Optex
Systems Holdings, Inc.
Condensed
Consolidated Balance Sheets
|
|
(Thousands,
except share and per share data)
|
|
|
|
July
2, 2017
(Unaudited)
|
|
|
October
2, 2016
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and
Cash Equivalents
|
|
$
|
1,597
|
|
|
$
|
2,568
|
|
Accounts Receivable,
Net
|
|
|
1,668
|
|
|
|
2,095
|
|
Net Inventory
|
|
|
7,373
|
|
|
|
6,214
|
|
Prepaid Expenses
|
|
|
92
|
|
|
|
120
|
|
Current
Assets
|
|
|
10,730
|
|
|
|
10,997
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment, Net
|
|
|
1,528
|
|
|
|
1,651
|
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
|
|
|
|
|
|
Prepaid Royalties -
Long Term
|
|
|
68
|
|
|
|
90
|
|
Security Deposits
|
|
|
23
|
|
|
|
23
|
|
Other
Assets
|
|
|
91
|
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
12,349
|
|
|
$
|
12,761
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
$
|
609
|
|
|
$
|
706
|
|
Dividends Payable
|
|
|
261
|
|
|
|
—
|
|
Accrued Expenses
|
|
|
974
|
|
|
|
810
|
|
Accrued Warranties
|
|
|
28
|
|
|
|
28
|
|
Customer Advance Deposits
|
|
|
689
|
|
|
|
559
|
|
Credit Facility
|
|
|
300
|
|
|
|
300
|
|
Current
Liabilities
|
|
|
2,861
|
|
|
|
2,403
|
|
|
|
|
|
|
|
|
|
|
Warrant Liability
|
|
|
3,784
|
|
|
|
3,118
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
6,645
|
|
|
|
5,521
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity
|
|
|
|
|
|
|
|
|
Preferred Stock Series
C ($0.001 par 400 authorized, 318 and 360 issued and outstanding, respectively)
|
|
|
—
|
|
|
|
—
|
|
Common Stock –
($0.001 par, 2,000,000,000 authorized, 7,590,101 and 8,266,601 shares issued and outstanding, respectively)
|
|
|
8
|
|
|
|
8
|
|
Additional Paid-in-capital
|
|
|
26,362
|
|
|
|
26,879
|
|
Accumulated Deficit
|
|
|
(20,666
|
)
|
|
|
(19,647
|
)
|
Stockholders’
Equity
|
|
|
5,704
|
|
|
|
7,240
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$
|
12,349
|
|
|
$
|
12,761
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
Optex
Systems Holdings, Inc.
Condensed
Consolidated Statements of Operations
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands,
except share and per share data)
|
|
|
|
Three
months ended
|
|
|
Nine
months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2, 2017
|
|
|
June 26, 2016
|
|
|
July 2, 2017
|
|
|
June 26, 2016
|
|
Revenue
|
|
$
|
4,386
|
|
|
$
|
5,344
|
|
|
$
|
11,938
|
|
|
$
|
11,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales
|
|
|
3,500
|
|
|
|
4,261
|
|
|
|
9,511
|
|
|
|
9,708
|
|
Gross
Margin
|
|
|
886
|
|
|
|
1,083
|
|
|
|
2,427
|
|
|
|
2,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and Administrative Expense
|
|
|
821
|
|
|
|
872
|
|
|
|
2,505
|
|
|
|
2,394
|
|
Operating
Income (Loss)
|
|
|
65
|
|
|
|
211
|
|
|
|
(78
|
)
|
|
|
(329
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
on Change in Fair Value of Warrants
|
|
|
(1,024
|
)
|
|
|
—
|
|
|
|
(666
|
)
|
|
|
—
|
|
Interest
Expense
|
|
|
(4
|
)
|
|
|
(12
|
)
|
|
|
(14
|
)
|
|
|
(28
|
)
|
Other
Expense
|
|
|
(1,028
|
)
|
|
|
(12
|
)
|
|
|
(680
|
)
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) Before Taxes
|
|
|
(963
|
)
|
|
|
199
|
|
|
|
(758
|
)
|
|
|
(357
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
Income Taxes (Benefit)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net
Income (Loss) After Taxes
|
|
$
|
(963
|
)
|
|
$
|
199
|
|
|
$
|
(758
|
)
|
|
$
|
(357
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
Income (Loss) per share
|
|
$
|
(0.12
|
)
|
|
$
|
0.12
|
|
|
$
|
(0.09
|
)
|
|
$
|
(0.47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Common Shares Outstanding - Basic
|
|
|
7,743,947
|
|
|
|
1,607,079
|
|
|
|
8,035,949
|
|
|
|
756,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
Income per share
|
|
|
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Common Shares Outstanding - Diluted
|
|
|
|
|
|
|
3,789,783
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
Optex
Systems Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
(Thousands)
|
|
|
|
Nine
months ended
|
|
|
|
July
2, 2017
|
|
|
June
26, 2016
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(758
|
)
|
|
$
|
(357
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
253
|
|
|
|
260
|
|
Loss
on change in fair value of warrants
|
|
|
666
|
|
|
|
—
|
|
Noncash
interest expense
|
|
|
—
|
|
|
|
(17
|
)
|
Stock
compensation expense
|
|
|
156
|
|
|
|
112
|
|
Gain
on sale of fixed assets
|
|
|
(27
|
)
|
|
|
—
|
|
Decrease
in accounts receivable
|
|
|
272
|
|
|
|
1,029
|
|
Increase
in inventory (net of progress billed)
|
|
|
(1,159
|
)
|
|
|
(797
|
)
|
Decrease
in prepaid expenses
|
|
|
28
|
|
|
|
62
|
|
Increase
in accounts payable and accrued expenses
|
|
|
67
|
|
|
|
234
|
|
Decrease
in prepaid royalties - long term
|
|
|
22
|
|
|
|
22
|
|
Increase
(decrease) in customer advance deposits
|
|
|
130
|
|
|
|
(526
|
)
|
|
|
|
|
|
|
|
|
|
Total
adjustments
|
|
|
408
|
|
|
|
379
|
|
Net
cash (used in) provided by operating activities
|
|
|
(350
|
)
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
Cash
flows (to) from investing activities
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(130
|
)
|
|
|
(34
|
)
|
Proceeds
from sale of fixed assets
|
|
|
27
|
|
|
|
—
|
|
Net
cash used in investing activities
|
|
|
(103
|
)
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from (to) financing activities
|
|
|
|
|
|
|
|
|
Proceeds
(to) credit facility (net)
|
|
|
—
|
|
|
|
(70
|
)
|
Proceeds
(to) stock repurchase
|
|
|
(518
|
)
|
|
|
—
|
|
Net
cash used in financing activities
|
|
|
(518
|
)
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(971
|
)
|
|
|
(82
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
2,568
|
|
|
|
683
|
|
Cash
and cash equivalents at end of period
|
|
$
|
1,597
|
|
|
$
|
601
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information:
|
|
|
|
|
|
|
|
|
Exchange
of common stock for non-trade accounts receivable
|
|
$
|
155
|
|
|
$
|
—
|
|
Dividends
Declared
|
|
|
261
|
|
|
|
—
|
|
Exchange
of preferred stock for common stock
|
|
|
210
|
|
|
|
3,165
|
|
Cash
paid for taxes withheld on officer restricted stock unit net share issue
|
|
|
15
|
|
|
|
—
|
|
Cash
paid for interest
|
|
|
14
|
|
|
|
45
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
Note
1 - Organization and Operations
Optex
Systems Holdings manufactures optical sighting systems and assemblies for the U.S. Department of Defense, foreign military applications
and commercial markets. Its products are installed on a variety of U.S. military land vehicles, such as the Abrams and Bradley
fighting vehicles, light armored and advanced security vehicles, and have been selected for installation on the Stryker family
of vehicles. Optex Systems Holdings also manufactures and delivers numerous periscope configurations, rifle and surveillance sights
and night vision optical assemblies. Optex Systems Holdings’ products consist primarily of build to customer print products
that are delivered both directly to the military and to other defense prime contractors or commercial customers.
Optex
Systems Holdings’ operations are based in Dallas and Richardson, Texas in leased facilities comprising 93,967 square feet.
As of July 2, 2017, Optex Systems Holdings operated with 96 full-time equivalent employees.
Optex
Systems Holdings, Inc. has two reportable segments which include Optex Systems (OPX)-Richardson, and Applied Optics Center (AOC)
– Dallas. The accounting policies for each segment are the same as those described in the summary of significant accounting
policies. Optex Systems Holdings evaluates performance based on profit and loss from operations before income taxes excluding
nonrecurring gains and losses.
Optex
Systems (OPX) – Richardson, Texas
Optex
Systems manufactures optical sighting systems and assemblies, primarily for Department of Defense applications. Its products are
installed on various types of U.S. military land vehicles, such as the Abrams and Bradley fighting vehicles, light armored and
armored security vehicles and have been selected for installation on the Stryker family of vehicles. Optex Systems also manufactures
and delivers numerous periscope configurations, rifle and surveillance sights and night vision optical assemblies. We have capabilities
which include machining, bonding, painting engraving and assembly and can perform both optical and environmental testing in-house.
Optex Systems products consist primarily of build-to-customer print products that are delivered both directly to the armed services
and to other defense prime contractors. Optex Systems in Richardson is 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, NorcaTec and others. Optex Systems is also a military supplier to foreign governments such as Israel, Australia
and NAMSA and South American countries and is a subcontractor for several large U.S. defense companies serving foreign governments.
During
the nine months ended July 2, 2017, 99% of Optex Systems – Richardson revenue was in support of prime and subcontracted
military customers. The Optex Systems segment serves domestic military customers, 91%, foreign military customers, 8%, and domestic
commercial customers, 1%. The Optex Systems segment revenue for the nine months ending July 2, 2017 was derived from external
customers consisting of the U.S. government, 62%, General Dynamics, 24%, and other external customers, 14%.
Optex
Systems is located in Richardson, Texas, with leased premises consisting of approximately 49,100 square feet. As of July 2, 2017,
the Richardson facility operated with 60 full time equivalent employees in a single shift operation. Optex Systems in Richardson
serves as the home office for both the Optex Systems (OPX) and Applied Optics Center (AOC) segments.
Applied
Optics Center (AOC) – Dallas
On
November 3, 2014, Optex Systems, Inc. entered into a Purchase Agreement with L-3 pursuant to which Optex Systems purchased from
L-3 the assets comprising L-3’s Applied Optics Center Products Line. Applied Optics Center is engaged in the production,
marketing and sales of precision optical assemblies and components which utilize thin film coating technologies. Most of the AOC
products and services are directly related to the deposition of thin-film coatings. AOC is 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., L-3 Communications, Harris Corporation and others. AOC also creates a new sector of opportunity
for commercial products. Globally, commercial optical products use thin film coatings to create product differentiation and performance
levels. 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. The Applied Optics Center is a key supplier to a commercial optical assembly manufacturer
and provides optical assembly components to their markets of interest in commercial sporting optics and select military optics.
Given this broad potential, the commercial applications are a key opportunity going forward. The Applied Optics Center segment
also serves as the key supplier of the laser coated filters used in the production of periscope assemblies at the Optex Systems
Richardson segment.
The
Applied Optics Center serves primarily domestic U.S. customers. During the nine months ended July 2, 2017, sales to commercial
customers represent 48% and military sales to prime and subcontracted customers represent 27% of the total segment revenue. Intersegment
sales to Optex Systems – Richardson, comprised 25% of the total segments revenue and was primarily in support of military
contracts. The Applied Optics Center external customer revenue for the nine months ending July 2, 2017 was derived from L3 Communications,
19%, a commercial optical assembly manufacturer, 59% and 22% for all other external customers.
The
Applied Optics Center (AOC), is located in Dallas, Texas with leased premises consisting of approximately 44,867 square feet of
space. As of July 2, 2017, AOC operated with 36 full time equivalent employees in a single shift operation.
Note
2 - Accounting Policies
Basis
of Presentation
Use
of Estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statement and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from the estimates.
Inventory:
Inventory is recorded at the lower of cost or market value, and adjusted, as necessary, for decreases in valuation and
obsolescence. Adjustments to the valuation and obsolescence reserves are made after analyzing market conditions, current and projected
sales activity, inventory costs and inventory balances to determine appropriate reserve levels. Cost is determined using the first-in
first-out method. Under arrangements by which progress payments are received against certain contracts, the customer retains a
security interest in the undelivered inventory identified with these contracts. Payments received for such undelivered inventory
are classified as unliquidated progress payments and deducted from the gross inventory balance. As of July 2, 2017 there was $5
thousand and as of October 2, 2016 there was $0 in unliquidated progress payments. As of July 2, 2017 and October 2, 2016, inventory
included:
|
|
(Thousands)
|
|
|
|
July 2, 2017
|
|
|
October 2, 2016
|
|
Raw Material
|
|
$
|
4,761
|
|
|
$
|
4,655
|
|
Work in Process
|
|
|
3,611
|
|
|
|
2,830
|
|
Finished Goods
|
|
|
657
|
|
|
|
380
|
|
Gross Inventory
|
|
$
|
9,029
|
|
|
$
|
7,865
|
|
Less: Inventory Reserves
|
|
|
(1,651
|
)
|
|
|
(1,651
|
)
|
Less: Unliquidated Progress Payments
|
|
|
(5
|
)
|
|
|
—
|
|
Net Inventory
|
|
$
|
7,373
|
|
|
$
|
6,214
|
|
Net
inventory increased by $1.2 million during the nine months ending July 2, 2017 in support of contracts deliverable over the next
six months.
Customer
Advance Deposits:
Customer advance deposits represent amounts collected from customers in advance of shipment or revenue
recognition, which relate to undelivered product or other cash in advance payment terms. As of July 2, 2017, Optex Systems, Inc.
had a balance of $0.7 million in short term customer advance deposits for materials purchased in support of deliveries to occur
within the next twelve months.
Earnings
per Share:
Basic earnings per share is computed by dividing income available for common shareholders (the numerator) by
the weighted average number of common shares outstanding (the denominator) for the period. Diluted earnings per share reflect
the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into
common stock.
The
potentially dilutive securities that Optex Systems Holdings has outstanding are convertible preferred stock, unvested restricted
stock units, stock options and warrants. In computing the dilutive effect of convertible preferred stock, the numerator is adjusted
to add back any convertible preferred dividends and the denominator is increased to assume the conversion of the number of additional
common shares. Optex Systems Holdings uses the Treasury Stock Method to compute the dilutive effect of any dilutive shares. Convertible
preferred stock, unvested restricted stock units, stock options and warrants that are anti-dilutive are excluded from the calculation
of diluted earnings per common share.
For
the three and nine months ended July 2, 2017, 318 shares of Series C preferred stock, 182,000 unvested restricted stock units,
56,260 stock options and 4,125,200 warrants were excluded from the earnings per share calculation as anti-dilutive. For the three
months ended June 26, 2016, 546 shares of Series A preferred stock, 969 shares of Series B preferred stock, 52,850 stock options
and zero warrants were included in the dilutive earnings per share calculation, but were excluded from the nine months ending
June 26, 2016 as they were anti-dilutive.
Note
3 - Segment Reporting
Optex
Systems Holdings reportable segments are strategic businesses offering similar products to similar markets and customers; however,
the companies are operated and managed separately due to differences in manufacturing technology, equipment, geographic location,
and specific product mix. Applied Optics Center was acquired as a unit, and the management at the time of the acquisition was
retained.
The
Applied Optics Center segment also serves as the key supplier of laser coated filters used in the production of periscope assemblies
for the Optex Systems Richardson segment. Intersegment sales and transfers are accounted for at annually agreed to pricing rates
based on estimated segment product cost, which includes segment direct manufacturing and general and administrative costs, but
exclude profits that would apply to third party external customers.
Optex
Systems – Richardson, serves as the home office for both segments and shared general and administrative costs attributable
to both segments are allocated directly to the segments based on the government Cost Accounting Standard (CAS) 403 – “Allocation
of Home Office Expenses to Segments”. The purpose of CAS 403 is to provide criteria for allocating home office expenses
to the segments of an organization based on the beneficial or causal relationships between the expenses and the receiving segments.
Based on CAS 403, Optex Systems Holdings allocates home office expenses based on a three factor formula which is the average of
the following three percentages for each of the segments fiscal year:
(1)
The percentage of segment payroll dollars to total payroll dollars of all segments;
(2)
The percentage of the segment’s operating revenue to the total operating revenue of all segments
(3)
The percentage of the average net book value of the sum of the segment’s tangible capital assets plus inventories to the
total average net book value of such assets of all segments.
The
financial table below presents the information for each of the reportable segments profit or loss as well as segment assets for
each year. Optex Systems Holdings, Inc. does not allocate interest expense, income taxes or unusual items to segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segment Financial Information
(thousands)
|
|
|
|
|
|
|
|
Three months ended July 2, 2017
|
|
|
|
Optex Systems
Richardson
|
|
|
Applied Optics
Center
Dallas
|
|
|
Other
(non allocated costs
and intersegment
eliminations)
|
|
|
Consolidated
Total
|
|
Revenues from external customers
|
|
$
|
3,105
|
|
|
$
|
1,281
|
|
|
$
|
—
|
|
|
$
|
4,386
|
|
Intersegment revenues
|
|
|
—
|
|
|
|
563
|
|
|
|
(563
|
)
|
|
|
—
|
|
Total Revenue
|
|
$
|
3,105
|
|
|
$
|
1,844
|
|
|
$
|
(563
|
)
|
|
$
|
4,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
$
|
14
|
|
|
$
|
72
|
|
|
$
|
—
|
|
|
$
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before taxes
|
|
$
|
(26
|
)
|
|
$
|
91
|
|
|
$
|
(1,028
|
)
|
|
$
|
(963
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other significant noncash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated home office expense
|
|
$
|
(194
|
)
|
|
$
|
194
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Loss on change in fair value of warrants
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,024
|
|
|
$
|
1,024
|
|
Stock compensation expense
|
|
$
|
43
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
43
|
|
Royalty expense amortization
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Assets
|
|
$
|
8,013
|
|
|
$
|
4,336
|
|
|
$
|
—
|
|
|
$
|
12,349
|
|
Expenditures for segment assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
Reportable Segment Financial Information
(thousands)
|
|
|
|
|
|
|
|
Three months ended June 26, 2016
|
|
|
|
Optex Systems
Richardson
|
|
|
Applied Optics
Center
Dallas
|
|
|
Other (non
allocated costs
and intersegment
eliminations)
|
|
|
Consolidated
Total
|
|
Revenues from external customers
|
|
$
|
3,377
|
|
|
$
|
1,967
|
|
|
$
|
—
|
|
|
$
|
5,344
|
|
Intersegment revenues
|
|
|
—
|
|
|
|
515
|
|
|
|
(515
|
)
|
|
|
—
|
|
Total Revenue
|
|
$
|
3,377
|
|
|
$
|
2,482
|
|
|
$
|
(515
|
)
|
|
$
|
5,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12
|
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
$
|
20
|
|
|
$
|
68
|
|
|
$
|
—
|
|
|
$
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before taxes
|
|
$
|
135
|
|
|
$
|
76
|
|
|
$
|
(12
|
)
|
|
$
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other significant noncash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated home office expense
|
|
$
|
(188
|
)
|
|
$
|
188
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Stock option compensation expense
|
|
$
|
63
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
63
|
|
Royalty expense amortization
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8
|
|
Use of contract loss reserves
|
|
$
|
—
|
|
|
$
|
(17
|
)
|
|
$
|
—
|
|
|
$
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Assets
|
|
$
|
6,146
|
|
|
$
|
4,776
|
|
|
$
|
—
|
|
|
$
|
10,922
|
|
Expenditures for segment assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segment Financial Information
(thousands)
|
|
|
|
|
|
|
|
Nine months ending July 2, 2017
|
|
|
|
Optex Systems
Richardson
|
|
|
Applied Optics
Center
Dallas
|
|
|
Other
(non allocated costs
and intersegment
eliminations)
|
|
|
Consolidated
Total
|
|
Revenues from external customers
|
|
$
|
7,547
|
|
|
$
|
4,391
|
|
|
$
|
—
|
|
|
$
|
11,938
|
|
Intersegment revenues
|
|
|
—
|
|
|
|
1,455
|
|
|
|
(1,455
|
)
|
|
|
—
|
|
Total Revenue
|
|
$
|
7,547
|
|
|
$
|
5,846
|
|
|
$
|
(1,455
|
)
|
|
$
|
11,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
14
|
|
|
$
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
$
|
43
|
|
|
$
|
210
|
|
|
$
|
—
|
|
|
$
|
253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before taxes
|
|
$
|
(69
|
)
|
|
$
|
(9
|
)
|
|
$
|
(680
|
)
|
|
$
|
(758
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other significant noncash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated home office expense
|
|
$
|
(529
|
)
|
|
$
|
529
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Loss on change in fair value of warrants
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
666
|
|
|
$
|
666
|
|
Stock compensation expense
|
|
$
|
171
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
171
|
|
Royalty expense amortization
|
|
$
|
22
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Assets
|
|
$
|
8,013
|
|
|
$
|
4,336
|
|
|
$
|
—
|
|
|
$
|
12,349
|
|
Expenditures for segment assets
|
|
$
|
(4
|
)
|
|
$
|
(126
|
)
|
|
$
|
—
|
|
|
$
|
(130
|
)
|
|
|
Reportable Segment Financial Information
(thousands)
|
|
|
|
|
|
Nine months ending June 26, 2016
|
|
|
|
Optex Systems
Richardson
|
|
|
Applied Optics
Center
Dallas
|
|
|
Other
(non allocated costs
and intersegment
eliminations)
|
|
|
Consolidated
Total
|
|
Revenues from external customers
|
|
$
|
7,511
|
|
|
$
|
4,262
|
|
|
$
|
—
|
|
|
$
|
11,773
|
|
Intersegment revenues
|
|
|
—
|
|
|
|
1,173
|
|
|
|
(1,173
|
)
|
|
|
—
|
|
Total Revenue
|
|
$
|
7,511
|
|
|
$
|
5,435
|
|
|
$
|
(1,173
|
)
|
|
$
|
11,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
28
|
|
|
$
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
$
|
57
|
|
|
$
|
203
|
|
|
$
|
—
|
|
|
$
|
260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before taxes
|
|
$
|
(16
|
)
|
|
$
|
(313
|
)
|
|
$
|
(28
|
)
|
|
$
|
(357
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other significant noncash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated home office expense
|
|
$
|
(565
|
)
|
|
$
|
565
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Stock option compensation expense
|
|
$
|
112
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
112
|
|
Royalty expense amortization
|
|
$
|
22
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
22
|
|
Use of contract loss reserves
|
|
$
|
—
|
|
|
$
|
(47
|
)
|
|
$
|
—
|
|
|
$
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Assets
|
|
$
|
6,146
|
|
|
$
|
4,776
|
|
|
$
|
—
|
|
|
$
|
10,922
|
|
Expenditures for segment assets
|
|
$
|
(15
|
)
|
|
$
|
(19
|
)
|
|
$
|
—
|
|
|
$
|
(34
|
)
|
Note
4 - Commitments and Contingencies
Rental
Payments under Non-cancellable Operating Leases
Optex
Systems Holdings leases its office and manufacturing facilities for the Optex Systems, Inc. at the Richardson, TX address below,
and the Applied Optics Center, at the Dallas, TX address below, under non-cancellable operating leases.
The
leased facility under Optex Systems Inc. at 1420 Presidential Drive, Richardson, Texas consists of 49,100 square feet of space
and expires March 31, 2021. Pursuant to the terms of the most recent amendment to the Richardson site facilities lease, there
was no base rent payment due from January 1, 2014 through March 31, 2014, with payments beginning April 2014, and annual rental
payment inflationary increases between 3.4% and 4.8% occurring each year beginning in 2016.
The
leased facility under the Applied Optics Center at 9839 and 9827 Chartwell Drive, Dallas, Texas, consists of 44,867 square feet
of space at the premises. On November 17, 2016, we received a countersigned new lease for the Applied Optics Center from the landlord,
dated October 21, 2016, and which commenced retroactive to October 1, 2016. The new lease term will expire on October 31, 2021,
with two renewal options available to the tenant, each with a renewal term duration of five years. The monthly base rent is $19.4
thousand through September 30, 2017 and escalates approximately 3% October 1, each year thereafter through 2021. The lease includes
a one month base rent abatement for October 1 through October 31, 2016 for $19.4 thousand. The monthly rent includes approximately
$4.9 thousand for additional Common Area Maintenance fees and taxes (CAM), to be adjusted annually based on actual expenses incurred
by the landlord. The total monthly rent including CAM is $24.3 thousand beginning November 1, 2016. Our obligations to make payments
under the lease are secured by a $250,000 standby letter of credit which we may be reduced to $125,000 on October 31, 2019.
As
of July 2, 2017 the unamortized deferred rent was $128 thousand as compared to $108 thousand as of October 2, 2016. Deferred rent
expense is amortized monthly over the life of the lease.
As
of July 2, 2017, the remaining minimum lease and estimated adjusted common area maintenance (CAM) payments under the non-cancelable
office and facility space leases are as follows:
Non-cancellable
Operating Leases Minimum Payments
|
|
(Thousands)
|
|
|
|
Optex
Systems
Richardson
|
|
|
Applied
Optics Center
Dallas
|
|
|
|
|
Fiscal
Year
|
|
Lease
Payments
|
|
|
CAM
Estimate
|
|
|
Lease
Payments
|
|
|
CAM
Estimate
|
|
|
Total
Payments
|
|
2017
|
|
$
|
67
|
|
|
$
|
27
|
|
|
$
|
58
|
|
|
$
|
15
|
|
|
$
|
167
|
|
2018
|
|
|
274
|
|
|
|
108
|
|
|
|
240
|
|
|
|
60
|
|
|
|
682
|
|
2019
|
|
|
283
|
|
|
|
110
|
|
|
|
248
|
|
|
|
61
|
|
|
|
702
|
|
2020
|
|
|
293
|
|
|
|
112
|
|
|
|
255
|
|
|
|
62
|
|
|
|
722
|
|
2021
|
|
|
149
|
|
|
|
57
|
|
|
|
262
|
|
|
|
63
|
|
|
|
531
|
|
2022
|
|
|
—
|
|
|
|
—
|
|
|
|
22
|
|
|
|
5
|
|
|
|
27
|
|
Total minimum
lease payments
|
|
$
|
1,066
|
|
|
$
|
414
|
|
|
$
|
1,085
|
|
|
$
|
266
|
|
|
$
|
2,831
|
|
Total
facilities rental and CAM expense for both facility lease agreements as of the three and nine months ended July 2, 2017 was $165
thousand and $492 thousand. Total expense under facility lease agreements as of the three and nine months ended June 26, 2016
was $169 thousand $473 thousand, respectively.
Note
5 – Prepaid Royalties
Prepaid
royalties represent payments made for the purchase of non-transferable, non-exclusive patent rights associated with a patent license.
The patent license allows for development of current and future products in our digital line of periscopes. We completed our first
international shipment utilizing this technology in 2014 and are currently in production to support a U.S. Government Foreign
Military Sale contract awarded in January 2016. We estimate the commercial life of the patent at seven years. As of July 2, 2017,
the balance of the patent license is $68 thousand net of accumulated amortization. The royalty expenses for the associated patent
license are amortized on a straight line basis starting in fiscal year 2013. The amortized royalty expense for the three and nine
months ending July 2, 2017 and June 26, 2016 was $8 thousand and $22 thousand, respectively.
Note
6 - Debt Financing
Related
Parties
Sileas
Secured Promissory Note Due on May 29, 2021 to Longview Fund, LP
On
June 5, 2015, Sileas Corp., the majority owner of Optex Systems, Inc. (Delaware), executed and delivered to Longview, an amended
Secured Promissory Note in the amount of $18.0 million and maturing on May 29, 2021. The note is secured by and convertible into
the Optex Systems Holdings Inc. common stock.
On
August 4, 2016, Longview Fund, L.P. converted $250 thousand of the note principal for 100,000 shares of Optex Systems Holdings
common stock pursuant to the note conversion terms.
On
October 31, 2016, Longview Fund, L.P. converted $2.7 million of the Sileas note principal in exchange for 800,000 shares of Optex
Systems Holdings common stock and authorized the return to Optex Systems Holdings’ treasury of 197,299 common shares, held
by Sileas Corporation in settlement of $155 thousand of accounts receivable due for expenses paid by Optex Systems Inc. on behalf
of the Sileas Corporation. The 197,299 shares were subsequently cancelled in satisfaction of the outstanding accounts receivable
balance as of October 31, 2016.
On
May 1, 2017, The Longview Fund, L.P. converted $0.8 million of the Sileas Corp.(a related party) note principal in exchange for
700,000 shares of Optex Systems Holdings common stock. The Sileas Corp. note balance to The Longview Fund, L.P. as of May 1, 2017,
after conversion, is $14.2 million.
On
June 9, 2017, Sileas Corp. (“Sileas”), a related party to the Company, entered into a transaction with The Longview
Fund, L.P.(“Longview”) to settle its February 20, 2009 note with Longview in the original principal amount of $13,524,405
(the “Note”). The parties agreed to a conversion by Longview of $3,358,538 of the amount due under the Note into 2,798,782
shares of Company common stock owned by Sileas and previously pledged to Longview as security with respect to the Note. Simultaneously
therewith, Sileas made a $250,000 cash payment to Longview, and Longview agreed to satisfy $10,571,791 of the amount due under
the Note. The remaining amount due under the Note is $64,000 which shall be paid in cash by Sileas to Longview on a quarterly
basis, upon the payment of quarterly dividends by the Company, over the next four calendar quarters commencing on or about June
30, 2017. In order to effect the above, Longview also released the pledge on all Company shares owned by Sileas and previously
pledged to Longview.
Simultaneously
with the above, Sileas sold 800,000 shares of Company common stock to Danny Schoening and Karen Hawkins at a price equal to $314,000
(which is a discounted amount based upon recognition of years of administrative support by Mr. Schoening and Ms. Hawkins for the
Company) as follows: (i) Danny Schoening: 640,000 Shares for $200,000 plus a $50,825 promissory note; and (ii) Karen Hawkins:
160,000 Shares for $50,000 plus a $12,706 promissory note. Each promissory note has a one year term, with interest at 1.18% per
annum and shall be payable in four equal quarterly installments of $12,800 for Danny Schoening and $3,200 for Karen Hawkins, each
installment payable within five business days after the payment of cash dividends by the Company to each of them. As a result,
Sileas no longer owns any shares of Company common stock.
After
giving effect to the above transactions, the approximate beneficial ownership of Company equity securities by each of the Longview
Fund, Danny Schoening and Karen Hawkins is as follows:
|
●
|
The
Longview Fund 2,800,132 shares or 36.9%
|
|
●
|
Danny
Schoening 682,649 shares or 9.0%
|
|
●
|
Karen
Hawkins shares 171,450 or 2.3%
|
See
also Note 10 “Subsequent Events”.
Credit
Facility — Avidbank
The
Company amended its revolving credit facility with Avidbank on October 17, 2016 from $2 million to $2.2 million. The interest
rate for all advances against the line of credit shall be the then in effect prime rate plus 2.5% and is subject to a minimum
interest payment requirement per nine month period of $10,000. The renewable revolving maturity date is January 22, 2018 and is
secured by a first lien on all of its assets in favor of Avidbank. In order to meet the security requirement under the lease,
we entered into a letter of credit with Avidbank on October 17, 2016 in the amount of $250,000, which expires on October 17, 2017
and is renewable by us for successive one year periods unless the bank notifies us no later than 60 days prior to the end of the
initial or any extended term that it shall not renew the letter of credit.
As
of July 2, 2017 and October 2, 2016, the outstanding principal balance on the line of credit was $300 thousand. For the three
and nine months ended July 2, 2017 and June 26, 2016, the total interest expense against the outstanding line of credit balance
was $4 and $14 thousand and $12 and $28 thousand, respectively.
Note
7-Warrant Liabilities
On
August 26, 2016, Optex Systems Holdings Inc. issued 4,125,200 warrants to new shareholders and the underwriter, in connection
with a public share offering. The warrants entitle the holder to purchase one share of our common stock at an exercise price equal
to $1.50 per share at any time on or after August 26, 2016 (the “Initial Exercise Date”) and on or prior to the close
of business on August 26, 2021 (the “Termination Date”). The Company determined that these warrants are free standing
financial instruments that are legally detachable and separately exercisable from the common stock included in the public share
offering. Management also determined that the warrants are puttable for cash upon a fundamental transaction at the option of the
holder and as such required classification as a liability pursuant to ASC 480
“Distinguishing Liabilities from Equity”
.
In accordance with the accounting guidance, the outstanding warrants are recognized as a warrant liability on the balance sheet
and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded
as a component of other income in the statement of operations.
The
fair value of the warrant liabilities was measured using a binomial lattice model. Significant inputs into the model at the inception
and reporting period measurement dates are as follows:
Binomial
Assumptions
|
|
Issuance
date
(1)
August 26, 2016
|
|
|
Period
ending
October 2, 2016
|
|
|
Period
ending
July 2, 2017
|
|
Exercise
Price
(1)
|
|
$
|
1.50
|
|
|
$
|
1.50
|
|
|
$
|
1.50
|
|
Warrant Expiration
Date
(1)
|
|
|
August 26, 2021
|
|
|
|
August 26, 2021
|
|
|
|
August 26, 2021
|
|
Stock Price
(2)
|
|
$
|
0.95
|
|
|
$
|
0.77
|
|
|
$
|
1.00
|
|
Interest Rate (annual)
(3)
|
|
|
1.23
|
%
|
|
|
1.14
|
%
|
|
|
1.89
|
%
|
Volatility (annual)
(4)
|
|
|
246.44
|
%
|
|
|
242.17
|
%
|
|
|
190.03
|
%
|
Time to Maturity
(Years)
|
|
|
5.0
|
|
|
|
4.9
|
|
|
|
4.2
|
|
Number of Steps
(Quarters)
|
|
|
20
|
|
|
|
20
|
|
|
|
17
|
|
Calculated fair
value per share
|
|
$
|
0.93
|
|
|
$
|
0.76
|
|
|
$
|
0.92
|
|
Quarterly Dividend
per share for Next Four Quarters
(5)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.02
|
|
Future Estimated
Quarterly Dividend per share
(6)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.01
|
|
(
1)
Based on the terms provided in the warrant agreement to purchase common stock of Optex Systems Holdings, Inc. dated August 26,
2016.
(2)
Based on the trading value of common stock of Optex Systems Holdings, Inc. as of August 26, 2016 and each presented period ending
date.
(3)
Interest rate for U.S. Treasury Bonds, as of August 26, 2016 and each presented period ending date, as published by the U.S. Federal
Reserve.
(4)
Based on the historical daily volatility of Optex Systems Holdings, Inc. as of August 26, 2016 and each presented period ending
date.
(5)
Pursuant to June 12, 2017 Board of Directors authorization of a $0.02 per share (and per warrant) dividend payment in July for
shareholders and warrant holders of record on July 5, 2017 and for three subsequent quarterly record dates thereafter.
(6)
Current estimated dividend payments beyond initial four quarters. At a future date, the company will review the working capital
needs and make a final determination of any future dividend payments and amounts beyond the initial four quarter payments.
The
warrants outstanding and fair values at each of the respective valuation dates are summarized below:
Warrant
Liability
|
|
Warrants
Outstanding
|
|
|
Fair
Value
per Share
|
|
|
Fair
Value
(000’s)
|
|
Fair Value at initial
measurement date of 8/26/2016
|
|
|
4,125,200
|
|
|
$
|
0.9349
|
|
|
$
|
3,857
|
|
(Gain) on Change
in Fair Value of Warrant Liability
|
|
|
|
|
|
|
|
|
|
|
(739
|
)
|
Fair Value as of period ending 10/2/2016
|
|
|
4,125,200
|
|
|
$
|
0.7558
|
|
|
$
|
3,118
|
|
Loss on Change in
Fair Value of Warrant Liability
|
|
|
|
|
|
|
|
|
|
|
666
|
|
Fair Value
as of period ending 7/2/2017
|
|
|
4,125,200
|
|
|
$
|
0.9174
|
|
|
$
|
3,784
|
|
During
the three and nine months ending July 2, 2017 Optex Systems Holdings recorded a loss on changes in fair value of warrant liability
of $1,024 and $666 thousand, respectively. During the three and nine months ending June 26, 2016 there were no warrant liabilities
or corresponding changes in valuation.
The
warrant liabilities are considered Level 3 liabilities on the fair value hierarchy as the determination of fair value includes
various assumptions about of future activities and the Company’s stock prices and historical volatility as inputs. During
the three months ending July 2, 2017, none of the warrants have been exercised.
Note
8-Stock Based Compensation
Stock
Options issued to Employees, Officers and Directors
The
Optex Systems Holdings 2009 Stock Option Plan provides for the issuance of up to 75,000 shares to Optex Systems Holdings officers,
directors, employees and to independent contractors who provide services to Optex Systems Holdings as either incentive or nonstatutory
stock options determined at the time of grant. As of July 2, 2017, Optex Systems Holdings has granted stock options to officers
and employees as follows:
Date of
|
|
Options
|
|
|
Exercise
|
|
|
Options Outstanding
|
|
|
Expiration
|
|
Vesting
|
Grant
|
|
Granted
|
|
|
Price
|
|
|
As
of 4/02/17
|
|
|
Date
|
|
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/09/11
|
|
|
46,070
|
|
|
$
|
10.00
|
|
|
|
35,010
|
|
|
12/08/2018
|
|
4 years
|
12/19/13
|
|
|
25,000
|
|
|
$
|
10.00
|
|
|
|
25,000
|
|
|
12/18/2020
|
|
4
years
|
Total
|
|
|
71,070
|
|
|
|
|
|
|
|
60,010
|
|
|
|
|
|
The
following table summarizes the status of Optex Systems Holdings’ aggregate stock options granted under the incentive stock
option plan:
|
|
Number
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
of
Shares
|
|
|
Average
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
Remaining
|
|
|
Fair
|
|
|
Average
|
|
|
Value
|
|
Subject
to Exercise
|
|
Options
|
|
|
Value
|
|
|
Life
(Years)
|
|
|
(Thousands)
|
|
Outstanding as of September
27, 2015
|
|
|
62,858
|
|
|
$
|
—
|
|
|
|
2.32
|
|
|
$
|
—
|
|
Granted – 2016
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited – 2016
|
|
|
(2,518
|
)
|
|
|
|
|
|
|
|
|
|
|
—
|
|
Exercised –
2016
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
Outstanding as of October 2, 2016
|
|
|
60,340
|
|
|
$
|
—
|
|
|
|
1.40
|
|
|
$
|
—
|
|
Granted – 2017
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited – 2017
|
|
|
(330
|
)
|
|
|
|
|
|
|
|
|
|
|
—
|
|
Exercised –
2017
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
Outstanding as of July 2, 2017
|
|
|
60,010
|
|
|
$
|
—
|
|
|
|
0.90
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of October 2, 2016
|
|
|
52,840
|
|
|
$
|
—
|
|
|
|
1.07
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of July 2, 2017
|
|
|
56,260
|
|
|
$
|
—
|
|
|
|
0.73
|
|
|
$
|
—
|
|
There
were no options granted in the three months ended July 2, 2017 or twelve months ending October 2, 2016.
The
following table summarizes the status of Optex Systems Holdings’ aggregate non-vested shares granted under the 2009 Stock
Option Plan:
|
|
Number
of
Non-vested Shares
Subject to Options
|
|
|
Weighted-
Average Grant-
Date Fair Value
|
|
Non-vested as of September
27, 2015
|
|
|
22,592
|
|
|
$
|
7.66
|
|
Non-vested granted — year ended October
2, 2016
|
|
|
—
|
|
|
|
|
|
Vested — year ended October 2, 2016
|
|
|
(12,574
|
)
|
|
|
7.33
|
|
Forfeited —
year ended October 2, 2016
|
|
|
(2,518
|
)
|
|
|
|
|
Non-vested as of October 2, 2016
|
|
|
7,500
|
|
|
$
|
8.0
|
|
Non-vested granted — nine months ended
July 2, 2017
|
|
|
—
|
|
|
|
|
|
Vested — nine months ended July 2, 2017
|
|
|
(3,420
|
)
|
|
|
8.0
|
|
Forfeited —
nine months ended July 2, 2017
|
|
|
(330
|
)
|
|
|
|
|
Non-vested as of July 2, 2017
|
|
|
3,750
|
|
|
$
|
8.0
|
|
Restricted
Stock Units issued to Officers and Employees
On
June 14, 2016, the Compensation Committee of the Board of Directors of Optex Systems Holdings approved the Company’s 2016
Restricted Stock Unit Plan (the “Plan”). The Plan provides for the issuance of stock units (“RSU”) for
up to 1,000,000 shares of the Company’s common stock to Optex Systems Holdings officers and employees. Each RSU constitutes
a right to receive one share of the Company’s common stock, subject to vesting, which unless otherwise stated in an RSU
agreement, shall vest in equal amounts on the first, second and third anniversary of the grant date. Shares of the Company’s
common stock underlying the number of vested RSUs will be delivered as soon as practicable after vesting. During the period between
grant and vesting, the RSUs may not be transferred, and the grantee has no rights as a shareholder until vesting has occurred.
If the grantee’s employment is terminated for any reason (other than following a change in control of the Company or a termination
of an officer other than for cause), then any unvested RSUs under the award will automatically terminate and be forfeited. If
an officer grantee’s employment is terminated by the Company without cause or by the grantee for good reason, then, provided
that the RSUs have not been previously forfeited, the remaining unvested portion of the RSUs will immediately vest as of the officer
grantee’s termination date. In the event of a change in control, the Company’s obligations regarding outstanding RSUs
shall, on such terms as may be approved by the Committee prior to such event, immediately vest, be assumed by the surviving or
continuing company or cancelled in exchange for property (including cash).
On
June 15, 2016, the Company issued 150,000 RSUs to its Chief Executive Officer, Danny Schoening, and 50,000 RSUs to its Chief Financial
Officer, Karen Hawkins. Pursuant to the RSU agreements, the RSUs issued to Mr. Schoening and Ms. Hawkins will vest as follows:
34% on January 1, 2017, 33% on January 1, 2018 and 33% on January 1, 2019. The total market value of the restricted stock units
based on the shares price of $1.85 as of June 15, 2016 is $372 thousand. The cost of the shares is amortized on a straight line
basis across the vesting periods.
On
January 5, 2017, Optex Systems Holdings issued 45,799 common shares related to the vesting of the 68,000 restricted stock units
on January 1, 2017. The shares issued were net of 22,201 common shares withheld for employee federal income tax requirements.
On
June 15, 2017, the Company issued 50,000 RSUs to its Applied Optics Center General Manager and new board member, Bill Bates. Pursuant
to the RSU agreements the RSUs issued to Mr. Bates will vest as follows: 34% on January 1, 2018, 33% on January 1, 2019 and 33%
on January 1, 2020. The total market value of the restricted stock units based on the shares price of $0.95 as of June 15, 2016
is $47.5 thousand. The cost of the shares is amortized on a straight line basis across the vesting periods.
As
of July 2, 2017 there are 182,000 outstanding unvested restricted stock units remaining to vest.
Consulting
and Vendor Equity Issues
On
April 29, 2016, Optex Systems Holdings, Inc. issued 40,000 common “restricted” shares at a market price of $2.35 per
share ($94,000) in support of the IRTH Communications agreement. The cost of the shares is amortized on a straight line basis
through March 2017. There were no other equity instruments issued to consultants and vendors during the twelve months ended October
2, 2016 or the nine months ending July 2, 2017. The IRTH Communications agreement expired as March 31, 2017 without renewal.
Stock
Based Compensation Expense
Equity
compensation is amortized based on a straight line basis across the vesting or service period as applicable. The recorded compensation
costs for options and shares granted and restricted stock units awarded as well as the unrecognized compensation costs are summarized
in the table below:
|
|
Stock
Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized
Compensation Expense
|
|
|
Unrecognized
Compensation Expense
|
|
|
|
Three
months ended
|
|
|
Nine
months ended
|
|
|
As
of period ending
|
|
|
|
July
2, 2017
|
|
|
June
26, 2016
|
|
|
July
2, 2017
|
|
|
June
26, 2016
|
|
|
July
2, 2017
|
|
|
October
2, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
$
|
11
|
|
|
$
|
(8)
|
|
|
$
|
30
|
|
|
$
|
41
|
|
|
$
|
18
|
|
|
$
|
48
|
|
Restricted Stock Units
|
|
|
32
|
|
|
|
47
|
|
|
|
94
|
|
|
|
47
|
|
|
|
232
|
|
|
|
279
|
|
Consultant Shares
(IRTH)
|
|
|
—
|
|
|
|
24
|
|
|
|
47
|
|
|
|
24
|
|
|
|
—
|
|
|
|
47
|
|
Total Stock
Compensation
|
|
$
|
43
|
|
|
$
|
63
|
|
|
$
|
171
|
|
|
$
|
112
|
|
|
$
|
250
|
|
|
$
|
374
|
|
For
the nine months ending July 2, 2017 there was $15 thousand of tax withholding related to vested and issued restricted stock unit
shares included in the total stock compensation expense and $156 thousand of non-cash stock compensation expense. There was no
tax withholding during the three months ending July 2, 2017 or the three and nine months ending June 26, 2016.
Note
9 - Stockholders’ Equity
Common
stock
As
of October 2, 2016, the outstanding common shares are 8,266,601.
On
October 31, 2016, Longview Fund L.P. authorized the return to Optex Systems Holdings’ treasury of 197,299 common shares,
held by Sileas Corporation in settlement of $155 thousand of accounts receivable due for expenses paid by Optex Systems Inc. on
behalf of the Sileas Corporation. The shares were subsequently cancelled in satisfaction of the outstanding accounts receivable
balance as of October 31, 2016.
On
April 27, 2017, the Board of Directors of Optex Systems Holdings approved a purchase of 700,000 shares of its common stock in
a private transaction from The Longview Fund, L.P. The transaction was priced at the closing sale price on April 28, 2017 of $0.74
per share for a total transaction amount of $518,000. Upon repurchase on May 1, 2017, the shares were returned to treasury thereby
reducing the total shares outstanding of its common stock.
During
the nine months ending July 2, 2017, Optex Systems Holdings issued 175,000 common shares due to conversions of Series C preferred
stock, and 45,799 common shares issued related to the vesting of restricted stock units. There were no other issuances of common
or preferred stock during the three months ended July 2, 2017. As of July 2, 2017, the outstanding common shares were 7,590,101.
Series
A preferred stock
Optex
Systems Holdings has filed a Certificate of Designation with the Secretary of State of the State of Delaware authorizing a series
of preferred stock, under its articles of incorporation, known as “Series A preferred stock”. The Certificate of Designation
currently sets forth the following terms for the Series A preferred stock: (i) number of authorized shares: 1,027; (ii) per share
stated value: $6,860; (iii) liquidation preference per share: stated value; (iv) conversion price: $1.20 per share, as adjusted
from time to time; and (v) voting rights: votes along with the common stock on an as converted basis with one vote per share (vi)
par value $0.001 per share. Holders of preferred shares receive preferential rights in the event of liquidation. Additionally
the preferred stock shareholders are entitled to vote together with the common stock on an “as-converted” basis. Each
share of preferred stock is immediately convertible into common shares at the option of the holder which entitles the holder to
receive the equivalent number of common shares equal to the stated value of the preferred shares divided by the conversion price
of $1.20 per share pursuant to the August 22, 2016 public offering of common shares at $1.20 per share.
There
were no issuances of preferred Series A stock during the nine months ended July 2, 2017. As of July 2, 2017 and October 2, 2016
there were zero preferred Series A shares outstanding.
Series
B Preferred Stock
On
March 26, 2015, Optex Systems Holdings filed a Certificate of Designation with the Secretary of State of the State of Delaware
authorizing a series of preferred stock, under its articles of incorporation, known as “Series B preferred stock”.
The Certificate of Designation currently sets forth the following terms for the Series B preferred stock: (i) number of authorized
shares: 1,010; (ii) per share stated value: $1,629 (iii) liquidation preference per share, other than Series A preferred stock:
stated value; (iv) conversion price: $1.20 per share, as adjusted from time to time; (v) voting rights: votes along with the common
stock on an as converted basis with one vote per share; and (vi) par value of $0.001 per share. Each share of preferred stock
is immediately convertible into common shares at the option of the holder which entitles the holder to receive the equivalent
number of common shares equal to the stated value of the preferred shares divided by the conversion price of $1.20 per share pursuant
to the August 22, 2016 public offering of common shares at $1.20 per share.
There
were no issuances of preferred Series B stock during the nine months ended July 2, 2017. As of October 2, 2016 and July 2, 2017
there were zero preferred Series B shares outstanding.
Series
C Preferred Stock
Our
board of directors designated 400 shares of our preferred stock as Series C convertible preferred stock (“Series C preferred
stock”). The preferences and rights of the Series C preferred stock are set forth in a Certificate of Designation (the “Series
C Certificate of Designation”). The Series C Certificate of Designation provides, among other things, that we shall not
pay any dividends on shares of Common Stock (other than dividends in the form of Common Stock) unless and until such time as we
pay dividends on each Series C preferred share on an as-converted basis. With certain exceptions, as described in the Series C
Certificate of Designation, the Series C preferred stock has no voting rights. Each Series C preferred share is convertible at
any time at the holder’s option into a number of shares of common stock equal to $5,000 divided by the Series C Conversion
Price. The “Series C Conversion Price” is initially $1.20 and is subject to adjustment for stock splits, stock dividends,
distributions, subdivisions and combinations.
During
the twelve months ended October 2, 2016 there were 400 preferred Series C shares issued, at a total stated value of $2 million,
pursuant to the public offering on August 26, 2016, and conversions of 40 preferred Series C shares, or $200 thousand, into 166,667
common shares. As of October 2, 2016 there were 360 preferred Series C shares outstanding.
During
the nine months ending July 2, 2017 there were 42 shares of Series C preferred stock converted to 175,000 shares common stock.
As of July 2, 2017 there were 318 shares of Series C preferred stock outstanding.
Warrants
On
August 26, 2016, Optex Systems Holdings Inc. issued 4,125,200 warrants to new shareholders and the underwriter, in connection
with a public share offering. The warrants entitle the holder to purchase one share of our common stock at an exercise price equal
to $1.50 per share at any time on or after August 26, 2016 (the “Initial Exercise Date”) and on or prior to the close
of business on August 26, 2021 (the “Termination Date”).
The
exercise price and number of shares of common stock issuable upon exercise of the warrants may be adjusted in certain circumstances,
including in the event of a stock splits, stock dividend, extraordinary dividend on or recapitalization, reorganization, merger
or consolidation. For one year following the issuance date of the warrants, the exercise price of the warrants will also be adjusted
for issuances of common stock at a price below their exercise price, on the date of issuance of any option to purchase, or sell
or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase
or other disposition) any common stock or common stock equivalents, at an effective price per share less than the exercise price
then in effect. Under such adjustment, the exercise price of the warrants shall be reduced to that lower issuance price per share.
Under the terms of the Warrants, there can only be one such price reset during the term of the warrant.
In
the event of a fundamental transaction (as defined in warrant), then the Company or any successor entity will pay at the holder’s
option, exercisable at any time concurrently with or within 30 days after the consummation of the fundamental transaction, an
amount of cash equal to the value of the remaining unexercised portion of the warrants on the date of consummation of the fundamental
transaction as determined in accordance with the Black Scholes option pricing model.
The
Company determined that these warrants are free standing financial instruments that are legally detachable and separately exercisable
from the common stock included in the public share offering. Management also determined that the warrants are puttable for cash
upon a fundamental transaction at the option of the holder and as such require classification as a liability pursuant to ASC 480
“Distinguishing Liabilities from Equity”
. In accordance with the accounting guidance, the outstanding warrants
are recognized as a warrant liability on the balance sheet. See Note 7 “Warrant Liabilities”.
During
the three months ending July 2, 2017 and the twelve months ending October 2, 2016, zero warrants had been exercised. As of July
2, 2017 and October 2, 2016 the outstanding warrants were 4,125,200.
Dividends
On
June 26, 2017, the board of directors approved a resolution authorizing a $0.02 per share (and per warrant) dividend payment in
July for common and preferred C shareholders and warrant holders of record on July 5, 2017 and for three subsequent quarterly
record dates thereafter. During the three and nine months ending July 2, 2017, Optex Systems Holdings recorded dividends payable
and a retained earnings adjustment for declared dividends of $261 thousand for dividends payable in July.
Note
10 Subsequent Events
On
July 12, 2017, we issued $261 thousand in cash dividends to the holders of our common stock, and Series C preferred stock and
warrants at the rate of $.02 per share (on an as converted/exercised basis for holders of our Series C preferred stock and warrants)
to holders of record as of July 5, 2017 for the dividends declared on June 26, 2017.
From
July 3, 2017 through July 28, 2017 there were 72 shares of Series C preferred stock converted into 300,000 shares of common stock.