NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
BASIS OF PRESENTATION
The condensed consolidated
financial statements of Kopin Corporation as of September 26, 2020 and for the three and nine month periods ended September 26,
2020 and September 28, 2019 are unaudited and include all adjustments that, in the opinion of management, are necessary to present
fairly the results of operations for the periods then ended. These condensed consolidated financial statements should be read
in conjunction with the Company’s financial statements and notes thereto, included in the Company’s Annual Report
on Form 10-K for the fiscal year ended December 28, 2019. The results of the Company’s operations for any interim period
are not necessarily indicative of the results of the Company’s operations for any other interim period or for a full fiscal
year. The December 28, 2019 consolidated balance sheet data was derived from audited financial statements, but certain information
and footnote disclosures normally included in consolidated financial statements prepared in accordance with Generally Accepted
Accounting Principles (GAAP) have been condensed or omitted. The Company reclassified certain prior period amounts to conform
to the current period presentation. As used in this report, the terms “we”, “us”, “our”, “Kopin”
and the “Company” mean Kopin Corporation and its subsidiaries, unless the context indicates another meaning.
Going
Concern
The
accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business. The Company incurred net losses of $29.4
million and net cash outflows from operations
of $21.0
million for the fiscal year ended 2019.
The Company incurred a net loss of $5.8
million and net cash outflows from operations of $6.3
million for the nine months ended September
26, 2020. In addition, the Company has experienced a significant decline in its cash and cash equivalents and marketable debt
securities over the last several years, which was primarily a result of funding operating losses, of which a significant component
related to the Company’s ongoing investments in research and development. The Company had $15.6
million of cash and cash equivalents and
marketable debt securities at September 26, 2020. The Company’s historical and current use of cash in operations combined
with limited liquidity resources raise substantial doubt regarding the Company’s ability to continue as a going concern.
The
Company’s products are targeted towards the defense and industrial/enterprise wearable markets. Management
believes the industrial wearable market is still developing and cannot predict how long it will take to develop or if the Company’s
products will be accepted. In addition, the Company’s current strategy is to continue to invest in research and development,
even during unprofitable periods, which may result in the Company continuing to incur net losses and negative cash flows from
operations. If the Company is unable to achieve and maintain positive cash flows and profitability in the foreseeable future,
its financial condition may ultimately be materially adversely affected such that management may be required to reduce operating
expenses, including investments in research and development, or raise additional capital. While there can be no assurance the
Company will be able to successfully reduce operating expenses or raise additional capital, management believes its historical
success in managing cash flows and obtaining capital will continue in the foreseeable future.
The
COVID-19 pandemic has negatively impacted the global and national economy, disrupted global supply chains, and created significant
volatility in and disruption of financial markets. The extent of the impact of the COVID-19 pandemic on the Company’s operational
and financial performance, including the ability to execute business strategies and initiatives in the expected time frame to
date has been limited. The future impact of the COVID-19 pandemic on the Company’s operational and financial performance
will depend on future developments, including the duration and spread of the pandemic and related restrictions on travel and transportation,
all of which are uncertain and cannot be predicted at this time. An extended period of global supply chain and economic disruption
could materially affect the Company’s business, results of operations, financial condition, and access to sources of liquidity.
In this regard, the CARES Act established a Paycheck Protection Program (PPP), whereby certain small businesses are eligible for
a loan to fund payroll expenses, rent, and related costs. During the second quarter ended June 27, 2020 the Company received loans
under the PPP but subsequently voluntarily terminated and repaid the PPP Loans of $2.2
million. The Company’s decision
to terminate the loans was based on additional guidance issued by the Small Business Administration. There were no prepayment
penalties in connection with the voluntary terminations.
2.
ACCOUNTING STANDARDS
Accounting
Standards Issued But Not Yet Adopted
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments (“ASU 2016-13”), which requires measurement and recognition of expected credit losses
for financial assets held. In November 2019, the FASB issued ASU 2019-10 that has extended the effective date of ASU 2016-13 for
Smaller Reporting Entities to fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022.
The Company is currently evaluating ASU 2016-13 and its impact on our consolidated financial statements.
3.
CASH AND CASH EQUIVALENTS AND MARKETABLE DEBT SECURITIES
The
Company considers all highly liquid, short-term debt instruments with original maturities of three months or less to be cash equivalents.
Marketable
debt securities consist primarily of commercial paper, medium-term corporate notes, and U.S. government and agency backed securities.
The Company classifies these marketable debt securities as available-for-sale at fair value in “Marketable debt securities,
at fair value.” The Company records the amortization of premium and accretion of discounts on marketable debt securities
in the results of operations.
The
Company uses the specific identification method as a basis for determining cost and calculating realized gains and losses with
respect to marketable debt securities. The gross gains and losses realized related to sales and maturities of marketable debt
securities were not material during the three and nine months ended September 26, 2020 and September 28, 2019.
Investments
in available-for-sale marketable debt securities were as follows at September 26, 2020 and December 28, 2019:
SCHEDULE OF AVAILABLE-FOR-SALE MARKETABLE DEBT SECURITIES
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
U.S. government and agency
backed securities
|
|
$
|
1,004,880
|
|
|
$
|
8,304,229
|
|
|
$
|
23,990
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(7,359
|
)
|
|
$
|
1,028,870
|
|
|
$
|
8,296,870
|
|
Corporate Debt
|
|
|
3,954,345
|
|
|
|
7,459,298
|
|
|
|
5,638
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,171
|
)
|
|
|
3,959,983
|
|
|
|
7,456,127
|
|
Total
|
|
$
|
4,959,225
|
|
|
$
|
15,763,527
|
|
|
$
|
29,628
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(10,530
|
)
|
|
$
|
4,988,853
|
|
|
$
|
15,752,997
|
|
The
contractual maturity of the Company’s marketable debt securities was as follows at September 26, 2020
SCHEDULE OF MARKETABLE DEBT SECURITIES
|
|
Less
than One year
|
|
|
One
to Five Years
|
|
|
Total
|
|
U.S. government and agency
backed securities
|
|
$
|
-
|
|
|
$
|
1,028,870
|
|
|
$
|
1,028,870
|
|
Corporate debt
|
|
|
1,550,508
|
|
|
|
2,409,475
|
|
|
|
3,959,983
|
|
Total
|
|
$
|
1,550,508
|
|
|
$
|
3,438,345
|
|
|
$
|
4,988,853
|
|
4.
FAIR VALUE MEASUREMENTS
Financial
instruments are categorized as Level 1, Level 2 or Level 3 based upon the method by which their fair value is computed. An investment
is categorized as Level 1 when its fair value is based on unadjusted quoted prices in active markets for identical assets that
the Company has the ability to access at the measurement date. An investment is categorized as Level 2 if its fair market value
is based on quoted market prices for similar assets in active markets, quoted prices for identical or similar assets in markets
that are not active, based on observable inputs such as interest rates, yield curves, or derived from or corroborated by observable
market data by correlation or other means. An investment is categorized as Level 3 if its fair value is based on assumptions developed
by the Company about what a market participant would use in pricing the assets.
The
following table details the fair value measurements of the Company’s financial assets:
SCHEDULE OF FAIR VALUE MEASUREMENT OF FINAL INSTRUMENTS
|
|
|
|
|
Fair
Value Measurement September 26, 2020 Using:
|
|
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Cash and Cash Equivalents
|
|
$
|
10,624,506
|
|
|
$
|
10,624,506
|
|
|
$
|
-
|
|
|
$
|
-
|
|
U.S. Government Securities
|
|
|
1,028,870
|
|
|
|
-
|
|
|
|
1,028,870
|
|
|
|
-
|
|
Corporate Debt
|
|
|
3,959,983
|
|
|
|
-
|
|
|
|
3,959,983
|
|
|
|
-
|
|
Equity Investments
|
|
|
4,330,060
|
|
|
|
271,764
|
|
|
|
-
|
|
|
|
4,058,296
|
|
|
|
$
|
19,943,419
|
|
|
$
|
10,896,270
|
|
|
$
|
4,988,853
|
|
|
$
|
4,058,296
|
|
|
|
|
|
|
Fair
Value Measurement at December 28, 2019 Using:
|
|
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Cash and Cash Equivalents
|
|
$
|
6,029,247
|
|
|
$
|
6,029,247
|
|
|
$
|
-
|
|
|
$
|
-
|
|
U.S. Government Securities
|
|
|
8,296,870
|
|
|
|
-
|
|
|
|
8,296,870
|
|
|
|
-
|
|
Corporate Debt
|
|
|
7,456,127
|
|
|
|
-
|
|
|
|
7,456,127
|
|
|
|
-
|
|
Equity Investments
|
|
|
4,537,159
|
|
|
|
386,711
|
|
|
|
-
|
|
|
|
4,150,448
|
|
|
|
$
|
26,319,403
|
|
|
$
|
6,415,958
|
|
|
$
|
15,752,997
|
|
|
$
|
4,150,448
|
|
Transfers
between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. Changes
in Level 3 investments were as follows:
SCHEDULE OF FAIR VALUE, ASSETS MEASURED ON RECURRING BASIS, UNOBSERVABLE INPUT RECONCILIATION
|
|
December
28, 2019
|
|
|
Net
unrealized gains
|
|
|
Impairment Charge
|
|
|
September
26, 2020
|
|
Equity
Investments
|
|
$
|
4,150,448
|
|
|
$
|
87,848
|
|
|
$
|
(180,000
|
)
|
|
$
|
4,058,296
|
|
The
carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair
value because of their short-term nature. If accrued liabilities were carried at fair value, these would be classified as Level
2 in the fair value hierarchy.
Marketable
Debt Securities
The
corporate debt consists of floating rate notes with a maturity that is over multiple years but has interest rates that are reset
every three months based on the then-current three-month London Interbank Offering Rate (“three-month Libor”). The
Company validates the fair market values of the financial instruments above by using discounted cash flow models, obtaining independent
pricing of the securities or through the use of a model that incorporates the three-month Libor, the credit default swap rate
of the issuer and the bid and ask price spread of the same or similar investments which are traded on several markets.
Equity
Investments
The
Company acquired an equity interest in a company in the first quarter of 2018 through a $1.0
million capital contribution and the contribution
of certain intellectual property. During the three and nine months ended September 26, 2020, the Company recorded less than $0.1
million of unrealized gains on this equity
investment due to a fluctuation in the foreign exchange rate. As of September 26, 2020, the Company owned an 11%
interest in this company and
the estimated fair value of this equity investment was $3.6
million at September 26, 2020.
In
2017 the Company had a warrant to acquire up to 15% of the next round of equity offered by a customer as part of the licensing
of technology to the customer. The Company used the pricing and terms of the qualified financing round by the customer in determining
the value of its Series A warrant and recorded a gain of $2.0 million. The Company acquired an equity interest in the customer
by exercising the Series A warrant into Series A shares in the second quarter of 2018 and recorded a loss of less than $0.1 million.
In addition, the Company acquired shares of the customer’s Series B shares valued at $2.5 million based on the fair value
of the Series B at the closing in May 2019. During the second quarter of 2019, the Company recognized a $0.8 million gain based
on an observable price change for the Series A shares by using the customer’s Series B capital structure, pricing of the
shares being offered and the liquidation preference of Series B. In the fourth quarter of 2019 the Company reviewed the financial
condition and other factors of the customer and as a result, recorded an impairment charge of $5.2 million to reduce its investment
in the customer to zero.
On
September 30, 2019 the Company entered into an Asset Purchase Agreement (the “Solos Purchase Agreement”) pursuant
to which the Company sold and licensed certain assets of our SolosTM (“Solos”) product line and WhisperTM
Audio (“Whisper”) technology. As consideration for the transaction the Company received a 20% equity stake in
Solos Incorporation (“Solos Inc.”). The Company has recorded a less than $0.2 million impairment charge on its Solos
Inc. investment during the nine months ended September 26, 2020.
5.
INVENTORY
Inventories
are stated at standard cost adjusted to approximate the lower of cost (first-in, first-out method) or net realizable value and
consist of the following at September 26, 2020 and December 28, 2019:
SCHEDULE OF INVENTORY
|
|
September
26, 2020
|
|
|
December
28, 2019
|
|
Raw
materials
|
|
$
|
2,974,810
|
|
|
$
|
2,630,156
|
|
Work-in-process
|
|
|
591,542
|
|
|
|
711,475
|
|
Finished
goods
|
|
|
432,755
|
|
|
|
427,065
|
|
Total
|
|
$
|
3,999,107
|
|
|
$
|
3,768,696
|
|
6.
NET LOSS PER SHARE
Basic
net loss per share is computed using the weighted-average number of shares of common stock outstanding during the period less
any unvested restricted shares. Diluted net loss per share is calculated using weighted-average shares outstanding and contingently
issuable shares, less weighted-average shares reacquired during the period. The net outstanding shares are adjusted for the dilutive
effect of shares issuable upon the assumed conversion of the Company’s common stock equivalents, which consist of unvested
restricted stock.
The
following were not included in weighted-average common shares outstanding-diluted because they are anti-dilutive or performance
conditions have not been met at the end of the period:
SCHEDULE OF WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING DILUTED
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
26, 2020
|
|
|
September
28, 2019
|
|
|
September
26, 2020
|
|
|
September
28, 2019
|
|
Non-vested
restricted common stock
|
|
|
2,396,624
|
|
|
|
2,017,624
|
|
|
|
2,396,624
|
|
|
|
2,017,624
|
|
7.
STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION
Restricted
Stock Awards
In
May of 2020, the Company adopted a 2020 Equity Incentive Plan (“2020 Equity Plan”) which authorizes the issuance
of shares of common stock to employees, non-employees, and the Board. The 2020 Equity Plan was a successor to the Company’s
2010 Equity Incentive Plan (“2010 Equity Plan”). The number of shares authorized to be issued under the 2020 Equity
Plan is four million shares plus shares of the common stock underlying any outstanding award granted under the 2010
Equity Plan that expires, or is terminated, surrendered or forfeited for any reason without issuance of such shares.
Registered
sale of equity securities
On
March 15, 2019 and April 10, 2019, the Company sold 7.3
million shares and 0.7
million shares, respectively, of registered
common stock for aggregate gross proceeds of $8.8
million ($1.10
per share), before deducting underwriting
discounts and offering expenses paid by the Company of $0.7
million. The March 15, 2019 and April
10, 2019 transactions represent approximately 8.9%
and 0.8%,
respectively, of the Company’s total outstanding shares of common stock as of the date of sale. The net proceeds from the
offering were used for general corporate purposes, including working capital.
Non-Vested
Restricted Common Stock
The
fair value of non-vested restricted common stock awards is generally the market value of the Company’s common stock on the
date of grant. The non-vested restricted common stock awards require the employee to fulfill certain obligations, including remaining
employed by the Company for one, two or four years (the vesting period) and in certain cases also require meeting either performance
criteria or the Company’s stock achieving a certain price. For non-vested restricted common stock awards that solely require
the recipient to remain employed with the Company, the stock compensation expense is amortized over the anticipated service period.
For non-vested restricted common stock awards that require the achievement of performance criteria, the Company reviews the probability
of achieving the performance goals on a periodic basis. If the Company determines that it is probable that the performance criteria
will be achieved, the amount of compensation cost derived for the performance goal is amortized over the anticipated service period.
If the performance criteria are not met, no compensation cost is recognized and any previously recognized compensation cost is
reversed.
Restricted
stock activity was as follows:
SCHEDULE OF NON-VESTED RESTRICTED STOCK ACTIVITY
|
|
|
|
|
Weighted
Average
|
|
|
|
Shares
|
|
|
Grant
Fair Value
|
|
Balance,
December 28, 2019
|
|
|
1,863,124
|
|
|
$
|
1.60
|
|
Granted
|
|
|
628,000
|
|
|
|
0.54
|
|
Forfeited
|
|
|
(34,500)
|
|
|
|
2.32
|
|
Vested
|
|
|
(60,000)
|
|
|
|
1.12
|
|
Balance,
September 26, 2020
|
|
|
2,396,624
|
|
|
$
|
1.32
|
|
On
December 31, 2017, the Company amended the employment agreement with our CEO, Dr. John Fan, to expire on December 31, 2020 and
as part of the amendment issued restricted stock grants. Of the restricted stock grants issued to Dr. Fan, 640,000
shares will vest upon the first 20 consecutive
trading day period following the grant date during which the Company’s common stock trades at a price equal to or greater
than $5.25, 150,000
shares will vest at the end of the first
20 consecutive trading day period following the grant date during which the Company’s common stock trades at a price per
share equal to or greater than $6.00, and 150,000
shares will vest at the end of the first
20 consecutive trading day period following the grant date during which the Company’s common stock trades at a price per
share equal to or greater than $7.00. All of the grants are subject to certain acceleration events and expire on December
31, 2020. The total fair value of these
awards on December 31, 2017 was $1.7
million. The value of restricted stock
grants that vest based on market conditions is computed on the date of grant using the Monte Carlo model with the following assumptions:
SCHEDULE
OF SHARE-BASED PAYMENT AWARD, EMPLOYEE STOCK PURCHASE PLAN, VALUATION ASSUMPTIONS
|
|
For
the three months ended September 26, 2020
|
|
Performance price target
|
|
$
|
5.25
|
|
|
$
|
6.00
|
|
|
$
|
7.00
|
|
Expected volatility
|
|
|
48.3%
|
|
|
|
48.3%
|
|
|
|
48.3%
|
|
Interest rate
|
|
|
1.97%
|
|
|
|
1.97%
|
|
|
|
1.97%
|
|
Expected Life (years)
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
Dividend yield
|
|
|
—%
|
|
|
|
—%
|
|
|
|
—%
|
|
Stock-Based
Compensation
The
following table summarizes stock-based compensation expense within each of the categories below as it relates to non-vested restricted
common stock awards for the three and nine months ended September 26, 2020 and September 28, 2019 (no tax benefits were recognized):
SCHEDULE OF STOCK-BASED COMPENSATION EXPENSE
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
26, 2020
|
|
|
September
28,
2019
|
|
|
September
26, 2020
|
|
|
September
28,
2019
|
|
Cost of product revenues
|
|
$
|
40,620
|
|
|
$
|
18,309
|
|
|
$
|
70,866
|
|
|
$
|
82,524
|
|
Research and development
|
|
|
81,133
|
|
|
|
73,939
|
|
|
|
193,788
|
|
|
|
262,454
|
|
Selling, general
and administrative
|
|
|
196,855
|
|
|
|
359,435
|
|
|
|
374,096
|
|
|
|
1,461,021
|
|
Total
|
|
$
|
318,608
|
|
|
$
|
451,683
|
|
|
$
|
638,750
|
|
|
$
|
1,805,999
|
|
Unrecognized
compensation expense for non-vested restricted common stock as of September 26, 2020 totaled $0.6
million and is expected to be recognized
over a weighted average period of approximately two years.
8.
ACCRUED WARRANTY
The
Company typically warrants its products against defect for 12 to 18 months, however, for certain products a customer may purchase
an extended warranty. A provision for estimated future costs and estimated returns for credit relating to such warranty is recorded
in the period when product is shipped and revenue is recognized and is updated as additional information becomes available. The
Company’s estimate of future costs to satisfy warranty obligations is based primarily on historical warranty expense experienced
and a provision for potential future product failures. Changes in the accrued warranty for the nine months ended September 26,
2020 were as follows:
SCHEDULE OF ACCRUED WARRANTY
Balance,
December 28, 2019
|
|
|
$
|
509,000
|
|
Additions
|
|
|
|
450,000
|
|
Claims
|
|
|
|
(451,000)
|
|
Balance,
September 26, 2020
|
|
|
$
|
508,000
|
|
Extended
Warranties
Deferred
revenue represents the purchase of extended warranties by the Company’s customers. The Company recognizes revenue from an
extended warranty on the straight-line method over the life of the extended warranty, which is typically 12 to 15 months beyond
the standard 12 to 18 month warranty. The Company classifies the current portion of deferred revenue under Contract liabilities
and billings in excess of revenues earned in its condensed consolidated balance sheets. At September 26, 2020, the Company had
less than $0.1 million of deferred revenue related to extended warranties.
9.
INCOME TAXES
The
Company recorded a provision for income taxes of less than $0.1
million and $0.1
million in the three and nine months ended
September 26, 2020, respectively. The Company recorded a provision for income taxes of less than $0.1 million for the three
and nine months ended September 28, 2019. As of September 26, 2020, the Company has available for tax purposes
U.S. federal NOLs of approximately $160.3
million expiring
2022 through 2037 and $59.9
million that have an unlimited carryover
period. The Company had recognized a full valuation allowance on its domestic and certain foreign net deferred tax assets due
to the uncertainty of realization of such assets. The Company recognizes both accrued interest and penalties related to its uncertain
tax positions related to intercompany loan interest and potential transfer pricing exposure related to its foreign subsidiaries.
10.
CONTRACT ASSETS AND LIABILITIES
Contract
assets include unbilled amounts typically resulting from sales under contracts when the cost-to-cost method of revenue recognition
is utilized and revenue recognized from customer arrangements, including licensing, exceeds the amount billed to the customer,
and right to payment is not just subject to the passage of time. Amounts may not exceed their net realizable value. Contract assets
are generally classified as current. The Company classifies the noncurrent portion of contract assets under other assets in its
condensed consolidated balance sheets.
Contract
liabilities consist of advance payments and billings in excess of cost incurred and deferred revenue.
Net
contract assets (liabilities) consisted of the following:
SCHEDULE OF CONTRACT WITH CUSTOMER, ASSET AND LIABILITY
|
|
September 26, 2020
|
|
|
December 28, 2019
|
|
|
$ Change
|
|
|
% Change
|
|
Contract assets —current
|
|
$
|
1,584,171
|
|
|
$
|
921,082
|
|
|
$
|
663,089
|
|
|
|
72%
|
|
Contract liabilities—current
|
|
|
(576,419
|
)
|
|
|
(796,794)
|
|
|
|
220,375
|
|
|
|
(28)%
|
|
Contract liabilities—noncurrent
|
|
|
(2,350
|
)
|
|
|
(6,557)
|
|
|
|
4,207
|
|
|
|
(64)%
|
|
Net contract assets
|
|
$
|
1,005,402
|
|
|
$
|
117,731
|
|
|
$
|
887,671
|
|
|
|
754%
|
|
The
$0.9 million
increase in the Company’s net contract assets at September 26, 2020 as compared to December 28, 2019 was primarily due to
an increase in inventory and other costs associated with government contracts which recognize revenue over time, and a decrease
in billing in excess of revenue earned.
In
the three and nine months ended September 26, 2020, the Company recognized revenue of less than $0.1 million and $0.6
million, respectively, related to our contract liabilities at December 28, 2019. In the three and nine months ended September
28, 2019, the Company recognized revenue of $0.1
million and $0.3
million, respectively, related to our
contract liabilities at December 29, 2018.
The
Company did not recognize impairment losses on our contract assets in the three and nine months ended September 26, 2020 or September
28, 2019.
Performance
Obligations
The
Company’s revenue recognition related to performance obligations that were satisfied at a point in time and over time were
as follows:
SCHEDULE OF SATISFACTION OF PERFORMANCE OBLIGATIONS
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
26, 2020
|
|
|
September
28, 2019
|
|
|
September
26, 2020
|
|
|
September
28, 2019
|
|
Point in time
|
|
|
34
|
%
|
|
|
55
|
%
|
|
|
36
|
%
|
|
|
72
|
%
|
Over time
|
|
|
66
|
%
|
|
|
45
|
%
|
|
|
64
|
%
|
|
|
28
|
%
|
Remaining
performance obligations represent the transaction price of orders for which work has not been performed and excludes unexercised
contract options and potential orders under ordering-type contracts (e.g., indefinite-delivery, indefinite-quantity (“IDIQ”)).
As of September 26, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $25.8
million which the Company expects
to recognize over the next 15 months. The remaining performance obligations represent amounts to be earned under government contracts,
which are subject to cancellation.
11.
LEASES
The
Company enters into operating leases primarily for: real estate, including for manufacturing, engineering, research, administration
and sales facilities, and information technology (“IT”) equipment. At September 26, 2020 and December 28, 2019, the
Company did not have any finance leases. Approximately all of our future lease commitments, and related lease liability, relate
to the Company’s real estate leases. Some of the Company’s leases include options to extend or terminate the lease.
The
components of lease expense were as follows:
SCHEDULE OF LEASE EXPENSE
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
26,
2020
|
|
|
September
28,
2019
|
|
|
September
26, 2020
|
|
|
September
28, 2019
|
|
Operating
lease cost
|
|
$
|
284,529
|
|
|
$
|
293,251
|
|
|
$
|
851,846
|
|
|
$
|
884,499
|
|
At
September 26, 2020, the Company’s future lease payments under non-cancellable leases were as follows:
SCHEDULE OF FUTURE LEASE PAYMENT UNDER NON-CANCELLABLE LEASE
2020 (excluding the nine months ended September
26, 2020)
|
|
$
|
299,338
|
|
2021
|
|
|
1,053,209
|
|
2022
|
|
|
654,617
|
|
2023
|
|
|
201,333
|
|
Thereafter
|
|
|
—
|
|
Total future lease payments
|
|
|
2,208,497
|
|
Less imputed
interest
|
|
|
(150,882
|
)
|
Total
|
|
$
|
2,057,615
|
|
The
Company’s lease liabilities recognized in the Company’s condensed consolidated balance sheets at September
26, 2020 was as follows:
SCHEDULE
OF OPERATING LEASE PAYMENTS RECOGNIZED IN CONSOLIDATED BALANCE SHEETS
|
|
September
26, 2020
|
|
Operating lease liabilities
- current
|
|
$
|
1,064,903
|
|
Operating lease
liabilities -noncurrent
|
|
|
992,712
|
|
Total lease liabilities
|
|
$
|
2,057,615
|
|
Supplemental
cash flow information related to leases was as follows:
SCHEDULE OF SUPPLEMENTAL INFORMATION RELATED TO LEASES
|
|
Nine
months ended
|
|
|
|
September
26, 2020
|
|
Cash
paid for amounts included in the measurement of operating lease liabilities
|
|
$
|
892,221
|
|
Other
information related to leases was as follows:
|
|
September
26, 2020
|
|
Weighted Average Discount
Rate - Operating Leases
|
|
|
6.16
|
%
|
Weighted Average
Remaining Lease Term - Operating Leases (in years)
|
|
|
2.14
|
|
12.
SEGMENTS AND DISAGGREGATION OF REVENUE
We
continually monitor and review our segment reporting structure in accordance with authoritative guidance to determine if any changes
have occurred that would affect our reportable segments. In the fourth quarter of 2019, as a result of the changes in our operations
and management structure we commenced reporting under one segment. We have retrospectively adjusted our segment disclosures to
present one reportable segment, as our Chief Executive Officer, who is our chief operating decision maker (“CODM”),
reviews results on a total company basis.
Total
long-lived assets by country at September 26, 2020 and December 28, 2019 were:
SCHEDULE OF LONG-LIVED ASSETS BY GEOGRAPHIC AREAS
Total
Long-lived Assets (in thousands)
|
|
September
26, 2020
|
|
|
December
28, 2019
|
|
U.S.
|
|
$
|
2,936
|
|
|
$
|
3,647
|
|
United Kingdom
|
|
|
299
|
|
|
|
442
|
|
China
|
|
|
17
|
|
|
|
37
|
|
Japan
|
|
|
55
|
|
|
|
101
|
|
Total
|
|
$
|
3,307
|
|
|
$
|
4,227
|
|
We
disaggregate our revenue from contracts with customers by geographic location and by display application, as we believe it best
depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.
During
the three and nine months ended September 26, 2020 and September 28, 2019, the Company derived its sales from the following display
applications:
SCHEDULE OF SEGMENT REPORTING INFORMATION, BY SEGMENT
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 26,
2020
|
|
|
September 28,
2019
|
|
|
September 26,
2020
|
|
|
September 28,
2019
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Defense
|
|
$
|
4,769
|
|
|
$
|
1,968
|
|
|
$
|
12,772
|
|
|
$
|
5,207
|
|
Industrial
|
|
|
1,650
|
|
|
|
2,625
|
|
|
|
5,229
|
|
|
|
7,262
|
|
Consumer
|
|
|
68
|
|
|
|
360
|
|
|
|
521
|
|
|
|
1,510
|
|
Other
|
|
|
-
|
|
|
|
2
|
|
|
|
553
|
|
|
|
25
|
|
R&D
|
|
|
2,563
|
|
|
|
1,184
|
|
|
|
6,295
|
|
|
|
2,452
|
|
License & Royalties
|
|
|
463
|
|
|
|
-
|
|
|
|
836
|
|
|
|
4,336
|
|
Total Revenues
|
|
$
|
9,513
|
|
|
$
|
6,139
|
|
|
$
|
26,206
|
|
|
$
|
20,792
|
|
During
the three and nine months ended September 26, 2020 and September 28, 2019, the Company derived its sales from the following geographies:
SCHEDULE OF SEGMENT INFORMATION BY REVENUE TYPE
|
|
Three
Months Ending
|
|
|
Nine
Months Ending
|
|
|
|
|
September 26, 2020
|
|
|
|
September 28, 2019
|
|
|
|
September 26, 2020
|
|
|
|
September 28, 2019
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
7,828
|
|
|
$
|
3,453
|
|
|
$
|
21,530
|
|
|
$
|
8,464
|
|
Other Americas
|
|
|
-
|
|
|
|
10
|
|
|
|
100
|
|
|
|
35
|
|
Total Americas
|
|
|
7,828
|
|
|
|
3,463
|
|
|
|
21,630
|
|
|
|
8,499
|
|
Asia - Pacific
|
|
|
1,475
|
|
|
|
2,307
|
|
|
|
3,783
|
|
|
|
9,997
|
|
Europe
|
|
|
210
|
|
|
|
350
|
|
|
|
793
|
|
|
|
2,268
|
|
Other
|
|
|
-
|
|
|
|
19
|
|
|
|
-
|
|
|
|
28
|
|
Total Revenues
|
|
$
|
9,513
|
|
|
$
|
6,139
|
|
|
$
|
26,206
|
|
|
$
|
20,792
|
|
13.
LITIGATION
The
Company may engage in legal proceedings arising in the ordinary course of business. Claims, suits, investigations and proceedings
are inherently uncertain and it is not possible to predict the ultimate outcome of such matters and our business, financial condition,
results of operations or cash flows could be affected in any particular period.
BlueRadios,
Inc. v. Kopin Corporation, Civil Action No. 16-02052-JLK (D. Col.):
On
August 12, 2016, BlueRadios, Inc. (“BlueRadios”) filed a complaint in the U.S. District Court for the District of
Colorado, alleging that the Company breached a contract between it and BlueRadios concerning an alleged joint venture between
the Company and BlueRadios to design, develop and commercialize micro-display products with embedded wireless technology referred
to as “Golden-i” breached the covenant of good faith and fair dealing associated with that contract, breached its
fiduciary duty to BlueRadios, and misappropriated trade secrets owned by BlueRadios in violation of Colorado law (C.R.S. §
7-74-104(4)) and the Defend Trade Secrets Act (18 U.S.C. § 1836(b)(1)). BlueRadios further alleges that the Company was unjustly
enriched by its alleged misconduct, BlueRadios is entitled to an accounting to determine the amount of profits obtained by the
Company as a result of its alleged misconduct, and the inventorship on at least ten patents or patent applications owned by the
Company need to be corrected to list BlueRadios’ employees as inventors and thereby list BlueRadios as co-assignees of the
patents. BlueRadios seeks monetary, declaratory, and injunctive relief, including for alleged non-payment of engineering retainer
fees.
On
October 11, 2016, the Company filed its Answer and Affirmative Defenses. The parties completed expert depositions on November
15, 2019. On December 2, 2019, the Company filed a Motion for Partial Summary Judgment requesting the Court dismiss counts 2-7
in their entirety and counts 1 and 8 in part. BlueRadios also filed a Motion for Partial Summary Judgment alleging it is the co-owner
of U.S. Patent No. 8,909,296. Responses to the Motions for Partial Summary Judgment were filed on January 15, 2020, and replies
were filed on February 19, 2020. On September 25, 2020, the Court denied BlueRadios’ Motion for Partial Summary Judgment.
The Court has not yet ruled on the Company’s motion for Partial Summary Judgment. A trial date has not yet been set
by the Court. The Company has not concluded a loss from this matter is probable; therefore, we have not recorded an accrual for
litigation or claims related to this matter for the period ended September 26, 2020. The Company will continue to evaluate information
as it becomes known and will record an estimate for losses at the time or times when it is both probable that a loss has been
incurred and the amount of the loss is reasonably estimable.
14.
RELATED PARTY TRANSACTIONS
The
Company may from time to time enter into agreements with stockholders, affiliates and other companies engaged in certain aspects
of the display, electronics, optical and software industries as part of our business strategy. In addition, the wearable computing
product market is relatively new and there may be other technologies the Company needs to purchase from affiliates to enhance
its product offering.
During
the three and nine months ended September 26, 2020 and September 28, 2019, the Company had the following transactions with related
parties:
SCHEDULE OF TRANSACTIONS WITH RELATED PARTIES
|
|
Three
Months Ended
|
|
|
|
September
26, 2020
|
|
|
September
28, 2019
|
|
|
|
Revenues
|
|
|
Purchases
|
|
|
Sales
|
|
|
Purchases
|
|
Solos
Inc.
|
|
$
|
868
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
RealWear,
Inc.
|
|
|
894,976
|
|
|
|
10,545
|
|
|
|
538,930
|
|
|
|
—
|
|
|
|
$
|
895,843
|
|
|
$
|
10,545
|
|
|
$
|
538,930
|
|
|
$
|
—
|
|
|
|
Nine
Months Ended
|
|
|
|
September
26, 2020
|
|
|
September
28, 2019
|
|
|
|
Revenues
|
|
|
Purchases
|
|
|
Sales
|
|
|
Purchases
|
|
Goertek
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
747,154
|
|
Solos
Inc.
|
|
|
247,326
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
RealWear,
Inc.
|
|
|
1,266,878
|
|
|
|
10,545
|
|
|
|
5,731,574
|
|
|
|
—
|
|
|
|
$
|
1,514,204
|
|
|
$
|
10,545
|
|
|
$
|
5,731,574
|
|
|
$
|
747,154
|
|
At
September 26, 2020 and December 28, 2019, the Company had the following receivables, contract liabilities and payables with related
parties:
|
|
September
26, 2020
|
|
|
December
28, 2019
|
|
|
|
Receivables
|
|
|
Contract
Liabilities
|
|
|
Payables
|
|
|
Receivables
|
|
|
Contract
Assets
|
|
|
Payables
|
|
Solos
Inc.
|
|
$
|
868
|
|
|
$
|
—
|
|
|
$
|
8,750
|
|
|
$
|
283,203
|
|
|
$
|
—
|
|
|
$
|
8,750
|
|
RealWear,
Inc.
|
|
|
694,783
|
|
|
|
327,610
|
|
|
|
10,545
|
|
|
|
646,848
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
695,651
|
|
|
$
|
327,610
|
|
|
$
|
19,295
|
|
|
$
|
930,051
|
|
|
$
|
—
|
|
|
$
|
8,750
|
|