Kopin(KOPN) - 2023 Q4 - Annual Report

PART I Item 1. Business Kopin develops high-performance microdisplays and optical solutions for defense, industrial, and medical applications, transitioning to complete application-specific offerings - Kopin Corporation is a leading developer and provider of high-performance application-specific optical solutions, including high-resolution microdisplays and optics, subassemblies, and headsets[16] - Products are primarily used for defense applications (thermal weapon rifle sights, pilot helmets, armored vehicle targeting systems, training & simulation headsets), industrial and medical headsets, and 3D optical inspection systems[16] - In January 2023, Kopin conducted a partial spinout of its OLED development unit to Lightning Silicon Technology, Inc. (LST), receiving an equity interest and expected royalties, while retaining rights to develop, manufacture, and sell OLED displays for defense and enterprise markets[17][98] - The company is transitioning from selling individual displays to providing application-specific optical solutions that include displays, optics, and drive electronics in subassemblies or headsets[18] - Kopin offers a broad portfolio of proprietary microdisplay technologies: AMLCD (CyberDisplay®), LCOS (Time Domain Imaging™), OLED (Lightning® displays), and is developing MicroLED displays[18][19][20] Sales to Significant Non-Affiliated Customers (as % of Total Revenues) | Customer Category / Name | Fiscal Year 2023 | Fiscal Year 2022 | Fiscal Year 2021 | | :----------------------- | :--------------- | :--------------- | :--------------- | | Defense Customers in Total | 56% | 52% | 40% | | DRS Network & Imaging Systems, LLC | 33% | 40% | 31% | | Collins Aerospace | 27% | 28% | 30% | | Funded Research and Development Contracts | 33% | 30% | 32% | Overview Kopin Corporation develops high-performance optical solutions, including microdisplays and headsets, for defense, industrial, and medical applications - Kopin Corporation, incorporated in Delaware in 1984, is a leading developer and provider of high-performance application-specific optical solutions, including high-resolution microdisplays and optics, subassemblies, and headsets[16] - Products are primarily used for defense applications (thermal weapon rifle sights, pilot helmets, armored vehicle targeting systems, training & simulation headsets), industrial and medical headsets, and 3D optical inspection systems[16] - The company believes its technologies may eventually be used in consumer augmented reality (AR) and virtual reality (VR) wearable headset systems[16] Kopin Technology Kopin's technology includes the design and manufacturing of proprietary small form factor AMLCD, LCOS, OLED, and MicroLED displays, optical lenses, and the know-how for subassemblies and headsets - Kopin's technology includes the design and manufacturing of proprietary small form factor AMLCD, LCOS, OLED, and MicroLED displays, optical lenses, and the know-how for subassemblies and headsets[32] - The company offers AMLCD (CyberDisplay®), LCOS (Time Domain Imaging™), and OLED (Lightning® displays) technologies, and is developing MicroLED displays[20][34] - OLED microdisplays are designed with a fabless, scalable business model, leveraging external foundries for backplane wafer production and OLED layer deposition to reduce capital and overhead costs[41][43] - Kopin offers various optical lenses (Pupil™, Pearl™, Pancake™) and backlights, manufactured by third parties, to provide design flexibility for headset systems[47] Strategy Kopin's product strategy involves entering Funded Research and Development programs with U.S. defense prime contractors to develop critical technology and microdisplay components for rugged environments - Kopin's product strategy involves entering Funded Research and Development programs with U.S. defense prime contractors to develop critical technology and microdisplay components for rugged environments[50] - The company aims to leverage know-how and technology from defense programs to create products for industrial, enterprise, medical, and ultimately consumer AR/VR applications[50] - Key strategic elements include maintaining a broad intellectual property portfolio, technological leadership in defense and industrial markets, understanding customer needs, and utilizing both internal manufacturing and third-party foundries[51][52] Markets and Customers Kopin's business model primarily generates product revenues from selling display components, subassemblies, and headsets to defense, industrial, or medical customers, and also engages in development contracts - Kopin's business model primarily generates product revenues from selling display components, subassemblies, and headsets to defense, industrial, or medical customers, and to a lesser extent, licensing system designs[53] - The company also engages in development contracts (Funded Research and Development) to design custom products or integrate its technology for customers[53] Sales to Defense Customers (excluding R&D contracts) as a Percentage of Total Revenue | Fiscal Year | Percentage of Total Revenue | | :---------- | :-------------------------- | | 2023 | 56% | | 2022 | 52% | | 2021 | 40% | Research and Development Revenues as a Percentage of Total Revenues | Fiscal Year | Percentage of Total Revenues | | :---------- | :--------------------------- | | 2023 | 33% | | 2022 | 30% | | 2021 | 32% | Product Development Kopin's internal development focuses on AMLCD and OLED display subassemblies, while customer-funded efforts center on MicroLED displays and NeuralDisplay™ products - Kopin's internal development focuses on AMLCD display subassemblies for defense/industrial and OLED display components for defense/industrial/medical applications[59] - Customer-funded development efforts are primarily centered on MicroLED display development[59] - The company is developing NeuralDisplay™ products, which are software-defined backplanes supporting AI for defense and consumer markets[60] Funded Research and Development Revenues | Fiscal Year | Revenue (Millions USD) | | :---------- | :--------------------- | | 2023 | $13.5 | | 2022 | $14.4 | | 2021 | $14.7 | Competition Kopin differentiates itself by offering application-specific optical solutions, competing in a highly competitive market based on price, performance, quality, and timely delivery - Kopin differentiates itself by offering application-specific optical solutions (display technologies, optics, drive electronics in subassemblies) rather than just displays[68] - The general commercial display market is highly competitive, dominated by large Asian electronics companies (e.g., AUO, BOE, Samsung, Sony) and specialized OLED microdisplay companies[69] - Competition is based on price, performance, quality, size, and timely delivery; Kopin also competes with companies offering near-eye VR headsets using large display panels on glass (e.g., Apple, Meta, Samsung), which typically have lower resolution but lower cost[69] Patents, Proprietary Rights and Licenses Kopin protects its proprietary technology through U.S. and foreign patents and contractual arrangements, holding approximately 200 patents and patent applications worldwide - Kopin's product development strategy includes seeking and aggressively defending its proprietary technology through U.S. and foreign patents and contractual arrangements[72] - The company owns, exclusively licenses, or has the exclusive right to sublicense approximately 200 patents and patent applications worldwide[51] Human Capital Resources As of December 30, 2023, Kopin employed 144 individuals and maintains a Code of Business Conduct and Ethics - As of December 30, 2023, Kopin employed 144 individuals, including 3 Ph.D. holders in relevant fields[73] - The company has a Code of Business Conduct and Ethics, reviewed and updated periodically, available on its website[74] Environmental, Social & Governance (ESG) Initiatives Kopin is developing a formalized ESG strategy, aligning with RBA Code of Conduct themes for human rights, environmental responsibility, ethical governance, and supply chain - Kopin is developing a formalized ESG strategy, involving a cross-functional team and third-party consultants for materiality assessment and progress monitoring[75] - The company's values include Integrity, Team, and Customers, and it utilizes themes from the Responsible Business Alliance (RBA) Code of Conduct[76] - ESG principles include upholding human rights and worker safety, environmental responsibility (conserving energy, reducing waste, managing toxic substances), ethical organizational governance, and supply chain responsibility (adhering to RBA Code of Conduct and conflict minerals rules)[78][79][80][81][82][83][84][85][86][87] Government Regulations Kopin's business, particularly defense contracts, is subject to extensive U.S. Government regulations, including environmental laws and ITAR, with non-compliance posing significant risks - Kopin's business is subject to extensive U.S. Government regulations, particularly for defense contracts, which represent a substantial majority of its total revenues[88][89] - The company is subject to federal, state, and local environmental regulations regarding hazardous chemicals and federal International Traffic in Arms Regulations (ITAR) for technical data and product exports[90][91] - Non-compliance with these regulations could lead to fines, production suspension, cessation of operations, or significant liabilities[90][91] Investments in Related Businesses Kopin holds equity interests in several related businesses, including Solos Technology and Lightning Silicon Technology, and consolidates its wholly-owned subsidiaries - Kopin holds equity interests in Solos Technology (20%), Lenovo New Vision (10%), a medical device company, and Lightning Silicon Technology, Inc. (20%)[94][95][98] - The company consolidates financial results of its wholly-owned subsidiaries: NVIS, Inc., Forth Dimension Displays (FDD), and e-MDT America Inc[96] - Kopin may make further equity investments in display, electronics, optical, and software industries as part of its business strategy[99] Sources and Availability of Raw Materials and Components Kopin relies heavily on a select number of third-party contractors and suppliers for critical raw materials and components, especially for defense customers - Kopin relies on third-party independent contractors for integrated circuit chip sets, backlights, and critical raw materials like special glasses, wafers, and chemicals[100] - The company is highly dependent on a select number of third-party contractors and suppliers, as defense customers typically buy small quantities, limiting options for multiple vendors[100] Item 1A. Risk Factors Kopin faces risks from operating losses, IP infringement, manufacturing, defense contracts, supply chain, geopolitics, and regulations - Kopin has a history of losses, a significant accumulated deficit ($358.2 million as of December 30, 2023), and negative cash flow from operating activities in fiscal years 2021-2023, with expectations for negative cash flow in 2024[104] - The company faces risks of intellectual property infringement claims, which could lead to costly litigation, diversion of resources, and product shipment delays[105] - Inability to manufacture products cost-effectively or meet contractual specifications due to production inefficiencies, raw material quality, or customer-requested changes could adversely affect revenue and profitability[106] - Significant decline in defense application sales, cancellation of development programs, or failure to qualify for new programs could negatively impact revenues and cash flows[107] - Investments in OLED microdisplay development and commercialization may not be successful, affecting sales and profitability, especially given limited experience in production outsourcing[108] - Supply shortages of semiconductor components and raw materials have increased costs and impaired manufacturing, with potential for continued adverse effects[109] - Reliance on Taiwanese and Chinese foundries for integrated circuit fabrication and OLED deposition exposes Kopin to geopolitical tensions (e.g., China-Taiwan relations) and potential supply disruptions[110] - Most defense sales are fixed-price, exposing the company to losses from cost overruns, especially with rising raw material and labor costs[112] - The markets are highly competitive and rapidly changing, requiring continuous product enhancement and new product introduction to avoid losing customers[135][136] - Cyber-attacks and disruptions to IT systems pose risks to operations, revenue, and profitability, potentially leading to unauthorized data access, system failures, and reputational harm[139] - Equity investments in other companies may not provide financial returns, and impairments (e.g., $3.1 million impairment in Q2 2023) can negatively impact operating results[140] - Compliance with stringent environmental laws, ITAR, and other government regulations is critical; failure to comply could result in significant liabilities, fines, or operational cessation[151] - Changes in government trade policies, such as tariffs, could increase product costs and adversely affect sales or profitability in foreign markets[161][162] Item 1B. Unresolved Staff Comments There are no unresolved staff comments to report - No unresolved staff comments[165] Item 1C. Cybersecurity Kopin, as a defense supplier, maintains a NIST-aligned cybersecurity program with incident response and Board oversight to mitigate cyber-attack risks - Kopin, as a defense product supplier, is a target for cyber-attacks, including attempts to infiltrate IT infrastructure, products, and supply chain to gain unauthorized access or disrupt systems[166] - The company has a cybersecurity program aligned with NIST standards, including controls for IT system deployment and operations, regular monitoring, vulnerability management, and mandatory employee training[167][168] - An incident response program is in place for monitoring, evaluating, escalating, and mitigating security threats, with internal reporting to senior management and the Board of Directors[169] - Third-party service providers are utilized to expand cybersecurity capabilities, and the program undergoes continuous assessment and periodic maturity assessments by third parties[170][171] - The Board of Directors has primary oversight for enterprise cybersecurity risks, with the Audit Committee focusing on financial and compliance aspects, and the CFO regularly reporting on the program's status[172] Item 2. Properties Kopin leases its primary production facility in Westborough, Massachusetts, and its subsidiaries lease facilities in Virginia, Scotland, and Germany, all deemed suitable for current needs - Kopin leases a 74,000 sq ft production facility in Westborough, Massachusetts, with 10,000 sq ft of Class 10-1,000 clean rooms[174] - Subsidiaries NVIS (Reston, VA) and FDD (Dalgety Bay, Scotland, and Berlin, Germany) also lease facilities, with FDD having 5,000 sq ft of Class 10-10,000 clean rooms[175] - The company deems its current properties suitable for its needs in the foreseeable future[176] Item 3. Legal Proceedings Kopin is a defendant in a 2016 lawsuit by BlueRadios, Inc. alleging contract breach and trade secret misappropriation, with a trial set for March 2024, and no probable loss accrued - Kopin is a defendant in a lawsuit filed by BlueRadios, Inc. in August 2016, alleging breach of contract, breach of fiduciary duty, and misappropriation of trade secrets related to a 'Golden-i' micro-display product joint venture[178] - BlueRadios seeks monetary, declaratory, and injunctive relief, including correction of inventorship on ten patents/applications[178] - In August 2022, the Court partially granted Kopin's motion for summary judgment, dismissing certain counts, but denied it for others; a trial is scheduled for March 20, 2024[179] - As of December 30, 2023, Kopin has not concluded that a loss from this matter is probable and has not recorded an accrual for litigation[179] Item 4. Mine Safety Disclosures This item is not applicable to Kopin Corporation - Not applicable[180] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Kopin's common stock trades on Nasdaq, with approximately 291 shareholders, and the company does not anticipate paying cash dividends, retaining earnings for business development - Kopin's common stock is traded on the Nasdaq Capital Market under the symbol 'KOPN'[182] - As of March 7, 2024, there were approximately 291 shareholders of record[182] - The company has not paid cash dividends in the past and does not expect to in the foreseeable future, with earnings to be retained for business development[183][159] Equity Compensation Plan Information (as of December 30, 2023) | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | | :------------------------------------------ | :-------------------------------------------------------------------------------- | :----------------------------------------------------------------------------- | :------------------------------------------------------------------------------------------------------------------------------------ | | Equity compensation plans approved by security holders | 1,931,767 | $1.65 | 5,809,910 | Item 6. Reserved This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes Kopin's financial condition, operating results, and liquidity, detailing revenue, expenses, and net losses, with liquidity projected through Q1 2025 - Kopin is a leading developer of high-performance application-specific optical solutions, including microdisplays, subassemblies, and headsets, for defense, industrial, medical, and potential consumer AR/VR applications[190] - Critical accounting estimates include revenue recognition (especially for cost-to-cost method contracts), bad debts, inventories, warranty reserves, investment valuations, and deferred tax assets[191][192] - The company's fiscal year ends on the last Saturday in December; 2023 and 2021 were 52-week years, while 2022 was a 53-week year[213] - Kopin has incurred net losses and negative cash outflows from operations for fiscal years 2021-2023, partially due to ongoing R&D investments, production inefficiencies, and litigation costs[253][306] - The company estimates sufficient liquidity to fund operations through at least the first quarter of 2025, but monitors capital markets for potential additional equity financings[253][306] Critical Accounting Estimates Key accounting policies requiring significant judgment include revenue recognition, inventory valuation, investment valuations, and deferred tax asset recoverability - Key accounting policies requiring significant judgment include revenue recognition (especially for cost-to-cost measurement method), bad debts, inventories, warranty reserves, investment valuations, and recoverability of deferred tax assets[191][192] - Revenue from U.S. Government contracts is often recognized over time using the cost-to-cost approach, requiring complex estimations of total contract costs and progress towards completion[196][197][198] - Inventory valuation involves reserves for obsolescence based on future demand and market conditions; write-downs establish a new cost basis[202][329] - Equity investments in private companies are assessed for impairment based on factors like share price, operating performance, liquidity, and market acceptance, with estimates subject to revision[203][334] - Income tax provisions rely on projections of taxable income and valuation allowances for deferred tax assets, particularly given a history of operating losses[206][207] Results of Operations This section details Kopin's revenue, cost of product revenues, R&D, and SG&A expenses for fiscal years 2021-2023, showing overall revenue decrease and continued net losses Total Revenues by Category (in thousands USD) | Category | 2023 | 2022 | 2021 | | :----------------------- | :---------- | :---------- | :---------- | | Defense | $22,615 | $24,780 | $18,180 | | Industrial/Enterprise | $2,736 | $6,136 | $9,710 | | Consumer | $573 | $1,497 | $1,871 | | Research and Development | $13,455 | $14,357 | $14,669 | | Other | $13 | $7 | $121 | | License and royalties | $1,002 | $624 | $1,115 | | Total Revenues | $40,394 | $47,401 | $45,666 | Cost of Product Revenues (in thousands USD, except percentages) | Metric | 2023 | 2022 | 2021 | | :-------------------------------------- | :---------- | :---------- | :---------- | | Cost of product revenues | $24,952 | $32,559 | $25,052 | | Cost of product revenues as a % of net product revenues | 96.2% | 100% | 83.8% | Research and Development Expenses (in thousands USD) | Type | 2023 | 2022 | 2021 | | :------- | :---------- | :---------- | :---------- | | Funded | $7,177 | $10,280 | $9,976 | | Internal | $3,600 | $8,388 | $6,312 | | Total| $10,777 | $18,668 | $16,288 | Selling, General and Administrative Expenses (in thousands USD, except percentages) | Metric | 2023 | 2022 | 2021 | | :-------------------------------------- | :---------- | :---------- | :---------- | | Selling, general and administrative expense | $21,842 | $17,965 | $18,101 | | SG&A expense as a % of total revenue | 54.1% | 37.9% | 39.6% | Total Non-operating (Expense) Income (in thousands USD) | Metric | 2023 | 2022 | 2021 | | :------------------------------- | :---------- | :---------- | :-------- | | Total non-operating (expense) income | $(2,415) | $2,608 | $436 | Tax Provision (in thousands USD) | Metric | 2023 | 2022 | 2021 | | :------------ | :-------- | :-------- | :-------- | | Tax provision | $(156) | $(144) | $(129) | Liquidity and Capital Resources Kopin's liquidity increased due to equity financing, despite ongoing net losses and negative operating cash flows, with sufficient funds projected through Q1 2025 Cash, Cash Equivalents, Restricted Cash and Marketable Debt Securities (in millions USD) | Metric | December 30, 2023 | December 31, 2022 | | :------------------------------------------------------------------- | :---------------- | :---------------- | | Cash and cash equivalents, including restricted cash, and marketable securities | $17.9 | $12.6 | | Working capital | $24.0 | $16.4 | - The increase in cash and equivalents was primarily due to gross proceeds of $22.9 million from the sale of 17,000,000 common shares and pre-funded warrants in January 2023[245][248] - In February 2024, Kopin sold 3.1 million shares for $7.5 million gross proceeds under its At-The-Market (ATM) Agreement, which expired March 5, 2024; a new shelf registration and ATM are expected in 2024[249] - Kopin incurred net losses of $19.7 million, $19.3 million, and $13.4 million for fiscal years 2023, 2022, and 2021, respectively, and net cash outflows from operations of $15.3 million, $17.7 million, and $10.7 million for the same periods[253] - The company estimates sufficient liquidity to fund operations through at least the first quarter of 2025, but may consider additional equity financings if favorable market conditions arise[253] Off-Balance Sheet Arrangements Kopin Corporation has no off-balance sheet arrangements - Kopin Corporation has no off-balance sheet arrangements[254] Seasonality Kopin's revenues have not shown a seasonal pattern in recent years, and no seasonal trend is anticipated for 2024 - Kopin's revenues have not followed a seasonal pattern for the past three years, and no seasonal trend is anticipated for 2024[255] Contractual Obligations Kopin's contractual obligations include payments to its former CEO and future lease payment commitments totaling $2.84 million as of December 30, 2023 - As of December 30, 2023, Kopin owed its former CEO, Dr. Fan, $750,000 to be paid in equal monthly installments during 2024, plus $40,000 per year through 2033[256] Contractual Lease Payment Obligations (as of December 30, 2023) | Period | Total (USD) |\ | :---------- | :---------- |\ | Less than 1 year | $795,884 |\ | 1-3 Years | $1,847,373 |\ | 4-5 years | $201,333 |\ | More than 5 years | $0 |\ | Total | $2,844,590 | Item 7A. Quantitative and Qualitative Disclosures About Market Risk Kopin is exposed to interest rate risk from debt investments and foreign currency exchange rate risk from international operations, but does not currently hedge these risks - Kopin invests excess cash in high-quality U.S. Government, government-backed, and corporate debt instruments, which are subject to interest rate risk[258] - The company is exposed to foreign currency exchange rate changes through foreign subsidiary translations, non-U.S. dollar transactions, and raw material purchases (e.g., Japanese yen to U.S. dollar)[258] - Kopin does not currently hedge foreign currency exchange rate risk and estimates that market risk from international operations or investments is unlikely to have a material adverse effect[258] Item 8. Financial Statements and Supplementary Data This section refers to the consolidated financial statements and supplementary data, included in the report from pages 44 through 72, as detailed in Item 15 - The required financial statements are included in the report on pages 44 through 72, as referenced in Item 15[259] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There are no changes in or disagreements with accountants on accounting and financial disclosure to report - Not applicable[260] Item 9A. Controls and Procedures Kopin's management, including CEO and CFO, deemed disclosure controls and internal control over financial reporting effective as of December 30, 2023, with no material changes during the fiscal year - As of December 30, 2023, Kopin's disclosure controls and procedures were evaluated and deemed effective by management, including the CEO and CFO[261] - Management concluded that internal control over financial reporting was effective as of December 30, 2023, based on the COSO 2013 framework[263] - No material changes in internal control over financial reporting occurred during the fiscal year ended December 30, 2023[264] Item 9B. Other Information There is no other information to report under this item - None[265] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to Kopin Corporation - Not applicable[266] PART III Item 10. Directors, Executive Officers and Corporate Governance Information on Kopin's directors, executive officers, and corporate governance, including the Code of Business Conduct and Ethics, is incorporated by reference from the 2024 Proxy Statement - Information is incorporated by reference from the Proxy Statement for the 2024 Annual Meeting of Stockholders[267] - Kopin has adopted a Code of Business Conduct and Ethics applicable to all employees and directors, available on its website[268] Item 11. Executive Compensation Information concerning executive compensation is incorporated by reference from Kopin Corporation's definitive proxy statement - Information is incorporated by reference from the Proxy Statement[269] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership of beneficial owners and management, and related stockholder matters, is incorporated by reference from Kopin's proxy statement and Part II Item 5 - Information is incorporated by reference from the Proxy Statement and refers to equity compensation plan information in Part II Item 5[270] Item 13. Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from Kopin Corporation's definitive proxy statement - Information is incorporated by reference from the Proxy Statement[271] Item 14. Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from Kopin Corporation's definitive proxy statement - Information is incorporated by reference from the Proxy Statement[272] PART IV Item 15. Exhibits and Financial Statement Schedules This section lists the consolidated financial statements, notes, and exhibits included in the Form 10-K report, omitting schedules where information is presented elsewhere - Consolidated Financial Statements include: Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Comprehensive Loss, Consolidated Statements of Stockholders' Equity, Consolidated Statements of Cash Flows, and Notes to Consolidated Financial Statements[275] - Financial Statement Schedules are omitted because the required information is either not applicable or presented within the accompanying Consolidated Financial Statements or notes[276] - A list of exhibits filed as part of this Form 10-K is provided, incorporated by reference[277] Report of Independent Registered Public Accounting Firm RSM US LLP issued an unqualified opinion on Kopin's consolidated financial statements for the three years ended December 30, 2023, identifying R&D revenues as a critical audit matter - RSM US LLP, as the independent registered public accounting firm, audited Kopin Corporation's consolidated financial statements for the three years ended December 30, 2023, and expressed an unqualified opinion that they present fairly, in all material respects, the financial position and results of operations in conformity with GAAP[280] - The audit identified 'Research and Development Revenues' as a critical audit matter due to significant management judgment in estimating total contract costs for revenue recognition under the input (cost-to-cost) method[285][286] Consolidated Balance Sheets The consolidated balance sheets present Kopin's financial position, showing total assets, liabilities, and stockholders' equity as of December 30, 2023, and December 31, 2022 Consolidated Balance Sheet Highlights (in USD) | Metric | December 30, 2023 | December 31, 2022 | | :-------------------------------------- | :---------------- | :---------------- | | Total current assets | $39,830,543 | $30,860,673 | | Total assets | $49,312,316 | $43,752,172 | | Total current liabilities | $15,878,315 | $14,456,632 | | Total liabilities | $19,803,421 | $19,761,557 | | Total stockholders' equity | $29,508,895 | $23,990,615 | | Accumulated deficit | $(358,155,034) | $(338,406,815) | Consolidated Statements of Operations The consolidated statements of operations detail Kopin's revenues, operating expenses, and net loss for fiscal years 2023, 2022, and 2021 Consolidated Statements of Operations Highlights (in USD) | Metric | 2023 | 2022 | 2021 | | :-------------------------------------- | :---------------- | :---------------- | :---------------- | | Total revenues | $40,394,177 | $47,401,190 | $45,666,117 | | Total operating expenses | $57,571,681 | $69,191,403 | $59,441,153 | | Loss from operations | $(17,177,504) | $(21,790,213) | $(13,775,036) | | Total non-operating (expense) income | $(2,414,715) | $2,607,948 | $435,665 |\ | Net loss attributable to Kopin Corporation | $(19,748,219) | $(19,325,917) | $(13,432,873) | | Basic and diluted net loss per share | $(0.18) | $(0.21) | $(0.15) | Consolidated Statements of Comprehensive Loss The consolidated statements of comprehensive loss present Kopin's net loss and other comprehensive income (loss) for fiscal years 2023, 2022, and 2021 Consolidated Statements of Comprehensive Loss Highlights (in USD) | Metric | 2023 | 2022 | 2021 | | :-------------------------------------- | :---------------- | :---------------- | :---------------- | | Net loss | $(19,748,219) | $(19,326,265) | $(13,468,371) | | Total other comprehensive gain (loss), net of tax | $56,226 | $(238,283) | $(70,083) | | Comprehensive loss attributable to Kopin Corporation | $(19,691,993) | $(19,564,200) | $(13,502,956) | Consolidated Statements of Stockholders' Equity The consolidated statements of stockholders' equity detail changes in Kopin's equity, including net loss, stock issuance, and stock-based compensation, for fiscal years 2021-2023 - Total Kopin Corporation stockholders' equity increased from $24,163,297 at December 31, 2022, to $29,508,895 at December 30, 2023[298] - Issuance of common stock, net of costs, contributed $21,335,000 to stockholders' equity in 2023[298] - Stock-based compensation expense was $3,875,273 in 2023[298] Consolidated Statements of Cash Flows The consolidated statements of cash flows present Kopin's cash activities from operations, investing, and financing for fiscal years 2023, 2022, and 2021 Consolidated Statements of Cash Flows Highlights (in USD) | Metric | 2023 | 2022 | 2021 | | :-------------------------------------- | :---------------- | :---------------- | :---------------- | | Net cash used in operating activities | $(15,260,677) | $(17,687,250) | $(10,747,782) | | Net cash (used in) provided by investing activities | $(8,136,979) | $(3,311,819) | $53,675 | | Net cash provided by financing activities | $21,335,000 | $2,660,601 | $20,449,293 | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(2,048,193) | $(18,529,053) | $9,675,062 | | Cash, cash equivalents and restricted cash at end of year | $6,210,685 | $8,258,878 | $26,787,931 | Notes to Consolidated Financial Statements These notes provide detailed information on Kopin's significant accounting policies, financial instrument fair values, and other disclosures supporting the consolidated financial statements 1. Summary of Significant Accounting Policies This note outlines Kopin's fiscal year, consolidation principles, revenue recognition methods, inventory valuation, and recent accounting standard adoptions - Kopin's fiscal year ends on the last Saturday in December; 2023 and 2021 were 52-week years, 2022 was a 53-week year[304] - Consolidated financial statements include Kopin Corporation and its wholly-owned subsidiaries; in Q1 2023, Kopin acquired the remaining 20% interest in eMDT America, Inc.[305] - Revenue recognition for U.S. Government contracts is generally over time using the cost-to-cost approach, while commercial customer revenue is recognized at a point in time upon delivery[312][313][315] Revenue Recognition by Performance Obligation Type | Fiscal year ended | Point in time | Over time | | :---------------- | :------------ | :-------- | | 2023 | 34% | 66% | | 2022 | 22% | 78% | | 2021 | 31% | 69% | - As of December 30, 2023, remaining performance obligations totaled $25.9 million, expected to be recognized over the next 12 months[321] - Research and development costs are expensed immediately[324] - Inventory is stated at the lower of cost (FIFO) or net realizable value, with full reserves for obsolete items[329] Inventory Composition (in USD) | Category | December 30, 2023 | December 31, 2022 | | :-------------- | :---------------- | :---------------- | | Raw materials | $4,785,197 | $4,285,757 | | Work-in-process | $2,018,421 | $1,735,454 | | Finished goods | $798,188 | $405,189 | | Total | $7,601,806 | $6,426,400 | - The company accrues for product warranties and indemnification issues, with an increase in warranty reserves in 2022 due to quality issues[335] - Kopin adopted ASU 2016-13 (Credit Losses) on January 1, 2023, with no material impact[363] 2. Property, Plant and Equipment This note details Kopin's net property, plant, and equipment, including categories like equipment, leasehold improvements, and accumulated depreciation Property, Plant and Equipment, Net (in USD) | Category | December 30, 2023 | December 31, 2022 | | :------------------------ | :---------------- | :---------------- | | Equipment | $14,025,078 | $13,965,126 | | Leasehold improvements | $3,631,518 | $3,600,557 | | Furniture and fixtures | $165,636 | $174,622 | | Equipment under construction | $957,915 | $550,219 | | Accumulated depreciation and amortization | $(16,616,730) | $(16,458,883) | | Net Property, Plant and Equipment | $2,163,417 | $1,831,641 | - Depreciation expense was approximately $0.6 million in 2023 and $0.7 million in 2022 and 2021[364] 3. Leases This note describes Kopin's operating lease arrangements for facilities and equipment, including lease costs, future payments, and weighted average lease terms - Kopin primarily enters into operating leases for facilities and IT equipment; no finance leases existed at December 30, 2023, or December 31, 2022[365] - Operating lease right-of-use assets related to OLED development facilities were impaired in Q4 2022 due to the spinout of the OLED unit[365] Operating Lease Costs (in USD) | Fiscal Year | Operating Lease Cost | | :---------- | :------------------- | | 2023 | $865,377 | | 2022 | $985,967 | Future Lease Payments (as of December 30, 2023) | Year | Amount (USD) |\ | :---------- | :----------- |\ | 2024 | $795,884 |\ | 2025 | $639,373 |\ | 2026 | $604,000 |\ | 2027 | $604,000 |\ | 2028 | $201,333 |\ | Thereafter | $0 |\ | Total Future Lease Payments | $2,844,590 | - Weighted Average Remaining Lease Term for Operating Leases was 4.04 years in 2023 (4.69 years in 2022), with a Weighted Average Discount Rate of 6.21% in 2023 (5.94% in 2022)[368] 4. Contract Assets and Liabilities This note details Kopin's contract assets and liabilities, showing changes in unbilled receivables and billings in excess of revenue earned Net Contract Assets (Liabilities) (in USD) | Metric | December 30, 2023 | December 31, 2022 | $ Change | % Change |\ | :-------------------------------------- | :---------------- | :---------------- | :--------- | :------- |\ | Contract assets and unbilled receivables | $3,409,809 | $4,068,364 | $(658,555) | (16)% |\ | Contract liabilities and billings in excess of revenue earned | $(916,826) | $(930,500) | $13,674 | (1)% |\ | Noncurrent contract liabilities | $(23,198) | $(6,190) | $(17,008) | 275% |\ | Net contract assets | $2,469,785 | $3,131,674 | $(661,889) | (21)% | - The $0.7 million decrease in net contract assets in 2023 was primarily due to the collection of amounts owed[371] - Revenue recognized from contract liabilities was approximately $0.9 million in 2023, $3.7 million in 2022, and $1.5 million in 2021[371] 5. Financial Instruments This note provides fair value measurements for Kopin's financial assets, including cash equivalents, marketable debt securities, and equity investments, along with impairment charges Fair Value Measurements of Financial Assets (as of December 30, 2023, in USD) | Category | Total | Level 1 | Level 2 | Level 3 |\ | :-------------------------------------- | :---------------- | :---------------- | :---------------- | :---------------- |\ | Cash equivalents | $5,079,605 | $5,079,605 | $0 | $0 |\ | U.S. Government and agency backed securities | $4,474,375 | $0 | $4,474,375 | $0 |\ | Certificates of deposit | $7,717,625 | $7,717,625 | $0 | $0 |\ | Equity Investments | $4,688,522 | $174,178 | $0 | $4,514,344 |\ | Total | $21,960,127 | $12,971,408 | $4,474,375 | $4,514,344 | - Kopin recorded its equity investment in Lightning Silicon Technology, Inc. (LST) at $0 as of December 30, 2023, following the spinout of its OLED development unit in January 2023[379] - An impairment charge of $3.1 million was recorded in Q2 2023 to reduce the value of the investment in RealWear Inc. to $2.5 million[381] - An impairment charge of $0.2 million was recorded in Q2 2023 to reduce the investment in Solos Inc. to $0.2 million[383] Marketable Debt Securities (as of December 30, 2023, in USD) | Category | Amortized Cost | Unrealized Losses | Fair Value |\ | :-------------------------------------- | :------------- | :---------------- | :--------- |\ | U.S. Government and agency backed securities | $4,500,030 | $(25,655) | $4,474,375 |\ | Corporate debt | $7,750,174 | $(32,549) | $7,717,625 |\ | Total | $12,250,204| $(58,204) | $12,192,000 | 6. Stockholders' Equity and Stock-Based Compensation This note details Kopin's stockholders' equity changes, including common stock issuances, equity incentive plans, restricted stock activity, and stock-based compensation expense - In January 2023, Kopin sold 17 million shares of common stock and issued pre-funded warrants for $22.9 million gross proceeds, net of $1.5 million underwriting discounts and expenses[387] - As of December 30, 2023, Kopin had $41.4 million available for common stock sales under its Current ATM Agreement[387] - The 2020 Equity Incentive Plan authorizes the issuance of 11,000,000 shares of common stock, with approximately 5.8 million shares available as of December 30, 2023[390] Restricted Stock Awards Activity | Activity | Shares (2023) | Weighted Average Grant Fair Value (2023) |\ | :------------------------ | :------------ | :--------------------------------------- |\ | Balance at December 31, 2022 | 1,965,901 | $2.22 |\ | Granted | 3,423,531 | $1.58 |\ | Forfeited | (1,089,773) | $2.52 |\ | Vested | (2,367,892) | $1.62 |\ | Balance at December 30, 2023 | 1,931,767 | $1.65 | Stock-Based Compensation Expense (in USD) | Category | 2023 | 2022 | 2021 |\ | :---------------------------- | :---------- | :---------- | :---------- |\ | Cost of product revenues | $1,210,453 | $94,634 | $211,362 |\ | Research and development | $861,324 | $435,842 | $576,193 |\ | Selling, general and administrative | $1,803,496 | $737,229 | $3,629,867 |\ | Total | $3,875,273 | $1,267,705 | $4,417,422 | - Unrecognized compensation expense for non-vested restricted common stock totaled $3.2 million as of December 30, 2023, to be recognized over approximately four years[395] 7. Concentrations of Risk This note highlights Kopin's customer concentration risks, detailing significant accounts receivable and sales percentages from key defense customers and R&D contracts Customer Accounts Receivable Concentration (as % of Gross Accounts Receivable) | Customer | December 30, 2023 | December 31, 2022 |\ | :-------------------------------- | :---------------- | :---------------- |\ | Collins Aerospace | 28% | 28% |\ | DRS Network & Imaging Systems, LLC | 27% | 37% | Sales to Significant Non-Affiliated Customers (as % of Total Revenue) | Customer Category / Name | 2023 | 2022 | 2021 |\ | :-------------------------------- | :--- | :--- | :--- |\ | Product Sales for Defense Customers in Total | 56% | 52% | 40% |\ | DRS Network & Imaging Systems, LLC | 33% | 40% | 31% |\ | Collins Aerospace | 27% | 28% | 30% |\ | Funded Research and Development Contracts | 33% | 30% | 32% | 8. Income Taxes This note details Kopin's provision for income taxes, deferred tax assets and liabilities, valuation allowances, and net operating loss carryforwards Provision for Income Taxes from Continuing Operations (in USD) | Category | 2023 | 2022 | 2021 |\ | :-------------------- | :---------- | :---------- | :---------- |\ | Current State | $0 | $0 | $1,000 |\ | Current Foreign | $156,000 | $144,000 | $128,000 |\ | Total current provision | $156,000 | $144,000 | $129,000 |\ | Deferred Federal | $(3,457,000)| $1,073,000 | $(3,367,000)|\ | Deferred State | $(1,063,000)| $(1,561,000)| $(928,000) |\ | Deferred Foreign | $(281,000) | $74,000 | $318,000 |\ | Change in valuation allowance | $4,801,000 | $414,000 | $3,977,000 |\ | Total deferred provision | $0 | $0 | $0 |\ | Total provision for income taxes | $156,000 | $144,000 | $129,000 | - Unrecognized tax benefits totaled $0.4 million as of December 30, 2023, and December 31, 2022, with accrued interest and penalties of $1.0 million[398] Deferred Income Tax Assets and Liabilities (in USD) | Category | 2023 | 2022 |\ | :-------------------------------------- | :---------------- | :---------------- |\ | Deferred tax liability: Foreign withholding liability | $(471,000) | $(483,000) |\ | Deferred tax assets: Federal net operating loss carryforwards | $49,213,000 | $46,618,000 |\ | State net operating loss carryforwards | $7,881,000 | $7,381,000 |\ | Foreign net operating loss carryforwards | $1,183,000 | $942,000 |\ | Equity awards | $37,000 | $34,000 |\ | Tax credits | $9,849,000 | $9,854,000 |\ | R&D expense amortization | $2,316,000 | $1,900,000 |\ | Property, plant and equipment | $598,000 | $624,000 |\ | Unrealized losses on investments | $2,292,000 | $1,406,000 |\ | Inventory reserves | $1,212,000 | $1,119,000 |\ | Other | $1,587,000 | $1,492,000 |\ | Net deferred tax assets | $75,697,000 | $70,887,000 |\ | Valuation allowance | $(76,168,000) | $(71,370,000) |\ | Total | $(471,000) | $(483,000) | - A full valuation allowance of approximately $76.2 million (2023) and $71.4 million (2022) is recognized against net deferred tax assets due to the unlikelihood of realization, primarily from U.S. net operating loss carryforwards (NOLs) and tax credits[404] - As of December 30, 2023, Kopin has $122.7 million in NOLs expiring between 2023 and 2038, and $111.7 million with an unlimited carryover period[405] 9. Accrued Warranty This note outlines Kopin's product warranty policy and details the activity in accrued warranty reserves for fiscal years 2021-2023 - Kopin provides a 12-month limited warranty on products, with extended warranty options for certain products[410] Accrued Warranty Activity (in USD) | Metric | 2023 | 2022 | 2021 |\ | :---------------- | :---------- | :---------- | :---------- |\ | Beginning balance | $1,966,000 | $517,000 | $508,000 |\ | Additions | $802,000 | $2,329,000 | $791,000 |\ | Claim and reversals | $(608,000) | $(880,000) | $(782,000) |\ | Ending Balance| $2,160,000 | $1,966,000 | $517,000 | - Warranty reserves increased in 2022 due to quality issues[410] 10. Employee Benefit Plan This note describes Kopin's 401(k) employee benefit plan, including the company's matching contributions charged to operations - Kopin has a 401(k) employee benefit plan, matching 50% of deferred compensation on the first 6% of an employee's deferral[411] - The amount charged to operations for this plan was approximately $0.3 million in 2023 and $0.4 million in 2022 and 2021[411] 11. Commitments This note states Kopin is subject to loss contingencies in the ordinary course of business, accruing estimated losses when probable and estimable - Kopin is subject to loss contingencies in the ordinary course of business, accruing estimated losses when probable and reasonably estimable[413] 12. Litigation This note details Kopin's ongoing lawsuit with BlueRadios, Inc., alleging contract breach and trade secret misappropriation, with a trial set for March 2024 - Kopin is involved in a lawsuit with BlueRadios, Inc. (Civil Action No. 16-02052-JLK), alleging breach of contract, fiduciary duty, and trade secret misappropriation[415] - A trial date is set for March 20, 2024; as of December 30, 2023, Kopin has not concluded a loss is probable and has not recorded an accrual[416] 13. Segments and Disaggregation of Revenue This note provides disaggregated revenue data by geographical area and display application, along with long-lived assets by country Total Long-lived Assets by Country (in thousands USD) | Country | 2023 | 2022 |\ | :------------- | :----- | :----- |\ | U.S. | $4,424 | $4,604 |\ | United Kingdom | $244 | $396 |\ | Total | $4,668 | $5,000 | Total Revenue by Geographical Area (in thousands USD) | Region | 2023 Revenue | % of Total Revenue | 2022 Revenue | % of Total Revenue | 2021 Revenue | % of Total Revenue |\ | :-------------- | :----------- | :----------------- | :----------- | :----------------- | :----------- | :----------------- |\ | U.S. | $35,092 | 87% | $38,604 | 82% | $32,461 | 71% |\ | Other Americas | $5 | 0% | $4 | 0% | $0 | 0% |\ | Asia-Pacific | $3,766 | 9% | $7,791 | 16% | $11,852 | 26% |\ | Europe | $1,531 | 4% | $1,002 | 2% | $1,353 | 3% |\ | Total Revenues | $40,394 | 100% | $47,401 | 100% | $45,666 | 100% | Total Revenue by Display Application (in thousands USD) | Application | 2023 | 2022 | 2021 |\ | :----------------------- | :---------- | :---------- | :---------- |\ | Defense | $22,615 | $24,780 | $18,180 |\ | Industrial | $2,736 | $6,136 | $9,710 |\ | Consumer | $573 | $1,497 | $1,871 |\ | R&D | $13,455 | $14,357 | $14,669 |\ | License and royalties | $1,002 | $624 | $1,115 |\ | Other | $13 | $7 | $121 |\ | Total Revenues | $40,394 | $47,401 | $45,666 | 14. Related Party Transactions This note details Kopin's agreements and transactions with related parties, including RealWear, Inc., Solos Technology Limited, and Lightning Silicon Technology, Inc - Kopin has agreements with RealWear, Inc. to supply display modules and license IP, receiving equity interest, license fees, and royalties; as of December 30, 2023, Kopin owned approximately 3.3% of RealWear[422] - Kopin sold and licensed assets of its Solos product line and Whisper Audio technology to Solos Technology Limited, receiving a 20.0% equity stake in Solos Incorporation[423] - Dr. John C.C. Fan, former Chairman and founder of Lightning Silicon Technology, Inc., holds an 11.1% individual ownership interest (17.7% fully diluted) in Solos Inc., with family members collectively holding 37.5% (57.4% fully diluted)[425] Related Party Transactions (Revenue and Purchases in USD) | Related Party | 2023 Revenue | 2023 Purchases | 2022 Revenue | 2022 Purchases | 2021 Revenue | 2021 Purchases |\ | :---------------------------- | :----------- | :------------- | :----------- | :------------- | :----------- | :------------- |\ | RealWear, Inc. | $1,000,466 | $0 | $1,191,988 | $0 | $3,762,638 | $0 |\ | HMDmd, Inc. | $852,175 | $0 | $473,294 | $0 | $656,805 | $0 |\ | Lightning Silicon Technology, Inc. | $35,013 | $546,378 | $0 | $0 | $0 | $0 |\ | Total | $1,887,654 | $546,378 | $1,665,282 | $0 | $4,419,443 | $0 | 15. Subsequent Events No material subsequent events requiring recognition or disclosure have occurred since December 30, 2023, other than those already disclosed - No material subsequent events requir