KOPIN CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-K)
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. 31 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. 32 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. 33 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 manufacture transmissive and reflective microdisplays. Our commercial and defense transmissive display production is being performed entirely in our
Westborough, Massachusettsfacility. 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'sFamily 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. 34 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 $ 8,729Industrial/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
Asiaand 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 millionand $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 Britainpound 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. 35
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
Asiaand 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 millionand $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 millionin 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 Britainpound 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. 36
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
Cost of product revenue
$ 25,052 $ 21,398 $ 20,902Cost 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 $ 4,216Internal 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. 37
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
Selling, general and administrative expense
$ 18,101 $ 11,823 $ 21,316Selling, general and administrative expense as a % of total revenue 39.6 % 29.5 %
Fiscal 2021 vs. Fiscal 2020
S,G&A for 2021 increased as compared to 2020 primarily due to increases of approximately
$3.1 millionin non-cash stock-based compensation, $1.4 millionin compensation and benefits, $0.3 millionin insurance and $0.9 millionin bad debt expense, partially offset by $0.6 millionof 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 millionin non-cash stock-based compensation, $2.9 millionin professional fees, $1.4 millionin bad debt expense, $1.5 millionin product promotion and marketing expenses, and $0.7 millionin travel and related expenses. Impairment of Goodwilland Intangibles. Goodwilland 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
38 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
Fiscal 2021 vs. Fiscal 2020
In 2021, we recorded
Fiscal 2020 vs. Fiscal 2019
In 2020, we recorded
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
Fiscal 2020 vs. Fiscal 2019
The provision for income taxes for the years ended 2020 and 2019 of approximately
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 millionand in 2020 compared to 2019 was $0.3 millionand was a result of net losses attributable to minority shareholders of eMDT. 39
Cash and capital resources
December 25, 2021and December 26, 2020, we had cash and cash equivalents and marketable securities of $29.3 millionand working capital of $34.7 millioncompared to $20.7 millionand $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 $6.66per share), before deducting broker expenses paid by us of $0.5 millionpursuant 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 $6.74per share), before deducting broker expenses paid by us of $0.1 millionunder 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 millionof our common stock. In Q3 2021, we sold 0.6 million shares of common stock for gross proceeds of $4.8 million(average of $8.06per share), before deducting broker expenses paid by us of $0.1 millionunder 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 millionfor 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, 2019with Stifel, Nicolaus & Company, Incorporated, as agent (the "ATM Agreement") for $4.0 million(average of $2.05per 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 $6.66per share), before deducting broker expenses paid by us of $0.5 millionunder 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, 2020we repaid $2.1 millionof the loans and we repaid $0.1 millionin 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( $1.10per 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( $1.10per 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, 2019public 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
December 25, 2021 December 26, 2020 Domestic locations
$ 27,031,695 $ 19,724,103Foreign locations 865,416 340,217 Subtotal cash and cash equivalents and marketable debt securities held in U.S. dollars 27,897,111
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 millionof cash and cash equivalents in Koreaat 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 millionif certain future operating performance milestones were met and the selling shareholders remain employed with NVIS through March 2020. We have paid $1.8 millionin contingent consideration through December 26, 2020and 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. 40 In the second quarter of 2019, we made an additional equity investment in RealWear, Inc.of $2.5 millionby 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 millionto reduce our investment in RealWear to zero as of December 28, 2019. On September 30, 2019we 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 millionin 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 millionand recorded $0.6 milliongain 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 millionand $29.5 millionfor the fiscal years 2021, 2020 and 2019, respectively, and net cash outflows from operations of $10.7 million, $4.4 millionand $21.0 millionfor 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.
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
$ 4,557,858915,661 2,232,864
1,409,333 - 41
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