UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
| 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
(Exact name of registrant as specified in its charter)
State or other jurisdiction of incorporation or organization |
(I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s
telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
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 November 2, 2021 | |
| Common Stock, par value $0.01 |
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.
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).
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 | ☐ | |
| ☒ | 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 ☐
Kopin Corporation
INDEX
| 2 |
Part 1. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
KOPIN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| September 25, 2021 | December 26, 2020 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and equivalents | $ | $ | ||||||
| Marketable debt securities, at fair value | ||||||||
| Accounts receivable, net of allowance of $ | ||||||||
| Contract assets and unbilled receivables | ||||||||
| Inventory | ||||||||
| Prepaid taxes | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Other assets | ||||||||
| Equity investments | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued payroll and expenses | ||||||||
| Accrued warranty | ||||||||
| Contract liabilities and billings in excess of revenues earned | ||||||||
| Operating lease liabilities | ||||||||
| Other accrued liabilities | ||||||||
| Customer deposits | ||||||||
| Deferred tax liabilities | ||||||||
| Total current liabilities | ||||||||
| Noncurrent contract liabilities and asset retirement obligations | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Other long-term obligations | ||||||||
| Commitments and contingencies (Note 13) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, par value $ per share: authorized, shares; issued | - | - | ||||||
| Common stock, par value $ per share: authorized, shares; issued shares in 2021 and shares in 2020; outstanding in 2021 and in 2020, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock ( shares in 2020, at cost) | - | ( | ) | |||||
| Accumulated other comprehensive income | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Kopin Corporation stockholders’ equity | ||||||||
| Noncontrolling interest | ( | ) | ( | ) | ||||
| Total Kopin Corporation stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See notes to unaudited condensed consolidated financial statements
| 3 |
KOPIN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three months ended | Three months ended | Nine months ended | Nine months ended | |||||||||||||
| September 25, 2021 | September 26, 2020 | September 25, 2021 | September 26, 2020 | |||||||||||||
| Revenues: | ||||||||||||||||
| Net product revenues | $ | $ | $ | $ | ||||||||||||
| Research and development and other revenues | ||||||||||||||||
| Total revenues | ||||||||||||||||
| Expenses: | ||||||||||||||||
| Cost of product revenues | ||||||||||||||||
| Research and development | ||||||||||||||||
| Selling, general and administration | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (expense) income: | ||||||||||||||||
| Interest income | ||||||||||||||||
| Other expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Foreign currency transaction (losses) gains | ( | ) | ||||||||||||||
| ( | ) | |||||||||||||||
| Loss before provision for income taxes and net loss attributable to noncontrolling interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Tax provision | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net (income) loss attributable to the noncontrolling interest | ( | ) | ||||||||||||||
| Net loss attributable to Kopin Corporation | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share | ||||||||||||||||
| Basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of common shares outstanding | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
See notes to unaudited condensed consolidated financial statements
| 4 |
KOPIN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
| Three months ended | Three months ended | Nine months ended | Nine months ended | |||||||||||||
| September 25, 2021 | September 26, 2020 | September 25, 2021 | September 26, 2020 | |||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ||||||||||||
| Unrealized holding gain (loss) on marketable securities | ( | ) | ( | ) | ( | ) | ||||||||||
| Reclassification of holding losses in net loss | ( | ) | ||||||||||||||
| Other comprehensive income (loss), net of tax | ( | ) | ( | ) | ( | ) | ||||||||||
| Comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive (income) loss attributable to the noncontrolling interest | ( | ) | ||||||||||||||
| Comprehensive loss attributable to Kopin Corporation | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
See notes to unaudited condensed consolidated financial statements
| 5 |
KOPIN CORPORATION
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
| 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 26, 2020 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Vesting of restricted stock | ( | ) | - | - | - | - | - | - | ||||||||||||||||||||||||||||
| Sale of registered stock | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Restricted stock for tax withholding obligations | ( | ) | ( | ) | ( | ) | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| Other comprehensive loss | - | - | - | - | ( | ) | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance, March 27, 2021 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Vesting of restricted stock | ( | ) | - | - | - | - | - | - | ||||||||||||||||||||||||||||
| Sale of registered stock | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | - | - | ( | ) | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance, June 26, 2021 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Sale of registered stock | - | - | - | |||||||||||||||||||||||||||||||||
| Other comprehensive Income | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance, September 25, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| 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 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | - | - | ( | ) | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance, March 28, 2020 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Vesting of restricted stock | ( | ) | - | - | - | - | - | - | ||||||||||||||||||||||||||||
| Other comprehensive Income | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance, June 27, 2020 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | - | - | ( | ) | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance, September 26, 2020 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||
See notes to unaudited condensed consolidated financial statements
| 6 |
KOPIN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine months ended | Nine months ended | |||||||
| September 25, 2021 | September 26, 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Accretion of premium or discount on marketable debt securities | ||||||||
| Recovery of impairment on marketable debt securities | ( | ) | ||||||
| Stock-based compensation | ||||||||
| Foreign currency gains | ( | ) | ( | ) | ||||
| Change in allowance for bad debt | ( | ) | ||||||
| Write-off of excess inventory | ||||||||
| Loss on disposal of plant and equipment | ||||||||
| Deferred income taxes | ||||||||
| Other non-cash items | ( | ) | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Contract assets | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Billings in excess of revenue earned | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Other assets | ( | ) | ||||||
| Capital expenditures | ( | ) | ( | ) | ||||
| Proceeds from sale of marketable debt securities | ||||||||
| Net cash (used in) provided by investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Paycheck protection program loan receipt | ||||||||
| Paycheck protection program loan repayment | ( | ) | ||||||
| Settlements of restricted stock for tax withholding obligations | ( | ) | ||||||
| Issuance of common stock, net of costs | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash | ( | ) | ( | ) | ||||
| Net increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents: | ||||||||
| Beginning of period | ||||||||
| End of period | $ | $ | ||||||
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 25, 2021 and for the three and nine month periods ended September 25, 2021 and September 26, 2020 are unaudited and include all adjustments that, in the opinion of management, are necessary to present fairly the results of operations for the periods then ended. These condensed consolidated financial statements should be read in conjunction with the Company’s financial statements and notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 26, 2020. The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for a full fiscal year. As used in this report, the terms “we”, “us”, “our”, “Kopin” and the “Company” mean Kopin Corporation and its subsidiaries, unless the context indicates another meaning.
The Company’s products are targeted towards the defense, industrial/enterprise and consumer 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. The Company’s revenues from sales of products into the consumer market include sales of its organic light emitting diode (OLED) displays. The Company’s OLED products are relatively new and sales are sporadic. 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.
| 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 25, 2021 and September 26, 2020.
Investments in available-for-sale marketable debt securities were as follows at September 25, 2021 and December 26, 2020:
| Amortized Cost | Unrealized Gains | Fair Value | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| U.S. government and agency backed securities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Corporate debt | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The contractual maturity of the Company’s marketable debt securities was as follows at September 25, 2021:
| Less than One year | One to Five years | Total | ||||||||||
| U.S. government and agency backed securities | $ | $ | $ | |||||||||
| Corporate debt | ||||||||||||
| Total | $ | $ | $ | |||||||||
| 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 September 25, 2021 Using: | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||
| U.S. government securities | ||||||||||||||||
| Corporate Debt | ||||||||||||||||
| Equity investments | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Fair Value Measurement at December 26, 2020 Using: | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||
| U.S. government securities | ||||||||||||||||
| Corporate debt | ||||||||||||||||
| Equity investments | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| 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:
| December 26, 2020 | Net unrealized gains | Purchases, issuances and settlements | Transfers in and or out of Level 3 | September 25, 2021 | ||||||||||||||||
| Equity investments | $ | $ | $ | $ | $ | |||||||||||||||
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value because of their short-term nature. If accrued liabilities were carried at fair value, these would be classified as Level 2 in the fair value hierarchy.
Marketable Debt Securities
The corporate debt consists of floating rate notes with a maturity that is over multiple years but has interest rates that are reset every three months based on the then-current three-month London Interbank Offering Rate (“three-month Libor”). The Company validates the fair market values of the financial instruments above by using discounted cash flow models, obtaining independent pricing of the securities or through the use of a model that incorporates the three-month Libor, the credit default swap rate of the issuer and the bid and ask price spread of the same or similar investments which are traded on several markets.
Equity Investments
During
the three and nine months ended September 25, 2021, the Company recorded a less than $
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 25, 2021 and December 26, 2020:
| September 25, 2021 | December 26, 2020 | |||||||
| Raw materials | $ | $ | ||||||
| Work-in-process | ||||||||
| Finished goods | ||||||||
| Total | $ | $ | ||||||
| 11 |
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.
| Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | |||||||||||||
| September 25, 2021 | September 26, 2020 | September 25, 2021 | September 26, 2020 | |||||||||||||
| Non-vested restricted common stock | ||||||||||||||||
Registered sale of equity securities
During
the nine months ended September 25, 2021, the Company sold million shares of common stock for gross proceeds
of $
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 for the nine month period ending September 25, 2021 was as follows:
| Weighted Average | ||||||||
| Shares | Grant Fair Value | |||||||
| Balance, December 26, 2020 | $ | |||||||
| Granted | ||||||||
| Forfeited | ( | ) | ||||||
| Vested | ( | ) | ||||||
| Balance, September 25, 2021 | $ | |||||||
| 12 |
Stock-Based Compensation
| Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | |||||||||||||
| September 25, 2021 | September 26, 2020 | September 25, 2021 | September 26, 2020 | |||||||||||||
| Cost of product revenues | $ | $ | $ | $ | ||||||||||||
| Research and development | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Unrecognized compensation expense for non-vested restricted common stock as of September 25, 2021 totaled $ million and is expected to be recognized over a weighted average period of approximately years.
8. ACCRUED WARRANTY
| Balance, December 26, 2020 | $ | |||
| Additions | ||||
| Claims | ( | ) | ||
| Balance, September 25, 2021 | $ |
Extended Warranties
Deferred
revenue represents the purchase of extended warranties by the Company’s customers.
| 13 |
9. INCOME TAXES
The
Company recorded a provision for income taxes of less than $
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:
| September 25, 2021 | December 26, 2020 | $ Change | % Change | |||||||||||||
| Contract assets —current | $ | $ | $ | ( | ) | ( | )% | |||||||||
| Contract liabilities—current | ( | ) | ( | ) | ( | )% | ||||||||||
| Contract liabilities—noncurrent | ( | ) | $ | ( | ) | $ | ( | ) | % | |||||||
| Net contract assets (liabilities) | $ | $ | $ | ( | ) | ( | )% | |||||||||
The
$
In
the three and nine months ended September 25, 2021, the Company recognized revenue of $
The Company did not recognize impairment losses on our contract assets in the three and nine months ended September 25, 2021 or September 26, 2020.
Performance Obligations
The Company’s revenue recognition related to performance obligations that were satisfied at a point in time and over time were as follows:
| Three months ended | Three months ended | Nine months ended | Nine months ended | |||||||||||||
| September 25, 2021 | September 26, 2020 | September 25, 2021 | September 26, 2020 | |||||||||||||
| Point in time | % | % | % | % | ||||||||||||
| Over time | % | % | % | % | ||||||||||||
Remaining
performance obligations represent the transaction price of orders for which work has not been performed and excludes unexercised contract
options and potential orders under ordering-type contracts (e.g., indefinite-delivery, indefinite-quantity (“IDIQ”)). As
of September 25, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $
| 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 September 25, 2021 and December 26, 2020, the Company did not have any finance leases. Approximately all of our future lease commitments, and related lease liability, relate to the Company’s real estate leases. Some of the Company’s leases include options to extend or terminate the lease.
The components of lease expense were as follows:
| Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | |||||||||||||
| September 25, 2021 | September 26, 2020 | September 25, 2021 | September 26, 2020 | |||||||||||||
| Operating lease cost | $ | $ | $ | $ | ||||||||||||
At September 25, 2021, the Company’s future lease payments under non-cancellable leases were as follows:
| 2021 (excluding the nine months ended September 25, 2021) | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| Total future lease payments | $ | |||
| Less imputed interest | ( | ) | ||
| Total | $ |
The Company’s lease liabilities recognized in the Company’s condensed consolidated balance sheets at September 25, 2021 was as follows:
| September 25, 2021 | ||||
| Operating lease liabilities - current | $ | |||
| Operating lease liabilities -noncurrent | ||||
| Total lease liabilities | $ | |||
Supplemental cash flow information related to leases was as follows:
| Nine months ended | ||||
| September 25, 2021 | ||||
| Cash paid for amounts included in the measurement of operating lease liabilities | $ | |||
Other information related to leases was as follows:
| September 25, 2021 | ||||
| Weighted Average Discount Rate - Operating Leases | % | |||
| Weighted Average Remaining Lease Term - Operating Leases (in years) | ||||
| 15 |
12. SEGMENTS AND DISAGGREGATION OF REVENUE
We continually monitor and review our segment reporting structure in accordance with authoritative guidance to determine if any changes have occurred that would affect our reportable segments. We report under one segment, as our Chief Executive Officer, who is our chief operating decision maker (“CODM”), reviews results on a total company basis.
Total long-lived assets by country at September 25, 2021 and December 26, 2020 were:
| Total Long-lived Assets (in thousands) | September 25, 2021 | December 26, 2020 | ||||||
| U.S. | $ | $ | ||||||
| United Kingdom | ||||||||
| China | ||||||||
| Japan | ||||||||
| Total | $ | $ | ||||||
We disaggregate our revenue from contracts with customers by geographic location and by display application, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.
During the three and nine months ended September 25, 2021 and September 26, 2020, the Company derived its sales from the following geographies:
Three months ended | Three months ended | Nine months ended | Nine months ended | |||||||||||||||||||||||||||||
| September 25, 2021 | September 26, 2020 | September 25, 2021 | September 26, 2020 | |||||||||||||||||||||||||||||
| (In thousands) | Revenue | % of Total | Revenue | % of Total | Revenue | % of Total | Revenue | % of Total | ||||||||||||||||||||||||
| United States | $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
| Other Americas | ||||||||||||||||||||||||||||||||
| Total Americas | ||||||||||||||||||||||||||||||||
| Asia - Pacific | ||||||||||||||||||||||||||||||||
| Europe | ||||||||||||||||||||||||||||||||
| Total Revenues | $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
During the three and nine months ended September 25, 2021 and September 26, 2020, the Company derived its sales from the following display applications:
Three months ended | Three months ended | Nine months ended | Nine months ended | |||||||||||||
| (In thousands) | September 26, 2021 | September 26, 2020 | September 25, 2021 | September 26, 2020 | ||||||||||||
| Defense | $ | $ | $ | $ | ||||||||||||
| Industrial | ||||||||||||||||
| Consumer | ||||||||||||||||
| R&D | ||||||||||||||||
| Other | ||||||||||||||||
| Total Revenues | $ | $ | $ | $ | ||||||||||||
13. LITIGATION
The Company may engage in legal proceedings arising in the ordinary course of business. Claims, suits, investigations and proceedings are inherently uncertain and it is not possible to predict the ultimate outcome of such matters and our business, financial condition, results of operations or cash flows could be affected in any particular period.
BlueRadios, Inc. v. Kopin Corporation, Civil Action No. 16-02052-JLK (D. Col.):
On August 12, 2016, BlueRadios, Inc. (“BlueRadios”) filed a complaint in the U.S. District Court for the District of Colorado, alleging that the Company breached a contract between it and BlueRadios concerning an alleged joint venture between the Company and BlueRadios to design, develop and commercialize micro-display products with embedded wireless technology referred to as “Golden-i” breached the covenant of good faith and fair dealing associated with that contract, breached its fiduciary duty to BlueRadios, and misappropriated trade secrets owned by BlueRadios in violation of Colorado law (C.R.S. § 7-74-104(4)) and the Defend Trade Secrets Act (18 U.S.C. § 1836(b)(1)). BlueRadios further alleges that the Company was unjustly enriched by its alleged misconduct, BlueRadios is entitled to an accounting to determine the amount of profits obtained by the Company as a result of its alleged misconduct, and the inventorship on at least ten patents or patent applications owned by the Company need to be corrected to list BlueRadios’ employees as inventors and thereby list BlueRadios as co-assignees of the patents. BlueRadios seeks monetary, declaratory, and injunctive relief, including for alleged non-payment of engineering retainer fees.
On October 11, 2016, the Company filed its Answer and Affirmative Defenses. The parties completed expert depositions on November 15, 2019. On December 2, 2019, the Company filed a Motion for Partial Summary Judgment requesting the Court dismiss counts 2-7 in their entirety and counts 1 and 8 in part. BlueRadios also filed a Motion for Partial Summary Judgment alleging it is the co-owner of U.S. Patent No. 8,909,296. Responses to the Motions for Partial Summary Judgment were filed on January 15, 2020, and replies were filed on February 19, 2020. On September 25, 2020, the Court denied BlueRadios’ Motion for Partial Summary Judgment. A trial date has not yet been set by the Court. The Company has not concluded a loss from this matter is probable; therefore, we have not recorded an accrual for litigation or claims related to this matter as of September 25, 2021. The Company will continue to evaluate information as it becomes known and will record an estimate for losses at the time or times when it is both probable that a loss has been incurred and the amount of the loss is reasonably estimable.
| 16 |
14. RELATED PARTY TRANSACTIONS
The Company may from time to time enter into agreements with stockholders, affiliates and other companies engaged in certain aspects of the display, electronics, optical and software industries as part of our business strategy. In addition, the wearable computing product market is relatively new and there may be other technologies the Company needs to purchase from affiliates to enhance its product offering.
During the three and nine months ended September 25, 2021 and September 26, 2020, the Company had the following transactions with related parties:
| Three Months Ended | ||||||||||||||||
| September 25, 2021 | September 26, 2020 | |||||||||||||||
| Sales | Purchases | Sales | Purchases | |||||||||||||
| Solos Technology | $ | $ | $ | $ | ||||||||||||
| HMDmd, Inc. | ||||||||||||||||
| RealWear, Inc. | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Nine Months Ended | ||||||||||||||||
| September 25, 2021 | September 26, 2020 | |||||||||||||||
| Sales | Purchases | Sales | Purchases | |||||||||||||
| Solos Technology | $ | $ | $ | $ | ||||||||||||
| HMDmd, Inc. | ||||||||||||||||
| RealWear, Inc. | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
At September 25, 2021 and December 26, 2020, the Company had the following receivables, contract liabilities and payables with related parties:
| September 25, 2021 | December 26, 2020 | |||||||||||||||||||||||
| Receivables | Contract Liabilities | Payables | Receivables | Contract Assets | Payables | |||||||||||||||||||
| RealWear, Inc. | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Solos Technology | ||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| 17 |
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 26, 2020. These factors include: our belief that the process development efforts on our products used in thermal weapon sight systems is complete and our expectation that we will increase production rates of our products used in thermal weapon sight systems in the fourth quarter of 2021; 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 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. dollar and its effects on the price of our products in foreign markets; the impact of new regulations and customer demands relating to conflict minerals; our ability to obtain a competitive advantage in the wearable technologies market through our extensive portfolio of patents, trade secrets and non-patented know-how; our ability to grow within our targeted markets; the importance of small form factor displays in the development of defense, consumer, and industrial products such as thermal weapon sights, safety equipment, virtual and augmented reality gaming, training and simulation products and metrology tools; the suitability of our properties for our needs for the foreseeable future; our expectation not to pay cash dividends for the foreseeable future and to retain earnings for the development of our businesses; our need to achieve and maintain positive cash flow and profitability, and our expectation that if we do not achieve and maintain positive cash flow and profitability our financial condition will ultimately be materially adversely affected.
Overview
We are a leading developer, manufacturer and seller of miniature displays and optical lenses (our “components”) for sale as individual displays, components, modules or higher-level subassemblies. We also license our intellectual property through technology license agreements. Our component products are used in highly demanding high-resolution portable military, enterprise and consumer electronic applications, training and simulation equipment and 3D metrology equipment. Our products enable our customers to develop and market an improved generation of products for these target applications.
| 18 |
The following discussion should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 26, 2020 and our unaudited condensed consolidated financial statements included in this Form 10-Q.
Results of Operations
As described in our “Forward-Looking Statements” on page 18 of this Form 10-Q, our interim period results of operations and period-to-period comparisons of such results may not be indicative of our future operating results. Additionally, we use a fiscal calendar, which may result in differences in the number of work days in the current and comparable prior interim periods and could affect period-to-period comparisons. The following discussions of comparative results among periods, including the discussion of results, should be viewed in this context.
Revenues. For the three and nine months ended September 25, 2021 and September 26, 2020, our revenues by display application, which include product sales and amounts earned from research and development contracts (“R&D”), were as follows:
| Three months ended | Three months ended | Nine months ended | Nine months ended | |||||||||||||
| (In thousands) | September 25, 2021 | September 26, 2020 | September 25, 2021 | September 26, 2020 | ||||||||||||
| Defense | $ | 3,483 | $ | 4,769 | $ | 12,257 | $ | 12,772 | ||||||||
| Industrial | 2,724 | 1,650 | 7,394 | 5,229 | ||||||||||||
| Consumer | 384 | 68 | 1,318 | 521 | ||||||||||||
| R&D | 4,099 | 2,563 | 10,364 | 6,295 | ||||||||||||
| Other | 197 | 463 | 1,136 | 1,389 | ||||||||||||
| Total Revenues | $ | 10,887 | $ | 9,513 | $ | 32,469 | $ | 26,206 | ||||||||
Sales of our products for Defense applications include systems used by the military both in the field and for training and simulation. The decrease in Defense applications revenues in the three months ended September 25, 2021 as compared to the three months ended September 26, 2020 is primarily from a decrease in volume shipments of our products used in thermal weapon sight systems for soldiers. The decrease in Defense applications revenues in the nine months ended September 25, 2021 as compared to the nine months ended September 26, 2020 is primarily from a decrease in volume shipments of our products used in thermal weapon sights.
| 19 |
Industrial applications revenue represents customers who purchase our display products for use in 3D metrology equipment and headsets used for applications in manufacturing, distribution and public safety. Our 3D metrology customers are primarily located in Asia and sell to Asian contract manufacturers who use the 3D metrology machines for quality control purposes. The increase in Industrial applications revenues for the three and nine months ended September 25, 2021 as compared to the three and nine months ended September 26, 2020 was primarily due to an increase in sales of products for 3D metrology equipment and partially offset by a decline in sales of our products used in headsets used for applications in manufacturing, distribution and public safety.
Our displays for Consumer applications are used primarily in thermal imaging products, recreational rifle and hand-held scopes and augmented reality (AR) and virtual reality (VR) headsets. The increase in Consumer applications revenues for the three and nine months ended September 25, 2021 as compared to the three and nine months ended September 26, 2020 was primarily due to increased sales of our organic light emitting diode (“OLED”) products.
R&D revenues increased in the three and nine months ended September 25, 2021 as compared to the three and nine months ended September 26, 2020 primarily due to an increase in funding for U.S. defense programs.
Other revenues includes royalties on the sale of our customers’ products which include our intellectual property (“IP”). Other revenues also include sales of products which either do not meet the description of one of the other product categories or we do not know what end market application our product is used for. The decrease in Other revenue in the three and nine months ended September 25, 2021 compared to the three and nine months ended September 26, 2020 was due to a reduction in royalties earned and sales of products which do not meet the description of one of the other product categories.
International revenues represented 30% and 31% of total revenues for the three and nine months ended September 25, 2021, respectively, and 18% and 44% of total revenues for the three and nine months ended September 26, 2020, respectively. We categorize our revenues as either domestic or international based upon the delivery destination of our product. For example, if the customer is located in Asia or if a U.S. customer has its Asian contract manufacturer order product from us and we deliver the product to Asia we categorize both these sales as international. In addition, if we earn royalties on sales from a customer the royalties are categorized as domestic or international based on how the product revenues are categorized. The increase in international revenues was a result of an increase in sales of products for 3D metrology equipment and industrial wearable headset applications. Our international sales are primarily denominated in U.S. currency. Consequently, a strengthening of the U.S. dollar could increase the price in local currencies of our products in foreign markets and make our products relatively more expensive than competitors’ products that are denominated in local currencies, which could lead to a reduction in sales or profitability in those foreign markets. We have not taken any protective measures against exchange rate fluctuations, such as purchasing hedging instruments with respect to such fluctuations, because of the historically stable exchange rate between the British Pound Sterling (the functional currency of our U.K. subsidiary) and the U.S. dollar. Foreign currency translation impact on our results, if material, is described in further detail under “Item 3. Quantitative and Qualitative Disclosures About Market Risk” section below.
Cost of Product Revenue. Cost of product revenues, which is comprised of materials, labor and manufacturing overhead related to the production of our products for the three and nine months ended September 25, 2021 and September 26, 2020, were as follows:
| Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | |||||||||||||
| (In thousands, except for percentages) | September 25, 2021 | September 26, 2020 | September 25, 2021 | September 26, 2020 | ||||||||||||
| Cost of product revenues | $ | 5,145 | $ | 4,825 | $ | 17,586 | $ | 15,252 | ||||||||
| Cost of product revenues as a % of net product revenues | 78 | % | 74 | % | 83 | % | 80 | % | ||||||||
The increase in cost of product revenues as a percentage of net product revenues for the three and nine months ended September 25, 2021 as compared to the three and nine months ended September 26, 2020 was primarily due to lower manufacturing efficiencies driven by lower volumes. During the second quarter ended June 26, 2021, we reduced shipments of our product for FWS-I thermal weapon sight systems while we worked with our customer to develop production processes for increased production rates. This reduction of shipments continued through the third quarter of 2021. We believe the specific process development is complete and we will increase production rates in the fourth quarter of 2021.
During the first nine months of 2021, we became aware of global shortages of semiconductor components and production capacity affecting many industries. We have not experienced any shortage issues during the first nine months of 2021 because we have been able to find alternative components when a shortage was identified. In addition, we have been notified by several vendors that provide us with components for our 3D metrology products that they may not be able to honor their sales commitments to us and in some cases we are experiencing price increases. To date the price increases have not had a material effect on our gross margins. We are evaluating other possible sources for these components. The shortage of semiconductor components is a very dynamic situation, and we rely on our vendors to provide information about where they source semiconductor components and the availability of these semiconductor components. The shortage of semiconductor components is resulting in the need to place purchase orders further out into the future than we normally do and we are seeing price increases quoted for some semiconductor components which may negatively affect future gross margins.
| 20 |
Research and Development. R&D expenses are incurred in support of internal display development programs and programs funded by agencies or prime contractors of the U.S. government and commercial partners. R&D costs include staffing, purchases of materials and laboratory supplies, circuit design costs, fabrication and packaging of display products, and overhead. In fiscal year 2021, we expect our R&D expenditures to be related to our display products, overlay weapon sights and OLED display technologies. Funded and internal R&D expenses are combined in research and development expenses in the statement of operations. R&D expenses for the three and nine months ended September 25, 2021 and September 26, 2020 were as follows:
| Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | |||||||||||||
| (In thousands) | September 25, 2021 | September 26, 2020 | September 25, 2021 | September 26, 2020 | ||||||||||||
| Funded | $ | 1,996 | $ | 1,618 | $ | 6,622 | $ | 4,484 | ||||||||
| Internal | 1,756 | 1,098 | 4,433 | 2,793 | ||||||||||||
| Total research and development expense | $ | 3,752 | $ | 2,716 | $ | 11,055 | $ | 7,277 | ||||||||
Funded R&D expense for the three and nine months ended September 25, 2021 increased as compared to the three and nine months ended September 26, 2020 primarily due to increased spending on U.S. defense programs. Internal R&D expenses for the three and nine months ended September 25, 2021 increased as compared to the three and nine months ended September 26, 2020 primarily due to an increase in OLED development.
Selling, General and Administrative. Selling, general and administrative (“S,G&A”) expenses consist of the expenses incurred by our sales and marketing personnel and related expenses, and administrative and general corporate expenses. S,G&A expenses for the three and nine months ended September 25, 2021 and September 26, 2020 were as follows:
| Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | |||||||||||||
| (In thousands, except for percentages) | September 25, 2021 | September 26, 2020 | September 25, 2021 | September 26, 2020 | ||||||||||||
| Selling, general and administration expense | $ | 4,036 | $ | 3,080 | $ | 13,983 | $ | 9,421 | ||||||||
| Selling, general and administration expense as a % of revenues | 37 | % | 32 | % | 43 | % | 36 | % | ||||||||
S,G&A increased for the three and nine months ended September 25, 2021 as compared to the three and nine months ended September 26, 2020 primarily due to increases in compensation costs, stock-based compensation and bad debt expense which were partially offset by lower professional fees.
Other Income (Expense), net. Other income (expense), net, is primarily composed of interest income, foreign currency transaction and remeasurement gains and losses incurred by our U.K.-based subsidiary and other non-operating income items. Other income (expense), net, for the three and nine months ended September 25, 2021 and September 26, 2020 was as follows:
| Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | |||||||||||||
| (In thousands) | September 26, 2021 | September 26, 2020 | September 25, 2021 | September 26, 2020 | ||||||||||||
| Other income (expense), net | $ | (51 | ) | $ | 168 | $ | 89 | $ | 75 | |||||||
During the three and nine months ended September 25, 2021, we recorded foreign currency losses of less than $0.1 million and gains of $0.1 million, respectively, as compared to gains of $0.2 million and gains of less than $0.1 million for the three and nine months ended September 26, 2020, respectively.
Tax Provision. We recorded a provision for income taxes of less than $0.1 million in the three and nine months ended September 25, 2021 and September 26, 2020.
Net Loss (Income) Attributable to Noncontrolling Interest. As of September 25, 2021, we own 80% of the equity of eMDT America (“eMDT”). Net loss (income) attributable to noncontrolling interest on our consolidated statement of operations represents the portion of the results of operations of eMDT, which is allocated to the stockholders of the equity interests not owned by us. The change in net loss (income) attributable to noncontrolling interest is the result of the change in the results of operations of eMDT for the three and nine months ended September 25, 2021 and September 26, 2020.
| 21 |
Net Loss Attributable to Kopin Corporation. We incurred net losses attributable to Kopin Corporation of $2.1 million and $10.1 million during the three and nine months ended September 25, 2021, respectively, compared to net losses attributable to Kopin Corporation of $1.0 million and $5.7 million during the three and nine months ended September 26, 2020, respectively. The increase in the net loss attributable to Kopin Corporation during the three and nine months ended September 25, 2021 compared to the three and nine months ended September 26, 2020 is due to lower gross margins and increases in R&D spending on OLED development and stock-based compensation expenses.
Liquidity and Capital Resources
At September 25, 2021 and December 26, 2020, we had cash and cash equivalents and marketable securities of $31.8 million and $20.7 million, respectively, and working capital of $36.9 million and $22.5 million, respectively. The change in cash and cash equivalents and marketable securities was primarily due to the sale of 3.1 million shares of common stock for net proceeds of $21.7 million partially offset by cash used in operations of $9.0 million.
During the nine months ended September 25, 2021, the Company sold 3.1 million shares of common stock for gross proceeds of $21.7 million (average of $7.00 per share), before deducting broker expenses paid by us of $0.7 million, pursuant to the Company’s At-The-Market Equity Offering Sales Agreement dated as of March 5, 2021 (the “Current ATM Agreement”) with Stifel, Nicolaus & Company, Incorporated, (“Stifel”) as agent, under which the Company can sell up to $50 million of its common stock and an At-The-Market Equity Offering Sales Agreement dated as of February 8, 2019 (the “Previous ATM Agreement”) also with Stifel, as agent. The Previous ATM Agreement has since terminated pursuant to its terms as a result of the sale of all the shares subject to such agreement. As of September 25, 2021 the Company can sell up to $44.3 million of its common stock under the Current ATM Agreement.
During the three months ended September 25, 2021, we sold 0.6 million shares of common stock for gross proceeds of $4.8 million (average of $8.06 per share), before deducting broker expenses paid by us of less than $0.2 million, pursuant to our Current ATM Agreement.
Cash and cash equivalents and marketable debt securities held in U.S. Dollars at:
| September 25, 2021 | December 26, 2020 | |||||||
| Domestic locations | $ | 30,307,926 | $ | 19,724,103 | ||||
| International locations | 502,819 | 340,217 | ||||||
| Subtotal cash and cash equivalents marketable debt securities held in U.S. dollars | 30,810,745 | 20,064,320 | ||||||
| Cash and cash equivalents held in other currencies and converted to U.S. dollars | 952,942 | 684,230 | ||||||
| Total cash and cash equivalents and marketable debt securities | $ | 31,763,687 | $ | 20,748,550 | ||||
| 22 |
We have no plans to repatriate the cash and cash equivalents held in our foreign subsidiary Forth Dimension Displays, Ltd. and, as such, we have not recorded any deferred tax liability with respect to such cash.
We expect to expend between $1.0 million and $2.0 million on capital expenditures in 2021.
We believe our existing cash and cash equivalents and marketable securities is sufficient to fund our operations through at least the next 12 months from the date of this quarterly report.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We invest our excess cash in high-quality U.S. government, government-backed (e.g., Fannie Mae, FDIC guaranteed bonds and certificates of deposit) and corporate debt instruments, which bear lower levels of relative risk. We believe that the effect, if any, of reasonably possible near-term changes in interest rates on our financial position, results of operations and cash flows should not be material to our cash flows or income. It is possible that interest rate movements would increase our unrealized gain or loss on debt securities. We are exposed to changes in foreign currency exchange rates primarily through our translation of our foreign subsidiaries’ financial position, results of operations, and transaction gains and losses as a result of non-U.S. dollar denominated cash flows related to business activities in Europe, and remeasurement of U.S. dollars to the British pound, the functional currency of our U.K. subsidiaries. We are also exposed to the effects of exchange rates in the purchase of certain raw materials, which are in U.S. dollars, but the price on future purchases is subject to change based on the relationship of the Japanese yen to the U.S. dollar. We do not currently hedge our foreign currency exchange rate risk. We estimate that any market risk associated with our international operations or investments is unlikely to have a material adverse effect on our business, financial condition or results of operation. Our portfolio of marketable debt securities is subject to interest rate risk although our intent is to hold securities until maturity. The credit rating of our investments may be affected by the underlying financial health of the guarantors of our investments. We use silicon wafers but do not enter into forward or futures hedging contracts to mitigate against risks related to the price of silicon.
| 23 |
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of September 25, 2021, the Company conducted an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer (its principal executive officer and principal financial officer, respectively) regarding the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 25, 2021, as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The term “disclosure controls and procedures” means controls and other procedures that are designed to ensure that information required to be disclosed by the Company in reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the requisite time periods and that such disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act are accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our management concluded that, as of September 25, 2021, our disclosure controls and procedures were effective in ensuring that material information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including ensuring that such material information is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting that occurred during the quarter ended September 25, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
| 24 |
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company may engage in legal proceedings arising in the ordinary course of business. Claims, suits, investigations and proceedings are inherently uncertain and it is not possible to predict the ultimate outcome of such matters and our business, financial condition, results of operations or cash flows could be affected in any particular period.
BlueRadios, Inc. v. Kopin Corporation, Civil Action No. 16-02052-JLK (D. Col.):
On August 12, 2016, BlueRadios, Inc. (“BlueRadios”) filed a complaint in the U.S. District Court for the District of Colorado, alleging that the Company breached a contract between it and BlueRadios concerning an alleged joint venture between the Company and BlueRadios to design, develop and commercialize micro-display products with embedded wireless technology referred to as “Golden-i” breached the covenant of good faith and fair dealing associated with that contract, breached its fiduciary duty to BlueRadios, and misappropriated trade secrets owned by BlueRadios in violation of Colorado law (C.R.S. § 7-74-104(4)) and the Defend Trade Secrets Act (18 U.S.C. § 1836(b)(1)). BlueRadios further alleges that the Company was unjustly enriched by its alleged misconduct, BlueRadios is entitled to an accounting to determine the amount of profits obtained by the Company as a result of its alleged misconduct, and the inventorship on at least ten patents or patent applications owned by the Company need to be corrected to list BlueRadios’ employees as inventors and thereby list BlueRadios as co-assignees of the patents. BlueRadios seeks monetary, declaratory, and injunctive relief, including for alleged non-payment of engineering retainer fees.
On October 11, 2016, the Company filed its Answer and Affirmative Defenses. The parties completed expert depositions on November 15, 2019. On December 2, 2019, the Company filed a Motion for Partial Summary Judgment requesting the Court dismiss counts 2-7 in their entirety and counts 1 and 8 in part. BlueRadios also filed a Motion for Partial Summary Judgment alleging it is the co-owner of U.S. Patent No. 8,909,296. Responses to the Motions for Partial Summary Judgment were filed on January 15, 2020, and replies were filed on February 19, 2020. On September 25, 2020, the Court denied BlueRadios’ Motion for Partial Summary Judgment. A trial date has not yet been set by the Court. The Company has not concluded a loss from this matter is probable; therefore, we have not recorded an accrual for litigation or claims related to this matter as of September 25, 2021. The Company will continue to evaluate information as it becomes known and will record an estimate for losses at the time or times when it is both probable that a loss has been incurred and the amount of the loss is reasonably estimable.
Item 1A. Risk Factors
Our business and financial results are subject to numerous risks and uncertainties. As a result, the risks and uncertainties discussed in Part I, Item 1A. Risk Factors in our 2020 Annual Report on Form 10-K should be carefully considered. There have been no material changes in the assessment of our risk factors from those set forth in our Annual Report on Form 10-K for the fiscal year ended December 26, 2020, except for the risk factor noted below.
Supply shortages could impair the quality, reduce the availability or increase the cost of raw materials, which could harm our business. We rely on third-party independent contractors for certain integrated circuit chip sets, backlights and other critical raw materials such as special glasses, wafers and chemicals. Lead times for the parts and components that we order vary significantly and depend on factors such as manufacturing cycle times, manufacturing yields, and the availability of raw materials used to produce the parts or components. Currently, the semiconductor industry is experiencing a shortage of semiconductor components. If this shortage were to affect our supply of raw materials, our ability to manufacture and distribute our products could be adversely affected, which in turn would adversely affect our results of operations or financial condition.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
We did not sell any securities during the three months ended September 25, 2021 that were not registered under the Securities Act.
Item 6. Exhibits
| * | Submitted electronically herewith |
| ** | Furnished and not filed herewith |
Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at September 25, 2021 (Unaudited) and December 26, 2020, (ii) Condensed Consolidated Statements of Operations (Unaudited) for the three and nine months ended September 25, 2021 and September 26, 2020, (iii) Condensed Consolidated Statement of Comprehensive (Loss) Income (Unaudited) for the three and nine months ended September 25, 2021 and September 26, 2020, (iv) Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the three and nine months ended September 25, 2021 and September 26, 2020, (v) Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 25, 2021 and September 26 , 2020, and (vi) Notes to Unaudited Condensed Consolidated Financial Statements.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| KOPIN
CORPORATION (Registrant) | |||
| Date: | November 4, 2021 | By: | /S/ John C.C. Fan |
| John C.C. Fan | |||
President, Chief Executive Officer and Chairman of the Board of Directors | |||
| (Principal Executive Officer) | |||
| Date: | November 4, 2021 | By: | /S/ RICHARD A. SNEIDER |
| Richard A. Sneider | |||
| Treasurer and Chief Financial Officer | |||
| (Principal Financial and Accounting Officer) | |||
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