Annual report pursuant to Section 13 and 15(d)

Warrant Liabilities (Tables)

Warrant Liabilities (Tables)

12 Months Ended

Oct. 02, 2016

Schedule of fair value of warrant liabilities using a binomial lattice model

The fair value of the warrant liabilities were measured using a binomial lattice model (“Binomial”). Significant inputs into the model at the inception and reporting period measurement dates are as follows:

Binomial Assumptions	Issuance date ⁽¹⁾ August 26, 2016			Period ending October 2, 2016
Exercise Price⁽¹⁾	$	1.50		$	1.50
Warrant Expiration Date⁽¹⁾		August 26, 2021
Stock Price⁽²⁾	$	0.95		$	0.77
Interest Rate (annual)⁽³⁾		1.23	%		1.14	%
Volatility (annual)⁽⁴⁾		246.44	%		242.17	%
Time to Maturity (Years)		5.0			4.9
Number of Steps (Years)		5
Calculated fair value per share	$	0.93		$	0.76

(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 August 26, 2016 and October 2, 2016.

(3) Interest rate for U.S. Treasury Bonds, as of August 26, 2016 and October 2, 2016 as published by the U.S. Federal Reserve.

(4) Based on the historical daily volatility of Optex Systems Holdings, Inc. as of August 26, 2016.

Schedule of warrant liability

The proceeds of the offering are allocated between the common stock, Series C preferred shares and warrant liability as of the initial measurement as follows:

	(Thousands, except share and per share data)

As of August 26, 2016	Common Shares			Series C Preferred Shares			Total			Underwriter Warrants*			Warrant Liability*
Shares		2,291,900			400						166,500			4,125,200
Price per share	$	1.20		$	5,000					$	0.9349		$	0.9349
Proceeds received	$	2,750		$	2,000		$	4,750
Less: Warrant liability at fair value		(2,142	)		(1,558	)		(3,700	)	$	(156	)	$	(3,856	)
Residual proceeds to shares	$	608		$	442		$	1,050

Schedule of warrants outstanding

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 at initial measurement date of 8/26/2016		4,125,200	$	0.9349	$	3,857
(Gain) on Change in Fair Value of Warrant Liability						(739	)
Fair Value as of period ending 10/2/2016		4,125,200	$	0.7558	$	3,118

- Definition

Tabular disclosure of warrants or rights issued. Warrants and rights outstanding are derivative securities that give the holder the right to purchase securities (usually equity) from the issuer at a specific price within a certain time frame. Warrants are often included in a new debt issue to entice investors by a higher return potential. The main difference between warrants and call options is that warrants are issued and guaranteed by the company, whereas options are exchange instruments and are not issued by the company. Also, the lifetime of a warrant is often measured in years, while the lifetime of a typical option is measured in months. Disclose the title of issue of securities called for by warrants and rights outstanding, the aggregate amount of securities called for by warrants and rights outstanding, the date from which the warrants or rights are exercisable, and the price at which the warrant or right is exercisable.

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