Company Quick10K Filing
Kopin
Price0.71 EPS-0
Shares82 P/E-2
MCap58 P/FCF-3
Net Debt-9 EBIT-33
TEV50 TEV/EBIT-1
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-28 Filed 2020-05-07
10-K 2019-12-28 Filed 2020-03-11
10-Q 2019-09-28 Filed 2019-11-07
10-Q 2019-06-29 Filed 2019-08-08
10-Q 2019-03-30 Filed 2019-05-09
10-K 2018-12-29 Filed 2019-03-14
10-Q 2018-09-29 Filed 2018-11-08
10-Q 2018-06-30 Filed 2018-08-09
10-Q 2018-03-31 Filed 2018-05-10
10-K 2017-12-30 Filed 2018-03-23
10-Q 2017-09-30 Filed 2017-11-09
10-Q 2017-07-01 Filed 2017-08-10
10-Q 2017-04-01 Filed 2017-05-11
10-K 2016-12-31 Filed 2017-03-23
10-K 2016-09-24 Filed 2017-03-23
10-Q 2016-06-25 Filed 2016-08-03
10-Q 2016-03-26 Filed 2016-05-04
10-K 2015-12-26 Filed 2016-03-04
10-Q 2015-09-26 Filed 2015-11-05
10-Q 2015-06-27 Filed 2015-08-06
10-Q 2015-03-28 Filed 2015-05-11
10-K 2014-12-27 Filed 2015-03-12
10-Q 2014-09-27 Filed 2014-11-06
10-Q 2014-06-28 Filed 2014-08-07
10-Q 2014-03-29 Filed 2014-05-08
10-K 2013-12-28 Filed 2014-03-17
10-Q 2013-09-28 Filed 2013-11-05
10-Q 2013-06-29 Filed 2013-08-08
10-Q 2013-03-30 Filed 2013-05-09
10-K 2012-12-29 Filed 2013-03-18
10-Q 2012-09-29 Filed 2012-11-08
10-Q 2012-06-30 Filed 2012-08-09
10-Q 2012-03-31 Filed 2012-05-10
10-K 2011-12-31 Filed 2012-03-15
10-Q 2011-09-24 Filed 2011-11-03
10-Q 2011-06-25 Filed 2011-08-04
10-Q 2011-03-26 Filed 2011-05-05
10-K 2010-12-25 Filed 2011-03-10
10-Q 2010-09-25 Filed 2010-11-03
10-Q 2010-06-26 Filed 2010-08-03
10-Q 2010-03-27 Filed 2010-05-04
10-K 2009-12-26 Filed 2010-03-08
8-K 2020-05-18
8-K 2020-05-05
8-K 2020-04-21
8-K 2020-04-17
8-K 2020-04-08
8-K 2020-03-10
8-K 2020-03-02
8-K 2019-11-22
8-K 2019-11-07
8-K 2019-10-09
8-K 2019-10-07
8-K 2019-09-30
8-K 2019-08-08
8-K 2019-05-21
8-K 2019-05-07
8-K 2019-04-12
8-K 2019-04-10
8-K 2019-03-19
8-K 2019-03-15
8-K 2019-03-15
8-K 2019-03-14
8-K 2019-03-12
8-K 2019-02-08
8-K 2019-01-17
8-K 2018-11-08
8-K 2018-08-06
8-K 2018-05-09
8-K 2018-05-08
8-K 2018-03-08
8-K 2018-01-04

KOPN 10Q Quarterly Report

Part 1. Financial Information
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 ex31-1.htm
EX-31.2 ex31-2.htm
EX-32.1 ex32-1.htm
EX-32.2 ex32-2.htm

Kopin Earnings 2020-03-28

Balance SheetIncome StatementCash Flow
185148111743702012201420172020
Assets, Equity
251791-7-152012201420172020
Rev, G Profit, Net Income
2518114-3-102012201420172020
Ops, Inv, Fin

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

FORM 10-Q

 

 

 

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

 

For the quarterly period ended March 28, 2020

 

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

 

For the transition period from _____ to _____

 

Commission file number 0-19882

 

 

 

KOPIN CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   04-2833935

State or other jurisdiction of

incorporation or organization

 

(I.R.S. Employer

Identification No.)

     
125 North Drive, Westborough, MA   01581-3335
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (508) 870-5959

 

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, par value $0.01   KOPN   Nasdaq Capital Market

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class   Outstanding as of May 6, 2019
Common Stock, par value $0.01   84,910,288

  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   Accelerated filer
Non-accelerated filer   Smaller reporting company
      Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No☒

 

 

 

 
 

 

Kopin Corporation

 

INDEX

 

   

Page

No.

Part I – Financial Information  
   
Item 1. Condensed Consolidated Financial Statements (Unaudited) 3
     
  Condensed Consolidated Balance Sheets at March 28, 2020 (Unaudited) and December 28, 2019 3
     
  Condensed Consolidated Statements of Operations (Unaudited) for the three months ended March 28, 2020 and March 30, 2019 4
     
  Condensed Consolidated Statements of Comprehensive Loss (Unaudited) for the three months ended March 28, 2020 and March 30, 2019 5
     
  Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the three months ended March 28, 2020 and March 30, 2019 6
     
  Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 28, 2020 and March 30, 2019 7
     
  Notes to Unaudited Condensed Consolidated Financial Statements 8
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 19
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 23
     
Item 4. Controls and Procedures 23
     
Part II – Other Information 24
   
Item 1. Legal Proceedings 24
     
Item 1A. Risk Factors 25
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 25
     
Item 6. Exhibits 25
     
Signatures 26

 

2
 

 

Part 1. FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements (Unaudited)

 

KOPIN CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   March 28, 2020   December 28, 2019 
ASSETS          
Current assets:          
Cash and equivalents  $8,333,603   $6,029,247 
Marketable debt securities, at fair value   9,307,959    15,752,997 
Accounts receivable, net of allowance of $786,000 in 2020 and $938,000 in 2019   5,929,983    6,023,250 
Contract assets and unbilled receivables   1,394,633    921,082 
Inventory   3,427,507    3,768,696 
Prepaid taxes   82,088    104,442 
Prepaid expenses and other current assets   1,403,729    1,164,927 
Total current assets   29,879,502    33,764,641 
Property, plant and equipment, net   1,450,328    1,473,341 
Operating lease right-of-use assets   2,506,159    2,753,963 
Other assets   253,750    517,411 
Equity investments   4,346,642    4,537,159 
Total assets  $38,436,381   $43,046,515 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable  $3,925,184   $3,998,234 
Accrued payroll and expenses   1,699,527    2,203,773 
Accrued warranty   508,000    509,000 
Contract liabilities and billings in excess of revenues earned   1,229,396    796,794 
Operating lease liabilities   1,059,429    1,041,695 
Other accrued liabilities   1,684,547    2,235,217 
Taxes payable   503,000    525,000 
Total current liabilities   10,609,083    11,309,713 
Noncurrent contract liabilities and asset retirement obligations   251,935    268,440 
Operating lease liabilities, net of current portion   1,513,520    1,791,590 
Other long-term obligations   1,067,389    1,085,160 
Commitments and contingencies (Note 13)   -    - 
Stockholders’ equity:          
Preferred stock, par value $.01 per share: authorized, 3,000 shares; none issued   -    - 

Common stock, par value $.01 per share: authorized, 120,000,000 shares; issued 89,427,296 shares in 2020 and 88,912,796 shares in 2019; outstanding 82,536,416 in 2020 and 2019

   870,496    870,496 
Additional paid-in capital   344,615,002    344,456,537 
Treasury stock (4,513,256 shares in 2020 and 2019, at cost)   (17,238,669)   (17,238,669)
Accumulated other comprehensive income   1,658,552    1,757,184 
Accumulated deficit   (304,832,432)   (301,236,913)
Total Kopin Corporation stockholders’ equity   25,072,949    28,608,635 
Noncontrolling interest   (78,495)   (17,023)
Total Kopin Corporation stockholders’ equity   24,994,454    28,591,612 
Total liabilities and stockholders’ equity  $38,436,381   $43,046,515 

 

See notes to unaudited condensed consolidated financial statements

 

3
 

 

KOPIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

   Three months ended   Three months ended 
   March 28, 2020   March 30, 2019 
Revenues:          
Net product revenues  $5,919,206   $4,613,856 
Research and development and other revenues   1,959,399    929,069 

Total revenues

   7,878,605    5,542,925 
Expenses:          
Cost of product revenues   5,647,847    5,877,077 
Research and development   2,339,748    4,966,716 
Selling, general and administration   3,432,092    6,282,803 

Total expenses

   11,419,687    17,126,596 
Loss from operations   (3,541,082)   (11,583,671)
Other (expense) income:          
Interest income   73,406    163,361 
Other income (expense), net   12,678    (109,735)
Foreign currency transaction (losses) gains   (172,993)   236,135 

Total other income and expense

   (86,909)   289,761 
Loss before provision for income taxes and net loss (income) attributable to noncontrolling interest   (3,627,991)   (11,293,910)
Tax provision   (29,000)   (26,000)
Net loss   (3,656,991)   (11,319,910)
Net loss (income) attributable to the noncontrolling interest   61,472    (11,017)
Net loss attributable to Kopin Corporation  $(3,595,519)  $(11,330,927)
Net loss per share          
Basic and diluted  $(0.04)  $(0.15)
Weighted average number of common shares outstanding          
Basic and diluted   82,536,416    74,968,981 

 

See notes to unaudited condensed consolidated financial statements

 

4
 

 

KOPIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF comprehensive loss

(Unaudited)

 

   Three months ended   Three months ended 
   March 28, 2020   March 30, 2019 
Net loss  $(3,656,991)  $(11,319,910)
Other comprehensive (loss) income, net of tax:          
Foreign currency translation adjustments   189,078    (122,064)
Unrealized holding (loss) gain on marketable securities   (278,362)   222,000 
Reclassification of holding losses in net loss   (9,348)   (2,619)
Other comprehensive (loss) income, net of tax   (98,632)   97,317 
Comprehensive loss   (3,755,623)   (11,222,593)
Comprehensive loss (income) attributable to the noncontrolling interest   61,472    (11,017)
Comprehensive loss attributable to Kopin Corporation  $(3,694,151)  $(11,233,610)

 

See notes to unaudited condensed consolidated financial statements

 

5
 

 

KOPIN CORPORATION

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

 

Accumulated Other Comprehensive Income [Member] 

 

     Common StockCommon Stock   Additional Paid-in    Treasury    Accumulated Other Comprehensive    Accumulated     Total Kopin Corporation Stockholders   Noncontrolling   Total
Stockholders’
 
   Shares   Amount   Capital   Stock   Income   Deficit   Equity   Interest   Equity 
Balance, December 28, 2019   87,049,672   $870,496   $344,456,537   $(17,238,669)  $1,757,184   $(301,236,913)  $28,608,635   $(17,023)  $28,591,612 
Stock-based compensation expense   -    -    158,465    -    -    -    158,465    -    158,465 
Other comprehensive income (loss)   -    -    -    -    (98,632)   -    (98,632)   -    (98,632)
Net loss   -    -    -    -    -    (3,595,519)   (3,595,519)   (61,472)   (3,656,991)
Balance, March 28, 2020   87,049,672   $870,496   $344,615,002   $(17,238,669)  $1,658,552   $(304,832,432)  $25,072,949   $(78,495)  $24,994,454 

 

 

   Common StockCommon Stock   Additional Paid-in    Treasury   Accumulated Other Comprehensive   Accumulated   Total Kopin Corporation Stockholders   Noncontrolling   Total Stockholders’ 
   Shares   Amount   Capital   Stock   Income   Deficit   Equity   Interest   Equity 
Balance, December 29, 2018   78,522,066   $785,220   $334,491,397   $(17,238,669)  $1,554,587   $(271,730,661)  $47,861,874   $(149,053)  $47,712,821 
Stock-based compensation expense   -    -    815,842    -    -    -    815,842    -    815,842 
Vesting of restricted stock   10,000    100    (100)   -    -    -    -    -    - 
Repurchases of restricted stock to satisfy tax withholding obligations  (4,294)   (43)   (7,085)   -    -    -    (7,128)   -    (7,128)
Other comprehensive income (loss)   -    -    -    -    97,317    -    97,317    -    97,317 
Sale of registered stock   7,272,727    72,727    7,237,273    -    -    -    7,310,000    -    7,310,000 
Net (loss) income   -    -    -    -    -    (11,330,927)   (11,330,927)   11,017    (11,319,910)
Balance, March 30, 2019   85,800,499   $858,004   $342,537,327   $(17,238,669)  $1,651,904   $(283,061,588)  $44,746,978   $(138,036)  $44,608,942 

 

See notes to unaudited condensed consolidated financial statements

 

6
 

 

KOPIN CORPORATION

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

   Three months ended   Three months ended 
   March 28, 2020   March 30, 2019 
Cash flows from operating activities:          
Net loss  $(3,656,991)  $(11,319,910)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   170,805    264,389 
Accretion of premium or discount on marketable debt securities   2,344    - 
Stock-based compensation   158,465    815,842 
Foreign currency losses (gains)   193,073    (233,180)
Change in allowance for bad debt   (150,500)   246,970 
Loss on disposal of plant and equipment   -    180,308 
Write-off of excess inventory   676,063    1,253,988 
Other non-cash items   (985)   32,732 
Changes in assets and liabilities:          
Accounts receivable   260,602    (953,353)
Contract assets   (473,551)   947,986 
Inventory   (356,766)   (620,982)
Prepaid expenses and other current assets   (33,168)   221,926 
Accounts payable and accrued expenses   (1,086,534)   393,941 
Billings in excess of revenue earned   428,688    922,540 
Net cash used in operating activities   (3,868,455)   (7,846,803)
Cash flows from investing activities:          
Other assets   55,231    (50,000)
Capital expenditures   (155,930)   (74,920)
Proceeds from sale of marketable debt securities   6,297,500    2,789,139 
Net cash provided by investing activities   6,196,801    2,664,219 
Cash flows from financing activities:          
Sale of registered stock   -    7,450,000 
Settlements of restricted stock for tax withholding obligations   -    (7,128)
Net cash provided by financing activities   -    7,442,872 
Effect of exchange rate changes on cash   (23,990)   (3,110)
Net increase in cash and cash equivalents   2,304,356    2,257,178 
Cash and cash equivalents:          
Beginning of period   6,029,247    14,326,347 
End of period  $8,333,603   $16,583,525 
Supplemental disclosure of cash flow information:          
Issuance costs included in accounts payable and accrued expenses  $-   $140,000 

 

See notes to unaudited condensed consolidated financial statements

 

7
 

 

KOPIN CORPORATION

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. BASIS OF PRESENTATION

 

The condensed consolidated financial statements of Kopin Corporation as of March 28, 2020 and for the three month periods ended March 28, 2020 and March 30, 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 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 has 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 $3.6 million for the three months ended March 28, 2020 and net cash outflows from operations of $3.9 million. 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 relates to the Company’s ongoing investments in the research and development of Wearable products. The Company had $17.6 million of cash and cash equivalents and marketable debt securities at March 28, 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 military and industrial wearable market. 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.

 

In March 2020, the World Health Organization declared COVID-19 a pandemic. 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, 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 Kopin’s business, results of operations, financial condition, and access to sources of liquidity. In this regard, the CARES Act established a Paycheck Protection Program, whereby certain small businesses are eligible for a loan to fund payroll expenses, rent, and related costs. The loan may be forgiven if the funds are used for payroll and other qualified expenses. The Company received $2.1 million in proceeds from a loan under the PPP. Governmental programs such as the PPP are complex and there is uncertainty regarding whether the loan will be forgiven. Additionally, our participation may lead to additional litigation and governmental, regulatory and third-party scrutiny, negative publicity and damage to its reputation.

 

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. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

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.

 

8
 

 

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 28, 2020 and March 30, 2019.

 

Investments in available-for-sale marketable debt securities were as follows at March 28, 2020 and December 28, 2019:

 

   Amortized Cost   Unrealized Gains   Unrealized Losses   Fair Value 
   2020   2019   2020   2019   2020   2019   2020   2019 
U.S. government and agency backed securities  $3,005,799   $8,304,229   $32,301   $-   $-   $(7,359)  $3,038,100   $8,296,870 
Corporate debt   6,457,883    7,459,298    -    -    (188,024)   (3,171)   6,269,859    7,456,127 
Total  $9,463,682   $15,763,527   $32,301   $-   $(188,024)  $(10,530)  $9,307,959   $15,752,997 

 

The contractual maturity of the Company’s marketable debt securities was as follows at March 28, 2020:

 

   Less than One year   One to Five years   Total 
U.S. government and agency backed securities  $-   $3,038,100   $3,038,100 
Corporate debt   2,529,970    3,739,889    6,269,859 
Total  $2,529,970   $6,777,989   $9,307,959 

 

 

9
 

 

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:

 

 

       Fair Value Measurement March 28, 2020 Using: 
   Total   Level 1   Level 2   Level 3 
Cash and Cash Equivalents  $8,333,603   $8,333,603   $-   $- 
U.S. Government Securities   3,038,100    -    3,038,100    - 
Corporate Debt   6,269,859    -    6,269,859    - 
Equity Investments   4,346,642    244,194    -    4,102,448 
   $21,988,204   $8,577,797   $9,307,959   $4,102,448 

 

       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:

 

 

   December 28, 2019   Net unrealized losses   Purchases, issuances and settlements   Transfers in and or out of Level 3   March 28, 2020 
Equity Investments  $4,537,159   $(190,517)  $-   $      -   $4,346,642 

 

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. The Company made a $1.0 million capital contribution during the three months ended March 31, 2018. The Company also contributed certain intellectual property. During the three months ended March 28, 2020, the Company recorded a $0.1 million unrealized loss on this equity investment due to a fluctuation in the foreign exchange rate. As of March 28, 2020, the Company owned an 11% interest in this investment and the fair value of this equity investment was $3.5 million at March 28, 2020.

 

10
 

 

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 our 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 20.0% equity stake in Solos Incorporation (“Solos Inc.”). The Company did not have an observable price change for similar investments of its equity investments and recorded no impairment charges on its equity investments during the three months ended March 28, 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 March 28, 2020 and December 28, 2019:

 

   March 28, 2020   December 28, 2019 
Raw materials  $2,522,612   $2,630,156 
Work-in-process   495,477    711,475 
Finished goods   409,418    427,065 
 Total  $3,427,507   $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:

 

   Three months ended   Three months ended 
   March 28, 2020   March 30, 2019 
Non-vested restricted common stock   2,377,624    2,150,874 

 

 

11
 

 

7. STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

 

Registered sale of equity securities

 

On March 15, 2019, the Company sold 7.3 million shares of registered common stock for gross proceeds of $8.0 million ($1.10 per share), before deducting underwriting discounts and offering expenses paid by the Company of $0.7 million. This represented approximately 8.9% of Kopin’s total outstanding shares of common stock as of the date of purchase. The net proceeds from the offering were used for general corporate purposes, including working capital. On April 10, 2019, the Company sold 0.7 million shares of registered common stock for gross proceeds of $0.8 million ($1.10 per share), before deducting underwriting discounts and offering expenses paid by the Company of less than $0.1 million, pursuant to the partial exercise of the underwriters’ overallotment option in connection with its March 15, 2019 public offering. This represented approximately 0.8% of Kopin’s total outstanding shares of common stock as of the date of purchase.

 

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:

   Shares   Weighted Average Grant Fair Value 
Balance, December 28, 2019   1,863,124   $1.60 
Granted   533,000    0.41 
Forfeited   (18,500)   1.94 
Vested        
Balance, March 28, 2020   2,377,624   $1.33 

 

12
 

 

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:

 

   For the three months ended March 28, 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 months ended March 28, 2020 and March 30, 2019 (no tax benefits were recognized):

 

   Three Months Ended   Three Months Ended 
   March 28, 2020   March 30, 2019 
Cost of product revenues  $13,977   $32,108 
Research and development   55,132    104,730 
Selling, general and administrative   89,356    679,004 
Total  $158,465   $815,842 

 

Unrecognized compensation expense for non-vested restricted common stock as of March 28, 2020 totaled $0.8 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 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 28, 2020 were as follows:

 

Balance, December 28, 2019  $509,000 
Additions   225,000 
Claims   (226,000)
Balance, March 28, 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 Other accrued liabilities in its condensed consolidated balance sheets. At March 28, 2020, the Company had less than $0.1 million of deferred revenue related to extended warranties.

 

13
 

 

9. INCOME TAXES

 

The Company recorded a provision for income taxes of less than $0.1 million in the three months ended March 28, 2020 and the three months ended March 30, 2019. As of March 28, 2020, the Company has available for tax purposes U.S. federal NOLs of approximately $160.5 million expiring 2022 through 2037 and $56.9 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:

 

   March 28, 2020   December 28, 2019   $ Change   % Change 
Contract assets—current  $1,394,633   $921,082   $473,551    51%
Contract liabilities and billings in excess of revenues earned   (1,229,396)   (796,794)   (432,602)   54%
Contract liabilities—noncurrent   (2,643)   (6,557)   3,914    (60)%
Net contract assets (liabilities)  $162,594   $117,731   $44,863    38%

 

 

The $45,000 increase in the Company’s net contract assets (liabilities) at March 28, 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, which was partially offset by an increase in billing in excess of revenue earned.

 

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. In the three months ended March 30, 2019, the Company recognized revenue of less than $0.1 million related to our contract liabilities at December 29, 2018.

 

The Company did not recognize impairment losses on our contract assets in the three months ended March 28, 2020 or March 30, 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:

   Three months ended   Three months ended 
   March 28, 2020   March 30, 2019 
Point in time   36%   71% 
Over time   64%    29% 
           

 

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 28, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $8.6 million which the Company expects to recognize over the next 13 months. The remaining performance obligations represent amounts to be earned under government contracts, which are subject to cancellation.

 

14
 

 

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 28, 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:

 

   Three months ended   Three months ended 
   March 28, 2020   March 30, 2019 
Operating lease cost  $283,000   $301,000 

 

At March 28, 2020, the Company’s future lease payments under non-cancellable leases were as follows:

 

2020 (excluding the three months ended March 28, 2020)  $893,000 
2021   1,050,000 
2022   654,000 
2023   201,000 
Thereafter   

 
Total future lease payments   2,798,000 
Less imputed interest   (225,000)
Total  $2,573,000 

 

The Company’s lease liabilities recognized in the Company’s condensed consolidated balance sheet at March 28, 2020 was as follows:

 

   March 28, 2020 
Operating lease liabilities–current  $1,059,429 
Operating lease liabilities–noncurrent   1,513,520 
Total lease liabilities  $2,572,949 

 

Supplemental cash flow information related to leases was as follows:

 

   Three months ended 
   March 28, 2020 
Cash paid for amounts included in the measurement of operating lease liabilities  $295,000 

 

Other information related to leases was as follows:

 

   March 28, 2020 
Weighted Average Discount Rate–Operating Leases   6.16%
Weighted Average Remaining Lease Term–Operating Leases (in years)   2.61 

 

 

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 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.

 

15
 

 

Total long-lived assets by country at March 28, 2020 and December 28, 2019 were:

 

Total Long-lived Assets (in thousands)  March 28, 2020   December 28, 2019 
U.S.  $3,461   $3,647 
United Kingdom   379    442 
China   30    37 
Japan   86    102 
Total  $3,956   $4,228 

 

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 28, 2020 and March 30, 2019, the Company derived its sales from the following geographies:

 

  

March 28, 2020

   March 30, 2019 
(In thousands, except percentages)  Revenue   % of Total   Revenue   % of Total 
United States  $6,765    86%  $2,406    43%
Other Americas   101    1    18     
Total Americas   6,866    87    2,424    44 
Asia-Pacific   664    8    1,872    34 
Europe   348    5    1,247    22 
Total Revenues  $7,878    100%  $5,543    100%

 

16
 

 

During the three months ended March 28, 2020 and March 30, 2019, the Company derived its sales from the following display applications:

 

(In thousands)

  March 28, 2020   March 30, 2019 
Military  $3,513   $1,441 
Industrial   2,183    2,503 
Consumer   222    646 
R&D   1,960    929 
Other   -    24 
Total Revenues  $7,878   $5,543 

 

 

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. 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 28, 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.

 

17
 

 

During the three month periods ended March 28, 2020 and March 30, 2019, the Company had the following transactions with related parties:

 

   Three months ended   Three months ended 
   March 28, 2020   March 30, 2019 
   Sales   Purchases   Sales   Purchases 
Goertek  $   $   $   $1,246,077 
Solos Technology   140,068    9,000         
RealWear, Inc.           525,386     
   $140,068   $9,000   $525,386   $1,246,077 

 

At March 28, 2020 and December 28, 2019, the Company had the following receivables, contract assets and payables with related parties:

 

   March 28, 2020   December 28, 2019 
   Receivables   Contract assets   Payables   Receivables   Contract assets   Payables 
Solos Technology  $173,128   $   $9,000   $283,203         
RealWear, Inc.   396,848            646,848         
  $569,976   $   $9,000   $930,051   $   $ 

 

 

15. SUBSEQUENT EVENTS

 

On April 21, 2020, the Company received the proceeds from a loan in the amount of approximately $2.1 million (the “PPP Loan”) from Rockland Trust Company, as lender, pursuant to the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan matures on April 20, 2022 and bears interest at a rate of 1.0% per annum. Commencing November 21, 2020, the Company is required to pay the lender equal monthly payments of principal and interest as required to fully amortize by April 20, 2022 the principal amount outstanding on the PPP Loan as of October 21, 2020. The PPP Loan is evidenced by a promissory note dated April 21, 2020 (the “Note”), which contains customary events of default relating to, among other things, payment defaults and breaches of representations and warranties. The PPP Loan may be prepaid by the Company at any time prior to maturity with no prepayment penalties.

 

All or a portion of the PPP Loan may be forgiven by the U.S. Small Business Administration (“SBA”) upon application by the Company beginning 60 days but not later than 120 days after loan approval and upon documentation of expenditures in accordance with the SBA requirements. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during the eight-week period beginning on the date of loan approval. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $100,000, prorated annually. Not more than 25% of the forgiven amount may be for non-payroll costs. Forgiveness is reduced if full-time headcount declines, or if salaries and wages for employees with salaries of $100,000 or less annually are reduced by more than 25%. In the event the PPP Loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal. No assurance is provided that the Company will apply for and obtain forgiveness of the PPP Loan in whole or in part.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward Looking Statements

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the safe harbor created by such sections. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “could,” “would,” “seeks,” “estimates,” and variations of such words and similar expressions, and the negatives thereof, are intended to identify such forward-looking statements. We caution readers not to place undue reliance on any such “forward-looking statements,” which speak only as of the date made, and advise readers that these forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties, estimates, and assumptions by us that are difficult to predict. Various factors, some of which are beyond our control, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements. All such forward-looking statements, whether written or oral, and whether made by us or on our behalf, are expressly qualified by these cautionary statements and any other cautionary statements which may accompany the forward-looking statements. In addition, we disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of this report, except as may otherwise be required by the federal securities laws.

 

We have identified the following important factors that could cause actual results to differ materially from those discussed in our forward-looking statements. Such factors may be in addition to the risks described in Part I, Item 1A, “Risk Factors;” Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations; and other parts of our Annual Report on Form 10-K for the fiscal year ended December 28, 2019. These factors include: the extent of the impact of the coronavirus (“COVID-19”) pandemic on our business and operations, and the economic and societal disruptions resulting from the COVID-19 pandemic; our ability to continue as a going concern; the material weakness management has identified in our internal control over financial reporting, our conclusion that our disclosure controls and procedures were not effective as of the fiscal year ended December 28, 2019 or the period ended March 28, 2020 and our ability to remediate that material weakness; our ability to obtain raw materials and other goods as well as services from our suppliers as needed; our expectation that our Scotland plant will increase production through the second quarter of 2020 and achieve normal production rates in the third quarter of 2020; our expectation that our production staffing levels at our United States plants will be below normal levels through the second fiscal quarter of 2020; the potential for customers to choose our competitors as their supplier; our expectation that we will have negative cash flow from operating activities in 2020; our ability to prosecute and defend our proprietary technology aggressively or successfully; our ability to retain personnel with experience and expertise relevant to our business; our ability to invest in research and development to achieve profitability even during periods when we are not profitable; our ability to continue to introduce new products in our target markets; our ability to generate revenue growth and positive cash flow, and reach profitability; the strengthening of the U.S. d