Annual report pursuant to Section 13 and 15(d)

Warrant Liabilities

v3.22.0.1
Warrant Liabilities
12 Months Ended
Oct. 03, 2021
Warrant Liabilities  
Warrant Liabilities

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:

 

    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:

 

    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  
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.