Quarterly report pursuant to Section 13 or 15(d)

Intangible Assets

Intangible Assets

3 Months Ended

Dec. 28, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Note 4 – Intangible Assets

On November 3, 2014, Optex Systems, Inc. purchased the assets comprising L-3 Communications’ Applied Optics Products Line (“Purchased Assets”) in exchange for $1,013.1 thousand and the assumption of approximately $270.7 thousand of liabilities (see Note 3). Optex Systems, Inc. has allocated the consideration for the acquisition of the purchased assets among tangible and intangible assets acquired and liabilities assumed based upon their fair values as of the acquisition date. 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 Optex Systems Holdings as of November 3, 2014 as follows:

Assets:
Current assets, consisting primarily of inventory of $940.1 thousand and prepaid assets of $47.1 thousand	$	987.2
Identifiable intangible assets		342.2
Other non-current assets, principally property and equipment		2,064.7
Total assets	$	3,394.1

Liabilities:
Current liabilities, consisting of accounts payable of $119.4 thousand and accrued liabilities of $151.3 thousand	$	(270.7	)
Acquired net assets	$	3,123.4

The fair values of the intangible assets as of the asset transfer date consisted primarily of $342.2 thousand of undelivered customer order backlog with contracted delivery dates that will be essentially fulfilled as of quarter ended June 28, 2015. The amortization of identifiable intangible assets associated with the acquisition will be amortized on a straight line basis over the next six month period beginning on December 29, 2014 at a rate of $57.0 thousand per month pursuant to the expected order deliveries. The intangible amortization will be allocable to operating expenses as manufacturing cost of sales and general and administrative expenses at a rate of $48.5 thousand and $8.5 thousand per month, respectively, through quarter ending June 28, 2015. The identifiable intangible assets are amortized over 15 years for income tax purposes. As of three months ending December 28, 2014 the total unamortized balance of intangible assets was $342.2 thousand. There were no unamortized intangible assets or amortization expenses incurred in the three months ending December 29, 2013.

Due to the short term duration of these intangible assets, we do not anticipate subsequent impairment testing will be required. There have been no material changes to our assumptions since the acquisition date of November 3, 2014 that would indicate a change in the initial fair value estimate or future expected values during the next six months which would result in impairment.

A schedule of the intangible asset amortization on customer backlog is presented below by month and expense classification of general and administrative and costs of sales accounts.

	(Thousands)

Amortization Schedule	COS		G&A		Total Amortization		Unamortized Balance
Dec-14	$	-	$	-	$	-	$	342.2
Jan-15		48.5		8.5		57.0		285.2
Feb-15		48.5		8.5		57.0		228.2
Mar-15		48.5		8.5		57.0		171.2
Apr-15		48.5		8.5		57.0		114.2
May-15		48.5		8.5		57.0		57.2
Jun-15		48.6		8.6		57.2		-
Total	$	291.1	$	51.1	$	342.2	$	-

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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