Quarterly report pursuant to Section 13 or 15(d)

Commitments and Contingencies

v3.22.1
Commitments and Contingencies
6 Months Ended
Apr. 03, 2022
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

Note 4 - Commitments and Contingencies

 

Non-cancellable Operating Leases

 

Optex Systems Holdings leases its office and manufacturing facilities for the Optex Systems, Inc., Richardson location and the Applied Optics Center Dallas address location. The Company also leases certain office equipment under non-cancellable operating leases.

 

The leased facility under Optex Systems Inc. located at 1420 Presidential Drive, Richardson, Texas consists of 49,100 square feet of space at the premises. The previous lease term for this location expired March 31, 2021 and the monthly base rent was $24.6 thousand through March 31, 2021. On January 11, 2021 the Company executed a sixth amendment extending the terms of the lease for eighty-six (86) months, commencing on April 1, 2021 and ending on May 31, 2028. The initial base rent is set at $25.3 thousand and escalates 3% on April 1 each year thereafter. The initial term included 2 months of rent abatement for April and May of 2021. The monthly rent includes approximately $11.3 thousand for additional Common Area Maintenance fees and taxes (“CAM”), to be adjusted annually based on actual expenses incurred by the landlord.

 

The leased facility under the Applied Optics Center located at 9839 and 9827 Chartwell Drive, Dallas, Texas, consists of 44,867 square feet of space at the premises. The previous lease term for this location expired on October 31, 2021 and the monthly base rent was $21.9 thousand through the end of the lease. On January 11, 2021 the Company executed a first amendment extending the terms of the lease for eighty-six (86) months, commencing on November 1, 2021 and ending on December 31, 2028. The initial base rent is set at $23.6 thousand as of January 1, 2022 and escalates 2.75% on January 1 each year thereafter. The initial term includes 2 months of rent abatement for November and December of 2021. The amendment provides for a five-year renewal option at the end of the lease term at the greater of the then “prevailing rental rate” or the then current base rental rate. Our obligations to make payments under the lease are secured by a $125,000 standby letter of credit. The monthly rent includes approximately $7.9 thousand for additional CAM, to be adjusted annually based on actual expenses incurred by the landlord.

 

Execution of the new lease amendments for the Dallas and Richardson facilities on January 11, 2021 resulted in the balance sheet recognition of a right-of-use asset of $3.7 million and corresponding operating lease liabilities of approximately $3.7 million during the twelve months ended October 3, 2021.

 

The Company had one non-cancellable office equipment lease with a commencement date of October 1, 2018 and a term of 39 months. The lease cost for the equipment was $1.5 thousand per month from October 1, 2018 through December 31, 2021. The lease was renewed on November 18, 2021 for an additional 48 months at a cost of $1.2 thousand per month. Equipment for the new lease has not yet been delivered due to part shortages. The lease effectivity date has been delayed by the supplier pending the receipt of the equipment by Optex.

 

As of April 3, 2022, the remaining minimum lease and estimated CAM payments under the non-cancelable facility space leases are as follows:

 

Fiscal Year   Facility
Lease
Payments
    Facility
Lease
Payments
    Total Lease Payments     Total Variable CAM Estimate  
    Non-cancellable Operating Leases (Thousands)        
    Optex Richardson     Applied Optics Center     Consolidated  
Fiscal Year     Facility
Lease
Payments
    Facility
Lease
Payments
      Total Lease Payments       Total Variable CAM Estimate  
2022 Base year lease     156       141       297       116  
2023 Base year lease     317       288       605       235  
2024 Base year lease     327       296       623       240  
2025 Base year lease     336       305       641       245  
2026 Base year lease     346       313       659       249  
2027 Base year lease     357       322       679       254  
2028 Base year lease     242       330       572       184  
2029 Base year lease     -       83       83       27  
Total base lease payments     2,081     $ 2,078       4,159     $ 1,550  
Imputed interest on lease payments (1)       (301 )     (326 )     (627 )        
Total Operating Lease Liability(2)   $ 1,780     $ 1,752     $ 3,532          
                                 
Right-of-use Asset(3)     $ 1,707     $ 1,698     $ 3,405          

 

(1)

 Assumes a discount borrowing rate of 5.0% on the new lease amendments effective as of January 11, 2021.

   
(2)  Includes $127 thousand of unamortized deferred rent.
 
(3)  Short-term and Long-term portion of Operating Lease Liability is $581 thousand and $2,951 thousand, respectively.

 

 

Total expense under both facility lease agreements for the three months ended April 3, 2022 and March 28, 2021 was $210 and $183 thousand, respectively. Total office equipment rentals included in operating expenses was $8 and $5 thousand for the three months ended April 3, 2022 and March 28, 2021, respectively.

 

Total expense under both facility lease agreements for the six months ended April 3, 2022 and March 28, 2021 was $419 and $361 thousand, respectively. Total office equipment rentals included in operating expenses was $10 thousand and $9 thousand for the six months ended April 3, 2022 and March 28, 2021, respectively.