Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Sep. 28, 2014

Note 12 — Income Taxes

The income tax provisions as of September 28, 2014 and September 29, 2013 include the following:

	(Thousands)
	2014			2013
Current income tax expense:
Federal	$	—		$	—
State
	$	—		$	—
Deferred income tax provision (benefit):
Federal	$	(331	)	$	80
State
Change in valuation allowance		1,408			—

Provision for (Benefit from) income taxes, net	$	1,077		$	80

The income tax provision for Optex Systems as of September 28, 2014 differs from those computed using the statutory federal tax rate of 34%, due to the following permanent differences:

	2014			%			2013		%

Tax provision (benefit) at statutory federal rate	$	(334	)		(34	)%	$	74		34	%
Nondeductible expenses		3			0	%		6		3	%
Change in valuation and other		1,408			143	%		—		—
Provision for (Benefit from) income taxes, net	$	1,077			109	%	$	80		37	%

Deferred income taxes recorded in the balance sheets results from differences between financial statement and tax reporting of income and deductions. A summary of the composition of the deferred income tax assets (liabilities) follows:

	(Thousands)
	Deferred Tax Asset — Long Term
	As of September 28, 2014			As of September 29, 2013

Stock Options	$	195		$	171
Inventory Reserve		228			189
Unicap		39			50
Contract Loss Reserve		(275	)		(279	)
Fixed assets		27			27
Goodwill Amortization		1,612			1,773
Intangible Asset Amortization		823			915
Net Operating Losses		1,449			917
Other		(51	)		(47	)
Subtotal	$	4,047		$	3,716
Valuation allowance		(4,047	)		(2,639	)
Net deferred asset (liability)-long term	$	-0-		$	1,077

As of September 28, 2014, the Company has a net operating loss carryforward of approximately $4,263 thousand as compared to a net loss carryforwards of $2,698 thousand available as of September 29, 2013.

As of September 28, 2014 management has assessed the recoverability of deferred tax assets and has determined due to recent loss conditions and the downturn in the defense spending, that the balance of deferred tax assets will not be realized and has increased the valuation allowance reserves by $1.1 million during 2014. As of September 28, 2014 Optex Systems Inc. has a total deferred tax asset reserve of ($4.0) million against a total deferred tax asset of $4.0 million.

As the result of the application of the FASB ASC 740-10, Optex Systems Holdings has no unrecognized tax benefits. By statute, the tax years ending in September 28, 2014, September 29, 2013 and September 30, 2012 are open to examination by the major taxing jurisdictions to which the Optex Systems Holdings is subject.

There were no income taxes paid during the fiscal years ended September 28, 2014 or September 29, 2013.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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