v3.26.1
Accounting Policies (Policies)
 6 Months Ended
Mar. 29, 2026
Accounting Policies [Abstract]  
Principles of Consolidation

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

 

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

 

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

 

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

 
Inventory

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

 

       
   (Thousands) 
   March 29, 2026   September 28, 2025 
Raw Material  $10,484   $9,394 
Work in Process   6,388    6,063 
Finished Goods   729    788 
Gross Inventory  $17,601   $16,245 
Less: Inventory Reserve   (1,965)   (1,923)
Net Inventory  $15,636   $14,322 

 

 
Cash and Cash Equivalents

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

 
Concentration of Credit Risk

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

 
Accrued Warranties

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

 

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

 

             
   (Thousands) 
   Three months ended   Six Months ended 
   March 29, 2026   March 30, 2025   March 29, 2026   March 30, 2025 
Beginning balance  $168   $22   $162   $52 
                     
Incurred costs for warranties satisfied during the period   -    -    -    - 
                     
Warranty Expenses:                    
Warranties reserved for new product shipped during the period(1)   -    13    6    25 
Change in estimate for pre-existing warranty liabilities(2)   (143)   71    (143)   29 
Warranty Expense   (143)   84    (137)   54 
                     
Ending balance  $25   $106   $25   $106 

 

(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

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

 
Fair Value of Financial Instruments

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

 

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

 

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

 

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

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

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

 

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

 
Revenue Recognition

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

 

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

 

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

 

 
Contract Loss Reserves

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

 

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

 
Income Tax/Deferred Tax

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

 
Earnings per Share

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

 

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

 

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

 

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