As
filed with the Securities and Exchange Commission May 19,
2009
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Registration
Statement No. 333-
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UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
REGISTRATION
STATEMENT
ON
FORM S-1
UNDER
THE
SECURITIES ACT OF 1933
OPTEX
SYSTEMS HOLDINGS, INC.
(Exact
name of registrant as specified in its charter)
Delaware
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33-
143215
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3795
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(State
or other jurisdiction of
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(I.R.S.
Identification Number)
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(Primary
Standard Industrial
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incorporation
or organization)
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Classification
Code Number)
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1420
Presidential Drive
Richardson,
TX 75081-2439
Telephone
(972) 644-0472
(Address,
including zip code, and telephone number, including
area
code, of registrant’s principal executive offices)
Stanley
A. Hirschman
1420
Presidential Drive
Richardson,
TX 75081-2439
Telephone
(972) 644-0472
(Name,
address, including zip code, and telephone number,
including
area code, of agent for service)
Copies
to:
Jolie
G. Kahn, Esq..
61
Broadway
Suite
2820
New
York, NY 10006
Telephone
(212) 422-4910
Approximate Date of Commencement of
Proposed Sale to the Public:
At such time or times after the effective
date of this registration statement as the Selling Stockholders shall
determine.
If any of
the securities being registered on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box.
þ
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.
o
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering.
o
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering.
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer,” and “small
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer
o
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Accelerated
filer
o
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Non-accelerated
filer
o
(Do not check if
a smaller reporting company)
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Smaller
reporting company
x
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CALCULATION
OF REGISTRATION FEE
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Title
of
Each
Class
of
Securities
to
be
Registered
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Amount
to
be
Registered
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Proposed
Maximum
Offering
Price
per
Unit(1)
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Proposed
Maximum
Aggregate
Offering
Price
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Amount
of
Registration
Fee
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Common Stock, par value $0.0001 per
share
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16,263,334
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$
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$0.375
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$
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6,098,750
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$
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$1447.44
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(1)
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Estimated for the purpose of
determining the registration fee pursuant to Rule 457(c), based on the
average of the bid and asked price as of May 11,
2009.
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The
Registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act or until this registration statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
The
information in the prospectus is not complete and may be changed. The selling
stockholders may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell and is not soliciting an offer to buy these securities
in any jurisdiction where the offer or sale is not permitted.
Subject
to Completion, dated
May
19
,
2009
PROSPECTUS
OPTEX
SYSTEMS HOLDINGS, INC.
16,263,334
Shares of Common Stock
This
prospectus relates to the offer and sale of up 16,263,334
shares
of common stock of Optex Systems Holdings, Inc., a Delaware corporation, issued
to certain selling shareholders identified on p. 3 of this Prospectus pursuant
to subscription agreements between the selling shareholders and Optex Systems,
Inc., a subsidiary of Optex Systems Holdings, Inc. and that may be offered
and sold from time to time by the Selling Shareholders.
Unless
otherwise noted, the terms “the Company,” “our Company,” “Optex,” “we,” “us” and
“our” refer to Optex Systems Holdings, Inc. and its subsidiaries.
The
Selling Stockholders may offer their shares from time to time directly or
through one or more underwriters, broker-dealers or agents, in the
over-the-counter market at market prices prevailing at the time of sale, in one
or more negotiated transactions at prices acceptable to the Selling
Stockholders, or otherwise.
We will
not receive any proceeds from the sale of shares by the Selling Stockholders. In
connection with any sales of the common stock offered hereunder, the Selling
Stockholders, any underwriters, agents, brokers or dealers participating in such
sales may be deemed to be “underwriters” within the meaning of the Securities
Act of 1933, as amended (the “Securities Act”).
We will
pay the expenses related to the registration of the shares covered by this
prospectus. The Selling Stockholders will pay any commissions and selling
expenses they may incur.
On May 1,
2009, our common stock received a symbol change from FINRA and now trades on the
Over the Counter Bulletin Board (the “OTCBB”) under the symbol “OPXS.OB”.
The closing sale price on the OTC Bulletin Board on May 11, 2009, was $0.30
per share.
Investing
in the common stock offered by this prospectus is speculative and involves a
high degree of risk. See “Risk Factors” beginning on page 3.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
The date
of this prospectus is May
__
, 2009
TABLE
OF CONTENTS
PROSPECTUS
SUMMARY
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2
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RISK
FACTORS
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3
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USE
OF PROCEEDS
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7
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MARKET
FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
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7
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
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8
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BUSINESS
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15
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LEGAL
PROCEEDINGS
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22
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MANAGEMENT
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22
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EXECUTIVE
COMPENSATION
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25
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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26
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CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
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28
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THE
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
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29
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DESCRIPTION
OF SECURITIES
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32
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LEGAL
MATTERS
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34
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EXPERTS
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34
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WHERE
YOU CAN FIND MORE INFORMATION
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34
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OPTEX
SYTEMS HOLDINGS, INC. CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS AS OF MARCH 29, 2009 AND MARCH 30, 2008
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F-1
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OPTEX SYTEMS INC.
AND INDEX TO
FINANCIAL
STATEMENTS AS OF SEPTEMBER 28, 2008 AND SEPTEMBER 30,
2007
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F-19
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REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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F-20
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OTHER
EXPENSES
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35
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INDEMNIFICATION OF
OFFICERS AND DIRECTORS
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35
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RECENT
SALES OF UNREGISTERED SECURITIES
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35
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EXHIBITS
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37
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UNDERTAKINGS
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37
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SIGNATURES
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39
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ABOUT
THIS PROSPECTUS
This
prospectus is part of a registration statement that we filed with the Securities
and Exchange Commission (the “Commission”) using the Commission’s registration
rules for a delayed or continuous offering and sale of securities. Under the
registration rules, using this prospectus and, if required, one or more
prospectus supplements, the Selling Stockholders named herein may distribute the
shares of common stock covered by this prospectus. This prospectus also covers
any shares of common stock that may become issuable as a result of stock splits,
stock dividends or similar transactions.
A
prospectus supplement may add, update or change information contained in this
prospectus. We recommend that you read carefully this entire prospectus,
especially the section entitled “Risk Factors” beginning on page 3, and any
supplements before making a decision to invest in our common stock.
PROSPECTUS
SUMMARY
This
summary highlights important information about this offering and our business.
It does not include all information you should consider before investing in our
common stock. Please review this prospectus in its entirety, including the risk
factors and our financial statements and the related notes, before you decide to
invest.
Our
Company
On March
30, 2009, Optex Systems Holdings, Inc., (formerly known as Sustut Exploration,
Inc.) , a Delaware corporation (the “Company” or “Optex Systems”), along with
Optex Systems, Inc., a privately held Delaware corporation which is the
Company’s wholly-owned subsidiary (“Reorganization Sub”), entered into a
Reorganization Agreement and Plan of Reorganization (the “Reorganization
Agreement”), pursuant to which Optex Systems, Inc. was acquired by the Company
in a share exchange transaction. Optex Systems Holdings, Inc. became the
surviving corporation (the “Reorganization”). At the closing, the Company
changed its name from Sustut Exploration Inc. to Optex Systems Holdings, Inc.
and its year end from December 31 to a fiscal year ending on the Sunday nearest
September 30.In addition, 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 were 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 after stock issuance costs of $59,416 were
$874,529. The finder also received five year warrants to purchase 2.7
Units, at an exercise price of $49,500 per unit.
Our
Business
Optex,
which was founded in 1987, is a Richardson, Texas – based ISO 9001:2008
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 Stryker family of
vehicles. Optex also manufactures and delivers numerous periscope
configurations, rifle and surveillance sights and night vision optical
assemblies.
The Company’s
products consist primarily of build-to-customer print products that are
delivered both directly to the armed services and to other defense prime
contractors.
The
Offering
Common
stock offered by the Selling Stockholders:
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16,263,334
shares of common stock, par value $0.0001 per share.
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Offering
prices:
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The
shares offered by this prospectus may be offered and sold at prevailing
market prices or such other prices as the Selling Stockholders may
determine.
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Common
stock outstanding:
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141,464,940 shares
as of May 12, 2009.
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Dividend
policy:
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Dividends
on our common stock may be declared and paid when and as determined by our
board of directors. We have not paid and do not expect to pay dividends on
our common stock.
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OTCBB
symbol:
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OPXS.OB
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Use
of proceeds:
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We
are not selling any of the shares of common stock being offered by this
prospectus and will receive no proceeds from the sale of the shares by the
Selling Stockholders. All of the proceeds from the sale of common stock
offered by this prospectus will go to the Selling Stockholders at the time
they sell their shares.
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Risk
Factors
See “Risk
Factors” beginning on page 3 for a discussion of factors you should
carefully consider before deciding to invest in our common stock.
Our
Address
Our
principal executive offices are located at 1420 Presidential Drive, Richardson,
TX 75081-2439.
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 Form 10-Q, 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:
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our ability to repay our existing
debt;
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our ability to fulfill
backlog;
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our ability to procure additional
production contracts;
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our ability to control
costs;
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the timing of payments and
reimbursements from government and other
contracts;
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increased sales and marketing
expenses;
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technological advancements and
competitors’ response to our
products;
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capital improvements to new and
existing facilities;
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our relationships with customers
and suppliers; and
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general economic conditions
including the effects of future economic slowdowns, acts of war or
terrorism and the current international
conflicts.
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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 to expand our 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 the
Company’s three officers (one of whom is also one of the Company’s three
directors), 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:
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electing or defeating the
election of directors;
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amending or preventing amendment
of the Company’s certificate of incorporation or
bylaws;
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effecting or preventing a
Reorganization, sale of assets or other corporate transaction; and
controlling the outcome of any other matter submitted to the stockholders
for vote.
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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 2010 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:
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technological innovations or new
products and services by the Company or its
competitors;
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additions or departures of key
personnel;
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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;
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the Company’s ability to execute
its business plan;
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operating results that fall below
expectations;
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loss of any strategic
relationship;
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economic and other external
factors; and
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period-to-period fluctuations in
the Company’s financial
results.
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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 OPXS.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 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.
USE
OF PROCEEDS
We are
not selling any of the shares of common stock being offered by this prospectus
and will receive no proceeds from the sale of the shares by the Selling
Stockholders. All of the proceeds from the sale of common stock offered by this
prospectus will go to the Selling Stockholders at the time it offers and sells
such shares.
MARKET
FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market
Information
Effective
with the start of trading on May1, 2009, our stock received a ticker symbol
change from “SSTX” to “OPXS” from FINRA and commenced trading under the new
symbol on the OTC Bulletin Board. Trading in our stock has
historically been sporadic, trading volumes have been low, and the market price
has been volatile.
The
following table shows the range of high and low bid prices for our common stock
as reported by the OTC Bulletin Board, as the case may be, for each quarter
since the beginning of 2007. The quotations reflect inter-dealer prices, without
retail markup, markdown or commission and may not represent actual
transactions.
Period
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
First
Quarter 2007
|
|
$
|
.08
|
|
|
$
|
.08
|
|
|
|
|
|
|
|
|
|
|
Second
Quarter 2007
|
|
$
|
.08
|
|
|
$
|
.08
|
|
|
|
|
|
|
|
|
|
|
Third
Quarter 2007
|
|
$
|
.08
|
|
|
$
|
.08
|
|
|
|
|
|
|
|
|
|
|
Fourth
Quarter 2007
|
|
$
|
.08
|
|
|
$
|
.08
|
|
|
|
|
|
|
|
|
|
|
First
Quarter 2008
|
|
$
|
.08
|
|
|
$
|
.08
|
|
|
|
|
|
|
|
|
|
|
Second
Quarter 2008
|
|
$
|
.08
|
|
|
$
|
.12
|
|
|
|
|
|
|
|
|
|
|
Third
Quarter 2008
|
|
$
|
.12
|
|
|
$
|
.12
|
|
|
|
|
|
|
|
|
|
|
Fourth
Quarter 2008
|
|
$
|
.12
|
|
|
$
|
.12
|
|
|
|
|
|
|
|
|
|
|
First
Quarter 2009
|
|
$
|
.12
|
|
|
$
|
.12
|
|
On
May
11
, 2009
, the
sale price for our common stock as reported on the OTCBB was $.30 per
share.
Securities
outstanding and holders of record
On May
11, 2009 there were approximately 99 record holders of our common stock and
141,464,940 shares of our Common Stock issued and
outstanding.
Dividend
Policy
We have
not paid and do not expect to pay dividends on our common stock. Any future
decision to pay dividends on our common stock will be at the discretion of our
board and will depend upon, among other factors, our results of operations,
financial condition, capital requirements and contractual
restrictions.
Information
respecting equity compensation plans
Summary Equity Compensation
Plan Information
The
Company had no equity compensation plans as of September 30, 2008 and
adopted its 2009 Stock Option Plan on March 26, 2009. See Equity Plan
Compensation Information on p. 26.
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.
Background
On March
30, 2009, a reorganization/share exchange (“Reorganization”) occurred whereby
the then existing shareholders of Optex Systems (Delaware) exchanged their
shares of Common Stock with the shares of Common Stock of Optex Systems
Holdings, Inc. (formerly Sustut Exploration, Inc.) (the “Company”) as
follows: (i) the outstanding 85,000,000 shares of Optex Systems
(Delaware) Common Stock were exchanged by the Company for 113,333,282
shares of Company Common Stock, (ii) the outstanding 1,027 shares of Optex
Systems (Delaware) Series A Preferred Stock be exchanged by the Company for
1,027 shares of Company Series A Preferred Stock and such additional items as
more fully described in the Agreement and (iii) the 8,131,667 shares of Optex
Systems (Delaware) Common Stock purchased in the private placement were
exchanged by the Company for 8,131,667 shares of Company Common
Stock. Optex Systems (Delaware) shall remain a wholly-owned
subsidiary of the Company.
As a
result of the Reorganization, the Company changed its name to from Sustut
Exploration Inc. to Optex Systems Holdings, Inc. and its year end from December
31 to a fiscal year ending on the Sunday nearest September 30. This
change in year end resulted in a change in quarter end from March 31, 2009 to
March 29, 2009.
Simultaneously
with the closing under the Reorganization Agreement (and the shares 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 indebtedness owed to an investor of $146,250,
net proceeds after stock issuance costs of $59,416 were $874,529. 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 9001:2008 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 Stryker family of vehicles. 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
armed
services and to other
defense
prime contractors.
Optex
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.
Plan
of Operation
Through a
private placement offering completed in conjunction with closing under the
Reorganization Agreement, the Company has raised $1,219,750 ($874,529, net of
finders fees, stock issuance costs 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
|
|
Investor
Relations Fees
|
|
|
96,000
|
|
Working
Capital
|
|
$
|
528,529
|
|
|
|
|
|
|
Totals:
|
|
$
|
874,529
|
|
Results
of Operations
Three
Months Ended March 29, 2009 Compared to the Three Months Ended March 30,
2008
Revenues.
During
the three months ended March 29, 2009, we recorded revenues of $6.7 million, as
compared to revenue for the three months ended March 30, 2008 of $5.6 million,
an increase of $1.1 million or 19.6%. 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 March 29, 2009, we recorded cost of goods
sold of $6.2 million as opposed to $5.0 million during the quarter ended March
30, 2008, an increase of $1.2 million or 24.0%. 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, in addition to
increased intangible amortization resulting from the Optex Systems, Inc. –
Delaware acquisition from Irvine Sensors on October 14, 2008. The
gross margin during the quarter ended March 29, 2009 is 8.3% of revenues as
compared to a gross margin of 10.7% for the quarter ended March 30,
2008. While product gross margins substantially improved to
13.6% for the quarter ended March 29, 2009 versus 10.7% for the quarter ended
March 30, 2008 due to changes in revenue mix combined with significant labor
cost efficiency improvements, this margin increase was offset by the
amortization of intangible expenses related to the acquisition of Optex from
Irvine Sensors that were allocated to cost of goods sold of $0.4 million, or
5.3% of revenues, in the quarter ended March 29, 2009 , resulting in an overall
gross margin of 8.3% for the quarter ending March 29, 2009.
G&A Expenses
. During the
three months ended March 29, 2009, we recorded operating expenses of $ 0.7
million as opposed to $1.2 million during the three months ended March 30, 2008,
a decrease of $0.5 million or 41.7%. This decrease in G&A
expenses was primarily due to the elimination of Corporate Cost allocations from
Irvine Sensors of $0.5 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 March
30, 2008. These cost reductions were partially offset by increased
costs in legal and accounting fees for Optex Systems as a stand-alone entity
from Irvine Sensors.
Loss Before Other Expenses and
Taxes.
During the three months ended March 29, 2009, we recorded a loss
of $(0.1) million as opposed to $(0.6) million during the three months ended
March 30, 2008 a decrease of $0.5 million or 83.3%. This reduced loss
before other expenses and taxes was primarily due to increased sales revenue in
the three months ended March 29, 2009 combined with reductions in general and
administrative expenses driven by the elimination of Irvine Sensors corporate
costs pushed down to Optex in the three months ended March 30,
2008.
Net Loss
. During
the three months ended March 29, 2009, we recorded a net loss of $(0.33)
million, as compared to $(0.68) million for three months ended March 30, 2008, a
decrease of $0.35 million or 51.5%. This decrease in net loss was
principally the result of a reduction in operating expenses related to costs
pushed down from Irvine Sensors in the three months ended March 30, 2008
combined with increased revenue in three months ended March 29,
2009. Additionally, in the three months ended March 29, 2009 Optex
incurred $0.5 million in total intangible expenses, representing an increase of
$0.4 million over the three months ended March 30, 2008. The
increased intangible expenses relate to the acquisition of Optex from Irvine
Sensors. Federal Income Taxes expense increased by $0.1 million in
the three months ended March 29, 2009 as a result of increased profit before
intangible expense (which is excluded for income tax purposes), over the prior
year quarter. In 2008, there was no Federal Income Tax expense due to
the accumulated retained deficit position. Excluding the impact of the increased
intangible expenses of $0.4 million, we would have recorded net income of $0.07
million for the three months ended March 29, 2009.
Six
Months Ended March 29, 2009 Compared to the Six Months Ended March 30,
2008
Revenues.
During
the six months ended March 29, 2009, we recorded revenues of $14.0 million, as
compared to revenue for the six months ended March 30, 2008 of $10.0 million, an
increase of $4.0 million or 40.0%. 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 six months ended March 29, 2009, we recorded cost of
goods sold of $12.5 million as opposed to $8.9 million during the six months
ended March 30, 2008, an increase of $3.6 million or 40.4%. 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,
in addition to increased intangible amortization resulting from the Optex
Systems, Inc. – Delaware acquisition from Irvine Sensors on October 14,
2008. The gross margin during the six months ended March 29, 2009 is
10.8% of revenues as compared to a gross margin of 11.7% for the six months
ended March 30, 2008. While product gross margins substantially improved
to 14.9% for the six months ended March 29, 2009 versus 11.7% for the six months
ended March 30, 2008 due to changes in revenue mix combined with significant
labor cost efficiency improvements, this margin increase was offset by the
amortization of intangible expenses related to the acquisition of Optex-Texas
from Irvine Sensors that were allocated to cost of goods sold of $0.6 million,
or 4.1% of revenues, in the six months ended March 29, 2009, and resulted
in an overall gross margin of 10.8% for the six months ended March 29,
2009.
G&A Expenses
. During the
six months ended March 29, 2009, we recorded operating expenses of $ 1.3 million
as opposed to $2.5 million during the six months ended March 30, 2008, a
decrease of $1.2 million or 48.0%. This decrease in G&A expenses
was primarily due to the elimination of Corporate Cost allocations from Irvine
Sensors of $0.9 million, the Irvine Sensors, Employee Stock Bonus Plan (ESBP) of
$0.2 million and further reductions in consulting and travel expenses previously
charged to Optex by Irvine Sensors in the six months ended March 30,
2008. These cost reductions were partially offset by increased legal
and accounting fees for Optex Systems as a stand-alone entity from Irvine
Sensors.
Earnings Before Other Expenses and
Taxes.
During the six months ended March 29, 2009, we recorded earnings
of $0.2 million as opposed to a loss of $(1.3) million during the six months
ended March 30, 2008, an increase of 1.5 million or 115.4%. This
increase in earnings before other expenses and taxes was primarily due to
increased sales revenue in the six months ended March 29, 2009 combined with
reduced general and administrative expenses driven by the elimination of Irvine
Sensors corporate costs pushed down to Optex in the six months ended March 30,
2008.
Net Loss
. During
the six months ended March 29, 2009, we recorded a net loss of $(0.4) million,
as compared to $(1.4) million for six months ended March 30, 2008, a decrease of
$1.0 million or 71.4%. This decrease in net loss was principally the
result of reduced operating expenses related to costs pushed down from Irvine
Sensors in the six months ended March 30, 2008 combined with increased revenue
in six months ended March 29, 2009. Additionally, in the six months
ended March 29, 2009 Optex incurred $1.0 million in intangible expenses,
representing an increase of $0.7 million over the six months ended March 30,
2008. The increased intangible expenses relate to the acquisition of
Optex from Irvine Sensors. Federal Income Taxes expense increased by
$0.4 million in the six months ended March 29, 2009 as a result of increased
profit before intangible expense (which is excluded for income tax purposes),
over prior year. In 2008, there was no Federal Income Tax expense due
to the accumulated retained deficit position. Excluding the impact of the
increased intangible expenses of $0.7 million, we would have recorded net income
of $0.3 million for the six months ended March 29, 2009.
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 upon our
current working capital position and potential for expanded business revenues,
we believe that our working capital is sufficient to fund our current operations
for the next 12 months. However, based on our strategy and the
anticipated growth in our business, we believe that our liquidity needs may
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. If our liquidity needs do increase, we believe additional
capital resources would be derived from a variety of sources including, but not
limited to, cash flow from operations, further private placement of our common
stock and/or incurrence of indebtedness.
For
the six months ended March 29, 2009
Cash and Cash Equivalents.
As of March 29, 2009, we had cash and cash equivalents of $1.2
million, as compared to cash and cash equivalents of $0.2 million as of
September 28, 2008. The increase in cash and cash equivalents was
primarily due to the net proceeds received by us in the private placement
combined with accelerated collections on government contracts as a result of
discounted payment terms.
Net Cash Used in Operating
Activities.
Net cash provided in operating activities totaled $0.4
million for the six months ended March 31, 2009, as compared to $0.3 million
used for the six months ended March 30, 2008.
Net Cash Used in Investing
Activities.
Net cash used in investing activities totaled $0.03 million
during the six months ended March 29, 2009, as compared to net cash used in
investing activities of $0.10 million during the six months ended March 30,
2008.
Net Cash Provided By Financing
Activities.
Net cash provided by financing activities totaled $0.6
million during the six months ended March 29, 2009, as compared to zero during
the six months ended March 30, 2008. The change of $0.6 million is
due to receipt of the private placement funds of $0.87 million offset by funds
used to repay outstanding loans of $(0.23) million.
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
Principles
of Consolidation: The consolidated financial statements include the accounts of
Optex Systems Holdings, Inc. and its wholly-owned subsidiary, Optex Systems,
Inc. (Delaware). All significant inter-company balances and transactions have
been eliminated in consolidation.
The
accompanying financial statements include the historical accounts of Optex
Systems, Inc. (Delaware). As a result of the October 14, 2008 transaction, the
accompanying financial statements also include the historical accounts of Optex
Systems, Inc. (Texas).
Although,
Optex Systems, Inc. (Texas) 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 Optex Systems, Inc. (Texas) accounts 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, 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 consolidated financial statements
presented as of the period ended March 29, 2009 include the equity transactions
of the Reorganization Agreement executed March 30, 2009, which precipitated the
change in year
end.
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 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.
T
he 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 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 December 31,
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.
Cautionary
Factors That May Affect Future Results
This
Registration Statement on Form S-1 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.
BUSINESS
Background
On March
30, 2009, a closing (“Reorganization”) 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 were
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 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 9001:2008
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 Stryker family of
vehicles. Optex also manufactures and delivers numerous periscope
configurations, rifle and surveillance sights and night vision optical
assemblies.
The
Company’s products consist primarily of build-to-customer print products
that are delivered both directly to the armed services and to other
defense prime contractors.
Optex
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.
Organizational
History
Optex
Systems, Inc., which was founded in 1987, is an ISO 9001:2008 certified concern
that 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 (one of whom is also one of the
Company’s three directors). See “Background” directly above this
subsection for a discussion of the Reorganization which closed on March 30,
2009.
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
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:
|
·
|
Electronic sighting
systems
|
|
·
|
Mechanical sighting
systems
|
|
·
|
Laser protected glass
periscopes
|
|
·
|
Laser protected plastic
periscopes
|
|
·
|
Non-laser protected plastic
periscopes
|
|
·
|
Howitzer sighting
systems
|
|
·
|
Replacement optics (e.g. filters,
mirrors)
|
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:
|
·
|
Reliability – failure can cost
lives
|
|
·
|
Ability to deliver on
schedule
|
|
·
|
Armed forces need to be able to
see to perform
|
|
·
|
Mission critical
products.
|
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.
|
·
|
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.
|
|
·
|
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.
|
|
·
|
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.
|
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 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:
|
1)
|
Take Existing Products into the
applications of New
Customers.
|
|
2)
|
Take New Products into our
Existing Customers.
|
|
3)
|
Expand the Portfolio by
developing New Products for New
Customers.
|
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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-
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Weekly Cycle Counts on Inventory
Items
|
|
-
|
Weekly Material Review Board
Meeting on non-moving piece
parts
|
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Kanban kitting on products with
consistent weekly ship
quantities
|
|
-
|
Daily review of Yields and
Product Velocity
|
|
-
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Bill of Material Reviews prior to
Work Order Release
|
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 pursue mergers
of strategic competitors since 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 being a public company 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.
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 he 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 he furnish the Company with a letter addressed to the
Securities and Exchange Commission stating whether he agrees with the statements
made by the Company, and, if not, stating the respects in which he does not
agree. A copy of his letter is filed as Exhibit 16 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.
Forward-Looking
Statements
This
Registration Statement on Form S-1 contains forward-looking statements. To the
extent that any statements made in this Registration Statement on Form S-1
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.
LEGAL
PROCEEDINGS
The
Company is not a party to any pending material legal proceeding. To the
knowledge of management, no federal, state or local governmental agency is
presently contemplating any proceeding against the Company. To the knowledge of
management, no director, executive officer or affiliate of the Company, any
owner of record or beneficially of more than 5% of the Company's common stock is
a party adverse to the Company or has a material interest adverse to the Company
in any proceeding.
MANAGEMENT
Our board
of directors directs the management of the business and affairs of our company
as provided in our certificate of incorporation, our by-laws and the General
Corporation Law of Delaware. Members of our board of directors keep informed
about our business through discussions with senior management, by reviewing
analyses and reports sent to them, and by participating in board and committee
meetings.
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
|
|
43
|
|
Chairman
of the Board
|
|
|
|
|
|
Danny
Schoening
|
|
44
|
|
Chief
Operating Officer
|
|
|
|
|
|
Karen
Hawkins
|
|
44
|
|
Vice
President of
Finance
and Controller
|
Stanley A.
Hirschman
. Stan Hirschman is President of CPointe Associates, Inc.,
a Plano, Texas management consulting firm. He is a President of Sileas Corp and
a director of South Texas Oil, Datascension 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
stockholder 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. Mr. Hirschman 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 5 meetings during the
6 months ended March 31, 2009.
Corporate
Governance
Our board
of directors believes that sound governance practices and policies provide an
important framework to assist them in fulfilling their duty to stockholders. As
we grow, our board of directors will work to adopt and implement many “best
practices” in the area of corporate governance, including separate committees
for the areas of audit and compensation, careful annual review of the
independence of our Audit and Compensation Committee members, maintenance of a
majority of independent directors, and written expectations of management and
directors, among other things.
Code
of Business Conduct and Ethics
Our board
of directors has adopted a Financial Code of Ethics which has been distributed
to all directors, and executive officers, and will be distributed to employees
and will be given to new employees at the time of hire. The Financial Code of
Ethics contains a number of provisions that apply principally to our CEO, Chief
Financial Officer and other key
accounting
and financial personnel. A copy of our Code of Business Conduct and Ethics can
be found under the “Investor Information” section of our website at
www.optexsys.com. We intend to disclose any amendments or waivers of our Code on
our website at www.optexsys.com.
Communications
with the Board of Directors
Stockholders
and other parties who are interested in communicating with members of our board
of directors, either individually or as a group may do so by writing to Ronald
F. Richards, Chairman, 1420 Presidential Drive, Richardson, TX
75081-2439. Mr. Richards will review all correspondence and forward
to the appropriate members of the board of directors copies of all
correspondence that, in the opinion of Mr. Richards, deals with the functions of
the board of directors or its committees or that he otherwise determines
requires their attention. Concerns relating to accounting, internal controls or
auditing matters should be immediately brought to the attention of our Audit
Committee and will be handled in accordance with procedures established by that
committee.
Director
Independence
Our board
of directors has determined that one of our directors, Ronald Richards, would
meet the independence requirements of the American Stock Exchange if such
standards applied to the Company. Mr. Hirschman, is the majority
owner of Sileas Corp., which is our major shareholder.
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.
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.
We have no nominating
committee and do not plan to establish one.
– Given the relatively
small size of our board of directors and the desire to involve the entire board
of directors in nominating decisions, we have elected not to have a separate
nominating committee, and the entire board of directors currently serves that
function. With respect to director nominees, our board of directors will
consider nominees recommended by stockholders that are submitted in accordance
with our By-Laws. The process for receiving and evaluating director nominations
from stockholders is described below. We do not have any specific minimum
qualifications that our board believes must be met by a board recommended
nominee for a position on our board of directors or any specific qualities or
skills that our board believes are necessary for one or more of our directors to
possess. We also do not have a specific process for identifying and evaluating
nominees for director, including nominees recommended by security holders. The
board has not paid fees to any third party to identify or evaluate potential
board nominees.
Director
Compensation
The
Company has paid its directors the following separate compensation in
respect of their services on the board through May 2009: Stanley
Hirschman - $15,000 and Ronald Richards - $60,000.
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. The insurance also insures us against losses which we may
incur in indemnifying our officers and directors. In addition, in the
near future, we will enter 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.
EXECUTIVE
COMPENSATION
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 VP
Finance/Controller (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 Sensors Common 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 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.
Nonqualified
deferred compensation
We had no
non-qualified deferred compensation plans during year ended
September.
Post-Termination
Compensation
We have
not entered into change in control agreements with any of our named executive
officers or other members of the executive management team. No awards of equity
incentives under our 2009 Stock Option Plan provide for immediate vesting upon a
change in control. However, our Board of Directors has the full and exclusive
power to interpret the plans, including the power to accelerate the vesting of
outstanding, unvested awards. A “change in control” is generally
defined as (1) the acquisition by any person of 30% or more of the combined
voting power of our outstanding securities or (2) the occurrence of a
transaction requiring stockholder approval and involving the sale of all or
substantially all of our assets or the merger of us with or into another
corporation.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
On May
11, 2009, we had 141,464,940 shares of common stock, and 1,027
shares of Series A
Preferred Stock issued and outstanding. The following table sets forth certain
information with respect to the beneficial ownership of our securities as of May
11, 2009, for (i) each of our directors and executive officers; (ii) all of our
directors and executive officers as a group; and (iii) each person who we know
beneficially owns more than 5% of our common stock.
Beneficial
ownership data in the table has been calculated based on Securities and Exchange
Commission (the “Commission”) rules that require us to identify all securities
that are exercisable for or convertible into shares of our common stock within
60 days of May 11, 2009
and treat the underlying
stock as outstanding for the purpose of computing the percentage of ownership of
the holder.
Except as
indicated by the footnotes following the table, and subject to applicable
community property laws, each person identified in the table possesses sole
voting and investment power with respect to all capital stock held by that
person. The address of each named executive officer and director, unless
indicated otherwise by footnote, is c/o the Company’s corporate
headquarters.
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.
|
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Acquisition
of Assets of Optex Texas by Optex Delaware 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, as
discussed below, in exchange for a $6 million note payable from Optex Delaware
and a $9 million equity interest in Optex Delaware Longview and Alpha, which
were secured creditors of IRSN, owned Optex Delaware until February 20,
2009, when Longview sold 100% of its interest in Optex Delaware to Sileas Corp,
as discussed below.
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. The
Company’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.
Secured
Promissory Note Issued in connection with Purchase by Optex
Delaware
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
(pre-split and pre-Reorganization price). 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 February 20, 2009, Longview transferred
its Note to Sileas Corp. (see below). On March 27, 2009, Sileas and Alpha
exchanged their Notes plus accrued and unpaid interest for 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 and debt 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 recorded 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.
Secured Promissory Note Due February
20, 2012/Longview Fund, LP
-
As a
result of the transaction described above between Sileas and Longview Fund, LP
on February 20, 2009 (the “Issue Date”), Sileas, the new majority owner of Optex
Systems, executed and delivered to Longview Fund 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 Reorganization 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 and also by a lien on all of the
assets of Sileas.
Reorganization/Share
Exchange
On March
30, 2009, a reorganization/share exchange (“Reorganization”) occurred whereby
the then existing shareholders of Optex Systems (Delaware) exchanged their
shares of Common Stock with the shares of Common Stock of Optex Systems
Holdings, Inc. (formerly Sustut Exploration, Inc.) (the “Company”) as
follows: (i) the outstanding 85,000,000 shares of Optex Systems
(Delaware) Common Stock were exchanged by the Company for 113,333,282
shares of Company Common Stock, (ii) the outstanding 1,027 shares of Optex
Systems (Delaware) Series A Preferred Stock be exchanged by the Company for
1,027 shares of Company Series A Preferred Stock and such additional items as
more fully described in the Agreement and (iii) the 8,131,667 shares of Optex
Systems (Delaware) Common Stock purchased in the private placement were
exchanged by the Company for 8,131,667 shares of Company Common
Stock. Optex Systems (Delaware) shall remain a wholly-owned
subsidiary of the Company.
Shares
outstanding of the Company just prior to the close consisted of 19,999,991
shares of which 1,250,000 shares were issued on March 27, 2009 as payment for
Investor Relations Services. The total outstanding common
shares of the Company subsequent to the close of the reorganization is as
follows:
Existing
Sustut (Registrant) Shareholders
|
|
|
18,749,991
|
|
Shares
issued for Investor Relations Services
|
|
|
1,250,000
|
|
Optex
Systems Inc shares exchanged
|
|
|
113,333,282
|
|
Private
Placement shares issued
|
|
|
8,131,667
|
|
Total
Shares after Reorganization
|
|
|
141,464,940
|
|
Transactions
with Executive Management
See the
“Executive Compensation” section for a discussion of the material elements of
compensation awarded to, earned by or paid to our named executive officers.
Other than as stated in the “Executive Compensation” section, we have not
entered into any transactions with executive management.
THE
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
This
prospectus covers 16,263,334 shares of common stock held by the Selling
Stockholders pursuant to the registration obligations of certain subscription
agreements with the Selling Stockholders in order to permit the resale of these
shares of common stock by the Selling Stockholders from time to time after the
date of this prospectus. After completion of the offering, if all shares
registered are sold, the Selling Stockholders will hold no shares of our
common stock, either out right or upon the exercise of their warrants.. We will
not receive any of the proceeds from the sale by the Selling Stockholders of the
shares of common stock covered by this prospectus. We will bear all fees and
expenses incident to our obligation to register the shares of common
stock. The address for each Selling Stock holder shall be deemed to
be the Company’s address.
|
|
Name of Selling Stockholder
(18)
|
|
Amount beneficially
owned by Selling
Stockholder
|
|
|
Amount to be offered
to Selling
Stockholder's
Account
|
|
|
Amount to be
beneficially owned
following completion
of offering
|
|
|
Percent to be
beneficially owned
following completion
of the offering
|
|
(1)
|
|
Albert
& Diane Gragnani
|
|
|
1,200,000
|
|
|
|
1,200,000
|
|
|
|
-
|
|
|
|
-
|
|
(2)
|
|
Curio
Holidings
|
|
|
600,000
|
|
|
|
600,000
|
|
|
|
-
|
|
|
|
-
|
|
(3)
|
|
Daniel
McDonald
|
|
|
300,000
|
|
|
|
300,000
|
|
|
|
-
|
|
|
|
-
|
|
(4)
|
|
Eric
Samuelson
|
|
|
1,500,000
|
|
|
|
1,500,000
|
|
|
|
-
|
|
|
|
-
|
|
(5)
|
|
George
Gummow
|
|
|
600,000
|
|
|
|
600,000
|
|
|
|
-
|
|
|
|
-
|
|
(6)
|
|
Gerald
Berkson
|
|
|
453,334
|
|
|
|
453,334
|
|
|
|
-
|
|
|
|
-
|
|
(7)
|
|
Gerald
Holland
|
|
|
600,000
|
|
|
|
600,000
|
|
|
|
-
|
|
|
|
-
|
|
(8)
|
|
Kenneth
and Irene Chaffin
|
|
|
300,000
|
|
|
|
300,000
|
|
|
|
-
|
|
|
|
-
|
|
(9)
|
|
Lee
Stambollis
|
|
|
360,000
|
|
|
|
360,000
|
|
|
|
-
|
|
|
|
-
|
|
(10)
|
|
Longview
Fund, LP
|
|
|
1,950,000
|
|
|
|
1,950,000
|
|
|
|
-
|
|
|
|
-
|
|
(11)
|
|
Michael
Peter Lee
|
|
|
600,000
|
|
|
|
600,000
|
|
|
|
-
|
|
|
|
-
|
|
(12)
|
|
Robert
E. Kraemer
|
|
|
600,000
|
|
|
|
600,000
|
|
|
|
-
|
|
|
|
-
|
|
(13)
|
|
Somasundaram
Ilangovan
|
|
|
600,000
|
|
|
|
600,000
|
|
|
|
-
|
|
|
|
-
|
|
(14)
|
|
Victor
M. Dandridge III
|
|
|
1,800,000
|
|
|
|
1,800,000
|
|
|
|
-
|
|
|
|
-
|
|
(15)
|
|
George
Warburton
|
|
|
3,600,000
|
|
|
|
3,600,000
|
|
|
|
-
|
|
|
|
-
|
|
(16)
|
|
Dr.
Marc Medway
|
|
|
600,000
|
|
|
|
600,000
|
|
|
|
-
|
|
|
|
-
|
|
(17)
|
|
Michael
R. Ruffer
|
|
|
600,000
|
|
|
|
600,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,263,334
|
|
|
|
16,263,334
|
|
|
|
|
|
|
|
|
|
(1)
|
|
600,000
common shares outstanding and 600,000 warrants exercisable within 60
days of May 19, 2009
|
(2)
|
|
300,000
common shares outstanding and 300,000 warrants exercisable within 60
days of May 19, 2009
The
address for Curio Holding, Inc. is 1630 York Avenue, New York, NY 10028,
of which the sole stockholder is Inge L. Kerster, with the same address,
who exercises voting and investment control with respect to shares of
common stock held by that selling stockholder.
|
(3)
|
|
150,000
common shares outstanding and 150,000 warrants exercisable within 60
days of May 19, 2009
|
(4)
|
|
750,000
common shares outstanding and 750,000 warrants exercisable within 60
days of May 19, 2009
|
(5)
|
|
300,000
common shares outstanding and 300,000 warrants exercisable within 60
days of May 19, 2009
|
(6)
|
|
226,667
common shares outstanding and 226,667 warrants exercisable within 60
days of May 19, 2009
|
(7)
|
|
300,000
common shares outstanding and 300,000 warrants exercisable within 60 days
of May 19, 2009
|
(8)
|
|
150,000
common shares outstanding and 150,000 warrants exercisable within 60 days
of May 19, 2009
|
(9)
|
|
180,000
common shares outstanding and 180,000 warrants exercisable within 60 days
of May 19, 2009
|
(10)
|
|
975,000
common shares outstanding and 975,000 warrants exercisable within 60 days
of May 19, 2009.
The
address of Longview Fund, L.P. is c/o Viking Asset Management, 505 Sansome
Street, Suite 1275, San Francisco, CA 94111. Peter T. Benz exercises
voting and investment control with respect to the shares of common stock
held by this selling stockholder.
|
(11)
|
|
300,000
common shares outstanding and 300,000 warrants exercisable within 60 days
of May 19, 2009
|
(12)
|
|
300,000
common shares outstanding and 300,000 warrants exercisable within 60 days
of May 19, 2009
|
(13)
|
|
300,000
common shares outstanding and 300,000 warrants exercisable within 60 days
of May 19, 2009
|
(14)
|
|
900,000
common shares outstanding and 900,000 warrants exercisable within 60 days
of May 19, 2009
|
(15)
|
|
1,800,000
common shares outstanding and 1,800,000 warrants exercisable within 60
days of May 19, 2009
|
(16)
|
|
300,000
common shares outstanding and 300,000 warrants exercisable within 60 days
of May 19, 2009
|
(17)
|
|
300,000
common shares outstanding and 300,000 warrants exercisable within 60 days
of May 19, 2009
|
(18)
|
|
Except
as otherwise noted, the address of the Selling Stockholder is the address
of the
Registrant.
|
The
Selling Stockholders may sell all or a portion of the shares of common stock
beneficially owned by it and offered hereby from time to time directly or
through one or more underwriters, broker-dealers or agents. The shares of common
stock may be sold in one or more transactions at fixed prices, at prevailing
market prices at the time of the sale, at varying prices determined at the time
of sale, or at negotiated prices. These sales may be effected in transactions,
which may involve crosses or block transactions:
|
·
|
to purchasers
directly;
|
|
·
|
in ordinary brokerage
transactions and transactions in which the broker solicits
purchasers;
|
|
·
|
through underwriters or dealers
who may receive compensation in the form of underwriting discounts,
concessions or commissions from such stockholders or from the purchasers
of the securities for whom they may act as
agent;
|
|
·
|
by the pledge of the shares as
security for any loan or obligation, including pledges to brokers or
dealers who may effect distribution of the shares or interests in such
securities;
|
|
·
|
to purchasers by a broker or
dealer as principal and resale by such broker or dealer for its own
account pursuant to this
prospectus;
|
|
·
|
in a block trade in which the
broker or dealer so engaged will attempt to sell the securities as agent
but may position and resell a portion of the block as principal to
facilitate a transaction;
|
|
·
|
through an exchange distribution
in accordance with the rules of the exchange or in transactions in the
over-the-counter market;
|
|
·
|
pursuant to Rule 144;
or
|
|
·
|
in any other manner not
proscribed by law.
|
If the
Selling Stockholders effect such transactions by selling shares of common stock
to or through underwriters, broker-dealers or agents, such underwriters,
broker-dealers or agents may receive commissions in the form of discounts,
concessions or commissions from the Selling Stockholders or commissions from
purchasers of the shares of common stock for whom they may act as agent or to
whom they may sell as principal (which discounts, concessions or commissions as
to particular underwriters, broker-dealers or agents may be in excess of those
customary in the types of transactions involved). In connection with sales of
the shares of common stock or otherwise, the Selling Stockholders may enter into
hedging transactions with broker-dealers, which may in turn engage in short
sales of the shares of common stock in the course of hedging in positions they
assume. If the Selling Stockholders enter into an agreement to sell its shares
to a broker-dealer and such broker-dealer is acting as an underwriter, we will
file a post-effective amendment to the registration statement of which this
prospectus forms a part for the purpose of updating this disclosure with respect
to such broker-dealer and its related plan of distribution. The Selling
Stockholders may also sell shares of common stock short and deliver shares of
common stock covered by this prospectus to close out short positions. The
Selling Stockholders may also loan or pledge shares of common stock to
broker-dealers that in turn may sell such shares.
The
Selling Stockholders and any broker-dealer participating in the distribution of
the shares of common stock may be deemed to be “underwriters” within the meaning
of the Securities Act, and any commission paid, or any discounts or concessions
allowed to, any such broker-dealer may be deemed to be underwriting commissions
or discounts under the Securities Act.
We have
advised the Selling Stockholders that under current interpretations they may not
use shares registered on this registration statement to cover short sales of our
common stock made prior to the date on which this registration statement shall
have been declared effective by the Commission. If the Selling Stockholders use
this prospectus for any sale of our common stock, it will be subject to the
prospectus delivery requirements of the Securities Act.
The
Selling Stockholders and any other person participating in such distribution
will be subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including, without limitation, Regulation M of the
Exchange Act, which may limit the timing of purchases and sales of any of the
shares of common stock by the Selling Stockholders and any other participating
person. Regulation M may also restrict the ability of any person engaged in the
distribution of the shares of common stock to engage in market-making activities
with respect to the shares of common stock. All of the foregoing may affect the
marketability of the shares of common stock and the ability of any person or
entity to engage in market-making activities with respect to the shares of
common stock.
The
Company has agreed to indemnify the Selling Stockholders against (i) any untrue
statement of a material fact contained in any registration statement filed by
the Company on behalf of the Selling Stockholders, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission to state therein a material fact required
to be stated therein, or necessary to make the statements therein not
misleading, or (iii) any violation by the Company of the Securities Act, the
Exchange Act, or any rule or regulation promulgated under the Securities Act, or
the Exchange Act made by the Company in connection therewith,
Once sold
under the registration statement, of which this prospectus forms a part, the
shares of common stock will be freely tradable in the hands of persons other
than our affiliates.
There can
be no assurance that the Selling Stockholders will sell any or all of the shares
of common stock registered pursuant to the registration statement, of which this
prospectus forms a part.
Our
common stock is quoted on the OTCBB.
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 May 11, 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.
Stock
Options
As of the
date of this Prospectus, we have
1,414,649 outstanding
stock options that represent potential future cash proceeds to our company of
$212,197. The company granted an officer at the consummation of the
Reorganization, the following number of options: an amount equal to
one percent (1%) of the issued and outstanding common shares of the Company
immediately after giving effect to the consummation of the Reorganization, with
1,414,649, 34% of the options vesting one year following the date of grant, and
33% vesting on each of the second and third anniversaries following the date of
grant, with the exercise price of $0.15 per share. The holders of options
are not required to exercise their rights at any time and we are unable to
predict the amount and timing of any future option exercises. We reserve the
right to temporarily reduce the exercise prices of our options from time to time
in order to encourage the early exercise of the options.
Delaware
Anti-takeover Statute
We are
subject to the provisions of section 203 of the Delaware General Corporation Law
regulating corporate takeovers. In general, those provisions prohibit a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that the stockholder
became an interested stockholder, unless:
|
·
|
the transaction is approved by
the board of directors before the date the interested stockholder attained
that status;
|
|
·
|
upon consummation of the
transaction that resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction
commenced; or
|
|
·
|
on or after the date the business
combination is approved by the board of directors and authorized at a
meeting of stockholders by at least two-thirds of the outstanding voting
stock that is not owned by the interested
stockholder.
|
|
Section
203 defines “business combination” to include the
following:
|
|
·
|
any merger or consolidation
involving the corporation and the interested
stockholder;
|
|
|
|
|
·
|
any sale, transfer, pledge or
other disposition of 10% or more of the assets of the corporation
involving the interested
stockholder;
|
|
·
|
subject to certain exceptions,
any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested
stockholder;
|
|
·
|
any transaction involving the
corporation that has the effect of increasing the proportionate share of
the stock of any class or series of the corporation beneficially owned by
the interested stockholder;
or
|
|
·
|
the receipt by the interested
stockholder of the benefit of any loans, advances, guarantees, pledges or
other financial benefits provided by or through the
corporation.
|
In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by any of these entities or persons.
A
Delaware corporation may opt out of this provision either with an express
provision in its certificate of incorporation or bylaws approved by its
stockholders. However, we have not opted out, and do not currently intend to opt
out, of this provision. The statute could prohibit or delay mergers or other
takeover or change in control attempts and, accordingly, may discourage attempts
to acquire us.
Certificate
of Incorporation and By-laws
Our
Certificate of Incorporation and by-laws include provisions that may have the
effect of delaying or preventing a change of control or changes in our
management. These provisions include:
|
·
|
the right of the board of
directors to elect a director to fill a vacancy created by the resignation
of a director or the expansion of the board of
directors;
|
|
·
|
the requirement for advance
notice for nominations of candidates for election to the board of
directors or for proposing matters that can be acted upon at a
stockholders’ meeting;
|
|
·
|
the right of our board of
directors to alter our bylaws without stockholder
approval.
|
Transfer
Agent
Our
transfer agent is American Registrar & Transfer Co., 342 East 900 South,
Salt Lake City, UT 84111.
LEGAL
MATTERS
The
legality of the shares of common stock offered by this prospectus will be passed
upon for us by Jolie Kahn, Esq. of New York, NY.
EXPERTS
The
financial statements as of September 28, 2008 and September 30, 2007 included in
this prospectus have been so included in reliance on the report of Rotenberg
& Co. LLP, an independent registered public accounting firm, given on the
authority of said firm as experts in accounting and auditing.
WHERE
YOU CAN FIND MORE INFORMATION
We have
filed a registration statement on Form S-1 with the Commission with respect to
this offering. This prospectus, which is part of the registration statement,
does not include all of the information contained in the registration statement.
You should refer to the registration statement and its exhibits and schedules
for additional information. Whenever we make reference in this prospectus to any
of our contracts, agreements or other documents, the references are not
necessarily complete and you should refer to the exhibits and schedules attached
to the registration statement for copies of the actual contract, agreement or
other document.
We also
file annual, quarterly and current reports, proxy statements and other documents
with the Commission under the Exchange Act. You may read and copy any materials
that we may file without charge at the Commission’s Public Reference Room at 100
F Street, N.E., Washington, D.C. 20549. You may call the Commission at
1-800-Commission-0330 for further information on the operation of the Public
Reference Room. You may obtain copies of the documents at prescribed rates by
writing to the Public Reference Section of the Commission at 100 F Street, N.E.,
Washington, D.C. 20549. The Commission also maintains an Internet site,
http://www.sec.gov, which contains reports, proxy and information statements and
other information regarding issuers that file electronically with the
Commission. The other information we file with the Commission is not part of the
registration statement of which this prospectus forms a part.
OPTEX
SYSTEMS HOLDINGS, INC.
(formerly
known as Sustut Exploration, Inc.)
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
AS OF
MARCH 29, 2009
OPTEX
SYSTEMS HOLDINGS, INC.
(formerly
known as Sustut Exploration, Inc.)
BALANCE
SHEETS
|
|
F-1
|
|
|
|
STATEMENTS
OF OPERATIONS
|
|
F-3
|
|
|
|
STATEMENTS
OF CASH FLOWS
|
|
F-4
|
|
|
|
STATEMENTS
OF STOCKHOLDERS’ EQUITY
|
|
F-6
|
|
|
|
FINANCIAL
STATEMENT FOOTNOTES
|
|
F-7
|
OPTEX
SYSTEMS HOLDINGS, INC.
(formerly
known as Sustut Exploration, Inc.)
UNAUDITED
INTERIM
FINANCIAL STATEMENTS
FOR
THE QUARTER ENDED MARCH 29, 2009
Optex
Systems Holdings, Inc.
(formerly
known as Sustut Exploration, Inc.)
Balance
Sheets
|
|
As
of
|
|
|
Year End
as
of
|
|
|
|
3/29/2009
(unaudited)
|
|
|
9/28/2008
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
Cash
|
|
|
1,233,956
|
|
|
|
170,183
|
|
Accounts
Receivable
|
|
|
2,061,699
|
|
|
|
2,454,235
|
|
Net
Inventory
|
|
|
6,466,123
|
|
|
|
4,547,726
|
|
Prepaid
Expenses
|
|
|
235,896
|
|
|
|
307,507
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
9,997,674
|
|
|
|
7,479,651
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment
|
|
|
|
|
|
|
|
|
Property
Plant and Equipment
|
|
|
1,345,172
|
|
|
|
1,314,109
|
|
Accumulated
Depreciation
|
|
|
(1,055,039
|
)
|
|
|
(994,542
|
)
|
|
|
|
|
|
|
|
|
|
Total
Property and Equipment
|
|
|
290,133
|
|
|
|
319,567
|
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
|
|
|
|
|
|
Security
Deposits
|
|
|
20,684
|
|
|
|
20,684
|
|
Intangibles,
net of accumulated amortization of 1,035,596 and 370,371
respectively.
|
|
|
3,001,193
|
|
|
|
1,100,140
|
|
Goodwill
|
|
|
7,110,415
|
|
|
|
10,047,065
|
|
|
|
|
|
|
|
|
|
|
Total
Other Assets
|
|
|
10,132,292
|
|
|
|
11,167,889
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
|
20,420,099
|
|
|
|
18,967,107
|
|
The
accompanying notes are an integral part of these financial
statements
Optex
Systems Holdings, Inc.
(formerly
known as Sustut Exploration, Inc.)
Balance
Sheets - Continued
|
|
Unaudited
|
|
|
|
|
|
|
Quarter End as
of
|
|
|
Year End as of
|
|
|
|
29-Mar-09
|
|
|
28-Sep-08
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
Accounts
Payable
|
|
|
2,066,815
|
|
|
|
1,821,534
|
|
Accrued
Expenses
|
|
|
963,990
|
|
|
|
798,974
|
|
Accrued
Warranties
|
|
|
284,305
|
|
|
|
227,000
|
|
Accrued
Contract Losses
|
|
|
806,643
|
|
|
|
821,885
|
|
Loans
Payable
|
|
|
|
|
|
|
373,974
|
|
Income
Tax Payable
|
|
|
350,318
|
|
|
|
4,425
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
4,472,071
|
|
|
|
4,047,792
|
|
|
|
|
|
|
|
|
|
|
Other
Liabilities
|
|
|
|
|
|
|
|
|
Note
Payable
|
|
|
-
|
|
|
|
2,000,000
|
|
Accrued
Interest on Note
|
|
|
-
|
|
|
|
336,148
|
|
Due
to Parent
|
|
|
-
|
|
|
|
4,300,151
|
|
|
|
|
|
|
|
|
|
|
Total
Other Liabilities
|
|
|
-
|
|
|
|
6,636,299
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
4,472,071
|
|
|
|
10,684,091
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
|
Optex
Systems Holdings, Inc. – Common Stock (par $0.001, 300,000,000
authorized, 141,464,940 shares issued and outstanding as of March 29,
2009)
|
|
|
141,465
|
|
|
|
|
|
Optex
Systems Holdings, Inc. Preferred Stock (.001 par value, 5,000
authorized, 1027 Series A Preferred issued and
outstanding)
|
|
|
1
|
|
|
|
|
|
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
|
|
|
22,071,962
|
|
|
|
15,246,282
|
|
Retained
Earnings (Deficit)
|
|
|
(6,265,400
|
)
|
|
|
(5,910,700
|
)
|
|
|
|
|
|
|
|
|
|
Total
Stockholders' Equity
|
|
|
15,948,028
|
|
|
|
8,283,016
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
|
20,420,099
|
|
|
|
18,967,107
|
|
The
accompanying notes are an integral part of these financial
statements
Optex
Systems Holdings, Inc.
(formerly
known as Sustut Exploration, Inc.)
Condensed
Consolidated Statements of Operations
|
|
Unaudited Three months ended
|
|
|
Unaudited Six months ended
|
|
|
|
29-Mar-09
|
|
|
30-Mar-08
|
|
|
29-Mar-09
|
|
|
30-Mar-08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
6,708,286
|
|
|
|
5,628,115
|
|
|
|
13,972,368
|
|
|
|
10,044,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Cost of Sales
|
|
|
6,151,915
|
|
|
|
5,026,005
|
|
|
|
12,456,965
|
|
|
|
8,865,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Margin
|
|
|
556,371
|
|
|
|
602,110
|
|
|
|
1,515,403
|
|
|
|
1,178,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and Wages
|
|
|
189,167
|
|
|
|
316,838
|
|
|
|
348,042
|
|
|
|
490,526
|
|
Employee
Benefits
|
|
|
56,570
|
|
|
|
20,070
|
|
|
|
155,230
|
|
|
|
99,142
|
|
Employee
Stock Bonus Plan
|
|
|
-
|
|
|
|
77,094
|
|
|
|
-
|
|
|
|
178,861
|
|
Amortization
of Intangible
|
|
|
101,158
|
|
|
|
54,123
|
|
|
|
202,317
|
|
|
|
115,245
|
|
Rent,
Utilities and Building Maintenance
|
|
|
57,102
|
|
|
|
32,891
|
|
|
|
112,435
|
|
|
|
91,041
|
|
Legal
and Accounting Fees
|
|
|
92,493
|
|
|
|
30,233
|
|
|
|
168,713
|
|
|
|
97,528
|
|
Consulting
and Contract Service Fees
|
|
|
55,255
|
|
|
|
80,106
|
|
|
|
134,577
|
|
|
|
200,545
|
|
Travel
Expenses
|
|
|
11,704
|
|
|
|
34,291
|
|
|
|
25,023
|
|
|
|
87,962
|
|
Corporate
Allocations
|
|
|
-
|
|
|
|
508,696
|
|
|
|
-
|
|
|
|
942,630
|
|
Board
of Director Fees
|
|
|
37,500
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
-
|
|
Other
Expenses
|
|
|
104,046
|
|
|
|
76,294
|
|
|
|
140,329
|
|
|
|
148,092
|
|
Total
General and Administrative
|
|
|
704,995
|
|
|
|
1,230,636
|
|
|
|
1,336,666
|
|
|
|
2,451,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(Loss) before Other Expenses and Taxes
|
|
|
(148,624
|
)
|
|
|
(628,526
|
)
|
|
|
178,737
|
|
|
|
(1,273,052
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income and Expense
|
|
|
(647
|
)
|
|
|
-
|
|
|
|
(1,083
|
)
|
|
|
(502
|
)
|
Interest
(Income) Expense - Net
|
|
|
91,904
|
|
|
|
49,863
|
|
|
|
184,202
|
|
|
|
99,503
|
|
Total
Other
|
|
|
91,257
|
|
|
|
49,863
|
|
|
|
183,119
|
|
|
|
99,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) Before Taxes
|
|
|
(239,881
|
)
|
|
|
(678,389
|
)
|
|
|
(4,382
|
)
|
|
|
(1,372,053
|
)
|
Income
Taxes (Benefit)
|
|
|
86,664
|
|
|
|
-
|
|
|
|
350,318
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss) After Taxes
|
|
|
(326,545
|
)
|
|
|
(678,389
|
)
|
|
|
(354,700
|
)
|
|
|
(1,372,053
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share (1)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Common Shares Outstanding (1)
|
|
|
141,464,940
|
|
|
|
141,464,940
|
|
|
|
141,464,940
|
|
|
|
141,464,940
|
|
1.
|
The three months and six months
ended March 30, 2008 are shown depicting effects of recapitalization of
the entity and the Reorganization, as of March 30,
2009.
|
The
accompanying notes are an integral part of these financial
statements
Optex
Systems Holdings, Inc
(formerly
known as Sustut Exploration, Inc.)
Statements
of Cash Flows
|
|
Six months
ended
|
|
|
Six months
ended
|
|
|
|
29-Mar-09
|
|
|
30-Mar-08
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
Loss
|
|
|
(354,700
|
)
|
|
|
(1,372,053
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,096,094
|
|
|
|
429,791
|
|
Provision
for (use of) allowance for inventory valuation
|
|
|
123,136
|
|
|
|
|
|
Noncash
interest expense
|
|
|
169,280
|
|
|
|
99,503
|
|
(Increase)
decrease in accounts receivable
|
|
|
392,536
|
|
|
|
(514,772
|
)
|
(Increase)
decrease in inventory (net of progress billed)
|
|
|
(2,041,533
|
)
|
|
|
1,444,598
|
|
(Increase)
decrease in other current assets
|
|
|
259,111
|
|
|
|
(33,221
|
)
|
Increase
(decrease) in accounts payable and accrued expenses
|
|
|
409,839
|
|
|
|
(163,053
|
)
|
Increase
(decrease) in accrued warranty costs
|
|
|
57,305
|
|
|
|
|
|
Increase
(decrease) in due to parent
|
|
|
1,428
|
|
|
|
812,435
|
|
Increase
(decrease) in accrued estimated loss on contracts
|
|
|
(15,242
|
)
|
|
|
(374,770
|
)
|
Increase
(decrease) in income taxes payable
|
|
|
350,318
|
|
|
|
|
|
Total
adjustments
|
|
|
802,272
|
|
|
|
1,700,511
|
|
Net
cash (used)/provided by operating activities
|
|
|
447,572
|
|
|
|
328,458
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchased
of property and equipment
|
|
|
(31,063
|
)
|
|
|
(97,136
|
)
|
Net
cash used in investing activities
|
|
|
(31,063
|
)
|
|
|
(97,136
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Private
Placement net of stock issuance cost
|
|
|
874,529
|
|
|
|
|
|
Repayment
of Loans Payable
|
|
|
(227,265
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in financing activities
|
|
|
647,264
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
1,063,773
|
|
|
|
231,322
|
|
Cash
and cash equivalents at beginning of period
|
|
|
170,183
|
|
|
|
504,753
|
|
Cash
and cash equivalents at end of period
|
|
|
1,233,956
|
|
|
|
736,075
|
|
The
accompanying notes are an integral part of these financial
statements
Optex
Systems Holdings, Inc.
(formerly
known as Sustut Exploration, Inc.)
Statements
of Cash Flows – (continued)
|
|
Six months ended
|
|
Six months
ended
|
|
|
|
29-Mar-09
|
|
30-Mar-08
|
|
|
|
|
|
|
|
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 (converted to Series A preferred
stock)
|
|
|
(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
|
)
|
|
|
|
|
|
|
|
|
|
Conversion
of Debt to Series A Preferred Stock
|
|
|
|
|
|
|
Additional
Paid in Capital ($6,000,000 Debt Retirement plus accrued interest of
$159,781)
|
|
|
6,159,781
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common shares in exchange for Investor Relations
Services
|
|
|
|
|
|
|
Additional
Paid in Capital (1,250,000 shares issued at .001 par)
|
|
|
187,500
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information:
|
|
|
|
|
|
|
Cash
paid for interest
|
|
|
3,817
|
|
|
|
Cash
paid for taxes
|
|
|
-
|
|
|
|
The
accompanying notes are an integral part of these financial
statements
Optex
Systems Holdings, Inc.
(formerly
known as Sustut Exploration, Inc.)
Statements
of Stockholders' Equity and Comprehensive Income/(Loss
)
|
|
|
|
|
|
|
|
|
|
|
|
Treasury
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Series A
|
|
|
|
|
|
|
Stock
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Shares
|
|
|
Preferred
|
|
|
Common
|
|
Preferred
|
|
(Optex-
|
|
|
Paid in
|
|
|
Retained
|
|
|
Stockholders
|
|
|
|
Outstanding
|
|
|
Shares
|
|
|
Stock
|
|
Series A
Stock
|
|
Texas)
|
|
|
Capital
|
|
|
Earnings
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of 6,000,000 Debt and Interest to Series A preferred
shares
|
|
|
|
|
|
|
1,027
|
|
|
|
|
|
1
|
|
|
|
|
|
|
6,159,780
|
|
|
|
|
|
|
|
6,159,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
split of 1.7:1 of common shares outstanding as of March 26,
2009
|
|
|
35,000,000
|
|
|
|
|
|
|
|
35,000
|
|
|
|
|
|
|
|
|
(35,000
|
)
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sustut
Exploration Reorganization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganization
of Optex Delaware Shares Outstanding
|
|
|
(85,000,000
|
)
|
|
|
|
|
|
|
(85,000
|
)
|
|
|
|
|
|
|
|
85,000
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganization
Share Exchange (113,333,282 Sustut shares for 85,000,000 Optex System Inc.
shares
|
|
|
113,333,282
|
|
|
|
|
|
|
|
113,333
|
|
|
|
|
|
|
|
|
(113,333
|
)
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sustut
Explorations Shares as of Reorganization
|
|
|
19,999,991
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
167,500
|
|
|
|
|
|
|
|
187,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
Placement Sale of Stock
|
|
|
8,131,667
|
|
|
|
|
|
|
|
8,132
|
|
|
|
|
|
|
|
|
1,012,647
|
|
|
|
|
|
|
|
1,020,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Earnings (Loss) from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(354,700
|
)
|
|
|
(354,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 29, 2009
|
|
|
141,464,940
|
|
|
|
1,027
|
|
|
|
141,465
|
|
1
|
|
|
0
|
|
|
|
22,071,962
|
|
|
|
(6,265,400
|
)
|
|
|
15,948,028
|
|
The
accompanying notes are an integral part of these financial
statements
OPTEX
SYSTEMS HOLDINGS, INC.
(formerly
known as Sustut Exploration, Inc.)
Notes
to Condensed Consolidated Financial Statements
Note 1 - Organization and
Operations
On March
30, 2009, Optex Systems Holdings, Inc.,
(formerly known as Sustut
Exploration, Inc.)
, a Delaware corporation (the “Company” or “Optex
Systems”), along with Optex Systems, Inc. , a privately held Delaware
corporation which is the Company’s wholly-owned subsidiary (“Reorganization
Sub”), entered into a Reorganization Agreement and Plan of
Reorganization (the “Reorganization Agreement”), pursuant to which
Optex Systems, Inc. was acquired by the Company in a share exchange
transaction. Optex Systems Holdings, Inc. became the surviving
corporation (the “Reorganization”). At the closing, the Company changed its name
from Sustut Exploration Inc. to Optex Systems Holdings, Inc. and its year end
from December 31 to a fiscal year ending on the Sunday nearest September
30. This change in year end resulted in a change in quarter-end from
March 31, 2009 to March 29, 2009. See Note 5.
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 interest in Optex Delaware to Sileas Corp, as discussed
below. 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.
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
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 4.
Optex
Systems, Inc. (“Optex”) operated as a privately-held Delaware corporation until
March 30, 2009, when as a result of the Reorganization Agreement described above
and also in Note 5 it became a wholly-owned subsidiary of Optex Systems
Holdings, Inc. (the “Company”). The Company plans to carry on the
business of Optex as its sole line of business and all of the company’s
operations are conducted by and through Optex. Accordingly, in
subsequent periods the financial statements presented will be those of the
accounting acquirer.
Optex’s
operations are based in Richardson, Texas in a leased facility comprising 49,100
square feet. As of the six months ended March 29, 2009 the Company
operated with 120 full-time equivalent employees.
Optex
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 Stryker family of vehicles. 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
February 2009, the Optex ISO certification status changed from 9001:2000 to
9001:2008.
Note
2 - Accounting Policies
Basis
of Presentation
Principles of
Consolidation:
The consolidated financial statements include
the accounts of Optex Systems Holdings, Inc. and its wholly-owned subsidiary,
Optex Systems, Inc. (Delaware). All significant inter-company
balances and transactions have been eliminated in consolidation.
The
accompanying financial statements include the historical accounts of Optex
Systems, Inc. (Delaware). As a result of the October 14, 2008
transaction, the accompanying financial statements also include the historical
accounts of Optex Systems, Inc. (Texas).
Although,
Optex Systems, Inc. (Texas) 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 Optex Systems, Inc. (Texas)
accounts 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,
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
consolidated financial statements presented as of the period ended March 29,
2009 include the equity transactions of the Reorganization Agreement executed
March 30, 2009, which precipitated the change in year end.
The
condensed consolidated financial statements of 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.
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. The six months ended March 29, 2009, and year
ended September 28, 2008 inventory included:
|
|
As of
3/29/2009
|
|
|
As of
9/28/2008
|
|
|
|
|
|
|
|
|
Raw
Materials
|
|
$
|
5,842,090
|
|
|
$
|
4,199,657
|
|
Work
in Process
|
|
|
4,191,291
|
|
|
|
5,575,520
|
|
Finished
Goods
|
|
|
596,301
|
|
|
|
28,014
|
|
Gross
Inventory
|
|
$
|
10,629,862
|
|
|
$
|
9,803,191
|
|
Less:
|
|
|
|
|
|
|
|
|
Unliquidated
Progress Payments
|
|
|
(3,366,694
|
)
|
|
|
(4,581,736
|
)
|
Inventory
Reserves
|
|
|
(796,865
|
)
|
|
|
(673,729
|
)
|
Net
Inventory
|
|
$
|
6,466,123
|
|
|
$
|
4,547,726
|
|
Gross
inventory increased by $826,671 in the six months ended March 29, 2009 to
support increased volume on the periscope and ICWS product
lines. Unliquidated progress payments declined by $1,215,042 as a
result of increased shipments in previously progress billed programs, and
inventory reserves increased by $123,136 to accrue for estimated inventory
shrinkage due to scrap, obsolescence and manufacturing overhead adjustments
anticipated during physical inventory valuation at year end.
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 six months ended March 29, 2009 or March 30,
2008.
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 Substantially All of the Assets of Optex Texas
Acquisition
of Assets of Optex Texas by Optex Delaware 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, as
discussed below, in exchange for a $6 million note payable from Optex Delaware
and a $9 million equity interest in Optex Delaware. There was 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 interest in Optex Delaware to
Sileas Corp, as discussed below.
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. The
Company’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 as follows:
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
Contracted
Backlog amortized by delivery schedule
|
|
COS
|
|
$
|
1,666,559
|
|
|
$
|
718,290
|
|
|
$
|
126,158
|
|
|
$
|
19,614
|
|
|
$
|
4,761
|
|
Contracted
Backlog amortized by delivery schedule
|
|
G&A
|
|
$
|
149,990
|
|
|
$
|
64,646
|
|
|
$
|
11,354
|
|
|
$
|
1,765
|
|
|
$
|
429
|
|
Program
Backlog amortized straight line across 5 years
|
|
G&A
|
|
$
|
254,645
|
|
|
$
|
254,645
|
|
|
$
|
254,645
|
|
|
$
|
254,645
|
|
|
$
|
254,645
|
|
Total
Amortization by Year
|
|
|
|
$
|
2,071,194
|
|
|
$
|
1,037,580
|
|
|
$
|
392,157
|
|
|
$
|
276,024
|
|
|
$
|
259,834
|
|
The
accompanying unaudited pro forma financial information for the three and six
months ended March 29, 2009 and March 30, 2008 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.
Pro forma
revenue and earnings per share information is presented cumulatively in Note 5
regarding the subsequent acquisition of a controlling interest in Optex Delaware
by Sileas Corp. and the Reorganization Agreement.
Secured
Promissory Note Issued in connection with Purchase by Optex
Delaware
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
(pre-split and pre-Reorganization price). 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 February 20, 2009, Longview transferred
its Note to Sileas Corp. (see below). On March 27, 2009, Sileas and Alpha
exchanged their Notes plus accrued and unpaid interest for 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 and debt 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 recorded 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 upon the stable nature of
the Company’s operations, 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 and six
months ended March 29, 2008 and March 30, 2008 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.
Pro forma
revenue and earnings per share information is presented cumulatively in Note 5
regarding the subsequent acquisition of Optex Delaware by Sileas Corp. and the
Reorganization Agreement.
Secured Promissory Note Due February
20, 2012/Longview Fund, LP
-
As a
result of the transaction described above between Sileas and Longview Fund, LP
on February 20, 2009 (the “Issue Date”), Sileas, the new majority owner of Optex
Systems, executed and delivered to Longview Fund 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 Reorganization 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 and also by a lien on all of the
assets of Sileas.
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) is recorded on the financial statements of Optex
Delaware (Subsidiary) as of February 20, 2009. Concurrent with the
“Reorganization agreement” reverse Reorganization on March 30, 2009 with Optex
Systems Holdings, Inc., Sileas’ ownership is diluted to a percentage less than
that under which push-down accounting applies. Accordingly, the note
payable owned by Sileas to Longview has been reflected solely on the financial
statements of Sileas and is not reflected as a liability in the financial
statements of Optex Systems Holdings, Inc.
Note
5 –Reorganization Plan & Private Placement
Reorganization/Share
Exchange
On March
30, 2009, a reorganization/share exchange (“Reorganization”) occurred whereby
the then existing shareholders of Optex Systems (Delaware) exchanged their
shares of Common Stock with the shares of Common Stock of Optex Systems
Holdings, Inc. (formerly Sustut Exploration, Inc.) (the “Company”) as
follows: (i) the outstanding 85,000,000 shares of Optex Systems
(Delaware) Common Stock were exchanged by the Company for 113,333,282
shares of Company Common Stock, (ii) the outstanding 1,027 shares of Optex
Systems (Delaware) Series A Preferred Stock be exchanged by the Company for
1,027 shares of Company Series A Preferred Stock and such additional items as
more fully described in the Agreement and (iii) the 8,131,667 shares of Optex
Systems (Delaware) Common Stock purchased in the private placement were
exchanged by the Company for 8,131,667 shares of Company Common
Stock. Optex Systems (Delaware) shall remain a wholly-owned
subsidiary of the Company.
Shares
outstanding of the Company just prior to the close consisted of 19,999,991
shares of which 1,250,000 shares were issued on March 27, 2009 as payment for
Investor Relations Services. The total outstanding common
shares of the Company subsequent to the close of the reorganization is as
follows:
Existing
Sustut (Registrant) Shareholders
|
|
|
18,749,991
|
|
Shares
issued for Investor Relations Services
|
|
|
1,250,000
|
|
Optex
Systems Inc shares exchanged
|
|
|
113,333,282
|
|
Private
Placement shares issued
|
|
|
8,131,667
|
|
Total
Shares after Reorganization
|
|
|
141,464,940
|
|
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 indebtedness owed to an investor of
$146,250, net proceeds after stock issuance costs of $59,416 were
$874,529. The finder also received five year warrants to purchase 2.7
Units, at an exercise price of $49,500 per unit.
Optex
Systems Holdings, Inc.
Balance
Sheet Adjusted for Reorganization and Private Placement
|
Unaudited Quarter
|
|
|
Reorganization
|
|
Private
Placement
|
|
|
Unaudited Quarter
|
|
|
ended 3/29/2009
|
|
|
Adjustments (1)
|
|
Adjustments
|
|
|
Ended 3/29/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
8,880,436
|
|
|
187,500
|
|
|
929,738
|
|
|
|
9,997,674
|
|
Non
current Assets
|
10,422,425
|
|
|
-
|
|
|
-
|
|
|
|
10,422,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
19,302,861
|
|
|
187,500
|
|
|
929,738
|
|
|
|
20,420,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
Payable
|
146,709
|
|
|
|
|
|
(146,250
|
)
|
|
|
459
|
|
Other
Current Liabilities
|
4,416,403
|
|
|
-
|
|
|
55,209
|
|
|
|
4,471,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
4,563,112
|
|
|
-
|
|
|
(91,041
|
)
|
|
|
4,472,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Optex
Systems Holdings, Inc. – (par $0.001, 300,000,000 authorized, 141,464,940
shares issued and outstanding as of March 29, 2009)
|
113,333
|
|
|
20,000
|
|
|
8,132
|
|
|
|
141,465
|
|
Optex
Systems Holdings, Inc. Preferred Stock (.001 par 5,000
authorized, 1027 series A preferred issued and
outstanding)
|
1
|
|
|
|
|
|
|
|
|
|
1
|
|
Additional
Paid in Capital
|
20,891,815
|
|
|
167,500
|
|
|
1,012,647
|
|
|
|
22,071,962
|
|
Retained
Earnings
|
(6,265,400
|
)
|
|
|
|
|
|
|
|
|
(6,265,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders Equity
|
14,739,749
|
|
|
187,500
|
|
|
1,020,779
|
|
|
|
15,948,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders Equity
|
19,302,861
|
|
|
187,500
|
|
|
929,738
|
|
|
|
20,420,099
|
|
(1)
|
Sustut Exploration, Inc. Balance
Sheet as of the March 30, 2009 Reorganization. Other assets
include $187,500 in prepaid expenses for Investor Relation Services to be
realized over the next 12 months. The services were prepaid by
the issue of 1,250,000 Sustut shares issued by Sustut prior to March 30,
2009. The prepaid expense covers April 2009 through April
2010 and will be reflected on the consolidated Statement of Operations for
Optex Systems Holdings, Inc. as
expensed.
|
The
expenses reflected by the Company on its Statement of Operations for the period
from April 1, 2009 through March 31, 2010 will be increased by $46,875 per
calendar quarter (as a non-cash expense) as a result of the issuance of the
1,250,000 shares for Investor Relations Services by Sustut and are carried on
the Sustut Balance Sheet as a prepaid expense. The same Investor
Relations agreements also call for an aggregate cash payment of $8,000 per month
which will increase the expense by an additional $24,000 per
quarter. Therefore, the total impact of the agreements for Investor
Relations Services is $70,875 per quarter (pretax) including both the current
cash expense and the amortization of the prepaid expense which is carried on the
Condensed Consolidated Balance Sheet of the Company.
The
accompanying unaudited pro forma financial information for the six months ended
March 29, 2009 and March 30, 2008 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 and six months ended March 29, 2009 and March 28, 2008 as if the
acquisition of Optex and Reorganization Plan had occurred on the first day of
each of the years.
|
|
Unaudited
|
|
|
Unaudited
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
29-Mar-09
|
|
|
30-Mar-08
|
|
|
29-Mar-09
|
|
|
30-Mar-08
|
|
Revenues
|
|
|
6,708,286
|
|
|
|
5,628,115
|
|
|
|
13,972,368
|
|
|
|
10,044,019
|
|
Net
Loss
|
|
|
(326,545
|
)
|
|
|
(310,161
|
)
|
|
|
(345,200
|
)
|
|
|
(816,286
|
)
|
Diluted
earnings per share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Shares Outstanding
|
|
|
141,464,940
|
|
|
|
141,464,940
|
|
|
|
141,464,940
|
|
|
|
141,464,940
|
|
The pro
forma information depicted above reflect the impacts of reduced interest
expense, increased intangible amortization expenses, the elimination of
corporate allocation costs from IRSN and the elimination employee stock bonus
compensation pushed down from IRSN. There is no expected tax effect
of the proforma adjustments for the periods affected in 2008 as the Company had
an accumulated retained deficit.
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 three and six months ended March 29, 2009 was $56,978.33 and
$170,935 respectively. Total expenses for manufacturing and office
equipment for the three and six months ended March 29, 2009 was $5,598 and
$11,195. At March 29, 2009, the remaining minimum lease payments
under non-cancelable operating leases for equipment, office and facility space
are as follows:
|
|
Operating
|
|
|
|
Leases
|
|
Fiscal
Years ending September
|
|
|
|
2009
|
|
$
|
182,130
|
|
2010
|
|
|
79,867
|
|
2011
|
|
|
16,753
|
|
2012
|
|
|
-
|
|
2013
|
|
|
-
|
|
Thereafter
|
|
|
-
|
|
Total
minimum lease payments
|
|
$
|
278,750
|
|
Note
7 - 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. On March 30, 2009 in conjunction with the Reorganization and
Private Placement, Longview Fund purchased 3.25 Units of the Private Placement
using $146,250 of the outstanding Note Payable as consideration for the
purchase. (
See Note
5).
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 as of September 28, 2008 in the amount of $227,265, and as of March 29,
2009 had been paid in full with no outstanding balance. The Note bore
interest at the rate of six percent per annum and had a maturity date of
February 13, 2009 (“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. The note plus all
accrued interest was paid in full by February 13, 2009.
Note
8 – Stockholders Equity
Common
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. 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.
As of
March 30, 2009, the Company was authorized to issue 300,000,000 shares of $.001
par value common stock, of which 85,000,000 shares were issued and outstanding
as follows:
Sileas
Corporation
|
|
|
76,638,295
|
|
Arland
Holding, LTD
|
|
|
8,361,705
|
|
Total
Outstanding
|
|
|
85,000,000
|
|
Reorganization
& Private Placement:
On March
29, 2009, as a result of the Reorganization Agreement and Private Placement, the
85,000,000 outstanding shares of Optex Systems, Inc. as of March 30, 2009 were
exchanged for 113,333,282 shares of Optex Systems Holdings Inc. (formerly Sustut
Exploration, Inc.). An additional 8,131,667 shares were issued as a
result of the private placement held concurrent with the
reorganization.
Each
share of stock entitles the holder to one vote on matters brought to a vote of
the shareholders.
The
company granted an officer at the consummation of the reorganization, the
following number of options: an amount equal to one percent (1%) of
the issued and outstanding common shares of the Company immediately after giving
effect to the consummation of the Reorganization, with 1,414,649, 34% of the
options vesting one year following the date of grant, and 33% vesting on each of
the second and third anniversaries following the date of grant, with the
exercise price of $0.15
.
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. On March 30, 2009 shares of
Optex Systems, Inc. Series A Preferred Stock was exchanged on a 1:1 basis for
Series A Preferred Stock of Optex Systems Holdings, Inc.
Note 9—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 and six months ended
March 29, 2009, and March 30, 2008.
|
|
Three months
|
|
|
Three months
|
|
|
Six months
|
|
|
Six months
|
|
|
|
ended
|
|
|
ended
|
|
|
ended
|
|
|
ended
|
|
|
|
March 29,
|
|
|
March 30,
|
|
|
March 29,
|
|
|
March 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(326,545
|
)
|
|
$
|
(678,389
|
)
|
|
$
|
(354,700
|
)
|
|
$
|
(1,372,053
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares
|
|
|
141,464,940
|
|
|
|
141,464,940
|
|
|
|
141,464,940
|
|
|
|
141,464,940
|
|
Basic
and diluted net loss per share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
Periods ended
March 28, 2008 are shown depicting recapitalization and subsequent stock splits
of the entity.
Note
10-Stock Option Plan
On March
26, 2009, the Board of Directors and Shareholders of Sustut 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 .
Options
granted under the 2009 Stock Option Plan vest as determined by the Board of
Directors of the company or committee set up to act as a compensation committee
of the Board of Directors (the “Compensation Committee”) and terminate after the
earliest of the following events: expiration of the option as provided in the
option agreement, 90 days subsequent to the date of termination of the employee,
or ten years from the date of grant (five years from the date of grant for
incentive options granted to an employee who owns more than 10% of the total
combined voting power of all classes of the Company stock at the date of
grant). In some instances, granted stock options are immediately
exercisable into restricted shares of common stock, which vest in accordance
with the original terms of the related options. The Company recognizes
compensation expense ratably over the requisite service period.
The
option price of each share of common stock shall be determined by the
Compensation Committee, provided that with respect to incentive stock options,
the option price per share shall in all cases be equal to or greater than 100%
of the fair value of a share of common stock on the date of the grant, except an
incentive option granted under the 2009 Stock Option Plan to a shareholder that
owns more than 10% of the total combined voting power of all classes of the
Company stock, shall have an exercise price of not less than 110% of the fair
value of a share of common stock on the date of grant. No participant may be
granted incentive stock options, which would result in shares with an aggregate
fair value of more than $100,000 first becoming exercisable in one calendar
year.
As of
March 29, 2009, no stock options have been granted under the 2009 Stock Option
Plan.
OPTEX
SYSTEMS INC.
INDEX
TO FINANCIAL STATEMENTS
Report
of Independent Registered Public Accounting Firm
|
|
F-20
|
|
|
|
Notes
to Financial Statements
|
|
F-26
|
|
|
|
Balance
Sheets as of September 28, 2008 and September 30, 2007
|
|
F-21
|
|
|
|
Statements
of Operations for years ended September 28, 2008 and September 30,
2007
|
|
F-23
|
|
|
|
Statements
of Stockholders’ Equity (Deficit) for the years ended September 28, 2008
and September 30, 2007
|
|
F-25
|
|
|
|
Statements
of Cash Flows for the years ended September 28, 2008 and September 30,
2007
|
|
F-24
|
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 Accounting 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%
acquisition 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 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 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.
16,263,334
Shares
of Common Stock
PART
II – INFORMATION NOT REQUIRED IN PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution
We
estimate that our expenses in connection with this offering, other than
underwriting discounts and commissions, will be as follows:
Securities
and Exchange Commission registration fee
|
|
$
|
1447
|
|
Printing
and engraving expenses
|
|
$
|
1,000.00
|
|
Legal
fees and expenses
|
|
$
|
-
|
|
Accountant
fees and expenses
|
|
$
|
2500
|
|
Total
|
|
$
|
3947
|
|
Item
14. Indemnification of Directors and Officers
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.
Item
15. Recent Sales of Unregistered Securities
On March
30, 2009, a reorganization/share exchange (“Reorganization”) occurred whereby
the then existing shareholders of Optex Systems (Delaware) exchanged their
shares of Common Stock with the shares of Common Stock of Optex Systems
Holdings, Inc. (formerly Sustut Exploration, Inc.) (the “Company”) as
follows: (i) the outstanding 85,000,000 shares of Optex Systems
(Delaware) Common Stock were exchanged by the Company for 113,333,282
shares of Company Common Stock, (ii) the outstanding 1,027 shares of Optex
Systems (Delaware) Series A Preferred Stock be exchanged by the Company for
1,027 shares of Company Series A Preferred Stock and such additional items as
more fully described in the Agreement and (iii) the 8,131,667 shares of Optex
Systems (Delaware) Common Stock purchased in the private placement were
exchanged by the Company for 8,131,667 shares of Company Common
Stock. Optex Systems (Delaware) shall remain a wholly-owned
subsidiary of the Company.
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 after stock issuance costs of $59,416 were
$874,529. 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 to 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.
Each
share of stock entitles the holder to one vote on matters brought to a vote of
the shareholders.
The
company granted an officer at the consummation of the reorganization, the
following number of options: an amount equal to one percent (1%) of
the issued and outstanding common shares of the Company immediately after giving
effect to the consummation of the Reorganization, with 1,414,649, 34% of the
options vesting one year following the date of grant, and 33% vesting on each of
the second and third anniversaries following the date of grant, with the
exercise price of $0.15 per share.
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. On March 30, 2009 shares of
Optex Systems, Inc. Series A Preferred Stock was exchanged on a 1:1 basis for
Series A Preferred Stock of Optex Systems Holdings, Inc.
All of
the above equity transactions were made in reliance on Section 4(2) of the
Securities Act and/or Regulation D promulgated under the Securities
Act.
Item
16. Exhibits and Financial Statement Schedules
Exhibit
No.
|
|
Description
|
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 (1).
|
|
|
|
3.2
|
|
Bylaws
of Optex Systems Holdings Corp. (1).
|
|
|
|
5.1
|
|
Opinion
as to Legality of the Shares
|
|
|
|
10.1
|
|
2009
Stock Option Plan (1).
|
|
|
|
10.2
|
|
Employment
Agreement with Danny Schoenig (1).
|
|
|
|
10.3
|
|
Lease
for 1420 Presidential Blvd., Richardson, TX (1).
|
10.4
|
|
Form
of Warrant
|
10.5
|
|
Specimen
Stock Certificate
|
14.1
|
|
Code
of Ethics
|
21.1
|
|
List
of Subsidiaries – Optex Systems, Inc. (1).
|
|
|
|
23.1
|
|
Consent
of Rotenberg, LLP
|
|
|
|
99.1
|
|
Optex
Systems, Inc.’s audited financial statements as of September 28, 2008.
(1).
|
|
|
|
99.2
|
|
Optex
Systems, Inc.’s quarterly financial statements as of December 30, 2008
(1)..
|
|
|
|
99.3
|
|
Pro
forma condensed combined financial statements of the Registrant and Optex
as of December 30, 2008.(1).
|
(1)
|
Incorporated by reference from
our Current Report on Form 8-K dated April 4,
2009.
|
Item
17. Undertakings
The
undersigned registrant hereby undertakes:
1.
|
To file, during any period in
which offers or sales are being made, a post-effective amendment to this
registration statement:
|
|
i.
|
To include any prospectus
required by section 10(a)(3) of the Securities
Act;
|
|
ii.
|
To reflect in the prospectus any
facts or events arising after the effective date of the registration
statement (or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.
|
|
iii.
|
To include any material
information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration
statement.
|
2.
|
That, for the purpose of
determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
|
3.
|
To remove from registration by
means of a post-effective amendment any of the securities being registered
which remain unsold at the termination of the
offering.
|
4.
|
That, for the purpose of
determining liability under the Securities Act to any
purchaser:
|
|
i.
|
If the registrant is relying on
Rule 430B (Section 430B of this
chapter):
|
|
A.
|
Each prospectus filed by the
registrant pursuant to Rule 424(b)(3)shall be deemed to be part of the
registration statement as of the date the filed prospectus was deemed part
of and included in the registration statement;
and
|
|
B.
|
Each prospectus required to be
filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a
registration statement in reliance on Rule 430B relating to an offering
made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of
providing the information required by section 10(a) of the Securities Act
shall be deemed to be part of and included in the registration statement
as of the earlier of the date such form of prospectus is first used after
effectiveness or the date of the first contract of sale of securities in
the offering described in the prospectus. As provided in Rule 430B, for
liability purposes of the issuer and any person that is at that date an
underwriter, such date shall be deemed to be a new effective date of the
registration statement relating to the securities in the registration
statement to which that prospectus relates, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by
reference into the registration statement or prospectus that is part of
the registration statement will, as to a purchaser with a time of contract
of sale prior to such effective date, supersede or modify any statement
that was made in the registration statement or prospectus that was part of
the registration statement or made in any such document immediately prior
to such effective date; or
|
|
ii.
|
If the registrant is subject to
Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a
registration statement relating to an offering, other than registration
statements relying on Rule 430B or other than prospectuses filed in
reliance on Rule 430A, shall be deemed to be part of and included in the
registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a registration
statement or prospectus that is part of the registration statement or made
in a document incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale prior to
such first use, supersede or modify any statement that was made in the
registration statement or prospectus that was part of the registration
statement or made in any such document immediately prior to such date of
first use.
|
5.
|
That, for the purpose of
determining liability of the registrant under the Securities Act to any
purchaser in the initial distribution of the securities: The undersigned
registrant undertakes that in a primary offering of securities of the
undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser,
if the securities are offered or sold to such purchaser by means of any of
the following communications, the undersigned registrant will be a seller
to the purchaser and will be considered to offer or sell such securities
to such purchaser:
|
|
i.
|
Any preliminary prospectus or
prospectus of the undersigned registrant relating to the offering required
to be filed pursuant to Rule
424;
|
|
ii.
|
Any free writing prospectus
relating to the offering prepared by or on behalf of the undersigned
registrant or used or referred to by the undersigned
registrant;
|
|
iii.
|
The portion of any other free
writing prospectus relating to the offering containing material
information about the undersigned registrant or its securities provided by
or on behalf of the undersigned registrant;
and
|
|
iv.
|
Any
other communication that is an offer in the offering made by the
undersigned registrant to the
purchaser.
|
6
.
Item 512(h)
Undertaking:
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1933, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Richardson, TX, on the 19
th
day of May,
2009.
OPTEX
SYSTEMS HOLDINGS, INC.
|
|
By:
|
/s/
Stanley A. Hirschman
|
|
Stanley
A. Hirschman, Principal Executive Officer and Director
|
|
|
Date:
May 19, 2009
|
|
By:
|
/s/
Karen Hawkins
|
|
Karen
Hawkins, Principal Financial Officer
|
|
|
Date:
May 19,
2009
|
Pursuant
to the requirements of the Securities Act, this Registration Statement has been
signed by the following persons in the capacities and on the dates
indicated:
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ Ronald F. Richards
|
|
|
|
|
Ronald
F. Richards
|
|
Director
|
|
May
19, 2009
|
|
|
|
|
|
/s/ Merrick Okamoto
|
|
|
|
|
Merrick
Okamoto
|
|
Director
|
|
May
19, 2009
|