What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-12-17 compared with 2024-12-19 · 360 added, 336 removed, 185 unchanged (79% of the section changed)

28 unchanged sentences

references in the following section to 2024 or 2025 with respect to our financial position and results of operations are to our fiscal

years ended October 1, 2023 or September 29, 2024, respectively.

Systems, Inc.

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 the Stryker family of vehicles.

years ended September 29, 2024 or September 28, 2025, respectively.

wholly-owned subsidiary, Optex Systems, Inc., manufactures optical sighting systems and assemblies, primarily for DoD applications.

products are installed on various types of U.S.

military land vehicles, such as the Abrams and Bradley fighting vehicles and light armored

and advanced security vehicles, and have been selected for installation on the Stryker family of vehicles.

Optex Systems, Inc.

(Delaware) also manufactures

also manufactures

and delivers numerous periscope configurations, rifle and surveillance sights and night vision optical assemblies.

Optex Systems, Inc.

(Delaware) products consist primarily of build-to-customer print products that are delivered both directly to the armed services and

to other defense prime contractors.

Less than 1% of our revenue is related to the resale of products substantially manufactured by others.

In this case, the product would likely be a simple replacement part of a larger system previously produced by Optex Systems, Inc.

are both a prime and sub-prime contractor to the Department of Defense.

Sub-prime contracts are typically issued through major defense

contractors such as General Dynamics Land Systems, Raytheon Corp., BAE, ADS Inc.

We are also a military supplier to foreign

governments such as Israel, Australia and the NATO Support and Procurement Agency and South American countries, and as a subcontractor for several large U.S.

defense companies

serving foreign governments.

way of background, the Federal Acquisition Regulation (“FAR”) is the principal set of regulations that govern the

acquisition process of government agencies and contracts with the U.S.

In general, parts of the FAR are incorporated into government solicitations and contracts by reference as terms and conditions effecting contract

awards and pricing solicitations .

of our contracts are prime or subcontracted directly with the Federal government and, as such, are subject to FAR

Subpart 49.5, “Contract Termination Clauses” and more specifically Federal Acquisition Regulation clauses 52.249-2 “Termination

for Convenience of the Government Fixed-Price)”, and 49.504 “Termination of fixed-price contracts for default”.

clauses are standard clauses on our prime military contracts and generally apply to us as subcontractors.

It has been our experience

that the termination for convenience is rarely invoked, except where it is mutually beneficial for both parties.

We are currently not

aware of any material pending terminations for convenience or for default on our existing contracts.

the event a termination for convenience were to occur, FAR clause 52.249-2 provides for full recovery of all

contractual costs and profits reasonably occurred up to and as a result of the terminated contract.

In the event a termination for default

were to occur, we could be liable for any excess cost incurred by the government to acquire supplies from another supplier similar to

those terminated from us.

We would not be liable for any excess costs if the failure to perform the contract arises from causes beyond

the control and without the fault or negligence of the Company as defined by FAR clause 52.249-8.

addition, some of our contracts allow for government contract financing in the form of contract progress payments pursuant to FAR 52.232-16, “Progress Payments”.

Subject to certain limitations, this clause provides for government

payment of up to 90% of incurred program costs prior to product delivery for small businesses like us.

To the extent our contracts allow

for progress payments, we intend to utilize this benefit, thereby minimizing the working capital impact on Optex Systems Holdings for

materials and labor required to complete the contracts.

products consist primarily of build-to-customer print products that are delivered both directly to the armed services and to other defense

prime contractors.

Less than 1% of revenue is related to the resale of products substantially manufactured by others.

In this case, the

product would likely be a simple replacement part of a larger system previously produced by Optex Systems, Inc.

are both a prime and sub-prime contractor to the DoD.

Sub-prime contracts are typically issued through major defense contractors such

as General Dynamics Land Systems, Raytheon Corp., BAE, ADS Inc.

We are also a military supplier to foreign governments such

as Israel, Australia and South American countries and a subcontractor for several large U.S.

defense companies serving foreign governments.

FAR is the principal set of regulations that govern the acquisition process of government

agencies and contracts with the U.S.

In general, parts of the FAR are incorporated into government solicitations and contracts

by reference as terms and conditions effecting contract awards and pricing solicitations .

of our contracts are prime or subcontracted directly with the U.S.

federal government and, as such, are subject to FAR Subpart 49.5, “Contract

Termination Clauses” and more specifically Federal Acquisition Regulation clauses 52.249-2 “Termination for Convenience of

the Government (Fixed-Price)”, and 49.504 “Termination of fixed-price contracts for default”.

These clauses are standard

clauses on our prime military contracts and generally apply to us as subcontractors.

It has been our experience that the termination

for convenience is rarely invoked, except where it is mutually beneficial for both parties.

We are currently not aware of any material

pending terminations for convenience or for default on our existing contracts.

the event a termination for convenience were to occur, FAR clause 52.249-2 provides for full recovery of all contractual costs and profits

reasonably occurred up to and as a result of the terminated contract.

In the event a termination for default were to occur, we could

be liable for any excess cost incurred by the government to acquire supplies from another supplier similar to those terminated from us.

We would not be liable for any excess costs if the failure to perform the contract arises from causes beyond the control and without

the fault or negligence of the Company as defined by FAR clause 52.249-8.

Trends and Recent Developments

have experienced substantial increases in the costs of aluminum, steel and acrylic commodities, which has affected our net income in

the year ended September 29, 2024 and is expected to continue to have a negative effect on the margins generated under several of our

long-term fixed contracts over the next two years.

Optex Richardson segment has numerous fixed price multi-year contracts covering delivery periods up to five years from the contract

Approximately 4% of our Optex Richardson segment backlog are for items priced prior to fiscal year 2021.

Since fiscal year

2021, we have experienced substantial increases in the costs of aluminum, steel and acrylic commodities, which has affected the

Optex Richardson segment margins for deliveries against those orders during the year ended September 28, 2025 and which is expected

to continue to have a negative effect through the first fiscal quarter of 2026.

See also “ Item 1A.

Risk Factors – Risks Related to Our Business

- Certain of our products are dependent on specialized sources of supply potentially subject to disruption which could have a material,

adverse impact on our business.”

have experienced significant material shortages during the fiscal year ended October 1, 2023 and the first half of fiscal year ended

September 29, 2024 from several significant suppliers of our periscope covers and housings.

These shortages affect several of our

periscope products at the Optex Richardson segment.

The delays in key components, combined with labor shortages during the first

half of the fiscal year ended September 29, 2024, have negatively impacted our production levels and have pushed back expected

delivery dates.

We have obtained an alternative source for one of our key components and are expediting our other suppliers to

support the increased production levels.

have seen improvements in the local labor market since 2023 and increased our direct labor force and employee overtime in concert with

improvements in our supplier delivery performance.

Further, we have invested in additional machinery and equipment and other process

improvements to increase production capacity and alleviate process bottlenecks.

While we are encouraged by improvements in supplier performance

and available manpower for the Optex Richardson segment periscope line which yielded increased revenue performance during fiscal year

2024, we have yet to ramp up deliveries sufficiently to keep pace with our current customer demands.

As such, we cannot give any assurances

that expected customer delivery dates for our periscope products will not experience further delays.

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.”

experienced significant material shortages during the first half of fiscal year 2024 from several significant suppliers of our

periscope covers and housings.

These shortages affected several of our periscope products at the Optex Richardson segment.

delays in key components, combined with labor shortages experienced in fiscal year 2023, negatively impacted our production levels

and pushed the delivery dates of several of our contracts into fiscal year 2025 and early fiscal year 2026.

We have obtained an

alternative source for one of our key components and expedited our other suppliers to support the increased production

have seen improvements in the local labor market since fiscal year 2023 and increased our direct labor force and employee overtime

in concert with improvements in our supplier delivery performance.

Further, we have invested in additional machinery and equipment

and other process improvements to increase production capacity and alleviate process bottlenecks.

During the 2025 fiscal year, we

increased our periscope production levels by 56% over the 2024 fiscal year levels.

currently do not anticipate any significant material risks as a result of the recent tariff uncertainties.

Our defense products are primarily

sourced domestically, but those which are imported are primarily duty free.

We produce some commercial optical assemblies with selective

components sourced from Taiwan;

however, our existing customer backlog is covered with existing material in inventory.

We anticipate

any future orders for these commercial products will have updated pricing inclusive of any tariff impact.

refer also to “ Item 1.

2 unchanged sentences

government military spending and its potential impact on Optex, which may be material, including particularly the tables included

in that section and disclosure on the significant reduction in spending for U.S ground system military programs, which has a direct impact

on the Optex Systems Richardson segment revenue, all of which is incorporated herein by reference.

in that section and disclosure on the significant reduction in spending for U.S.

ground system military programs, in combination with

government shutdown and CR which has a direct impact on the Optex Richardson segment revenue, all of which

is incorporated herein by reference.

refer to “ Item 1.

6 unchanged sentences

reporting and how operational decisions are made.

Management has determined that the Optex Systems, Richardson plant (to which we refer

below as the Optex Systems segment or Optex Systems), and the Applied Optics Center, Dallas plant, which was acquired on November 3,

2014 (to which we refer below as the Applied Optics Center segment or Applied Optics Center), are separately managed, organized, and

internally reported as separate business segments.

The table below provides a summary of selective statement of operations data by operating

segment for the years ended September 29, 2024 and October 1, 2023 reconciled to the Audited Consolidated Results of Operations as presented

in Item 8, “Financial Statements and Supplementary Data”.

Management has determined that the Optex Richardson plant and the Applied Optics Center,

Dallas plant, which was acquired on November 3, 2014 (to which we refer below as the Applied Optics Center segment or Applied Optics

Center), are separately managed, organized, and internally reported as separate business segments.

The table below provides a summary

of selective statement of operations data by operating segment for the years ended September 29, 2024 and September 28, 2025 reconciled

to the Audited Consolidated Results of Operations as presented in Item 8, “Financial Statements and Supplementary Data”.

of Operations Selective Financial Info

Twelve months ended

September 28, 2025

September 29, 2024

Optex Systems

1 unchanged sentence

Optex Systems

Applied Optics

eliminations)

3 unchanged sentences

Total Cost of Sales

Gross Margin %

General and Administrative Expense

Segment Allocated G&A

Segment Allocated G&A Expense

Net General & Administrative Expense

Operating Income (Loss)

Income (Loss) %

Interest Expense

Operating Income (Loss) %

Asset Impairment

Interest Income (Expense)

Income (Loss) before taxes

(loss) before taxes %

total external sales revenues increased by $8.3 million in the fiscal year 2024, or 32.5% compared to the 2023 fiscal year.

Systems segment realized a $6.1 million, or 49.9% increase, and the Applied Optics Center segment realized an increase of $2.3 million,

or 16.9%, in external revenue compared to the prior year period.

Intersegment revenues were $1.0 million for 2024 and $0.9 million in

Intersegment revenues relate primarily to coated filters provided by the Applied Optics Center to Optex Systems in support of the

Optex Systems periscope line.

profit increased $2.9 million and the gross margin percentage increased by 2.2 points from 25.8% in the 2023 fiscal year to 28.0% in

the 2024 fiscal year.

Optex Systems gross profit increased by $1.4 million and the gross margin percentage increased to 20.7% as compared

to 19.7% in the prior year period.

Applied Optics Center gross profit increased by $1.5 million and the gross margin percentage increased

to 34.1% as compared to 29.3% in the prior year period.

The increase in each segment and consolidated gross profit is primarily attributable

to higher revenue and increased absorption of fixed cost.

general and administrative costs increased from $3.8 million for the twelve months ended October 1, 2023 to $4.7 million for the twelve

Income (loss) before taxes %

total external revenues increased by $7.3 million for the 2025 fiscal year, or 21.6%, compared to the 2024 fiscal year.

Richardson segment realized a $5.6 million, or 30.8% increase, and the Applied Optics Center segment realized an increase of $1.8

million, or 11.1%, in external revenue compared to the prior year period.

Intersegment revenues were $1.2 million for the 2025

fiscal year and $1.0 million for the 2024 fiscal year.

Intersegment revenues relate primarily to coated filters provided by the

Applied Optics Center to Optex Richardson in support of the Optex Richardson periscope line.

Gross profit increased $2.5 million, and the gross

margin percentage increased by 1.2 points from 28.0% for the 2024 fiscal year to 29.2% for the 2025 fiscal year.

Optex Richardson gross

profit increased by $2.3 million and the gross margin percentage increased to 25.5% for the 2025 fiscal year from 20.7% for the prior

The gross profit and gross margin percentage increases were primarily attributable to improved manufacturing overhead rates as the

fixed costs were spread across a higher revenue base.

Applied Optics Center’s gross profit increased by $0.2 million and the gross

margin percentage decreased to 32.0% for the 2025 fiscal year from 34.1% for the prior year period.

The gross profit percentage decrease

at the Applied Optics Center was attributable to changes in mix combined with increased costs for warranties and gold with respect to

our Day Window products.

general and administrative costs increased from $4.7 million for the twelve months ended September 29, 2024 to $4.9 million for the twelve

months ended September 28, 2025.

General and administrative costs increased $0.9 million due to increased

royalties and selling expenses of $0.4 million, increased stock compensation expenses of $0.2 million, increased labor and fringe costs

of $0.2 million and increased information technology costs of $0.1 million.

During the fiscal years 2024 and 2023, Applied Optics Center

absorbed $1.5 million and $1.3 million, respectively, of fixed general and administrative costs incurred by Optex Systems for support

The increase in allocated general and administrative expenses during the 2024 year is directly attributable to increased general

and administrative costs during the current year period as compared to the prior year.

These expenses cover accounting, executive, human

resources, information technology, board fees and other corporate expenses paid by Optex Systems and shared across both operating segments.

operating income increased by $2.0 million in the year ended September 29, 2024 to $4.8 million as compared to the prior

year operating income of $2.8 million.

The increase in operating income is primarily attributable to higher revenue and gross profit, partially

offset by increases in general and administrative costs.

The operating income increased across both segments as compared to the prior

year on higher revenue and gross profit.

before taxes increased $2.0 million, to $4.8 million in the 2024 fiscal year from a prior year income before taxes of $2.7 million.

The increase in income before taxes year over year is primarily due to higher revenue and gross profit, partially offset by

increased general and administrative costs.

General and administrative costs increased $0.2 million due to increased royalties and selling expenses

of $0.1 million, increased labor and fringe costs of $0.1 million and increased information technology costs of $0.1 million, offset by

decreased investor relation expenses of $0.1 million.

During the fiscal years 2025 and 2024, Applied Optics Center absorbed $1.4 million

and $1.5 million, respectively, of fixed general and administrative costs incurred by Optex Richardson for support services.

These expenses

cover accounting, executive, human resources, information technology, board fees and other corporate expenses paid by Optex Richardson

and shared across both operating segments.

operating income increased by $2.3 million in the year ended September 28, 2025 to $7.1 million as compared to the prior fiscal year

operating income of $4.8 million.

Operating income increased as a result of higher revenues and increased gross profit as compared

to the prior fiscal year.

before taxes increased $1.6 million, to $6.4 million in the 2025 fiscal year from a prior fiscal year income before taxes of $4.8

million as a result of higher operating income offset by $0.8 million in asset impairment.

Orders and Backlog

9 unchanged sentences

significant insight into forward demand, with some predictive power to short term future revenues.

the twelve months ended September 29, 2024, the Company booked $36.4 million in new orders, representing a 5.2% increase from the prior

the twelve months ended September 28, 2025, the Company booked $36.2 million in new orders, representing a 0.5% decrease from the prior

year period orders of $36.4 million.

3 unchanged sentences

in millions of dollars:

Twelve months

Twelve months ended September 28, 2025

Twelve months ended September 29, 2024

Sighting Systems

Systems – Richardson

Optex Systems – Richardson

Optical Assemblies

Laser Filters

Optics Center – Dallas

Customer Orders

the year ended September 29, 2024, orders in the Company’s Optex Richardson segment increased by $0.2 million, or 0.9%, as compared

to the prior year.

The primary reason for the increase relates to a prior year award for $3.4 million in sighting systems to repair and

refurbish night vision equipment for the Government of Israel.

We began shipments against the contract in December 2023.

in orders for sighting systems and other products was offset by a significant increase in periscope orders in the year ended September

The Applied Optics Center orders increased $1.6 million, or 14.2%, as we continue to see increases in orders for laser filter

units for several prime government contractors, in addition to an increase in customer orders for other products driven by our new program

of Infrared (IR) Signature Reduction Coatings used on aircraft.

Optex Richardson segment currently has five open US Government IDIQ type military contracts for periscopes, collimators, and big eye

assemblies with unspent funding which covers base year and option year requirement ordering periods into January 2029.

Applied Optics Center – Dallas

Total Customer Orders

the year ended September 28, 2025, orders in the Company’s Optex Richardson segment decreased by $2.2 million, or 9.4%, as

compared to the prior year.

The decrease in orders was primarily driven by lower customer demand for periscopes, mostly offset by

increased demand for sighting system and other products.

During the twelve months ended September 28, 2025, the Company experienced

a 42.2%, or $8.4 million reduction in military periscope orders as compared to the prior year twelve-month period.

During the year

approximately 20% of Optex Richardson’s segment orders, or $4.8 million, were awards against active IDIQ contracts.

Optics Center has two open US Government IDIQ orders.

During the year, approximately 22% of Applied Optics Center segment orders, or

$2.8 million, were awards against active IDIQ contracts.

We anticipate additional orders throughout the next five years for these ongoing

In addition, the Company has several open bid requests for new multi-year IDIQ contracts pending with the U.S.

and other prime contractors for additional periscopes, and unity mirrors that are expected to be awarded in the next three to six months.

as of September 29, 2024 was $44.2 million as compared to a backlog of $41.8 million as of October 1, 2023, representing an increase

The following table depicts the current expected delivery by quarter of all contracts awarded as of September 29, 2024, as well

as the September 29, 2024 backlog as compared to the backlog on October 1, 2023.

ended September 28, 2025, Applied Optics Center orders increased by $2.0 million, or 15.5%, on increased customer demand for laser

filters, day windows and other products, offset by lower demand for our commercial optical assemblies.

Optex Richardson segment currently has four open US Government IDIQ type military contracts for periscopes, vision blocks and

collimators with unspent funding which covers base year and option year requirement ordering periods into July 2030.

During the 2025

fiscal year, approximately 31% of Optex Richardson’s segment orders, or $6.7 million, were awards against active IDIQ

We anticipate additional orders throughout the next five years for these ongoing contracts.

In addition, the Company has

an active bid request for a new multi-year IDIQ contract pending with the U.S.

government for additional periscopes and infrared

filter assemblies that are expected to be awarded in the next three to six months.

The Applied Optics Center has no open US

government IDIQ orders.

as of September 28, 2025 was $39.1 million as compared to a backlog of $44.2 million as of September 29, 2024, representing a decrease

The following table depicts the current expected delivery by quarter of all contracts awarded as of September 28, 2025, as

well as the September 28, 2025 backlog as compared to the backlog on September 29, 2024.

Sighting Systems

Systems – Richardson

Optex Systems – Richardson

Optical Assemblies

Laser Filters

Optics Center – Dallas

Applied Optics Center – Dallas

Total Backlog

Systems - Richardson

the twelve months ended September 29, 2024, backlog for our Optex Richardson segment increased by 20.0%, or $5.3 million to $31.8 million,

as compared to the prior year ending backlog of $26.5 million.

for our periscope product line has increased 52.3% or $7.8 million to $22.7 million, from our 2023 fiscal year end level of $14.9 million,

primarily on increased orders above our delivery capacity during the 2024 year.

With the majority of material shortages behind us, we

have substantially increased the headcount and overtime hours in addition to the purchase of machinery and equipment to eliminate process

bottlenecks and increase periscope throughput up to 60-75% over the next year in line with our customer demands.

We are anticipating

an increase of approximately 60% in periscope revenue in fiscal year 2025 as compared to 2024.

Systems product line backlog decreased 19.1%, or $0.9 million, to $3.8 million, from our 2023 fiscal year end level of $4.7 million.

The decreased backlog is primarily driven by deliveries of $0.7 million against our 2023 order for sighting systems to repair and refurbish

night vision equipment for the Government of Israel combined with revenues of $0.2 million recognized against our long term OWSS maintenance

September 28, 2025, backlog for our Optex Richardson segment was 7.5%, or $2.4 million lower than the prior fiscal year backlog of $31.8 million.

for our periscope product line for our 2025 fiscal year was 33.9% or $7.7 million lower than our 2024 fiscal year end level,

primarily on lower customer demand during the twelve-month period.

We believe the reduced demand is partially related to the delay

in the award of ARC III Abrams replenishment contracts to the prime contractors, which had been anticipated in early 2025.

Fiscal year end 2025 sighting

systems backlog increased 47.4%, to $5.6 million, from our 2024 fiscal year end level of $3.8 million.

The primary reason for the increase in backlog relates to a new $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 with deliveries in the 2026 fiscal year.

The XM30 backlog increase

was partially offset by deliveries of refurbished units against the night vision equipment program for the Government of Israel.

current order Israeli order is expected to complete within the next twelve months and includes an option for an additional quantity up

to 100% of the original contract.

We anticipate the option to be exercised in the next twelve months.

Howitzer contract awarded in July 2020 continues to experience customer driven delays related to customer furnished materials.

2 unchanged sentences

Howitzer contract to begin in fiscal year 2027.

backlog in other product groups decreased by $1.6 million or 34.8% from $4.6 million in 2023 to $3.0 million in 2024 on shipments against

a long-term collimator IDIQ of $1.3 million and commercial wedge assemblies of $0.3 million.

backlog in other product groups increased by $3.5 million, or 116.7%, from $3.0 million at fiscal year end 2024 to $6.5 million at

fiscal year end 2025, primarily due to the award of a $4.3 million order for MRS collimator assemblies against a five-year

requirement-type contract by the Army Contracting Command - Detroit Arsenal.

Optics Center – Dallas

Applied Optics Center backlog decreased by $2.7 million, or 21.8%, for the year ended September 28, 2025, from $12.4 million in

to $12.4 million in 2024.

for our optical assemblies decreased by $2.1 million, or 75.0%, as compared to the prior year on lower customer demand.

fiscal year 2024 to $9.7 million in fiscal year 2025.

The majority of this reduction is due the delay in award for the BNVG Night

Vision Goggle program.

for our optical assemblies decreased by $0.6 million, or 85.7%, during the 2025 fiscal year, compared to prior fiscal year-end

backlog on lower customer demand for commercial optical assemblies.

We anticipate new orders during the next three to six months for

deliveries in fiscal year 2026.

filter backlog decreased by $2.2 million, or 23.2%, during the 2025 fiscal year due to the timing of customer orders versus customer

delivery schedule.

Our laser filter orders increased 10.9%, or $1.0 million, during the 2025 fiscal year as compared to the prior

year, but were below the pace of our 2025 fiscal year shipments.

We are anticipating additional orders over the next six months for

shipment during the 2026 fiscal year.

window backlog decreased by $0.1 million, or 9.1%, during the 2025 fiscal year primarily due to lower customer demand.

We anticipate

new orders during the next three to six months for deliveries in 2025.

filter backlog decreased by $0.4 million, or 4.0%, during the year due to increased shipments against our laser interface filter and

laser filter units during the year.

We are anticipating additional orders for shipment during the 2025 year.

window backlog decreased by $0.6 million, or 35.3%, during the period as compared to the prior year primarily due to shipments against

a long-term IDIQ contract with deliveries scheduled into 2026.

We anticipate additional orders in the next three months.

Applied Optics backlog increased by $0.2 million, or 22.2% for the year ended September 29, 2024, on an

increase in customer orders for Infrared (IR) Signature Reduction Coatings used on aircraft.

additional orders over the next twelve months.

Applied Optics Center backlog increased by $0.2 million, or 18.2% during the 2025 fiscal year on increased customer orders on for

our specialty coatings products .

refer to “ Material Trends and Recent Events ” above or “ Liquidity and Capital Resources ” below for

6 unchanged sentences

our operations, offer operational scale and enter new markets.

months ended September 29, 2024 compared to the twelve months ended October 1, 2023

months ended September 28, 2025 compared to the twelve months ended September 29, 2024

table below details the revenue changes by segment and product line for the year ended September 28, 2025 as compared to the year ended

October 1, 2023.

September 29, 2024.

September 28, 2025

September 29, 2024

Sighting Systems

5 unchanged sentences

total revenues increased by $7.3 million, or 21.6% in fiscal year 2025 compared to fiscal year 2024.

The Optex Systems Richardson segment

realized a $6.1 million, or 50.4%, increase in revenue and the Applied Optics Center segment realized an increase of $2.2 million, or

16.2%, in revenue compared to the prior year.

The Optex Richardson segment realized

a $5.6 million, or 30.8%, increase in revenue and the Applied Optics Center segment realized an increase of $1.7 million, or 10.8%, in

revenue compared to the prior fiscal year.

Systems - Richardson

on our periscope line increased $3.5 million, or 40.7%, during the twelve months ended September 29, 2024 and October 1, 2023 on increased

customer demand and higher production throughput during the year.

on sighting systems increased by $0.4 million, or 40.0% from the prior year period due to deliveries against the 2023 order for repair

and refurbishment of night vision equipment to the Government of Israel.

Systems-Richardson revenue on other product lines increased by $2.2 million, or 88.0%, compared to revenues in the prior year due to

increased orders for collimators, windows, beamsplitters, cell assemblies and other spares.

on our periscope line increased $7.1 million, or 58.7%, for the twelve months ended September 28, 2025 compared to the twelve months

ended September 29, 2024 on higher production throughput.

We have increased our direct labor force and employee overtime in concert with

improvements in our supplier delivery performance as well as invested in additional machinery and equipment and other process improvements

to increase production capacity and alleviate process bottlenecks.

During the 2025 fiscal year, we increased our periscope production

levels by approximately 56% over the 2024 fiscal year levels.

on sighting systems increased by $0.1 million, or 7.1% from the prior fiscal year due to increased deliveries of refurbished units for

the night vision equipment program to the Government of Israel.

Richardson revenue on other product lines decreased by $1.6 million, or 34.0%, compared to revenues in the prior fiscal year due to

lower customer demand for beamsplitters, unity mirrors, bonded mirrors, wedge prism assemblies and other spare parts.

Optics Center - Dallas

on optical assemblies decreased by $1.7 million, or 30.4%, during the twelve months ended September 29, 2024 as compared to the prior

from optical assemblies decreased by $2.3 million, or 60.0%, for the twelve months ended September 28, 2025 as compared to the prior

twelve-month period on lower customer demand.

We are anticipating revenue over the next twelve months to approximate the 2024 revenue

level pending new customer orders in the next three to six months.

filter revenue increased by $3.2 million, or 50.0%, during the twelve months ended September 29, 2024 as compared to the prior twelve-month

period on increased customer demand.

We anticipate revenue to continue at the higher levels throughout 2025.

on our day windows increased by $0.1 million, or 16.7%, during the twelve months ended September 29, 2024 as compared to October 1, 2023

as we continue to ship against the long-term IDIQ contract for these units.

We anticipate revenues to continue at this, or a slightly

increased, level through 2025.

Optics Center revenue for other product lines increased by $0.6 million, or 60.0%, during the twelve months ended September 29, 2024

as compared to the prior twelve-month period on increased deliveries in products for Infrared (IR)

Signature Reduction Coatings used on aircraft.

We anticipate these delivery levels to continue into 2025 combined with additional

increases for shipments against our current binocular contract.

The gross margin for the year ended September 29, 2024 was 28.0% of revenue as compared to a gross margin of 25.8% of revenue

for the year ended October 1, 2023.

Cost of sales increased by $5.4 million to $24.5 million for 2024 compared to $19.0 million for 2023.

The gross profit increased by $2.9 million to $9.5 million in 2024 as compared to $6.6 million in 2023.

The increase is primarily due

to increased revenue, and higher absorption of fixed cost and changes in product mix between the segments.

For the years ended September 29, 2024 and October 1, 2023, we recorded operating expenses of $4.7 million and $3.8

filter revenue increased by $2.8 million, or 29.2%, for the twelve months ended September 28, 2025 as compared to the prior twelve-month

period on higher customer demand.

on our day windows increased by $0.3 million, or 42.9%, for the twelve months ended September 28, 2025 as compared to September 29, 2024

on higher customer orders.

Optics Center revenue for other product lines increased by $0.9 million, or 56.3%, for the twelve months ended September 28, 2025 as

compared to the prior twelve-month period on increased deliveries of binoculars over the prior

year combined with higher customer demand for specialty coatings.

The gross margin for the year ended September 28, 2025 was 29.2% of revenue as compared to a gross margin of 28.0% of

revenue for the year ended September 29, 2024.

Cost of sales increased by $4.8 million to $29.3 million for fiscal year 2025

compared to $24.5 million for fiscal year 2024.

The gross profit increased by $2.5 million to $12.1 million in fiscal year 2025 as

compared to $9.5 million in fiscal year 2024.

The increased gross profit as compared to the prior year is primarily driven by higher

revenue and product mix changes combined with improved manufacturing overhead rates as the fixed overhead costs are spread across a

significantly higher revenue base.

For the years ended September 28, 2025 and September 29, 2024, we recorded operating expenses of $4.9 million and $4.7

million, respectively.

General and administrative cost increased $0.9 million, or 22.9%, for fiscal year 2024 as compared to the

prior year due to increased royalties and selling expenses of $0.4 million, increased stock compensation expenses of $0.2 million,

increased labor and fringe costs of $0.2 million and increased information technology costs of $0.1 million.

The selling expenses

are directly related to new products including the Speedtracker acquisition and the Government of Israel repair and refurbishment on

night vision products and the royalties are related to the new Infrared (IR) Signature

Reduction Coatings product.

General and administrative costs increased $0.2 million, or 4.3%, during the fiscal year 2025 due to

increased royalties and selling expenses of $0.1 million, increased labor and fringe costs of $0.1 million and increased information

technology costs of $0.1 million offset by decreased investor relation expenses of ($0.1) million.

For the year ended September 28, 2025, we recorded operating income of $7.1 million as compared to operating income of $4.8

million during the year ended October 1, 2023.

The $2.0 million increase in operating income is primarily due to increased revenue and

gross profit, offset by higher general and administrative costs.

million during the year ended September 29, 2024.

The $2.3 million increase in operating income is primarily due to increased gross profit

of $2.5 million, offset by an increase of ($0.2) million in general and administrative spending.

income applicable to common shareholders .

During the year ended September 29, 2024, we recorded net income applicable to common

shareholders of $3.8 million as compared to net income applicable to common shareholders of $2.3 million during the year ended

October 1, 2023.

The increase of net income of $1.5 million is primarily attributable to increased revenue and gross profit, offset

by higher general and administrative costs and increased federal income taxes of $0.5 million.

During the year ended September 28, 2025, we recorded net income applicable to common shareholders

of $5.1 million as compared to net income applicable to common shareholders of $3.8 million during the year ended September 29, 2024.

The increase of net income of $1.3 million is primarily attributable to increased operating income of $2.3 million, offset by ($0.8) million

in asset impairment for our Speedtracker product line acquisition and increased federal income tax expense of ($0.2) million.

GAAP Adjusted EBITDA

use adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) as an additional measure for evaluating the performance

of our business as “net income” includes the significant impact of noncash compensation expenses related to equity stock issues, as well as depreciation, amortization, interest expenses and federal income

We believe that Adjusted EBITDA is a meaningful indicator of our operating performance because it permits period-over-period comparisons

of our ongoing core operations before the excluded items, which we do not consider relevant to our operations.

Adjusted EBITDA is a financial

measure not required by, or presented in accordance with, U.S.

of our business as “net income” includes the significant impact of noncash compensation expenses related to equity stock

issues, as well as depreciation, amortization, interest expenses and federal income taxes.

We believe that Adjusted EBITDA is a meaningful

indicator of our operating performance because it permits period-over-period comparisons of our ongoing core operations before the excluded

items, which we do not consider relevant to our operations.

Adjusted EBITDA is a financial measure not required by, or presented in accordance

generally accepted accounting principles (“GAAP”).

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Adjusted EBITDA differently than we do or may not calculate it at all, which limits the usefulness of Adjusted EBITDA as a comparative

table below summarizes our twelve-month operating results for the periods ended September 29, 2024 and October 1, 2023, in terms of both

the GAAP net income measure and the non-GAAP Adjusted EBITDA measure.

table below summarizes our twelve-month operating results for the periods ended September 28, 2025 and September 29, 2024, in terms of

both the GAAP net income measure and the non-GAAP Adjusted EBITDA measure.

Twelve months ended

September 28,

October 1, 2023

September 29,

Net Income — GAAP

Federal Income Tax Expense

Asset Impairment

Depreciation & Amortization

Stock Compensation

Interest Expense

Interest (Income) Expense

Adjusted EBITDA - Non GAAP

Our Adjusted EBITDA increased by $2.4 million to $5.7 million during the

twelve months ended September 29, 2024 as compared to $3.4 million during the twelve months ended October 1, 2023.

The increase in EBITDA

is primarily driven by increased net income, offset by increased taxes, depreciation and amortization, and stock compensation.

segment performance is discussed in greater detail throughout the previous sections.

Adjusted EBITDA increased by $2.3 million to $8.0 million during the twelve months ended September 28, 2025 as compared to $5.7 million

during the twelve months ended September 29, 2024.

The increase in EBITDA is primarily driven by increased revenue and gross profit.

Operating segment performance is discussed in greater detail throughout the previous sections.

and Capital Resources

of September 29, 2024, Optex Systems Holdings had working capital of $15.1 million, as compared to $13.5 million as of October 1,

During the twelve months ended September 29, 2024, we generated operating cash of $1.8 million, primarily driven by increased

revenue and net income.

As of September 29, 2024, there was no net change against the outstanding credit

facility balance of $1.0 million.

Company has capital commitments of $0.3 million for the purchase of property and equipment consisting of a significant coating chamber

upgrade, a black bond dispensing machine, an air compressor, and an Opotek tunable laser system.

as of September 29, 2024 was $44.2 million as compared to a backlog of $41.8 million as of October 1, 2023, representing an increase

of September 28, 2025, Optex Systems Holdings had working capital of $21.1 million, as compared to $15.1 million as of September 29,

During the twelve months ended September 28, 2025, we generated operating cash of $6.9 million, primarily driven by increased net

income of $5.1 million, non-cash expenses of $1.7 million for depreciation and amortization, asset impairment and stock compensation,

and all other changes in other working capital of $0.1 million.

During the twelve months ended September 28, 2025, we paid $1.0 million

against the credit facility and purchased capital assets of $0.5 million.

of September 28, 2025, the Company had no outstanding capital commitments for the purchase of property and equipment.

The Company plans

to spend $2.4 million in capital investment over the next twelve months to expand its current capacity as well as develop new capabilities

to expand into adjacent markets.

Obsolete equipment will be replaced with new or upgraded systems to reduce downtime and drive capacity

improvements for both Optex Richardson and the Applied Optics Center.

Also, new capabilities will be required to support new product lines at AOC, as well

as support the increased focus on research and rapid prototype development at Optex Richardson.

as of September 28, 2025 was $39.1 million as compared to a backlog of $44.2 million as of September 29, 2024, representing a decrease

For further details, see “ Results of Operations – New Orders and Backlog ”

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and successful marketing of the Company’s products.

September 29, 2024, the Company had approximately $1.0 million in cash and an outstanding payable balance of $1.0 against its $3.0 million

line of credit.

As of September 29, 2024, our outstanding accounts receivable balance was $3.8 million, which has been collected during

the first quarter of fiscal 2025.

During the first quarter of 2025, we paid down our credit facility to zero.

September 28, 2025, the Company had approximately $6.4 million in cash and no draws against its revolving credit line.

Our cash balance

is split between current operating interest-bearing money market accounts based on our immediate working capital requirements.

As of September 28, 2025, $4.0 million of our cash balance was carried in a money market account with an annual interest rate of 3.84%.

For the twelve months ended September 28, 2025, the total interest income under such money market account was $35 thousand.

As of September

28, 2025, our outstanding accounts receivable balance was $4.6 million, which has been collected during the first quarter of fiscal year

During the first quarter of 2025, we paid $1.0 million against our credit facility bringing the balance to zero.

refer to the disclosure above under “ Material Trends and Recent Developments” with respect to recent supply chain

disruptions and material shortages, which disclosure is incorporated herein by reference.

the short term, the Company plans to utilize its current cash, available line of credit and operating cash flow to fund inventory

purchases in support of the backlog growth and higher anticipated revenue during the next twelve months.

Short term cash in excess

of our working capital needs may be also be used to fund the purchase of product lines and other assets.

We may also repurchase

common stock against our current stock repurchase plan.

Longer term, excess cash beyond our operating needs may be used to fund new

product development, company, product line or other asset acquisitions, or additional stock purchases as attractive opportunities

present themselves.

the short term, the Company plans to utilize its current cash, available line of credit and operating cash flow to fund inventory purchases

in support of the backlog growth and higher anticipated revenue during the next twelve months.

Short term cash in excess of our working

capital needs may be also be used to fund the purchase of product lines and other assets.

We may also repurchase common stock against

our current stock repurchase plan.

Longer term, excess cash beyond our operating needs may be used to fund new product development, company,

product line or other asset acquisitions, or additional stock purchases as attractive opportunities present themselves.

January 18, 2024, the Company acquired certain intellectual property and technical and marketing information relating to the Speedtracker

Mach product line and entered into an asset purchase agreement and a contract manufacturing agreement with RUB Aluminium s.r.o.

The Company acquired the assets using $1 million cash on hand, with potential additional future cash payments based on successful

completion of defined milestones.

The initial term of the contract manufacturing agreement is one year, subject to additional one-year

renewal terms.

After the acquisition, the Company determined it would be more economical to move the manufacturing operations in

house and is no longer ordering assembled units under the original contract manufacturing agreement.

RUB will continue to provide the

Company with purchased kit parts for the manufacture of the Speedtracker Mach products.

acquisition included transaction costs of $30 thousand for legal fees.

Pursuant to the asset purchase agreement, the total earnout payment

will be $238 thousand only if the earnout revenue milestone is achieved during the earnout period, otherwise the earnout will be zero.

As of September 29, 2024, it was determined that the earnout revenue milestone was unlikely to be achieved during the earnout period and the

fair value of the contingent liability was zero.

The asset will be amortized on a straight-line basis over a seven-year period.

some instances, new contract awards may allow for government contract financing in the form of contract progress payments pursuant to

FAR 52.232-16, “Progress Payments.” Subject to certain limitations, this clause provides for government

payment of up to 90% of incurred program costs prior to product delivery for small businesses like us.

To the extent any contracts allow

for progress payments and the respective contracts would result in significant preproduction cash requirements for design, process development,

tooling, material or other resources which could exceed our current working capital or line of credit availability, we intend to utilize

this benefit to minimize any potential negative impact on working capital prior to receipt of payment for the associated contract deliveries.

Currently none of our existing contracts allow for progress payments.

The Company acquired the assets using $1 million cash on hand, with potential additional future cash payments based on successful completion

of defined milestones.

The initial term of the contract manufacturing agreement was one year, subject to additional one-year renewal

After the acquisition, the Company determined it would be more economical to move the manufacturing operations in house and is

no longer ordering assembled units under the original contract manufacturing agreement.

RUB will continue to provide the Company with

purchased kit parts for the manufacture of the Speedtracker Mach products.

acquisition included transaction costs of $30 thousand.

Pursuant to the asset purchase agreement, the total earnout payment will be $238

thousand only if the earnout revenue milestone is achieved during the earnout period, otherwise the earnout will be zero.

As of September

28, 2025, it was determined that the earnout revenue milestone was unlikely to be achieved during the earnout period and the fair value

of the contingent liability was zero.

The asset was amortized on a straight-line basis over a seven-year period through September 28,

On September 28, 2025, the Company reviewed the intangible asset value based on the anticipated revenues and cash flow of the product

line over the next five years and determined that the remaining asset value could not be recovered.

As a result, the remaining $0.8 million

of unamortized intangible assets was impaired and as of September 28, 2025, the remaining balance of intangible assets is zero.

refer to “ Note 8 – Commitments and Contingencies – Rental Payments under Non-cancellable Operating Leases ”

for a tabular depiction of our remaining minimum lease and estimated C ommon Area Maintenance (“C AM ”) payments under such leases as of September 29, 2024, which disclosure

is incorporated herein by reference.

for a tabular depiction of our remaining minimum lease and estimated Common Area Maintenance (“CAM”) payments under such

leases as of September 28, 2025, which disclosure is incorporated herein by reference.

Company expects to generate net income and positive cash flow from operating activities over the next twelve months.

To remain profitable,

we need to maintain a level of revenue adequate to support our cost structure.

Management intends to manage operations commensurate with

its level of working capital and line of credit facility during the next twelve months and beyond;

however, uneven revenue levels driven

by changes in customer delivery demands, first article inspection requirements or other program delays associated with the pandemic could

create a working capital shortfall.

In the event the Company does not successfully implement its ultimate business plan, certain assets

may not be recoverable.

March 22, 2023, the Company and its subsidiary, Optex Systems, Inc.

(“Optex”, and with the Company, the “Borrowers”),

entered into a Business Loan Agreement (the “Loan Agreement”) with Texas Capital Bank (the “Lender”), pursuant

to which the Lender will make available to the Borrowers a revolving line of credit in the principal amount of $3 million (the “Credit

The commitment period for advances under the Credit Facility is twenty-six months expiring on May 22, 2025.

to the expiration of that time period as the “Maturity Date.” Outstanding advances under the Credit 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

profitable, we need to maintain a level of revenue adequate to support our cost structure.

Management intends to manage operations

commensurate with its level of working capital and line of credit facility during the next twelve months and beyond;

however, uneven

revenue levels driven by changes in customer delivery demands, first article inspection requirements or other program delays

associated with delays of government funding and government shutdowns could create a working capital shortfall.

In the event the

Company does not successfully implement its ultimate business plan, certain assets may not be recoverable.

March 22, 2023, the Company and Optex Systems, Inc.

entered into a Business Loan Agreement with Texas Capital Bank (the “Lender”),

pursuant to which the Lender will make available to the Company a revolving line of credit in the principal amount of $3 million.

commitment period for advances under the facility expired on May 22, 2025.

Outstanding advances under the facility accrued interest at

a rate equal to the secured overnight financing rate (SOFR) plus a specified margin, subject to a specified floor interest rate.

related agreement provided for a $125 thousand Letter of Credit sublimit.

May 21, 2025, the Company and Optex Systems, Inc.

renewed their existing credit facility with the Lender by entering into a new Business

Loan Agreement (the “Loan Agreement”) effective May 22, 2025, pursuant to which the Lender will continue to make available

a revolving line of credit in the principal amount of $3 million (the “Texas Capital Facility”).

The commitment period for

advances under the Texas Capital Facility is twenty-four months expiring on May 22, 2027 (the “Maturity Date”).

advances under the Texas Capital Facility will accrue interest at a variable rate equal to the secured overnight financing rate (SOFR)

plus a specified margin.

The interest rate is currently at 6.7% per annum.

As of September 29, 2024, the interest rate was 7.67% per annum.

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 Credit Facility is secured by substantially all of the operating assets of the Borrowers as collateral.

The Borrowers’ obligations under the Credit 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.

As of September 29, 2024,

there was $1.0 million borrowed under the Credit Facility.

As of September 29, 2024, the Company was in compliance with all covenants

under the Credit Facility.

Credit Facility replaced the prior $2 million line of credit with PNC Bank, National Association.

September 22, 2021 the Company announced authorization for an additional $1 million stock repurchase program.

As of September 29, 2024,

there was an authorized balance of $560 thousand remaining to be spent against the repurchase program.

During the years ended September 29,2024 and October

1, 2023, there were no stock repurchases against the plan.

Loan Agreement contains customary events of default and negative covenants, including but not limited to those governing capital expenditures

(limited to $1 million per year), indebtedness and liens, affiliate transactions, fundamental changes (including change in management),

investments, and restricted payments (including dividends).

The Loan Agreement also requires the borrowers to maintain a fixed charge

coverage ratio of at least 1.25:1 and a total leverage ratio of 3:1.

The Texas Capital Facility is secured by substantially all of the

operating assets of the borrowers as collateral.

The obligations under the Texas Capital Facility are subject to acceleration upon the

occurrence of an event of default as defined in the Loan Agreement.

The Loan Agreement further provides for a $125,000 Letter of Credit

outstanding balance under the Texas Capital Facility was $0 as of September 28, 2025.

the twelve months ended September 28, 2025, the total interest expense under the facility was $12 thousand.

the twelve months ended September 28, 2025 the Company declared and paid no dividends.

28 unchanged sentences

As of September 28, 2025, the Company

had accrued warranty costs of $52 thousand, as compared to $75 thousand as of October 1, 2023.

The primary reason for the decrease in

reserve balances relates to lower shipments of our optical assemblies during the twelve months ended September 29, 2024 as compared to

the prior year.

of September 29, 2024 and October 1, 2023, we had $259 thousand, and $243 thousand, respectively, of contract loss reserves included

had accrued warranty costs of $162 thousand, as compared to $52 thousand as of September 29, 2024.

The primary reason for the increase

in reserve balances relates to an expected warranty repair cost of $143 thousand for shipped day windows due to a glass cracking issue

which was partially offset by lower warranties realized on our commercial optical assemblies.

of September 28, 2025 and September 29, 2024, we had $132 thousand, and $259 thousand, respectively, of contract loss reserves included

in our balance sheet accrued expenses.

These loss contracts are related to some of our older legacy periscope IDIQ contracts which were

priced in 2018 through early 2020, prior to Covid-19 and the subsequent decline in revenue at the Optex Systems Richardson segment combined

with significant inflationary pressures on materials and labor in the last two years.

These loss contracts are related to some of our older legacy periscope contracts which were priced in 2019

and 2020, prior to Covid-19.

Due to inflationary price increases on component

parts and higher internal manufacturing costs (as a result of escalating labor costs and higher burden rates), some of these contracts

parts and higher internal manufacturing costs (as a result of escalating labor costs and higher burden rates), some of our contracts

are in a loss condition, or at marginal profit rates.

6 unchanged sentences

contract costs, losses are booked immediately on new task order awards.

During the twelve months ended September 29, 2024, the accrued

contract losses increased by $16 thousand on new awards against one of our loss IDIQ contracts, partially offset by shipments during

the twelve month period.

There is no way to reasonably estimate future inflationary impacts, or customer awards on the existing loss

We continue to monitor these contracts throughout the year for any significant changes in addition to seeking potential cost

saving strategies to mitigate risk.

of September 29, 2024 and October 1, 2023, Optex Systems Inc.

had a net carrying value of $0.9 million in deferred tax assets consisting

of deferred tax assets of $1.7 million and valuation reserves of ($0.8) million.

There is one open IDIQ option year to which the customer may

place additional awards through January 5, 2026.

During the twelve months ended September 28, 2025, the accrued contract losses decreased

by $127 thousand on shipments for the existing IDIQ contracts during the twelve-month period.

There is no way to reasonably estimate

future inflationary impacts, or customer awards on the existing loss contracts.

We continue to monitor these contracts throughout the

year for any significant changes in addition to seeking potential cost saving strategies to mitigate risk.

of September 28, 2025 and September 29, 2024, Optex Systems, Inc.

had a net carrying value of $1.2 million and $0.9 million,

respectively, in deferred tax assets represented by deferred tax assets of $2.0 million and $1.7 million, respectively, and a

deferred tax asset valuation allowance of ($0.8) million each year, against those assets.

The valuation allowance covers certain deferred tax

assets where we believe we will be unlikely to recover those tax assets through future operations.

The valuation reserve includes assumptions

related to future taxable income which would be available to cover net operating loss carryforward amounts.

Because of the uncertainties

of future income forecasts combined with the complexity of some of the deferred assets, these forecasts are subject to change over time.

While we believe our current estimate to be reasonable, changing market conditions and profitability, changes in equity structure and

changes in tax regulations may impact our estimated reserves in future periods.

The valuation reserve includes

assumptions related to future taxable income which would be available to cover net operating loss carryforward amounts.

the uncertainties of future income forecasts combined with the complexity of some of the deferred assets, these forecasts are

subject to change over time.

While we believe our current estimate to be reasonable, changing market conditions and profitability,

changes in equity structure and changes in tax regulations may impact our estimated reserves in future periods.

Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis