UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 29, 2024

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______to______.

OPTEX SYSTEMS HOLDINGS, INC.

(Exact Name of Registrant as Specified in Charter)

Delaware	001-41644	90-0609531
(State or other jurisdiction	(Commission	(IRS Employer
of incorporation)	File Number)	Identification No.)

1420 Presidential Drive, Richardson, TX		75081-2439
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (972) 764-5700

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, $0.001 par value		OPXS		The Nasdaq Stock Market LLC

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 of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large Accelerated Filer ☐

Accelerated Filer ☐

Non-Accelerated Filer ☒

Smaller Reporting Company ☒

☐	Emerging growth company

☐	If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of February 7, 2025: 6,896,738 shares of common stock.

OPTEX SYSTEMS HOLDINGS, INC.

FORM 10-Q

For the period ended December 29, 2024

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		11
Item 1.	Legal Proceedings	11
Item 1A.	Risk Factors	11
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	11
Item 3.	Defaults Upon Senior Securities	11
Item 4.	Mine Safety Disclosures	11
Item 6.	Exhibits	11
SIGNATURE		12

Part 1. Financial Information

Item 1. Unaudited Condensed Consolidated Financial Statements

OPTEX SYSTEMS HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 29, 2024 (UNAUDITED) AND SEPTEMBER 29, 2024		F-2

CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED DECEMBER 29, 2024 (UNAUDITED) AND THE THREE MONTHS ENDED DECEMBER 31, 2023 (UNAUDITED)		F-3

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED DECEMBER 29, 2024 (UNAUDITED) AND THE THREE MONTHS ENDED DECEMBER 31, 2023 (UNAUDITED)		F-4

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE THREE MONTHS ENDED DECEMBER 29, 2024 (UNAUDITED) AND THE THREE MONTHS ENDED DECEMBER 31, 2023 (UNAUDITED)		F-5

CONDENSED CONSOLIDATED FINANCIAL STATEMENT FOOTNOTES (UNAUDITED)		F-6

F-1

Optex Systems Holdings, Inc.

Condensed Consolidated Balance Sheets

	December 29, 2024			September 29, 2024
	(Thousands, except share and per share data)
	(Unaudited) December 29, 2024			September 29, 2024

ASSETS

Cash and Cash Equivalents	$	2,491		$	1,009
Accounts Receivable, Net		1,734			3,764
Inventory, Net		14,674			14,863
Contract Asset		196			219
Prepaid Expenses		265			217

Current Assets		19,360			20,072

Property and Equipment, Net		1,520			1,292

Other Assets
Deferred Tax Asset		888			947
Intangibles, net		912			951
Right-of-use Asset		2,103			2,233
Security Deposits		23			23

Other Assets		3,926			4,154

Total Assets	$	24,806		$	25,518

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities
Accounts Payable	$	987		$	1,177
Credit Facility		-			1,000
Operating Lease Liability		643			638
Federal Income Taxes Payable		74			74
Accrued Expenses		1,065			1,258
Accrued Selling Expense		224			237
Accrued Warranty Costs		22			52
Contract Loss Reserves		213			259
Customer Advance Deposits		210			255

Current Liabilities		3,438			4,950

Other Liabilities
Operating Lease Liability, net of current portion		1,624			1,760

Other Liabilities		1,624			1,760

Total Liabilities		5,062			6,710

Commitments and Contingencies		-			-

Stockholders’ Equity
Common Stock – ($0.001 par, 2,000,000,000 authorized, 6,896,738 and 6,873,938 shares issued and outstanding, respectively)		7			7
Additional Paid in Capital		21,557			21,465
Accumulated Deficit		(1,820	)		(2,664	)

Stockholders’ Equity		19,744			18,808

Total Liabilities and Stockholders’ Equity	$	24,806		$	25,518

The accompanying notes are an integral part of these condensed consolidated financial statements

F-2

Optex Systems Holdings, Inc.

Condensed Consolidated Statements of Income

(Unaudited)

	December 29, 2024			December 31, 2023
	(Thousands, except share and per share data)
	Three months ended
	December 29, 2024			December 31, 2023

Revenue	$	8,198		$	6,968

Cost of Sales		6,070			5,284

Gross Profit		2,128			1,684

General and Administrative Expense		1,212			1,131

Operating Income		916			553

Interest Expense		(13	)		(7	)

Income Before Taxes		903			546

Income Tax Expense, net		59			115

Net income	$	844		$	431

Basic income per share	$	0.12		$	0.06

Weighted Average Common Shares Outstanding - basic		6,813,938			6,666,290

Diluted income per share	$	0.12		$	0.06

Weighted Average Common Shares Outstanding - diluted		6,912,594			6,721,661

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)

	December 29, 2024			December 31, 2023
	(Thousands) Three months ended
	December 29, 2024			December 31, 2023

Cash Flows from Operating Activities:
Net Income	$	844		$	431

Adjustments to Reconcile Net Income to Net Cash provided by Operating Activities:
Depreciation and Amortization		129			92
Stock Compensation Expense		92			113
Deferred Tax		59			35
Accounts Receivable		2,029			1,194
Inventory		189			(532	)
Contract Asset		23			78
Prepaid Expenses		(48	)		65
Leases		(1	)		4
Accounts Payable and Accrued Expenses		(383	)		713
Federal Income Taxes Payable		-			79
Accrued Warranty Costs		(29	)		(27	)
Accrued Selling Expense		(12	)		(56	)
Customer Advance Deposits		(45	)		-
Contract Loss Reserves		(46	)		65
Total Adjustments		1,957			1,823
Net Cash provided by Operating Activities		2,801			2,254

Cash Flows used in Investing Activities
Purchases of Property and Equipment		(319	)		(58	)
Net Cash used in Investing Activities		(319	)		(58	)

Cash Flows used in Financing Activities
Payments to Credit Facility		(1,000	)		(1,000	)
Cash Paid for Taxes Withheld on Net Settled Restricted Stock Unit Shares Issued		-			(27	)

Net Cash used in Financing Activities		(1,000	)		(1,027	)

Net Increase in Cash and Cash Equivalents		1,482			1,169
Cash and Cash Equivalents at Beginning of Period		1,009			1,204
Cash and Cash Equivalents at End of Period	$	2,491		$	2,373

Supplemental Cash Flow Information
Cash Paid for Interest	$	13		$	7
Cash Paid for Taxes		-			-

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)

	Issued		Stock		Capital		Deficit			Equity
	Three months ended December 29, 2024
	Common				Additional					Total
	Shares		Common		Paid in		Accumulated			Stockholders
	Issued		Stock		Capital		Deficit			Equity
Balance at September 29, 2024		6,873,938	$	7	$	21,465	$	(2,664	)	$	18,808
Stock Compensation Expense		-		-		92		-			92
Restricted Board Shares Issued⁽¹⁾		22,800		-		-		-			-
Net Income		-		-		-		844			844

Balance at December 29, 2024		6,896,738	$	7	$	21,557	$	(1,820	)	$	19,744

	Three months ended December 31, 2023
	Common				Additional						Total
	Shares		Common		Paid in			Accumulated			Stockholders
	Issued		Stock		Capital			Deficit			Equity
Balance at October 1, 2023		6,763,070	$	7	$	21,285		$	(6,432	)	$	14,860
Balance		6,763,070	$	7	$	21,285		$	(6,432	)	$	14,860
Stock Compensation Expense		-		-		113			-			113
Vested Performance Based Shares net of withheld taxes⁽²⁾		60,623		-		(27	)		-			(27	)
Net Income		-		-		-			431			431

Balance at December 31, 2023		6,823,693	$	7	$	21,371		$	(6,001	)	$	15,377
Balance		6,823,693	$	7	$	21,371		$	(6,001	)	$	15,377

(1)	Restricted Share Grant on November 5, 2024 to independent board members of 7,600 shares each, vesting on January 1, 2026.
(2)	Performance based shares vested October 2, 2023, December 22, 2023 and December 29, 2023 issued net of tax withheld. Shares were vested based on reaching 30-day VWAP of $3.70, $4.45 and $5.35 on the respective vesting dates.

The accompanying notes are an integral part of these condensed consolidated financial statements

F-5

Note 1 - Organization and Operations

Optex Systems Holdings, Inc. (the “Company”) manufactures optical sighting systems and assemblies for the U.S. Department of Defense, foreign military applications and commercial markets. Its products are installed on a variety of U.S. military land vehicles, such as the Abrams and Bradley fighting vehicles, light armored and advanced security vehicles, and 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 three months ended December 29, 2024 were derived from the U.S. government (26%), five major U.S. defense contractors (18%, 9%, 8%, 7%, and 6%, respectively), one major commercial customer (6%) and all other customers (20%). Approximately 94% of the total company revenue is generated from domestic customers and 6% is derived from foreign customers. Optex Systems Holdings’ operations are based in Dallas and Richardson, Texas in leased facilities comprising 93,967 square feet. As of December 29, 2024, Optex Systems Holdings operated with 128 full-time equivalent employees.

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. All significant inter-company balances and transactions have been eliminated in consolidation.

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

These condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and the notes thereto included in the Optex Systems Holdings’ Form 10-K for the year ended September 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 December 29, 2024 and September 29, 2024, inventory included:

Schedule of Inventory

	December 29, 2024			September 29, 2024
	(Thousands)
	December 29, 2024			September 29, 2024
Raw Material	$	8,963		$	9,460
Work in Process		6,086			5,954
Finished Goods		732			556
Gross Inventory	$	15,781		$	15,970
Less: Inventory Reserves		(1,107	)		(1,107	)
Net Inventory	$	14,674		$	14,863

F-6

Concentration of Credit Risk: Optex Systems Holdings’ accounts receivables as of December 29, 2024 consisted of U.S. government agencies (11%), six major U.S. defense contractors (17%, 15%, 13%, 11%, 10% and 9%, respectively), one foreign military customer (8%) and all other customers (6%). The Company does not believe that this concentration results in undue credit risk given of the financial strength of the respective customers and the Company’s long history with them.

Accrued Warranties: Optex Systems Holdings accrues product warranty liabilities based on the historical return rate against period shipments as they occur and reviews and adjusts these accruals quarterly for any significant changes in estimated costs or return rates. The accrued warranty liability includes estimated costs to repair or replace returned warranty backlog units currently in-house plus estimated costs for future warranty returns that may be incurred against warranty covered products previously shipped as of the period end date. As of December 29, 2024, and September 29, 2024, the Company had warranty reserve balances of $22 and $52 thousand, respectively.

The table below summarizes the warranty activity for the three months ended December 29, 2024 and December 31, 2023.

Schedule of Warranty Reserves

	December 29, 2024			December 31, 2023
	Three months ended
	December 29, 2024			December 31, 2023
Beginning balance	$	52		$	75

Incurred costs for warranties satisfied during the period		-			(32	)

Warranty Expenses:
Warranties reserved for new product shipped during the period⁽¹⁾		12			52
Change in estimate for pre-existing warranty liabilities⁽²⁾		(42	)		(47	)
Warranty Expense		(30	)		5

Ending balance	$	22		$	48

(1)	Warranty expenses accrued to cost of sales (based on current period shipments and historical warranty return rate.)

(2)	Changes in estimated warranty liabilities recognized in cost of sales associated with: the period end customer returned warranty backlog, or the actual costs of repaired/replaced warranty units which were shipped to the customer during the current period.

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.

F-7

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

Revenue Recognition: The majority of the Company’s contracts and customer orders originate with fixed determinable unit prices for each deliverable quantity of goods defined by the customer order line item (performance obligation) and include the specific due date for the transfer of control and title of each of those deliverables to the customer at pre-established payment terms, which are generally within thirty to sixty days from the transfer of title and control. We have elected to account for shipping and handling costs as fulfillment costs after the customer obtains control of the goods. In addition, the Company has one ongoing service contract which relates to optimized weapon system support (OWSS) and includes ongoing program maintenance, repairs and spare inventory support for the customer’s existing fleet units in service during the duration of the contract. Revenue recognition for this program has been recorded by the Company, and compensated by the customer, at fixed monthly increments over time, consistent with the defined contract maintenance period. During the three months ended December 29, 2024 and December 31, 2023 there was $126 thousand and $115 thousand in service contract revenue recognized over time.

During the three months ended December 29, 2024 and December 31, 2023, there was $45 thousand and zero of revenue recognized from customer deposit liabilities (deferred contract revenue). As of December 29, 2024 and September 29, 2024, customer deposit liabilities were $210 thousand and $255 thousand, respectively.

As of December 29, 2024 and September 29, 2024, there was $224 thousand and $237 thousand in accrued selling expenses and $196 and $219 thousand in contract assets related to a $3.4 million contract booked in November 2022. The selling costs are amortized against the revenue for the contract deliveries which began in the first half of fiscal year 2024 and are expected to extend through fiscal year 2025. During the three months ended December 29, 2024 and December 31 2023, we booked $23 thousand and $22 thousand of selling expenses against the contract asset for shipments against the contract, respectively.

Contract Loss Reserves: The Company records loss provisions in the event that the current estimated total revenue against a contract and the total estimated cost remaining to fulfill the contract indicate a loss upon completion. When the estimated costs indicate a loss, we record the entire value of the loss against the contract loss reserve in the period the determination is made. The Company has 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. Some of these long-term contracts have option year ordering periods ending in February 2025 with deliveries that may extend into February 2026. As of December 29, 2024 and September 29, 2024, the accrued contract loss reserves were $213 thousand and $259 thousand, respectively.

During the three months ended December 29, 2024, the Company recognized $7 thousand in loss reserves on new contract awards and made shipments resulting in reductions of $53 thousand against existing loss reserves. During the three months ended December 31, 2023, the Company recognized $90 thousand in loss reserves on new contract awards and made shipments resulting in reductions of $25 thousand against existing loss reserves.

Income Tax/Deferred Tax: As of December 29, 2024 and September 29, 2024, Optex Systems, Inc. has a deferred tax asset valuation allowance of ($0.8) million against deferred tax assets of $1.7 million, for a net deferred tax asset of $0.9 million. 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.

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

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

F-8

For the three months ended December 29, 2024, 82,800 shares of unvested restricted stock and 59,000 restricted stock units (which convert to an aggregate of 98,656 incremental shares) were included in the diluted earnings per share calculation.

For the three months ended December 31, 2023, 120,000 shares of unvested restricted stock and 39,000 restricted stock units (which convert to an aggregate of 55,371 incremental shares) were included in the diluted earnings per share calculation and 54,000 performance shares were excluded from diluted earnings per share as they were below the target price.

Note 3 - Segment Reporting

The Company’s two reportable segments, Applied Optics Center and Optex Systems – Richardson (“Optex Systems”), 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 Systems segment. Intersegment sales and transfers are accounted for at annually agreed to pricing rates based on estimated segment product cost, which includes segment direct manufacturing and general and administrative costs, but exclude profits that would apply to third party external customers.

Optex Systems (“OPX”) – Richardson, Texas

Optex Systems revenues are primarily in support of prime and subcontracted military customers. Military sales to prime and subcontracted customers represented approximately 100% and sales to commercial customers represented less than 1% of the external segment revenue for the three months ended December 29, 2024. The Optex Systems segment revenue is comprised of approximately 86% domestic military customers and 14% foreign military customers. For the three months ended December 29, 2024, Optex Systems represented 42% of the Company’s total consolidated revenue and consisted of revenue from one major defense contractor (13%), the U.S. Government (19%) and all other customers (10%).

Optex Systems is located in Richardson Texas, with leased premises consisting of approximately 49,100 square feet. As of December 29, 2024, the Richardson facility operated with 82 full time equivalent employees in a single shift operation which includes 8 home office support employees. The facilities at Optex Systems, Richardson serve as the home office for both the Optex Systems and Applied Optics Center segments.

F-9

Applied Optics Center (“AOC”) – Dallas, Texas

The Applied Optics Center serves primarily domestic U.S. customers. Sales to commercial customers represented approximately 11% and military sales to prime and subcontracted customers represented approximately 89% of the external segment revenue for the three months ended December 29, 2024. Approximately 95% of the AOC revenue was derived from external customers and approximately 5% was related to intersegment sales to Optex Systems in support of military contracts. For the three months ended December 29, 2024, AOC represented 58% of the Company’s total consolidated revenue and consisted of revenue from five major defense contractors (9%, 8%, 7%, 6% and 5%), the U.S. Government (6%), one commercial customer (6%), and all other customers (11%).

The Applied Optics Center is located in Dallas, Texas with leased premises consisting of approximately 44,867 square feet of space. As of December 29, 2024, AOC operated with 46 full time equivalent employees in a single shift operation.

The financial tables below present information on the reportable segments’ profit or loss for each period, as well as segment assets as of each period end. The Company does not allocate interest expense, income taxes or unusual items to segments.

	Reportable Segment Financial Information (thousands)
	As of and for the three months ended December 29, 2024
	Optex Systems Richardson			Applied Optics Center Dallas			Other (non-allocated costs and intersegment eliminations)			Consolidated Total

Revenues from external customers	$	3,415		$	4,783		$	-		$	8,198
Intersegment revenues		-			271			(271	)		-
Total revenue	$	3,415		$	5,054		$	(271	)	$	8,198

Depreciation and amortization	$	64		$	65		$	-		$	129

Interest Expense		-			-		$	13		$	13

Income (loss) before taxes	$	(285	)	$	1,293		$	(105	)	$	903

Other significant noncash items:
Allocated home office expense	$	(328	)	$	328		$	-		$	-
Stock compensation expense	$	-		$	-		$	92		$	92
Warranty expense	$	-		$	(30	)	$	-		$	(30	)

Segment assets	$	16,881		$	7,925		$	-		$	24,806
Expenditures for segment assets	$	74		$	245		$	-		$	319

F-10

	Reportable Segment Financial Information (thousands)
	As of and for the three months ended December 31, 2023
	Optex Systems Richardson			Applied Optics Center Dallas		Other (non-allocated costs and intersegment eliminations)			Consolidated Total

Revenues from external customers	$	3,394		$	3,574	$	-		$	6,968
Intersegment revenues		-			187		(187	)		-
Total revenue	$	3,394		$	3,761	$	(187	)	$	6,968

Depreciation and amortization	$	10		$	82	$	-		$	92

Interest expense	$	-			-	$	7		$	7

Income (loss) before taxes	$	15		$	651	$	(120	)	$	546

Other significant noncash items:
Allocated home office expense	$	(343	)	$	343	$	-		$	-
Stock compensation expense	$	-		$	-	$	113		$	113
Warranty expense	$	-		$	5	$	-		$	5

Segment assets	$	14,336		$	8,053	$	-		$	22,389
Expenditures for segment assets	$	33		$	25	$	-		$	58

Note 4 - Commitments and Contingencies

Non-cancellable Operating Leases

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

The facility leased by Optex Systems Inc. located at 1420 Presidential Drive, Richardson, Texas consists of 49,100 square feet of space at the premises. The previous lease term for this location expired March 31, 2021 and the monthly base rent was $24.6 thousand through March 31, 2021. On January 11, 2021 the Company executed a sixth amendment extending the terms of the lease for eighty-six (86) months, commencing on April 1, 2021 and ending on May 31, 2028. The initial base rent is set at $25.3 thousand and escalates 3% on April 1 each year thereafter. The initial term included 2 months of rent abatement for April and May of 2021. The monthly rent includes approximately $13.1 thousand for additional Common Area Maintenance fees and taxes (“CAM”), to be adjusted annually based on actual expenses incurred by the landlord.

The facility leased by Applied Optics Center located at 9839 and 9827 Chartwell Drive, Dallas, Texas, consists of 44,867 square feet of space at the premises. The previous lease term for this location expired on October 31, 2021 and the monthly base rent was $21.9 thousand through the end of the lease. On January 11, 2021 the Company executed a first amendment extending the terms of the lease for eighty-six (86) months, commencing on November 1, 2021 and ending on December 31, 2028. The initial monthly base rent is set at $23.6 thousand as of January 1, 2022 and escalates 2.75% on January 1 each year thereafter. The initial term included 2 months of rent abatement for November and December of 2021. The amendment provides for a five-year renewal option at the end of the lease term at the greater of the then “prevailing rental rate” or the then current base rental rate. Our obligations to make payments under the lease are secured by a $125,000 standby letter of credit. The monthly rent includes approximately $9.3 thousand for additional CAM, to be adjusted annually based on actual expenses incurred by the landlord.

As of December 29, 2024, the remaining minimum lease and estimated CAM payments under the non-cancelable facility space leases are as follows:

Fiscal Year		Facility Lease Payments				Facility Lease Payments				Lease Payments			Total Lease Payments			Total Variable CAM Estimate
	(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		$	254			$	230			$	11		$	495		$	219
2026 Base year lease			346				313				3			662			293
2027 Base year lease			357				322				-			679			298
2028 Base year lease			241				330				-			571			213
2029 Base year lease			-				83				-			83			30
Total base lease payments		$	1,198			$	1,278			$	14		$	2,490		$	1,053
Imputed interest on lease payments ⁽¹⁾			(100	)			(123	)			-			(223	)
Total Operating Lease Liability⁽²⁾		$	1,098			$	1,155			$	14		$	2,267

Right-of-use Asset⁽³⁾		$	1,013			$	1,076			$	14		$	2,103

(1)	Assumes a discount borrowing rate of 5.0% on the new lease amendments effective as of January 11, 2021.

(2)	Includes $164 thousand of unamortized deferred rent.

(3)	Short-term and Long-term portion of Operating Lease Liability is $643 thousand and $1,624 thousand, respectively.

Total facilities rental and CAM expense under both facility lease agreements for the three months ended December 29, 2024 and December 31, 2023 was $224 and $217 thousand, respectively. Total office equipment rentals included in operating expenses was $7 and $5 thousand for the three months ended December 29, 2024 and December 31, 2023, respectively.

Note 5 - Debt Financing

Credit Facility — Texas Capital Bank

On March 22, 2023, the Borrowers entered into a Business Loan Agreement (the “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 “Texas Capital Facility”). The Texas Capital Facility replaced the $2 million credit facility with PNC Bank.

The commitment period for advances under the Texas Capital Facility is twenty-six months expiring on May 22, 2025. We refer to the expiration of that time period as the “Maturity Date.” Outstanding advances under the Texas Capital Facility will accrue interest at a rate equal to the secured overnight financing rate (SOFR) plus a specified margin, subject to a specified floor interest rate. As of December 29, 2024, the interest rate was 7.35% per annum.

The Loan Agreement contains customary events of default (including a 25% change in ownership) and negative covenants, including but not limited to those governing indebtedness, liens, fundamental changes (including changes in management), investments, and restricted payments (including cash dividends). The Loan Agreement also requires the Borrowers to maintain a fixed charge coverage ratio of at least 1.25:1 and a total leverage ratio of 3.00:1. The Texas Capital Facility is secured by substantially all of the operating assets of the Borrowers as collateral. The Borrowers’ obligations under the Texas Capital Facility are subject to acceleration upon the occurrence of an event of default as defined in the Loan Agreement. The Loan Agreement further provides for a $125,000 Letter of Credit sublimit.

During the three months ended December 29, 2024, the Company paid $1 million against the outstanding loan balance. The outstanding balance under the Texas Capital Facility was zero as of December 29, 2024 and $1 million as of September 29, 2024.

For the three months ended December 29, 2024, the interest expense under the Texas Capital Facility was $13 thousand.

F-11

Note 6 - Stock Based Compensation

Restricted Stock, Performance Shares and Restricted Stock Units issued to Directors, Officers and Employees

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

	Restricted Stock Units			Weighted Average Grant Date Fair Value		Restricted Shares			Weighted Average Grant Date Fair Value		Performance Shares			Weighted Average Grant Date Fair Value
Outstanding at October 1, 2023		39,000		$	3.06		120,000		$	2.20		135,000		$	2.37
Granted		40,500			7.17		-			-		-			-
Vested		(13,000	)		3.06		(60,000	)		2.20		(135,000	)		2.37
Forfeited		-			-		-			-		-			-
Outstanding at September 29, 2024		66,500		$	5.56		60,000		$	2.20		-		$	-
Granted		-			-		22,800			8.10		-			-
Vested		-			-		-			-		-			-
Forfeited		(7,500	)		5.19		-			-		-			-
Outstanding at December 29, 2024		59,000		$	5.61		82,800		$	3.82		-

SEC Form 10-Q filed by Optex Systems Holdings Inc.