UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of
Report (Date of earliest event reported): March 30, 2009
OPTEX SYSTEMS HOLDINGS,
INC.
(Exact
Name of Registrant as Specified in Charter)
Delaware
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333-
143215
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(State
or other jurisdiction of incorporation)
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(Commission
File Number)
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(IRS
Employer Identification No.)
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1420 Presidential Drive, Richardson,
TX
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75081-2439
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s telephone number,
including area code: 972-238-1403
Sustut
Exploration, Inc. 1420 5th Avenue #220
Seattle,
Washington 98
101
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(Former
name or former address, if changed since last
report)
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Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 DFR
240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4 (c) under the Exchange
Act (17 CFR 240.13e-4(c))
ITEM
1.01 Entry into Material Definitive Agreement.
On March
30, 2009, Optex Systems Holdings, Inc. (formerly known as Sustut Exploration,
Inc., and the name was changed on March 26, 2009 pursuant to an amendment to the
Articles of Incorporation, filed with the State of Delaware) (the
“Registrant”) entered into an Agreement and Plan of Reorganization (the
“Reorganization Agreement”) with Optex Systems, Inc., a privately-held Delaware
corporation (“Optex”).
Closing
under the Reorganization Agreement was contingent, among other things, upon
receipt by the Registrant of (i) financial statements of Optex which have been
audited in accordance with generally accepted accounting principles in the U.S,
(ii) written approval from all shareholders of Optex of the terms of
Reorganization Agreement, (iii) receipt of representations from the
shareholders of Optex regarding their ownership of the shares and authority to
transfer them under the terms of the Reorganization Agreement free and clear of
any liens, claims or encumbrances, and (iv) delivery of the share certificates
representing all of the issued and outstanding stock of Optex, duly endorsed for
transfer. The parties closed the transaction on or about March 30,
2009.
Registrant,
Shareholders and Optex entered into this Agreement which provides, among other
things, that (i) the outstanding 85,000,000 shares of Optex Common Stock be
exchanged by Registrant for
113,333,282
shares of Registrant
Common Stock, (ii) the outstanding 1,027 shares of Optex Series A Preferred
Stock be exchanged by Registrant for 1,027 shares of Registrant Series A
Preferred Stock and such additional items as more fully described in the
Agreement and (iii) the 8,131,667 shares of Optex purchased in the private
placement were exchanged by Registrant for 8,131,667 shares of Registrant Common
Stock, as acknowledged by Registrant. Accordingly, following closing,
Optex will be a wholly-owned subsidiary of the Registrant, and the Registrant
will have a total of approximately 141,464,940 million common stock shares
issued and outstanding, of which 19,999,991 million will be owned by persons who
were previously shareholders of the Registrant and 121,464,949 will be owned by
persons who were previously shareholders of Optex, and/or their nominees.
Registrant will also have 1,027 shares of its Series A Preferred Stock
outstanding which will be owned by persons who were previously creditors of
Optex.
In
addition, pursuant to the terms and conditions of the Reorganization Agreement
upon Closing:
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The
Registrant’s board of directors will be reconstituted to consist initially
of Stanley Hirschman, Merrick Okamoto and Ronald Richards.
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All
current officers of the Registrant shall resign and the newly constituted
board of directors shall appoint Stanley Hirschman as President, and shall
appoint such other officers as it deems necessary and in the best
interests of the Registrant.
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Following
closing, the Registrant shall complete the sale, transfer or other
disposition of its pre-closing business operations, including all assets
and liabilities related to such
operations.
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Item
2.01 Completion of Acquisition or Disposition of Assets .
As used
in this Current Report on Form 8-K, all references to the “Company,” “we,” “our”
and “us” for periods prior to the closing of the Reorganization refer to the
Registrant, and for periods subsequent to the closing of the Reorganization
refer to the Registrant and its subsidiaries.
Information
regarding the Company, Optex and the principal terms of the Reorganization are
set forth below.
The
Reorganization
The Reorganization.
On March
30, 2009, a closing occurred whereby the then existing shareholders of Optex
exchanged their shares of Optex Common Stock for the shares of Common Stock of
Registrant as follows: (i) the outstanding 85,000,000 shares of Optex
Common Stock were exchanged by Registrant for 113,333,282 shares of Registrant
Common Stock, (ii) the outstanding 1,027 shares of Optex Series A Preferred
Stock were exchanged by Registrant for 1,027 shares of Registrant Series A
Preferred Stock and such additional items as more fully described in the
Agreement and (iii) the 8,131,667 shares of Optex Common Stock purchased in the
private placement will be exchanged by Registrant for 8,131,667 shares of
Registrant Common Stock, as acknowledged by Registrant.
Optex shall remain a
wholly owned subsidiary of Registrant, and Optex shareholders are now
shareholders of Registrant.
Simultaneously
with closing of the Reorganization Agreement (and the shares are included
above), as of March 30, 2009, Optex accepted subscriptions (“Private Placement”)
from accredited investors for a total 27 units (the "Units"), for $45,000 per
Unit, with each Unit consisting of Three Hundred Thousand (300,000) shares of
common stock, no par value (the "Common Stock") of Optex and warrants to
purchase Three Hundred Thousand (300,000) shares of Common Stock for $0.45 per
share for a period of five (5) years from the initial closing (the "Warrants"),
which were issued by Registrant after the closing referenced
above. Gross proceeds to the Company were $1,219,750, and after
deducting a finders fee of $139,555 which was payable in cash, and non-cash
consideration which constituted satisfaction of indebtedness owed to an investor
of $146,250, net proceeds were $933,945. The finder also received
five year warrants to purchase 2.7 Units, at an exercise price of $49,500 per
unit.
Neither
the Company nor Optex had any options or warrants to purchase shares of capital
stock outstanding immediately prior to or following the Reorganization, except
for 8,941,667 warrants issued in the Private Placement. Immediately prior the
the closing, Registrant adopted the 2009 Stock Option Plan providing for the
issuance of up to 6,000,000 shares for the purpose of having shares available
for the granting of options to Company officers, directors, employees and to
independent contractors who provide services to the Company.
The
shares of the Company’s common stock issued in connection with the
Reorganization and the private placement offering were not registered under the
Securities Act. All shares issued in connection with the Reorganization
were issued in reliance upon the exemption from registration provided by
Regulation D under the Securities Act, which exempts transactions to certain
accredited. The shares issued in connection with the private placement offering
were issued in part in reliance upon the exemption from registration provided by
Regulation D under the Securities Act and in part in reliance upon the exemption
from registration provided by Section 4(2) under the Securities Act for
transactions not involving any public offering. All such securities
constitute “restricted securities” as defined in Rule 144 under the Securities
Act of 1933, and may not be offered or sold in the United States absent
registration or an applicable exemption from the registration requirements.
Certificates representing these shares contain a restrictive legend stating the
same.
Changes Resulting from the
Reorganization.
Registrant’s business is now the business of
Optex. Optex, which was founded in 1987, is a Richardson, Texas –
based ISO 9001:2000 certified concern, which manufactures optical sighting
systems and assemblies primarily for Department of Defense (DOD) applications.
Its products are installed on a majority of types 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 Future
Combat Systems (FCS) Stryker vehicle. Optex also manufactures and delivers
numerous periscope configurations, rifle and surveillance sights and night
vision optical assemblies. Optex delivers its products both directly to the
military services and to prime contractors.
Optex
profitably delivers high volume products, under multi-year contracts, to large
defense contractors. Optex has the reputation and credibility with those
customers as a strategic supplier.
Following
completion of the Reorganization, the Company intends to carry on Optex’s
business as its sole line of business. The Company has relocated its executive
offices to Optex Systems, Inc., 1420 Presidential Drive, Richardson,
TX 75081-2439, and its telephone number is (972) 238-1403.
Changes to the Board of Directors.
In conjunction with closing under the terms of the Reorganization
Agreement, the number of members of the Company’s board of directors was
increased to three and Stanley Hirschman, Ronald Richards and Merrick Okamoto
were appointed to serve as Directors of the Company and Andrey Oks
resigned. Ronald Richards was appointed as Chairman of the
board of directors.
All of
the Company’s directors will hold office until the next annual meeting of the
stockholders or until the election and qualification of their successors. The
Company’s officers are elected by the board of directors and serve at the
discretion of the board of directors.
Name Change and Stock Option
Plan.
On or about March 26, 2009, the Registrant’s board of
directors and shareholders approved the change of the Registrant’s name to
“Optex Systems Holdings, Inc.” and approved the 2009 Stock Option
Plan.
2009
Stock Option Plan. The purpose of the Plan is to to assist the
Registrant in attracting and retaining highly competent employees and to act as
an incentive in motivating selected officers and other employees of the
Registrant and its subsidiaries, and directors and consultants of the Registrant
and its subsidiaries, to achieve long-term corporate
objectives. There are 6,000,000 shares of common stock reserved for
issuance under this Plan. As of March 31, 2009, the Registrant had
not issued any stock options under this Plan.
Description
of the Business
Background
On March
30, 2009, a closing occurred whereby the then existing shareholders of the
Company exchanged their shares of Company Common Stock with the shares of Common
Stock of Sustut Exploration, Inc. (“Registrant”) as follows: (i) the
outstanding 85,000,000 shares of Company Common Stock were exchanged by
Registrant for 113,333,282 shares of Registrant Common Stock, (ii) the
outstanding 1,027 shares of Company Series A Preferred Stock were exchanged by
Registrant for 1,027 shares of Registrant Series A Preferred Stock and such
additional items as more fully described in the Agreement and (iii) the
8,131,667 shares of Company purchased in the private placement will be exchanged
by Registrant for 8,131,667 shares of Registrant Common Stock, as acknowledged
by Registrant.
The
Company shall remain a wholly-owned subsidiary of Registrant, and the Company’s
shareholders are now shareholders of Registrant.
Simultaneously
with closing under the Reorganization Agreement (and the shares are included
above), as of March 30, 2009 , the Company accepted subscriptions (“Private
Placement”) from accredited investors for a total 27 units (the "Units"), for
$45,000.00 per Unit, with each Unit consisting of Three Hundred Thousand
(300,000) shares of common stock, no par value (the "Common Stock") of the
Company and warrants to purchase Three Hundred Thousand (300,000) shares of
Common Stock for $0.45 per share for a period of five (5) years from the initial
closing (the "Warrants"), which were issued by Registrant after the closing
referenced above. Gross proceeds to the Company were $1,219,750, and
after deducting a finders fee of $139,555 which was payable in cash, and
consideration which constituted of satisfaction of indebtedness owed to an
investor of $146,250, net proceeds were $933,945. The finder also
received five year warrants to purchase 2.7 Units, at an exercise price of
$49,500 per unit.
Optex,
which was founded in 1987, is a Richardson, Texas – based ISO 9001:2000
certified concern, which manufactures optical sighting systems and assemblies
primarily for Department of Defense (DOD) applications. Its products are
installed on a majority of 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 Future Combat Systems
(FCS) Stryker vehicle. Optex also manufactures and delivers numerous periscope
configurations, rifle and surveillance sights and night vision optical
assemblies. Optex delivers its products both directly to the military services
and to prime contractors.
Optex
profitably delivers high volume products, under multi-year contracts, to large
defense contractors. Optex has the reputation and credibility with those
customers as a strategic supplier. The successful completion of the separation
from IRSN has enhanced the Company’s ability to serve its existing customers and
will set the stage for it to become a center of manufacturing excellence. The
Company also anticipates the opportunity to integrate some of its night vision
and optical sights products into retail applications. The Company now
plans to carry on the business of Optex as its sole line of business, and all of
the Company’s operations are expected to be conducted by and through Optex.
All references to the “Company,” “we,” “our” and “us” for periods prior to
the closing of the Reorganization refer to the Registrant, and references to the
“Company,” “we,” “our” and “us” for periods subsequent to the closing of the
Reorganization refer to the Registrant and its subsidiaries.
Organizational
History
Optex
Systems, Inc., which was founded in 1987, is an ISO 9001:2000 certified concern
which manufactures optical sighting systems and assemblies primarily for
Department of Defense (DOD) applications. Optex was a privately-held company
since inception until being acquired by publicly traded Irvine Sensors Corp.
(IRSN) on December 30, 2005 and was operated as a wholly owned subsidiary of
IRSN. On October 14, 2008, Optex Systems Inc. (Delaware) acquired Optex Systems
in a public auction process. Optex Delaware was formed by the Longview Fund, LP
and Alpha Capital Antstalt, former secured creditors of IRSN, to consummate the
transaction with the Company, and subsequently, on February 20, 2009, Longview
Fund conveyed its ownership interest in the Company to Sileas Corp., an entity
owned by three of the Company’s officers.
Products
Optex
products are installed on a majority of types 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 Future Combat
Systems (FCS) Stryker vehicle. Optex also manufactures and delivers numerous
periscope configurations, rifle and surveillance sights and night vision optical
assemblies. Optex delivers its products both directly to the military services
and to prime contractors.
Optex
profitably delivers high volume products, under multi-year contracts, to large
defense contractors. Optex has the reputation and credibility with those
customers as a strategic supplier. The successful completion of the separation
from IRSN has enhanced the company’s ability to serve its existing customers and
will set the stage for it to become a center of manufacturing excellence. The
Company also anticipates the opportunity to integrate some of its night vision
and optical sights products into retail applications.
Specific
product lines include:
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Electronic
sighting systems
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Mechanical
sighting systems
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Laser
protected glass periscopes
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Laser
protected plastic periscopes
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Non-laser
protected plastic periscopes
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Howitzer
sighting systems
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Replacement
optics (e.g. filters, mirrors)
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Location and
Facility
Optex is
located in Richardson, TX in a 49,000 square foot facility and currently has 109
employees. The Company operates with a single shift, and capacity could be
expanded by adding a second shift. The Company’s proprietary
processes and methodologies serve to provide barriers to entry by other
competing suppliers. In many cases Optex is the sole source provider or one of
only two providers of a product. It has capabilities which include
machining, bonding, painting, tracking, engraving and assembly and can perform
both optical and environmental testing in-house.
Prior Operational/Financial
Challenges; Recovery; and Future Growth Potential
During
the IRSN phase of Optex’s history, its parent company faced certain business
challenges and utilized the cash flow from Optex to meet other non-Optex
needs. This left Optex with inadequate operating
resources.
Since the
buyout, the Optex picture has dramatically changed. Management has
made substantial progress in increasing operational efficiencies and
productivity and has become profitable. Based on this progress,
management estimates 2009 annual revenue of $27.4 million to be drawn from its
$42 million backlog and ongoing contractual business.
Optex is
currently bidding on several substantial government contracts to expand sales
and production beyond the current production and backlog. It is also
exploring possibilities to adapt some of its products for commercial use where
those markets show potential for solid revenue growth.
Market Opportunity – U.S.
Military
Optex
products are currently marketed in the military and related government
markets. Since 1998, American military spending has increased over
225% on an annual basis to over $600 billion per year. As the
American presence overseas continues, this level of spending should continue to
exist. Also, the market for replacement parts for existing military
equipment is significant.
Optex
meets the U.S. military requirements in its product lines:
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Reliability
– failure can cost lives
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Ability
to deliver on schedule
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Armed
forces need to be able to see to
perform
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Mission
critical products.
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Therefore,
Optex is well positioned to continue to service U.S. military
needs.
Market Opportunity –
Commercial/Retail
Optex
products are currently sold exclusively to military and related government
markets. We believe we have significant potential retail opportunities to
commercialize various products we presently manufacture. Our initial
focus will be directed in three product areas.
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Big
Eye Binoculars – While the military application we produce is based on
mature military designs, Optex owns all castings, tooling and glass
technology. These large fixed mount binoculars could be sold to
Cruise Ships, Personal Yachts and
Cities/Municipalities.
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Night
Vision Goggles – Optex presently manufactures the Optical System for the
NL-61 Night Vision Goggles for the Ministry of Defense of Israel. This
technology is based on the IR Squared design and could be implemented for
retail commercial applications.
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Infrared
Imaging Equipment – Optex manufactures and assembles Infrared Imaging
Equipment for Textron and components for Raytheon’s Thermal Imaging M36
Mount product. This equipment and technology has potential to be assembled
for border patrol, police and security
agencies.
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Customer
Base
Optex
serves customers in three primary categories: as prime contractor
(TACOM, U.S. Army, Navy and Marine Corps), as subcontractor (General Dynamics,
BAE, Raytheon and Northrop) and also as a supplier to foreign governments
(Israel, Australia and NAMSA). Although we do serve all three of
these categories, at present, approximately 90% of the gross revenue from our
business is derived from two customers, General Dynamics Land Systems (“GDLS”)
and U.S. Army TACOM, with which we have approximately 50 discrete contracts
which cover supply of all of vehicles, product lines and spare
parts. Given the size of GDLS and TACOM as well as the fact that the
contracts are not interdependent, we are of the opinion that this provides us
with a well diversified customer pool. This broad base enables Optex
to mitigate its risk in this economic environment by not relying on a sole or
few sources of revenue as well as providing a broad base from which to build its
future business.
Marketing
Plan
Optex has
used two models to help define its Marketing Plan. First, Michael
Porter’s Five Force Model.
Potential Entrants –
Low.
In order to enter this market companies have a large
barrier to entry. The first hurdle is that an entrant would need to
prove the existence of a government approved accounting systems for larger
contracts. Second, the entrant would need to develop the processes
required to produce the product. Third, the entrant would need to
produce product and submit successful test requirements (many of which need
government consultation to complete). Finally, in many cases the
customer has an immediate need, cannot wait for this qualification cycle, and
must issue the contracts to existing suppliers.
Buyers –
Medium.
In most cases the buyers have two fairly strong
suppliers. It is in their best interest to keep at least two, and
therefore in some cases the contracts are split between suppliers. In
the case of larger contracts, the customer can potentially request an open book
policy on costs and expect a reasonable margin has been applied.
Substitutes –
Low.
Optex has both new vehicle contracts and replacement part
contracts for the exact same product. The US Government has declared
that the Abrams/Bradley base vehicles will be the ground vehicle of choice out
through 2040. This allows efficiencies within the supply chain and a
very long ROI on new vehicle proposals.
Suppliers – Low to
Medium.
The suppliers of standard processes (casting,
machining, plating, etc.) have very little power. Given the current
state of the economy, they need to be very competitive to gain and /or maintain
contracts. Those suppliers of products which use Top Secret Clearance
processes are slightly better off; however, there continues to be multiple
avenues of supply and therefore moderate power.
Industry Competitors –
Low.
The current suppliers have been partitioned according to
their processes and the products. Optex and Miller-Holzwarth tend to
compete for the plastic periscope products whereas Optex and Seiler have
competed on the higher level products. In the last 12-18 months,
Optex has begun to challenge Seiler in areas where they have long held the
dominant role. For example, while the existing Howitzer contracts are
at low margins, the new bids will be at a much higher margin now that Optex has
proven they can produce the product.
The
second model is a two by two matrix for Products and Customers.
This
model describes three basic actions for Optex:
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Take
Existing Products into the applications of New
Customers.
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2)
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Take
New Products into our Existing
Customers.
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3)
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Expand
the Portfolio by developing New Products for New
Customers.
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Operations
Plan
The
Operations Plan for Optex can be broken down into three distinct
areas: Material Management, Manufacturing Space Planning, and
Efficient Economies of Scale.
Materials
Management
The
largest portion of costs captured in the Optex Income Statement is
Materials. Optex has completed the following activities in order to
demonstrate continuous improvement:
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Successful
Completion of ISO9001:2000
Re-Certification
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Weekly
Cycle Counts on Inventory Items
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Weekly
Material Review Board Meeting on non-moving piece
parts
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Kanban
kitting on products with consistent weekly ship
quantities
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Daily
review of Yields and Product
Velocity
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Bill
of Material Reviews prior to Work Order
Release
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Future
continuous improvement opportunities include installation and training of the
Shop Floor Control module within our ERP system and organizational efficiencies
of common procurement techniques among buyers.
Manufacturing Space
Planning
The
existing square footage occupied by Optex is 49,000. While not
critical at this time, Optex needs to explore expansion opportunities to support
future growth. Given the ample building opportunities along with
competitive lease rates, the objective is to maintain building and building
related costs consistent on a percent to sales perspective on the Income
Statement. This leads to the third and final area.
Efficient Economies of
Scale
Consistent
with the aforementioned Space Planning, Optex will drive the economies of scale
to reduce support costs on a percentage of sales basis. These cost
reductions can then be either brought directly to the bottom line or used for
business investment.
This
process is driven by the use of Six Sigma techniques and Process
Standardization. Initial activities in this area have been the
success of 5S projects in several production areas which has lead to improved
output and customer approval on the aesthetics of the work
environment. In addition to the 5S projects, Optex has used the DMAIC
(Define, Measure, Analyze, Improve, Control) Problem Solving technique to
identify bottlenecks within the process flow and improve product
yields. These successful techniques can then be duplicated across the
production floor and drive operational improvements.
Intellectual
Property
We
utilize several highly specialized and unique processes in the manufacture of
our products. While we believe that these trade secrets have value,
it is probable that our future success will depend primarily on the innovation,
technical expertise, manufacturing and marketing abilities of our personnel. We
cannot assure you that we will be able to maintain the confidentiality of our
trade secrets or that our non-disclosure agreements will provide meaningful
protection of our trade secrets, know-how or other proprietary information in
the event of any unauthorized use, misappropriation or other
disclosure. The confidentiality agreements that are designed to
protect our trade secrets could be breached, and we might not have adequate
remedies for the breach. Additionally, our trade secrets and
proprietary know-how might otherwise become known or be independently discovered
by others. We do not possess any patents.
Our
competitors, many of which have substantially greater resources, may have
applied for or obtained, or may in the future apply for and obtain, patents that
will prevent, limit or interfere with our ability to make and sell some of our
products. Although we believe that our products do not infringe on the patents
or other proprietary rights of third parties, we cannot assure you that third
parties will not assert infringement claims against us or that such claims will
not be successful.
Competition
The
markets for our products are competitive. We compete primarily on the basis of
our ability to design and engineer products to meet performance specifications
set by our customers. Our customers include the military and government end
users as well as prime contractors that purchase component parts or
subassemblies, which they incorporate into their end
products. Product pricing, quality, customer support, experience,
reputation and financial stability are also important competitive
factors.
There are
a limited number of competitors in each of the markets for the various types of
products that we design, manufacture and sell. At this time we consider our
primary competitors to be Seiler Instruments, Miller-Holzwarth, Kent Periscopes,
and EO System Co.
Our
competitors are often well entrenched, particularly in the defense markets. Some
of these competitors have substantially greater resources than we do. While we
believe that the quality of our technologies and product offerings provides us
with a competitive advantage over certain manufacturers, some of our competitors
have significantly more financial and other resources than we do to spend on the
research and development of their technologies and for funding the construction
and operation of commercial scale plants.
We expect
our competitors to continue to improve the design and performance of their
products. We cannot assure investors that our competitors will not develop
enhancements to, or future generations of, competitive products that will offer
superior price or performance features, or that new technology or processes will
not emerge that render our products less competitive or obsolete. Increased
competitive pressure could lead to lower prices for our products, thereby
adversely affecting our business, financial condition and results of operations.
Also, competitive pressures may force us to implement new technologies at a
substantial cost, and we may not be able to successfully develop or expend the
financial resources necessary to acquire new technology. We cannot assure you
that we will be able to compete successfully in the future.
External Growth
Potential/Roll-Up Opportunities
Optex
operates in a business environment which is highly fragmented with numerous
private companies which were established more than 20 years ago. Some of these
companies were founded by family members 2-3 generations before the present
family operators. Optex believes there are opportunities to seek
mergers of strategic competitors once we are a public entity. We are not aware
of any previous attempts to roll-up companies with our defense manufacturing
expertise.
The
typical company we compete with has 50-100 employees and annual revenue of
$20-$50 million dollars. Most of these private companies have never had the
opportunity to enjoy the benefits of consolidation and the resulting economies
of scale which this can provide.
We plan
to engage our competition on a selective basis, and explore all opportunities to
grow our operations through mergers and/or acquisitions.
We have
no acquisition agreements pending at this time and are not currently in
discussions or negotiations with any third parties.
Employees
The
Company has 109 employees. To the best of its knowledge, the Company is
compliant with local prevailing wage, contractor licensing and insurance
regulations, and has good relations with its employees.
Forward-Looking
Statements
This
Current Report on Form 8-K contains forward-looking statements. To the extent
that any statements made in this Current Report on Form 8-K contain information
that is not historical, these statements are essentially forward-looking.
Forward-looking statements can be identified by the use of words such as
“expects,” “plans,” “will,” “may,” “anticipates,” believes,” “should,”
“intends,” “estimates,” and other words of similar meaning. These statements are
subject to risks and uncertainties that cannot be predicted or quantified and,
consequently, actual results may differ materially from those expressed or
implied by such forward-looking statements. Such risks and uncertainties are
outlined in “Risk Factors” and include, without limitation, the Company’s
ability to raise additional capital to finance the Company’s activities; the
effectiveness, profitability, and the marketability of its products; legal and
regulatory risks associated with the Reorganization ; the future trading of the
common stock of the Company; the ability of the Company to operate as a public
company; the period of time for which the proceeds of the Private Placement will
enable the Company to fund its operations; the Company’s ability to protect its
proprietary information; general economic and business conditions; the
volatility of the Company’s operating results and financial condition; the
Company’s ability to attract or retain qualified senior management personnel and
research and development staff; and other risks detailed from time to time in
the Company’s filings with the SEC, or otherwise.
Information
regarding market and industry statistics contained in this Report is included
based on information available to the Company that it believes is accurate. It
is generally based on industry and other publications that are not produced for
purposes of securities offerings or economic analysis. The Company has not
reviewed or included data from all sources, and cannot assure investors of the
accuracy or completeness of the data included in this Report. Forecasts and
other forward-looking information obtained from these sources are subject to the
same qualifications and the additional uncertainties accompanying any estimates
of future market size, revenue and market acceptance of products and services.
The Company does not undertake any obligation to publicly update any
forward-looking statements. As a result, investors should not place undue
reliance on these forward-looking statements.
Management’s
Discussion and Analysis or Plan of Operations
All
references to the “Company,” “we,” “our” and “us” for periods prior to the
closing of the Reorganization refer to Optex, and references to the “Company,”
“we,” “our” and “us” for periods subsequent to the closing of the Reorganization
refer to the Registrant and its subsidiaries.
The
following discussion highlights the principal factors that have affected our
financial condition and results of operations as well as our liquidity and
capital resources for the periods described. This discussion contains
forward-looking statements. Please see “Special cautionary statement concerning
forward-looking statements” and “Risk factors” for a discussion of the
uncertainties, risks and assumptions associated with these forward-looking
statements. The operating results for the periods presented were not
significantly affected by inflation.
Plan
of Operation
Through a
private placement offering completed in conjunction with closing under the
Reorganization Agreement, the Company has raised $1,219,750 ($933,945, net of
finders fees and satisfaction of indebtedness owed to an investor) to fund
operations. The proceeds will be used as follows:
Description
|
|
Offering
|
|
Additional
Personnel
|
|
$
|
150,000
|
|
Legal
and Accounting Fees
|
|
$
|
100,000
|
|
Working
Capital
|
|
$
|
683,945
|
|
|
|
|
|
|
Totals:
|
|
$
|
933,945
|
|
Results
of Operations
Three
Months Ended December 31, 2008 Compared to the Three Months Ended December,
2007
Revenues.
During
the three months ended December 28, 2008, we recorded revenues of $7.2 million,
as compared to revenue for the three months ended December 30, 2007 of $4.4
million, an increase of $2.9 million or 64.5%. This increase in
revenues was primarily due to the ramp up of production on our U.S. government
and General Dynamics periscope lines to meet new orders and accelerated delivery
customer requirements..
Cost of Goods
Sold.
During the quarter ended December 28, 2008, we recorded
cost of goods sold of $6.3 million as opposed to $3.8 million during the quarter
ended December 30, 2007, an increase of $2.5 million or 64.2%. This
increase in cost of goods sold was primarily due to increased revenue on our
periscope lines in support of higher backlog and accelerated delivery
schedules.
G&A Expenses
. During the
three months ended December 28, 2008, we recorded operating expenses of $ 0.6
million as opposed to $1.2 million during the three months ended December 30,
2007, a decrease of $0.6 million or 50%. This decrease in G&A
expenses was primarily due to the elimination of Corporate Cost allocations from
Irvine Sensors of $0.4 million, the Irvine Sensors, Employee Stock Bonus Plan
(ESBP) of $0.1 million and further reductions in consulting and travel expenses
previously charged to Optex by Irvine Sensors in the three months ended December
30, 2007.
Earnings Before Other Expenses and
Taxes.
During the three months ended December 28, 2008, we recorded
earnings of $0.3 million as opposed to $(0.6 million) during the three months
ended December 30, 2007, an increase of 0.9 million or 150%. This
increase in earnings before other expenses and taxes was primarily due to
increased sales revenue in the three months ended December 28, 2008 combined
with reduced general and administrative expenses driven by the elimination of
Irvine Sensors corporate costs pushed down to Optex in the three months ended
December 30, 2007.
Net Loss
. During
the three months ended December 28, 2008, we recorded a net loss of $0.03
million, as compared to $0.69 million for three months ended December 30, 2007,
a decrease of $0.7 million or 97.1%. This decrease in net loss was
principally the result of an reduction in operating expenses related to costs
pushed down from Irvine Sensors in the three months ended December 30, 2007
combined with increased revenue in three months ended December 28,
2008. Additionally, in the three months ended December 28, 2008 Optex
incurred $0.5 million in intangible expenses, representing an increase of $0.3
million over the three months ended December 30, 2007. The increased
intangible expenses relate to the acquisition of Optex from Irvine
Sensors.
Year
Ended September 28, 2008 Compared to Year Ended September 30, 2007
Revenues.
During
the year ended September 28, 2008, we recorded revenues of $20.0 million, as
compared to revenue for the year ended September 30, 2007 of $15.4 million, an
increase of $4.6 million or 29.9%. This increase in revenues was
primarily due to increased shipments on the ICWS periscope, and M137 & M187
Howitzer programs.
Cost of Goods
Sold.
During the year ended September 28, 2008, we recorded
cost of goods sold of $18.1 million as opposed to $17.4 million during the year
ended September 30, 2007, an increase of $0.7 million or 4.5%. This
increase in cost of goods sold was primarily due to increased revenues of $4.6
million. The margins on the increased revenue is significantly
improved over the year ended September 30, 2007 due to equitable price
adjustments and accelerated schedule consideration received in the year ended
September 2008 on periscopes and Howitzer programs. Additionally, the
gross margin for year ended September 30, 2007 included significant contract
loss reserves, excess and obsolescence and other non recurring inventory
adjustments related to unrecoverable costs increases on fixed price contracts
.
Loss Before Other Expenses and
Taxes.
During the year ended September 28, 2008, we recorded a loss of
$3.1 million as opposed to $6.8 million during the year ended September 30,
2007, a decrease of $3.7 million or 54.4%. This decrease in loss was
primarily due to the negotiation of several equitable price adjustments and
consideration on accelerated delivery schedules in the year ended September 28,
2008. Additionally, for the year ended December 30, 2007
non recoverable cost increases on fixed price contracts resulted in significant
contract loss and excess and obsolete inventory reserves as discussed above in
cost of goods sold. These losses were partially offset in 2008 with
equitable price adjustments negotiated with the customer.
Net Loss
. During
the year ended September 28, 2008, we recorded a net loss of $4.8 million, as
compared to $6.8 million for year ended September 30, 2007, a decrease of $2.0
million or 29.4%. This decrease in net loss was principally the
result of increased revenues and negotiated equitable and other price
adjustments discussed above partially offset by a $1.6 million adjustment for
asset impairment of goodwill, Goodwill was reviewed as of September
28, 2008 based upon the most recent value of the company as determined by the
sale to third party purchasers on October 14, 2008.
Liquidity
and Capital Resources
We have
historically met our liquidity requirements from a variety of sources, including
government and customer funding through contract progress bills, short term
loans, and notes from related parties. Based on our
strategy and the anticipated growth in our business, we believe that our
liquidity needs will increase. The amount of such increase will depend on many
factors, including the costs associated with the fulfillment of our projects,
whether we upgrade our technology, and the amount of inventory required for our
expanding business.
For
the 3 months ended December 28, 2008
Cash and Cash
Equivalents.
As of December 28, 2008, we had cash and cash
equivalents of $0.5 million, as compared to cash and cash equivalents of $0.1
million as of December 30, 2007.
Net Cash Used in Operating
Activities.
Net cash provided in operating activities totaled $0.5
million for the 3 months ended December 28, 2008, as compared to $0.3 million
used for the 3 months ended December 30, 2007.
Net Cash Used in Investing
Activities.
Net cash used in investing activities totaled $0.02 million
during the 3 months ended December 28, 2008, as compared to net cash used in
investing activities of $0.03 million during the 3 months ended December 30,
2007.
Net Cash Provided By Financing
Activities.
Net cash provided by financing activities totaled $0.2
million during the 3 months ended December 28, 2008, as compared to zero during
the 3 months ended December 30, 2007.
For
the 12 months ended September 28, 2008
Cash and Cash
Equivalents.
As of September 28, 2008, we had cash and cash
equivalents of $0.2 million compared to $0.5 million in 2007.
Net Cash Used in Operating
Activities.
For the year ended September 28, 2008 we used $0.6 million of
net cash in operating activities, as compared to using $1.5 million of net cash
in operating activities during 2007.
Net Cash Used in Investing
Activities.
Net cash used in investing activities totaled $0.1 million
during the 12 months ended September 28, 2008, as compared to net cash used in
investing activities of $0.06 million during the 12 months ended September 30,
2007.
Net Cash Provided By Financing
Activities.
Net cash provided by financing activities totaled $0.4
million during the 12 months ended September 28, 2008, as compared to net cash
provided by financing activities of $2.0 million during the 12 months
ended September 30, 2007
Critical
Accounting Policies and Estimates
Basis
of Presentation
The
accompanying financial statements include the historical accounts of Optex Texas
(hereinafter, the “Company” or “Optex Texas”). The financial statements have
been presented as subsidiary-only financial statements, reflecting the balance
sheets, results of operations and cash flows of the subsidiary as a stand-alone
entity.
Although,
the Company has been majority-owned by various parent companies, no accounts of
the parent companies or the effects of consolidation with any parent companies
have been included in the accompanying financial statements.
The
financial statements have been presented on the basis of push down
accounting in accordance with Staff Accounting Bulletin No. 54 (SAB
54)
Application of
“Push Down” Basis of Accounting in Financial Statements of Subsidiaries Acquired
by Purchase
. SAB 54 states that the push down basis of accounting should
be used in a purchase transaction in which the entity becomes wholly-owned.
Under the push down basis of accounting certain transactions incurred by the
parent company, which would otherwise be accounted for in the accounts of the
parent, are “pushed down” and recorded on the financial statements of the
subsidiary. Accordingly, items resulting from the purchase transaction such as
goodwill, debt incurred by the parent to acquire the subsidiary and other costs
related to the purchase have been recorded on the financial statements of the
Company.
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 revenues and expenses during the reporting
period. Actual results could differ from the estimates.
Accounts
Receivable:
The Company records its accounts receivable at the original
sales invoice amount less shipment liquidations for previously collected
advance/progress bills and an allowance for doubtful accounts. An account
receivable is considered to be past due if any portion of the receivable balance
is outstanding beyond its scheduled due date. On a quarterly basis, the Company
evaluates its accounts receivable and establishes an allowance for doubtful
accounts, based on its history of past write-offs and collections, and current
credit conditions. No interest is accrued on past due accounts receivable. As
the customer base is primarily U.S. government and government prime contractors,
the Company has concluded that there is no need for an allowance for doubtful
accounts for the years ended September 28, 2008 and September 30,
2007.
Warranty
Costs:
Optex warrants the quality of its products to meet
customer requirements and be free of defects for twelve months subsequent to
delivery. On certain product lines the warranty period has been
extended to 24 months due to technical considerations incurred during the
manufacture of such products. In the year ended September 28, 2008,
the company incurred $227,000 of warranty expenses representing the estimated
cost of repair or replacement for specific customer returned products still
covered under warranty as of the return date and awaiting replacement, in
addition to estimated future warranty costs for shipments occurring during the
twelve months proceeding September 28, 2008. Future warranty costs
were determined, based on estimated cost of replacement for expected returns
based upon our most recent experience rate of defects as a percentage of
sales. Prior to fiscal year 2008, all warranty expenses were incurred
as product was replaced with no reserve for warranties against deliveries in the
covered period.
Estimated Costs
to Complete and Accrued Loss on Contracts:
The Company reviews
and reports on the performance of its contracts and production orders against
the respective resource plans for such contracts/orders. These reviews are
summarized in the form of estimates to complete ("ETC”s) and estimates at
completion (“EAC”s). EACs include Optex’s incurred costs to date
against the contract/order plus management's current estimates of remaining
amounts for direct labor, material, other direct costs and subcontract support
and indirect overhead costs based on the completion status and future
contractual requirements for each order. If an EAC indicates a potential overrun
(loss) against a fixed price contract/order, management generally seeks to
reduce costs and /or revise the program plan in a manner consistent with
customer objectives in order to eliminate or minimize any overrun and to secure
necessary customer agreement to proposed revisions.
If an EAC
indicates a potential overrun against budgeted resources for a fixed price
contract/order, management first attempts to implement lower cost solutions to
still profitably meet the requirements of the fixed price
contract. If such solutions do not appear practicable, management
makes a determination whether to seek renegotiation of contract or order
requirements from the customer. If neither cost reduction nor renegotiation
appears probable, an accrual for the contract loss/overrun is recorded against
earnings and the loss is recognized in the first period the loss is identified
based on the most recent EAC of the particular contract or product
order.
Goodwill and
Other Intangible Assets:
Goodwill represents the cost of
acquired businesses in excess of fair value of the related net assets at
acquisition. The Company does not amortize goodwill, but tests it
annually for impairment using a fair value approach as of the first day of its
fourth fiscal quarter and between annual testing periods, if circumstances
warrant. Goodwill of Optex was reviewed as of September 30, 2007 and
based on the assessment, it was determined that no impairment was
required. Goodwill was reviewed as of September 28, 2008, and it was
determined that an impairment charge of $1,586,416 was required. The fair values
assigned to the assets of the Company and the goodwill was based upon the most
recent value of the Company as determined by the sale to third party purchasers
on October 14, 2008.
The
Company amortizes the cost of other intangibles over their estimated useful
lives, unless such lives are deemed indefinite. Amortizable intangible assets
are tested for impairment based on undiscounted cash flows and, if impaired,
written down to fair value based on either discounted cash flows or appraised
values. The identified amortizable intangible assets at September 28, 2008 and
September 30, 2007 derived from the acquisition of Optex by Irvine Sensors and
consisted of non-competition agreements and customer backlog, with initial
useful lives ranging from two to eight years. Intangible assets with indefinite
lives are tested annually for impairment, as of the first day of the Company's
fourth fiscal quarter and between annual periods, if impairment indicators
exist, and are written down to fair value as required.
Revenue
Recognition:
The Company recognizes revenue upon transfer of title at the
time of shipment (F.O.B. shipping point), when all significant contractual
obligations have been satisfied, the price is fixed or determinable, and
collectability is reasonably assured.
Recent
Accounting Pronouncements
In June
2006, The FASB issued Interpretation No. 48 “
Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109
” (“FIN 48”). This
Interpretation clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with FASB No.
109, “
Accounting for Income
Taxes
”
.
FIN 48
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. FIN 48 also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition. FIN 48 is effective for fiscal years beginning after
December 15, 2006. The adoption of FIN 48 did not have a material impact on the
Company's consolidated financial position, results of operations, or cash
flows.
In
September 2006, the FASB issued FASB No. 157, “
Fair Value Measurements
”
which establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. While FASB No. 157 does not apply to transactions
involving share-based payment covered by FASB No. 123, it establishes a
theoretical framework for analyzing fair value measurements that is absent from
FASB No. 123. We have relied on the theoretical framework established by FASB
No. 157 in connection with certain valuation measurements that were made in the
preparation of these financial statements. FASB No. 157 is effective for years
beginning after November 15, 2007. Subsequent to the Standard’s issuance, the
FASB issued an exposure draft that provides a one year deferral for
implementation of the Standard for non-financial assets and liabilities. The
Company is currently evaluating the impact FASB No. 157 will have on its
financial statements.
In
February 2007, Statement of Financial Accounting Standards No. 159, “
The Fair Value Option for Financial
Assets and Financial Liabilities-Including an Amendment of FASB Statement No.
115
,” (FASB 159), was issued. This standard allows a company to
irrevocably elect fair value as the initial and subsequent measurement attribute
for certain financial assets and financial liabilities on a contract-by-contract
basis, with changes in fair value recognized in earnings. The provisions of this
standard are effective as of the beginning of our fiscal year 2008, with early
adoption permitted. The Company is currently evaluating what effect the adoption
of FASB 159 will have on its financial statements.
In March
2007, the Financial Accounting Standards Board ratified Emerging Issues Task
Force (“EITF”) Issue No. 06-10, "Accounting for Collateral Assignment
Split-Dollar Life Insurance Agreements”. EITF 06-10 provides guidance
for determining a liability for the postretirement benefit obligation as well as
recognition and measurement of the associated asset on the basis of the terms of
the collateral assignment agreement. EITF 06-10 is effective for
fiscal years beginning after December 15, 2007. The Company is
currently evaluating the impact of EITF 06-10 on its financial statements, but
does not expect it to have a material effect.
In
December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
and
SFAS No. 160,
Accounting
and Reporting of Noncontrolling Interest in Consolidated Financial Statements,
an amendment of ARB No. 51
. These new standards will significantly
change the accounting for and reporting of business combinations and
non-controlling (minority) interests in consolidated financial statements.
Statement Nos. 141(R) and 160 are required to be adopted simultaneously and
are effective for the first annual reporting period beginning on or after
December 15, 2008. Earlier adoption is prohibited. The Company is currently
evaluating the impact of adopting SFAS Nos. 141(R) and SFAS 160 on its
financial statements. See Note 14 to the financial statements for the year ended
September 28, 2008 for adoption of SFAS 141R subsequent to September 30,
2008.
In
December 2007, the SEC issued Staff Accounting Bulletin No. 110 (“SAB 110”). SAB
110 permits companies to continue to use the simplified method, under certain
circumstances, in estimating the expected term of “plain vanilla” options beyond
December 31, 2007. SAB 110 updates guidance provided in SAB 107 that previously
stated that the Staff would not expect a company to use the simplified method
for share option grants after December 31, 2007. The Company does not have any
outstanding stock options.
In March
2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standard (“SFAS”) No. 161, "
Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No.
133
”. SFAS 161 requires enhanced disclosures about an entity’s
derivative and hedging activities. SFAS 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008 with early application encouraged. As such, the Company is
required to adopt these provisions at the beginning of the fiscal year
ended
September
30, 2009
.
The Company is currently evaluating the impact of SFAS 161 on its financial
statements but does not expect it to have a material effect
In May
2008, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standard (“SFAS”) No. 162, "
The Hierarchy of Generally Accepted
Accounting Principles
”. SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States. SFAS 162 is effective 60 days following the SEC’s
approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted
Accounting Principles. The Company is currently evaluating the impact of SFAS
162 on its consolidated financial statements but does not expect it to have a
material effect.
In May
2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standard (“SFAS”) No. 163, "
Accounting for Financial Guarantee
Insurance Contracts—an interpretation of FASB Statement No. 60
" (“SFAS
163”). SFAS 163 interprets Statement 60 and amends existing
accounting pronouncements to clarify their application to the financial
guarantee insurance contracts included within the scope of that
Statement. SFAS 163 is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and all interim periods within
those fiscal years. As such, the Company is required to adopt these
provisions at the beginning of the fiscal year ended
September
30, 2011. The Company is currently evaluating the impact of SFAS 163
on its financial statements but does not expect it to have a material
effect.
Cautionary
Factors That May Affect Future Results
This
Current Report on Form 8-K and other written reports and oral statements made
from time to time by the Company may contain so-called “forward-looking
statements,” all of which are subject to risks and uncertainties. You can
identify these forward-looking statements by their use of words such as
“expects,” “plans,” “will,” “estimates,” “forecasts,” “projects” and other words
of similar meaning. You can identify them by the fact that they do not relate
strictly to historical or current facts. These statements are likely to address
the Company’s growth strategy, financial results and product and development
programs. You must carefully consider any such statement and should understand
that many factors could cause actual results to differ from the Company’s
forward-looking statements. These factors include inaccurate assumptions and a
broad variety of other risks and uncertainties, including some that are known
and some that are not. No forward-looking statement can be guaranteed and actual
future results may vary materially.
The
Company does not assume the obligation to update any forward-looking statement.
You should carefully evaluate such statements in light of factors described in
the Company’s filings with the SEC, especially on Forms 10-K, 10-Q and 8-K. In
various filings the Company has identified important factors that could cause
actual results to differ from expected or historic results. You should
understand that it is not possible to predict or identify all such factors.
Consequently, you should not consider any such list to be a complete list of all
potential risks or uncertainties.
Risk
Factors
Investing
in our common stock involves a high degree of risk. Prospective investors should
carefully consider the risks described below, together with all of the other
information included or referred to in this Current Report on Form 8-K, before
purchasing shares of our common stock. There are numerous and varied risks,
known and unknown, that may prevent us from achieving our goals. The risks
described below are not the only risks we will face. If any of these risks
actually occurs, our business, financial condition or results of operations may
be materially adversely affected. In such case, the trading price of our common
stock could decline and investors in our common stock could lose all or part of
their investment. The risks and uncertainties described below are not exclusive
and are intended to reflect the material risks that are specific to us ,
material risks related to our industry and material risks related to companies
that undertake a public offering or seek to maintain a class of securities that
is registered or traded on any exchange or over-the-counter market.
Risks Related to our
Business
We
expect that we will need to raise additional capital in the future; additional
funds may not be available on terms that are acceptable to us, or at
all.
We
anticipate we will have to raise additional capital in the future to service our
debt and to finance our future working capital needs. We cannot assure you that
any additional capital will be available on a timely basis, on acceptable terms,
or at all. Future equity or debt financings may be difficult to obtain. If we
are not able to obtain additional capital as may be required, our business,
financial condition and results of operations could be materially and adversely
affected.
We
anticipate that our capital requirements will depend on many factors,
including:
|
·
|
our
ability to repay our existing debt;
|
|
·
|
our
ability to fulfill backlog;
|
|
·
|
our
ability to procure additional production
contracts;
|
|
·
|
our
ability to control costs;
|
|
·
|
the
timing of payments and reimbursements from government and other
contracts;
|
|
·
|
increased
sales and marketing expenses;
|
|
·
|
technological
advancements and competitors’ response to our
products;
|
|
·
|
capital
improvements to new and existing
facilities;
|
|
·
|
our
relationships with customers and suppliers;
and
|
|
·
|
general
economic conditions including the effects of future economic slowdowns,
acts of war or terrorism and the current international
conflicts.
|
Even if
available, financings can involve significant costs and expenses, such as legal
and accounting fees, diversion of management’s time and efforts, and substantial
transaction costs. If adequate funds are not available on acceptable terms, or
at all, we may be unable to finance our operations, develop or enhance our
products, expand our sales and marketing programs, take advantage of future
opportunities or respond to competitive pressures.
Certain
of our products are dependent on specialized sources of supply that are
potentially subject to disruption and attendant adverse impact to our
business.
Some of
our products currently incorporate components purchased from single sources of
supply. If supply from single supply sources is materially disrupted, requiring
us to obtain and qualify alternate sources of supply for such components, our
revenues could decline, our reputation with our customers could be harmed, and
our business and results of operations could be adversely affected.
Current
economic conditions may adversely affect our ability to continue
operations.
Current
economic conditions may cause a decline in business and consumer spending and
capital market performance, which could adversely affect our business and
financial performance. Our ability to raise funds, upon which we are
fully dependent to continue operations, may be adversely affected by current and
future economic conditions, such as a reduction in the availability of credit,
financial market volatility and recession.
Our
historical operations depend on government contracts and
subcontracts. We face additional risks related to contracting with
the federal government, including federal budget issues and fixed price
contracts.
General
political and economic conditions, which cannot be accurately predicted, may
directly and indirectly affect the quantity and allocation of expenditures by
federal agencies. Even the timing of incremental funding commitments to
existing, but partially funded, contracts can be affected by these factors.
Therefore, cutbacks or re-allocations in the federal budget could have a
material adverse impact on our results of our future operations. Obtaining
government contracts may also involve long purchase and payment cycles,
competitive bidding, qualification requirements, delays or changes in funding,
budgetary constraints, political agendas, extensive specification development,
price negotiations and milestone requirements. In addition, our government
contracts are primarily fixed price contracts, which may prevent us from
recovering costs incurred in excess of its budgeted costs. Fixed price contracts
require us to estimate the total project cost based on preliminary projections
of the project’s requirements. The financial viability of any given project
depends in large part on our ability to estimate such costs accurately and
complete the project on a timely basis. Our exposure to the risks of cost
overruns exists in our products business due to the fact that our contracts are
solely of a fixed-price nature. Some of those contracts are for products that
are new to our business and are thus subject to more potential for unanticipated
impacts to manufacturing costs. Given the current economic conditions, it is
also possible that even if our estimates are reasonable at the time made, that
prices of materials are subject to unanticipated adverse
fluctuation. In the event our actual costs exceed the fixed
contractual cost of our product contracts, we will not be able to recover the
excess costs.
Some of
our government contracts are also subject to termination or renegotiation at the
convenience of the government, which could result in a large decline in revenue
in any given quarter. Although government contracts have provisions providing
for the reimbursement of costs associated with termination, the termination of a
material contract at a time when our funded backlog does not permit redeployment
of our staff could result in reductions of employees. Optex generally utilizes
contract and temporary labor to supplement the regular
workforce. This allows the company to mitigate impacts of significant
fluctuations in volume through flexibility in increasing or decreasing the
temporary labor workforce as customer requirements dictate. In
addition, the timing of payments from government contracts is also subject to
significant fluctuation and potential delay, where first article acceptance and
test requirements are required or where a progress billing clause is not
provided for in the contract.. Any such delay could result in a temporary
shortage in our working capital.
If
we fail to scale our operations appropriately in response to growth and changes
in demand, we may be unable to meet competitive challenges or exploit potential
market opportunities, and our business could be materially and adversely
affected.
Our past
growth has placed, and any future growth in our historical business is expected
to continue to place, a significant strain on our management personnel,
infrastructure and resources. To implement our current business and product
plans, we will need to continue to expand, train, manage and motivate our
workforce, and expand our operational and financial systems, as well as our
manufacturing and service capabilities. All of these endeavors will require
substantial management effort and additional capital. If we are unable to
effectively manage our expanding operations, we may be unable to scale our
business quickly enough to meet competitive challenges or exploit potential
market opportunities, and our current or future business could be materially and
adversely affected.
We
do not have long-term employment agreements with our key personnel, other than
our Chief Operating Officer. If we are not able to retain our key personnel or
attract additional key personnel as required, we may not be able to implement
our business plan and our results of operations could be materially and
adversely affected.
We depend
to a large extent on the abilities and continued participation of our executive
officers and other key employees. The loss of any key employee could have a
material adverse effect on our business. We do not presently maintain “key man”
insurance on any key employees. We believe that, as our activities increase and
change in character, additional, experienced personnel will be required to
implement our business plan. Competition for such personnel is intense and we
cannot assure you that they will be available when required, or that we will
have the ability to attract and retain them. In addition, we do not presently
have depth of staffing in our executive, operational and financial management.
Until additional key personnel can be successfully integrated with its
operations, the timing or success of which we cannot currently predict, our
results of operations and ultimate success will be vulnerable to difficulties in
recruiting a new executive management team and losses of key
personnel.
Risks
Relating to the Reorganization
The Company’s directors and executive
officers beneficially own a substantial percentage of the Company’s outstanding
common stock, which gives them control over certain major decisions on which the
Company’s stockholders may vote, which may discourage an acquisition of the
Company
.
As a
result of the Reorganization, Sileas Corp. which is owned by one of the
Company’s directors, and two of the Company’s officers, beneficially owns, in
the aggregate, approximately 73% of the Company’s outstanding common stock. The
interests of the Company’s management may differ from the interests of other
stockholders. As a result, the Company’s executive management will have the
right and ability to control virtually all corporate actions requiring
stockholder approval, irrespective of how the Company’s other stockholders may
vote, including the following actions:
|
·
|
electing
or defeating the election of
directors;
|
|
·
|
amending
or preventing amendment of the Company’s certificate of incorporation or
bylaws;
|
|
·
|
effecting
or preventing a merger, sale of assets or other corporate transaction; and
controlling the outcome of any other matter submitted to the stockholders
for vote.
|
The
Company’s management’s beneficial stock ownership may discourage a potential
acquirer from seeking to acquire shares of the Company’s common stock or
otherwise attempting to obtain control of the Company, which in turn could
reduce the Company’s stock price or prevent the Company’s stockholders from
realizing a premium over the Company’s stock price.
Public company compliance may make it
more difficult to attract and retain officers and directors
.
The
Sarbanes-Oxley Act of 2002 and new rules subsequently implemented by the SEC
have required changes in corporate governance practices of public companies. As
a public entity, the Company expects these new rules and regulations to increase
compliance costs in 2009 and beyond and to make certain activities more time
consuming and costly. As a public entity, the Company also expects that these
new rules and regulations may make it more difficult and expensive for the
Company to obtain director and officer liability insurance in the future and it
may be required to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar coverage. As a result,
it may be more difficult for the Company to attract and retain qualified persons
to serve as directors or as executive officers.
Risks
Relating to the Common Stock
The Company’s stock price may be
volatile
.
The
market price of the Company’s common stock is likely to be highly volatile and
could fluctuate widely in price in response to various factors, many of which
are beyond the Company’s control, including the following:
|
·
|
technological
innovations or new products and services by the Company or its
competitors;
|
|
·
|
additions
or departures of key personnel;
|
|
·
|
limited
“public float” following the Reorganization, in the hands of a small
number of persons whose sales or lack of sales could result in positive or
negative pricing pressure on the market price for the common
stock;
|
|
·
|
the
Company’s ability to execute its business
plan;
|
|
·
|
operating
results that fall below
expectations;
|
|
·
|
loss
of any strategic relationship;
|
|
·
|
economic
and other external factors; and
|
|
·
|
period-to-period
fluctuations in the Company’s financial
results.
|
In
addition, the securities markets have from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance of
particular companies. These market fluctuations may also materially and
adversely affect the market price of the Company’s common stock.
There is currently no liquid trading
market for the Company’s common stock and the Company cannot ensure that one
will ever develop or be sustained
.
The
Company’s common stock is currently approved for quotation on the OTC Bulletin
Board trading under the symbol SSTX.OB. However, there is limited trading
activity and not currently a liquid trading market. There is no assurance
as to when or whether a liquid trading market will develop, and if such a market
does develop, there is no assurance that it will be maintained.
Furthermore, for companies whose securities are quoted on the
Over-The-Counter Bulletin Board maintained by the National Association of
Securities Dealers, Inc. (the “OTCBB”), it is more difficult (1) to obtain
accurate quotations, (2) to obtain coverage for significant news events because
major wire services generally do not publish press releases about such
companies, and (3) to obtain needed capital. As a result, purchasers of
the Company’s common stock may have difficulty selling their shares in the
public market, and the market price may be subject to significant
volatility.
Offers or
availability for sale of a substantial number of shares of the Company’s common
stock may cause the price of the Company’s common stock to decline or could
affect the Company’s ability to raise additional working
capital
.
If the
Company’s current stockholders seek to sell substantial amounts of common stock
in the public market either upon expiration of any required holding period under
Rule 144 or pursuant to an effective registration statement, it could create a
circumstance commonly referred to as “overhang,” in anticipation of which the
market price of the Company’s common stock could fall substantially. The
existence of an overhang, whether or not sales have occurred or are occurring,
also could make it more difficult for the Company to raise additional financing
in the future through sale of securities at a time and price that the Company
deems acceptable.
The Company’s common stock is
currently deemed to be “penny stock”, which makes it more difficult for
investors to sell their shares
.
The
Company’s common stock is currently subject to the “penny stock” rules adopted
under section 15(g) of the Exchange Act. The penny stock rules apply to
companies whose common stock is not listed on the NASDAQ Stock Market or other
national securities exchange and trades at less than $5.00 per share or that
have tangible net worth of less than $5,000,000 ($2,000,000 if the company has
been operating for three or more years). These rules require, among other
things, that brokers who trade penny stock to persons other than “established
customers” complete certain documentation, make suitability inquiries of
investors and provide investors with certain information concerning trading in
the security, including a risk disclosure document and quote information under
certain circumstances. Many brokers have decided not to trade penny stocks
because of the requirements of the penny stock rules and, as a result, the
number of broker-dealers willing to act as market makers in such securities is
limited. If the Company remains subject to the penny stock rules for any
significant period, it could have an adverse effect on the market, if any, for
the Company’s securities. If the Company’s securities are subject to the penny
stock rules, investors will find it more difficult to dispose of the Company’s
securities.
The elimination of monetary liability
against the Company’s directors, officers and employees under Delaware law and
the existence of indemnification rights to the Company’s directors, officers and
employees may result in substantial expenditures by the Company and may
discourage lawsuits against the Company’s directors, officers and
employees
.
The
Company’s certificate of incorporation does not contain any specific provisions
that eliminate the liability of directors for monetary damages to the Company
and the Company’s stockholders; however, the Company provides such
indemnification to its directors and officers to the extent provided by Delaware
law. The Company may also have contractual indemnification obligations under its
employment agreements with its executive officers. The foregoing indemnification
obligations could result in the Company incurring substantial expenditures to
cover the cost of settlement or damage awards against directors and officers,
which the Company may be unable to recoup. These provisions and resultant costs
may also discourage the Company from bringing a lawsuit against directors and
officers for breaches of their fiduciary duties and may similarly discourage the
filing of derivative litigation by the Company’s stockholders against the
Company’s directors and officers even though such actions, if successful, might
otherwise benefit the Company and its stockholders.
Security
Ownership of Certain Beneficial Owners and Management
The
following table sets forth information regarding the number of shares of common
stock beneficially owned on March 30, 2009, following consummation of the
Reorganization and Private Placement, by:
|
·
|
Each
person who is known by us to beneficially own 5% or more of the
Registrant’s common stock;
|
|
·
|
Each
of the Registrant’s directors and named executive officers;
and
|
|
·
|
All
of the Registrant’s directors and executive officers as a
group.
|
Except as
otherwise set forth below, the address of each of the persons listed below
is
the Registrant’s
address.
Title
of Class
|
|
Name
of Beneficial Owner
|
|
Number
of Shares
|
|
|
Preferred
Conversion
|
|
|
Combined
Ownership
|
|
|
Percentage
of Outstanding Shares
|
|
Common
Stock
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5%
Holders
|
|
Arland
Holdings, Ltd
|
|
|
11,148,935
|
|
|
|
4,040,000
|
|
|
|
15,188,935
|
|
|
|
7.93
|
%
|
|
|
Sileas
Corp. (1)
|
|
|
102,184,347
|
|
|
|
37,040,000
|
|
|
|
139,224,347
|
|
|
|
72.71
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors
and Officers:
|
|
Stanley
Hirschman (2)
|
|
|
81,747,478
|
|
|
|
29,632,000
|
|
|
|
111,379,478
|
|
|
|
58.17
|
%
|
|
|
Danny
Schoening (2)
|
|
|
15,327,652
|
|
|
|
5,556,000
|
|
|
|
20,883,652
|
|
|
|
10.91
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors
and officers as a group (3 Individuals) (1) (2)
|
|
|
|
|
102,184,347
|
|
|
|
37,040,000
|
|
|
|
139,224,347
|
|
|
|
72.71
|
%
|
1
|
Represents
shares held by Sileas Corp. of which Stanley Hirschman a Director/Officer
of Registrant has a controlling interest (80%), and both Danny Schoening
and Karen Hawkins, officers of Registrant, have an interest (15% and
5% respectively).
|
2
|
Represents
common shares held by Sileas Corp. See footnote 1 above for
description of ownership interests of certain officers of Registrant in
Sileas Corp.
|
MANAGEMENT
Directors
and Executive Officers
The
following table sets forth information regarding the members of our board of
directors and our executive officers and other significant employees. All of our
officers and directors were appointed on March 30, 2009, the closing date
of the Reorganization.
The
following table sets forth certain information with respect to the directors and
executive officers of Optex Systems, Inc.:
Name
|
Age
|
Position
|
|
|
|
Stanley
A. Hirschman
|
62
|
President,
Secretary,
Treasurer
& Director
|
|
|
|
Merrick
D. Okamoto
|
48
|
Director
|
|
|
|
Ronald
F. Richards
|
42
|
Chairman
of the Board
|
|
|
|
Danny
Schoening
|
44
|
Chief
Operating Officer
|
|
|
|
Karen
Hawkins
|
44
|
Vice
President of
Finance
and Controller
|
Stanley A.
Hirschman
. Stan Hirschman serves the Company as its President,
Secretary, Treasurer, and a Director. Mr. Hirschman is the President
of CPointe Associates, Inc., a Plano, Texas executive management and retail
operations consulting firm. He is an investment due diligence specialist
and works regularly with public companies dealing with the difficulties in the
balance between increased regulatory requirements and reasonable corporate
governance. He is a director of Axion Power International, South
Texas Oil, Datascension, Inc. and former chairman of Mustang Software,
Inc. While at Mustang Software, Mr. Hirschman took a hands-on role in the
planning and execution of the strategic initiative to increase shareholder value
resulting in the successful acquisition of the company by Quintus
Corporation. Prior to establishing CPointe Associates, he was Vice
President Operations, Software Etc., Inc., a 396 retail store software chain,
from 1989 until 1996. He has also held executive positions with T.J. Maxx,
Gap Stores and Banana Republic. Stan is a member of the National Association of
Corporate Directors, the KMPG Audit Committee Institute and is a graduate of the
Harvard Business School Audit Committees in the New Era of Governance
symposium. He is active in community affairs and serves on the Advisory
Board of the Salvation Army Adult Rehabilitation Centers.
Merrick D.
Okamoto
. Mr. Okamoto serves the Company as a Director. Mr.
Okamoto is the President and Managing Member of Viking Asset
Management, LLC and has been employed in the securities industry since
1983. Mr. Okamoto performs due diligence and research of potential investments
for Viking and he is responsible for research, due diligence, and structuring
potential investment opportunities. He is also responsible for all Viking
trading operations. Mr. Okamoto is widely recognized as an advanced trader
specializing in short-term trading with sector momentum and has more than 25
years of extensive experience in technical market analysis techniques. He has
been a frequent speaker at national on-line trading venues. From 1987 to 1990,
he hosted the television program, The Income Report. He also has appeared on CNN
and The MacNeil-Lehrer Report. Before co-founding Viking in 2002, Mr.
Okamoto co-founded and was the President of TradePortal.com, Inc. in 1999.
TradePortal.com, Inc. is a software development company and its wholly owned
subsidiary, TradePortal Securities, Inc., a direct access execution brokerage
firm. Mr. Okamoto was instrumental in developing the proprietary Trade Matrix™
software platform offered by TradePortal Securities. His negotiations were key
in selling a minority stake in TradePortal.com Inc. to Thomson Financial, a US
$6 billion revenue company. Prior to 1999, He held Vice President positions
with Shearson Lehman Brothers, Prudential Securities and Paine Webber, and
he was the founder of First Stage Capital, Inc. (1996 to 2002), which
specialized in investment banking and consulting to public and private
companies.
Ronald F.
Richards
. Mr. Richards serves the Company as its Chairman of
the Board. Mr. Richards is the founder and Managing Director of Gray
Wolf Partners, LLC, a strategic and financial advisory firm. He previously
served as a Managing Director of Viking Asset Management, LLC where his
responsibilities included: (i) sourcing, conducting due diligence, and
structuring potential investment opportunities and (ii) working with portfolio
companies to enhance shareholder value. He previously served as Chief Financial
Officer and Senior Vice President, Business Development of Biopure Corporation,
a publicly traded biotechnology company developing oxygen therapeutics and as a
Managing Director, Corporate Finance of Wells Fargo Van Kasper. Mr. Richards has
over 20 years of experience working with public and private companies in the
areas of investment banking, corporate finance, law and accounting. He has
structured and executed numerous public offerings and private placements raising
a total of more than $660 million. He also co-authored
PIPES: A CEO's Guide to Successful
Private Placements in Public Equities.
Mr. Richards holds JD, MBA and BA
degrees from UCLA. He is a member of the State Bar of California and a retired
Certified Public Accountant.
Danny
Schoening
. Mr. Schoening serves the Company as its Chief
Operating Officer. He has been instrumental in establishing the systems
and infrastructure required to continue Optex System’s rapid growth. This
activity was rewarded with Optex System’s recent ISO9001:2000
Certification. Prior to joining Optex Systems, Danny was the Vice
President of Operations for The Finisar Corporation AOC Division for 4 years
where he led a team of up to 200 employees to produce vertical cavity
lasers for the data communications industry at production rates of hundreds of
thousands of units per week. Prior to Finisar, Danny was the Director of
Operations for multiple divisions of Honeywell International. Serving the
Automotive, Medical, Aerospace, and Consumer Commercial Markets. During
this 17 year period, Danny was recognized with Honeywell’s Lund Award, their
highest award for developing employee resources. Danny has a broad experience
level in the following technologies: Mechanical Assembly Processes,
Micro-Electronic Assembly Processes, Laser Manufacturing, Plastic Molding, Metal
Machining, Plating, Thick Film Printing, Surface Mount Technology, Hall Effect
Technology and MEMS based Pressure Devices. Danny received a Bachelors of
Science in Manufacturing Engineering Technology from the University of Nebraska,
an MBA from Southern Methodist University, and holds three United States
Patents.
Karen
Hawkins
. Ms. Hawkins serves the Company as its Vice President,
Finance and Controller. Ms. Hawkins is a Certified Public Accountant
since 1992 with over 22 years experience in Financial Accounting and Management,
primarily focused in the Defense and Transportation Industries. She has a strong
background in both Financial & Cost Accounting, with extensive Government
Pricing, Financial Analysis, and Internal Auditing experience. Her past
history also includes Program Management, Materials Management and Business
Development. She brings over 14 years direct experience in Government
Contracting with a strong knowledge of CAS/FAR . Her previous employment
includes General Dynamics – Ordinance and Tactical Division, Garland (formerly
known as Intercontinental Manufacturing) for over 13 years. During her
tenure here she served in the roles of Controller (Accounting & IT), Program
Manager over a $250M 3 year Army IDIQ contract, as well as Materials Manager
with oversight of Purchasing, Production Control & Warehousing
functions. Prior to her employment at General Dynamics, Ms. Hawkins served
in various finance and accounting positions at Luminator, a Mark IV Industries
Co, and Johnson Controls, Battery Division - Garland.
Family
Relationships
There are
no family relationships among the officers and directors.
Meetings
of Our Board of Directors
The
Registrant’s board of directors did not hold any meetings during the fiscal year
ended September 28, 2008. Optex’s board of directors held three meetings during
the 3 months ended December 31, 2008.
Board
Committees
Audit
Committee
. The Company intends to establish an audit committee of the
board of directors, which will consist of soon-to-be-nominated independent
directors. The audit committee’s duties would be to recommend to the Company’s
board of directors the engagement of an independent registered public accounting
firm to audit the Company’s financial statements and to review the Company’s
accounting and auditing principles. The audit committee would review the scope,
timing and fees for the annual audit and the results of audit examinations
performed by the internal auditors and independent registered public accounting
firm, including their recommendations to improve the system of accounting and
internal controls. The audit committee would at all times be composed
exclusively of directors who are, in the opinion of the Company’s board of
directors, free from any relationship which would interfere with the exercise of
independent judgment as a committee member and who possess an understanding of
financial statements and generally accepted accounting principles.
Mr.
Ronald Richards is the board of directors’ financial expert to be considered
upon the formation of the audit committee.
Compensation
Committee
. The Company intends to establish a compensation committee of
the Board of Directors. The compensation committee would review and approve the
Company’s salary and benefits policies, including compensation of executive
officers.
Director
Compensation
The
Company has not paid its directors any separate compensation in respect of their
services on the board. However, in the future, the Company intends to implement
a market-based director compensation program.
Directors’
and Officers’ Liability Insurance
We
currently have directors’ and officers’ liability insurance insuring our
directors and officers against liability for acts or omissions in their
capacities as directors or officers, subject to certain
exclusions. Such insurance also insures us against losses which we
may incur in indemnifying our officers and directors. In addition, we
have entered into indemnification agreements with key officers and directors and
such persons shall also have indemnification rights under applicable laws, and
our certificate of incorporation and bylaws.
Code
of Ethics
As of the
date hereof, we have not adopted a written code of ethics that applies to our
principal executive officer, principal financial officer or controller, or
persons performing similar functions due to our relatively small size. We intend
to adopt a written code of ethics in the near future.
Executive
Compensation
Summary
Compensation Table
The
following table sets forth, for the years indicated, all compensation paid,
distributed or accrued for services, including salary and bonus amounts,
rendered in all capacities by the Company’s chief executive officer, chief
financial officer and all other executive officers who received or are entitled
to receive remuneration in excess of $100,000 during the stated periods. These
officers are referred to herein as the “named executive officers.” The
compensation table excludes other compensation in the form of perquisites and
other personal benefits that constituted less than $10,000 in value in
2006.
Summary
Compensation Table
The table
below sets forth, for our last two fiscal years, the compensation earned by
Danny Schoening and Karen Hawkins, our Chief Executive Officer and Chief
Financial Officer (the “Named Executive Officer”). Except as provided below,
none of our executive officers received annual compensation in excess of
$100,000 during the last two fiscal years.
Name and Principal Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock Awards ($) (2)
|
|
|
All Other Compensation
($)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Danny
Schoening
|
|
|
2008
|
(1)*
|
|
$
|
122,646
|
|
|
$
|
10,300
|
|
|
$
|
7,500
|
|
|
|
--
|
|
|
$
|
140,446
|
|
Chief
Operating Officer
|
|
|
2007
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Karen
Hawkins
|
|
|
2008
|
|
|
|
132,473
|
|
|
|
- 300
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
132,773
|
|
VP
Finance/Controller
|
|
|
2007
|
(1)*
|
|
|
56,900
|
|
|
|
-300
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
57,200
|
|
|
1.
|
The
compensation depicted is not reflective of a full years compensation as
Danny Schoening did not begin employment until the second quarter of
fiscal year 2008 and Karen Hawkins did not begin employment until the
third quarter of fiscal year 2007.
|
|
2.
|
Stock
awards include issues of 10,000 common shares of Irvine
SensorsCommon Stock on January 16, 2008 at the then current
market share price of $0.75 per
share
|
Option
Grants in Last Fiscal Year
There
were no options granted to any of the named executive officers during the fiscal
years ended September 28, 2008 and September 30, 2007.
Employment
Agreement
The
Company entered into an employment agreement with Danny Schoening (“Employee”)
dated December 1, 2008 (“Employment Agreement”). The term of the
Agreement commenced as of December 1, 2008 and shall continue through June 1,
2010. Thereafter, the term of the Agreement shall be automatically extended for
successive and additional 18 month periods, unless the Company shall provide a
written notice of termination at least ninety (90) days, or the Employee shall
provide a written notice of termination at least ninety (90) days, prior to the
end of the initial term or any extended term, as applicable. During
the first eighteen
months of the term of the Agreement, the Company shall pay to Employee a base
salary (“Base Salary”) at the annual rate of One Hundred Ninety Thousand Dollars
($190,000).
On
each renewal date of the commencement of employment, the Employee’s base salary
shall be reviewed by the Board and may be increased to such rate as the Board,
in its sole discretion, may hereafter from time to time determine. During the
term of the Agreement, Employee shall be entitled to receive bonuses of up to
30% of his base salary per year at the discretion of the Company’s Board of
Directors pursuant to performance objectives to be determined by the Board of
Directors. Any bonuses shall be payable in cash and shall be paid
within ninety (90) days of any year anniversary of the date of the Agreement.
Upon closing of the Reorganization, the Company granted Employee stock options
equal to 1% of the issued and outstanding shares of the Company immediately
after giving effect to the Reorganization, with 34% of the options vesting on
March 30, 2010, and 33% of the options vesting on each of March 31, 2011 and
March 31, 2012. The Agreement contains a standard non solicitation
and non-compete agreement that extends for one year subsequent to termination
thereof, and contains standard clauses for termination and the
like.
The
Company does not have any other employment agreements with its executive
officers and directors.
Equity
Compensation Plan Information
The
Company currently has an option compensation plan for up to 6,000,000 shares.
The purpose of the Plan is to to assist the Registrant in attracting and
retaining highly competent employees and to act as an incentive in motivating
selected officers and other employees of the Registrant and its subsidiaries,
and directors and consultants of the Registrant and its subsidiaries, to achieve
long-term corporate objectives. There are 6,000,000 shares of common
stock reserved for issuance under this Plan. As of March 31, 2009,
the Registrant had not issued any stock options under this Plan
Item
3.02 Unregistered Sales of Equity Securities.
On March
30, 2009, a closing occurred whereby the then existing shareholders of the
Company exchanged their shares of Company Common Stock with the shares of Common
Stock of Sustut Exploration, Inc. (“Registrant”) as follows: (i) the
outstanding 85,000,000 shares of Company Common Stock were exchanged by
Registrant for 113,333,282 shares of Registrant Common Stock, (ii) the
outstanding 1,027 shares of Company Series A Preferred Stock were exchanged by
Registrant for 1,027 shares of Registrant Series A Preferred Stock and such
additional items as more fully described in the Agreement and (iii) the
8,131,667 shares of Company purchased in the private placement will be exchanged
by Registrant for 8,131,667 shares of Registrant Common Stock, as acknowledged
by Registrant. The Company shall remain a wholly-owned subsidiary of
Registrant, and the Company’s shareholders are now shareholders of
Registrant.
Simultaneously
with closing under the Reorganization Agreement (and the shares are included
above), as of March 30, 2009 , the Company accepted subscriptions (“Private
Placement”) from accredited investors for a total of 27 units (the "Units"), for
$45,000 per Unit, with each Unit consisting of Three Hundred Thousand (300,000)
shares of common stock, no par value (the "Common Stock") of the Company and
warrants to purchase Three Hundred Thousand (300,000) shares of Common Stock for
$0.45 per share for a period of five (5) years from the initial closing (the
"Warrants"), which were issued by Registrant after the closing referenced
above. Gross proceeds to the Company were $1,219,750, and after
deducting a finders fee of $139,555 which was payable in cash, and consideration
which constituted of satisfaction of indebtedness owed to an investor of
$146,250, net proceeds were $933,945. The finder also received five
year warrants to purchase 2.7 Units, at an exercise price of $49,500 per
unit.
The
Company intends to use the net proceeds from the Private Placement to proceed
with the items set forth above.
The
issuance of the Reorganization Shares to the shareholders of Optex pursuant to
the Reorganization Agreement was exempt from registration under the Securities
Act pursuant to Section 4(2) thereof.
Description
of Securities
The
Company is authorized to issue 200,000,000 shares of common stock and 5,000
shares of Preferred Stock of which 1,027 shares are designated as Series A
Preferred Stock. As of March 30, 2009, there were 141,464,940 shares of common
stock issued and outstanding and 1,027 Series A Preferred Stock issued and
outstanding.
Common
Stock
The
holders of common stock are entitled to one vote per share. The holders of
common stock are entitled to receive ratably such dividends, if any, as may be
declared by the board of directors out of legally available funds. However, the
current policy of the board of directors is to retain earnings, if any, for
operations and growth. Upon liquidation, dissolution or winding-up, the holders
of common stock are entitled to share ratably in all assets that are legally
available for distribution. The holders of common stock have no preemptive,
subscription, redemption or conversion rights. The rights, preferences and
privileges of holders of common stock are subject to, and may be adversely
affected by, the rights of the holders of any series of preferred stock, which
may be designated solely by action of the board of directors and issued in the
future.
Preferred
Stock
Series
A Preferred Stock
On March
24, 2009, the Company 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”. This
Certificate of Designation was approved by the Registrant’s Board of Directors
and Shareholders at a Board Meeting and Shareholders Meeting held on February
25, 2009. The Certificate of Designation sets forth the following terms for the
Series A Preferred Stock: (i) Number of authorized shares: 1,027; (ii) per share
stated value: $6,000; (iii) liquidation preference per share: stated
value; (iv) conversion price: $0.15 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.
The
Series A Preferred Shares entitle the holders to receive cumulative dividends at
the rate of 6% per annum payable in cash at the discretion of Board of
Directors. 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 initially set at $0.15 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.
Market
Price and Dividends
Optex
Delaware has been, a privately-held company and now is a wholly-owned subsidiary
of the Company. There is not, and never has been, a public market for the
securities of Optex. The Registrant’s common stock is approved for trading on
the O TCBB under the symbol “ SSTX ”, but there is currently no liquid trading
market for the Registrant’s common stock. For the foreseeable future, the
Company does not intend pay cash dividends to its stockholders.
Indemnification
of Directors and Officers
Section
145 of the Delaware General Corporation Law provides, in general, that a
corporation incorporated under the laws of the State of Delaware, such as the
Company, may indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding
(other than a derivative action by or in the right of the corporation) by reason
of the fact that such person is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another enterprise, against expenses
(including attorneys’ fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person’s conduct was unlawful. In the case of a
derivative action, a Delaware corporation may indemnify any such person against
expenses (including attorneys’ fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification will be made in respect of any claim, issue or matter as to
which such person will have been adjudged to be liable to the corporation unless
and only to the extent that the Court of Chancery of the State of Delaware or
any other court in which such action was brought determines such person is
fairly and reasonably entitled to indemnity for such expenses.
Trading
Information
The
Company’s common stock is currently approved for quotation on the OTCBB under
the symbol “SSTX,” but there is currently no liquid trading market for the
Company’s common stock. The transfer agent for our common stock is American
Registrar.
Item
4.01 Changes in Registrant’s Certifying Accountant.
On March
30, 2009, the Company notified Gately & Associates, LLC, the independent
accountant engaged as the principal accountant to audit the financial statements
of the Company, that the firm was dismissed as the Company’s independent
registered accountant, effective immediately.
On March
30, 2009, the Company engaged Rotenberg & Co, LLP, as its independent
registered accounting firm. The decision to change accountants was recommended
and approved by Company’s Board of Directors.
The audit
report of Gately & Associates, LLC on the Company’s financial statements for
the fiscal years ending December 31, 2007 and 2008; the most recent two periods
for which said auditor has issued audit reports, did not contain any adverse
opinion or disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope or accounting principles. The auditor was
not required or engaged to audit the Company’s internal control over financial
reporting.
During
the past two fiscal years and during the subsequent interim period preceding the
date of dismissal, there were no disagreements with the auditor on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
the former accountants, would have caused it to make reference to the subject
matter of the disagreements in connection with its report, and there were
no reportable events as described in Item 304(a)(1)(iv) of Regulation
S-B.
The
Company has provided a copy of this disclosure to Gately & Associates, LLC
and has requested that the firm furnish the Company with a letter addressed to
the Securities and Exchange Commission stating whether it agrees with the
statements made by the Company, and, if not, stating the respects in which it
does not agree. A copy of the firm’s letter is filed as Exhibit 16.1
hereto.
During
the two most recent fiscal years prior to their engagement, or any subsequent
interim period prior to engaging Rotenberg & Co. LLP, neither the Company
nor anyone acting on the Company’s behalf consulted with Rotenberg & Co. LLP
regarding (i) the application of accounting principles to a specific completed
or contemplated transaction, or (ii) the type of audit opinion that might be
rendered on the Company’s financial statements where either written or oral
advice was provided that was an important factor considered by the Company in
reaching a decision as to the accounting, auditing, or financial reporting
issue, or (iii) any matter that was the subject of a disagreement with the
Company’s former accountant on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of the former accountant,
would have caused it to make reference to the subject matter of the
disagreements in connection with its audit report.
Item
5.02 Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain
Officers.
On March
30, 2009, Andrey Oks resigned as Director and CEO of the Company, and Messrs.
Stanley Hirschman, Ronald Richards and Merrick Okamoto were appointed as
directors. Stanley Hirschman, Danny Schoening and Karen Hawkins were
appointed as the President, COO and VP of Finance for the
Registrant. Other than as set forth in this Form 8-K there are no
compensatory measures to officers and there are standard fees paid to Board
members.
Item
5.06 Change in Shell Company Status .
As a
result of the consummation of the Reorganization described in Items 1.01 and
2.01 of this Current Report on Form 8-K, the Company believes that it is no
longer a “shell corporation,” as that term is defined in Rule 405 of the
Securities Act and Rule 12b-2 of the Exchange Act.
Item
9.01 Financial Statements and Exhibits .
(a)
|
Financial
statements of businesses acquired.
|
Optex ’s
audited financial statements for the year ended September 28, 2008 and unaudited
financial statements for the quarter ended December 30, 2008 are filed as
Exhibit 99.1 and 99.2, respectively to this Current Report on Form 8-K and are
incorporated herein by reference.
(b)
|
Pro
Forma Financial Information.
|
The
Company’s pro forma condensed combined financial statements as of December 31,
2008 are filed as Exhibit 99.3 to this Current Report on Form 8-K and are
incorporated herein by reference.
|
|
|
2.1
|
|
Agreement
and Plan of Reorganization (the “Agreement”), dated as of the March 30,
2009, by and between Registrant, a Delaware corporation and Optex Systems,
Inc., a Delaware corporation.
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3.2
|
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Bylaws
of Optex Systems Holdings Corp.
|
|
|
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10.1
|
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2009
Stock Option Plan
|
|
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10.2
|
|
Employment
Agreement with Danny Schoenig
|
|
|
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10.3
|
|
Lease
for 1420 Presidential Blvd., Richardson, TX
|
|
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16.1
|
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Communication
from Gately & Associates
|
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21.1
|
|
List
of Subsidiaries – Optex Systems, Inc.
|
|
|
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99.1
|
|
Optex
Systems, Inc.’s audited financial statements as of September 28,
2008.
|
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99.2
|
|
Optex
Systems, Inc.’s quarterly financial statements as of December 30,
2008.
|
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99.3
|
|
Pro
forma condensed combined financial statements of the Registrant and Optex
as of December 30, 2008.
|
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Date:
April 3, 2009
|
OPTEX SYTEMS
HOLDINGS, INC.
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|
|
|
|
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|
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|
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By:
|
/s/
|
|
|
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Stanley
A. Hirschman
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|
|
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President
|
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AGREEMENT AND PLAN OF
REORGANIZATION
This Agreement and Plan of
Reorganization (the “Agreement”), dated as of the 27th day of March 2009, by and
between Sustut Exploration, Inc., Inc., a Delaware corporation (“Sustut”), and
Optex Systems, Inc., a Delaware corporation (“Optex”), and Sileas Corporation
(“Sileas”), Alpha Capital Anstalt (“Alpha”), and Arland Holdings, Ltd.
(“Arland”) (collectively, “Shareholders”) with reference to the
following:
A. Sustut is a publicly held
Delaware
corporation. Sustut has
authorized capital stock of 200,000,000 shares of Common Stock, $.001 par value
per share (“Sustut Common Stock”) and 1,027 shares of Series A Preferred Stock
(“Sustut Series A Preferred Stock”). Of such shares,
44,999,991
shares of Sustut Common Stock are issued
and outstanding, of which 25,000,000 will be cancelled at closing, leaving
19,999,991 outstanding, and no shares of Sustut Series A Preferred Stock are
issued and outstanding.
B. Optex is a privately held
corporation organized under the laws of
Delaware
. Optex has authorized capital
stock of 300,000,000 shares of Common Stock, $.001 par value per share (“Optex
Common Stock”) and 1,027 shares of Series A Preferred Stock (“Optex Series A
Preferred Stock). Of such shares, 85,000,000shares of Optex Common Stock
are issued and outstanding, and 1,027 shares of Optex Series A Preferred Stock
are issued and outstanding.
C. The respective Boards of
Directors of Sustut and Optex have deemed it advisable and in the best interests
of Sustut and Optex and their respective shareholders that, contingent upon
approval by shareholders holding 100% of the outstanding stock of Optex, all
currently outstanding shares of Optex be acquired by Sustut, pursuant to the
terms and conditions set forth in this Agreement.
D. Certain investors in the
private placement of Optex have separately agreed to a share exchange which
shall occur on a one-for-one basis for shares of Sustut Common Stock in exchange
for their shares of Optex.
E. Sustut, Shareholders and
Optex propose to enter into this Agreement which provides, among other things,
that (i) the outstanding 85,000,000 shares of Optex Common Stock be exchanged by
Sustut for 113,333,282 shares of Sustut Common Stock, (ii) the
outstanding 1,027 shares of Optex Series A Preferred Stock be exchanged by
Sustut for 1,027 shares of Sustut Series A Preferred Stock and such additional
items as more fully described in the Agreement and (iii) the 8,131,667 shares of
Optex purchased in the private placement will be exchanged by Sustut for
8,131,667 shares of Sustut Common Stock, as acknowledged by
Sustut.
NOW, THEREFORE, the parties hereto agree
as follows:
ARTICLE 1
THE EXCHANGE
1.01
At the
Effective Time (as defined in Section 2.01), subject to the terms and
conditions herein,
the 85,000,000 shares
of Optex Common Stock
issued and outstanding immediately prior to the
Effective Time shall be acquired by Sustut in exchange for
113,333,282
fully paid and nonassessable shares of Sustut Common Stock and
1,027 shares of Optex
Series A Preferred Stock
issued and outstanding immediately prior to the
Effective Time shall be acquired by Sustut in exchange for 1,027 shares of
Sustut Series A Preferred Stock (the exchange of all shares of Optex Common
Stock for Sustut Common Stock shall constitute the “Exchange”). The Sustut
Common Stock shall be issued to the Shareholders and/or their nominees in the
amounts set forth on a list provided by Optex to Sustut.
1.02
As of the
Effective Time, each outstanding stock certificate that immediately prior to the
Effective Time represents shares of Optex Common Stock shall be deemed for all
purposes to evidence ownership and to represent the number of shares of Sustut
Common Stock for which such shares of Optex Common Stock have been exchanged
pursuant to Section 1.01. The record holder of each outstanding
certificate representing shares of Optex Common Stock shall, after the Effective
Time, be entitled to vote the Sustut Common Stock for which such shares of Optex
Common Stock have been exchanged on any matters on which the holders of the
Sustut Common Stock are entitled to vote. After the Effective Time, the
holders of certificates evidencing outstanding shares of Optex Common Stock
immediately prior to the Effective Time shall deliver such certificates of Optex
Common Stock, duly endorsed so as to make Sustut the sole holder thereof, free
and clear of all claims, and encumbrances and Sustut shall deliver a transmittal
letter to the transfer agent of Sustut directing the issuance of the Sustut
Common Stock to the shareholders of Optex and/or their nominees. Any
shares of Sustut Common Stock issued pursuant to this Agreement will not be
transferable except (a) pursuant to an effective registration statement
under the Securities Act of 1933, as amended (the “Act”), or (b) upon
receipt by Sustut of a written opinion of counsel for the holder reasonably
satisfactory to Sustut to the effect that the proposed transfer is exempt from
the registration requirements of the Act, and relevant state securities laws.
Restrictive legends shall be placed on all certificates representing Sustut
Common Stock issued pursuant to this Agreement, and the shares of Sustut Common
Stock into which they may be converted, as set forth in
Section 11.02.
In the event any certificate for Optex
Common Stock has been lost, stolen or destroyed, Sustut shall issue and pay in
exchange for such lost, stolen or destroyed certificate, promptly following its
receipt of an affidavit of that fact by the holder thereof, such shares of
Sustut Common Stock as may be required pursuant to this
Agreement.
1.03
Following the Effective
Time, there will be a total of 141,464,940 shares of Sustut Common Stock issued
and outstanding and 1,027 shares of Sustut Series A Preferred Stock outstanding.
1.04
Following the Effective
Time, Optex will be a wholly-owned subsidiary of Sustut.
ARTICLE 2
THE CLOSING
2.01
Subject to the terms and
conditions herein, the consummation of the transactions contemplated by this
Agreement (the “Closing”) shall take place on or before March 30, 2009 (the
“Closing Date”) or at such other place or date and time as may be agreed to in
writing by the parties hereto at the earliest practicable time after
satisfaction or waiver of the conditions hereof (the “Effective Time” or
“Effective Date”).
2.02
The following conditions
are a part of this Agreement and must be completed on or as of the Closing Date,
or such other date specified by the parties:
(a)
At the Closing, the Board
of Directors of Sustut shall appoint the following individuals as members of the
Board of Directors: Stanley Hirschman, Merrick Okamoto and Ronald
Richards.
(b)
Immediately following the appointment of
the individuals listed in Section 2.02(a) above to the Board of Directors,
the Board of Directors of Sustut shall consist of the three directors set forth
in (a).
(c)
Immediately prior to
Closing, all of the current officers of Sustut shall resign as officers of
Sustut. After the Closing Date, the newly constituted Board of Directors
of Sustut consisting of the individuals appointed pursuant to
Section 2.2(a) shall appoint such officers as it deems is
necessary and in the best interests of Sustut.
(d)
Prior to Closing, Sustut
shall have obtained board and shareholder approval to the extent necessary to
(i) consummate the share exchange contemplated by this Agreement,
(ii) create an option pool of 6,000,000 shares of Common Stock, and
(iii) complete, following Closing, in a manner which is reasonably
acceptable to Optex, the sale, spin-off or other disposition of its pre-Closing
operations, including all assets and liabilities.
(e)
Optex shall have delivered
to Sustut its financial statements for the period from October 1, 2007 –
September 30, 2008, which shall have been audited in substantial compliance with
generally accepted accounting principles in the
U.S.
(“U.S. GAAP”), and which shall be
capable of being audited in accordance with U.S. GAAP.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
SUSTUT
Sustut hereby represents and warrants to
Optex as follows:
3.01
Organization,
Standing and Power
.
Sustut is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted, and is duly qualified and in good standing to do
business in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification
necessary.
3.02
Capital
Structure
. As of the
date of execution of this Agreement, the authorized capital stock of Sustut is
as described in the recitals hereto. The Exchange Shares to be issued pursuant
to this Agreement shall be, when issued pursuant to the terms of the resolution
of the Board of Directors of Sustut approving such issuance, validly issued,
fully paid and nonassessable and not subject to preemptive rights. Except
as otherwise specified herein, as of the date of execution of this Agreement,
there are no other options, warrants, calls, agreements or other rights to
purchase or otherwise acquire from Sustut at any time, or upon the happening of
any stated event, any shares of the capital stock of Sustut whether or not
presently issued or outstanding.
3.03
Certificate
of Incorporation, Bylaws, and Minute Books
. The copies of the Articles of
Incorporation and of the Bylaws of Sustut which have been delivered to Optex are
true, correct and complete copies thereof. The minute book of Sustut,
which has been made available for inspection, contains accurate minutes of all
meetings and accurate consents in lieu of meetings of the Board of Directors
(and any committee thereof) and of the shareholders of Sustut since the date of
incorporation and accurately reflects all transactions referred to in such
minutes and consents in lieu of meetings.
3.04
Authority
. Sustut has all requisite power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by the Board of Directors of Sustut. No other corporate or shareholder
proceedings on the part of Sustut are necessary to authorize the Exchange, or
the other transactions contemplated hereby.
3.05
Conflict
with Other Agreements; Approvals
. The execution and delivery of
this Agreement does not, and the consummation of the transactions contemplated
hereby will not result in any violation of, or default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or the loss of a material benefit
under, or the creation of a lien, pledge, security interest or other encumbrance
on assets (any such conflict, violation, default, right of termination,
cancellation or acceleration, loss or creation, a “violation”) pursuant to any
provision of the Articles of Incorporation or Bylaws or any organizational
document of Sustut or, result in any violation of any loan or credit agreement,
note, mortgage, indenture, lease, benefit plan or other agreement, obligation,
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Sustut which violation
would have a material adverse effect on Sustut taken as a whole. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any court, administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign (a “Governmental
Entity”) is required by or with respect to Sustut in connection with the
execution and delivery of this Agreement by Sustut or the consummation by Sustut
of the transactions contemplated hereby.
3.06
Books and
Records
. Sustut has
made and will make available for inspection by Optex upon reasonable request all
the books of Sustut relating to the business of Sustut. Such books of Sustut
have been maintained in the ordinary course of business. All documents
furnished or caused to be furnished to Optex by Sustut are true and correct
copies, and there are no amendments or modifications thereto except as set forth
in such documents.
3.07
Compliance
with Laws
. Sustut is and
has been in compliance in all material respects with all laws, regulations,
rules, orders, judgments, decrees and other requirements and policies imposed by
any Governmental Entity applicable to it, its properties or the operation of its
businesses.
3.08
SEC
Filings
. As of the date
hereof, Sustut is current in its filing obligations.
3.09
Financial
Statements
. Copies of
Sustut’s audited financial statements for the fiscal year ended December 31,
2008 have been delivered to Optex.
3.10
Banks
. Sustut will deliver to Optex a
true and complete list (in all material respects), as of the date of this
Agreement, showing (1) the name of each bank in which Sustut has an account
or safe deposit box, and (2) the names and addresses of all
signatories.
3.11
Litigation
. There is no suit, action or
proceeding pending, or, to the knowledge of Sustut, threatened against or
affecting Sustut which is reasonably likely to have a material adverse effect on
Sustut, nor is there any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against Sustut having, or which,
insofar as reasonably can be foreseen, in the future could have, any such
effect.
3.12
Employees
. Sustut has no employees or
consultant contracts and is not in the process of acquiring any employees or
consultant contracts.
3.13
Liens,
Leases and Contracts
.
Sustut has no liens, encumbrances, easements, security interests or
similar interests in or on any of its assets. Sustut has no leases
(whether of real or personal property) contracts, promissory notes, mortgages,
licenses, franchises, or other written agreement to which Sustut is a party
which involves or can reasonably be expected to involve aggregate future
payments or receipts by Sustut (whether by the terms of such lease, contract,
promissory note, license, franchise or other written agreement or as a result of
a guarantee of the payment of or indemnity against the failure to pay same)
except any of said instruments which terminate or are cancelable without
penalty.
3.14
Absence of
Undisclosed Liabilities
.
Sustut has no liabilities of any nature, whether fixed, absolute, contingent or
accrued. As of the Effective Time, Sustut shall have no assets or liabilities
other than accounts payable.
3.15
Absence of
Changes
. Since
January 1, 2009 there has not been any material adverse change in the condition
(financial or otherwise), assets, liabilities, earnings or business of
Sustut.
3.16
Tax
Matters
. All taxes and
other assessments and levies which Sustut is required by law to withhold or to
collect have been duly withheld and collected, and have been paid over to the
proper government authorities or are held by Sustut in separate bank accounts
for such payment or are represented by depository receipts, and all such
withholdings and collections and all other payments due in connection therewith
(including, without limitation, employment taxes, both the employee’s and
employer’s share) have been paid over to the government or placed in a separate
and segregated bank account for such purpose. There are no known
deficiencies in income taxes for any periods and all returns, declarations,
reports, estimates and statements required have been filed. There are no
liens or taxes upon any assets of Sustut, except taxes not yet due.
Further, the representations and warranties as to absence of undisclosed
liabilities contained in Section 3.14 includes any and all tax liabilities
of whatsoever kind or nature (including, without limitation, all federal, state,
local and foreign income, profit, franchise, sales, use and property taxes) due
or to become due, incurred in
respect of or measured by Sustut income
or business prior to the Effective Date. Copies of Sustut’s tax returns
for years ending December 31, 2006, 2007 and 2008 have been delivered to
Optex.
3.17
Brokers and
Finders
. Sustut shall
be solely responsible for payment to any broker or finder retained by Sustut for
any brokerage fees, commissions or finders’ fees in connection with the
transactions contemplated herein.
3.18
Subsidiaries
. Sustut does not have any
subsidiary, or own an ownership interest in any other
corporation.
3.19
Valid
Issuance of Securities
.
The Sustut Common Stock, when issued, sold and delivered in accordance
with the terms of this Agreement for the consideration expressed herein, will be
duly and validly issued, fully paid and non assessable, and will be free of
restrictions on transfer other than restrictions on transfer under this
Agreement and under applicable state and federal securities
laws.
3.20
Directors,
Officers and Controlling Shareholders
. No director, officer or
controlling shareholder of Sustut has been subject to a criminal proceeding,
bankruptcy, Securities and Exchange Commission or NASD censure in the last five
years nor is any such individual under investigation for any of the
above.
3.21
Accuracy of
Information
. No
representation or warranty by Sustut contained in this Agreement and no
statement contained in any certificate or other instrument delivered or to be
delivered to Optex pursuant hereto or in connection with the transactions
contemplated hereby (including without limitation all Schedules and exhibits
hereto) contains or will contain any untrue statement of material fact or omits
or will omit to state any material fact necessary in order to make the
statements contained herein or therein not misleading.
3.22
Full
Disclosure
. The
representations and warranties of Sustut contained in this Agreement (and in any
schedule, exhibit, certificate or other instrument to be delivered under this
Agreement) are true and correct in all material respects, and such
representations and warranties do not omit any material fact necessary to make
the statements contained therein, in light of the circumstances under which they
were made, not misleading. There is no fact of which Sustut has knowledge
that has not been disclosed to Optex pursuant to this Agreement, including the
schedules hereto, all taken together as a whole, which has had or could
reasonably be expected to have a material adverse effect on Sustut or Optex or
materially adversely affect the ability of Sustut to consummate in a timely
manner the transactions contemplated hereby.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
OPTEX
Optex hereby represents and warrants to
Sustut as follows:
4.01
Organization, Standing and
Power
. Optex is a corporation duly organized, validly existing and
in good standing under the laws of Singapore, has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted, and is duly qualified and in good standing to do
business in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification
necessary.
4.02
Capital
Structure
. The
capitalization of Optex is as stated in the recitals hereto.. All
outstanding shares of Optex stock are validly issued, fully paid and
nonassessable and not subject to preemptive rights or other restrictions on
transfer. All of the issued and outstanding shares of Optex were issued in
compliance with all applicable securities laws. Except as otherwise
specified herein, there are no options, warrants, calls, agreements or other
rights to purchase or otherwise acquire from Optex at any time, or upon the
happening of any stated event, any shares of the capital stock of
Optex.
4.03
Authority
. Optex has all requisite power to
enter into this Agreement and, subject to approval of the proposed transaction
by the holders of 100% of its issued and outstanding shares which are entitled
to vote to approve the proposed transaction, has the requisite power and
authority to consummate the transactions contemplated hereby. Except as
specified herein, no other corporate or shareholder proceedings on the part of
Optex are necessary to authorize the Exchange and the other transactions
contemplated hereby.
4.04
Conflict
with Agreements; Approvals
.
The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of any provision of the Certificate of Incorporation or
Bylaws of Optex or of any loan or credit agreement, note, mortgage, indenture,
lease, benefit plan or other agreement, obligation, instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Optex or its properties or assets.
No consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity is required by or with respect to Optex in
connection with the execution and delivery of this Agreement by Optex, or the
consummation by Optex of the transactions contemplated
hereby.
4.06
Financial
Statements
. Optex
will deliver to Sustut financial statements for the period from October 1, 2007
– September 30, 2008, which shall have been audited in substantial compliance
with U.S. GAAP, and which shall be capable of being audited in accordance with
U.S. GAAP.
4.07
Compliance
with Laws
. Optex is
and has been in compliance in all material respects with all laws, regulations,
rules, orders, judgments, decrees and other requirements and policies imposed by
any Governmental Entity applicable to it, its properties or the operation of its
businesses.
4.08
Broker and
Finders
. Optex shall
be solely responsible for payment to any broker or finder retained by Optex for
any brokerage fees, commissions or finders’ fees in connection with the
transactions contemplated herein.
4.09
Accuracy of
Information
. No
representation or warranty by Sustut contained in this Agreement and no
statement contained in any certificate or other instrument delivered or to be
delivered to Optex pursuant hereto or in connection with the transactions
contemplated hereby (including without limitation all Schedules and exhibits
hereto) contains or will contain any untrue statement of material fact or omits
or will omit to state any material fact necessary in order to make the
statements contained herein or therein not misleading.
4.10
Full
Disclosure
. The
representations and warranties of Optex contained in this Agreement (and in any
schedule, exhibit, certificate or other instrument to be delivered under this
Agreement) are true and correct in all material respects, and such
representations and warranties do not omit any material fact necessary to make
the statements contained therein, in light of the circumstances under which they
were made, not misleading. There is no fact of which Optex has knowledge that
has not been disclosed to Sustut pursuant to this Agreement, including the
schedules hereto, all taken together as a whole, which has had or could
reasonably be expected to have a material adverse effect on Sustut or Optex or
materially adversely affect the ability of Optex to consummate in a timely
manner the transactions contemplated hereby.
ARTICLE 5
CONDUCT AND TRANSACTIONS PRIOR TO
THE
EFFECTIVE TIME OF THE
ACQUISITION
5.01
Conduct and
Transactions of Sustut
.
During the period from the date hereof to the Effective Date, Sustut
shall:
(a)
C
onduct its operations in
the ordinary course of business, including but not limited to, paying all
obligations as they mature, complying with all applicable tax laws, filing all
tax returns required to be filed and paying all taxes due;
and
(b)
Maintain its records and
books of account in a manner that fairly and correctly reflects its income,
expenses, assets and liabilities.
Sustut shall not during such period,
except in the ordinary course of business, without the prior written consent of
Optex:
(c)
Except as otherwise
contemplated or required by this Agreement, sell, dispose of or encumber any of
its properties or assets;
(d)
Except as set forth in
paragraph 5.01(c) above, declare or pay any dividends on shares of its
capital stock or make any other distribution of assets to the holders
thereof;
(e)
Except as set
forth in paragraph 5.01(d) above, issue, reissue or sell, or issue capital
stock of Sustut or options or rights to subscribe to, or enter into any contract
or commitment to issue, reissue or sell, any shares of its capital stock or
acquire or agree to acquire any shares of its capital stock;
(f)
Except as otherwise
contemplated and required by this Agreement, amend its Certificate of
Incorporation or merge or consolidate with or into any other corporation or sell
all or substantially all of its assets or change in any manner the rights of its
capital stock or other securities;
(g)
Except as contemplated or
required by this Agreement, pay or incur any obligation or liability, direct or
contingent, of more than $1,000;
(h)
Incur any indebtedness for
borrowed money, assume, guarantee, endorse or otherwise become responsible for
obligations of any other party, or make loans or advances to any other party
other than to Optex;
(i)
Make any material change in
its insurance coverage;
(j)
Increase in any manner the
compensation, direct or indirect, of any of its officers or executive employees;
except in accordance with existing employment contracts;
(k)
Enter into any agreement or
make any commitment to any labor union or organization; or
(l)
Make any capital
expenditures.
5.02
Conduct and
Transactions of Optex
.
During the period from the date hereof to Effective Date, Optex
shall:
(a)
Conduct the operations of
Optex in the ordinary course of business.
Optex shall not during such period,
except in the ordinary course of business, without the prior written consent of
Sustut:
(b)
Declare or pay any
dividends on shares of its capital stock or make any other distribution of
assets to the holders thereof;
(c)
Issue, reissue or sell, or
issue capital stock of Optex or options or rights to subscribe to, or enter into
any contract or commitment to issue, reissue or sell, any shares of its capital
stock or acquire or agree to acquire any shares of its capital stock; or other
securities; or
(d)
Except as
otherwise contemplated and required by this Agreement, amend its Certificate of
Incorporation or merge or consolidate with or into any other corporation or sell
substantially all of its assets or change in any manner the rights of its
capital stock or other securities.
ARTICLE 6
RIGHTS OF INSPECTION
6.01
Due
Diligence; Access to Information; Confidentiality
.
(a)
Between the date hereof and
the Closing Date, Sustut and Optex shall afford to the other party and their
authorized representatives the opportunity to conduct and complete a due
diligence investigation of the other party as described herein. In light
of the foregoing, each party shall permit the other party full access on
reasonable notice and at reasonable hours to its properties and shall disclose
and make available (together with the right to copy) to the other party and its
officers, employees, attorneys, accountants and other representatives
(hereinafter collectively referred to as “
Representatives
”), all books, papers, and records
relating to the assets, stock, properties, operations, obligations and
liabilities of such party and its subsidiaries, including, without limitation,
all books of account (including, without limitation, the general ledger), tax
records, minute books of directors’ and stockholders’ meetings, organizational
documents, bylaws, contracts and agreements, filings with any regulatory
authority, accountants’ work papers, litigation files (including, without
limitation, legal research memoranda), attorney’s audit response letters,
documents relating to assets and title thereto (including, without limitation,
abstracts, title insurance policies, surveys, environmental reports, opinions of
title and other information relating to the real and personal property), plans
affecting employees, securities transfer records and stockholder lists, and any
books, papers and records (collectively referred to herein as “
Evaluated
Material
”) relating to
other assets or business activities in which such party may have a reasonable
interest, and otherwise provide such assistance as is reasonably requested in
order that each party may have a full opportunity to make such investigation and
evaluation as it shall reasonably desire to make of the business and affairs of
the other party; provided, however, that the foregoing rights granted to each
party shall, whether or not and regardless of the extent to which the same are
exercised, in no way affect the nature or scope of the representations,
warranties and covenants of the respective party set forth herein. In
addition, each party and its Representatives shall cooperate fully (including
providing introductions, where necessary) with such other party to enable the
party to contact third parties, including customers, prospective customers,
specified agencies or others as the party deems reasonably necessary to complete
its due diligence; provided that such party agrees not to initiate such contacts
without the prior approval of the other party, which approval will not be
unreasonably withheld.
(b)
Sustut and Optex agree that
each such party will not use the Evaluation Material for any purpose other than
in connection with the transactions contemplated hereunder. Each agrees
not to disclose or allow disclosure to others of any Evaluation Material, except
to such party’s Affiliates or Representatives, in each case, to the extent
necessary to permit such Affiliate or Representative to assist such party in
connection with the transactions contemplated hereunder. Each agrees that
it will, within ten (10) days of the other party’s request, re-deliver to such
party all copies of that party’s Evaluation Material in its possession or that
of its affiliates or Representatives if the Exchange contemplated by this
Agreement does not close as contemplated herein.
(c)
In the event any party or
anyone to whom Evaluation Material has been transmitted in accordance with the
terms herein is requested in connection with any proceeding to disclose any
Evaluation Material, such party will give the other party prompt notice of such
request so that the other party may seek an appropriate protective order or
other remedy or waive compliance with this Agreement, and such party will
cooperate with the other party to obtain such protective order. In the
event such protective order is not obtained, the other party waives compliance
with the relevant provisions of this Section, such party (or such person to whom
such request is directed) will furnish only that portion of the Evaluation
Material which is required to be disclosed.
(d)
Notwithstanding any of the
foregoing, if prior to Closing, for any reason, the transactions contemplated by
this Agreement are not consummated, neither Sustut nor Optex nor any of their
Representatives shall disclose to third parties or otherwise use any Evaluation
Material or other confidential information received from the other party in the
course of investigating, negotiating, and performing the transactions
contemplated by this Agreement; provided, however, that nothing shall be deemed
to be confidential information which:
(i)
is or becomes generally
available to the public other than as a result of a disclosure by such party,
its affiliates or Representatives;
(ii)
was available to such party
on a non-confidential basis prior to its disclosure;
(iii)
becomes available to such
party on a non-confidential basis from a source other than the other party or
its agents, advisors or Representatives;
(iv)
developed by such party
independently of any disclosure by the other party; or
(v)
is disclosed in compliance
with Section 6.01(c).
This provision shall not prohibit the
disclosure of information required to be made under federal or state securities
laws. If any disclosure is so required, the party making such disclosure
shall consult with the other party prior to making such disclosure, and the
parties shall use all reasonable efforts, acting in good faith, to agree upon a
text for such disclosure which is satisfactory to both
parties.
6.02
Sustut and Optex each agree
that money damages would not be sufficient to remedy any breach by the other
party of this Section, and that, in addition to all other remedies, each party
against which a breach of this Section has been committed shall be entitled
to specific performance and injunctive or other equitable relief as a remedy of
such breach.
ARTICLE 7
CONDITIONS TO
CLOSING
7.01
Conditions
to Obligations of Optex
.
The obligation of Optex to perform this Agreement is subject to the
satisfaction of the following conditions on or before the Closing unless waived
in writing by Optex.
(a)
Representations
and Warranties
.
There shall be no information disclosed in the schedules delivered by
Sustut, which in the opinion of Optex, would materially
adversely affect the proposed
transaction and intent of the parties as set forth in this Agreement. The
representations and warranties of Sustut set forth in Article 3 hereof
shall be true and correct in all material respects as of the date of this
Agreement and as of the Closing as though made on and as of the Closing, except
as otherwise permitted by this Agreement.
(b)
Performance
of Obligations
.
Sustut shall have in all material respects performed all agreements
required to be performed by it under this Agreement and shall have performed in
all material respects any actions contemplated by this Agreement prior to or on
the Closing and Sustut shall have complied in all material respects with the
course of conduct required by this Agreement.
(c)
Corporate
Action and Share Cancellation
. Sustut shall have furnished
minutes, certified copies of corporate resolutions and/or other documentary
evidence satisfactory to counsel for Optex that Sustut has submitted with this
Agreement and any other documents required hereby to such parties for approval
as provided by applicable law. At closing, 25,000,000 Sustut shall
cancel 25,000,000 shares held by its former CEO.
(d)
Consents
. Execution Consents necessary for
or approval of any party listed on any Schedule delivered by Sustut whose
consent or approval is required pursuant thereto shall have been
obtained.
(e)
Statutory
Requirements
. All
statutory requirements for the valid consummation by Sustut of the transactions
contemplated by this Agreement shall have been fulfilled.
(f)
Governmental
Approval
. All
authorizations, consents, approvals, permits and orders of all federal and state
governmental agencies required to be obtained by Sustut for consummation of the
transactions contemplated by this Agreement shall have been
obtained.
(g)
Market
Condition
. Up to and
including the Closing Date, Sustut shall have maintained its listing on the OTC
Bulletin Board, without any trading and quotation halts or other notices of
deficiency received by or imposed against Sustut.
(h)
Changes in
Financial Condition of Sustut
. There shall not have occurred
any material adverse change in the financial condition or in the operations of
the business of Sustut, except expenditures in furtherance of this
Agreement.
(i)
Absence of
Pending Litigation
.
Sustut is not engaged in or threatened with any suit, action, or legal,
administrative or other proceedings or governmental investigations pertaining to
this Agreement or the consummation of the transactions contemplated
hereunder.
(j)
Authorization
for Issuance of Stock
.
Optex shall have received in form and substance satisfactory to counsel
for Optex a letter instructing and authorizing the transfer agent for the shares
of common stock of Sustut to issue stock certificates representing ownership of
Sustut common stock to Optex shareholders in accordance with the terms of this
Agreement upon surrender by such shareholders of their share certificates
representing ownership of shares in Optex duly endorsed for transfer, and a
letter from said transfer agent acknowledging receipt of the letter of
instruction and stating to the effect that the Transfer Agent holds adequate
supplies of stock certificates necessary to comply with the letter of
instruction and the terms and conditions of this Agreement.
(k)
Books and
Records
. Sustut shall
deliver to Optex all books and records of Sustut.
7.02
Conditions
to Obligations of Sustut
.
The obligation of Sustut to perform this Agreement is subject to the
satisfaction of the following conditions on or before the Closing unless waived
in writing by Sustut.
(a)
Performance
of Obligations
. Optex
shall have in all material respects performed all agreements required to be
performed by it under this Agreement and shall have performed in all material
respects any actions contemplated by this Agreement prior to or on the Closing
and Optex shall have complied in all respects with the course of conduct
required by this Agreement.
(b)
Corporate
Action
. Optex shall
have furnished minutes, certified copies of corporate resolutions and/or other
documentary evidence satisfactory to counsel for Sustut that Optex has submitted
with this Agreement and any other documents required hereby to such parties for
approval as provided by applicable law.
(c)
Financial
Statements
. Sustut
shall have been furnished with audited financial statements of Optex including,
but not limited to, balance sheets, income statements, statements of
stockholders’ equity and statements of cash flows as at and for the year ended
September 30, 2008, each prepared in substantial compliance with U.S. GAAP,
which are capable of being audited in accordance with U.S. GAAP, and which
fairly present the financial condition and results of operations of Optex at the
dates thereof and for the periods presented.
(d)
Statutory
Requirements
. All
statutory requirements for the valid consummation by Optex of the transactions
contemplated by this Agreement shall have been fulfilled.
(e)
Governmental
Approval
. All
authorizations, consents, approvals, permits and orders of all federal and state
governmental agencies required to be obtained by Optex for consummation of the
transactions contemplated by this Agreement shall have been
obtained.
(f)
Shareholder
Approval
. All Optex
shareholders shall have provided written approval of this Agreement and Plan of
Reorganization, shall have provided representations reasonably satisfactory to
Sustut to the effect that they own their shares of Optex free and clear of
liens, claims or encumbrances of any kind, have the requisite power and
authority to transfer such shares pursuant to and in accordance with the terms
of this Agreement and Plan of Reorganization, and have delivered the share
certificates representing their ownership of shares in Optex to Sustut duly
endorsed for transfer.
ARTICLE 8
MATTERS SUBSEQUENT TO
CLOSING
8.01
Covenant of
Further Assurance
.
The parties covenant and agree that they shall, from time to time, execute
and deliver or cause to be executed and delivered all such further instruments
of conveyance, transfer, assignments, receipts and other instruments, and shall
take or cause to be taken such further or other actions as the other party or
parties to this Agreement may reasonably deem necessary in order to carry out
the purposes and intent of this Agreement.
ARTICLE 9
NATURE OF
REPRESENTATIONS
9.01
All statements
contained in any written certificate, schedule, exhibit or other written
instrument delivered by Sustut or Optex pursuant hereto, or otherwise adopted by
Sustut, by its written approval, or by Optex by its written approval, or in
connection with the transactions contemplated hereby, shall be deemed
representations and warranties by Sustut or Optex as the case may be. All
representations, warranties and agreements made by either party shall survive
for the period of the applicable statute of limitations.
ARTICLE 10
INDEMNIFICATION
10.01
Indemnity of
Optex
. Sustut agrees
to defend, indemnify and hold harmless Optex from and against, and to reimburse
Optex with respect to, all liabilities, losses, costs and expenses, including,
without limitation, reasonable attorneys’ fees and disbursements, asserted
against or incurred by Optex by reason of, arising out of, or in connection with
any material breach of any representation or warranty contained in this
Agreement made by Sustut or in any document or certificate delivered by Sustut
pursuant to the provisions of this Agreement or in connection with the
transactions contemplated thereby.
10.02
Indemnity of
Sustut
. Optex agrees to
defend, indemnify and hold harmless Sustut from and against, and to reimburse
Sustut with respect to, all liabilities, losses, costs and expenses, including,
without limitation, reasonable attorneys’ fees and disbursements, asserted
against or incurred by Sustut by reason of, arising out of, or in connection
with any material breach of any representation or warranty contained in this
Agreement made by Optex or in any document or certificate delivered by Optex
pursuant to the provisions of this Agreement or in connection with the
transactions contemplated thereby.
10.03
Indemnification
Procedure
. A party (an
“Indemnified Party”) seeking indemnification shall give prompt notice to the
other party (the “Indemnifying Party”) of any claim for indemnification arising
under this Article 10. The Indemnifying Party shall have the right to
assume and to control the defense of any such claim with counsel reasonably
acceptable to such Indemnified Party, at the Indemnifying Party’s own cost and
expense, including the cost and expense of reasonable attorneys’ fees and
disbursements in connection with such defense, in which event the Indemnifying
Party shall not be obligated to pay the fees and disbursements of separate
counsel for such in such action. In the event, however, that such
Indemnified Party’s legal counsel shall determine that defenses may be available
to such Indemnified Party that are different from or in addition to those
available to the Indemnifying Party, in that there could reasonably be expected
to be a conflict of interest if such Indemnifying Party and the Indemnified
Party have common counsel in any such proceeding, or if the Indemnified Party
has not assumed the defense of the action or proceedings, then such Indemnifying
Party may employ separate counsel to represent or defend such Indemnified Party,
and the Indemnifying Party shall pay the reasonable fees and disbursements of
counsel for such Indemnified Party. No settlement of any such claim or payment
in connection with any such settlement shall be made without the prior consent
of the Indemnifying Party which consent shall not be unreasonably
withheld.
ARTICLE 11
TERMINATION OF AGREEMENT
AND
ABANDONMENT OF
REORGANIZATION
11.01
Termination
. Anything herein to the contrary
notwithstanding, this Agreement and any agreement executed as required hereunder
and the acquisition contemplated hereby may be terminated at any time before the
Closing as follows:
(a)
By mutual written consent
of the Boards of Directors of Sustut and Optex.
(b)
By the Board of
Directors of Sustut if any of the conditions set forth in Section 7.02
shall not have been satisfied by the Closing Date.
(c)
By the Board of Directors
of Optex if any of the conditions set forth in Section 7.01 shall not have
been satisfied by the Closing Date.
(d)
By the Board of Directors
of Optex if this Agreement and Plan of Reorganization is not duly approved by
the stockholders of Optex following a vote of the stockholders of
Optex.
(e)
By either of the Boards of
Directors of Sustut or Optex if the Closing Date is not on or before March 31,
2009, or such later date as Sustut and Optex may mutually agree (except that a
party seeking to terminate this Agreement pursuant to this clause may not do so
if the failure to consummate the Exchange contemplated by this Agreement by such
date shall be due to the action or failure to act of the party seeking to
terminate the Agreement in breach of such party’s obligations under this
Agreement).
11.02
Termination
of Obligations and Waiver of Conditions; Payment of Expenses
. In the event this Agreement and
the acquisition are terminated and abandoned pursuant to this Article 11
hereof, this Agreement shall become void and of no force and effect and there
shall be no liability on the part of any of the parties hereto, or their
respective directors, officers, shareholders or controlling persons to each
other. For the costs and expenses incident to its negotiation and
preparation of this Agreement and any of the documents evidencing the
transactions contemplated hereby, including fees, expenses and disbursements of
counsel, Sustut shareholders shall bear the expenses incurred by Sustut, and
Optex shareholders shall bear the expenses incurred by
Optex.
ARTICLE 12
EXCHANGE OF SHARES
12.01
Exchange of
Shares
. At the
Effective Time, Sustut shall issue a letter to the transfer agent of Sustut with
a copy of the resolution of the Board of Directors of Sustut authorizing and
directing the issuance of Sustut shares as set forth on a list provided by Optex
to Sustut prior to the Effective Time.
12.02
Restrictions
on Shares Issued to Optex
.
Due to the fact that the offer and sale of the Sustut Common Stock being
issued in connection with the acquisition have not been registered under the Act
by virtue of the exemption provided in Section 4(2) of such Act, such
shares of Sustut will contain the following legend:
The offer and sale of the shares
represented by this certificate have not been registered under the Securities
Act of 1933. The shares have been acquired for investment and may not be
sold or offered for sale in the absence of an effective Registration Statement
for such offer and sale under the Securities Act of 1933 or an opinion of
counsel to the Corporation that such registration is not
required.
ARTICLE 13
MISCELLANEOUS
13.01
Expenses
. All
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such costs
and expenses.
13.02
Notices
. All notices, requests, demands
or other communications hereunder shall be in writing, hand delivered or mailed
by certified mail, return receipt required, or by overnight courier, receipt
signature required or by facsimile transmission with verification of
transmission received by the sender, to each party at the address that follows
or at such other place as either party may, by written notice to the other
parties hereto, direct:
If to
“Sustut”
:
_________________________
with a
copy to
:
_________________________
If to
“Optex”
:
Optex Systems, Inc.
1420 Presidential
Boulevard
Richardson
,
TX
75081
Attn:
Stanley
Hirschman,
President
With a copy
to
:
Jolie Kahn, Esq.
61 Broadway,
Suite
2820
New York
,
NY
10006
Fax No.:
866-705-3071
Any such notice, when sent in accordance
with the provisions hereof, shall be deemed to have been given and received
(a) on the day personally delivered or faxed (with confirmation) or
(b) on the second day after the day overnight delivered or (c) on the
fifth day following the date mailed.
13.03
Amendment and Waiver
.
The parties hereby may, by mutual agreement in writing signed by or on
behalf of each party, amend this Agreement in any respect. Any term or
provision of this Agreement may be waived in writing signed by an authorized
officer at any time by the party against which such waiver is to be charged,
such waiver right shall include, but not be limited to, the right of either
party to:
(a)
Extend the time for the
performance of any of the obligations of the other;
(b)
Waive any inaccuracies in
representations by the other contained in this Agreement or in any document
delivered pursuant hereto;
(c)
Waive compliance by the
other with any of the covenants contained in this Agreement, and performance of
any obligations by the other; and
(d)
Waive the fulfillment of
any condition that is precedent to the performance by the party so waiving of
any of its obligations under this Agreement.
Any writing on the part of a party
relating to such amendment, extension or waiver as provided in this Section
13.03 shall be valid if authorized or ratified by the Board of Directors of such
party.
13.04
Remedies not
Exclusive
. No remedy
conferred by any of the specific provisions of this Agreement is intended to be
exclusive of any other remedy, and each and every remedy shall be cumulative and
shall be in addition to every other remedy given hereunder or now or hereafter
existing at law or in equity or by statute or otherwise. The election of
any one or more remedies by Sustut or Optex shall not constitute a waiver of the
right to pursue other available remedies.
13.05
Attorneys’
Fees
. In the event a
dispute arises with respect to this Agreement, the party prevailing in such
dispute shall be entitled to recover all expenses, including, without
limitation, reasonable attorneys’ fees and expenses, incurred in ascertaining
such party’s rights, in preparing to enforce, or in enforcing such party’s
rights under this Agreement, whether or not it was necessary for such party to
institute suit.
13.06
Governing
Law; Venue
.
Any dispute in the meaning, effect or
validity of this Agreement shall be resolved in accordance with the laws of the
State of
Delaware
without regard to the conflict of laws
provisions thereof. The parties hereby expressly consent to the personal
jurisdiction of the state and federal courts located in
Wilmington
,
Delaware
, for any lawsuit against either party
arising from or related to this Agreement.
13.07
Counterparts
. This Agreement may be executed
in one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same
instrument.
13.08
Benefit
. This Agreement shall be binding
upon, and inure to the benefit of, the respective successors and assigns of
Sustut and Optex and its shareholders.
13.09
Entire Agreement
.
This Agreement and the Schedules and Exhibits attached hereto, represent
the entire agreement of the undersigned regarding the subject matter hereof, and
supersedes all prior written or oral understandings or agreements between the
parties.
13.10
Captions and
Section Headings
.
Captions and section headings used herein are for convenience only and
shall not control or affect the meaning or construction of any provision of this
Agreement.
Executed as of the date first written
above.
|
|
“Sustut”
|
“Optex”
|
|
|
Sustut,
Inc.
|
Optex
Systems, Inc.
|
|
|
By:
/s/ _______________, President
|
By:
/s/ Stanley A. Hirschman, President
|
|
|
“Shareholder”
|
“_______________________”
|
|
|
Longview
Fund, LP.
|
Arland
Holdings, Ltd.
|
|
|
By:
/s/ _______________, __________
|
By:
/s/ _______________, _____________
|
|
|
Alpha
Capital Anstalt
By:/s/_________________,
__________
|
|
BY-LAWS
Of
Optex
Systems Holdings, Inc.
ARTICLE
I
The
Corporation
Section 1
.
Name
. The legal name
of this corporation (hereinafter called the "Corporation") is Optex Systems,
Inc.
Section 2
.
Offices
. The
Corporation shall have its registered office in the State of Delaware at the
location of its registered agent in the State of Delaware as stated in its
Articles of Incorporation or as otherwise designated by the Board of Directors.
The Corporation may also have offices at such other places within and without
the United States as the Board of Directors may from time to time appoint or the
business of the Corporation may require.
Section 3
.
Seal
. The corporate
seal shall have inscribed thereon the name of the Corporation, the year of its
organization and the words "Corporate Seal, Delaware". One or more duplicate
dies for impressing such seal may be kept and used.
ARTICLE
II
Meetings of
Shareholders
Section 1
.
Place of Meetings
.
All meetings of the shareholders shall be held at any place, within or without
the State of Delaware, as is fixed in the notice of the meeting.
Section
2
.
Annual
Meeting
. An annual meeting
of the shareholders of the Corporation for the election of directors and the
transaction of such other business as may properly come before the meeting shall
be held on the date and at the time designated by the Board of Directors. If for
any reason any annual meeting shall not be held at the time herein specified,
the same may be held at any time thereafter upon notice, as herein provided, or
the business thereof may be transacted at any special meeting called for the
purpose.
Section 3
.
Special Meetings
.
Special meetings of shareholders may be called by the President whenever he
deems it necessary or advisable. A special meeting of the shareholders shall be
called by the President whenever so directed in writing by a majority of the
entire Board of Directors or whenever the holders of one-third (1/3) of the
number of shares of the capital stock of the Corporation entitled to vote at
such meeting shall, in writing, request the same.
S
ection
4
.
Notice of
Meetings
. Notice of the
time and place of the annual and of each special meeting of the shareholders
shall be given to each of the shareholders entitled to vote at such meeting by
mailing the same in a postage prepaid wrapper addressed to each such
shareholders at his address as it appears on the books of the Corporation, or by
delivering the same personally to any such shareholder in lieu of such mailing,
at least ten (10) and not more than sixty (60) days prior to each meeting.
Meetings may be held without notice if all of the shareholders entitled to vote
thereat are present in person or by proxy, or if notice thereof is waived by all
such shareholders not present in person or by proxy, before or after the
meeting. Notice by mail shall be deemed to be given when deposited, with postage
thereon prepaid, in the United States mail. If a meeting is adjourned to another
time, not more than thirty (30) days hence, or to another place, and if an
announcement of the adjourned time or place is made at the meeting, it shall not
be necessary to give notice of the adjourned meeting unless the Board of
Directors, after adjournment fix a new record date for the adjourned meeting.
Notice of the annual and each special meeting of the shareholders shall indicate
that it is being issued by or at the direction of the person or persons calling
the meeting, and shall state the name and capacity of each such person. Notice
of each special meeting shall also state the purpose or purposes for which it
has been called. Neither the business to be transacted at nor the purpose of the
annual or any special meeting of the shareholders need be specified in any
written waiver of notice.
Section
5
.
Record Date
for Shareholders
. For the
purpose of determining the shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or for the purpose of determining
shareholders entitled to receive payment of any dividend or other distribution
or the allotment of any rights, or entitled to exercise any rights in respect of
any change, conversion, or exchange of stock or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
shall not be more than sixty (60) days nor less than ten (10) days before the
date of such meeting, nor more than sixty (60) days prior to any other
action.
If no
record date is fixed, the record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if no
notice is given, the day on which the meeting is held; the record date for
determining shareholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors is
necessary, shall be the day on which the first written consent is expressed; and
the record date for determining shareholders for any other purpose shall be at
the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of shareholders of record entitled
to notice of or to vote at any meeting of shareholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
Section 6
.
Proxy Representation
.
Every shareholder may authorize another person or persons to act for him by
proxy in all matters in which a shareholder is entitled to participate, whether
by waiving notice of any meeting, voting or participating at a meeting, or
expressing consent or dissent without a meeting. Every proxy must be signed by
the shareholder or by his attorney-in-fact. No proxy shall be voted or acted
upon after eleven (11) months from its date unless such proxy provides for a
longer period. Every proxy shall be revocable at the pleasure of the shareholder
executing it, except as otherwise provided in Section 608 of the Delaware
Business Corporation Law.
Section 7
.
Voting at Shareholders'
Meetings
. Each share of stock shall entitle the holder thereof to one
vote. In the election of directors, a plurality of the votes cast shall elect.
Any other action shall be authorized by a majority of the votes cast except
where the Delaware Business Corporation Law prescribes a different percentage of
votes or a different exercise of voting power. In the election of directors, and
for any other action, voting need not be by ballot.
Section 8
.
Quorum and
Adjournment
. Except for a special election of directors pursuant to the
Delaware Business Corporation Law, the presence, in person or by proxy, of the
holders of a majority of the shares of the stock of the Corporation outstanding
and entitled to vote thereat shall be requisite and shall constitute a quorum at
any meeting of the shareholders. When a quorum is once present to organize a
meeting, it shall not be broken by the subsequent withdrawal of any
shareholders. If at any meeting of the shareholders there shall be less than a
quorum so present, the shareholders present in person or by proxy and entitled
to vote thereat, may adjourn the meeting from time to time until a quorum shall
be present, but no business shall be transacted at any such adjourned meeting
except such as might have been lawfully transacted had the meeting not
adjourned.
Section 9
.
List of Shareholders
.
The officer who has charge of the stock ledger of the Corporation shall prepare,
make and certify, at least ten (10) days before every meeting of shareholders, a
complete list of the shareholders, as of the record date fixed for such meeting,
arranged in alphabetical order, and showing the address of each shareholder and
the number of shares registered in the name of each shareholder. Such list shall
be open to the examination of any shareholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten (10) days
prior to the meeting, either at a place within the city or other municipality or
community where the meeting is to be held. The list shall also be produced and
kept at the time and place of the meeting during the whole time thereof, and may
be inspected by any shareholder who is present. If the right to vote at any
meeting is challenged, the inspectors of election, if any, or the person
presiding thereat, shall require such list of shareholders to be produced as
evidence of the right of the persons challenged to vote at such meeting, and all
persons who appear from such list to be shareholders entitled to vote thereat
may vote at such meeting.
Section 10
.
Inspectors of
Election
. The Board of Directors, in advance of any meeting, may, but
need not, appoint one or more inspectors of election to act at the meeting or
any adjournment thereof. If an inspector or inspectors are not appointed, the
person presiding at the meeting may, and at the request of any shareholder
entitled to vote thereat shall, appoint one or more inspectors.
In case
any person who may be appointed as an inspector fails to appear or act, the
vacancy may be filled by appointment made by the Board of Directors in advance
of the meeting or at the meeting by the person presiding thereat. Each
inspector, if any, before entering upon the discharge of his duties, shall take
and sign an oath faithfully to execute the duties of the inspector at such
meeting with strict impartiality and according to the best of his ability. The
inspectors, if any, shall determine the number of shares of stock outstanding
and the voting power of each, the shares of stock represented at the meeting,
the existence of a quorum, the validity and effect of proxies, and shall receive
votes, ballots or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all votes,
ballots or consents, determine the result, and do such acts as are proper to
conduct the election or vote with fairness to all shareholders. On request of
the person presiding at the meeting or any shareholder entitled to vote thereat,
the inspector or inspectors, if any, shall make a report in writing of any
challenge, question or matter determined by him or them and execute a
certificate of any fact found by him or them. Any report or certificate made by
the inspector or inspectors shall be prima facie evidence of the facts stated
and of the vote as certified by them.
Section 11
.
Action of the Shareholders
Without Meetings
. Any action which may be taken at any annual or special
meeting of the shareholders may be taken without a meeting on written consent,
setting forth the action so taken, signed by the holders of the number of shares
required to take action if a meeting had been held to vote thereon. Written
consent thus given by the holders of all outstanding shares entitled to vote
shall have the same effect as a vote of the shareholders.
ARTICLE
III
Directors
Section 1
.
Number of Directors
.
The number of directors which shall constitute the entire Board of Directors
shall be at least one (1). Subject to the foregoing limitation, such number may
be fixed from time to time by action of a majority of the entire Board of
Directors or of the shareholders at an annual or special meeting, or, if the
number of directors is not so fixed, the number shall be one (1). No decrease in
the number of directors shall shorten the term of any incumbent
director.
Section 2
.
Election and Term
.
The initial Board of Directors shall be elected by the incorporator and each
initial director so elected shall hold office until the first annual meeting of
shareholders and until his successor has been elected and qualified. Thereafter,
each director who is elected at an annual meeting of shareholders, and each
director who is elected in the interim to fill a vacancy or a newly created
directorship, shall hold office until the next annual meeting of shareholders
and until his successor has been elected and qualified.
Section 3
.
Filling Vacancies,
Resignation and Removal
. Any director may tender his resignation at any
time. Any director or the entire Board of Directors may be removed, with or
without cause, by vote of the shareholders. In the interim between annual
meetings of shareholders or special meetings of shareholders called for the
election of directors or for the removal of one or more directors and for the
filling of any vacancy in that connection, newly created directorships and any
vacancies in the Board of Directors, including unfilled vacancies resulting from
the resignation or removal of directors for cause or without cause, may be
filled by the vote of a majority of the remaining directors then in office,
although less than a quorum, or by the sole remaining director.
Section 4
.
Qualifications and
Powers
. Each director shall be at least eighteen (18) years of age. A
director need not be a shareholder, a citizen of the United States or a resident
of the State of Delaware. The business of the Corporation shall be managed by
the Board of Directors, subject to the provisions of the Certificate of
Incorporation.
In
addition to the powers and authorities by these By-Laws expressly conferred upon
it, the Board may exercise all such powers of the Corporation and do all such
lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these By-Laws directed or required to be exercised or done
exclusively by the shareholders.
Section 5
.
Regular and Special Meetings
of the Board
. The Board of Directors may hold its meetings, whether
regular or special, either within or without the State of Delaware. The newly
elected Board may meet at such place and time as shall be fixed by the vote of
the shareholders at the annual meeting, for the purpose of organization or
otherwise, and no notice of such meeting shall be necessary to the newly elected
directors in order legally to constitute the meeting, provided a majority of the
entire Board shall be present; or they may meet at such place and time as shall
be fixed by the consent in writing of all directors. Regular meetings of the
Board may be held with or without notice at such time and place as shall from
time to time be determined by resolution of the Board. Whenever the time or
place of regular meetings of the Board shall have been determined by resolution
of the Board, no regular meetings shall be held pursuant to any resolution of
the Board altering or modifying its previous resolution relating to the time or
place of the holding of regular meetings, without first giving at least three
(3) days written notice to each director, either personally or by telegram, or
at least five (5) days written notice to each director by mail, of the substance
and effect of such new resolution relating to the time and place at which
regular meetings of the Board may thereafter be held without notice. Special
meetings of the Board shall be held whenever called by the President,
Vice-President, the Secretary or any director in writing. Notice of each special
meeting of the Board shall be delivered personally to each director or sent by
telegraph to his residence or usual place of business at least three (3) days
before the meeting, or mailed to him to his residence or usual place of business
at least five (5) days before the meeting. Meetings of the Board, whether
regular or special, may be held at any time and place, and for any purpose,
without notice, when all the directors are present or when all directors not
present shall, in writing, waive notice of and consent to the holding of such
meeting, which waiver and consent may be given after the holding of such
meeting. All or any of the directors may waive notice of any meeting and the
presence of a director at any meeting of the Board shall be deemed a waiver of
notice thereof by him. A notice, or waiver of notice, need not specify the
purpose or purposes of any regular or special meeting of the Board.
Section 6
.
Quorum and Action
. A
majority of the entire Board of Directors shall constitute a quorum except that
when the entire Board consists of one director, then one director shall
constitute a quorum, and except that when a vacancy or vacancies prevents such
majority, a majority of the directors in office shall constitute a quorum,
provided that such majority shall constitute at least one-third (1/3) of the
entire Board. A majority of the directors present, whether or not they
constitute a quorum, may adjourn a meeting to another time and place. Except as
herein otherwise provided, and except as otherwise provided by the Delaware
Business Corporation Law, the vote of the majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board.
Section 7
.
Telephonic Meetings
.
Any member or members of the Board of Directors, or of any committee designated
by the Board, may participate in a meeting of the Board, or any such committee,
as the case may be, by means of conference telephone or similar communications
equipment allowing all persons participating in the meeting to hear each other
at the same time, and participation in a meeting by such means shall constitute
presence in person at such meeting.
Section 8
.
Action Without a
Meeting
. Any action required or permitted to be taken at any meeting of
the Board of Directors, or of any committee thereof, may be taken without a
meeting if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
Section 9
.
Compensation of
Directors
. By resolution of the Board of Directors, the directors may be
paid their expenses, if any, for attendance at each regular or special meeting
of the Board or of any committee designated by the Board and may be paid a fixed
sum for attendance at such meeting, or a stated salary as director, or both.
Nothing herein contained shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefore; provided, however, that directors who are also salaried officers
shall not receive fees or salaries as directors.
ARTICLE
IV
Committees
Section 1
.
In General
. The Board
of Directors may, by resolution or resolutions passed by the affirmative vote
therefore of a majority of the entire Board, designate an Executive Committee
and such other committees as the Board may from time to time determine, each to
consist of one (1) or more directors, and each of which, to the extent provided
in the resolution or in the Certificate of Incorporation or in the By-Laws,
shall have all the powers of the Board, except that no such Committee shall have
power to fill vacancies in the Board, or to change the membership of or to fill
vacancies in any committee, or to make, amend, repeal or adopt By-Laws of the
Corporation, or to submit to the shareholders any action that needs shareholder
approval under these By-Laws or the Delaware Business Corporation Law, or to fix
the compensation of the directors for serving on the Board or any committee
thereof, or to amend or repeal any resolution of the Board which by its terms
shall not be so amendable or repealable. Each committee shall serve at the
pleasure of the Board. The Board may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
Section 2
.
Executive Committee
.
Except as otherwise limited by the Board of Directors or by these By-Laws, the
Executive Committee, if so designated by the Board of Directors, shall have and
may exercise, when the Board is not in session, all the powers of the Board of
Directors in the management of the business and affairs of the Corporation, and
shall have power to authorize the seal of the Corporation to be affixed to all
papers which may require it. The Board shall have the power at any time to
change the membership of the Executive Committee, to fill vacancies in it, or to
dissolve it. The Executive Committee may make rules for the conduct of its
business and may appoint such assistance as it shall from time to time deem
necessary. A majority of the members of the Executive Committee, if more than a
single member, shall
ARTICLE
V
Officers
Section 1
.
Designation, Term and
Vacancies
. The officers of the Corporation shall be a President, one or
more Vice-Presidents, a Secretary, a Treasurer, and such other officers as the
Board of Directors may from time to time deem necessary. Such officers may have
and perform the powers and duties usually pertaining to their respective
offices, the powers and duties respectively prescribed by law and by these
By-Laws, and such additional powers and duties as may from time to time be
prescribed by the Board. The same person may hold any two or more offices,
except that the offices of President and Secretary may not be held by the same
person unless all the issued and outstanding stock of the Corporation is owned
by one person, in which instance such person may hold all or any combination of
offices.
The
initial officers of the Corporation shall be appointed by the initial Board of
Directors, each to hold office until the meeting of the Board of Directors
following the first annual meeting of shareholders and until his successor has
been appointed and qualified. Thereafter, the officers of the Corporation shall
be appointed by the Board as soon as practicable after the election of the Board
at the annual meeting of shareholders, and each officer so appointed shall hold
office until the first meeting of the Board of Directors following the next
annual meeting of shareholders and until his successor has been appointed and
qualified. Any officer may be removed at any time, with or without cause, by the
affirmative note therefore of a majority of the entire Board of Directors. All
other agents and employees of the Corporation shall hold office during the
pleasure of the Board of Directors. Vacancies occurring among the officers of
the Corporation shall be filled by the Board of Directors. The salaries of all
officers of the Corporation shall be fixed by the Board of
Directors.
Section 2
.
President
. The
President shall preside at all meetings of the shareholders and at all meetings
of the Board of Directors at which he may be present.
Subject
to the direction of the Board of Directors, he shall be the chief executive
officer of the Corporation, and shall have general charge of the entire business
of the Corporation. He may sign certificates of stock and sign and seal bonds,
debentures, contracts or other obligations authorized by the Board, and may,
without previous authority of the Board, make such contracts as the ordinary
conduct of the Corporation's business requires. He shall have the usual powers
and duties vested in the President of a corporation. He shall have power to
select and appoint all necessary officers and employees of the Corporation,
except those selected by the Board of Directors, and to remove all such officers
and employees except those selected by the Board of Directors, and make new
appointments to fill vacancies. He may delegate any of his powers to a
Vice-President of the Corporation.
Section 3
.
Vice-President
. A
Vice-President shall have such of the President's powers and duties as the
President may from time to time delegate to him, and shall have such other
powers and perform such other duties as may be assigned to him by the Board of
Directors. During the absence or incapacity of the President, the
Vice-President, or, if there be more than one, the Vice-President having the
greatest seniority in office, shall perform the duties of the President, and
when so acting shall have all the powers and be subject to all the
responsibilities of the office of President.
Section 4
.
Treasurer
. The
Treasurer shall have custody of such funds and securities of the Corporation as
may come to his hands or be committed to his care by the Board of Directors.
Whenever necessary or proper, he shall endorse on behalf of the Corporation, for
collection, checks, notes, or other obligations, and shall deposit the same to
the credit of the Corporation in such bank or banks or depositaries, approved by
the Board of Directors as the Board of Directors or President may designate. He
may sign receipts or vouchers for payments made to the Corporation, and the
Board of Directors may require that such receipts or vouchers shall also be
signed by some other officer to be designated by them. Whenever required by the
Board of Directors, he shall render a statement of his cash accounts and such
other statements respecting the affairs of the Corporation as may be required.
He shall keep proper and accurate books of account. He shall perform all acts
incident to the office of Treasurer, subject to the control of the
Board.
Section 5
.
Secretary
. The
Secretary shall have custody of the seal of the Corporation and when required by
the Board of Directors, or when any instrument shall have been signed by the
President duly authorized to sign the same, or when necessary to attest any
proceedings of the shareholders or directors, shall affix it to any instrument
requiring the same and shall attest the same with his signature, provided that
the seal may be affixed by the President or Vice-President or other officer of
the Corporation to any document executed by either of them respectively on
behalf of the Corporation which does not require the attestation of the
Secretary.
He
shall attend to the giving and serving of notices of meetings. He shall have
charge of such books and papers as properly belong to his office or as may be
committed to his care by the Board of Directors. He shall perform such other
duties as appertain to his office or as may be required by the Board of
Directors.
Section 6
.
Delegation
. In case
of the absence of any officer of the Corporation, or for any other reason that
the Board of Directors may deem sufficient, the Board may temporarily delegate
the powers or duties, or any of them, of such officer to any other officer or to
any director.
ARTICLE
VI
Stock
Section 1
.
Certificates Representing
Shares
. All certificates representing shares of the capital stock of the
Corporation shall be in such form not inconsistent with the Certificate of
Incorporation, these By-Laws or the laws of the State of Delaware of the
Business Corporation Law. Such shares shall be approved by the Board of
Directors, and shall be signed by the President or a Vice-President and by the
Secretary or the Treasurer and shall bear the seal of the Corporation and shall
not be valid unless so signed and sealed. Certificates countersigned by a duly
appointed transfer agent and/or registered by a duly appointed registrar shall
be deemed to be so signed and sealed whether the signatures be manual or
facsimile signatures and whether the seal be a facsimile seal or any other form
of seal. All certificates shall be consecutively numbered and the name of the
person owning the shares represented thereby, his residence, with the number of
such shares and the date of issue, shall be entered on the Corporation's books.
All certificates surrendered shall be cancelled and no new certificates issued
until the former certificates for the same number of shares shall have been
surrendered and cancelled, except as provided for herein.
In case
any officer or officers who shall have signed or whose facsimile signature or
signatures shall have been affixed to any such certificate or certificates,
shall cease to be such officer or officers of the Corporation before such
certificate or certificates shall have been delivered by the Corporation, such
certificate or certificates may nevertheless be adopted by the Corporation, and
may be issued and delivered as though the person or persons who signed such
certificates, or whose facsimile signature or signatures shall have been affixed
thereto, had not ceased to be such officer or officers of the
Corporation.
Any
restriction on the transfer or registration of transfer of any shares of stock
of any class or series shall be noted conspicuously on the certificate
representing such shares.
Section 2
.
Fractional Share
Interests
. The Corporation, may, but shall not be required to, issue
certificates for fractions of a share. If the Corporation does not issue
fractions of a share, it shall: (1) arrange for the disposition of fractional
interests by those entitled thereto; (2) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined; or (3) issue scrip or warrants in registered or bearer form which
shall entitle the holder to receive a certificate for a full share upon the
surrender of such scrip or warrants aggregating a full share. A certificate for
a fractional share shall, but scrip or warrants shall not unless otherwise
provided therein, entitle the holder to exercise voting rights, to receive
dividends thereon, and to participate in any distribution of the assets of the
Corporation in the event of liquidation. The Board of Directors may cause scrip
or warrants to be issued subject to the conditions that they shall become void
if not exchanged for certificates representing full shares before a specified
date, or subject to the condition that the shares for which scrip or warrants
are exchangeable may be sold by the Corporation and the proceeds thereof
distributed to the holders of scrip or warrants, or subject to any other
conditions which the Board of Directors may impose.
Section 3
.
Addresses of
Shareholders
. Every shareholder shall furnish the Corporation with an
address to which notices of meetings and other notices may be served upon or
mailed to him, and in default thereof notices may be addressed to him at his
last known post office address.
Section 4
.
Stolen, Lost or Destroyed
Certificates
. The Board of Directors may in its sole discretion direct
that a new certificate or certificates of stock be issued in place of any
certificate or certificates of stock theretofore issued by the Corporation,
alleged to have been stolen, lost or destroyed, and the Board of Directors when
authorizing the issuance of such new certificate or certificates, may, in its
discretion, and as a condition precedent thereto, require the owner of such
stolen, lost or destroyed certificate or certificates or his legal
representatives to give to the Corporation and to such registrar or registrars
and/or transfer agent or transfer agents as may be authorized or required to
countersign such new certificate or certificates, a bond in such sum as the
Corporation may direct not exceeding double the value of the stock represented
by the certificate alleged to have been stolen, lost or destroyed, as indemnity
against any claim that may be made against them or any of them for or in respect
of the shares of stock represented by the certificate alleged to have been
stolen, lost or destroyed.
Section 5
.
Transfers of Shares
.
Upon compliance with all provisions restricting the transferability of shares,
if any, transfers of stock shall be made only upon the books of the Corporation
by the holder in person or by his attorney thereunto authorized by power of
attorney duly filed with the Secretary of the Corporation or with a transfer
agent or registrar, if any, upon the surrender and cancellation of the
certificate or certificates for such shares properly endorsed and the payment of
all taxes due thereon. The Board of Directors may appoint one or more suitable
banks and/or trust companies as transfer agents and/or registrars of transfers,
for facilitating transfers of any class or series of stock of the Corporation by
the holders thereof under such regulations as the Board of Directors may from
time to time prescribe. Upon such appointment being made all certificates of
stock of such class or series thereafter issued shall be countersigned by one of
such transfer agents and/or one of such registrars of transfers, and shall not
be valid unless so countersigned.
ARTICLE
VII
Dividends and
Finance
Section 1
.
Dividends
. The Board
of Directors shall have power to fix and determine and to vary, from time to
time, the amount of the working capital of the Corporation before declaring any
dividends among its shareholders, and to direct and determine the use and
disposition of any net profits or surplus, and to determine the date or dates
for the declaration and payment of dividends and to determine the amount of any
dividend, and the amount of any reserves necessary in their judgment before
declaring any dividends among its shareholder, and to determine the amount of
the net profits of the Corporation from time to time available for
dividends.
Section 2
.
Fiscal Year
. The
fiscal year of the Corporation shall end on the last business day in the month
of September in each year and shall begin on the next succeeding day, or shall
be for such other period as the Board of Directors may from time to time
designate with the consent of the Department of Taxation and Finance, where
applicable.
ARTICLE
VIII
Miscellaneous
Provisions
Section 1
.
Stock of Other
Corporations
. The Board of Directors shall have the right to authorize
any director, officer or other person on behalf of the Corporation to attend,
act and vote at meetings of the shareholders of any corporation in which the
Corporation shall hold stock, and to exercise thereat any and all rights and
powers incident to the ownership of such stock, and to execute waivers of notice
of such meetings and calls therefore; and authority may be given to exercise the
same either on one or more designated occasions, or generally on all occasions
until revoked by the Board. In the event that the Board shall fail to give such
authority, such authority may be exercised by the President in person or by
proxy appointed by him on behalf of the Corporation.
Any
stocks or securities owned by this Corporation may, if so determined by the
Board of Directors, be registered either in the name of this Corporation or in
the name of any nominee or nominees appointed for that purpose by the Board of
Directors.
Section 2
.
Books and Records
.
Subject to the Delaware Business Corporation Law, the Corporation may keep its
books and accounts outside the State of Delaware.
Section 3
.
Notices
. Whenever any
notice is required by these By-Laws to be given, personal notice is not meant
unless expressly so stated, and any notice so required shall be deemed to be
sufficient if given by depositing the same in a post office box in a sealed
postpaid wrapper, addressed to the person entitled thereto at his last known
post office address, and such notice shall be deemed to have been given on the
day of such mailing.
Whenever
any notice whatsoever is required to be given under the provisions of any law,
or under the provisions of the Certificate of Incorporation or these By-Laws a
waiver in writing, signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto.
Section 4
.
Amendments
. Except as
otherwise provided herein, these By-Laws may be altered, amended or repealed and
By-Laws may be made at any annual meeting of the shareholders or at any special
meeting thereof if notice of the proposed alteration, amendment or repeal, or
By-Law or By-Laws to be made be contained in the notice of such special meeting,
by the holders of a majority of the shares of stock of the Corporation
outstanding and entitled to vote thereat; or by a majority of the Board of
Directors at any regular meeting of the Board of Directors, or at any special
meeting of the Board of Directors, if notice of the proposed alteration,
amendment or repeal, or By-Law or By-Laws to be made, be contained in the notice
of such special meeting.
OPTEX
SYSTEMS HOLDINGS, INC.
2009
STOCK OPTION PLAN
ARTICLE
I
PURPOSE
AND ADOPTION OF THE PLAN
1.01 Purpose
. The
purpose of the Optex Systems Corporation (“Company”) 2009 Stock Option Plan is
to assist the Company (as defined below) in attracting and retaining highly
competent employees and to act as an incentive in motivating selected officers
and other employees of the Company and its subsidiaries, and directors and
consultants of the Company and its subsidiaries, to achieve long-term corporate
objectives.
1.02 Adoption and
Term
. The Plan has been approved by the Board of Directors and
shareholders of the Company. The Plan is effective from the date approved by the
shareholders of the Company (the “Effective Date”) and shall remain in effect
until terminated by action of the Board;
provided
,
however
,
that no Option (as defined
below) or Stock Purchase Right (as defined below) may be granted hereunder after
the tenth anniversary of the Effective Date.
ARTICLE
II
DEFINITIONS
For the
purpose of this Plan, the following capitalized terms shall have the following
meanings:
2.01 Applicable
Laws
means the requirements relating to the administration of stock
option plans under U.S. state corporate laws, U.S. federal and state securities
laws, the Code, any stock exchange or quotation system on which the Common Stock
is listed or quoted and the applicable laws of any foreign country or
jurisdiction where Options or Stock Purchase Rights are, or will be, granted
under the Plan.
2.02 Beneficiary
means an
individual, trust or estate who or which, by a written designation of the
Participant filed with the Company or by operation of law, succeeds to the
rights and obligations of the Participant under the Plan and the Option
Agreement or Restricted Stock Purchase Agreement upon the Participant’s
death.
2.03 Board
means the Board of
Directors of the Company.
2.04 Code
means the Internal
Revenue Code of 1986, as amended. References to a section of the Code
shall include that section and any comparable section or sections of any future
legislation that amends, supplements or supersedes said section
2.05 Committee
means the
Committee defined in Section 3.01.
2.06 Company
means Optex
Systems Corporation., a Delaware corporation, and its successors.
2.07 Common Stock
means the
Common Stock of the Company, par value $.001 per share.
2.08 Date of Grant
means the
date designated by the Committee as the date as of which it grants an Option or
Stock Purchase Right, which shall not be earlier than the date on which the
Committee approves the granting of such Option or Stock Purchase
Right.
2.09 Exchange Act
means the
Securities Exchange Act of 1934, as amended.
2.10 Fair Market Value
means,
as of any applicable date, the fair market value of the Common Stock as
determined by the Board based upon such evidence as it may think necessary or
desirable.
2.11 Incentive Stock Option
means a stock option within the meaning of Section 422 of the Code.
2.12 Merger
means any merger,
reorganization, consolidation, exchange, transfer of assets or other transaction
having similar effect involving the Company.
2.13 Nonstatutory Stock Option
means a stock option which is not an Incentive Stock Option.
2.14 Option Agreement
means a
written agreement between the Company and a Participant, specifically setting
forth the terms and conditions of an Option granted under the Plan,
substantially in the form of
Exhibit A
attached
hereto or such other form as shall be determined from time to time by the
Committee.
2.15 Option Price
, with
respect to Options, shall have the meaning set forth in Section
6.01(b).
2.16 Option Term
means, with
respect to an Option, the period of time set forth in the Option Agreement
during which the Option may be exercised.
2.17 Options
means all
Nonstatutory Stock Options and Incentive Stock Options granted at any time under
the Plan.
2.18 Participant
means a
person designated to receive an Option or Stock Purchase Right under the Plan in
accordance with Section 4.03.
2.19 Plan
means the Treasure
Mountain Holdings, Inc. 2005 Stock Option Plan as described herein, as the same
may be amended from time to time.
2.20 Restricted Stock
means
shares of Common Stock acquired pursuant to a grant of Stock Purchase Rights
under Article V of the Plan.
2.21 Restricted Stock Purchase
Agreement
means a written agreement between the Company and an Optionee
evidencing the terms and restrictions applying to stock purchased under a Stock
Purchase Right. Each Restricted Stock Purchase Agreement is subject to the terms
and conditions of the Plan and shall be substantially in the form of
Exhibit B
attached
hereto or such other form as shall be determined from time to time by the
Committee.
2.22 Stock Purchase Right
means the right to purchase Common Stock pursuant to Article V of the Plan, as
evidenced by a notice of grant included within the applicable Restricted Stock
Purchase Agreement (the “Notice of Grant”).
2.23 Ten Percent Shareholder
means any individual who, at the time an Option is granted, owns stock
possessing more than 10 percent of the total combined voting power of all
classes of stock of the Company.
ARTICLE
III
ADMINISTRATION
The Plan
shall be administered by the Board or, in the discretion of the Board, by a
committee of the Board (the “Committee”) comprised of at least two
persons. The Committee or Board shall have exclusive and final
authority in each determination, interpretation or other action affecting the
Plan and its Participants. The Board or Committee shall have the sole
discretionary authority to interpret the Plan, to establish and modify
administrative rules for the plan, to impose such conditions and restrictions on
Options and Stock Purchase Rights as it determines appropriate, and to take such
steps in connection with the Plan and Options and Stock Purchase Rights granted
hereunder as it may deem necessary or advisable. The Board or
Committee may delegate such of its powers and authority under the Plan as it
deems appropriate to designated officers or employees of the
Company. In the event of such delegation of authority or exercise of
authority by the Board or Committee, references in the Plan to the Committee
shall be deemed to refer to the delegate of the Board or the Committee as the
case may be. For purposes of this Plan, references to the Committee
shall be deemed references to the Board to the extent that the Board has not
appointed a Committee to administer the Plan.
ARTICLE
IV
SHARES
AND PARTICIPATION
4.01 Number of Shares
Issuable.
The total number of shares initially authorized to
be issued under the Plan shall be 6,000,000 shares of Common Stock. The number
of shares available for issuance under the Plan shall be further subject to
adjustment in accordance with Section 7.06. The shares to be offered
under the Plan shall be authorized and unissued Common Stock, or issued Common
Stock which shall have been reacquired by the Company,
4.02 Shares Subject to Terminated
Options and Stock Purchase Rights
. Common Stock covered by any
unexercised portions of terminated Options and Stock Purchase Rights (including
canceled Options and Stock Purchase Rights) granted under Articles V and VI of
the Plan and Common Stock subject to any Options and Stock Purchase Rights which
are otherwise surrendered by a Participant may again be subject to new Options
and Stock Purchase Rights under the Plan.
4.03 Participation.
Participants in the Plan shall be such consultants, directors, officers
and other employees of the Company and its subsidiaries as the Committee, in its
sole discretion, may designate from time to time. The Committee’s designation of
a Participant in any year shall not require the Committee to designate such
person to receive Options, Stock Purchase Rights or grants in any other
year. The Committee shall consider such factors as it deems pertinent
in selecting Participants and in determining the type and amount of their
respective Options and Stock Purchase Rights.
ARTICLE
V
STOCK
PURCHASE RIGHTS
5.01 Rights to Purchase
. Stock
Purchase Rights may be issued either alone, in addition to, or in tandem with
other awards granted under the Plan and/or cash awards made outside of the Plan.
After the Committee determines that it will offer Stock Purchase Rights under
the Plan, it shall advise the offeree in writing or electronically, by means of
a Restricted Stock Purchase Agreement, of the terms, conditions and restrictions
related to the offer, including the number of shares of Common Stock that the
offeree shall be entitled to purchase and the price to be paid for such shares.
The offer shall be accepted by execution of the Restricted Stock Purchase
Agreement.
5.02 Repurchase Option
. Unless
the Committee determines otherwise, the Restricted Stock Purchase Agreement
shall grant the Company a repurchase option exercisable upon the voluntary or
involuntary termination of the purchaser's service with the Company for any
reason (including death or “Permanent Disability” (as defined in Section 6.03)).
The purchase price for shares repurchased pursuant to the Restricted Stock
Purchase Agreement shall be the original price paid by the purchaser and may be
paid by cancellation of any indebtedness of the purchaser to the Company. The
repurchase option shall lapse at a rate determined by the Committee. In the
event that the Restricted Stock Purchase Agreement does not provide for a
lapsing schedule, the restrictions shall lapse as to (a) one third of the shares
subject to the Restricted Stock Purchase Agreement on the first anniversary of
the grant of the Stock Purchase Right, (b) one third of the shares subject to
the Restricted Stock Purchase Agreement on the second anniversary of the grant
of the Stock Purchase Right and (c) one third of the shares subject to the
Restricted Stock Purchase Agreement on the third anniversary of the grant of the
Stock Purchase Right.
5.03 Other Provisions
. The
Restricted Stock Purchase Agreement shall contain such other terms, provisions
and conditions not inconsistent with the Plan as may be determined by the
Committee in its sole discretion.
5.04 Rights as a Shareholder
.
Once the Stock Purchase Right is exercised, the purchaser shall have the rights
equivalent to those of a shareholder, and shall be a shareholder when his or her
purchase is entered upon the records of the duly authorized transfer agent of
the Company. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the Stock Purchase Right is exercised;
provided
,
however
, that
Participants are entitled to share adjustments to reflect capital changes under
Section 7.06.
ARTICLE
VI
STOCK
OPTIONS
6.01 Option
Awards.
(a)
General.
The
Committee may grant, to such Participants as the Committee may select, Options
entitling the Participant to purchase shares of Common Stock from the Company in
such number, at such price, and on such terms and subject to such conditions,
not inconsistent with the terms of this Plan, as may be established by the
Committee. The terms of any Option granted under this Plan shall be
set forth in an Option Agreement.
(b)
Purchase Price of
Options.
The Option Price of each share of Common Stock which
may be purchased upon exercise of any Option granted under the Plan shall be
determined by the Committee;
provided
,
however
, that (i)
with respect to Incentive Stock Options, the Option Price per share shall in all
cases be equal to or greater than the Fair Market Value of a share of Common
Stock on the Date of Grant as required under Section 422 of the Code, and (ii)
with respect to any Incentive Stock Option granted to any Ten Percent
Shareholder, the Option Price per share shall in all cases be equal to or
greater than 110 percent of the Fair Market Value of a share of Common Stock on
the Date of Grant as required under Section 422 of the Code.
(c)
Designation of
Options.
Except as otherwise expressly provided in the Plan,
the Committee may designate, at the time of the grant of each Option, the Option
as an Incentive Stock Option or a Nonstatutory Stock Option.
(d)
Incentive Stock Option
Limitations
. No Participant may be granted Incentive Stock
Options under the Plan (or any other plans of the Company), which would result
in shares with an aggregate Fair Market Value (measured on the Date of Grant) of
more than $100,000 first becoming exercisable in any one calendar year. No
Participant may be granted Incentive Stock Options under the Plan (or any other
plans of the Company) unless the Participant is an employee of the Company or
its Subsidiaries. An individual shall not cease to be an employee in the case of
(i) any leave of absence approved by the Company or (ii) transfers between
locations of the Company or between the Company and its subsidiaries. For
purposes of an Option initially granted as an Incentive Stock Option, if a leave
of absence of more than three months precludes such Option from being treated as
an Incentive Stock Option under the Code, such Option thereafter shall be
treated as a Nonstatutory Stock Option for purposes of this Plan. Neither
service as a director nor payment of a director’s fee by the Company shall be
sufficient to constitute “employment” by the Company.
(e)
Rights as a
Shareholder
. A Participant or a transferee of an Option
pursuant to Section 7.04 shall have no rights as a shareholder with respect to
Common Stock covered by an Option until the Participant or transferee shall have
become the holder of record of any such shares, and no adjustment shall be made
for dividends in cash or other property or distributions or other rights with
respect to any such Common Stock for which the record date is prior to the date
on which the Participant or a transferee of the Option shall have become the
holder of record of any such shares covered by the Option;
provided
,
however
, that
Participants are entitled to share adjustments to reflect capital changes under
Section 7.06.
(f)
Vesting.
In the event that an
Option Agreement does not provide for a vesting schedule, the Options covered
thereby shall become exercisable as to (a) one third of the shares subject to
the Option Agreement on the first anniversary of the grant of the Option, (b)
one third of the shares subject to the Option on the second anniversary of the
grant of the Option and (c) one third of the shares subject to the Option on the
third anniversary of the grant of the Option.
6.02 Terms
of Stock Options.
(a)
Conditions on
Exercise.
An Option Agreement with respect to Options may
contain such waiting periods, exercise dates and restrictions on exercise
(including, but not limited to, periodic installments) as may be determined by
the Committee as of the Date of Grant.
(b)
Duration of
Options
. Options shall terminate after the first to occur of
the following events:
(i) Expiration
of the Option as provided in the Option Agreement;
(ii) Termination
of the Option as provided in Section 6.03, following the Participant’s
termination of employment; or
(iii) Ten
years from the Date of Grant (five years from the Date of Grant in the case of
any Incentive Stock Option granted to a Ten Percent Shareholder).
(c)
Acceleration of Exercise
Time
. The Committee, in its sole discretion, shall have the
right (but shall not in any case be obligated), exercisable at any time after
the Date of Grant, to permit the exercise of any Option prior to the time such
Option would otherwise become exercisable under the terms of the Option
Agreement.
(d)
Extension of Exercise
Time
. The Committee, in its sole discretion, shall have the
right (but shall not in any case be obligated), exercisable on or at any time
after the Date of Grant, to permit any Option granted under this Plan to be
exercised after its expiration date, subject, however, to the limitation
described in Section 6.02(b)(iii).
6.03 Exercise
of Options upon Termination of Employment.
(a)
General.
In the
event of the termination of employment of the Participant by the Participant or
the Company and its subsidiaries for any reason whatsoever other than death,
Permanent Disability (as defined in Section 6.03(b)) or retirement after
attainment of age 65, (i) any Options that were not vested prior to the date of
such termination of employment shall terminate on such date and (ii) any Options
that were vested prior to the date of such termination of employment (and which
were not previously exercised) shall terminate on the ninetieth (90th) day
following the date of such termination of employment or the last day of the
Option Term, whichever is earlier.
(b)
Death, Permanent Disability or
Retirement
. In the event of the termination of the employment
of the Participant by reason of death, Permanent Disability or retirement after
attainment of age 65, any Options that were vested prior to the date of such
termination (and which were not previously exercised), together with any other
Options designated by the Committee, shall terminate on the earlier of (i) the
first anniversary of the date of such termination and (ii) the last day of the
Option Term. Any Options that were not vested prior to the date of
such termination and do not become vested pursuant to the immediately preceding
sentence shall terminate as of the date of such termination. As used
in this Plan, the term “Permanent Disability” means the Participant being deemed
to have suffered a disability that makes the Participant eligible for immediate
benefits under any long-term disability plan of the Company, as in effect from
time to time.
(c)
Termination of Employment.
For
purposes of the Plan, there shall have been a termination of employment of a
Participant if such Participant is no longer an employee, consultant, director
or officer of the Company or of any of its subsidiaries.
6.04
Exercise
Procedures
. Each Option granted under the Plan shall be
exercised by written notice to the Company which must be received by the officer
or employee of the Company designated in the Option Agreement on or before the
close of business on the expiration date of the Option. The Option
Price of shares purchased upon exercise of an Option granted under the Plan
shall be paid in full in cash by the Participant pursuant to the Option
Agreement;
provided
,
however
, that the
Committee may (but shall not be required to) permit payment to be made by
delivery to the Company of either (a) Common Stock (which may include shares
otherwise issuable in connection with the exercise of the Option, subject to
such rules as the Committee deems appropriate), (b) any combination of cash and
Common Stock, or (c) such other consideration as the Committee deems
appropriate. In the event that any Common Stock shall be transferred
to the Company to satisfy all or any part of the Option Price, the part of the
Option Price deemed to have been satisfied by such transfer of Common Stock
shall be equal to the product derived by multiplying the Fair Market Value of a
share of Common Stock as of the date of exercise times the number of shares of
Common Stock transferred to the Company. The Participant may not
transfer to the Company in satisfaction of the Option Price any fractional share
of Common Stock. Any part of the Option Price paid in cash upon the
exercise of any Option shall be added to the general funds of the Company and
may be used for any proper corporate purpose. Unless the Committee
shall otherwise determine, any Common Stock transferred to the Company as
payment of all or part of the Option Price upon the exercise of any Option shall
be held as treasury shares.
ARTICLE
VII
MISCELLANEOUS
7.01
Plan Provisions Control Option and
Stock Purchase Right Terms.
The terms of the Plan shall govern
all Options and Stock Purchase Rights granted under the Plan, and in no event
shall the Committee have the power to grant any option or stock purchase right
under the Plan which is contrary to any of the provision of the
Plan. In the event any provision of any Options or Stock Purchase
Rights granted under the Plan shall conflict with any term in the Plan as
constituted on the Date of Grant of such Option or Stock Purchase Right, the
term in the Plan as constituted on the Date of Grant of such Option or Stock
Purchase Right shall control. Except as provided in Section 7.03 and
Section 7.06, the terms of any Option or Stock Purchase Right granted under the
Plan may not be changed after the Date of Grant of such Option or Stock Purchase
Right so as to materially decrease the value of the Option or Stock Purchase
Right without the express written approval of the holder.
7.02
Option
Agreement.
No person shall have any rights under any Option
granted under the Plan unless and until the Company and the Participant to whom
such Option shall have been granted shall have executed and delivered an Option
Agreement or received any other Option acknowledgment authorized by the
Committee expressly granting the Option to such person and containing provisions
setting forth the terms of the Option.
7.03
Modification of Option After
Grant.
No Option or Stock Purchase Right granted under the
Plan to a participant may be modified (unless such modification does not
materially decrease the value of the Option or Stock Purchase Right) after the
Date of Grant except by express written agreement between the Company and the
Participant, provided that any such change (a) shall not be inconsistent with
the terms of the Plan, and (b) shall be approved by the Committee.
7.04
Limitation on
Transfer.
Unless determined otherwise by the Committee, a
Participant’s rights and interest under the Plan may not be assigned or
transferred other than by will or the laws of descent and distribution, and
during the lifetime of a Participant, only the Participant personally (or the
Participant’s personal representative) may exercise rights under the
Plan. The Participant’s Beneficiary may exercise the Participant’s
rights to the extent they are exercisable under the Plan following the death of
the Participant. In the event that the Committee makes an Option or Stock
Purchase Right transferable, such Option or Stock Purchase Right shall contain
such additional terms and conditions as the Committee deems
appropriate.
7.05
Taxes
. The Company
shall be entitled, if the Committee deems it necessary or desirable, to withhold
(or secure payment from the Participant in lieu of withholding) the amount of
any withholding or other tax required by law to be withheld or paid by the
Company with respect to any amount payable and/or shares issuable with respect
to such Participant’s Option or Stock Purchase Right, or with respect to any
income recognized upon a disqualifying disposition of shares received pursuant
to the exercise of an Incentive Stock Option, and the Company may defer payment
or issuance of shares upon exercise of an Option or Stock Purchase Right unless
indemnified to its satisfaction against any liability for any such
tax. The amount of such withholding or tax payment shall be
determined by the Committee and shall be payable by the Participant at such time
as the Committee determines. The Participant shall meet his or her
withholding requirement by direct payment to the Company in cash of the amount
of any taxes required to be withheld with respect to such Option or Stock
Purchase Right; provided, however, that the Committee may (but shall not be
required to) permit the Participant to meet his or her withholding requirement
by (i) having withheld from such Option or Stock Purchase Right at the
appropriate time that number of shares of Common Stock, rounded up to the next
whole share, whose Fair Market Value is equal to the amount of withholding taxes
due, or (ii) a combination of shares and cash.
7.06 Adjustments
to Reflect Capital Changes.
(a)
Recapitalization.
The
number and kind of shares subject to outstanding Options or Stock Purchase
Rights, the Option Price for such shares, the number and kind of shares
available for Options and Stock Purchase Rights subsequently granted under the
Plan and the maximum number of shares in respect of which Options can be granted
to any Participant in any calendar year shall be appropriately adjusted to
reflect any stock dividend, stock split, combination or exchange of shares,
merger, consolidation or other change in capitalization with a similar
substantive effect upon the Plan or the Options or Stock Purchase Rights granted
under the Plan. The Committee shall have the power and sole
discretion to determine the amount of the adjustment to be made in each
case.
(b)
Merger.
After any
Merger in which the Company is the surviving corporation, each Participant
shall, at no additional cost, be entitled upon any exercise of an Option or
Stock Purchase Right to receive (subject to any required action by
shareholders), in lieu of the number of shares of Common Stock receivable or
exercisable pursuant to such Option or Stock Purchase Right, the number and
class of shares or other securities to which such Participant would have been
entitled pursuant to the terms of the Merger if, at the time of the Merger, such
participant had been the holder of record of a number of shares equal to the
number of shares receivable or exercisable pursuant to such Option or Stock
Purchase Right. Comparable rights shall accrue to each Participant in
the event of successive Mergers of the character described above. In
the event of a Merger in which the Company is not the surviving corporation, the
surviving, continuing, successor, or purchasing corporation, as the case may be
(the “Acquiring Corporation”), shall either assume the Company’s rights and
obligations under outstanding Options and Stock Purchase Rights or substitute
comparable options and stock purchase rights in respect of the Acquiring
Corporation’s stock for such outstanding Options and Stock Purchase Rights. In
the event the Acquiring Corporation elects not to assume or substitute
comparable options and stock purchase rights for such outstanding Options and
Stock Purchase Rights, the Board shall provide that any unexercisable and/or
unvested portion of the outstanding Options and Stock Purchase Rights shall be
immediately exercisable and vested as of a date prior to such Merger or
consolidation, as the Board so determines. The exercise and/or
vesting of any Option and any Stock Purchase Right that was permissible solely
by reason of this Section 7.07(b) shall be conditioned upon the consummation of
the Merger or consolidation. Any Options and Stock Purchase Rights
which are neither assumed by the Acquiring Corporation nor exercised as of the
date of the Merger shall terminate effective as of the effective date of the
Merger.
For
purposes of the Plan, all outstanding Options and Stock Purchase Rights will be
considered assumed if, following the consummation of the Merger, the option or
stock purchase rights confers the right to purchase or receive, for each share
of stock subject to the Option or Stock Purchase Right immediately prior to the
consummation of the Merger, the consideration (whether stock, cash, or other
securities property) received in the Merger by holders of Common Stock for each
share of the Company’s Common Stock held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type
chosen by the holders of a majority of the outstanding shares of the Company’s
Common Stock); provided, however, that if such consideration received in the
Merger is not solely common stock of the successor corporation or its parent,
the Committee may, with the consent of the successor corporation, provide for
the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each share of stock subject to the Option or Stock Purchase
Right, to be solely common stock of the successor corporation or its parent or
subsidiary equal in fair market value to the per share consideration received by
holders of the Company’s Common Stock in the Merger.
Any outstanding Option which is assumed
or replaced in the
event of a Merger
and does not otherwise accelerate at
that time will automatically accelerate in the event that the Participant’s
service terminates through an “Involuntary Termination” effected within eighteen
(18) months following the effective date of such
Merger
. Any Option so accelerated will remain
exercisable until the earlier of (i) the expiration of the Option Term or (ii)
the end of the one-year period measured from the date of the Involuntary
Termination.
An Involuntary Termination will be
deemed to occur upon (i) the Participant's involuntary dismissal or discharge by
the Company or its subsidiaries or their successors for reasons other than cause
or (ii) such individual’s voluntary resignation following (A) a reduction in his
or her level of compensation (including base salary, fringe benefits and any
corporate-performance based bonus or incentive programs) by more than ten
percent or (B) a relocation of such individual’s place of employment by more
than fifty (50) miles, provided and only if such reduction or relocation is
effected by the Company or its subsidiaries or their successor without the
Participant’s written consent.
(c)
Options to Purchase Shares of Stock
of Acquired Companies.
After any Merger in which the Company
shall be a surviving corporation, the Committee may grant substituted options
outside of the terms of this Plan, pursuant to Section 424 of the Code,
replacing old options granted under a plan of another party to the Merger whose
shares or stock subject to the old options may no longer be issued following the
Merger. The foregoing manner of application of the foregoing
provisions shall be determined by the Committee in its sole
discretion. Any such application may provide for the elimination of
any fractional shares, which might otherwise become subject to any
Options.
7.07
No Right to
Employment.
No employee or other person shall have any claim
of right to be granted an Option under this Plan. Neither the Plan
nor any action taken hereunder shall be construed as giving any employee any
right to be retained in the employ of the Company or any of its
subsidiaries.
7.08
Options Not Includable for Benefit
Purposes
. Common Stock received by a Participant pursuant to
the provisions of the Plan shall not be included in the determination of
benefits under any pension, group insurance or other benefit plan applicable to
the Participant, which is maintained by the Company, except as may be provided
under the terms of such plans or determined by the Board.
7.09
Governing Law.
All
determinations made and actions taken pursuant to the Plan shall be governed by
the laws of the State of Delaware and construed in accordance therewith (except
where the law of the state of incorporation of the Company
controls).
7.10
No
Strict
Construction.
No rule of strict construction shall be implied
against the Company, the Board, the Committee, or any other person in the
interpretation of any of the terms of the Plan, any Option or Stock Purchase
Right granted under the Plan or any rule or procedure established by the
Committee.
7.11
Captions.
The
captions (i.e., all Section headings) used in the Plan are for convenience only,
do not constitute a part of the Plan, and shall not be deemed to limit,
characterize or affect in any way any provisions of the Plan, and all provisions
of the Plan shall be construed as if no captions have been used in the
Plan.
7.12
Severability.
Whenever
possible, each provision in the Plan and every Option and Stock Purchase Right
at any time granted under the Plan shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of the Plan or
any Option or Stock Purchase Right at any time granted under the Plan shall be
held to be prohibited by or invalid under applicable law, then (a) such
provision shall be deemed amended to accomplish the objectives of the provision
as originally written to the fullest extent permitted by law and (b) all other
provisions of the Plan and every other Option and Stock Purchase Right at any
time granted under the Plan shall remain in full force and effect.
7.13 Amendment
and Termination.
(a)
Amendment.
The
Board shall have complete power and authority to amend the Plan at any
time. No termination or amendment of the Plan may, without the
consent of the Participant to whom any Option or Stock Purchase Right shall
theretofore have been granted under the Plan, adversely affect the right of such
individual under such Option or Stock Purchase Right.
(b)
Termination.
The
Board shall have the right and the power to terminate the Plan at any time;
provided, however, that the Plan shall terminate no later than ten years after
the adoption of the Plan by the Board. No Option or Stock Purchase
Right shall be granted under the Plan after the termination of the Plan, but the
termination of the Plan shall not have any other effect and any Option or Stock
Purchase Right outstanding at the time of the termination of the Plan may be
exercised after termination of the Plan at any time prior to the expiration date
of such Option or Stock Purchase Right to the same extent such Option or Stock
Purchase Right would have been exercisable had the Plan not
terminated.
7.14 Limitations.
The
following limitations shall apply to grants of Options:
(i) No
Participant shall be granted, in any fiscal year of the Company, Options to
purchase more than 1,000,000 shares of Common Stock, other than grants made to
the chief executive officer of the Company pursuant to an employment agreement
approved by the Board of Directors of the Company, in which case the maximum
number of shares covered by Options granted to such officer in any fiscal year
shall not exceed 5% of the Company’s outstanding common stock, calculated on a
fully diluted basis.
(ii) The
foregoing limitation shall be adjusted proportionately in connection with any
change in the Company's capitalization as described in Section
7.06(b).
(iii) If
an Option is canceled in the same fiscal year of the Company in which it was
granted (other than in connection with a transaction described in Section
7.06(b)), the canceled Option will be counted against the limits set forth in
subsections (i) and (ii) above.
7.15
Conditions Upon Issuance of
Shares.
(a) Legal Compliance
. Shares
of Common Stock shall not be issued pursuant to the exercise of an Option or
Stock Purchase Right unless the exercise of such Option or Stock Purchase Right
and the issuance and delivery of such shares shall comply with Applicable Laws
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
(b) Investment
Representations.
As a condition to the exercise of an Option or Stock
Purchase Right, the Company may require the person exercising such Option or
Stock Purchase Right to represent and warrant at the time of any such exercise
that the shares of Common Stock are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is
required.
(c) Additional
Conditions
. The Committee shall have the authority to
condition the grant of any Option or Stock Purchase Right in such other manner
that the Committee determines to be appropriate, provided that such condition is
not inconsistent with the terms of the Plan. Such conditions may include, among
other things, obligations of Optionees to execute lock-up agreements and
shareholder agreements in the future.
(d) Other.
The
Company shall have the right but not the obligation to file a resale
registration statement on behalf of one or more Optionees with respect to shares
underlying options on Form S-8 or other applicable registration
statement.
7.16
.
Inability to Obtain Authority
.
The inability of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is deemed by the Company's counsel to be necessary
to the lawful issuance and sale of any shares of Common Stock hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such shares as to which such requisite authority shall not have been
obtained.
7.17.
Reservation of Shares
. The
Company, during the term of this Plan, will at all times reserve and keep
available such number of shares of Common Stock as shall be sufficient to
satisfy the requirements of the Plan.
April 3,
2009
Securities
and Exchange Commission
450 Fifth
Street, N.W.
Washington,
DC 20549
RE:
|
Optex
Systems Holdings, Inc.
|
Ladies
and Gentlemen:
I have
read the statements made by Optex Systems Holdings, Inc. in Item 4.01 of the
accompanying Form 8-K. which is being filed with the Securities and Exchange
Commission. I agree with the statements contained therein concerning the
firm.
Optex
Systems
Holdings, Inc. has my permission to file this letter as Exh 16 to
Form 9-K.
Very truly yours,
/s/
Gately
& Associates,
LLC
Name:
EXHIBIT
21.1
SUBISDIARIES
OF OPTEX SYSTEMS HOLDINGS, INC.
Optex
Sytems, Inc., a Delaware corporation
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and
Stockholders
of Optex Systems, Inc.
Richardson,
Texas
We
have audited the accompanying balance sheets of Optex Systems, Inc. (the
Company) as of September 28, 2008 and September 30, 2007, and the related
statements of operations, stockholders’ equity, and cash flows for the years
then ended. The Company’s management is responsible for these financial
statements. Our responsibility is to express an opinion on these financial
statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Optex Systems, Inc. as of December
September 28, 2008 and September 30, 2007, and the results of its operations and
its cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
/s/Rotenberg
& Co., LLP
Rotenberg
& Co., LLP
Rochester,
New York
April
3, 2009
Optex
Systems, Inc.
Balance
Sheets
|
|
09/28/08
|
|
|
09/30/07
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
Cash
|
|
|
170,183
|
|
|
|
504,753
|
|
Accounts
Receivable
|
|
|
2,454,235
|
|
|
|
2,043,634
|
|
Net
Inventory
|
|
|
4,547,726
|
|
|
|
6,112,565
|
|
Prepaid
Expenses
|
|
|
307,507
|
|
|
|
17,072
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
7,479,651
|
|
|
|
8,678,024
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment
|
|
|
|
|
|
|
|
|
Property
Plant and Equipment
|
|
|
1,314,109
|
|
|
|
1,196,543
|
|
Accumulated
Depreciation
|
|
|
(994,542
|
)
|
|
|
(830,108
|
)
|
|
|
|
|
|
|
|
|
|
Total
Property and Equipment
|
|
|
319,567
|
|
|
|
366,435
|
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
|
|
|
|
|
|
Security
Deposits
|
|
|
20,684
|
|
|
|
20,684
|
|
Intangibles
|
|
|
1,100,140
|
|
|
|
1,696,507
|
|
Goodwill
|
|
|
10,047,065
|
|
|
|
11,633,481
|
|
|
|
|
|
|
|
|
|
|
Total
Other Assets
|
|
|
11,167,889
|
|
|
|
13,350,672
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
|
18,967,107
|
|
|
|
22,395,131
|
|
The
accompanying notes are an integral part of these financial
statements
Optex
Systems, Inc.
Balance
Sheets - continued
|
|
09/28/08
|
|
|
09/30/07
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
Accounts
Payable
|
|
|
1,821,534
|
|
|
|
3,381,508
|
|
Accrued
Expenses
|
|
|
798,974
|
|
|
|
371,320
|
|
Accrued
Warranties
|
|
|
227,000
|
|
|
|
-
|
|
Accrued
Contract Losses
|
|
|
821,885
|
|
|
|
1,377,348
|
|
Loans
Payable
|
|
|
373,974
|
|
|
|
-
|
|
Income
Tax Payable
|
|
|
4,425
|
|
|
|
25,969
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
4,047,792
|
|
|
|
5,156,145
|
|
|
|
|
|
|
|
|
|
|
Other
Liabilities
|
|
|
|
|
|
|
|
|
Note
Payable
|
|
|
2,000,000
|
|
|
|
2,000,000
|
|
Accrued
Interest on Note
|
|
|
336,148
|
|
|
|
136,148
|
|
Due
to IRSN (Parent)
|
|
|
4,300,151
|
|
|
|
1,987,870
|
|
|
|
|
|
|
|
|
|
|
Total
Other Liabilities
|
|
|
6,636,299
|
|
|
|
4,124,018
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
10,684,091
|
|
|
|
9,280,163
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
|
Common
Stock (no par 100,000 authorized, 18,870 shares issued and 10,000 shares
outstanding)
|
|
|
164,834
|
|
|
|
164,834
|
|
Treasury
Stock (8,870 shares at cost)
|
|
|
(1,217,400
|
)
|
|
|
(1,217,400
|
)
|
Additional
Paid-in-capital
|
|
|
15,246,282
|
|
|
|
15,246,282
|
|
Retained
Earnings (Deficit)
|
|
|
(5,910,700
|
)
|
|
|
(1,078,748
|
)
|
|
|
|
|
|
|
|
|
|
Total
Stockholders' Equity
|
|
|
8,283,016
|
|
|
|
13,114,968
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
|
18,967,107
|
|
|
|
22,395,131
|
|
The
accompanying notes are an integral part of these financial
statements
Optex
Systems, Inc.
Statements
of Operations
|
|
Year Ended
September 28, 2008
|
|
|
Year Ended
September 30, 2007
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
20,017,209
|
|
|
|
15,406,186
|
|
|
|
|
|
|
|
|
|
|
Cost
of Goods Sold
|
|
|
18,145,211
|
|
|
|
17,361,378
|
|
|
|
|
|
|
|
|
|
|
Gross
Margin
|
|
|
1,871,998
|
|
|
|
(1,955,192
|
)
|
|
|
|
|
|
|
|
|
|
General
and Administrative
|
|
|
|
|
|
|
|
|
Salaries
and Wages
|
|
|
910,854
|
|
|
|
876,366
|
|
Employee
Benefits
|
|
|
190,489
|
|
|
|
222,433
|
|
Employee
Stock Bonus Plan
|
|
|
378,716
|
|
|
|
388,756
|
|
Amortization
of Intangibles
|
|
|
223,491
|
|
|
|
223,835
|
|
Rent,
Utilities and Building Maintenance
|
|
|
228,694
|
|
|
|
210,936
|
|
Legal
and Accouting Fees
|
|
|
223,715
|
|
|
|
374,845
|
|
Consulting
and Contract Service Fees
|
|
|
325,723
|
|
|
|
212,925
|
|
Corporate
Allocations
|
|
|
2,076,184
|
|
|
|
2,010,027
|
|
Other
Expenses
|
|
|
381,459
|
|
|
|
361,932
|
|
Total
General and Administrative
|
|
|
4,939,325
|
|
|
|
4,882,055
|
|
|
|
|
|
|
|
|
|
|
Loss
before Other Expenses and Taxes
|
|
|
(3,067,327
|
)
|
|
|
(6,837,247
|
)
|
|
|
|
|
|
|
|
|
|
Other
Expenses
|
|
|
|
|
|
|
|
|
Asset
Impairment of Goodwill
|
|
|
1,586,416
|
|
|
|
-
|
|
Interest
Expense - Net
|
|
|
199,753
|
|
|
|
136,148
|
|
|
|
|
|
|
|
|
|
|
Total
Other
|
|
|
1,786,169
|
|
|
|
136,148
|
|
|
|
|
|
|
|
|
|
|
Loss
Before Taxes
|
|
|
(4,853,496
|
)
|
|
|
(6,973,395
|
)
|
Income
Taxes (Benefit)
|
|
|
(21,544
|
)
|
|
|
(162,541
|
)
|
Net
Loss After Taxes
|
|
|
(4,831,952
|
)
|
|
|
(6,810,854
|
)
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
$
|
(483.20
|
)
|
|
$
|
(681.09
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
Average Common Shares Outstanding
|
|
|
10,000
|
|
|
|
10,000
|
|
The
accompanying notes are an integral part of these financial
statements
Optex
Systems, Inc.
Statements
of Cash Flows
|
|
Year
Ended
September
28,
2008
|
|
|
Year
Ended
September
30,
2007
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
Loss
|
|
|
(4,831,952
|
)
|
|
|
(6,810,854
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
760,801
|
|
|
|
1,068,938
|
|
Provision
for (use of) allowance for inventory valuation
|
|
|
(102,579
|
)
|
|
|
701,308
|
|
Noncash
interest expense
|
|
|
200,000
|
|
|
|
136,148
|
|
(Gain)
loss on disposal and impairment of assets
|
|
|
1,586,416
|
|
|
|
-
|
|
(Increase)
decrease in accounts receivable
|
|
|
(410,602
|
)
|
|
|
688,023
|
|
(Increase)
decrease in inventory (net of progress billed)
|
|
|
1,667,418
|
|
|
|
(1,124,352
|
)
|
(Increase)
decrease in other current assets
|
|
|
(290,435
|
)
|
|
|
(757
|
)
|
(Increase)
decrease in other assets
|
|
|
-
|
|
|
|
(530
|
)
|
Increase
(decrease) in accounts payable and accrued expenses
|
|
|
(1,132,319
|
)
|
|
|
61,917
|
|
Increase
(decrease) in accrued warranty costs
|
|
|
227,000
|
|
|
|
-
|
|
Increase
(decrease) in due to parent
|
|
|
2,312,280
|
|
|
|
2,385,105
|
|
Increase
(decrease) in accrued estimated loss on contracts
|
|
|
(555,462
|
)
|
|
|
1,377,348
|
|
Increase
(decrease) in income taxes payable
|
|
|
(21,544
|
)
|
|
|
30,558
|
|
Total
adjustments
|
|
|
4,240,974
|
|
|
|
5,323,706
|
|
Net
cash (used)/provided by operating activities
|
|
|
(590,978
|
)
|
|
|
(1,487,149
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(117,566
|
)
|
|
|
(61,465
|
)
|
Net
cash used in investing activities
|
|
|
(117,566
|
)
|
|
|
(61,465
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from Notes Payable
|
|
|
373,974
|
|
|
|
2,000,000
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
373,974
|
|
|
|
2,000,000
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(334,570
|
)
|
|
|
451,385
|
|
Cash
and cash equivalents at beginning of period
|
|
|
504,753
|
|
|
|
53,367
|
|
Cash
and cash equivalents at end of period
|
|
|
170,183
|
|
|
|
504,753
|
|
|
|
|
|
|
|
|
|
|
Noncash
investing and financing activities:
|
|
|
|
|
|
|
|
|
Irvine
Sensors purchase of remaining 30% interest in Optex Texas pushed
down
to subsidiary’s equity
|
|
|
|
|
|
Intangible
Assets
|
|
|
-
|
|
|
|
954,000
|
|
Goodwill
|
|
|
-
|
|
|
|
3,223,633
|
|
Other
|
|
|
-
|
|
|
|
(10,093
|
)
|
Additional
Paid in Capital
|
|
|
-
|
|
|
|
4,167,540
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
|
-
|
|
|
|
-
|
|
Cash
paid for taxes
|
|
|
-
|
|
|
|
6,681
|
|
The
accompanying notes are an integral part of these financial
statements
Optex
Systems, Inc.
Statements
of Stockholders' Equity
|
|
Number of
Outstanding
Shares
|
|
|
Common
Stock
|
|
|
Treasury
Stock
|
|
|
Additional
Paid in
Capital
|
|
|
Retained
Earnings
|
|
|
Total
Stockholders
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 30, 2006
|
|
|
10,000
|
|
|
|
164,834
|
|
|
|
(1,217,400
|
)
|
|
|
11,078,742
|
|
|
|
5,732,106
|
|
|
|
15,758,282
|
|
Net
Earnings (Loss) from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,810,854
|
)
|
|
|
(6,810,854
|
)
|
30%
acquistion of Optex by Irvine Sensors pushed down to subsidiary’s
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,167,540
|
|
|
|
|
|
|
|
4,167,540
|
|
Balance
at September 30, 2007
|
|
|
10,000
|
|
|
|
164,834
|
|
|
|
(1,217,400
|
)
|
|
|
15,246,282
|
|
|
|
(1,078,748
|
)
|
|
|
13,114,968
|
|
Net
Earnings (Loss) from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,831,952
|
)
|
|
|
(4,831,952
|
)
|
Balance
at September 28, 2008
|
|
|
10,000
|
|
|
|
164,834
|
|
|
|
(1,217,400
|
)
|
|
|
15,246,282
|
|
|
|
(5,910,700
|
)
|
|
|
8,283,016
|
|
The
accompanying notes are an integral part of these financial
statements
Note 1 - Organization and Operations
Optex
Systems, Inc. ( “Optex Texas”) was a privately held Texas Subchapter “S”
Corporation from inception in 1987 until December 30, 2005 when 70% of the
issued and outstanding stock was acquired by Irvine Sensors Corp. (“IRSN”) and
Optex Texas was automatically converted to a Subchapter “C”
Corporation. On December 29, 2006, the remaining 30% equity interest
in Optex Texas was purchased by IRSN.
On
October 14, 2008, certain senior secured creditors of IRSN, Longview Fund, L.P.
(“Longview Fund”) and Alpha Capital Anstalt (“Alpha”) formed Optex Systems,
Inc., a Delaware Corporation, (“Optex Delaware”),which acquired substantially
all of the assets and assumed certain liabilities of Optex Texas in a
transaction that was consummated via purchase at a public auction. Longview and
Alpha owned Optex Delaware until February 20, 2009, when Longview sold 100% of
its equity interests in Optex Delaware to Sileas Corp, as discussed in the
following paragraph. After this asset purchase, Optex Texas remained
a wholly-owned subsidiary of IRSN. Although Optex Delaware is
the legal acquirer of Optex Texas in the transaction, Optex Texas is considered
the accounting acquirer since the acquisition by Optex Delaware was deemed to be
the purchase of a business. Accordingly, in subsequent periods the
financial statements presented will be those of the accounting
acquirer.
On
February 20, 2009, Sileas Corp. (“Sileas”), a newly-formed Delaware corporation,
owned by present members of the company’s management, purchased 100% of the
equity interest held by Longview, representing 90% of Optex Delaware in a
private transaction (the “Acquisition”). See Note 14.
Optex’s
operations are based in Richardson, Texas in a leased facility comprising 49,100
square feet. As of fiscal year ended September 28, 2008 the company
operated with 109 full-time equivalent employees.
Optex
Systems manufactures optical sighting systems and assemblies primarily for
Department of Defense (DOD) applications. 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 Future Combat Systems (FCS) Stryker vehicle. Optex also
manufactures and delivers numerous periscope configurations, rifle and
surveillance sights and night vision optical assemblies. The Company products
consist primarily of build to customer print products that are delivered both
directly to the military
services
and to other defense prime contractors.
In May
2008, Optex Systems was awarded ISO9001:2000 certification.
Note
2 - Accounting Policies
Basis
of Presentation
The
accompanying financial statements include the historical accounts of Optex Texas
(hereinafter, the “Company” or Optex Texas). The financial statements have been
presented as subsidiary-only financial statements, reflecting the balance
sheets, results of operations and cash flows of the subsidiary as a stand-alone
entity.
Although,
the Company was majority-owned by IRSN during the fiscal periods presented, no
accounts of IRSN or the effects of consolidation with IRSN have been included in
the accompanying financial statements.
The
financial statements have been presented on the basis of push down
accounting in accordance with Staff Accounting Bulletin No. 54 (SAB
54)
Application of
“Push Down” Basis of Accounting in Financial Statements of Subsidiaries Acquired
by Purchase
. SAB 54 states that the push down basis of accounting should
be used in a purchase transaction in which the entity becomes wholly-owned.
Under the push down basis of accounting certain transactions incurred by the
parent company, which would otherwise be accounted for in the accounts of the
parent, are “pushed down” and recorded on the financial statements of the
subsidiary. Accordingly, items resulting from the purchase transaction such as
goodwill, debt incurred by the parent to acquire the subsidiary and other cost
related to the purchase have been recorded on the financial statements of the
Company.
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 revenues and expenses during the reporting
period. Actual results could differ from the estimates.
Segment
Reporting:
Management has determined that the Company is organized,
managed and internally reported as one business segment. Segments are determined
based on differences in products, internal reporting and how operational
decisions are made.
Fiscal
Year:
The Company’s fiscal year ends on the Sunday nearest
September 30. Fiscal year 2008 ended on September 28, 2008 and
included 52 weeks. Fiscal year 2007 ended on September 30 and
included 52 weeks. Fiscal year 2009 will end on September 27, 2009
and will include 52 weeks.
Fair Value of
Financial Instruments:
FASB No. 107, "
Disclosures about Fair Value of
Financial Instruments
," requires disclosure of fair value information
about certain financial instruments, including, but not limited to, cash and
cash equivalents, accounts receivable, refundable tax credits, prepaid expenses,
accounts payable, accrued expenses, notes payable to related parties and
convertible debt-related securities. Fair value estimates discussed herein are
based upon certain market assumptions and pertinent information available to
management as of fiscal years ended September 28, 2008 and September 30, 2007.
The carrying value of the balance sheet financial instruments included in the
Company’s consolidated financial statements approximated their fair
values.
Cash and Cash
Equivalents:
For financial statement
presentation purposes, the Company considers those short-term, highly liquid
investments with original maturities of three months or less to be cash or cash
equivalents.
Concentration of
Credit Risk:
The Company’s cash and cash equivalents are on deposit with
banks. Only a portion of the cash and cash equivalents would be covered by
deposit insurance and the uninsured balances are substantially greater than the
insured amounts. Although cash and cash equivalent balances exceed insured
deposit amounts, management does not anticipate non-performance by the
banks.
Most of
the Company’s accounts receivable are derived from sales to U.S. government
agencies or prime government contractors. The Company does not
believe that this concentration increases credit risks because of the financial
strength of the payees.
Accounts
Receivable:
The Company records its accounts receivable at the original
sales invoice amount less shipment liquidations for previously collected
advance/progress bills and an allowance for doubtful accounts. An account
receivable is considered to be past due if any portion of the receivable balance
is outstanding beyond its scheduled due date. On a quarterly basis, the Company
evaluates its accounts receivable and establishes an allowance for doubtful
accounts, based on its history of past write-offs and collections, and current
credit conditions. No interest is accrued on past due accounts receivable. As
the customer base is primarily U.S. government and government prime contractors,
the Company has concluded that there is no need for an allowance for doubtful
accounts for the years ended September 28, 2008 and September 30,
2007.
Inventory:
Inventory is recorded at the lower of cost or market value, and adjusted as
appropriate 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 (FIFO) 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 years
ended September 28, 2008, and September 30, 2007 inventory
included:
|
|
As of 9/28/2008
|
|
|
As of 9/30/2007
|
|
|
|
|
|
|
|
|
Raw
Materials
|
|
$
|
4,199,657
|
|
|
$
|
6,812,810
|
|
Work
in Process
|
|
|
5,575,520
|
|
|
|
6,423,902
|
|
Finished
Goods
|
|
|
28,014
|
|
|
|
157,389
|
|
Gross
Inventory
|
|
$
|
9,803,191
|
|
|
$
|
13,394,101
|
|
Less:
|
|
|
|
|
|
|
|
|
Unliquidated
Progress Payments
|
|
|
(4,581,736
|
)
|
|
|
(6,505,228
|
)
|
Inventory
Reserves
|
|
|
(673,729
|
)
|
|
|
(776,308
|
)
|
Net
Inventory
|
|
$
|
4,547,726
|
|
|
$
|
6,112,565
|
|
Warranty
Costs:
Optex Systems warrants the quality of its products to
meet customer requirements and be free of defects for twelve months subsequent
to delivery. On certain product lines the warranty period has been
extended to 24 months due to technical considerations incurred during the
manufacture of such products. In the year ended September 28, 2008,
the company incurred $227,000 of warranty expenses representing the estimated
cost of repair or replacement for specific customer returned products still
covered under warranty as of the return date and awaiting replacement, in
addition to estimated future warranty costs for shipments occurring during the
twelve months proceeding September 28, 2008. Future warranty costs
are based on the estimated cost of replacement for expected returns based upon
our most recent experience rate of defects as a percentage of
sales. Prior to fiscal year 2008, all warranty expenses were incurred
as product was replaced with no reserve for warranties against deliveries in the
covered period.
Estimated Costs
to Complete and Accrued Loss on Contracts:
The Company reviews
and reports on the performance of its contracts and production orders against
the respective resource plans for such contracts/orders. These reviews are
summarized in the form of estimates to complete ("ETC”s) and estimates at
completion (“EAC”s). EACs include Optex’s incurred costs to date
against the contract/order plus management's current estimates of remaining
amounts for direct labor, material, other direct costs and subcontract support
and indirect overhead costs based on the completion status and future
contractual requirements for each order. If an EAC indicates a potential overrun
(loss) against a fixed price contract/order, management generally seeks to
reduce costs and /or revise the program plan in a manner consistent with
customer objectives in order to eliminate or minimize any overrun and to secure
necessary customer agreement to proposed revisions.
If an EAC
indicates a potential overrun against budgeted resources for a fixed price
contract/order, management first attempts to implement lower cost solutions to
still profitably meet the requirements of the fixed price
contract. If such solutions do not appear practicable, management
makes a determination whether to seek renegotiation of contract or order
requirements from the customer. If neither cost reduction nor renegotiation
appears probable, an accrual for the contract loss/overrun is recorded against
earnings and the loss is recognized in the first period the loss is identified
based on the most recent EAC of the particular contract or product
order.
For years
ended September 28, 2008 and September 30, 2007, estimated loss reserves were
estimated as $821,885 and $1,377,348, respectively. Decreases in
estimated loss reserves from 2007 to 2008 of $555,463 were primarily
attributable to the successful negotiation of an equitable price adjustment for
technical issues related to our US Government M187 program and several
negotiated price increases in exchange for accelerated schedule deliveries on US
Government periscope contracts.
Property and
Equipment:
Property and equipment
are recorded at cost. Depreciation is computed using the straight line method
over the estimated useful lives of the assets, ranging from three to seven
years. Expenditures for renewals and betterments are
capitalized. Expenditures for minor items, repairs and maintenance
are charged to operations as incurred. Gain or loss upon sale or retirement due
to obsolescence is reflected in the operating results in the period the event
takes place.
Goodwill and
Other Intangible Assets:
Goodwill represents the cost of
acquired businesses in excess of fair value of the related net assets at
acquisition. (See also notes 9 and 14). The Company does not amortize goodwill,
but tests it annually for impairment using a fair value approach as of the first
day of its fourth fiscal quarter and between annual testing periods, if
circumstances warrant. Goodwill of Optex was reviewed as of September
30, 2007 and based on the assessment, it was determined that no impairment was
required. Goodwill was reviewed as of September 28, 2008, and it was
determined that an impairment charge of $1,586,416 was required. The fair values
assigned to the assets of the Company and the goodwill was based upon the most
recent value of the Company as determined by the sale to third party purchasers
on October 14, 2008.
The
Company amortizes the cost of other intangibles over their estimated useful
lives, unless such lives are deemed indefinite. Amortizable intangible assets
are tested for impairment based on undiscounted cash flows and, if impaired,
written down to fair value based on either discounted cash flows or appraised
values. The identified amortizable intangible assets at September 28, 2008 and
September 30, 2007 derived from the acquisition of Optex by Irvine Sensors and
consisted of non-competition agreements and customer backlog, with initial
useful lives ranging from two to eight years. (See Note 9). Intangible assets
with indefinite lives are tested annually for impairment, as of the first day of
the Company's fourth fiscal quarter and between annual periods, if impairment
indicators exist, and are written down to fair value as
required.
Impairment or
Disposal of Long-Lived Assets:
The Company adopted the provisions of FASB
No. 144 (FASB 144), “
Accounting for the Impairment or
Disposal of Long-lived Assets
.” This standard requires, among other
things, that long-lived assets be reviewed for potential impairment whenever
events or circumstances indicate that the carrying amounts may not be
recoverable. The assessment of possible impairment is based on the ability to
recover the carrying value of the asset from the expected future pre-tax cash
flows (undiscounted and without interest charges) of the related operations. If
these expected cash flows are less than the carrying value of such asset, an
impairment loss is recognized for the difference between estimated fair value
and carrying value. The primary measure of fair value is based on discounted
cash flows. The measurement of impairment requires management to make estimates
of these cash flows related to long-lived assets, as well as other fair value
determinations.
Revenue
Recognition:
The Company recognizes revenue upon transfer of title at the
time of shipment (F.O.B. shipping point), when all significant contractual
obligations have been satisfied, the price is fixed or determinable, and
collectability is reasonably assured.
Shipping and
Handling Costs:
All shipping and handling costs are included as a
component of Cost of Goods sold.
Income
Taxes:
The Company accounts for income taxes in accordance
with SFAS No. 109, Accounting for Income Taxes. Under the asset and liability
method of SFAS No. 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under SFAS
No. 109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date. A
valuation allowance is provided for certain deferred tax assets if it is more
likely than not that the Company will not realize tax assets through future
operations.
Earnings per
Share:
Basic earnings per common share is computed by dividing net
earnings by the weighted average number of common shares outstanding during each
year presented. Diluted earnings per common share gives effect to the
assumed exercise of stock options when dilutive. There were no
dilutive stock options during 2008 or 2007.
Note
3 - Recent Accounting Pronouncements
In June
2006, The FASB issued Interpretation No. 48 “
Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109
” (“FIN 48”). This
Interpretation clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with FASB No.
109, “
Accounting for Income
Taxes
”
.
FIN 48
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. FIN 48 also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition. FIN 48 is effective for fiscal years beginning after
December 15, 2006. The adoption of FIN 48 did not have a material impact on the
Company's consolidated financial position, results of operations, or cash
flows.
In
September 2006, the FASB issued FASB No. 157, “
Fair Value Measurements
”
which establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. While FASB No. 157 does not apply to transactions
involving share-based payment covered by FASB No. 123, it establishes a
theoretical framework for analyzing fair value measurements that is absent from
FASB No. 123. We have relied on the theoretical framework established by FASB
No. 157 in connection with certain valuation measurements that were made in the
preparation of these financial statements. FASB No. 157 is effective for years
beginning after November 15, 2007. Subsequent to the Standard’s issuance, the
FASB issued an exposure draft that provides a one year deferral for
implementation of the Standard for non-financial assets and liabilities. The
Company is currently evaluating the impact FASB No. 157 will have on its
financial statements.
In
February 2007, Statement of Financial Accounting Standards No. 159, “
The Fair Value Option for Financial
Assets and Financial Liabilities-Including an Amendment of FASB Statement No.
115
,” (FASB 159), was issued. This standard allows a company to
irrevocably elect fair value as the initial and subsequent measurement attribute
for certain financial assets and financial liabilities on a contract-by-contract
basis, with changes in fair value recognized in earnings. The provisions of this
standard are effective as of the beginning of our fiscal year 2008, with early
adoption permitted. The Company is currently evaluating what effect the adoption
of FASB 159 will have on its financial statements.
In March
2007, the Financial Accounting Standards Board ratified Emerging Issues Task
Force (“EITF”) Issue No. 06-10, "Accounting for Collateral Assignment
Split-Dollar Life Insurance Agreements”. EITF 06-10 provides guidance
for determining a liability for the postretirement benefit obligation as well as
recognition and measurement of the associated asset on the basis of the terms of
the collateral assignment agreement. EITF 06-10 is effective for
fiscal years beginning after December 15, 2007. The Company is
currently evaluating the impact of EITF 06-10 on itsfinancial statements, but
does not expect it to have a material effect.
In
December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
and
SFAS No. 160,
Accounting
and Reporting of Noncontrolling Interest in Consolidated Financial Statements,
an amendment of ARB No. 51
. These new standards will significantly
change the accounting for and reporting of business combinations and
non-controlling (minority) interests in consolidated financial statements.
Statement Nos. 141(R) and 160 are required to be adopted simultaneously and
are effective for the first annual reporting period beginning on or after
December 15, 2008. Earlier adoption is prohibited. The Company is currently
evaluating the impact of adopting SFAS Nos. 141(R) and SFAS 160 on its
financial statements. See Note 14 for adoption of SFAS 141R subsequent to
September 30, 2008.
In
December 2007, the SEC issued Staff Accounting Bulletin No. 110 (“SAB 110”). SAB
110 permits companies to continue to use the simplified method, under certain
circumstances, in estimating the expected term of “plain vanilla” options beyond
December 31, 2007. SAB 110 updates guidance provided in SAB 107 that previously
stated that the Staff would not expect a company to use the simplified method
for share option grants after December 31, 2007. The Company does not have any
outstanding stock options.
In March
2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standard (“SFAS”) No. 161, "
Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No.
133
”. SFAS 161 requires enhanced disclosures about an entity’s
derivative and hedging activities. SFAS 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008 with early application encouraged. As such, the Company is
required to adopt these provisions at the beginning of the fiscal year
ended
September
30, 2009
.
The Company is currently evaluating the impact of SFAS 161 on its financial
statements but does not expect it to have a material effect
In May
2008, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standard (“SFAS”) No. 162, "
The Hierarchy of Generally Accepted
Accounting Principles
”. SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States. SFAS 162 is effective 60 days following the SEC’s
approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted
Accounting Principles. The Company is currently evaluating the impact of SFAS
162 on its consolidated financial statements but does not expect it to have a
material effect.
In May
2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standard (“SFAS”) No. 163, "
Accounting for Financial Guarantee
Insurance Contracts—an interpretation of FASB Statement No. 60
" (“SFAS
163”). SFAS 163 interprets Statement 60 and amends existing
accounting pronouncements to clarify their application to the financial
guarantee insurance contracts included within the scope of that
Statement. SFAS 163 is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and all interim periods within
those fiscal years. As such, the Company is required to adopt these
provisions at the beginning of the fiscal year ended
September
30, 2011. The Company is currently evaluating the impact of SFAS 163
on its financial statements but does not expect it to have a material
effect.
Note
4 - Property and Equipment
A summary
of property and equipment at September 28, 2007 and September 30, 2007 is as
follows:
|
Estimated
Useful Life
|
|
Year Ended
09/28/08
|
|
|
Year Ended
09/30/07
|
|
Property
and Equipment
|
|
|
|
|
|
|
|
Office
Furniture/Equipment
|
3-5yrs
|
|
$
|
145,071
|
|
|
$
|
127,502
|
|
Machinery
and Equipment
|
5
yrs
|
|
|
1,026,250
|
|
|
|
926,253
|
|
Leasehold
Improvements
|
7
yrs
|
|
|
142,788
|
|
|
|
142,788
|
|
Less:
Accumulated Depreciation
|
|
|
|
(994,542
|
)
|
|
|
(830,108
|
)
|
Net
Property & Equipment
|
|
|
$
|
(319,567
|
)
|
|
$
|
(366,435
|
)
|
|
|
|
|
|
|
|
|
|
|
Depreciation
Expense
|
|
|
$
|
164,434
|
|
|
$
|
129,069
|
|
Depreciation
expense included in cost of goods sold and general and administrative expense
for 2008 is $104,837 and 59,597 respectively. Depreciation expense
included in cost of goods sold and general and administrative expense for 2007
is $68,663 and $60,406 respectively.
Note
5 – Accrued Liabilities
The
components of accrued liabilities for years ended 2008 and 2007 are summarized
below:
|
|
Year End as of 09/28/08
|
|
|
Year End as of 09/30/07
|
|
|
|
|
|
|
|
|
Customer
Advance Payments
|
|
$
|
-
|
|
|
$
|
62,784
|
|
Deferred
Rent Expense
|
|
|
84,435
|
|
|
|
119,073
|
|
Accrued
Vacation
|
|
|
94,311
|
|
|
|
69,803
|
|
Property
Taxes
|
|
|
17,557
|
|
|
|
13,031
|
|
Contract
Settlement
|
|
|
351,217
|
|
|
|
-
|
|
Operating
Expenses
|
|
|
128,717
|
|
|
|
-
|
|
Payroll
& Payroll Related
|
|
|
122,737
|
|
|
|
106,629
|
|
Total
Accrued Expenses
|
|
$
|
798,974
|
|
|
$
|
371,320
|
|
Contract
Settlement Costs represent amounts due to the US government in relation to a
progress billed contract that was cancelled prior to completion. The
remaining government-owned (progress billed) materials on the contract were
subsequently used to satisfy other existing and new contracts at full value,
although the unliquidated progress payments for the original contract have yet
to be refunded. Optex expects to settle the contract overpayment with
the customer by third quarter of fiscal year 2009. Accrued operating
expenses include additional operating costs for estimated costs not yet invoiced
or invoices not vouched into accounts payable as of year-end period
close.
Note
6 - Commitments and Contingencies
Leases
The
company leases its office and manufacturing facilities under two non-cancellable
operating leases expiring November 2009 and February 2010 in addition to
maintaining several non-cancellable operating leases for office and
manufacturing equipment. Total expenses under these facility lease
agreements for the year ended September 28, 2008 was $313,032 and total expenses
for manufacturing and office equipment was $21,830. At September 28,
2008, the minimum lease payments under non-cancelable operating leases for
equipment, office and facility space are as follows:
|
|
Operating
|
|
|
|
Leases
|
|
Years
ended December 31,
|
|
|
|
2009
|
|
$
|
364,260
|
|
2010
|
|
|
79,867
|
|
2011
|
|
|
16,753
|
|
2012
|
|
|
-
|
|
2013
|
|
|
-
|
|
Thereafter
|
|
|
-
|
|
Total
minimum lease payments
|
|
$
|
460,880
|
|
Note
7 - Transactions with a Related Party
Corporate Cost
Allocations:
In
accordance with government contracting regulations, IRSN (the Company’s owner
for years 2007 and 2008) was required to allocate some portion of its corporate
general and administrative expense to its operating subsidiaries, such as Optex
Systems. IRSN elected to use a recognized government contract
allocation method to satisfy this requirement in which the proportional
contribution of Optex to the IRSN total revenues, payroll expense and net book
value of tangible assets serves as the basis for determination of the percentage
of corporate general and administrative expense for the Optex
allocation. The total IRSN Corporate Cost Allocations for 2008 and
2007 were $2,076,184 and $2,010,027 respectively. Due to the transfer
of ownership from IRSN on October 14, 2008, there will be no future IRSN
Corporate Cost Allocations.
Due to IRSN
(Parent):
Due to Parent relate to expenses of Optex Systems,
incurred by or shared with IRSN and pushed down to Optex Systems through an
intercompany payable account “Due to Parent”. The ending amounts
reflected as of September 28, 2008 and September 30, represent the cumulative
amount of expenses incurred, net of any cash transfers made to/from IRSN since
inception at January 2006. Significant amounts charged through this
account include IRSN corporate cost allocations, legal expenses, accounting and
audit fees, travel expenses, consulting fees, and insurance
costs. Future expenses for these items with the exception of IRSN
related cost allocations, consulting fees and travel expenses will be paid from
Optex Systems’ working capital.
Note
8 - Debt Financing
Related
Parties
Note
Payable/Timothy Looney -
In
January 2007, IRSN amended its earn-out agreement with Timothy Looney
in consideration for Mr. Looney providing Optex Texas with a secured
subordinated term note providing for advances of up to $2 million, bearing
interest at 10% per annum and maturing on the earlier of February 2009 or sixty
days after retirement of IRSN’s senior debt. Aggregate advances of $2 million
were provided to Optex Texas in January 2007 pursuant to the secured
subordinated term note, and the advances and accrued interest were outstanding
at September 28, 2008 and September 30, 2007. This Note is secured by
the assets of Optex Texas, but subordinated to the liens of Alpha and
Longview. Following the public sale of the assets of the Company to
Optex Delaware on October 14, 2008, the entire $2,000,000 Note Payable with
accrued interest of $345,648 remained a liability of Optex Texas.
Non-Related
Parties
Short
Term Note Payable/Longview Fund
-
On September 23, 2008 Optex Delaware borrowed $146,709 from
Longview and issued a promissory note dated September 23, 2008, to Longview in
connection therewith. The September 23, 2008 Note bears interest at
the rate of 10% per annum with interest accruing until the maturity date of the
September 23, 2008 Note, which was originally set as November 7, 2008 (“Maturity
Date”). Pursuant to an Allonge No. 1 to Promissory Note, dated
January 20, 2009, the Maturity Date was extended until March 31, 2009 and is to
be exchanged for Series A Preferred Stock of Optex Delaware (
See Note
14).
.
Short
term note payable (Qioptic)
-
On
November 20, 2008, Optex Delaware issued a promissory note (“Note”) to Qioptiq
Limited (“Qioptiq”) in the amount of $117,780. The Note originated as a trade
payable and as of September 28, 2008 had an outstanding balance of $227,235. The
note has been recorded, as such, retroactively to Notes Payable in the
accompanying financial statements at September 28, 2008.The Note bears interest
at the rate of six percent per annum and had a maturity date of February 13,
2009 (and was repaid in full as of that date) (“Maturity
Date”). The terms of the Note call for weekly payments of $10,000
each on the last business day of every week commencing on the last business day
of the first week after November 20, 2008 and continuing thereafter until the
Maturity Date, on which date the remaining principal amount of the Note and all
accrued and unpaid interest thereon shall become immediately due and
payable.
Note
9 – Intangible Assets and Goodwill
On
December 30, 2005, IRSN entered into an agreement with Optex Texas pursuant
to which IRSN purchased 70% of the issued and outstanding common stock of Optex
Texas , thereby becoming its majority shareholder. On
December 29, 2006, IRSN exercised a buyer option to acquire the remaining
30% ownership interest in Optex Texas.
Optex
Texas has allocated the purchase consideration for the purchase to tangible and
intangible assets acquired and liabilities assumed based on the valuation
determinations made in connection with the Initial Acquisition of Optex Texas in
December 2005 as shown in the following table, which sets forth the estimated
amounts related to the full Optex Texas acquisition. The excess of the purchase
price over such values is presented as goodwill in the accompanying consolidated
balance sheet at September 30, 2007.
The
goodwill resulting from the IRSN acquisition was recorded under the push down
basis of accounting and accordingly has been recorded on the financial
statements of the subsidiary.
Assets:
|
|
Current
assets, consisting primarily of inventory of $5,734,500 and accounts
receivable of $2,191,800
|
|
|
|
|
$
|
8,070,300
|
|
Identifiable
intangible assets
|
|
|
|
|
|
3,180,000
|
|
Other
non-current assets, principally property and equipment
|
|
|
|
|
|
455,100
|
|
Total
assets
|
|
|
|
|
|
11,705,400
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
Current
liabilities, consisting of accounts payable of $1,638,600, tax liabilities
of $112,800 and accrued liabilities of $682,100
|
|
|
|
|
|
2,433,481
|
|
Acquired
net assets
|
|
|
|
|
|
9,271,919
|
|
Purchase
price
|
|
|
|
|
|
|
|
Total
consideration to seller
|
|
$
|
19,865,400
|
|
|
|
|
|
Direct
acquisition costs
|
|
|
1,040,000
|
|
|
|
|
|
|
|
|
|
|
|
|
20,905,400
|
|
Excess
purchase price reported as goodwill
|
|
|
|
|
|
$
|
11,633,481
|
|
Goodwill
related to the IRSN acquisition of Optex Texas was reviewed as of September 30,
2008 and it was determined that an impairment charge of $1,586,416 was required.
The fair values assigned to the assets of the Company and the goodwill was based
upon the most recent value of the company as determined by the sale to third
party purchasers on October 14, 2008.
Identifiable
intangible assets included non-competition agreements and customer backlog, and
is amortized over the respective estimated useful lives as
follows:
|
|
Useful
Life in Years
|
|
|
Acquired
Fair Value
|
|
|
|
|
|
|
|
|
Non-competition
agreement
|
|
|
2
|
|
|
$
|
80,000
|
|
Contractual
backlog
|
|
|
2
|
|
|
$
|
1,570,000
|
|
Program
backlog
|
|
|
8
|
|
|
$
|
1,530,000
|
|
The
amortization of identifiable intangible assets associated with the Optex Texas
acquisition in fiscal 2008 and fiscal 2007 was $596,367 and, $949,962
respectively. The identifiable intangible assets and recorded goodwill are not
deductible for income tax purposes. As of the year ended September 28, 2008 the
total unamortized balance of intangible assets was $1,100,140. As of
the year ended September 30, 2007 the total unamortized balance of intangible
assets was $1,696,507.
The
September 28, 2008 unamortized balance of intangible assets is estimated to be
amortized as follows:
Year
|
|
Annual
Amortization
|
|
2009
|
|
|
266,365
|
|
2010
|
|
|
204,490
|
|
2011
|
|
|
204,490
|
|
2012
|
|
|
204,490
|
|
2013
|
|
|
186,837
|
|
2014
|
|
|
33,468
|
|
Total
|
|
$
|
1,100,140
|
|
Note
10 – Stockholders Equity
Common
Stock:
The Company is authorized to issue 100,000 shares of no par
common stock. At September 28, 2008 and 2007 there were18,870 and
10,000 shares issued and outstanding, respectively.
The
common stock, treasury stock and additional paid in Capital accounts have been
presented to reflect the ownership structure of the Company as it existed prior
to the acquisition by IRSN, since the Company is presenting its financial
statements as a separate entity.
Note
11 - Equity Compensation
Total
stock-based compensation expense of Optex Systems associated with IRSN stock
grants during fiscal years 2008 and 2007 was $378,716 and $388,756
respectively. These amounts were pushed down by IRSN and
charged to general and administrative expense for each of the
periods. There were no stock options issued to Optex Texas
employees or equity instruments issued to consultants and vendors in either 2007
or 2008.
Note
12 - Income Taxes
As of
September 28, 2008, and September 30, 2007, the Company had generated net losses
for financial accounting purposes in the amounts of approximately $4,831,952 and
$6,810,854, respectively. During these periods the Company was a member of a
consolidated entity for tax reporting purposes. As such, any losses that would
have qualified as Net Operating Losses for Federal Income Taxes purposes as
potential deductions were available to the consolidated entity. Such losses may
have been utilized by the consolidated entity and are not available to Optex
Delaware to offset its future taxable income. Additionally, since the
Company was acquired in a transaction effected as an asset purchase, Optex
Delaware would only be entitled to tax deductions generated after the date of
the acquisition. Accordingly, no deferred tax assets have been recorded in the
accompanying financial statements for net operating losses generated by the
Company.
No
current provision for income taxes for the fiscal years ended September 28, 2008
is required, except for minimum state taxes, since the Company incurred losses
during each year. There was no provision for income taxes in fiscal 2008 or
2007.
Prior to
January 2006, the Company had elected to be a “S” corporation. “S”
corporations pass through all items of profits, losses and tax credits to the
stockholders of the Company who are responsible for taxes other than annual
state franchise taxes. Effective December 30, 2005, concurrent with
the Sale of the Company to Irvine Sensors Corp., the Company terminated their
“S” corporation election and, as a result, is now treated as a “C” corporation
for both Federal and State corporation income tax purposes. Profits, losses, and
tax credits are reported by the corporation on its tax return and the
Corporation pays taxes accordingly. “S” corporation retained earnings were
$6,711,750. The “C” corporation retained deficit is $7,790,534.
Note 13—Earnings/Loss Per
Share
Basic
earnings per share is computed by dividing income available to common
shareholders (the numerator) by the weighted-average number of common shares
outstanding (the denominator) for the period. Diluted earnings per
share is computed by assuming that any dilutive convertible securities
outstanding were converted, with related preferred stock dividend requirements
and outstanding common shares adjusted accordingly. For all periods presented
herein, there are no dilutive convertible securities.
The
following table sets forth the computation of basic and diluted net loss
attributable to common stockholders per share for the years ended September 28,
2008, and September 30, 2007.
|
|
2008
|
|
|
2007
|
|
Numerator:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(4,831,952
|
)
|
|
$
|
(6,810,854
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted
average shares
|
|
|
10,000
|
|
|
|
10,000
|
|
Basic
and diluted net loss per share
|
|
$
|
(483.20
|
)
|
|
$
|
(681.09
|
)
|
Note
14 — Subsequent Events
Acquisition
by Longview Fund, LP on October 14, 2008
On
October 14, 2008, in a purchase transaction that was consummated via public
auction, Optex Delaware exchanged $15 million of IRSN debt owned by it and
assumed approximately $3.8 million of certain Optex Texas liabilities for
substantially all of the assets of Optex Texas. The $15 million of
IRSN debt was contributed by Longview Fund and Alpha to Optex Delaware in
exchange for a $6 million note payable from Optex Delaware and a $9 million
equity interest in Optex Delaware. There is no contingent
consideration associated with the purchase. Longview and Alpha, which
were secured creditors of IRSN, owned Optex Delaware until February 20,
2009, when Longview sold 100% of its equity interests in Optex Delaware to
Sileas Corp, as discussed in the following paragraph.
Among
other assets, Optex Delaware purchased the following categories of assets from
Optex Texas: intellectual property, production processes and know
how, and outstanding contracts and customer relationships. Optex
Delaware’s management intends to improve the business’s ability to serve its
existing customers and to attract new customers through quality product and
service that will be enabled by improved working capital availability as
compared to the working capital available during the time period in which the
assets were owned by IRSN.
Optex
Systems has allocated the consideration for its acquisition of the Purchased
Assets among tangible and intangible assets acquired and liabilities assumed
based upon their fair values. Assets that met the criteria for recognition as
intangible assets apart from goodwill were also valued at their fair
values.
The
Purchase Price was assigned to the acquired interest in the assets and
liabilities of the Company as of October 14, 2008 as
follows:
Assets:
|
|
Current
assets, consisting primarily of inventory of $5,383,929 and accounts
receivable of $1,404,434
|
|
$
|
7,330,910
|
|
Identifiable
intangible assets
|
|
|
4,036,789
|
|
Purchased
Goodwill
|
|
|
7,110,416
|
|
Other
non-current assets, principally property and equipment
|
|
|
343,898
|
|
|
|
|
|
|
Total
assets
|
|
|
18,822,013
|
|
Liabilities:
|
|
Current
liabilities, consisting of accounts payable of $1,953,833 and accrued
liabilities of $1,868,180
|
|
$
|
3,822,013
|
|
|
|
|
|
|
Acquired
net assets
|
|
$
|
15,000,000
|
|
The
following table summarizes the estimate of the fair values of the intangible
assets as of the asset transfer date:
|
|
Total
|
|
Contracted
Backlog - Existing Orders
|
|
$
|
2,763,567
|
|
Program
Backlog - Forecasted IDIQ awards
|
|
$
|
1,273,222
|
|
Total
Intangible Asset to be amortized
|
|
$
|
4,036,789
|
|
Identifiable
intangible assets primarily consist of customer and program backlog and will be
amortized between general and administrative expenses and costs of sales
according to their respective estimated useful lives.
Proforma
revenue and earnings per share information is presented cumulatively in the
following section regarding the subsequent acquisition of Optex Delaware by
Sileas Corporation.“
Other
Transaction in connection with Purchase by Optex Delaware
Secured
Promissory Note Due September 19, 2011/Longview Fund and Alpha
-
In connection with the
public sale of the Optex Texas assets to Optex Delaware, Optex Delaware
delivered to each of Longview Fund and Alpha a Secured Promissory Note due
September 19, 2011 in the principal amounts of $5,409,762 and $540,976,
respectively. Each Note bears simple interest at the rate of 6% per
annum, and the interest rate upon an event of default increases to 8% per
annum. After 180 days from the Issue Date, the principal amount of
the Notes and accrued and unpaid interest thereon may be converted into Optex
common stock at a conversion price of $1.80 per share. The Notes may
be redeemed prior to maturity at a price of 120% of the then outstanding
principal amount plus all accrued and unpaid interest thereon. The
obligations of Optex under the Notes are secured by a lien of all of the assets
of Optex in favor of Longview and Alpha. On March 27 2009,
Sileas and Alpha exchanged their Notes plus accrued and unpaid interest for one
thousand twenty seven (1,027) shares of Optex Delaware Series A Preferred
Stock
Acquisition
by Sileas Corp on February 20, 2009
On
February 20, 2009, Sileas Corp. (“Sileas”), a newly-formed Delaware corporation,
owned by present members of the company’s management, purchased 100% of the
equity interest held by Longview , representing 90% of Optex Delaware, in a
private transaction (the “Acquisition”).
The
Primary reasons for the Acquisition by Sileas was to effect synergies that the
management of Sileas and the corporate structure of Sileas would produce in
achieving competitive advantages in the contract bidding process. Additional
operating efficiencies were expected to result from the ownership by present
members of management who are active in the daily operations of the
Company.
The
Acquisition was accounted in accordance with “Statement of Financial Accounting
Standards No. 141R” Business Combinations” effective for transactions after
December 15, 2008.
The
purchase price (“Purchase Price”) for the Acquisition was
$13,524,405. Sileas issued a note to the Longview Fund LP for the
full amount of the Purchase Price in exchange for 45,081,350 shares of common
stock (the “Common Stock”) issued by the Company (representing 90% of the
outstanding shares) and a note dated December 2, 2008, issued by the Company to
Longview in the principal amount of $5,409,762 (the “Optex Note”). No contingent
consideration is due the seller in the transaction.. The Note is
secured by the assets of Sileas Corp. and a pledge of the outstanding stock of
Sileas Corp.
Sileas
has no operations or business activities other than holding the Purchased Assets
and has no revenues.
The fair
value of the 10% non-controlling interest at the date of acquisition is
estimated to be approximately $1,500,000. The fair value was derived by
computing 10% of the value of the Company as a whole based on the value of the
consideration given by Sileas for its 90% acquisition. The fair value of
the Company as a whole was established by the consideration of $15,000,000 given
in the previous transaction whereby Longview and Alpha Capital acquired the
Company in a public auction on October 14, 2008. Based the stability of the
nature of the company operations in the current marketplace, the fair value of
the prior consideration was deemed to be representative of the current market
value.
Sileas
has allocated the consideration for its acquisition of the Purchased Assets
among tangible and intangible assets acquired and liabilities assumed based upon
their fair values. Assets that met the criteria for recognition as intangible
assets apart from goodwill were also valued at their fair values. The excess of
the purchase price over the fair values of the identifiable tangible assets,
intangibles assets and the fair value of the non controlling interest is
recognized as goodwill in the accompanying balance sheet in the amount of
$1,012,058. Goodwill is not amortized for financial reporting purposes but
measured at least annually for impairment.
The
Purchase Price was assigned to the acquired interest in the assets and
liabilities of the Company as of February 20, 2009 as
follows:
Assets:
|
|
Current
assets, consisting primarily of inventory of $5,327,438 and accounts
receivable of $2,897,583
|
|
|
|
|
$
|
8,687,102
|
|
Identifiable
intangible assets
|
|
|
|
|
|
3,173,793
|
|
Purchased
Goodwill
|
|
|
|
|
|
7,110,415
|
|
Other
non-current assets, principally property and equipment
|
|
|
|
|
|
316,923
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
|
|
$
|
19,288,233
|
|
Liabilities:
|
|
Current
liabilities, consisting primarily of accounts payable of $2,068,653 and
accrued liabilities of $2,039,663
|
|
|
|
|
$
|
5,275,886
|
|
|
|
|
|
|
|
|
|
Acquired
net assets
|
|
|
|
|
$
|
14,012,347
|
|
|
|
|
|
|
|
|
|
Purchase
price
|
|
|
|
|
|
|
|
Total
consideration to seller (Sileas 90% interests)
|
|
$
|
13,524,405
|
|
|
|
|
|
Fair
Value minority interest under FAS 141R
|
|
|
1,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,024,405
|
|
|
|
|
|
|
|
|
|
|
Excess purchase price reported
as goodwill
|
|
|
|
|
|
$
|
1,012,058
|
|
Accounts
receivable represent the amounts due from customers in the ordinary course of
business. The carrying amounts approximate their fair value and the Company
expects to collect the receivables subject to their normal historical
experiences.
Qualitative
factors that result in the recognition of goodwill exist from the synergies
expected to be achieved by combining the existing operations and the business
relationships of Sileas Corp as well as intangible assets that exist that do not
meet the criteria for separate recognition apart from goodwill such as the
intellectual capital inherent in its existing workforce, production methods and
its overall customer base. The identifiable intangible assets and recorded
goodwill are not deductible for income tax purposes.
As of the
February 20,
2009
change in ownership, it was determined that there was no significant impact to
the unamortized intangible assets since the original determination on October
14, 2008.
Identifiable
intangible assets primarily consist of customer and program backlog, and will be
amortized between general and administrative expenses and costs of sales
according to their respective estimated useful lives.
The
accompanying unaudited pro forma financial information for fiscal 2008 and 2007
present the historical financial information of the accounting acquirer. The pro
forma financial information is presented for information purposes only. Such
information is based upon the standalone historical results of each company and
does not reflect the actual results that would have been reported had the
acquisition been completed when assumed, nor is it indicative of the future
results of operations for the combined enterprise.
The
following represents condensed pro forma revenue and earnings information for
the years ended September 28, 2008 and September 30, 2007 as if the acquisition
of Optex had occurred on the first day of each of the fiscal
years.
|
|
2008
|
|
|
2007
|
|
Revenues
|
|
|
20,017,209
|
|
|
|
15,406,186
|
|
Net
Loss
|
|
|
(4,021,601
|
)
|
|
|
(5,776,875
|
)
|
Diluted
earnings per share
|
|
$
|
(0.03
|
)
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
Average Shares Outstanding
|
|
|
141,464,940
|
|
|
|
141,464,940
|
|
The pro
forma statements depicted above reflect the impacts of reduced interest costs of
$200,000 and $136,148, increased intangible amortization expenses of $1,474,829,
and $1,121,232, the elimination of corporate allocation costs from
IRSN of $ 2,076,184 and $2,010,027, and the elimination for employee stock bonus
compensation (ESBP) pushed down from IRSN of $378,716 and $388,756 for years
ended September 28, 2008 and September 30,
2007 respectively, There is no expected impact on
Federal Income taxes as the Company had a cumulative retained deficit as of the
end of each year.
Other
Transactions in connection with Purchase by Sileas
Secured
Promissory Note Due February 20, 2012/Longview Fund, LP -
As a
result of the transaction described above between Sileas on Longview fund
described in note 7 and in note 14, on February 20, 2009 and effective as of
February 20, 2009 (the “Issue Date”), Sileas, the new majority owner of Optex
Systems, executed and delivered to Longview LP, a Secured Promissory Note due
February 20, 2012 in the principal amount of $13,524,405. The Note
bears simple interest at the rate of 4% per annum, and the interest rate upon an
event of default increases to 10% per annum. In the event Optex sells
or conveys all or substantially all its assets to a third party entity for more
than nominal consideration, other than a merger into its parent company
(“Sileas”) or reincorporation in another jurisdiction, then this Note shall be
immediately due and owing without demand. In the event that a Major
Transaction occurs prior to the maturity date resulting in the Borrower
receiving Net Consideration with a fair market value in excess of the principal
and interest due under the terms of this Secured Note, (the “Optex
Consideration”), then in addition to paying the principal and interest due,
Optex (“Sileas”) shall also pay an amount equal to 90% of the Optex
Consideration. The obligations of Optex under the Note are secured by
a security interest granted to Longview Fund pursuant to a Stock Pledge
Agreement delivered by Sileas to Longview.
The note
payable has been accounted for on the basis of push-down accounting upon the
acquisition since Sileas acquired a 90% controlling interest and as such the
note payable by Sileas (Parent) will be recorded on the financial statements of
Optex Delaware (Subsidiary) as of February 20, 2009. Concurrent with
the planned reverse merger with a publicly-traded shell entity, Sileas’
ownership will be diluted to a percentage less than that under which push-down
accounting applies. Accordingly, the note payable owned by Sileas to
Longview will be reflected solely on the financial statements of Sileas (Parent)
and will no longer be reflected as a liability in the financial statements of
Optex Delaware.
Reorganization/Share
Exchange
On March
30, 2009, a reorganization/share exchange occurred whereby the then existing
shareholders of the Company exchanged their shares of Company Common Stock with
the shares of Common Stock of Sustut Exploration, Inc. (“Registrant”) as
follows:
(i) the
outstanding 85,000,000 shares of Company Common Stock be exchanged by Registrant
for 113,333,282 shares of Registrant Common Stock, (ii) the
outstanding 1,027 shares of Company Series A Preferred Stock be exchanged by
Registrant for 1,027 shares of Registrant Series A Preferred Stock and such
additional items as more fully described in the Agreement and (iii) the
8,131,667 shares of Company Common Stock purchased in the private placement will
be exchanged by Registrant for 8,131,667 shares of Registrant Common Stock, as
acknowledged by Registrant.
The Company shall remain a wholly
owned subsidiary of Registrant, and the Company’s shareholders are now
shareholders of Registrant.
Private
Placement
Simultaneously
with the closing of the Reorganization Agreement, as of March 30, 2009 , the
Company accepted subscriptions from accredited investors for a total of 27 units
(the "Units"), for $45,000 per Unit, with each Unit consisting of Three Hundred
Thousand (300,000) shares of common stock, no par value (the "Common Stock") of
the Company and warrants to purchase Three Hundred Thousand (300,000) shares of
Common Stock for $0.45 per share for a period of five (5) years from the initial
closing (the "Warrants"), which were issued by Sustut after the closing
referenced above. Gross proceeds to the Company were $1,219,750, and
after deducting a finders fee of $139,555 which was payable in cash, and
non-cash consideration of forgiveness of indebtedness owed to an investor of
$146,250, net proceeds were $933,945. The finder also received five
year warrants to purchase 2.7 Units, at an exercise price of $49,500 per
unit.
Series
A Preferred Stock
On March
24, 2009, the Company 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”. This
Certificate of Designation was approved by the Registrant’s Board of Directors
and Shareholders at a Board Meeting and Shareholders Meeting held on February
25, 2009. The Certificate of Designation sets forth the following terms for the
Series A Preferred Stock: (i) Number of authorized shares: 1,027; (ii) per share
stated value: $6,000; (iii) liquidation preference per share: stated
value; (iv) conversion price: $0.15 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.
The
Series A Preferred Shares entitle the holders to receive cumulative dividends at
the rate of 6% per annum payable in cash at the discretion of Board of
Directors. 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 initially set at $0.15 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.
On March
27, 2009, Sileas and Alpha Capital Anstalt exchanged their promissory notes in
the total amount of $6,000,000 plus accrued and unpaid interest thereon into
1,027 shares of Series A Preferred Stock.
Stock
Split
On March
26, 2009, the Company’s Board of Directors reconfirmed a 1.7:1 forward split of
its Common Stock to holders of record as of February 23,
2009. Accordingly, as a result of the forward split, the 45,081,350
shares of Common Stock held by Sileas Corp. was split into 76,638,295 shares,
and the 4,918,650 shares of Common Stock held by Arland Holdings, Ltd. was split
into 8,361,705 shares.
OPTEX
SYSTEMS, INC. UNAUDITED
INTERIM FINANCIAL STATEMENTS
FOR THE QUARTER ENDED DECEMBER 28, 2008
Optex
Systems, Inc.
Balance
Sheets
|
|
Unaudited 12/28/08
|
|
|
Year End as of
09/28/08
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
Cash
|
|
|
497,152
|
|
|
|
170,183
|
|
Accounts
Receivable
|
|
|
2,124,827
|
|
|
|
2,454,235
|
|
Net
Inventory
|
|
|
5,848,508
|
|
|
|
4547,726
|
|
Prepaid
Expenses
|
|
|
46,811
|
|
|
|
307,507
|
|
|
|
|
-
|
|
|
|
-
|
|
Total
Current Assets
|
|
|
8,517,298
|
|
|
|
7,479,651
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment
|
|
|
|
|
|
|
|
|
Property
Plant and Equipment
|
|
|
1,339,636
|
|
|
|
1,314,109
|
|
Accumulated
Depreciation
|
|
|
(1,030,984
|
)
|
|
|
(994,542
|
)
|
|
|
|
|
|
|
|
|
|
Total
Property and Equipment
|
|
|
308,652
|
|
|
|
319,567
|
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
|
|
|
|
|
|
Security
Deposits
|
|
|
20,684
|
|
|
|
20,684
|
|
Intangibles
|
|
|
3,518,992
|
|
|
|
1,100,140
|
|
Goodwill
|
|
|
7,110,415
|
|
|
|
10,047,065
|
|
|
|
|
|
|
|
|
|
|
Total
Other Assets
|
|
|
10,650,091
|
|
|
|
11,167,889
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
|
19,476,041
|
|
|
|
18,967,107
|
|
The
accompanying notes are an integral part of these financial
statements
Optex
Systems, Inc.
Balance
Sheets - Continued
|
|
Unaudited
Quarter End as of
12/28/08
|
|
|
Year End as of
09/28/08
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
Accounts
Payable
|
|
|
1,964,795
|
|
|
|
1,821,534
|
|
Accrued
Expenses
|
|
|
1,044,075
|
|
|
|
798,974
|
|
Accrued
Warranties
|
|
|
256,397
|
|
|
|
227,000
|
|
Accrued
Contract Losses
|
|
|
743,319
|
|
|
|
821,885
|
|
Loans
Payable
|
|
|
214,490
|
|
|
|
373,974
|
|
Interest
on Loans Payable
|
|
|
6,798
|
|
|
|
|
|
Income
Tax Payable
|
|
|
263,654
|
|
|
|
4,425
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
4,493,528
|
|
|
|
4,047,792
|
|
|
|
|
|
|
|
|
|
|
Other
Liabilities
|
|
|
|
|
|
|
|
|
Note
Payable
|
|
|
-
|
|
|
|
2,000,000
|
|
Accrued
Interest on Note
|
|
|
-
|
|
|
|
336,148
|
|
Long
Term Debt
|
|
|
6,000,000
|
|
|
|
-
|
|
Accrued
Interest on Debt
|
|
|
76,000
|
|
|
|
-
|
|
Due
to Parent
|
|
|
-
|
|
|
|
4,300,151
|
|
|
|
|
|
|
|
|
|
|
Total
Other Liabilities
|
|
|
6,076,000
|
|
|
|
6,636,299
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
10,569,528
|
|
|
|
10,684,091
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
|
Optex
Systems, Inc. – Delaware Common Stock (par $0.001, 300,000,000 authorized,
50,000,000 shares issued and outstanding as of December 28,
2008)
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Optex
Systems, Inc. – Texas Common Stock (no par 100,000 authorized, 18,870
shares issued and 10,000 shares outstanding)
|
|
|
|
|
|
|
164,834
|
|
Optex
Systems, Inc. – Texas Treasury Stock (8,870 shares at
cost)
|
|
|
-
|
|
|
|
(1,217,400
|
)
|
Additional
Paid-in-capital
|
|
|
14,795,368
|
|
|
|
15,246,282
|
|
Retained
Earnings (Deficit)
|
|
|
(5,938,855
|
)
|
|
|
(5,910,700
|
)
|
|
|
|
|
|
|
|
|
|
Total
Stockholders' Equity
|
|
|
8,906,513
|
|
|
|
8,283,016
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
|
19,476,041
|
|
|
|
18,967,107
|
|
The
accompanying notes are an integral part of these financial
statements
Optex
Systems, Inc.
Statements
of Operations
|
|
Unaudited Quarter Ended
December 28, 2008
|
|
|
Unaudited Quarter Ended
December 30, 2007
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
7,264,084
|
|
|
|
4,415,905
|
|
|
|
|
|
|
|
|
|
|
Total
Cost of Sales
|
|
|
6,305,050
|
|
|
|
3,839,494
|
|
|
|
|
|
|
|
|
|
|
Gross
Margin
|
|
|
959,034
|
|
|
|
576,411
|
|
|
|
|
|
|
|
|
|
|
General
and Administrative
|
|
|
|
|
|
|
|
|
Salaries
and Wages
|
|
|
158,876
|
|
|
|
173,688
|
|
Employee
Benefits
|
|
|
83,420
|
|
|
|
59,264
|
|
Employee
Stock Bonus Plan
|
|
|
-
|
|
|
|
101,766
|
|
Amortization
of Intangible
|
|
|
101,158
|
|
|
|
61,122
|
|
Rent,
Utilities and Building Maintenance
|
|
|
55,332
|
|
|
|
58,150
|
|
Legal
and Accounting Fees
|
|
|
76,219
|
|
|
|
67,296
|
|
Consulting
and Contract Service Fees
|
|
|
79,323
|
|
|
|
120,439
|
|
Corporate
Allocations
|
|
|
-
|
|
|
|
433,934
|
|
Other
Expenses
|
|
|
77,345
|
|
|
|
144,775
|
|
Total
General and Administrative
|
|
|
631,673
|
|
|
|
1,220,434
|
|
|
|
|
|
|
|
|
|
|
Earnings
(Loss) before Other Expenses and Taxes
|
|
|
327,361
|
|
|
|
(644,023
|
)
|
|
|
|
|
|
|
|
|
|
Other
Expenses
|
|
|
|
|
|
|
|
|
Other
Income and Expense
|
|
|
(436
|
)
|
|
|
|
|
Interest
(Income) Expense - Net
|
|
|
92,298
|
|
|
|
49,640
|
|
Total
Other
|
|
|
91,862
|
|
|
|
49,640
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) Before Taxes
|
|
|
235,499
|
|
|
|
(693,663
|
)
|
Income
Taxes (Benefit)
|
|
|
263,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss) After Taxes
|
|
|
(28,155
|
)
|
|
|
(693,663
|
)
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share (1)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
Average Common Shares Outstanding
|
|
|
50,000,000
|
|
|
|
50,000,000
|
|
1. Quarter
ended December 30, 2007 is shown depicting recapitalization of the
entity
The
accompanying notes are an integral part of these financial
statements
Optex
Systems, Inc.
Statements
of Cash Flows
|
|
Unaudited Quarter
End December 28,
2008
|
|
|
Unaudited Quarter
End December 30,
2007
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
Loss
|
|
|
(28,155
|
)
|
|
|
(693,663
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
554,240
|
|
|
|
289,382
|
|
Provision
for (use of) allowance for inventory valuation
|
|
|
60,636
|
|
|
|
-
|
|
Noncash
interest expense
|
|
|
92,298
|
|
|
|
49,863
|
|
(Increase)
decrease in accounts receivable
|
|
|
329,408
|
|
|
|
(78,304
|
)
|
(Increase)
decrease in inventory (net of progress billed)
|
|
|
(1,361,418
|
)
|
|
|
(960,085
|
)
|
(Increase)
decrease in other current assets
|
|
|
260,695
|
|
|
|
15,666
|
|
Increase
(decrease) in accounts payable and accrued expenses
|
|
|
388,364
|
|
|
|
975,532
|
|
Increase
(decrease) in accrued warranty costs
|
|
|
29,397
|
|
|
|
-
|
|
Increase
(decrease) in due to parent
|
|
|
1,428
|
|
|
|
386,008
|
|
Increase
(decrease) in accrued estimated loss on contracts
|
|
|
(78,567
|
)
|
|
|
(312,480
|
)
|
Increase
(decrease) in income taxes payable
|
|
|
263,654
|
|
|
|
-
|
|
Total
adjustments
|
|
|
540,135
|
|
|
|
365,582
|
|
Net
cash (used)/provided by operating activities
|
|
|
511,980
|
|
|
|
(328,081
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchased
of property and equipment
|
|
|
(25,527
|
)
|
|
|
(38,127
|
)
|
Net
cash used in investing activities
|
|
|
(25,527
|
)
|
|
|
(38,127
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from Loans Payable
|
|
|
(159,484
|
)
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
(159,484
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
326,969
|
|
|
|
(366,208
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
170,183
|
|
|
|
504,753
|
|
Cash
and cash equivalents at end of period
|
|
|
497,152
|
|
|
|
138,545
|
|
|
|
|
|
|
|
|
|
|
Noncash
investing and financing activities:
|
|
|
|
|
|
|
|
|
Optex
Delaware purchase of Optex Systems from Irvine Sensors
|
|
|
|
|
|
|
|
|
Liabilities
not assumed
|
|
|
|
|
|
|
|
|
Loan
Payable
|
|
|
2,000,000
|
|
|
|
|
|
Accrued
Interest on Loan Payable
|
|
|
345,648
|
|
|
|
|
|
Income
Taxes Payable attributable to Irvine
|
|
|
4,425
|
|
|
|
|
|
Due
to Parent (Irvine Sensors)
|
|
|
4,301,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities not assumed
|
|
|
6,651,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
Incurred for Purchase
|
|
|
(6,000,000
|
)
|
|
|
|
|
Additional
Purchased Intangible Assets
|
|
|
2,936,650
|
|
|
|
|
|
Decrease
to Goodwill
|
|
|
(2,936,650
|
)
|
|
|
|
|
Recapitalization
of Stockholders' Equity in Connection with sale to Optex Systems Inc. -
Delaware
|
|
|
(1,102,566
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
on additional paid in capital
|
|
|
(450,914
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
|
-
|
|
|
|
-
|
|
Cash
paid for taxes
|
|
|
-
|
|
|
|
-
|
|
The
accompanying notes are an integral part of these financial
statements
Optex
Systems, Inc.
Statement
of Stockholders' Equity and Comprehensive Income/(Loss)
|
|
Outstanding
Shares
(Optex-Texas)
|
|
|
Outstanding
Shares
Optex
Systems,
Inc.
|
|
|
Common
Stock
(Optex -
Texas)
|
|
|
Common
Stock
(Optex
Systems,
Inc.)
|
|
|
Treasury
Stock
(Optex-
Texas)
|
|
|
Additional
Paid in
Capital
|
|
|
Retained
Earnings
|
|
|
Total
Stockholders
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 28, 2008
|
|
|
10,000
|
|
|
|
|
|
|
164,834
|
|
|
|
|
|
|
(1,217,400
|
)
|
|
|
15,246,282
|
|
|
|
(5,910,700
|
)
|
|
|
8,283,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Optex
Delaware Acquisition
|
|
|
(10,000
|
)
|
|
|
|
|
|
(164,834
|
)
|
|
|
|
|
|
1,217,400
|
|
|
|
(450,914
|
)
|
|
|
|
|
|
|
-
601,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of 50,000,000 Optex Delaware shares
|
|
|
|
|
|
|
50,000,000
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Earnings (Loss) from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,155
|
)
|
|
|
(28,155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 28, 2008
|
|
|
|
|
|
|
50,000,000
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
14,795,368
|
|
|
|
(5,938,855
|
)
|
|
|
8,906,513
|
|
The
accompanying notes are an integral part of these financial
statements
Note 1 - Organization and Operations
Optex
Systems, Inc. (“Optex Texas”) was a privately held Texas Subchapter “S”
Corporation from inception in 1987 until December 30, 2005 when 70% of the
issued and outstanding stock was acquired by Irvine Sensors Corp. (“IRSN”) and
Optex Texas was automatically converted to a Subchapter “C”
Corporation. On December 29, 2006, the remaining 30% equity interest
in Optex Texas was purchased by IRSN.
On
October 14, 2008, certain senior secured creditors of IRSN, Longview Fund, L.P.
(“Longview Fund”) and Alpha Capital Anstalt (“Alpha”) formed Optex Systems,
Inc., a Delaware Corporation, (“Optex Delaware”),which acquired substantially
all of the assets and assumed certain liabilities of Optex Texas in a
transaction that was consummated via purchase at a public auction. Longview and
Alpha owned Optex Delaware until February 20, 2009, when Longview sold 100% of
its equity interests in Optex Delaware to Sileas Corp, as discussed in the
following paragraph. After this asset purchase, Optex Texas remained
a wholly owned subsidiary of IRSN. Although Optex Delaware is
the legal acquirer of Optex Texas in the transaction, Optex Texas is considered
the accounting acquirer since the acquisition by Optex Delaware was deemed to be
the purchase of a business. Accordingly, in subsequent periods the
financial statements presented will be those of the accounting
acquirer.
On
February 20, 2009, Sileas Corp. (“Sileas”), a newly-formed Delaware corporation,
owned by present members of the company’s management, purchased 100% of the
equity interest held by Longview, representing 90% of Optex Delaware in a
private transaction (the “Acquisition”). See Note 9.
Optex’s
operations are based in Richardson, Texas in a leased facility comprising 49,100
square. feet. As of the three months ended December 28, 2008 the
company operated with 117 full-time equivalent employees.
Optex
Systems manufactures optical sighting systems and assemblies primarily for
Department of Defense (DOD) applications. 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 Future Combat Systems (FCS) Stryker vehicle. Optex also
manufactures and delivers numerous periscope configurations, rifle and
surveillance sights and night vision optical assemblies. The Company products
consist primarily of build to customer print products that are delivered both
directly to the military
services
and to other defense prime contractors.
In May
2008, Optex Systems was awarded ISO9001:2000 certification.
Note
2 - Accounting Policies
Basis of
Presentation
The
accompanying financial statements include the historical accounts of Optex
Sytems, Inc the Texas Corporation. The financial statements have been presented
as the subsidiary-only financial statements reflecting the balance sheets,
results of operations and cash flows of the subsidiary as separate
entity.
Although,
the Company has been majority owned by various parent companies described in the
preceding paragraphs, no accounts of the parent companies or the effects of
consolidation with any parent companies have been included in the accompanying
financial statements.
The
financial statements have been presented on the basis of push down
accounting in accordance with Staff Accounting Bulletin No. 54 (SAB
54)
Application of
“Push Down” Basis of Accounting in Financial Statements of Subsidiaries Acquired
by Purchase
. SAB 54 states that the push down basis of accounting should
be used in a purchase transaction in which the entity becomes wholly owned.
Under the push down basis of accounting certain transactions incurred by the
parent company are that would otherwise be accounted for in the accounts of the
parent, are “pushed down” and recorded on the financial statements of the
subsidiary. Accordingly, items resulting from the purchase transaction such as
goodwill, debt incurred by the parent to acquire the subsidiary and other cost
related to the purchase have been
recorded on the
financial statements of the Company.
The
condensed financial statements of Optex Systems Inc., (the “Company”) included
herein have been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission (the “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 financial statements should be read in
conjunction with the annual audited financial statements and the notes thereto
included in the Company’s Form 8k and other reports filed with the
SEC.
The
accompanying unaudited interim 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 the Company 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.
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 revenues and expenses during the reporting
period. Actual results could differ from the estimates.
Earnings per
Share:
Basic earnings per common share is computed by dividing net
earnings by the weighted average number of common shares outstanding during each
year presented. Diluted earnings per common share give the effect to
the assumed exercise of stock options when dilutive. There were no
dilutive stock options during the three months ended December 28, 2008 or
December 30, 2007.
Note
3 - Recent Accounting Pronouncements
In June
2006, The FASB issued Interpretation No. 48 “
Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109
” (“FIN 48”). This
Interpretation clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with FASB No.
109, “
Accounting for Income
Taxes
”
.
FIN 48
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. FIN 48 also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition. FIN 48 is effective for fiscal years beginning after
December 15, 2006. The adoption of FIN 48 did not have a material impact on the
Company's financial position, results of operations, or cash flows.
In
September 2006, the FASB issued FASB No. 157, “
Fair Value Measurements
”
which establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. While FASB No. 157 does not apply to transactions
involving share-based payment covered by FASB No. 123, it establishes a
theoretical framework for analyzing fair value measurements that is absent from
FASB No. 123. We have relied on the theoretical framework established by FASB
No. 157 in connection with certain valuation measurements that were made in the
preparation of these financial statements. FASB No. 157 is effective for years
beginning after November 15, 2007. Subsequent to the Standard’s issuance, the
FASB issued an exposure draft that provides a one year deferral for
implementation of the Standard for non-financial assets and
liabilities.
The
adoption of FASB No. 157 did not have a material impact on the Company's
financial position, results of operations, or cash flows.
In
February 2007, Statement of Financial Accounting Standards No. 159, “
The Fair Value Option for Financial
Assets and Financial Liabilities-Including an Amendment of FASB Statement No.
115
,” (FASB 159), was issued. This standard allows a company to
irrevocably elect fair value as the initial and subsequent measurement attribute
for certain financial assets and financial liabilities on a contract-by-contract
basis, with changes in fair value recognized in earnings. The provisions of this
standard are effective as of the beginning of our fiscal year 2008, with early
adoption permitted.
The
adoption of FASB No. 159 did not have a material impact on the Company's
financial position, results of operations, or cash flows.
In March
2007, the Financial Accounting Standards Board ratified Emerging Issues Task
Force (“EITF”) Issue No. 06-10, "Accounting for Collateral Assignment
Split-Dollar Life Insurance Agreements”. EITF 06-10 provides guidance
for determining a liability for the postretirement benefit obligation as well as
recognition and measurement of the associated asset on the basis of the terms of
the collateral assignment agreement. EITF 06-10 is effective for
fiscal years beginning after December 15, 2007. The adoption of EITF
06-10 did not have a material impact on the Company's financial position,
results of operations, or cash flows.
In
December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
and
SFAS No. 160,
Accounting
and Reporting of Noncontrolling Interest in Consolidated Financial Statements,
an amendment of ARB No. 51
. These new standards will significantly
change the accounting for and reporting of business combinations and
non-controlling (minority) interests in consolidated financial statements.
Statement Nos. 141(R) and 160 are required to be adopted simultaneously and
are effective for the first annual reporting period beginning on or after
December 15, 2008. Earlier adoption is prohibited. The Company is currently
evaluating the impact of adopting SFAS Nos. 141(R) and SFAS 160 on its
financial statements. See Note 9 for adoption of SFAS 141R subsequent to
December 28, 2008.
In
December 2007, the SEC issued Staff Accounting Bulletin No. 110 (“SAB 110”). SAB
110 permits companies to continue to use the simplified method, under certain
circumstances, in estimating the expected term of “plain vanilla” options beyond
December 31, 2007. SAB 110 updates guidance provided in SAB 107 that previously
stated that the Staff would not expect a company to use the simplified method
for share option grants after December 31, 2007. The Company does not have any
outstanding stock options.
In March
2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standard (“SFAS”) No. 161, "
Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No.
133
”. SFAS 161 requires enhanced disclosures about an entity’s
derivative and hedging activities. SFAS 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008 with early application encouraged. As such, the Company is
required to adopt these provisions at the beginning of the fiscal year
ended
September 30, 2009.
The Company is currently evaluating the impact of
SFAS 161 on its financial statements but does not expect it to have a material
effect
In May
2008, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standard (“SFAS”) No. 162, "
The Hierarchy of Generally Accepted
Accounting Principles
”. SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States. SFAS 162 is effective 60 days following the SEC’s
approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted
Accounting Principles. The adoption of FASB No. 162 did not have a material
impact on the Company's financial position, results of operations, or cash
flows.
In May
2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standard (“SFAS”) No. 163, "
Accounting for Financial Guarantee
Insurance Contracts—an interpretation of FASB Statement No. 60
" (“SFAS
163”). SFAS 163 interprets Statement 60 and amends existing
accounting pronouncements to clarify their application to the financial
guarantee insurance contracts included within the scope of that
Statement. SFAS 163 is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and all interim periods within
those fiscal years. As such, the Company is required to adopt these
provisions at the beginning of the fiscal year ended September 30,
2011. The Company is currently evaluating the impact of SFAS 163 on
its financial statements but does not expect it to have a material
effect.
Note
4 — Acquisition of Optex Systems, Inc. Delaware
Acquisition
by Longview Fund, LP on October 14, 2009
On
October 14, 2008, in a purchase transaction that was consummated via public
auction, Optex Delaware exchanged $15 million of IRSN debt owned by it and
assumed approximately $3.8 million of certain Optex Texas liabilities for
substantially all of the assets of Optex Texas . The $15 million of
IRSN debt was contributed by Longview Fund and Alpha to Optex Delaware in
exchange for a $6 million note payable from Optex Delaware and a $9 million
equity interest in Optex Delaware. There is no contingent
consideration associated with the purchase. Longview and Alpha, which
were secured creditors of IRSN, owned Optex Delaware until February 20,
2009, when Longview sold 100% of its equity interests in Optex Delaware to
Sileas Corp, as discussed in Note 9.
Among
other assets, Optex Delaware purchased the following categories of assets from
Optex Texas: intellectual property, production processes and know
how, and outstanding contracts and customer relationships. Optex
Delaware’s management intends to improve the business’s ability to serve its
existing customers and to attract new customers through quality product and
service which will be enabled by improved working capital availability as
opposed to working capital available during the time period in which the assets
were owned by IRSN.
Optex
Systems has allocated the consideration for its acquisition of the Purchased
Assets among tangible and intangible assets acquired and liabilities assumed
based upon their fair values. Assets that met the criteria for recognition as
intangible assets apart from goodwill were also valued at their fair
values.
The
Purchase Price was assigned to the acquired interest in the assets and
liabilities of the Company as of October 14, 2008 as
follows:
Assets:
|
|
|
|
Current
assets, consisting primarily of inventory of $5,383,929 and accounts
receivable of $1,404,434
|
|
$
|
7,330,910
|
|
Identifiable
intangible assets
|
|
|
4,036,789
|
|
Purchased
Goodwill
|
|
|
7,110,416
|
|
Other
non-current assets, principally property and equipment
|
|
|
343,898
|
|
|
|
|
|
|
Total
assets
|
|
|
18,822,013
|
|
Liabilities:
|
|
|
|
|
Current
liabilities, consisting of accounts payable of $1,953,833 and accrued
liabilities of $1,868,180
|
|
$
|
3,822,013
|
|
|
|
|
|
|
Acquired
net assets
|
|
$
|
15,000,000
|
|
The
following table summarizes the estimate of the fair values of the intangible
assets as of the asset transfer date:
|
|
Total
|
|
Contracted
Backlog - Existing Orders
|
|
$
|
2,763,567
|
|
Program
Backlog - Forecasted IDIQ awards
|
|
$
|
1,273,222
|
|
Total
Intangible Asset to be amortized
|
|
$
|
4,036,789
|
|
Identifiable
intangible assets primarily consist of customer and program backlog and will be
amortized between general and administrative expenses and costs of sales
according to their respective estimated useful lives.
Pro forma
revenue and earnings per share information is presented cumulatively in Note 9
regarding the subsequent acquisition of Optex Delaware by Sileas
Corporation.
The
accompanying financial statements present the combined accounts of Optex Texas
and Optex Delaware from the date of the business combination which was October
14, 2008.
Other
Transaction in connection with Purchase by Optex Delaware
Secured
Promissory Note Due September 19, 2011/Longview Fund and Alpha
-
In connection with the
public sale of the Optex Texas assets to Optex Delaware, Optex Delaware
delivered to each of Longview Fund and Alpha a Secured Promissory Note due
September 19, 2011 in the principal amounts of $5,409,762 and $540,976,
respectively. Each Note bears simple interest at the rate of 6% per
annum, and the interest rate upon an event of default increases to 8% per
annum. After 180 days from the Issue Date, the principal amount of
the Notes and accrued and unpaid interest thereon may be converted into Optex
common stock at a conversion price of $1.80 per share. The Notes may
be redeemed prior to maturity at a price of 120% of the then outstanding
principal amount plus all accrued and unpaid interest thereon. The
obligations of Optex under the Notes are secured by a lien of all of the assets
of Optex in favor of Longview and Alpha. On March 27 2009,
Sileas and Alpha exchanged their Notes plus accrued and unpaid interest for one
thousand twenty seven (1,027) shares of Optex Delaware Series A Preferred
Stock
Note
5 - Commitments and Contingencies
Leases
The
company leases its office and manufacturing facilities under two non-cancellable
operating leases expiring November 2009 and February 2010 in addition to
maintaining several non-cancellable operating leases for office and
manufacturing equipment. Total expenses under these facility lease
agreements for the year ended September 28, 2008 was $313,032 and total expenses
for manufacturing and office equipment was $21,830. At September 28,
2008, the minimum lease payments under non-cancelable operating leases for
equipment, office and facility space are as follows:
|
|
Operating
|
|
|
|
Leases
|
|
Years
ended December 31,
|
|
|
|
2009
|
|
$
|
364,260
|
|
2010
|
|
|
79,867
|
|
2011
|
|
|
16,753
|
|
2012
|
|
|
-
|
|
2013
|
|
|
-
|
|
Thereafter
|
|
|
-
|
|
Total
minimum lease payments
|
|
$
|
460,880
|
|
Note
6 - Debt Financing
Non-Related
parties
Short
Term Note Payable/Longview Fund
-
On September 23, 2008 Optex Delaware borrowed $146,709 from
Longview and issued a promissory note dated September 23, 2008, to Longview in
connection therewith. The September 23, 2008 Note bears interest at
the rate of 10% per annum with interest accruing until the maturity date of the
September 23, 2008 Note, which was originally set as November 7, 2008 (“Maturity
Date”). Pursuant to an Allonge No. 1 to Promissory Note, dated
January 20, 2009, the Maturity Date was extended until March 31, 2009 and is to
be exchanged for Series A Preferred Stock of Optex Delaware (
See Note
9).
.
Short
term note payable (Qioptic)
-
On
November 20, 2008, Optex Delaware issued a promissory note (“Note”) to Qioptiq
Limited (“Qioptiq”) in the amount of $117,780. The Note originated as a trade
payable and as of December 28, 2008 had an outstanding balance of
$67,781. The Note bears interest at the rate of six percent per annum
and had a maturity date of February 13, 2009 (and was repaid in full
as of that date) (“Maturity Date”). The terms of the Note call for
weekly payments of $10,000 each on the last business day of every week
commencing on the last business day of the first week after November 20, 2008
and continuing thereafter until the Maturity Date, on which date the remaining
principal amount of the Note and all accrued and unpaid interest thereon shall
become immediately due and payable
Note
7 – Stockholders Equity
Common
Stock:
As of
December 28, 2008, the Company was authorized to issue 300,000,000 shares of
$.001 par value common stock, of which 50,000,000 shares were issued and
outstanding as follows:
Longview
Fund, LP
|
|
|
45,081,350
|
|
Arnold
Holding, LTD
|
|
|
4,918,650
|
|
Total
Outstanding
|
|
|
50,000,000
|
|
Each
share of stock entitles the holder to one vote
The
outstanding shares as of December 30, 2007 have been restated to reflect the
recapitalization of Optex Delaware above.
Note 8—Earnings/Loss Per
Share
Basic
earnings per share is computed by dividing income available to common
shareholders (the numerator) by the weighted-average number of common shares
outstanding (the denominator) for the period. Diluted earnings per share is
computed by assuming that any dilutive convertible securities outstanding were
converted, with related preferred stock dividend requirements and outstanding
common shares adjusted accordingly. For all periods presented herein, there are
no dilutive convertible securities.
The
following table sets forth the computation of basic and diluted net loss
attributable to common stockholders per share for the three months ended
December 28, 2008, and December 30, 2007.
|
|
Three months
ended
December 28,
2008
|
|
|
Three months
ended
December 30,
2007
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(28,155
|
)
|
|
$
|
(693,663
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted
average shares
|
|
|
50,000,000
|
|
|
|
50,000,000
|
|
Basic
and diluted net loss per share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
Quarter
ended December 30, 2007 is shown depicting recapitilization of the
entity
Note
9 — Subsequent Events
Acquisition
by Sileas Corp on February 20, 2009
On
February 20, 2009, Sileas Corp. (“Sileas”), a newly-formed Delaware corporation,
owned by present members of the company’s management, purchased 100% of the
equity interest held by Longview , representing 90% of Optex Delaware, in a
private transaction (the “Acquisition”).
The
Primary reasons for the Acquisition by Sileas was to effect synergies that the
management of Sileas and the corporate structure of Sileas would produce in
achieving competitive advantages in the contract bidding process. Additional
operating efficiencies were expected to result from the ownership by present
members of management who are active in the daily operations of the
Company.
The
Acquisition was accounted in accordance with “Statement of Financial Accounting
Standards No. 141R” Business Combinations” effective for transactions after
December 15, 2008.
The
purchase price (“Purchase Price”) for the Acquisition was
$13,524,405. Sileas issued a note to the Longview Fund LP for the
full amount of the Purchase Price in exchange for 45,081,350 shares of common
stock (the “Common Stock”) issued by the Company (representing 90% of the
outstanding shares) and a note dated December 2, 2008, issued by the Company to
Longview in the principal amount of $5,409,762 (the “Optex Note”). No contingent
consideration is due the seller in the transaction.. The Note is
secured by the assets of Sileas Corp. and a pledge of the outstanding stock of
Sileas Corp.
Sileas
has no operations or business activities other than holding the Purchased Assets
and has no revenues.
The fair
value of the 10% non-controlling interest at the date of acquisition is
estimated to be approximately $1,500,000. The fair value was derived by
computing 10% of the value of the Company as a whole based on the value of the
consideration given by Sileas for its 90% acquisition. The fair value of
the Company as a whole was established by the consideration of $15,000,000 given
in the previous transaction whereby Longview and Alpha Capital acquired the
Company in a public auction on October 14, 2008. Based the stability of the
nature of the company operations in the current marketplace, the fair value of
the prior consideration was deemed to be representative of the current market
value.
Sileas
has allocated the consideration for its acquisition of the Purchased Assets
among tangible and intangible assets acquired and liabilities assumed based upon
their fair values. Assets that met the criteria for recognition as intangible
assets apart from goodwill were also valued at their fair values. The excess of
the purchase price over the fair values of the identifiable tangible assets,
intangibles assets and the fair value of the non controlling interest is
recognized as goodwill in the accompanying balance sheet in the amount of
$1,012,058. Goodwill is not amortized for financial reporting purposes but
measured at least annually for impairment.
The
Purchase Price was assigned to the acquired interest in the assets and
liabilities of the Company as of February 20, 2009 as
follows:
Assets:
|
|
|
|
|
|
|
Current
assets, consisting primarily of inventory of $5,327,438 and accounts
receivable of $2,897,583
|
|
|
|
|
$
|
8,687,102
|
|
Identifiable
intangible assets
|
|
|
|
|
|
3,173,793
|
|
Purchased
Goodwill
|
|
|
|
|
|
7,110,415
|
|
Other
non-current assets, principally property and equipment
|
|
|
|
|
|
316,923
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
|
|
$
|
19,288,233
|
|
Liabilities:
|
|
|
|
|
|
|
|
Current
liabilities, consisting primarily of accounts payable of $2,068,653 and
accrued liabilities of $2,039,663
|
|
|
|
|
$
|
5,275,886
|
|
|
|
|
|
|
|
|
|
Acquired
net assets
|
|
|
|
|
$
|
14,012,347
|
|
|
|
|
|
|
|
|
|
Purchase
price
|
|
|
|
|
|
|
|
Total
consideration to seller (Sileas 90% interests)
|
|
$
|
13,524,405
|
|
|
|
|
|
Fair
Value minority interest under FAS 141R
|
|
|
1,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,024,405
|
|
|
|
|
|
|
|
|
|
|
Excess purchase price reported
as goodwill
|
|
|
|
|
|
$
|
1,012,058
|
|
Accounts
receivable represent the amounts due from customers in the ordinary course of
business. The carrying amounts approximate their fair value and the Company
expects to collect the receivables subject to their normal historical
experiences.
Qualitative
factors that result in the recognition of goodwill exist from the synergies
expected to be achieved by combining the existing operations and the business
relationships of Sileas Corp as well as intangible assets that exist that do not
meet the criteria for separate recognition apart from goodwill such as the
intellectual capital inherent in its existing workforce, production methods and
its overall customer base. The identifiable intangible assets and recorded
goodwill are not deductible for income tax purposes.
As of the
February 20,
2009
change in ownership, it was determined that there was no significant impact to
the unamortized intangible assets since the original determination on October
14, 2008.
Identifiable
intangible assets primarily consist of customer and program backlog, and will be
amortized between general and administrative expenses and costs of sales
according to their respective estimated useful lives.
The
accompanying unaudited pro forma financial information for the three months
ended December 28, 2008 and December 30, 2007 present the historical financial
information of the accounting acquirer. The pro forma financial information is
presented for information purposes only. Such information is based upon the
standalone historical results of each company and does not reflect the actual
results that would have been reported had the acquisition been completed when
assumed, nor is it indicative of the future results of operations for the
combined enterprise.
The
following represents condensed pro forma revenue and earnings information for
the three months ended December 28, 2008 and December 30, 2007 as if
the acquisition of Optex had occurred on the first day of each of the
quarters.
|
|
Unaudited
Quarter Ended
December 28,
2008
|
|
|
Unaudited
Quarter Ended
December 30,
2007
|
|
Revenues
|
|
|
7,264,084
|
|
|
|
4,415,905
|
|
Net
Loss
|
|
|
(65,010
|
)
|
|
|
(481,062
|
)
|
Diluted
earnings per share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
Average Shares Outstanding
|
|
|
141,464,940
|
|
|
|
141,464,940
|
|
The pro
forma information depicted above reflect the impacts of reduced interest expense
of $85,500 and $49,640 for three months ended December 28, 2008 and December 30,
2007 respectively, the increased intangible amortization expenses of $280,308,
the elimination of corporate allocation costs from IRSN of $
433,934, the elimination
employee stock bonus compensation pushed down from IRSN of $
101,766 for the three months ended December 30, 2007, and the tax
increase of $29,925 for three months ended December 28, 2008 resulting from
lower interest expense. There is no expected tax effect for the three
months ended December 30, 2007 as the company had an accumulated retained
deficit.
Other
Transactions in connection with Purchase by Sileas
Secured Promissory Note Due February
20, 2012/Longview Fund, LP
-
As a
result of the transaction described above between Sileas on Longview fund
described in note 7 and in note 14, on February 20, 2009 and effective as of
February 20, 2009 (the “Issue Date”), Sileas, the new majority owner of Optex
Systems, executed and delivered to Longview LP, a Secured Promissory Note due
February 20, 2012 in the principal amount of $13,524,405. The Note
bears simple interest at the rate of 4% per annum, and the interest rate upon an
event of default increases to 10% per annum. In the event Optex sells
or conveys all or substantially all its assets to a third party entity for more
than nominal consideration, other than a merger into its parent company
(“Sileas”) or reincorporation in another jurisdiction, then this Note shall be
immediately due and owing without demand. In the event that a Major
Transaction occurs prior to the maturity date resulting in the Borrower
receiving Net Consideration with a fair market value in excess of the principal
and interest due under the terms of this Secured Note, (the “Optex
Consideration”), then in addition to paying the principal and interest due,
Optex (“Sileas”) shall also pay an amount equal to 90% of the Optex
Consideration. The obligations of Optex under the Note are secured by
a security interest granted to Longview Fund pursuant to a Stock Pledge
Agreement delivered by Sileas to Longview.
The note
payable has been accounted for on the basis of push-down accounting upon the
acquisition since Sileas acquired a 90% controlling interest and as such the
note payable by Sileas (Parent) will be recorded on the financial statements of
Optex Delaware (Subsidiary) as of February 20, 2009. Concurrent with
the planned reverse merger with a publicly-traded shell entity, Sileas’
ownership will be diluted to a percentage less than that under which push-down
accounting applies. Accordingly, the note payable owned by Sileas to
Longview will be reflected solely on the financial statements of Sileas (Parent)
and will no longer be reflected as a liability in the financial statements of
Optex Delaware.
Reorganization/Share
Exchange
On March
30, 2009, a reorganization/share exchange occurred whereby the then existing
shareholders of the Company exchanged their shares of Company Common Stock with
the shares of Common Stock of Sustut Exploration, Inc. (“Registrant”) as
follows:
(i) the
outstanding 85,000,000 shares of Company Common Stock be exchanged by Registrant
for 113,333,282 shares of Registrant Common Stock, (ii) the
outstanding 1,027 shares of Company Series A Preferred Stock be exchanged by
Registrant for 1,027 shares of Registrant Series A Preferred Stock and such
additional items as more fully described in the Agreement and (iii) the
8,131,667 shares of Company Common Stock purchased in the private placement will
be exchanged by Registrant for 8,131,667 shares of Registrant Common Stock, as
acknowledged by Registrant.
The Company shall remain a wholly
owned subsidiary of Registrant, and the Company’s shareholders are now
shareholders of Registrant.
Private
Placement
Simultaneously
with the closing of the Reorganization Agreement, as of March 30, 2009 , the
Company accepted subscriptions from accredited investors for a total of 27 units
(the "Units"), for $45,000.00 per Unit, with each Unit consisting of Three
Hundred Thousand (300,000) shares of common stock, no par value (the "Common
Stock") of the Company and warrants to purchase Three Hundred Thousand (300,000)
shares of Common Stock for $0.45 per share for a period of five (5) years from
the initial closing (the "Warrants"), which were issued by Sustut after the
closing referenced above. Gross proceeds to the Company were
$1,219,750, and after deducting a finders fee of $139,555 which was payable in
cash, and non-cash consideration of forgiveness of indebtedness owed to an
investor of $146,250, net proceeds were $933,945. The finder also
received five year warrants to purchase 2.7 Units, at an exercise price of
$49,500 per unit.
Series
A Preferred Stock
On March
24, 2009, the Company 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”. This
Certificate of Designation was approved by the Registrant’s Board of Directors
and Shareholders at a Board Meeting and Shareholders Meeting held on February
25, 2009. The Certificate of Designation sets forth the following terms for the
Series A Preferred Stock: (i) Number of authorized shares: 1,027; (ii) per share
stated value: $6,000; (iii) liquidation preference per share: stated
value; (iv) conversion price: $0.15 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.
The
Series A Preferred Shares entitle the holders to receive cumulative dividends at
the rate of 6% per annum payable in cash at the discretion of Board of
Directors. 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 initially set at $0.15 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.
On March
27, 2009, Sileas and Alpha Capital Anstalt exchanged their promissory notes in
the total amount of $6,000,000 plus accrued and unpaid interest thereon into
1,027 shares of Series A Preferred Stock.
Stock
Split
On March
26, 2009, the Company’s Board of Directors reconfirmed a 1.7:1 forward split of
its Common Stock to holders of record as of February 23,
2009. Accordingly, as a result of the forward split, the 45,081,350
shares of Common Stock held by Sileas Corp. was split into
76,638,295 shares, and the 4,918,650 shares of Common Stock held by
Arland Holdings, Ltd. was split into
8,361,705 shares.
PROFORMA CONDENSED FINANCIAL
STATEMENTS (UNAUDITED
)
On
October 14, 2008, in a purchase transaction that was consummated via public
auction, Optex Delaware exchanged $15 million of IRSN debt owned by it and
assumed approximately $3.8 million of certain Optex Texas liabilities for
substantially all of the assets of Optex Texas. The $15 million of IRSN debt was
contributed by Longview Fund and Alpha (secured creditors of IRSN) to Optex
Delaware in exchange for a six percent (6%) $6 million note payable, $5.4
million and $0.6 million respectively, and $9 million equity interest in Optex
Delaware of 45,081,350 and 4,918,650 shares respectively. There is no contingent
consideration associated with the purchase.
On October 30, 2008 Alpha Capital
Anstalt sold their common stock interest to Arland Holding, Ltd.
On
February 20, 2009 Longview sold 100% of its equity interests in Optex Delaware
to Sileas Corp.
On
February 20, 2009, Sileas Corp. (“Sileas”), a newly-formed Delaware corporation
owned by present members of the Company’s management, purchased 45,081,350
shares of Optex Delaware common stock held by Longview Fund, LP (representing
90% of the outstanding shares of Optex Delware) and the note issued to Longview
in the principal amount of $5,409,762.
The
purchase price for the Sileas acquisition was $13,524,405. The purchase was paid
by a note made by Sileas, payable to Longview in the principal amount of the
purchase price carrying four percent (4%) annual interest, ,and maturing on
February 20, 2012 and secured by a pledge of the purchased assets.
Sileas
has no operations or business activities other than holding the Purchased Assets
and has no revenues.
On March
26, 2009, the Company’s Board of Directors approved a 1.7:1 forward split of its
Common Stock to holders of record as of February 23, 2009. Accordingly, as a
result of the forward split, the 45,081,350 shares of Common Stock held by
Sileas Corp. were split into 76,638,295 shares, and the 4,918,650 shares of
Common Stock held by Arland Holdings, Ltd. were split into 8,361,705
shares.
On March
27, 2009, Sileas and Alpha Capital Anstalt exchanged their promissory notes in
the total amount of $6,000,000 plus accrued and unpaid interest thereon into
1,027 shares of Series A Preferred Stock. The Series A Preferred Shares entitle
the holders to receive cumulative dividends at the rate of 6% per annum payable
in cash at the discretion of Board of Directors.
On March
30, 2009, a reorganization/share exchange occurred whereby the then existing
shareholders of the Company exchanged their shares of Company Common Stock with
the shares of Common Stock of Sustut Exploration, Inc. (“Sustut”). For each
share of Optex Common Stock tendered, the shareholder received 1.33 shares of
Sustut Common Stock. For each share of Series A Preferred Stock of the Company
tendered, the shareholder received 1 share of Sustut Series A Preferred Stock.
The Company shall remain a wholly owned subsidiary of Sustut, and the Company’s
shareholders are now shareholders of Sustut.
As of
March 30, 2009 , the Company accepted subscriptions from accredited investors
for a total of 27 units (the "Units"), for $45,000.00 per Unit, with each Unit
consisting of Three Hundred Thousand (300,000) shares of common stock, no par
value (the "Common Stock") of the Company and warrants to purchase Three Hundred
Thousand (300,000) shares of Common Stock for $0.45 per share for a period of
five (5) years from the initial closing (the "Warrants"), which were issued by
Sustut after the closing referenced above. Gross proceeds to the Company were
$1,219,750, and after deducting a finders fee of $139,555 which was payable in
cash, and non-cash consideration of forgiveness of indebtedness owed to an
investor of $146,250, net proceeds were $933,945. The finder also received five
year warrants to purchase 2.7 Units, at an exercise price of $49,500 per
unit.
The
unaudited pro forma statements of operations of Optex Systems, Inc. for the year
ended September 28, 2008 and three months ended December 28, 2008, give effect
to (i) both the Optex Delaware acquisition as of October 14, 2008 and subsequent
Sileas acquisition as of February 20, 2009 by applying the purchase method of
accounting, (ii) certain adjustments that are directly attributable to the
change in ownership from Irvine Sensors Corporation, (iii) certain adjustments
related to the issuance of notes payable to Longview Fund, LP and Alpha Capital
Anstalt as if the transactions were consummated as of October 1, 2007 and
September 29, 2008.
The
unaudited pro forma condensed balance sheets as of year ended September 28, 2008
and three months ended December 28, 2008 are presented as if both the Optex
Delaware and Sileas acquisitions including the issuance of Optex Delaware common
stock and notes payable had occurred on September 28, 2008 and December 28,
2008, respectively.
The fair
value of the net assets acquired, in both transactions have been estimated based
on the final offering price at the public auction held on October 14,
2008.
In the
opinion of Optex System, Inc. all adjustments and/or disclosures necessary for a
fair presentation of the pro forma data have been made. These pro forma
financial statements are presented for illustrative purposes only and are not
necessarily indicative of the operating results or the financial position that
would have been achieved had the acquisitions been consummated as of the dates
indicated or of the results that may be obtained in the future.
These pro
forma financial statements and notes thereto should be read in conjunction with
Optex System, Inc. financial statements and the notes thereto as of and for the
year ended September 28, 2008 and three months ended December 28,
2008.
2008
Annual Balance Sheets 1
Optex
Systems, Inc.
Proforma
Balance Sheets (Unaudited)
Year
Ended September 28, 2008
|
|
Optex-Texas
|
|
|
Optex
Delaware
Proforma
Adjustments
(10/14/09)
|
|
|
Sileas
Proforma
Adjustments
(2/20/09)
|
|
|
Subtotal
|
|
|
Sustut
Exploration,
Inc.
|
|
|
Reorganization/share
exchange (3/30/09)
|
|
|
Proforma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
170,183
|
|
|
|
|
|
|
|
|
|
170,183
|
|
|
|
|
|
|
933,945
|
(12)
|
|
|
1,104,128
|
|
Accounts
Receivable
|
|
|
2,454,235
|
|
|
|
|
|
|
|
|
|
2,454,235
|
|
|
|
|
|
|
|
|
|
|
2,454,235
|
|
Net
Inventory
|
|
|
4,547,726
|
|
|
|
|
|
|
|
|
|
4,547,726
|
|
|
|
|
|
|
|
|
|
|
4,547,726
|
|
Prepaid
Expenses
|
|
|
307,507
|
|
|
|
|
|
|
|
|
|
307,507
|
|
|
|
|
|
|
|
|
|
|
307,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
7,479,651
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,479,651
|
|
|
|
-
|
|
|
|
933,945
|
|
|
|
8,413,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment
|
|
|
1,314,109
|
|
|
|
|
|
|
|
|
|
|
|
1,314,109
|
|
|
|
|
|
|
|
|
|
|
|
1,314,109
|
|
Accumulated
Depreciation
|
|
|
(994,542
|
)
|
|
|
|
|
|
|
|
|
|
|
(994,542
|
)
|
|
|
|
|
|
|
|
|
|
|
(994,542
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Property and Equipment
|
|
|
319,567
|
|
|
|
-
|
|
|
|
-
|
|
|
|
319,567
|
|
|
|
-
|
|
|
|
-
|
|
|
|
319,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
Deposits
|
|
|
20,684
|
|
|
|
|
|
|
|
|
|
|
|
20,684
|
|
|
|
|
|
|
|
|
|
|
|
20,684
|
|
Intangibles
|
|
|
1,100,140
|
|
|
|
2,936,650
|
(2)
|
|
|
|
|
|
|
4,036,790
|
|
|
|
|
|
|
|
|
|
|
|
4,036,790
|
|
Goodwill
|
|
|
10,047,065
|
|
|
|
(2,936,650
|
)(2)
|
|
|
1,012,058
|
(3)
|
|
|
8,122,473
|
|
|
|
|
|
|
|
(1,012,058
|
)(13)
|
|
|
7,110,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other Assets
|
|
|
11,167,889
|
|
|
|
-
|
|
|
|
1,012,058
|
|
|
|
12,179,947
|
|
|
|
-
|
|
|
|
(1,012,058
|
)
|
|
|
11,167,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
|
18,967,107
|
|
|
|
-
|
|
|
|
1,012,058
|
|
|
|
19,979,165
|
|
|
|
-
|
|
|
|
(78,113
|
)
|
|
|
19,901,052
|
|
See
accompanying notes to pro forma financial statements
Optex
Systems, Inc.
Proforma
Balance Sheets (Unaudited) - Continued
Year
Ended September 28, 2008
|
|
Optex-Texas
|
|
|
Optex Delaware
Proforma
Adjustments
(10/14/09)
|
|
|
Sileas
Proforma
Adjustments
(2/20/09)
|
|
|
Subtotal
|
|
|
Sustut
Exploration,
Inc.
|
|
|
Reorganization/share
exchange (3/30/09)
|
|
|
Proforma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
|
1,821,534
|
|
|
|
|
|
|
|
|
|
1,821,534
|
|
|
|
1,950
|
(10)
|
|
|
|
|
|
1,823,484
|
|
Accrued
Expenses
|
|
|
798,974
|
|
|
|
|
|
|
|
|
|
798,974
|
|
|
|
|
|
|
|
65,000
|
(12)
|
|
|
863,974
|
|
Accrued
Warranties
|
|
|
227,000
|
|
|
|
|
|
|
|
|
|
227,000
|
|
|
|
|
|
|
|
|
|
|
|
227,000
|
|
Accrued
Contract Losses
|
|
|
821,885
|
|
|
|
|
|
|
|
|
|
821,885
|
|
|
|
|
|
|
|
|
|
|
|
821,885
|
|
Loans
Payable
|
|
|
373,974
|
|
|
|
|
|
|
|
|
|
373,974
|
|
|
|
|
|
|
|
(146,250
|
)(12)
|
|
|
227,724
|
|
Income
Tax Payable
|
|
|
4,425
|
|
|
|
(4,425
|
)(1)
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
4,047,792
|
|
|
|
(4,425
|
)
|
|
|
-
|
|
|
|
4,043,367
|
|
|
|
1,950
|
|
|
|
(81,250
|
)
|
|
|
3,964,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
Payable
|
|
|
2,000,000
|
|
|
|
(2,000,000
|
)(1)
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Accrued
Interest on Note
|
|
|
336,148
|
|
|
|
(345,648
|
)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,500
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Long
Term Debt - Longview Fund LP
|
|
|
-
|
|
|
|
5,409,762
|
(1)
|
|
|
8,114,643
|
(3)
|
|
|
13,524,405
|
|
|
|
|
|
|
|
(5,409,762
|
)(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,114,643
|
)(13)
|
|
|
-
|
|
Long
Term Debt - Alpha Capital Anstalt
|
|
|
|
|
|
|
590,238
|
(1)
|
|
|
|
|
|
|
590,238
|
|
|
|
|
|
|
|
(590,238
|
)(11)
|
|
|
-
|
|
Accrued
Interest on Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
159,781
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(159,781
|
)(11)
|
|
|
-
|
|
Due
to Parent
|
|
|
4,300,151
|
|
|
|
(4,301,579
|
)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
1,428
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other Liabilities
|
|
|
6,636,299
|
|
|
|
(636,299
|
)
|
|
|
8,114,643
|
|
|
|
14,114,643
|
|
|
|
-
|
|
|
|
(14,114,643
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
10,684,091
|
|
|
|
(640,724
|
)
|
|
|
8,114,643
|
|
|
|
18,158,010
|
|
|
|
1,950
|
|
|
|
(14,195,893
|
)
|
|
|
3,964,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Optex
Systems, Inc. Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sustut
- Preferred Stock (.001 par 5,000 authorized, 1027 series A
preferred issued issed and outstanding)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
(14)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sustut
- Common Stock (.001 par 200,000,000 authorized, 19,999,991 shares issued
and outstanding)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
(10)
|
|
|
121,465
|
(14)
|
|
|
141,465
|
|
Preferred
Stock (.001 par 1,027 authorized, 1,027 shares issued and
outstanding)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)(14)
|
|
|
-
|
|
Optex
Systems, Inc. Deleware - Common Stock (par $0.001, 300,000,000 authorized,
85,000,000 shares issued and outstanding)
|
|
|
|
|
|
|
50,000
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,000
|
(9)
|
|
|
|
|
|
|
85,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,132
|
(12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(93,132
|
)(14)
|
|
|
-
|
|
Optex
Systems, Inc. Texas - Common Stock (no par 100,000 authorized, 18,870
shares issued and 10,000 shares outstanding)
|
|
|
164,834
|
|
|
|
(164,834
|
)(1)
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Optex
Systems, Inc. Texas - Treasury Stock (8,870 shares at
cost)
|
|
|
(1,217,400
|
)
|
|
|
1,217,400
|
(1)
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Additional
Paid-in-capital
|
|
|
15,246,282
|
|
|
|
(450,914
|
)(1)
|
|
|
(8,602,585
|
)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35,000
|
)(9)
|
|
|
|
|
|
|
6,157,783
|
|
|
|
467,700
|
(10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
552,646
|
(12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
454,417
|
(12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(517,983
|
)(14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,602,585
|
(13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,159,780
|
(11)
|
|
|
21,876,928
|
|
Retained
Earnings (Deficit)
|
|
|
(5,910,700
|
)
|
|
|
(10,928
|
)
|
|
|
|
|
|
|
(5,921,628
|
)
|
|
|
(489,650
|
)(10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(159,781
|
)(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
489,650
|
(14)
|
|
|
(6,081,409
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Optex Systems, Inc. Stockholders' Equity
|
|
|
8,283,016
|
|
|
|
640,724
|
|
|
|
(8,602,585
|
)
|
|
|
321,155
|
|
|
|
(1,950
|
)
|
|
|
15,617,780
|
|
|
|
15,936,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
Controlling Interest
|
|
|
|
|
|
|
|
|
|
|
1,500,000
|
(3)
|
|
|
1,500,000
|
|
|
|
|
|
|
|
(1,500,000
|
)(13)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Equity
|
|
|
18,967,107
|
|
|
|
-
|
|
|
|
1,012,058
|
|
|
|
19,979,165
|
|
|
|
-
|
|
|
|
(78,113
|
)
|
|
|
19,901,052
|
|
See
accompanying notes to pro forma financial statements
2008
Annual Income Statement 1
Optex
Systems, Inc.
Pro
Forma Statements of Operations (Unaudited)
Year
Ended September 28, 2008
|
|
Optex
-
Texas
|
|
|
Pro
forma
Adjustments
|
|
|
Proforma
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
20,017,209
|
|
|
|
|
|
|
20,017,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Cost of Sales
|
|
|
18,145,211
|
|
|
|
1,327,346
|
(4)
|
|
|
19,472,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Margin
|
|
|
1,871,998
|
|
|
|
(1,327,346
|
)
|
|
|
544,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and Wages
|
|
|
910,854
|
|
|
|
|
|
|
|
910,854
|
|
Employee
Benefits
|
|
|
190,489
|
|
|
|
|
|
|
|
190,489
|
|
Employee
Stock Bonus Plan
|
|
|
378,716
|
|
|
|
(378,716
|
)(7)
|
|
|
-
|
|
Amortization
of Intangible
|
|
|
223,491
|
|
|
|
|
|
|
|
223,491
|
|
Rent,
Utilities and Building Maintenance
|
|
|
228,694
|
|
|
|
|
|
|
|
228,694
|
|
Legal
and Accouting Fees
|
|
|
223,715
|
|
|
|
|
|
|
|
223,715
|
|
Consulting
and Contract Service Fees
|
|
|
325,723
|
|
|
|
|
|
|
|
325,723
|
|
Corporate
Allocations
|
|
|
2,076,184
|
|
|
|
(2,076,184
|
)(6)
|
|
|
-
|
|
Other
Expenses
|
|
|
381,459
|
|
|
|
147,483
|
(4)
|
|
|
528,942
|
|
Total
General and Administrative
|
|
|
4,939,325
|
|
|
|
(2,307,417
|
)
|
|
|
2,631,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(Loss) before Other Expenses and Taxes
|
|
|
(3,067,327
|
)
|
|
|
980,071
|
|
|
|
(2,087,256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
Impairment of Goodwill
|
|
|
1,586,416
|
|
|
|
|
|
|
|
1,586,416
|
|
Interest
(Income) Expense - Net
|
|
|
199,753
|
|
|
|
(200,000
|
)(5)
|
|
|
(247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other
|
|
|
1,786,169
|
|
|
|
(200,000
|
)
|
|
|
1,586,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) before Taxes
|
|
|
(4,853,496
|
)
|
|
|
1,180,071
|
|
|
|
(3,673,425
|
)
|
Federal
Income Tax Expense (Benefit)
|
|
|
(21,544
|
)
|
|
|
|
|
|
|
(21,544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss) After Taxes
|
|
|
(4,831,952
|
)
|
|
|
1,180,071
|
|
|
|
(3,651,881
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
preferred stock dividend
|
|
|
-
|
|
|
|
(369,720
|
)(15)
|
|
|
(369,720
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss applicable to common shareholders
|
|
|
(4,831,952
|
)
|
|
|
810,351
|
|
|
|
(4,021,601
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
$
|
(483.20
|
)
|
|
|
|
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Common Shares Outstanding
|
|
|
10,000
|
|
|
|
|
|
|
|
141,464,940
|
(16)
|
See
accompanying notes to pro forma financial statements
Qtr
1 Balance Sheets 1
Optex
Systems, Inc.
Proforma
Balance Sheets (Unaudited)
as
of Three months ended December 28, 2008
|
|
Optex-Texas
|
|
|
Sileas
Proforma
Adjustments
|
|
|
Subtotal
|
|
|
Sustut
Exploration,
Inc
|
|
|
Reorganization/share
exchange
(3/30/09)
|
|
|
Proforma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
497,152
|
|
|
|
|
|
|
497,152
|
|
|
|
|
|
|
933,945
|
(12)
|
|
|
1,431,097
|
|
Accounts
Receivable
|
|
|
2,124,827
|
|
|
|
|
|
|
2,124,827
|
|
|
|
|
|
|
|
|
|
|
2,124,827
|
|
Net
Inventory
|
|
|
5,848,508
|
|
|
|
|
|
|
5,848,508
|
|
|
|
|
|
|
|
|
|
|
5,848,508
|
|
Prepaid
Expenses
|
|
|
46,811
|
|
|
|
|
|
|
46,811
|
|
|
|
|
|
|
|
|
|
|
46,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
8,517,298
|
|
|
|
-
|
|
|
|
8,517,298
|
|
|
|
-
|
|
|
|
933,945
|
|
|
|
9,451,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment
|
|
|
1,339,636
|
|
|
|
|
|
|
|
1,339,636
|
|
|
|
|
|
|
|
|
|
|
|
1,339,636
|
|
Accumulated
Depreciation
|
|
|
(1,030,984
|
)
|
|
|
|
|
|
|
(1,030,984
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,030,984
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Property and Equipment
|
|
|
308,652
|
|
|
|
-
|
|
|
|
308,652
|
|
|
|
-
|
|
|
|
-
|
|
|
|
308,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
Deposits
|
|
|
20,684
|
|
|
|
|
|
|
|
20,684
|
|
|
|
|
|
|
|
|
|
|
|
20,684
|
|
Intangibles
|
|
|
3,518,992
|
|
|
|
|
|
|
|
3,518,992
|
|
|
|
|
|
|
|
|
|
|
|
3,518,992
|
|
Goodwill
|
|
|
7,110,415
|
|
|
|
1,012,058
|
(3)
|
|
|
8,122,473
|
|
|
|
|
|
|
|
(1,012,058
|
)(13)
|
|
|
7,110,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other Assets
|
|
|
10,650,091
|
|
|
|
1,012,058
|
|
|
|
11,662,149
|
|
|
|
-
|
|
|
|
(1,012,058
|
)
|
|
|
10,650,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
|
19,476,041
|
|
|
|
1,012,058
|
|
|
|
20,488,099
|
|
|
|
-
|
|
|
|
(78,113
|
)
|
|
|
20,409,986
|
|
See
accompanying notes to pro forma financial statements
Optex
Systems, Inc.
Proforma
Balance Sheets (Unaudited) - Continued
as
of Three months ended December 28, 2008
|
|
Optex-Texas
|
|
|
Sileas
Proforma
Adjustments
|
|
|
Subtotal
|
|
|
Sustut
Exploration
Inc.
|
|
|
Reorganization/share
exchange
(3/30/09)
|
|
|
Proforma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
|
1,964,795
|
|
|
|
|
|
|
1,964,795
|
|
|
|
1,950
|
(10)
|
|
|
|
|
|
1,966,745
|
|
Accrued
Expenses
|
|
|
1,044,075
|
|
|
|
|
|
|
1,044,075
|
|
|
|
|
|
|
|
65,000
|
(12)
|
|
|
1,109,075
|
|
Accrued
Warranties
|
|
|
256,397
|
|
|
|
|
|
|
256,397
|
|
|
|
|
|
|
|
|
|
|
|
256,397
|
|
Accrued
Contract Losses
|
|
|
743,319
|
|
|
|
|
|
|
743,319
|
|
|
|
|
|
|
|
|
|
|
|
743,319
|
|
Loans
Payable
|
|
|
214,490
|
|
|
|
|
|
|
214,490
|
|
|
|
|
|
|
|
(146,250
|
)(12)
|
|
|
68,240
|
|
Interest
on Loans Payable
|
|
|
6,798
|
|
|
|
|
|
|
6,798
|
|
|
|
|
|
|
|
|
|
|
|
6,798
|
|
Income
Tax Payable
|
|
|
263,654
|
|
|
|
|
|
|
263,654
|
|
|
|
|
|
|
|
|
|
|
|
263,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
4,493,528
|
|
|
|
-
|
|
|
|
4,493,528
|
|
|
|
1,950
|
|
|
|
(81,250
|
)
|
|
|
4,414,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long
Term Debt - Longview Fund LP
|
|
|
5,409,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,409,762
|
)(11)
|
|
|
-
|
|
|
|
|
|
|
|
|
8,114,643
|
(3)
|
|
|
13,524,405
|
|
|
|
|
|
|
|
(8,114,643
|
)(13)
|
|
|
-
|
|
Long
Term Debt - Alpha Capital Anstalt
|
|
|
590,238
|
|
|
|
|
|
|
|
590,238
|
|
|
|
|
|
|
|
(590,238
|
)(11)
|
|
|
-
|
|
Accrued
Interest on Notes
|
|
|
76,000
|
|
|
|
|
|
|
|
76,000
|
|
|
|
|
|
|
|
83,781
|
(11)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(159,781
|
)
(11)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other Liabilities
|
|
|
6,076,000
|
|
|
|
8,114,643
|
|
|
|
14,190,643
|
|
|
|
-
|
|
|
|
(14,190,
643
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
10,569,528
|
|
|
|
8,114,643
|
|
|
|
18,684,171
|
|
|
|
1,950
|
|
|
|
(14,271,893
|
)
|
|
|
4,414,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Optex
Systems, Inc. Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sustut
- Preferred Stock (.001 par 5,000 authorized, 1027 series A
preferred issued issed and outstanding)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
(14)
|
|
|
1
|
|
Sustut
- Common Stock (.001 par 200,000,000 authorized, 19,999,991 shares issued
and outstanding)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
(10)
|
|
|
121,465
|
(14)
|
|
|
141,465
|
|
Preferred
Stock (.001 par 1,027 authorized, 1,027 shares issued and
outstanding)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
(11)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)(14)
|
|
|
-
|
|
Optex
Systems, Inc. Deleware - Common Stock (par $0.001, 300,000,000 authorized,
85,000,000 shares issued and outstanding)
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
35,000
|
(9)
|
|
|
|
|
|
|
85,000
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,132
|
(12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(93,132
|
)(14)
|
|
|
|
|
Additional
Paid-in-capital
|
|
|
14,795,368
|
|
|
|
(8,602,585
|
)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
(35,000
|
)(9)
|
|
|
|
|
|
|
6,157,783
|
|
|
|
467,700
|
(10)
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
552,646
|
(12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
454,417
|
(12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(517,983
|
)(14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,602,585
|
(13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,159,780
|
(11)
|
|
|
21,876,928
|
|
Retained
Earnings (Deficit)
|
|
|
(5,938,855
|
)
|
|
|
|
|
|
|
(5,938,855
|
)
|
|
|
(489,650
|
)(10)
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(83,781
|
)(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
489,650
|
(14)
|
|
|
(6,022,636
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Optex Systems, Inc. Stockholders' Equity
|
|
|
8,906,513
|
|
|
|
(8,602,585
|
)
|
|
|
303,928
|
|
|
|
(1,950
|
)
|
|
|
15,693,780
|
|
|
|
15,995,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
Controlling Interest
|
|
|
|
|
|
|
1,500,000
|
(3)
|
|
|
1,500,000
|
|
|
|
|
|
|
|
(1,500,000
|
)(13)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Equity
|
|
|
19,476,041
|
|
|
|
1,012,058
|
|
|
|
20,488,099
|
|
|
|
-
|
|
|
|
(78,113
|
)
|
|
|
20,409,986
|
|
See
accompanying notes to pro forma financial statements
Qtr
1 Income Statements 1
Pro
Forma Statements of Operations (Unaudited)
Three
months ended December 28, 2008
|
|
Optex
-
Texas
|
|
|
Pro
forma
Adjustments
|
|
|
Proforma
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
7,264,084
|
|
|
|
|
|
|
7,264,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Cost of Sales
|
|
|
6,305,050
|
|
|
|
|
|
|
6,305,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Margin
|
|
|
959,034
|
|
|
|
-
|
|
|
|
959,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and Wages
|
|
|
158,876
|
|
|
|
|
|
|
|
158,876
|
|
Employee
Benefits
|
|
|
83,420
|
|
|
|
|
|
|
|
83,420
|
|
Employee
Stock Bonus Plan
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Amortization
of Intangible
|
|
|
101,158
|
|
|
|
|
|
|
|
101,158
|
|
Rent,
Utilities and Building Maintenance
|
|
|
55,332
|
|
|
|
|
|
|
|
55,332
|
|
Legal
and Accouting Fees
|
|
|
76,219
|
|
|
|
|
|
|
|
76,219
|
|
Consulting
and Contract Service Fees
|
|
|
79,323
|
|
|
|
|
|
|
|
79,323
|
|
Corporate
Allocations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
Expenses
|
|
|
77,345
|
|
|
|
|
|
|
|
77,345
|
|
Total
General and Administrative
|
|
|
631,673
|
|
|
|
-
|
|
|
|
631,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(Loss) before Other Expenses and Taxes
|
|
|
327,361
|
|
|
|
-
|
|
|
|
327,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income and Expense
|
|
|
(436
|
)
|
|
|
|
|
|
|
(436
|
)
|
Interest
(Income) Expense - Net
|
|
|
92,298
|
|
|
|
(85,500
|
)
(5)
|
|
|
6,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other
|
|
|
91,862
|
|
|
|
(85,500
|
)
|
|
|
6,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) before Taxes
|
|
|
235,499
|
|
|
|
85,500
|
|
|
|
320,999
|
|
Federal
Income Tax Expense (Benefit)
|
|
|
263,654
|
|
|
|
-
|
(8)
|
|
|
263,654
|
|
Net
Income (Loss) After Taxes
|
|
|
(28,155
|
)
|
|
|
85,500
|
|
|
|
57,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
preferred stock dividend
|
|
|
-
|
|
|
|
(92,430
|
)
(15)
|
|
|
(92,430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss applicable to common shareholders
|
|
|
(28,155
|
)
|
|
|
(6,930
|
)
|
|
|
(35,085
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
$
|
(2.82
|
)
|
|
|
|
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Common Shares Outstanding
|
|
|
10,000
|
|
|
|
|
|
|
|
141,464,940
|
(16)
|
See
accompanying notes to pro forma financial statements
(A.) BASIS
OF PRESENTATION
The
purchase method of accounting has been used in the preparation of the
accompanying unaudited pro forma condensed financial
statements. Under this method of accounting, the purchase
consideration is allocated to tangible and intangible assets acquired and
liabilities assumed based on their respective fair values. For
purposes of the unaudited pro forma condensed consolidated financial statements,
the fair values were established based on the final offering price at the public
auction held on October 14, 2008.
The fair
value of the ten percent (10%) non-controlling interest at the date of
acquisition by Sileas on February 20, 2009 is estimated to be approximately
$1,500,000. The fair value was derived by computing 10% of the value of the
company as a whole, based on the value of the consideration given by Sileas for
its ninety (90%) acquisition. The fair value of the Company as a whole was
established by the consideration of $15,000,000 given in the previous
transaction whereby Longview and Alpha Capital acquired the Company in a public
auction on October 14, 2008. Based on the stability of the nature of the
Company’s operations in the current marketplace, the fair value of the October
14, 2008 consideration was deemed to be representative of the current market
value
(
B.) CONSIDERATION
The aggregate consideration for the
transfer of the assets of Optex Texas via public sale on October 14, 2008
consisted of $15 million of debt issued by IRSN and held by Optex Delaware and
the assumption of approximately $3.8 million of Optex Texas liabilities by Optex
Delaware.
The
aggregate consideration for the subsequent acquisition of Longview Fund, LP’s
90% interest in Optex Delaware as of February 20, 2009 was fully funded by a
$
13,524,405 Note issued to
Longview Fund, LP by Sileas that bears annual interest of 4%. In
exchange for the Note,
Longview transferred 45,081,350 shares of Optex
common stock and the Optex Note, dated December 2, 2008, issued to
Longview in the principal amount of $5,409,762.
(C.) DETAILS OF THE PRO FORMA
ADJUSTMENTS RELATING TO THE LONGVIEW AND SILEAS ACQUISITONS ARE AS
FOLLOWS
:
1.
To record the acquisition of the net assets of Optex Systems, Inc. by Optex
Delaware on October 14, 2008 for $15,000,000 and the effects of the purchase on
asset, liability, and equity accounts for the assets transferred, notes and
common stock issued and impacts to goodwill.
The
purchase price consisted of:
As
of October 14, 2008
|
|
Notes
Payable
|
|
|
|
Longview
Fund, LP
|
|
$
|
5,409,762
|
|
Alpha
Capital Anstalt
|
|
$
|
590,238
|
|
Fair
Value of Common Stock Issued (50,000,000 shares at .001
par)
|
|
$
|
9,000,000
|
|
Total
|
|
$
|
15,000,000
|
|
The Optex
Delaware purchase was allocated as follows:
Assets:
|
|
|
|
Current
assets, consisting primarily of inventory of $5,383,929 and accounts
receivable of $1,404,434
|
|
$
|
7,330,910
|
|
Identifiable
intangible assets
|
|
|
4,036,789
|
|
Purchased
Goodwill
|
|
|
7,110,416
|
|
Other
non-current assets, principally property and equipment
|
|
|
343,898
|
|
|
|
|
|
|
Total
assets
|
|
|
18,822,013
|
|
Liabilities:
|
|
|
|
|
Current
liabilities, consisting of accounts payable of $1,953,833 and accrued
liabilities of $1,868,180
|
|
$
|
3,822,013
|
|
|
|
|
|
|
Acquired
net assets
|
|
$
|
15,000,000
|
|
Liabilities
not assumed by Optex Delaware as of the acquisition are summarized
below:
Optex
"Texas" Liabilities not assumed :
|
|
As
of October 14, 2008
|
|
|
|
|
|
Income
Tax Payable
|
|
$
|
4,425
|
|
Note
Payable - Tim Looney
|
|
|
2,000,000
|
|
Accrued
Interest on Looney Note
|
|
|
345,648
|
|
Intercompany
Payable
|
|
|
4,301,579
|
|
Total
Liabilities assumed by Irvine Sensors, Inc.
|
|
$
|
6,651,652
|
|
2. To
record the effect of evaluation of intangible assets as of October 14, 2008 for
the amortizable value as of the Optex Delaware acquisiton. The
unamortized balance of intangible assets as of September 28, 2008 and the
acquisition date was $
$
1,100,140. The amortizable intangible assets determined as a result of
the evaluation is $4,036,790. The resultant difference of $2,936,650
has been reflected as of the September 28, 2008 pro forma balance
sheet. The intangible assets acquired by Optex Delaware consist
primarily of customer and program backlog with an expected amortization period
of 5 years based on customer delivery schedules (contract backlog) and expected
benefit period (program backlog) of the acquired asset.
3. To
record the Sileas acquisition of 90% interest in Optex Delaware as of February
20, 2009.
Assets:
|
|
|
|
|
|
|
Current
assets, consisting primarily of inventory of $5,327,438 and accounts
receivable of $2,897,583
|
|
|
|
|
$
|
8,687,102
|
|
Identifiable
intangible assets
|
|
|
|
|
|
3,173,793
|
|
Purchased
Goodwill
|
|
|
|
|
|
7,110,415
|
|
Other
non-current assets, principally property and equipment
|
|
|
|
|
|
316,923
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
|
|
$
|
19,288,233
|
|
Liabilities:
|
|
|
|
|
|
|
|
Current
liabilities, consisting primarily of accounts payable of $2,068,653 and
accrued liabilities of $2,039,663
|
|
|
|
|
$
|
5,275,886
|
|
|
|
|
|
|
|
|
|
Acquired
net assets
|
|
|
|
|
$
|
14,012,347
|
|
|
|
|
|
|
|
|
|
Purchase
price
|
|
|
|
|
|
|
|
Total
consideration to seller (Sileas 90% interests)
|
|
$
|
13,524,405
|
|
|
|
|
|
Fair
Value minority interest under FAS 141R
|
|
|
1,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,024,405
|
|
|
|
|
|
|
|
|
|
|
Excess purchase price reported
as goodwill
|
|
|
|
|
|
$
|
1,012,058
|
|
The
purchase of 90% interest by Sileas was fully funded by a Note issued in the
amount of $13,524,405.
The
management believes the evaluation of intangible assets as of the October 14,
2008 acquisition by Optex Delaware to be a fair representation of the
acquired asset as of February 20, 2009 as there has been no substantial change
in customer or program backlog since the initial review. The
intangible balance of $3,173,793 represents the amount as of February 20, 2009,
net of accumulated amortization of $862,997 expensed through the Sileas
acquisition date.
4. To
record the total increased amortization expense of intangible assets of
$1,474,829 for the year ended September 28, 2008. This amount was
based on the new amortization schedule amount as determined for the Optex
Delaware acquisition of $2,071,194, less the $596,365 recorded for the
respective year. The amounts of $1,327,346 and $147,483 were
allocated between cost of sales and general and administrative expenses,
respectively. The intangible amortization is not deductible for
tax reporting purposes.
5. To
record the reduction in interest expense of $200,000 for year ended September
28, 2008 for the $2,000,000 Note to Tim Looney that was not assumed in the Optex
Delaware acquisition. To record the reduction in interest expense of
$85,500 for the three months ended December 28, 2008 for the Tim Looney Note
($9,500) and Alpha Capital and Longview Fund $6,000,000 Notes
($76,000).
6. To
record the reduction in general administrative expenses for the elimination of
IRSN corporate cost allocations of $2,076,184 for the year ended September 28,
2008.
7. To
record the reduction in employee stock bonus compensation for IRSN stock issues
made to Optex employees of $378,716 for year ended September 28,
2008.
8. To
record the federal income tax benefit of $29,925 for the interest expense
reduction during the three months ended December 28, 2008 based on an assumed
tax rate of thirty-five percent (35%) of net income before intangible
amortization. There are no federal income tax benefits for the year ended
September 28, 2008 as the company had a cumulative retained
deficit.
9.
To record the effect of the 1.7:1 Optex Delaware Stock split for the year ended
September 28, 2008 and three months ended December 28, 2008.
10. To
record Sustut Exploration Company audited financial statement balances for
December 31, 2008. The financials as presented reflect the Sustut
2.5:1 stock split and cancellation of 25,000,000 common stock shares as of March
30, 2009.
11. To
record the effect of the conversion of debt and associated accrued and unpaid
interest by Sileas and Alpha Capital Anstalt into 1,027 shares of series A
preferred stock
12. To
record the effect of the private placement on cash, loan payable and equity as
of September 28, 2008 and December 28, 2008.
13. To
remove the impact of the Sileas purchase on the Note Payable to Longview,
goodwill and non controlling interest from Optex Delaware as of September 28,
2008 and December 28, 2008. The Sileas ownership will have been
diluted to a percentage less than that under which push-down accounting applies,
and thus these amounts will be carried on the Sileas financial statements rather
than Optex Delaware.
14. To
record the reorganization/share exchange between Optex and Sustut at a 1.16: 1
ratio of Sustut common shares for each Optex common
share. Preferred shares are exchanged on a 1:1 ratio.
15. To
record effect of preferred stock dividend for year ended September 28, 2008 and
three months ended December 28, 2008.
16. To
reflect new capitalized shares outstanding after reorganization for year ended
September 28, 2008 and three months ended December 28, 2008.