UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549








FORM
10-Q









x
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
the quarterly period ended March 29, 2009




o
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the transition period from
______to______.




OPTEX SYSTEMS HOLDINGS,
INC.


(Exact
Name of Registrant as Specified in Charter)




Delaware
              
              333-143215
              
              33-143215(State
      or other jurisdiction of
                incorporation)
              
              (Commission
      File Number)
              
              (IRS
      Employer Identification No.)




1420
      Presidential Drive, Richardson, TX
              
              75081-2439(Address
      of principal executive offices)
              
              (Zip
      Code)





Registrant’s
telephone number, including area code: 972-238-1403





Sustut
Exploration, Inc. 1420 5th Avenue #220


Seattle,
Washington 98101





(Former
name or former address, if changed since last report)




(206)
274-5321


(Issuer
Telephone number)







(Former
Name or Former Address if Changed Since Last Report)




Check
whether the issuer (1) has filed all reports required to be filed by Section 13
or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter
period that the issuer was required to file such reports), and (2)has been
subject to such filing requirements for the past 90 days. Yes x  No o




Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during thepreceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files).YesoNooNot
applicable.




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company filer.
 See definition of “accelerated filer” and “large accelerated filer” in
Rule 12b-2 of the Exchange Act (Check one):




Large Accelerated Filer o
              Accelerated Filer o
              Non-Accelerated Filer o
              Smaller Reporting Company x




Indicate
by check mark whether the registrant is a shell company as defined in Rule 12b-2
of the Exchange Act. Yes x  No o




State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of May 11, 2009: 141,464,940 shares of common stock.





OPTEX
SYSTEMS HOLDINGS, INC.


(formerly
known as Sustut Exploration, Inc.)


FORM
10-Q


March
29, 2009


INDEX





PART
      I— FINANCIAL INFORMATIONItem
      1.
                Financial
      Statements
                3Item
      2.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                5Item
      3
                Quantitative
      and Qualitative Disclosures About Market Risk
                9Item
      4T.
                Control
      and Procedures
                10PART
      II— OTHER INFORMATIONItem
      1
                Legal
      Proceedings
                10Item
      1A
                Risk
      Factors
                10Item
      2.
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                14Item
      3.
                Defaults
      Upon Senior Securities
                14Item
      4.
                Submission
      of Matters to a Vote of Security Holders
                14Item
      5.
                Other
      Information
                15Item
      6.
                Exhibits
                15SIGNATURE
                16


2


Item 1. Financial
Information




OPTEX
SYSTEMS HOLDINGS, INC.


(formerly
known as Sustut Exploration, Inc.)





CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS





AS OF
MARCH 29, 2009


3


OPTEX
SYSTEMS HOLDINGS, INC.


(formerly
known as Sustut Exploration, Inc.)




BALANCE
      SHEETS
                F-1STATEMENTS
      OF OPERATIONS
                F-3STATEMENTS
      OF CASH FLOWS
                F-4STATEMENTS
      OF STOCKHOLDERS’ EQUITY
                F-6FINANCIAL
      STATEMENT FOOTNOTES
                F-7


4





OPTEX
SYSTEMS HOLDINGS, INC.


(formerly known as Sustut
Exploration, Inc.)


UNAUDITED


INTERIM
FINANCIAL STATEMENTS


FOR
THE QUARTER ENDED MARCH 29, 2009





Optex
Systems Holdings, Inc.


(formerly
known as Sustut Exploration, Inc.)





Balance
Sheets





As
      of
                
                
                Year End
      as of3/29/2009 (unaudited)
                9/28/2008ASSETSCurrent
      AssetsCash
                
                
                1,233,956
                
                
                
                170,183Accounts
      Receivable
                
                
                2,061,699
                
                
                
                2,454,235Net
      Inventory
                
                
                6,466,123
                
                
                
                4,547,726Prepaid
      Expenses
                
                
                235,896
                
                
                
                307,507Total
      Current Assets
                
                
                9,997,674
                
                
                
                7,479,651Property
      and EquipmentProperty
      Plant and Equipment
                
                
                1,345,172
                
                
                
                1,314,109Accumulated
      Depreciation
                
                
                (1,055,039
                )
                
                
                (994,542
                )Total
      Property and Equipment
                
                
                290,133
                
                
                
                319,567Other
      AssetsSecurity
      Deposits
                
                
                20,684
                
                
                
                20,684Intangibles,
      net of accumulated amortization of 1,035,596 and 370,371
      respectively.
                
                
                3,001,193
                
                
                
                1,100,140Goodwill
                
                
                7,110,415
                
                
                
                10,047,065Total
      Other Assets
                
                
                10,132,292
                
                
                
                11,167,889Total
      Assets
                
                
                20,420,099
                
                
                
                18,967,107





The
accompanying notes are an integral part of these financial
statements


F-1


Optex
Systems Holdings, Inc.


(formerly
known as Sustut Exploration, Inc.)





Balance
Sheets - Continued





UnauditedQuarter End
      as of
                  Year
      End as of29-Mar-09
                  28-Sep-08LIABILITIES
      AND STOCKHOLDERS EQUITYCurrent
      LiabilitiesAccounts
      Payable
                  
                  
                  2,066,815
                  
                  
                  
                  1,821,534Accrued
      Expenses
                  
                  
                  963,990
                  
                  
                  
                  798,974Accrued
      Warranties
                  
                  
                  284,305
                  
                  
                  
                  227,000Accrued
      Contract Losses
                  
                  
                  806,643
                  
                  
                  
                  821,885Loans
      Payable
                  
                  
                  
                  
                  
                  
                  373,974Income
      Tax Payable
                  
                  
                  350,318
                  
                  
                  
                  4,425Total
      Current Liabilities
                  
                  
                  4,472,071
                  
                  
                  
                  4,047,792Other
      LiabilitiesNote
      Payable
                  
                  
                  -
                  
                  
                  
                  2,000,000Accrued
      Interest on Note
                  
                  
                  -
                  
                  
                  
                  336,148Due
      to Parent
                  
                  
                  -
                  
                  
                  
                  4,300,151Total
      Other Liabilities
                  
                  
                  -
                  
                  
                  
                  6,636,299Total
      Liabilities
                  
                  
                  4,472,071
                  
                  
                  
                  10,684,091Stockholders'
      EquityOptex
      Systems Holdings, Inc. – Common Stock (par $0.001, 300,000,000
      authorized, 141,464,940 shares issued and outstanding as of March 29,
      2009)
                  
                  
                  141,465Optex
      Systems Holdings, Inc.  Preferred Stock (.001 par value, 5,000
      authorized,  1027 Series A Preferred issued and
      outstanding)
                  
                  
                  1Optex
      Systems, Inc. – Texas Common Stock (no par 100,000 authorized, 18,870
      shares issued and 10,000 shares outstanding)
                  
                  
                  
                  
                  
                  
                  164,834Optex
      Systems, Inc. – Texas Treasury Stock (8,870 shares at
cost)
                  
                  
                  -
                  
                  
                  
                  (1,217,400)Additional
      Paid-in-capital
                  
                  
                  22,071,962
                  
                  
                  
                  15,246,282Retained
      Earnings (Deficit)
                  
                  
                  (6,265,400
                  )
                  
                  
                  (5,910,700
                  )Total
      Stockholders' Equity
                  
                  
                  15,948,028
                  
                  
                  
                  8,283,016Total
      Liabilities and Stockholders' Equity
                  
                  
                  20,420,099
                  
                  
                  
                  18,967,107





The
accompanying notes are an integral part of these financial
statements


F-2





Optex
Systems Holdings, Inc.


(formerly
known as Sustut Exploration, Inc.)





Condensed
Consolidated Statements of Operations




Unaudited
      Three months ended
                  
                  
                  Unaudited
      Six months ended29-Mar-09
                  
                  
                  30-Mar-08
                  
                  
                  29-Mar-09
                  
                  
                  30-Mar-08Revenues
                  
                  
                  6,708,286
                  
                  
                  
                  5,628,115
                  
                  
                  
                  13,972,368
                  
                  
                  
                  10,044,019Total
      Cost of Sales
                  
                  
                  6,151,915
                  
                  
                  
                  5,026,005
                  
                  
                  
                  12,456,965
                  
                  
                  
                  8,865,499Gross
      Margin
                  
                  
                  556,371
                  
                  
                  
                  602,110
                  
                  
                  
                  1,515,403
                  
                  
                  
                  1,178,520General
      and AdministrativeSalaries
      and Wages
                  
                  
                  189,167
                  
                  
                  
                  316,838
                  
                  
                  
                  348,042
                  
                  
                  
                  490,526Employee
      Benefits
                  
                  
                  56,570
                  
                  
                  
                  20,070
                  
                  
                  
                  155,230
                  
                  
                  
                  99,142Employee
      Stock Bonus Plan
                  
                  
                  -
                  
                  
                  
                  77,094
                  
                  
                  
                  -
                  
                  
                  
                  178,861Amortization
      of Intangible
                  
                  
                  101,158
                  
                  
                  
                  54,123
                  
                  
                  
                  202,317
                  
                  
                  
                  115,245Rent,
      Utilities and Building Maintenance
                  
                  
                  57,102
                  
                  
                  
                  32,891
                  
                  
                  
                  112,435
                  
                  
                  
                  91,041Legal
      and Accounting Fees
                  
                  
                  92,493
                  
                  
                  
                  30,233
                  
                  
                  
                  168,713
                  
                  
                  
                  97,528Consulting
      and Contract Service Fees
                  
                  
                  55,255
                  
                  
                  
                  80,106
                  
                  
                  
                  134,577
                  
                  
                  
                  200,545Travel
      Expenses
                  
                  
                  11,704
                  
                  
                  
                  34,291
                  
                  
                  
                  25,023
                  
                  
                  
                  87,962Corporate
      Allocations
                  
                  
                  -
                  
                  
                  
                  508,696
                  
                  
                  
                  -
                  
                  
                  
                  942,630Board
      of Director Fees
                  
                  
                  37,500
                  
                  
                  
                  -
                  
                  
                  
                  50,000
                  
                  
                  
                  -Other
      Expenses
                  
                  
                  104,046
                  
                  
                  
                  76,294
                  
                  
                  
                  140,329
                  
                  
                  
                  148,092Total
      General and Administrative
                  
                  
                  704,995
                  
                  
                  
                  1,230,636
                  
                  
                  
                  1,336,666
                  
                  
                  
                  2,451,572Earnings
      (Loss) before Other Expenses and Taxes
                  
                  
                  (148,624
                  )
                  
                  
                  (628,526
                  )
                  
                  
                  178,737
                  
                  
                  
                  (1,273,052
                  )Other
      ExpensesOther
      Income and Expense
                  
                  
                  (647
                  )
                  
                  
                  -
                  
                  
                  
                  (1,083
                  )
                  
                  
                  (502
                  )Interest
      (Income) Expense - Net
                  
                  
                  91,904
                  
                  
                  
                  49,863
                  
                  
                  
                  184,202
                  
                  
                  
                  99,503Total
      Other
                  
                  
                  91,257
                  
                  
                  
                  49,863
                  
                  
                  
                  183,119
                  
                  
                  
                  99,001Income
      (Loss) Before Taxes
                  
                  
                  (239,881
                  )
                  
                  
                  (678,389
                  )
                  
                  
                  (4,382
                  )
                  
                  
                  (1,372,053
                  )Income
      Taxes (Benefit)
                  
                  
                  86,664
                  
                  
                  
                  -
                  
                  
                  
                  350,318
                  
                  
                  
                  -Net
      Income (Loss) After Taxes
                  
                  
                  (326,545
                  )
                  
                  
                  (678,389
                  )
                  
                  
                  (354,700
                  )
                  
                  
                  (1,372,053
                  )Basic
      and diluted loss per share (1)
                  
                  $
                  (0.00
                  )
                  
                  $
                  (0.00
                  )
                  
                  $
                  (0.00
                  )
                  
                  $
                  (0.01
                  )Weighted
      Average Common Shares Outstanding (1)
                  
                  
                  141,464,940
                  
                  
                  
                  141,464,940
                  
                  
                  
                  141,464,940
                  
                  
                  
                  141,464,940





1.
            The
      three months and six months ended March 30, 2008 are shown depicting
      effects of recapitalization of the entity and the Reorganization, as
      of March 30, 2009.





The
accompanying notes are an integral part of these financial
statements


F-3





Optex
Systems Holdings, Inc


(formerly
known as Sustut Exploration, Inc.)





Statements
of Cash Flows





Six
      months ended
                    
                    
                    Six
      months ended29-Mar-09
                    30-Mar-08Cash
      flows from operating activities:Net
      Loss
                    
                    
                    (354,700
                    )
                    
                    
                    (1,372,053
                    )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                    
                    
                    1,096,094
                    
                    
                    
                    429,791Provision
      for (use of) allowance for inventory valuation
                    
                    
                    123,136Noncash
      interest expense
                    
                    
                    169,280
                    
                    
                    
                    99,503(Increase)
      decrease  in accounts receivable
                    
                    
                    392,536
                    
                    
                    
                    (514,772
                    )(Increase)
      decrease in inventory (net of progress billed)
                    
                    
                    (2,041,533
                    )
                    
                    
                    1,444,598(Increase)
      decrease in other current assets
                    
                    
                    259,111
                    
                    
                    
                    (33,221
                    )Increase
      (decrease) in accounts payable and accrued expenses
                    
                    
                    409,839
                    
                    
                    
                    (163,053
                    )Increase
      (decrease) in accrued warranty costs
                    
                    
                    57,305Increase
      (decrease) in due to parent
                    
                    
                    1,428
                    
                    
                    
                    812,435Increase
      (decrease) in accrued estimated loss on contracts
                    
                    
                    (15,242
                    )
                    
                    
                    (374,770
                    )Increase
      (decrease) in income taxes payable
                    
                    
                    350,318Total
      adjustments
                    
                    
                    802,272
                    
                    
                    
                    1,700,511Net
      cash (used)/provided by operating activities
                    
                    
                    447,572
                    
                    
                    
                    328,458Cash
      flows from investing activities:Purchased
      of property and equipment
                    
                    
                    (31,063
                    )
                    
                    
                    (97,136
                    )Net
      cash used in investing activities
                    
                    
                    (31,063
                    )
                    
                    
                    (97,136
                    )Cash
      flows from financing activities:Private
      Placement net of stock issuance cost
                    
                    
                    874,529Repayment
      of Loans Payable
                    
                    
                    (227,265
                    )Net
      cash used in financing activities
                    
                    
                    647,264
                    
                    
                    
                    -Net
      increase (decrease) in cash and cash equivalents
                    
                    
                    1,063,773
                    
                    
                    
                    231,322Cash
      and cash equivalents at beginning of period
                    
                    
                    170,183
                    
                    
                    
                    504,753Cash
      and cash equivalents at end of period
                    
                    
                    1,233,956
                    
                    
                    
                    736,075





The
accompanying notes are an integral part of these financial
statements


F-4





Optex
Systems Holdings, Inc.


(formerly
known as Sustut Exploration, Inc.)





Statements
of Cash Flows – (continued)





Six
      months ended
                
                
                Six
      months ended29-Mar-09
                30-Mar-08Noncash
      investing and financing activities:Optex
      Delaware purchase of Optex Systems from Irvine SensorsLiabilities
      not assumedLoan
      Payable
                
                
                2,000,000Accrued
      Interest on Loan Payable
                
                
                345,648Income
      Taxes Payable attributable to Irvine
                
                
                4,425Due
      to Parent (Irvine Sensors)
                
                
                4,301,579Total
      liabilities not assumed
                
                
                6,651,652Debt
      Incurred for Purchase (converted to Series A preferred
    stock)
                
                
                (6,000,000
                )Additional
      Purchased Intangible Assets
                
                
                2,936,650Decrease
      to Goodwill
                
                
                (2,936,650
                )Recapitalization
      of Stockholders' Equity in Connection with sale to Optex Systems Inc. -
      Delaware
                
                
                (1,102,566
                )Effect
      on additional paid in capital
                
                
                (450,914
                )Conversion
      of Debt to Series A Preferred StockAdditional
      Paid in Capital ($6,000,000 Debt Retirement plus accrued interest of
      $159,781)
                
                
                6,159,781Issuance
      of Common shares in exchange for Investor Relations
    ServicesAdditional
      Paid in Capital (1,250,000 shares issued at .001 par)
                
                
                187,500Supplemental
      cash flow information:Cash
      paid for interest
                
                
                3,817Cash
      paid for taxes
                
                
                -





The
accompanying notes are an integral part of these financial
statements


F-5





Optex
Systems Holdings, Inc.


(formerly
known as Sustut Exploration, Inc.)


Statements
of Stockholders' Equity and Comprehensive Income/(Loss)




TreasuryCommon
                          
                          
                          Series
      A
                          
                          
                          
                          
                          
                          
                          
                          
                          Stock
                          
                          
                          Additional
                          
                          
                          
                          
                          
                          TotalShares
                          
                          
                          Preferred
                          
                          
                          Common
                          
                          
                          Preferred
                          
                          
                          (Optex-
                          
                          
                          Paid
      in
                          
                          
                          Retained
                          
                          
                          StockholdersOutstanding
                          
                          
                          Shares
                          
                          
                          Stock
                          
                          
                          Series
      A Stock
                          
                          
                          Texas)
                          
                          
                          Capital
                          
                          
                          Earnings
                          
                          
                          EquityBalance
      at September 28, 2008
                          
                          
                          10,000
                          
                          
                          
                          
                          
                          
                          164,834
                          
                          
                          
                          
                          
                          
                          (1,217,400
                          )
                          
                          
                          15,246,282
                          
                          
                          
                          (5,910,700
                          )
                          
                          
                          8,283,016Optex
      Delaware Acquisition
                          
                          
                          (10,000
                          )
                          
                          
                          
                          
                          
                          (164,834
                          )
                          
                          
                          
                          
                          
                          1,217,400
                          
                          
                          
                          (450,914
                          )
                          
                          
                          
                          
                          
                          
                          601,652Issuance
      of 50,000,000 Optex Delaware shares
                          
                          
                          50,000,000
                          
                          
                          
                          
                          
                          
                          50,000
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          50,000Conversion
      of 6,000,000 Debt and Interest to Series A preferreed
    shares
                          
                          
                          
                          
                          
                          
                          1,027
                          
                          
                          
                          
                          
                          
                          
                          1
                          
                          
                          
                          
                          
                          
                          
                          6,159,780
                          
                          
                          
                          
                          
                          
                          
                          6,159,781Stock
      split of 1.7:1 of common shares outstanding as of March 26,
      2009
                          
                          
                          35,000,000
                          
                          
                          
                          
                          
                          
                          
                          35,000
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (35,000
                          )
                          
                          
                          
                          
                          
                          
                          -Sustut
      Exploration ReorganizationReorganization
      of Optex Delaware Shares Outstanding
                          
                          
                          (85,000,000
                          )
                          
                          
                          
                          
                          
                          
                          (85,000
                          )
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          85,000
                          
                          
                          
                          
                          
                          
                          
                          -Reorganization
      Share Exchange (113,333,282 Sustut shares for 85,000,000 Optex System Inc.
      shares
                          
                          
                          113,333,282
                          
                          
                          
                          
                          
                          
                          
                          113,333
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (113,333
                          )
                          
                          
                          
                          
                          
                          
                          -Sustut
      Explorations Shares as of Reorganization
                          
                          
                          19,999,991
                          
                          
                          
                          
                          
                          
                          
                          20,000
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          167,500
                          
                          
                          
                          
                          
                          
                          
                          187,500Private
      Placement Sale of Stock
                          
                          
                          8,131,667
                          
                          
                          
                          
                          
                          
                          
                          8,132
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          1,012,647
                          
                          
                          
                          
                          
                          
                          
                          1,020,779Net
      Earnings (Loss) from continuing operations
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (354,700
                          )
                          
                          
                          (354,700
                          )Balance
      at March 29, 2009
                          
                          
                          141,464,940
                          
                          
                          
                          1,027
                          
                          
                          
                          141,465
                          
                          
                          
                          1
                          
                          
                          
                          0
                          
                          
                          
                          22,071,962
                          
                          
                          
                          (6,265,400
                          )
                          
                          
                          15,948,028




The
accompanying notes are an integral part of these financial
statements


F-6


OPTEX
SYSTEMS HOLDINGS, INC.


(formerly
known as Sustut Exploration, Inc.)


Notes
to Condensed Consolidated Financial Statements





Note 1 - Organization and
Operations





On March
30, 2009, Optex Systems Holdings, Inc., (formerly known as Sustut
Exploration, Inc.) , a
Delaware corporation (the “Company” or “Optex Systems”), along with Optex
Systems, Inc. , a privately held Delaware corporation which is the Company’s
wholly-owned subsidiary (“Reorganization Sub”), entered into a Reorganization
Agreement and Plan of Reorganization  (the “Reorganization
Agreement”), pursuant to which Optex Systems, Inc. was acquired by the Company
in a share exchange transaction.  Optex Systems Holdings, Inc. became
the surviving corporation (the “Reorganization”). At the closing, the Company
changed its name from Sustut Exploration Inc. to Optex Systems Holdings, Inc.
and its year end from December 31 to a fiscal year ending on the Sunday nearest
September 30.  This change in year end resulted in a change in
quarter-end from March 31, 2009 to March 29, 2009.   See Note
5.





On
October 14, 2008, certain senior secured creditors of IRSN, Longview Fund, L.P.
(“Longview Fund”) and Alpha Capital Anstalt (“Alpha”) formed Optex Systems,
Inc., a Delaware Corporation, (“Optex Delaware”),which acquired substantially
all of the assets and assumed certain liabilities of Optex Texas in a
transaction that was consummated via purchase at a public auction. Longview and
Alpha owned Optex Delaware until February 20, 2009, when Longview sold 100% of
its interest in Optex Delaware to Sileas Corp, as discussed
below.  After this asset purchase, Optex Texas remained a wholly-owned
subsidiary of IRSN.  Although Optex Delaware is the legal acquirer of
Optex Texas in the transaction, Optex Texas is considered the accounting
acquirer since the acquisition by Optex Delaware was deemed to be the purchase
of a business.  Accordingly, in subsequent periods the financial
statements presented will be those of the accounting acquirer.





Optex
Systems, Inc. (“Optex Texas”) was a privately held Texas Subchapter “S”
Corporation from inception in 1987 until December 30, 2005 when 70% of the
issued and outstanding stock was acquired by Irvine Sensors Corp. (“IRSN”) and
Optex Texas was automatically converted to a Subchapter “C”
Corporation.  On December 29, 2006, the remaining 30% equity interest
in Optex Texas was purchased by IRSN.





On
February 20, 2009, Sileas Corp. (“Sileas”), a newly-formed Delaware corporation,
owned by present members of the company’s management, purchased 100% of the
equity interest held by Longview, representing 90% of Optex Delaware in a
private transaction (the “Acquisition”).  See Note 4.





Optex
Systems, Inc. (“Optex”) operated as a privately-held Delaware corporation until
March 30, 2009, when as a result of the Reorganization Agreement described above
and also in Note 5 it became a wholly-owned subsidiary of Optex Systems
Holdings, Inc. (the “Company”).  The Company plans to carry on the
business of Optex as its sole line of business and all of the company’s
operations are conducted by and through Optex.  Accordingly, in
subsequent periods the financial statements presented will be those of the
accounting acquirer.




Optex’s
operations are based in Richardson, Texas in a leased facility comprising 49,100
square feet.  As of the six months ended March 29, 2009 the Company
operated with 120 full-time equivalent employees.





Optex
manufactures optical sighting systems and assemblies primarily for Department of
Defense (DOD) applications.  Its products are installed on a variety
of U.S. military land vehicles such as the Abrams and Bradley fighting vehicles,
Light Armored and Advanced Security Vehicles and have been selected for
installation on the Stryker family of vehicles. Optex also manufactures and
delivers numerous periscope configurations, rifle and surveillance sights and
night vision optical assemblies. The Company products consist primarily of build
to customer print products that are delivered both directly to the military
  services and to other defense prime contractors.




In
February 2009, the Optex ISO certification status changed from 9001:2000 to
9001:2008.


F-7


Note
2 - Accounting Policies





Basis
of Presentation





Principles of
Consolidation:The consolidated financial statements include
the accounts of Optex Systems Holdings, Inc. and its wholly-owned subsidiary,
Optex Systems, Inc. (Delaware).  All significant inter-company
balances and transactions have been eliminated in consolidation.





The
accompanying financial statements include the historical accounts of Optex
Systems, Inc. (Delaware).  As a result of the October 14, 2008
transaction, the accompanying financial statements also include the historical
accounts of Optex Systems, Inc. (Texas).





Although,
Optex Systems, Inc. (Texas) has been majority owned by various parent companies
described in the preceding paragraphs, no accounts of the parent companies or
the effects of consolidation with any parent companies have been included in the
accompanying financial statements  The Optex Systems, Inc. (Texas)
accounts have been presented on the basis of push down accounting in
accordance with Staff Accounting Bulletin No. 54 (SAB 54)   Application of “Push Down” Basis of
Accounting in Financial Statements of Subsidiaries Acquired by Purchase .
SAB 54 states that the push down basis of accounting should be used in a
purchase transaction in which the entity becomes wholly-owned. Under the push
down basis of accounting certain transactions incurred by the parent company,
that would otherwise be accounted for in the accounts of the parent, are “pushed
down” and recorded on the financial statements of the subsidiary. Accordingly,
items resulting from the purchase transaction such as goodwill, debt incurred by
the parent to acquire the subsidiary and other cost related to the purchase have
been  recorded on
the financial statements of the Company.





The
consolidated financial statements presented as of the period ended March 29,
2009 include the equity transactions of the Reorganization Agreement executed
March 30, 2009, which precipitated the change in year end.





The
condensed consolidated financial statements of the Company included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (the “SEC”). Certain
information and footnote disclosures normally included in financial statements
prepared in conjunction with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. These condensed financial statements should be read in
conjunction with the annual audited financial statements and the notes thereto
included in the Company’s Form 8k and other reports filed with the
SEC.





The
accompanying unaudited interim financial statements reflect all adjustments of a
normal and recurring nature which are, in the opinion of management, necessary
to present fairly the financial position, results of operations and cash flows
of the Company for the interim periods presented. The results of operations for
these periods are not necessarily comparable to, or indicative of, results of
any other interim period or for the fiscal year taken as a whole. Certain
information that is not required for interim financial reporting purposes has
been omitted.




Use of
Estimates: 
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statement and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from the estimates.





Inventory:  Inventory
is recorded at the lower of cost or market value, and adjusted as appropriate
for decreases in valuation and obsolescence. Adjustments to the valuation and
obsolescence reserves are made after analyzing market conditions, current and
projected sales activity, inventory costs and inventory balances to determine
appropriate reserve levels. Cost is determined using the first-in first-out
(FIFO) method. Under arrangements by which progress payments are received
against certain contracts, the customer retains a security interest in the
undelivered inventory identified with these contracts.  Payments
received for such undelivered inventory are classified as unliquidated progress
payments and deducted from the gross inventory balance.  The six
months ended March 29, 2009, and year ended September 28, 2008 inventory
included:





As of 3/29/2009
                  
                  
                  As of 9/28/2008Raw
      Materials
                  
                  $
                  5,842,090
                  
                  
                  $
                  4,199,657Work
      in Process
                  
                  
                  4,191,291
                  
                  
                  
                  5,575,520Finished
      Goods
                  
                  
                  596,301
                  
                  
                  
                  28,014Gross
      Inventory
                  
                  $
                  10,629,862
                  
                  
                  $
                  9,803,191Less:Unliquidated
      Progress Payments
                  
                  
                  (3,366,694
                  )
                  
                  
                  (4,581,736
                  )Inventory
      Reserves
                  
                  
                  (796,865
                  )
                  
                  
                  (673,729
                  )Net
      Inventory
                  
                  $
                  6,466,123
                  
                  
                  $
                  4,547,726


F-8


Gross
inventory increased by $826,671 in the six months ended March 29, 2009 to
support increased volume on the periscope and ICWS product
lines.  Unliquidated progress payments declined by $1,215,042 as a
result of increased shipments in previously progress billed programs, and
inventory reserves increased by $123,136 to accrue for estimated inventory
shrinkage due to scrap, obsolescence and manufacturing overhead adjustments
anticipated during physical inventory valuation at year end.





Earnings per
Share: Basic earnings per common share is computed by dividing net
earnings by the weighted average number of common shares outstanding during each
year presented.  Diluted earnings per common share give the effect to
the assumed exercise of stock options when dilutive.  There were no
dilutive stock options during the six months ended March 29, 2009 or March 30,
2008.





Note
3 - Recent Accounting Pronouncements




In June
2006, The FASB issued Interpretation No. 48 “ Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109 ” (“FIN 48”). This
Interpretation clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with FASB No.
109, “ Accounting for Income
Taxes ” . FIN 48
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. FIN 48 also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition. FIN 48 is effective for fiscal years beginning after
December 15, 2006. The adoption of FIN 48 did not have a material impact on the
Company's financial position, results of operations, or cash flows.




In
September 2006, the FASB issued FASB No. 157, “ Fair Value Measurements ”
which establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. While FASB No. 157 does not apply to transactions
involving share-based payment covered by FASB No. 123, it establishes a
theoretical framework for analyzing fair value measurements that is absent from
FASB No. 123. We have relied on the theoretical framework established by FASB
No. 157 in connection with certain valuation measurements that were made in the
preparation of these financial statements. FASB No. 157 is effective for years
beginning after November 15, 2007. Subsequent to the Standard’s issuance, the
FASB issued an exposure draft that provides a one year deferral for
implementation of the Standard for non-financial assets and
liabilities.  The adoption of FASB No. 157 did not have a material
impact on the Company's financial position, results of operations, or cash
flows.




In
February 2007, Statement of Financial Accounting Standards No. 159, “ The Fair Value Option for Financial
Assets and Financial Liabilities-Including an Amendment of FASB Statement No.
115 ,” (FASB 159), was issued. This standard allows a company to
irrevocably elect fair value as the initial and subsequent measurement attribute
for certain financial assets and financial liabilities on a contract-by-contract
basis, with changes in fair value recognized in earnings. The provisions of this
standard are effective as of the beginning of our fiscal year 2008, with early
adoption permitted.


The
adoption of FASB No. 159 did not have a material impact on the Company's
financial position, results of operations, or cash flows.




In March
2007, the Financial Accounting Standards Board ratified Emerging Issues Task
Force (“EITF”) Issue No. 06-10, "Accounting for Collateral Assignment
Split-Dollar Life Insurance Agreements”.  EITF 06-10 provides guidance
for determining a liability for the postretirement benefit obligation as well as
recognition and measurement of the associated asset on the basis of the terms of
the collateral assignment agreement.  EITF 06-10 is effective for
fiscal years beginning after December 15, 2007.  The adoption of EITF
06-10 did not have a material impact on the Company's financial position,
results of operations, or cash flows.





In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations and
SFAS No. 160, Accounting
and Reporting of Noncontrolling Interest in Consolidated Financial Statements,
an amendment of ARB No. 51 . These new standards will significantly
change the accounting for and reporting of business combinations and
non-controlling (minority) interests in consolidated financial statements.
Statement Nos. 141(R) and 160 are required to be adopted simultaneously and
are effective for the first annual reporting period beginning on or after
December 15, 2008. Earlier adoption is prohibited. The Company is currently
evaluating the impact of adopting SFAS Nos. 141(R) and SFAS 160 on its
financial statements. See Note 9 for adoption of SFAS 141R subsequent to
December 28, 2008.


F-9


In December 2007, the SEC
issued Staff Accounting Bulletin No. 110 (“SAB 110”). SAB 110 permits companies
to continue to use the simplified method, under certain circumstances, in
estimating the expected term of “plain vanilla” options beyond December 31,
2007. SAB 110 updates guidance provided in SAB 107 that previously stated that
the Staff would not expect a company to use the simplified method for share
option grants after December 31, 2007. The Company does not have any outstanding
stock options.





In March
2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standard (“SFAS”) No. 161, " Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No. 133
”.  SFAS 161 requires enhanced disclosures about an entity’s
derivative and hedging activities.  SFAS 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008 with early application encouraged. As such, the Company is
required to adopt these provisions at the beginning of the fiscal year ended
September 30, 2009. The Company is currently evaluating the impact of SFAS 161
on its financial statements but does not expect it to have a material
effect





In May
2008, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standard (“SFAS”) No. 162, " The Hierarchy of Generally Accepted
Accounting Principles ”.  SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States.  SFAS 162 is effective 60 days following the SEC’s
approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted
Accounting Principles. The adoption of FASB No. 162 did not have a material
impact on the Company's financial position, results of operations, or cash
flows.





In May
2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standard (“SFAS”) No. 163, " Accounting for Financial Guarantee
Insurance Contracts—an interpretation of FASB Statement No. 60 " (“SFAS
163”).  SFAS 163 interprets Statement 60 and amends existing
accounting pronouncements to clarify their application to the financial
guarantee insurance contracts included within the scope of that
Statement.  SFAS 163 is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and all interim periods within
those fiscal years.  As such, the Company is required to adopt these
provisions at the beginning of the fiscal year ended September 30,
2011.  The Company is currently evaluating the impact of SFAS 163 on
its financial statements but does not expect it to have a material
effect.





Note
4 — Acquisition of Substantially All of the Assets of Optex Texas





Acquisition
of Assets of Optex Texas by Optex Delaware on October 14, 2008





On
October 14, 2008, in a purchase transaction that was consummated via public
auction, Optex Delaware exchanged $15 million of IRSN debt owned by it and
assumed approximately $3.8 million of certain Optex Texas liabilities for
substantially all of the assets of Optex Texas .  The $15 million of
IRSN debt was contributed by Longview Fund and Alpha to Optex Delaware, as
discussed below, in exchange for a $6 million note payable from Optex Delaware
and a $9 million equity interest in Optex Delaware.  There was no
contingent consideration associated with the purchase.  Longview and
Alpha, which were secured creditors of IRSN, owned Optex Delaware until
February 20, 2009, when Longview sold 100% of its interest in Optex Delaware to
Sileas Corp, as discussed below.





Among
other assets, Optex Delaware purchased the following categories of assets from
Optex Texas:  intellectual property, production processes and
know-how, and outstanding contracts and customer relationships.  The
Company’s management intends to improve the business’s ability to serve its
existing customers and to attract new customers through quality product and
service which will be enabled by improved working capital availability as
opposed to working capital available during the time period in which the assets
were owned by IRSN.





Optex
Systems has allocated the consideration for its acquisition of the Purchased
Assets among tangible and intangible assets acquired and liabilities assumed
based upon their fair values. Assets that met the criteria for recognition as
intangible assets apart from goodwill were also valued at their fair
values.


F-10


The
Purchase Price was assigned to the acquired interest in the assets and
liabilities of the Company as of October 14, 2008 as follows:





Assets:Current
      assets, consisting primarily of inventory of $5,383,929 and accounts
      receivable of $1,404,434
                
                $
                7,330,910Identifiable
      intangible assets
                
                
                4,036,789Purchased
      Goodwill
                
                
                7,110,416Other
      non-current assets, principally property and equipment
                
                
                343,898Total
      assets
                
                
                18,822,013Liabilities:Current
      liabilities, consisting of accounts payable of $1,953,833 and accrued
      liabilities of $1,868,180
                
                $
                3,822,013Acquired
      net assets
                
                $
                15,000,000





The
following table summarizes the estimate of the fair values of the intangible
assets as of the asset transfer date:


TotalContracted
      Backlog - Existing Orders
                  
                  $
                  2,763,567Program
      Backlog - Forecasted IDIQ awards
                  
                  $
                  1,273,222Total
      Intangible Asset to be amortized
                  
                  $
                  4,036,789





Identifiable
intangible assets primarily consist of customer and program backlog and will be
amortized between general and administrative expenses and costs of sales
according to their respective estimated useful lives as follows:





2009
                    
                    
                    2010
                    
                    
                    2011
                    
                    
                    2012
                    
                    
                    2013Contracted
      Backlog amortized by delivery schedule
                    
                    COS
                    
                    $
                    1,666,559
                    
                    
                    $
                    718,290
                    
                    
                    $
                    126,158
                    
                    
                    $
                    19,614
                    
                    
                    $
                    4,761Contracted
      Backlog amortized by delivery schedule
                    
                    G&A
                    
                    $
                    149,990
                    
                    
                    $
                    64,646
                    
                    
                    $
                    11,354
                    
                    
                    $
                    1,765
                    
                    
                    $
                    429Program
      Backlog amortized straight line across 5 years
                    
                    G&A
                    
                    $
                    254,645
                    
                    
                    $
                    254,645
                    
                    
                    $
                    254,645
                    
                    
                    $
                    254,645
                    
                    
                    $
                    254,645Total
      Amortization by Year
                    
                    
                    
                    $
                    2,071,194
                    
                    
                    $
                    1,037,580
                    
                    
                    $
                    392,157
                    
                    
                    $
                    276,024
                    
                    
                    $
                    259,834





The
accompanying unaudited pro forma financial information for the three and six
months ended March 29, 2009 and March 30, 2008 present the historical financial
information of the accounting acquirer. The pro forma financial information is
presented for information purposes only. Such information is based upon the
standalone historical results of each company and does not reflect the actual
results that would have been reported had the acquisition been completed when
assumed, nor is it indicative of the future results of operations for the
combined enterprise.





Pro forma
revenue and earnings per share information is presented cumulatively in Note 5
regarding the subsequent acquisition of a controlling interest in Optex Delaware
by Sileas Corp. and the Reorganization Agreement.





Secured
Promissory Note Issued in connection with Purchase by Optex
Delaware





In
connection with the public sale of the Optex Texas assets to Optex Delaware,
Optex Delaware delivered to each of Longview Fund and Alpha a Secured Promissory
Note due September 19, 2011 in the principal amounts of $5,409,762 and $540,976,
respectively.  Each Note bears simple interest at the rate of 6% per
annum, and the interest rate upon an event of default increases to 8% per
annum.  After 180 days from the Issue Date, the principal amount of
the Notes and accrued and unpaid interest thereon may be converted into Optex
common stock at a conversion price of $1.80 per share (pre-split
and pre-Reorganization price).   The Notes may be
redeemed prior to maturity at a price of 120% of the then outstanding principal
amount plus all accrued and unpaid interest thereon.  The obligations
of Optex under the Notes are secured by a lien of all of the assets of Optex in
favor of Longview and Alpha. On
February 20, 2009, Longview transferred its Note to Sileas Corp. (see
below). On
March 27, 2009, Sileas and Alpha exchanged their Notes plus accrued and unpaid
interest for 1,027 shares of Optex Delaware Series A Preferred
Stock.


F-11


Acquisition
by Sileas Corp. on February 20, 2009





On
February 20, 2009, Sileas Corp. (“Sileas”), a newly-formed Delaware corporation,
owned by present members of the company’s management, purchased 100% of the
equity and debt interest held by Longview, representing 90% of Optex Delaware,
in a private transaction (the “Acquisition”).





The
primary reasons for the Acquisition by Sileas was to effect synergies that the
management of Sileas and the corporate structure of Sileas would produce in
achieving competitive advantages in the contract bidding process. Additional
operating efficiencies were expected to result from the ownership by present
members of management who are active in the daily operations of the
Company.





The
Acquisition was recorded in accordance with “Statement of Financial Accounting
Standards No. 141R” Business Combinations” effective for transactions after
December 15, 2008.





The
purchase price (“Purchase Price”) for the Acquisition was
$13,524,405.  Sileas issued a note to the Longview Fund LP for the
full amount of the Purchase Price in exchange for 45,081,350 shares of common
stock (the “Common Stock”) issued by the Company (representing 90% of the
outstanding shares) and a note dated December 2, 2008, issued by the Company to
Longview in the principal amount of $5,409,762 (the “Optex Note”). No contingent
consideration is due the seller in the transaction..  The Note is
secured by the assets of Sileas Corp. and a pledge of the outstanding stock of
Sileas Corp.





Sileas
has no operations or business activities other than holding the Purchased Assets
and has no revenues.





The fair
value of the 10% non-controlling interest at the date of acquisition is
estimated to be approximately $1,500,000. The fair value was derived by
computing 10% of the value of the Company as a whole based on the value of the
consideration given by Sileas for its 90% acquisition. The fair value of
the Company as a whole was established by the consideration of $15,000,000 given
in the previous transaction whereby Longview and Alpha Capital acquired the
Company in a public auction on October 14, 2008. Based upon the stable nature of
the Company’s operations, the fair value of the prior consideration was deemed
to be representative of the current market value.





Sileas
has allocated the consideration for its acquisition of the Purchased Assets
among tangible and intangible assets acquired and liabilities assumed based upon
their fair values. Assets that met the criteria for recognition as intangible
assets apart from goodwill were also valued at their fair values. The excess of
the purchase price over the fair values of the identifiable tangible assets,
intangibles assets and the fair value of the non controlling interest is
recognized as goodwill in the accompanying balance sheet in the amount of
$1,012,058. Goodwill is not amortized for financial reporting purposes but
measured at least annually for impairment.




The
Purchase Price was assigned to the acquired interest in the assets and
liabilities of the Company as of February 20, 2009 as follows:





Assets:Current
      assets, consisting primarily of inventory of $5,327,438 and accounts
      receivable of $2,897,583
                
                
                
                
                $
                8,687,102Identifiable
      intangible assets
                
                
                
                
                
                3,173,793Purchased
      Goodwill
                
                
                
                
                
                7,110,415Other
      non-current assets, principally property and equipment
                
                
                
                
                
                316,923Total
      assets
                
                
                
                
                $
                19,288,233Liabilities:Current
      liabilities, consisting primarily of accounts payable of $2,068,653 and
      accrued liabilities of $2,039,663
                
                
                
                
                $
                5,275,886Acquired
      net assets
                
                
                
                
                $
                14,012,347Purchase
      priceTotal
      consideration to seller (Sileas 90% interests)
                
                $
                13,524,405Fair
      Value minority interest under FAS 141R
                
                
                1,500,000$
                15,024,405Excess
      purchase price reported as goodwill
                
                
                
                
                
                $
                1,012,058


F-12


Accounts
receivable represent the amounts due from customers in the ordinary course of
business. The carrying amounts approximate their fair value and the Company
expects to collect the receivables subject to their normal historical
experiences.





Qualitative
factors that result in the recognition of goodwill exist from the synergies
expected to be achieved by combining the existing operations and the business
relationships of Sileas Corp as well as intangible assets that exist that do not
meet the criteria for separate recognition apart from goodwill such as the
intellectual capital inherent in its existing workforce, production methods and
its overall customer base. The identifiable intangible assets and recorded
goodwill are not deductible for income tax purposes.





As of the
February 20, 
2009 change in ownership, it was determined that there was no significant impact
to the unamortized intangible assets since the original determination on October
14, 2008.





Identifiable
intangible assets primarily consist of customer and program backlog, and will be
amortized between general and administrative expenses and costs of sales
according to their respective estimated useful lives.




The
accompanying unaudited pro forma financial information for the three and six
months ended March 29, 2008 and March 30, 2008 present the historical financial
information of the accounting acquirer. The pro forma financial information is
presented for information purposes only. Such information is based upon the
standalone historical results of each company and does not reflect the actual
results that would have been reported had the acquisition been completed when
assumed, nor is it indicative of the future results of operations for the
combined enterprise.





Pro forma
revenue and earnings per share information is presented cumulatively in Note 5
regarding the subsequent acquisition of Optex Delaware by Sileas Corp. and the
Reorganization Agreement.





Secured Promissory Note Due February
20, 2012/Longview Fund, LP -





As a
result of the transaction described above between Sileas and Longview Fund, LP
on February 20, 2009 (the “Issue Date”), Sileas, the new majority owner of Optex
Systems, executed and delivered to Longview Fund LP, a Secured Promissory Note
due February 20, 2012 in the principal amount of $13,524,405.  The
Note bears simple interest at the rate of 4% per annum, and the interest rate
upon an event of default increases to 10% per annum.  In the event
Optex sells or conveys all or substantially all its assets to a third party
entity for more than nominal consideration, other than a Reorganization into its
parent company (“Sileas”) or reincorporation in another jurisdiction, then this
Note shall be immediately due and owing without demand.  In the event
that a Major Transaction occurs prior to the maturity date resulting in the
Borrower receiving Net Consideration with a fair market value in excess of the
principal and interest due under the terms of this Secured Note, (the “Optex
Consideration”), then in addition to paying the principal and interest due,
Optex (“Sileas”) shall also pay an amount equal to 90% of the Optex
Consideration.  The obligations of Optex under the Note are secured by
a security interest granted to Longview Fund pursuant to a Stock Pledge
Agreement delivered by Sileas to Longview and also by a lien on all of the
assets of Sileas.





The note
payable has been accounted for on the basis of push-down accounting upon the
acquisition since Sileas acquired a 90% controlling interest and as such the
note payable by Sileas (Parent) is recorded on the financial statements of Optex
Delaware (Subsidiary) as of February 20, 2009.  Concurrent with the
“Reorganization agreement” reverse Reorganization on March 30, 2009 with Optex
Systems Holdings, Inc., Sileas’ ownership is diluted to a percentage less than
that under which push-down accounting applies.  Accordingly, the note
payable owned by Sileas to Longview has been reflected solely on the financial
statements of Sileas and is not reflected as a liability in the financial
statements of Optex Systems Holdings, Inc.


F-13


Note
5 –Reorganization Plan & Private Placement





Reorganization/Share
Exchange





On March
30, 2009, a reorganization/share exchange (“Reorganization”) occurred whereby
the then existing shareholders of Optex Systems (Delaware) exchanged their
shares of Common Stock with the shares of Common Stock of Optex Systems
Holdings, Inc. (formerly Sustut Exploration, Inc.) (the “Company”) as
follows:   (i) the outstanding 85,000,000 shares of Optex Systems
(Delaware) Common Stock were exchanged by the Company for 113,333,282
shares of Company Common Stock, (ii) the outstanding 1,027 shares of Optex
Systems (Delaware) Series A Preferred Stock be exchanged by the Company for
1,027 shares of Company Series A Preferred Stock and such additional items as
more fully described in the Agreement and (iii) the 8,131,667 shares of Optex
Systems (Delaware) Common Stock purchased in the private placement were
exchanged by the Company for 8,131,667 shares of Company Common
Stock.  Optex Systems (Delaware) shall remain a wholly-owned
subsidiary of the Company.





Shares
outstanding of the Company just prior to the close consisted of 19,999,991
shares of which 1,250,000 shares were issued on March 27, 2009 as payment for
Investor Relations Services.   The total outstanding common
shares of the Company subsequent to the close of the reorganization is as
follows:





Existing
      Sustut (Registrant) Shareholders
                  
                  
                  18,749,991Shares
      issued for Investor Relations Services
                  
                  
                  1,250,000Optex
      Systems Inc shares exchanged
                  
                  
                  113,333,282Private
      Placement shares issued
                  
                  
                  8,131,667Total
      Shares after Reorganization
                  
                  
                  141,464,940





Private
Placement





Simultaneously
with the closing of the Reorganization Agreement, as of March 30, 2009 , the
Company accepted subscriptions from accredited investors for a total of 27 units
(the "Units"), for $45,000.00 per Unit, with each Unit consisting of Three
Hundred Thousand (300,000) shares of common stock, no par value (the "Common
Stock") of the Company and warrants to purchase Three Hundred Thousand (300,000)
shares of Common Stock for $0.45 per share for a period of five (5) years from
the initial closing (the "Warrants"), which were issued by Sustut after the
closing referenced above.  Gross proceeds to the Company were
$1,219,750, and after deducting a finders fee of $139,555 which was payable in
cash, and non-cash consideration of indebtedness owed to an investor of
$146,250, net proceeds after stock issuance costs of $59,416 were
$874,529.  The finder also received five year warrants to purchase 2.7
Units, at an exercise price of $49,500 per unit.





Optex
Systems Holdings, Inc.


Balance
Sheet Adjusted for Reorganization and Private Placement





Unaudited Quarter
                
                
                Reorganization
                
                
                Private
                  Placement
                
                
                Unaudited Quarterended3/29/2009
                
                
                Adjustments(1)
                
                
                Adjustments
                
                
                Ended3/29/2009AssetsCurrent
      Assets
                
                
                8,880,436
                
                
                
                187,500
                
                
                
                929,738
                
                
                
                9,997,674Non
      current Assets
                
                
                10,422,425
                
                
                
                -
                
                
                
                -
                
                
                
                10,422,425Total
      Assets
                
                
                19,302,861
                
                
                
                187,500
                
                
                
                929,738
                
                
                
                20,420,099LiabilitiesLoans
      Payable
                
                
                146,709
                
                
                
                
                
                
                
                (146,250
                )
                
                
                459Other
      Current Liabilities
                
                
                4,416,403
                
                
                
                -
                
                
                
                55,209
                
                
                
                4,471,612Total
      Liabilities
                
                
                4,563,112
                
                
                
                -
                
                
                
                (91,041
                )
                
                
                4,472,071EquityOptex
      Systems Holdings, Inc. – (par $0.001, 300,000,000 authorized, 141,464,940
      shares issued and outstanding as of March 29, 2009)
                
                
                113,333
                
                
                
                20,000
                
                
                
                8,132
                
                
                
                141,465Optex
      Systems Holdings, Inc.  Preferred Stock (.001 par 5,000
      authorized,  1027 series A preferred issued and
      outstanding)
                
                
                1
                
                
                
                
                
                
                
                
                
                
                
                1Additional
      Paid in Capital
                
                
                20,891,815
                
                
                
                167,500
                
                
                
                1,012,647
                
                
                
                22,071,962Retained
      Earnings
                
                
                (6,265,400
                )
                
                
                
                
                
                
                
                
                
                
                (6,265,400
                )Total
      Stockholders Equity
                
                
                14,739,749
                
                
                
                187,500
                
                
                
                1,020,779
                
                
                
                15,948,028Total
      Liabilities and Stockholders Equity
                
                
                19,302,861
                
                
                
                187,500
                
                
                
                929,738
                
                
                
                20,420,099


F-14


(1)
            Sustut
      Exploration, Inc. Balance Sheet as of the March 30, 2009
      Reorganization.  Other assets include $187,500 in prepaid
      expenses for Investor Relation Services to be realized over the next 12
      months.  The services were prepaid by the issue of 1,250,000
      Sustut shares issued by Sustut prior to March 30,
      2009.   The prepaid expense covers April 2009 through April
      2010 and will be reflected on the consolidated Statement of Operations for
      Optex Systems Holdings, Inc. as
expensed.





The
expenses reflected by the Company on its Statement of Operations for the period
from April 1, 2009 through March 31, 2010 will be increased by $46,875 per
calendar quarter (as a non-cash expense) as a result of the issuance of the
1,250,000 shares for Investor Relations Services by Sustut and are carried on
the Sustut Balance Sheet as a prepaid expense.  The same Investor
Relations agreements also call for an aggregate cash payment of $8,000 per month
which will increase the expense by an additional $24,000 per
quarter.  Therefore, the total impact of the agreements for Investor
Relations Services is $70,875 per quarter (pretax) including both the current
cash expense and the amortization of the prepaid expense which is carried on the
Condensed Consolidated Balance Sheet of the Company.





The
accompanying unaudited pro forma financial information for the six months ended
March 29, 2009 and March 30, 2008 present the historical financial information
of the accounting acquirer. The pro forma financial information is presented for
information purposes only. Such information is based upon the standalone
historical results of each company and does not reflect the actual results that
would have been reported had the acquisition been completed when assumed, nor is
it indicative of the future results of operations for the combined
enterprise.





The
following represents condensed pro forma revenue and earnings information for
the three and six months ended March 29, 2009 and March 28, 2008 as if the
acquisition of Optex and Reorganization Plan had occurred on the first day of
each of the years.





Unaudited
                
                
                UnauditedThree Months Ended
                
                
                Six Months Ended29-Mar-09
                
                
                30-Mar-08
                
                
                29-Mar-09
                
                
                30-Mar-08Revenues
                
                
                6,708,286
                
                
                
                5,628,115
                
                
                
                13,972,368
                
                
                
                10,044,019Net
      Loss
                
                
                (326,545
                )
                
                
                (310,161
                )
                
                
                (345,200
                )
                
                
                (816,286
                )Diluted
      earnings per share
                
                $
                (0.00
                )
                
                $
                (0.00
                )
                
                $
                (0.00
                )
                
                $
                (0.01
                )Weighted
      Average Shares Outstanding
                
                
                141,464,940
                
                
                
                141,464,940
                
                
                
                141,464,940
                
                
                
                141,464,940





The pro
forma information depicted above reflect the impacts of reduced interest
expense, increased intangible amortization expenses, the elimination of
corporate allocation costs from IRSN and the elimination employee stock bonus
compensation pushed down from IRSN.  There is no expected tax effect
of the proforma adjustments for the periods affected in 2008 as the Company had
an accumulated retained deficit.


F-15


Note
6  Commitments and Contingencies





Leases





The
company leases its office and manufacturing facilities under two non-cancellable
operating leases expiring November 2009 and February 2010 in addition to
maintaining several non-cancellable operating leases for office and
manufacturing equipment.  Total expenses under these facility lease
agreements for the three and six months ended March 29, 2009 was $56,978.33 and
$170,935 respectively.  Total expenses for manufacturing and office
equipment for the three and six months ended March 29, 2009 was $5,598 and
$11,195.  At March 29, 2009, the remaining minimum lease payments
under non-cancelable operating leases for equipment, office and facility space
are as follows:





OperatingLeasesFiscal
      Years ending September2009
                  
                  $
                  182,1302010
                  
                  
                  79,8672011
                  
                  
                  16,7532012
                  
                  
                  -2013
                  
                  
                  -Thereafter
                  
                  
                  -Total
      minimum lease payments
                  
                  $
                  278,750




Note
7 - Debt Financing





Non-Related
parties





Short
Term Note Payable/Longview Fund -
  On September 23, 2008 Optex Delaware borrowed $146,709 from Longview
and issued a promissory note dated September 23, 2008, to Longview in connection
therewith.  The September 23, 2008 Note bears interest at the rate of
10% per annum with interest accruing until the maturity date of the September
23, 2008 Note, which was originally set as November 7, 2008 (“Maturity
Date”).  Pursuant to an Allonge No. 1 to Promissory Note, dated
January 20, 2009, the Maturity Date was extended until March 31,
2009.  On March 30, 2009 in conjunction with the Reorganization and
Private Placement, Longview Fund purchased 3.25 Units of the Private Placement
using $146,250 of the outstanding Note Payable as consideration for the
purchase. (See Note
5).





Short
term note payable (Qioptic) - On
November 20, 2008, Optex Delaware issued a promissory note (“Note”) to Qioptiq
Limited (“Qioptiq”) in the amount of $117,780. The Note originated as a trade
payable as of September 28, 2008 in the amount of $227,265, and as of March 29,
2009 had been paid in full with no outstanding balance.  The Note bore
interest at the rate of six percent per annum and had a maturity date of
February 13, 2009   (“Maturity Date”).  The terms of the
Note call for weekly payments of $10,000 each on the last business day of every
week commencing on the last business day of the first week after November 20,
2008 and continuing thereafter until the Maturity Date, on which date the
remaining principal amount of the Note and all accrued and unpaid interest
thereon shall become immediately due and payable.  The note plus all
accrued interest was paid in full by February 13, 2009.





Note
8  –  Stockholders Equity





Common
Stock:





Stock
Split





On March
26, 2009, the Company’s Board of Directors reconfirmed a 1.7:1 forward split of
its Common Stock to holders of record as of February 23,
2009.  Accordingly, as a result of the forward split, the 45,081,350
shares of Common Stock held by Sileas Corp. were split into
76,638,295  shares, and the 4,918,650 shares of Common Stock held by
Arland Holdings, Ltd. were split into 8,361,705 shares.





As of
March 30, 2009, the Company was authorized to issue 300,000,000 shares of $.001
par value common stock, of which 85,000,000 shares were issued and outstanding
as follows:


F-16





Sileas
      Corporation
                    
                    
                    76,638,295Arland
      Holding, LTD
                    
                    
                    8,361,705Total
      Outstanding
                    
                    
                    85,000,000





Reorganization
& Private Placement:





On March
29, 2009, as a result of the Reorganization Agreement and Private Placement, the
85,000,000 outstanding shares of Optex Systems, Inc. as of March 30, 2009 were
exchanged for 113,333,282 shares of Optex Systems Holdings Inc. (formerly Sustut
Exploration, Inc.).  An additional 8,131,667 shares were issued as a
result of the private placement held concurrent with the
reorganization.





Each
share of stock entitles the holder to one vote on matters brought to a vote of
the shareholders.





The
company granted an officer at the consummation of the reorganization, the
following number of options:  an amount equal to one percent (1%) of
the issued and outstanding common shares of the Company immediately after giving
effect to the consummation of the Reorganization, with 1,414,649, 34% of the
options vesting one year following the date of grant, and 33% vesting on each of
the second and third anniversaries following the date of grant, with the
exercise price of $0.15.





Series
A Preferred Stock





On March
24, 2009, the Company filed a Certificate of Designation with the Secretary of
State of the State of Delaware authorizing a series of preferred stock, under
its articles of incorporation, known as “Series A Preferred Stock”. This
Certificate of Designation was approved by the Registrant’s Board of Directors
and Shareholders at a Board Meeting and Shareholders Meeting held on February
25, 2009. The Certificate of Designation sets forth the following terms for the
Series A Preferred Stock: (i) Number of authorized shares: 1,027; (ii) per share
stated value: $6,000; (iii) liquidation preference per share:  stated
value; (iv) conversion price: $0.15 per share as adjusted from time to time; and
(v) voting rights: votes along with the Common Stock on an as converted basis
with one vote per share.





The
Series A Preferred Shares entitle the holders to receive cumulative dividends at
the rate of 6% per annum payable in cash at the discretion of Board of
Directors.  Each share of preferred stock is immediately convertible into
common shares at the option of the holder which entitles the holder to receive
the equivalent number of common shares equal to the stated value of the
preferred shares divided by the conversion price initially set at $0.15 per
share.





Holders
of preferred shares receive preferential rights in the event of
liquidation.  Additionally the preferred stock shareholders are entitled to
vote together with the common stock on an ”as-converted” basis.





On March
27, 2009, Sileas and Alpha Capital Anstalt exchanged their promissory notes in
the total amount of $6,000,000 plus accrued and unpaid interest thereon into
1,027 shares of Series A Preferred Stock.  On March 30, 2009 shares of
Optex Systems, Inc. Series A Preferred Stock was exchanged on a 1:1 basis for
Series A Preferred Stock of Optex Systems Holdings, Inc.





Note 9—Earnings/Loss Per
Share





Basic
earnings per share is computed by dividing income available to common
shareholders (the numerator) by the weighted-average number of common shares
outstanding (the denominator) for the period. Diluted earnings per share is
computed by assuming that any dilutive convertible securities outstanding were
converted, with related preferred stock dividend requirements and outstanding
common shares adjusted accordingly. For all periods presented herein, there are
no dilutive convertible securities.




The
following table sets forth the computation of basic and diluted net loss
attributable to common stockholders per share for the three and six months ended
March 29, 2009, and March 30, 2008.


F-17





Three months
                    
                    
                    Three months
                    
                    
                    Six months
                    
                    
                    Six monthsended
                    
                    
                    ended
                    
                    
                    ended
                    
                    
                    endedMarch
      29,
                    
                    
                    March
      30,
                    
                    
                    March
      29,
                    
                    
                    March
      30,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Numerator:Net
      loss
                    
                    $
                    (326,545
                    )
                    
                    $
                    (678,389
                    )
                    
                    $
                    (354,700
                    )
                    
                    $
                    (1,372,053
                    )Denominator:Weighted
      average shares
                    
                    
                    141,464,940
                    
                    
                    
                    141,464,940
                    
                    
                    
                    141,464,940
                    
                    
                    
                    141,464,940Basic
      and diluted net loss per share
                    
                    $
                    (0.00
                    )
                    
                    $
                    (0.00
                    )
                    
                    $
                    (0.00
                    )
                    
                    $
                    (0.01
                    )





Periods  ended
March 28, 2008 are shown depicting recapitalization and subsequent stock splits
of the entity.





Note
10-Stock Option Plan





On March 26, 2009, the Board of
Directors and Shareholders ofSustut adoptedthe2009 Stock Option Plan providing for
the issuance of up to 6,000,000 shares for the purpose of having shares
available for the granting of options to Company officers, directors, employees
and to independent contractors who provide services to the
Company.





Options
granted under the 2009 Stock Option Plan vest as determined by the Board of
Directors of the company or committee set up to act as a compensation committee
of the Board of Directors (the “Compensation Committee”) and terminate after the
earliest of the following events: expiration of the option as provided in the
option agreement, 90 days subsequent to the date of termination of the employee,
or ten years from the date of grant (five years from the date of grant for
incentive options granted to an employee who owns more than 10% of the total
combined voting power of all classes of the Company stock at the date of
grant).  In some instances, granted stock options are immediately
exercisable into restricted shares of common stock, which vest in accordance
with the original terms of the related options. The Company recognizes
compensation expense ratably over the requisite service period.





The
option price of each share of common stock shall be determined by the
Compensation Committee, provided that with respect to incentive stock options,
the option price per share shall in all cases be equal to or greater than 100%
of the fair value of a share of common stock on the date of the grant, except an
incentive option granted under the 2009 Stock Option Plan to a shareholder that
owns more than 10% of the total combined voting power of all classes of the
Company stock, shall have an exercise price of not less than 110% of the fair
value of a share of common stock on the date of grant. No participant may be
granted incentive stock options, which would result in shares with an aggregate
fair value of more than $100,000 first becoming exercisable in one calendar
year.





As of
March 29, 2009, no stock options have been granted under the 2009 Stock Option
Plan.


F-18


ITEM
2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS





Management’s
Discussion and Analysis or Plan of Operations





All
references to the “Company,” “we,” “our” and “us” for periods prior to the
closing of the Reorganization refer to Optex, and references to the “Company,”
“we,” “our” and “us” for periods subsequent to the closing of the Reorganization
refer to the Registrant and its subsidiaries.





The
following discussion highlights the principal factors that have affected our
financial condition and results of operations as well as our liquidity and
capital resources for the periods described.  This discussion contains
forward-looking statements. Please see “Special cautionary statement concerning
forward-looking statements” and “Risk factors” for a discussion of the
uncertainties, risks and assumptions associated with these forward-looking
statements. The operating results for the periods presented were not
significantly affected by inflation.





Background





On March
30, 2009, a reorganization/share exchange (“Reorganization”) occurred whereby
the then existing shareholders of Optex Systems (Delaware) exchanged their
shares of Common Stock with the shares of Common Stock of Optex Systems
Holdings, Inc. (formerly Sustut Exploration, Inc.) (the “Company”) as
follows:   (i) the outstanding 85,000,000 shares of Optex Systems
(Delaware) Common Stock were exchanged by the Company for 113,333,282
shares of Company Common Stock, (ii) the outstanding 1,027 shares of Optex
Systems (Delaware) Series A Preferred Stock be exchanged by the Company for
1,027 shares of Company Series A Preferred Stock and such additional items as
more fully described in the Agreement and (iii) the 8,131,667 shares of Optex
Systems (Delaware) Common Stock purchased in the private placement were
exchanged by the Company for 8,131,667 shares of Company Common
Stock.  Optex Systems (Delaware) shall remain a wholly-owned
subsidiary of the Company.





As a
result of the Reorganization, the Company changed its name to from Sustut
Exploration Inc. to Optex Systems Holdings, Inc. and its year end from December
31 to a fiscal year ending on the Sunday nearest September 30.  This
change in year end resulted in a change in quarter end from March 31, 2009 to
March 29, 2009.





Simultaneously
with the closing under the Reorganization Agreement (and the shares included
above), as of March 30, 2009, the Company accepted subscriptions (“Private
Placement”) from accredited investors for a total 27 units (the "Units"), for
$45,000.00 per Unit, with each Unit consisting of Three Hundred Thousand
(300,000) shares of common stock, no par value (the "Common Stock") of the
Company and warrants to purchase Three Hundred Thousand (300,000) shares of
Common Stock for $0.45 per share for a period of five (5) years from the initial
closing (the "Warrants"), which were issued by Registrant after the closing
referenced above.  Gross proceeds to the Company were $1,219,750, and
after deducting a finders fee of $139,555 which was payable in cash, and
consideration which constituted indebtedness owed to an investor of $146,250,
net proceeds after stock issuance costs of $59,416 were $874,529.  The
finder also received five year warrants to purchase 2.7 Units, at an exercise
price of $49,500 per unit.





Optex,
which was founded in 1987, is a Richardson, Texas – based ISO 9001:2008
certified concern, which manufactures optical sighting systems and assemblies
primarily for Department of Defense (DOD) applications. Its products are
installed on a majority of types of U.S. military land vehicles, such as the
Abrams and Bradley fighting vehicles, Light Armored and Armored Security
Vehicles and have been selected for installation on the Stryker family of
vehicles. Optex also manufactures and delivers numerous periscope
configurations, rifle and surveillance sights and night vision optical
assemblies. Optex delivers its products both directly to the military services
and to prime contractors.





Optex
delivers high volume products, under multi-year contracts, to large defense
contractors. Optex has the reputation and credibility with those customers as a
strategic supplier. The successful completion of the separation from IRSN has
enhanced the Company’s ability to serve its existing customers and will set the
stage for it to become a center of manufacturing excellence. The Company also
anticipates the opportunity to integrate some of its night vision and optical
sights products into retail applications.  The Company now plans to
carry on the business of Optex as its sole line of business, and all of the
Company’s operations are expected to be conducted by and through
Optex.  All references to the “Company,” “we,” “our” and “us” for
periods prior to the closing of the Reorganization refer to the Registrant, and
references to the “Company,” “we,” “our” and “us” for periods subsequent to the
closing of the Reorganization refer to the Registrant and its
subsidiaries.


5


Plan
of Operation





Through a
private placement offering completed in conjunction with closing under the
Reorganization Agreement, the Company has raised $1,219,750 ($874,529, net of
finders fees, stock issuance costs and satisfaction of indebtedness owed to an
investor) to fund operations.  The proceeds will be used as
follows:





Description
                    
                    OfferingAdditional
      Personnel
                    
                    $
                    150,000Legal
      and Accounting Fees
                    
                    $
                    100,000Investor
      Relations Fees
                    
                    
                    96,000Working
      Capital
                    
                    $
                    528,529Totals:
                    
                    $
                    874,529





Results
of Operations





Three
Months Ended March 29, 2009 Compared to the Three Months Ended March 30,
2008





Revenues.  During
the three months ended March 29, 2009, we recorded revenues of $6.7 million, as
compared to revenue for the three months ended March 30, 2008 of $5.6 million,
an increase of $1.1 million or 19.6%.  This increase in revenues was
primarily due to the ramp up of production on our U.S. government and General
Dynamics periscope lines to meet new orders and accelerated delivery customer
requirements..





Cost of Goods
Sold.  During the quarter ended March 29, 2009, we recorded
cost of goods sold of $6.2 million as opposed to $5.0 million during the quarter
ended March 30, 2008, an increase of $1.2 million or 24.0%.  This
increase in cost of goods sold was primarily due to increased revenue on our
periscope lines in support of higher backlog and accelerated delivery schedules,
in addition to increased intangible amortization resulting from the Optex
Systems, Inc. – Delaware acquisition from Irvine Sensors on October 14,
2008.  The gross margin during the quarter ended March 29, 2009 is
8.3% of revenues as compared to a gross margin of 10.7% for the quarter ended
March 30, 2008.  While product gross margins substantially
improved to 13.6%
for the quarter ended March 29, 2009 versus 10.7% for the quarter ended March
30, 2008 due to changes in revenue mix combined with significant labor
cost efficiency improvements, this margin increase was offset by the
amortization of intangible expenses related to the acquisition of Optex from
Irvine Sensors that were allocated to cost of goods sold of $0.4 million,
or 5.3% of revenues, in the quarter ended March 29, 2009,
resulting in an overall gross margin of 8.3% for the quarter ending March 29,
2009.





G&A Expenses. During the
three months ended March 29, 2009, we recorded operating expenses of $ 0.7
million as opposed to $1.2 million during the three months ended March 30, 2008,
a decrease of $0.5 million or 41.7%.  This decrease in G&A
expenses was primarily due to the elimination of Corporate Cost allocations from
Irvine Sensors of $0.5 million, the Irvine Sensors, Employee Stock Bonus Plan
(ESBP) of $0.1 million and further reductions in consulting and travel expenses
previously charged to Optex by Irvine Sensors in the three months ended March
30, 2008.  These cost reductions were partially offset by increased
costs in legal and accounting fees for Optex Systems as a stand-alone entity
from Irvine Sensors.





Loss Before Other Expenses and
Taxes. During the three months ended March 29, 2009, we recorded a loss
of $(0.1) million as opposed to $(0.6) million during the three months ended
March 30, 2008 a decrease of $0.5 million or 83.3%.  This reduced loss
before other expenses and taxes was primarily due to increased sales revenue in
the three months ended March 29, 2009 combined with reductions in general and
administrative expenses driven by the elimination of Irvine Sensors corporate
costs pushed down to Optex in the three months ended March 30,
2008.





Net Loss.  During
the three months ended March 29, 2009, we recorded a net loss of $(0.33)
million, as compared to $(0.68) million for three months ended March 30, 2008, a
decrease of $0.35 million or 51.5%.  This decrease in net loss was
principally the result of an reduction in operating expenses related to costs
pushed down from Irvine Sensors in the three months ended March 30, 2008
combined with increased revenue in three months ended March 29,
2009.  Additionally, in the three months ended March 29, 2009 Optex
incurred $0.5 million in total intangible expenses, representing an increase of
$0.4 million over the three months ended March 30, 2008.  The
increased intangible expenses relate to the acquisition of Optex from Irvine
Sensors.  Federal Income Taxes expense increased by $0.1 million in
the three months ended March 29, 2009 as a result of increased profit before
intangible expense (which is excluded for income tax purposes), over the prior
year quarter.  In 2008, there was no Federal Income Tax expense due to
the accumulated retained deficit position. Excluding
the impact of the increased intangible expenses of $0.4 million, we would have
recorded net income of $0.07 million for the three months ended March 29,
2009.


6


Six
Months Ended March 29, 2009 Compared to the Six Months Ended March 30,
2008





Revenues.  During
the six months ended March 29, 2009, we recorded revenues of $14.0 million, as
compared to revenue for the six months ended March 30, 2008 of $10.0 million, an
increase of $4.0 million or 40.0%.  This increase in revenues was
primarily due to the ramp up of production on our U.S. government and General
Dynamics periscope lines to meet new orders and accelerated delivery customer
requirements..





Cost of Goods
Sold.  During the six months ended March 29, 2009, we recorded
cost of goods sold of $12.5 million as opposed to $8.9 million during the six
months ended March 30, 2008, an increase of $3.6 million or
40.4%.  This increase in cost of goods sold was primarily due to
increased revenue on our periscope lines in support of higher backlog and
accelerated delivery schedules, in addition to increased intangible amortization
resulting from the Optex Systems, Inc. – Delaware acquisition from Irvine
Sensors on October 14, 2008.  The gross margin during the six months
ended March 29, 2009 is 10.8% of revenues as compared to a gross margin of 11.7%
for the six months ended March 30, 2008. While
product gross margins substantially improved to 14.9% for the six months ended
March 29, 2009 versus 11.7% for the six months ended March 30, 2008 due to
changes in revenue mix combined with significant labor cost efficiency
improvements, this margin increase was offset by the amortization of intangible
expenses related to the acquisition of Optex-Texas from Irvine Sensors that were
allocated to cost of goods sold of $0.6 million, or 4.1% of revenues, in the six
months ended March 29, 2009, and resulted in an overall gross margin of
10.8% for the six months ended March 29, 2009.





G&A Expenses. During the
six months ended March 29, 2009, we recorded operating expenses of $ 1.3 million
as opposed to $2.5 million during the six months ended March 30, 2008, a
decrease of $1.2 million or 48.0%.  This decrease in G&A expenses
was primarily due to the elimination of Corporate Cost allocations from Irvine
Sensors of $0.9 million, the Irvine Sensors, Employee Stock Bonus Plan (ESBP) of
$0.2 million and further reductions in consulting and travel expenses previously
charged to Optex by Irvine Sensors in the six months ended March 30,
2008.  These cost reductions were partially offset by increased legal
and accounting fees for Optex Systems as a stand-alone entity from Irvine
Sensors.





Earnings Before Other Expenses and
Taxes. During the six months ended March 29, 2009, we recorded earnings
of $0.2 million as opposed to a loss of $(1.3) million during the six months
ended March 30, 2008, an increase of 1.5 million or 115.4%.  This
increase in earnings before other expenses and taxes was primarily due to
increased sales revenue in the six months ended March 29, 2009 combined with
reduced general and administrative expenses driven by the elimination of Irvine
Sensors corporate costs pushed down to Optex in the six months ended March 30,
2008.





Net Loss.  During
the six months ended March 29, 2009, we recorded a net loss of $(0.4) million,
as compared to $(1.4) million for six months ended March 30, 2008, a decrease of
$1.0 million or 71.4%.  This decrease in net loss was principally the
result of reduced operating expenses related to costs pushed down from Irvine
Sensors in the six months ended March 30, 2008 combined with increased revenue
in six months ended March 29, 2009.  Additionally, in the six months
ended March 29, 2009 Optex incurred $1.0 million in intangible expenses,
representing an increase of $0.7 million over the six months ended March 30,
2008.  The increased intangible expenses relate to the acquisition of
Optex from Irvine Sensors.  Federal Income Taxes expense increased by
$0.4 million in the six months ended March 29, 2009 as a result of increased
profit before intangible expense (which is excluded for income tax purposes),
over prior year.  In 2008, there was no Federal Income Tax expense due
to the accumulated retained deficit position. Excluding
the impact of the increased intangible expenses of $0.7 million, we would have
recorded net income of $0.3 million for the six months ended March 29,
2009.





Liquidity
and Capital Resources





We have
historically met our liquidity requirements from a variety of sources, including
government and customer funding through contract progress bills, short term
loans, and notes from related parties.  Based upon our current
working capital position and expected business revenues, we believe that our
working capital is sufficient to fund operations for the next 12
months.  Based on our strategy and the anticipated growth in our
business, we believe that our liquidity needs may increase. The amount of such
increase will depend on many factors, including the costs associated with the
fulfillment of our projects, whether we upgrade our technology, and the amount
of inventory required for our expanding business.  If our liquidity
needs do increase, we believe additional liquidity resources would be derived
from a variety of sources including, but not limited to, cash flow from
operations, further private placement of our common stock or incurrence of
indebtedness.


7


For
the six months ended March 29, 2009





Cash and Cash
Equivalents.  As of March 29, 2009, we had cash and cash
equivalents of $1.2 million, as compared to cash and cash equivalents of $0.2
million as of September 28, 2008.  The increase in cash and cash
equivalents was primarily due to the net proceeds received by us in the private
placement combined accelerated collections on government contracts as a result
of discounted payment terms.





Net Cash Used in Operating
Activities. Net cash provided in operating activities totaled $0.4
million for the six months ended March 31, 2009, as compared to $0.3 million
used for the six months ended March 30, 2008.





Net Cash Used in Investing
Activities. Net cash used in investing activities totaled $0.03 million
during the six months ended March 29, 2009, as compared to net cash used in
investing activities of $0.10 million during the six months ended March 30,
2008.





Net Cash Provided By Financing
Activities.Net cash provided by financing activities totaled $0.6
million during the six months ended March 29, 2009, as compared to zero during
the six months ended March 30, 2008.  The change of $0.6 million is
due to receipt of the private placement funds of $0.87 million offset by funds
used to repay outstanding loans of $(0.23) million.





Recent
Accounting Pronouncements





In June
2006, The FASB issued Interpretation No. 48 “Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”). This
Interpretation clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with FASB No.
109, “Accounting for Income
Taxes”. FIN 48
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. FIN 48 also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition. FIN 48 is effective for fiscal years beginning after
December 15, 2006. The adoption of FIN 48 did not have a material impact on the
Company's consolidated financial position, results of operations, or cash
flows.





In
September 2006, the FASB issued FASB No. 157, “Fair Value Measurements”
which establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. While FASB No. 157 does not apply to transactions
involving share-based payment covered by FASB No. 123, it establishes a
theoretical framework for analyzing fair value measurements that is absent from
FASB No. 123. We have relied on the theoretical framework established by FASB
No. 157 in connection with certain valuation measurements that were made in the
preparation of these financial statements. FASB No. 157 is effective for years
beginning after November 15, 2007. Subsequent to the Standard’s issuance, the
FASB issued an exposure draft that provides a one year deferral for
implementation of the Standard for non-financial assets and liabilities. The
Company is currently evaluating the impact FASB No. 157 will have on its
financial statements.





In
February 2007, Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities-Including an Amendment of FASB Statement No.
115,” (FASB 159), was issued. This standard allows a company to
irrevocably elect fair value as the initial and subsequent measurement attribute
for certain financial assets and financial liabilities on a contract-by-contract
basis, with changes in fair value recognized in earnings. The provisions of this
standard are effective as of the beginning of our fiscal year 2008, with early
adoption permitted. The Company is currently evaluating what effect the adoption
of FASB 159 will have on its financial statements.





In March
2007, the Financial Accounting Standards Board ratified Emerging Issues Task
Force (“EITF”) Issue No. 06-10, "Accounting for Collateral Assignment
Split-Dollar Life Insurance Agreements”.  EITF 06-10 provides guidance
for determining a liability for the postretirement benefit obligation as well as
recognition and measurement of the associated asset on the basis of the terms of
the collateral assignment agreement.  EITF 06-10 is effective for
fiscal years beginning after December 15, 2007.  The Company is
currently evaluating the impact of EITF 06-10 on its financial statements, but
does not expect it to have a material effect.





In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations and
SFAS No. 160, Accounting
and Reporting of Noncontrolling Interest in Consolidated Financial Statements,
an amendment of ARB No. 51. These new standards will significantly
change the accounting for and reporting of business combinations and
non-controlling (minority) interests in consolidated financial statements.
Statement Nos. 141(R) and 160 are required to be adopted simultaneously and
are effective for the first annual reporting period beginning on or after
December 15, 2008. Earlier adoption is prohibited. The Company is currently
evaluating the impact of adopting SFAS Nos. 141(R) and SFAS 160 on its
financial statements. See Note 14 to the financial statements for the year ended
September 28, 2008 for adoption of SFAS 141R subsequent to September 30,
2008.


8


In
December 2007, the SEC issued Staff Accounting Bulletin No. 110 (“SAB 110”). SAB
110 permits companies to continue to use the simplified method, under certain
circumstances, in estimating the expected term of “plain vanilla” options beyond
December 31, 2007. SAB 110 updates guidance provided in SAB 107 that previously
stated that the Staff would not expect a company to use the simplified method
for share option grants after December 31, 2007. The Company does not have any
outstanding stock options.





In March
2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standard (“SFAS”) No. 161, "Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No.
133”.  SFAS 161 requires enhanced disclosures about an entity’s
derivative and hedging activities.  SFAS 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008 with early application encouraged. As such, the Company is
required to adopt these provisions at the beginning of the fiscal year
ended September 30, 2009. The Company is currently evaluating the impact of
SFAS 161 on its financial statements but does not expect it to have a material
effect





In May
2008, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standard (“SFAS”) No. 162, "The Hierarchy of Generally Accepted
Accounting Principles”.  SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States.  SFAS 162 is effective 60 days following the SEC’s
approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted
Accounting Principles. The Company is currently evaluating the impact of SFAS
162 on its consolidated financial statements but does not expect it to have a
material effect.





In May
2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standard (“SFAS”) No. 163, "Accounting for Financial Guarantee
Insurance Contracts—an interpretation of FASB Statement No. 60" (“SFAS
163”).  SFAS 163 interprets Statement 60 and amends existing
accounting pronouncements to clarify their application to the financial
guarantee insurance contracts included within the scope of that
Statement.  SFAS 163 is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and all interim periods within
those fiscal years.  As such, the Company is required to adopt these
provisions at the beginning of the fiscal year ended September 30,
2011.  The Company is currently evaluating the impact of SFAS 163 on
its financial statements but does not expect it to have a material
effect.





Cautionary
Factors That May Affect Future Results





This
Quarterly Report on Form 10-Q and other written reports and oral statements made
from time to time by the Company may contain so-called “forward-looking
statements,” all of which are subject to risks and uncertainties. You can
identify these forward-looking statements by their use of words such as
“expects,” “plans,” “will,” “estimates,” “forecasts,” “projects” and other words
of similar meaning. You can identify them by the fact that they do not relate
strictly to historical or current facts. These statements are likely to address
the Company’s growth strategy, financial results and product and development
programs. You must carefully consider any such statement and should understand
that many factors could cause actual results to differ from the Company’s
forward-looking statements. These factors include inaccurate assumptions and a
broad variety of other risks and uncertainties, including some that are known
and some that are not. No forward-looking statement can be guaranteed and actual
future results may vary materially.





The
Company does not assume the obligation to update any forward-looking statement.
You should carefully evaluate such statements in light of factors described in
the Company’s filings with the SEC, especially on Forms 10-K, 10-Q and 8-K. In
various filings the Company has identified important factors that could cause
actual results to differ from expected or historic results. You should
understand that it is not possible to predict or identify all such factors.
Consequently, you should not consider any such list to be a complete list of all
potential risks or uncertainties.





Item
3. Quantitative and Qualitative Disclosures About Market Risk





Not
required for smaller reporting companies.


9


Item
4T.  Controls and Procedures





Management's
Report on Internal Control over Financial Reporting




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act. Our internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Our internal control
over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of our assets, (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being made only in
accordance with authorizations of our management and directors; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect
on the consolidated financial statements.




Until
after the March 30, 2009 Reorganization, we were not required to assess and
evaluate our internal controls over financial reporting, as required by Section
404 of the Sarbanes-Oxley Act of 2002 ("SOX 404").  In addition, we
devoted substantial time and resources to be in compliance with the reporting
requirement for the Reorganization.  For the foregoing reasons,
management's assessment of the effectiveness of our internal control over
financial reporting is not complete.




Management
is committed to take appropriate steps to implement compliance with SOX 404 and
is in the process of preparing to document, identify any deficiencies or
material weaknesses, evaluate and implement recommended changes and test our
internal control over financial reporting. In making our assessment of internal
control over financial reporting, management is using the criteria established
in the "Internal Control - Integrated Framework" issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Because our
evaluation of internal control over financial reporting is not yet complete, we
cannot assure you that we will not discover material weaknesses; however,
management will work towards compliance with SOX 404 as of October 3,
2010.




CHANGES
IN INTERNAL CONTROL OVER FINANCIAL REPORTING




There
were no changes in internal controls over financial reporting that occurred
during the during the second quarter of 2009 that have materially affected, or
are reasonably likely to materially affect, the Company's internal control over
financial reporting.




Our
management team will continue to evaluate our internal control over financial
reporting in 2009 as we implement our Sarbanes Oxley Act testing.





PART
II - OTHER INFORMATION





Item
1. Legal Proceedings.





Currently
we are not aware of any litigation pending or threatened by or against the
Company.





Item 1A.  Risk Factors





Investing
in our common stock involves a high degree of risk. Prospective investors should
carefully consider the risks described below, together with all of the other
information included or referred to in this Form 10-Q, before purchasing shares
of our common stock. There are numerous and varied risks, known and unknown,
that may prevent us from achieving our goals. The risks described below are not
the only risks we will face. If any of these risks actually occurs, our
business, financial condition or results of operations may be materially
adversely affected. In such case, the trading price of our common stock could
decline and investors in our common stock could lose all or part of their
investment. The risks and uncertainties described below are not exclusive and
are intended to reflect the material risks that are specific to us , material
risks related to our industry and material risks related to companies that
undertake a public offering or seek to maintain a class of securities that is
registered or traded on any exchange or over-the-counter
market.


10


Risks Related to our
Business





We
expect that we will need to raise additional capital in the future; additional
funds may not be available on terms that are acceptable to us, or at
all.





We
anticipate we will have to raise additional capital in the future to service our
debt and to finance our future working capital needs. We cannot assure you that
any additional capital will be available on a timely basis, on acceptable terms,
or at all. Future equity or debt financings may be difficult to obtain. If we
are not able to obtain additional capital as may be required, our business,
financial condition and results of operations could be materially and adversely
affected.





We
anticipate that our capital requirements will depend on many factors,
including:





·
            our ability to repay our existing
      debt;





·
            our ability to fulfill
      backlog;





·
            our ability to procure additional
      production contracts;





·
            our ability to control
      costs;





·
            the timing of payments and
      reimbursements from government and other
  contracts;





·
            increased sales and marketing
      expenses;





·
            technological advancements and
      competitors’ response to our
products;





·
            capital improvements to new and
      existing facilities;





·
            our relationships with customers
      and suppliers; and





·
            general economic conditions
      including the effects of future economic slowdowns, acts of war or
      terrorism and the current international
  conflicts.





Even if
available, financings can involve significant costs and expenses, such as legal
and accounting fees, diversion of management’s time and efforts, and substantial
transaction costs. If adequate funds are not available on acceptable terms, or
at all, we may be unable to finance our operations, develop or enhance our
products, expand our sales and marketing programs, take advantage of future
opportunities or respond to competitive pressures.





Certain
of our products are dependent on specialized sources of supply that are
potentially subject to disruption and attendant adverse impact to our
business.





Some of
our products currently incorporate components purchased from single sources of
supply. If supply from single supply sources is materially disrupted, requiring
us to obtain and qualify alternate sources of supply for such components, our
revenues could decline, our reputation with our customers could be harmed, and
our business and results of operations could be adversely affected.





Current
economic conditions may adversely affect our ability to continue
operations.





Current
economic conditions may cause a decline in business and consumer spending and
capital market performance, which could adversely affect our business and
financial performance.  Our ability to raise funds, upon which we are
fully dependent to continue operations, may be adversely affected by current and
future economic conditions, such as a reduction in the availability of credit,
financial market volatility and recession.


11


Our
historical operations depend on government contracts and
subcontracts.  We face additional risks related to contracting with
the federal government, including federal budget issues and fixed price
contracts.





General
political and economic conditions, which cannot be accurately predicted, may
directly and indirectly affect the quantity and allocation of expenditures by
federal agencies. Even the timing of incremental funding commitments to
existing, but partially funded, contracts can be affected by these factors.
Therefore, cutbacks or re-allocations in the federal budget could have a
material adverse impact on our results of our future operations. Obtaining
government contracts may also involve long purchase and payment cycles,
competitive bidding, qualification requirements, delays or changes in funding,
budgetary constraints, political agendas, extensive specification development,
price negotiations and milestone requirements. In addition, our government
contracts are primarily fixed price contracts, which may prevent us from
recovering costs incurred in excess of its budgeted costs. Fixed price contracts
require us to estimate the total project cost based on preliminary projections
of the project’s requirements. The financial viability of any given project
depends in large part on our ability to estimate such costs accurately and
complete the project on a timely basis. Our exposure to the risks of cost
overruns exists in our products business due to the fact that our contracts are
solely of a fixed-price nature. Some of those contracts are for products that
are new to our business and are thus subject to more potential for unanticipated
impacts to manufacturing costs. Given the current economic conditions, it is
also possible that even if our estimates are reasonable at the time made, that
prices of materials are subject to unanticipated adverse
fluctuation.  In the event our actual costs exceed the fixed
contractual cost of our product contracts, we will not be able to recover the
excess costs.





Some of
our government contracts are also subject to termination or renegotiation at the
convenience of the government, which could result in a large decline in revenue
in any given quarter. Although government contracts have provisions providing
for the reimbursement of costs associated with termination, the termination of a
material contract at a time when our funded backlog does not permit redeployment
of our staff could result in reductions of employees. Optex generally utilizes
contract and temporary labor to supplement the regular
workforce.  This allows the company to mitigate impacts of significant
fluctuations in volume through flexibility in increasing or decreasing the
temporary labor workforce as customer requirements dictate.  In
addition, the timing of payments from government contracts is also subject to
significant fluctuation and potential delay, where first article acceptance and
test requirements are required or where a progress billing clause is not
provided for in the contract.. Any such delay could result in a temporary
shortage in our working capital.





If
we fail to scale our operations appropriately in response to growth and changes
in demand, we may be unable to meet competitive challenges or exploit potential
market opportunities, and our business could be materially and adversely
affected.





Our past
growth has placed, and any future growth in our historical business is expected
to continue to place, a significant strain on our management personnel,
infrastructure and resources. To implement our current business and product
plans, we will need to continue to expand, train, manage and motivate our
workforce, and expand our operational and financial systems, as well as our
manufacturing and service capabilities. All of these endeavors will require
substantial management effort and additional capital. If we are unable to
effectively manage our expanding operations, we may be unable to scale our
business quickly enough to meet competitive challenges or exploit potential
market opportunities, and our current or future business could be materially and
adversely affected.





We
do not have long-term employment agreements with our key personnel, other than
our Chief Operating Officer. If we are not able to retain our key personnel or
attract additional key personnel as required, we may not be able to implement
our business plan and our results of operations could be materially and
adversely affected.





We depend
to a large extent on the abilities and continued participation of our executive
officers and other key employees. The loss of any key employee could have a
material adverse effect on our business. We do not presently maintain “key man”
insurance on any key employees. We believe that, as our activities increase and
change in character, additional, experienced personnel will be required to
implement our business plan. Competition for such personnel is intense and we
cannot assure you that they will be available when required, or that we will
have the ability to attract and retain them. In addition, we do not presently
have depth of staffing in our executive, operational and financial management.
Until additional key personnel can be successfully integrated with its
operations, the timing or success of which we cannot currently predict, our
results of operations and ultimate success will be vulnerable to difficulties in
recruiting a new executive management team and losses of key
personnel.


12


Risks
Relating to the Reorganization





The Company’s directors and executive
officers beneficially own a substantial percentage of the Company’s outstanding
common stock, which gives them control over certain major decisions on which the
Company’s stockholders may vote, which may discourage an acquisition of the
Company.





As a
result of the Reorganization, Sileas Corp. which is owned by one of the
Company’s directors, and two of the Company’s officers, beneficially owns, in
the aggregate, approximately 73% of the Company’s outstanding common stock. The
interests of the Company’s management may differ from the interests of other
stockholders. As a result, the Company’s executive management will have the
right and ability to control virtually all corporate actions requiring
stockholder approval, irrespective of how the Company’s other stockholders may
vote, including the following actions:





·
            electing or defeating the
      election of directors;





·
            amending or preventing amendment
      of the Company’s certificate of incorporation or
      bylaws;





·
            effecting or preventing a
      Reorganization, sale of assets or other corporate transaction; and
      controlling the outcome of any other matter submitted to the stockholders
      for vote.





The
Company’s management’s beneficial stock ownership may discourage a potential
acquirer from seeking to acquire shares of the Company’s common stock or
otherwise attempting to obtain control of the Company, which in turn could
reduce the Company’s stock price or prevent the Company’s stockholders from
realizing a premium over the Company’s stock price.





Public company compliance may make it
more difficult to attract and retain officers and directors.





The
Sarbanes-Oxley Act of 2002 and new rules subsequently implemented by the SEC
have required changes in corporate governance practices of public companies. As
a public entity, the Company expects these new rules and regulations to increase
compliance costs in 2009 and beyond and to make certain activities more time
consuming and costly. As a public entity, the Company also expects that these
new rules and regulations may make it more difficult and expensive for the
Company to obtain director and officer liability insurance in the future and it
may be required to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar coverage. As a result,
it may be more difficult for the Company to attract and retain qualified persons
to serve as directors or as executive officers.





Risks
Relating to the Common Stock





The Company’s stock price may be
volatile.





The
market price of the Company’s common stock is likely to be highly volatile and
could fluctuate widely in price in response to various factors, many of which
are beyond the Company’s control, including the following:





·
            technological innovations or new
      products and services by the Company or its
      competitors;


·
              additions or departures of key
      personnel;


·
              limited “public float” following
      the Reorganization, in the hands of a small number of persons whose sales
      or lack of sales could result in positive or negative pricing pressure on
      the market price for the common
stock;


·
              the Company’s ability to execute
      its business plan;


·
              operating results that fall below
      expectations;


·
              loss of any strategic
      relationship;


·
              industry
      developments;


·
              economic and other external
      factors; and


·
              period-to-period fluctuations in
      the Company’s financial
results.





In
addition, the securities markets have from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance of
particular companies. These market fluctuations may also materially and
adversely affect the market price of the Company’s common
stock.


13


There is currently no liquid trading
market for the Company’s common stock and the Company cannot ensure that one
will ever develop or be sustained.





The
Company’s common stock is currently approved for quotation on the OTC Bulletin
Board trading under the symbol OPXS.OB.  However, there is limited trading
activity and not currently a liquid trading market.  There is no assurance
as to when or whether a liquid trading market will develop, and if such a market
does develop, there is no assurance that it will be maintained.
 Furthermore, for companies whose securities are quoted on the
Over-The-Counter Bulletin Board maintained by the National Association of
Securities Dealers, Inc. (the “OTCBB”), it is more difficult (1) to obtain
accurate quotations, (2) to obtain coverage for significant news events because
major wire services generally do not publish press releases about such
companies, and (3) to obtain needed capital.  As a result, purchasers of
the Company’s common stock may have difficulty selling their shares in the
public market, and the market price may be subject to significant
volatility.





Offers or
availability for sale of a substantial number of shares of the Company’s common
stock may cause the price of the Company’s common stock to decline or could
affect the Company’s ability to raise additional working
capital.





If the
Company’s current stockholders seek to sell substantial amounts of common stock
in the public market either upon expiration of any required holding period under
Rule 144 or pursuant to an effective registration statement, it could create a
circumstance commonly referred to as “overhang,” in anticipation of which the
market price of the Company’s common stock could fall substantially.  The
existence of an overhang, whether or not sales have occurred or are occurring,
also could make it more difficult for the Company to raise additional financing
in the future through sale of securities at a time and price that the Company
deems acceptable.





The elimination of monetary liability
against the Company’s directors, officers and employees under Delaware law and
the existence of indemnification rights to the Company’s directors, officers and
employees may result in substantial expenditures by the Company and may
discourage lawsuits against the Company’s directors, officers and
employees.





The
Company’s certificate of incorporation does not contain any specific provisions
that eliminate the liability of directors for monetary damages to the Company
and the Company’s stockholders; however, the Company provides such
indemnification to its directors and officers to the extent provided by Delaware
law. The Company may also have contractual indemnification obligations under its
employment agreements with its executive officers. The foregoing indemnification
obligations could result in the Company incurring substantial expenditures to
cover the cost of settlement or damage awards against directors and officers,
which the Company may be unable to recoup. These provisions and resultant costs
may also discourage the Company from bringing a lawsuit against directors and
officers for breaches of their fiduciary duties and may similarly discourage the
filing of derivative litigation by the Company’s stockholders against the
Company’s directors and officers even though such actions, if successful, might
otherwise benefit the Company and its stockholders.





Item
2. Unregistered Sales of Equity Securities and Use of Proceeds





See Item
5. below.





Item
3. Defaults Upon Senior Securities.





None.





Item
4. Submission of Matters to a Vote of Security Holders.





On
March 26, 2009, our shareholders and directors authorized us to file an
Amendment to our Certificate of Incorporation with the State of Delaware (the
“Amendment”) in order to: (i) change our name to Optex Systems Holdings, Inc.;
(ii) designate 5,000 shares of preferred stock; (iii) provide further
explanation of the powers of the directors and stockholders of the corporation;
and (iv) certain other provisions.





Additionally,
on March 26, 2009, we authorized the designation of 1,027 shares of our
preferred stock to be designated as Series A Convertible Preferred Stock
pursuant to the rights and designations described in the Certificate of
Designation for Series A Convertible Preferred Stock (the “Certificate of
Designation”).


14


Item
5. Other Information.





On March
30, 2009, a reorganization/share exchange (“Reorganization”) occurred whereby
the then existing shareholders of Optex Systems (Delaware) exchanged their
shares of Common Stock with the shares of Common Stock of Optex Systems
Holdings, Inc. (formerly Sustut Exploration, Inc.) (the “Company”) as
follows:   (i) the outstanding 85,000,000 shares of Optex Systems
(Delaware) Common Stock were exchanged by the Company for 113,333,282
shares of Company Common Stock, (ii) the outstanding 1,027 shares of Optex
Systems (Delaware) Series A Preferred Stock be exchanged by the Company for
1,027 shares of Company Series A Preferred Stock and such additional items as
more fully described in the Agreement and (iii) the 8,131,667 shares of Optex
Systems (Delaware) Common Stock purchased in the private placement were
exchanged by the Company for 8,131,667 shares of Company Common
Stock.  Optex Systems (Delaware) shall remain a wholly-owned
subsidiary of the Company.





Simultaneously
with closing of the Reorganization Agreement (and the shares are included
above), as of March 30, 2009, Optex accepted subscriptions (“Private Placement”)
from accredited investors for a total 27 units (the "Units"), for $45,000 per
Unit, with each Unit consisting of Three Hundred Thousand (300,000) shares of
common stock, no par value (the "Common Stock") of Optex and warrants to
purchase Three Hundred Thousand (300,000) shares of Common Stock for $0.45 per
share for a period of five (5) years from the initial closing (the "Warrants"),
which were issued by Registrant after the closing referenced
above.  Gross proceeds to the Company were $1,219,750, and after
deducting a finders fee of $139,555 which was payable in cash, and non-cash
consideration which constituted satisfaction of indebtedness owed to an investor
of $146,250, net proceeds after stock issuance costs of $59,416 were
$874,529.  The finder also received five year warrants to purchase 2.7
Units, at an exercise price of $49,500 per unit.





Neither
the Company nor Optex had any options or warrants to purchase shares of capital
stock outstanding immediately prior to or following the Reorganization, except
for 8,941,667 warrants issued in the Private Placement. Immediately prior to the
closing, Registrant adopted the 2009 Stock Option Plan providing for the
issuance of up to 6,000,000 shares for the purpose of having shares available
for the granting of options to Company officers, directors, employees and to
independent contractors who provide services to the Company.





The
shares of the Company’s common stock issued in connection with the
Reorganization and the private placement offering were not registered under the
Securities Act.  All shares issued in connection with the Reorganization
were issued in reliance upon the exemption from registration provided by
Regulation D under the Securities Act, which exempts transactions to certain
accredited. The shares issued in connection with the private placement offering
were issued in part in reliance upon the exemption from registration provided by
Regulation D under the Securities Act and in part in reliance upon the exemption
from registration provided by Section 4(2) under the Securities Act for
transactions not involving any public offering.  All such securities
constitute “restricted securities” as defined in Rule 144 under the Securities
Act of 1933, and may not be offered or sold in the United States absent
registration or an applicable exemption from the registration requirements.
Certificates representing these shares contain a restrictive legend stating the
same.





Item
6. Exhibits





Exhibits





31.1 and
31.2 Certifications pursuant to Section 302 of Sarbanes Oxley Act of
2002





32.1 and
32.2 Certifications pursuant to Section 906 of Sarbanes Oxley Act of
2002




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SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.




OPTEX
      SYSTEMS HOLDINGS, INC.Date:
      May 12, 2009
                By:
                /s/ Stanley A. HirschmanStanley
      A. Hirschman
                  Principal
      Executive Officer





OPTEX
      SYSTEMS HOLDINGS, INC.Date:
      May 12, 2009
                By:
                /s/ Karen HawkinsKaren
      Hawkins
                  Principal
      Financial Officer


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