KOPIN CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-K)

Overview

The following discussion should be read in conjunction with our consolidated
financial statements and notes to those statements and other financial
information appearing elsewhere in this Form 10-K. The following discussion
contains forward-looking statements. Our actual results could differ materially
from those anticipated in the forward-looking statements as a result of a number
of factors, including the risks discussed in Item 1A "Risk Factors," and
elsewhere in this Form 10-K. Please refer to our cautionary note on
Forward-Looking Statements on page 3 of this Form 10-K.



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 defense, 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.



Critical Accounting Estimates

Management's discussion and analysis of our financial condition and results of
operations are based upon our audited consolidated financial statements. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amount of assets, liabilities, revenues and
expenses and related disclosure of contingent assets and liabilities. On an
ongoing basis, we evaluate our estimates, including those related to revenue
recognition under the cost-to-cost measurement method, bad debts, inventories,
warranty reserves, investment valuations, valuation of stock compensation
awards, recoverability of deferred tax assets, liabilities for uncertain tax
positions and contingencies. We base our estimates on historical experience and
on various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for judgments about carrying
values of assets and liabilities that are not apparent from other sources.
Actual results may differ from these estimates under different assumptions.

We believe that the following critical accounting policies are most affected by our most significant judgments and estimates used in the preparation of our consolidated financial statements:

Revenue Recognition



Substantially all of our product revenues are derived from the sales of
microdisplays, which are sold as individual displays, modules that include
electronics and optics, or higher-level subassemblies for use in defense,
industrial and consumer near-eye applications such as avionic helmets, thermal
weapon sights or virtual reality headsets. We also have development contracts
for the design, manufacture and modification of products for the U.S. government
or a prime contractor for the U.S. government or for a customer that sells into
the industrial or consumer markets. The Company's contracts with the U.S.
government are typically subject to the Federal Acquisition Regulations ("FAR")
and are priced based on estimated or actual costs of producing goods. The FAR
provides guidance on the types of costs that are allowable in establishing
prices for goods provided under U.S. government contracts. The pricing for
non-U.S. government contracts is based on the specific negotiations with each
customer.



Our fixed-price contracts with the U.S. government or other customers may result
in revenue recognized in excess of amounts currently billed. We disclose the
excess of revenues over amounts actually billed as Contract assets and unbilled
receivables on the balance sheet. Amounts billed and due from our customers are
classified as Accounts receivable on the balance sheets. In some instances, the
U.7S. government retains a small portion of the contract price until completion
of the contract. The portion of the payments retained until final contract
settlement is not considered a significant financing component because the
intent is to protect the customer. For contracts with the U.S. government, we
typically receive interim payments either as work progresses or by achieving
certain milestones or based on a schedule in the contract. We recognize a
liability for these advance payments in excess of revenue recognized and present
it as Contract liabilities and billings in excess of revenue earned on the
balance sheets. The advanced payment typically is not considered a significant
financing component because it is used to meet working capital demands that can
be higher in the early stages of a contract and to protect us from the other
party failing to adequately complete some or all of its obligations under the
contract. For industrial and consumer purchase orders, we typically receive
payments within 30 to 60 days of shipments of the product, although for some
purchase orders, we may require an advanced payment prior to shipment of the
product.



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To determine the proper revenue recognition method for contracts with the same
customer, we evaluate whether two or more contracts should be combined and
accounted for as one single contract and whether the combined or single contract
should be accounted for as more than one performance obligation. For most of our
development contracts and contracts with the U.S. government, the customer
contracts with us to provide a significant service of integrating a set of
components into a single unit. Hence, the entire contract is accounted for as
one performance obligation. Less frequently, however, we may promise to provide
distinct goods or services within a contract in which case we separate the
contract into more than one performance obligation. If a contract is separated
into more than one performance obligation, we allocate the total transaction
price to each performance obligation in an amount based on the estimated
relative standalone selling prices of the promised goods or services underlying
each performance obligation. In cases where we sell standard products, the
observable standalone sales are used to determine the standalone selling price.



The Company recognizes revenue from a contract when it has approval and
commitment from both parties, the rights of the parties are identified, payment
terms are identified, the contract has commercial substance and collectability
of consideration is probable.



For certain contracts with the U.S. government, the Company recognizes revenue
over time as we deliver goods or perform services because of continuous transfer
of control to the customer and the lack of an alternative use for the product.
The continuous transfer of control to the customer is subject to liability
clauses in the contract that allow the U.S. government to unilaterally terminate
the contract for convenience, pay us for costs incurred plus a reasonable profit
and take control of any work in process. For contracts with commercial
customers, while the contract may have a similar liability clause, our products
historically have an alternative use and thus, revenue is recognized at a point
in time.



In situations where control transfers over time, revenue is recognized based on
the extent of progress towards completion of the performance obligation. We
generally use the cost-to-cost approach to measure the extent of progress
towards completion of the performance obligation for our contracts because we
believe it best depicts the transfer of assets to the customer. Under the
cost-to-cost measure approach, the extent of progress towards completion is
measured based on the ratio of costs incurred to date to the total estimated
costs at completion of the performance obligation. Revenues are recorded
proportionally as costs are incurred.



Accounting for design, development and production contracts requires judgment
relative to assessing risks, estimating contract revenues and costs and making
assumptions for schedule and technical issues. Due to the size and nature of the
work required to be performed on many of our contracts, the estimation of total
revenue and cost at completion is complicated and subject to many variables.
Contract costs include material, labor and subcontracting costs, as well as an
allocation of indirect costs. We have to make assumptions regarding the number
of labor hours required to complete a task, the complexity of the work to be
performed, the availability and cost of materials and performance by our
subcontractors. For contract change orders, claims or similar items, we apply
judgment in estimating the amounts and assessing the potential for realization.
These amounts are only included in contract value when they can be reliably
estimated and realization is considered probable. If our estimate of total
contract costs or our determination of whether the customer agrees that a
milestone achievement is incorrect, our revenue could be overstated or
understated and the profits or loss reported could be subject to adjustment.



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For our commercial customers, the Company's revenue is recognized when
obligations under the terms of a contract with our customer are satisfied and
the Company transfers control of the products or performs services, which is
generally upon delivery of the product to the customer or performance of the
services. Revenue is recorded as the amount of consideration we expect to
receive in exchange for transferring goods or providing services. Provisions for
product returns and allowances are reductions in the transaction price and are
recorded in the same period as the related revenues. We analyze historical
returns, current economic trends and changes in customer demand when evaluating
the adequacy of sales returns and other allowances. Certain product sales are
made to distributors under agreements allowing for a limited right of return on
unsold products. Sales to distributors are primarily made for sales to the
distributors' customers and not for stocking of inventory. Sales, value add and
other taxes we collect concurrent with revenue-producing activities are excluded
from revenue.



The Company also licenses its intellectual property ("IP") through technology
license agreements which provides the customer the right to use our IP as it
exists at a point in time. These agreements may include other performance
obligations including the sale of product to the customer. The satisfaction of
the Company's performance obligation, and related recognition of revenue, occurs
when the IP is delivered to the customer, the license period has begun and there
are no additional performance obligations in the agreement. When the license is
distinct from other obligations in the agreement, the Company treats the license
and other performance obligations as separate performance obligations.
Accordingly, the license is recognized at a point in time or over time based on
the standalone selling price. Under certain license agreements, we may receive
royalties based on the sales of the licensed product. We recognize royalty
revenue upon the later of when the related sales occur, or when the performance
obligation to which some or all of the royalty has been allocated has been
satisfied (or partially satisfied). Under our current license agreements for
which a royalty exists, we have recorded revenue when the related sales by our
customer occurs because the performance obligation related to the delivery of
the license to the customer has been satisfied.



Inventory

We provide a reserve for estimated obsolete or unmarketable inventory based on
assumptions about future demand and market conditions and our production plans.
Inventories that are obsolete or slow moving are generally fully reserved
(representing the estimated net realizable value) as such information becomes
available. Our display products are manufactured based upon production plans
whose critical assumptions include non-binding demand forecasts provided by our
customers, lead times for raw materials, lead times for wafer foundries to
perform circuit processing and yields. If a customer were to cancel an order or
actual demand was lower than forecasted demand, we may not be able to sell the
excess display inventory and additional reserves would be required. If we were
unable to sell the excess inventory, we would establish reserves to reduce the
inventory to its estimated realizable value (generally zero).



Investment Valuation

We periodically make equity investments in private companies, accounted for as
an equity investment, whose values are difficult to determine. The Company
adopted ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Liabilities and the related
amendments on December 31, 2017. The Company adopted the measurement alternative
for equity investments without readily determinable fair values (often referred
to as cost method investments) on a prospective basis. When assessing
investments in private companies for impairment, we consider such factors as,
among others, the share price from the investee's latest financing round, the
performance of the investee in relation to its own operating targets and its
business plan, the investee's revenue and cost trends, the liquidity and cash
position, including its cash burn rate and market acceptance of the investee's
products and services. Because these are private companies which we do not
control we may not be able to obtain all of the information we would want in
order to make a complete assessment of the investment on a timely basis.
Accordingly, our estimates may be revised if other information becomes available
at a later date.



In addition to the above, we make investments in government and agency-backed
securities and corporate debt securities. For all of our investments we provide
for an impairment valuation if we believe a decline in the value of an
investment is other-than-temporary, which may have an adverse impact on our
results of operations. The determination of whether a decline in value is
other-than-temporary requires that we estimate the cash flows we expect to
receive from the security. We use publicly available information such as credit
ratings and financial information of the entity that issued the security in the
development of our expectation of the cash flows to be received. Historically,
we have periodically recorded other-than-temporary impairment losses, however we
have not done so recently.



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Income Taxes



We have historically incurred domestic operating losses from both a financial
reporting and tax return standpoint. We establish valuation allowances to the
extent it appears more likely than not that our deferred tax assets will not be
realized. These judgments are based on our projections of taxable income and the
amount and timing of our tax operating loss carryforwards and other deferred tax
assets. Given our federal operating tax loss carryforwards, we do not expect to
pay domestic federal taxes in the near term. It is possible that we could pay
foreign and state income taxes. We are also subject to foreign taxes from our
Korean and U.K. subsidiary operations.



Our income tax provision is based on calculations and assumptions that will be
subject to examination by tax authorities. Despite our history of operating
losses there can be exposures for state taxes or foreign tax that may be due. We
regularly assess the potential outcomes of these examinations and any future
examinations for the current or prior years in determining the adequacy of our
provision for income taxes. Should the actual results differ from our estimates,
we would have to adjust the income tax provision in the period in which the
facts that give rise to the revision become known. Such adjustment could have a
material impact on our results of operations. We have historically established
valuation allowances against all of our net deferred tax assets because of our
history of generating operating losses and restrictions on the use of certain
items. Our evaluation of the recoverability of deferred tax assets has also
included analysis of the expiration dates of net operating loss carryforwards.
In forming our conclusions as to whether the deferred tax assets are more likely
than not to be realized we consider the sources of our income and the projected
stability of those sources and product life cycles.



Results of Operations

We have two primary sources of revenue: product revenue and research and development (“R&D”) revenue. R&D revenues are mainly made up of development contracts with agencies or prime contractors from the we government and commercial enterprises.

We manufacture transmissive and reflective microdisplays. Our commercial and
defense transmissive display production is being performed entirely in our
Westborough, Massachusetts facility. FDD, our wholly-owned subsidiary,
manufactures our reflective microdisplays in its facility located in Scotland.
Our OLED displays are designed by us and manufactured by third parties for us.



We are a display supplier for the U.S. Army's Family of Weapon Sights Individual
and Joint Strike Fighter F-35 programs and are undergoing qualification for the
FWS - Crew Served variant. We are also in development for a new series of
displays for armored vehicles under the M1A2 program. The FWS, M1A2 and our
existing production avionic programs are expected to increase production for the
next several years. There are other firms offering products which compete
against us in the defense programs and all of the programs we supply product to
are subject to the U.S. government defense budget and procurement process.
Accordingly, there can be no assurances we will continue to ship under our

defense contracts.



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We offer microdisplays and optical lenses for use in consumer, enterprise and
public safety products and systems which are targeted at AR and VR markets,
among other areas. We refer to the sale of microdisplays and optical lenses as
our component sales. We also offer head mounted, voice and gesture controlled,
hands-free headset system designs that include our components and software for
consumer and enterprise applications.



Predicting our R&D revenue and related trends is challenging because we have
limited ability to forecast if we will be awarded additional R&D contracts in
the future as such awards depend on the U.S. military budget and priorities. We
cannot assure that the R&D contracts will result in workable products or if
successful our products developed under these contracts will be procured by our
customers. If we do not continue to win R&D contracts or if there is no demand
for the products developed under these contracts, our ability to achieve
profitability and positive cash flow could be negatively affected because the
R&D revenues (or the products derived from the R&D contracts) would not be
available to cover the allocated overhead and selling, general and
administrative costs which may remain. Some of our contracts are fixed priced
and we may incur cost overruns that would result in losses on the contracts. If
we incur such losses on our contracts our ability to achieve profitability and
positive cash flow could be negatively affected.



Because our fiscal year ends on the last Saturday of December, every seven years
we have a fiscal year with 53 weeks. Our fiscal years 2021, 2020 and 2019 were
each 52 week years.

Revenues. Our revenues by display application, which include product sales and
amounts earned from research and development contracts, for fiscal years 2021,
2020 and 2019 by category, were as follows:



(In thousands)               2021         2020         2019
Defense                    $ 18,180     $ 20,231     $  8,729
Industrial/Enterprise         9,710        6,882        9,717
Consumer                      1,871          852        1,777
Research and Development     14,669       10,123        4,983
Other                           121          553           61
License and royalties         1,115        1,487        4,252
Total Revenues             $ 45,666     $ 40,128     $ 29,519

Fiscal 2021 vs. Fiscal 2020

Sales of our products for Defense applications include systems used by the
military both in the field and for training and simulation. Sales of our
products for Defense applications may be for a one-time purchase order or for
programs that run for several years. Revenues from product sales to defense
customers decreased in 2021 compared to 2020, primarily due to a decrease in
shipments of our products into the Joint Strike Fighter program and training and
simulation programs.



Industrial/Enterprise applications revenues represent customers who purchase our
display products for use in headsets used for manufacturing, distribution,
public safety, 3D metrology equipment and other industrial applications. Our 3D
metrology customers are primarily located in Asia and they sell to Asian
contract manufacturers who use the 3D metrology machines for quality control
purposes. The increase in Industrial/Enterprise applications revenues in 2021
compared to 2020 was primarily due to an increase in sales to customers who use
our display components in 3D metrology equipment and industrial headsets.



Sales of our displays for Consumer applications is primarily for the use in
thermal imaging products, recreational rifle and hand-held scopes. The increase
in Consumer applications in 2021 compared to 2020 was primarily due to increased
demand for our organic light emitting displays ("OLEDS").



R&D revenues increased in 2021 as compared to 2020 primarily due to additional
funding for new display technology development which we believe will be used in
U.S. defense programs. These contracts typically reimburse us for direct costs
and allocated overhead and selling, general and administrative costs and in some
cases profit. In 2021 and 2020 our R&D revenues exceeded funded R&D expenses by
approximately $4.7 million and $2.4 million, respectively.

The decline in licensing and royalty revenue in 2021 compared to 2020 is due to lower royalties received under IP licensing agreements for industrial wearable headsets.

International product sales represented approximately 38% and 20% of product
revenues for 2021 and 2020, respectively. Our international sales increased in
2021 as compared to 2020 due to an increase in sales of our products for 3D
metrology application by our subsidiary, Forth Dimension Display, located in
Scotland. Our international sales are primarily denominated in U.S. dollars.
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 result in a reduction in sales or profitability in
those foreign markets. As a result, our financial position and results of
operations are subject to exchange rate fluctuation in transactional and
functional currency. 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
Japanese yen, Great Britain pound and the U.S. dollar. Foreign currency
translation impact on our results, if material, is described in further detail
under "Item 7A. Quantitative and Qualitative Disclosures About Market Risk"

section below.



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Fiscal 2020 vs. Fiscal 2019

Sales of our products for Defense applications include systems used by the
military both in the field and for training and simulation. Sales of our
products for Defense applications may be for a one-time purchase order or for
programs that run for several years. Product sales to defense customers
increased in 2020 compared to 2019 due to an increase in shipments of our
products into the Family of Weapon Sights Individual (FWS-I) program and the
Joint Strike Fighter program. FWS-I and Joint Strike Fighter revenues increased
in 2020 over 2019 by 167% and 139%, respectively.



Industrial/Enterprise applications revenues represent customers who purchase our
display products for use in headsets used for manufacturing, distribution,
public safety, 3D metrology equipment and other industrial applications. Our 3D
metrology customers are primarily located in Asia and they sell to Asian
contract manufacturers who use the 3D metrology machines for quality control
purposes. The decrease in Industrial/Enterprise applications revenues in 2020
compared to 2019 was primarily due to a decrease in sales to customers who use
our display components in industrial headsets, 3D metrology and safety
applications.



Sales of our displays for Consumer applications are primarily for the use in
thermal imaging products, recreational rifle and hand-held scopes and drone
racing headsets. The decrease in Consumer applications in 2020 compared to 2019
was primarily due to decreased demand for displays and components used in drone
racing headsets.



R&D revenues increased in 2020 as compared to 2019 primarily due to the
completion of performance obligations on funded U.S. defense programs partially
offset by lower revenues from OLED development contracts. R&D revenues primarily
increased in 2020 over 2019 because we were awarded and commenced work on new
contracts to develop technologies we believe will be used in U.S. defense
programs. These contracts typically reimburse us for direct costs and allocated
overhead and selling, general and administrative costs and in some cases profit.
In 2020 and 2019 our R&D revenues exceeded funded R&D expenses by approximately
$2.4 million and $0.8 million, respectively, and this increase aided our
improved operating results in 2020 as compared to 2019.



The decrease in license and royalty revenue in 2020 compared to 2019 is due to
the one-time license of IP to RealWear for $3.5 million in 2019 partially offset
by royalties earned under IP license agreements.



International sales represented approximately 20% and 44% of product revenues
for 2020 and 2019, respectively. Our international sales are primarily
denominated in U.S. dollars. 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 result in a reduction in sales
or profitability in those foreign markets. As a result, our financial position
and results of operations are subject to exchange rate fluctuation in
transactional and functional currency. 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 Japanese yen, Great Britain pound and the U.S. dollar. Foreign
currency translation impact on our results, if material, is described in further
detail under "Item 7A. Quantitative and Qualitative Disclosures About Market
Risk" section below.



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Product revenue cost. The cost of product revenues, which includes materials, labor and manufacturing overhead related to the production of our products for fiscal years 2021, 2020 and 2019, was as follows:

(In thousands, except percentages)             2021            2020        

2019

Cost of product revenue                     $    25,052     $    21,398     $    20,902
Cost of product revenues as a % of net
product revenues                                   83.8 %          75.0 %         103.0 %

Fiscal 2021 vs. Fiscal 2020

Cost of product revenues increased as a percentage of revenues in 2021 as
compared to 2020 primarily due to lower production volumes in the second and
third quarter of fiscal year 2021, which resulted from reduced production of our
FWS-I products as we made some process changes in manufacturing the products.



There is currently a global shortage of semiconductor circuit chips and other
raw materials. The shortage did not have a material impact on our results of
operations for the fiscal year 2021. For fiscal year 2022 we have identified a
shortage of several semiconductor components from our normal vendors which are
necessary to manufacture our products. We continue to search for and procure all
necessary components from our current vendors and new alternative vendors. In
certain situations, we are able to obtain the components but had a significantly
increased cost. The inability to procure a single component will prevent the
completion of our product and the ability to sell the product. Our products go
through extensive qualification processes and therefore our customers may not
accept a replacement component. We are unable to determine if we will be able to
obtain all necessary components for fiscal 2022. If we are unable to obtain all
necessary components, we may be required to stop production which would
negatively affect our cash flow and results of operations.

Fiscal 2020 vs. Fiscal 2019

Cost of product revenues decreased as a percentage of revenues in 2020 as
compared to 2019 primarily due to improved yields from our manufacturing
process. Improved yields result in lower material cost per unit because we are
scrapping less material to produce a unit. In addition, the labor cost per unit
declined as employees are not reworking or performing the same manufacturing
process multiple times to create a finished product. Also, fixed overhead costs
per unit decline because we are producing more units in the manufacturing
facility but the cost to run the manufacturing facility does not significantly
increase. We were able to improve yields because we have more experience
manufacturing our two primary defense products and we are learning ways to
improve our processes. In addition, we are working with our subcontractors to
improve the quality and lower the cost of the raw materials we acquire.



Research and Development. R&D expenses are incurred in support of internal
display development programs or 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 allocated overhead. In fiscal
year 2021, our R&D expenditures were primarily related to our display products
and defense systems. R&D expenses for fiscal years 2021, 2020 and 2019 were

as
follows:



(In thousands)     2021         2020         2019
Funded           $  9,976     $  7,746     $  4,216
Internal            6,312        3,924        9,133
Total            $ 16,288     $ 11,670     $ 13,349

Fiscal 2021 vs. Fiscal 2020

Funded R&D expense for 2021 increased as compared to 2020 primarily due to an
increase in the number of defense related contracts we have been awarded.
Internal R&D expense for 2021 increased as compared to the prior year primarily
due to increase OLED development.



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Fiscal 2020 vs. Fiscal 2019

Funded R&D expense for 2020 increased as compared to 2019 primarily due to an
increase in the number of defense related contracts we have been awarded.
Internal R&D expense for 2020 decreased as compared to the prior year primarily
due to the licensing of certain products and other development programs being
curtailed. We expect to incur significant development costs in fiscal year 2021
to develop OLED display products and defense products.

Selling, general and administrative expenses. Selling, general and administrative (“S, G&A”) expenses include expenses incurred by our sales and marketing personnel and related expenses, as well as administrative and general business expenses. SG&A expenses for fiscal years 2021, 2020 and 2019 were as follows:

(In thousands, except percentages)             2021            2020        

2019

Selling, general and administrative
expense                                     $    18,101     $    11,823     $    21,316
Selling, general and administrative
expense as a % of total revenue                    39.6 %          29.5 %  

       72.2 %

Fiscal 2021 vs. Fiscal 2020

S,G&A for 2021 increased as compared to 2020 primarily due to increases of
approximately $3.1 million in non-cash stock-based compensation, $1.4 million in
compensation and benefits, $0.3 million in insurance and $0.9 million in bad
debt expense, partially offset by $0.6 million of lower professional fees.

Fiscal 2020 vs. Fiscal 2019

S,G&A for 2020 decreased as compared to 2019 primarily due to decreases of
approximately $1.2 million in non-cash stock-based compensation, $2.9 million in
professional fees, $1.4 million in bad debt expense, $1.5 million in product
promotion and marketing expenses, and $0.7 million in travel and related
expenses.



Impairment of Goodwill and Intangibles. Goodwill and intangibles are evaluated
for impairment annually or more often if indicators of a potential impairment
are present. Our annual impairment testing of goodwill is performed separately
from our impairment testing of intangibles. The Company performs impairment
tests of goodwill at its reporting unit level. The goodwill valuations that are
utilized to test these assets for impairment are depending on a number of
significant estimates and assumptions, including macroeconomic conditions,
overall growth rates, competitive activities, cost containment, Company business
plans and the discount rate applied to cash flows. We believe these estimates
and assumptions are reasonable and are comparable to those that would be used by
other market participants. Impairment of goodwill for the fiscal years 2021,
2020 and 2019 were as follows:



(In thousands)           2021      2020      2019
Impairment of goodwill   $  --     $  --     $ 331

During fiscal 2019, we recognized a $0.3 million goodwill impairment charge related to our e-MDT subsidiary. In fiscal 2018, we recognized a $1.4 million impairment of goodwill related to our NVIS and our Kopin Software Ltd. subsidiaries. See Note 5 of the “Notes to the consolidated financial statements” for more information.

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Total Other Income (Expense), Net. Other income (expense), net, is primarily
composed of interest income, foreign currency transaction, remeasurement gains
and losses incurred by our UK-based subsidiaries and other non-operating income
items. Other income (expense), net, for the fiscal years 2021, 2020 and 2019
were as follows:



(In thousands)                      2021      2020        2019

Total other income (expenses), net $436 $361 ($2,887)

Fiscal 2021 vs. Fiscal 2020

In 2021, we recorded $0.1 million exchange rate gains compared to $0.3 million foreign exchange gains recorded in 2020. In 2021, we recorded a $0.3 million gain on an equity investment.

Fiscal 2020 vs. Fiscal 2019

In 2020, we recorded $0.3 million exchange rate gains compared to $0.2 million foreign exchange gains recorded in 2019. In 2019, we recorded a $1.4 million capital gain on equity securities and an impairment charge of
$5.2 million on participation.

Tax provision



(In thousands)    2021       2020       2019
Tax provision    $ (129 )   $ (129 )   $ (108 )

Fiscal 2021 vs. Fiscal 2020

The provision for income taxes for the years ended 2021 and 2020 of approximately ($0.1) million was due to a change in estimate related to uncertain tax positions and deferred tax liabilities for the Company’s former Korean subsidiary.

Fiscal 2020 vs. Fiscal 2019

The provision for income taxes for the years ended 2020 and 2019 of approximately ($0.1) million was due to a change in estimate related to uncertain tax positions and deferred tax liabilities for the Company’s former Korean subsidiary.

Net loss (income) attributable to noncontrolling interest. As of December 25,
2021, we owned 80% of the equity of eMDT. Net loss (income) attributable to
noncontrolling interest on our consolidated statement of operations represents
the portion of the results of operations of our majority owned subsidiaries
which is allocated to the shareholders of the equity interests not owned by us.
The change in net loss attributable to noncontrolling interest in 2021 compared
to 2020 was $0.1 million and in 2020 compared to 2019 was $0.3 million and was a
result of net losses attributable to minority shareholders of eMDT.



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Cash and capital resources

At December 25, 2021 and December 26, 2020, we had cash and cash equivalents and
marketable securities of $29.3 million and working capital of $34.7 million
compared to $20.7 million and $22.6 million, respectively. The change in cash
and cash equivalents and marketable securities was primarily due to cash
provided by sales of our common stock of $21.1 million, which was offset by cash
used in operating activities of $10.7 million.



In Q1 2021, we sold 2.4 million shares of common stock for gross proceeds of $16
million (average of $6.66 per share), before deducting broker expenses paid by
us of $0.5 million pursuant to the Company's At-The-Market Equity Offering Sales
Agreement dated as of February 8, 2019 (the "Previous ATM Agreement") with
Stifel, Nicolaus & Company, Incorporated, ("Stifel") as agent. In Q2 2021, we
sold 0.1 million shares of common stock for gross proceeds of $0.8 million
(average of $6.74 per share), before deducting broker expenses paid by us of
$0.1 million under the Previous ATM Agreement. The Previous ATM Agreement has
since terminated pursuant to its terms as a result of the sale of all the shares
subject to such agreement. On March 5, 2021, the Company entered into a new
At-The-Market Offering Sales Agreement (the "Current ATM Agreement") with Stifel
under which we may sell up to $50 million of our common stock. In Q3 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
$0.1 million under the Current ATM Agreement. The net proceeds from the sale of
common shares were used for general corporate purposes, including working
capital. We have available $44.3 million for sale of common stock under the
Current ATM Agreement.



In the fourth quarter of 2020, we issued 1.9 million shares of our common stock
pursuant to our At-The-Market Equity Offering Sales Agreement dated as of
February 8, 2019 with Stifel, Nicolaus & Company, Incorporated, as agent (the
"ATM Agreement") for $4.0 million (average of $2.05 per share) in gross proceeds
before deducting broker expenses paid by us of $0.1 million. The net proceeds
from the sale of common shares were used for general corporate purposes,
including working capital. In Q1 2021, we sold 2.4 million shares of common
stock for gross proceeds of $16 million (average of $6.66 per share), before
deducting broker expenses paid by us of $0.5 million under the ATM Agreement.
The ATM Agreement has since terminated pursuant to its terms as a result of the
sale of all the shares subject to such agreement.



During the second quarter of the fiscal year ending December 26, 2020, we
received the proceeds from loans in the amount of approximately $2.2 million
(the "PPP Loan") pursuant to the Paycheck Protection Program ("PPP") of the
Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). During the
second quarter of the fiscal year ending December 26, 2020 we repaid $2.1
million of the loans and we repaid $0.1 million in July 2020. Our 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 repayment.



On March 15, 2019, we 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 us 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, we 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 us of less than $0.1 million, pursuant to the partial exercise of the
underwriters' overallotment option in connection with the 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.

The following table shows the components of our cash and cash equivalents and marketable debt securities held in we dollars on the dates shown:

                                                    December 25, 2021       December 26, 2020
Domestic locations                                 $        27,031,695     $        19,724,103
Foreign locations                                              865,416                 340,217
Subtotal cash and cash equivalents and
marketable debt securities held in U.S. dollars             27,897,111     

20,064,320

Cash and cash equivalents held in other
currencies and converted to U.S. dollars                     1,398,355                 684,230
Total cash and cash equivalents and marketable
debt securities                                    $        29,295,466     $        20,748,550

We do not plan to repatriate the cash and cash equivalents held in our foreign subsidiary FDD.

The manufacturing operations at our Korean facility, Kowon, have ceased and
Kowon was liquidated at fiscal year ended 2018. The Company has approximately
$0.4 million of cash and cash equivalents in Korea at December 25, 2021. The
Company has recorded deferred tax liabilities for any additional withholding tax
that may be due to the Korean government upon Kowon's final tax return
acceptance.



In March 2017, we purchased 100% of the outstanding stock of NVIS, a producer of
virtual reality systems for 3D applications, for $3.7 million. As part of the
purchase, we agreed to pay up to an additional $2.0 million if certain future
operating performance milestones were met and the selling shareholders remain
employed with NVIS through March 2020. We have paid $1.8 million in contingent
consideration through December 26, 2020 and there are no remaining contingent
payment obligations related to the NVIS purchase as of December 25, 2021. As
there was a requirement to remain employed to earn the contingent payments,
these contingent payments were treated as compensation expense.



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In the second quarter of 2019, we made an additional equity investment in
RealWear, Inc. of $2.5 million by participating in an equity raise by RealWear.
In the fourth quarter of 2019 Kopin reviewed the financial condition and other
factors of RealWear and as a result, in the fourth quarter of 2019, we recorded
an impairment charge of $5.2 million to reduce our investment in RealWear to
zero as of December 28, 2019.



On September 30, 2019 we entered into the Solos Purchase Agreement with Solos
Technology, pursuant to which we sold and licensed certain assets of our Solos
product line and Whisper technology. As consideration for the transaction, we
received a 20.0% equity stake in Solos Technology's parent company, Solos Inc.
Our 20.0% equity stake will be maintained until Solos Inc. has raised a total of
$7.5 million in equity financing. We will also receive a royalty in the single
digits on the net sales amount of Solos products for a three-year period, after
commencement of commercial production. Based on the price paid for equity by the
other 80% owners of Solos Inc., volatility based on a peer group and assumptions
about the risk free interest rate, we estimated the fair value of our equity
holdings at $0.6 million and recorded $0.6 million gain on investment for this
equity transaction as the basis of assets transferred was zero.



We have incurred net losses of $13.4 million, $4.4 million and $29.5 million for
the fiscal years 2021, 2020 and 2019, respectively, and net cash outflows from
operations of $10.7 million, $4.4 million and $21.0 million for the fiscal years
ended 2021, 2020 and 2019, respectively. Our net cash outflows from operations
was partially a result of funding our ongoing investments in research and
development which we believe will continue. We have in the past sold equity
securities through an At The Money program and in the traditional fashion of
significant equity offerings. We estimate we will have sufficient liquidity to
fund operations at least through Q1 2023. Nonetheless, we monitor the capital
markets on an ongoing basis and may consider raising capital if favorable market
conditions develop. If our actual results are less than projected or we need to
raise capital for additional liquidity, we may be required to do additional
equity financings, reduce expenses or enter into a strategic transaction.
However, we can make no assurance that we will be able to raise additional
capital, reduce expenses sufficiently, or enter into a strategic transaction on
terms acceptable to us, or at all.

Off-balance sheet arrangements

We have no off-balance sheet arrangements.

Seasonality

Our revenues have not followed a seasonal trend over the past three years and we do not anticipate any seasonal trend in our revenues in 2022.

Contractual Obligations



The following is a summary of our contractual lease payment obligations as of
December 25, 2021:



                                                          Payment due by period
                                               Less than                                        More than
                                  Total          1 year        1-3 Years       4-5 years         5 years

Operating Lease Obligations    $ 4,557,858        915,661       2,232,864  

    1,409,333                 -




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