NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
BASIS OF PRESENTATION
The
condensed consolidated financial statements of Kopin Corporation as of March 27, 2021 and for the three month periods ended March
27, 2021 and March 28, 2020 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 26, 2020. 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 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.
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.
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 months ended March 27, 2021 and March 28, 2020.
Investments
in available-for-sale marketable debt securities were as follows at March 27, 2021 and December 26, 2020:
SCHEDULE OF AVAILABLE-FOR-SALE MARKETABLE DEBT SECURITIES
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Fair
Value
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
U.S. government and agency
backed securities
|
|
$
|
1,002,993
|
|
|
$
|
1,003,941
|
|
|
$
|
14,997
|
|
|
$
|
19,179
|
|
|
$
|
1,017,990
|
|
|
$
|
1,023,120
|
|
Corporate debt
|
|
|
2,403,119
|
|
|
|
2,603,704
|
|
|
|
9,262
|
|
|
|
8,857
|
|
|
|
2,412,381
|
|
|
|
2,612,561
|
|
Total
|
|
$
|
3,406,112
|
|
|
$
|
3,607,645
|
|
|
$
|
24,259
|
|
|
$
|
28,036
|
|
|
$
|
3,430,371
|
|
|
$
|
3,635,681
|
|
The
contractual maturity of the Company’s marketable debt securities was as follows at March 27, 2021:
SCHEDULE OF MARKETABLE DEBT SECURITIES
|
|
Less
than One year
|
|
|
One
to Five years
|
|
|
Total
|
|
U.S. government and agency
backed securities
|
|
$
|
1,017,990
|
|
|
$
|
—
|
|
|
$
|
1,017,990
|
|
Corporate debt
|
|
|
901,611
|
|
|
|
1,510,770
|
|
|
|
2,412,381
|
|
Total
|
|
$
|
1,919,601
|
|
|
$
|
1,510,770
|
|
|
$
|
3,430,371
|
|
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 MEASUREMENTS OF FINANCIAL ASSETS
|
|
|
|
|
Fair
Value Measurement at March 27, 2021 Using:
|
|
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Cash and cash equivalents
|
|
$
|
32,203,311
|
|
|
$
|
32,203,311
|
|
|
$
|
-
|
|
|
$
|
-
|
|
U.S. government and agency-backed securities
|
|
|
1,017,990
|
|
|
|
-
|
|
|
|
1,017,990
|
|
|
|
-
|
|
Corporate debt
|
|
|
2,412,381
|
|
|
|
-
|
|
|
|
2,412,381
|
|
|
|
-
|
|
Equity investments
|
|
|
4,522,445
|
|
|
|
305,953
|
|
|
|
-
|
|
|
|
4,216,492
|
|
|
|
$
|
40,156,127
|
|
|
$
|
32,509,264
|
|
|
$
|
3,430,371
|
|
|
$
|
4,216,492
|
|
|
|
|
|
|
Fair
Value Measurement at December 26, 2020 Using:
|
|
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Cash and cash equivalents
|
|
$
|
17,112,869
|
|
|
$
|
17,112,869
|
|
|
$
|
-
|
|
|
$
|
-
|
|
U.S. government and agency- backed securities
|
|
|
1,023,120
|
|
|
|
-
|
|
|
|
1,023,120
|
|
|
|
-
|
|
Corporate debt
|
|
|
2,612,561
|
|
|
|
-
|
|
|
|
2,612,561
|
|
|
|
-
|
|
Equity investments
|
|
|
4,523,525
|
|
|
|
293,891
|
|
|
|
-
|
|
|
|
4,229,634
|
|
|
|
$
|
25,272,075
|
|
|
$
|
17,406,760
|
|
|
$
|
3,635,681
|
|
|
$
|
4,229,634
|
|
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, LIABILITIES MEASURED ON RECURRING BASIS
|
|
December
26, 2020
|
|
|
Net
unrealized losses
|
|
|
Purchases,
issuances and settlements
|
|
|
Transfers
in and or out of Level 3
|
|
|
March
27, 2021
|
|
Equity
Investments
|
|
$
|
4,229,634
|
|
|
$
|
(13,142
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,216,492
|
|
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
During
the three months ended March 27, 2021, the Company recorded a less than $0.1
million unrealized loss on an equity
interest in a company due to a fluctuation in the foreign exchange rate.
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 March 27, 2021 and December 26, 2020:
SCHEDULE OF INVENTORY
|
|
March
27, 2021
|
|
|
December
26, 2020
|
|
Raw materials
|
|
$
|
4,526,224
|
|
|
$
|
3,609,710
|
|
Work-in-process
|
|
|
658,070
|
|
|
|
565,986
|
|
Finished goods
|
|
|
270,840
|
|
|
|
280,060
|
|
Total
|
|
$
|
5,455,134
|
|
|
$
|
4,455,756
|
|
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
|
|
|
Three
months ended
|
|
|
|
March
27, 2021
|
|
|
March
28, 2020
|
|
Non-vested
restricted common stock
|
|
|
2,490,717
|
|
|
|
2,377,624
|
|
7.
STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION
Registered
sale of equity securities
During
the three months ended March 27, 2021, we sold 2.4
million shares of common stock for gross proceeds
of $16
million (average of $6.66
per share), before deducting broker expenses
paid by us of $0.5
million, pursuant to our At-The-Market Equity
Offering Sales Agreement dated as of February 8, 2019 (the “Previous ATM Agreement”) with Stifel, Nicolaus & Company,
Incorporated, (“Stifel”) as agent. The Previous ATM Agreement has since terminated pursuant to its terms as
a result of the sale of all the shares subject to such agreement. On March 5, 2021 the Company entered into a new At-The-Market
Offering Sales Agreement dated as of March 5, 2021 (the “Current ATM Agreement”) with Stifel under which the Company may sell up to $50
million of its common stock.
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
|
|
Shares
|
|
|
Weighted
Average Grant Fair Value
|
|
Balance, December 26, 2020
|
|
|
3,051,874
|
|
|
$
|
1.67
|
|
Granted
|
|
|
1,373,843
|
|
|
|
2.65
|
|
Forfeited
|
|
|
(985,000
|
)
|
|
|
1.81
|
|
Vested
|
|
|
(950,000
|
)
|
|
|
2.52
|
|
Balance, March
27, 2021
|
|
|
2,490,717
|
|
|
$
|
1.88
|
|
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 months ended March 27, 2021 and March 28, 2020 (no tax benefits were recognized):
SCHEDULE OF STOCK-BASED COMPENSATION EXPENSE
|
|
Three
Months Ended
|
|
|
Three
Months Ended
|
|
|
|
March
27, 2021
|
|
|
March
28, 2020
|
|
Cost of product revenues
|
|
$
|
133,784
|
|
|
$
|
13,977
|
|
Research and development
|
|
|
94,053
|
|
|
|
55,132
|
|
Selling, general
and administrative
|
|
|
2,382,329
|
|
|
|
89,356
|
|
Total
|
|
$
|
2,610,166
|
|
|
$
|
158,465
|
|
Unrecognized
compensation expense for non-vested restricted common stock as of March 27, 2021 totaled $2.9 million and is expected to be recognized
over a weighted average period of approximately three 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 three months ended March 27, 2021
were as follows:
SCHEDULE OF ACCRUED WARRANTY
Balance, December 26, 2020
|
|
$
|
508,000
|
|
Additions
|
|
|
424,000
|
|
Claims
|
|
|
(26,000
|
)
|
Balance, March
27, 2021
|
|
$
|
906,000
|
|
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 Other accrued liabilities
in its condensed consolidated balance sheets. At March 27, 2021, 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 in the three months ended March 27, 2021
and the three months ended March 28, 2020. As of March 27, 2021, the Company has available for tax purposes U.S. federal net operating
loss carryforwards (“NOLs”) of approximately $160.3
million expiring
2022 through 2037 and $61.5
million that have an unlimited carryover period.
The Company has 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
|
|
March
27, 2021
|
|
|
December
26, 2020
|
|
|
$
Change
|
|
|
%
Change
|
|
Contract assets—current
|
|
$
|
1,115,419
|
|
|
$
|
3,521,753
|
|
|
$
|
(2,406,334
|
)
|
|
|
(68
|
)%
|
Contract liabilities and billings in
excess of revenues earned
|
|
|
(1,176,872
|
)
|
|
|
(1,493,847
|
)
|
|
|
316,975
|
|
|
|
(21
|
)%
|
Contract liabilities—noncurrent
|
|
|
(37,529
|
)
|
|
|
(5,069
|
)
|
|
|
(32,460
|
)
|
|
|
640
|
%
|
Net contract
(liabilities) assets
|
|
$
|
(98,982
|
)
|
|
$
|
2,022,837
|
|
|
$
|
(2,121,819
|
)
|
|
|
(105
|
)%
|
The
$2.1 million decrease in the Company’s net contract (liabilities) assets at March 27, 2021 as compared to December 26, 2020
was primarily due to the shipment of inventory which was in process at December 26, 2020 and recording of revenues earned against
advanced payments.
In
the three months ended March 27, 2021, the Company recognized revenue of $1.2
million related to our contract liabilities
at December 26, 2020. In the three months ended March 28, 2020, the Company recognized revenue of $0.6
million related to our contract liabilities at
December 28, 2019.
The
Company did not recognize impairment losses on our contract assets in the three months ended March 27, 2021 or March 28, 2020.
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
|
|
|
Three
months ended
|
|
|
|
March
27, 2021
|
|
|
March
28, 2020
|
|
Point in time
|
|
|
32
|
%
|
|
|
36
|
%
|
Over time
|
|
|
68
|
%
|
|
|
64
|
%
|
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 March 27, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $21.0
million which the Company expects
to recognize over the next 12 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 March 27, 2021 and December 26, 2020, 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
|
|
|
Three
months ended
|
|
|
|
March
27, 2021
|
|
|
March
28, 2020
|
|
Operating
lease cost
|
|
$
|
290,884
|
|
|
$
|
283,000
|
|
At
March 27, 2021, the Company’s future lease payments under non-cancellable leases were as follows:
SCHEDULE OF FUTURE LEASE PAYMENT UNDER NON-CANCELLABLE LEASE
|
|
|
|
|
2021 (excluding the three months ended March
27, 2021)
|
|
$
|
764,613
|
|
2022
|
|
|
657,674
|
|
2023
|
|
|
201,333
|
|
Total future
lease payments
|
|
|
1,623,620
|
|
Less imputed
interest
|
|
|
(93,968
|
)
|
Total
|
|
$
|
1,529,652
|
|
The
Company’s lease liabilities recognized in the Company’s condensed consolidated balance sheet at March 27, 2021 was
as follows:
SCHEDULE OF OPERATING LEASE PAYMENTS RECOGNIZED IN CONSOLIDATED BALANCE SHEETS
|
|
March
27, 2021
|
|
Operating lease liabilities–current
|
|
$
|
886,609
|
|
Operating lease
liabilities–noncurrent
|
|
|
643,043
|
|
Total lease liabilities
|
|
$
|
1,529,652
|
|
Supplemental
cash flow information related to leases was as follows:
SCHEDULE OF SUPPLEMENTAL INFORMATION RELATED TO LEASES
|
|
Three
months ended
|
|
|
|
March
27, 2021
|
|
Cash paid for amounts included
in the measurement of operating lease liabilities
|
|
$
|
301,995
|
|
Other
information related to leases was as follows:
|
|
March
27, 2021
|
|
Weighted Average Discount Rate–Operating
Leases
|
|
|
6.17
|
%
|
Weighted Average Remaining Lease Term–Operating
Leases (in years)
|
|
|
2.33
|
|
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. We report under one 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 March 27, 2021 and December 26, 2020 were:
SCHEDULE OF LONG-LIVED ASSETS BY GEOGRAPHIC AREAS
Total
Long-lived Assets (in thousands)
|
|
March
27, 2021
|
|
|
December
26, 2020
|
|
U.S.
|
|
$
|
2,870
|
|
|
$
|
3,028
|
|
United Kingdom
|
|
|
285
|
|
|
|
329
|
|
China
|
|
|
6
|
|
|
|
11
|
|
Japan
|
|
|
23
|
|
|
|
39
|
|
Total
|
|
$
|
3,184
|
|
|
$
|
3,407
|
|
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 months ended March 27, 2021 and March 28, 2020, the Company derived its sales from the following geographies:
SCHEDULE OF SEGMENT INFORMATION BY REVENUE TYPE
|
|
March
27, 2021
|
|
|
March
28, 2020
|
|
(In
thousands, except percentages)
|
|
Revenue
|
|
|
%
of Total
|
|
|
Revenue
|
|
|
%
of Total
|
|
United States
|
|
$
|
8,180
|
|
|
|
70
|
%
|
|
$
|
6,765
|
|
|
|
86
|
%
|
Other Americas
|
|
|
-
|
|
|
|
-
|
|
|
|
101
|
|
|
|
1
|
|
Total Americas
|
|
|
8,180
|
|
|
|
70
|
|
|
|
6,866
|
|
|
|
87
|
|
Asia-Pacific
|
|
|
3,275
|
|
|
|
28
|
|
|
|
664
|
|
|
|
8
|
|
Europe
|
|
|
221
|
|
|
|
2
|
|
|
|
348
|
|
|
|
5
|
|
Total
Revenues
|
|
$
|
11,676
|
|
|
|
100
|
%
|
|
$
|
7,878
|
|
|
|
100
|
%
|
During
the three months ended March 27, 2021 and March 28, 2020, the Company derived its sales from the following display applications:
SCHEDULE OF SEGMENT REPORTING INFORMATION, BY SEGMENT
(In thousands)
|
|
March
27, 2021
|
|
|
March
28, 2020
|
|
Defense
|
|
$
|
4,993
|
|
|
$
|
3,513
|
|
Industrial
|
|
|
2,041
|
|
|
|
2,183
|
|
Consumer
|
|
|
534
|
|
|
|
222
|
|
R&D
|
|
|
3,561
|
|
|
|
1,960
|
|
Other
|
|
|
547
|
|
|
|
-
|
|
Total Revenues
|
|
$
|
11,676
|
|
|
$
|
7,878
|
|
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.
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 March 27, 2021. 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 month periods ended March 27, 2021 and March 28, 2020, the Company had the following transactions with related parties:
SCHEDULE
OF TRANSACTIONS WITH RELATED PARTIES
|
|
Three
months ended
|
|
|
Three
months ended
|
|
|
|
March
27, 2021
|
|
|
March
28, 2020
|
|
|
|
Sales
|
|
|
Purchases
|
|
|
Sales
|
|
|
Purchases
|
|
Solos Technology
|
|
|
—
|
|
|
|
—
|
|
|
|
140,068
|
|
|
|
9,000
|
|
RealWear, Inc.
|
|
|
1,323,885
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
1,323,885
|
|
|
$
|
—
|
|
|
$
|
140,068
|
|
|
$
|
9,000
|
|
At
March 27, 2021 and December 26, 2020, the Company had the following receivables, contract assets and payables with related parties:
|
|
March
27, 2021
|
|
|
December
26, 2020
|
|
|
|
Receivables
|
|
|
Contract
assets
|
|
|
Receivables
|
|
|
Contract
assets
|
|
RealWear,
Inc.
|
|
$
|
489,276
|
|
|
$
|
—
|
|
|
$
|
817,388
|
|
|
$
|
—
|
|