45.6 million as of June 30, 2024 and $44.2 million as of September 29, 2024, representing a decrease of ($7.3) million, or (16.0%) from the prior year June period. The following table depicts the current expected delivery by period of all contracts awarded as of June 29, 2025 in millions of dollars:
| Product Line | Q4 2025 Delivery | 2026+ Delivery | Total Backlog 6/29/2025 | Total Backlog 6/30/2024 | Variance | % Chg | ||||||||||||||||||
| Periscopes | $ | 5.6 | $ | 11.3 | $ | 16.9 | $ | 23.0 | $ | (6.1 | ) | (26.5 | )% | |||||||||||
| Sighting Systems | 0.4 | 2.7 | 3.1 | 4.0 | (0.9 | ) | (22.5 | )% | ||||||||||||||||
| Howitzer | - | 2.3 | 2.3 | 2.3 | - | - | % | |||||||||||||||||
| Other | 1.2 | 2.2 | 3.4 | 3.4 | - | - | % | |||||||||||||||||
| Optex Richardson | 7.2 | 18.5 | 25.7 | 32.7 | (7.0 | ) | (21.4 | )% | ||||||||||||||||
| Optical Assemblies | 0.3 | 0.2 | 0.5 | 1.3 | (0.8 | ) | (61.5 | )% | ||||||||||||||||
| Laser Filters | 3.0 | 7.2 | 10.2 | 9.2 | 1.0 | 10.9 | % | |||||||||||||||||
| Day Windows | 0.2 | 0.9 | 1.1 | 1.3 | (0.2 | ) | (15.4 | )% | ||||||||||||||||
| Other | 0.4 | 0.4 | 0.8 | 1.1 | (0.3 | ) | (27.3 | )% | ||||||||||||||||
| Applied Optics Center | 3.9 | 8.7 | 12.6 | 12.9 | (0.3 | ) | (2.3 | )% | ||||||||||||||||
| Total Backlog | $ | 11.1 | $ | 27.2 | $ | 38.3 | $ | 45.6 | $ | (7.3 | ) | (16.0 | )% | |||||||||||
| 6 |
Optex Richardson backlog as of June 29, 2025 was $25.7 million as compared to a backlog of $32.7 million as of June 30, 2024, representing a decrease of ($7.0) million or (21.4%).
Applied Optics Center backlog as of June 29, 2025, was $12.6 million as compared to a backlog of $12.9 million as of June 30, 2024, representing a decrease of ($0.3) million or (2.3%).
Please refer to “Material Trends” above or “Liquidity and Capital Resources” below for more information on recent developments and trends with respect to our orders and backlog, which information is incorporated herein by reference.
The Company continues to aggressively pursue international and commercial opportunities in addition to maintaining its current footprint with U.S. vehicle manufactures, with existing as well as new product lines. We are also reviewing potential products, outside our traditional product lines, which could be manufactured using our current production facilities in order to capitalize on our existing excess capacity.
Three Months Ended June 29, 2025 Compared to the Three Months Ended June 30, 2024
Revenues. For the three months ended June 29, 2025, revenues increased by $2.1 million or 22.6% compared to the prior year period as set forth in the table below:
| Three months ended | ||||||||||||||||
| (Thousands) | ||||||||||||||||
| Product Line | June 29, 2025 | June 30, 2024 | Variance | % Change | ||||||||||||
| Periscopes | $ | 5,526 | $ | 3,171 | $ | 2,355 | 74.3 | % | ||||||||
| Sighting Systems | 431 | 432 | (1 | ) | (0.2 | )% | ||||||||||
| Other | 881 | 1,072 | (191 | ) | (17.8 | )% | ||||||||||
| Optex Richardson | 6,838 | 4,675 | 2,163 | 46.3 | % | |||||||||||
| Optical Assemblies | 277 | 963 | (686 | ) | (71.2 | )% | ||||||||||
| Laser Filters | 2,982 | 2,941 | 41 | 1.4 | % | |||||||||||
| Day Windows | 229 | 109 | 120 | 110.1 | % | |||||||||||
| Other | 784 | 372 | 412 | 110.8 | % | |||||||||||
| Applied Optics Center - Dallas | 4,272 | 4,385 | (113 | ) | (2.6 | )% | ||||||||||
| Total Revenue | $ | 11,110 | $ | 9,060 | $ | 2,050 | 22.6 | % | ||||||||
Optex Richardson revenue increased by $2.2 million or 46.3% for the three months ended June 29, 2025 as compared to the prior year period on increased periscope production levels.
Applied Optics Center revenue decreased by ($0.1) million or (2.6%) for the three months ended June 29, 2025 as compared to the prior year period. The revenue decrease was primarily driven by lower customer demand for optical assemblies, partially offset by increased demand on filters, day windows and other.
Gross Profit. Gross margin during the three-month period ended June 29, 2025 was 28.5% of revenue as compared to a gross margin of 31.8% of revenue for the prior year period. The decrease in gross margin was primarily a result of shifts in revenue between segments and product groups as compared to the prior year period. Gross profit increased by $0.3 million to $3.2 million for the three months ended June 29, 2025 as compared to $2.9 million in the prior year three months. The increase in gross profit is primarily attributable to higher revenue. Cost of sales increased to $7.9 million for the current period as compared to the prior year period of $6.2 million on increased revenue and changes in product mix.
| 7 |
G&A Expenses. During the three months ended June 29, 2025 and June 30, 2024, we recorded operating expenses of $1.3 million. Operating expenses remained flat in the current year period as compared with the prior year period.
Operating Income. During the three months ended June 29, 2025, we recorded operating income of $1.9 million, as compared to operating income of $1.6 million during the three months ended June 30, 2024. The $0.3 million increase in operating income for the current year period from the prior year period is primarily due to increased revenue and gross profit.
Nine Months Ended June 29, 2025 Compared to the Nine Months Ended June 30, 2024
Revenues. For the nine months ended June 29, 2025, revenues increased by $5.5 million or 22.3% compared to the prior year period as set forth in the table below:
| Nine months ended | ||||||||||||||||
| (Thousands) | ||||||||||||||||
| Product Line | June 29, 2025 | June 30, 2024 | Variance | % Change | ||||||||||||
| Periscopes | $ | 13,862 | $ | 7,842 | $ | 6,020 | 76.8 | % | ||||||||
| Sighting Systems | 1,165 | 1,003 | 162 | 16.2 | % | |||||||||||
| Other | 1,545 | 3,499 | (1,954 | ) | (55.8 | )% | ||||||||||
| Optex Richardson | 16,572 | 12,344 | 4,228 | 34.3 | % | |||||||||||
| Optical Assemblies | 1,255 | 3,252 | (1,997 | ) | (61.4 | )% | ||||||||||
| Laser Filters | 9,535 | 7,208 | 2,327 | 32.3 | % | |||||||||||
| Day Windows | 807 | 460 | 347 | 75.4 | % | |||||||||||
| Other | 1,869 | 1,288 | 581 | 45.1 | % | |||||||||||
| Applied Optics Center - Dallas | 13,466 | 12,208 | 1,258 | 10.3 | % | |||||||||||
| Total Revenue | $ | 30,038 | $ | 24,552 | $ | 5,486 | 22.3 | % | ||||||||
Optex Richardson revenue increased by $4.2 million or 34.3% for the nine months ended June 29, 2025 as compared to the prior year period primarily on increased periscope production, partially offset by reductions in customer demand for other products. We anticipate lower revenues for the balance of the fiscal year in other products, as compared to the prior year, offset by higher revenue in periscopes.
Applied Optics Center revenue increased by $1.3 million or 10.3% for the nine months ended June 29, 2025 as compared to the prior year period. The revenue increase is primarily attributable to increased customer demand for military filters, day windows and other products, partially offset by lower customer demand for commercial optical assemblies. We expect this trend to continue through the balance of the fiscal year and into the first half of fiscal year 2026.
Gross Profit. The gross margin during the nine-month period ended June 29, 2025 was 28.8% of revenue as compared to a gross margin of 29.0% of revenue for the prior year period. The gross profit increased by $1.5 million to $8.7 million for the nine months ended June 29, 2025 as compared to $7.1 million for the prior year period. The increase in gross profit is primarily attributable to increased revenue. Cost of sales increased to $21.4 million for the nine months ended June 29, 2025 as compared to the prior year period of $17.4 million on higher period revenue.
G&A Expenses. During the nine months ended June 29, 2025 and June 30, 2024, we recorded operating expenses of $3.6 million.
Operating Income. During the nine months ended June 29, 2025, we recorded operating income of $5.1 million, as compared to operating income of $3.5 million during the nine months ended June 30, 2024. The $1.6 million increase in operating income is primarily due to higher revenue and gross profit.
Liquidity and Capital Resources
As of June 29, 2025, Optex Systems Holdings had working capital of $19.4 million, as compared to $15.1 million as of September 29, 2024. During the nine months ended June 29, 2025, we generated operating cash of $5.4 million, primarily driven by increased net income, reductions in inventory and increased accounts payable. During the nine months ended June 29, 2025, we paid $1.0 million against the credit facility and purchased capital assets of $0.5 million.
| 8 |
As of June 29, 2025, the Company had no outstanding capital commitments for the purchase of property and equipment. We anticipate additional capital projects forthcoming in the next six months.
Backlog as of June 29, 2025 was $38.3 million as compared to $44.2 million and $45.6 million as of September 29, 2024 and June 30, 2024, respectively. For further details, see “Results of Operations – New Orders and Backlog” above.
The Company has historically funded its operations through cash from operations, convertible notes, common and preferred stock offerings and bank debt. The Company’s ability to generate positive cash flows depends on a variety of factors, including the continued development and successful marketing of the Company’s products.
At June 29, 2025, the Company had approximately $4.9 million in cash and no draws against its revolving credit line. As of June 29, 2025, our outstanding accounts receivable balance was $4.1 million to be collected during the fourth quarter of fiscal 2025.
We refer to the disclosure above under “Material Trends and Recent Developments” with respect to recent supply chain disruptions and material shortages, which disclosure is incorporated herein by reference.
In the short term, the Company plans to utilize its current cash, available line of credit and operating cash flow to fund inventory purchases in support of the backlog growth and higher anticipated revenue during the next twelve months. Short term cash in excess of our working capital needs may be also be used to fund the purchase of product lines and other assets. We may also repurchase common stock against our current stock repurchase plan. Longer term, excess cash beyond our operating needs may be used to fund new product development, company, product line or other asset acquisitions, or additional stock purchases as attractive opportunities present themselves.
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.
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 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.
We refer to “Note 5 – Commitments and Contingencies – Non-cancellable Operating Leases” for a tabular depiction of our remaining minimum lease and estimated Common Area Maintenance (“CAM”) payments under such leases as of December 29, 2024, which disclosure is incorporated herein by reference.
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.
On March 22, 2023, the Company 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 Company a revolving line of credit in the principal amount of $3 million.
| 9 |
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 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 7.10% 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 3:1. 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.
The outstanding balance under the Texas Capital Facility was $0 as of June 29, 2025 and $1.0 million as of September 29, 2024.
For the three months and nine months ended June 29, 2025, the total interest expense under the facility was $0 thousand and $12 thousand, respectively.
Critical Accounting Estimates
A critical accounting estimate is an estimate that:
| ● | is made in accordance with generally accepted accounting principles, | |
| ● | involves a significant level of estimation uncertainty, and | |
| ● | has had or is reasonably likely to have a material impact on the company’s financial condition or results of operation. |
Our significant accounting policies are fundamental to understanding our results of operations and financial condition. Some accounting policies require that we use estimates and assumptions that may affect the value of our assets or liabilities and financial results. These policies are described in “Critical Policies and Accounting Pronouncements” and Note 2 (Accounting Policies) to consolidated financial statements in our Annual Report on Form 10-K for the year ended September 29, 2024.
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 June 29, 2025, the Company had accrued warranty costs of $173 thousand, as compared to $52 thousand as of September 29, 2024. The primary reason for the $121 thousand increase in reserve balances relates to accrual related to a potential warranty issue on our Applied Optics Day Windows of $143 thousand, offset by lower shipments and reduced revenue and warranties on our commercial optical assemblies.
| 10 |
As of June 29, 2025 and September 29, 2024, we had $423 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 IDIQ contracts which were priced in 2018 through early 2020, prior to Covid-19 and the significant downturn in defense spending on ground system vehicles. Due to inflationary price increases on component parts and higher internal manufacturing costs (as a result of escalating labor costs and higher burden rates on reduced volume), some of these contracts are in a loss condition, or at marginal profit rates. 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 three and nine months ended June 29, 2025, the Company recognized $32 thousand and $101 thousand in loss reserves on new contract awards, changes in estimates for the contract loss reserves of $184 thousand and $134 thousand and applied reserves of ($19) thousand and ($71) thousand to cost of sales against revenues booked during the periods, respectively. Estimated loss reserves increased during the period as a result of higher rework and labor inefficiencies as we have ramped up to the higher production levels and trained new employees on the periscope line. During the three and nine months ended June 30, 2025, the Company recognized a gain on changes in estimates for the contract loss reserves of $16 thousand and $45 thousand and applied reserves of ($34) thousand and ($97) thousand to cost of sales against revenues booked during the periods, respectively.
As of June 29, 2025 and September 29, 2024, the Company had a deferred tax asset valuation allowance of ($0.8) million against deferred tax assets of $1.6 million and $1.7 million, for a net deferred tax asset of $0.9 and $0.9 million, respectively. 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 may not be fully recognized due to an IRS Section 382 limitation related to a change in control. 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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by our Quarterly Report on Form 10-Q for the quarter ended June 29, 2025, management performed, with the participation of our Principal Executive Officer and Principal Financial Officer, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s forms, and that such information is accumulated and communicated to our management including our Principal Executive Officer and our Principal Financial Officer, to allow timely decisions regarding required disclosures. Based upon the evaluation described above, our Principal Executive Officer and our Principal Financial Officer concluded that, as of June 29, 2025, our disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
During the three months ended June 29, 2025, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| 11 |
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are not aware of any material litigation pending or threatened against us.
Item 1A. Risk Factors
There have been no material changes in risk factors since the risk factors set forth in the Form 10-K filed for the year ended September 29, 2024.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
There were no purchases made by or on behalf of the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) of its common stock under the Exchange Act) during the three months ended June 29, 2025.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits
| Exhibit No. | Description | |
| 10.1 | Business Loan Agreement effective as of May 22, 2025 by and among Optex Systems Holdings, Inc, Optex Systems, Inc., and Texas Capital Bank (including Note) | |
| 31.1 and 31.2 | Certifications pursuant to Section 302 of Sarbanes Oxley Act of 2002 | |
| 32.1 and 32.2 | Certifications pursuant to Section 906 of Sarbanes Oxley Act of 2002 | |
| EX-101.INS | Inline XBRL Instance Document | |
| EX-101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| EX-101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| EX-101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| EX-101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| EX-101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| 12 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| OPTEX SYSTEMS HOLDINGS, INC. | ||
| Date:August 12, 2025 | By: | /s/ Danny Schoening |
| Danny Schoening | ||
| Principal Executive Officer | ||
| OPTEX SYSTEMS HOLDINGS, INC. | ||
| Date: August 12, 2025 | By: | /s/ Karen Hawkins |
| Karen Hawkins | ||
| Principal Financial Officer and | ||
| Principal Accounting Officer | ||
| 13 |