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 2020-09-26 Filed 2020-11-05
10-Q 2020-06-27 Filed 2020-08-06
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 2020-11-03
8-K 2020-08-04
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 2020-09-26

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 September 26, 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

 

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

 

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 Nov 4, 2020
Common Stock, par value $0.01   85,053,040

 

 

 

 

 

 

Kopin Corporation

 

INDEX

 

   

Page

No.

Part I – Financial Information  
     
Item 1. Condensed Consolidated Financial Statements (Unaudited) 3
     
  Condensed Consolidated Balance Sheets at September 26, 2020 (Unaudited) and December 28, 2019 3
     
  Condensed Consolidated Statements of Operations (Unaudited) for the three and nine months ended September 26, 2020 and September 28, 2019 4
     
  Condensed Consolidated Statements of Comprehensive Loss (Unaudited) for the three and nine months ended September 26, 2020 and September 28, 2019 5
     
  Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the three and nine months ended September 26, 2020 and September 28, 2019 6
     
  Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 26, 2020 and September 28, 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 24
     
Item 4. Controls and Procedures 25
     
Part II – Other Information 26
     
Item 1. Legal Proceedings 26
     
Item 1A. Risk Factors 26
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 27
     
Item 6. Exhibits 27
     
Signatures 28

 

2
 

 

Part 1. FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements (Unaudited)

 

KOPIN CORPORATION

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(Unaudited)

 

   September 26, 2020   December 28, 2019 
ASSETS          
Current assets:          
Cash and equivalents  $10,624,506   $6,029,247 
Marketable debt securities, at fair value   4,988,853    15,752,997 
Accounts receivable, net of allowance of $270,000 in 2020 and $938,000 in 2019   6,507,138    6,023,250 
Contract assets and unbilled receivables   1,584,171    921,082 
Inventory   3,999,107    3,768,696 
Prepaid taxes   114,151    104,442 
Prepaid expenses and other current assets   2,042,159    1,164,927 
Total current assets   29,860,085    33,764,641 
Property, plant and equipment, net   1,288,722    1,473,341 
Operating lease right-of-use assets   2,018,685    2,753,963 
Other assets   161,473    517,411 
Equity investments   4,330,060    4,537,159 
Total assets  $37,659,025   $43,046,515 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable  $2,805,944   $3,998,234 
Accrued payroll and expenses   1,880,192    2,203,773 
Accrued warranty   508,000    509,000 
Contract liabilities and billings in excess of revenues earned   576,419    796,794 
Operating lease liabilities   1,064,903    1,041,695 
Other accrued liabilities   2,400,234    2,202,217 
Customer deposits   

2,177,330

    

33,000

 
Taxes payable   521,935    525,000 
Total current liabilities   11,934,957    11,309,713 
Noncurrent contract liabilities and asset retirement obligations   255,050    268,440 
Operating lease liabilities, net of current portion   992,712    1,791,590 
Other long-term obligations   1,171,091    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 89,506,296 shares in 2020 and 88,912,796 shares in 2019; outstanding 82,596,416 in 2020 and 82,536,416 in 2019, respectively   871,096    870,496 
Additional paid-in capital   345,094,687    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   1,600,980    1,757,184 
Accumulated deficit   (306,911,413)   (301,236,913)
Total Kopin Corporation stockholders’ equity   23,416,681    28,608,635 
Noncontrolling interest   (111,466)   (17,023)
Total stockholders’ equity   23,305,215    28,591,612 
Total liabilities and stockholders’ equity  $37,659,025   $43,046,515 

 

See notes to unaudited condensed consolidated financial statements

 

3
 

 

KOPIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

  

2020

  

2019

  

2020

  

2019

 
   Three Months Ended   Nine Months Ended 
  

September 26,

2020

  

September 28,

2019

  

September 26,

2020

  

September 28,

2019

 
Revenues:                    
Net product revenues  $6,487,581   $4,955,062   $19,077,090   $14,004,319 
Research and development and other revenues   3,025,171    1,184,270    7,128,913    6,788,071 
Total revenues   9,512,752    6,139,332    26,206,003    20,792,390 
Expenses:                    
Cost of product revenues   4,825,032    4,689,944    15,252,456    15,809,535 
Research and development   2,715,868    2,389,573    7,276,770    10,686,491 
Selling, general and administration   3,079,567    5,130,019    9,421,024    16,788,493 
Impairment of goodwill   -    331,344    -    331,344 
Total expenses   10,620,467    12,540,880    31,950,250    43,615,863 
Loss from operations   (1,107,715)   (6,401,548)   (5,744,247)   (22,823,473)
Other income (expense):                    
Interest income   12,751    120,645    120,187    438,316 
Other expense, net   (28,600)   (109,614)   (65,680)   (330,821)
Foreign currency transaction gains (losses)   183,795    (88,847)   20,797    (36,320)
Gain on investments   -    -    -    768,000 
Total other income and expense   167,946    (77,816)   75,304    839,175 
Loss before provision for income taxes and net loss (income) attributable to noncontrolling interest   (939,769)   (6,479,364)   (5,668,943)   (21,984,298)
Tax provision   (29,000)   (26,000)   (100,000)   (78,000)
Net loss   (968,769)   (6,505,364)   (5,768,943)   (22,062,298)
Net loss (income) attributable to the noncontrolling interest   11,329   (120,094)   94,443    (154,478)
Net loss attributable to Kopin Corporation  $(957,440)  $(6,625,458)  $(5,674,500)  $(22,216,776)
Net loss per share                    
Basic and diluted  $(0.01)  $(0.08)  $(0.07)  $(0.28)
Weighted average number of common shares outstanding                    
Basic and diluted   82,596,416    82,053,698    82,567,401    79,657,677 

 

See notes to unaudited condensed consolidated financial statements

 

4
 

 

KOPIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

 

  

September 26, 2020

  

September 28, 2019

  

September 26, 2020

  

September 28, 2019

 
   Three Months Ended   Nine Months Ended 
  

September 26, 2020

  

September 28, 2019

  

September 26, 2020

  

September 28, 2019

 
Net loss  $(968,769)  $(6,505,364)  $(5,768,943)  $(22,062,298)
Other comprehensive (loss) income, net of tax:                    
Foreign currency translation adjustments   (82,815)   (21,163)   69,228    (22,201)
Unrealized holding (loss) gain on marketable securities   (21,725)   39,967    (204,404)   366,224 
Reclassification of holding losses in net loss   

    (8,086)   (21,028)   (15,520)
Other comprehensive (loss) income, net of tax   (104,540)   10,718    (156,204)   328,503 
Comprehensive loss   (1,073,309)   (6,494,646)   (5,925,147)   (21,733,795)
Comprehensive loss (income) attributable to the noncontrolling interest   11,329    (120,094)   94,443    (154,478)
Comprehensive loss attributable to Kopin Corporation  $(1,061,980)  $(6,614,740)  $(5,830,704)  $(21,888,273)

 

See notes to unaudited condensed consolidated financial statements

 

5
 

 

KOPIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

   Shares   Amount   Capital   Stock   Income   Deficit   Equity   Interest   Equity 
   Common 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 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 
Stock-based compensation expense   -    -    161,677    -    -    -    161,677    -    161,677 
Vesting of restricted stock   60,000    600    (600)   -    -    -    -    -    - 
Other comprehensive Income   -    -    -    -    46,968    -    46,968    -    46,968 
Net loss   -    -    -    -    -    (1,121,541)   (1,121,541)   (21,642)   (1,143,183)
Balance, June 27, 2020   87,109,672   $871,096   $344,776,079   $(17,238,669)  $1,705,520   $(305,953,973)  $24,160,053   $(100,137)  $24,059,916 
Stock-based compensation expense   -    -    318,608    -    -    -    318,608    -    318,608 
Other comprehensive loss    -    -    -    -    (104,540)   -    (104,540)   -    (104,540)
Net loss   -    -    -    -    -    (957,440)   (957,440)   (11,329)   (968,769)
Balance, September 26, 2020   87,109,672   $871,096   $345,094,687   $(17,238,669)  $1,600,980   $(306,911,413)  $23,416,681   $(111,466)  $23,305,215 

 

   Shares   Amount   Capital   Stock   Income   Deficit   Equity   Interest   Equity

 

 

 

   Common 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   -    -    -    -    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 
Stock-based compensation expense   -    -    538,474    -    -    -    538,474    -    538,474 
Vesting of restricted stock   60,000    600    (600)   -    -    -    -    -    - 
Other comprehensive income   -    -    -    -    220,468    -    220,468    -    220,468 
Sale of registered stock   706,454    7,065    721,466    -    -    -    728,531    -    728,531 
Net (loss) income   -    -    -    -    -    (4,260,391)   (4,260,391)   23,367    (4,237,024)
Balance, June 29, 2019  86,566,953   $865,669   $343,796,667   $(17,238,669)  $1,872,372   $(287,321,979)  $41,974,060   $(114,669)  $41,859,391 
Stock-based compensation expense   -    -    451,683    -    -    -    451,683    -    451,683 
Other comprehensive income   -    -    -    -    10,718    -    10,718    -    10,718 
Net (loss) income   -    -    -    -    -    (6,625,458)   (6,625,458)   120,094    (6,505,364)
Balance, September 28, 2019  86,566,953   $865,669   $344,248,350   $(17,238,669)  $1,883,090   $(293,947,437)  $

35,811,003

   $5,425  $35,816,428 

 

See notes to unaudited condensed consolidated financial statements

 

6
 

 

KOPIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   September 26, 2020   September 28, 2019 
   Nine Months Ended 
   September 26, 2020   September 28, 2019 
Cash flows from operating activities:          
Net loss  $ (5,768,943)  $(22,062,298)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   474,437    597,091 
Accretion of premium or discount on marketable debt securities   6,183     

Recovery of impairment on marketable debt securities

   

(150,644)

    

 
Stock-based compensation   638,750    1,805,999 
Foreign currency (gains) losses   (9,334)   32,483 
Change in allowance for bad debt   (667,983)   (56,997)
Unrealized gain on investments       (768,000)
Deferred income taxes   87,402    78,777 
Loss on disposal of plant and equipment       487,284 
Impairment of goodwill       331,344 
Write-off of inventory   1,034,515    2,682,397 
Other non-cash items   (1,067)    94,444 
Changes in assets and liabilities:         
Accounts receivable   185,118    (1,786,687)
Contract assets   (663,089)    2,043,724 
Inventory   (1,277,017   (1,338,233)
Prepaid expenses and other current assets   (735,565)    436,575 
Accounts payable and accrued expenses   

795,675

    (427,603)
Billings in excess of revenue earned    (224,582)    1,034,608 
Net cash used in operating activities   

(6,276,144

)   (16,815,092)
Cash flows from investing activities:          
Other assets   374,886    (106,524)
Capital expenditures   (294,595)   (113,009)
Proceeds from sale of marketable debt securities   10,798,117    5,954,139 
Cash paid for equity investment       (2,500,000)
Net cash provided by investing activities   10,878,408    3,234,606 
Cash flows from financing activities:          
Paycheck protection program loan receipt   

2,238,000

    

 
Paycheck protection program loan repayment   

(2,238,000

   

 
Sale of registered stock       8,038,531 
Settlements of restricted stock for tax withholding obligations       (7,128)
Net cash provided by financing activities       8,031,403 
Effect of exchange rate changes on cash   (7,005)    (19,565)
Net increase (decrease) in cash and cash equivalents   4,595,259   (5,568,648)
Cash and cash equivalents:          
Beginning of period   6,029,247    14,326,347 
End of period  $ 10,624,506  $ 8,757,699 

 

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 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.

 

8
 

 

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:

 

 

   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

 

 

   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 

 

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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 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 

 

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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 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:

 

 

    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  

 

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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   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