Quarterly report pursuant to Section 13 or 15(d)

Warrant Liabilities

Warrant Liabilities

9 Months Ended

Jun. 27, 2021

Note 6-Warrant Liabilities

On August 26, 2016, Optex Systems Holdings, Inc. issued 4,323,135 warrants to new shareholders and the underwriter, in connection with a public share offering. The warrants entitle the holder to purchase one share of our common stock at an exercise price equal to $1.50 per share at any time on or after August 26, 2016 (the “Initial Exercise Date”) and on or prior to the close of business on August 26, 2021 (the “Termination Date”). The Company determined that these warrants are free standing financial instruments that are legally detachable and separately exercisable from the common stock included in the public share offering. Management also determined that the warrants are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480 “Distinguishing Liabilities from Equity”. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with the accounting guidance, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the consolidated statements of operations.

The fair value of the warrant liabilities presented below were measured using a Black Scholes Merton (BSM) valuation model. Significant inputs into the respective model at the reporting period measurement dates are as follows:

Valuation Assumptions	Period ended September 29, 2019			Period ended September 27, 2020			Period ended June 28, 2020			Period ended June 27, 2021
Exercise Price ⁽¹⁾	$	1.50		$	1.50		$	1.50		$	1.50
Warrant Expiration Date ⁽¹⁾		8/26/2021			8/26/2021			8/26/2021			8/26/2021
Stock Price ⁽²⁾	$	1.56		$	1.96		$	1.90		$	1.53
Interest Rate (annual) ⁽³⁾		1.63	%		0.12	%		0.17	%		0.06	%
Volatility (annual)		53.66	%		51.67	%		52.82	%		44.35	%
Time to Maturity (Years)		1.9			0.9			1.2			0.2
Calculated fair value per share	$	0.49		$	0.62		$	0.62		$	0.13

(1)	Based on the terms provided in the warrant agreement to purchase common stock of Optex Systems Holdings, Inc. dated August 26, 2016.
(2)	Based on the trading value of common stock of Optex Systems Holdings, Inc. as of each presented period ended date.
(3)	Interest rate for U.S. Treasury Bonds as each presented period ended date, as published by the U.S. Federal Reserve.

The warrants outstanding and fair values at each of the respective valuation dates are summarized below:

Warrant Liability	Warrants Outstanding		Fair Value per Share		Fair Value (000’s)
Fair Value as of period ended 9/29/2019		4,125,200	$	0.49	$	2,036
Loss on Change in Fair Value of Warrant Liability						504
Fair Value as of period ended 6/28/2020		4,125,200	$	0.62		2,540

Fair Value as of period ended 9/27/2020		4,125,200	$	0.62	$	2,544
Gain on Change in Fair Value of Warrant Liability						(2,025	)
Fair Value as of period ended 6/27/2021		4,125,200	$	0.13	$	519

During the three and nine months ended June 27, 2021 and June 28, 2020, there were no new issues or exercises of existing warrants.

The warrant liabilities are considered Level 3 liabilities on the fair value hierarchy as the determination of fair value includes various assumptions about future activities and the Company’s stock prices and historical volatility as inputs.