What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-12-18 compared with 2022-12-19 · 355 added, 491 removed, 665 unchanged (56% of the section changed)

7 unchanged sentences

“Company”) as of October 1, 2023 and October 2, 2022, and the related consolidated statements of income,

stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the

stockholders’ equity, and cash flows for the twelve months then ended, and the related notes (collectively referred to as the

“financial statements”).

1 unchanged sentence

financial position of the Company as of October 1, 2023 and October 2, 2022, and the results of their operations and their cash

flows for the years then ended, in conformity with accounting principles generally accepted in the United States of

flows for the twelve months then ended, in conformity with accounting principles generally accepted in the United States of

financial statements are the responsibility of the Company’s management.

21 unchanged sentences

provide a reasonable basis for our opinion.

critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was

communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are

material to the financial statements and (2) involved especially challenging, subjective, or complex judgments.

The communication of

the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by

communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or

disclosures to which it relates.

Audit Matter Description

described in notes 2 and 13 to the consolidated financial statements, deferred tax assets and liabilities are determined based on

differing treatment of items for financial reporting and income tax reporting purposes.

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.

When assessing the recoverability of deferred tax assets, management considers the scheduled reversal of deferred tax liabilities,

projected future taxable income and tax planning strategies, and results of recent operations.

Management has determined that a

portion of the deferred tax assets may not be realized and has established a valuation allowance against the deferred tax asset

For the year ended October 2, 2022, the Company has a net carrying value of $0.9 million in deferred tax assets represented

by deferred tax assets of $1.8 million and a deferred tax asset valuation allowance of $0.9 million against those assets.

identified the evaluation of the deferred taxes as a critical audit matter because of the significant estimates and assumptions management

used in calculating the deferred tax assets and liabilities as well as the valuation allowance.

Performing audit procedures to evaluate

the reasonableness of these estimates and assumptions required a high degree of auditor judgment.

Additionally, the audit procedures

performed on deferred taxes required increased audit effort and involved the use of professionals with specialized skill and knowledge.

the Critical Audit Matter Was Addressed in the Audit

audit procedures consisted of the following:

management’s process for developing the accounting estimate for deferred taxes including

the valuation allowance.

the appropriateness of the significant estimates and assumptions used by management, including

the scheduled reversal of deferred tax liabilities, projected future taxable income, and

results of recent operations.

We considered the current and past performance of the entity,

the industry in which the Company operates, and whether audit evidence obtained from other

audit procedures resulted in any disconfirming evidence.

the completeness and accuracy of underlying data used in calculating deferred taxes and the

related valuation allowance.

professionals with specialized skill and knowledge to assist in the evaluation of the reasonableness

of deferred taxes and the related valuation allowance.

Audit Matters

audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be

communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and

(2) involved our especially challenging, subjective, or complex judgments.

We determined that there are no critical audit matters.

Whitley Penn LLP

have served as the Company’s auditor since 2017.

December 18, 2023

Systems Holdings, Inc.

Balance Sheets

except share and per share data)

October 1, 2023

October 2, 2022

(Thousands, except share and per share data)

October 1, 2023

October 2, 2022

Cash and Cash Equivalents

1 unchanged sentence

Inventory, Net

Contract Asset

Prepaid Expenses

10 unchanged sentences

Accrued Expenses

Accrued Selling Expense

Accrued Warranty Costs

3 unchanged sentences

Other Liabilities

Credit Facility

Operating Lease Liability, net of current portion

3 unchanged sentences

Stockholders’ Equity

Common Stock – ($ 0.001

par, 2,000,000,000 authorized, 6,716,638

and 8,523,704 shares issued, and 6,716,638

and 8,488,149 shares outstanding,

respectively)

Treasury Stock (at cost, zero and 35,555 shares held, respectively)

Common Stock – ($ 0.001 par, 2,000,000,000 authorized, 6,763,070 and 6,716,638 shares issued and outstanding, respectively)

Additional Paid in Capital

5 unchanged sentences

Statements of Income

(Thousands, except share

and per share data)

October 1, 2023

October 2, 2022

(Thousands, except share and per share data)

Twelve months ended

3 unchanged sentences

General and Administrative Expense

Operating Income (Loss)

Gain on change in fair value of warrants

Operating Income

Interest Expense

Other Income (Expense)

Income Before Taxes

Income Tax Expense (Benefit), net

Deemed dividends on participating securities

Income Tax Expense, net

Net income applicable to common shareholders

6 unchanged sentences

Statements of Cash Flows

October 1, 2023

October 2, 2022

Twelve months ended

2 unchanged sentences

Cash Flows from Operating Activities:

Adjustments to Reconcile Net Income to Net Cash provided by Operating Activities:

Gain on Change in Fair Value of Warrants

Adjustments to Reconcile Net Income to Net Cash provided by (used in) Operating

Stock Compensation Expense

2 unchanged sentences

Bad Debt Expense

Contract Asset

Prepaid Expenses

2 unchanged sentences

Accrued Warranty Costs

Accrued Selling Expense

Customer Advance Deposits

Increase In Accrued Estimated Loss On Contracts

(Decrease) Increase In Accrued Estimated Loss On Contracts

Total Adjustments

Net Cash provided by Operating Activities

Net Cash (used in) provided by Operating Activities

Cash Flows used in Investing Activities

1 unchanged sentence

Net Cash used in Investing Activities

Cash Flows used in Financing Activities

Cash Flows provided by (used) in Financing Activities

Cash Paid for Taxes Withheld On Net Settled Restricted Stock Unit Share Issue

Borrowings from Credit Facility

Payments to Credit Facility

Proceeds from Warrant Exercise

Common Stock Repurchases

Net Cash used in Financing Activities

Net Decrease in Cash and Cash Equivalents

Net Cash provided by (used in) Financing Activities

Net Increase (Decrease) in Cash and Cash Equivalents

Cash and Cash Equivalents at Beginning of Year

6 unchanged sentences

Cash Transactions:

Cash (Refund) Paid for Taxes

Cash Paid for (Refund of) Taxes

Cash Paid for Interest

3 unchanged sentences

(Thousands, except share data)

Balance at September 27, 2020

Stock Compensation Expense

Vested restricted stock units issued net of tax withholding

Common Stock Repurchase (1)

Exercise of Warrants (2)

Common Stock Purchase and Cancellation

Cancellation of Treasury Shares (1)

Balance at October 3, 2021

6 unchanged sentences

Balance at October 2, 2022

shares repurchased in the open market during the twelve months ended October 3, 2021 and October 2, 2022.

Shares were held in treasury

using the cost method.

As of October 3, 2021, there were 35,555 shares held in treasury at a cost of $ 69 thousand.

As of October

2, 2022, all of the treasury shares have been cancelled.

of warrants for common shares at $ 1.50 for gross proceeds of $ 283 thousand and a fair market value of $ 9 thousand as of the exercise

Balance, value

Stock Compensation Expense

Vested restricted stock units issued net of tax withholding

Restricted Shares Issued (4)

Forfeited Unvested Shares (3)

Balance at October 1, 2023

Balance, value

shares repurchased in the open market during the twelve months ended October 2, 2022.

Shares were held in treasury using the cost

As of October 1, 2023, all of the treasury shares have been cancelled.

shares repurchased pursuant to the tender offer that closed on September 15, 2022.

Total tendered shares of 1,603,773 at $ 2.65 , or

$ 4.25 million, plus transaction costs of $ 111 thousand.

tendered shares of 1,603,773 at $ 2.65 , or $ 4.25 million, plus transaction costs of $ 111 thousand.

Repurchased shares were immediately cancelled.

common restricted shares which were forfeited and cancelled in February 2023.

and unvested shares issued to board member on May 9, 2023.

Shares vest on 50 % January 1, 2024 and 50% January 1, 2025 .

accompanying notes are an integral part of these financial statements.

54 unchanged sentences

rates of interest.

Fair values for the Company’s warrant liabilities and derivatives are estimated by utilizing valuation models

that consider current and expected stock prices, volatility, dividends, market interest rates, forward yield curves and discount rates.

Besides the Company’s warrant liabilities, such amounts and the recognition of such amounts are subject to significant estimates

that may change in the future.

fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value and requires that assets and liabilities

9 unchanged sentences

available to management at those times.

of the measurements is considered a Level 3 measurement based on the availability of market data and inputs and the significance of any

unobservable inputs as of the measurement date.

The methods and significant inputs and assumptions utilized in estimating the fair value

of the warrant liabilities, as well as the respective hierarchy designations are discussed further in Note 12 “Warrant Liabilities”.

and Cash Equivalents :

11 unchanged sentences

The Company’s revenues for fiscal year ended October 2, 2022 are derived from sales to U.S.

government agencies ( 28 %), four major

government agencies ( 14 %), three major

defense contractors ( 22 %, 15 % and 7 %), one major commercial customer ( 22 %) and all other customers ( 20 %).

Optex Systems Holdings

does not believe that this concentration results in undue credit risk because of the financial strength of the obligees.

Optex Systems Holdings records its accounts receivable at the original sales invoice amount less 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, Optex Systems Holdings 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.

Optex Systems Holdings does not believe that this concentration

results in undue credit risk because of the financial strength of the obligees.

Optex Systems Holdings records its accounts receivable at the original sales invoice amount less

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, Optex Systems Holdings 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 of October 2, 2022, and October 3, 2021, Optex

Systems Holdings had an allowance for doubtful accounts of $ 5 thousand, for non U.S.

As of October 1, 2023, and October 2, 2022, Optex Systems Holdings had an allowance for doubtful accounts of $ 5

thousand, for non U.S.

government account balances greater than 120 days.

As the customer base is primarily U.S.

government and government prime contractors, Optex Systems Holdings allowance for doubtful accounts

Optex Systems Holdings charges uncollectible accounts to bad debt expense in the period as they are first deemed uncollectible.

In the fiscal year 2022 we recognized $ 21 thousand in bad debt expenses associated with uncollectible accounts.

In the fiscal year 2021

we recognized zero in bad debt expenses associated with uncollectible accounts.

of October 2, 2022, 89 %

of the accounts receivable balance was comprised of eight customers:

government, 10 %,

five major defense contractors, 14 %, 12 %, 9 %, 8 %

a commercial customer, 19 %,

and a foreign military customer, 10 %.

As of October 3, 2021, 87 %

of the accounts receivable balance was comprised of six customers:

government, 34 %,

three major defense contractors, 13 %, 10 %

and a commercial customer, 16 %,

and a foreign military customer, 7 %.

government and

government prime contractors, Optex Systems Holdings allowance for doubtful accounts is minimal.

Optex Systems Holdings charges

uncollectible accounts to bad debt expense in the period in which they are first deemed uncollectible.

In the fiscal year 2023 we

recognized zero

in bad debt expenses associated with uncollectible accounts.

In the fiscal year 2022 we recognized $ 21

thousand in bad debt expenses associated with uncollectible accounts.

Accounts receivable was $ 3,183 as of October 3, 2021.

of October 1, 2023, 79 % of the accounts receivable balance was comprised of six customers:

government, 17 %, four major defense

contractors, 21 %, 9 %, 8 % and 6 %, and a commercial customer, 18 %.

As of October 2, 2022, 89 % of the accounts receivable balance was comprised

of eight customers:

government, 10 %, five major defense contractors, 14 %, 12 %, 9 %, 8 % and 7 %, a commercial customer, 19 %, and

a foreign military customer, 10 %.

Inventory is recorded at the lower of cost or net realizable value, and adjusted as appropriate for decreases in valuation and

8 unchanged sentences

October 2, 2022

October 1, 2023

October 2, 2022

Raw Materials

12 unchanged sentences

Throughout the year, warranty costs are expensed as incurred, and as of each year end, Optex Systems Holdings reviews the prior 12-month

warranty experience rate and may adjust the warranty accrual as required to cover any estimated warranty expenses associated the period

end backlog of returned customer units awaiting repair or replacement plus any estimated warranty expenses related to anticipated future

returns on previous deliveries.

As of October 2, 2022 and October 3, 2021, the existing warranty reserve balances of $ 169 thousand and

$ 78 thousand, respectively, were reviewed and determined to be adequate to satisfy any future warranty claims that may have existed as

of the end of each fiscal year for shipments occurring in the prior 12 months.

We have made numerous improvements to our supplier bases

and internal production process to reduce the return rate on future shipments but will continue to review and monitor the reserve balances

related to this product line against any existing warranty backlog and current trend data as we repair and replace our current warranty

backlog and process future warranty returns.

warranty experience rate and may adjust the warranty accrual as required to cover any estimated warranty expenses associated with the

period end backlog of returned customer units awaiting repair or replacement plus any estimated warranty expenses related to anticipated

future returns on previous deliveries.

As of October 1, 2023 and October 2, 2022, the existing warranty reserve balances of $ 75 thousand

and $ 169 thousand, respectively, were reviewed and determined to be adequate to satisfy any future warranty claims that may have existed

as of the end of each fiscal year for shipments occurring in the prior 12 months.

We have made numerous improvements to our supplier

bases and internal production process to reduce the return rate on future shipments but will continue to review and monitor the reserve

balances related to this product line against any existing warranty backlog and current trend data as we repair and replace our current

warranty backlog and process future warranty returns.

table below summarizes the warranty expenses and incurred warranty costs for the twelve months ended October 1, 2023 and October 2, 2022.

33 unchanged sentences

January 11, 2021, the Company executed amendments extending the lease terms of both facilities for eighty-six months.

Execution of the

new lease amendments for the Dallas and Richardson facilities resulted in the balance sheet recognition of a right-of-use asset of $ 3.7

million and corresponding operating lease liabilities of approximately $ 3.7 million during the period ended October 3, 2021.

twelve months ended October 2, 2022, the Company has recognized $ 51 thousand in right-of-use-asset and corresponding operating lease

liabilities of $ 51 thousand for an office equipment lease expiring in December 2025.

As of the twelve

months ended October 2, 2022, the Company has recognized $ 51 thousand in right-of-use-asset and corresponding operating lease liabilities

of $ 51 thousand for an office equipment lease expiring in December 2025.

What changed 10-K

Item 8. Financial Statements and Supplementary Data