x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
Delaware
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000-54144
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33-143215
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||
(State
or other jurisdiction of
incorporation)
|
(Commission
File Number)
|
(IRS
Employer Identification
No.)
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1420
Presidential Drive, Richardson, TX
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75081-2439
|
|
(Address
of principal executive offices)
|
(Zip
Code)
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PART
I— FINANCIAL INFORMATION
|
|||
Item
1.
|
Financial
Statements
|
3
|
|
Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
4
|
|
Item
4.
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Control
and Procedures
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12
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|
PART
II— OTHER INFORMATION
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|||
Item
1
|
Legal
Proceedings
|
12
|
|
Item
1A
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Risk
Factors
|
12
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|
Item
6.
|
Exhibits
|
14
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|
|
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||
SIGNATURE
|
14
|
BALANCE
SHEETS AS OF JANUARY 2, 2011 (UNAUDITED) AND OCTOBER 3,
2010
|
F-1
|
|
STATEMENTS
OF OPERATIONS FOR THE THREE MONTHS ENDED JANUARY 2, 2011 AND
THE THREE MONTHS ENDED DECEMBER 27, 2009 (UNAUDITED)
|
F-3
|
|
STATEMENTS
OF CASH FLOWS FOR THE THREE MONTHS ENDED JANUARY 2, 2011
AND FOR THE THREE MONTHS ENDED DECEMBER 27, 2009
(UNAUDITED)
|
F-4
|
|
FINANCIAL
STATEMENT FOOTNOTES (UNAUDITED)
|
F-6
|
(Thousands)
|
||||||||
(Unaudited)
January 2, 2011 |
October 3, 2010
|
|||||||
ASSETS
|
||||||||
Current
Assets
|
||||||||
Cash
|
$ | 1,103 | $ | 1,030 | ||||
Accounts
Receivable
|
2,038 | 2,375 | ||||||
Net
Inventory
|
5,665 | 5,890 | ||||||
Prepaid
Expenses
|
270 | 245 | ||||||
Total
Current Assets
|
$ | 9,076 | $ | 9,540 | ||||
Property
and Equipment
|
||||||||
Property
Plant and Equipment
|
$ | 1,487 | $ | 1,457 | ||||
Accumulated
Depreciation
|
(1,179 | ) | (1,161 | ) | ||||
Total
Property and Equipment
|
$ | 308 | $ | 296 | ||||
Other
Assets
|
||||||||
Deferred
Tax Asset - Long Term
|
$ | 964 | $ | 993 | ||||
Security
Deposits
|
21 | 21 | ||||||
Total
Other Assets
|
$ | 985 | $ | 1,014 | ||||
Total
Assets
|
$ | 10,369 | $ | 10,850 |
(Thousands)
|
||||||||
(Unaudited)
January 2, 2011 |
October 3, 2010
|
|||||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
Liabilities
|
||||||||
Accounts
Payable
|
$ | 605 | $ | 763 | ||||
Accrued
Expenses
|
820 | 574 | ||||||
Accrued
Warranties
|
25 | 25 | ||||||
Accrued
Contract Losses
|
1,102 | 1,357 | ||||||
Credit
Facility
|
$ | 717 | $ | 1,107 | ||||
Total
Current Liabilities
|
$ | 3,269 | $ | 3,826 | ||||
Total
Liabilities
|
$ | 3,269 | $ | 3,826 | ||||
Stockholders'
Equity
|
||||||||
Optex
Systems Holdings, Inc. – (par $0.001, 200,000,000 authorized, 139,444,940
shares issued and outstanding)
|
$ | 139 | $ | 139 | ||||
Optex
Systems Holdings, Inc. Preferred Stock (.001 par 5,000
authorized, 1027 series A preferred issued and
outstanding)
|
- | - | ||||||
Additional
Paid-in-capital
|
$ | 17,289 | $ | 17,162 | ||||
Retained
Earnings (Deficit)
|
$ | (10,328 | ) | $ | (10,277 | ) | ||
Total
Stockholders' Equity
|
$ | 7,100 | $ | 7,024 | ||||
Total
Liabilities and Stockholders' Equity
|
$ | 10,369 | $ | 10,850 |
(Thousands)
|
||||||||
Three months ended
January 2, 2011 |
Three months ended
December 27, 2009 |
|||||||
Revenues
|
$ | 4,984 | $ | 5,915 | ||||
Total
Cost of Sales
|
4,321 | 5,160 | ||||||
Gross
Margin
|
$ | 663 | $ | 755 | ||||
General
and Administrative
|
||||||||
General
Expenses
|
560 | 609 | ||||||
Amortization
of Intangible Assets
|
- | 80 | ||||||
Total
General and Administrative
|
$ | 560 | $ | 689 | ||||
Operating
Income (Loss)
|
$ | 103 | $ | 66 | ||||
Other
Expenses
|
||||||||
Interest
(Income) Expense - Net
|
23 | 3 | ||||||
Total
Other
|
$ | 23 | $ | 3 | ||||
Income
(Loss) Before Taxes
|
$ | 80 | $ | 63 | ||||
Deferred
Income Taxes (Benefit)
|
29 | (18 | ) | |||||
Net
Income (Loss) After Taxes
|
$ | 51 | $ | 81 | ||||
Less
preferred stock dividend
|
$ | (101 | ) | $ | (95 | ) | ||
Net
loss applicable to common shareholders
|
$ | (50 | ) | $ | (14 | ) | ||
Basic
and diluted loss per share
|
$ | (0.00 | ) | $ | (0.00 | ) | ||
Weighted
Average Common Shares Outstanding
|
139,444,940 | 139,444,940 |
(Thousands)
|
||||||||
Three months ended
January 2, 2011 |
Three months ended
December 27, 2009 |
|||||||
Cash
flows from operating activities:
|
||||||||
Net
income (loss)
|
$ | 51 | $ | 81 | ||||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Depreciation
and amortization
|
18 | 281 | ||||||
Provision
for allowance for inventory valuation
|
- | (44 | ) | |||||
Noncash
interest expense
|
8 | 3 | ||||||
Stock
option compensation expense
|
25 | 23 | ||||||
(Increase)
decrease in accounts receivable
|
338 | (312 | ) | |||||
(Increase)
decrease in inventory (net of progress billed)
|
224 | (625 | ) | |||||
(Increase)
decrease in other current assets
|
(33 | ) | 39 | |||||
(Increase)
decrease in deferred tax asset (net of valuation
allowance)
|
29 | (18 | ) | |||||
Increase
(decrease) in accounts payable and accrued expenses
|
88 | (19 | ) | |||||
Increase
(decrease) in accrued estimated loss on contracts
|
(255 | ) | (120 | ) | ||||
Total
adjustments
|
$ | 442 | $ | (792 | ) | |||
Net
cash (used)/provided by operating activities
|
$ | 493 | $ | (711 | ) | |||
Cash
flows from investing activities:
|
||||||||
Purchased
of property and equipment
|
(30 | ) | (3 | ) | ||||
Net
cash (used in) provided by investing activities
|
$ | (30 | ) | $ | (3 | ) | ||
Cash
flows from financing activities:
|
||||||||
Proceeds
(to) from credit facility (net)
|
(390 | ) | - | |||||
Proceeds
from loans payable
|
- | 250 | ||||||
Net
cash (used In) provided by financing activities
|
$ | (390 | ) | $ | 250 | |||
Net
increase (decrease) in cash and cash equivalents
|
$ | 73 | $ | (464 | ) | |||
Cash
and cash equivalents at beginning of period
|
1,030 | 915 | ||||||
Cash
and cash equivalents at end of period
|
$ | 1,103 | $ | 451 | ||||
Supplemental
cash flow information:
|
||||||||
Cash
Paid for Interest
|
$ | 16 | - | |||||
Cash
Paid for Taxes
|
$ | - | - |
(Thousands)
|
||||||||
As of
January 2, 2011
|
As of
October 3, 2010
|
|||||||
(unaudited)
|
||||||||
Raw
Materials
|
$
|
3,984
|
$
|
4,343
|
||||
Work
in Process
|
2,293
|
2,824
|
||||||
Finished
Goods
|
138
|
366
|
||||||
Gross
Inventory
|
$
|
6,415
|
$
|
7,533
|
||||
Less:
|
||||||||
Unliquidated
Progress Payments
|
(324
|
)
|
(1,217
|
)
|
||||
Inventory
Reserves
|
(426
|
)
|
(426
|
)
|
||||
Net
Inventory
|
$
|
5,665
|
$
|
5,890
|
Operating
|
||||
Leases
(Thousands)
|
||||
Fiscal
Year
|
||||
2011
|
$ | 188 | ||
2012
|
236 | |||
2013
|
232 | |||
2014
|
242 | |||
2015
|
201 | |||
Total
minimum lease payments
|
$ | 1,099 |
·
|
The
interest rate for all advances shall be the greater of 8.5% and the then
in effect prime rate plus 3.5% and subject to a minimum quarterly interest
payment of $16 thousand.
|
·
|
Interest shall be paid monthly in
arrears.
|
·
|
The expiration date of the
Agreement is March 4, 2011, at which time any outstanding advances, and
accrued and unpaid interest thereon, will be due and
payable.
|
·
|
In connection with the entry into
the Agreement by the Lender, Optex Systems, Inc. paid the
Lender a facility fee of $20 thousand and issued a warrant to Lender to
purchase 1,000,000 shares of its common stock. The warrant bears an
exercise price of $0.10 per share and expires on March 3,
2016.
|
·
|
The obligations of Optex Systems,
Inc. to the Lender are secured by a first lien on all of
its assets (including intellectual property assets should it have any in
the future) in favor of the
Lender.
|
·
|
The Agreement contains
affirmative and negative covenants that require Optex Systems,
Inc. to maintain certain minimum cash and EBITDA levels
on a quarterly basis and contains other customary covenants. The
Agreement also contains customary events of default. Upon the
occurrence of an event of default that remains uncured after any
applicable cure period, the Lender’s commitment to make further advances
may terminate, and the Lender would also be entitled to pursue other
remedies against Optex Systems, Inc. and the pledged
collateral.
|
·
|
Pursuant to a guaranty executed
by Optex Systems Holdings in favor of Lender, Optex Systems Holdings has
guaranteed all obligations of Optex Systems, Inc. to
Lender.
|
Date of
|
Shares
|
Exercise
|
Shares Outstanding
|
Expiration
|
Vesting
|
||||||||||
Grant
|
Granted
|
Price
|
As of 1/02/11
|
Date
|
Date
|
||||||||||
03/30/09
|
480,981
|
$
|
0.15
|
480,981
|
03/29/2016
|
03/30/2010
|
|||||||||
03/30/09
|
466,834
|
$
|
0.15
|
466,834
|
03/29/2016
|
03/30/2011
|
|||||||||
03/30/09
|
466,834
|
$
|
0.15
|
466,834
|
03/29/2016
|
03/30/2012
|
|||||||||
05/14/09
|
316,750
|
$
|
0.15
|
295,750
|
05/13/2016
|
05/14/2010
|
|||||||||
05/14/09
|
316,750
|
$
|
0.15
|
295,750
|
05/13/2016
|
05/14/2011
|
|||||||||
05/14/09
|
316,750
|
$
|
0.15
|
295,750
|
05/13/2016
|
05/14/2012
|
|||||||||
05/14/09
|
316,750
|
$
|
0.15
|
295,750
|
05/13/2016
|
05/14/2013
|
|||||||||
Total
|
2,681,649
|
2,597,649
|
Number
|
Weighted
|
|||||||||||||||
of Shares
|
Average
|
Weighted
|
||||||||||||||
Remaining
|
Intrinsic
|
Average
|
Aggregate
|
|||||||||||||
Subject to Exercise
|
Options
|
Price
|
Life (Years)
|
Value
|
||||||||||||
Outstanding
as of October 3, 2010
|
2,598,649
|
$
|
-
|
4.13
|
$
|
-
|
||||||||||
Granted
– 2011
|
-
|
$
|
-
|
-
|
-
|
|||||||||||
Forfeited
– 2011
|
(1,000
|
)
|
$
|
-
|
-
|
-
|
||||||||||
Exercised
– 2011
|
-
|
$
|
-
|
-
|
-
|
|||||||||||
Outstanding
as of January 2, 2011
|
2,597,649
|
$
|
-
|
3.88
|
$
|
-
|
||||||||||
Exercisable
as of January 2, 2011
|
776,731
|
$
|
-
|
2.78
|
$
|
-
|
Number of
Non-
vested
Shares
Subject to
Options
|
Weighted-
Average
Grant-
Date
Fair Value
|
|||||||
Non-vested
as of October 3, 2010
|
1,821,668
|
$
|
0.14
|
|||||
Non-vested
granted — three months ended January 2, 2011
|
-
|
$
|
0.00
|
|||||
Vested —
three months ended January 2, 2011
|
-
|
$
|
0.14
|
|||||
Forfeited — three
months ended January 2, 2011
|
(750
|
)
|
$
|
0.14
|
||||
Non-vested
as of January 2, 2011
|
1,820,918
|
$
|
0.14
|
Grant Date
|
Warrants
Granted
|
Exercise
Price
|
Outstanding as of
01/02/11
|
Expiration
Date
|
Term
|
||||||||||||
Private
Placement Stock Holders
|
3/30/2009
|
8,131,667
|
$
|
0.450
|
8,131,667
|
3/29/2014
|
5 years
|
||||||||||
Finder
Fee on Private Placement
|
3/30/2009
|
717,000
|
$
|
0.165
|
717,000
|
3/29/2014
|
5
years
|
||||||||||
Longview
Fund Allonge Agreement
|
1/5/2010
|
100,000
|
$
|
0.150
|
100,000
|
1/4/2013
|
3
years
|
||||||||||
Peninsula
Bank Business Funding - Line of Credit
|
3/4/2010
|
1,000,000
|
$
|
0.100
|
1,000,000
|
3/3/2016
|
6
years
|
||||||||||
Total
Warrants
|
9,948,667
|
9,948,667
|
Three months ending
January 2, 2011
|
Three months ending
December 27, 2009
|
|||||||
Net
Loss Applicable to Common
Shareholders
- GAAP
|
$ | (0.05 | ) | $ | - | |||
Add:
|
||||||||
Interest
Expense
|
0.02 | - | ||||||
Preferred
Stock Dividend
|
0.10 | 0.10 | ||||||
Federal
Income Taxes (Benefit)
|
0.03 | - | ||||||
Depreciation
& Amortization
|
0.02 | 0.30 | ||||||
EBITDA
- Non GAAP
|
$ | 0.12 | $ | 0.40 |
2011
|
2012
|
2013
|
||||||||||||||||||||||||||||||||||||||||||
Program Backlog (millions)
|
Qtr 2
|
Qtr 3
|
Qtr 4
|
Qtr 1
|
Qtr 2
|
Qtr 3
|
Qtr 4
|
Qtr 1
|
Qtr 2
|
Qtr 3
|
Total
|
|||||||||||||||||||||||||||||||||
Howitzers
|
1.2 | 2.0 | 0.9 | - | - | - | - | - | - | - | 4.1 | |||||||||||||||||||||||||||||||||
Periscopes
|
2.5 | 2.4 | 1.4 | 1.5 | 1.3 | 1.0 | 0.7 | 0.4 | 0.3 | 0.1 | 11.6 | |||||||||||||||||||||||||||||||||
Sighting Systems
|
- | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||
All
Other
|
0.4 | 0.1 | 0.1 | - | 0.1 | - | 0.1 | - | - | - | 0.9 | |||||||||||||||||||||||||||||||||
Total
|
4.1 | 4.5 | 2.4 | 1.5 | 1.4 | 1.0 | 0.8 | 0.4 | 0.3 | 0.1 | 16.6 |
Product Line
|
Three months ended
1/2/2011
|
Three months ended
12/27/2009
|
Change
|
|||||||||
Howitzer
Programs
|
$ | 1.6 | $ | 1.0 | $ | 0.6 | ||||||
Periscope
Programs
|
2.9 | 3.1 | (0.2 | ) | ||||||||
Sighting
Systems
|
- | 0.5 | (0.5 | ) | ||||||||
All
Other
|
0.5 | 1.3 | (0.8 | ) | ||||||||
Total
|
$ | 5.0 | $ | 5.9 | $ | (0.9 | ) | |||||
Percent
increase (decrease)
|
(-15.3 | )% |
|
·
|
The interest rate for all
advances shall be the greater of 8.5% and the then in effect prime rate
plus 3.5% and subject to a minimum quarterly interest payment of $16
thousand.
|
|
·
|
Interest shall be paid monthly in
arrears.
|
|
·
|
The expiration date of the
facility is March 4, 2011, at which time any outstanding advances, and
accrued and unpaid interest thereon, will be due and
payable.
|
|
·
|
In connection with the entry into
the facility by Peninsula Bank Business Funding, Optex Systems,
Inc. paid Peninsula Bank Business Funding a facility fee
of $20 thousand and issued a warrant to Peninsula Bank Business Funding to
purchase 1,000,000 shares of its common stock. The warrant bears an
exercise price of $0.10 per share and expires on March 3,
2016.
|
|
·
|
The obligations of Optex Systems,
Inc. to Peninsula Bank Business Funding are secured by a first lien on all
of its assets (including intellectual property assets should it have any
in the future) in favor of Peninsula Bank Business
Funding.
|
|
·
|
The facility contains affirmative
and negative covenants that require Optex Systems, Inc. to maintain
certain minimum cash and EBITDA levels on a quarterly basis and contains
other customary covenants. The facility also contains customary
events of default. Upon the occurrence of an event of default that
remains uncured after any applicable cure period, Peninsula Bank Business
Funding’s commitment to make further advances may terminate, and Peninsula
Bank Business Funding would also be entitled to pursue other remedies
against Optex Systems, Inc. and the pledged
collateral.
|
|
·
|
Pursuant to a guaranty executed
by Optex Systems Holdings in favor of Peninsula Bank Business Funding,
Optex Systems Holdings has guaranteed all obligations of Optex Systems,
Inc. to Peninsula Bank Business
Funding.
|
Exhibit
|
||
No.
|
|
Description
|
10.29 Third
Amendment to Loan and Security Agreement, between Optex and Peninsula Bank
Business Funding, dated February 15, 2011
|
||
31.1
and 31.2 Certifications pursuant to Section 302 of Sarbanes Oxley Act of
2002
|
||
32.1
and 32.2 Certifications pursuant to Section 906 of Sarbanes Oxley Act of
2002
|
OPTEX
SYSTEMS HOLDINGS, INC.
|
||
Date:
February 16, 2011
|
By:
|
/s/ Stanley A. Hirschman
|
Stanley
A. Hirschman
Principal
Executive
Officer
|
OPTEX
SYSTEMS HOLDINGS, INC.
|
||
Date:
February 16, 2011
|
By:
|
/s/ Karen Hawkins
|
Karen
Hawkins
Principal
Financial Officer and Principal
Accounting
Officer
|