|
Note
12 — 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, and on or prior to the close of business on August 26, 2021. 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 had no plans to consummate a fundamental transaction and did not believe a fundamental transaction was
likely to occur during the remaining term of the outstanding warrants. In accordance with the accounting guidance, the outstanding warrants
were 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 statement of income.
The
fair value of the warrant liabilities presented below were measured using either a BSM valuation model. Significant inputs into the respective
model at the inception and reporting period measurement dates are as follows:
Schedule
of Warrant Liabilities Assumptions Used
| |
|
Issuance date |
|
|
Period ended |
|
|
Period ended |
|
|
Period ended |
|
|
Period ended |
|
|
Expiration date |
|
| Valuation Assumptions |
|
August 26, 2016 |
|
|
October 1, 2017 |
|
|
September 30, 2018 |
|
|
September 29, 2019 |
|
|
September 27, 2020 |
|
|
August 26, 2021(5) |
|
| Exercise Price(1) |
|
$ |
1.50 |
|
|
$ |
1.50 |
|
|
$ |
1.50 |
|
|
$ |
1.50 |
|
|
$ |
1.50 |
|
|
$ |
1.50 |
|
| Warrant Expiration Date (1) |
|
|
8/26/2021 |
|
|
|
8/26/2021 |
|
|
|
8/26/2021
|
|
|
|
8/26/2021 |
|
|
|
8/26/2021 |
|
|
|
8/26/2021 |
|
| Stock Price (2) |
|
$ |
0.95 |
|
|
$ |
0.98 |
|
|
$ |
1.71 |
|
|
$ |
1.56 |
|
|
$ |
1.96 |
|
|
$ |
1.49 |
|
| Interest Rate (annual) (3) |
|
|
1.23 |
% |
|
|
1.62 |
% |
|
|
2.88 |
% |
|
|
1.63 |
% |
|
|
0.12 |
% |
|
|
- |
|
| Volatility (annual) (4) |
|
|
246.44 |
% |
|
|
179.36 |
% |
|
|
64.05 |
% |
|
|
53.66 |
% |
|
|
51.67 |
% |
|
|
- |
|
| Time to Maturity (Years) |
|
|
5 |
|
|
|
3.9 |
|
|
|
2.9 |
|
|
|
1.9 |
|
|
|
0.9 |
|
|
|
Expired |
|
| Calculated fair value per share |
|
$ |
0.93 |
|
|
$ |
0.87 |
|
|
$ |
0.82 |
|
|
$ |
0.49 |
|
|
$ |
0.62 |
|
|
$ |
- |
|
| (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 ending date. August 26, 2021 stock price based
on the volume weighted average price for 618,451 share trades on that date. Closing price was $1.55 based trades of 2,400 final shares
traded. |
| (3) |
Interest rate
for U.S. Treasury Bonds, as of each presented period ending date, as published by the U.S. Federal Reserve. |
| (4) |
Based on the
historical daily volatility of Optex Systems Holdings, Inc. as of each presented period ending date. |
| (5) |
Warrants expired
worthless without cashless exchange pursuant to the Warrant Agreement Section 2(c) determination that the August 26, 2021 VWAP calculation
of $1.49 was below the exercise price of $1.50. |
The
warrants outstanding and fair values at each of the respective valuation dates are summarized below:
Summary of Warrants Outstanding and Fair Values
| |
|
Warrants |
|
|
Fair Value |
|
|
Fair Value |
|
| Warrant Liability |
|
Outstanding |
|
|
per Share |
|
|
(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 |
|
|
|
|
|
|
|
|
|
|
508 |
|
| (Gain) Loss on Change in Fair Value of Warrant Liability, Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
| Reclassification to additional paid in capital on exercise of warrants |
|
|
|
|
|
|
|
|
|
|
|
|
| Reclassification to additional paid in capital on exercise of warrants, Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
| Fair Value as of period ended 9/27/2020 |
|
|
4,125,200 |
|
|
$ |
0.62 |
|
|
$ |
2,544 |
|
| Reclassification to additional paid in capital on exercise of warrants (1) |
|
|
(188,809 |
) |
|
|
|
|
|
|
(9 |
) |
| Gain on Change in Fair Value of Warrant Liability (2) |
|
|
(3,936,391 |
) |
|
|
|
|
|
|
(2,535 |
) |
| Fair Value as of period ended 10/03/2021 |
|
|
- |
|
|
$ |
- |
|
|
$ |
- |
|
| (1) |
Exercise
of warrants for gross proceeds of $283 thousand and a warrant liability fair market value of $292 thousand as of the exercise date. |
| (2) |
Expiration
of Warrants on August 26, 2021. |
The
warrant liabilities are considered Level 3 liabilities on the fair value hierarchy as the determination of fair value includes various
assumptions about of future activities and the Company’s stock prices and historical volatility as inputs.
|