NASDAQ: OPXS

Recent
Events

Appointment
of Chief Executive Officer

In
response to the notification by Danny Schoening that he intends to resign from the position of Chief Executive Officer of the Company,
effective as of December 20, 2025 (the “Effective Date”), on December 5, 2025, the Board of Directors of the Company (the
“Board”) appointed Chad George, the Company’s President, to assume the additional role of Chief Executive Officer to
fill the vacancy left by Mr. Schoening, effective as of the Effective Date.

Mr.
George, 48, has served as President of the Company since August 11, 2025. Previously, he spent 20 years in senior operations and supply
chain roles in the defense sector. Between January 2022 and August 2025, he served as Vice President of Operations and Supply Chain at
Leonardo DRS, where he played a key role in streamlining production processes and enhancing strategic sourcing capabilities. He also
worked as Factory Manager and Operations Leader at Raytheon from April 2009 through March 2021. He holds a Bachelor’s Degree in
Industrial Engineering from Oklahoma State University and a Master of Business Administration from the University of Texas at Dallas.

In
connection with the appointment, the Company entered into a new employment agreement with Mr. George as of the Effective Date (the “New
Employment Agreement”). Pursuant to the agreement, Mr. George will serve as the Company’s President and Chief Executive Officer
through December 31, 2028. Thereafter, the term of the agreement will automatically extend for successive additional 12-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 $300,000, which may be increased by the Compensation Committee and/or
by the Board in their sole discretion but may not be decreased without Mr. George’s consent. Mr. George’s base salary will
increase at 3.5% annually in accordance with the then-current Company policy. Mr. George will be eligible for a performance bonus based
upon a one-year operating plan adopted by the Company’s Board. The bonus will be based on financial and/or operating metrics decided
annually by the Board or the Compensation Committee and tied to such one-year plan. The target bonus will equate to 30% of Mr. George’s
base salary. The Board will have discretion in good faith to alter the performance bonus upward or downward by 20%. Mr. George is entitled
to 200 hours paid vacation and paid time off (PTO) each year and all other benefits accorded to our other senior executives.

4

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), (iii) termination
by the Company without cause and (iv) termination by Mr. George for good reason (including continued breach by the Company of its material
obligations under the agreement after written notice, the requirement for Mr. George to move more than 100 miles away for his employment
without consent, and merger or consolidation that results in more than 66% of the combined voting power of the Company’s then outstanding
securities or those of its successor changing ownership or the sale of all or substantially all of its assets, without the surviving
entity assuming the obligations under the 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.

Increase
in Board Size and Election of New Director

Concurrently
with Mr. George’s appointment as Chief Executive Officer, the Board elected Mr. George to serve as a director of the Board, effective
as of the Effective Date, until the Company’s 2026 annual meeting of shareholders and until his successor has been elected and
qualified. In connection with Mr. George’s election as a director of the Board, the Board increased the total number of Board seats
from four to five.

The
New Employment Agreement requires Mr. George to fulfill his duties as a director without additional compensation.

Resignation
of Chief Executive Officer

On
December 4, 2025, Mr. Schoening notified the Company that he intends to resign, effective as of the Effective Date, from the position
of Chief Executive Officer of the Company. Mr. Schoening will remain on the Board, will continue to serve in the position of Chairman
of the Board, and will continue to serve as the Company’s Facilities Security Officer (“FSO”).

Appointment
of New President

Effective
August 11, 2025, the Board appointed Mr. George as the Company’s new President.

In
connection with Mr. George’s appointment as President, the Board granted him 10,000 shares of restricted stock under an exemption
from registration effective August 11, 2025, which will vest on January 1, 2026.

Amendment
to Bylaws

Effective
August 10, 2025, the Board 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.

5

Recent
Orders

●
On
December 15, 2025, the Company announced it was awarded a new contract for optical sub-assemblies. The order value is $2.3 million
with deliveries from April 2026 through December 2026. The units will be manufactured at the Applied Optics Center segment
(“Applied Optics Center” or “AOC”) location in Dallas, Texas.

●
On
August 5, 2025, the Company announced it was awarded a firm fixed price purchase order from General Dynamics Land Systems - Canada.
This $1.6 million award for laser protected periscopes will be delivered in fiscal year 2026. The periscopes will be manufactured
at the Optex Systems – Richardson segment (“Optex Richardson”) location in Richardson, Texas.

●
On
July 22, 2025 the Company announced it was awarded an up to $10.2 million, five-year requirement-type contract by the Army Contracting
Command - Detroit Arsenal for Abrams-based optical sighting systems. The contract estimates the first-year order amount to exceed
$4.3 million with deliveries scheduled to begin in fiscal year 2026. The units will be manufactured at the Optex Richardson location.

●
On
July 7, 2025 the Company announced it was awarded a $2.8 million purchase order from a major U.S. prime contractor in support of
the XM30 Combat Vehicle. This contract will provide 13 sighting systems in support of the next milestone with deliveries in fiscal
2026. The units will be manufactured at the Optex Richardson location.

●
On
April 9, 2025 the Company announced it was awarded a new contract for laser filter units associated with the XM157 Next Generation
Fire Control Scope. The order value is $5.7 million with deliveries between August 2025 through December 2026. The units will be
manufactured at the Applied Optics Center location.

●
On
March 19, 2025 the Company announced it was awarded a $4.2 million firm fixed price purchase order from BAE Systems in support of
the Bradley A4 Follow-On Production award for laser protected periscopes and optical sighting systems. This order will be manufactured
at the Optex Richardson location and delivered over 28 months.

●
On
December 11, 2024 the Company announced it was awarded a three-year, Indefinite Delivery Indefinite Quantity (IDIQ) contract for
Optically Improved Periscopes from DLA Land and Marine with a maximum value of $6.5 million and two additional option years. The
units will be manufactured at the Optex Richardson location.

●
On
December 10, 2024 the Company announced it was awarded a new contract for Laser Filter Units and Window Assemblies supporting Night
Vision devices utilized by the U.S. Armed Forces. The order value is $2.0 million with deliveries covering March 2025 through February
2026. The units will be manufactured at the Applied Optics Center location.

6

Products

Our
products are installed on various types of U.S. military land vehicles, such as the Abrams, and Bradley and Stryker families of fighting
vehicles, as well as light armored and armored security vehicles. We also manufacture and deliver numerous periscope configurations,
rifle and surveillance sights and night vision optical assemblies. We deliver our products both directly to the federal government and
to prime contractors.

In
addition, the Company offers military specification (“mil-spec”) quality High Efficiency Anti-Reflective Coatings for Infrared
applications in both the military and commercial markets. These coatings are manufactured at the Applied Optics Center in Dallas, Texas.

We
deliver high volume products, under multi-year contracts, to large defense contractors and government customers. Increased emphasis in
the past several years has been on new opportunities to promote and deliver our products in foreign military sales, where U.S.-manufactured
combat and wheeled vehicles are supplied (and upgraded) in cooperation with the DoD. We have a reputation for quality and credibility
with our customers as a strategic supplier. We also anticipate the opportunity to integrate some of our night vision and optical sights
products into commercial applications.

Specific
product categories by product line include:

Product
Line

Product
Category

Periscopes

Laser
& Non-Laser Protected Plastic & Glass Periscopes (“ICWS”), Electronic M17 Day/Thermal Periscopes, Digital Periscopes,
Vision Blocks

Sighting
Systems

Back
Up Sights, Digital Day and Night Sighting Systems (“DDAN”), M36 Thermal Periscope, Unity Mirrors, Optical Weapon System
Support and Maintenance (“OWSS”), Commander Weapon Station Sight (“CWSS”), Sight Assembly Refurbishment (“GOI
MOD/Aquila”), XM30 Driver Periscope Assembly

Howitzers

M137
Telescope, M187 Mount, M119 Aiming Device, XM10 Aiming Circle

Other

Muzzle
Reference Systems (“MRS”), Binoculars, Collimators, Speedtracker, Optical Lenses & Elements, Windows and Optex Outdoors
products

Applied
Optics Center

Laser
Interference Filter (“LIF”), Optical Assemblies, Laser Filter Units (“LFU”), Reticles, Day Windows, Binoculars,
Specialty Thin Film Coatings.

Contracts

Our
government contracts allow for Federal Acquisition Regulation (“FAR”) 52.243-1 which entitles the contractor to an “equitable adjustment” for contract or statement
of work changes affecting cost or time of performance. In essence, an equitable price adjustment request is a request for a contract
price modification (generally an increase) that allows for the contractor to be “made whole” for additional costs incurred
which were necessitated by some modification of the contract effort. This modification may come from an overt change in U.S. government
requirements or scope, or it may come from a change in the conditions surrounding the contract (e.g., differing site conditions or late
delivery of U.S. government-furnished property) which result in statement of work additions, deletions, part substitutions, schedule
or other changes to the contract which impact the contractor’s overall cost to complete.

7

Each
contract with our customers has specific quantities of material that need to be purchased, assembled, and then shipped. Prior to bidding
for a contract, we contact potential sources of material and receive qualified quotations for each material. In some cases, the entire
volume is given to a single supplier and in other cases, the volume might be split between several suppliers. If a contract has a single
source supplier and that supplier fails to meet their obligations (e.g., quality, delivery), then we would attempt to find an acceptable
alternate supplier, and if successful, we would then renegotiate contractual deliverables (e.g., specifications, delivery or price).
As of December 3, 2025, approximately 83% of our material requirements are single-sourced across 104 suppliers representing approximately
96% of our active supplier order values. Single-sourced component requirements span across all of our major product lines. Of these single-sourced
components, we have material contracts (purchase orders) with firm pricing and delivery schedules in place with each of the suppliers
to supply the parts necessary to satisfy our current contractual needs. See “Item 1.A. Risk Factors – Risks Relating 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” for a description of certain supplier risks we face, which description is
incorporated herein by reference.

Approximately
99% of our contracts contain termination clauses for convenience. In the event these clauses should be invoked by our customer,
future revenues against these contracts could be affected. However, these clauses allow for a full recovery of any incurred contract
costs plus a reasonable fee up through and as a result of the contract termination. We currently have eight subcontract customer
awards, representing $1.1 million of our current backlog, which are associated with two government prime contracts pending
termination. We are currently in negotiation with the customer regarding the final termination claim amount, but expect to recover
all of our incurred costs to date, plus a reasonable fee, against these contracts.

In
some cases, contract awards may be issued that are subject to renegotiation at a date (up to 180 days) subsequent to the initial award
date. Generally, these subsequent negotiations have had an immaterial impact (0% to 5%) on the contract price of the affected contracts.
Currently, none of our awarded contracts are subject to renegotiation.

We
are subject to, and must comply with, various laws and governmental regulations that impact, among other things, our revenue, operating
costs, profit margins and the internal organization and operation of our business. The material laws and regulations affecting our U.S.
government business are summarized in the table below.

Law/Regulation

Summary

Federal
Acquisition Regulation (FAR)

The
principal set of rules is the Federal Acquisition Regulation System. This system consists of sets of regulations issued by agencies
of the federal government of the United States to govern what is called the “acquisition process,” which is the process
through which the government acquires goods and services. That process consists of three phases: (1) need recognition and acquisition
planning, (2) contract formation, and (3) contract administration. This system regulates the activities of government personnel in
carrying out that process. It does not regulate the purchasing activities of private sector firms, except to the extent that those
activities involve government solicitations and contracts by reference.

International
Traffic in Arms Regulations (ITAR)

United
States government regulations that control the export and import of defense-related articles and services on the United States Munitions
List. These regulations implement the provisions of the Arms Export Control Act.

Truth
in Negotiations Act (TINA)

A
public law enacted for the purpose of providing for full and fair disclosure by contractors in the conduct of negotiations with the
government. The most significant provision included is the requirement that contractors submit certified cost and pricing data for
negotiated procurements above a defined threshold of $2.5 million for contracts entered into after June 30, 2018. The law requires
contractors to provide the government with an extremely broad range of cost or pricing information relevant to the expected costs
of contract performance, and it requires contractors and subcontractors to submit cost or pricing data to the government and to certify
that, to the best of their knowledge and belief, the data are current, accurate, and complete. A contracting officer may still request
cost or price data, if necessary, without certification, to determine whether the proposed cost or price is fair and reasonable for
contracts which are below the threshold.

8

We
are responsible for full compliance with the FAR. Upon award, the contract may identify certain regulations
that we need to meet. For example, a contract may allow progress billing pursuant to specific FAR clauses incorporated into the contract.
Other contracts may call for specific first article acceptance and testing requirements. The FAR will identify the specific regulations
that we must follow based on the type of contract awarded and contains guidelines and regulations for managing a contract after award,
including conditions under which contracts may be terminated, in whole or in part, at the government’s convenience or for default.
These regulations also subject us to financial audits and other reviews by the government of our costs, performance, accounting and general
business practices relating to our government contracts, which may result in adjustment of our contract-related costs and fees and, among
other things and impose accounting rules that define allowable and unallowable costs governing our right to reimbursement under certain
contracts.

First
Article Acceptance and Testing requirements consist of specific steps which could be comprehensive and time consuming. The dimensions
and material specifications of each piece of the assembly must be verified, and some products may have in excess of 100 assembled parts.
Once the individual piece parts are verified to be compliant to the specification, the assembly processes are documented and verified.
A sample of the production (typically three units) is verified to meet final performance specifications. Once the units meet the final
performance specification, they are then subjected to accelerated life testing, a series of tests which simulate the lifetime use of
the product in the field. This consists of exposing the units to thermal extremes, humidity, mechanical shock, vibration, and other physical
exposure tests. Once completed, the units undergo a final verification process to ensure that no damage has occurred as a result of the
testing and that they continue to meet the performance specification. All of the information and data is recorded into a final first
article inspection and test report and submitted to the customer along with the test units for final approval. First Article Acceptance
and Testing is generally required on new contracts/product awards but may also be required on existing products or contracts where there
has been a significant gap in production, or where the product has undergone significant manufacturing process, material, tooling, equipment
or product configuration changes.

We
are also subject to laws, regulations and executive orders restricting the use and dissemination of information deemed classified for
national security purposes and the exportation of certain products and technical data as covered by the International Traffic in Arms
Regulation (“ITAR”). In order to import or export items listed on the United States Munitions List, we are required to be registered with
the Directorate of Defense Trade Controls office. The registration is valid for one year, and the registration fees are established based
on the number of license applications submitted the previous year. We currently have an approved and current registration on file with
the Directorate of Defense Trade Controls office. Once the registration is approved, each import/export license must be filed separately.
License approval requires the company to provide proof of need, such as a valid contract or purchase order requirement for the specific
product or technical data requested on the license and requires a detailed listing of the items requested for export/import, the end-user,
the end-user statement, the value of the items, consignees/freight forwarders and a copy of a valid contract or purchase order from the
end-user. The approval process for the license can vary from several weeks to six months or more. The licenses we currently use are the
Department of State licenses: DSP-5 (permanent export), DSP-6 (license revisions) and DSP-73 (temporary export) and Department of Commerce:
BIS-711 (export).

9

The
above licenses are valid for 48 months from date that each license is issued. A summary of our active ITAR licenses is presented below
(updated as of December 3, 2025):

Fiscal Year
Number of
Total Contract Value of

Active ITAR Licenses
of Expiration
Licenses
Licenses

DSP-5

Issued 2022
2026
4
$ 321,722

Issued 2023 (none issued)
N/A
—
—

Issued 2024

2028

3
125,577

Issued 2025
2029
3
99,350

Total DSP-5 Licenses

10
$ 546,649

DSP-6 (no active licenses)
N/A

—
$ —

DSP-73 (no active licenses)
N/A

—
$ —

BIS-711

Issued 2022
2026
1
9,372

Issued 2023
2027
10
1,359,344

Issued 2024

2028

7
1,270,327

Issued 2025
2029
3
72,240

Total BIS-711 Licenses

21
$ 2,711,283

Total All Licenses

31
$ 3,257,932

These
licenses are subject to termination if a licensee is found to be in violation of the Arms Export Control Act or the ITAR requirements.
If a licensee is found to be in violation, in addition to a termination of its licenses, it can be subject to fines and penalties by
the government.

Our
contracts may also be governed by the Truth in Negotiation Act (“TINA”) requirements where certain of our contracts or proposals exceed
the TINA threshold ($2.5 million for awards after June 30, 2018), and/or are deemed as sole source, or non-competitive awards, covered
under this act. For these contracts, we must provide a vast array of cost and pricing data in addition to certification that our pricing
data and disclosure materials are current, accurate and complete upon conclusion of the negotiation. Due to the additional disclosure
and certification requirements, if a post contract award audit were to uncover that the pricing data provided was in any way not current,
accurate or complete as of the certification date, we could be subjected to a defective pricing claim adjustment with accrued interest.
We have no history of defective pricing claim adjustments and have no outstanding defective pricing claims pending. Additionally, as
a result of this requirement, contract price negotiations may span from two to six months and can result in un-definitized or not to
exceed ceiling priced contracts subject to future downward negotiations and price adjustments. Currently, we do not have any un-definitized
contracts subject to further price negotiation.

Our
failure to comply with applicable regulations, rules and approvals or misconduct by any of our employees could result in the imposition
of fines and penalties, the loss of security clearances, the loss of our U.S. government contracts or our suspension or debarment from
contracting with the U.S. government generally, any of which could have a material adverse effect our business, financial condition,
results of operations and cash flows. We are currently in compliance with all applicable regulations and do not have any pending claims
as a result of noncompliance.

10

The
terms of our significant contracts with a total award value of more than $1.0 million as of December 4, 2025, are as follows:

Location
Customer
Contract/PO
Product
Type
Award
Backlog
Delivery Period

OPX
DLA Land and Maritime(1)
SPE7LX21D0057
Periscopes
IDIQ
$ 7.4
$ 0.7
Dec 2024 - Jun 2025

OPX
General Dynamics Land Systems - Canada(2)
PO 35713970
Periscopes
FFPQ
1.7
1.7
Oct 2025 - Sept 2026

OPX
US Army(3)
W912CH-25-D-0066
Collimators
IDIQ
4.3
4.3
Jul 2025 - Jul 2030

OPX
U.S. Prime Contractor(4)
PO 40471011
Periscopes
FFPQ
2.6
2.5
Jul 2025 - Apr 2026

AOC
U.S. Prime Contractor(5)
PO 835
Laser Filter Units
FFPQ
5.7
4.1
Aug 2025 - Dec 2026

OPX
BAE Systems(6)
PO 392878
Periscopes & Optical Sighting Systems
FFPQ
4.3
4.3
Mar 2025 - Jul 2027

OPX
DLA Land and Maritime(7)
SPE7LX25D0023
Periscopes
IDIQ
3.8
1.1
Dec 2024 - Dec 2027

AOC
U.S. Prime Contractor(8)
PO 921493
Light Interference Filters
FFPQ
1.3
0.5
Mar 2025 - Feb 2026

OPX
DLA Land and Maritime(9)
SPE7LX24D0030
Periscopes
IDIQ
2.8
0.3
Jan 2024 - Jan 2029

AOC
U.S. Prime Contractor(10)
NHAGP00452
Light Interference Filters
FFPQ
1.0
0.4
Jun 2025 - Apr 2026

OPX
U.S. Prime Contractor(11)
PO 50896
Periscopes
FFPQ
1.1
1.1
Jun 2026 - Oct 2026

(1)
Prime contract awarded on January 6, 2021. This is a long-term, IDIQ contract with firm fixed pricing for the duration
of the contract with a base period of three years plus two firm fixed priced option years for a potential total of five years for periscopes
valued up to $14.4 million. On October 7, 2024, second option was exercised by DLA Land and Maritime, extending the ordering period from
January 6, 2025 through January 5, 2026.

11

(2)
Subcontract awarded on August 5, 2025 for periscope assemblies with firm fixed pricing for the duration of the contract.
The award has a maximum order value of $1.7 million.

(3)
Prime contract with direct solicitation for W56HZV-23-R-0159 for Collimators awarded on July 22, 2025. This is a
long-term IDIQ contract with firm fixed pricing for the duration of the contract with potential revenue up to $10.2 million.

(4)
Subcontract
awarded on July 7, 2025 for periscope assemblies supporting XM30 Combat Vehicles with firm fixed pricing for the duration of the
contract. The award has a maximum order value of $2.6 million.

(5)
Subcontract
purchase order awarded on April 9, 2025 by a U.S. prime contractor in support of U.S. government contracts.

(6)
Subcontract with BAE Systems in support of government contract W56HZV-22-D-0083 & W912CH25F0096 for periscopes
& optical subassemblies. The purchase order was awarded on March 19, 2025 for $4.3 million with final revision dated November 5, 2025.

(7)
Subcontract awarded on December 11, 2024. This is a long-term IDIQ contract with firm fixed pricing for the duration
of the contract with a base period of three years plus two firm fixed priced option years for a potential total of five years for periscopes
valued up to $6.5 million.

(8)
Subcontract
purchase order awarded on December 10, 2024 by a U.S. prime contractor in support of U.S. government contracts.

(9)
Subcontract awarded on January 31, 2024 for periscopes and direct vision blocks. This is a three-year IDIQ contract
with two option years and firm fixed pricing for the duration of the contract. The award has a maximum order value of $2.8 million.

(10)
Subcontract
purchase order awarded on February 14, 2025 by a U.S. prime contractor in support of U.S. government contracts.

(11)
Subcontract
purchase order awarded on November 19, 2025 by a U.S. prime contractor in support of U.S. government contracts.

Market
Opportunity — U.S. Military

During
the twelve months ended September 28, 2025, approximately 90% of our business was in support of U.S. military products. The purpose of including the chart below is to provide the reader with historical trend data and projected U.S. military
defense and procurement spending over time. However, the Company cannot provide any assurances that the historical trend data is predictive
of future spending.

In
the chart below, for fiscal year 2026, the Government Publishing Office (“GPO”) projects total DoD spending at $961.7
billion, an overall increase of 11.6% over estimated fiscal year 2025 spending. For defense procurement spending, a subset of total
defense spending, the GPO projects an overall increase of $30.8 billion, or 17.7%, in fiscal year 2026 as compared to the estimated
spending in fiscal year 2025.

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Source:
Office of the Under Secretary of Defense (Comptroller)/Chief Financial Officer, “Program Acquisition Cost by Weapon System, United
States Department of Defense, Fiscal Year 2026 Budget Request”, July 2025.

The
table below depicts the DoD budget request for fiscal year 2026 for major ground system programs. The last two years have
experienced a significant reduction in spending for U.S. ground system military programs. The total fiscal year 2026 budget request
for major ground system programs decreased by 10.8% from the fiscal year 2025 levels and by 16.5% from the fiscal year 2024 levels.
Although it is difficult to directly tie the budget request to specific components provided by Optex Richardson, we provide
periscopes, collimator assemblies, vision blocks and laser interface filters to the U.S. armed forces on almost all of the ground
system platforms categorized below and budget requests for at least two of the major platforms (AMPV and M1) are showing growth of
39.2% and 43.6% respectively in fiscal year 2026.

Source:
Office of the Under Secretary of Defense (Comptroller)/Chief Financial Officer, “Program Acquisition Cost by Weapon System, United
States Department of Defense, Fiscal Year 2026 Budget Request”, July 2025.

13

The
table below depicts the DoD budget request for fiscal year 2026 for major ground system programs. The last three years have experienced
a significant reduction in spending for U.S. ground system military programs. The total fiscal year 2026 budget request for major ground
system programs decreased by 27% from the fiscal year 2025 levels and by 36% from the fiscal year 2024 levels. Although it is difficult
to directly tie the budget request to specific components provided by Optex Richardson, we provide periscopes, collimator assemblies,
vision blocks and laser interface filters to the U.S. armed forces on almost all of the ground system platforms categorized below.

($ in Millions)
FY2022
FY2023
FY2024
FY2025
FY2026

ARMY

Abrams Tank Modification/Upgrade (M-1)
$ 1,264.3
$ 1,297.7
$ 1,421.3
$ 1,051.4
$ 1,464.0

Armored Multi-Purpose Vehicle (AMPV)
984.6
1,237.0
603.9
393.8
565.4

Paladin Integrated Management (PIM)
662.9
1,026.8
783.2
611.1
262.7

Family of Medium Tactical Vehicles (PIM)
144.4
233.9
230.5
262.0
107.9

Family Of Heavy Tactical Vehicles (FHTV)
214.0
326.3
283.2
220.2
148.5

Next Generation Squad Weapon (NGSW)
127.6
199.6
343.4
389.4
395.5

XM30 Combat Vehicle
194.9
519.1
565.0
499.5
387.4

M10 Booker (Mobile Protected Firepower)
-
410.5
482.2
487.2
81.5

Stryker
1,112.7
1,275.0
694.2
503.3
145.6

USMC

Amphibious Combat Vehicle (ACV)
591.9
605.4
632.8
857.0
835.4

Total Ground Systems Vehicles (millions)
$ 5,297.3
$ 7,131.3
$ 6,039.7
$ 5,274.9
$ 4,393.9

Sources:
Office of the Under Secretary of Defense (Comptroller)/Chief Financial Officer, “Program Acquisition Cost by Weapon System, United
States Department of Defense, Fiscal Year 2026 Budget Request”, July 2025, “Program Acquisition Cost by Weapon System, United
States Department of Defense, Fiscal Year 2025 Budget Request”, March 2024 and “Program Acquisition Cost by Weapon System,
United States Department of Defense, Fiscal Year 2024 Budget Request”, April 2023.

The proposed 2026 Department of Defense Budget indicates an overall decrease in ground system vehicle program spending
(or requests therefor) since fiscal year 2023. There is generally a six- to eighteen-month delay between U.S. defense
budget requests and program delivery orders related to our products from government agencies and our prime defense customers. In addition,
DoD budget requests are often changed throughout the congressional National Defense Authorization Act (“NDAA”) Budgeting and Budget appropriations process. The DoD budget requests
exclude any foreign military sales as they are funded separately from the annual NDAA budgets. We are carefully watching the projected
trends in both DoD military spending and FMS as defense allocation priorities change, as well as challenges which are presented from
the global recession and changes in political climate to ascertain any potential impact to the Company’s future revenue.

A
substantial portion of our revenue is derived from U.S. government contracts, which are subject to annual congressional
appropriations. Failure to pass the annual appropriations by October 1, the start of the new fiscal year, often results in a
continuing resolution (“CR”) which can delay new contract awards, exercising of contract options, and starting of new
program initiatives, which could materially and adversely affect our future revenues. From October 1, 2025 to November 12, 2025, the
federal government of the United States was in a shutdown as Congress failed to pass appropriations legislation for the 2026 fiscal
year. On November 10, 2025, Congress passed a CR, which funds the government at existing spending levels through January 30, 2026,
by which time the legislature must approve the annual appropriations bill or an additional CR to avoid another government shutdown.
As a result of the 2025 government shutdown and CR through January 2026, the Company has experienced a slow-down of contract awards.
While we are unable to predict the outcome past January 2026, we anticipate the funding delays may affect our revenue during the
second through fourth quarters of fiscal year 2026. See “Item 1.A. Risk Factors – Risks Relating to Our Business
– A delay in the completion of the U.S. government’s budget and appropriation process could delay procurement of our
products and services and have an adverse effect on our future revenues.”

The
Applied Optics Center supports numerous other military platforms outside of the ground system vehicles budget, such as infantry rifle
scopes, night vision monoculars, infantry and navy binoculars, night goggles, and infrared aircraft filters. The Applied Optics Center
has seen a substantial increase in orders from new and existing customers in support of the other platforms, which we expect to offset
the impact of the ground systems reductions to their base revenue.

14

Market
Opportunity — Foreign Military

Our
products directly support FMS combat vehicles globally, including Canada, the Kingdom of Saudi Arabia, Kuwait, Morocco, Egypt, South
America, and Israel. We have increased efforts to promote our proven military products, as well as newly improved product solutions directly
to foreign military representatives and domestic defense contractors supporting the FMS initiatives.

We
were successful with the Israeli Ministry of Defense (“IMOD”) in refurbishing a small quantity of their Night Vision
Rifle Scopes. Given this success, in November 2022, the IMOD awarded us a $3.4 million follow on contract to continue this activity
through fiscal year 2026. We began deliveries against the contract during the first quarter of fiscal year 2024. If we successfully
execute this contract, we would expect another contract award of similar size and duration in fiscal year 2026 or 2027.

We
are also exploring possibilities to adapt some of our products for commercial use in those markets that demonstrate potential for solid
revenue growth, both domestically and internationally.

Market
Opportunity — Commercial

Our
products are currently sold to military and related government markets. We believe there may be opportunities to commercialize various
products we presently manufacture to address other markets. Our initial focus will be directed in four product areas.

●
Big
Eye Binoculars — While the military application we produce is based on mature military designs, we own all castings, tooling
and glass technology. The big eye binocular technology is potentially applicable to other commercial
uses where high magnification and resolution is required.

●
Thin
Film Coatings — The acquisition of the Applied Optics Center also creates a new sector of opportunity for commercial products
for us. Globally, commercial optical products use thin film coatings to create product differentiation. These coatings can be used
for redirecting light (mirrors), blocking light (laser protection), absorbing select light (desired wavelengths), and many other
combinations. They are used in telescopes, rifle scopes, binoculars, microscopes, range finders, protective eyewear, photography,
etc. Given this broad potential, the commercial applications are a key opportunity going forward.

●
Optical
Assemblies – Through the Applied Optics Center, we are utilizing our experience in military sighting systems to pursue commercial
opportunities associated with products that incorporate multi-lens optical cell assemblies, bonded optical elements and mechanical
assemblies. There are a wide variety of products in the medical, machine vision, automotive and outdoor recreation fields that can
benefit from our capabilities. Support to domestic customers for these type products has driven significant increases in Applied
Optics Segment sales during the last five years.

●
Optex
Outdoors – This launch brings military-grade optical technology directly to civilian marksmen and extreme long-range competitors,
expanding Optex’s reach beyond its traditional military market. The Optex Outdoors webstore offers a curated selection of advanced
optical products, including riflescope prisms, chronographs, and stabilized viewing products—designed specifically for the
needs of elite shooters and outdoor enthusiasts. Each product is engineered and built in Richardson, Texas.

Customer
Base

We
serve customers in four primary categories: as prime defense contractor (Defense Logistics Agency (“DLA”) Land and Maritime,
DLA Land at Aberdeen, DLA Aviation, U.S. Army, Navy and Marine Corps), as defense subcontractor (General Dynamics, L-3 Communications,
Elbit Systems, BAE, Sig Sauer, Vortex Optics, Trijicon Inc. and Ducommun Aerostructures), as a military supplier to foreign governments
(Israel, Australia, South America and Canada) and as a commercial optical assembly supplier (Nightforce Optics, Lightforce USA, Inc.
and Gables Engineering). During the twelve months ended September 28, 2025, we derived approximately 70% of our gross business revenue
from five major customers: U.S. government agencies (29%) and four U.S. defense contractors (19%, 10%, 6% and 6%). We have approximately
120 discrete contracts for items that are utilized in vehicles, optical product lines and as spare parts. Due to the high percentage
of prime and subcontracted U.S. defense revenues, large customer size and the fact that there are multiple contracts with each entity,
which are not interdependent, we are of the opinion that this provides us with a fairly well diversified revenue pool.

15

Marketing
Plan

We
believe we are well positioned to service both U.S. and foreign military needs by our focus on delivering products that satisfy the following
factors important to the U.S. military:

●
Product
reliability — failure can cost lives

●
Speed
to delivery and adherence to delivery schedule

●
System
life cycle extension

●
Low
cost/best value

●
Visual
aids for successful execution of mission objectives

●
Mission
critical products specifically related to soldier safety.

Potential
Entrants — Low Risk to us. In order to enter this market, potential competitors must overcome several barriers to entry. The first
hurdle is that an entrant would need to prove to the government agency in question the existence of a government approved accounting
system for larger contracts. Second, the entrant would need to develop the processes required to produce the product. Third, the entrant
would then need to produce the product and submit successful test requirements (many of which require lengthy government consultation
for completion). Finally, in many cases, the customer has an immediate need and therefore cannot wait for this qualification cycle and
therefore must issue the contracts to existing suppliers. Given the expense and time commitment of development and qualification testing,
the barrier to entry is high for new competitors.

16

Buyers
— Medium Risk to us. In most cases the buyers (usually government agencies or defense contractors) have two fairly strong suppliers.
It is in their best interest to keep at least two, and therefore, in some cases, the contracts are split between suppliers. In the case
of larger contracts, the customer can request an open book policy on costs and expects a reasonable margin to have been applied.

Substitutes
— Low Risk to us. We have both new vehicle contracts and replacement part contracts for the same product. Three combat vehicles
have a long history of service in the U.S. Army. The first M-1 Abrams Tank entered service with the Army in 1980; the M-2/M-3 Bradley
Fighting Vehicle in 1981; and the Stryker Combat Vehicle in 2001. Since it was first fielded in 1980, the Abrams tank has undergone near-continuous
upgrades and improvements and is the principal battle tank of the United States Army and Marine Corps, and the armies of Egypt, Kuwait,
Saudi Arabia, Iraq and Australia. On average, there has been a new improvement package every seven years. The XM30 Mechanized Infantry
Combat Vehicle, formerly known as the Optionally Manned Combat Vehicle, is the U.S. Army’s sixth attempt to replace the Bradley
fighting vehicle. The latest Army “light tank” is the M10 Booker Combat Vehicle, formerly known as the Mobile Protected Firepower
System, and is much smaller than the Abrams main battle tank. The Abrams, XM30, M10 Booker and Stryker vehicles are the only tanks currently
in production by the government. Optex Richardson provides periscopes and optical sighting systems in support of all four vehicle platforms.
We expect that these tanks will continue to be used through approximately 2040.

Suppliers
— Low to Medium Risk to us. The suppliers of standard processes (e.g., casting, machining and plating) need to be very competitive
to gain and/or maintain contracts. Those suppliers of products that use top secret clearance processes have a slight advantage; however,
there continues to be multiple avenues of supply and therefore only moderate power.

Consistent
with our marketing plan and business model, the AOC acquisition strengthened our overall position by decreasing the bargaining power
of their suppliers through the backwards integration of a key supplier and created additional barriers of entry for potential competitors.

The
following matrix reflects the current focus of our four basic approaches for sales and development:

1)
Sell
existing products to existing customers.

2)
Sell
existing products to new customers.

3)
Develop
new products to meet the needs of our existing customers.

4)
Develop
new products to meet the needs of new customers.

Existing
Customers

New
Customers

New
Products

US
Army Central Command - Binoculars

GDLS
- DDAN, OWSS, XM30

Israel
- GOI MOD/Aquila

U.S.
Prime Contractor - XM10 Aiming Circle

Commercial
- Optical Lens, Reticles,

DLC
coatings, IR Opto-Mechanical Assembly, Micro Optical Systems

Commercial
- Optical Lens, Spotting Scopes, Monocular Lens, Chronographs, Optical Wedges

U.S.
Prime Contractor – Aerospace and Space

U.S.
Prime Contractor – Drone Technology

Existing
Products

US
Army Central Command - Periscopes, Back Up Sights,

Commercial
- Optical Lens, Spotting Scopes Monocular Lens

Binoculars,
Vision Blocks,

Laser
Filter Units

U.S.
Prime Contractor – Laser Filter Units

GDLS
- Periscopes, Collimators

BAE
- Periscopes

L3
- Laser Interface Filters

DLA
- Optical Elements

17

Operations
Plan

Our
operations plan can be broken down into three distinct areas: material management, manufacturing space planning and efficiencies associated
with economies of scale.

Materials
Management

The
largest portion of our costs is materials. Our continuous improvements to effectively manage material costs include the following activities:

-
Successful
completion of annual surveillance audit for ISO 9001:2008 certificate, with no major nonconformance issues

-
Weekly
cycle counts on inventory items

-
Weekly
material review board meeting on non-moving piece parts

-
Kanban
kitting on products with consistent ship weekly ship quantities

-
Daily
cross functional floor meetings focused on delivery, yields and labor savings

-
Redesigned
floor layout using tenant improvement funds

-
Daily
review of yields and product velocity

-

Bill
of material reviews prior to work order release

-
Supplier
management and notification tools for on time delivery and quality tracking

Future
continuous improvement opportunities include the full implementation and training of the shop floor control module within our ERP system.
We have begun testing and implementation within selected process.

Manufacturing
Space Planning

We
currently lease 93,967 square feet of manufacturing space (see “Properties”). Our current facilities are sufficient to meet
our immediate production needs without excess capacity. As our processes are primarily labor driven, we are able to easily adapt to changes
in customer demand by adjusting headcounts, overtime schedules and shifts in line with production needs. In the event additional floor
space is required to accommodate new contracts, Optex has the option to lease adjacent floor space at the current negotiated lease cost
per square foot. Consistent with the space planning, we will drive economies of scale to reduce support costs on a percentage of sales
basis. These cost reductions can then be either passed through directly to the bottom line or used for business investment.

Our
manufacturing process is driven by the use of six sigma techniques and process standardization. Our activities in this area have included
the use of six sigma projects in several production areas which has led to improved output and customer approval on the aesthetics of
the work environment. In addition, we use many tools including 5S programs, six sigma processes, and define, measure, analyze, improve,
control (DMAIC) problem solving techniques, to identify bottlenecks within the process flow, reduce cost and improve product yields.
Successful results can then be replicated across the production floor and drive operational improvements.

18

Economies
of Scale

Plant
efficiencies fluctuate as a function of program longevity, complexity and overall production volume. Our internal processes are primarily
direct labor intensive and can be more easily adapted to meet fluctuations in customer demand; however, our material purchases, subcontracted
operations and manufacturing support costs are extremely sensitive to changes in volume. As our volume increases, our support labor,
material and scrap costs decline as a percentage of revenue as we are able to obtain better material pricing, and scrap, start up and
support labor (fixed) costs and they are spread across a higher volume base. Conversely, as production volumes decline, our labor and
material costs per unit of production generally increase. Additional factors that contribute to economies of scale relate to the longevity
of the program. Long running, less complex programs (e.g., periscopes) do not experience as significant of an impact on labor costs as
production volumes change, as the associated workforce is generally less specialized and can be ramped quickly as headcounts shift. Our
more complex thin laser filter coatings, Howitzer and thermal day/night programs are more significantly impacted by volume changes as
they require a highly specialized workforce and ramp time is longer as the training is more complex. We continually monitor customer
demand over a rolling twelve-month window and in order to anticipate any changes in necessary manpower and material which allows us to
capitalize on any benefits associated with increased volume and minimize any negative impact associated with potential declines in product
quantities.

Sources
and Availability of Raw Materials

Disclosure
responsive to this item is incorporated herein by reference to “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.”

Intellectual
Property

Trade
Secrets and Know-How

We
utilize several highly specialized and unique processes in the manufacture of our products. While we believe that these trade secrets
have value, it is probable that our future success will depend primarily on the innovation, technical expertise, manufacturing and marketing
abilities of our personnel. We cannot assure you that we will be able to maintain the confidentiality of our trade secrets or that our
non-disclosure agreements will provide meaningful protection of our trade secrets, know-how or other proprietary information in the event
of any unauthorized use, misappropriation or other disclosure. The confidentiality agreements that are designed to protect our trade
secrets could be breached, and we might not have adequate remedies for the breach. Additionally, our trade secrets and proprietary know-how
might otherwise become known or be independently discovered by others.

Patents

We
possess five utility patents and three design patents. Two new patents have been reviewed by the U.S. Patent and Trademark Office and approved in fiscal year 2025. These are for U.S. Patent No. 12,352,533 titled “Improved Next Shot Compensation System for Weapons”
and for our Laser Filter Antenna, which is awaiting a U.S. Patent number.

The
following patents generally expire 20 years after issuance.

On
November 6, 2025, we received a notice of allowance for our U.S. Patent Application No. 18/809,740 filed on August 20, 2024 on the Laser
Filter Antenna. The U.S. Patent number is pending receipt of our payment of the Issue Fee which is due by January 9, 2026.

On
July 8, 2025, we were issued U.S. Patent No. 12,352,533 titled “Next Shot Compensation System for Weapons” which is a filtered
unit to prevent light having a threshold wavelength from passing through the filter unit; and one or more radar antennae deposited on
a surface of the filter unit, wherein the one or more radar antennae are configured to capture a velocity of a projectile fired from
the weapon.

On
April 4, 2023, we were issued U.S. Patent No. 11,619,824 B2 titled “Selectable Offset Image Wedge” which is a mechanical
wedge used to offset the image anywhere in the selectable range of circular travel within the defined offset field of view. This application
is a continuation-in-part of U.S. Patent No. 10,324,298 and claims priority to U.S. Patent No. 10,324,298, issued on June 18, 2019.

19

On
November 4, 2021 we were issued U.S. Patent No. 2021/0341746A1 titled “Selectable Offset Image Wedge” which is a mechanical
wedge used to offset the image anywhere in the selectable range of circular travel within the defined offset field of view. This application
is a continuation-in-part of U.S. Patent No. 10,324,298 and claims priority to U.S. Patent No. 10,324,298, issued on June 18, 2019.

On
June 18, 2019 we were issued U.S. Patent No. 10,324,298 titled “Offset Image Wedge with Dual Capability and Alignment Technique”.
The invention relates to an offset image wedge for use on a bore-sighted rifle mounted directly onto the scope via a clamp mounting device.
The wedge allows for a dual image which can be aligned in the field and provides the user with a choice of either a bore-sighted image
or an offset image without removing the wedge.

On
July 11, 2017, we were issued U.S. Patent No. D791,852 S, for our Red Tail Digital Spotting Scope. We have a retail sales
relationship with Cabela’s Inc. and Amazon, to distribute these scopes. They are currently the only digital spotting scope
offered by Cabela’s Inc. Our Red Tail Digital Spotting Scopes also received a favorable review from Trigger Magazine in
2017.

In
May 2015, we announced the issuance to us of U.S. Patent No. 13,792,297 titled “ICWS Periscope”. This invention improves
previously accepted levels of periscope performance that, in turn, improves soldier’s safety.

In
December 2013, Optex Systems, Inc. was issued U.S. Patent No. 23,357,802 titled “Multiple Spectral Single Image Sighting System
Using Single Objective Lens Set.” The technology platform, designed for our DDAN program, is applicable to all ground combat vehicles
used by the US and foreign militaries. This invention presents a single image to both day and night sensors using precision optics, which
in turn allows the user to individually observe day, night, or day and night simultaneously. In addition, it has proven to be especially
useful in light transition points experienced at dusk and dawn. We are in production and currently delivering sighting systems with this
advanced technology, a significant upgrade in the goal of supporting our customers as they modernize the worldwide inventory of aging
armored vehicles. This technology is applicable to many sighting systems, and it has already been designed for implementation on the
Light Armored Vehicles, the Armored Security Vehicle, the Amphibious Assault Vehicle, and the M60 Main Battle Tank. DDAN technology has
advanced the capabilities of these installed weapon systems and is the first in a series of patents we have applied for to protect our
Intellectual Property portfolio in support of the warfighters who use these systems.

Licenses

In
May 2012, we purchased a perpetual, non-exclusive license, with a single up-front license fee of $200,000 to use Patent 7,880,792 “Optical
and Infrared Periscope with Display Monitor” (issued in 2011 and owned by Synergy International Optronics, LLC). We believe the
purchase of the license agreement may allow us to extend and expand our market potential for the M113APC vehicle type which has the highest
number of commonly used armored vehicles in the world. The current estimated active M113 APC worldwide inventory is over 80,000 units.
This licensing of this patent allows us to develop additional products for this vehicle type, including the M17 Day/Thermal and M17 Day/Night
periscopes. We are actively marketing the new periscopes internationally and completed our first international shipment utilizing this
technology in March 2014. We continue to prototype these products and demonstrate them to potential customers.

On
June 29, 2023, the “Effective Date”, we executed a License agreement LA12342 with Pratt & Whitney Division (“P&W”)
of Raytheon Technologies Corporation for a six-year term from the Effective date. The agreement allows the Company the use of P&W’s
proprietary technology to perform the application and inspection of proprietary coatings on a selection of vane part numbers for the
upturned exhaust system (UESII) utilized on Sikorsky’s Blackhawk aircraft variants. The license grant is exclusive to the Applied
Optics Center for the application and inspection of coatings for the end customer, provided that AOC is able to sufficiently meet the
end customer volume demand for the licensed items during the term. In consideration of the license rights, AOC agrees to pay P&W
a royalty of $200 per vain, or $2000 per shipset of 10 vanes to which the coating is applied. On the 2nd anniversary of the
Effective date, and every two years thereafter during the term of the agreement, the royalty rate shall be increased by 3%. Semiannual
payments are to be paid within 15 days of June 30th and December 31st throughout the duration of the agreement.

Our
competitors, many of which have substantially greater resources, may have applied for or obtained, or may in the future apply for and
obtain, patents that will prevent, limit or interfere with our ability to make and sell some of our products. Although we believe that
our products do not infringe on the patents or other proprietary rights of third parties, we cannot assure you that third parties will
not assert infringement claims against us or that such claims will not be successful.

Competition

The
markets for our products are competitive. We compete primarily on the basis of our ability to design and engineer products to meet performance
specifications set by our customers. Our customers include military and government end users as well as prime contractors that purchase
component parts or subassemblies, which they incorporate into their end products. Product pricing, quality, customer support, experience,
reputation and financial stability are also important competitive factors.

20

There
are a limited number of competitors in each of the markets for the various types of products that we design, manufacture and sell. At
this time, we consider our primary competitor for the Optex Richardson site to be Gus Periscopes. The Applied Optics Center thin film
and laser coatings products compete primarily with Materion-Barr, G&H Artemis and Alluxa.

Our
competitors are often well entrenched, particularly in the defense markets. While we believe that the quality of our technologies and
product offerings provides us with a competitive advantage over certain manufacturers, some of our competitors have substantially greater
financial and other resources than we do to spend on the research and development of their technologies and for funding the construction
and operation of commercial scale plants.

We
expect our competitors to continue to improve the design and performance of their products. We cannot assure investors that our competitors
will not develop enhancements to, or future generations of, competitive products that will offer superior price or performance features,
or that new technology or processes will not emerge that render our products less competitive or obsolete. Increased competitive pressure
could lead to lower prices for our products, thereby adversely affecting our business, financial condition and results of operations.
Also, competitive pressures may force us to implement new technologies at a substantial cost, and we may not be able to successfully
develop or expend the financial resources necessary to acquire new technology. We cannot assure you that we will be able to compete successfully
in the future.

Employees
and Human Capital

We
had 132 full-time equivalent employees as of September 28, 2025, which include a small temporary work force to handle peak loads as needed.
We are in compliance with local prevailing wage, contractor licensing and insurance regulations, and have good relations with our employees,
who are not currently unionized. We use outside consultants for various services. We have not experienced any work stoppages and are
not a party to a collective bargaining agreement. Management considers labor relations to be good.

We
are dedicated to preserving operational excellence and remaining an employer of choice. We provide and maintain a work environment that
is designed to attract, develop and retain top talent through offering our employees an engaging work experience that contributes to
their career development. We recognize that our success is based on the collective talents and dedication of those we employ, and we
are highly invested in their success. We value our employees and believe that employee loyalty and enthusiasm are key elements of our
operating performance.

Corporate
History

Optex
Systems Holdings, Inc. is a Delaware corporation originally organized in Delaware as Sustut Exploration, Inc. in April 2006. Optex Systems,
Inc. is a Delaware corporation organized in September 2008. In March 2009, Optex Systems, Inc. engaged in a reverse merger with Sustut
Exploration, Inc., in connection with which the latter was renamed Optex Systems Holdings, Inc. and the former became a wholly-owned
subsidiary of Optex Systems Holdings, Inc.

Internet
Address

The
Company maintains an internet website at the following address: www.optexsys.com. The information on the Company’s website
is not incorporated by reference in this Annual Report on Form 10-K.