Quick10K

Kopin

Price	0.71		EPS	-0
Shares	82		P/E	-2
MCap	58		P/FCF	-3
Net Debt	-9		EBIT	-33
TEV	50		TEV/EBIT	-1
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-06-27	Filed 2020-08-06 Print
10-Q	2020-03-28	Filed 2020-05-07 Print
10-K	2019-12-28	Filed 2020-03-11 Print
10-Q	2019-09-28	Filed 2019-11-07 Print
10-Q	2019-06-29	Filed 2019-08-08 Print
10-Q	2019-03-30	Filed 2019-05-09 Print
10-K	2018-12-29	Filed 2019-03-14 Print
10-Q	2018-09-29	Filed 2018-11-08 Print
10-Q	2018-06-30	Filed 2018-08-09 Print
10-Q	2018-03-31	Filed 2018-05-10 Print
10-K	2017-12-30	Filed 2018-03-23 Print
10-Q	2017-09-30	Filed 2017-11-09 Print
10-Q	2017-07-01	Filed 2017-08-10 Print
10-Q	2017-04-01	Filed 2017-05-11 Print
10-K	2016-12-31	Filed 2017-03-23 Print
10-K	2016-09-24	Filed 2017-03-23 Print
10-Q	2016-06-25	Filed 2016-08-03 Print
10-Q	2016-03-26	Filed 2016-05-04 Print
10-K	2015-12-26	Filed 2016-03-04 Print
10-Q	2015-09-26	Filed 2015-11-05 Print
10-Q	2015-06-27	Filed 2015-08-06 Print
10-Q	2015-03-28	Filed 2015-05-11 Print
10-K	2014-12-27	Filed 2015-03-12 Print
10-Q	2014-09-27	Filed 2014-11-06 Print
10-Q	2014-06-28	Filed 2014-08-07 Print
10-Q	2014-03-29	Filed 2014-05-08 Print
10-K	2013-12-28	Filed 2014-03-17 Print
10-Q	2013-09-28	Filed 2013-11-05 Print
10-Q	2013-06-29	Filed 2013-08-08 Print
10-Q	2013-03-30	Filed 2013-05-09 Print
10-K	2012-12-29	Filed 2013-03-18 Print
10-Q	2012-09-29	Filed 2012-11-08 Print
10-Q	2012-06-30	Filed 2012-08-09 Print
10-Q	2012-03-31	Filed 2012-05-10 Print
10-K	2011-12-31	Filed 2012-03-15 Print
10-Q	2011-09-24	Filed 2011-11-03 Print
10-Q	2011-06-25	Filed 2011-08-04 Print
10-Q	2011-03-26	Filed 2011-05-05 Print
10-K	2010-12-25	Filed 2011-03-10 Print
10-Q	2010-09-25	Filed 2010-11-03 Print
10-Q	2010-06-26	Filed 2010-08-03 Print
10-Q	2010-03-27	Filed 2010-05-04 Print
10-K	2009-12-26	Filed 2010-03-08 Print

8-K	2020-08-04	Earnings, Exhibits
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

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Balance Sheet	Income Statement	Cash Flow
CopyHistoryView Assets, Equity	CopyHistoryView Rev, G Profit, Net Income	CopyHistoryView 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 June 27, 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)

 

 

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 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 August 4, 2020
Common Stock, par value $0.01		84,963,042

 

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.

 

 

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

 

 

 

Part 1. FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements (Unaudited)

 

KOPIN CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

See notes to unaudited condensed consolidated financial statements

 

 

KOPIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

See notes to unaudited condensed consolidated financial statements

 

 

KOPIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

 

 

See notes to unaudited condensed consolidated financial statements

 

 

 

KOPIN CORPORATION

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

 

  

See notes to unaudited condensed consolidated financial statements

 

 

KOPIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

See notes to unaudited condensed consolidated financial statements

 

 

KOPIN CORPORATION

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. BASIS OF PRESENTATION

 

The condensed consolidated financial statements of Kopin Corporation as of June 27, 2020 and for the three and six month periods ended June 27, 2020 and June 29, 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 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 $4.8 million and net cash outflows from operations of $6.8 million for the six months ended June 27, 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 the research and development of Wearable products. The Company had $15.3 million of cash and cash equivalents and marketable debt securities at June 27, 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 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.

 

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. During the second quarter ended June 27, 2020 the Company and a subsidiary each received a loan under the PPP. In May, 2020, the Company voluntarily terminated its PPP Loan and repaid the PPP Loan of $2.1 million and the Company’s subsidiary repaid its PPP loan of $0.1 million in July, 2020. The Company’s decision to terminate the loans was based on additional guidance issued by the Small Business Administration. There were no prepayment penalties in connection with the voluntary terminations.

 

 

2. ACCOUNTING STANDARDS

 

Accounting Standards Issued But Not Yet Adopted

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires measurement and recognition of expected credit losses for financial assets held. In November 2019, the FASB issued ASU 2019-10 that has extended the effective date of ASU 2016-13 for Smaller Reporting Entities to fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The Company is currently evaluating ASU 2016-13 and its impact on our consolidated financial statements.

 

3. CASH AND CASH EQUIVALENTS AND MARKETABLE DEBT SECURITIES

 

The Company considers all highly liquid, short-term debt instruments with original maturities of three months or less to be cash equivalents.

 

Marketable debt securities consist primarily of commercial paper, medium-term corporate notes, and U.S. government and agency backed securities. The Company classifies these marketable debt securities as available-for-sale at fair value in “Marketable debt securities, at fair value.” The Company records the amortization of premium and accretion of discounts on marketable debt securities in the results of operations.

 

The Company uses the specific identification method as a basis for determining cost and calculating realized gains and losses with respect to marketable debt securities. The gross gains and losses realized related to sales and maturities of marketable debt securities were not material during the three and six months ended June 27, 2020 and June 29, 2019.

 

Investments in available-for-sale marketable debt securities were as follows at June 27, 2020 and December 28, 2019:

 

SCHEDULE OF AVAILABLE-FOR-SALE MARKETABLE DEBT SECURITIES

Copy History

		Amortized Cost								Unrealized Gains								Unrealized Losses								Fair Value
		2020				2019				2020				2019				2020				2019				2020				2019
U.S. government and agency backed securities		$	1,005,819			$	8,304,229			$	27,521			$	-			$	-			$	(7,359)			$	1,033,340			$	8,296,870
Corporate Debt			5,456,757				7,459,298				-				-				(4,401)				(3,171)				5,452,356				7,456,127
Total		$	6,462,576			$	15,763,527			$	27,521			$	-			$	(4,401)			$	(10,530)			$	6,485,696			$	15,752,997

 

The contractual maturity of the Company’s marketable debt securities was as follows at June 27, 2020:

 

SCHEDULE OF MARKETABLE DEBT SECURITIES

Copy History

		Less than One year				One to Five years				Total
U.S. government and agency backed securities		$	-				1,033,340				1,033,340
Corporate debt			1,552,336				3,900,020				5,452,356
Total		$	1,552,336				4,933,360				6,485,696

 

 

 

4. FAIR VALUE MEASUREMENTS

 

Financial instruments are categorized as Level 1, Level 2 or Level 3 based upon the method by which their fair value is computed. An investment is categorized as Level 1 when its fair value is based on unadjusted quoted prices in active markets for identical assets that the Company has the ability to access at the measurement date. An investment is categorized as Level 2 if its fair market value is based on quoted market prices for similar assets in active markets, quoted prices for identical or similar assets in markets that are not active, based on observable inputs such as interest rates, yield curves, or derived from or corroborated by observable market data by correlation or other means. An investment is categorized as Level 3 if its fair value is based on assumptions developed by the Company about what a market participant would use in pricing the assets.

 

The following table details the fair value measurements of the Company’s financial assets:

 

SCHEDULE OF FAIR VALUE MEASUREMENT OF FINAL INSTRUMENTS

Copy History

						Fair Value Measurement June 27, 2020 Using:
		Total				Level 1				Level 2				Level 3
Cash and Cash Equivalents		$	8,776,820			$	8,776,820			$	-			$	-
U.S. Government Securities			1,033,340				-				1,033,340				-
Corporate Debt			5,452,356				-				5,452,356				-
Equity Investments			4,222,896				299,998				-				3,922,898
		$	19,485,412			$	9,076,818			$	6,485,696			$	3,922,898

 

Copy History

						Fair Value Measurement at Dec 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

 

10

 

 

Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. Changes in Level 3 investments were as follows:

 

SCHEDULE OF FAIR VALUE, ASSETS MEASURED ON RECURRING BASIS, UNOBSERVABLE INPUT RECONCILIATION

Copy History

		December 28, 2019				Net unrealized losses				Purchases, issuances and settlements				Transfers in and or out of Level 3				June 27, 2020
Equity Investments		$	4,150,448			$	(227,550)			$	-			$	-			$	3,922,898

 

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 six months ended June 27, 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 June 27, 2020, the Company owned an 11% interest in this investment and the estimated fair value of this equity investment was $3.5 million at June 27, 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 Solos^TM (“Solos”) product line and Whisper^TM 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 three and six months ended June 27, 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 June 27, 2020 and December 28, 2019:

 

SCHEDULE OF INVENTORY

Copy History

		June 27, 2020				December 28, 2019
Raw materials		$	2,598,727			$	2,630,156
Work-in-process			544,528				711,475
Finished goods			568,792				427,065
Total		$	3,712,047			$	3,768,696

 

 

 

6. NET LOSS PER SHARE

 

Basic net loss per share is computed using the weighted-average number of shares of common stock outstanding during the period less any unvested restricted shares. Diluted net loss per share is calculated using weighted-average shares outstanding and contingently issuable shares, less weighted-average shares reacquired during the period. The net outstanding shares are adjusted for the dilutive effect of shares issuable upon the assumed conversion of the Company’s common stock equivalents, which consist of unvested restricted stock.

 

The following were not included in weighted-average common shares outstanding-diluted because they are anti-dilutive or performance conditions have not been met at the end of the period:

 

SCHEDULE OF WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING DILUTED

Copy History

Three Months Ended

Three Months Ended

Six Months Ended

Six Months Ended

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

Non-vested restricted common stock

2,373,874

2,047,374

2,373,874

2,047,374

 

 

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 authorized 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 Company 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, 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:

 

SCHEDULE OF NON-VESTED RESTRICTED STOCK ACTIVITY

Copy History

						Weighted Average
		Shares				Grant Fair Value
Balance, December 28, 2019			1,863,124			$	1.60
Granted			593,000				0.47
Forfeited			(22,250)				2.07
Vested			(60,000)				1.12
Balance, June 27, 2020			2,373,874			$	1.32

 

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:

 

SCHEDULE OF SHARE-BASED PAYMENT AWARD, EMPLOYEE STOCK PURCHASE PLAN, VALUATION ASSUMPTIONS 

Copy History

		For the three months ended				For the three months ended				For the three months ended
		June 27, 2020				June 27, 2020				June 27, 2020
Performance price target		$	5.25			$	6.00			$	7.00
Expected volatility			48.3%				48.3%				48.3%
Interest rate			1.97%				1.97%				1.97%
Expected Life (years)			3				3				3
Dividend yield			—%				—%				—%

 

Stock-Based Compensation

 

The following table summarizes stock-based compensation expense within each of the categories below as it relates to non-vested restricted common stock awards for the three and six months ended June 27, 2020 and June 29, 2019 (no tax benefits were recognized):

 

SCHEDULE OF STOCK-BASED COMPENSATION EXPENSE

Copy History

		Three Months Ended				Three Months Ended				Six Months Ended				Six Months Ended
		June 27, 2020				June 29, 2019				June 27, 2020				June 29, 2019
Cost of product revenues		$	16,269			$	32,107			$	30,246			$	64,215
Research and development			57,523				83,785				112,655				188,515
Selling, general and administrative			87,885				422,582				177,241				1,101,586
Total		$	161,677			$	538,474			$	320,142			$	1,354,316

 

Unrecognized compensation expense for non-vested restricted common stock as of June 27, 2020 totaled $0.7 million and is expected to be recognized over a weighted average period of approximately two years.

 

8. ACCRUED WARRANTY

 

The Company typically warrants its products against defect for 12 to 18 months, however, for certain products a customer may purchase an extended warranty. A provision for estimated future costs and estimated returns for credit relating to such warranty is recorded in the period when product is shipped and revenue is recognized and is updated as additional information becomes available. The Company’s estimate of future costs to satisfy warranty obligations is based primarily on historical warranty expense experienced and a provision for potential future product failures. Changes in the accrued warranty for the six months ended June 27, 2020 were as follows:

 

SCHEDULE OF ACCRUED WARRANTY

Copy History

Balance, December 28, 2019			$	509,000
Additions				348,000
Claims				(349,000)
Balance, June 27, 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 June 27, 2020, the Company had less than $0.1 million of deferred revenue related to extended warranties.

 

 

9. INCOME TAXES

 

The Company recorded a provision for income taxes of less than $0.1 million in the three and six months ended June 27, 2020 and June 29, 2019, respectively. As of June 27, 2020, the Company has available for tax purposes U.S. federal NOLs of approximately $160.5 million expiring 2022 through 2037 and $59.1 million that have an unlimited carryover period. The Company had recognized a full valuation allowance on its domestic and certain foreign net deferred tax assets due to the uncertainty of realization of such assets. The Company recognizes both accrued interest and penalties related to its uncertain tax positions related to intercompany loan interest and potential transfer pricing exposure related to its foreign subsidiaries.

 

10. CONTRACT ASSETS AND LIABILITIES

 

Contract assets include unbilled amounts typically resulting from sales under contracts when the cost-to-cost method of revenue recognition is utilized and revenue recognized from customer arrangements, including licensing, exceeds the amount billed to the customer, and right to payment is not just subject to the passage of time. Amounts may not exceed their net realizable value. Contract assets are generally classified as current. The Company classifies the noncurrent portion of contract assets under other assets in its condensed consolidated balance sheets.

 

Contract liabilities consist of advance payments and billings in excess of cost incurred and deferred revenue.

 

Net contract assets (liabilities) consisted of the following:

 

SCHEDULE OF CONTRACT WITH CUSTOMER, ASSET AND LIABILITY 

Copy History

		June 27, 2020				December 28, 2019				$ Change				% Change
Contract assets ---current			2,509,258			$	921,082			$	1,588,176				172%
Contract liabilities---current			(1,687,403)			$	(796,794)			$	(890,609)				112%
Contract liabilities---noncurrent			(1,589)			$	(6,557)			$	4,968				(76)%
Net contract assets (liabilities)		$	820,266			$	117,731			$	702,535				597%

 

The $0.7 million increase in the Company’s net contract assets at June 27, 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 and six months ended June 27, 2020, the Company recognized revenue of $0.6 million, related to our contract liabilities at December 28, 2019. In the three and six months ended June 29, 2019, the Company recognized revenue of $0.1 million and $0.3 million, respectively, related to our contract liabilities at December 29, 2018.

 

The Company did not recognize impairment losses on our contract assets in the three and six months ended June 27, 2020 or June 29, 2019.

 

Performance Obligations

 

The Company’s revenue recognition related to performance obligations that were satisfied at a point in time and over time were as follows:

 

SCHEDULE OF SATISFACTION OF PERFORMANCE OBLIGATIONS 

Copy History

		Three months ended				Three months ended				Six months ended				Six months ended
		June 27, 2020				June 29, 2019				June 27, 2020				June 29, 2019
Point in time			39%				78%				37%				75%
Over time			61%				22%				63%				25%

 

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 June 27, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $5.7 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 June 27, 2020 and December 28, 2019, the Company did not have any finance leases. Approximately all of our future lease commitments, and related lease liability, relate to the Company’s real estate leases. Some of the Company’s leases include options to extend or terminate the lease.

 

The components of lease expense were as follows:

 

 SCHEDULE OF LEASE EXPENSE

Copy History

		Three Months Ended				Three Months Ended				Six Months Ended				Six Months Ended
		June 27,2020				June 29, 2019				June 27, 2020				June 29, 2019
Operating lease cost		$	283,443			$	308,080			$	566,443			$	603,565

 

At June 27, 2020, the Company’s future lease payments under non-cancellable leases were as follows:

 

 SCHEDULE OF FUTURE LEASE PAYMENT UNDER NON-CANCELLABLE LEASE

Copy History

2020 (excluding the six months ended June 27, 2020)		$	596,627
2021			1,048,973
2022			653,367
2023			201,333
Thereafter			-
Total future lease payments		$	2,500,300
Less imputed interest			(187,955)
Total		$	2,312,345

 

The Company’s lease liabilities recognized in the Company’s condensed consolidated balance sheets at June 27, 2020 was as follows:

 

 SCHEDULE OF OPERATING LEASE PAYMENTS RECOGNIZED IN CONSOLIDATED BALANCE SHEETS

Copy History

		June 27, 2020
Operating lease liabilities - current		$	1,077,756
Operating lease liabilities -noncurrent			1,236,818
Total lease liabilities		$	2,314,574

 

Supplemental cash flow information related to leases was as follows:

 

SCHEDULE OF SUPPLEMENTAL INFORMATION RELATED TO LEASES 

		Six months ended
		June 27, 2020
Cash paid for amounts included in the measurement of operating lease liabilities		$	591,500

 

Other information related to leases was as follows:

 

		June 27, 2020
Weighted Average Discount Rate - Operating Leases			6.16%
Weighted Average Remaining Lease Term - Operating Leases (in years)			2.39

 

   

 

12. SEGMENTS AND DISAGGREGATION OF REVENUE

 

We continually monitor and review our segment reporting structure in accordance with authoritative guidance to determine if any changes have occurred that would affect our reportable segments. In the fourth quarter of 2019, as a result of the changes in our operations and management structure we commenced reporting under one segment. We have retrospectively adjusted our segment disclosures to present one reportable segment, as our Chief Executive Officer, who is our chief operating decision maker (“CODM”), reviews results on a total company basis.

 

Total long-lived assets by country at June 27, 2020 and December 28, 2019 were:

 

SCHEDULE OF LONG-LIVED ASSETS BY GEOGRAPHIC AREAS 

Copy History

Total Long-lived Assets (in thousands)		June 27, 2020				December 28, 2019
U.S.		$	3,144			$	3,647
United Kingdom			352				442
China			23				37
Japan			70				101
Total		$	3,589			$	4,227

  

We disaggregate our revenue from contracts with customers by geographic location and by display application, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.

 

During the three and six months ended June 27, 2020 and June 29, 2019, the Company derived its sales from the following geographies:

 

 SCHEDULE OF SEGMENT INFORMATION BY REVENUE TYPE 

Copy History

		Three months ended								Three months ended								Six months ended								Six months ended
		June 27, 2020								June 29, 2019								June 27, 2020								June 29, 2019
(In thousands)		Revenue				% of Total				Revenue				% of Total				Revenue				% of Total				Revenue				% of Total
United States		$	6,938				79%			$	2,605				29%			$	13,704				82%			$	5,011				35%
Other Americas			-				-				7				-				101				1				25				-
Total Americas			6,938				79				2,612				29				13,805				83				5,036				35
Asia - Pacific			1,642				18				5,817				64				2,306				14				7,690				52
Europe			235				3				671				7				582				3				1,917				13
Other			-				-				10				-				-				-				10				-
Total Revenues		$	8,815				100%			$	9,110				100%			$	16,693				100%			$	14,653				100%

 

During the three and six months ended June 27, 2020 and June 29, 2019, the Company derived its sales from the following display applications:

 

 SCHEDULE OF SEGMENT REPORTING INFORMATION, BY SEGMENT

Copy History

		Three months ended				Three months ended				Six months ended				Six months ended
(In thousands)		June 27, 2020				June 29, 2019				June 27, 2020				June 29, 2019
Military		$	4,490			$	1,797			$	8,003			$	3,238
Industrial			1,396				2,135				3,579				4,638
Consumer			232				503				453				1,149
R&D			1,772				455				3,733				1,199
License, royalties and other			925