Quarterly report pursuant to Section 13 or 15(d)

Intangible Assets

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Intangible Assets
 9 Months Ended
Jun. 28, 2015
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets

Note 4 – Intangible Assets

 

On November 3, 2014, Optex Systems, Inc. purchased the Applied Optics Products line 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 were essentially fulfilled as of quarter ended June 28, 2015. The amortization of identifiable intangible assets associated with the acquisition has been amortized on a straight line basis over the six month period beginning on December 29, 2014 and ending June 28, 2015 at a rate of $57.0 thousand per month pursuant to the order deliveries. The intangible amortization was 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.

 

Due to the short term duration of these intangible assets, there is no subsequent impairment testing 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 nine 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     $ -  

 

During the three and nine months ending June 28, 2015, $145.5 thousand and $291.1 thousand had been amortized to cost of sales, respectively, and $25.5 thousand and $51.1 thousand had been amortized to general and administrative expenses, respectively. As of June 28, 2015, the total unamortized balance of intangible assets was zero. There were no unamortized intangible assets or amortization expenses incurred in the three and nine months ending June 29, 2014.