Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Dec. 30, 2018 | Feb. 11, 2019 | |
Document And Entity Information | ||
Entity Registrant Name | Optex Systems Holdings Inc | |
Entity Central Index Key | 1,397,016 | |
Document Type | 10-Q | |
Trading Symbol | OPXS | |
Document Period End Date | Dec. 30, 2018 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --09-30 | |
Entity's Reporting Status Current | Yes | |
Entity Small Business | true | |
Entity Filer Category | Non-accelerated Filer | |
Entity Emerging Growth Company | false | |
Entity Ex Transition Period | false | |
Entity Common Stock, Shares Outstanding | 8,388,918 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2,019 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands | Dec. 30, 2018 | Sep. 30, 2018 |
ASSETS | ||
Cash and Cash Equivalents | $ 1,164 | $ 1,133 |
Accounts Receivable, Net | 2,728 | 2,458 |
Net Inventory | 8,521 | 7,639 |
Prepaid Expenses | 87 | 104 |
Current Assets | 12,500 | 11,334 |
Property and Equipment, Net | 1,233 | 1,300 |
Other Assets | ||
Prepaid Royalties | 22 | 30 |
Security Deposits | 23 | 23 |
Other Assets | 45 | 53 |
Total Assets | 13,778 | 12,687 |
Current Liabilities | ||
Accounts Payable | 1,682 | 943 |
Federal Income Taxes Payable | 76 | 22 |
Accrued Expenses | 922 | 1,169 |
Accrued Warranties | 73 | 101 |
Customer Advance Deposits | 5 | 308 |
Credit Facility | 500 | 300 |
Current Liabilities | 3,258 | 2,843 |
Warrant Liability | 2,115 | 3,500 |
Total Liabilities | 5,373 | 6,343 |
Commitments and Contingencies | ||
Stockholders' Equity | ||
Common Stock-($0.001 par, 2,000,000,000 authorized, 8,333,353 and 8,333,353 shares issued and outstanding, respectively) | 8 | 8 |
Additional Paid-in-capital | 25,974 | 25,938 |
Accumulated Deficit | (17,577) | (19,602) |
Stockholders' Equity | 8,405 | 6,344 |
Total Liabilities and Stockholders' Equity | $ 13,778 | $ 12,687 |
Condensed Consolidated Balanc_2
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares | Dec. 30, 2018 | Sep. 30, 2018 |
Statement of Financial Position [Abstract] | ||
Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Common stock, authorized | 2,000,000,000 | 2,000,000,000 |
Common stock, issued | 8,333,353 | 8,333,353 |
Common stock, outstanding | 8,333,353 | 8,333,353 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands | 3 Months Ended | |
Dec. 30, 2018 | Dec. 31, 2017 | |
Income Statement [Abstract] | ||
Revenue | $ 5,891 | $ 4,777 |
Cost of Sales | 4,448 | 3,661 |
Gross Margin | 1,443 | 1,116 |
General and Administrative Expense | 743 | 773 |
Operating Income | 700 | 343 |
Gain (Loss) on Change in Fair Value of Warrants | 1,385 | (344) |
Interest Expense | (6) | (3) |
Other Income (Expense) | 1,379 | (347) |
Income (Loss) Before Taxes | 2,079 | (4) |
Current Income Tax Expense | (54) | (90) |
Net income (loss) | 2,025 | (94) |
Dividends declared on participating securities | (90) | |
Deemed dividends on participating securities | (671) | |
Net income (loss) applicable to common shareholders | $ 1,354 | $ (184) |
Basic income (loss) per share (in dollars per share) | $ 0.16 | $ (0.02) |
Weighted Average Common Shares Outstanding - basic (in shares) | 8,333,353 | 8,319,771 |
Diluted income (loss) per share (in dollars per share) | $ 0.16 | $ (0.02) |
Weighted Average Common Shares Outstanding - diluted (in shares) | 8,494,242 | 8,319,771 |
Condensed Consolidated Statem_2
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands | 3 Months Ended | |
Dec. 30, 2018 | Dec. 31, 2017 | |
Cash Flows from Operating Activities: | ||
Net Income (Loss) | $ 2,025 | $ (94) |
Adjustments to Reconcile Net Loss to Net Cash (used in) provided by Operating Activities: | ||
Depreciation and Amortization | 85 | 81 |
(Gain) Loss on Change in Fair Value of Warrants | (1,385) | 344 |
Stock Compensation Expense | 36 | 44 |
Accounts Receivable | (270) | 701 |
Inventory | (882) | (88) |
Prepaid Expenses | 17 | 4 |
Accounts Payable and Accrued Expenses | 492 | (826) |
Federal Income Taxes Payable | 54 | 90 |
Accrued Warranty Costs | (28) | 77 |
Prepaid Royalties | 8 | 7 |
Customer Advance Deposits | (303) | (215) |
Total Adjustments | (2,176) | 219 |
Net Cash (used in) provided by Operating Activities | (151) | 125 |
Cash Flows used in Investing Activities | ||
Purchases of Property and Equipment | (18) | |
Net Cash used in Investing Activities | (18) | |
Cash Flows provided by (used in) Financing Activities | ||
Dividends Paid | (261) | |
Proceeds from Credit Facility | 200 | |
Net Cash provided by (used in) Financing Activities | 200 | (261) |
Net Increase (Decrease) in Cash and Cash Equivalents | 31 | (136) |
Cash and Cash Equivalents at Beginning of Period | 1,133 | 1,682 |
Cash and Cash Equivalents at End of Period | 1,164 | 1,546 |
Supplemental Cash Flow Information: | ||
Exchange of Preferred Stock for Common Stock | 480 | |
Dividends Declared and Unpaid | 262 | |
Cash Paid for Interest | $ 6 | $ 3 |
Condensed Consolidated Statem_3
Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($) $ in Thousands | Common Stock [Member] | Series C Preferred Shares [Member] | Additional Paid in Capital [Member] | Retained Earnings [Member] | Total |
Balance at beginning at Oct. 01, 2017 | $ 8 | $ 26,411 | $ (20,473) | $ 5,946 | |
Balance at beginning (in shares) at Oct. 01, 2017 | 8,190,101 | 174 | |||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||
Stock Compensation Expense | 44 | 44 | |||
Conversions of Series C Preferred Shares | $ 1 | (1) | |||
Conversions of Series C Preferred Shares (in shares) | 400,000 | (96) | |||
Declared Dividends | (262) | (262) | |||
Net income | (94) | (94) | |||
Balance at end at Dec. 31, 2017 | $ 9 | 26,454 | (20,829) | 5,634 | |
Balance at end (in shares) at Dec. 31, 2017 | 8,590,101 | 78 | |||
Balance at beginning at Sep. 30, 2018 | $ 8 | 25,938 | (19,602) | 6,344 | |
Balance at beginning (in shares) at Sep. 30, 2018 | 8,333,353 | ||||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||
Stock Compensation Expense | 36 | 36 | |||
Net income | 2,025 | 2,025 | |||
Balance at end at Dec. 30, 2018 | $ 8 | $ 25,974 | $ (17,577) | $ 8,405 | |
Balance at end (in shares) at Dec. 30, 2018 | 8,333,353 |
Organization and Operations
Organization and Operations | 3 Months Ended |
Dec. 30, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization and Operations | Note 1 - Organization and Operations Optex Systems Holdings, Inc. (“the Company”) manufactures optical sighting systems and assemblies for the U.S. Department of Defense, foreign military applications and commercial markets. Its products are installed on a variety of U.S. military land vehicles, such as the Abrams and Bradley fighting vehicles, light armored and advanced security vehicles, and have been selected for installation on the Stryker family of vehicles. 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. The Company’s consolidated revenues are derived from the U.S. government, 38%, one major U.S defense contractor, 40%, one commercial customer, 13%, and all other customers, 9%. Approximately 87% of the total company revenue is generated from domestic customers and 12% is derived from Canada. Optex Systems Holdings’ operations are based in Dallas and Richardson, Texas in leased facilities comprising 93,967 square feet. As of December 30, 2018, Optex Systems Holdings operated with 100 full-time equivalent employees. |
Accounting Policies
Accounting Policies | 3 Months Ended |
Dec. 30, 2018 | |
Accounting Policies [Abstract] | |
Accounting Policies | Note 2 - Accounting Policies Basis of Presentation Principles of Consolidation: The condensed consolidated financial statements of Optex Systems Holdings included herein have been prepared by Optex Systems Holdings, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in conjunction with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and the notes thereto included in the Optex Systems Holdings’ Form 10-K for the year ended September 30, 2018 and other reports filed with the SEC. The accompanying unaudited interim consolidated financial statements reflect all adjustments of a normal and recurring nature which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows of Optex Systems Holdings for the interim periods presented. The results of operations for these periods are not necessarily comparable to, or indicative of, results of any other interim period or for the fiscal year taken as a whole. Certain information that is not required for interim financial reporting purposes has been omitted. Inventory: (Thousands) December 30, 2018 September 30, 2018 Raw Material $ 5,703 $ 5,580 Work in Process 4,147 3,478 Finished Goods 344 254 Gross Inventory $ 10,194 $ 9,312 Less: Inventory Reserves (1,673 ) (1,673 ) Net Inventory $ 8,521 $ 7,639 Concentration of Credit Risk: Warranty Costs: Three months ended December 30, 2018 December 31, 2017 Beginning balance $ 101 $ 174 Incurred costs for warranties during the three month period (7 ) — Warranties reserved for new product shipped during the three month period (1) 29 62 Change in estimate for pre-existing warranty liabilities as of prior period end (2) (50 ) 15 Ending balance $ 73 $ 251 (1) Warranty expenses accrued to cost of sales (based on current period shipments and historical warranty return rate). (2) Changes in estimated warranty liabilities recognized in cost of sales associated with: the period end customer returned warranty backlog, or the actual costs of repaired/replaced warranty units which were shipped to the customer during the current period. Use of Estimates: Fair Value of Financial Instruments: The carrying value of the balance sheet cash and cash equivalents, accounts payable, accrued liabilities, and the credit facility, are carried at, or approximate, fair value as of the reporting date because of their short-term nature. Fair values for the Company’s warrant liabilities and derivatives are estimated by utilizing valuation models that consider current and expected stock prices, volatility, dividends, market interest rates, forward yield curves and discount rates. Such amounts and the recognition of such amounts are subject to significant estimates that may change in the future. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value and requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories: Level 1: Quoted market prices in active markets for identical assets or liabilities. Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. Level 3: Unobservable inputs reflecting the reporting entity’s own assumptions. The accounting guidance establishes a hierarchy which requires an entity to maximize the use of quoted market prices and minimize the use of unobservable inputs. An asset or liability’s level is based on the lowest level of input that is significant to the fair value measurement. Fair value estimates are reviewed at the origination date and again at each applicable measurement date and interim or annual financial reporting dates, as applicable for the financial instrument, and are based upon certain market assumptions and pertinent information available to management at those times. Each of the measurements is considered a Level 3 measurement based on the availability of market data and inputs and the significance of any unobservable inputs as of the measurement date. The methods and significant inputs and assumptions utilized in estimating the fair value of the warrant liabilities, as well as the respective hierarchy designations are discussed further in Note 6 “Warrant Liabilities”. Revenue Recognition: For the three months ended December 30, 2018 and December 31, 2017, the adoption of the ASC 606 revenue standard had no material effect on the financial statement presentation. Optex Systems Holdings does not expect the adoption of the new revenue recognition standard to have a material effect on the financial statement presentation on a retrospective or prospective basis for the upcoming interim, annual and comparative periods covered through the current year end date September 29, 2019. The Company believes it’s previous recognition policy as related to the production contracts (“units of delivery”), and maintenance contract (“passage of time”), are consistent with the new revenue recognition standard defined within FASB ASC 606 which requires unique performance obligations be recognized upon satisfaction of the customers’ own performance obligation at the point in time when the control of goods is transferred to the customer, or over time as the customer benefits from provided maintenance and support services. The Company has on occasion, outside of the presented periods, received selective contract awards and modifications which included substantive milestone performance obligations, contract modifications, negotiated settlements and financing arrangements which could fall within the scope of the new revenue recognition guidance on reoccurrence, and as such, the Company has expanded their contract review process to ensure any new contract awards, changes, modifications, financing arrangements or potential negotiated settlements are recorded in compliance to the new standard guidance. During the three months ended December 30, 2018 there was $289 of revenue recognized during the period from customer deposit liabilities (deferred contract revenue), and $19 of customer deposits refunded to the customer on order cancellation. As of December 30, 2018 there is $5 thousand in customer deposit liabilities for advance credit card payments received during the period for contracts expected to ship in January 2019. As of the period ended September 30, and the three months ended December 30, 2018, there are no significant contract costs such as sales commissions or costs deferred. Income Tax/Deferred Tax: Earnings per Share: The Company has potentially dilutive securities outstanding which include 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. The Company 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 months ended December 30, 2018, 4,260,785 warrants and 99,000 unvested restricted stock units were included in the diluted earnings per share calculation as dilutive, and 25,000 stock options were excluded from the earnings per share calculation as antidilutive as they were “out of the money” and not exercisable during the period. For the three months ended December 31, 2017, 78 preferred Series C shares (which converts to 325,000 common shares), 182,000 unvested restricted stock units, 60,000 stock options and 4,323,135 warrants were excluded from the diluted earnings per share calculations as antidilutive. A significant number of our outstanding warrants and series C preferred shares are participating securities which share dividend distributions and the allocation of any undistributed earnings (deemed dividends) with our common shareholders. During the three months ended December 30, 2018, we had zero declared dividends and allocated undistributed earnings of $671 thousand attributable to the participating warrants. During the three months ended December 31, 2017, declared dividends of $90 thousand was attributable to participating warrants and series C shareholders, and there was zero in undistributed earnings attributable to participating securities as a result of the net loss condition during the period. The net loss applicable to common shareholders for the period ended December 31, 2017, previously reflected as ($0.01) per share has been corrected to ($0.02) per common share to include the effect of the prior year period dividends distributed to participating securities on the earnings per common share. |
Segment Reporting
Segment Reporting | 3 Months Ended |
Dec. 30, 2018 | |
Segment Reporting [Abstract] | |
Segment Reporting | Note 3 - Segment Reporting The Company’s 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. Both the Applied Optics Center and Optex Systems – Richardson operate as reportable segments under the Optex Systems, Inc. corporate umbrella. 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 (“Optex Systems”) segment. Intersegment sales and transfers are accounted for at annually agreed to pricing rates based on estimated segment product cost, which includes segment direct manufacturing and general and administrative costs, but exclude profits that would apply to third party external customers. Optex Systems (OPX) – Richardson, Texas Optex Systems revenues are primarily in support of prime and subcontracted military customers. Approximately 81% of the Optex Systems segment revenue is comprised of domestic military customers and 19% is comprised of foreign military customers. The Optex Systems segment revenue from the U.S. government and one other major U.S. defense contractor represent approximately 27% and 34% of the Company’s consolidated revenue, respectively. Optex Systems is located in Richardson Texas, with leased premises consisting of approximately 49,100 square feet. As of December 30, 2018, the Richardson facility operated with 67 full time equivalent employees in a single shift operation. Optex Systems, Richardson serves as the home office for both the Optex Systems and Applied Optics Center segments. Applied Optics Center (AOC) – Dallas, Texas The Applied Optics Center serves primarily domestic U.S. customers. Sales to commercial customers represent 45% and military sales to prime and subcontracted customers represent 30% of the total segment revenue. Approximately 83% of the AOC revenue is derived from external customers and approximately 17% is related to intersegment sales to Optex Systems in support of military contracts. The AOC segment revenue from the U.S. government and one major commercial customer represents approximately 11% and 13% of the Company’s consolidated revenue, respectively. The Applied Optics Center is located in Dallas, Texas with leased premises consisting of approximately 44,867 square feet of space. As of December 30, 2018, AOC operated with 33 full time equivalent employees in a single shift operation. The financial tables below presents the information for each of the reportable segments profit or loss as well as segment assets for each year. The Company does not allocate interest expense, income taxes or unusual items to segments. Reportable Segment Financial Information Three months ended December 30, 2018 Optex Systems Richardson Applied Optics Center Dallas Other (non-allocated costs and intersegment eliminations) Consolidated Total Revenues from external customers $ 3,830 $ 2,061 $ — $ 5,891 Intersegment revenues — 415 (415 ) — Total Revenue $ 3,830 $ 2,476 $ (415 ) $ 5,891 Interest expense $ — $ — $ 6 $ 6 Depreciation and Amortization $ 9 $ 76 $ — $ 85 Income before taxes $ 406 $ 330 $ 1,343 $ 2,079 Other significant noncash items: Allocated home office expense $ (170 ) $ 170 $ — $ — Gain on change in fair value of warrants $ — $ — $ (1,385 ) $ (1,385 ) Stock compensation expense $ — $ — $ 36 $ 36 Royalty expense amortization $ 8 $ — $ — $ 8 Warranty Expense $ — $ (21 ) $ — $ (21 ) Segment Assets $ 9,448 $ 4,330 $ — $ 13,778 Expenditures for segment assets $ 4 $ 14 $ — $ 18 Reportable Segment Financial Information Three months ended December 31, 2017 Optex Systems Richardson Applied Optics Center Dallas Other (non-allocated costs and intersegment eliminations) Consolidated Total Revenues from external customers $ 2,665 $ 2,112 $ — $ 4,777 Intersegment revenues — 371 (371 ) — Total Revenue $ 2,665 $ 2,483 $ (371 ) $ 4,777 Interest expense $ — $ — $ 3 $ 3 Depreciation and Amortization $ 10 $ 71 $ — $ 81 Income (Loss) before taxes(1) $ 138 $ 249 $ (391 ) $ (4 ) Other significant noncash items: Allocated home office expense $ (156 ) $ 156 $ — $ — Loss on Change in Fair Value of Warrants $ — $ — $ 344 $ 344 Stock option compensation expense(1) $ — $ — $ 44 $ 44 Royalty expense amortization $ 7 $ — $ — $ 7 Warranty Expense $ — $ 77 $ — $ 77 Segment Assets $ 8,477 $ 4,708 $ — $ 13,185 Expenditures for segment assets $ — $ — $ — $ — |
Commitments and Contingencies
Commitments and Contingencies | 3 Months Ended |
Dec. 30, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Note 4 - Commitments and Contingencies Rental Payments under Non-cancellable Operating Leases As of December 30, 2018, 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 2019 $ 212 $ 83 $ 186 $ 51 $ 532 2020 291 112 255 62 720 2021 147 57 262 63 529 2022 — — 22 5 27 Total minimum lease payments $ 650 $ 252 $ 725 $ 181 $ 1,808 Total facilities rental and CAM expense for both facility lease agreements as of the three months ended December 30, 2018 was $172 thousand. Total expense under facility lease agreements as of the three months ended December 31, 2017 was $168 thousand. As of December 30, 2018, the unamortized deferred rent was $106 thousand as compared to $111 thousand as of September 30, 2018. Deferred rent expense is amortized monthly over the life of the lease. |
Debt Financing
Debt Financing | 3 Months Ended |
Dec. 30, 2018 | |
Debt Disclosure [Abstract] | |
Debt Financing | Note 5 - Debt Financing Credit Facility — Avidbank As of December 30, 2018 and September 30, 2018, the outstanding principal balance on the line of credit was $500 thousand and $300 thousand, respectively. For the three months ended December 30, 2018 and December 31, 2017, the total interest expense against the outstanding line of credit balance was $6 thousand and $3 thousand. The Company amended its revolving credit facility with Avidbank pursuant to a Seventh Amendment to Amended and Restated Loan Agreement, dated as of April 5, 2018. The substantive amendments are as follows: ● The new revolving maturity date is April 21, 2020. ● On April 21, 2018 and each anniversary thereof for so long as the Revolving Facility is in effect, the Company shall pay a facility fee equal to one half of one percent (0.5%) of the Revolving Line. ● The Company can maintain accounts at third party banks so long as the total in those other bank accounts does not exceed 20% of the total on deposit at Avidbank, and it shall remit to Avidbank monthly statements for all of those accounts within 30 days of the end of each month. |
Warrant Liabilities
Warrant Liabilities | 3 Months Ended |
Dec. 30, 2018 | |
Warrant Liabilities [Abstract] | |
Warrant Liabilities | Note 6-Warrant Liabilities On August 26, 2016, Optex Systems Holdings, Inc. issued 4,323,135 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” On April 1, 2018 the company reviewed the valuation technique and inputs used to determine the fair value of the outstanding warrants. For each of the prior period measurement dates through period ended December 31, 2017, the Company engaged an outside valuation company to calculate the fair value of warrants based on both the binomial lattice model (“Binomial”) and the Black Scholes-Merton option pricing model (“BSM”). For each of the periods previously presented through period ended December 31, 2017, the Company disclosed the valuation technique as binomial, although the two models yielded comparable results with minimal or no variation in the fair value calculation of the warrants at each of the respective measurement dates. As the BSM model yielded similar results with the Binomial model and can be completed with in-house expertise at a lower cost, effective as of April 1, 2018, the Company determined the BSM model will be used exclusively to value the outstanding warrants throughout the remaining term of the warrants. Further, the Company reviewed the model volatility rate input by comparing the historical volatility of the traded common stock (OPXS) against similarly traded equities over the same time period, the historical volatility of the Optex common stock subsequent to the August 26, 2016 public offering as compared to the volatility rate during the period which preceded the public offering, and the implied volatility based on the Optex warrant shares traded on the over-the-counter market (“OTC”) under ticker OPXXW. Based on the review, the Company believes the historical 2.7 year volatility rate on the common shares, based on the remaining term of the warrants, includes periods of significantly lower trading volume that precedes the public offering and which is not representative of the expected volatility over their remaining life. Recent trend information indicates the increase in common share float subsequent to the public offering combined with the concurrent preferred share conversions have significantly increased the frequency of trades and the average daily volume levels minimizing the volatility fluctuations which had previously existed on the common shares prior to the capitalization change. In addition, a substantially lower implied volatility on the warrants based on the available OTC market data, indicate that current market participants have assumed a future volatility comparable to the most recent experience rate. Accordingly, the current period BSM model fair value measurement assumes the adjusted 2.4 year historical volatility input rate of 62.95% and values the warrants within the range of trading prices during the most recent quarter end date. The fair value of the warrant liabilities presented below were measured using either a BSM (subsequent to December 31, 2017) Binomial (through December 31, 2017) or valuation model. Significant inputs into the respective model at the inception and reporting period measurement dates are as follows: Valuation Assumptions Issuance date (1) August 26, 2016 (4) Period ended October 1, 2017 (4) Period ended December 31, 2017 (4) Period ended September 30, 2018 (5) Period ended December 30, 2018 (5 ) Exercise Price(1) $ 1.50 $ 1.50 $ 1.50 $ 1.50 $ 1.50 Warrant Expiration Date (1) 8/26/2021 8/26/2021 8/26/2021 8/26/2021 8/26/2021 Stock Price (2) $ 0.95 $ 0.98 $ 1.10 $ 1.71 $ 1.32 Interest Rate (annual) (3) 1.23 % 1.62 % 1.98 % 2.88 % 2.49 % Volatility (annual) (4)(5) 246.44 % 179.36 % 171.04 % 64.05 % 62.95 % Time to Maturity (Years) 5 3.9 3.7 2.9 2.7 Calculated fair value per share $ 0.93 $ 0.87 $ 0.96 $ 0.82 $ 0.50 ( 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 ended date. (3) Interest rate for U.S. Treasury Bonds, as of August 26, 2016 and each presented period ended date, as published by the U.S. Federal Reserve. (4) Based on the historical daily volatility of Optex Systems Holdings, Inc. for the term of the warrants as of August 26, 2016 and each presented period ended date through April 1, 2018. The original fair value calculations were derived using the Binomial model, however, the yielded results were consistent with fair market valuation using the Black Scholes Merton Option Pricing model for each of the respective periods. (5) Based on the historical daily volatility of Optex Systems Holdings, Inc. from the consummation of the public raise on August 26, 2016 through the current presented measurement date. The company determined that the historical volatility prior to the August 26, 2016 public offering was not representative of the current market expectations due to the significant change in company capital structure and increase in public float shares (liquidity) arising from the common stock issued during the public offering and concurrent conversions of outstanding preferred shares into common stock. The fair value calculation was derived using the Black Scholes Merton Option Pricing model. 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 as of period ended 10/01/2017 4,323,135 $ 0.87 $ 3,607 Loss on Change in Fair Value of Warrant Liability 344 Fair Value as of period ended 12/31/2017 4,323,135 $ 0.96 3,951 Fair Value as of period ended 09/30/2018 4,260,785 $ 0.82 $ 3,500 (Gain) on Change in Fair Value of Warrant Liability (1,385 ) Fair Value as of period ended 12/30/2018 4,260,785 $ 0.50 2,115 During the three months ended December 30, 2018 or December 31, 2017, none of the warrants were exercised. During the three months ended December 30, 2018 and December 31, 2017, the Company recognized a ($1.4) million gain and a $344 thousand loss on the change in fair value of warrants, respectively. The warrant liabilities are considered Level 3 liabilities on the fair value hierarchy as the determination of fair value includes various assumptions about future activities and the Company’s stock prices and historical volatility as inputs. |
Stock Based Compensation
Stock Based Compensation | 3 Months Ended |
Dec. 30, 2018 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Stock Based Compensation | Note 7-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 the Company’s officers, directors, employees and to independent contractors who provide services to Optex Systems Holdings as either incentive or non-statutory stock options determined at the time of grant. As of December 30, 2018, there were 25,000 fully vested stock options outstanding at an exercise price of $10 per share and an expiration date of December 18, 2020. During the three months ended December 30, 2018, 34,980 vested stock options expired (forfeited) unexercised. There were no new grants of stock options during the three months ended December 30, 2018. Restricted Stock Units issued to Officers and Employees The following table summarizes the status of Optex Systems Holdings’ aggregate non-vested restricted stock units granted under the Company’s 2016 Restricted Stock Unit Plan: Outstanding Unvested RSU’s Unvested as of October 1, 2017 182,000 Granted - year ended September 30, 2018 — Vested - year ended September 30, 2018 (83,000 ) Unvested as of September 30, 2018 99,000 Granted – three months ended December 30, 2018 — Vested - three months ended December 30, 2018 — Unvested as of December 30, 2018 99,000 There were no restricted stock units granted or vested during the three months ended December 30, 2018. On January 1, 2019, 82,500 restricted stock units were vested. On January 2, 2019, pursuant to board authorization on November 20, 2018, 200,000 restricted stock units were granted to Danny Schoening (150,000) and Karen Hawkins (50,000) which will vest over three years on each January 1, 2020 through January 1, 2022. See subsequent events. 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 As of period ending December 30, 2018 December 31, 2017 December 30, 2018 September 30, 2018 Stock Options $ — $ 8 $ — $ — Restricted Stock Units 36 36 13 49 Total Stock Compensation $ 36 $ 44 $ 13 $ 49 |
Stockholders' Equity
Stockholders' Equity | 3 Months Ended |
Dec. 30, 2018 | |
Stockholders' Equity Note [Abstract] | |
Stockholders' Equity | Note 8 Stockholders’ Equity Dividends On June 26, 2017, the board of directors approved a resolution authorizing a $0.02 per share (and per warrant) dividend payment on July 12, 2017, for common and preferred series C shareholders and warrant holders of record as of July 5, 2017 and for three subsequent quarterly record dates thereafter. During the three months ended December 31, 2017, Optex Systems Holdings recorded $262 in declared dividends for share and warrant holders of record as of January 12, 2018 which was paid on January 19, 2018. As of period ended December 30, 2018, there were no declared or outstanding dividends payable. There are no additional dividend payments declared subsequent to the April 12, 2018 record date. Common stock As of September 30, 2018, the outstanding common shares were 8,333,353. There were no issuances of common stock during the three months ended December 30, 2018. On January 7, 2019, there were 55,565 common shares issued, net of tax withholding, in settlement of 82,500 restricted stock units which vested on January 1, 2019. Also see Note 9, “Subsequent Events”. Series C Preferred Stock As of September 30, 2018 and December 31, 2018, there were zero preferred Series C shares outstanding. During the three months ended December 31, 2017 there were no new issues of preferred Series C shares, and conversions of 96 preferred Series C shares, or $0.5 million, into 400,000 common shares. |
Subsequent Events
Subsequent Events | 3 Months Ended |
Dec. 30, 2018 | |
Subsequent Events [Abstract] | |
Subsequent Events | Note 9 Subsequent Events Pursuant to the executive compensation package approved by our board of directors on November 20, 2018: ● On January 2, 2019, the Company granted 150,000 and 50,000 restricted stock units with a January 2, 2019 grant date, to Danny Schoening and Karen Hawkins, respectively, vesting as of January 1 each year subsequent to the grant date over a three year period at a rate of 34% in year one, and 33% each year thereafter. The stock price at grant date was $1.32 per share. The Company will amortize the grant date fair market value of $264 thousand to stock compensation expense on a straight line basis across the three year vesting period beginning on January 2, 2019. ● Effective as of January 1, 2019, Danny Schoening, CEO and Karen Hawkins, CFO received an 8% salary increase. On January 7, 2019, the Company issued 55,565 common shares the three directors and officers, net of tax withholding, in settlement of 82,500 restricted stock units which vested on January 1, 2019. |
Accounting Policies (Policies)
Accounting Policies (Policies) | 3 Months Ended |
Dec. 30, 2018 | |
Accounting Policies [Abstract] | |
Principles of Consolidation | Principles of Consolidation: The condensed consolidated financial statements of Optex Systems Holdings included herein have been prepared by Optex Systems Holdings, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in conjunction with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and the notes thereto included in the Optex Systems Holdings’ Form 10-K for the year ended September 30, 2018 and other reports filed with the SEC. The accompanying unaudited interim consolidated financial statements reflect all adjustments of a normal and recurring nature which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows of Optex Systems Holdings for the interim periods presented. The results of operations for these periods are not necessarily comparable to, or indicative of, results of any other interim period or for the fiscal year taken as a whole. Certain information that is not required for interim financial reporting purposes has been omitted. |
Inventory | Inventory: (Thousands) December 30, 2018 September 30, 2018 Raw Material $ 5,703 $ 5,580 Work in Process 4,147 3,478 Finished Goods 344 254 Gross Inventory $ 10,194 $ 9,312 Less: Inventory Reserves (1,673 ) (1,673 ) Net Inventory $ 8,521 $ 7,639 |
Concentration of Credit Risk | Concentration of Credit Risk: |
Warranty Costs | Warranty Costs: Three months ended December 30, 2018 December 31, 2017 Beginning balance $ 101 $ 174 Incurred costs for warranties during the three month period (7 ) — Warranties reserved for new product shipped during the three month period (1) 29 62 Change in estimate for pre-existing warranty liabilities as of prior period end (2) (50 ) 15 Ending balance $ 73 $ 251 (1) Warranty expenses accrued to cost of sales (based on current period shipments and historical warranty return rate). (2) Changes in estimated warranty liabilities recognized in cost of sales associated with: the period end customer returned warranty backlog, or the actual costs of repaired/replaced warranty units which were shipped to the customer during the current period. |
Use of Estimates | Use of Estimates: |
Fair Value of Financial Instruments | Fair Value of Financial Instruments: The carrying value of the balance sheet cash and cash equivalents, accounts payable, accrued liabilities, and the credit facility, are carried at, or approximate, fair value as of the reporting date because of their short-term nature. Fair values for the Company’s warrant liabilities and derivatives are estimated by utilizing valuation models that consider current and expected stock prices, volatility, dividends, market interest rates, forward yield curves and discount rates. Such amounts and the recognition of such amounts are subject to significant estimates that may change in the future. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value and requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories: Level 1: Quoted market prices in active markets for identical assets or liabilities. Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. Level 3: Unobservable inputs reflecting the reporting entity’s own assumptions. The accounting guidance establishes a hierarchy which requires an entity to maximize the use of quoted market prices and minimize the use of unobservable inputs. An asset or liability’s level is based on the lowest level of input that is significant to the fair value measurement. Fair value estimates are reviewed at the origination date and again at each applicable measurement date and interim or annual financial reporting dates, as applicable for the financial instrument, and are based upon certain market assumptions and pertinent information available to management at those times. Each of the measurements is considered a Level 3 measurement based on the availability of market data and inputs and the significance of any unobservable inputs as of the measurement date. The methods and significant inputs and assumptions utilized in estimating the fair value of the warrant liabilities, as well as the respective hierarchy designations are discussed further in Note 6 “Warrant Liabilities”. |
Revenue Recognition | Revenue Recognition: For the three months ended December 30, 2018 and December 31, 2017, the adoption of the ASC 606 revenue standard had no material effect on the financial statement presentation. Optex Systems Holdings does not expect the adoption of the new revenue recognition standard to have a material effect on the financial statement presentation on a retrospective or prospective basis for the upcoming interim, annual and comparative periods covered through the current year end date September 29, 2019. The Company believes it’s previous recognition policy as related to the production contracts (“units of delivery”), and maintenance contract (“passage of time”), are consistent with the new revenue recognition standard defined within FASB ASC 606 which requires unique performance obligations be recognized upon satisfaction of the customers’ own performance obligation at the point in time when the control of goods is transferred to the customer, or over time as the customer benefits from provided maintenance and support services. The Company has on occasion, outside of the presented periods, received selective contract awards and modifications which included substantive milestone performance obligations, contract modifications, negotiated settlements and financing arrangements which could fall within the scope of the new revenue recognition guidance on reoccurrence, and as such, the Company has expanded their contract review process to ensure any new contract awards, changes, modifications, financing arrangements or potential negotiated settlements are recorded in compliance to the new standard guidance. During the three months ended December 30, 2018 there was $289 of revenue recognized during the period from customer deposit liabilities (deferred contract revenue), and $19 of customer deposits refunded to the customer on order cancellation. As of December 30, 2018 there is $5 thousand in customer deposit liabilities for advance credit card payments received during the period for contracts expected to ship in January 2019. As of the period ended September 30, and the three months ended December 30, 2018, there are no significant contract costs such as sales commissions or costs deferred. |
Income Tax/Deferred Tax | Income Tax/Deferred Tax: |
Earnings per Share | Earnings per Share: The Company has potentially dilutive securities outstanding which include 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. The Company 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 months ended December 30, 2018, 4,260,785 warrants and 99,000 unvested restricted stock units were included in the diluted earnings per share calculation as dilutive, and 25,000 stock options were excluded from the earnings per share calculation as antidilutive as they were “out of the money” and not exercisable during the period. For the three months ended December 31, 2017, 78 preferred Series C shares (which converts to 325,000 common shares), 182,000 unvested restricted stock units, 60,000 stock options and 4,323,135 warrants were excluded from the diluted earnings per share calculations as antidilutive. A significant number of our outstanding warrants and series C preferred shares are participating securities which share dividend distributions and the allocation of any undistributed earnings (deemed dividends) with our common shareholders. During the three months ended December 30, 2018, we had zero declared dividends and allocated undistributed earnings of $671 thousand attributable to the participating warrants. During the three months ended December 31, 2017, declared dividends of $90 thousand was attributable to participating warrants and series C shareholders, and there was zero in undistributed earnings attributable to participating securities as a result of the net loss condition during the period. The net loss applicable to common shareholders for the period ended December 31, 2017, previously reflected as ($0.01) per share has been corrected to ($0.02) per common share to include the effect of the prior year period dividends distributed to participating securities on the earnings per common share. |
Accounting Policies (Tables)
Accounting Policies (Tables) | 3 Months Ended |
Dec. 30, 2018 | |
Accounting Policies [Abstract] | |
Schedule of inventory | As of December 30, 2018 and September 30, 2018, inventory included: (Thousands) December 30, 2018 September 30, 2018 Raw Material $ 5,703 $ 5,580 Work in Process 4,147 3,478 Finished Goods 344 254 Gross Inventory $ 10,194 $ 9,312 Less: Inventory Reserves (1,673 ) (1,673 ) Net Inventory $ 8,521 $ 7,639 |
Schedule of warranty reserves | Three months ended December 30, 2018 December 31, 2017 Beginning balance $ 101 $ 174 Incurred costs for warranties during the three month period (7 ) — Warranties reserved for new product shipped during the three month period (1) 29 62 Change in estimate for pre-existing warranty liabilities as of prior period end (2) (50 ) 15 Ending balance $ 73 $ 251 (1) Warranty expenses accrued to cost of sales (based on current period shipments and historical warranty return rate). (2) Changes in estimated warranty liabilities recognized in cost of sales associated with: the period end customer returned warranty backlog, or the actual costs of repaired/replaced warranty units which were shipped to the customer during the current period. |
Segment Reporting (Tables)
Segment Reporting (Tables) | 3 Months Ended |
Dec. 30, 2018 | |
Segment Reporting [Abstract] | |
Schedule of information for each of the reportable segments profit or loss as well as segment assets for each year | The financial tables below presents the information for each of the reportable segments profit or loss as well as segment assets for each year. The Company does not allocate interest expense, income taxes or unusual items to segments. Reportable Segment Financial Information Three months ended December 30, 2018 Optex Systems Richardson Applied Optics Center Dallas Other (non-allocated costs and intersegment eliminations) Consolidated Total Revenues from external customers $ 3,830 $ 2,061 $ — $ 5,891 Intersegment revenues — 415 (415 ) — Total Revenue $ 3,830 $ 2,476 $ (415 ) $ 5,891 Interest expense $ — $ — $ 6 $ 6 Depreciation and Amortization $ 9 $ 76 $ — $ 85 Income before taxes $ 406 $ 330 $ 1,343 $ 2,079 Other significant noncash items: Allocated home office expense $ (170 ) $ 170 $ — $ — Gain on change in fair value of warrants $ — $ — $ (1,385 ) $ (1,385 ) Stock compensation expense $ — $ — $ 36 $ 36 Royalty expense amortization $ 8 $ — $ — $ 8 Warranty Expense $ — $ (21 ) $ — $ (21 ) Segment Assets $ 9,448 $ 4,330 $ — $ 13,778 Expenditures for segment assets $ 4 $ 14 $ — $ 18 Reportable Segment Financial Information Three months ended December 31, 2017 Optex Systems Richardson Applied Optics Center Dallas Other (non-allocated costs and intersegment eliminations) Consolidated Total Revenues from external customers $ 2,665 $ 2,112 $ — $ 4,777 Intersegment revenues — 371 (371 ) — Total Revenue $ 2,665 $ 2,483 $ (371 ) $ 4,777 Interest expense $ — $ — $ 3 $ 3 Depreciation and Amortization $ 10 $ 71 $ — $ 81 Income (Loss) before taxes(1) $ 138 $ 249 $ (391 ) $ (4 ) Other significant noncash items: Allocated home office expense $ (156 ) $ 156 $ — $ — Loss on Change in Fair Value of Warrants $ — $ — $ 344 $ 344 Stock option compensation expense(1) $ — $ — $ 44 $ 44 Royalty expense amortization $ 7 $ — $ — $ 7 Warranty Expense $ — $ 77 $ — $ 77 Segment Assets $ 8,477 $ 4,708 $ — $ 13,185 Expenditures for segment assets $ — $ — $ — $ — |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 3 Months Ended |
Dec. 30, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
Schedule of remaining minimum lease payments under the non-cancelable operating leases for equipment, office and facility space | As of December 30, 2018, 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 2019 $ 212 $ 83 $ 186 $ 51 $ 532 2020 291 112 255 62 720 2021 147 57 262 63 529 2022 — — 22 5 27 Total minimum lease payments $ 650 $ 252 $ 725 $ 181 $ 1,808 |
Warrant Liabilities (Tables)
Warrant Liabilities (Tables) | 3 Months Ended |
Dec. 30, 2018 | |
Warrant Liabilities [Abstract] | |
Schedule of fair value of the warrant liabilities | Significant inputs into the respective model at the inception and reporting period measurement dates are as follows: Valuation Assumptions Issuance date (1) August 26, 2016 (4) Period ended October 1, 2017 (4) Period ended December 31, 2017 (4) Period ended September 30, 2018 (5) Period ended December 30, 2018 (5 ) Exercise Price(1) $ 1.50 $ 1.50 $ 1.50 $ 1.50 $ 1.50 Warrant Expiration Date (1) 8/26/2021 8/26/2021 8/26/2021 8/26/2021 8/26/2021 Stock Price (2) $ 0.95 $ 0.98 $ 1.10 $ 1.71 $ 1.32 Interest Rate (annual) (3) 1.23 % 1.62 % 1.98 % 2.88 % 2.49 % Volatility (annual) (4)(5) 246.44 % 179.36 % 171.04 % 64.05 % 62.95 % Time to Maturity (Years) 5 3.9 3.7 2.9 2.7 Calculated fair value per share $ 0.93 $ 0.87 $ 0.96 $ 0.82 $ 0.50 ( 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 ended date. (3) Interest rate for U.S. Treasury Bonds, as of August 26, 2016 and each presented period ended date, as published by the U.S. Federal Reserve. (4) Based on the historical daily volatility of Optex Systems Holdings, Inc. for the term of the warrants as of August 26, 2016 and each presented period ended date through April 1, 2018. The original fair value calculations were derived using the Binomial model, however, the yielded results were consistent with fair market valuation using the Black Scholes Merton Option Pricing model for each of the respective periods. (5) Based on the historical daily volatility of Optex Systems Holdings, Inc. from the consummation of the public raise on August 26, 2016 through the current presented measurement date. The company determined that the historical volatility prior to the August 26, 2016 public offering was not representative of the current market expectations due to the significant change in company capital structure and increase in public float shares (liquidity) arising from the common stock issued during the public offering and concurrent conversions of outstanding preferred shares into common stock. The fair value calculation was derived using the Black Scholes Merton Option Pricing model. |
Schedule of warrants outstanding and fair values at each of the respective valuation dates | 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 as of period ended 10/01/2017 4,323,135 $ 0.87 $ 3,607 Loss on Change in Fair Value of Warrant Liability 344 Fair Value as of period ended 12/31/2017 4,323,135 $ 0.96 3,951 Fair Value as of period ended 09/30/2018 4,260,785 $ 0.82 $ 3,500 (Gain) on Change in Fair Value of Warrant Liability (1,385 ) Fair Value as of period ended 12/30/2018 4,260,785 $ 0.50 2,115 |
Stock Based Compensation (Table
Stock Based Compensation (Tables) | 3 Months Ended |
Dec. 30, 2018 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Schedule of aggregate non-vested restricted stock units granted under the Company's 2016 Restricted Stock Unit Plan | The following table summarizes the status of Optex Systems Holdings’ aggregate non-vested restricted stock units granted under the Company’s 2016 Restricted Stock Unit Plan: Outstanding Unvested RSU’s Unvested as of October 1, 2017 182,000 Granted - year ended September 30, 2018 — Vested - year ended September 30, 2018 (83,000 ) Unvested as of September 30, 2018 99,000 Granted – three months ended December 30, 2018 — Vested - three months ended December 30, 2018 — Unvested as of December 30, 2018 99,000 |
Schedule of compensation costs | 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 As of period ending December 30, 2018 December 31, 2017 December 30, 2018 September 30, 2018 Stock Options $ — $ 8 $ — $ — Restricted Stock Units 36 36 13 49 Total Stock Compensation $ 36 $ 44 $ 13 $ 49 |
Organization and Operations (De
Organization and Operations (Details Narrative) | 3 Months Ended |
Dec. 30, 2018ft²Employee | |
Leased facility (in square feet) | ft² | 93,967 |
Number of employees | Employee | 100 |
Sales Revenue, Net [Member] | Domestic Military Customers [Member] | |
Percentage of revenue | 87.00% |
Sales Revenue, Net [Member] | CANADA | |
Percentage of revenue | 12.00% |
U.S. government [Member] | Sales Revenue, Net [Member] | |
Percentage of revenue | 38.00% |
U.S Defense Contractor [Member] | Sales Revenue, Net [Member] | |
Percentage of revenue | 40.00% |
Commercial Customer [Member] | Sales Revenue, Net [Member] | |
Percentage of revenue | 13.00% |
All Other Customers [Member] | Sales Revenue, Net [Member] | |
Percentage of revenue | 9.00% |
Accounting Policies (Details)
Accounting Policies (Details) - USD ($) $ in Thousands | Dec. 30, 2018 | Sep. 30, 2018 |
Accounting Policies [Abstract] | ||
Raw Materials | $ 5,703 | $ 5,580 |
Work in Process | 4,147 | 3,478 |
Finished Goods | 344 | 254 |
Gross Inventory | 10,194 | 9,312 |
Less: Inventory Reserves | (1,673) | (1,673) |
Net Inventory | $ 8,521 | $ 7,639 |
Accounting Policies (Details 1)
Accounting Policies (Details 1) - USD ($) $ in Thousands | 3 Months Ended | ||
Dec. 30, 2018 | Dec. 31, 2017 | ||
Accounting Policies [Abstract] | |||
Beginning balance | $ 101 | $ 174 | |
Incurred costs for warranties during the three month period | (7) | ||
Warranties reserved for new product shipped during the three month period( | [1] | 29 | 62 |
Change in estimate for pre-existing warranty liabilities as of prior period end | [2] | (50) | 15 |
Ending balance | $ 73 | $ 251 | |
[1] | Warranty expenses accrued to cost of sales (based on current period shipments and historical warranty return rate). | ||
[2] | Changes in estimated warranty liabilities recognized in cost of sales associated with: the period end customer returned warranty backlog, or the actual costs of repaired/replaced warranty units which were shipped to the customer during the current period. |
Accounting Policies (Details Na
Accounting Policies (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands | Dec. 08, 2018 | Dec. 30, 2018 | Dec. 31, 2017 | Sep. 30, 2018 | Oct. 01, 2017 |
Warranty reserve | $ 73 | $ 251 | $ 101 | $ 174 | |
Warranty expense | 77 | ||||
Net gain in warranty expenses | (21) | ||||
Valuation allowance | (2,700) | (2,900) | |||
Deferred tax assets | $ 100 | 2,700 | 2,900 | ||
Increase (decrease) in deferred tax assets, valuation allowance | (200) | ||||
Decrease in deferred tax assets | (200) | ||||
Deferred contract revenue | 289 | ||||
Refund of customer deposit | 19 | ||||
Liabilities for customer deposit | 5 | ||||
Contract cost with customer | $ 0 | $ 0 | |||
Unexercised stock options | 34,980 | ||||
Net operating loss carryforward | $ 100 | ||||
Declared Dividends | $ 262 | ||||
Net decrease in basic and diluted income (loss) (in dollars per share) | $ (0.01) | ||||
Net loss related to common share (in dollars per share) | $ (0.16) | $ 0.02 | |||
Accounts Receivable [Member] | U.S. Defense Contractor [Member] | |||||
Concentration risk percentage | 69.00% | ||||
Accounts Receivable [Member] | U.S. Government Agencies [Member] | |||||
Concentration risk percentage | 11.00% | ||||
Accounts Receivable [Member] | One Large Commercial Customer [Member] | |||||
Concentration risk percentage | 7.00% | ||||
Accounts Receivable [Member] | All Other Customers [Member] | |||||
Concentration risk percentage | 13.00% | ||||
Unvested Restricted Stock Option [Member] | |||||
Number of stock units were excluded as anti-dilutive | 99,000 | 182,000 | |||
Stock Option [Member] | |||||
Number of stock units were excluded as anti-dilutive | 25,000 | 60,000 | |||
Warrant [Member] | |||||
Number of stock units were excluded as anti-dilutive | 4,260,785 | 4,323,135 | |||
Declared Dividends | $ 0 | ||||
Allocated undistributed earnings | $ 671 | ||||
Series C Preferred Stock [Member] | |||||
Number of stock units were excluded as anti-dilutive | 78 | ||||
Number of common shares issued upon conversion | 325,000 | ||||
Warrants And Series C Preferred Shares [Member] | |||||
Declared Dividends | $ 90 | ||||
Allocated undistributed earnings | $ 0 |
Segment Reporting (Details)
Segment Reporting (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Dec. 30, 2018 | Dec. 31, 2017 | |
Total Revenue | $ 5,891 | $ 4,777 |
Interest expense | 6 | 3 |
Depreciation and Amortization | 85 | 81 |
Income before taxes | 2,079 | (4) |
Other significant noncash items: | ||
Allocated home office expense | ||
Loss (Gain) on change in fair value of warrants | (1,385) | 344 |
Stock compensation expense | 36 | 44 |
Royalty expense amortization | 8 | 7 |
Warranty Expense | (21) | 77 |
Segment Assets | 13,778 | 13,185 |
Expenditures for segment assets | 18 | |
Revenues from External Customers [Member] | ||
Total Revenue | 5,891 | 4,777 |
Intersegment revenues [Member] | ||
Total Revenue | ||
Other (Non Allocated Costs and Intersegment Eliminations) [Member] | ||
Total Revenue | (415) | (371) |
Interest expense | 6 | 3 |
Depreciation and Amortization | ||
Income before taxes | 1,343 | (391) |
Other significant noncash items: | ||
Allocated home office expense | ||
Loss (Gain) on change in fair value of warrants | (1,385) | 344 |
Stock compensation expense | 36 | 44 |
Royalty expense amortization | ||
Warranty Expense | ||
Segment Assets | ||
Expenditures for segment assets | ||
Other (Non Allocated Costs and Intersegment Eliminations) [Member] | Revenues from External Customers [Member] | ||
Total Revenue | (415) | |
Other (Non Allocated Costs and Intersegment Eliminations) [Member] | Intersegment revenues [Member] | ||
Total Revenue | (415) | (371) |
Optex Systems (OPX) - Richardson, Texas [Member] | ||
Total Revenue | 3,830 | 2,665 |
Interest expense | ||
Depreciation and Amortization | 9 | 10 |
Income before taxes | 406 | 138 |
Other significant noncash items: | ||
Allocated home office expense | (170) | (156) |
Loss (Gain) on change in fair value of warrants | ||
Stock compensation expense | ||
Royalty expense amortization | 8 | 7 |
Warranty Expense | ||
Segment Assets | 9,448 | 8,477 |
Expenditures for segment assets | 4 | |
Optex Systems (OPX) - Richardson, Texas [Member] | Revenues from External Customers [Member] | ||
Total Revenue | 3,830 | 2,665 |
Optex Systems (OPX) - Richardson, Texas [Member] | Intersegment revenues [Member] | ||
Total Revenue | ||
Applied Optics Center (AOC) - Dallas [Member] | ||
Total Revenue | 2,476 | 2,483 |
Interest expense | ||
Depreciation and Amortization | 76 | 71 |
Income before taxes | 330 | 249 |
Other significant noncash items: | ||
Allocated home office expense | 170 | 156 |
Loss (Gain) on change in fair value of warrants | ||
Stock compensation expense | ||
Royalty expense amortization | ||
Warranty Expense | (21) | 77 |
Segment Assets | 4,330 | 4,708 |
Expenditures for segment assets | 14 | |
Applied Optics Center (AOC) - Dallas [Member] | Revenues from External Customers [Member] | ||
Total Revenue | 2,061 | 2,112 |
Applied Optics Center (AOC) - Dallas [Member] | Intersegment revenues [Member] | ||
Total Revenue | $ 415 | $ 371 |
Segment Reporting (Details Narr
Segment Reporting (Details Narrative) | 3 Months Ended |
Dec. 30, 2018ft²Employee | |
Number of employees | Employee | 100 |
Optex Systems (OPX) - Richardson, Texas [Member] | |
Number of employees | 67 |
Leased facilities | 49,100 |
Applied Optics Center (AOC) - Dallas [Member] | |
Number of employees | 33 |
Leased facilities | 44,867 |
Domestic Military Customers [Member] | Optex Systems (OPX) - Richardson, Texas [Member] | Sales Revenue, Net [Member] | |
Percentage of revenue | 81.00% |
Foreign Military Customers [Member] | Optex Systems (OPX) - Richardson, Texas [Member] | Sales Revenue, Net [Member] | |
Percentage of revenue | 19.00% |
U.S. government [Member] | Sales Revenue, Net [Member] | |
Percentage of revenue | 38.00% |
U.S. government [Member] | Optex Systems (OPX) - Richardson, Texas [Member] | Sales Revenue, Net [Member] | |
Percentage of revenue | 27.00% |
U.S. government [Member] | Applied Optics Center (AOC) - Dallas [Member] | Sales Revenue, Net [Member] | |
Percentage of revenue | 11.00% |
U.S Defense Contractor [Member] | Sales Revenue, Net [Member] | |
Percentage of revenue | 40.00% |
U.S Defense Contractor [Member] | Optex Systems (OPX) - Richardson, Texas [Member] | Sales Revenue, Net [Member] | |
Percentage of revenue | 34.00% |
Revenues from External Customers [Member] | Applied Optics Center (AOC) - Dallas [Member] | Sales Revenue, Net [Member] | |
Percentage of revenue | 83.00% |
Commercial Customers [Member] | Applied Optics Center (AOC) - Dallas [Member] | Sales Revenue, Net [Member] | |
Percentage of revenue | 45.00% |
Subcontracted Customers [Member] | Applied Optics Center (AOC) - Dallas [Member] | Sales Revenue, Net [Member] | |
Percentage of revenue | 30.00% |
Military Contracts [Member] | Applied Optics Center (AOC) - Dallas [Member] | Intersegment Sales Revenue [Member] | |
Percentage of revenue | 17.00% |
One Major Commercial Customers [Member] | Applied Optics Center (AOC) - Dallas [Member] | Sales Revenue, Net [Member] | |
Percentage of revenue | 13.00% |
Commitments and Contingencies_2
Commitments and Contingencies (Details) $ in Thousands | Dec. 30, 2018USD ($) |
Fiscal Year | |
2,019 | $ 532 |
2,020 | 720 |
2,021 | 529 |
2,022 | 27 |
Total minimum lease payments | 1,808 |
Optex Systems (OPX) - Richardson, Texas [Member] | Lease Payments [Member] | |
Fiscal Year | |
2,019 | 212 |
2,020 | 291 |
2,021 | 147 |
2,022 | |
Total minimum lease payments | 650 |
Optex Systems (OPX) - Richardson, Texas [Member] | Common Area Maintenance Estimate [Member] | |
Fiscal Year | |
2,019 | 83 |
2,020 | 112 |
2,021 | 57 |
2,022 | |
Total minimum lease payments | 252 |
Applied Optics Center (AOC) - Dallas [Member] | Lease Payments [Member] | |
Fiscal Year | |
2,019 | 186 |
2,020 | 255 |
2,021 | 262 |
2,022 | 22 |
Total minimum lease payments | 725 |
Applied Optics Center (AOC) - Dallas [Member] | Common Area Maintenance Estimate [Member] | |
Fiscal Year | |
2,019 | 51 |
2,020 | 62 |
2,021 | 63 |
2,022 | 5 |
Total minimum lease payments | $ 181 |
Commitments and Contingencies_3
Commitments and Contingencies (Details Narrative) - Optex Systems (OPX) - Richardson, Texas [Member] - USD ($) $ in Thousands | 3 Months Ended | ||
Dec. 30, 2018 | Dec. 31, 2017 | Sep. 30, 2018 | |
Total facilities rental and CAM expense | $ 172 | $ 168 | |
Unamortized deferred rent | $ 106 | $ 111 |
Debt Financing (Details Narrati
Debt Financing (Details Narrative) - Avidbank [Member] - Revolving Credit Facility [Member] - USD ($) $ in Thousands | Apr. 05, 2018 | Dec. 30, 2018 | Dec. 31, 2017 | Oct. 01, 2017 |
Outstanding principal balance | $ 500 | $ 300 | ||
Total interest (income) expense | $ 6 | $ 3 | ||
Amended and Restated Loan Agreement [Member] | ||||
Maturity date | Apr. 21, 2020 | |||
Percentage of facility fee | 0.50% | |||
Description of term period | The Company can maintain accounts at third party banks so long as the total in those other bank accounts does not exceed 20% of the total on deposit at Avidbank, and it shall remit to Avidbank monthly statements for all of those accounts within 30 days of the end of each month. |
Warrant Liabilities (Details)
Warrant Liabilities (Details) - Warrant [Member] | Dec. 30, 2018$ / shares | Sep. 30, 2018$ / shares | Dec. 31, 2017$ / shares | Oct. 01, 2017$ / shares | Aug. 26, 2016$ / shares | ||||||
Fair value measurement input | 1.50 | ||||||||||
Warrant Expiration Date | [2] | Aug. 26, 2021 | [1] | Aug. 26, 2021 | [1] | Aug. 26, 2021 | [3] | Aug. 26, 2021 | Aug. 26, 2021 | [3] | |
Time to Maturity (Years) | 2 years 8 months 12 days | ||||||||||
Calculated fair value per share | $ 0.50 | [1] | $ 0.82 | [1] | $ 0.96 | [3] | $ 0.87 | [3] | $ 0.93 | [3] | |
Excise Price [Member] | |||||||||||
Fair value measurement input | [2] | 1.50 | [1] | 1.50 | [1] | 1.50 | [3] | 1.50 | [3] | 1.50 | |
Time to Maturity (Years) [Member] | |||||||||||
Time to Maturity (Years) | 2 years 8 months 12 days | [1] | 2 years 10 months 24 days | [1] | 3 years 8 months 12 days | [3] | 3 years 10 months 24 days | [3] | 5 years | [3] | |
Volatility (annual) [Member] | |||||||||||
Fair value measurement input | [1],[3] | 0.6295 | 0.6405 | 1.7104 | 1.7936 | 2.4644 | |||||
Stock Price [Member] | |||||||||||
Fair value measurement input | [4] | 1.32 | [1] | 1.71 | [1] | 1.10 | [3] | 0.98 | [3] | 0.95 | [3] |
Interest Rate (annual) [Member] | |||||||||||
Fair value measurement input | [5] | 0.0249 | [1] | 0.0288 | [1] | 0.0198 | [3] | 0.0162 | [3] | 0.0123 | [3] |
[1] | Based on the historical daily volatility of Optex Systems Holdings, Inc. from the consummation of the public raise on August 26, 2016 through the current presented measurement date. The company determined that the historical volatility prior to the August 26, 2016 public offering was not representative of the current market expectations due to the significant change in company capital structure and increase in public float shares (liquidity) arising from the common stock issued during the public offering and concurrent conversions of outstanding preferred shares into common stock. The fair value calculation was derived using the Black Scholes Merton Option Pricing model. | ||||||||||
[2] | Based on the terms provided in the warrant agreement to purchase common stock of Optex Systems Holdings, Inc. dated August 26, 2016. | ||||||||||
[3] | Based on the historical daily volatility of Optex Systems Holdings, Inc. for the term of the warrants as of August 26, 2016 and each presented period ended date through April 1, 2018. The original fair value calculations were derived using the Binomial model, however, the yielded results were consistent with fair market valuation using the Black Scholes Merton Option Pricing model for each of the respective periods. | ||||||||||
[4] | Based on the trading value of common stock of Optex Systems Holdings, Inc. as of August 26, 2016 and each presented period ended date. | ||||||||||
[5] | Interest rate for U.S. Treasury Bonds, as of August 26, 2016 and each presented period ended date, as published by the U.S. Federal Reserve. |
Warrant Liabilities (Details 1)
Warrant Liabilities (Details 1) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | |||||||||
Dec. 30, 2018 | Dec. 31, 2017 | Sep. 30, 2018 | Oct. 01, 2017 | Aug. 26, 2016 | [2] | |||||
Warrant Liability | $ 2,115 | $ 3,500 | ||||||||
(Gain) Loss on Change in Fair Value of Warrants | $ (1,385) | $ 344 | ||||||||
Warrant [Member] | ||||||||||
Warrants Outstanding | 4,260,785 | 4,323,135 | 4,260,785 | 4,323,135 | ||||||
Fair Value per Share | $ 0.50 | [1] | $ 0.96 | [2] | $ 0.82 | [1] | $ 0.87 | [2] | $ 0.93 | |
Warrant Liability | $ 2,115 | $ 3,951 | $ 3,500 | $ 3,607 | ||||||
(Gain) Loss on Change in Fair Value of Warrants | $ (1,385) | $ 344 | ||||||||
[1] | Based on the historical daily volatility of Optex Systems Holdings, Inc. from the consummation of the public raise on August 26, 2016 through the current presented measurement date. The company determined that the historical volatility prior to the August 26, 2016 public offering was not representative of the current market expectations due to the significant change in company capital structure and increase in public float shares (liquidity) arising from the common stock issued during the public offering and concurrent conversions of outstanding preferred shares into common stock. The fair value calculation was derived using the Black Scholes Merton Option Pricing model. | |||||||||
[2] | Based on the historical daily volatility of Optex Systems Holdings, Inc. for the term of the warrants as of August 26, 2016 and each presented period ended date through April 1, 2018. The original fair value calculations were derived using the Binomial model, however, the yielded results were consistent with fair market valuation using the Black Scholes Merton Option Pricing model for each of the respective periods. |
Warrant Liabilities (Details Na
Warrant Liabilities (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands | Aug. 26, 2016 | Dec. 30, 2018 | Dec. 31, 2017 |
(Gain) Loss on Change in Fair Value of Warrants | $ (1,385) | $ 344 | |
Warrant [Member] | |||
Number of shares issued | 4,323,135 | ||
Exercise price (in dollars per share) | $ 1.50 | ||
(Gain) Loss on Change in Fair Value of Warrants | $ (1,385) | $ 344 | |
Implied volatility rate | 62.95% | ||
Time to Maturity (Years) | 2 years 8 months 12 days |
Stock Based Compensation (Detai
Stock Based Compensation (Details) - 2016 Restricted Stock Unit Plan [Member] - shares | 3 Months Ended | 12 Months Ended |
Dec. 30, 2018 | Sep. 30, 2018 | |
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward] | ||
Non-vested outstanding at beginning | 99,000 | 182,000 |
Shares granted | ||
Vested | (83,000) | |
Non-vested outstanding at ending | 99,000 | 99,000 |
Stock Based Compensation (Det_2
Stock Based Compensation (Details 1) - USD ($) $ in Thousands | 3 Months Ended | ||
Dec. 30, 2018 | Dec. 31, 2017 | Sep. 30, 2018 | |
Recognized Compensation Expense | $ 36 | $ 44 | |
Unrecognized Compensation Expense | 13 | $ 49 | |
Stock Options [Member] | |||
Recognized Compensation Expense | 8 | ||
Unrecognized Compensation Expense | |||
Restricted Stock Units (RSUs) [Member] | |||
Recognized Compensation Expense | 36 | $ 36 | |
Unrecognized Compensation Expense | $ 13 | $ 49 |
Stock Based Compensation (Det_3
Stock Based Compensation (Details Narrative) - $ / shares | Jan. 02, 2019 | Jan. 01, 2019 | Dec. 08, 2018 | Dec. 30, 2018 |
Stock options expired or forfeited | 34,980 | |||
2009 Stock Option Plan [Member] | ||||
Number of share authorized | 75,000 | |||
Fully vested stock options outstanding | 25,000 | |||
Exercise price (in dollars per share) | $ 10 | |||
Stock options expired or forfeited | 34,980 | |||
Number of options granted | 0 | |||
2016 Restricted Stock Unit Plan [Member] | Subsequent Event [Member] | ||||
Number of shares vested | 82,500 | |||
Vesting period | 3 years | |||
2016 Restricted Stock Unit Plan [Member] | Subsequent Event [Member] | Mr.Danny Schoening [Member] | ||||
Number of shares granted | 150,000 | |||
2016 Restricted Stock Unit Plan [Member] | Subsequent Event [Member] | Mr.Karen Hawkins [Member] | ||||
Number of shares granted | 50,000 |
Stockholders' Equity (Details N
Stockholders' Equity (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands | Jan. 07, 2019 | Jan. 01, 2019 | Jan. 19, 2018 | Dec. 30, 2018 | Dec. 31, 2017 | Sep. 30, 2018 | Jul. 12, 2017 |
Common shares outstanding | 8,333,353 | 8,333,353 | |||||
Dividends payable | |||||||
Dividend declared per share and per warrant (in dollars per share) | $ 0.02 | ||||||
Dividends paid | $ 262 | $ 261 | |||||
Series C Preferred Stock [Member] | |||||||
Preferred stock, outstanding | 0 | 0 | |||||
Number of shares converted | 96 | ||||||
Number of shares converted, value | $ 500 | ||||||
Common Stock [Member] | Series C Preferred Stock [Member] | |||||||
Number of common shares issued upon conversion | 400,000 | ||||||
Subsequent Event [Member] | |||||||
Number of common shares issued upon conversion | 55,565 | ||||||
Subsequent Event [Member] | Restricted Stock Units (RSUs) [Member] | |||||||
Number of common shares issued upon vesting | 82,500 |
Subsequent Events (Details Narr
Subsequent Events (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands | Jan. 07, 2019 | Jan. 02, 2019 | Jan. 01, 2019 | Dec. 30, 2018 | Dec. 31, 2017 |
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward] | |||||
Stock compensation expense | $ 36 | $ 44 | |||
Subsequent Event [Member] | |||||
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward] | |||||
Stock compensation expense | $ 264 | ||||
Granted (in doller per shares) | $ 1.32 | ||||
Description of executive compensation | Company granted 150,000 and 50,000 restricted stock units with a January 2, 2019 grant date, to Danny Schoening and Karen Hawkins, respectively, vesting as of January 1 each year subsequent to the grant date over a three year period at a rate of 34% in year one, and 33% each year thereafter. | ||||
Number of common shares issued upon conversion | 55,565 | ||||
Subsequent Event [Member] | Restricted Stock Units (RSUs) [Member] | |||||
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward] | |||||
Number of common shares issued upon vesting | 82,500 | ||||
Subsequent Event [Member] | Mr.Danny Schoening [Member] | |||||
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward] | |||||
Salary increase | 8.00% | ||||
Subsequent Event [Member] | Mr.Karen Hawkins [Member] | |||||
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward] | |||||
Salary increase | 8.00% |